COMMUNITY 

DEVELOPMENT 

CAPITAL INITIATIVE

Status of the Program 

and Financial Health 

of Remaining 

Participants

Report to Congressional Committees

June 2014

GAO-14-579

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-579, a report to 

congressional committees

June 2014

COMMUNITY DEVELOPMENT CAPITAL 

INITIATIVE 

Status of the Program and Financial Health of 

Remaining Participants

Why GAO Did This Study

Treasury established CDCI under the 

Troubled Asset Relief Program (TARP) 

in February 2010 to help banks and 

credit unions certified as Community 

Development Financial Institutions 

(CDFI) maintain their services to 

underserved communities in the 

aftermath of the 2007-2009 financial 

crisis. Treasury invested a total of $570 

million in 84 eligible institutions by 

September 2010. 

TARP’s authorizing legislation 

mandates that GAO report every 60 

days on TARP activities, including 

CDCI. This report examines (1) the 

financial status of CDCI; (2) factors 

affecting participants’ decisions to 

remain in or leave the program and 

Treasury’s exit strategy; and (3) the 

financial condition of institutions 

remaining in the program.

To assess the program’s status, GAO 

reviewed Treasury reports on CDCI. 

GAO also used regulatory financial 

data to compare the financial condition 

of banks and credit unions remaining in 

CDCI with those that would have been 

eligible but did not participate. In 

addition, GAO interviewed staff from 

Treasury and NCUA, associations 

representing CDCI participants, and 

representatives of a nonprobability

sample of CDFI banks and credit 

unions that participated in CDCI. GAO 

selected banks and credit unions 

based on asset size and geography. 

GAO is making no recommendations in 

this report. In comments on a draft of 

this report, Treasury and NCUA 

concurred with our findings. 

What GAO Found

As of April 30, 2014, 82 percent of the Department of the Treasury’s (Treasury) 

$570 million total investment in eligible banks and credit unions through the 

Community Development Capital Initiative (CDCI) was still outstanding. Sixteen

institutions have exited the program, leaving 29 banks and 39 credit unions, 

respectively, in the program. Treasury had received repayments and investment 

income of $134.3 million, but has also recorded a $6.7 million write-off based on 

the failure of one participant’s subsidiary. As of February 28, 2014 (most recent 

information available), Treasury estimated a lifetime cost of $80 million for CDCI, 

down from an estimated cost of $290 million in November 2010.

Status of Community Development Capital Initiative Funding and Participants, as of April 30, 

2014

Note: Treasury invested in 84 institutions by purchasing preferred equity or subordinated debt.

Representatives of participant banks and credit unions GAO interviewed said that 

access—or lack thereof—to similar forms of capital was a key factor in 

institutions’ willingness or ability to exit the program. They noted that CDCI 

continued to be one of the few sources of capital for small banks and credit 

unions. In addition, they listed program terms, such as the scheduled increase in 

the dividend or interest rate from 2 percent to 9 percent in 2018, as 

considerations. Treasury has not yet announced an exit strategy for CDCI but 

said it will consider the interests of the financial institutions and taxpayers as they 

consider options for winding down the program. For example, they noted that any 

strategy would need to take into account how the wind down of the program may 

impact the community development mission of the remaining participants. 

The financial health of the remaining CDCI banks and credit unions is mixed. For 

example, few CDCI institutions have missed their dividend or interest payments 

to Treasury since 2010. The Federal Deposit Insurance Corporation and National 

Credit Union Administration (NCUA) had identified very few of the remaining 

banks and credit unions as exhibiting serious financial, operational, or 

managerial weaknesses as of March 2014. GAO’s analysis of financial data 

found that banks remaining in CDCI tended to be more profitable, held stronger 

assets, and had higher capital and reserve levels when compared to non-CDCI 

banks that were eligible for the program but did not participate. However, 

remaining credit unions were less profitable, held slightly more poorly performing 

assets, and had lower capital levels and less protection against losses than nonCDCI credit unions that were eligible for the program but did not participate. 

View GAO-14-579. For more information, 

contact A. Nicole Clowers at (202) 512-8678

or clowersa@gao.gov.
Page i GAO-14-579 Community Development Capital Initiative

Letter 1 

Background 3

Treasury’s Estimated Lifetime Cost for CDCI Has Decreased as 

Participants Have Begun Exiting the Program 6

Market Conditions and CDCI Program Terms Will Affect 

Continued Participation as Treasury Explores Possible Exit 

Strategies 8

Financial Health of Remaining Institutions Is Mixed 12

Agency Comments 19

Appendix I Objectives, Scope, and Methodology 23

Appendix II Comments from the Department of the Treasury’s Office of Financial 

Stability 27

Appendix III Comments from the National Credit Union Administration 28

Appendix IV GAO Contact and Staff Acknowledgments 29

Tables

Table 1: Community Development Capital Initiative Program 

Terms by Institution Type 5

Table 2: Aggregate Financial Information on Remaining 

Community Development Capital Initiative (CDCI) Banks 

and Non-CDCI Banks, as of December 31, 2013 15

Table 3: Aggregate Financial Information on Remaining 

Community Development Capital Initiative (CDCI) Credit 

Unions and Non-CDCI Credit Unions, as of December 31, 

2013 18

Figure

Figure 1: Status of the Community Development Capital Initiative, 

as of April 30, 2014 7

Contents
Page ii GAO-14-579 Community Development Capital Initiative

Abbreviations

CDCI Community Development Capital Initiative

CDFI Community Development Financial Institutions

CPP Capital Purchase Program

EESA Emergency Economic Stabilization Act of 2008

FDIC Federal Deposit Insurance Corporation

NCUA National Credit Union Administration

TARP Troubled Asset Relief Program

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Page 1 GAO-14-579 Community Development Capital Initiative

441 G St. N.W.

Washington, DC 20548

June 6, 2014

Congressional Committees

The Community Development Capital Initiative (CDCI) was created in 

February 2010 to assist eligible certified Community Development 

Financial Institutions (CDFI) and the communities they served cope with 

the effects of the 2007-2009 financial crisis.1 The Department of the 

Treasury (Treasury) ended funding through this program in September 

2010, with a total investment amount of approximately $570 million for 84 

institutions. CDCI is implemented under the Troubled Asset Relief 

Program (TARP), which gave Treasury the authority to buy or guarantee 

up to $700 billion of the “troubled assets” that were believed to be at the 

heart of the financial crisis, including mortgages, mortgage-backed 

securities, and any other financial instruments deemed appropriate, such 

as equity investments.2 CDCI provided capital to CDFI banks and credit 

 

1

CDFIs are financial institutions that provide financing and related services to communities 

and populations that lack access to credit, capital, and financial services. Treasury’s CDFI 

Fund provides the designation, which allows CDFIs to apply for the CDFI Fund’s financial 

assistance. Although CDFIs include banks, thrifts, credit unions, loan funds, and venture 

capital funds, only institutions that have a federal depository institution supervisor (i.e., 

banks, thrifts, and credit unions) could apply for CDCI assistance. The federal depository 

institution supervisors for this program include the Federal Deposit Insurance Corporation 

(FDIC), the Board of Governors of the Federal Reserve System, the Office of the 

Comptroller of the Currency, and the National Credit Union Administration (NCUA). During 

the application period, the Office of Thrift Supervision was also a federal supervisor, but it 

was abolished by the Dodd-Frank Wall Street Reform and Consumer Protection Act 

(Dodd-Frank Act). Pub. L. No. 111-203, § 313, 124 Stat. 1376, 1523 (2010) (codified at 12 

U.S.C. § 5413). 

2

TARP was authorized by the Emergency Economic Stabilization Act of 2008 (EESA). 

Pub. L. No. 110-343, 122 Stat. 3765 (2008) codified at 12 U.S.C. §§ 5201 et seq.). EESA, 

which was signed into law on October 3, 2008, established the Office of Financial Stability 

within Treasury and provided it with broad, flexible authorities to buy or guarantee troubled 

mortgage-related assets or any other financial instruments necessary to stabilize the 

financial markets. Section 3(9) of EESA, 12 U.S.C. § 5202(9). EESA required that the 

appropriate committees of Congress be notified in writing that the Secretary of the 

Treasury, after consultation with the Chairman of the Board of Governors of the Federal 

Reserve System, had determined that it was necessary to purchase other financial 

instruments to promote financial market stability. EESA originally authorized Treasury to 

purchase or guarantee up to $700 billion in troubled assets. The Dodd-Frank Act reduced 

Treasury’s authority to purchase or insure troubled assets to a maximum of $475 billion. 

Section 1302(1)(A) of the Dodd-Frank Act, 124 Stat. at 2133 (codified at 12 U.S.C. § 

5225(a)(3)).
 

Page 2 GAO-14-579 Community Development Capital Initiative

unions by purchasing preferred equity and subordinated debt from them.3

CDCI offered favorable capital terms, including a relatively low dividend or 

interest rate, an important benefit for CDFIs that often did not have the 

same access to capital markets as larger banks. For example, approved 

CDFIs received investments with an initial dividend or interest rate of 2 

percent that would increase to 9 percent after 8 years (2018). Treasury 

has continued to oversee its CDCI investments and collect dividend and 

interest payments. A few participants have redeemed their investments

and exited the program with the approval of their primary federal 

regulators.

This report is based on our continuing analysis and monitoring of 

Treasury’s activities in implementing the Emergency Economic 

Stabilization Act of 2008 (EESA), which provided us with broad oversight 

authorities for actions taken under TARP and required that we report at 

least every 60 days on TARP activities and performance.4 To fulfill our 

statutorily mandated responsibilities, we have been monitoring and 

providing updates on TARP programs.5 This report examines (1) the 

financial status of CDCI, including repayments and other proceeds, 

investments outstanding, and the estimated lifetime cost of the program; 

(2) factors affecting participants’ decisions to remain in or leave the 

program and Treasury’s exit strategy; and (3) the financial condition of 

institutions remaining in CDCI.

To assess the financial status of CDCI, we analyzed Treasury reports on 

the number of institutions that made full repayments, the amounts of 

 

3

In this report, “banks” refers to banks, thrifts, and bank or thrift holding companies. In 

addition, some banking institutions are formed as S corporations, a designation that

affected the form of Treasury’s investment. An S corporation elects to be taxed under 

subchapter S of chapter 1 of the Internal Revenue Code and thus does not pay income 

taxes. Instead, the corporation’s income or losses are divided among and passed through 

to its shareholders.

4

Section 116 of EESA, 122 Stat. at 3783 (codified at 12 U.S.C. § 5226).

5

See, for example, GAO, Troubled Asset Relief Program: Status of the Wind Down of the 

Capital Purchase Program, GAO-14-388 (Washington, D.C.: Apr. 7, 2014). Troubled 

Asset Relief Program: Treasury Sees Some Returns as It Exits Programs and Continues 

to Fund Mortgage Programs, GAO-13-192 (Washington, D.C.: Jan. 7, 2013), Troubled 

Asset Relief Program: As Treasury Continues to Exit Programs, Opportunities to Enhance 

Communication on Costs Exist, GAO-12-229, (Washington, D.C.: Jan. 9, 2012), and

Troubled Asset Relief Program: Status of Programs and Implementation of GAO 

Recommendations, GAO-11-74 (Washington, D.C.: Jan. 12, 2011). 
 

Page 3 GAO-14-579 Community Development Capital Initiative

dividends and interest paid and CDCI investments outstanding, and the 

estimated lifetime cost of the program. To examine factors affecting 

participants’ decisions to remain in or leave the program and Treasury’s 

exit strategy, we interviewed Treasury officials and associations 

representing banks and credit unions that received CDCI capital. We also 

selected and attempted to contact a nonprobability sample of 9 banks and 

12 credit unions remaining in CDCI, and we obtained responses from 8 

banks and 9 credit unions representing a range of asset sizes and 

geographic locations. To assess the financial condition of the remaining 

CDCI institutions, we used regulatory financial data from SNL Financial to 

compare financial indicators for remaining CDCI participants with the 

same indicators for banks and credit unions that were eligible for the 

program but did not participate. We conducted separate analyses for 

banks and credit unions, because the two types of institutions file different 

regulatory reports and have different financial indicators. We have 

assessed the reliability of Treasury data through previous financial 

statement audits. We assessed the reliability of the SNL Financial data by 

performing manual testing of required data elements and reviewing 

existing information about the data and the system that produced them. In 

addition, we have assessed the reliability of SNL Financial data as part of 

previous studies and found the data to be reliable for the purposes of our 

review. We determined that the financial information we used was 

sufficiently reliable for the purposes of this report. Appendix I has more 

information on our scope and methodology. 

We conducted this performance audit from February 2014 to June 2014 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Created in 2010, CDCI was one of the later TARP programs and was 

intended to help mitigate the adverse impact that the financial crisis was 

having on communities underserved by traditional banks. CDCI is 

structured much like the TARP Capital Purchase Program (CPP), in that 

both provide capital to financial institutions by purchasing preferred equity 

and subordinated debt from them. However, CDCI differs from CPP in 

several important ways. First, CDCI provided financial assistance only to 

CDFIs, which provide financial services to low‐ and moderate‐income, 

minority, and other underserved communities. Second, CDCI also 

Background
 

Page 4 GAO-14-579 Community Development Capital Initiative

provided assistance to credit unions, unlike CPP, which provided capital 

only to banks. Finally, CDCI provided more favorable capital terms to its 

participants than CPP did. Specifically, CDCI investments have an initial 

dividend or interest rate of 2 percent, compared with 5 percent under 

CPP. The dividend or interest rate increases to 9 percent after eight years 

under CDCI, compared with five years under CPP.

Treasury finalized the last of its $570 million in CDCI investments in 

September 2010, just prior to the expiration of its TARP purchasing 

authority. The 84 participating institutions included 36 banks and 48 credit 

unions. Twenty-eight of the 36 banks were former CPP participants that 

were in good standing in that program and thus were allowed to refinance 

their CPP shares for a lower rate in CDCI. Of these 28 banks, 10 received 

additional disbursements under CDCI.

As shown in table 1, CDCI terms varied depending on the type of 

institution receiving the capital. In general, banks received capital by 

issuing to Treasury preferred stock representing not more than 5 percent 

of their risk-weighted assets. The capital they received in return was 

generally treated as tier 1 capital for regulatory purposes, with a perpetual 

term. Federal banking regulators classify capital as either tier 1—currently 

the highest-quality form of capital—or tier 2, which is weaker in absorbing 

losses.6 Credit unions issued unsecured subordinated debentures totaling 

not more than 3.5 percent of their total assets. In exchange, Treasury 

provided participating credit unions with secondary capital that boosted 

their net worth until 5 years before the maturity date, at which point it 

 

6

Tier 1 capital consists primarily of common equity. Tier 2 is supplementary capital and 

includes limited amounts of subordinated debt, loan loss reserves, and certain other 

instruments.
 

Page 5 GAO-14-579 Community Development Capital Initiative

would begin amortizing at 20 percent per year.7 All institutions 

participating in CDCI are required to make quarterly dividend or interest 

payments to Treasury. After 8 years, the initial dividend or interest rate of 

2 percent increases to 9 percent.8

Table 1: Community Development Capital Initiative Program Terms by Institution Type

Type of 

institution 

Number of 

institutions Type of security Size of offering

Regulatory 

capital status

Term or maturity 

(length from date 

of investment)

Dividend or 

interest rate

Bank or thrift 27 Preferred stock Not more than 5 percent 

of risk-weighted assets

Tier 1 capitala Perpetual 2 percent until 

2018; 9 

percent 

thereafter

S corporation 9 Unsecured 

subordinated 

debentures

Not more than 5 percent 

of risk-weighted assets

Tier 2 capital for 

a bank or savings 

association; Tier 

1 capital for a 

bank holding 

companya

13 years for a 

bank or savings 

association; 30 

years for a bank 

holding company 

or savings and 

loan holding 

company

3.1 percent 

until 2018; 

13.8 percent 

thereafter

Credit union 48 Unsecured 

subordinated 

debentures

Not more than 3.5 percent 

of total assets and not 

more than 50 percent of 

capital and surplus

Net worth 8 or 13 years 2 percent until 

2018; 9 

percent 

thereafter

Source: GAO analysis of Treasury summary terms for CDCI.

a

New capital rules will generally apply for most smaller banking institutions beginning in January 

2015.

 

7

Secondary capital (also called supplemental, alternative, or contributed capital) is capital 

beyond that built through retained earnings. According to NCUA, its purpose is to provide 

a further means—beyond setting aside a portion of earnings—for low-income designated 

credit unions to build capital to support greater lending and financial services in their 

communities and to absorb losses. As a result, the institutions may be less likely to fail.

Secondary capital accounts must have a minimum maturity of 5 years, but low income 

designated credit unions may request an early redemption exception for secondary capital 

accepted from the federal government or any of its subdivisions at any time after it has 

been on deposit for two years. The accounts must be established as uninsured, non-share 

instruments. The uninsured secondary capital funds on deposit (including interest paid into 

the account) must be available to cover operating losses in excess of the low-income 

designated credit union’s net available reserves and undivided earnings. Additionally, 

funds used to cover such losses may not be replenished or restored to the uninsured 

secondary capital accounts.

8

The securities that Treasury purchased from S corporations have a 3.1 percent interest 

rate until 2018, when the rate will increase to 13.8 percent. However, given the tax 

treatment of S corporations, these rates equate to after-tax effective rates of 2 percent and 

9 percent, respectively (assuming a 35 percent tax rate)— the same rates applied to 

securities issued by other classes of institutions participating in CDCI. 
 

Page 6 GAO-14-579 Community Development Capital Initiative

As of April 30, 2014, 68 of the original 84 CDCI institutions remained in 

the program. Fifteen institutions (six banks and nine credit unions) had 

exited through repayment, while one institution had exited as a result of 

its subsidiary bank’s failure.9 Three of the banks and at least one of the 

credit unions that had exited the program did so when they merged with 

or were acquired by institutions that were not certified CDFIs. CDCI terms 

required them to repay their investments, as non-CDFIs were not eligible 

for the program. Two of the 68 remaining institutions had begun to repay 

the principal on the investments they had received, while the other 

remaining institutions had paid only dividends and interest.10

Repayments and income from dividends and interest to date have 

amounted to less than a quarter of Treasury’s $570.1 million investment 

in 2010 (see fig. 1). As of April 30, 2014, the outstanding investment 

balance for CDCI was $467.4 million, reflecting repayments and write-offs 

totaling $102.7 million. Specifically, as of this date, Treasury had received 

approximately $96.0 million in principal repayments from CDCI recipients. 

As a result of the failure of Premier Bancorp, Inc.’s subsidiary, in January 

2013 Treasury wrote off nearly all of its $6.8 million investment in 

Premier, whose assets were liquidated when its banking subsidiary 

entered receivership. Treasury also did not collect more than $300,000 in 

unpaid dividends and interest for Premier. CDCI participants have also 

paid $38.3 million in dividends and interest.

 

9

Premier Bank, the banking subsidiary of Premier Bancorp, Inc., was closed by the Illinois 

Department of Financial and Professional Regulation - Division of Banking, and the 

Federal Deposit Insurance Corporation (FDIC) was named receiver in March 2012. In 

January 2013, Treasury received $79,900, which represented the total amount of 

distributions paid to creditors as a result of the liquidation of Premier Bancorp, Inc. 

10Some of the remaining institutions had missed one or more dividend or interest 

payments throughout the life of the program, and some were still not current. 

Treasury’s Estimated 

Lifetime Cost for 

CDCI Has Decreased 

as Participants Have 

Begun Exiting the 

Program
 

Page 7 GAO-14-579 Community Development Capital Initiative

Figure 1: Status of the Community Development Capital Initiative, as of April 30, 

2014

Treasury has lowered its estimates of the program’s lifetime cost over the 

last 2 years as market conditions have improved and institutions have 

begun to repay their investments. As of November 2010, Treasury 

estimated the program’s lifetime cost at about $290 million. As of 

February 28, 2014, Treasury estimated the program’s lifetime cost at $80 

million.11

 

11Treasury estimates lifetime costs on a quarterly basis using the aggregate expected 

value of the investments and publishes them in its monthly reports to Congress. Estimated 

lifetime cost represents Treasury’s best estimate of what the program will ultimately cost 

the taxpayer. Treasury’s methodology for estimating lifetime costs includes the 

requirement to use a discount rate that reflects market risk as required by EESA for future 

cash flows.
 

Page 8 GAO-14-579 Community Development Capital Initiative

According to representatives from the remaining CDCI institutions we 

spoke to, factors such as access to capital, the benefits of CDCI capital, 

and CDCI program terms affected participants’ decisions to remain in or 

exit the program. Specifically, we interviewed a nonprobability sample of 

8 banks and 9 credit unions remaining in the program as well as 

organizations representing the banks and credit unions participating in 

CDCI.12

Representatives of CDCI participant institutions and bank and credit 

union organizations told us that a key factor in participants’ decision to 

remain in or exit CDCI was their ability to access other sources of capital. 

Representatives of a few of the CDCI institutions, as well as 

representatives of two organizations representing CDCIs, said that CDCI 

had been one of the few sources of external capital for small community 

banks and credit unions since the financial crisis and economic downturn. 

Representatives of the same organizations and a few other CDCI 

institutions explained that for many CDFI banks and credit unions, access 

to credit could be difficult and expensive. Some bank representatives said 

they were waiting to see whether the credit market improved closer to 

2018 before making a decision on the timing of repayments. Some credit 

union representatives noted that they would pursue grants or nonmember 

deposits to replace the CDCI capital.13 One bank representative, as well 

as a bank organization representative and an investor in CDFIs, noted 

that the structure of the CDCI agreement gave Treasury priority status 

over other investors, making it difficult for these banks to attract additional 

 

12The banks and credit unions we selected represented a variety of asset sizes and 

geographic locations. See appendix I for more information on how we selected the 

samples.

13NCUA regulations allow federal credit unions to accept nonmember deposits (i.e., 

deposits from public units, political subdivisions of public units, and nonmember credit 

unions), within certain limits. According to NCUA, nonmember deposits may lower net 

worth (a measure of capital adequacy for credit unions) in the short term, but additional 

income earned from the deposits could strengthen long-term net worth. Most credit unions 

that participated in the CDCI are federal credit unions and are therefore eligible to accept 

nonmember deposits. 

Market Conditions 

and CDCI Program 

Terms Will Affect 

Continued 

Participation as 

Treasury Explores 

Possible Exit 

Strategies
 

Page 9 GAO-14-579 Community Development Capital Initiative

investors and find replacement capital.14 This structure would be an issue 

if a bank was attempting to raise capital in smaller amounts than its CDCI 

capital, as the bank would have to balance the interests of both Treasury 

and new investors.

Representatives from CDCI institutions we interviewed also mentioned 

several benefits of maintaining their CDCI capital. First, they stated that 

CDCI had allowed them to meet customer demand and provide access to 

services they would otherwise not have been able to provide. For 

example, three bank representatives we interviewed said the CDCI 

capital allowed them to purchase bank branches that were struggling or 

closing in underserved communities. They said that these purchases 

allowed them to ensure that residents of these communities had access 

to financial services. Several representatives noted that the CDCI capital 

allowed them to increase their lending. According to a representative of 

one credit union, the capital helped fund a loan so that a grocery store in 

a neighborhood that had previously lacked one could be built. Two bank 

representatives and a credit union representative also noted that the 

capital had allowed them to make residential mortgage loans. As one of 

the representatives noted, other financial institutions were decreasing this 

type of lending during the financial crisis and economic downturn. 

Second, several representatives we interviewed noted that the 2 percent 

rate on the CDCI capital was lower than the rates they could obtain in 

private capital markets. Therefore, regardless of their current capacity to 

fully repay Treasury, they planned to keep the capital as long as it 

remained less expensive than alternative capital. Finally, regulations 

reflecting Basel III regulatory capital reforms that are scheduled to take 

effect in 2015 will increase the percentage of capital that banks must 

 

14Treasury’s priority status would come into play in the event of a bankruptcy, in which 

case Treasury would have priority over certain other shareholders in the distribution of the 

liquidated institution’s assets. Treasury has priority over investors in common shares. 

However, as a general matter, Treasury is on equal footing with investors in other 

preferred shares, and investors in trust-preferred securities (securities that have both 

equity and debt characteristics and are created by establishing a trust and issuing debt to 

it) have higher priority than Treasury. 
 

Page 10 GAO-14-579 Community Development Capital Initiative

hold.15 Three bank representatives noted that the increased capital 

requirements would make them more likely to hold their CDCI capital.

Representatives from bank and credit union organizations and 

participating institutions also told us that changing program terms would 

influence institutions’ decisions about exiting the program. The scheduled 

increase in the CDCI dividend rate (from 2 percent to 9 percent) that will 

take effect in 2018 is a key factor for institutions in deciding when to exit. 

Representatives from several CDCI institutions we interviewed told us 

that they would like to repay Treasury before the increase takes effect. 

However, a few of the representatives from remaining institutions who we 

interviewed were uncertain about their ability to find other sources of 

inexpensive capital before the increase in 2018. A representative of one 

of the bank organizations stated that a good number of remaining CDCI 

banks would likely struggle to pay dividends at the higher rate while 

maintaining services to their communities. In addition, we found that for 

credit unions, the treatment of CDCI funds as secondary capital may also 

affect repayment schedules. Credit unions with 2018 maturity dates on 

their CDCI securities (approximately half of the remaining credit unions, 

according to Treasury) have had to begin counting a portion of their 

capital as debt. Treasury representatives explained that as a result of this 

regulatory capital rule, it was likely that many of these institutions would

pursue repayment before 2018. Three credit union representatives we 

interviewed whose CDCI securities had a maturity date of 2018 stated 

that they hoped to either increase their earnings or find alternative 

sources of secondary capital in time to replace the CDCI capital.

Treasury officials stated that they had not yet determined an exit strategy 

for CDCI but were studying various alternatives and would need to 

consider the interests of participating institutions and taxpayers. The 

officials noted that CDCI differed from CPP because of the mission of the 

participating institutions, which focused on communities and populations 

lacking access to credit, banking, and other financial services. To date, 

Treasury has had a number of meetings with participating banks and with 

 

15Basel III is a set of reform measures, developed by the Basel Committee on Banking 

Supervision, to strengthen the regulation, supervision, and risk management of the 

banking sector. The measures include both liquidity and capital reforms. The Basel 

Committee on Banking Supervision, on which the United States serves as a participating 

member, developed international regulatory capital standards through a number of capital 

accords and related publications, which have collectively been in effect since 1988. Basel 

III does not apply to credit unions.
 

Page 11 GAO-14-579 Community Development Capital Initiative

organizations representing the banks in the program and said that it was 

aware that these organizations were also looking at alternatives for the 

banks’ exit from CDCI. Treasury officials said that they had not yet held 

similar meetings with organizations representing credit unions but 

planned to do so. In addition, Treasury officials said that they would meet 

with the federal financial regulators to discuss options. Treasury officials 

added that any decision would need to balance the mission of CDCI with 

the need to protect the taxpayers’ investment. 

Treasury officials stated that, like CPP, CDCI would wind down as 

participants (1) repaid their investments; and (2) in some cases, 

restructured them. While they had not yet determined what approach they 

would use for CDCI participants that did not follow either of these 

courses, Treasury officials said that they were exploring a number of 

options. Treasury has used auctions to sell some of its investments in 

CPP institutions.16 According to representatives of one organization we 

spoke with, some CDCI participants expressed concern that Treasury 

would also use the auction method for CDCI after announcing its auction 

strategy for CPP in 2012. These representatives noted that participants’ 

mission to serve communities that lacked access to financial services 

might suffer if investors such as hedge funds bought their securities from 

Treasury, because the investors’ interests would not necessarily align 

with the institutions’ interests.

Similarly, representatives from the same organization told us that several 

CDCI banks and credit unions were classified as minority depository 

institutions and that some of these institutions had concerns that auctions 

could weaken their status as such. The Federal Deposit Insurance 

Corporation (FDIC) defines a minority depository institution as any 

federally insured depository institution with 51 percent or more minority 

ownership of its voting stock, or a majority of the Board of Directors is 

minority and the community that the institution serves is predominantly 

 

16In 2013, we reported that Treasury had recouped 84 percent of the principal investment 

in the relevant institutions through auctions. Treasury officials said that despite the loss of 

some principal, accepting a discount and transferring ownership of these institutions to the 

private sector was in the taxpayers’ best interest. GAO, Troubled Asset Relief Program:

Treasury’s Use of Auctions to Exit the Capital Purchase Program, GAO-13-630 

(Washington, D.C.: July 8, 2013). 
 

Page 12 GAO-14-579 Community Development Capital Initiative

minority.17 NCUA requires a federally insured credit union’s percentage of 

both minority members and minority management officials to exceed 50 

percent for minority depository institution status.18 Treasury officials told 

us that they were aware of the issues that auctions could present for 

CDCI institutions and had not determined whether they would incorporate 

auctions into their CDCI exit strategy. Further, when concerns first 

surfaced in 2012, after auctions were announced for CPP, Treasury 

issued a public statement clarifying that it had not yet determined what 

exit strategies would be used for CDCI. Treasury officials also told us that 

a few minority depository institutions had been part of the CPP auction 

process and that Treasury consulted with FDIC on this matter for the CPP 

auctions. According to FDIC officials, FDIC was notified of the details of 

these auctions before they were finalized, and the officials stated that 

none of the CPP auctions affected the designation of any minority 

depository institutions.

Most CDCI institutions have paid dividends and interest to Treasury on a 

timely basis, with only a small percentage missing payments over the life 

of the program. In addition, few of the remaining CDCI banks and credit 

unions are considered troubled by FDIC or NCUA. Moreover, remaining 

CDCI banks generally are financially stronger than certified CDFI banks 

that did not participate in the program, but remaining CDCI credit unions 

are generally weaker than nonparticipating CDFI credit unions.

 

17FDIC’s Policy Statement Regarding Minority Depository Institutions is based on the 

statutory framework found in Section 308 of the Financial Institutions Reform, Recovery, 

and Enforcement Act of 1989, Pub. L. No. 101-73, § 308, 103 Stat. 183, 353 (codified as 

amended at 12 U.S.C. § 1463 note). The act requires Treasury to consult with federal 

depository regulators, including FDIC, to further a number of goals related to minority 

depository institutions, including preserving their minority character in cases of merger or 

acquisition. 

18NCUA’s definition for a minority depository institution is contained in a proposed rule, 

which was approved by the NCUA Board on July 25, 2013 and is not yet finalized. See 

Proposed Interpretive Ruling and Policy Statement 13-1, 78 Fed. Reg. 46,374 (July 13, 

2013). 

Financial Health of 

Remaining 

Institutions Is Mixed
 

Page 13 GAO-14-579 Community Development Capital Initiative

The number of CDCI institutions with missed quarterly dividend or interest 

payments has been generally low, representing, on average, about 4 

percent of all remaining institutions over the life of the program. The 

percentage of remaining institutions with missed payments has ranged 

from about 1 percent to 7 percent (one to six institutions). Since 

November 2010 (the first quarter that dividend and interest payments 

were due), nine institutions (seven banks and two credit unions) have 

missed at least one quarterly payment.19 Of those institutions, three banks 

have missed at least eight payments, the threshold at which Treasury has 

the right to elect directors to their boards.20 As of April 30, 2014, Treasury 

had not appointed directors to the board of any CDCI banks, but it had 

sent an observer to one bank and requested to send an observer to a 

second bank. Two of the three banks with eight or more missed payments 

were up to date on their payments as of April 30, 2014, while the third 

was not. Institutions can elect whether to pay dividends and interest and 

may choose not to pay for a variety of reasons, including decisions that 

they or their federal and state regulators make to conserve cash and 

maintain (or increase) capital levels.21 However, investors may view a 

company’s ability to pay dividends as an indicator of its financial strength 

and may see failure to pay full dividends as a sign of financial weakness.

Very few of the remaining CDCI institutions were included on FDIC’s or 

NCUA’s most recent lists of “problem” or “troubled” banks or credit 

unions.22 The designation of these institutions as “problem” or “troubled” 

is, in large part, derived from the Uniform Financial Institutions Rating 

 

19CDCI dividend and interest payments are due on February 15, May 15, August 15, and 

November 15 of each year, or the first business day subsequent to those dates. The 

reporting period ends on the last day of the calendar month in which the dividend or 

interest payment is due. The February 15, 2014 Dividend and Interest Report is the most 

recent data available for a month in which dividends are due. 

20This authorization does not apply to credit unions. 

21For credit unions, dividends generally refer to interest paid on deposits. 

22FDIC provided us the number of remaining CDCI banks on its problem bank list as of 

February 28, 2014. Similarly, we obtained information from NCUA on the number of 

remaining CDCI credit unions it considered “troubled” as of March 13, 2014.

Few CDCI Institutions 

Have Missed Payments or 

Been Considered Troubled 

by Regulators
 

Page 14 GAO-14-579 Community Development Capital Initiative

System, commonly known as CAMELS.23 Stated differently, these lists 

designate institutions with weaknesses that threaten their continued 

financial viability. Federal and state regulators generally do not allow 

institutions on these lists to make dividend payments in an effort to 

preserve their capital and promote safety and soundness.

The financial health of remaining banks and credit unions differed relative 

to institutions that did not participate in CDCI. We examined various 

measures that described banks’ and credit unions’ capital adequacy, 

profitability, asset quality, and ability to cover losses. We analyzed 

quarterly regulatory reports from December 31, 2013 (the most recent 

reporting period for which data were available for both banks and credit 

unions) on the 68 institutions remaining in the program as of April 30, 

2014. We then compared the data to information on nonparticipating 

CDFI-certified banks and credit unions.24

On several measures of financial strength, remaining CDCI banks tended 

to be financially stronger than certified CDFI banks that did not participate 

in CDCI (non-CDCI banks) (see table 2). We found that the median asset 

size of CDCI banks as of December 31, 2013, was nearly three times that 

of non-CDCI banks ($387.4 million for CDCI banks compared with $143.3 

million for non-CDCI banks). While only 1 of the 29 remaining CDCI 

banks (about 3 percent) had assets of less than $100 million, 32 of the 97 

non-CDCI banks (33 percent) had assets in this range. Remaining CDCI 

banks also had lower median Texas Ratios than non-CDCI banks. The 

Texas Ratio helps determine a bank’s likelihood of failure by comparing 

its troubled loans to its capital. The higher the ratio, the more likely the 

 

23CAMELS ratings reflect a bank’s or credit union’s condition in six areas: capital, asset 

quality, management, earnings, liquidity, and sensitivity to market risk. (NCUA rates credit 

unions under the first five areas, but its rating system does not include a component for 

measuring sensitivity to market risk.) Each component is rated on a scale of 1 to 5, with 1 

being the best and 5 the worst. The component ratings are then used to develop a 

composite rating, also ranging from 1 to 5. Institutions with composite ratings of 1 or 2 are 

considered to be in satisfactory condition, while institutions with composite ratings of 3, 4, 

or 5 exhibit varying levels of safety and soundness problems. Institutions with composite 

ratings of 4 or 5 are included on FDIC’s problem bank list or NCUA’s troubled credit union 

list. 

24Our bank analysis included 29 remaining CDCI banks and 97 non-CDCI banks. Our 

credit union analysis included 39 remaining CDCI credit unions and 126 non-CDCI credit 

unions. 

Banks Remaining in CDCI 

Were Generally Financially 

Stronger Than Non-CDCI 

Banks, but Remaining 

Credit Unions Were 

Generally Weaker Than 

Non-CDCI Credit Unions

Banks
 

Page 15 GAO-14-579 Community Development Capital Initiative

institution is to fail. As of December 31, 2013, remaining CDCI banks had 

a median Texas Ratio of 29.01, compared with 35.05 for non-CDCI 

banks.

Table 2: Aggregate Financial Information on Remaining Community Development 

Capital Initiative (CDCI) Banks and Non-CDCI Banks, as of December 31, 2013

Remaining

CDCI banks

Non-CDCI (all

other CDFI banks)a

Number of institutions 29 97

Total assets (dollars in thousands) $387,410 $143,335

Texas Ratiob 29.01 35.05

Return on average assets 0.73 0.40

Noncurrent loan percentage 2.35 3.35

Net charge-offs to average loans ratio 0.35 0.30

Tier 1 risk-based capital ratioc 15.88 13.67

Common equity tier 1 ratio 14.44 13.50

Reserves to nonperforming loans 61.30 41.68

Source: GAO analysis of SNL Financial data.

Note: The figures in the table represent median values for all institutions in the particular population. 

We analyzed financial data from December 31, 2013 on the 29 banks that remained in CDCI as of 

April 30, 2014, and 97 banks that did not participate in CDCI. Financial data were available from SNL 

Financial for 27 of the 29 CDCI institutions, and we accounted for the remaining 2 institutions using 

SNL Financial information for the subsidiary.

a

The non-CDCI group consisted of 97 banks that were certified as Community Development Financial 

Institutions (CDFI) by Treasury’s CDFI Fund and would have been eligible for CDCI, but did not 

participate.

b

The Texas Ratio is defined as nonperforming assets plus loans 90 or more days past due divided by 

tangible equity and reserves.

c

The Tier 1 risk-based capital ratio measures Tier 1 capital as a share of risk-weighted assets.

Remaining CDCI banks performed better than non-CDCI banks with 

regard to profitability and asset quality. Specifically, remaining CDCI 

banks had a better median return on average assets, a measure of 

profitability relative to total assets and management’s efficiency at using 

its assets to generate earnings. As of December 31, 2013, remaining 

CDCI banks had a median return on average assets of 0.73, compared 

with 0.40 for non-CDCI banks. While 1 of the 29 remaining CDCI banks 

(about 3 percent) had a negative return on average assets, 32 of the 97 

non-CDCI banks (33 percent) had negative values for this ratio, indicating 

that the non-CDCI banks had more challenges with regard to managing 

their assets. In addition, remaining CDCI banks generally held better 

performing assets than non-CDCI banks. For example, remaining CDCI 

banks had a lower median percentage of noncurrent loans than non-
 

Page 16 GAO-14-579 Community Development Capital Initiative

CDCI banks. As of December 31, 2013, a median of 2.35 percent of loans 

for remaining CDCI banks were not current, compared with 3.35 percent 

for non-CDCI banks. However, remaining CDCI banks had a slightly 

higher median ratio of net charge-offs to average loans than non-CDCI 

banks (0.35 compared with 0.30).25

Remaining CDCI banks also held more regulatory capital as a percentage 

of assets than non-CDCI banks. Regulators require minimum amounts of 

capital to lessen an institution’s risk of default and improve its ability to 

sustain operating losses. Regulatory capital can be measured in several 

ways, but we focused on tier 1 capital, which includes both a tier 1 capital 

ratio and common equity tier 1 ratio, because it is the most stable form of 

regulatory capital.26 The tier 1 risk-based capital ratio shows tier 1 capital 

as a share of risk-weighted assets; the common equity tier 1 risk-based 

capital ratio shows tier 1 common equity as a share of total risk-weighted 

assets. Tier 1 common equity generally does not include CDCI or other 

TARP funds. Both ratios were higher for the remaining CDCI banks than 

for non-CDCI banks, suggesting that the CDCI banks were in a somewhat 

better position to avoid financial losses. As of December 31, 2013, 

remaining CDCI banks had a median tier 1 capital ratio of 15.88, 

compared with 13.67 for the non-CDCI banks. The median common 

equity tier 1 ratio for the remaining CDCI banks was 14.44, compared 

with 13.50 for non-CDCI banks.

Finally, remaining CDCI banks had higher reserves for covering losses 

compared with non-CDCI banks. Higher reserves suggest that the banks 

are better positioned to withstand losses. As of December 31, 2013, the 

median ratio of reserves to nonperforming loans was about one-third 

 

25A charge-off occurs when a bank recognizes that a particular asset or loan will not be 

collectible and must be written off.

26In October 2013, the Office of the Comptroller of the Currency and the Board of 

Governors of the Federal Reserve System adopted joint final rules that established new 

minimum regulatory capital requirements for U.S. banking organizations. 78 Fed. Reg. 

62,018. The Federal Deposit Insurance Corporation adopted a substantively identical final 

rule in April 2014. 79 Fed. Reg. 20,754. The new minimum risk-based capital ratios 

include a common equity tier 1 capital ratio, a tier 1 capital ratio, and a total capital ratio. 

Common equity tier 1 capital generally includes retained earnings and common stock that 

meets certain criteria after making certain capital deductions and adjustments. Additional 

tier 1 capital generally includes certain noncumulative perpetual preferred stock, related 

surplus and minority interests that are not included in common equity tier 1 capital, and 

preferred stock and other instruments issued under EESA. 78 Fed. Reg. 62.018. The new 

rules are generally effective January 1, 2015, for smaller banking organizations.
 

Page 17 GAO-14-579 Community Development Capital Initiative

greater for remaining CDCI banks as for non-CDCI banks (61.30 

compared with 41.68). However, similar percentages of banks in each 

group (about 14 percent of CDCI banks and about 18 percent of nonCDCI banks) had ratios of reserves to nonperforming loans exceeding 

100.00. In other words, these banks had at least one dollar of reserves for 

every potential dollar of losses on nonperforming loans.

CDCI credit unions had lower assets and were generally weaker than 

nonparticipating certified CDFI credit unions (non-CDCI credit unions) on 

several measures that regulators commonly use to assess the financial 

health of these institutions. Specifically, as of December 31, 2013, CDCI 

credit unions had a median asset size of $19.3 million, compared with 

$29.9 million for non-CDCI credit unions (see table 3). While the largest 

CDCI credit union had assets of less than $300 million, 6 of the 126 nonCDCI credit unions had assets exceeding $1.0 billion. Remaining CDCI 

credit unions were less profitable than non-CDCI credit unions and held 

slightly more poorly performing assets. As of December 31, 2013, 

remaining CDCI credit unions also had a median return on average 

assets of 0.27, compared to 0.53 for non-CDCI credit unions. A greater 

percentage of the remaining CDCI credit unions than non-CDCI credit 

unions had a negative return on average assets (about 26 percent, or 10 

of 39 CDCI credit unions, compared to about 19 percent, or 24 of 126 

non-CDCI credit unions). A negative return on average assets means that 

the credit union’s earnings did not cover its operating expenses and cost 

of funds. In addition, remaining CDCI credit unions held more poorly 

performing assets than non-CDCI credit unions. For example, remaining 

CDCI credit unions had a delinquent loan ratio of 1.78, compared to 1.43 

for non-CDCI credit unions.27 However, remaining CDCI credit unions had 

a slightly lower median ratio of net charge-offs to average loans than nonCDCI credit unions (0.54 compared with 0.61), indicating slightly more 

effective lending and collection practices.

 

27The delinquent loans ratio represents all loans 60 days or more past due, divided by 

total loans. 

Credit Unions
 

Page 18 GAO-14-579 Community Development Capital Initiative

Table 3: Aggregate Financial Information on Remaining Community Development 

Capital Initiative (CDCI) Credit Unions and Non-CDCI Credit Unions, as of December 

31, 2013

Remaining CDCI 

credit unions

Non-CDCI (all other 

CDFI credit unions)a

Number of institutions 39 126

Total assets (dollars in thousands) $19,255 $29,855

Return on average assets (percent) 0.27 0.53

Delinquent loans ratio 1.78 1.43

Net charge-offs to average loans ratio 0.54 0.61

Net worth ratio 7.35 9.98

Delinquent loans to net worth ratio 9.18 8.30

Source: GAO analysis of SNL Financial data.

Note: The figures in the table represent median values for all institutions in the particular population. 

We analyzed financial data from December 31, 2013 on the 39 credit unions that remained in CDCI

as of April 30, 2014, and 126 credit unions that did not participate in CDCI.

a

The non-CDCI group consisted of 126 credit unions that were certified as Community Development 

Financial Institutions (CDFI) by Treasury’s CDFI Fund and would have been eligible for CDCI, but did 

not participate.

Remaining CDCI credit unions also had less capital as a percentage of 

total assets than non-CDCI credit unions.28 Specifically, remaining CDCI 

credit unions had a lower median net worth ratio—net worth as a 

percentage of total assets—than non-CDCI credit unions. Net worth 

mitigates fluctuations in earnings, supports growth, and provides 

protection against insolvency. As of December 31, 2013, CDCI credit 

unions had a median net worth ratio of 7.35, compared with 9.98 for nonCDCI credit unions.29 For purposes of capital adequacy, a net worth of 7 

percent or greater of total assets is considered well-capitalized. Forty-one 

percent of the remaining credit unions (16 of 39) had net worth ratios less 

than 7 percent, while only about 10 percent of non-CDCI credit unions (12 

of 126) fell below the 7 percent threshold.

 

28Unlike banks, credit unions measure their capital in terms of net worth, which is typically 

limited to retained earnings (in other words, undivided earnings, regular reserves, and any 

other appropriations designated by management or regulatory authorities). Credit unions 

with a low-income designation may also apply uninsured secondary capital to their net 

worth. Credit unions in CDCI all have a low-income designation. 

29We removed secondary capital from the net worth ratio calculation in order to show how 

all institutions compared without the addition of CDCI or other sources of secondary 

capital. 
 

Page 19 GAO-14-579 Community Development Capital Initiative

Finally, CDCI credit unions were at slightly greater risk of experiencing a 

decline in net worth from delinquent loans than non-CDCI credit unions. 

For a credit union, declining net worth is similar to a bank’s having lower 

reserves for covering losses. As of December 31, 2013, remaining CDCI 

credit unions had a median ratio of total delinquent loans to net worth of 

9.18, compared to 8.30 for non-CDCI credit unions.30

We provided a draft of this report to Treasury, FDIC, and NCUA for their 

review and comment. Treasury provided written comments that we have 

reprinted in appendix II. In its written comments, Treasury concurred with 

our findings, noting that the report provides constructive insights into 

Treasury’s efforts to help CDFIs and the communities they serve cope 

with the effects of the financial crisis. Treasury stated that it continues to 

explore various exit strategies for its CDCI investments and that any 

decision would need to balance the mission of CDCI, which focuses on 

communities and populations that lack access to certain financial 

services, with the need to protect the taxpayers’ investment. NCUA also 

provided written comments that we have reprinted in appendix III. NCUA 

agreed with our representation of credit union information. Treasury, 

FDIC, and NCUA also provided technical comments, which we 

incorporated as appropriate.

We are sending copies of this report to the Special Inspector General for 

TARP, interested congressional committees and members, Treasury, 

FDIC, and NCUA. The report also is available at no charge on the GAO 

website at http://www.gao.gov.

If you or your staff members have any questions about this report, please 

contact A. Nicole Clowers at (202) 512-8678 or clowersa@gao.gov. 

 

30NCUA uses the delinquent loans to net worth ratio rather than the reserves to 

nonperforming loans ratio that we presented for the bank analysis. 

Agency Comments
 

Page 20 GAO-14-579 Community Development Capital Initiative

Contact points for our Offices of Congressional Relations and Public 

Affairs may be found on the last page of this report. GAO staff who made 

major contributions to this report are listed in appendix IV. 

A. Nicole Clowers

Director

Financial Markets and Community Investment
 

Page 21 GAO-14-579 Community Development Capital Initiative

List of Committees

The Honorable Barbara Mikulski 

Chairwoman 

The Honorable Richard C. Shelby 

Vice Chairman 

Committee on Appropriations 

United States Senate 

The Honorable Tim Johnson 

Chairman 

The Honorable Mike Crapo 

Ranking Member 

Committee on Banking, Housing, and Urban Affairs 

United States Senate

The Honorable Patty Murray 

Chairman 

The Honorable Jeff Sessions 

Ranking Member 

Committee on the Budget 

United States Senate

The Honorable Ron Wyden 

Chairman 

The Honorable Orrin G. Hatch 

Ranking Member 

Committee on Finance 

United States Senate 

The Honorable Hal Rogers 

Chairman 

The Honorable Nita Lowey 

Ranking Member 

Committee on Appropriations 

House of Representatives 

The Honorable Paul Ryan 

Chairman 

The Honorable Chris Van Hollen 

Ranking Member 

Committee on the Budget 

House of Representatives 
 

Page 22 GAO-14-579 Community Development Capital Initiative

The Honorable Jeb Hensarling 

Chairman 

The Honorable Maxine Waters 

Ranking Member 

Committee on Financial Services 

House of Representatives

The Honorable Dave Camp 

Chairman 

The Honorable Sander Levin 

Ranking Member 

Committee on Ways and Means 

House of Representatives
Appendix I: Objectives, Scope, and 

Methodology

Page 23 GAO-14-579 Community Development Capital Initiative

This report examines (1) the financial status of the Department of the 

Treasury’s (Treasury) Community Development Capital Initiative (CDCI), 

including repayments and other proceeds, investments outstanding, and 

the estimated lifetime cost of the program; (2) factors affecting 

participants’ decisions to remain in or leave the program and Treasury’s 

exit strategy; and (3) the financial condition of institutions remaining in 

CDCI.

To assess the financial status of CDCI, we analyzed data from Treasury. 

In particular, we used Treasury’s April 2014 Monthly Report to Congress 

and April 2014 Dividends and Interest Report to determine the dollar 

amounts of principal, dividends, and interest; outstanding investments; 

the number of remaining and former participants; and the estimated 

lifetime cost of the program.

To examine factors affecting participants’ decisions to remain in or leave 

the program and Treasury’s exit strategy, we selected and attempted to 

contact a nonprobability, judgmental sample of 9 of the 29 banks and 12 

of the 40 credit unions remaining in CDCI as of March 31, 2014. To draw 

the sample, we split the remaining institutions into banks and credit 

unions and divided each list of institutions into four groups according to 

their total asset size as of September 30, 2013.1 We selected the largest 

three banks and the largest credit union. We then randomly ordered the 

other institutions based on asset size categories and selected the first two 

to five institutions in each category, depending on the total number of 

institutions in that category. We selected and attempted to contact 9 

banks and 12 credit unions. These samples reflected each institution 

type’s proportions in the total list of 69 remaining institutions and reflected 

a variety of geographic areas. We were able to conduct interviews by 

phone with managers at 8 of the 9 banks and 9 of the 12 credit unions. 

These interviews consisted of a brief set of questions about each 

institution’s negative and positive experiences with CDCI, their plans for 

repayment, and factors affecting those plans. The results of our 

interviews cannot be generalized to all remaining CDCI banks and credit 

unions. We also interviewed officials from the National Credit Union 

Administration (NCUA), associations that represent banks and credit 

 

1

The September 30, 2013 total assets information was the most recent data available in 

SNL Financial for both banks and credit unions when we ran the SNL report in February 

2014. The number of institutions remaining in CDCI did not change from February to 

March 2014. 

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 24 GAO-14-579 Community Development Capital Initiative

unions that received CDCI capital, and an organization that invests in 

some of the CDCI banks, to obtain their observations on the same topics. 

Specifically, we met with representatives of the Community Development 

Bankers Association, the National Bankers Association, the National 

Federation of Community Development Credit Unions, the National 

Association of Federal Credit Unions, and the National Community 

Investment Fund. Finally, we reviewed Treasury reports and public 

statements and interviewed Treasury officials to obtain information on 

CDCI and Treasury’s exit strategy.

To assess the financial condition of institutions that received investments 

under CDCI, we used data from Treasury’s Dividends and Interest reports 

from November 2010 through February 2014 (the most recent month in 

which quarterly payments were due) to determine the extent to which 

participants had missed payments throughout the life of the program. We 

also obtained from the Federal Deposit Insurance Corporation (FDIC) the 

number of remaining CDCI banks (as of Feb. 28, 2014) on its problem 

bank list. Similarly, we obtained information from NCUA on the number of 

remaining CDCI credit unions it considered “troubled” as of March 13, 

2014.

In addition, we used SNL Financial (a private service that disseminates 

data from quarterly regulatory reports, among other information) to obtain 

regulatory financial data on the 68 remaining CDCI banks and credit 

unions and on comparison groups of institutions that were eligible for but 

did not participate in CDCI. To identify the comparison groups, we used 

Treasury’s CDFI Fund’s list of certified CDFIs as of February 28, 2014. 

This list included 127 banks, thrifts, and depository institution holding 

companies, as well as 176 credit unions.2 We chose to limit our 

comparison groups to certified CDFIs rather than the universe of banks 

and credit unions because they shared a community development 

mission and generally have smaller asset sizes. SNL Financial had data 

on all of the 127 CDFI banks, thrifts, and depository institution holding 

companies (“banks”) and 171 of the 176 CDFI credit unions. We divided 

the bank and credit union lists into three groups each: (1) those remaining 

in CDCI, (2) those that had exited CDCI, and (3) those that had never 

participated in CDCI. We defined remaining CDCI institutions as those 

 

2

The list of certified CDFIs also included loan funds and venture capital funds. However, 

we did not include these unregulated entities in our comparison groups because they were 

not eligible for CDCI. 
Appendix I: Objectives, Scope, and 

Methodology

Page 25 GAO-14-579 Community Development Capital Initiative

with their full or partial investments outstanding; this group included the 

29 banks and 39 credit unions. For both the bank and credit union 

analyses, we excluded the institutions that had exited CDCI because of 

the small size of these groups of institutions. For example, six banks had 

exited CDCI as of April 30, 2014, but SNL Financial only had current data 

on three of them because the others had been acquired. Similarly, SNL 

Financial had current data only on seven of the nine credit unions that 

had exited as of April 30, 2014. We determined that the median values for 

these small groups would not provide a meaningful illustration of the 

financial condition of exited institutions. The final comparison groups 

included 97 non-CDCI banks and 126 non-CDCI credit unions.

We conducted separate analyses for banks and credit unions because 

the two types of institutions file different regulatory reports and have 

different financial indicators. For our bank analysis, we used financial 

measures that were similar to those we had identified in our previous 

reporting on banks participating in Treasury’s Capital Purchase Program 

(CPP). These measures help demonstrate an institution’s financial health 

as it relates to a number of categories, including profitability, asset quality, 

capital adequacy, and loss coverage. For our credit union analysis, we 

obtained information from NCUA on the measures it typically uses to 

assess credit unions’ financial health. We selected at least one measure 

in each of the four categories (profitability, asset quality, capital 

adequacy, and loss coverage) we used for the bank analysis. We chose 

to present median values.

We determined that the financial information used in this report, including 

the CDCI program data from Treasury and the financial data on banks 

and credit unions from SNL Financial, was sufficiently reliable to assess

the status and condition of CDCI and institutions that participated in the 

program. For the data from Treasury, we tested Treasury’s internal 

controls over financial reporting as they related to our annual audit of the 

Troubled Asset Relief Program (TARP) financial statements and found 

the information to be sufficiently reliable based on the results of our audits 

of fiscal years 2010 through 2013 financial statements.3 We assessed the 

 

3

See GAO, Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) 

Fiscal Years 2013 and 2012 Financial Statements, GAO-14-172R (Washington, D.C.: 

Dec. 11, 2013) and Financial Audit: Office of Financial Stability (Troubled Asset Relief 

Program) Fiscal Years 2011 and 2010 Financial Statements, GAO-12-169 (Washington, 

D.C.: Nov.10, 2011). 
Appendix I: Objectives, Scope, and 

Methodology

Page 26 GAO-14-579 Community Development Capital Initiative

reliability of the SNL Financial data by performing manual testing of 

required data elements and reviewing existing information about the data 

and the system that produced them. In addition, we have assessed the 

reliability of SNL Financial data as part of previous studies and found the 

data to be reliable for the purposes of our review. We verified that no 

changes had been made that would affect the data’s reliability.

We conducted this performance audit from February 2014 to June 2014 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.
Appendix II: Comments from the Department 

of the Treasury’s Office of Financial Stability

Page 27 GAO-14-579 Community Development Capital Initiative

Appendix II: Comments from the Department 

of the Treasury’s Office of Financial Stability
Appendix III: Comments from the National 

Credit Union Administration

Page 28 GAO-14-579 Community Development Capital Initiative

Appendix III: Comments from the National 

Credit Union Administration
Appendix IV: GAO Contact and Staff 

Acknowledgments

Page 29 GAO-14-579 Community Development Capital Initiative

A. Nicole Clowers, (202) 512-8678 or clowersa@gao.gov

In addition to the contact named above, Kay Kuhlman (Assistant 

Director), Lisa Reynolds (Analyst-in-Charge), Emily Chalmers, William 

Chatlos, Chris Forys, Marc Molino, and Patricia Moye made significant 

contributions to this report.

Appendix IV: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(250769)
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