HomeMy WebLinkAboutItem 2d - Banking Services of the City of ArcadiaDATE: September 5, 2017
TO: Honorable Mayor and City Council
FROM: Hue C. Quach, Administrative Services Director
Shannon Huang, Financial Services Manager/City Treasurer
Prepared by Alicia Salce, Revenue Collections Specialist
SUBJECT: PROFESSIONAL SERVICES AGREEMENT WITH WELLS FARGO
BANK FOR THE CITY’S BANKING SERVICES FOR 5 YEARS IN AN
AMOUNT NOT TO EXCEED $19,000 ANNUALLY
Recommendation: Approve
SUMMARY
Request for Proposals (“RFP”) for banking services were mailed to 26 financial
institutions that have branches within the City’s corporate boundaries in May 2017, and
five proposals were received. After an extensive review of the proposals, it is
recommended that the City contract with Wells Fargo Bank for five years of banking
services, primarily due to its competitive pricing and add-on tools allowing more
flexibility on managing the City’s financial activities.
DISCUSSION
Historically, the City requested proposals for banking services every five years as it is
determined that a 5-year cycle is the most efficient and cost effective interval due to the
time, effort, and costs associated with changing banks. In May 2017, Staff sent out a
Request for Proposal to 26 financial institutions within the City’s boundaries, and also
posted the RFP on the City’s Website and on the website of the California Society of
Municipal Finance Officers.
Banking services are an essential component of the City’s daily financial activities,
including maintenance of a general checking account for operations, a payroll account
through which personnel disbursements are paid, a deposit account for credit card
payments, an accounts payable disbursement account, and a checking account for
Worker’s Compensation and General Liability payments. The objective of soliciting for
services is to offer the banking community an opportunity to provide new and innovative
technology that will allow the City to enhance banking processes and to ensure the City
receives banking services at a reasonable cost.
Professional Services Agreement with Wells
Fargo Bank for the City’s Banking Services
September 5, 2017
Page 2 of 3
The primary banking services required by the City include acceptance of daily deposits,
processing paid items, direct deposit capabilities for payroll, electronic funds transfers
for water utility accounts, wire transfers, payment of state and federal taxes
electronically, and corporate credit cards. It is the City’s intent to maintain all
commercial banking services with one financial institution to maximize cash flow and
minimize administrative costs. The level of capitalization and financial health of the
institution are also a critical part of the proposal process.
After the financial crisis, the banking industry went through major changes, including
switching their focus to more profitable sectors of business. Bank of America, as an
example, terminated their banking service contracts with many public agencies similar
to the City’s scope, and has concentrated their government banking business in only the
largest cities. During this RFP process, some of the major banks have also advised that
they would not submit a proposal due to their emphasis on bigger and more profitable
agencies.
The following five banks submitted bids in response to the RFP:
Wells Fargo Bank
Bank of the West
East West Bank
California Bank & Trust
Commercial Bank of California
Among the five banks that submitted the proposals, East West Bank, California Bank &
Trust, and Commercial Bank of California are not Local Agency Investment Fund
(LAIF)-approved depositories as required by the RFP; thus, they are not considered as
an eligible bank for this selection process. The City uses LAIF as an overnight
investment account, and performs frequent transfers between LAIF and the City’s
general operational bank accounts. The City’s depository bank must be able to make
direct transfers with LAIF.
It is determined that both Wells Fargo Bank and Bank of the West could adequately
provide the services requested. In evaluating costs for banking services, two factors
are significant: Services Charges and Earnings Credit Rate (interest earned on
investible balance). A comparison table for these two factors is presented below:
Professional Services Agreement with Wells
Fargo Bank for the City’s Banking Services
September 5, 2017
Page 3 of 3
Banking Services Estimated Annual Costs Earnings Credit
Wells Fargo Bank $19,000
The rate will be set based on a
combination of 91-Day Treasury Bill rate,
the Fed Funds rate, sweep rate and other
market indicators: the recent rates during
Nov. 16 to April 17 were 0.25% and
0.35%.
Bank of the West $21,100 It is guaranteed at 0.55% for the duration
of the contract.
Wells Fargo Bank provided the lowest charge for services, but Bank of the West offered
a better term on Earnings Credit for the present time. The difference in Earnings Credit
is approximately $4,000 per year based on the current rate variance of 0.20% and an
average account balance of $2 million. However, as the earnings rate offered by Wells
Fargo Bank is variable, it will fluctuate during the contract term, and it is most likely to
go up due to the rising interest rate market. Depending on the market conditions, it is
possible that the earnings rate offered by Wells Fargo Bank will exceed the 0.55%
proposed by Bank of the West during the term of the contract.
Wells Fargo Bank seems to be ahead on its technology, and provides more tools and
flexibility on managing bank account and credit card activities. They also offer other
add-on solutions, including the consolidated ePayment manager for payable and E-Bill
Express for receivables, which could be utilized by the City at a later time to further
improve the operational efficiency.
Although Wells Fargo Bank’s consumer sales scandal is still generating negative
headlines in the news, the bank has replaced top management staff and stopped the
wrongful practices. The new executives of the bank have indicated a desire to correct
the problems and change the culture. Nevertheless, the scandal should not affect the
government banking business side of the things. Through reference checks, staff also
found their existing governmental customers satisfied with the customer service and
professionalism of Wells Fargo.
ENVIRONMENTAL ANALYSIS
The Professional Services Agreement with Wells Fargo Bank is not considered a project
as defined by California Environmental Quality Act (“CEQA”) Section 15378 as a service
contract of this nature is considered ministerial.
Professional Services Agreement with Wells
Fargo Bank for the City’s Banking Services
September 5, 2017
Page 4 of 3
FISCAL IMPACT
By selecting Wells Fargo, the costs for banking services are expected to be $19,000
annually, which will be partially offset by earnings. The costs of banking services are
included in the Fiscal Year 2017-18 adopted budget.
RECOMMENDATION
It is recommended that the City Council approve, and authorize and direct the City
Manager to execute a Professional Services Agreement with Wells Fargo Bank for the
City’s banking services for 5 years in an amount not to exceed $19,000 annually.
Attachment: Proposed Professional Services Agreement