Minutes of the Strategic Planning Meeting of NMSBIC, January 21, 2013

A Strategic Planning meeting of the New Mexico Small Business Investment Corporation was called to order on this date at 8:00 a.m. in the conference room of the WESST Enterprise Center, 609 Broadway Blvd., N.E., Albuquerque, New Mexico.

A quorum was present:

Members Present:
Mr. Joseph H. Badal, Chair
Mr. Sam Cobb
Mr. Alan Fowler, Secretary/Treasurer
Mr. Lupe Garcia
Ms. Roxanna Meyers, Vice Chair
The Honorable James Lewis, State Treasurer (arrived at approximately 10:30 a.m.)
Mr. Clarence L. Smith [designee of Hon. James Lewis, State Treasurer]
Ms. Launa Waller

Members Excused: None

Financial Advisor to Board: Mr. Russell Cummins

Guests Present: None

Review and Summary of Accomplishments

Chairman Badal called the meeting to order, and began with a review of activity and achievements over the past year. Updates were made to the previous strategic planning document.

NMSBIC Self-Sufficiency from Loans and Investments

Mr. Cummins presented a report showing the NMSBIC’s self-sufficiency ratio, which has declined from 263% in 2009 to 58% in 2012. The decline is due to (i) the decline in the balance of interest earning assets due to capital calls from existing equity investment commitments, (ii) the reduction in interest rates earned on short-term investments, (iii) loan losses incurred on certain loan participation agreements, which are netted out of interest income in the analysis, (iv) the concentration of equity investments, which are long-term in nature, and are mostly non-interest earning assets. Mr. Cummins noted that if the average interest rate on loans was 2%, and if current agreements were renegiated to stop the pass-through of loan losses to NMSBIC, outstanding loan balances will need to increase to about $15 million from the current balance of about $9.5 million in order to achieve a self-sufficiency ratio of 100%.

Expansion of Lending Program

The Board discussed the desire to expand the lending program, and the possibility of identifying new lending partners. Discussion included the possibility of bank participations and partnering with local economic development organizations. There was also discussion about the need to contine efforts to deliver capital outside the Rio Grande Corridor.

Equity Program

The Board discussed what the NMSBIC’s future role should be regarding equity investments. Chairman Badal and Ms. Meyers stated that if NMSBIC could transfer current equity investments to SIC or Sun Mountain Partners, it might free up resources that could be used to expand the loan program. Mr. Cobb stated his concern that the NMSBIC has incurred losses in its equity investments, and might now be transferring these equity investments before realizing possible gains that might occur in future years. Chairman Badal said it might be possible to structure a transfer where NMSBIC keeps or shares in future profits. There was insufficient time to complete the discussion regarding equity investments, and it was agreed to set aside additional time at the next Board meeting to continue the discussion regarding equity investments.

NMSBIC Risk Analysis

There was insufficient time to discuss the risk analysis in detail. It was agreed to set aside time at a future Board meeting, probably after the February meeting, to discuss the risk analysis.

Establish Cash Reserve

Mr. Cummins noted that with the reduction of short-term investment balances in recent years, it might be appropriate for the Board to consider establishing a cash reserve for operating expenses. He referred to to the financial report, “Funds Available for Investment and Operations” that shows funds remaining of $12.3 million, less funds committed of $6.4 million, and funds available for investment and operations of $5.9 million. Mr. Cummins stated that as the Board considers new or increased loan commitments, it would be appropriate to consider reserving part of the available funds for operating expenses. The Board discussed the need for a cash reserve, and agreed it is necessary to be aware of the need to reserve funds for operating expenses, but does not believe it is necessary to establish a formal dollar amount or percentage.

Board Member Term Expiration Date Planning

Mr. Cummins referred Board members to information provided by Mr. McDonald regarding Board member appointments. It was noted that Board members do not have stated terms, but rather serve at the pleasure of the Governor.

ADJOURNMENT

business completed, the NMSBIC Board adjourned the meeting at 11:45 a.m.