Transcript NCIF Social Performance Metrics

NCIF Social Performance Metrics
A step towards quantifying social impact and
increasing the asset class of CDFIs
March 14, 2008
Saurabh Narain
[email protected] | 312-881-5826
Outline

NCIF Social Performance Metrics

Raising Deposits using NCIF Social Performance Metrics

Increasing the Asset Class of CDFIs

Next Steps
WWW.NCIF.ORG
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NCIF Social Performance Metrics
Four Key Metrics using public data – HMDA, FDIC data
1.
Development Lending Intensity (DLI – HMDA )
•
DLI (HMDA) = % of HMDA loans originated in investment areas/total
HMDA loans originated
•
A proxy for lending test
2. Adjusted Development Lending Intensity (DLI - HMDA)
•
Adjusted DLI (HMDA) = DLI minus percentage of ‘high rate’ loans
•
High rate loans = 3% over index
•
Adjusted DLI eliminates one kind of predatory loans
3. DLI – Low Income People: % of HMDA loans to low income people
4. Development Deposit Intensity (DDI)
•
DDI = % of branches in CDFI investment areas/total branches
•
A proxy for services test
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NCIF Social Performance Metrics
Quadrant 2:High DLI + Low DDI: Lots of lending in Quadrant 1:High DDI + High DLI: Demostrates a
LMI areas but not too many branches -- EXAMINE
very high focus in LMI areas - STRONG SUPPORT
Development
Lending
Intensity (DLI)
Quadrant 4: Low DLI and Low DDI - FOR LATER
Quadrant 3: Low DLI + High DDI: Since many
branches in LMI areas there could be a social
orientation -- EXAMINE
Development Deposit Intensity (DDI)
Recommendation
Identify banks in quadrants (1), (2) and (3) for support
since they are likely to have a community development mission
WWW.NCIF.ORG
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Search for Potential Community Development Banking Institutions
100%
Quadrant #1
90%
Quadrant #2
80%
70%
CDFI
DLI_05
60%
MDI
Threshold
50%
40%
30%
20%
Quadrant #4
Quadrant #3
10%
0%
0
10
20
30
40
DLI
All Banks and Thrifts
Urban Banks
Rural Banks
Certified CDFIs
FDIC Minority Banks
Average
21.06%
20.90%
21.53%
62.00%
48.02%
50
60
DDI_05
Median
15.31%
15.28%
15.76%
63.10%
47.54%
DDI
Average
28.28%
27.77%
28.81%
73.16%
60.20%
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70
80
90
100
Possible Threshold
Median
DLI
DDI
14%
20% Assumed to be Assumed to be
50% in this
0% 40% in this
83%
analysis
analysis
66%
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Raising Deposits using
NCIF Social Performance Metrics
WWW.NCIF.ORG
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Example 1
Depositor
Wants to place $3 million in deposits in a certified CDFI, located anywhere in the
country, that meet the following criteria:
Bank must be a certified CDFI
Development Lending Intensity (DLI) > 40%
Development Deposit Intensity (DDI) > 50%
Located in California, New York or Illinois
Check www.ncif.org
Depositor allocates deposits among the resulting list of banks after
qualitative due diligence.
WWW.NCIF.ORG
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Example 2
Depositor
Wants to place $2 million in deposits in Minority Depository Institutions (per FDIC),
located in LA, NY, FL, IL, TX and CA that meet the following criteria:
Institution must be an MDI, per FDIC
DLI greater than 40%
DDI greater than 40%
ROE greater than 10%
Assets greater than $250 million
Check www.ncif.org
Depositor allocates deposits among the resulting list of banks after
qualitative due diligence.
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Increasing Asset Class of CDFIs Using
NCIF Social Performance Metrics
WWW.NCIF.ORG
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Increasing Asset Class of CDFIs
Development
Lending
Intensity
Quadrant 2
Quadrant 1
For later
Quadrant 3
Development Deposit Intensity
Assets < $2bn
1. High DLI and High DDI
2. High DLI but low DDI
3. Low DLI but high DDI
4. Low DLI and low DDI
Number
375
314
735
2,982
Average
Assets
263,087
305,255
272,446
337,261
Housing
Focus
32.99%
27.98%
37.32%
36.99%
Median
DLI
57.42%
51.57%
20.48%
10.82%
Median
DDI
71%
20%
60%
0%
• DLI screen of 40% applied; DDI screen of 50% applied
• Likely to be between 375 (Quadrant 1) and 1,424 (Quadrants 1, 2, 3) CDBIs
WWW.NCIF.ORG
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NCIF Social Performance Metrics – the Future
Does bank focus on housing (SF&MF>40% loans)?
No
CRE
DLI (CRE)
Yes
DLI (HMDA)
SME
DLI (CRA)
What % of branches in investment areas?
DDI (SOD)
WWW.NCIF.ORG
DDI (SOD)
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Next Steps
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Pilot Programs: NCIF is in the final stages of:
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Foundation Deposits: Working with a foundation that has adopted NCIF Social Performance
Metrics to place up to $25 million in deposits as reward for their social impact.
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NMTC dollars: A major bank may invest its NMTC dollars through banks that meet the NCIF
Social Performance Metrics screens.
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Private Equity: NCIF has identified 2 banks for placing private equity due to the fact that
they meet the initial social performance criteria. Other co-investors may join.
Expansion of the NCIF Social Performance Metrics to other classes of loans

Given that these metrics are more predictive for housing oriented banks, NCIF seeks ONLY
ONE data point from the other banks – so that they can distinguish themselves from the
other banks.
 Loans originated or purchased during the year with their address (excluding any
identifying information to protect privacy).
 NCIF will geocode to create other DLIs and help enhance the visibility among
stakeholders of the reporting institution.
A special thanks to the F.B. Heron Foundation for having supported this work
WWW.NCIF.ORG
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National Community Investment Fund

National Community Investment Fund (NCIF) – since 1996
 Nonprofit trust, private equity fund, certified Community Development Financial Institution
(“CDFI”)
 Only private equity fund of its kind in the US
 Mission: NCIF invests private capital in, and facilitates knowledge transfer to, depository
institutions that increase access to financial services in underserved communities.

Cumulatively invested $24.9 million in 37 institutions in equities/debt
 84% of institutions are minority-focused, 65% of dollars are in minority-owned institutions.
 81% of institutions in urban markets, 31% in rural and reservation markets
 $2 billion in more than 56,000 development loans; CDFIs leverage capital 12-27 times.
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NCIF Social Performance Metrics created to increase asset class of community development banks.

CDBI Exchange Network
 Best practices in valuation, risk management, governance and development impact; partner with
trade associations, regulators, investors and funders
 Commemorating the impact of CDFIs in distressed communities

Advised by ShoreBank Corporation – largest and oldest CDFI with $2.0 billion assets
WWW.NCIF.ORG
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Contacts
Saurabh Narain
Chief Fund Advisor
National Community Investment Fund
2230 South Michigan Avenue, Suite 200, Chicago, IL 60616
(312) 881 5826/[email protected]
WWW.NCIF.ORG
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