CDCI Mutual Term Sheet

Community Development
Capital Initiative
CDFI Mutual Depository Institutions
Senior Securities
Summary of Terms of CDCI Senior Securities
Issuer:

A qualifying financial institution (“QFI”) means any FDIC-insured
depository institution organized in mutual form under the laws of the
United States or any State of the United States, the District of Columbia,
any territory or possession of the United States, Puerto Rico, Northern
Mariana Islands, Guam, American Samoa, or the Virgin Islands that (i)
collectively with all of its affiliates satisfies the requirements of 12 C.F.R.
1805.200(b); (ii) is or, if such QFI itself is not, an affiliate thereof is, a
regulated community development financial institution (“CDFI”) currently
certified by the Community Development Financial Institution Fund (the
“Fund”) of the United States Department of the Treasury (“UST”) pursuant
to 12 C.F.R. 1805.201(a) as having met the eligibility requirements of the
Fund’s Community Development Financial Institutions Program; and (ii) is
not controlled by a foreign bank or company. UST will determine the
eligibility and allocation of funds for each QFI after consultation with
the appropriate federal banking agency.

Initial Holder:

UST.

Security:

Unsecured subordinated debentures (“CDCI Senior Securities”) that do
not constitute a class of stock or represent equity ownership in the issuing
QFI. Each debenture representing a CDCI Senior Security shall be in the
principal amount of $1,000.

Size of Offering:

Each QFI may issue CDCI Senior Securities with an aggregate principal
amount equal to not more than five percent (5%) of the risk-weighted
assets (“RWA”) of the QFI less the aggregate capital or, as the case may
be, principal amount of any outstanding TARP assistance of the QFI.
Any QFI that, in applying to qualify for this program, is determined by
its primary regulators to require additional capital in order to be a
“viable” financial institution, shall be required to receive capital (“Private
Capital”) from one or more private, non-government investors prior to or
concurrently with any purchase of CDCI Senior Securities by UST, such
that the sum of the Private Capital and the amount of CDCI Senior
Securities issued by such QFI under this program shall be sufficient to
establish the QFI’s “viability” on a pro-forma basis. Such QFI receiving
Private Capital shall only be eligible to issue CDCI Senior Securities in

USActive 18645207.10

an aggregate amount equal to, on a dollar-for-dollar basis, the amount of
Private Capital it received; provided that the amount of CDCI Senior
Securities issued shall not be greater than five percent (5%) of RWA of
the QFI less the aggregate capital or, as the case may be, principal
amount of any outstanding TARP assistance of the QFI; provided further
that any Private Capital shall be subordinate to the CDCI Senior
Securities, on terms satisfactory to UST.
QFIs currently participating in the UST Capital Purchase Program
(“CPP”) that issued subordinated debentures to UST may apply to
exchange the entirety of their existing CPP subordinated debentures for
CDCI Senior Securities as set forth herein.1 Additionally, such QFIs
may, but shall not be required to, apply to issue CDCI Senior Securities
to UST in an aggregate principal amount up to the positive difference, if
any, between (i) five percent (5%) of the RWA of the QFI and (ii) the
aggregate of any outstanding (x) principal amount of subordinated
debentures issued under CPP and (y) principal amount of CDCI Senior
Securities; provided, however, with respect to either an exchange or new
issuance, (i) the QFI has not breached any representation, warranty or
covenant set forth in the documents governing the CPP subordinated
debentures or its sale to UST; and (ii) the QFI has paid to UST all
accrued and unpaid interest then due on the CPP subordinated
debentures.
RWA, for purposes hereunder, shall be as of the most recent fiscal
quarter ended.
Ranking:

Regulatory Capital
Status:
Maturity:

Senior to mutual capital certificates and any other capital instruments
authorized under state law. CDCI Senior Securities must be expressly
subordinated to claims of depositors and to the QFI's other debt
obligations to its general and secured creditors, unless such debt
obligations are expressly made pari passu or subordinate to the CDCI
Senior Securities.
Tier 2.
Thirteen (13) years from the date of the investment (the “Maturity
Date”). On the Maturity Date, the QFI shall repay to UST the principal
amount, together with all accrued and unpaid interest.

1

Applications for exchanges of CPP subordinated debentures for CDCI Senior Securities shall be made on a
different application form than applications for new issuances of CDCI Senior Securities. Applications solely to
exchange CPP subordinated debentures for CDCI Senior Securities shall not be required to be reviewed by the
primary regulators of the applying QFI.

-2-

Interest Rate:

CDCI Senior Securities will pay cumulative interest at a rate of three and
one-tenth percent (3.1%) per annum until the eighth (8th) anniversary of
the closing date of this investment and thereafter at a rate of thirteen and
eight-tenths percent (13.8%) per annum.2
Interest shall be payable quarterly in arrears on February 15, May 15,
August 15 and November 15 of each year. Interest on the CDCI Senior
Securities shall be computed on the basis of a 360-day year consisting of
twelve 30-day months.

Redemption:

Restrictions on
Dividends and
Redemptions:

The CDCI Senior Securities shall be redeemable at 100% of the issue
price, plus any accrued and unpaid interest. All redemptions shall be
subject to the approval of the QFI’s primary federal bank regulator.

For as long as any CDCI Senior Securities are outstanding, no special
dividends may be declared or paid by the QFI on any shares of equity,
mutual capital certificates or any other capital instruments it is authorized
to issue under applicable law, nor may the QFI repurchase or redeem any
shares of equity, mutual capital certificates or other capital instruments
authorized under applicable law (other than repurchases of common
shares, mutual capital certificates, or other capital instruments authorized
under applicable law in connection with any benefit plan in the ordinary
course of business consistent with past practice or relevant income tax
laws), unless all accrued and unpaid interest for all past interest periods
on the CDCI Senior Securities is paid in full.

Further
Restrictions on
Dividend Increases: For so long as any CDCI Senior Securities are outstanding, no increase in
regularly paid dividends per share, capital certificate, or other capital
instruments authorized under applicable law, or any extraordinary
dividends on deposit accounts (dividends in excess of the stated rate or
that are in excess of the amount resulting from the stated method of
calculating the rate on such an account) shall be permitted, provided that
no increase in dividends may be made as a result of any dividend paid in
common shares, mutual capital certificates, or other capital instruments
authorized under applicable law, any stock split or similar transaction.

2

CDCI Senior Securities have 3.1% and 13.8% interest rates which equate to after-tax effective rates (assuming a
35% tax rate) of 2% and 9%, respectively, the same rates applied to securities issued by other classes of institutions
participating in the CDCI.

-3-

Additional
Restrictions on
Dividends and
Repurchases:

Remedies Upon
Event of Default:
Voting Rights:

From and after the eighth (8th) anniversary of the closing date of this
investment, the QFI shall be prohibited from paying dividends or
repurchasing any equity, mutual capital certificates, or other capital
instruments authorized under applicable law without UST’s consent,
unless the CDCI Senior Securities are (x) redeemed in whole or (y) no
longer held by UST or its affiliates. These restrictions are in addition to
the restrictions on repurchases of equity, mutual capital certificates, or
other capital instruments authorized under applicable law set forth above
under “Restrictions on Dividends and Redemption.”
Principal and accrued interest may become immediately due and payable
(i.e., accelerated) upon the occurrence of an Event of Default.
The CDCI Senior Securities shall be non-voting, other than class voting
rights on (i) any authorization or issuance of any equity securities, mutual
capital certificates, or other capital instruments authorized under state law
which purport to rank senior to the CDCI Senior Securities, (ii) any
amendment or waiver to the rights of CDCI Senior Securities, or (iii) any
merger, exchange or similar transaction which would adversely affect the
rights of the CDCI Senior Securities, subject to State Restrictions (as
defined below), if any.
If interest on the CDCI Senior Securities are not paid in full for eight (8)
interest periods, whether or not consecutive, the holders of the CDCI
Senior Securities will have the right to elect two (2) directors, subject to
State Restrictions, if any. The right to elect directors will end when all
accrued and unpaid interest has been paid in full for four (4) consecutive
interest periods.
“State Restrictions” shall mean, in the case of state-chartered QFIs, any
state law restrictions on voting rights of holders of CDCI Senior
Securities that cannot be modified, waived or otherwise removed by the
appropriate state authorities.

Closing Conditions: The obligation of UST to purchase or otherwise acquire any CDCI Senior
Securities shall be subject to the satisfaction of customary closing
conditions, including, among other things, (i) the QFI having not
breached any representation, warranty or covenant set forth in the
documents governing any obligations of such QFI then outstanding under
the Troubled Asset Relief Program (“TARP Obligations”), including any
CPP subordinated debentures, as determined by UST; (ii) all amounts
then due and payable under any of the QFI’s TARP Obligations have

-4-

been paid in full; and (iii) with respect to any CDCI Senior Securities not
acquired through the exchange of outstanding CPP subordinated
debentures, (x) receipt of approval from the QFI’s appropriate federal
banking agency for the issuance of the CDCI Senior Securities and (y)
the satisfaction of any conditions for such issuance imposed by such
appropriate federal banking agency in connection with granting such
approval.
CDFI Covenants:

Each QFI shall covenant that (i) the Fund has not withdrawn or qualified
its certification that the QFI meets the requirements of 12 C.F.R.
1805.200(b) and 12 C.F.R. 1805.201(b)(1)-(6), (ii) it and all of its
affiliates collectively meet the eligibility requirements of 12 C.F.R. 1805,
(iii) its primary mission is promoting community development, as may be
determined by UST from time to time based on the criteria set forth in 12
C.F.R. 1805.201(b)(1), (iv) it’s predominant business activity is the
provision, in arms-length transactions, of “Financial Products”,
“Development Services” and/or other similar financing, (v) it serves a
“Target Market” by serving one or more “Investment Areas” and/or
“Targeted Populations” as may be determined by UST from time to time
substantially in the manner set forth in 12 C.F.R. 1805.201(b)(3), (vi) it
directly, through an affiliate, or through a contract with another provider,
provides “Development Services” in conjunction with its “Financial
Products”, (vii) it maintains accountability to residents of its “Investment
Area(s)” or “Targeted Population(s)” through representation on its
governing board or directors or otherwise and (viii) it is not an agency or
instrumentality of the United States, or any State or political subdivision
thereof, as described in 12 C.F.R. 1805.201(b)(6). The terms “Financial
Products”, “Development Services”, “Target Market”, “Investment
Areas” and “Targeted Populations” are used herein in the same manner
as such terms are used in 12 C.F.R. 105.201(b).
Each QFI shall also deliver to UST (x) on the date that is 180 days after
the closing date of this investment, and (y) annually at the end of each
fiscal year of such QFI (i) reports and other documents sufficient to
evidence it’s status as a CDFI including documentation evidencing its
ongoing compliance with the Fund’s requirements for CDFIs and (ii) a
certification that such QFI remains in compliance with the foregoing
covenants.3 Additionally, each QFI shall be required to notify UST
immediately of any breach of the foregoing covenants.
Remedies for breaches of the foregoing covenants shall be set forth in the

3

To the extent that the QFI changes its form of organization at any time such that the QFI itself is no
longer certified as a CDFI by the Fund but one or more affiliate of such QFI is certified as a CDFI by the
Fund, among other things, the QFI shall be required to certify on an annual basis that each certified
affiliate is in compliance with the foregoing covenants.

-5-

definitive documentation for the CDCI Senior Securities.
Access and
Information:

So long as UST or any of its affiliates holds CDCI Senior Securities
having a face amount of at least ten percent (10%) of its initial
investment, each QFI shall permit UST and its agents, consultants,
contractors and advisors (x), acting through the QFI’s appropriate federal
banking agency, or otherwise to the extent necessary to manage, evaluate
or transfer UST’s investment, to examine its corporate books and make
copies thereof and to discuss the affairs, finances and accounts of such
QFI with the principal officers of such QFI, upon reasonable notice and
at such reasonable times and as often as UST may reasonably request and
(y) to review any information material to UST’s investment provided by
such QFI to its appropriate federal banking agency.
At any time that any CDCI Senior Securities are outstanding, each QFI
shall deliver to UST (i) annually at the end of each fiscal year of such
QFI, an audited (to the extent available) consolidated balance sheet of
such QFI as of such fiscal year, and audited consolidated statements of
income, retained earnings and cash flows of such QFI for such year,
prepared in accordance with GAAP and setting forth in each case in
comparative form the figures for the previous fiscal year; and (ii) copies
of any quarterly reports provided to other equity holders of such QFI or
the QFI’s management. Additionally, to the extent a QFI receives an
assessment on its internal controls from its auditors at any time in the
ordinary course of its business during any period in which UST or any of
its affiliates holds CDCI Senior Securities, a copy of such assessment
shall also be delivered to UST.
On an annual basis during any period in which UST or any of its
affiliates holds CDCI Senior Securities, each QFI shall be required to
complete and deliver to UST a survey, in a form specified by UST,
describing, among other things, how it has utilized the capital it received
in connection with the issuance of the CDCI Senior Securities and the
effects of such capital on the operations and status of the QFI.

Events of Default:
Transparency,
Executive
Compensation and
Employ American
Workers Act:

Placement of the issuing QFI into receivership, conservatorship or
liquidation by the QFI’s appropriate federal banking agency.

Each QFI and its subsidiaries shall take all necessary action to ensure that
it and its executive officers, respectively, are in compliance with (i) all
UST guidelines regarding transparency, reporting and monitoring; (ii)
Section 111 of the EESA, as implemented by the TARP Standards for

-6-

Compensation and Corporate Governance set forth in 31 C.F.R. Part 30,
all rules, regulations and guidance issued thereunder; (iii) the provisions
of the Employ American Workers Act (Section 1611 of Division A, Title
XVI of the American Recovery and Reinvestment Act of 2009), Public
Law No. 111-5, effective as of February 17, 2009; and (iv) in the case of
(ii) and (iii), all rules, regulations and guidance issued thereunder.
Affiliate
Transactions:

Warrant:

For as long as UST or any of its affiliates holds any debt or equity
securities (including the CDCI Senior Securities) of the QFI, the QFI and
its subsidiaries will not enter into a transaction with related persons
(within the meaning of Item 404 under the SEC’s Regulation S-K) unless
such transaction is (i) on terms no less favorable to the QFI and its
subsidiaries than could be obtained from an unaffiliated third party, and
(ii) has been approved by the board of directors of the QFI but only if the
board of directors maintains written documentation supporting its
determination that the transaction meets the requirements of (i) of this
paragraph.
Subject to the requirements of Section 113(d)(3)(A) of the Emergency
Economic Stabilization Act, QFIs participating in this program shall not
be required to issue warrants to UST.

-7-