On June 12, 2012, following an extensive bidding and selection process, the City Council awarded a banking services contract to Union Bank for a term of five years. Last year based on staff recommendation the City Council approved a one-year extension option of the Union Bank contract which expired on June 30, 2018. Union Bank continues to provide all required services under the expired contract terms pending the City’s option to make a change, to renew, or to extend the contract.

Over the past year, the City has been engaged in a review of its financial and administrative systems. These systems impact every aspect of City accounting and financial setup including banking services and payment processes. This effort culminated in the City Council decision to replace the existing archaic ‘PICK” system with a more functional and robust Enterprise Resources System (ERP).

Additionally, the City's banking requirements have grown over the years and require a certain level of financial institution resources to adequately service its eight separate accounts. The City relies heavily on services such as online banking, wires, transfers, e-statements, various reporting requirements, etc.

The implementation of the new ERP is now substantially underway. The implementation is complex and will be very pervasive in terms of reach within the city organization. With such anticipated level of disruption over the two to three year ERP implementation period, staff deems it prudent to suspend any banking relationship change at this time.

Union Bank was contacted prior to the expiration date and agreed to an extension.  Staff negotiated for an increase in the Earnings Credit Rate from .40% to .60% along with a reduction in several per-item fees as noted in “Attachment A”.  A survey of other local cities found the proposed fees to be favorable to the City.  The proposed term of the amendment is two years. Also, as provided in the original agreement, the City may terminate the contract at any time without cause.

Union Bank is a federally chartered U.S. banking institution, and is subject to oversight by U.S. regulatory agencies, including the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC). Union Bank is a full-service commercial bank providing an array of financial services to individuals, small businesses, middle-market companies, and major corporations. Union Bank operates 414 branches in California, Washington, Oregon, Texas, New York, and Illinois as well as two international offices. Union Bank has solid investment grade credit ratings at each of the major rating agencies. Union Bank’s long-term rating at Standard & Poor’s is A+ and at Moody’s it is A2, both with a stable outlook.

The cost for banking services varies monthly, based on the services used. The average monthly cost for Fiscal Year 2017/18, not including armored transport, was $2,127. It is estimated, based on current volumes, that the average monthly fees would be reduced to approximately $1,056 or by nearly 50%, for an estimated annual savings of approximately $12,800. The costs for banking services are already included in the budget.

It is recommended that the City Council:

• Approve an amendment to the existing contract with Union Bank, N.A. to extend City banking services for the period of July 1, 2018 to June 30, 2020; and

• Authorize the City Manager and/or the Finance Director to execute the amendment on behalf of the City, and make minor modifications as appropriate.

By:  Monica Neely, Revenue Manager