SBA Loan Profile

CRA Modernization Update: Is Regulator Consensus Attainable?

ecent events have sparked hope discussing all the ideas with fellow R that the regulators responsible for regulators as we work together towards overseeing the Community Reinvestment proposing improvements to the current Act (“CRA”) can reach consensus on key CRA framework.” components of CRA reform and that an inter-agency proposal could be in CRA stakeholders monitoring regulator Mad Monkfish is a sushi and Asian fusion restaurant progress. comments are optimistic that consistent located in a moderate-income census tract in Middlesex County, MA. The borrower self-reported to the Small themes seem to be emerging and that Business Administration (“SBA”) that this SBA 7(a) In March, both the Federal Deposit consensus on key components of CRA loan supported the creation and/or retention of 10 jobs. Insurance Corp (“FDIC”) Chairman reform may be possible. “There’s a real Above, a chef. Jelena McWilliams and Federal Reserve opportunity for momentum here. What (“FED”) Governor Lael Brainard gave we are hearing from agencies is not SBA Loan Profile: Mad separate speeches and shared initial inconsistent with one another, which thoughts on how their agencies are gives us a path towards a proposal,” said Monkfish, Middlesex, thinking about reforming CRA. This Steve Sugarman, senior adviser and chief Massachusetts marked the first time these agencies have counsel at the National Diversity commented on specific CRA reform Coalition. hen portfolio managers at Solomon issues since the Office of the Comptroller W Hess Capital Management of the Currency (“OCC”) took the Some of the consistent themes in (“Solomon Hess”) invest in CRA-eligible unusual step in August of last year to regulator comments include the need to loans on behalf of bank investors, they try to work independently in issuing an Advance assess the role of digital banking in CRA, find loans that not only meet the technical Notice of Proposed Rulemaking the importance of clarifying for banks requirements of the CRA program but also (“ANPR”) to gather public comment what activities qualify for CRA credit, and the spirit under which CRA was created. An about modernizing the CRA. In response the imperative of ensuring that CRA example of the types of loans that Solomon to the two speeches, OCC spokesperson investments go to the communities most Hess acquires is the loan to Mad Monkfish. Bryan Hubbard said, “Comptroller of the in need of credit. All three regulators Currency Joseph Otting looks forward to have reviewed the over (continued on page 2) Mad Monkfish is a casual restaurant that features live jazz located in Central Square in In Memoriam: Anthony J. “Gino” Heilizer Boston, MA. Established in early 2011, the restaurant serves sushi and Asian fusion nthony J “Gino” Heilizer, co- dishes. The sushi is (continued on page 3) A founder of Solomon Hess Capital Management, died from complications of lung cancer on April 19 at his home, surrounded by those who loved him. Gino founded Solomon Hess with Bill CRA Modernization 1-2 Einstein 15 years ago with a mission to provide investors with access to investments in small business loans made In Memoriam 1-2 in conjunction with the SBA 7(a)

program, where the borrower is located in SBA Update 2 an economically distressed community or employs low– or moderate-income SBA Loan Profiles 1-3 persons. Today Solomon Hess has over Above, Gino Heilizer (1968 - 2019) $700 million assets (continued on page 2)

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In Memoriam (from page 1) under CRA Modernization (from page 1) 1,500 management in two funds with over 160 comments to the ANPR and SBA Loan Fund investors. “The success of Solomon Hess acknowledge the call for the agencies to 2018 Impact Report is a true testament to Gino’s intellect, work jointly on CRA reform going creative thinking and determination. To forward. have worked with Gino was a true privilege,” said Bill Einstein. “Gino was a While agreement on broad themes and special person: a remarkable businessman, the intent to work jointly are reasons for a caring husband and father, a generous optimism, it is still uncertain as to citizen of the community and a true whether the regulators can find common friend.” ground in the details. The exact nature of any disagreement between the agencies has always been unclear and the issues of CRA reform are complex. Constituents have raised concerns that if the regulators do not act in tandem, the CRA framework, already fraught with inconsistencies and confusion, will be even more complicated and less effective.

Still, the regulators are signaling that an interagency plan may be possible as early as the beginning of next year. On April he Solomon Hess SBA Loan 3, speaking separately at a conference of T Fund 2018 Impact Report is now a v a i l a b l e for download at the Consumer Bankers Association, www.SolomonHess.com. This report FDIC Chairman McWilliams and highlights the quantifiable impact that the Comptroller of the Currency Otting each fund has made in low– and moderate- expressed confidence that bank income and otherwise economically regulators could agree on a CRA distressed communities nationwide. Since The firm was named in honor of modernization plan by 2020. Without inception in 2004, the fund has invested Gino’s grandfather, Solomon Hess, knowing any specifics of such a plan, it over $1.86 billion in over 3,700 small who owned a small garment factory in may be enough of a win for CRA if the business loans that supported over 52,000 Berlin. The factory was confiscated by regulators do, in fact, act in unison. jobs. the Nazis immediately after Kristallnacht in 1938. Mr. Hess fled to Holland where he and his daughter SBA Update: Jovita Carranza Tapped to Lead (Gino’s mother) spent the war years in the Small Business Administration hiding. Mr. Hess immigrated to the United States in 1947. Above, Solomon Hess with his employees. On April 4, President Donald Trump In her role at the Treasury Department, identified Jovita Carranza, the U.S. Ms. Carranza is an adviser to Treasury Gino was a native of Chicago, IL and a Treasurer, as the next head of the Small Secretary Steve Mnuchin, oversees the graduate of Northwestern University. He Business Administration. This followed Office of Consumer Policy and works earned an MBA from Georgetown Linda McMahon’s announcement on with the Federal Reserve. She previously University’s McDonough School of March 29 that she was stepping down held the deputy administrator position at Business in 1999. Prior to the founding from her position as Small Business the SBA during former President George of Solomon Hess, Gino was a Vice Administrator to return to the private W. Bush’s time in office. President of New Business Development sector. Ms. McMahon’s resignation went with Meridian Investments. Ms. Carranza also spent over 20 years at into effect on April 12. United Parcel Service, where she rose Gino enjoyed life and relished it with an “I am pleased to announce from being a box handler during the energy all his own. He had a true that Jovita Carranza will be night shift to the president of Latin nominated as the new curiosity and was generous in sharing American and Caribbean operations. himself with others, which was reflected Administrator at the @SBAgov,” President in the many connections he made with so Trump tweeted. “Jovita was Ms. Carranza’s nomination must now be many different people. Out of all the a great Treasurer of the approved by the Senate. If confirmed, connections in his life, however, Gino’s U.S.! I look forward to her she will be one of five women in joining my cabinet!” Left, greatest love was for his wife Christina President Trump’s cabinet. and their three children. Jovita Carranza.

SBA Loan Profile: Deering Banjo Company, San Mad Monkfish (from page 1) creatively– named and with a music theme, such as “C Diego, California Jam Blues,” “Sophisticated Lady” and “Mood Indigo.” Live jazz is offered on most weekend nights in the restaurant’s Proceeds of the SBA 7(a) loan were Jazz Baroness Room and the space was used to finance the working capital designed with such performances in mind. needs of the Deering Banjo At the front of the jazz room, overlooking Company. The borrower is located Massachusetts Avenue, is a spacious stage in a moderate-income and CDFI where a grand piano resides on one end. Fund Qualified Investment census The interior features reclaimed old-growth tract. oak, old barn board and plush leather The borrower supports over 50 jobs chairs, fostering a home-like ambiance. and is a woman co-owned business. Owner Jamme Chantler and his musical Left, a banjo player. director Scott Goulding work hard to curate jazz that can be enjoyed by everyone, focusing on singers and lyrical ounded in 1975 by couple Greg and doing instrument repairs at the pianists with their trios. F and Janet Deering, the company American Dream Co-Op. In 1975, Greg specializes in manufacturing hand-crafted and his wife Janet founded the Deering Chantler is invested in women’s banjos of the highest quality and in all Banjo Company in their home. equality and is committed to furthering price ranges. The business is family- the role that jazz can play in the larger Today, the Deering Banjo Company is owned and operated and located in Spring struggle for gender justice. According located in an 18,000 square foot facility Valley, just 10 miles east of downtown to Chantler, 75% of the jazz bands and is one of the largest manufacturers of San Diego. The company offers a full- playing at the Mad Monkfish are led by banjos in the world. range of American-made banjos that are women. Daniela Schachter, Rebecca hand-built by Greg Deering and their The Deerings have admitted that finding Cline, April Hall, Donna Byrne and team of 48 dedicated banjo specialists. success was not always easy and that some Eula Lawrence all have monthly Over the past 48 years, the company has recessions were difficult to get through. residences at the restaurant. made more than 100,000 banjos. “There were times when we didn’t know Proceeds of the SBA 7(a) loan were used where the rent or the groceries were Greg Deering began learning to purchase equipment. The borrower is coming from,” Greg Deering has said. woodworking at age two by watching his located in a moderate –income and CDFI “But somehow we always managed.” Newsletter Sources: father build model airplanes . When Greg Fund Qualified Investment census tract. was 13, he bought his first banjo by When asked what advice she would give This loan supported the creation and/or Witkowski, Rachel. “OCC Goes It Alone investing his paper route earnings. He to women in business, CEO Janet retention of 10 jobs. on First Step toward CRA Overhaul.” made his first banjo as an industrial arts Deering said, “Don’t give up when you www.americanbanker.com/news/occ major at San Diego State College. When are discouraged. Just keep going!” Did you know? Loans he was 19, Greg began building banjos -it made to a recently formed small Berry, Rachel Witkowski_Kate. “Cheat Newsletter Sources: business that promotes economic Sheet: Hopes and Hang /04/04/us/politics/jovita-carranza-small-business- Witkowski, R. (2019, March 19). Are regulators close development qualify for CRA under Reform.” administration.html?rref=collection/timestopic/ to consensus on CRA reform? Retrieved April 22, community development. The most www.americanbanker.com/list/cheat 2019, from https://www.americanbanker.com/news/ SmallBusinessAdministration &action=click&contentCollection=timestopics®ion= -hopes are-regulators-close-to-consensus-on-cra-reform recent set of CRA Q&A published stream&module=stream_unit&version=latest&conte Witkowski, Rachel. “Otting Hopes for Witkowski, R. (2019, April 10). Agencies near ntPlacement=1&pgtype=collection in July 2016 expanded the list of consensus on key elements of CRA reform. Retrieved Joint CRA Rule, but Says OCC Could Go April 26, 2019, from https:// Trump, D. J. (2019, April 05). I am pleased to activities to promote economic It Alone.” announce that Jovita Carranza will be nominated as www.americanbanker.com/news/agencies-near- development if they supported www.americanbanker.com/news/otting consensus-on-key-elements-of-cra-reform? the new @SBAgov Administrator. She will be replacing Linda McMahon, who has done an hopes tag=00000157-6c98-dbdc-afdf-6dddca470000 permanent job creation/retention/ outstanding job. Jovita was a great Treasurer of the -go France, P. (2016, July 19). Janet Deering, CEO, United States – and I look forward to her joining my improvement to include financing Cabinet! Retrieved April 6, 2019, from https:// Sullivan, Kinsey, and Kinsey Sullivan. Deering Banjo Company. Retrieved April 22, 2019, intermediaries that lend to, invest from http://msretailer.com/janet-deering-ceo- twitter.com/realdonaldtrump/ “Your All deering-banjo-company/ status/1113959417765146624?lang=en in, or provide technical assistance ANPR about CRA Reform.” www.themadmonkfish.com www.deeringbanjos.com Morlan, K. (2017, July 19). I Made it in San Diego: to start-ups or recently formed CRA & BSA/AML Compliance Stubborn Confidence Drove Deering Banjo 2018, www.trupointpartners.com/blog/ Jacobs, J. (2019, April 05). Trump Names Jovita Company's Success. Retrieved April 22, 2019, from small businesses or farms1. Carranza, U.S. Treasurer, to Lead the Small Business https://www.voiceofsandiego.org/business/i-made-it occ Administration. Retrieved April 6, 2019, from -in-san-diego-an-early-pact-set-the-stage-for-deering- 1 Q&A__.12(g)(3)-1 rulemaking https://www.nytimes.com/2019 banjo-company/ www.firststateloan.org

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Managing Good Capital Well SBA Loan Fund Maintains Solomon Hess Capital Management (“Solomon Hess”) is an Preferred Return for Q2 at 3.00% The SBA Loan Fund maintained the Q2 Preferred Return at the Q1 level of 3.00% for targeted CRA investments and 3.10% for non-targeted CRA investments. The Preferred Return is re-set each quarter and is annualized and NET of all expenses and fees investors include (including management fee). The level of the Preferred banking institutions of all sizes that are seeking Community Return demonstrates the continued strong performance Development Investment or Lending test credit within the of the SBA Loan Fund’s assets. As of March 31, 2019 the Community Reinvestment Act (CRA) rules via exposure to SBA 7 SBA Loan Fund had $574 million in assets and 121 bank (a) loans and related assets. Other investment opportunities with investors. Solomon Hess include investing in our Absolute Return strategy. We offer our strategies as funds or separate accounts.

2019 Conference Calendar The Solomon Hess SBA Loan Fund LLC attempts to provide its investors with CRA credit related to their participation in the Fund. Investment decisions are CRA & Fair Lending Colloquium not always exclusively based on the economic characteristics or investment merit of November 10-13, Orlando, FL a specific asset. Certain CRA eligible securities sought by the Fund in specific geographies may not provide as great an economic benefit to the Fund as the same www.cracolloquium.com securities located in non-CRA geographies. The Fund may engage in transactions Contact at times for reasons related to CRA considerations that may not be desirable Michelle Lai, Investor Services & Marketing from an investment standpoint. If one or multiple federal banking regulators, such 703.466.0483 as the OCC, FDIC or the Federal Reserve Board, were to deem an investment [email protected] in the Fund as not qualifying for CRA credit, the impact to Fund investors could www.SolomonHess.com be material.

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