As the former owner of a sand and gravel company, Edward Kennon hardly fits the mold of a community banker. But based on his performance so far, few would question his fitness to run a financial institution.

Mr. Kennon's Tri-State Bank and Trust in Bosier City, La. was the nation's most profitable large community bank last year, earning a whopping 6% return on average assets. (Listings begin on page 8.) The company is an amalgam of three failed banks Mr. Kennon acquired in the past three years.

He rocketed to earnings stardom through his aggressive collections of sour loans. He credits his success to his stubborn refusal to go beyond a tightly bounded area.

"I want to be able to get anywhere in my market within 30 minutes. and without speeding." he said.

Small-town operations such as Mr. Kennon's were a key component in the success of topperforming community banks last year. Most of the 200 top performers identified by American Banker were in rural areas.

The 100 top-performing large community banks - defined as institutions with assets ranging from $50 million to $500 million - posted a return on assets of 1.9% to 6%. The average ROA for all banks in this category was 0.86%.

The 100 top-performing small community banks - institutions with less than $50 million in assets - reported ROAs ranging from 2% to 3.5%. The average ROA for all banks in the group was 0.5%.

Of course, the sharply lower peer group figures underscore that the community banking industry has a considerable population of also-rans.

And a comparison between the American Banker Top 100 large community banks and the 5,257 other U.S. banks in the same category shows that a lot of basic blocking and tackling goes into a top performance, irrespective of institution size or locale.

Aggressive loan pricing is one key.

Conservative Lenders Prosper

The Top 100 large community banks denominated only 49.4% of their assets in net loans and leases, compared with 56.2% for the peer group.

Yet the Top 100 booked net interest income equaling 4.9% of average assets, compared with 4.1% for the peer group.

Asset quality also played a clear role; the Top 100 reported a 2.7% ratio of problem assets to gross loans, versus a 3.6% ratio among the peer group.

As for efficiency, the Top 100 reported noninterest expense equaling 3.3% of average assets; the peer group's ratio was 3.5%.

And noninterest income equaled 1.6% of average assets among the Top 100 - half again as much as the 1.1% return posted by the peer group.

So powerful were these combined forces that the Top 100 large community banks were able to post sharply higher returns on average equity, despite distributing their earnings across much larger capital bases.

Bettering the Group Average

Compared with a collective 22.2% return on an equity base that equaled 11.1% of assets, among the Top too, the peer group managed only a 10.5% return on an equity base that equaled 8.6% of assets.

Nationally, many community banks are striving to improve earnings by banding together in small holding companies that permit the economical centralization of support functions.

That's the case with City Center Bank, Aurora, Colo, which placed second in the rankings of the Top 100 small community banks, with a 3.4% ROA.

With this survey, the American Banker for the first time is including institutions owned by community bank holding companies in its performance rankings.

The results speak volumes about the proliferation and success of so-called super community banks: 25 of the top 100 small community banks are operated by multibank holding companies, as are 20 of the top l00 large community banks.

But trends and formulas don't tell the whole story. In interviews with bankers at the top of the lists, it became clear that unique strategies and even special events helped propel certain institutions to the top.

In Colorado, Thomas Cox saw his Crested Butte State Bank's ROA soar to 3.5% in 1991 on the strength of an insurance settlement from a l990 gas explosion that wrecked his building and killed three people.

Mr. Cox' bank is the only depository institution in a Colorado town with about 1,200 permanent residents. The payoff of deep community ties shows in lots of ways: Mr. Cox remembers how residents patiently stood in line as the bank operated out of a trailer while its headquarters was being rebuilt.

In South Dakota, Hurley State Bank, Sioux Falls. racked up a 4.4% ROA in its role as a credit card bank owned by Sears, Roebuck and Co.

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