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The Office of Financial Services Internal Bank Overview June, 2012.

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1 The Office of Financial Services Internal Bank Overview June, 2012

2 Background 2 University issued its first variable rate bonds in 1985 Departments repaying debt had a desire to pay a predictable fixed rate Treasurers Office wanted to build a reserve to protect the University from interest rate spikes In 1988 started charging departments a blended rate, which included both fixed and variable rates accomplishing the above two objectives over the next six years as variable rates remained low By 1995, the reserve became large enough to allow the University to begin making loans from the reserve 2009 bank structure expanded and formalized Genesis of the Internal Bank

3 Advantages 3 Goals include, but not limited to: Managing downside risk Better cash flow management Creating long-term debt service reserve resources Lowering overall cost of capital for the organization Risk management through possible economic environments Protecting capital projects from capital market uncertainties

4 Advantages 4 Creates a link between how assets are borrowed and invested Created the following investment pools: Short Term – bank deposits, repos, CDs, etc. Intermediate Term –fixed income 1 – 3 years average maturity Long Term – invested in the Long-Term Investment Pool When a new bond issue is contemplated, the amount of fixed and variable rate debt will also effect the amounts invested within the three investment portfolios Liquidity Repayment schedules Interest rate risk Asset Liability Management

5 Current Practices 5 Asset Structure All liquid Assets are available to the Internal Bank Assets are invested in short, intermediate and long term pools Debt Structure Debt is held as a portfolio by the Internal Bank The portfolio is currently long-term fixed and variable-rate demand notes Current Practices

6 Bank Funds – Sources and Uses 6 Deposits Loans Long Term Intermediate Term Short Term Investments LOCs & Internal Loans Capital Projects Leases Other Earnings Units General Fund Variable Rate CP Capital Leases Master Leases Fixed Notes DEBT

7 Policies for Loans 7 Principals Regarding Use of Internal Bank: Internal loans or lines of credit are to be used for strategic purposes consistent with the Universitys Strategic Goals A fully executed Memorandum of Understanding (MOU) specifying terms and sources of repayment is required prior to the release of funds Principal is expected to be paid back in regular installments consistent with MOU All requests must be approved by the units Dean/VP and the Senior Vice President for Business and Finance Agreements greater than 10 years and/or $10 million are not encouraged and require both the SVP For Business and Finance and IFP approval Regardless of source, all leases, internal loans and lines of credit to affiliated organizations require approval of IFP Early repayment is encouraged with no penalty

8 Policies for Loans 8 Capital Project Loans would be made under the following general criteria: Made from the Internal Bank Typically for longer term capital projects Funding not necessarily tied to debt issuance Repaid on a specific schedule Rate based on Universitys weighted average cost of capital

9 Policies for Loans 9 Lines of Credit and Master Leases would be made under the following general criteria: Made from the Internal Bank To cover shorter term projects Bridge financing Repaid to a specific maturity Rate based on Universitys weighted average cost of capital Master leases are shorter term loans for equipment purchases

10 Internal Bank - Whats new 10 Updates: New Debt Policy (Board approval April 2012) Terms updated on six month intervals Internal Bank Executive Committee Established Online Internal Financing Request Process

11 Term Sheet 11 Internal Financing Term Sheet Available at:

12 Bank Oversight 12 Internal Bank Management Activities and policies overseen by the SVP For Business and Finance/CFO in conjunction with Board oversight The Office of Business and Finance develops/recommends policies such as the external and internal debt policies, internal interest rate policies, internal debt limit, Bank asset allocation, long and short-term investment policies for approval of the CFO and/or Board of Trustees as appropriate Day-to-day activity undertaken by Office of Financial Services/University Treasurer in consultation with other groups including external bankers and advisors Membership of Internal Bank Executive Committee: – Michael Papadakis, VP for Financial Services and University Treasurer – Kristine Devine, Vice President for Operations – Al Rodack, Sr Dir of Financial Services Integrated Financial Planning Committee: – Geoff Chatas, SVP for Business & Finance/CFO – Joseph Alutto, Exec Vice President & Provost – Stephen Gabbe, Senior VP for Health Sciences – Jeff Kaplan, Sr Vp Advancement/Pres Univ Foundtn – Jay Kasey, Sr VP, Admin & Planning

13 Results So Far 13 Results So Far: Board is focused on strategic financial goals Over the last 27 years, the University has saved over $180 million by issuing variable rate debt and commercial paper Internal loans outstanding = ~ $43 million Lines of Credit outstanding = ~ $45 million Master Leases outstanding = ~ $7 million Bond projects outstanding = ~ $2.3 billion

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