Darlene Smith, cashier of Farmers State Bank of Aliceville, Kan., wasn't surprised to learn that her two-room, four-employee, $13 million- asset bank was the most efficient agriculture bank in the country.

"We have no overhead expense," said Ms. Smith, whose employer is the only business in town.

Small staffs and frugality characterize the most efficient agriculture banks in the nation. Start-up costs plagued the least efficient ones.

American Banker examined the efficiency ratios of the nation's agriculture banks, and found an average of 60.76% in the first quarter for the 2,758 banks with at least 25% of their loans in agriculture.

A bank's efficiency ratio is noninterest expense divided by noninterest income plus net interest income. It shows the cost of generating $1 of operating income.

Typical bank efficiency ratios fall between 50% and 70%.

The 50 most efficient agriculture banks averaged 35.1%, while the 50 least efficient averaged 105.8%.

Alan Barkema, assistant vice president and economist at the Federal Reserve Bank of Kansas City, said he would expect agriculture banks to compare favorably with their urban brethren, because ag banks tend to be small community banks that have close relationships with customers.

"My hunch is that they would make efficient lenders," he said.

However, larger banks benefit more from economies of scale, he added.

Farmers State in Kansas was the most efficient bank, with a 26.02% ratio.

Small staffs were the norm at the most efficient banks.

Security State Bank, Farwell, Tex., which had an efficiency ratio of 27.83%, employs 11 people. "For a $75 million bank, that's a small number," said Robert W. Anderson, president and chief executive.

Charles Neuroth, executive vice president of Farmers Savings Bank, Remsen, Iowa, also attributed his $66 million-asset bank's 32.19% ratio to getting the most out of a small staff - 10 people.

"If I'm going to work eight to 10 hours a day, the others are going to do the same," he said.

The bank, with nearly four-fifths of its loans in agriculture, works hard to control its expenses, he said. "We don't spend a lot of money on frills."

Even the largest of the 50 most efficient banks, $96 million-asset St. Henry Bank, St. Henry, Ohio, credits a small, versatile staff for its low overhead.

About 15 full-time and six part-time employees run the bank, said cashier Donald Evers. He estimated that a typical bank that size would have between 60 and 70 people.

"A lot of other people can't figure out how we run it on that kind of a ratio," Mr. Evers said. "There's no secret formula at all. Everybody just wears many hats." Mr. Evers' caps have included operations, security officer, compliance officer, and student loans.

The least efficient agriculture bank, American Community Bank, Wausau, Wis., checked in at 305.56%.

But president and chief executive Duane Wolding said he isn't very concerned. American Community opened on March 17 - and the data examined are from March 31.

"It was all expense and no income," he said.

The nearly $20 million-asset bank eventually should have an efficiency ratio in the mid-60s, he said.

The four least efficient banks all were recent start-ups. The least efficient bank that wasn't a start-up also incurred start-up costs.

Citizens State Bank, which reported a 145% efficiency ratio, moved its charter from Petersburg, N.D., to Grafton, a new market, during the first quarter. The move brought extensive costs, including more than doubling its staff, from five to 11.

"We needed everything," said Shelley Heigaard, manager of operations and marketing.

At March 31, 1994, the bank's efficiency ratio was a more normal 60%, according to Sheshunoff Information Services.

And James Stanosheck, president of $12 million-asset State Bank of Odell, Neb., had been asked about high efficiency ratios before. The 88- year-old bank posted 116.11% at March 31.

"I often answer this question to examiners," Mr. Stanosheck said. Since each of the bank's five full-time employees has been there at least 12 years, they earn generous pay and benefits, he said. Also, bonuses paid during the first quarter jack up March 31 figures, he said.

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