Memorandum

City of Lawrence

Finance Department

TO:	Dave Corliss, City Manager
FROM:	Ed Mullins, Finance Director
Date:	May 28, 2009
RE:	Banking services

Background 

The current banking agreement with Central National Bank expires on July 1, 2009.  On April 7, 2009, the Finance Department issued an RFP to provide banking services to the City of Lawrence beginning July 1, 2009.  The successful bank would provide banking services to the City of Lawrence for one year with up to two one year extensions.  The department received responses from six banks, including Central National Bank, US Bank, UMB Bank, Intrust Bank, Commerce Bank, and Sunflower Bank.

Analysis

The six proposals were reviewed by a committee that consisted of the Finance Director, Assistant Finance Director, Budget Manager, and Assistant City Manager.  The proposals were evaluated based upon service costs, interest earnings, financial strength, and services provided.  The analysis showed that Central National Bank would provide the lowest monthly service cost, but was one of the weakest banks in terms of financial strength.  Commerce Bank offered the highest rate of interest, assuming interest rates return to more normal levels. Commerce Bank would pay interest at 8 basis points above the Federal Funds rate.  Sunflower Bank had the second lowest cost of services, followed by Commerce Bank.  Sunflower Bank, however, offers a lower interest rate and has only one location in Lawrence.  Commerce Bank had a high financial strength rating and was one of the largest banks in the country to not require TARP funding.  The other banks cost of service or interest earnings were not as competitive as the banks mentioned above.

While Commerce Bank quoted the highest interest rate, Central National Bank proposed a minimum interest rate of 50 basis points.  As long as short term interest rates stay below 42 basis points, Central National Bank would pay the city a higher rate of interest.  However, it is anticipated that interest rates will likely begin to increase in approximately 12 months.  If short term interest rates do increase, Commerce Bank would provide the city significantly greater interest earnings.  In addition, Commerce Bank can provide payee positive pay, allowing the bank to match the check number, amount and payee name when a City of Lawrence check is presented for payment and the free provision of tamper proof one time deposit bags, services that Central National Bank does not provide.  Commerce Bank will also provide the city a free scanner to convert paper checks into ACH transactions.

The Finance Department received good comments about Commerce Bank’s services from their references.   A more detailed analysis is provided in the attached spreadsheet.

Recommendation

Commerce Bank provided the City of Lawrence with the best overall banking proposal, has a high financial strength ratio, and a reputation for good customer service.  As a result of the expanded services, high interest rates, but a higher cost of service, it is the committee’s recommendation that Commerce Bank be selected as the City’s depository for the year beginning July 1, 2009.