FORT WAYNE -

In 2007, federal regulators shut down three U.S. banks. That's it, just three.

What a difference two years make.

Last year, 140 banks failed - buckling under the weight of their own risky behavior and an unforgiving recession. And the federal agency that insures banks predicts even more failures for this year.

But those seemingly steep odds haven't shaken First Bank of Berne from its long-term strategy of conservative decisions made in a conservative community. The approach is paying off. The bank, which has eight offices and $415 million in assets, was rated the best-performing bank in Indiana for all four quarters of 2009 by Financial Management Consulting Group.

The independent rating firm, which ranks banks in 32 states, reviewed financial reports issued by 110 banks in Indiana last year. Nationally and state-chartered commercial banks are included in the study; savings banks and thrifts are not.

The consulting firm started comparing bank performance on eight criteria about a decade ago as a way to measure progress of banks that are strategic planning clients.

Timothy Finn, managing partner for the consulting practice in Russell Springs, Ky., said it's unusual for one bank to capture the No. 1 ranking for an entire calendar year. The final 2009 ratings were released in February.

Leaders of two similarly sized banks consider it more than unusual.

"It is a big deal. It is a very big deal," said Joe Pierce, president and CEO of LaGrange-based Farmers State Bank. "And they were not No. 1 by just a little bit. They were clearly No. 1."

Roger Cummings, president and CEO of Francesville-based Alliance Bank, called the string of No. 1's "quite an achievement."

"In sports, it might be like winning a tournament," he said.

Although life in small towns might seem idyllic, small banks don't automatically skip to the top of the financial performance rankings, Finn said. Some of the top-rated banks in other states have more than $1 billion in assets, he said.

"Being a small bank does not provide any advantage," he said. "In some ways, being a small bank can be a disadvantage."

Smaller banks can have a harder time matching the efficiency of larger organizations, he said.

But that's not a problem in Berne, which has about 4,000 residents.

First Bank of Berne's leaders credit the staff's work ethic for the remarkable returns. But operating in a small Indiana town where conscientious customers, including Amish farmers, feel honor-bound to pay back loans also helps, they said.

In 1993, the American Bankers Association did a study of all U.S. banks and ranked them in each of 10 categories. First Bank of Berne was ranked No. 1 in the U.S. in efficiency ratio, meaning the organization employs fewer people than other banks with the same size assets.

Charles Isch, First Bank of Berne's president and CEO, is proud but not surprised. The largely agricultural county breeds hard workers who are self-motivated, in his opinion. Farmers won't have a crop to harvest in the fall - or a way to feed their families - if they don't plant in the spring.

Isch grew up on a farm, where he helped with cows, tomatoes and hay. Kent Liechty, who will take over as president when Isch retires May 1, also grew up on a farm - as did all the members of Isch's executive team.

"Our work ethic here in Berne is very strong," Isch said, adding that his 96-year-old uncle still drives a tractor and combine.

"We never strived to be the No. 1 bank. That's just the furthest thing from our minds," he said. "But the records are there."

Besides keeping costs down, the bank makes savvy lending decisions. Isch described the philosophy as conservative - but not ultraconservative. Consequently, the bank didn't need to tighten its credit standards during the recession.

"We actually are busy right now making loans," he said.

David Baumgartner, chairman of the bank's board of directors, approves of the lending philosophy.

"We have always been conservative," he said. "We don't make bad loans. One of the reasons we perform so well is because we don't have losses."

The bank's past-due loans statistics are the same or better than they were 10 or 15 years ago, Isch said. That's not true at many other financial institutions.

FDIC Chairman Sheila Bair predicted this year's failures will top last year's 140 as the economy struggles to gain momentum.

The mortgage-collapse-led recession affected banks across the country, said Finn, of Financial Management Consulting Group.

"The turmoil in the industry has been egregious and amazing," he said. "There are numbers in the reports I never thought I'd see."

First Bank of Berne weathered the financial storm better than most, Isch said, partly because its branches are in economically strong communities.

Berne, for example, has numerous building projects in progress.

The bank recently spent more than $1 million to build a branch on U.S. 27. The city is erecting a $2.5 million clock tower. Dollar General is working on a downtown store. And Swiss Village and the local Mennonite church are in the middle of expansions.

The construction projects have put many local Amish carpenters to work, Isch said.

Did the recession bypass Berne?

"Yes, somewhat. It sort of did," he said.

The bank hasn't had to foreclose often on Amish borrowers because they help one another when someone falls into financial trouble, Isch said. The mutual-aid society helps make Amish customers a better loan risk, he said.

Although some other banks in Indiana also count Amish among their customers, many of those northern regions rely more heavily on jobs in manufacturing, Isch said. Widespread layoffs made it harder for Amish borrowers in those areas to avoid foreclosure and those banks to avoid losses, he said.

Berne, which was settled by Swiss Mennonites more than 150 years ago, primarily employs people in the family farming, publishing and furniture-making businesses. Dynamic Resource Group, a family-owned business, publishes magazines and books. Custom-built furniture-maker Smith Brothers of Berne supplies several area retailers, including Habegger Furniture in Berne.

Baumgartner, bank chairman and an attorney in private practice, said all the bank's borrowers are good risks. He doesn't single out the Amish as being more fiscally responsible.

Customers treat the bank well, reflecting the bank's culture, he said.