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Home My WebLink AboutFS 2011-03-08 Item 2B - Report - 2010 Fourth Quarter Investment Report A 4!;,,v-- II City of Tukwila a ,F y 90 INFORMATIONAL MEMORANDUM Jim Haggerton, Mayor TO: Mayor Haggerton Finance and Safety Committee FROM: Peggy McCarthy, Deputy Finance Director DATE: February 16, 2011 SUBJECT: Fourth Quarter 2010 Cash Investment Report ISSUE Finance Policy and Procedure 03 -17, Investment Policy, calls for quarterly investment reports to the Council Finance and Safety Committee. The report is to contain an inventory of investments and a summary of performance. The December 31, 2010 Investment Report is included with this memorandum and is discussed below. BACKGROUND Investment decisions are guided by the three investing objectives 1) the preserving principal 2) earning a reasonable return and 3) ensuring sufficient liquidity to meet the City's operating needs. To achieve these objectives, investments are diversified by type, by financial institution, and by maturities. To ensure sufficient liquidity exists to meet the City's operating needs, cash requirements needed for special circumstances, such as capital projects, is considered as well as the normal variations in the monthly cash flow cycles. The City has established a minimum operating liquidity threshold that is equal to the largest monthly decline in combined cash and investment balances over the most recent thirty -six month period, or $7 million, then doubled this amount to $14 million to provide a cushion or safety net for unforeseen circumstances. In addition, funding requirements for known special needs such as capital projects are added to this threshold. The Cash Investment Report and supplementary schedules and commentary provide information on a) portfolio components description and characteristics of securities and deposits held, b) portfolio performance weighted average yield of the portfolio in comparison to benchmarks, c) compliance with investment policy in terms of investment maturities and diversification of financial institutions and investment types, d) cash and investment balances, and changes therein, by fund and fund group and e) the current investment environment and strategies. DISCUSSION Portfolio Activity. Components Characteristics. During the fourth quarter of 2010, two agency bonds were called, six municipal bonds were purchased and two new money market accounts were opened. The bonds called were Federal Home Loan Bank bonds in the amounts of $1 million and $2 million with yields of 2.08% and 1% respectively. Longer term municipal bonds with a book value of $3.6 million at December 31, 2010, were purchased to add stability to investment earnings and to increase yield. The weighted average maturity at the time of investment for these bonds was 7.6 years and the weighted average yield is 4.21 With this yield, the bonds will generate over $142,000 in additional annual interest income as compared with a similar investment in the Washington State Local Investment Pool (LGIP) at current rates. The two new money market funds were opened to take advantage of more favorable rates while maintaining liquidity. The City receives 10 basis points (.1 above the investment pool rate from the Columbia Bank money market fund. This fund is insured through the Public 11 INFORMATIONAL MEMO Page 2 Depository Protection Commission (PDPC). The other money market fund currently yields 1 This investment is limited to a $250,000 however since it is insured by the FDIC and not by the PDPC. At December 31, 2010, the portfolio was in compliance with all parameters and limitations set forth in the investment policy including investment mix, investment maturities and diversification of financial institutions. Funds representing the liquidity threshold were invested in the state investment pool and the money market accounts and totaled $28.9 million. Certificate of deposits constituted $14.4 million of the portfolio with $10 million of this amount maturing in 2011. Funds available within one year or less represented 84% of the portfolio; 92% of the portfolio was available within five -years or less. The financial institution with the largest holding of City investments remains the Washington State Treasurer's Office with $23 million invested in the local government investment pool. Portfolio Performance. Interest income for 2010 totaled $322,000. This amount is low compared with the portfolio's performance in past years due to the historically low interest rates existing nation -wide during the last two years and the relatively short term nature of the portfolio that existed when rates began to drop. As rates declined, the City was unable to sustain a more favorable level of earnings because the investments with the higher yields all matured. However, during the fourth quarter 2010, the portfolio earning profile improved. The weighted average portfolio yield increased from .76% at the end of the third quarter to .96% at the end of the fourth quarter. Annual earning calculated based on the portfolio components at December 31, 2010 totaled $448,933. One element of investment earnings that is reported in the City's Comprehensive Annual Financial Report and is calculated and considered only at fiscal year -end is the change in market value of the portfolio investments. At December 31, 2010, the market value calculation on the municipal bond investments indicated a market value decline, as compared with book value, of $127,822. This decline is due to an increase in interest rates from the bond purchase dates to the end of the year. It is an unrealized, "paper" loss which has no affect on the collectability and ultimate return of principal. As long as the investments are held to maturity, which has been, and continues to be, the City's intent and practice, no actual loss will be realized. As interest rates increase, this unrealized loss may also increase. Fund and Fund Group Cash Investment Balances. The largest fund balances at December 31, 2010 occurred in the 104 Arterial Street fund with $9.8 million, the 401 Water Fund with $5.7 million and the 502 Self Insurance fund with $5.7 million. City -wide cash and investment balances declined from their September 30, 2010 levels by $1.8 million due primarily to the $1.9 million debt service payments made in December. Investment Environment and Strate:?ies. Interest rates rose in the fourth quarter 2010 and have continued to rise especially in the two -year to ten -year maturity range. The City will have over $5 million of certificates of deposit maturing in both the first and second quarter of the year. Investment opportunities and options will be considered in the two to five year maturity ranges. RECOMMENDATION Presentation is for Council information only. ATTACHMENTS Cash and Investment Report as of December 31, 2010 O Policy Compliance Liquidity Analysis as of December 31, 2010 9 Cash and Investment Balances by Fund and Fund Group at December 31, 2010 e Yield curve and Treasury Rates at 12 -30 -10 H:1InvstlInfoMemo Invstmnt Rprt 12 -31 -10 2- 16- 11a.docx 12 CITY OF TUKWILA CASH INVESTMENT REPORT December 31, 2010 (a) Purchase Maturity Term Par Book Balance Yield to Annualized Agency Issuer Rating Investment Type Date Date Mos Yrs Value Purchase Price Maturity Return CASH CASH EQUIVALENTS US Bank Depository Various (b) 0.03 634,183 634,183 0.00% Washington State Treasurer LGIP Investment Pool Various (b) 0.03 23,015,948 23,015,948 0.26% 60,861 Regal Bank Money market Various (b) 0.03 250,052 250,052 1.10% 2,751 Columbia Bank Money market Various (b) 0.03 5,000,186 5,000,186 0.36% 18,222 Total Cash Cash Equivalents 1 0.03 1 28,900,369 28,900,369 0.28% 81,834 INVESTMENTS Certificates of Deposit First Savings Bank Certificate of Deposit 05/01/2009 05/01/2011 24 2.0 2,000,000 2,077,720 2.31% 46,200 Northwest Sound Community Bank Certificate of Deposit 05/20/2009 04/20/2011 23 1.9 1,500,000 1,553,714. 2.22% 33,330 Charter Bank Certificate of Deposit 05/26/2009 05/26/2011 24 2.0 1,500,000 1,548,311 1.98% 29,700 US Bank Certificate of Deposit 02/15/2010 02/15/2013 36 3.0 3,450,000 3,450,000 1.44% 49,680 Sterling Bank Certificate of Deposit 02/16/2010 08/16/2011 18 1.5 250,000 252,622 1,20% 3,000 Sound Community Bank Certificate of Deposit 03/04/2010 03/04/2011 12 1.0 5,000,000 5,037,418 0.99% 49,500 Sound Community Bank Certificate of Deposit 11/15/2010 05/15/2012 18 1.5 503,414 504,046 0.75% 3,776 CERTIFICATES OF DEPOSIT TOTAL i 22 I 1.9 14,203,414 14,423,831 1.52% 215,186 Taxable Municipal Bonds (d) City of Marysville, sinking Al LTGO Refunding 11/23/2010 12/01/2017 66 5.5 535,000 602,531 3.37% 20,305 2014 -2017, ave 5.5 years Washington State Aa3 Lodging Tax Bonds 11/30/2010 07/01/2016 67 5.6 500,000 507,969 3.60% 18,287 Convention Center Facility A+ UW Biomedical Center AA1 Revenue Bonds 12/14/2010 07/01/2017 79 6.6 500,000 506,932 4.05% 20,531 AA+ UW Biomedical Center AA1 Revenue Bonds 12/14/2010 07/01/2019 103 8.6 500,000 506,248 4.70% 23,794 AA+ Douglas County, ESD, Aal UTGO 12/23/2010 12/01/2020 107 8.9 1,135,000 1,157,359 4.55% 52,660 sinking 2018 -2020, ave 9 yrs Aa3 Port of Anacortes Al LTGO 12/17/2010 09/01/2020 117 9.7 340,000 326,742 5.00% 16,337 TOTAL MUNICIPAL BONDS 91 i 7.6 3,510,000 3,607,781 4.21% 151,914 Total Investments 36 J 17,713,414 18,031,612 367,099 TOTAL CASH, CASH EQUIVALENTS INVESTMENTS 14 I 46,613,783 46,931,982 1 0.96% 1 $448,933 T Weighted Average Maturity- Months Portfolio Yield Policy Maximum 42 Policy met? Yes Benchmarks 12/31/10 90 -day treasury rate 0.11% 6 -month treasury rate 0.19% (a) On calleable bonds, term is calculated to final maturity even though call date may occur first; term of liquid State Pool rate 0.26% investments is one day; on sinking fund bonds, average maturity is used to calculate term. (b) No fixed maturity, funds are available within one day. (c) Annualized return based on purchase price and yield to maturity. (d) Estimated market value at 12 -31 -10 was $127,822 Iess than book value at 12 -31 -10 due to increased interest rates from date of purchase. 13 CITY OF TUKWILA CASH INVESTMENT REPORT Policy Compliance Liquidity Analysis December 31, 2010 Portfolio Available Within Available Liauiditv Analysis Maturity Diversification Amount 1 Year Within 5 Years Funds immediately available: 28,900,369 28,900,369 28,900,369 Less restrictions designations: Southcenter Parkway Project 4,331,034 Klickitat Project 10,000,000 Operating liquidity (h) 14,000,000 Liquidity threshold 28,331,034 Available for investing 569,335 Investments Maturing in 2011: First quarter 5,037,418 Second quarter 5,179,745 Third quarter 252,622 Fourth quarter Maturity of 1 year or less 10,469,785 10,469,785 10,469,785 Maturity of 1 -3 years 3,954,046 3,954,046 Maturity of 3 -5 years Maturity of 5 -7 years 1,617,432 Maturity of 7 -10 years 1,990,349 Maturities of 1 -10 years 7,561,827 Totals 46,931,982 39,370,155 43,324,201 PORTFOLIO ACTUAL 84% 92% POLICY MINIMUM 30% 80% Policy Met? Yes Yes (h) Represents largest one month decline in portfolio balance over the most recent 36 month period doubled; or the equivalent of a 100% cushion. Portfolio POLICY Policy Financial Institution Diversification Amount of Total MAXIMUM Met? US Bank 4,084,183 8.7% 50.0% Yes Washington State Treasurer 23,015,948 49.0% 75.0% Yes Columbia Bank 5,000,186 10.7% 50.0% Yes Sound Community Bank 7,095,179 15.1% 50.0% Yes Eastmont School District 1,157,359 2.5% 50.0% Yes Other financial institutions 6,579,127 14.0% 50.0% Yes Total 46,931,982 100.0% Portfolio POLICY Policy Investment Mix Amount of Total MAXIMUM Met? Depository 634,183 1.4% State Investment Pool 23,015,948 49.0% 75.0% Yes Money market 5,250,239 11.2% Certificate of Deposit 14,423,831 30.7% US Agency 0.0% 75.0% Yes Municipal Bonds 3,607,781 7.7% Total 46,931,982 100.0% 14 CITY OF TUKWILA CASH INVESTMENT REPORT December 31, 2010 Cash Investment Balances By Fund and Fund Group n rou o' uno 'am i; Cas f a nve- t[tiehts rand otal General 000 GENERAL 1,651,762 1,121,115 2,772,876 General Total 1,651,762 1,121,115 2:772,878 Special Revenue 101 HOTEUMOTEL TAX 542,333 103,581 645,914 103 STREET 410,842 196,804 607,646 104 ARTERIAL STREET 4,397,155 5,457,124 9,854,278 105 CONTINGENCY 806,893 82,577 889,470 107 FIRE EQUIP. CUM. RESERVE 803,981 803,981 109 DRUG SEIZURE FUND 305,702 10,322 316,024 y Y '7 266905 `5;850,407 Special Revenue Total t_ 13117 31 j Debt Service 207 LIMITED TAX G.O. BONDS 1999 3 3 208 LIMITED TAX G.O. BONDS 2000 70 70 209 LIMITED TAX G.O. BONDS 2003 153 153 210 LIMITED TAX G.O. REFUNDING 2003 1,457 1,457 211 LIMITED TAX G.O. REFUNDING 2008 13,345 13,345 214 LTGO 2010 Series A 37 37 215 LTGO 2010 Series B 17 17 216 VALLEY COM Refunding bonds 2010 814 814 Debt Service Total s Y 15,895 89 Capital Project 301 LAND ACQ. REC. PARK DEVLPMNT 2,728,193 2,043,433 4,771,625 302 FACILITY REPLACEMENT 2,058,699 2,058,699 303 GENERAL GOVERNMNT IMPROVEMENTS 1,470,395 1,470,395 304 FIRE IMPACT FEES 156,018 156,018 i iii ,o ..tP -:.7 rE *w c 4 oy 6 413 305 2,043 433 Capital Project Total e r r 8;456 737 Enterprise 400 UTILITY ON ACCT (overpayments) 13,700 13,700 401 WATER 1,812,849 3,967,975 5,780,823 402 SEWER 1,562,085 207,190 1,769,275 411 FOSTER GOLF COURSE 21,640 21,640 412 SURFACE WATER 1,165,045 1,111,079 2,276,123 Enterprise Total :4 575319 5,286 24 9,861;561 k Internal Service 501 EQUIPMENT RENTAL 3,852,557 3,852,557 502 INSURANCE 2,237,187 3,523,225 5,760,412 503 INSURANCE LEOFF I 1,449,860 207,190 1,657,049 Internal Service Total y 7 539,603 3,730;415 11;270;016, Fiduciary 611 FIREMEN'S PENSION 1,429,822 1,429,822 640 AGENCY FUND 7,744 7,744 Fiduciary Total 1 1,437,566 Grand Total 28,900,354 18,031,612 46,931,966 15 CITY OF TUKWILA CASH INVESTMENT REPORT December 31, 2010 C losing Daily Cur r e nt Pnce E Yield Price Yiel Term Change -i :12/30/2010 T 7 Am. 3mo 0. 0.12% 6rrio �0 1 s:. a .0.19% 1 Yr 0.27% 0.27% a 2Yr 0. 64 %o e Q 5 ,-0 83% ...z w 3Yr 1.05% -2 1.01 3.5 5Yr 2 06%d "c. •o frf 3 5 i. 2 01 °!o ,7 a 8 w 10Yr 3.36% -4 3.31 14 30Yr 1 4 4 2 '°4 4 37% 27 tg c 4.5 4 3.5 2.5 2 1.5- 11/30/2010 1 Today 0.5 f AZ- nP 16