CDFIs Continue to Outperform Expectations in the Face of COVID Crisis

CDFI loan portfolio performance continued to hold through 12/31/20, while CDFIs shored up reserves and attracted high levels of contributions

This is the third in a series of CDFI trend reports tracking CDFI performance in the recession

One year into the COVID crisis and its related economic fallout, Aeris continues to closely monitor CDFI loan fund performance and to report publicly on trends via this series. We are performing this service in part to help the field’s many new stakeholders to understand the risk and performance of CDFIs.

When the pandemic and its related lockdowns arrived in the United States over a year ago, many feared widespread damage to CDFIs’ small business loan portfolios. Predictions of greater than 20% charge-off rates were common. However, the reality to date has been quite different: small business lenders have realized significant growth with access to new capital resources and portfolios continued to perform, as the analysis below demonstrates.

However, performance-to-date may not necessarily reflect the underlying health of small businesses. Risk clearly remains in the system. Aeris will monitor CDFI data closely for signs of portfolio deterioration as well as changes in the overall financial strength of the small business, housing development, and community facilities/commercial real estate lenders that we track.

The analysis below is based on data collected through the quarter ended 12/31/20 and focuses on (i) lending activity, (ii) portfolio quality, and (iii) earnings. We would like to express our continued gratitude to the CDFIs that voluntarily and promptly report quarterly data to Aeris, helping make these reports available to the industry.

Lending Activity

Loan portfolios continued to grow through 12/31/20, led once again by small business lenders with access to a range of emergency lending programs as well as through their traditional loan products. On average, small business loan portfolios grew by 23% from 12/31/19 to 12/31/20, far exceeding the historic 10% compound annual growth rate (CAGR) over the prior three- and five-year periods ended 12/31/19.

In contrast, growth of housing development and community facilities/commercial real estate loan portfolios fell below their CAGRs for the previous three and five years. Housing development loan portfolios grew 6.9% between 12/31/19 and 12/31/20 (compared to historic CAGRs of 15%) and community facilities/commercial real estate loan portfolios grew 11.4% (compared to historic CAGRs of roughly 13%).

Portfolio Quality

As of 12/31/20, small business lenders had not reported significant increases in delinquencies and charge-offs. However, the increase in CDFIs’ allowance for loan losses (ALL) may portend future portfolio deterioration as emergency support programs diminish. Average ALL among small business lenders grew from 8.5% at 9/30/20 to 10.1% at 12/31/20. Entering 2020, average ALL among small business lenders was 7.3%.

Community facilities/commercial real estate lenders’ portfolios performed similarly well, and these CDFIs also increased ALL as a hedge against future portfolio deterioration, albeit to a lesser degree than for small business portfolios. The average ALL among community facilities/commercial real estate lenders grew from 4.0% at 12/31/19 to 5.2% at 12/31/20.

Housing development lenders were the exception, as they did not significantly increase loss reserves above year-end 2019 levels and their portfolios continued to perform.


Across the board, revenue growth, both earned and contributed, was strong. This growth has been critical to keeping CDFIs financially healthy and ensuring their continued capacity to support borrowers and manage through the crisis.

As with loan volume, small business lenders led the way with the highest earned revenue growth among CDFIs, (with average annual growth 37.1% higher than in 2019). Revenue growth was driven by loan fees from higher lending volumes and from contract revenue for the administration of municipal, state, and federal-sponsored emergency programs. Average contributed revenue among small business lenders increased even more dramatically—by 2.4x, attributable in part to sizable new contributions booked in the fourth quarter of 2020, including those from philanthropist MacKenzie Scott, eight of which went to Aeris-reporting small business lenders. Average unrestricted operating surplus for business lenders rose from approximately $500,000 for calendar year 2019 to more than $3.0 million for 2020, a sixfold increase.

Earned revenue increased more modestly among community facilities/commercial real estate lenders, with an average 4.4% increase over the prior year. Seven community facilities/commercial real estate lenders each raised more than $20 million, each having received unrestricted gifts from MacKenzie Scott. The median contributed revenue at 12/31/20 was $4.8 million, compared with $2.6 million in 2019. Again, average surplus rose from $3.2 million for calendar year 2019 to $9.1 for 2020, a near threefold increase.

Among housing development lenders, the average and median earned revenue at 12/31/20 improved compared with the previous year, by 11.3% and 22.2%, respectively. Average contributed revenue was 66.6% higher than the year ended 12/31/19. Average surplus for housing development lenders rose from $1.0 million for calendar year 2019 to $2.7 million for 2020, an increase similar to that experienced by community facilities/commercial real estate lenders.

Contributed revenue will continue to grow in future quarters. As part of the $900 billion FY 2021 Omnibus Appropriations and Covid-19 Relief Bill, the CDFI Fund received $3 billion for emergency assistance to CDFIs. This is important support for the industry; however maximum awards are projected to be $1.35 million which would not significantly impact the capital structure of larger CDFIs.

This is the third in a series of CDFI trend reports tracking CDFI performance in the recession. Reports for Q3 2020 and Q2 2020 are also available.

Are you an investor with questions about the performance of your own CDFI portfolio? We are eager to hear from you. Contact us if you would like to discuss your portfolio, ask questions, or hear more about what we are seeing through our CDFI ratings and data collection work. Are you a CDFI loan fund that would like to participate in our database? Let us know.

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