General Purpose External Financial Statements. Compliance Reports and Management Letter

Transcription

1 General Purpose External Financial Statements and Compliance Reports and Management Letter September 30, 2015 and 2014

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3 Sections General Purpose External Financial Statements... Section I Compliance Reports and Management Letter... Section II

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5 Section I Escambia County Housing Finance Authority General Purpose External Financial Statements Years ended September 30, 2015 and 2014 with Report of Independent Auditor

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7 General Purpose External Financial Statements Years ended September 30, 2015 and 2014 Contents Report of Independent Auditor...1 Management s Discussion and Analysis...4 Basic Financial Statements Statements of Net Position...20 Statements of Revenues, Expenses, and Changes in Net Position...21 Statements of Cash Flows...22 Notes to Financial Statements...24 Other Required Supplementary Information Schedule of the Authority s Proportionate Share of the Net Pension Liability - Florida Retirement System Pension Plan...67 Schedule of the Authority s Contributions - Florida Retirement System Pension Plan...68 Schedule of the Authority s Proportionate Share of the Net Pension Liability - Health Insurance Subsidy Pension Plan...69 Schedule of the Authority s Contributions - Health Insurance Subsidy Pension Plan...70 Notes to Other Required Supplementary Information...71

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9 REPORT OF INDEPENDENT AUDITOR

10 CALVIN CHARLES JOHNSON CERTIFIED PUBLIC ACCOUNTANT 3615 PINE TIP ROAD TALLAHASSEE, FLORIDA TELEPHONE: ADDRESS: FACSIMILE: (850) (850) Report of Independent Auditor The Members Escambia County Housing Finance Authority Report on the Financial Statements I have audited the accompanying basic financial statements of the Escambia County Housing Finance Authority ( Authority ), a component unit of Escambia County, Florida, as of and for the years ended September 30, 2015 and 2014, and the related notes to the basic financial statements, which comprise the Authority's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility My responsibility is to express an opinion on these basic financial statements based on my audits. I conducted my audits 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 I plan and perform the audits 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 1

11 entity's internal control. Accordingly, I 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. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of the Escambia County Housing Finance Authority as of September 30, 2015 and 2014, and the changes in its financial position and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matters Change in Accounting Principle As discussed in Note 2 to the basic financial statements, in Fiscal 2015, the Authority implemented Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions an amendment of GASB Statement No. 27, and the related GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date an amendment of GASB Statement No. 68, which is a change in accounting principle that requires an employer participating in a cost-sharing multiple-employer defined benefit pension plan to report the employer s proportionate share of the net pension liability of the defined benefit pension plan. This affects the comparability of amounts reported in Fiscal 2015 with the amounts reported in Fiscal My 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 Management's Discussion and Analysis, Schedule of the Authority s Proportionate Share of the Net Pension Liability Florida Retirement System Pension Plan, Schedule of the Authority s Contributions Florida Retirement System Pension Plan, Schedule of the Authority s Proportionate Share of the Net Pension Liability Health Insurance Subsidy Pension Plan, Schedule of the Authority s Contributions Health Insurance Subsidy Pension Plan, and Notes to Other Required Supplementary Information, as listed in the table of contents, 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 2

12 ,... context. I 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 my inquiries, the basic financial statements, and other knowledge I obtained during my audit of the basic financial statements. I do not express an opinion or provide any assurance on the information because the limited procedures do not provide me with sufficient evidence to express an opinion or provide any assurance. Reports on Other Legal and Regulatory Requirements Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, I have also issued my report dated May 16, 2016 on my consideration of the Escambia County Housing Finance Authority's internal control over financial reporting and on my tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of my testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on 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 Escambia County Housing Finance Authority's internal control over financial reporting and compliance. Other Reporting Required by the Rules of the Auditor General of the State of Florida In accordance with Chapter of the Rules of the Auditor General of the State of Florida, I have also issued my report dated May 16, 2016 on my examination of the Escambia County Housing Finance Authority's compliance with the requirements of Section , Florida Statutes. The purpose of that report is to describe the scope of my examining evidence about the Escambia County Housing Finance Authority's compliance with those requirements and to express my opinion on such compliance. My examination does not provide a legal determination on the Escambia County Housing Finance Authority's compliance with the requirements of Section , Florida Statutes. That report is an integral part of an examination conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants to consider the Escambia County Housing Finance Authority's compliance with the requirements of Section , Florida Statutes. May 16,

13 MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED)

14 Management s Discussion and Analysis (Unaudited) September 2015 and 2014 MANAGEMENT S DISCUSSION AND ANALYSIS As management of the Escambia County Housing Finance Authority (the Authority ), we offer readers of the Authority s general purpose external financial statements this narrative overview and analysis of the Authority s financial activities for the fiscal year ended on September 30, The information contained in Management s Discussion and Analysis ( MD&A ) is intended to highlight significant transactions, events and conditions and should be considered in conjunction with the Authority s basic financial statements and notes to financial statements found immediately following the MD&A. FINANCIAL HIGHLIGHTS The Authority s mission is to alleviate the shortage of affordable residential housing facilities for low, moderate, and middle income families in Escambia County, Florida. In pursuit of its mission, the Authority borrows money through the issuance of bonds, notes, or other obligations to finance single family residential housing, student dormitories, and multi-family housing developments. The Authority also utilizes its funds to purchase mortgage backed securities to finance single family residential housing. In addition, the Authority provides loans and grants for the acquisition, construction, renovation, and operation of residential housing facilities. At times, the Authority finds it advantageous to retire an existing bond issue (i.e., through redemption and/or defeasance). Retirements of single family bond issues may generate sizeable cash residuals for the Authority (See Note 16 to the basic financial statements.). The residuals may substantially impact the Authority s revenues in a single fiscal year and cause significant variation from year to year. Oftentimes, a cash contribution is needed from the Authority to issue single family bonds. Such contributions may range from tens of thousands to several hundred thousand dollars. At times, the Authority finds it desirable to forgive loans or make grants to accomplish its public purpose. The contributions to bond issuance, loan forgiveness, and grants may substantially impact the Authority s expenses in a single fiscal year and cause significant variation from year to year. Key financial highlights for Fiscal 2015 are as follows: The Authority s net position decreased by $15,626 or.08% in Fiscal

15 Management s Discussion and Analysis (Unaudited) (continued) FINANCIAL HIGHLIGHTS (continued) As compared with Fiscal 2014, in Fiscal 2015 the Authority s operating revenues decreased from $3,232,124 to $2,732,229, a decrease of $499,895 or 15.5%. The net decrease was primarily attributable to a $2,025,793 decrease in second mortgage reimbursement income, a $134,288 increase in TBA Program income, net of expenses, a $61,880 increase in fees and other income, a $1,266,254 increase in residual income realized from the retirement of bond issues, a $9,028 increase in recovery of bond issuance costs, and a $54,448 increase in non-amortizing second mortgage repayments income. Non-operating revenue (expense) decreased from $555,871 to $245,715, a decrease of $310,156 or 55.8%. The net decrease was primarily attributable to an $80,751 decrease in interest income, a $124,697 increase in the gain on sale of investments, and a $354,102 decrease in the fair value of investments. Operating expenses decreased from $4,055,340 to $2,769,432, a decrease of $1,285,908 or 31.7%. The net decrease was primarily attributable to a $70,515 increase in salaries and related benefits expense, a $52,630 increase in legal, accounting, advisory, and consulting fees expense, a $23,498 increase in general operating and administrative expense, a $254,568 decrease in bond issuance and monitoring costs expense, a $61,112 increase in Multi-Family Development Initiative expense, net of income, a $1,276,635 decrease in non-amortizing second mortgage loan funding expense, and a $39,112 increase in the provision for loan losses. In Fiscal 2013, the Authority transitioned its First Time Homebuyer Program from a traditional tax-exempt program to a program primarily financed through the sale of mortgage backed securities guaranteed by Ginnie Mae as to timely payment of principal and interest (the TBA Program ). Since the inception of the TBA Program through September 30, 2015, mortgage loan originations totaled $85,914,688. During Fiscal 2015 and 2014, mortgage loan originations totaled $25,255,196 and $37,646,740, respectively. During Fiscal 2015 and 2014, TBA Program mortgage backed securities (par value) purchased by the Authority under the TBA Program totaled $27,127,503 and $34,226,911, respectively. During Fiscal 2015 and 2014, TBA Program mortgage backed securities (par value) sold and/or monthly principal remittances collected by the Authority under the TBA Program totaled $27,127,503 and $36,261,467, respectively. During Fiscal 2015 and 2014, the income (including positive TBA Program MBS fair value adjustments) recognized in connection with the TBA Program was $2,064,646 and $2,254,314, respectively. During Fiscal 2015 and 2014, the expenses (including negative TBA Program MBS fair value adjustments and excluding any allocation of a portion of the Authority personnel services expense and general counsel fees) incurred in connection with the TBA Program were $927,892 and $1,251,848, respectively. In addition, during Fiscal 2015 and 2014, the Authority executed pair off transactions to settle MBS Forward Contracts (notional amount totaling $2,565,000 and $8,775,000, respectively. The Fiscal 2014 pair off transactions were made in connection with the issuance of the 2014B Bonds. The income and expenses 5

16 Management s Discussion and Analysis (Unaudited) (continued) FINANCIAL HIGHLIGHTS (continued) have been classified as TBA Program income, net of expenses in the accompanying basic financial statements (See Note 14.). In conjunction with the origination of mortgage loans under the TBA Program, during Fiscal 2015 the Authority funded $1,821, in deferred, non-amortizing second mortgages to provide down payment and related closing cost assistance to eligible homebuyers under the Authority s Master Down Payment Assistance Program (the Assistance Program ). The income and expenses from the Authority s Assistance Program have been classified as Non-amortizing second mortgage repayments and Non-amortizing second mortgage loan funding in the accompanying basic financial statements (See Note 9 and Note 15.). On July 22, 2015, the Authority approved amendments to the Second Supplemental Trust Indenture and Second Supplemental Loan Agreement which authorized the issuance of the Authority s $11,717,000 Dormitory Refunding Revenue Bond (University of West Florida Foundation, Inc. Project), Series 2010 (the Original 2010 Bond ) to provide for the issuance of an obligation in the principal amount of $9,226,000 at a lower interest rate (the Replacement 2010 Bond ) to replace the Original 2010 Bond. The Replacement 2010 Bond was authenticated and delivered on July 28, 2015 and resulted in a present value interest cost savings of approximately $606,000 to the University of West Florida Foundation, Inc. (the Borrower ). In June 2015, the Authority approved an Inducement Resolution to enter into a Memorandum of Agreement (the Agreement ) with Springhill Apartments, LLC with respect to the issuance of not exceeding $4,100,000 Multi-Family Housing Revenue Bonds, Series 2015 for the purpose of acquiring, upgrading, reconditioning, rehabilitating, improving, and beautifying the development known as Springhill Apartments, which is located in the City of Madison, Florida (Springhill Apartments a/k/a Madison Heights Apartments). In June 2015, the Authority approved an Inducement Resolution to enter into a Memorandum of Agreement (the Agreement ) with Perrytown Apartments, LLC with respect to the issuance of not exceeding $5,600,000 Multi-Family Housing Revenue Bonds, Series 2015 for the purpose of acquiring, upgrading, reconditioning, rehabilitating, improving, and beautifying the development known as Springhill Apartments, which is located in the City of Perry, Florida (Perrytown Apartments a/k/a Tidewater Apartments). 6

17 Management s Discussion and Analysis (Unaudited) (continued) FINANCIAL HIGHLIGHTS (continued) On February 27, 2015, the Authority sold its investment in the mortgage backed securities, which it received in connection with the full redemption of the Single Family Mortgage Revenue Bonds, Series GSE-R. The action resulted in the release of cash to the Authority totaling $1,525,100, which may be used for operational purposes. On February 10, 2015, the Authority adopted Resolution Number authorizing the issuance of not exceeding $16,000,000 Dormitory Revenue Refunding Bond (University of West Florida Foundation, Inc. Project), Series 2015 (the 2015 Bond ) to refund the Authority s Dormitory Refunding Revenue Bonds (University of West Florida Foundation, Inc. Project), Series 2005 and thereby provide interest cost savings to the University of West Florida Foundation. The 2015 Bond was issued on a parity with the Authority s outstanding Dormitory Revenue Bonds, Series 2009, 2010 and On March 10, 2015, the 2015 Bond was issued in the principal amount of $14,393,280. On February 10, 2015, the Authority authorized the redemption of its outstanding Single Family Mortgage Revenue Bonds, Series 2006A. A portion of the mortgage backed securities that secured the bonds were sold on February 27, The bonds were redeemed on April 1, 2015 and the bond program was retired. The actions resulted in the release to the Authority of $131,038 in cash residuals and $1,282,601 (fair value) in mortgage backed securities, which previously secured the bonds. The Authority paid $147,385 for arbitrage rebate and transaction related expenses. On December 9, 2014, the Authority appropriated funds for a Multi-Family Development Loan Initiative (the Initiative ) in an effort to help alleviate the shortage of affordable workforce housing in Escambia County. The Initiative included a Multi-Family Development Loan Program and a scattered-site Urban Infill Revolving Loan Program. In connection therewith, the Board appropriated one million ($1,000,000) dollars of Authority assets to be used to finance the acquisition and development of properties suitable for multi-family workforce housing in partnership with for-profit and non-profit developers. Simultaneously, the Board appropriated five hundred thousand ($500,000) dollars to be used for the Urban Infill Revolving Loan Program to finance the acquisition of suitable infill parcels within the community and to provide low-cost capital to incentivize qualified small builders to develop workforce housing. In May 2015, the Authority acquired two lots at 404 and 406 Lloyd Street (the Lloyd Street Properties ) to utilize for the future construction of infill homes. During Fiscal 2015 and 2014, the income recognized in connection with the Initiative was $2,245 and zero, respectively. During Fiscal 2015 and 2014, the expenses (excluding any allocation of a portion of the Authority personnel services expense and general counsel fees) incurred in connection with the Initiative were 7

18 Management s Discussion and Analysis (Unaudited) (continued) FINANCIAL HIGHLIGHTS (continued) $63,357 and zero, respectively. The income and expenses have been classified as Multi- Family Development Initiative expenses, net of income in the accompanying basic financial statements. On October 23, 2014, the Authority sold its investment in two mortgage backed securities which it received from the TBA Program. The action resulted in the release to the Authority of $1,202,836 of cash for operational uses of the Authority. On August 29, 2014, the Authority issued its Single Family Mortgage Revenue Bonds, Series 2014B (the 2014B Bonds ) in the principal amount of $4,335,000 utilizing a financing structure which provided a method of blending a tax exempt bond issuance with the TBA Program and preserved the Authority s Interlocal Agreements with its thirteen (13) participating counties through December 31, 2017 (the Authorization Period ). SUBSEQUENT EVENTS On March 29, 2016, the Authority approved the issuance of its Single Family Mortgage Revenue Bonds (Multi-County Program), Series 2016A (Federally Taxable Pass-Through) (the 2016A Bonds ), in the aggregate principal amount of not to exceed $17,500,000. The Authority contributed $310,715 to the bond issue to pay the related cost of issuance and to fund the 2016A Revenue Account. On April 26, 2016, the 2016A Bonds totaling $16,861,686 were issued pursuant to the Authority s Master Indenture dated August 1, 2014, as supplemented by the 2016A Series Supplement. The 2016A Bond proceeds, together with the Authority s contribution, were used to purchase the fully modified mortgage backed securities which secured the Authority s outstanding Single Family Mortgage Revenue Bonds (Multi-County Program), Series 2007 A-1 and A-2 and the Authority s outstanding Single Family Mortgage Revenue Bonds (Multi-County Program), Series 2007 B (collectively, the 2007 Bonds ) and to fully redeem the 2007 Bonds on April 27, The actions resulted in the release to the Authority of $1,872,378 (fair value) in mortgage backed securities, which previously secured a portion of the 2007 Bonds. The Authority also contributed $1,234,621 in connection with the redemption of the 2007 Bonds. Since the 2016A Bonds were issued after the close of Fiscal 2015, the Authority will recognize the related contribution expense and related income in Fiscal

19 Management s Discussion and Analysis (Unaudited) (continued) THE AUTHORITY The Authority was created as a public body corporate and politic in accordance with the Florida Housing Finance Authority Law, Part IV of Chapter 159, Florida Statutes, as amended, and Ordinance No enacted by the Board of County Commissioners of Escambia County, Florida on May 29, 1980 as amended by Ordinance No enacted on March 20, 2003 (the Act ). The Authority has no component units. The Authority is authorized, in furtherance of the public purposes described in the Act, to alleviate the shortage of affordable residential housing facilities and to provide capital for investment in such facilities for low, moderate, and middle income families by issuing its revenue bonds. The Authority issues bonds for single family programs and operates a To- Be-Announced program that provides funds to eligible borrowers to finance the purchase of qualifying single family residences. The Authority issues bonds for the development of qualifying multi-family housing projects. The Authority also issues dormitory bonds to provide funds to construct student dormitories. The bonds and other related debt obligations issued by the Authority do not and shall never constitute indebtedness, liability, general or moral obligation, or a pledge of the faith or loan of credit of the Authority or of the County. Accordingly, such obligations are not included within the Authority s basic financial statements (See Note 1 and Note 17.). OVERVIEW OF THE FINANCIAL STATEMENTS The financial statements consist of two parts: management s discussion and analysis and the basic financial statements. The basic financial statements also include notes that explain in more detail some of the information in the financial statements. The Authority accounts for its financial activities through the use of an enterprise fund (See Note 1 to the basic financial statements for a summary of the Authority s significant accounting policies.). The Authority s basic financial statements have been prepared using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when incurred; however, the Authority recognizes Authority contributions to its revenue bond issues as expenses when the contribution is made and recognizes unused contributions and residuals from the issues as revenue when received. 9

20 Management s Discussion and Analysis (Unaudited) (continued) BASIC FINANCIAL STATEMENTS The basic financial statements of the Authority report information about the Authority using accounting methods similar to those used by private sector companies. One of the most important questions users of an entity s financial statements ask Is an entity as a whole better off or worse off as a result of the current year s activities? These statements offer short-term and long-term financial information about its activities in a way that will help users of the financial statements answer this question. The Statements of Net Position includes all of the Authority s assets, deferred outflows of resources, liabilities, and deferred inflows of resources and provides information about the nature and amounts of investments in resources (assets and deferred outflows of resources) and the obligations to Authority creditors (liabilities and deferred inflows of resources). The assets and liabilities are presented in a classified format which distinguishes between current and long term assets and liabilities. It also provides the basis for computing various financial ratios, evaluating the capital structure of the Authority, and assessing the liquidity and financial flexibility of the Authority. All of the current year s revenues and expenses are accounted for in the Statement of Revenues, Expenses, and Changes in Net Position. This statement measures the success of the Authority s operations over the past year and can be used to determine the Authority s profitability and creditworthiness and whether the Authority has successfully recovered all of its expenses through fees and other income. The final basic financial statement is the Statements of Cash Flows. The purpose of these statements is to provide information about the Authority s cash receipts and cash payments during the reporting period. The statements report cash receipts, cash payments, and net changes in cash resulting from operating, financing, and investing activities and provides answers to such questions as where did cash come from, what was cash used for, and what was the change in cash balance during the reporting period. Together the Statements of Net Position (the balance sheet) and the Statements of Revenues, Expenses, and Changes in Net Position (the income statement) report information about the Authority s revenues and expenses and the resulting change in net position. Over time, increases or decreases in the Authority s net position is an indicator of whether the Authority s financial health is improving or deteriorating. When evaluating changes in the Authority s financial health, other non-financial factors should also be considered. These include factors such as changes in interest rates, economic conditions, new or changed government legislation and regulations, and the fulfillment of the Authority s public purpose. 10

21 Management s Discussion and Analysis (Unaudited) (continued) NET POSITION A summary of the Authority s Statements of Net Position is presented in Table A. TABLE A Condensed Statements of Net Position Total Dollar Percent FY 2015 FY 2014 Change Change Current assets $ 12,962,749 $ 9,996,112 $ 2,966, % Noncurrent assets 7,595,708 10,310,894 (2,715,186) (26.3) % Total assets 20,558,457 20,307, , % Total deferred outflows of resources 114,313 21,740 92, % Total assets and deferred outflows of resources 20,672,770 20,328, , % Current liabilities 189, ,520 52, % Noncurrent liabilities 228, , % Total liabilities 417, , , % Total deferred inflows of resources 78, , % Total liabilities and deferred inflows of resources 496, , , % Net investment in capital assets 1,120,060 1,107,078 12, % Restricted 5,000,000 5,000, % Unrestricted 14,056,540 14,085,148 (28,608) (.2) % Total net position $ 20,176,600 $ 20,192,226 $ (15,626) (.08)% During the fiscal year ended September 30, 2015, current assets increased $2,966,637. The net increase was primarily attributable to a $2,995,704 increase in cash and cash equivalents, a $10,219 decrease in accrued interest and other receivables, a $14,652 decrease in issuer fees receivable, a $44,679 decrease in the current portion of mortgage backed securities, a $113,137 increase in first mortgages receivable, and a $72,654 decrease in the current portion of amortizing second mortgages receivable. 11

22 Management s Discussion and Analysis (Unaudited) (continued) NET POSITION (continued) During the same period, noncurrent assets decreased $2,715,186. The net decrease was primarily attributable to a $2,415,889 decrease in the noncurrent portion of mortgage backed securities, a $14,400 decrease in the noncurrent portion of bank participation agreements, a $297,879 decrease in the noncurrent portion of amortizing second mortgages receivable, a $4,918 decrease in depreciable capital assets, and a $17,900 increase in non-depreciable capital assets. Under the TBA Program Master Securities Forward Transaction Agreement, the Authority periodically enters into mortgage backed security forward sales contracts ( MBS Forward Contracts ) to sell TBA Program MBS to the Authority's counterparty, before the securities are ready for delivery. The Authority enters into the MBS Forward Contracts to hedge the interest rate risk for loan commitments made to originating mortgage lenders. The MBS Forward Contracts are derivative instruments. At September 30, 2015 and 2014, MBS Forward Contracts were outstanding with total notional amounts of $4,710,000 and $5,307,889, respectively, and fair values of $(20,551) and $(21,740), respectively. At September 30, 2015 and 2014, the total fair value of these MBS Forward Contracts is included on the Statements of Net Position as a liability with a corresponding amount shown as Deferred outflow of resources because the fair value adjustment was negative. The Authority s counterparty does not require the Authority to post collateral when the aggregate fair value adjustment is negative. During Fiscal 2015, the Authority implemented GASB Statement No. 68, which requires the Authority, as a participant in a cost-sharing multiple-employer defined pension plan, to recognize its proportionate share of the net pension liability of the defined benefit pension plan. Deferred outflows of resources ($93,762), noncurrent net pension liability ($228,293), and deferred inflows of resources ($78,660) attributable to the implementation appear for the first time in Fiscal During the fiscal year ended September 30, 2015, current liabilities increased $52,697. The net increase was primarily attributable to a $49,035 increase in accounts payable and accrued expenses, a $4,851 increase in current net pension liability, and a $1,189 decrease in hedging derivative instruments. As shown in Table A, total net position decreased by $15,626 or.08% in Fiscal The primary changes in the net position components were as follows, a $12,982 increase in funds invested in capital assets and a $28,608 decrease in unrestricted net position. 12

23 Management s Discussion and Analysis (Unaudited) (continued) REVENUES, EXPENSES, AND CHANGES IN NET POSITION A summary of the Authority s Statements of Revenues, Expenses, and Changes in Net Position is presented in Table B. TABLE B Condensed Statements of Revenues, Expenses, and Changes in Net Position Total Dollar Percent FY 2015 FY 2014 Change Change Operating revenues $ 2,732,229 $ 3,232,124 $ (499,895) (15.5) % Non-operating revenues (expenses) 245, ,871 (310,156) (55.8) % Total revenues 2,977,944 3,787,995 (810,051) (21.4) % Operating expenses 2,769,432 4,055,340 (1,285,908) (31.7) % Total expenses 2,769,432 4,055,340 (1,285,908) (31.7) % Change in net position 208,512 (267,345) 475, % Beginning net position 20,192,226 20,459,571 (267,345) (1.3) % Cumulative effect of GASB 68 adjustment of the beginning net pension liability (224,138) --- (224,138) --- % Net position $ 20,176,600 $ 20,192,226 $ (15,626) (.08) % The Statement of Revenues, Expenses, and Changes in Net Position provides information as to the nature and source of the changes in net position. During Fiscal 2015, net position decreased by $15,626, as compared with a decrease of $267,345 in Fiscal The Fiscal 2015 decrease in net position was primarily attributable (1) to a $37,203 negative operating result, (2) to net non-operating revenues (expenses) totaling $245,715, and to the GASB 68 adjustment of beginning net position totaling $224,138. The Fiscal 2014 decrease in net position was primarily attributable (1) to an $823,216 negative operating result and (2) to net non-operating revenues (expenses) totaling $555,

24 Management s Discussion and Analysis (Unaudited) (continued) REVENUES, EXPENSES, AND CHANGES IN NET POSITION (continued) During Fiscal 2015, the $499,895 net decrease in operating revenues was primarily attributable to a $2,025,793 decrease in second mortgage reimbursement income, a $134,288 increase in TBA Program income, net of expenses, a $61,880 increase in fees and other income, a $1,266,254 increase in residual income realized from the retirement of bond issues, a $9,028 increase in recovery of bond issuance costs, and a $54,448 increase in non-amortizing second mortgage repayments income. During Fiscal 2015, the $310,156 net decrease in non-operating revenues (expenses) was primarily attributable to an $80,751 decrease in interest income, a $124,697 increase in gain on sale of investments, and a $354,102 decrease in net increase (decrease) in fair value of investments. During Fiscal 2015, the $1,285,908 net decrease in operating expenses was largely attributable to a $70,515 increase in salaries and related benefits expense, a $52,630 increase in legal, accounting, advisory, and consulting fees expense, a $23,498 increase in general operating and administrative expense, a $254,568 decrease in bond issuance and monitoring costs expense, a $61,112 increase in Multi-Family Development Initiative expense, net of income, a $1,276,635 decrease in non-amortizing second mortgage loan funding expense, and a $39,112 increase in the provision for loan losses. The increase on salaries and related benefits expense included a $2,681 decrease in pension expense, which included the effects of implementing GASB Statement No. 68. The Fiscal 2015 adjustment to beginning net position resulted from the decrease of $224,138 due to the implementation of GASB Statement No. 68, which is a change in accounting principle that requires employers participating in cost-sharing multiple-employer defined benefit pension plans to report the employers proportionate share of the net pension liability of the defined benefit pension plans. (The remainder of this page intentionally left blank) 14

25 Management s Discussion and Analysis (Unaudited) (continued) CASH FLOWS A summary of the Authority s Statements of Cash Flows is presented in Table C. It presents the major sources and uses of cash and cash equivalents for the past two years. For purposes of the Statements of Cash Flows, the Authority considers all currency, demand deposits, money market funds, and other highly liquid debt instruments with an original maturity when purchased of three months or less to be cash and cash equivalents. TABLE C Condensed Statements of Cash Flows Total Dollar Percent FY 2015 FY 2014 Change Change Net cash provided by (used for) operating activities $ (1,003,951) $ 1,967,988 $ (2,971,939) (151.0) % Net cash provided by noncapital financing activities 14,400 14, % Net cash used for capital and related financing activities (21,234) (3,024) (18,210) (602.2) % Net cash provided by (used for) investing activities 4,006, ,746 3,584, % Net increase (decrease) in cash and cash equivalents 2,995,704 2,401, , % Cash and cash equivalents at the beginning of the year 9,202,945 6,801,835 2,401, % Cash and cash equivalents at the end of the year $ 12,198,649 $ 9,202,945 $ 2,995, % Cash and cash equivalents increased $2,995,704, during the year ended September 30, The increase in cash and cash equivalents was the result of $1,003,951 being used for operating activities, $14,400 being provided by non-capital financing activities, $21,234 being used for capital and related financing activities, and $4,006,489 being provided by investing activities. 15

26 Management s Discussion and Analysis (Unaudited) (continued) CAPITAL ASSETS A summary of the Authority s investment in capital assets is presented in Table D. TABLE D Capital Assets Total Dollar Percent FY 2015 FY 2014 Change Change Land and improvements $ 1,121,234 $ 1,100,000 $ 21, % Furniture and fixtures 14,047 25,394 (11,347) (44.7) % Total capital assets 1,135,281 1,125,394 9,887.9 % Less: Land valuation allowance and accumulated depreciation (15,221) (18,316) 3, % Net capital assets $ 1,120,060 $ 1,107,078 $ 12, % As of September 30, 2015, the Authority's investment in capital assets totaled $1,120,060 (i.e., net of accumulated depreciation). As compared with Fiscal 2014, the investment in capital assets increased in Fiscal 2015 by $12,982 or 1.2%. The net increase was attributable to the acquisition of capital assets totaling $21,234, disposition of capital assets totaling $11,347 (with accumulated depreciation totaling $11,347) due to the adoption of a $2,000 capitalization policy, and to current year land valuation expense and depreciation expense totaling $8,252. LONG TERM DEBT From time to time, the Authority has issued bonds and bond anticipation notes to finance single family residential housing and qualified multi-family housing developments. The financial assistance was provided to stimulate the acquisition and construction of residential housing for low, moderate, and middle income individuals and families. The Authority has also issued bonds to finance the construction of student dormitories. The Authority s bonds are secured as described in each of the respective trust indentures and official statements. In no case is the Authority, Escambia County, the State of Florida, or any political subdivision thereof obligated in any manner for repayment of the bonds. Accordingly, such obligations are not reported as liabilities in the basic financial statements (See Note 1 and Note 17.). 16

27 Management s Discussion and Analysis (Unaudited) (continued) LONG TERM DEBT (continued) Portions of the Authority s operating revenues are derived from fees and incomes generated by the single family, student dormitory, and multi-family bond programs issued and administered by the Authority. Historically, these fees and incomes have usually exceeded the financial contributions made by the Authority to the bond programs. The fees/incomes and contributions may substantially impact the Authority s revenues and expenses in a single fiscal year and cause significant variation from year to year (See the preceding Financial Highlights section.). As of September 30, 2015, the Authority had issued and outstanding the following bonds pursuant to its authorization: Issue Amount Outstanding Amount Single Family Mortgage Revenue and Refunding Bonds: Series 1985 $ 20,000,000 $ 365,473 Series 2007 A-1 and A-2 39,355,000 12,060,000 Series 2007 B 32,600,000 9,605,000 Series 2014 B 4,335,000 4,160,543 Subtotal 26,191,016 Multi-Family Housing Revenue and Refunding Bonds: Series 2009 (UWF Dormitory) 15,000,000 12,304,000 Series 2010 (UWF Dormitory) 11,717,000 9,226,000 Series 2011 (UWF Dormitory) 16,525,000 15,595,000 Series 2015 (UWF Dormitory) 14,393,280 14,393,280 Johnson Lakes Project, Series ,000,000 4,161,258 Subtotal 55,679,538 Total $ 81,870,554 In some cases, the outstanding balances may include capital appreciation and compound interest bonds at their accreted values calculated as of the most recent bond interest payment date. Audited financial statements of a majority of the Authority s single family bond programs are available at the MSRB s Electronic Municipal Marketplace Access ( EMMA ) website. 17

28 Management s Discussion and Analysis (Unaudited) (continued) LONG TERM DEBT (continued) The Authority is unaware of and has received no notice of default from the trustees for its single family and multi-family bond programs. Other than the following, the Authority is unaware of any current financial difficulties relating to its bond programs. Single Family Mortgage Revenue Bonds, Series 1985 On September 30, 2015, the outstanding balance of the Single Family Mortgage Revenue Bonds (consisting of a single capital appreciation bond maturing December 1, 2016), Series 1985 ( Single Family 1985 Program ) was approximately $365,500. As of September 30, 2015, the Single Family 1985 Program owned assets (including one mortgage loan) totaling approximately $26,700. Therefore, the amount of outstanding bonds exceeded assets by approximately $338,800. Because interest on the capital appreciation bonds is accruing at a higher interest rate than is paid by the mortgage loan and because there are mortgage related expenses that are paid from mortgage revenues, the Authority expects there will be a shortfall of money available to pay debt service at such time as the remaining 1985 Bond is retired under the provisions of the bond documents. At that time, the trustee is expected to make demand for payment by Financial Guaranty Insurance Company ( FGIC ) of the difference between the amounts held in the funds and accounts under the 1985 Indenture and the accreted value of the remaining 1985 Bond. There are no other assets expected to be available to pay the outstanding 1985 Bond. Additionally, should the Single Family 1985 Program incur a mortgage loan loss (e.g., uninsured foreclosure), its financial condition would further deteriorate. The payments of bond principal and capitalized bond interest (including accreted value) are insured by FGIC. On March 25, 2009, Moody's Investor Services ( Moody's ) withdrew its rating for FGIC. As of the end of Fiscal 2015, FGIC continued to be unrated by Moody's. An explanation of the significance of the rating withdrawals may be obtained only from Moody s. In November 2013, upon advice of legal counsel, the Authority filed a Proof of Policy Claim Form and Affidavit (the Claim ) in connection with the 1985 Single Family Mortgage Revenue Bonds. The Claim was denied on the basis that the Claim submitted was for an amount that had not yet come due. At the present time, the Authority has no further plans for action with regard to this matter. 18

29 Management s Discussion and Analysis (Unaudited) (continued) REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the Authority s finances and to demonstrate the Authority s accountability for the money it receives. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the Authority s Executive Director, 700 South Palafox Street, Suite 310, Pensacola, Florida (The remainder of this page intentionally left blank) 19

30 (This page intentionally left blank)

31 BASIC FINANCIAL STATEMENTS (AUDITED)

32 Statements of Net Position September Assets Current assets: Cash and cash equivalents $ 12,198,649 $ 9,202,945 Accrued interest and other receivables 63,961 74,180 Issuer fees receivable 54,512 69,164 Mortgage backed securities 255, ,223 Bank participation agreements 14,400 14,400 First mortgages receivable 113, Amortizing second mortgages receivable 262, ,200 Total current assets 12,962,749 9,996,112 Noncurrent assets: Mortgage backed securities 5,592,176 8,008,065 Bank participation agreements 207, ,705 Amortizing second mortgages receivable, net of the allowance for loan losses 676, ,046 Depreciable capital assets, net of accumulated depreciation 2,160 7,078 Non-depreciable capital assets, net of land valuation allowance 1,117,900 1,100,000 Total noncurrent assets 7,595,708 10,310,894 Total assets 20,558,457 20,307,006 Deferred outflows of resources: Deferred outflows related to pensions 93, Related to hedging derivative instruments 20,551 21,740 Total deferred outflows of resources 114,313 21,740 Total assets and deferred outflows of resources 20,672,770 20,328,746 Liabilities Current liabilities: Accounts payable and accrued expenses 163, ,780 Net pension liability 4, Hedging derivative instruments 20,551 21,740 Total current liabilities 189, ,520 Noncurrent liabilities: Net pension liability 228, Total liabilities 417, ,520 Deferred inflows of resources: Deferred inflows related to pensions 78, Total liabilities and deferred inflows of resources 496, ,520 Net Position Net investment in capital assets 1,120,060 1,107,078 Restricted 5,000,000 5,000,000 Unrestricted 14,056,540 14,085,148 Total net position $ 20,176,600 $ 20,192,226 Read the accompanying footnotes, which are an integral part of these financial statements. 20

33 Statements of Revenues, Expenses, and Changes in Net Position Year ended September Operating Revenues Fees and other income $ 228,685 $ 166,805 TBA Program income, net of expenses 1,136,754 1,002,466 Second mortgage reimbursement income --- 2,025,793 Retirement of bond issues 1,266, Recovery of bond issuance costs 9, Non-amortizing second mortgage repayments 91,508 37,060 Total operating revenues 2,732,229 3,232,124 Operating Expenses Salaries and related benefits 563, ,818 Legal, accounting, advisory, and consulting fees 135,871 83,241 General operating and administrative 65,367 41,869 Office rent 49,904 48,926 Travel, lodging, and meal costs 25,997 24,185 Depreciation 4,918 4,569 Memberships, dues, and subscriptions 16,443 20,489 Educational conference fees and training costs 19,342 20,007 Bond issuance and monitoring costs 3, ,744 Multi-Family Development Initiative expenses, net of income 61, Non-amortizing second mortgage loan funding 1,821,469 3,098,104 Provision for (reduction to) loan losses 2,500 (36,612) Total operating expenses 2,769,432 4,055,340 Operating income (loss) (37,203) (823,216) Non-operating Revenues (Expense) Interest income 338, ,179 Gain on sale of investments 124, Net increase (decrease) in fair value of investments (217,410) 136,692 Net non-operating revenues (expense) 245, ,871 Change in net position 208,512 (267,345) Net position at beginning of year 20,192,226 20,459,571 Cumulative effect of GASB 68 adjustment of the beginning net pension liability (224,138) --- Net position at end of year $ 20,176,600 $ 20,192,226 Read the accompanying footnotes, which are an integral part of these financial statements. 21

34 Statements of Cash Flows Year ended September Cash Flows From Operating Activities Cash received for fees and other income $ 253,011 $ 167,337 Cash received for TBA Program income, net of expense 1,141,059 1,062,910 Cash received for second mortgage loan reimbursement --- 2,297,969 Cash payments for the retirement of bond issues (16,347) --- Cash received from recovery of bond issuance costs 9, Cash received from amortizing second mortgage loans 368, ,504 Cash received from non-amortizing second mtg. loans 91,508 37,060 Cash payments to employees for services (540,412) (512,954) Cash payments to suppliers for goods and services (315,062) (222,962) Cash payments for bond issuance and monitoring costs (3,866) (257,328) Cash payments for Multi-Family Development Initiative expenses, net of income (48,795) --- Cash payments for first mortgage loans (113,137) --- Cash payments for non-amortizing second mtg. loans (1,821,469) (3,098,104) Cash payments for miscellaneous receivables (7,500) 10,000 Cash received for TBA Program MBS principal 27,127,503 36,261,467 Cash payments for TBA Program MBS principal (27,127,503) (34,226,911) Net cash provided by (used for) operating activities (1,003,951) 1,967,988 Cash Flows From Non-Capital Financing Activities Proceeds from bank participation agreements 14,400 14,400 Net cash provided by non-capital financing activities 14,400 14,400 Cash Flows From Capital and Related Financing Activities Acquisition of capital assets (21,234) (3,024) Net cash used for capital and related financing activities (21,234) (3,024) Cash Flows From Investing Activities Interest received on investments 356, ,796 Gains received on sale of investments 124, Purchase of mortgage backed securities --- (1,242,114) Collection of mortgage backed securities principal 3,525,759 1,240,064 Net cash provided by (used for) investing activities 4,006, ,746 Increase (decrease) in cash and cash equivalents 2,995,704 2,401,110 Cash and cash equivalents at beginning of year 9,202,945 6,801,835 Cash and cash equivalents at end of year $ 12,198,649 $ 9,202,945 22