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					                                                              One Keystone Plaza          717 231-6200
                                                              Suite 300                   717 233-6073 fax
                                                              N. Front & Market Streets
                                                              Harrisburg, PA
                                                              17101-2044




                                                                         May 8, 2003


Memorandum
To:      Mr. Richard R. Vensel
From:    Nelson L. Bush & Phyllis Heverly Flesher
Re:      Comments on Banking RFP Responses


The following provides analysis on the Banking Services Request for Proposal recently circulated by
Chambersburg Area School District. Our comments follow the format of “Attachment C –
Response to Proposal.” Responses are ranked from most favorable to least favorable.

Insurance and Collateralization
While each bank did provide comments on collateral issues several of the responses did deviate
from requirements laid out by the District.
   1 Bank B - This response does address some of our requirements including a 3rd party
       custodian and valuation and US Government and Agency securities regarding the repo
       investment sweep account. However, it did not address: a) weekly valuation of amounts in
       deposit accounts (although this may be limited and will be valuated monthly), b) 102% of
       market value requirement, c) a separate collateral account, or d) monthly reporting for all
       non repo accounts although they were colatorized under Act 72.
   1 Bank A – It appears that Bank A fully complies with the District’s requirements except it
       does not specifically mention the 102% market value requirement.
   3 Bank D – Bank D’s response does address some or your requirements including a 3rd party
       custodian and valuation, US Government and Agency securities, and weekly reporting.
       However, it did not address the 102% of market value requirement and does not fully
       provide a separate collateral account.
   4 Bank C – This bank deviates from your requirements in three areas. First it will not hold
       only Treasury and Agency obligations as collateral. Next it does not want to create a separate
       collateral account for the District. Third, it does not discuss any monthly reporting of
       collateral.
   5 Bank E – Bank E stated that funds in accounts would be “federally insured and/or
       collateralized in accordance with Act 72…” The response however did not address a) weekly
       mark to market of securities, b) 102% market collateral requirement, c) consist solely of full
       faith and credit obligations of the US Government or obligations of agencies or
       instrumentalities of the US Government, d) 3rd party custody and valuation, e) separate
       collateral account, f) monthly reporting of collateral, or g) the agreement to sign formal
       arrangements for pledged amounts.
                                                                      Richard Vensel
                                                                      May 8, 2003
                                                                      Page 2




Deviations from Section II – Scope of Banking Services
   1 Bank A – Bank A offers all required services and will offer courier and account
       reconcilement services at no cost.
   2 Bank B - The bank specifically mentions that it does not offer Controlled Disbursement
       checking but does appear to offer all other necessary services. No courier services provided.
   2 Bank D - The bank can provide all necessary and requested services except for the courier.
   4 Bank E – It appears that the bank can provide all wire, checking, and balance reporting
       services outlined in the District’s RFP. We are unsure if Bank E can accept your current
       Direct Deposit of Payroll service or if District staff will have to execute additional steps to
       get payments processed. The bank is in the process of developing account reconciliation and
       positive pay services that the District may wish to utilize in the future.
   4 Bank C – Per the bank’s response, check imaging and positive pay services are currently
       under development with no schedule for availability. No courier services provided.


Deposit Availability Schedule

Deposit Availability Schedule (Day funds can be withdrawn)
                          1               2             3                   4                   5
                        Bank A         Bank B          Bank E              Bank D             Bank C
ON US                  Same Day       Next Day        Next Day            Next Day            Next Day
Local                  Same Day       Next Day        Next Day            Next Day             N/A
 rd
3 Fed Dist             Same Day       Next Day        Next Day            Next Day         5 Days or More
Other Fed Dist         Same Day       Next Day        Next Day           1 or 2 Days       5 Days or More

Deposit Earnings Availability Schedule (Day funds begin to earn interest or earnings credit)
                         1                2              3                  4                  5
                      Bank A           Bank B          Bank E             Bank D             Bank C
ON US               Same Day          Same Day        Next Day           Next Day            Next Day
Local                Next Day         Next Day        Next Day           Next Day             N/A
 rd
3 Fed Dist           Next Day         Next Day        Next Day           Next Day         5 Days or More
Other Fed Dist      Two Days          Two Days        Next Day          1 or 2 Days       5 Days or More

Important Note: Bank C is in the 4th Federal Reserve District (Pittsburgh) whereas all other banks
responding to this proposal are from the 3rd Federal Reserve District (Philadelphia). Most checks
drawn on banks in the Chambersburg area will be from the 3rd Fed District and will therefore be
subject to significant float requirements by Bank C.
                                                                        Richard Vensel
                                                                        May 8, 2003
                                                                        Page 3




Direct Deposit of Payroll
   1 Bank B – The bank can provide the service. Files will need to be transmitted by 3 PM two
       business days before payment date. You will need a PC, modem, access to a phone line, and
       a communications package to transmit the file. A phone call from the District is required to
       authenticate the file processing request.
   1 Bank A – Bank is willing to continue the current service or modify it to fit your needs at no
       cost.
   1 Bank D - The bank can provide the service. Files will need to be transmitted by 3 PM two
       business days before payment date. You will need a PC, modem, access to a phone line, and
       an undisclosed communications package to transmit the file. A fax or e-mail from the
       District is required to initiate the file processing request; the bank will confirm the file
       receipt.
   4 Bank C – The Bank provides two options. The first is probably similar to what you use
       know. The second will require a manual build of payroll files through an Internet treasury
       workstation. There is not mention of the transmission schedule so the District should
       assume at least two business days ahead of scheduled payments. There appears to be no new
       hardware requirements.
   5 Bank E - We are unsure if Bank E can accept your current Direct Deposit of Payroll service
       or if District staff will have to execute additional steps to get payments processed. Files need
       to be transmitted by 3 PM two business days before payment date. The service is delivered
       over the Internet so there should be no hardware requirements.


Zero Based Sweep Accounts
Refer to section on Investment Vehicles for an additional description of all accounts and funds
flow. Collateral issues have already been discussed.
    1 Bank A – The current banking services provider offers checking accounts attached to sweep
        accounts. All collected and uncollected funds, in excess of $3mm, are moved from checking
        to sweep accounts.
    2 Bank B – It appears that each account will be opened as a checking account and that
        automated transfers could move collected balances into or out of Repo accounts. Checking
        account balances are limited at $5mm; Repo is limited to $10mm.
    3 Bank E – Assumed a ZBA arrangement between the Payroll and General Fund. Accounts
        are organized into two classes SPIN/Now Sweep accounts and SPIN/Now Checking
        accounts. Sweep accounts are tied to Special Investment Accounts (SPIN) and collected
        balances are automatically transferred as needed. CD products are also available.
    3 Bank D - A ZBA arrangement will be used to automatically move funds between the
        General and Payroll funds. The General Fund will be set up as a Municipal NOW account
        that will not pay interest but will earn credit to offset fees on collected balances. Funds could
        be manually transferred to other Bank D investment options. All other accounts will be
                                                                  Richard Vensel
                                                                  May 8, 2003
                                                                  Page 4




    interest bearing checking accounts, but will not be automatically linked to other investment
    options.
5   Bank C– The bank suggests a ZBA arrangement between the Payroll and General Fund; all
    accounts are checking accounts. Collected balances will earn interest on a tiered approach.
                                                                       Richard Vensel
                                                                       May 8, 2003
                                                                       Page 5




Reconciliation Services
    1 Bank A – The bank will provide any service the District wants for free.
    2 Bank B – The bank offers two solutions. The first includes Full Recon and Positive Pay
        which will cost $.05 for each check, or just $.03 per check if you do not want reconciliation
        services. Full Recon and Positive Pay will cost $500/year. The second option is manual and
        involves the use of a Treasury Workstation. This service is costs $1,800/year but then the
        District would also have access to wire and ACH initiation modules (for additional fees).
    3 Bank D – The bank offers all service at the following fees:
            o Partial Recon - $25/month + $.05/check for a total of $1,000/year.
            o Full Recon - $50/month + $.075/check for a total of $1,900/year.
            o Positive Pay - $30/month for a total of $720/year.
    4 Bank C– The bank offers all service at the following fees:
            o Partial Recon - $50/month + $.04/check for a total of $1,600/year.
            o Full Recon - $60/month + $.04/check for a total of $1,800/year.
            o Positive Pay - $45/month + $.05/check for a total of $1,500/year.
    5 Bank E – Bank E is in the process of developing all three services being considered by the
        District. No prices are available.
Annuity Payments
Bank B (1), Bank A (1) Bank D (1), and Bank C (1), bank all provide ACH services for the
remittance of tax sheltered annuity payments Bank E (5) did not respond to the question however,
the bank does provide ACH service.

Electronic Reporting
      Bank           Software           Cost                    Transactions               Level of Reporting
1 Bank B            Web-based No cost (web-based)          Stop Payments, Wires,        Both provide account
                    PC Based  $150/month PC based          ACH, Internal transfers      balance & activity
                              Transaction fees apply       (additional costs for PC
                                                           based)
2 Bank A            Web-based No Fees.                     Stop Payments                Current balance, view
                              Transaction fees apply.                                   check images, can view all
                                                                                        ACH and wire info.
3 Bank E            Web-based $7.50 per report created.    Stop Payments, ACH,          Current transactions;
                              Transaction fees apply.      Wire, Internal               previous statements
                                                           Transfers
4 Bank C            Web-based Per account and per          Stop Payments, ACH,          Previous and Current day
                              report fees apply.           Wire, Internal transfers     detail and summary
                              Transaction fees apply
5 Bank D            Web-based $80 each                     Stop Payments, Wires,        Previous transactions up
                              account/month for each       ACH (additional              to 2 months, and current
                              reporting service.           software requirement),       day info on transactions.
                              Transaction fees apply       Internal transfers
                                                                      Richard Vensel
                                                                      May 8, 2003
                                                                      Page 6




Investment Vehicles
1 Bank A – For all investments over $3 million Bank A will pay 100% of the average 91 day
   Treasury bill rate on all collected funds. The balance requirement appears to be on combined
   balances. If balances fall below $3 million in any month, the rate paid for the following month
   would only be 85% of the average 91 day Treasury bill rate. For investments over $6 million,
   Bank A would transfer to a US Treasury collateralized investment program. Bank A does not
   require a compensating balance.
2 Bank B – Offers overnight Repurchase Agreements (REPOs) as the investment vehicle.
   Maximum amount invested in overnight REPO account shall be limited to $10 million but this
   number can be amended if agreed to by both parties.
3 Bank E– The response to this question was confusing. The bank recommends that excess cash
   be invested in SPIN Accounts (Special Investment Accounts). Interest is paid each month at
   month-end and calculated on a 365-day basis. Historical rates were provided but these did not
   match the average discount rate of the 6-month T-bill from the last auction of the previous
   month.
4 Bank D – Proposes their Municipal NOW account that is interest bearing and offers unlimited
   check writing and no withdrawal restrictions. Response states that the rate paid in based on
   market conditions and can change on a monthly basis.
5 Bank C – there are no special investment vehicles proposed, all collected funds will earn interest
   the same as each checking account which is based on the following tiered schedule:
               Balance                           Rate
               $0 - $49,999                     .49%
               $50,000 - $249,999               .79%
               $250,000 - $999,999              .99%
               $1 million +                    1.08%
               Also, proposal offers an additional 15 bps through June 30, 2004.


Courier Services
1 Bank A - No costs and will be set up to “…meet the District’s requirements.” Deposits will be
   picked up by 2:00 and credit will be given for the day of pickup.
2 Bank E – Same day cutoff is noon. Fees are $10/day.
3 Bank B – Will not provide courier services but may accept deposits via courier.
3 Bank C - Will not provide courier services but may accept deposits via courier.
3 Bank D - Will not provide courier services but may probably accept deposits via courier.

Credit Criteria
PFM does not have any specific recommendations in this area. We did not receive any financial
statements from the banks who submitted proposals. According to the responses, none of the banks
have ever been under management supervision of the Resolution Trust Corporation, FDIC, Federal
Savings & Loan Insurance Corporation, Federal Home Loan Bank Board, or other similar current or
former federal or state regulatory agencies. None of the banks are currently party to an acquisition.
                                                                Richard Vensel
                                                                May 8, 2003
                                                                Page 7




Total relationships or accounts with deposits in amounts over $1,000,000.
    Bank E - No information
    Bank B – 15 relationships
    Bank A - 21 accounts
    Bank C - No information
    Bank D - No information was provided but there are probably several hundred


Service Questions
                                   1      2          3          3                    5
                               Bank A   Bank E     Bank B      Bank D              Bank C
Checks returned with              No      No         No          No                 Yes
statement?
Permit redeposit of NSF          Yes      Yes        Yes         Yes                Yes
checks?
Assess FDIC insurance            No       Yes        Yes         Yes                No
costs?
Assess 10% reserve               No       Yes        Yes         Yes                Yes
requirement?
Provide lock deposit bags        Yes      Yes        Yes         Yes                Yes
free of cost?
Provide all check stock and      Yes      Yes        No          No                 No
three part deposit tickets
free of cost?
Provide night deposit bags       Yes      Yes        Yes         Yes                Yes
and facilities free of cost?




Fees for Services
See Attached
                                                                     Richard Vensel
                                                                     May 8, 2003
                                                                     Page 8




Earnings Credit Rate

                      Date       Bank E      Bank B    Bank A   Bank C    Bank D
                      Mar-02                 1.630%    1.796%   0.690%    1.730%
                      Apr-02                 1.550%    1.704%   0.720%    1.750%
                      May-02     1.730%      1.570%    1.643%   0.715%    1.750%
                       Jun-02    1.730%      1.540%    1.569%   0.715%    1.720%
                        Jul-02   1.680%      1.520%    1.470%   0.700%    1.710%
                      Aug-02     1.680%      1.470%    1.378%   0.695%    1.670%
                      Sep-02     1.630%      1.470%    1.383%   0.680%    1.650%
                      Oct-02     1.540%      1.440%    1.336%   0.665%    1.610%
                      Nov-02     1.550%      1.140%    1.046%   0.660%    1.410%
                      Dec-02     1.210%      1.080%    1.005%   0.605%    1.200%
                       Jan-03    1.185%      1.060%    0.968%   0.535%    1.180%
                      Feb-03     1.400%      1.060%    0.939%   0.485%    1.160%
                      Mar-03     1.175%      1.020%    0.896%   0.475%    1.140%

Bank A’s Earned credit rate is 0 provided that a minimum balance of $2,500,000 is maintained.


   2.000%


   1.500%


   1.000%


   0.500%


   0.000%
            Mar-02       May-02           Jul-02      Sep-02    Nov-02     Jan-03     Mar-03

                     Citizens        F&M           Orrsotwn      1st Comwealth        M&T
                                                                          Richard Vensel
                                                                          May 8, 2003
                                                                          Page 9




Investment Earnings Rate
              3-Month        6-Month       Bank B       Bank B                      Bank D     Bank D
     Date     Tsy-Bill       Tsy-Bill       NOW          Repo       Bank C           NOW        Mmk
    Mar-02     1.814%         2.046%       0.900%       1.58%                       0.350%     2.000%
    Apr-02     1.735%         1.954%       0.900%       1.60%                       0.350%     2.000%
    May-02     1.751%         1.893%       0.900%       1.60%                       0.350%     2.000%
    Jun-02     1.719%         1.819%       0.900%       1.60%                       0.250%     1.750%
    Jul-02     1.703%         1.720%       0.900%       1.58%                       0.250%     1.750%
    Aug-02     1.633%         1.628%       0.900%       1.59%                       0.250%     1.750%
    Sep-02     1.651%         1.633%       0.900%       1.60%                       0.250%     1.750%
    Oct-02     1.602%         1.586%       0.900%       1.60%                       0.250%     1.750%
    Nov-02     1.254%         1.296%       0.845%       1.19%                       0.100%     1.250%
    Dec-02     1.198%         1.255%       0.750%       1.09%                       0.100%     1.250%
    Jan-03     1.181%         1.218%       0.750%       1.09%       1.200%          0.100%     1.250%
    Feb-03     1.174%         1.189%       0.750%       1.11%       1.093%          0.100%     1.250%
    Mar-03     1.142%         1.146%       0.750%       1.10%       1.138%          0.100%     1.100%




   2.500%

   2.000%

   1.500%

   1.000%

   0.500%

   0.000%
             Mar-02      May-02         Jul-02      Sep-02       Nov-02        Jan-03        Mar-03

                      3-Month Tsy-Bill           6-Month Tsy-Bill           Repo
                      Bank                       Mmk


Notes: Bank E SPIN pays interest based on 6-Month Tsy-Bill; rates in their proposal do not match
       Bank A checking and sweep account rates were not available for our analysis
       Bank C only provided limited rate history
                                                                     Richard Vensel
                                                                     May 8, 2003
                                                                     Page 10




Employee Benefits
   Bank E – Benefits of the corporate banking program include one free checking account,
     order of checks, VISA check card, internet banker, AMEX checks, financial planning session
     and small safe deposit box. In addition, there is a ½% loan discount, $99 mortgage
     application and no fees or closing costs on home equity loan or line of credit.
   Bank B – Benefits include a no minimum balance, no monthly fee checking account. This
     account comes with a free freedom (MasterMoney debit) card, freedom access center
     (telephone banking) and online (internet) banking. There is also a ½% rate reduction on any
     personal or home equity loan with automatic drafting, no closing costs on home equity loans
     or lines of credit of $10,000 or more, ¼% bonus rate on any CD over $2500 and $4 off the
     first year’s annual rental of any safe deposit box.
   Bank A – Will provide all District employees an interest bearing, no minimum balance, no
     service charge, checking accounts (including free checks) with direct deposit of District’s pay
     into the Bank A account. No mention of other services.
   Bank C – Offers a VIP (Value in Participation) program for employees. Includes free
     checking and savings account with $10 towards opening and a 1% discount on installment
     loans. Other benefits are: free ATM/check card, traveler’s checks, 5 ATM usages/month,
     investment evaluations and insurance quotes. Also provides Coverdell Education Savings
     Accounts, but not listed as free.
   Bank D – Will provide “Bank @ Work” free of charge to all District employees who choose
     to participate in direct deposit. Bank D offers a variety of personal checking account
     options. The package includes: no minimum balance requirements or monthly service
     charges for first year, free gift or first order of checks, check card, web banking and ATM
     access. Refund of mortgage application fee, .25% discount on installment loans and .25%
     sales charge reduction on mutual funds.

Summary
The District received fairly complete responses from several of the responders and should certainly
be able to narrow down some choices and then ask for some additional information to complete the
picture.

Bank E appears to have bid pricing and earnings rates aggressively but the District needs to answer
several important questions:
     Is the District willing to consider this response in light of the lack of information on
        collateral?
     What is the real structure for each account? Are any of these checking accounts tied to
        sweep vehicles, if so what are the cost of the sweep vehicles?
     What are the real earnings rates that these accounts will pay?
     Can the bank provide for the Direct Deposit of Payroll service that the District currently
        utilizes?
                                                                       Richard Vensel
                                                                       May 8, 2003
                                                                       Page 11




Bank B appears to be an option for the District. The bank priced services aggressively and offers a
fair earnings credit rate. Issues that you may need to address are:
      Are you comfortable with this collateral arrangement?
      Can you get by with the Internet based balance reporting or will you need the PC based
         Treasury Workstation. This software adds $2,000 + in fees each year.
      Is the non-stellar interest earnings rate sufficient for your needs?

Bank A is the incumbent service provider and obviously wants to keep your business. The earnings
credit rate offered is good although it appears on the chart to be one of the lowest in the proposal.
Bank A is the only bank that does not charge a Federal Reserve Requirement. The bank seems to
fully understand and is willing to meet your collateral requirements. Bank A’s costs are zero
provided a $2,500,000 is maintained. Interest will be earned on the $2,500,000 balance.

Bank C’s proposed account structure will be the easiest to manage but the bank may not be “local”
enough for the District. Issues to consider are:
    The collateral arrangement is not what the District requested but this could be resolved if
       the bank would provide a separate collateral account.
    Earnings Credit rates are very low and significantly below other banks’.
    Not enough data was provided to fully measure earnings rates.
    The funds availability schedule is undesirable. It seems that most District check deposits
       would be held for as many as 5 days.

Unless Bank D quoted their fees incorrectly, or we interpreted their response incorrectly, they will
probably not be the best fit for the District.
    The balance reporting software appears to be extremely expensive although this cost could
       be limited if the District does not use this service for all accounts.
    Even without balance reporting this is one of the more expensive proposals.
    Investment earnings rates are good on Money Market accounts but are very low on basic
       checking accounts.

				
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