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A Division of U.S. Bancorp Asset Management, Inc. For Institutional Investor or Investment Professional Use Only – This material is not for inspection by, distribution to, or quotation to the general public City of San LeandroFinance CommitteePortfolio UpdateOctober 22, 2025Monique Spyke, Managing Director Attachment C
Agenda
Investment Policy ReviewPortfolio Benchmark and StrategyEconomic Update Investment Policy
Review
3 Investment Policy Review Overview
4 • PFMAM in coordination with City staff completed a thorough review of the City’s Investment Policy.
• The City’s Policy is comprehensive and well written.• Changed are being recommended to:
• Bring Policy language more in line with California Government Code language.• Bring Policy more in line with best practices.• Increase clarity.• Increase investment opportunities in agency mortgage-backed securities, negotiable CDs, and municipal obligations.
Investment Policy Recommendations
5 • Bring Policy language on permitted investments more in line with California Government Code language. Edits were made to the following investment types:
• Commercial Paper• Mortgage-Backed and Asset-Backed Securities• Supranational debt• Other Investment Pools • Recommended edits do not alter what
the City is authorized to purchase.
Investment Policy Recommendations
6 • Bring Policy more in line with best practices.• CMTA guidance recommends policies include the following separate sections:
• Investment Pools/Mutual Funds• Investment Policy Adoption • Expanded existing sections:
• Collateralization • Performance Standards
Investment Policy Recommendations
7 • Increase clarity
• Consolidated several paragraphs on deposit accounts into one paragraph.• Removed paragraph on Reverse Repurchase Agreements from the Authorized and Suitable Investments as they are listed as prohibited in the Prohibited Investment Vehicles and Practices section. • In the Socially Responsible Investing section we edited language so that it is consistent with PFMAM’s screening process.
Investment Policy Recommendations
8 • Increase investment opportunities
• Added language in the Authorized and Suitable Investments section to allow for:
• Increased investment opportunities in agency mortgage-backed securities• Investment in negotiable CDs• Increased investment opportunities in municipal obligations Portfolio
Benchmark and Strategy
9 Portfolio Benchmarks
10 • Purpose of a benchmark
• Measures and evaluates relative investment performance • Provides for a comparison of risk and return• Defines and evaluates a long-term investment strategy • A benchmark should:
• Be an independent representation
• Reflect asset mix, credit quality, and average maturity or duration of the portfolio; and/or a baseline, such as a U.S. Treasury index
• Reflect realistic performance expectations
Risk and Return of Various Benchmarks
11 • A shorter-duration strategy reduces market value risk but also return.
Source: Bloomberg as of June 30, 2025.
Risk/Return of Various Investment Strategies
20 Years Ended June 30, 2025
Quarters With
Negative Return
Cumulative Value
of
$150 Million
Annualized Total
Return
Duration
(years) ICE BofA Treasury Index
3-Month Treasury Bill 0.23 1.69% $209,930,559 1 out of 80 0-1 Yr Treasury 0.51 1.83% $215,672,989 6 out of 80
1-3 Yr Treasury 1.84 2.06% $225,530,241 18 out of 801-5 Yr Treasury 2.55 2.34% $238,297,143 24 out of 80 1-10 Yr Treasury 3.57 2.65% $252,985,879 29 out of 80
3-5 Yr Treasury 3.66 2.77% $259,229,931 31 out of 80
Risk and Return of Various Benchmarks
12 • Historically, we see increased volatility in longer-duration strategies.
Source: Bloomberg as of June 30, 2025.
-6%-4%-2%
0%2%4%6%
Jun
15 Oct
15 Feb
16 Jun
16 Oct
16 Feb
17 Jun
17 Oct
17 Feb
18 Jun
18 Oct
18 Feb
19 Jun
19 Oct
19 Feb
20 Jun
20 Oct
20 Feb
21 Jun
21 Oct
21 Feb
22 Jun
22 Oct
22 Feb
23 Jun
23 Oct
23 Feb
24 Jun
24 Oct
24 Feb
25 Jun
25 Quarterly Returns of Various Indices
June 2015 – June 2025
0-1 Yr Treasury 1-3 Yr Treasury 1-5 Yr Treasury 1-10 Yr Treasury Longer-duration strategies experience
higher highs…
…and lower lows.
Government/Corporate Benchmarks
13 • Government/Corporate indices typically comprise ~70% Treasuries. • Historically have had fewer quarters of negative returns due to the increased income.
Source: Bloomberg as of June 30, 2025.
Risk/Return of Various Investment Strategies
20 Years Ended June 30, 2025
Quarters With
Negative Return
Cumulative Value
of
$150 Million
Annualized Total
Return
Duration
(years) ICE BofA Index
1-3 Year Government 1.83 2.09% $227,092,696 17 out of 80
1.84 2.23% $233,319,881 15 out of 80 1-3 Year Corporate and Government A or Better 1-5 Year Government 2.54 2.35% $238,575,724 22 out of 80
2.57 2.50% $245,942,576 19 out of 80 1-5 Year Corporate and Government A or Better City’s Benchmark
Indexes are ICE Bank of America Merrill Lynch U.S. Treasury indexes, as of June 30, 2025. Duration distribution chart is as of September 19, 2025. 14 Risk/Return of Various Investment Strategies
20 Years Ended June 30, 2025
Quarters With
Negative Return
Cumulative Value
of
$150 Million
Annualized
Total
Return
Duration
(years) ICE BofA Index
1-3 Yr Treasury Index 1.84 2.06% $225,530,241 18 out of 80 0-5 Yr Treasury Index 2.05 2.23% $233,173,971 20 out of 80 • A 0-5 year strategy allows the City to:
• Utilize scale of California
Government Code
• Capture higher yields available in
longer maturity securities.
• Mitigate market value risk with an
allocation to shorter, 0-1 year maturities.
• The City’s portfolio recently transitioned from the 1-3 Year U.S. Treasury Index to the 0-5 Year U.S.
Treasury index.
0%
10%20%30%40%50%60%
0-1 Year 1-2 Years 2-3 Years 3-4 Years 4-5 Years
Duration Distribution
1-3 Year Index City of San Leandro 0-5 Year Index
Strategy Execution
Source: PFMAM, as of September 19, 2025. 15
-$40 -$20 $0 $20 $40
Corporate Note
Asset-Backed Security
Agency Commercial MBS
Federal Agency
U.S. Treasury
Millions
Maturity/Sell Buy
Average
Yield
of Buys
Average Maturity
of Buys
(years)
Net Activity
(Millions)
+$19.2 4.10 3.67%
($6.2) na na
+$1.1 4.62 4.01%
+$2.6 4.34 3.88%
($12.4) 5.00 4.03%
Summary of Portfolio Activity
July 1, 2025 - September 19, 2025
Portfolio Snapshot
As of September 19, 2025. Market value includes accrued interest and excludes cash. 16 U.S. Treasury
52%
Federal Agency
16%
Agency CMBS
2%
Supranational
2%
Corporate
16%
ABS
12%
Sector Allocation
NR
2%
AA
72%
A
15%
AAA 11%
Credit Quality
13%
29%
27%
17%
14%
0%
10%20%30%40%
0-1 Year 1-2 Years 2-3 Years 3-4 Years 4-5 Years
Maturity Distribution
Portfolio StatisticsMarket Value $168,381,564Duration 2.04 yearsYield at Cost 4.31%Average Credit Quality AA Outlook
17 • Portfolio strategy
• Continue to lock in duration• Maintain broad diversification by sector, industry, and issuer• Carefully manage risk and maintain high credit quality • Communicating results
• Quarterly Performance Reports
• In addition to month end statements and daily reporting • Quarterly meetings with staff and Finance Committee• Annual, or as requested, updates to City Council Economic Update
18 No additional
cuts in ’25
2 additional
cuts in ’25
0%1%2%3%4%5%
Fed Participants’ Assessments of ‘Appropriate’ Monetary Policy Sep-25 FOMC ProjectionsJun-25 MedianSep-25 Median
2025 2026 Longer Term
The Latest Fed “Dot Plot”
19 Source: Federal Reserve; Bloomberg Finance L.P. Individual dots represent each Fed members’ judgement of the midpoint of the appropriate target range for the federal funds rate at each year-end. As of September 2025. 2027
3.0% 2 additional
cuts
1 cut 1 cut
2028
0 cuts
Treasury Yields Lower Across the Curve
Source: Bloomberg Finance L.P., as of September 17, 2025. 20
3.96%
3.55%
3.65%
3.83%
4.08%
4.67%
2.00%2.50%3.00%3.50%4.00%4.50%5.00%5.50%
Yield
Maturity
U.S. Treasury Yield Curve
1 Year Range September 17, 2025
3mo 2yr 5yr 7yr 10yr 30yr
Economic Outlook
21 • Key Takeaways
• The Federal Reserve lowered the federal funds rate to a target range of 4.00%–4.25% at its September meeting. The updated “dot plot” shows a median projection of two additional rate cuts in 2025, bringing the total to three cuts for the year. • The Fed’s Summary of Economic Projections reflects no change in the median forecast for PCE inflation, which remains at 3.0%, while GDP growth was revised up to 1.6% and unemployment is projected to hold steady at 4.5%. • CPI inflation in August increased by 2.9% YoY. Month-over-month inflation also came in hot at
0.38%, the highest since January. All major sectors saw increases, with energy in particular swinging almost 0.1% MoM. • September’s jobs report painted a mixed picture of the labor market as the headline unemployment rate number worsens slightly, while payroll data worsens notably. The majority of job sectors showed negative growth in August, and growth over June and July has been revised significantly lower than initial estimates. • Risks to Outlook
• Recession probabilities have fallen significantly from the first quarter as progress has been made on trade deals.
• Fed Chair Powell, in his press conference remarks, noted that risks to the labor market have increased notably, stating that the balance of risks has shifted between labor and inflation. • Elevated geopolitical risks, including Ukraine, Israel, and China.
Disclosures Disclaimer
The views expressed within this material constitute the perspective and judgment of U.S. Bancorp Asset Management, Inc. at the time of distribution and are subject to change. Any forecast, projection, or prediction of the market, the economy, economic trends, and equity or fixed-income markets are based upon current opinion as of the date of issue and are also subject to change. Opinions and data presented are not necessarily indicative of future events or expected performance. Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources, believed to be reliable. No representation is made as to its accuracy or completeness.PFM Asset Management serves clients in the public sector and is a division of U.S. Bancorp Asset Management, Inc., which is the legal entity providing investment advisory services. U.S. Bancorp Asset Management, Inc. is a registered investment adviser, a direct subsidiary of U.S. Bank N.A. and an indirect subsidiary of U.S. Bancorp. U.S. Bank N.A. is not responsible for and does not guarantee the products, services, or performance of U.S. Bancorp Asset Management, Inc.NOT FDIC INSURED : NO BANK GUARANTEE : MAY LOSE VALUE