MEMORANDUM

To: Lafayette

From: Prager & Co., LLC

Date: November 27, 2017

Re: Lafayette College Financial Assessment

Prager & Co., LLC submits the following report as its annual review of Lafayette College’s financial position for FY 2017. The review encompasses quantitative and qualitative factors that Prager views as essential to assessing Lafayette’s financial health.

As a compendium to this report are two appendices. Appendix A is the Lafayette College Financial Dashboard and Appendix B is the Lafayette College Financial Factbook. The appendices of this report contain much of the underlying data used to come to the conclusions contained herein. The discussion that follows uses the College’s financial statements prepared in accordance with generally accepted accounting principles for its analyses and peer comparsions.

EXECUTIVE SUMMARY

Prager views the College’s financial health as solid, highlighted by a stellar market position, improving operations, and strong balance sheet wealth. In addition, the College displays the ability to manage its sophisticated debt portfolio.

The College’s credit rating is equal to or higher than 73% of Moody’s rated and 70% of Standard & Poor’s rated private higher education institutions.

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

▪ Establish a liquidity management policy that establishes how the College will plan for potential liquidity events. ▪ Continue to re-examine the debt portfolio structure to ensure it aligns with the College’s institutional risk tolerance. ▪ Take a proactive approach in providing updates to the rating agencies on strategic plans including progress toward the goal of increasing the student body to over 2,900 students.

This review represents the first annual financial assessment of the College performed by Prager. This report will be updated annually incorporating any changes to the College’s financial position or strategic priorities. LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2017

INTRODUCTION

The financial position of Lafayette College (“Lafayette” or the “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 within each category. Underlying each of these factors will be the College’s strategic priorities.

Strategic Agenda

The Lafayette College Strategic Agenda was approved by the Board of Trustees in February 2016 along with a business plan to achieve several initiatives. The investment in and achievement of the goals outlined in the Strategic Agenda will be important aspects of the College’s futures financial position and as such will be discussed throughout this report. The Strategic Agenda, guiding principles and strategies to achieve the Agenda are displayed in the chart below.

The Strategic Agenda 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 • Address current pressures offerings and further increase • Maintain commitment to the through normal budget process the quality and diversity of the • Re-allocate funds within the student body • Maintain strong financial health existing merit based financial aid • Increase need based financial aid • Maintain future purchasing program to create greater affordability power of the endowment • Increase endowed funds • Maintain or improve student- supporting financial aid faculty ratio • Allocate portion of tuition • Enhance faculty recruitment and increase to financial aid retention through competitive • Gain operational efficiency salaries through growth, best practices, benchmarking, and management discipline

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LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2017

MARKET POSITION

Market position is the ability of an institution to compete for key revenue categories. Lafayette College relies on student-derived revenues (net tuition and auxiliaries) for approximately 66%, endowment distribution for 25% and gifts for 5% of total operating revenues. Given this dynamic, the College’s market position will be driven primarily by its ability to generate student 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 grow net tuition revenue. The higher education market continues to focus on the “value” of a degree as measured by post-graduate outcomes such as starting salary and Lafayette College Rankings employment rates. Prospective students are increasingly U.S. News & World Report (Aug. 2016) – No. 36 among 239 evaluating the return on investment in their choice of National Liberal Arts which higher education institution to attend. This puts Lafayette in a strong position given its unique mission as a U.S. News & World Report (Sept. 2016) – No. 13 among 198 Undergraduate Engineering Programs with a Science, Technology, Engineering, and Mathematics (STEM) focus. This Money – Best Colleges (July 2016) – No. 69 among 706 contributed to Lafayette being consistently ranked highly colleges and on a number of lists related to value and return on Kiplinger’s – Best College Values (Feb. 2017) – No. 32 among investments. 100 best-value liberal arts colleges

Lafayette has been able to improve its selectivity rate, a Forbes – America’s Top Colleges (July 2016) – No. 55 among measure of the number of students accepted versus the 600+ colleges and universities well worth the investment number of applications received, over the past five years. Forbes – Top ROI Colleges (July 2016) – No. 48 among top Since 2013, the College’s selectivity improved by 3.8 200 colleges and universities with grateful graduates percentage points while matriculation remained stable. Over that same time period, the College’s FTE enrollment increased by over 100 full-time equivalent students as the College progresses towards its goal of increasing the student body.

Fundraising Demand

Fundraising demand is the ability to raise philanthropic funds from external donors. The College has raised over $20 million annually in gifts since 2013. This solid performance is enhanced by the College’s progress on its capital campaign, Live Connected, Lead Change. As of June 30, 2017, the College has raised over $363 million toward the campaign’s $400 million goal.

Conclusions and Recommendations

The College has a stellar market position as displayed by its ability to compete for students and fundraising dollars. As the College moves forward with its Strategic Agenda and specifically its plan to increase enrollment to about 2,900 students, Lafayette should continue to focus on the value it provides to students and the strong return on investment of a Lafayette College education.

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LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2017

OPERATIONS

Operating performance reflects an institution’s ability to adhere to a balanced budget. It is a reflection of 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, strategic faculty hiring or in the endowment for future use. The funds generated through positive operating performance are 100% unrestricted and can be used based solely on leadership’s discretion.

With approximately two-thirds of operating revenue derived from student revenues, Lafayette’s operating performance will be driven largely by its student demand. As discussed in the prior section, Lafayette’s student demand is stellar as it has a unique market position which has contributed to the College’s ability to grow enrollment and net tuition while at the same time becoming more selective.

The College measures its operating performance through unrestricted operating surplus or loss. The College has significantly improved its operating performance since 2011 and experienced two straight years (FY16 and FY17) of positive operating surpluses 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.

Lafayette College Operating Performance ($, in Thousands) 4,000 2,200 1,667 2,000 874 - (2,000) (461) (1,754) (2,033) (2,435) (4,000) (3,172) (2,674) (3,868) (6,000) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Operating Surplus (Loss) Source: Lafayette College Financial Statements Operating Surplus (Loss) = Unrestricted Operating Revenue MINUS Unrestricted Operating Expense Conclusions and Recommendations

While historically the College operated at a slight negative in operating performance, over the past two years this trend has reversed as revenue growth outpaced expense growth. As Lafayette moves forward with its strategic agenda to increase enrollment to over 2,900 students, it will be important to continue sound budgeting practices to ensure the incremental cost of each student is not higher than the net incremental revenue derived from each student.

The College has a strong financial planning function and implemented Whitebirch, a cloud-based financial projection tool. Whitebirch enables Lafayette to test numerous scenarios and understand the impact that different operational levers have on the College’s operating performance.

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LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2017

FINANCIAL RESERVES

An institution’s financial reserves display its ability to strategically reinvest funds while maintaining the ability to cover expenses in the event of a loss on the income statement. In measuring financial reserves, the broad focus is on the total size of the institution’s endowment, investment performance and distribution policy. In addition, we examine how much of an institution’s total cash and investments are unrestricted as well as the amount that is liquid within the next month. All of these metrics are examined in relation to the size of an institution’s operating base.

Endowment

The College’s endowment has a market value of $790.3 million as of June 30, 2017. The College’s investment returns have been in line with the NACUBO/Commonfund average over the past decade. Lafayette only experienced negative investment returns in three years over the past decade. Two of the three years with negative returns were FY 2008 and FY 2009, which coincided with the largest financial crisis since the . Lafayette’s endowment has shown great resiliency since the financial crisis by rebounding to pre- crisis market values and continuing to grow.

Total Managed Endowment Market Value ($, in Millions) 1,000 900 800 700 799.6 774.2 790.3 716.5 733.2 600 677.8 657.0 651.1 500 579.5 532.3 400 300 200 100 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Fiscal Year Ending June 30

MANAGED ENDOWMENT ANNUAL NET RETURN 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Lafayette College -4.8% -17.6% 13.2% 16.0% 1.3% 12.6% 14.4% 1.5% -0.8% 11.5% NACUBO/Commonfund Average -3.0% -18.7% 11.9% 19.2% -0.3% 11.7% 15.5% 2.4% -1.9% N/A Source: Lafayette College/NACUBO-Commonfund Study of Endowments The College has used a distribution formula of 5.0% of a 36-month rolling average of market value since FY 2015. Like many other higher education institutions, this approach seeks to normalize the distribution from the endowment and protect the distribution from dramatic changes in market performance. We view this distribution rate as standard in today’s higher education sector 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 less permanently restricted net assets plus permanently restricted contributions receivable. Similar to the College’s endowment market value, Lafayette’s spendable cash and investments declined in 2015 ($572 million) and 2016 ($532 million) before recovering in 2017 ($572 million). The College’s spendable cash and investments to operations was 3.4x in 2017, which equaled its 2016 value.

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LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2017

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 2013, 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:

• Variable Rate Demand Bonds (VRDBs) ­ Potential Use: The College’s $43.480 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 given week. ­ Source: The College has three standby bond purchase agreements (SBPAs) that can be used to purchase up to $43.480 million in principal in the event of a failed remarketing on any of the outstanding VRDBs. ­ 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 equal to the amount greater than $15 million at its current rating level should the liability to the College exceed $15 million. ­ Source: Lafayette keeps $2 million at BNY Mellon in case of a sudden rate change. If needed, funds would be transferred from operating cash or the endowment to post additional collateral. ­ Current Situation: As of June 30, 2017, the liability was $14.4 million and, as such, 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. ­ Source: The College would transfer any funds needed from the endowment. ­ Current Situation: The next bullet payment is due on November 1, 2018. The College is proactively examining options to either restructure or pay down this bullet. Lafayette will manage its investments to ensure funds are available at maturity. Lafayette has always had access to the capital markets. In addition, 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 $74 million in unfunded commitments to alternative investments. ­ Source: The College would transfer any funds needed from within the endowment portfolio, of which $452 million is available within one month. ­ Current Situation: The College manages the endowment to ensure it has proper levels of liquidity to cover any capital calls.

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Conclusions and Recommendations

The College has a strong endowment with over $790 million in market value. The College’s endowment returns have been in line with the NACUBO/Commonfund average over the past decade. The size of the College’s balance sheet in comparison to the size of its operations is solid with spendable cash and investments that exceeds both rating and peer medians.

While the College has strong levels of liquidity in comparison to peers, the College should create a more focused liquidity management policy. We recommend the College implement a liquidity management policy that utilizes funds generated through positive operating performance as well as existing unrestricted investments to ensure it has dedicated funds to pay for potential calls on liquidity.

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 the annual debt service payments.

Lafayette has $254 million in debt 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 bullet structure. These risks are mitigated by the SBPAs related to the VRDBs and the active role management takes in planning for future large principal payments coming due.

DEBT SERVICE SCHEDULE DEBT PORTFOLIO COMPOSITION Post-Financing

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

40 70% 60% 30 50% Tax Exempt $ $ Millionsin Traditional Traditional $239 mm Fixed Fixed 94% 40% $211 mm $211 mm 20 83% 83% 30% 20% 10 10% 0% - Tax Status Underlying Debt Mix Effective Debt Mix 2018 2022 2026 2030 2034 2038 2042 2046 2050 2054

*Variable Rate Demand Bond interest rate assumed at associated swap rate.

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LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2017

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 and debt to revenues appear weaker than peer and rating medians. From an affordability perspective, the College’s debt service to operations are in line with peer and rating medians; however, this ratio is expected to be elevated above peer and rating medians once a full year of interest is included from the Series 2017 transaction.

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, 2017, the College’s negative mark-to-market liability was $14.4 million. As interest rates rise the mark-to-market will improve and as interest rates decline the mark-to-market will become increasingly negative. Lafayette is required to post collateral if the total mark-to-market liability exceeds $15 million. As of June 30, 2017, the College is not posting collateral; however, it keeps $2 million with BNY Mellon in case of a sudden rate change.

Recent Developments

In December 2016, the College renewed the standby bond purchase agreements (SBPAs) related to the Series 2003 and Series 2006 variable rate demand bonds. The SBPAs are liquidity facilities that can be used to pay the purchase price of VRDBs in the event of a failed remarketing. The Series 2003 SBPA is a three-year agreement with US Bank and the Series 2006 SBPA is a five-year agreement with TD Bank.

In May 2017, Lafayette issued its $136.050 million Series 2017 tax-exempt bonds to finance the construction of the Integrated Sciences Center and refund existing debt for savings. The College achieved a cost of capital of 3.54% for the financing. On the refunding portion, the College achieved present value savings of $11 million which will be realized over the life of the debt.

Conclusions and Recommendations

The College actively manages its debt portfolio with a strong focus on planning for upcoming milestones relating to bullet maturities. In particular, the College’s management has internally created a roadmap of its debt portfolio that displays each event over the next five years that will require action. In addition, the roadmap outlines each potential refinancing opportunity over the next five years.

As bullet maturities come due and new debt is issued we recommend that the College continue to re-examine its debt portfolio structure to ensure it aligns with Lafayette’s risk tolerance. This evaluation will include tax status, fixed/variable rate debt as well as amortization structure and the resulting impact each has on the College’s balance sheet and income statement.

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LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2017

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 College is rated Aa3 with a stable outlook by Moody’s and A+ with a stable outlook by Standard & Poor’s. Lafayette was last rated in May 2017 as part of the Series 2017 issuance with Moody’s affirming the College’s rating and Standard & Poor’s downgrading the College by one notch. The College’s current ratings make it equally or more highly rated than 73% of Moody’s rated and 70% of Standard & Poor’s 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 Standard & Poor’s. Moody’s S&P The rating agencies cite the following strengths and challenges of the Aaa AAA College: Aa1 AA+ Key Strengths Aa2 AA • Solid student demand profile highlighted by improved selectivity, sound Aa3 (Lafayette) AA- matriculation and growth in net tuition. A1 A+ (Lafayette) • Improved operating performance over past few years. A2 A • Strong financial flexibility due to growing financial resources. A3 A- • Strong and proactive management team. Baa1 BBB+ Key Challenges Baa2 BBB • High leverage due to debt levels in comparison to financial resources. Baa3 BBB- • Low revenue diversity with high reliance on student charges. Non-Investment Grade • Competitive student market in Northeast. In addition to the rating assignment, Standard & Poor’s and Moody’s provide outlooks on the ratings. These outlooks reflect the likelihood that over the next 18-24 months, the ratings are likely to be maintained, downgraded or upgraded based on certain assumptions. Both Standard & Poor’s and Moody’s maintain a stable outlook for the rating on the College’s bonds indicating that the rating is likely to be maintained over the outlook period.

The downgrade by Standard & Poor’s in May 2017 occurred primarily due to the increased debt issued to finance the Integrated Sciences Center. In its report, Standard & Poor’s states that “the downgrade reflects our view of the weakened balance-sheet resources as a result of the issuance of $70 million to support the development of an integrated science building and various other capital projects”.

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LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2017

Conclusions and Recommendations – Rating Agency Views The College’s ratings remain strong as Lafayette’s rating is equal to or higher than 73% of Moody’s rated and 70% of Standard & Poor’s rated private higher education institutions. In FY 2017, the increase in debt prompted a downgrade by Standard & Poor’s which had been anticipated by the College. The strategic needs for the Integrated Sciences Center drove the decision of Lafayette to place long-term strategy over short-term benefit of maintaining rating. We view this type of decision making as a best practice and recommend the College continue this type of strategic decision making. The key to rating agency management is consistent messaging of and demonstrated progress towards strategic priorities. We recommend Lafayette keep an ongoing and open dialogue with the rating agencies. In addition, we recommend that the College meet informally with the rating analysts at their offices on an annual basis. Peer Analysis The peer 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 College financial peers from strongest to weakest based on FY 2016 performance. Each metric is examined based on Moody’s methodology for FY 2016 as the peer data will not be available for FY 2017 until at least January 2018. 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) College (Aa2) 29.1 (Aa2) 5.2 Carleton College (Aa2) 8.5 (Aa2) 1,100 Claremont McKenna College (Aa2) 28.5 Bryn Mawr College (Aa2) 4.9 (Aa2) 4.9 (Aa2) 960 Reed College (Aa2) 23.1 Denison (Aa3) 4.8 Bryn Mawr College (Aa2) 4.8 Carleton College (Aa2) 713 College of the Holy Cross (Aa3) 22.1 (Aa2) 4.7 (Aa3) 4.7 (Aa3) 699 Carleton College (Aa2) 19.8 Claremont McKenna College (Aa2) 4.1 (Aa2) 3.9 Claremont McKenna College (Aa2) 697 Lafayette College (Aa3) 19.5 Colby College (Aa2) 4.1 College of the Holy Cross (Aa3) 3.7 Bucknell University (Aa2) 645 Colby College (Aa2) 18.4 Reed College (Aa2) 4.1 (Aa3) 3.7 Lafayette College (Aa3) 600 Bryn Mawr College (Aa2) 18.0 Colorado College (Aa3) 3.8 (Aa3) 3.3 College of the Holy Cross (Aa3) 574 Denison University (Aa3) 16.3 Macalester College (Aa3) 3.6 (A1) 3.1 (Aa3) 555 Macalester College (Aa3) 14.7 Lafayette College (Aa3) 3.4 Colby College (Aa2) 2.8 Hamilton College (Aa2) 517 (Aa3) 14.6 (Aa3) 3.4 Colorado College (Aa3) 2.8 Furman University (A1) 479 Colorado College (Aa3) 14.5 College of the Holy Cross (Aa3) 3.3 Hamilton College (Aa2) 2.7 Denison University (Aa3) 461 Vassar College (Aa3) 14.2 Wesleyan University (Aa3) 3.1 Lafayette College (Aa3) 2.7 (Aa3) 459 Wesleyan University (Aa3) 13.9 Mount Holyoke College (Aa3) 2.9 Vassar College (Aa3) 2.5 Colgate University (Aa3) 438 Furman University (A1) 13.6 Colgate University (Aa3) 2.8 Claremont McKenna College (Aa2) 2.4 Reed College (Aa2) 390 Bucknell University (Aa2) 12.0 Bucknell University (Aa2) 2.6 Colgate University (Aa3) 2.4 Macalester College (Aa3) 357 Mount Holyoke College (Aa3) 9.5 Furman University (A1) 2.6 Oberlin College (Aa3) 2.4 Vassar College (Aa3) 347 Trinity College (A1) 9.1 Oberlin College (Aa3) 2.6 Wesleyan University (Aa3) 2.2 Mount Holyoke College (Aa3) 284 Oberlin College (Aa3) 7.2 Trinity College (A1) 1.8 Trinity College (A1) 1.7 Trinity College (A1) 66

Peer Median 14.7 Peer Median 3.5 Peer Median 3.0 Peer Median 498 Aa Private Median 14.6 Aa Private Median 2.9 Aa Private Median 3.0 Aa Private Median 449 Source: Moody’s Municipal Financial Ratio Analysis Database Conclusions and Recommendations – Peer Analysis The peer analysis displays that the College is in line with peers for the key metrics examined. In particular, the College performs better than the peer median for operating cash flow margin and monthly days cash on hand. The College is at the peer median for spendable cash and investments to operations and below the peer median for spendable cash and investments to debt.

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LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2017

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 the answering of 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 resources? ­ 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 below we display Lafayette’s CFI each of the past five years. Lafayette’s CFI increased in FY 2017 primarily due to improved performance on net operating revenues and return on net assets. In FY 2017, the College’s primary reserve ratio improved slightly while the viability ratio declined due to the increase in debt used to finance the Integrated Sciences Center. An analysis of each ratio included in CFI over the past five years is in Appendix A.

10.0 Composite Financial Index

5.0 6.79 6.31 5.20 5.22 6.27 0.0 2013 2014 2015 2016 2017

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LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2017

CONCLUSIONS

Lafayette College’s financial position is sound as displayed by the following factors: Market Position: Stellar student demand driven by unique position as a STEM-focused liberal arts college. Fundraising performance over recent years and continued progress towards capital campaign goals display strong donor relationships.

Operations: Improving operating performance over the past decade with operating surpluses each of the past two years. 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.

Debt and Liabilities: The College has a $254 million debt portfolio that is 83% traditional fixed and 17% synthetic fixed. The College has shown the ability to actively manage its debt portfolio and effectively plan for future bullet principal payments as they come due.

External Analysis of Financial Position ­ Rating Agencies: The College’s current ratings make it equally or more highly rated than 73% of Moody’s rated and 70% of Standard & Poor’s rated private higher education institutions. ­ Peer Analysis: The College is at or better than the median for three of the four key metrics examined versus financial peers. ­ CFI: Lafayette’s CFI improved in FY 2017 due to improved operating performance and net asset growth.

RECOMMENDATIONS

Prager has the following recommendations for Lafayette based on our review of the College’s FY 2017 financial position, progress under the Strategic Agenda and other recent developments at the College.

Liquidity Management Policy: The College should implement a liquidity management policy. This is recommended so that the College proactively plans for potential uses of liquidity. The liquidity management policy would establish operating cash and liquidity standards to meet the College’s financial obligations while providing prudent oversight and transparency. The College should also consider creating a capital reserve policy into which it could allocate and invest a portion of the College’s resources to increase cash available for: (a) future capital projects; (b) debt principal payments; and (c) provide additional funding for operational liquidity.

Continue Active Debt Portfolio Management: The College should continue its current practice of continually re- examining its debt portfolio structure to ensure it aligns with the risk tolerance of Lafayette and plan for pay down or restructuring of upcoming bullet maturities.

Rating Agency Management: The College should provide the rating agencies with proactive updates on progress towards its strategic goals. This includes updates on the construction of the Integrated Sciences Center as well as progress on achieving its goal of increasing enrollment to over 2,900 students.

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Appendix A: Financial Dashboard LAFAYETTE COLLEGE DASHBOARD METRICS EQUATION MEASURES GRAPH NOTES 40

30 Over the past 5 years, the College's selectivity rate Students Accepted The selectivity of the % 20 declined slightly by 3.3 percentage points. After this SELECTIVITY RATE 34.1 Student Applications College. 29.7 30.2 28.3 30.8 decline, Lafayette's selectivity rate is in line with its 10 rating median.

0 2013 2014 2015 2016 2017 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. 27.5 27.9 29.8 28.2 26.1 10 remains below peer and rating medians.

MARKET POSITIONMARKET 0 2013 2014 2015 2016 2017 35 30 25 20 The College's net tuition per student increased Net Tuition and Fee Revenue Average tuition and fees the NET TUITION PER STUDENT 15 29.6 31.2 32.2 marginally over the past 5 years, which is consistent FTE Enrollment College receives per student. 27.8 28.8

10 with peer and rating medians $ Iin Thousands Iin $ 5 - 2013 2014 2015 2016 2017

70 60 50 Dependence on largest % 40 The College relies on student charges for approximately RELIANCE ON STUDENT Tuition and Auxiliary Revenues revenue category which is 66 percent of operating revenues. This is slightly higher 30 66.2 65.8 65.7 66.1 65.9 CHARGES Total Unrestricted Revenues tuition and auxiliaries at than rating medians; however, this level of reliance is 20 Lafayette. expected for a liberal arts college. 10 0 2013 2014 2015 2016 2017 25

OPERATIONS 20

Net Operating Revenues % 15 The College's operating cash flow margin increased OPERATING CASH FLOW + Interest + Depreciation every year from 2011 to 2016 to reach its highest level Operating performance. MARGIN Total Unrestricted Revenue 10 19.5 18.9 in FY 2016 of 19.5 percent. It declined slightly in FY 15.5 17.1 17.7 5 2017 but remains above rating and peer medians. 0 2013 2014 2015 2016 2017

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 4.1 3.8 3.5 3.4 3.4 peer and rating median. Total Operating Expenses 1.0 0.0 2013 2014 2015 2016 2017 800

600

FINANCIAL RESERVES Number of days Lafayette Monthly Liquidity*365 The College's liquidity was above 600 days cash on hand MONTHLY DAYS CASH ON can operate (cover its cash 400 Total expenses-Depreciation-Large non- 687 every year from 2013 to 2017, which is above rating HAND operating expenses) from 651 653 600 645 cash expense medians. Monthly Liquidity. 200

0 2013 2014 2015 2016 2017

2.0

1.5 The College is over leveraged compared to peers as Lafayette's debt obligations displayed by a debt to revenue ratio of 1.5x. This is Total Direct Debt Outstanding 1.0 DEBT TO REVENUE compared to the size of its primarily driven by the College's non-amortizing debt 1.5 Operating Revenue 1.3 1.2 operating base. 0.5 1.2 1.2 structure. The increase in 2017 reflects the issuance of debt for the Integrated Sciences Center. 0.0 2013 2014 2015 2016 2017 8.0

6.0 Burden of debt service % The College pays a similar level of debt service as a Debt Service 4.0 DEBT SERVICE TO OPERATIONS obligations in comparison to 6.5 6.7 6.6 percent of total operating expenses compared to rating Operating Expenses 5.4 5.9 total operating expenses. 2.0 and peer medians.

DEBT DEBT AND LIABILITIES 0.0 2013 2014 2015 2016 2017 5.0 4.0 Cash and investments + Funds Held in Unrestricted funds available 3.0 The College's spendable cash and investments to debt SPENDABLE CASH AND Trust + Restricted Pledges Receivable - to cover outstanding debt falls below peer and rating medians; however, Prager INVESTMENTS TO DEBT Permanently Restricted Net Assets 2.0 obligations. 3.0 3.1 2.9 2.7 considers the levels solid. Total Debt Outstanding 1.0 2.2 0.0 2013 2014 2015 2016 2017

Lafayette College Peer Median Private Aa Median LEGEND

Page 2 LAFAYETTE COLLEGE DASHBOARD METRICS EQUATION MEASURES GRAPH NOTES 4.0

Unrestricted + Temporarily Restricted Net 3.0 Assets - (Property Plant and Equipment - Expendable resources Long-Term Debt) 2.0 The College's primary reserve ratio improved to 3.0x in PRIMARY RESERVE RATIO available to cover operating 3.53 Operating Expense 3.00 3.17 2.82 3.01 FY 2017 after 2 straight years of decline. expenses. 1.0 Weight: 35% 0.0 2013 2014 2015 2016 2017 1.5% 1.0% 0.5% 0.99% Net Operating Income 0.55% 0.0% In FY 2016, the College reversed a 5-year trend of Operating Revenue NET OPERATING REVENUE Operating performance. -0.5% -1.20% negative net operating revenues. This ratio further -1.0% -1.73% -1.78% improved in FY 2017. Weight: 10% -1.5% -2.0% 2013 2014 2015 2016 2017 15.0%

10.0% Change in Net Assets 12.31% Net Assets Beginning of Year Growth in financial 5.0% 9.60% 9.96% In FY 2017, Net Assets increased after two years of RETURN ON NET ASSETS resources. declines, reflective of positive endowment returns. Weight: 20% 0.0% -1.31% -5.0% -2.78%

2013 2014 2015 2016 2017 COMPOSITE FINANCIAL INDEX 3.0 2.5 Unrestricted + Temporarily Restricted Net Assets - (Property Plant and Equipment - 2.0 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 2.50 2.66 2.48 the issuance of new debt to finance the Integrated Long-Term Debt 2.28 debt. 1.0 1.94 Sciences Center. 0.5 Weight: 35% 0.0 2013 2014 2015 2016 2017 8.0

6.0 The Composite Financial Index should be analyzed Calculated by converting each individual based on trends with an understanding of strategic ratio from above into a score that is Financial health of an 4.0 investments made at the College. The improvement in COMPOSITE FINANCIAL INDEX 6.31 6.79 6.27 weighted and added together to calculate institution. 5.20 5.22 FY 2017 is primarily due to an improvement in operating the total CFI. 2.0 performance and growth of net assets. As the College improves on this metric its CFI will improve. 0.0 2013 2014 2015 2016 2017

*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

820 800 780 760 MANAGED ENDOWMENT Current Year Managed Market Value of 740 After 2 years of declining market value, the College's 799.6 MARKET VALUE Endownmet Market Value Endowment. 720 774.2 790.3 endowment improved in FY 2017. 700 733.2 $, Thousands$, in 680 716.5 660 2013 2014 2015 2016 2017 20% 15% Current Year Managed 10% 14.4% Endownmet Market Value Growth in Market Value of FY 2017 annual net return was 11.5%, 12.1 percentage ANNUAL NET RETURN 5% 12.6% 11.5% Prior Year Managed Endowment. 1.5% points higher than FY 2016. Endownmet Market Value 0% -0.8% -5% 2013 2014 2015 2016 2017

High Quality Fixed As of 6/30/2017 Income 11%

Asset Class Public Equity Share of total endowment Absolute Return The College invests 60% of endowment assets in public ASSET ALLOCATION Total Endowment Size 49%

within each asset class. 30% and private equity. INVESTMENTS

Private Equity 10%

Immediate (Trade Trade Date +1 As of 6/30/2017 Date) 6% Illiquid 2% 27% Trade Date +3 20%

Amount of endowment Liquidity Category 55% of the College's endowment portfolio can be ENDOWMENT LIQUIDITY available at various points in Total Endowment Size liquidated within one month. time. Annually or Biannual Weekly 6% 7%

Quarterly 12% Monthly 20%

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 over the past five years. Lafayette plans to grow FTE enrollment to 2,900 students within the next 8‐10 years, as approved by the Board of Trustees at its February 2016 Planning Retreat.

FTE Enrollment Fall 2013 Fall 2014 Fall 2015 Fall 2016 Fall 2017

FTE Enrollment 2,452 2,465 2,505 2,520 2,565

3,000

2,500

2,000

1,500

1,000

500

0 Fall 2013 Fall 2014 Fall 2015 Fall 2016 Fall 2017

PAGE 2 LAFAYETTE COLLEGE Applications, Acceptances and Matriculants The applicant pool has grown by more than 25% the past 5 years, and the acceptance rate during this period has decreased from 34% to 31%.

. More than 8,400 applications were received for the class of 2020, making this the 4th application record set in the past five years.

First‐Time Freshman Admissions Fall 2013 Fall 2014 Fall 2015 Fall 2016 Fall 2017 Applications 6,766 7,796 7,465 8,123 8,469 Acceptances 2,310 2,319 2,258 2,298 2,609 Matriculants 635 648 672 649 680 Acceptance Rate 34.1% 29.7% 30.2% 28.3% 30.8% Matriculation rate 27.5% 27.9% 29.8% 28.2% 26.1%

9,000 40% 8,000 35% 7,000 30% 6,000 25% 5,000 20% 4,000 15% 3,000 2,000 10% 1,000 5% 0 0% Fall 2013 Fall 2014 Fall 2015 Fall 2016 Fall 2017 Applications Acceptances Matriculants Acceptance Rate Matriculation rate

PAGE 3 LAFAYETTE COLLEGE Student Quality Indicators Lafayette has exceptional student quality as displayed by a mean SAT Score for enrolled first time freshman in the high 1200s each of the past five years. The College Board reports that the national mean SAT score in 2016 was 1002.

Student Quality Fall 2012 Fall 2013 Fall 2014 Fall 2015 Fall 2016

Enrolled Mean SAT Score 1285 1275 1289 1294 1288

1600

1400

1200

1000

800

600

400

200

0 Fall 2012 Fall 2013 Fall 2014 Fall 2015 Fall 2016

PAGE 4 LAFAYETTE COLLEGE Student Retention and Graduation Rates Lafayette retained 94% of students between freshman and sophomore years for the 2016‐17 academic year. The College’s six‐year graduation rate was approximately 90% for the past five years.

Retention and Graduation Rates 2012‐13 2013‐14 2014‐15 2015‐16 2016‐17

Freshman Retention Rate 95.5% 91.3% 93.4% 95.2% 93.6%

Six‐Year Graduation Rate 87.8% 90.0% 90.0% 90.0% 89.0%

98.0%

96.0%

94.0%

92.0%

90.0%

88.0%

86.0%

84.0%

82.0% 2012‐13 2013‐14 2014‐15 2015‐16 2016‐17

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 3.5% growth. Lafayette maintained stable tuition discounting during this period.

Tuition, Fees, Room and Board ($) 2013‐14 2014‐15 2015‐16 2016‐17 2017‐18

Tuition and Fees 43,970 45,635 47,010 48,885 50,400

Room & Board 13,080 13,520 13,920 14,470 15,040

Total Tuition, Fees, Room and Board 57,050 59,155 60,930 63,355 65,440

Tuition Discount Rate 35.1% 35.5% 33.9% 34.7% N/A

70,000 40.0%

60,000 35.0%

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% 2013‐14 2014‐15 2015‐16 2016‐17 2017‐18 Room & Board Tuition and Fees Tuition Discount Rate

Note: Room and Board reflects standard room rate and cost of 20‐meal traditional plan

PAGE 6 LAFAYETTE COLLEGE Peer Tuition, Fees, Room and Board Lafayette’s tuition, fees, room and board is lower than most peer institutions.

Lafayette College Peer Tuition, Fees, Room & Board – Survey 2017‐18 Academic Year

$75,000

$70,000

$65,000

$60,000

$55,000 $68,624 $68,236 $67,860 $67,630 $67,620 $67,456 $67,390 $67,310 $67,206 $67,170 $67,120 $66,982 $66,842 $66,676 $66,627 $66,595 $66,490 $66,488 $66,480 $66,266 $66,250 $66,204 $66,138 $66,108 $65,960 $65,716 $65,650 $65,476 $65,460 $65,440 $50,000 $65,376 $63,820 $63,440 $63,408 $62,750 $62,414 $62,206 $61,800 $61,550 $61,494 $58,114

$45,000 $55,405 $52,910

$40,000 Union College Trinity College Vassar College Oberlin College Tufts University Carleton College Hartwick College Hamilton College Lafayette College Boston University Colgate University Denison University Dartmouth College Bucknell University Clarkson University Brandeis University Wesleyan University University of Rochester St. Mount Holyoke College Franklin & Marshall College Worcester Polytechnic Institute Washington & Jefferson College Rensselaer Polytechnic Institute Hobart & William Smith Colleges

Source: Union College

PAGE 7 LAFAYETTE COLLEGE Financial Aid The College administers financial aid through a variety of sources as displayed below.

Student Financial Aid ($, in Thousands) 2012‐13 2013‐14 2014‐15 2015‐16 2016‐17

Institutional Grants and Scholarships 29,422 30,791 33,119 31,823 34,674

Sponsored Grants and Scholarships 7,257 7,403 7,254 8,218 8,498

Total Financial Aid 36,679 38,194 40,373 40,041 43,172

Unrestricted Tuition Discount 28.0% 28.3% 29.2% 26.9% 27.9%

Total Tuition Discount 35.0% 35.1% 35.5% 33.9% 34.7%

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 continued momentum of the 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 FY 2017, the College received $8 million in bequest expectancies and $2 million in conditional pledges in addition to the $38.3 million, totaling approximately $48 million in total gifts and pledge commitments.

Gifts, Grants and Bequests ($) 2012‐13 2013‐14 2014‐15 2015‐16 2016‐17

Private Gifts and Grants 9,587 9,352 9,228 7,848 9,486

Capital Gifts for the Endowment and Building Projects 12,159 28,200 14,750 18,123 28,792

Total Gifts, Grants and Bequests 21,746 37,552 23,978 25,971 38,278

45 40 35 30 25 20 15 $, in Millions 10 5 ‐ 2012‐13 2013‐14 2014‐15 2015‐16 2016‐17 Private Gifts and Grants Capital Gifts for the Endowment and Building Projects

PAGE 9 LAFAYETTE COLLEGE Live Connected, Lead Change Campaign The College raised $363 million in gifts and commitments as of June 30, 2017, 91% of the way toward its $400 million goal.

Campaign Progress

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

11/30/2009 $37.6

$0.0 $50.0 $100.0 $150.0 $200.0 $250.0 $300.0 $350.0 $400.0

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 2013 2014 2015 2016 2017 Cash and Cash Equivalents $ 62,308 55,761 19,629 20,024 33,031 Short‐Term Investments 1,555 12,775 9,066 8,840 13,674 Accounts and Loans Receivable, Net 5,502 6,074 5,230 5,118 6,834 Contributions Receivable and Bequests, Net 12,813 11,144 15,773 19,415 31,262 Prepaid Expenses and Other 1,964 2,499 2,976 3,733 3,920 Deposits with Bond and Other Trustees 4,407 14,643 7,999 6,495 80,011 Long‐Term Investments 722,972 842,736 857,888 812,259 852,709 Deferred Charges, Net 1,198 1,440 ‐ ‐ ‐ Land, Buildings and Equipment, Net of Depreciation 255,929 259,437 276,404 293,205 311,548 Total Assets $ 1,068,648 1,206,510 1,194,965 1,169,089 1,332,989

LIABILITIES 2013 2014 2015 2016 2017 Accounts Payable and Accrued Expenses $ 10,512 11,015 10,295 9,968 12,404 Deposits and Deferred Revenues 6,767 5,125 6,023 5,363 4,685 Funds Held For Others ‐ 428 2,493 2,590 3,042 Annuities Payable 19,983 30,741 28,443 22,363 23,954 Postretirement Benefits 45,446 50,455 52,368 51,253 47,892 Federal Student Loans Refundable 2,041 2,063 2,120 2,142 2,067 Interest Rate Hedge/Swap Agreements 14,406 14,392 14,433 19,801 14,396 Conditional Asset Retirement Obligation 1,561 1,627 1,430 1,651 1,778 Capitalized Lease Obligations 3,274 3,052 3,201 4,644 4,828 Bonds Payable, Net 169,874 194,982 193,196 192,842 276,153 Total Liabilities $ 273,864 313,880 314,002 312,617 391,199

NET ASSETS 2013 2014 2015 2016 2017 Unrestricted $ 246,164 265,688 262,740 251,031 289,447 Temporarily Restricted 263,656 323,277 308,648 293,806 322,627 Permanently Restricted 284,963 303,664 309,575 311,635 329,716 Total Net Assets $ 794,783 892,629 880,963 856,472 941,790

Total Liabilities and Net Assets $ 1,068,648 1,206,510 1,194,965 1,169,089 1,332,989

Source: Lafayette College Financial Statements

PAGE 12 LAFAYETTE COLLEGE Financial Performance: Income Statement (All Funds) ($, in Thousands) OPERATING REVENUES 2013 2014 2015 2016 2017 Gross Tuition and Fees $ 104,906 108,912 113,577 118,247 124,413 Scholarships and Fellowships (36,680) (38,194) (40,373) (40,041) (43,172) Net Tuition and Fees 68,226 70,718 73,204 78,206 81,241 Sales and Service of Auxiliaries 27,762 28,762 29,906 31,997 33,767 Government Grants 1,778 1,539 1,628 1,316 2,521 Private Gifts and Grants 9,587 9,352 9,228 7,848 9,486 Endowment Return Used for Spending Policy 31,071 31,787 33,526 36,255 38,410 Other 3,679 3,487 4,412 3,935 4,594 Total Operating Revenues $ 142,103 145,645 151,904 159,557 170,019

OPERATING EXPENSES 2013 2014 2015 2016 2017 Instruction $ 53,107 55,803 57,852 59,501 60,374 Research 2,047 1,915 2,036 1,694 2,036 Academic Support 14,869 11,525 12,051 11,501 13,055 Student Services 28,382 29,687 31,151 31,830 33,463 Institutional Support 22,232 25,537 26,647 27,427 30,884 Scholarships and Fellowships 128 ‐ ‐ ‐ ‐ Auxiliary Services 22,656 23,034 23,021 26,923 27,268 Total Operating Expenses $ 143,420 147,502 152,758 158,876 167,080

Change in Net Assets from Operating Activities $ (1,317) (1,857) (854) 681 2,939

Change in Net Assets from Non‐Operating Activities $ 70,910 99,703 (10,812) (25,172) 82,379

Change in Net Assets $ 69,593 97,846 (11,666) (24,491) 85,318

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 expense.

. The College’s operating contribution margin had its first positive year since FY 2010 in FY 2016.

. The College further improved its surplus in FY 2017 to $1.7 million.

Operating Contribution (Higher is Better)

1,667 2,000 874

‐

(2,000) (1,754) (2,435) (2,674) (4,000) 2013 2014 2015 2016 2017 Operating Surplus (Loss)

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 2013, revenues increased at an average annual rate of 4.8% while expenses increased at an average annual rate of 4.1%.

. In FY 2017, 30% of the College’s net assets are unrestricted.

Total Net Assets ($, in Millions)

1,000 942 893 881 856 795 800 330 304 310 312 285 600

323 323 400 309 294

$, in Millions 264

200 246 266 263 251 289

‐ 2013 2014 2015 2016 2017

Permanently Restricted Temporarily Restricted Unrestricted

Source: Lafayette College Financial Statements

PAGE 15 LAFAYETTE COLLEGE Lafayette College Financial Performance

Change in Nets Assets from Operating Activities Unrestricted Net Assets ($, in Thousands) 2013 2014 2015 2016 2017

Operating Revenue 140,985 145,748 150,084 159,750 168,747 Less Operating Expense 143,420 147,502 152,758 158,876 167,080 Operating Contribution (2,435) (1,754) (2,674) 874 1,667

Operating Contribution Margin ‐1.7% ‐1.2% ‐1.8% 0.5% 1.0% Add back Interest 7,222 8,887 9,508 9,752 9,663 Add back Depreciation 13,576 13,360 13,882 14,730 15,892 Unrestricted Operating Surplus Available for Debt 18,363 20,493 20,716 25,356 27,222 Service Operating Cash Flow Margin 13.0% 14.1% 13.8% 15.9% 16.1%

Total Net Assets $ 794,783 $ 892,629 $ 880,963 $ 856,472 $ 941,790 Total FTE Student 2,456 2,452 2,471 2,505 2,520 Net Tuition Revenue $ 68,226 $ 70,718 $ 73,204 $ 78,206 $ 81,241 Net Tuition Per FTE Student $ 27,780 $ 28,841 $ 29,625 $ 31,220 $ 32,238 Tuition Discount 35.0% 35.1% 35.5% 33.9% 34.7%

Source: Lafayette College Financial Statements

PAGE 16 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, 2017 Lafayette’s endowment investment guidelines state 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 inflation rate.

. As of June 30, 2017, the Total Managed Endowment is invested in two funds: Endowment Pool ($681.1 MM) and Separately Invested Assets ($109.2 MM) for a total value of $790.3 MM.

. The Total Managed Endowment had a return of 11.5% in FY 2017.

Endowment Asset Allocation ($, in Millions) Endowment Liquidity ($, in Millions)

Based on 6/30/2017 Investment Office Flash Report

PAGE 18 LAFAYETTE COLLEGE Endowment Performance

Managed Endowment Net Asset Value ($, in Millions)

1,000

900

800 799.6 774.2 790.3 700 728.6 716.5 733.2 677.8 600 657.0 651.1 579.5 500 532.3

400

300

200

100

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Fiscal Year Ending June 30

MANAGED ENDOWMENT ANNUAL NET RETURN 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Lafayette College 18.8% ‐4.8% ‐17.6% 13.2% 16.0% 1.3% 12.6% 14.4% 1.5% ‐0.8% 11.5% NACUBO/Commonfund Average 17.2% ‐3.0% ‐18.7% 11.9% 19.2% ‐0.3% 11.7% 15.5%2.4%‐1.9%N/A

PAGE 19 LAFAYETTE COLLEGE Managed Endowment Roll and Reconciliation

Managed Endowment ($Thousands) FY2013 FY2014 FY 2015 FY 2016 FY 2017 Net Assets, beginning of Fiscal Year (GAAP) 650,065 716,496 799,631 774,188 733,243 Endowment Flows 120,000 Investment Return 81,169 103,966 7,169 (8,242) 84,641 Investment Return 81,169 103,966 10,206 (6,131) 87,824 100,000 Investment Office Expense ‐ ‐ (3,037) (2,111) (3,183) 80,000 Deposits 15,594 11,960 10,791 12,082 16,880 Contributions from Donors 8,214 6,250 6,539 9,426 11,739 60,000 Matured Annuities 2,453 55 146 203 3,141 40,000 Capital Projects Returned 980 3,655 1,019 453 ‐ Contribution from Operations 3,947 2,000 3,087 2,000 2,000 20,000

Withdrawals (30,332) (32,791) (43,403) (44,785) (44,460) ‐ Endowment Support (5% draw) (29,476) (31,631) (33,363) (36,255) (38,410) Debt Service Principal Payments ‐ (500) (550) (370) (370) (20,000) Property Acquisition (606) (700) ‐ (5,675) (4,500) (40,000) Capital Projects ‐ ‐ (9,490) ‐ (1,054) Early Retirement ‐ ‐ ‐ (2,485) ‐ (60,000) Presidential Search Costs (250) ‐ ‐ ‐ ‐ FY2013 FY2014 FY 2015 FY 2016 FY 2017 Other Transfers ‐ 40 ‐ ‐ (126) Net Assets, end of Fiscal Year (GAAP) 716,496 799,631 774,188 733,243 790,304 Investment Return Deposits Withdrawals

Due to/from Operations, Net 2,617 8,229 9,514 7,773 (2,217) Year‐end Market Value Adjustment (891) (3,243) (1,218) 440 (3,032) Loan Funds (210) (210) (210) (210) (210) Gallaher Trust ‐ ‐ (462) (444) (472) Restricted Internal Trusts (662) (668) (704) (693) (824) Rounding (50) 61 92 191 51

Investment Performance Report 717,300 803,800 781,200 740,300 783,600

PAGE 20 LAFAYETTE COLLEGE Endowment Statistics

Endowment and Similar Funds $, in Thousands 2013 2014 2015 2016 2017 Pooled Endowment $ 618,196 687,850 667,430 631,880 681,141 Separately Invested Endowment 98,300 111,781 106,758 101,363 109,163 Managed Endowment 716,496 799,631 774,188 733,243 790,304 Funded Held in Trust By Others 3,536 3,772 3,761 3,426 3,688 Deferred Giving 20,628 23,174 22,918 26,141 15,893 Pledges 8,370 6,234 8,195 11,919 23,184 Total Endowment & Similar Funds $ 749,030 832,811 809,062 774,729 833,069

Endowment Composition $, in Thousands 2013 2014 2015 2016 2017 Unrestricted $ 208,456 236,690 230,751 209,722 222,384 Temporarily restricted 242,443 277,738 254,086 229,578 255,656 Permanently restricted 265,597 285,203 289,351 293,943 312,264 Total Managed Endowment $ 716,496 799,631 774,188 733,243 790,304

$, in Thousands 2013 2014 2015 2016 2017 Pooled endowment $ 618,196 687,850 667,430 631,880 681,141 Separately invested 98,300 111,781 106,758 101,363 109,163 Total Managed Endowment $ 716,496 799,631 774,188 733,243 790,304

Pledges $ 8,370 6,234 8,195 11,919 23,184

FTE Enrollment 2,455 2,452 2,465 2,505 2,520 Managed Endowment Per Student $ 291,852 326,114 314,072 292,712 313,613

PAGE 21 LAFAYETTE COLLEGE Investment Policy Statement Excerpts – Investment Objectives

A. Return Objectives:

. To maintain or 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) equal to or in excess of the Endowment Benchmark which is made up of asset class benchmarks weighted by Policy Portfolio weights.

. A secondary objective is to match or 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 22 LAFAYETTE COLLEGE Investment Policy Statement Excerpts – Asset Allocation and Policy Portfolio

Policy Asset Class Purpose Definition Strategies Included Range Benchmark Weight

Hedge against recession and/or severe Liquid, U.S. fixed income Barclays Capital High Quality equity market investment and global sovereign 15% +10% to ‐5% Intermediate U.S. Fixed Income decline; grade bonds Government/Credit Index liquidity; dry powder

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

Private equity, MSCI All Country World private real estate, Private Equity Return 10% +10% to ‐10% Index (USD, all cap, and private natural net)+4%, lagged 1 quarter resource funds

Diversified Multi‐strategy, Low beta to +10% to ‐10% Absolute Return (primarily non‐ credit, and market 25% 3 Month T‐Bills + 4% equities equity) Return neutral funds

PAGE 23 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 Lafayette College Debt Portfolio as of June 30, 2017 The College’s weighted average cost of capital is 4.16%.

LAFAYETTE COLLEGE RATED DEBT PORTFOLIO

Bond Issue Tax Status Coupon Next Call Date Final Maturity Date Par Oustanding FY18 Interest Expense Series 2003 Tax‐Exempt Variable (Weekly) Anytime @ Par 11/01/2023 10,190,000 442,144 Series 2006 Tax‐Exempt Variable (Weekly) Anytime @ Par 11/01/2036 11,000,000 426,800 Series 2008 Tax‐Exempt 3.625% ‐ 5.00% None 11/01/2018 21,400,000 1,044,406 Series 2010A Tax‐Exempt Variable (Weekly) Anytime @ Par 05/01/2030 22,290,000 1,281,675 Series 2010B Tax‐Exempt 5.00% 05/01/2020 05/01/2022 4,000,000 200,000 Series 2013A Tax‐Exempt 4.25% ‐ 5.00% 11/01/2023 11/01/2043 33,715,000 1,643,825 Series 2013B Taxable 5.902% 11/01/2023 11/01/2053 15,680,000 925,434 Series 2017 Tax‐Exempt 3.125% ‐ 5.00% 11/01/2027 11/01/2047 136,050,000 5,669,561 TOTAL 254,325,000 11,633,845

DEBT SERVICE SCHEDULE DEBT PORTFOLIO COMPOSITION 60 100% Taxable Interest $16 mm Synthetic Variable 6% Fixed 90% $44 mm 50 Principal $44 mm 80% 17% 17%

40 70% 60% Tax‐Exempt $239 mm 30 50%

$ in Millions 94% Traditional 40% Traditional Fixed Fixed 20 30% $211 mm $211 mm 83% 83% 20% 10 10%

0% ‐ Tax Status Underlying Debt Mix Effective Debt Mix 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048205020522054

PAGE 25 LAFAYETTE COLLEGE Lafayette College Swap Portfolio as of June 30, 2017 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 and 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, 2017, 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 06/30/17 Bond Series Counterparty Termination Date Lafayette Pays Lafayette Receives ($, in Thousands) ($, in Thousands) Series 2003 BNY Mellon 10,190 11/01/23 4.34% SIFMA (1,705)

Series 2006 BNY Mellon 11,000 05/31/34 3.88% 100% 1‐Month LIBOR (2,901)

Series 2010 BNY Mellon 22,290 05/01/30 6.00% SIFMA + 0.25% (9,790)

TOTAL 43,480 (14,396)

PAGE 26 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: 2017 Higher Education Sector Outlook Moody’s and Standard & Poor’s each gave the higher education sector a stable outlook for 2017. Within their outlook reports, each agency cited three common challenges facing the sector.

Rating Agency Outlook

. Moody’s: “The stable outlook reflects our expectation of aggregate annual revenue growth at or above 3% for public and not‐for‐profit private four‐year colleges and universities.”

. Standard & Poor’s: “While we expect the sector will continue to face significant headwinds in the near to medium term, we believe most institutions have adapted to these challenges and the future cumulative effects of these competitive pressures will manifest themselves over several years.”

Sector Challenges

. Funding Challenges: Revenue streams will soften in FY 2018 due to lack of net tuition growth and reduced federal support.

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

. Shifting Business Conditions: Institutions with the strongest brands and value proposition for students will outperform the sector while regionally oriented institutions will face greatest challenge.

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

PAGE 28 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 CCC or Below Source: Moody’s Investors Service and Standard & Poor’s

PAGE 29 LAFAYETTE COLLEGE Rating Distribution of Private Colleges and Universities The College’s Moody’s rating is higher than 73% of institutions and its S&P rating is higher than 70% of institutions.

Moody’s Long‐Term Rating Distribution of Private Colleges and Universities 60

50 38 40 35 33 31 30 24 24 19 20 17 # of Institutions 14 12 12 10

0 Aaa Aa1 Aa Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Below Inv. Grade S&P Long‐Term Rating Distribution of Private Colleges and Universities 60

50 45 41 39 40

30 26 22 21 19 21 19 20 # of Institutions 12 11 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 30 LAFAYETTE COLLEGE Moody’s Global Scorecard Comparison: FY15 ‐ FY17 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 FY15 to FY17.

. Lafayette’s score was slightly weaker in FY 2017, primarily due to the increased debt from the Series 2017 transaction, which strategically financed the Integrated Sciences Center.

Moody's Global Higher Education Scorecard Weights FY 2015 FY 2016 FY 2017 Trend Weighted Score Legend

Factor 1: Market Profile (30%) Aaa ≤ 1.5 Operating Revenue ($000) 15% 156,960 A1 166,634 A1 174,568 A1  Aa1 > 1.5, ≤ 2.5 Annual Change in Operating Revenue (%) 5% 3.9% Baa1 6.2% Aa3 4.8% A2  Aa2 > 2.5, ≤ 3.5 Strategic Positioning (Qualitative Factor) 10% Excellent Aa Excellent Aa Excellent Aa  Aa3 > 3.5, ≤ 4.5 Factor 2: Operating Performance (25%) A1 > 4.5, ≤ 5.5 Operating Cash Flow Margin (%) 10% 17.7% Aa3 19.5% Aa2 18.9% Aa2  A2 > 5.5, ≤ 6.5 Revenue Diversity (Max Single Contribution) (%) 15% 65.7% A3 66.1% A3 65.9% A3  A3 > 6.5, ≤ 7.5 Factor 3: Wealth & Liquidity (25%) Baa1 > 7.5, ≤ 8.5 Total Cash and Investments ($000) 10% 875,833 Aa3 836,736 Aa3 894,444 Aa3  Baa2 > 8.5, ≤ 9.5 Spendable Cash & Investments to Operations (x) 10% 3.75 Aa2 3.35 Aa2 3.42 Aa2  Baa3 > 9.5, ≤ 10.5 Monthly Days Cash on Hand (x) 5% 687.4 Aa1 600.4 Aa1 645.0 Aa1  Ba1 > 10.5, ≤ 11.5 Factor 4: Leverage (20%) Ba2 > 11.5, ≤ 12.5 Spendable Cash & Investments to Total Debt (x) 10% 2.93 Aa3 2.71 Aa3 2.21 Aa3  Ba3 > 12.5, ≤ 13.5 Total Debt to Cash Flow (x) 10% 7.03 A2 6.05 A1 7.84 A2  Below Ba3 > 13.5

Total Scorecard Indicated Outcome 100% 4.55 A1 4.31 Aa3 4.60 A1

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

PAGE 31 LAFAYETTE COLLEGE Standard & Poor’s Scorecard Comparison: FY15 ‐ FY17 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 FY15 to FY17.

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

Standard & Poor's Higher Education Scorecard FY 2015 FY 2016 FY 2017 FINANCIAL PROFILE SCORE Financial Profile 123456 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 (%) ‐1.2% 4.0 ‐0.4% 4.0 0.3% 3.0 2 aa+ aa / aa‐ a+ a‐ bbb / bbb‐ bb / bb‐ Expendable Resources to Operations (%) 261.2% 3.0 246.8% 3.0 248.2% 3.0 3 aa‐ a+ a bbb+ / bbb bbb‐ / bb+ bb‐ MADS Burden (%) 9.0% 5.0 9.5% 5.0 8.7% 5.0 4 a a / a‐ a‐ / bbb+ bbb / bbb‐ bb bb‐ Expendable Resources to Debt (%) 255.5% 2.0 244.3% 2.0 228.6% 2.0 5 bbb+ bbb / bbb‐ bbb‐ / bb+ bb bb‐ b

Rounded Financial Profile Score 3.00 3.00 3.00 ENTERPRISE PROFILE SCORE 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 (%) 32.2% 2.0 30.8% 2.0 29.2% 2.0 Final Rating Matriculation (%) 27.7% 3.0 28.7% 3.0 28.7% 3.0 First Year Retention (%) 92.7% 2.0 93.5% 2.0 94.0% 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 2.0 Rounded Enterprise Profile Score 2.00 2.00 2.00

Initial Indicative Rating a+ a+ a+ Actual Rating AA‐ A+ A+

*All quantiative values are based on the weighted score of the previous three years (Year 1: 45%, Year 2: 35%, Year 3: 20%)

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

PAGE 32 LAFAYETTE COLLEGE External Factors: Peer Analysis The chart below displays the College’s financial peers. This peer list was created using the following filters.

Operating Revenue Cash and Investments Peer Institution Rating FTE Enrollment . Moody’s Rating ($, in Millions) ($, in Millions) Bryn Mawr College Aa2 1,674 129 855 — Aa2 Bucknell University Aa2 3,588 222 817 Carleton College Aa2 2,045 150 907 — Aa3 Claremont McKenna College Aa2 1,343 132 806 — A1 Colby College Aa2 1,879 145 928 Hamilton College Aa2 1,873 154 901 . Cash and Investments Reed College Aa2 1,397 113 546 Colgate University Aa3 2,877 190 882 — Greater than $500 Million College of the Holy Cross Aa3 2,919 194 744 Colorado College Aa3 2,107 144 660 — Less than $1 Billion Denison University Aa3 2,265 124 765 Lafayette College Aa3 2,519 167 837 . Operating Revenue Macalester College Aa3 2,121 116 732 Mount Holyoke College Aa3 2,258 140 716 — Greater than $100 Million Oberlin College Aa3 2,903 182 770 Vassar College Aa3 2,411 172 956 — Less then $300 Million Wesleyan University Aa3 3,121 212 910 Furman University A1 2,731 153 568 Trinity College A1 2,192 140 542

Source: Moody’s Municipal Financial Ratio Analysis Database

PAGE 33 LAFAYETTE COLLEGE Peer Analysis: Operating Performance The chart below ranks Lafayette College financial peers from strongest to weakest based on FY 2016 performance on operating cash flow margin.

Operating Cash Flow Margin (Higher is Better) Definition Hamilton College (Aa2) 29.1 Claremont McKenna College (Aa2) 28.5 . Operating income plus depreciation, amortization, interest, and Reed College (Aa2) 23.1 College of the Holy Cross (Aa3) 22.1 other large non‐cash expenses, divided by operating revenue. Carleton College (Aa2) 19.8 Lafayette College (Aa3) 19.5 Measures Colby College (Aa2) 18.4 Bryn Mawr College (Aa2) 18.0 . Operational performance and the ability to generate funds for Denison University (Aa3) 16.3 reinvestment from operations. Macalester College (Aa3) 14.7 Colgate University (Aa3) 14.6 Colorado College (Aa3) 14.5 Lafayette College Rank Vassar College (Aa3) 14.2 Wesleyan University (Aa3) 13.9 th . 6 out of 19 institutions Furman University (A1) 13.6 Bucknell University (Aa2) 12.0 Mount Holyoke College (Aa3) 9.5 Trinity College (A1) 9.1 Oberlin College (Aa3) 7.2

Peer Median 14.7 Aa Private Median 14.6 Source: Moody’s Municipal Financial Ratio Analysis Database

PAGE 34 LAFAYETTE COLLEGE Peer Analysis: Balance Sheet Performance The chart below ranks Lafayette College financial peers from strongest to weakest based on FY 2016 performance on spendable cash and investments to operations.

Spendable Cash & Investments to Operations (Higher is Better) Definition Carleton College (Aa2) 5.2 Bryn Mawr College (Aa2) 4.9 Denison University (Aa3) 4.8 . Cash and investments plus funds held in trust by others plus Hamilton College (Aa2) 4.7 pledges receivable reported in permanently restricted net Claremont McKenna College (Aa2) 4.1 assets, less permanently restricted net assets, divided by Colby College (Aa2) 4.1 operating expenses. Reed College (Aa2) 4.1 Colorado College (Aa3) 3.8 Measures Macalester College (Aa3) 3.6 Lafayette College (Aa3) 3.4 . Unrestricted funds available to cover operating expenses. Vassar College (Aa3) 3.4 College of the Holy Cross (Aa3) 3.3 Wesleyan University (Aa3) 3.1 Lafayette College Rank Mount Holyoke College (Aa3) 2.9 Colgate University (Aa3) 2.8 . 10th out of 19 institutions Bucknell University (Aa2) 2.6 Furman University (A1) 2.6 Oberlin College (Aa3) 2.6 Trinity College (A1) 1.8

Peer Median 3.5 Aa Private Median 2.9 Source: Moody’s Municipal Financial Ratio Analysis Database

PAGE 35 LAFAYETTE COLLEGE Peer Analysis: Debt Leverage The chart below ranks Lafayette College financial peers from strongest to weakest based on FY 2016 performance on spendable cash and investments to debt.

Spendable Cash & Investments to Debt (Higher is Better) Definition Carleton College (Aa2) 8.5 Reed College (Aa2) 4.9 Bryn Mawr College (Aa2) 4.8 . Cash and investments plus funds held in trust by others plus Macalester College (Aa3) 4.7 pledges receivable reported in permanently restricted net Bucknell University (Aa2) 3.9 assets, less permanently restricted net assets, divided by total College of the Holy Cross (Aa3) 3.7 debt. Denison University (Aa3) 3.7 Mount Holyoke College (Aa3) 3.3 Measures Furman University (A1) 3.1 Colby College (Aa2) 2.8 Colorado College (Aa3) 2.8 . Unrestricted funds available to cover debt obligations. Hamilton College (Aa2) 2.7 Lafayette College (Aa3) 2.7 Lafayette College Rank Vassar College (Aa3) 2.5 Claremont McKenna College (Aa2) 2.4 Colgate University (Aa3) 2.4 . FY 2016: 13th out of 19 institutions Oberlin College (Aa3) 2.4 Wesleyan University (Aa3) 2.2 Trinity College (A1) 1.7

Peer Median 3.0 Aa Private Median 3.0

Source: Moody’s Municipal Financial Ratio Analysis Database

PAGE 36 LAFAYETTE COLLEGE Peer Analysis: Liquidity The chart below ranks Lafayette College financial peers from strongest to weakest based on FY 2016 performance on monthly days cash on hand.

Monthly Days Cash on Hand (Higher is Better) Definition Bryn Mawr College (Aa2) 1,100 Colby College (Aa2) 960 . Unrestricted cash and investments that can be liquidated within Carleton College (Aa2) 713 Colorado College (Aa3) 699 one month (Monthly Liquidity), multiplied by 365, divided by Claremont McKenna College (Aa2) 697 operating expenses less depreciation and other large non‐cash Bucknell University (Aa2) 645 expenses. Lafayette College (Aa3) 600 College of the Holy Cross (Aa3) 574 Measures Wesleyan University (Aa3) 555 Hamilton College (Aa2) 517 . The number of days an institution can operate (cover its cash Furman University (A1) 479 operating expenses) from Monthly Liquidity. Denison University (Aa3) 461 Oberlin College (Aa3) 459 Colgate University (Aa3) 438 Lafayette College Rank Reed College (Aa2) 390 Macalester College (Aa3) 357 . 7th out of 19 institutions Vassar College (Aa3) 347 Mount Holyoke College (Aa3) 284 Trinity College (A1) 66

Peer Median 498 Aa Private Median 449 Source: Moody’s Municipal Financial Ratio Analysis Database

PAGE 37

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.

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