Nutter Bank Report, Special Edition: Treasury Announces SBLF Capital Investment Terms for Mutual InstitutionsPrint PDF
The U.S. Treasury Department has issued the terms for capital investments under its Small Business Lending Fund (SBLF) program for mutual banks, mutual holding companies and banks and holding companies organized as Subchapter S corporations. Under the SBLF program, the Treasury makes capital investments in qualified community banks with assets of less than $10 billion. According to the summary of terms released on May 13, mutual holding companies with a mid-tier stock holding company are eligible for a Tier 1-qualifying capital investment, but mutual holding companies with no mid-tier holding company, stand-alone mutual banks and Subchapter S corporations are only eligible for Tier 2-qualifying capital investments under the program. An institution currently on the FDIC problem bank list (or any similar list) or that has been removed from that list in the previous 90 days is not eligible. Generally, this will include any bank with a composite CAMELS rating of 4 or 5. Institutions that have total assets of $1 billion or less may apply for SBLF funding that equals up to 5% of risk-weighted assets. Institutions that have assets of more than $1 billion but less than $10 billion may apply for SBLF funding in an amount up to 3% of risk-weighted assets. Treasury may require an applicant to raise separate matching funds from private, nongovernmental sources as a condition to receiving an SBLF investment. Such matched funding will need to be received either prior to or concurrent with Treasury’s SBLF funding. Applications for mutual institutions and Subchapter S corporations eligible to apply under the available terms should be submitted by June 6, 2011.
Nutter Notes: The SBLF was established by the Small Business Jobs Act signed into law last year. The SBLF is designed to stimulate loans for small businesses by providing capital to community banks under terms that include incentives for participating institutions to increase small business lending. An SBLF investment may also be used to refinance preferred stock issued to the Treasury through the Capital Purchase Program (CPP) or the Community Development Capital Initiative (CDCI) under certain conditions. Participating mutual holding companies with a mid-tier stock holding company are required to apply for SBLF funding at the mid-tier holding company level and issue preferred stock (senior perpetual noncumulative preferred stock) in return for Treasury’s investment. Participating mutual holding companies with no mid-tier holding company must apply for SBLF funding at the holding company level and issue senior securities (senior unsecured subordinated debentures) to the Treasury that do not constitute a class of stock or represent an equity ownership in the issuer. Participating stand-alone mutual banks and Subchapter S corporations are also required to issue senior securities to the Treasury. In general, the dividend or interest rate, as applicable, on an SBLF capital investment will be reduced as the amount of the institution’s qualifying small business loans increases. The initial dividend rate on preferred stock will be, at most, 5%. If the institution’s small business lending increases by 10% or more over a baseline established prior to the investment, then the dividend rate will fall to as low as 1%. The highest initial interest rate on senior securities will be 7.7%, and can fall as low as 1.5% if the institution’s small business lending increases by 10% or more. (Interest rates on senior securities reflect the after-tax effective rates equivalent to the dividend rate paid on preferred stock by other types of institutions participating in the program.) If qualified lending does not increase in the first two years, however, the dividend or interest rate will increase. After 4½ years, the dividend or interest rate will increase to 9% on preferred stock and 13.8% on senior securities if the institution has not already repaid the SBLF funding. The average of qualified small business lending reported by an applicant for the four quarters ending on June 30, 2010 will be the baseline against which subsequent lending will be measured.
Nutter Bank Report
Nutter Bank Report is a monthly electronic publication of the Banking and Financial Services Group of the law firm of Nutter McClennen & Fish LLP. Chambers and Partners, the international law firm rating service, has ranked Nutter’s Banking and Financial Services practice among the top banking practices in the nation. The 2009 Chambers and Partners review says that a “real strength of this practice is its strong partners and . . . excellent team work.” Clients praised Nutter banking lawyers as “practical, efficient and smart.” Visit the U.S. rankings at ChambersandPartners.com. The Nutter Bank Report is edited by Matthew D. Hanaghan. Assistance in the preparation of this issue was provided by Lisa M. Jentzen. The information in this publication is not legal advice. For further information, contact:
Michael K. Krebs
Tel: (617) 439-2288
This review and analysis is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.