Reading the Fine Print: Analyzing Bank Fees

Transcription

1 1:30 2:20pm May 7, 2018 Room 240 Complex 112 th Annual Conference May 6-9, 2018 St. Louis, Missouri Moderator/Speakers: Mark Romito Director of Finance, Township of Upper St. Clair Barbara Fava Managing Director, PFM Asset Management, LLC Stefan Jaskulak Chief Financial Officer/Director of Administrative Services, Midpeninsula Regional Open Space District Reading the Fine Print: Analyzing Bank Fees #GFOA2018

2 Introductions Bank Fees Speakers Governments should be aware of direct and indirect fees and costs associated with banking services. Governments should set RFPs and contracts according to their needs, laws and policies. Governments should have procedures in place to monitor fees and ensure banking relationships adhere to services contract. Barbara Fava, Managing Director, PFM Asset Management Stefan Jaskulak, CFO and Director of Administrative Services, Midpeninsula Regional Open Space District, Los Altos, CA 2

3 MONTHLY ANALYSIS STATEMENT ABC BANK P.O. BOX KRYPTONVILLE, USA ANALYSIS STATEMENT Member FDIC GROUP SUMMARY ANALYSIS DATE PREPARED CLARK KENT, FINANCE DIRECTOR MONTH ENDING CITY OF METROPOLIS ANNUAL SETTLEMENT STEEL STREET SETTLEMENT & ACCOUNT TYPE DEBIT 500 METROPOLIS, USA OFFICER NUMBER 62XF8 PAGE 1 OF 62 CUSTOMER SERVICE: BALANCE SUMMARY EARNINGS CREDIT SUMMARY AVG POSITIVE LEDGER BALANCE $ 28,000, AVAIL BAL FOR EARNINGS CREDIT $ 22,950, AVG LEDGER BALANCE LESS AVG FLOAT AVG COLLECTED BALANCE AVG NEGATIVE COLL BALANCE 28,000, ,500, ,500, EARNINGS ON AVAILABLE BALANCES 9, LESS TOTAL SERVICES CHARGES 20, DEFICIT 10, PERIOD TO DATE EXCESS 59,477.53

4 123 STEEL STREET SETTLEMENT & ACCOUNT TYPE DEBIT 500 METROPOLIS, USA OFFICER NUMBER 62XF8 PAGE 1 OF 62 MONTHLY ANALYSIS STATEMENT CUSTOMER SERVICE: BALANCE SUMMARY EARNINGS CREDIT SUMMARY AVG POSITIVE LEDGER BALANCE $ 28,000, AVAIL BAL FOR EARNINGS CREDIT $ 22,950, AVG LEDGER BALANCE LESS AVG FLOAT AVG COLLECTED BALANCE AVG NEGATIVE COLL BALANCE AVG POSITIVE COLL BALANCE LESS RESERVES AVAIL BAL FOR EARNINGS CREDIT AVAILABLE BALANCE REQUIRED NET AVAILABLE BALANCE REQ RESERVES ON NET AVAIL BAL 28,000, ,500, ,500, ,500, ,550, ,950, ,704, ,754, EARNINGS ON AVAILABLE BALANCES 9, LESS TOTAL SERVICES CHARGES 20, DEFICIT 10, PERIOD TO DATE EXCESS 59, CURRENT PERIOD SERVICE CHARGE 0.00 DEFICIT COLLECTED BALANCE -25,754,191.82

5 MONTHLY ANALYSIS STATEMENT CURRENT MONTH'S EARNINGS CREDIT RATE = 0.50% NUMBER SERVICE OF UNITS UNIT PRICE SERVICE CHARGE BALANCE REQUIRED BALANCE RELATED SERVICES DEPOSIT INSURANCE - BANK ASSESSMENT 28,000,000 3, ,400, DEPOSITORY SERVICES ACCOUNT MAINTENANCE ,379, BANKING CENTER DEPOSIT , BANK BY MAIL DEPOSIT , VAULT DEPOSIT , DEBITS POSTED-OTHER , GENERAL CHECKS PAID TRUNCATED , PAPER DEPOSIT STATEMENT MAILED ,520, ZBA MASTER ACCOUNT MAINT , ZBA SUBSIDIARY ACCOUNT MAINT , ZBA PER TRANSACTION , RDI DISCRETIONARY DATA FIELDS , RETURNS-CHARGEBACK , RETURNS-RECLEAR , CKS DEP PRE-ENCODED ITEMS , CKS DEP UN-ENCODED ITEMS , CKS DEPOSITED FOREIGN ITEMS , STOP PAY AUTOMATED<=12 MONTHS , DEBITS POSTED-ELECTRONIC , CREDITS POSTED-ELECTRONIC , DEPOSIT ACCOUNT STATEMENTS GEN DISB CKS PD-IS FRT/BK IMG , IMAGE DEPOSIT , DEPOSIT CORRECTION- RDS , IRD DEPOSITED ITEMS-RDSO

6 123 STEEL STREET SETTLEMENT & ACCOUNT TYPE DEBIT 500 METROPOLIS, USA OFFICER NUMBER 62XF8 PAGE 1 OF 62 MONTHLY ANALYSIS STATEMENT CUSTOMER SERVICE: BALANCE SUMMARY EARNINGS CREDIT SUMMARY AVG POSITIVE LEDGER BALANCE $ 28,000, AVAIL BAL FOR EARNINGS CREDIT $ 22,950, AVG LEDGER BALANCE LESS AVG FLOAT AVG COLLECTED BALANCE AVG NEGATIVE COLL BALANCE AVG POSITIVE COLL BALANCE LESS RESERVES AVAIL BAL FOR EARNINGS CREDIT AVAILABLE BALANCE REQUIRED NET AVAILABLE BALANCE REQ RESERVES ON NET AVAIL BAL 28,000, ,500, ,500, ,500, ,550, ,950, ,704, ,754, EARNINGS ON AVAILABLE BALANCES 9, LESS TOTAL SERVICES CHARGES 20, DEFICIT 10, PERIOD TO DATE EXCESS 59, CURRENT PERIOD SERVICE CHARGE 0.00 DEFICIT COLLECTED BALANCE -25,754,191.82

7 MONTHLY ANALYSIS STATEMENT CURRENT MONTH'S EARNINGS CREDIT RATE = 0.50% NUMBER SERVICE OF UNITS UNIT PRICE SERVICE CHARGE BALANCE REQUIRED BALANCE RELATED SERVICES BANK DEPOSIT ASSESSMENT INSURANCE - BANK ASSESSMENT 28,000,000 3, ,400, DEPOSITORY SERVICES ACCOUNT MAINTENANCE Ledger ,379, Annual rate BANKING CENTER DEPOSIT , Balance BANK BY MAIL DEPOSIT of 0.15% , VAULT DEPOSIT , DEBITS POSTED-OTHER , GENERAL CHECKS PAID TRUNCATED , PAPER DEPOSIT STATEMENT MAILED ,520, ZBA MASTER ACCOUNT MAINT , ZBA SUBSIDIARY ACCOUNT MAINT , ZBA PER TRANSACTION , RDI DISCRETIONARY DATA FIELDS , RETURNS-CHARGEBACK , RETURNS-RECLEAR , CKS DEP PRE-ENCODED ITEMS , CKS DEP UN-ENCODED ITEMS , CKS DEPOSITED FOREIGN ITEMS , STOP PAY AUTOMATED<=12 MONTHS , DEBITS POSTED-ELECTRONIC , CREDITS POSTED-ELECTRONIC , DEPOSIT ACCOUNT STATEMENTS

8 True Earnings Credit Rate Net Interest Earnings on Sweep Account (Annualized) Ledger Balance $28,000,000 Less Float $2,500,000 Collected Balance $25,500,000 Less Reserve Requirement 10% $2,550,000 Available Balance $22,950,000 Interest Earned Less FDIC Assessment Net Interest Earnings 0.50% $22,950,000 * 0.50% 0.15% $28,000,000 * 0.15% 0.285% on Collected Balance $114,750 $42,000 $72,750 Interest Paid on Available Balances FDIC Fees Charged on Ledger Balance 8

9 Impact of Rising Interest Rates Compensating Balance $40,000,000 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000, % ECR $ 36,000, % ECR $9,000,000 $0 0.25% 0.50% 0.75% 1.00% 1.25% Earnings Credit Rate Bank fees are assumed to be $7,500 per month. For illustration only. 9

10 ACCOUNT STRUCTURES MATTER Account Type Insurance/ Assessment Reserve Requirement Sweep Fee Demand Deposit Yes 10% No NOW Account Yes 10% No Money Market Deposit Account* Yes 0% No Time Deposit* Yes 0% No Non-negotiable CD* Yes 0% No Money Market Mutual Fund No 0% Usually Repurchase Agreement No 0% Sometimes Note: Limited withdrawals

11 Understanding and Comparing Fees 11

12 AFP Codes A standard, unified billing code for each bank service Maintained by the Association of Finance Professionals (AFP) AFP Code Full Descriptor Description General Account Activity - Debit Posting Charge for posting a debit to an account General Account Activity - Credit Posting Charge for posting a credit to an account General Account Activity - Debit/Credit Posting Charge for posting a debit and/or credit to an account General Account Activity - Zero Balance Debit Posting Charge for posting a debit related to zero balance services General Account Activity - Zero Balance Credit Posting Charge for posting a credit related to zero balance services General Account Activity - Zero Balance Charge for posting a debit and/or credit Debit/Credit Posting General Account Activity - Debit Advice - Automated related to zero balance services. Charge for providing a debit advice via an electronic mode. 12

13 Bundled vs. Unbundled Pricing Bank A Bank B Bank C AFP Codes Service Name Unit Cost Unit Cost Unit Cost Informational Services ARP Online Reports Online Information Reporting Maintenance Online Previous Day Report Summary/Detail Online Previous Day Report Item Stored Online Per Image Access Online Research Item Bank A - Reporting Maintenance Bank B - OTM/OLC Prior Day Per Ac Maint Bank B - OLC DDA Statement Bank B - OLC ACH Fraud Ctrl Reject Rpt Bank C - Desktop Deposit Report Per Item

14 Pricing Varies Considerably Price Per Unit of Service Size of Banking Relationship

15 Comparing Statements and Services Start with description of current services and desired service enhancements Provide pro forma with volumes from current analysis statement (annualize) Compare pricing both by category subtotal and by line item Ask banks to add any additional line items with AFP codes Ask if the price fairly represent the expected cost? 15

16 Contract Terms Statutory requirements Locking in fees Optional renewal periods Performance Scorecards Costs associated with transitioning banking services What if bank breaks up with you? Notification Timeline Exit Strategy 16

17 Some Banks Don t Want Public Funds Source: Wall Street Journal, Big Banks to America s firms: We Don t Want Your Cash, October 18, 2015

18 Impact of BASEL III Rules Capital Requirements Higher cost of capital Lower bank profitability Leverage Restrictions Reduction in repo volume Stricter credit standards for unfunded lending commitments Higher costs to customers Liquidity Standards More competition for sticky deposits More demand for high-quality liquid assets Limits on credit and liquidity facilities

19 Not All Rates Are Rising 1.800% 1.600% 1.400% Comparison of Historical Interest Rates March March Month Treasury Bill Fed Funds Target Rate 1.200% 1.000% 0.800% 0.600% 0.400% 0.200% 0.000% Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Government Money Market Fund Bank Earnings Credit Rates?? Sources: Bloomberg, imoneynet. 19

20 Questions? 20

21 112 th Annual Conference May 6-9, 2018 St. Louis, Missouri Speaker Contact Information: Mark Romito Barbara Fava Stefan Jaskulak Questions: Speakers will take questions and comments. This session is being recorded, please utilize the microphone in the aisle to ask all questions. Provide Feedback: Please take a few minutes to provide your feedback at Discuss/Comment: Join the discussion at #GFOA2018 Contact GFOA: To contact GFOA about session topics please research@gfoa.org #GFOA2018