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. Capital was chosen in 2015 via a competitive proposal evaluation process.
In May 2018 the merger between Capital Bank and First Tennessee Bank was complete and the city's depository and banking services were converted to the First Tennessee platform. Furthermore, First Tennessee agreed to honor the terms of the Capital contract through October 2018 (the initial contract period) and expressed a desire to continue the relationship through at least the end of the first optional one year extension period subject to changes in the interest rate terms.
First Tennessee's extension proposal included continuation of the "no fee" banking arrangement but a change to the interest rate terms to pay Fed Funds minus 25 bps on deposits. The original agreement with Capital Bank paid interest at Fed Funds plus 25 bps on deposits. Additionally, First Tennessee offers the opportunity to enhance interest income via a program (CDARS) that places fixed amounts into federally insured accounts (FDIC).
While the proposed interest rate terms of the extension offer represents a rate 50 bps less than the original agreement, 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, and such an effort could also result in the staff having to change all banking services arrangements a second time in five months, which would be a very disruptive process. 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 coded as “Public Funds” and are 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 2019.
Please call Finance Director Richard Parker to discuss if you have any questions.
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