After the downfall of Silicon Valley Bank (SVB), the financial lending business changed. Lending and banking, as we knew before, have changed. This new marketplace in the banking industry has given light to many national banks regarding their strengths and weaknesses.
A quote from Warren Buffet, “Only when the tide goes out do you learn who has been swimming naked” (Fortune)
It looks like the tide has gone out for some industries, as we saw in the collapse of SVB. The SVB collapse was majorly concerning Tech Venture Capital on loans that were loaned out at a very low rate. What made the waters shakey for SVB is that there was record high inflation in the winter of 2022-2023, and to adjust the supply and demand, the Fed raised the interest rates. It put stress on the bank. (Silicon Valley Bank)
A recent article suggested smaller banks’ concerns. As lawmakers work to increase FDIC limits because smaller banks “are concerned with depositor flight and want some form of short-term or permanent deposit insurance at least a higher level, if not unlimited, for some period of time,” said Steve Dollar, who is the Head of financial institutions at Norton Rose Fulbright. On the Federal Level, the White House has not taken a position on this matter. Treasury Secretary Janet Yellen states Tuesday, March 21st, 2023, that the federal government could possibly rescue uninsured bank depositors if smaller lenders suffer a similar bank run like the one that collapsed SVB Silicon Valley Bank (CNN)
According to public FDIC annual reports, Thomaston Savings Bank’s rapidly growing Connecticut Banking Institution led by CEO Stephen L. Lewis, boasting an astonishing 15 locations, has had a record low asset growth in 2022. The asset growth of Thomaston Savings Bank of only a 1.7% annual growth of total assets. (FDIC TSB REPORTS) This is the lowest asset growth by year for Thomaston Savings Bank in over 15 years.
Prior years growth percent with asset holding size: (Key; b billons, m millions) (Q4 Reports comparison)
As years of growth for total assets held by a banking institution is only one indication of the bank’s standing, there are a few others to analyze. Important factors to consider are liquidity (Cash on hand), assets/loans, and liabilities, which are essential to review.
According to Weiss Ratings, Thomaston Savings Bank (TSB) receives a C+ as to their December 31st Quarter 4 2022 Filing. Weiss Ratings bring TSB to a C+, indicating two aspects that do not rank this institution in the A Credit Rating. TSB is ranked fair in profitability, which could be a great thing for the customer as their deposits could be invested in very low-risk investments. However, liquidity is the other factor ranking TSB into a C credit rating. As seen with Silicon Valley Bank, liquidity is important.
We looked for another system that analyzes a bank’s FDIC annual filings, which can be quite troubling to look through, this system of Deposit Accounts run by Lending Tree looked deeper into the two Weiss Ratings factors. Focusing on the liquidity part of the rating, Deposit Accounts scored below average in capitalization. Out of $1.58 billion in assets (Q2 of 2022 report), TSB had only $111.38 million in equity. This amount converts to a 7.03% level of capitalization.
This low amount of capitalization is actually very common in today’s day and age. To get a total analysis of the TSB bank rating, it is important to review the most recently posted financial statement, which is Q4 of 2022.
The total assets stated are $1.63 Billion. So, what are these assets? It is an important question. The assets held by TSB savings are invested primarily in securities and real estate. These two by themselves, are essentially safe and low risk. TSB investments in securities for the majority are in US Government Securities – Collateralized Mortgage Obligations (CMOs). CMOs are a type of mortgage-backed security which is a pool of hundreds of mortgages. We are unable to see what credit rating the invested mortgages in the CMOs are. However, it is common knowledge that CMOs are subject to interest rate fluctuations and can take up to 30 days to settle after trading, possibly causing a bank a liquidating delay. (The Street)
The second majority of assets held by TSB besides CMOs are real estate loans making up $839 million of their $1.63 billion, which is a very large majority. Real Estate is a secure investment for anyone, through inflation, through the 2008 housing market, through anything, time and time again, real estate has been the bee’s knees. A lending institution is almost 100% guaranteed their money back on real estate because, in case of a default, the lender shall foreclose on the property to recoup their original investment. However, if there is low liquidity in an institution, the bank can’t sell the homes loaned out to homeowners and buyers. The bank is only able to collect the agreed-upon mortgages and is only allowed to sell the house if there is a default on the mortgage note by the homeowner. A foreclosure for non-payment could take a bank anywhere from 1-5 years to complete the foreclosure process, in a lot of instances, a bank will pay a non-payment mortgagee a signing bonus to exit on their own will from a past due mortgage.
Will TSB be the next SVB collapse? Most likely not. However, there is one key takeaway to look into.
TSB has $1.63 billion in total assets. Out of the $1.63 billion of their assets, it is stated in the Q4 2022 Filing that their cash balance is $42.2 million. (A reported Equity Capital of $100 million) Looking into the Liabilities Statement of Thomaston Savings Bank, there are Liabilities of $1.52 Billion. The largest portion of TSB liabilities is total deposits from bank account holders, which equal $1.46 billion. If 1% of account holders withdraw their money from Thomaston Savings Bank in the same week, Thomaston Savings Bank would have to file a claim with the FDIC as there would not be enough cash on hand to satisfy the withdrawals of their customers.
Bringing this article to conclusion, this article is about one local bank during a tough time in business for everyone. Will this Thomaston Savings Bank make it through business in the next 12 months? most likely, as they have a long been in business for a long time! However, this isn’t picking on one banking institution, most of the banks nationwide have a strain they are feeling.
Warren Buffet quote Fortune – Link https://fortune.com/2022/10/03/warren-buffett-famous-quotes-swimming-naked-interest-rates-debt-zombies/
CNN – Link https://www.cnn.com/2023/03/22/business/fdic-insurance-expansion-explainer/index.html
FDIC Thomaston Savings Bank – Link https://banks.data.fdic.gov/bankfind-suite/bankfind/details/18258
FDIC Thomaston Savings Bank Reports – Link https://banks.data.fdic.gov/bankfind-suite/financialreporting/details/18258?establishedEndRange=3%2F26%2F2023&establishedStartRange=01%2F01%2F1792&inactiveEndRange=3%2F26%2F2023&inactiveStartRange=01%2F01%2F1970&incomeBasis=YTD&institutionType=banks&limitEstablishedDate=false&limitInactiveDate=false&reportPeriod=20031231&reportType=assets-liabilities-and-capital&unitType=%24
Weiss Ratings: https://weissratings.com/en/bank/18258/summary
The Street CMOS – Link https://www.thestreet.com/dictionary/c/collateralized-mortgage-obligations