Treasury Management Update

Transcription

1 Treasury Management Update Maximizing Your Treasury Management Relationships February 27, 2019 Presented by David Calvert, CFA, Director PFM Asset Management LLC PFM 1

2 Are your bank balances working hard for you or hardly working? PFM 2

3 How Banks Invoice Fees? Account Analysis Statements PFM 3

4 Earnings Credit Rates / Compensating Balances Earnings Credit Rates (ECRs) are credits offered by a bank to offset service charges. The rate paid is often pegged to the U.S. Treasury bill rate. Banks have discretion for determining the earnings allowance. Obtaining a good rate can stack up. PFM 4

5 Be on the lookout for low rates EARNINGS CREDIT SUMMARY AVAIL BAL FOR EARNINGS CREDIT $ 25,000, EARNINGS ON AVAILABLE BALANCES 18, LESS TOTAL SERVICES CHARGES 20, $18, / $25,000,000 * 365 / 31 = 0.85% DEFICIT 2, PERIOD TO DATE EXCESS 59, Shouldn t I keep even higher balances because we will be owing the bank a lot at the end of the fiscal year? PFM 5

6 FDIC Announcement Complete Financial Institution Letter: PFM 6

7 What to Look for? Dep Insurance Bank Assessment Premium Assessment Fee Recoupment Monthly Deposit Services Fee Account Balance Fee PFM 7

8 FDIC Insurance Costs Significantly Reduce the Benefit of the ECR Average Collected Balance $ 25,000, Information from Account Annual $ Analysis Statement ECR Computation Amount Earnings on Available Balances* $ 18, $ 212, $18, / $25,000,000 * 365 / 31 Gross Earnings Credit Rate 0.85% Less Reserves $ - Earnings Credit Rate Less Reserves 0.85% Deposit Insurance $ 3, $ 37, Deposit Insurance (as a %) 0.15% Net Earnings Credit Rate 0.70% $ 175, * If Service Charges do not exceed Earnings Credits, some Earnings Credits may be lost PFM providing no economic benefit. 8

9 Compensating Balances Are Generally No Longer Attractive Traditional Sweep Earnings Credit Rate Interest Rate 0.85% 0.85% Reserve Requirement 0% 0% Effective Interest Rate 0.85% 0.85% Interest Paid $ 212,500 Earning Credit 212,500 FDIC Assessment none ($ 37,500) Less: Sweep Fee ($ 2,400) $ 210,100 $ 175,000 Net Benefit (Cost) $ (35,000) * Compensating balance of $25 million PFM 9

10 Impact of Rising Interest Rates Compensating Balance $40,000,000 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000, % ECR $ 36,000, % ECR $9,000,000 $0 0.25% 0.50% 0.75% 1.00% 1.25% Earnings Credit Rate Bank fees are assumed to be $7,500 per month. For illustration only. PFM 10

11 A Fundamental Change? My bank has always been a good partner, this is just a temporary lag, right? PFM 11

12 New International Requirements - Basel III Produced by Bank for International Settlements Implemented independently by each nation s banking regulators Basel I 1988 Focused on credit risk Created the credit default swap Basel II 2004 Initiated 3 Pillars Minimum Capital Requirements Supervisory Review Process Market Discipline Basel III 2010 Response to 2008 Financial Crisis Strengthens Basel II Pillars Stringent Credit, Liquidity and Leverage Rules PFM 12

13 Three Primary Categories Capital Leverage Liquidity PFM 13

14 Implementation of Basel III in the United States Includes changes required by Dodd-Frank Act of 2010 Applies to all banks with over $500 million in assets: National banks State member and non-member banks U.S. bank holding companies State and Federal savings associations Savings and loan holding companies PFM 14

15 Impact of Liquidity Requirements High quality, liquid assets are precious Securities pledged as collateral don t count FHLB LOCs are good alternative Some banks are refusing or limiting the amount of public deposits Liquid reserves needed for undrawn commitments Higher cost of credit Fewer loans Desire for longer-term funding Average maturity of deposits up PFM 16

16 A New World Bank of America drops some small towns and cities PFM 17

17 A New World February 24, 2015 The largest U.S. bank by assets is aiming to reduce the affected deposits by up to $100 billion by the end of 2015, according to a bank presentation Tuesday morning. Source: Wall Street Journal PFM 18

18 Federal Home Loan Bank Letters of Credit FHLB LOCs can offer an efficient and flexible alternative to address the required pledging of collateral The LOC guarantees the public entity will be paid upon demand should a bank default on the deposit Public entities have immediate access to its funds without having to liquidate securities that are normally pledged to them PFM 20

19 What should you do? Determine the Net Earnings Credit Rate your bank is paying Ask if a sweep option into a Government Money Market Fund is available Calculate the potential benefit of turning on the sweep functionality Consider other short-term investment options for liquid funds LGIPs Fixed-income liquidity portfolios PFM 21

20 Expedited Payment Processing PFM 22

21 Increase in Electronic Transactions Checks continue to dominate the payment industry, however ACH transactions for large corporate institutions have increased from 32% to 39% over the last 5 years. Percentage of Transactions Made by Corporations Large Corporate Middle Market Source: Phoenix-Hecht PFM 23

22 Purchasing Cards Expense Reporting Modules Coding of transactions to General Ledger Codes Approval process by statement, expense or report level Receipt imaging No longer by fax PFM 24

23 Integrated Payables A bank s Integrated Payables Platform may allow you to pay vendors electronically ACH ACH Purchasing Cards 32.6% of Large Corporate Institutions reported using Integrated Payables, while only 11.3% of Middle Market Institutions reporting using Integrated Payables* Card Bank s Integrated Payables Wire Program Differences Ghost cards vs. Single Use Cards Vendor outreach initiatives Check Vendor acceptance Integration with your ERP system * Source: Phoenix-Hecht PFM 25

24 Integrated Payables Client Bank PFM 26

25 Same Day ACH Phase 3 - Effective March 16, 2018 RDFIs will be mandated to make funds available from same day ACH credits (such as payroll Direct Deposits) to their depositors by 5:00 PM at the RDFI s local time A morning submission deadline at 10:30 AM ET, with settlement occurring at 1:00 PM An afternoon submission deadline at 2:45 PM ET, with settlement occurring at 5:00 PM Transaction must be less than $25,000 Future Change Effective March 20, 2020 Per-transaction dollar limit for Same Day ACH transactions increase to $100,000 * Source: PFM 27

26 Digital Disbursements Replace business-to-consumer check payments with electronic payment Business-to-person electronic payment using payee s or mobile phone number Consumers who register with clearxchange network (Zelle) can receive electronic payments Benefits Reduce need to store bank account data Less expensive to issue electronic payment vs check Faster payments to payee Reduced need to account for outstanding checks PFM 28

27 Mobile Banking New mobile features and applications have provided access to essential banking functions such as: Initiation of a repetitive wire Secondary approval of wire transfers Decisioning of Positive Pay items Resetting of a user s password Balance reporting PFM 29

28 Cost for Branch Services Increasing In recent RFPs, we have seen incumbent banks increase the pricing for: Branch Deposits Currency & Coin Deposits Increase charges for non-bank customers to cash checks PFM 30

29 Remote Cash Safe Eliminates going to the bank Substitute multiple trips with reduced armored car pickups Improved cash flow Direct communication with your bank Counterfeit detection Cost is $450 - $600 per month / per safe, includes armored car pickup costs PFM 31

30 Prices for Commoditized Services (Electronic Transactions) Lower Competitive Bid (Any Bank/Client s Bank) Existing Relationship (Any Bank/Client s Bank) Client PFM 32

31 Prices for Commoditized Services (Electronic Transactions) Lower $0.12 ACH Item Originated - Credit $0.10 $0.08 $0.06 $0.047 $0.04 $0.036 $0.025 $0.023 $0.026 $0.02 $ th - 90th Percentile Average Price PFM Source: PFM Pricing Database. Blue bars represent the 10 th to 90 th percentile range of bank proposed pricing for competitive 33 procurements up to $250,000 in annual banking costs.

32 About the Speaker David Calvert, CFA Director David Calvert has been with PFM for over 18 years, specializing in providing treasury consulting services for clients across the country. As a leader of PFM s Treasury Consulting practice, David helps clients identify their banking needs and assists in the time-consuming process of competitively procuring banking services. These engagements typically result in his clients receiving significant cost savings, new and improved services, and greater customer service from their banking partner. Contact Information PFM Asset Management LLC 221 West 6 th Street, Suite 1900 Austin, TX Market St Harrisburg, PA calvertd@pfm.com PFM 34

33 PFM Disclosure Statement This presentation is only intended for institutional and/or sophisticated professional investors. This material is intended for informational purposes only and should not be relied upon to make an investment decision, as it was prepared without regard to any specific objectives, or financial circumstances. It should not be construed as an offer or to purchase/sell any investment. Any investment or strategy referenced may involve significant risks, including, but not limited to: risk of loss, illiquidity, unavailability within all jurisdictions, and may not be suitable for all investors. To the extent permitted by applicable law, no member of the PFM Group, or any officer, employee or associate accepts any liability whatsoever for any direct or consequential loss arising from any use of this presentation or its contents, including for negligence. This material is not intended for distribution to, or use by, any person in a jurisdiction where delivery would be contrary to applicable law or regulation, or it is subject to any contractual restriction. No further distribution is permissible without prior written consent. The views expressed within this material constitute the perspective and judgment of PFM at the time of distribution and are subject to change. Any forecast, projection, or prediction of the market, the economy, economic trends, and equity or fixed-income markets are based upon current opinion as of the date of issue, and are also subject to change. Opinions and data presented are not necessarily indicative of future events or expected performance. Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources, believed to be reliable. No representation is made as to its accuracy or completeness. PFM 35

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