MessAge from the President

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5 MessAge from the President Two years ago, we decided to place corporate social responsibility at the heart of our business culture. This past year we determined to take that commitment to an entirely new height. We moved boldly in new directions, entering what was, until recently, unchartered territory for EDB. The Bank is now ready to become a very active participant in financing micro-businesses, the new frontier of economic development and poverty reduction at the community level. In the process, we have entered new alliances with private companies and nonprofit organizations, acting as a deal-maker and facilitating partner in innovative strategic arrangements that bring together large, established companies with striving new small businesses and even micro-businesses. But we do much more than facilitate these arrangements; we take an active position in them. And not just providing credit, but also putting our expertise in business development to work; helping to ensure that new entrepreneurs will acquire the skills, networks and culture needed to succeed in today s economy. These new alliances are nothing less than private-public partnerships leading to a synergy cycle of success, involving the Bank, large private corporate mentors, and energetic small entrepreneurs. We have continued to move in new directions, following our instinct to leave no dimension unexplored, no opportunity unexploited; but never neglecting what we have already built during years of careful nurturing. The Bank is proud to report that last year we met the ambitious goal of approving financing for over 1,000 cases under La Llave para tu Negocio, an inspiring program that we championed together with the Puerto Rico Trade, and which received the recognition of the United Nations in their Public Service Ceremony Award. Thanks to this initiative, there would be 1,000 more small businesses today than there were five years ago. We are also cheerful to have participated in the consolidation of Puerto Rico s strategy to promote the filmmaking industry. Last year we helped finance a Benicio del Toro co-production, filmed mostly on the Island, and now we are in conversations to finance another movie with Hollywood star Tommy Lee Jones. Movies like these are putting Puerto Rico in the international arena and on the film industry s map, providing a handsome payoff to our Government s incentive program for the industry. The Bank s venture capital operation, EDB Capital Investments (EDBCI) also continued to grow in the past year. The fund was the intermediary in the placement of a large debt issue by Banco Popular, which will build Popular s capital base, while also providing a substantial income to EDBCI over five years. This transaction will produce future funding for vital projects in the areas such as science and technology. We are a goal oriented institution; we measure success by results. And results have been first-rate not just at the most important level of fulfilling our business development mission, but also in the bottom line. Last year was our year of assets growth, especially loans, where the Bank was able to maintain a good financial margin and stable delinquency rates. Not bad for a year that was certainly not the best for the banking industry worldwide. Now, we look forward to new challenges to come. CPA Annette M. Montoto Terrassa President EDB 3

6 Executive CommitteE Standing: (from left to right) Bruny Ríos Delgado Manager, Communications & Public Relations Virna L. Rivera Román Manager, Human Resources Vilma Pellot González Executive Vice President Elisa M. Alcaraz Emmanuelli, Esq. General Legal Counsel 4 Sitting: (from left to right) Enid D. Flores Ruiz, JD Executive Vice President CPA Juan A. Vargas López Chief Operating and Finance Officer CPA Annette M. Montoto Terrassa President EDB CPA Annette M. Montoto Terrassa President EDB Jorge Negrón Sotomayor EDBCI Manager

7 BoArd of Directors Jorge Irizarry Herráns Chairman 5 Sitting: Jorge L. Aquino Núñez, Esq. Director CPA Annette M. Montoto Terrassa President EDB Standing: Roberto Montalvo Carbia, Esq. Director Terestella González Denton, JD Director José A. Benítez Rodríguez Director Alberto Bacó Bagué, Esq. Director Sitting: Hon. Bartolomé Gamundi Cestero Director Standing: (from left to right) Boris Jaskille Mújica, Esq. Director Hon. Gabriel Figueroa Herrera Director

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9 AnnuAl 2008 Report

10 2008 AnnuAl Annual Report THE OTHER SIDE OF EDB: MUCH MORE THAN CREDIT 8 There have always been two dimensions to the way the Economic Development Bank fulfills its mission: one is the provision of credit to small and medium-size businesses; the other, which goes beyond the financing function, is to help aspiring businesspeople to become full-fledged entrepreneurs. That second dimension, the other side of EDB, involves research, training, technical assistance and help in developing business alliances and networks. It also entails a growing commitment to Corporate Social Responsibility (CSR), a culture of engaging businesses and communities in mutually beneficial projects. In the past year, the Bank made the extra effort to channel its energies to Corporate Social Responsibility, looking at new types of entrepreneurs and new business niches. In particular, the Bank placed great emphasis on the needs of microentrepreneurs, a promising new breed of business enthusiasts with the power to transform entire communities. New banner programs were created to serve micro-businesses, greatly enhancing the portfolio of services offered by the Bank. These include business incubators and arrangements to insert micro-businesses in the value chain of larger, well established enterprises. In addition, the Bank entered an alliance with the foundation of a major financial institution leading to the creation of the Island s first micro-financing entity.

11 2008 Annual Report Economic Development BAnk for Puerto Rico Programs like Puerto Rico Emprende, which includes Siembra el Desarrollo DelPaís, will create production alliances between large companies and new small and micro-businesses, while providing much-needed mentoring and training support to a new breed of small and micro-entrepreneurs. EDB will act as a third partner in these alliances, supplying its business-development expertise and the financial support required by the new ventures. It is a win-win cycle of strong businesses, well-off value chains, superior loans and effective development banking. On the other hand, the Bank, in turn, enhances the quality of its loan portfolio and leverages private expertise to carry out its mission. The guiding principle of all these initiatives is the Bank s commitment to corporate social responsibility. Alliances to stimulate the development of micro-businesses With these new initiatives, the Bank and its business partners are creating a synergy cycle of success. In this cycle, a small new business that wants to become a supplier to a large and well established company, receives an incubation process and support service by the larger partner. This mentoring approach improves the chances of success for the new small firm, while strengthens the links with the larger partner s value chain. On the other hand, the Bank, in turn, enhances the quality of its loan portfolio and leverages private expertise to carry out its mission. entail a new and especially rewarding dimension of social responsibility for the Bank and for the private companies engaged in these arrangements. Business ventures on the very small scale of micro-enterprises not only create jobs and incomes, but also play a critical role in providing a stable economic foundation for all types of communities. Thus, the special new programs for micro-financing and small business incubation are actually grassroots development initiatives, a natural activity for socially conscientious corporations. 9

12 2008 Annual AnnuAl Report Report The very first project under Puerto Rico Emprende is which was set up by inmates of the Guayama 945 Detention Center, while CCE adapted its business programs to the needs of the inmate population. 10 Arte en Concreto, an alliance with CEMEX, a cement producing company and its foundation Fundación Arte en Concreto. This innovative project challenges all sorts of preconceptions about products, markets and entrepreneurs. The program is directed to prison inmates who will need productive employment when their time comes to rejoin the open community. Participants in the program will gain the satisfaction of creating admirable designs and the opportunity to manage their own cooperative businesses. More than anything else, they will get a vehicle to regain their standing as productive members of society. Fundación Arte en Concreto has already established three schools that have graduated several classes of future entrepreneurs. The Bank and Puerto Rico Trade, the CCE by its acronym in Spanish, are partners of CEMEX in this project. EDB has already provided financing seminars for the Arigos Cooperative,

13 2008 Annual Report Economic Development BAnk for Puerto Rico Puerto Rico Emprende is rapidly developing other alliances to promote businesses in trade, tourism, agriculture, manufacturing and services. Several government agencies, including CCE, the Department of Corrections, the Department of Agriculture and the Tourism Company have been invited to develop and champion projects under the program. Participating businesses will be authorized to proudly display the Puerto Rico Emprende logo. Among the initiatives of Puerto Rico Emprende, we also have a plan with the tourism and service sectors in Vieques. There, EDB in conjunction with CCE, are providing technical and entrepreneurship assistance in the incubation process of the microentrepreneurs that will be providing services to the W Hotel; a five star hotel that will be supporting micro-business as part of their supply chain, generating a valuable relationship with the community in Vieques. This enterprise exemplifies, once again, the importance of creating valuable associations among the NGO s (Non Governmental Organization), the private sector and the public sector, where the Reig Capital Foundation is the main sponsor of the project, as part of Reig Capital mission as owners of the W Hotel. We need strong foundations that will foster entrepreneurship in Puerto Rico. By doing this, we build a strong private sector. 11

14 2008 AnnuAl Annual Report Another exciting initiative that is part of Puerto Rico Emprende is Siembra el Desarrollo DelPaís, a name that plays land conditioning, seed selection and othe aspects of modernday farming, while DelPaís will provide the marketing tools, including the brand and the skills needed. on the registered brand name Del País. Local agricultural produce will be marketed under this brand name by Wal-Mart, Sam s Club and Amigo Supermarkets. The produce will come from new agribusiness ventures on 2,300 acres of government-owned prime land in the Coloso Valley of Aguada. A community-based nonprofit organization is working the project with EDB This is an opportunity to bring together a striving group of agribusiness entrepreneurs and a major retailing chain into one common objective, to further develop the agriculture of the Island. 12 and the Department of Agriculture. This is an opportunity to bring together a striving group of agribusiness entrepreneurs and a major retailing chain into one common objective, to further develop the agriculture of the Island. In this allegiance, the Bank will provide loans to finance the operations, and will collaborate with Wal-Mart and the NGO s with training to enhance the business-management skills of the participating farmers. In addition, the Department of Agriculture will provide technical support in The new venture will concentrate on basic foodstuffs that are in high demand in the local market, thus helping to offset the recent increases in the prices of imported produce. In addition, the operation will create an ecologically sound use for good agricultural land that is currently idle. Its potential impact is very significant: it is projected that it may lead to an increase of up to 14% in the local supply of certain foodstuffs.

15 2008 Annual Report Economic Development BAnk for Puerto Rico The Bank is especially proud of its role in a pioneer program: Puerto Rico s first micro-financing entity. In a partnership with the BBVA Microfinance Foundation, EDB launched a new financial institution, EDB s President, CPA Annette M. Montoto Terrassa, the new entity will help to create financial and savings discipline and to promote the economic self-improvement of individuals in very low-income environments. In doing so, the entity will also make direct contribution to economic development at the community level. Corporación para las Microfinanzas - Puerto Rico, that will lend to very low-income entrepreneurs who lack access to traditional banking services. The target population for this program is not eligible for the Bank s more conventional loan offerings, and requires a tailor-made financing vehicle. Moreover, this group of aspiring businesspeople needs training to acquire business skills, technical assistance to develop their products and services, and aid in establishing a A key feature of all these new programs is that they entail the creation of public-private partnerships, often involving the nonprofit element as well. In this respect, the Bank is keeping abreast of the new trends in development finance, which emphasize partnering with socially conscientious private corporations and mission-driven nonprofit endeavors. business network. All of this will be supported 13 by the institution s experienced team of business promotion specialists in conjunction with community based organizations. The BBVA Microfinance Foundation, a social-responsibility initiative of BBVA Bank, will own 75% of the microfinance entity, which is designed to be self-sufficient and sustainable. According to All of this will be supported by the institution s experienced team of business promotion specialists in conjunction with community based organizations.

16 2008 Annual AnnuAl Report 14 In the last year, the Bank was also very active in pursuing new lines of businesses, and found some very rewarding opportunities in cinematography. Puerto Rico offers strong incentives for filmmaking, and these are beginning to pay off handsomely. EDB provided $1.8 million in loans to the producers of The Argentine (Ché), a film starring the Puerto Rican actor Benicio del Toro. About half of the film s total cost of nearly $30 million was spent in Puerto Rico, where most of the filming took place. The estimated economic impact includes the creation of 90 direct jobs and another 100 indirect employment opportunities. Puerto Rico offers negotiable tax credits to the filmmakers that bring their projects to the Island, a very attractive incentive which enhances the local supply of technical talent, good infrastructure and excellent shooting locations. EDB s participation in the project was to finance $1.8 million in anticipated tax credits from production expenditures on the Island. It was the Bank s first tax credit financing in the movie industry. Puerto Rico offers strong incentives for filmmaking, and these are beginning to pay off handsomely. Another filmmaking deal is already in the cards. The renowned actor and producer Tommy Lee Jones visited the EDB following up on conversations from the Cannes Film Festival. At the festival, Mr. Jones announced that he will shoot the movie Islands in the Stream in Puerto Rico during It is expected that the movie will pump fifteen million dollars ($15,000,000) into the local economy, plus the benefit of continuing to advertise Puerto Rico s attractions worldwide. About half of the film s total cost of nearly $30 million was spent in Puerto Rico, where most of the filming took place.

17 2008 Annual Report Economic Development BAnk for Puerto Rico A continuing commitment of EDB is to support the business education of the youth. In this line, the Bank provided a $300,000 line of credit to the Taller de Fotoperiodismo, Inc., a workshop for newspaper photography aimed to young people. The funds were used to buy cameras and for the workshop s summer camps operating investigation institution which has more than 35 countries taking part in entrepreneurship research and how to create public policies in accordance to the global and local economics needs. In this line, the Bank provided a $300,000 line of credit to the Taller de Fotoperiodismo, Inc., a workshop for newspaper photography aimed to young people. expenses. Two government agencies serving the youth sponsored the summer camps, which supported a total of 69 direct and indirect jobs. We have expanded our commitment to research 15 and education by giving the opportunity to doctorate and master degree students to do research of our Bank s products, services and operations, as a way to expand the small and midsize business models in Puerto Rico, where different thesis have been presented not only in Puerto Rico, but in Europe. Also, we have participated and sponsored the Global Entrepreneurship Monitor (GEM), a well established global

18 2008 AnnuAl Annual Report Report Public Service Awards Ceremony celebrated on June In that event, the Governor of Puerto Rico, Hon. Aníbal Acevedo Vilá, accompanied by CPA Annette M. Montoto Terrassa and the Former Executive Director of CCE, Juan M. Román, received the Certificate of Recognition for being finalist in the Category of Improving the Delivery of Services in the public sector. Last year La Llave para tu Negocio, reached their goal of approving financing for more than 1,000 clients. 16 The Bank s constantly expanding activities in support of small and medium size businesses continue to gain the recognition of the community. The Inter American Businessmen Association (Asociación Interamericana de Hombres de Empresa, AIHE), named EDB President, CPA Annette M. Montoto Terrassa, Public Servant of the Year, 2007, citing her performance on behalf of Puerto Rico s businesspeople. In particular, AIHE praised the achievements in the program La Llave para tu Negocio, which enabled hundreds of small entrepreneurs to start a new business or expand an existing venture. At the same time, the Bank was recognized internationally by the United Nations in their On the other hand, the venture capital arm of EDB (Economic Development Bank Capital Investments) intermediated in a $275 million debt issue by Puerto Rico s largest bank, Banco Popular. EDBCI bought Banco Popular s notes and used them to collateralize its own debt issue. The margin on the operation is projected to produce $1.8 million a year in income for EDBCI for a fiveyear period. At the same time, the Bank was recognized internationally by the United Nations in their Public Service Awards Ceremony celebrated on June 2008.

19 2008 Annual Report Economic Development BAnk for Puerto Rico while interest expenses increased 9.96% or $5.2 million. Net interest income increased 29.31%, mostly due to higher investment transactions volumes, as interest rates trended lower during the period. Even though the general economic environment was not strong in the fiscal year, the Bank had impressive financial results. The year s financial highlights are as follows: due to the strategic effort by the management team to increase direct loans, create new loan programs and increase participations with commercial banks and cooperatives. in 2007 to $104.1 million in 2008, while the principal collection on loans increased from $60.7 million to $72.1 million in the same period. 17 year, and the provisions for loan losses were also stable in relation to the size of the loan portfolio. $1,088.5 million in 2007 to $1,312.5 million in 2008.

20 2008 AnnuAl Annual Report From the point of view of operations and financial results, it was a year of significant growth while preserving the quality of the loan portfolio a nd maintaining a good financial margin. 18

21 2008 Annual Report Economic Development BAnk for Puerto Rico In the coming year, EDB will continueto grow hand in hand with Puerto Rico s unbounded entrepreneurial spirit. A whole new set of exciting business lines were opened in the past fiscal year and many more are waiting to be explored. 19

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69 Service AreA Office of the President Business Development Area Bruny Ríos Delgado Manager, Communications & Public Relations Virna L. Rivera Román Manager, Human Resources Jessica Picón Bocanegra Special Assistant to the President Jorge Marti Peña Special Assistant to the President Jorge L. Ramírez Medina Special Assistant to the President Silvia Rivas Mármol Executive Assistant Claritza Gorbea Alonso Confidential Administrative Assistant Finance and Operation Area CPA Juan A. Vargas López Chief Operating and Finance Officer CPA Samuel Carlo Torres Acting Comptroller Nicolás Cruz González Manager, Administrative Services José E. Sánchez Meléndez Manager, MIS Carlos O. Trinidad Rivera Manager, Collateral Administration Ivelisse Acevedo Rivera Treasurer Maritza Fuster Betancourt Supervisor, Properties Administration Enid D. Flores Ruiz, JD Executive Vice President Ramonita Otero Cruz Vice President, Manager Entrepreneur Credit Jessica Nazario Rodríguez Manager, Entrepreneur Banking Center Audit Area CPA George Zambrana Ayala General Auditor Legal Area Elisa M. Alcaraz Emmanuelli, Esq. General Legal Counsel Rafael Lugo Guzmán, Esq. Manager Aixa Díaz Montijo Compliance Officer CPA Eduardo Delgado Robles, Esq. Legal Counsel of Financing Credit Area Vilma Pellot González Executive Vice President Emilio Hernández Mulero Vice President, Manager Special Loans and Collection Cristóbal de la Rosa Auxiliar Vice President, Credit Supervisor Rolando Caudales Cepero Acting Manager, Agricultural Credit Jorge Negrón Sotomayor Manager Board of Directors Jorge Irizarry Herráns Chairman CPA Annette M. Montoto Terrassa President EDB Alberto Bacó Bagué, Esq. Director Hon. Bartolomé Gamundi Cestero Director Boris Jaskille Mújica, Esq. Director Hon. Gabriel Figueroa Herrera Director Terestella González Denton, JD Director José A. Benítez Rodríguez Director Jorge L. Aquino Núñez, Esq. Director Roberto Montalvo Carbia, Esq. Director Sonia Reyes De Jesús, Esq. Secretary Jorge L. Aquino Núñez, Esq. Director 67 Antonio Pérez Aponte Supervisor, Strategic Planning Roberto Montalvo Carbia, Esq. Director PO Box 2134, San Juan, Puerto Rico Aldebarán St., Altamira, San Juan, PR Phone: (787)

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