2020 Journal of Community Bank Studies

2020 COMMUNITY BANK CASE STUDY COMPETITION

The net income growth of 61% over the last 5 years has outperformed its peer group. Chief Financial Officer of CNB, Mr. Jeremy Stringer, has attributed this rapid increase in part to its “large increase in loans and its effect on interest income.” Although the costs of compliance for BSA and AML legislation can be expensive for community banks, Mr. Stringer said that “these costs have not had a considerable influence on net income or earnings performance.” CNB’s net income has had a more consistent growth rate than its peers, and has grown at a quicker rate, growing 8% more than its peers over a 5-year period. On average, CNB has outperformed its peers in controlling its income and expenses by having a larger percentage of interest and non-interest income relative to its total assets and a smaller percentage of interest expenses. The higher percentage of interest income is partly due to the bank’s increase in loans. CNB’s percentage of non-interest income is relatively low because

Efficiency Ratio for CNB and PG

2015 2016 2017 2018 2019

CNB

69% 66% 61% 61% 60%

PG

70% 69% 67% 67% 65%

community banks are less reliant on non- interest income and have a smaller amount of fees than larger banks. The top management at CNB has been very efficient in managing its costs, which has led to a low expense and high- income percentage of total assets resulting in CNB outperforming their peers. CNB wants a lower efficiency ratio because it indicates that the bank is earning more than it is spending. In a five-year period, CNB has lowered its efficiency ratio from 69% to 60% from 2015 to 2019 and is moving closer to the optimal 50%. CNB has outperformed its peer group in having a better average efficiency ratio and is more profitable than its peers.

Comparison of Income and Expenses (as a % of Total Assets) CNB versus Peer Group

2015

2016

2017

2018

2019

CNB PG CNB PG CNB PG CNB PG CNB PG

Interest income

3.50% 2.80% 3.42% 3.03% 3.70% 3.44% 4.03% 4.02% 4.21% 4.18%

Interest expense

0.25% 0.30% 0.29% 0.32% 0.34% 0.39% 0.56% 0.60% 0.84% 0.80%

Net interest income

3.25% 2.50% 3.13% 2.71% 3.36% 3.04% 3.48% 3.42% 3.37% 3.38%

Non-interest income

1.14% 1.21% 1.12% 1.33% 1.33% 1.41% 1.36% 1.50% 1.34% 1.21%

Non-interest expense

3.00% 2.54% 2.76% 2.71% 2.81% 2.89% 2.89% 3.13% 2.77% 2.90%

Net income attributable to bank

1.37% 0.87% 1.44% 0.89% 1.76% 1.01% 1.86% 1.38% 1.85% 1.29%

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