Utah Bankers Association CRA Conference Investments - Underwriting and Risk Strategy

Transcription

1 Utah Bankers Association CRA Conference Investments - Underwriting and Risk Strategy Will Whetstone American Express Center for Community Development

2 American Express Center for Community Development This presentation will cover how The American Express Center for Community Development (CCD), sources, acquires, and underwrites various CRA qualified investments. The CCD is an entity within American Express that fulfills Community Reinvestment Act (CRA) obligations for US Banking - American Express Centurion Bank (AECB) and the American Express Bank, FSB (FSB) in the areas of: Affordable Housing Essential Services Economic Development Revitalization and Stabilization 2

3 CRA Investment Vehicles Investment Characteristics CRA Value Low-Income Housing Tax Credits New Markets Tax Credits CD Loans SBIC Investments Community Development Mutual Funds Tax credit investment with compliance period of 15 years. Tax credit investment with compliance period of 7 years. Loans to government, non-profit agencies for housing or infrastructure needs. SBA licensed private Small Business Investment Companies (SBICs) help manage and finance small entrepreneurial businesses. Consortium of bank investors that invest in underlying AAA collateral invested across the US. Innovative, Complex, & Innovative, Complex & Complex, Innovative & Innovative, Complex, & Complex & Government MBS Securitized by Ginnie Mae single family loan pools. Single Family Housing Bonds Investments in minority-owned banks and low-income credit unions Bonds that finance single family housing. Certificate of deposit with low-income credit union or minority-owned bank. SBA Investments Securitized federally guaranteed SBA loans. 3

4 American Express LIHTC Underwriting Review, underwrite, and approve/decline proposed investments based on a community assessment and risk of the project CRA Value Evaluate market economics of project including market study Assess experience and financial capacity of developer Analyze project financials including sources and uses, operating proforma, and IRR analysis As part of the CCD s evaluation, third party consultant reviews the project and provides their assessment of strengths and weaknesses of each project Monitor and manage performance of the project. 4

5 CCD Internal Controls Amex uses the following information to determine the strength of each syndicator: Experience and track record Portfolio performance Annual financial statements, review Conduct an annual due diligence Assess strength of management team and Investment Committee Manage CRA portfolio through asset management Review and manage properties on quarterly watch list reports Annual financial statement review through internal risk team Site visits as needed 5

6 Typical LIHTC Due Diligence Items 6 Due Diligence Items Organization Charts (LIHTC, Asset Management, Operations and NMTC) List of current board of directors and biographies of board members Senior management biographies, including in-house counsel Investment and Credit Committee members and their responsibilities Senior management and key employee changes within the last two years Underwriting guidelines Watch list criteria Project risk rating criteria Percent of projects on watch list Statement of audit concerns for last three years Past three years audited financial statements of organization Quarterly interim financials for last year Statement of all pending lawsuit or litigation items Statement of past lawsuit and litigation items Acquisition policy (Flood Zone Certification included) Statement of all adverse action by SEC or any federal or state regulatory agency Copy of Business Continuation Plan (BCP) Statement of any bankruptcies, liens, or judgments against organization Report of loss of tax credits by organization or affiliates on deal level List of events where capital was returned Report of forecasted potential loss of tax credits on deal level List of current and past investors and dollar amounts invested Number of deal level Investment Funds syndicated Three Investor references Three Developer references Statement listing official company name is registered to do business and federal tax id number. A pipeline of potential projects End to end process charts for acquisition and asset management Outside Tax Counsel resume

7 Conclusion 1. Evaluate, assess and understand the investment 2. Identify gaps 3. Develop strategies and business plans to address each gap 4. Establish performance metrics and execute the plan 5. Measure results and impacts Partnerships to Build Strong Communities Funding and support aligned with community needs strategies Public-Private teamwork to address community issues Resources = people, relationships, expertise and knowledge Partners can play various roles 7 Create long-term solutions that make a positive impact