2023 Community Bank Case Study Competition Journal

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

8