Pinnacle’s Safety and Soundness

With recent bank closures dominating the headlines, you may wonder how our firm compares to those that are experiencing trouble.

The first thing to know is that Pinnacle is very different from First Republic Bank, Silicon Valley Bank and Signature Bank. We operate a traditional model, we’re well capitalized and are conservatively managed to weather this storm.

It’s not just us saying that— Moody’s has given Pinnacle its A2/P-1 rating for bank deposits. Banks rated A possess superior intrinsic financial strength, and a P-1 designation indicates a superior ability to repay short-term debt obligations.

In addition, IDC Financial Publishing analyzes the overall safety and soundness of more than 7,000 financial institutions each quarter, and Pinnacle’s rating consistently has been 300 or “Superior.” By its definition, “Banks rated Superior are simply the best by all measures.” According to IDC these banks have favorable capital ratios, quality management in place, a strong balance sheet and outstanding income performance.

Here are the facts on the key issues at play.

 

Client Diversification

Silicon Valley Bank had extremely high concentrations in highly interconnected tech companies and startups. Signature was a major funder for crypto companies. As these industries have faced cutbacks and losses, the banks that serve them have experienced deposit losses, bad credits and generally decreased demand for their services leading to losses in revenue.

Likewise, First Republic targeted a limited and also interconnected client base of wealthy individuals. They grew their wealth management practice, in large part, with low pricing on residential mortgages sensitive to rate hikes. They concentrated so much of their growth strategy on these individuals, instead of diversifying with business and other clients, that they were overleveraged in residential real estate and had very high deposit averages and high levels of uninsured deposits. When those depositors saw trouble ahead, they started pulling out their money. First Republic lost $100 billion in deposits in the first quarter alone.

Pinnacle has diversified loan and deposit books, serving generally unconnected small and mid-sized companies, as well as individuals throughout the Southeast. We have no significant concentrations in volatile industry categories like tech and cryptocurrency. Our deposit base is also much more granular, not dependent on a handful of very large deposits, and we operate a conservative credit organization, as evidenced by our strong credit metrics.

Deposit Base

  • Silicon Valley Bank
    • ~$5 million average relationship, according to media reports
    • Concentration in early-stage, cash flow negative businesses
  • First Republic Bank
    • $210,000 average account size
    • Concentration in wealthy individuals; 92 percent of all deposits held in San Francisco, Los Angeles, New York City and Boston
  • Pinnacle
    • ~$130,000 average relationship
    • Concentration in mature, cash flow positive businesses and municipalities

Bond Portfolios and High Interest Rate Assets

Silicon Valley and First Republic Banks grew deposits rapidly during the pandemic and purchased bonds to generate earnings on those funds. Banks universally use securities portfolios, including bonds, to give more liquidity to their balance sheets. Just like with loan portfolios, each bank has a different risk tolerance, including how much they place in vehicles like bonds and for what length of time.

Silicon Valley had a majority of their total assets in a bond portfolio, including a large amount in long-term bonds that were not liquid. First Republic had a majority of its assets in a combination of bonds and low-rate residential mortgages, which are both very rate sensitive. As the Fed raised interest rates, the market value of those portfolios fell, leading to significant unrealized losses in their books. When their clients started pulling deposits, Silicon Valley Bank had no choice but to sell their bonds to meet liquidity demands, leading to an enormous loss and wiping out their tangible book value. At First Republic, they didn’t get as far as selling for a loss. Their balance sheet showed heavy unrealized losses, which alerted investors and clients that potential losses would exceed capital. Depositors started pulling their money out of the bank, and that’s what led to their collapse.

Pinnacle’s securities portfolio is much more conservative by comparison.

Total Assets in Bond Portfolio (as of Dec. 31, 2022)

  • Silicon Valley Bank – 55%
  • Pinnacle – 16%
  • Peer Median (among banks with more than $20 billion assets) – 21.5%

Ratio of High Interest Rate Risk Assets to Total Assets

  • First Republic Bank – 72.4%
    • This includes held-to-maturity securities and their portfolio of residential mortgages.
  • Pinnacle – 18.7%

Unrealized Losses in Held-to-maturity Securities

  • Silicon Valley Bank – 78.9% of tangible book value
  • Pinnacle - 7% of tangible book value
  • Peer Median (among banks with more than $20 billion assets) – 7.7%

FDIC Coverage

The FDIC insures deposits up to $250,000 per person per bank. At both Silicon Valley and Signature Bank, a significant majority of their deposits were uninsured, meaning client losses could have been enormous without government intervention. That’s not the case at Pinnacle.

Uninsured Deposits as a Percentage of Total Deposits

  • Signature Bank – 89.7%
  • Silicon Valley Bank – 86.4%
  • First Republic Bank – 67.7%
  • Pinnacle – 44.5%
  • Peer Median (among banks with more than $20 billion assets) – 48.6%

Further down on this page, you’ll find resources for learning more about FDIC coverage, how to estimate how much of your money is covered and possible tactics for increasing it.

More Resources

We want to give you as much information as you need to feel confident in Pinnacle’s performance. If you ever want to have a conversation about the strength and soundness of our firm, you can always reach out to your financial advisor. We also have a Client Service Center staffed by Pinnacle associates 24/7 who can arrange for a phone or in-person appointment to answer your questions and meet your needs.

Advisory Resources

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