Brent X. Thurmond, C.P.A. Wakulla Clerk of Courts 3056 ...

Brent X. Thurmond, C.P.A. Wakulla Clerk of Courts 3056 Crawfordville Highway Crawfordville, Fl. 32327 Phone (850) 926-0300 Facsimile (850) 926-0938 __________________________________________________________________

WAKULLA COUNTY

6th Annual Investment Report For Fiscal Year September 30, 2014

I.

INTRODUCTION

The Clerk's Office is tasked with the responsibility of being the clerk and accountant to the Board of County Commissioners and custodian of County funds, among many other duties, as outlined in Florida Constitution Article VIII 1(d) and Florida Statute 125.17.

As part of being the custodian of County funds, we have the responsibility to invest the County's "excess" funds. "Excess" funds are those funds that are on hand at any point in time that are above and beyond the funds needed to pay current obligations of the County. For example, the County collects most of its ad valorem taxes in the months of December ? February but much of those funds will not be needed until July ? September. These excess funds are invested until they are needed. Wakulla County uses F.S. 218.415 as its Investment Policy.

II.

INVESTMENT OBJECTIVES

There are three (3) investment objectives of the Clerk's Office, listed in order of importance: safety, liquidity and return on investment. The order of these objectives is intended to minimize the risks inherent to any investment of funds.

The risks to the safety of County funds are minimized by limiting the types of investment instruments to those approved by F.S. 218.415 and only using qualified public depositories (QPD's) as defined in F.S. 280. The risks to the liquidity of County funds are minimized by measuring and monitoring the County's short-term cash needed to meet its obligations and the weighted average maturity of its investments. The risks to the return on investment of County funds are managed by monitoring market and economic conditions (i.e. fixed versus variable rates and length of maturity).

There are five components of investment risk: custodian credit risk, interest rate risk, credit risk, concentration risk and foreign currency risk. The Clerk's Office limits the County's exposure to these risks by following the sound investment policies established in F.S. 218.415. For more information on these risks please refer to the 2012-2013 Annual Financial Audit Report, Note 4, pages 46 ? 48. While the FY 2013-2014 Annual Financial Audit Report has not been published yet, these risks remain substantially unchanged.

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III. AUTHORIZED INSTRUMENTS

Florida Statutes and various bond covenants authorize investment in following types of instruments: Certificates of deposit, Money market accounts, Savings accounts, Repurchase agreements, The Local Government Surplus Trust Fund, Florida Local Government Investment Trust Fund, Obligations by the Florida State Board of Administration, Obligations of the U.S. Government, Obligations of government agencies unconditionally guaranteed by the U.S. Government, Obligations of the Federal Farm Credit Banks, Obligations of the Federal Home Loan Mortgage Corporation, including Federal Home Loan Mortgage Corporation participation certificates, Obligations of the Federal Home Loan Bank, Obligations of the Government National Mortgage Association, Obligations of the Federal National Mortgage Association and Securities of any management type investment company or investment trust registered under the Investment Company Act of 1940, 15 U.S.C. ss.80a-1 et seq., provided the portfolio is limited to U.S. Government obligations and to repurchase agreements fully collateralized by U.S. Government obligations.

The County invested in only these authorized types of instruments during the fiscal year.

IV. CASH & INVESTMENT PORTFOLIO BALANCES AT SEPTEMBER 30, 2014

Cash and investments held by the County consisted of a money market account, a savings account and Florida Prime SBA (State Board of Administration's Local Government Surplus Funds Trust Fund). At September 30, 2014, cash and investments amounted to $5,228,429.05 compared to $5,144,935.57 at September 30, 2013, an increase of $83,493.48 despite the increased activity in capital projects during the year.

Please note that this portfolio does not include every bank account of the County. There are operating accounts, debt service fund accounts and payroll accounts with balances that are used to meet the on-going obligations of the County. This portfolio only includes those funds deemed "excess" funds available for investment per F.S. 218.415.

As further describe under the "Portfolio Growth" section, there is a distinction between the cash balances at fiscal year-end and average daily cash balances throughout the year. For example, the average daily cash balance available for investment for all of FY 13/14 was $3,541,745.52 but the year-end cash balances totaled $5,228,429.05.

The following is a summary and chart of the County's investment balances as of September 30, 2014:

Investment Account: NOW Account Savings Account Florida Prime SBA ? Fund A Florida Prime SBA ? Fund B

9/30/14 Balance

$ 4,514,453.05

$ 713,873.17

$

102.83

$

0.00

9/30/14 Value

$ 4,514,453.05

$ 713,873.17

$

102.83

$

0.00

Unrealized Gain / (Loss) $ 0 $ 0 $ 0 $ 0

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V.

MATURITY DISTRIBUTION OF PORTFOLIO

The maturity of investments affects the liquidity of the funds invested. As of September 30, 2014, all of the County's funds were held in instruments that mature within six (6) months. The weighted average maturity of investments as of September 30, 2014 was:

Investment Account: Ameris Bank NOW Account Ameris Bank Savings Account SBA SBA ? Fund B*

Weighted Average Maturity (WAM) N/A ? Immediate N/A ? Immediate 39 days - WAM N/A ? Fund B Closed as of 9/30/2014

* See Disclaimer, Disclosures & Notes #1.

VI. PORTFOLIO GROWTH

The funds available for investment are directly related to the health of the County's fund balances. As fund balance improves, more funds are available for investment. At the same time, funds held and built up for the purpose of capital projects for the purchase of vehicles and equipment or infrastructure improvements deplete funds available for investment when expensed. The following is a comparison of the investment portfolio at the date indicated:

Investment Account: Ameris Bank NOW Ameris Savings Capital City Bank Gulf State Bank CD SBA SBA ? Fund B

9/30/2014 $4,514,453.05

$713,873.17 -

$102.83 -

9/30/2013 $4,285,426.72

$796,448.27

$32.11 $55,648.26

9/30/2012 $3,280,603.15

$1,377,521.83

$24.23 $115,352.72

9/30/2011 $1,846,903.03

$1,179,033.18

$50,000.00 $26.58

$147,704.28

Total

$5,228,429.05 $5,137,555.36 $4,773,501.93

$3,223,667.37

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VII. MARKET, ECONOMIC & INVESTMENT CONDITIONS

Future Estimates

The Federal Reserve's open market committee met in December 2014 and, again, left interest rates unchanged at a range of zero to a quarter percentage point. Rates have been held near zero since December 2008. Federal Reserve Chairman Janet Yelen did hint that the committee would consider raising rates in about six months or after "...the next couple meetings". The Committee is scheduled to meet again in January and March of 2015.

Several factors such as the inflation rate being below the Central Bank's target of 2%, the unemployment rate of 5.6% (December 2014) is still higher than the Central Bank would like to see and "international developments" related to the broader global financial crisis and specific decisions made by the European Central Bank weigh into the Federal Reserve's decision to not raise rates. Forecasts released with the Committee's official statement expect rates to settle between 0.375% and 4.0% by the end of 2016. This is, of course, a very broad range indicating "there is no clear consensus on the outlook in two years". The median estimate for 2015, 2016 and 2017 was 1.125%, 2.5% and 3.625% respectively.

(Excerpts taken from the article "Federal Reserve leaves interest rates unchanged" dated January 28, 2015, written by Steven Mufson and published in The Washington Post and the article "Fed Sets Stage for Rate Hikes in 2015" dated December 17, 2014, written by Jon Hilsenrath and published in The Wall Street Journal.)

Historical Values

Type of Investment: FED Funds Rate Three (3) Month Treasury Bill Six (6) Month CD Two (2) Year Treasury Note Wakulla County Weighted Avg.

13-14 .09% .04% .41% .37%

12-13 .13% .06% .22% .29% .24%

11-12 .14% .09% .44% .28% .33%

10-11 .10% .05% .42% .45% .98%

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As the two charts above show, Wakulla's blended average interest rate for the last two years has out-performed the Fed Funds rate, 3 Month Treasury Bill rate, and the 6 Month Negotiable Certificates of Deposit (secondary market) rate, when offered. Only the 2 Year Treasury Note rate has out-performed our average interest earnings. Wakulla County has been able to almost match that rate and has been able to do so with overnight deposits thus safeguarding liquidity which is a higher priority than yield.

VIII. INVESTMENT INCOME

Despite the increase of available funds for investment over the last four (4) years, our total investment income continues to decline due to the fall of short-term rates. Since Wakulla's fund balances are still on the mend and liquidity is still an important factor, investing in longer maturing, better rate instruments is not recommended.

2013-14

2012-13

2011-12

2010-11

Investment Income*

$35,778.89 $37,540.69 $43,439.68 $15,985.32

* Investment Income = Interest Income +/- Changes in Market Value

IX. DISCLAIMER, DISCLOSURES & NOTES

1. SBA Fund B ? As a result of the liquidity crisis beginning in the late summer of 2007, specific securities held within a local government investment pool (LGIP) became distressed and/or defaulted and were transferred to a newly created "Fund B" portfolio. As a result of this new fund, Wakulla's principal balance of $6,467,800 was unavailable for withdrawal. Between December 2007 and September 2014, Fund B's liquid cash holdings were distributed as they became available and, as of 9/30/2014, Wakulla's principal balance has been made whole. As of 12/31/2014, the SBA Fund B Reserve was estimated at $43,000,000 and Senate Bill 7024 proposes that this reserve balance be allocated to all participants, on a pro-rata share of the

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November 2007 interest that would have been paid to participants. If SB 7024 is approved, Wakulla County is expected to receive approximately $11,737.02 in interest income.

2. The Public Depositor Annual Report to the Chief Financial Officer was provided to the Department of Financial Services for the period ending September 30, 2014 as required by Chapter 280, Florida Statutes. This report is available upon request.

3. The information provided in this report is believed to be accurate and correct but this report has not been audited. Future outcomes are not based on historical results and none of the information provided herein should be used to make personal financial decisions. Although, pursuant to Chapter 119, Florida Statutes, this report is a public record and its distribution is not limited, this report is intended solely for the use of Wakulla County, Florida's management and is not intended to be and should not be used by any other party.

Some of the information and data provided within this report may be found at these sites: Florida Statutes - Federal Reserve Historical Interest Rates -

END OF REPORT

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