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2006 11 08 IABY.O. Box 1504 LA QUINTA, CALIFORNIA 92247-1504 78-495 CALLF. TAMPICO Lea QUINIA, CALIFORNIA 92253 AGENDA INVESTMENT ADVISORY BOARD Study Session Room 78-495 Calle Tampico- La Quinta, CA 92253 November 8, 2006 — 5:30 P.M. CALL TO ORDER a. Pledge of Allegiance b. Roll Call (760) 7 7 7 - 7 0 0 0 FAX (760) 777-7101 II PUBLIC COMMENT- (This is the time set aside for public comment on any matter not scheduled on the agenda.) III CONFIRMATION OF AGENDA IV CONSENT CALENDAR Approval of Minutes of Meeting on October 11, 2006 for the Investment Advisory Board. V BUSINESS SESSION A. Transmittal of Treasury Report for September 2006 B. Continued Consideration of the Fiscal Year 2006/07 Work Plan — Review of Investment Policy VI CORRESPONDENCE AND WRITTEN MATERIAL A. Month End Cash Report — October 2006 B. Pooled Money Investment Board Reports — August 2006 C. Assembly Bill 2011 — Certificate of Deposit Account Registry Service (CDARS) VII BOARD MEMBER ITEMS VIII ADJOURNMENT INVESTMENT ADVISORY BOARD Meeting Date: November 8, 2006 ITEM TITLE: Transmittal of Treasury Report for September 30, 2006 BACKGROUND: Business Session: A Attached please find the Treasury Report for September 30, 2006. RECOMMENDATION: Review, Receive and File the Treasury Report for September 30, 2006. 6 John M. Falconer, Finance Director MEMORANDUM TO: La Quinta City Council FROM: John M. Falconer, Finance Director/Treasurer SUBJECT: Treasurer's Report for September 30, 2006 DATE: October 31, 2006 Attached is the Treasurer's Report for the month ending September 30, 2006. The report is submitted to the City Council each month after a reconciliation of accounts is accomplished by the Finance Department. The following table summarizes the changes in investment types for the month: Investment Beginning Purchased Notes Sold/Matured Other Endin Chan e Cash (3) $ 9,842,446 (1) $ (11,478,917) ($1,636,471) ($11,478,917) LAIF 26,236,723 2,050,000 (7,200,000) 0 21,086,723 (5,150,000) US Treasuries (2) 145,722,266 34,000,000 (39,208,000) $ (175,314) 140,338,952 (5,383,314) US Gov t Sponsored Enterprises (2) 29,798,258 10,000,000 (5,000,000) (14,395) 34,783,863 4,985,605 Commercial Paper (2) 2,987,757 9,000,000 (3,000,000) (35,365) 8,952,392 5,964,635 Corporate Notes 0 0 Mutual Funds 5,667,993 1 1 1 1,245,422 4,422,571 1,245,422 Total $ 220,255,443 1 $ 55,050,000 1 $ 67,132,339 $ 225,074 $ 207,948,030 $ 12,307,413 I certify that this report accurately reflects all pooled investments and is in compliance with the California . Government Code; and is in conformity with the City Investment Policy except as follows: The Federal Home Loan Bank maximum was exceeded on January 18, 2006, as reported on page 2, and is expected to come into conformity on December 15, 2006. As of September 30, 2006, the market value of the investment was $7,560,129 and the amortized cost plus accrued interest was $7,573,520 for an unrealized loss of $13,391. Management intends to hold the investment to maturity. As Treasurer of the City of La Quinta, I hereby certify that sufficient investment liquidity and anticipated revenues are available to meet the pools expenditure requirements for the next six months. The City of La Quinta used the Bureau of the Public Debt, U.S. Bank Monthly Statement and the Bank of New York Monthly Custodian Report to determine the fair market value of Investments at month end. to (3 i Zoo 6 1 John M. Falconer Date Finance Director/Treasurer Footnote (1) The amount reported represents the net increase (decrease) of deposits and withdrawals from the previous month. (2) The amount reported in the other column represents the amortization of premium/discount for the month on US Treasury, Commercial Paper and Agency investments. (3) The cash account may reflect a negative balance. This negative balance will be offset with transfers from other investments before warrants are presented for payment by the payee at the bank. Treasurer's Commentary For the Month of September Cash Balances - The portfolio size decreased by $12.3 million. The major reason for this decrease being the $10.8 million debt service payment made September 1st Investment Activity - Two GSE purchases were made in September - $ 10 million Farm Credit Discount Notes and three Commercial Paper investments totaling $9 million. In addition, $34 million in bond proceeds were reinvested in six month Treasury Bills. Due to the City's short maturities, no investment is currently yielding less than 4.37%. At month end, the sweep had a $450,102 balance and yielded 4.55% which primarily consisted of outstanding warrants. While this rate is lower than the LAIF rate of 5.02% for next day funds, the sweep account allows the City to take advantage of earning interest on warrants that have been released but have not been cleared by our bank. The sweep was instituted based upon the raising interest rates and earned $ 5,080 in cash for the month. The bank fees for the month were $ 1,987 which resulted in a net increase of $ 3,093 in real savings. Portfolio Performance - The overall portfolio performance increased by two (2) basis point and ended at 4.99% for the month. At the end of August, the portfolio yield is within one (1) basis point of the benchmark which increased by three (3) basis points from the previous month to end at 5.00%. With the short average maturity of 80 days, the portfolio yield should continue to increase based upon rising short term interest rates and the short average maturities of the portfolio. At this time last year, the portfolio was yielding 3.20% and the benchmark was at 3.75% for a 55 point difference so we have made some progress in meeting our benchmark. The Treasurer has been investing more in commercial paper with sixty day maturities and has not been investing in longer than six months Treasury securities or in more than one year GSE's based upon the yield curve to take advantage of yield spreads. Future Thoughts The Treasurer will continue to invest in relatively short term maturities to take advantage of the inverted yield curve - Commercial Paper. C O O) O Z N O Z N O Z N O Z O) O Z N O Z 0) O Z m O Z N O Z W O > a) 0C) E ' ° a en c d $08 d c c 8 a o yU y a `2 Q m tq U )` co aoy C N (D Q j Q C Q C m m m d LO O N lC >. 7. 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N (A 'O N = C ti LL cm m LL 00) (emu d9 . —oo$ - wwmmm--aaa mW CLo- —CL o00 mw==-aaaaa mmm a*aU)co'�iummmmmm Fet4CU)it EEE UUU Y.E UUUUU m U t 0 F C) O O O U UUU ~ UU at w i cm c L m V C 3 V c m O m N t m « tv V a v O m8 cc m eE m m Z tC L va 7 (�0 Z U O N m 7 o u m cm0)z c c . a�atn? m c c c U ? c o I m a t r�ac 4 U U LL W }}}}}}}}} 777f 1-F F—F- 'm ;N >0) }y t m E E�ym O t•• __ O N V ECU. IL U- E �Ls 0—LLLLLLLLLL OL fm- � > 5m m a�zUii5csAso City o' La Quirda Reconcilia0on of Actual and Surplus Funds City, Redevelopment Agency and Finandrig Authority September 30, 2006 Balance of Actual Funds 207,948,030 Less Petry cash Funds (1,000, Less No Surplus Funds (1,308,465) Balanceof Surpla Funds 5206,638,585 City Cash & kwastments Bank Accounts Name-A. Su T Book Surplus Yes Ad' SuJ-21,67.0 Wells Fargo - Demand No Checking $ (2,109,243) $ $ Wells Fargo - Sweep No Sweep $ 450.102 E $ Petty Cash - Demand No WA 1,000 - WeIIsFa ousi -Demand Yes Checkin 21670 21670 Total -Bank Acceums $ 1,636,471 S 21,670 $ - $ U. S Treasury Amortized Surplus Surplus Custodian - Availabil' Surplus Issuer/type Value Yes Ad Yes Bank of New York - Demand Yes U.S Treasury Bill 8,969,100 8,969,100 8,969,100 Bank of New York - Demand Yes U.S. Treasury B0l 9,837.257 9,837,257 9,837,257 Bank of New York- Demand Yes U.S. Treasury B81 4,963,387 4,963.387 6,963,387 Banc of New York - Demand Yes U.S. Treasury Bill 9,946.792 9.946,792 9.946,792 Bank of New York - Demand Yes U.S. Treasury Note 3,983,220 3,983.220 3.983.220 Bank of New York - Demand Yes U.S. Treasury Note 4.983,348 4,983,348 4.983.348 Bank of New York - Demand Yes U.S. Treasury Bill 14,934,429 14,934,429 14,934,429 Bank of New York - Demand Yes U.S. Treasury 801 4,963,533 4,90,533 4.963,533 Bank of New York - Demand Yes U.S. TreasuryBill 4 937 489 4937489 4111412. Total - U.S. Treasury67,518,555 67,518,555 67,518,555 U. S. Government Sponsored Enterprises Custodian -Ava0abti surplus lssuer/Type Amortized Value Surplus Yes Ad' Surplus Yes Bahr of New York -Demand Yes FFCB 4,989,007 4,989,007 4,989,007 Banc of New York -Demand Yes FFCB 4,952,791 4.952.791 4.952,791 Bank of New York "Demand Yes FHLB 4,992,120 4,992,120 d,992,120 nk Baof New York -Demand Yes FHLB-Discount 2,974,910 2,974,910 2,974,910 Banc of New York - Demand Yes FHLB 1,996,290 11996,290 1.996,290 Banc of New York Demand Yes FHLB 1,499328 7,499,328 7499.328 Bank of New York Demand Yes FNMA 4,981:294 4,981,294 4:961294 Bank of New York • Demand Yes FHL Mortgage 2398123 2398123 2 398,12fl Total- U.S. Government Securities 34,783,863 34,783863 - 347fi,- Prime Commemal Paper Ctatodian-Availa60' Su Issuer? BOok Value Surplus Yes Ad Surplus Yes Bank of New York - Demand Yes CIOGreup Funding Inc. 2,974.749 2,.74,749 - 2.974.749 Bank of New York - Demand Yes General Electric Capital 2,989,193 2,989,193 2,989,193 Bank of New York - Demand Yes UBS Fin Inc 2,988,450 2.988:450 2,988,450 Total -Prime Commerdal Pa r 8,952,392 8,952,392 8,952,392 Surplus No:$3.417,708) Surplus No A8 Funds Adualx Supus Ves 42 .2243) $ 1.308.465 S 450,102 0,102 $1,0001658141 -0.7870% 0.0105% 7606 $ 1,309,465 Surplus NO Adj Surplus No All Funds Actual% Surplus Yes 32.4690% 32.8767% Surplus No Adl surplus No AN Funds Actual % Surplus Yes 18.83J2% 16.7272% Surplus Surplus No Ad No AO FH. Surplus Actual % Yes l.3051% 4.3324% Surplus Surplus Surplus Surplus All Funds Surplus Local Agency Investment Fund Su Tt,3 Book Yes Ad' Yes No Ad No ArAral % Yes _ Name • Availabi' LAIF - City - Demand us Yes State Pool7,306,575 17,306.575 (2,967,606) 14,338.969 - LAIF -RDA -DIM and Yes State Pool 780 148 3 780148 37801l8Total-State 10.1404% 8.7685% Pool /,086,723 21,086,723 2,967,606 18,119,117 - Total City Investens 132,341,5391 132,341,533 2,967,6011129,373,927 63.6416% 82.6088% Total City Cash & Investments 130,705,0621 132.363.203 2,967,608 129,395.597 1,656,147 2,967,606 1,308,486 82.BSpX 62.8193X Fiscal Agent Investments Porifono- City lnvesOrrenl5 Amortized Surplus Surplus Custodian - AvailaW Su us issuerfrype Value Yes Adi Yes 2002 RDA U.S. Bank-CIP Yes U.S.Tmesury BIN 9,8W,16-1 8,886.167 9,888,187 2004 Fiance Authority -CIP Yes U.S.Treasury Bill 29,716,466 29,716.466 29,716.466 2004 Finance Authority -CIP Yes U.S.Treasury BID 8,790.623 8,790,523 8,790.523 2004 Finance Authority -CIP Yes U.S.Treasury B01 24,427,241 24,427,241 24 627 241 Total - U.S. Treasury 72,820 397 72,820.397 72 820 397 Pomffolio - Mutual Furls Money Market Book Surplus Surplus Trustee - Availabil' Surplus Mutual Fund Value Yes Ami Yes Civic Center U.S.Bank - Project YES 1stAmeriran 297 297 297 Civic Center U.S.Bank - Debt Svc YES at American - 1994 RDA U.S. Banc -Debt Svc YES 1st American - 1995RDAU.S.Bank-CIP YES 1st American 190 RDA U.S.Bank- Special Fund YES 1st American 2004 Fin Auth -1995 US Bank - Escrow YES 1st American 1998RDAU.S.Bank-CIP YES 1stAmedcan 1998 RDA U.S.Bank - Dbt Svc YES 1st American 1998 RDA U.S.Bank- Special Fund YES 1st American 1998 RDA U.S.Bank - CIP YES 1st American - - 2001 RDA U.S. Bank - Dot Svc YES 1st Amedcan 1 1 2001 RDA U.S. Bank - CIP YES tat American - - 2002 RDA U.S. Bank - Din Svc 2002 RDA U.S. Bank -CIP YES YES 1st American 1st American 1 1.433,653 1 1.433.653 1.433,653 2003 Taxable RDA U.S. Bank - DS YES 1st American 1 1 1 2003 Taxable RDA U. S. Bank -COI YES 1stAmerican 2003 Taxable RDA U. S. Bank-CIP 2004 Fin Auth US Bank - CIP YES YES 1stAmerican tat American - 2,988,818 - 2,988.618 - 2,988,618 2004 Fin Auth US Bank - CO1 YES 1st American Subtotal - Mutual Fund I 1 1 4 422-571 4.422 571 6,422,577 Surplus No Ad Surplus No Ali Funds Actual % Surplus Yes 352 35.0188% Surplus No Surplus No AD Funds Actual % Surplus Yes —Adj f - I - I - I 12.l w 1 <.r— 1 Total Fiscal Aged lmest ants 77,242,968I '.242AW I77,242,966 37.1459% ]7.3607% Grand Total 207,948 0301 209.606.171 2,967,608 2p6 836,585 1856,141 2 967,606 1 1g0.0000 100.0000% M n O NNON co rMM M(N7� M Nm r A N Go �: OIL « Mr�P (D m C (D (n �rOcli ramcir� C O h M F N m(OD NO aM(rON O n M N V N 1 N M r N Yr Yf 0 0 (= 00 1p.-pdo O I-(n M CD (h O ar0 V a M P O N V �NfD N)� n v )p�O 0) P P P y «4a r Co nmovn NrnN m(ND 01,Olt UM(O ((D 0 - ae}} R n1 O1 N NtirN ra0mr W CN �rNNm COf cm m 2 P c Nln (DM M A �NNr 0 a p C LL LL N mom coco I- Cl) a�Go m ao or a .0On�fam N Co MtO NNO co n o P (r(D Lq O LL N i9 00j (rf) ((0 C1 ICl M N I--O M O N OD P N OD « O q M coN a N CO r (9 (np Cl)r M m p N 1n 0) O (OD D�7 tDMT N O Or O.� V (I N 0 0) N OMN (O v to Cl)Cl)O ONNr'' V) coo n Iq V) 00 O d V N(+�f_ 00 P v LL O P N tlOrOD O Nmr C, p T CO 0 O (O O W 1m] P M U M rCOcowC) O a0 M (p (D a)) r �E(� O OOO) �M7�N i�rnoravma`'o tnNr LL' z P '0 m O 4�OmO oto ()) 0)(OV,rOM r0rm (D NeO Pr mePr NaP O gCli O !g0 n_<V r �ynm C a 0 O N N V)O N r O P O P ao N O N M !) r )pn (n y00 n u'� fD CD co N w 0 u L N �N(nbN CIS1) NO ([I ON 1 M P n Q n � � .M0 coo '�P. (U., Q r. P C) IE N el aN eP-N p N .0.. Y C E r 9 c Q H o c (0 N V N O) r y ?c L'E. com Ecd8> m CL N Omm x m W OL iO e o 0 0 0 0 o e e e o o e o o e e e e m e m 00 0 o moo oo Mt` m (A CO CM (A OCO M O CNO MPNOf C°c0OO7C0 t OM � O p COO MN� O jfO0, �(NO.nON 7I� V d: aD70001n �O 7OlO h M O t� o CR r o 7 O '- OR tVV O -� O q N d' = N q N a M O e7 � OO N �NM CV Cl) fV �- �O �O oeoo e M oeoo 0 O eeoe�e m S�CiM�N eeee e mfOM V O V O eeee e IO Of O aOONN oeoo e mO O�Oh t0 M 1C) V O7ID t0 V t0 a0 O LO m C.-O t0 �� V t� M -co O� cp r W O �OOt�°D Cy -- - N N Cl) 7 Cl) LO 'i 4 � NN CVM c4 e4 0-, 0 0 o e n o - e e o 0 0 - o o e o o o o o o of O CD' r N K O OMi O W V CO O� a0 r Q CO O M O aD o Q M V- pNi M Q CO0 ^ .- Q Q �O� fV N N V) O C() m ? 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CN ^ CMO > O ON O O f� .r t�h CV V l) M < CC t0 t[) O C in V b -� (V CM N CO M r. O' « N N N N N N C C C W« C y C C m m m m m m E C C EE E E a d N m y m m >> >> C C N ma�i mp,E Urnm mad Um'bi Ua� UQa�"i rn U id Q U m va m—> d— > m�cm �icim� 080=16�C"m m y c «m O M C m d z ate,., a. z a� au.a 0' RLLQfi N dLL.a� H _ N o o oCO a o om � d LL. = N 0 0 0- T O O O m >. O O O ca N M N m N Cn N V O O Om T O O Om >T m N Nm m 0 0 0 m cm cm O� 'm0 O)CD O)2' cm 0) �Z'jam. O O 01 O O O O) CA OI 'C7 07 Ol O) Z. C C Z' a C C C �•' C C C N E cm c c c c N" E E E y E E E y E E E c E E E m m m `N° m m m m EEEE mmmm mmm m`ui o www� www� ww�F`' m �Prci wwmwd wwwF vvw~0 w ~gym .� y�~�rnm .ySi� L� c dc amc amc �am g d>>`d> LL5 ac> dc Qc Q�3m�� mmma� Ornmo� WO 'a m U. ' c c mg c Qc am c cc cLc g vm�`aaLL c c �am ada�$ad � aco 0_ a� .o E � a a� i i i Q i �. ■ 7 o � c � c d Q \ :3 N O - 0 � x Q 0 « L C) to Ri U y �7 y 4 a a CC.) ca C- `0 0 �.• of E E O O w w 9 U t O 00 8 c e c o O 0 do ar U O N O N 0 O O 00 c0 C 0 N O 0 to to tt V d M • INVESTMENT ADVISORY BOARD Business Session: B Meeting Date: November 8, 2006 ITEM TITLE: Continued Consideration of the Fiscal Year 2006/07 Work Plan — Review of Investment Policy BACKGROUND: At the August and September board meeting the Board's consensus to date on the review of the Investment Policy is as follows: 1. Changing the Buy & Hold Policy: VOTE: 4-Noes 0-Ayes (Board Member Egbert absent) 2. Changing the two year maximum maturity restriction VOTE: 2-Possibles (Board Members Moulin & Deniel) 1-No (Board Member Rassi) 1-Aye(s) (Board Member Olander) (Board Member Egbert absent) 3. Allow for callable GSE's VOTE: 4-Noes 0-Ayes (Board Member Egbert absent) 4. Increase the maximum amount for commercial paper and corporate notes from $3 million to $5 million VOTE: 0-Noes 4-Ayes (Board Member Egbert absent) 5. Carry over the discussion of changing the GSE dollar limitation to the November meeting RECOMMENDATION: Recommend changes if any to the Fiscal Year 2006/07 Investment policy to the City Council. �l G Ahn M. Falconer, Finance Director INVESTMENT ADVISORY BOARD Meeting Date: November 8, 2006 TITLE: Month End Cash Report — October 2006 BACKGROUND: Correspondence & Written Material Item A This cash report is not a complete Treasury Report (exclude petty cash, deferred compensation and fiscal agent balances), but would report in a timely fashion selected cash balances. RECOMMENDATION: Information item only. ,r' John M. Falconer, Finance Director fC ON D bNNOr-7't 6 t0 Oi ,Pj O �O 1- O 000 O fOOOOO LO O OO O M N n O O O �vj a �(j pp OD O OAN p'p Cl) (O O) CO,N n FO- N &K --: M n 0 00 00 a Cl) <C O T v n OC O 7 0 n N n N N N M M V Cl) N N N n Lo } C O O G O O tN0 T N 0 0 0 0 N N N 0 Z iO C 0)Q> 0) N CA I� a{ M O) ONO O M� O V' M 7 ND OD co M N � G 0 IT co iO00 00M 0 O> v N Q Y C 0 O M0� 0rD N M M Cl)M N N N � m C — N O N O O Q LL 0 0 O O O O O O O O rl �gC14 rj C-i Ovj C%l co `° Cl) $ M ch n fh no M no 0 p o M L_LLC U C O o r O Cl! r' N tv O n n n m co 0 of 0 LO lO M LL� iO N 0 0 O O O O O O O O m p V �C1 p p O O � O lLL0 y M O N p lA Of a n 01 7 M O n O N N N N O Lm OMJ O N M N M M 0. LL d N h coN OODD O CO NCO cr O 01 O co M 0 co M O 0 000 lh cm O 0 0 O Ol cqn c O •-LM 0 0 a n n V co r P7 M UMo .N0 N0080 0 �07 N n 00 0 W O O O co 00 jr-�� �`-'� j�0, >0CN N N a O M N U O M y dl O U l0 owco y M C o yy a N OM) O N m 0 U N ca 2 C an m M c m m E m O Ec co E m L M o MM va E 0: Oy 02 0 v n �>'mtioa�i���a@>> 0 v aMi$''m�iEE>Udc 0 m'00w =Q� W Qa Q W Q fA OZO--�LL�Q��(n Q N � o h N 0 m 00 Cl) v o OV 0 N n v O N N 0 0 m O a Q C N C t O N N n 0 N C J FRB: Commercial Paper Rates and Outstandings Page 1 of 3 Federal Reserve Release 'Lefel •.„_ Release I About I Outstandings I Volume statistics I Year-end I Data Download Data as of October 31, 2006 Try Data Commercial Paper Rates and Outstanding Derived from data supplied by The Depository Trust Company Posted November 1, 2006 nicennnt rates Term AA nonfinancial A2/P2/F2 nonfinancial AA financial AA asset -backed 1• day 5.28 j 5.37 5.27 5.32 7-day 5.24 5.32 5.24 5.28 15-day 5.22 5.35 5.23 5.28 30-day 5.22 5.36 5.23 5.27 60-day n.a. 5.35 5.23 5.26 90-day n.a. 5.32 5.22 5.26 Trade data insufficient to support calculation of the 60-day AA nonfinancial and 90-day AA nonfinancial rates for October 31, 2006. Yield curve Money inarlret Nsis — — — AA itonfiria €vial A2,W i'' nonfinancial -- - - rA Iitua vCI; ti......r............................. I.,........... Percent 1 7 15 30 60 `U Days to Maturity http://www.federalreserve.gov/Releases/CP/ 5.5 5.3 5.1 l l /l /2006 FRB: Commercial Paper Rates and Outstandings Page 2 of 3 Discount rate spread lliirty-day A2/P2/F2 less Ate noniinancial connn ercial paper (daily) Basis point; 120 I .prvad, 5-day moving avg 80 1 11 60 � fit) 1 20 0 2001 2002 2(X)3 2(X)4 2005 2006 Discount rate history K-re nt 0 5 4 3 n 1 0 2001 2002 2t)ti3 2004 2005 2MO Outstandings Weekly (Wednesday), seasonally adjusted http://www.federalreserve.gov/Releases/CP/ 11/1/2006 FRB: Commercial Paper Rates and Outstandings Page 3 of 3 1040 990 940 890 840 790 740 690 641) 590 540 491) Billions of dollars ,NIIWJrIitacial iriplit s,�uler Billions of dollars 250 Ri § I�'•TA1. � `t e�'tN� 1 �t r-w 2001 2002 2003 2004 2005 AM 210 170 130 90 The daily commercial paper release will usually be available before 11:00am EST. However, the Federal Reserve Board makes no guarantee regarding the timing of the daily commercial paper release. When the Federal Reserve Board is closed on a business day, rates for the previous business day will be available through the Federal Reserve Board's Data Download application. This policy is subject to change at any time without notice. Release I About I Outstandings I Volume statistics I Year-end I Data Download Home I Statistical releases Accessibility I Contact Us Last update: November 1, 2006 http://www.federalreserve.gov/Releases/CP/ l 1 / 1 /2006 FRB: H. 15 --Selected Interest Rates, Web -Only Daily Update --November 1, 2006 Page 1 of 4 Federal Reserve Statistical Release 11.15 Selected Interest mates (Daily) Slip to Conwnt Release Date: November 1, 2006 Weekly release dates and announcements I Historical data I Data Download I About Daily update Other formats: Screen reader I ASCII Tr�� Data Di':i n,card tl:a N The weekly release is posted on Monday. Daily updates of the weekly release arop through Friday on this site. If Monday is a holiday, the weekly release will be p after the holiday and the daily update will not be posted on that Tuesday. FEDERAL RESERVE STATISTICAL RELEASE H.15 DAILY UPDATE: WEB RELEASE ONLY SELECTED INTEREST RATES For use at 4:15 p.m. Eastern Time Yields in percent per annum November 1, 2006 2006 2006 Instruments Oct Oct 30 31 Federal funds (effective) 1 2 3 5.27 5.31 Commercial Paper 3 4 5 Nonfinancial 1-month 5.19 5.22 2-month n.a. n.a. 3-month n.a. n.a. Financial 1-month 5.24 5.23 2-month 5.23 5.23 3-month 5.23 5.22 CDs (secondary market) 3 6 1-month 5.27 5.29 3-month 5.32 5.33 6-month 5.34 5.34 Eurodollar deposits (London) 3 7 1-month 5.32 5.32 3-month 5.37 5.37 6-month 5.38 5.38 Bank prime loan 2 3 8 8.25 8.25 Discount window primary credit 2 9 6.25 6.25 U.S. government securities Treasury bills (secondary market) 3 4 4-week 5.07 5.09 3-month 4.97 4.95 6-month 4.96 4.93 Treasury constant maturities Nominal 10 1-month 5.15 5.18 3-month 5.10 5.08 6-month 5.16 5.13 1-year 5.03 4.99 2-year 4.78 4.71 http://www.federalreserve.gov/Releases/H 15/update/ 11 /l /2006 FRB: H.15--Selected Interest Rates, Web -Only Daily Update --November 1, 2006 Page 2 of 4 3-year 4.68 4.62 5-year 4.64 4.57 7-year 4.64 4.57 10-year 4.68 4.61 20-year 4.88 4.81 30-year 4.78 4.72 Inflation indexed 11 5-year 2.51 2.47 7-year 2.44 2.40 10-year 2.39 2.34 20-year 2.34 2.28 Inflation -indexed long-term average 12 2.30 2.24 Interest rate swaps 13 1-year 5.34 n.a. 2-year 5.15 n.a. 3-year 5.10 n.a. 4-year 5.10 n.a. 5-year 5.11 n.a. 7-year 5.15 n.a. 10-year 5.21 n.a. 30-year 5.34 n.a. Corporate bonds Moody's seasoned Aaa 14 5.46 n.a. Baa 6.32 n.a. State & local bonds 15 Conventional mortgages 16 n.a. Not available. Footnotes 1. The daily effective federal funds rate is a weighted average of rates on broke 2. Weekly figures are averages of 7 calendar days ending on Wednesday of the curr figures include each calendar day in the month. 3. Annualized using a 360-day year or bank interest. 4. on a discount basis. 5. Interest rates interpolated from data on certain commercial paper trades settl Depository Trust Company. The trades represent sales of commercial paper by deale issuers to investors (that is, the offer side). The 1-, 2-, and 3-month rates are 30-, 60-, and 90-day dates reported on the Board's Commercial Paper Web page (www.federalreserve.gov/releases/cp/). 6. An average of dealer bid rates on nationally traded certificates of deposit. 7. Bid rates for Eurodollar deposits collected around 9:30 a.m. Eastern time. 8. Rate posted by a majority of top 25 (by assets in domestic offices) insured U. commercial banks. Prime is one of several base rates used by banks to price short loans. 9. The rate charged for discounts made and advances extended under the Federal Re credit discount window program, which became effective January 9, 2003. This rate adjustment credit, which was discontinued after January 8, 2003. For further info www.federalreserve.gov/boarddocs/press/bcreg/2002/200210312/default.htm. The rate for the Federal Reserve Bank of New York. Historical series for the rate on adjus http://www.federalreserve.gov/Releases/H 15/update/ 11/1/2006 FRB: H.15--Selected Interest Rates, Web -Only Daily Update --November 1, 2006 Page 3 of 4 well as the rate on primary credit are available at www.federalreserve.gov/releas 10. Yields on actively traded non -inflation -indexed issues adjusted to constant m 30-year Treasury constant maturity series was discontinued on February 18, 2002, on February 9, 2006. From February 18, 2002, to February 9, 2006, the U.S. Treasu factor for adjusting the daily nominal 20-year constant maturity in order to esti nominal rate. The historical adjustment factor can be found at www.treas.gov/offices/domestic-finance/debt-management/interest-rate/itcompositei Source: U.S. Treasury. 11. Yields on Treasury inflation protected securities (TIPS) adjusted to constant Source: U.S. Treasury. Additional information on both nominal and inflation -index found at www.treas.gov/offices/domestic-finance/debt-management/interest-rate/ind 12. Based on the unweighted average bid yields for all TIPS with remaining terms more than 10 years. 13. International Swaps and Derivatives Association (ISDA(R)) mid -market par swap for a Fixed Rate Payer in return for receiving three month LIBOR, and are based o at 11:00 a.m. Eastern time by Garban Intercapital plc and published on Reuters Pa ISDAFIX is a registered service mark of ISDA. Source: Reuters Limited. 14. Moody's Aaa rates through December 6, 2001, are averages of Aaa utility and A rates. As of December 7, 2001, these rates are averages of Aaa industrial bonds o 15. Bond Buyer Index, general obligation, 20 years to maturity, mixed quality; Th 16. Contract interest rates on commitments for fixed-rate first mortgages. Source -------------------------------------------------------------------------------- Note: Weekly and monthly figures on this release, as well as annual figures avail Board's historical H.15 web site (see below), are averages of business days unles --------------------------------------------------------------------------------- Current and historical H.15 data are available on the Federal Reserve Board's web (www.federalreserve.gov/). For information about individual copies or subscriptio Publications Services at the Federal Reserve Board (phone 202-452-3244, fax 202-7 electronic access to current and historical data, call STAT-USA at 1-800-782-8872 Description of the 'Treasury Nominal and Inflation -Indexed Constant Maturi Yields on Treasury nominal securities at "constant maturity" are interpolated by from the daily yield curve for non -inflation -indexed Treasury securities. This cu the yield on a security to its time to maturity, is based on the closing market b actively traded Treasury securities in the over-the-counter market. These market calculated from composites of quotations obtained by the Federal Reserve Bank of constant maturity yield values are read from the yield curve at fixed maturities, and 6 months and 1, 2, 3, 5, 7, 10, 20, and 30 years. This method provides a yiel maturity, for example, even if no outstanding security has exactly 10 years remai Similarly, yields on inflation -indexed securities at "constant maturity" are inte daily yield curve for Treasury inflation protected securities in the over-the-cou inflation -indexed constant maturity yields are read from this yield curve at fixe currently 5, 7, 10, and 20 years. Weekly release dates and announcements I Historical data I About http://www.federalreserve.gov/Releases/H 15/update/ l l /l /2006 FRB: H.15--Selected Interest Rates, Web -Only Daily Update --November 1, 2006 Page 4 of 4 Daily update Other formats: Screen reader I ASCII Statistical releases Home I Economic research and data Accessibility I Contact Us Last update: November 1, 2006 http://www.federalreserve.gov/Releases/H 15/update/ 11 /1 /2006 Phil Angelides, State Treasurer Inside the State Treasurer's I LAW CONFERENCE IS NOV. 30. PLEASE CALL 916-653-3001 TO RSVP. PMIA Performance Report Date Day Yield Quarter to Yid Avone MaUnitY On days) 10/11/2006 5.08 5.09 161 10/12/2006 5.09 5.09 162 10/13/20061 5.09 5.09 163 10/14/2006 5.09 5.09 163 10/15/2006 5.09 5.09 163 10/16/2006 5.09 5.09 160 10/17/2006 5.09 5.09 160 10/18/2006 5.09 5.09 163 10/19/2006 5.09 5.09 161 10/20/2006 5.10 5.09 170 10/21 /2006 5.10 5.09 170 10/22/2006 5.10 5.09 170 10/23/2006 5.111 5.091 169 10/24/2006 1 5.111 5.091 167 LAIF Performance Report Quarter ending 9/30/06 Apportionment Rate: 4.93% Earnings Ratio: .00013498449593566 Fair Value Factor: .999335402 PMIA Average Monthly Effective Yields September 2006 5.023% August 2006 4.946% July 2006 4.849% Pooled Money Investment Account Portfolio Composition $58.4 Billion 09/30/06 Corporate Bond 0.96% Commercial Paper 15.20% Time Dep 13.811 Reverse Treasuries -0.68% 4.38% Mortgages Loans 1.09% CDs/BNs 22.41 % %gencies 28.94% Recent Bill Auction Results Page 1 of 1 s FMAN", TITT", MY Security Issue Maturity Discount Investment Price CUSIP Term Date Date Rate % Rate % Per $100 28-DAY 11-02-2006 11-30-2006 5.085 5.176 99.604500 912795YGO 91-DAY 11-02-2006 02-01-2007 4.975 5.108 98.742431 912795YR6 182-DAY 11-02-2006 05-03-2007 4.955 5.153 97.494972 912795ZE4 29-DAY 10-26-2006 11-24-2006 5.055 5.146 99.592792 912795YF2 91-DAY 10-26-2006 01-25-2007 4.990 5.124 98.738639 912795YQ8 182-DAY 10-26-2006 04-26-2007 4.975 5.174 97,484861 912795ZD6 28-DAY 10-19-2006 11-16-2006 4.950 5.038 99.615000 912795YE5 91-DAY 10-19-2006 01-18-2007 4.940 5.072 98.751278 912795YPO 182-DAY 10-19-2006 04-19-2007 4.935 5.132 97,505083 912795ZC8 28-DAY 10-12-2006 11-09-2006 4.785 4.870 99.627833 912795YD7 91-DAY 10-12-2006 01-11-2007 4.850 4,978 98.774028 912795YN5 182-DAY 10-12-2006 04-12-2007 4.890 5.084 97.527833 912795ZBO 28-DAY 10-05-2006 11-02-2006 4.600 4.681 99,642222 912795YC9 91-DAY 10-05-2006 01-04-2007 4.765 4.890 98,795514 912795YM7 182-DAY 10-05-2006 04-05-2007 4.825 5.014 97.560694 912795ZA2 28-DAY 09-28-2006 10-26-2006 4.545 4.624 99,646500 912795YBI 91-DAY 09-28-2006 12-28-2006 4,770 4.895 98.794250 912795YL9 182-DAY 09-28-2006 03-29-2007 4.810 4.998 97.568278 912795YZ8 28-DAY 09-21-2006 10-19-2006 4.640 4.721 99.639111 912795YA3 91-DAY 09-21-2006 12-21-2006 4.815 4.942 98.782875 912795YK1 182-DAY 09-21-2006 03-22-2007 4.920 5.116 97.512667 912795YY1 1-DAY 09-14-2006 09-15-2006 5.200 5,273 99.985556 912795TV3 28-DAY 09-14-2006 10-12-2006 4.675 4.757 99.636389 912795XZ9 91-DAY 09-14-2006 12-14-2006 4.820 4.947 98.781611 912795YA 182-DAY 09-14-2006 03-15-2007 4.935 5.132 97.505083 912795YX3 8-DAY 09-07-2006 09-15-2006 5.165 5.243 99.885222 912795TV3 28-DAY 09-07-2006 10-05-2006 4.790 4.875 99.627444 912795XY2 91-DAY 09-07-2006 12-07-2006 4.855 4.984 98.772764 912795YH8 182-DAY 09-07-2006 03-08-2007 4.920 5.116 97.512667 912795YW 5 14-DAY 09-01-2006 09-15-2006 5.170 5.252 99.798944 912795TV3 28-DAY 08-31-2006 09-28-2006 5.100 5.191 99.603333 912795XX4 91-DAY 08-31-2006 11-30-2006 4.960 5.093 98.746222 912795YGO 182-DAY 08-31-2006 03-01-2007 4.970 5.169 97.487389 912795YV7 28-DAY 08-24-2006 09-21-2006 5.075 5.166 99,605278 912795XW6 92-DAY 08-24-2006 11-24-2006 4.975 5.109 98.728611 912795YF2 182-DAY 08-24-2006 02-22-2007 4.975 5.174 97.484861 912795YU9 28-DAY 08-17-2006 09-14-2006 5.075 5.166 99.605278 912795XV8 91-DAY 08-17-2006 11-16-2006 4.980 5.114 98.741167 912795YE5 182-DAY 08-17-2006 02-15-2007 5.030 5.233 97,457056 912795YT2 28-DAY 08-10-2006 09-07-2006 5.135 5.227 99.600611 912795XUO Effective with the 11/2/98 auction, all bills are auctioned using the single -priced method. http://www.treasurydirect.gov/RI/OFBills l l /1 /2006 co a 0 C � O a3a„ J LL E O L 0) 2 N 7 N UUmu> INVESTMENT ADVISORY BOARD Meeting Date: November 8, 2006 TITLE: Pooled Money Investment Board Report for August 2006 BACKGROUND: Correspondence & Written Material Item B The Pooled Money Investment Board Report for August 2006 is included in the agenda packet. RECOMMENDATION: Receive & File ''" b �- f" i )John M. Falconer, Finance Director POOLED MONEY INVESTMENT ACCOUNT SUMMARY OF INVESTMENT DATA A COMPARISON OF AUGUST 2006 WITH AUGUST 2005 (DOLLARS IN THOUSANDS) AUGUST 2006 AUGUST 2005 CHANGE Average Daily Portfolio $ 67,570,790 $ 52,830,344 $ +4,740,446 Accrued Earnings $ 241,832 $ 142,635 $ +99,197 Effective Yield 4.946 3.179 +1.767 Average Life -Month End (In Days) 161 183 .22 1 Total Security Transactions Amount $ 24,426,165 $ 21,682,046 $ +2,744,119 Number 508 448 +60 Total Time Deposit Transactions Amount $ 4,331,000 $ 3,649,500 $ +781,500 Number 186 150 +36 Average Workday Investment Activity $ 1,250,311 $ 1,097,024 $ +153,287 Prescribed Demand Account Balances For Services $ 243,323 $ 356,107 $ 412,784 For Uncollected Funds $ 178,293 $ 188,755 $ -10,462 1 PHIL ANGELIDES TREASURER STATE OF CALIFORNIA INVESTMENT DIVISION SELECTED INVESTMENT DATA ANALYSIS OF THE POOLED MONEY INVESTMENT ACCOUNT PORTFOLIO (000 OMITTED) TYPE OF SECURITY Government Bills Bonds Notes Strips Total Government Federal Agency Coupons Certificates of Deposit Bank Notes Bankers' Acceptances Repurchases Federal Agency Discount Notes Time Deposits GNMAs Commercial Paper FHLMC/Remics Corporate Bonds AB 55 Loans GF Loans Reversed Repurchases Total (All Types) INVESTMENT ACTIVITY Pooled Money Other Time Deposits Totals PMIA Monthly Average Effective Yield Year to Date Yield Last Day of Month August 31, 2006 DIFFERENCE IN PERCENTOF PERCENT OF PORTFOLIO FROM AMOUNT PORTFOLIO PRIOR MONTH $ 1,815,993 0 899,547 0 $ 2,715,540 $ 9,455,632 11,754,407 1,350,039 0 0 7,261,307 8,070,495 235 6,658,653 647,301 732,963 8,337,459 0 0 $ 56,984,031 AUGUST 2006 NUMBER AMOUNT 608 $ 24,426,165 5 5,244 186 4,331,000 699 $ 28,762,409 4.946 4.897 K 3.19 +0.22 0.00 0 1.58 +0.07 0.00 0.00 4.77 +0.29 16.59 -0.36 20.63 -0.86 2.37 +0.44 0.00 0.00 0.00 0.00 12.74 -0.12 14.16 +0.72 0.00 0.00 11.69 -1.06 1.13 +0.03 1.29 -0.27 14.63 +0.77 0.00 0.00 0.00 -0.42 100.00 JULY 2006 NUMBER AMOUNT 622 $ 30,026,066 4 128,639 174 4,697,190 800 $ 34,851,795 4.849 4.849 Pooled Money Investment Account Portfolio Composition $57.0 Billion Corporate Bc 1.29% Commercial Paper 11.69% Time Depc 14.16°/ 08/31 /06 Treasuries Mortgages Loans 4.77 /0 1.13% 3 CDs/BNs 23.00% Agencies 29.33% INVESTMENT ADVISORY BOARD Correspondence & Written Material Item C Meeting Date: November 8, 2006 TITLE: Assembly Bill 2011 — Certificate of Deposit Account Registry Service (CDARS) BACKGROUND: On January 1, 2007, AB 2011 goes into effect that will create a new investment vehicle — Certificate of Deposit Account Registry Service (CDARS). This investment vehicle allows for the issuance of Certificate of Deposits over $100,000 to be given FDIC coverage. Attached, please find the Assembly Bill and other information on the subject. In addition, the Board is invited to a luncheon that will be held on November 20, 2006 at noon at City Hall where bankers from Palm Desert National Bank and El Paseo Bank will further discuss this program. If you are interested in attending the luncheon, please contact Vianka by November 17tn for a reservation. RECOMMENDATION: rmation item only. John M. Falconer, Finance Director Assembly Bill No. 2011 CHAPTER 459 An act to add Sections 53601.8 and 53635.8 to the Government Code, relating to local agency investments. [Approved by Govemor September 25, 2006. Filed with Secretary of State September 25, 2006.1 LEGISLATIVE COUNSEL'S DIGEST AB 2011, Vargas. Local agency investments. Existing law prescribes the instruments in, and criteria by, which local agencies, as defined, may invest surplus funds. This bill would authorize, until January 1, 2012, the investment of up to 30% of those funds in certificates of deposit at a commercial bank, savings bank, savings and loan association, or credit union that uses a private sector entity that assists in the placement of certificates of deposit under specified conditions. The people of the State of California do enact as follows: SECTION 1. Section 53601.8 is added to the Government Code, to read: 53601.8. Notwithstanding Section 53601 or any other provision of this code, a local agency, at its discretion, may invest a portion of its surplus funds in certificates of deposit at a commercial bank, savings bank, savings and loan association, or credit union that uses a private sector entity that assists in the placement of certificates of deposit, provided that the purchases of certificates of deposit pursuant to this section, Section 53635.8, and subdivision (h) of Section 53601 do not, in total, exceed 30 percent of the agency's funds that may be invested for this purpose. The following conditions shall apply: (a) The local agency shall choose a nationally or state chartered commercial bank, savings bank, savings and loan association, or credit union in this state to invest the funds, which shall be known as the "selected" depository institution. (b) The selected depository institution may submit the funds to a private sector entity that assists in the placement of certificates of deposit with one or more commercial banks, savings banks, savings and loan associations, or credit unions that are located in the United States, for the local agency's account. (c) The full amount of the principal and the interest that may be accrued during the maximum term of each certificate of deposit shall at all times be 93 Ch. 459 —2— insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration. (d) The selected depository institution shall serve as a custodian for each certificate of deposit that is issued with the placement service for the local agency's account. (e) At the same time the local agency's funds are deposited and the certificates of deposit are issued, the selected depository institution shall receive an amount of deposits from other commercial banks, savings banks, savings and loan associations, or credit unions that, in total, are equal to, or greater than, the full amount of the principal that the local agency initially deposited through the selected depository institution for investment. (f) A local agency may not invest surplus funds with a selected depository institution for placement as certificates of deposit pursuant to this section on or after January 1, 2012. A local agency's surplus funds, invested pursuant to this section before January 1, 2012, may remain invested in certificates of deposit issued through a private sector entity for the full term of each certificate of deposit. (g) Notwithstanding subdivisions (a) to (f), inclusive, no credit union may act as a selected depository institution under this section or Section 53635.8 unless both of the following conditions are satisfied: (1) The credit union offers federal depository insurance through the National Credit Union Administration. (2) The credit union is in possession of written guidance or other written communication from the National Credit Union Administration authorizing participation of federally -insured credit unions in one or more certificate of deposit placement services and affirming that the moneys held by those credit unions while participating in a deposit placement service will at all times be insured by the federal government. (h) It is the intent of the Legislature that nothing in this section shall restrict competition among private sector entities that provide placement services pursuant to this section. SEC. 2 Section 53635.8 is added to the Government Code, to read: 53635.8. Notwithstanding Section 53601 or any other provision of this code, a local agency, at its discretion, may invest a portion of its surplus funds in certificates of deposit at a commercial bank, savings bank, savings and loan association, or credit union that uses a private sector entity that assists in the placement of certificates of deposit, provided that the purchases of certificates of deposit pursuant to this section, Section 53601.8, and subdivision (h) of Section 53601 do not, in total, exceed 30 percent of the agency's funds that may be invested for this purpose. The following conditions shall apply: (a) The local agency shall choose a nationally or state chartered commercial bank, savings bank, savings and loan association, or credit union in this state to invest the funds, which shall be known as the "selected" depository institution. 93 — 3 — Ch. 459 (b) The selected depository institution may submit the funds to a private sector entity that assists in the placement of certificates of deposit with one or more commercial banks, savings banks (savings and loan associations), or credit unions that are located in the United States, for the local agency's account. (c) The full amount of the principal and the interest that may be accrued during the maximum term of each certificate of deposit shall at all times be insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration. (d) The selected depository institution shall serve as a custodian for each certificate of deposit that is issued with the placement service for the local agency's account. (e) At the same time the local agency's funds are deposited and the certificates of deposit are issued, the selected depository institution shall receive an amount of deposits from other commercial banks, savings banks, savings and loan associations, or credit unions that, in total, are equal to, or greater than, the full amount of the principal that the local agency initially deposited through the selected depository institution for investment. (f) A local agency may not invest surplus funds with a selected depository institution for placement as certificates of deposit pursuant to this section on or after January 1, 2012. A local agency's surplus funds, invested pursuant to this section before January 1, 2012, may remain invested in certificates of deposit issued through a private sector entity for the full term of each certificate of deposit. (g) Notwithstanding subdivisions (a) to (f), inclusive, no credit union may act as a selected depository institution under this section or Section 53601.8 unless both of the following conditions are satisfied: (1) The credit union offers federal depository insurance through the National Credit Union Administration. (2) The credit union is in possession of written guidance or other written communication from the National Credit Union Administration authorizing participation of federally -insured credit unions in one or more certificate of deposit placement services and affirming that the moneys held by those credit unions while participating in a deposit placement service will at all times be insured by the federal government. (h) It is the intent of the Legislature that nothing in this section shall restrict competition among private sector entities that provide placement services pursuant to this section. C 93 AB 2011 Assembly Bill - Bill Analysis Page 1 of 4 ■❑ SENATE LOCAL GOVERNMENT COMMITTEE Senator Christine Kehoe, Chair BILL NO: AB 2011 HEARING: 6/7/06 AUTHOR: Vargas FISCAL: No VERSION: 6/5/06 CONSULTANT: Weinberger INVESTMENT OF SURPLUS FUNDS Background and -Existing -Law Since 1913, state law has authorized local officials to invest a portion of their temporarily idle funds in a variety of financial instruments. Originally, state law limited the instruments to government bonds, but over time the laws governing local agency investments have been amended to keep pace with changing investment opportunities and current market offerings. As part of its oversight function, the Legislature limits the maturity lengths on many of these newer instruments, as well as the percentage of funds that a local agency can invest in a particular type of instrument. California law allows local officials to deposit money in state or national banks, savings associations, federal associations, credit unions, or federally insured industrial loan companies in the State of California. These public deposits, which include funds placed into certificates of deposit (CDs), are subject to restrictions, including: The depository institution must have received an overall rating of at least "satisfactory" in its most recent evaluation by a Federal supervisory agency. A local treasurer and a depository institution must enter into a contract for the deposit of public funds, which must include specified elements. Public deposits must be insured by the Federal Deposit Insurance Corporation (FDIC) or, to the extent not insured, collateralized with certain types of securities in specified amounts. FDIC insurance usually covers only $100,000 per depositor per institution. As a result, to secure large public deposits, depository institutions must hold significant amounts of collateral. Small community banks argue that these collateralization requirements limit their capacity AB 2011 -- 6/5/06 -- Page 2 http://info.sen.ca.gov/pubibill/asm/ab_2001-2050/ab_2011 _cfa_20060601 _ 111547_sen_c... 10/20/2006 AB 2011 Assembly Bill - Bill Analysis Page 2 of 4 C to accept large public deposits. A new financial mechanism - introduced in 2003 - allows for FDIC coverage of deposits of greater than $100,000 when they are invested through a "deposit placement service." These deposits go into single bank and then are distributed by the CD placement service into certificates of deposit issued by other participating banks. The CDs are in increments of less than $100,000 to ensure that both principal and interest are eligible for full FDIC insurance. Network members provide simultaneous reciprocal deposits on a dollar -for -dollar basis, so that the equivalent of the original deposit comes back to the bank that received the original deposit. Proposed Law Assembly Bill 2011 allows a local agency to invest a portion of its surplus funds in certificates of deposit issued through a private sector deposit placement service, subject to the following conditions: No more than 30% of the agency's surplus funds can be invested in any combination of certificates of deposit issued through a private sector deposit placement service and negotiated certificates of deposit. Public funds must be invested in a deposit placement service through an "originating bank," which must be a nationally or state chartered bank or savings and loan association in California that is a member of a placement service. The originating bank must submit the funds for placement as certificates of deposit (CDs) issued by one or more members of the placement service located in the United States, for the local agency's account. The full amount of principal, and the interest that may accrue during the maximum term of each CD that is issued through the placement service must be insured by the Federal Deposit Insurance Corporation (FDIC). The originating bank shall serve as a custodian for AB 2011 -- 6/5/06 -- Page 3 each CD that is issued through the placement service for the local agency's account. At the same time that the local agency's funds are deposited and certificates of deposit are issued, the originating bank must receive, from other members of the placement service, reciprocal deposits that are equal to, http://info.sen.ca.gov/pub/bill/asm/ab_2001-2050/ab_2011 _cfa 20060601 _111547_sen_c... 10/20/2006 AB 2011 Assembly Bill - Bill Analysis Page 3 of 4 0 or greater than, the full amount of the principal that the local agency initially deposited through the originating bank. Comments_ 1. Get with the times_ . AB 2011 gives local governments the option of depositing funds in a new financial mechanism that provides FDIC insurance coverage for deposits greater than $100,000. By providing an alternative to collateralization requirements for large public deposits, the bill allows more public funds to be placed into small regional banks, thereby increasing local lending resources. Local agencies will benefit from easy placement of deposits in one local institution with which they have a relationship. 2. All we are sing_ . While this innovative deposit mechanism deserves to be given a chance, CD placement services are relatively untested. Only one national network, the Certificate of Deposit Account Registry Service (CDARS) established by Promontory Interfinancial Network, LLC currently offers this service, although competitors are reportedly developing similar services. In California, there is no public sector experience with CD placement services. The availability of deposit placement services will significantly alter the use of collateralized deposits in California. Given the importance of ensuring the safety of public funds, legislators should exercise their oversight duties. The Committee may wish to consider an amendment that either: Sunsets the ability to place deposits into CD placement services on January 1, 2012. _or__ , Requires the State Department of Financial Institutions to report to the Legislature, by January 1, 2012, assessing the outcomes of investing public deposits in CC placement services. AB 2011 -- 6/5/06 -- Page 4 3. _Investment_ or deposit ? Separate articles in state law govern the "investment" of local governments' surplus funds and the "deposit" of those funds. While distinct, these two articles have many parallel provisions. AB 2011 authorizes the use of deposit placement services in the article that governs investments. However, the use of a certificate of deposit placement program is an alternative to the use of collateralized deposits, which are governed by the article relating to deposits. The Committee may wish to consider an amendment adding parallel language to the article governing deposits of local governments' surplus funds. http://info.sen.ca.gov/pub/bill/asm/ab_2001-2050/ab_2011 _cfa_20060601 _ 111547_sen_c... 10/20/2006 AB 2011 Assembly Bill - Bill Analysis Page 4 of 4 Assembly -Actions Assembly Local Government Committee: 7-0 Assembly Banking and Finance Committee: 9-0 Assembly Floor: 75-0 Support and Opposition (6/1/06) Support California Independent Bankers, California Bankers Association, California Association of Joint Powers Agencies, 1st Centennial Bank, Bank of Alameda, Broadway Federal Bank, Community Bank of the Bay, Community West Bank, EverTrust Bank, City of Indian Wells, Mechanics Bank, Monterey County Bank, Neighborhood National Bank, Pacific Valley Bank, Palm Desert National Bank, Valley Community Bank, _position_ . Unknown. http://info.sen.ca.gov/pub/bill/asm/ab-2001-2050/ab-201 1_cfa_20060601 _ 111547_sen_c... l 0/20/2006 CDARS Page I of 3 CDARS: An easy way to beat $100,000 FDIC limit By Laura Bruce • Bankrate.com . When Joan Delaney's elderly father began losing his sight and hearing, he decided to sell his house and downsize his lifestyle. The sale, along with a lifetime of smart financial management, left him with a sizeable amount of money to invest. Given his advanced age, the stock market was out; certificates of deposit were in. Delaney was put in charge of depositing the money in various banks so that it would all be FDIC insured. "He was always saying, 'Don't put more than $100,000 in any one bank,"' Delaney remembers. "But it's time consuming running from bank to bank. I was trucking Dad around to the banks to sign power of attorney cards. And back when CD rates were high he wanted things moved from one bank to another." The law changed in April 2006 to allow certain retirement accounts to be covered up to $250,000 by the Federal Deposit Insurance Corporation, the $100,000 limit still applies to ordinary accounts. In addition, there's a program that might have solved Delaney's problem. It allows you to keep up to $25 million -- should you be so fortunate -- invested in CDs at one bank, and have it all covered by FDIC insurance. It's called the Certificate of Deposit Account Registry Service or CDARS, pronounced cedars. Here's how it works. Sally ]ones has $130,000 she wants put in CDs in bank A. Bank A gives her CDs worth $95,000 -- leaving a little room for interest -- and sends Sally's remaining $35,000 to a company that knows bank B will issue Sally a CD for the remaining $35,000. In return, bank B buys $35,000 in CDs for its customers from bank A. The company in the middle is Promontory InterFinancial Network. It acts as a sort of clearinghouse, matching deposits from one institution with another so funds that a bank places with CDARS essentially remain on the bank's balance sheet. "Prior to CDARS, if you wanted to insure more than $100,000, you had to do it through (different categories of legal ownership.) Now you can title it any way you want and we can cover it through the CDARS program," says Russell Pemberton, vice president at Pulaski Bank. Your bank sets the interest rate for the CDs bought through other banks. If Sally wants her excess money to buy a two-year CD and her bank, bank A, is paying 2 percent on that maturity, then bank B will issue the CD at 2 percent even if they're paying more or less. Sign up for a rate alert t We'll tell you when rates your target. Sign up now! It's sirr "From the customer's perspective it's invisible," says Promontory's President h4://www.bankrate.com/brm/news/sav/20030820al.asp 10/20/2006 CDARS Page 2 of 3 Mark Jacobsen. "If I'm paying more for your customer's money and you're paying less for mine, we swap the difference at present value. Say the difference is $250, you'd give me the $250 up front and then it's like we're issuing CDs at the same rate." One drawback to the convenience of CDARS is that you can miss out on higher rates offered by banks other than your own. If you're willing to do a little extra legwork, you could get around that by finding a bank in the CDARS network that you believe consistently offers higher rates and open an account with them specifically for CDs. Another factor is that banks pay a fee to join the network and then pay transaction fees. Some banks pass those costs on to CD buyers by reducing the interest rate, says Angela Baker, treasury officer at Allegiant Bank. "We set CD rates every Tuesday and we've built in those transaction fees for CDARS. We reduce the baseline interest rate by 15 basis points across all maturities." Pemberton, who says his bank's customers have bought $5 million to $6 million in CDs through the CDARS program the past three months, says customers are willing to pay for the convenience. "We price CDARS (interest rate) a little bit less than one of our weekly CD specials. The value with CDARS is the extended FDIC coverage. You're going to pay a little something for that. People have been very receptive; they understand the value." Adding to CDARS value is the convenience factor of one consolidated statement from your bank detailing your CDs. But while you know exactly where your money is, the other banks don't know you by anything other than an account number. The only institution, other than your own bank, that sees your personal information is the Bank of New York, which handles the CD transactions for all the banks in the CDARS network, according to Jacobsen. Eventually, you should be able to place a CDARS order any business day, but for now, orders are placed once a week. The minimum order is $10,000. In other words, you'd need $100,000 on deposit in your bank and at least $10,000 for deposit in another bank within the network. There are approximately 500 banks currently in the network, primarily community and regional banks. Promontory is run by three former banking regulators who, according to Jacobsen, former chief of staff of the Office of the Comptroller of the Currency and also of the FDIC, wanted to help smaller banks compete on the national level. "It's done by developing the notion of synthetic size. It's a way to help banks work together, work more effectively. Most of these institutions don't have direct access to the capital markets. They have higher cost of funds, and more of a need to raise funds locally. When a Bank of America borrows it gets money (at a very low rate.) Most of our banks can't even fathom http://www.bankrate.comlbnn/news/sav/20030820al.asp 10/20/2006 CDARS Page 3 of 3 that." Joan Delaney says the CDARS program may mean CD investors will be better informed about protecting their money through FDIC insurance. "Every time I would go to a bank and move things around I would specifically ask about FDIC insurance. They never said anything to me like, 'Are you aware that cumulatively you have more than $100,000 in this bank and you're not insured?' "After all, they give better rates on jumbo CDs. I wouldn't say they lie. It's just if you don't ask the right questions, they don't volunteer." Check the CDARS Web site for a list of banks participating in the CDARS program. - Posted: Aug. 20, 2003 RELATED ARTICLES _n._- . ------- .-- Foreign-denominated How to ladder a CD Savings glossary CDs carry risk portfolio Dews & Advice I Compare Rates I Calculators Mortgage I Home Equity I Auto I Investing I Checking & Savings I Credit Cards I Debt Management I College Finance I Taxes I Persona About Bankrate I Privacy I Online Media Kit I Partnerships I Investor Relations I Press/Broadcast I Contact Us NASDAQ: RATE I RSS Feeds I Order Rate Data I Bankrate Canada * Mortgage rate may include points. See rate tables for details. Click here. * To see the definition of overnight averages click here. Bankrate.com ®, Copyright © 2006 Bankrate, Inc., All Rights Reserved, Terms of Use. http://www.bankrate.com/bmi/news/sav/20030820al.asp 10/20/2006 membership central By Bridget McCrea WANT TO KNOW MORE? To learn more about the CDARS program, visit Promontory Finan- cial Network online at www.promnetwork.com, or call (866) 776-6426. As Seen in March 2006 Pm ,, ,"M Independent z-. Better Together Community banks pool resources to meet customer deposit demand Barely an hour after being interviewed for this article, Kevin McGuire got a phone call from a large customer wanting to make a $17 million deposit. With the help of Promontory Interfinancial Net- work's Certificate of Deposit Account Registry Service (CDARS), this CEO of Palrn Desert National Bank was able to pro- vide that customer with all the FDIC coverage needed, while at the same time bumping his bank's assets over $300 million. Palm Desert National, with three loca- tions, 70 employees and an additional 105 staffers who handle the bank's electronic banking division (which manages 17,000 ATMs nationwide) got involved with CDARS in June 2003. The program pro- vides financial institutions with a network of more than 1,000 banks. Through the network, those member banks can offer their customers up to $20 million in FDIC insurance as a means to obtain funding; attract, grow and retain cus- tomer relationships; increase net interest margins; and diversify funding sources. The program is well suited for the country clubs and homeowner's associations, and other high -dollar -volume customers that Palm Desert National serves. So far, 20 cus- tomers have run $42 million in deposits through the program, which the bank pro- motes through newspaper ads featuring messages like "Don't put all of your eggs in one basket" Ile anticipates a time in the near future when the state of California approves the use of CDARS by its municipalities. "We think that could be a phenomenal source of deposits for our bank," says McGuire, "and for other independent banks in our region:' Spreading the Wealth Last year, Arlington, Va.-based Promontory formed a cooperative alliance with ICBA to tell its members about the CDARS service. Under the terms of the arrangement, ICBA members are periodically eligible for favor- able pricing. To offer CDARS, a bank must belong to the network, which today comprises over 1,000 institutions in all 50 states plus the District of Columbia and Puerto Rico. A CD placement service, CDARS kicks into gear when a customer makes a deposit through a single member bank. Using a computerized snatching service, those funds are sliced up into CDs of less than $100,000, thus ensuring that both principal and inter- est are eligible for full FDIC insurance protection. Those individual deposits are then placed with other network banks. The FDIC has stated that deposits placed through CDARS meet the "pass through" i-_ e :4 Ciffer "thee Accisunt` Registry O ) to 103A -rnqritbOrs.,Vith pmenunityyr,banits cAn offer a cus- 3 tp $20Milli tn in MIC insurance 3 :(866) , 6-6426, to find out iitniteo-time offer exclusively for 6rnbe or visit w%vW.promnet riri it , learn ,more " About the Phil Battey, vice president of pub- lic affairs for Promontory, says the CDARS program has grown signifi- cantly since inception, having started with just a handful of banks whose deposits were eligible for $260,000 of insurance coverage. "We're signing on one new bank every business day," says Battey. Ile expects growth to eventually plateau to about 4,000 total banks (slightly fewer than half of the community banks operating in the United States). To participate, banks pay a one- time implementation fee that ranges from $2,000 (for a bank with less than $100 million in as- sets) to $35,000 (for one with $50 billion or more). Banks also pay a transaction fee that ranges from 2.5 basis points (for a 4-week CD) to 24 basis points (for a 3-year CD). CDARS is especially valuable for independent banks like American Bank of 'Texas, N.A., in Marble Falls, Texas. Mark Few, executive vice president, says the 118-ern- ployee bank has fimneled about $7 million in deposits through CDARS since signing up for it in March 2004. "We wanted a prod- uct that we could offer our high -net -worth customers," says Few, whose bank has $300 million in assets. "We learned about CDARS through some banking circles and decided to investigate. After looking at the mechanics of it, we gave it a shot." And while those deposits are dis- persed among multiple banks nationwide, the customer accesses one centralized reporting system through die local community bank that took the original deposit. Early on, Few says adapting to CDARS' reporting style posed a slight challenge for American Bank, which had to start classifying those deposits separately on its gen- eral ledger. "Getting through the initial start-up phase and learning the ropes of the accounting process was a bit tricky," says Few, who re- lied on Promontory to help walk his staff through the intricacies of the program. "Once we got our arms around it, it wasn't a big deal." American Bank, which promotes the CDARS through its Web site and on banners hung in its six branches, offers the program to all of its customers, particularly those with bank balances or deposits that exceed $100,000. Whereas such customers in the past may have taken their assets to a larger com- petitor, they can now rest easy, knowing that their independent bank can handle larger deposits. "We've been able to place those deposits for thern," says Few, "in- stead of losing there to another bank or financial service company outside of the banking industry." Reducing Paper Shuffle At United Community Bank in Perham, Minn., CDARS fills a dif- ferent need. With two locations, 45 employees and $150 million in as- sets, die bank relies on die program to help it manage deposits from po- litical jurisdictions. When such deposits exceed the FDIC deposit threshold, the bank must pledge marketable securities, which trans- lates into added work for the institution (such as having pledge agreements signed, listing and noti- fying safe -keeping agents and calling bonds). "It creates a pretty significant pa- per shuffle," says Charlie Cavanaugh, bank president. In July 2005, looking to stem that paper flow, the bank signed up for CDARS. Just a few months into it, the bank has already signed up sev- eral public funds, the city and school systern for the program. Pri- vate customers are also interested, says Cavanaugh, who calls the pro- gram "very user friendly" for banks. McGuire agrees, saying the pro - grain is of particular value to community banks that can't com- pete with larger banks solely on size. "Because we can offer CDARS," he says, "we no longer have to worry about customers tak- ing money from us and going to Bank of America or Wells Fargo because they're too big to fail." 0 Bridget McCrea is a free-lance writer in Dunedin, Fla. REPRINTED WITH PERMISSION FROM INDEPENDENT BANKER • COPYRIGHT BY ICBA BOARD MEMBER ITEMS Cristina Deniel CFA CPA 79-860 Pecan Valley La Quinta, Cal 92253 October 25, 2006 La Quinta City Council Councilman Stan Sniff 78-495 Calle Tampico La Quinta, CA 92253 Dear Council Members: Dear Councilman Sniff: Last night, during the meeting between City Council and the IAB, Councilman Sniff asked me a direct question regarding whether the Finance Director could handle the investing of the City's portfolio as it grows in the same manner that a professional institutional asset management firm would. My response was "No", to which Councilman Sniff inquired "You mean he is not capable?" -- I believe that my response should be clarified. I certainly did not mean to offend John or put in doubt his professional knowledge or capabilities. A comparison is perhaps the easiest way to clarify what was meant. The best MD general practitioner should not perform heart surgery and the best heart surgeon needs a good support team and the appropriate infrastructure — a hospital, equipment, anesthesiologist, qualified nurses, etc - to be successful. It would make no sense for the City to establish its own portfolio management infrastructure. As mentioned during the meeting, the City can continue to do what it has done so successfully up to now. The current investment policy certainly satisfies all of the City's current needs given the current portfolio size. When the time comes to outsource the management of a portion of the City's portfolio, the matter can be carried to the next step. Our recommendation is that, when the City is ready, the process should be outsourced rather than handled in-house. The best way to institute this process is in small incremental steps. The next questions likely to arise are how much will it cost and how much more interest income can the City expect to earn. To answer this we would have to invite asset management firms to make presentations. My perception is that City Council does not wish the IAB to proceed to this next step. If this perception is incorrect, please let us know. Sincerely, Cristina Deniel CFA CPA, IAB Chair