LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2020

As Financial Advisor to Lafayette College, Janney Montgomery Scott performs an annual financial assessment of the College to review historical financial position, report on changes within the past year and provide an outlook on its future positioning. This report provides a summary of the key factors driving Lafayette’s finances and recommends certain actions the College could take to ensure financial positioning is maintained or improved.

The report includes a summary of the College’s financial position as well as an appendix which serves as a financial factbook and includes much of the information that is the basis for the conclusions herein. The following analysis utilizes information from the College’s annual financial statements prepared in accordance with generally accepted accounting principles.

EXECUTIVE SUMMARY

Janney views that the College remains in a strong financial position. However, there are negative headwinds within the sector due to the COVID-19 pandemic which will require the College to remain diligent with prudent budget management. This will allow Lafayette to withstand these near-term challenges so that it is well positioned to make strategic investments that ensure the College maintains its market position in the future.

Over the past five years, Lafayette has displayed a strong budget function resulting in an annual operating surplus. Lafayette has excellent balance sheet wealth supported by its endowment. Over the past year, the College’s liquidity position was tested due to business disruptions in April 2020 from the COVID-19 pandemic and the College displayed that it has sufficient internal liquidity to manage through this type of crisis. The College was also able to strengthen external liquidity sources through additional lines of credit, which is a positive. The College refinanced existing debt for interest savings this year; however, it remains more leveraged than peers. From an external perspective, the College maintained its credit ratings of Aa3 (stable outlook) by Moody’s and A+ (stable outlook) from Standard & Poor’s.

Janney recommends the following items that the College could take actions on over the next year:

. Liquidity Management: The College should perform annual reviews and sensitivity analysis on its internal and external liquidity sources to ensure it has ample liquidity to withstand any major liquidity events that could happen. . Budget Management: The College displays solid ability to plan and manage its operating budget resulting in strong operating performance. Many higher education institutions are moving to a GAAP- based budget which more aligns with financial statements. The College may want to explore this option in order to align budget with financial statements. . Debt Strategy: The College should continually review its debt strategy to ensure that it aligns with strategic objectives. As principal maturities come due in the coming years, the College should consider whether it makes more sense to repay or restructure these maturities based on its strategic direction. In order to increase flexibility to repay debt at maturity, the College should explore ways that it can generate funds that can be used for debt retirement. This could come in numerous forms including annual transfers to its capital reserve or inclusion of depreciation in operating budget which can be considered a proxy for principal repayment. These budgeted funds can subsequently be transferred to the capital reserve for debt retirement.

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INTRODUCTION

The following report summarizes Lafayette’s financial position based on five key factors which provide a broad overview of the qualitative and quantitative drivers of Lafayette’s financial position. This report is based on Lafayette’s historical financial position through fiscal year ending June 30, 2020 with some forward looking analysis based on the College’s Fall 2020 student demand, budget outlook for fiscal 2021, and qualitative assessments of the outlook for higher education.

Debt and Other Market Position Operations Financial Reserves External Factors Liabilities . Positioning to . Historical operating . Amount of reserve . Existing Debt Profile . Higher Education compete for: performance funds Sector Outlook — Risks — Students . Budgeting . Liquidity sources and . Rating Agency Views procedures and potential uses — Structure — Gifts and Pledges . Performance Against outlook — Strategy . Strategy for reserve Peers growth (investment . Derivative Portfolio returns, operations, philanthropy) . Planned Future Debt Issuance

The COVID-19 pandemic caused unprecedented challenges academically and financially throughout the higher education sector. In response to the COVID-19 pandemic, in April 2020, Lafayette closed residential facilities and transitioned all classes to remote learning for the remainder of the Spring 2020 semester. For the Fall 2020 semester, the College continued to hold all courses remotely, with the majority of students studying from home. For the Spring 2021 semester the College will be offering both in-person and remote courses and will welcome back any student to live and learn on campus who desires to be there. The impact of the COVID-19 pandemic resulted in widespread impacts on the College’s financial outlook which will be discussed throughout this assessment. In particular, the COVID-19 pandemic disrupted the College’s progress on the Strategic Direction to grow to 2,900 students. The College has shown the ability to withstand these near-term challenges which should allow Lafayette to re-focus on its future goals in the coming years.

MARKET POSITION

Market position is indicative of the ability for an institution to generate revenues from key sources. For Lafayette, the largest revenue sources are student revenue (tuition plus auxiliaries) which accounts for 67% of total operating revenue, draws on endowment which accounts for 26% of operating revenue, and gifts which accounts for 4% of operating revenues. Therefore, the College’s market position will be driven by its ability to attract students onto campus and generate gift revenue that can be utilized to grow endowment and fund operations.

Student Demand

Lafayette College has a unique student market position as a small, highly-ranked liberal arts college with a niche focus on STEM (science, technology, engineering, math) majors. This provides Lafayette with a competitive advantage to certain other liberal arts competitors as STEM majors are increasingly popular in the higher education market due to strong post-graduation career and salary outlooks.

The chart below displays certain key rankings for Lafayette College. The College ranks 40th in National Liberal Arts Colleges and 62nd in Best Value Schools by U.S. News and World Report. The College is also ranked as a best value college by Money and Forbes, which is a positive in the current student market.

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Lafayette College Rankings

. U.S. News & World Report (2021) – No. 40 out of 223 in National Liberal Arts Colleges . U.S. News & World Report (2021) – No. 62 out of 102 in Best Value National Liberal Arts Colleges . U.S. News & World Report (2021) – No. 13 out of 220 in Undergraduate Engineering Programs . Money – Best Colleges in America Ranked by Value (2019-20) – No. 97 out of 739 colleges and universities . Forbes – America’s Top Colleges (2019) – No. 57 out of 650 colleges and universities . Forbes – America’s Best Value Colleges (2019) – No. 199 out of 300 colleges and universities

The College’s demand softened in Fall 2020 as acceptance rate increased from 31.5% in Fall 2019 to 35.6% in Fall 2020 while matriculation rate decreased from 26.0% in Fall 2019 to 20.7% in Fall 2020. However, the College did not see a major difference in student quality as average SAT score of enrolled students was 1343 in Fall 2020 compared to 1341 in Fall 2019.

The softened demand is at least in part due to impact of the COVID-19 pandemic, which resulted in a decrease in matriculants and increase in deferrals throughout the higher education sector. At Lafayette, 82 students opted to defer their enrollment in Fall 2020 – 41 for one semester (enrolling in January 2021) and 41 for the academic year (enrolling August 2021). If the 82 deferrals are included in Fall 2020 matriculants, the College’s Fall 2020 freshman class would be comparable to Fall 2019. A key question moving forward is how many of the deferrals will end up enrolling at the College, which can have long lasting impacts on enrollments. Twenty-eight of the one semester deferrals enrolled for the January 2021 semester, while 13 decided to defer again until Fall 2021.

The softened demand in Fall 2020 disrupted the College’s enrollment growth as FTE enrollment fell to 2,476 in Fall 2020 compared to 2,643 in Fall 2019. Moving forward, Lafayette’s student demand in the form of increased freshman enrolled students that are retained for four years will be key to rebounding from the Fall 2020 setback.

Gifts and Fundraising

Lafayette completed the Live Connected, Lead Change campaign on December 31, 2018, successfully exceeding its $400 million goal by raising $425 million through over 27,000 donors. The College’s success in this campaign displays its ability to generate philanthropic funds that can be utilized to fund student scholarships, grow endowment and fund capital investments.

The College recognizes gift revenue on its income statement as private gifts and grants classified as operating revenue and endowment, capital, and other restricted gifts classified as non-operating revenue. In fiscal 2020 private gifts and grants totaled $7 million while non-operating endowment, capital and other restricted gifts were $11.1 million, resulting in $18.1 million of total gift revenue. This amount was lower than fiscal 2016, 2017, 2018 and 2019 which totaled $25.9 million, $38.2 million, $32.7 million and $30.1 million, respectively. The reduction in gift revenue was due to a reduction in endowment, capital and other restricted gifts which is logical given that the College completed its campaign in mid-fiscal 2019.

Fiscal Year ($000s) 2016 2017 2018 2019 2020

Private Gifts and Grants 7,848 9,486 6,252 6,772 6,983

Endowment, Capital, and Other Restricted Gifts 18,115 28,792 26,442 23,330 11,074

Total Gifts, Grants and Bequests 25,963 38,278 32,694 30,102 18,057 Source: Lafayette College Financial Statements

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OPERATING PERFORMANCE

Operating performance is an important indicator of financial health as it displays the ability of an institution to plan and adhere to an operating budget. By building strong budget capabilities, institutions can ensure positive operating performance which will maintain and grow reserves. Strong budget planning will also allow institutions to manage through a crisis like the COVID-19 pandemic so that operations are adjusted accordingly to ensure operating losses and draws on reserves are minimized.

The College’s operating revenues without donor restrictions grew at a compound annual growth rate (CAGR) of 3.1% over the past five fiscal years while operating Operating Surplus Without Donor Restrictions expenses without donor restrictions grew at a CAGR $5 of 2.7% over the past five years. Growth in revenues $4 outpacing growth in expenses has resulted in annual $3 operating surpluses without donor restrictions from $2 $, in Millionsin $, fiscal 2016 through fiscal 2020 after a $2.7 million $1 deficit in fiscal 2015. Consistent annual operating $0.9 $3.6 $2.3 $4.2 $0.8 $0 surplus reflects the College’s strong budget 2016 2017 2018 2019 2020 planning. Source: Lafayette College Financial Statements

The strong budget planning is displayed in particular by the fiscal 2020 operating performance which ended with a slight budget surplus despite negative impacts of the COVID-19 pandemic. As a result of the decision to close campus in April 2020, the College had a revenue shortfall of nearly $8 million from budget, principally related to a $7.3 million student refund of room and board charges. In response to this shortfall, the College enacted $6.1 million in expenditure net savings from utilities, hiring and travel freezes, closed dining facilities, debt interest savings from deferral of new money project and unused contingency savings. In addition, the College deferred $3.8 million in capital transfers by deferring capital projects and transfers to capital reserve.

These swift actions allowed the College to weather the initial impacts of the COVID-19 pandemic; however, the College has taken additional actions in fiscal 2021 as the impact of the COVID-19 pandemic continues. The College has planned for several budget projections based on alternative enrollment scenarios and how the situation evolves. Ultimately, the College will likely see a modest budget deficit in fiscal 2021 given the nearly $35 million in budget reductions.

In the past year, the College has displayed strong budget and operating performance through an unprecedented crisis. In future years, the College’s operating performance will be driven by its continued ability to remain nimble based on the trajectory of the COVID-19 pandemic. Ability to grow enrollment through future freshman classes and retain freshman enrolled in Fall 2020 will be key to continued revenue growth at the College.

FINANCIAL RESERVES

Reserves are an important aspect of a higher education institution’s financial health as it allows an institution to exist in perpetuity and make strategic investments to enhance market position. In particular for a private, not- for-profit institution like Lafayette, building financial reserves has a direct impact on operating performance as endowment draws are a key revenue source for the College. In addition, the past year highlighted the importance of liquidity to ensure that institutions have the ability to draw on a pool of funds in the case of a major “shock” event to operations like the COVID-19 pandemic.

The College’s endowment and capital reserve comprise the primary financial reserves of Lafayette.

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Endowment

The College’s managed endowment market value was $839.4 million as of fiscal year ending June 30, 2020. This amount has grown by $182.4 million since fiscal year ending June 30, 2011; however, endowment growth stagnated over the past two years as it grew by just $9 million since fiscal year ending June 30, 2018. One reason for the stagnation is the moderate annual returns of 3.7% in fiscal 2019 and 3.1% in fiscal 2020. These returns are lower than the College’s annual endowment spend rate which is 5% of the 36-month moving average of endowment market value. Lower endowment returns than spend rate is a net drag on the endowment market value. Continued growth in endowment via investment growth and fundraising will be essential for the College as it will increase endowment draws for operations, sources of funding for student aid, and sources of funding for endowed faculty positions.

MANAGED ENDOWMENT MARKET VALUE 1,000 900 830.4 832.1 839.4 799.7 774.2 790.3 800 715.5 733.2 700 657.0 651.1 600 500 400

$, in Millions 300 200 100 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 MANAGED ENDOWMENT ANNUAL RETURN 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 16.0% 1.3% 12.6% 14.4% 1.5% -0.8% 11.5% 8.1% 3.7% 3.1% Source: Lafayette College Financial Statements Capital Reserve

The College established the capital reserve in December 2017. The capital reserve is used 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. The Capital Reserve is invested in a moderately liquid, short to intermediate term portfolio.

Since December 2017, the capital reserve has grown from a beginning balance of $10.9 million to a balance of $17.1 million as of fiscal year ending June 30, 2020. The growth in the capital reserve is driven by annual operating transfers, operating surplus, gift transfers and investment income.

Spendable Cash and Investments

Spendable cash and investments is a measure that Moody’s Investors Service uses in order to assess the amount of spendable wealth that an institution can access over time. It is an interim measure between the total amount of wealth within the endowment and immediately accessible liquid wealth. In fiscal 2020, Lafayette had $582.6 million of spendable cash and investments, $7.6 million lower than fiscal 2019. Despite the reduction in total spendable cash and investments, the coverage of the College’s spendable cash and investments to operating expenses remains solid at 3.3x. The median of this ratio for all private, not-for-profit college and universities rated

Page 5 LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2020 by Moody’s was 1.4x in fiscal 2019. For Aa-rated private, not-for-profit colleges and universities rated by Moody’s, the median was 3.0x in fiscal 2019. Fiscal 2020 median data is not yet available. This displays that the College has sufficient levels of spendable cash and investments compared to size of operating base.

Liquidity

Moody’s measures liquidity through monthly days cash on hand. This metric measures the amount of the days an institution can pay operating expenses using only internal liquidity available within the next month. Lafayette performs exceptional on this metric as the College had 647 monthly days cash on hand in fiscal 2020, compared to a median 327 monthly days cash on hand for all private, not-for-profit colleges and universities rated by Moody’s and a median 399 monthly days cash on hand for Aa-rated private, not-for-profit colleges and universities rated by Moody’s. Both medians are fiscal 2019 as fiscal 2020 data is not yet available.

To manage through these potential liquidity events, the College maintains a combination of internal resources and external bank liquidity.

Internal Sources of Liquidity

. Operating Cash and Short-Term Investments: The College had $63.9 million of operating cash and short- term investments as of fiscal year ending June 30, 2020, which cover 134 days of operating expenses based on fiscal 2020 operating expenses. . Endowment Liquidity: The College had approximately $596.3 million of endowment liquidity as of fiscal year ending June 30, 2020, which can be accessed in three months, covering 1,249 days of operating expenses based on fiscal 2020 operating expenses. Endowment liquidity will only be utilized in the most extraordinary of situations.

External Sources of Liquidity

. Lines of Credit: The College has $60 million of lines of credit across three banks. The $60 million in lines of credit will cover 126 days of operating expenses based on fiscal 2020 operating expenses. . Standby Bond Purchase Agreements: The College has three SBPAs, which will fund the required purchase of $43.5 million of VRDBs in the event of a failed remarketing. The SBPAs cover 100% of the College’s VRDB portfolio.

The College plans for certain liquidity events that can occur throughout the normal course of business. The importance of this planning process was highlighted at the outset of the COVID-19 pandemic as Lafayette closed its campus in the spring with significant uncertainty as to when the campus would re-open. In response to this uncertainty, the College secured $30 million of additional capacity in lines of credit to get to its current capacity of $60 million.

Key potential uses and sources of liquidity the College plans for are listed below:

Variable Rate Demand Bonds

 Liquidity Use: If there is a failed remarketing on the College’s $48.5 million of VRDBs, they can be put back to the College on a weekly basis.

 Liquidity Source: The College has three standby bond purchase agreements (SBPAs), which will fund the required purchase of VRDBs in the event of a failed remarketing. The SBPA providers have very limited

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ability not to honor a draw request; however, in the rare circumstance that they do not honor a draw request, the College would draw on its $60 million of lines of credit to purchase the VRDBs.

 Current Situation: The College has never had a failed remarketing of its VRDBs.

Business Disruptions

 Liquidity Use: The College could experience a significant business disruption in which it sees a significant reduction in tuition and auxiliary revenue.

 Liquidity Source: Lafayette maintains $60 million in lines of credit which can pay for general expenditures of the College in the case of a prolonged business disruption. In addition, the College is able to utilize $63.9 million of operating cash and short-term investments to pay for general expenditures.

 Current Situation: In fiscal 2020, the College experienced a significant business disruption due to the COVID-19 pandemic. The College managed through this disruption through a combination of expenditure reductions and use of operating cash.

Swap Collateral Posting

 Liquidity Use: The College is required to post collateral with swap counterparty BNY Mellon if negative swap value exceeds $15 million at current rating level.

 Liquidity Source: The College maintains $2 million with BNY Mellon in case of a sudden rate shock. Anything above this amount will be funded using operating cash and short-term investments.

 Current Situation: As of June 30, 2020, the College’s swap liability was $18.4 million and Lafayette had posted necessary collateral with BNY Mellon.

Principal Payments

 Liquidity Use: The College’s debt portfolio is structured with principal maturities that occur at varying times with the intention of restructuring bonds at maturity to be due at a later date. Should these bonds not be able to be restructured, the College would need to pay for principal at maturity.

 Liquidity Source: Quasi-endowment funds would be utilized to pay for principal in event of a failure to restructure.

 Current Situation: The College continually monitors its debt portfolio and maintains a multi-year plan for how it will manage its debt portfolio to ensure it is planning for any future principal maturities. While the College historically is well received in the market, there was a period of time in March and April 2020 when institutions of Lafayette’s credit rating did not have access to the capital markets due to impact of the COVID-19 pandemic. This highlights the importance for Lafayette to ensure it has enough other sources of funds between lines of credit and other reserves in order to pay for principal as it becomes due in case of extreme market dislocations.

Unfunded Commitments

 Liquidity Use: The College has unfunded commitments of $116.6 million within its long-term investments, which accounts for 13% of total long-term investments.

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 Liquidity Source: The College would transfer funds from its endowment to pay for any unfunded commitments. $378.5 million or 45% of the endowment is liquid and available within 1 month. The College could also utilize its lines of credit to cover unfunded commitments

 Current Situation: The College manages its endowment to ensure it has enough funds to cover unfunded commitments.

DEBT AND OTHER LIABILITIES

Lafayette College traditionally issues debt in order to finance strategic capital projects, which is a standard practice in higher education. Lafayette’s debt strategy is to issue debt with bullet maturities to be due at periodic intervals. When a bullet maturity comes due, the College will generally restructure or “roll” the bullet maturity to be due at a later date. This strategy optimizes the balance sheet by making debt a permanent part of the College’s balance sheet and keeping funds that would have been used for debt repayment invested since investment rates exceed debt interest rates.

As of fiscal year ending June 30, 2020, Lafayette had $254.3 million of debt outstanding. In September 2020 the College issued $61.8 million of debt in order to refinance $53.4 million of debt. The Series 2020 transaction restructured the Series 2010B bullet maturity due in May 2022 to be due in November 2050 and advance refunded outstanding Series 2013A and Series 2013B bonds on a matched maturity basis for savings. In order to advance refund the Series 2013A and 2013B bonds, the College funded an escrow to pay for refunded par amount plus any interest due from closing date on 09/24/2020 to par call date on 11/01/2023. As a result, the College issued a higher par amount of bonds to pay for the cost of this escrow. Even with this higher par amount, the College was able to save in excess of $1 million in annual interest expense net of escrow cost and cost of issuance. Given the historically low interest rates at the time of the Series 2020 issuance, the College was able to reduce its portfolio weighted average cost of capital from 4.26% to 3.58%.

The chart below displays the College’s current debt maturity schedule as well portfolio composition after the Series 2020 transaction. The College’s debt is 83% fixed rate and 17% variable rate that is synthetically fixed through interest rate swaps, making the effective debt mix 100% fixed rate debt. The College has minimal market risk within its portfolio due to the use of interest rate swaps. The College’s primary debt portfolio risk is liquidity risk due to the use of bullet principal maturities which come due at periodic times and the fact that VRDBs can be put back to the College weekly. As discussed in the liquidity section, the College has taken steps to mitigate these risks through multi-year planning efforts related principal maturities and dedicated SBPAs related to the VRDBs.

LAFAYETTE COLLEGE DEBT SERVICE SCHEDULE (POST-SERIES 2020 ISSUANCE)

60 Principal 50 Interest 40

30

20 $, in $, in Millions

10

- 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2051 Source: Lafayette College Official Statements

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LAFAYETTE COLLEGE DEBT PORTFOLIO STATISTICS (POST-SERIES 2020 ISSUANCE)

Tax Status Callability Coupon Type Non-Callable Make-Whole 9% Call Fixed Rate Taxable 24% 83% 24%

Synthetic Tax-Exempt Callable Fixed 76% 67% 17%

Source: Lafayette College Official Statements

Lafayette College’s spendable cash and investments provide 2.3x coverage to total debt. While Lafayette’s spendable cash and investments to debt is stronger than the fiscal 2019 median for all private, not-for-profit colleges and universities rated by Moody’s of 2.0x, Lafayette is weaker than the fiscal 2019 median of Aa-rated private, not-for-profit colleges and universities rated by Moody’s of 3.7x. Lafayette lags peers due to its strategy of keeping debt as a permanent part of its balance sheet whereas many other higher education institutions include some annual principal amortization.

Derivative Portfolio

The College’s three series of variable rate demand bonds (VRDBs) are synthetically fixed through three interest rate swaps with a total notional amount of $43.5 million. The counterparty for all three swaps is BNY Mellon. As of fiscal year ending June 30, 2020, the College’s swaps had a negative mark-to-market value of $18.4 million. The College is required to post collateral with BNY Mellon for any negative mark-to-market value above $15 million. Generally, as interest rates rise, the mark-to-market on the College’s swaps will improve and as interest rates fall, the mark-to-market will be more unfavorable to the College.

EXTERNAL FACTORS

External factors related to the College include the outlook for the higher education sector as a whole as well as how the rating agencies view Lafayette’s credit profile. In addition, performance on key metrics against peer institutions provides important context on the College’s financial position.

Rating Agency Views

Lafayette is rated Aa3 with a stable outlook by Moody’s and A+ with a stable outlook by Standard & Poor’s. The College was last rated by each agency in September 2020 as part of the Series 2020 issuance.

Based on current ratings, Lafayette is rated higher or equal to 83.3% of Moody’s rated higher education institutions and 78.3% of Standard & Poor’s rated higher education institutions. The chart on the right displays Lafayette’s rating compared to the range of investment grade ratings. At Aa3/A+, Lafayette’s rating is considered high investment grade.

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The rating agencies view the following as key credit strengths and challenges of the College.

Strengths

. Excellent liquidity creates significant financial flexibility. . Operating performance is consistently strong, reflecting prudent management and budget functions. . Solid student demand as displayed by growing enrollment and growth of net tuition per student as well as sound selectivity and robust retention and graduation rates.

Challenges

. High debt leverage in comparison to size of operations and peers. . Moderately high reliance on student revenues. . Competitive student market resulting in relatively low matriculation rates. Competition from need-blind and other selective private institutions as well as lower cost public universities.

Higher Education Outlook

The higher education sector as a whole is going through a period of major dislocation. The challenges presented by the COVID-19 caused unprecedented uncertainty within the sector. Over the past year institutions swiftly shifted to remote learning and transformed campus in order to safely welcome students back. While there is good news on the horizon with multiple effective vaccines being distributed to the general public, the long-term impacts of the COVID-19 pandemic on higher education will not be known for years as society shifts back to “normal” and we begin to assess how the events of the past year impact long-term behavior in the student market.

Moody’s and Standard & Poor’s both have negative outlooks for the higher education sector. Moody’s states that its negative outlook is due to the ongoing uncertainty resulting from COVID-19 pandemic which will broadly result in revenue pressure and operating uncertainty in fiscal 2021. Further, Moody’s states the COVID-19 pandemic will cause many institutions to rethink capital priorities given the shift to online education. Standard & Poor’s has held a negative outlook on the sector for the past four years and states that it believes the trends identified in these outlooks (operating pressure, challenging demographics) will be exacerbated by the impacts of COVID-19.

Lafayette has shown a strong ability to manage through the COVID-19 pandemic and is well positioned from a financial perspective to continue to make strategic investments in the coming years, despite the near-term challenges presented. After the Spring 2021 semester, the College will reach the next phase of the COVID-19 pandemic where campus activities will hopefully shift back to being more “normal” after widespread vaccination is available. Given the College’s prudent financial stewardship through the COVID-19 pandemic, Lafayette should be able to re-focus on the future with an eye towards making strategic investments that will strategically position the College in the student market.

Peer Analysis

Below we analyze the College’s performance on four key financial metrics versus a set of financial peers. The peers below are all Moody’s rated institutions with a rating of Aa2, Aa3, and A1 with operating revenue between $100 million and $300 million, FTE enrollment between 2,000 and 5,000, and cash and investments greater than $500 million. All data below is based on fiscal 2019 as fiscal 2020 data is not yet available.

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Spendable Cash & Invest. to Operations Monthly Days Cash on Hand Spendable Cash & Invest. to Debt Operating Cash Flow Margin Denison University (Aa3) 5.5 Colby College (Aa2) 772 Wheaton College (Aa3) 9.5 St. Olaf College (A1) 19.4% Washington and Lee Univ. (Aa2) 4.1 Bucknell University (Aa2) 632 Macalester College (Aa3) 5.3 College of the Holy Cross (Aa3) 18.6% Macalester College (Aa3) 3.9 Lafayette College (Aa3) 631 Bucknell University (Aa2) 4.7 Wesleyan University (Aa3) 18.2% Colby College (Aa2) 3.8 Skidmore College (A1) 590 St. Olaf College (A1) 4.7 Wheaton College (Aa3) 17.6% Vassar College (Aa3) 3.7 Denison University (Aa3) 588 Denison University (Aa3) 4.4 Denison University (Aa3) 17.3% Wesleyan University (Aa3) 3.7 Union College (A1) 586 Skidmore College (A1) 4.3 Lafayette College (Aa3) 16.6% Oberlin College (Aa3) 3.5 Wheaton College (Aa3) 565 College of the Holy Cross (Aa3) 4.2 Colby College (Aa2) 15.5% Lafayette College (Aa3) 3.4 Furman University (A1) 468 Furman University (A1) 4.2 Oberlin College (Aa3) 15.0% College of the Holy Cross (Aa3) 3.3 St. Olaf College (A1) 435 Washington and Lee Univ. (Aa2) 3.7 Union College (A1) 14.9% Wheaton College (Aa3) 3.1 Colgate University (Aa3) 413 Oberlin College (Aa3) 3.2 Bucknell University (Aa2) 13.5% Middlebury College (Aa3) 2.7 Wesleyan University (Aa3) 411 Vassar College (Aa3) 3.1 Washington and Lee Univ. (Aa2) 13.5% St. Olaf College (A1) 2.7 Washington and Lee Univ. (Aa2) 399 Middlebury College (Aa3) 3.0 Colgate University (Aa3) 13.2% Union College (A1) 2.7 Oberlin College (Aa3) 392 Wesleyan University (Aa3) 2.9 Macalester College (Aa3) 12.3% Bucknell University (Aa2) 2.6 College of the Holy Cross (Aa3) 382 Colby College (Aa2) 2.8 Skidmore College (A1) 12.1% Colgate University (Aa3) 2.6 Vassar College (Aa3) 378 Lafayette College (Aa3) 2.3 Furman University (A1) 11.6% Furman University (A1) 2.6 Macalester College (Aa3) 373 Union College (A1) 2.2 Vassar College (Aa3) 10.7% Skidmore College (A1) 2.2 Middlebury College (Aa3) 154 Colgate University (Aa3) 1.8 Middlebury College (Aa3) 6.3%

Peer Median 3.3 Peer Median 435 Peer Median 3.7 Peer Median 14.9% Aa Private Median 3.0 Aa Private Median 399 Aa Private Median 3.7 Aa Private Median 14.3% Source: Moody's Investors Service

The College’s spendable cash and investments to operations is stronger than the peer median and the Aa private institution median reflecting sufficient balance sheet wealth compared to size of operating expense base. Lafayette displays excellent liquidity compared to peers as the College has the fourth strongest monthly days cash on hand out of the 20 institutions. The College is over-leveraged compared to peer institution based on spendable cash and investments to debt which is the third weakest out of the peer group. The College’s operating performance is excellent at 16.6% operating cash flow margin which is above peer and rating median.

COMPOSITE FINANCIAL INDEX

The Composite Financial Index (CFI) is a tool used by higher education institutions to measure financial health. CFI is a composite of four key ratios which are calculated and scaled to a score from -4 to 10. A score of 3 or higher on any ratio is considered to be a strong financial position. These scaled scores are weighted and added together to reach an institution’s CFI. Given that CFI is based on four ratios it allows weakness in one ratio to be offset by strength in other ratios to reach a full picture of financial health. CFI is meant to be analyzed on a longitudinal basis and is less useful when analyzed versus peers as each institution will have substantially different ratio compositions. The four ratios used to calculate CFI are described below.

Ratio Question Calculation Weight

Primary Reserve Are resources sufficient and Expendable Net Assets 35% Ratio flexible enough? Total Expenses

Are debt resources managed Expendable Net Assets Viability Ratio 35% strategically? Total Debt

Does asset performance and Return on Net Change in Net Assets management support the 20% Assets Net Assets Beginning of Year strategic direction? Unrestricted Operating Revenues - Net Operating Do operating results indicate Operating Expenses 10% Revenues living within means? Unrestricted Operating Revenues Source: Strategic Financial Analysis for Higher Education

Page 11 LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2020

The College’s performance on CFI over the past five years is displayed below. The College’s CFI declined over the past four years from 6.43 in fiscal 2017 to 5.21 in fiscal 2020. The primary reason for the decline in CFI is due to a weakening of net operating revenues ratio and return on net assets ratio. In fiscal 2017, the net operating revenues ratio was 2.1% and in fiscal 2020 this ratio was 0.5%. The return on net assets ratio saw a similar decline over this time period as it was 10% in fiscal 2017 compared to 0.4% in fiscal 2020. Given budget expectations for fiscal 2021, we would expect that both of these ratios will continue to be challenged which will suppress CFI of the College.

Lafayette College Historical CFI 10.00 8.00 6.43 5.95 5.50 6.00 5.22 5.21 4.00 2.00 - FY2016 FY2017 FY2018 FY2019 FY2020

Source: Lafayette College Financial Statements and Strategic Financial Analysis for Higher Education CONCLUSIONS

Based on our review of Lafayette, Janney views that the College remains in a strong financial position. However, there are negative headwinds within the sector due to the COVID-19 pandemic which will require the College to remain diligent with prudent budget management. This will allow Lafayette to withstand these near-term challenges so that it is well positioned to make strategic investments that ensure the College maintains its market position in the future.

Market Position: The College’s market position is solid due to its niche position as a small liberal arts college with a unique focus on STEM. This provides Lafayette with a competitive advantage in the student market. The College’s student demand softened over the past year, primarily due to the widespread impacts of the COVID-19 pandemic seen throughout the higher education sector, which includes higher than normal deferrals for incoming students. This trend will need to reverse over the coming years in order for Lafayette to continue to maintain its market position.

Operating Performance: Lafayette historically achieves positive operating performance which displays strong budget planning and management. The College showed its strength in this respect over the past year as it swiftly adjusted expenses in order to mitigate the negative financial impacts of COVID-19. While fiscal 2020 ended with a slight budget surplus, the College, like many other institutions, is expecting the fiscal 2021 will see a budget deficit.

Financial Reserves: Lafayette has significant financial wealth which should allow the College to continue to make strategic investments to enhance market position. However, the College’s endowment has seen minimal growth over the past two years as endowment spend rate outpaced investment returns. The College is well positioned from a liquidity perspective. Over the past year, Lafayette experienced a significant business disruption due to the COVID-19 pandemic and displayed sufficient internal liquidity while boosting external liquidity, both of which are positive indicators. The College actively monitors potential liquidity events and has created action plans for how they will manage through each event should it occur.

Page 12 LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2020

Debt and Other Liabilities: The College has a $262.7 million debt portfolio which it manages as a part of a balance sheet optimization strategy. The College actively monitors when bullet maturities are coming due and plans years in advance to ensure the maturities can be restructured or repaid. Due to the College’s view that debt is a permanent part of its balance sheet with minimal principal repayment, Lafayette is more leveraged than peers. The high debt leverage and minimal principal repayment limits the College’s debt capacity at its current rating level which may inhibit ability to use debt for future capital investments without receiving a rating downgrade. In the absence of principal repayment, the College will rely on growth in financial reserves through additional fundraising investment returns and operating surplus to generate debt capacity at its current rating level. The College’s variable rate demand bonds are synthetically fixed through the use of interest rate swaps which reduces market risk in debt portfolio. The primary debt portfolio risk present is liquidity risk which has been mitigated by the use of SBPAs.

External Views: The College is rated Aa3 with a stable outlook by Moody’s and A+ with a stable outlook by Standard & Poor’s. Lafayette’s rating is driven by its niche student demand, high levels of wealth and consistently positive operating performance. Offsetting factors include high debt leverage and competitive market environment. Compared to peer institutions, the College displays strong levels of financial reserves, liquidity and operating performance; however, Lafayette is more leveraged than peers.

Composite Financial Index: The College’s CFI has been over 5 each of the past five years which displays strong financial positioning. Lafayette’s CFI declined since fiscal 2017 primarily due to weaker operating performance, which we expect will continue into fiscal 2021.

RECOMMENDATIONS

While we view the College’s finances as strong, there are certain items we recommend that the College take action on or explore over the coming year.

Internal Liquidity: The past year highlighted the importance of internal liquidity management to ensure that the College has sufficient funds in order to withstand significant business disruptions. We recommend that the College continue the practices which have been enhanced throughout the COVID-19 pandemic of continually monitoring its liquidity position and annually perform sensitivity analysis on liquidity positions to ensure sufficient funds are available in the case of a “shock” on operating revenue.

External Liquidity: The College should annually determine if its external liquidity position is sufficient and make changes accordingly based on expiration dates of each line of credit. At the outset of the COVID-19 pandemic, lines of credit were in high demand and bank capacity filled up quickly. The College should be aware of how much liquidity it could potentially need based on the size of its operating base and potential liquidity events to ensure it has access during a time of stress.

Budget Management: As discussed, the College displays strong ability to plan and manage its operating budget resulting in strong operating performance. However, there is a movement in higher education to move to a GAAP-based budget which more aligns with financial statements. The College may want to explore this option in order to align budget with financial statements.

Debt Strategy: The College should continually review its debt strategy to ensure that it aligns with strategic objectives. The current strategy of viewing debt as a permanent part of the balance sheet in order to optimize assets continues to work for the College as debt interest rates remain lower than expected endowment returns. However, by not paying down debt, the College has become overleveraged compared to peer institutions and

Page 13 LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2020 other institutions at its rating levels. This could inhibit its ability to issue additional debt for strategic capital investments without incurring a rating downgrade which would increase its cost of capital. As principal maturities come due in the coming years, the College should consider whether it makes more sense for its strategic direction to repay or restructure these maturities.

Debt Repayment: In order to increase flexibility to potentially repay debt at maturity, the College should explore ways that it can generate funds that can be used for debt retirement. This could come in numerous forms including additional transfers to the capital reserve. Another option would be for the College to begin to include depreciation in operating budget by shifting to a GAAP-based budget. Many institutions will include depreciation as a proxy for principal repayment and transfer these funds to a reserve for future debt repayment.

Page 14 LAFAYETTE COLLEGE FINANCIAL ASSESSMENT FISCAL YEAR 2020

DISCLAIMER

Janney Montgomery Scott LLC (“Janney”) has created this presentation in response to your request for information. The information provided is only for discussion purposes as your Municipal Advisor. The information has been prepared and presented specifically for the client named in the material and is Janney’s intellectual property. This presentation and the information contained therein may not be reproduced, distributed, or published by any person for any purpose without Janney’s express prior written consent. This document and any names, rates or data used has been prepared by Janney and is to be used for informational purposes only. The information presented herein is taken from sources believed to be reliable, but is not guaranteed by Janney as to accuracy or completeness. Please contact your Janney Banker for further information.

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Page 15 FINANCIAL FACTBOOK

FISCAL YEAR 2020 Dashboard

1 Market Position

Selectivity Rate (Lower is Better) Matriculation Rate (Higher is Better) Equation Measures Equation Measures Students Accepted Students Enrolled Demand of the College once Selectivity of the College Student Applications Student Accepted Students are Accepted Lafayette College Performance Lafayette College Performance 40.0% 50.0%

20.0% 25.0%

28.3% 30.8% 29.4% 31.5% 35.6% 28.2% 26.1% 27.0% 26.0% 20.7% 0.0% 0.0% Fall 2016 Fall 2017 Fall 2018 Fall 2019 Fall 2020 Fall 2016 Fall 2017 Fall 2018 Fall 2019 Fall 2020 Lafayette Aa Median Peer Median Lafayette Aa Median Peer Median

Commentary Commentary

The College's selectivity was generally close to 30% historically; however it increased to 35.6% in The College's matriculation declined in Fall 2020 due to increased deferrals caused by the COVID- Fall 2020 due primarily to the impacts of the COVID-19 pandemic. The College's Fall 2020 class 19 pandemic. If the 82 deferrals are included in Fall 2020 enrolled students then matriculation rate had similar student quality as prior classes as displayed by 1343 average SAT score. would have been 23.5%.

FTE Enrollment (Higher is Better) Net Tuition Per Student (Higher is Better) Equation Measures Equation Measures Net Tuition Revenue Fall FTE Enrollment Students Enrolled at the College Ability to Generate Student Revneue Prior Year FTE Enrollment Lafayette College Performance Lafayette College Performance

4,000 35,000

2,000 30,000

2,519 2,566 2,616 2,643 2,476 31,232 32,251 32,769 33,256 33,922 - 25,000 Fall 2016 Fall 2017 Fall 2018 Fall 2019 Fall 2020 Fall 2016 Fall 2017 Fall 2018 Fall 2019 Fall 2020 Lafayette Aa Median Peer Median Lafayette Aa Median Peer Median

Commentary Commentary

The College's enrollment grew annually from Fall 2016 to Fall 2019 before declining in Fall 2020 to The College's net tuition per student has increased each of the past five years, displaying below 2,500 FTE. Lafayette's strong ability to generate tuition revenues.

Source: Lafayette College Financial Statements and Moody’s Investors Service 2 Operations

Operating Cash Flow Margin (Higher is Better) Reliance on Student Charges (Lower is Better) Equation Measures Equation Measures Op. Rev. - Op. Exp. + Interest + Depreciation Student Revenues Operating Performance Revenue Flexibility Operating Revenues Operating Revenues Lafayette College Performance Lafayette College Performance 20.0% 100.0%

10.0% 50.0%

19.5% 18.9% 17.5% 16.6% 18.1% 66.1% 65.9% 67.7% 67.4% 66.7% 0.0% 0.0% FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20 Lafayette Aa Median Peer Median Lafayette Aa Median Peer Median

Commentary Commentary

The College's operating performance was above 16% each of the past five years, which is strong The College relied on student charges for 66.7% of operating revenue in FY20. This represents performance. It is above rating and peer medians. moderate revenue flexibility and is in line with peer institutions. Financial Reserves Spendable Cash and Investments to Operations (Higher is Better) Monthly Days Cash on Hand (Higher is Better) Equation Measures Equation Measures Cash and Investments - Restricted Endowment Monthly Liquidity * 365 Balance Sheet Strength Liquidity Operating Expenses Operating Expenses - Depreciation Lafayette College Performance Lafayette College Performance 4.0 1,000

2.0 500

3.4 3.4 3.5 3.4 3.3 600 644 630 631 647 0.0 0 FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20 Lafayette Aa Median Peer Median Lafayette Aa Median Peer Median

Commentary Commentary

The College has a strong balance sheet with spendable cash and investments at 3.3x of operating The College has excellent liquidity with 647 monthly days cash on hand in FY20. This is above expenses in FY20. This is in line with peer and rating medians. rating and peer medians.

Source: Lafayette College Financial Statements and Moody’s Investors Service 3 Debt and Liabilities

Spendable Cash and Investments to Debt (Higher is Better) Debt to Revenue (Lower is Better) Equation Measures Equation Measures Cash and Investments - Restricted Endowment Total Debt Balance Sheet Leverage Income Statement Leverage Total Debt Operating Revenues Lafayette College Performance Lafayette College Performance 5.0 2.0

2.5 1.0

2.7 2.2 2.3 2.3 2.3 1.2 1.5 1.5 1.4 1.4 0.0 0.0 FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20 Lafayette Aa Median Peer Median Floor (1.50x) Lafayette Aa Median Peer Median Ceiling (1.75x) Commentary Commentary

The College is more leveraged from a balance sheet perspective than peer institutions and rating The College is more leveraged from an income statement perspective than peer institutions and medians due to debt strategy which includes minimal principal amortization. The College's rating medians due to debt strategy which includes minimal principal amortization. The College's performance is above its debt policy floor of 1.5x. performance is above its debt policy ceiling of 1.75x.

Debt Service to Operations (Lower is Better) Debt Service Coverage (Higher is Better) Equation Measures Equation Measures Debt Service Op. Rev. - Op. Exp. + Interest + Depreciation Debt Affordability Cash Flow to pay for Debt Service Operating Expenses Debt Service Lafayette College Performance Lafayette College Performance

10.0% 4.0

5.0% 2.0

6.6% 6.5% 5.4% 6.1% 7.6% 3.1 3.1 3.4 2.9 2.5 0.0% 0.0 FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20 Lafayette Aa Median Peer Median Ceiling (8.00%) Lafayette Aa Median Peer Median Floor (1.75x) Commentary Commentary

The College's debt affordability is historically in line with peer and rating medians; however, it The College produces sufficient cash flow to pay for ongoing debt service. Debt service coverage increased in FY20 to 7.6%. It remains below debt policy ceiling of 8%. is in line with rating and peer medians and above the debt policy floor of 1.75x.

Source: Lafayette College Financial Statements and Moody’s Investors Service 4 Composite Financial Index COMPOSITE FINANCIAL INDEX (HIGHER IS BETTER)

- The Composite Financial Index (CFI) is a tool used by higher education institutions to measure financial health. - CFI is a composite of four key ratios which are calculated and scaled to a score from -4 to 10. - A score of 3 or higher on any ratio is considered to be a strong financial position. - The College’s CFI has consistently been above 5.0 over the past five years, displaying financial strength.

LAFAYETTE HISTORICAL TREND

10.00 9.00 8.00 7.00 6.43 5.95 5.50 6.00 5.22 5.21 5.00 4.00 3.00 2.00 1.00 - FY2016 FY2017 FY2018 FY2019 FY2020

Source: Lafayette College Financial Statements and Strategic Financial Analysis for Higher Education

5 Composite Financial Index Ratios Primary Reserve Ratio (35% Weight) Viability Ratio (35% Weight) Question Calculation Question Calculation

Expendable Net Assets Expendable Net Assets Are resources sufficient and flexible enough? Are debt resources managed strategically? Total Expenses Total Debt

Lafayette College Performance Lafayette College Performance

3.50 2.40 3.00 2.30 2.50 2.20 2.00 2.10 1.50 2.00 1.00 1.90 0.50 1.80 2.82 3.05 3.06 2.81 2.82 2.28 1.94 2.02 1.91 1.91 - 1.70 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020

Return on Net Assets (20% Weight) Net Operating Revenues (10% Weight) Question Calculation Question Calculation Unrestricted Operating Revenues – Does asset performance and management Change in Net Assets Do operating results indicate living within Operating Expenses support the strategic direction? Net Assets Beginning of Year means? Unrestricted Operating Revenues Lafayette College Performance Lafayette College Performance

12.0% 2.5% 10.0% 2.0% 8.0% 6.0% 1.5% 4.0% 2.0% 1.0% 10.0% 5.7% 0.6% 0.4% 0.0% 0.5% -2.0% -2.8% 0.5% 2.1% 1.3% 2.4% 0.5% -4.0% 0.0% 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020

Source: Lafayette College Financial Statements and Strategic Financial Analysis for Higher Education 6 Historical Balance Sheet ($, in Thousands)

ASSETS 2016 2017 2018 2019 2020 Cash and Cash Equivalents $ 20,024 33,031 24,093 41,855 42,552 Short-Term Investments 8,840 13,674 19,105 20,781 24,358 Accounts and Loans Receivable 5,118 6,834 6,697 6,604 4,961 Contributions Receivable and Bequests, Net 19,415 31,262 27,902 24,516 15,033 Prepaid Expenses and Other 3,733 3,920 2,695 2,761 2,636 Deposits with Bond and Other Trustees 6,495 80,011 60,216 19,235 1,272 Long-Term Investments 812,259 852,709 901,969 889,646 894,247 Land, Buildings and Equipment, Net of Depreciation 293,205 311,548 333,943 381,748 396,505 Total Assets $ 1,169,089 1,332,989 1,376,620 1,387,146 1,381,564

LIABILITIES 2016 2017 2018 2019 2020 Accounts Payable and Accrued Expenses $ 9,968 12,404 12,445 20,145 12,144 Deposits and Deferred Revenues 5,363 4,685 3,525 2,730 5,520 Funds Held for Others 2,590 3,042 3,064 3,300 3,618 Annuities Payable 22,363 23,954 23,010 18,319 19,048 Postretirement Benefits 51,253 47,892 46,883 47,478 41,141 Federal Student Loans Refundable 2,142 2,067 1,246 1,279 882 Interest Rate Hedges/Swap Agreements 19,801 14,396 11,205 14,265 17,953 Conditional Asset Retirement Obligation 1,651 1,778 1,806 1,750 1,936 Capitalized Lease Obligations 4,644 4,828 1,749 1,947 1,329 Mortgage Payable - - 2,340 2,220 2,100 Bonds Payable, Net 192,842 276,153 274,090 272,341 270,592 Total Liabilities $ 312,617 391,199 381,363 385,774 376,263

NET ASSETS 2016 2017 2018 2019 2020 Without Donor Restrictions $ 251,031 289,447 305,329 301,030 319,044 With Donor Restrictions - Spendable 293,806 322,627 329,427 314,096 294,651 With Donor Restrictions - Perpetual 311,635 329,716 360,501 386,246 391,606 With Donor Restrictions - Subtotal 605,441 652,343 689,928 700,342 686,257 Total Net Assets $ 856,472 941,790 995,257 1,001,372 1,005,301

Total Liabilities and Net Assets $ 1,169,089 1,332,989 1,376,620 1,387,146 1,381,564

Source: Lafayette College Financial Statements 7 Historical Income Statement W/O Donor Restrictions ($, in Thousands)

OPERATING REVENUES 2016 2017 2018 2019 2020 Gross Tuition and Fees $ 118,247 124,413 130,773 138,757 145,632 Scholarships and Fellowships (40,041) (43,172) (46,689) (51,760) (55,975) Net Tuition and Fees 78,206 81,241 84,084 86,997 89,657 Sales and Services of Auxiliaries 31,997 33,767 35,512 36,686 31,047 Government Grants 1,289 2,500 1,436 1,143 2,078 Private Gifts and Grants 7,171 7,754 6,252 6,772 6,983 Endowment Return Used for Spending Policy 35,827 37,722 39,288 40,559 40,395 Other 3,708 4,404 4,798 6,114 3,885 Net Assets Released from Restriction 1,552 1,359 1,167 1,319 991 Total Operating Revenues $ 159,750 168,747 172,537 179,590 175,036

OPERATING EXPENSES 2016 2017 2018 2019 2020 Instruction $ 59,501 59,520 59,668 60,555 64,590 Research 1,694 2,032 2,181 2,073 1,751 Academic Support 11,501 12,946 11,661 11,621 12,221 Student Services 31,830 33,147 32,132 32,783 32,264 Institutional Support 27,427 30,407 33,078 36,160 33,166 Auxiliary Services 26,923 27,130 31,493 32,167 30,218 Total Operating Expenses $ 158,876 165,182 170,213 175,359 174,210

Change in Net Assets from Operating Activities $ 874 3,565 2,324 4,231 826

Change in Net Assets from Non-Operating Activities $ (12,583) 34,851 13,558 (8,530) 17,188

Change in Net Assets Without Donor Restrictions $ (11,709) 38,416 15,882 (4,299) 18,014

Source: Lafayette College Financial Statements 8 Market Position

9 Fall FTE Enrollment

. From Fall 2016 to Fall 2019, the College maintained steady FTE enrollment. Fall 2020 saw a decline in enrollment to 2,476 FTE as a result of COVID-19.

Fall 2016 Fall 2017 Fall 2018 Fall 2019 Fall 2020

FTE Enrollment 2,520 2,565 2,616 2,643 2,476

3,000

2,500

2,000

1,500

1,000

500

0 Fall 2016 Fall 2017 Fall 2018 Fall 2019 Fall 2020

Source: Lafayette College 10 Student Demand Statistics

. Lafayette’s acceptance rate was 35.6% in Fall 2020 with the increase primarily driven by COVID-19 impacts.

. The College’s 606 enrolled freshman do not include 82 students who deferred enrollment for either one or two semesters.

Fall 2016 Fall 2017 Fall 2018 Fall 2019 Fall 2020 Applications 8,123 8,469 9,237 8,521 8,215 Acceptances 2,298 2,609 2,715 2,682 2,922 Matriculants 649 680 733 698 606 Acceptance Rate 28.3% 30.8% 29.4% 31.5% 35.6% Matriculation Rate 28.2% 26.1% 27.0% 26.0% 20.7%

10,000 50.0% 9,000 45.0% 8,000 40.0% 7,000 35.0% 6,000 30.0% 5,000 25.0% 4,000 20.0% 3,000 15.0% 2,000 10.0% 1,000 5.0% 0 0.0% Fall 2016 Fall 2017 Fall 2018 Fall 2019 Fall 2020 Applications Acceptances Matriculants Acceptance Rate Matriculation Rate 11 Source: Lafayette College Student Quality Indicators

. Lafayette has exceptional student quality as displayed by a mean SAT score for enrolled first time freshman that has been stable over the past four years.

Fall 2016 Fall 2017 Fall 2018 Fall 2019 Fall 2020

Enrolled Mean SAT Score 1288 1343 1342 1341 1343

1600 1400 1200 1000 800 600 400 200 0 Fall 2016 Fall 2017 Fall 2018 Fall 2019 Fall 2020

Source: Lafayette College 12 Student Retention and Graduation Rates

. Freshman retention rates exceeded 93% from Fall 2016 to Fall 2019. Fall 2020 declined due to COVID-19.

. The College’s six-year graduation rate was approximately 90% for the past five years.

Fall 2016 Fall 2017 Fall 2018 Fall 2019 Fall 2020

Freshman Retention Rate 93.6% 94.9% 93.1% 94.0% 87.0%

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

100.0%

80.0%

60.0%

40.0%

20.0%

0.0% Fall 2016 Fall 2017 Fall 2018 Fall 2019 Fall 2020 Freshman Retention Rate Six-Year Graduation Rate

Source: Lafayette College 13 Historical Tuition and Fees

. From Academic Year 2017 to 2020, the College’s cost of attendance (tuition, fees, room and board) grew by 4% annually. The College did not increase cost of attendance for Academic Year 2021 due to the move to remote learning.

Academic Year 2016-17 2017-18 2018-19 2019-20 2020-21

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

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

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

Annual Growth 4% 4% 4% 4% 0%

80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2016-17 2017-18 2018-19 2019-20 2020-21

Tuition and Fees Room and Board

Source: Lafayette College 14 Peer Cost of Attendance Comparison

. Lafayette’s tuition, fees, room and board is comparable to its peer institutions.

Lafayette College Peer Tuition, Fees, Room & Board 2020-21 Academic Year $80,000

$75,000

$70,000

$65,000

$60,000

$55,000

$50,000

$45,000

$40,000

Source: The 2020-21 Comparative Tuition, Room and Board Survey from Union College, Table VII, https://bigfuture.collegeboard.org/ ** Excludes one-time $750 matriculation fee assessed for first year or new students 15 ***Represents 2019-20 rates Financial Aid

. The College administers financial aid through a variety of sources as illustrated below.

. Approximately 50% of students receive grant or scholarship support funded by the College and 59% receive financial aid funded through institutional, private, federal and state programs.

Fiscal Year ($000s) 2016 2017 2018 2019 2020

Institutional Grants and Scholarships 31,823 34,674 37,881 42,351 45,748

Sponsored Grants and Scholarships 8,218 8,498 8,808 9,409 10,227

Total Financial Aid 40,041 43,172 46,689 51,760 55,975

Net Tuition and Fees 78,206 81,241 84,084 86,997 89,657

Unrestricted Tuition Discount 26.9% 27.9% 29.0% 30.5% 31.4%

Total Tuition Discount 33.9% 34.7% 35.7% 37.3% 38.4%

Source: Lafayette College Financial Statements 16 Development Update

. Total gifts and pledges, as reported in the financial statements, have been between $18 to $38 million over the past five years.

. The decline is fiscal year 2020 reflects the first full year since the completion of the capital campaign.

Fiscal Year ($000s) 2016 2017 2018 2019 2020

Private Gifts and Grants 7,848 9,486 6,252 6,772 6,983

Endowment, Capital, and Other Restricted Gifts 18,115 28,792 26,442 23,330 11,074

Total Gifts, Grants and Bequests 25,963 38,278 32,694 30,102 18,057 50,000 40,000 30,000 20,000

$, inThousands 10,000 0 2016 2017 2018 2019 2020 Endowment, Capital, and Other Restricted Gifts Private Gifts and Grants

Source: Lafayette College Financial Statements 17 Operations

18 Operating Performance

. The College tracks operating performance through the operating contribution metric. This is calculated as operating revenues without donor restrictions minus operating expenses without donor restrictions.

. The College’s operating revenues without donor restrictions grew at a compound annual growth rate (CAGR) of 3.1% over the past five fiscal years while operating expenses without donor restrictions grew at a CAGR of 2.7%.

. Growth in revenues outpacing growth in expenses has resulted in annual operating surpluses without donor restrictions from fiscal 2016 through fiscal 2020 after a $2.7 million deficit in fiscal 2015

Operating Contribution (Higher is Better) $5

$4

$3

$2

$, in in Millions $, $1 $0.9 $3.6 $2.3 $4.2 $0.8 $0 2016 2017 2018 2019 2020 19 Source: Lafayette College Financial Statements Operating Cash Flow

. The College also measures its operating performance by taking operating contribution and adding back interest and depreciation to understand the cash flow available for debt service.

. Lafayette’s operating cash flow margin has been above 14% each of the past five years, which is strong performance.

Changes in Net Assets from Operating Activities Net Assets without Donor Restrictions ($, in Thousands) Fiscal Year 2016 2017 2018 2019 2020 Operating Revenue $ 159,750 168,747 172,537 179,590 175,036 Less Operating Expense 158,876 165,182 170,213 175,359 174,210 Operating Contribution $ 874 3,565 2,324 4,231 826 Operating Contribution Margin 0.5% 2.1% 1.3% 2.4% 0.5%

Add back Interest 9,752 9,663 8,195 7,882 10,480 Add back Depreciation 14,730 15,892 16,378 14,454 15,646 Operating Margin Available for Debt Service $ 25,356 29,120 26,897 26,567 26,952 Operating Cash Flow Margin 15.9% 17.3% 15.6% 14.8% 15.4%

20 Source: Lafayette College Financial Statements Net Asset Growth

. The College’s solid operating performance has driven net asset growth over the past five years.

. As of FYE 2020, 32% of the College’s net assets had no donor restrictions.

Net Assets

1,200

995 1,001 1,005 1,000 942 856 361 392 800 330 386 312 600

323 329 314 295 $, Thousands$, in 400 294

200 319 251 289 305 301 - 2016 2017 2018 2019 2020 Without Donor Restrictions With Donor Restrictions - Spendable With Donor Restrictions - Perpetual

21 Source: Lafayette College Financial Statements Capital Expenditures

. The College’s capital spending increased over the past ten years as the College made significant capital investments paid for through solid cash flow, fundraising and debt proceeds.

Capital Expenditures ($, in Thousands) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Annual Capital Expenditures 6,016 15,321 13,758 17,662 27,193 26,582 28,312 36,374 52,261 29,124 Rolling 3 Year Average 5,998 8,865 11,698 15,580 19,538 23,812 27,362 30,423 38,982 39,253

60,000

50,000

40,000

30,000

20,000

10,000

0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Annual Capital Expenditures Rolling 3 Year Average

22 Source: Lafayette College Financial Statements Financial Reserves

23 Endowment Portfolio Overview – As of 06/30/2020

. As of June 30, 2020, the Total Managed Endowment is invested in two funds: Endowment Pool ($725.2 million) and Separately Invested Assets ($114.2 million) for a total value of $839.4 million.

. The Total Managed Endowment had a return of 3.1% in fiscal 2020.

. 45% of the endowment can be liquidated within one month.

Asset Allocation as of 06/30/2020 Endowment Liquidity as of 06/30/2020

Absolute Return Fixed Income > 365 days 26% 13% 24% < 30 days 45%

91 to 365 days Private Investment 5% 10%

31 to 90 days Public Equity 26% 51%

24 Endowment Market Value and Returns

1,000

900 830.4 832.1 839.4 799.7 790.3 800 774.2 715.5 733.2 700 657.0 651.1

600

500

$,in Millions 400

300

200

100

0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 MANAGED ENDOWMENT ANNUAL RETURN 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Lafayette College 16.0% 1.3% 12.6% 14.4% 1.5% -0.8% 11.5% 8.1% 3.7% 3.1% NACUBO Average 19.2% -0.3% 11.7% 15.5% 2.4% -1.9% 12.2% 8.2% 5.3% N/A

Source: Lafayette College Financial Statements and NACUBO-TIAA Study of Endowments. FY20 NACUBO average not yet available. 25 Managed Endowment Composition

2016 2017 2018 2019 2020 Without Donor Restrictions $ 209,722 222,384 225,296 218,461 216,784 Spendable With Donor Restrictions 229,578 255,656 269,083 258,526 250,029 Perpetual With Donor Restrictions 293,943 312,264 336,019 355,081 372,589 Managed Endowment $ 733,243 790,304 830,398 832,068 839,402

Pooled endowment $ 631,880 681,141 717,109 719,403 725,202 Separately invested 101,363 109,163 113,289 112,665 114,200 Managed Endowment $ 733,243 790,304 830,398 832,068 839,402

True Endowment $ 523,521 567,920 605,102 613,607 622,618 Quasi-endowment 209,722 222,384 225,296 218,461 216,784 Managed Endowment $ 733,243 790,304 830,398 832,068 839,402

Associated pool $ 475,806 510,175 531,234 525,471 523,022 Scholarship pool 156,074 170,966 185,875 193,932 202,180 Total Pooled endowment $ 631,880 681,141 717,109 719,403 725,202

Without Donor Restrictions $ 209,722 222,384 225,296 218,461 216,784 Spendable With Donor Restrictions 229,578 255,656 269,083 258,526 250,029 Spendable Endowment $ 439,300 478,040 494,379 476,987 466,813

Average FTE Enrollment 2,472 2,491 2,541 2,584 2,620 Managed Endowment Per Student $ 296,679 317,264 326,843 322,070 320,444

Source: Lafayette College 26 Endowment and Similar Funds

. Endowment and similar funds is composed of the managed endowment, funds held in trust by others, deferred giving and pledges.

2016 2017 2018 2019 2020 Pooled Endowment $ 631,880 681,141 717,109 719,403 725,202 Separately Invested Endowment 101,363 109,163 113,289 112,665 114,200 Managed Endowment 733,243 790,304 830,398 832,068 839,402 Funded Held in Trust By Others 3,426 3,688 3,781 3,784 3,566 Deferred Giving 26,141 15,893 16,356 9,326 9,517 Pledges 11,919 23,184 19,967 16,605 10,422 Total Endowment & Similar Funds $ 774,729 833,069 870,502 861,783 862,907

Total Endowment & Similar Funds, excluding pledges $ 762,810 809,885 850,535 845,178 852,485

Source: Lafayette College 27 Endowment Support to Operations

$, in Thousands 2016 2017 2018 2019 2020 Endowment Support 35,827 37,722 39,288 40,559 40,395 Total Operating Revenues 159,750 168,747 172,537 179,590 175,036 Total Operating Expenses 158,876 165,182 170,213 175,359 174,210

% of Operating Revenues 22.4% 22.4% 22.8% 22.6% 23.1% % of Operating Expenses 22.6% 22.8% 23.1% 23.1% 23.2%

Endowment Support to Operating Expenses 200.0 24%

150.0 23%

100.0 22%

50.0 21%

- 20% 2016 2017 2018 2019 2020

Endowment Support Total Operating Expenses % of Operating Expenses

Source: Lafayette College Financial Statements 28 Managed Endowment Roll

$, in Thousands 2016 2017 2018 2019 2020 Endowment Inflows and Outflows Net Assets, Beginning of FY 774,188 733,243 790,304 830,398 832,068 100,000

Investment Return (8,242) 84,640 59,188 24,277 29,962 80,000 Investment Return (5,045) 87,823 62,063 27,389 32,948

Investment Office Expense (3,197) (3,183) (2,875) (3,112) (2,986) 60,000

Deposits 12,081 17,230 22,649 21,286 19,948 40,000 Contributions from Donors 9,276 11,739 20,886 17,815 11,105

Matured Annuities 353 3,141 1,181 2,884 7,755 20,000 Capital Projects Returned 452 350 582 587 1,088

Contributions from Operations 2,000 2,000 - - - 0

Withdrawals (44,785) (44,810) (41,743) (43,893) (42,576) (20,000) Endowment Support (5% Draw) (36,255) (38,760) (40,541) (41,839) (42,096) Debt Service Principal Payments (370) (370) (609) - - (40,000) Property Acquisition (5,675) (4,500) (593) (2,054) (480) Early Retirement (2,485) (1,180) - - - (60,000) 2016 2017 2018 2019 2020

Investment Return Deposits Withdrawals Net Assets, End of FY 733,243 790,304 830,398 832,068 839,402

Source: Lafayette College 29 Investment Policy Statement – 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. 30 Investment Policy Statement – Strategic Asset Allocation

Asset Allocation Asset Class Purpose Constraint Assets Include Current Target Benchmark (Range) Hedge against Bloomberg Barclays recession and/or Daily liquidity U.S. fixed 10% Capital Intermediate Fixed severe equity funds; up to 25% income and U.S. Income market decline; permitted in below global sovereign (+/- 10%) Government/Credit liquidity; dry investment grade bonds Index Powder

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

MSCI All Country Private equity, 15% World Private private real estate, Return N/A Index (USD, all cap, Investments and private natural (+/- 10%) net)+3%, lagged 1 resource funds quarter

Diversified Low beta to equities 25% Multi-strategy, Absolute (primarily non- in aggregate (with Credit Suisse Hedge credit, and Return equity) some individual (+/- 10%) Fund Index market neutral Return variance permitted) Funds

31 Capital Reserve

. The Capital Reserve was $17.1 million at June 30, 2020.

. The Capital Reserve was established in December 2017 is used to:

• Maintain and invest a portion of the College’s unrestricted resources to build long-term capacity

• Fund future capital projects

• Provide financial flexibility to take advantage of strategic opportunities.

. The Capital Reserve is invested in a moderately liquid, short to intermediate term portfolio.

Source: Lafayette College

32 Debt and Other Liabilities

33 Debt and Derivative Portfolio

OUTSTANDING DEBT PORTFOLIO AS OF 09/24/2020 (POST-SERIES 2020 ISSUANCE)

Series Tax Status Coupon Par Outstanding Next Call Date Credit Support Final Maturity Date US Bank SBPA Series 2003 Tax-Exempt Variable (Weekly) 10,190,000 Callable Anytime @ Par 11/01/2023 (12/02/2022) TD Bank SBPA Series 2006 Tax-Exempt Variable (Weekly) 11,000,000 Callable Anytime @ Par 11/01/2036 (12/02/2021) TD Bank SBPA Series 2010A Tax-Exempt Variable (Weekly) 22,290,000 Callable Anytime @ Par 05/01/2030 (04/30/2021)

Series 2017 Tax-Exempt 3.125% to 5.00% 136,050,000 11/01/2027 @ Par N/A 11/01/2047

Series 2018 Tax-Exempt 4.00% 21,345,000 11/1/2028 @ Par N/A 11/01/2038

Series 2020 Taxable 2.179% to 3.130% 61,825,000 Make-Whole Call N/A 11/01/2050

TOTAL 262,700,000

OUTSTANDING DERIVATIVE PORTFOLIO AS OF 06/30/2020 Related Series Counterparty Termination Date Outstanding Notional Lafayette Pays Lafayette Receives Swap MTM

Series 2003 BNY Mellon 11/01/2023 10,190,000 4.339% SIFMA (1,451,332)

Series 2006 BNY Mellon 05/31/2034 11,000,000 3.880% 100% of 1-Month LIBOR (5,476,974)

Series 2010A BNY Mellon 05/01/2030 22,290,000 6.000% SIFMA + 0.25% (11,428,314)

43,480,000 (18,356,620)

Source: Lafayette College Financial Statements and Bond Offering Documents 34 Debt Portfolio (Post Series 2020)

LAFAYETTE COLLEGE DEBT SERVICE SCHEDULE

60 Principal 50 Interest 40

30

20 $, in $, in Millions

10

- 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2051

LAFAYETTE COLLEGE DEBT PORTFOLIO STATISTICS

Tax Status Callability Coupon Type Non-Callable Make-Whole 9% Call Fixed Rate Taxable 24% 83% 24%

Synthetic Tax-Exempt Callable Fixed 76% 67% 17%

Source: Lafayette College Financial Statements and Bond Offering Documents 35 Debt Policy Statement – Overview

Purpose

. The College’s long-term strategic planning process establishes institutional goals, priorities, and initiatives, which define capital investment requirements.

. The Debt Policy provides a framework by which decisions are made concerning the use and management of debt.

. The 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.

Source: Lafayette College Debt Policy 36 External Factors

37 Higher Education Sector Outlook

. Moody’s and Standard & Poor’s both have negative outlooks for the higher education sector in 2021.

Rating Agency Outlook

. Moody’s: “The outlook for the US higher education sector remains negative as the coronavirus pandemic threatens key revenue streams and uncertainty continues over the pace of economic recovery and the length of the public health crisis.”

. Standard & Poor’s: “We have a negative view of rating stability for US higher education as colleges and universities continue to experience significant COVID-related operating challenges. While many schools were having difficulty meeting enrollment and revenue targets pre-COVID, the pandemic has exacerbated those pressures, and has forced a fundamental shift in business models for all.”

2021 Sector Challenges

. Revenue Pressure: Operating revenue will decline 5%-10% sector-wide, net tuition and auxiliaries hit the hardest.

. Operating Uncertainty: The continued operating uncertainty makes it difficult to adjust expenses in real-time.

. ESG: Social and governance considerations will become more prevalent as the use of technology has accelerated.

. Institutional Priorities: The shift toward online education may spur new thinking about capital priorities.

Source: Moody’s Investors Service and S&P Global 38 Lafayette College Credit Strength and Challenges

. Lafayette is rated Aa3 with a stable outlook by Moody’s and A+ with a stable outlook by Standard & Poor’s. The College was last rated by each agency in September 2020 as part of the Series 2020 issuance.

Strengths Moody’s S&P

. Excellent liquidity creates significant financial flexibility. Aaa AAA Aa1 AA+ . Operating performance is consistently strong, reflecting Aa2 AA prudent management and budget functions. Aa3 (Lafayette) AA- . Solid student demand as displayed by growing enrollment A1 A+ (Lafayette) and growth of net tuition per student as well as sound A2 A selectivity and robust retention and graduation rates. A3 A- Challenges Baa1 BBB+ Investment Baa2 BBB . High debt leverage in comparison to size of operations and Grade Baa3 BBB- peers. Non-Investment Ba1 BB+ . Moderately high reliance on student revenues. Grade Ba2 BB

. Competitive student market resulting in relatively low Ba3 BB- matriculation rates. B1 B+ B2 B . Competition from need-blind and other selective private B3 B- institutions as well as lower cost public universities. Caa1 or Below CCC or Below Source: Moody’s Investors Service and S&P Global 39 Rating Distribution of Private College and Universities

. Lafayette is rated higher or equal to 83.3% of Moody’s rated higher education institutions and 78.3% of Standard & Poor’s rated higher education institutions.

Moody’s Long-Term Rating Distribution of Private, Not-For-Profit Colleges and Universities 60 50 38 40 33 30 27 30 24 24 18 20 13 14 14 10 10 0 Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 SG

S&P Long-Term Rating Distribution of Private, Not-For-Profit Colleges and Universities 60 48 50

40 34 36 31 29 30 26 20 20 17 20 14 11 10 0 AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- SG 40 Source: Moody’s Investors Service and S&P Global Moody’s Global Scorecard: FY18 to FY20

. Moody’s Global Higher Education Scorecard is used as a guide to understand how an institution’s profile drives its credit rating. An institution’s score does not necessarily tie to its actual rating.

. While the College’s score was slightly weaker in FY20 than FY19, Lafayette’s outcome remained in the A1 range, one notch below its actual rating of Aa3.

FY 2018 0 FY 2019 0 FY 2020 Indicated Indicated Indicated Moody's Global Higher Education Scorecard Weight Ratio Score Ratio Score Ratio Score Scorecard Ranges Rating Rating Rating Factor 1: Market Profile (30%) Rating Score Range

Scope of Operations: Operating Revenue ($000) 15% 176,639 5.39 A1 183,466 5.37 A1 180,884 5.38 A1 Aaa ≤ 1.5

Reputation and Pricing Power: Ann. Change in Op. Rev. (%) 5% 1.2% 12.13 Ba2 3.9% 7.64 Baa1 -1.4% 14.20 B1 Aa1 > 1.5, ≤ 2.5

Strategic Positioning: Qualitative Assessment 10% Excellent 3.00 Aa Excellent 3.00 Aa Excellent 3.00 Aa Aa2 > 2.5, ≤ 3.5 Aa3 > 3.5, ≤ 4.5

Factor 2: Operating Performance (25%) A1 > 4.5, ≤ 5.5

Operating Results: Operating Cash Flow Margin (%) 10% 17.5% 3.65 Aa3 16.6% 3.97 Aa3 18.1% 3.43 Aa2 A2 > 5.5, ≤ 6.5

Revenue Diversity: Maximum Single Contribution (%) 15% 67.7% 7.28 A3 67.4% 7.24 A3 66.7% 7.12 A3 A3 > 6.5, ≤ 7.5

Baa1 > 7.5, ≤ 8.5

Factor 3: Wealth & Liquidity (25%) Baa2 > 8.5, ≤ 9.5

Total Wealth: Total Cash & Investments ($000) 10% 938,530 3.62 Aa3 945,215 3.61 Aa3 955,169 3.59 Aa3 Baa3 > 9.5, ≤ 10.5

Operating Reserve: Spendable Cash & Invest. to Op. Exp. (x) 10% 3.5 3.03 Aa2 3.4 3.13 Aa2 3.3 3.16 Aa2 SG > 10.5

Liquidity: Monthly Days Cash on Hand (days) 5% 630 2.20 Aa1 631 2.19 Aa1 647 2.03 Aa1

Factor 4: Leverage (20%)

Financial Leverage: Spendable Cash & Invest. To Debt (x) 10% 2.3 4.21 Aa3 2.3 4.22 Aa3 2.3 4.24 Aa3

Debt Affordability: Debt to Cash Flow (x) 10% 8.3 6.66 A3 8.5 6.74 A3 7.9 6.36 A2

TOTAL SCORECARD INDICATED OUTCOME 0 5.04 A1 4.85 A1 5.06 A1

Source: Moody’s Investors Service. Under the Moody’s Scorecard a lower score is better. FY20 is preliminary and estimated by Janney. Subject to change based on adjustments made by Moody’s. 41 Standard & Poor’s Scorecard

. There is a direct link between the College’s S&P Scorecard outcome and its actual rating as the initial indicative rating within the scorecard must be within 1 notch of its actual rating.

. The College’s initial indicative rating is “a+”, which aligns with its actual rating of “A+”.

Weighted Measure Weight FY 2018 FY 2019 FY 2020 Score Trend

FINANCIAL PROFILE 20% 35% 45% Financial Policies (x) 10.0% 1.4 1.4 1.4 1.4 1 Operating Margin (%) 20.0% 1.1% 1.9% 0.4% 1.0% 3 Expendable Resources to Operations (%) 35.0% 257.2% 216.1% 205.4% 219.5% 3 MADS Burden (%) 17.5% 7.3% 6.6% 6.6% 6.7% 4 Expendable Resources to Debt (%) 17.5% 217.1% 190.9% 185.0% 193.5% 3

Financial Profile Score 2.98 Rounded Financial Profile Score Strong 3.00

ENTERPRISE PROFILE 20% 35% 45% Industry Risk 10.0% 2 2 2 2 2 US GDP Per Capita ($) 10.0% $59,957 $62,997 $65,281 $63,417 1 Selectivity (%) 17.5% 30.8% 29.4% 31.5% 30.6% 2 Matriculation (%) 17.5% 26.1% 27.0% 26.0% 26.4% 3 First Year Retention (%) 17.5% 94.9% 93.1% 94.0% 94.0% 2 Other Student Demand Factors 17.5% 6 6 6 6 2 Management and Governance 10.0% Strong Strong Strong Strong 1

Enterprise Profile Score 1.98 Rounded Enterprise Profile Score Very Strong 2.00

Initial Indicative Rating a+ Source: S&P Global Actual Rating A+ Note: Under the S&P Scorecard a lower score is better. FY 2020 is preliminary and estimated by Janney. Subject to change based on adjustments made by Standard & Poor’s. 42 Peer Analysis

. The chart below lists the College’s financial peers for FY 2019. This peer list was created based on the following filters:

FY 2019 STATISTICS . Moody’s Rating Cash and Investments Operating Revenue Fall FTE Institution Rating ($, in Millions) ($, in Millions) Enrollment • Aa2 Bucknell University Aa2 949 243 3,661 Colby College Aa2 1,032 166 2,003 Colgate University Aa3 991 221 2,982 • Aa3 College of the Holy Cross Aa3 853 208 3,154 Denison University Aa3 949 140 2,356 • A1 Furman University A1 628 168 2,780 Lafayette College Aa3 945 183 2,643 . Operating Revenue Macalester College Aa3 790 125 2,082 Middlebury College Aa3 1,189 271 3,220 Oberlin College Aa3 948 190 2,775 • > $100 million, < $300 million Skidmore College A1 519 170 2,636 St. Olaf College A1 569 134 3,056 . FTE Enrollment Union College A1 528 138 2,179 Vassar College Aa3 1,152 190 2,430 • >2,000, <5,000 Washington and Lee Univ. Aa2 1,233 170 2,253 Wesleyan University Aa3 1,167 240 3,134 Wheaton College Aa3 581 139 2,730 . Cash and Investments Source: Moody’s Investors Service FY 2020 data not yet available • >$500 million

43 Peer Analysis: Operating Performance

. The chart below ranks the College’s financial peers from strongest to weakest based on FY 2019 performance on operating cash flow margin.

Operating Cash Flow Margin Definition St. Olaf College (A1) 19.4% College of the Holy Cross (Aa3) 18.6% . Operating Revenues minus Expenses plus Interest Wesleyan University (Aa3) 18.2% plus Depreciation divided by Operating Revenue Wheaton College (Aa3) 17.6% Denison University (Aa3) 17.3% Measures Lafayette College (Aa3) 16.6% Colby College (Aa2) 15.5% . Operating Performance Oberlin College (Aa3) 15.0% Union College (A1) 14.9% Bucknell University (Aa2) 13.5% Lafayette College Rank Washington and Lee Univ. (Aa2) 13.5% Colgate University (Aa3) 13.2% . 6th out of 17 Institutions Macalester College (Aa3) 12.3% Skidmore College (A1) 12.1% Furman University (A1) 11.6% Vassar College (Aa3) 10.7% Middlebury College (Aa3) 6.3%

Source: Moody’s Investors Service FY 2020 data not yet available 44 Peer Analysis: Balance Sheet Strength

. The chart below ranks the College’s financial peers from strongest to weakest based on FY 2019 performance on spendable cash and investments to operations.

Spendable Cash & Invest. to Operations Definition Denison University (Aa3) 5.5 Washington and Lee Univ. (Aa2) 4.1 . Cash and Investments minus Perpetually Restricted Macalester College (Aa3) 3.9 Endowment divided by Operating Expenses Colby College (Aa2) 3.8 Vassar College (Aa3) 3.7 Measures Wesleyan University (Aa3) 3.7 Oberlin College (Aa3) 3.5 . Balance Sheet Strength Lafayette College (Aa3) 3.4 College of the Holy Cross (Aa3) 3.3 Wheaton College (Aa3) 3.1 Lafayette College Rank Middlebury College (Aa3) 2.7 St. Olaf College (A1) 2.7 . th 8 out of 17 Institutions Union College (A1) 2.7 Bucknell University (Aa2) 2.6 Colgate University (Aa3) 2.6 Furman University (A1) 2.6 Skidmore College (A1) 2.2

Source: Moody’s Investors Service FY 2020 data not yet available 45 Peer Analysis: Debt Leverage

. The chart below ranks the College’s financial peers from strongest to weakest based on FY 2019 performance on spendable cash and investments to debt.

Spendable Cash & Invest. to Debt Definition Wheaton College (Aa3) 9.5 Macalester College (Aa3) 5.3 . Cash and Investments minus Perpetually Bucknell University (Aa2) 4.7 Restricted Endowment divided by Total Debt St. Olaf College (A1) 4.7 Denison University (Aa3) 4.4 Measures Skidmore College (A1) 4.3 College of the Holy Cross (Aa3) 4.2 . Balance Sheet Leverage Furman University (A1) 4.2 Washington and Lee Univ. (Aa2) 3.7 Oberlin College (Aa3) 3.2 Lafayette College Rank Vassar College (Aa3) 3.1 Middlebury College (Aa3) 3.0 . 15th out of 17 Institutions Wesleyan University (Aa3) 2.9 Colby College (Aa2) 2.8 Lafayette College (Aa3) 2.3 Union College (A1) 2.2 Colgate University (Aa3) 1.8

Source: Moody’s Investors Service FY 2020 data not yet available 46 Peer Analysis: Liquidity

. The chart below ranks the College’s financial peers from strongest to weakest based on FY 2019 performance on monthly days cash on hand.

Monthly Days Cash on Hand Definition Colby College (Aa2) 772 Bucknell University (Aa2) 632 . Unrestricted cash and investments that can be Lafayette College (Aa3) 631 liquidated within one month (Monthly Liquidity), Skidmore College (A1) 590 multiplied by 365, divided by operating expenses less Denison University (Aa3) 588 depreciation and other large non-cash expenses Union College (A1) 586 Wheaton College (Aa3) 565 Measures Furman University (A1) 468 St. Olaf College (A1) 435 . Liquidity Colgate University (Aa3) 413 Wesleyan University (Aa3) 411 Washington and Lee Univ. (Aa2) 399 Lafayette College Rank Oberlin College (Aa3) 392 College of the Holy Cross (Aa3) 382 . rd 3 out of 17 Institutions Vassar College (Aa3) 378 Macalester College (Aa3) 373 Middlebury College (Aa3) 154

Source: Moody’s Investors Service FY 2020 data not yet available 47