RD302 - Virginia Small Business Financing Authority (A Component Unit of the Commonwealth of Virginia) Management’s Discussion and Analysis and Basic Financial Statements and Supplementary Information for the Fiscal Years ending June 30, 2016 and 2015
This section of the Virginia Small Business Financing Authority’s (the “Authority”) annual financial report presents management’s discussion and analysis of the Authority’s financial performance during the fiscal years that ended June 30, 2016 and 2015. Please read the information below in conjunction with the Authority’s financial statements, which follow this section. The annual financial report consists of three parts, management’s discussion and analysis, the basic financial statements and the notes to the financial statements.
The following information represents a comparative analysis of key financial aspects of the Authority’s operations between the fiscal years ended June 30, 2016 and June 30, 2015.
• The Authority’s Cash Collateral Program continued to enjoy increased demand statewide throughout 2016. Cash Collateral Program support distributions increased to $5,154,542 during FY 2016 from $4,578,420 in FY 2015, a 12.5% increase. As of June 29, 2016 there were 29 banks enrolled to participate and active in the Cash Collateral Program.
• At the 2016 fiscal year-end, VSBFA had $11.8 million in SSBCI CCP reserve accounts and $1.9 million in State CCP reserve accounts, respectively, at participating Cash Collateral Program banks compared with $8.1 million and $1.4 million respectively at the 2015 fiscal year-end. Amounts held in CCP reserve accounts are impacted by new CCP support distributions throughout the year and also by CCP support returned to or “clawed back” to the Authority as a result of the expiration of the Authority’s CCP support, CCP supported loans which have repaid prior to maturity, principal reductions in CCP supported loans which are still outstanding or due to a modification in bank terms which subsequently eliminates the need for continued CCP support.
• Following a 29% increase in net outstanding loans during 2015, the Authority’s net loans fell by 10% in 2016 from $13.4 million in FY 2015 to $12.0 million as of June 30, 2016. A significant portion of the $1.4 million decline can be attributed to a single write-off of $988,531 related to a loan issued under the Economic Development Loan Fund Program.
• Total Assets for the Authority fell by $818,919 from $54,968,923 at June 30, 2015 to as $54,150,004 as of June 30, 2016. This reduction in Total Assets was substantially attributable to a single write-off of an Economic Development Loan Fund loan, as mentioned above. Also contributing to the reduction in the Authority’s Total Assets was a transfer of most of the remaining assets related to the Environmental Compliance Assistance Fund (ECAF) back to the Department of Environmental Quality. Total Assets related to ECAF fell from $462,914 at June 30, 2015 compared with $60,617 as of June 30, 2016.
• During 2016, the Authority distributed $89,810 to banks for the purpose of extending credit enhancement support through the SSBCI Capital Access Program (SSBCI CAP), the Virginia Capital Access Program (VCAP) and the Tobacco Capital Access Program (TCAP). Although the Authority’s VCAP and TCAP programs continue to support outstanding loans previously enrolled by participating banks, these programs are no longer accepting new loan enrollments and both programs have been discontinued in FY 2016 due to a lack of continued funding. The Authority’s SSBCI Capital Access Program continues to accept new loan enrollments provided that these meet all federal eligibility guidelines and regulations required for SSBCI funding.
• Following a decline from 2013 to 2014, fee income from the Authority’s bond issuances increased for the second consecutive year, growing by 14% from $827,050 in FY 2015 to $946,449 in FY 2016. Historically, the Authority’s revenue from bond issuances has fluctuated from year-to-year. Demand for these bonds is driven a number of external factors, including the U.S. Internal Revenue Service (IRS) regulations governing their use and by the U.S. capital markets. In addition to the fluctuating demand for bonds, the Authority’s revenues from bond issuance revenue is also affected by other factors, including the repayment of bonds in the Authority’s existing portfolio (given that the Authority’s bond fees are paid on the outstanding principal balance of existing bonds, bond fee revenues decline as those bonds are repaid.) Bond fee revenue for the Authority also continues to be impacted by the Memorandum of Understanding the Authority voluntarily entered into in March 2012 whereby VSBFA agreed to share 40% of its bond fee revenue from non-profit bond issuances with local economic development authorities around the Commonwealth.
• The Authority’s agreement with the federal Economic Development Administration (U.S. Department of Commerce) requires that the Authority lend or commit 85% of the EDA American Safety Razor Fund and 75% of both the Craddock-Terry RLF and Defense Conversion RLF funds which the Authority utilizes to provide direct loans through the Economic Development Loan Fund program. Having not met that EDA requirement as of September 30, 2015, the Authority was required in February 2016 to sequester $1.9 million of cash from the Authority’s Economic Development Loan Fund program. During a period of sequestration, the Authority must remit all interest earned on the sequestered funds to EDA. On early September 2016, the Authority was notified by EDA of an additional sequestration requirement and consequently, the Authority will sequester an additional $3.5 million for a total of $5.4 million in sequestered EDA funds as of September 20, 2016.
• In 2014, the Authority entered into a Memorandum of Understanding (MOU) with the Center for Innovative Technology (CIT) to provide up to $2 million in funding from the Authority’s SSBCI funds for use in CIT’s Gap Fund, the Commonwealth’s venture capital fund. The Authority’s agreement with CIT provides a limited amount of SSBCI funding which can be utilized to make debt or equity investments in small Virginia technology businesses for purposes which are compliant with U.S. Treasury SSBCI policies and guidelines. By late 2015, CIT had exhausted the initial $2 million in funding originally allocated for this purpose and the Authority subsequently requested and received U.S. Treasury Department approval to increase the total SSBCI funding allocated to the CIT Gap Fund to $3 million. During FY 2016, the Authority provided $810,000 of that additional $1,000,000 in SSBCI funding to CIT for qualified SSBCI investments.