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CITY OF ELK RIVER, MINNESOTA <br />NOTES TO FINANCIAL STATEMENTS ' <br />DECEMBER 31, 2007 <br />Note 3: DETAILED NOTES ON ALL FUNDS , <br />A. Deposits and Investments <br />Deposits <br />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 <br />the City will not be able to recover collateral securities in the possession of an outside party. In accordance with <br /> <br />Minnesota statutes, the City maintains deposits at the depository banks authorized by the City Council, all of which are ' <br />members of the Federal Reserve System. Minnesota Statutes require that al] City deposits be protected by insurance, <br />surety bond, or collateral. The mazket value of collateral pledged must equal 110% of the deposits not covered by <br />insurance or bonds. Authorized collateral includes the legal investments as prescribed by Minnesota statutes, as well as , <br />certain first mortgage notes, and certain other state or local government obligations. Minnesota Statutes require that <br />securities pledged as collateral be held in safekeeping by the City Treasurer or in a financial institution other than that <br />furnishing the collateral <br />' ' <br />At year end, the City <br />s carrying amount of deposits was $5,797,325 and the bank balance was 56,039,232. 1'he bank <br />balance was covered by federal depository insurance totaling $4,941,000 and the remaining balance was covered by <br />securities held by the pledging financial institution's agent in the City's name. , <br />The carrying amount of deposits for the HRA, a discretely presented component unit, was 534Q,789 and the bank <br />balance was $340,789. The bank balance was covered by federal depository insurance and securities held by the <br />' <br /> <br />pledging financial institution <br />s agent in the HRA's name. ' <br />Investments <br />Minnesota Statutes and the City's investment policy authorize the City to invest in the following: <br />a. Direct obligations or obligations guaranteed by the United States or its agencies. ' <br />b. Shares of investment companies registered under the Federal Investment Company Act of 1940 and whose only <br />investments are in securities described in (a) above. <br />c. General obligations of the Stale of Minnesota or any of its municipalities. ' <br />d. Bankers acceptances of United States Banks eligible for purchase by Che Federal Reserve System. ' <br />e. Commercial paper of the highest quality issued by United States corporations or their Canadian subsidiaries and <br />maturing in 270 days or less. <br />The City's investment policy follows Minnesota State Statutes which reduces the City's exposure to credit, custodial ' <br />credit and interest race risks. Specific risk information for the City is as follows: <br />• Custodial credit risk -For investments, custodial credit risk is the risk that in the event of a failure of the , <br />counterparty, the government would not be able to recover the value of its investment or collateral securities <br />that are in the possession of an outside party. As of December 31, 20D7 all investments were insured or <br />registered, or securities were held by the City or its agent in the City's name. ' <br />• Credit risk -Credit risk is the risk that an issuer or other counterparty Co an investment will not fulfill its <br />obligations. State law limits investments in commercial paper that is rated m the highest quality category by aY , <br />least two nationally recognized rating agencies. The City's investment policy does not further limit the ratings <br />of their investments. <br />L_I <br />46 ' <br />