CDFI Counts on New Charter to Attract 'Impact Investors'

A small Virginia bank that specializes in financing rural health care centers and the renovation of landmark buildings has adopted a new corporate structure to help boost its appeal to mission investors.

Chartered in 2008 as a community development financial institution, the $110 million-asset Community Capital Bank in Christiansburg said last week it had become a state-recognized benefit corporation. Community Capital says it is just the second U.S. banking company to convert to benefit-corporation status.

As a CDFI, Community Capital's efforts to help breathe life into low-income neighborhoods while still earning decent returns on its investments are well-established. Now, as a benefit corporation that social mission is elevated to a status just as important as earning a competitive return for investors.

"It's a change in normal corporate practice," Teri Lovelace, Community Capital's chief impact officer, said in an interview. "It marries shareholder value with a public benefit. ... It's showing we have community and the public interest at the heart of what we do."

A desire to spotlight its social mission explains much of Community Capital's decision to pursue a benefit-corporation charter. The bank is owned by a nonprofit, Virginia Community Capital, and it does not offer any consumer lines of business. For deposits and capital, it relies heavily on support from foundations, nonprofits and larger banks seeking Community Reinvestment Act credit.

It is counting on its newly won status to resonate with those groups.

"Investors want a social mission component," Lovelace said. "They want to be impact investors."

Virginia enacted its benefit-corporation legislation in 2011. The law permits companies to write a social mission — like supporting low-income housing and job creation — into its corporate charter. While B-Corporations are still required to pursue profitability, their management and directors must also weigh societal benefits along with shareholder value in evaluating performance.

Maryland was the first state to write benefit corporations into its state code, in 2010. Thirty states have passed similar laws since then.  

"It's a great way to build mission into a firm's legal DNA," Holly Ensign-Barstow, an associate for policy at B Lab, a Wayne, Pa.-based nonprofit that helps companies achieve benefit-corporation status, said in an interview Tuesday. Ensign-Barstow said B Lab worked with Community Capital and that it took about a year for the company to win approval from Virginia's Bureau of Financial Institutions and the Federal Reserve to convert its corporate charter.

The benefit-corporation movement goes back to 2006, when B Lab was created. It helps companies travel the legal route to becoming a benefit corporation. For companies that are either unable or unwilling to seek a new corporate charter, as Community Capital did, B Lab offers a certification they can attain by meeting a set of performance guidelines and writing social mission into their corporate bylaws. Companies must renew their "B Corp" certification every two years, Ensign-Barstow said.

In either case, however, companies are choosing to elevate the mission aspect of their operations to a new level. The trend is catching on. B Lab has certified more than 1,600 companies globally, including more than 450 in 2015. That number, however, includes just four banks — all state-chartered community development financial institutions: Community Capital, the $907 million-asset Sunrise Banks in St. Paul, Minn., the $464 million-asset Beneficial State Bank in Oakland, Calif., and the $282 million-asset New Resource Bank in San Francisco.

Sunrise Banks' holding company, Universal Financial Corp., became a public benefit company under Minnesota law in January 2015. Now, in addition to their fiduciary responsibilities, Universal's directors must also consider stakeholder interests and are required to report on the company's overall social and environmental performance.

An ongoing increase in the level of social consciousness among consumers is driving the benefit-corporation trend, Jeannine Jacokes, chief executive of the Washington-based Community Development Bankers Association, said in an interview Friday. "It's a way for companies to distinguish themselves and demonstrate that they have a mission as well as a margin."

According to Jacokes, banks both inside and out of the CDFI sector are showing increasing interest in becoming benefit corporations. B Lab's Ensign-Barstow said the group's business development team has held discussions with a number of banks, including some that are not CDFIs. "I think our growth is a testament to the power this certification has with consumers," she said, echoing Jacokes.

Still, the benefit-corporation concept is relatively new, and unease among regulators may be restraining some banks from following in the footsteps of the four that have achieved certification. Indeed, Ensign-Barstow noted that the Office of the Comptroller of the Currency "has informally expressed some concern about banks becoming benefit corporations." B Lab is working with the OCC to address its concerns, she added.

Noting that no national banks have sought benefit-corporation status, an OCC spokesman declined to comment.

"There are a lot of educational hurdles to overcome" before more banks can become benefit corporations, "but now that a few have stepped up and done it hopefully others will follow," Lovelace said.

Sunrise Banks CEO David Reiling made it his mission to spread the word about benefit-corporation movement. He has made a number of presentations to industry groups, examiners, and other banks. Sunrise also served as an informal adviser to Community Capital. Inside Minnesota, bank officials have spoken about benefit corporations to numerous community and college groups.

Reiling said in an email Wednesday that the outreach efforts are helping build the Sunrise brand. "Sunrise does spend significant time educating our customers, prospective customers, and community," he said. "This opportunity has allowed our thought-leadership brand to be forefront in the movement both locally and nationally."