2023 Community Bank Case Study Competition Journal

2023 COMMUNITY BANK CASE STUDY COMPETITION

Table 7

The capital ratios compared to peers shown in Table 7

2019

2021

Average

2018

2020

2022

9.12% 8.93% 10.03% 9.86% 9.40% 9.47%

Tier 1 Capital Ratio

adequately support the amount of risk on the bank’s balance sheet as indicated by the (comparatively low) LTD ratio and quality of the loan portfolio. Continued consistent earnings will

Custom Peer

9.21% 9.23% 8.75% 8.73% 8.59% 8.90%

Iowa Banks

11.36% 11.50% 10.65% 10.45% 10.72% 10.94%

Loan to Deposit (LTD)

63% 67% 59% 54% 57% 60%

Custom Peer

71% 76% 65% 57% 62% 66%

Iowa Banks

80% 80% 74% 67% 72% 75%

help build the capital necessary to support growth. PSB appears to combine a cautious credit mentality with a growth strategy. Liquidity Successful liquidity risk management requires having options on both sides of the balance sheet to address stress or crisis. Until the rate hikes initiated by the FOMC in 2022, liquidity had not been an issue with banks due to excess deposit balances. Bank management shared a recent contingency funding report that models three crisis scenarios reflecting the liquidity events currently being played out in real-time throughout the banking industry. The report prioritized the options available in the event of increased loan demand, core deposit runoff, or loss of large depositors. The bank ended 2022 in a fed fund sold position. It has options to borrow from the Federal Reserve Bank as well as further utilize fed fund lines at multiple institutions as a first line of defense. The bank has a strong base of public fund (government entity) deposits and has consistently borrowed

source: UBPR

The bank will continue to pursue acquisitions as Halterman believes there will be opportunities over the next five to ten years. He views the bank’s market area (south of the Des Moines metropolitan area to the state line) as a target-rich environment. Halterman states, “Compliance and regulation will challenge some banks, coupled with the lack of a succession plan will provide for merger and acquisition opportunities.” Capital Levels Although the bank was profitable within 13 months of inception, the growth of the bank in its early years outpaced its ability to generate excess capital. There have been years when all earnings were required to be retained to support growth. The current dividend strategy is to pay shareholders 15% of the previous year’s earnings. The bank received a $7 million infusion from its parent holding company in 2020 in order to support the new office in Knoxville.

30