Reading the Fine Print: Analyzing Bank Fees

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 www.gfoa.org #GFOA2018

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

MONTHLY ANALYSIS STATEMENT ABC BANK P.O. BOX 12345 KRYPTONVILLE, USA 54321 ANALYSIS STATEMENT Member FDIC GROUP SUMMARY ANALYSIS DATE PREPARED 10-07-2017 CLARK KENT, FINANCE DIRECTOR MONTH ENDING 9-30-2017 CITY OF METROPOLIS ANNUAL SETTLEMENT 12-31-2017 123 STEEL STREET SETTLEMENT & ACCOUNT TYPE DEBIT 500 METROPOLIS, USA 12345 OFFICER NUMBER 62XF8 PAGE 1 OF 62 CUSTOMER SERVICE: 1.888.555.1111 BALANCE SUMMARY EARNINGS CREDIT SUMMARY AVG POSITIVE LEDGER BALANCE $ 28,000,000.00 AVAIL BAL FOR EARNINGS CREDIT $ 22,950,000.00 AVG LEDGER BALANCE LESS AVG FLOAT AVG COLLECTED BALANCE AVG NEGATIVE COLL BALANCE 28,000,000.00 2,500,000.00 25,500,000.00 0.00 EARNINGS ON AVAILABLE BALANCES 9,431.51 LESS TOTAL SERVICES CHARGES 20,015.42 DEFICIT 10,583.91 PERIOD TO DATE EXCESS 59,477.53

123 STEEL STREET SETTLEMENT & ACCOUNT TYPE DEBIT 500 METROPOLIS, USA 12345 OFFICER NUMBER 62XF8 PAGE 1 OF 62 MONTHLY ANALYSIS STATEMENT CUSTOMER SERVICE: 1.888.555.1111 BALANCE SUMMARY EARNINGS CREDIT SUMMARY AVG POSITIVE LEDGER BALANCE $ 28,000,000.00 AVAIL BAL FOR EARNINGS CREDIT $ 22,950,000.00 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 28,000,000.00 2,500,000.00 25,500,000.00 0.00 25,500,000.00 2,550,000.00 22,950,000.00 48,704,191.82-25,754,191.82 0.00 EARNINGS ON AVAILABLE BALANCES 9,431.51 LESS TOTAL SERVICES CHARGES 20,015.42 DEFICIT 10,583.91 PERIOD TO DATE EXCESS 59,477.53 CURRENT PERIOD SERVICE CHARGE 0.00 DEFICIT COLLECTED BALANCE -25,754,191.82

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 3,452.05 8,400,000.00 DEPOSITORY SERVICES ACCOUNT MAINTENANCE 27 21.0000 567.00 1,379,700.00 BANKING CENTER DEPOSIT 79 2.0000 158.00 384,466.67 BANK BY MAIL DEPOSIT 1 5.0000 5.00 12,166.67 VAULT DEPOSIT 145 1.2000 174.00 423,400.00 DEBITS POSTED-OTHER 10 0.5000 5.00 12,166.67 GENERAL CHECKS PAID TRUNCATED 305 0.1600 48.80 118,746.67 PAPER DEPOSIT STATEMENT MAILED 25 25.0000 625.00 1,520,833.33 ZBA MASTER ACCOUNT MAINT 1 50.0000 50.00 121,666.67 ZBA SUBSIDIARY ACCOUNT MAINT 11 25.0000 275.00 669,166.67 ZBA PER TRANSACTION 201 0.3000 60.30 146,730.00 RDI DISCRETIONARY DATA FIELDS 9 0.2500 2.25 5,475.00 RETURNS-CHARGEBACK 25 10.0000 250.00 608,333.33 RETURNS-RECLEAR 6 8.5000 51.00 124,100.00 CKS DEP PRE-ENCODED ITEMS 580 0.1100 63.80 155,246.67 CKS DEP UN-ENCODED ITEMS 892 0.1500 133.80 325,580.00 CKS DEPOSITED FOREIGN ITEMS 3 3.0000 9.00 21,900.00 STOP PAY AUTOMATED<=12 MONTHS 9 12.5000 112.50 273,750.00 DEBITS POSTED-ELECTRONIC 220 0.3500 77.00 187,366.67 CREDITS POSTED-ELECTRONIC 788 0.3500 275.80 671,113.33 DEPOSIT ACCOUNT STATEMENTS 7 0.0000 0.00 0.00 GEN DISB CKS PD-IS FRT/BK IMG 11 0.1800 1.98 4,818.00 IMAGE DEPOSIT 142 1.2500 177.50 431,916.67 5 DEPOSIT CORRECTION- RDS 5 7.0000 35.00 85,166.67 IRD DEPOSITED ITEMS-RDSO 4 01000 040 973 33

123 STEEL STREET SETTLEMENT & ACCOUNT TYPE DEBIT 500 METROPOLIS, USA 12345 OFFICER NUMBER 62XF8 PAGE 1 OF 62 MONTHLY ANALYSIS STATEMENT CUSTOMER SERVICE: 1.888.555.1111 BALANCE SUMMARY EARNINGS CREDIT SUMMARY AVG POSITIVE LEDGER BALANCE $ 28,000,000.00 AVAIL BAL FOR EARNINGS CREDIT $ 22,950,000.00 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 28,000,000.00 2,500,000.00 25,500,000.00 0.00 25,500,000.00 2,550,000.00 22,950,000.00 48,704,191.82-25,754,191.82 0.00 EARNINGS ON AVAILABLE BALANCES 9,431.51 LESS TOTAL SERVICES CHARGES 20,015.42 DEFICIT 10,583.91 PERIOD TO DATE EXCESS 59,477.53 CURRENT PERIOD SERVICE CHARGE 0.00 DEFICIT COLLECTED BALANCE -25,754,191.82

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 3,452.05 8,400,000.00 DEPOSITORY SERVICES ACCOUNT MAINTENANCE Ledger 27 21.0000 567.00 1,379,700.00 Annual rate BANKING CENTER DEPOSIT 79 2.0000 158.00 384,466.67 Balance BANK BY MAIL DEPOSIT 1 5.0000 of 0.15% 5.00 12,166.67 VAULT DEPOSIT 145 1.2000 174.00 423,400.00 DEBITS POSTED-OTHER 10 0.5000 5.00 12,166.67 GENERAL CHECKS PAID TRUNCATED 305 0.1600 48.80 118,746.67 PAPER DEPOSIT STATEMENT MAILED 25 25.0000 625.00 1,520,833.33 ZBA MASTER ACCOUNT MAINT 1 50.0000 50.00 121,666.67 ZBA SUBSIDIARY ACCOUNT MAINT 11 25.0000 275.00 669,166.67 ZBA PER TRANSACTION 201 0.3000 60.30 146,730.00 RDI DISCRETIONARY DATA FIELDS 9 0.2500 2.25 5,475.00 RETURNS-CHARGEBACK 25 10.0000 250.00 608,333.33 RETURNS-RECLEAR 6 8.5000 51.00 124,100.00 CKS DEP PRE-ENCODED ITEMS 580 0.1100 63.80 155,246.67 CKS DEP UN-ENCODED ITEMS 892 0.1500 133.80 325,580.00 CKS DEPOSITED FOREIGN ITEMS 3 3.0000 9.00 21,900.00 STOP PAY AUTOMATED<=12 MONTHS 9 12.5000 112.50 273,750.00 DEBITS POSTED-ELECTRONIC 220 0.3500 77.00 187,366.67 CREDITS POSTED-ELECTRONIC 788 0.3500 275.80 671,113.33 DEPOSIT ACCOUNT STATEMENTS 7 0.0000 0.00 0.00 7

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

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 $5,000,000 0.25% ECR $ 36,000,000 1.00% 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

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

Understanding and Comparing Fees 11

AFP Codes A standard, unified billing code for each bank service Maintained by the Association of Finance Professionals (AFP) AFP Code Full Descriptor Description 010100 General Account Activity - Debit Posting Charge for posting a debit to an account. 010101 General Account Activity - Credit Posting Charge for posting a credit to an account. 010102 General Account Activity - Debit/Credit Posting Charge for posting a debit and/or credit to an account. 010110 General Account Activity - Zero Balance Debit Posting Charge for posting a debit related to zero balance services. 010111 General Account Activity - Zero Balance Credit Posting Charge for posting a credit related to zero balance services. 010112 General Account Activity - Zero Balance Charge for posting a debit and/or credit Debit/Credit Posting 010200 General Account Activity - Debit Advice - Automated related to zero balance services. Charge for providing a debit advice via an electronic mode. 12

Bundled vs. Unbundled Pricing Bank A Bank B Bank C AFP Codes Service Name Unit Cost Unit Cost Unit Cost Informational Services 200305 ARP Online Reports 10.0000 10.0000 400299 Online Information Reporting Maintenance 25.0000 30.0000 400052 Online Previous Day Report Summary/Detail 10.0000 20.0000 20.0000 400272 Online Previous Day Report Item Stored 0.2500 0.0500 0.0200 400340 Online Per Image Access 0.3500 0.2500 400340 Online Research Item 0.0000 0.3500 400299 Bank A - Reporting Maintenance 70.0000 400052 Bank B - OTM/OLC Prior Day Per Ac Maint 7.0000 010306 Bank B - OLC DDA Statement 5.0000 251053 Bank B - OLC ACH Fraud Ctrl Reject Rpt 3.0000 400231 Bank C - Desktop Deposit Report Per Item 0.0100 13

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

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

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

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

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

Not All Rates Are Rising 1.800% 1.600% 1.400% Comparison of Historical Interest Rates March 2013 - March 2018 3-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

Questions? 20

112 th Annual Conference May 6-9, 2018 St. Louis, Missouri Speaker Contact Information: Mark Romito Email: Romito@twpusc.org Barbara Fava Email: favab@pfm.com Stefan Jaskulak Email: sjaskulak@openspace.org 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 www.gfoa.org/conf-eval Discuss/Comment: Join the discussion at #GFOA2018 Contact GFOA: To contact GFOA about session topics please email research@gfoa.org www.gfoa.org #GFOA2018