It's getter harder and harder to keep up with the nation's top community banks.

The 100 best performing banks with assets of $50 million so $1 billion racked up a record 2.62% return on assets last year, according to an American Banker survey. That was up from 2.23% in 1991 - and it was nearly three times the return posted by the industry as a whole.

Smaller banks did even better. The 100 most profitable banks with assets of less than $50 million posted a 2.67% return on assets. (Complete tables begin on page 6).

"You've got the creme de la creme here," said Robert Walters, president of the Bank Advisory Group Inc., an Austin, Texas-based firm that specializes in small bank mergers and acquisitions. "You are in the stratosphere in terms of high performance."

He and others said the results point to what have always been the hallmarks of good community banks: low costs, exceptionally close ties to customers, and keen attention to asset quality.

"They know their towns and they know their borrowers," said Peter Tuz, a bank analyst with Morgan Keegan, Memphis, Tenn.

The top 100 large community banks were selected from a group of 5,578 based on their ROA. The small banks were selected from a group of 5,509 banks.

Kentucky Bank Ranks First

For the second time in five years, Kentucky Farmers Bank, Catlettsburg, was the most profitable large community bank with a lofty 9% return on average assets. It jumped from fifth position last year, more than doubling its 3.4% ROA.

"We are right proud of our performance," said Elbert Bowe, president of the $130-million-asset bank, which is in an industrial town of 4,000 on the Ohio River.

The bank earned $11 million last year, generating about 64% of its earnings from securities gains on mortgage-backed securities. "We had a bunch of those things that were just money makers," Mr. Bowe said.

Such heavy reliance on securities is unusual. Although securities gains were up last year for all community banks, they represented just 16.5% earnings for the group of larger banks and just 10.4% for the smaller ones.

Louisiana Lender Scores High

Tri-State Bank and Trust, Houghton, La., ranked a notch behind Farmers with an ROA of 5.7%, down from 6% the previous year. And Bank of Hoven, S.D., weighed in with a 3.7% ROA, down from 3.69%.

Corpus Christi National Bank, Texas, with assets of $675.6 million was the only bank with assets greater than $500 million to make the list. It ranked fifth with an ROA of 3.5%.

Of the top 100 small community banks, Community Bank, Chillicothe, Mo., was the most profitable with a 5.2% ROA and a whopping 64% return on average equity. It moved up from fifth position last year.

Overall, the large community banks earned an average $3.4 million for 1992, compared with average earnings of $1.6 million for U.S. banks of similar size. The top 100 small community banks earned $898,000, compared with $265,000 for banks in their size category.

What is driving earnings at the top community banks?

Low Overhead

In addition to strong roots in their markets, the banks generally enjoy low-cost deposit bases and low overhead, said Mr. Tuz of Morgan Keegan.

Average overhead as a percent of assets for the top 100 large banks was 3.36%, compared with 3.51% for U.S. banks of similar size.

Kentucky Farmers again ranked as the nation's productivity leader by wringing out $270,000 in income per employee. Tri-State was second with $220,000 per employee, and Citizens First Bank, Rusk, Texas, was next with $201,000 per employee.

"The smaller the organization, the better you are able to keep a handle on expenses," said George Freibert, president of Professional Bank Services Inc., a Louisville, Ky.-based community banking consultant.

Few Bad Loans

Bad loans are also scarce among the elite. On average, noncurrent loans as a percent of assets was a mere 0.54% for the 100 large banks, compared with 0.90% for U.S. banks of similar size. Three banks on the list didn't have any nonaccruing loans.

Wide net-interest margins helped the banks bring in big profits. The net-interest margin for the 100 largest banks was 5.30%, and 5.78% for the smaller banks. All U.S. banks on average had a net-interest margin of 4.51% in 1992.

Mr. Walters said community banks are complaining that mutual funds, credit unions, and insurance companies are stealing deposits.

"They are seeing some run off," he said. "They need to keep those funding sources. If they lose their ability to gather those deposits . . . they are in trouble."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.