Following failures elsewhere, McHenry County bank officials cite reasons for their strength

Despite a few bank failures in the United States recently, Woodstock business owner Arlene Lynes said the news is “in the back of my mind and not much of a concern.”

After the recent failures of Silicon Valley Bank in California and Signature Bank in New York, Crystal Lake-based Home State Bank, one of two institutions with which Lynes banks, put out a statement to customers reassuring their financial status.

“Our Community Bank risk profile is not similar to any of the banking organizations in the news who participated in specialized and targeted activities or customer bases,” Home State Bank wrote in a memo to customers. “In our 107 year history, we have never been in a stronger financial position than we find ourselves today.”

State Bank Group, which has locations in Wonder Lake, Spring Grove, Harvard, Johnsburg, Hebron and Lakemoor, also reached out to customers.

The bank has heard some concern, but has “gone out of its way” to explain to customers the differences between local and national banks, and the protections in place, State Bank Group President Jim Beckett said.

“We’re not doing anything crazy,” Beckett said. “Customers should feel very confident that community banks are well protected.”

In addition to being smaller and dealing with everyday accounts rather than being reliant on high-net worth individuals, community banks don’t often engage in riskier assets that have caused problems for some banks on the national level, said Ed Dvorak, senior vice president of the McHenry County Economic Development Corp.

“A lot of people who are running the banks are your friends and neighbors,” Dvorak said. “[Local banks] don’t have the same risks as these other banks. I think that resonates with the population.”

For Silicon Valley Bank and Signature Bank, as well as the First Republic Bank in San Francisco, which failed in early May, not only were they invested in speculative assets, such as cryptocurrency or various start-ups, their portfolios often times were concentrated in too few things, said Randy Hultgren, president and CEO of Illinois Bankers Association.

Those factors, combined with rapid growth over just a couple years and too many uninsured deposits, led to instability, Hultgren said.

These practices can open a bank to issues with their liquidity and result in less insurance coverage, including through the Federal Deposit Insurance Corp., or FDIC, which insures up to $250,000 per depositor and per account at insured banks.

“It’s just not something we have in Illinois,” said Hultgren, who also served in the U.S. House of Representatives from 2011 to 2019. “It’s just so far on the other end of the spectrum.”

Home State Bank, which has locations in Crystal Lake, McHenry, Woodstock and Lake in the Hills, manages about $780 million in total assets, President Steve Slack said.

That total makes up less than half a percent of the $212 billion in assets Silicon Valley Bank reported in their fourth quarter of 2022 and less than 1% of the $110.4 billion at Signature Bank, according to the banks’ websites.

Of all its customers, 99% are insured through the FDIC, Slack said.

“It’s harder to be a community bank than it used to be because of regulation, but we’re doing fine,” Slack said.

Illinois is home to about 370 banks, with more than 400 total doing business in the state, and there aren’t many that run the same risks as those that crashed, Hultgren said.

“The system works. ... Your money is safe. There’s no other place you can put your money where you know it’s guaranteed.”

—  Randy Hultgren, president and CEO of Illinois Bankers Association, on banking in Illinois and the U.S.

There have been three bank failures in the United States so far this year, according to the FDIC. It’s the most since 2020 and 2019, which saw four total each year. Before that, bank failures in the past 20 years hit a peak with 140 in 2009 and 157 in 2010, before declining each of the next five years.

There were no bank failures in 2018, 2021 and 2022, according to the FDIC.

Banking is one of the most regulated industries in the country, Hultgren said, “which is a good thing.” There are protections in place, such as FDIC insurance, that work to help everyday people and keep banks from failing at a large scale.

In 2010, following the 2008 financial crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. Among a litany of regulations, the bill aimed at monitoring banks with more than $50 billion in assets more closely by requiring them to submit plans to government agencies to “help ensure that a firm’s failure would not have serious adverse effects” on the U.S., according to the FDIC’s website.

That threshold was upped to $250 billion in 2018 when Congress passed the Economic Growth, Regulatory Relief and Consumer Protection Act, with the goal of exempting smaller institutions who are “less likely” to pose a financial risk, according to the FDIC website.

“The system works,” Hultgren said. “Your money is safe. There’s no other place you can put your money where you know it’s guaranteed.”

Beckett said the insurance on the deposits helps customers feels more secure, but he ultimately thinks his customers will not need it because his and other local banks are “very strong.” Customers can rest easy knowing their money is being looked after very well.

For those concerned, some metrics to look at include stock prices, as well as earnings and quarterly reports, Hultgren said. However, no one metric will tell the whole story. Above all, it’s important to be familiar with who is at your bank.

Slack said he believes community banks have a unique interest in the community because so many who work for the bank also live and have grown up in the area. He also thinks community banks have a unique responsibility, as people are trusting them with their money.

“We care because we live here,” he said. “We want to invest in the community. We want to enhance the lives of those in the place we live.”