============= Page 1 of 9 ============= Funk Credit Kh klstnual $trtiart :x,07 - i cans Secured by Marketable 4ccurities REVISLt> August 2Ott5 Section S,07 - Loans Securesl hs Markrttttsle Securities 1ntrottuction fills S tan Qa\erc loans to consuin,,r and httsinc s burrs eis that are -cured hs' marketable financial assets such as sticks. bsnds and mutual funds- Policy Loans secured hs propetlti rnarrirned, readidi stark tsblc sc unties arc tlc;drable loans, [t is the recponsihtlitti of the re lalium ship manager tR\tt or Consumer L_ -arn Pon olio Manager of the Retail Bank to understand the nature of the sk curities tak tt as collateraa. l he valtt~m.rof ceurittes securing loans of this ispe sill he monitored at bast month!. to insure adequate maroons Ttx..c loans require a hi d,) degree. of commitrnem from the R'.l or Consumer 1-can P'octfalio Stanacer to rcr ice the account and to monitor the collateral in a timets° and ccR cientio s manner. Rorrossets sstIl be routincls informed that the pl c of additional collateral, principal reduction or retirement of the debt s=ia collateral liquidaliort must promptly iemeds margin rtftlls. Compass Bank sill exercise control over the collateral through actual possession Or a control agreement ssith a custodian. if a l secured bi tit~irl:etaL"le securities caitt~t or sill not be monitored in accordance with this poke., then the loan should be approved under the lenders unsecured Ieading authority. Advanez rate hmitationa of Ftderat Rcscrs c Board Regu lati,i i . U" will bc&scr%cd in all caws, Exttnsiuns oferedit s ured by marketable sttisirities should be gnkcrncd by either a titan agreement, Iciteragreement or Collateral maintenance aurcement that establishes- among otherthinnsr dcfauft and liquidation ratios and a provision for a cure period. t4nads ancc rate ratio level lksver than the default ratio may be appropriate to alloys some market variance- Generally. a cure period of no more than live (''t businescs dii s is recommended ssith the exception of the liquidation ratio. there the cure period should be Ilk, s reiuer that one l) bttsittr s dsv. Tlxst ratios should not he less than those retlected %n the *Rcquircd Margins' scakin of this potic,._ References Federal RcSertie Board pruulatiurt U: Credit hs° Barst;s of €'er nsttthcr than Brokers oTr Dealers for the Purpose . i' Ptsrcha-dn r e Cact i Maresri Stocks Exhibits Exhibit -K"- Federal Resrrrve Rrrttrd U-1 Farm Exhibit,,.N" _. Rgsiretedd Stuclr. (Ir€khct Related Policies Section 5. 01 C otisnmcr Loans- Common Cotnsid crat ions Rc utatlott T' *ulaflon U sets out re4urireitients for lenders skho extend credit secured by iturgin stocik. It restricts die amount of cresiit that may be extended for dw purpose otptuch t ing or tarrying matyin securities 5.O7-l LBF005-00081 GOVERNMENT EXHIBIT 272 Crim. No. H-04-25 (S-2) ============= Page 2 of 9 ============= 11tanik C_'redit Polio A 1anua Sect iion.;JFJ7-Loans Secured It w NJsrJ.etalilt Seeurtlt is j R1 ISLI) August 2005 (pwT*se %:redit) to 51) pet cent of the current mark ct saIuc of the it-tar uin stack if the credit is s ur 1 directly ire irtdirectJy y that stock or Grit tuner margin stock . A fin;tncrtl i stituti n ittay continue to maintain any credit initially extended in compliance is ith there ulat i•n regardless of a reduction in the customer's aquity resulting from a chrtnve in market trice or a cfrarrge in the status of the security securin the purpose credit. purpose credit loans that arc unsecured are also co%tired by Regulation U, If an unsecured purpncc credit loan is made to the same customer subsequent to a margin stock secured purpose crcdit loan, then the combined credit extended for tooth loans cannot eke ened the 50 rerceiit tnaxirnurrt loan value, tithe unsecured purpose credit kit %%as made previous to the man ,-in stock secured purpose credit loan, then upon cxtcn_u;ion of the margin stc*ek scanted purpose credit trartm~ticm, the credits arc to be combined treated as a Single credit under Regulation U. Co%crcd loans include an-, Iran--action directty or indirectly secured bs margin stock that alloo s the borresrter to maintain, reduce, or retire debt originally incurred to p rchase a security that is curtently a margin stoxA_ indirectly secured transactions include trans;sc:tians covered hp niort-encurnhrathe agreements rather than a direct pledge Nlargin stocks include the fotio;tcinc- r Any equity security trading ?n a n;tiional sccrinities cxch n e including ail issues traded son the Ness York Sto4ck Eseh take t \'i SL), or the American Shock Exchange t\SF };. • Any €iver-tire-counter (OTC) security trading in the National Market tier of the NASDAQ Stock Market. • Ans debt :secuors contienihte into a margin stock or carmine a warranter right to subscribe to nor purchase a margin stock, • Shares of most mutual funds, unless 95 percent of the assets ofthe fitted are ntinuousls invested in 1-!,S. imvcrtimcnL *=c-),- state, or mwtitipal oblii ations, Regulation U has taco important requirements roe the Bank and relationship Mina ers'. The telatiottsltip trariaaer must` obtain from the bt rrow-er, and ccunpictcc a purposee statement. form U-1 1 see Exhibit "K"), for each loan secued margin stccL Mqh the borri.mer and the relationship manager trust sign the form. The form is not filed with the Federal Reserve, but must be retained for at least three 'se'ars after the termination of the credit. A copy of the t'-I form should be retained 'i0tlt the collateral file for this purpose. • The relationship manager must adhere to margin requirements of 50 percent for all purpose loans iecured bi: margin stock. A purpose. Icon is any crcdit for t.tie purpose. u}tether immediate, incid tal, or ultimate. of buying or carrying margin stock. A nun-purpose ban is a loan made fur any purpose other loran purchasing car£arry~ing, margin stock. Regulation t.' places no restrictirrt on the amount of credit that may lie extended on non- 5A7_2 LBF005-00082 ============= Page 3 of 9 ============= Comj ss 8k Credit ftlicv Nts~nuat ectioa Loans Secured b}' Nlarketable Securities ~ REViti£ll August GD ptlrpKose loans securti d by marain stack. Sec '`Required \irtrgins- scction of this pottcs for the Bank's limits, Penalties for recto contplianci are serene. K uir tents vhf Regulation L 'v ill be strictly observesl, Atrteptahlr Secu rules tt'htn debt or quit} se urities are ltcld as collatcrah the securities .should have the foltuvsinL char, rrtati, to be considered dciirable col taicra t: Is_ ued by a qua he corporation or b} a federal, state, or h .tl Overnrucnt emit}, + Publicly priced and traded an one ofthe niaio'or national ecunties exchttttges • Supported b} a broad, actise, liquid market where the seine value at the #2-week loss is greater titan Si a per share. The ft lhtvvirtg tspes (if stocks and securities have features that litnit their value as collateral. Loans secured with this type of collateral should be underwritten with pnnrar}° emphasis on the financial strength. repayment eapacin and stabilio of the borro%vr- • Debt and preferred stockith Ics,, than ins csrnrcnt grade ratings,  S uritics that are r rioted as to their rn trkctabelity, Stock in a company that is not publicly traded. Closely her or unlisted stogy. Neat-registered eeorit es. Stacks w searading value reflects light trading and whose 52-3+ k k w is less ti t. S l ft per shire- fled Funds. a Actively ThTraded c€ountss not managed b r Compass Brokerage It is tthe espenxibilit% oof the relationship Tuanaster to ull} and tand the nature oftliesecuritr taken as collateral. firable securities include: • Stocks traded on the \I SE, AASE nd N NASDAQ National arket System • US vernmeot Obligations • State. count} .arid municipal obligations rated '11,,Wo or tter •Corporale obligations rated `A' or better Over the counter stocks that are not traded on the NA1-%%D,National arket Sti st et should he ev altsated nn a vasi h} -case tsa is. Factors such as historical price volatilirs, average daily trading, volume and the numberofstockholderc should be evaluated. 'This investigation should be documented in the underwriting memo. Os r the counter stocks sshould e depended upon as collateral oonly f this investigation provides a high degree of certainty that the volume of stock taken as c collateral an be readily ligvidated over a short period of time. 5-07-3 LBF005-00083 ============= Page 4 of 9 ============= Lei ri s BanL Credit Folics-Manusil Section.'; r+ U7 - I oases Securest ttj'4tttrketntrte tircnrttice ELF NISEti August 200 Sccmitics. such az collaturalized m+.rrteaee obligatiurtt. notes supported Em sccuritizcd loans and similar asset ba:kcd srcuritics are not generally acccptablc as collateraL These securities generate unpredictable distributions to the owner as the undcrls in loans aic repaid. This return of prirx.ipal causes the value of the security- to decline at an unprredictahte and sfertetim rapid rate. Closrl} held or illiquid stacks, unrated debt instruments and annuities are not to be regarded as niarketahle securnies within the contest of this polio. Restricted Stock. It is alSi) lolin-irtattt to hinvestlizate and understand any r strictions placed on the sale of stock owned by insiders of the issuer. Rule 144 of the Sg unties Act of 1933 covers the sate of control securities and restricted securities. These is pes of securities are rt rt recommended as ciil.laatrrat and it is important to knots that there arc restrictions placed on the. sale of these stocks. If ti situation arises where the Bank is considering takin ; this t- pc of stock as collateral, the ank's Lc€ a1 Department should be eansttlic~l regarding these restrictions and t e impact to the Bank in the event liquidation b comes nicessar . If a decision is made to take this stock a collateral, the advance rate must not be greater than 50 percent; the default ratio ?3 pet,;ttnt; and the liquidation ratio 60 pert rte. Control .cunties are wined by directors, officers ar individuals wh'o own 10"0' or more of any tppe of csuistandirtg securities c f a company for frnaricially dependent relatives of such individuals). Individuals who hove a control relationship with an issuer arc considered affiliated persons, Restricted securities are those acquired thn-suth sonic means other than a registered public offering. A scourit} purchased in a private placement is a restricted security Fshihit 4 s ' tricte } Sec :k Checklist should be used to identify when rio k niziv be a restricted olconfml stoc . Loans of more than S$00.i)Otl -ccured' by restricted stock must Se approved b ° an individual with Class -8- or h : olter lending authority. Required Margins ictatinwm advance rate,. nn loans secured by rnart,;etrtbie -securities will sue, based on the quality and liquidity of the culhiterrl. All logs secured by eeniticated marketable securities .sill be set up for tracking on the Stock Margin System unless specifically exempted by an individual with adequate authorith to approve the loan on an ten. cured basis. 'I lie Rte or Consumer Loan Portfolio ,Mla nager is specifically resp onsible for re.'iesvin3 and evaluating margins ors anW loan scoured bs marketable securities- This review should be performed no lcss t tnoothly and more frequently if cir:umstances war- rant-Unless further restricted by Regulation 'U', maximum loan to satuc for the various types ofsecuritiesarc as 3oltois 5.0'7-4 LBF005-00084 ============= Page 5 of 9 ============= ct anuai Mina :5.0? -loans cured by N1arketatrle Securities RE N IS :D August2 Advance Default Liquidation, mate Ratio Ratio Compass Ran'-shares Stock &04 NYSE, AMEX. NASDAQ l eJ ` g v $ *. ittL'~3 i \wSl)kQ Smut Capitahzaiion ., r n o Issues tOTCI - Non-investment f less less 80%, or less grade I_iS Government Ohlig, lions k i !, securtttesAgcneies i State:, County, & Municipal Obligations stint a $ntk,4 Of 1 aa" 80°.a 85'r, tX1 or better Corporate hg ions brids rids rated . S(i Its 9#l~'m A' or better Corp era g Qbligatinnstrorids rated 60% 70 80% below .Ar i futuai Funds 70 75 S0?%. Rtitricted or' Limited 5 tx 5 ; Markclability iii l'entty' Stocks (Stock" attled at under 5l0 per sure on 52-m eel: 25% 3:5 50 . aveme) (3) Actively Traded Accounts (4) 5U a 55% 6 All Regulation 1. Tram actions ;tee (1) f2) t l I See-Acceptable policy regarding rzs#riction . t-1 Detainee and Liquidation Rotates of Regulation l: transwions should be the consistent with the type of security, and ccviply vsitft the ratios indicated in the abos c table. (31 ) Sticks valued at under S5 per shy on 52-vscek avcim c arc nut cligibIc under this policy and 3.houtd not be to ett a~ collateral, unless loan is approved under unsecured lending authority. (4) Actively Traded Accoiunts arc defined az invcstrncnE bruLera e accotzats where trading is allowed and the sto.. .investment mix is subject to than, e at any tine, Loartsthat exceed these margin Iimitirtion dtic to price lluctunti rns atre to be promptly brought back into margin. Remedies include a principal reduciinn. the pledge of additional collateral or liquidatieat (if c&llawral to repay the lean. The risks associated ovule a ctiveh traded accounts in is loch Combs exerts no control over trading should be carefully evaluated. Advari e rates iq exce , of those outlined in this section require special approval. The tc pea of exceptions will typicall1 be made only on aeruunts that are profession-ally managed skith a formally stated investment philosophy than provides a high degree of certainty with resrct to the 5 .O7- LBF005-00085 ============= Page 6 of 9 ============= 'orit sass rnk Credit Policy Ntanunt ctltml 07 - Loans Secured In Marketable Sc utrU ti 7ltLVISE'D August ;00 i}pes of assets that are likely to be held in the account. Loon Administration must approve all exceptions to the advance rate lintittitions on o tiveh traded accounts. Control of Collateral Perfection of a security inicrost in marketable securities requires the filinu of an C.+CC- I fiiinr statement nd the eyerci_sc of control os er the securities. In the case of ecrtilicated see unties, this comtr?I is aclucscd b}' ph}`sic-al pcnsession of the securities. \1 hen pc?ssble certificated marketable s4itrities ssll be converted tine a bO enitV' transaction and held in an internal NAeratte accounL This snitl gain much efcicnc} and gise the Bank greater control os rr the collateral to prevent loss due to fraud, stock split., etc. Ifphysical securities are held, the} must b: held in the Safekeepin dcparunrnt. Tlit ciecisis~rt icy hold ph} si.al sz c uritizs outside of ttie Safekeeping Department is an eyception to this polio and must be approved by Lean Adntinistratioo, lei the case of unce tiflicated sectarities. either of the follossing is rcquircd_ a) the account is put in the Banks name orb) a control aglrMlnent is ezeeuted by the Bank, the hom')sscr and the brokerage firm- The 13ank.'s control agreement should be used and executed by an officer of the Bank, the borrower and a repre=.entatis e of the brokerage firm. In the event That the brokcraee firm insists that their control aimeat eat be used, it will he considered in excetWitm to this polic~. The Bank's legal ek unscl should be consulted pvkrt to execttt t ofthc third pare}' contrci agreement a.ttd Loan Administration must approve the use of the third-party control agreement- A simple bailcc letter is notsuft"icient to establish control. Furthcrnio , loans of SS04),(X CO or more secured by aetiveh trim accounts held at institutions other than Compass Brokerage roust be approved by an indi%iduad with Class'B` lending authority, Liquidation Process' it is-thr Bank's polio' to a lltiss market movement in stocks and securities valued as a collateral abet. "l hereiiire, the Bank t put in place _default and liquidation ratios to protect the bank front abnormal market declines- The relationship manager must monitor these ratios. llforeos CT. cure periods must be designated at each Des el prior to the liquidation ratio. No cure period be}rend one t 1) business day should provided once a security leas reached or exctedcd the liquidation ratio. Further. if the liquidation ratio is met during a cure period actin cie undcr'say i tin e t5') day cure period for default ratios. the liquidation ratio supercedes anal (lie bank should have immediate rights (one( l) business das. cure period) to sell the stock or securities w tfa no further notice required In the tisent that a def fit or liquidation ratio has been met, the relationship nuutager must immediately revies-all documentation t _ elision adequacy. T erelationshipmanager must also notif} wit At oinistration and the Compass Bank Legal l)epartnaent and irtimediarety begirt the process of liqut`drazicw. Tile liquidation process should in ludt appropti tc notification to the Httrrtxsvcr, as advised by 5.07-6 LBF005-00086 ============= Page 7 of 9 ============= Crrdit Polies` Mlanual SeC#inn SSt7-Loans Soured h% Ilucketahle S raritir ' REVISLI) August 2005 icgal counsel, and consultation with Compass Bmkcragc as liquidation agcnt. Proceeds /ions the ligttidation will be placed into a spccificall~ designated Compass Bank account and debited fix repay rn nt of the . subject loan within the most expedited tin efriune possible- Anx _oar deviation fro" this polics' requires the approt al of Administration, tf the securities arc not held by Compass flank. then the broker is to notified and instructed in tisritin to sell t e sca.uritie-s and sire the net ptr-rceeds into a specifically desi4*nated Compass Bank a tuint to be debited for repay niettt of the subject lnan_ Lost & Stolen Seeuritirs The rdtttionship manger shall determine shether or not securities aken as collateral have been reported as missing- lost. counterfeit or stolen, in all instances sthcrc the aeuregatc face saluc tin the case of bortds1 or market value (in the case of stocksi of the securities to be used as collateral is greater than $l0,0}6Ct. fhe inquiries arc to be mask to Securities Information enter ("SK-') or its deskznec and is to be do srncnted in the bank's re`ords`credit lilts The Securities and Exchange Commission requires that inquiries be made .chcncvcr a sccurits is presented that is in bearer farm, stmt name or registered to a third partti , Inquiries arc to be made to the eurity Clearance area of the SaffekeepingDepartment. Csen .sl not required, an inquiry is recommended in any easc sshcrc the borrower is notsseli knotsn. Exeelstiotss The requiremerntt of Re ulatictn L nr mitt be rsais cd. rlit de iatitttt from the "Liquidation l'rcce s' c't9clitt of this policy requires at minimum the approval of Loan Administration. As indicated in the "`Control of Coliat rarsectionrL.oan Administration must approve if physical stcurixie-s to be held and if the securtir are held outside of the Safekeeping. Depittt rl Individuals ssith Class `C' or higher leasing authority may snake, exceptions other than thosc indicated ,v e to this polic) uJihin their unsecured dollar lending limits. 5,7.7 LBF005-00087 ============= Page 8 of 9 ============= FfF 1 , O LEr;¢. 71Gs:7-Gt15 BOARD OF GOVERNORS OF THE, FEDERAL RESERVE SYSTEM Statement of Purpose for an Extension of Credit Secured by Margin Stack (Federal Reserve Form U-1 Ttusr ease rnfVy w@15USX 15784 #Tbw.'iC'"n.?~, i_tgrc ;r,g x amry.r:cc, .x c':nt-.rma~xnese_: to a.c*ae !C n-.cn~!.ra t._ rr: ar kt. + tilu~.n?y 1t'e i.n"e :o get*aer aw, r^duntain aarx is .f.a. '{rye 4:0drrad FRservr Mr Y rot fiat '~ ct Olt a nra+ . y; ^* Srrts: xrs sc: a e4 ;!ro !L,- B-J TG anT. Gam.'+"iC to the +*Itcxrt+rlG?? pcr'i:.d.R/.t K: rrc~~`=d 'c tr3X.}rr~. t... e Lvfr _s:+et Jr rr,rir?m +J :.Jr'.. w>!rsx a. LGrK:eCr.. S?r7 e: U'".-r -rS ~~yartr~.'~:y 7rvf itvr~yr.. Ci:,ma,x r a arty Cthly 3E : a C 4tii(1te$Y +PW1: U*.t a w!rLt n y:Gs+ Of ,r>a ~a"CKti n qt t Xm~+ m, inch 3 ng c gyei'rna foe red v th S baLker 'c•' Sr-,ctasy, 5-00 tl of C4'.Frnan. Qt the redceaS strve Syi:~nr, 2ttr1 and c 9treala. WN Vin ,+res ;cam. PC TL551, erOl ttl tr ODUre of Xrana~rrnent and ~ Sl •, Ri$rc+~^+u'il r~~wt:l tr rt ?r!srt". '71 -'4X1 ~ 11 f, V, DC 20 503" Instructions 1. This form must be completed when a bank extends credit in excess of S1'00. } secured r rttic oy or indirectiv, in wale or in part, by any margin stock.- 2. The term `margin stock` is defined in Regulation U (12 CM 2.1) and tndudes, principaity; ill steel,; that are registered an a national securities exchange; 121 debt secur1ttt:s (bonds) that are convertible into rnargFn stacks.' Lit any over-thrs counter security desig+lated as qualified for tracing the Natiorat Market System under a designation plan approved by the Securities and Exchange; Commission (NMS security). and 14) shares of most mutual tends. unless 95 per cent of the assets of the fund are continuously invested in U.S. government, agency, state, -or murt*cdpai tabi gations, 3 Please print or type lit space is inadequate. "atte separate sheett. Part. I To be completed by borrower"Is# I . What isthe amount of the credit beid ,extended? 2 Wilt any part of thus credit be used to purchase or tarry margin stock? [] Yes U, No If the answer is -no.` describe the specific purpose of the credit: (Wen have read this form and certify that to the best of my burl knowledge and-betiet the information given true, accurate., and complete, and that the rnacirt-stock and arty other securities coilateratiaing this creri i Rate anv+ sa,rce Total rnart