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Brentwood City Commission Agenda
Meeting Date: 08/12/2019  
Resolution 2019-78 - A Resolution Authorizing a One-Year Extension of the Banking Services Agreement with First Tennessee Bank.
Submitted by: Richard Parker, Finance
Department: Finance  

Information
Subject

Resolution 2019-78 -  A Resolution Authorizing a One-Year Extension of the Banking Services Agreement with First Tennessee Bank.

Background
The City of Brentwood initiated its initial three-year depository and banking services relationship with Capital Bank in October 2015. The initial term of the service agreement was for three years ending in October 2018, with the option, subject to mutual agreement, to renew the contract for two additional terms of one year each.  The first of the two extensions was approved and entered into last year.
 
Last year’s extension proposal from First Tennessee (having purchased Capital Bank in May 2018) included continuation of the "no fee" banking arrangement and interest rate terms to pay Fed Funds minus 25 bps on deposits. The proposal put forth for this final one-year extension continues the “no fee” arrangement, however, citing changing market and interest rate environments, First Tennessee is proposing an extension with a reduction of 25 bps in the rate paid on deposits to Fed Funds minus 50 bps. With the recent Federal Reserve action to lower its benchmark interest rate, the current interest rate paid on City funds under this proposal would be 1.75%.   This rate will fluctuate depending on future adjustments by the Federal Reserve.

Notwithstanding this reduction, First Tennessee is offering the opportunity to enhance interest income via the Certificate of Deposit Accounts Registry Service (CDARS) that places fixed amounts into federally insured (FDIC) accounts. This program was available last year but was not utilized since it was deemed unnecessary in the rising interest rate environment. This year, with the changed interest rate environment, this program in addition to others such as the LGIP (Local Government Investment Pool) will be given serious consideration to maximize the earnings on the City's idle funds.

Staff researched other recent city banking agreements and believes the offer is competitive in today's market for a no fee services arrangement.  The other option for the City is to seek new competitive proposals from other interested banks.  Based on the market research conducted, staff has no reason to believe a more competitive interest rate would be certain at this time, and since this represents the final year of the banking services contract a solicitation for bids will be required next year. The Finance Department has been pleased with the service and benefits provided by First Tennessee since the conversion.

Please note that First Tennessee Bank is a member of the State of Tennessee’s collateral pool.  Accordingly, all of the City funds are classified as “Public Funds” and are at least 100% secured as required under state law. 

Staff is recommending the City exercise the extension option in the agreement for one additional year through October 2020. 

Please call Finance Director Richard Parker to discuss if you have any questions.
Staff Recommendation
Staff recommends approval of the accompanying resolution. 
Previous Commission Action
Resolution 2018-73 - adopted by the Board of Commissioners on 09/27/2018 Authorizing a One Year Extension of the Banking Services Agreement with First Tennessee Bank.
 
Resolution 2015-67 – adopted by the Board of Commissioners on 10/12/2015 designating Capital Bank as the Official Depository for the City of Brentwood.

Fiscal Impact
Amount :
Source of Funds:
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Fiscal Impact:
It is impossible to determine the overall financial impact to the City of the reduced interest rate earning resulting from this extension because of varying factors, including the City's ability to offset the reduced interest rate earnings through the CDARS or LGIP programs.  Note that the FY 2020 budget already anticipated reduced interest earnings compared to FY 2019 actuals. Therefore, absent any radical downward market adjustments to interest rates during FY 2020, staff would expect interest earnings would still meet the projected budget levels.
Attachments
Resolution 2019-78
Proposal
Signed Resolution

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