Rockhurst University Independent Auditor’s Report and Consolidated Financial Statements June 30, 2015 and 2014
Rockhurst University June 30, 2015 and 2014
Contents Independent Auditor’s Report .............................................................................................. 1 Consolidated Financial Statements Statements of Financial Position ........................................................................................................ 3 Statements of Activities ...................................................................................................................... 4 Statements of Cash Flows .................................................................................................................. 6 Notes to Financial Statements ............................................................................................................ 8
Independent Auditor’s Report
Board of Trustees Rockhurst University Kansas City, Missouri
Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Rockhurst University (the University), which comprise the consolidated statements of financial position as of June 30, 2015 and 2014, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated 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 consolidated 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 the consolidated 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the University’s preparation and fair presentation of the consolidated 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 University’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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Board of Trustees Rockhurst University Page 2 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Rockhurst University as of June 30, 2015 and 2014, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Kansas City, Missouri November 4, 2015
Rockhurst University Consolidated Statements of Financial Position June 30, 2015 and 2014
Assets 2015 Cash and cash equivalents Accounts receivable, net of allowance; 2015 - $200,000; 2014 - $278,000 Inventories Prepaid expenses Investments Contributions receivable, net of allowance; 2015 and 2014 - $100,000 Notes receivable, net of allowance; 2015 and 2014 - $11,200 Note receivable from sale of RUCEC
$
$
2,679,081
912,893 35,247,510
2,168,754 315,644 3,030,431 44,893,523
2,753,756
5,884,940
2,359,543 2,700,000
2,401,051 -
5,033,395 83,330,342 32,654,343 22,498,922 143,517,002 53,679,066
5,060,395 80,235,019 33,784,597 6,944,661 126,024,672 52,210,957
89,837,936
73,813,715
2,420,506 1,856,939
2,630,539 1,205,903
$ 138,234,305
$ 139,023,581
$
$
Property and equipment Land Buildings and leasehold improvements Equipment, furniture and fixtures Construction in progress Less accumulated depreciation
Restricted cash and cash equivalents Other Total assets
145,222
2014
Liabilities and Net Assets Liabilities Line of credit Accounts payable Accrued expenses Deferred revenue Deposits held for others Notes and bonds payable Annuities payable Interest rate swap agreements Asset retirement obligation Federal contribution to loan program
6,388,639 4,592,142 5,204,120 1,009,303 257,441 40,396,130 8,959 3,441,636 744,147 1,717,813
7,000,000 4,637,267 5,892,707 6,946,106 251,193 41,663,441 13,092 3,533,722 741,197 1,707,807
Total liabilities Net Assets Unrestricted Temporarily restricted Permanently restricted
63,760,330
72,386,532
29,367,878 11,424,868 33,681,229
17,105,871 17,478,795 32,052,383
Total net assets
74,473,975
66,637,049
$ 138,234,305
$ 139,023,581
Total liabilities and net assets
See Notes to Consolidated Financial Statements
3
Rockhurst University Consolidated Statements of Activities Years Ended June 30, 2015 and 2014
Unrestricted
Total
Unrestricted
-
$ 64,122,848 31,003,462 33,119,386
$ 62,591,283 29,099,870 33,491,413
(405,782) 2,663,529 (8,311,674)
17,506 1,611,340 -
537,619 (30,269) 5,899,764 8,236,009 1,878,562 -
541,462 336,554 1,856,277 8,632,910 1,379,453 (5,900) 8,319,159
54,066,152
(6,053,927)
1,628,846
49,641,071
16,309,265 10,492,868 404,603 1,873,401 5,837,029 5,598,883 8,823,582
-
-
49,339,631
-
4,726,521
(6,053,927)
Revenues, Gains and Other Support Student tuition and fees, gross Less institutional financial aid Student tuition and fees, net
$ 64,122,848 31,003,462 33,119,386
Grants and contracts Investment return Private gifts, net Auxiliary enterprises Other Change in donor restriction Net assets released from restrictions
537,619 358,007 1,624,895 8,236,009 1,878,562 8,311,674
Total revenues, gains and other support Expenses University related Instructional Institutional support Sponsored programs Student aid Academic support Student services Auxiliary enterprises Total expenses Change in Net Assets From Continuing Operations
4 See Notes to Consolidated Financial Statements
2015 Temporarily Permanently Restricted Restricted $
-
$
2014 Temporarily Permanently Restricted Restricted $
-
$
Total
-
$ 62,591,283 29,099,870 33,491,413
3,766,114 3,126,715 (60,485) (8,319,159)
69,622 712,941 66,385 -
541,462 4,172,290 5,695,933 8,632,910 1,379,453 -
54,551,328
(1,486,815)
848,948
53,913,461
16,309,265 10,492,868 404,603 1,873,401 5,837,029 5,598,883 8,823,582
16,107,185 10,061,415 475,809 2,333,738 5,419,765 5,774,757 9,711,426
-
-
16,107,185 10,061,415 475,809 2,333,738 5,419,765 5,774,757 9,711,426
-
49,339,631
49,884,095
-
-
49,884,095
1,628,846
301,440
4,667,233
(1,486,815)
848,948
4,029,366
Rockhurst University Consolidated Statements of Activities (Continued) Years Ended June 30, 2015 and 2014
Change in Net Assets From Continuing Operations (From page 4)
Unrestricted
2015 Temporarily Permanently Restricted Restricted
$
$
4,726,521
(6,053,927)
$
1,628,846
Total $
301,440
Unrestricted
2014 Temporarily Permanently Restricted Restricted
$
$
4,667,233
(1,486,815)
$
848,948
Total $
4,029,366
Discontinued Operations Change in net assets from discontinued operations (Including gain on sale of RUCEC of $8,849,843 during 2015)
7,942,946
-
-
7,942,946
(305,969)
-
-
(305,969)
Impairment of Real Estate Held for Investment
(591,032)
-
-
(591,032)
-
-
-
-
Gain on Sale of Property and Equipment
91,486
-
-
91,486
-
-
-
-
Unrealized Gain on Interest Rate Swap Agreements
92,086
-
-
92,086
210,481
-
-
210,481
12,262,007
(6,053,927)
1,628,846
7,836,926
4,571,745
(1,486,815)
848,948
3,933,878
-
-
-
-
(300,000)
-
-
(300,000)
Change in Net Assets
12,262,007
(6,053,927)
1,628,846
7,836,926
4,271,745
(1,486,815)
848,948
3,633,878
Net Assets, Beginning of Year
17,105,871
17,478,795
32,052,383
66,637,049
12,834,126
18,965,610
31,203,435
63,003,171
Change in Net Assets Before Non-Controlling Interest in RUCEC Purchase of Non-Controlling Interest in RUCEC
Net Assets, End of Year
5 See Notes to Consolidated Financial Statements
$
29,367,878
$
11,424,868
$
33,681,229
$
74,473,975
$
17,105,871
$
17,478,795
$
32,052,383
$
66,637,049
Rockhurst University Consolidated Statements of Cash Flows Years Ended June 30, 2015 and 2014
2015 Operating Activities Change in net assets Items not requiring (providing) cash Depreciation and amortization Net realized and unrealized (gains) losses on investments Gain on sale of property and equipment Change in contributions receivable discount Change in fair value of interest rate swap agreements Gain on sale of RUCEC Contributions received restricted for long-term investment or acquisition of long-lived assets Impairment of real estate held for investment Purchase of non-controlling interest in RUCEC Changes in Accounts receivable Inventories Prepaid expenses Contributions receivable Accounts payable and accrued expenses Deferred revenue Deposits held for others Annuities payable Other assets and liabilities Net cash provided by (used in) operating activities Investing Activities Purchase of non-controlling interest in RUCEC Purchase of property and equipment Proceeds from disposal of property and equipment Purchase of investments Proceeds from disposition of investments Advances made on notes receivable Principal payments received on notes receivable Proceeds on sale of RUCEC net of cash disposed Restricted cash and cash equivalents Net cash used in investing activities Financing Activities Outstanding checks in excess of bank balances Proceeds from contributions and pledges restricted for long-term investment or acquisition of long-lived assets Net borrowings (repayments) on line of credit Proceeds from issuance of notes and bonds payable Principal payments on notes and bonds payable Net cash provided by financing activities
See Notes to Consolidated Financial Statements
$
7,836,926
2014 $
3,633,878
2,972,191 1,036,221 (91,486) (76,056) (92,086) (8,849,843)
2,938,956 (3,275,834) (431,631) (210,481) -
(2,394,035) 591,032 -
(3,444,547) 300,000
271,848 30,177 1,042,198 (431,347) 1,527,619 784,258 6,248 (4,133) (2,553,432)
396,891 61,852 (471,883) (17,651) 266,834 2,424 (4,133) (63,596)
1,606,300
(318,921)
(18,919,510) 197,957 (13,921,075) 21,939,835 (313,639) 355,147 2,354,523 210,033
(300,000) (2,667,033) (8,975,199) 6,940,552 (285,275) 280,558 (899,753)
(8,096,729)
(5,906,150)
(197,380)
(531,792)
6,032,622 (611,361) 192,670 (1,459,981)
8,126,176 3,828,419 (5,348,392)
3,956,570
6,074,411
6
Rockhurst University Consolidated Statements of Cash Flows (Continued) Years Ended June 30, 2015 and 2014
2015 Change in Cash and Cash Equivalents
$
Cash and Cash Equivalents, Beginning of Year Cash and Cash Equivalents, End of Year Supplemental Cash Flows Information Interest paid Note receivable from sale of RUCEC Retainage payable on construction in progress Food service improvement allowance Accounts payable incurred for property and equipment purchases
See Notes to Consolidated Financial Statements
(2,533,859)
2014 $
2,679,081
(150,660) 2,829,741
$
145,222
$
2,679,081
$
2,545,393 2,700,000 169,826 2,878,504
$
2,722,007 1,348,750 2,657,589
7
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
Note 1:
Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations Rockhurst University is a private, Catholic, Jesuit comprehensive university, which offers baccalaureate and master’s degrees in arts and sciences, education and business in a co-educational environment. Major funding sources include student tuition and fees, private gifts and grants, government grants and contracts and endowment income. Rockhurst University also participates in the Federal Pell Grant, Teacher Education Assistance for College and Higher Education Grant, Federal Work Study, Federal Supplemental Educational Opportunity Grant, Federal Perkins Loan and Federal Direct Loan programs. Rockhurst University Continuing Education Center, Inc. (“RUCEC”), a wholly-owned subsidiary of the University, designs, markets and presents business skills training seminars throughout the United States and in Canada. Basis of Presentation The accompanying consolidated financial statements include the accounts of Rockhurst University and its wholly-owned subsidiary RUCEC (collectively referred to as the “University”). Prior to June 23, 2014, RUCEC was a 52% majority-owned subsidiary of the University. On June 23, 2014, the University purchased all of the remaining outstanding shares of RUCEC for $300,000, making RUCEC a wholly-owned subsidiary. All significant interorganization balances and transactions have been eliminated in consolidation. On March 31, 2015, the University sold 100% of the stock of its wholly-owned subsidiary, RUCEC, and has reported the activity for the year and gain on sale as discontinued operations in the consolidated statement of activities (see Note 15). Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues, expenses, gains, losses and other changes in net assets during the reporting period. Actual results could differ from those estimates. Cash Equivalents and Restricted Cash and Cash Equivalents The University considers all liquid investments with original maturities of three months or less to be cash equivalents. At June 30, 2015 and 2014, cash equivalents consisted primarily of money market accounts with brokers and certificates of deposit. At June 30, 2015, the University’s cash accounts exceeded federally insured limits by approximately $713,000. 8
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
Investments and Investment Return Investments in equity securities having a readily determinable fair value and all debt securities are carried at fair value. Other investments are valued at the lower of cost (or fair value at time of donation, if acquired by contribution) or fair value. Investment return includes dividend, interest and other investment income; realized and unrealized gains and losses on investments carried at fair value; and realized gains and losses on other investments. Investment return that is initially restricted by donor stipulation and for which the restriction will be satisfied in the same year is included in unrestricted net assets. Other investment return is reflected in the consolidated statements of activities as unrestricted, temporarily restricted or permanently restricted based upon the existence and nature of any donor or legally imposed restrictions. The University maintains pooled investment accounts for its endowments. Investment return from securities in the pooled investment accounts is allocated monthly to the individual endowments based on the relationship of the fair value of the interest of each endowment to the total fair value of the pooled investment accounts, as adjusted for additions to or deductions from those accounts. Accounts Receivable Student accounts receivable are stated at the amount billed to students less any applied scholarships and loan proceeds. The University provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. University tuition is generally due at the beginning of the semester. University charges that are past due and have had no response to the due diligence process and are assigned to thirdparty collection agencies are considered delinquent. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the student. RUCEC accounts receivable are stated at the amount billed to customers. RUCEC provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Accounts receivable are ordinarily due 30 days after the issuance of the invoice. Accounts past due more than 120 days are considered delinquent. Delinquent accounts are written off based on individual credit evaluation and specific circumstances of the customers. Property and Equipment Property and equipment are depreciated on a straight-line basis over the estimated useful life of each asset. Leasehold improvements are depreciated over the shorter of the lease term or their respective estimated useful lives. The University does not calculate capitalized interest for property and equipment acquired with gifts that are restricted by the donor to acquisition of those assets.
9
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
The estimated useful lives for each major depreciable classification of property and equipment are as follows: Buildings Leasehold improvements Equipment, furniture and fixtures Motor vehicles
50 years 15 years 3 – 30 years 5 years
Long-lived Asset impairment The University evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimate future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to the fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. During the year ended June 30, 2015, the University evaluated certain real estate investments for impairment. The properties evaluated previously earned rental income but sat vacant during 2015. Management completed an impairment analysis for the vacant properties and recorded an impairment loss of $591,032. During 2015, the University also recorded a $91,486 gain on the sale of property and equipment. Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are those whose use by the University has been limited by donors to a specific time period or purpose. Permanently restricted net assets have been restricted by donors to be maintained by the University in perpetuity. Contributions Gifts of cash and other assets received without donor stipulations are reported as unrestricted revenue and net assets. Gifts received with a donor stipulation that limits their use are reported as temporarily or permanently restricted revenue and net assets. When a donor stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Gifts having donor stipulations which are satisfied in the period the gift is received are reported as unrestricted revenue and net assets. Gifts of land, buildings, equipment and other long-lived assets are reported as unrestricted revenue and net assets unless explicit donor stipulations specify how such assets must be used, in which case, the gifts are reported as temporarily or permanently restricted revenue and net assets. Absent explicit donor stipulations for the time long-lived assets must be held, expirations of restrictions resulting in reclassification of temporarily restricted net assets as unrestricted net assets are reported when funds are expended for the construction of long-lived assets.
10
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
Unconditional gifts expected to be collected within one year are reported at their net realizable value. Unconditional gifts expected to be collected in future years are reported at the present value of estimated future cash flows. The resulting discount is amortized using the level-yield method and is reported as contribution revenue. Conditional gifts depend on the occurrence of a specified future and uncertain event to bind the potential donor and are recognized as assets and revenue when the conditions are substantially met and the gift becomes unconditional. Inventory Pricing Inventories consist of books, tapes and other training products. Inventories are stated at the lower of cost or market. Costs are determined using the first-in, first-out (FIFO) method. Prepaid Expenses Prepaid expenses consist of costs incurred for postage, printing and advertising for seminars that will be held subsequent to the fiscal year end. These costs are expensed upon the occurrence of the related seminar, which is generally within three months of the incurrence of the costs. Prepaid advertising amounted to approximately $0 and $2,215,000 at June 30, 2015 and 2014, respectively. Government Grants Support funded by grants is recognized as the University performs the contracted services or incurs outlays eligible for reimbursement under the grant agreements. Grant activities and outlays are subject to audit and acceptance by the granting agency and, as a result of such audit, adjustments could be required. Seminar Revenue Recognition Revenue from seminars is recorded at the time the seminar is presented, except for those customers who purchase RUCEC’s twelve-month membership. In these cases, the sales are recorded as deferred revenue and amortized over twelve months at a rate according to historical customer usage patterns. Seminar fees received in advance are recorded as deferred revenue at the time the fees are collected. Related expenses for cost of revenues and seminar advertising are recognized at the time of the seminar in order to match expenses with the associated revenues. Income Taxes The University is exempt from income taxes under Section 501 of the Internal Revenue Code and a similar provision of state law. However, the University is subject to federal income tax on any unrelated business taxable income. The University files tax returns in the U.S. federal jurisdiction. With a few exceptions, the University is no longer subject to U.S. federal examinations by tax authorities for years before 2012. 11
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
Functional Allocation of Expenses The costs of supporting the various programs and other activities have been summarized on a functional basis in the consolidated statements of activities. Certain costs have been allocated among the program categories based on various methods. Taxes Collected from Customers and Remitted to Governmental Authorities Taxes collected from customers and remitted to governmental authorities by RUCEC are presented in the accompanying consolidated financial statements on a net basis. Fundraising The University participated in various fundraising activities such as direct mail campaigns and special events. The expenses related to these fundraising activities are recorded in institutional support and approximated $1,743,000 and $1,543,000 for the years ended June 30, 2015 and 2014, respectively. Transfers Between Fair Value Hierarchy Levels Transfers in and out of Level 1 (quoted market prices) and Level 2 (other significant observable inputs) are recognized on the period ending date. There were no transfers at June 30, 2015 and 2014. Reclassifications Certain reclassifications have been made to the 2014 financial statements to conform to the 2015 financial statement presentation. These reclassifications had no effect on the change in net assets. Subsequent Events Subsequent events have been evaluated through the date of the Independent Auditor’s Report, which is the date the consolidated financial statements were available to be issued.
12
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
Note 2:
Controlling and Non-controlling Interest
The following depicts the changes in consolidated net assets attributable to the controlling financial interest of the University and the non-controlling interests of RUCEC:
Total
Controlling Interest
NonControlling Interest
$ 12,834,126
$ 13,711,239
$
4,024,710
4,171,575
336,554
336,554
-
210,481
210,481
-
Change in unrestricted net assets before purchase of non-controlling interest in RUCEC
4,571,745
4,718,610
(146,865)
Purchase of non-controlling interest in RUCEC
(300,000)
(1,323,978)
1,023,978
Change in unrestricted net assets
4,271,745
3,394,632
877,113
17,105,871
17,105,871
-
4,726,521 7,942,946 (591,032) 91,486
4,726,521 7,942,946 (591,032) 91,486
-
92,086
92,086
-
12,262,007
12,262,007
-
$ 29,367,878
$ 29,367,878
Unrestricted net assets, June 30, 2013 Change in net assets from operations Investment gain net of amounts designated for current operations Unrealized gain on interest rate swap agreements
Unrestricted net assets, June 30, 2014 Change in net assets from operations Net income from discontinued operations Impairment of real estate held for investment Gain on sale of property and equipment Unrealized gain on interest rate swap agreements Change in unrestricted net assets Unrestricted net assets, June 30, 2015
(877,113) (146,865)
$
-
13
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
Note 3:
Notes Receivable
The University makes uncollateralized loans to students through its participation in the Federal Perkins Loan (FPL) program. The availability of funds under the FPL program is dependent on reimbursement to the loan fund from repayments on outstanding loans. Cumulative funds advanced by the federal government to the FPL program totaled approximately $1,706,000 as of June 30, 2015 and 2014. These advances are ultimately refundable to the federal government and are classified as liabilities in the consolidated statements of financial position along with any gains or losses allocated to the cumulative federal capital contributions. Outstanding loans canceled under the program result in a reduction of funds available for future loans and a decrease in the University’s liability to the federal government. These outstanding loan amounts represent approximately 2% of total assets as of June 30, 2015 and 2014. Allowances for doubtful accounts are established based on current economic factors and specific circumstances of the borrower which, in management’s judgment, could influence the ability of the borrower to repay the amounts per the loan terms. For the FPL program, the federal government bears the risk of loss of uncollectible loans provided the University performs required collection due diligence procedures. Loans receivable under the FPL program were $2,359,543 and $2,401,051 as of June 30, 2015 and 2014, respectively. The allowance for the doubtful loans was $11,200 in each year. The following represents the amounts due under the University’s loan program as of June 30, 2015 and 2014:
Not in repayment status - current On schedule in repayment status - current In default less than 240 days In default more than 240 days and less than two years In default two to five years In default more than five years
Less allowance for doubtful accounts
2015
2014
$ 1,153,765 591,634 192,673 92,270 113,428 226,973
$ 1,205,785 606,252 205,734 77,550 110,720 206,210
2,370,743 11,200
2,412,251 11,200
$ 2,359,543
$ 2,401,051
Additionally, as part of the sale of RUCEC in 2015 (see Note 15), the University received a promissory note receivable for $2,700,000 which has a 3.25% interest rate and is due on March 31, 2016. The University has recorded $21,938 of interest receivable at June 30, 2015 related to the promissory note receivable within accounts receivable on the consolidated statement of financial position. 14
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
Note 4:
Investments
Investments at June 30, 2015 and 2014 consisted of the following:
Investments at fair value Cash, money market and other funds Marketable CDs Domestic equity securities Foreign equity securities Mutual funds Mortgage-backed securities Corporate debt securities Assets under irrevocable trust Other
Investments at historical cost Real estate Other Total investments
2015
2014
$ 5,913,704 475,344 6,447,081 2,641,072 13,672,152 1,104,196 1,210,123 1,725,125 108,694
$ 14,547,267 205,022 9,323,156 2,665,212 11,238,244 1,273,513 1,226,715 1,756,237 -
33,297,491
42,235,366
1,391,341 558,678
2,144,085 514,072
$ 35,247,510
$ 44,893,523
The University has significant investments in marketable securities which are subject to price fluctuation. This risk is controlled through a diversified portfolio and regular monitoring procedures.
15
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
The following schedule summarizes the investment return and its classification in the consolidated statements of activities:
2015 Interest and dividend income
$ 1,005,952
2014 $
896,456
Unrealized gains/(losses) Realized gains
(3,718,603) 2,682,382
1,506,763 1,769,071
Net realized and unrealized gains/(losses)
(1,036,221)
3,275,834
Total investment return/(loss)
Note 5:
$
(30,269)
$
4,172,290
Contributions Receivable
Contributions receivable at June 30, 2015 and 2014 consisted of the following:
Due within one year Due in one to five years Due in more than five years Less Allowance for uncollectible contributions Unamortized discount
2015
2014
$ 1,005,506 1,426,097 870,000 3,301,603
$ 3,846,566 1,732,277 930,000 6,508,843
100,000 447,847
100,000 523,903
$ 2,753,756
$ 5,884,940
Approximately 8% and 53% of the gross outstanding contributions receivable as of June 30, 2015 and 2014, respectively, were due from related parties or affiliated entities. One donor made up approximately 36% and 46%, respectively, of the total gross contributions receivable at June 30, 2015 and 2014. The discount rate utilized was 5% for 2015 and 2014.
16
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
Note 6:
Line of Credit
The University had an $8,000,000 revolving bank line of credit that was renewed and extended on June 12, 2015. With the renewal, certain modifications were made to the credit agreement, including changes to calculation of liquidity ratios and increases of net asset to total debt ratio requirements for the years ending June 30, 2015 and 2016, and the quarters ending December 31, 2015 and 2016 and extending the maturity date of the line to June 14, 2016. Management has determined the University was in compliance with required financial covenants as of June 30, 2015. As of June 30, 2015 and 2014, there was $6,388,639 and $7,000,000, respectively, borrowed against this line. The line is collateralized by substantially all of the University’s assets. Interest varies with an adjusted 30-day BBA LIBOR (London Interbank Offered Rate) plus 2.5%, which was 2.65% on June 30, 2015 and is payable monthly.
Note 7:
Notes and Bonds Payable
Long-term Educational Facilities Refunding Revenue Bonds 2011 Series A (A) Variable Rate Demand Bonds Educational Facilities Refunding Revenue Bonds – 2011 Series B (B) American Recovery and Reinvestment Act of 2009; State Energy Program Loan (C) Other
(A)
2015
2014
$ 19,498,750
$ 20,028,750
19,750,000
20,570,000
956,660 190,720
1,064,691 -
$ 40,396,130
$ 41,663,441
Obligations issued by the University; maturing serially at varying amounts through October 1, 2035; debt service payments to meet and pay the principal of, redemption premium, if any, and interest on the bonds as they become due and payable; interest payments at rates ranging from 3.0% to 6.5%; secured by first lien on the University’s educational facilities and by assignment of the net revenue derived therefrom. The bonds are subject to redemption and payment prior to maturity in whole or in part from time to time on any interest payment date at redemption prices set in the bond agreement.
17
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
(B)
Obligations issued by the University; maturing serially at varying amounts through November 1, 2032; debt service payments to meet and pay the principal of, redemption premium, if any, and interest on the bonds as they become due and payable; interest payments are at variable rates that are adjusted daily based on market interest rates; secured by first lien on the University’s educational facilities and by assignment of the net revenue derived therefrom. The bonds are subject to redemption and payment prior to maturity in whole or in part from time to time at redemption prices set in the bond agreement. The University maintained a letter of credit facility relating to the bonds above, which expired on February 14, 2014, that permitted the trustee to draw an amount up to the principal amount outstanding should the bonds not be remarketed and become due. If the letter of credit was drawn upon, the University would have been required to repay the “Bank Bonds” by the expiration date of the letter of credit at an interest rate equal to the greater of BBA LIBOR (London Interbank Offered Rate) Daily Floating Rate plus 2.5% or 5.5%. On August 28, 2013, the University entered into a new letter of credit facility with another bank to replace the letter of credit facility described above. The new letter of credit, which expires on August 28, 2016, permits the trustee to draw an amount up to the principal amount outstanding should the bonds not be remarketed and become due. If the letter of credit is drawn upon, the University would be required to repay the “Bank Bonds” by the expiration date of the letter of credit at an interest rate equal to the greater of the Prime Rate plus 1.5%, the Federal Funds Rate plus 3%, or 7.5%.
(C)
Loan proceeds obtained through the American Recovery and Reinvestment Act of 2009 State Energy Program; semi-annual payments due through maturity date of February 1, 2023; interest rate of 2%.
The Educational Facilities Refunding Revenue Bonds noted above at items (A) and (B) require the University to maintain certain financial covenants. As of June 30, 2015 and 2014, management determined the University was in compliance with the required financial covenants. Interest expense totaled $2,529,226 and $2,720,022 for the years ended June 30, 2015 and 2014, respectively.
18
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
Aggregate annual maturities of long-term debt at June 30, 2015, that include both the scheduled contractual maturities of the variable rate demand bonds and payments that could be required under the loan included in the letter of credit agreement as described above are as follows:
2016 2017 2018 2019 2020 Thereafter
Note 8:
Scheduled Contractual Maturities
Maturities Including Letter-ofCredit Expiration
$ 1,633,010 1,674,006 1,679,517 1,761,822 1,847,225 31,800,550
$ 1,633,010 19,649,006 719,517 751,822 782,225 16,860,550
$ 40,396,130
$ 40,396,130
Derivative Financial Instruments
As a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flows due to interest rate fluctuations, the University entered into two interest rate swap agreements in October 2002. One agreement provides for the University to receive interest from the counterparty at 70% of the one-month LIBOR and to pay interest to the counterparty at a fixed rate of 3.96% on an amortizing notional amount (initially $18,190,000). This agreement expires November 1, 2032. The second agreement provides for the University to receive interest from the counterparty at 70% of the one-month LIBOR and to pay interest at a fixed rate of 3.96% on an amortizing notional amount (initially $8,630,000). This agreement expires November 1, 2017. The agreement required the University to fully cash collateralize the maximum obligation of the counterparty in a deposit account held by the counterparty which amounted to approximately $700,000 and $900,000 on June 30, 2015 and 2014, respectively. Under these agreements, the University pays or receives the net interest amount monthly, with the monthly settlements included in interest expense. The agreements are recorded at fair value with subsequent changes in fair value included in unrestricted changes in net assets on the accompanying consolidated statements of activities. The University allocates interest expense to various expense categories on the consolidated statements of activities.
19
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
For the years ended June 30, 2015 and 2014, an unrealized gain of $92,086 and $210,481, respectively, was recorded for the derivative instruments. The aggregate fair value of the interest rate swap agreements, based upon quoted market prices for contracts with similar maturities, was a liability of $3,441,636 and $3,533,722 as of June 30, 2015 and 2014, respectively, and is recorded as interest rate swap agreements on the accompanying consolidated statements of financial position.
Note 9:
Net Assets
Temporarily Restricted Net Assets Temporarily restricted net assets at June 30, 2015 and 2014 are available for the following purposes or periods:
2015 Scholarships Assets under irrevocable trust Property and equipment Donor restricted endowment earnings (see Note 10 ) Contributions receivable Other
$
633,252 653,986 2,969,554 5,142,210 1,298,919 726,947
$ 11,424,868
2014 $
874,379 641,570 4,702,393 6,970,409 3,930,390 359,654
$ 17,478,795
Permanently Restricted Net Assets Permanently restricted net assets are restricted for investment in perpetuity, the income from which is generally expendable for student scholarships (see Note 10).
20
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
Net Assets Released From Restrictions Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of other events specified by donors. These amounts released during the years ended June 30, 2015 and 2014 are as follows:
Expenditures for capital projects Scholarships Appropriation of endowment assets for expenditure Satisfaction of purpose restrictions
2015
2014
$ 3,772,331 281,278 1,410,000 2,848,065
$ 3,149,129 163,346 1,962,000 3,044,684
$ 8,311,674
$ 8,319,159
Note 10: Endowment Interpretation of State Law The University’s endowment consists of approximately 220 individual funds established for a variety of purposes. The endowment includes both donor-restricted endowment funds and funds designated by the governing body to function as endowments (board-designated endowment funds). As required by accounting principles generally accepted in the United States of America (“GAAP”), net assets associated with endowment funds, including board-designated endowment funds, are classified and reported based on the existence or absence of donor-imposed restrictions. The University’s governing body has interpreted the State of Missouri Prudent Management of Institutional Funds Act (“SPMIFA”), adopted in August 2009, as requiring preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the University classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of donor-restricted endowment funds is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the University in a manner consistent with the standard of prudence prescribed by SPMIFA. In accordance with SPMIFA, the University considers the following factors in making a determination to appropriate or accumulate donorrestricted endowment funds: 1. 2. 3. 4.
Duration and preservation of the fund Purposes of the University and the fund General economic conditions Possible effect of inflation and deflation 21
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
5. Expected total return from investment income and appreciation or depreciation of investments 6. Other resources of the University 7. Investment policies of the University The composition of net assets by type of endowment fund at June 30, 2015 and 2014 was:
Donor-restricted endowment funds subject to SPMIFA
Donor-restricted endowment funds subject to SPMIFA
Unrestricted
2015 Temporarily Permanently Restricted Restricted
$ (1,354,604)
$
Unrestricted
2014 Temporarily Permanently Restricted Restricted
$
$
(459,645)
5,142,210
6,970,409
$ 32,257,715
$ 30,719,113
Total $ 36,045,321
Total $ 37,229,877
Changes in endowment net assets, subject to SPMIFA, for the years ended June 30, 2015 and 2014, were:
Endowment net assets, beginning of year Investment return Contributions and collections on pledges Appropriation of endowment assets for expenditure (donor restricted) Endowment net assets, end of year, subject to SPMIFA
Unrestricted
2015 Temporarily Permanently Restricted Restricted
$
$
(459,645)
Total
6,970,409
$ 30,719,113
$ 37,229,877
(894,959)
(418,199)
-
(1,313,158)
-
-
1,538,602
1,538,602
-
(1,410,000)
-
(1,410,000)
5,142,210
$ 32,257,715
$ 36,045,321
$ (1,354,604)
$
22
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
Endowment net assets, beginning of year
Unrestricted
2014 Temporarily Permanently Restricted Restricted
$ (1,223,630)
$
Investment return Contributions and collections on pledges Appropriation of endowment assets for expenditure (donor restricted) Endowment net assets, end of year, subject to SPMIFA
$
Total
5,223,829
$ 29,917,812
$ 33,918,011
763,985
3,708,580
-
4,472,565
-
-
801,301
801,301
-
(1,962,000)
-
(1,962,000)
6,970,409
$ 30,719,113
$ 37,229,877
(459,645)
$
Permanently restricted net assets on the consolidated statements of financial position at June 30, 2015 and 2014 consist of the following:
2015
2014
Endowment net assets, subject to SPMIFA (see previous tables) Beneficial interest in irrevocable trust Contributions receivable
$ 32,257,715 1,092,768 330,746
$ 30,719,113 1,114,663 218,607
Permanently restricted net assets
$ 33,681,229
$ 32,052,383
The University’s endowment fund (University Investment Portfolio), as defined by the University, at June 30, 2015 and 2014 consisted of the following:
Investments in marketable securities Assets under irrevocable trusts Real estate investments Total endowment funds, as defined by University
2015
2014
$ 31,572,360 1,725,125 1,391,341
$ 40,479,129 1,756,237 2,144,085
$ 34,688,826
$ 44,379,451
Included in the total endowment funds presented above are assets included in irrevocable trusts held by other third parties. Those assets are not subject to the University’s investment or spending policies.
23
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level the University is required to retain as a fund of perpetual duration pursuant to donor stipulation or SPMIFA. In accordance with GAAP, deficiencies of this nature are reported in unrestricted net assets and aggregated $1,354,604 and $459,645 at June 30, 2015 and 2014, respectively. These deficiencies resulted from unfavorable market fluctuations that occurred shortly after investment of new permanently restricted contributions and continued appropriation for certain purposes that was deemed prudent by the governing body. Assets of the endowment fund are pooled on a market value basis. Each individual pooled endowment fund subscribes to or disposes of units on the basis of the per-unit market value at the beginning of the calendar month within which the transaction takes place. Under the University’s endowment spending policy, for operational purposes the Board of Trustees annually directs that a percentage of a three-year rolling average market value of investments held for endowment purposes be allocated as a distribution of endowment income for current operations. For 2015 and 2014, such percentage was 5% and 7%, respectively, and the allocation totaled $1,410,000 and $1,962,000, respectively. The University has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs and other items supported by its endowment while seeking to maintain the purchasing power of the endowment. Endowment assets include those assets of donor-restricted endowment funds the University must hold in perpetuity or for donor-specified periods, as well as those of board-designated endowment funds. Under the University’s policies, endowment assets are invested in a manner that is intended to maintain purchasing power, while reducing, to the greatest extent possible, the possibility of loss. The endowment fund’s return is measured on a time weighted total return basis over a one, three and five year period of time against appropriate benchmarks and a manager universe of funds having a similar investment style. To satisfy its long-term rate of return objectives, the University relies on a total return strategy in which investment returns are achieved through both current yield (investment income such as dividends and interest) and capital appreciation (both realized and unrealized). The University targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints.
Note 11: Retirement Plan Retirement benefits are provided for substantially all University employees through a contributory purchase plan for annuity contracts with the Teachers’ Insurance and Annuity Association and/or College Retirement Equities Fund. The University matches a certain percentage of employee contributions to the Plan. Total consolidated contributions to the plans were approximately $955,000 and $1,091,000 for 2015 and 2014, respectively.
24
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
Note 12: Self-Funded Health and Dental Plan The University maintains a self-funded health and dental insurance plan for its employees. The Plan provides certain medical, hospitalization and dental benefits to employees and their eligible dependents. Under the Plan, the University’s losses are limited through the use of excess loss insurance that pays 100% of the excess of individual claims exceeding $100,000 up to an individual life time limit of $5,000,000. Benefits are funded by monthly premiums received from eligible participants and contributions from the University. The University determines contribution levels for participants in the Plan. Claims paid (net of reinsurance receipts) under the Plan for 2015 and 2014 totaled $2,133,825 and $1,626,838, respectively. Accrued liabilities include an estimate of the University’s liability for claims incurred but not paid through June 30, 2015 and 2014 of approximately $342,000 and $178,000, respectively.
Note 13: Disclosures About Fair Value of Assets and Liabilities Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value: Level 1
Quoted prices in active markets for identical assets or liabilities
Level 2
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
Level 3
Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities
25
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
Recurring Measurements The following tables present the fair value measurements of assets and liabilities recognized in the accompanying consolidated statements of financial position measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2015 and 2014: 2015
Fair Value Investments Cash, money market and other funds Marketable CDs Domestic equity securities Foreign equity securities Mutual funds Other Mortgage-backed securities Corporate debt securities Assets under irrevocable trust Total investments Restricted cash and cash equivalents at fair value Money market U.S. Treasury securities Total restricted cash and cash equivalents Interest rate swap agreements
$
5,913,704 475,344 6,447,081 2,641,072 13,672,152 108,694 1,104,196 1,210,123 1,725,125
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
$
$
1,104,196 1,210,123 1,725,125
$
-
5,913,704 475,344 6,447,081 2,641,072 13,672,152 108,694 -
$ 33,297,491
$ 29,258,047
$ 4,039,444
$
-
$
1,016,807 1,403,699
$
1,016,807 1,403,699
$
-
$
-
$
2,420,506
$
2,420,506
$
-
$
-
$
(3,441,636)
$
-
$
-
$ (3,441,636)
26
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
2014
Investments Cash, money market and other funds Marketable CDs Domestic equity securities Foreign equity securities Mutual funds Mortgage-backed securities Corporate debt securities Assets under irrevocable trust Total investments Restricted cash and cash equivalents at fair value Money market U.S. Treasury securities Total restricted cash and cash equivalents Interest rate swap agreements
Fair Value
Quoted Prices in Active Markets for Identical Assets (Level 1)
$ 14,547,267 205,022 9,323,156 2,665,212 11,238,244 1,273,513 1,226,715 1,756,237
$ 14,547,267 205,022 9,323,156 2,665,212 11,238,244 -
$
1,273,513 1,226,715 1,756,237
$
-
$ 42,235,366
$ 37,978,901
$
4,256,465
$
-
$
1,151,132 1,479,407
$
1,151,132 1,479,407
$
-
$
-
$
2,630,539
$
2,630,539
$
-
$
-
$
-
$ (3,533,722) $
-
$ (3,533,722)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying consolidated statements of financial position, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the year ended June 30, 2015. Investments Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. There were no Level 3 investments at June 30, 2015 and 2014.
27
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
Nonrecurring Measurements The following table presents fair value measurement of assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarch in which the fair value measurements fall at June 30, 2015.
Fair Value June 30, 2015 Real Estate Held for Investment
$
1,391,341
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
$
$
$
-
1,391,341
-
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated statements of financial position, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. Real Estate Held of Investment Real estate held for investment is valued at fair value on June 30, 2015, due to an impairment recorded. The fair value is estimated using recent market transactions on similar assets that are observable or that can be corroborated by observable market data and, therefore, are classified within Level 2 of the valuation hierarchy. Interest Rate Swap Agreements The fair value is estimated using forward-looking interest rate curves and discounted cash flows that are observable or can be corroborated by observable market data and, therefore, are classified within Level 2 of the valuation hierarchy. Cash and Cash Equivalents The carrying amount is a reasonable estimate of fair value. Contributions Receivable Fair value is estimated by discounting the cash flows of the future payments expected to be received using rates of return on assets with similar cash flows.
28
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
Notes Receivable A reasonable estimate of the fair value of the Federal Perkins loans due from students could not be made because the notes receivable are not salable and can only be assigned to the U.S. government or its designees. Notes and Bonds Payable The carrying amount is a reasonable estimate of fair value. Annuities Payable Fair values of the annuity obligations are based on an actuarial evaluation of the estimated annuity or other payments under such obligations.
Note 14: Asset Retirement Obligation Accounting standards require that an asset retirement obligation (ARO) associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which it is incurred or becomes determinable (as defined by the standard) even when the timing and/or method of settlement may be conditional on a future event. The University’s conditional asset retirement obligations primarily relate to asbestos contained in buildings that the University owns. Federal and state environmental regulations exist that require the University to handle and dispose of asbestos in a special manner if a building undergoes major renovations or is demolished. A summary of changes in asset retirement obligations is included in the table below:
2015
2014
Liability, beginning of year Liabilities settled Accretion expense
$
741,197 (40,000) 42,950
$
723,226 (22,934) 40,905
Liability, end of year
$
744,147
$
741,197
Note 15: Sale of Rockhurst University Continuing Education Center On March 31, 2015, the University sold 100% of the stock of its wholly-owned subsidiary, RUCEC for cash and a note receivable from the buyer. The note receivable is due March 31, 2016 and management considers it fully collectible. The sale of RUCEC resulted in a gain of $8,849,843 and is included in the change in net assets from discontinued operations in the consolidated statement of activities for the year ended June 30, 2015. 29
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
Total operating revenues and expenses for RUCEC, exclusive of the $8,849,843 gain recognized, for the years ended June 30, 2015 and 2014, were as follows:
Revenues Expenses Change in net assets from discontinued operations
2015
2014
$ 25,504,546 26,411,443
$ 35,689,800 35,995,769
$
$
(906,897)
(305,969)
Assets and liabilities related to discontinued operations for RUCEC at June 30, 2015 and 2014 were as follows:
2015
2014
Assets
$
-
$ 7,728,380
Liabilities
$
-
$ 9,596,735
Note 16: Significant Estimates and Concentrations Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Those matters include the following: Litigation The University is subject to claims and lawsuits that arise primarily in the ordinary course of its activities. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the financial position, change in net assets and cash flows of the University. Accounts Receivable and Contributions Receivable Allowances Management believes that outstanding accounts receivable and contributions receivable allowances are reasonable as of June 30, 2015. The estimate could change in future periods due to unforeseen events and circumstances. Asset Retirement Obligation As discussed in Note 14, the University has recorded a liability for its conditional asset retirement obligations related to asbestos. 30
Rockhurst University Notes to Consolidated Financial Statements June 30, 2015 and 2014
Investments The University invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the accompanying consolidated statements of financial position.
31