Best in the midwest

Northwestern Financial Review, Sep 5, 1998 by Olmsted, Monte

Top performing banks credit employees, tight budgets and community involvement

Northwestern Financial Review has attempted to identify some of 1997's top performing community banks in its eight-state coverage area. What we're finding is keeping expenses low, having good lending programs and a reliable staff, and becoming a part of the community's backbone are some of the ingredients for success.

The story concentrates on return on equity, one barometer used to measure a bank's performance. Bauer Financial Reports Inc. of Coral Gables, Fla., provided the ROE data.

Of the four banks spotlighted for this story, three have converted to subchapter S corporations, which allows the bank owner to keep more of the bank's profits. The lone C corporation interviewed was Rural American Bank-Luck in Wisconsin.

State Bank of Kimball in Minnesota

Self-sufficiency and quality lending have led the $29 million State Bank of Kimball to its high ROE ranking. According to Bauer Financial tallies, the bank recorded a 31.44 percent ROE in 1997.

Bank President Keith Markwardt credits the bank's high loan-to-deposit ratio for the bank's success. That number varies from 90 to 95 percent, but has gone as high as 100 percent. "At the same time, we haven't contributed to the loan-loss reserve for a number of years," Markwardt said.

Keeping a close watch on expenses also has been a necessity for the small bank, and the State Bank of Kimball has kept overhead costs low for several years. Markwardt said with a laugh, "After we use the paper in the calculator, we hang it up in the bathroom."

Equipment at the bank usually has a long life. For example, the bank's long dependable, outdated mainframe computer will finally be given a rest in November when it makes way for a recently purchased six-figure computer system.

"Our philosophy has been: Do not purchase equipment unless absolutely necessary," said Markwardt. "We put off the computer purchase because we know technology improves month to month. In three months, we can get an entire new generation of equipment at a low price."

Not surprisingly, the people who likely will repair the computer will be State Bank of Kimball employees, who make the bank a self-sufficient institution. Fourteen people work at the bank.

"We don't hire consultants very often," said Markwardt. "We have the ability to do our own computer equipment and building repairs, and the staff contributes their knowledge and skills. We tend to be do-it-yourselfers. That really helps us keep expenses in line."

Another cost-saving bonus is that Chairman Robert Meyerson's salary is spread amongst the two banks owned by Cattail Bancshares Inc.: State Bank of Kimball and Atwater State Bank. "I'm half-time here and half-time at another bank, so there are some synergies," said Meyerson. "One bank doesn't have to support me."

Rural America Bank-Luck of Wisconsin

The only Wisconsin bank part of Forest Lake, Minn.-based Frandsen Financial Corp., Rural America Bank-Luck reported a 24.61 percent ROE last year. Bank President Tony Johnson said being part of a 10bank holding company is one reason his institution has performed well. (Six banks were added to the Frandsen Financial fold with the July purchase of Taylor Bancshares Inc. of North Mankato, Minn.)

"We've been able to keep up with technology by spreading the cost over a number of banks," Johnson said of the $48.4 million bank.

Frandsen Financial operates a central processing site for its banks' accounting and back room operations in Arden Hills, Minn., a Twin Cities suburb. The combined efforts have allowed the banks to keep such costs at a minimum, Johnson said.

The center also provides the banks with the most modern technology available for the best customer service, Johnson said. One example has been imaging technology used by the Rural American Bank-Luck for about a year. Instead of returning customers' checks, the bank now sends a computerized image of the check.

"Customers really like that," Johnson said.

Johnson cannot stress enough how important customers are to small, community banks. That's why providing them with the best services is key to any bank's survival. With this in mind, Rural American-Luck provides services offered at larger city banks. They include automatic teller machines, debit cards and a 24-hour customer convenience line that the bank has had for a few years.

"The biggest thing is to respond to your customers' needs," Johnson said.

Another successful program in the 1990s has been Rural American-Luck's endeavor into secondary market mortgage loans. "Many banks will sell servicing of mortgages. We retain the servicing here, so customers can deal with someone locally," Johnson said.

Frandsen Financial also has banks under the Rural American name in Ada, Braham, Foley-Gilman and Hinckley. The company includes Citizens State Bank of East Grand Forks, Citizens State Bank of Montgomery, Citizens State Bank of Waterville, State Bank of Lonsdale and Peoples State Bank in Warren. Frandsen Financial's banks have four branches, one in Wisconsin (Dresser) and three in Minnesota (Gilman, Sturgeon Lake and Alvarado).