January 27, 2020

ALISON BYERLY PRESIDENT ROBERT SELL BOARD OF TRUSTEES, CHAIR LAFAYETTE COLLEGE

Dear Ms. Byerly and Mr. Sell,

Prager & Co., LLC prepared the following independent assessment for Lafayette College (“Lafayette” or the “College”), detailing the financial health of the College as of fiscal year end 2019. The assessment evaluates the College’s financial performance through an analysis of market position, operations, financial reserves, liabilities, Composite Financial Index, peer comparison, and rating agency perspectives. The assessment also contains a memorandum highlighting the key findings and two appendices providing supporting analysis.

We are happy to discuss our findings at your convenience.

Sincerely,

Fredric J. Prager Managing Director Prager & Co., LLC

cc: Emily Abrantes, Prager & Co., LLC, Managing Director Colin Walsh, Prager & Co., LLC, Vice President Justin Berry, Prager & Co., LLC, Associate

ONE GRAND CENTRAL PLACE SUITE 1620 NEW YORK NY 1

MEMORANDUM

To: Lafayette College

From: Prager & Co., LLC

Date: January 27, 2020

Re: Lafayette College Financial Assessment

Prager & Co., LLC submits the following report as its annual independent review of Lafayette College’s (“Lafayette” or the “College”) financial position for FY 2019. The review encompasses quantitative and qualitative factors that Prager views as essential to assessing Lafayette’s financial health.

There are two appendices attached to this report. Appendix A is the Lafayette College Financial Dashboard and Appendix B is the Lafayette College Financial Factbook. The appendices to this report contain much of the underlying data used to arrive at the conclusions reached. The discussion that follows uses the College’s financial statements prepared in accordance with generally accepted accounting principles for its analyses and peer comparisons.

EXECUTIVE SUMMARY Prager views the Lafayette’s financial health as solid, highlighted by a strong market position, improving operations, solid balance sheet wealth and ability to manage a sophisticated debt portfolio. The College’s financial performance demonstrated measurable improvement over the five-year period from fiscal 2015 to fiscal 2019. Based on the College’s audited financial statements, this level of performance resulted in annual improvement from a $2.7 million decrease in Net Assets from Operating Activities (deficit) in FY 2015 to a $4.2 million increase (surplus) in FY 2019. Total unrestricted operating revenue, the composition of which remained relatively consistent year-over-year, grew 20% over the past five fiscal years to $180 million in FY 2019. Much of this growth is attributed to Net Tuition and Fee revenue, driven by both enrollment growth and tuition rate increases.

Based on our analysis of the College’s financial position in the context of rating agency frameworks and peer institutions, we have made key recommendations for strategic debt management and for overall improved financial health.

. Build upon the College’s solid balance sheet resources to support moderately high debt levels, increase debt capacity and fund growing student aid. The two primary avenues that will enable the College to achive this: o Maintain annual cash flow from operations at or near current levels. o Increase endowed fundraising. o Improve endowment performance. . Continue to invest in strategic initiatives to achieve Lafayette’s goals of increased enrollment and enhanced student experience. LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2019

This review represents the third annual independent financial assessment of the College performed by Prager. This unique report is updated annually, incorporating changes to Lafayette’s financial position or strategic priorities, and we believe can be a valuable tool for the College when planning for the future.

INTRODUCTION

The financial position of Lafayette College is driven by a number of qualitative and quantitative factors. We broadly organize these factors based on the following five categories. The following report will provide a summary of how each category impacts Lafayette’s financial position and recommendations on how the College can improve its overall financial health. Underlying each of these factors will be the College’s strategic priorities.

Strategic Direction

Focusing on the above categories, management has demonstrated sustained operating improvement and continues on a path to achieve the goals set forth in the College’s 2016 Strategic Direction for Lafayette College; namely improving the College’s affordability and distinction by growing enrollment, increasing need based aid and improving the student-faculty ratio. The Strategic Direction's goals, along with the guiding principles and strategies to achieve them are outlined and attached herein as Exhibit I. The continued investment in and achievement of the Strategic Direction will be important aspects of the College’s future financial position.

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LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2019

MARKET POSITION

Market position is the ability of an institution to compete for students, and thus its ability to attract key sources of funding. Lafayette relies on student-derived sources (net tuition and auxiliaries) for approximately 67% of its total operating revenues, endowment distribution for 24% of revenues and gifts for 4% of revenues. Given this dynamic, the College’s financial health is dependent on its ability to attract and retain students, thereby generating student-derived revenue as well as fundraising for both the annual fund and long-term endowment.

Student Demand

Student demand is the ability to compete for students and Lafayette College Rankings grow net tuition revenue. The higher education market continues to focus on the “value” of a degree as measured U.S. News & World Report (2020) – No. 39 among 223 by post-graduate outcomes such as starting salary and National Liberal Arts Colleges employment rates. Prospective students are increasingly U.S. News & World Report (2020) – No. 13 among 210 evaluating the return on investment in their choice of Undergraduate Engineering Programs which higher education institution to attend. This puts Money – Best Colleges For Your Money (2019) – No. 67 Lafayette in a strong position given its unique mission as a among 744 colleges and universities liberal arts college with a science, technology, engineering, and mathematics (STEM) focus. This contributes to Kiplinger’s – Best College Values (Jul. 2019) – No. 40 among 137 best-value liberal arts colleges Lafayette being consistently ranked highly related to value and return on investments. Forbes – America’s Top Colleges (2019) – No. 57 among 600+ colleges and universities well worth the investment Lafayette has maintained selective admissions, a measure of the number of students accepted versus the number of Forbes – Top Liberal Arts Universities (2019) – No. 23 among top 200 liberal arts universities applications received, over the past five years. Since 2015, the College’s selectivity and matriculation rates have remained relatively stable. Over that same time period, the College’s FTE enrollment increased by 139 students as the College progresses towards its goal of increasing the student body size. Net Tuition and Fee revenue per FTE has also increased steadily, supporting revenue growth and indicating continued pricing flexibility.

Fundraising Demand

Fundraising demand is the ability to raise philanthropic funds from external donors. The College has raised over $30 million annually in gifts since 2016, as measured from a GAAP perspective. This performance was enhanced by the College’s progress on its capital campaign, Live Connected, Lead Change, which concluded in December 2018 and raised over $425 million.

OPERATIONS

Operating performance reflects an institution’s ability to adhere to a balanced budget. It demonstrates an institution’s planning ability and its viability as a sustainable enterprise. In addition, positive operating performance provides unrestricted funds that can be reinvested in the institution for several purposes – capital projects, including renewal and replacement; strategic faculty hiring; and transfers to the endowment, creating reserves for the future.

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LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2019

With approximately two-thirds of operating revenue derived from student sources, Lafayette’s operating performance is driven largely by its student demand. As discussed, Lafayette’s student demand is a function of its market position as a selective liberal arts and engineering school, which has contributed to the College’s ability to continuously grow enrollment and net tuition revenue.

The College measures its operating performance through excess unrestricted operating results. The College has significantly improved its operating performance since 2011 and experienced four straight years (FY16 - FY19) of positive operating margins after five straight years of losses. The improvement in operating performance has been driven by growth in annual operating revenue outpacing growth in annual operating expense. Revenue growth can be attributed to a favorable trend in net tuition and fee revenue, driven by both enrollment growth and tuition rate increases. Lafayette’s ability to sustain recent operating improvement will be critical as it continues to increase financial aid as part of its strategic decision to improve access and affordability.

Lafayette College Operating Performance ($, in Thousands) 6,000

4,000

2,000 4,231 874 3,656 2,324 0 (2,674) (2,000)

(4,000) 2015 2016 2017 2018 2019 Operating Surplus (Loss)

Source: Lafayette College Financial Statements Operating Surplus (Loss) = Unrestricted Operating Revenue – Unrestricted Operating Expenses

FINANCIAL RESERVES

An institution’s financial reserves highlight its ability to strategically reinvest funds while maintaining the ability to cover expenses in the event of operating losses. In measuring financial reserves, the broad focus is on the total size of the institution’s expendable resources, investment performance and spending policy. In addition, we examine how much of an institution’s total cash and investments are unrestricted as well as the amount that can be liquidated within the next month. All these metrics are examined in relation to the size of an institution’s operating base.

Endowment

Lafayette’s endowment had a market value of $832.1 million as of June 30, 2019. The College’s investment returns have been generally in line with the NACUBO/Commonfund average from 2009 to 2018. Lafayette experienced negative investment returns in two years over the past decade. One of the two years with negative returns was FY 2009, which coincided with the largest financial crisis since the Great Depression. Lafayette’s endowment has shown resiliency since the financial crisis by rebounding to pre-crisis market values and continues to grow.

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LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2019

1,000 900

800 830.4 832.1 799.6 790.3 700 774.2 716.5 733.2 600 657.0 651.1 579.5 500 532.3 400

300 200 100

0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Fiscal Year Ending June 30

Source: Lafayette College Financial Statements The NACUBO-TIAA Study of Endowments will not release 2019 results until February 2020.

The College has used an annual distribution formula of 5% of a 36-month rolling average of market value since FY 2015. Like many other higher education institutions, this approach seeks to smooth the distribution from the endowment and protect the distribution from dramatic changes in market performance from year to year. We view this distribution rate as conventional in higher education and generally in line with peer institutions.

Spendable Cash and Investments

Moody’s defines spendable cash and investments as wealth that can be accessed over time for a specific purpose. It is calculated as total cash and investments, plus funds held in trusts by others, plus permanently restricted pledges receivable, less permanently restricted net assets. Lafayette’s spendable cash and investments have fluctuated over the past five fiscal years, though remained stable at $578.5 million as of FYE 2019, compared to $572.5 million at FYE 2015. The College’s spendable cash and investments to operations was 3.3x in 2019.

Liquidity

Lafayette’s liquidity is measured by Moody’s using a monthly liquidity metric. The metric is calculated as unrestricted operating funds available within one month plus unrestricted board designated net assets. Since FY 2015, Lafayette has maintained over $230 million of monthly liquidity (as measured by Moody’s). Liquidity management should be driven by both sources of liquidity as well as potential uses of liquidity. Lafayette’s potential uses of liquidity are listed below:

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LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2019

 Variable Rate Demand Bonds (VRDBs) - Potential Use: The College’s $43.48 million of Variable Rate Demand Bonds (VRDBs) are remarketed weekly and in the event of a failed remarketing the bonds could be put back to Lafayette in any week. - Liquidity Source: The College has three standby bond purchase agreements (SBPAs) that can be used to purchase up to $43.48 million in principal in the event of a failed remarketing on any of the outstanding VRDBs. In the rare event that the SBPAs fail to kick in, the College maintains $30 million of lines of credit. - Current Situation: The College has never had a failed remarketing of its VRDBs.  Swap Collateral Posting - Potential Use: Under the College’s swap agreements, Lafayette is required to post collateral with the counterparty, BNY Mellon, equal to the amount greater than $15 million at its current rating level should the liability to the College exceed $15 million. - Liquidity Source: Lafayette keeps $2 million at BNY Mellon in case of a sudden interest rate shock. If needed, funds would be transferred from operating cash or the endowment to post additional collateral. - Current Situation: As of June 30, 2019, the liability was $14.3 million; accordingly, the College was not required to post collateral.  Principal Payments on Debt - Potential Use: The College employs a debt strategy that involves numerous bullet payments throughout the portfolio. Should these bonds not be able to be restructured at maturity, the College may need to use cash to pay the principal. - Liquidity Source: The College would transfer any funds needed from the quasi-endowment. - Current Situation: Lafayette has always had access to the capital markets. The College refinanced the Series 2008 bonds in 2018, extending the bullet payment from November 1, 2018 to November 1, 2038. The next bullet payment is the Series 2010B Bonds and is not due until May 1, 2022. For future bullet payments, Lafayette will manage its investments to ensure funds are available. Even during the financial crisis in 2008-2009, institutions with similar credit ratings to the College were able to access the capital markets.  Unfunded Investment Commitments - Potential Use: The College’s investment portfolio includes $58.4 million in unfunded commitments to alternative investments, a modest 6.5% relative to its total investment portfolio. - Liquidity Source: The College would transfer any funds needed from the endowment, of which $410 million is available within one month, or 46% of the investment portfolio. The College’s operating cash and lines of credit also provide short-term options. - Current Situation: The College manages the endowment to ensure it has proper levels of liquidity to cover any capital calls.

The College’s capital reserve also provides a source to bolster liquidity. The purpose of the Capital Reserve, which was established in December 2017, is to maintain and invest a portion of the College’s unrestricted resources to build long-term capacity, fund future capital projects, and provide financial flexibility to take advantage of strategic opportunities.

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LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2019

DEBT AND LIABILITIES

An institution’s debt and liabilities are measured by its levels of debt outstanding in relation to the size of its balance sheet and operating base. This analysis encompasses both the amount of debt outstanding as well as the ability to afford annual debt service.

Lafayette has $254.3 million in bonds outstanding. The College’s debt portfolio is 83% traditional fixed rate debt and 17% variable rate debt. Lafayette’s variable rate debt is synthetically fixed through three interest rate swap agreements making the effective debt fix of the College’s portfolio 100% fixed rate. We would classify the level of market rate risk in the College’s debt portfolio as minimal due to 100% being traditional or synthetically fixed rate debt. The primary risk present in the debt portfolio is liquidity risk related to the VRDBs and swap agreements. These risks are mitigated by the SBPAs related to the VRDBs, which are augmented by lines of credit, and the active role management takes in planning for future large principal payments coming due.

DEBT SERVICE SCHEDULE DEBT PORTFOLIO COMPOSITION

Taxable 60 100% Synthetic $16 mm Variable Fixed 6% $44 mm Interest Principal 90% $44 mm 17% 50 17% 80%

70% 40 60%

Tax Exempt 30 50% Traditional Traditional $ in in $Millions $239 mm 94% Fixed Fixed 40% $211 mm $211 mm 20 83% 83% 30%

20% 10 10%

- 0% 2019 2021 2023 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 2054 Tax Status Underlying Debt Mix Effective Debt Mix

The College employs a primarily non-amortizing debt structure, the aim of which is to optimize the College’s balance sheet by investing funds in the endowment that would have otherwise been used to pay annual principal. As a result, certain debt-related metrics such as spendable cash and investments to debt appear weaker than peer and rating medians. Given this structure, from an affordability perspective, the College’s debt service to operations is in line with peer and rating medians; however, the College’s ratio excludes principal amortization. Were the College’s debt to amortize annually, this metric might also weaken without a commensurate increase in operating revenue and cash flow to support additional debt service obligations. The weakening of this metric would be offset by the reduction of outstanding debt.

Derivative Portfolio

The College has three floating-to-fixed interest rate swaps utilized to hedge interest rate risk associated with variable rate debt. BNY Mellon is the counterparty on each of the swaps with a total notional amount of $43.5 million. As of June 30, 2019, the College’s negative mark-to-market liability was $14.3 million. As interest rates rise the mark-to-market will improve and as interest rates decline the mark-to-market will become negative.

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Recent Developments

In November 2019, Lafayette renewed its SBPA with US Bank related to the Series 2003 VRDBs to December 2022. The College also has an SBPA from TD Bank related to its Series 2006 VRDBs that expires in 2021. The SBPAs are liquidity facilities that can be used to pay the purchase price of VRDBs in the event of a failed remarketing.

In May 2019, Lafayette entered into a 75-year ground lease with a developer to construct a mixed-use residential facility on College-owned land adjacent to campus. The McCartney Street Residences will consist of student housing and dining facilities and a bookstore. The project will serve to accommodate the College’s planned enrollment growth as part of its Strategic Direction. At the end of the ground lease, ownership of the facility will revert to the College. The financing structure for the project was an off-balance sheet transaction for the College, although the rating agencies will determine what, if any, credit impact the project may have.

In September 2018, Lafayette issued its $21.345 million Series 2018 tax-exempt bonds to refund existing debt. The College achieved a cost of capital of 4.07% for the financing. The bonds have a maturity of 11/1/2038 which aligns with the useful lives of the original projects financed.

EXTERNAL ANALYSIS OF FINANCIAL POSITION The external factors examined include the views of an institution by external parties such as rating agencies. In addition, the financial position of an institution compared to its financial peers is an important indicator of overall financial health.

Rating Agency Views

Lafayette is rated Aa3 with a stable outlook by Moody’s and A+ with a stable outlook by S&P. It was last rated in September 2018 as part of the Series 2018 issuance with both Moody’s and S&P affirming the College’s ratings. The College’s current ratings make it equally or more highly rated than 71.4% of Moody’s rated and 71.3% of S&P rated private higher education institutions. In the chart to the right we display the College’s rating in comparison to the entire set of investment grade rating categories at Moody’s and S&P. Lafayette’s bond ratings are considered high investment grade. Moody’s S&P The rating agencies cite the following strengths and challenges of the College: Aaa AAA

Key Strengths Aa1 AA+ Aa2 AA  Solid student demand profile highlighted by improved selectivity, sound Aa3 (Lafayette) AA- matriculation and growth in net tuition.  Improved operating performance over past few years. A1 A+ (Lafayette)  Strong financial flexibility due to growing financial resources. A2 A  Strong and proactive management team. A3 A- Key Challenges Baa1 BBB+  High leverage due to debt levels in comparison to financial resources. Baa2 BBB  Low revenue diversity with moderately high reliance on student charges. Baa3 BBB-  Competitive student market in Northeast. Non-Investment Grade

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LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2019

The College’s rating and outlook have remained stable despite the challenges facing the higher education industry. In addition to issuer specific ratings, the rating agencies provide sector specific outlooks. Moody’s recently revised its outlook on the higher education sector to stable from negative for 2020, citing steady revenue growth and solid reserve levels. S&P, on the other hand, maintained its negative outlook on the sector for the third consecutive year (2018–2020). Issues cited by the rating agencies that contributed to their negative outlooks over the past few years include the continued expectation that low net tuition revenue growth will persist and create operating challenges for many institutions. In Prager’s view, Lafayette’s strong market position and financial profile will enable it to continue to navigate these challenges. However, the College must continue to adhere to financial discipline in order to successfully achieve its strategic goals. Peer Analysis

The analysis below examines the College on four key financial metrics versus financial peers. The College’s financial peer list was created by using the following filters: Moody’s Rating of Aa2, Aa3 or A1, cash and investments between $500 million and $1 billion, and operating revenue between $100 million and $300 million. The chart below ranks Lafayette’s financial peers from strongest to weakest based on FY 2018 performance. Each metric is examined based on Moody’s methodology for FY 2018 as the peer data for FY 2019 is not yet available. Overall, Lafayette’s rankings in the below tables remained stable with the prior year (FY 2017), moving up one place under Spendable Cash & Investment to Operations and Monthly Days Cash on Hand, holding its place under Spendable Cash & Investment to Debt, and falling one place under Operating Cash Flow Margin. The definition for each metric is included in the Lafayette College dashboard.

Operating Cash Flow Margin Spendable Cash & Investments to Operations Spendable Cash & Investments to Debt Monthly Days Cash on Hand (Higher is Better) (Higher is Better) (Higher is Better) (Higher is Better) Claremont McKenna College (Aa2) 27.2 Bryn Mawr College (Aa2) 5.9 Carleton College (Aa2) 6.4 Bryn Mawr College (Aa2) 1087 Bryn Mawr College (Aa2) 26.9 Carleton College (Aa2) 5.9 Bryn Mawr College (Aa2) 6.1 Carleton College (Aa2) 1001 Hamilton College (Aa2) 25.8 Hamilton College (Aa2) 5.9 Hamilton College (Aa2) 5.0 Reed College (Aa2) 932 College of the Holy Cross (Aa3) 23.2 Denison University (Aa3) 5.5 Macalester College (Aa3) 5.0 Colby College (Aa2) 906 Reed College (Aa2) 19.4 Reed College (Aa2) 4.8 Denison University (Aa3) 4.9 Denison University (Aa3) 807 Carleton College (Aa2) 19.1 Claremont McKenna College (Aa2) 4.6 Bucknell University (Aa2) 4.7 Claremont McKenna College (Aa2) 797 Colby College (Aa2) 17.7 Macalester College (Aa3) 4.1 Reed College (Aa2) 4.6 Bucknell University (Aa2) 636 Lafayette College (Aa3) 17.6 Colorado College (Aa3) 3.8 College of the Holy Cross (Aa3) 4.3 Lafayette College (Aa3) 630 Trinity College (A1) 17.3 Wesleyan University (Aa3) 3.7 Mount Holyoke College (Aa3) 4.0 Hamilton College (Aa2) 617 Denison University (Aa3) 16.7 Colby College (Aa2) 3.7 Furman University (A1) 3.9 Colorado College (Aa3) 552 Wesleyan University (Aa3) 16.4 Lafayette College (Aa3) 3.5 Colorado College (Aa3) 3.4 College of the Holy Cross (Aa3) 547 Oberlin College (Aa3) 13.8 Vassar College (Aa3) 3.5 Claremont McKenna College (Aa2) 3.2 Furman University (A1) 501 Colorado College (Aa3) 13.4 College of the Holy Cross (Aa3) 3.4 Colby College (Aa2) 2.9 Wesleyan University (Aa3) 459 Colgate University (Aa3) 12.6 Mount Holyoke College (Aa3) 3.4 Vassar College (Aa3) 2.8 Colgate University (Aa3) 428 Macalester College (Aa3) 11.9 Oberlin College (Aa3) 3.2 Wesleyan University (Aa3) 2.8 Oberlin College (Aa3) 425 Mount Holyoke College (Aa3) 11.6 Colgate University (Aa3) 2.9 Oberlin College (Aa3) 2.7 Macalester College (Aa3) 392 Bucknell University (Aa2) 10.5 Bucknell University (Aa2) 2.7 Lafayette College (Aa3) 2.3 Vassar College (Aa3) 356 Furman University (A1) 9.9 Furman University (A1) 2.7 Trinity College (A1) 2.1 Mount Holyoke College (Aa3) 317 Vassar College (Aa3) 8.4 Trinity College (A1) 2.1 Colgate University (Aa3) 1.9 Trinity College (A1) 82

Peer Median 16.7 Peer Median 3.7 Peer Median 3.9 Peer Median 552 Aa Private Median 15.4 Aa Private Median 3.0 Aa Private Median 3.5 Aa Private Median 445

Source: Moody’s Municipal Financial Ratio Analysis Database

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LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2019

COMPOSITE FINANCIAL INDEX

The Composite Financial Index (CFI) is a tool to measure and communicate financial health of a higher education institution. It was developed by Prager, KPMG and Attain and originally published in Strategic Financial Analysis for Higher Education. CFI should be analyzed over time in the context of an institution’s activities and plans over that time frame so that it creates a full picture of institutional health and not just financial health. CFI is not meant to be compared against peers but as a measure of an institution’s progress over time towards its own goals.

The CFI measure is established by answering four specific questions concerning financial health. Each question is answered through performance on a financial ratio.

 Are resources sufficient and flexible enough to support the mission? - Primary Reserve Ratio = Expendable Resources ÷ Operating Expense - Weight: 35%  Are debt resources managed strategically to advance the mission? - Viability Ratio = Expendable Resources ÷ Long-Term Debt - Weight: 35%  Does asset performance and management support the strategic direction? - Return on Net Assets = Change in Net Assets ÷ Net Assets Beginning of Year - Weight: 20%  Do operating results indicate the institution is living within its means? - Net Operating Revenue = Net Operating Income ÷ Operating Revenue - Weight: 10%

After these four ratios are calculated, they are converted to a common scale and multiplied based on weight factors. These four numbers are then added together to calculate an institution’s CFI. Under CFI, scores are between -4 to 10 and higher scores are better. Any score higher than 3 means an institution has a stronger financial position.

In the chart above we display Lafayette’s CFI each of the past five years. The College’s healthy CFI stems from a strong primary ratio and net operating revenue ratio – supported by growth in the College’s net tuition and fee revenue and endowment income – and modest viability ratio (which is diminished by relatively high leverage). These are offset by a softening, but still positive return on net assets ratio. The net operating revenue ratio has improved in the last three years. An analysis of each ratio included in CFI over the past five years is in Appendix A. The graph below compares the College’s CFI breakdown for the past three years.

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LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2019

Primary Reserve 10.00 8.00 6.00 4.00 2.00 0.00 -2.00 Viability -4.00 Net Operating Revenue

Return on Net Assets 2017 2018 2019

CONCLUSIONS

Prager continues to view Lafayette College’s financial position as sound as displayed by the following factors: Market Position: Strong student demand, driven by its position as a well-regarded STEM-focused liberal arts college, enables it to successfully compete for students and fundraising dollars. Fundraising performance over recent years and successful completion of capital campaign goals display strong donor relationships.

Operations: Sustained operating performance improvement over the past decade with operating surpluses in each of the past four years. As Lafayette works to strengthen its balance sheet and grow financial resources, sound budgeting practices will be critical to ensure this trend continues, especially as the College continues to grow enrollment and increase financial aid as part of its strategic decision to improve access and affordability.

Financial Reserves: Strong financial reserves driven by investment returns in line with NACUBO/Commonfund averages over the past decade. In addition, spendable cash and investments were in line with peers when adjusted for size of operations. The College’s liquidity levels are higher than peer medians but viewed as appropriate given the potential calls on liquidity. Increasing annual appropriations to the Capital Reserve will serve to mitigate risks from the debt structure and build up financial reserves.

Debt and Liabilities: The College has a $254 million debt portfolio that is 83% traditional fixed and 17% synthetic fixed. Management has demonstrated the ability to actively manage its debt portfolio and the risks attendant to variable-rate and derivative exposure, and effectively plan for future bullet maturities as they come due. In particular, management has created an internal dashboard of its debt portfolio that displays each event over the

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LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2019

next five years that will require action. We recommend that the College make annual appropriations to its Capital Reserve in order to fund upcoming bullet maturity payments. Particularly, the College has over $35 million of debt maturing in Fiscal 2024. Further, as bullet maturities come due and new debt is issued, we recommend that the Lafayette continue to re-examine its debt portfolio structure to ensure it aligns with the College’s risk tolerance.

CFI: Lafayette’s CFI has remained strong over the last three years driven by its substantial endowment.

External Analysis of Financial Position: The College’s current ratings make it equally or more highly rated than 71.4% of Moody’s rated and 71.3% of S&P rated private higher education institutions. The College is better than the median for two of the four key metrics examined versus financial peers. The key to rating agency management is consistent messaging of and demonstrated progress towards strategic priorities. We encourage Lafayette to continue to keep an ongoing and open dialogue with the rating agencies. Given Moody’s recently updated surveillance policy, which requires them to review outstanding ratings and publish a new Credit Opinion report about every 12 months, we expect the agency to reach out to the College soon.

RECOMMENDATIONS

Prager has the following recommendations for Lafayette based on our review of the College’s FY 2019 financial position, progress under the Strategic Agenda and other recent developments at the College.

Improve Financial Resources: The College should work towards growing its financial resources and improving its balance sheet cushion. The College’s spendable cash and investments are below peers when adjusted for debt levels. Additionally, both rating agencies cite high leverage levels as credit challenges. Growing financial resources organically through improved operating performance and increased fundraising will result in greater financial flexibility and additional debt capacity.

Invest in Strategic Initiatives: The College should continue to invest in strategic initiatives to achieve the goals outlined in the Strategic Direction. Lafayette has a strong student demand profile; however, the College operates within the very competitive Northeast student market. Strategic initiatives will enhance the student experience and enable the College to reach its enrollment goal of 2,900 students.

Conservative Budgeting: The College is encouraged to increase its resiliency towards a market correction by maintaining its conservative budget procedures and increasing its contingency.

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EXHIBIT I

The Strategic Direction for Lafayette College

Approved by the Board of Trustees in February 2016

The Strategic Direction Guiding Principles Strategies  Grow the size of the student  Maintain or improve quality  Develop new funding through body to 2,900 students to within the enrollment process 400 additional students over a enhance competitiveness by  Remain a residential college – 10-year period allowing increased course provide 4 years of housing  Re-allocate funds within the offerings and further increase  Maintain commitment to the existing merit based financial aid the quality and diversity of the Patriot League program student body  Maintain strong financial health  Increase endowed funds  Increase need based financial aid  Maintain future purchasing supporting financial aid to create greater affordability power of the endowment  Allocate portion of tuition  Maintain or improve student- increase to financial aid faculty ratio  Gain operational efficiency  Enhance faculty recruitment and through growth, best practices, retention through competitive benchmarking, and management salaries discipline

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Disclaimers

1. This presentation is not contractual, not a research report nor an offer to buy or sell or a solicitation of an offer to buy or sell any security or interest. Contractual obligations will be created only by formal written agreement. Information regarding pricing, interest rates, and transaction costs is preliminary and indicative only. We invite inquiry into the assumptions underlying future projections and other forward-looking statements in the presentation.

2. Except as compelled by applicable law we make no warranty, express or implied of any nature as to any information or technique herein and do not guarantee satisfactory results. In no event may we be liable for any special or consequential damages that may be incurred in using the data provided. Before entering into any transaction, you must independently determine the economic risks, and your institution’s ability to assume the risks. Senior management should be involved in or informed as to this process.

3. Risk assessment of derivative products is complex. One must also consider the implications of accounting and financial disclosure rules such as the FASB requirements for mark-to-market procedures or the extensive GASB reporting requirements.

4. We are not lawyers, accountants or tax specialists; you should seek and rely on independent advice as to such matters from properly qualified firms or individuals.

LAFAYETTE COLLEGE

Appendix A: Dashboard LAFAYETTE COLLEGE DASHBOARD METRICS EQUATION MEASURES GRAPH NOTES 35 30 25 20 Over the past 5 years, the College's selectivity rate Students Accepted The selectivity of the % declined slightly by 3.3 percentage points. After this SELECTIVITY RATE 15 30.2 30.8 29.4 31.5 Student Applications College. 28.3 decline, Lafayette's selectivity rate is in line with its 10 rating median. 5 0 2015 2016 2017 2018 2019 40

30 % The College's matriculation rate decreased modestly by Students Enrolled The demand of the College 20 MATRICULATION RATE 1.4 percentage points over the past five years. It Students Accepted once students are accepted. 29.8 28.2 26.1 27.0 26.0 10 remains below peer and rating medians.

MARKET POSITION 0 2015 2016 2017 2018 2019 34 32.8 33 32.2 32.2 32 31.2 31 The College's net tuition per student increased 29.6 Net Tuition and Fee Revenue Average tuition and fees the 30 marginally over the past 5 years, which is consistent with NET TUITION PER STUDENT FTE Enrollment College receives per student. 29 peer and rating medians. For the equation, FTE $ $ Iin Thousands 28 enrollment is based on the fall term of the prior year. 27 26 2015 2016 2017 2018 2019

80

60 Dependence on largest % The College relies on student charges for approximately RELIANCE ON STUDENT Tuition and Auxiliary Revenues revenue category which is 40 66 percent of operating revenues. This is slightly higher 65.7 66.2 66.0 67.7 67.3 CHARGES Total Unrestricted Revenues tuition and auxiliaries at than rating medians; however, this level of reliance is Lafayette. 20 expected for a liberal arts college.

0 2015 2016 2017 2018 2019 25

OPERATIONS 20

Net Operating Revenues % 15 The College's operating cash flow margin increased every OPERATING CASH FLOW + Interest + Depreciation year from 2011 to 2016 to reach its highest level in FY Operating performance. 10 19.4 MARGIN Total Unrestricted Revenue 17.7 18.8 17.5 16.7 2016 of 19.4 percent. It declined slightly since, but 5 remains above rating and peer medians. 0 2015 2016 2017 2018 2019

Lafayette College Peer Median Private Aa Median LEGEND

Page 1 LAFAYETTE COLLEGE DASHBOARD METRICS EQUATION MEASURES GRAPH NOTES 5.0 4.0 Cash and investments + Funds Held in 3.0 The College exhibits strong spendable cash and SPENDABLE CASH AND Trust + Restricted Pledges Receivable - Unrestricted funds available investments to operations. This metric is in line with INVESTMENTS TO OPERATIONS Permanently Restricted Net Assets to cover operating expenses. 2.0 3.6 3.4 3.5 3.5 3.5 peer and rating median. Total Operating Expenses 1.0 0.0 2015 2016 2017 2018 2019 800

600 FINANCIAL RESERVES Number of days Lafayette Monthly Liquidity*365 The College's liquidity was above 600 days cash on hand can operate (cover its cash 400 MONTHLY DAYS CASH ON HAND Total expenses-Depreciation-Large non- 687 every year from 2015 to 2019, which is above rating operating expenses) from 600 645 630 631 cash expense medians. Monthly Liquidity. 200

0 2015 2016 2017 2018 2019

2.0

1.5 The College is over leveraged compared to peers as Lafayette's debt obligations displayed by a debt to revenue ratio. This is primarily Total Direct Debt Outstanding 1.0 DEBT TO REVENUE compared to the size of its driven by the College's non-amortizing debt structure. 1.5 1.5 Operating Revenue 1.2 1.4 operating base. 0.5 1.2 The increase in 2017 reflects the issuance of debt for the Integrated Sciences Center. 0.0 2015 2016 2017 2018 2019 8.0

6.0 The College pays a similar level of debt service as a Burden of debt service % percent of total operating expenses compared to rating Debt Service 4.0 DEBT SERVICE TO OPERATIONS obligations in comparison to 6.7 6.6 6.5 and peer medians. This ratio was positively affected by Operating Expenses 5.4 total operating expenses. 2.0 4.6 capitalized interest in 2018 and 2019. Excluding capitlaized interest, the ratio was 6.1% in 2018 and 2019.

DEBT AND LIABILITIES AND DEBT 0.0 2015 2016 2017 2018 2019 5.0 4.0 The College's spendable cash and investments to debt Cash and investments + Funds Held in 3.0 Unrestricted funds available falls below peer and rating medians; however, Prager SPENDABLE CASH AND Trust + Restricted Pledges Receivable - to cover outstanding debt 2.0 considers the levels solid. The decline since FY16 reflects INVESTMENTS TO DEBT Permanently Restricted Net Assets obligations. 2.9 2.7 the issuance of the Series 2017 debt and is impacted by Total Debt Outstanding 1.0 2.2 2.3 2.2 the bullet structure. 0.0 2015 2016 2017 2018 2019

Lafayette College Peer Median Private Aa Median LEGEND

Page 2 LAFAYETTE COLLEGE DASHBOARD METRICS EQUATION MEASURES GRAPH NOTES 3.3 3.2 Unrestricted + Temporarily Restricted Net 3.1 Assets - (Property Plant and Equipment - 3.0 Expendable resources Long-Term Debt) 2.9 The College's primary reserve ratio declined to 2.81x in PRIMARY RESERVE RATIO available to cover operating 3.22 Operating Expense 2.8 3.05 3.06 FY 2019 after 2 stable years. expenses. 2.7 2.83 2.81 Weight: 35% 2.6 2.5 2015 2016 2017 2018 2019 3.0% 2.0% Net Operating Income 1.0% 2.11% 2.36% 0.68% In FY 2016, the College reversed a 5-year trend of Operating Revenue 1.35% NET OPERATING REVENUE Operating performance. 0.0% negative net operating revenues. This ratio further improved in FY 2019. Weight: 10% -1.0% -1.65% -2.0% 2015 2016 2017 2018 2019 15.0%

10.0% Change in Net Assets In FY 2017, Net Assets increased after two years of 9.96% Net Assets Beginning of Year Growth in financial 5.0% declines, reflective of positive endowment returns. The RETURN ON NET ASSETS resources. 5.68% 0.61% ratio deminished in 2018 and 2019 reflecting Weight: 20% 0.0% endowment performance. -1.31% -5.0% -2.78% 2015 2016 2017 2018 2019 COMPOSITE FINANCIAL INDEX FINANCIAL COMPOSITE 3.0 2.5 Unrestricted + Temporarily Restricted Net 2.0 Assets - (Property Plant and Equipment - Expendable resources The College's viability ratio declined in FY 2017 due to Long-Term Debt) 1.5 VIABILITY RATIO available to cover long term 2.52 the issuance of new debt to finance the Integrated Long-Term Debt 1.0 2.28 debt. 1.94 2.02 1.91 Sciences Center, but has remained relatively stable since. 0.5 Weight: 35% 0.0 2015 2016 2017 2018 2019 7.0 6.0 The CFI should be analyzed based on trends with an 5.0 understanding of strategic investments made at the Calculated by converting each individual 4.0 College. The improvement in FY 2017 was primarily due COMPOSITE FINANCIAL INDEX ratio from above into a score that is Financial health of an to an improvement in operating performance and 3.0 6.43 5.95 (CFI) weighted and added together to calculate institution. 5.25 5.24 5.50 growth of net assets. The CFI declined slightly in 2018 2.0 the total CFI. and 2019 due to the weakening of Return on Net Assets. 1.0 As the College improves on this metric its CFI will 0.0 improve. 2015 2016 2017 2018 2019

*The composite financial index is a tool for institutions to measure their own progress over time longitudinally. It is not meant to be compared against peers.

Page 3 LAFAYETTE COLLEGE DASHBOARD METRICS EQUATION MEASURES GRAPH NOTES 850

800 After 2 years of declining market value, the College's MANAGED ENDOWMENT Current Year Managed Market Value of 750 830.4 832.1 endowment improved in FY 2017 and remained stable in MARKET VALUE Endownmet Market Value Endowment. 774.2 790.3 2018 and 2019. 700 $, inThousands 733.2 650 2015 2016 2017 2018 2019 14% 12% 10% Current Year Managed 8% FY 2017 annual net return was 11.5%, 12.1 percentage Endownmet Market Value Growth in Market Value of 6% 11.5% ANNUAL NET RETURN points higher than FY 2016, reflecting strong endowment Prior Year Managed Endowment. 4% 8.10% 1.5% performance. The return declined subsequently. Endownmet Market Value 2% 3.70% 0% -2% -0.8% 2015 2016 2017 2018 2019

As of 6/30/2019

Asset Class Share of total endowment The College invests 59% of endowment assets in public ASSET ALLOCATION Total Endowment Size within each asset class. and private equity. INVESTMENTS

As of 6/30/2019

Amount of endowment Liquidity Category 59% of the College's endowment portfolio can be ENDOWMENT LIQUIDITY available at various points in Total Endowment Size liquidated within one month. time.

Page 4 LAFAYETTE COLLEGE

Appendix B: Financial Factbook LAFAYETTE COLLEGE Contents

Section 1: Market Position

Section 2: Operations

Section 3: Financial Reserves

Section 4: Debt and Other Liabilities

Section 5: External Factors LAFAYETTE COLLEGE Fall FTE Enrollment The College has maintained steady FTE enrollment growth over the past five years, consistent with the College’s plan. The College expects to grow FTE enrollment to 2,900 students, as approved by the Board of Trustees at its February 2016 Planning Retreat, which is expected to be reached in fall 2027.

FTE Enrollment Fall 2015 Fall 2016 Fall 2017 Fall 2018 Fall 2019

FTE Enrollment 2,505 2,520 2,565 2,616 2,643

Source: Common Data Source

PAGE 2 LAFAYETTE COLLEGE Applications, Acceptances and Matriculants The applicant pool has grown by more than 18% the past five years, and the acceptance rate during this period has averaged 30%.

. More than 8,100 applications received for the class of 2024, making this the 5th consecutive year of more than 8,000 applications for the first year class (more than 11 applications for every seat in the class).

. More than half of the class is expected to enroll via Early Decision, demonstrating that Lafayette continues to be regarded as a first choice institution .

. Growth in applications from secondary markets has compensated for a decline in high school graduates in primary markets. . Campus visitation and admission inquiry totals continue at record levels.

First-Time Freshman Admissions Fall 2015 Fall 2016 Fall 2017 Fall 2018 Fall 2019 Applications 7,465 8,123 8,469 9,237 8,521 Acceptances 2,258 2,298 2,609 2,715 2,682 Matriculants 672 649 680 733 698 Acceptance Rate 30.2% 28.3% 30.8% 29.4% 31.5% Matriculation rate 29.8% 28.2% 26.1% 27.0% 26.0%

10,000 35% 9,000 30% 8,000 7,000 25% 6,000 20% 5,000 4,000 15% 3,000 10% 2,000 5% 1,000 0 0% Fall 2015 Fall 2016 Fall 2017 Fall 2018 Fall 2019 Applications Acceptances Matriculants Acceptance Rate Matriculation rate

PAGE 3 LAFAYETTE COLLEGE Student Quality Indicators Lafayette has exceptional student quality as displayed by a median SAT Score for enrolled first-time freshman above 1290 each of the past five years. The College Board reports that the national mean SAT score in 2019 was 1059.

Student Quality Fall 2015 Fall 2016 Fall 2017 Fall 2018 Fall 2019

Enrolled Median SAT Score 1294 1288 1342 1342 1355

PAGE 4 LAFAYETTE COLLEGE Student Retention and Graduation Rates Lafayette retained 93% of students between freshman and sophomore years for the 2018-19 academic year. The College’s six-year graduation rate was approximately 89% for the past five years.

Retention and Graduation Rates 2015-16 2016-17 2017-18 2018-19 2019-20

Freshman Retention Rate 95.2% 93.6% 94.9% 93.1% 94.0%

Six-Year Graduation Rate 90.0% 89.0% 90.0% 87.0% 88.0%

96.0%

94.0%

92.0%

90.0%

88.0%

86.0%

84.0%

82.0% 2015-16 2016-17 2017-18 2018-19 2019-20

Freshman Retention Rate Six-Year Graduation Rate

PAGE 5 LAFAYETTE COLLEGE Tuition and Fees Over the past five years the College’s total tuition, fees, room and board averaged 3% growth. The tuition discount rate averaged 2.2% growth over the same time period.

Tuition, Fees, Room and Board ($) 2015-16 2016-17 2017-18 2018-19 2019-20

Tuition and Fees 47,010 48,885 50,850 52,880 54,992

Room and Board 13,920 14,470 15,040 15,640 16,264

Total Tuition, Fees, Room and Board 60,930 63,355 65,890 68,520 71,256

Tuition Discount Rate 33.9% 34.7% 35.7% 37.3% 38.1%

80,000 45.0%

70,000 40.0% 35.0% 60,000 30.0% 50,000 25.0% 40,000 20.0% 30,000 15.0% 20,000 10.0%

10,000 5.0%

0 0.0% 2015-16 2016-17 2017-18 2018-19 2019-20 Room and Board Tuition and Fees Tuition Discount Rate

Note: Room and Board reflects standard room rate and cost of 20-meal traditional plan; tuition and fees exclude mandatory fee for first year students. Growth rate represents 5% CAGR.

PAGE 6 LAFAYETTE COLLEGE Peer Tuition, Fees, Room and Board Lafayette’s tuition, fees, room and board is comparable to its peer institutions.

Lafayette College Peer Tuition, Fees, Room & Board – 2020 US News 2019-20 Academic Year

$80,000 $75,000 $70,000 $65,000 $60,000 $55,000 $75,524 $74,350 $73,950 $73,803 $73,664 $73,644 $73,641 $73,640 $73,578 $73,490 $73,468 $73,250 $73,148 $72,590 $72,585 $72,572 $72,370 $72,354 $72,270 $72,052 $72,000 $71,769 $71,710 $71,623 $71,385 $71,266 $71,172 $71,150 $70,958 $70,890 $70,744 $70,674 $69,400 $69,020 $68,980 $67,852 $67,646 $67,624 $67,578 $66,880 $50,000 $66,708 $62,114 $59,760

$45,000 $56,680 $40,000

Source: 2020 US News Best College Rankings

PAGE 7 LAFAYETTE COLLEGE Net Tuition and Fees Net tuition and fees have grown 6.3% on average from fiscal 2015 through fiscal 2019, while financial aid grew 4.9% on average over the same time period.

Net Tuition and Fees ($, in Thousands) 2014-15 2015-16 2016-17 2017-18 2018-19

Tuition and Fees 113,577 118,247 124,413 130,773 138,757

Financial Aid 40,373 40,041 43,172 46,689 51,760

Net Tuition and Fees 73,204 78,206 81,241 84,084 86,997

Student Financial Aid ($, in Thousands) 2014-15 2015-16 2016-17 2017-18 2018-19

Institutional Grants and Scholarships 33,119 31,823 34,674 37,881 42,351

Sponsored Grants and Scholarships 7,254 8,218 8,498 8,808 9,409

Total Financial Aid 40,373 40,041 43,172 46,689 51,760

Unrestricted Tuition Discount 29.2% 26.9% 27.9% 29.0% 30.5%

Total Tuition Discount 35.5% 33.9% 34.7% 35.7% 37.3%

PAGE 8 LAFAYETTE COLLEGE Gift, Grants and Bequests Total gifts and pledges, as reported in the financial statements, generally increased over the past five years, reflecting the momentum of the now completed capital campaign.

. The Development Office receives campaign commitments each Fiscal year that are in addition to what is reflected in the financial statements.

. Some commitments are conditional pledges or bequest expectancies that are tied to advancing the goals and priorities of the College but are not recognized in the financial statements.

. In fiscal 2019, the College received $8.5 million in bequest expectancies, in addition to the $29.8 million indicated below, totaling approximately $38.3 million in total gifts and pledge commitments.

Gifts, Grants and Bequests ($, in Thousands) 2014-15 2015-16 2016-17 2017-18 2018-19

Private Gifts and Grants 9,228 7,848 9,486 6,252 6,772

Capital Gifts for the Endowment and Building Projects 14,750 18,115 28,792 26,442 22,984

Total Gifts, Grants and Bequests 23,978 25,963 38,278 32,694 29,756

45 40 35 30 25 20 15 $, in Millions in $, 10 5 - 2014-15 2015-16 2016-17 2017-18 2018-19 Private Gifts and Grants Capital Gifts for the Endowment and Building Projects

PAGE 9 LAFAYETTE COLLEGE Live Connected, Lead Change Campaign The College successfully completed the campaign in December 2018 with $425 million raised in gifts, pledges and bequests.

6/30/2019 $425.0

6/30/2018 $403.0

6/30/2017 $363.0

6/30/2016 $315.2

12/31/2015 $288.0

6/30/2015 $264.3

6/30/2014 $221.6

6/30/2013 $173.8

6/30/2012 $150.9

6/30/2011 $101.0

6/30/2010 $54.0

$0 $50 $100 $150 $200 $250 $300 $350 $400 $450 ($, in Millions)

PAGE 10 LAFAYETTE COLLEGE Contents

Section 1: Market Position

Section 2: Operations

Section 3: Financial Reserves

Section 4: Debt and Other Liabilities

Section 5: External Factors LAFAYETTE COLLEGE Financial Performance: Balance Sheet ($, in Thousands) ASSETS 2015 2016 2017 2018 2019 Cash and Cash Equivalents $ 19,629 20,024 33,031 24,093 41,855 Short-Term Investments 9,066 8,840 13,674 19,105 20,781 Accounts and Loans Receivable, Net 5,230 5,118 6,834 6,697 6,604 Contributions Receivable and Bequests, Net 15,773 19,415 31,262 27,902 24,516 Prepaid Expenses and Other 2,976 3,733 3,920 2,695 2,761 Deposits with Bond and Other Trustees 7,999 6,495 80,011 60,216 19,235 Long-Term Investments 857,888 812,259 852,709 901,969 889,646 Land, Buildings and Equipment, Net of Depreciation 276,404 293,205 311,548 333,943 381,748 Total Assets $ 1,194,965 1,169,089 1,332,989 1,376,620 1,387,146

LIABILITIES 2015 2016 2017 2018 2019 Accounts Payable and Accrued Expenses $ 10,295 9,968 12,404 12,445 20,145 Deposits and Deferred Revenues 6,023 5,363 4,685 3,525 2,730 Funds Held For Others 2,493 2,590 3,042 3,064 3,300 Annuities Payable 28,443 22,363 23,954 23,010 18,319 Postretirement Benefits 52,368 51,253 47,892 46,883 47,478 Federal Student Loans Refundable 2,120 2,142 2,067 1,246 1,279 Interest Rate Hedge/Swap Agreements 14,433 19,801 14,396 11,205 14,265 Conditional Asset Retirement Obligation 1,430 1,651 1,778 1,806 1,750 Capitalized Lease Obligations 3,201 4,644 4,828 1,749 1,947 Mortgage Payable - - - 2,340 2,220 Bonds Payable, Net 193,196 192,842 276,153 274,090 272,341 Total Liabilities $ 314,002 312,617 391,199 381,363 385,774

NET ASSETS 2015 2016 2017 2018 2019 Without Donor Restrictions $ 262,740 251,031 289,447 305,329 301,030 With Donor Restrictions - Spendable 308,648 293,806 322,627 329,427 314,096 With Donor Restrictions - Perpetual 309,575 311,635 329,716 360,501 386,246 With Donor Restricions - Subtotal 618,223 605,441 652,343 689,928 700,342 Total Net Assets $ 880,963 856,472 941,790 995,257 1,001,372

Total Liabilities and Net Assets $ 1,194,965 1,169,089 1,332,989 1,376,620 1,387,146

Source: Lafayette College Financial Statements

PAGE 12 LAFAYETTE COLLEGE Financial Performance: Unrestricted Income Statement ($, in Thousands)

OPERATING REVENUES 2015 2016 2017 2018 2019 Gross Tuition and Fees $ 113,577 118,247 124,413 130,773 138,757 Scholarships and Fellowships (40,373) (40,041) (43,172) (46,689) (51,760) Net Tuition and Fees 73,204 78,206 81,241 84,084 86,997 Sales and Service of Auxiliaries 29,906 31,997 33,767 35,512 36,686 Government Grants 1,628 1,289 2,500 1,436 1,143 Private Gifts and Grants 6,362 7,171 7,754 6,252 6,772 Endowment Return Used for Spending Policy 33,191 35,827 37,722 39,288 40,559 Other 4,220 3,708 4,404 4,798 6,114 Net Assets Released from Restriction 1,573 1,552 1,359 1,167 1,319 Total Operating Revenues $ 150,084 159,750 168,747 172,537 179,590

OPERATING EXPENSES 2015 2016 2017 2018 2019 Instruction $ 57,852 59,501 59,520 60,266 60,555 Research 2,036 1,694 2,032 2,181 2,073 Academic Support 12,051 11,501 12,946 11,883 11,621 Student Services 31,151 31,830 33,147 32,699 32,783 Institutional Support 26,647 27,427 30,407 33,198 36,160 Auxiliary Services 23,021 26,923 27,130 29,986 32,167 Total Operating Expenses $ 152,758 158,876 165,182 170,213 175,359

Change in Net Assets from Operating Activities $ (2,674) 874 3,565 2,324 4,231

Change in Net Assets from Non-Operating Activities $ (10,812) (25,172) 80,481 50,525 1,884

Change in Net Assets $ (13,486) (24,298) 84,046 52,849 6,115

Source: Lafayette College Financial Statements

PAGE 13 LAFAYETTE COLLEGE Operating Performance The College measures its operating performance through its operating contribution. This is unrestricted operating revenue minus unrestricted operating expenses.

. Over the past five fiscal years, the College’s operating revenues grew at an average annual rate of 4.3%, while expenses grew at an average annual rate of 3.5%.

. The College experienced operating deficits from fiscal 2011 through fiscal 2015 but has had operating surpluses since.

. The $4.2 million operating surplus in fiscal 2019 reflects the 4th straight year of positive operating margins.

Operating Contribution (Higher is Better)

Source: Lafayette College Financial Statements

PAGE 14 LAFAYETTE COLLEGE Growth in Net Assets The College’s improved operating performance has driven net asset growth over the past five years.

. Since 2015, net assets grew at an average annual rate of 2.6% from $881 million to just over $1 billion.

. In fiscal year 2019, 30% of the College’s net assets were without donor restrictions.

Total Net Assets ($, in Millions)

Source: Lafayette College Financial Statements

PAGE 15 LAFAYETTE COLLEGE Financial Performance

. While required by GAAP, the cash flow statement is Change in Nets Assets from Operating Activities largely by activity related to endowment investments Unrestricted Net Assets ($, in Thousands) and payout. 2015 2016 2017 2018 2019

Operating Revenue $ 150,084 159,750 168,747 172,537 179,590 . Free cash flow is a corporate concept used to measure Less Operating Expense 152,758 158,876 165,182 170,213 175,359 operating performance; however, it is not used in the Operating Contribution (2,674) 874 3,565 2,324 4,231 not-for-profit sector as a measure of operating Operating Contribution Margin -1.8% 0.5% 2.1% 1.3% 2.4% performance. Instead, rating agencies and investors examine a higher education institution’s operating Add back Interest 9,508 9,752 9,663 8,195 7,882 Add back Depreciation 13,882 14,730 15,892 16,378 14,454 performance based on operating margin and operating Operating Margin Available cash flow margin. $ 20,716 25,356 29,120 26,897 26,567 for Debt Service . The chart displays the College’s operating performance Operating Cash Flow Margin 13.8% 15.9% 17.3% 15.6% 14.8% from fiscal 2015 to 2019. Since 2015, the College’s operating performance has improved significantly on both metrics. In fiscal 2019, the College experienced its highest operating margin over this period.

. The College’s operating cash flow margin – unrestricted operating surplus available for debt service – was a strong 14.8% in fiscal 2019.

Source: Lafayette College Financial Statements

PAGE 16 LAFAYETTE COLLEGE

Primary Reserve Composite Financial Index 10.00 8.00 6.00 . The CFI is a tool to measure and communicate 4.00 financial health of a higher education institution. Any 2.00 score higher than 3 means an institution has a 0.00 -2.00 stronger financial position. Viability -4.00 Net Operating Revenue

. The College’s healthy CFI stems from a strong primary ratio – supported by the College’s large endowment – and modest viability ratio (which is diminished by high leverage), offsetting a soft but positive net operating ratio (which has improved in the last three years). Return on Net Assets 2017 2018 2019

PAGE 17 LAFAYETTE COLLEGE Components of the Composite Financial Index

Are resources sufficient and Primary Reserve Ratio Helps to understand the Expendable net assets flexible enough? amounts that an institution Total expenses must have in retained wealth to realize strategic objectives Expendable net assets are and whether this should lead readily accessible to meet to a reevaluation of mission operating and capital needs and priorities. Total expenses represent the impact of inflation and programmatic changes Are debt resources managed Viability Ratio Measures availability of Expendable net assets strategically? resources to settle debt as of Debt the balance sheet date.

Does asset performance and Return on Net Assets Ratio Measures whether the Change in Net Assets management support institution’s returns are Total Net Assets beginning of direction? keeping pace with increases year in overall institutional size. Stewardship responsibility requires return on all assets under management. Do operating results indicate Net Operating Revenues To create overall financial Excess of unrestricted living within means? Ratio health, annual operations operating revenues over need to contribute, not operating expenses detract. Total unrestricted operating revenues

PAGE 18 LAFAYETTE COLLEGE Capital Expenditures The College’s cash outlays for capital projects, repairs and renovations and new academic facilities, have grown over the past five years. . Capital spending has been supported by good cash flow, robust liquidity and fundraising.

Capital Expenditures ($, in Thousands) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 5,257 6,016 11,592 13,758 17,662 27,193 26,852 28,312 36,374 52,261

Rolling 3 Yr Average 7,622 10,455 14,337 19,538 23,902 27,452 30,513 38,982

60,000

50,000

40,000

30,000

20,000

10,000

- 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Capital Expenditures Rolling 3 Yr Average

Source: Lafayette College Financial Statements

PAGE 19 LAFAYETTE COLLEGE Contents

Section 1: Market Position

Section 2: Operations

Section 3: Financial Reserves

Section 4: Debt and Other Liabilities

Section 5: External Factors LAFAYETTE COLLEGE Portfolio Overview – As of June 30, 2019 The College’s endowment investment guidelines state that it should be invested in a prudent manner that produces a 5-year average annual return of at least the sum of the distribution plus management fees plus the current rate of inflation. . The College’s endowment asset allocation is well diversified.

. 59% of the endowment can be liquidated within one month.

Endowment Asset Allocation Endowment Liquidity

PAGE 21 LAFAYETTE COLLEGE Endowment Performance The Endowment grew by 4.6% on average, or nearly $300 million, from fiscal 2009 through fiscal 2019, net of withdrawals. Managed Endowment Net Asset Value ($, in Millions)

1,000

900

800 830.4 832.1 799.6 774.2 790.3 700 716.5 733.2 600 657.0 651.1 579.5 500 532.3

400

300

200

100

0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Fiscal Year Ending June 30

MANAGED ENDOWMENT ANNUAL NET RETURN 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Lafayette College -17.6% 13.2% 16.0% 1.3% 12.6% 14.4% 1.5% -0.8% 11.5% 8.1% 3.7% NACUBO/Commonfund Average -18.7% 11.9% 19.2% -0.3% 11.7% 15.5% 2.4% -1.9% 12.2% 8.2% U/A

The NACUBO-TIAA Study of Endowments will not release 2019 results until February 2020. Source: Lafayette College Financial Statements

PAGE 22 LAFAYETTE COLLEGE Endowment Statistics Managed endowment net asset* composition as of June 30, 2019

($, in Thousands) 2015 2016 2017 2018 2019 Without Donor Restrictions $ 230,751 209,722 222,384 225,296 218,461 Spendable With Donor Restrictions 254,086 229,578 255,656 269,083 258,526 Perpetual With Donor Restrictions 289,351 293,943 312,264 336,019 355,081 Managed Endowment $ 774,188 733,243 790,304 830,398 832,068

Pooled endowment $ 667,430 631,880 681,141 717,109 719,403 Separately invested 106,758 101,363 109,163 113,289 112,665 Managed Endowment $ 774,188 733,243 790,304 830,398 832,068

True Endowment $ 543,437 523,521 567,920 605,102 613,607 Quasi-endowment 230,751 209,722 222,384 225,296 218,461 Managed Endowment $ 774,188 733,243 790,304 830,398 832,068

Associated pool $ 506,579 475,806 510,175 531,234 525,471 Scholarship pool 160,851 156,074 170,966 185,875 193,932 Total Pooled endowment $ 667,430 631,880 681,141 717,109 719,403

Without Donor Restrictions $ 230,751 209,722 222,384 225,296 218,461 Spendable With Donor Restrictions 254,086 229,578 255,656 269,083 258,526 Spendable Endowment $ 484,837 439,300 478,040 494,379 476,987

Average FTE Enrollment 2,439 2,472 2,491 2,541 2,584 Managed Endowment Per Student $ 317,485 296,679 317,264 326,843 322,070

Pooled Endowment 36 month 12/31/2013 12/31/2014 12/15/2015 12/31/2016 12/31/2017 rolling average $ 577,851 619,546 654,060 661,913 666,490

*excludes pledges

PAGE 23 LAFAYETTE COLLEGE Endowment & Similar Funds Endowment and similar funds are composed of the managed endowment, funds held in trust, deferred giving and pledges. Managed endowment and similar funds net asset fair value are as of June 30.

($, in Thousands) 2013 2014 2015 2016 2017 2018 2019 Managed endowment$ 618,196 687,850 667,430 631,880 681,141 717,109 719,403 Separately Invested Endowment 98,300 111,781 106,758 101,363 109,163 113,289 112,665 Managed Endowment $ 716,496 799,631 774,188 733,243 790,304 830,398 832,068 Funded Held in Trust By Others 3,536 3,772 3,761 3,426 3,688 3,781 3,784 Deferred giving 20,628 23,174 22,918 26,141 15,893 16,356 9,326 Pledges 8,370 6,234 8,195 11,919 23,184 19,967 16,605 Total Endowment & Similar Funds $ 749,030 832,811 809,062 774,729 833,069 870,502 861,783

Total Endowment & Similar Funds, excluding pledges $ 740,660 826,577 800,867 762,810 809,885 850,535 845,178

PAGE 24 LAFAYETTE COLLEGE Endowment Support to Operations Lafayette’s endowment continues to provide the College with consistent funding in support of operations.

($, in Thousands) 2014 2015 2016 2017 2018 2019 Endowment Support $ 31,636 33,191 35,827 37,722 39,288 40,559 Total operating revenues $ 145,748 150,083 159,749 168,748 172,537 179,590 Total operating expenses $ 147,502 152,759 158,876 165,182 170,213 175,359

As a % of operating revenues 21.7% 22.1% 22.4% 22.4% 22.8% 22.6% As a % of operating expenses 21.4% 21.7% 22.6% 22.8% 23.1% 23.1%

Endowment Support to Operating Expenses $200 23.5% $180 23.0% $160 $140 22.5% $120 $100 22.0% Thousands $80 21.5% $60 $40 21.0% $20 $- 20.5% 2014 2015 2016 2017 2018 2019

Endowment Support Total operating expenses As a % of operating expenses

PAGE 25 LAFAYETTE COLLEGE Managed Endowment Roll and Reconciliation

($, in Thousands) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Net Assets, beginning of Fiscal Year (GAAP) 799,631 774,188 733,243 790,304 830,637 Endowment Flows

Investment Return 7,169 (8,242) 84,641 59,188 24,277 $100,000 Investment Return 10,206 (6,131) 87,824 62,063 27,389 Investment Office Expense (3,037) (2,111) (3,183) (2,875) (3,112) $80,000 Deposits 10,791 12,082 16,880 22,067 20,460 Contributions from Donors 6,539 9,426 11,739 20,886 17,576 $60,000 Matured Annuities 146 203 3,141 1,181 2,884 Capital Projects Returned 1,019 453 - - - Contribution from Operations 3,087 2,000 2,000 - - $40,000

Withdrawals (43,403) (44,785) (44,460) (40,922) (43,306) Endowment Support (5% draw) (33,363) (36,255) (38,410) (39,959) (41,252) $20,000 Debt Service Principal Payments (550) (370) (370) (370) - Property Acquisition - (5,675) (4,500) (593) (2,054) Capital Projects (9,490) - (1,054) - $0 Early Retirement - (2,485) - - - Thousands)($, in Other Transfers - - (126) - Net Assets, end of Fiscal Year (GAAP) 774,188 733,243 790,304 830,637 832,068 -$20,000

Due to/from Operations, Net 9,514 7,773 (2,217) 5,796 2,328 Year-end Market Value Adjustment (1,218) 440 (3,032) (1,919) 371 -$40,000 Loan Funds (210) (210) (210) (210) - Gallaher Trust (462) (444) (472) (472) (476) Restricted Internal Trusts (704) (693) (824) (950) (1,008) -$60,000 Rounding 92 191 51 100 (315) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Investment Return Deposits Withdrawals Investment Performance Report 781,200 740,300 783,600 832,982 832,968

PAGE 26 LAFAYETTE COLLEGE Investment Policy Statement Excerpts – Investment Objectives

A. Return Objectives: . To increase the real value of endowment assets over the long-term (five years and longer), after all spending and expenses. . To earn a total rate of return over the long-term (five years and longer) in excess of the Endowment Benchmark which is made up of asset class benchmarks weighted by Policy Portfolio weights.

. A secondary objective is to exceed the return over the long-term of capital markets as represented by the 70/30 Benchmark, comprised of 70% in MSCI All Country World Index and 30% in Barclays Capital Intermediate U.S. Government/Credit Index. B. Risk Tolerance:

. Given return objectives and spending needs, and given that equities are the only asset class with expected long-term real returns in excess of 5%, the endowment must on average have a substantial weighting in equities. The necessary consequence will be considerable variability of returns over the short and medium- term. Such variability of returns can be tolerated provided that

. Endowment assets are managed in such a way as to dampen the impact of a severe equity market decline while ensuring adequate liquidity. . The long-term return objectives are met.

PAGE 27 LAFAYETTE COLLEGE Investment Policy Statement Excerpts – Strategic Asset Allocation (SAA)

Asset Class Purpose Constraint Assets Include SAA Range Benchmark

Hedge against recession and/or Daily liquidity U.S. fixed Bloomberg Barclays severe equity funds; up to 25% income and Capital Intermediate U.S. Fixed Income 10% +10% to -10% market decline; permitted in below global sovereign Government/Credit liquidity; dry investment grade bonds Index powder

Long-only and Publicly listed long-biased MSCI All Country World Public Equity Return 50% +10% to -10% equity securities long/short Index (USD, all cap, net) equity

Private equity, Non-publicly MSCI All Country World private real Private traded investments Index (USD, all cap, Return estate, and 10%* +10% to -10% Investments in companies or net)+3%, lagged 1 private natural other assets quarter resource funds

Low beta to Multi-strategy, Diversified equities in Absolute credit, and +10% to -10% Credit Suisse Hedge (primarily non- aggregate (with 30%* Return market neutral Fund Index equity) Return individual variance funds permitted)

*As of September 2017, the Investment Committee approved an objective to move towards a Private Investment weight of 15%. When actual portfolio weights are close to 15%, the Policy Weight for Absolute Return will be changed to 25% and the Policy Weight for Private Equity will be changed to 15% and the Endowment Benchmark will be adjusted accordingly.

PAGE 28 LAFAYETTE COLLEGE Capital Reserve The Capital Reserve balance was $11 million as of June 30, 2019.

Background ($, in thousands) Life to Date Actual FY2019 Balance  The Capital Reserve was created in BEGINNING CAPITAL RESERVE BALANCE $ - 9,359 - December 2017. SOURCES Operating Transfers 6,782 2,200 8,982  The purpose of the Capital Reserve is to Operating Surplus 2,548 1,019 3,567 allocate and invest a portion of the Investment Income 29 445 474 College’s resources to increase cash available to fund future capital USES Loan - Early Retirement Program (Staff) - (2,033) (2,033) projects, major equipment acquisition,

property acquisitions and debt ENDING CAPITAL RESERVE BALANCE $ 9,359 1,631 10,990 maturity repayments. The capital reserve also provides a liquidity ALLOCATIONS reserve. Academic Building Fund $ 1,985 600 2,585 McCartney Street Diner 1,697 - 1,697  Appropriations from the Capital ITS Capital Reserve 250 - 250 Reserve require the review and McCartney Street Infrastructure 500 - 500 approval by the Financial Policy Pardee HVAC/Window Replacement 1,500 - 1,500 Regional Campus Generator 1,000 - 1,000 Committee for any transaction greater Unallocated 2,427 3,064 5,491 than $250,000. LOAN - Early Retirement Program (Staff) - (2,033) (2,033)  The Capital Reserve is invested by the TOTAL $ 9,359 1,631 10,990 Chief Investment Officer in a moderately liquid, short to intermediate term portfolio.

PAGE 29 LAFAYETTE COLLEGE Contents

Section 1: Market Position

Section 2: Operations

Section 3: Financial Reserves

Section 4: Debt and Other Liabilities

Section 5: External Factors LAFAYETTE COLLEGE Debt Portfolio as of June 30, 2019 The College’s weighted average cost of capital is 4.18%.

LAFAYETTE COLLEGE RATED DEBT PORTFOLIO

Bond Issue Tax Status Coupon Par Oustanding Next Call Date Final Maturity Date Credit Support Use of Proceeds U.S. Bank SBPA Series 2003 Tax-Exempt Variable (Weekly)$ 10,190,000 Anytime @ Par 11/01/2023 Current Refunding of Series 1993 (12/02/2019) TD Bank SBPA Series 2006 Tax-Exempt Variable (Weekly) 11,000,000 Anytime @ Par 11/01/2036 Renovation of Fisher Athletic Field (12/02/2021) Series 2010A Tax-Exempt Variable (Weekly) 22,290,000 Anytime @ Par 05/01/2030 N/A Current Refunding of Series 2000

Series 2010B Tax-Exempt 5.00% 4,000,000 05/01/2020 05/01/2022 N/A Various Capital Projects

Current Refunding of Series 1998; Series 2013A Tax-Exempt 4.25% - 5.00% 33,715,000 11/01/2023 11/01/2043 N/A Various Capital Projects Current Refunding of Series 2006; Series 2013B Taxable 5.902% 15,680,000 11/01/2023 11/01/2053 N/A Various Capital Projects Refunding of Series 2008; Integrated Series 2017 Tax-Exempt 3.125% - 5.00% 136,050,000 11/01/2027 11/01/2047 N/A Sciences Center; Various Capital Projects Series 2018 Tax-Exempt 4.000% 21,345,000 11/01/2028 11/01/2038 N/A Refunding of Series 2008 $ 254,270,000

DEBT SERVICE SCHEDULE DEBT PORTFOLIO COMPOSITION

Taxable 60 100% Synthetic $16 mm Variable Fixed 6% $44 mm Interest Principal 90% $44 mm 17% 50 17% 80%

70% 40 60%

Tax Exempt 30 50% Traditional Traditional $ in Millions in $ $239 mm 94% Fixed Fixed 40% $211 mm $211 mm 20 83% 83% 30%

20% 10 10%

- 0% 2019 2021 2023 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 2054 Tax Status Underlying Debt Mix Effective Debt Mix

Note: Does not include Capitalized Lease Obligations; Interest on variable rate debt assumed at swap rate associated with that series.

PAGE 31 LAFAYETTE COLLEGE Swap Portfolio as of June 30, 2019 The College has three floating-to-fixed interest rate swap agreements with one counterparty with a total notional amount of $43.5 million.

. The College’s swap portfolio is intended to hedge interest rate risk associated with variable rate debt.

. Each swap is associated with a specific series of variable rate debt as displayed below.

. BNY Mellon is the counterparty on each of the swaps.

. The College is required to post collateral at its current rating level if the liability to the College exceeds $15 million. As of June 30, 2019, the College is not required to post collateral; however, it keeps $2 million with BNY Mellon in case of a sudden rate change.

LAFAYETTE COLLEGE SWAP PORTFOLIO

Outstanding Notional MTM as of 6/30/19 Bond Series Counterparty Termination Date Lafayette Pays Lafayette Receives ($, in Thousands) ($, in Thousands)

Series 2003 BNY Mellon 10,190 11/1/2023 4.34% SIFMA (1,312)

Series 2006 BNY Mellon 11,000 5/31/2034 3.88% 100% 1-Month LIBOR (3,411)

Series 2010A BNY Mellon 22,290 5/1/2030 6.00% SIFMA + 0.25% (9,542)

TOTAL 43,480 (14,265)

PAGE 32 LAFAYETTE COLLEGE Debt Policy Statement Excerpts – Overview

Purpose . The College’s long-term strategic planning process establishes institutional goals, priorities, and initiatives, which define capital investment requirements. . The policy provides a framework by which decisions are made concerning the use and management of debt.

. This policy will help ensure that an appropriate mix of funding sources is utilized, that the College’s debt capacity is used strategically, and that the College’s debt levels and types of debt are appropriate and responsible given the College’s financial strength and risk tolerance.

Objectives . Outline the roles and responsibilities of the Board of Trustees and the Administration

. Provide guidelines for assessing the strategic use of debt in terms of both affordability and capacity.

. Provide a process for assessing and managing debt portfolio risk. . Provide an ongoing monitoring and reporting framework.

PAGE 33 LAFAYETTE COLLEGE Debt Policy Statement – Debt to Revenue Debt to Revenue measures the College’s debt as a percent of total revenue and provides an overall measure of income statement leverage.

. The College is operating well within its debt to revenue ceiling of 1.75x.

. The College’s debt to revenue ratio increased in fiscal 2017 primarily due to the issuance of the Series 2017 bonds which funded the Integrated Sciences Center.

Lower is Better Note: Ratio calculation based on Moody’s methodology.

PAGE 34 LAFAYETTE COLLEGE Debt Policy Statement – Debt Service to Operations Debt Service to Operations measures the burden of debt service on the College’s budget.

. The College is operating well within its debt service to operations ceiling of 8.0%.

. Lafayette’s ratio has steadily improved over time, making up an increasingly smaller proportion of operating expenses.

Lower is Better Note: Ratio calculation based on Moody’s methodology.

PAGE 35 LAFAYETTE COLLEGE Debt Policy Statement – Spendable Cash and Investments to Debt Spendable Cash and Investments to Debt highlights the ability of the College to repay bondholders from expendable resources.

. The College is operating well within its spendable cash and investments to debt ratio floor of 1.75x.

. The decline in the ratio in fiscal 2017 reflects the issuance of the Series 2017 bonds for the Integrated Sciences Center. The decline in fiscal 2016 reflects a negative endowment return.

Higher is Better Note: Ratio calculation based on Moody’s methodology.

PAGE 36 LAFAYETTE COLLEGE Debt Policy Statement – Debt Service Coverage Debt Service Coverage measures the margin by which the College can repay its outstanding debt obligations.

. The College is operating well within its debt service to operations floor of 1.50x.

. Lafayette’s debt service coverage ratio increased in fiscal 2019.

Higher is Better Note: Ratio calculation based on Moody’s methodology.

PAGE 37 LAFAYETTE COLLEGE Contents

Section 1: Market Position

Section 2: Operations

Section 3: Financial Reserves

Section 4: Debt and Other Liabilities

Section 5: External Factors LAFAYETTE COLLEGE External Factors: Higher Education Sector Outlook Moody’s revised its outlook on the higher education sector to stable for 2020 after having it on negative for 2018 and 2019. Standard & Poor’s sector outlook remains negative, although it has yet to publish its outlook for 2020. Within their outlook reports, each agency cited the following themes and challenges facing the sector. Rating Agency Outlook

. Moody’s: “The change in outlook for US higher education to stable from negative reflects our expectation that while business conditions will remain difficult for a notable portion of the sector in the next 12-18 months, they will not deteriorate materially.”

. Standard & Poor’s: “While the sector continues to face many of the same issues that have challenged it for the past few years, we believe that schools' sustained revenue pressures and growing expenses, combined with decreased opportunities in the capital markets, will result in a negative operating and credit environment in 2019.”

Sector Challenges

. Funding Challenges: Enrollment pressure is expected to continue to result in moderating tuition revenue growth and operating margin compression. Generally, larger institutions with more revenue diversification are expected to outperform smaller more tuition-dependent peers.

. Demographics and Enrollment Trends: Increasing competition for students has been amplified in certain states due to changing demographics and workforce needs. In addition, technological developments, such as online learning, have the potential to disrupt the traditional college and university business model.

. Federal Policy Changes: Changes to Federal policies for research and student aid could constrain growth and increase competition for revenue. In addition, endowments will continue to face reviews on not-for-profit status.

Source: Moody’s Investors Service and Standard & Poor’s

PAGE 39 LAFAYETTE COLLEGE Lafayette College Credit Strength and Challenges Lafayette is rated Aa3 (stable outlook) by Moody’s and A+ (stable outlook) by S&P. In their latest review of Lafayette, the rating agencies cited the following strengths and challenges as factors in the College’s rating.

Key Strengths Moody’s S&P Aaa AAA . Solid student demand profile highlighted by improved Aa1 AA+ selectivity, sound matriculation and growth in net tuition. Aa2 AA . Improved operating performance over past few years. Aa3 (Lafayette) AA- A1 A+ (Lafayette) . Strong financial flexibility due to growing financial A2 A resources. A3 A- . Strong and proactive management team. Baa1 BBB+ Baa2 BBB Key Challenges Investment Grade Baa3 BBB- . High leverage due to levels debt in comparison to financial Non-Investment Ba1 BB+ Grade resources. Ba2 BB Ba3 BB- . Low revenue diversity with high reliance on student charges. B1 B+ B2 B . Competitive student market in Northeast. B3 B- Caa1 or Below CCCor Below Source: Moody’s Investors Service and Standard & Poor’s

PAGE 40 LAFAYETTE COLLEGE Rating Distribution of Private Colleges and Universities The College’s Moody’s rating is equal to or higher than 71.4% of institutions and its S&P rating is equal to or higher than 71.3% of institutions. Moody’s Long-Term Rating Distribution of Private Colleges and Universities 60 50 40 33 36 28 31 29 30 22 19 20 14 17 13 10 10 # # of Institutions 0 Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Below Inv. Grade S&P Long-Term Rating Distribution of Private Colleges and Universities 60 48 50 40 40 36 30 30 23 24 20 18 19 20 12 12

# # ofInstitutions 10

0 AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- Below Inv. Grade Source: Moody’s Investors Service and Standard & Poor’s

PAGE 41 LAFAYETTE COLLEGE Moody’s Global Scorecard Comparison: Fiscal 201 – Fiscal 2019 Moody’s Global Scorecard was implemented in November 2015. The global higher education scorecard has four primary factors, each with multiple sub-factors.

. The analysis below compares Lafayette’s results on the Moody’s Global Scorecard from fiscal 2017 to fiscal 2019.

. Lafayette’s score was slightly higher in fiscal 2018, primarily due to marginally weaker operating performance.

Lafayette College Scorecard Weights FY 2017 FY 2018 FY 2019 Weighted Score Legend Factor 1: Market Position (30%) Rating Score Range Operating Revenue ($000) 15% 174,568 A1 176,639 A1 183,466 A1 Aaa < 1.5 Annual Change in Operating Revenue (%) 5% 4.8% A2 1.2% Ba2 3.9% Baa1 Aa1 > 1.5 < 2.5 Strategic Positioning (Qualitative Factor) 10% Very Good A2 Very Good A2 Very Good A2 Aa2 > 2.5 < 3.5

Aa3 > 3.5 < 4.5 Factor 2: Operating Performance (25%) Operating Cash Flow Margin (%) 10% 18.9% Aa2 17.5% Aa3 16.6% Aa3 A1 > 4.5 < 5.5 Revenue Diversity (Max Single Contribution) (%) 15% 66% A3 68% A3 67% A3 A2 > 5.5 < 6.5

A3 > 6.5 < 7.5 Factor 3: Wealth & Liquidity (25%) Total Cash and Investments ($000) 10% 890,860 Aa3 938,530 Aa3 952,282 Aa3 Baa1 > 7.5 < 8.5 Spendable Cash & Investments to Operations (x) 10% 3.40 Aa2 3.47 Aa2 3.30 Aa2 Baa2 > 8.5 < 9.5 Monthly Days Cash on Hand (x) 5% 645 Aa1 631 Aa1 631 Aa1 Baa3 > 9.5 < 10.5

SG > 10.5 Factor 4: Leverage (20%) Spendable Cash & Investments to Total Debt (x) 10% 2.19 Aa3 2.29 Aa3 2.24 Aa3 Total Debt to Cash Flow (x) 10% 7.84 A2 8.32 A3 8.49 A3 Scorecard A1 Rating: Indicative Rating 100% 4.91 A1 5.33 A1 5.16 A1 Actual Moody's Aa3 Actual Rating Aa3 Aa3 Aa3 Rating:

Note: Under the Moody’s Scorecard framework, a lower score is better. Source: Moody’s Municipal Financial Ratio Analysis Database

PAGE 42 LAFAYETTE COLLEGE Standard & Poor’s Scorecard Comparison: Fiscal 2017 – Fiscal 2019 Standard & Poor’s Scorecard was implemented in January 2016. An institution is given a score for each profile. These two scores are cross-referenced in a table to determine an institution’s Initial Indicative Rating.

. The analysis below compares results on the Standard & Poor’s Scorecard from fiscal 2017 to fiscal 2019.

. Based on audited financial statements, Lafayette’s indicative rating has remained A+ in each of the past three years; Standard & Poor’s adjusted its rating from AA- to A+ in March 2017.

Standard & Poor's Higher Education Scorecard FY 2017 FY 2018 FY 2019 FINANCIAL PROFILE SCORE Financial Profile 1 2 3 4 5 6 Financial Policies (x) 1.4 1.0 1.4 1.0 1.4 1.0 1 aaa aa+ aa- a- bbb+ / bbb bb+ / bb Operating Margin (%) 0.3% 4.0 1.0% 3.0 1.5% 3.0 2 aa+ aa / aa- a+ a- bbb / bbb- bb / bb- Expendable Resources to Operations (%) 248.2% 3.0 253.3% 3.0 240.2% 3.0 3 aa- a+ a bbb+ / bbbbbb- / bb+ bb- MADS Burden (%) 8.7% 5.0 8.0% 5.0 8.5% 5.0 4 a a / a- a- / bbb+ bbb / bbb- bb bb- Expendable Resources to Debt (%) 228.6% 2.0 219.9% 2.0 205.5% 2.0 5 bbb+ bbb / bbb- bbb- / bb+ bb bb- b

Rounded Financial Profile Score 3.00 3.00 3.00 ENTERPRISESCORE PROFILE 6 bbb- bb- bb- b+ b b-

Enterprise Profile Initial Indicative Rating Industry Risk Low 1.5 Low 1.5 Low 1.5 Overriding Factors and Caps US GDP Per Capita ($) 56,000 1.0 56,000 1.0 56,000 1.0 Peer Adjustments Selectivity (%) 29.2% 2.0 29.8% 2.0 29.7% 2.0 Final Rating Matriculation (%) 28.7% 3.0 27.5% 3.0 26.9% 3.0 First Year Retention (%) 94.0% 2.0 94.5% 2.0 93.8% 2.0 Other Student Demand Factors 8 1.0 8 1.0 8 1.0 Management and Governance Strong 2.0 Strong 2.0 Strong 1.0 Rounded Enterprise Profile Score 2.00 2.00 2.00

Initial Indicative Rating a+ a+ a+ Actual Rating A+ A+ A+

Note: Under the S&P Scorecard framework, a lower score is better. Source: Standard & Poor’s

PAGE 43 LAFAYETTE COLLEGE External Factors: Peer Analysis The chart below displays the College’s financial peers as of fiscal 2018. This peer list was created using the following filters.

Fall FTE Operating Revenue Cash and Investments Peer Institution Rating . Moody’s Rating Enrollment ($, in Millions) ($, in Millions) Bryn Mawr College Aa2 1,675 143 994 — Aa2 Bucknell University Aa2 3,636 238 942 Carleton College Aa2 2,046 155 1,063 — Aa3 Claremont McKenna College Aa2 1,325 143 953 Colby College Aa2 2,000 164 1,032 — A1 Colgate University Aa3 2,951 204 985 . Cash and Investments College of the Holy Cross Aa3 3,112 208 836 Colorado College Aa3 2,117 160 744 — Greater than $500 Million Denison University Aa3 2,366 131 911 Furman University A1 2,846 159 634 — Less than $1.2 Billion Hamilton College Aa2 1,901 152 1,092 . Operating Revenue Lafayette College Aa3 2,616 177 939 Macalester College Aa3 2,151 118 809 — Greater than $100 Million Mount Holyoke College Aa3 2,264 150 821 Oberlin College Aa3 2,802 183 882 — Less then $300 Million Reed College Aa2 1,471 110 637 Trinity College A1 2,155 152 619 Vassar College Aa3 2,433 176 1,097 Wesleyan University Aa3 3,094 235 1,148

Source: Moody’s Municipal Financial Ratio Analysis Database

PAGE 44 LAFAYETTE COLLEGE Peer Analysis: Operating Performance The chart below ranks Lafayette College financial peers from strongest to weakest based on fiscal 2018 performance on operating cash flow margin.

Operating Cash Flow Margin (Higher is Better) 2016 2017 2018 Definition Claremont McKenna College (Aa2) 28.4 30.1 27.1 Bryn Mawr College (Aa2) 18.0 21.1 26.9 Hamilton College (Aa2) 29.1 26.9 25.8 . Operating income plus depreciation, amortization, interest, and College of the Holy Cross (Aa3) 18.9 20.3 20.2 other large non-cash expenses, divided by operating revenue. Reed College (Aa2) 23.3 16.9 19.4 Carleton College (Aa2) 19.8 20.1 19.1 Colby College (Aa2) 18.9 18.2 17.7 Measures Lafayette College (Aa3) 19.5 18.9 17.5 Trinity College (A1) 14.5 20.4 17.3 Wesleyan University (Aa3) 15.4 21 17.3 . Operational performance and the ability to generate funds for Denison University (Aa3) 16.3 16.9 16.7 reinvestment from operations. Oberlin College (Aa3) 7.2 14.4 13.8 Colorado College (Aa3) 14.5 13.1 13.4 Colgate University (Aa3) 14.7 13.1 12.0 Lafayette College Rank Macalester College (Aa3) 14.7 13.7 11.9 Mount Holyoke College (Aa3) 11.7 14.9 11.6 Bucknell University (Aa2) 12.0 11.1 10.5 . 8th out of 19 institutions Furman University (A1) 13.6 13.9 9.9 Vassar College (Aa3) 14.2 14.4 8.4

Peer Median 16.3 16.9 17.3 Aa Private Median 14.7 15.8 15.4

Source: Moody’s Municipal Financial Ratio Analysis Database. Please note that the above Operating Cash Flow Margin calculations include certain revenue adjustments made by Moody’s to ensure greater comparability among the peer group.

PAGE 45 LAFAYETTE COLLEGE Peer Analysis: Balance Sheet Performance The chart below ranks Lafayette College financial peers from strongest to weakest based on fiscal 2018 performance on spendable cash and investments to operations.

Spendable Cash & Investments to Operations (Higher is Better) 2016 2017 2018 Definition Bryn Mawr College (Aa2) 4.9 5.4 5.9 Carleton College (Aa2) 5.3 5.8 5.9 Hamilton College (Aa2) 5.4 6.1 5.9 . Cash and investments plus funds held in trust by others plus Denison University (Aa3) 4.8 5.4 5.5 pledges receivable reported in permanently restricted net Reed College (Aa2) 4.1 4.7 4.8 Claremont McKenna College (Aa2) 4.2 4.5 4.6 assets, less permanently restricted net assets, divided by Colby College (Aa2) 4.3 4.4 4.2 operating expenses. Macalester College (Aa3) 3.6 4.0 4.1 Colorado College (Aa3) 3.8 4.0 3.8 Wesleyan University (Aa3) 3.1 3.4 3.7 Measures Lafayette College (Aa3) 3.4 3.4 3.5 Vassar College (Aa3) 3.4 3.6 3.5 College of the Holy Cross (Aa3) 3.3 3.5 3.4 . Unrestricted funds available to cover operating expenses. Mount Holyoke College (Aa3) 2.9 3.3 3.4 Oberlin College (Aa3) 2.6 2.9 3.2 Colgate University (Aa3) 2.8 3 2.9 Lafayette College Rank Bucknell University (Aa2) 2.6 2.7 2.7 Furman University (A1) 2.6 2.8 2.7 Trinity College (A1) 1.8 2.1 2.1 . 11th out of 19 institutions

Peer Median 3.4 3.8 3.7 Aa Private Median 2.8 2.9 3.0

Source: Moody’s Municipal Financial Ratio Analysis Database

PAGE 46 LAFAYETTE COLLEGE Peer Analysis: Debt Leverage The chart below ranks Lafayette College financial peers from strongest to weakest based on fiscal 2018 performance on spendable cash and investments to debt.

Spendable Cash & Investments to Debt (Higher is Better) 2016 2017 2018 Definition Carleton College (Aa2) 8.6 5.8 6.4 Bryn Mawr College (Aa2) 4.8 5.5 6.1 Hamilton College (Aa2) 3.1 3.6 5.0 . Cash and investments plus funds held in trust by others plus Macalester College (Aa3) 4.7 5.8 5.0 pledges receivable reported in permanently restricted net Denison University (Aa3) 3.6 3.7 4.9 Bucknell University (Aa2) 3.8 4.3 4.7 assets, less permanently restricted net assets, divided by total Reed College (Aa2) 4.9 5.6 4.6 debt. College of the Holy Cross (Aa3) 3.7 4.2 4.3 Mount Holyoke College (Aa3) 3.3 3.7 4.0 Furman University (A1) 3.1 3.5 3.9 Measures Colorado College (Aa3) 2.8 3.2 3.4 Colby College (Aa2) 3 3.3 3.3 Claremont McKenna College (Aa2) 2.4 2.9 3.2 . Unrestricted funds available to cover debt obligations. Vassar College (Aa3) 2.5 2.8 2.8 Wesleyan University (Aa3) 2.2 2.5 2.8 Oberlin College (Aa3) 2.4 2.4 2.7 Lafayette College Rank Lafayette College (Aa3) 2.7 2.2 2.3 Trinity College (A1) 1.7 2 2.2 Colgate University (Aa3) 2.4 1.7 1.9 . 17th out of 19 institutions

Peer Median 2.8 3.4 3.9 Aa Private Median 3.2 3.5 3.5

Source: Moody’s Municipal Financial Ratio Analysis Database

PAGE 47 LAFAYETTE COLLEGE Peer Analysis: Liquidity The chart below ranks Lafayette College financial peers from strongest to weakest based on fiscal 2018 performance on monthly days cash on hand.

Monthly Days Cash on Hand (Higher is Better) 2016 2017 2018 Definition Bryn Mawr College (Aa2) 1,100 1,082 1087 Carleton College (Aa2) 713 866 1001 Reed College (Aa2) 796 878 932 . Unrestricted cash and investments that can be liquidated within Colby College (Aa2) 960 926 906 one month (Monthly Liquidity), multiplied by 365, divided by Denison University (Aa3) 461 649 807 Claremont McKenna College (Aa2) 697 787 797 operating expenses less depreciation and other large non-cash Bucknell University (Aa2) 645 659 636 expenses. Lafayette College (Aa3) 600 644 630 Hamilton College (Aa2) 517 586 617 Colorado College (Aa3) 699 704 552 Measures College of the Holy Cross (Aa3) 574 564 547 Furman University (A1) 479 490 501 Wesleyan University (Aa3) 555 495 459 . The number of days an institution can operate (cover its cash Colgate University (Aa3) 438 354 428 operating expenses) from Monthly Liquidity. Oberlin College (Aa3) 459 445 425 Macalester College (Aa3) 357 391 392 Vassar College (Aa3) 347 238 356 Lafayette College Rank Mount Holyoke College (Aa3) 284 330 317 Trinity College (A1) 66 73 82

. 8th out of 19 institutions Peer Median 523 615 552 Aa Private Median 447 458 445

Source: Moody’s Municipal Financial Ratio Analysis Database

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