Small Business Lending Fund • Summary of Terms • Subchapter S Corporations (05/09/11) 1

Small Business Lending Fund

Subchapter S Corporation Senior Securities

Summary of Terms

Issuer: The term “Issuer” means:

(i) an insured depository institution with total consolidated assets of less than $10 billion 

that is not controlled by a bank holding company or savings and loan holding company 

and is not directly or indirectly controlled by any company or other entity that has total 

consolidated assets of $10 billion or more; or

(ii) a bank holding company or savings and loan holding company with total consolidated 

assets of less than $10 billion; and

that has made a valid election to be taxed under Subchapter S of Chapter 1 of the U.S.

Internal Revenue Code.

Application: Institutions must apply to the United States Department of the Treasury (“Treasury”) to be 

considered for investments from the Small Business Lending Fund (the “Fund”). 

Financial

Instrument: Unsecured subordinated debentures (“Senior Securities”) that do not constitute a class of 

stock or represent equity ownership in the Issuer. Each debenture representing a Senior 

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

Regulatory

Capital 

Treatment: Tier 2.

Investment 

Amount: Issuers with $1 billion or less in total assets – 5% of risk-weighted assets:

An Issuer that is not controlled by a bank holding company or savings and loan holding company

and has total assets of $1 billion or less, or that is a bank holding company or savings and loan 

holding company that has total assets of $1 billion or less may issue a total amount of Senior 

Securities equal to not less than 1% and not more than 5% of its risk-weighted assets (“RWA”). 

Issuers with $1 billion to $10 billion in total assets – 3% of RWA:

An Issuer that is not controlled by a bank holding company or savings and loan holding 

company and has total assets of more than $1 billion and less than $10 billion, or that is a 

bank holding company or savings and loan holding company that has total assets of more 
Small Business Lending Fund • Summary of Terms • Subchapter S Corporations (05/09/11) 2

than $1 billion and less than $10 billion may issue a total amount of Senior Securities equal 

to not less than 1% and not more than 3% of its RWA.

Issuers requiring a matching private investment – 3% RWA:

An Issuer that qualifies for an investment from the Fund in conjunction with a matching 

private investment (“Private Investment”) shall receive from one or more private, nongovernment investors an amount of Private Investment equal to at least the amount to 

be invested by the Fund (or such greater amount as may be specified by Treasury). For 

such Issuers, the Fund’s investment will not exceed 3% of the Issuer’s RWA. Private 

Investment shall be subordinate to the Senior Securities and carry terms satisfactory to 

Treasury. The source of such capital shall not be any other institution that has received 

or applied to receive an investment from the Fund. Private Investment shall include any 

qualifying capital raised after September 27, 2010, net of subsequent dividends, interest 

payments, repurchases, and redemptions.

Issuers refinancing capital from the Capital Purchase Program (CPP) or Community 

Development Capital Initiative (CDCI):

The Issuer must redeem any outstanding CPP or CDCI senior securities on or prior to the 

date of Treasury’s investment (the “Investment Date”). The Issuer may apply to receive an 

investment in excess of the aggregate amount of the outstanding CPP or CDCI senior 

securities subject to the above minimum and maximum investment size limitations. Issuers 

refinancing capital from CPP or CDCI may not qualify under the Private Investment provision.

Total assets are measured as reported in the call reports (or in the case of savings 

associations, Thrift Financial Reports) of the Issuer or, for holding companies, the combined 

total assets reported in the call reports of the Issuer’s insured depositary subsidiaries, as of 

the end of the fourth quarter of calendar year 2009, and RWA is measured as reported in the 

most recent call reports as of the date of application. 

Ranking: With respect to all distributions, the Senior Securities will rank senior to common stock (and 

any other class of equity, as applicable if a change in corporate form, relevant law or tax 

election permits other classes of equity). The Senior Securities shall be expressly 

subordinated to (i), if issued by a bank or savings association, claims of depositors and the 

Issuer’s other debt obligations to its general and secured creditors and (ii), if issued by a 

holding company, senior indebtedness of the Issuer, in accordance with applicable 

regulations, unless, in the case of either (i) or (ii), such debt obligations are expressly made 

pari passu or subordinate to the Senior Securities.

Calculation of

Qualified Small 

Business Lending: Qualified Small Business Lending, as measured for the purpose of calculating the interest

rate for the Senior Securities, is defined as the sum of all lending by the Issuer of the 

following types, as reported in the Issuer’s most recent quarterly call report:

(i) commercial and industrial loans;

(ii) owner-occupied nonfarm, nonresidential real estate loans;

(iii) loans to finance agricultural production and other loans to farmers; and

(iv) loans secured by farmland;
Small Business Lending Fund • Summary of Terms • Subchapter S Corporations (05/09/11) 3

and, within these loan categories, excluding:

(i) any loan or group of loans to the same borrower and its affiliates with an original 

principal or commitment amount greater than $10 million or that is made to a borrower 

that had (or whose ultimate parent company had) more than $50 million in revenues 

during the most recent fiscal year ended as of the date of origination;

(ii) to the extent not included in (i) or (iii), the portion of any loans guaranteed by the 

U.S. Small Business Administration, any other U.S. Government agency, or a 

U.S. Government-sponsored enterprise; and

(iii) to the extent not included in (i) or (ii), the portion of any loans held by the Issuer for 

which the risk is assumed by a third party (for example, the portion of loans that have 

been participated),

while, further, adding to the amount determined above, the cumulative amount of net loan 

charge-offs with respect to Qualified Small Business Lending as measured since, and 

including, the quarter ending September 30, 2010. 

The amount of Qualified Small Business Lending, including the exclusions listed above, shall 

be calculated and reported (the “Initial Supplemental Report”) by the Issuer on the 

Investment Date and during each quarter in which the Senior Securities remain outstanding

in a format specified by Treasury (each, a “Quarterly Supplemental Report”), concurrent with 

the Issuer’s publication of its call report. 

Calculation of 

Lending Baseline: Not later than five business days prior to the Investment Date, the Issuer shall submit an 

Initial Supplemental Report reporting Qualified Small Business Lending as of the Investment 

Date and for the each of the four full quarters ending on June 30, 2010. In calculating such 

Qualified Small Business Lending, if any gains in Qualified Small Business Lending resulted 

from mergers and acquisitions, or purchases of loans during any quarter during such four 

quarter period, the Issuer shall recalculate Qualified Small Business Lending for all earlier 

quarters in such four quarter period to include such gains on a pro forma combined basis. 

The average of Qualified Small Business Lending reported for these four quarters shall be the 

baseline against which subsequent lending is measured (the “Baseline”).

When applicable, at the beginning of each quarter that begins after the Investment Date, the 

Baseline will be increased by the amount of any gains realized by the Issuer resulting from 

mergers and acquisitions, or purchases of loans, as measured since, and including, the 

quarter ending on September 30, 2010.

Maturity: The date (the “Maturity Date”) that is ten years from the date of the investment. On the 

Maturity Date, the Issuer shall repay to Treasury the principal amount together with all 

accrued and unpaid interest.

Interest Rate: The Senior Securities shall pay cumulative quarterly interest. Interest shall be computed on 

the basis of a 360-day year consisting of twelve 30-day months. 
Small Business Lending Fund • Summary of Terms • Subchapter S Corporations (05/09/11) 4

The interest rate will be adjusted to reflect the amount of an Issuer’s change in Qualified 

Small Business Lending from the Baseline, based on the following schedule:

Increase in Qualified Small Business 

Lending over Baseline

First 9 

Quarters

Quarter 10 

to Year 4.5

After Year 

4.5

0% or less 7.7% 10.8% 13.8%

more than 0%, but less than 2.5% 7.7% 7.7% 13.8%

2.5% or more, but less than 5% 6.2% 6.2% 13.8%

5% or more, but less than 7.5% 4.6% 4.6% 13.8%

7.5% or more, but less than 10% 3.1% 3.1% 13.8%

10% or more 1.5% 1.5% 13.8%

Interest Rate Following Investment Date

*For the first nine quarters, the interest rate will be adjusted quarterly

Initial rate and adjustments in the first ten quarters:

On the Investment Date, and at the beginning of each of the next ten calendar quarters 

thereafter, the amount of Qualified Small Business Lending reported by the Issuer in the 

most recent Supplemental Report will be compared to the Baseline amount of Qualified 

Small Business Lending. The interest rate will be adjusted to reflect the amount of an Issuer’s

change in Qualified Small Business Lending from the Baseline, as reflected in the table above.

Rate adjustments following the first ten quarters:

The rate in effect at the beginning of the tenth full calendar quarter after the Investment 

Date will be payable until the expiration of the four-and-one-half-year period beginning on 

the Investment Date.

If, at the beginning of the tenth full calendar quarter after the Investment Date, the Issuer’s 

most recent Quarterly Supplemental Report shows that the amount of Qualified Small 

Business Lending has not increased relative to the Baseline, the interest rate will increase to 

10.8% per annum until the four-and-one-half-year period that started on the Investment 

Date expires.

Limitation on rate reductions:

The reduction in the interest rate will not apply to a dollar amount of the investment that is 

greater than the dollar amount of the increase in Qualified Small Business Lending since the 

Baseline. Interest on any amount that is in excess of the increase in the amount of Qualified 

Small Business Lending will be payable at a rate of 7.7% per annum until the expiration of 

the four-and-one-half-year period that begins on the Investment Date, and 13.8% per 

annum thereafter.

Rate adjustment 4.5 years after the Investment Date:

At the expiration of the four-and-one-half-year period that begins on the Investment Date, 

the interest rate will increase to 13.8% per annum.

Timing:

Interest shall be payable quarterly in arrears on January 1, April 1, July 1, and October 1 of 

each year.

Lending

Incentive Fee: For Issuers that participated in CPP, and did not redeem, or apply to redeem, the CPP 

investment on or prior to December 16, 2010, if at the beginning of the tenth calendar 

quarter after the Investment Date, the Issuer’s most recent Supplemental Report shows that 
Small Business Lending Fund • Summary of Terms • Subchapter S Corporations (05/09/11) 5

the amount of Qualified Small Business Lending has not increased relative to the Baseline, 

then at the beginning of the fifth anniversary of the CPP investment, and at the beginning of 

each full calendar quarter thereafter, the Issuer shall pay Treasury a lending incentive fee 

equal to 3.1% per annum of the aggregate principal amount of the then-outstanding Senior 

Securities. This fee shall end 4.5 years after the Investment Date. 

Redemption: The Senior Securities may be redeemed at any time at the option of the Issuer, subject to the 

approval of the appropriate federal banking agency. All redemptions of Senior Securities

must be made at 100% of the issue price, plus any accrued and unpaid interest as of the date 

of redemption (“Redemption Date”) for the quarter that includes the Redemption Date. All 

redemptions must be in amounts equal to at least 25% of the number of originally issued 

debentures, or 100% of the then outstanding debentures (if less than 25% of the number of 

originally issued debentures). 

Right to Pay

Dividends and 

Repurchase Shares: Unless otherwise restricted by the appropriate federal or state banking agency, the Issuer 

may pay common dividends or repurchase common stock, subject to the limitations listed 

under “Provisions upon Nonpayment of Interest,” if after giving effect to the dividend

payment or share repurchase, the dollar amount of the Issuer’s total risk-based capital 

would be at least 90% of the amount existing at the time immediately following the 

Investment Date (the “Risk-Based Capital Threshold”), excluding any subsequent net chargeoffs, redemptions at maturity of other Tier 2 instruments, and redemptions of the Senior 

Securities since the Investment Date, subject to (i) and (ii) below:

(i) During the period beginning on the first day of the tenth quarter following the 

Investment Date and, if the Issuer is subject to (ii) below, ending on the day before the 

tenth anniversary of the Investment Date, for every 1% increase in Qualified Small 

Business Lending the Issuer has achieved above the Baseline, the Risk-Based Capital

Threshold will be decreased by a dollar amount equal to 10% of the amount of the 

Senior Securities investment; and

(ii) During the period beginning on the tenth anniversary of the Investment Date and 

ending on the Redemption Date, the Issuer may not effect any repurchases of securities

or declare or pay any dividends on common stock.

Provisions upon

Nonpayment of

Interest: For any missed payment:

The following restrictions will apply whenever interest payable on the Senior Securities has 

not been paid for any quarterly interest period:

(i) The Chief Executive Officer and Chief Financial Officer of the Issuer will be required to 

provide written notice, in a form reasonably satisfactory to Treasury, which is to include 

the rationale of the Issuer’s board of directors for not paying interest; and

(ii) No repurchases may be effected and no dividends may be declared or paid on the 

Issuer’s securities until all accrued interest on the Senior Securities has been paid in full.
Small Business Lending Fund • Summary of Terms • Subchapter S Corporations (05/09/11) 6

After four missed payments:

Whenever interest on the Senior Securities has not been paid for four quarterly interest 

periods or more, whether or not consecutive, and during such time the Issuer was not 

subject to a regulatory determination that prohibits the payment of interest, the board of 

directors of the Issuer must certify, in writing, that the Issuer used best efforts to pay such 

quarterly interest in a manner consistent with safe and sound banking practices and the 

directors’ fiduciary obligation. 

After five missed payments:

Whenever interest on the Senior Securities has not been and paid for five quarterly interest 

periods or more, whether or not consecutive, Treasury will have the right, but not the 

obligation, to appoint a representative to serve as an observer on the Issuer’s board of 

directors. This right will end when full interest has been paid for four consecutive 

subsequent interest periods.

After six missed payments: 

Whenever interest on the Senior Securities has not been paid for six quarterly interest periods

or more, whether or not consecutive, if the principal amount of the Senior Securities is $25 

million or more, the holder of the Senior Securities will have the right to elect two directors to 

the Issuer’s board of directors. The right to elect directors will end when full interest has been 

paid for four consecutive subsequent interest periods.

Small Business

Lending Plan: The Issuer shall provide to the appropriate federal banking agency, and, if applicable, state 

banking agency, a small business lending plan at the time it submits its application for this 

program. The plan will be confidential supervisory information. 

Downstreaming 

of Investment: The Issuer, if it is a holding company, shall immediately contribute not less than 90% of the 

amount of Treasury’s investment to its insured depository institution subsidiaries, excluding 

an amount equal to the Issuer’s outstanding CPP or CDCI balance, if any; provided, that no 

insured depository institution may receive more than 5% of its RWA (if the Issuer has total 

assets of $1 billion or less), or 3% of its RWA (if the Issuer has total assets of more than 

$1 billion and less than $10 billion).

Voting Rights: The Senior Securities will be nonvoting, other than for consent rights granted to Treasury 

with respect to (i) any authorization or issuance of shares ranking senior to the Senior 

Securities, (ii) any amendment to the rights of the Senior Securities, and (iii) any merger, 

exchange, dissolution, or similar transaction which would affect the rights of the Senior 

Securities. 

Acceleration: Upon the placement of the Issuer or, in the case of a holding company, a significant bank 

subsidiary, into bankruptcy, receivership, conservatorship or liquidation, principal and 

accrued interest may become immediately due and payable (i.e., accelerated).

Transferability: The Senior Securities will not be subject to any restrictions on transfer. The Issuer may 

merge or sell all, or substantially all, of its assets (as well as, in the case of an Issuer that is a 

bank holding company, any insured depository institution subsidiary), provided that the 

rights of the Senior Securities and the obligations of the Issuer relating thereto are assumed 

and equivalent Senior Securities are issued by the successor entity.
Small Business Lending Fund • Summary of Terms • Subchapter S Corporations (05/09/11) 7

Access and

Information: The Issuer will permit the holder of the Senior Securities, the holder’s designees, the 

Inspector General of the Department of the Treasury, and the Comptroller General of the 

United States to examine the Issuer’s corporate books and discuss matters relevant to the 

investment with principal officers, after being provided with reasonable notice.

Certifications: The Issuer will provide the following certifications to Treasury:

(i) The Issuer’s Chief Executive Officer and Chief Financial Officer, as well as the directors 

(trustees) of the Issuer who attest to the Issuer’s call report (or those of its insured 

depositories, in the case of a holding company), will certify to Treasury that information 

provided on each Supplemental Report is accurate. 

(ii) Following the Investment Date, within 90 days of the end of any fiscal year of the Issuer 

during which the Initial Supplemental Report or first ten Quarterly Supplemental 

Reports are submitted, the Issuer will receive and submit to Treasury a certification 

from its auditors that the Supplemental Reports are complete and accurate with respect 

to accounting matters, including policies and procedures and controls over such.

(iii) Annually, until the Redemption Date, the Issuer will certify to Treasury that (a) businesses 

that received loans from the Issuer following the Investment Date have certified to the 

Issuer that their principals have not been convicted of, or pleaded nolo contendre to a sex 

offense against a minor, as required by Section 4107(d)(2) of the Small Business Jobs Act 

of 2010, and (b) these certifications will be retained in accordance with standard 

recordkeeping practices established by the appropriate federal banking agency.

(iv) Annually, until the Redemption Date, the Issuer will certify to Treasury that it is in 

compliance with the Customer Identification Program requirements set forth in 

31 C.F.R. § 103.121. 

Issuers must submit valid and timely certifications to be eligible for any interest rate 

adjustment on the Senior Securities. Issuers must also complete a short annual lending 

survey.

No Relationship 

to TARP: The Fund was established by Congress as a separate and distinct Treasury program and is 

not related to the Troubled Asset Relief Program (“TARP”). An institution will not be 

considered a TARP recipient by virtue of receiving a capital investment from the Fund.

Change in Law: If, after a capital investment has been made in an eligible institution under the Program, 

there is a change in law that modifies the terms of the investment or program in a materially 

adverse respect for the eligible institution, the eligible institution may, after consultation 

with the appropriate federal banking agency for the eligible institution, repay the investment 

without impediment.

Warrants: Any warrants issued to Treasury under CPP by an Issuer that are outstanding as of the date 

of refinancing shall remain outstanding subsequent to such Issuer’s refinancing into the 

Fund, unless such Issuer elects to repurchase such warrants. No new issuance of warrants is 

required for participation in the Fund.
Small Business Lending Fund • Summary of Terms • Subchapter S Corporations (05/09/11) 8

Additional

Information and

Considerations: This document does not create a binding legal obligation. A binding obligation shall only 

arise pursuant to duly executed definitive documentation, subject to the satisfaction of 

closing conditions, including the absence of any material adverse change in the condition 

(financial or otherwise) of the Issuer.

Institutions on the Federal Deposit Insurance Corporation (“FDIC”) problem bank list, or that 

have been on the FDIC problem bank list within the last 90 days (the FDIC problem bank list 

means the list of institutions that have a current rating of 4 or 5 under the Uniform Financial 

Institutions Rating System, or similar list designated by the FDIC) are ineligible to receive 

investments from the Fund.

Institutions that participated in CPP or CDCI but missed more than one interest payment due 

to Treasury while participating in CPP or CDCI, are ineligible to participate in the program. A 

missed payment is defined as a payment submitted more than 60 days after the due date, 

even if during the CPP or CDCI deferral period.

For Issuers that participated in CPP or CDCI and repaid, or applied to repay, the CPP or CDCI

investment on or after December 16, 2010, on the Investment Date, the Issuer (i) must be in 

material compliance with all the terms, conditions and covenants of any CDCI or CPP 

agreement and financial instrument and (ii) must pay, in immediately available funds, the 

amount of any unpaid interest for all payment periods prior to the Investment Date, plus 

accrued and unpaid interest as of the date of refinancing for the payment period that 

includes the Investment Date.