Several factors led to the demise of Silicon Valley Bank and Signature Bank, which failed earlier this year. Chief among those factors were uninsured deposits.
However, that metric, as well as others point to relative strength among banks in the Golden Triangle.
At seven banks in the area The Dispatch looked at for this report — Bank of Commerce, BankFirst, Cadence, The First Bank, Regions, Renasant and Trustmark — less than 1% of their deposits are uninsured, according to the most recent quarterly call reports posted by the Federal Deposit Insurance Corporation. The FDIC insures up to $250,000 of a deposit account but not any amount beyond that.
Those reports indicated the area banks had between 40,000 and 1 million depositors with account amounts averaging between $20,000 and $40,000.
By comparison, upwards of 90% of accounts at Silicon Valley and Signature Bank were uninsured. That, combined with the banks investing large portions of their capital in long-term hold-to-maturity securities, led to those banks not having enough capital on-hand to repay depositors, Mississippi State University Associate Professor of Finance Alvaro Taboada told The Dispatch.
“The fear that was created through those failures is certainly out there,” Cadence CEO Dan Rollins said. “But for 99% of the banks in the world today, it’s been mostly just business as usual. The two banks that failed … were not normal banks.”
Uninsured deposits and hold-to-maturity securities are among four metrics Taboada told The Dispatch are key indicators of bank health that are available on the FDIC reports. The others are growth of deposits and percentage of non-performing loans.
Frank Appleby, a finance lecturer and executive in residence at MSU’s College of Business, said local banks are all in a healthy range based on their very low percentage of uninsured deposits and of non-performing loans, which are loans that have gone unpaid by a borrower.
In the Golden Triangle, no more than 1.5% of loans are classified as non-performing. Appleby said 3% or higher could raise eyebrows from regulators and possibly spell trouble.
“If I had 3.5% non-performing loans, that would bother me a lot,” Appleby said.
Taboada added that area banks have been increasing quarterly growth in deposits.
In 2020, banks across the country saw between 4% and 20% increase in deposits, but over time, as interest rates rose to record highs throughout 2022, those deposits decreased an average 3% at area banks, Taboada said, referencing the call reports. In the first quarter of 2023, all area banks grew deposits in a range of 1% to 9%.
Taboada added that area banks’ invest more often in lower-risk markets, compared to banks like Silicon Valley and Signature Bank, which had larger portions of their portfolios in technology sectors and startups needing large amounts of cash, and relatably, had fluctuating account balances.
“That is one reason why they may be significantly different from, say, Silicon Valley Bank,” Taboada said. “They’re not as concentrated in one particular industry in a sense.”
Rollins said area banks also keep loan portfolios healthy by staying in the local markets, issuing small business, mortgages and consumer loans.
“We have a small team to focus on technology, a small team that focuses on health care,” Rollins said. “We have a small team that focuses on one to four family constructions. That’s just normal business that goes on in the banking world.”
Taboada said banks that don’t hold securities in long-term hold to maturity securities are also less susceptible to high interest rates, which climbed rapidly in 2022 and currently sit at 5.25%.
“The shorter the duration, the shorter the maturity of the securities, the less susceptible they are to the changes in rates,” he said, “So, that’s another component.”
Currently, area banks have between 0% and 90% of securities classified as “held to maturity,” but the duration of those securities are not publicly available.
BankFirst Financial Services President and CEO Moak Griffin said local banks can guard against long-term hold-to-maturity securities by classifying other securities as available for sale, which aren’t held for any specific amount of time to grow in value. BankFirst only has about one-third of its securities portfolio in held-to-maturity, he said.
“We can’t ever get underwater on our portfolio if we only have a third of your securities invested long-term,” Griffin said.
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