Benefits of CDFI Certification

What are the Benefits of CDFI Certification?

Community Development Financial Institution (CDFI) Certification is a designation given by the CDFI Fund (a division of the U.S. Treasury Dept.) to eligible financial institutions serving distressed or underserved communities. Participation in CDFI programs has been highly profitable for those banks that have been able to obtain CDFI Certification.

The primary benefits of CDFI Certification including the following:

1. ATR/QM Exemption

CDFI banks have a blanket exemption from the Truth-In-Lending Ability to Repay Rule (and therefore also are exempt from the Qualified Mortgage requirements). This removes the issues that many Community banks face in having to comply with the more limited QM exceptions or, barring that, eliminate or significantly reconfigure their in-house mortgage loan programs to comply with ATR.

2. Bank Enterprise Award (BEA) Program

As an incentive to increase financing activities in underserved areas, the Bank Enterprise Award Program provides grant funding to banks who demonstrate that they have increased their lending (or certain other activities) in designated “Distressed Communities.” Any bank can apply for a BEA award, but CDFI banks receive higher funding priority and the award calculation for CDFI banks is 3 times higher than for non-CDFIs. These are formula driven grants for loans the banks already have on their books. It is not grant funding that is asking that the banks go out and make specific loans; rather, it is a reward for having made loans in certain areas with the hope that the banks will continue to do so in the future. Small business loans, commercial real estate, home improvement, affordable housing, affordable

housing development and small dollar consumer loans are all potentially BEA eligible. Nearly all our CDFI Bank clients receive BEA funding each year, with most receiving $245,547per bank in the most recent BEA Application round. In the 2019 BEA round, Logue Advisory Group clients received $7+ million in BEA Awards representing 30% of the total BEA funding nationally. These awards are booked directly to the bank’s bottom line income.

3. CDFI Program Funding (FA and TA)

The CDFI Fund also has a more competitive grant program each year in which CDFIs compete for Financial Assistance (FA) or Technical Assistance (TA) grant funding. Under the FA program banks can apply for up to $1 million in grant funding which can be utilized for capital, loan loss reserves, financial products (loans), financial services (deposit products) and/or development services. These applications are typically focused on a bank’s needs for additional capital to sustain their growth, expansion plans for branching to a new market, plans to introduce new product lines and the like. Under the TA program, banks can apply for up to $125,000 for equipment and other capital expenditures (think capacity building). We have had many bank and bank holding company clients receive FA awards between $700,000 and $1 million each over the last several years. In the 2016, 2017 and 2018 FA rounds, Logue Advisory Group clients had a 100% success rate in FA Applications.

4. CDE Qualification

CDFIs automatically qualify as Community Development Entities or “CDEs” for purposes of the New Markets Tax Credits Program. We have seen a few CDFI Banks thus far receive NMTC allocation awards from the CDFI Fund, and we have also seen some banks participate in NMTC transactions using allocations received by others. We continue to have conversations with CDFI Fund Staff, bankers who have won allocations, and others regarding new ways our CDFI Banks can take advantage of their CDE status to benefit from the NMTC Program.

What are the Next Steps?

If you are interested in exploring the possibility of CDFI Certification for your bank, The Logue Advisory Group can prepare an informal suitability analysis based on publicly available information about your bank, free of charge.

If this initial analysis shows that there is a reasonable likelihood you qualify, you can engage us to do a deeper review of your loan and deposit activities and make a recommendation whether you should prepare and submit a CDFI Certification Application.

Thank you for your interest in CDFI certification and in working with The Logue Advisory Group. If you would like to talk further, please contact Holly Logue at (601) 427-9122 or hlogue@logueadvisory.com.