2024 Journal of Community Bank Case Studies

2024 COMMUNITY BANK CASE STUDY COMPETITION

Part II.3: Interest Rate Risk Management ALM is the process of managing the mismatch between a firm’s assets and liabilities to mitigate resulting financial risks (Crouhy et al. 181). FCCB primarily uses ALM to reduce interest rate and liquidity risk, two of the bank’s biggest financial risks. ALM is vital to FCCB because it is the primary driver of net interest income (NII), which represents over 87% of the bank’s income in 2023 (CZFS 51). If assets and liabilities are not properly managed, a bank could see a significant decrease in earnings. The ALM process is overseen by the bank’s ALCO committee, which, according to Guillaume, primarily consists of the bank’s chief officers, including the CEO and CFO. The committee also includes leaders from different regional markets, which allows the committee to gain a better perspective on overall risk and performance. FCCB is currently liability-sensitive in the short term and asset-sensitive in the long term

smaller in size with less uninsured depositors, it offers supplemental insurance to the uninsured depositors it does have, and it operates under a relationship-focused business model. Part II.2: FCCB’s Specialty: Agricultural Lending Although FCCB serves a wide range of communities across four states, the bank is headquartered in Mansfield, PA, a rural area in North Central PA that encompasses many farmlands. As a bank that values connections with its community, agricultural lending is naturally its specialty. Over the past five years, agricultural loans have consistently ranged from approximately 16 to 33% of the banks’ portfolio (as discussed in Part I.3). For emphasis, in 2023, the average bank of FCCB’s size had agricultural loans comprising only 2.28% of its portfolio. In 2017, the FFIEC ranked FCCB as the top lender for agriculture (FCCB). According to Black, FCCB currently ranks third in agricultural lending among PA banks and is within the top sixty nationally. The bank even has a specialized agricultural lending team, with fifteen members divided regionally by Northern, Central, Southcentral, and Delaware (FCCB). This specialty has proven to be a source of strength for FCCB, fostering strong connections with community members and even providing a source of security when loan growth is slow. During economic uncertainty, the bank had this specific niche to which they could go and lend (Black). Without a doubt, FCCB excels in “Putting Farmers First” (FCCB).

As a community bank, FCCB values customer connections highly, and even in challenging times, the bank refers to core values when managing risk.

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