MEMORANDUM TO CDCI PARTICIPANTS

September 16, 2010

Thank you for participating in the Troubled Asset Relief Program (TARP) Community

Development Capital Initiative (CDCI). This memorandum is intended to ensure that you are

aware of certain key terms of this program, which offers low-cost capital to Community

Development Financial Institutions (CDFIs) as a means of helping them fulfill their mission of

providing credit to small businesses and individuals in underserved communities. With the

continuing strains of the economic crisis still being felt by small businesses, job-seekers, and the

housing sector, today more than ever the work of CDFIs in economically distressed communities

is especially critical.

As you know, the CDCI term sheets, application documents, and frequently asked questions are

available on Treasury’s website http://www.financialstability.gov/roadtostability/comdev.html.

You should carefully read the entire Securities Purchase Agreement and the accompanying

documents, including the appropriate form of Letter Agreement, form of Certificate of

Designation and form of Senior Subordinated Security, as applicable, as it is those documents

and not these brief summaries that govern your rights and obligations under the CDCI.1

Executive Compensation and Corporate Governance Requirements

CDCI was created using authority under the Emergency Economic Stabilization Act of 2008

(EESA) and, accordingly, participating institutions are required to comply with the executive

compensation and corporate governance provisions of the EESA and Treasury’s interim final

rule implementing these provisions at 31 CFR Part 30. The following is a brief summary of

certain key TARP executive compensation and corporate governance requirements.

1. Bonuses cannot be accrued or paid to a group of employees ranging in size from a single

employee to a group of approximately 25 employees, depending on the amount of TARP

assistance. There is an exception for certain grandfathered bonuses. There is also a

limited exception for certain bonuses that are payable in stock (or in cash- or stock-settled

units that are based on the value of the institution or, in some cases, a division of the

institution); these bonuses may only be paid out, however, in proportion to the repayment

of TARP assistance, in 25-percent increments.

2. Golden parachute or severance payments cannot be paid to the senior executive officers

or the next five most highly compensated employees with respect to a termination or

change in control that occurs while TARP obligations are outstanding. (Among other

payments, certain payments under a 457(f) plan may be prohibited under this provision.)

3. Bonuses paid to the senior executive officers and the next twenty most highly

compensated employees must be subject to a clawback provision if it turns out they were

based on inaccurate metrics.

4. Tax gross-ups cannot be paid to the senior executive officers or the next twenty most

highly compensated employees.

1 Neither this memorandum nor any other oral or written statement or representation by Treasury constitutes a

binding obligation to make a capital purchase or otherwise. A binding obligation shall only arise pursuant to a duly

executed Letter Agreement incorporating the terms of the Securities Purchase Agreement.
2

5. The board must adopt an excessive or luxury expenditures policy and post the policy on

the institution’s website.

6. The board’s compensation committee must be composed of independent directors who

must review and evaluate compensation plans every six months to ensure that they do not

pose unnecessary risks to the institution, and the committee must file annual certifications

and disclosures (including disclosures as to certain perquisites and compensation

consultants). For certain institutions, the board as a whole may perform the functions of

an independent compensation committee.

7. The CEO and CFO must file annual certifications covering compliance with the

executive compensation and corporate governance requirements.

8. If the institution has securities registered with the SEC, then shareholders must be

provided with an annual advisory vote on executive compensation (say on pay).

Net Operating Losses

Institutions that have net operating losses and receive TARP funds solely under CDCI, which is a

TARP program established for the stated purpose of increasing the availability of credit to small

businesses, may be eligible to carry back losses from one tax year up to five tax years pursuant to

Section 13 of the Worker, Homeownership, and Business Assistance Act of 2009. Participants

should consult their tax advisers on the applicability of this provision.

Affirmative and Negative Covenants

The following is a brief overview of certain key provisions of the affirmative and negative

covenants (other than the executive compensation covenants described above) of the Securities

Purchase Agreement that governs the CDCI program.

1. Affirmative Covenants

A. Access, Information and Confidentiality

 Until Treasury holds less than 10% of the original purchase price of its

investment, Treasury and its agents will have reasonable access to the

books and records of your Company.

 While the investment is outstanding, your Company will have certain

reporting obligations including the obligation to deliver financial

statements, assessments on internal controls and other investor

information.

B. CDFI Requirements

 While the investment is outstanding, your Company will be obligated to

maintain its status as a certified CDFI and shall provide Treasury with

certifications and other documents sufficient to evidence such status.
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C. HAMP Modifications

 While the investment is outstanding, your Company shall consent to any

Making Home Affordable (MHA) modification made by any nonaffiliated mortgage servicer and, to the extent such programs are open for

participation, participate in Treasury’s MHA program under certain

circumstances.

2. Negative Covenants

A. Certain Transactions

 While the investment is outstanding, neither your Company nor any of

your subsidiaries shall engage in certain significant corporate transactions

such as mergers or the sale of all or substantially all of your Company’s

assets subject to certain exceptions.

B. Restrictions on Dividends and Repurchases

 While the investment is outstanding, your Company will be subject to

significant restrictions on repurchases of and dividends on your

Company’s common stock including a restriction on any increase in the

aggregate per share dividend or distribution over the immediately prior

fiscal year.

 Furthermore, should the investment be outstanding past the eighth (8th)

anniversary of the closing, your Company will generally be prohibited

from making any dividend payments on or repurchases of your

Company’s common stock.

 For participating credit unions, no special dividends may be declared or

paid on any share accounts or other capital instruments.

C. Related Party Transactions

 While the investment is outstanding, your Company shall not enter into

any transactions with affiliates unless certain exceptions are met.

Again, you are strongly encouraged to consult with your legal counsel and read the entirety of

the legal documentation governing CDCI as those documents, and not these brief summaries,

govern your rights and obligations under the program.