thank you good afternoon chair council members as mister sumar eo mentioned i am julian amos i'm the treasurer manager for the finance department and today i'll be presenting the quarterly investment report for the quarter ended december st two thousand and fifteen i'm going to be going over six different sections today the first being what are authorized investments and reporting requirements after that a little information on the current and future interest rate environment our investment strategy  approach as well some long term trends on interest in earnings interest rates and earnings some benchmarks that we can compare the city's portfolio rate to as well as the quarters investment performance activity first of all i wanted to give a little bit of background on the authorized investments and reporting requirements for the city the city's investment program is regulated by california government codes specifically sections fifty three six hundred through fifty three six hundred and ninety two and these government code sections regulate activities such as the type of investments we can invest in maturities investment policy requirements if you were to adopt an annual investment policy reporting requirement standards of care those are just some of the items that these code requirements mandate and state law does not require that we adopt an annual investment policy every year however we do bring one to counsel every year and council adopts it prior to september th every year and there's a couple reasons why we do this one it sets a guide for setting and achieving the city's investment policy objectives and we have three primary objectives first being we call it sly first is safety then liquid then yield we want to invest in a way that will provide for maximum security will give us adequate liquidity and give us a return on investment we also want to diversify the portfolio and that's one way that we really tr ensure safety in our investment program having a statement of investment policy also provides guidelines for portfolio management it sets things such as standard of care ensures that there's no conflicts of interests it provides delegation of authority for making investment transactions it also defines suitable and authorized investments what types of investments the city is authorized to invest in such as us treasuries federal agency securities certificates of deposit the local agency investment fund we refer to that as leaf you probably heard us call that before it also sets some terms such as you cannot exceed five a five year term without councils authority it also sets the percentage limitations on how many how much you can invest in a type of security or in a specific issuer and i do want to point out there there are some areas that the city is decided to be more conservative than government code one of those areas is for example a percentage limitation on the type of investment we can invest in we're a little bit more conservative in some of those areas in addition to some of the standards of care and objectives that also sets some reporting requirements monthly we're required to report and we provide a summary of the portfolio as well as a listing of all the investment transactions for the month in addition to monthly there's a quarterly reporting requirement which has the same information as the monthly but provides a little bit more it provides a comprehensive report with a narrative that will list out any deviations from investment policy any noteworthy items any change in credit quality of our corporate bonds any changes any information on the economic conditions what the future may look like it also includes a statement of compliance with our investment policy as well as a confirmation that the city will be able to meet expenditures for the next six months and if they're not going to be able to meet the expenditures why the last item that's required in the quarterly is the fiscal agent report what this is is a description of any of the city's investments that are managed under contracted parties and is going to be things such as our bond funds and our police and fire service retirement fund so now it's going to provide a little information on our interest rate environment as you probably know in december the federal reserve increased interest rates for the first time in seven years and it was zero point two five percent increase but it was the first time in several in seven years on december th what this means is it has almost an immediate impact on interest rates for our our treasuries and we saw the impact both leading up to the rise because there was a lot of talk that that was going to be happening in december as well as immediately after so interest rates were rising in december and i'll provide a little more information on the couple charts ahead but there were a lot of reasons that the federal reserve gave for the basis for this increase one they said that there was an improved us economy they also said there's increased domestic spending they were seeing a decrease in unemployment more jobs were entering the market and they were also expecting inflation to increase in the near future so those were just some of the reasons why they provided for doing this increase in december so because of partially because of what happened with the federal reserve rate increase other reasons as well may be potential other economic factors the treasury rates did experience an increase in the last quarter for the quarter  one the shorter term treasuries showed the largest increases those were from the six month two five year term the two year treasury had the biggest increase it was an increase of forty two basis points so it's a pretty big increase in one quarter the rates range between zero sixty five one seventy six from the one year two five year terms which is generally the range that the city will invest in the federal reserve has proposed that a plant acre menu incrementally increase interest rates over the next two years but it's all going to depend on economic factors and if the economy will support those increases and i'm gonna on the next slide get into what we've seen since december and the economic factors in the economic environment i did also want to point out that we've talked about this before other quarterly investment reports but it will take several years until you'll see a material impact for the city on interest earnings because it as maturities are called or as investments are matured or called that's when we can invest back into the market so it takes time so even though there's an immediate impact to interest rates it takes time before interest earnings actually see that benefit so i wanted to give a little information about what has happened in the economy since the federal reserve raised those interest rates what we're seeing is that gas prices continue to fall and we the projection is that they're going to continue to fall as more more oil producers enter the market we're also see inflation remaining very low also impacted by falling oil prices we're seeing some gains in the labor market jobs being added back to the market however there's minimal wage growth there's some data that points to wage growth occurring in two thousand and sixteen but at this point there has been some very minimal wage growth and the global economy continues to weaken specifically china which is one of the strongest economies in the world and we're seeing a very strong us dollar that affleck's affects not only inflation it affects manufacturing it affects exports all of these things affect consumer confidence which can affect spending and i wanted to also point out that we're seeing the stock markets both globally and locally fall and as stocks fall investors tend to flee from the stock market and go towards treasuries which also also lower interest rates so i wanted to give a little bit more information on our investment strategy and approach as i mentioned before the main objective of the city is to preserve principal after that if liquidity and yield we buy into the market we don't chase yields we don't try to predict what the markets going to do our overall strategy is passive we let we wait for the investments to mature and we attempt to maintain a steady maturity over a five year period we call it our five year ladder and there are several reasons why we do this we want to ensure that we have adequate cash for our daily needs we also want to make sure that at no time are we going to have influx of cash that we have to invest in a low interest rate environment and also recently the city has had some pretty high cash needs for things such as the desal project and the recycled water plant and we've this latter allows us to increase our liquidity for times of high cash flow needs so this is one of the first charts i'll be providing to you it's a looks at both trends and our rates over that four year period it provides five different rates but i'm gonna focus on three the first being the city portfolio which is in blue the five year note is in green and the two year note is in red i'm gonna highlight the last two years for december th and december th of the city portfolio what i wanted to point out here is you see some volatility in both the five year and the two year note it drops in twelve and it's starting to pick up again or even out in the last couple of years but you'll suit the city's portfolio rate is that it's a bit more stable than the two year and the five year notes and part of that is because we we buy into the market as things mature and we invest in a broad range of investments in securities so we're not as impacted by these fluctuations and the interest rates and what this does show overall is that interest rates are are picking up a little bit but they're still pretty low and i'll be providing a chart in the next couple slides that shows what interest rates look like today because they have fallen again this is a common comparison that we provide it's a benchmark it's the city's portfolio rate compared to the five year note what you'll notice here is that these generally trend very close together and they should because we do invest in treasuries generally generally two to five years the one thing i wanted to point out is that the portfolio rate will lag behind the five year note as we buy back into the market so you'll see that that five year note has just recently bumped up a little bit higher than the portfolio rate and but in general the trends are the same and this is an indicator of the city's performance if the city were to deviate substantially from that trend it would be it would warrant additional rev this is another benchmark similar to what we've just provided it is the city's portfolio rate compared to the two year treasury in the lay freight once again you'll notice they follow very similar patterns that portfolio rate is still just slightly above the two year rate you'll notice the two year recently is jumped back up but as of yesterday it has fallen again but once again it's important to note that they are following the same trend alluded to this earlier that i would provide some data more recent regarding the treasury yields and sue's as of yesterday and this is what we call our treasury yield curve it provides the interest rates for all the way from lathe up to five years six and it is now at point eight six and the five year at one thousand two hundred and thirty one was one seventy six it's now one point four four so we are seeing rates fall pretty substantially again just in a month so the quarter performance we are seeing that that we saw that the yield slightly went up from one point one one percent at nine thirty to one thirty percent the interest earned did fall from about fifty three thousand dollars to three hundred and ninety three three hundred and zero with the general fund portion being about a hundred and sixteen thousand total cash in investments has decreased about six million dollars from one hundred and fifty three million to about one hundred and forty seven million and this is largely due to some one time costs i mentioned earlier some large projects going on as well as timing related we do receive property taxes at different times of the year and we just ended up in january received over twelve million dollars in property taxes this is a summary of the investment activity for the quarter what this shows is about well it'll over twelve million dollars matured in securities this includes one hundred and forty two thousand dollar semiannual  the airport promissory note about fourteen million of mature of securities were called and twenty million were purchased this net six million dollars that went back to our bank account a little over six million this next chart is a summary of the investment portfolio cache of investments at one thousand two hundred and thirty one and what i wanted to point out here is as i mentioned the portfolio portfolio has decreased six million dollars since nine thirty however our what we refer to is our liquid balance which is the checking account and the life balance has remained steady we have seen some decreases in our securities and part of that is due to some larger purchases in the last quarter related to d and recycled water we have put the six million dollars that came in in calls and maturities we have already reinvested that back in in january and we are looking to invest more of the of our portfolio back into securities from cash now that we've received property taxes so this is a new chart we haven't provided this before but i thought it was really helpful it provides the same information on the previous slide but it's in a you know format what it is it's the composition of the portfolio at one thousand two hundred and thirty one and it gives you an idea of what we're currently invested in about forty five percent of our investments are an agency securities about thirty six percent is what we call liquid it's in life and our checking account but the other point i wanted to make was to show how diversified we are we are invested in a lot of different types of securities but also within those categories we have a lot of diversification within our investments and lastly we are recommending again could you refresh my memory on the airport loan where it is what what it is and how were handling it thank you councilmember white yes we issued an airport promissory note i recalled two thousand and seven all right believe it was back in two thousand and seven it was council approved because it did exceed the five year term and it's it was for the building the new terminal and we have the current rate i believe we reduced down to three percent i believe it's down to three percent i can get you more details just to be sure but we have i believe it's around three percent so we have a loan with its airport promis ry note an investment and we hold it right now and it's got about five million dollars right now is the balance and it's maturity i can't remember the final maturity date i believe it has somewhere between ten and twenty the darker yellow is treasuries what is the agency's component consists of council member the agency securities are slightly different from the treasuries treasuries are direct government issues whereas the agency securities are backed by the government there are things such as the federal home loan bank fannie mae freddie mac those types of issues any other questions is there a motion to accept the report and recommend