CDFI market conditions Q408
CDFI Market Conditions Report Fourth Quarter 2008 Published April 2009
The Opportunity Finance Network CDFI Market Conditions Report is a quarterly publication based on quarterly surveys of community development financial institutions (CDFIs). Opportunity Finance Network began conducting these surveys in October 2008 to better understand the impacts of tight credit markets and the economic downturn on the opportunity finance industry. Each report provides a near-real-time view of market conditions and CDFI responses, analysis of regional and financing sector differences, and analysis of important trends. The 2009 CDFI Market Conditions Report is possible thanks to the generous support of the Ford Foundation.
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CDFI Market Conditions Report Fourth Quarter 2008 Published April 2009 The Opportunity Finance Network CDFI Market Conditions Report is a quarterly publication based on quarterly surveys of community development financial institutions (CDFIs). Opportunity Finance Network began conducting these surveys in October 2008 to better understand the impacts of tight credit markets and the economic downturn on the opportunity finance industry. Each report provides a near-real-time view of market conditions and CDFI responses, analysis of regional and financing sector differences, and analysis of important trends. These data can assist CDFIs and investors alike to plan for the future. This report presents the results of the second consecutive quarterly CDFI Market Conditions Survey conducted in March 2009 and covering the fourth quarter (October – December) of 2008. EXECUTIVE SUMMARY The fourth quarter of 2008 was a period of continued economic decline. A few national statistics provide context for the challenging environment that respondents to the fourth quarter 2008 CDFI Market Conditions Survey operated within. In the fourth quarter, the national unemployment rate rose from 6.2% in the third quarter to 7.2% in the fourth quarter.1 The percentage of mortgages in foreclosure reached 3.30%, up from 2.97% in the third quarter.2 The delinquency rate for loans on one-to-four-unit mortgages rose to a seasonally adjusted rate of 7.88%, up from 6.99% in the third quarter.3 The percentage of FDIC-insured institutions’ loans and leases 30 or more days past due was 4.94%, with the 90 day-plus nonaccrual rate at its highest level since 1992.4 One out of every three FDIC-insured institutions reported a net loss in the fourth quarter. The 118 CDFIs that participated in the fourth quarter 2008 CDFI Market Conditions Survey continued to see demand for their financing rise. Many experienced a decrease in liquidity due to increased originations and difficulty accessing new capital or renewing existing capital. Delinquency and loans in workout rose for many CDFIs. Increasing loan loss reserve ratios, lower interest earnings, and scarce operating grants were creating operating challenges. Compared to the third quarter, more CDFIs expect demand to increase in the future and delinquency to rise. Many expect not to have enough capital to meet demand. Nearly all respondents are implementing strategies to respond to the changing market. They are monitoring their loan portfolios more closely, providing more technical assistance to borrowers, and adjusting risk ratings and reserves. Faced with budget difficulties they are reducing staff travel, professional development, and other operating expenses; revising their 2009/10 budgets; freezing salaries; and creating worst-case contingency plan budgets. They are also developing new financing products to meet demand and to capitalize on opportunities created by the Obama Administration’s economic stimulus package and its focus on the green economy.
1 2 3 4
US Department of Labor, Bureau of Labor Statistics. Mortgage Bankers Association’s (MBA) National Delinquency Survey. Mortgage Bankers Association’s (MBA) National Delinquency Survey. Federal Deposit Insurance Corporation (FDIC) Quarterly Banking Profile
Opportunity Finance Network CDFI Market Conditions Report, Fourth Quarter 2008
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TABLE OF CONTENTS
Executive Summary…………………………………………………………………………………………………..i National Results………………………………………………………………………………………………………1 Results by Financing Sector……………………………………………………………………………………..13 Results by Region……………………………………………………………………………………………………28 Methodology………………………………………………………………………………………………………… 36 Appendices……………………………………………………………………………………………………………..37 NOTE: Addendum 1: Selected Analysis by Size of CDFI is attached at the end of the report.
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I.
NATIONAL RESULTS
The Respondents A total of 118 institutions responded to the survey. Nearly all (108 institutions or 92%) are loan funds; 6 are credit unions, 3 are venture capital funds, and 1 is a bank. Seventy-eight percent of respondents are OFN Members. Thirty-three of the fourth quarter survey respondents also responded to the third quarter survey. Respondents are distributed fairly uniformly across the four U.S. Census Bureau regions, plus one respondent from Puerto Rico. See Appendix A for a list of states included in each region. Figure 1. Number of Respondents by Headquarters Location
40 35 30 25 20 15 10 5 0
35 30
30
22
1 Midwest
Northeast
S outh
W est
P uerto R ic o
Slightly more than half (52%) of the respondents serve primarily urban markets, 28% serve primarily rural markets, and the remaining 20% serve both equally. Respondents provide a range of financing. Recognizing that many CDFIs offer more than one type of financing, the survey requested the primary type. The largest primary sectors are housing to organizations, business, microenterprise, and housing to individuals. The remainder provides primarily commercial real estate, community services, consumer, or other types of finance. Figure 2. Number of Respondents by Primary Financing Sector
B usiness
27
C ommerc ial R eal E state
2
C ommunity S ervic es/F ac ilities
7
C onsumer
6
Housing to Individuals
18
Housing to Organizations
32
Mic roenterprise
22
Other
4 0
5
10
Opportunity Finance Network CDFI Market Conditions Report, Fourth Quarter 2008
15
20
25
30
35
1
Fourth Quarter 2008 Activity Demand: Nearly two-thirds of respondents experienced an increase in demand for financing in the fourth quarter. Sixty-three percent reported an increase in the number of financing applications received, with 17% of these experiencing an increase of 50% or more. Among the remaining respondents, about half saw the number of applications decrease and the other half saw them stay the same. The magnitude of the decrease was less than 50% for all but 2% of respondents. Figure 3. Change in the Number of Financing Applications Received, 4thQ2008 (n = 116)
70%
63%
% of R es pondents
60% 50% 40% 30% 19%
18%
Dec reased
S tayed the S ame
20% 10% 0% Inc reased
Comparing the third and fourth quarter responses, we see that the percentage of CDFIs experiencing an increase in demand fell in the fourth quarter, while the percentage experiencing a decrease rose significantly, from 15% in the third quarter to 24% in the fourth quarter. These data are for the 33 CDFIs that responded to both surveys. Figure 4. Change in the Number of Financing Applications Received, 3rdQ2008 and 4thQ2008 (n = 33)
% of R es pondents
60% 50%
55% 48%
40% 30% 30%
24%
20%
27%
3rd Qtr 2008 4th Qtr 2008
15%
10% 0% Inc reased
Dec reased
S tayed the S ame
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Originations: While 63% of CDFIs received more financing applications in the fourth quarter, only 48% originated more loans/investments. Eleven percent saw a sharp increase in originations of 50% or more. And while 19% received fewer financing applications, a full 30% originated fewer loans/investments; six percent originated fewer than half the number of loans/investments originated in the third quarter. The reductions may be due to liquidity constraints (as described in future questions), the quality of the applications being received, and/or a slower application processing time due to more staff resources being dedicated to monitoring the existing portfolio. Figure 5. Change in the Number of Loans/Investments Originated, 4thQ2008 (n = 115)
% of R es pondents
60% 50%
48%
40% 30%
30%
23%
20% 10% 0% Inc reased
Dec reased
S tayed the S ame
Portfolio Quality: More than half (52%) of respondents saw their delinquencies increase between the third and fourth quarter of 2008, while 39% saw no change and 9% saw delinquencies decrease. A small number (5% of respondents) had increases in delinquencies of more than 50%. As described below, CDFIs with decreases in delinquencies also had the highest charge-off rates, indicating that charge-offs may be the primary reason for the improvement in portfolio quality. Figure 6. Change in Delinquencies, 4thQ2008 (n = 116)
% of R es pondents
60%
52%
50% 39%
40% 30% 20% 9%
10% 0% Inc reased
Dec reased
Opportunity Finance Network CDFI Market Conditions Report, Fourth Quarter 2008
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An analysis of the 33 CDFIs that responded to both the third and fourth quarter surveys shows a sharp increase in the percentage of CDFIs experiencing portfolio quality declines: more than half (55%) in the fourth quarter compared to one-third in the third quarter. Figure 7. Change in Delinquencies, 3rdQ2008 and 4thQ 2008 (n = 33)
% of R es pondents
70% 60%
58%
55%
50% 40%
39% 33%
3rd Qtr 2008
30%
4th Qtr 2008
20% 9%
10%
6%
0% Inc reased
Dec reased
S tayed the S ame
More than half (56%) of CDFIs had more loans/investments in workout in the fourth quarter. Figure 8. Change in the Number of Loans/Investments in Workout, 4thQ2008 (n = 117)
% of R es pondents
60%
56%
50% 40% 40% 30% 20% 10%
4%
0% Inc reased
Dec reased
Opportunity Finance Network CDFI Market Conditions Report, Fourth Quarter 2008
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Among the subset of 32 CDFIs that responded to this question in the third and fourth quarter surveys, there is a dramatic difference in the percentage of CDFIs that saw an increase in workouts: 47% in the third quarter and 69% in the 4th quarter. None had a decrease, and only 31% saw no change, down from 53% in the third quarter. Figure 9. Change in the Number of Loans/Investments in Workout, 3rdQ2008 and 4thQ 2008 (n = 32)
80%
69%
% of R es pondents
70% 60% 50%
53% 47%
40%
3rd Qtr 2008
31%
4th Qtr 2008
30% 20% 10%
0%
0%
0% Inc reased
Dec reased
S tayed the S ame
One of the ways that CDFIs are managing troubled loans is by granting term extensions. Just over half (51%) of respondents granted more term extensions in the fourth quarter than in the third quarter. Most of the remainder (46%) granted an equal number of term extensions; only 3% granted fewer. Of those that granted more extensions, 9% granted at least 50% more extensions than in the previous quarter. Figure 10. Change in the Number of Loans Given Term Extensions, 4thQ2008 (n = 116)
60% % of R es pondents
51% 50%
46%
40% 30% 20% 10%
3%
0% Inc reased
Dec reased
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To protect themselves against the rising risk in their portfolios, 43% of respondents increased their loan loss reserve ratio ($ loan loss reserve / $ loans outstanding). Figure 11. Change in Loan Loss Reserve Ratio, 4thQ2008 (n = 116)
% of R es pondents
50%
45%
43%
40% 30% 20%
12%
10% 0% Inc reased
Dec reased
S tayed the S ame
Like the larger financial services industry, CDFIs’ fourth quarter 2008 portfolio at risk statistics are noticeably weaker than historical figures. The CDFI Data Project (CDP) collected fiscal year 2007 portfolio aging statistics from 131 loan funds and one venture fund. On average, these CDFIs reported 5.3% portfolio at risk: 1.4% at 30 – 60 days, 0.9% at 60 – 90 days, and 4.0% at 90 days or more. One year later, CDFIs are reporting 11.1% portfolio at risk on average. While average portfolio at risk statistics are not available for FDIC-insured institutions, the trend is similar: the aggregate portfolio at risk for all FDICinsured institutions jumped by 77% between December 2007 and December 2008.5 The CDFI Market Conditions Survey collected December 31, 2008 aging statistics on CDFIs’ loan portfolios. The response rate on this question was lower than the others, with 99 (84%) respondents providing these data. For all respondents, 11% of portfolio is at risk (defined as the balance outstanding of loans with payments 30 or more days past due divided by total loans oustanding). Breaking these data down into several categories, it is notable that the 90 plus days category is the largest portion at risk in every category, ranging from 57% to 71% of total portfolio at risk. This finding holds true in all of the breakouts provided in the regional and sectoral sections of this report except for one, indicating persistent delinquency and the likelihood of more write-offs among all groups of CDFIs.
5
Average refers to the sum of each individual institution’s portfolio at risk percentage divided by the number of institutions; aggregate refers to the sum of all institutions’ portfolio at risk dollars divided by the sum of all institutions’ dollar amount of loans outstanding.
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Table 1 shows portfolio at risk for all respondents as well as for respondents that reported increasing, decreasing or no change in delinquency in the fourth quarter. The lower portfolio at risk (9.7%) of CDFIs that reported increasing delinquency in the fourth quarter signals that CDFIs with generally stronger portfolios saw performance issues in the fourth quarter. CDFIs serving primarily rural markets had lower portfolio at risk than CDFIs serving primarily urban markets (9% versus 12%); however, a greater portion of rural CDFIs’ portfolio at risk was in the in the 90 plus days category (68% for rural CDFIs versus 59% for urban CDFIs). Table 1. Average Portfolio at Risk, 4thQ2008
All Respondents Respondents reporting increased delinquency in the 4th Quarter Respondents reporting decreased delinquency in the 4th Quarter Respondents reporting no change in delinquency in the 4th Quarter
n 99
30-60 days 2.7%
60-90 days 1.7%
90+ days 6.7%
Total Portfolio at Risk 11.1%
49
2.7%
1.5%
5.5%
9.7%
10
2.3%
1.7%
10.0%
14.0%
40
2.8%
2.0%
7.3%
12.1%
Average fourth quarter charge-offs equalled 1.7% of portfolio outstanding. Average charge-offs were highest (4.8%) for CDFIs that also reported a decrease in their delinquency. Like overall portfolio at risk, fourth quarter charge-offs were lower for rural CDFIs than urban CDFIs (1.0% versus 1.8%). There is no comparable data available for 2007. Table 2. Average Charge-offs, 4thQ2008 All Respondents Respondents reporting increased delinquency in the 4th Quarter Respondents reporting decreased delinquency in the 4th Quarter Respondents reporting no change in delinquency in the 4th Quarter
n 104
Charge-Offs 1.7%
55
1.8%
10
4.8%
39
0.9%
Liquidity: Nearly half (47%) of respondents report that they are capital-constrained: 15% are debtconstrained, 14% are equity-constrained, and 25% have both debt and equity constraints. Of the 93 respondents that tried to access capital in the fourth quarter through new investments or renewals, 40% reported that their ability to access capital had decreased; 19% reported that their ability had increased, and 41% reported no change. Average cost of borrowed capital remained constant for 72% of respondents; those that experienced a change were nearly equally divided between an increase in average cost (15%) and a decrease (13%). Increases were in part due to increased interest rates on Program Related Investments (PRIs), lines of credit, and equity equivalent investments (EQ2). The most common reason for decreases was lower rates on variable interest loans.
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Change in liquidity varies greatly among respondents. Forty-two percent reported a decrease in liquidity, more than one-quarter (28%) reported an increase in liquidity, and nearly one-third (31%) reported no change. Among those with decreased liquidity, nearly one-fifth experienced a reduction of 50% or more; the most common reason cited by this fifth was bank investors not renewing loans. Figure 12. Change in Capital Liquidity, 4thQ2008 (n = 118)
% of R es pondents
50%
42%
40% 30%
31%
28%
20% 10% 0% Inc reased
Dec reased
Opportunity Finance Network CDFI Market Conditions Report, Fourth Quarter 2008
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Outlook for the Next Quarter The survey asked CDFIs to comment on their outlook for the next quarter and what steps they are taking to respond. Compared to the third quarter, more CDFIs expect demand to increase in the future and delinquency to rise. Many expect not to have enough capital to meet demand. Nearly all respondents are implementing strategies to respond to the changing market and several reported that they see opportunities related to neighborhood stabilization, and the Obama Administration’s economic stimulus package and focus on the green economy. “We are simply using the most conservative assumptions in all our budgeting work -- lowest loan revenues, higher delinquency, more loan loss. However we see a fair-to-good amount of capital available (stimulus) and our cost of capital has remained steady.” Portfolio Quality: Fifty-seven percent of respondents expect their portfolio quality to deterioriate in the next quarter. The reasons reported include unemployment in the market hurting their business clients, unemployment among their single-family mortgage borrowers, lack of takeout financing for real estate deals, decreasing revenue and cash flow of nonprofit clients, business clients losing jobs that supplement their business income, and the fact that borrower requests for loan modifications were starting to rise in the fourth quarter. Nearly one-third (30%) of respondents expect their portfolio quality to remain the same in the next quarter. One fourth (26%) expect it to improve. The reasons for improvements include: financing lessrisky deals that banks are no longer financing, tighter lending criteria, successful workouts that are resulting in repayments, hiring an additional technical assistance provider, and receiving best practices technical assistance from a more experienced CDFI. The full range of responses is reported in Figure 13. Percentages add up to more than 100% because respondents were allowed to provide multiple responses. Fourteen respondents answered that they expected their portfolio quality both to improve and to deteriorate; these respondents see trends that will lead portfolio quality to deteriorate, but also have taken steps that they believe will help portfolio quality improve. Figure 13. Do you anticipate that your portfolio quality is likely to change over the next quarter and if so why? (n = 115)
S tay the same
30% 24%
‐ Unemployment hurting business c lients ‐ Unemployment among mortgage borrowers
16%
‐ L ac k of takeout financ ing
14% 17%
‐ Other + F inanc ing less‐risky deals
16%
+ Tightened our lending c riteria
15%
+ Other
7% 0%
5%
Opportunity Finance Network CDFI Market Conditions Report, Fourth Quarter 2008
10% 15% 20% 25% 30% 35%
9
Demand: Eighty-four percent of respondents expect demand to increase in the next quarter, the highest response rate of any question in the survey. The primary reason provided was that demand is increasing because banks are not lending. The second most common reason was an expected increase in neighborhood stabilization activity, resulting in new financing opportunities including rehabilitation loans for foreclosed properties. Comments include: “Demand has steadily increased. There is no indication the trend will not continue”. “We expect to screen more inquiries from businesses that are unable to secure additional financing from banks.” CDFIs are being “called to fill in the gaps.” Figure 14. What is your sense of how demand for your organization's financing will change in the next quarter? (n = 117)
E xpec t demand to stay the same
12%
E xpec t demand to dec rease
5%
E xpec t demand to inc rease
84%
0%
20%
40%
60%
80%
100%
Liquidity and Operating Challenges: Most CDFIs expect to experience new capital liquidity and/or operating difficulties in the next quarter. They are primarily concerned about having insufficient capital to meet growing demand, having fewer operating grants available to cover operations, and increasing loan loss reserves to cover problem loans. With respect to loan loss reserves, they are particularly concerned that increasing loan loss reserves are reducing available capital to lend, causing operating deficits and, to a lesser extent, causing net assets to drop below the level required by existing loan covenants. CDFIs also cited the cost of capital, their capacity to manage problem loans, and bank renewals as causes difficulties. Thirty seven percent expect to have a decline in unrestricted net assets (an unrestricted loss) in their current fiscal year, primarily due to increases in loan loss reserves and shortfalls in operating income, including grants and earned interest on idle funds; however, two-thirds (67%) reported that if market-rate debt capital or bond-financing were made available to them, they would have a sufficient level of net assets to support it. “The cost of our capital from some sources has increased sharply. We may have issues in doing asset liability matching in the short run.” “Continued difficulties raising lending capital. Possible issue with PRI that matures this year.” “Tighter gross margins from declining yield on assets, both loan and investments” One CDFI does not expect difficulties in the next quarter because it “took an operating deficit last year to fund reserves.”
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The full range of concerns is presented in Figure 15. Figure 15. If you expect your CDFI to experience new capital liquidity or operating difficulties in the next quarter, please explain why. (n = 101) We won’t have enough capital to meet growing demand
59% 52%
We have fewer operating grants to cover operations Increasing loan loss reserves
47%
Our cost of borrowed capital is rising
28% 26%
We don’t have enough staff to manage problem loans Bank investors are not renewing our loans
18%
Bank investors are requiring that we secure their loans
6%
Other (please specify):
17% 0%
10%
20%
30%
40%
50%
60%
70%
CDFIs are responding to expected liquidity and operating challenges in a number of ways as shown in Table 3. Included in the Other category are: cost sharing arrangements with partner organizations, hiring a consultant to review their CARS™ feedback and assist them in designing a strategic plan to guide them through this period, and participating a larger percentage of loan originations back to investor banks. Two CDFIs mentioned mergers: one is considering a merger and another has begun merger negotiations. Table 3. If you expect your CDFI to experience new capital liquidity or operating difficulties in the next quarter, what are you doing about them. (n = 104) 77% Seeking new grant funding 60% Reducing other operating expenses 47% Reducing staff travel and professional development expenses 44% Revising our 2009/10 budget 30% Freezing salaries Creating a worst-case, contingency plan budget to plan for dramatic downsizing if it becomes necessary Reducing loan sizes and/or terms Implementing a hiring freeze
28%
Contracting consultants instead of hiring new staff Laying off staff Requesting loan/investment covenant waivers
14%
21% 18% 12% 8%
We have not implemented any new actions in response to the 6% changes 2% Requesting forbearance from existing lenders/investors 14% Other Note: Percentages do not add up to 100% because respondents were allowed to provide more than one response.
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CDFI Response to Liquidity and Operating Challenges: Nearly all respondents are implementing strategies to respond to the changing market. The most common response is increased monitoring of the loan portfolio, followed by increased emphasis on technical assistance to borrowers, and adjusting risk ratings. A complete list of responses is provided in Figure 16. Responses in the Other category include increasing fee-for-service work and increasing marketing to potential clients and investors, and seeking new funding from the CDFI Fund through grants and the New Markets Tax Credit (NMTC) Program. Figure 16. What new business strategies and/or activities is your organization using to respond to changing market conditions? (n = 115) 85%
Monitoring borrowers more c losely P roviding additional tec hnic al assistanc e
58%
Adjusting risk ratings and reserves
54%
C onduc ting an organizational “stress test,” periodic sensitivity analysis, and/or a portfolio evaluation
49%
Tightening c redit requirements
41%
P artic ipating in loans with banks or C DF Is
39%
Developing new financ ing produc ts
30%
R e‐appraising c ollateral
26%
S elling partic ipations to other banks or C DF Is
17%
Other
11%
Have not implemented any new strategies or ac tivities
4% 0%
10% 20% 30% 40% 50% 60% 70% 80% 90%
Thirty percent have introduced or are planning to introduce new financing products. The most common types of products reported were neighborhood stabilization and foreclosure recovery related products, green finance products, bridge loans, and becoming an SBA 504 and/or 7(a) lender. Only six CDFIs that responded to this question reported that they did not implement any new strategies or activities in the fourth quarter to respond to changing market conditions; of these six, two reported that they expect to have operating and liquidity difficulties in the next quarter, and one reported that they do not expect to have difficulties in the next quarter because they took major steps in the third quarter to address challenges. The survey asked “what other important changes, patterns, or trends are influencing how you plan to approach your work in the next two quarters?” The most common response was the Obama Administration’s economic stimulus package. Other responses included the Federal Reserve Board’s efforts to increase bank lending, approval of Federal Home Loan Bank membership for CDFIs, and neighborhood stabilization. Concern about credit quality and increased monitoring of borrowers were other common themes. The next two sections of this report present the results by primary financing sector and by region.
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II. RESULTS BY PRIMARY FINANCING SECTOR There are a sufficient number of respondents to allow for analysis of results for six primary financing sectors: Business, Community Services/Facilities, Consumer, Housing to Individuals, Housing to Organizations, and Microenterprise. A breakdown is not provided for Commercial Real Estate because only two respondents selected it as their primary financing category. Of the four respondents that selected the Other category as their primary financing sector, we moved two into Business and one into Housing to Individuals based on their explanation of Other; only one CDFI that selected Other as its primary financing sector is not included in sector analysis. In total, 115 of the 118 respondents are included in the sectoral analysis. There are a sufficient number of respondents in the Business and Housing to Organizations sectors to further breakout these two sectors by region. The survey attempted to collect portfolio aging data for each respondent’s entire portfolio and for several specific portfolios: 1-4 family residential mortgage portfolios, multi-family housing portfolios, and -- for CDFIs that do not engage in housing finance – primary financing sector portfolio. The response rate on these questions was lower than the others, with 99 (84%) respondents providing aging data for their entire portfolio and 86 (73%) providing one or more breakouts. Twenty-four (20%) respondents provided aging data for their 1-4 family residental mortgages, 35 (30%) provided these data for their multi-family housing portfolios, 19 (16%) for microenterprise portfolios, and 15 (13%) for business portfolios. A much smaller number – one to six respondents – provided aging data on other primary financing sectors. We opted not to present the data for the primary financing sectors with six or fewer respondents due to the unreliability of such small sample sizes; instead, we present the aging data each CDFI provided for its entire portfolio and present this by the CDFI’s primary financing sector. We treat the business portfolio data in the same manner because these data are substantially the same as the data provided for the greater number of CDFIs that primarily finance business. See Appendix B for detailed responses by primary financing sector. Business More than any sector except Community Services, Business CDFIs saw the number of applications increase. More Business CDFIs had a larger number of originations in the fourth quarter than any other sector except microenterprise CDFIs. Figure 17. Business CDFIs’ Changes in Number of Financing Applications and Originations, 4thQ2008 (n = 27, 28)
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Portfolio Quality: Delinquencies, workouts and term extensions each rose for slightly more than half of Business CDFIs. At the end of 2008, Business CDFIs had on average 12% portfolio at risk: 2.6% at 30-60 days, 1.8% at 60-90 days, and 7.6% at 90 days or more. Average fourth quarter charge offs were 0.9%. Forty percent increased their loan loss reserve ratio in the fourth quarter, including four percent that increased their ratio by more than 50%. Figure 18. Business CDFIs’ Changes in Delinquencies, Workouts, and Term Extensions, 4thQ2008 (n = 27, 29, 27)
Liquidity: More than half (55%) of business CDFIs are capital-constrained. The average cost of borrowed capital increased for 14% of CDFIs and stayed the same for the rest. Liquidity fell for 45% of business CDFIs. For the 72% that tried to access new capital, 38% reported a decline in access. Figure 19. Business CDFIs’ Changes in Access to Capital and Capital Liquidity, 4thQ2008 (n = 29)
Twenty-nine percent of Business CDFIs expect a loss in unrestricted net assets in their current fiscal year. The next section analyzes differences among Business CDFIs headquartered in the four regions of the country.
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Business CDFIs by Region Business CDFIs are headquartered in all four regions, with nine in the Northeast, eight in the West, and six each in the Midwest and South. Portfolio Quality: Increases in delinquencies were concentrated in the Northeast and Midwest. Twothirds of Business CDFIs in the Midwest and 75% of CDFIs in the Northeast reported that their delinquency rates rose in the fourth quarter. Rates were significantly lower in the South and West, with only 33% of Business CDFIs in the South and 29% of CDFIs in the West reporting increases. The percentage of CDFIs reporting an increase in loans in workout was highest in the South (67%). Figure 20. Business CDFIs’ Increases in Delinquencies and Workouts by Region, 4thQ2008
Average portfolio at risk ranged widely across the regions. It was lowest in the Midwest (2.8%) and signficantly higher in the South (22%). The regions with the highest delinquency rates, the South and the Northeast, also had the highest charge-off rates. It is important to take into account that many Business CDFIs also finance microenterprises and that this may in part explain their overall delinquency rates. In fact, only 33% of Business CDFIs in the Midwest, where delinquency and charge-offs are the lowest, also provide microenterprise loans; in contrast, in the South and Northeast, where delinquency rates are highest, 66% and 88% of Business CDFIs, respectively, also do microenterprise lending. Table 4. Business CDFIs’ Average Portfolio Quality by Region, 4thQ2008 Midwest Northeast South West 30-60 days
1.0%
3.6%
3.7%
1.4%
60-90 days
0.4%
2.4%
2.8%
1.1%
90+ days
1.4%
7.7%
15.5%
4.2%
Total Portfolio at Risk
2.8%
13.7%
22.0%
6.7%
Charge-offs
0.1%
1.7%
1.2%
0.2%
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Liquidity: Capital constraints are more severe in the Northeast than in other regions. Two-thirds (67%) of Northeast Business CDFIs are capital-constrained and more than half (56%) experienced a decrease in liquidity in the fourth quarter. Among CDFIs that attempted to access new or renewal capital, two-thirds reported that their access had declined. In each of the other regions, 50% of CDFIs reported being capital-constrained, and only 20% to 33% reported a decline in access to new or renewal capital. Figure 21. Business CDFIs’ Decreases in Access to Capital and Capital Liquidity by Region, 4thQ2008
Community Services/Facilities Seven survey respondents provide primarily Community Services/Facilities financing. With this small sample size, survey results may not be representative of the broader population of Community Services/Facilities CDFIs. Demand: Among survey respondents, a higher percentage of Community Services/Facilities CDFIs experienced an increase in the number of financing applications received than any other financing sector. Eighty-six percent had an increase in applications received; nearly one-third (29%) of these experienced a 50% or higher increase. Originations were up for 43% of Community Services/Facilities CDFIs in the fourth quarter, a lower percentage increase than in three of the other five financing sectors. Nearly onethird of the Community Services/Facilities CDFIs that originated more loans originated at least 50% more.
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16
Figure 22. Community Services/Facilities CDFIs’ Changes in Number of Financing Applications and Originations, 4thQ2008 (n = 7)
Portfolio Quality: The percentage of Community Services/Facilities CDFIs reporting an increase in delinquencies (43%) was lower than any other financing sector. Average portfolio at risk was 7.6% (1.2% at 30-60 days, 0.1% at 60-90 days, and 6.4% at 90 days or more).6 The percentage of CDFIs reporting an increase in the number of loans in workout (71%) was higher than any other sector. More than half (57%) reported an increase in the number of loans given term extensions. CDFIs expect portfolio quality to decline in the next quarter due to the economy’s impact on nonprofits: “Higher unemployment may mean more business for our clients, but business from clients who have no insurance to pay for services.” “Nonprofit clients will continue to experience decreased revenue resulting in cash flow pressure which will impact our portfolio.” Figure 23. Community Services/Facilities CDFIs’ Changes in Delinquencies, Workouts, and Term Extensions, 4thQ2008 (n = 7)
6
Figures do not add up to 7.6% due to rounding.
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Liquidity: For those Community Services/Facilities CDFIs that attempted to access new or renewal capital, 60% saw no change in the ability to access capital. Liquidity stayed the same for 43% of respondents and decreased for an equal percentage. The average cost of capital decreased for three (43%) of the seven Community Service/Facilities CDFIs in the sample due to lower variable interest rates and a CDFI Fund award. For most other financing sectors, the vast majority of respondents experienced no change in the average cost of capital. Figure 24. Community Services/Facilities CDFIs’ Changes in Access to Capital and Capital Liquidity, 4thQ2008 (n = 7)
Consumer Six survey respondents primarily provide Consumer Finance products. Five of these Consumer Finance CDFIs are credit unions and one is a loan fund. With this small sample size, survey results may not be representative of the broader population of Consumer Finance CDFIs. Two-thirds of Consumer CDFIs anticipate a loss in unrestricted net assets in their current fiscal year, significantly more than CDFIs in any other sector. Demand: Unlike CDFIs in other sectors, Consumer CDFIs overwhelmingly experienced a decrease in the number of applications received and new originations. Only one credit union had an increase in applications and originations, and one other had no change in either. In spite of the decline in applications, most expect demand to increase or stay the same in the next quarter.
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Figure 25. Consumer CDFIs’ Changes in Number of Financing Applications and Originations, 4thQ2008 (n = 6)
Portfolio Quality: Half of Consumer CDFIs saw an increase in delinquencies and half reported an increase in workouts. Two-thirds reported an increase in the number of term extensions granted, implying that term extensions are increasingly being used to resolve workouts. Fourth quarter portfolio at risk figures were provided by only one Consumer CDFI and are therefore not reported. Figure 26. Consumer CDFIs’ Changes in Delinquencies, Workouts, and Term Extensions, 4thQ2008 (n = 6)
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Liquidity: One-third of Consumer CDFIs report that they are capital-constrained, the lowest percentage of any financing sector. None have experienced a decrease in access to capital, a reflection of their primary source of capital – member and non-member deposits – staying the same or increasing. Equal numbers have experienced an increase, decrease, or no change in liquidity. Figure 27. Consumer CDFIs’ Changes in Access to Capital and Capital Liquidity, 4thQ2008 (n = 6)
Housing to Individuals Seventeen respondents provide primarily Housing to Individuals. Nearly half (47%) of these had an increase in applications, including 18% with an increase of more than 50%. Half had a higher number of originations in the fourth quarter. More than one-quarter (28%) originated fewer loans than in the third quarter, including 17% whose number of originations dropped by more than half. Figure 28. Housing to Individuals CDFIs’ Changes in Number of Financing Applications and Originations, 4thQ2008 (n = 17,18)
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Portfolio Quality: The percentage of CDFIs whose delinquencies increased in the fourth quarter (61%) was higher than any other financing sector. Six percent saw their delinquency rate increase by at least 50%, a greater portion of CDFIs with an increase of this magnitude than in any other sector except Business. Average delinquency rates were among the highest, with total portfolio at risk equal to 12.7% (4.3% at 30-60 days, 3.0% at 60-90 days, and 5.4% at 90 days or more). Twenty-four CDFIs that provide one to four family residential mortgages reported aging data for these portfolios. Average portfolio at risk was lower in these portfolios than for the overall portfolios of Housing to Individuals CDFIs: 6.6% portfolio at risk (2.0% at 30-60 days, 1.0% at 60-90 days, and 3.6% at 90 days or more). A possible explanation is that several Housing to Individuals CDFIs also do Microenterprise and/or Business lending, the two types of lending with the highest delinquency rates. Nearly half (47%) of Housing to Individuals CDFIs had a higher number of workouts and more than a quarter (25%) had a higher number of term extensions in the fourth quarter. Figure 29. Housing to Individuals CDFIs’ Changes in Delinquencies, Workouts, and Term Extensions, 4thQ2008 (n = 18, 17, 18)
Liquidity: More Housing CDFIs – both Housing to Individuals and Housing to Organizations – are facing liquidity challenges than any other type of CDFI. Among Housing to Individuals CDFIs, fifty-six percent reported that liquidity had decreased, including 22% that reported liquidity declining by at least 50%. Sixty-one percent of Housing to Individuals CDFIs reported that they are capital-constrained. Of the CDFIs that tried to access new capital, 64% reported that it was harder to access. This is far more than in any other financing sector (the next closest being 40% of Community Services/Facilities CDFIs). Seventeen percent expect liquidity challenges in the coming quarter, with one of the main reasons being that bank investors are not renewing loans.
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Figure 30. Housing to Individuals CDFIs’ Changes in Access to Capital and Capital Liquidity, 4thQ2008 (n = 18)
Fifty percent of Housing to Individuals CDFIs expects a loss in unrestricted net assets in their current fiscal year. Housing to Organizations CDFIs that provide primarily Housing to Organizations comprise 33 survey respondents. Demand: Slightly more than half of Housing to Organizations CDFIs received more financing applications in the fourth quarter. Thirty percent originated more loans; a higher percentage – 39% – originated fewer loans. Figure 31. Housing to Organizations CDFIs’ Changes in Number of Financing Applications and Originations, 4thQ2008 (n = 33)
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Portfolio Quality: Forty-five percent of CDFIs reported that delinquency rose. Average delinquency rates were the lowest of any financing sector, with average portfolio at risk equal to 6.9% (1.4% at 3060 days, 0.9% at 60-90 days, and 4.5% at 90 days or more). Average fourth quarter charge-offs were also the lowest of any sector at 0.2%. The survey also collected portfolio aging data on the multi-family housing portfolios of 35 CDFIs that finance multi-family housing as their primary or non-primary activity. Average portfolio at risk was even lower in the multi-family portfolios than for the overall portfolios of Housing to Organizations CDFIs: 4.3% portfolio at risk (0.4% at 30-60 days, 1.1% at 60-90 days, and 2.7% at 90 days or more). More than half of Housing to Organizations CDFIs reported increases in workouts and an equal percentage reported an increase in the number of term extensions given. Figure 32. Housing to Organizations CDFIs’ Changes in Delinquencies, Workouts, and Term Extensions, 4thQ2008 (n = 33)
Liquidity: Like Housing to Individuals CDFIs, 61% of Housing to Organizations CDFIs is capitalconstrained. One-third report that liquidity has decreased. Thirty-nine percent of CDFIs that tried to access new capital reported that it was more difficult; an equal number reported that access had stayed the same. The average cost of capital decreased for one-quarter of CDFIs. Reasons for the decrease include lower rates on variable rate loans, repayment of an expensive line of credit, and in one instance, securing a new, lower-cost source of capital.
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Figure 33. Housing to Organizations CDFIs’ Changes in Access to Capital and Capital Liquidity, 4thQ2008 (n = 33)
The next section analyzes differences among Housing to Organizations CDFIs headquartered in the four regions of the country. Housing to Organizations by Region The 33 Housing to Organizations CDFIs are headquartered in all four regions, with seven in the Northeast, nine each in the West and the Midwest, and eight in the South. Portfolio Quality: Portfolio quality is weakest in the South. A high percentage of CDFIs in the South also reported increases in deliquencies and loans in workout. While CDFIs in the West reported the highest incidence of increases in delinquencies, their average portfolio at risk remained the lowest of any region. Figure 34. Housing to Organizations CDFIs’ Increases in Delinquencies and Workouts by Region (n = 33)
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CDFIs in the South had on average 10.3% portfolio at risk, of which 7.4% was 90 days or more past due. Six of the nine CDFIs in the South anticipate that portfolio quality will worsen in the next quarter, with five of them attributing the decline to lack of takeout financing for projects they are invested in. Table 5. Housing to Organizations CDFIs’ Average Portfolio Quality by Region Midwest Northeast South West 30-60 days
1.0%
1.7%
1.7%
1.1%
60-90 days
1.2%
1.1%
1.2%
0.2%
90+ days
4.4%
3.9%
7.4%
1.6%
Total Portfolio at Risk
6.6%
6.7%
10.3%
2.8%
Charge-offs
0.0%
0.3%
0.2%
0.2%
Liquidity: More CDFIs in the West and the Northeast reported increasing difficulties in accessing new or renewal capital than in other regions. In the West, one CDFI reported that banks were not making new investments and another reported concern that a PRI is maturing. In the Northeast, three reported that banks were not renewing loans. CDFIs in the Midwest fared much better, with only 14% reporting that their access to capital had declined and an equally low percentage reporting a decline in liquidity; 43% reported that their access to capital had increased. In the South, fewer than half (44%) reported that they are capital-constrained. Figure 35. Housing to Organizations CDFIs’ Decreases in Access to Capital and Capital Liquidity (n = 28, 33)
Microenterprise Demand: Like Business and Community Services/Facilities CDFIs, CDFIs that primarily finance microenterprises experienced a dramatic increase in demand in the fourth quarter. “Tighter credit from traditional lenders have driven people to us. [People who have been] Laid off and those who have had losses to retirement accounts [are] trying to supplement income as entrepreneurs.”
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Seventy-seven percent of Microenterprise CDFIs had an increase in the number of financing applications, of which 41% had an increase of more than 50%. Two-thirds (67%) originated more loans in the fourth quarter than in the previous quarter, with 24% originating more than 50% more loans. Figure 36. Microenterprise CDFIs’ Changes in Number of Financing Applications and Originations, 4thQ2008 (n = 22, 21)
Portfolio Quality: Delinquency rates increased for half of the Microenterprise CDFIs and decreased for 18%. As is historically the case for CDFIs that primarily finance microenterprises, average delinquency rates were the highest of any financing sector. Average portfolio at risk was 15.9% (3.8% at 30-60 days, 2.1% at 60-90 days, and 10.1% at 90 days or more). Nineteen CDFIs provided portfolio at risk data for their microenterprise portfolios. Portfolio at risk was even higher in these portfolios at 17.5% on average (3.9%. at 30-60 days, 2.4% at 60-90 days, and 11.3% at 90 days or more). Most CDFIs anticipate that portfolio quality will decline in the coming quarter, primarily due to increasing unemployment in the market hurting their clients’ business sales. Loans in workouts and term extensions increased for the majority of CDFIs, 68% and 73%, respectively. Figure 37. Microenterprise CDFIs’ Changes in Delinquencies, Workouts, and Term Extensions, 4thQ2008 (n = 22)
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Liquidity: Forty-one percent of Microenterprise CDFIs are capital-constrained. Nearly one-third (32%) reported a decrease in their access to new or renewal capital and 45% experienced a decrease in liquidity. Figure 38. Microenterprise CDFIs’ Changes in Access to Capital and Capital Liquidity, 4thQ2008 (n = 22)
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
45% 37% 32%
32% 32% 23%
% Inc rease % Dec rease % S ame
Ac c ess to C apital
C apital L iquidity
One-quarter of Microenterprise CDFIs expects a loss in unrestricted net assets in the current fiscal year, a lower percentage than any other financing sector.
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III. RESULTS BY REGION All 118 respondents are included in the regional analysis. For purposes of regional analysis, the respondent from Puerto Rico is included in the South region. Table 6. Respondents by Region, 4thQ2008 % of CDFIs in Region
# of CDFIs
22 19% 35 30% 31 26% South* 30 25% West 118 100% Total *Includes one respondent located in Puerto Rico. Midwest
Northeast
Regional results may be influenced by the distribution of CDFIs in each primary financing sector: regions with a heavy concentration of microenterprise CDFIs may have higher delinquency rates in part because microenterprise portfolios tend to have higher delinquency rates than other portfolios due to their higher risk profile. For each region, we provide the percentage of CDFIs in each primary financing sector. See Appendix C for more detailed information on responses by region, including breakdowns of Census Bureau divisions within each region. Midwest The 22 Midwest CDFIs that responded to the survey are concentrated in Business and Housing to Organizations finance.
Community Services / Facilities
Consumer
Housing to Individuals
Housing to Organizations
Micro-enterprise
Other
Total
% of Region
Commercial Real Estate
# of CDFIs
Business
Table 7. Sectoral Composition of Midwest CDFIs, 4thQ2008
6 27%
0 0%
3 14%
1 5%
2 9%
7 32%
3 14%
0 0%
22 100%
Thirty-eight percent of Midwest CDFIs expect a decline in unrestricted net assets in their current fiscal year. Demand: Slightly more than two-thirds (68%) of Midwest CDFIs received more financing applications in the fourth quarter than in the third quarter; only in the West did more CDFIs (69%) experience an increase in applications. Fifty-two percent originated more loans, including 10% that originated more than 50% more loans.
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Figure 39. Midwest CDFIs’ Changes in Number of Financing Applications and Originations, 4thQ2008 (n = 22, 21)
Portfolio Quality: The delinquency rate increased for 41% of Midwest CDFIs, including 10% whose delinquency increased by more than 50%. Forty-five percent of CDFIs had more loans/investments in workout. Nearly half (48%) gave more loans term extensions, including 10% that increased the number of term extensions by more than 50%. At the end of 2008, average portfolio at risk was 9.7% (2.5% at 30-60 days, 2.0% at 60-90 days, and 5.1% at 90 days or more). Fourth quarter charge offs were 1.2%. Only 18% increased their loan loss reserve ratio in the fourth quarter, a significanly lower percentage than any other region. Figure 40. Midwest CDFIs’ Changes in Delinquencies, Workouts, and Term Extensions, 4thQ2008 (n = 22, 22, 21)
Liquidity: While the percentage of Midwest CDFIs reporting that they are capital-constrained is comparable to other regions (50% in the Midwest versus 48% to 63% in other regions), new capital is more readily available in the Midwest and a higher percentage of Midwest CDFIs have had increases in capital liquidity than other regions. More than one-third (35%) of Midwest CDFIs reported an increase in their ability to access capital compared to 8% to 22% in other regions; only 15% reported a decrease in their access to capital, a far smaller percentage than the 36% or more in each of the other regions.
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Figure 41. Midwest CDFIs’ Changes in Access to Capital and Capital Liquidity, 4thQ2008 (n = 22)
Northeast Northeast CDFIs are concentrated in Business and Housing to Organizations. Relative to other regions, the Northeast has a higher percentage of Business and Housing to Individuals CDFIs, and shares the highest percentage of Community Services/Facilities CDFIs with the Midwest.
Community Services / Facilities
Consumer
Housing to Individuals
Housing to Organizations
Microenterprise
Other
Total
% of Region
Commercial Real Estate
# of CDFIs
Business
Table 8. Sectoral Composition of Northeast CDFIs, 4thQ2008
9 26%
0 0%
3 9%
2 6%
7 20%
9 26%
5 14%
0 0%
35 100%
Forty-three percent of Northeast CDFIs expect a decline in unrestricted net assets in their current fiscal year, a higher percentage than in any other region.
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Demand: Fifty-seven percent of Northeast CDFIs experienced an increase in financing applications and 41% had a higher number of originations than in the third quarter; both percentages are the lowest of any region. Figure 42. Northeast CDFIs’ Changes in Number of Financing Applications and Originations, 4thQ2008 (n = 35, 34)
Portfolio Quality: Fifty percent of CDFIs in the Northeast experienced an increase in delinquency in the fourth quarter. Workouts and extensions were up for 63% and 49% of CDFIs, respectively. At the end of 2008, average portfolio at risk was 12% (2.9% at 30-60 days, 1.8% at 60-90 days, and 7.3% at 90 days or more); only the South had higher delinquency rates. Fourth quarter charge-offs were 1.0%. Fifty percent of CDFIs increased their loan loss reserve ratio in the fourth quarter, including nine percent that increased their ratio by more than 50%. Figure 43. Northeast CDFIs’ Changes in Delinquencies, Workouts, and Term Extensions, 4thQ2008 (n = 34, 35, 35)
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Liquidity: Sixty-three percent of CDFIs in the Northeast are capital-constrained. The average cost of borrowed capital increased for 21% of CDFIs, decreased for 9%, and stayed the same for the rest. Liquidity fell for 60% of CDFIs. For the 71% that tried to access new capital, 56% reported a decline in access. Figure 44. Northeast CDFIs’ Changes in Access to Capital and Capital Liquidity, 4thQ2008 (n = 25, 35)
South The South has a wider sectoral distribution of CDFIs than any other region. The 31 CDFIs headquartered in the South (including one CDFI in Puerto Rico) cover all eight primary financing sectors, including Other. In all other regions, CDFIs are distributed across only six sectors.
Community Services / Facilities
Consumer
Housing to Individuals
Housing to Organizations
Microenterprise
Other
Total
% of Region
Commercial Real Estate
# of CDFIs
Business
Table 9. Sectoral Composition of South CDFIs, 4thQ2008
6 19%
1 3%
1 3%
2 6%
5 16%
9 29%
6 19%
1 3%
31 100%
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Demand: Demand increased dramatically in the fourth quarter for twenty percent of CDFIs that received at least 50% more financing applications than in the previous quarter; an additional 40% received up to 50% more applications. Almost as many CDFIs (57%) originated more loans in the fourth quarter, including 13% that originated more than 50% more loans. Figure 45. South CDFIs’ Changes in Number of Financing Applications and Originations, 4thQ2008 (n = 30)
Portfolio Quality: No CDFIs in the South experienced a decline in delinquency rates; more than half (52%) experienced no change. At the same time, delinquency was higher in the South than in any other region. At the end of 2008, average portfolio at risk was 15% (2.8% at 30-60 days, 2.2% at 60-90 days, and 9.9% at 90 days or more). Fourth quarter charge-offs were 1.8%, exceeded only in the West. The number of loans/investments in workout increased for 63% of CDFIs, a percentage matched only by CDFIs in the Northeast. Figure 46. South CDFIs’ Changes in Delinquencies, Workouts, and Term Extensions, 4thQ2008 (n = 30, 30, 31)
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Liquidity: Comparable to other regions, 48% of CDFIs in the South report that they are capitalconstrained. Access to capital decreased for 36% and liquidity decreased for nearly one-third (32%) of CDFIs. Figure 47. South CDFIs’ Changes in Access to Capital and Capital Liquidity, 4thQ2008 (n = 31)
Fifteen (37%) CDFIs in the South expect a loss in unrestricted net assets in their current fiscal year; a sixteenth anticipates a loss in fiscal year 2010. West The 30 respondents based in the West are equally concentrated in Business, Housing to Organizations, and Microenterprise financing.
Community Services / Facilities
Consumer
Housing to Individuals
Housing to Organizations
Microenterprise
Other
Total
% of Region
Commercial Real Estate
# of CDFIs
Business
Table 10. Sectoral Composition of CDFIs in the West, 4thQ2008
8 27%
1 3%
0 0%
1 3%
4 13%
8 27%
8 27%
0 0%
30 100%
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Demand: A higher percentage of CDFIs in the West experienced an increase in applications than in any other region. A lower percentage (43%) originated more loans than in any other region except the Northeast. Figure 48. West CDFIs’ Changes in Number of Financing Applications and Originations, 4thQ2008 (n = 29, 30)
Portfolio Quality: Delinquency rates increased for 66% of CDFIs in the West, a significantly higher percentage than in any other region. Average portfolio at risk was the lowest of any region at 7.2% ( 2.5% at 30-60 days, 0.7% at 60-90 days, and 4.0% at 90 days or more). Fourth quarter charge-offs were 2.9%, the highest of any region and a possible explanation for the lower delinquency rates in the West. Loans/investments in workout and term extensions increased for 47% and 52% of CDFIs, respectively. For each, 10% of CDFIs experienced increases of more than 50%. Figure 49. West CDFIs’ Changes in Delinquencies, Workouts, and Term Extensions, 4thQ2008 (n = 29, 30, 29)
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Liquidity: Half of CDFIs in the West report that they are capital-constrained. Forty percent report that their liquidity has decreased and nearly half (48%) report that their ability to access capital has decreased, a percentage exceeded only by CDFIs in the Northeast. The average cost of borrowed capital increased for 17% of CDFIs, again exceeded only in the Northeast. Figure 50. West CDFIs’ Changes in Access to Capital and Capital Liquidity, 4thQ2008 (n = 30)
Thirty percent of CDFIs in the West expect a loss in unrestricted net assets in their current fiscal year, a lower percentage than in any other region. IV. METHODOLOGY Opportunity Finance Network emailed the voluntary web-based survey to approximately 585 CDFIs and opportunity finance institutions across the country. These institutions included certified and non-certified CDFIs, Opportunity Finance Network members and non-members, loan funds, credit unions, banks and venture funds. Institutions were given two weeks to respond. Opportunity Finance Network staff reviewed the responses and contacted respondents for clarification when necessary. For regional and sectoral analysis, Opportunity Finance Network staff re-categorized one regional response (moved Puerto Rico to the South region) and three primary financing sector responses (moved two Other responses to Business and one Other response to Housing to Organizations).
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V. APPENDICES Appendix A.
Definition of Regions
Regions in the report are defined by the Census Bureau. Midwest: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Wisconsin (12 states) Northeast: Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont (9 states) South: Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Kentucky, Louisiana , Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia (17 states) West: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming (13 states) Note: In regional breakouts within this report, Puerto Rico is included in the South.
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Appendix B. Responses by Primary Financing Sector The table below shows the percentage of CDFIs that reported an increase, a decrease, or no change in the indicator. Delinquency Rate
% Increased
% Decreased 4%
% Stayed the Same
Business
52%
Community Services/Facilities
44%
43%
0%
57%
Consumer
50%
17%
33%
Housing to Individuals
61%
6%
33%
Housing to Organizations
45%
12%
42%
Microenterprise
50%
18%
32%
# of Financing Applications Received
% Increased
% Decreased 4%
% Stayed the Same
Business
79%
Community Services/Facilities
18%
86%
0%
14%
Consumer
17%
67%
17%
Housing to Individuals
18%
47%
35%
Housing to Organizations
52%
24%
24%
Microenterprise
77%
9%
14%
# of Loans/Investments Originated
% Increased
% Decreased
% Stayed the Same
Business
61%
14%
Community Services/Facilities
25%
43%
14%
43%
Consumer
17%
67%
17%
Housing to Individuals
50%
28%
22%
Housing to Organizations
30%
39%
30%
Microenterprise
67%
24%
10%
# of Loans/investments in Workout
% Increased
% Decreased 0%
% Stayed the Same
Business
48%
52%
Community Services/Facilities
71%
0%
29%
Consumer
50%
17%
33%
Housing to Individuals
47%
12%
41%
Housing to Organizations
55%
3%
42%
Microenterprise
68%
5%
27%
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# of Loans Given Term Extensions
% Increased
% Decreased
41%
Community Services/Facilities
57%
0%
43%
Consumer
67%
0%
33%
Housing to Individuals
28%
0%
72%
Housing to Organizations
55%
9%
36%
Microenterprise
73%
0%
27%
Average Cost of Borrowed Capital
% Increased
4%
% Stayed the Same
Business
% Decreased
56%
% Stayed the Same
Business
14%
0%
Community Services/Facilities
14%
43%
43%
0%
17%
83%
Housing to Individuals
18%
12%
71%
Housing to Organizations
15%
24%
61%
9%
5%
86%
Consumer
Microenterprise Ability to Access Capital Business
% Increased
% Stayed the Same
14%
38%
48%
0%
40%
60%
33%
0%
67%
7%
64%
29%
Community Services/Facilities Consumer
% Decreased
86%
Housing to Individuals Housing to Organizations
21%
39%
39%
Microenterprise
32%
32%
37%
Capital Liquidity
% Increased
% Decreased
% Stayed the Same
Business
24%
45%
31%
Community Services/Facilities
14%
43%
43%
Consumer
33%
33%
33%
Housing to Individuals
28%
56%
17%
Housing to Organizations
33%
33%
33%
Microenterprise
23%
45%
32%
Capitalconstrained* Business Community Services/Facilities
Debtconstrained
Equityconstrained 7%
14%
Debt and Equityconstrained 34%
14%
0%
29%
0%
17%
17%
Housing to Individuals
39%
0%
22%
Housing to Organizations
18%
21%
21%
9%
14%
18%
Consumer
Microenterprise
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Loan Loss Reserve Ratio
% Increased
% Decreased
% Stayed the Same
Business
41%
11%
Community Services/Facilities
29%
14%
57%
Consumer
67%
17%
17%
Housing to Individuals
22%
11%
67%
Housing to Organizations
52%
9%
39%
Microenterprise
41%
18%
41%
Anticipate a Decline in Unrestricted Net Assets in Current FY
Yes
48%
No
Business
29%
71%
Community Services/Facilities
29%
71%
Consumer
67%
33%
Housing to Individuals
50%
50%
Housing to Organizations
38%
63%
Microenterprise 25% 75% *Percentages do not sum to 100% because not all CDFIs are capital-constrained.
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Appendix C. Responses by Region The table below shows the percentage of CDFIs that reported an increase, a decrease, or no change in the indicator.
Delinquency Rate Northeast
% Increased
% Decreased
% Stayed the Same
50%
21%
New England
33%
40%
27%
Middle Atlantic
63%
5%
32%
Midwest
29%
41%
14%
45%
East North Central
45%
9%
45%
West North Central
36%
18%
45% 52%
South
48%
0%
South Atlantic
48%
0%
52%
South Central
50%
0%
50%
66%
3%
31%
West Mountain
55%
0%
45%
Pacific
72%
6%
22%
# of Financing Applications Received Northeast New England Middle Atlantic
% Increased
% Decreased
% Stayed the Same
57%
26%
17%
40%
33%
27%
70%
20%
10%
Midwest
68%
18%
14%
East North Central
73%
27%
0%
West North Central
64%
9%
27%
South
60%
10%
30%
62%
5%
33%
South Atlantic South Central
56%
22%
22%
69%
21%
10%
Mountain
82%
9%
9%
Pacific
61%
28%
11%
West
# of Loans/Investments Originated Northeast
% Increased
% Decreased
% Stayed the Same
41%
38%
New England
33%
60%
7%
Middle Atlantic
47%
21%
32% 19%
Midwest
21%
52%
29%
East North Central
55%
36%
9%
West North Central
50%
20%
30% 23%
South
57%
20%
South Atlantic
60%
10%
30%
South Central
50%
40%
10% 27%
West
43%
30%
Mountain
58%
17%
25%
Pacific
33%
39%
28%
Opportunity Finance Network CDFI Market Conditions Report, Fourth Quarter 2008
41
# of Loans/investments in Workout Northeast New England Middle Atlantic Midwest East North Central West North Central South South Atlantic South Central West
% Increased
% Decreased
% Stayed the Same
63%
6%
31%
53%
7%
40%
70%
5%
25%
45%
0%
55%
55%
0%
45%
36%
0%
64%
63%
10%
27%
65%
5%
30%
60%
20%
20%
47%
0%
53%
Mountain
33%
0%
67%
Pacific
56%
0%
44%
# of Loans Given Term Extensions Northeast
% Increased
% Decreased
49%
% Stayed the Same 3%
49%
New England
47%
7%
47%
Middle Atlantic
50%
0%
50%
48%
5%
48% 45%
Midwest East North Central
55%
0%
West North Central
40%
10%
50%
55%
6%
39%
South Atlantic
48%
10%
43%
South Central
70%
0%
30% 48%
South
West
52%
0%
Mountain
55%
0%
45%
Pacific
50%
0%
50%
Average Cost of Borrowed Capital Northeast New England Middle Atlantic Midwest
% Increased
% Decreased
% Stayed the Same
21%
9%
7%
7%
71% 86%
30%
10%
60%
14%
14%
73%
East North Central
9%
9%
82%
West North Central
18%
18%
64% 71%
South
6%
23%
South Atlantic
10%
29%
62%
South Central
0%
10%
90%
17%
7%
76%
0%
9%
91%
28%
6%
67%
West Mountain Pacific
Opportunity Finance Network CDFI Market Conditions Report, Fourth Quarter 2008
42
Capitalconstrained*
Debtconstrained
Northeast
Equityconstrained 16%
New England
Debt and Equityconstrained 56%
28%
27%
45%
27%
7%
64%
29%
35%
15%
50%
East North Central
40%
20%
40%
West North Central
30%
10%
60%
8%
36%
56%
Middle Atlantic Midwest
South South Atlantic
0%
38%
63%
South Central
22%
33%
44%
West
22%
48%
30%
Mountain
14%
43%
43%
Pacific
25%
50%
25%
Capital Liquidity
% Increased
Northeast New England Middle Atlantic Midwest East North Central West North Central South South Atlantic South Central
% Decreased
% Stayed the Same
23%
60%
17%
33%
47%
20%
15%
70%
15%
36%
27%
36%
45%
18%
36%
27%
36%
36%
26%
32%
42%
29%
33%
38%
20%
30%
50%
30%
40%
30%
Mountain
42%
17%
42%
Pacific
22%
56%
22%
West
Capital Constraints Northeast
Debt
Equity
Both
Neither
20%
11%
31%
37%
New England
20%
20%
20%
40%
Middle Atlantic
20%
5%
40%
35%
9%
23%
18%
50%
East North Central
18%
18%
18%
45%
West North Central
0%
27%
18%
55% 52%
Midwest
South
13%
16%
19%
South Atlantic
10%
14%
19%
57%
South Central
20%
20%
20%
40%
West
10%
13%
27%
50%
Mountain
25%
17%
25%
33%
0%
11%
28%
61%
Pacific
Opportunity Finance Network CDFI Market Conditions Report, Fourth Quarter 2008
43
Loan Loss Reserve Ratio
% Increased
Northeast New England Middle Atlantic
% Decreased
% Stayed the Same
50%
18%
32%
67%
20%
13%
37%
16%
47%
18%
23%
59%
East North Central
18%
27%
55%
West North Central
18%
18%
64%
52%
6%
42%
Midwest
South South Atlantic
62%
5%
33%
South Central
30%
10%
60%
45%
3%
52%
West Mountain
27%
9%
64%
Pacific
56%
0%
44%
Anticipate a Decline in Unrestricted Net Assets in Current FY
Yes
No
NORTHEAST
43%
57%
New England
40%
60%
Middle Atlantic MIDWEST East North Central West North Central SOUTH South Atlantic South Central
45%
55%
38%
62%
70%
30%
9%
91%
37%
63%
45%
55%
20%
80%
WEST
30%
70%
Mountain
27%
73%
Pacific
31%
69%
*Percentages do not sum to 100% because not all CDFIs are capital-constrained.
Opportunity Finance Network CDFI Market Conditions Report, Fourth Quarter 2008
44
CDFI Market Conditions Report Fourth Quarter 2008 Addendum 1: Selected Analysis by Size of CDFI Published April 2009
The Opportunity Finance Network CDFI Market Conditions Report is a quarterly publication based on quarterly surveys of community development financial institutions (CDFIs). Opportunity Finance Network began conducting these surveys in October 2008 to better understand the impacts of tight credit markets and the economic downturn on the opportunity finance industry. Each report provides a near-real-time view of market conditions and CDFI responses, analysis of regional and financing sector differences, and analysis of important trends. The 2009 CDFI Market Conditions Report is possible thanks to the generous support of the Ford Foundation.
Opportunity Finance Network Public Ledger Building 620 Chestnut Street Suite 572 Philadelphia, PA 19106-3413
P 215.923.4754 F 215.923.4755 www.opportunityfinance.net
CDFI Market Conditions Report Fourth Quarter 2008 Addendum 1: Selected Analysis by Size of CDFI April 23, 2009 This report analyses CDFIs by size of institution for a limited number of indicators: portfolio quality, operating and liquidity challenges, and CDFIs’ responses to these challenges. The preferred indicator of size is total assets. The CDFI Market Conditions Survey did not collect this indicator; the only size indicator collected was total portfolio outstanding. Based on total portfolio outstanding, we estimated asset size by using the average ratio of total financing outstanding to total assets: OFN’s Annual Member Survey of 138 CDFIs found that, on average, 65% of a CDFI’s total assets were in the form of portfolio outstanding. Using this ratio, we estimated three asset size categories: Small: Less than $10 million in assets (less than $6.5 million portfolio outstanding) Medium: $10 million to $50 million in assets ($6.5 million to $32.50 million portfolio outstanding) Large: Greater than $50 million in assets (greater than $32.50 million portfolio outstanding) This breakdown gives a sample of 61 small CDFIs, 34 medium CDFIs, and 19 large CDFIs. Portfolio Quality Many more large CDFIs (68%) experienced increases in delinquencies in the fourth quarter than did medium (62%) or small (41%) CDFIs. While delinquency is increasing for more large CDFIs, their average portfolio at risk at the end of the fourth quarter was much lower than for medium and small CDFIs. Figure 1. Change in Delinquencies, 4thQ2008 (n = 61, 34, 19)
Opportunity Finance Network CDFI Market Conditions Report, 4th Quarter 2008, Addendum 1
1
Table 1. Average Portfolio at Risk, 4thQ2008
Small Medium Large
n 50 31 17
30-60 days 3.6% 1.6% 2.0%
60-90 days 2.2% 1.4% 1.0%
90+ days 8.8% 5.3% 3.1%
Total Portfolio at Risk 14.6% 8.3% 6.1%
Liquidity and Operating Challenges Most CDFIs in all size categories expect capital liquidity and/or operating difficulties in the next quarter. The three primary reasons are the same for all size categories, but they differ in order of importance. Among small CDFIs, the primary reasons are fewer operating grants to cover operations (67%) followed by not having enough capital to meet demand (57%) and increasing loan loss reserves (45%) . Among medium CDFIs, the most common reason cited is insufficient capital (66%) followed by increasing loan loss reserves (41%) and fewer operating grants (38%). Among large CDFIs, the top concern is increasing loan loss reserves (67%) followed by not enough capital (47%) and fewer operating grants (40%). Large CDFIs were also concerned about the lack of bank financing: 33% reported that bank investors are not renewing their loans and among the 33% that answered “Other,” the majority provided a response related to bank capital. Figure 2. If you expect your CDFI to experience new capital liquidity or operating difficulties in the next quarter, please explain why. (n=51, 32, 15)
Opportunity Finance Network CDFI Market Conditions Report, 4th Quarter 2008, Addendum 1
2
Seventy-two percent or more of CDFIs in all size categories are seeking new grant funding and 59% or more are reducing operating expenses, including staff travel, professional development or other expenses. Among larger CDFIs, nearly two-thirds (63%) are revising their 2009/10 budgets, 44% are creating worst-case scenario budgets, and an equal number (44%) are implementing hiring freezes. Table 2. If you expect your CDFI to experience new capital liquidity or operating difficulties in the next quarter, what are you doing about them. (n=53, 32, 16)
Small
Medium
Large
Seeking new grant funding
77%
72%
81%
Reducing other operating expenses
68%
47%
63%
Reducing staff travel and professional development expenses
51%
38%
56%
Revising our 2009/10 budget
42%
38%
63%
Freezing salaries
23%
41%
31%
Creating a worst-case, contingency plan budget to plan for dramatic downsizing if it becomes necessary
23%
28%
44%
Reducing loan sizes and/or terms
21%
28%
13%
Implementing a hiring freeze
15%
13%
44%
Contracting consultants instead of hiring new staff
15%
6%
19%
Laying off staff
9%
9%
19%
Requesting loan/investment covenant waivers
4%
13%
13%
We have not implemented any new actions in response to the changes
6%
6%
6%
Requesting forbearance from existing lenders/investors
2%
3%
0%
Other 9% 19% 13% Note: Percentages do not add up to 100% because respondents were allowed to provide more than one response.
Opportunity Finance Network CDFI Market Conditions Report, 4th Quarter 2008, Addendum 1
3
Nearly all CDFIs in all size groups are implementing new business strategies and/or activities in response to changing market conditions. Monitoring borrowers more closely is the most common reponse for all sizes of CDFIs (80% to 94%), although for large CDFIs adjusting risk ratings and reserves is equally important at 94% of CDFIs. More than two-thirds of medium CDFIs are also adjusting risk ratings and reserves while only one-third of small CDFIs are taking these steps. Small CDFIs are more focused on providing additional technical assistance to clients. Figure 3. What new business strategies and/or activities is your organization using to respond to changing market conditions? (n = 60, 34, 18)
Opportunity Finance Network CDFI Market Conditions Report, 4th Quarter 2008, Addendum 1
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