After more than 80 years, Farmers Bank’s run as the depository for Kentucky’s state government is officially over.
J.P. Morgan Chase, with regional headquarters in Louisville, won the contract earlier this year to provide depository-banking services to state government between July 2011 and June 2013 at a cost of $1.3 million.
Frankfort’s Farmers Bank held that contract since 1928 and was one of four other firms that unsuccessfully vied for the chance to handle billions in taxpayer dollars. Although they scored highly on technical requirements and in an oral presentation, Farmers asked for more than $900,000 above J.P. Morgan’s price.
The contract includes general banking services such as deposits, wire transfers and check writing for all state accounts including payroll, federal funds, education and transportation monies.
That would total between $12 billion and $15 billion annually, although the amount on deposit on a given day varies dramatically, officials said. The state’s biennial budget is about $17 billion.
The contract will be bid again in two years with a budget likely approaching $20 billion.
Officials at J.P. Morgan Chase and state government said the process of moving funds from Farmers Bank is going smoothly.
Louis Straub, senior vice president and division manager of J.P. Morgan Chase’s government banking group, said the company has spent about 90 days testing and sending secure banking data to and from state agencies.
On Tuesday, J.P. Morgan Chase began to officially transfer state funds to its accounts without any issues, he said.
Straub said J.P. Morgan Chase provides similar banking services to more than 30 state governments and several foreign governments.
Cindy Lanham, a spokeswoman for the Finance and Administration Cabinet, said the change will not have any impact on state employees. The only difference will be the name on the checks or direct deposit slips, she said.
Not all the accounts will be transferred at once, but most should be at J.P. Morgan Chase by October or November, Lanham said.
However, Farmers Bank will continue to receive $25,000 per month to pay for its assistance during the transition until the process is complete in December, she said.
Farmers Bank submitted a joint response with US Bank in an effort to retain its role as the state depository. The two banks asked for about $2.2 million in fees, according to information obtained through an Open Records request.
J.P. Morgan Chase’s bid of $1.3 million was the lowest and included an offer to provide services for free for six months.
Other bids included Fifth Third Bank and PNC Bank, which sought fees of $2 million and $2.6 million respectively.
Farmers, US Bank and J.P. Morgan Chase were invited to give oral presentations in December. Farmers scored higher in the oral presentation category – 460 points versus 435 for J.P. Morgan, according to a score sheet used by the committee to evaluate proposals.
Farmers Bank also scored higher in the technical category – 900 points while J.P. Morgan Chase only received 770.
However, J.P. Morgan Chase received the maximum amount of points for cost, 500, while Farmers Bank had 286 points.
Overall, J.P. Morgan Chase had the highest overall score 1,705 points, while Farmers Bank was second with 1,646.
PNC Bank and Fifth Third Bank both scored poorly in cost and technical points with a total of only 1,064 and 1,014 respectively.
Rick Harp, president of Farmers Bank, declined to say if there would be layoffs as a result of losing the state depository accounts.
“Information regarding staff of the company is regarded as privileged,” Harp wrote in an email.
Farmers Capital Bank Corporation had assets of about $2 billion in March. The company operates 36 banking locations in 23 Kentucky communities as well as a data processing company and insurance company.
JP Morgan Chase has assets of $2 trillion and operates in 60 countries. Chase Bank, JP Morgan’s affiliate, has branches in Lexington and Louisville and two ATMs in Frankfort.