Banking Services Review

Lawrence Township

February 2008

2

Agenda

1. Objectives

2. Review and Results

3. Options for future banking services

4. Next steps

3

Objectives

• To review terms and status of present banking services arrangement with Sun Bank

• To identify strategic options for future banking services• To develop framework for evaluating strategic options• To develop a high level plan for procuring future

banking services

4

Assessment was made after gaining quick understanding of banking service relationship with Sun…

• Review of 1999 RFP documents and Sun’s proposal• Interview of Peter and Linda (together)• Sun’s (Bruce) responses to questions, gathered by Linda• Review of monthly Account Analysis Statements and interest

earnings summary of individual accounts (Peter’s spreadsheet) Oct-Dec 2007

• Examination of monthly bank statements of select (9) accounts for service charges Oct-Dec 2007

• Research into 91-Day T-Bill rates and data sources (FRB and others)

5

Sun wishes to continue present services if we kept a perpetual balance of over $8 million dollars and forgo its interest…

Services from Banking Relationship*Annual

Service Charge ($)

**Perpetual Balance

Required ($)

Payroll Services (ADP) 36,989 1,295,030

Merchant Card Services (CTS Holding) 138,143 4,836,602

Armored Car Services 10,239 358,480

All Banking Service Charges 48,013 1,681,026

Total 233,383 8,171,138

Must include redefined service quality, service levels and reporting requirements

*12 months’ data in 2007

**Net of Float and FRB Reserve@5% compounded

monthly, this balance represents $418,051

interest

Equals to perpetual $35.01 per dollar per year or $420.14 per

dollar per month

6

We have an unsustainable relationship…

• Relationship based on 1999 proposal and letter of acceptance• Bank has provided all services free of charge• Bank states pressure for profitability and wishes to charge for future

services, credit card service in particular• Of late, Township experiences service degradation, mainly due to

personnel changes• Overall, Township is somewhat satisfied in day-to-day working with

Bank and is weary of change to another bank• For Bank, Township account is the largest (Bank’s view unknown) • Each party may think of the other as dependent (Bank’s view

unknown)• Township likes to preserve status quo, but its sense of competitive

landscape is dated

7

We wish to define and shape new era of relationship…

• Relationship based on mutual economic value • Formalized with executed contract• Decouples banking service from account balances• Meets defined service levels and investment objectives• Leverages new knowledge, tools and technology to maximize return

on investable funds• Provides consistent service despite personnel/organizational

changes• Adapts to needs and challenges of Township

8

Our ideal pathway must be comprehensive and include open and competitive RFP process…

Develop RFP

Pre-Screen Potential

Banks

Issue RFPEvaluate

Proposals and Select Top 3

Revise Service Scope

and Levels

Issue Revised RFP to Top 3

Evaluate Modified Proposals, Check References and

Select Top 1

Execute (Legally Binding) Contract

Monitor Contract

Compliance

Professional Money

Management

Needs and Concerns of

Finance Department

Realistic Expectations

about Sustainable

Free Banking Service

Elements

Week-2 Week-10 Week-12 Week-18 Week-22Week-6

Decouple banking service charges

from account balances

9

We have some strategic options…there are pros and cons…

Criteria RatedStatus Quo

Re-contract with Sun

Comprehensive New RFP Process

Pre

-im

ple

me

nta

tion

1 Speed of decision High Medium Low

2 Effort/Cost of decision None Medium High

3 Legal hurdle (i.e. competitive bidding) None High None

Imp

lem

en

tatio

n a

nd

Be

yon

d

4 Cost of Implementation (disruption & pain) None None High

5 Potential for better economic value None Low High

6 Sustainability (long term viability) Low Medium High

7 Importance of personal relationship High Medium Low

8 Scope for better money management Low Low High

9 ?

10 ??

10

1 2 3

10

Strategy for optimal banking services management must include…

Money Management

• Dedicated

• State-of-the-art

• Bank account funds and others

• Outsourced or in-house

• Daily monitoring

RFP and Contracting

• Develop RFP based on all required services including credit card transactions, and special management reporting needs

• Include in RFP requirements, migration plan, cost and our time

• Include Service Level expectations such as response to request for armored car, cash, balance statements, etc.

• Decouple service charges from account balances

• Include realistic AAS and other management reports (mandatory and others)

• Include money management goals

• Execute Written Contract

• Monitor Contract Compliance

Account Rationalization & Optimization

• Review all 32 accounts and re-confirm Need-to-Keep

• Keep accounts required by law

• Challenge accounts created for control

• Seriously challenge accounts created for convenience and those that have been “always there.”

• There are over 12 accounts earning less than $10 as monthly interest due to no/low balance

• Develop Optimum Account Balance Model

• Norms for

• Minimum balance

• Maximum balance

• Review frequency

1 2 3

In preparation for new era of relationship…

12

Don’t be defensive…reality is, our business is very profitable to Sun…

Dec-07 Nov-07 Oct-07

1 *Average Collected Balance ($) 28,199,784 32,437,436 20,861,890

2 Actual Interest Credited by Sun ($) 60,385 79,037 54,806

3 Implied Interest Rate 2.52% 2.96% 3.09%

4 1Potential Interest @5% 119,753 133,305 88,592

5 Charges, if Debited in Full per AAS ($) 35,366 13,723 32,806

6 Excess of Potential Interest Over Charges ($) (4-5) 84,387 119,582 55,786

7 Net to Sun, after Paying Interest ($) (6-2) 24,002 40,545 980

3-Month Treasury Rate (Secondary Market) 3.00 3.27 3.90

Mutual value of a relationship is key to sustainability…requires recognition by both parties

May justify dedicated

Money Management

*Net of Float, but includes FRB Reserve1A reasonable expectation from professional money management

13

However, appreciate some of our major costs are entirely absorbed by Sun…we need to know if other banks will match…

Absorbed by Sun as creditbacks to us

Two charge items verified: 1. Merchant Card Charges and 2. ADP payroll charges

Merchant Card Services

Dec-07 Nov-07 Oct-07 Sep-07 Aug-070001 17.88 52.89 87.94 7.00 36.010002 28.23 11.35 11.83 181.34 10.380003 (Tax Collector) 18,638.72 7,960.16 1,264.48 22,618.37 1,639.060004 (Court/Police) 486.13 452.11 383.03 601.59 402.350005 37.60 469.37 19.30 164.76 43.240006 20.32 35.65 27.64 117.71 59.92Total Charge Incurred (CTS Holding) 19,211.00 8,928.64 1,706.28 23,683.77 2,154.95Merchant Card Service Charge (Per AAS from Sun) 28,307.40 1,738.00 23,496.51

ADP - Payroll

Dec-07 Nov-07 Oct-07 Sep-07 Aug-07208217 1,034.76252971 1,696.86244960 1,089.32233591 1,057.40194727 2,215.84183378 899.50220778 1,804.84156798 1,052.58163065 30.00171017 1,907.91

Total charges incurred (ADP invoice) 0.00 3,843.58 2,839.60 3,115.34 2,990.49Payroll Services Charge (Per AAS from Sun) 2,786.18 6,116.00 3,499.21

Month

Month

Account (Last 4 digits)

Invoice #

14

Item In? RateNegative Collected Balance 10.25Analysis Maintenance (A/c Maintenance) 25.00 Yes 12.00Deposits 0.50 Yes 0.25Wire Transfer Fee - Domestic - In 15.00Wire Transfer Fee - Domestic - Out 20.00Return Deposit Fee 15.00 Yes 10.00ACH Credits 0.00Interest Transfer Credits 0.00ACH Debits 0.12Interest Transfer Debits 0.00On Us items 0.20Deposited Item 01 0.20 Yes 0.12Checks 0.20 Yes 0.15Stop Payments 25.00 Yes 20.00Merchant Card Service 28307.40ACH Block 20.00ACH Notification Items 0.50ARP Fine Sort Maintenance 25.00ACH Addenda Record Maintenance 50.00ACH Addenda Record Items 0.50CD-ROM Archive 35.00Armored Car Bill 565.11Checkbook Reimbursement 342.45Payroll Services 2786.18OD Per Item-Pay & No Charge 35.00 Yes 25.00iLink Balance Reporting Maintenance 25.00 Yes 25.00iLink Balance Reporting Accounts 10.00 Yes 10.00iLink Balance Reporting - Item 0.12 Yes 0.12iLink Internal Transfer Maintenance 10.00 Yes 5.00iLink Internal Transfer - Item 0.50 Yes 0.50iLink Wire Transfer Maintenance 10.00Micro Archive Maintenance 50.00 Yes 20.00Fine Sort Items ? 0.04

ItemUnit Rate (Dec-07)

Sun Proposal/Ammendments

There’s more…all service charges are only on paper – none ever applied to our accounts by Sun…we need to know if other banks will match…

15

Dec-07 Nov-07 Oct-07 3-Month Total*4750200208 27,467.67 40,459.56 5,139.51 73,066.74 Current Fund Account. Returned Deposit Item Fee @15.00 being charged.*4750200185 9,125.42 10,510.26 16,863.52 36,499.20 No real service fee/charge debited to account*4750720238 5,217.60 5,841.96 6,727.51 17,787.07 No real service fee/charge debited to account*4750200017 4,348.58 5,493.88 6,118.47 15,960.93 No real service fee/charge debited to account*4750200198 3,712.17 5,406.54 6,278.44 15,397.15 No real service fee/charge debited to account4750200059 3,279.85 3,724.05 4,433.97 11,437.874750200091 2,860.22 3,059.14 3,583.22 9,502.584750200004 894.59 1,170.23 1,367.61 3,432.434750200169 831.72 903.47 1,027.42 2,762.614750368917 922.97 732.48 1,094.15 2,749.60*4750200062 491.22 594.09 775.25 1,860.56 Payroll Account. Expert Fee @140.00 is being charged.4750200046 236.96 299.77 409.51 946.244750200130 274.49 278.33 307.92 860.744750200033 192.20 202.66 253.08 647.944750200172 147.42 183.69 226.70 557.814750200127 284.45 82.02 102.10 468.57*4750369893 43.17 37.54 30.63 111.34 No real service fee/charge debited to account4750200114 21.36 23.91 27.54 72.814750200020 17.24 15.10 17.19 49.534750200156 8.56 9.57 10.92 29.054750200101 5.73 6.42 7.39 19.544750200237 0.38 0.70 1.10 2.18*4750200224 0.19 0.58 0.67 1.44 No real service fee/charge debited to account4750200253 0.23 0.40 0.53 1.164750200240 0.11 0.35 0.23 0.694750234070 0.12 0.19 0.24 0.554750234096 0.16 0.13 0.26 0.55*4750200211 0.10 0.17 0.19 0.46 No real service fee/charge debited to account4750234106 0.05 0.17 0.22 0.444750234083 0.08 0.11 0.13 0.324750234067 0.02 0.00 0.06 0.084750200075 0.00 0.00 0.00 0.00

3-Month Total Interest 194,228.18

Actual Interest Credited by Sun Bank*Actual Service Fee/Charge Debited by Sun BankAccount

Over a third of accounts can be eliminated if not required by law/regulation.

*Monthly bank statements of accounts checked (Oct-Dec 2007) for real service fees/charges debited.

No matter what, some cleanup may be in order…Account Rationalization has its pros and cons, but we may need a new balance…

16

Potential neighborhood banking survey

• Who are you banking with?• Do you have a written contract?• How along have you been with this bank?• Who were you banking with before?• Why did you switch?• Do you accept credit card payments (taxes, permit fees,

court/police fines, recreation registration, fees in clerk's office)?

• Does your bank provide credit card services? If not, who does? Who pays credit card fees?

• What about armored car services? • What about payroll services?• Does your bank have Compensating Balance

Requirement? If yes, how much per dollar per month?• Are you looking to change bank?• Do you have an RFP written up?• Which banks are you considering?• In selecting bank, how important is it that your bank is

local?

• East Windsor• Ewing• Hopewell Township• Princeton Township• West Windsor Township

Proposed Questions

Proposed Municipalities

Next steps…

What By when Who

1

2

3

4

5

6

7

8