FINANCE OFFICER’S REPORT

July 29, 2005

To: Board of Directors

From: Suha Kilic, Finance Officer

Subject: Banking Services Agreement

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RECOMMENDATION

Consider approving the attached financial services agreement with First National Bank of California, and authorize the Board President and General Manager/Secretary to execute the agreement.

BACKGROUND AND DISCUSSION

Since its inception, the District has been using the Monterey County Investment Pool for investment of its monies, and as a checking account. In April 2005, the County Auditor-Controller established revised procedures which allow special districts to continue to use the County Pool for investment purposes, and to establish checking accounts and obtain other financial services with banks of their choice. On April 29, 2005, the staff presented a report to the Board on the merits of establishing the District’s own bank accounts, and the Board authorized issuance of requests for proposals to provide that service.

On May 2, 2005, the staff sent a request for proposal to 9 banks. By the May 24, 2005 deadline, the District received proposals from 3 banks including First National Bank of California (“First National”), Union Bank of California (“Union Bank”), and Bank of the West (“BOW”). As directed by the Board, the District’s Supplemental Retirement Plan Investment Committee evaluated the proposals and determined that First National Bank will best meet the needs of the District. This conclusion has been reached based on consideration of the following information:

1. First National indicated that none of its governmental clients terminated services within the last 3 years. On the other hand, Vallejo City Unified School District (“USD”) has terminated its relationship with Union Bank, and, cities of Berkeley and Pico Rivera have chosen to bank with financial institutions other than BOW over the last 3 years. The Vallejo City USD Fiscal Services Manager indicated unsatisfactory personal service was the reason for leaving Union Bank, and said governmental accounts were being serviced from a central location in San Francisco rather than from local branches. It was noted, also, that it was difficult to reach a staff person when help was needed. PBCSD experienced similar difficulties in its limited work relationship with BOW. In 2002, the District opened an account with the Pebble Beach branch of BOW to implement a payroll direct deposit service for its employees. Although the staff at the local branch is professional and courteous, the decision-making staff is not from local branches and out-of-town BOW staff assigned to the District’s account has changed 3 times since 2002. At times the District staff has had difficulty reaching them.

2. Although it is a national chartered bank, First National has a very strong local focus and presence. The individuals who are designated as the District’s contact persons with decision-making authority as well as the operational and technical support staff (i.e. software and other training) are located locally. Two of the vice presidents of the bank, Ms. Lynn Scanlon, who will be a contact person for the District, and Mr. John Tilley visited the District prior to submittal of their proposal to obtain information about the District’s financial operations and indicate further interest in serving the District.

3. Individuals included on reference lists provided by the three banks also support First National’s commitment to local area service. The staffs of three local governmental agencies, City of Monterey, Monterey Regional Water Pollution Control Agency and Monterey Peninsula Airport District provided very favorable feedback on their experience with First National. The reference list provided by First National also include three additional governmental agencies, the cities of Soledad, Watsonville and Morgan Hill.

Union Bank’s references include the City of Livermore, Alameda County Fire District, and School Project Utility Rate Reduction. BOW provided the City of Mission Viejo, Stanislaus County, Fresno County and City of Donuba as references. Neither Union Bank nor BOW provided any Monterey County governmental agencies in their references.

4. Of the three banks, First National has the lowest monthly service fees for the services requested. Based on the District’s estimated activities, the monthly fees submitted by First National, BOW and Union Bank are approximately $200, $257 and $326, respectively. The 1.5% current checking account interest rate offered by First National bank is the same as BOW and higher than the 1% rate offered by Union Bank.

In conclusion, it is anticipated the products and services offered by First National will best meet the banking needs and service expectations of the District. If approved by the Board, conversion of the District’s checking accounts from County Treasury to its own bank can be completed by the end of August 2005. Upon completion of the conversion, the District will close its Bank of the West account used for payroll direct deposits. As reported previously, the District will continue with its use of the Monterey County Treasury for investment services.

Encl.:

Concur:

General Manager: RA Date: 7/22/05

Agenda Item No. 9