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Presenting a live 90-minute webinar with interactive Q&A

Pros and Cons of Bank Holding Companies:

Determining Whether a Bank Holding

Company Structure Makes Sense for Your Bank

Todays faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

THURSDAY, OCTOBER 12, 2017

Robert D. Klingler, Partner, Bryan Cave, Atlanta

Clifford S. Stanford, Partner, Alston & Bird, Atlanta

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Pros & Cons of Bank Holding Companies

Determining Whether a Bank Holding Company

Structure Makes Sense for Your Bank

October 12, 2017

Robert Klingler, Bryan Cave LLP

Cliff Stanford, Alston & Bird

Why are we discussing this?

6

$20 Billion, NASDAQ Listed, Institution (OZRK)

Arkansas Chartered, Non-Member, Bank

Locations in Arkansas, Georgia, Florida, North Carolina and Texas

National Lending Platform New York City, Los Angeles and San Francisco

Eight Mergers Completed 2012 - 2016

Seven Government Assisted Deals 2010 - 2011

Consistently a Top Performing Bank Since Downturn

Bank of the Ozarks

7

April 11, 2017 Announced Internal Reorganization

Merge Bank Holding Company into Bank

Focus on Efficiency

May 5, 2017 Proxy Statement Filed

Rationale Provided

Simplified Financial Reporting

Elimination of Regulatory Oversight of BHC Activities

Decreased SEC Registration Fees

Consolidation of Governance and Organizational Structure and Elimination of Dual Boards of Directors and Joint Board Meetings

Bank of the Ozarks Eliminates BHC

8

June 23, 2017 Special Meeting of Shareholders

121.6 Million Shares Outstanding

99.8 Million Shares Voted For the Merger

0.05 Million Shares Voted Against and 0.06 Million Abstained

June 26, 2017 Bank of the Ozarks, Inc. Merged into Bank of the Ozarks

Shares Automatically Converted into Shares of the Bank

Bank Assumed All Holding Company Equity Incentive Plans

Bank Assumed All Holding Company Subordinated Debt and Trust Preferred Securities

Same Ticker Symbol and CUSIP

Bank of the Ozarks Eliminates BHC

9

$15 Billion, NYSE Listed, Institution (BXS)

Mississippi Chartered, Non-Member Bank

Locations in Alabama, Arkansas, Florida, Louisiana, Mississippi, Missouri, Tennessee, Texas and Illinois

Announced Two Acquisitions in January 2014

Ouachita Bancshares Corp. (Monroe, LA, $650 Million)

Central Community Corp. (Temple, TX, $1.3 Billion)

BancorpSouth

10

July 27, 2017

Announced Corporate Reorganization

Merge Bank Holding Company into Bank

August 29, 2017 Proxy Statement Filed

September 27, 2017 Special Meeting of Shareholders

91.0 Million Shares Outstanding

71.5 Million Shares Voted For the Merger

0.1 Million Shares Voted Against and 0.1 Million Abstained

Anticipating Regulatory Approval and Closing in Q4

BancorpSouth Bank Eliminates BHC

11

Framing the Discussion

12

Current Landscape of the Industry

13

Predominant Structure

Source: Board of Governors of the Federal Reserve System

14

More Data: Nearly all US bank assets

are controlled by BHCs

Top ten BHCs control ~60% of total assets

The percentage of U.S. banks owned by BHCs has more than doubled since 1980

Note the growth in non-bank assets, particularly after Gramm-Leach-Bliley Act (1999)

Virtually all large BHCs are registered as FHCs

Only a handful of banks with more than $10 Billion in assets do not have a holding company

Source: Federal Reserve Bank of New York (2012)

15

Above $10 Billion

115 Banks; 4 without a Holding Company

Above $1 Billion

Over 93% Have Holding Companies

Below $1 Billion

Over 82% Have Holding Companies

As of June 30, 2017

562 Independent Banks (

2006

1,670 Bank Charters

518 Multi Bank Holding Companies

2016

632 Charters

241 Multi Bank Holding Companies

Overall, Decline of 2,769 Bank Charters in 10 Years

But around 1,000 charters appear lost to internal reorgs

Decline in Multi Bank Holding Companies

17

An Accident of History? Bank Holding Company Act of 1956

Originally: antitrust

Later: separation of banking and commerce

Gramm-Leach-Bliley Act of 1999

Significant changes to mirror European and Asian universal bank model

Financial holding company designation

Umbrella supervision and functional regulation

Home Owners Loan Act 10

Unique scheme for SLHCs, but similar underlying principles

Grandfathered unitary thrift holding companies

Dodd-Frank Act 2010

Significant increase in burden on holding companies

Collins Amendment and phase-out of trust preferred securities

Codification of source of strength doctrine

Established Fed as umbrella supervisor of SLHCs with convergent approach

18

Challenging Assumptions

19

Name State Exchange Total Assets (1)

First Republic Bank California NYSE $80.0 Billion

Signature Bank New York NASDAQ $40.7 Billion

Bank of the Ozarks Arkansas NASDAQ $20.1 Billion

BancorpSouth Bank (2) Mississippi NYSE $14.8 Billion

TowneBank Virginia NASDAQ $8.4 Billion

Opus Bank California NASDAQ $7.6 Billion

Carter Bank & Trust Virginia OTC $4.3 Billion

Community Bank California OTC $3.7 Billion

Largest Banks Without a Holding Company

(1) As of June 30, 2017. (2) In process of eliminating Holding Company.

20

A Strategic Choice?

Considerations:

Fiduciary duty?

Not regulator-shopping

Public company considerations

Capital considerations

Asset size considerations

Permissible non-bank activities

Banks vs. Thrifts

Choice of Law

With limited exceptions, there is no

regulatory requirement for a holding

company

Certain non-bank activities

FBOs with >$50 Billion U.S. assets

Potential Benefits:

Simplified financial reporting

Elimination of supervisory oversight by

the Fed

Decreased SEC registration fees

Consolidation of governance and

organizational structure

Boards

Policies and procedures

Risk management

Relief from Regulation W constraints

No source of strength obligations to

bank subs

Avoid separate DFAST stress testing

Tax savings

21

Simplified De-BHC Process

Assess: change in control provisions, impact on compensation and benefit plans, assumption of any holding company debt (including trust preferred), tax obligations, non-bank subsidiaries, open regulatory issues, etc.

Ensure bank has sufficient authorized stock

Assess whether merger would violate Regulation W limits

Arms-length merger agreement

Typical structure is tax-free merger of holding company into bank

Board and shareholder approval

Public securities filings: 8-K(s), proxy statement, de-registration of holdco stock with SEC, registration of bank stock with bank regulator

Coordination with relevant securities exchange

File Bank Merger Act application with the FDIC

Complete merger and notify Fed

22

M&A and Regulatory Impacts

23

Impact on M&A Approvals

Typical deal structures involving holding companies can be similarly accomplished for regulatory purposes with a stand-alone bank

Simple example: Step 1: Bank merges with Target BHC (FDIC approval under BMA)

Step 2: Target Bank merges into Bank (BMA application to primary Federal regulator)

Federal Reserve still retains approval authority under BHC Act:

A bank that has control over another bank, even for a moment in time, is technically a BHC

Fed has indicated that it will grant application waivers as appropriate under 12 CFR 225.12

24

Permissible Non-banking BHC Activities

consumer finance, credit card, mortgage and commercial

financial operations

operating nonbank depository institutions, such as industrial loan companies and trust companies

financial counseling services

leasing agencies

investment in community development corporations

financial data processing services

bank-related courier services

credit life insurance

money transmittal

management consulting for other financial institutions

collection agency services

tax preparation services

consumer credit bureau services

consumer financial counseling

securities brokerage services for customer investments

government securities underwriting

printing and selling checks.

25

Narrowing the Gap

Very little change in permissible non-banking activities for BHCs since GLBA (1999)

The gap between permissible BHC and permissible bank activities has narrowed over the past several decades.

National banks and their operating subsidiaries

State-chartered banks/subsidiaries via wildcard statutes, subject to FDI Act 24

Financial subsidiaries (including securities underwriting and dealing, insurance brokerage)

Depending upon charter, banks can conduct, for example: insurance brokerage, RIAs, securities broker/dealer and underwriting activities, transactional advice, and annuities activities

26

Permissible Investments

Banks are generally limited by law to investments in high quality U.S. government and agency securities, and state, county, and municipal debt

BHCs may invest in up to five percent of any class voting securities of any entity (BHC Act, Section 4(c)(6)

Provide the means to invest in fintech and other companies to leverage for financial and operational purposes.

27

Whats Lost without a BHC?

Inability to own multiple charters

Certain FHC activities: insurance underwriting

merchant banking activities

complementary activities

No capital deduction as with financial subsidiaries

4(c)(6) equity investment authority up to 5% of any class of the voting stock of any company

Lost freedom from counterparty credit limitations (applicable to banks not BHCs)

28

Savings and Loan Holding Companies

Unique scheme from BHCs, but convergence under Federal

Reserve authority

SLHCs may engage in:

Generally, anything permitted to a BHC

Generally, anything permitted to a financial holding company (if so qualified)

Certain other exempt activities under HOLA

Grandfathered unitary SLHCs may engage in commercial activities

Grandfathered multiple SLHCs have additional authority

Thrifts have distinct non-banking authority

Federal Savings Associations cannot own financial subsidiaries

29

23A/23B and Regulation W

The merger of an affiliate (BHC) into the bank is a purchase of assets (and therefore a covered transaction) if the bank assumes any liabilities of the affiliate or pays any other form of consideration in the transaction.

Therefore, the merger is subject to the quantitative limits under Regulation W

Bank subsidiaries are not affiliates, unless financial subsidiaries

But, 10% quantitative limit does not apply to financial subsidiaries

Special valuation rules for contribution of financial subs or new investment

Relief from Regulation W limits on transactions with affiliates can be a material consideration

30

Regulatory Reporting

Without a BHC, the bank no longer files (as applicable, with frequency depending upon size and other characteristics):

FR Y-9C, Consolidated Financial Statements of Bank Holding Companies

FR Y-9LP/SP, Parent Company Only Financial Statements

FR Y-11/FR Y-11S, Financial Statements of U.S. Nonbank Subsidiaries of U.S. Bank Holding Companies

FR Y-6, Annual Report of Bank Holding Companies

FR Y-10, Report of Changes in Organizational Structure (unless a state member bank, or regarding foreign activities of national banks)

31

Capital Flexibility

32

Raise Funds at Holding Company Level

Preferred Stock

Subordinated Debt

Senior Debt (Potentially Secured by Bank Stock)

Downstream to Bank as Common Equity Tier 1 Capital

Consolidated vs. Bank-Level Capital Ratios

PCA Capital Ratios Only at Bank Level

Bank-Level Enforcement Action Compliance

Legal Lending Limits

Expectations and Limitations of Lenders

Capital Flexibility/Double Leverage

33

12 CFR Part 225, Appendix C

Guidance for Applications under BHCA

Exemption from BASEL III for Qualifying BHCs

Total Consolidated Assets of < $1 Billion

Not Engaged in Significant Non-Banking Activities

Not Conduct Significant Off-Balance Sheet Activities

No Material Amount of Debt or Equity Registered with SEC

Regulatory Discretion to Exclude Any BHC

Small Savings and Loan Holding Companies

Small BHC Policy Statement

34

Increasing Threshold

1980 $150 Million

2006 $500 Million

2015 $1 Billion

Financial Choice Act 2.0 $5 Billion

Acquisitions

May Use Debt to Finance Up To 75% of Purchase Price

Theoretically Permits a 3:1 Debt to Equity Ratio

Reduction in Leverage

Retire Debt Within 25 Years

Achieve Debt to Equity Ratio of 0.3:1 Within 12 Years

Small BHC Policy Statement

35

Dividend Restrictions

Not Expected to Pay Corporate Dividends Unless

Debt to Equity Ratio of 1:1 or Less

Subsidiary Bank is Well Capitalized

Subsidiary Bank is Well Managed

No Formal Enforcement Action

Making Process to Reducing Debt to Equity Ratio to 0.3:1

Meeting Requirements of Any Loan Agreement(s)

Any Dividend Paid are Expected to

Be Reasonable in Amount

Not Adversely Affect Ability of BHC to Service its Debt

Not Impair Ability of Subsidiary Banks to Remain Well Capitalized

Small BHC Policy Statement

36

Like Real Estate, Theyre Not Making Any More

Collins Amendment of Dodd-Frank

Holding Companies $15 Billion

Grandfathered Legacy and Acquired

Tier 1 Capital Treatment

Treated Like Debt for Tax Purposes

Low Rates LIBOR plus 200 bps

FDIC Confirmed Tier 2 Treatment for Bank of the Ozarks

Trust Preferred Securities

37

Prompt Corrective Action Standards

Zombie Bank Holding Companies

Bank Holding Companies

Control of Board of Directors

Restructurings

Bankruptcy

Recapitalizations

Banks

FDIC Receivership

Insolvent Holding Companies vs. Banks

38

Common Activity for Banks of All Sizes Increase Share Liquidity

Increase Shareholder Return by Purchase of Undervalued Stock

Tax-Efficient Means of Generating Returns to Shareholders

Bank Holding Companies Federal Reserve Supervisory Letter SR 09-4

Consistent with Organizations Capital Needs

Board of Directors and Management Decision

Expectation of Limiting Dividends and Repurchases to Net Income for the Past Four Quarters

Regulation 12 CFR Part 225.4(b)

Required Notice if Consideration 10% of Consolidated Net Worth

Unless Well-Capitalized Before and After Redemption

Capital Flexibility Stock Repurchases

39

National Banks National Bank Act (12 USC 59)

OCC Approval Prior Approval Required

2/3 Shareholder Approval Required

State Banks

Various State Law Requirements

FDIC 12 CFR Part 303.241

Prior Approval to Reduce or Retire any Common or Preferred Stock

Expedited Processing Can Be Available 20 Days

Capital Flexibility Stock Repurchases

40

Corporate Governance

41

Modernization of Banking Codes

Historical Precedents

Bank of the Ozarks 10 Changes to Arkansas Banking Code

BancorpSouth No Changes to Mississippi Banking Code

Highly Variable Between States and Institutions

Potential Areas of Focus

Board of Director Composition and Size

Shareholder Vote and Notice Requirements

Blank Check Preferred Stock Flexibility

Share Exchange and Merger Abilities

Security Issuances and Repurchases

Corporate Governance

42

Flexibility to Adopt Non-Inconsistent Corporate Governance

State of Banks Main Office

State of BHCs Incorporation

Delaware

Model Business Corporation Act

National Bank Act Requirements

Residency Requirements for Majority of Board (12 USC 72)

Director Stock Ownership Requirement (12 USC 72)

President as Director and Chairman of the Board (12 USC 76)

Merger w/ another National Bank or State Bank (12 USC 215a)

Shareholder Notification Requirements

Supermajority (2/3) Vote

Corp. Governance National Banks

43

Shareholder Regulation

44

Thresholds Unchanged

10% for Public Banks

25%, or Largest above 10%, for Private Banks

Responsible Federal Bank Regulator

Holding Companies FRB

Banks Primary Federal Regulator

OCC 12 CFR Part 5.50

FDIC 12 CFR Part 303, Subpart E

FRB 12 CFR Part 225, Subpart E

Change in Bank Control Act

45

Thresholds Unchanged

7.5% Investors Passivity Commitments with Fed

Exemptions

Qualified Family Limited Partnerships

Testamentary Trusts

Bank Holding Company Act

46

Voting vs. Non-Voting Stock

Acting in Concert Presumptions

Passivity Commitment

Language

Expectations

Areas of Differing Interpretations

47

Securities Offerings and

Securities Reporting

48

Sections 3(a)(2) and 3(a)(5) of the Securities Act of 1933

Blue Sky Preemption Covered Security

Federal Bank Regulatory Oversight OCC 12 CFR Part 16

Effectively Apples SEC Registration and Exemption Rules

FDIC 12 CFR Part 335 & Statement of Policy

Use of Offering Circular; Expected Disclosures

FRB General Safety and Soundness

FINRA Rule 5110 Applies, Barring Exemption

Anti-Fraud Provisions of Section 17 Still Applies

Mergers Too!

Securities Offerings

49

No Section 15 Reporting Obligations

Section 12 Reporting Obligations

2,000 Shareholders of Record

Listing on a National Securities Exchange (NYSE or NASDAQ)

Federal Bank Regulatory Oversight

OCC 12 CFR Part 11

FDIC 12 CFR Part 335

FRB 12 CFR Part 208.36

Reporting Differences

No EDGAR or XBRL

Beneficial Ownership Reported Electronically

Paper or PDF Filings

Securities Reporting

50

OCC No National Banks or Federal Thrifts

FDIC As of September 30, 2017 13 Banks

FRB No State Member Banks Reported

Comment Letters Not Publicized

Precedent Non-Existent or Difficult to Find

Non-Dedicated Examiners

Different Expectations and Scope of Review

Substance vs. Disclosure

Individualized Attention

51

PDF Copies of Reports on Website

Copies to National Securities Exchange

Anti-Fraud Provisions of Section 10 and Rule 10(b)(5)

Disclosure Looks Similar

Small Sample Size

No Obvious Liquidity or Disclosure Discount

Performance Key

Disclosure to Markets

52

Summary and Conclusion

53

Key Considerations

How would this change impact our strategic plan?

Can we quantify the benefits and is the break even point for cost/benefit?

Market perception?

Do we lose something by elimination of a regulator?

Timing?

Alternatives? (e.g., a state member bank with a BHC)

54

Robert Klingler

Bryan Cave LLP

(404) 572-6810

Robert.Klingler@BryanCave.com

www.BankBryanCave.com

@RobertKlingler

The Bank Account

Cliff Stanford

Alston & Bird

cliff.stanford@alston.com

(404) 881-7833

Questions??

55

mailto:Robert.Klingler@BryanCave.comhttp://www.bankbryancave.com/