The nation's top-performing community banks have taken varied routes to profitability.

Brighton Bank in Salt Lake City credits its employee pay incentive program. First Bank and Trust Co. of Illinois in Palatine points to low overhead. And Landmark Bank Mid-Cities in Euless, Tex., attributes its earnings growth to a fast-selling new employee.

But what the high earners have most in common are strong local economies, attention to customer service, and a new tax structure.

"The banks are reflecting the vibrancy of the economy," said James Chessen, chief economist for the American Bankers Association. "There's definitely more business because the economy is so strong, and there's more loan volume."

The companies that made American Banker's 1997 list of the 50 most profitable community banks were clustered in the Midwest and West. (Tables begin on page 10). Topping the list in the large-bank category-banks with assets between $100 million and $2 billion-was Guardian State Bank, Salt Lake City, which reported a return on assets of 5.11%, a 52% improvement from 1996. In the small-bank category, Tri-State Bank and Trust of Haughton, La., topped the charts, with an ROA of 6.41%

Much of the growth-Tri-State's ROA improved 77% in one year-was due to the companies' new S-corporation status.

For the first time last year, banks with fewer than 75 shareholders could convert to an S corporation and skip paying corporate income taxes. Though savings vary, bankers said the S-corporation choice increased their earnings by 34% to 40%.

Nine of the top 20 large community banks and 16 of the top 20 small community banks in the 1997 rankings are S corporations. But high- performing S-corporation banks earned remarkable returns even without their special tax status.

Brighton Bank has consistently earned high profits, posting a 3.37% ROA in 1996 and 4.71% ROA last year after its S-corporation election.

James R. Fraser, the $132 million-asset bank's chairman, president, and chief executive officer, credits Brighton's employee incentive program for the bank's consistent earnings.

"If I come up with something that I want to accomplish, I figure out an incentive program to go with it," he said, noting that the program paid $550,000 in incentives last year before annual bonuses. "It's all built so, if the bank does well then the employees do well."

Another top performer, Illinois' First Bank and Trust, does more with less. With $439 million of assets, one office, and 32 employees, it kept its efficiency ratio to 51.01% last year.

Low overhead lets the bank pay more for deposits, lend money at lower interest rates, and still outperform the competition, said Robert G. Hershenhorn, chairman and chief executive officer.

Other leading banks said they played to market niches. Landmark Bank Mid-Cities hired away a commercial loan officer from a large-bank competitor and used her connections in the construction industry to boost the commercial loan portfolio.

"We really started focusing on that sector, and it's helped the bottom line," said Gary Green, president and CEO of $94 million-asset Landmark.

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