Understanding Investments in the Illinois Bookkeepers Conference

Explore the informative presentation on accounting for investments at the 2023 Bookkeepers Conference in Rolling Meadows, Illinois. The session covers allowable investments, including money market funds, treasury securities, certificates of deposit, and more. Gain insights on investment policies, district investment options, and how to manage interest allocations effectively.

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• Investments
• Illinois
• Bookkeepers Conference
• Accounting

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1. Accounting for Investments This presentation is to be informative and not to promote specific products, services companies, etc. Illinois ASBO Sponsored Programs are permitted to promote products and services in accordance with the Service Associate Ethics Policy and Code of Conduct. 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois

2. Introductions Christine Green, CSBO (Moderator) - Director of Business Services, Lake Zurich CUSD 95 Jim Palmer (Speaker) - Comptroller, Township High School District 214 Tim Flaherty, CSBO (Speaker) - VP, Investment Services, PMA Financial Network 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois

3. Agenda Overview of Allowable Investments Breaking down the principal and interest for investments How to allocate interest across funds 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois

4. AllowableInvestments 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois

5. What can a district invest in? Defined by Illinois Statute - (ILCS 235) Registered Money Market Fund Pools US Treasury and Agency Securities Certificates of Deposit Demand/Checking Accounts Corporate Obligations Municipal Securities Repurchase Agreements Further defined by district Investment Policy 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois 5

6. Certificates of Deposit Federally insured institutions up to $250k (FDIC) Deposits in excess of $250k Insured Certificates of Deposit Collateralized Must be segregated and in district s name and held by third party Unsecured most District Policies require secured deposits Fixed term investment with specified maturity date Penalties for early withdrawal (typically 3 months of interest) 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois 6

7. US Treasury Securities Treasury Bills Issued by US. Treasury- maturities of 360 days or less Original bill is sold at auction. Secondary bill is sold at competitive market pricing. Issued at a discount of face value Government Notes Shorter-term bonds with original maturities of 1 to 10 years Issued in denominations of $1k, $5k, $10k, $100k & $1.0mm Securities are held on either registered or book-entry basis Government Bonds Major Issuers: US Treasury, Agencies sponsored by US Government, State & Local Governments Fixed income investment-issuer pays fixed amount periodically Nearly all pay interest semiannually Treasury Bills Government Notes Government Bonds 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois 7

8. US Agency/Instrumentalities Federal National Mortgage Association (FNMA) Federal Home Loan Bank (FHLB) Federal Home Loan Mortgage Corporation (FHLMC) (Freddie Mac) Federal Farm Credit System 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois 8

9. Analyzing Investments Three Major Factors Safety Safety Will I get my principal back? Credit Risk Liquidity Liquidity When can I get my principal back? Liquidity Risk Market Risk Yield Yield Am I receiving an appropriate return? 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois 9

10. Credit Risk Scale Treasury (Bills, Notes, Bonds) Risk Free Government Agencies Securities Investment Pools (ISDLAF+ AAA rated pool) Insured Bank CDs Collateralized Bank CDs Commercial Paper (A1/P1) Higher Degree of Risk Bank CDs (Uninsured/Uncollateralized) 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois 10

11. Liquidity Risk Scale Cash Cash Investment Pools (ISDLAF+ AAA rated pool) degree of liquidity Treasury (Bills, Notes, Bonds) Government Agency Securities Commercial Paper (A1/P1) Certificates of Deposit Illiquid Mortgage-Backed Securities 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois 11

12. Yield Curve Source: Bloomberg 02/27/23 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois

13. Types of Interest 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois

14. Money Market Account Interest is posted at month end, based on the daily rates and balances in the account. This full amount is considered interest and can be allocated across funds. 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois

15. CDs The interest on a CD is paid at maturity Example A one year, $239,000 CD purchased on 3/15/2023 at 4.50%. When the CD matures the district will receive two items, the principal ($239,000) and interest ($10,755) Maturity Value $249,755 Principal $239,000 Interest $10,755 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois

16. Treasury Bills/Agency Discount Notes Treasury Bills are purchased at a discount and matures at the par value The discount is the interest earned Agency Discount Notes are also purchased at a discount and mature at the par value Par/Maturity Value $1,000,000 Discount/ Interest $15,000 Cost $985,000 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois

17. Treasury Notes Treasury Note Purchased at premium or discount and pays semiannual coupon payments Net yield is calculated by totaling the coupon payments and the difference of the premium/discount Trade (Accrued) Interest the amount of the coupon payment that the previous owner of the investment has accrued from the previous coupon date up until the purchase date 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois

18. Treasury Notes Discount Example Face (Par) Value Discount Investment Cost ("Price") Accrued Interest ("Trade Interest") Total Cost ("Net Proceeds") $511,000.00 -$11,916.68 $499,083.32 $541.02 $499,624.34 Settle Date Maturity Date Rate Coupon Rate Cost 11/17/22 Cash Debit Credit $499,624.34 06/15/23 4.39% 0.125% $499,083.32 11/17/22 12/15/22 06/15/23 06/15/23 $638.75 $638.75 $511,000.00 $12,653.16 Total interest earned $12,653.16 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois

19. Treasury Notes Premium Example Cash Settle Date Maturity Date Rate Coupon Rate Cost 12/06/21 12/31/23 0.54% 2.625% Face Value Premium Investment Cost ("Price") Accrued Interest ("Trade Interest") Total Cost ("Net Proceeds") $1,897,000.00 $81,215.31 $1,978,215.31 $21,515.23 $1,999,730.54 Debit Credit 12/06/21 12/31/21 06/30/22 12/31/22 06/30/23 12/31/23 12/31/23 $1,897,000.00 $1,999,730.54 $24,898.13 $24,898.13 $24,898.13 $24,898.13 $24,898.13 $1,978,215.31 $21,760.08 Total interest earned $21,760.08 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois

20. How to Calculate Simple Interest You will multiple the cost by the net yield by the days of the investment divided 365 (or 360 depending on investment) Example $1,000,000 CD purchased at 4.50% maturing in 1 year =$1,000,000 x 4.50% x (365/365 days) =$45,000 Example $1,000,000 CD purchased at 4.25% maturing in 6 months =$1,000,000 x 4.25% x (180/365 days) =$20,959 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois

21. Allocating Interest to Funds 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois

22. Interest Allocation January 2023 EDUCATION CASH O & M DEBT TRANSP IMRF/SS S & C WC ALL POSITIVE FUNDS FUND 60 Non-Bond FUND 10 INTEREST FUND 20 FUND 30 FUND 40 FUND 50 FUND 70 CASH INVESTMENTS fund 60 $ $ 13,557,396.02 1,933,358.76 stmt of pos. Fund 61 non bond fund balance adj. For fund 60 balance 4,229,318.83 $ BEG. BALANCE 55,087,098.07 331,139.06 84,258,264.45 13,587,851.74 354,326.48 5,058,624.81 1,437,286.99 4,229,318.83 4,503,757.53 11,261,435.95 $ ADJ CASH BALANCE (POSITIVE BAL ONLY) 55,087,098.07 84,258,264.45 13,587,851.74 354,326.48 5,058,624.81 1,437,286.99 4,229,318.83 4,503,757.53 CASH $ $ 95,519,700.40 (11,261,435.95) all fund bal bond bal adj all fund balances 0.0535 1.000 % OF TOTAL 0.6538 0.16126 0.0042 0.0600 0.0171 0.0502 84,258,264.45 $ INTEREST ALLOC. adj. for rounding 216,494.96 (0.01) 53,400.92 1,392.52 19,880.64 5,648.61 16,621.43 17,699.99 Adjusted % of total 216,494.95 53,400.92 1,392.52 19,880.64 5,648.61 16,621.43 17,699.99 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois

23. Questions and Answers We thank you for your time! 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois

24. Presenters: MODERATOR INFO: Christine Green, Director of Business Services; Lake Zurich CUSD95 chris.green@lz95.org PANELISTS INFO: Jim Palmer, Comptroller; THSD 214 james.palmer@d214.org Tim Flaherty, VP; PMA Financial Network (630) 657-6432; tflaherty@pmanetwork.com 2023 BOOKKEEPERS CONFERENCE March 10, 2023 | Rolling Meadows, Illinois