2023 Community Bank Case Study Competition Journal

SECOND PLACE: Iowa State University

Table 6

The bank is committed to continuing with De Novo branching to supplement organic growth. Halterman believes De Novo banks are a critical element in ensuring the community bank model in an environment of bank consolidation. The third highest year of De Novo charter issuance was 1998, the year PSB was established (Figure 2).

2019

2021

2022 Average

2018

2020

14% 13% 23% 13% 8% 14%

Asset Growth

Custom Peer

4% 6% 16% 22% 4% 10%

Iowa Banks

2% 4% 14% 8% 3% 6%

Municipal Bonds (millions)

$52

$30

$99

$135

$113

$86

Total Bonds (millions)

$101

$111

$172

$216

$194

$159

Municipal % of Total

51% 27% 58% 63% 58% 51%

source: UBPR

Halterman views bonds as a loan alternative. Municipal bonds have made up the majority of these loan alternatives over the past five years. While Halterman stresses he has little appetite for taking undue credit risk with his bond portfolio, he is aware of other risks contained in these invested assets. “We managed through a zero-interest rate environment over the last ten years. If banks didn’t invest excess funds and remained in cash, they would have taken on earnings risk as earnings would have been greatly diminished, impacting capital or capital risk.” During the past year, the bank has proactively managed its interest rate risk. In 2022 the bank had to adjust its investment portfolio through the largest increase in interest rates in history. In order to manage the interest rate risk in this up-rate environment, there were decreases of more than 30% in Treasury/Agency securities and 16% in municipal securities.

From 1998 until the Great Financial Crisis of 2008, the average number of De Novo charters each year was 168. Since that time, the average number has been seven. In the last two decades, only 23% of De Novo banks opened in communities of less than 500,000. 2 Indianola, the community where PSB originated in 1998, has a population of 15,000 people. Only 47 (22%) of the banks chartered the same year of PSB remain independent banks. 3 As seen in Table 6, PSB has grown its assets significantly more than its peers over the last five years; however, the bank will be hard pressed to sustain the 98% loan growth. While asset growth (particularly loan growth) is the goal, Halterman understands the importance of not sacrificing asset quality or earnings to get there. He adds that loan growth is driven by a successful call program and investing the time to understand the market and customers.

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