01-22-2024 CC Agenda Packet - Laserfiche WebLink

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City of Orono, Minnesota Notes to the Financial Statements December 31, 2022 Note 3: Detailed Notes on All Funds (Continued) The investments of the City are subject to the following risks: •Interest Rate Risk - Interest Rate Risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The City’s investment policy also provides a guideline that generally limits the duration of investments to a maturity of eight years, and twenty percent (20 percent) of the portfolio to a specific maturity. The City was not exposed to interest rate risks due to the fact that their investments are not exposed to highly sensitive changes in interest rates. •Credit Risk - Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Ratings are provided by various credit rating agencies and where applicable, indicate associated credit risk. Minnesota statutes and the City’s investment policy limit the City’s investments to the list on page 56 of the notes to the financial statements. In accordance with its investment policy, the City will minimize credit risk by limiting investments to the safest types of securities, pre-qualifying the financial institutions, broker/dealers, intermediaries, and advisers with which the City will do business, and diversifying the investment portfolio so that the impact of potential losses from any one type of security or from any one individual issuer will be minimized. The City’s investment policies do not allow investing in the following instruments: •Reverse repurchase agreements •Mortgage-backed securities, as defined in Minnesota Statute § 118A.04, Subd. 6 •Future contracts •Options •Guaranteed investment contracts •Concentration of Credit Risk - Concentration of credit risk is defined as positions of five percent (5 percent) or more in the securities of a single issuer. The City’s investment policies provide a guideline of limiting investments to 35% of a specific type. As of December 31, 2022, the following issuer exceeded 5 percent of the City’s total investments: MN Municipal Money Markets (4M) (61 percent). •Custodial Credit Risk - Deposits. In the case of deposits, this is the risk that in the event of a bank failure, the City's deposits may not be returned to it. Minnesota statutes and the City's investment policy states that in order to provide a level of security for all funds, the collateralization level will be 110 percent of market value not covered by insurance. The City’s investment policies further limit depositories to those located in the state of Minnesota, and must have a minimum capital and surplus of $10,000,000 and a net worth to asset ratio minimum of 5 percent, except for the City’s main checking account at the First National Bank of the Lakes, Navarre. As of December 31, 2022, all of the City's bank balance was covered by federal depository insurance or by perfected collateral held by the City's agent in the City's name. •Custodial Credit Risk - Investments. For an investment, this is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in possession of an outside party. As of December 31, 2022, all securities were held by the City or its agent in the City's name. The City typically limits its exposure by purchasing insured or registered investments, or by the control of who holds the securities. City investment policies require that security/broker/dealers be restricted to those regulated by the Securities and Exchange Commission, have a minimum capital of $40,000,000 and may include “primary” dealers or regional dealers, and are located in Minnesota. The City limits the amount of investments with a specific dealer to 30 percent of the investment portfolio. 66 112