2024 Journal of Community Bank Case Studies

SECOND PLACE: University of Illinois Springfield

80%–90% range considered to be ideal for a loan-to-deposit ratio (Murphy). INB’s ratio was down slightly from the year before (94.57%) but up overall from 2019 when they sat at 80.62%. The increase in the LDR between 2021 and 2022 was due to INB’s expansion into the Florida commercial lending market. There is a trade off to be found in the LDR, as higher ratios will increase earnings but expose the bank to more liquidity risk. In the remainder of this section, we will examine other factors to show that INB’s LDR, although on the high end of ideal, is still consistent with their risk profile given their solid loan portfolio, discussed in the previous section, and access to sources of contingent liquidity. First, INB’s liquidity ratio—cash and cash equivalents 2 as a percentage of average assets— is right in line with its peers: 6.6% for INB, 6.7% for peers. Second, INB’s total Federal Home Loan borrowings are only 0.53% of average assets. This is down from the previous year’s 0.62%, a five-year high for INB. INB’s peer average is 4.71% for 2023 and had a five-year low of 2.31%.

This shows that INB is using only a portion of the contingent funding available to them, and therefore has a low funding-liquidity risk. Part II: Responding to the 2023 Bank Closures Bank Niches When reviewing the Federal Reserve report on the failure of Silicon Valley Bank (SVB) and the FDIC reports on the failures of Signature Bank of New York (SBNY) and First Republic Bank (FRB), we identified three common characteristics that played a role in their failure:

• rapid growth • concentration of deposits • reliance on uninsured deposits ( SVB i; Signature 2; FRB 7)

As we already addressed growth in the financial analysis section, this section will focus on how these factors and the banks’ failures were influenced by the communities those banks chose to serve

and how INB compares in the areas of concentration of deposits and reliance on uninsured deposits. Concentrations and Communities From its founding, SVB served the technology sector (Farrell). Tech startups, in a way, were SVB’s community. According to the Federal Reserve report on SVB’s failure, at the end of 2022 over 50% of both SVB’s deposits and off-balance-sheet funds were from the technology sector (19).

Figure 8: Loan-to-Deposit Ratio

$2.5B

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00%

$2.0B

$1.5B

$1.0B

$0.5B

$0.0B

2019

2020

2021

2022

2023

Net Loans & Leases

Tot Deposits

LDR

Source: UBPR

33