A Note from our CEO

March 20, 2023

A note from our CEO . . .

By now you have heard about the collapse of first Silicon Valley Bank followed by Signature Bank on Sunday, resulting in the second and third largest bank failures in history. I want to explain what caused these banks to fail and how their risky practices do not represent banking as a whole, especially community banks. As a community bank executive reading these stories, I am absolutely appalled.

Both SVB and Signature Bank engaged in activities that presented both higher levels of risk and concentrations within their portfolios. SVB had a concentration of business with venture capitalists and startups, with many of these companies keeping deposit levels in the millions/billions above insured levels, at the time of their failure, nearly 90% of their deposits were uninsured, causing a huge potential for a run if signs of trouble were to emerge. Signature Bank was heavy into crypto, neither of which are common in most banks. SVB in recent years bought a huge volume of long-term fixed rate investments that were very low yielding creating a mismatch on their balance sheets that when interest rates increased would cause the value of those investments to decrease. It also greatly decreased their ability to fund loans or meet deposit withdrawal demands as over 50% of their deposits were tied up in these long-term assets. SVB did not manage its liquidity well. Fast forward twelve months as rates have increased dramatically, funding from venture capitalists and for startups greatly declined causing these companies to start using their cash on hand (deposits) which created a funding crisis for SVB. They had to sell those investments bought at low rates forcing them to realize large losses just to meet the withdrawal demand. Those losses totaled more than their required capital causing a panic and then a run on the bank ultimately causing its collapse. This is a result of horrible interest rate risk management on the executive level.

It is apparent SVB was reckless and negligent in managing their interest rate and liquidity risk. Their executive team sold millions in shares just weeks ago (which assumes they knew it was coming), they had no Chief Risk Officer for 8 months during one of the fastest rate increases on record, had doubled in size too fast to keep adequate capital levels on hand,  I am sure we will hear more in the coming days as to the catastrophic behavior that led up to this failure.

Why am I appalled? This is just another example of disparity in size and scope. Small banks like mine manage our risk EVERY single day. When we are examined, as Williamstown Bank was recently, we spend hours showing how we model and manage our interest rate and liquidity risk regardless of the rate environment. We show that we don’t throw all our eggs into one basket and create concentrations of risk that could harm our customers should the rate environment change. I explain how we would pivot and manage our balance sheet when rates crash overnight and how we are sure not to create such a mismatch in the first place. Community banks will now be forced to pay higher assessments and face even greater regulatory scrutiny because of the actions of banks like SVB and Signature. The announcement by Janet Yellen that only banks that pose systemic risk to the banking industry would be eligible for full deposit guarantee is rewarding the VERY catastrophic behavior that led to SVB’s failure and then will only serve to consolidate our industry more, closing community banks that meet the majority of small business needs in our communities.

This is just another example of why where you choose to bank matters. Just because a bank is ranked by Forbes doesn’t mean it is run in a way that properly manages its risk. Just because it’s the cool bank for all the startups in Silicon Valley doesn’t mean it’s the smart bank for you to entrust your deposits. If you want to put your money into a bank online or through one of the non-bank providers, please do your research. Community banks by nature do not take on this level of exposure and risk. We live and work in the communities we serve, taking local deposits and making local loans while properly managing our risk so that we remain safe and sound in any environment. We make sure we take care of our customers’ money and their trust. In West Virginia, we have a solid regulatory system which works with banks to ensure we as a whole remain stable. I appreciate the level to which our regulators hold banks accountable.

This week I have seen my team personally help many of our customers understand FDIC insurance coverage, sitting with them and the FDIC EDIE calculator so they can leave knowing their money is safe. My door is always open, and customers are welcome to stop and ask questions, my office isn’t located in a concrete jungle hundreds or thousands of miles from my customer base. It is the passion of myself and other community bank executives across the country to make sure you are comfortable with your bank and know that we do not take your trust in us for granted. When you bank local you know your money stays local, and you can have peace of mind knowing we manage our risk accordingly every single day. Community banks like Williamstown remain well capitalized, we understand and monitor our risk, managing it every day, and our team is always willing to help answer questions. We have been operating safe and sound for over 100 years, and we do not take you entrusting us with your money lightly.