Annual Report 2022 CRAFT3

In 2022 Craft3’s attention was on both the crucial and immediate work of investing in Pacific Northwest communities and building our long-term plan for a better, stronger future both for Craft3 and for the Pacific Northwest. By the end of the year, we had accomplished much – record lending to the people and places of our region and a new plan to guide us for the next five years beyond. We thought long and hard about the future of the Pacific Northwest in 20, even 40 years, and how Craft3 could contribute to creating a thriving, just and empowered region.

In addition to thinking about a longer time scale, we also approached the process differently than in the past. To create a plan that would address the region’s most pressing challenges, we collaborated broadly, working with many local partners and experts, Craft3 staff, and our Board. We also challenged ourselves to be ambitious in terms of our goals, our values, and our willingness to commit to the long term. Our new plan focuses not only on capital, but also on relationships and voice as key strategies to help us build partnerships and collaborate. We did this because we believed it would help create a strategic plan that would resonate more broadly and guide us all in working to create the future that the Pacific Northwest deserves.

Because of this context, our 2022 Annual Report is a little different. As usual it provides an overview of the past year. But it does so by focusing on the regional challenges — Systemic Racism, Climate Crisis, and Rural and Tribal Economies — around which we organize our Strategic Plan and our work for years to come. We hope you enjoy learning about the early stages of this work and gaining a sense of what’s to come.

Our last two Annual Reports were focused on the economic fallout related to the COVID-19 pandemic. As the urgency of the public health crisis recedes and as many aspects of the economy recover to pre-pandemic levels, we, like many others working towards economic justice, realized it would not be enough to rebuild the pre-pandemic status quo. That economy was not working for far too many people.

In this report you will learn about how we are working to expand economic opportunities and build a thriving, just, and empowered Pacific Northwest.

Sincerely,

Adam Zimmerman, CEO and Bruce Brooks, President

Expanding Access to Capital

In 2022, Craft3 made $15.8 million in loans to homeowners. Those dollars went to:

In 2022, Craft3 made over $42 million in commercial loans. Those dollars went to:

OUTCOMES

In 2022, Craft3’s lending supported the following outputs and outcomes.

Investing in a better future

To create an economically just future, we’re changing how we lend.

In 2020, Craft3 began offering lower rates and better terms for BIPOC-owned businesses, based on the recommendations of our internal Equitable Lending Initiative working group. We did this because despite good intentions we were not serving BIPOC entrepreneurs at the scale we desired. A long history of systemic racism and a profound wealth gap means that entrepreneurs of color face often insurmountable barriers, even at our own institution. It is less likely that entrepreneurs of color meet conventional underwriting criteria because they typically have less access to personal wealth or friends and family investments. BIPOC entrepreneurs also often do not trust conventional banking and financial institutions.

This shift in Craft3’s lending has helped us better meet the needs of small businesses and nonprofits seeking capital. In 2021, we launched a new Business Services Program that provides one-on-one coaching and loan readiness support particularly to entrepreneurs of color. The Business Services Program also coordinates referrals to a network of culturally competent professional service providers, with subsidies for low-income entrepreneurs.

In Portland, Oregon these changes have helped catalyze a cluster of loans in diverse neighborhoods outside the downtown core — areas that have historically not received much investment. These efforts have been in close partnership with Prosper Portland, the economic development and urban renewal agency for the City of Portland that prioritizes investments in underserved communities through its Neighborhood Prosperity Network and Inclusive Business Resource Network.

This work has also benefited from a major grant through JPMorgan Chase’s AdvancingCities initiative. This initiative aims to prevent gentrification and displacement of people and businesses from targeted neighborhoods. Craft3 chose to direct its investments into neighborhoods that included those in the Neighborhood Prosperity Network.

While community economic development is typically a slow process, we have already made multiple investments in East Portland— most of which simply would not have happened previously. These investments — many to BIPOC-owned businesses and BIPOC-led community organizations — are providing jobs, expanding opportunity, and creating or maintaining essential community services.

Investing in a better future

To prepare for and mitigate the effects of climate change, we’re helping individuals and communities carry out energy efficiency and climate resilience projects.

One way we’re helping the Pacific Northwest meet the challenges of climate change is by providing affordable and accessible Home Energy Loans. These loans enable homeowners to reduce energy use, transition to electricity, and adapt to the changing climate. Every year we help hundreds of homeowners finance energy efficiency projects. Cumulatively, since 2009, we have made over 5,000 Home Energy Loans, totaling more than $60 million to urban, rural, and suburban residents in communities across our region.

These home energy upgrades bring many benefits to families and communities. Installing a heat pump, energy efficient windows, or insulation can reduce energy consumption year-over-year, avert greenhouse gas emissions, and improve indoor air quality. This is particularly important given hotter summers and longer and more intense wildfire seasons. This work is performed by hundreds of local contractors and the economic activity of these projects benefits local economies. Finally, and perhaps most importantly, energy efficiency projects mean the world to homeowners. They can make homes more comfortable, safer, more valuable, and less costly to cool and heat. They also help ensure that families that can’t afford the upfront costs of energy upgrades are not left behind or adversely harmed in the clean energy transition.

Our Home Energy Loans were designed to make financing energy improvements easier, more equitable, and accessible to more homeowners. One way we do this is by not charging higher interest rates for lower credit scores — standard practice for a bank. In fact, in 2019, we stopped using credit scores in underwriting and instead review homeowners’ financial picture and consider their management of their current financial obligations. We did this because credit scores systematically disadvantage BIPOC borrowers who tend to have less accumulated wealth. This wealth gap is due to a long history of racial discrimination in employment, home ownership, finance, and more. We are also proud to offer home energy loans for property types that typical lenders cannot finance, such as owner-occupied manufactured homes sited on leased land.

To meet more homeowners where they are, we offer discounted rates and fees for loans to lower-income households, we do not report to credit agencies, and we partner closely with local organization for outreach. For example, in response to a need we heard from clients, contractors, and community advocates, we expanded our loans to also finance critical repairs, such as roof repairs, electrical upgrades, asbestos removal, or other measures required before undertaking an energy project. Financing critical improvements enables more homeowners to make energy upgrades. Lastly, we’ve created Spanish-language outreach materials and have Spanish-speaking lending, closing, and servicing staff to support our customers.

In addition to financing for homeowners, we also make loans for energy improvements for commercial real estate. One way we do this is by offering a .50% rate reduction on owner-occupied commercial real estate loans that include significant new energy efficiency measures.

Investing in a better future

To foster a thriving Pacific Northwest, we’re investing in creative and transformative projects in our rural and tribal communities.

Many rural and Tribal communities have struggled to transition from an economy based on resource extraction to a more diversified and sustainable economy. Inequities in economic opportunity, mobility, public health, and education threaten to hold back many of these communities. The rapid demographic and economic changes in our urban centers have exposed widening cultural and economic divides between urban, rural and Tribal communities. When this happens, it is a drag on the prosperity and progress of the entire Pacific Northwest.

We believe that when our rural and Tribal communities have access to economic opportunities, and essential services such as education and health care and entrepreneurs have access to capital, they can determine their own futures and thrive. When communities and entrepreneurs lack these foundational elements, they struggle. We view this challenge as an opportunity to work together and help build not just equitable economic prosperity, but to also partner in rural markets and Tribal communities to build a more environmentally sustainable future. Below are a few 2022 highlights.

Capitalization by Funder Type

Thanks and Appreciation

Thanks to all our customers and partners! You give our work meaning and we are grateful for your trust and your hard work. Special thanks to the businesses who let us share their stories.