We often see as crises hit that bankers are the ones who respond to their neighbors’ needs. To respond successfully, however, they need a consistent flow of deposits to fund the loans vital to this mission. A partnership developed this year is designed to address this issue by redirecting deposits from large banks into community-based institutions.
Medica, the largest non-profit health insurer in Minnesota, has traditionally had most of its operations accounts in banks like Wells Fargo and U.S. Bank. After visiting with a neighborhood bank in Edina, Minn., however, John Naylor, the president of Medica, wondered whether the company’s cash would benefit the community more if it was placed in a community bank.
The other leadership and board members at Medica were all for the philosophy, and without hesitation, created Medica’s community banking program. Unfazed by the compliance requirements and logistics, mapped out carefully with the help of Jim Amundson, president and CEO of the Independent Community Bankers of Minnesota, Medica launched the program through ICBM in January — and later with the Nebraska Independent Community Bankers in March, committing $20 million and $15 million, respectively, to certificates of deposits in the states’ community banks.
Crown Bank was the Edina bank that helped plant the idea in Naylor’s mind; it piloted Medica’s community banking program before it rolled out more broadly. With assistance from ICBM leadership, Medica decided upon an 18-month CD with a 1.25 percent rate, depositing $250,000 to roughly 80 banks.
“From our standpoint, we just put the deposits in the banks,” said Mary Quist, vice president and corporate controller at Medica. “It’s the local community banks that know their communities, and where they should be helping out.”
Among the participating banks is Foresight Bank, based in Plainview, Minn., a town of 3,300 people. The $260 million bank mainly serves farmers, small businesses and locals, and the CDs allow for loans to exactly those clients. “We’re able to put that money to work close to home,” said Cassie Harrington, the bank’s president.
“A lot of big companies and medium-sized companies have a lot of liquidity, money that just sits in large banks,” Harrington says. “As community bankers, we have to help these businesses and nonprofits by giving them an alternative to keeping that money in big banks.”
Kensington Bank, Kensington, Minn., was one of the banks enthusiastic to join the program. “This certainly pulled the curtain back on what [Medica does] and how they help in their communities,” said Tim Stewart, chief banking officer. “They have a high-tides-raises-all-ships mentality, which certainly mirrors the way we do business as well.”
ICBM even hopes to expand the idea and partner with other larger corporations to disperse their deposits among community banks in the state, and Medica has agreed to help the association connect with other large organizations.
This kind of donation is attractive for its security and low maintenance, as the money invested in the banks’ communities never technically leaves the corporations’ accounts. The mentality is expanding to other titans, including Netflix, which announced it would allocate 2 percent of its cash earnings, or $100 million, to financial institutions that serve Black communities.
“This was the first time in our history that we have reached out and worked with community banks,” Quist said. And it turned out the $20 million that Medica allocated was just about exactly the amount for the number of banks interested in the program, Quist said. “We didn’t have to say no to anyone.”
In Nebraska, the program launched around the time the mid-March shutdown stunned the economy. The pandemic had the opposite effect on banks’ deposits than the company was anticipating, and as of press-time, only a handful of banks have received Medica deposits.
“People haven’t been going on vacation, and haven’t been spending money going out to eat, so deposits have naturally increased in a lot of these banks,” Quist said. “They’re not in a situation where they’re looking for deposits.”
Medica has the rest of the $15 million waiting for Nebraska banks when they may need them, and plans to reach out after about six months. “We’re not going to push them on it, we’ll just wait.”
Initially, Minnesota banks that partook in the program were mainly rural and preparing local farmers to purchase seed when Medica rolled out the funds in January. This summer, riots broke out in Minneapolis in response to George Floyd’s murder and other cases of racial injustice, which left physical and economic destruction to businesses in the city. As a result, a few metro banks that initially turned down Medica’s program decided to participate, once again meeting the needs of their communities as crises struck.
Down the road, Medica hopes to achieve some kind of clarity about how these deposits directly impact the community. But with a program like this, the impact isn’t something you can nail down with numbers.
“If you walked into a bank today with a check for $500,000, you’d make the deposit at the bank, but you wouldn’t be able to tell them ’I want you to use this to fund a loan for a farmer or a small business,’” ICBM’s Amundson said. “If they’re helping these communities through this deposit program, that should raise the tide for those banks and those communities.”
As far as substantial impact goes, Stewart sees it every day. “We see it in the small business owner who’s able to open their doors, and in a farmer who’s able to purchase a new tractor, or new equipment that will help them finish their job … and that’s something that we’re so proud to be a part of,” he said. “To have a group like Medica get involved in this way, to me, is incredibly heartwarming.”
For Eric Hallman, the president and CEO of the Nebraska Independent Community Bankers, though enrollment has been limited and timing far from idyllic as the program hit the tracks, “there was an appreciation among community bankers that a company like Medica would be interested in making an offer like this … It shows there’s a unity there, for the community bank business model,” Hallman said.
“The long and the short of it is, bankers would love to see companies like Medica do more of this, because it helps.”