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6.1. B. - Page 63 NOTE 2— CASH AND INVESTMENTS A. Cash and Deposits The carrying amount of the City's cash and deposits, including restricted cash, was $1,731,589 at June 30, 2011. Bank balances before reconciling items were $2,524,072 at June 30, 2011. Of the total bank balances, $475,590 was insured or held by the City or its agent in the City's name and $2,048,482 was collateralized. All cash deposits in banks are fully insured or collateralized. California state law requires that public fund deposits be collateralized by either government securities with a value equal to 110% of the deposits or first trust deed mortgage notes having a value equal to 150%. Per state law each institution must use a third party (which may be the institution's trust department) to hold the pledged collateral in a pool to secure all the institution's public fund deposits. The code states that collateral pledged in this manner shall have the effect of perfecting a security interest in such collateral superior to those of a general creditor. Thus, collateral for cash is considered to be held in the City's name. Banks and savings and loans in California are subject to state-mandated reporting requirements to ensure that the required levels of control are maintained. The City may waive collateral requirements for deposits, which are fully insured with each financial institution up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). Cash balances from all funds are combined and invested to the extent possible pursuant to the City Council approved investment policy and guidelines and state government code. The earnings from these investments are allocated monthly to each fund based on an average of monthly opening and closing balances of cash and investments. Investments are stated at fair value. All enterprise fund investments are considered to be liquid investments for cash flow purposes. The following is a summary of pooled cash and investments, including cash and investments with fiscal agent at June 30, 2011: Fiduciary Fund Government-wide Statement of Net Assets Financial Statements Fiduciary Funds Governmental Business-Type Statement of Activities Activities Total Net Assets Total $ $ $ $ $ Cash and Investment 103,126,272 39,415,701 142,541,973 142,541,973 Restricted Cash and Investments 11,093,570 8,584,303 19,677,873 10,483,596 30,161,469 Total Cash and Investments 172,703,442 e. Risk Disclosures Interest Rate Risk. As a means of limiting its exposure to fair value losses arising from rising interest rates, the City's investment policy provides that final maturities of securities cannot exceed three years. Specific maturities of investments depend on liquidity needs. 37