Expedited Processing and Settlement (EPS)Understanding NACHA’s Same Day ACH

May xx, 2012 │ City

2

Disclaimer

“Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., all of which are registered broker-dealers and members of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured * May Lose Value * Are Not Bank Guaranteed.

This presentation is for informational purposes only. It does not constitute an offer or commitment to buy or sell or a solicitation of an offer to buy or sell a security or any financial instrument, or a commitment to enter into a transaction, of the type generally described herein. The information contained herein, and any other communications or information provided by Bank of America Merrill Lynch, is not intended to be, and shall not be regarded or construed as, a recommendation for transactions or tax or investment advice, and Bank of America Merrill Lynch shall not be relied upon for the same without a specific, written agreement between us.

We do not provide legal, compliance, tax or accounting advice. Accordingly, any statements contained herein as to tax matters were neither written nor intended by us to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on such taxpayer. If any person uses or refers to any such tax statement in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to any taxpayer, then the statement expressed herein is being delivered to support the promotion or marketing of the transaction or matter addressed and the recipient should seek advice based on its particular circumstances from an independent tax advisor. Notwithstanding anything that may appear herein or in other materials to the contrary, the Company shall be permitted to disclose the tax treatment and tax structure of a transaction (including any materials, opinions or analyses relating to such tax treatment or tax structure, but without disclosure of identifying information or, except to the extent relating to such tax structure or tax treatment, any nonpublic commercial or financial information) on and after the earliest to occur of the date of (i) public announcement of discussions relating to such transaction, (ii) public announcement of such transaction or (iii) execution of a definitive agreement (with or without conditions) to enter into such transaction; provided, however, that if such transaction is not consummated for any reason, the provisions of this sentence shall cease to apply.

Copyright 2012 Bank of America Corporation.

3

Presenter background

� Team manager for the Client Integration Consulting and Global Customized Consulting teams:

– Team is responsible for assisting sales officers and clients for strategic treasury relationships with integration planning, SWIFT consulting and technical product information.

– His team helps craft custom solutions for clients’treasury needs.

– 15 years with Bank of America Merrill Lynch, 20 years experience in the financial and technical fields

– Previously worked for FISERV, Prosperity Bank, Walt Disney World

David Quackenbush, Senior Vice President, Bank of A merica Merrill Lynch

Background on NACHA’s Same-Day ACH

What is Expedited Processing & Settlement?

5

What is Expedited Processing & Settlement?

NACHA proposed EPS to:

� Provide a new intraday settlement service for certain ACH transactions between financial institutions

� Amend the NACHA operating rules to allow ACH entries to be processed and settled on the same-day they are originated

� Establish an additional daily clearing and settlement window to be supported by the ACH operators (Fed and EPN)

� Preserve existing 1- and 2-day origination capabilities

Intraday settlement service

EPS also known as Same-Day ACH

ACCELERATE CLEARING, RETURN

DELIVERY AND POSTING OF ACH

ENTRIES WITHIN THE SAME

BUSINESS DAY

ALSO KNOWN AS

“SAME-DAY ACH”

EPS:

INTRADAY SETTLEMENT SERVICE

6

EPS History and Background

Fed launchedSame-Day

ACH

NACHA Taskforce assembled

NACHA issuesRFC

2012 PaymentsConference

Aug. 2009 June 2010 Oct. 2010 Sept. 2011 April/May2012

Timeline of the accelerated ACH processing measure

� Limited to check conversion items and WEB and TEL

� Voluntary participation

� Limited adoption

� Explore expedited processing and settlement (EPS) capabilities in the ACH network

� Justify pursuing EPS

� Gather feedback from industry

� Industry discussions ongoing

� Formally pursues EPS that would be:

�More robust than Fed’s proposal

�Mandatory rather than optional

�Expedited settlement same-day

NACHA proposes

EPS

7

NACHA’s case for change

�Market interest : According to AFP surveys

�Fed same-day ACH service : Minimal participation; limited in-scope to eCheck and WEB/TEL

�Already being done : Some U.S. commercial banks and other countries have implemented “same-day-like”exchanges

�Change due : ACH processing schedules have not changed in the last 15 years

�Keep up with check image services : Services enable same‐day clearing of some check payments

�ACH network challenges : Bilateral exchanges by-pass network risk monitoring. Threaten the viability of the network.

�Avoid regulatory intervention : Proactive action through rule making

8

EPS Rule Making Status

Results of NACHA’s Request for Comments

Results

� Overall support:

- Bank support was 70%

- Corporate support was 90%

� Support on EPS elements: Moderate to-significant divergence:

- Clearing schedule :

- ACH operators trying to balance needs of East Coast/West Coast originators

- Eligible entries :

- FIs agree that accepting more entry types is good.

- Concern on IAT

- Implementation date:

- RFC proposed date is March 15, 2013

- Transaction value cap:

- Leaning towards $25,000 value cap

9

EPS Rule Making Status (cont.)

Results of NACHA’s Request for Comments

Costs

� Implementation and on-going costs were generally believed to be “moderate”, but a large number of responses indicated that cost were “unknown”

� Based on work conducted in 2011 by NACHA Board Task Force, the overall benefits to receiving banks were estimated to be between $413MM - $1.4B

Benefits

Summary

•Proceeding

•Outcome and timeline depend on FedACH and EPN discussions

•Decide on dollar limits

Rule making

•Effective date in 2014 likely

•Costs are moderate for most banks

Implementation

•Late-day receipt of debits by small RDFIs

Potential impact

•“Positive” for receiving banks

•Check replacement by ACH credits, and originating consumer-initiated entries

Benefits

10

Major Elements of EPS

Element Specification

Mandatory or optional service

Participation in EPS will be mandatory for all receiving points (RDFIs), though origination of same-day transactions would be optional

Clearing schedule Under debate:•ODFI transmission 2 p.m. ET

• RDFI file availability 4 p.m. ET• Interbank settlement 5 p.m. ET

Eligible entries • Consumer and commercial debits and credits• Returns and reversals

Implementation date TBD

Transaction value cap Proposed per transaction dollar cap is $25,000Caps would be self-enforced based on ODFI warrantee only; not

enforced systemically

Items with invalid/stale-dated Effective Entry Dates

Default to next-day settlement

11

What EPS means to you

� With check image clearing

� With off-network clearing and settlement arrangementsENHANCES ACH

NETWORK

COMPETITIVENESS

What corporations and clients stand to gain

IMPROVES RISK

MANAGEMENT

PROVIDES

OPPORTUNITY TO

CREATE/ENHANCE

ACH APPLICATIONS

� Mitigates counterparty risk on ACH settlement

� Faster debit returns reduce originators’ transaction risk, faster re-credit for RDFIs

� Direct Deposit of payroll for hourly workers, and for emergency and contingency

� Consumer bill payments and purchases

� Mobile banking and P2P

� Disaster assistance payments

� Reversals

� Prenotes and NOCs

12

Looking Ahead

�Impact existing services : Such as wire, debit card, etc.

�Mandatory participation

�Dependencies with/impacts to: Posting, IR, Controlled Disbursement/ARP, ACH Positive Pay, etc.

�New costs: Technology changes and reporting

�New processes: Earlier and multiple cash management decisions

�Potential increased risk: Items coming in faster means decision window shortened

�Is EPS just a Day-One Lift? Money every day is still just money every day

�Minimal value of late-day credits

CONSIDERATIONS

13

Questions

14

Thank you

�The information contained in this presentation is not legal advice.

�The information discussed in this presentation is provided as educational and is intended to help you understand and evaluate accelerated ACH processing.

�Every company is different and each should determine the appropriate direction to maximize their goals.