Deposits at U.S. banks grew swiftly after COVID arrived here in the states. In fact, domestic deposits increased by 37.5% during calendar 2020 and 2021 and finally peaked on March 31, 2022 at $18.426 trillion. One would think (at least this one thought) that depositors were seeking the safety of FDIC insurance. Not so much.
Between stimulus checks, PPP loans and stock market risk aversion, there was an inflow of deposits never before seen in our nation’s banks. But much of it was uninsured.
Three years ago (based on June 30, 2019 financial data) over 60% of U.S. bank deposits were FDIC-insured. That number got as low as 53.4% (year-end 2021) but is beginning to climb again now because it is primarily uninsured deposits that are now exiting the banking system.
Deposit accounts in excess of $250,000 were down by $282 billion in the second quarter. The 50 banks reporting the highest percent of deposit outflows during the 12 months ended June 30, 2022 can be found on page 7, but the outflow was not felt across the board. In fact, over half of all U.S. banks reported an increase in deposits during the second quarter. (As of June 30, 2022, 54.6% are estimated to be FDIC-insured.)
Fortunately, we have not had a bank failure in this country in almost two years. (The last FDIC-insured bank failure was Almena State Bank in KS on October 23, 2020.) But this level of uninsured deposits, more than two years after the start of the pandemic, is perplexing.
That said, we are curious as to what is making the 50 banks on page 7 lose deposits to such a degree. For example, 5-Star Security State Bank, Springville, IA has both a regular savings account (with a minimum deposit of just $25) and a junior savings account (minimum just $5). It also offers CDs, IRAs and HSAs to attract local deposits. Yet, it lost 86% of its deposits in the 12 month period. Why?
Before the pandemic, Security State Bank was a $90 million asset bank headquartered in Waverly, IA, and also operating two branch offices in Shell Rock and Springville, IA (now its headquarters) - the movie “Field of Dreams” was filmed in this area.
As a community bank, Security State Bank was there for its neighbors and friends throughout the pandemic; its 11 employees made at least 145 PPP loans worth close to $2.5 million. At its peak, Security State Bank had $102.5 million in assets, loans worth $34 million and deposits approaching $80 million.
Then, January 2022, Security State announced it was selling its headquarter office and the branch in Shell Rock, along with all related assets, to 5-Star CUSB Bank, Cresco, IA, a like-minded, but much larger, community bank. That decision drastically reduced the asset size of Security State as well as its deposits.
By June 30, 2022, Security State’s assets were less than $22 million, loans accounted for about $4 million; only one PPP was left on its books and deposits had declined by 86%. That may seem like an appropriate size for this idyllic town of just over 1,000 residents, but it’s not the only bank in town.
4-Star The Exchange State Bank is right down the street. Both have proven their worth in the past three years, and as of today, Springville, Iowa has no other banking competition. While Security State shed its other two offices, The Exchange Bank has a branch in Martelle that it acquired in 2009.