Staff Report Recommends the Council Stick with Previous Bid Award to Wells Fargo for City Banking Services

Councilmember Stephen Souza had said, “If all we were doing was banking services, it’s an easy call.  The difference is minor. It’s $1766 between Wells Fargo and First Northern, it’s a no-brainer.  I could go with that today. That fits within the parameters of trying to do everything we can to keep our money local.”

The issue was the line of credit.  “The question here is,”  Mr. Souza had continued, “how much more do we want to spend for that line of credit.  What’s it worth to deal locally?  Is it worth $142,000?  Is it worth $284,000?  Is it worth a million dollars?”

Representatives from local banks, specifically River City Bank and First Northern Bank, had argued that they could provide the city with the line of credit on similar terms that Wells Fargo offered, if they were able to make a revised proposal.

The council ultimately supported a proposal from Councilmember Rochelle Swanson that they seek a new RFP allowing local banks the opportunity to address the concerns raised by city staff.

That apparently has now occurred, and the city staff is coming back with the same recommendation.

According to the staff report, “Staff contacted all six of the financial institutions that had submitted proposals, and advised them that the City would be issuing a new request for proposed terms.”

They went further than that, “In addition, staff scheduled face-to-face meetings with each of the community banking institutions to further discuss the city’s short-term financing needs and general parameters for a line of credit, and reviewed the terms of the existing credit currently in place for the City’s wastewater utility.”

Staff argued that these meetings were very productive and “provided an opportunity for the financial institutions to better understand the city’s needs and requirements and also served to inform city staff on the opportunities and challenges faced by local community banks in meeting the needs of the city.”

The result was that three of the six informed the city that their proposals were still valid with no changes or modifications, one provided a more detailed proposal, and “two institutions, First Northern Bank and River City Bank, submitted updated proposals related to the requested line of credit.”

According to the staff report, “City staff, with assistance from its Financial Advisors (Northcross, Hill and Ach), reviewed all of the most recent proposals with respect to underlying terms and anticipated cost over the three-year term of both the credit facility and underlying banking services. A side-by-side comparison of the terms and estimated costs of each of the proposals is included as Attachment II to this report. In addition, staff is forwarding a correspondence from the city’s Fiscal Advisor summarizing their independent review of the proposals.”

They continued, “Based on our review, staff is now recommending that the City Council authorize the City Manager and/or City Treasurer to execute a commercial account agreement with Wells Fargo Bank, N.A. for the provision of banking services, for a term of three years, with the option of two annual one-year extensions, thereafter.”

The staff report makes two additional points worth noting.

First, “Staff would note that several of the proposals received in response to the City’s RFP were of high quality, and clearly demonstrated the ability to provide the city with state-of-the-art banking services.”

However, they wrote, “It became apparent through staff’s review process that among the top group of proposals, there was little differentiation between range of services offered and individual institutions’ ability to serve the needs of the City. In addition, the fee structures included in most of the proposals were very similar, tightly-grouped, and would generally result in annual costs that are well below the costs of the City’s current banking services and – indeed – below the threshold requiring City Council authority.”

Moreover, “As a result of the lack of differentiation in both services and costs, the evaluation focused on two main factors. These include experience in providing full-service banking to comparable public sector agencies, and the ability of the banks to provide access to short-term credit on favorable terms. The latter has become increasingly important given the difficulty in accessing credit, and the city’s need to secure short-term credit to provide bridge financing in support of major utility capital projects.”

One of the key questions is how First Northern Bank and River City Bank will respond to this.  The staff report would lead one to believe there would be a greater level of acceptance this time around, particularly with the process, which had really been the chief complaint.

Bernie Goldsmith, a former attorney who worked with banks, told the Council in September that the local banks felt shortchanged in the process and that they did not get the opportunity to communicate with the city.

“They felt they were shut out of the bidding process.  They felt that they weren’t getting a fair shake at the city’s business,” he said.

“[The bids] don’t reflect the rates that the banks are willing to give us for this line of credit,” Mr. Goldsmith added.  “They reflect an imperfect bidding process; they don’t reflect what we can get.”

Dean Baldwin from River City Bank told council that night, “One of the primary distinguishing factors between the RFPs was the credit facility, it has already been mentioned, but we are certainly prepared to match that pricing.”

“This relationship is not too large or too complex for us,” he said, “We will be able to provide the terms and the line of credit on our balance sheet and we would continue to hold that for the entire length of the relationship.”

“Any loan made by River City Bank is kept here, to support the local economy,” Mr. Baldwin continued.

Jeff Adamsky, Senior Vice-President and Senior Loan Officer for First Northern Bank, also told the council in September that they could match Wells Fargo’s bid.

“We are not asking for the city to pay disproportionately to deal locally,” he said.  “We should all be competitive.  We’re more than willing to be competitive in this process as we go forward.”

Mr. Adamsky asked for the council to pause, have some conversations, and he believed they could come back with a series of proposals from local banks that would be competitive.

“I can assure you First Northern Bank can be competitive, we compete against Wells Fargo Bank all the time in lots of other areas and we do really well,” he concluded.

He also pointed out, while this is a large loan for a community bank to make, and there are only a few banks that can make this size a loan, that two of them were there on that Tuesday night – First Northern and River City.

Council clearly wanted to give local banks the opportunity to earn the bid.  Accusations, however, flew that the process itself was unfair.

Jeff Adamsky argued that the process did not work properly or fairly.

“When I heard this recommendation,” he told council, “It upset me. This process did not work smoothly.  And I don’t think it worked fairly.”

“There are certain organizations that have existing relationships and already had additional information, and they could also respond to the loan portion rather quickly and thoroughly and I don’t think any of us quite anticipated that it was going to have the weight that it did at the end of the day,” he continued.

Will these disputes be resolved by the outreach?  We will find out on Tuesday.

—David M. Greenwald reporting