State Board of Regents of the State of Utah

State Board of Regents of the State of Utah Student Loan Purchase Program An Enterprise Fund of the State of Utah Financial Statements and Government Auditing Standards Report

An Enterprise Fund of the State of Utah Financial Statements and Government Auditing Standards Report

AN ENTERPRISE FUND OF THE STATE OF UTAH FOR THE YEAR ENDED JUNE 30, 2017 TABLE OF CONTENTS INDEPENDENT AUDITOR S REPORT 1 MANAGEMENT S DISCUSSION AND ANALYSIS 4 FINANCIAL STATEMENTS: Statement of Net Position 10 Statement of Revenues, Expenses, and Changes in Net Position 11 Statement of Cash Flows 12 Notes to Financial Statements 14 REQUIRED SUPPLEMENTARY INFORMATION 44 SUPPLEMENTAL SCHEDULES 47 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER 52 FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Page

Independent Auditor s Report To the Utah State Board of Regents, The UHEAA Audit Committee, and David L. Buhler, Commissioner of Higher Education Report on the Financial Statements We have audited the accompanying financial statements of the State Board of Regents of the State of Utah Student Loan Purchase Program (the Program), an enterprise fund of the State of Utah, which comprise the statement of net position as of June 30, 2017, and the statements of revenues, expenses, and changes in net position, and cash flows for the year then ended, and the related notes to the financial statements. 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 an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. 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 opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Program as of June 30, 2017, and the respective changes in financial position and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. www.eidebailly.com 5 Triad Center, Ste. 600 Salt Lake City, UT 84180-1106 T 801.532.2200 F 801.532.7944 EOE 1

Emphasis of Matters Reporting Entity As discussed in Note 1, the financial statements of the State Board of Regents of the State of Utah Student Loan Purchase Program, an enterprise fund of the State of Utah, are intended to present the financial position, the changes in financial position and cash flows of only that portion of the State of Utah that is attributable to the transactions of the State Board of Regents of the State of Utah Student Loan Purchase Program. They do not purport to, and do not, present fairly the financial position of the State of Utah, the State Board of Regents of the State of Utah, or Utah Higher Education Assistance Authority as of June 30, 2017 and the changes in their financial position and their cash flows for the years then ended in conformity 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 Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis on pages 4-9, the Program s Proportionate Share of the Net Pension Liability on page 45, and the Program s Defined Benefit Pension Contribution on page 46 be presented to supplement the basic financial statements. Such 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. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The Combining Statement of Net Position, Combining Statement of Revenues, Expenses, and Changes in Net Position, and Combining Statement of Cash Flows (Combining Statements) shown on pages 48 to 51 are presented for purposes of additional analysis and are not a required part of the financial statements. The Combining Statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Combining Statements are fairly stated, in all material respects, in relation to the financial statements taken as a whole Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued a report dated October 3, 2017 on our consideration of the Program s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. 2

The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Program s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Program s internal control over financial reporting and compliance. Salt Lake City, Utah October 3, 2017 3

Management's Discussion and Analysis Introduction The following discussion and analysis provides an overview of the financial position and activity of the State Board of Regents of the State of Utah Student Loan Purchase Program (the Program) for the year ended June 30, 2017 with selected comparative information for the year ended June 30, 2016. This discussion and analysis has been prepared by management and should be read in conjunction with the financial statements and footnotes which follow this section. The Program is an enterprise fund of the State of Utah and was established in 1977 by Utah statute for the purpose of originating, purchasing, and servicing the loans of qualified students. Financial Highlights The Program s net position decreased during the fiscal year ended June 30, 2017, with assets totaling $2.2 billion and total liabilities of $1.8 billion. Net position, which represents the residual interest in the Program s assets and deferred outflows of resources after liabilities and deferred inflows of resources are deducted, decreased by $1.0 million to $297.1 million at June 30, 2017. Using the Financial Statements The Program s financial report is prepared in accordance with Governmental Accounting Standards Board (GASB) principles and includes three financial statements: the Statement of Net Position; the Statement of Revenues, Expenses, and Changes in Net Position; and the Statement of Cash Flows. The accompanying notes are an integral part of the financial statements. Each of the financial statements includes combined information for the following funds: Short Term Note Fund 1993 Revenue Bond Fund 2012 Revenue Bond Fund 2014 Revenue Bond Fund 2015 Revenue Bond Fund 2016 Revenue Bond Fund 2017 Revenue Bond Fund Warehouse Facility Fund Office Facility Bond Fund While the various funds of the Program are grouped for convenience, the combined assets are available only in accordance with the applicable bond resolutions, federal and Utah State laws, and other outstanding agreements. Accompanying the financial statements are supplemental schedules which describe the financial activity of the Program by fund. The Statement of Net Position presents information on all of the Program s assets and deferred outflow of resources and liabilities and deferred inflow of resources with the resulting net 4

Management's Discussion and Analysis position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the Program is improving or deteriorating. The Statement of Revenues, Expenses, and Changes in Net Position presents information showing how the Program s net position changed during the fiscal year ended June 30, 2017. The Statement of Cash Flows reports the cash receipts, cash payments, and net changes in cash resulting from operations, noncapital financing activities, capital and related financing activities and investing activities. Significant sources of the Program s revenues include: interest on student loans and servicing revenue. Significant Program expenses include: interest expense, bond related fees, special allowance on student loans, servicing fees and administrative and operating costs. Statement of Net Position The Statement of Net Position presents the financial position of the Program at the end of the fiscal year. A summarized comparison of the Program s assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position at June 30, 2017 and 2016 is shown below: 2017 2016 Change % Change Assets Current assets $ 570,020,416 $ 605,384,632 $ (35,364,216) -5.84% Capital assets 9,684,603 9,800,866 (116,263) -1.19% Other noncurrent assets 1,579,588,088 1,930,552,162 (350,964,074) -18.18% Total Assets 2,159,293,107 2,545,737,660 (386,444,553) -15.18% Deferred Outflows of Resources 775,047 1,085,571 (310,524) -28.60% Liabilities Current liabilities 410,467,182 1,199,494,045 (789,026,863) -65.78% Noncurrent liabilities 1,429,546,313 1,009,965,959 419,580,354 41.54% Total Liabilities 1,840,013,495 2,209,460,004 (369,446,509) -16.72% Deferred Inflows of Resources 22,903,131 39,219,739 (16,316,608) -41.60% Net Position: Net Investment in Capital Assets 5,397,260 4,812,028 585,232 12.16% Restricted 230,770,231 254,209,977 (23,439,746) -9.22% Unrestricted 60,984,037 39,121,483 21,862,554 55.88% Total Net Position $ 297,151,528 $ 298,143,488 $ (991,960) -0.33% 5

Management's Discussion and Analysis Financial Analysis Total Assets Total assets as of June 30, 2017 were $2.2 billion, a decrease of $386.4 million (-15.2%) compared to June 30, 2016. The overall decrease was due to a $385.8 million (-16.7%) decrease in student loans receivable; a $6.7 million (-13.8%) decrease in interest receivable; a $15.6 million (-54.3%) decrease in derivative instrument interest rate swap; and a $21.9 million (15.9%) increase in cash and cash equivalents and funds held by Trustee. The Program received $438.8 million in principal payments on student loans during the year ended June 30, 2017, a decrease of $68.2 million (-13.5%) over the prior year. Total Liabilities Total liabilities decreased $369.0 million (-16.7%) compared to June 30, 2016. The decrease was primarily due to a $365.0 million (-16.8%) reduction in bonds and notes payable, and line of credit. The Program issued $872.3 million in student loan backed notes at a discount during the fiscal year and proceeds from the notes were used to refund outstanding advances. The Program paid $305.5 million in principal on student loan revenue bonds and notes, and $922.0 million in principal on line of credit during the fiscal year. Net Position Net position of the Program decreased $1.0 million during the year ended June 30, 2017 to $297.1 million from a beginning balance of $298.1 million. Net position, contained within the individual bond funds, is restricted in accordance with the provisions of the applicable bond indentures. 6

Management's Discussion and Analysis Statement of Revenues, Expenses, and Changes in Net Position The Statement of Revenues, Expenses, and Changes in Net Position presents the Program s results of operations which are summarized below for the years ended June 30, 2017 and 2016. 2017 2016 Change % Change Operating Revenues Interest on student loans $ 91,604,461 $ 109,549,673 $ (17,945,212) -16.38% Federal loan servicing revenue 7,735,871 3,975,505 3,760,366 94.59% Investment income 1,017,781 640,039 377,742 59.02% Other revenue 5,011,587 5,216,527 (204,940) -3.93% Total operating revenues 105,369,700 119,381,744 (14,012,044) -11.74% Operating Expenses Interest expense 30,833,036 25,337,624 5,495,412 21.69% Bond and financing related expense 6,331,312 399,619 5,931,693 1484.34% Special allowance 44,759,802 63,614,778 (18,854,976) -29.64% Student loan servicing expense 10,785,023 17,300,237 (6,515,214) -37.66% Administrative and operating expense 6,173,896 13,317,330 (7,143,434) -53.64% Federal loan servicing expense 6,901,614 5,822,205 1,079,409 18.54% Federal default fee 226,977 343,244 (116,267) -33.87% Total operating expenses 106,011,660 126,135,037 (20,123,377) -15.95% Operating loss (641,960) (6,753,293) 6,111,333 90.49% Transfer to Utah System of Higher Education (250,000) (250,000) - 0.00% Transfers - UHEAA Grants (100,000) (100,000) - 0.00% Change in Net Position (991,960) (7,103,293) 6,111,333 86.04% Net Position - Beginning of Year 298,143,488 305,246,781 (7,103,293) -2.33% Net Position - End of Year $ 297,151,528 $ 298,143,488 $ (991,960) -0.33% Financial Analysis Total Operating Revenues The Program earned $105.4 million in total operating revenues during the year ended June 30, 2017, a decrease of $14.0 million (-11.7%) over the previous fiscal year. The overall decrease was due to a decline in interest on student loans of $17.9 million (-16.4%), offset by an increase in federal loan servicing revenue of $3.8 million (94.6%). Total Operating Expenses The Program s total operating expenses for the fiscal year ended June 30, 2017 decreased $20.1 million (-16.0%) from the prior fiscal year. The overall decrease was due to a decrease in special allowance of $18.9 million (-29.6%); a decrease in student loan servicing expense of $6.5 million (-37.7%); a decrease in administrative and operating expense of $7.1 million (-53.6%); an increase in interest expense of $5.5 million (21.7%); and an increase in bond and financing related expense of $5.9 million (1484.3%) (due to cost of issuance expenses). 7

Management's Discussion and Analysis Operating Loss The Program s operating loss was $641,960 during the year ended June 30, 2017. Net interest margins (a ratio of investment and student loan interest income, minus special allowance, to bond interest expense) decreased in fiscal year 2017 to 155.2% compared to 183.8% during fiscal year 2016. The Program had a negative return on Net Position of 0.2% in fiscal year 2017 compared to a negative return of 2.3% in fiscal year 2016. Statement of Cash Flows The Statement of Cash Flows provides additional information about the Program s financial results, by reporting the major sources and uses of cash. A summarized comparison for the years ended June 30, 2017 and 2016 is shown below: 2017 2016 Change % Change Cash provided by (used in) Operating activities $ 424,666,959 $ 482,700,140 $ (58,033,181) -12.02% Noncapital financing activities (403,112,148) (513,138,173) 110,026,025 21.44% Capital and related financing activities (671,314) (1,078,453) 407,139 37.75% Investing activities 17,016,988 15,259,786 1,757,202 11.52% Net increase (decrease) in cash and cash equivalents 37,900,485 (16,256,700) 54,157,185 333.14% Cash and cash equivalents - Beginning of Year 22,489,590 38,746,290 (16,256,700) -41.96% Cash and cash equivalents - End of Year $ 60,390,075 $ 22,489,590 $ 37,900,485 168.52% The Program s cash and cash equivalents increased by $37.9 million, resulting in a balance of $60.4 million at June 30, 2017. The net increase was the result of bond issuance and normal pay down of bond interest and principal. Major Financing and Long-Term Debt Activity On October 1, 2016, the Program issued Student Loan Backed Notes, Series 2016-1 (Taxable), in the amount of $452,250,000 to retire a portion of the outstanding advances under the Student Loan Warehouse Facility. The 2016-1 Notes are secured by and are payable solely from the trust estate created by the Indenture. On February 1, 2017, the Program issued Student Loan Backed Notes, Series 2017-1 (Taxable), in the amount of $420,000,000 to retire a portion of the outstanding advances under the Student Loan Warehouse Facility. The 2017-1 Notes are secured by and are payable solely from the trust estate created by the Indenture. Currently Known Conditions Expected to Have a Significant Effect on Financial Position or Results of Operations The Program is not aware of any additional facts, decisions or conditions that are expected to have a significant effect on the financial position or results of operations. 8

Management's Discussion and Analysis Congress will periodically reauthorize the Higher Education Act and could enact changes that have a substantial impact on the Program. In addition, the U.S. Department of Education, under the Higher Education Act rule making process, can impose or modify regulations that can have a substantial impact on the Program. Requests for Information This financial report is designed to provide a general overview of the State Board of Regents of the State of Utah Student Loan Purchase Program s finances for any interested parties. Questions concerning any of the information provided in this report or requests for additional information should be addressed to: Deputy Executive Director Utah Higher Education Assistance Authority Board of Regents Building, The Gateway 60 South 400 West Salt Lake City, Utah 84101-1284 9

Statement of Net Position June 30, 2017 ASSETS Current Assets Cash and cash equivalents (Note 2) $ 60,390,075 Funds held by Trustee (Notes 2 and 3) 99,570,597 Receivables Student loans (Note 4) 363,587,837 Interest - student loans (Note 4) 42,136,012 Due from counterparty (Note 6) 854,542 Other receivables 3,089,708 Prepaid expenses 391,645 Total Current Assets 570,020,416 Noncurrent Assets Student loans receivable (Note 4) 1,566,450,636 Derivative instrument - interest rate swap (Note 6) 13,137,452 Capital assets, less accumulated depreciation of $7,197,254 (Note 5) 9,684,603 Total Noncurrent Assets 1,589,272,691 TOTAL ASSETS 2,159,293,107 DEFERRED OUTFLOWS OF RESOURCES Deferred pension expense (Note 12) 775,047 TOTAL DEFERRED OUTFLOWS OF RESOURCES 775,047 LIABILITIES Current Liabilities Accounts payable 2,423,358 Special allowance (Note 1) 19,351,640 Payable to affiliate (Note 10) 703,867 Compensated absences (Note 8) 513,011 Other liabilities 1,858 Accrued interest payable (Note 6) 2,906,711 Bonds and notes payable (Notes 6 and 8) 384,566,737 Total Current Liabilities 410,467,182 Noncurrent Liabilities Compensated absences (Note 8) 388,378 Net pension liability (Note 12) 1,436,382 Bonds and notes payable, net of unamortized premiums and discounts of $10,517,967 (Notes 6 and 8) 1,427,721,553 Total Noncurrent Liabilities 1,429,546,313 TOTAL LIABILITIES 1,840,013,495 DEFERRED INFLOWS OF RESOURCES Deferred interest rate swap income (Note 6) 13,137,452 Deferred gain on bond refundings (Note 6) 9,459,042 Deferred pension income (Note 12) 306,637 TOTAL DEFERRED INFLOWS OF RESOURCES 22,903,131 NET POSITION Net investment in capital assets 5,397,260 Restricted (Note 9) 230,770,231 Unrestricted (Note 9) 60,984,037 TOTAL NET POSITION $ 297,151,528 The accompanying notes are an integral part of these financial statements. 10

Statement of Revenues, Expenses, and Changes in Net Position OPERATING REVENUES Interest on student loans (Note 4) $ 91,604,461 Federal loan servicing revenue (Note 1) 7,735,871 Investment income (Notes 2 and 3) 1,017,781 Other revenue (Note 10) 5,011,587 Total Operating Revenues 105,369,700 OPERATING EXPENSES Interest expense (Note 6) 30,833,036 Bond and financing related expense (Note 6) 6,331,312 Special allowance (Note 1) 44,759,802 Student loan servicing expense 10,785,023 General and administrative expense (Note 10) 3,188,380 Federal loan servicing expense 6,901,614 Client document processing expense 1,815,338 Depreciation expense (Note 5) 786,648 Federal default fee (Note 1) 226,977 Uninsured claims expense (Note 4) 367,440 Unrealized loss on investments 16,090 Total Operating Expenses 106,011,660 OPERATING LOSS (641,960) Transfer to Utah System of Higher Education (250,000) Transfers - UHEAA Grants (100,000) CHANGE IN NET POSITION (991,960) NET POSITION Beginning of Year 298,143,488 NET POSITION End of Year $ 297,151,528 The accompanying notes are an integral part of these financial statements. 11

Statement of Cash Flows CASH FLOWS FROM OPERATING ACTIVITIES Principal received on student loans $ 438,796,505 Interest received on student loans 60,695,535 Special allowance payments (47,296,533) Net borrower payments received for (sent to) related funds 245,126 Payments received for internal services 1,873,534 Payments received for client services 1,930,669 Payments for loan purchases (15,668,966) Payments for student loan servicing expense (8,665,814) Payments for general and administrative expense (9,868,566) Payments for federal loan servicing expense (4,709,029) Payments for client services expense (1,477,547) Payments received for federal loan servicing revenue 7,804,183 Payments received for rental revenue 1,690,553 Payments for student loan disbursements (682,691) Cash provided by operating activities 424,666,959 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfer to Utah System of Higher Education (250,000) Transfer for UHEAA Grants (100,000) Proceeds from issuance of notes 864,233,422 Principal paid on bonds and notes (305,469,816) Principal paid on line of credit (921,995,488) Interest paid on bonds and notes (26,826,080) Interest paid on line of credit (6,361,320) Payments for bond related expense (266,721) Payments for bond issuance costs (6,076,145) Cash used in noncapital financing activities (403,112,148) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets (671,314) Cash used in capital and related financing activities (671,314) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturing investments 1,409,607,091 Interest received on investments 1,013,163 Purchases of investments (1,393,603,266) Cash provided by investing activities 17,016,988 NET INCREASE IN CASH AND CASH EQUIVALENTS 37,900,485 CASH AND CASH EQUIVALENTS Beginning of Year 22,489,590 CASH AND CASH EQUIVALENTS End of Year $ 60,390,075 (continued next page) 12

Statement of Cash Flows (continued) RECONCILIATION OF OPERATING LOSS TO CASH PROVIDED BY OPERATING ACTIVITIES Operating loss $ (641,960) Adjustments to reconcile loss to net cash provided by operating activities Amortization and depreciation (976,634) Interest expense for noncapital and capital financing 32,596,318 Interest revenue from nonoperating investing activities (1,017,781) Unrealized loss on investments 16,090 Bond related expense 6,331,312 Net pension expense (1,175,219) Change in assets/liabilities Student loans receivable 385,766,566 Borrower interest receivable 6,748,167 Special allowance (2,536,733) Other receivables (232,738) Prepaid expenses (14,467) Federal default fee 226,977 Accounts payable and payable to affiliate (422,939) NET CASH PROVIDED BY OPERATING ACTIVITIES $ 424,666,959 The accompanying notes are an integral part of these financial statements. 13

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization The State Board of Regents of the State of Utah Student Loan Purchase Program (the Program), an enterprise fund of the State of Utah, was formed in 1977, as a separate program of the State Board of Regents of the State of Utah (the Board) for the purpose of originating, purchasing, and servicing the loans of qualified students. Bonds issued by the Program are not general obligations of the State of Utah. Fund Accounting The Program maintains accounting records under the fund accounting concept. The funds are separate sets of self-balancing accounts set up in accordance with the authorizing acts, bond indentures, and Warehouse agreements. When an expense is incurred for purposes for which both restricted and unrestricted resources are available, it is the Program s general policy to use restricted resources first. The following funds are administered by the Program: Short-Term Note Fund Unencumbered funds generated by various financing facilities and transfers authorized by the Board in accordance with bond indenture provisions are maintained in this fund. The Program utilizes a portion of these funds to purchase student loans. Payments, including principal and interest on student loans held by this fund, are deposited in this fund and are used to purchase student loans and pay operating expenses. Program funds designated to meet future collateral and operating requirements and other Program needs are held as investments. The net position of this fund is reported as unrestricted. 1993 Revenue Bond Fund Proceeds from revenue bond issuances under the General Student Loan Program Indenture dated August 1, 1993 and Supplemental Indentures are recorded in this fund. Outstanding issuances include Series 1999 O, Series 2001 R, Series 2001 S, Series 2006 DD, and Series 2010 EE Bonds, and Series 2011-1 Notes. Proceeds are used to pay bond issuance costs, and establish trustee funds as required by the General Indenture. Principal and interest payments on student loans purchased with bond proceeds, and other revenues are deposited in this fund and are used for debt service of the bonds, and operating expenses in accordance with the provisions of the General Indenture. The net position of this fund is reported as restricted. 2012 Revenue Bond Fund Proceeds from revenue bond issuance under the General Student Loan Program Indenture dated October 1, 2012 are recorded in this fund. Outstanding issuances include Series 2012-1 Notes. Proceeds are used to retire outstanding funding notes, and establish trustee funds as required by the General Indenture. Principal and interest payments on student loans purchased with bond proceeds, and other revenues are deposited in this fund and are used for debt service of the bonds, and operating expenses in accordance with the provisions of the General Indenture. The net position of this fund is reported as restricted. 14

2014 Revenue Bond Fund Proceeds from revenue bond issuance under the General Student Loan Program Indenture dated July 1, 2014 are recorded in this fund. Outstanding issuances include Series 2014-1 Notes. Proceeds are used to retire outstanding revenue bonds, and establish trustee funds as required by the General Indenture. Principal and interest payments on student loans purchased with bond proceeds, and other revenues are deposited in this fund and are used for debt service of the bonds, and operating expenses in accordance with the provisions of the General Indenture. The net position of this fund is reported as restricted. 2015 Revenue Bond Fund Proceeds from revenue bond issuance under the General Student Loan Program Indenture dated June 1, 2015 are recorded in this fund. Outstanding issuances include Series 2015-1 Notes. Proceeds are used to retire outstanding advances, establish trustee funds as required by the General Indenture, and pay cost of issuance. Principal and interest payments on student loans purchased with bond proceeds, and other revenues are deposited in this fund and are used for debt service of the bonds, and operating expenses in accordance with the provisions of the General Indenture. The net position of this fund is reported as restricted. 2016 Revenue Bond Fund Proceeds from revenue bond issuance under the General Student Loan Program Indenture dated October 1, 2016 are recorded in this fund. Outstanding issuances include Series 2016-1 Notes. Proceeds are used to retire outstanding advances, establish trustee funds as required by the General Indenture, and pay cost of issuance. Principal and interest payments on student loans purchased with bond proceeds, and other revenues are deposited in this fund and are used for debt service of the bonds, and operating expenses in accordance with the provisions of the General Indenture. The net position of this fund is reported as restricted. 2017 Revenue Bond Fund Proceeds from revenue bond issuance under the General Student Loan Program Indenture dated February 1, 2017 are recorded in this fund. Outstanding issuances include Series 2017-1 Notes. Proceeds are used to retire outstanding advances, establish trustee funds as required by the General Indenture, and pay cost of issuance. Principal and interest payments on student loans purchased with bond proceeds, and other revenues are deposited in this fund and are used for debt service of the bonds, and operating expenses in accordance with the provisions of the General Indenture. The net position of this fund is reported as restricted. Warehouse Facility Fund Proceeds from the issuance of a line of credit under the Warehouse Loan, Security and Servicing Agreement dated February 23, 2015 were recorded in this fund. Proceeds were used to acquire federally guaranteed student loans, make deposits to the Reserve Fund under the agreement and pay certain transaction costs. Principal and interest payments on student loans purchased with the proceeds, and other revenues were deposited in this fund and were used for debt service of the facility, and operating expenses in accordance with the provisions of the agreement. This fund had no 15

net position at June 30, 2017. The net position of this fund was transferred to the Short- Term Note Fund. Office Facility Bond Fund Proceeds from the revenue bond issuance under the State Board of Regents Revenue Refunding Bonds Indenture dated May 1, 2012 are recorded in this fund. Proceeds are used to pay cost of issuance and refund outstanding revenue bonds. Funds within the Board of Regents budget that would otherwise be expended for rent will be deposited in this fund and will be used for debt service of the bonds and operating expenses, in accordance with the provisions of the General Indenture. The net position of this fund is reported as restricted. Basis of Accounting The Program follows all applicable Governmental Accounting Standards Board pronouncements. Also, the accounting and reporting policies of the Program conform with generally accepted accounting principles and follow the accrual basis of accounting. Under this basis of accounting, revenues are recognized when earned and expenses are recognized when incurred. The Program s funds are accounted for on a flow of economic resources measurement focus. All assets and liabilities associated with the Program are included on the Statement of Net Position. Federal Default Fee The federal default fee is capitalized and amortized over the estimated lives of the loans using an accelerated method of amortization beginning 36 months from the date the federal default fee is paid by the Program. Student Loans Receivable Student loan receivables are carried at their unpaid principal balance adjusted for an allowance for loan losses and unamortized loan premiums. Loan premiums are amortized as a reduction to interest income using the effective interest method over the life of the loans. Substantially all of the Program s student loans receivable serve as collateral for the Program s bonds and notes payable. Allowance for Student Loan Losses An allowance for student loan losses has been established to recognize the estimated uninsured portion of future federally insured claim payments to be made to the Program. Insurance on defaulted student loans is paid at a 100% rate for loans which were first disbursed prior to October 1, 1993, a 98% rate for loans which were first disbursed between October 1, 1993 and June 30, 2006 and at a 97 % rate for loans which were first disbursed after June 30, 2006. Insurance on non-default claims (primarily bankruptcy, death, or disability) is paid at a rate of 100%. Interest on Student Loans The Federal Government makes quarterly interest payments on federally insured subsidized student loans during the period students attend school, grace periods, and during certain other permitted deferment periods. During repayment and forbearance periods, interest is paid by the borrower. For federally insured unsubsidized loans, interest is paid by the borrower during all status periods. Interest on student loans is accrued as earned. 16

Special Allowance Federal legislation provides for a special allowance payment for lenders participating in the Student Loan Guarantee Program. The amount of special allowance that is payable on an eligible loan is determined by multiplying the average daily balance of principal and capitalized interest on the loan by the applicable special allowance rate. The rates for special allowance payments are based on formulas that differ according to the type of the loan, the date the loan was first disbursed, and the interest rate. The rate of special allowance payments is based on the bond equivalent 91 day T-Bill rate or the 1-month LIBOR index, depending on the characteristics of the loan. Under the 2005 Higher Education Reconciliation Act Amendments, for certain loans first disbursed on or after April 1, 2006, if the interest on such loan at the stated interest rate is higher than the special allowance support level (1-month LIBOR rate plus a percentage determined by the U.S. Department of Education) to such loan, including Special Allowance Payments, the holder of the loan must repay the difference to the United States Government at least annually. Federal Loan Servicing Revenue The Federal Government makes monthly payments to the Program for loans serviced based on a contract fee schedule. Capital Assets Capital assets are stated at cost net of accumulated depreciation. The Program capitalizes assets that exceed a $5,000 threshold and have an estimated useful life greater than one year. Using the straight-line method, depreciation is provided over the estimated useful lives, ranging from three to ten years for furniture, equipment, and software and forty years for buildings. Bond Discount and Premium Discounts and premiums on the sale of bonds are deferred and amortized over the lives of the respective maturities of outstanding bonds using a method that approximates the effective interest method of amortization. Bond Issuance Costs Bond issuance costs are expensed in the period incurred in accordance with Statement 65 of the Governmental Accounting Standards Board. Operating and Nonoperating Income The Program distinguishes operating revenues and expenses from nonoperating items. The Program includes, within the operating income section, those revenues generated and expenses incurred that are related to the Program s principal ongoing operations and revenues and expenses related to the Program s Office Facility. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Statement of Cash Flows For purposes of the Statement of Cash Flows, cash and cash equivalents include checking accounts and short-term investments in the Utah Public Treasurers Investment Fund, excluding those held by the Trustee. 17

Deferred Outflows and Inflows of Resources In addition to assets, the statements of net position will sometimes report a separate section for deferred outflows of resources. This separate financial element, deferred outflows of resources, represents 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 then. The Program has items which qualify for reporting in this category. The Program reports unrecognized expenses from outflows related to pensions. These amounts are deferred and recognized as an outflow of resources in the period that the amounts become payable. In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The Program has items which qualify for reporting in this category. The Program reports deferred interest rate swap income, deferred gain on bond purchases, and inflows related to pensions. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. Pensions For purposes of measuring the net pension liability (asset), deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Utah Retirement Systems (the System) pension plan and additions to / deductions from the System fiduciary net position have been determined on the same basis as they are reported by the System. For this purpose, benefit payments are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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. 2. CASH AND CASH EQUIVALENTS AND FUNDS HELD BY TRUSTEE AND AGENT The State of Utah Money Management Council has the responsibility to advise the State Treasurer about investment policies, promote measures and rules that will assist in strengthening the banking and credit structure of the state and review the rules adopted under the authority of the State of Utah Money Management Act (Utah Code, Title 51, Chapter 7) that relate to the deposit and investment of public funds. The Program follows the requirements of the Money Management Act (the Act) in handling its depository and investment transactions. The Act requires the depositing of Program funds in a 18

qualified depository. The Act defines a qualified depository as any financial institution whose deposits are insured by an agency of the Federal Government and which has been certified by the State Commissioner of Financial Institutions as meeting the requirements of the Act and adhering to the rules of the Money Management Council. Investments The Act also defines the types of securities authorized as appropriate investments for the Program and the conditions for making investment transactions. Investment transactions may be conducted only through qualified depositories, certified dealers, or directly with issuers of the investment securities. The Act authorizes the Program to invest in: Negotiable or nonnegotiable deposits of qualified depositories and permitted negotiable depositories. Repurchase and reverse repurchase agreements. Commercial paper that is classified as first tier by two nationally recognized statistical rating organizations. Bankers acceptances. Obligations of the United States Treasury, including bills, notes, and bonds. Obligations, other than mortgage derivative products, issued by U.S. government sponsored enterprises (U.S. Agencies) such as the Federal Home Loan Bank System, Federal Home Loan Mortgage Corporation (Freddie Mac), and Federal National Mortgage Association (Fannie Mae). Bonds, notes, and other evidence of indebtedness of political subdivisions of the State. Fixed rate corporate obligations and variable rate securities rated A or higher, or the equivalent of A or higher, by two nationally recognized statistical rating organizations. Shares or certificates in a money market mutual fund as defined in the Act. The Utah Public Treasurers Investment Fund (PTIF). Investments are recorded at fair value in accordance with Statement 72 of the Governmental Accounting Standards Board which pertains to Fair Value Measurement and Application. Accordingly, the change in fair value of investments is recognized as an increase or decrease in investment assets and investment income. Additionally, the Program follows the fair value measurement guidelines established by generally accepted accounting principles which recognize a three-tiered fair value hierarchy as follows: Level 1: Quoted prices for identical investments in active markets; Level 2: Observable inputs other than quoted market prices; Level 3: Unobservable inputs. 19

The Program s investments are classified as follows: Investments in mutual funds and government securities are Level 1 and are valued using prices quoted in active markets for those securities. Investments in PTIF are Level 2 and are valued using PTIF calculated fair value factors applied to average daily balances in the funds. At June 30, 2017, the Program s investments and the related maturities are listed below: Investment Maturities (in years) Fair Less than Investments Value one year 1 to 5 years Mutual Funds $ 97,852,486 $ 97,852,486 $ - Public Treasurers Investment Fund 58,001,019 58,001,019 - U.S. Government Securities 893,875-893,875 Total Investments $ 156,747,380 $ 155,853,505 $ 893,875 Interest Rate Risk The risk that changes in interest rates will adversely affect the fair value of an investment. The Program s policy for managing its exposure to fair value loss arising from increasing interest rates is to comply with the Act. Section 51-7-11 of the Act requires that the remaining term to maturity of investments may not exceed the period of availability of the funds to be invested. The Act further limits the remaining term to maturity for certain allowed investments. Details can be obtained by reading Utah Code Section 51-7-11. At June 30, 2017, the Program s investments in the PTIF had an average maturity of less than one year. Credit Risk The risk that an issuer or other counterparty to an investment will not fulfill its obligations. The Program s policy for reducing its exposure to credit risk is to comply with the Act as previously discussed. At June 30, 2017, the Program had $97,852,486 invested in mutual funds with a AAA rating and $58,001,019 invested in the Public Treasurers Investment Fund that were not rated by any nationally recognized statistical rating organization registered with the Securities and Exchange Commission (SEC). Custodial Credit Risk (Deposits) The risk that, in the event of a bank failure, the Program s deposits not covered by depository insurance may not be returned. The Program follows the requirements of the Act regarding custodial credit risk. However, the Program does not have a formal deposit policy for custodial credit risk beyond what is required by the Act. Subject to the application of the bank and FDIC rules and regulations, FDIC insurance is provided for the Program s bank deposits up to $250,000 for each bank utilized. As of June 30, 2017, $1,573,758 of the Program s bank balances of $1,823,758 was uninsured. Public Treasurers Investment Fund The Utah State Treasurer s Office operates the PTIF. The PTIF is available for investment of funds administered by any Utah public treasurer. 20

The PTIF is not registered with the SEC as an investment company. The PTIF is authorized and regulated by the Act. The Act established the Money Management Council which oversees the activities of the State Treasurer and the PTIF and details the types of authorized investments. Deposits in the PTIF are not insured or otherwise guaranteed by the State of Utah, and participants share proportionally in any realized gains or losses on investments. The PTIF operates and reports to participants on an amortized cost basis. The income, gains and losses, net of administration fees, of the PTIF are allocated based upon the participant s average daily balance. The fair value of the PTIF investment pool is approximately equal to the value of the pool shares. 3. REVENUE BOND FUNDS The bond indenture agreements require that certain trust funds be established. The following is a summary of cash and investments held by the respective revenue bond funds at June 30, 2017: 1993 Revenue Bond Fund: Revenue Account $ 47,454,388 Reserve Account 2,896,681 Operating Account 125,950 Total 1993 Revenue Bond Fund $ 50,477,019 2012 Revenue Bond Fund: Collection Account $ 4,354,009 Special Allowance Rebate Account 1,721,995 Reserve Account 778,050 Total 2012 Revenue Bond Fund $ 6,854,054 2014 Revenue Bond Fund: Collection Account $ 3,112,053 Special Allowance Rebate Account 592,613 Reserve Account 415,500 Total 2014 Revenue Bond Fund $ 4,120,166 21

2015 Revenue Bond Fund: Collection Account $ 5,907,019 Special Allowance Rebate Account 2,821,785 Reserve Account 661,496 Total 2015 Revenue Bond Fund $ 9,390,300 2016 Revenue Bond Fund: Collection Account $ 9,032,689 Special Allowance Rebate Account 4,178,085 Reserve Account 1,130,625 Capitalized Interest Account 500,000 Total 2016 Revenue Bond Fund $ 14,841,399 2017 Revenue Bond Fund: Collection Account $ 8,900,381 Special Allowance Rebate Account 2,667,215 Reserve Account 991,941 Capitalized Interest Account 500,000 Total 2017 Revenue Bond Fund $ 13,059,537 Office Facility Bond Fund: Revenue Account $ 3,902 Debt Service Account 824,220 Total Office Facility Bond Fund $ 828,122 Grand Total $ 99,570,597 4. STUDENT LOANS RECEIVABLE Student loans receivable carry variable interest rates or have fixed rates ranging from 0% to 11%. The loans were made to students enrolled or accepted for enrollment at an eligible institution of higher education on at least a half-time basis. Six to twelve months after termination of at least a half-time academic work load, the borrower is required to commence repayment on the loan. Monthly repayment amounts and the length of the repayment period are determined by the amount to be repaid; however, the maximum length of repayment is ten years for Stafford loans and up to thirty years for consolidation loans from the due date of the first payment, exclusive of authorized periods of deferment, forbearance, or income-based repayment plans. 22

Student loans are guaranteed with respect to principal and accrued interest by agreements with various state guarantee agencies, including the Utah Student Loan Guarantee Program, another program of the State Board of Regents. The following is a summary of the status of student loans receivable at June 30, 2017: Student and Deferment Repayment and Forbearance Unamortized Premiums Student Loan Receivable Allowance Short-Term Note Fund $ 78,247 $ 4,239,200 $ - $ (539,317) $ 3,778,130 1993 Revenue Bond Fund 21,555,677 455,311,576 - (2,346,193) 474,521,060 2012 Revenue Bond Fund 23,708,532 209,007,401 - (789,035) 231,926,898 2014 Revenue Bond Fund 13,634,196 166,392,072 - (591,776) 179,434,492 2015 Revenue Bond Fund 29,503,314 229,279,622 5,842,903 (920,540) 263,705,299 2016 Revenue Bond Fund 42,717,261 341,448,417 8,505,126 (1,315,058) 391,355,746 2017 Revenue Bond Fund 42,314,913 336,076,776 8,240,217 (1,315,058) 385,316,848 Total $ 173,512,140 $ 1,741,755,064 $ 22,588,246 $ (7,816,977) $ 1,930,038,473 Insurance on defaulted student loans is paid at a 100% rate for loans which were first disbursed prior to October 1, 1993, a 98% rate for loans which were first disbursed between October 1, 1993 and June 30, 2006 and at a 97 % rate for loans which were first disbursed after June 30, 2006. Insurance on non-default claims (primarily bankruptcy, death, or disability) is paid at a rate of 100%. At June 30, 2017, the Program has established a student loan receivable allowance of $7,816,977. Total 23