Title
Extension of Banking Services - Approval
History
Fifth Third Bank has been providing treasury management and merchant services to the Village since November 2006. The Village maintains twelve (12) operating accounts at the bank; each of these accounts is set up on an earnings credit basis, meaning that interest earnings are credited against banking service fees and the net amount is charged or credited to the Village’s accounts. The Village maintains balances within these accounts that provides an earnings credit rate that it higher than the interest rate on an interest bearing checking account, thereby reducing the overall banking service fees paid by the Village. The Village currently utilizes many of the technologies provided by the bank, including Fifth Third Direct, electronic check deposit, ACH and wire transfers, payroll and accounts payable direct deposit, and ACH and check positive pay. The Village also utilizes Fifth Third’s retail and wholesale lock box services, merchant processing services and participates in the bank’s purchasing card program. In addition, Fifth Third reviews and recommends approval or denial of loans made by the Village thru any of its economic development incentive programs. Fifth Third’s Institutional Services acts as a third party trustee for the Village, maintaining custody of all investments made and managed thru the Village’s external investment managers, PMA Financial Network, Inc. and Hammond Investments, LLC.
The Board recently approved entering into a Line of Credit/Term Loan Agreement with Fifth Third Bank in order to provide financing for the Ninety 7 Fifty on the Park project. One of the terms of this Line of Credit/Term Loan Agreement is that the Village continues to utilize the non-credit banking services provided by Fifth Third for a period of at least three (3) years (the term of the Line of Credit). Staff recommends approval of the three year extension given that Fifth Third provides satisfactory services with industry standard pricing. During this three-year term, banking service fees will increase 3% in year one, with no additional increases in years two or three. Fifth Third will also increase our earnings credit rate from .25% to .50%. This rate will stay in effect through the duration of three year extension unless the Federal Funds rate increases. If this occurs, the Village will have the ability to negotiate a higher earnings credit rate. In addition, if the Village requests Fifth Third to provide a new service, the Village will not be charged fees related to this service for a period of 90 days from the date the service is put in place. Fifth Third must also continue to enhance the services and technologies it provides in order to keep with industry standards; if this does not occur, the Village has the right to terminate our contract with Fifth Third. A draft of the treasury management and commercial card extension agreements are attached to this agenda item. This agreements will be finalized with in the next two weeks and executed upon formal Board approval of the extension.
On December 5, 2011, this item was reviewed and approved by the Finance Committee and referred to the Board for approval.
Financial Impact
The Village has included $62,854 in its Fiscal Year 2012 for the payment of banking service fees. With the increase in the earnings credit rate, we anticipate actual fees to be less than the amount budgeted. The Village has also included $76,911 in its Fiscal Year 2012 budget for the payment of merchant processing fees; approximately $12,000 of this amount is anticipated to be paid directly to Fifth Third Bank, the remainder will be paid to the credit card issuer.
Recommended Action/Motion
I move to approve an extension of the Fifth Third Bank Banking Services Agreement for a period not to exceed three (3) years and to authorize appropriate Village staff to execute the extension documents.