AmeriServ Financial headquarters is located on Main Street in downtown Johnstown.

JOHNSTOWN, Pa. – In the span of three days, two large banks that held deposits of tech companies were rendered insolvent, but local bank officials are saying their customers’ money is safe.

The swift collapse of Silicon Valley Bank last Friday sent shockwaves through the financial industry. New York’s Signature Bank followed Sunday.

However, there are significant differences between those banks and the financial institutions that hold customers’ money in Pennsylvania counties, said AmeriServ Financial President and CEO Jeffrey Stopko and 1st Summit Bank President and CEO Eric Renner.

Somerset Trust Co. Vice President for Marketing Allison Hoffman agreed.

“We operate very differently,” she said.

Silicon Valley Bank’s deposits were primarily from the tech industry and venture capital investors. Signature Bank similarly had deposits tied primarily to those volatile industries.

By contrast, community banks in the Johnstown region cater to a diverse group of customers, home mortgagers, small businesses, commercial real estate firms, and people including police officers and teachers – there’s no single group of customers that would generate liquidity problems if they made a bank run similar to the one tech startups made at Silicon Valley Bank and Signature Bank, local bank officials said.

Another key difference between the banks that were rushed to insolvency and local financial institutions is how customers’ deposits were invested.

There are two main ways banks make money: investing deposits in securities that earn interest and using deposits to make loans that generate interest.

Across Cambria and Somerset counties and the Western Pennsylvania region, banks invest deposits back into the community by making loans to other customers, Renner said.

In the case of Silicon Valley Bank, it had one primary type of customer – tech startups – and one method of investing deposits – securities.

The bank received a surge of tech deposits in 2020 as companies expanded sales and payroll thanks to pandemic- driven, work-from-home environments.

The bank invested those deposits in long-term U.S. Treasury bonds, which normally deliver small but reliable returns.

However, in 2022, the Fed hiked interest rates by 4.5% to cool the economy. When interest rates rise, existing bonds paying lower interest rates become less attractive and, if sold before they mature, sell for less than the principal. But that’s what Silicon Valley Bank had to do.

Companies in the tech industry slowed down and made a run on the bank to access cash to meet expenses.

“These customers came in to withdraw their deposits, and they (the bank) had to find cash to fund those deposits, so they had to sell all these securities and ended up taking a large loss,” Stopko said, “and then that hurt their capital…That’s how it unwound so quickly. It’s unprecedented.”

In addition, the bank had a high proportion of uninsured deposits, Hoffman said.

“We are on the flip side,” she said. “95% of our deposits are FDIC-insured.” (That means a bank account is federally protected against bank failure or theft.)

U.S. Rep. John Joyce, R-Blair, said the No. 1 question that people have about banking right now is “Is my money safe?”

Joyce said he’s spoken to community and regional bankers in his district, which includes all of Cambria, Blair, and Bedford counties and a part of Somerset County.

“They assure me that people’s funds are safe,” he said.

“The vast majority of the funds here are FDIC-insured. The ability to make those who did have money in the Silicon Valley Bank and Signature Bank that there is an insurance fund that is part of the FDIC that will make their folks whole, too.”

Joyce said he spent hours on calls Sunday and Monday with leaders from Congress, the Treasury Department and FDIC, asking how the crisis happened for Silicon Valley and Signature banks. He said the banks were invested heavily in tech and startups.

Joyce said he believed the volatility might continue for “individual financial institutions who have taken a less-than-prudent approach to managing the resources that they’re presented with.”

Banks in the Pennsylvania region, however, take a safer approach to banking, he said.

Renner agreed.

“As I think about Pennsylvania banks, our business is more traditional,” Renner said. “We are taking deposits and lending money to home mortgagers and a diverse array of customers on the business side. There’s not a high concentration of one industry. ... We are not taking the risks of Silicon Valley Bank or Signature Bank.” 

Russ O'Reilly is a reporter for The Tribune-Democrat. Follow him on Twitter @RussellOReilly.

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