Memorandum

City of Lawrence

Finance Department

TO:	Dave Corliss, City Manager
FROM:	Ed Mullins, Finance Director
CC:	Heidi Nelson, Assistant Finance Director
Date:	June 12, 2009
RE:	Banking services – U.S. Bank response

The following information is in response to the memorandum provided by U.S. Bank.  The Finance Department and others in the City Manager’s Office have analyzed the responses to the departments request for bank proposals over the last five weeks.  The city received six responses.  A great attempt was made to compare the proposals in a manner that would be of the greatest benefit to the city. 

The request for proposals provided templates for the banks to use in order to make the comparisons easier.  However, this did not preclude the banks from listing charges that were in addition to the ones we currently pay.  In addition, different bench mark rates were used when calculating interest earnings.  The following information will attempt to summarize our findings and clarify why Commerce Bank’s bid was determined to be in the city’s best interest. 

Costs

The Finance Department provided the volumes of transactions we have experienced over a twelve month period.  The banks responded with their unit costs and any additional fees not listed.   The following is a list of annualized costs based upon the bank’s responses.

Central National	$34,284
Sunflower	$35,092
Commerce	$37,451
UMB	$38,922
Intrust	$39,199
U.S. Bank	$38,548

The Finance Department has confirmed with Central National and Commerce that the city will not be assessed any charges related to the cost of the bank’s FDIC insurance.  With Central National, the city has not paid for FDIC coverage for the last six years.  As a result, the annual cost of service provided by US Bank would be over $4,200 a year more than the lowest cost provider and $1,097 more per year than Commerce.

Interest Earnings

The determination of interest earnings was more difficult.  Some banks used the Federal Funds rate as a benchmark, while others used the 91 day Treasury bill.  In addition, three banks offered minimum rates (referred to as an earnings credit by U.S. Bank).   The minimum rates are attractive in the current rate environment of historically low rates, but it was assumed that rates will increase over the three year period of the agreement.  The rates quoted by the banks are shown in the table below.

Bank	Minimum Rate	Benchmark	+/-
Central National	0.50%	T-bill
Sunflower	0.25%	T-bill
Commerce		Fed Fund	+.08
UMB		T-bill	+.06
Intrust		T-bill	-.50
U.S. Bank	0.60%	Fed Fund	-.05

The amount of interest earned depends upon two factors, the rate and the amount of funds available.  The Finance Department based our calculated earnings on our 2008 calendar year balances.  Since this amount was used for all calculations, the only variable was the rates.  In the current low rate environment, U.S. Bank and Central provide a benefit to the city.  However, the Finance Department assumed that the rates would increase in early 2010 to a level that would match or exceed the minimum rates provided by U.S. Bank.

It was also assumed that the Fed Fund rate the 91 day T-bill rate would be equal.  On a historical basis, the Fed Fund rate is typically higher than the T-bill rate.  It is anticipated that the historic relationship will also occur sometime in 2010.  Based upon our assumptions, the two and one-half years of earning interest at the higher level offered by Commerce exceeded the six months worth of additional interest that would be earned by U.S. Bank by over $2,000.  U. S. Bank also offered the city some choices as the rates it offered.  The Finance Department found these to be confusing and settled upon the rate U.S. Bank was willing to offer over the entire period evaluated.

Rating

The Finance Department looked at the bank ratings on bankrate.com.  Both Commerce and U.S. Bank received 4 star ratings.  Commerce did not receive TARP funds, while U.S. Bank did.

Service

The city is currently using U.S. Bank as the custodian for some of our investments.  In addition, the local U.S. Bank was used to process coin deposits from the parking and transit systems.  The Finance Department was not satisfied with the level of service provided either account.  The funds were to be released automatically on a monthly basis.  On numerous occasions, the department had to request that a check be cut to transfer the parking and transit funds to the city.   The department also had a difficult time dealing with the custodial service, finding it difficult to get returned calls and to receive responses to our questions.

Both U.S. Bank and Commerce agreed to provide two free check scanners.  Both U.S. Bank and Commerce provide payee positive pay.  The availability of funds schedule was very similar between U.S. Bank and Commerce.

Evaluation

The department prepared a matrix to evaluate the responses to the RFP based upon the areas we deemed important.  Commerce received the overall best score with a 1.29.  The table is shown below.

	Central National Bank	Commerce Bank	Intrust Bank	Sunflower Bank	UMB Bank	US Bank
Rankings (1 = Most responsive to City Needs - 4 = Least Responsive to City Needs)
Scope of proposed services.	1	1	1	1	1	1
Cost of services and effectiveness of total services performed.	1	2	4	1	2	2
Experience, expertise and qualifications of key bank personnel assigned to the City.	1	1	1	1	2	1
Financial strength and stability of the bank.	4	1	3	1	1	1
Value of any new products or services suggested.	3	1	2	2	1	1
Quality level of services to be performed and proposed approach to cost control, service level monitoring and administration.	2	2	2	2	2	2
Clarity, completeness and timeliness of information provided for evaluation by the City.	2	1	3	2	1	2
Quality of any in-person interview with the City’s selection committee.
Responses to reference checks.
Other Information
Total Score	14	9	16	10	10	10
Average Score	2.00	1.29	2.29	1.43	1.43	1.43