Community banks and credit unions are working in earnest to distance themselves from the spate of regional bank failures, emphasizing local deposit bases and aversions to cryptocurrency.
Silicon Valley Bank's outsized deposit
Small institutions with different business models do not have such risky exposure, executives said.
"It's just a totally different situation," Alabama Credit Union President and CEO Steve Swofford said in an interview.
Swofford sent an email to all the Tuscaloosa-based credit union's branch and call center supervisors over the weekend to point out that SVB primarily catered to the tech industry, and the majority of its deposits were uninsured commercial accounts. In contrast, 95% of the $1.6 billion-asset Alabama Credit Union's accounts are for individual consumers, and more than 90% of those deposits are fully insured, Swofford said.
SeaComm Federal Credit Union President and CEO Scott Wilson said the $770 million-asset company does not take risks like the bigger banks that failed. He said the Massena, New York-based institution sticks to basic deposit gathering and lending.
"Consistency will go a long way to continue to instill confidence in the credit union," Wilson said in an interview.
The management teams of some community banks and credit unions are nervous, however, given the panic in the markets. But the vast majority have nothing to do with cryptocurrency nor are they highly specialized in technology like SVB, said Robert Bolton, president of bank investor Iron Bay Capital.
"There are just a lot of dirty bombs going off right now, so the small guys have to be careful even as they explain they really have no direct connection to all of this," Bolton, who specializes in community bank investing, said in an interview.
Indeed, many bankers declined to speak on the record Monday, preferring to tread lightly with carefully worded statements or no public comment at all. Instead, many are communicating directly with customers, reaching out an effort to soothe worries — and protect deposits.
"These failures involved banks that operate very differently from Martha's Vineyard Bank. Indeed, their collapse emphasizes the importance of entrusting your deposits with a bank that provides the maximum possible protections," James Anthony, president and CEO of the $1.3 billion-asset bank, said in a letter to clients that was shared with American Banker.
Over the weekend and into Monday, some publicly traded banks issued statements in hopes of easing investor sentiment that soured following Silicon Valley Bank's demise late last week. Bank stocks were again under heavy pressure in Monday trading, the day after
CapStar Financial Holdings in Nashville was a case in point.
"While the events of the past week are unfortunate, the impacted institutions operated very unique business models which presented unique risks. CapStar is a conservative and well-diversified company with a history of solid performance and risk management. We target and maintain a diverse business mix of established, known customers that principally operate and live in our seven communities," Timothy Schools, president and CEO of CapStar, said in a Sunday press release.
"Importantly," Schools added, "we have no deposits, loans or equity investments related to cryptocurrency/digital-assets or fintech. We intentionally maintain a balanced and disciplined approach to capital, liquidity, asset quality and earnings, which has proven to differentiate us during challenging operating environments."
The $3.1 billion-asset CapStar's shares were down about 3% in Monday-morning trading, though that was better than the 11% drop for the KBW Bank Index, which consists mostly of larger banks, in the same timeframe.
Still, most publicly traded banks are laying low, trying to avoid any connection to the bank failures.
"I definitely want to stay off the radar," said one CEO of a West Coast community bank, who requested anonymity because he does not want his bank associated with SVB or Signature's problems. "We have very little exposure to what happened at these regional banks. Clearly, there is a crisis of confidence in the market right now, but we don't want to attach ourselves to problems that we simply do not have. We're just a different animal, and so we'll focus on our customers and investors directly for now."
Iron Bay's Bolton said that is the prevailing thinking as of early this week. Bank stocks are down nearly across the board, but this is due largely to broader sentiment and moves made by index funds to bail on the sector, rather than specific issues with small lenders, he said.
"Fact is, the small banks don't really know anything more about all of this than the rest of us — other than it's not a problem of their making," he said. "So while they are scratching their heads, wondering what to do next, it makes sense for most of them to stay out of the spotlight."
Bolton said one big concern to emerge early this week for community banks is the possibility of lawmakers stepping in with new regulations — possibly including tougher liquidity requirements.
"That's some serious irony," Bolton said. "If anything, these failures showed regulators asleep at the switch, not a lack of regulation. We don't need new rules for small banks that had nothing to do with this; we need the current rules enforced."
