Alert April 14, 2009

Treasury Releases Capital Purchase Program Term Sheets for Mutual Holding Companies

The Treasury released three term sheets (further described below) allowing mutual bank holding companies (“Mutual BHCs”) and mutual savings and loan holding companies (“Mutual SLHCs”) to participate in the Capital Purchase Program (“CPP”): (i) a term sheet for Mutual BHCs and Mutual SLHCs that do not directly own and control another bank holding company (“BHC”) or savings and loan holding company (“SLHC”), (ii) a term sheet for BHCs or SLHCs that are publicly traded and are directly owned and controlled by a Mutual BHC or Mutual SLHC and (iii) a term sheet for BHCs or SLHCs that are not publicly traded but are directly owned and controlled by a Mutual BHC or Mutual SLHC.  These term sheets do not allow mutual savings banks or mutual savings associations without mutual holding companies to participate in the CPP.  The Treasury has not given any indication when, or if, it will release a term sheet allowing participation in the CPP by mutual savings banks and mutual savings associations.  Banking organizations that are controlled by a foreign bank or company are not eligible for participation in the CPP.

Application to Participate.  Mutual BHCs and Mutual SLHCs have until 5 p.m. Eastern Time, May 7, 2009, to apply to the CPP by submitting an application to the appropriate Federal banking agency.  Applicants must apply to both the regulator of its holding company and the regulator of its largest depository institution.  The appropriate Federal banking agency/ies will review the applications and forward them to the Treasury for approval.  The Treasury will not release the names of applicants whose applications are denied or withdrawn, but will provide electronic reports within 48 hours detailing completed transactions, as required by the Emergency Economic Stabilization Act of 2008.

Top-Tier Mutual Holding Company Terms.  Mutual BHCs and Mutual SLHCs that engage solely in or predominantly in activities permissible for a financial holding company and do not directly own or control a BHC or SLHC may sell subordinated debentures (“Senior Securities”) to the Treasury.  The aggregate principal amount of the Senior Securities must be between 1% and 3% of the risk-weighted assets of the issuing Mutual BHC or Mutual SLHC but in no event may exceed $25 billion.  The Senior Securities are senior to mutual capital certificates and other capital instruments authorized by state law, but must be subordinated to senior indebtedness of the Mutual BHC or Mutual SLHC unless such senior indebtedness is specifically made pari passu or subordinated to the Senior Securities.  The Senior Securities qualify as Tier 1 capital, have a maturity of 30 years and are freely transferable.  The Senior Securities have no voting rights other than class voting rights on the issuance of equity securities which purport to rank senior to the Senior Securities, any amendment to the rights of the Senior Securities  and any merger or similar transaction.

The annual interest rate on the Senior Securities will be 7.7% for five years and after the fifth anniversary the annual interest rate will increase to 13.8%.  Interest may be deferred for up to 20 quarters, however any unpaid interest will accumulate and compound at the interest rate then in effect.  Notwithstanding any interest deferral, if interest is not paid for six quarters, whether or not consecutive, holders of Senior Securities have the right to elect 2 directors.  Mutual BHCs and Mutual SLHCs participating in the CPP are subject to certain restrictions on the payment of dividends and the repurchase and redemption of equity securities, capital certificates, other capital instrument or trust preferred securities.  Many of these dividend and repurchase restrictions do not apply if the Treasury has transferred the Senior Securities to a third party.  After ten years, participating Mutual BHCs and Mutual SLHCs may not pay any dividends or redeem or repurchase any equity securities, capital certificates, other capital instrument or trust preferred securities until the Senior Securities are fully redeemed.

The Treasury also will receive warrants to purchase additional Senior Securities (“Warrant Securities”) in an amount equal to 5% of the Senior Securities purchased on the date of the investment, subject to certain reductions.  The Treasury intends to immediately exercise the warrants.  The Warrant Securities have the same rights and terms as the Senior Securities, except that the annual interest rate is always 13.8% and they may not be redeemed until all of the Senior Securities have been redeemed.

Public Holding Companies with a Mutual Top-Tier Parent.  Publicly traded BHCs and SLHCs that engage solely in or predominately in activities permissible for a financial holding company and are directly owned and controlled by a Mutual BHC or Mutual SLHC may sell senior preferred securities (“Senior Preferred”) to the Treasury.  The aggregate principal amount of the Senior Preferred must be between 1% and 3% of the risk-weighted assets of the issuing BHC or SLHC but in no event may exceed $25 billion.  The Senior Preferred will rank senior to common stock and pari passu with existing preferred shares other than preferred shares that by their terms rank junior to existing preferred shares.  The Senior Preferred qualify as Tier 1 capital, are perpetual and are freely transferable.  The Senior Preferred have no voting rights other than class voting rights on the issuance of shares senior to the Senior Preferred, any amendment to the rights of the Senior Preferred, and any merger or similar transaction.

For the first five years, the Senior Preferred will pay cumulative dividends at a 5% annual rate, and after the fifth anniversary the annual rate will increase to 9%.  If interest is not paid for six quarters, whether or not consecutive, holders of the Senior Preferred have the right to elect 2 directors.  Dividends on other preferred shares and common shares may not be paid if the interest on the Senior Preferred is not fully paid.  For the first three years, certain restrictions apply on the payment of dividends and the repurchase and redemption of equity securities, capital certificates, other capital instrument or trust preferred securities.  These restrictions are less burdensome than the restrictions for Mutual BHCs and Mutual SLHCs without mid-tier BHCs or SLHCs.  Many of these dividend and repurchase restrictions do not apply if the Treasury has transferred the Senior Preferred to a third party.

The Treasury also will receive immediately exercisable warrants to purchase a number of shares of common stock of the issuing BHC or SLHC having an aggregate market price equal to 15% of the Senior Preferred amount on the date of investment, subject certain reductions.  The initial exercise price for the warrants, and the market price for determining the number of shares of common stock subject to the warrants, will be the market price for the common stock on the date of the Senior Preferred investment (calculated on a 20-trading day trailing average), subject to customary anti-dilution adjustments.

Non-Public Holding Companies with a Mutual Top-Tier Parent.  BHCs and SLHCs that engage solely in or predominately in activities permissible for a financial holding company and are directly owned and controlled by a Mutual BHC or Mutual SLHC but are not publicly traded may sell preferred securities (“Preferred”) to the Treasury on substantially similar terms as the Senior Preferred discussed above.  Unlike the Senior Preferred, but similar to the Senior Securities, the restrictions on dividends and repurchases extend for ten years and after the tenth anniversary issuers of Preferred may not pay common dividends or redeem or repurchase any equity securities or trust preferred securities until the Preferred are redeemed in whole or transferred to third parties.

The Treasury also will receive immediately exercisable warrants to purchase, upon net settlement, a number of net shares of preferred stock of the participating holding company having an aggregate liquidation preference equal to 5% of the Preferred amount on the date of investment, subject to certain reductions.  The initial exercise price for the warrants shall be $0.01 per share unless the issuer’s charter requires a different amount.  The Treasury intends to immediately exercise the warrants.

Additional Restrictions and Redemption.  Participating Mutual BHCs and Mutual SLHCs will be subject to the executive compensation, transparency, accountability and monitoring guidelines applicable to other TARP recipients.  Senior Securities, Senior Preferred or Preferred may be redeemed with the approval of the appropriate Federal banking agency at 100% of the issue price plus any accrued and unpaid interest or dividends.