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"U.S. Department of Treasury's Community Development Capital Initiative"
Robert L. Carothers, Jr.
Jones Walker Banking & Financial Services E*Lert
February 24, 2010

The following summarizes the key terms of Treasury's Community Development Capital Initiative ("CDCI").

  • The CDCI is open to bank holding companies, savings & loan holding companies, and stand-alone banks and thrifts that have been certified by Treasury as community development financial institutions ("CDFI"). If a holding company controls only one bank/thrift and owns 100% of the stock of such bank/thrift, then only the subsidiary bank/thrift has to be certified as a CDFI. Otherwise, both the holding company and bank/thrift have to be certified as CDFIs.
    • Treasury has not yet issued a term sheet that would allow for participation by S-Corporations. The current term sheet provides for the issuance of preferred stock to Treasury. However, it is expected that a term sheet for S-Corporations will be issued.
  • An institution that is not currently certified as a CDFI can apply to become certified and, at the same time, apply for funding under the CDCI.
  • In order to participate in the CDCI, an institution must file an application with its primary federal regulator. For a bank/thrift with a parent holding company, the application must be filed with both the holding company’s supervisor, as well as the bank/thrift's primary federal regulator. The federal regulator will make a recommendation to Treasury on whether the institution should be allowed to participate.
  • In order to be eligible, an institution must be deemed “viable” by its regulator. In cases where an institution might not otherwise be approved by its regulator, it will be eligible to participate so long as it can raise enough private capital that—when matched on a dollar-for-dollar basis with Treasury CDCI capital—it can reach viability. Thus, unlike the Capital Purchase Program (which required an institution to be "viable" without TARP funds), the new CDCI program requires an institution to be viable after taking into consideration any private equity and CDCI funding that will be injected.
    • For example, an institution's regulator determines that it needs additional capital equal to 4% of its risk-weighted assets to be considered "viable." If the institution can raise private capital equal to 2% of its risk-weighted assets, then Treasury will match it with CDCI funding equal to 2% of its risk-weighted assets and it would then be deemed viable. If the institution wanted to fully max out its available CDCI funding (i.e. the full 5% of its risk-weighted assets) it would need to match such amount dollar-for-dollar with additional private equity (thus, in this example, it would need to raise additional private capital equal to 3% of its risk-weighted assets to access the remaining CDCI funding).
  • If an institution is deemed viable by its regulators based on its current capital position, it will not be required to raise private equity in order to obtain CDCI funding
  • Institutions may apply for a CDCI capital investment of up to 5% of its total risk-weighted assets (less any outstanding amount of TARP CPP funding). The investment is in the form of senior preferred stock.
  • The CDCI Preferred Stock receives tier 1 capital treatment.
  • The initial dividend rate will be 2% and will increase to 9% after eight years.
  • Institutions will not be required to issue warrants.
  • The CDCI Preferred Stock may be redeemed at any time by the institution with its regulators' prior approval.
  • During the period Treasury holds the investment, the institution cannot increase its common dividends per share without Treasury’s prior approval.
  • The CDCI Preferred Stock is non-voting except under certain limited circumstances. If dividends are not paid for six dividend periods, the holders of the CDCI Preferred Stock can elect two directors.
  • Institutions will be subject to EESA's executive compensation restrictions.
  • Institutions may exchange existing TARP CPP funding for TARP CDCI funding.
  • Applications for CDCI funding must be submitted no later than April 2, 2010.
  • If an institution is not currently a certified CDFI, its application to be certified as a CDFI must be filed by April 16, 2010.
  • Funding of any CDCI transaction must be completed no later than September 30, 2010.

CDFI Certification Criteria

In order to be certified as a CDFI, an institution must file a certification application with Treasury and satisfy the following six criteria: (i) have a primary mission of promoting community development, (ii) be a financing entity, (iii) primarily serve one or more target markets, (iv) provide development services in conjunction with its financing activities, (v) maintain accountability to its defined target market, and (vi) be a non-government entity.

For most financial institutions, the most important requirement is that it "primarily serve one or more target markets." An applicant must demonstrate that it serves an eligible target market and that at least 60% of its activities are directed towards that target market. An institution may elect to serve more than one target market in order to achieve the 60% requirement. It can serve the target market directly (such as by making loans to residents) or through borrowers that provide significant benefits to its residents (such as loans to businesses that serve the target market).

A target market may consist of one or more of the following: (i) an investment area, (ii) a low-income targeted population, or (iii) another targeted population, as each term is defined below.

  • Investment Area
    An Investment Area is a geographic unit (state, county, census tract, etc.) or contiguous geographic units that meet at least one of the following criteria:
    • Has a population poverty rate of at least 20%.
    • Has an unemployment rate at least 1.5 times the national average.
    • For a metropolitan area, has a median family income at or below 80% of the greater of either the metropolitan area's or national metropolitan median family income.
    • For a non-metropolitan area, has a median family income at or below 80% of the greater of either the statewide or national non-metropolitan median family income.
    • In counties located outside of a metropolitan area, the county population loss during the period between the most recent decennial census and the previous decennial census is at least 10%.
    • In counties located outside of a metropolitan area, the county net migration loss during the 5-year period preceding the most recent decennial census is at least 5%.
    • Is wholly located within an Empowerment Zone or Enterprise Community.
  • Low-Income Targeted Population
    A low-income targeted population for a geographic unit is comprised of individuals whose family income is (i) for metropolitan areas, not more than 80% of such area's median family income, or (ii) for non-metropolitan areas, not more than 80% of the greater of either the area or statewide non-metropolitan median family income.
  • Other Targeted Population
    Serving an "Other Targeted Population" requires providing financial products to an identifiable group of individuals that lack adequate access to capital and have historically been denied credit. Designated Other Targeted Populations include:
    • African Americans
    • Asian Americans
    • Hispanics
    • Native Americans