Financial Services Purchasing Division NOTICE Thank you for your inquiry regarding the City of Pontiac project listed below:

Transcription

1 Financial Services Purchasing Division NOTICE Thank you for your inquiry regarding the City of Pontiac project listed below: Banking Services Proposal If your firm plans to submit a proposal on this project, please send an response to MMcKenzie@pontiac.mi.us with the following information: Firm Name: Project Name: Firm s Contact Person: Telephone Number: Fax Number: Address: Postal Address: The City of Pontiac Purchasing Division will use this information to communicate with you in the event an addendum or change to this project is issued. If you do not send this information to the City of Pontiac, you will not receive any follow-up notification of any changes to the project. City of Pontiac Woodward Avenue Pontiac, MI 48342

2 Financial Services Purchasing Division NOTICE TO BIDDERS The City of Pontiac will open sealed bids on Tuesday, February 9, 2016 at 2:00 p.m. prevailing local time in the City Hall Lion s Den conference room at Woodward Ave for: Banking Services Proposal You are invited to submit a bid for this project. Sealed bids may be mailed or delivered to the CITY OF PONTIAC, CITY CLERK, Woodward Ave., Pontiac, MI by Tuesday, February 9, 2016 at 2:00 p.m. Envelopes should include the name and mailing address of the vendor on the outside and be plainly marked: Banking Services Proposal An optional pre-bid meeting will be held in the Lion s Den, located in City Hall at Woodward Ave., Pontiac, MI on Friday, January 29, 2016 at 11:00 AM. The proposal and contract requirements will be discussed at said meeting and it is optional that all bidders attend. No proposal submitted may be withdrawn for at least ninety (90) days after the actual opening of the proposal. General specifications, description and conditions upon which the bid proposal is to be based are available at the City of Pontiac website: Purchasing: Please refer to the website for any addenda that may be issued. Respondents who submit bids before the deadline are advised to continue to monitor the website for any addenda that may be issued. Bid packages will also be mailed upon request. The City reserves the right to reject any or all bids, to waive any irregularities, and further reserves the right to accept any bid or parts of bids that it deems to best serve the interest of the City. If you have any questions regarding this RFQ, please contact the Purchasing Agent at (248) or send an to MMcKenzie@pontiac.mi.us City of Pontiac Woodward Avenue Pontiac, MI 48342

3 REQUEST FOR PROPOSAL FOR BANKING SERVICES City of Pontiac INTRODUCTION A. PURPOSE AND SCOPE The City of Pontiac is seeking proposals from qualified banking institutions (the Bank ) to provide various banking services, as described herein. The City's average daily deposit, the number of weekly accounts payable checks, and biweekly payroll checks has significantly decreased due to the major restructuring that has occurred. With limited funds on hand, the City needs to find ways to reduce banking fees and increase earnings with funds on deposit. The objective is to identify the banking institution(s) that can offer the most comprehensive services at the most competitive rates. At a minimum, the City is seeking a financial institution that can offer the following services: Positive pay ACH with blocks and filters Wire transfers Intra-day access (by either telephone or internet) Quarterly listing, by account, of all approved signers and access-only individuals Return of cancelled checks or copies/cd/dvd of cancelled checks included with bank statements Lockbox EFT of vendor payments Overnight investment of surplus funds Remote Deposit Capture Optional Services Requested Armored car service Collateralization Credit card Dual signatures for all checks Trust accounts Escrow accounts CDARS participation Payroll card The City intends to enter into a formal banking services contract with one financial institution, if the institution is able to identify means to invest surplus funds on a daily basis, which will incorporate all the provisions of the RFP and the financial institution's response. Additional terms and conditions will not be included unless mutually agreed to in writing by both the City and the financial institution. The City is seeking a five-year banking services agreement beginning May 1, 2016 through June 30, BANKING SERVICES Page 3 of 24

4 The City of Pontiac has one bank as its main depository in and from which the entire City s daily receipts received through the cash register are deposited and disbursed. In addition, income tax payments are deposit into a separate bank account, at the same bank, and swept daily to the main depository account. A lockbox is established with a different financial institution to receive property tax payments. The proposal has been divided into the following sections: 1. Financial Services Overview 2. General Banking Information 3. Depository and Collection Services 4. Treasury Management Services 5. Investment Services The City intends to maintain most banking services with one bank, but will strive to maximize FDIC insurance whenever practically possible. B. ELIGIBLE BANKS A proposer must be included in the list of authorized financial institutions identified in the City s Investment policy that is attached to this RFP and must be a federally or State of Michigan chartered banking institution. The proposer must have at least three government agencies as current customers, one of whom must be a municipal government. In addition, only banks with a 2.5 star or higher rating by the most recent Bauer Financial ratings will be considered. C. ACCOUNT COMPLIANCE All accounts proposed by the banking institutions must be in compliance with 20 PA 1943, as amended, and the City s Investment Policy which is attached to this RFP. (Appendix A) D. PROPOSAL FORMAT A proposer must follow the attached form in submitting a proposal. The proposal must be completed in its entirety. No proposal will be considered without completion of the form. Any relevant supplemental information should be included as attachments. If a bank cannot meet a service requirement, the bank should enter No Proposal for that specific requirement. Proposers must separately list any exceptions to the RFP specifications, otherwise exceptions will be considered invalid. E. TIMELINE RFP distributed to bank 1/15/2016 Optional Pre-Bid Meeting 1/29/2016 Proposals due and opening of bids from banks 2/9/2016, 2p.m. Recommendation to Council 2/16/2016 BANKING SERVICES Page 4 of 24

5 F. RESPONSE DATE Award confirmed by Transition Advisory Board 3/16/2016 Implementation 5/1/2016 Three copies of your proposal must be received by City of Pontiac no later than 2:00 p.m. on Tuesday, February 9, Proposals must be clearly marked Banking Services Proposal. Mail or deliver responses to: Sherikia Hawkins City Clerk City of Pontiac Woodward Ave. Pontiac, MI Late proposals will not be considered. Amendments to proposals will be considered only if they are received by the above deadline. A corporate official legally authorized to bind the bank must sign and date the proposal. The official submitting the proposal should be clearly identified with appropriate contact information including a signature. The proposal should be held firm for sixty days G. Pre-Bid Conference and QUESTIONS The City will hold an optional pre-bid conference on Friday, January 29, 2016 at 11:00 a.m. Questions regarding the bid process or specific aspects of the RFP should be mailed, ed, or sent by facsimile transmission to: Michelle L. McKenzie Purchasing Agent/Fiscal Analyst City of Pontiac Woodward Ave Pontiac, MI Phone (248) mmckenzie@pontiac.mi.us Questions and answers will be consolidated and provided via to all banks on record as having received the RFP as soon as practically possible. If questions or new information provided to the City require the City to change any part of this RFP, such addendum will be published on the City's web page. The City reserves the right to amend the RFP up to 48 hours before the proposal is due. H. SELECTION CRITERION It is the City s desire to select the bank that will provide the best overall value on a long term relationship rather than simply selecting low bidder. Accordingly, the following factors will be considered in order to select the most qualified bank to serve our banking needs: BANKING SERVICES Page 5 of 24

6 1. Net overall cost comprised of fees, interest earned on deposit, and availability of funds. (Include complete fee schedule) (50%) 2. Ability of the bank to serve all of the City s needs. (35%) 3. Financial Strength. (10%) 4. Ability and commitment to implementing new technologies. (5%) I. TERM OF BANKING SERVICES AGREEMENT The City is proposing a business relationship of five years. Failure of the winning proposer to enter into a subsequent contract/agreement with the City within two weeks after award will render the proposal invalid. A subsequent contract/agreement may be terminated by the bank with 180 days written notice or by the City with 90 days written notice. J. RIGHT TO REJECT PROPOSALS The City reserves the right to waive any informalities or irregularities in any proposal and to reject any or all proposals and selected the best proposal in the opinion of the City and the Transition Advisory Board. K. RIGHT TO ELIMINATE SERVICES The City reserves the right to eliminate any individual service contained in the proposal; if based on analysis, the fees for providing the service are excessive, or if the service proposed can be performed in an alternate manner. Reminder: Please use the section and paragraph headings when responding to requests for information. Sections 2 through 5 contain the questions. A copy of which will be provided in word format. BANKING SERVICES Page 6 of 24

7 SECTION 1 FINANCIAL SERVICES OVERVIEW A. CURRENT & PROPOSED ACCOUNT STRUCTURES The current account structure for the City is: Holding account (primary account); Parking Ticket collection account; Income tax checking account (ZBA); Property tax account (lock box) The proposed account structure for the City is: Holding account (primary account); Parking Ticket collection account; Income tax checking account (ZBA); Property tax checking account; Property tax account (lockbox); Investment account (to hold investable balances of primary account); Restricted cash account (stand-alone), if necessary. B. VOLUMES AND BALANCES For the last fiscal year (July 1, 2014 through June 30, 2015), the volumes for each account are identified: Consolidated Tax (lockbox) Income Tax Parking Avg. Ledger Balance 2015 $ 24,990, Avg. Ledger Balance 2014 $ 17,838, Avg. Ledger Balance 2013 $ 9,131, EFT 104 5,687 1 DD 856 Paper Checks 2, Cash Receipts $ 1,793, $ 2, Check Receipts $ 37,297, $ 8,361, $ 11,518, $ 6, ACH $ 11,735, Total Receipts $ 50,826, $ 8,361, $ 11,518, $ 8, The City began collecting revenue from parking violations in May of For the period July 1, 2015 to December 31, 2015 total cash and check collections were $13, and $45,300.00, respectively. The total collections for each month are wired at the beginning of the following month out of City of Pontiac accounts. BANKING SERVICES Page 7 of 24

8 C. DEMOGRAPHICS The City of Pontiac is the county seat of Oakland County. The City of 20.5 square miles is home to approximately 59,515 residents. Taxes are billed twice per year, on July 1 with taxes billed due July 31 and on December 1 with taxed billed due by February 15. General Fund General Fund Year Taxable Value Budgeted Expenditures Fund Balance ,000, ,184, ,758, ,000, ,791, ,131, ,000, ,407, , ,000, ,579, (3,425,594.00) D. SERVICES REQUESTED Positive pay ACH with blocks and filters Wire transfers Intra-day access (by either telephone or internet) Quarterly listing, by account, of all approved signers and access-only individuals Return of cancelled checks or copies/cd/dvd of cancelled checks included with bank statements Lockbox EFT of vendor payments Overnight investment of surplus funds Remote Deposit Capture Optional Services Requested Armored car service Collateralization Credit card Dual signatures for all checks Trust accounts Escrow accounts Reconciliation services Universal Payment Identification Code (UPIC) CDARS participation Payroll card BANKING SERVICES Page 8 of 24

9 SECTION 2 GENERAL BANKING INFORMATION I. FINANCIAL STRENGTH A. SAFETY AND SOUNDNESS Identify key measures of the bank's financial strength, (e.g. capital ratios, market capitalization, total assets). B. CREDIT RATINGS Provide ratings for the bank and/or subsidiary bank from Standard & Poor's /Moody's. Please provide a copy of the current Summary Report from Bauer Financial. Include ratings for Bank Financial Strength, Bank Deposits and Issuer Rating. C. FINANCIAL STATEMENTS Each proposer must submit with their proposals copies of their annual financial reports for the past three year(s). II. ACCOUNT SERVICING A. BANK CONTACTS List names, titles, telephone and fax numbers and addresses for key bank contact personnel. Also, provide a brief resume for each contact. B. REFERENCES Each proposer should include three references of customers who have used services similar to those included in this request. Please provide name, address, telephone number, and a contact person for each reference. C. PROXIMITY Provide the distance of your nearest bank branch to Pontiac City Hall, located at Woodward Ave. D. COMPETITIVE POSITION AND FUTURE COMMITMENT 1. What differentiates your products / services from other providers? 2. What new services or features does the bank plan to offer, and within what time frame? 3. Provide any additional information, which you believe to be relevant to this RFP, and your capabilities to provide the services requested, e.g., product brochures, and articles in trade journals. E. DISASTER RECOVERY Provide an overview of the bank s disaster recovery plan. BANKING SERVICES Page 9 of 24

10 F. IMPLEMENTATION What is the average lead-time required for implementation, including but not limited to the following services? 1. Account opening 2. Deposit ticket orders and endorsement stamps 3. Information reporting 4. Other BANKING SERVICES Page 10 of 24

11 SECTION 3 DEPOSITORY AND COLLECTION SERVICES A. PROCESSING What is the cut-off time to ensure same day ledger credit? B. BANK COMPENSATION 1. How do you determine and calculate availability of deposited items? Do you give immediate availability for on-us items? Do you use a standard schedule? Accelerated schedule? How often is it updated? 2. Provide your bank s availability schedule. 3. How are your bank s monthly earnings credit rates calculated? 4. Provide historical rates for the last year. C. RETURNED ITEMS 1. Describe your procedure for handling non-sufficient funds checks deposited into a City account. 2. Can return items be automatically re-deposited? If so, how many times? D. STOP PAYMENTS 1. Can stop payments be placed manually? On-line? 2. Can the period be extended? 3. Can you request stop payments for a range of checks? What is the limit of the range? E. WIRES 1. What methods of initiation does the bank offer? 2. What are the opening hours and the cut-off times in Eastern Standard Time for initiating wire transfers to ensure same-day execution? 3. What is the cut-off time for incoming domestic wire transfers to receive same day credit? 4. Does the bank s wire transfer system have the capability of warehousing instructions for future dated wire transactions? BANKING SERVICES Page 11 of 24

12 SECTION 4 TREASURY MANAGEMENT SERVICES A. POSITIVE PAY 1. Provide a brief description of each positive pay service that the bank offers. Please provide sample reports. 2. Describe the products features including but not limited to: a) Data transmission methods b) File transmission time windows c) Notification report delivery methods d) Notification transmission time windows/response deadlines e) Control options default, dollar threshold, etc. f) Imaging capabilities g) Technical capabilities Internet h) System requirements Please indicate any costs or fees associated with the services described in this section. B. INFORMATION REPORTING SERVICES 1. Provide a brief description of the information reporting services that the bank offers. Please provide sample reports. 2. Describe the products features including but not limited to: a. Applications/modules available within the service b. Hours of access/time windows c. Level of detail provided for prior day and for intraday information d. History retention e. Export capabilities f. Internal control options/security features g. Imaging capabilities h. Technical capabilities i. Reporting paper vs. electronic vs. internet j. System requirements BANKING SERVICES Page 12 of 24

13 Please indicate any costs or fees associated with the services described in this section. C. ACH PROCESSING (DIRECT DEPOSIT OF PAYROLL) The City currently uses ACH processing for payroll. 1. Describe the service delivery method (direct transmission, PC-based system, web-based) that you recommend based upon the information outlined for our organization. 2. Describe the products features a) Transmission procedures b) Transmission time windows/ach hours of operation c) Process for reversing/deleting files d) Electronic reporting capabilities e) Security features f) System requirements Please indicate any costs or fees associated with the services described in this section. BANKING SERVICES Page 13 of 24

14 SECTION 5 INVESTMENT SERVICES The City of Pontiac is permitted by law and board policy to invest surplus funds in accordance with Public Act 20. The City s proposed investment policy is attached as Exhibit A. The City could have at its disposal between $5 and $10 million depending on the time of year available for investment. 1. Which of the above investments can your bank offer to the City? 2. What safekeeping or custodial arrangements are available for investments purchased by the City, either from the bank or from another provider? 3. What reports will you provide indicating holdings in safekeeping or custodial accounts? Please provide samples. 4. How many customers are currently using your safekeeping or custodial services? 5. What methods are available for settlement of investment transactions? 6. What methods (telephone, computer, other) are available for the City to communicate information regarding investment transactions to your bank? 7. Does your bank offer automatic sweep of available balances into money market or other investments? Please describe. Please provide monthly average yields for the last twelve months on the sweep vehicle recommended in this proposal. 8. How soon after a deposit is made to a checking account are funds swept to the investment vehicle? Describe this process in detail. 9. For this section, please describe any products or services not specifically mentioned here, which your bank offers, and which you believe would be beneficial to the City. 10. Do you participate in the CDARS program? 11. Please indicate any costs or fees associated with the services described in this section. 12. The City will not transfer current investments. Further, the City retains the right to purchase investments from other eligible institutions. BANKING SERVICES Page 14 of 24

15 Complete proposed Fee Schedule is included Response Cover City of Pontiac Request for Proposal for Banking Services SERVICES REQUESTED: Positive Pay ACH with blocks and filters Wire transfers Intra-day access (by either telephone or internet) Quarterly listing, by account, of all approved signers and access-only individuals Return of cancelled checks or copies/cd/dvd of cancelled checks included with bank statements Lockbox EFT of vendor payments Overnight investment of surplus funds Remote Deposit Capture OPTIONAL SERVICES REQUESTED: Armored car service Collateralization Credit card Dual signatures for all checks Trust accounts Escrow accounts Reconciliation services Universal Payment Identification Code (UPIC) CDARS participation Payroll card Available (Yes) Not Available (No) BANKING SERVICES Page 15 of 24

16 APPENDIX A City of Pontiac Investment Policy I. Governing Authority Legality The investment program shall be operated in conformance with federal, state, and other legal requirements, including the Investment of Surplus Funds of Political Subdivisions, being Public Act 20 of 1943, as amended. II. Scope This policy applies to the investment of all funds, excluding the investment of employees' retirement funds, which are governed under the policies of the respective retirement systems. Proceeds from certain bond issues, as well as separate foundation or endowment assets, will be covered by a separate policy at such time that the City should acquire such funds. 1. Pooling of Funds Except for cash in certain restricted and special funds, the City of Pontiac will consolidate cash and reserve balances from all funds to maximize investment earnings and to increase efficiencies with regard to investment pricing, safekeeping and administration. Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles. III. General Objectives The primary objectives, in priority order, of investment activities shall be safety, liquidity, and yield: 1. Safety Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and interest rate risk. a. Credit Risk The City of Pontiac will minimize credit risk, which is the risk of loss due to the failure of the security issuer or backer, by: Limiting investments to the types of securities listed in Section VII of this Investment Policy Pre-qualifying the financial institutions, broker/dealers, intermediaries, and advisers with which the City of Pontiac will do business in accordance with Section V Diversifying the investment portfolio so that the impact of potential losses from any one type of security or from any one individual issuer will be minimized. b. Interest Rate Risk The City of Pontiac will minimize interest rate risk, which is the risk that the market value of securities in the portfolio will fall due to changes in market interest rates, by: Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity. BANKING SERVICES Page 16 of 24

17 Investing operating funds primarily in shorter-term securities, money market mutual funds, or similar investment pools and limiting the average maturity of the portfolio in accordance with this policy (see section VIII). c. General Risk Risk shall also be minimized by closely monitoring pertinent financial information and rating agency reports that would disclose a weakening financial condition at any firm or institution associated with City investments. Written notice of any adverse changes in financial condition of these institutions shall be immediately forwarded to the City Council by the investment officer for further review and appropriate action. 2. Liquidity The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. The investment portfolio shall be designed with the objective of attaining the maximum market rate of return throughout budgetary and economic cycles, taking into account the City s investment risk constraints and cash flow characteristics of the portfolio. 3. Yield The City of Pontiac's cash management portfolio shall be designed with the objective of regularly meeting or exceeding a performance benchmark, which could be the average return on three-month U.S. Treasury bills, the state investment pool, a money market mutual fund, or the average rate on Fed funds, whichever is higher. These indices are considered benchmarks for lower risk investment transactions and therefore comprise a minimum standard for the portfolio's rate of return. The investment program shall seek to augment returns above this threshold, consistent with risk limitations identified herein and prudent investment principles. (See Section IX on performance standards and selecting a benchmark.) IV. Standards of Care 1. Prudence The standard of prudence to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and this investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and the liquidity and the sale of securities are carried out in accordance with the terms of this policy. The "prudent person" standard states that, "Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived." 2. Ethics and Conflicts of Interest Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. Employees and investment officials shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio. Employees and officers shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of the City of Pontiac. BANKING SERVICES Page 17 of 24

18 3. Delegation of Authority Authority to manage the investment program is granted to the City Treasurer, hereinafter referred to as investment officer. Responsibility for the operation of the investment program is hereby delegated to the investment officer, who shall act in accordance with established written procedures and internal controls for the operation of the investment program consistent with this investment policy. Procedures should include references to: safekeeping, delivery vs. payment, investment accounting, repurchase agreements, wire transfer agreements, and collateral/depository agreements. The investment officer shall follow the GFOA's Investment Procedures Manual, 2003, to the extent that it does not conflict with this policy or state law. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the investment officer. The investment officer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. V. Authorized Financial Institutions, Depositories, and Broker/Dealers Authorized Financial Institutions, Depositories, and Broker/Dealers A list will be maintained of financial institutions and depositories authorized by the City Council on an annual basis to provide depository and investment services. In addition, a list will be maintained of approved security broker/dealers selected by creditworthiness (e.g., a minimum capital requirement of $10,000,000 and at least five years of operation). These may include "primary" dealers or regional dealers that qualify under Securities and Exchange Commission (SEC) Rule 15C3-1 (uniform net capital rule). All financial institutions and broker/dealers who desire to become qualified for investment transactions must supply the following as appropriate: Audited financial statements demonstrating compliance with state and federal capital adequacy guidelines Proof of National Association of Securities Dealers (NASD) certification (not applicable to Certificate of Deposit counterparties) Proof of state registration Completed broker/dealer questionnaire (not applicable to Certificate of Deposit counterparties) Certification of having read and understood and agreeing to comply with the City of Pontiac's investment policy. Evidence of adequate insurance coverage. An annual review of the financial condition and registration of all qualified financial institutions and broker/dealers will be conducted by the investment officer. The investment officer shall refer to the Appendix for the GFOA Recommended Practice on Governmental Relationships with Securities Dealers. No public deposit shall be made except in a qualified public depository as established by State law. An annual analysis of the financial condition, registration, professional institution/bank rating, and Community Reinvestment Act rating of qualified bidders will be conducted by the investment officer. Information indicating a material reduction in ratings, standards, or a material loss or prospective loss of capital on existing investments must be shared with the Council Finance Committee in writing. Per Section of Public Act 40 of 1943, before executing an investment transaction, approved financial intermediaries, brokers/dealers, and investment advisors shall be provided with a copy of the City s investment policy and shall in writing acknowledge receipt, review, and understanding of BANKING SERVICES Page 18 of 24

19 the investment policy and agree to comply with the terms of the investment policy regarding buying or selling of securities. The City may purchase commercial paper from direct issuers even though they are not on the approved broker/dealer list as long as they meet criteria outlined in the Suitable and Authorized Investments section of this policy. Safekeeping and Custody 1. Delivery vs. Payment All trades of marketable securities will be executed by delivery vs. payment (DVP) to ensure that securities are deposited in an eligible financial institution prior to the release of funds. 2. Safekeeping Securities will be held by a [centralized] independent third-party custodian selected by the entity as evidenced by safekeeping receipts in the City of Pontiac's name. The safekeeping institution shall annually provide a copy of their most recent report on internal controls (Statement of Auditing Standards No. 70, or SAS 70). 3. Internal Controls The investment officer shall establish a system of internal controls, which shall be documented in writing. The internal controls and their application shall be reviewed by the investment committee, where present, and with the independent auditor. The controls shall be designed to prevent the loss of public funds arising from fraud, employee error, misrepresentation by third parties, unanticipated changes in financial markets, or imprudent actions by employees and officers of the City of Pontiac. VII. Suitable and Authorized Investments 1. Investment Types Consistent with the Investment of Surplus Funds of Political Subdivisions, the following investments will be permitted by this policy and are those defined by state and local law where applicable: (a) Bonds, securities, and other obligations of the United States or an agency or instrumentality of the United States with a final maturity not exceeding five years from the date of trade settlement. (b) Certificates of deposit (with a maturity no exceeding one year), savings accounts, or depository receipts of a financial institution, but only if the financial institution complies with MCL , that are eligible to be a depository of funds for the State of Michigan, and certificates of deposit that are purchased in accordance with MCL guidelines. Not more than 25% of the City s total portfolio may be invested in certificates of deposits at any one time. (c) Commercial paper rated at the time of purchase within the 2 highest classifications established by not less than 2 standard rating services and that matures not more than 270 days after the date of purchase. Commercial paper held in the portfolio which subsequently received a reduced rating shall be closely monitored by the investment officer and sold immediately if the principal invested may otherwise be jeopardized. Any BANKING SERVICES Page 19 of 24

20 such downgrade shall be immediately reported to the Council Finance Committee. Not more than 25% of the City s total portfolio may be invested in commercial paper at any one time. (d) Bankers' acceptances of United States banks with maturities not exceeding 180 days from the date of purchase, rated at least A-1 by Standard & Poor s, P-1 by Moody s, or F1 by Fitch at the time of purchase, issued by a state or nationally chartered bank which has combined capital and surplus of at least $150 million, whose deposits are insured by the FDIC, and whose senior long-term debt is rated, at the time of purchase A+ by Standard & Poor s, A1 by Moody s, or A+ by Fitch. Not more than 25% of the City s total portfolio may be invested in eligible banker s acceptances at any one time. (e) Obligations of this state or any of its political subdivisions that at the time of purchase are rated as investment grade by not less than 1 standard rating service. Not more than 10% of the portfolio may be invested in municipal securities with no more than 5% held in any one issuer. Maturities in these investments shall not exceed three years for trade settlement. (f) Mutual funds registered under the investment company act of 1940, 15 USC 80a-1 to 80a-64, with authority to purchase only investment vehicles that are legal for direct investment by a local government in Michigan and which are no-load (i.e., no commission or fee shall be charged on purchases or sales or shares); have a constant net asset value per share of $1.00; and have a maximum stated maturity and weighted average maturity in accordance with Rule 2a-7 of the Investment Company Act of Not more than 25% of the City s total portfolio may be invested in these pools at any one time. (g) Obligations described in subdivisions (a) through (g) if purchased through an interlocal agreement under the urban cooperation act of 1967, 1967 (Ex Sess) PA 7, MCL to that are no-load ; have a constant net asset value per share of $1.00; limit assets of the fund to securities authorized in MCL as legal investments for municipalities; have a maximum stated maturity and weighted average maturity in accordance with Rule 2a-7 of the Investment Company Act of 1940; and are rated either AAAm by Standard and Poor s, Aaa by Moody s, or AAA/VI+ by Fitch. Not more than 25% of the City s total portfolio may be invested in these pools at any one time. (h) Investment pools organized under the surplus funds investment pool act, 1982 PA 367, MCL to that are no-load ; have a constant net asset value per share of $1.00; limit assets of the fund to securities authorized in MCL as legal investments for municipalities; have a maximum stated maturity and weighted average maturity in accordance with Rule 2a-7 of the Investment Company Act of 1940; and are rated either AAAm by Standard and Poor s, Aaa by Moody s, or AAA/VI+ by Fitch. Not more than 25% of the City s total portfolio may be invested in these pools at any one time. (i) The investment pools organized under the local government investment pool act, 1985 PA 121, MCL to Not more than 25% of the City s total portfolio may be invested in these pools at any one time. BANKING SERVICES Page 20 of 24

21 2. Collateralization Where allowed by state law and in accordance with the GFOA Recommended Practices on the Collateralization of Public Deposits, full collateralization will is strongly recommended on all demand deposit accounts, including checking accounts and non-negotiable certificates of deposit. (See GFOA Recommended Practices in Appendix.) 3. Repurchase Agreements Repurchase agreements shall be consistent with GFOA Recommended Practices on Repurchase Agreements. (See GFOA Recommended Practices in Appendix.) VIII. Investment Parameters 1. Diversification It is the policy of the City of Pontiac to diversify its investment portfolios. To eliminate risk of loss resulting from the over-concentration of assets in a specific maturity, issuer, or class of securities, all cash and cash equivalent assets in all City of Pontiac funds shall be diversified by maturity, issuer, and class of security. Diversification strategies shall be determined and revised periodically by the investment committee/investment officer for all funds under the control of the City. In establishing specific diversification strategies, the following general policies and constraints shall apply: Portfolio maturities shall be staggered to avoid undue concentration of assets in a specific maturity sector. Maturities selected shall provide for stability of income and reasonable liquidity. For cash management funds: Liquidity shall be assured through practices ensuring that the next disbursement date and payroll date are covered through maturing investments or marketable U.S. Treasury bills. Positions in securities having potential default risk (e.g., commercial paper) shall be limited in size so that in case of default, the portfolio s annual investment income will exceed a loss on a single issuer s securities. Risks of market price volatility shall be controlled through maturity diversification such that aggregate price losses on instruments with maturities exceeding one year shall not be greater than coupon interest and investment income received from the balance of the portfolio. The investment committee/investment officer shall establish strategies and guidelines for the percentage of the total portfolio that may be invested in securities other than repurchase agreements, Treasury bills or collateralized certificates of deposit. The committee shall conduct a quarterly review of these guidelines and evaluate the probability of market and default risk in various investment sectors as part of its considerations. The following diversification limitations shall be imposed on the portfolio: Maturity: No more than 25 percent of the portfolio may be invested beyond 12 months, and the weighted average maturity of the portfolio shall never exceed one year. Default risk: No more than 25 percent of the overall portfolio may be invested in the securities of a single issuer, except for securities of the U.S. Treasury. BANKING SERVICES Page 21 of 24

22 Liquidity risk: At least 10 percent of the portfolio shall be invested in overnight instruments or in marketable securities which can be sold to raise cash in one day s notice. 2. Maximum Maturities To the extent possible, the City of Pontiac shall attempt to match its investments with anticipated cash flow requirements. Unless matched to a specific cash flow, the City of Pontiac will not directly invest in securities maturing more than five (5) years from the date of purchase or in accordance with state and local statutes and ordinances. The City of Pontiac shall adopt weighted average maturity limitations (which often range from 90 days to 3 years), consistent with the investment objectives. Reserve funds and other funds with longer-term investment horizons may be invested in securities exceeding five (5) years if the maturities of such investments are made to coincide as nearly as practicable with the expected use of funds. The intent to invest in securities with longer maturities shall be disclosed in writing to the legislative body. (See the GFOA Recommended Practice on "Maturities of Investments in a Portfolio" in Appendix.) Because of inherent difficulties in accurately forecasting cash flow requirements, a portion of the portfolio should be continuously invested in readily available funds such as local government investment pools, money market funds, or overnight repurchase agreements to ensure that appropriate liquidity is maintained to meet ongoing obligations. 3. Competitive Bids The investment officer shall obtain competitive bids from at least two brokers or financial institutions on all purchases of investment instruments purchased on the secondary market. IX. Reporting 1. Methods The investment officer shall prepare an investment report at least quarterly, including a management summary that provides an analysis of the status of the current investment portfolio and the individual transactions executed over the quarter. This management summary will be prepared in a manner which will allow the City Council Finance Committee to ascertain whether investment activities during the reporting period have conformed to the investment policy. The report should be provided to the mayor, the city council, and any pool participants. Each quarterly report shall indicate any areas of policy concern and suggested or planned revision of investment strategies. Copies shall be transmitted to the independent auditor. The report will include the following: Listing of individual securities held at the end of the reporting period. Realized and unrealized gains or losses resulting from appreciation or depreciation by listing the cost and market value of securities over one-year duration that are not intended to be held until maturity (in accordance with Governmental Accounting Standards Board (GASB) requirements). Average weighted yield to maturity of portfolio on investments as compared to applicable benchmarks. Listing of investment by maturity date. Percentage of the total portfolio which each type of investment represents. BANKING SERVICES Page 22 of 24

23 2. Performance Standards The City of Pontiac's cash management portfolio shall be designed with the objective of regularly meeting or exceeding a selected performance benchmark, which could be the average return on three-month U.S. Treasury bills, the state investment pool, a money market mutual fund, or the average rate of Fed funds. These indices are considered benchmarks for lower risk investment transactions and therefore comprise a minimum standard for the portfolio s rate of return. 3. Marking to Market The market value of the portfolio shall be calculated at least quarterly and a statement of the market value of the portfolio shall be issued at least quarterly. This will ensure that review of the investment portfolio, in terms of value and price volatility, has been performed consistent with the GFOA Recommended Practice on "Mark-to-Market Practices for State and Local Government Investment Portfolios and Investment Pools." (See GFOA Recommended Practices in Appendix.) In defining market value, considerations should be given to the GASB Statement 31 pronouncement. X. Policy Considerations 1. Exemption Any investment currently held that does not meet the guidelines of this policy shall be exempted from the requirements of this policy. At maturity or liquidation, such monies shall be reinvested only as provided by this policy. 2. Amendments This policy shall be reviewed on an annual basis. Any changes must be approved by the investment officer and the City Council. The City's independent auditor shall be provided a draft of any changes to the policy before being adopted by the City Council. XI. Approval of Investment Policy The investment policy shall be formally approved and adopted by the Pontiac City Council and reviewed annually. XII. List of Attachments The following documents, as applicable, are attached to this policy: Listing of authorized personnel, Relevant investment statutes and ordinances, Listing of authorized broker/dealers and financial institutions, Internal Controls Glossary XIII. Other Documentation Master Repurchase Agreement, other repurchase agreements and tri-party agreements, Broker/Dealer Questionnaire, Credit studies for securities purchased and financial institutions used, Safekeeping agreements, Wire transfer agreements, Sample investment reports, Methodology for calculating rate of return, GFOA Recommended Policies. BANKING SERVICES Page 23 of 24

24 List of Authorized Financial Institutions Affiinity Group Credit Union Bank of America Chase Comerica Fifth Third Bank Huntington Bank Level One PNC Private Bank Seaway Community Bank Talmer Bank & Trust TCF Bank US Bank Wolverine Bank and such others that may be added to this list by resolution of the City Council. BANKING SERVICES Page 24 of 24