R2002-0138 09-16-02 RESOLUTION NO. R2002-138
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PEARLAND,
TEXAS, AWARDING A BID FOR BANK DEPOSITORY SERVICES.
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS:
Section 1. That the City opened bids for bank depository services, and such bids
have been reviewed and tabulated.
Section 2. That the City Council hereby awards the bid for bank depository
services to Wells Fargo.
Section 3. The City Manager or his designee is hereby authorized to execute a
contract for bank depository services with Wells Fargo.
PASSED, APPROVED and ADOPTED this the 16 dayof September ,
A.D., 2002.
ATTEST:
APPROVED AS TO FORM:
DARRIN M. COKER
CITY ATTORNEY
MAYOR
City of Pearland
Analysis of Bank Depository Services Proposals
August 2002
The City of Pearland received four proposals for banking services in response to their Request for Proposal
(RFP) dated July 26 2002 The responses were from Bank of America, Moody's Bank, Pearland State
Bank, and Wells Fargo All of these banks have facilities within Pearland's ETJ of City limits and are solid
financial mstitutions which could provide the needed services for the City. All are highly credit rated and
have been shown to have contributed to the community through their satisfactory CRA ratings (Community
Reinvestment Act).
The City had determined initially that the objectives for the new service would be based on the following
criteria:
50% responsiveness and ability to provide the services required,
40% banking services costs,
5 % experience and continuity of bank and bank officials, and
5 % creditworthiness of the bank.
Since banks offer different service levels and also bundle and present information and services differently,
m evaluating the banks the analysis of the proposals must be made on several different levels with these
four overriding objectives in mind. (1) The services offered must be evaluated as to the level of service
compared to the required specifics, the level of automation to improve productivity and control and service
availability on an on -going basis. (2) The cost of the specific services must be compared. (3) The potential
for earnmgs must be compared based on various account structures and based on firm historical data.
Finally, (4) the proposals must be evaluated combining these factors net earnings and costs — to create a
final unbiased assessment.
The City asked for the proposals to be presented in such a manner that both a fee basis and a compensating
balance basis could be evaluated.' The analysis was completed so that a decision could be made on the best
bank and the best methodology for payment from that bank.
All of the detail worksheets which were used to make these analyses are attached. Additional comments on
specific differences m service levels and costs are included below by way of further explanation.
A. REQUIRED SERVICES. EVALUATION
Summary
The City outlined in its RFP all the services which it felt were required under the contract The Services
available to support banking services have changed considerably over the past decade with new technology
as well as new challenges. Reflecting those changes, there were significant differences in the level of
service available at one of the banks. Three of the banks were quite smmlar although the two largest banks
unsurpnsingly had more fully developed and wide ranging services. In this area, the evaluation looked not
only at the volume of services available but focused on the services most likely needed and used by the
City.
1 Under both methods the bank charges specific fees for each service and the amount of that service used
each month Under a fee basis the direct fee is computed and after review by the City the fee is deducted
from a designated account On a compensating balance, the fees are computed then a balance is determined
which would if invested at an Earning Credit Rate (ECR), would generate enough to pay the fees. The
ECR is usually half of' what the City would receive in investing outside.
Wells Fargo
Bank of America 383
Moody's
Pearland
444
352
291
The primary difference on Pearland State Bank is a result of the lack of automated services which will be
used to improve the information flow, efficiency and effectiveness of the City star
The differences in particular service levels between all the banks are summarized below.
Account Structure
The City's anticipated account structure is designed to maximize safety, liquidity and yield and is able to
accommodate payment of fees on either a compensating balance or fee basis All four of the banks are
indicating either their recommendation or their ability to provide zero balance accounts (ZBA) which
operate from a master account that then is fully invested every day. The consolidation of funds at the
Master account level allows all the funds to be invested in a sweep vehicle such as a SEC registered money
market fund. Historical rates were compared for each of these options to determine the best earnings
potential for the City Wells Fargo has one function unavailable through the other three banks which is
interest application at the account level.
The rates offered by the banks in their sweeps was compared on prior year actual rates (August 2001— July
2002) The ranking of those rates indicates a difference in the investments and the expense ratios being
placed by the bank:
Moody's 2.27%
Wells Fargo 2.17%
Bank of America 2.09%
Pearland 1.83%
Automated Information Systems
Three of the banks provide automated services to reduce the time and effort now required of City staff.
The two national banks certainly have more features available such as real-time current day updates
throughout the day, on-line images, account analysis and statements on line, and the choice of web, direct
link or download system versions. These two plus Moody's provide the basic functions and systems access
that was desired on wires, stop pays, positive pay, transfers return items, ACH, and balance reporting. All
three also offer the required security required including multiple approval levels for wires.
Pearland offers no on-line services. All information transfer is done by fax, phone, and e-mail.
Deposit and Disbursing Services
In the area of deposit processing, the City was looking for the best deposit times (latest cut-off), the best
availability of mformation, and best availability to the funds deposited.
The latest cut-off times were presented by Wells Fargo (5:OOpm) and Bank of America (4:OOpm) versus
2.00pm at the two other banks. Bank of Anienca offers an extra POS check conversion service and Wells
Fargo provides same day credit advices. Pearland states that local checks will require two days for clearing
and up to five days for non -local which is significantly longer avilability to funds than the other three
banks.
Deposit information is available on-line from Moody's, Bank of America and Wells Fargo at 8:00am,
7:OOam and 5:00am respectively. Pearland has the information from a phone call in system at 9:OOam.
2 A total of 462 points was possible.
Wire Transfers
In the wire transfer area again the three more automated banks offer additional services desired by the City.
The RFP was focused on the safety of wires, the ease of mitiation of wires and the ability to future date
wires. The on-line systems require at least two controlling approvals on initiation and approval before
release. Moody's allows on-line initiation but requires a manual fax verification process Pearland has no
on line capability and staff has to use fax or phone. In addition, Pearland requires collected balances for
wires regardless of expected cash inflows by wire or maturities, etc. Bank of America and Wells Fargo
allow future dating of wires at 7 and 21 days respectively.
Positive Pay
With the proliferation of fraudulent checks it is important to put controls in place to protect the City. The
positive pay process of verifying checks automatically before they post to the accounts elimmates this
significant potential liability. Since this is an advance reconciliation process before postmg the service is
also often merged into reconciliation which can greatly reduce City staff time.
All four banks indicated that they had positive pay available although Pearland and Moody's presentations
on the service were somewhat unclear. Both Bank of America and Wells Fargo's programs are clear They
are tied to reconciliation at no charge at Bank of America and Wells Fargo has put its manuals and ARP
maintenance on line as part of the service
One key area of positive pay is the time window given clients for reviewing exceptions caught by the bank
before direction is due on further processing. Neither Bank of America nor Moody's answered this
question. Both Wells Fargo and Pearland had comparable review times with 8:00-2:00 and 7:00-2:00
respectively.
Optical Imaging
Optical imaging will eventually replace the processing and return of all physical checks m the Federal
Reserve System. The 'service provides an image of all paid items on electromc medium (CD) in place of
paper checks and paper reports significantly impacting current storage and retrieval problems.
Pearland does not have optical imaging capability. Wells Fargo and Bank of' America offer imaging on line
initially and then on CD. Moody's offers CD imaging. At this point none of the three offer imaging on
deposits.
ACH Processing
All four banks operate automated clearing house transactions through the same clearing house and
therefore offer basically comparable services. The only specific difference is that Pearland is the only bank
not offering ACH (and attendant hailer information) on line.
Collateral
If the City chooses to utilize a compensating balance basis for compensation, the collateral issue is a major
assessment point because City funds left in the bank will have to be collateralized. Moody's, Pearland and
Wells Fargo have allagreed to the terms laid out in the RFP. Bank of America charges for specific
restrictions which might be placed by the City as to the type of collateral used and charges for excess or
restricted collateral.
Account Analysis
The rates reported by the banks over the past year for the earnings credit rate(the rate at which funds left in
the bank will earn to pay for services) varies significantly.
Wells Fargo 2 51%
Moody's 2.14%
Pearland 1.97%
Bank of America 1.65%
In a compensating balance basis this rate will have a major impact on overall earnings as seen later.
B. BANKING COSTS EVALUATION
The approximate fees to be charged monthly by each bank were identified by matching the bank's fees to
anticipated volumes. Certain areas showed significant differences between the banks in high volume areas
creating a range of overall costs.
A comparison based on the direct fees shows the banks providing the same required services at monthly
charges of:
Wells Fargo $ 3,008
Moody's $ 3,198
Bank of America $ 4,599
Pearland $ 4,724
The higher costs at Bank of America and Pearland are a result of charges for ZBA and sweep account
maintenance, positive pay item charges at Pearland, ACH processing at Bank of America, reconciliation
charges, and safekeeping at Bank of America.
C. EARNINGS POTENTIAL
The City intended through this contract to create a banking structure which would have either all funds
swept daily to a money market mutual fund or funds not needed for a compensating balance swept to a
money fund thereby earning the highest, fully liquid rates available through the bank. As such it is
important to compare both structures and the net earnings potential. the earnings rates on the various
investment options (funds) offered through their sweeps by the banks were compared as were the earnings
credit rates available for compensating balances. The detailed analysis is shown on the attached Earnings
Estimate worksheet.
The banks will sweep into SEC registered and regulated money market mutual funds for total safety of the
funds. The banks are paid a fee for this service by the City and by the fund.
All banks supplied the actual earnings rates for their sweep vehicles and their ECR over the past year
(August 2001 through July 2002) so that an actual and concise comparison could be made, The ECR rates
reported were:
Welts Fargo 2.51 %
Moody's 2.14 %
Pearland 1.97 %
Bank of America 1.65 %
The net interest rates on the sweep vehicle reported were:
Moody's 2.27 %
Wells Fargo 2.17 %
Bank of America 2.09 %
Pearland 1.83 %
D. NET EARNINGS AND COST COMPARISON AND SUMMARY OF FINDINGS
The final analysis must be the combination of service costs and their impact on potential earnings. On a
separate work sheet we have netted the costs of the service against the actual total earnings that would have
occurred in the prior year.
On a compensating balance basis, the service costs were used to compute the required compensating
balance based on the ECR. The earnings on the remaining balance at the bank's sweep rate was computed
to determine the earnmgs available to the City.
On a fee basis, all funds were assumed to be swept to a money fund and the earnings were netted against
the bank costs per month.
We are in, and have been in, an exceptional period of historically low interest rates which does slightly
skew the data. Therefore, anticipating that rates will rise we have also estimated the earnings at the higher
rates that may occur durmg this contract. In such a low interest rate environment the normal relationship
between sweep rates and ECR is especially tight. The ECR rates are close to outside earnings. However,
as rates rise, the outside sweep rates will almost double over the ECR rates
Based on the historical rates requested of the banks the evaluation shows the best return to the City to be:
Wells Fargo
Moody's
Wells Fargo
Moody s
Bank of Am
Pearland
Pearland
Bank of Am
Basis
Comp Bal
Fee
Fee
Comp Bal
Fee
Comp Bal
Fee
Comp Bal
Monthly
Costs
Rates
ECR
$ 3,008 2.51
$ 3,198
$ 3,008
$ 3,198 2.14
$ 3,639
$ 4,724 1.97
$ 4,724
$ 3,639 1.65
Rate
Sweep
2.17
2.27
2.17
2.27
2.09
1.83
1.83
2.09
Total Mo
Interest/ Earnings
$ 2,823
$ 2,477
$ 2,416
$ 2,282
$ 1,586
$ 186
$ 149-
$ 600-
If interest rates rise, as expected, during the contract period, the increased earnings to the City are clear as
is the spread between ECR and outside money rates increases The added benefit of using the fee basis
over the lower yielding compensating balance basis is shown below:
At a four percent sweep rate and with ECR rates at 2%:
Wells Fargo
Moody's
Bank of America
Pearland
Wells Fargo
Moody s
Bank of Am
Pearland
Basis
Fee
Fee
Fee
Fee
Comp Bal
Comp Bal
Comp Bal
Comp Bal
Monthly
Earnings
$ 6,991
$ 6,802
$ 5,401
$ 5,276
$ 3,982
$ 3,603
$ 802
$ 552
If interest rates rise even further during the contract period, to a 5% sweep rate and a 2.5% ECR the impact
is even greater and the argument for fees even stronger.
Wells Fargo
Moody s
Bank of America
Pearland
Wells Fargo
Moody's
Bank of Am
Total
Basis
Fee
Fee
Fee
Fee
Comp Bal
Comp Bal
Comp Bal
Monthly
Earnings
$ 9,491
$ 9,302
$ 7,901
$ 7.776
$ 6,482
$ 6,103
$ 3,302
Pearland
Comp Bal $ 3,052
Recommendation
It is our recommendation that the City award the banking services contract to Wells Fargo Bank and pay
for its services on a fee basis. Over the contract period rates can be expected to rise from the current
historical lows and the more normal spread between ECR and sweep rates re-estabhshed The City would
be choosing the bank with the highest service level and the highest net earnings to the City. Wells Fargo
has the ability to provide the required services the lowest cost of those services, and the highest earnings
on the ECR which even at these low interest rates compensates for having the second highest sweep rate
(behind Moody's Bank.)
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OPTIONAL SERVICES CHARGES
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Per box
L
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Per item
Per item
!Per item
Per item
Per item
E
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m
a
Per month 1
Per item
Lnrkhnx Servfces
Monthly Rental of Box
Month)y Maintenance
Per item
Avg
M
I lnmatrhed
0
5 -
, M
c
R
2
Transmissions
Reporting - on-line/paper
Per item line per report
Merchant Card Services
Monthly Maintenance
Transmissions
Transaction Costs
Total of Optional Charges
Fee Basis
Bank of America
Rate
Moody's
Rate
Pearland
Rate
Wells Fargo
Rate
Services
Points
383
352
City of Pearland Banking Proposals
Overall Earning Estimate on Costs and Rates
Service
Costs
$4,599.00
$3,198.30
Interest`
Sweeps
$62,700.00
2.09%
$68,100.00
2.27%
285 $4,724.00 $54,900.00
1.83%
444
Avg Balance
$3,008.55 $65,100.00
2.17%
$3,0001000.00
Total mo.**
interest
$5,225
$5,675
$4,575
$5,425
Net Cost/Gain
(int-cost)
$626
$2,477
-$149
$2,416
Cornputahons
,4ttaclunent A
Balance ' Sweep lnteres1/12
Mg Interest -Costs
Compensating Balance Basis
Bank of America
Rates
Moody's
Rates
Pearland
Rates
Wells Fargo
Rate
Services
Points
Avg Balance
Service
Costs
Est. Required Interest from
Comp Balance Remaining Bal
383 $4,599.00 3,344,727.27
1.65%
352 $3,198.30 1,793,439.25
2.14%
285
444
$4,724.00
$3,008.55
2,877,563.45
1.97%
1,438,350.60
2.51%
$3,000,000.00
-600.40
2.09%
2,282.41
2.27%
186.72
1.83%
2,823.98
2,17%
Total mo.
interest
-$600.40
$2,282.41
$186.72
$2,823.98
Compuratrons
Attachment A
Cost'(ECR/12) Avg Bal-CompRate
v10 in(eresi
Average $
500,000
ATTACHMENT B EVALUATION
City of Pearland, Texas
Bank of America
Moody's
I
I
Pearland
I
I
Wells Fargo
Earnings Credit Rate (ECRI
MonthlNear
Aug-01
Sep-01
Oct-01
Nov-01
Dec-01
Jan-02
Feb-02
Mar-02
Apr-02
May-02
Jun-02
Jul-02
3.00%
2.90%
2.40%
1.70%
1.40%
1.20%
1.15%
1.20%
1.30%
1.20%
1.20%
1.20%
Averages 1.65%
Earnings on Avg 8,271
Interest Bearing Accounts
MonthfYear
Aug•01
Sep-01
Oct-01
Nov-01
Dec•01
Jan-02
Feb•02
Mar-02
Apr-02
May-02
Jun-02
Jul-02
Averages
Earnings on Avg Balance
Money Market Accounts
3.53%
3.37%
2.87%
2.18%
1.90%
1.71%
1.46%
1.73%
1.81%
1.72%
1.71%
1.71%
2.14%
10,708
3.43%
2.38%
2.05%
1.92%
1.73%
1.71%
1.74%
1 82%
1.73%
1.75%
1.68%
1.68%
1.97%
9,838
3.73%
3.78%
3.62%
3.12%
2.43%
2.15%
1.89%
1.89%
1.89%
1,89%
1.89%
1.89%
2.51%
12,571
2.35% 2.05% 2.16% 1 88%
2.01 % 2.05% 1.99% 1.78%
1.53% 1.05% 0.97% 1.54%
1.33% 1 05% 0.68% 1.24%
1.19% 1.05% 0.46% 1.24%
1.15% 1.05% 0.39% 1.04%
1.20% 1 05% 0.47% 1.04%
1.26% 1.05% 0.58% 1.04%
1.20% 1.05% 0.48% 1.04%
1.21% 1.05% 0.49% 0.90%
1.19% 1.05% 0.45% 0.90%
1.17% 1.05% 0.43% 0.90%
1.40% 1 22% 0.80 % 1.21%
6,996 6,083 3,979 6,058
Month/Year
Aug-01 3.69% 3.10% 1.00% 3.40%
Sep-01 3.42% 2.10% 0.50% 3.08%
Oct-01 2.91% 2.10% 0.50% 2.50%
Nov-01 2.47% 2.05% 0.50% 2.03%
Dec-01 2.16% 2.05% 0.50% 1.83%
Jan-02 2.04% 2.05% 0.50% 1.72%
Feb-02 1.96% 2.05% 0.50% 1.60%
Mar-02 1.91% 2.05% 0.50% 1.53%
Apr-02 1.90% 2.05% 0.50% 1.50%
May-02 1.86% 2.05% 0.50% 1.47%
Jun-02 1.79% 2.05% 0.50% 1.50%
Jul-02 1.76% 2.05% 0.50% 1.48%
Averages 2.32% 2.15% 0.54 % 1.97%
Sweep Alternatives
Month/Year
Aug-01
Sep-01
Oct-01
Nov-01
Dec-01
Jan•02
Feb-02
Mar-02
Apr-02
May-02
Jun•02
Jul•02
Averages
3.30%
3.01 %
2.51 %
2.09%
1.76%
1.63%
1.55%
1.50%
1.49%
1.45%
1 39%
1.35%
2.09%
3.10%
3.10%
2.10%
2.10%
2.10%
2.10%
2.10%
2.10%
2.10%
2.10%
2.10%
2.10%
2.27%
RFP=FdFd-25bps
3.25%
2.75%
2.25%
1.75%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.83%
3.60%
3.28%
2.70%
2.23%
2.03%
1.92%
1.80%
1.73%
1.70%
1.67%
1.70%
1.68%
2.17%
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