CDFI Market Conditions Q410 Report I
CDFI Market Conditions Fourth Quarter 2010 Report I - Results and Analysis Published March 2011
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 Market Conditions Report is supported by 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
EXECUTIVE SUMMARY1 In the fourth quarter 2010, the national economic situation continued to show an improving climate over the previous quarter. Gross domestic product (GDP) grew by an estimated 2.8%, which was higher than the 2.6% achieved in the third quarter of 2010. The unemployment rate edged down from 9.6% at the end of the third quarter to 9.4% at the end of the fourth quarter 2010. The percentage of FDIC-insured institutions that reported loans and leases 31 days or more past due showed a decrease from 6.80% in the third quarter 2010 to 6.48% in the fourth quarter 2010.2 Noncurrent loans (90 or more days past due or in nonaccrual) also showed a decline. The delinquency rate for loans on one-to-four-unit mortgages decreased to a seasonally adjusted rate of 8.22%, a decrease of 91 basis points from the third quarter of 2010 and 125 basis points over one year ago.3 Demand for Financing and Loan Originations
Growth in demand for financing has started to rebound. Over half of respondents experienced an increase in the number of financing applications received (55%) year over year with less than a third (26%) reporting a decrease. Quarter on quarter growth in number of applications received has remained the same with approximately an equal number of respondents showing an increase (38%) as those reporting a decrease (36%). The number of respondents in the fourth quarter of 2010 was 117 CDFIs.
Loan originations increased commensurate with the increased demand. A greater number of
CDFIs reported an increase (46%) in originations year over year, though over a third reporting a decrease in loans originated (39%). Quarter on quarter loan originations also show a healthy increase (50%), which is significantly higher than one year ago, when the quarter on quarter increase in loan originations was far lower (39%) in the fourth quarter of 2009. This reflects the significant improvement in demand conditions reflected in the economy as we continue to move away from the recession of 2008.
With improving economic indicators, 67% of respondents expect demand for financing to increase in the next quarter. The most common reasons respondents expect demand for financing to
increase aside from the seasonal nature of demand is the lack of alternative public sources for funding and the continued pull back from conventional lenders such as banks. Capitalization and Liquidity
Less than one-fifth (18%) of CDFIs reported that they are capital-constrained. This is the fourth consecutive quarter that 28% or fewer CDFIs reported that they are capital-constrained.
Notwithstanding the drop in the number of CDFIs reporting capital constraints, respondents reported that if capital were not a constraint they could have deployed $43 million in additional capital in the fourth quarter to fund qualifying financing applications and could deploy over $1.76 billion in new capital in the next twelve months. 1
This report presents the results of the tenth consecutive quarterly CDFI Market Conditions Survey conducted in January through February 2011 covering the Fourth Quarter (October - December) of 2010. Detailed data tables are provided in the companion report, CDFI Market Conditions, Fourth Quarter 2010, Report II - Detailed Tables. 2
1.61% of loans and leases were 30 – 89 days past due and 4.87% were noncurrent, defined as 90 or more days past due or in nonaccrual. Federal Deposit Insurance Corporation (FDIC) Quarterly Banking Profile. 3
Mortgage Bankers Association’s (MBA) National Delinquency Survey. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure.
Opportunity Finance Network CDFI Market Conditions, Fourth Quarter 2010, Report I – Results and Analysis
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The cost of capital has risen steadily for the trend sample. While access to capital has shown
signs of improvement this year, the average cost of borrowed capital rose for 19% of the 42 CDFIs in the trend sample in the fourth quarter of 2010. This is the highest percentage of CDFIs reporting an increase in borrowing costs since the second quarter of 2009.
Fewer CDFIs expect an unrestricted loss in the current fiscal year. The percentage of CDFIs expecting a decline in unrestricted net assets fell for the third consecutive quarter to 12%, the lowest since we began collecting these data in the fourth quarter of 2008. Portfolio Quality
Portfolio-at-risk fell, but restructures are up. Average loans more than 30 days past due decreased
to 8.6% from 8.5% in the previous quarter; however, average loans restructured were above 7% for the second consecutive quarter, up from just over 4% in the two previous quarters.
Most CDFIs remain optimistic about the future. Forty-three percent of respondents expect portfolio
quality to improve in the next quarter and 50% expect it to stay the same. Only 7% expect it to deteriorate
Among the survey respondents who reported restructures in their loan portfolios, state and local budgetary conditions were of paramount concern. Comments made by CDFIs across financing sectors include: “…there is still a risk to our overall portfolio due to the status of state and municipal budgets…” “…Uncertainty about California budget situation and proposal to eliminate redevelopment agencies as a source of public funding is causing developers to not start predevelopment on new construction projects…” “…Florida's state budget crisis affects our borrowers, which adds risk to our asset management…” “…State of Illinois financial condition affecting borrowers’ ability to remain current…” “…It is projected that Toledo will experience … below national average … economic recovery over the next … years…” “…we are facing reduced availability of public sector capital. One County funded us at a reduced level compared to last year … and another county funded no homeownership this FY. We await our state budget to learn if any funds for housing will be appropriated this year…” “…State budget crisis continues to challenge our non-profit borrowers who are providing social, education and early care services…” “…State budget difficulties will continue to present challenges for the industry for the foreseeable future…”
Opportunity Finance Network CDFI Market Conditions, Fourth Quarter 2010, Report I – Results and Analysis
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CDFI Market Conditions, Fourth Quarter 2010 Report I – Results and Analysis I.
DEMAND FOR FINANCING AND LOAN ORIGINATIONS
Fourth Quarter Results Growth in demand for financing has started to rebound. Over half the number of respondents experienced an increase in the number of financing applications received (55%) year over year with less than a third (26%) reporting a decrease. Community Services / Facilities and Housing to Organizations CDFI showed particularly robust increase in demand: 71% of Community Services / Facilities and 70% of Housing to Organizations CDFIs reported increases in the number of financing applications received over the previous year. Originations were back up in the fourth quarter of 2010 with more CDFIs reporting an increase in originations (46%) year over year than reporting a decrease (39%). Primary reasons for decreasing originations were weak application quality (20%), tightened underwriting criteria (15%) and more intensive due diligence (13%). Trend Results4 For the subset of 42 CDFIs in the trend analysis, 38% reported an increase in originations over the previous year, down from 46% in the fourth quarter of 2009 but up from 32% in the third quarter of 2010. Figure 1. Number of Loans/Investments Originated in Trend Results, % Change Over Previous Year (n=42) 60% 50% 40% 30% 20% 10% 0% 09Q3
09Q4
Decreased
10Q1
10Q2
Increased
10Q3
10Q4
No Change
Outlook Primarily due to the seasonal nature of demand, as well as the continued tight liquidity environment, 67% of respondents expect demand for financing to increase in the next quarter. Only 8% of respondents expect a decrease in demand for financing.
4
Complete findings for trend respondents are available in CDFI Market Conditions, Fourth Quarter 2010, Report II – Detailed Tables Section II Table V, pages 50-53.
Opportunity Finance Network CDFI Market Conditions, Fourth Quarter 2010, Report I – Results and Analysis
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II.
CAPITALIZATION AND LIQUIDITY
Fourth Quarter Results Less than one-fifth (18%) of CDFIs reported that they are capital-constrained. This is the fourth consecutive quarter that 28% or fewer CDFIs reported that they are capital-constrained and the lowest percentage since we started reporting these data in the fourth quarter of 2008. Nearly a quarter (24%) of Medium sized CDFIs (asset size between $10-$50 MM), reported that they were capital-constrained in terms of debt, equity, or both. More Consumer CDFIs reported an increase in access to capital over year (67% of respondents) than any other sector. In terms of decreased access to capital, more Small CDFIs (18%) and CDFIs in West (21%) reported decreases over year than any other breakout group. Trend Results5 In terms of capital liquidity among the trend sample, in the fourth quarter a majority (41%) of the respondents saw an increase in capital liquidity with 27% reporting a decrease. While access to capital has shown signs of improvement this year, the average cost of borrowed capital rose for a fifth (19%) of the 42 CDFIs in the trend sample in the fourth quarter of 2010. Figure 2. Capital Constraints and Borrowing Costs Reported in Trend Results, % Change Over Previous Quarter (n=42)
61% 50% 29%
49%
54% 39% 37%
17% 10%
09Q1
09Q2
09Q3
12%
09Q4
17% 8%
10%
10Q1
10Q2
19%
24% 19%
10Q3
10Q4
Capital (Debt or Equity) Constrained CDFIs reporting an Increase in Average Cost of Borrowed Capital
Outlook In the fourth quarter of 2010, an overwhelming number of respondents (89%) reported that they had greater than 90 days operating cash on hand. This is in line with the previous quarter when 90% of the respondents reported greater than 90 days cash on hand, and is much improved from the previous quarters when, for example, in the second quarter of 2009, only 78% of the CDFIs reported greater than 90 days operating cash on hand.
5
Complete findings for trend respondents are available in CDFI Market Conditions, Fourth Quarter 2010, Report II – Detailed Tables Section II Table V, pages 50-53.
Opportunity Finance Network CDFI Market Conditions, Fourth Quarter 2010, Report I – Results and Analysis
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III.
PORTFOLIO QUALITY
Fourth Quarter Results Portfolio-at-risk (as measured by greater than 31 days delinquencies) has started to stabilize, with average loans more than 30 days past due at 8.6% in the fourth quarter, similar to the 8.5% reported in the third quarter of 2010. Also, 48% of the CDFIs responding to the survey reported a decrease in the delinquency rate over the previous year. However, average loans restructured continued to rise to 7.7% in the fourth quarter of 2010, up from 7.4% in the third quarter, 4.4% in the second quarter and 4.2% in the first quarter of 2010. Similarly, the number of CDFIs reporting net charge-offs rose to 1.0% of the CDFI loan portfolio. CDFIs in the northeast reported the highest average portfolio-at-risk at 11% of the loan portfolio. Among the sector breakout, the Housing to Individuals (13.4%) and the Business (11.2%) sectors reported the highest average portfolio-at-risk. The Microenterprise (9.5%), Consumer (9%) and Commercial Real Estate (9%) sectors followed, with the lowest numbers reported by the Housing to Organizations (4.1%) and Community Services / Facilities (5.6%) sectors. Trend Results6 The percentage of CDFIs in the trend sample reporting an increase in delinquency over year declined to 33% in the fourth quarter from 35% in the previous quarter. Average portfolio–at-risk dropped to 6.4% in the third quarter from 7.4% in the third quarter of 2010. Figure 3. Average Trend Portfolio-at-Risk, Restructures and Charge-offs, % Change Over Previous Quarter (n=31) 12% 10% 8% 6% 4% 2% 0% 09Q4
10Q1
10Q2
10Q3
10Q4
Average Loans Restructured (%) Delinquencies >30 days Average Net Charge-offs (%)
Outlook Most respondents expect portfolio quality to either improve (33%) or stay the same (64%) in the next quarter. The outlook on portfolio quality has improved greatly over the life of the survey, with the percentage of CDFIs in the trend sample expecting deterioration falling from 41% in the fourth quarter 2008 to 2% in the fourth quarter 2010. 6
Complete findings for trend respondents are available in CDFI Market Conditions, Fourth Quarter 2010, Report II – Detailed Tables Section II Table V, pages 50-53.
Opportunity Finance Network CDFI Market Conditions, Fourth Quarter 2010, Report I – Results and Analysis
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Comparison to FDIC-Insured Institutions In the previous sections, we analyzed average portfolio quality. This methodology weighs each CDFI equally regardless of size. To compare CDFI industry portfolio quality to FDIC-insured institutions, we use the FDIC’s methodology of analyzing the portfolio quality of the respondents as a whole. This method gives greater weight to larger CDFIs and lesser weight to smaller CDFIs. CDFI industry portfolio quality stabilized in the fourth quarter, with loans that were more than 30 days past due at 8.67%, the same as last quarter. However, the stable portfolio quality came at the expense of an increase in net charge-offs which reached 3.02%, up from 2.42% in the previous quarter. See Table 1. Portfolio quality for FDIC-insured institutions improved, falling from 6.80% in the third quarter to 6.48% in the fourth quarter. The net charge-off rate for all FDIC–insured institutions also fell. See Table 2. Table 1: CDFI Industry Portfolio Performance, All Survey Respondents7
n=
% Net Charge-offs, year to date (annualized) % 31-90 Days Past Due % >90 Days Past Due or in Nonaccrual % >30 Days Past Due8
100
107
98
87
105
103
106
97
99
3.02
2.42
2.28
1.44
1.72
1.32
1.16
1.09
0.93
3.05
2.94
3.97
3.38
5.26
4.33
5.40
4.52
6.82
5.63 8.67
5.74 8.67
6.48 10.44
5.63 9.01
6.60 11.87
6.03 10.36
6.42 11.82
4.28 8.80
3.09 9.91
Table 2: FDIC-Insured Institution Industry Portfolio Performance (n=8,000+) % Net Charge-offs, year to date (annualized)
Loans and Leases
% 30-89 Days Past Due %>=90 Days Past Due or in Nonaccrual % >=30 Days Past Due
2.54
2.59
2.74
2.84
2.49
2.38
2.24
1.94
1.28
1.61
1.68
1.69
1.92
1.93
1.92
1.85
2.04
2.01
4.87 6.48
5.12 6.80
5.21 6.90
5.45 7.37
5.37 7.30
4.94 6.86
4.35 6.20
3.76 5.80
2.93 4.94
In this quarter, we made changes to the way we report CDFI Industry Portfolio Performance data. First, we made the delinquency categories more consistent with the format used by the FDIC by including nonaccruals in the greater than 90 day category. Second, from fourth quarter 2008 through third quarter 2009 we removed CDFIs from the above analysis if they did not provide all three categories of portfolio performance data (delinquencies, charge-offs, and loan loss reserves). Third, we conducted further analysis on our fourth quarter 2009 through fourth quarter 2010 portfolio data, followed up with respondents, and were able to include more CDFIs in this analysis.
7
More information on calculations and methodology for the above analysis can be found in the companion report, CDFI Market
Conditions, Fourth Quarter 2010, Report II – Detailed Tables in Appendix 1A page 54. 8
Prior to the first quarter 2010, the Market Conditions Survey did not ask CDFIs to report Additional Nonaccruals that they had not included in their greater than 90 days past due category; therefore, delinquencies prior to the first quarter 2010 do not include nonaccruals for some CDFIs
Opportunity Finance Network CDFI Market Conditions, Fourth Quarter 2010, Report I – Results and Analysis
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CDFI Market Conditions, Fourth Quarter 2010 Report I – Results and Analysis Published March 2011
Snapshot of the 117 Respondents in the Fourth Quarter 2010 Market Conditions Survey9
By Sector, Fourth Quarter 2010 (n=117) Business
28%
Housing to Organizations
26%
Housing to Individuals
16%
Microenterprise
14%
Community Services
6%
Consumer
5%
Commercial Real Estate
3%
Intermediary
By Size, Fourth Quarter 2010 (n=117)
2%
By Region, Fourth Quarter 2010 (n=117)
By Rural/Urban, Fourth Quarter 2010 (n=117)
45%
53%
29% 26%
26%
30% 33%
19%
24%
14%
Assets < $10MM
Assets between $10-50MM
Assets > $50MM
Midwest
South
West
Northeast
Equally Rural/Urban
Primarily Rural
Primarily Urban
9
The complete Survey Respondents data are provided in CDFI Market Conditions, Fourth Quarter 2010, Report II – Detailed Tables Section I, pages 5-49.
Opportunity Finance Network CDFI Market Conditions, Fourth Quarter 2010, Report I – Results and Analysis
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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 Market Conditions Report is supported by 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
EXECUTIVE SUMMARY1 In the fourth quarter 2010, the national economic situation continued to show an improving climate over the previous quarter. Gross domestic product (GDP) grew by an estimated 2.8%, which was higher than the 2.6% achieved in the third quarter of 2010. The unemployment rate edged down from 9.6% at the end of the third quarter to 9.4% at the end of the fourth quarter 2010. The percentage of FDIC-insured institutions that reported loans and leases 31 days or more past due showed a decrease from 6.80% in the third quarter 2010 to 6.48% in the fourth quarter 2010.2 Noncurrent loans (90 or more days past due or in nonaccrual) also showed a decline. The delinquency rate for loans on one-to-four-unit mortgages decreased to a seasonally adjusted rate of 8.22%, a decrease of 91 basis points from the third quarter of 2010 and 125 basis points over one year ago.3 Demand for Financing and Loan Originations
Growth in demand for financing has started to rebound. Over half of respondents experienced an increase in the number of financing applications received (55%) year over year with less than a third (26%) reporting a decrease. Quarter on quarter growth in number of applications received has remained the same with approximately an equal number of respondents showing an increase (38%) as those reporting a decrease (36%). The number of respondents in the fourth quarter of 2010 was 117 CDFIs.
Loan originations increased commensurate with the increased demand. A greater number of
CDFIs reported an increase (46%) in originations year over year, though over a third reporting a decrease in loans originated (39%). Quarter on quarter loan originations also show a healthy increase (50%), which is significantly higher than one year ago, when the quarter on quarter increase in loan originations was far lower (39%) in the fourth quarter of 2009. This reflects the significant improvement in demand conditions reflected in the economy as we continue to move away from the recession of 2008.
With improving economic indicators, 67% of respondents expect demand for financing to increase in the next quarter. The most common reasons respondents expect demand for financing to
increase aside from the seasonal nature of demand is the lack of alternative public sources for funding and the continued pull back from conventional lenders such as banks. Capitalization and Liquidity
Less than one-fifth (18%) of CDFIs reported that they are capital-constrained. This is the fourth consecutive quarter that 28% or fewer CDFIs reported that they are capital-constrained.
Notwithstanding the drop in the number of CDFIs reporting capital constraints, respondents reported that if capital were not a constraint they could have deployed $43 million in additional capital in the fourth quarter to fund qualifying financing applications and could deploy over $1.76 billion in new capital in the next twelve months. 1
This report presents the results of the tenth consecutive quarterly CDFI Market Conditions Survey conducted in January through February 2011 covering the Fourth Quarter (October - December) of 2010. Detailed data tables are provided in the companion report, CDFI Market Conditions, Fourth Quarter 2010, Report II - Detailed Tables. 2
1.61% of loans and leases were 30 – 89 days past due and 4.87% were noncurrent, defined as 90 or more days past due or in nonaccrual. Federal Deposit Insurance Corporation (FDIC) Quarterly Banking Profile. 3
Mortgage Bankers Association’s (MBA) National Delinquency Survey. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure.
Opportunity Finance Network CDFI Market Conditions, Fourth Quarter 2010, Report I – Results and Analysis
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The cost of capital has risen steadily for the trend sample. While access to capital has shown
signs of improvement this year, the average cost of borrowed capital rose for 19% of the 42 CDFIs in the trend sample in the fourth quarter of 2010. This is the highest percentage of CDFIs reporting an increase in borrowing costs since the second quarter of 2009.
Fewer CDFIs expect an unrestricted loss in the current fiscal year. The percentage of CDFIs expecting a decline in unrestricted net assets fell for the third consecutive quarter to 12%, the lowest since we began collecting these data in the fourth quarter of 2008. Portfolio Quality
Portfolio-at-risk fell, but restructures are up. Average loans more than 30 days past due decreased
to 8.6% from 8.5% in the previous quarter; however, average loans restructured were above 7% for the second consecutive quarter, up from just over 4% in the two previous quarters.
Most CDFIs remain optimistic about the future. Forty-three percent of respondents expect portfolio
quality to improve in the next quarter and 50% expect it to stay the same. Only 7% expect it to deteriorate
Among the survey respondents who reported restructures in their loan portfolios, state and local budgetary conditions were of paramount concern. Comments made by CDFIs across financing sectors include: “…there is still a risk to our overall portfolio due to the status of state and municipal budgets…” “…Uncertainty about California budget situation and proposal to eliminate redevelopment agencies as a source of public funding is causing developers to not start predevelopment on new construction projects…” “…Florida's state budget crisis affects our borrowers, which adds risk to our asset management…” “…State of Illinois financial condition affecting borrowers’ ability to remain current…” “…It is projected that Toledo will experience … below national average … economic recovery over the next … years…” “…we are facing reduced availability of public sector capital. One County funded us at a reduced level compared to last year … and another county funded no homeownership this FY. We await our state budget to learn if any funds for housing will be appropriated this year…” “…State budget crisis continues to challenge our non-profit borrowers who are providing social, education and early care services…” “…State budget difficulties will continue to present challenges for the industry for the foreseeable future…”
Opportunity Finance Network CDFI Market Conditions, Fourth Quarter 2010, Report I – Results and Analysis
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CDFI Market Conditions, Fourth Quarter 2010 Report I – Results and Analysis I.
DEMAND FOR FINANCING AND LOAN ORIGINATIONS
Fourth Quarter Results Growth in demand for financing has started to rebound. Over half the number of respondents experienced an increase in the number of financing applications received (55%) year over year with less than a third (26%) reporting a decrease. Community Services / Facilities and Housing to Organizations CDFI showed particularly robust increase in demand: 71% of Community Services / Facilities and 70% of Housing to Organizations CDFIs reported increases in the number of financing applications received over the previous year. Originations were back up in the fourth quarter of 2010 with more CDFIs reporting an increase in originations (46%) year over year than reporting a decrease (39%). Primary reasons for decreasing originations were weak application quality (20%), tightened underwriting criteria (15%) and more intensive due diligence (13%). Trend Results4 For the subset of 42 CDFIs in the trend analysis, 38% reported an increase in originations over the previous year, down from 46% in the fourth quarter of 2009 but up from 32% in the third quarter of 2010. Figure 1. Number of Loans/Investments Originated in Trend Results, % Change Over Previous Year (n=42) 60% 50% 40% 30% 20% 10% 0% 09Q3
09Q4
Decreased
10Q1
10Q2
Increased
10Q3
10Q4
No Change
Outlook Primarily due to the seasonal nature of demand, as well as the continued tight liquidity environment, 67% of respondents expect demand for financing to increase in the next quarter. Only 8% of respondents expect a decrease in demand for financing.
4
Complete findings for trend respondents are available in CDFI Market Conditions, Fourth Quarter 2010, Report II – Detailed Tables Section II Table V, pages 50-53.
Opportunity Finance Network CDFI Market Conditions, Fourth Quarter 2010, Report I – Results and Analysis
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II.
CAPITALIZATION AND LIQUIDITY
Fourth Quarter Results Less than one-fifth (18%) of CDFIs reported that they are capital-constrained. This is the fourth consecutive quarter that 28% or fewer CDFIs reported that they are capital-constrained and the lowest percentage since we started reporting these data in the fourth quarter of 2008. Nearly a quarter (24%) of Medium sized CDFIs (asset size between $10-$50 MM), reported that they were capital-constrained in terms of debt, equity, or both. More Consumer CDFIs reported an increase in access to capital over year (67% of respondents) than any other sector. In terms of decreased access to capital, more Small CDFIs (18%) and CDFIs in West (21%) reported decreases over year than any other breakout group. Trend Results5 In terms of capital liquidity among the trend sample, in the fourth quarter a majority (41%) of the respondents saw an increase in capital liquidity with 27% reporting a decrease. While access to capital has shown signs of improvement this year, the average cost of borrowed capital rose for a fifth (19%) of the 42 CDFIs in the trend sample in the fourth quarter of 2010. Figure 2. Capital Constraints and Borrowing Costs Reported in Trend Results, % Change Over Previous Quarter (n=42)
61% 50% 29%
49%
54% 39% 37%
17% 10%
09Q1
09Q2
09Q3
12%
09Q4
17% 8%
10%
10Q1
10Q2
19%
24% 19%
10Q3
10Q4
Capital (Debt or Equity) Constrained CDFIs reporting an Increase in Average Cost of Borrowed Capital
Outlook In the fourth quarter of 2010, an overwhelming number of respondents (89%) reported that they had greater than 90 days operating cash on hand. This is in line with the previous quarter when 90% of the respondents reported greater than 90 days cash on hand, and is much improved from the previous quarters when, for example, in the second quarter of 2009, only 78% of the CDFIs reported greater than 90 days operating cash on hand.
5
Complete findings for trend respondents are available in CDFI Market Conditions, Fourth Quarter 2010, Report II – Detailed Tables Section II Table V, pages 50-53.
Opportunity Finance Network CDFI Market Conditions, Fourth Quarter 2010, Report I – Results and Analysis
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III.
PORTFOLIO QUALITY
Fourth Quarter Results Portfolio-at-risk (as measured by greater than 31 days delinquencies) has started to stabilize, with average loans more than 30 days past due at 8.6% in the fourth quarter, similar to the 8.5% reported in the third quarter of 2010. Also, 48% of the CDFIs responding to the survey reported a decrease in the delinquency rate over the previous year. However, average loans restructured continued to rise to 7.7% in the fourth quarter of 2010, up from 7.4% in the third quarter, 4.4% in the second quarter and 4.2% in the first quarter of 2010. Similarly, the number of CDFIs reporting net charge-offs rose to 1.0% of the CDFI loan portfolio. CDFIs in the northeast reported the highest average portfolio-at-risk at 11% of the loan portfolio. Among the sector breakout, the Housing to Individuals (13.4%) and the Business (11.2%) sectors reported the highest average portfolio-at-risk. The Microenterprise (9.5%), Consumer (9%) and Commercial Real Estate (9%) sectors followed, with the lowest numbers reported by the Housing to Organizations (4.1%) and Community Services / Facilities (5.6%) sectors. Trend Results6 The percentage of CDFIs in the trend sample reporting an increase in delinquency over year declined to 33% in the fourth quarter from 35% in the previous quarter. Average portfolio–at-risk dropped to 6.4% in the third quarter from 7.4% in the third quarter of 2010. Figure 3. Average Trend Portfolio-at-Risk, Restructures and Charge-offs, % Change Over Previous Quarter (n=31) 12% 10% 8% 6% 4% 2% 0% 09Q4
10Q1
10Q2
10Q3
10Q4
Average Loans Restructured (%) Delinquencies >30 days Average Net Charge-offs (%)
Outlook Most respondents expect portfolio quality to either improve (33%) or stay the same (64%) in the next quarter. The outlook on portfolio quality has improved greatly over the life of the survey, with the percentage of CDFIs in the trend sample expecting deterioration falling from 41% in the fourth quarter 2008 to 2% in the fourth quarter 2010. 6
Complete findings for trend respondents are available in CDFI Market Conditions, Fourth Quarter 2010, Report II – Detailed Tables Section II Table V, pages 50-53.
Opportunity Finance Network CDFI Market Conditions, Fourth Quarter 2010, Report I – Results and Analysis
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Comparison to FDIC-Insured Institutions In the previous sections, we analyzed average portfolio quality. This methodology weighs each CDFI equally regardless of size. To compare CDFI industry portfolio quality to FDIC-insured institutions, we use the FDIC’s methodology of analyzing the portfolio quality of the respondents as a whole. This method gives greater weight to larger CDFIs and lesser weight to smaller CDFIs. CDFI industry portfolio quality stabilized in the fourth quarter, with loans that were more than 30 days past due at 8.67%, the same as last quarter. However, the stable portfolio quality came at the expense of an increase in net charge-offs which reached 3.02%, up from 2.42% in the previous quarter. See Table 1. Portfolio quality for FDIC-insured institutions improved, falling from 6.80% in the third quarter to 6.48% in the fourth quarter. The net charge-off rate for all FDIC–insured institutions also fell. See Table 2. Table 1: CDFI Industry Portfolio Performance, All Survey Respondents7
n=
% Net Charge-offs, year to date (annualized) % 31-90 Days Past Due % >90 Days Past Due or in Nonaccrual % >30 Days Past Due8
100
107
98
87
105
103
106
97
99
3.02
2.42
2.28
1.44
1.72
1.32
1.16
1.09
0.93
3.05
2.94
3.97
3.38
5.26
4.33
5.40
4.52
6.82
5.63 8.67
5.74 8.67
6.48 10.44
5.63 9.01
6.60 11.87
6.03 10.36
6.42 11.82
4.28 8.80
3.09 9.91
Table 2: FDIC-Insured Institution Industry Portfolio Performance (n=8,000+) % Net Charge-offs, year to date (annualized)
Loans and Leases
% 30-89 Days Past Due %>=90 Days Past Due or in Nonaccrual % >=30 Days Past Due
2.54
2.59
2.74
2.84
2.49
2.38
2.24
1.94
1.28
1.61
1.68
1.69
1.92
1.93
1.92
1.85
2.04
2.01
4.87 6.48
5.12 6.80
5.21 6.90
5.45 7.37
5.37 7.30
4.94 6.86
4.35 6.20
3.76 5.80
2.93 4.94
In this quarter, we made changes to the way we report CDFI Industry Portfolio Performance data. First, we made the delinquency categories more consistent with the format used by the FDIC by including nonaccruals in the greater than 90 day category. Second, from fourth quarter 2008 through third quarter 2009 we removed CDFIs from the above analysis if they did not provide all three categories of portfolio performance data (delinquencies, charge-offs, and loan loss reserves). Third, we conducted further analysis on our fourth quarter 2009 through fourth quarter 2010 portfolio data, followed up with respondents, and were able to include more CDFIs in this analysis.
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More information on calculations and methodology for the above analysis can be found in the companion report, CDFI Market
Conditions, Fourth Quarter 2010, Report II – Detailed Tables in Appendix 1A page 54. 8
Prior to the first quarter 2010, the Market Conditions Survey did not ask CDFIs to report Additional Nonaccruals that they had not included in their greater than 90 days past due category; therefore, delinquencies prior to the first quarter 2010 do not include nonaccruals for some CDFIs
Opportunity Finance Network CDFI Market Conditions, Fourth Quarter 2010, Report I – Results and Analysis
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CDFI Market Conditions, Fourth Quarter 2010 Report I – Results and Analysis Published March 2011
Snapshot of the 117 Respondents in the Fourth Quarter 2010 Market Conditions Survey9
By Sector, Fourth Quarter 2010 (n=117) Business
28%
Housing to Organizations
26%
Housing to Individuals
16%
Microenterprise
14%
Community Services
6%
Consumer
5%
Commercial Real Estate
3%
Intermediary
By Size, Fourth Quarter 2010 (n=117)
2%
By Region, Fourth Quarter 2010 (n=117)
By Rural/Urban, Fourth Quarter 2010 (n=117)
45%
53%
29% 26%
26%
30% 33%
19%
24%
14%
Assets < $10MM
Assets between $10-50MM
Assets > $50MM
Midwest
South
West
Northeast
Equally Rural/Urban
Primarily Rural
Primarily Urban
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The complete Survey Respondents data are provided in CDFI Market Conditions, Fourth Quarter 2010, Report II – Detailed Tables Section I, pages 5-49.
Opportunity Finance Network CDFI Market Conditions, Fourth Quarter 2010, Report I – Results and Analysis
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