A Fund’s Mission: Invest in Banks Supporting Communities in Need

The Mission Driven Bank Fund promotes economic development in underserved and low- and moderate-income areas.

“We were there at the creation,” Fraser Woodford, EVP and treasurer of Warner Bros. Discovery, recently told NeuGroup Insights about the Mission Driven Bank Fund (MDBF), which was developed in 2021 with encouragement from the FDIC. “We were there having discussions with the FDIC as this was taking shape,” he recalled. “They incorporated some of our ideas on what would be interesting. As such, it made sense to me that we were named a launch partner.”

The FDIC conceived the fund as a private investment vehicle that would invest capital in FDIC-insured minority depository institutions (MDIs) and community development financial institutions (CDFIs) that serve low- and moderate-income communities through small business loans, mortgages, and other financial services.

The fund gave corporations a tool to support small banks beyond making deposits, something Mr. Woodford found compelling. “Being a treasurer, I thought deposits were fine but it’s ultimately a short-term liability for a bank. Is there something more we can do?” The fund offered an affirmative answer to that question. One reason, underscored by the FDIC: every dollar of capital invested in an MDI or CDFI can increase its lending by a multiple of the amount invested.

With Microsoft and Truist Financial as anchor investors, Mr. Woodford’s decision to invest helped bring initial commitments to the fund to more than $120 million. It began making investments in 2024 (eight banks so far) and today has raised more than $190 million from corporations, including large banks; its final fundraising round will end in May 2025.

Elizabeth Park Capital Management, a minority-owned firm that specializes in investing in U.S. banks, is the lead fund manager and a member of the general partner. The other member of the general partner is Calvert Impact, which oversees technical service support offered to banks the fund invests in, including technology and marketing support. Calvert is also responsible for impact management and measurement.

“One of the things we liked about the MDBF is the involvement of Calvert giving it an overlay of metrics and solid analysis on the impact,” Mr. Woodford said from his office in New York. “Because we do want to make an impact at the end of the day by strengthening these institutions that are therefore able to benefit their communities. That will be the impact we’re looking for.”

The selection process. Paul Welch, head of private equity at Elizabeth Park, is the fund’s portfolio manager and a member of the investment committee that determines which of some 314 CDFIs and MDIs will best enable the MDBF to fulfill its mission of closing the racial wealth gap and deliver the impact investors like Mr. Woodford expect to see over time. “The fund’s relationship managers take the time to meet and work with each investment prospect to get to know that individual bank’s mission and strategic plan to fulfill the mission,” Mr. Welch explained when asked about the investment process.

“This diligence involves both qualitative and quantitative factors combining Elizabeth Park and Calvert’s dual expertise in bank investing and impact investing, respectively,” he added. “By getting to know the bank and how the fund can best support its needs, the bank and the fund can collectively come to an agreement on an investment instrument.”

Those instruments include common equity, preferred equity, subordinated debt, deposits and bonds held on bank balance sheets. “To our knowledge, we are the only fund that has that scope of opportunities and instruments to meet the banks where they’re at,” Mr. Welch said. “We’ve had a lot of positive responses with, ‘this one sounds good, can we combine two of them?’ And we’re built to do that. We’re built to meet the needs of the banks.”

Big benefits for small banks. Scott Andrews, President and CEO of Neighborhood National Bank, a CDFI in San Diego, said Mr. Welch and the MDBF essentially “rode to my rescue” by investing in the CDFI in 2024 through the purchase of equity and subordinated debt. That helped ease the pain after a capital injection to Neighborhood National by the Emergency Capital Investment Program fell through because of debt ceiling negotiations in 2023.

“I think the Mission Driven Bank Fund saw what our mission was,” Mr. Andrews said from California. “We’re primarily a small business lender focused on minority-owned, women-owned, and veteran-owned small businesses in low/moderate income communities. Secondarily is to provide affordable housing in the form of multi-family loans.” He said the fund’s investment “really enabled the bank to grow. Growth in our case is the acquisition of new clients on the deposit side. Then we turn around and loan that money out in fulfilling our mission.”

Neighborhood National is an example of how investments in CDFIs and MDIs allow them to loan 8-to-10 times the amount of capital provided. “The capacity to add $80 million in assets to the company and the profits we could make off that are exponential compared to what we’re going to end up paying in interest” to the MDBF, Mr. Andrews said.

The MDBF investment allowed Neighborhood National to lend funds to a Hispanic man trying to redevelop his neighborhood in San Ysidro, near the Mexican border. The bank financed the purchase of two properties the borrower is renovating, the bank president said. “To see what he’s trying to do in his neighborhood is very rewarding.”

Another Neighborhood National loan recipient, also a member of a minority group, is turning a 25-room motel into transitional housing for young people who age out of foster care. “Providing financing for projects like that makes you feel good about what you’re doing,” Mr. Andrews said. “I feel like the money we got from the Mission Driven Bank Fund, 100% of it is going and doing good.”

Technical services help. About 1,500 miles away in Northwest Arkansas, Priority Bank is benefitting not only from the MDBF’s investment in the bank’s subordinated debt—allowing it to make more low-cost, residential mortgage loans—but its technical assistance program as well. President Ray Stidham used the grant provided by the fund to purchase laptops that allow loan officers to travel to clients who, for example, can’t travel to the bank’s Fayetteville location, which is not downtown.

“Getting people in our bank sometimes is a task,” Mr. Stidham said. The new technology allows “our loan officers or our deposit people to pack up the laptop and go to their place.” Bank CFO Paula Kinnamon said the laptops have proven useful in serving the needs of an agricultural client that has seasonal workers, including students: “We can take the laptops and set up accounts with the employees.” Priority Bank also purchased iPads to place in branch lobbies to train customers in online banking, Mr. Stidham added.

Eric Heisner, a Director of Strategy at Calvert Impact and a relationship manager for the MDBF, said all of the banks that have received investments are also participating in the technical services program. “It’s been really well received and we collect feedback because we want to continue enhancing this, continue to make it better,” he said.

“One of the most tangible things I’ve seen in terms of feedback is that about 75% of the banks said they would not have done the program that they did, whether it was bringing in technology or bringing in a marketing program, without the support of the Mission Driven Bank Fund last year. So getting that kind of feedback is really impactful for us to understand that we are providing this benefit and that we are being good partners to our portfolio banks.”

Case in point: Scott Andrews at Neighborhood National Bank used a grant from the fund to engage a marketing firm that placed ads on LinkedIn to reach more of the bank’s target customers. The firm also provided press release templates as part of its services. “It’s definitely money I probably would not have spent,” Mr. Andrews said. “It’s a struggle for small banks to do that.”

A way to invest that works. For another institutional investor in the fund, making one-off capital investments in individual banks like Neighborhood National or Priority Bank is not feasible, in part because of credit exposure concerns and reporting requirements. Another concern is the scope of the need for capital. “To support these institutions, we needed to step up, and in a size that it would be meaningful,” they said. Investing in the MDBF gave this investor the opportunity to do just that.

“I was really proud of the fact that we committed to the Mission Driven Bank Fund with a sizeable commitment because it’s something that we wanted to accomplish for many years and could not do on our own,” they added. “Whereas I may only be willing to make a capital commitment of half a million dollars, the MDBF may be able to do $5 million or $6 million. We felt like the fund could do it much more efficiently and effectively than we could.”

The return question. This investor and Mr. Woodford at Warner Bros. Discovery make it clear that the primary motivation for their companies’ investments is the value of supporting banks that help their communities achieve greater financial success through loans and other assistance. That perspective influences the way they will view financial returns.

“I’m going to have to look at the MDBF a little bit differently than I would another type of investment,” the investor said. “Certainly, I have to take my profitability goggles off in terms of my expectations. But I can also replace that with some of the impacts that we’re going to have in these organizations.”

Mr. Woodford put it this way: “It isn’t just giving these banks money and walking away, we do expect a return on it. But it’s about including these CDFIs and MDIs into the financial system, really helping enable a multiplier effect on the capital that is being deployed. We thought that was a good way of accomplishing what we wanted to do in a way that is more than just writing a check.”

He added, “Part of our role here in the business community is about doing well and is about doing good, and this is part of that. The MDBF alone isn’t going to change the world; but it’s a step in that direction.”

NOTE: The above testimonial/endorsements (collectively, the “statements”) were provided by either portfolio company banks of the Mission Driven Financial Institutions Fund, LP or its investors. No compensation, either directly or indirectly was provided in exchange for such statements. There is a potential conflict of interest in a portfolio company or investor providing such statements, as an investment in a fund may indirectly benefit such portfolio company or investor. This article is intended for informational purposes only and is not an offer or solicitation with respect to the purchase or sale of any security or of any fund. This should not be used as the basis for an investment decision. The fund discussed in this article is a 506(c) private placement offering that is available only to qualified purchasers as defined under the Investment Company Act of 1940, and may only be sold in jurisdictions where it is legally permissible. Any forward-looking statements referenced are based on current expectations and assumptions and are subject to change without notice. Further, while the information discussed herein has been obtained from sources which we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. Information within this article is subject to change without notice or further obligation to update. An investment decision should be based on your customary and thorough due diligence, including but not limited to, a thorough review of all relevant term sheets and other offering documents as well as consultation with legal, tax and regulatory experts.