Private and ConfidentialPROPOSED BASEL III CAPITAL RULES: WHAT DOES IT MEAN TO YOU? IMPACT ON COMMUNITY BANKS October 2012 SERVING COMMUNITY BANKS SINCE 1968 ATLANTA CHICAGO RALEIGH SAN FRANCISCO TAMPA
Private and ConfidentialWHAT HAS HAPPENED? Federal banking agencies have endorsed the recommendations of BASEL III and have proposed rules to apply them to ALL US banks Comment period ended October 22nd While there are many rules that will not apply to community banks, two categories WILL apply to community banks: 1. Regulatory Capital Rules (involving new definitions and minimum requirements) 2. New “standardized” approach to assessing risk weightings for certain asset classes (including, importantly, residential mortgages) These will apply to All US banks and savings associations All bank holding companies over $500mm in assets Only Small BHC are exempt from these ratios These proposed rules are being vigorously lobbied against, and have had a few high-profile detractors, so the final outcome is still uncertain. -2- Monroe Securities, Inc.
Private and ConfidentialWHY DO YOU CARE? No matter the final outcome, these rules are more complex and will be more difficult to administer Primary observations on what will change: Higher overall minimum capital ratios Increased common equity requirements, including a new ratio (“Common Equity Tier 1 Capital/Total RBC”) Higher risk weightings for commercial RE and most mortgages Much greater complexity around calculations Higher volatility of regulatory capital (more market-based inputs) New constraints on dividends, buybacks and executive compensation Limited by new concept of “capital buffer” above minimal ratios Currently includes tax distributions for Sub-S banks TRUPs being phased-out as Tier 1 Capital for all banks, over 10 years beginning in 2013 The new rules will be phased in over time Most capital rules begin in 2013 with full effect beginning in 2015 The new risk weightings being in 2015 -3- Monroe Securities, Inc.
Private and ConfidentialWHY DO YOU CARE? CAPITAL Old Rule IS KING COMMON New Rule EQUITY IS KING Fundamental Question: What will the long-term impact on the industry be for attracting the new capital that will be required to fund these new rules? -4- Monroe Securities, Inc.
Private and Confidential BASEL III REGULATORY CAPITAL RULES -5-Monroe Securities, Inc.
Private and ConfidentialPROPOSED REGULATORY CAPITAL CHANGES Regulator y The new rules as proposed would: Capital 1.Revise the definitions of regulatory capital components and related calculations. 2.Add a new “Common Equity Tier 1 Risk-Based Capital” ratio. 3.Incorporate the revised regulatory capital requirements into the Prompt Corrective Action (PCA) framework. 4.Implement a new Capital Conservation Buffer that limits certain capital actions, such as paying dividends, repurchasing stock and paying bonuses to employees. 5.Provide a transition period for several aspects of the proposed rules. -6- Monroe Securities, Inc.
Private and Confidential NEW CAPITAL DEFINITIONS: THREE COMPONENTS(1) Common Equity Tier 1 Capital Regulator+ Qualifying common stock instruments y+ Retained earnings Capital+/- Accumulated other comprehensive income+ Qualifying Common Equity Tier 1 minority interest- Regulatory deductions from Common Equity Tier 1 Capital Common+/- Regulatory adjustments to Common Equity Tier 1 Capital Equity- Common Equity Tier 1 Capital deductions per the corresponding deduction approach Tier 1- Threshold deductions = Common Equity Tier 1 Capital(2) Additional Tier 1 Capital+ Additional Tier 1 Capital instruments+ Tier 1 minority interest that is not included in Common Equity Tier 1 Capital+ Non-qualifying Tier 1 Capital instruments subject to the transition phase-out and SBLF related instruments Additional- Investments in a banking organization’s own additional Tier 1 Capital instruments Tier 1- Additional Tier 1 Capital deductions per the corresponding deduction approach = Additional Tier 1 Capital(3) Tier 2 Capital+ Tier 2 Capital instruments+ Total Capital minority interest that is not included in Tier 1 Capital+ ALLL- Investments in a banking organization’s own Tier 2 Capital instruments Tier 2- Tier 2 Capital deductions per the corresponding deduction approach+ Non-qualifying Tier 2 Capital instruments subject to transition phase-out and SBLF related instruments = Tier 2 CapitalTotal Capital = Equity Tier 1 + Additional Tier 1 + Tier 2 -7- Monroe Securities, Inc.
Private and ConfidentialNEW CAPITAL RATIO: COMMON EQUITY TIER 1 CAPITAL Regulator y Capital Common Accumulated Stock + Other Qualifying Adjustment Common Retained Comprehensive Minority & Equity Earnings Income Interest Deductions Tier 1 Accumulated Other Comprehensive Income Adjustments & Deductions Net unrealized gains/losses on available- for-sale securities Detailed on next page Current treatment: available-for-sale equity securities losses included in Tier 1 and portion of gains included in Tier 2. Proposed treatment: net unrealized gains/losses on available-for-sale debt and equity securities included in Common Equity Tier 1. -8- Monroe Securities, Inc.
Private and ConfidentialDEFINITION: ADJUSTMENTS AND DEDUCTIONS Regulator Adjustments & Deductions y Capital Deductions Threshold Deductions Goodwill Deduct Amounts > 10% (individually) or > 15% (aggregate) Deferred Tax Assets (Carryforwards) of Common Equity Tier 1 Capital: Other Intangibles (except for Mortgage Servicing Assets mortgage servicing assets) Deferred Tax Assets related to Gain on Sale of Securitization Exposure temporary timing differences Non-significant (<10%) investments Significant (>10%) investments in another financial institution’s in another financial institution’s capital instruments exceeding a common stock threshold (Amounts not deducted are generally Adjustments subject to 250% Risk Weight.) Unrealized gain/loss on cash flow hedges -9- Monroe Securities, Inc.
Private and ConfidentialCOMMON EQUITY TIER 1 RBC RATIO Regulator y Capital Common Equity Tier 1 Creates a new risk- Capital based capital measure. Common Equity Tier 1 Purpose: To ensure RBC Ratio institutions “hold high-quality Total Risk- regulatory capital weighted Assets that is available to absorb losses.” - 10 - Monroe Securities, Inc.
Private and ConfidentialDEFINITION: ADDITIONAL TIER 1 CAPITAL Regulator y Capital Noncumulative Small Business Troubled Asset *Only if original bank Perpetual Lending Fund* Relief Program* issuance qualified as Preferred (Bank Issued) (Bank Issued) Tier 1 Capital. Stock Certain Investments in Another Additional Financial Tier 1 Institution’s Capital Instruments NOTE: Trust Preferred Securities Additional are subject to phase out Tier 1 from BHC Tier 1 Capital over 9 years - 11 - Monroe Securities, Inc.
Private and ConfidentialDEFINITION: TIER 2 CAPITAL Regulator y Allowance Capital for Loan and Lease Allowance for Loan and Lease Losses Losses: - Limited to 1.25% of risk- weighted assets Cumulative Preferred Would eliminate existing limits Stock/ Tier 2 on the following: Subordinated Capital Debt -Subordinated debt - Limited-life preferred stock Certain Investments - Amount of Tier 2 included in in Another Financial Total Capital Institution’s Tier 2 Capital Instruments - 12 - Monroe Securities, Inc.
Private and ConfidentialNEW REGULATORY RATIO MINIMUMS Regulator Common Tier 1 RBC y Prompt Corrective Tier 1 Equity Tier Capital Total RBC Action Categories Leverage 1 RBC Current Proposed % and Ratios % (Proposed) % % % Well Capitalized > 5.0 > 6.5 > 6.0 > 8.0 > 10.0 Adequately Capitalized > 4.0 > 4.5 > 4.0 > 6.0 > 8.0 Undercapitalized < 4.0 < 4.5 < 4.0 < 6.0 < 8.0 Significantly Undercapitalized < 3.0 < 3.0 < 3.0 < 4.0 < 6.0 Critically Tangible Equity/Total Assets < 2% Undercapitalized New Common Equity Tier 1 RBC ratio. Tangible Equity Capital would equal the revised Tier 1 Capital plus non-Tier 1 perpetual preferred stock. - 13 - Monroe Securities, Inc.
Private and ConfidentialNEW CAPITAL CONSERVATION BUFFER Regulator y Maximum Payout Amount as % of Capital Eligible Retained Income Types of payments that would be restricted if a bank does not satisfy the capital conservation Size of Buffer buffer requirement: — Dividends —Share buybacks Greater than 2.5% No Buffer Limit —Discretionary payments on Tier 1 instruments —Discretionary bonus payments to 60% > 1.875% to 2.500% senior management 40% > 1.250% to 1.875% Eligible Retained Income: Would be defined as the most recent four quarters of net income 20% less any capital distributions and certain discretionary payments. > 0.625% to 1.250% 0% Agencies maintain the supervisory authority to < 0.625% impose further restrictions and/or require capital commensurate with the bank’s risk profile. - 14 - Monroe Securities, Inc.
Private and ConfidentialRESTRICTIONS WILL APPLY UPON LOWEST MEASUREMENT Regulator y Capital Common Equity Tier 1 Risk-Based Total Risk-Based Tier 1 Risk-Based Ratio Ratio Ratio Minus Minus Minus 4.5% 6.0% 8.0% Equals Equals Equals Common Equity Tier 1 Risk-Based Total Risk-Based Tier 1 Risk-Based Buffer Measure Buffer Measure Buffer Measure Bank’s Conservation Buffer is Lowest of the Above - 15 - Monroe Securities, Inc.
Private and ConfidentialCAPITAL CONSERVATION BUFFER: EXAMPLE Regulator y Determination of Buffer and Limit Capital Conservation Buffer Basel III Calculated Maximum Example Example Minimum Buffer Payout Bank Ratios Ratios Measure Amount % % % % Common Equity Tier 1 7.50 4.50 3.00 None Risk-Based Capital Ratio Tier 1 Risk-Based Capital 8.50 6.00 2.50 60 Ratio Total Risk-Based Capital 9.00 8.00 1.00 20 Ratio Payout 1. Determine bank risk-based capital ratios. Limit: 20% of LTM 2. Subtract Basel III minimum ratios. Earnings 3. Determine calculated buffer for each ratio. 4. Apply the maximum payout limit of eligible retained income that is consistent with the lowest buffer. - 16 - Monroe Securities, Inc.
Private and Confidential TIMELINE AND TRANSITION PERIOD Regulator Phase-in Schedule y 2013 2014 2015 2016 2017 2018 2019 Capital Item (%) (%) (%) (%) (%) (%) (%)Phase-in of certain deductions fromCommon Equity Tier 1 (includingthreshold deduction items that areover the limits) 20 40 60 80 100Minimum Common Equity Tier 1 RBC 3.5 4.0 4.5Minimum Tier 1 RBC 4.5 5.5 6.0Minimum Total RBC 8.0Capital Conservation Buffer 0.625 1.25 1.875 2.50Common Equity Tier 1 Plus CapitalConservation Buffer 3.5 4.0 4.5 5.125 5.75 6.375 7.00Minimum Tier 1 Capital Plus CapitalConservation Buffer 4.5 5.5 6.0 6.625 7.25 7.875 8.50Minimum Total Capital PlusConservation Buffer 8.0 8.0 8.0 8.625 9.25 9.875 10.50 Capital instruments that no longer qualify as additional Tier 1 or Tier 2 capital would be phased out over a 10 year horizon beginning in 2013. Revised PCA ratios are effective on January 1, 2015. - 17 - Monroe Securities, Inc.
Private and Confidential “STANDARDIZED APPROACH” TO RISK WEIGHTING ASSETS - 18 -Monroe Securities, Inc.
Private and ConfidentialNEW ASSET RISK WEIGHTING RULES Standardized Approach on Main Impact on Community Banks Risk1. Revised Risk-weighting Methodology – On-Balance Sheet Assets: 1-4 Family Residential Real Estate Loans “High Volatility” Commercial Real Estate Past Due Assets Structured Securities Equity Holdings2. Revised Risk-weighting Methodology – Off-Balance Sheet Items.3. Allows for substitution of a wider range of financial collateral and eligible guarantors for calculating risk-weighted assets.4. Rules begin January 1, 2015 - 19 - Monroe Securities, Inc.
Private and ConfidentialSTANDARDIZED APPROACH TO RISK WEIGHTING Standardized Exposure to Sovereigns Past Due Exposures Approach on Exposures to Certain Other Assets Risk Supranational Entities and Off-Balance Sheet Items Multilateral Development Banks Over-the-Counter Derivative Exposures to Government- Contracts sponsored entities Cleared Transactions Exposures to Depository Guarantees and Credit Derivatives Institutions, Foreign Banks, and Collateralized Transactions Credit Unions Unsettled Transactions Exposures to Public Sector Securitization Exposures Entities Equity Exposures Corporate Exposures Residential Mortgage Exposures Pre-sold Construction Loans and Statutory Multifamily Mortgages High Volatility Commercial Real Estate Exposures - 20 - Monroe Securities, Inc.
Private and Confidential 1-4 FAMILY RESIDENTIAL MORTGAGES Standardized Category 1 Category 2 Approach on Term < 30 years Risk Regular Periodic paymentsNo increases in principal, deferments, or balloonsUnderwriting and repayment ability based On: — Principal, Interest, Taxes, Insurance All other residential mortgage — Maximum Interest Rate Allowed In First Five Years exposures including: —Documented Income — Certain junior liens Interest changes limited to 2% per year and 6% over the — Nontraditional mortgagelife of the loan products HELOC qualification includes principal and interest onmaximum exposure Loans that are not 90 days past due, nonaccrual, or certainjunior liens Loan to Value (%) Risk Weight (excludes PMI coverage) Category 1 Category 2 < 60 35% 100% > 60 to < 80 50% 100% > 80 to < 90 75% 150% > 90 100% 200% - 21 - Monroe Securities, Inc.
Private and Confidential1-4 FAMILY RISK WEIGHTS - EXAMPLES Standardized Approach on 1-4 Family Residential Risk Weights Risk Mortgages 35% 50% 75% 100% 150% 200% 30 year amortization and maturity, current, LTV < 60% 30 year amortization and maturity, current, LTV > 60% to < 80% 30 year amortization and maturity, current, LTV > 80% to < 90% 5 year balloon, 30 year amortization, current, LTV < 80% 5 year balloon, 30 year amortization, current, LTV > 80% to < 90 Stand-alone junior lien LTV > 90% - 22 - Monroe Securities, Inc.
Private and ConfidentialHIGH VOLATILITY COMMERCIAL REAL ESTATE Standardized High Volatility CRE (HVCRE) HVCRE means Acquisition, Development, Approach on Represents a Small Subset of or Construction Financing except: Risk the Industry’s CRE Portfolio 1-4 family residential properties Includes Projects in which: HVCRE 1. The loan-to value ratio < - maximum supervisory loan-to- Non ial value, and nt Reside 2. Borrower contributed at least ADC 15% of “as completed” appraised value, and 3. Borrower contributed the capital before the bank Other CRE advances funds, and the capital is contractually required to remain throughout the project life. The NPR would assign HVCRE loans a risk weight of 150%. - 23 - Monroe Securities, Inc.
Private and ConfidentialCRE RISK WEIGHTS - EXAMPLES Standardized Approach on Risk Weights Risk Commercial Real Estate 100% 150% Owner-Occupied Office Building Non Owner-Occupied Office Building Manufacturing/Industrial Building Acquisition, Development, and Construction: 1-4 family residential properties Acquisition, Development, and Construction: non-1-4 family residential properties and LTV is 90% - 24 - Monroe Securities, Inc.
Private and ConfidentialPAST DUE ASSETS RISK WEIGHTS Standardized Approach on Assets > 90 days past due or Risk Weights Risk nonaccrual 50% 100% 150% Revenue Bond Multifamily Loan Consumer Loan Commercial and Industrial Non-Farm Non-Residential Agricultural Would not apply to: 1-4 family residential exposures HVCRE - 25 - Monroe Securities, Inc.
Private and ConfidentialSTRUCTURED SECURITIES Standardized Examples may include: Approach on Private Label Mortgage-Backed Securities Risk Trust Preferred Collateralized Debt Obligations (TruPS) Asset-Backed Securities Three Approaches Other Requirements/Options Risk weight based on one of the following: Must apply approach selected consistently. 1. Weighted average of underlying collateral (Gross UP) 1,250% option may be used regardless 2. 2. Formula based on of approach selected. subordination position and delinquencies (Simplified Requirement for comprehensive Supervisory Formula Approach understanding and due diligence. – SSFA) 3. 1,250% — If not met, 1,250% would apply. Eliminates Ratings-Based Approach. - 26 - Monroe Securities, Inc.
Private and ConfidentialEQUITY RISK WEIGHTS Risk Weights Standardized Equity Exposures Approach on 0% 20% 100% 250% 300% 400% 600% RiskFederal Reserve Bank stockFederal Home Loan Bank stockCDFI and community development equityexposuresAn investment of common stock in anunconsolidated financial institution (unlessalready deducted)*A publicly traded equity exposure*An equity exposure that is not publiclytraded*An equity exposure to a hedge fund or anyinvestment firm that has greater thanimmaterial leverage* * To the extent that the aggregate adjusted carrying value of certain equity exposures do not exceed 10% of the bank’s total capital, a 100% risk weight may be applied. - 27 - Monroe Securities, Inc.
Private and ConfidentialOFF-BALANCE SHEET: CREDIT CONVERSION Standardized Approach on Risk Credit Conversion Factors Off-Balance Sheet Items 0% 20% 50% Unused portion of commitments that are unconditionally cancelable by the bank Commitments with an original maturity of < 1 year that are not unconditionally cancelable Commitments with an original maturity of > 1 year that are not unconditionally cancelable For HELOCs, refer to the 1-4 family mortgage section of the proposal - 28 - Monroe Securities, Inc.
Private and ConfidentialOFF-BALANCE SHEET: MORTGAGE BANKING Standardized Approach on Risk 1-4 Family Mortgage Loans Sold Credit-Enhancing Representations and Warranties on Assets Sold: — Early Payment Default —Premium Refund Clause Existing Treatment: — Provides exclusion for early payment default or premium refund clauses that are for a period of 120 days or less. Proposed Treatment: — Eliminates existing 120-day exclusion. —All early payment default and premium refund clauses are treated as off-balance sheet guarantees for the duration of the enhancement. Proposed Risk Weight: — Credit Conversion Factor: 100% — Risk Weight: 35% to 200% based on Category 1 or Category 2 and loan to value. - 29 - Monroe Securities, Inc.
Private and ConfidentialCOLLATERALIZED TRANSACTIONS EXAMPLES Under the proposal, a bank may substitute the Standardized Approach on asset’s risk weight with the collateral’s risk weight. Risk Risk Weights 0% 20% 50% 100% Cash on deposit at the bank or third party custodian* US Government Securities (proposed: must discount market value by 20%)* Government Sponsored Entity securities Money market funds Risk Weight Varies "Investment grade" securities (examples): General Obligation Municipal Revenue Municipal Corporate “Investment grade” means that “the entity to which the bank is exposed through a loan or security, or the reference entity with respect to a credit derivative, has adequate capacity to meet financial commitments for the projected life of the asset or exposure.” *Current risk weight for state nonmember banks. Current risk weight may differ for national and state member banks. - 30 - Monroe Securities, Inc.
Private and ConfidentialTREATMENT OF GUARANTEES Standardized Under the proposal, a bank may substitute the risk weight of an Approach on eligible guarantor for the risk weight of the exposure. Risk Eligible Guarantors Include: Eligible Guarantees Must: Depository institution or holding Be written and either: company — Unconditional, or Federal Home Loan Banks —A contingent obligation of the U.S. government or its agencies Farmer Mac Also meet other requirements Entity that has “investment grade” debt - 31 - Monroe Securities, Inc.
Private and Confidential COMMUNITY BANKS WITH HIGH MORTGAGE LOAN EXPOSURE Community banks with high mortgage loan exposure may find themselves struggling to meet the new capital requirements under Basel III. Company Information Company InformationRegion Midwest Region SoutheastTotal Assets ($000) $228,536 Total Assets ($000) $394,806 Loan Mix and Asset Quality (%) Loan Mix and Asset Quality (%)Loans/ Deposits 80% NPA + 90/Assets 1.23% Loans/ Deposits 82% NPA + 90/Assets 6.80%Total 1-4 Fam. Loans/ Loans 64% Nonaccrual+ 90 PD/ Loans 0.67% Total 1-4 Fam. Loans/ Loans 54% Nonaccrual+ 90 PD/ Loans 6.10%Total CRE Loans/Loans (1) 22% Total CRE Loans/Loans (1) 30% Risk Weighted Assets Calculation ($000) Risk Weighted Assets Calculation ($000)Old Risk Weighted Assets 138,249 138,249 Old Risk Weighted Assets 245,274 247,115 Excess ALLL - Excess ALLL 1,237 1-4 Family Risk Adj. (2) 29,752 1-4 Family Risk Adj. (2) 38,037 CRE High Volatility Adj. (3) 2,805 CRE High Volatility Adj. (3) 5,782 Past Due Loans Adj. 376 Past Due Loans Adj. 4,102 Other Adj. - Other Adj. 316 New Risk Weighted Assets 171,181 New Risk Weighted Assets 294,115 Difference 32,932 Difference 48,841 % Difference 23.8% % Difference 19.9% Capital Ratios Capital Ratios Old Calculation New Calculation Basel III Minimum Old Calculation New Calculation Basel III MinimumLeverage Ratio 6.17% 6.17% 5.00% Leverage Ratio 6.61% 6.55% 5.00%Common Equity Tier 1 Ratio NA 8.18% 7.00% Common Equity Tier 1 Ratio (5) NA 8.69% 7.00%Tier 1 Capital Ratio 10.13% 8.18% 8.50% Tier 1 Capital Ratio 10.51% 8.69% 8.50%Total Capital Ratio 11.12% 8.98% 10.50% Total Capital Ratio 11.77% 9.95% 10.50% (1). CRE Loans are defined as other construction and development, farm, multifamily and commercial real estate loans. (2). Assumes 90% of 1-4 family 1st lien loans fall under category 1. LTV breakdowns are based on the avg. LTV breakdowns found in the 10-Ks of publicly traded banks. (3). Assumes 15% of the CRE loans are highly volatile. - 32 - Monroe Securities, Inc.
Private and Confidential COMMUNITY BANKS WITH HIGH COMMERCIAL LOANBaselEXPOSURE requirements will also affect banks with high commercial loan exposure. III’s new capital Company Information Company InformationRegion Mid Atlantic Region WestTotal Assets ($000) $340,928 Total Assets ($000) $137,164 Loan Mix and Asset Quality (%) Loan Mix and Asset Quality (%)Loans/ Deposits 98% NPA + 90/Assets 0.02% Loans/ Deposits 87% NPA + 90/Assets 6.58%Total 1-4 Fam. Loans/ Loans 34% Nonaccrual+ 90 PD/ Loans 0.00% Total 1-4 Fam. Loans/ Loans 7% Nonaccrual+ 90 PD/ Loans 5.71%Total CRE Loans/Loans (1) 56% Total CRE Loans/Loans (1) 80% Risk Weighted Assets Calculation ($000) Risk Weighted Assets Calculation ($000)Old Risk Weighted Assets 281,667 281,770 Old Risk Weighted Assets 102,497 104,103 Excess ALLL - Excess ALLL 1,500 1-4 Family Risk Adj. (2) 36,069 1-4 Family Risk Adj. (2) 1,745 CRE High Volatility Adj. (3) 11,962 CRE High Volatility Adj. (3) 5,788 Past Due Loans Adj. - Past Due Loans Adj. 2,718 Other Adj. 1,300 Other Adj. - New Risk Weighted Assets 331,101 New Risk Weighted Assets 112,854 Difference 49,434 Difference 10,357 % Difference 17.6% % Difference 10.1% Capital Ratios Capital Ratios Old Calculation New Calculation Basel III Minimum Old Calculation New Calculation Basel III MinimumLeverage Ratio 8.94% 9.18% 5.00% Leverage Ratio 7.39% 7.44% 5.00%Common Equity Tier 1 Ratio NA 8.60% 7.00% Common Equity Tier 1 Ratio NA 5.47% 7.00%Tier 1 Capital Ratio 9.85% 8.60% 8.50% Tier 1 Capital Ratio 10.00% 9.13% 8.50%Total Capital Ratio 11.08% 9.68% 10.50% Total Capital Ratio 11.27% 10.40% 10.50% (1). CRE Loans are defined as other construction and development, farm, multifamily and commercial real estate loans. (2). Assumes 90% of 1-4 family 1st lien loans fall under category 1. LTV breakdowns are based on the avg. LTV breakdowns found in the 10-Ks of publicly traded banks. (3). Assumes 15% of the CRE loans are highly volatile. - 33 - Monroe Securities, Inc.
Private and ConfidentialCONCLUSION: FIGHTING THE LAST WAR The new rules as proposed present a dramatically more conservative posture around capital requirements Higher overall levels of capital required Higher proportion of common equity required Creative Tier 1 instruments are being legislated out of existence Much more restrictive rules around shareholder distributions, buybacks and bonuses, all limited by capital levels Much more detailed approach and conservative to weighting the risk of assets As mentioned, these proposed rules have been vigorously lobbied against, and have had a few high-profile detractors, so the final outcome is still uncertain We will host another webinar when the final rules are posted - 34 - Monroe Securities, Inc.