Chapter 1107 of the Ohio Banking Code deals with thecapital securities of Ohio state banks.  Thenew law removes a long standing provision of Ohio banking law by removing the definitionof “treasury shares.”The new law also will no longer prohibit state banksfrom issuing convertible debt securities requiring individual holders of thesecurities to be responsible for the restoration of the banks’ paid-in capital.Under the old law, treasury shares were deemed retiredafter one year after the date of acquisition; authorized but unissued shares weredeemed cancelled after one year of becoming authorized; preferred shares wereto be cancelled and not reissued; and both common and preferred shares wereassessable on a pro rata basis for the restoration of paid-in capital.  The new law removes these requirements.The new law clarifies that employee stock options can begranted to employees, officers, and directors of the bank and its subsidiaries,and to other parties who have or will provide a service or benefit to the bankas determined by the board.

The new law also specifies that pre-emptive rights withrespect to shares issued by a state bank after January 1, 2018 shall begoverned by the general corporation law of Ohio.The new law eliminates existing restrictions on when abank can purchase its own shares and provides that a bank can now repurchaseits own shares with (i) approval of the Superintendent, and (2) in accordancewith the general corporation law.The new law changes prior law by permitting dividendsand distributions on a bank’s shares to be paid from a special reserve createdfrom the proceeds from the sale of bank stock, in addition being funded fromundivided profits. I.                  Chapter 1109:  Bank PowersThe new bill specifies that, in addition to what isotherwise authorized under the Ohio banking law, a state bank has and may exerciseall powers, perform all acts, and provide all services that are permitted fornational banks and federal savings associations, other than those dealing withinterest rates, regardless of the date the corresponding parity rule adopted bythe Superintendent takes effect (assuming a parity rule is adopted).Under the new bill, a state bank may elect to operate asa savings and loan association by filing a written notice with theSuperintendent.  Such a bank isconsidered a savings and loan if its qualified thrift investments equal orexceed 65% of its portfolio assets and continue to equal or exceed 65%of its assets on a monthly average basis in nine out of every twelve months.  The new bill provides that a bank may rely on anyinformation, agreements, documents, and signatures provided by its customers asbeing true, accurate, complete, and authentic and that the persons signing havefull capacity and complete authority to execute and deliver any such documents.

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 The bank must act in good faith and “goodfaith” means honesty in fact and the observance of reasonable commercialstandards of fair dealing.Under the new bill, a bank may provide electronicallyany statement, notice, or report required to be provided if it has thecustomer’s consent.  A customer’s consentmay be obtained electronically or in writing. Similar rules apply to noticesfrom a bank customer.Banks are currently required to provide a customer, atthe time of opening a deposit account, the terms and conditions of the depositcontract.

The statement may be set forth on the depositor’s signature card. Now,the signature card may be electronic or inwriting.Current law requires a bank to send written notice of achange to the deposit contract.

The new bill permits a bank to provide notice,in written or “electronic form.”Current law also requires a bank, for each depositaccount, to send to the customer a written report of the customer’s account.Under the new bill, the bank is to make available to each deposit customer areport, in written or electronic form, of thecustomer’s deposit account activity since the last report was provided, unlessthe account is a certificate of deposit with no activity except for compounding interest.The new bill states that depositors of public funds thatare collateralized by securities pledged by a bank in accordance with theUniform Depository Act (R.C. Chapter 135) and any applicable federal law, haveand maintain a first and best lien and security interest in and to thesecurities, any substitute securities, and the proceeds of those securities, infavor of the depositors.Current law governs a bank’s provision of safes, vaults,safe deposit boxes, night depositories, and other secure receptacles for theuse of its customers.

The new bill adds that unless agreed to in writing by thebank, nothing in banking code creates a bailment between a customer and the bank.Current law specifies that unless otherwise agreed inwriting the relationship between a bank and its obligor, with respect to anyextension of credit, is that of a creditor and debtor, and creates no fiduciaryor other relationship between the parties. The new bill alters this provision,as follows: “Unless otherwise expressly agreed to in writing by the bank, the relationship betweena bank and its obligor, or a bank andits customer, creates no fiduciary or other relationship between theparties or any special duty on thepart of the bank to the customer or any otherparty.”Under current law, the Superintendent is required toprescribe standards for extensions of credit that are secured by liens on realestate or are made to finance the construction of a building or improvements toreal estate. In prescribing those standards, the Superintendent is to considercertain factors, such as the risk the extensionsof credit pose to the federal deposit insurance funds. The new bill adds”or any other factors the Superintendent considers appropriate.

” The new bill also states that, despite theselimitations set forth in current law relative to the total loans and extensionof credit that can be made to one person, a state bank may grant credit up to$500,000 to one person subject to restrictions under federal law.Under present law a bank may extend credit to any of itsexecutive officers, directors, or principal shareholders, or to any of theirrelated interests. It also specifies that whenever an executive officer of abank becomes indebted to any other bank or banks, the executive officer mustsubmit a report to the board of directors of his employer describing the debt.The new bill removes this reporting requirement.The new bill allows state banks to invest in debtsecurities and obligations in which national banks, savings banks, and savingsassociations insured by the FDIC are permitted to invest without obtainingapproval of the Superintendent.

A bank is currently authorized to invest, in theaggregate, 5% of its paid-in capital and surplus in shares of certain venturecapital firms and small businesses. The new bill specifies that this limitationapplies to stock statebanks and adds – for mutual state banks – a limitation of 5% of its retained earnings.The new bill also eliminates the prohibition against abank or affiliate of a bank owning or controlling or having the power to voteshares of: (1) more than one bankers’ bank, (2) more than one bankers’ bankholding company, or (3) both a bankers’ bank and a bankers’ bank holdingcompany.

Under existing law, a bank may invest up to 25% of itsassets in the securities of bank subsidiary corporations and bank servicecorporations. Prior to investing, a bank must obtain the approval of theSuperintendent. For these purposes, the new bill makes the following changes:–Itclarifies that only a bank subsidiary corporation that is a wholly owned subsidiary of the state bank thatmay engage in any activities that are a part of the business of banking (other than taking deposits).–Ratherthan requiring that a bank service corporation be owned solely by one or moredepository institutions, as in current law, the new bill requires that it beowned solely by one or more banks.–The newbill authorizes a bank subsidiary corporation or a bank service corporation toinvest in a lower-tier bank subsidiary corporation or bank service corporation,subject to certain requirements.Under current law, a bank cannot invest more than 15% ofits capital in the stock, obligations, or other securities of one issuer,subject to certain exceptions. One of the current exceptions is investment inthe obligations or securities of the FederalNational Mortgage Association, the Student Loan Marketing Association, the Government National Mortgage Association, or the FederalHome Loan Mortgage Corporation.

The new bill clarifies that this applies toobligations or securities other than stock in these entities. It also adds another exception for theshares, obligations, securities, or other interests of any other issuer withthe written approval of the Superintendent.The new bill permits a state bank to engage in thebusiness of selling insurance through a subsidiary insurance agency subject tolicensing under Ohio law and the law of every other state in which services areprovided by the bank or its subsidiary.Existing law requires that each bank retain or preservebank records and supporting documents for only a specified period of time,based on the type of record or document involved. The new bill adds”unless a longer record retention period is required by applicable federallaw or regulation.”