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IV-26CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 3 DEPOSITS AND INVESTMENTS (CONTINUED) C. Investments (Continued) The City has the following investments at year-end: Investments Measured at Fair Value Negotiable Certificates of Deposit Federal Home Loan Bank Federal National Mortgage Association Federal Farm Credit Bank Bond Municipal Bonds Total Investments Measured at Fair Value Investments Measured at Amortized Cost UBS Select Prime Institutional Money Market Minnesota Municipal Money Market (4M Fund) other Money Market Funds Total Investments Measured at Amortized Cost Primary Government Fair Value $ 12.561,268 1,327,779 1,501,680 500,375 19,205,047 $ 35;oes, 149 Amortized Cost $ 31,921,263 4,999,942 32,846 $ 36,954,051 Interest Rate Risk -This is the risk of potential variability in the fair value of fixed rate investments resulting from changes in interest rates (the longer the period for which an interest rate is fixed, the greater the risk). The City's investment policy uses diversification of maturity dates as a means of managing exposure to fair value by stating that no more than 30% of the City's investments may extend beyond a five-year maturity. Credit Risk -This is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Minnesota Statutes limit the City's investments in certain types of investments. The City's investment policy does not further limit the ratings of their investments. A schedule of the maturities and ratings of the City's investments as of December 31, 2019 is as follows: Maturity and Rating Breakdown of lnvealmentll: -Nagotiable Certlllcatel of Depoall: Fedelal Homa Loan Bank Fedenll National Mortgage Aeeociation Federal Farm Credit Bank Bond Municlpll1Bondll UBS Select Pl'ffle lnltllutlonal Money Market Minneaota Municipal Money Market (4M Fund) Other Money Market Funds Totall111181tments Mab.I~ Duration In Yea111 ____!2!!!..._ ~ __ ,_.,_._ ~ ~ ~ S 12,561,268 S 3,840,493 S 7,939,175 S 981,800 $ Nat:Raled 1,327,779 1,327,779 AA+/Aaa 1,501,680 500,37!5 19,205,047 501,500 1,537,004 31,921,283 24,378,878 1,000,180 500,375 15,525,359 2,142,684 7,544,587 4,999,942 4,999,942 ~ ~ ---------· ----· $ 72,080,200 $ 30,088,519 $ 24,985,089 $ 4,452,063 $ 12,544,529 ==== ===---= ====-AA+/,.._ AA+/-AA-"AAA ........ ........ NotRnd CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 3 DEPOSITS AND INVESTMENTS (CONTINUED) C. Investments (Continued) Custodia! Credit Risk -For an investment, the custodial credit risk is the risk that in the event of a failure of the counterparty to an investment transaction (typically a broker-dealer) the City would not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City typically limits its exposure by purchasing insured or registered investments, or by the control of who holds the securities. As of December 31, 2019 all investments were insured or registered, or securities were held by the City or its agent in the City's name. Concentration Risk -This is the risk associated with investing a significant portion of the City's investment ( considered 5% or more) in the securities of a single issuer and no more than 50% of the City's total investment portfolio may be invested in certificates of deposit or commercial paper. At December 31, 2019, the following is a list of investments which individually comprise more than 5% of the City's total investments: Minnesota Municipal Money Market (4M Fund) Fair Value Measurements $ 4,999,942 Percent of Total Value 6.94% The City uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The City follows an accounting standard which defines fair value, establishes framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and requires expanded disclosures about fair value measurements. In accordance with this standard, the City has categorized its investments, based on the priority of inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quotes and prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Financial assets and liabilities recorded on the combined statements of financial position are categorized based on the inputs to the valuation techniques as follows: Level 1 -Financial assets and liabilities are valued using inputs that are unadjusted quoted prices in active markets accessible at the measurement date of identical financial assets and liabilities. 174
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