Eight participants in TARP's Capital
Purchase Program have exchanged their Treasury
aid for lower-cost funding through the government's newly instituted Community
Development Capital Initiative (CDCI).
The initiative allows
pre-approved banks and thrifts to exchange their 5 percent Capital Purchase funding for 2 percent CDCI funding, and
in some cases allows the institutions to tap even more money at the lower
rate. Credit unions -- which were not
allowed to apply for earlier Troubled Asset Relief Program initiatives -- also may apply for the new program.
The CDCI was unveiled on
February 3, but the first transactions related to the program did not
materialize until July 30. The aim
of the newer program is to "invest lower-cost capital in Community Development
Financial Institutions (CDFIs) that lend to small business in the country's
hardest-hit communities." Participation requires the Treasury's certification that the
bank, thrift or credit union targets more than 60 percent of its small business
lending and other economic development activities to "underserved communities."
On July 30, Guaranty Capital Corp. of Belzoni, Miss., and University Financial Corp. of St.
Paul, Minn., became the first to exchange their 5 percent government funding for lower-rate
capital. Guaranty Capital traded
its $14 million CPP aid for the same amount of CDCI funding. University Financial Corp. not only
swapped its $11.9 million in CPP funds, but received an additional $22.1
million at the 2 percent rate.
One week later, Southern
Bancorp of Arkadelphia, Ark., followed University Financial's lead, swapping
$11 million in CPP monies while receiving an additional $22.8 million in TARP
funding. The entirety of the
Treasury's investment in Southern--more than $33.8 million--now stands at the 2 percent
rate.
Under the terms of TARP's
Capital Purchase Program, the 5 percent dividend jumps to 9 percent after five
years. The CDCI program, however,
does not require the recipient to pay more than a 2 percent dividend for the
first eight years. After that time,
the dividend would rise to 9 percent until payoff.
On August 13, 2010, five more banks
swapped their TARP funding dollar-for-dollar to the CDCI program. Premier Bancorp of Wilmette, Ill;
Citizens Bancshares Corp., of Atlanta;
PGB Holdings Inc., of Chicago, First American International of Brooklyn, N.Y.,
and Tri-State Bank of Memphis, Tenn.,
traded a total of about $37 million in initial TARP funding for the same amount
of CDCI money.
To date the Treasury has
invested nearly $107 million in eight institutions under the newer terms.