2019 Journal of Community Bank Case Studies

2019 COMMUNITY BANK CASE STUDY COMPETITION

The stated earnings drop in 2017 resulted from a special accounting treatment as part of the Tax Cuts and Jobs Act. Sr. VP, Accounting and Controls Manager, Mr. Douglas Baxter alluded to this dip saying it resulted from income adjustments due to deferred tax assets and loan write-offs. Kish management also decided to pass along the benefits of the Tax Cuts and Jobs Act to their employees through the payment of a $1,000 bonus. Although YOY earnings in 2017 were -10.68%, as seen in the table below, it is interesting to note that the number reduces to -3.79% before taxes.

peer group for Kish. In this comparison, various income and expense figures were analyzed (see table below) and are presented as a percentage of average assets for each of the years 2014 to 2018 inclusive. One highlight from the comparison is the close alignment of Kish’s interest income to that of its peer group in the 5-year period under review. However, as Kish’s interest expense is higher, this resulted in Kish having a lower return on assets, as compared to PG5. While the reduction in Kish’s net

interest income is somewhat compensated for by its higher noninterest income percentage, this is outweighed by Kish’s higher noninterest expenses.

Kish’s YOY Earnings 2015 2016

2017

2018

Increase/Decrease

1.30% 5.27% -10.68% 46.05%

While YOY earnings for Kish tell one story, we also wanted a benchmark with which to compare its performance. For this purpose, we used Peer Group 5 2 (PG5), which is the current

When combined, these factors translated into a lower overall net income figure for Kish, as a percentage of average assets, as measured against its peer group (.82% versus

Comparison of Income and Expenses (as a % of Average Assets) — Kish versus PG5

2014 2018 Kish PG5 Kish PG5 Kish PG5 Kish PG5 Kish PG5 2015 2016 2017

Interest Income

3.85% 3.97% 3.83% 3.92% 3.87% 3.94% 3.98% 4.04% 4.15% 4.27%

Interest Expense

0.66% 0.43% 0.63% 0.40% 0.63% 0.40% 0.69% 0.44% 0.89% 0.61%

Net Interest Income

3.19% 3.53% 3.20% 3.51% 3.25% 3.53% 3.29% 3.59% 3.26% 3.65%

Noninterest Income

0.87% 0.75% 0.88% 0.76% 0.85% 0.76% 0.80% 0.72% 0.87% 0.71%

Noninterest Expense

2.96% 2.89% 3.03% 2.86% 3.06% 2.84% 3.07% 2.80% 3.01% 2.81%

Net Income 3

0.76% 0.91% 0.73% 0.93% 0.74% 0.93% 0.61% 0.90% 0.82% 1.14%

2 Peer Group 5 consists of Insured commercial banks having assets between $300 million and $1 billion. 3 The net income used is that as adjusted for taxes with respect to S Corporations. These corporations are not taxed at the corporate level but at the personal level—their net income must therefore be adjusted to include an estimate of the taxes payable on income.

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