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Res 057-2025 Review and Approval of Updated Investment Policy for CWF 05/20/2025 ResolutionNo. 57-2025 Resolution reviewing and approving the updated investment policy for the City of Wichita Falls WHEREAS, this policy updates the existing investment policy; and, WHEREAS, the policy is established in compliance with the Texas Public Funds Investment Act (PFIA); and, WHEREAS, the investment policy is designed to meet the criteria established by the Government Treasurer’s Organization of Texas (GTOT). NOW, THEREFORE, BE IT RESOLVEDBY THE CITY COUNCIL OF THE CITY OF WICHITA FALLS, TEXAS, THAT: The attached Investment Policy for theCity of Wichita Falls is hereby adopted. PASSED AND APPROVED this the 20thday of May 2025, ______________________________ M A Y O R ATTEST: _________________________ City Clerk Investment Policy Reviewed: May 3, 2025 Proposed for Approval: May 20, 2025 INTRODUCTION The purpose of this policy is to establish guidelines for the City’s investment activities in accordance with applicable laws, including the Public Funds Investment Act (PFIA), Chapter 2256 of the Texas Government Code. The policy outlines decision-making criteria, reporting requirements, portfolio guidelines, and investment strategies, prioritizing safety of principal, liquidity, and yield in that order. This policy will be reviewed and adopted annually by the City Council. SCOPE This policy applies to all financial assets of the City, including: General Operating Funds Bond Operating Funds Debt Service Funds Special and Trust Funds The City may maintain separate portfolios or a pooled fund group in accordance with PFIA 2256.002(9). INVESTMENT OBJECTIVES The primary objectives of this policy are: 1. Safety of Principal – Investments shall be made to ensure the preservation of capital. 2. Liquidity – The City will maintain sufficient liquidity to meet cash flow needs. 3. Yield – Investments shall be structured to attain a reasonable market rate of return within risk constraints. PRUDENT PERSON RULE Investments will be managed under the "prudent person" standard as defined in PFIA 2256.006(a-b): "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." INVESTMENT OFFICER In accordance with PFIA 2256.005 (f), the City of Wichita Falls Chief Financial Officer is the Investment Officer (IO) and is responsible for establishing operating policies, which will ensure that investments are maintained in a proper and prudent maturity distribution, represent sound extensions of credit, and are appropriate investments with regard to regulatory and legal requirements. The IO will be accountable to the City Manager. Ultimate responsibility for management of the investment portfolio rests with the IO. It is expected that the IO may wish to delegate one or more of the specific investment objectives. Sales from the portfolio must be approved by the IO and the City Manager. A. ETHICS & CONFLICTS OF INTEREST – Investment officers must file a disclosure statement with the Texas Ethics Commission and governing body if they: a. Have a personal business relationship with a firm engaged in investment transactions with the City (PFIA 2256.005(i)(1-3)). b. Are related within the second degree of affinity or consanguinity to an individual conducting investment business with the City (Texas Government Code Chapter 573). B. DELEGATION OF INVESTMENT AUTHORITY – The Chief Financial Officer (CFO) is designated as the Investment Officer (IO) and is responsible for ensuring compliance with all investment activities. The City Manager provides oversight, and the City Council receives periodic reports. C. INVESTMENT TRAINING - Investment officers must complete 10 hours of training within 12 months of assuming duties and 10 hours every two years thereafter, from an independent source approved by the City’s governing body (PFIA 2256.008). D. QUARTERLY REPORTING - Investment officers will submit quarterly reports to the City Council that include the book and market value of each investment, their respective maturity dates and interest rates, and a statement of compliance with the Public Funds Investment Act (PFIA) 2256.023. Each report will also include a certification of adherence to the City’s investment strategy. INVESTMENT STRATEGIES Each fund’s investment strategy prioritizes: 1. Suitability to financial needs. 2. Safety of Principal to prevent loss. 3. Liquidity for cash flow needs. 4. Marketability in case of early liquidation. 5. Diversification to manage risk. 6. Yield based on market benchmarks. DIVERSIFICATION & MAXIMUM MATURITIES No more than 30% of the portfolio will be invested in maturities greater than two (2) years. Additionally, the weighted average maturity of any pooled fund group will remain in compliance with PFIA 2256.005(b)(4)(C). SAFEKEEPING The laws of the State and prudent treasury management practices require that all purchased securities be bought on a delivery versus payment basis and held in safekeeping by either the City, an independent third-party financial institution, or the City’s designated depository. All safekeeping arrangements shall be designated by the Investment Officer (IO) and executed through a written agreement outlining the terms. Securities and collateral will be held by a third-party custodian designated by the City and registered in the City’s name. The custodian will be required to issue safekeeping receipts to the City, listing each specific security along with its rate, description, maturity, CUSIP number, and any other pertinent information. Each safekeeping receipt will clearly state that the security is held for the City or pledged to the City. COLLATERALIZATION POLICY Collateralization shall be required for two types of investments: certificates of deposit in excess of the FDIC insurance coverage of $250,000 and repurchase agreements. To ensure security and in anticipation of market fluctuations, the required collateralization level will be 102% of the market value of both the principal and accrued interest for all such investments. This policy is in accordance with the requirements set forth in the Texas Government Code, Chapter 2257, which governs the collateralization of public funds. AUTHORIZED INVESTMENTS Investments are limited to those authorized by PFIA Sections 2256.009 – 2256.016 and 2256.019 – 2256.0201, including: A. U.S. TREASURY SECURITIES - U.S. Treasury securities are direct obligations of the United States Government and are considered the highest quality and most liquid of investment securities. Investments include Treasury bills (with initial maturities of three months, six months, and one year), Treasury notes (maturities from two to ten years), and Treasury bonds (maturities from ten to thirty years). The average life of the U.S. Treasury securities portfolio will not exceed 2.5 years, and no individual security will exceed 5 years in maturity. Treasuries may comprise up to 100% of the Investment Portfolio. B. FEDERAL AGENCY SECURITIES - Federal agency securities are regarded as high-quality investments and usually acceptable for pledging and collateral requirements. These obligations typically offer slightly higher yields than U.S. Treasuries and include issuances by the Federal Farm Credit System, Federal Home Loan Bank (FHLB), Federal National Mortgage Association (FNMA), Student Loan Marketing Association (SLMA), Federal Home Loan Mortgage Corporation (FHLMC), Government National Mortgage Association (GNMA), and Small Business Administration (SBA). The average life of this portfolio section will not exceed 2.5 years, and no individual security will exceed 5 years in maturity. Federal agencies may comprise up to 100% of the Investment Portfolio. C. MUNICIPAL BONDS (Rated A or higher) - The City may invest in direct obligations of the State of Texas or its agencies and instrumentalities. The City shall comply with all legal and regulatory guidelines and consider diversification by obligor. Taxable municipal obligations are permitted but subject to credit, maturity, and geographic distribution requirements. Investments must be supported by sufficient credit information and retained records. Municipals are issued either as general obligation (G.O.) or revenue bonds. G.O. bonds are backed by the issuer's taxing authority, while revenue bonds are tied to project-generated income. Bonds rated at least "A" by Moody's or Standard & Poor’s are eligible, though local, well-known issuers without ratings may be considered. The City will assess credit information based on factors like debt burden, tax rates, and economic background. The average maturity for this section will not exceed two years, and municipal bonds may not exceed 25% of the Investment Portfolio. D. CERTIFICATES OF DEPOSIT (CDs) - Certificates of Deposit (CDs) or share certificates must be issued by Texas-based depository institutions and be insured or collateralized per the Act. Total collateralized CDs may comprise 100% of the portfolio, with an average maturity of two years or less. Additionally, brokered CDs are allowed if they meet specific conditions under the Act, including full FDIC insurance and custodianship by the originating depository institution. Reciprocal deposit arrangements are also permissible under the Act. E. REPURCHASE AGREEMENTS (with a Master Repurchase Agreement) - Repurchase agreements must be fully collateralized and comply with Section 2256.011 of the Act. They must have a defined termination date, be secured by permissible obligations, and be placed through qualified institutions. The collateral must be at least 102% of the principal. Repurchase agreements may not exceed 180 days. Reverse repurchase agreements are limited to 90 days and must be used to purchase authorized investments maturing within the agreement's term. Total investment in repurchase and reverse repurchase agreements may not exceed 25% of the Investment Portfolio. F. BANKERS’ ACCEPTANCES - Bankers’ acceptances must have maturities of 270 days or fewer, be eligible as Federal Reserve collateral, and be issued by highly rated U.S. banks or their holding companies. Individual transactions may not exceed 5% of the portfolio, and total holdings may not exceed 15%. All issuers must be monitored for financial solvency. G. COMMERCIAL PAPER - Commercial paper must mature within 365 days and have an A-1+ or P-1 rating by at least two nationally recognized credit rating agencies (or one rating agency with an irrevocable letter of credit). Total investment may not exceed 15% of the portfolio, with no more than 5% in any single issuer. H. NO-LOAD MONEY MARKET MUTUAL FUNDS - The City may invest in no-load money market mutual funds regulated by the SEC that maintain a stable $1 NAV and have a weighted average maturity of 90 days or fewer. These must be rated AAA or equivalent and invest only in authorized obligations. The City may invest up to 80% of its average fund balance (excluding bond proceeds and debt service funds) in money market mutual funds and no more than 15% in mutual funds overall. No more than 10% of any mutual fund's total assets may consist of City investments. I. PUBLIC INVESTMENT POOLS - Public investment pools must meet the requirements of Section 2256.016 of the Act and be authorized by the City Council. Pools must invest in authorized obligations and may include money market mutual funds consistent with the Act and the pool's policies. Investment in pools may not exceed 90% of the Investment Portfolio. PROHIBITED INVESTMENTS The City may not invest in any investments unauthorized by the Public Funds Investment Act, Section 2256.009(b)(1-4). Specifically, the City is prohibited from investing in: Interest-Only Stripped Securities Principal-Only Stripped Securities Collateralized Mortgage Obligations (CMOs) with Maturity > 10 Years Inverse Floating Rate CMOs SECURITIES DEALERS AND TRANSACTIONS The City employs Sentry Management, Inc. (SMI), a registered investment and municipal advisor, to provide professional advice on investments, interest rate risk, and asset/liability management. SMI operates strictly on a fee basis and does not act as a securities dealer. While SMI offers expert guidance, all investment decisions and transactions remain the responsibility of the City through the Investment Officer (IO). SMI must obtain competitive bids for all securities transactions and ensure best execution pricing. However, they may not execute any trade without direct authorization from the City. SMI also maintains transaction records and monitors the financial condition of approved dealers. The City may conduct transactions with any Federal Reserve Primary Dealer or other approved dealers. SMI and the City maintain financial information on each dealer and review factors such as capital strength, regulatory history, and reputation. Any enforcement actions reported by regulatory bodies will also be considered. When SMI is not involved in a transaction, the City ensures that all dealers receive the Investment Policy and return a signed Certification Form acknowledging their understanding. All trades must be settled on a delivery-versus-payment basis, and securities must be held in safekeeping at the City’s depository bank or another third-party custodian. Personal securities transactions between the IO and the City’s approved dealers are prohibited unless specifically approved in advance by the City Manager, who will periodically review such activity. All investment activities will comply with the Texas Public Funds Investment Act (PFIA 2256.005(b)(3)). Contracts with investment and financial advisors must be reviewed at least every three years and competitively bid at least every five years from the adoption date of this policy. COMPETITIVE BIDDING All individual security purchases and sales must include at least three competitive bids or offers. Competitive bidding requirements do not apply to the purchase or sale of money market mutual funds, local government investment pools, or when-issued securities, which are deemed to be made at prevailing market rates. BIDDERS LIST In accordance with PFIA 2256.025, the City will establish and review, at least annually, a list of qualified brokers that are authorized to engage in investment transactions with the City. This list will be maintained by the City’s Financial Advisors and made available upon request. INTERNAL CONTROL The City will include a compliance audit of its investment management practices as part of its annual financial audit, in accordance with PFIA 2256.005(m). Investments outside of money market mutual funds, investment pools, or depository bank accounts (e.g., certificates of deposit or similar accounts) are subject to additional review for adherence to this investment policy. Investments that become ineligible after purchase, but were compliant at the time of acquisition, are not required to be liquidated before maturity, as allowed by PFIA 2256.017 and 2256.055(m). ANNUAL INDEPENDENT REVIEW An independent auditor will conduct an annual review of the City's investment reports and present the findings to the governing body, as required by PFIA 2256.023(d). ANNUAL REVIEW & ADOPTION This investment policy will be reviewed and adopted annually by the City Council, and any changes made during the review process will be documented as required by PFIA 2256.005(e). EXCEPTIONS TO POLICY This policy is designed to be adaptable in response to evolving economic conditions and fluctuations in the bond and money markets. Amendments may be made through a joint review by the City Manager and Investment Officer (IO), and/or by a majority vote of the City Council. If the City Manager and IO make substantive changes, those amendments will be reported to the City Council at the next regularly scheduled meeting. The City Council, City Manager, and IO will review this policy at least once annually.