Union Public Schools – Notes to Financial Statements Year Ended June 30, 2012 NOTE B--CASH AND INVESTMENTS Custodial Credit Risk: Custodial credit risk is the risk that in the event of failure of counterparty, the District will not be able to recover the value of its deposits or investments. Deposits are exposed to custodial credit risk if they are uninsured and uncollateralized. Investment securities are exposed to custodial credit risk if they are uninsured, are not registered in the name of the District, and are held by counterparty or the counterparty’s trust department but not in the name of the District. The District’s policy requires that all deposits and investments in excess of amounts covered by federal deposit insurance be fully collateralized by the entity holding the deposits or investments. As of June 30, 2012, all of the Districts deposits and investments were either covered by federal deposit insurance or were fully collateralized. Deposits: The District had deposits at financial institutions with a carrying amount of approximately $45,685,000 at June 30, 2012. The bank balance of these deposits at June 30, 2012 was approximately $50,674,000. Credit Risk: Fixed-income securities are subject to credit risk. Credit quality rating is one method of assessing the ability of the issuer to meet its obligation. The District’s investment policy requires that, except for United States Treasury securities, the District’s investment portfolio will be diversified to avoid incurring undue concentration in securities of one type. The District’s policy also requires that all deposits and investments in excess of amounts covered by federal deposit insurance be fully collateralized by the entity holding the deposits or investments. There is no District policy related to limitations on credit rating risk. Due to the unstable economic climate and extremely low available interest rates for investing, investments were purchased to obtain the highest possible interest rate. Therefore, the investment portfolio consisted of approximately $47,100,000 in federal home loan investments with a variable coupon rate ranging from 0.5-1.25%. Federal home loan investments are considered obligations of the U.S. government and therefore carry the same credit ratings as the government. The credit ratings of the U.S. government are Moodys Aaa, Standard and Poor AA+, and Fitch AAA. Interest Rate Risk: Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The District’s investment policy limits the duration of fixed-income securities to a maximum maturity from the date of purchase of sixty months, provided that sufficient liquidity is available to meet the District’s major cash outlays. The District’s investment committee and Board of Education monitor the District’s investment performance on an ongoing basis to limit the District’s interest rate risk. As of June 30, 2012, all of the District’s investments were scheduled to mature in 10 years with callable dates within the next 6 months.
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