Millions in cash from one's own vaults combined with another $200 million line of credit from Wells Fargo should be enough to stock plenty of ATMs.

However, it wasn't enough for Palm Desert National Bank (PDNB). Not after the bank, a supplier of vault cash and cash-related services to some 12,000 independent ATMs, experienced a growth spurt which added thousands of ATMs to its client list in the past 18 months.

PDNB also wanted to expand its network of cash sources on the East Coast, where it provides services for about 4,000 machines, said Sandra Hartfield, president and chief executive of PDNB's Electronic Banking division.

So PDNB partnered with Banc Investment Group, the broker-dealer unit of Pacific Coast Bankers' Bancshares (PCBB) to create an ATM funding program called ATM Cash Advantage.

It allows independent banks to advance up to $400 million in currency to machines managed by ISOs that are clients of PDNB. Banc Investment Group manages the relationship with PDNB on behalf of participating banks.

"We want to have cash available when customers walk in the door, so I'm continually looking for cash sources," Hartfield said. "This program offers a great way for banks to come in and grow comfortable with the idea of ATM vault cash."

Chris Nichols, Banc Investment Group's chief executive, said his company's connections with hundreds of independent banks, coupled with PDNB's ATM expertise, make the program a natural. It has attracted more than a dozen participants, with a combined total of more than $100 million, since its June introduction.

Fee income and more

"Just about every bank has some liquidity looking for a home," Nichols said. In contrast to loans made to other financial institutions, for which banks earn only the Federal Funds rate plus 1 percent, an ATM vault cash loan enables banks to earn fees equivalent to Federal Funds plus a spread of up to 50 basis points.

PCBB recently requested a review from the Federal Reserve concerning its Regulation D, which it hopes will allow program participants to reduce the reserves they must keep in their own vaults to support investment and lending functions  -- which generally earn no interest.

Depending on location and operations, cash in ATMs may count as Reg D qualifying cash, Nichols said. "So banks could keep reserves and have an earning asset."

Nichols said that PCBB believes the program may also help participants comply with the Community Reinvestment Act under the Service Test provision. "We think (the provision) can apply if ATMs are located in areas that serve low- to moderate-income people," he said.

Minimizing risk

When a bank signs up for the program, it is assigned a group of ATMs, which will vary by geography, vendor and type to reduce risk. The program also includes multiple layers of insurance from national carriers.

"At the end of the day, you know you're going to lose a certain amount of money. The best way to mitigate the impact of any losses is through diversification," Nichols said. "In the past, many ATM owners would go to their local bank for a loan. The bank might say yes on this kind of a one-off basis, but it was a highly concentrated risk."

PDNB's proprietary Trakker software will allow the bank to track its cash each day, with reconciliation of funds dispensed from ATMs generally completed by 2:30 pm Pacific Standard Time. "They'll be able to monitor it, whether it's in a vault, en route or in an ATM," Nichols said.

Hartfield said Trakker should boost participating banks' comfort levels because of the detailed nature of the data and the controls in place to manage it. For instance, balances are recorded not only in Trakker but in PDNB's terminal ledger system.

"You want to be very sure you know exactly where your cash is," she said.

Participants will retain title and interest to the cash and may treat it as an asset until it is dispensed from ATMs, Nichols said.