Maximizing Interest Earnings and Putting Cash to Work ©2022Three+OneCompany,Inc.
Presenters and Panelists!
Alex DeRosa, Relationship Specialist, Team Lead, three+one
Frank Kapusta, Senior Vice President, M&T Bank
Mark Manning, Senior VP & CFO,Onondaga Community College
Mike Quinn, Controller, Monroe Community College
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Sintia Marshall, Comptroller, Jefferson Community College
3 ©2022Three+OneCompany,Inc. $ $ $ $ $ $ Before After Main Account Money Market Account Payroll Student Services Accounts Payable Investment Account Receipts Account
3 Pillars of Public Funds Investing
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SAFETY LIQUIDITY YIELD
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Review of Finance 101
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Rates in Perspective
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Comparing the two “strategies” 12 Portfolio 1expected return of 2.20% Portfolio 2expected return of 3.21% Incremental expected return of 1.01% on a base of $10 million means $101,000 more resources. Also moving from an expected return of 2.20% to 3.21% is a 46% increase in expected interest earnings. Most importantly….this has been achieved without taking on significant credit risk (we are only using treasuries). ©2022Three+OneCompany,Inc.
How do we gain the confidence to invest our portfolio longer, yet still safely, to generate more yield and still maintain good liquidity? 3 things that may be keeping us in a more passive vs. more active approach: 13 Investment Policy Understanding Fees/ECR (Earnings Credit Rates) Cash Forecasting
● Do we use all the available tools? ○ Bank Deposits (CDs, MMKs) ○ Treasuries ○ Obligations of Federal Agencies & NYS ● Does it support our internal controls? ● What about your affiliates? Investment Policy 14 ©2022Three+OneCompany,Inc.
Banking and Financial Partners
● The vast majority of banks that work with local governments have a wide range of options to help you invest and manage your cash.
● If they don’t have all you need, they have affiliates that can help with the purchase and/or sale of treasury securities
● As the interest rate environment changes, you may need to be flexible enough to invest in new products with new partners.
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Cash Flow vs. Liquidity Analysis Daily ins and outs of revenues & expenditures - cash flow The measurement & value of all your entity's cash - liquidity 16 ©2022Three+OneCompany,Inc.
There’s a spreadsheet for everything..
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Cash Forecasting
Every finance/treasury office should do some sort of cash forecast that as much as possible can be reconciled back to the municipality’s budget.
Preparing this type of forecast allows the treasury function to look across government and be one of the important pillars of public financial management.
Preparing and monitoring this type of forecast gives us early warning signals that our intuition and data may not recognize.
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Cash Forecasting
This type of forecasting also helps synch up coordination
However, this type of forecasting must be paired with deliberate liquidity analysis to make sure we are optimizing our operations.
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-Ash Center for Democratic Governance and Innovation at the Harvard Kennedy School
“Most public entities say they don’t have the time to look at data or document any value found in it.”
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Liquidity Displayed for Decision Making
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Liquidity Displayed for Decision Making
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Prudently investing public funds is a bit like climbing a staircase
Stable, steady, upward progression is the key. The sooner you put available cash to work earning interest, the higher your net earnings will be. A series of safe, dependable, laddered investments that take into consideration the factors of, “how much”, for “how long”, and then researching the most advantageous interest rates available, is the key to success.
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Knows the peer benchmarks
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Benchmarking bank rates against U.S. Treasury rates, and against other comparable banks, ensures that you and your taxpayers are receiving full marketplace value on deposits. Comparing peer bank benchmarks can make a real difference in earnings! 27 ©2022Three+OneCompany,Inc. Term Rate Option #1 12-month CD 4.75% Option #2 12-month T-bill 4.65% Option #3 6-month T-bill 4.48% Option #4 6-month CD 4.60% Option #5 12-month CD 1.75% Option #6 Liquid 3.45% Option #7 Liquid 2.05% Range of actual interest rate quotes on a $5,000,000 investment as of November 2022: ● Benchmarks help you know more about what your cash is worth, and they ensure you are always maximizing the value on all financial resources. ● $5m @ 4.75% = $237,500 interest revenue ● $5m @ 2.05% = $102,500 interest revenue
Earnings Credit Rate
● Your Earnings Credit Rate (ECR) is the rate your bank “pays” you on the balances held in deposit accounts. Typically the ECR is used to generate earnings to offset your bank fees.
● Depending on how you have structured your bank relationships and the volume and types of services used your level of fees and the related ECR can be quite important as a piece of your liquidity puzzle.
● The important thing to know about ECR….it is set by the bank and typically not benchmarked or indexed off any particular market place rate. It can be wholly discretionary.
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29 Optimizes its banking structures $55MM budget ● Monitor arrangements ● Know the benchmarks ● Understand your account structure and make sure you have a complete picture ©2022Three+OneCompany,Inc. Bank 1 Bank 2 Bank 3 Bank 4 Bank 5 Total Line Item Fees $31,950 $12,069 $15,533 $0 $41,031 DDARate 2.65% 2.00% 1.25% 0.79% 0.00% MMDARate 1.55% 1.54% 1.25% 0.00% 0.81% ECR 1.50% 2.00% 1.00% N/A 0.80% FDIC 0.00% 0.00% 0.00% N/A 0.15% eECR 1.50% 2.00% 1.00% N/A 0.65% HistoricalAverage Balance $24,993,939 $24,993,939 $24,993,939 $24,993,939 $24,993,939 FDIC Fee ($) $0 $0 $0 N/A $37,491 RR 0% 0% 0% 0% 0% Historical BalanceAdjusted for RR $24,993,939 $24,993,939 $24,993,939 $24,993,939 $24,993,939 ECRAllowance $374,909 $499,879 $249,939 0 $162,461 Required Balance to Pay Zero Fees $2,130,000 $0 $1,553,300 $8,000,000 $6,312,462 Peg BalanceAmount N/A $1,100,000 N/A N/A N/A Excess / Deficit Balance $22,863,939 $24,993,939 $23,440,639 $16,993,939 $18,681,477 Net Value / Hard Fees $605,894 $499,879 $293,711 $134,252 $0
30 Average 1.00% Low Range 0% High Range 2.50% Current Range of ECRs ©2022Three+OneCompany,Inc.
Takeaways
Use your data, stress test it and display it in a way that allows you to “see” how long you can invest it.
Use the yield curve and treasuries to increase prudently the return on your cash.
Reviewyour bank fees and ECR for “hidden” opportunities to nudge your expected return higher.
Thank you for attending!
Do you have any questions?
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