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Shareholder Profile: Essex Bank
Advances and Letters of Credit

A strategic shift leads a growing community bank to expand its borrowing with FHLBank Atlanta

For many years, Richmond-based Essex Bank used FHLBank Atlanta advances to supplement core deposits when it needed large blocks of funding for lending. These advances were primarily short-term maturities that would eventually be replaced by core deposits. This approach changed when the community bank made a strategic shift and sold branches in Georgia it previously acquired from the FDIC in 2008.

“In 2013, we made a strategic decision to focus our business in Virginia and Maryland and not to develop it through South Carolina and North Carolina,” said Bruce Thomas, executive vice president and chief financial officer for Essex Bank. “This decision led us to sell the branches in Georgia.”

The Georgia branches generated significant core deposits, and with the sale, Essex Bank needed to replace $185 million in liabilities. To accomplish this, it borrowed advances from FHLBank Atlanta and issued brokered certificates of deposit. By the end of 2012, the community bank had advance borrowings of $49.8 million and increased this balance to $96.4 billion by the end of 2014.

“Our intention was to reduce our advances balance over the few years following the branch sale, but we actually increased our advances by nearly 100 percent,” said Thomas. “As a funding source, advances are easy to maintain and the cost was very attractive.”

In addition, over these years and through today, Essex Bank reduced its brokered CD balance by nearly 98 percent.

“Working with one funding partner is more efficient than with multiple brokers, and we are able to stagger the terms of the advances in a bulk fashion,” said Thomas. “The dividend is an added benefit to borrowing from FHLBank Atlanta.”

Thomas also points to the effectiveness of using advances to fund investment activity, in addition to loans. In a recent example, Essex Bank borrowed a 90-day advance it will renew for a five-year period to fund a securities investment. In addition to borrowing the advance, the bank secured a pay-fixed swap, in which it paid a fixed interest rate while receiving a floating rate. This structure enabled it to lock in a spread of 2.69 percent for five years.

“It was beneficial for us to fund this investment with an advance,” said Thomas. “At the time, the investment was comparable to originating a 10-year real estate loan in our market, but with no allowance against the bond and no administrative costs.”

Underpinning this borrowing activity is a relationship that Thomas says meshes perfectly with a community bank.

“Everyone we have worked with at FHLBank Atlanta has been personable and eager to help,” said Thomas. “It’s clear that our business is not just a transaction but a relationship in which they take a genuine interest.”


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