Medica’s $20 million deposit at community banks

Mary Quist presents Jim Amundson with an honorary $20 million check

Mary Quist (right), vice president and corporate controller of Medica, presents Jim Amundson, president and CEO of ICBM, with an honorary $20 million check.

Often, our good deeds have a butterfly effect among those around us. As health insurer Medica deposits $20 million across dozens of community banks in Minnesota, it will allow these institutions to make more loans locally and spur economic activity.

By Ed Avis

When leaders at Medica, a nonprofit health insurer in Minnesota, sought an impactful way to help local communities, they came with a simple, yet innovative idea: Deposit $20 million in cash reserves into community banks.

“We know that rural communities are suffering from a lack of access to resources, especially those that are challenged by floods and droughts and bad economics,” says John Naylor, president and CEO of Medica, which is headquartered in Minnetonka, Minn. “We talked to some community bankers, and they said they don’t always have the assets to lend because they don’t have the depositors.”

Insurance companies are required to keep a large amount of capital reserves, much of which is typically kept at large banks. Naylor and his colleagues decided Medica’s money could do more good if it were distributed among community banks as deposits.

“We did some research through the ICBM [Independent Community Bankers of Minnesota], and that confirmed that the need exists in many parts of our state,” he says. “The need for loans far outweighs the ability of those banks to meet them.”

Community banks stepped up

Medica turned to ICBM for guidance on how to best spread its assets among a large number of community banks across the state of Minnesota.

“It was certainly a pleasant surprise when they called us,” says ICBM president and CEO Jim Amundson. “I spent 25 years in community banking, so I had a good idea of what it would take to pull this off.”

Amundson explained to Medica’s leaders that the money would have a greater impact if the insurer established direct customer relationships with each bank, rather than having the $20 million distributed through a brokered deposit relationship. Medica could also maintain FDIC insurance on the deposits if it limited each deposit to $250,000.

“Through my conversations with Medica, we established an 18-month CD with a predetermined rate of 1.25%,” Amundson says. “They could certainly earn a higher return in another investment, but it’s a favorable rate, and it’s an attractive rate for the banks.”

Medica distributed an application to ICBM members asking about the economic conditions in their communities and what they’d do with the deposit.

“The stories we heard would bring you to tears,” Naylor says. “One community needed to update a day care facility. Another said their Main Street was going to be closed for a year due to construction, and this loan would help keep the local diner and hardware store afloat.”

Medica received 80 applications and approved every one of them. “We didn’t turn anyone away,” Naylor says. “We felt the needs were so material.”

When that $20 million in deposits is distributed as loans, it creates opportunity for local economic growth, Amundson notes. That’s a key goal of the program, but a side benefit to Medica is that it furthers the organization’s mission of improving community health.

“Our experience is that in times of need, a lot of folks in a community turn to their community bank as a source of funds,” Naylor says. “That’s the hope of this program, that Medica can help our neighbors in these communities. And the return on the investment isn’t the interest rate on the CD, but the return on the health and quality of life of those neighbors.”

‘The best kind of donation’

Foresight Bank was one of the recipients. The $260 million-asset community bank in Plainview, Minn., serves farmers, as well as small businesses and local residents.

“This enables us to lend to every type of client that a community bank lends to,” says Cassie Harrington, Foresight Bank’s president. “We’re able to put that money to work close to home.”

But Harrington sees potential benefits beyond the immediate impact of the $250,000 in deposits it received. She hopes other large organizations follow in Medica’s footsteps.

“A lot of big companies and medium-sized companies have a lot of liquidity, money that often 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.”

“We’re trying to get [large organizations] to see the public relations value and the economic value, just in the simple choice of where you let your money sit.”
—Matt Doffing, ICBM

Amundson confirms that ICBM hopes to replicate Medica’s deposit program. While the association’s primary focus lately has been advocacy around community banks’ COVID-19 response, Amundson plans to ask Medica’s leaders to introduce him to leaders of other large organizations that might follow suit once the pandemic has eased.

“We are holding this out as an example,” says Matt Doffing, ICBM’s vice president and director of marketing. “It’s the best kind of donation. You give your money to your local community, but it never leaves your account. We’re trying to get them to see the public relations value and the economic value, just in the simple choice of where you let your money sit.”

Ed Avis is a writer in Illinois.