Managing Bank Relationships

Jim Hansen, Director, Public and InstitutionalJim Hansen, Director, Public and Institutional

BankingBanking

Lora Prisock, Vice President, Treasury Services Lora Prisock, Vice President, Treasury Services

February 5, 2007February 5, 2007

Today’s Agenda

Analyzing Current Banking RelationshipsAnalyzing Current Banking Relationships

Performance Measurement ToolsPerformance Measurement Tools

If you need to RFP - the ProcessIf you need to RFP - the Process

Take Aways and Resources Take Aways and Resources

Do you trust your Banking relationship?

Analyze what you have

Analyzing Banking Relationships

In any evaluation of banking relationships or Request In any evaluation of banking relationships or Request for Proposalsfor Proposals

Three variables must be considered:Three variables must be considered:

Pricing/Service ChargesPricing/Service Charges Earnings Credit Rate/Compensating Balance Earnings Credit Rate/Compensating Balance Investment RateInvestment Rate

To further compound the complexity, each service provider To further compound the complexity, each service provider may define or calculate these variables differently. may define or calculate these variables differently.

Analyzing Banking Relationships

Consider the different types of pricing options as you make a decision.

There are many ways to incur costs.

Be sure to weigh the cost of compensating balances, overall fees, or the cost of lost interest income.

Analyzing Banking Relationships

County of Dogwood requests deposit service pricing options from their bank:

• Option 1 is an interest rate of Fed Funds – 0.50%, $0 compensating balance, and fees of $1,000 per month.

• Option 2 is an interest rate of Fed Funds – 1.50%, $0 compensating balance, and $0 fees.

• Option 3 is an interest rate of Fed Funds – 0.50%, compensating balance of $300,000 and $0 fees.

Comparing your Bank Pricing

Option 1Option 1

Dep Int - $3,958Dep Int - $3,958

CB - $0CB - $0

Fees – ($1,000)Fees – ($1,000)

TOTAL-$2,958TOTAL-$2,958

Option 2Option 2

Dep Int - $3,125Dep Int - $3,125

CB - $0CB - $0

Fees - $0Fees - $0

TOTAL-$3,125TOTAL-$3,125

Option 3Dep Int - $3,958

CB – ($1,188)

Fees - $0

TOTAL-$2,770

County of Dogwood has deposits of $1,000,000

Performance Measurement ToolsPerformance Measurement Tools

Performance Measurement Tools

Relationship ReviewsRelationship Reviews

ScorecardsScorecards

BenchmarkingBenchmarking

Comparison Pricing ResourcesComparison Pricing Resources

The Value of Strategic Banking

Banks are a key resourceBanks are a key resource

New payment technologies require New payment technologies require team workteam work

Strategic partnerships provide Strategic partnerships provide innovation and unique solutionsinnovation and unique solutions

Source: The Strategic Value of Relationship Banking: Building Partnerships with your Source: The Strategic Value of Relationship Banking: Building Partnerships with your BanksBanks

Mark K. Webster, CPA, CCMMark K. Webster, CPA, CCMStephen M. Kearney, CFA, CCM Stephen M. Kearney, CFA, CCM

Relationship Reviews

Review and evaluate current relationship.Review and evaluate current relationship.

Discuss goals, objectives and strategies.Discuss goals, objectives and strategies.

Establish planning objectives and action plan.Establish planning objectives and action plan.

Identify areas of opportunity andIdentify areas of opportunity and improvement.improvement.

Develop plan to guide relationship.Develop plan to guide relationship.

Maximize effectiveness and value.Maximize effectiveness and value.

Frequent Review Findings

New Technology can support strategic goals and New Technology can support strategic goals and enhance business relationships.enhance business relationships.

Risk assessments can be completed:Risk assessments can be completed:• Control practices can be evaluated Control practices can be evaluated • Fraud updates can be reviewedFraud updates can be reviewed

Services are evaluated to ensure benefit exceeds Services are evaluated to ensure benefit exceeds cost.cost.

Account types and billing structure can be Account types and billing structure can be updated as needed.updated as needed.

Performance Measurement Tools

ScorecardsScorecards

BenchmarkingBenchmarking

Comparison PricingComparison Pricing

Requests for ProposalsRequests for ProposalsThe ProcessThe Process

Should I RFP When and Why to Bid?When and Why to Bid?

Anticipated BenefitsAnticipated Benefits - Pricing review Pricing review - Update on new technologyUpdate on new technology

An alternative view: An alternative view:

Is your Banking Relationship adding value ?Is your Banking Relationship adding value ?

Should I RFP?When to Consider Issuing your RFPWhen to Consider Issuing your RFP

Existing Bank is acquired or exits Public Funds.Existing Bank is acquired or exits Public Funds.

Existing bank can no longer meet needs.Existing bank can no longer meet needs.

Existing Bank does not bring new ideas/enhancements.Existing Bank does not bring new ideas/enhancements. Existing Bank can not support software or financial Existing Bank can not support software or financial

applications.applications.

Service levels are not met.Service levels are not met.

Desired technology is not available.Desired technology is not available. Source: Source: GFOA Public Investor, October 2006GFOA Public Investor, October 2006

Banking Services RFP: Design, Criteria, and ValueBanking Services RFP: Design, Criteria, and Value

By Steve McArthur, CCMBy Steve McArthur, CCM

The RFP ProcessBid StructureBid Structure Provide hard and electronic copies at bid Provide hard and electronic copies at bid announcement: announcement:

- word and excel - word and excel

Consider minimum of 30 days response time.Consider minimum of 30 days response time.

Consider holding a bid conference.Consider holding a bid conference.

Include qualitative Include qualitative and and quantitative sections.quantitative sections.

Consider separating core and alternative/enhanced Consider separating core and alternative/enhanced services.services.

The RFP Process

Bid Structure, continuedBid Structure, continued

Identify any compensation preferences or Identify any compensation preferences or establish a common framework for responders establish a common framework for responders to offer alternatives.to offer alternatives.

Interview Finalists.Interview Finalists.

Be prepared to award bid in same time frame as Be prepared to award bid in same time frame as provided for response.provided for response.

Note: Joint bidsNote: Joint bids

The RFP ProcessEssential Items to include:Essential Items to include:Quantitative Elements:Quantitative Elements: Balances:Balances:

- Deposit- Deposit- Investment- Investment

A complete listing of services and volumesA complete listing of services and volumes- - ExtractExtract from your from your consolidated consolidated Account Account

Analysis Statement. Analysis Statement. - Work with your bank to explain or classify- Work with your bank to explain or classify

service descriptions that may be unique.service descriptions that may be unique.

The RFP ProcessEssential Items to include:Essential Items to include:Quantitative Elements, continued:Quantitative Elements, continued:

Any projected changes in account requirements or Any projected changes in account requirements or volumes.volumes.

Clearly identify required and optional services and Clearly identify required and optional services and provide explicit instructions as to what should be provide explicit instructions as to what should be considered in formulating totals.considered in formulating totals.

The RFP Process

Essential Items to include:Essential Items to include:Qualitative ElementsQualitative Elements Provide an overview of Finance Division goals andProvide an overview of Finance Division goals and a framework for responders to offer ideas. a framework for responders to offer ideas.

Explain Explain processes that are currently working well processes that are currently working well and/orand/or

are critical to your operation:are critical to your operation: - - Direct Deposit Direct Deposit - Accounting Software - Accounting Software

- Positive Pay - Positive Pay - Return Reporting- Return Reporting

Invite suggestions for processes or areas identified for Invite suggestions for processes or areas identified for improvement.improvement. Provide copies of any any current file formats.Provide copies of any any current file formats.

The RFP Process Establish and communicate evaluationEstablish and communicate evaluation criteria:criteria:

Weight your factors based on what youWeight your factors based on what you expect out of a Bank.expect out of a Bank.

Value time savings from technology Value time savings from technology and integration. and integration.

Value service levels and capabilities ofValue service levels and capabilities of bank.bank.

Bank Selection Criteria

Protection/collateralization of fundsProtection/collateralization of funds Financial strengthFinancial strength Ability to provide required servicesAbility to provide required services Ability to provide enhanced servicesAbility to provide enhanced services Experience with public sector clientsExperience with public sector clients Quality of referencesQuality of references Cost of services Cost of services (pricing, conversion, staff time)(pricing, conversion, staff time)

Community involvement /Employee programsCommunity involvement /Employee programs

The RFP ProcessSample EvaluationSample Evaluation

All finalists:All finalists: Meet requirement to provide current servicesMeet requirement to provide current services Meet minimum safety and collateralization Meet minimum safety and collateralization requirementsrequirements

Evaluation MatrixEvaluation Matrix

MetricMetric Weighting WeightingNet Investment Income Net Investment Income 45%45%Ability to Support Long Term Business ObjectivesAbility to Support Long Term Business Objectives 25%25%Service Quality/ReferencesService Quality/References 15%15%System Integration/Ease of use System Integration/Ease of use 10%10%Relationship ScoreRelationship Score 5% 5%

The RFP Process Bank Bank

Item Item A B C D E A B C D E

Net Investment IncomeNet Investment Income 2.252.25 1.8 1.35 0.9 0.45 1.8 1.35 0.9 0.45Ability to Meet ObjectivesAbility to Meet Objectives 0.25 0.25 1.251.25 0.75 0.5 0.250.75 0.5 0.25Service QualityService Quality 0.45 0.45 0.750.75 0.6 0.3 0.15 0.6 0.3 0.15System IntegrationSystem Integration 0.1 0.1 0.50.5 0.4 0.3 0.2 0.4 0.3 0.2Relationship ScoreRelationship Score 0.05 0.05 0.50.5 0.20 .15 0.1 0.20 .15 0.1

Total Weighted ScoreTotal Weighted Score 3.1 3.1 4.84.8 3.3 2.15 1.15 3.3 2.15 1.15

Take Aways Establish a formal relationship review schedule with Establish a formal relationship review schedule with

your bank.your bank.

Consider incorporating a scorecard.Consider incorporating a scorecard. Bank calls and industry events provide tools for Bank calls and industry events provide tools for benchmarking current relationship.benchmarking current relationship.

In evaluating RFP responses, detail all services to be In evaluating RFP responses, detail all services to be included in quote, provide balances and volumes.included in quote, provide balances and volumes. - - Ask qualitative and quantitative questions.Ask qualitative and quantitative questions.

- Evaluate proposals for price, balance requirement, - Evaluate proposals for price, balance requirement, net investment return and consider internal net investment return and consider internal requirements. requirements.

- Allowing adequate time in bid requests will improve quality ofAllowing adequate time in bid requests will improve quality of information.information.- Interview FinalistsInterview Finalists

Take Aways

Consider if the lack of functionality in a low cost Consider if the lack of functionality in a low cost solution will increase staff time and impact efficiency.solution will increase staff time and impact efficiency.

Ensure your relationship banks have an opportunity to bid Ensure your relationship banks have an opportunity to bid on all related services contracted by your entity.on all related services contracted by your entity.

Make sure you are coded to receive Account Analysis Make sure you are coded to receive Account Analysis statement monthly.statement monthly.

- Review detail for each account - Review detail for each account

- Assign review to banking specialist- Assign review to banking specialist

Have a formal program to periodically review risk, Have a formal program to periodically review risk, control practices and fraud exposure. Acknowledging control practices and fraud exposure. Acknowledging that risk changes over time.that risk changes over time.

Resources Government Finance Officers Association Government Finance Officers Association

(GFOA.org)(GFOA.org)

Local Government Investment AssociationLocal Government Investment Association List ServeList Serve

North Carolina Treasury Management Association North Carolina Treasury Management Association

(NCTMA.org) (NCTMA.org)

Association of Financial ProfessionalsAssociation of Financial Professionals

(AFP.org)(AFP.org)

Phoenix Hecht Blue BookPhoenix Hecht Blue Book 1 1 phoenixhecht.comphoenixhecht.com11 Monitors bank pricing trends by surveying corporate clients > $100 million.Monitors bank pricing trends by surveying corporate clients > $100 million.

Contact Information

Jim Hansen – Director, RBC Centura Public & Jim Hansen – Director, RBC Centura Public & Institutional BankingInstitutional Banking

jim.hansen@rbc.comjim.hansen@rbc.com; 919-788-5430; 919-788-5430

Lora Prisock, Vice President, Wachovia Bank, Lora Prisock, Vice President, Wachovia Bank, Treasury Services 336-378-4057Treasury Services 336-378-4057

Lora.prisock@wachovia.comLora.prisock@wachovia.com

Questions Questions