The City has been using MUFG Union Bank for general banking services since 2012.  In December 2022, U.S. Bank, N.A. acquired Union Bank.  The merger and acquisition occurred while staff was planning for a Request for Proposal for banking services.  Staff worked closely with our Union Bank representatives and the conversion implementation team at the U.S. Bank, and was assured that all existing services will be transitioned smoothly to U.S. Bank, and the service fees are either maintained at the current level or lowered upon the transition. 

In June 2022, the City extended its contract with the Union Bank to maximize efficiency and return on investment for efforts invested on the implementation of the various functions related to the new ERP system, such as bank reconciliation, P-card, accounts payable and payroll modules.  Staff invested significant amount of time to redesign processes, payment files and standard operating procedures to integrate the bank's online portal with our ERP system.  To fully take advantage of the efforts invested, the City decided to continue with Union Bank for banking services for an additional one to two years.  The additional time would allow staff to evaluate the cost and benefit of switching banking service provider, and consider the best approach for the selection process. 

In summer of 2022, the U.S. Bank announced its intention to acquire the Union Bank.  Staff worked closely with the Union Bank representatives to discuss options.  After reviewing the U.S. Bank’s profile, the service lines it provides, the technology and strength it demonstrates, the proposed fee schedule, as well as the timing of the merger, staff believes it is in the best interest of the City to contract with the U.S. Bank for general banking services, due to the following:

•  All of the customizations done with the City’s existing banking service provider, Union Bank will be transitioned to U.S. Bank without incurring additional costs. This includes customized reports, P-Card module configuration for credit card coding and posting, user profile setting, remote deposit and ACH payment processing.
  

•  Enhanced fee structure, including:
  • Premium earnings credit rate of 2.25%.
  • Locked-in pricing for five years through December 31, 2028.  The proposed fee rates are consistent with the City’s existing fees with Union Bank, which was established through a competitive process in 2012.

   

•  Additional account services, such as:
  •  Money Fund Automated Sweep account with rate over 4%, based on current market.
  • Competitive P-card and virtual card rebate of 1.35% and a potential to earn an additional 0.45% with early payment incentives.

Based on our current utilization of the services, account balances and volume of transactions, it is anticipated that all banking service fees will be completely offset by monthly earnings.

U.S. Bank, N.A. is an industry-leading financial institution.  It is federally chartered, and is subject to oversight by U.S. regulatory agencies, including the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC). U.S. Bank is a full-service commercial bank providing an array of financial services to individuals, companies, and government agencies.  The City has been using U.S. Bank for its trust services for decades. U.S. Bank demonstrated strength in its credit rating, liquidity and capital base.  Its long-term rating by Standard & Poor’s is A+ with stable outlook.

U.S. Bank offers new technologies that will facilitate the City in its process of further automation. These technologies include but not limited to virtual pay, account sweep, accounts payable optimizer, and automated escheatment process.  Staff looks forward to partner with U.S. Bank to continue our efforts in improving efficiency and optimizing processes. 

Staff is requesting the City Council to approve an exception to bidding as being in the best interest of the City pursuant to GGMC 2.50.060(G), and award a contract to U.S. Bank from July 1, 2023 through June 30, 2026, with two additional option years.

The cost of banking services varies based on the types and volumes of transactions, and averages about $79,000 per year, and will be included in the City's operating budget. The fee rates per transaction in the contract are either consistent or lower than our current rates.  No out-of-pocket expense is anticipated, as it will be fully covered by the potential interest earnings.

It is recommended that the City Council:

• Authorize to dispense with bidding as being in the best interest of the City pursuant to Garden Grove Municipal Code Section 2.50.060(G);

•  Award a contract to U.S. Bank N.A. for general banking services for the period from July 1, 2023 through June 30, 2026, with an additional two option years; and

•  Authorize the City Manager or her designee to execute the contract, approve minor modifications as needed, and exercise the option to extend the contract up to five years.