NORTH AMERICAN DEVELOPMENT BANK AND BORDER ENVIRONMENT COOPERATION COMMISSION QUARTERLY STATUS REPORT

Transcription

1 NORTH AMERICAN DEVELOPMENT BANK AND BORDER ENVIRONMENT COOPERATION COMMISSION QUARTERLY STATUS REPORT MARCH 31, 2017

2 NADB-BECC QUARTERLY REPORT MARCH 31, 2017 TABLE OF CONTENTS 1. Summary of Financial and Operational Activity Project & Financing Activity Loan Program Grant Programs Community Assistance Program (CAP) Border Environment Infrastructure Fund (BEIF) Water Conservation Investment Fund (WCIF) Technical Assistance & Capacity Building NADB-BECC Joint Technical Assistance Program Project Development Assistance Program (PDAP) U.S.-Mexico Border 2020 Program Funding Partnerships Project Closeout & Results Measurement Project Closeout Reports Impact Assessment ANNEXES Annex 1: NADB Financial Statements as of (unaudited) Annex 2: Active Projects by State 1

3 NADB-BECC QUARTERLY REPORT MARCH 31, Summary of Financial and Operational Activity SUMMARY OF PROJECT AND FINANCING OPERATIONS (US$ Thousands) Project Certification 1st Qtr Total projects certified By Sector Water Waste management Air quality Basic urban infrastructure Clean and efficient energy By Financing Type Loans NADB-funded grants NADB-administered grants Lending Operations Loans approved $ 67,800 $ 96,876 $ 239,177 $ 323,670 $ 273,242 Loans contracted 48, , , , ,881 Loans disbursed 18, , , , ,964 Grant Operations NADB-funded grants 4 Approved $ - $ 3,100 $ 1,000 $ 765 $ 2,183 Contracted 1,000 1,600 1, ,183 Disbursed ,694 1, NADB-administered grants 6 Approved 1,800 25,022 20,274 24,936 6,104 Contracted - 21,231 16,219 12,047 7,658 Disbursed 1,818 10,228 8,698 14,673 17,459 Technical Assistance 7 Approved $ 1,137 $ 972 $ 2,124 $ 1,320 $ 1,369 Disbursed 379 1,267 1,933 1,008 1,123 1 Project certification and financing proposals are approved simultaneously by the Board of Directors. 2 This category includes street paving, other roadway improvements, industrial emissions reduction and public transportation. 3 These projects consist of works from various sectors, such as roadway improvements, water and sewer lines, storm drainage, and public lighting. 4 Grants funded from designated retained earnings of the Bank for certified infrastructure projects (excludes technical assistance). 5 Includes both grant disbursements and expenditures for project supervision for Grants funded by EPA and administered by NADB through the Border Environment Infrastructure Fund (BEIF). 7 Includes project development activities, training seminars and sector studies funded by NADB and BECC. 2

4 NADB-BECC QUARTERLY REPORT MARCH 31, 2017 NADB FINANCIAL SUMMARY (US$ Thousands) 1st Qtr Balance Sheet Data Cash and investments $ 671,334 $ 511,558 $ 504,861 $ 442,954 $ 545,525 Loans outstanding 2 1,400,276 1,411,296 1,324,777 1,185,514 1,011,212 Total assets 1,978,523 1,812,866 1,780,599 1,633,369 1,573,076 Borrowings outstanding, gross 1,373,801 1,187,505 1,190,550 1,059,953 1,046,386 Total liabilities 1,374,453 1,208,832 1,215,017 1,090,683 1,054,422 Total equity 604, , , , ,654 Callable capital 2,351,667 2,351,667 2,295,000 2,295,000 2,295,000 Income Statement Data Total interest income $ 15,821 $ 59,012 $ 51,246 $ 43,710 $ 39,543 Loans 13,942 52,427 45,892 38,487 35,149 Investments 1,879 6,585 5,354 5,224 4,394 Interest expense 5,779 19,950 15,101 13,548 10,838 Net interest income 10,043 39,061 36,145 30,163 28,705 Total operating expenses 2,627 17,934 18,143 10,816 19,451 Provision for loan losses 359 5,134 8,559 2,199 10,544 Total non-interest income (expense) (3,265) (369) 2,388 (1,093) (888) Income before program activity 4,150 20,758 20,389 18,254 8,366 Net program expenses ,088 4,873 2,077 1,145 Net income 3,859 19,670 15,516 16,177 7,221 Ratios Total equity / loans outstanding 43.1% 42.8% 42.7% 45.8% 51.3% Gross debt / callable capital 58.4% 50.5% 51.9% 46.2% 45.6% Gross debt / total equity 227.4% 196.6% 210.5% 195.3% 201.8% Interest coverage 4 2.3x 2.3x 2.8x 2.6x 2.8x Liquid assets / total assets 31.2% 25.3% 25.3% 23.8% 31.3% Income before program activity / total equity 0.7% 3.4% 3.6% 3.4% 1.6% Income before program activity / average assets 0.2% 1.2% 1.2% 1.1% 0.6% Credit Ratings Moody s Investor Service Aa1/P-1 Aa1/P-1 Aa1/P-1 Aa1/P-1 Aaa/P-1 Fitch Ratings AA/F1+ AA/F1+ AA/F1+ AA/F1+ AA/F1+ 1 Excludes the U.S. domestic program (see Note 8 of the consolidated financial statements). 2 Before allowance for loan losses, unamortized fees, and effect of foreign exchange adjustments and hedged items. 3 Program expenses include grant financing and technical assistance funded from the Bank's retained earnings. 4 Interest coverage ratio is defined as interest income minus operating expenses divided by interest expense. 3

5 NADB-BECC QUARTERLY REPORT MARCH 31, Project & Financing Activity 2.1. Loan Program Lending Activity. During the first quarter of 2017, the Board of Directors approved the certification of two new projects to receive up to US$70.00 million in financing, as follows: Project Approved Loans (US$ Millions) Date Approved 1 Vicente Guerrero Wind Energy Project in Güémez, $ Feb-17 TAMPS 2 Rocksprings Wind Farm in Val Verde County, TX Mar-17 TOTAL $ During the same three-month period, two loan agreements totaling US$48.80 million were signed. Project Contracted Loans (US$ Millions) Date Signed 1 Rocksprings Wind Farm in Val Verde County, TX $ Mar-17 2 SEPV Imperial Solar Project in Dixieland, CA Mar-17 TOTAL $ The Bank also disbursed US$18.82 million in loans to support the implementation of three projects, including the initial loan disbursements for the Rocksprings wind farm and the SEPV Imperial solar park. Principal Payments. On February 27, 2017, the State of Nuevo Leon prepaid the remaining balance of the US$7.62 million loan contracted in March 2015 and fully disbursed in June 2015 for the implementation of two projects: Modernization and Improvements to Don Martin Irrigation District 004 and Air Quality Improvements Through Street Paving for the Monterrey Metropolitan Area. A total of US$7.57 million was prepaid. For the year to date, the Bank has received just over US$29.84 million in principal payments. Excluding the prepaid loan, principal payments averaged US$7.42 million a month, while loan disbursements for the same period averaged US$6.27 million a month. Status of Loan Portfolio. NADB closed the first quarter of 2017 with an outstanding loan balance of US$1.400 billion, a decrease of 0.78% compared to the balance at the end of 2016 (US$1.411 billion). 1 A breakdown of the current loan portfolio by environmental sector, region and borrower type is shown in the following table. 1 These figures do not take into account allowances for loan losses, foreign exchange adjustments, unamortized loan fees and the fair value of hedged items. 4

6 NADB-BECC QUARTERLY REPORT MARCH 31, 2017 Breakdown of Outstanding Loan Portfolio As of No. % Amount (US$) % Public / Private Public % $ 272,396, % Private % 1,038,716, % Public-private 5 6.9% 89,163, % % 1,400,276, % Country U.S % 614,650, % Mexico % 785,626, % % 1,400,276, % Project Type Air quality % 100,906, % Basic urban infrastructure* 3 4.2% 36,188, % Other clean energy** 2 2.8% 4,573, % Public transportation 2 2.8% 29,974, % Solar energy % 291,141, % Storm drainage 2 2.8% 53,555, % Water conservation - 0.0% - 0.0% Water / wastewater % 168,292, % Wind energy % 715,644, % % $ 1,400,276, % * These projects consist of components from various sectors, such as street paving, water and sewer lines, storm drainage and public lighting. ** Other clean energy currently includes two biogas projects. Additionally, the Bank had US$90.49 million pending disbursement in contracted loans for 11 projects, as well as approved loan commitments totaling an estimated US$ million for seven projects, including four projects for which part of the funding has been contracted. Consequently, loans outstanding and loan commitments at the end of the year totaled just under US$1.67 billion, as shown in the following table. 5

7 NADB-BECC QUARTERLY REPORT MARCH 31, 2017 ANNUAL LENDING ACTIVITY (US$ Millions) 3/31/ /31/2016 Outstanding balance, beginning of year $ 1, $ 1, Loan disbursements Principal repayments (29.84) (49.73) Outstanding balance, end of year $ 1, $ 1, Loans contracted, pending disbursement $ $ Loans approved, pending contracting Total loan commitments Outstanding loans & loan commitments $ 1, $ 1, Oustanding balances, before allowance for loan losses, unamortized fees, and effect of foreign exchange adjustments and hedged items. Of the 102 loans contracted to date, 101 have been partially or fully disbursed, 26 have been repaid in full, and three have been partially or fully written off. No loans were classified as nonperforming at the end of the quarter. Detailed information about all NADB loans and approved loan commitments as of, is provided in Annex 2. Project Implementation: At the end of the quarter, 26 certified projects partially funded with NADB loans were pending closeout or under construction, including the Rocksprings wind farm and SEPV Imperial solar park. Information on the status of these projects as of, is provided in Annex 2. Projects in Development: During the quarter, the Bank identified 14 new projects and had seven projects in development. One project for a desalination plant in Playas de Rosarito, Baja California, was submitted for Board for consideration at the end of February and was pending a decision. Based on current information, the loan projects which could potentially be submitted for approval to the Board during the second quarter of 2017 are: El Mezquite Wind Farm (250 MW) in Mina, N.L. Santa María Solar Park (141.3 MW) in Galeana, CHIH; Orejana Solar Park (122.2 MW) in Hermosillo, SON; and Puerto Libertad Solar Park (317 MW) in Puerto Libertad, SON Expansion of the wastewater collection system in San Luis Rio Colorado, SON 6

8 NADB-BECC QUARTERLY REPORT MARCH 31, Grant Programs Community Assistance Program (CAP) Through this program, NADB provides grant financing from its retained earnings for critical environmental infrastructure projects in low income-communities. Grants are available for projects in all sectors eligible for NADB financing, with priority given to drinking water, wastewater, water conservation and solid waste infrastructure. During the first quarter of 2017, no new projects were certified to receive a CAP grant. In February, the Bank signed two grant agreements totaling US$1.00 million. Project CAP Grant (US$ Millions) Date Signed 1. Equipment for Sanitary Landfill Operations and Waste $ Feb-17 Collection in Region Cinco Manantiales, COAH 2 Equipment for Sanitary Landfill Operations for the $ Feb-17 Central Region of Coahuila TOTAL $ 1.00 During the same three-month period, the Bank disbursed US$62,462 in CAP funds for the implementation of a wastewater project. Annual financing activity and the status of the CAP program at the end of the year is summarized in the following table. Community Assistance Program Annual Financing Activity and Program Status (US$ Millions) Cumulative Retained earnings allocated $ - $ - $ Funds allocated for supervision Grants approved Grants contracted Funds disbursed* Cancellations** - - (0.26) Contracted grants, not yet disbursed $ 3.97 Additional approvals, not yet contracted 0.50 Funding available for future projects 4.00 * Includes project grants and superv ision disbursements. ** Unused funds deobligated from completed projects and returned to the CAP program for future projects. Project Implementation: In March, construction began to replace the water main on Crawford Street in Nogales, Arizona. 7

9 NADB-BECC QUARTERLY REPORT MARCH 31, 2017 Of the 15 projects funded with CAP grants, seven have been completed, one was under construction and seven were in bidding or preparing to begin bidding at the end of the quarter. A grant agreements for US$0.5 million for a water project was under development and expected to be signed during the second quarter of Information on the status of certified projects that are currently in the process of being implemented or pending financial closeout as of March 31, 2017, is provided in Annex 2. Projects in Development: No new applications for CAP grants were received during the quarter. BECC continued to work with eight communities to complete development activities related to their water and/or wastewater infrastructure projects. Based on current information, one of those projects could potentially be submitted for approval to the Board of Director during the second quarter of 2017: Jose Silva Sanchez water system improvements in Soto la Marina, Tamaulipas Border Environment Infrastructure Fund (BEIF) Through this program, NADB administers grant resources provided by the Environmental Protection Agency (EPA) for the implementation of priority water and wastewater infrastructure projects. During the past quarter, the Board of Directors approved the certification of the Cuadrilla Wastewater Collection and Treatment Project in El Paso County, Texas, to receive a US$1.80 million BEIF grant from the U.S. Environmental Protection Agency (EPA). During the same period, the Bank disbursed US$1.82 million in BEIF grants for the implementation of five projects. Annual financing activity and the status of the BEIF program at the end of quarter is summarized in the following table. Border Environment Infrastructure Fund Annual Activity and Program Status (US$ Millions) Cumulative EPA funding allocations: $ 9.56 $ - $ For projects For program administration Grants approved Grants contracted Grants disbursed Cancellations* - - (65.93) Contracted grants, not yet disbursed $ Additional approvals, not yet contracted Funding available for projects in development 6.83 * Unused funds deobligated from completed or cancelled projects and returned to the BEIF program for projects in development. 8

10 NADB-BECC QUARTERLY REPORT MARCH 31, 2017 Project Implementation: In February, construction began on the water system improvement Project in Mesilla, New Mexico. Of the 116 projects funded with BEIF grants, 101 have been completed and/or closed out, 11 are in various stages of construction, and four are in bidding or preparing to begin bidding. 2 Information on the status of certified projects that are currently in the process of being implemented or pending financial closeout as of, is provided in Annex 2. Projects in Development: During the past quarter, local steering committees were established related to the development of three projects. CITIZEN COMMITTEES INSTALLED Community Project Date Vinton, TX Water and wastewater project 17-Jan-17 Anthony, NM Wastewater collection project 21-Feb-17 Tijuana, B.C. Phase II rehabilitation of West Collector 10-Mar-17 At the end of the quarter, there were 14 previously prioritized projects in development: ten in EPA Region 6 and four in EPA Region 9. Based on current information, one BEIF project could potentially be submitted for certification by the Board of Director during the second quarter of 2017: a wastewater collection project in Loma Blanca, Chihuahua Water Conservation Investment Fund (WCIF) At the end of the quarter, the last two projects funded through the cancelled Water Conservation Investment Fund (WCIF), were under construction. The grant agreements for these two projects total $2.37 million, of which 61% (or US$1.45 million) has already been disbursed, leaving approximately US$0.92 million in contracted grants pending disbursement. 2 There are 110 certified projects with BEIF funding contracted; however, one of those projects (the Texas Plan) consists of seven individual projects with seven individual grants, for a total of 116 water and wastewater projects. 9

11 NADB-BECC QUARTERLY REPORT MARCH 31, Technical Assistance & Capacity Building 3.1. NADB-BECC Joint Technical Assistance Program To support project sponsors and border communities in the development of sustainable projects for certification and financing, NADB and BECC offer various types of technical assistance in three categories: project development, institutional capacity-building and sector studies to identify needs and generate knowledge about a new sector or technology. During the first quarter of 2017, the Technical Assistance Committee approved a total of US$1.14 million in technical assistance grants to support the following activities, including various seminars through the Utility Management Institute (UMI). Community / Sponsor TA Description NADB Type* (US$) 1 Hermosillo, SON PD Final designs for roadways $ 250,000 2 Hidalgo County, TX PD Traffic study for border crossing 112,500 3 Mexicali, B.C. PD Additional funding for comprehensive e- waste management project 30,000 4 Winterhaven, CA PD Preliminary engineering report and final design for repairs to a wastewater collector 23,000 5 Chihuahua SD State water plan 100,000 6 Piedras Negras, COAH SD Sustainable costs for water utilities 40,000 7 Tijuana, B.C. SD Pilot solar facility for Castro-Limón Pediatric Cancer Center 125,000 8 Hermosillo, SON IS UMI basic water utility management program (5 modules) 150,000 9 Mexican border IS Municipal management program (4 modules) 160, Piedras Negras, COAH IS Course on climate change and its consequences (5 sessions) 25, Coahuila IS Additional funding for the Energy Efficiency Learning Network for water utilities 81, Hermosillo, SON IS Harvard collaboration on Emerging and Sustainable Cities (ESC) project 40,000 TOTAL: $ 1,136,500 * Technical assistance may be provided in three categories: project development (PD); sector development (SD) to identify needs, promote sound public policy or generate knowledge about a new sector or technology; and institutional strengthening through training or other capacity-building measures (IS). As of, there were 25 studies in process or under development. The total grant commitment for those studies was US$2.26 million. During the past quarter, NADB sponsored a course on Climate Change and its Consequences: From Climate Science to Action in Piedras Negras, COAH. Based on the climate change webinar and latest research of the World Bank, the 40-hour course covered the potential effects of greenhouse gases in general and a climate analysis of the region where the course was presented, as well as 10

12 NADB-BECC QUARTERLY REPORT MARCH 31, 2017 development of pilot projects for the community. The program also included an emissions workshop aimed at raising awareness and educating participants on the benefits of water projects from an environmental perspective, by estimating the quantity of greenhouse gases emitted before and after project implementation. The course, presented in five sessions beginning in February and ending in March, was attended by 22 participants, including local utility personnel, academics, entrepreneurs, housing developers and researchers in the region. Course on climate change and its consequences in Piedras Negras, COAH 3.2. Project Development Assistance Program (PDAP) BECC administers this EPA-funded program to assist communities in the development of water and wastewater projects that have been prioritized by EPA to receive BEIF grants. During the first quarter of 2017, US$249,815 in PDAP grants funded by EPA were awarded to support the development of six wastewater projects. Community / Project Description Amount Sponsor Type (US$) 1 Camargo, TAMPS WW Update of final design $ 13,101 2 G. Díaz Ordaz, WW Additional activities related to the 7,084 TAMPS environmental information document 3 G. Díaz Ordaz, WW Energy and water audits 30,758 TAMPS 4 Nueva Cuidad WW Energy and water audits 19,832 Guerrero, TAMPS 5 Pomerene, AZ WW Additional activities for the final design 19,739 6 Sunland Park, NM WW Asset management study 85,000 7 Anthony, NM WW Environmental information document and technical memorandum 74,301 TOTAL: $ 249,815 WW = Wastewater 11

13 NADB-BECC QUARTERLY REPORT MARCH 31, U.S.-Mexico Border 2020 Program BECC plays a key partnership role in this program developed by EPA and its Mexican counterpart, Secretaría de Medio Ambiente y Recursos Naturales (SEMARNAT), aimed at jointly addressing existing environmental and public health needs along the border. The following Border 2020 and special grants projects were completed during this period. No. Project Location Goal* Region 9 (California, Baja California, Arizona, Sonora) 1 HAZMAT capacity building in the Arizona-Sonora Arizona and Sonora 4 border region 2 Electronic-Waste Management Program for chemical Nogales, SON 3 laboratories 3 Green infrastructure demonstration project Nogales, SON FS Region 6 (Texas, Tamaulipas, Nuevo Leon, Coahuila, New Mexico, Chihuahua) 1 Determining the ideal bio-swale porous material for Edinburg, TX 2 South Texas storm water management 2 Electronic Waste Management Project Ciudad Acuña, Piedras Negras and Guerrero, COAH 4 * Border 2020 Goals: 1. Reduce air pollution; 2. Improve access to clean and safe water; 3. Promote materials management, waste management and clean sites; 4. Enhance joint preparedness for environmental response; 5 Compliance assurance and environmental stewardship; Fundamental strategies (FS). The following table shows projects under development and the corresponding goal of the Border 2020 Program, to be completed during the second quarter of No. Project Location Goal* Region 9 (California, Baja California, Arizona, Sonora) 1 Pilot HAZMAT Emergency Response Training Program Nogales, AZ 4 2 Environmental health and asthma awareness in low-income El Centro, Calexico and 4 housing communities of Imperial County Brawley, CA 3 Evaluation of the status of environmental health along the Arizona and Sonora 5 Arizona-Sonora border 4 Zero Waste Plan and Transfer Station Implementation Plan Campo, CA 3 for Campo Kumeyaay Nation 5 Border 2020 Program indicators report Border region 5 Region 6 (Texas, Tamaulipas, Nuevo Leon, Coahuila, New Mexico, Chihuahua) 1 Fat, Oil and Grease (FOG) Public Outreach Campaign Brownsville, TX 2 2 E-waste, Recyclable Material and Tire Clean-up Program Pharr, TX 3 * Border 2020 Goals: 1. Reduce air pollution; 2. Improve access to clean and safe water; 3. Promote materials management, waste management and clean sites; 4. Enhance joint preparedness for environmental response; 5 Compliance assurance and environmental stewardship; Fundamental strategies (FS). As of, EPA has authorized approximately $12.0 million in grant funding for BECCmanaged projects under the Border 2020 Program and other initiatives. To date, a total of 289 projects have been supported under the existing agreements between BECC and EPA Regions 6 12

14 NADB-BECC QUARTERLY REPORT MARCH 31, 2017 and 9, most of which are related to scrap-tire management, water, soil, air, environmental health and education, and emergency preparedness/response. Of these, 244 projects have been completed, 27 cancelled and 18 are under development. Additionally, BECC continues to manage EPA funds to provide logistical support for various groups and committees of the Border 2020 program Funding Partnerships In carrying out their mission, BECC and NADB pursue partnerships with other public and private organizations in an effort to promote environmental initiatives and projects on the border and identify additional support for their development and implementation. Inter-American Development Bank (IDB) Emerging Sustainable Cities Initiative The IDB Emerging and Sustainable Cities (ESC) initiative directly supports governments in the development and implementation of urban sustainability plans and uses a comprehensive, multidisciplinary approach to identify, organize and prioritize urban actions to tackle the main roadblocks preventing the sustainable growth of emerging cities in Latin America. In 2016, NADB teamed up with IDB to introduce the program to Mexican border communities and selected Hermosillo as the first candidate. Once the program is successfully implemented there, NADB plans to replicate it in other communities throughout the border region. The border research institute, Colegio de la Frontera Norte (COLEF), is overseeing this project and is working with the consultant firm, IDOM Ingeniería, S.A. de C.V., which was contracted to perform the baseline studies. The kickoff meeting in August 2016 was attended by 97 government, academic and community stakeholders, to gather information on the city s main challenges and opportunities in a wide array of sectors, as well as its plans for addressing them. A total 127 indicators ranging from water services, waste management and vulnerabilities to natural disasters to social services, economic development and municipal finances, among many others, were identified and their current values calculated. In February 2017, a general survey to determine the infrastructure priorities of the community was sent out to a broad cross-section of socioeconomic sectors. The next community stakeholder meeting to review the results of the survey and a draft of the final report is scheduled for May. At that same meeting, NADB and the Harvard Graduate School of Design (GSD) expect to formalize an agreement to develop a semester course on the IDB-ESC initiative using Hermosillo as a successful case study, as well as publish an article about the Hermosillo CES project in one of its magazines. IDB Multilateral Investment Fund (MIF) In December 2014, BECC signed an agreement with IDB to develop a sustainable e-waste management and recycling system in Mexicali, Baja California. The Massachusetts Institute of Technology (MIT), SEMARNAT, EPA, NADB, the Baja California Ministry of Environmental Protection and the Universidad Autónoma de Baja California (UABC) are also collaborating with this initiative, which is intended to promote the safe and efficient recycling of used electronic devices by training around 100 micro-businesses in the e-waste management industry to serve as collection points for workers in the field. The three-year project consists of four components: 1) 13

15 NADB-BECC QUARTERLY REPORT MARCH 31, 2017 environmental awareness and public education campaign; 2) training and certifying informal e- waste pickers and recyclers; 3) creation of a new e-waste system; and 4) knowledge management and dissemination. During the past quarter, a registry of e-waste generators was submitted to the Baja California Office of Environmental Protection for approval and is expected to contribute to a more systematic collection of this waste. Additionally, training in the disposal of e-waste and the availability of collection centers was offered to over 200 waste scavengers. Finally, progress was made on the formation of a state cluster of relevant stakeholders, including manufacturers, importers and entities that commercialize e-waste. KfW In conjunction with the US$50 million line of credit provided by the German development bank (KfW) to NADB for water and wastewater projects in Mexico, BECC received 1 million euros from KfW for accompanying measures, including program marketing, climate screening of projects and results measurement. The German firm GITEC Consult GmbH was contracted to assist BECC in carrying out these tasks. In addition to tasks such as evaluating project eligibility for financing with KfW funds and preparing various reports as needed, GITEC supported the development of the energy efficiency network for 14 water and wastewater utilities in the state of Coahuila. During the past quarter, GITEC continued working on the climate screening analysis of the Rosarito desalination project, which is being considered for KfW funding, and began working with NADB on closeout for projects financed with the line of credit. GITEC also developed and provided training on the climate assessment of projects in conjunction with courses offered by NADB to water utilities in Sonora and Coahuila and will likely participate in future sessions in other Mexican border communities. U.S. Agency for International Development (USAID) In collaboration with the public-private partnership Green Hub/MDB Advisors LLC and USAID, through its Global Development Alliance, energy audits were completed for water utilities throughout the state of Baja California. BECC and NADB are now working with those utilities, the Baja California state water commission and USAID to promote projects based on the audit recommendations. USAID is funding two additional studies in Tijuana and Mexicali aimed at developing a comprehensive plan for energy efficiency measures in their utilities, which could be financed by the Mexican national water agency, CONAGUA. Both studies were finalized in March 2017, and investment opportunities were identified for installing meters and raising rates that the utilities will be implementing based on the availability of funds. Based on this original initiative, BECC and NADB have continued promoting the energy efficiency program to water utilities, including in Tamaulipas, Coahuila and several U.S. border communities. These efforts are supported through synergies with KfW and programs such as Border 2020 and the U.S.-Mexico Border Water Infrastructure Program. During the past quarter, several utilities in Baja California and the utility in Piedras Negras, Coahuila, reported savings resulting from measures adopted based on audit recommendations. 14

16 NADB-BECC QUARTERLY REPORT MARCH 31, Project Closeout & Results Measurement 4.1. Project Closeout Reports During the first quarter of 2017, closeout reports were delivered to the Board for three loan projects in Nuevo Laredo, Tamaulipas: the Air Quality and Street Paving Project, the Roadway System and Air Quality Improvements Project and the Basic Environmental Infrastructure Project. For 2017, NADB and BECC are targeting a total of 25 NADB-funded projects for close-out: 19 loan projects and five grant projects, which includes 11 projects carried over from the previous year. The following tables present the close-out pipeline for NADB-funded projects, along with their status at the end of the first quarter of LOAN PROJECT CLOSEOUT PIPELINE FOR 2017 Community / Sponsor Project Certification Date In process Astrosol Tech Park Solar energy project Jan-12 El Paso, TX Paisano Valley waterline replacement Nov-15 FRV Tucson Solar Park (Picture Solar energy project Dec-12 Rocks, AZ) Los Vientos 1A Wind Farm Wind energy project Dec-12 Los Vientos 1B Wind Farm Wind energy project Dec-12 Mercader I Pilot low-emission bus program Apr-16 Mercader II Second low-emission bus program Nov-16 Nogales, SON Solid waste equipment Dec-07 Nuevo Laredo, TAMPS Storm drainage Jun-06 Nuevo Laredo, TAMPS Water and wastewater Jun-04 Tijuana, B.C. Paving rehabilitation (white-topping) Jul-09 Pending Bryan Solar Park Solar energy project Jun-13 Cd. Juarez, CHIH Air quality and urban mobility Jul-12 Cd. Juarez, CHIH* South-South Wastewater Treatment Plant Apr-17 El Porvenir Wind Farm Wind energy project Mar-14 Hermosillo, SON* Wastewater treatment plant Nov-16 Naco, SON Paving Oct-07 Naco, SON Wastewater Feb-12 Ocotillo Wind Farm Wind energy project Jul-13 * Closeout process in collaboration with KfW. 15

17 NADB-BECC QUARTERLY REPORT MARCH 31, 2017 NADB-FUNDED GRANT PROJECT CLOSEOUT PIPELINE FOR 2017 Community / Sponsor Project Certification Date In process Nogales, SON (SWEP) Landfill/transfer station Dec-09 Pending Naco, SON (SWEP) Solid waste Jul-04 Piedras Negras, COAH (CAP) Wastewater May-14 Santiago, N.L. (CAP) Storm water May-13 Tecate, B.C. (CAP) Water and wastewater Dec-14 In the case of BEIF projects, the close-out pipeline for 2017 includes seven projects in EPA Region 6 and six in EPA Region 9, for a total of 13 BEIF close-out reports anticipated for the year Impact Assessment The third impact assessment undertaken by BECC and NADB covers the wastewater collection and treatment infrastructure project certified in 1998 and implemented in 2008 in the communities of Socorro and San Elizario in the Lower Valley region of El Paso County, Texas. The study was concluded in March 2017, and the final draft report is undergoing a series of reviews by the work team: BECC, Department of Public Health of the University of Texas at El Paso and Lower Valley Water District. As in the case of the Baja California impact assessment, once the Lower Valley report is finalized, it will be submitted to the Pan-American Health Organization in Washington, D.C., for a peer review. The main conclusions of the study are provided below. Status of Water & Wastewater Services Lower Valley Impact Assessment Results Prior to the project, 52% of residents obtained water through a combination of trucked water, residential wells and bottled water, with 15% depending solely on trucked water and 8% solely on residential wells. For those using trucked water, 64% received deliveries more than once a week. 100% of residents depended on septic tanks and cesspools for wastewater disposal. After the project, 100% of residents had running water, while 93% of households were connected to sewer system, and the other 7% continue to use septic tanks. Community Development and Economic Impact Median household incomes grew in the area by 12% to nearly 28%, an increase of up to $6,500 per year for some families. Property values increased by 41% in Socorro and 23% in San Elizario between 2000 and 2010 (American Fact Finder). The average is 20% in El Paso County after first-time water service was provided (El Paso Water Utilities). Expanded residential development (approx sq. miles), with access to water and wastewater services extended from the project s infrastructure investments. 16

18 NADB-BECC QUARTERLY REPORT MARCH 31, 2017 Survey Results Perception of Services: Lower Valley Impact Assessment Results 93% of those surveyed are satisfied with water service due to improved reliability, pressure, and health. 89% are satisfied with sewer service due to improved treatment, health, and cost savings. 90% of those surveyed currently use municipal water for cooking and hygiene. Economic, Community Development and Quality of Life 93% of those surveyed believe that having water and sewer services benefitted the community through expanded healthcare services, local businesses, parks and recreation and better fire safety. 88% of those surveyed believe their quality of life has improved. Health Conditions (Self-reported)* Before After Skin problems (rash, itchy, dry) 22% 9% Gastrointestinal illness (diarrhea, nausea, gastritis) 9% 3% Stomach infections (salmonella, cholera, H. pylori) 1% 0% * % of those surveyed. BECC and NADB are exploring several options to begin developing another impact assessment before the end of

19 NADB-BECC QUARTERLY REPORT MARCH 31, 2017 ANNEXES QUARTERLY STATUS REPORT MARCH 31, 2017 Annex 1: Annex 2: NADB Financial Statements as of (unaudited) Active Projects by State 18

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21 A N N E X 1 N O R T H A M E R I C A N D E V E L O P M E N T B ANK C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S A ND S U P P L E M E N T A R Y I N F O R M A T I O N (UN A U D I T E D ) M ARCH 31,

22 (NADB) Consolidated Financial Statements and Supplementary Information (Unaudited) Consolidated Financial Statements Contents Consolidated Balance Sheets... 2 Consolidated Statements of Income... 3 Consolidated Statements of Comprehensive Income... 4 Consolidated Statement of Changes in Equity... 5 Consolidated Statements of Cash Flows... 6 Notes to Consolidated Financial Statements... 7 Supplementary Information Combining Balance Sheet by Program Combining Statement of Income by Program Combining Statement of Comprehensive Income by Program Combining Statement of Cash Flows by Program

23 Consolidated Balance Sheets and December 31, 2016 Assets (Unaudited) (Audited) March 31, December 31, Cash and cash equivalents: Held at other financial institutions in demand deposit accounts $ 188,658 $ 193,964 Held at other financial institutions in interest bearing accounts 30,677,223 28,833,505 Repurchase agreements 109,100, ,700, ,965, ,727,469 Held-to-maturity investment securities, at amortized cost 53,259,031 53,782,155 Available-for-sale investment securities, at fair value 478,874, ,562,226 Loans outstanding 1,400,276,391 1,411,625,673 Allowance for loan losses (25,411,203) (25,075,659) Unamortized loan fees (10,812,644) (10,682,210) Foreign currency exchange rate adjustment (45,546,810) (55,027,169) Hedged items, at fair value (107,457,165) (151,854,451) Net loans outstanding 1,211,048,569 1,168,986,184 Interest receivable 14,675,171 26,806,845 Grant and other receivable 1,958,359 7,320,234 Furniture, equipment and leasehold improvements, net 432, ,759 Other assets 79,074,209 98,029,324 Total assets $ 1,979,288,449 $ 1,813,676,196 Liabilities and Equity Liabilities: Accounts payable $ 347,871 $ 7,456,087 Accrued liabilities 447, ,447 Accrued interest payable 13,355,442 16,593,968 Undisbursed grant funds 1,708 6,328 Other liabilities 4,511,578 - Short-term debt 5,262,000 5,262,000 Long-term debt, net of discount and unamortized debt issuance costs 1,362,272,872 1,176,158,912 Hedged items, at fair value (11,726,426) 2,931,548 Net long-term debt 1,350,546,446 1,179,090,460 Total liabilities 1,374,472,678 1,208,850,290 Equity: Paid-in capital 415,000, ,000,000 General Reserve: Allocated paid-in capital 2,432,617 2,460,790 Retained earnings: Designated 11,506,129 11,780,134 Reserved 114,543, ,553,374 Undesignated 49,183,292 45,058,709 Accumulated other comprehensive income 12,144,674 15,967,278 Non-controlling interest 5,580 5,621 Total equity 604,815, ,825,906 Total liabilities and equity $ 1,979,288,449 $ 1,813,676,196 The accompanying notes are an integral part of these unaudited consolidated financial statements. 2

24 Consolidated Statements of Income (Unaudited) For the Three Months Ended and 2016 For the Three Months Ended March 31, Interest income: Loans $ 13,951,438 $ 12,422,238 Investments 1,879,589 1,568,678 Total interest income 15,831,027 13,990,916 Interest expense 5,778,620 4,588,856 Net interest income 10,052,407 9,402,060 Operating expenses: Personnel 1,744,234 1,871,231 General and administrative 417, ,983 Consultants and contractors 66, ,511 Provision for loan losses 335, ,912 Other - 26,349 Depreciation 41,166 23,620 U.S. Domestic Program 51,368 52,125 Total operating expenses 2,655,659 2,662,731 Net operating income 7,396,748 6,739,329 Non-interest income and expenses: Loss on sales of available-for-sale securities (287) - Income (expense) from hedging activities, net (3,600,668) 3,270,511 Income (expense) from foreign exchange activities, net 248,618 (17,101) Fees and other income 87, ,000 Total non-interest income (expense) (3,265,092) 3,353,410 Income before program activities 4,131,656 10,092,739 Program activities: U.S. Environmental Protection Agency (EPA) grant income 125, ,484 EPA grant administration expense (125,332) (191,484) Technical Assistance Program expense (201,814) (112,761) Community Assistance Program expense (89,200) (119,396) Water Conservation Investment Fund expense - (74,941) Net program expenses (291,014) (307,098) Income before non-controlling interest 3,840,642 9,785,641 Net loss attributable to non-controlling interest (41) (46) Net income attributable to NADB $ 3,840,683 $ 9,785,687 The accompanying notes are an integral part of these unaudited consolidated financial statements. 3

25 Consolidated Statements of Comprehensive Income For the Three Months Ended and Year Ended December 31, 2016 (Unaudited) (Audited) Three Months Ended Year Ended March 31, December 31, Income before non-controlling interest $ 3,840,642 $ 19,406,044 Net loss attributable to non-controlling interest (41) (142) Net income attributable to NADB 3,840,683 19,406,186 Other comprehensive income (loss): Available-for-sale investment securities: Change in unrealized gains during the period, net 176,800 15,481 Reclassification adjustment for net (gains) losses included in net income 287 (137,177) Total unrealized gain (loss) on available-for-sale investment securities 177,087 (121,696) Foreign currency translation adjustment (91,623) 158,889 Unrealized gains (losses) on hedging activities: Foreign currency translation adjustment, net 9,480,359 (11,580,208) Fair value of cross-currency interest rate swaps, net (13,388,427) 20,324,726 Total unrealized gain (loss) on hedging activities (3,908,068) 8,744,518 Total other comprehensive income (loss) (3,822,604) 8,781,711 Total comprehensive income (loss) $ 18,079 $ 28,187,897 The accompanying notes are an integral part of these unaudited consolidated financial statements. 4

26 Consolidated Statement of Changes in Equity For the Three Months Ended and Year Ended December 31, 2016 General Reserve Accumulated Other Paid-In Allocated Retained Comprehensive Non-controlling Total Capital Paid-In Capital Earnings Income (Loss) Interest Equity Beginning balance, January 1, 2016 $ 405,000,000 $ 3,027,256 $ 151,986,031 $ 7,185,567 $ 5,763 $ 567,204,617 Capital contribution 10,000, ,000,000 Transfer to Targeted Grant Program of the U.S. Domestic Program - (566,466) (566,466) Net income ,406, ,406,186 Other comprehensive income ,781,711-8,781,711 Non-controlling interest (142) (142) Ending balance, December 31, 2016 (audited) 415,000,000 2,460, ,392,217 15,967,278 5, ,825,906 Capital contribution Transfer to Targeted Grant Program of the U.S. Domestic Program - (28,173) (28,173) Net income - - 3,840, ,840,683 Other comprehensive income (3,822,604) - (3,822,604) Non-controlling interest (41) (41) Ending balance, (unaudited) $ 415,000,000 $ 2,432,617 $ 175,232,900 $ 12,144,674 $ 5,580 $ 604,815,771 The accompanying notes are an integral part of these unaudited consolidated financial statements. 5

27 Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended and 2016 For the Three Months Ended March 31, Cash flows from operating activities Net income $ 3,840,683 $ 9,785,687 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 41,166 23,620 Amortization of net premiums (discounts) on investments 29, ,830 Change in fair value of swaps hedged items and other non-cash items (48,871,908) 4,062,496 Non-controlling interest (41) (46) Loss on sales of available-for-sale investment securities, net Provision for loan losses 335, ,912 Change in other assets and liabilities: (Increase) decrease in interest receivable 12,131,674 (2,290,759) (Increase) decrease in receivable and other assets 5,113,257 (644,963) Decrease in accounts payable (7,108,216) (1,488,965) Increase (decrease) in accrued liabilities 6,186 (6,796) Increase (decrease) in accrued interest payable (3,238,526) 3,289,170 Net cash provided by (used in) operating activities (37,719,949) 13,178,186 Cash flows from lending, investing, and development activities Capital expenditures (12,328) (14,063) Loan principal repayments 30,169,929 9,513,342 Loan disbursements (18,820,647) (3,549,304) Purchase of held-to-maturity investments - (1,086,000) Purchase of available-for-sale investments (230,923,097) (69,537,913) Proceeds from maturities of held-to-maturity investments 528,000 1,075,000 Proceeds from sales and maturities of available-for-sale investments 58,752,994 65,063,144 Net cash provided by (used in) lending, investing, and development activities (160,305,149) 1,464,206 Cash flows from financing activities Proceeds from other borrowings 12,847,737 - Proceeds from note issuance 173,448,566 - Grant funds from the Environmental Protection Agency (EPA) 1,812,842 1,825,362 Grant disbursements - EPA (1,817,462) (1,824,510) Grant activity - U.S. Domestic Program (28,173) (396,212) Net cash provided by (used in) financing activities 186,263,510 (395,360) Net increase (decrease) in cash and cash equivalents (11,761,588) 14,247,032 Cash and cash equivalents at January 1, 2017 and ,727, ,979,878 Cash and cash equivalents at and 2016 $ 139,965,881 $ 129,226,910 Supplemental cash information Cash paid during the year for interest $ 5,468,750 $ 5,468,750 Significant non-cash transactions Foreign currency translation adjustment $ 9,480,359 $ 589,509 Change in fair value of cross-currency interest rate swaps, net (13,388,427) 2,521,161 Change in fair value of available-for-sales investments, net 177,087 1,800,246 The accompanying notes are an integral part of these unaudited consolidated financial statements. 6

28 Notes to Consolidated Financial Statements (Unaudited) 1. Organization and Purpose The North American Development Bank (NADB or the Bank) was established on January 1, 1994 by an agreement between the Governments of the United States of America (the United States or U.S.) and the United Mexican States (Mexico) that was signed by their respective Presidents on November 16 and 18, 1993 (the Charter). The Bank was created to finance infrastructure projects in the U.S.-Mexico border region (the International Program) and community adjustment and investment projects throughout the U.S. and Mexico (the Domestic Programs). On March 16, 1994, the President of the United States issued an Executive Order designating the Bank an international organization under the International Organization Immunities Act. The Bank is governed by a Board of Directors appointed by the two countries. The operations of the Bank are subject to certain limitations outlined in the Charter, as amended on August 6, The geographic jurisdiction of the International Program is within 100 kilometers north of the U.S.-Mexico border and within 300 kilometers south of the border. The Bank is located in San Antonio, Texas. Under its International Program, the Bank provides loan and grant financing and technical assistance for infrastructure projects certified by the Board, as appropriate, and administers grant funding provided by other entities. Under the Domestic Programs, the Bank contributed funds from its equity to establish the domestic program of each country, and continues to administer the funds of the U.S. Domestic Program (see Note 8). On June 2, 1998, the Board of Directors adopted a resolution authorizing the Bank to establish a limited-purpose financial institution (sociedad financiera de objeto limitado, SOFOL) for the purpose of facilitating Bank lending to the Mexican public sector. In January 1999, the Corporación Financiera de América del Norte, S.A. de C.V. SOFOL (COFIDAN) began operations in Mexico City and, in October 2006, COFIDAN was converted from a SOFOL to a non-regulated, multipurpose financial institution (SOFOM, E.N.R.), and its name was modified to Corporación Financiera de América del Norte, S.A. de C.V. SOFOM E.N.R. As of, COFIDAN is 99.90% owned by the Bank and 0.10% owned by the Government of Mexico. The accounts of COFIDAN are consolidated with the Bank, and all material intercompany accounts and transactions are eliminated in consolidation. The non-controlling interest reflected in the consolidated balance sheets and consolidated statements of income represents the ownership of the Government of Mexico through the Ministry of Finance and Public Credit (SHCP). 2. Summary of Significant Accounting Policies Basis of Presentation and Use of Estimates in Financial Statements The financial statements have been prepared in conformity with U.S. generally accepted accounting principles and are presented in a manner consistent with that of an international organization. The preparation of financial statements in conformity with 7

29 Notes to Consolidated Financial Statements (Unaudited) 2. Summary of Significant Accounting Policies (continued) GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates include the valuation of investments, allowance for loan losses, the fair value of derivative instruments and other real estate owned included in other assets, and the fair value of derivative instruments included in other liabilities and in long-term debt. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements include the accounts of the Bank and its subsidiary, COFIDAN. All significant intercompany accounts and transactions have been eliminated in consolidation. Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash deposits with other financial institutions and overnight repurchase agreements. Repurchase Agreements The Bank has entered into agreements with two major financial institutions to purchase various U.S. government and federally sponsored agency securities under an agreement to resell. The purchase and resale of these securities occur daily, and the obligation to repurchase is backed by the assets of the related financial institutions. The underlying securities related to the repurchase transaction are held in the possession of the respective financial institutions. Investment Securities The Bank s investments are classified into the following categories: Held-to-maturity This category is composed of those debt securities for which the Bank has the positive intent and ability to hold to maturity. These securities are carried at amortized cost. Trading This category is composed of debt securities that are bought and held for resale in the near term. These securities are carried at fair value, and changes in market value are recognized in the consolidated statements of income. Available-for-sale This category is composed of debt securities that are not classified as either trading or held-to-maturity securities. These securities are carried at fair value, with unrealized holding gains and losses excluded from earnings and reported as a net amount in a separate component of comprehensive income or loss until realized. 8