March 13, 2023

There’s been a lot of press recently regarding the two bank failures this past weekend; and we wanted to take a moment to address the events and circumstances leading to these events.

The two banks that failed over the weekend – Silicon Valley Bank and Signature Bank – were both heavily engaged on the deposit side with emerging asset categories such as crypto exchanges and technology start-ups. Both of these banks registered high concentrations of deposits in these categories, with Signature Bank at one point during the crypto craze having over 25% of its deposits from crypto exchanges and crypto-related assets.

As the financial stress caused by the Federal Reserve’s interest rate hikes and war on inflation have mounted, these emerging sectors have experienced financial stress and an inability to raise new funding; which in turn prompted a significant depletion of the deposits held by these two banks.

In turn, both banks were forced to liquidate other investment securities which they held on their books at substantial unrealized losses. Once those losses became realized, the banks were under-capitalized and regulators determined that it was unlikely either bank would be able to generate replacement capital in the current market, resulting in the closures.

As much as the news media reports these failures with surprise, the WSJ and TheRealDeal published articles about these same banks over six months ago, raising the alarm about the reliance on the sources of deposits and the exorbitant concentrations held by these banks.

Deposit concentrations are an area to which the banking regulators pay close attention; which makes it all the more surprising that these banks were allowed to operate with such high levels of concentrations. American Eagle Bank – like most other banks operating today, has very low concentrations by depositor. In fact, our largest three deposit customers represent, in aggregate, only 8% of total footings; and no deposit customer represents more than 4.5% of total footings. More importantly, our large deposit customers are not engaged in high-risk industries; but instead, are Illinois-based municipal entities, local businesses and non-for profits, and Chicagoland individuals and families. Most of our large depositors have been customers for over ten years. Some have been with us twenty years since our opening.

The second assurance we’d like to provide is that American Eagle Bank, out of the $405 million in total assets, only holds a small amount of treasury investment securities – less than 2% of our total assets. Our strategy with investments has always been to maintain a short duration, not risk any principal, and only invest in securities when there isn’t a better loan alternative. As a result, unlike many of the banks in the country, our unrealized losses on treasury securities are negligible, representing less than 1% of our total capital of over $36 million.

It’s an unfortunate event for the industry, and many publicly traded banks are today taking an undeserved beating in the marketplace and from politicians; but here on main street, we continue to operate in a safe and sound manner, doing our utmost to manage beneficially for our shareholders and customers with a long term outlook.

Thank you for your ongoing business and have a great week.

Barry Kreczmer

Jerry Szklarzewski