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

[Pages:7]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

7th Annual Investment Report For Fiscal Year Ended September 30, 2015

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 these 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 20132014 Annual Financial Audit Report, Note 4, pages 45 ? 48. While the FY 2014-2015 Annual Financial Audit Report has not been published yet, these risks remain substantially unchanged.

III. AUTHORIZED INVESTMENT INSTRUMENTS

Florida Statutes and various bond covenants authorize investment in the 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

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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, 2015

Cash and investments held by the County consist of fourteen (14) bank accounts. These included one (1) money market account (NOW), two (2) restricted savings accounts, three (3) debt service accounts, four (4) payroll or clearing accounts and four (4) operating accounts. At September 30, 2015, cash and investments amounted to $10,238,333.43 compared to $7,504,769.19 at September 30, 2014, an increase of $2,733,564.24.

Comparative Investment Report

For Fiscal Year Ending September 30, 2015

9/30/2015

9/30/2014

Change

Portfolio Balance

10,238,333.43 7,504,769.19

2,733,564.24

Portfolio Blended Avg. Yield

0.36658%

0.36639%

0.00019%

Fiscal Year Interest Income

54,801.58

39,368.54

15,433.04

Please note that in previous reports, this portfolio did not include every bank account of the County. In previous years, the operating accounts, debt service fund accounts and payroll and clearing accounts with balances that are used to meet the on-going obligations of the County were not included. In previous years, this portfolio only included those funds deemed "excess" funds available for investment per F.S. 218.415. As part of this report, we have included all cash balances regardless of the purpose of the funds or the type of account. All balances for previous years have been restated to present a consistent comparison.

As further described 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 all of FY 14/15 was $11,732,429 but the year-end cash balances totaled $10,238,333.

The County's cash balances are at their highest in December and January of the fiscal year after most of the County's ad valorem taxes are collected with the highest balance reaching $14,139,460 in January 2015. The County's cash balances are at their lowest in October and November of the fiscal year just before the collection of these taxes with the lowest balance reaching $6,677,547 in October 2014.

The following is a summary and chart of the County's cash and investment balances as of September 30, 2015:

Portfolio Breakdown as of September 30, 2015

Number of

Portfolio Blended Interest

Account / Investment Type NOW Accounts Restricted Savings Accounts

Accounts 1 2

Book Value 5,375,466.24 980,478.79

Composition 52.50% 9.58%

Rate 0.65% 0.53%

Debt Service Accounts

3

872,875.08

8.53%

0.53%

Operating / Trust Accounts

4

3,000,126.44

29.30%

Payroll / Clearing Accounts

4

9,386.88

0.09%

Total

14

10,238,333.43 100.00%

* The "Blended Interest Rate" is the average of all the interest rates of all the accounts held by the County.

0.08% 0.18% 0.37%

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V.

MATURITY DISTRIBUTION OF PORTFOLIO

The maturity of investments affects the liquidity of the funds invested. As of September 30, 2015, all of the County's funds were held in instruments that were 100% liquid with all balances available on a daily basis. As such, there is no weighted average maturity of investments as of September 30, 2015.

The State Board of Administration (SBA) Fund B's portfolio was closed on September 30, 2014 as reported in last year's report. In October 2015 Fund A was closed as well and the final interest earnings were pulled out of the fund in the amount of $123.45

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 for infrastructure improvements will deplete funds available for investment when they are paid. The following is a comparison of the County's cash and investment portfolio at the date indicated.

Investment Account: Ameris Bank NOW Ameris Savings Ameris Bank Debt Service Accounts Ameris Bank Operating Accounts Capital City Operating Account Capital City Debt Service Accounts Centennial Bank SBA SBA ? Fund B Total

9/30/2015

9/30/2014

9/30/2013

$ 5,375,466.24 $ 4,534,202.26 $ 4,515,436.40 $

970,154.94

713,873.17

-

872,875.08

725,278.68

477,932.94

2,664,952.81

1,144,790.23

1,271,934.32

-

-

758,244.75

-

-

418,961.53

354,884.36

386,501.40

422,043.49

-

123.45

47.86

-

-

63,060.58

$ 10,238,333.43 $ 7,504,769.19 $ 7,927,661.87 $

9/30/2012 3,468,129.00 511,679.38 4,908.90 1,377,521.83 297,687.55 362,110.39 79.76 115,376.95 6,137,493.76

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 The Ameris NOW account represents the actual "excess funds" available for investment. The Ameris Savings account represents the Housing Prisoners monies held for the Sheriff's Office. The Ameris Debt Service accounts represent monies held to pay the annual payments of the Landfill, Oyster

Bay Sewer and Courthouse loans. The Ameris Bank operating accounts are the accounts used to pay the daily bills of the County, Supervisor of

Elections and Clerk of Court. The Centennial Bank accounts are the accounts used to process payroll, other similar clearing accounts and

the agency funds of the Clerk of Court.

VII. MARKET, ECONOMIC & INVESTMENT CONDITIONS

Federal Funds Rate The Federal Reserve's Open Market Committee (FOMC), the rate setting body of the Federal Reserve, met on December 16, 2015 and unanimously voted to raise the federal funds rate by 25 basis points. The rate went from a range of 0 to .25% to a range of .25% to .50%. This is significant as this marked the first rate increase since June 2006 and the first change in the rate since December 2008.

HISTORICAL TREND OF FEDERAL RESERVE RATES

* The above graph was taken from an article written by David Ashworth published on January 11, 2016 and posted on 2016/01/

Future Rate Estimates

There is some disagreement as to how many times the Fed Rate will rise in 2016 but all analysts agree it will rise. The Federal Reserve has indicated there will be four or five hikes in the rate in 2016 but some in the market are expecting only two or three rates hikes. The rate currently sits at .25% to .50% and the Central Banks anticipate the rate to rise to 1.4% by year end ? so the rate is expected to triple in one year.

The FOMC meets eight times a year with each meeting about six weeks apart. If there are going to be four rate hikes, we can expect the FOMC to raise the rate every other meeting (every 12 weeks or once a quarter). To get the rate to the "expected" rate of 1.4% by year end, the FOMC will need to raise the rate about .23% to .25% every quarter.

The longer term projections for the rate is 2.4% for 2017 and 3.3% for 2018. Again, averaged out, this would require rates increasing about .25% every quarter for the next 12 quarters.

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Economic Conditions

The key to understanding the changes (actual or proposed) in the Fed rate is recognizing the relationships of the variables that make up our economy. There are many variables in our economy and understanding their relationships and effect on each other can get complicated so we will only look at three: the inflation rate; the economic growth rate (GDP); and the unemployment rate.

Inflation Rate Congress has mandated that the Federal Reserve maintain the inflation rate at around 2%. Inflation is measured in several different rates or indexes. For example, most people look at the CPI, the Consumer Price Index, to get a picture of rising costs and prices. The FOMC measures inflation using the PCE, the Personal Consumption Expenditure Index. The PCE rate has remained below the targeted 2% for three years in a row. The FOMC expects the PCE rate to increase in 2016 and 2017 with projections between 1.7% and 2.1%.

Economic Growth Rate Economic growth is also measured in a variety of ways but the GDP, the gross domestic product, is a good, broad indicator of our economy's growth. There are many factors that affect GDP as well such as domestic spending, net U.S. exports, the strength of the U.S. dollar, and the strength of foreign markets, just to name a few. The FOMC expects the GDP to rise by 2.4% in 2016 and 2017.

Unemployment Rate The FOMC expects the unemployment rate in 2016 and 2017 to range between 4.6% and 4.9% which, in market terms, is nearing "full employment". An important aspect of analyzing the unemployment rate is looking at which markets or sectors of the economy have rising or falling unemployment.

Sources: 1. "What do the FOMC's December 2015 Meeting Minutes Mean For Investors?" written by David Ashworth published on January 11, 2016 and posted on 2016/01/

2. "December FOMC Minutes Reveal Worries Over Low Inflation" written by Paul Ausick published on January 6, 2016 and posted on economy/2016/01

VIII. INVESTMENT INCOME

Over the past several years, despite an increase of available funds for investment, our total investment income has declined due to the continual fall of short-term rates to historic lows of less than 1%. In FY14-15, Wakulla's interest income finally started to grow due to record highs in fund balance and better than average daily rates from our local banks. The increase in investment income for FY14/15 over the previous fiscal year was $15,433.04, or a 40% increase, which does not take into account the SBA one-time final payout of interest.

INVESTMENT INCOME COMPARISON

Fiscal Year:

9/30/2015

Investment Income:

$ 54,801.58 $

One time SBA final payout of interest $ 12,703.09

$ 67,504.67

* The SBA final payout of interest will be discussed below.

9/30/2014 39,368.54 $

9/30/2013 37,540.69 $

9/30/2012 43,439.68

Since Wakulla's fund balances are the strongest they have been in recent history, if not ever, liquidity or cashflowing daily operations is no longer a serious challenge (as discussed on the first page, liquidity is always a concern). As such, investing the County's "excess" funds in longer term maturities in order to achieve a higher interest rate is now a viable option. The Clerk's office routinely examines the market rates of 3 month, 6 month, 1 year and 2 year maturities and "investment pools" offered by various entities in the State of Florida.

Throughout FY14-15, the rates we were receiving from our local banks exceeded all other investment options except for 2 year investments for a few months of the year. Since liquidity is always a concern, the Clerk's Office does not believe that the County should "tie up" its investment monies for two years or more. Doing so right now would create principal safety concerns (the greatest concern) should an unanticipated need arise (liquidity) for those funds in the short-term.

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Below you will find a comparison of the average monthly interest rates earned by the County as compared to some of the rates on the open market.

As the chart above shows, Wakulla's blended average interest rate (the red line) out-performed the Fed Funds rate and the 3 Month Treasury Bill rate for the entire year and out-performed the 1 Year Treasury Bill rate for 11 of the 12 months. Only the 2 Year Treasury Note rate has out-performed our blended yield rate. There is one account, Wakulla's Investment account (NOW), which while maintaining daily liquidity still out-performed the 2 Year Treasury Note for 8 of the 12 months. In summary, Wakulla County has been able to obtain higher interest rates, resulting in higher investment income and has been able to do so with overnight deposits thus safeguarding principal safety and liquidity which is a higher priority than yield.

Investment fees should also be taken into consideration and yields should be reported net of costs. No investment fees were incurred in FY 14-15 since all of the County's funds were in overnight deposits. The County's operating account does incur bank fees on a monthly basis. The total cost in bank fees for the Ameris Bank operating account for FY14-15 was $4,549.01. Taking these fees into consideration, the County's blended average yield of .36658% drops to .34971%, or our total costs were less than .02%.

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. Due to this transfer and the prohibition of withdrawing funds, Wakulla's principal balance of $6,467,800 was unavailable. Between December 2007 and September 2014, Fund B's holdings were distributed as the investments matured and became available. As of 9/30/2014, Wakulla's principal balance had been made whole. As of 12/31/2014, the SBA Fund B Reserve was estimated at $43,000,000. Senate Bill 7024 as proposed and passed stated that this reserve balance should be allocated to all participants, on a pro-rata share of the November 2007 interest that would have been paid to participants. As a result of this bill, Wakulla County received $12,703.09 in past due interest income in FY 14-15.

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, 2015 as required by Chapter 280, Florida Statutes. All of the County's bank accounts were in qualified public depositories. For more information on what this means or to obtain this report, please contact the Finance Department of the Clerk of Court.

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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 or investment 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.

4. 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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