Management Report to the Board of Directors

Transcription

1 Management Report to the Board of Directors Board of Directors Meeting Hermosillo, Sonora June 15, 2017

2 Content 1. Operational highlights 2. Financial Report 3. Financial Projections 4. Integration process 5. Strategic issues 2

3 Operational Highlights

4 Overview Operational merger has moved forward with great success. Technical assistance and grant funding working according to annual funding plan. Reduced growth in loans was begun through smaller loans and limited participation in various types of lending. Technical advisory and assistance provided to communities in various critical situations. Capital increase campaign continues, but has met with resistance in the Financial Services Committee of the U.S. House of Representatives. There is no funding in USG 2017 budget. 4

5 Overview 2016 Annual Financial Report for the year ended December 31, Joint 2016 Year in Review Status Report to the Board of Directors for the quarter ended March 31, Unaudited Financial Statements for the quarter ended March 31,

6 Loan Program 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. 6

7 BEIF Program March 31, 2017 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. 7

8 CAP Program March 31, 2017 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. 8

9 NADB-BECC Technical Assistance March 31, 2017 Technical Assistance Committee Approvals Community / Sponsor TA Type Description NADB (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 changing weather patterns 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 PD = Project development; SD = Sector development; IS Institutional strengthening 25 studies were in process or under development. The total grant commitment for those studies was US$2.26 million. 9

10 PDAP Program March 31, 2017 Project Development Assistance Program Grant Awards Community / Sponsor Project Description Amount Type (US$) 1 Camargo, TAM WW Update of final design $ 13,101 2 G. Díaz Ordaz, TAM WW Additional activities related to the 7,084 environmental information document 3 G. Díaz Ordaz, TAM WW Energy and water audits 30,758 4 Nueva Cuidad Guerrero, WW Energy and water audits 19,832 TAM 5 Pomerene, AZ WW Additional activities for the final 19,739 design 6 Sunland Park, NM WW Asset management study 85,000 7 Anthony, NM WW Environmental information document 74,301 and technical memorandum TOTAL: $ 249,815 WW= Wastewater At the end of the quarter, there were a total of 15 PDAP studies under development with two studies in the procurement process. Of these 17 studies, 14 are expected to be completed prior to year-end. 10

11 Border 2020 Program March 31, 2017 Border 2020 Projects Completed in First Quarter of 2017 No. Project Location Goal* Region 9 (California, Baja California, Arizona, Sonora) 1 Regional HAZMAT capacity building Arizona and Sonora 4 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). At the end of March, there were a total of 18 active Border 2020 projects. By year end, 18 projects are expected to be completed: 8 in Region 9 and 10 in Region 6. 11

12 Project Closeout June 15, 2017 A total of 65 closeout reports have been completed: 24 for BEIF and 41 for NADB loans and grants. For 2017, there are 25 projects in the closeout process. 7 have been completed, and the reports are expected to be delivered to the Board in July. 10 reports are in various phases of development. 8 reports are scheduled to being the closeout in the second half of the year. 12

13 2017 Closeout Pipeline Community LOAN PROJECTS Project Title 1 Border region Mercader 1 pilot (MX$120 M) - Public transportation 2 Border region Mercader 2 (MX$500 M) - Public transportation 3 Picture Rocks, AZ FRV Tucson Solar Park - Clean energy 4 Presidio County, TX Bryan Solar Park - Clean energy 5 El Paso, TX Paisano Waterline - Water 6 Cameron & Willacy Counties, TX Los Vientos 1A Wind Farm- Clean energy 7 Cameron County, TX Los Vientos 1B Wind Farm - Clean energy 8 El Centro, CA Ocotillo Wind Farm - Clean energy 9 Ciudad Juárez, CHIH Urban mobility program - Air quality 10 Reynosa, TAM El Porvenir Wind Farm - Clean energy GRANT PROJECTS Community Project Title BEIF - EPA Region 6 1 Roma, TX Water and Wastewater Improvement 2 Miguel Aleman, TAM Wastwater Collection and Treatment 3 Miguel Aleman, TAM Construction of the Wastewater Collection Improvement Project 4 Lower Valley El Paso, TX Water and Wastewater Project 5 San Agustin, CHIH Expansion of the Water Distribution System, Construction of the Wastewater Collection and Treatment 6 Ciudad Juarez, CHIH Expansion and Upgrade of the South Wastewater Treatment Plant 7 La Feria, TX* Water and Wastewater Collection Project BEIF - EPA Region 9 and/or Loan 8 Bisbee, AZ Wastewater Collection System Project for the Community of Tintown 9 Holtville, CA Wastewater Collection System Expansion 10 Mexicali, BC Rehabilitation of the Wastewater Collection in Colonias Loma Linda y Esperanza 11 Nogales, SON* Water Supply and Distribution Project (Phase I) 12 Nogales, SON Rehabilitation of the Wastewater Collection System CAP 13 Santiago, NL Storm Water Infrastructure 14 Piedras Negras, COAH Wastewater System Rehabilitation Project 15 Tecate, BC Expansion of water and wastewater services to unserved areas of the Piedra Angular Colonia * BEIF grant and Loan 13

14 Financial Report

15 Simplified Balance Sheet US$ Thousands 31-Dec Mar-17 Assets Cash and investments $ 511,558 $ 671,334 Loans outstanding, gross 1,411,296 1,400,276 General allowance for loan losses (25,052) (25,411) Unamortized loan fees (10,682) (10,813) Total assets $ 1,812,866 $ 1,978,523 Liabilities and Equity Liabilities Borrowings outstanding, gross $ 1,190,550 $ 1,373,801 Total liabilities 1,208,832 1,374,453 Equity Paid-in-capital 415, ,000 Designated retained earnings 13,458 13,193 Reserved retained earnings 114, ,543 Undesignated retained earnings 45,059 49,183 Total equity 604, ,070 Total equity & liabilities $ 1,812,866 $ 1,978,523 15

16 Simplified Income Statement US$ Thousands 31-Dec Mar-17 Loan income $ 52,427 $ 13,942 Investment income 6,585 1,879 Total interest income 59,012 15,821 Interest expenses 19,950 5,779 Net interest income 39,061 10,043 Operating expenses 17,934 2,627 Net operating income 21,127 7,415 Non-interest income (expense) net (1,471) 336 Net income before hedging activities 19,656 7,751 Income (expense) from hedging activities 1,102 (3,601) Net income before programs 20,758 4,150 Program expenses 1, Net income (loss) $ 19,670 $ 3,859 16

17 OBLIGOR Loan Portfolio Single Obligor Limit March 31, 2017 Top 10 Borrowers for Committed and Projected Loans Municipio Hermosillo 62.8 Municipio Nvo. Laredo 65.8 Ventika II Wind 68.6 Ventika Wind 68.8 Cúbico/El Mezquite 71.7 State of Nuevo Leon* 76.9 Los Vientos 1B* 80.9 Los Vientos 1A 87.6 EDPR Wind 92.9 Ocotillo Wind* $ US$ MILLIONS Approved Pipeline Current Limits *Loans approved under SOL valid as of May 9, 2013 (15% $173.9 million). 17

18 Investment Portfolio March 31,2017 Portfolio Distribution (US$528.8 million) Sector Type Sector Guidelines 1 Portfolio U.S. Treasury securities 25.00% 36.16% Mexican government securities (UMS) 30.00% 11.94% U.S. agency securities 45.00% 21.38% U.S. agency mortgage-backed securities 15.00% 0.00% Taxable municipals 25.00% 0.00% Other permissible securities % 30.52% Total % 1 Minimum level for U.S. Treasuries; maximum level for all other securities. 2 Other permissible securities include corporate bonds (22.36%), corporate asset-backed securities (4.86%), commercial paper (3.30%) and certificates of deposit (0.00%). Book Yield: 1.68% Market Yield: 1.42% 18

19 Investment Portfolio March 31, 2017 Portfolio Holdings by Maturity (US$528.8 million) Average maturity: 1.60 years Duration: 1.54 years 19

20 Debt Issuances and Borrowings April 2017 Bond Issuances Date Amount Swap L3m Maturity Coupon Yield (US$ millions) spread* February 11, 2010 $ % 4.41% 78.9 October 26, % 2.44% 70.3 December 18, 2012** % 2.64% December 18, % 3.30% 98.8 October 10, % 2.34% 89.1 April 30, 2015*** % 0.19% 74.1 March 10, 2017**** % 2.47% 87.5 April 26, 2017*** % 0.17% 93.9 Total $ 1,456 Weighted Average Cost 85.4 * All-in spread over 3-month LIBOR; ** Reopening of the October 26, 2012 bond issuance; *** Swiss franc bonds (CHF); **** Norwegian krone bonds (NOK) Date Other Borrowings Amount (US$ millions) Maturity Coupon February 11, 2010 $ % 20

21 Counterparty Risk March 31, 2017 Derivative Counterparties Counterparty S&P Moody's Fitch Ratings Rating Outlook Rating Outlook Rating Outlook Bank of America NA A+ Stable A1 Positive A+ Stable Banobras SNC BBB+ Negative A3 Negative BBB+ Negative BNP Paribas SA A Stable A1 Stable A+ Stable Deutsche Bank AG A- Stable Baa2 Stable A- Negative Credit Suisse Intl A Stable A1 Stable A- Stable Credit Agricole A Stable A1 Stable A Positive Wells Fargo NA AA- Negative Aa2 Stable AA Negative 21

22 Counterparty Risk March 31, 2017 Derivative Counterparties (US$ Millions) Counterparty Notional Amount Counterparty Threshold NADB Threshold Mark To Market 1 Collateral Bank of America NA $ $ 20.0 $ 50.0 $ 10.1 $ Banobras SNC BNP Paribas SA (1.8) Deutsche Bank AG Credit Suisse Intl Credit Agricole Wells Fargo NA FOAEM Total $ 2,136.9 $ $ From NADB s position 22

23 US$ Millions $1,200 Liquidity Report March 31, 2017 $1,000 $800 $600 $400 $200 $- Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Liquidity at month-end* Minimum liquidity level Liquidity cap (2.5x) Undisbursed loan commitments at month end Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Beginning liquidity Total outflows Total inflows Liquidity at month-end* Amount over maximum or (under minimum)* Minimum liquidity level Liquidity cap (2.5x) , , , , , , , ,128.2 Undisbursed loan commitments at month end

24 Financial Projections

25 Credit Rating Concerns NADB maintains high credit ratings: Fitch Moody s AA AA+ Rating agencies are concerned about U.S. support. Financial condition ratios have become lower as lending grows without capital. Concentration issues: Geographical Only two countries Mexican federal government backing of loans

26 Credit Rating Considerations Strengths Strong asset performance Strict underwriting standards Prudent risk management Weaknesses Geographic concentration Least diversified ownership of interrelated economies of U.S./Mexico Robust capitalization ratios Strong due diligence Strong liquidity policy Debt service coverage is best (among develop. banks) 26

27 Potential Impacts to Credit Rating Moody s Report An upward reassessment of the rating could arise from a significant and sustained improvement in the average borrow credit quality of the bank s loan portfolio and a reduction in concentration risks of the portfolio or a mitigation of these risks through increased capital buffers and lower leverage levels. Conversely, a significant deterioration in asset quality and performance or evidence of a shift in member support that diminishes the likelihood of extraordinary support for the institution could prompt a rating downgrade. 27

28 Pro Forma Assumptions No capital to be received. Growth to be limited. We will follow rating agency methodology. Funding for BECC programs continues. Improved operations from merger. 28

29 Projected Lending Balances As of March 31, Beginning balance $ 1,411 $ 1,487 $ 1,521 $ 1,551 Loan disbursements Amortizations (102) (86) (93) (102) Prepayments (7) Ending balance $ 1,487 $ 1,521 $ 1,551 $ 1,582 29

30 Projected Long-term Debt As of March 31, Beginning balance $ 1,188 $ 1,492 $ 1,487 $ 1,531 Debt issuances Payment of maturing bonds (300) (250) Payment of lines of credit (6) (5) (5) (5) Ending balance $ 1,492 $ 1,487 $ 1,531 $ 1,546 30

31 Pro Forma Income Statements Fiscal Years Ending December 31, 2017 through December 31, 2020 (US$ Millions) FY 2017 FY 2018 FY 2019 FY /31/ /31/ /31/ /31/2020 Interest income: Loans $ $ $ $ Investments Total interest income Interest expense Net interest income Administrative expenses Depreciation expense (non-cash) Provision for loan losses (non-cash) Total operating expenses Income before program expenses Program expenses: Technical Assistance Program Utility Management Institute Community Assistance Program Water Conservation Investment Fund Total program expenses Net income $ 5.80 $ 6.82 $ 8.03 $

32 Pro Forma Balance Sheets Fiscal Years Ending December 31, 2017 through December 31, 2020 (US$ Millions) FY 2017 FY 2018 FY 2019 FY /31/ /31/ /31/ /31/2020 Assets Cash and cash equivalents $ $ $ $ Investments Loans outstanding 1, , , , Total assets $ 2, $ 2, $ 2, $ 2, Liabilities and equity Liabilities: Short & long-term debt $ 1, $ 1, $ 1, $ 1, Total liabilities 1, , , , Equity: Total net funded paid-in capital General Reserve Reserves Debt Service Reserve Operating Expenses Reserve Special Reserve Capital Preservation Reserve Designated retained earnings Community Assistance Program Technical Assistance Program Water Conservation Investment Fund Undesignated retained earnings Total equity Total liabilities and equity $ 2, $ 2, $ 2, $ 2,

33 US$ Million Pro Forma Income Statements As of March 31, Income Expenses Income Expenses Income Expenses Income Expenses FY 2017 FY 2018 FY 2019 FY 2020 Income Loan income Investment income Expenses Interest expenses Admin. expenses Program activities Allowance for loan losses 33

34 Projected Changes in Equity As of March 31, Balance Additional Sources Additional Sources Net Income Uses Balance Net Income Uses Balance Paid-in capital $ $ $ Designated Community Assistance Program 8.8 (2.0) 6.8 (2.0) 4.8 Technical Assistance and Training 3.7 (1.5) 2.2 (1.5) 0.7 Water Conservation Investment 0.9 (0.3) Total designated 13.4 (3.8) 9.6 (3.5) Total undesignated (29.7) (13.7) 21.5 Debt Service Reserve Operating Expense Reserve Special Reserve Capital Preservation Reserve Total Reserves Total Equity $ $ $

35 Pro Forma Financial Indicators Fiscal Years Ending December 31, 2017 through December 31, 2020 Indicator Equity / assets 28.72% 29.02% 28.69% 28.78% Equity / loans 41.02% 40.56% 40.28% 40.05% Debt / equity 2.44x 2.40x 2.44x 2.43x Reserves surplus (deficit)* (1.27) (15.76) *US$ Millions 35

36 Pro Forma Financial Indicators As of March 31, 2017 Debt / Equity Ratio 900% 800% 700% 600% B+ - C BBB - BB+ 500% 400% 300% 200% 100% 0% A - BBB+ AA - A+ AAA - AA Debt / Equity 36

37 Pro Forma Financial Ratios As of March 31, % Equity / Total Loans 160% 140% 120% 100% 80% 60% 40% 20% 0% AAA - AA AA - A+ A - BBB Equity / Loans 37

38 Pro Forma Financial Indicators As of March 31, 2017 Gross Administrative Expenses / Gross Outstanding Loans 4.50% 4.00% 4.20% 3.50% 3.00% 2.50% 2.50% 2.40% 2.00% 1.90% 1.50% 1.00% 1.14% 0.99% 0.89% 0.86% 0.90% 1.09% 1.09% 1.09% 1.10% 0.50% 0.00% FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Estimated 38

39 Integration Process 39

40 Milestones for Full Integration Protocol of Amendment approved by Mexican Senate on April 27, Next steps: Exchange diplomatic notes, proposed to occur by September 15, 2017, based on current conditions. Entry into force of Protocol: October 15, 2017 Transfer of BECC operations to NADB by September 15 th Extinguishing BECC operations by October 15 th (per Protocol) 40

41 Key Elements for Full Integration Office Agreement Execution by June 30, Approval by Senate in September Termination of BECC HQ Agreement by November 9 th. Transfer of BECC building to NADB. Contributions to BECC Operating Budget Contributions for FY2017 to be completed by August contributions to be made to NADB. 41

42 Key Elements for Full Integration EPA Grants Approximately 13 agreements, to be transferred to NADB. Negotiating indirect cost rates Other Contractual Matters Contracts now include clause for assignment to NADB. Approximately 60 contracts (BECC, EPA, other institutions) Transfer of contracts to NADB, with funding provided by BECC. 42

43 Key Elements for Full Integration Administrative / Financial Matters Transfer of BECC accounts and other assets to NADB. Integration of information systems. Use of NADB bank accounts. Management of payments through NADB, with BECC funds. Final BECC audit. Human Resources Transfer of personnel contracts to NADB Transition to NADB benefits 43

44 Support Required from Federal Board Members Contributions to Operating Budget (DOS, SEMARNAT) Pending contributions for BECC (2017) Contributions through NADB (2018) NADB Office Agreement (SRE) Schedule signing of document Process for timely approval by Mexican Senate Transfer of EPA Programs / Funds General oversight of process for transferring grants 44

45 Strategic Issues

46 Risks and Opportunities 1. Capital needs. 2. Fee income. 3. Impact of financial discipline law in Mexico. 4. Leveraging Mexican pension funds. 46

47 Management of Existing Capital Financial projections: Analysis of financial condition. Smaller loan amounts targeted. Credit rating agency methodology utilized. Lower level of net income and equity growth 47

48 Fee Income Bank has begun a strategy of developing sources of fee income. Lending fees: Lead arranger Debt structuring Commitment Closing Other services: Financial advisory Administrative agent Collateral agent Loan originator 48