Don’t bank on the next collapse happening in Texas

By Holden Wilen  –  Staff Writer, Dallas Business Journal

Mar 14, 2023

Financial executives around DFW have a similar message: The next bank failure isn’t likely to occur in the Lone Star State — for a number of reasons.

North Texas bankers remain confident their institutions will not face the same fate as two banks in California and New York that collapsed over the weekend.

Federal regulators shut down Silicon Valley Bank and Signature Bank between Friday and Sunday, causing apprehension across the sector. While the Federal Reserve and Federal Deposit Insurance Corp. took actions Monday to contain the process, trading prices for regional bank stocks plummeted amid fears of a run on deposits. The negative sentiment fueled speculation about the next domino to fall.

Dallas-Fort Worth financial executives said Monday they have spent the last few days fielding calls from concerned customers. They all have a similar refrain: Don’t expect the next bank failure to occur in Texas.

Victor Valcarcel, an associate professor of economics at the University of Texas at Dallas, said our state’s banks remain largely insulated from the impacts of the SVB and Signature failures because they have diversified portfolios. They also have less exposure to the technology industry and cryptocurrency than banks on the coasts. SVB focused mainly on serving tech startups and venture capital firms while Signature aimed to be a leader in cryptocurrency deposits.

“I don’t see much in the way of a contagion effect happening to banks that are diversified and have portfolios that are more capitalized,” Valcarcel said. “I don’t see anything systemic for the banks in this area. Those banks that have substantial positions in tech might have a bit more uncertainty.”

What executives are saying

David Brooks, CEO at McKinney-based Independent Financial, said he sent a message to his employees Monday morning reminding them that the 35-year-old bank has historically outperformed and gained market share during tough times. In an interview with the Business Journal, he described Independent as a “down-the-middle-of-the-fairway regional community bank” that runs a diversified portfolio and tends to make smaller loans than its peers.

Independent, which had more than $18 billion in assets as of Dec. 31, remains well-capitalized and “has not experienced any deposit outflow from core clients during the last few days,” Brooks said. The bank has received as many calls from people expressing interest in moving their deposits to Independent as it has from concerned customers, he said

“From our core customers, we’re actually up on the day, so we feel pretty good about that,” Brooks said. “We’re humble, given everything that is going on out there and we take nothing for granted.”

Jared Craighead, chief of staff and general counsel at Dallas-based Vista Bank, described call volume from customers on Monday as “tepid.” However, he said the bank proactively reached out to customers to let them know it remains financially sound.

Like Brooks, Craighead said Vista operates much differently than SVB or Signature. For example, Vista has about 7% of its assets invested in securities such as U.S. Treasury bonds, while SVB had more than half of its assets in securities. Things came to a head for SVB because securities have lost value amid rising interest rates, so the bank could not fund deposits when its tech and venture capital clients all rushed to make withdrawals.

“When that sort of singular industry experiences difficulty and funding dries up, then you see what happened to them,” Craighead said. “We have West Texas roots with rural and suburban deposits spread all around Texas. We are geographically- and industry-diversified in terms of our deposits.”

First Foundation Bank, which moved its headquarters from California to Dallas in 2021, published a financial update amid the crisis. The bank’s shares fell more than 33% on Monday to $7.75.

CEO Scott Kavanaugh said the bank “remains stable in this difficult market moment for regional banks” and its liquidity positions remain “healthy.”

“Our risk management has kept us well-positioned to serve our clients no matter what shifts in the industry come,” Kavanaugh said.

First Foundation’s total deposits have increased from the end of 2022 by $600 million to $10.9 billion as of March 10, according to the bank’s update. The bank also reported “limited-to-no direct exposure” to venture capital-backed deposits.

Unlike many other Dallas-area banks, First Foundation has invested in cryptocurrency. The bank did not disclose any information related to its cryptocurrency investments. A spokeswoman could not be reached for comment.

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