F INANCIAL S TATEMENTS. BSFC-Private Student Loan Trust Year Ended June 30, 2014 With Independent Auditors Report

Transcription

1 F INANCIAL S TATEMENTS BSFC-Private Student Loan Trust Year Ended June 30, 2014 With Independent Auditors Report

2 BSFC-PRIVATE STUDENT LOAN TRUST Financial Statements Year Ended June 30, 2014 Contents Independent Auditors Report...1 Financial Statements Balance Sheet...3 Statement of Changes in Fund Balance...4 Statement of Cash Flows...5 Notes to Financial Statements...6

3 INDEPENDENT AUDITORS REPORT To the Board of Directors of BSFC Private Student Loan Trust 2012 A-1 We have audited the accompanying financial statements of BSFC Private Student Loan Trust 2012 A-1 (a non-mortgage widely-held fixed investment trust), which comprise the balance sheet as June 30, 2014, and the related statement of changes in fund balance and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness 1

4 of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BSFC Private Student Loan Trust 2012 A-1, as of June 30, 2014, and the changes in its fund balance and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. October 24,

5 Balance Sheet June 30, 2014 Assets Cash and short-term investments $ 502,105 Interest receivable: Student loan notes receivable 69,643 Investments 2 Accounts receivable 1,330 Student loan notes receivable, net 13,415,271 Total assets $ 13,988,351 Liabilities and fund balance Liabilities: Administrative and loan servicing fees payable $ 3,167 Fund balance: Restricted 13,985,184 Total liabilities and fund balance $ 13,988,351 The accompanying notes are an integral part of these financial statements. 3

6 Statement of Changes in Fund Deficit For the Year Ended June 30, 2014 Interest income: Student loan notes receivable $ 410,401 Investments 31 Net interest income before provision for loan losses $ 410,432 Provision for loan losses (227,214) Net interest income after provision for loan losses 183,218 Noninterest income: Other 2,304 Noninterest expense: Administrative and loan servicing fees 90,037 Other 4,514 Total noninterest expense 94,551 Revenue over expenses 90,971 Estate distributions (2,107,856) Fund balance, beginning of year 16,002,069 Fund balance, end of year $ 13,985,184 The accompanying notes are an integral part of these financial statements. 4

7 Statement of Cash Flows For the Year Ended June 30, 2014 Operating activities Revenue over expenses $ 90,971 Adjustment to reconcile revenue over expenses to net cash provided by operating activities: Student loan interest capitalized (54,649) Provision for loan losses 227,214 Changes in assets and liabilities: Decrease (increase) in assets: Interest receivable 58,440 Other assets 209 Increase (decrease) liabilities: Administrative and loan servicing fees payable (197) Net cash provided by operating activities 321,988 Investing activities Principal collected on student loan note receivable 1,691,129 Net cash provided by investing activities 1,691,129 Financing activities Estate distributions (2,107,856) Net cash used in financing activities (2,107,856) Net change in cash and short-term investments (94,739) Cash and short-term investments, beginning of year 596,844 Cash and short-term investments, end of year $ 502,105 The accompanying notes are an integral part of these financial statements. 5

8 Notes to Financial Statements June 30, Organization BSFC Private Student Loan Trust 2012 A-1, known as BSFC-PSLT (the Trust) is a Delaware statutory trust, which was created in August 2012 for the purpose of holding and accounting for student loans that are uninsured and nonguaranteed alternative private student loans. The Trust is treated as a grantor trust within the meaning of Subpart E Part 1 of Subchapter J of the Code. The trust is held on behalf of private investors through equity ownership in the proceeds of the Trust. The Trust has contracted with Brazos Higher Education Service Corporation, Inc. (BHESC) to serve as master servicer. BHESC has contracted with various subservicers for loan servicing duties. For the year ended June 30, 2013, the Trust was consolidated into the financial statements of Brazos Student Finance Corporation (BSFC). BSFC sold its 10% interest in PSLT during the year ended June 30, Therefore the financial statements as of June 30, 2014 have not been consolidated into the BSFC audited financial statements. The Trust s primary source of revenue is interest on student loans. All revenue earned in the trust will be distributed to the certificate holders, after expenses have been paid. 2. Significant Accounting Policies Basis of Presentation The financial statements have been prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States. The accounts of the Trust are maintained in accordance with the principles of fund accounting. This is a system under which resources are classified for accounting purposes into funds established for specific purposes. The Trust aggregates its funds into general groups by the source of funding. The fund balance related to the Trust is restricted by the trust agreement and, as such is shown as restricted on the balance sheet. Basis of Accounting The financial statements of the Trust have been prepared on the accrual basis of accounting and, accordingly, reflect all significant receivables, payables and other liabilities in accordance with generally accepted accounting principles. 6

9 Notes to Financial Statements (continued) Interest Receivable Interest receivable on student loan notes receivable includes borrower interest on all student loans outstanding. Cash and Short-Term Investments Cash and short-term investments consist of money market funds with original maturities of 90 days or less. Cash and short-term investments are held in indenture with U.S. Bank, N.A. (the Trustee) under various contractual indentures, subject to certain limitations (see Note 2 Trustee), and are pledged to secure related equity securities. Money market funds are stated at fair value and represent unsecured investments. Any realized or unrealized changes in fair value are recorded through the statements of changes in fund balance. Interest income from these investments is recorded on an accrual basis. Cash and short-term investments are comprised of the following: June 30, 2014 Money market funds $ 502,105 Student Loan Notes Receivable, Net Student loans are stated at the principal amount outstanding net of the allowance for loan losses. All student loan notes receivable are pledged to secure related equity certificates. There was no impairment of student loan notes receivable during the year ended June 30, A loan is considered past due or delinquent when it becomes 31 days past due. At June 30, 2014, there are no loans placed on nonaccrual status as it is the Trust s policy to write off loans before this occurs. Alternative loans are written off and placed with a collection agency at 120 days past due. Income Taxes The Trust is Non-Mortgage Widely-Held Fixed Investment Trust. The Trust is classified as a grantor trust within the meaning of subpart E of part 1 of Subchapter J of the Internal Revenue Code. Accordingly, all taxable incomes or losses are included in the tax returns of the certificate holders and no provision for federal or state income taxes has been included in the accompanying financial statements. 7

10 Notes to Financial Statements (continued) The tax years ending June 30, 2013, first year of operations, and later remain open and subject to examinations by the Internal Revenue Service. The Trust follows the accounting standard related to the accounting for uncertainty in income taxes recognized in the Trust s financial statements. The standard prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Trust currently does not have any positions reserved. Trustee The Trust contracts certain services to the trustee. The Trustee holds the pledged student loan notes receivable and other invested assets in the Trust s name, and invests and disburses funds as directed by the Trust pursuant to requirements of the trust agreement. The Trustee also monitors the invested assets of the Trust and the related cash flows of the loans and other assets pledged under the agreement to secure the related equity certificates. Concentration Risk The Trust s credit risk is inherent principally in its uninsured student loan notes receivable. It is impossible to predict the status of the economy, unemployment levels, or at which point the economy will improve, which could significantly decrease the Trust s credit risk exposure. The Trust s loan portfolio is concentrated in EIC private loans. Approximately 81% of the portfolio is EIC loans and the remaining 19% of the loan portfolio is Maximizer. Student Loan Income The Trust recognizes interest income on student loans as earned. Additionally, income is recognized based upon the principal amount outstanding in accordance with the terms of the applicable loan agreement until the outstanding balance is paid off or charged off. Estimates in Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Key accounting policies that include significant judgments and estimates include provision for loan losses. 8

11 Notes to Financial Statements (continued) 3. Student Loan Interest Receivable and Revenue The interest earned by the Trust is dependent upon the borrower s interest rate and the date the loan was originated. Under certain conditions, the Trust may capitalize accrued interest receivable and add it to the borrower s outstanding principal. Subsequent interest accrues on the new total principal balance which includes any capitalized interest. As of June 30, 2014, the Trust had student loan interest receivable in the amount of $69,643. For the year ended June 30, 2014 all interest revenue earned and receivable is from private student loans. 4. Student Loan Notes Receivable The Trust s student loan portfolio consists of private alternative loans. Total student loan notes receivable consist of the following: June 30, 2014 EIC student loan notes receivable $ 11,472,192 Maximizer student loan notes receivable 2,715,283 14,187,475 Allowance for student loan losses (772,204) Student loan notes receivable, net $ 13,415,271 Loan Programs The Trust s alternative loans are primarily education-related student loans to students attending postsecondary educational institutions or career training institutions. The Trust bears all risk of loss on these loans. Student Loan Servicing BHESC serves as Master Servicer for the Trust to maintain compliance with the requirements of the private alternative loan programs by holding subservicing agreements for loan servicing duties with various student loan servicing agents. BHESC holds subservicing agreements for loan servicing duties with Xerox Securities Services and Great Lakes Educational Loan Services, 9

12 Notes to Financial Statements (continued) Inc. on behalf of the Trust. At June 30, 2014, 100% of the loan portfolio is serviced by thirdparty subservicers. Allowance for Student Loan Losses The Trust bears all risk of loss on alternative loans. The Trust s alternative loans are primarily education-related student loans to students attending postsecondary educational institutions or career training institutions. A quarterly review is performed on the outstanding loan balances compared to historical delinquencies incurred. Based on this analysis, the Trust records an allowance for these loans based on the loan type and delinquency of the loans. Activity in the allowance for loan losses is summarized as follows: June 30, 2014 Balance, beginning of year $ 975,185 Provision for loan losses 227,214 Recoveries 251,660 Charge-offs (681,855) Balance, end of year $ 772, Equity Certificates The Trust issued equity certificates to certify ownership of the residuals disbursed from the proceeds. The certificates are registered and traded on the open market similar to registered bonds or notes. The certificates are special limited obligations of the issuer, payable solely from the Trust Estate. During the year ended June 30, 2014, the following equity distributions were made: July 25, 2013 $ 592,678 October 25, ,020 January 27, ,296 April 25, ,862 Total distributions $ 2,107,856 Certificate holders receive a pro-rata portion of the above distributions based on their percentage of ownership. 10

13 Notes to Financial Statements (continued) 6. Fair Value of Financial Instruments At June 30, 2014, the estimated fair values of the Trust s financial instruments are as follows: Carrying Amount 2014 Fair Value Financial assets: Cash and short-term investments $ 502,105 $ 502,105 Student loan notes receivable, net 13,415,271 12,644,146 The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and Short-Term Investments The fair values of cash and short-term investments approximate the carrying amount due to the short maturity of these instruments. Student Loan Notes Receivable, Net The fair value of student loan notes receivable was determined based on discounted cash models. 7. Commitments and Contingencies The Trust has a commitment to pay out all available funds, after expenses paid, to the certificate holders quarterly. 8. Master Servicer Payments Included in administrative and loan servicing fees are administrative fees paid to BHESC, the Master Servicer. During the year ended June 30, 2014, the Trust recorded $49,992 in administrative \ fees paid to BHESC for providing administrative support, such as accounting and information technology infrastructure. 9. Subsequent Events Subsequent events have been evaluated through October 24, 2014, which is the date the financial statements were available to be issued. No events requiring disclosure were noted. 11