Liquid Balance Accounts – DDA, MMA, NOW

PMA’s liquid deposit account program is specifically tailored to complement a financial institution’s primary or contingency funding plan. This program functions similarly to traditional liquid balance accounts such as the money market accounts (MMA), demand deposit accounts (DDA) and negotiable order withdrawal accounts (NOW). Each account is opened in the name and tax ID of the depositor and PMA works with both the institution and public entity in facilitating the investment of these funds.

The depositor base consists of municipalities, schools, libraries, and water and park districts, most commonly known as political subdivisions. These political subdivisions receive the funding for their investments through county sales and property taxes, user fees and state and federal sources. Typically these depositors are larger in size and may require further collateralization in accordance with their state statute. Within each county, the public entity receives tax distributions throughout the year and then invests these funds to meet obligations. Funding is repeated on an annual basis making political subdivisions a reliable and consistent source of deposits. Individually, public entities may be cyclical in nature, however, when matched through PMA’s funding platform, institutions receive a diversified group of depositors across various footprints.

Working for over 35 years in the public fund sector, PMA Financial Network, LLC has created financial tools that assist in cash flow forecasting, long-term financial planning and bond proceeds management. These tools provide insight to the revenue and disbursement cycles of each entity. Individual client data is aggregated through the PMA platform and matched up with our banking partners funding needs.

The main criterion necessary in program development is:

• Aggregate amount
• Individual deposit amounts (min and max)
• Initial program rate and rate reset period
• Types of deposit vehicles to be utilized
• Collateralization vehicles if applicable

Further streamlining of the program can be achieved for deposit funds in excess of the FDIC insured limit through a variety of collateral options on an individual or program basis.

Term

WHAT ARE DTC ELIGIBLE CDS?

DTC (Depository Trust Company) Eligible CDs are a flexible and efficient way for financial institutions to gather large deposits tailored to their specific needs. Issued in blocks of $1 million to $250 million, each deposit is represented by a single certificate issued and held in the name of the Depository Trust Company.

BENEFITS OF DTC ELIGIBLE CDS

DTC Eligible CDs complement traditional funding sources and effectively access the national marketplace. PMA Funding Advisors work closely with banks to determine an optimal allocation of DTC eligible CDs, giving financial institution’s the ability to better manage their cost of funds.

PMA Funding believes that in the years ahead, successful banks will be those that develop a well-managed, measurable and cost-effective wholesale funding strategy to complement their retail deposits. DTC Eligible CDs can play an important role in a financial institution’s diversification efforts.

Funding Portfolio

BARBELL

PMA Funding provides financial institutions the opportunity to tailor a funding strategy that best fits their business model. One common approach is known as the barbell strategy. Financial institutions raise deposits on the short-term, in either fixed term CD’s or PMA SDA accounts, and then also complement those deposits with longer fixed term CD’s with direct public entity funds or DTC eligible deposits.

From a financial institution’s standpoint, this method combines both low-risk and high-risk liabilities in order to diversify overall risk to the funding portfolio. Through this managed approach, the financial institution will have the ability to work with a PMA Bank Funding Advisor in order to actively manage short-term deposits day to day or month to month, until maturity, and then also balance long term deposits when needed. The financial institution can take advantage of lower funding costs on the short end and manage potential rate increases by locking in longer term deposits at a lower rate.

LADDERED

The most common funding program utilized by PMA Banking partners is to purchase CD’s with a laddered approach; the maturities of the CD term investments vary in duration. Using this method, financial institutions can manage interest rate risk and balance the funding costs, while diversifying deposits amounts within multiple PMA public entity client accounts.

Since most PMA public entity Participants prefer interest at maturity, the bank is able to manage their CD principal and interest payment outflows and laddered them in a way so that payouts take the place of typical monthly interest payments. Another advantage of this method is to lock in funds at lower rates, if rates are expected to rise and interest rates look to fall, and then the institution can choose to have deposits mature and take in additional funding at the new market rate.

MATCH FUNDING

PMA’ s clients consist of schools and municipalities that invest operating and bond proceeds year over year through the distribution of local property taxes and passed referendums. Through these distributions, public entities have the ability to plan annual cash flows within a specific bandwidth and build out an annual cash flow and financial plan for the year. From this data, public entities look to invest out to their respective liability need dates, and remove the timing aspect in their investment strategy. PMA Financial Network, LLC has the ability to match these investment term dates to the funding need dates of the institution, allowing for an automated and ideal method to match fund deposits.

An institution looks to take advantage of the spread of specific loans that are originated at the bank during the month or quarter with term investments that PMA is able to provide with the public entity deposits. A benefit that PMA’s pool of public entity clients provides is a wide range of clients in several states with investments occurring on various tax cycles. This diversification of clients allows for PMA to be a consistent source of cost effective funding on a weekly basis. If the institution prefers small or large block funding, PMA’s clients will follow a cash flow or annual distribution schedule which they utilize and follow without looking to redeem investments early. Through PMA’s funding platform, institutions have the comfort of working with clients in which they have the ability to either provide a strict early redemption fee policy or non-redeemable options. This allows for the institution to effectively capitalize on a match funding strategy without the risk of early redemption.