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Home My WebLink About5C Investment Report O� PRIp� ti 4646 Dakota Street SE Prior Lake, MN 55372 4 sole" CITY COUNCIL AGENDA REPORT MEETING DATE: NOVEMBER 9, 2015 AGENDA#: 5C PREPARED BY: CATHERINE ASMUS, ACCOUNTANT PRESENTED BY: DON URAM, FINANCE DIRECTOR AGENDA ITEM: CONSIDER APPROVAL OF 3rd QUARTER 2015 INVESTMENT REPORT DISCUSSION: Introduction The purpose of this agenda item is for the Council to consider approval of the in- vestment report for the third quarter of 2015. Current Circumstances Staff has prepared a list of investments as of September 30, 2015. The Investment Report Summary Narrative provides some supplementary information with respect to the investments currently held and the allowable forms of investments permitted by Minnesota Statute. The investment software provides the ability to generate reports and charts by bro- ker, security type, maturities, etc. The software also enables staff to track interest earned on an accrual basis versus a cash basis as well as changes in market value. Conclusion The City Council should approve the quarterly investment report. ALTERNATIVES: 1. A motion as part of the consent agenda to approve the 2015 3rd Quarter In- vestment Report as submitted. 2. Take no action and provide the staff with specific direction. RECOMMENDED Alternative 1. MOTION: INVESTMENT REPORT SUMMARY NARRATIVE The attached "Investment Portfolio — Detail, by Broker" identifies the various types of investments and the brokers/banks the City of Prior Lake uses for investment purposes. As of September 30, 2015, the balance of the investment portfolio is $28,226,540. This is a decrease of $5.54M from June 30, 2015. The `weighted average yield to maturity at cost' of the investment portfolio is currently 1.64% which is an increase from 1.43% as of June 30. The yield will fluctuate due in part to the balances that are in the short term money market accounts and the very low rate that is paid on money market funds. At the end of September the balance in the 4M money market was $6.7M. It continues to be challenging to find competitive rates for short-term investments---30 to 120-day ma- turities. These short-term securities are necessary to meet cash flow needs for payments to vendors (including construction contracts) and payroll. Current short-term rates being offered by financial insti- tutions continue to be very low. The following table shows the current money market rate for the 4M Fund and treasury rates: 4M Fund (4MP) 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr Current Rates (9/30/15) 0.05 0.00 0.00 0.08 0.33 0.64 0.92 1.37 1.75 2.06 During the third quarter of 2015, the short-term rates have decreased slightly up to 3 basis points. Mid- term rates (one-to three-year maturities) have remained essentially flat. Longer term rates (five-to ten- year maturities) have decreased from up to 32 basis points. The following table illustrates the changes that have occurred in the treasury rates and the 4M Fund account during the past twenty-four months: 4M Fund (4MP) 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr Change from 3 mos ago - (0.02) (0.01) (0.03) 0.05 0.00 (0.09) (0.26) (0.32) (0.29) Change from 6 mos ago - (0.05) (0.03) (0.06) 0.07 0.08 0.03 0.00 0.04 0.12 Change from 1 yr ago - (0.02) (0.02) 0.05 0.20 0.06 (0.15) (0.41) (0.47) (0.46) Change from 2 yrs ago - (0.03) (0.02) 0.04 0.23 0.31 0.29 (0.02) (0.27) (0.58) As rates decrease, the market value of the existing securities will increase. As of December 31, 2014, the market exceeded the cost value of the investments by $22k. As of September 30, 2015, the market value of the portfolio has increased and is greater than the cost of the investments by $219k. The increase in the fair value of the securities is adjusted against interest earnings in each of the funds. This is a paper gain for 3rd quarter 2015; no actual gain is realized because the City holds the securities until maturity. Investments for local governments are restricted to only those permitted by Minnesota Statutes. Ac- cording to the City of Prior Lake Investment Policy, the City has chosen to limit its allowable investments as follows: 1. Bonds, notes certificates of indebtedness, treasury bills or other securities now or hereafter issued by the United States of America, its agencies and allowable instrumentalities; 2. Interest bearing checking and savings accounts, or any other investments con- stituting direct obligations of any bank; 3. Certificates of deposit at state and federally chartered institutions that are lim- ited to the amount of coverage provided by the Federal Deposit Insurance Cor- poration; 4. Money market accounts that are invested in above referenced government se- curities; 5. State and local securities which have at the time of investment one of the three highest credit ratings by a nationally recognized rating agency; 6. Investments may be made only in those savings banks or savings and loan associations the shares, or investment certificates of which are insured by the Federal Deposit Insurance Corporation; 7. Investment products that are considered as derivatives are specifically ex- cluded from approved investments. In addition to the "Investment Portfolio — Detail, by Broker" report, charts and tables showing the diver- sification by Broker and Security Type have been included for your reference. The City's investment portfolio amount is a pool of funds identified on the monthly Treasurer's Report. Because City funds are pooled for investment purposes, interest is allocated to each fund on a monthly basis, and is based upon each individual fund's proportionate share of the total amount. Overall, the total investment pool does not represent excess reserves but rather available financial resources. In most instances these funds were established and restricted for specific and designated purposes by either Minnesota Statutes or City Code to accomplish the goals and objectives of the City of Prior Lake. The constraints for each of the funds are noted on the Treasurer's Report. CITY OF PRIOR LAKE, MINNESOTA oo p'�O� Investment Portfolio - Diversification, by Security Type U en September 30,2015 "'tvavrsoS" Portfolio Holdings Distribution by Security Type FNMA Bond _ 1.77% ---- `---_t.,_ __ FHIfC Bond �._... _ —•-- — Local Government Investment Pool 15.78% 19.65% Municipal Bond 9.72% FHLB Bond __- - --- Cash 16.44% 4.09% Corporate Bond_ - -- //; CertlficateOf Deposit 4.25% ,... ;-- - 28.30% YTM @ Days to %of Description Cost Cost Value Maturity Portfolio Cash - 1,155,644 1 4.09% Certificate of Deposit 1.836 7,988,000 1,220 28.30% Term Series 0.154 1,200,000 66 4.25% FHLB Bond 1.784 4,640,000 2,084 16.44% FHLMC Bond 2.008 4,452,125 1,867 15.78% FNMA Bond 2.500500,000 2,735 1.77% LGIP 0.050 5,545,771 1 19.65% Municipal Bond 4.569 2,745,000 1,000 9.72% Total/Average 1.635 28,226,540 1,131 100.00% City of Prior Lake-Quarterly Investment Report