2023 Community Bank Case Study Competition Journal

2023 Journal of Community Bank Case Studies

vol. 8

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Preface Journal of Community Bank Case Studies Volume 8

The Journal of Community Bank Case Studies is an independent, adjudicated journal of case studies authored by undergraduate college students. The goal of this journal is to showcase the work of the top undergraduate student teams that participate in the annual Community Bank Case Study Competition, a national competition facilitated by the Conference of State Bank Supervisors. The competition partners undergraduate student teams with community banks to conduct original case studies focused on various topics. For this year’s competition, students were asked to examine how community banks are tackling very real and important issues — recruiting and retaining talent, approaching succession planning and using technology to advance operations. This eighth volume of the Journal of Community Bank Case Studies includes the top three written submissions from the 2023 Community Bank Case Study Competition. The authors of the papers represent student teams from The University of Tennessee at Martin, Iowa State University and Messiah University. About Conference of State Bank Supervisors The Conference of State Bank Supervisors (CSBS) is the nationwide organization of banking and financial regulators from all 50 states, the District of Columbia, American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands. Established in 1902 as the National Association of Supervisors of State Banks, CSBS is uniquely positioned as the only national organization dedicated to protecting and advancing the nation’s dual-banking system. For more than a century, CSBS has given state supervisors a national forum to coordinate supervision and develop policy related to their regulated entities. CSBS also provides training to state banking and financial regulators.

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Letter from the President & CEO Conference of State Bank Supervisors

On behalf of the Conference of State Bank Supervisors, I am pleased to present the 2023 Journal of Community Bank Case Studies , which showcases the work of the top three student teams in our annual Community Bank Case Study Competition. This is the ninth year of the competition, which is open to undergraduate students in all fields of study as an opportunity to gain valuable first-hand knowledge of the banking industry. This year we asked university students across the nation to examine how community banks are tackling very real and important issues — recruiting and retaining talent, approaching succession planning and using technology to advance operations. A team from the University of Tennessee at Martin earned first place for its submission, which one judge described as rich with insights and detail. The team will present its work at the Community Banking Research Conference in St. Louis in October. Teams from Iowa State University and Messiah University placed second and third, respectively. Their work stood out from a field of 34 student teams and three rounds of judging due to their well written and researched case studies. Our competition serves multiple purposes. It gives students the opportunity to work together as a team on an academic project and to network with community bankers. It has given us a valuable way to invest in the workforce of tomorrow. Many students from past years have cited the competition as an experience that led them to pursue a career in community banking or bank regulation. As a student in this year’s winning team told us, “I never thought of a career in banking before the competition, but hearing the executives talk about their passion of making their community better and their account holders feel their hard-earned money is safe and secure has definitely made me consider a banking job.” And the community banking industry and policy makers benefit from their research. Hundreds of student teams have partnered with community banks over the past nine years and provided fresh perspective on the challenges that community banks are faced with overcoming. This year’s students have produced impressive work, and I am pleased to share their results with you. Sincerely,

James M. Cooper President and CEO Conference of State Bank Supervisors

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Journal of Community Bank Case Studies Volume 8 Table of Contents

Preface .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii About . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii Letter from the President .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii Executive Summaries The University of Tennessee at Martin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Iowa State University . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Messiah University .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Case Studies FIRST PLACE: The University of Tennessee at Martin .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 A nalysis of Commercial Bank and Trust Company: A Case Study in Financial Analysis, Staffing and Management Successions, Staff Support and Technology Management Authors: Ben Arnold, Cole Hollis, Dan Hoffman, Libby Rushton, Abbey Strong Advisors: Mr. John Clark, Dr. Lajuan Davis, Dr. Mark Farley SECOND PLACE: Iowa State University .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Make Your Luck by Sundown: An Analysis of Peoples Savings Bank Authors: Matthew Ayres, Molly Berte, Reese Manternach, Brett McGee, Adeline Meyer Advisors: Mr. Curt Hoff, Dr. Peter Orazem THIRD PLACE: Messiah University . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 LINKBANK Authors: Nathan Clark, Justin Brubaker, Clayton Dimpsey, & Natalie Martin Advisor: Mr. Dwayne Safer

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Executive Summaries

University of Tennessee at Martin C ommercial Bank and Trust Company (CBTC or the bank) is a community bank founded on principles of trust and unrivaled client service for the communities and clients that it serves. This case study was organized after collecting information from communicating with CBTC executives, learning from experienced community bankers, interviewing CBTC clients, and reviewing online articles and websites. This case study will contain information regarding: (1) financial analysis of CBTC, (2) aspects of staffing a community bank, and (3) employee training and technological development at CBTC. Based on cooperation between the student team and CBTC executives, this case study concludes: (1) CBTC’s financial success is due, in part, to its strategic focus in capitalizing on diverse revenue streams, (2) One of CBTC’s previous challenges, and a core component of future success, is the bank’s need to succeed its previous, experienced

executive team, and (3) the hiring of the current Chief Information Technology Officer, Scott Freschi, led to the technological development of CBTC in recent years. Freschi will continue to play a critical role in the future technological success of the bank as CBTC continues to work and strive to build a financially stable community around the bank.

Commercial Bank and Trust Company is a community bank founded on principles of trust and unrivaled client service for the communities and clients that it serves.

1

Iowa State University Executive Summary

P eoples Savings Bank (PSB) was established as a De Novo (start-up) in 1998. Over the next 25 years, the bank would grow both organically and by acquisition. It grew through both the Great Recession of 2008 and the COVID-19 pandemic. Few banks in the “class of 1998” have thrived like PSB. The bank continues to expand as a De Novo due to its locational expansion strategy outside highly populated cities, its ability to attract a stable workforce in the current labor market, and its technological expansion to better serve its customers. PSB is a community bank primarily serving customers in rural Iowa with an agricultural focus. At the end of 2022, bank assets under management were $495 million, which ranked them the 55th largest out of 247 Iowa banks. Kevin Halterman, the President and CEO of PSB, started the bank along with 120 investors with a single location in Indianola, Iowa. In the subsequent 25 years, PSB has grown to 80 employees in seven locations throughout seven communities in southern Iowa. All of

the locations are De Novo branches except for the acquisition of their Pleasantville location. The primary office in Indianola, along with the Carlisle location, borders Des Moines, the state’s largest metropolitan market. This gives the bank opportunities for growth in both metropolitan and rural markets. Only two other states boast more banks than Iowa, making Iowa a target-rich environment for acquisitions. This bank is wired for growth. The bank’s management possesses the mentality and ingredients that fit its growth strategy. They anticipate the expenditures and margins sacrificed by this mentality will pay off in the long run as efficiency and scale are obtained. The bank’s well-managed loan portfolio, consistent profitability, and solid capital levels support a growth strategy either organically, by acquisition, or by De Novo. The deposits gathered in the bank’s rural footprint will need to fuel further prudent loan growth. PSB successfully cultivated a positive company culture throughout its geographic and staffing growth. The “Iowa-nice” attitude of the bank’s organizational culture enhances the commitment to rural communities. PSB has been successful in retaining employees at a greater rate than the banking industry as a whole. PSB expects to leverage this “Iowa nice” mentality by growing into more rural communities in southern Iowa in the coming years. The bank established a succession plan for key positions, including that of Halterman, who has

PSB has been successful in retaining employees at a greater rate than the banking industry as a whole.

2

held the senior spot since the bank’s inception. The bank focuses on recruiting and promoting from within the organization. The top five leadership roles within the bank are expected to be filled by current staff members when retirement or turnover inevitably occurs. The succession plan also serves to benefit the bank in cases of emergency. PSB continues to update the bank’s technology to offer new products and services to its customers. The most significant change in their technology offerings was the roll out of their online banking weeks before the COVID-19 pandemic shutdown. Online banking proved to be highly successful for the bank as it allowed them to stay connected with their customers.

The top five leadership roles within the bank are expected to be filled by current staff members when retirement or turnover inevitably occurs.

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Messiah University Executive Summary

T hrough our careful analysis of LINKBANCORP, we hope to bring your attention to a few major points. Being a relatively small banking institution in the current economy is no easy task, but LINKBANK has proven themselves to be triumphant through their undeniable growth, increased profitability, and skillfully serving their local community. Growth has been both organic and a result of a previous merger with Gratz National Bank. Prospects for future growth, with the upcoming merger of equals with Partners Bank is exciting, and the financials have shown great strength despite related expenses being incurred. In the process of going public in 2022 on the NASDAQ, they raised $10 million of capital to support this MOE with Partners and expect to continue improving their capital ratios. Loans and deposits have continued to remain steady, despite trust being lost by consumers in the current banking economy. Overall, their metrics including earning assets as

a percentage of total assets, loan to deposit ratios, and capital ratios are either right on par with national averages or exceeding, which is imperative to their growth focus, and while some metrics may not quite meet national average levels, improving margins such as NIM and earned interest income are a primary focus for LINK over the next year.

LINKBANK has proven themselves to be triumphant through their undeniable growth, increased profitability, and skillfully serving their local community.

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Moving forward with the major role staffing has played for the bank, they have been able to retain a majority of employees even with the combination of those that joined as a result of the Gratz National Bank merger and are expected to combine in future mergers. While they have seen some executives come and go, all of the current executives are committed to the fact that they are in this for the long haul. This is crucial in the times of growth they are experiencing as well as prioritizing all employees. They have been able to put their employees first and foremost by adding benefits, reviewing compensations, and creating programs so that they can serve the community to the best of their ability. Essentially, what they are doing is setting their employees up for success in the event of an executive leader stepping down and giving their employees the opportunity to step up into an executive role. Since LINKBANK is now publicly traded, the succession of executives is the decision of the shareholders but this program sets all employees up for the chance of climbing the corporate ladder.

The success and wellbeing that LINK strives to see from its employees has bled into their use of technology within the bank. The pandemic brought along with it a major transformation of technology use throughout the company. With a majority of staff working remotely, they launched a new software that allows logging on from a single desktop which has consequently led to a more simplified data center management. This transition to a cloud system overall made it more difficult for the 2022 system conversion to Jack Henry due to the new core system not being designed for clouds, but the technology persevered. This core system conversion was a major accomplishment due to the amount of precision required from deposit operations and loan operations daily. Luckily, with another conversion towards the end of this year, Partners Bank runs the same core system of Jack Henry that LINKBANK had converted to the previous year. These key technological advances have allowed the bank to provide the utmost service to their clientele and give customers an evolved banking experience.

2023 COMMUNITY BANK CASE STUDY COMPETITION

1 ST PLACE The University of Tennessee at Martin

Introduction This case study focuses on how a Paris, Tennessee, community bank, Community Bank and Trust Company (CBTC), has succeeded throughout the years using new training programs, technological advancements, succession planning, and generational evolution. The case study begins with a brief explanation of the history and background of CBTC. History of Commercial Bank and Trust Company CBTC was chartered on April 21, 1877, in Paris, Henry County, and is the fourth oldest bank charter still active in the state of Tennessee. The bank operated as Commercial Bank of Paris until 1922 when the bank purchased the Bank of Henry County and amended its charter, Analysis of Commercial Bank and Trust Company: A Case Study in Financial Analysis, Staffing and Management Successions, Staff Support and Technology Management

Students: Ben Arnold Cole Hollis

Dan Hoffman Libby Rushton Abbey Strong Faculty Advisors: Mr. John Clark Dr. Lajuan Davis Dr. Mark Farley

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FIRST PLACE: The University of Tennessee at Martin

was granted trust powers, and changed its name to Commercial Bank and Trust Company (Our Story, CBTC Website). Over the course of the next 60 years, CBTC continued to grow in the Henry County market by opening additional locations and purchasing Peoples Bank and Trust Company of Henry. In November 1983, the bank was purchased by R. Molitor Ford Sr. and WilliamW. Deupree, Jr. Ford and Deupree developed a vision of strong relationships and exceptional client service in the banking industry (Our Story, CBTC Website). The current bank has expanded to nine locations spread throughout Henry, Obion, Madison, and Shelby Counties in Tennessee and is operated by more than 200 employees who call CBTC home (Davis et al., March 29, 2023). CBTC has experienced success throughout the years by implementing multiple diverse revenue streams, managing succession planning exceptionally well, and enjoying multiple technological advancements over the past five years. Additionally, these accomplishments have allowed CBTC to grow to over $1 billion in assets during 2021 (FFIEC n. p.). Part One: Financial Analysis of Commercial Bank and Trust Company Earnings Performance Net interest income of CBTC has grown 15.6% over the past five years with an 11.2% growth between 2021 and 2022. This jump in growth is due to a 29.3% growth in investment interest

The current bank has expanded to nine locations spread throughout Henry, Obion, Madison, and Shelby Counties in Tennessee and is operated by more than 200 employees who call CBTC home (Davis et al., March 29, 2023)

income in the same period. Over the past five years, investment interest income has grown 65.8%. This revenue growth occurred due to increases in CBTC’s investment portfolio. Customer deposit balances and cash increased due to COVID-19 stimulus packages. Without a corresponding increase in loan demand, the bank used these excess reserves to invest in low-risk securities such as municipal and agency-backed bonds (Stoots, personal communication, April 1, 2023). Interest expense has seen a 20.2% growth for the past five years with significant changes between each year. Between 2018 and 2019 interest expenses increased 75.6%, then decreased 36.9% in 2020, and decreased another 35.6% in 2021. After 2021 interest expense increased 69.4%. While net interest income is still approximately 5.8 and 13.9 times larger than interest expense, the erratic changes make forecasting a bit more

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2023 COMMUNITY BANK CASE STUDY COMPETITION

difficult. These changes in interest expenses are due to market interest rates affected by Federal Reserve Policy and decisions. Non-interest income has become a significant part of CBTC’s strategic plan. For instance, non interest income accounted for $17.5 million in revenue in 2022, 34.8% of total revenue (FFIEC n. p.). CBTC’s noninterest income is, on average, 108.2% higher than its peer group when measured as a percentage of total assets (Figure 1). From 2018 to 2022, non-interest income increased 77.6% with increases of 24.1% from 2019 to 2020 and 33.1% from 2020 to 2021 (FFIEC n. p.), due to CBTC’s diverse income streams including the bank’s trust department, finance company subsidiary, mortgage department, and wealth management. Mortgage refinancing, due to low interest rates during COVID along with steady growth in the trust department, led to recent, large increases in those revenue streams. CBTC’s investments in revenue diversification have

CBTC’s investments in revenue diversification have helped the bank become a central financial hub for its customers.

helped the bank become a central financial hub for its customers. Investment interest income grew 65.8% from 2018 to 2022. CBTC experienced 30.2% and 29.3% growth in 2021 and 2022, respectively. This revenue growth occurred due to increases in CBTC’s investment portfolio. Customer deposit balances and cash increased due to COVID-19 stimulus packages. Without a corresponding

increase in loan demand, the bank used these excess reserves to invest in low-risk securities such as municipal and agency-backed bonds (Stoots, personal communication, March 25, 2023). A unique aspect of CBTC is its federal tax classification. Being an S-Corporation allows the bank to dividend profits to its shareholders

Figure 1: CBTC Noninterest Income vs. Peer Group

0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8

Noniterest Income as Percent of Assets 0

CBTC PG 5 CBTC PG 5 CBTC PG 5 CBTC PG 4 CBTC PG 4 2018 2019 2020 2021 2022 Year

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FIRST PLACE: The University of Tennessee at Martin

and pay no federal income tax, which means CBTC only pays state excise and franchise tax of 6.5% net income, saving millions of dollars in taxes. Loan Portfolio Composition CBTC has maintained a rather well-balanced loan portfolio over the last five years (Figure 2).

Although CBTC has less concentration in real estate loans than its peer group, it has a higher percentage of agricultural and commercial loans than its peer group. Real estate loans remain the largest component of the portfolio averaging 68.1% of total net loans and leases. Commercial loans make up the second largest component of the portfolio, averaging 20.7% of total net loans and leases. Individual, agricultural, and

other loans round out the portfolio coming in at 5.7%, 2.5%, and 3.0%, respectively. Commercial loans increased 51.3% as a percentage of the total loan portfolio from 2019 to 2020 due to CBTC issuing 764 PPP loans totaling $72.9 million. The bank issued another 740 PPP loans in 2021 totaling $30.5 million. The Commercial loan percentage is trending toward the pre-pandemic numbers now since all but one of the PPP loans have been paid off or forgiven. The one remaining loan is on track to be satisfied by 2026. Asset Growth CBTC experienced persistent asset growth from year end 2018 to year end 2021 (Figure 3).

Figure 2: Loan Portfolio Composition of CBTC from 2018 – 2022

2018

2019

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0%

20%

40%

60%

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100%

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Real Estate Loans Agricultural Loans

Commercial Loans Individual Loans

Other Loans & Leases

Figure 3: CBTC Total Asset Growth from Past Five Years

1,400,000

1,157,694

1,200,000

1,062,292

999,777

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740,176

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600,000

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200,000

0

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2023 COMMUNITY BANK CASE STUDY COMPETITION

Figure 4: CBTC Asset Growth Rates vs. Peer Group 4

same period due to less than average growth in real estate (8.4%) and commercial (13.6%) loans and decreases in individual (25.5%) and agricultural (41.6%) loans (FFIEC). Capital Levels and Planning CBTC experienced consistent Tier 1 Capital growth over the past five years increasing 43% over that time (Figure 5). CBTC’s Tier 1 Capital ratio averaged 16.0% over the last five years, which has been higher than its peer group, which averaged 11.8% over the last five years (Figure 6). Book Capital decreased 47.3% in 2022 due to unrealized losses in CBTC’s bond portfolio. CBTC does not anticipate selling any investments.

25

20

15

10

5

Growth Rate %

CBTC

0

CBTC PG 5 CBTC PG 5 CBTC PG 5 CBTC PG 4

PG 4

-5

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Figure 5: CBTC Tier 1 Capital

$120,000

$100,000

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$20,000

$-

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CBTC experienced a minor decrease in assets in 2018 and a larger increase in 2022, mainly due to all but one of its PPP loans being paid off or forgiven (Figure 4). CBTC had a lower asset growth rate (42.5%) than its peer group (62.8%) for those years (Figure 4). CBTC’s investment portfolio grew (140.0%) over the past five years. This growth was largely due to the increases in U.S. Treasury and Agency Securities (56.0%) and Municipal Securities (84.7%). Net loans and leases have increased only 5.4% over the

Rather, the bank can hold all securities to maturity to avoid realizing losses. Since CBTC is a subchapter S-Corporation, its capital plan is flexible. The amount of annual dividends that CBTC distributes to shareholders fluctuates based on the capital needs of the bank. The bank can also dividend more profits to shareholders when it does not need additional capital.

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FIRST PLACE: The University of Tennessee at Martin

Figure 6: CBTC Tier 1 Capital Ratio vs Peer Group 4

(Konrad n. p.). CBTC’s uninsured deposits consist of 31.0% (Stoots, personal communication, April 1, 2023). CBTC has diversified its deposits in four different markets: Obion County, Henry County, Madison County, and Shelby County. In 2022, CBTC had the second largest market share in both Obion (22.6%) and Henry County (32.1%)

10.0% 12.0% 14.0% 16.0% 18.0%

0.0% 2.0% 4.0% 6.0% 8.0%

CBTC PG 5 CBTC PG 5 CBTC PG 5 CBTC PG 4 CBTC PG 4

2018

2019

2020

2021

2022

Liquidity Liquidity is an important topic in today’s banking environment due to the recent run and subsequent failure of Silicon Valley Bank (SVB). Financial stocks lost significant value in mid March of 2023, and the President of the United States attempted to calm the country. Unlike Silicon Valley Bank, CBTC is very conservative. CBTC maintains reserves within a range of 8.5% and 10.0% of total assets including its interest bearing bank balances, federal funds sold, non interest cash, and cash due from banks (FFIEC n. p.). The bank also maintains contingency funds with lines of credit from correspondent banks, the Federal Home Loan Bank, and as a last resort, the Federal Reserve Discount Window. Currently, CBTC is not using any of these lines of credit. Another difference between SVB and CBTC is the percentage of uninsured customers. According to Forbes, more than 93.0% of SVB’s deposits were uninsured

with only a 1.0% difference between CBTC and the next competitor. The bank was seventh in Madison County with 6.0% and fifteenth in Shelby County with 1.2% (Stoots). While CBTC does not have significant market share in these two counties, they are significantly larger markets, so they do have significant deposits in these areas (Figure 7).

Figure 7: CBTC Deposits by Market

16.5%

36.3%

31.3%

15.9%

Obion

Henry

Madison

Shelby

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2023 COMMUNITY BANK CASE STUDY COMPETITION

Figure 8: CBTC Net Loans & Leases to Deposits

liquidity planning, and consistent capital growth, CBTC has experienced good financial success through the challenging past five years. Part Two: Staffing Recruitment and Retention CBTC leads the community with its recruitment and retention of employees. Updated

80.00%

70.00%

60.00%

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40.00%

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0.00%

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CBTC also has a relatively low loan-to-deposit ratio compared to the 79.3% average in its peer group. In 2022, the bank’s LTD ratio was 51.0% (Figure 8), (FFIEC n.p.). Much of this ratio is due to the higher deposit balances resulting from pandemic stimulus packages without a corresponding increase in loan demand. Having a lower percentage loan-to-deposit ratio means the bank is not earning as much in interest income as it could if it could lend against new deposit growth, but the bank has been able to invest this liquidity into securities. CBTC is planning to increase that ratio to 75.0 – 80.0% by growing its credit underwriting team. CBTC has added additional credit analysts to the loan department, which will enable lenders to focus on obtaining and sourcing loans (Stoots, personal communication, April 1, 2023). CBTC has also enhanced its loan process and invested in new technology for the process. Through diverse revenue streams, a diverse loan portfolio, conservative investments, careful

recruitment strategies, scholarships for minority college students, and an emphasis on being an enjoyable workplace have all allowed CBTC to differentiate itself and remain a top employer in the communities that the bank serves. Using these strategies has allowed the bank to be known in the community as a desirable place to work. According to Jennifer Starks, CBTC’s Human Resources and Professional Development Director, the recruitment process has changed in the last couple of years. Most of the bank’s recruitment in previous years was simply accomplished through word- of-mouth and other connections through industry professionals, but the process has since adapted and has become much more focused on using online applications and employment networks such as LinkedIn or Indeed.com . in addition to accessing college and university career services to find suitable applicants. Although word

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FIRST PLACE: The University of Tennessee at Martin

of-mouth is used as a recruitment strategy, CBTC relies more on technological tools for recruitment. Recruiting talent directly from universities is critical to continue to improve a business, and CBTC has leveraged this recruitment channel to reach new talent in the area. One CBTC initiative involves partnering with The University of Tennessee at Martin (UTM) to provide the Minority Leader’s Banking Scholarship. This scholarship allows some of UTM’s minority students to become acquainted with the bank before graduation and explore career opportunities. The scholarship requires students to attend a financial services seminar each semester, complete a specific finance course, and participate in internship and job-shadowing experiences. This scholarship was the first banking-related scholarship for students at the University. Scholarships, like this one, have given CBTC an advantage in not only recruiting new talent directly from universities but also supporting minority students as they begin their careers. Other community banks in the area now mimic CBTC’s scholarship idea. Employee benefits are one of the most important aspects of recruiting and retaining employees. The competitive benefits CBTC offers are health insurance, retirement benefits, and employee profit sharing. Health insurance ranks at the top of the list for many employees in all industries across the nation. CBTC has worked diligently to offer competitive health benefits for its employees including options for medical, vision, dental insurance, and life

and accidental death and dismemberment coverage. Another benefit CBTC offers is retirement benefits. According to Forbes, 62% of employees seriously consider the availability of retirement plans when deciding whether to stay at a job (Glaze n. p.). The bank’s 401K plan is extremely competitive, offering employees up to a 4% match on their 401K accounts; moreover, profit sharing plans have recently increased in popularity and allow employees to share in the company’s profits based on quarterly or annual earnings. CBTC believes that investing in its employees and offering these benefits is the best way to ensure that all employees are motivated and excited about their careers (Davis, Freschi, personal communication, March 21, 2023). CBTC’s management team exemplifies their people-first mindset by striving to make the workplace enjoyable for employees and customers alike. CBTC employees truly enjoy their professions and workplace. The idea that employees from all departments feel they

CBTC’s management team exemplifies their people-first mindset by striving to make the workplace enjoyable for employees and customers alike.

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2023 COMMUNITY BANK CASE STUDY COMPETITION

are part of a team was expressed many times throughout the authors’ conversation with the bank (Davis et al., personal communication, March 29, 2023). The team mentality of CBTC has overflowed into the community as well. The passion CBTC has for the communities it serves connects the bank in a special way with its customers and gives customers a sense of belonging. Succession Planning The bank’s people-focused approach is evident in its succession planning. CBTC has experienced multiple retirements of senior officers in the past decade. Fortunately, the bank was able to promote some insiders to fill existing roles or hire talented outsiders through its own recruiting efforts. One example of a successful inside hire is Clint Davis, who was promoted to president and chief operating officer two years ago. Davis has been employed with the bank for 24 years and provides experience in multiple areas of banking, including retail, trust,

volunteer lenders, compliance, operations, HR, and marketing. CBTC has also hired employees outside of the bank who currently serve on the bank’s leadership team. The bank’s current Chief Credit Officer, Jeff Carnes, joined the CBTC team four years ago. Brett Stoots, the current Chief Financial Officer, worked for the public accounting firm who audited CBTC and was hired four years ago. Jennifer Starks, the Director of Human Resources, worked at a local automotive factory and was hired three years ago. The bank’s Chief Information and Technology Officer, Scott Freschi, was recruited from an Illinois financial institution five years ago. With a significant number of CBTC’s senior officers retiring from the bank, succession planning has been a key to its recent success. The previous executive team led by Chairman and CEO, Mott Ford, inspired the bank’s succession planning efforts. David Flowers, who served as President, COO, CFO, and CRO, was also a critical factor in the bank’s succession planning and implementation. Trying to replace Flowers and his 40 years of experience with CBTC pressed the bank to separate and delegate his workload, thus creating a challenge for the bank executives that they did not wish to repeat. A core strategy throughout the succession planning process was to bring in a mixture of insiders and outsiders. Retaining insiders, such as Clint Davis, would allow the bank to maintain its values and culture. An additional critical step CBTC took in its succession plan was having the previous executive team stay

With a significant number of CBTC’s senior officers retiring from the bank, succession planning has been a key to its recent success.

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FIRST PLACE: The University of Tennessee at Martin

to mentor newcomers. Newcomers would bring both banking and non-banking expertise that would allow CBTC to have an edge over its competitors. When Brett Stoots and Jeff Carnes were hired, David Flowers, and the bank’s previous CCO, Bruce Reed, remained on the team for 18 months to impart their banking knowledge to Stoots and Carnes. The investment in these transitional periods, while increasing personnel costs, demonstrates the commitment CBTC has in its continued success. Since the new executive team was assembled, the banking industry has seen major challenges. The COVID-19 pandemic introduced social distancing, PPP loans, privacy concerns, and ever-changing regulation as just some of the challenges the new team faced. Nevertheless, as the pandemic ended, CBTC had grown into a $1 billion bank. Currently the banking system faces interest rate hikes from the FED and large bank failures not seen since the 2008 recession. Like the challenges faced during the pandemic, the CBTC team has thus far been able to overcome these unprecedented challenges and remain an important financial services provider in West Tennessee. Generational Make-Up The same changes in generational leadership experienced in the bank’s succession plan have occurred throughout the bank. Starks states the following: R ight now, the CBTC team is made up of four generations. We have 26% Baby Boomers, we have 36% Generation X (Busters), Generation Y (Millennials) are at

The generational shift seen recently in the banking industry is very important to address.

23%, and Generation Z (Zoomers) is at 14%. Our largest group is Busters from 1965 to 1980. When you add in four generations, not everyone is going to agree, and they will all contribute a different point of view. Their perspective on the IT world is different (Starks, Davis et al., personal communication, March 29, 2023). Not only has this demographic information changed how the bank functions from day-to day and how work is completed, but it has also changed the way staff members are recruited. Starks discussed the experiences with the different generations during the pandemic and the challenges presented by sending staff to work from home during the pandemic. Starks stated it was much more difficult to send home the Baby Boomer generation, as they wanted to stay and work in the office, while Millennials and Generation Z were ready to pack up and work from home as needed. The generational shift seen recently in the banking industry is very important to address. Many younger employees are ready to succeed although they have little prior experience in

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2023 COMMUNITY BANK CASE STUDY COMPETITION

lending. While experience in lending is rare from someone specializing in information technology, the perspective Freschi has is one that truly benefits the bank: I see both sides of banking, because of my experience. While I may not work with the bank customers every day, I see the staff as my customers, and I am here to serve them. I no longer work directly with a customer, but with my experience, I know how long a minute seems when a computer is down and there is a customer in front of you, so I do my best to make sure both the bank customer, and my customer, our staff, are satisfied and taken care of ( Davis & Freschi et al., personal communication, March 29, 2023). Part Three: Training and Technology Training for Staff & Senior Leaders A bank is only as successful as its employees and senior leaders, and all levels of employees require adequate training and development. At CBTC, training is vital to its successful operations, and this training is centered on ensuring the bank is successful and that employees are confident and prepared to work in their positions. The bank’s staff and senior leaders receive a significant amount of development through peer learning when working with other banks, other bank executive teams, and employees of CBTC. Additionally, staff and senior staff members are encouraged to attend peer-training seminars and classes to

banking. The need for properly trained staff, as well as a different generational makeup, is crucial in each branch to provide resources and knowledge that clients require. Brett Stoots provided valuable thoughts on the different needs each of the bank’s nine branches require. Union City and Paris branches require knowledge of agriculture while both Jackson and Memphis branches need small-business knowledge. Even with minimal banking experience, younger bankers can gain the knowledge required for success attributed to the many courses, seminars, and educational programs CBTC provides (Davis et al., personal communication, March 29, 2023). Scott Freschi, Chief Information Technology Officer, was a notable hire who represents the generational evolution of CBTC. Freschi, who has a 30-year career in banking, was brought to CBTC through a recruiting firm. Freschi has been with CBTC for almost five years and brings an interesting perspective, as he spent the first five years of his career working in At CBTC, training is vital to its successful operations, and this training is centered on ensuring the bank is successful and that employees are confident and prepared to work in their positions.

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FIRST PLACE: The University of Tennessee at Martin

expand their expertise. Opportunities for staff to seek additional education are often external to the company, and many opportunities are offered in-person or online. Programs attended by staff and senior leaders, such as those offered by the Tennessee Bankers Association, American Bankers Association, or universities, are an investment by CBTC. Furthermore, senior leaders who gain knowledge by participating in advanced programs, such as the Cannon Financial Institute for trust personnel, share their passion for banking and leadership skills by hosting internal training sessions that allow other employees to become educated in effective banking practices (Davis et al., March 29, 2023). Development for New Staff To develop new bankers, CBTC utilizes multiple resources to train new hires, and experienced employees are intentionally paired with new staff members to act as mentors and teachers. Mentorships provide new staff with opportunities to gain experience without the fear of making mistakes. More importantly,

participating in mentorships allows CBTC’s senior staff members to impart not only their expertise but also the culture and passion of CBTC. Participating in mentorships also allows for new employees to help the company progress, and while employees are still new to CBTC, they are encouraged to offer new perspectives. Aside from in-house mentorships, new staff are often encouraged to participate in a wide range of classes and training programs. These programs can range from training courses and peer conferences sponsored by Tennessee Bankers Association and American Bankers Association to more advanced educational opportunities such as Graduate School of Banking programs, Tennessee Bankers Association sponsored schools of banking, and customer service courses that will prepare these new bankers for their job duties. Moreover, if a specific employee is hired because he is knowledgeable with a specific job task, he will be trained and asked to participate in developmental programs that will extend his knowledge regarding that specific area of expertise. Additionally, if widely accepted banking processes change, employees are encouraged to attend trainings and peer conferences that will update their knowledge. Primarily, every developmental program CBTC requests that employees attend is financed by the bank at no costs to the employees (Davis et al., personal communication, March 29, 2023). CBTC strives to develop its staff to be prepared, educated, and to operate as effectively as possible, regardless of the costs to the bank.

Aside from in-house mentorships, new staff are often encouraged to participate in a wide range of classes and training programs.

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2023 COMMUNITY BANK CASE STUDY COMPETITION

bank’s credit and loan officers who operate in the Memphis, Tennessee, market. CBTC realizes the usefulness of hybrid work to remain competitive in operations and recruitment (Davis et al., personal communication, March 29, 2023). Utilizing hybrid work allows the credit and loan officers to be more flexible for their clients in an ever-changing market, and that flexibility has proven useful in the bank’s Memphis, Tennessee, market segment, as shown by their increased, varied client base and competitive position observed in the financial analysis of CBTC. In addition to better serving clients, hybrid work is used as a competitive recruiting tool that allows CBTC to compete with larger banks in the immense Memphis market. New Technology in the Past Five Years CBTC has undergone significant technological changes in the past five years. CBTC has adopted numerous new technologies, and many challenges were overcome when implementing these recent technologies. Several of CBTC’s technological improvements have been centered on three major factors: security, internal operations, and serving customers. One such technological innovation was the addition of a secure chat within the Bank’s Digital and Mobile Banking platforms, which provides clients with a secure method to discuss their banking needs without having to speak via phone. This offering is only available after the client has successfully authenticated to the Digital or Mobile Banking platform and all discussions are contained within the encrypted

CBTC has undergone significant technological changes in the past five years.

Post-Pandemic Flexibility CBTC returned to fully in-person operations at its physical locations post-pandemic, and remote work is utilized only if no other options are available. During the pandemic, CBTC rotated operation schedules so that many of the bank’s employees worked remotely when required. However, during that time, the bank’s executive team realized that depending on remote work limited the employees’ opportunities for the potential organic learning aspect of individuals working and interacting among one another, and this situation led to a learning deficit for the banking staff. Moreover, CBTC’s executive team realized the bank’s employees wanted to work in-person, build relationships, and learn through interactions and conversations. Relationship building is a priority of CBTC, and banking is a business that revolves around the people it serves. Without people working in the bank, limitations are placed on learning, relationship building, and extending proper customer service. CBTC is currently capitalizing on the use of hybrid work (employees have some work from-home days) for a specialized group of the

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FIRST PLACE: The University of Tennessee at Martin

communication channel. This implementation is a customer quality-of-life improvement that provides security, primarily for the clients, to receive the help they need. CBTC also improved its mobile online banking platform in the first quarter of 2023 to its vendor’s most recent version. Improving the online banking platform required a significant amount of financial support. However, CBTC’s online banking platform is now visually and operationally competitive with all other banking platforms (Davis, Freschi, March 21, 2023). Another significant technological change that has recently improved is the bank’s server technology. CBTC moved from hardware server storage to redesign its virtual server farm to store, measure, and analyze data more securely and effectively. Prior to these upgrades the virtual servers were very fragmented and could not be managed easily. With the new improvements, all the virtual servers are connected and easily managed through one interface. The setup that CBTC currently enlists has plenty of room for any necessary server additions that may arise. These servers offer scalability and availability beyond what physical servers offer. The virtualization of servers allows new servers to be added almost instantly, and the new servers can be created to the exact specifications the bank needs. The bank no longer needs to wait for physical equipment to arrive when creating new servers. Servers tailored to the bank’s specifications and needs also allow CBTC to make the most use of its available storage, RAM, and CPU. Additionally, virtualization also provides increased business

continuity through enhanced server backup and replication features. CBTC currently replicates the server environment to an offsite secure storage facility every four hours. Recovery testing to the replica virtual servers is performed regularly (S. Freschi, personal communication, April 21, 2023). CBTC improved its security and operations by migrating to a real-time backup solution for its core banking system. Prior to this migration CBTC had a Recovery Time Objective (RTO) of 24 – 36 hours and a Recovery Point Objective (RPO) of 24 hours. With the upgrades implemented by CBTC, the RTO is now one hour and the RPO is real-time since continuous replication to the backup site occurs; therefore, if the core systems were to fail, no loss of data would be incurred, and the system would be running again within one hour (Davis &Freschi, March 21, 2023). Having no loss of data and low server downtime enables clients to continue to be served while also providing the bank with additional data security and more operation time.

CBTC also improved its mobile online banking platform in the first quarter of 2023 to its vendor’s most recent version.

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2023 COMMUNITY BANK CASE STUDY COMPETITION

Lastly, a technology change that occurred at CBTC is the adoption of the gold standard of endpoint detection and response security (EDR), CrowdStrike Falcon. Security is a priority, and with the adoption of CrowdStrike Falcon security, CBTC can protect clients against the modern, growing threat of cyber attacks that endanger the bank’s reputation and clients’ funds. The importance of security in the banking industry and the peace of mind that CrowdStrike provides cannot be underestimated. Handling New Technology & Customers’ Questions Training staff to answer client questions regarding the new technology of CBTC is not only a priority of the bank and its staff but is an objective at all levels of the organization. When new technology is introduced, the staff who are affected by the changes are introduced to the change and prepared to learn about the technology well enough to serve clients and

answer questions. Chief Operating Officer, Clint Davis, encourages his team to focus on serving clients as the bank’s end goal, and new technology is a tool introduced at CBTC to serve clients. Training sessions on new technologies are hosted by the executive team to prepare employees for changes; however, building trustworthy relationships and focusing on serving clients is a team effort. The mission and culture at CBTC focus on satisfying clients, and a significant factor in satisfying clients is for staff to understand technology and how changes benefit the clients. Having informed staff can lead to having informed, satisfied clients (Davis, personal communication, April 1, 2023). One Great Story of Technological Success in the Past Five Years The technological capabilities of CBTC have improved drastically over the past five years. However, the combined change that exemplifies the bank’s technological success is the bank’s recent technologically driven security improvements. Through exemplary succession planning, the current Chief Information Technology Officer, Scott Freschi, joined the CBTC team and initiated the immediate improvement of the bank’s technology beginning with security. Through CITO Freschi’s initiative, the major implementations of the last five years include the improvement of the bank’s endpoint detection and response security and the reconstruction of the bank’s employee email phishing test program.

The importance of security in the banking industry and the peace of mind that CrowdStrike provides cannot be underestimated.

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