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.