TARP Capital Purchase Program 

(Mutual Holding Company) 

Senior Securities 

Summary of Senior Securities Terms

 

Issuer: Qualifying Financial Institution (“QFI”) means any Bank Holding 

Company (“BHC”) or Savings and Loan Holding Company (“SLHC”) 

that (i) is mutual in organization (a “Mutual HC”), (ii) engages solely or 

predominately in activities permissible for financial holding companies 

under relevant law, and (iii) does not directly own and control a BHC or 

SLHC. Separate Term Sheets are being issued for BHCs and SLHCs that 

are directly owned and controlled by a Mutual HC and are (i) publicly 

traded or (ii) not publicly traded. The term QFI for purposes of this Term 

Sheet shall not mean any institution that is controlled by a foreign bank or 

company. For purposes of this program, “U.S. savings bank”, “U.S. 

savings association”, “BHC” and “SLHC” means a mutual savings bank, 

mutual savings association, BHC or SLHC 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. The United States Department of the Treasury will 

determine the eligibility and allocation for QFIs after consultation 

with the appropriate Federal banking agency. 

 

Initial Holder: United States Department of the Treasury (the “UST”). 

Size: QFIs may sell Senior Securities (defined below) to the UST subject to the 

limits and terms described below. 

Each QFI may issue Senior Securities with an aggregate principal amount 

equal to not less than 1% of its risk-weighted assets and not more than the 

lesser of (i) $25 billion and (ii) 3% of its risk-weighted assets. 

Security: Subordinated Debentures (“Senior Securities”); it being understood that 

the Senior Securities do not constitute a class of stock. Each note 

representing a Senior Security shall be in the principal amount of $1,000. 

Ranking: Senior to mutual capital certificates and other capital instruments 

authorized under state law. Senior Securities must be subordinated to 

senior indebtedness of the QFI, in accordance with applicable Federal and 

state law, unless such debt obligations are explicitly made pari passu or 

subordinated to the Senior Securities. 

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Regulatory 

Capital 

Status: Tier 1. It is anticipated that, prior to the UST investing, the Senior 

Securities will become eligible for inclusion in tier 1 capital of an QFI by 

the appropriate Federal banking agency issuing an interim final rule 

permitting inclusion of the Senior Securities in tier 1 capital, to the extent 

necessary. 

Maturity: 30 years.

Interest Rate: The Senior Securities will pay interest at a rate of 7.7% per annum until 

the fifth anniversary of the date of this investment and thereafter at a rate 

of 13.8% per annum.1

 Interest will be payable quarterly in arrears on 

February 15, May 15, August 15 and November 15 of each year (each, an 

“Interest Payment Date”). 

Interest Deferral 

Interest may be deferred on the Senior Securities for up to 20 quarters; 

however any unpaid interest shall cumulate and compound at the then 

applicable interest rate in effect. For so long as any interest deferral is in 

effect, no dividends may be paid on shares of equity, mutual capital 

certificates, other capital instruments authorized under state law, or trust 

preferred securities of the QFI. 

Redemption: All redemptions of the Senior Securities shall be at 100% of the issue 

price, plus any accrued and unpaid Interest. All redemptions shall be 

subject to the approval of the QFI’s appropriate Federal banking agency. 

 

Restrictions 

on Dividends: Subject to certain exceptions, for as long as any Senior Securities are 

outstanding, no dividends may be declared or paid on any shares of equity, 

mutual capital certificates, other capital instruments authorized under state 

law, or trust preferred securities, nor may the QFI repurchase or redeem 

any shares of equity, mutual capital certificates, other capital instruments 

authorized under state law, or trust preferred securities unless all accrued 

and unpaid Interest for all past interest periods on the Senior Securities is 

fully paid. 

Further Restrictions 

on Dividend 

Increases: UST’s consent shall be required for any increase in regularly paid 

dividends per share, capital certificate, or other capital instruments 

authorized under state law until the third anniversary of the date of this 

 

1 Senior Securities have 7.7% and 13.8% interest rates which equate to after-tax effective rates (assuming a 

35% tax rate) of 5% and 9%, respectively, the same rates applied to securities issued by other classes of institutions 

participating in the CPP. It is understood that the 7.7% and 13.8% interest rates to achieve after-tax parity with 

other classes of institutions participating in the CPP should not apply to mutual institutions that are tax-exempt. 

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investment. After the third anniversary and prior to the tenth anniversary, 

the UST’s consent shall be required for 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), or to increase aggregate dividends per share or 

certificate where the resulting aggregate dividend per share, capital 

certificate, or other capital instruments authorized under state law is 

greater than 103% of the prior year’s dividend rate per annum; provided 

that no increase in dividends may be made as a result of any dividend paid 

in common shares capital certificates, or other capital instruments 

authorized under state law, any stock split or similar transaction. The 

restrictions in this paragraph no longer apply if the Senior Securities and 

Warrant Securities (as defined below) have been redeemed in whole or the 

UST has transferred all of the Senior Securities and Warrant Securities to 

unaffiliated third parties, which for this purpose does not include a 

securitization vehicle or investment pool in which the UST is an initial 

sponsor or participant so long as UST has an economic interest in such 

vehicle or pool (“Third Parties”). 

Restriction on 

Acceleration: Principal and accrued interest may only become immediately due and 

payable (i.e., accelerate) upon the bankruptcy or liquidation of the QFI, 

the receivership of a major bank subsidiary of the QFI, or deferral of 

interest on the Senior Securities for more than 20 quarters. 

Repurchases: The UST’s consent shall be required for any repurchases of equity 

securities, mutual capital certificates, other capital instruments authorized 

under state law, or trust preferred securities (other than repurchases of 

common shares, capital certificates, or other capital instruments authorized 

under state law in connection with any benefit plan in the ordinary course 

of business consistent with past practice or relevant income tax laws) until 

the tenth anniversary of the date of this investment unless prior to such 

tenth anniversary the Senior Securities and Warrant Securities are 

redeemed in whole or the UST has transferred all of the Senior Securities 

and Warrant Securities to third parties. In addition, there shall be no 

repurchases of equity, capital certificates, or other capital instruments 

authorized under state law if prohibited as described above under 

“Restrictions on Dividends”. 

Other Dividend and 

Repurchase 

Restrictions: From and after the tenth anniversary of the date of this investment, the 

QFI shall be prohibited from paying dividends or repurchasing any equity 

securities, capital certificates, other capital instruments authorized under 

state law, or trust preferred securities until all Senior Securities and 

Warrant Securities are redeemed or repurchased in whole. 

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Voting Rights: Senior Securities shall be nonvoting , other than class voting rights on (i) 

any authorization or issuance of any equity securities which purport to 

rank senior to the Senior Securities, (ii) any amendment to the rights of 

Senior Securities, or (iii) any merger, exchange or similar transaction 

which would adversely affect the rights of the Senior Securities. 

 

Notwithstanding any interest deferral, if Interest on the Senior Securities is 

not paid in full for six Interest periods, whether or not consecutive, the 

Senior Securities holders will have the right to elect 2 directors to the QFI. 

The right to elect directors to the QFI will end when full Interest has been 

paid for all prior interest periods.

 

Transferability: Senior Securities will not be subject to any contractual restrictions on 

transfer or the restrictions of any stockholders’ agreement or similar 

arrangement that may be in effect among the QFI and its equity holders at 

the time of the Senior Security investment or thereafter; provided that the 

UST and its transferees shall use its commercially reasonable efforts not to 

effect any transfer of the Senior Securities which would require the QFI to 

become subject to the periodic reporting requirements of Section 13 or 

15(d) of the Exchange Act. 

If the QFI otherwise becomes subject to such reporting requirements (e.g. 

to the extent it no longer elects to be a MHC, or an S Corporation), the 

QFI will file a shelf registration statement covering the Senior Securities 

as promptly as practicable and, if necessary, shall take all action required 

to cause such shelf registration statement to be declared effective as soon 

as possible. In addition, the UST and its transferees shall have piggyback 

registration rights for the Senior Securities. Subject to the above, the QFI 

shall take all steps as may be reasonably requested to facilitate the transfer 

of the Senior Securities. 

Executive 

Compensation, 

Transparency, 

Accountability, 

Monitoring: The QFI and its covered officers and employees shall agree to comply 

with the rules, regulations and guidance of the UST with respect to 

executive compensation, transparency, accountability and monitoring, as 

published and in effect at the time of the investment closing. 

 

Affiliate 

Transactions: For as long as the UST holds any debt or equity securities (including the 

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 audit 

committee or a comparable body of independent directors of the QFI, or if 

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there are no “independent directors,” 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. 

Summary of Warrant Terms

Warrant: In consideration of the investment in Senior Securities and other 

consideration in connection with its investment, UST will receive warrants 

to purchase, upon net settlement, a number of additional Senior Securities 

(the “Warrant Securities”) in an amount equal to 5% of the amount of 

Senior Securities purchased on the date of investment. The UST intends 

to immediately exercise the warrants. The exercise price for the warrants 

shall be $0.01 per note representing a Warrant Security. 

Term: 10 years (it being understood the Warrant Securities themselves will have 

a maturity of 30 years). 

Exercisability: Immediately exercisable, in whole or in part. 

Warrant Securities: The Warrant Securities shall have the same rights, preferences, privileges, 

voting rights and other terms as the Senior Securities, except that (1) the 

Warrant Securities will pay Interest at a rate of [13.8%] per annum and (2) 

the Warrant Securities may not be redeemed until all the Senior Securities 

have been redeemed. 

Transferability: The warrants will not be subject to any contractual restrictions on transfer 

or the restrictions of any stockholders’ agreement or similar arrangement 

that may be in effect among the QFI and its equity holders at the time of 

this investment or thereafter; provided that the UST shall not effect any 

transfer of the warrants or underlying Warrant Securities which would 

require the QFI to become subject to the periodic reporting requirements 

of Section 13 or 15(d) of the Exchange Act. 

 

If the QFI otherwise becomes subject to the periodic reporting 

requirements of Section 13 or 15(d) of the Exchange Act, the QFI will file 

a shelf registration statement covering the warrants and the Warrant 

Securities underlying the warrants as promptly as practicable and, if 

necessary, shall take all action required to cause such shelf registration 

statement to be declared effective as soon as possible. In addition, the 

UST and its transferees shall have piggyback registration rights for the 

warrants and the Warrant Securities underlying the warrants. Subject to 

the above, the QFI shall take all steps as may be reasonably requested to 

facilitate the transfer of the warrants or the Warrant Securities.