What the Dodd-Frank Legislation is. …And what it isn’t

1. Financial Regulatory Reform: What Directors & Senior Managers Should KnowGovernance, Compensation, Capital & Management IssuesAugust 26, 2010Jeffrey D. Quayle, Senior Vice President & General CounselOhio Bankers LeagueJeffery E. Smith, Bricker & Eckler

2. What the Dodd-Frank Legislation is.…And what it isn’t Devil is in the details and the agency rulemaking process. The Second Game of the Double Header.

3. What the Dodd-Frank Legislation is.…And what it isn’t Trickle-down regulation - Is bifurcated regulation feasible or even possible? Best Practices or Agency Guidance Changes in Exam Manuals Deposit Insurance Requirements Court Decisions Other Related Legislation

4. Boards and Executive Compensation Say on Pay • Public companies. • Non-binding shareholder vote at least once each 3 years. • Frequency to be determined by shareholders once every 6 years. • Most banks will be required to address in 2011 annual meeting proxy.

5. Boards and Executive Compensation Say on Golden Parachutes • In connection with sale transactions. • Give shareholders non-binding vote on such agreements and total compensation for the transaction. • Same effective date.

6. Boards and Executive Compensation Pay Vs. Performance Disclosures • Trend. • Make size-based comparables irrelevant? • Enhanced proxy item disclosure re relationship between executive compensation and financial. • Performance of company • Comparative ratio of CEO to other employees.

7. Boards and Executive Compensation Compensation Committee Independence • All members. • Heightened minimum standards for independence included. • To be established by SEC and forced down through exchanges. • N/A to “controlled” companies. • Effective July 16, 2011. • Advisors. • Independence standards. • Proxy disclosure item. • Effective for annual meetings on or after July 21, 2011.

8. Boards and Executive Compensation Clawbacks • Mandatory recovery of incentive compensation after accounting restatement. • Incentive compensation paid during 3 year period preceding restatement. • Including value of options. • No effective date established.

9. Boards and Executive Compensation How this works in Conjunction with other Federal Provisions Federal banking agency “guidance” re incentive compensation practices • Analysis and implementation of incentive compensation plans. • Safety and soundness issue. • Document due diligence, analysis, and decision. • Regular examination issue.

10. Boards and Executive Compensation Federal regulators must, within nine months of enactment, issue regs: • Report structure of all incentive based comp arrangements. • Prohibit if encourage “inappropriate risk.” • And could lead to a material loss. • Not applicable if less that $1B in assets.

11. Boards and Corporate Governance Director Elections Does not mandate majority voting in uncontested director elections, declassified boards, or independent chairman position.

12. Boards and Corporate Governance Proxy Access • SEC may, but is not required to, promulgate rules that would require that proxy materials include nominee for board submitted by shareholders. • Rules likely to be in place by 2011 proxy season.

13. Boards and Corporate Governance • Mandatory “Risk Committee” • Proxy explanation of why Chairman and CEO positions are separate, or combined.

14. Strategic Planning Opportunity • Importance of Governance Tune Up

15. Capital Issues • Preparing for Enhanced Capital Requirements • Focus on “Systemic Risk”

16. Capital Issues: Minimum capital requirements

17. Capital Issues: Minimum capital requirements • Bank Holding Companies: • Risk-based and leverage capital requirements (including exclusion of certain hybrid instruments from Tier 1 capital:

18. Capital Issues-Collins Amendment Impose capital requirements on holding companies that are as strict as those for depository institutions.

19. Capital Issues: Collins Amendment Exemptions granted during conference committee: • Securities sold by Holding Companies < $15 billion before May 19, 2010 are grandfathered for their duration; • It will be a matter of availability as well as cost; • Larger holding companies have a 3 year phase in, beginning on January 1,2013; • Impact on BHC/banks < $500 million.

20. Capital-Other Issues • Change in “accredited investor” definition. • Exemption for Non-Accelerated Filers from SOX Section 404(b). • Increasing Shareholder threshold for exemption from SEC registration.

21. Capital-Other Issues Capital Requirements are to be Counter Cyclical • Consistent with safe & sound banking practices, additional capital will be required in times of growth, but less with be required in time of economic distress. • This is going to be required in an environment where all financial institutions are going to be facing higher capital expectations.

22. Capital Issues-Strategic Point Maximize corporate flexibility for quick and easy access to capital.

23. Regulation and Supervision Expanded FRB ability to examine functionally-regulated affiliates of BHC’s: • Provision is made for coordination with other federal & state regulators. • The FRB is required to rely “to the fullest extent possible” on reports, exams and other information from other federal regulators.

24. Regulation and Supervision • Note also that the FDIC gained back up exam authority for all depository institution holding companies, if it determines that conduct of the HC could threaten the deposit insurance fund. • So much for Simplification!

25. Regulation and Supervision Enhanced source of strength regulations within one year.

26. Regulation and Supervision Tweaks to Financial Holding Company Status To maintain FHC status; • A BHC or SLHC will have to be considered well-managed and well-capitalized. • The subsidiary insured depositories will also have to be well-managed and well-capitalized, and also will have to maintain a satisfactory CRA rating. • This will be ongoing requirement.

27. Regulation and SupervisionEnhanced de novo branching • Local law rules on interstate branching no longer plays a role. If a state permits intra state branching, an out of state bank will be allowed to open a de novo branch. • Banks interstate branching will now be the same as it has been for thrifts • In a conversion thrifts keep their already approved branches, and henceforth have branching rights the same as a national bank.

28. Regulation and Supervision • Expanded 23A limitation coverage including definition of “covered transactions,” expanded collateral requirements, etc.

29. Regulation and Supervision Strengthens “loans to insiders” (Reg O) restrictions by expanding the Types of transactions subject to the rules and including insider asset sales. • Includes credit exposure from derivatives, repos, and securities loans as “loan or extension of credit.” • Similarly strengthens ordinary bank lending limits.

30. Meet Your New Regulator • A State Attorney General may bring an action in Federal District Court or State court to enforce the consumer protection provisions including regulations issued by the CFPB. • In addition, a State Attorney General may also bring an action to enforce any other applicable state or federal law against a national bank or federal savings association.

31. Questions?