YOUNGSTOWN, Ohio -- Being the depository of funds for school districts, port authorities and municipal and county governments is not as profitable as commercial and consumer lending, bankers say, but it is profitable and not as competitive.
It’s mostly smaller community banks that fill this role. They do so in part out of a sense of giving back to the communities where they have a presence. “We’re community stewards,” says John Draganic, an associate managing director at Talmer Bank and Trust and its business development officer for Ohio.
Serving as a depository bank “is a nice relationship to have,” adds Mark Wenick, Mahoning Valley regional president of Talmer, because it strengthens the bank’s network and opens doors to lending opportunities in the private sector.
“We try to be a community service as well as offer lower rates,” says Bobbi Harding, vice president and treasury management manager at Farmers National Bank in Canfield. Farmers is the depository bank for 17 school districts and 35 municipalities in Trumbull, Mahoning and Columbiana counties.
The Home Savings and Loan Co. is the depository for 28 entities, says Barbara Radis, senior vice president for retail lending there. These 28 entities have some $10 million in deposits.
1st National Community Bank in East Liverpool serves municipalities and schools districts in Columbiana County, Beaver County, Pa., and Chester, W.Va., says its chief commercial lending officer, Senior Vice President Joe Shemacek.
Even though it’s a matter of public record, the policies at all banks kept them from disclosing the governments and school districts they serve. Hence, Tracy Drake, CEO of the Columbiana County Port Authority, confirmed 1st NCB is the depository for its funds. Donald E. Stanovcak, Poland schools treasurer, confirmed Farmers Bank is the depository for the district. And Mahoning County Treasurer Dan Yemma says Huntington Bank is the principal depository for the county although it has funds on deposit with five other banks.
The larger banks with a regional or national footprint, such as PNC and Huntington, provide the investment banking services – such as tax anticipation notes and handling the issuance of bonds for capital projects – that community banks don’t.
Where banks, by definition, accept deposits and make loans, Ohio law imposes restrictions on the deposits they accept from school districts and local governments. Public funds cannot exceed 30% of a bank’s total assets, Farmers’ Harding says, and “We’re nowhere close to that.”
Because the Federal Deposit Insurance Corp. insures individual accounts up to only $250,000, banks must “fully collateralize” the funds the FDIC does not insure, all bankers pointed out.
They cannot lend government deposits in excess of $250,000 but the deposits count as capital for regulatory purposes, Talmer’s Draganic notes.
State law requires a bank to provide collateralization of 102%, Harding says. ”At Farmers, we go 105%,” she states.
New Waterford, a village in northern Columbiana County, deposits its funds at the PNC bank branch in the city of Columbiana, says Treasurer Dave Slagle. “They’re friendly people to work with and they know your name,” he says, and New Waterford has borrowed money from PNC to buy pickup trucks and an ambulance.
As with the other public entities, New Waterford receives its funds from the state and county via wire. Once a month, the village receives its share of the proceeds from license plates and the cigarette tax, Slagle says, and the county also remits payments. “I’d say we get 36 to 40 payments a year from the state and county,” the treasurer estimates.
He writes the checks to pay vendors, some on paper, others as electronic funds transfer payments.And as do most other government units, New Waterford has a sweep account that allows it to earn small amounts of interest on funds invested overnight.
The senior vice president and manager for Ohio public finance, Patricia A. Jackson, and Mark Miller, managing director of public finance, Ohio capital markets, discussed the investment banking side of what PNC offers local governments.
“This business is really growing,” Jackson says. “We just hired two individuals” to the six PNC has serving Ohio from four offices. When an entity needs to finance a capital project, something with a 25- to 30-year life, it will issue tax-exempt bonds. A new school, says Miller, could be financed with long-term bonds backed by property taxes.
A municipality that wants to build a parking garage could issue bonds but they would be taxable were the garage open to the public and the municipality charged to park there. A garage limited to government employees who weren’t charged to park likely would qualify for tax-exempt bonds.
All banks offer the entities they serve what 1st NCB, Talmer and Farmers call an “affinity program.” Home Savings calls its affinity program “Home at Work.”
Just as with employers in the private sector, the depository banks offer employees of municipalities and school districts slightly lower rates on auto loans or mortgages and pays slightly higher rates on savings accounts.
County treasurers are kept busy accepting and passing on the local share of state and federal taxes and distributing the property taxes collected.
Yemma distributes more than $430 million each year to the Public Library of Youngstown and Mahoning County, fire districts, the mental health board, townships and school districts. It passes on the piggyback portion of the state sales tax to the Western Reserve Transit Authority, collecting and disbursing these funds through Huntington Bank.
The county closely monitors interest rates with an eye to refinancing at a lower rate the bonds it issued, says the chief deputy auditor, Carol McFall. “We have an investment management firm [a subsidiary of Fifth Third Bank] that saved us $36,000 in interest,” McFall relates.
Fifth Third, based in Cincinnati, arranged for financing of the optical cable network center in World Trade Park outside Leetonia, Drake says. 1st NCB has held the grants the Columbiana County Port Authority has received from the state before they’re spent on engineering studies, infrastructure and equipment related to the Wellsville Intermodal Facility.
While school districts are required to solicit bids from banks to act as their depositories, the port authority does not. Regardless, Drake meets with calling officers from banks “at least once a month” who want to provide services and the authority “reviews our costs every six months.
Stanovcak, treasurer of Poland schools more than 20 years, is responsible for the collection and disbursement of $23.5 million annually – most of which goes through Farmers Bank. The district, as do all Ohio school districts, also has a direct deposit arrangement with STAR Ohio, an arm of the state treasurer’s office that holds public assets.
The Poland district receives federal and state grants as well as property tax disbursements, usually eight but as many as 10 annually, from the county treasurer to pay teaching and administrative salaries – almost all teachers are paid via direct deposit, to operate the buildings and pay vendors. Only 10% of the disbursements, mostly to vendors, are written on paper checks.
On the other hand, his office still handles considerable cash and checks from student fees and sales of athletics tickets.
Banks try to sell their credit card services to local governments – “They’re more popular with small governmental units,” Harding says – but Stanovcak thinks they’re a headache because of the potential for abuse.
For conferences or trips to Columbus, the school district can pay in advance and, as needed, have the hotel bill directly for food and lodging, Stanovcak says. He’d rather have the teacher or administrator submit records of mileage and receipts for other small expenses than hand out school district credit cards.