2020 Journal of Community Bank Studies

2020 COMMUNITY BANK CASE STUDY COMPETITION

while a lower LDR may indicate that a bank is not using its cash effectively or that it is in a risk averse position. As shown in the graph, CNB’s Peer Group has steadily increased its Net Loans and Leases to Deposits Ratio from 80% to 86% in the last four years. During this same time period, Citizens National Banks LDR has varied between 74% and 80% which is on the conservative side. This indicates that CNB has a higher liquidity, and thus in a safer position for an economic downturn, than its peers. Although, this could also suggest that CNB could more effectively use this source of funding for higher profitability. Citizens National Bank has maintained lower Net Loans and Leases to Deposits Ratio, thus higher liquidity, compared to their Peer Group. Mr. Jeremy Stringer, CNB’s CFO, stated that CNB has been able to maintain an acceptable balance of profitability and risk by effectively managing their costs and diversifying their non-interest income through Off-Balance Sheet items, specifically their trust department. CNB’s

off-balance sheet items provide revenue outside of the Loans and Leases account. Although this is an advantage, CNB plans to improve margins from their Loans account in the near future. Mr. Stringer mentioned that CNB has plans to increase their Net Loans and Leases to Deposits Ratio up to 85%, better utilizing this source of funding to increase earnings and profitability. A major advantage that Citizens National Bank has that allows it to obtain these desired profits is its centralized locations and community bank status. Since CNB does not have any branches outside of Mississippi, it is not required to meet the LDR ratios set forth in Section 109 of the Riegle–Neal Interstate Banking and Branching Efficiency Act. This Act requires a bank’s statewide LDR ratio to be at least one-half of the relevant host state LDR ratio. As of 2018, Mississippi’s surrounding states LDR averages 85%. If CNB were to move into these states, it would prohibit the flow of investments CNB is able to provide its current communities. This action would also limit the greater flexibility

and control CNB has over its liquidity compared to similar sized inter-state banks. Part II: Bank Secrecy Act and Anti-Money Laundering Act (BSA/AML) Compliance Assessment CNB frequently conducts an overall risk assessment in which those involved with BSA monitor financial information to see how many Suspicious Activity Reports (SARs)

Net Loans and Leases to Deposits (LDR)

CNB

PG

90.00%

85.00%

80.00%

75.00%

Percentage

70.00%

82.67%

83.98%

85.15%

86.12%

86.17%

80.09%

75.01%

77.64%

81.44%

78.67%

65.00%

2015

2016

2017

2018

2019

Year

12