2019 Comprehensive Annual Financial Report (CAFR)

or Moody’s Investors Service. The State Treasurer’s STIF is unrated and authorized under NC General Statute 147-69.1. The State Treasurer’s STIF is invested in highly liquid fixed income securities consisting primarily of short to intermediate term treasuries, agencies, and money market instruments. The BIF is unrated and authorized under NC General Statute 147-69.1 and 147-69.2. The State Treasurer’s BIF is invested in high quality debt securities eligible under G.S. 147-69.2(b)(1)-(6). Custodial Credit Risk For an investment, the custodial risk is the risk that in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City has no formal policy on custodial credit risk, but the City utilizes a separate third party custodial trust agent for all book-entry transactions, all of which are held in the City’s name. Concentration of Credit Risk The City’s investment policy does not restrict the level of investment in money markets or federal agencies, but it restricts investment in commercial paper or bankers’ acceptances of a single issuer to no more than 10% of the total investment portfolio. As of June 30, 2019, the City owned the following investments, which exceed 5% of the City’s total investments, along with the percentage noted for each compared to the total portfolio:

Commercial Paper

10.48% 17.83% 19.97% 14.14% 24.54%

Federal Home Loan Bank

Federal Home Loan Mortgage Corporation

Federal FarmCredit Bank NCCMT Government Portfolio

At June 30, 2019, the City’s OPEB Trust had $23,133,424 invested in the State Treasurer’s Local Government Other Post- Employment Benefits (OPEB) Trust pursuant to G.S. 159-30.1. The State Treasurer’s OPEB Trust may invest in public equities and both long-term and short-term fixed income obligations as determined by the State Treasurer pursuant to the General Statutes. At year-end, the State Treasurer’s OPEB Trust was invested as follows: State Treasurer’s STIF 5.21%; State Treasurer’s BIF 33.66% and BlackRock’s MSCI ACWI EQ Index Non-Lendable Class B Fund 61.13% (the equities were split with 53.72% in domestic securities and 46.28% in international securities). The City’s LEOSSA Trust had $7,234,089 invested in the State Treasurer’s STIF at June 30, 2019. At year-end, the State Treasurer’s LEOSSA Trust was invested as follows: State Treasurer’s STIF 0.12%; State Treasurer’s BIF 37.77% and BlackRock’s MSCI ACWI EQ Index Non-Lendable Class B Fund 62.11%.

a. Hedging Derivative Instruments Objective of the Interest Rate Swaps

As a means to convert variable rate obligations to synthetic fixed rate obligations to reduce the overall variable rate exposure of the City, the City entered into an interest rate swap agreement with Bank of America Merrill Lynch in October 2002, in connection with its $5,700,000 Series 1998 Variable Rate General Obligation Bonds. The intention of the swap was to effectively change the City’s interest rate on the bonds to a synthetic fixed rate of 3.46%. Swap Terms The bonds and the related swap agreement will mature on April 1, 2020. At inception, the swap notional amount of $5,700,000 matched the $5,700,000 variable-rate bonds outstanding. Starting in Fiscal Year 2019, the notional value and the principal amount of the associated debt declined. Under the swap, the City pays the counterparty a fixed payment of 3.46% and receives a variable payment computed as 67% of 1 Month London Interbank Offered Rate (LIBOR). The bonds’ variable rate coupons are closely associated with the Securities Industry and Financial Markets Municipal Swap Index (SIFMA). Fair Value Because interest rates were lower on June 30, 2019 than at the date of the execution of the swap, the swap had an estimated fair value as of June 30, 2019 of ($52,895). The mark-to-market valuation was established by market quotations from the counterparty representing estimates of the amounts that would be paid for replacement transactions. 37r