MEMORANDUM

TO:                  Ed Mullins, City of Lawrence Finance Director

C.C.                 Mayor Rob Chestnut

                        Commissioner Mike Amyx

                        Commissioner Aron Cromwell 

                        Commissioner   Mike Dever

                        Commissioner Lance Johnson

                        David Corliss, City Manager, Lawrence

FROM:            Joan Golden, U.S. Bank

DATE:             June 12, 2009

RE:                   Recommendation for Banking Services

Upon review of the analysis of the responses to the RFP for Banking Services, I would like to provide clarification on several interpretations of U.S. Bank’s response.

U.S. Bank clearly provides the best solution for the City based on the following

• Highest amount of interest earned (bonus rate and earnings credit)
• The lowest projected cost of services (delete or clarify FDIC assessment)
• The highest credit rating of any bank in the United States

                        Moody’s          Aa3

                        S & P               AA

                        Fitch                 AA-

• U.S. Bank has been approved by the U.S. Treasury to repay the TARP funds
• Our Community Bank model allows us to provide local, high-touch service with the resources of a world-class bank.

Bank Services Interest Rate Review

The U.S. Bank proposal utilized both an earnings credit and interest rate formula. In a low rate environment, (such as we are experiencing at this time) the earnings credit can offset fees and the City receives interest over and above what the difference is.

In this case:

Collected Balance Available for Earnings Credit Services          $8,335,348.

Earnings Credit @.60% (guaranteed “floor”)                                                     $4,167

Interest Paid on 100% Collected Balances                                $9,263,214

Interest Paid @.20%    (FF minus 5)                                                                 ($1,543)

Equals                                                                                                              $2,624

Earnings Credit Based Service Charge                                                  $3,793

Less the Net Earnings Credit/Interest                                                                ($2,624)

Equals                                                                                                              $1,169

Take the actual interest earned                                                              $1,543

Less the Net Service Charge                                                                             ($1,169)

Equals Total interest actually paid over the fees that are covered                        $374

When Fed Funds increase greater than .60%, then the total interest earned can be used to offset fees and the earnings credit is not utilized.

The City’s spread sheet analysis of the interest rates did not take into account that during October, November and December when the rates dropped below.60, that earnings credit would have come into play and the total interest earned(earnings benefit applied to the city) would have been $124,848 NOT $114,921.

The U.S. Bank proposal also offered an Interest Rate Bonus to the City. This would have increased the interest earned by the city depending on the term selected:

a. Targeted Fed Funds plus twenty-five basis points for three months

b. Targeted Fed Funds plus fifteen basis points for six months

c. Targeted Fed Funds flat for one year

Clearly, with this option the U.S. Bank proposal would pay a higher interest during the next 12 months than the bank of choice.

General Banking Pricing Review

The U.S. Bank proposal included this statement:

As an added incentive, the service charges during the anniversary month for each             annual renewal will be WAIVED.

The analysis does not indicate the reduction when the projected costs per year were computed. 

There is also a reference that U.S. Bank included an FDIC fee.  The fee quoted is fixed at $.085, which is lower that the current assessment.  However, should the assessment be lowered, this would be passed on to the City. 

FDIC insurance is a pass-through charge and can vary based on what the FDIC is assessing for that time period.  It would behoove the City to clarify that this pass-through is not the intent of the other banks.

If the FDIC premium quoted by U.S. Bank was deleted (not considered) then total projected costs per month would be $2,716 or $32,599 annually, lower than any of the other responding banks which is a more representative “apples to apples” comparison.

Availability of Funds

U.S. Bank provided an availability schedule indicating that checks drawn within the Kansas City Federal Reserve Bank district will clear in one day, meaning that the City will have use of their funds the next day.

Services Provided

In the U.S. Bank response, we offered to provide the city with TWO scanners as well as no cost for any requested bank supplies, including the tamper-proof one-time deposit bags.

U.S. Bank has been providing Payee Positive Pay for the last four years.  This service was included in the proposal.

Customer Service

U.S. Bank has a LOCAL TEAM, including the regional president, market president and treasury management representative who are prepared to deliver a prompt response to any of the City’s needs on a day to day basis.  The depth and experience of each of the individuals who will be available on a daily basis to address the City’s concern is included within our response.