Deposit Contracts and Collateral - county Prese… · Continuing Education Seminar thth Deposit Contracts and Collateral Van C. Carter Senior Vice President – Public Funds Frost

46th Annual County Treasurers’ Continuing Education Seminar46th Annual County Treasurers’ Continuing Education Seminar46th Annual County Treasurers’ Continuing Education Seminar

Deposit Contracts and Collateral

Van C. CarterSenior Vice President – Public FundsFrost Bank

46th Annual County Treasurers’ Continuing Education Seminar46th Annual County Treasurers’ Continuing Education Seminar

Discussion Points

• Key Terms• Depository Services and Relationships • RFP Process & Components• Evaluation Process and Factors• Account Analysis• Collateral• Grab Bag• Questions / Comments

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Key Terms

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Terms / Phrase Referring to . . .

RFP / RFA Request for Proposal; Request for Application

Public Funds Monies or revenues of a government, state or municipal corporation

Depository The Bank into which money and receipts are deposited, and from which disbursements are drawn

Collateral Bank assets pledged to a government depositor in excess of FDIC coverage

Account Analysis The billing process used by commercial banks for associating a value of deposits for offsetting accrued charges for services and activity

ECR Earnings Credit Rate; The factor used to calculate the value of applicable deposits


Depository Services and Relationships

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Types of DepositsPublic entity deposits at a Bank MUST BE collateralized

Checking Non-interest bearing / Interest bearing

Time Deposits Money Market Savings Accounts (MMSA’s)

Certificates of Deposit (CD’s); Contracted terms and rates

Brokered / Insured CD’s

CD’s placed across a variety of participating financial institutions in amounts exclusively covered by FDIC

Non-Deposits / Investments(Governed by PFIA)

Brokerage Account Account for the purchase and redemption of non-bank investment instruments

Capital Markets Securities division of a financial institution for purchasing and redeeming non-bank investment securities

Safekeeping Division of a financial institution clearing and holding client’s investment securities


Depository Services and Relationships

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Funds Collection

Digital Deposit (RDC)ACH Drafts (Debits)Lockbox ProcessingConsumer Bill Payment CollectionMerchant/Credit Card Acceptance

Funds Concentration

Online TransfersZero Balance Accounts

Funds Disbursement

ACH DepositsWire TransfersControlled DisbursementPay CardBusiness Credit Card / Purchasing Card

Funds Investment

Certificates of DepositAutomated SweepBrokerageCapital Markets

Control & Monitoring

Online BankingPositive Pay / Payee ReviewACH Blocking & FilteringAccount Analysis StatementSafekeeping


RFP Process & ComponentsRFP Objectives• Protection of Funds

• Financial Strength and Stability• Collateral

• Availability of Funds• Deposit float• Earnings on deposits; Interest accrues on Collected

balances• Operational Efficiency

• Services offered; Technology• Capability, Capacity, Compatibility and Reliability

• Rates and Fees• Relationship Team & Support

• Customer Service Quality and Responsiveness• Knowledge and Experience

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RFP Process & Components

Key LegislationChapter 113 (Management of County Money)Chapter 116 (Depositories for County Public Funds)

• Chapter 262 (Purchasing and Contracting Authority of Counties

Chapter 117 (Depositories for Certain Trust and Court Registry Funds)

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RFP Process & ComponentsWho, What, When, Where, How . . . • Identify banking functions are currently being performed (need to be supported)

• Deposit preparation• Cash handling• Transaction initiation / confirmation / releasing• File creation / submission / downloading / importing• Reconciliation of transactions and accounts

• Develop the Questionnaire• Describe (a) account structure and (b) processes / functions needing to be supported

• Interest bearing / non-interest bearing, Zero Balance Accounts, Sweep, Controlled Disbursement Accounts• Describe and inquire about

• Funds collection and depositing process and options• Funds disbursement, Fraud Detection, Account/Transaction monitoring options• Relationship team• References• Optional and New Services

• What would help YOU be more Efficient?• Not necessarily “the way it’s always been done”

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RFP Process & Components• Notice – At least 20 days before RFP responses (i.e. Applications /

Proposals) are to be submitted• In the Judge’s name

• Newspaper• Courthouse Door

• Applications / Proposals due date >60 days before expiration of the existing depository contract

• Bank’s Paid-Up Capital Stock and Permanent Surplus• Statement showing Financial Condition of the Bank• Certified or Cashier’s check >1/2% (.005) of the County’s receding year revenue

(i.e. Good Faith Check)NOTE: It is helpful to bidders to allow >4 weeks to prepare responses

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RFP Process & ComponentsStructure of RFP & Bidder Responses• RFP released in DOC/DOCX and XLS/XLSX format

• Enables prospective Bidders to more easily respond WITHOUT inadvertent alterations to the RFP document

• If “protected” RFP, format response fields in a different color so that comments can be more easily recognized“Any changes or modifications to the original RFP document which are not clearly and obviously indicated will disqualify your proposal.”

• For consistency in Applications, specify the section divisions and order response content should be included

• Cover Letter, Title Page, Table of Contents, RFP responses, relationship team, financial center locations, references, financial statements, product descriptions, fee schedules, historical rates, sample agreements, sample statements, etc.

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Evaluation Process & Factors• Evaluation – Do not forget your Objectives:

• Protection of Funds• Availability of Funds• Operational Efficiency• Rates and Fees• Relationship Team & Support

• Communication between Bidders and County is restricted during RFP & evaluation window

• Contract awarded based on “the most favorable terms and conditions”• Not necessarily the low-cost provider

• Within 15 days: Bank must pledge collateral• Dependent upon execution of the Depository and Security / Collateral

agreements

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Evaluation Process & Factors

• In-house vs. Consultant• Criteria for “most favorable terms and

conditions”• Budgets, rates and fees are significant, but People

do business with People• If unsure of a Bidder’s response, reach out with

follow-up question(s) • Have Bidder verify & confirm your interpretation

and calculations of their submission• Consider inviting top candidates for

presentations

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Account Analysis

• Account Analysis – Balances & Charges• Ledger Balance vs Collected Balance

• Ledger – Checkbook register balance• Collected – Funds collected by Depository through

settlement process• Billables – Service and Activity Fees accrued by

Depository • Compensating Balance – Collected balance

necessary to avoid (offset) owing of Bank fees

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Account Analysis – Compensating Balances

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“No Fee” Position

Benefit > Charges

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“No Fee” Position Fee Position

Benefit > Charges Benefit < Charges

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“No Fee” Position Compensating Balance Fee Position(“No Fee” Position)

Benefit > Charges Benefit < ChargesBenefit = Charges

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Account Analysis – Balances and Charges

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Description

Average Ledger Balance

Less Float

Average Collected Balance

Earnings Allowance (1.71% over 30‐day month)

Collected Balance x ECR = Earnings AllowanceDays in Year x Days in Month (to offset charges)

Current Period Charges

Amount Due

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Description

“No Fee”

Average Ledger Balance $1,000,000

Less Float $25,000

Average Collected Balance $975,000

Earnings Allowance (1.71% over 30‐day month) $1,370Collected Balance x ECR = Earnings Allowance

Days in Year x Days in Month (to offset charges)

Current Period Charges $750

Amount Due $0 (no fee)

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Description

“No Fee” “Fee”

Average Ledger Balance $1,000,000 $1,000,000

Less Float $25,000 $25,000

Average Collected Balance $975,000 $975,000

Earnings Allowance (1.71% over 30‐day month) $1,370 $1,370Collected Balance x ECR = Earnings Allowance

Days in Year x Days in Month (to offset charges)

Current Period Charges $750 $1,500

Amount Due $0 (no fee) $130

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Description

“No Fee” Compensating Balance “Fee”

Average Ledger Balance $1,000,000 $558,625 $1,000,000

Less Float $25,000 $25,000 $25,000

Average Collected Balance $975,000 $533,625 $975,000

Earnings Allowance (1.71% over 30‐day month) $1,370 $750 $1,370Collected Balance x ECR = Earnings Allowance

Days in Year x Days in Month (to offset charges)Charge x Days in Year = Collected BalanceECR Days in Month

Current Period Charges $750 $750 $1,500

Amount Due $0 (no fee) $0 (no fee) $130

Begin calculation here

Available to Invest

To avoid fees deducted

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Evaluation Process & Factors• Bank services are not “apples-to-apples”

Service Banks may call it: Unit of MeasurementDeposits (credits) posted Credits Posted

Branch/Vault DepositRemote Capture Deposit

Per itemPer item / per $ / per $100 / per $1,000 / per billPer item / per scanner / per month

Checks Deposited Deposited ItemsOn Us /Transit Items

Per itemPer item

Withdrawals (debits) posted Debits PostedCheck PostedCheck Cashed in Branch

Per itemPer itemPer item

Change Orders Change Order‐CurrencyChange Order‐CoinStrapped Currency FurnishedRolled Coin Furnished

Per order / per $ / per strapPer order / per $ / per rollPer order / per $ / per strapPer order / per $ / per roll

ACH Origination Services ACH Origination AccessACH Origination Items

Per module / per month / per accountPer item / per file / per settlement window

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Evaluation Process & Factors

• Reserve Requirement (10%)

• Positive / Negative Collected Balance • FDIC Fee is no longer permitted

• Fil-33-2012 FDIC discourages Bank’s from assessing a fee with this name• A similar fee is named differently

• Premium Balance Fee• Recoupment Fee• Regulatory Balance Fee

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Collateral• FDIC -- $250,000 (x 2)

https://www.fdic.gov/deposit/deposits/factsheet.html

• Chapter 2256 (Public Funds Investment Act; PFIA)

• Chapter 2257 (Public Funds Collateral Act; PFCA)

• Minimum of 102% of combined relationship deposits LESS FDIC• FHLB LOC vs Securities• Should Pledged Collateral Report at least monthly

• Securities should be “marked to market”

• The relationship between Collateral and Depository’s Investments

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46th Annual County Treasurers’ Continuing Education Seminar46th Annual County Treasurers’ Continuing Education Seminar 24


Grab Bag . . . • HB 89 (September 2017) – Prohibition on Contracts with Companies Boycotting Israel

• Chapter 2270 LGC (State & Local Contracts; Written verification does not, and will not boycott Israel)

• Chapter 808 (Public Retirement Systems; No investment with or in boycotting companies)

• Form 1295 (January 2018)• No longer notarized – “Unsworn Declaration”• No longer required for:

• Sponsored Research Contract of an institution of higher education• Interagency Contract of a State agency or an institution of higher education• Health / Human Services if (a) value cannot be determined and (b) any qualified vendor is eligible• Contract with a publicly traded business entity (including a wholly owned subsidiary)• Contract with an electric utility (§31.002 Utility Code)• Contract with a gas utility (§121.001 Utility Code)

https://www.ethics.state.tx.us/whatsnew/FAQ_Form1295.html#Changes

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Questions / Comments

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Documents

Deposit Contracts and Collateral - county Prese… · Continuing Education Seminar thth Deposit Contracts and Collateral Van C. Carter Senior Vice President – Public Funds Frost