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Community banks' deposit bases hold steady, seen as 'safe haven'


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Community banks' deposit bases hold steady, seen as 'safe haven'

Community banks are not experiencing major outflows of deposits following the failures of Silicon Valley Bank and Signature Bank, and in some cases they are even seeing inflows.

In interviews with S&P Global Market Intelligence, bankers and other industry experts repeatedly affirmed that community financial institutions are not seeing the kind of deposit outflows some expected as customers seek out safe places for their money following bank failures.

Furthermore, smaller institutions tend to have much lower concentrations of uninsured deposits and venture capital, lower rates of unrealized losses in their security portfolios and overall better risk management practices, making them attractive to consumers in the current banking environment, they said.

Community bank deposits holding up

Following the recent bank failures that have spurred a crisis of confidence among consumers, some industry observers expected consumers to flee community banks and flock to the nation's largest institutions. However, community banks from all over the country are reporting steady deposit balances, and some are even seeing an influx of deposits coming to their institutions.

Edmond, Okla.-based Citizens Bank of Edmond has not experienced deposit outflows in the wake of the failures. Instead, it has seen deposit growth of 3% in the days since Silicon Valley Bank's collapse, Vice Chairman, President and CEO Jill Castilla said in an interview.

Similarly, West Virginia-based Williamstown Bank Inc. and Florida-based Capital City Bank Group Inc. have not seen any deposit outflows since the failures, both banks' respective CEOs told S&P Global Market Intelligence.

Recent equity analyst surveys also showed that deposit bases are holding up.

A Hovde survey of nearly 100 bank management teams released on March 17 revealed that 74.2% of respondents said they have experienced "no material change" in total deposit balances over the previous week, while 18.3% said they experienced positive flows and only 7.5% said they experienced negative flows.

Separately, Piper Sandler analysts recently spoke with management teams at 13 different banks in the Southeast to get a read on deposit movement in reaction to the recent bank failures.

"We did not get the sense that there have been major deposit outflows at the banks we met with at this point in time," the analysts wrote. However, "There was a general agreement that larger commercial deposits are the most 'at-risk.'"

Community banks differentiate themselves

One reason that customers are staying with, and in some cases moving to, community banks is because they are seen as a "safe haven" in the current environment, Piper Sandler analyst Stephen Scouten said in an interview. Typically, smaller institutions have less deposit concentration in terms of both uninsured deposits and exposure to one industry, and community banks also tend to have less or even no exposure to venture capital and cryptocurrency, he said.

"If you don't have a massively concentrated deposit book, there's not going to be the same degree of pressure that … you're seeing in First Republic Bank and some of these other institutions," Scouten said.

Generally, community bank balance sheets are overwhelmingly safer than larger counterparts due to a consistently conservative investment approach centered on issuing loans to people and businesses in their respective communities, according to Gabe Krajicek, CEO of Kasasa, a financial technology company that provides products and consulting to community banks and credit unions.

"They have a lot of good, meaty deposits, but not like these $25 million balances that are completely uninsured," Krajicek said.

In interviews with S&P Global Market Intelligence, community bankers emphasized their differences from the larger regional banks that failed.

Williamstown Bank President and CEO Sharon Anderson said Williamstown does not have nearly the level of uninsured deposits or the concentration in venture capital deposits that Silicon Valley Bank did. Furthermore, the company does not have levels of unrealized losses in its securities portfolio close to the extent of Silicon Valley Bank's, she added.

"The majority of our deposits are insured," Anderson said. "We serve a variety of different customers and markets. We make sure that we work with our regulators, and we show how we model, how we would change and pivot on a dime if rates would rise or fall overnight."

Citizens Bank of Edmond's Castilla also noted the bank's limited unrealized losses in its securities portfolio.

"We're not in a position that we think there's any fragility," Castilla said.

Reassuring customers

While deposit balances are either remaining steady or increasing for most community banks, customers are still concerned about the recent market turmoil and have turned to their banking institutions for solace.

Williamstown Bank fielded many calls from customers concerned about the safety of their deposits after Silicon Valley's failure, Anderson said. In response, the company is working to educate customers about deposit insurance and differences in management practices between Williamstown and the banks that failed through one-on-one conversations and social media, she added.

"They've all left feeling that their money in Williamstown community bank is safe," Anderson said.

Banks are also reminding customers they have tools that provide access to expanded Federal Deposit Insurance Corp. deposit insurance through options like sweep accounts that provide insurance on large balances or membership with IntraFi Network LLC, which provides member institutions with FDIC-insured deposit placement services.

Even though only 12% of Citizens Bank of Edmond's deposits are uninsured, the company has highlighted its relationship with IntraFi to reassure the few customers who have reached out that it can provide additional deposit insurance, Castilla said.

"There's a lot of products that exist within the banking sector that alleviate that uninsured deposit risk and therefore, should alleviate a lot of the pressure for deposits to exit due to fears," Piper Sandler's Scouten said.