Black, Bashor & Porsch, LLP CERTIFIED PUBLIC ACCOUNTANTS HERMITAGE MUNICIPAL AUTHORITY FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015

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1 FINANCIAL STATEMENTS TOGETHER WITH INDEPENDENT AUDITOR'S REPORT

2 TABLE OF CONTENTS INDEPENDENT AUDITOR'S REPORT 1-2 STATEMENTS OF NET POSITION 3 STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION 4 STATEMENTS OF CASH FLOWS PAGE NO.

3 270 East Connelly Boulevard Shenango Valley Freeway Sharon, Pennsylvania Fax Alice F. Mattocks, CPA, CGMA Gregory J. Koch, CPA Jack F. Kuchcinski, CPA Norbert F. Dietrich, Jr., CPA Alan J. Porsch, CPA Nancy J. Black, CPA Ruth Ann Sholler, CPA Brenda L. McCall, CPA Board of Directors Hermitage Municipal Authority Hermitage, Pennsylvania INDEPENDENT AUDITOR'S REPORT REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying financial statements of Hermitage Municipal Authority, a component unit of the City of Hermitage, as of and for the years ended December 31, 2016 and 2015, and the related notes to the financial statements, which collectively comprise Hermitage Municipal Authority's basic financial statements as listed in the table of contents. MANAGEMENT'S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. AUDITOR'S RESPONSIBILITY Our responsibility is to express opinions on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Member AICPA Private Companies Practice Section

4 Hermitage Municipal Authority OPINION In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hermitage Municipal Authority as of December 31, 2016 and 2015, the changes in net position, and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. EMPHASIS OF MATTER As discussed in Note "1", the combined financial statements present only the Hermitage Municipal Authority, a component unit of the City of Hermitage and do not purport to, and do not, present fairly the financial position of the City of Hermitage, Pennsylvania, as of December 31, 2016 and 2015, the changes in its financial position, or, where applicable, its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. OTHER MATTERS - REQUIRED SUPPLEMENTARY INFORMATION The Authority has omitted the Management's Discussion and Analysis that accounting principles generally accepted in the United States of America requires to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information. Sharon, Pennsylvania May 12,

5 STATEMENTS OF NET POSITION ASSETS:- CURRENT ASSETS:- Cash and Cash Equivalents $ 1,377,195 $ 923,406 Prepaid - Bond Insurance 4,482 1,144 TOTAL CURRENT ASSETS:- $ 1,381,677 $ 924, LIABILITIES:- CURRENT LIABILITIES:- Accounts Payable $ 80,696 $ 160,495 Retainage Payable 17, ,090 Accrued Interest Payable 395, ,841 Bonds Payable, Net of Discount or Premium 1,617,863 9,939,383 Note Payable 644, ,178 CAPITAL ASSETS:- Buildings $ 1,021,702 $ 1,021,702 Furniture, Fixtures, and Equipment 1,443, ,434 Sewer System 72,291,327 72,291,327 TOTAL CAPITAL ASSETS:- $ 74,756,954 $ 73,957,463 LESS: Accumulated Depreciation (19,896,487) (18,062,487) $ 54,860,467 $ 55,894,976 Land 64,000 64,000 Construction-in-Progress 61, ,321 TOTAL CURRENT LIABILITIES:- $ 2,756,259 $ 11,341,987 NON-CURRENT LIABILITIES:- Bonds Payable, Net of Discount or Premium $ 31,597,014 $ 23,874,344 Note Payable 10,794,943 11,225,649 Reserve for Delayed Assessment Receivable 600, ,106 TOTAL NON-CURRENT LIABILITIES:- $ 42,992,846 $ 35,721,099 TOTAL LIABILITIES:- $ 45,749,105 $ 47,063,086 NET CAPITAL ASSETS:- $ 54,986,158 $ 56,816,297 OTHER ASSETS:- Delayed Assessments Receivable $ 655,275 $ 675,492 Prepaid - Bond Insurance 61,033 19,300 TOTAL OTHER ASSETS:- $ 716,308 $ 694,792 NET POSITION:- Net Investment in Capital Assets $ 10,663,808 $ 11,265,094 Restricted - For Debt Service 1,665 84,702 Unrestricted 1,322, ,386 TOTAL ASSETS:- $ 57,084,143 $ 58,435,639 DEFERRED OUTFLOW OF RESOURCES:- Deferred Amount on Refunding $ 652,479 $ 539,629 TOTAL NET POSITION:- $ 11,987,517 $ 11,912,182 TOTAL ASSETS AND DEFERRED OUTFLOW OF RESOURCES:- $ 57,736,622 $ 58,975,268 TOTAL LIABILITIES AND NET POSITION:- $ 57,736,622 $ 58,975,268 The Accompanying Notes are an Integral Part of These Statements - 3 -

6 STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION YEARS ENDED OPERATING REVENUES:- Lease Revenue $ 3,205,300 $ 3,085,215 Assessments and Lien Satisfactions - 3,192 Other Revenue ,879 TOTAL OPERATING REVENUES:- $ 3,205,637 $ 3,134,286 OPERATING EXPENSES:- Legal Fees $ 128,939 $ 46,539 Accounting Fees 2,280 2,280 Auditing Fees 10,600 11,400 Trustee and Financing Fees 10,400 8,400 Engineering Fees 126, ,521 Consulting Fees 19,532 16,279 Legal Advertising Miscellaneous 8,997 - Repairs and Maintanence 29,650 - Depreciation 1,834,000 1,860,253 TOTAL OPERATING EXPENSES:- $ 2,171,370 $ 2,167,955 OPERATING INCOME:- $ 1,034,267 $ 966,331 NON-OPERATING REVENUES (EXPENSES):- Interest Income $ 213 $ 203 Bond Issue Costs (117,670) (159,100) Interest Charges (1,039,801) (1,273,668) Proceeds from Insurance Settlement, Net 198,326 - TOTAL NON-OPERATING REVENUES (EXPENSES):- (958,932) (1,432,565) CHANGES IN NET POSITION:- $ 75,335 $ (466,234) NET POSITION - BEGINNING OF YEAR:- 11,912,182 12,378,416 NET POSITION - END OF YEAR:- $ 11,987,517 $ 11,912,182 The Accompanying Notes are an Integral Part of These Statements - 4 -

7 PAGE 1 OF 2 STATEMENTS OF CASH FLOWS YEARS ENDED CASH FLOWS FROM OPERATING ACTIVITIES:- Cash Received from Customers $ 3,205,300 $ 3,085,215 Other Income Received ,071 Cash Paid for Operating Expenses (424,411) (164,989) NET CASH PROVIDED BY OPERATING ACTIVITIES:- $ 2,781,226 $ 2,969,297 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:- Interest Paid on Long-Term Debt $ (1,097,733) $ (1,299,423) Payment of Principal on Bonds (10,090,000) (9,775,000) Proceeds from Issuance of Bonds 9,333,934 9,702,686 Payment of Principal on Note Payable (642,219) (638,761) Proceeds from Note Payable 210,764 - Prepaid Bond Insurance (50,011) (20,444) Bond Issuance Costs (60,760) (99,100) Purchase of Capital Assets (781,625) (818,180) Proceeds from Insurance Settlement, Net 850,000 - NET CASH USED BY CAPITAL AND RELATED FINANCE ACTIVITIES ACTIVITIES:- $ (2,327,650) $ (2,948,222) CASH FLOWS FROM INVESTING ACTIVITIES:- Investment Income $ 213 $ 203 NET INCREASE IN CASH AND CASH EQUIVALENTS:- $ 453,789 $ 21,278 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR:- 923, ,128 CASH AND CASH EQUIVALENTS AT END OF YEAR:- $ 1,377,195 $ 923,406 RECONCILIATION OF NET OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:- Net Operating Income $ 1,034,267 $ 966,331 Adjustments to Reconcile Net Operating Income to Net Cash Provided by Operating Activities - Depreciation 1,834,000 1,860,253 Change in Assets and Liabilities - Increase (Decrease) in Accounts Payable (87,041) 142,713 NET CASH PROVIDED BY OPERATING ACTIVITIES:- $ 2,781,226 $ 2,969,297 The Accompanying Notes are an Integral Part of These Statements - 5 -

8 PAGE 2 OF 2 STATEMENTS OF CASH FLOWS YEARS ENDED NON-CASH TRANSACTIONS:- NON-CASH CAPITAL AND RELATED FINANCING ACTIVITIES:- Bond Principal $ 9,485,000 $ 10,000,000 LESS: Orignal Issuance Discount (94,156) (237,314) Bond Issuance Costs (56,910) (60,000) TOTAL CASH RECEIVED:- $ 9,333,934 $ 9,702,686 NON-CASH ADJUSTMENTS TO INTEREST:- Amoritzation of Original Issuance Discount $ (25,188) $ (15,989) Amorization of Original Issuance Premium 82,914 - Amorization of Prepaid Bond Insurance (4,941) - Amortization of Deferred Amount on Refunding (45,182) (28,976) TOTAL NON-CASH ADJUSTMENTS TO INTEREST:- $ 7,603 $ (44,965) NON-CASH ADJUSTMENTS TO BONDS PAYABLE:- Additions to Refunding $ (158,032) $ (125,657) Orignal Issuance Discount for , ,314 Amoritzation of Original Issuance Discount (25,188) (15,989) Amorization of Original Issuance Premium 82,914 - TOTAL NON-CASH ADJUSTMENTS TO BONDS PAYABLE:- $ (6,150) $ 95,668 The Accompanying Notes are an Integral Part of These Statements - 6 -

9 1. NATURE OF ORGANIZATION AND OPERATIONS The Hermitage Municipal Authority (Authority) was incorporated under the Provisions of the Pennsylvania Municipal Authorities Act of 1945, Public Law 382. The Authority is a local governmental unit established for the purpose of constructing and maintaining wastewater treatment systems in the City of Hermitage, Pennsylvania (City). The Authority is a component unit of the City. Although it is legally separate from the City, the Authority is reported in the City's financial statements as if it were part of the City because its purpose is to finance, construct, and maintain the sewer system operated by the City. The financial statements as presented herein represent only the activity applicable to the Authority. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These financial statements present the financial position, changes in net position, and cash flows of the Authority. The accompanying financial statements of the Authority have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) as prescribed by the Governmental Accounting Standards Board (GASB). REPORTING ENTITY GASB Statement No. 14, The Financial Reporting Entity, established the criteria for determining the activities, organizations, and functions of government to be included in a financial reporting entity. The criteria used are financial interdependency, selection of governing authority, designation of management, ability to significantly influence operations, accountability for fiscal matters, scope of public service, and special financing relationships. The Authority has evaluated its relationships with other entities to determine if the financial information of those entities should be included in the financial statements. Based on this evaluation, no other entities have been included as a component unit of the Authority's reporting entity because of oversight responsibility and limited accountability for fiscal matters. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION Measurement focus is a term used to describe "how" transactions are recorded within the financial statements. Basis of accounting refers to "when" transactions are recorded regardless of the measurement focus applied. Measurement Focus The Authority utilizes an "economic resources" measurement focus. The accounting objectives of this measurement focus are the determination of operating income, changes in net assets (or cost recovery), net position, and cash flows. All assets, deferred outflows of resources, liabilities, and net position (whether current or noncurrent, financial or nonfinancial) associated with their activities are reported

10 Basis of Accounting The accrual basis of accounting is followed whereby revenues are recognized in the period in which the revenues are earned and expenses are recognized in the period incurred, regardless of the timing of related cash flows. Basis of Presentation For financial reporting purposes, the Authority reports its operations on an enterprise fund basis. The Authority functions as a Business-Type Activity, as defined by GASB. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and money market mutual fund accounts. For purposes of the statements of cash flows, the Authority considers all highly liquid investments purchased with an initial maturity of three (3) months or less, to be cash equivalents. The Federal Deposit Insurance Corporation (FDIC) insures all deposit accounts, including checking and savings accounts, money market deposit accounts, and certificates of deposit. The standard insurance amount is $ 250,000 per depositor, per insured bank, per ownership category. In the normal course of business, the Authority may have deposits in excess of federal insured coverage. As of December 31, 2016, the Authority did not have any deposit accounts in excess of FDIC insured limits. CAPITAL ASSETS Capital assets are reported at cost. The Authority defines capital assets as assets with an initial, individual, or group cost of more than $ 500 and an estimated useful life in excess of one (1) year. Donated capital assets are recorded at estimated fair value at the date of donation. Depreciation is provided on a straight-line basis in amounts sufficient to amortize the cost of the assets, less an estimated salvage value, over the estimated useful life of the asset once the assets are put into use. The estimated useful lives of the various classes of depreciable assets are as follows: ASSET CLASS YEARS Buildings 40 Furniture, Fixtures, and Equipment 5-15 Vehicles 4-10 Sewer System Maintenance and repairs are charged to expense as incurred. Expenses which extend the useful life of the assets or improve their efficiency are capitalized. Retirements and other disposals of assets are removed from the accounts at their carrying values. Gains or losses resulting from disposition or sale of assets are reflected in income

11 DELAYED ASSESSMENTS RECEIVABLE Delayed assessments receivable represent front footage of either vacant land or of developed lots in excess of 200 feet. For the Bobby Run, Sample Road, South Darby/Miller Road, and Overlook Drive Sewer Projects, these assessments are valued at $ 18, $ 25, $ 27, and $ 31 per front foot, respectively, and are delayed until the property is sold or vacant land is developed. At such time, the entire delayed assessment of the property becomes currently due. Consequently, the offset for these delayed assessments are reported as reserve for delayed assessments receivables within long-term liabilities in the accompanying statements of net position and will be recognized as property is sold or developed. DEFERRED OUTFLOW OF RESOURCES Deferred outflow of resources represent a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense) until that time. The Authority has one (1) item that qualifies for reporting in this category. The unamortized amount of deferred charges from a prior year's refunding of bonds is being amortized as a component of interest expense on a straight-line basis through December 31, NET POSITION Net position represents the difference between all other elements in the statements of financial position and should be displayed in three (3) components, as applicable: a. Net investment in capital assets - The net investment in capital assets component of net position consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of those assets or related debt also should be included in this component of net position. If there are significant unspent related debt proceeds or deferred inflows of resources at the end of the reporting period, the portion of the debt or deferred inflows of resources attributable to the unspent amount should not be included in the calculation of net investment in capital assets. Instead, that portion of the debt or deferred inflows of resources should be included in the same net position component (restricted or unrestricted) as the unspent amount. b. Restricted - The restricted component of net position consists of net assets, reduced by liabilities and deferred inflows of resources related to those assets, with constraints placed on the use either by external groups, such as grantors or laws and regulations of other governments, or law through constitutional provisions or enabling legislation. Generally, a liability relates to restricted assets if the asset results from a resources flow that also results in the recognition of a liability or if the liability will be liquidated with the restricted assets reported

12 c. Unrestricted - The unrestricted component of net position is the net amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted component of net position. It is the Authority's policy to first use the restricted net position prior to the use of the unrestricted net position when an expense is incurred for purposes for which both the restricted and unrestricted net position are available. ESTIMATES The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. OPERATING REVENUES AND EXPENSES Operating revenues are those revenues that are generated directly from the primary activity of the Authority. For the Authority, these revenues are lease revenue for the rental of the sewer system. Operating expenses are necessary costs incurred to provide services that are the primary activity of the Authority. All revenues and expenses not meeting these definitions are reported as nonoperating revenues and expenses. 3. DEPOSITS AND INVESTMENTS At December 31, 2016, the Authority had the following deposits and investments presented as cash and cash equivalents in the statements of net positions: Deposits $ 46,353 Investments 1,330,842 TOTAL:- $ 1,377,195 At December 31, 2016, the Authority's investments consisted of the following: INVESTMENT TYPE MATURITIES FAIR VALUE Governmental Mutual Fund 38 days average $ 1,330,842 Interest Rate Risk - The Authority does not have a formal investment policy that limits investment maturities as a means of managing it exposure to fair value losses arising from increasing interest rates. Credit Risk - State law limits investments to: - United States Treasury bills,

13 - Short-term obligations of the United States Government or its agencies or instrumentalities, - Deposits in savings accounts or time deposits or share accounts of institutions insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation or the National Credit Union Share Insurance Fund to the extent that such accounts are so insured and for any amounts above the insured maximum if the approved collateral as provided by law shall be pledged by the depository, - Obligations of the United States of America or any of its agencies or instrumentalities backed by the full faith and credit of the United States of America, and - Shares of an investment company registered under the Investment Company Act of 1940 (54 Stat. 789, 15 U.S.C. 80a-1 et seq.) whose shares are registered under the Securities Act of 1933 (48 Stat. 74, 15 U.S.C. 77a et seq.) if the only investments of that company are in the authorized investments for authority funds listed in one through four above. The Authority has no investment policy that would further limit its investment choices. As of December 31, 2016, the Authority's investment in the governmental mutual fund was rated AAAm by Standard & Poor's, Aaa-mf by Moody's Investors Services and AAAmmf by Fitch. For Authority funds deposited with a financial institution, P.L 281, No Standardizing the Procedures for Pledges of Assets Act of August 6, 1971 requires that public funds of an authority be held by a banking institution authorized to hold deposits of public funds (depository). In addition, collateral is required for demand deposits and certificates of deposit, and at 100 percent of all amounts not covered by federal deposit insurance as required by Pennsylvania Pledge Act 72 (72 P.S Et Seq of 1971). Obligations that may be pledged as collateral are obligations of the United States of America and its agencies. Concentration of Credit Risk - The Authority places no limit on the amount the Authority may invest in any one issuer. Custodial Credit Risk - Investments - The risk that in the event of a bank failure, the government's deposits may not be returned to it. As of December 31, 2016, $ 1,080,841 of the Authority's investment balance of $ 1,330,842 was exposed to custodial credit risk as follows: Uninsured and collateralized $ 1,080,342 Cash deposits are carried at cost. The carrying amount of deposits is separately displayed on the statements of net position as cash and cash equivalents. The balances are categorized to give an indication of the level of risk assumed by the Authority at year end. At December 31, 2016, all cash deposits of the Authority were fully insured by the FDIC, and therefore had no custodian credit risk

14 4. CAPITAL ASSETS Capital asset activity for the years ended December 31, 2016 and 2015, was as follows: BEGINNING ENDING BALANCE BALANCE JANUARY 1, DECEMBER 31, 2016 ADDITIONS DISPOSALS 2016 Capital Assets Not Being Depreciated - Construction-in- Progress $ 857,321 $ 61,691 ($ 857,321) $ 61,691 Land 64, ,000 Capital Assets Being Depreciated - Buildings 1,021, ,021,702 Furniture, Fixtures, and Equipment 644, ,491-1,443,925 Sewer System 72,291, ,291,327 TOTALS:- $ 74,878,784 $ 861,182 ($ 857,321) $ 74,882,645 Accumulated Depreciation For - Buildings ($ 296,854) ($ 25,543) $ - ($ 322,397) Furniture, Fixtures, and Equipment ( 624,396) ( 9,197) - ( 633,593) Sewer System ( 17,141,237) ( 1,799,261) - ( 18,940,498) TOTAL ACCUMULATED DEPRECIATION:- ($ 18,062,487) ($ 1,834,000) $ - ($ 19,896,487) CAPITAL ASSETS, NET:- $ 56,816,297 ($ 972,818) ($ 857,321) $ 54,986,158 BEGINNING ENDING BALANCE BALANCE JANUARY 1, DECEMBER 31, 2015 ADDITIONS DISPOSALS 2015 Capital Assets Not Being Depreciated - Construction-in- Progress $ 32,367,172 $ 238,561 ($ 31,748,412) $ 857,321 Land 64, ,000 Capital Assets Being Depreciated - Buildings 1,021, ,021,702 Furniture, Fixtures, and Equipment 662,287 - ( 17,853) 644,

15 BEGINNING ENDING BALANCE BALANCE JANUARY 1, DECEMBER 31, 2015 ADDITIONS DISPOSALS 2015 Sewer System 40,542,915 31,748,412-72,291,327 TOTALS:- $ 74,658,076 $ 31,986,973 ($ 31,766,265) $ 74,878,784 Accumulated Depreciation For - Buildings ($ 271,311) ($ 25,543) $ - ($ 296,854) Furniture, Fixtures, and Equipment ( 638,049) ( 4,200) 17,853 ( 624,396) Sewer System ( 15,310,727) ( 1,830,510) - ( 17,141,237) TOTAL ACCUMULATED DEPRECIATION:- ($ 16,220,087) ($ 1,860,253) $ 17,853 ($ 18,062,487) CAPITAL ASSETS, NET:- $ 58,437,989 $ 30,126,720 ($ 31,748,412) $ 56,816,297 Included within disposals during the year end December 31, 2016, is a capital asset impairment of $ 777,764 on equipment included within construction-in-progress that was damaged during initial installation. The impairment, net of accounts payable of $ 126,090, is included within the statements of revenues, expenses, and changes in net position under nonoperating revenues (expenses), net of proceeds from insurance settlement of $ 850, NON-CURRENT LIABILITIES Non-current liabilities activity for the years ended December 31, 2016 and 2015, was as follows: BALANCE PAYMENTS BALANCE JANUARY 1, OR DECEMBER 31, DUE WITHIN 2016 BORROWINGS ACCRETIONS 2016 ONE YEAR Bonds Payable - Series A of Sewer Revenue Bonds $ 8,400,000 $ - ($ 8,400,000) $ - $ - Series B of Sewer Revenue Bonds 985,000 - ( 235,000) 750, ,000 Series A of Sewer Revenue Bonds 10,495,000 - ( 1,095,000) 9,400,000 1,110,000 Series B of Sewer Revenue Bonds 2,295,000 - ( 110,000) 2,185, ,000 Series C of Sewer Revenue Bonds 1,800,000 - ( 10,000) 1,790,000 15,000 Series of Sewer Revenue Bonds 10,000,000 - ( 50,000) 9,950,000 55,000 Series of Sewer Revenue Bonds - 9,485,000 ( 190,000) 9,295,000 85,000 SUBTOTAL - BONDS:- $ 33,975,000 $ 9,485,000 ($ 10,090,000) $ 33,370,000 $ 1,625,

16 BALANCE PAYMENTS BALANCE JANUARY 1, OR DECEMBER 31, DUE WITHIN 2016 BORROWINGS ACCRETIONS 2016 ONE YEAR Deferred Amounts for Issuance Discount ( 490,708) ( 94,156) 183,220 ( 401,644) ( 25,188) Deferred Amounts for Issuance Premium 329,435 - ( 82,914) 246,521 18,051 TOTAL - BONDS PAYABLE, NET:- $ 33,813,727 $ 9,390,844 ($ 9,989,694) $ 33,214,877 $ 1,617,863 Note Payable $ 11,870,827 $ 210,764 ($ 642,219) $ 11,439,372 $ 644,430 BALANCE PAYMENTS BALANCE JANUARY 1, OR DECEMBER 31, DUE WITHIN 2015 BORROWINGS ACCRETIONS 2015 ONE YEAR Bonds Payable - Series A of Sewer Revenue Bonds $ 16,865,000 $ - ($ 8,465,000) $ 8,400,000 $ 8,400,000 Series B of Sewer Revenue Bonds 1,215,000 - ( 230,000) 985, ,000 Series A of Sewer Revenue Bonds 11,310,000 - ( 815,000) 10,495,000 1,095,000 Series B of Sewer Revenue Bonds 2,345,000 - ( 50,000) 2,295, ,000 Series C of Sewer Revenue Bonds 2,015,000 - ( 215,000) 1,800,000 10,000 Series of Sewer Revenue Bonds - 10,000,000-10,000,000 50,000 SUBTOTAL - BONDS:- $ 33,750,000 $ 10,000,000 ($ 9,775,000) $ 33,975,000 $ 9,900,000 Deferred Amounts for Issuance Discount ( 395,040) ( 237,314) 141,646 ( 490,708) ( 20,421) Deferred Amounts for Issuance Premium 329, ,435 59,804 TOTAL - BONDS PAYABLE, NET:- $ 33,684,395 $ 9,762,686 ($ 9,633,354) $ 33,813,727 $ 9,939,383 Note Payable $ 12,509,588 $ - ($ 638,761) $ 11,870,827 $ 645, BONDS PAYABLE During 2010, the Authority issued $ 17,770,000 of Series A Guaranteed Sewer Revenue Bonds with interest rates ranging from 1.23 percent to 4.3 percent, maturing in 2032, to fund various capital projects, fund capitalized interest, to pay premium on a debt service surety bond, and to pay the costs of issuing and insuring the bonds. With the issuance of Series 2015 Guaranteed Sewer Revenue Bonds (G), the Authority paid an additional principal payment of $ 8,455,000 in Also, in 2016, the Authority issued Series 2016 Guaranteed Sewer Revenue Bonds with a portion of the proceeds being used to pay-off the balance of the 2010 Series A Guaranteed Sewer Revenue Bonds of $ 8,400,000. The Authority completed this refunding to reduce its total debt service payments over the next 15 years by $ 834,244 and to obtain an economic gain (difference between the present value of the old and new debt service payments) of $ 686,

17 During 2010, the Authority issued $ 1,335,000 of Series B Guaranteed Sewer Revenue Bonds with interest rates ranging from 1.90 percent to 3.45 percent, maturing in 2019, to currently refund the Authority outstanding Sewer Revenue Bonds Series of 1999, pay premium on a debt service reserve surety bond, and to pay the cost of issuing and insuring the bonds. At December 31, 2016, the debt service requirements of principal and interest on the Series B of 2010 Sewer Revenue Bonds were as follows: SERIES B OF 2010 SEWER REVENUE BONDS PRINCIPAL INTEREST TOTAL 2017 $ 245,000 $ 19,309 $ 264, ,000 12, , ,000 4, ,144 TOTAL:- $ 750,000 $ 35,491 $ 785,491 During 2012, the Authority issued $ 12,855,000 of Series A Guaranteed Sewer Revenue Bonds with interest rates ranging from.65 percent to 3.0 percent, maturing in 2023, to advance refund the Authority's outstanding balance of the 2003 Bonds. At December 31, 2016, the debt service requirements of principal and interest on the Series A of 2012 Sewer Revenue Bonds were as follows: SERIES A OF 2012 SEWER REVENUE BONDS PRINCIPAL INTEREST TOTAL 2017 $ 1,110,000 $ 226,574 $ 1,336, ,145, ,743 1,343, ,185, ,793 1,348, ,475, ,253 1,600, ,520,000 88,338 1,608, ,965,000 71,469 3,036,469 TOTAL:- $ 9,400,000 $ 874,170 $ 10,274,170 During 2012, the Authority issued $ 2,440,000 of Series B Guaranteed Sewer Revenue Bonds with interest rates ranging from.65 percent to 3.5 percent, maturing in 2032, to currently refund the outstanding balance of the Authority's 2006 Bonds. At December 31, 2016, the debt service requirements of principal and interest on the Series B of 2012 Sewer Revenue Bonds were as follows:

18 SERIES B OF 2012 SEWER REVENUE BONDS PRINCIPAL INTEREST TOTAL 2017 $ 115,000 $ 60,210 $ 175, ,000 58, , ,000 56, , ,000 54, , ,000 51, , , , , ,000 98, , ,000 2, ,975 TOTAL:- $ 2,185,000 $ 594,958 $ 2,779,958 During 2012, the Authority issued $ 2,500,000 of Series C Guaranteed Sewer Revenue Bonds with interest rates ranging from.65 percent to percent, maturing 2033, to fund various capital projects. At December 31, 2016, the debt service requirements of principal and interest on the Series C of 2012 Sewer Revenue Bonds were as follows: SERIES C OF 2012 REVENUE BONDS PRINCIPAL INTEREST TOTAL 2017 $ 15,000 $ 62,425 $ 77, ,000 62,250 67, ,000 62,163 67, ,000 61,931 76, ,000 61,681 66, , , , , , , ,620,000 55,453 1,675,453 TOTAL:- $ 1,790,000 $ 963,028 $ 2,753,028 During 2015, the Authority issued $ 10,000,000 of Series 2015 Guaranteed Sewer Revenue Bonds with interest rates ranging from 2.00 percent to 3.28 percent, maturing 2033, to refund a portion of the Authority's outstanding Guaranteed Sewer Revenue Bonds, Series A of 2010; pay the premium on a debt service reserve fund surety bond, fund various capital projects of the Authority, and pay the cost of issuing the Bonds. At December 31, 2016, the debt service requirements of principal and interest on the Series of 2015 Sewer Revenue Bonds were as follows:

19 SERIES OF 2015 SEWER REVENUE BONDS PRINCIPAL INTEREST TOTAL 2017 $ 55,000 $ 296,613 $ 351, , , , , , , , , , , , , ,300,000 1,440,388 2,740, ,065, ,275 7,022, ,300, ,325 2,404,325 TOTAL:- $ 9,950,000 $ 3,973,953 $ 13,923,953 During 2016, the Authority issued $ 9,485,000 of Series 2016 Guaranteed Sewer Revenue Bonds with interest rates ranging from 2.00 percent to 3.00 percent, maturing 2030, to refund a portion of the Authority's outstanding Guaranteed Sewer Revenue Bonds, Series A of 2010; pay the premium on a debt service reserve fund surety bond, fund various capital projects of the Authority, and pay the cost of issuing the Bonds. At December 31, 2016, the debt service requirements of principal and interest on the Series of 2016 Sewer Revenue Bonds were as follows: SERIES OF 2016 SEWER REVENUE BONDS PRINCIPAL INTEREST TOTAL 2017 $ 85,000 $ 244,681 $ 329, , , , , , , , , , , , , ,705, ,709 5,676, ,130, ,150 4,438,150 TOTAL:- $ 9,295,000 $ 2,485,014 $ 11,780,014 At December 31, 2016, the total debt service requirements of principal and interest on all outstanding bonds were as follows:

20 TOTAL BOND DEBT SERVICE PRINCIPAL INTEREST DEBT SERVICE 2017 $ 1,625,000 $ 909,812 $ 2,534, ,665, ,054 2,535, ,710, ,260 2,532, ,760, ,194 2,534, ,805, ,454 2,536, ,685,000 2,998,343 12,683, ,030,000 1,657,744 12,687, ,090, ,753 4,252,753 TOTAL:- $ 33,370,000 $ 8,926,614 $ 42,296,614 Bond issuance discounts of $ 14,257, $ 77,719, $ 35,018, $ 30,990, $ 237,314, and $ 94,156 on the Series B of 2010 Bonds, the Series A, B, and C of 2012 Bonds, the Series 2015 Bonds, and the Series 2016 Bonds respectively, are being amortized over the life of the Bonds. Amortization for the years ended December 31, 2016 and 2015, totalled $ 25,188 and $ 23,309, respectively, and has been charged to interest expense. As of December 31, 2016 and 2015, the total unamortized portion of the bond discount is $ 401,644 and $ 490,708. Bond issuance premium of $ 329,435 on the Series A 2012 Bonds are being amortized over the life of the Bonds. Amortization for the year ended December 31, 2016 totalled $ 82,914 and has been charged to interest expense. As of December 31, 2016 and 2015, the total unamortized portion of the bond premium amounted to $ 329,435 and $ 246,521. All bonds of the Authority are guaranteed by the City. In connection with the bond indentures, rather than fund a debt service reserve account for the various bond issuances, the Authority has issued surety bonds, for the benefit of the bond trustee, U. S. Bank National Association. The following is a summary of the outstanding surety bonds at December 31, 2016: DESCRIPTION SURETY BOND AMOUNT Series of 2010 Guaranteed Sewer Revenue Bonds $ 2,556,988 Series of A, B, and C of 2012 Guaranteed Sewer Revenue Bonds $ 1,711,422 Series of 2015 Guaranteed Sewer Revenue Bonds $ 2,289,463 Series of 2016 Guaranteed Sewer Revenue Bonds $ 948, NOTE PAYABLE The Authority entered into an agreement with the Pennsylvania Infrastructure Investment Authority (PENNVEST) to provide financing for the upgrade and

21 expansion of the wastewater treatment plant. The PENNVEST loan amounted to $ 13,788,203. The terms of the loan provide for monthly payments of interest only at 1.00 percent through January 2014, then 60 monthly payments, beginning in 2015 of $ 63,411, including interest at 1.00 percent for 36 months, increased to 1.06 percent interest for 24 months, followed by 180 payments of $ 63,696, including interest at 1.06 percent. The loan matures 20 years after payments begin. The loan is collateralized by an assignment of the lease agreement between the Authority and the City regarding operation of the sewer system, a lien on the sewer revenues of the City, and a pledge of the City's taxing authority. As of December 31, 2016 and 2015, a total of $ 13,723,203 and $ 13,512,439 has been drawn down on the loan. The total balance outstanding at December 31, 2016 and 2015 was $ 11,439,372 and $ 11,870,827, respectively. At December 31, 2016, the debt service requirements of principal and interest on the notes payable is as follows: PENNVEST NOTE PAYABLE PRINCIPAL INTEREST TOTAL 2017 $ 644,430 $ 111,445 $ 755, , , , ,442 98, , ,047 91, , ,718 85, , ,456, ,346 3,779, ,633, ,227 3,779, ,062,663 7,933 1,070,596 TOTAL:- $ 11,439,372 $ 969,337 $ 12,408,709 At December 31, 2016, the Authority was not in compliance with a provision of the PENNVEST note payable which requires fees and charges associated with system revenues sufficient to provide net revenue, as define, at least equal to the sum of 1) principal and interest due and payable under the terms of the PENNVEST note payable; 2) principal and interest due and payable on any other funding secured by a lien on system revenues in such fiscal year; and 3) the payment of all amounts due under any other debt obligations secured by system revenues and coming due in such fiscal year. 8. NET INVESTMENT IN CAPITAL ASSETS At December 31, 2016 and 2015, net investment in capital assets is composed of the following:

22 Capital Assets $ 54,986,157 $ 56,816,297 Outstanding Principal of Capital Related Debt (44,809,372) (45,845,827) Premiums on Bonds (246,521) (329,435) Discounts on Bonds 401, ,709 Unspent Bond Proceeds (320,579) (406,279) Capital Related Deferred Outflow of Resources 652, ,629 TOTAL:- $ 10,663,808 $ 11,265, LEASE AGREEMENTS In 2016, the Authority issued Guaranteed Sewer Revenue Bonds, Series of In conjunction therewith, the seventh amendment to the Agreement of Lease and Guaranty with the City was executed. This agreement incorporates the City of Hermitage's Sewer Utility Fund's (Sewer Utility Fund) previous obligations with the Authority regarding the Series B of 2010 bonds, the 2011 PENNVEST loan, the Series A, B, C of 2012 bonds, the Series of 2015 bonds, and the series of 2016 bonds. The City covenants under the terms of the lease, that if in any year revenues derived from the operation of the sewer system are insufficient to enable the Sewer Utility Fund to meet its current obligations, the City will provide the funds from its operating budget. All of these debts of the Authority have been determined to be self-liquidating debts. The lease is to fund various obligations of the Authority incurred for the mandated renovation and construction of various parts of the sewer system. The lease agreement has not been capitalized by the City or the Authority since the lease does not transfer all of the risk of ownership of the sewer system to the City. Accordingly, payments received from the City for the lease agreement are recognized as lease revenue in the Authority's financial statements. The following is a schedule of approximate future lease rental payments to be received from the City under the lease agreement: YEAR ENDED DECEMBER 31:- RENTAL REVENUE 2017 $ 3,290, ,290, ,288, ,290, Thereafter 3,292,328 38,253,177 TOTAL RENTAL REVENUE:- $ 54,705,

23 10. CONTINGENCIES LITIGATION In the normal course of operations, the Authority is involved in various litigations. In the opinion of the Authority's counsel, any unfavorable outcome resulting from these actions would not have a material effect on the Authority's financial position or would be covered by the Authority's liability carrier. 11. SUBSEQUENT EVENTS The Authority has evaluated subsequent events through May 12, 2017, the date which the financial statements were available to be issued, and concluded that no events have occurred that would require recognition or disclosure in the financial statements or notes