For the first time, a U.S. bank is putting its community mission on equal legal ground with turning a profit.
Virginia Community Capital, a nonprofit bank holding company with $150 million in assets, has converted the for-profit bank it owns into a public benefit corporation, a legal designation that requires it to meet higher standards of transparency and corporate responsibility.
The conversion, which was reviewed by the Virginia Bureau of Financial Institutions and the Federal Reserve over about the last nine months, will help the bank more easily attract investors who believe in its mission, president and chief executive Jane Henderson told The Huffington Post.
“We think it enhances our ability to sit in front of people who have impact investing capital and say to them, ‘we believe in this so much that we changed our governance model,'” she said, referring to investors who aim for their money to achieve social goals as well as get a financial return.
The ten-year old Christiansburg, Virginia-based institution is a community development bank and has been certified by the nonprofit corporate social responsibility group B Lab since 2012. As a result, becoming a public benefit corporation will not radically change how it operates. However, the designation means that those values will be legally cemented in its corporate charter.
“There’s a huge difference between a values document and the legal foundation of your company,” Perry Chen, a co-founder of Kickstarter, told The New York Times last September.
Community development banks like Virginia Community Capital are a small but quickly growing segment of the financial system. They are certified by the U.S. Treasury and focus on underserved, low-income communities. As of February, there were 121 community development financial institutions in the U.S., a threefold increase since 2001; they now have over $41 billion in assets.
One reason behind the rapid growth in community development banks is that regulators grant them limited exceptions to rules so that they can operate in markets that aren’t functioning properly.
“If you are a small community development bank in the Mississippi delta, you can’t do a lot of qualified mortgages,” said Jeannine Jacokes of the Community Development Banking Association, referring to home loans that meet stringent post-crisis standards for borrowers' incomes or credit history. “What your borrowers need is something different.”
Virginia Community Capital’s bank has sold a total of $3.2 million in preferred stock to Virginia Theological Seminary in Alexandria, the Cabell Foundation in Richmond and private individuals.
“As we continue to be successful and grow, we may have to look at what other forms of equity we can take to these impact investors and what kind of return we might want to wrap into that equity,” Henderson said. The move to become a benefit corporation broadens the market of potential investors in the bank.
Because the public benefit corporation is a relatively recent legal status -- 30 states have passed laws creating the designation over the last four years -- it’s still an uncommon step. But it has already garnered prominent adopters like crowdfunding pioneer Kickstarter, outdoor gear maker Patagonia and ice cream company Ben & Jerry’s. Last year, the holding company for Sunrise Banks became a public benefit corporation.
Henderson hopes that the bank's new status as a public benefit corporation will make it easier to provide the loans its borrowers need.