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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