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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Notes & Samples

NOTE 3 – Deposits, Investments and Repurchase Agreements
Sample (Illustrative, may not tie to exhibits)

Sample Agency is authorized by statute to make investments following the “prudent person rule.” There were no significant violations of legal provisions during the period.

Deposits of Cash in Bank

As of Aug. 31, 20CY, the carrying amount of deposits was $200.00 as presented below.

Governmental and Business-Type Activities

Type Amount
CASH IN BANK – CARRYING AMOUNT $ 200.00
Less: Certificates of Deposit included in carrying amount and reported as Cash Equivalent 10.00
Less: Uninvested Securities Lending Cash Collateral included in carrying amount and reported as Securities Lending Collateral 20.00
Less: Securities Lending CD Collateral included in carrying amount and reported as Securities Lending Collateral 30.00
Total Cash In Bank per AFR $ 140.00
Governmental Funds Current Assets Cash in Bank $ 140.00
Governmental Funds Current Assets Restricted Cash in Bank  
Governmental Funds Noncurrent Assets Restricted Cash in Bank  
Proprietary Funds Current Assets Cash in Bank  
Proprietary Funds Current Assets Restricted Cash in Bank  
Proprietary Funds Noncurrent Restricted Cash in Bank  
Cash in Bank per AFR $ 140.00

Fiduciary Funds

Type Amount
CASH IN BANK – CARRYING AMOUNT $ 150.00
Less: Certificates of Deposit included in carrying amount and reported as Cash Equivalent 10.00
Less: Uninvested Securities Lending Cash Collateral included in carrying amount and reported as Securities Lending Collateral 15.00
Less: Securities Lending CD Collateral included in carrying amount and reported as Securities Lending Collateral 5.00
Total Cash In Bank per AFR $ 120.00
Fiduciary Funds Cash in Bank $ 120.00
Fiduciary Funds Restricted Cash in Bank 120.00
Cash in Bank per AFR $ 120.00

Discrete Component Unit

Type Amount
CASH IN BANK   CARRYING AMOUNT $ 140.00
Less: Certificates of Deposit included in carrying amount and reported as Cash Equivalent 10.00
Less: Uninvested Securities Lending Cash Collateral included in carrying amount and reported as Securities Lending Collateral 20.00
Less: Securities Lending CD Collateral included in carrying amount and reported as Securities Lending Collateral 5.00
Total Cash In Bank per AFR $ 105.00
Discrete Component Unit Current Assets Cash in Bank $ 105.00
Discrete Component Unit Current Assets Restricted Cash in Bank  
Discrete Component Unit Noncurrent Assets Restricted Cash in Bank  
Cash in Bank per AFR $ 105.00

These amounts consist of all cash in local banks and a portion of short-term investments. These amounts are included on the combined statement of net position as part of the “cash and cash equivalents” and “securities lending collateral” accounts.

As of Aug. 31, 20CY, the total bank balance was as follows:

Type Amount Type Amount Type Amount
Governmental and Business-Type Activities $140.00 Fiduciary Funds $120.00 Discrete Component Units $105.00

Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, the agency will not be able to recover deposits or will not be able to recover collateral securities that are in the possession of an outside party. The agency does not have a deposit policy for custodial credit risk. The bank balances that were exposed to custodial credit risks are:

Fund Type Uninsured and uncollateralized Uninsured and collateralized with securities held by the pledging financial institution Uninsured and collateralized with securities held by the pledging financial institution’s trust department or agent but not in the state’s name
02   $2,000.00  
02 $95.00    
19     $300.00

Note: If the agency has bank balances subject to custodial credit risk, provide a brief description of its deposit policies related to deposit custodial credit risk or state that it does not have a deposit policy for custodial credit risk. Disclose only that portion of the total bank balance that was subject to deposit custodial credit risk. If no bank balance was subject to deposit custodial credit risk, do not include a discussion of deposit custodial credit risk in Note 3.

Foreign currency risk for deposits is the risk that changes in exchange rates will adversely affect the deposit. The agency’s policy is to limit deposits subject to foreign currency risk to 5 percent of total deposits. The exposure to foreign currency risk for deposits as of Aug. 31, 20CY is as follows:

(This table is not all inclusive)

Fund Type Currency Balance
05 Argentine peso $1,000.00
05 Aruban guilder 80.00
  Australian dollar  
  Bermudan dollar  
  Bolivian boliviano  
  Brazilian real  
  British pound  
  Bulgarian real  
  Canadian dollar  
  Cayman Island dollar  
  Chilean peso  
  Chinese yuan Renminbi  
  Cyprus pound  
  Czech koruna  
  Danish krone  
  Egyptian pound  
  Estonian droon  
  Euro  
  Hong Kong dollar  
  Hungarian forint  
  Indian rupee  
  Indonesian rupiah  
  Israeli shekel  
  Japanese yen  
  Jersey pound  
  Lithuanian litas  
  Malaysian ringgit  
  Mexican peso  
  Netherlands Antillan guilder  
  New Zealand dollar  
  Norwegian krone  
  Panamanian balboa  
  Philippine peso  
  Polish zloty  
  Qatar riyal  
  Romanian leu  
  Russian ruble  
  Singapore dollar  
  South African rand  
  South Korean won  
  Swedish krona  
  Swiss franc  
  Taiwan dollar  
  Thai baht  
  Turkish lira  
  Venezuelan bolivar  
  TOTAL $1,080.00

Note: If the agency has balances subject to foreign currency risk, provide a brief description of its policies that are related to foreign currency risk or state that it does not have a policy for foreign currency risk. Disclose only if the agency has deposits denominated in foreign currency. Disclose the U.S. dollar balances of such deposits organized by currency denomination. If there are no deposits denominated in foreign currency, do not include a discussion of foreign currency risk for balances in Note 3.

Investments

As of Aug. 31, 20CY, the fair value of investments were:

Governmental and Business-Type Activities

Type Fair Value Hierarchy (Fair Value)
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Amortized
Cost
Net Asset
Value
U.S. Government            
U.S. Treasury Securities $ 1,000.00         $ 1,000.00
U.S. Treasury Strips 90.00         90.00
U.S. Treasury TIPS            
U.S. Government Agency Obligations (Ginnie Mae, Fannie Mae, Freddie Mac, etc.)            
U.S. Government Agency Obligations (Texas Treasury Safekeeping Trust Co)            
Corporate Obligations            
Corporate Asset and Mortgage Backed Securities            
Equity            
International Obligations (Govt and Corp)            
International Equity            
Repurchase Agreement            
Repurchase Agreement (Texas Treasury Safekeeping Trust Co)            
Fixed Income Money Market and Bond Mutual Fund            
Other Commingled Funds            
International Other Commingled Funds            
Other Commingled Funds (Texpool)            
Commercial Paper            
Real Estate            
Derivatives            
Alternative Investments            
Misc (Political subdivision, bankers’ acceptance, negotiable CD)            
Total Investments $ 1,090.00         $ 1,090.00
Reconciliation of Investments per Exhibits – Governmental and Business-Type Activities            
Governmental Funds Current Assets Short-Term Investments           $    500.00
Governmental Funds Noncurrent Assets Investments           300.00
Proprietary Funds Current Assets Restricted Short-Term Investments           200.00
Proprietary Funds Noncurrent Assets Restricted Short-Term Investments           90.00
Investments per Exhibits           $ 1,090.00

Fiduciary Funds

Type Fair Value Hierarchy (Fair Value)
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Amortized
Cost
Net Asset
Value
U.S. Government            
U.S. Treasury Securities $ 700.00         $ 700.00
U.S. Treasury Strips 100.00         100.00
U.S. Treasury TIPS            
U.S. Government Agency Obligations (Ginnie Mae, Fannie Mae, Freddie Mac, etc.)            
U.S. Government Agency Obligations (Texas Treasury Safekeeping Trust Co)            
Corporate Obligations            
Corporate Asset and Mortgage Backed Securities            
Equity            
International Obligations (Govt and Corp)            
International Equity            
Repurchase Agreement            
Repurchase Agreement (Texas Treasury Safekeeping Trust Co)            
Fixed Income Money Market and Bond Mutual Fund            
Other Commingled Funds            
International Other Commingled Funds            
Other Commingled Funds (Texpool)            
Commercial Paper            
Securities Lending Collateral Pool            
Real Estate            
Derivatives            
Alternative Investments            
Misc (Political subdivision, bankers’ acceptance, negotiable CD)            
Total Investments $ 800.00         $ 800.00
Reconciliation of Investments per Exhibits – Fiduciary Funds            
Fiduciary Funds Short-Term Investments           300.00
Fiduciary Funds Restricted Short-Term Investments           500.00
Investments per Exhibits           $ 800.00

Discrete Component Unit

Type Fair Value Hierarchy (Fair Value)
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Amortized
Cost
Net Asset
Value
U.S. Government            
U.S. Treasury Securities $ 200.00         $ 200.00
U.S. Treasury Strips 100.00         100.00
U.S. Treasury TIPS            
U.S. Government Agency Obligations (Ginnie Mae, Fannie Mae, Freddie Mac, etc.)            
U.S. Government Agency Obligations (Texas Treasury Safekeeping Trust Co)            
Corporate Obligations            
Corporate Asset and Mortgage Backed Securities            
Equity            
International Obligations (Govt and Corp)            
International Equity            
Repurchase Agreement            
Repurchase Agreement (Texas Treasury Safekeeping Trust Co)            
Fixed Income Money Market and Bond Mutual Fund            
Other Commingled Funds            
International Other Commingled Funds            
Other Commingled Funds (Texpool)            
Commercial Paper            
Securities Lending Collateral Investment Pool            
Real Estate            
Derivatives            
Alternative Investments            
Misc (Political subdivision, bankers’ acceptance, negotiable CD)            
Total Investments $ 300.00         $ 300.00
Reconciliation of Investments per Exhibits – Discrete Component Units            
Discretely Presented Component Units Current Assets Short-Term Investments           200.00
Discretely Presented Component Units Noncurrent Assets Short-Term Investments           100.00
Investments per Exhibits           $ 300.00

U.S. Government Securities reported in Level 1 of the fair value hierarchy were valued using quoted prices in active markets.

As of Aug. 31, 20CY, the fair value of invested securities lending cash collateral by investment type were:

Governmental and Business-Type Activities

Type Fair Value Hierarchy (Fair Value)
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Amortized
Cost
Net Asset
Value
U.S. Government            
U.S. Treasury Securities $ 1,000.00         $ 1,000.00
U.S. Treasury Strips            
U.S. Government Agency Obligations            
Corporate Obligations            
Corporate Asset and Mortgage Backed Securities            
Equity            
International Equity            
Commercial Paper            
Miscellaneous Investments            
Total Investments $ 1,000.00         $ 1,000.00

Investments Reported at NAV

Investment Strategy   Fair Value   Redemption Unfunded Commitment
Frequency Range Low Frequency Range High Notice Period Range Low Notice Period Range High
Alternative            
Commingled Funds $ 100.00 1 Day 5 Days 1 Day 1 Day  
Energy, Natural Resources, Infrastructure            
Fixed Income            
Hedge funds            
Mutual Funds            
Private Equity $ 500.00 Daily Daily 1 Day 3 Days $ 100.00
Real Estate            
Risk Parity            
U.S. Government Agency Obligations            
Total 600.00         100.00
Investments Reported at NAV from Investment Fair Value 600.00          
Difference 0          

Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty, the agency will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The agency’s investment policy limits holding of securities by counterparties to those involved with securities lending. As of Aug. 31, 20CY, the agency’s investments were exposed to custodial credit risks as follows:

Fund Type Type Uninsured and unregistered with securities held by the counterparty Uninsured and unregistered with securities held by the counterparty’s trust department or agent but not in the state’s name
02 Commercial Paper $            $ 200.00
05 Repurchase Agreement      150.00
05 Equity $ 100.00  

Note: If the agency has investments subject to custodial credit risk, provide a brief description of its policies that are related to investment custodial credit risk or state that it does not have a policy for custodial credit risk. Disclose only that portion of investments that was subject to investment custodial credit risk. If no investments were subject to investment custodial credit risk, do not include a discussion of investment custodial credit risk in Note 3.

Foreign currency risk for investments is the risk that changes in exchange rates will adversely affect the investment. The agency’s policy is to limit investments subject to foreign currency risk to 5 percent of total investments. The exposure to foreign currency risk as of Aug. 31, 20CY was:

(This table is not all inclusive)

Fund Type Foreign Currency International Obligation
(Govt and Corp)
International
Equity
International Other
Commingled Funds
01 U.S. Dollar denominated foreign security $      90.00 50.00 $           
01 Argentine peso 1,000.00 50.00 20.00
01 Aruban guilder   70.00  
  Australian dollar      
  Bermudan dollar      
  Bolivian boliviano      
  Brazilian real      
  Bulgarian real      
  Canadian dollar      
  Cayman Island dollar      
  Chilean peso      
  Chinese yuan renminbi      
  Cyprus pound      
  Czech koruna      
  Danish krone      
  Egyptian pound      
  Estonian droon      
  Euro      
  Hong Kong dollar      
  Hungarian forint      
  Indian rupee      
  Indonesian rupiah      
  Israeli shekel      
  Japanese yen      
  Jersey pound      
  Lithuanian litas      
  Malaysian ringgit      
  Mexican peso      
  Netherlands Antillan guilder      
  New Zealand dollar      
  Norwegian krone      
  Panamanian balboa      
  Philippine peso      
  Polish zloty      
  Pound sterling      
  Qatar riyal      
  Romanian leu      
  Russian ruble      
  Singapore dollar      
  South African rand      
  South Korean won      
  Swedish krona      
  Swiss franc      
  Taiwan dollar      
  Thai baht      
  Turkish lira      
  Venezuelan bolivar      
  Total $ 1,090.00 $ 170.00 $ 20.00

Note: If the agency has investments subject to foreign currency risk, provide a brief description of its policies that are related to investment foreign currency risk or state that it does not have a policy for investment foreign currency risk. Disclose only if the agency has investments denominated in foreign currency. Disclose the U.S. dollar balances of such investments organized by currency denomination. If no investments are denominated in foreign currency, do not include a discussion of foreign currency risk in Note 3.

Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The general investment policy of the agency limits investments in debt securities that are not in the top three investment grade ratings issued by nationally recognized statistical rating organizations to 5 percent of total investments. As of Aug. 31, 20CY, the agency’s credit quality distribution for securities with credit risk exposure was:

(This table is not all inclusive of ratings)

Standard & Poor’s

Fund Type Investment Type AAA AA A BB
01 U.S. Government Agency Obligations (Exclude obligations explicitly guaranteed by the U.S. Government such as Ginnie Mae. GSEs such as Fannie Mae have implicit U.S. Government guarantees and therefore are considered to have credit risk and require disclosure of credit quality.) $90.00 $80.00 $70.00 $100.00
  U.S. Government Agency Obligations (Texas Treasury Safekeeping Trust Co)        
  Corporate Obligations        
  Corporate Asset and Mortgage Backed Securities        
  International Obligation        
  Repurchase Agreement        
  Repurchase Agreement (Texas Treasury Safekeeping Trust Co)        
  Alternative Investments        
  Misc        
Unrated
  Corporate Obligations $
  International Obligation $

Note: If the agency has debt securities, provide a brief description of its policies that are related to credit risk or state that it does not have a policy. Agencies are required to provide Standard & Poor’s credit ratings.

Concentration of credit risk is the risk of loss attributable to the magnitude of investment in a single issuer. As of Aug. 31, 20CY, the agency’s concentration of credit risk was:

Fund Type Issuer Carry Value % of total portfolio
01 Citicorp $100,000,000 9%

Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Through its investment policy, the agency manages its exposure to fair value losses arising from increasing interest rates by limiting the modified duration of its investment portfolio to less than one year as follows:

Type Agency
U.S. Treasury Securities .21
U.S. Treasury Strips .31
U.S. Treasury TIPS .09
U.S. Government Agency Obligations .14
Corporate Obligations .26
Corporate Asset and Mortgage Backed Securities .02
International Obligations .24
Corporate Obligations .20
Repurchase Agreement .02
Fixed Income Money Market and Bond Mutual Fund  
Portfolio Modified Duration .94

Attention: Interest rate risk disclosure is only necessary for agencies required to prepare their AFR in accordance with GAAP. These agencies can submit a supplement to the AFR with the interest rate risk disclosure in compliance with the required format shown in the Sample.

In addition, the following agencies must disclose interest rate risk.

  • Treasury – Fiscal (Agency 311)
  • Texas Education Agency (Agency 701)
  • Texas A&M University System (Agency 798)
  • University of Texas System (Agency 799)

Reverse Repurchase Agreements

By statute, Sample Agency is authorized to enter into reverse repurchase agreements. A reverse repurchase agreement is a transaction in which a broker-dealer or financial institution transfers cash to the agency and the agency transfers securities to the broker-dealer and promises to repay the cash plus interest in exchange for the same or similar securities. Credit risk exposure for the agency arises when a broker-dealer does not return the securities or their value at the conclusion of the reverse repurchase agreement. There were no significant violations of legal or contractual provisions during the year.

Securities Lending

Sample Agency participates in a security-lending program. The agency began the program in February 1999 and had $ 3,400,000 of securities out on loan to brokers/dealers at Aug. 31, 20CY. These securities on loan are presented as uncategorized in the preceding schedule of custodial risk.

In securities lending transactions, the agency transfers its securities to broker-dealers and other entities for collateral – which may be cash or securities – and simultaneously agrees to return the collateral for cash or the same securities in the future. The agency invests the cash received as collateral and, if the returns on those investments exceed the “rebate” paid to the borrowers of the securities, the securities lending transactions generate income for the agency. Part of the payment to the borrower comes from the agency’s resources if the investment of the cash collateral does not provide a return exceeding the rebate or if the investment incurs a loss on principal. The borrower pays a “loan premium or fee” for the securities loan, thus generating income for the agency.

Securities lending is authorized by state statutes. The agency is authorized to lend its U.S. government and agency securities. Collateral is either cash or U.S. government or agency securities at a value of 102 percent of the value of the securities lent. The securities lending contracts allow the agency to pledge or sell collateral securities without borrower default. At fiscal year-end, the agency has no credit risk exposure to borrowers because the amounts the agency owes to borrowers exceed the amounts the borrowers owe the agency. Contracts with the lending agents require them to indemnify the agency if the borrowers fail to return the securities. The policy is to match the maturities of the collateral investments and the securities loans. There were no significant violations of legal or contractual provisions, any borrower or lending agent default losses and no recoveries of prior-period losses during the year.

Fair Value of Securities on Loan Non-Cash Collateral* Cash Collateral Liability (Securities Lending Obligation) Fair Value of Invested Cash Collateral (Securities Lending Collateral) Net Increase (Decrease) In Fair Value
$ 3,688,345.78 $ 1,598,400.00 $ 3,755,876.77 $ 3,490,987.33 $ (264,889.44)

*Non-cash collateral received for securities lending activities are not recorded as assets because underlying investments remain under the control of the borrower, except in the event of default.

Foreign currency risk for investments is the risk that changes in exchange rates will adversely affect the investment. Sample Agency’s policy is to limit investments subject to foreign currency risk to 5 percent of total investments. The exposure to foreign currency risk as of Aug. 31, 20CY was:

(This table is not all inclusive)

Fund Type Foreign Currency Swaps Options Futures Forwards
01 U.S. Dollar denominated foreign security $ 50.00 $ 90.00 $ $
01 Argentine peso 70.00 30.00 45.00  
01 Aruban guilder   20.00    
  Australian dollar        
  Bermudan dollar        
  Bolivian boliviano        
  Brazilian real        
  Bulgarian real        
  Canadian dollar        
  Cayman Island dollar        
  Chilean peso        
  Chinese yuan renminbi        
  Cyprus pound        
  Czech koruna        
  Danish krone        
  Egyptian pound        
  Estonian droon        
  Euro        
  Hong Kong dollar        
  Hungarian forint        
  Indian rupee        
  Indonesian rupiah        
  Israeli shekel        
  Japanese yen        
  Jersey pound        
  Lithuanian litas        
  Malaysian ringgit        
  Mexican peso        
  Netherlands Antillan guilder        
  New Zealand dollar        
  Norwegian krone        
  Panamanian balboa        
  Philippine peso        
  Polish zloty        
  Pound sterling        
  Qatar riyal        
  Romanian leu        
  Russian ruble        
  Singapore dollar        
  South African rand        
  South Korean won        
  Swedish krona        
  Swiss franc        
  Taiwan dollar        
  Thai baht        
  Turkish lira        
  Venezuelan bolivar        
  Total $ 120.00 $ 140.00 $   45.00  

Note: If your agency has investments subject to foreign currency risk, provide a brief description of the policies related to investment foreign currency risk or state that your agency does not have a policy for investment foreign currency risk. Disclose only if your agency has investments denominated in foreign currency. Disclose the U.S. dollar balances of such investments organized by currency denomination. If no investments are denominated in foreign currency, do not include a discussion of foreign currency risk in Note 3.

Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Sample Agency had investments with the following maturities:

  Investment Maturities (in years)
Investment Type Fair Value Less than 1 1-5 6-10 11-15 More than 15
Interest Rate Swaps $75,000 $21,000 $(680) $15,080 $1,600 $38,000
Glenn Hegar
Texas Comptroller of Public Accounts
Questions? Contact statewide.accounting@cpa.texas.gov
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