The latest “Community Developments Insights” newsletter of the Office of the Comptroller of the Currency (“OCC”) is devoted exclusively to the New Markets Tax Credits (NMTC) Program. Created in December 2000, the NMTC Program leverages institutional investor capital to increase economic development in both urban and rural low-income communities.
NMTC Program investments by banks generate more favorable rates of return on investments to promote economic development and community revitalization in low-income markets, and also count as investments by which banks may satisfy their obligations under the Community Reinvestment Act. Under the NMTC Program, investors receive a 39% tax credit over a seven-year investment term by making qualified equity investments in Community Development Entities (CDEs), which use the equity proceeds to make financial assistance available to eligible low-income community businesses. Banks currently represent approximately 75 – 80% of the investors participating in the NMTC Program, and over 50 banks and bank holding companies have received in excess of $3 billion in NMTC allocations.
State chartered and national banks and savings institutions (thrifts) have authority to make equity investments (up to certain percentages of their capital) in the NMTC Program and other such programs pursuant to exceptions for “public welfare” and “community development” investments which are intended to benefit primarily low and moderate income communities and families. National banks look to Section 24 (Eleventh) in the National Bank Act, which was amended by the Financial Services Regulatory Relief Act of 2006 to increase the percentage of capital and surplus which may be invested in public welfare investments to 15 percent. State chartered banks look to the investment limits under their state banking law authority (such as California Financial Code 760.1) and to the corresponding Federal Reserve and FDIC investment authority for member and non-member banks (Federal Reserve Act Section 9(24) and Federal Deposit Insurance Act Section 24). Thrifts look to Section 5(c)(3)(A) of the Home Owners Loan Act.
The OCC publication provides an overview of the NMTC program, summarizes typical models and financing structures that banks use when participating in the NMTC program, identifies key risks and cost considerations, and provides suggestions from industry participants on how to manage those risks and structure the credits effectively. It compares bank-owned CDEs to investments by banks in third-party CDEs and describes leveraged and non-leveraged CDE investments, including investments through an investment fund conduit. It also provides case study examples of leveraged and non-leveraged bank investments in CDEs and the tax credits generated through such investments.
Manatt has represented community development entities, banks and other investors, developers and borrowers in successfully obtaining and leveraging NMTCs, including obtaining CDE certification, receiving NMTC allocations, and structuring financing transactions to deploy NMTCs in qualified CDEs. Manatt also has extensive experience in community development and housing finance, including particular expertise with the federal Low-Income Housing Tax Credit Program, representing banks and other investors and investment funds in financing affordable housing.
To read the OCC newsletter, click here.
For more information about the NMTC Program and the authority of banks to make equity investments in such programs, contact Neil Faden in the New York office at (212) 830-7181, Mick Grasmick in the Los Angeles office at (301) 312-4369 or Katerina Hertzog Bohannon in the Palo Alto office at (650) 812-1364.
Attorney ContactsNeil S. Faden, 212.830.7181
T.J. Grasmick, 310.312.4369Katerina Hertzog Bohannon, 650.812.1364
Mick Grasmick Mr. Grasmick's practice focuses on mergers and acquisitions, non-banking activities, formation of new banks, interstate and other expansion by banks, bank holding companies and other financial institutions and the requirements and restrictions on expansion of state and federal bank regulatory agencies; bank supervision and examination, and general banking corporate matters and regulatory and legislative developments.
Katerina Hertzog Bohannon Ms. Bohannon’s practice focuses on financial/banking, real estate, commercial and secured transactions. She counsels clients on real estate matters, including real property, commercial and retail leasing, sales, acquisitions, financing, and development. Ms. Bohannon also specializes in lending to real estate developers, technology and middle market companies, application of revised UCC Article/Division 9, debt finance, asset-based lending, bridge financing, capital call lines, equipment lease financing, syndicated and participated loan transactions, factoring, restructuring, forbearance, workout documentation, letters of credit, intercreditor and subordination agreements, and perfecting security interests in all types of collateral.
T. Hale Boggs
Katerina Hertzog Bohannon
Patrick Del Duca
Paul H. Irving
Richard Maire, Jr.
Charles T. Manatt
Matthew S. O'Loughlin
Don A. Smith
Barrie B. VanBrackle
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