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NOTE 3 — DEPOSITS AND INVESTMENTS (CONTINUED) C. Investments Investments are subject to various risks, the following of which are considered the most significant: Custodial Credit Risk — For investments, this is the risk that in the event of a failure of the counterparty to an investment transaction (typically a broker -dealer) the City would not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City's investment policies do not further address this risk, but typically limits its exposure by purchasing insured or registered investments, or by the control of who holds the securities. Credit Risk — This is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Minnesota Statutes limit the City's investments to direct obligations or obligations guaranteed by the United States or its agencies; shares of investment companies registered under the Federal Investment Company Act of 1940 that receive the highest credit rating, are rated in one of the two highest rating categories by a statistical rating agency, and all of the investments have a final maturity of 13 months or less; general obligations rated "A" or better; revenue obligations rated "AA" or better; general obligations of the Minnesota Housing Finance Agency rated "A" or better; bankers' acceptances of United States banks eligible for purchase by the Federal Reserve System; commercial paper issued by United States corporations or their Canadian subsidiaries, rated of the highest quality category by at least two nationally recognized rating agencies, and maturing in 270 days or less; Guaranteed Investment Contracts guaranteed by a United States commercial bank, domestic branch of a foreign bank, or a United States insurance company, and with a credit quality in one of the top two highest categories; repurchase or reverse purchase agreements and securities lending agreements with financial institutions qualified as a "depository" by the government entity, with banks that are members of the Federal Reserve System with capitalization exceeding $10,000,000; that are a primary reporting dealer in U.S. government securities to the Federal Reserve Bank of New York; or certain Minnesota securities broker -dealers. The City's investment policies do not further address credit risk. Concentration Risk — This is the risk associated with investing a significant portion of the City's investments (considered 5.0 percent or more) in the securities of a single issuer, excluding U.S. guaranteed investments (such as treasuries), investment pools, and mutual funds. At December 31, 2023, the City had 54.2 percent of its portfolio invested with Federal Home Loan Bank. The City's investment policies do not limit the concentration of investments. Interest Rate Risk — This is the risk of potential variability in the fair value of fixed rate investments resulting from changes in interest rates (the longer the period for which an interest rate is fixed, the greater the risk). The City's investment policy notes the City will not directly invest in securities maturing more than 10 years from the date of purchase and to maintain an average weighted maturity up to three years to the extent possible. NOTE 4 — LEASES RECEIVABLE The City has entered into lease receivable agreements for water tower rental for cellular antennas, land rental for billboards, and space rental at the community center. The City has imputed an interest rate of 3.25 percent based on the estimated incremental borrowing rate with final maturities through 2037. During the current year, the City received principal and interest payments of $236,485. -44-