Over the last several years, three+one has blogged frequently about the changing landscape of banking and the value of cash as an asset.
Last year at this time, I made a prediction of the top 10 trends for 2017. My batting average was in the same range as 2016, over 70% correct.
As we head into 2018, the top 10 trends I see evolving are as follows:
1. The Federal Reserve will approve three rate hikes of .25% each to reach a level of 2.00% on Fed fund rates.
2. The 30-day T-bill rate will break the 2.00% level.
3. The average bank Earnings Credit Rate (ECR) will break the 1.00% level.
4. The U.S. GDP will be on pace to reach 4.0%, and the nation’s unemployment rate will break the 3.75% level. Over two million new jobs will be created as a result of the newly approved federal tax reform legislation.
5. Continuing 2017’s trend, public entities will enjoy higher cash levels throughout 2018.
6. Under the leadership of the Federal Reserve’s new chair, Dodd-Frank regulations will be relaxed but not eliminated. The changes made will be beneficial to banks of all sizes.
7. There will be a spike in the number of community bank mergers.
8. Public entities and higher Ed institutions will issue a greater level of banking Request for Proposals (RFPs) due to greater pricing pressures, bank branch closings, and more competitive deposit-rate offerings.
9. Alternative payment options will grow, given new technology, greater restrictions placed on the usage of cash and checks, and more attention being given to digital currency and its regulation.
10. By year’s end, three+one will have helped public entities and higher Ed institutions realize upwards of $20 million in new interest income as a result of best practices in liquidity analysis and the proactive management of their cash.
At three+one we strive to help clients navigate through the changing landscape of banking and an environment of rising interest rates.
In less than one year (from November 30, 2016 to October 31, 2017) the City of Beaufort, South Carolina, with an annual budget of about $20 million, has increased its interest earnings on its cash by over 900%. Their earnings jumped from $13,801 to over $147,000, without sacrificing safety and while maximizing liquidity. The city’s overall cashVest® score increased by 26 points and its estimated interest earnings for the next 12 months should exceed $180,000.
Here are some ways they did it:
1. The city increased its Warnick Rate Indicator (WRI) by identifying the investment tool that best met its goals, realized a net increase in interest, and used time-horizon data to increase the amount of cash that was available. The result: the city earned more interest while it ensured the right amount of liquidity.
2. By ensuring 100% of all cash balances provided value, either by earning interest or offsetting banking fees, every cent of the city’s cash worked its hardest.
3. By reevaluating the relationship with its bank, the city ensured both parties would see it as mutually beneficial. The city lowered its banking costs, adopted new technologies that fit its needs, and modernized its banking structure.
4. Most importantly, the city’s finance leadership realized an innovative cash-management strategy could bring substantially more value to its taxpayers. And they took the proper steps to put this strategy into action.
No matter how much cash your entity has, where the cash is, or what the cash is earning, it is possible to earn more and save more on that cash. Don’t think it’s possible? Just ask the City of Beaufort.
Happy Holidays From three+one!!!
The link between a stronger credit rating and stronger liquidity is direct, if an entity’s liquidity is well managed and well viewed by its credit agencies.
Liquidity analysis and management of all cash are important components in showing credit agencies that your entity has a strong handle on its sources of revenue. How effectively that cash is managed requires a strong plan that covers operating and capital payments.
Outside of the basics of receiving and disbursing funds, the management of liquidity of operating and reserve funds is expected. But credit agencies take more favorable views based on how well the funds are managed while they’re under an entity’s control.
Think of it this way: liquidity is cash. If cash is viewed as an asset, it can be effectively managed, calculating in operating and capital payments, and lead to increased bottom-line income.
At three+one, we specialize in identifying and managing our clients’ operating and non-operating liquidity. Our pure and independent data allow entities to manage cash more effectively—and benefit from a significant increase in interest income. Frequently in the tens to hundreds of thousands of dollars each year.
A stronger liquidity initiative could lead to a stronger credit rating and lower rates on lending in the marketplace. The link between the two is a direct one.
With the proper management plan, the end result can be a “win-win” for your entity and to those you serve—in both lower costs and higher interest earnings
Last month, Wayne County, NY lost an outstanding treasurer, community leader, and innovator to a long battle with cancer.
Tom Warnick was appointed deputy county treasurer at age 28 and then elected treasurer at 34, a position he held for three decades.Throughout those years he never flagged in his drive to bring new sources of efficiency, savings, and income to the public he served. Tom was known for always striving for the best; as soon as he achieved one success, he moved on to other initiatives—and turned them into success stories.
It was during Tom’s tenure that three+one created—and named in his honor—the Warnick Rate Indicator®. The WRI, an integral component of three+one’s cashVest®score, has become nationally recognized for the straightforward way it enables comparisons of the earnings rates of an entity’s cash to the potential rates those funds could earn in the marketplace.
We’ve shown, time and again, by following the principles of the WRI, entities are likely to gain tens and even hundreds of thousands of dollars in new income each year. Achieving five stars in the WRI means that an entity is maximizing the use of 95% to 100% of its funds, thus receiving the highest level of earnings available in the marketplace—and is still able to meet its legal, safety, and/or liquidity requirements.
I was fortunate to speak with Tom a few days before his passing. During our conversation, I was amazed he still had fresh ideas and initiatives that he hoped his successors would follow through on to benefit his Wayne County constituents.
Tom Warnick’s passion, determination, and drive for excellence have left a mark on us all, both personally and professionally. It was a great honor to have worked closely with him for the past 25 years. All of us at three+one salute his work, his legacy, his innovative spirit, and the high standard he has set for financial executives nationwide.