institution to submit a plan for achieving and maintaining compliance. If an institution fails to submit an acceptable  compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its  primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency.  Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the institution’s rate of growth,  require the institution to increase its capital, restrict the rates the institution pays on deposits or require the institution  to take any action the regulator deems appropriate under the circumstances. Noncompliance with the standards  established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the  federal banking regulators, including cease and desist orders and civil money penalty assessments.  Branching Authority .  National banks headquartered in Kansas, such as the Bank, have the same branching  rights in Kansas as banks chartered under Kansas law, subject to OCC approval. Kansas law grants Kansas-chartered  banks the authority to establish branches anywhere in the State of Kansas, subject to receipt of all required regulatory  approvals. Federal law permits state and national banks to merge with banks in other states subject to: (i) regulatory  approval; (ii) federal and state deposit concentration limits; and (iii) state law limitations requiring the merging bank  to have been in existence for a minimum period of time (not to exceed five years) prior to the merger. The  establishment of new interstate branches or the acquisition of individual branches of a bank in another state (rather  than the acquisition of an out-of-state bank in its entirety) has historically been permitted only in those states the laws  of which expressly authorize such expansion. However, the Dodd-Frank Act permits well-capitalized and well- managed banks to establish new branches across state lines without these impediments. Financial Subsidiaries. Under federal law and OCC regulations, national banks are authorized to engage,  through “financial subsidiaries,” in any activity that is permissible for a financial holding company and any activity that  the Secretary of the Treasury, in consultation with the Federal Reserve, determines is financial in nature or incidental to  any such financial activity, except: (i) insurance underwriting; (ii) real estate development or real estate investment  activities (unless otherwise permitted by law); (iii) insurance company portfolio investments; and (iv) merchant banking. The authority of a national bank to invest in a financial subsidiary is subject to a number of conditions, including, among  other things, requirements that the bank must be well-managed and well-capitalized (after deducting from capital the  bank’s outstanding investments in financial subsidiaries). The Bank has not applied for approval to establish any  financial subsidiaries.  Transaction Account Reserves. Federal Reserve regulations require depository institutions to maintain  reserves against their transaction accounts (primarily NOW and regular checking accounts). For 2013: the first $12.4  million of otherwise reservable balances are exempt from the reserve requirements; for transaction accounts  aggregating more than $12.4 million to $79.5 million, the reserve requirement is 3% of total transaction accounts;  and for net transaction accounts in excess of $79.5 million, the reserve requirement is $2,013,000 plus 10% of the  aggregate amount of total transaction accounts in excess of $79.5 million. These reserve requirements are subject to  annual adjustment by the Federal Reserve. The Bank is in compliance with the foregoing requirements.  There are numerous developments in federal and state laws regarding consumer financial products and  services that impact the Bank’s business. Importantly, the current structure of federal consumer protection regulation  applicable to all providers of consumer financial products and services changed significantly on July 21, 2011, when  the CFPB commenced operations to supervise and enforce consumer protection laws. The CFPB has broad  rulemaking authority for a wide range of consumer protection laws that apply to all providers of consumer products  and services, including the Bank, as well as the authority to prohibit “unfair, deceptive or abusive” acts and  practices. The CFPB has examination and enforcement authority over providers with more than $10 billion in assets.  Banks and savings institutions with $10 billion or less in assets, like the Bank, will continue to be examined by their  applicable bank regulators.  Ability-to-Repay Requirement and Qualified Mortgage Rule. The Dodd-Frank Act contains additional  provisions that affect consumer mortgage lending. First, it significantly expands underwriting requirements  applicable to loans secured by 1-4 family residential real property and augments federal law combating predatory  lending practices. In addition to numerous new disclosure requirements, the Dodd-Frank Act imposes new standards  for mortgage loan originations on all lenders, including banks and savings associations, in an effort to strongly  encourage lenders to verify a borrower’s ability to repay, while also establishing a presumption of compliance for  23  Consumer Financial Services 