7.5. SR 06-04-2007 - Laserfiche WebLink

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CITY OF ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2006 Note 3: DETAILED NOTES ON ALL FUNDS A.Deposits and Investments Deposits Custodial credit risk for deposits is the risk that in the event of a bank failure, the City’s deposits may not be returned or the City will not be able to recover collateral securities in the possession of an outside party. In accordance with Minnesota statutes, the City maintains deposits at the depository banks authorized by the City Council, all of which are members of the Federal Reserve System. Minnesota Statutes require that all City deposits be protected by insurance, surety bond, or collateral. The market value of collateral pledged must equal 110% of the deposits not covered by insurance or bonds (140% in the case of mortgage notes pledged). Authorized collateral includes the legal investments as prescribed by Minnesota statutes, as well as certain first mortgage notes, and certain other state or local government obligations. Minnesota Statutes require that securities pledged as collateral be held in safekeeping by the City Treasurer or in a financial institution other than that furnishing the collateral. At year end, the City’s carrying amount of deposits was $4,351,292 and the bank balance was $5,467,624. The bank balance was covered by federal depository insurance totaling $566,107 and the remaining balance was covered by securities held by the pledging financial institution’s agent in the City’s name. The carrying amount of deposits for the HRA, a discretely presented component unit, was $171,932 and the bank balance was $173,200. The bank balance was covered by federal depository insurance totaling $100,000 and the remaining balance was covered by securities held by the pledging financial institution’s agent in the HRA’s name. Investments Minnesota Statutes and the City’s investment policy authorize the City to invest in the following: a. Direct obligations or obligations guaranteed by the United States or its agencies. b. Shares of investment companies registered under the Federal Investment Company Act of 1940 and whose only investments are in securities described in (a) above. c. General obligations of the State of Minnesota or any of its municipalities. d. Bankers acceptances of United States Banks eligible for purchase by the Federal Reserve System. e. Commercial paper of the highest quality issued by United States corporations or their Canadian subsidiaries and maturing in 270 days or less. The City’s investment policy follows Minnesota State Statutes which reduces the City’s exposure to credit, custodial credit and interest rate risks. Specific risk information for the City is as follows: Custodial credit risk - For investments, custodial credit risk is the risk that in the event of a failure of the counterparty, the government would not be able to recover the value of its investment or collateral securities that are in the possession of an outside party. As of December 31, 2006 all investments were insured or registered, or securities were held by the City or its agent in the City’s name. Credit risk - Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. State law limits investments in commercial paper that is rated in the highest quality category by at least two nationally recognized rating agencies. The City’s investment policy does not further limit the ratings of their investments. Concentration risk - At year end, more than 5 percent of the City’s investment portfolio included securities held with Rhineland Funding of $3,478,062. The City’s investment policy does not allow for the undue concentration of investments with one broker or financial institution, or any one type of instrument. 42