2024 Journal of Community Bank Case Studies

2024 COMMUNITY BANK CASE STUDY COMPETITION

Tier 1 capital increased 12.4% ($23.0 million) in 2023 and achieved a 19.3% CAGR over the past five years. While overall level increased, INB’s tier 1 and total risk-based capital (RBC) ratios declined to 11.23% and 12.14% respectively. The peer group shows a similar downward trend over the past five years while rebounding slightly in 2023. Overall, INB’s capital ratios for 2023 were slightly lower than the peer group’s 11.97% and 12.92% for tier 1 and total, respectively (Both INB’s and peers’ common

Figure 7: Total Risk-Based Capital (in Millions)

$250

12.7%

42.0%

$200

11.8%

$150

13.7%

5.9%

$100

$50

$0

2019

2020

2021

2022

2023

Tier 1 Capital

Tier 2 Capital

Total RBC: YoY

Source: UBPR

$195.5 million in capital. This represents a 15.0% increase over the previous year and a 17.2% CAGR since 2019. Of this, $18.4 million was from retained earnings. While the peer group had a slightly higher net income ratio—12.49% of equity compared to INB’s 10.11%—INB had a higher ratio of retained earnings—10.11% compared to 8.21%—as INB elected not to declare dividends this year. INB also saw a $5.5 million increase in capital through a transaction with its parent company Illinois National Bancorp (UBPR).

equity tier 1 (CET1) ratios were identical to their tier 1 ratios). INB had a leverage ratio of 9.51% in 2023 while their peers attained 9.63%. Despite being slightly lower than its peers, INB is well within the ratios for being considered a well capitalized bank by the FDIC’s prompt corrective action (PCA) system’s guidelines (See Table 1). Further, many members of the INB management team commented on the fact that the founders and board members of INB have always been there to support the bank when they have needed capital to grow (Donovan, et al.). This is evidenced by the $5.5 million influx of capital this year and a $45.5 million-dollar one last year to support the bank’s expansion into the Florida loan market. Liquidity INB’s net loans & leases to deposits ratio (LDR) was 90.16% in 2023. This was somewhat higher than its peers’ 85.98%, but still within the

Table 1 - PCA Well-Capitalized Bank Requirements

Total RBC Ratio

≥ 10%

Tier 1 RBC Ratio

≥ 8%

CET 1 RBC Ratio

≥ 6.5%

Tier 1 Leverage Ratio

≥ 5%

Source: FDIC

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