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ITEM NO: __7c_Supp___________ DATE OF MEETING: February 25, 2014 Annual Treasury And Investment Portfolio Update for 2013 Commission Briefing Presented by Craig Kerr Diane Campbell February 25, 2014 Treasury Management Update 2 Treasury Functions Compliance with Statute Cash Management Manage Banking Activities Execute Payments (ACH Credits, Wire Transfers as well as Fund Check Issuance) Using appropriate approvals requiring a two step process Coordinates Processes and Controls with AFR and ICT 3 Current Treasury Initiatives New banking contract Internal Intern Succession planning and enhanced training Remote capability testing Implement SEC regulations 4 Treasury Staff "Deep Bench" for continuity and succession (Every banking day has one treasury staff and one back-up staff) Craig Kerr, Treasury Manager, CTP Diane Campbell, Financial Analyst III, CTP Scott Bertram, Supervisor, Financial Analysis, CPA Hanh Nguyen, Manager Aviation Finance & Budget- provides Airport redundancy Angie Rose, Accountant II, CPA-Internal Intern, AFR cross training 5 Investment Portfolio Update 6 Background Commission Resolution Approved Port Investment Policy 2.0 Target Duration Plus Or Minus 50 Basis Points Do Not Forecast Rates; Balance RETURN And RISK Over Cycles This Strategy Outperforms The Market When Rates Are Falling And Underperforms When Rates Are Rising Benchmark Bank of America Merrill Lynch Treasury/Agency 3 Year Index 7 Investment Policy Highlights Emphasis on preservation of principal Priority of Policy Objectives 1) Safety 2) Liquidity 3) Yield Policy covers all capital and operating funds: excludes funds held separately in trust e.g. deferred compensation and pension funds 8 Investment Policy Highlights Establishes prudence, ethics, conflict of interest and disclosure requirements for investment officials Authorizes delegation of day-to-day investment program duties and responsibilities Provides for safekeeping and custody of Port securities 9 Investment Policy Highlights Establishes criteria for eligible depositories and broker/dealers Sets out allowed investment instruments; subject to State law Establishes Portfolio diversification parameters Establishes maturity restrictions 10 Investment Policy Highlights Sets portfolio performance standards Allows for independent review of the Investment program State Auditor External Auditors Internal Auditor Establishes Reporting Standards Policy reviewed periodically and amended as appropriate to follow best practices 11 Portfolio Composition 12/31/2013 12 Interest Rate Trends For 2013, Short And Medium Term Rates Rose Gradually into the Third Quarter Fell Slightly and Rose Again in the Fourth Quarter. The Federal Reserve Left Short Term Rates at 2010 Levels For 2011, 2012 and 2013 - 0.25% Staff Monitors Market Conditions; but, Does Not Time the Market. Short and Medium Term Rates Are Expected to Rise Slowly in 2014. 13 2013 Rates 14 Treasury Yield Curve 15 2013 Yield Comparison Benchmark Port's Pool Q1-2013 0.26% 0.79% Q2-2013 0.39% 0.60% Q3-2013 0.35% 0.60% Q4-2013 0.41% 0.76% ANNUAL 0.35% 0.69% 16 PORTFOLIO EARNINGS 2009 2013 17 Yield History Year Benchmark Port's Pool 2002 - 2006 3.13% 3.69% 2007 - 2011 1.73% 3.08% 2012 0.31% 1.02% 2013 0.35% 0.69% Twelve Years 2.24% 2.97% 18 YIELD HISTORY Benchmark Yield Port's Yield 5.2% 5.00% 4.78% 4.45% 4.2% 4.08% 4.07% 4.33% 4.04% 3.72% 3.57% 3.2% 2.76% 2.64% 2.50% 2.50% 2.2% 2.17% 2.01% 1.58% 1.67% 1.2% 1.12% 1.02% 0.72% 0.69% 0.48% 0.31% 0.35% 0.2% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 19 Port's Investment Portfolio Size Fluctuates Port's Investment Portfolio 12/31/2013 Was $953 Million Over The Past 5 Years, The Size Has Ranged From $639 Million to $976 Million Size Fluctuations Are Mostly Tied To Capital Spending: Capital Project Spending Reduces The Portfolio Size Bond Issues To Fund Projects Increase The Portfolio 20 Investment Pool Participating Funds Examples Minimum Operating Fund Balance: General & Airport Development = 9 months O&M expense Operating Funds Available for Capital: General, Airport, Tax Levy funds programmed to be spent over the next few years. Bond Funds: Capital projects Reserves & Security: Bond reserves, customer lease security Special Use (primarily for capital projects): Passenger & Customer Facility Charges, Transportation & Infrastructure 21
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