2024 Journal of Community Bank Case Studies

FIRST PLACE: Commonwealth University of Pennsylvania

Part II.6: Regulatory Changes, Challenges, and Risks

however, as of March 11, 2024, the program has ceased offering new loans (Bowman 1). Other contingent lines are more expensive or have lower limits, or both, but they still serve as important additional sources of liquidity should the need arise. FCCB’s security investment portfolio is primarily composed of government securities. According to FCCB’s BHC’s most recent 10-K report, the bank held over $417 million worth of investment securities by fair value (CZFS 64). A breakdown of FCCB’s investment securities portfolio is shown in Figure 6 below. Of the $417 million total investment securities, over 73.2% were invested in a mixture of US Treasuries, US Agencies securities, and municipal bonds, while another 23.8% was invested in government-sponsored mortgage backed securities; only 3% were invested in corporate obligations. Guillaume explains that FCCB’s investment strategy targets securities with low credit risk and some convexity to

FCCB’s management expects greater regulatory emphasis on specific areas of bank management following the 2023 bank closures. For example, Mick Jones, COO, expects regulators to focus more on capital planning, liquidity planning, and earnings management than in prior years. Jones predicts that regulators will “want to know that you have the infrastructure in place to be able to manage through these times,” and they will ensure banks are testing liquidity and capital structure regularly to identify any developing issues. Moving forward, Black expects liquidity planning and the scrutiny of uninsured deposits to become major conversation topics. He also expects changes to the new Basel III proposal, which contains provisions seemingly intended to respond to the 2023 banking failures. Thus, the new proposal seeks to significantly increase capital requirements for large banks, which has faced fierce opposition from the banking industry (Schroeder). According to Black, both

provide known cash flows, hence the heavy focus on government securities in its portfolio. Black elaborated on the bank’s conservative strategy by stating, “We don’t chase yield ... we’re not an investment bank, we’re a community bank.”

Figure 6: FCCB Investment Securities Portfolio ($ in 000s)

$12,403 3.0%

$60,771 14.6%

$143,288 34.3%

U.S. Treasuries Municipal Bonds Mortgage-Backed Securi ti es

U.S. Agency Secur iti es Corporate Obliga ti ons

$99,352 23.8%

$101,787 24.4%

Source: 2023 SEC 10-K report, CZFS, p. 64.

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