Request for Proposal Bank Depository Services. June 23, Table of Contents

Transcription

1 City of Nassau Bay, Texas Request for Proposal Depository Services Request for Proposal Bank Depository Services June 23, 2016 Table of Contents I. Introduction II. Proposal Qualifications and Submission Instructions III. Financial Environment Overview IV. General Statement of Banking Services Required V. Financial Institution Qualifications VI. Required Banking Services VII. Bank Compensation Attachment A: Schedule of Usage and Fee Proposal Attachment B: Certification Form and Investment Policy 1

2 City of Nassau Bay, Texas Request for Proposal Depository Services I. INTRODUCTION The City of Nassau Bay, Texas (the City) is requesting proposals for a bank depository services contract with service to begin September 1, 2016 and continue through August 31, 2019 with a possible two year extension under the same terms and conditions of the contract, if mutually agreed to by both parties. The contract will also provide for an extension period not to exceed one hundred twenty (120) days for the transition to the new Bank depository. Through this contract the City intends to minimize banking costs, improve operational efficiency, and maximize its investment capabilities all while maintaining a good working relationship with the depository Bank and fully complying with applicable Federal and State laws including the requirements of Texas Local Government Code Chapter 105, as amended. This Request for Proposal (RFP) represents the City s cash management goals and specifies all required qualifications, the banking services required, estimated activity volumes, the method and terms of compensation, submission instructions, and contract award provisions. Qualified institutions are invited to submit a proposal. II. PROPOSAL QUALIFICATIONS AND SUBMISSION INSTRUCTIONS By submitting a proposal in response to the RFP, depositories will be deemed to agree to the mandatory contract and service provisions contained herein. The proposal submitted will be incorporated into and form the basis of the banking services contract. 1. Local Presence To assure a close working relationship and facilitate available services, only depository institutions with full depository services capabilities within a two and a half (2.5) mile radius of City Hall (1800 Space Park Dr., Nassau Bay, TX 77058) will be considered. Submissions will be weighted based on distance with the greatest weight placed on those within the City limits. 2. Proposal Format In order to equitably evaluate each bank s ability to meet the banking services needs of the City, a standard format for all proposals is required. A response must be given to each item in Sections V-VI of the RFP along with Attachments A and B. Responses shall be in the order given, stating acceptance of, modifications or additions to, or a statement of inability to provide said service. Completed attachments A and B must be included. Only proposals submitted in the prescribed format and using the provided Attachments will be considered and evaluated for contract award. An electronic copy of this request for proposal will be provided to all interested depositories. 2

3 City of Nassau Bay, Texas Request for Proposal Depository Services 3. Schedule for Proposal Submission The City will make every effort to adhere to the following schedule. June 23, 2016 Release of Request for Proposal June 23, 2016 Advertise Bank Depository Notice in local newspaper and financial publication of general circulation July 28, 2016 Proposal Submission Deadline August 8, 2016 City Council Award of Contract October 1, 2016 Contract Commencement 4. Proposal Submission To be eligible for consideration under this request, three complete hard copies and one digital version of the entire proposal including attachments shall be submitted by 2:00 pm local time on Thursday, July 28, 2016 to the address below. The digital version of Attachment A must be provided in a MS Excel format. Proposals received after that time will not be accepted. The proposal must be in a sealed envelope marked Proposal for Bank Depository Services. An accompanying transmittal letter must be signed by an individual authorized to bind the depository institution and the letter must state that the proposal is valid for 180 days from the submission date. Proposals must be delivered by mail or in person to: Csilla Stiles Finance Director City of Nassau Bay 1800 Space Park Dr., Suite 200 Houston, TX RFP Questions Questions regarding this RFP, or the services requested, will be accepted in written (or ) form only, on or before 2:00 pm local time on Thursday, July 21, Responses that materially affect the content of the RFP will be communicated in writing (or e- mail) to all known proposers by 5:00 pm Monday, July 25, There will be no preproposal conference. Questions should be directed to: Csilla Stiles Finance Director 1800 Space Park Dr., Suite 200 Houston, TX xt csilla.stiles@nassaubay.com 3

4 City of Nassau Bay, Texas Request for Proposal Depository Services 6. Selection Criteria The following criteria will be used by the City as the weighting basis for the evaluation of the proposals and award recommendation. 30% - aggregate cost of banking services 30% - ability to provide services required (including customer service capability) 20% - location in relation to City & City limits 10% - creditworthiness of bank, experience and continuity of bank and bank officials, other public entity references 10% - completeness and clarity of proposal 7. City Rights The City reserves the right to: - Waive any defect, irregularity or informality in the proposal or proposal procedures; - Reject any and all proposals - Cancel and/or reissue this request for proposal; and - Modify deadlines. 8. Additional Information The City reserves the right to request additional information or to meet the representatives from proposing organizations to discuss points in the proposal after opening of proposals. 9. Proprietary Information To the extent permitted by law, proposals will be opened in a manner that avoids disclosure of the contents until after award of the contract. Proprietary information contained in the proposal should be designated as such on each page containing the restricted information. 10. Fees and Charges The contract payments will be made on a fee basis. Within five (5) business days of receipt of the monthly account analysis, if no exceptions are found or objections are made by the City, the bank may direct debit the designated account for fees due. All per item charges will remain at the proposal price quoted for the duration of the initial three years of the contract period regardless of changes in service volumes during the period. Should new services be required during the contract period not contemplated by this RFP those services will be provided at no more than the bank s then current published rate. 4

5 City of Nassau Bay, Texas Request for Proposal Depository Services III. FINANCIAL ENVIRONMENT OVERVIEW The City operates under a consolidated account structure and maintains a general disbursement account which serves as the checking account for all City operating funds. The approximate number of checks and electronic payments issued annually is 2,049 and the approximate number of annual deposits including electronic ACH and banking center deposits is 1,880. Currently the City s primary depository account is a non-interest bearing checking account. Through this RFP and contract process, it is the City s goal to maximize returns throughout our banking and investing structure. Credit cards are currently handled through a separate merchant services agreement and the City is not looking to change merchant services providers. Any and all City funds may be maintained and invested outside this contract. The City will be under no obligation to maintain funds in the bank. The city will continue to direct excess funds to pools or other investments at its discretion. IV. GENERAL STATEMENT OF BANKING SERVICES REQUIRED The banking services described in the RFP are directed toward four goals: - Safety of City funds and securities, - 100% utilization of idle funds, - Efficient utilization of banking services; and - Minimization of banking costs for the City. The City needs to make its banking services as efficient and cost effective as possible. A high priority will be productive automated services and reporting. The envisioned account structure is designed to capture the highest available returns on all funds on a daily basis and to minimize inter-account transfers along with minimizing costs. 1. Collateral The City requires a bank that is fiscally strong and able to provide services on an uninterrupted basis. City funds are public funds and fall under the provisions of the Public Funds Collateral Act as amended. All un-invested funds above $250,000 must be collateralized to a 102% with securities authorized by the City (see Investment Policy in Attachment B for specific investment requirements). 5

6 City of Nassau Bay, Texas Request for Proposal Depository Services V. FINANCIAL INSTITUTION QUALIFICATIONS The proposal must include a response to each question in Section V. 1. In order to fulfill the City s fiduciary responsibility to protect public funds, all banks submitting proposals will provide, in response to each item: a. Audited financial statements for the most recent fiscal year, b. A statement regarding any recent or foreseen merger or acquisition. 2. How is the bank chartered? 3. What percent of current loans are classified as non-performing? 4. Does the bank have any significant problems noted by regulatory agencies in the past twentyfour (24) months? If yes, please explain. 5. Indicate the bank s capital to asset ratio and return on assets (ROA) for the last five (5) years. 6. Attach copies of the bank s most recent FDIC (UPBR) call reports. 7. Is the bank a branch bank or will it soon become a branch bank? If so, please indicate which services will be provided from the Bank s present location and which will be provided from the main bank. 8. Please list all service locations within the Nassau Bay city limits as well as within a 2.5 mile radius of City Hall (1800 Space Park Dr., Suite 200, Houston, TX 77058). 9. Describe the background/experience of the person or persons who will be primarily responsible for directing the work that will be performed pursuant to this proposal. This inquiry is intended to encompass the institution s staff who will be engaged on a daily basis in directing the performance of the work. 10. Describe the experience of the financial institution in providing similar services for other public clients. 11. List references from at least three current, comparable government clients using services similar to those requested in this RFP. Include a contact person, their title and telephone number. 6

7 City of Nassau Bay, Texas Request for Proposal Depository Services 12. Provide the bank s most recent Veribanc or comparable bank rating. The bank will be responsible for notifying the City of any change in this rating during the contract period as soon as possible. 13. Provide a proposed plan and timeline for implementation of the contract including activities and responsibilities of the City and the bank. 14. Provide a copy of all agreements (even if not directly referenced in this RFP) which will be required to be executed under the contract. Include any general depository or collateral agreement to be executed. 15. In accordance with state statutes, each proposer shall review the City s Investment Policy and complete the required certification verifying the review (see Attachment B). 16. Briefly describe your institution s disaster recovery plan. VI. REQUIRED BANKING SERVICES The proposal must include a response to each of the questions in Section VI and all associated fees must be detailed on Attachment A with pricing for both a 3-year term and a 5-year term. 1. CONSOLIDATED ACCOUNT STRUCTURE WITH SWEEP MECHANISM The City is currently using a sweep mechanism with its existing account structure, with funds in a general disbursement account that allows all funds to be swept daily to a repurchase agreement. Interest should accrue and be credited to the individual accounts monthly. 1.1 Describe the bank s ability to provide such a structure. 1.2 Describe how sweep activity will be reported. 1.3 Describe how interest from the sweeps will be reported (at the account level or otherwise). If the bank cannot provide a sweep mechanism, or if alternative account types are proposed, describe the account structure proposed including the type of accounts (interest bearing, NOW, money market, ZBA, repurchase agreement, etc.) along with the overall account structure. 1.4 Provide the proposed computation basis for interest bearing accounts, if applicable. 1.5 If alternatives using non-sweep accounts are proposed the net cost effect should be indicated. 7

8 City of Nassau Bay, Texas Request for Proposal Depository Services The City may be required or desire to open additional accounts or change accounts during the contract period. If this occurs the new accounts shall be charged at the same contracted amount. The City is discussing the possibility of creating an account structure that would allow other entities the ability to auto-draft from the City s accounts without giving them access to primary account information. 1.6 Solutions for this type of account structure would be of interest to the City. 2. AUTOMATED CASH MANAGEMENT INFORMATION ACCESS The City requires (a) automated cash management services and (b) balance reporting for timely access to balance information and transactions. Minimum automated services should include stop pays, account transfers, wire transfers, and positive pay. Daily balance reporting should include detailed transactions and summary account information with closing ledger, available balances and one-day float at minimum. 2.1 Describe the bank s service capabilities and whether service is to be web-based. 2.2 Fully describe the bank s automated reporting system, its capabilities and back-up provisions. 2.3 Provide access times and update times for daily information. 2.4 List all information available online at both summary and detail levels. 2.5 Submit samples of major screens and reports available and specify all City hardware and software requirements 2.6 How many hours has the system been down in the last six months? 2.7 Describe the back-up process for online balance reporting. 2.8 Describe the bank s security features? Is there a dual PIN requirement? Can access be restricted by account and amount? 2.9 Describe any mobile banking features that may be available. 3. STANDARD DEPOSIT SERVICES Standard commercial deposit services are required. The majority of deposits will be made to the general disbursement account. The City anticipates a daily deposit by employee/courier. The City utilizes remote capture for the majority of its check receipting currently and plans to continue doing so. All deposits received by the bank s established deadline must be processed same day. The bank will guarantee immediate credit on all incoming wire transfers, on-us items, and U.S. government maturities and coupons with all other checks clearing based on the bank s published availability schedule. Failure to credit the account will require payment reimbursement to the City at the then current Fed Funds rate. 3.1 What is the bank s availability schedule? 3.2 Describe the bank s provision for the night deposit drops. 3.3 Where are the deposit locations? 8

9 City of Nassau Bay, Texas Request for Proposal Depository Services 3.4 What security measures are used on deposits? 3.5 What is the cut-off to assure same day ledger credit? 4. STANDARD DISBURSING SERVICES Standard disbursing services for all accounts are required to include the payment of all City checks without charge upon presentation. Because of the proliferation of fraudulent checks, advance reconciliation (positive pay) services are a required feature. Describe the bank s automated positive pay (advance reconciliation) services. The City will be using the positive pay feature for all general disbursement accounts. 4.1 Describe all information transfer requirements (digital file transmission, etc.) and notification times. 4.2 What options are available for transmittal of individual check information or deletes to the bank? 4.3 Are teller checks verified against the file? How often is teller information updated? 4.4 If not verified, what is the process and security on OTC transactions? 4.5 How is exception information reported to the City? What is the default disposition? What review or range criteria are available for exceptions? 5. WIRE TRANSFER SERVICE Incoming wire transfers must receive same day credit. Wire initiation and monitoring should be available over the automated system. The City will require compensation for delays cause by bank errors at the day s Fed Funds rate. 5.1 List the available methods of wire initiation. 5.2 Describe the system to be used and the required repetitive and non-repetitive wire procedures and confirmations. Include a description of security provisions, PINS, and back-up systems. 5.3 What secondary authorization features are available? 5.4 What is the availability of future dating of wires and storing vendor information for repetitive wires? 5.5 State wire access times, incoming notification, posting times, and required authorizations. 5.6 State the bank s policy on the use of balances for outgoing wires in anticipation of daily activity or incoming wires. Include a copy of your standard wire agreement as an attachment. 6. OPTICAL IMAGING Describe the bank s optical imaging process and what items are captured (checks, statements, deposited items, etc.) 6.1 Describe the service and provide sample reports and screen layouts. 6.2 Describe any City software or hardware requirements. 6.3 Describe all retrieval capabilities. 9

10 City of Nassau Bay, Texas Request for Proposal Depository Services 7. ACH SERVICES ACH service is required. ACH is currently used for many transactions including payroll, bank drafting utility bill payments, and some accounts payable transactions as well. 7.1 Describe the bank s ACH service availability online. 7.2 State data transfer alternatives (online, etc). 7.3 Provide required deadlines, formats, and reports. 7.4 What process is used for reversals and corrections? 7.5 How is notification of ACH returns provided to the City? 8. ACCOUNT RECONCILIATION The City plans to evaluate all levels of reconciliation. No return of the physical checks is required. 8.1 Describe the level of reconciliation services available and automation alternatives. 8.2 Specify data transmission alternatives (online, etc.). 8.3 Are images available online? When? For how long? 8.4 Provide samples of account reconciliation reports. 9. INVESTMENT OF IDLE FUNDS AND SAFEKEEPING SERVICES All City investments will be made by the City or its advisor and instructions for safekeeping will be given to the bank by an authorized staff member. The bank will be required to provide book-entry safekeeping services. All securities must be cleared on a delivery versus payment (DVP) basis. Ownership of the securities must be perfected and evidenced by an original safekeeping receipt sent directly to the City within one business day. If the bank s brokerage services are used, securities purchased must be safe-kept by an independent third party. Describe bank safe-keeping arrangements proposed including any correspondent bank arrangement to be used naming the correspondent. The City may choose to purchase time deposits from the bank. 10. COLLATERAL REQUIREMENTS Collateral will be pledged against total deposits held and certain conditions must be met as required by federal law Collateral must be held in an independent third party bank outside the bank s holding company All deposits will be collateralized at 102% of principal plus accrued interest at all times, excluding FDIC insurance The bank is responsible for the continuous monitoring and maintaining of collateral and margin requirements Pledged collateral will be evidenced by original safekeeping receipts sent 10

11 City of Nassau Bay, Texas Request for Proposal Depository Services directly to the City by the custodian and the City will receive a report of collateral pledged including description, par, market value and cusip monthly Substitution rights will be granted if the bank obtains the City s prior approval and if substitution securities are received before previously pledged securities are removed from safekeeping The bank shall execute a tri-party safekeeping agreement with the City and the safekeeping bank for custody of pledged securities in full compliance with FIRREA Describe bank safekeeping arrangements proposed. If a correspondent bank is used please stipulate and include name. Stipulate the custodian to be used for pledged securities. 11. ACCOUNT ANALYSIS Monthly account analysis reports must be provided for each account and on a consolidated basis. Provide a sample account analysis and state when the analysis will be available each month. Describe the ability of the bank to provide the account analysis online and/or imaged. 12. MONTHLY STATEMENTS The bank will provide monthly account statements on all accounts. Describe the ability of the bank to provide statements and images of cancelled checks online. State when the statements will be available each month. All accounts must be on a monthly cycle. Timeliness of statements is critical and will be grounds for termination of contract if not provided. Provide a sample of the monthly statement to be used. 13. DAYLIGHT OVERDRAFT Because of the limitation of pledged securities and staff time, the City must be concerned with placing investment orders and may sometimes do so before funds are considered collected by the bank. The City proposes to use the overdraft privilege to take care of this problem. 14. INSUFFICIENT FUNDS (NSF) ITEMS Complete information must be provided on all NSF returned items including name and reason for return Describe the bank s NSF process and any limitations. Is the NSF information available online? 14.2 How many times can the item be re-deposited? How many times do you routinely re-deposit? If an item is re-deposited twice, will both transactions appear on the City s daily activity detail? 11

12 City of Nassau Bay, Texas Request for Proposal Depository Services 15. STOP PAYMENTS An automated stop pay process is required. Describe the service and the bank s policy on stop pays How long will stop pays remain in effect? 15.2 What is the deadline for same day action? 15.3 Will the system verify if the check has been cleared before accepting the stop pay? 15.4 Are tellers provided with the stop pay information same day? 15.5 Provide the stop pay access times, deadlines, and any requirements What information on current and expiring stop pays is available online? When? 16. INTEREST RATES Please submit information on proposed interest rates for investment tools and solutions What solutions are available that have advantageous rates associated with them? 16.2 Are the rates fixed or variable? 16.3 Are they adjustable at specific intervals? Annually? 16.4 What are the rates tied to? T-bill? Texpool? Etc. VII. BANK COMPENSATION The City anticipates paying for all services on a fee basis. Fees will be paid as a debit to the designated account after a five day City review and approval period each month. Each proposal must include a completed Attachment A (digital version in MS Excel format) listing all bundled and/or unbundled charges applicable to the services outlined in this proposal. The basis of the charge (per item or per account/month) should be clearly noted. If services or unbundled charges needed to provide this are not currently listed on Attachment A, please add by name and note applicable fees. Please clearly stipulate how software maintenance and account maintenance charges are to be charged for various services. The City currently enjoys an earnings credit for designated deposit levels in the depository account. Proposals for similar compensation arrangements would be in line with the City s current depository structure. 12

13 Attachment A Schedule of Usage and Fee Proposal Any and all anticipated service charges must be shown on this form to be applicable under the agreement. Add additional lines as required. Account Services Depository Services Estimated Monthly Volume Account Maintenance 1 Deposit Assessment 6480 Deposits 30 Deposited Checks: On-Us 23 Deposited Checks: Foreign 514 ACH Debit Received 16 ACH Credit Received 127 Checks Paid 155 Return Item Deposit 2 Stop Payment 1 Online Banking Services Online CM Maintenance 1 Fee Charges/Unit Total Monthly Charges ACH Services ACH Batch Originated 6 ACH Item Originated 342 Wire Services Outgoing Domestic Wire Transfer 0 Outgoing Domestic Wire Transfer-OLB 2 Incoming Domestic Wire Transfer 1 Int'l Outgoing Wire Fee 0 Remote Deposit Capture RDC Maintenance 1 RDC Per Item 270 RDC Coupon Per Item 6

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15 INVESTMENT POLICY City of Nassau Bay, Texas Date of Original Adoption: March 9, 2009 Date of Most Current Revision and Adoption: March 14, 2016 Prepared by the Finance Department Approved by the City Manager s Office Confirmed by the City Council with Resolution #R

16 TABLE OF CONTENTS Page 1.0 INVESTMENT AUTHORITY AND SCOPE OF POLICY 1.01 Purpose Funds Included Investment Officer INVESTMENT OBJECTIVES 2.01 General Policy Statement Safety and Maintenance of Adequate Liquidity Diversification Yield Maturity Quality and Capability of Investment Management Investment Strategies INVESTMENT TYPES 3.01 Authorized Investments Suitability of Investments Exemption for Existing Investments Diversification and Maturity Limitations INVESTMENT RESPONSIBILITY AND CONTROL 4.01 Investment Institutions Defined Qualifications for Approval of Broker/Dealers Delivery vs. Payment Internal and Audit Controls Standard of Care Monitoring Market Value INVESTMENT REPORTING 5.01 Quarterly Reporting INVESTMENT COLLATERAL AND SAFEKEEPING 6.01 Collateral or Insurance Required Independent Third-Party Safekeeping 11 Attachments A-1 through A-9 Investment Strategies 12 Attachment B - Certification Form 21 Attachment C Eligible Investment Pool Criteria 22 Attachment D Investment Officer Training Certificates 24 Attachment E Authorized Broker/Dealers 25

17 1.0 INVESTMENT AUTHORITY AND SCOPE OF POLICY 1.01 Purpose This policy is developed in accordance with the Public Funds Investment Act (PFIA) Chapter 2256 of the Texas Government Code [which directs specific investment parameters for the investment of public funds in Texas], and with the Public Funds Collateral Act, Chapter 2257 of the Texas Government Code [which specifies collateral requirements for all public funds deposits], as amended. This investment policy applies to all investment activities of the City of Nassau Bay and serves to satisfy the statutory requirement to define and adopt a formal investment policy. The City s investment portfolio shall be designed and managed in a manner to be responsive to public trust while providing the highest rate of return with the maximum security to be in compliance with Chapter 2256 and Chapter 2257 legal requirements and limitations, and to be within the authority granted by City Charter and the City Council Funds Included All financial assets of all funds of the City of Nassau Bay, Texas, at the present time and any funds to be created in the future shall be administered in accordance with the provisions of this policy. Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles. Current Funds of the City of Nassau Bay, Texas include the following: A. General Fund B. Water & Sewer Fund C. Debt Service Fund D. Tourism Fund E. Special Revenue and Grant Funds F. Capital Projects Fund G. Street Maintenance Sales Tax Fund H. Economic Development Corporation Fund (a Component Unit of the City governed by Section 4B of the Texas Development Corporation Act of 1979) I. TIRZ/RDA Fund 1.03 Investment Officer Serving under immediate direction of the City Manager, management responsibility for the investment program is hereby delegated to the City Finance Director, or in the absence of such, Senior Accountant, or such other person specifically designated in writing by the Finance Director. The City Finance 1

18 Director, or designated Investment Officer by such, shall be responsible for all transactions, compliance with internal controls, and insuring that all safekeeping, custodial, and collateral duties are in compliance with this investment policy and other applicable laws and regulations. If the Investment Officer has a personal business relationship with a business organization offering to engage in an investment transaction with the City or is related within the second degree by affinity or consanguinity to any individual seeking to transact investment business with the entity, the investment officer must file a statement disclosing the personal business interest or relationship with the Texas Ethics Commission and City Council of the City of Nassau Bay. A personal business relationship is defined as owning 10 percent or more of the voting stock or shares of the business organization or owning $5,000 or more of the fair market value of the business organization; funds received from the business organization exceed 10 percent of the person s gross income for the previous year; or the acquisition of investments from the business organization during the previous year have a book value of $2,500 or more for the person s personal account. Any person involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Employees and investment officials shall disclose to the City Secretary any material financial interest in financial institutions that conduct business within this jurisdiction, and they shall further disclose any large personal financial and/or investment positions that could be related to the performance of the City s portfolio. Any person responsible for investments shall subordinate their personal investment transactions to those of this jurisdiction, particularly with regard to the timing of purchases and sales. (PFIA (i)). The City Finance Director, or any person designated by such to be responsible for investments, shall not be designated as an investment officer for any local government investing entity other than the City of Nassau Bay. 2.0 INVESTMENT OBJECTIVES 2.01 General Policy Statement City investments shall be made in accordance with federal and state laws, rules and regulations, this investment policy and Ordinances of the City Council of the City of Nassau Bay, Texas. This investment policy will be reviewed by City Council, or their designated investment committee, and adopted by Resolution, annually, in accordance with Texas Government Code Section (e). During the annual review process, updates related to state legislative action taken in the preceding year will be provided to City Council as appropriate. The Resolution shall state that the 2

19 City of Nassau Bay has reviewed the investment policy and investment strategies and the written instrument so adopted shall record any changes made to either the investment policy or investment strategies Safety and Maintenance of Adequate Liquidity The City s investment portfolio will remain sufficiently liquid while ensuring the safety of principal to enable the City to meet operating requirements that might be reasonably anticipated. Liquidity shall be achieved by structuring the portfolio so that investments mature concurrent with forecasted cash flow requirements. Because all possible cash demands cannot be anticipated, the portfolio should consist largely of securities with active secondary or resale markets. A portion of the portfolio will also be placed in interest bearing accounts which offer same day liquidity for short-term funds Diversification 2.04 Yield Invested funds shall be diversified to minimize risk resulting from overconcentration of assets in a specific maturity, specific market sector, or specific instruments. The City s cash management portfolio shall be designed with the objective of attaining the highest rate of return with the maximum security of principal and liquidity on investments throughout budgetary and economic cycles. The investment program shall seek to augment these returns consistent with risk limitations identified herein, state and federal law governing investment of public funds, and prudent investment principles, also taking into account the risk constraints associated with the protection of capital Maturity The investment maturity schedule shall correspond with the City s projected cash flow needs. Market risk shall be minimized by diversification of maturity dates. The City has a buy and hold portfolio strategy. Maturity dates are matched with cash flow requirements and investments are purchased with the intent to be held until maturity. However, securities may be sold before they mature should it be in the City s best interest. The maximum allowable stated maturity of any individual investment owned by the City of Nassau Bay shall be three (3) years. For pooled funds, the maximum dollar-weighted average maturity (WAM) of the portfolio, based on the stated maturity date that is allowed is 90 days. 3

20 2.06 Quality and Capability of Investment Management The City of Nassau Bay shall provide periodic training in investments for the investment personnel through courses and seminars offered by professional organizations and associations in order to insure the quality and capability of Nassau Bay s investment personnel making investment decisions in compliance with PFIA. [Reference Public Funds Act, Sec (b)(3).] Any person newly designated to duties relating to the investment program shall be required to attend 10 (ten) hours of an independent and approved source of investment training session within 12 (twelve) months of such designation. Thereafter, each investment officer must attend 8 (eight) hours of training every 2 (two) years that begins on the first day of the fiscal year and consists of the two consecutive fiscal years after that date. Training must include education in investment controls, security risks, strategy risks, market risks, diversification of the investment portfolio, and compliance with the Public Funds Investment Act under the Texas Government Code - Chapter As part of the annual investment policy review process, the most recent training certificates of all investment officers will be provided for City Council approval and authorization as Attachment D of this policy. All participants in the investment process shall seek to act responsibly as custodians of the public trust. They shall avoid any transactions that might impair public confidence in the City s ability to govern effectively. The system of internal controls will be reviewed annually with the independent auditor of the City. The controls shall be designed to prevent loss of public funds due to fraud, employee error, misrepresentation by third parties, unanticipated market changes, or imprudent actions by employees of the City. The City Council of Nassau Bay retains ultimate responsibility as fiduciaries of the assets of the City Investment Strategies In accordance with the Texas Local Government Code - Section (d), a separate written investment strategy is developed for each of the funds or group of funds under the City of Nassau Bay s control. Each investment strategy describes the investment objectives for the particular fund using the following priorities in order of importance: A. Understanding of the suitability of the investment to the financial requirements of the City; B. Preservation and safety of principal; C. Liquidity; 4

21 D. Marketability of the investment if the need arises to liquidate the investment before maturity; E. Diversification of the investment portfolio; and F. Yield. [Maximizing the amount of interest income, within the constraints of the preceding objectives, all of which have higher priorities.] Attachments A-1 through A-9 include investment strategies for all funds. In accordance with the Texas Local Government Code - Section (e), investment strategies will be reviewed and updated by City Council at least annually. The investment strategies utilized for all City controlled funds are substantially the same because of the low dollar amount of investable funds and the common characteristics, cash flow requirements, aversion to risk, etc. for all the funds. 3.0 INVESTMENT TYPES 3.01 Authorized The City of Nassau Bay s Investment Officer shall use any or all of the following authorized investment instruments consistent with governing law. [Reference Texas Government Code 2256]: A. Obligations Issued, Guaranteed, or Insured by the United States or its Agencies and Instrumentalities [Section (a)(1) and (4)]. Restrictions/Qualifications: None B. Obligations Issued, Guaranteed, or Insured by the State of Texas or its Agencies and Instrumentalities [Section (a)(1) and (4)] Restrictions/Qualifications: None C. Obligations of States (other than Texas), Agencies, Counties, Cities and Other Political Subdivisions [Section (a)(5)] Restrictions/Qualifications: Must be rated as investment quality not less than A or its equivalent by at least one nationally recognized investment rating firm. D. Certificates of Deposit (Section ) Restrictions/Qualifications: (a) Funds must be invested by an investing entity through a depository institution that has a main or branch office in this state, (b) Must be secured by FDIC or its successor or National Credit Union Share Insurance Fund or its successor, and (c) Must be fully collateralized as described in the PFIA and other applicable law. 5

22 F. Investment Pools [Section ] Restrictions/Qualifications: (a) Governing body must authorize investment in a pool that can only invest in obligations approved by the Act, (b) Must provide an offering circular containing information required by the Act, (c) Must provide investment transaction confirmations and provide a monthly report containing information required by the Act, (d) Pool created to function as a money market mutual fund must mark its portfolio to market daily and stabilize at a $1 net asset value, (e) Must have an advisory board as specified by the Act, and (f) Must be rated not less than AAA or an equivalent rating by at least one nationally recognized rating service. Reference: Attachment C G. Repurchase Agreements (Section ) Restrictions/Qualifications: (a) Must be fully collateralized as described in the PFIA and secured by obligations of the United States or its agencies and instrumentalities, (b) Must have a defined termination date, (c) Securities purchased must be pledged to the City, held in the City s name, and deposited with the entity or with a third party selected and approved by the entity, (d) Must be placed through a primary government securities dealer or state or national bank domiciled in the State of Texas, evidenced by a fully executed Master Repurchase Agreement on file with the City and (e) Reverse agreements must not exceed 90 days and securities held as collateral must not mature later than the agreement s expiration date. The repurchase agreement is a simultaneous agreement to buy, hold for a specified time, and sell back at a future date, obligations of the United States or its agencies and instrumentalities, at a market value at the time the funds are disbursed of not less than the principal amount of the funds disbursed. The purchased securities shall have a minimum market value including accrued interest of 102 percent of the dollar value of the transaction. Collateral shall be held in the City s third-party custodian bank as safekeeping agent, and the market value of the collateral securities shall be marked-to-the market daily. H. Guaranteed Investment Contracts (Section ) Restrictions/Qualifications: Authorized for bond proceeds investment only and(a) Must have a defined termination date, (b) Must be secured by U.S. Government direct or agency obligations approved by the Act in an amount equal to the bond proceeds, (c) Security must be pledged to the entity and deposited with the entity or a third party, (d) Term must be limited to three (3) years from the date of bond issuance, excluding reserves and debt service funds, and (e) Must comply with terms and conditions concerning eligibility as an authorized investment as specified in Section (c) of the Act. 6

23 J. No-Load Money Market Mutual Funds (Section ) Restrictions/Qualifications: Authorized when the mutual fund, (a) is registered with and regulated by the Securities and Exchange Commission, (b) provides the investing entity with a prospectus and other information as legally required, (c) has a dollar-weighted average stated maturity of 60 days or fewer, (d) includes in its investment objectives the maintenance of a stable net asset value of $1 for each share, and (e) is invested exclusively in obligations approved by this policy. The City may not invest its eligible funds in any one mutual fund in an amount that exceeds 10% of the total assets of the mutual fund. This Investment Policy encourages the City Investment Officer to acquire at least three competitive offers or quotes for all individual security purchases and sales (excluding transactions with money market mutual funds, local government investment pools, and previously bid and approved depository services 3.02 Suitability of Investments In accordance with Texas Government Code - Section , an investment that requires a minimum rating does not qualify as an authorized investment during the period the investment does not have the minimum rating. The City of Nassau Bay shall take all prudent measures that are consistent with this investment policy to liquidate an investment that does not have the required minimum rating. The City of Nassau Bay shall monitor investment ratings via financial data provided by nationally recognized rating agencies Exemption for Existing Investments In compliance with Texas Government Code - Section , the City is not required to liquidate investments that were PFIA-authorized investments at the time of purchase Diversification and Maturity Limitations It is the policy of the City to diversify its investment portfolio. Invested funds shall be diversified to minimize risk or loss resulting from over-concentration of assets in a specific maturity, specific issuer, or specific class of securities. Diversification strategies shall be established and periodically reviewed. At a minimum, diversification standards by security type and issuer shall be: Security Type Max % of Portfolio Fully collateralized Deposits at Depository Bank 100% U.S. Treasury Obligations 100% Public Funds Investment Pools 100% 7

24 U.S. Government Agencies and Instrumentalities Not to exceed 50% Fully insured or collateralized CDs Not to exceed 50% Repurchase Agreements Not to exceed 30% Texas or other State Agencies, Counties, Cities, and Other Political Subdivisions Not to exceed 20% Guaranteed Investment Contracts Not to exceed 50% Of Total Bond Revenue No-Load Money Market Mutual Funds Not to exceed 20% The Investment Officer shall be required to diversify maturities. The Investment Officer, to the extent possible, will attempt to match investment with anticipated cash flow requirements. Matching maturities with cash flow dates will reduce the need to sell securities prior to maturity, thus reducing market risk. Unless matched to a specific requirement, and authorized by the City Manager, the Investment Officer may not invest more than 20% of the portfolio for a period greater than one (1) year. Unless matched to specific requirements, and authorized by the City Manager, the Investment Officer may not invest any portion of the portfolio for a period greater than three (3) years. 4.0 INVESTMENT RESPONSIBILITY AND CONTROL 4.01 Investment Institutions Defined The City of Nassau Bay s Investment Officer shall invest City funds with any or all of the following institutions or groups consistent with federal and state law and the current depository bank contract: A. Depository Bank; B. Other state or national banks with a main or branch office in Texas that are insured by the United States or an instrumentality of the United States; C. Public funds investment pools; or D. Government securities brokers and dealers Qualifications for Approval of Broker/Dealers In accordance with Government Code (k-l), a written copy of this investment policy shall be presented to any person seeking to sell the City an authorized investment. The qualified representative of the business organization seeking to sell an authorized investment shall execute a written instrument substantially to the effect that the qualified representative has: 8

25 A. Received and thoroughly reviewed the investment policy of the City; and B. Implemented reasonable procedures and controls in an effort to preclude investment transactions conducted between the City and the organization that are not authorized by the City s Investment Policy, except to the extent that this authorization is dependent on an analysis of the makeup of the City s entire portfolio or requires an interpretation of subjective investment standards. PFIA (k-l) The Investment Officer may not buy any securities from a person who has not delivered to the City an instrument in substantially the form provided above according to Section (l). The Nassau Bay City Council, or their designated investment committee, shall annually review, revise, and adopt a list of qualified brokers that are authorized to engage in investment transactions with the City. This list of brokers can be found in Attachment E of this Investment Policy Delivery vs. Payment The Delivery vs. Payment (DVP) method is required for the settlement of all transactions, except local government investment pool and mutual fund transactions. By so doing, funds shall not be wired or paid until verification has been made that the correct security was received by the City of Nassau Bay or its designated Trustee. The security shall be held in the name of the City. The Trustee s records shall reflect that the City owns such securities. In the event that the security is held by Trustee, a copy of all safekeeping receipts shall be delivered to the City Finance Director, or person designated by such. PFIA (b)(4)(e) 4.04 Internal and Audit Controls The City Manager shall establish a system of written internal controls which shall be reviewed annually by the City s independent auditor. The controls will be designed to prevent loss of public funds due to fraud, error, misrepresentation, unanticipated market changes, or imprudent actions. The City will authorize an annual financial audit of all City funds by an independent auditing firm, as well as an annual compliance audit of management controls on investments and adherence to the City s established investment policies in accordance with (m) Standard of Care 9

26 The safety of the principal invested always remains the primary and foremost objective. All investments shall be designed and managed in a manner responsive to the public trust and consistent with state and local law. 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, the risk of loss due to the failure of the security issuer or backer, and interest rate risk, the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. In accordance with Texas Government Code Section , investments shall be made with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person s own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived. Investment of funds shall be governed by the following investment objectives, in order of priority: (1) preservation and safety of principal; (2) liquidity; and (3) yield. In determining whether an investment officer has exercised prudence with respect to an investment decision, the determination shall be made taking into consideration: A. The investment of all funds, or funds under the City s control, over which the officer had responsibility rather than a consideration as to the prudence of a single investment; and B. Whether the investment decision was consistent with the written investment policy of the City Monitoring Market Value The City will use one or more of the following means to monitor the market price of investments acquired with public funds when applicable: A. The Wall Street Journal, or other financial data sources that provide the market value of investments; B. Pricing services through the Depository Bank contract; and C. Any other pricing services that comply with the Public Funds Investment Act. 5.0 INVESTMENT REPORTING 5.01 Quarterly Reporting 10