Cost Report

Report to Congress submitted pursuant to Section 4106(2)

of the Small Business Jobs Act
 

2

April 2013

Cost Report

Report to Congress submitted pursuant to Section 4106(2) 

of the Small Business Jobs Act of 2010

Introduction

Small businesses are a vital part of the American economy, and their success is a critical component of 

the economic recovery. Established by the Small Business Jobs Act of 2010 (the Act), the Small Business 

Lending Fund (SBLF) is a dedicated fund designed to provide capital to qualified community banks1and 

community development loan funds (CDLFs) in order to encourage small business lending. The purpose 

of the SBLF is to encourage Main Street banks and small businesses to work together, help create jobs, 

and promote economic growth in communities across the nation. 

This report is submitted pursuant to Section 4106(2) of the Act, which directs the Secretary of the 

Treasury to provide a semiannual written report to Congress on all projected costs and liabilities, all 

operating expenses, including compensation for financial agents and contractors, and all transactions 

made with respect to the SBLF program. This report reflects the estimated cost of the program’s 

investments and the actual operating expenses for the fiscal year ending September 30, 2012.

Investments made through the SBLF program are presently expected to generate a positive return of 

$50 million in contrast to an originally projected cost of $1.3 billion, excluding administrative costs. In 

addition, Treasury incurred $15.5 million in actual fiscal year 2012 operating expenses for the SBLF 

program, $10.1 million less than the operating expense budget of $25.6 million as presented in the 

President’s Budget for fiscal year 2013. 

Estimated Cost of SBLF Investments

Treasury invested over $4.0 billion in 332 institutions through the SBLF program. These amounts include

investments of $3.9 billion in 281 community banks and $104 million in 51 CDLFs. Collectively, these 

institutions operate in over 3,000 locations across 48 states. As of September 30, 2012, 328 institutions 

continue to participate in the program, including 277 community banks and 51 CDLFs. In total, four bank 

participants have fully repaid their SBLF investments. The initial disbursement of SBLF funding occurred 

on June 21, 2011, with subsequent transactions completed thereafter until the program’s September 

27, 2011 statutory funding deadline. 

As of September 30, 2012, institutions participating in SBLF had made important progress in increasing 

their small business lending, helping to support small businesses and local economies across the nation. 

In total, SBLF participants increased their small business lending by $7.4 billion over a $36.5 billion 

baseline2, and by $740 million over the prior quarter.

 

1

In this report, the terms “banks” and “community banks” encompass banks, thrifts, and bank and thrift holding companies 

with consolidated assets of less than $10 billion as of December 31, 2010. 

2

As established in the Act, the baseline for measuring the change in small business lending is the average of the amounts that 

were reported for each of the four calendar quarters ended June 30, 2010.
 

3

Treasury currently estimates that the investments made through SBLF will generate a lifetime positive 

return of $50 million for the Treasury General Fund. The figures in the following table reflect Treasury’s 

calculation of the estimated cost of SBLF investments in the President’s Budget for fiscal year 2014. 

Estimated Cost of SBLF Investments

(Dollars in millions)

Treasury estimated the program’s budget cost in conformance with the Federal Credit Reform Act 

(FCRA) methodology using actual program data for fiscal years 2011 and 2012. This data, combined with 

the expected future cash flows, results in a subsidy rate of -1.26 percent compared to an original subsidy 

rate of 7.24 percent. 

Per FCRA requirements, the lifetime cost and subsidy rate of the SBLF program is estimated on a present 

value basis. Assumptions used to estimate future cash flows include, but are not limited to: (1) the 

cumulative default rate for program participants, (2) the cash flows received by Treasury from the 

participants’ dividend, interest, and other payments, and (3) Treasury’s cost of raising funds to make 

SBLF investments. 

The current estimate of the program’s projected lifetime savings incorporates a forecasted cumulative 

default rate (i.e., lost principal investments) of 3.78 percent compared to a 4.29 percent rate in the prior

year’s estimate.

3

This lower rate reflects an overall improvement in the financial condition of program 

participants and, independent of other factors, would result in greater projected lifetime savings for the 

program. The current year estimate also incorporates, however, a reduction in expected lifetime

dividend and interest payments to Treasury as a result of higher-than-projected increases in small 

business lending by program participants, in accordance with the lending incentives provided for by the 

Act. Changes in economic projections also contributed to the decrease in program cost. Inclusive of 

these changes, the projected program lifetime savings is $50 million.

Operating Expenses

Treasury is committed to implementing the SBLF in a cost-effective manner to protect taxpayer interests

while achieving the program’s objectives of encouraging small business lending. The operating expenses 

for fiscal year 2012, reported herein, primarily reflect the costs of monitoring the performance and 

compliance of participating institutions, reporting on program performance and expenses, maintaining 

program accounts, and managing the portfolio and the disposition of securities purchased. 

 

3

The forecasted cumulative default rate represents the projected investment amounts not repaid by program participants as a 

percentage of all SBLF investments. The rate is estimated based on the financial condition of program participants relative to 

the historical performance of institutions rated by the major ratings agencies.

Subsidy Rate

Projected/Actual 

Investment Amount

Projected Lifetime 

Cost (Savings)

Original estimate 7.24% 17,399 1,260

President's Budget for fiscal year 2013 -2.08% 4,028 -84

President's Budget for fiscal year 2014 -1.26% 4,028 -50
 

4

The figures shown in the following table reflect operating expenses incurred as of September 30, 2012. 

Descriptions of operating expenses follow the table.

SBLF Operating Expenses for Fiscal Year 2012

 

On September 27, 2011, the SBLF program’s core investment activities were completed. SBLF is now 

staffed primarily to monitor, manage, and report on these investments and related participant lending 

and program activities. Treasury’s actual fiscal year 2012 operating expenditures of $15.5 million 

represent a 72% reduction in annual expenditures from the program’s fiscal year 2011 budget of $54.6 

million and a 53% reduction from the program’s fiscal year 2011 actual expenditures of $33.3 million. 

Travel expenses in fiscal year 2012 relate primarily to asset management, internal controls, and 

monitoring the compliance of the SBLF participants with the program terms. 

Descriptions of costs related to legal support, financial agents, internal controls, and the Treasury’s 

Office of the Inspector General (OIG) are included here:

 Legal Support: These expenses are for legal services incurred in connection with repurchases of 

SBLF securities and other transactions related to the management of the investments. These 

costs are volume-dependent. 

[1] [2] [3]

Expenditures 

fiscal year 2012 

budgeted

Actual expenditures 

as of 9/30/12

Commitments, 

obligations, and 

expenditures 

as of 9/30/12

Salaries and benefits 4,119,000 3,887,486 3,887,486

Travel 30,000 18,477 19,635

Contracts and other

Legal support n/a 0 0

Custodian and infrastructure provider n/a 6,625,250 6,625,250

Asset managers n/a 767,475 1,125,250

Internal controls n/a 1,628,598 4,771,044

Office of the Treasury Inspector General n/a 1,300,159 4,343,642

Other (equipment, supplies, rent) n/a 1,226,864 1,813,971

Subtotal (contracts and other) 21,441,000 11,548,346 18,679,157

Total 25,590,000 15,454,309 22,586,278

[2] Includes actual expenditures from 10/1/11 to 9/30/12.

[3] Includes all financial commitments, obligations, and expenditures as of 9/30/12. For Internal Controls, this includes commitments and 

obligations made in fiscal year 2012 for fiscal year 2013.

[1] Represents the total budgeted expenditures for the SBLF program in fiscal year 2012 per the 2013 President's Budget. Note: The 2013 

President's Budget did not break out expenditures by some of these line items.
 

5

 Custodian and Infrastructure Provider: These expenses relate to bank custodial services with 

respect to SBLF securities and documents, outreach to participating institutions, and payments 

processing for SBLF participants. Following the conclusion of the program’s initial investment 

period, this cost is no longer volume-dependent.

 Asset Managers: These expenses relate to financial analysis and monitoring of SBLF participants

and applicable market research regarding the community banking sector. These costs are

largely volume- and activity-dependent.

 Internal Controls: These expenses relate principally to the design of processes and internal 

controls associated with setting up the asset management structure for the SBLF. This activity

includes work performed by consultants regarding the development of procedures, information 

databases, and other documentation for monitoring and managing SBLF investments. This cost 

is not volume-dependent.

 Office of the Treasury Inspector General: These expenses reflect reimbursements to the 

Treasury’s OIG for audits of the SBLF program. Per the Act, OIG is required to issue reports on 

the SBLF no less than two times each year. From October 1, 2011 through September 30, 2012, 

a total of $1,300,159 was spent on audit related activities. This cost is not volume-dependent.