Deposit Contracts and Collateral Van C. Carter Senior Vice - - PowerPoint PPT Presentation

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Deposit Contracts and Collateral Van C. Carter Senior Vice - - PowerPoint PPT Presentation

Aug 05, 2023 13 likes •273 views

Deposit Contracts and Collateral Van C. Carter Senior Vice President Public Funds Frost Bank 46 th Annual County Treasurers 46 th Annual County Treasurers 46 th Annual County Treasurers Continuing Education Seminar Continuing

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46th Annual County Treasurers’ Continuing Education Seminar 46th Annual County Treasurers’ Continuing Education Seminar 46th Annual County Treasurers’ Continuing Education Seminar

Deposit Contracts and Collateral

Van C. Carter

Senior Vice President – Public Funds Frost Bank

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46th Annual County Treasurers’ Continuing Education Seminar 46th Annual County Treasurers’ Continuing Education Seminar

Discussion Points

  • Key Terms
  • Depository Services and Relationships
  • RFP Process & Components
  • Evaluation Process and Factors
  • Account Analysis
  • Collateral
  • Grab Bag
  • Questions / Comments

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Key Terms

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Terms / Phrase

Referring to . . . RFP / RFA Request for Proposal; Request for Application Public Funds Monies or revenues of a government, state or municipal corporation Depository The Bank into which money and receipts are deposited, and from which disbursements are drawn Collateral Bank assets pledged to a government depositor in excess of FDIC coverage Account Analysis The billing process used by commercial banks for associating a value of deposits for offsetting accrued charges for services and activity ECR Earnings Credit Rate; The factor used to calculate the value of applicable deposits

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Depository Services and Relationships

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Types of Deposits

Public entity deposits at a Bank MUST BE collateralized Checking Non-interest bearing / Interest bearing Time Deposits Money Market Savings Accounts (MMSA’s) Certificates of Deposit (CD’s); Contracted terms and rates Brokered / Insured CD’s CD’s placed across a variety of participating financial institutions in amounts exclusively covered by FDIC

Non-Deposits / Investments

(Governed by PFIA)

Brokerage Account Account for the purchase and redemption of non-bank investment instruments Capital Markets Securities division of a financial institution for purchasing and redeeming non-bank investment securities Safekeeping Division of a financial institution clearing and holding client’s investment securities

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Depository Services and Relationships

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Funds Collection

Digital Deposit (RDC) ACH Drafts (Debits) Lockbox Processing Consumer Bill Payment Collection Merchant/Credit Card Acceptance

Funds Concentration

Online Transfers Zero Balance Accounts

Funds Disbursement

ACH Deposits Wire Transfers Controlled Disbursement Pay Card Business Credit Card / Purchasing Card

Funds Investment

Certificates of Deposit Automated Sweep Brokerage Capital Markets

Control & Monitoring

Online Banking Positive Pay / Payee Review ACH Blocking & Filtering Account Analysis Statement Safekeeping

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RFP Process & Components

RFP Objectives

  • Protection of Funds
  • Financial Strength and Stability
  • Collateral
  • Availability of Funds
  • Deposit float
  • Earnings on deposits; Interest accrues on Collected

balances

  • Operational Efficiency
  • Services offered; Technology
  • Capability, Capacity, Compatibility and Reliability
  • Rates and Fees
  • Relationship Team & Support
  • Customer Service Quality and Responsiveness
  • Knowledge and Experience

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RFP Process & Components

Key Legislation Chapter 113 (Management of County Money) Chapter 116 (Depositories for County Public Funds)

  • Chapter 262 (Purchasing and Contracting Authority of Counties

Chapter 117 (Depositories for Certain Trust and Court Registry Funds)

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RFP Process & Components

Who, What, When, Where, How . . .

  • Identify banking functions are currently being performed (need to be supported)
  • Deposit preparation
  • Cash handling
  • Transaction initiation / confirmation / releasing
  • File creation / submission / downloading / importing
  • Reconciliation of transactions and accounts
  • Develop the Questionnaire
  • Describe (a) account structure and (b) processes / functions needing to be supported
  • Interest bearing / non-interest bearing, Zero Balance Accounts, Sweep, Controlled Disbursement Accounts
  • Describe and inquire about
  • Funds collection and depositing process and options
  • Funds disbursement, Fraud Detection, Account/Transaction monitoring options
  • Relationship team
  • References
  • Optional and New Services
  • What would help YOU be more Efficient?
  • Not necessarily “the way it’s always been done”

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RFP Process & Components

  • Notice – At least 20 days before RFP responses (i.e. Applications /

Proposals) are to be submitted

  • In the Judge’s name
  • Newspaper
  • Courthouse Door
  • Applications / Proposals due date >60 days before expiration of the

existing depository contract

  • Bank’s Paid-Up Capital Stock and Permanent Surplus
  • Statement showing Financial Condition of the Bank
  • Certified or Cashier’s check >1/2% (.005) of the County’s receding year revenue

(i.e. Good Faith Check)

NOTE: It is helpful to bidders to allow >4 weeks to prepare responses

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RFP Process & Components

Structure of RFP & Bidder Responses

  • RFP released in DOC/DOCX and XLS/XLSX format
  • Enables prospective Bidders to more easily respond WITHOUT inadvertent

alterations to the RFP document

  • If “protected” RFP, format response fields in a different color so that comments can

be more easily recognized “Any changes or modifications to the original RFP document which are not clearly and obviously indicated will disqualify your proposal.”

  • For consistency in Applications, specify the section divisions and order

response content should be included

  • Cover Letter, Title Page, Table of Contents, RFP responses, relationship team,

financial center locations, references, financial statements, product descriptions, fee schedules, historical rates, sample agreements, sample statements, etc.

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Evaluation Process & Factors

  • Evaluation – Do not forget your Objectives:
  • Protection of Funds
  • Availability of Funds
  • Operational Efficiency
  • Rates and Fees
  • Relationship Team & Support
  • Communication between Bidders and County is restricted during RFP

& evaluation window

  • Contract awarded based on “the most favorable terms and conditions”
  • Not necessarily the low-cost provider
  • Within 15 days: Bank must pledge collateral
  • Dependent upon execution of the Depository and Security / Collateral

agreements

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Evaluation Process & Factors

  • In-house vs. Consultant
  • Criteria for “most favorable terms and

conditions”

  • Budgets, rates and fees are significant, but People

do business with People

  • If unsure of a Bidder’s response, reach out with

follow-up question(s)

  • Have Bidder verify & confirm your interpretation

and calculations of their submission

  • Consider inviting top candidates for

presentations

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Account Analysis

  • Account Analysis – Balances & Charges
  • Ledger Balance vs Collected Balance
  • Ledger – Checkbook register balance
  • Collected – Funds collected by Depository through

settlement process

  • Billables – Service and Activity Fees accrued by

Depository

  • Compensating Balance – Collected balance

necessary to avoid (offset) owing of Bank fees

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Account Analysis – Compensating Balances

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“No Fee” Position

Benefit > Charges

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Account Analysis – Compensating Balances

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“No Fee” Position Fee Position

Benefit > Charges Benefit

< Charges

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Account Analysis – Compensating Balances

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“No Fee” Position Compensating Balance Fee Position (“No Fee” Position)

Benefit > Charges Benefit

< Charges

Benefit = Charges

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Account Analysis – Balances and Charges

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Description

Average Ledger Balance Less Float Average Collected Balance Earnings Allowance (1.71% over 30‐day month)

Collected Balance x ECR = Earnings Allowance Days in Year x Days in Month (to offset charges)

Current Period Charges Amount Due

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Account Analysis – Balances and Charges

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Description “No Fee”

Average Ledger Balance $1,000,000 Less Float $25,000 Average Collected Balance $975,000 Earnings Allowance (1.71% over 30‐day month)

$1,370

Collected Balance x ECR = Earnings Allowance Days in Year x Days in Month (to offset charges)

Current Period Charges $750 Amount Due

$0 (no fee)

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Account Analysis – Balances and Charges

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Description “No Fee” “Fee”

Average Ledger Balance $1,000,000 $1,000,000 Less Float $25,000 $25,000 Average Collected Balance $975,000 $975,000 Earnings Allowance (1.71% over 30‐day month)

$1,370 $1,370

Collected Balance x ECR = Earnings Allowance Days in Year x Days in Month (to offset charges)

Current Period Charges $750 $1,500 Amount Due

$0 (no fee) $130

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Account Analysis – Balances and Charges

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Description “No Fee” Compensating Balance “Fee”

Average Ledger Balance $1,000,000

$558,625

$1,000,000 Less Float $25,000 $25,000 $25,000 Average Collected Balance $975,000

$533,625

$975,000 Earnings Allowance (1.71% over 30‐day month)

$1,370 $750 $1,370

Collected Balance x ECR = Earnings Allowance Days in Year x Days in Month (to offset charges) Charge x Days in Year = Collected Balance ECR Days in Month

Current Period Charges $750

$750

$1,500 Amount Due

$0 (no fee) $0 (no fee) $130

Begin calculation here

Available to Invest To avoid fees deducted

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Evaluation Process & Factors

  • Bank services are not “apples-to-apples”

Service Banks may call it: Unit of Measurement

Deposits (credits) posted Credits Posted Branch/Vault Deposit Remote Capture Deposit Per item Per item / per $ / per $100 / per $1,000 / per bill Per item / per scanner / per month Checks Deposited Deposited Items On Us /Transit Items Per item Per item Withdrawals (debits) posted Debits Posted Check Posted Check Cashed in Branch Per item Per item Per item Change Orders Change Order‐Currency Change Order‐Coin Strapped Currency Furnished Rolled Coin Furnished Per order / per $ / per strap Per order / per $ / per roll Per order / per $ / per strap Per order / per $ / per roll ACH Origination Services ACH Origination Access ACH Origination Items Per module / per month / per account Per item / per file / per settlement window

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Evaluation Process & Factors

  • Reserve Requirement (10%)
  • Positive / Negative Collected Balance
  • FDIC Fee is no longer permitted
  • Fil-33-2012 FDIC discourages Bank’s from assessing a fee with this name
  • A similar fee is named differently
  • Premium Balance Fee
  • Recoupment Fee
  • Regulatory Balance Fee

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Collateral

  • FDIC -- $250,000 (x 2)

https://www.fdic.gov/deposit/deposits/factsheet.html

  • Chapter 2256 (Public Funds Investment Act; PFIA)
  • Chapter 2257 (Public Funds Collateral Act; PFCA)
  • Minimum of 102% of combined relationship deposits LESS FDIC
  • FHLB LOC vs Securities
  • Should Pledged Collateral Report at least monthly
  • Securities should be “marked to market”
  • The relationship between Collateral and Depository’s Investments

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Grab Bag . . .

  • HB 89 (September 2017) – Prohibition on Contracts with Companies Boycotting Israel
  • Chapter 2270 LGC (State & Local Contracts; Written verification does not, and will not boycott

Israel)

  • Chapter 808 (Public Retirement Systems; No investment with or in boycotting companies)
  • Form 1295 (January 2018)
  • No longer notarized – “Unsworn Declaration”
  • No longer required for:
  • Sponsored Research Contract of an institution of higher education
  • Interagency Contract of a State agency or an institution of higher education
  • Health / Human Services if (a) value cannot be determined and (b) any qualified vendor is eligible
  • Contract with a publicly traded business entity (including a wholly owned subsidiary)
  • Contract with an electric utility (§31.002 Utility Code)
  • Contract with a gas utility (§121.001 Utility Code)

https://www.ethics.state.tx.us/whatsnew/FAQ_Form1295.html#Changes

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Questions / Comments

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