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Home My WebLink About5H 2016 2nd Quarter Investment Report 4646 Dakota Street SE Prior Lake, MN 55372 CITY COUNCIL AGENDA REPORT MEETING DATE: JULY 25, 2016 AGENDA #: 5H PREPARED BY: CATHERINE ASMUS, ACCOUNTANT PRESENTED BY: DON URAM, FINANCE DIRECTOR AGENDA ITEM: CONSIDER APPROVAL OF 2ND QUARTER 2016 INVESTMENT REPORT DISCUSSION: Introduction The purpose of this agenda item is for the Council to consider approval of the in- vestment report for the second quarter of 2016. Current Circumstances Staff has prepared a list of investments as of June 30, 2016. The Investment Re- port 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 2016 2nd Quarter In- vestment Report as submitted. 2. Remove this item from the consent agenda for additional discussion. RECOMMENDED MOTION: Alternative 1. INVESTMENT REPORT SUMMARY NARRATIVE 2 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 June 30, 2016, the balance of the investment portfolio is $23,786,279. This is a decrease of $696k from March 31, 2016. The ‘weighted average yield to maturity at cost’ of the investment portfolio is currently 1.61% which is a decrease from 1.72% as of March 31. 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 June, the balance in the 4M money market was $2.24M. 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. The following table shows the treasury rates for 2016 compared to the previous two years: During the second quarter of 2016, the chart below shows how rates, especially for mid to long-term securities, have declined. Current long-term rates being offered by financial institutions continues to be very low. 3 As rates decrease, the market value of the existing securities will increase. As of June 30, 2016, the market value of the portfolio is greater than the cost of the investments by $307k. The change in the fair value of the securities is adjusted against interest earnings in each of the funds. This is a paper gain for 2nd quarter 2016; no actual gain is realized because the City holds the securities until ma- turity. 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 invest- ments 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 al- lowable instrumentalities; 2. Interest bearing checking and savings accounts, or any other investments constituting 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 Corporation; 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; 4 7. Investment products that are considered as derivatives are specifically ex- cluded from approved investments. The breakdown of all security types held by the City is shown graphically in the attached document titled Investment Portfolio – Diversification, by Security Type. The investment policy also requires that all investment maturities shall not extend beyond ten (10) years with no more than 20% maturing beyond five (5) years. As the attached chart titled Investment Portfolio – Diversification, by Maturity Range indicates, approx- imately 25% or $6 million matures within 1 month. Of that total, $2.2 million is bond proceeds re- served for construction projects and remainder cash in our broker’s accounts. These funds will be in- vested as the appropriate security (type, rate, and maturity) becomes available. Staff continues to look for opportunities to invest our short term funds. As discussed at the workshop on July 11, this may require a revision to the City’s investment policy. The City’s investment portfolio amount is a pool of funds identified on the monthly Treasurer’s Report. As shown on the June Treasurer’s Report, the balance of cash and investments, is $30.9M. Of this balance, $24M is investments and $6.9M is cash. Because City funds are pooled for investment pur- poses, 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 accom- plish the goals and objectives of the City. The constraints for each of the funds are noted on the Treasurer’s Report. YTM @ Cost Cost Value Days to Maturity % of Portfolio Cash ‐ 3,558,927 1 14.96% Certificate of Deposit 1.570 9,957,000 819 41.86% Negotiable Certificate of Deposit 0.450 245,000 70 1.03% FHLB Bond 2.090 250,700 1,958 1.05% FHLMC Bond 2.193 4,290,000 1,722 18.04% FNMA Bond 2.211 1,000,000 1,580 4.20% LGIP 0.150 2,239,652 1 9.42% Municipal Bond 4.528 2,245,000 752 9.44% Total / Average 1.614 23,786,279 812 100.00% CITY OF PRIOR LAKE, MINNESOTA Investment Portfolio ‐ Diversification, by Security Type June 30, 2016 Description City of Prior Lake ‐ Quarterly Investment Report YTM @ Cost Cost Value Days to Maturity % of Portfolio 0‐1 Month 0.076 6,046,579 2 25.42% 1‐3 Months 0.893 1,131,000 73 4.75% 3‐6 Months 0.790 1,228,000 118 5.16% 6‐9 Months 1.295 586,000 201 2.46% 9‐12 Months 2.512 1,190,000 288 5.00% 1‐2 Years 2.163 1,827,000 532 7.68% 2‐3 Years 2.924 2,470,000 875 10.38% 3‐4 Years 2.417 1,931,000 1,268 8.12% 4‐5 Years 2.241 5,996,000 1,708 25.21% 5‐10 Years 2.120 1,380,700 2,034 5.80% Total / Average 1.614 23,786,279 812 100.00% CITY OF PRIOR LAKE, MINNESOTA Investment Portfolio ‐ Diversification, by Maturity Range June 30, 2016 Description City of Prior Lake ‐ Quarterly Investment Report