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Shareholder Profile: Providence Bank
Advances and Letters of Credit

October 2019 – David Keul, Executive Vice President and Chief Financial Officer for Providence Bank, relies on his access to FHLBank Atlanta as a funding source to help the institution grow its balance sheet and strengthen business relationships in its community.

Keul says that FHLBank Atlanta is particularly important during budgeting and can help fill funding gaps when the bank is projecting a shortfall in liquidity or key ratios.

“FHLBank Atlanta is a viable, available, and competitive source of funds that helps us mitigate some of the challenges we face when projecting loan growth,” said Keul.

Providence Bank is based in Rocky Mount, North Carolina and has branches in several other communities in the eastern region of the state. It has grown steadily since its founding in 2006 and now has assets exceeding $470 million. Lending is focused on commercial small business loans, and advances serve as a useful tool to provide general balance sheet liquidity and, on occasion, to match-fund a larger loan. When Providence needs to add funds to the balance sheet, Keul says that advances can be a good alternative compared to local retail deposits and CDs.

“When we add funding to the balance sheet, we take a close look at the available alternatives and determine which rates and terms are best for the bank,” said Keul. “Most of the time FHLBank Atlanta wins out when we are comparing sources of funds.”

Building Relationships with Local Governments

In addition to its commercial lending focus, Providence has prioritized building relationships with municipal government offices in the cities and towns where it has a presence. These relationships usually begin with establishing deposit business with the government office. Providence uses FHLBank Atlanta’s letter of credit as collateral for deposits that exceed the amount insured by the FDIC. Keul views the letter of credit as a cost-effective way to serve the needs of the bank’s municipal government customers. 

“The municipal deposit business is important because it serves as an entry point for establishing good relationships with local governments and can lead to opportunities to provide other financial services,” said Keul. “The letter of credit gives us a competitive advantage without tying up assets.”

Keul notes that one of the challenges of providing collateral for municipal deposits is the wide fluctuation of deposit levels throughout the year. For example, during months where property taxes are collected, deposits grow significantly. Using securities to collateralize these deposits presents administrative challenges and potentially exposes the bank to interest-rate risk.  

“When deposit balances rise, we may have to purchase a two-year agency bond to meet collateral requirements, and it may not be a very good time to buy that bond,” said Keul. “In addition, later in the year when municipal deposits decline, we could be faced with a collateral mismatch.

“The letter of credit allows us to secure a baseline amount of collateral at a low cost, and we do not take on interest-rate risk that we would assume with a bond purchase,” continued Keul.

Beyond its use of these products, Keul points to FHLBank Atlanta’s staff and service levels as another important source of value in the relationship. Providence recently completed a merger with another North Carolina institution and worked closely with FHLBank Atlanta to ensure the process proceeded smoothly.   

“The team at FHLBank Atlanta provided guidance that helped make the transition with our account simple,” said Keul. 


The Federal Home Loan Bank of Atlanta is not a registered investment advisor. Nothing herein is an offer to sell or a solicitation of an offer to buy any securities or derivative products. You should consult your own legal, financial, and accounting advisors before entering into any transaction.

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