Note X – Deposits and Investments

Note X – Deposits and Investments

A. Deposits [1]

The (city/county/district) does not have a deposit policy for custodial credit risk.

Custodial credit risk for deposits is the risk that, in event of a failure of a depository financial institution, the (city/county/district) would not be able to recover deposits or will not be able to recover collateral securities that are in possession of an outside party. The (city/county/district’s) deposits and certificates of deposit are mostly covered by federal depository insurance (FDIC) or by collateral held in a multiple financial institution collateral pool administered by the Washington Public Deposit Protection Commission (PDPC).

The bank balances that were exposed to custodial credit risks are (use one of the following examples):

Fund	Uninsured and Uncollateralized	Uninsured and Collateral Held by Bank	Uninsured and Collateral Held by Pledging Bank’s Trust Department not in (city/county/district’s) Name
Total:

-OR-

Uninsured and Uncollateralized	$
Uninsured and Collateral Held by Bank
Uninsured and Collateral Held by Pledging Bank’s Trust Department not in (city/county/district’s) Name
Total:	$

B. Investments [2]

Investments are subject to the following risks:

Interest Rate Risk: Interest rate risk is the risk the (city/county/district) may face should interest rate variances affect the fair value of investments. The (city/county/district) does not have a formal policy that addresses interest rate risk. The following provides the method the (city/county/district) uses to identity and manage interest rate risk [2]:

Investment Maturities (in Years)
Investment Type	Fair Value (or Amortized Cost)	Less than 1	1 to 5	6 to 10	More than 10
US Treasury Securities
US Agency Securities
Corporate Bonds
Commercial Paper
(Other)
(Other)
Total:

Credit Risk: Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The (city/county/district) does not have a formal policy that addresses credit risk.

At December 31, 20__, (city/county/district’s) investments had the following credit quality distribution for securities with credit exposure:

(S&P, Moody, Fitch) Rating
Investment Type	Fair Value (or Amortized Cost)	AA+	A	BBB and below	Unrated
US Treasury Securities
US Agency Securities
Corporate Bonds
Commercial Paper
(Other)
(Other)
Total:

Custodial Credit Risk: Custodial credit risk is the risk that, in the event of the failure of the counterparty, the (city/county/district) will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The (city/county/district) does not have a formal policy for custodial credit risk.

Investment Type	Held by Counterparty	Held by Counterparty’s Trust Department or Agent
Total:

Concentration of Credit Risk: Concentration of credit risk is the risk of loss attributable to the magnitude of an investment in a single issuer. The (city/county/district) does not have a formal policy for concentration of credit risk.

Investments in Local Government Investment Pool (LGIP)

The (city/county/district) is a voluntary participant in the Local Government Investment Pool, an external investment pool operated by the Washington State Treasurer. The pool is not rated and not registered with the SEC. Rather, oversight is provided by the State Finance Committee in accordance with RCW 43.250. Investments in the LGIP are reported at amortized cost, which is the same as the value of the pool per share. The LGIP does not impose any restrictions on participant withdrawals.

The Office of the State Treasurer prepares a stand-alone financial report for the pool. A copy of the report is available from the Office of the State Treasurer, PO Box 40200, Olympia, Washington 98504-0200, online at www.tre.wa.gov.

Investments in (county investment pool) [3]

The (city/county/district) is a participant in the (county investment pool), an external investment pool operated by the County Treasurer. The pool is not rated or registered with the SEC. Rather, oversight is provided by the County Finance Committee in accordance with RCW 36.48.070. The (city/county/district) reports its investment in the pool at (amortized cost / fair value), which is (the same as the value of the pool per share / or disclose the difference between the reported amount and the value of pool shares). (The pool does not impose any restrictions on participant withdrawals / or disclose restrictions).

Investments Measured at Fair Value [4]

The (city/county/district) measures and reports investments at fair value using the valuation input hierarchy established by generally accepted accounting principles, as follows:

• Level 1: Quoted prices in active markets for identical assets or liabilities;
• Level 2: These are quoted market prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other than quoted prices that are not observable;
• Level 3: Unobservable inputs for an asset or liability.

At December 31, 20__, the (city/county/district) had the following investments measured at fair value:

Fair Value Measurements Using
Investments by fair value level	Total	Quoted Prices in Active Markets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
US Treasury Securities
US Agency Securities
Corporate Bonds
Commercial Paper
(Other)
(Other)
Total Investments:
Investments measured at amortized cost
Local Government Investment Pool
(Other)
Total Investments:

Investments Measured at Net Asset Value (NAV) [5]

C. Summary of Deposit and Investment Balances [6]

Reconciliation of (city/county/district’s) deposits and investment balances as of December 31, 20__, is as follows:

	[Government Wide/Single Fund]	[Fiduciary Funds]
Cash on hand
Amount of Deposits with Private Financial Institutions
Deposits in State LGIP
Internal Investment Pool
External Investment Pool
Non-Pooled Investments
Total Deposit and Investments
Deposits
Current:
Cash and Cash Equivalents
Restricted Cash and Cash Equivalents
Noncurrent:
Restricted Cash and Cash Equivalents
Total Deposits
Investments
Current:
Short-Term Investments
Restricted Short-Term Investments
Noncurrent:
Restricted Cash and Cash Equivalents
Other Investments
Total Investments
Total Deposits and Investments

D. Gains and Losses on Investments [7]

E. Other Disclosures [8]

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Instructions for preparer:

This disclosure is required for a primary government as a whole. Risk disclosures should also be made for governmental and business/type activities, individual major funds, nonmajor funds in aggregate, or fiduciary fund types when the risk exposures are significantly greater than the deposit and investment risk of the primary government.

Disclosures should distinguish between the primary government and its discretely presented component units. The financial statements should make those discretely presented component unit disclosures that are essential to fair presentation of the basic financial statements.

Disclosure is limited to the types of deposits and investments held at year-end.

[1] The following disclosures are required regarding cash deposits with financial institutions:

• Legal and contractual provisions regarding deposits;

• Policies governing deposits;

• Exposure to custodial risk as of the date of the balance sheet or statement of net position;

• Defaults and recovery of prior period losses

If the city/county/district has bank balances subject to custodial credit risk, provide a brief description of its deposit policies related to deposit custodial credit risk or state that it does not have a deposit policy for custodial credit risk. Disclose only that portion of the total bank balance that was subject to deposit custodial credit risk.

Note: The Washington Public Deposit Protection Commission (PDPC) establishes qualified public depositories and sets collateral requirements on uninsured public deposits. See the Washington State Treasurer’s PDPC website for more details.

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[2] The following general disclosures are required regarding investments:

• Types of investments authorized by legal or contractual provisions (if types of investments authorized for different funds, fund types, blended component units, or discretely presented component units differ significantly from those authorized for the primary government and have material investment activity compared with the reporting entity’s investment activity, the differences in authorized investment types should be disclosed)

• Significant violations during the period of legal or contractual provisions for investments and actions taken to address such violations, which may be disclosed in this note or in a separate note, if applicable.

• Investments determined by the investment pool to be reported at amortized costs must be separately disclosed, if the city/county/district has its own policy for determining which investments, if any, are reported at amortized cost, disclose the policy in Note 1 Summary of Significant Accounting Policies 2. Investments.

• Disclosures that are related to the following risks:

  • Interest rate risk

  • Credit risk

  • Custodial credit risk

  • Concentration of credit risk

If applicable, provide disclosures for the following types of risk. If the city/county/district does not have any investments exposed to risks identified below, delete risk description. Risk disclosures applicable to investments should be reported separately by investment type.

Governments should also disclose policies relevant to each of the different types of risks, but only for those types of risks actually faced by the government. If a government does not have a policy that covers one or more of the risks it is facing, that fact must be disclosed.

• Interest rate risk − information should be organized by investment type and amount using any of the methods allowed by Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards (Cod.) Section (Sec.) I50 "Investments". The example note disclosure above reflects a segmented time distribution method.

Disclose any assumptions made in the process of applying these methods. Also disclose terms of any investments that are highly sensitive to interest rate risk.

• Credit risk - disclose credit ratings for investments in debt securities, whether held directly or indirectly including the credit ratings for positions in external investment pools.  If a rating is not available, that fact should be disclosed.  This requirement does not apply to the debt securities of the U.S. government or obligations of the U.S. government agencies that are explicitly guaranteed by the U.S. government.  The disclosure should use the various rating categories (e.g., AAA, Aaa, etc.) set by nationally recognized statistical rating organizations (e.g., Fitch Ratings, Moody’s Investor Services, Standard & Poor’s, etc.).

• Custodial credit risk– disclose for investments only if unregistered/uninsured securities are held either by the counterparty or by the counterparty’s trust department or agent, but not in government’s name.

• Concentration of credit risk - disclose amount and issuer of investments that represents 5% or more of total investments. This requirement does not apply to investments issued or explicitly guaranteed by the U.S government and investments in mutual funds or external investment pools. Additionally, risks related to certain concentrations or constraints, including some that have the characteristics of a concentration of credit risk may require additional disclosures under GASB Cod. Sec. I50 "Investments".

For more information see GASB Cod. Sec. I50 "Investments".

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[3] This applies only to PARTICIPANTS in investment pools (For Counties that sponsor a County investment pool see Note X – External Investment Pool (Counties Only) and BARS 3.2.2, County External Investment Pool).

 Participants in external investment pools must disclose:

• That the pool is not SEC-registered, and a brief description of any regulatory oversight for the pool

• Whether investments in the pool are reported at amortized cost or fair value.

• Whether fair value of the position in the pool is the same as the value of the pool shares.

• Whether participation is voluntary or involuntary. If the county acts as the government’s treasurer, participation in the county pool is considered involuntary since it is specified by law.

• For pools reported at amortized cost, any limitations or restrictions on withdrawals from external investment pools (such as redemption notice periods, maximum transaction amounts, and the external investment pool’s authority to impose liquidity fees or redemption gates).

If the government cannot obtain information from a pool sponsor to make one or more disclosures, the government’s understanding of the pool should be disclosed along with the fact that the government was unable to obtain confirmation from the pool about this understanding. See GASB Cod. Sec. I50 "Investments" for details.

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[4] Investments should generally be reported at their fair value. If there are no such investments, this section should be deleted.

• Fair value measurement at the end of the reporting period,

• Level of fair value hierarchy,

• A description of the valuation techniques used,

• For any significant changes in valuation techniques, the changes and the reason for making them.

Disclosure is required for the reason for any nonrecurring measurements.

Disclosure should be organized by type of investment. Appropriate grouping by type is a professional judgement based on:

• Nature, characteristics and risks of the asset or liability,

• Level of fair value hierarchy within which the fair value measurement is categorized,

• Whether standards specify a type for an asset or liability,

• Identifying transactions that are not orderly,

• Objective or the mission of the government,

• Characteristics of the government,

• Relative significance of assets and liabilities,

• Whether separately issued financial statements are available,

• Line items presented in the statement of net position.

However, governments have the option of reporting certain investments at cost or amortized cost. For example, investments held by external investment pools meeting requirements of GASB Cod. Sec. I50 "Investments", and money market investments and participating interest-earning investment contracts with a remaining maturity at time of purchase of one year or less, provided that the fair value is not significantly affected by credit impairments or other factors.

Level 1 inputs
Level 1 inputs are quoted (unadjusted) prices in active markets for identical assets or liabilities that the government can access at the measurement date. Observable markets include exchange markets, dealer markets, brokered markets and principal-to-principal markets.

Level 2 inputs
These are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Inputs are derived from or corroborated by observable market data through correlation or by other means.

• Quoted prices for similar assets or liabilities in active markets,

• Quoted prices for identical or similar assets or liabilities in inactive markets,

• Inputs other than quoted prices that are observable for the asset or liability, such as:

  • Interest rate and yield curves observable at commonly quoted intervals

  • Implied volatilities

  • Credit spreads

• Market-corroborated inputs.

Level 3 inputs
Unobservable inputs for the asset or liability; only should be used when relevant Level 1 and 2 inputs are unavailable. Government may use their own data to develop unobservable inputs if there is no information available.

Note: Governments using a pricing service or custody bank for fair values will need closely review their statements and contact the financial institution to understand how they determine fair value and determine the source of the fair value information used for each investment type.

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[5] Investments Measured at Net Asset Value (NAV)

A government can use NAV per share, as a practical expedient, for investments in nongovernmental entity that does not have a readily determinable fair value (also known as “alternative investments”). The NAV is not permitted for valuation if it is probable the government will sell the investment at a different price. Investments measured at NAV would be excluded from the fair value hierarchy (Level 1, 2, or 3). Note: Investment pools containing language for NAV at fair value or amortized cost should be reported in accordance with other investments at fair value or amortized cost, and not as investments using NAV as a practical expedient.

Alternative investments measured using NAV require additional disclosure for financial statement users to understand the investment’s nature and risks due to the increased uncertainty and subjectivity of the investment and whether such investments are likely to be sold at an amount different from NAV per share. The required disclosure includes:

• Fair value measurement of the investment type and description of the significant investment strategies;

• For investments that can never be redeemed with the investees, the government’s estimate of the liquidation period;

• Amount of unfunded commitments;

• General description of the redemption terms and conditions;

• Redemption restrictions, estimate of length of restriction period or how long restriction has been in place;

• Any other selling restrictions;

• Fair value of investments for any planned sales at an amount different from NAV per share and any remaining actions required to complete the sale;

• If a sale is planned but not all assets have been identified, the government’s plans to sell and any remaining actions required to complete the sale.

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[6] Optional disclosure for cash and investments reconciliation. There is no requirement to reconcile the disclosures required for cash equivalents or deposits and investments to the statement of cash flows or to the statement of net position/balance sheet. Many of the deposits and investments that are subject to disclosure requirements may be reported in the statement of net position/balance sheet as cash and cash equivalents. Other may be reported in the statement of net position/balance sheet using titles that do not identify their nature as deposits and investments. Disclosure of such reconciliation can provide useful information to the users of the financials.

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[7] Local government may disclose realized gains and losses computed as the difference between the proceeds of the sale and the original cost of the investments sold. They also should disclose that:

a. The calculation of realized gains and losses is independent of a calculation of the net change in the fair value of investments.

b. Realized gains and losses on investments that had been held in more than one fiscal year and sold in the current year were included as a change in the fair value of investments reported in the prior year(s) and the current year.

For more details, see the GASB Cod. Sec. I50 "Investments".

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[8] Additional disclosures are needed if the government holds any of the following types of deposits or investments: 

• If the government participated in any securities lending transactions during the period, disclosures required by GASB Cod. Sec. I60 "Investments - Securities Lending" should be added.

• If the government participated in any reverse repurchase agreement transactions during the period, disclosures required by GASB Cod. Sec. I55 "Investments - Reverse Repurchase Agreements" should be added.

• If the government used, held, or sold any derivatives or similar instruments during the period covered by the financial statements, it must disclose the nature of transactions, objective for entering into transactions, the notional amount, effective date and other significant terms and the fair market value of the derivatives as of fiscal year end.

• If the government has any compensating balance agreements (See BARS 3.2.5, Compensating Balances) with banks in lieu of payments for services rendered, disclose the average compensating balances maintained during the year.

• If the government has any deposits or investments denominated in foreign currency, disclose the U.S. dollar value of any deposits or investments denominated in foreign currency, organized by each different foreign currency denomination and type of investment.

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