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Recommendation to Authorize the City Manager to Execute an Agreement with JP Morgan Chase Bank, N.A. to Provide Primary Depository Banking Services for the City of Alameda Commencing July 17, 2024 at an Estimated Annual Cost of $15,217, for a Five-Year Period with a Not-To-Exceed Total Amount of $85,000, with One Five-Year Option to Renew. (Finance 10024005)
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To: Honorable Mayor and Members of the City Council
From: Jennifer Ott, City Manager
EXECUTIVE SUMMARY
Depository banking services are integral to supporting the City of Alameda’s (City) daily cash management operations and thereby serving Alameda’s residents and businesses. Wells Fargo Bank, N.A. (Wells Fargo) has been the City’s depository banking services provider since the early 1970s. It is prudent financial practice to periodically obtain proposals for banking services to ensure that the City is receiving the best banking services at a competitive price.
On February 13, 2023, staff issued a request for proposals (RFP) for depository banking services. A panel of finance professionals, including City staff and PFM Group Consulting LLC (PFM), were selected to review the proposals and interview the finalists based on criteria detailed in the RFP. PFM is the City’s investment advisor and also provides cities with banking expertise to provide an impartial qualitative and quantitative analysis and assist with negotiations.
Based on the proposal, interview, and client references, staff proposes that the City enter into an agreement for banking services with JP Morgan Chase Bank, N.A (J.P. Morgan) to provide the City’s primary depository banking services at an estimated annual cost of $15,217. Staff proposes that the agreement be for a period of five (5) years, commencing July 17, 2024, with the ability to renew for one five-year term upon mutual agreement. This type of long-term award for banking services is best practices and reflective of other cities due to the intense process and resources incurred by the City when changing bank providers.
BACKGROUND
Depository banking services are essential to the daily operations of the City and its ability to serve Alameda’s residents and businesses. The City’s depository bank’s primary responsibility is to process cash transactions, enabling the City to make, receive, and account for payments. This includes but is not limited to providing balanced reporting, detailing debit/credit information, performing fund transfers, direct deposit for Citywide payroll, electronic file transfer, issuing stop payments, obtaining reports, etc. The City’s banking operations are high volume, quite complex, and require sophisticated institutions offering a wide array of services with expert customer service representatives to manage the City’s accounts. The City’s current banking provider, Wells Fargo, has been providing depository banking services to the City through contractual agreements since the early 1970s.
The City’s banking services are complex for a number of reasons. The City currently maintains two (2) accounts. On a monthly basis, the City utilizes countless numbers of banking services, including but not limited to account maintenance, lockbox services, depository services, online reporting, paper disbursement services, paper disbursement reconciliation services, general Automated Clearing House (ACH) services, merchant card services, web services, and wires. The depository bank is responsible for secure, timely, and accurate processing and reporting of these transactions. In addition, the City has over fifteen (15) merchant accounts related to Visa/MasterCard and Discover transactions. Therefore, only sophisticated banking institutions are best suited to handle the City’s high volume of activities and provide a designated representative knowledgeable of each of the areas of service.
On February 13, 2023, the City issued an RFP for depository banking services to eight (8) banking institutions. The City’s primary objective was to evaluate the current banking services offerings and market environment, to evaluate financially secure banks that are best suited to meet the business needs, and to offer the highest quality of services at a competitive price to the City.
Responses to the RFP were received on April 13, 2023. Five (5) banks submitted proposals to provide depository services - Wells Fargo Bank, N.A. (Wells Fargo), PNC Financial Services Group (PNC), BMO Harris Bank, N.A. (Bank of the West”), and U.S Bancorp (U.S. Bank), and JPMorgan Chase Bank, N.A. (J.P. Morgan).
DISCUSSION
After careful evaluation of the proposals, staff selected four finalists - Wells Fargo, U.S. Bank, BMO, and JP Morgan to move forward to the interview process with an evaluation panel comprised of City staff from the Finance Department and PFM. The panel conducted an extensive evaluation based on a detailed consideration of overall qualifications, scope, and level of services, other commitments and services, additional questions from the panel, and reference checks. PFM completed the quantitative pricing analysis. The interview panel has ranked the banks proposing to provide depository banking services as follows:
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Depository Banking Services |
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1. JP Morgan |
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2. Wells Fargo |
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3. US Bank 4. BMO Harris |
General Considerations for Selecting JP Morgan for Depository Banking Services: The interview panel considered the overall quality of each bank’s proposal and interview, along with its services, costs, and references. Each bank that was interviewed met the City’s general requirements for financial strength and capability. Client references for the banks were generally positive. However, JP Morgan stands out for having the lowest cost to the City and was praised for their high quality of customer service.
Each bank expressed that it would devote significant resources to serving the City. Locally, JP Morgan has two (2) branch locations and nine (9) ATM locations in the City.
The recommendation to select JP Morgan is based on several factors, including its high-quality services and customer service, local lockbox services, competitive pricing, and streamlining of depository services:
• Quality of Services. Each proposing bank demonstrated that it could provide a full range of standard banking and depository services currently utilized by the City, including reporting, accepting credit and debit cards, providing expedited lockbox processing for certain revenue streams, implementing electronic data transfers with anti-fraud measures, and providing direct deposit of payroll. However, JP Morgan stood out in providing these services, both in the selection process and discussions with reference cities.
• Customer Service. JP Morgan demonstrated excellent customer service skills during the interview as well as consistently commended for strong customer services during reference checks with other cities. It is imperative that the team assigned to the City’s account be knowledgeable and responsive because banking-related issues are time-sensitive. Any miscommunication or delayed response will impact the City’s daily banking operations.
• Lockbox Services. While lockbox services are a basic component required by the City, the City’s lockbox structure can be complex. JP Morgan will dedicate needed resources and staff time to individually process the returned items, as well as, reconcile the incorrectly-processed items in the system.
• Pricing. Among other criteria, staff carefully analyzed the specific service costs proposed by the three finalists. JP Morgan is the lowest cost proposer based on the volume of banking operations provided in the RFP. However, pricing alone was not the leading factor in forming staff’s recommendation to City Council, the recommendation was made in view of the quality, scope, and complexity of the required depository services. JP Morgan will bring efficiencies and new solutions to the City’s banking operations that will be more cost effective in the future.
The earnings credit rate (ECR) is the interest paid by banks on customers' deposits. Banks apply the ECR to balances that depositors leave in their non-interest-yielding accounts. The amount calculated after applying the ECR is used to credit service fees, reducing out-of-pocket expenses.
Table 1 below presents the estimated annual cost pricing from each of the four finalists.
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Table 1 |
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Estimated Annual Cost |
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JP Morgan will provide the City with a $20,000 retention allowance which may be used to offset analysis fees for up to 12 months following the services being substantially implemented. This allowance can be used towards electronic and technology enhancements, such as an automated payables solution, or towards existing analysis fees and supply orders.
Staff proposes that the agreement with JP Morgan be for a period of five (5) years, commencing July 17, 2024, with the ability to renew for one five-year term upon mutual agreement. Should the Term of this Agreement need to be extended, it can be done by amendment without returning to City Council provided the total five-year cost does not exceed $100,000. This type of long-term award for banking services is reflective of other cities due to the intense process and resources incurred by the City when changing bank providers.
ALTERNATIVES
1. Approve staff recommendation to select JP Morgan.
2. Do not approve the selection of JP Morgan; however, this may result in the continuation of Wells Fargo as the City’s depository bank at a higher cost under the terms of the RFP.
3. Direct staff to negotiate with one of the other four finalist institutions.
FINANCIAL IMPACT
The current fiscal year budget includes $15,216 for depository services. The actual future costs will depend largely on the volume of services provided to the City and on the levels of offsetting cash balances in the City’s accounts. Staff estimates that the proposed cost for the depository banking services will remain at or be below the estimated annual costs of $15,216 annually or a not-to-exceed amount of the initial five (5) year contract of $85,000 and will be included in future budgets for the term of the contract.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is in conformance with the Alameda Municipal Code and all policy documents.
Receiving this report is in alignment with the City’s FY 2023-26 Strategic Plan under the priority to Practice Fiscally Responsible, Equitable, and Inclusive Governance.
This action is subject to the Levine Act.
ENVIRONMENTAL REVIEW
This activity is not a project and is exempt from the California Environmental Quality Act (CEQA) pursuant to section 15378(b)(4) of the CEQA guidelines because it involves governmental fiscal activities that do not involve any commitment to any specific project that may result in a potentially significant physical impact on the environment.
CLIMATE IMPACT
No identifiable climate impacts or climate action opportunities are associated with this report's subject.
RECOMMENDATION
Authorize the City Manager to execute an agreement with JP Morgan Chase Bank, N.A., to provide Primary Depository Banking Services for the City commencing July 17, 2024 at an estimated annual cost of $15,217 for a five-year period with a not-to-exceed total amount of $85,000 with one five-year option to renew.
Respectfully submitted,
Margaret L. O’Brien, Finance Director
By,
Carlos Figueroa, Senior Financial Analyst
Exhibits:
1. Agreement