Lessons in Letters of Credit [CASE STUDY]
First State Community Bank was established in 1954 and is headquartered in Farmington, MO. With branches mainly located in rural areas, they are deeply involved in the communities they serve and handle both small business and larger commercial credit needs. They provide a full range of banking services including a complete offering of mobile banking services, they own an insurance agency that provides a wide variety of insurance products for both consumer and commercial needs, and they also have an affiliate company that provides brokerage and financial planning services.
With 44 locations throughout central and southeast Missouri, First State Community Bank has a wide footprint in a variety of markets. Looking for growth and an opportunity to compete against other lenders, First State Community Bank has pursued a niche market with the public fund line of business. “One requirement for a public unit deposit is to pledge collateral, which can be burdensome to have to pledge and release securities when they are called or mature. If the public fund balance fluctuates, it creates a need to adjust the pledging,” said Keith Wade, chief financial officer. Looking for a more streamlined process, Wade turned to FHLB Des Moines
The flexibility available with the FHLB Des Moines Letter of Credit has improved the bank’s ability to support public entities. “Letters of Credit are much easier to use than securities. . . . Securities can be less efficient and lead to over-pledging and additional administration when the bond gets called,” Wade said. With a Letter of Credit, First State Community Bank can request a specific amount of funds. “We can keep our investment portfolio available for other needs.”
Letters of Credit have been the most beneficial in growing First State Community Bank’s public fund line of business. “We have found that public entities are very accepting of FHLB Des Moines Letters of Credit,” commented Wade.
Beyond its public fund line of business, First State Community Bank uses FHLB Des Moines to match fund commercial loans as well as taking part in the Strong Communities Fund Housing Programs. Wade has been impressed with FHLB Des Moines accessibility and responsiveness. “I think our relationship with FHLB Des Moines is outstanding. We have worked with our representative, Money Desk staff, collateral pledging and the collateral verification staff over the years and they have all been very professional and quick to assist in any way they can.”