Cost Report

Report to Congress submitted pursuant to Section 4106(2)

of the Small Business Jobs Act
 

2

November 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 banks1 and

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 returns on the program’s

investments and the actual operating expenses for the period ending March 31, 2013.

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

$50 million, excluding administrative costs.  In addition, Treasury is currently projected to incur $19.8

million in fiscal year 2013 operating expenses for the SBLF program, which is $4.9 million less than the

operating budget of $24.7 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.  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 1, 2013, 17 institutions with aggregate investments of $186.3 million have fully

redeemed their SBLF securities and exited the program, and 14 institutions have partially redeemed

$173.2 million (or 46 percent of their SBLF securities) though continue to participate in the program.   

                                                            

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.   
 

3

As of June 30, 2013, 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 have increased their small business lending by $10.4 billion over a $36.5 billion

baseline2

, and by $1.4 billion over the prior quarter.

Treasury currently estimates that the investments made through the SBLF program 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, as presented in the President’s

Budget for fiscal year 2014.  

Estimated Cost of SBLF Investments

(Dollars in millions)

Treasury estimated the budgetary cost of investments made through the program 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, Treasury estimated the lifetime cost and subsidy rate of the SBLF program on a

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

the forecasted cumulative default rate for program participants, (2) the actual and projected cash flows

received by Treasury from the participants’ dividend, interest, and other payments, and (3) Treasury’s

cost of raising funds to make the 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 program’s projected lifetime positive return is $50 million.

                                                            

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 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.  Through September 30, 2013, the SBLF portfolio

has not realized any defaults.

Subsidy Rate

Projected/Actual

Investment Amount

Projected Li fetime

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
 

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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 projected

operating expenses for fiscal year 2013, 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.   

The figures shown in the following table reflect operating expenses incurred as of March 31, 2013.  

Descriptions of operating expenses follow the table.

SBLF Operating Expenses for Fiscal Year 2013

                                                                                                                           

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.  The projected $19.8 million in operating expenses for fiscal year 2013 are 20

percent below budget for the period.   

SBLF program operating activities are subject to sequestration under the Budget Control Act of 2011.  

Under this provision, the program’s operating expense budget was reduced by $1.3 million to $23.4

million.  Actual and projected expenses for fiscal year 2013 remain below this reduced amount.

Contract and other expenses are reported in the period obligated.  Obligations may include

commitments for payments associated with activities that may be completed in subsequent periods.  

Budget for fiscal

year 20131

Actual expenditures

as of 3/31/132

Commitments,

obligations, and

expenditures

as of 3/31/133

Projected expenses

for fiscal year

20134

Salaries and benefits 3,809,000 1,808,251 1,808,251 3,809,000

Travel 20,000 9,005 15,080 20,000

Contracts and other

Legal support n/a 8,105 315,230 315,230

Custodian and infrastructure provider n/a 2,059,625 4,757,750 4,757,750

Asset management n/a 2,123,654 5,601,218 5,601,218

Internal controls n/a 0 0 1,700,000

Office of the Treasury Inspector General n/a 94,105 2,195,934 2,195,934

Other (equipment, supplies, rent) n/a 387,954 1,218,562 1,378,000

Subtotal (contracts and other) 20,878,000 4,673,443 14,088,694 15,948,132

Total 24,707,000 6,490,699 15,912,025 19,777,132

[1] Representsthe total budget for the SBLF program for fiscal year 2013 per the 2014 President's Budget.  

[2]Includes actual expendituresfrom 10/1/12 to 3/31/13 for fiscal year 2013 obligations only.

[3]Includes all fiscal year 2013 financial commitments, obligations, and expenditures as of 3/31/13.  

[4]Includes all fiscal year 2013 financial commitments, obligations, expenditures, and projected expensesfor the year as of 3/31/13.
 

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

Office of the Inspector General (OIG) are presented below:

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

related to the management of the investments.  These costs are volume‐dependent.  

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

respect to SBLF securities and documents, and payments processing for SBLF participants.  

Following the conclusion of the program’s initial investment period, this cost is no longer

volume‐dependent.

 Asset Management:  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 and implementation of

processes and internal controls associated with the program’s asset management, operating,

reporting, and compliance functions.  This activity includes work performed by consultants to

develop procedures, systems, information databases, and other documentation for monitoring

and managing program activities.  Because certain internal controls work performed in fiscal

year 2013 was obligated in fiscal year 2012, no additional obligation for fiscal year 2013 was

required through March 31, 2013.  These obligations are reflected in prior Cost Reports for the

associated periods.  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, 2012 through March 31, 2013,

$94,105 was spent on audit related activities for fiscal year 2013.  This cost is not volume‐

dependent.