DEPARTMENT: Finance
DEPARTMENT HEAD: Troy Elliott
COUNCIL DISTRICTS IMPACTED: All
SUBJECT:
Contract renewal of the Securities Lending Agreement with Frost Bank
SUMMARY:
This Ordinance authorizes the renewal and extension of the Securities Lending Agreement with Frost Bank for the second and final one (1) year renewal term, commencing April 1, 2014, under the same terms and conditions.
BACKGROUND INFORMATION:
Securities Lending is authorized under the Texas Public Funds Investment Act and the City's Investment Policy. Securities Lending is a process by which the City's securities are made available to approved borrowers to meet their short term investment and liquidity needs. The loaned securities do not leave the effective control of the City. These loans have a short duration, are collateralized at 102% by cash, government securities, or letters of credit, and monitored daily. By utilizing a Securities Lending Program the City has the opportunity to generate additional revenue.
On May 4, 2009, the City issued a Request for Proposal for Securities Lending Services. On June 5, 2009, four firms submitted proposals: Citibank, N.A., Frost Bank, PNC Global Investment Servicing, and State Street Bank and Trust. A Selection Committee interviewed the four firms on June 26th and June 30th, 2009 and scored the firms on February 16, 2010.
On February 17, 2010, Frost Bank was recommended and approved by the Investment Committee to provide Securities Lending Services to the City for a three (3) year period beginning April 1, 2010 through March 31, 2013 with the option to extend the contract for two (2) additional one (1) year terms, under the same terms and conditions. On March 18, 2010 City Council approved Frost Bank to provided Securities Lending Services.
On November 13, 2012, the Investment Committee approved the first renewal and extension of the Securities Lending Agreement with Frost Bank to continue to provide the City with Securities Lending Services for one (1) additional one (1) year under the same terms and conditions. On March 7, 2013 City Council approved the first extension of the Agreement with Frost Bank to provided Securities Lending Services.
On February 18, 2014, the Investment Committee approved the second and final extension of the Securities Lending Agreement with Frost Bank to continue to provide the City with Securities Lending Services for one (1) additional one (1) year term under the same terms and conditions.
ISSUE:
The utilization of Frost Bank to provide Securities Lending Services, will allow the City to continue to earn additional revenue for the City. During an environment of low interest rates the City's participation in a Securities Lending Program has yielded significant interest income. For FY 2013, total interest earnings from the City's Investment Portfolio were $2,157,817 and $2,726,959 from the Securities Lending program for a total of $4,884,776.
Since the inception of the City's Securities Lending program in April 2010, the City has earned the following:
FY 2010 $ 500,864(1)
FY 2011 $1,522,488
FY 2012 $2,091,120
FY 2013 $2,726,959
FY 2014 $ 606,022 (2)
Total $7,447,453
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(1) April through September 2010.
(2) October through December 2013.
ALTERNATIVES:
An alternative is for the City to not renew its Securities Lending Agreement with Frost Bank for Securities Lending Services. If this option is selected, the City will forgo any additional revenue that may have been generated by this program.
FISCAL IMPACT:
The Securities Lending Agreement includes a 70%/30% revenue split, with 70% allocated to the City and 30% allocated to Frost Bank which covers any fees related to Securities Lending Services. As part of the City's budget and revenue forecast process, revenues generated through the Securities Lending Program are included as additional interest earnings.
RECOMMENDATION:
Staff recommends approval of this ordinance authorizing the City to renew and extend the Securities Lending Agreement with Frost Bank to provide the City with Securities Lending Services under the same terms and conditions