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How One Bank Increased the Profitability of Public Fund Deposits While Giving Customers More

Deposits from public funds are becoming an increasingly important source of funding for many community banks as more government entities have been moving their deposits out of the country’s largest banks–a result of new LCR requirements affecting large institutions. At the end of Q4 2015, more than half of the deposits from Federal, state, and local government entities were placed in banks with fewer than $50 billion in assets. In addition, between Q4 2014 and Q4 2015, public fund deposits at banks with assets fewer than $50 billion grew by 11%.¹

This shift has created an opportunity for community banks that have the ability to attract and efficiently manage these deposits. A community bank in the Midwest (a member of IntraFi's network of banks) succeeded in capturing significant value from these deposits by using the IntraFiSM Network DepositsSM DDA and MMDA options (formerly Insured Cash Sweep) integrated with the bank’s core processor.

When it started using IntraFi Network Deposits, the bank was holding a large amount of public funds deposits in its business portfolio and was allocating collateral to protect those deposits. This added to the bank’s administrative tracking burden and reduced its capacity to use the deposits to fund lending activities which could earn the bank higher yields.

Using IntraFi Network Deposits, the bank reduced the need for collateral and its associated costs while keeping the full amount of the governmental deposits available to use for lending. The funds that were previously used to invest in collateral were repurposed, giving the bank more flexibility to:

  • Increase the rate paid to customers on deposits (often up to 20 bps higher)–making it easier for the bank to attract more public funds deposits even while increasing bank profitability;
  • Lend more within the local community; and
  • Spend less time tracking changing collateral values.

The bank adopted IntraFi Network Deposits as an integrated service through its core processor, which made the operational process even easier. IntraFi Network Deposits DDA and MMDA options are integrated with major providers and offers integrated online banking and enhanced reporting.

In the two years since the bank adopted IntraFi Network Deposits, it has grown its IntraFi Network Deposits balances to over $500 million.

Additionally, branches were able to be more competitive on price, resulting in new customers and additional volume coming in from the branch network.

Overall, the bank was able to significantly enhance its deposit base, fund more lending, reduce its noninterest expenses, and enhance the value it was offering to its government depositors.

Integrated network member banks conduct approximately 4x more IntraFi Network Deposits volume and have approximately 2x more IntraFi Network Deposits customers than nonintegrated ones. Contact us for innovative ways to increase your bank’s profitability and efficiency.