Important Notices

May 31, 2011

Notice to Banks Regarding Small Business Lending Fund

The Department of Financial Institutions has received a number of inquiries regarding the state procedures to be followed by banks to obtain capital from the Small Business Lending Fund, U.S. Treasury, (SBLF) under the Small Business Jobs Act of 2010 (SBJA). Since the ability to receive SBLF funds is dependent upon the applicant banks’ ability to issue certain securities, banks need the authorization from the DFI to issue those securities. As the initial purchaser of those securities is an instrumentality of the federal government administering a program of national importance, the Commissioner has determined that it is inefficient and unnecessary for each bank to apply for a permit to offer and sell securities. Accordingly, the Commissioner has signed an order exempting the offer and sale of securities by California state chartered banks from the application and permit process normally associated with such sales. Attached is a copy of the blanket Order of Exemption issued by the Commissioner.

While California state-chartered banks do not need to obtain a permit to issue securities to obtain SBLF money, the banks must notify the Commissioner if the bank or its holding company has applied for SBLF. Moreover, if the bank will be issuing securities, there are certain corporate laws that must be followed by a bank to properly issue the securities. Banks should review the following procedures to determine which they will need to follow to complete the SBLF funding process:

• Do the bank’s articles of incorporation allow the board of directors to issue preferred stock? If not, the articles of incorporation must be amended to provide that authorization. Any articles amendment of that type must be approved by the shareholders of the bank. Additionally, the proposed certificate of amendment of articles of incorporation must be approved by the DFI prior to filing the certificate with the Office of the Secretary of the State.

• Even if the bank has the authority under its articles to issue preferred stock, there must be filed with the Secretary of State a Certificate of Determination that sets forth the rights, preferences and privileges of the class of stock to be issued. No stock may be issued without that filing. Moreover, that Certificate of Determination must be approved by the DFI prior to filing the certificate with the Office of the Secretary of State.

Banks that are applying for SBLF funds are encouraged to seek private legal counsel to assist with the application process.

If you have any questions for the DFI regarding the application process, please contact Kenneth Sayre-Peterson, Assistant General Counsel at 916-322-1570 or at ksayre-peterson@dfi.ca.gov.