As of December 31, 2024, CDFIs had strong capital structures, with solid net asset levels and manageable leverage. CDFI peer groups, with one exception, were maintaining an average cost of debt at levels similar to historical norms. Average interest rates increased notably only for the Community Facility and Commercial Real Estate (CFL) peer group, as these CDFIs raised more funds from sources sensitive to commercial rates, including from public markets. Portfolio performance was holding at near pre-pandemic norms, with the Business and Microlending (BML) portfolio hinting at potential weakness to come. Earnings for FY 2024 were also strong, with high operating surpluses and stable self-sufficiency levels relative to pre-pandemic periods. With this foundation, CDFIs were well positioned to manage future uncertainty.

CDFIs also have a long history of being reliable government partners, with bi-partisan support, in reaching underserved populations and communities. But historical support does not shield them from the volatility in federal policies, programs, and staffing that has come with the new administration.

How will the storm impact CDFIs? While CDFIs are predominantly private nonprofits, they and their borrowers are exposed to the federal government in numerous ways. Notably:

• CDFI Fund awards – The creation of the CDFI Fund in 1994 spurred and continues to support the growth of the industry, and the community and economic impacts it delivers. Its biggest contribution to the field is in capital grants, which have helped grow CDFI net assets, leading to increased ability to take on debt and grow. The CDFI Fund has strong bipartisan support given its proven track record. Nonetheless, the CDFI Fund’s resources and capacity could diminish in light of proposed budget and staffing cuts. While loss of these capital grants would slow the growth of CDFIs and the industry, it would not weaken the existing strength of individual CDFIs.

• CDFI Fund New Market Tax Credit (NMTC) revenues – In addition to capital grants, the CDFI Fund awards NMTCs which CDFIs use in organizing relatively large off-balance-sheet transactions that typically generate healthy fees related to closing transactions and managing the investment over their seven-year terms. The awards are very competitive and not all CDFIs have the capacity to access the program. The Community Facilities and Commercial Real Estate peer group has been the most successful with the program, with 73% of CDFIs in this peer group showing NMTC revenues in FY 2024. However, this peer group is small in number but members have relatively large asset sizes, and the NMTC fees represented a modest median 4.9% of earned revenue for the subset with these revenues. While NMTC awards create meaningful economic impact, the program is not core to CDFI operations, and net revenues have primarily been used to build net assets. In addition, most CDFIs conservatively do not budget for new awards, only for fees related to placing awarded credits and managing existing transactions.

• Government contract revenues – CDFIs earn government contract revenue from numerous departments and programs, such as HUD (for homeowner education), USDA (for rural small business technical assistance), and the SBA (for business center operations and education). The Business and Microlender peer group has the largest number of CDFIs that show contract revenue (37% of the group in FY 2024), and of these, contract revenue represented a median 20.1% of earned revenue. It is difficult to break out the respective percentages of revenue from government versus private contracts, but from Aeris experience, the larger source is likely to be government contracts. CDFI loan funds typically offset the loss of contract revenue through staff redeployment or cuts. It is worth noting that the loss of contracts that build and support borrower capacity may bring about some indirect negative impacts on portfolio quality. However, these services could continue with private funding although likely not on the same scale.

• Government programs funding CDFI loan funds’ borrowers – Again, the programs are numerous and diverse. Borrowers across the affordable housing and community facilities peer groups serving vulnerable populations are most reliant on revenues from government programs. An individual borrower may use multiple government programs that often flow down from federal sources through state and local municipalities. This flow-through complicates analyzing a borrower’s vulnerability to the decrease of such programs. In addition, CDFI borrowers may not be solely dependent on government program funding. Some have other earned revenue sources and private philanthropic support. The degree of a borrower’s vulnerability to changes in government programs is best understood by its CDFI lender.

These are the main areas where government changes could affect CDFIs and their work. The macroeconomic outlook is always a factor as well— a recession would present additional stress on loan growth and portfolio health. The CDFI industry proved its resilience during the Great Recession and more recently with the economic challenges of the pandemic. It is entering the current environment from a position of strength, and we can confidently say that CDFIs will remain on the front lines, working to pursue their missions, support their borrowers, and responsibly steward investor capital.

METHODOLOGY

This Aeris analysis draws on data from 147 CDFIs representing $23.5 billion in total assets on balance sheet. To avoid distortions in the median and quartile metrics, we excluded a few CDFIs that had not yet submitted data for calendar year end (CYE) 2024. As always, we are adding new CDFIs to the database and updating peer groups to capture shifting lending patterns. At CYE 2024, for example, some CDFIs moved from the community facilities to the housing development peer group. For the first time, we have added a fourth peer group for home financing CDFIs. Please note that many CDFIs engage in more than one type of lending activity, as well as other lines of business, including managing assets held in nonconsolidated affiliates or other structures.

• Small Business and Micro Lenders, “BML” – 74 CDFIs with total assets of $4.7 billion and a median of $41.7 million.
• Community Facility and Commercial Real Estate Development Lenders, “CFL” – 15 CDFIs with total assets of $9.0 billion and a median of $259.5 million. This peer group has the largest CDFIs in asset size.
• Housing Development Lenders, “HDL” – 44 CDFIs with total assets of $8.9 billion and a median of $145.0 million.
• Home Financing for Individuals, “Home” – 14 CDFIs with total assets of $841.0 million and a median of $36.9 million, the smallest median of the peer groups. This peer group grew from nine in 2017 to 14 in 2021 through 2024. The 14 in the peer group is referred to as the “current stable” group in the following analysis to highlight that earlier analytical calculations are not entirely comparable.

Most of the graphs in this report show point-in-time data at calendar year-ends (CYEs) for 2017 through 2024. Only the graphs of operating surplus and self-sufficiency show fiscal year (FY) data. Note that any pandemic effects are reflected in 2020 and 2021 data, with impacts lessening thereafter.

LENDING CAPACITY, MEDIAN: PRESSURE TO GROW

CDFIs will need to grow financing resources, either through increased net assets or debt, to continue to grow loan portfolios and maintain deployment at historically stable levels.

Deployment: Loans/(Net Assets + Debt for Financing), Median

Deployment is a simple measure of capital liquidity, calculated using on-balance-sheet data. CDFIs use a variety of tools to manage capital liquidity, such as debt with draws, lines of credit, and selling loans and loan participations, none of which is captured in the simple deployment calculation. Nonetheless, deployment is a relevant measure to assess the field’s relative liquidity and capacity to lend over time.

The BML, CFL, and HDL peer groups have managed deployment within a stable 5% range, except during the pandemic period peaks of CYEs 2020 and 2021, when CDFIs received historically high levels of grants to support activities and boost lending capacity. Deployment returned to historical norms post-pandemic as lending caught up with increased resources.

The number of lenders in the Home peer group has grown over the review period, with the most recent four years consistently representing all the CDFIs in the current peer group. The difference in CDFI composition is responsible for the lower median deployment in later years compared with early years.

Core Loan Portfolios*, Median

* Core loan portfolios exclude loans made under the Paycheck Protection Program (PPP) during the pandemic years.

The core loan portfolios of CDFIs in all peer groups have grown over the review period, although the pace and patterns of growth have varied.

• CFL peer group: The CFL median increased steeply during the pandemic and decreased somewhat post-pandemic but again began to grow in CY 2024 ending the year with a median portfolio of $210.0 million. While the median did not grow post-pandemic, the bottom quartile grew by 50.3% and the top quartile grew by 36.9% since CYE 2021.
• BML peer group: The BML peer group median grew by 80.8%, from $12.8 million at CYE 2021 to $23.1 million at CYE 2024, or at a compound annual growth rate (CAGR) of 21.8%.
• HDL peer group: The HDL peer group median grew by 77.5%, from $52.3 million at CYE 2021 to $92.8 million at CYE 2024, or at a CAGR of 21.1%.
• Home peer group: The Home peer group median grew by 47.0% from $14.5 million at CYE 2021 to $21.3 million at CYE 2024, or at a CAGR of 13.7%.

CAPITAL STRUCTURE, MEDIAN: STRONG NET ASSETS AND LOW COST OF DEBT

Unrestricted Net Asset Ratio: UNA/Total Assets, Median

The Median UNA ratios, except for the CFL peer group, are at or near review period highs. The BML and Home peer groups, which are the smallest in total assets, have the highest UNA ratios with medians of 37.7% and 38.6%, respectively, at CYE 2024. The HDL peer group, with larger CDFIs that have stronger real estate collateral, had a median UNA ratio of 31.3%. The CFL peer group, like the HDL peer group, has larger CDFIs with real estate collateral, but its pattern for the median UNA ratio has been different, with a low median of 20.7% at FYE 2024. However, in contrast, the CFL top and bottom quartiles at CYE 2024 were at review period highs, at 34.9% and 19.4%, respectively.

Leverage: Total Debt/Net Assets, Median

Please note the leverage ratio is based on total net assets, which includes donor restricted net assets for both lending and program expenses. Nonetheless, it mostly follows an inverse pattern to that of the peer group UNA ratios.

Average Cost of Debt: Interest Expense/Average Total Debt, Median

CDFIs’ mixed sources of debt, including mission-driven debt that is less sensitive to market pressure, have enabled them to control average cost of debt. The CFL and HDL peer groups, with larger CDFIs and a larger need for debt, had review period highs at CYE 2024, but within 300 basis points of CYE 2019, pre-pandemic rates. These peer groups include CDFIs that have accessed public markets for large capital infusions that they deemed cost effective. At CYE 2024, median cost of debt for peer groups were as follows: CFL at 3.2%, HDL at 2.7%, and BML and Home at 2.2%. CDFIs also use their net assets to lend. If net assets for financing were assumed to have a cost of 0.0%, the blended cost of capital for all CDFI peer groups would be lower. Since the cost of net assets is debatable, given resources necessary to raise capital grants, Aeris does not calculate a blended cost of capital.

PORTFOLIO PERFORMANCE, BOTTOM QUARTILE: PORTFOLIOS ARE HOLDING

To gain a more conservative perspective on portfolio performance, we examined performance metrics of the bottom quartile for all four groups. Allowance for credit losses were influenced by the adoption of the Current Expected Credit Losses GAAP standard, which had varying impacts across individual CDFIs, but overall small impacts on peer group median levels. Overall, performance at FYE 2024 was similar to pre-pandemic norms, with slight deterioration in some metrics that may signal the early stages of a weakening trend —although it is too early to confirm.

Note, gross charge-offs have been annualized for CDFIs with FYEs outside of the CYE. Because actual charges-off can be lumpy, the annualized data may not be indicative of the full fiscal year charge-off rate. The percentage of CDFIs in the peer group with non-CYE fiscal year ends are as follows: BML 41%, CFL 40%, HDL 41%, and Home 29%.

BML, Portfolio Performance Metrics, Bottom Quartile

Allowance levels during the pandemic for the BML peer group were elevated in the face of uncertainty, but actual delinquencies and charge-offs improved with federal, state, and local government support and philanthropic support of CDFIs and small businesses. Charge-offs and delinquencies > 90 days were at pre-pandemic norms at CYE 2024. Delinquencies > 30 days were at a review period high of 8.1%, compared to the previous review period high of 7.5% at CYE 2018, which could reflect somewhat weaker portfolios.

CFL, Portfolio Performance Metrics, Bottom Quartile

Allowances for the CFL group were also elevated during the pandemic. Delinquencies > 30 days were somewhat volatile, and delinquencies > 90 days were elevated post pandemic compared to historical norms, but both still low at 3.2% and 2.0%, respectively. Charge-offs continued to be low, ranging from 0.1% to 0.5% over the review period.

HDL, Portfolio Performance Metrics, Bottom Quartile

Allowances for the HDL group increased modestly during the pandemic but were relatively stable compared to other peer groups, varying between 6.0% and 6.7%. At CYE 2024, delinquencies > 30 days, delinquencies > 90 days, and charge-offs were all in the range of pre-pandemic levels, at 4.2%, 2.3%, and 0.3% respectively.

Home Financing, Portfolio Performance Metrics, Bottom

As previously noted, this peer group grew over the review period, with the current stable group in place as of CYE 2021, so historical data are not totally comparable. In addition, it is the smallest peer group, with 14 CDFIs, and as such more sensitive to individual CDFI performance.

EARNINGS, MEDIAN: PRESSURE TO GROW

Operating Surplus, Median

CDFI peer groups showed another year of median operating surpluses matching or exceeding historical norms. CDFIs in the CFL peer group benefited from receiving Yield Giving philanthropic grants — nine of the 15 CDFIs were awarded significant Yield Giving grants in FY 2024. While the CDFIs may not have recognized the full amount as unrestricted revenue in FY 2024, these grants have impacted the high median surplus for the fiscal year. CDFIs in the HDL and other peer groups also received Yield Giving grants, but since a smaller percentage of these larger peer groups received the grants, the effect on the median surpluses was less significant.

Percentage of Peer Group with Operating Losses

For another perspective on performance, and possibly an early sign of a weakening trend in earnings, we looked at the percentage of CDFIs experiencing an annual operating loss during the review period. No clear pattern appears from this analysis— FY 2023 losses appear higher than the norm but generally improved in FY 2024.

Self Sufficiency: Earned Revenue / Expenses

The self-sufficiency ratios shown in this table relate to the organizations as a whole, and, as noted previously, CDFIs do far more than lend. Some of the non-lending activity is supported by earned revenue but other activities, such as research and policy work, are purely grant-supported. Such grant-supported activities lower the overall organizational self-sufficiency.

• BML CDFIs typically require grants to support their lending and many have robust technical assistance activities, also supported by grants. The BML peer group had its lowest level of self-sufficiency in FY 2020, when most of the CDFIs in this group took high provision expenses to raise allowances in anticipation of greater losses due to the pandemic. In FY 2021, self-sufficiency reached a historical high because provision expenses were moderated or reversed as government and private philanthropic programs kicked in to support portfolio performance. Earned revenues were also elevated during the pandemic, increasing self-sufficiency, with many BML CDFIs earning fees from PPP origination as well as other government contracts to support small businesses during the crisis. Self-sufficiency for FY 2024 was at 57.8%, within pre-pandemic norms.

• As large-project real estate lenders, CDFIs in the CFL and HDL peer groups may be able to achieve near-full or 100% self-sufficiency for their lending operations through economies of scale. However, many also engage in non-lending activities, which may be supported through grants, reducing organizational self-sufficiency. Overall, these two peer groups have achieved higher median organizational self-sufficiency than the BML and Home peer groups. In 2021, median self-sufficiency increased as these peer groups earned greater government and private contract revenue during the pandemic to assist in supporting borrowers and communities.

• The Home peer group’s smaller CDFIs experienced considerable volatility in the self-sufficiency ratio, which remained below 60% for the current stable peer group in the most recent four years.

Earned Revenue from Government Sources for Fiscal Year 2024

* Contract revenue includes both private and government contract revenues. From Aeris’ experience, the majority is likely from government contracts.
** The percentage shown represents the percentage of CDFIs in the peer group with contract revenue or NMTC fees on their statement of activities.
*** The median % shown relates only to the subset of CDFIs with that revenue category.

All peer groups included CDFIs that have contract revenues and/or NMTC fees, but the importance of these revenue categories varies significantly. While meaningful to some individual CDFIs, these revenues are not the largest drivers of earned revenue for the industry.

• The BML peer group, the largest peer group but made up of smaller CDFIs by total assets, has the highest percentage (37%) of CDFIs with contract revenues. For this subset, the contract revenues represented the highest median percentage of earned revenue (20.1%). Contracts, including those with the SBA, were typically to provide business education services to the community and technical assistance to borrowers. In contrast, few CDFIs in the peer group (12%) have NMTC fees, which typically relate to large off-balance-sheet real estate transactions. However, when these CDFIs do have NMTC fees, the fees are large (38.2% median) relative to their smaller size.

• The CFL peer group, with a smaller membership but larger individual CDFI size, has been successful in accessing NMTC awards, as these investments are more aligned with their core lending than that of the BML and Home peer groups. Of the peer group, 73% earned NMTC fees. However, because the CFL CDFIs are larger in size, the NMTC fees are a smaller share of earned revenue (4.9% median). For the subset that has contract revenues (33%), it is a significant share of earned revenue (16.8% median).

• The HDL peer group, also with a real estate lending focus, is second in earning NMTC fees (27%). Fees are more important (18.3% median) than to the CFL peer group, consistent with their smaller median size. Of the four peer groups, contract revenue has the smallest representation (23%) but is a significant share of earned revenue (15.2% median).

• The Home peer group, focused on single-family mortgage lending, had only one CDFI with NMTC fees in FY 2024, most likely from monitoring activities, rather than closing transactions since the amount is small. Contract revenue is a component of earned revenue but not a significant one.