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1 Attorney Advertising Prior results do not guarantee a similar outcome Models used are not clients Housekeeping Issues Call for technology assistance Dial *0 (star/zero) for audio assistance To ask questions, use the pull down Q&A menu We encourage you to Maximize the PowerPoint to Full Screen Usage: Hit F5 on your keyboard To print a copy of this presentation: Click on the printer icon in the lower right hand corner. Convert the presentation to PDF and print as usual.

2 Today s Presenters Aaron DiRusso Senior Vice President, Equity Capital Markets Raymond James Ethan Lenz Partner Foley & Lardner LLP Mike Matthews Partner Foley & Lardner LLP Ryan Collier Area President, Executive Lines Arthur J. Gallagher & Co. Agenda Overview of the Financial Crisis Potential Exposure and Implications for Directors and Officers Types of Coverage and Claims Myths of D&O Liability Panel Discussion

3 Overview of the Financial Crisis Aaron C. DiRusso April 14, 2011 Senior Vice President Economic Observations and Equity Market Performance 125 TTM Market Performance Key Market Drivers Macro-economic issues: % 12.94% 10.89% 12.58% The economy continued to advance in the first quarter, although at a slower pace Consumer spending (70% of GDP) rose at about a 1.5% annual rate in the 1st quarter, down from 4.0% in the 4th quarter $30.0 $20.0 $10.0 $0.0 -$10.0 -$20.0 -$30.0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar DJ Industrial Average S&P 500 NASDAQ Composite Index Russell 2000 $11.0 $13.0 TTM Monthly Equity Fund Flows (in $B) ($24.9) ($5.8) ($10.6) ($10.7) ($16.6) $0.4 $0.4 $5.1 $19.5 $13.0 ($2.2) Unemployment continued to fall in March (to 8.8%) Long term concerns remain regarding federal debt and state/local municipality financial health Renewed concerns regarding higher rates / inflation Equity capital markets observations: Major indices have experienced strong performance since August of 2010 First quarter bank earnings are generally expected to be positive Heightened investor confidence in the banking sector in light of higher capital requirements Substantially positive equity fund flows in 2011 but trend is negative for past two months Source: Dealogic Equidesk. Data includes IPOs, Initial ADRs, and Initial Units raising more than $10M. Data excludes Closed-end Funds.

4 Market Price Performance The BKX, NASDAQ Bank, and S&P 500 Three Year Market Performance Trends 50% 25% S&P % NASDAQ Bank -25.9% BKX -33.6% 0% -25% -50% -75% March 6, % Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 The major bank indices have declined substantially over the past three years but have rallied since March 2009 lows Source: SNL DataSource; Market data as of April 11, 2011 Market Price Performance The BKX, NASDAQ Bank, and S&P 500 Market Performance Trends Since March 6, % 200% BKX 181.3% S&P % NASDAQ Bank 53.0% 150% 100% 50% 0% -50% Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 The BKX, an index of large publicly traded banks, has recovered significantly in comparison to the S&P 500 and the NASDAQ Bank Index since March 6, 2009 Source: SNL DataSource; Market data as of April 11, 2011

5 Historical Industry Profitability and Charge-Off Trends FDIC Insured Institutions 1 st Quarter 2007 to 4 th Quarter 2010 Historical Net Income / (Loss) Year-end 2010 net income levels strongest in two years Third and fourth quarters of 2008 marked with large securities losses on GSE / Others Net Income / (Loss) $ Billions $60.0 $40.0 $20.0 $0.0 -$20.0 -$40.0 -$60.0 $35.6 $36.8 $28.7 $18.0 $21.6 $21.7 $19.3 $14.5 $4.7 $5.5 $0.5 $0.9 $2.0 $0.9 ($4.3) ($37.8) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q October 14, 2008 Treasury announces $250B capital injection program (what will become TARP) May 7, 2009 Bank stress test results are released $ Billions $80.0 $60.0 $40.0 $20.0 Historical Loan Loss Provisions $71.0 $67.0 $62.0 $63.0 $61.0 $52.4 $50.0 $51.0 $53.0 $51.3 $49.0 $44.8 $46.2 $42.9 $41.9 $37.0 $40.3 $32.0 $33.4 $34.1 $34.9 $31.6 $24.6 $17.0 $20.7 $15.8 $9.0 $11.0 $14.1 $7.1 $7.7 $9.2 Industry reduction in reserve build projected to lead to double digit earnings growth $0.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Net Loan & Lease Charge-Offs Loan Loss Provision Source: FDIC Historical Statistics on Banking; Includes all insured institutions regulated by the FDIC Historical Industry Nonperforming Asset Trends FDIC Insured Institutions 1 st Quarter 2007 to 4 th Quarter 2010 Historical Nonperforming Assets (NPAs) Noncurrent Loans & Leases + OREO $ Billions $500.0 $450.0 $400.0 $350.0 $300.0 $250.0 $200.0 $150.0 $100.0 $50.0 $0.0 $ % $437.2 $436.1 $431.5 $404.8 $412.4 $ % 24.0% 22.5% 20.9% $ % 23.5% $260.3 $ % 7.5% $ % $ % 3.3% $ % $ % $68.4 $ % -4.4% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% % Change from Previous Quarter March 6, 2009 (second quarter 2009) marked a recent low for bank stocks Source: FDIC Historical Statistics on Banking; Includes all insured institutions regulated by the FDIC

6 Historical Industry Return on Assets FDIC Insured Institutions 1 st Quarter 2007 to 4 th Quarter 2010 Historical Return on Assets (%) 1.50% 1.24% 1.25% Return on Assets (%) 1.00% 0.50% 0.00% -0.50% 1.03% 0.32% 0.68% 0.35% 0.27% 0.24% -0.14% 0.05% 0.09% 0.54% 0.65% 0.44% 0.65% -1.00% -0.96% -1.50% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Source: FDIC Historical Statistics on Banking; Includes all commercial banks regulated by the FDIC Historical Industry Capital Trends FDIC Insured Institutions 1 st Quarter 2007 to 4 th Quarter 2010 Historical Tangible Equity / Tangible Assets (%) 9.00% 8.50% 8.4% 8.6% 8.5% Tang. Equity / Tang. Assets (%) 8.00% 7.50% 7.00% 6.50% 7.3% 7.1% 7.1% 7.0% 6.9% 6.8% 6.3% 6.5% 7.3% 7.6% 7.9% 8.0% 8.0% 6.00% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Source: FDIC Historical Statistics on Banking; Includes all commercial banks regulated by the FDIC

7 Equity Offering Themes and New Capital Standards Observations and Considerations TARP redemption Small Business Lending Fund Basel Committee proposes new capital standards ( Basel III ) Leverage Ratio minimum of 7%, Tier 1 Capital Ratio minimum of 8.5%, and Total Capital Ratio minimum of 10.5% Extended phase-in period beginning on January 1, 2013 with transition required by January 1, 2019 New counter-cyclical buffer of additional 2.5% Recently enacted federal legislation ( Dodd-Frank ) will begin the phase-out of TruPS inclusion in Tier 1 capital for banking companies with greater than $15 billion in total assets Five-Year Bank and Thrift Equity Offering History Bank and Thrift Common Equity Offerings from January 1, 2006 to Date ($B) 2009 Capital Raised by Company Asset Size ($B) $70.0 $60.0 $50.0 $55.9 $51.8 Multi-National / Super-Regional $82.4B (89%) Regional $4.2B (5%) $40.0 Large Community $6.0B (6%) $30.0 $34.5 Small Community $0.4B (0%) $20.0 $14.6 $ Capital Raised by Company Asset Size ($B) $10.0 $8.6 $6.5 $9.5 $10.6 $6.5 $3.9 $- $ Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q Multi-National / Super-Regional $39.9B (73%) Regional $7.5B (14%) Large Community $5.9B (11%) $93.1 billion raised during 2009 $54.5 billion raised during 2010 Small Community $1.2B (2%) Source: SNL Financial as of 4/12/2011; Banks and thrifts categorized by Multi-National/Super-Regional (greater than $50 billion in assets), Regional (between $10 billion and $50 billion in assets), Large Community (between $1 billion and $10 billion in assets), Small Community (less than $1 billion in assets).

8 Bank and Thrift M&A Overview Median National Bank & Thrift Transaction Multiples National M&A Activity % 262% % % 218% 228% 213% 205% 218% 250% 200% % 167% 167% 171% 8 190% 176% 168% 161% % % 141% 137% % 100% % 110% % # of M&A Transactions Bank Failures Price / Tangible Book 0% Source: SNL DataSource; Data as of April 11, 2011 Problem Institutions Number of FDIC Problem Institutions and Percentage of Industry Assets Represented 1,600 1,400 1,200 1, '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 ' % 17.5% 15.0% 12.5% 10.0% 7.5% 5.0% 2.5% 0.0% Assets of Problem Institutions (% of Industry) Number of Problem Institutions At December 31, 2010, there were 884 institutions on the FDIC s problem list, representing approximately $390.0 billion in assets (2.93% of the industry s assets) The average size of an institution on the FDIC s problem list was $441 million in 4Q2010 versus $574 million in 4Q2009 Source: FDIC Quarterly Banking Profile Data as of 12/31/2010

9 Potential Problem Banks (1) Greater than $1 Billion in Assets 101 Potential Problem Banks in the U.S. with Greater Than $1 Billion in Total Assets (Assets Totaling $330 Billion in Potential Problem Companies) >3 banks 3 banks 2 banks 1 bank 0 banks Source: SNL DataSource as of December 31, 2010 (1) Source: Raymond James internal analysis Observations and Considerations Discussion Points The near to medium-term macroeconomic outlook remains uncertain Consensus shift on how robust the economic recovery may be Yield curve signaling inflation / higher rates? Credit quality remaining a concern Challenging regulatory environment and outlook New capital standards? M&A activity projected to pick up Limited organic growth opportunities Increased operational/fixed costs Tech/consumer/regulatory compliance Interim strategic step/need to create critical mass Board/management fatigue Succession issues Increased focus on branch transaction activity

10 Potential Exposure and Implications for Directors and Officers Mike Matthews Foley & Lardner LLP Overview: Litigation/liability risks Recent developments in the law Some sources of increasing risk: FDIC SEC Private plaintiffs Protections for directors and officers

11 FDIC: What s on the horizon The first wave of FDIC lawsuits against directors and officers What factors FDIC is considering What FDIC does when an FDIC-insured institution fails D & O insurance implications SEC Enforcement: Current status/recent developments Dodd-Frank Act Expanded use of SOX and other tools Insider trading Aiding and abetting Cooperation initiative Use of administrative proceedings

12 Private plaintiffs: Shareholder derivative actions Securities class actions False Claims Act Targeting of officers and directors Protections for directors and officers D & O insurance Advancement/indemnification Be aware of bylaws/agreements Recent developments in the law Conclusion

13 Types of Coverage and Claims Ethan Lenz Foley & Lardner LLP Three Types of Coverage/Insuring Agreements 1. Side A 2. Side B 3. Side C / Entity Coverage Private = Always Public = Usually

14 Side A Covers claims against individual directors and officers that are not indemnified by their company Statutory Prohibition Insolvency Typically no retention Side B Provides reimbursement to company for amounts it is required to indemnify directors and officers as a result of a claim Most coverage is paid under Side B Retention typically applies

15 Side C / Entity Coverage when the company itself is a defendant in a claim Private = all claims Public = securities claims only Claims Made Coverage Insured Retains Right to Defend and Settle Claim Subject to Insurer Consent

16 Claims for a Wrongful Act Any actual or alleged act, error, omission, misstatement, misleading statement or breach of duty by an insured in their capacity as such Exclusions are Key to Coverage Express Exclusions Definitions Conditions

17 Myths of D&O Insurance Ryan Collier Arthur J. Gallagher Myths of D&O Liability 1. All D&O policies are created equal No two policies are alike. Very esoteric 2. D&O policies are etched in stone All policies are very malleable. Clients need an astute broker that focuses exclusively on this coverage not a generalist 3. The most well known carriers offer the best coverage forms Last to the dance brings the best gift

18 Myths continued 4. D&O carriers don t pay claims - numbers say otherwise Myths continued 5. Continuity doesn t matter However, continuity of a bad policy is bad continuity 6. Directors and/or Officers don t ever pay out of pocket Rare..but ask the former outside directors of Just for Feet Inc. Two valuable lessons learned here adequacy of limits and benefits of Side A DIC policy 7. Private companies don t have D&O claims Recent Chubb survey showed 112 out of 451 companies polled had a claim within past 5 years 8. Public companies are seeing less frequent lawsuits since Class Action Litigation is down to 176 Record year for securities lawsuits at 1,170 as the shift from tradition continues

19 Last of the myths (at least for today) 9. The claim happened so far back that we are safe The average lag time for filing a claim in the public domain is now over 250 days (up from 126 days in 2008). This will increase as the FDIC starts to bring suits and civil actions against the failed banks and the D s & O s as they have announced in the WSJ. 10.Since all D&O insurance is the same, just take the cheapest option (and pray) Premium cost vs value of insurance Many factors well beyond the price (problem is that most of the insurance industry can t decode the difference) Panel Discussion and Question & Answers

20 Contact Information Aaron DiRusso Senior Vice President, Equity Capital Markets Raymond James (212) Mike Matthews Partner Foley & Lardner LLP (813) Ethan Lenz Partner Foley & Lardner LLP (414) Ryan Collier Area President, Executive Lines Arthur J. Gallagher & Co. (312) Thank You A copy of the PowerPoint presentation and a multimedia recording will be available on Foley s website within 24 to 48 hours: We welcome your feedback. Please take a few moments before you leave the web conference today to provide us with your feedback: