# QUARTERLY IMPACT REPORT **Q4 2023** --- # IMPACT SPOTLIGHT # CNOTE BORROWER SPOTLIGHT ## Kaua’i Federal Credit Union Provides Relief for the Restaurateur Chef John Paul Gordon’s life took an unexpected turn when the challenges of homeownership in Kaua’i collided with the tumultuous rental market of the pandemic. Previously an executive chef catering to tourists on the island, John Paul found himself unemployed and navigating the difficulties of making ends meet. The median home price on Kaua’i surged from $800,000 to $1.8 million during this period, adding further strain to his already precarious situation. Like many locals, he was forced to juggle multiple low-wage jobs to navigate through these housing challenges. Fortunately, he was connected with Kaua’i Federal Credit Union (KFCU), a CNote Impact Cash® partner, which had received federal dollars as a part of the rent relief initiative to help support under-resourced communities struggling with rental payments. With the money he was able to save through the rent relief program, John Paul was able to take on almost $50,000 in debt to launch Table at Poipu. Within three months of opening, John Paul was debt-free, and in his first year, John Paul projects the restaurant will make $1.6 million in revenue. Better yet, he’s been able to employ and provide full benefits for nearly 30 employees. John Paul is back to paying $5,000 a month for his two-bedroom, one-bath rental duplex, but he’s thankful that he had 15 months of rent relief. It helped him both to get through the trials and tribulations of the COVID-19 pandemic and to make his dreams of owning his restaurant come true. *“The rent relief program gave me the freedom to fail,” he said,* *“and I just went for it.”* ## GENERATING IMPACT As a certified B Corporation and a Delaware public benefit corporation, CNote has a purpose of advancing economic and social justice by unlocking access to impact investments. We seek to build a more inclusive economy by driving capital to under-resourced groups via impact-driven financial institutions that are on the front lines of supporting community needs. CNote builds solutions to make sustainable change by incorporating community voice and the values of co-creation into all aspects of our work. ## Beyond Numbers: Assessing Impact Through Community Integration CNote’s impact framework, developed to assess and report on the positive impact made by community financial institutions (CFIs), includes a key category: “community integration.” This category helps us gauge how closely CFIs remain connected to the underserved communities they serve and the strategies they use to adapt their products and services in response to evolving community and borrower needs. One aspect that can strongly support community integration is the governance structure of the institution, serving as a means to embed accountability to underserved communities. All of CNote’s CFIs are impact-driven financial institutions and have governance structures that support underserved market accountability including: **CDFIs** demonstrate accountability through advisory boards comprised of members from the under-resourced communities they serve. **Impact-driven credit unions** feature boards elected by the membership, composed of the credit union’s members. **Mutual banks** are directly owned by their depositors and don’t have external shareholders. --- # FIXED INCOME SOLUTIONS CNote’s fixed income solutions allow both institutional and individual investors to fund targeted impact initiatives while diversifying their portfolios. Investments in CNote’s Flagship Fund, Wisdom Fund, and Custom Notes support CDFI loan funds that offer affordable and accessible financial products. These products help entrepreneurs start and grow small businesses, provide families with affordable housing options, and expand access to healthcare, education, and other community resources. ## CNOTE BORROWER SPOTLIGHT ## David Akinniyi, Baltimore Community Lending Baltimore Community Lending (BCL) is a mission-based CDFI in CNote’s Flagship Fund portfolio whose loans help low-income, low-wealth, and other disadvantaged communities join the mainstream economy. They supported David Akinniyi, founder and owner of the Akinniyi Group, a real estate development and leasing company based out of Baltimore. Akinniyi bought a parcel of land where he planned a multifamily apartment building. While he’d purchased prebuilt properties before, constructing a new build was a more challenging experience. BCL helped Akinniyi secure better interest rates than other lenders were offering and provided him with the mentorship he needed to make sure no details were overlooked. Thanks to Baltimore Community Lending’s diligent work and partnership, David completed construction on the building and has begun welcoming tenants faster than would have been possible on his own. Unlike out-of-town real estate opportunists, Akinniyi plans to stay in Baltimore. He hopes his new apartment building and the larger residential community he’s planning will provide a home for residents who want a decent place to live and thrive. *“I just really want people to have a good place to live. It’s not just for money. It’s more to enhance the city.”* ## CDFI loan funds used fixed income capital from CNote investors to support the following lending activity in Q3 2023: **88%** of loans originated to Black, Indigenous, and People of Color (BIPOC) borrowers **70%** of loans originated to low- to moderate-income (LMI) communities **9,435** of loans originated to women-led businesses ## Navigating Capital Challenges: The CDFI Balancing Act In a challenging capital environment, CDFI Loan Funds face a significant hurdle as the cost of new capital has sharply risen to 7.5% compared to the average 2.5% over the past five years. This increase limits CDFI Loan Fund’s ability to maintain low loan product rates essential for meeting the needs of low-income borrowers and underserved communities. **“The rising rate environment has caused traditional lenders that have supported CDFIs to slow down their support,”** noted Chuck Wall, CFO of Renaissance Community Loan Fund. “This has caused us to halt funding new first mortgages that do not qualify to be sold to correspondent partners, as our available financing capital is rapidly diminishing. This is a large portion of our mortgage financing business.” As CDFI Loan Funds grapple with raising capital, they face a surge in demand for their products. Traditional lenders’ tightened activities redirect more borrowers to community lenders like CDFI Loan Funds. The higher cost of capital remains a significant challenge, restricting their ability to fully meet this growing demand. A promising strategy is emerging in secondary market transactions. CDFI Loan Funds are increasingly leveraging loan sales and participations, freeing up capital crucial for originating new loans. This approach provides a vital avenue to navigate the challenges posed by the current capital environment. --- The Wisdom Fund (WF) is a fixed income vehicle that provides access to low-cost, flexible capital for women of color (WOC) entrepreneurs. It was co-created with CDFIs to bring new thinking, experimentation, and sustainable solutions to drive wealth creation. In addition to capital that directly supports entrepreneurship, CDFI loan funds in the Wisdom Fund portfolio participate in the Wisdom Fund Collaborative, which provides peer learning opportunities and occasional grant support. ICA Fund (ICA), one of CNote’s Wisdom Fund CDFI Participants, recently published a new research report, “Small Business Levers of Wealth Creation” which sought to test the effectiveness of ICA’s integrated advising and investment model on driving wealth creation in diverse communities. Dianna Tremblay, Chief Program and Strategic Initiatives Officer, shared some of their key learnings at the Wisdom Fund Collaborative’s Q4 2023 meeting. Key results included: **3 4** Business growth is higher when **1 2** founders have access to both advising and capital, instead of just one. Seeking capital leads to stronger growth, and ICA programming can help encourage this, especially among POC + women founders. ICA investments help founders secure additional capital — for every $1 invested by ICA, portfolio companies raised an additional $7. --- ## CNOTE BORROWER SPOTLIGHT ## TruFund and Poppin-With-A-Purpose Entrepreneur, Tanesha Sims-Summers TruFund – is a 501(c) 3 certified CDFI loan fund headquartered in New York City with field offices in Alabama and Louisiana. TruFund provided a $50,000 loan to Naughty But Nice Kettle Corn Co., a gourmet, hand-popped kettle corn company based out of Birmingham, Alabama, to complete the build-out of Naughty But Nice Kettle Corn Co.’s food truck — Miss Poppy — and to provide some extra cushion for miscellaneous expenses. *“We would not have been able to be up and running and popping around the city without that investment from TruFund,”* Tanesha said. *“But they didn’t just offer us lending, they offered us education.”* As entrepreneurs, sometimes we do need capital, but sometimes we need to learn how to be more efficient, how to streamline our processes, and how to allocate money effectively so that we can continue to grow.” To date, Tanesha has also taken advantage of several of TruFund’s program offerings, and through the CDFI, has connected with and learned from fellow entrepreneurs across Birmingham to strengthen her business. --- ## CNote’s Impact Cash CNote’s Impact Cash is a technology solution that provides clients a single administration point for deposits targeting social impact. Deposits are deployed with a network of impact-driven depository institutions that support BIPOC and LMI communities, as well as women entrepreneurs. Impact Cash deposits are offered to banks and credit unions to help them meet the changing needs of communities with supportive lending activities. This includes small business lending; affordable housing programs; financing for infrastructure developments; climate resilience and energy efficiency lending; and safe and affordable consumer lending products. **Impact Cash Program institutions used deposits to support their overall lending activity.** In Q3 2023, institutions reported: **44%** toward lending to BIPOC borrowers **55%** toward lending to LMI communities **61%** of branches in under-resourced areas **71%** of assets deployed in community as loans **$3.1B** in loans originated ## Affordable Housing Highlights **83%** of CNote’s Impact Cash Institutions provide affordable housing financing **71%** of CNote’s Impact Cash Institutions provide access to down payment assistance to help lower-income borrowers become homeowners. ## Impact Cash Program’s Financial Performance as of Q3 2023: **62** Institutional Age (Average) **14.7%** Capitalization Rate **1.04%** Deposit Growth Rate (Quarter over Quarter) --- # CNOTE BORROWER SPOTLIGHT ## Freedom First Credit Union and their Common-sense Approach To Homeownership One of Freedom First’s signature programs is its affordable housing program, where they take a “common-sense” approach to helping people get into homes, even in some of the most physically segregated cities in the country. In other words, Freedom First is willing to work with unbanked and underbanked individuals and to offer situational lending opportunities to nontraditional borrowers because the credit union knows its community better than anyone. For example, around Roanoke, the majority of firefighters work nine 24-hour shifts a month. Although many of these firefighters also work as emergency room technicians or paramedics, a large percentage of firefighters work seasonally. Unlike other lenders, Freedom First is willing to take the average of a firefighter’s seasonal and part-time income to determine what kind of down payment assistance or first-time homebuyer loan they can qualify to receive. In 2022, Freedom First made $26M in home loans to borrowers throughout their service area to LMI borrowers, secured $222,997 in down payment assistance for their borrowers through partner organizations, and prevented 7 home foreclosures with emergency assistance. *Allison Wolf, Housing Advocate at Freedom First* --- # Navigating the Digital Frontier: # Fintechs Empowering Mission-Driven Finance As the financial landscape undergoes rapid transformation, propelled by technologies such as robobanking and user-friendly apps, consumer expectations for a robust digital interface are on the rise. However, decades of undercapitalization, ongoing capacity constraints, and staffing challenges have left many mission-driven financial institutions struggling to keep pace with the evolving spectrum of digitalization. In response to this challenge, mission-driven banks and credit unions are increasingly turning to fintech partnerships to stay competitive. According to Cornerstone Advisors’ What’s Going On in Banking 2023 study, there are about 500 community banks and credit unions making direct investments into fintech startups. These collaborations leverage the community ties and trust inherent in mission-driven banking, and the agility of tech-savvy fintechs to rapidly develop new solutions. Partnerships with fintech solutions are viewed as essential for streamlining operations, retaining customers, and enhancing efficiency. Research indicates that fintech integration actively lowers financial intermediation costs, resulting in increased efficiency. Additionally, research done by the FDIC during the pandemic found that banks with robust financial technology capacities demonstrated better readiness to provide emergency capital to small businesses, creating a positive feedback loop of adaptability and resilience. Digitalization represents an opportunity for mission-driven financial institutions to expand their lending footprints and deepen their impact. The growing fintech collaborations enable these institutions to foster innovation, bridge the digital gap, and help grow their balance sheet.