Money + Meaning — Reaching Underserved Communities Through Community Finance

Welcome to Money and Meaning, a podcast where we connect with people around the world who are working to unlock the power of markets for impact. I'm Amanda Lee, Vice President of Programming and Operations at SOCAP Global. This podcast series is hosted by SOCAP Global and the Sorenson Impact Institute. SOCAP Global convenes the largest and most diverse community in impact through live and digital experiences that educate, spark conversation, and inspire investment in positive impact. We work under the leadership of the Sorenson Impact Institute, which helps organizations achieve their impact vision. The Institute is proudly housed at the University of Utah David Eccles School of Business. Each episode of Money and Meaning features stories of amazing people who are leveraging the power of capital markets for the betterment of people and planet in a just and sustainable way. In this conversation, recorded at SOCAP 25, we explore how targeted investments in underserved communities are delivering real, measurable impact, and what that means for the future of community finance. The conversation spotlights the broader movement to close financial gaps and create long-term economic opportunity with the goal of not just celebrating progress, but of charting a path forward for deeper, more aligned investment in community development. Enjoy the conversation. First of all, um, you know, sort of investing in, you know, sort of local communities is really a very, very important thing because of, you know, sort of what it means in terms of the livelihood of the individuals that are living in those places. Now, we're going to be focusing on public-private partnership, and we're going to be looking at a very specific program, and that's called the Emergency Capital Investment Program. And that's a US Department of Treasury program. It was a Recovery Act program that is really unique because of the fact that it was, um, you know, imagine in a sort of, you know, if you We all know how hard fundraising is. And imagine if, you know, you know, sort of somebody just magically said, "Here. Here's all the capital you need to really have substantial impact." That never happens, but it actually did happen, you know, sort of as through one of the Recovery Act programs, which is EESA. So, what we're going to do here is we're going to talk about that program in terms of what some of its early results are. And, um, you know, sort of what the impacts are on the institutions and what that may mean in terms of, you know, sort of, you know, future models for investment. Now, you know, sort of what I'd like is if we could have, um, each of our, uh, panelists sort of just introduce themselves and their background. We'll start with Saurabh. Thank you. Thank you, Janie. Uh, and thank you to Sukey for the invitation for this important panel. My name is Saurabh Narayan. I'm president and CEO of, uh, a nonprofit community development financial institution, CDFI. Uh, we invest in CDFI banks and minority banks, and we invest in low-income communities nationally. Uh, we've been in the business for 30 years. Uh, and in banking for 40 years. I don't know how that works, but Thank you. Yeah, thank you. I'm Payton Batliner. I'm the chief lending officer at Native American Bank. We're headquartered in Denver, Colorado, but we got our start up in Montana on the Blackfeet Reservation back in about 2001. We just opened a branch up on the Tulalip Reservation just north of Seattle about an hour. Um, so we're expanding and a lot of that is thanks to EESA and other, you know, public-private partnerships that we've leveraged in the past to grow the bank. So, happy to talk about that more. Thank you. Do I have to press anything here? >> No, no. I think you're good. >> just speak. Um, hey, everyone. Uh, my name is Mike Federkanczly. I'm the CFO over at Beneficial State Bank. We're a certified B Corp CDFI based out of Oakland. We were founded by Tom Steyer and Kat Taylor to change the banking industry. My CEO was supposed to be here, but he flaked as of Friday. So, unfortunately, you're stuck with me. I'll try my best. Usually, I'm more behind the scenes. He's the face of the company, but excited to share some of the the great things that we've been doing with ESIP so far and what we want to do in the future. All right, very good. Now, just to level set because I'm sure, you know, some people in the room know what the ESIP program is, but many others probably don't. So, just by way of background, in 2020, and this was in the midst of, you know, sort of the kind of the COVID, you know, sort of crises and, you know, some of the economic fallout and then sort of some of the kind of social unrest that was happening at the same time. Congress and the Trump administration worked together to basically create really an unprecedented which was about a $12 billion package. And this was really intended to be, I'll say, anti-recession, but it was more than that. It was really focused on trying to provide long-term investments into CDFIs, which are community development financial institutions for those that don't know. And these are basically financial institutions. They can be banks, they can be credit unions, they can be loan funds, they can be venture capital funds that are focused on serving low- and moderate-income communities. And at least 60% of their activities has to be focused on that. Now, the ESIP program was focused on the the banks and the credit unions, which are, you know, the depository, the regulated entities. And so, you know, this was the act provided, it was $12 billion total, $3 billion went to the CDFI fund, you know, through some of the programs over there, but $9 billion went to ESIP. And ESIP was really intended as kind of long-term growth capital for depository CDFI banks and credit unions. Um, Um, and I'm wondering if Kathy Mann is here. Is she here? Is she in the Oh, there she is. Perfect timing. Kathy, um, CDBA, uh, my organization, uh, was, uh, one of the leaders in terms of getting this enacted by Congress and Kathy was one of my partners in crime in terms of in terms of getting it done. And she's from Inclusiv, which is, um, the trade association for the CDFI credit unions. So, thank you, Kathy. Perfect entrance. So, um, so anyways, what ESOP was really intended to do was to help these institutions do even more and really scale up the level of activities they were providing in the low-income communities with a real intent on trying to unlock access to capital for some of the hardest-to-serve places or let's say, you know, the smallest of businesses or nonprofit organizations or others that make a real impact but have a hard time in terms of accessing capital. So, um, you know, really the, um, the value of these this capital to mission-focused institutions cannot be, you know, sort of overstated and it's been very successful to date. Now, most of the institutions got their money in 2022, so we're still early in the trajectory and our our two bankers are going to tell us a little bit about what this has enabled them to do already. Um, but just a couple of stats and this is from the summer of 2022 when most got their money through December 2023, the ESOP participants reported total originations of $58.3 billion. And, you know, was divided amongst different kinds of activities, but you know, the vast majority of them, you know, are were what they call qualified or deep impact activities, which are some of the hardest hardest to, uh, do activities. So, I guess with that, what I'd like to do is I'd like our, uh, bankers, you know, we're going to start with them in terms of questions. You know, so first, you know, sort of and maybe I'll start with Mike and then we'll go to Peyton. You know, sort of um how has the ESOP investment opened new opportunities for your bank and how has it changed the way your bank approaches its work? Yeah, um great question. So I sort of step back and look at it from our mission. Uh our mission is to help uh more people and help people more. Um so if you think about capital I don't know if there's a lot of bankers in here or if they're non-bankers um and apologies I just got this on Friday so I've been I mean I have to read off this a bit. Um but capital in its simplest uh form is one of the two critical inputs you need to grow a bank. The other being liquidity which is essentially deposits. Um so we're a $2 billion bank today but in theory with the additional capital that we received we could be a $5 billion bank um based on yeah sort of allowable capital ratios. Um so we're not trying to grow for growth's sake. We're trying to grow because of impact. But if you just think of it and do sort of simple math and say, well, if they're $2 billion today a billion three of that is loans, you know, you can grow to $5 billion now all of a sudden our loan book might be able to grow to $3 billion, right? And so now as long as the loans that we're making are of equal or greater impact than the loans in existence, then we just made, you know, a much uh a much bigger impact. So I can give some examples of the programs that we've done. Maybe uh Peyton can just kind of share, you know, what his uh bank has done and then I can go back to to some of those examples. Yeah, and I'll I'll follow your framework there. >> [clears throat] >> Uh when we received ESOP funding about $37 million back in uh 2022 we're about a $200 million bank. So an order of magnitude smaller, right? Um but I mean it's been transformative. We're now a $400 million bank. We're capitalized to the point where we can grow to $800 million kind of organically. Um so that is a a impact for what we do out in the native community. Um and I think we'll talk about specific projects that we're funding, but it really allowed us to punch above our weight, right, in building community facilities, critical infrastructure, financing projects, getting partners that would never play with us involved, and that's that expertise piece, right? Capital's important. You need to have the minds behind it to actually be willing to work on these projects. Um so we have some really innovative projects that we've done with these dollars that brought people together and built just critical infrastructure that communities need. And and in terms of the capital, I I know Janine kind of mentioned the background on it, but um not only did they give, they actually all of you actually came from US taxpayers, so thank you very much. Um Uh not not only did they give unbelievably favorable terms. Um the the the essentially the dividend rate we're paying on this capital is 2%, so the biggest and best banks in the world couldn't even get close to getting that. So it it's it's much appreciated by the banks that did receive it because otherwise they generally have a much harder time raising capital, and if they do, it's at a much higher rate. Um so again, that just affords us a better ability to deliver on those projects. And to the extent we deliver on the lending uh that Janine had mentioned, I mean, we as a CDFI and a Native American bank as a CDFI and MDI, sort of by definition are going to be doing that lending within those communities, uh but this just allowed us to enhance it, and to the extent we do more and more, we're effectively able to get that dividend rate down even further, which again is just more capital for us, which means more reinvestment there. Um we have a bunch of different verticals within our bank. Um some we're looking to expand further, and I can talk about a partnership in a second, uh but one of our core portfolios that we have is in the auto lending space. We had actually acquired a bank about 7 or 8 years ago uh in the California Central Valley. Um and and so our focus there is twofold. There's some really nefarious lenders out there in terms of how they approach auto lending. And so we've tried to change what we do there with our partners and and and how we treat our customers. But another program that we've been able to been able to grow more significantly is what we call our auto refinance program. So I can give you some sort of real world examples there. That's most of our originations today. So you may have a customer that maybe they didn't have the best credit a year ago to go to an auto loan and it might have been in the high teens, maybe mid teens. And as they've improved their credit and we also have services that actually help people improve their credit or at least give financial counseling. We can go out there and redo their loan at something like 8%, right? So that's a 5% differential. And if you kind of equate that, you know, math to let's say on average the the loan size is about 30,000. That's $30 a month. That's meaningful for the the types of communities where we're investing in. So that's one of the big programs where we've been able to while we're already doing it, now we can go double what we were going to do before. Again, that's that greater impact. The other thing that we have a huge focus in is in the affordable lending space or affordable housing space. As you know, um the cost of housing keeps going up across the the country. It's really really tough for people at the lower wage scale to be able to afford stuff. You know, we as an organization actually just kind of on a side have a program where we're paying our our sort of a lowest experienced people above market cuz we believe in in more of that equity. But nonetheless, not all firms do that and it just it's tough for people to afford housing. So in as much as we can support that affordable housing space. And it was not only the ESIP that allowed it to allowed us to do it, but as a CDFI, at least prior to this administration, we were eligible for significant grants that were great in that we were able to redeploy those grants to other nonprofit developers in the affordable housing space such that, you know, they may get a reduction off their interest rate or maybe there's a closing cost credit that went back. And by doing so, they in some cases went from not being able to financially afford a project to being able to financially afford it. So, in some cases it's a question of like, can we actually build that affordable housing or not? So, that's been a great program where the ESIP's given us the capital, but then that's been coupled with, you know, some of the CDFI programs. Unfortunately, that's if, you know, you follow that, that's that's not in the greatest shape right now with this administration, but I know there is bipartisan support for it, and so I'm hoping that that'll rebound because regardless of sort of the color of your state, like the the congress people have acknowledged that this makes a huge difference. It's like almost reinvested for I think I've heard it, Janine, what's it? 8:1, 10:1 back in the community with that. But, those are two examples for us. We also have a focus on climate-related lending. I would say that's not as seasoned as our other portfolios, so we're looking to see how we can deliver more on those fronts. Do you want to give some examples of what you've been able to do with the money? >> So, kind of structurally, what do banks need? We need capital to raise our legal lending limit so that we can finance bigger projects and loan loss reserves, so if things go wrong, right? So, ESIP fundamentally did that for us and allowed us to play in a space where we could go after projects that were supported by other public programs like new market tax credits, if you've heard of those. Structurally, it's a pain if you're not 10 million and above in deal size for those types of of projects. So, when we applied for ESIP, it was health care and housing um that we were primarily targeting. And we funded a number of health care-related deals that are 20 million and above for us, which is amazing, right? Um one specific deal, which our chief credit officer 2 years ago won an award from NAFOA, the Native American Finance Officers um convention for the deal of the year, which was with Lakota Ray or LCO. Um it was a $44 million health care deal. We bundled new market tax credits. NABE provided Native American Bank provided $20 of source loans into the new market tax credits uh structure. And then we also paired that with a USDA guarantee. So, I mean, we used all of the And we brought in five CDFIs, four Native and one non-Native. So, um talk about just putting all the pieces together to solve a critical problem, which was health care, you know, in an underserved area, right? So, and we've done that with Pawnee. Um we've done that with Pit River. Um we've built housing with Dry Creek um Rancheria. And we also rebuilt the Denver Habitat for Humanity headquarters with these dollars. So, you know, we kind of we do a lot with a little, right? So. So, very good. What I'm wondering uh both Peyton and Mike, how has the uh this program and the receipt of this money, how has it changed just sort of the way your bank approaches its work? You know, from a you know, how you're looking at the future and so forth. Yeah, I mean, we talked about the scale. Um I think one of the other things for us that I think is worth mentioning is how can we scale um more effectively? Um so, with this capital, we're actually able to redo our entire technology stack. We had one that um didn't quite meet the needs of the strategies we're trying to go towards. So, we did spend the better part of 2024 instead of focusing on growth converting our entire technology stack. That's going to enable us to do more, deliver more across the spectrum of, you know, customer or um personal consumer customers, larger commercial customers, and it's already starting to pay dividends in that because we've talked about sort of the the lending that we do, which makes a difference in the communities. But, even the deposit taking, even though we're the ones that are taking in money, you know, when you're providing the right financial education, when you're providing the right services and advice for the small businesses to be able to effectively manage cash and run their business, that's part of the whole sort of banking ecosystem. Um and that's one of the ways that's you know, enabled us to do that. You know, fortunately we have a really thoughtful board. You know, for us they've sort of reaffirmed our strategy this past July of um you've got the new technology. You've got some critical hires. No more excuses. Go get that into the community. So, we're we're we're really pushing to do that. I will say, you know, one of the challenges that we would have as well as them is at the end of the day we're still a bank. We're heavily regulated industry. We have to run our bank in a safe and sound manner. So, as much as I can sit there and say we could in theory go from 2 billion to 5 billion. If we went from 2 billion to 5 billion in short order, you know, we we'd have our regulators knocking down our door because we have a fiduciary duty to our depositors and the FDIC fund, right? You're covered sort of 250,000 or less, but we have a lot of large large depositors, big nonprofits, big for-profits that those deposits aren't insured. So, if we're not running our bank in a safe and sound manner and something would happen, you know, then they're going to lose you know, their money. So, obviously that that's first and foremost. How do we approach it from also a risk management appetite so that that comes into play in all the decisions that we make as an organization. >> [clears throat] >> Yeah, and we're also updating our tech stack, which is a process. Yeah. So, yeah, absolutely. It kind of frees you up to think about, you know, what what do our customers need, borrowers need, depositors need, treasury management, what services do we need to provide for for large relationships, right? Where we we didn't really think about that before because we were too small. So, now we can have those relationships going forward. And tribes are getting to be very sophisticated organizations with complicated business processes. They need banking partners that can facilitate, you know, their needs and what they you know, what their growth plans, right? Which, you know, Native American Bank at $200 million can't do that for a large, you know, casino, gaming, hospitality, right? Tourism tribe. So, you know, we want to get there eventually. So, it's allowed us to think about that. How do we grow to make sure we're not only meeting those critical infrastructure needs for tribes and their members, but also how do we bank tribes as, you know, entities, right? So, that's absolutely critical. And then the last thing I'll say is patient capital. It's allowed us to be patient as we develop these deals, these new market deals. They can take almost 2 years to put together and put all the pieces together. And tribes are governments and they come with the same administrative complexity that any other government comes with. So, patient capital's extremely important, you know, to have that there is is critical when we're structuring these projects at the beginning. Let me ask one more question. We're going to go to Saurabh. You've talked about a lot of the opportunities and how it's changing your institutions, but what have been the challenges? You've had, you know, this is like, you know, magic fairy gives you a big bunch of capital and capital has always been the thing that holds everybody back. So now you get the capital. But what are some of the challenges because you guys got this these resources at a time when the economy was not behaving, you know, sort of in a way that was particularly made it easy. So I'm wondering if you can you can speak to that. >> [snorts] >> What Yeah. Whoever wants to go first. Yeah, human capital, right? >> capital is what We had to expand what we did and how we did it and learn how to how to finance and structure these more complicated deals working with third parties and consultants, right? These new market tax credit you get on a closing call and there's 20 lawyers on there, right? From all different entities. Um so I mean it we had to grow that capacity internally to be able to do that. We wanted to lead so that we could bring in deposits, which was a key part of this, you know, that that you have to bring in deposits to facilitate that growth as well and we did that by bringing in the construction deposits, right? And and leading those projects on the construction management deposit side and drawdowns. So that was kind of a a unique way that we kind of managed that, but as those run off, as these projects get built out, those deposits run off our balance sheet. So we need other partners to come in and begin banking with us as well. So that's what we're looking at now. Yeah. Mike. Yeah, and I I think the keyword for me is that it's patient capital, which is phenomenal. My my CEO likes to say it's all carrot and no stick. Um we could literally out and stop doing our lending, not that we would cuz that's not who we are, but there there there's no penalty in doing so. So it really enabled us to be patient and get that infrastructure built cuz we don't want to build build it on a you know, uh, foundation of sticks. So I talked to you about the technology, um um, uh, piece that we did that enabled us. We we had made some critical hires, a chief operating officer, making sure that we had that foundation in place, um, before we started layering on. Uh, this way, as we grow, we knew it was sound and secure. Um, uh, just from, you know, what what Payton said, the other critical piece for us is, uh, deposits, um, building that liquidity. So, you know, the way a bank works is, you know, it's essentially for every dollar of capital, you know, you can have $10 worth of assets or loans, but you need the other nine to be filled out with deposits or or other funding, but you really want it to be deposits, otherwise you run into run into some risk issues. Um, so anyways, it it's given us, uh, the chance to be patient, um, get through the things that we needed to get to, um, but now for us, you know, what we're trying to step on the gas a little bit and really, you know, get this money in into the communities that we have. Um, we don't have that same new market, uh, challenge that, uh, Payton mentioned, but, um, we as an organization, um, and who we stand for as a mission, uh, I I think about 60% of our customers, um, are 60% of our deposit balances are from non-for-profit entities, um, and so they're facing their own challenges right now. So, while we do a great job retaining our customers and keeping them and continue to grow them, because of the challenges that they're facing, um, while they're still staying a customer of ours, you know, we're seeing some of their deposits start to run their cash, I mean, their cash is our deposits start to run off because, uh, some of the grants and other sources of funding is is starting to dry up. So, now we're thinking sort of strategically, how do we continue to deliver for those organizations, but really expand who else, uh, we can bank, um, that's still part of, uh, our our mission, um, uh, universe and and grow that way. All right, um, we're going to go to Sarab and from the I get his perspective from the impact investor sort of what this means. But before I do that, I wanted to note that we are going to be doing a Q&A and you have somebody who Han, do you have somebody who's somebody's going to be passing out I guess pieces of paper. So if you want to write down your questions and they'll bring them up here to us. So Sarab, you know, Sarab from the perspective of uh you've worked with banks for a long time. You know, Sarab you have an investment portfolio that includes a series of different mission focused banks and you've also done deals yourself on this. Um you know, the ESOP program has provided a really great opportunity for you know, the CDFI banks and credit unions to grow and to scale and to do more. But they've also some of the big challenges have been raising deposits, raising new investments. And so while they have this new investment capital that helps them, the only way they can turn it into impact is by finding deposits. So you know, um and that's been really elusive. You know, many of them have their organic deposit bases in their communities, but they need so much more in order to really totally, you know, sort of put all of this new capital. So you know, what should bank CDFI banks be doing differently or what, you know, sort of should they do that they haven't been doing to attract depositors? Thank you, Janine. Uh firstly, let's do the numbers again. $9 billion as uh was it Mike or Peyton who mentioned 10x is the leverage, so it becomes $90 billion. Times 60% is the certification requirement is $54 billion. Times let's call it a turnover of 3 years, so that's whatever it is $162 billion. That's the amount of new capital that can be invested in low-income communities for impact. The banks are open for business and they're looking for high impact you know projects that can deliver the impact that they're seeking and I'll come back to the deposit question because that's related. To be able to get to that 162 billion dollars that I just talked about, we need to raise those deposits. And those deposits either come through construction related deposits that come in through normal non-profit customers or through you and I. This is a room of impact investors. We need to make sure that every cent of our deposit goes into CDFI minority banks. And that will only help you know them grow and grow scale for creating the impact that we're all seeking. So then you know the question becomes what is the rate and what is the term of these deposits? And I often say that a deposit is not useful to the institution if it is not one of these three things if not all three. It's long-term. So if you give me three months deposits, it's okay but it's not okay. You give us five year deposits and Mike's going to love you and Payton's going to love you. It's got to be lower rate. And it's sometimes got to be uninsured but you know that's a different uh kettle of fish that you know different people can think about. So what banks need to do is to demonstrate that this money is being put to good use. And both Beneficial and Native American Bank have done a tremendous job of talking about where the money is going to be put to use so the impact. Now the impact is an elusive question you know we all talk about impact. Impact is different for different people. You know, somebody wants job creation, somebody wants housing, somebody wants, you know, affordable housing. So, different kinds of measures of impact are there. Now, what banks need to do and are doing a very good job of just now, some of the work that you're doing, some of the work that we are doing, is to sort of segment our customers to meet their impact needs. So, somebody wants job creation in San Jose, California, well, we can create a bucket which sort of meets that need or Oakland in California or in in Alaska, you know, you just opened a branch in Alaska, yes. So, we need to be able to segment the impact creation. As well as I think in a certain sense, we need to be close to market, you know, we've got a pretty low cost of funds, lowest to cost of capital. So, we can be pretty competitive, you know, in terms of the rate that we offer. So, we have a surplus deposit that we place with our banks and we are able to get a pretty pretty good interest rate from our institutions. So, I think the banks need to sort of step up. This is a moment of strength where we can take on a very large position with these institutions, but we can open up behave lot more, you know, market friendly manner as well. All right, well, let me ask you another question, a follow-up, you know, sort of what you have said. Now, you know, sort of we have this program and you know, sort of it's a it started in 2022. Treasury, the US Treasury Department, which is the owner of these securities, they have a 10-year hold. So, you know, sort of we're still sort of young in the program. We've already had some pretty impressive results. Just to give you a sense of scale, there were 93 banks that were selected to participate in the ESI program and about 83 credit unions that were selected. Um, so how do you think this program sort of will impact how investors see this group of institutions in the future and you know, what will they want to see from the performance of these institutions so that when we get to the end of that 10 years um, you know, sort of they'll be, you know, even more interest, you know, sort of in this in this group of social enterprises, I will call them. So, we are an impact investor in a CDFI. Our portfolio has about 15 16 banks. We know another 100 banks around the country. Uh, we've done some work in our past life in credit union world. Uh, part of billion dollars of the 9 billion dollars sits in our banks in our portfolio. We are really excited by this thing. We're excited not only from the impact perspective, I talked about the impact aspect of it, but also from the valuation perspective. Uh, if you think about it, if you get again, I'll do the math on it and do it quickly. Uh, 2% capital times 10, so that's the cost of capital is 0.2%. If you're earning a margin of 3% just now, that margin is suddenly gone up to 5%, 4 and 1/2 5%. So, as an investor, I am very excited because all our institutions will get valued at much higher multiples than uh, they have ever been in the past. This is a single largest gift in the context of the title of this panel, this is single largest, I call it a gift, partnership between the public sector and the private sector for the purpose of creating impact and I think these guys are doing a fantastic job in that answer. All right, very good. Um, now getting to one of the points that Mike, you know, sort of alluded to earlier in his remarks. Um, You know, the economic fallout is what created, you know, sort of the atmosphere that this program was the economic fallout from COVID as well as some of the other, you know, I'll say social unrest, you know, sort of, you know, after the death of George Floyd as well as just the concerns about, you know, stabilizing the economy is what led to the creation of it. You know, and this was at that time it was the Congress and it was the Trump administration. So, now here we are fast forward a number of years later. We have a new Trump administration. And despite the partnership that there was during the first administration to create this program, the last 9 months have marked a really dramatic change in a sort of in terms of the, you know, sort of the position of the administration towards, you know, sort of this industry. So, how has the changes in the political environment, you know, sort of affected your institutions and how do you think CDFIs should pivot in the current environment? And that second one's for you, too, Sarab. So, Mike, do you want to go ahead? Yeah, yeah, I mean, I go back to our vision. Help more people and help people more. That's sacrosanct. We're not going to abandon that. But it doesn't mean there there won't be changes in terms of how we approach things, right? So, I mentioned affordable housing lending. I mentioned some partnership with CDFI that enabled us to do some loans that maybe we otherwise couldn't do. So, we're still going to make loans, but now maybe we have to do it a little bit more on market terms because we don't have that subsidy to help it out. So, we're in we're looking at alternative sources of grant-type funding to help facilitate that, but we're also saying, you know, we as an organization need to stand up without that and maybe deliver it in in different ways. So, Sarab talked about sort of low-cost deposits. That's been you know, sort of a bread and butter for us and again it unlike maybe you know your traditional community banks you know we're not just trying to drop that to the bottom line. We do want to show that as a bank we can be profitable like other community banks not for the sake of just making money but again I go back to why our founders found this bank in the first place was just to show that a bank can do good and still be profitable and if that holds then you makes the other banks start to emulate it in terms of the practices that are out there for us. So it it has created challenges for us when we're trying to figure out the best way to battle through it but as long as we keep our North Star around a mission there may be some changes to it but you know we're still driving towards that in sort of every decision that we make. Payton Yeah. >> [clears throat] >> For those that don't know a couple weeks ago the CDFI fund employees those are the federal staff that run the CDFI fund received a letter saying that they might be riffed by December 16th. >> Meaning meaning terminated. >> Yeah yeah reduction in force. So public private partnership if we don't have the public component to partner with right there's not that private development and that private capital that Michael alluded to which is a one to eight right $1 of CDFI fund dollars managed by those critical staff right comes out into our communities there's 64 native CDFIs. How many other CDFIs are there 14? Oh there's 1400. >> Yeah 1400-ish. That one to eight right so $8 of private capital flows into that model. That goes away if you don't have staff on the other side to actually assist us in running these critical programs. So Yeah and the ironic thing about this is that the CDFI still have really strong bipartisan support even though the Trump administration proposed zeroing out the programs in the new year, the House Republicans actually put the money right back in again. Now, the Senate hasn't acted yet, but you know, sort of this is just sort of showing some of the chaos that we're dealing with right now where the administration is saying we don't like this, the Congress is saying we do like this, and not just the Congress, but it includes the Republicans, too. So. >> Right. Yeah, absolutely. I mean, wide bipartisan, you know, support for that. Um Like along with, you know, administrative turmoil is the government shutdown, right? We're right now waiting to close on four deals, $26 million, right? They're just sitting there. We have approvals in hand. We just need the staff on the other side, right? So that we can close. So, literally sitting on our hands, sitting on capital. We have another one like that that's slated to close in December, a big affordable housing deal that from what I'm hearing now, because of it, it may not actually push to next year. So, you know, every delay you have is is one less month or two less months of, you know, someone being able to be in a home. So, it it is real and tangible for people. So, good. Your thoughts? And how we should behave differently? Uh Well, not necessarily how we should behave differently, but you know, [laughter] sort of you know, sort of just in terms of, you know, kind of the pivot. How do How do we How do we manage this environment? Well, before I go there, I want to say thank you to Janine and Kathy for the easy program. I mean, I think these guys were the architects of putting that program together. A lot of money that's coming, and I really appreciate that. Thank you. >> [applause] >> It's under recognized, and that's why I said it's important to sort of say it. Uh >> [clears throat] >> So, you know, as an impact investor, uh you know, firstly, I will just continue to sort of talk about the business model a little bit more. You know, I often call myself a tough love kind of a guy. You know, we need to evolve our business models such that we do a lot more things as big guys and gals. You know, larger loans, larger deposits, larger sort of, you know, oomph factor. Uh And I think whether it's the Republicans or the Democrats, they all want success in the local market. And you know, Mike and Payton are right. Without some of the CDFI fund subsidies, some of the harder to do deals will not be possible. But this is a moment in time where we have received really low-cost capital. And we can invest for long-term growth. So, we need to step up and you know, demonstrate to the politicians who are, you know, uh who as as Janine rightly pointed out, who provide bipartisan support to the sector and strengthen their arms. And strengthen the arms such that they will continue to provide long-term this thing. So, as examples, you know, if there is a tough deal where there's affordable housing or a nonprofit facility and it requires some subsidy, can we step up either, you know, take a higher level of risk, can we find other philanthropic partners, can we find, you know, other local city and state government money to make those deals happen and demonstrate that, you know, these institutions uh can can get to the next level of of scale. Uh these are very difficult times. Um but this is a moment in time where we can evolve. All right. I think we're going to open it up for questions. Does anybody have a little a a with a question on it they wanted to uh bring forth or if you just want to stand up and ask your question, that's fine. Yes, Steve. How well overall are these loans or the program itself in terms of people paying them back? >> [clears throat] >> Are they rated default? So, there's no issue or argument if they're performing anything. Uh well, to keep the program going, like, what's the collateral Yeah. Yeah, that that it's a great question and one I get asked a lot, you know, what is what is it like lending to tribal communities? When we're lending to a tribal government or tribal tribal program, the default rate is zero. They're not going to let their health care facility go bank, right? Their tribal administrative complex, that's generally what we see. So, extremely low default rates. Um tribes can set their own codes, they're monopolies, they're sovereign entities. When we're lending to a tribal utility, they're a monopoly that can set their own rates, right? So, they're I think it's kind of a a good thing and a bad thing that banks don't know, you know, how stable lending to tribes is is that I don't have to compete as much with them, right? Um the other ones that that don't want to learn about this. Um so, yeah, I mean it's it's been pretty amazing. Yeah. I I I can tell you that >> [clears throat] >> in our portfolio uh the non-performing loan rates, the loss rates are minimal, consistent with what Payton just said, minimal. And outperform the peers in the market. This is a very strong story. It's a story of CDFI banks, minority banks, credit unions operating in the toughest markets and having the best quality of assets. And, you know, it's it's the you know, the world of investor community who don't think beyond the next 15 minutes in that sense, will often say, "Oh, working in low-income communities is very risky." No. There's experience sitting here of the last, you know, 30 years even as a CDFI, which demonstrates it's not as risky. The difference between perceived and actual risk is very small. All right, very good. Uh the other question we got is um what is your recommendation on how to access ESIP loans? Uh we're a nonprofit providing affordable housing for disadvantaged populations like those who are formerly unhoused or incarcerated. Our bankers, how do you find out how how do you find out how to access >> please. I'll I'll connect you with our lending team. Um uh so, in all seriousness, um uh you know, we do affordable housing up and down the West Coast. We're in Oregon, Washington, and California. But, I think for something even like that, we would consider um you know, going outside of our footprint. So, I don't know who had the question, but please come see me and I'll uh exchange information and we can and and connect you with our credit team and and see if that's a viable project that we could support within our credit box. Yeah, and we have a nationwide footprint. Um and we we don't just bank natives, right? In the tribal communities, right? We'll we'll bank anybody. We can't redline against, you know, uh non-native communities just like, you know, other banks can't redline native communities. So, um we often bring in whatever local CDFI is in the area or regional CDFI. We refer to CDFIs if, you know, the deal's not good for us, go talk to them. They might be able to, you know, work with you on that deal, bring it Sometimes there's a little TA that's needed at the front end of deals that we as a bank can't necessarily provide. So, we'll refer to those partners as well. Okay. Now, there are about 1,400 CDFIs across the country. Not all of them are ESIP participants. Like I said, 93 banks, 83 credit unions approximately that are participating in the program. But, I think probably CDFIs across the country, you know, if you've got a good deal, if you've got a an affordable housing project, you know, sort of you should go talk to them. So, sorry, were you going to say something? No, I was just going to say that is very This is a national convening, yeah, global convening, but at least from a national perspective, you probably find a CDFI anywhere in the country. So, talk to one. Uh and it's very easy to access the names on the funds website. Uh but also, you know, the important thing to keep in mind is with E-SIP, we have the ability to take on larger positions. What, you know, Payton described earlier was a $40 million transaction, yeah. $40 million transaction, which wouldn't have happened otherwise. And most developers would say, "Ah, these CDFIs are small guys." No, they're not. They can do a lot more today, yeah, so. Okay. Um something for uh Mike and Payton. How do you find the loans to do? Because often at conferences like this, some of the sessions I've sat in for the last 2 days, you know, I sometimes hear from nonprofits and for-profits, they're like, "Oh, I just can't find anybody interested in doing the kind of deal I'm doing." How do you find How do you find the customers that, you know, become your borrowers? And, you know, sort of what, you know, sort of you know, what would you recommend for somebody who's looking for for capital right now? Yeah, I mean, we have a great uh sales team that's embedded in the community. So, they're attending events like this, other ones, um getting their name out to know that, you know, we do uh these types of mission lending. And and it's just building that those partnerships organically. Um so, so that's how we source a lot of our stuff, but I would say we're even going further now with E-SIP. Um we talked about some of the scale of our other businesses like in auto, um but another example is um you know, we're about to partner with another non-bank CDFI who originates mortgage loans um for sale. So, we're going to start uh getting a program where purchasing those. It helps us from an ESIP standpoint. It will also allow us them um because they're selling that and they sort of churn mortgage loans they they originate and sell that all other things equal they can start doing more little mortgage loans. So, if they have an outlet for those types of loans um with a bank like us or some other bank then they can continue to do more of it. So, you know, that's one of the ways we partner. Uh it sounds like I think what you described Janine is sort of maybe a little bit more one-off. Um uh you know, honestly whether it's uh a CDFI which would be preferred if you have something that's sort of specialized in in in aligned from a mission standpoint. Um but you can reach out to just any community bank, right? Some of the community banks that aren't CDFIs are still in support of those types of activities. So, I'd encourage you one, you know, if you have some specific deal that's, you know, maybe talk after this. But more generally if something comes down the road or you need lending, um there's just, you know, different banks in in the area. And I I don't want to take it even further because a lot of times banks have sort of stricter rules in terms of um you know, operating, you know, how long you've been operations for, whether you're profitable, that sort of thing. They're just, you know, they they have, you know, what we call sort of a tighter credit box. Um but to the extent a bank doesn't work, um there's what about 1,100 non-bank CDFI loan funds um that I'll also could potentially facilitate um uh uh a loan funding for you depending on, you know, who they are and what type of loans uh they they play in. Is it So, I'll kind of echo that is that behind the scenes I think a lot of people think banks are competing for deals. We're often referring between each other saying, "Hey, can you peel off a piece here, participate here? We can't do this deal. This is, you know, something that I think you would like." So, definitely those behind the scenes, you know, uh industry networks. Also, you know, I've been in I was born in Indian country. I was born on a reservation. Uh Um I've worked in it my entire professional life. A lot of people at the bank have as well. Um so, you know, community connection and getting out there I'm also on the board of the Denver Indian Center. So, you know, really kind of being community oriented is how we find deals. The Moccasin Telegraph is fast. So, um you know, when there's new developments out there, um it often lands at the bank right kind of as a first brush. Now, oh, is this something that Native American Bank could get um involved with? Um and yeah, it's uh it's interesting. We need to do a better job marketing. A lot of people ask me, is that a real bank? >> [laughter] >> So, um yeah, we absolutely, you know, need to get out there and market our services and what we do and um get people outside of the community, right? Um involved in our bank, in our mission, and what we provide to these communities. So. Okay. I'm going to see if Oh, yes. Question in the back. Um my name is Morningstar Community Capital, and you can definitely affirm it's a real bank because you can invest in it. >> Yeah. And they're also a positive investment that you'll see in the services they offer that uh indigenous parties there, but we work with a lot of families and foundations on how they can get their right to justice across different asset classes. And it's been interesting and quite frustrating that people don't always prioritize cash. Um and you want to do the sexy part of impact investing, and I'm curious how you've been able to get that to be more of a priority in the conversation cuz it's so opportunity and authentic and not perceived um with getting people to really step up and do it. Uh it's something we're all working on and hopefully we'll all be more effective in that. So, so, uh you know, I'm the chief lending officer, but about a month ago I took over our Treasury Management Services department as well. So, I want to know the answers to that question. How do we get more social depositors that are interested in putting their money with an MDI, right? How can we better tell our story, convey, "Hey, we're going to this money will land in 95% of our portfolio, loan portfolio is with tribes, tribal nations, tribal entrepreneurs, right? It's going to land in Indian country and make an impact. How should I best tell that story, right? I think coming to events like this helps, but um I will learn, right? >> Well, all of the foundations or you know, those representing DAFs or impact investing uh operations, the thing that you need to know is you have cash that's sitting there in your account. And if you put it, you sort of in a CDFI bank, and you know, sort of all these are FDIC insured, it can be 100% insured by the federal government. Mike. Yeah, no, that's great. And uh um so, I'm not on the treasury side. I mostly sit behind a desk and crunch numbers and I get the sales team going out trying to source them, but same sort of community events. Again, we're B Corp, so they participate in that. Um they're just active in the community uh for us. Um but when I think of of a deposit, like you're almost sort of whether you're a consumer or business, you know, you're almost stating your values with where you put your money, right? Um because banks take that deposit and turn around and lend it. So, if you think about the practices of banks that are doing good, you know where those funds are going to go. If you have banks that aren't necessarily doing the things that align with your values, it's going to go there if you give it to them. Um one of the things that's really cool for us um is we have what we call our deposit calculator. Um so, it's not as if you give us a deposit and we go take it and apply it to a specific project, but we can show you the pool of deposits that we have and then the loans that they're invested in. So, you can get a general sense of the types of activities. Obviously, yours sounds great. 95% um back to, you know, Native American enterprises. For us, it's a little bit more dispersed, but you can still get a sense and I know our team used that quite frequently, whether it's a consumer walking into the bank or in their RFP process for larger depositors. But, you can really see that impact you make and and and that's a key and critical thing for us. Thank you, Morgan, [clears throat] for that question. Hi. I think one is the impact which everybody is talking about and I think the work of CDFI banks and credit unions is just, you know, unparalleled. I also think that there is lack of knowledge of some of the new systems that have come into It's not that new. So, for example, you know, back in the day we had started something called CEDARS, you know, and not many people know that you can get insurance for up to 50 million dollars or 100 million dollars now. No, it's it's Well, the way that it works is any deposit you put in a FDIC insured financial institution This too for credit unions well, it's up to $250,000, but through a product called CEDARS and you may not know about it, but every every bank in the country knows about this this product. What What you can do is, let's say you want to put a million dollars in, let's just say. The way the CEDARS network works, it's really an exchange of I'll say sort of charters amongst, you know, sort of thousands of banks across the country. So, you could put a deposit in, let's just say Native American bank or Mike's bank, and you put a million dollars, they keep the 250, they send the remaining 750 out to three other banks who then make reciprocal deposits back into their institution. So, they get a 100, you know, they get a whole million dollars that they can re-lend out. >> Yeah. So, you know, if you think that, oh, it's just a small amount of money, 250,000, it really isn't, you know, sir, because you can actually go much, much higher and get it fully insured. Yeah, and you know, and the idea is, you know, without getting into the nitty-gritty of CDARS, if you got a million dollars in that example, if you got 10 million dollars, if you have money coming in from different places, put it in the American Bank and Beneficial State Bank, you get 100% insurance from the government. That's just the fact. And if I think there's an education aspect of this thing, there's a knowledge aspect of this thing. I think you guys are doing, you know, So, somebody asked me this question today. So, with that, and the third thing that we need to do is to get better systems where we can open online bank accounts. Again, many institutions are sort of investing in technology to be able to receive money online, click a button, like ING Bearing, whatever it's called now, yeah, Capital One. You know, um, you know, they started this whole thing about, you know, open an account with a click of sitting in the middle of the night, I want to transfer 250,000 into a bank, I can do it. These banks can do it today. So, I I think there's a little bit of education about what is possible, and then the infrastructure, you know, that is being put together. All right, Jan. Why don't you ask by show of hands whether or how many in the audience are already banking with a CDFI? Oh, awesome. Great question. With a show of hands, how many have worked with either, you know, financial services through a CDFI bank or credit union, or maybe a loan, you know, sort of through, let's see how many we have. Oh, wow. Okay, that's a that's a good number. Good. Good to hear it. Good to hear it. All right, very good. So, that's a question, Jan. Thank you for answering it or asking it. So, anyways, do we have any last questions before we wrap up? All right. Okay, that being the case, I want to thank I want to thank Mike, Payton, and Sarah for sharing their wit and wisdom with all of us. >> [applause] >> Thank you for listening to this episode of Money and Meaning. If you were inspired by the conversation and are interested in getting more involved with the SOCAP community, join us at the next SOCAP. Learn more and register at socapglobal.com. Be sure to subscribe to Money and Meaning wherever you get your podcast to be notified of our next episode's release.