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0400-0788 [Tab C Exs. 16(b)- 25(f)] (PUBLIC)

0400-0788 [Tab C Exs. 16(b)- 25(f)] (PUBLIC)

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07/13/2014

United Western Bank.

Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
Description of N on-Brokered Consumer Deposit Relationships
Prior to discussing the question of whether or not the Bank's non-brokered
consumer deposits constitute "brokered deposits" under the applicable FDIC regulations,
an introduction to the underlying business of each of our non-brokered consumer deposit
client relationships may be instructive.
Trust Company Omnibus Accounts
In at least two significant instances,12 the Bank has opened a variety of common
transaction accounts (e.g.) money market and demand deposit accounts) for trust
companies engaged in managing IRA and other retirement accounts ( a "Trust Company"
or "Trust Companies," collectively) through which the Trust Companies act as plan
administrators for these IRAs. The main line of business for these Trust Companies is
serving as an IRC qualified custodian for IRAs providing administrative and managerial
services for those accounts as a named custodian for such accounts. They may, from time
to time, serve as custodian, trustee or plan administrators for other qualified retirement
plans under IRC Sections 401 or 403, but we leave those services aside of this discussion
since the vast majority of retirement plan accounts administered by the Trust Companies'
are IRAs.
With regard to IRAs it IS important to note the following for policy
considerations 13:
a. approximately 40% of all United States households owned an IRA in
2009;
12 Here we refer to Equity Trust Company (which includes our former trust company, UW Trust, to the
extent of the 75,000 IRA and other accounts transferred to Equity Trust in June 2009) and Lincoln Trust
Company.
13 Sub-items a-c are taken from Investment Company Institute data published in February 2010 and
sub-item d is based on the 30 years of experience vested in Paul E. Maxwell, Chairman of the Board and
Chief Executive Officer ofUW Trust Company.
- 15 -
400
United Westem Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
b. United States citizens of all ages own IRAs, but ownership is greatest
amongst the older age groups; incidence of IRA ownership is greatest
amongst 55 to 64 year old citizens;
c. total retirement assets in the United States as of September 2009 were
$15.6 trillion with IRAs holding approximately $4.1 trillion in assets; and
d. large, regulated companies (e.g., Charles Schwab, Merrill Lynch,
Millennium Trust Company, UBS, TD Ameritrade and others) all
maintain deposit accounts for their IRA holders at FDIC insured
institutions.
Equity· Trust Company is a regulated trust company chartered by the South
Dakota Division of Banking. Lincoln Trust Company is a regulated trust company
chartered by the Colorado Department of Banking. Each of these companies is a qualified
custodian for IRAs under the IRC.
Each Trust Company offers its IRA holders the opportunity to invest in traditional
and alternative investments. Traditional investments include stocks, bonds, mutual funds
and other common variety investments. Alternative investments include indirect
investments in private placements, limited partnerships and limited liability companies
and direct investments in real estate, oil and gas interests and others. The decision as to
selection with regard to these investments is left to the holder of the self directed IRA,
but the Trust Companies provide significant. plan administrative services to the IRA
holder.
The administrative services provided by the Trust Companies include, among
others, the folloWing:
- 16-
401
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
a. conducting rigorous account opening reviews in accordance with internal
polices;
b. taking custody of all of the assets contributed to the IRA;
c. holding title to the assets of each IRA for the benefit of the individual IRA
holder;
d. executing investment documents and taking possession of investment
securities as agent for and for the benefit of the IRA holder at the
directions of the IRA holder;
e. for real property and alternative investments; managing lease payments on
behalf of the IRA holder;
f. for real property and alternative investments, accounting for cash
investments and distributions on behalf of the IRA holder;
g. for real property and alternative investments, accounting for and paying
real estate, franchise, excise and other taxes to appropriate agencies on
behalf of the IRA holder.
h. monitoring investments to assure thatthe IRA holder is not violating any
self-dealing or other restrictions of the IRe as it applies to IRA assets;
1. investing and reinvesting cash deposits on behalf of the IRA; \
J. securing annual valuation reports for all assets held by the IRA and being
prepared to report such values;
- 17 -
402
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
k. administering and accounting for contributions and distributions to the
IRA holder; and
1. preparing mandated tax reporting documents.
Each of the Trust Companies observes a rigorous BSAI AML procedure to assure
that they can properly discharge their duties under the applicable statutes. Copies of the
BSAI AML policy previously employed by UW Trust Company are attached as Exhibit B
to this paper (we cannot provide the confidential BSAlAML policies of our Trust
Companies clients).
One of the services offered to IRA holders by the Trust Companies is the
opportunity to direct idle cash balances in money market mutual funds and/or cash
deposit accounts with the Bank in the form of omnibus accounts entitled to pass through
FDIC insurance by virtue of applicable regulations. The direction of idle cash balances to
a Bank omnibus account or otherwise is within the purview of the IRA holder. This idle
cash is awaiting either investment or distribution and balances may be affected from
account to account depending on the IRA holder's expectation with regard to future
market performance or future economic conditions or for other reasons. Many accounts
have no cash. Some accounts hold more cash than others. Here, once again, it is the
account holder who directs where to place the idle cash in the IRA.
Equity Trust Company has a total of over 100,000 IRA holders as well as
accounts for the benefit of other qualified retirement plans. Lincoln Trust Company has a
total of over 65,000 IRA holders as well as accounts for the benefit of other qualified
. I 14
retIrement pans .
l4 This information is believed to be reliable and based on detailed information known or reported to
the Bank. While we have absolute confirmation of the data with regard to UW Trust Company, that data
ends as of June 2009, the date we sold the custodial rights to the majority of the UW Trust Company
accounts to Equity Trust Company.
- 18 -
403
United Westem Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
None of the qustomers of the Trust Companies come to' the Trust Companies for
the sole purpose of investing. available cash amounts. These are IRA funds that are
invested for retirement income at a date in the future. Moreover, the rates paid on idle
cash balances by the Bank
15
in respect to the. omnibus accounts is de minimus in all cases
as against other cash investment alternatives (e.g., United States Treasury obligations,
GSE obligations or money market mutual funds). In fact, we believe that the underlying
IRA holders are indifferent to the rate of interest paid on these accounts because the
funds are in suspense awaiting later investment or distribution. As shown in the below
chart for Equity Trust customers, the rates paid to the underlying account holders on idle
cash balances is extremely low. Given the rates paid versus the national six month
Covered Assets or Exchanged Assets rate, the IRA holders can hardly be accused of
chasing the highest rate by allowing idle funds to be placed on deposit at the Bank.
From the above, it is clearly to be seen that the Trust Companies are: (i) acting as
plan 'administrator with respect to an employee benefit plan; and (ii) involved in the
business of administering IRAs. They may incidentally create deposit accounts at the
direction of their IRA holders in the course of their plan administration service
businesses, but they are not in the business of placing deposits with United Western Bank
or any other bank. Their primary business purpose is the administration of IRAs and not
the placement of funds with depository inStitutions.
IS We believe that the rate the Bank pays on the Equity Trust IRA holders' idle funds is competitive
with other banks in similar situations.
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404
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o
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United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
The schematic below represents the key relationships by and between Equity Trust's IRA holders, Equity Trust and the
Bank:
'.JlIII ~ . RN
~ B A N K
Schematic Description of Equity Trust COmpany
[11115 schematic may also be applied to Uncoln
Trust Company as Uncoln Trust Company Is
substantially similar to Equity Trust Company.]
Prepared by: United Western Bank
Prepared: March 5, 2010
-20 -
~
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United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
The following chart demonstrates the growth in Equity Trust IRA holders deposits on deposit with the Bank and the interest
rate paid on such deposits to those IRA holders (the spike in deposits in the second half of 2009 is attributable to the acq:uisition of
the UW Trust custodial accOlmt agreements):
_ Deposit balances
Equity Trust Deposit Balance and Customer Rate History __ UWB Customer Deposit Rate
$1,000,000 4.00%
$900,000
3.50%
$SOO,OOO
3.00%
$700,000
2.50%
$SOD, 000
I
i
I
$500,000
2.00% I
I $400,000
f
1.50%
~ , ~ V \
I
1.00%
$200,000
0.50%
$100,000
$- 111',111,111,111,111,111,11.,111,'11,'11,111,1'1,111,11',111,'1',111,111,1",' ",,1 ','1',' II," ','1 '," ',"'," '," ',.' ','i 0.00%
///////////////////////////////
- 21 -
.j::::.
o
-.....I
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
The following detail supplements the foregoing chart of information pertaining to the Equity Trust IRA holders' deposit
accounts with the Bank:
Comparison of Equity Trust
Customer Deposit Rate to National6M CD Rate
6.000%
5.000% I =----............ ...
4.000% I ,,_----j
I " -= "-
3.000% ... '"
2.000% I
1.000% • ___ "

I '" ;;IJ
O 000
01 .... = __
• 70 I i I f i I


I - u ______ ..... __ rate _6m CD
- 22-

0
CO
United Western Bank. Core Deposit MaIiagement
Strategic Planning and Regulatory Issues
March 8, 2010
The following chart shows the relationship of cash balances and assets under custody pertaining to the Equity Trust
operations:
Equity Trust
Cash Balances & Assets Under Custody
(I) $10,000

c

$9,000
:IE
$8,000
20.00%
>-
$7,009 'tJ
o

.s
(I)
$6,000 :::s
15.00% 18
u
..
CD
'tJ
C
:::s
a;
(I)
.I
$5,000
$4,000
$3,000
$2,000
$1,000 . .
u
c
CIS
1
10.00% .c

--
5.00%
I
•• ----•• •• ----•• •• •• ----••
$0 . . I 0.00%


under custody -+-Ave Cash Balances ...... % Cash Balance/AUC
-23 -
United Westem Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010 .
Equity Trust Company/Equity Administrative Services, Inc./Sterling
Administrative Services, LLC
Equity Trust has been a client of the Bank since 2000
16
• Equity Trust is a self
directed IRA custodian that offers custodial and managerial business services to
individual participants' accounts in employee benefit p l a n ~ , individual retirement plans
and qther qualified plan accounts thereby providing its clients with the ability to invest in
real estate" private placements, tax liens and other non-traditional assets within a self-
directed IRA or 401(k) plan. Equity Administrative Services ("EAS") and Sterling
Administrative Services ("SAS") are affiliates of Equity Trust and provide certain
administrative and managerial services to ETC (EAS and SAS collectively referred to
herein as the "Equity Trust Companies"). Each individual retirement account maintains a
certain level of liquidity. This is typically less than 10% of total assets in such account.
"'-
This liquidity is deposited in multiple omnibus accounts held at Bank. The total deposits
and underlying account holders from Equity Trust have steadily increased over the last
five to six years and represent a stable and reliable source of funds for Bank. Below is a
chart detailing the amount of deposits maintained by ETC and the Equity Trust
Companies at Bank since 2004:
At December 31st
2009 2008 2007 2006 2005 2004
Number of Accounts
43,793 46.006 39.071 34.698 28.501
$ bal8nce (I,OOOs)
$ 557.000 $ 493.000 $ 449.000 $ 455.000 $ 427.000 $
Averali!! balance e!r account $ 12.719 $ 10.716 $ 11,492 $ 13.113 $ 14.982 $
Like Equity Trust, UW Trust Company acts as a custodian of self directed IRA
accounts of its clients. The Company purchased UW Trust in 1997. The liquidity created
from'UW Trust's self directed IRA accounts has been swept to Bank since 1998. On
16 Equity Trust Company was originally known to'the Bank as Mid-Ohio Securities when the omnibus
accounts were initially created for the benefit of the IRA holders.
- 24-
409
21.216
336.000
15.837
United Western Bank. Core Deposit Management
Strategic. Planning and Regulatory Issues
March 8, 2010
June 27,2009, Equity Trust and SAS purchased approximately 90% of the total assets of
UW Trust-such assets of UW Trust relating to its self directed IRA business and
employee benefit plan business. At year end 2009, Equity Trust and the Equity Trust
Companies had balances of $934 MM representing more than lOO,OOO individual
accounts. UW Trust financed a portion· of the purchase price and the financing was
secured by a first priority lien on substantially all of the assets of ETC and the Equity
T r u ~ t Companies, including the rights to the custodial accounts.
In conjunction with the sale, Bank, ETC and the Equity Trust Companies entered
into an Amended and Restated Subaccounting Agreement dated June 27, 2009 whereby,
among other things: (i) ETC and the Equity Trust Companies maintain all accounts at
Bank in which ETC acts as custodian for the benefit of its custodial account holders; (ii)
the Equity Trust Companies will act as agent for Bank to provide the custodial account
holders with record keeping and certain other services with respect to the account activity
and (iii) Bank will pay a monthly fee to the Equity Trust Companies based upon the
services the Equity Trust Companies provide, such services including, but not limited to,
provid.ing custodial account holders with quarterly statements reflecting the amount of
assets in the custodial accounts, including the amount of cash held at the Bank, providing
other record keeping services to Bank and providing correspondence and
communications to the IRA holders.
Both the Subaccounting Agreement and the ETC Account Application and
Individual Retirement Custodial Account Agreement (see copy attached hereto as an
Exhibit C) entered into between ETC and its customers provide that ETC will perform
subaccounting and record-keeping, administrative or other services related to the
custodial account holders' accounts and that ETC may be receive fees for such services.
The Subaccounting Agreement provides that Bank shall pay the Equity Trust Companies
a monthly fee for services equal to $40.00 multiplied by the number of custodial accounts
at Bank; however, in no event shall the aggregate monthly fee exceed a percentage yield
with respect to the accounts equal to the rate set forth in the Subaccounting Agreement.
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410
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
As of the date of this report, Bank paid the Equity Trust Companies 2.61% of the
aggregate monthly balance of the custodial accounts at Bank. The custodial account
holders receive a customer deposit rate of .10%.
Bank also serves as the primary and sole depository for all operating and custodial
accounts of ETC and the Equity Trust Companies. The Equity Trust Companies maintain
eight omnibus accounts that hold deposits for others and twelve operating accounts for
corporate purposes.
Bank provides customized services for ETC and the Equity Trust Companies that
have evolved over the 10 year relationship between the two organizations. On an annual
basis, ETC and the Equity Trust Companies have the following activity:
• Checks paidlDebits
• Deposits/Credits
• Stop Payments
• Domestic Wires Incoming
• Domestic Wires Outgoing
• ACH Originations
• Deposited Items
184,212
89,160
1,668
14,268
28,992
55,176
310,896
The Equity Trust Companies utilize Remote Deposit Capture and Remote Print
for cashier's checks. The latter service is invaluable to the Equity Trust Companies given
the nature of its business. As a self directed IRA plan administrator, the Equity Trust
Companies must pay insurance and taxes on a recurring basis for those clients that hold
real estate in their IRAs. Many muniCipalities across the country require certified funds ..
for tax payments and the Equity Trust Companies, utilizing the Bank, provide this service
for them in an efficient and cost effective manner. The Equity Trust Companies print
more than 1,500 cashier's· checks monthly from their offices. The Remote Deposit
Capture service allows the Equity Trust Companies to deposit more than $40 MM
monthly from the convenience of their offices.
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411
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
On a daily basis, Bank provides the Equity Trust Companies with electronic "all
items" files that are formatted to interface directly with the Equity Trust Companies trust
system. This program has been developed over time and is transmitted via a secure FTP
server. The Equity Trust Companies rely heavily on Bank's internet banking solution
(BIB). Eighty-four individual employees of the Equity Trust Companies have access to
BIB and utilize this service throughout the month to perform transactions such as account
inquires, balance transfers, wire requests, ACH originations and general research.
Bank also provides the Equity Trust Companies with access to Bank's suite of
products. Bank's rate sheet for CD's and money markets accounts is available to all of
the Equity Trust Companies underlying custodial account holders. This is a new service
provided to· the Equity Trust Companies, but thus far 125 individuals have opened
Certificates of Deposits directly with Bank. Bank did not pay the Equity Trust Companies
a fee for these Certificates of Deposits.
ETC has maintained it relationship with Bank because of Bank's extensive
experience as a settling bank having state of the art business electronic banking, ACH,
wire, remote deposit capture and remote deposit print features and services. As
demonstrated herein, the deposits emanating from the relationship between the parties
should not be deemed to be brokered deposits-ETC's primary purpose is not the
placement of funds with depository institutions; in fact ETC's primary purpose is to
provide administrative and managerial services for individual retirement accounts.
The Matrix Settlement & Clearance Services, Inc. Omnibus Account
We have briefly summarized Matrix Settlement & Clearance Services, LLC.
("MSCS") above, but to refresh, MSCS is engaged in providing mutual fund settlement
and clearing services to 146 third party administrators (e.g., Fifth Third Bank) ("TPA")
representing approximately 41,000 tax exempt retirement plans with over
$26,000,000,000 in retirement funds that are invested in a wide array of assets including
mutual funds. MG Colorado Holdings, Inc. through is subsidiaries, MSCS and MG
- 27-
412
United Westem Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
Colorado Trust MG Colorado Holdings, Inc., (MSCS and MG Colorado Trust
collectively referred to herein as "MSCS") comprise one of the nation's largest providers
of back-office, trust, custody, trading and mutual fund settlement services for financial
institutions, including banks, trust companies, registered investment advisors aild record-
keepers/third-party administrators (TP As).
The Bank has had a deposit relationship with MSCS since 1999 and MSCS is and
has been headquartered in the Bank's headquarters building since 2002. It is important to
note that the Bank's relationship with MSCS developed from the point that the Company
owned a 45% interest in MSCS. MSCS was once identified and treated as Regulation W
affiliate of Bank.
Due to the sQphisticated data processing interface developed by MSCS, in large
part connected to the Bank, those 146 TP As are able to contribute and withdraw funds in
the thousands of mutual fund families investing in United States stocks and bonds on a
highly efficient basis. MSCS's primary business is the management of mutual fund
execution and clearing services and providing other trust services to the TP As on behalf
of their clients.
Every trading day, after settlement with the NSCC
17
, some cash is incidentally
idled over night as it transits the MSCS network. Those and other trust deposits managed
by MSCS are placed in an omnibus deposit account for the benefit of the underlying
retirement account and trust account beneficiaries as an accommodation to those
beneficiaries.
17 National Securities Clearing Corporation, a division of the Depository Trust Company, Inc,
established in 1976, provides clearing, settlement, risk management; central counterparty services and a
guarantee of completion for certain transactions for virtually all broker-to-broker trades involving equities,
corporate and municipal debt, American depositary receipts, exchange-traded funds, and unit investment
trusts.
- 28-
413
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United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
The schematic below represents the key relationships by and between MSCS' s clients, MSCS and the Bank:


-29 -
Schematic Description of Matrix Settlement
&. Clearance Services, l.lC
Prepared by: United Western Bank
Preparation date: Man:h 5, 2010
~
~
U1
United Western Bank:. Core Deposit Management
Strategic Planning and RegulatOly Issues
March 8, 2010
The following chart demonstrates the growth in MSCS clients' deposits on deposit with the Bank and the interest rate paid on such
deposits to such clients.
MSCS Deposit Balance and Customer Rate History
1
_ Deposit balances l
__ UWB Customer Deposit Ratel
$300,000 100.00'lI0
90.00%
$250,000
80.00'lI0
70.00%
$200,000
60.00%
II
! $150,000
I
50.00% I
f
11
J
40.00%
$100,000
30.00%
20.00%
$50,000
10.00%
$- I1I1II1I1II1111111111 U IU 11111111111111111111111111111,11 1,11111111111',11111 .' •••. 1 ,',"'111111,1' 0.00'lI0
///////////////////////////////
- 30-
United Westem Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
Bank and MSCS entered into a Third Amended and Restated Administrative
Services Agreement dated July 5, 2007 (the "MSCS" Agreement") whereby customers of
financial institutions such as third-party record keepers, banks and registered investment
advisors transfer funds consisting of qualified employee' benefit plan funds held in a
fiduciary capacity by a custodian or third party administrator to Bank for the purpose of
settlement of trades conducted by MSCS. The MSCS Agreement provides that these
,
customers require services of both MSCS and the Bank with respect to the transfer of
funds for settlement purposes-such services including the automated transmission of
data, the creation of data interfaces, the automation of funds movement from customer's
financial institution to the Bank, and the ongoing maintenance and support required for
such services to facilitate the transfer of funds (the "Administrative Services"). The Bank
could provide the Administrative Services to the customers, however, the Bank
determined to have MSCS provide these Administrative Services for which the Bank
pays MSCS a fee for providing such services. In consideration of the Administrative
Services that MSCS provides to Bank, Bank pays MSCS a monthly servicing fee
consisting of an amount equal to the product of the average' daily balance of MSCS
deposits at the Bank (subject to the exclusion of some accounts identified in Exhibit A of
the MSCS Agreement) and the Cap Rate as provided on Schedule A-I of the MSCS
Agreement. Bank does not pay any rate on the balances at Bank to MSCS' customers.
,Currently, the'Cap Rate in effect is 1.50%. The Cap Rate is based on the Average Daily
Fed Funds Target of interest as described on Schedule A-l.The MSCS Agreement has a
term of three years, terminating on July 5, 2010, however, the MSCS Agreement
automatically renews for two successive one-year terms unless MSCS notifies Bank in
writing at least 90 days before the expiration of the) tenD. of its intent not to solicit bids
from other depository institutions. Bank has the option to match a Bid from another
depository institution. Bank expects to renew the MSCS Agreement since Bank and
MSCS have an excellent working relationship providing customized services to MSCS as
described more fully below. In addition, both parties have invested significant time and
dollars in interfaces with TP As and customers, thereby making a move by MSCS to
- 31 -
416
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
another depository institution unlikely. As shown from the chart below, the MSCS
deposits have grown steadily over the last nine years.
At December 31st
S balance (1,000.)
$ 268.000 $ 203.000 $ 236,000 $ 195.000$ 173.000 $ 118.000 $ 179.000 $ 117.000 $ 54.000
Bank provides many customized services for MSCS. The list of services is
extensive thereby making it very difficult for MSCS to terminate its relationship with
Bank:
• Bank provides MSCS with one computer rack on the 3
rd
floor secured data
center at Bank's location in Denver, Colorado.
• Bank subleases the 2nd floor (11,864 sq ft) of office space located at it Denver
downtown location to MSCS. The lease expires in September 2016.
• MSCS utilizes Bank's parent company's telephony infrastructure. This
. includes: Avaya phone switch, Tl 's, DIDs, Trunks, local telephone service,
and Long Distance service.
• Bank's parent company provides certain mail room services and postage
services for MSCS.
• Bank's parent company provides certain shredding services for MSCS.
• Bank provides support for the current web based Workflow Management
System Process. This includes processes for automated communication of
Stop payments, manual check and wire requests, 1099R corrections and
access to Check Deposit Images.
• Bank and MSCS operations' teams conduct monthly meetings to discuss
operational. issues and other matters with respect to the services provided by
each party.
Bank is the primary bank for MSCS whereby Bank acts as the Settling Bank only
Member in connection with the settlement services described in the MSCS Agreement.
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417
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
All of MSCS' operating accounts and its custodial accounts are held at Bank. On an
annual basis, MSCS has the following activity:

Checks paid/Debits 180,960

Deposits/Credits 5,059

Stop Payments 6,288

Domestic Wires Incoming 22,587

Domestic Wires Outgoing 44,400

ACH Originations 669,655

Deposited Items 236,616

Lockbox processing 194,275
On a daily basis, Bank generates six customized files that are formatted to feed
directly into MSCS's Innovest Trust Accounting System. These formats were originally
created when MSCS was a subsidiary of the Bank's parent company and would be
difficult to recreate for another bank. The files contain all of the previous day's
information including: inbound and outbound ACH transactions, alliockbox processing,
inbound and outbound wire processing and all checks paid. The concept is similar to an
individual client downloading information from a bank directly to Quick Books. The
customized solution gives the individual TP As the ability to view and .research any
activity on their account at Bank.
In addition, MSCS introduced a client, CPI, which has banked with Bank for
more than 10 years. Bank did not pay a fee to MSCS for MSCS introducing CPI to Bank.
CPI is the country's largest retirement plan administration firm. Because of the unique
nature of its business, CPI is required to open individual accounts for each and every plan
for which it conducts business. CPI currently maintains more than 3,400 individual
business checking accounts with Bank. All of these accounts are non-interest bearing
checking accounts and reside on Bank's core operating system. Bank produces
customized files on a daily basis that are integrated and formatted in such a way to allow
CPI to receive a direct feed from a secure FTP server that facilitates daily balancing
functions for CPI.
- 33 -
418
United Western Bank. Core Deposit Management
Strstegic Planning and Regulatory Issues
March 8, 2010
depending on trading activity or the client's perception of the current securities markets
or the future economic conditions of the world markets of for other reasons.
As an accommodation to its clients, Legent Clearing allows its clients to place
idle cash in an omnibus account with the Bank. Legent Clearing clients may also elect to
place their idle cash in a money market mutual fund or to provide credits to Legent
Clearing to allow Legent Clearing to execute margin loans to other Legent Clearing

It is clear from the above that Legent Clearing's principal business is providing
securities settlement and clearing services and that the creation of the omnibus account
for the benefit of its clients is incidental only to its primary business activity. As a
consequence, it is clear that Legent Clearing is not a "deposit broker" for our purposes.
In November 2008, Legent Clearing and Bank entered into a Program Bank Fee
Agreement whereby Bank would establish accounts at Bank for customers of broker-
dealers in which Legent Clearing provides clearing services. The accounts at Bank would
be entitled "Legent Clearing LLC as agent and custodian for the exclusive benefit of
customers of its Introducing Broker-Dealers." Under this arrangement, Deutsche Bank
Trust Company of Americas ("DBTCA") provides certain record-keeping services to
Legent Clearing and Bank. DBTCA's services include providing recording the beneficial
interest held by each Customer in the custodial account maintained· at Bank. Legent
Clearing also provides services with respect to the customer accounts at Bank. For
example, Legent Clearing will carry out each customers directions with respect to a
customer account, provide back up withholding and for sending IRS Form 1099 interest
information to each customer.
The monthly fees payable to DBTCA and Legent Clearing are for services
rendered. The monthly servicing fee that Bank pays Legent Clearing and DBTCA is
- 35-
420
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
Lack of Volatility of Deposits
The deposit balance rates charts provided for herein demonstrate the stability of
the relationships by and between these parties and the Bank. Even a casual glance
will demonstrate· that these relationships have been developed and enlarged over a long
. period of time and are not volatile. We include charts for these four entities as they are
the most significant deposit relationships for the Bank at this time.
While the individual deposit charts provided for herein speak loudly to the
stability of these deposit relationships, further explication of the Bank's relationship to
the indirect consumer deposits involved in these relationships is in order:
UW Trust Company. This company has been the wholly owned
subsidiary of the Company since 1997; during the pendency of the Company's
ownership, the Bank had exclusive access to the IRA holder cash deposits related "
to UW Trust. UW Trust continues to maintain an omnibus deposit account with
the Bank for the benefit of certain escrow clients, but this account holds an
immaterial amount of deposits, relatively speaking, at this time. Given the control
of UW Trust by the Company, there is no threat that these deposits will leave the
Bank for any reason other than the dictates of the some 3,000 underlying escrow
account holders. The escrow· accounts arise as a part of UW Trust's escrow
processing business for the life settlement industry. As a part of this service
business, UW Trust escrows life insurance premiums and pays them in
accordance with the terms of the underlying policies. UW Trust has been in this
business since 1993.
Equity Trust. The Equity Trust relationship began in 2000 and the
deposit balances come from the idle cash awaiting investment or distribution held
by Equity Trust's IRA clients has grown consistently as Equity Trust has
increased the aggregate number of IRA holders for it performs
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United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
administrative services as an IRC custodian. As discussed herein in 2009, UW
Trust sold the majority of its custodial rights to manage IRA holder assets to
Equity Trust increasing the amount of assets under management at Equity Trust.
At the same time, the Bank was able to secure a long term agreement with Equity
Trust to have the former UW Trust client and the Equity Trust client cash deposits
remain at the Bank. The niinimum term is five years from June 2009 and is
subject to extension.
Equity Trust is committed to maintaining its clients' deposit relationship
with the Bank as evidenced by the recent amendments to the subaccounting
agreement between Equity Trust and the Bank. hi the amendment, Equity Trust
agreed that it would be contractually bound to maintain its IRA holders' cash
balances at the Bank unless the Bank fell below the level of adequately
capitalized as defmed in the applicable OTS regulations. Clearly, the underlying
IRA holders may direct the transfer of their cash to alternative positions such as
Treasuries or money market. mutual funds, but the eight year history reflected in
the above chMts does not suggest that this should be of concern as the balances on
deposit in respect of Equity Trust's clients has grown consistently.
Matrix Settlement & Clearance Services, LLC. As noted above, the
Company was one of the founders of this company and has developed a major
level of services to MSCS that MSCS relies on to execute its business. We believe
that replicating the level of services provided to MSCS by the Bank would be
cumbersome and require extensive time to allow a replacement bank to assume
the Bank's current position (see also the services provided to MSCS as discussed
above). We believe that so long as the Bank continues to provide the level and
quality of services that it curreq.tly provides to MSCS, MSCS will continue to
execute its NSCC settlements through the Bank which will bring the idle cash
balances ofMSCS's clients to the Bank.
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United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
In addition, the Bank continues a very favorable relationship with Mr.
McInerney and the MSCS management which suggests that this relationship is
steady and liable to continue for the foreseeable future.
Legent Clearing. This relationship with the Bank commenced in. 2003
and has been a steady relationship for the Bank since that date. As previously
described, Mr. Gibson controlled Legent Clearing when. the deposit relationship
was commenced. In 2005, there was a period when Legent Clearing's client
deposits were removed from the Bank .. This was. due to an industry wide
regulatory objection from FINRA which has since been resolved favorably.
As earlier described, the Bank has entered into a non-binding letter of
intent to acquire Legent Clearing. This is subject to the completion of due
diligence and regulatory approval. In the interim, it is currently contemplated that
the Bank will assume the processing of a majority of the Legent Clearing client
cash balances on a contractual basis with Legent Clearing; thereby removing
DBTCA and other program banks as a party to the current relationship. This will
provide the Bank with access to over $500,000,000 of Legent Clearing client
balances on a daily basis.
We have not included a separate discussion of Lincoln Trust
Company since it is the same type of relationship presented by Equity
Trust Company.
Managing Deposit Concentrations
The Liquidity Contingency Funding Plan which will be provided at the Dallas
meeting on Thursday, March 11,2010.
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United Westem Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
Conclusions
The deposits attributable to UW Trust, Equity Trust, Lincoln Trust, MSCS .and
Legent Clearing allow the Bank to manage the preponderance of its deposit liabilities in a
safe and sound manner. These deposits are not "brokered deposits" since none of the
named companies are deposit brokers as defined in applicable FDIC regulations.
IS
We conclude these parties are not deposit brokers since they are not engaged in
the business of placing deposits and they are either:
a. persons in the discharge of their substantial duties as IRC custodians for
IRAs acting as plan administrators performing managerial functions
with respect to IRAs; or
h. agents or nominees for the IRA holders whose primary purpose is. not
the placement of funds with depository institutions.
The policy issue relating to brokered deposits, namely that there is reason to be
well concerned regarding customers who focus exclusively on rates and are·rate-sensitive
since they have no loyalty to any bank, is not at hand in our case. As demonstrated above:
a. these deposit relationships are of lengthy vintage;
b, the interest rates paid on these deposits have been very low relative to other
market rates;
c. the pro-active involveinent of the institutions (e.g., Equity Trust and MSCS)
in amending the applicable agreements in favor of the Bank demonstrate the
intent and ability of these institutions to continue their relationship with the
Bank;
18 See also the attached legal opinions of Luse Gorman Pomerenk & Schick, P .C. and BuckleySandler
LLP attached here to as Exhibit D.
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United Western Bank. Core Deposit Management
Strategic P I ~ i n g and Regulatory Issues
March 8, 2010
d. the deposit balance growth curves, coupled with the interest rate paid, provide
convincing evidence that the deposits in question are not being placed by rate
sensitive clients; and
e. none of these deposits are to wholesale investors nor do they. exhibit the
characteristics of wholesale investors.
As a consequence, no policy issue articulated by any of the Bank's regulators is at
hand in this discussion.
Following from the above, we conclude that the Bank should be allowed to
maintain the subject relationships as non-brokered deposit relationships; provided that the
Bank will, within the strictures of its policy and procedures, manage deposit levels from
each stich relationship.
Exhibits
Exhibit A
ExhibitB
Exhibit C
ExhibitD
White Paper on Legent Clearing Transaction
BSAlAML Policy from UW Trust Company
, Equity Trust Company Account Application
Legal Opinions
- 45-
430
TabC
Exhibit 16 C (a)
431
DATE: JANUARY 7, 2010
YJI)
UNITED
WESTERN
BANC:C))ll)
TO: THE BOARD OF DIRECTORS OF UNITED WESTERN BAN CORP, INC. AND
UNITED WESTERN BANK
FROM: GUY A. GIBSON, MICHAEL J. MCCLOSKEY AND MICHAEL A. STALLINGS
CC: OUTSIDE COUNSEL
RE: LEGENT AND THE CLEARING INDUSTRY
INTRODUCTION
Deposits and control of deposits are a critical element to the future of our enterprise.
While community bank deposits will continue to be one of our primary focuses, it is a
longer, perhaps more shallow, growth curve to targeted deposits from this source.
Consequently, we are considering the wisdom of reentering a processing business with a
view to capturing control of retail deposits.
Given the management team's experience in the clearing industry, we have been in
discussions with Ric Duques concerning the potential acquisition of Legent Clearing
LLG ("Legent"). To this end, we have entered into a non-binding letter of intent to
acquire Legent from Legent Group, LLC ("Legent Group") for cash consideration
estimated at $14,367,000, plus approximately 3,000,000 warrants to acquire shares of the
Company's common stock at an exercise price equal to market plus 30% at the time the
deal is announced (but not less than $4.00 per share in any case). The aggregate purchase
price is estimated to be $17,118,000.
Our offer for Legent is based on book value at June 30, 2009 adjusted through
closing, plus the 3,000,000 warrants. The final purchase price will not be determinable
until closing and at such time as the warrant exercise price is finally determined.
This memorandum is intended to provide you with a description of:
(a) the transaction in summary format;
(b) the securities clearing industry;
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LEGENT ACQUISITION AND THE CLEARING INDUSTRY
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Here's the second: The money spent for those transactions must equal the amount
received.
Here's the third: All those shares and all that money have to move, so that buyers end
up with shares and sellers end up with money.
That's where clearing and settlement services come in.
Settlement is the actual exchange of money and securities between the parties of a
trade on the settlement date after agreeing earlier on the trade. Most settlement of
securities trading nowadays is done electronically. Clearing is the actual process of
updating the accounts of the trading parties. Most security trades are settled in three
business days (T+3), while government bonds and options are settled the next business
day (T+ 1). Forex (foreign exchange) transactions where the currencies are from North
American countries have T + 1 settlement date, while trades involving currencies outside
of North America T+2 settlement date. In futures, settlement refers to the mark-to-market
of accounts using the final closing price for the day. A futures settlement may result in' a
margin call if there are insufficient funds to coverthe new closing price.
Modem day settlement and clearing evolved as a solution to the paper crisis of
securities trading as more and more· stock and bond certificates were being traded in the
1960's and 1970's, and payment was still made with paper checks. Brokers and dealers
either had to use messengers or the mail to send certificates and checks to settle the
trades, which posed a huge risk and incurred high transaction costs.
The first solution to this problem was to hold the certificates at a central depository-
sometimes referred to as certificate immobilization-and record change of ownership
with a book-entry accounting system that was eventually done electronically. The New
Y orkStock Exchange was the· first to use this method through its Central Certificate
Service, which eventually become the Depository Trust Company, then became a
subsidiary of the Depository Trust and Clearing Corporation (DTCC). In Europe,
Euroclear and Clearstream are the major central depositories. The process of eliminating
paper certificates entirely is sometimes referred to as dematerialization.
A further improvement was multilateral netting, which further reduced the number of
transactions. Brokers have accounts at central depositories, such as the DTCC, which acts
as a counterparty to every trade. So instead of sending payments and securities for each
transaction, trades and payments were simply aggregated over the course of the day for
each member broker, and then were settled at the end of the. day by transferring the net
difference in and funds from one account at the depository to another.
For example, if a broker bought 100 shares of Microsoft for a customer and sold 50
shares of Microsoft for another customer, then the broker's net pos.ition is the
accumulation of 50 shares of Microsoft, which would be recorded at the end of the
market day. If the broker paid $25 per share to buy the 100 shares of Microsoft stock and
sold the 50 shares for the same price on the same day, then the net difference plus
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LEGENT ACQUISITION AND THE CLEARING INDUSTRY
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PAGE60F26
transaction costs is debited from the broker's account at the end of the market day, and
credited to the account of the central depository. Likewise, only 50 shares of Microsoft
would be transferred to the broker's account, since this is net difference of buying 100
shares and selling 50 shares. .
. In North America most clearing and settlement is handled through the National
Securities Clearing Corporation (NSCC) and the Depository Trust Company (DTC) ,
subsidiaries of the Depository Trust & Clearing Corporation (DTCC). DTCC is owned by
the clearing firms and markets that depend on it to handle the exchange of securities and
money that must occur to complete a trade.
Before the NSCC was created in 1976, the NYSE closed Wednesdays and shortened
trading hours on other days to have time to cle.ar and settle the 10 to 12 million shares
that were changing hands every trading day. In 2009, the daily average was more than X
shares traded, in YY million reported transactions. With modem trading volumes
where they are, the clearing and settlement services industry is an imperative to modem
debt and equity markets and will not be displaced in the foreseeable future.
LEGE NT AND THE SECURITIES CLEARING INDUSTRY
Legent provides securities transaction execution, clearing and settlement services, and
operations outsourcing services. Securities clearing and settlement is the process of
matching, recording, and processing transaction instructions and then exchanging
payment between counterparties. Legent also provides financing for client inventory
through margin lending. Legent's operations outsourcing solutions allow broker-dealers
to outsource to Legent certain administrative functiorts relating to clearing and settlement,
from order entry to trade matching and settlement, while maintaining their ability to
finance and capitalize their business. Legent also provides operations outsourcing
services relating to a variety of clearing, record-keeping, and custody-related functions.
Securities clearing is the verification of information between two broker""dealers in a
securities transaction and the subsequent settlement of that transaction, either as a book-
entry transfer or through physical delivery of certificates, in exchange for payment.
Record-keeping includes customer account maintenance and customized data processing
services. Custody services are the safe-keeping of another party's assets, such as physical
securities. Clients for· whom Legent provide securities clearing, record-keeping, and
custody-related services are generally referred to as its "correspondents." In the clearing
relationships typically are. "fully-disclosed." This means that the correspondent's
(,mstomer is knownto the clearing firm and the clearing firm is known to the customer.
Its clients engage in either the retail or institutional brokerage business in the U.S. Its
clients generally engage it either to act as a full-service, clearing firm, whereby its
\
securities clearing and processing personnel execute and clear transactions and Legent is
the broker-dealer of record, or as a provider of operations outsourcing solutions, whereby
its clients execute and clear transactions and Legent perform a number of related
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LEGENT ACQUISITION AND THE CLEARING INDUSTRY
JANUARY 7, 2010
PAGE 70F26
administrative back-office functions, such as record-keeping and reconciliations. In this
capacity, Legent is not the broker-dealer of record.
SECURITIES PROCESSING SOLUTIONS
Transactions involving securities and other financial market instruments originate
with an investor, who places an order with a broker who in tum routes that order. to an
appropriate market for execution. At that point, the parties to the transaction coordinate
payment and settlement of the transaction through a clearinghouse. The records of the
parties involved must then be updated to reflect completion of the transaction.
Tax, accounting and record-keeping requirements must be complied with in
connection with the transaction and the customer's account information must correctly
reflect the transaction. The accurate processing of trading activity requires effective
automation and information flow across multiple systems and functions within the
brokerage firm and across the systems of the various parties that participate in the
execution of a transaction.
Legent's securities processing solutions automate the transaction lifecycle of equity,
mutual fund, fixed income, and option securities trading operations, from order capture
and execution through trade confirmation, settlement, and accounting. Its services
facilitate the automation of straight-through-processing operations and enable financial
institutions efficiently and to consolidate their books and records, focus
on their core businesses, and manage risk. With its multi-currency capabilities, Legent
support trading activities on a global basis.
Legent effects securities transactions for its clients on either a cash or margin basis. In
a cash basis transaction, its clients fully pay for the purchase price of the security, and
Legent provides execution and clearing services.
In a margin transaction, Legent credit to a client for a portion of the purchase
price of the security. Such credit is collateralized by securities in the client's accounts in
accordance with regulatory and internal requirements. Legent receives income from
interest charged on such loans. In the normal course of business, Legent borrow securities
from banks and other broker-dealers to facilitate customer short selling activity and to
effect delivery of securities at settlement. Conversely, Legent may lend securities to
broker-dealers and other trading entities that need to cover their short sales and to
complete transactions that require delivery of securities at settlement.
Legent's services to its correspondents also include an extensive mutual fund roster,
comprehensive cash management products, brand name institutional quality research, and
access to fee-based advisory products.
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LEGENT ACQUISITION AND THE CLEARING INDUSTRY
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PAGE 14 OF 26
Execution costs are part of overall trade processing costs incurred through Beta.
These costs are directly passed through to the individual correspondent as part of the
correspondent fee charges.
Other expenses relate to miscellaneous commission expense that Legent may incur in
process trades.
Compensation and benefits include Legent personnel staffing, overtime expense,
payroll taxes, group insurance and 401K matching contributions.
Information/technology charges include a portion of the fixed fee charge under the
BetaHost Master Subscription Agreement. In addition, the information/technology costs
include IT costs for Fetter Logic's advanced data and information management services,
. accrued costs for confirm and statement programming, proxy services charges, market
data services and pricing data services, and other associated IT expenses for website and
network maintenance, telephone and operating computer leases.
Occupancy and depreciation costs are associated with the lease of Legent offices
(Omaha, Chicago and Denver), accrued FF&Echarges, leased equipment and leasehold
improvement.
Selling, Travel and Entertainment is comprised primarily of travel and event
marketing expenses.
Professional fees consist of legal services charges and professional consulting.
Other expenses include, bank charges; accrued general insurance costs, regulatory·
fees, taxes and licenses, research and analytical service charges, dues and memberships
and customer accommodation charges.
TECHNOLOGY
Clearing services are highly dependent on computer databases, computer linked
communication with exchanges and other software and hardware driven elements .of the
clearing platform. Rather than build and maintain proprietary software applications,
Legent has adopted a "best of breed" third party process. In doing so they have attempted
to bring the best applications in the market to their correspondents and focus their efforts
on service rather than building and maintaining software.
The three largest service bureau vendors providing licenses for core
clearing/processing platforms are BETA (BETA, formerly part of Blunt Ellis Lowe and
now a division of Thompson Financial), Brokerage Process Systems (BPS) and Securities
Information Systems (SIS) (collectively, "Vender Firms"). Both BPS and SIS are owned
by Broadridge. These core clearing platforms are employed by clearing firms to provide
clearing services directly and are licensed to third parties, such as Legent Clearing, on a
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LEGENT ACQUISITION AND THE CLEARING INDUSTRY
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PAGE 16 OF 26
various stock exchanges, and other SROs. Companies that operate in these industries,
such as Legent, are subject to regulations concerning many aspects of their businesses,
including trade practices, capital structure, record retention, money laundering
prevention, and the supervision of the conduct of directors, officers and employees. A
failure by Legent to comply with any of these laws, rules or regulations could result in
censure, fine, the issuance of cease-and-desist orders, or the suspension or revocation of
SEC authorization granted to allow the operation of its Clearing and Outsourcing
Solutions business or disqualification of the directors, officers or employees of such
business.
As a registered broker-dealer, Legent is required to participate in the Securities
Investor Protection Corporation ("SIPC"). In the event of a broker-dealer member's
insolvency, SIPC provides protection of up to $500,000 per customer, with a limitation of
$100,000 on claims for cash balances. Additional protection, or excess SIPC, is provided
through a group of London underwriters, with Lloyd's of London Syndicates as the lead
underwriter. This additional insurance policy becomes available to customers in the event
that SIPC limits are exhausted and provides protection for securities and cash up to an
aggregate of $600 million. This is provided to pay amounts in addition to those returned
in SIPC liquidation. This additional insurance policy is limited to a combined return to
any customer from a trustee, SIPC and the London underwriters of $150 million,
including cash of up to $2 million. It does not protect against losses from the rise and fall
in the market value of investments, and does not cover all assets. Such coverages are
provided in connection with its securities clearing services and are for the benefit of all
customers of its introducing broker-dealer clients.
REGULATORY CAPITAL AND CUSTOMER PROTECTION
REQUIREMENTS
As a registered broker-dealer and member of FlNRA, Legent is subject to the SEC's
net capital rule. The net capital rule, which specifies minimum net capital requirements
for registered broker-dealers, is designed to measure the general financial integrity and
liquidity of a broker-dealer and requires that at least a minimum part of its assets be kept
in relatively liquid form. The net capital rule provides specific criteria to measure
regulatory net capital, which requires the firm to apply deductions and other operational
charges to its net worth to reflect illiquid assets. These deductions also include
adjustments, which are commonly called "haircuts," which reflect the possibility of a
decline in the market value of firm inventory before disposition. The effects of securities
lending and securities borrowing activities on net capital calculations are described in the
"Regulation of Securities Lending and Borrowing" section below.
Failure to maintain the required net capital may subject Legent to suspension or
revocation of registration by the SEC and suspension or expUlsion by FINRA and other
regulatory bodies and, if not cured, could ultimately require the liquidation of Legent.
The net capital rule prohibits payments of dividends, redemption of stock, the
prepayment of subordinated indebtedness, and the making of any unsecured advance or
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LEGENT ACQUISITION AND THE CLEARING INDUSTRY
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PAGE 17 OF 26
loan to a stockholder, employee or affiliate, if such payment would reduce Legent's net
capital below required levels.
The net capital rule also provides that the SEC may restrict any capital withdrawal,
including the withdrawal of equity capital, or unsecured loans or advances to
stockholders, employees or affiliates, if such capital withdrawal, together with all other
net capital withdrawals during a 30-day period, exceeds 30% of excess net capital and the
SEC concludes that the capital withdrawal may be detrimental to the financial integrity of
the broker-dealer. In addition, the net capital rule provides that the total outstanding
principal amount of a broker-dealer's indebtedness under specified subordination
agreements, the proceeds of which are included in its net capital, may not exceed 70% of
the sum of the outstanding principal amount of all subordinated indebtedness included in
net capital, par or stated value of capital stock, paid in capital in excess of par, retained
earnings and other capital accounts for a period in excess of 90 days. A change in the net
capital rule, the imposition of new rules or any unusually large charges against net capital
could limit some of its securities clearing and operations outsourcing ,activities that
require the intensive use of capital and also could restrict the Bank's ability to withdraw
capital from Legent, which in tum could limit the Bank's ability to pay dividends or
engage in other activities. A significant operating loss or any unusually large charge
against net capital could adversely affect Legent's ability to expand or even maintain its
present levels of clearing business.
In addition, as a regulated broker-dealer, Legent is also subject to the SEC's customer
protection rule. The customer protection rule operates to protect both customer funds and
customer securities. To protect customer securities, the customer protection rule requires
that the broker-dealers promptly obtain possession or control of customers' fully paid
securities free of any lien. However, broker-dealers may lend or borrow customers'
securities purchased on margin or customers' fully paid securities, if the broker-dealer
provides collateral exceeding the market value of the securities it borrowed and makes
certain other disclosures to the customer. With respect to customer funds, the customer
protection rule requires broker-dealers to make deposits into an account held only for the
benefit of customers. ("reserve account") based on its computation of the reserve formula.
The reserve formula requires that broker-dealers compare the amount of funds it has
received from customers or through the use of their securities {"credits"} to the amount of
funds the firm has used to finance customer activities {"debits"}. In this manner, the
customer protection rule ensures that the broker-dealer's securities lending and borrowing
activities do not impact the amount of funds available to customers in the event of
liquidation.
REGULATION OF SECURITIES LENDING AND BORROWING
As part of its clearing business, Legent engages in securities lending and borrowing
transactions with other broker-dealers either by lending the securities that Legent hold for
its correspondents and their customers to other broker-dealers or by borrowing securities
from banks or other broker-dealers to facilitate transactions by its correspondents.
Securities lending and borrowing activities are subject to the SEC's net capital rule
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LEGENT ACQUISITION AND THE CLEARING INDUSTRY
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described above. Because engaging in securities lending and borrowing presents
counterparty credit risk to the broker-dealer, the provisions in the net capital rule require
unsecured receivables to be deducted from the broker-dealer's net worth when it
computes its "net capital." In addition, the net capital rule requires a 100% deduction of
the amount by which the market value of securities loaned exceeds cash collateral
received. Securities lending and borrowing activities are also subject to the SEC's
customer protection rule, the objective of which is to ensure that assets of the firm's
customers will be available to be distributed to them in the event of a liquidation of a
registered broker-dealer. SEC Rules 8c-l and 15c2-1 (the "hypothecation rules") under
the Securities Exchange Act of 1934 (the "Exchange Act") set forth requirements relating
to the borrowing or lending of its correspondents' customers' securities. The
hypothecation rules prohibit it from borrowing or lending correspondents' customers
securities in situations where (I) the securities of one customer will be held together with
securities of . another customer, without first obtaining the written consent of each
customer; (2) the securities of a customer will be held together with securities owned by a
person or entity that is not a customer; or (3) the securities of a customer will be subject
to a lien for an amount in excess of the aggregate indebtedness of all customers'
securities.
Regulation T was issued by the Federal Reserve Board pursuant to the Exchange Act
in part to regulate the borrowing and lending of securities by broker-dealers. Although
Regulation T allows broker-dealers to deposit cash in order to secure the borrowing of
securities for the purpose of making deliveries of such securities in the cases of short
sales, failures to receive securities they are required to deliver, or other similar cases and
to lend securities for such purposes against such a deposit, it also includes provisions
regarding the provision of collateral. For example, under the provisions of Regulation T,
broker-dealers are generally required to collect cash. equal to 50% of the value of equity
securities purchased in. a margin account. However, Legent may require the deposit of a
higher percentage of the value of equity securities purchased on margin. Securities
borrowed transactions are extensions of credit to the securities lender in that the lender
generally receives cash collateral that exceeds the market value of the securities that were
lent. With respect to such securities borrowing and lending, Regulation SHO issued under
the Exchange Act generally prohibits, among other things, a broker-dealer from accepting
a short sale order unless either the broker-dealer has borrowed the security, or entered
into a bona-fide arrangement to borrow the security or has "reasonable grounds" to
believe that the security can be borrowed so that it can be delivered on the date delivery
is due and has documented compliance with this requirement.
Failure to maintain the required net capital, accurately compute the reserve formula or
comply with Regulation T or Regulation SHO may subject Legent to suspension or
revocation of registration by the SEC and suspension or expulsion by FINRA and other
regulatory bodies and, if not cured, could ultimately require the liquidation of its Clearing
and Outsourcing Solutions business. A change in the net capital rule, the hypothecation
rules, the customer protection rule, Regulation T,Regulation SHO, or the imposition of
new rules CQuid adversely impact its ability to engage in securities lending and
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LEOENT ACQUISITION AND THE CLEARING INDUSTRY
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borrowing, which in tum could limit its ability to pay dividends, repay debt or repurchase
shares of outstanding stock.
MARGIN RISK MANAGEMENT
Its margin lending activities expose the capital of Legent to significant risks. These
risks include, but are not limited to, absolute and relative price movements, price
volatility, and changes in liquidity of the underlying margin collateral, over which Legent
have virtually no control. Legent attempts to minimize the risks inherent in its margin
lending activities by retaining in its margin lending agreements the' ability to adjust
margin requirements as needed and by exercising a high degree of selectivity when
accepting new correspondents. When determining whether to accept a new
correspondent, Legent evaluates, among other factors, the brokerage firm's experience in
the industry, its financial condition and the background of the principals of the firm. In
addition, Legent has mUltiple layers of protection, including the balances in customers'
accounts, correspondents' commissions on deposit, and ,clearing deposits provided by
correspondent firms, in the event that a correspondent or one of its customers does not
deliver payment for its services. Legent also maintains a bad debt reserve. Its customer
agreements and fully-disclosed agreements require industry arbitration in the
event of a dispute. Arbitration is generally less expensive and more time efficient than
dispute resolution through the court system. Although Legent attempts to minimize the
risk associated with its margin lending activities, there is no assurance that the
assumptions on which it bases its decisions will be cortect or that it is in a position to
predict factors or events which will have an adverse impact on any individual client or
issuer, or the securities markets in general.
STATE REGULATION
Legent is a broker-dealer authorized to conduct business in all 50 states under
applicable state securities regulations.
RISK FACTORS
Changes in Legent 3' Business and the Regulatory Environment
The securities and financial services industries are heavily regulated in many foreign
countries. The varying compliance requirements of these different regulatory jurisdictions
and other factors may limit its ability to expand.
Privacy and Information Security Regulations
The processing of personal information is required to provide Legent's services. Data
privacy laws and regulations in the U.S. and foreign countries apply to the collection,
transfer, use, and storage of personal information. In the U.S. the federal Gramm-Leach-
Bliley Act, which applies to financial institutions, and various state privacy laws, which
apply to businesses that collect personal information, applies directly to Legent. The
Gramm-Leach-Bliley Act and state privacy laws apply indirectly, through contractual
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commitments with its clients and through industry standards, to the entities that perform
its investor communication and securities processing services. The state privacy laws
require notification to affected individuals, state officers, and consumer reporting
agencies in the event of a security breach of computer databases or physical documents
that results in unauthorized access to or disclosure of certain non-public personal
information. These regulations and laws also impose requirements for safeguarding
personal information through internal policies and procedures.
There has been increased public attention regarding the corporate use of personal
information, accompanied by legislation and regulations intended to strengthen data
information security and consumer privacy. The law in these areas is not
consistent or settled. While Legent believes it is compliant with its regulatory
responsibilities, the legal, political, and business environments in these areas are rapidly
changing, and subsequent legislation, regulation, litigation, court rulings, or other events
could expose Legent to increased program costs, liability, and possible damage to its
reputation.
other
Legent's businesses, both directly and indirectly, rely on the Internet and other
electronic communications gateways. Legent intends to expand its use of these gateways.
To date, the use of the Internet has been relatively free from regulatory restraints.
However, governmental agencies within the U.S. and other jurisdictions are beginning to
address regulatory issues that may arise in connection with the use of the Internet.
Accordingly, new regulations or interpretations may be adopted that constrain Legent's
own and its clients' abilities to transact business through the Internet or other electronic
communications gateways.
Legent s existing clearing correspondents may choose to perform their own securities
clearing services as their operations grow.
Legent markets securities clearing services to its existing correspondent clients on the
strength of its ability to process transactions and perform related back-office functions
more effectively than these clients could perform these functions themselves. As its
correspondent clients' operations grow (e.g., TradeKing), they often consider the option
of performing securities clearing functions themselves, in a process referred to in the
securities industry as "self-clearing." As the transaction volume of a broker-dealer grows,
the cost of implementing the necessary infrastructure for self-clearing may be eventually
offset by the elimination of per-transaction processing fees that would otherwise be paid
to a clearing firm. Additionally, performing their own securities clearing services allows
self-clearing broker-dealers to retain their customers' margin balances, free credit
balances and securities for use in margin lending activities. If a significant number of
clearing correspondents or correspondents representing a significant portion of Legent's
business terminate their clearing relationship to become self-clearing, this could result in
a material adverse effect on Legent's business, financial condition, and results of
operations.
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LEGENT ACQUISITION AND THE CLEARlNG INDUSTRY
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Legent's is prepared to address this potential client loss by offering an operations
outsourcing service, which will afford firms the ability to remain or become self-clearing
without the necessity of maintaining an independent clearing infrastructure. However,
some firms may nevertheless choose to change to self-clearing operations and not
outsource their operations to Legent, which could have a material adverse effect on its
business, financial condition, and results of operations.
Legent s securities clearing business may be exposed to risk from its counter parties and
third parties.
In the normal course of business, Legent's securities clearing activities involve
transaction execution, clearing and settlement services, and financing of client inventory
through margin lending. With these activities, Legent may be exposed to risk in the event
its clients, other broker-dealers, banks, clearing organizations, or depositories are unable
to fulfill contractual obligations. Furthermore, the margin loans it provides to investors
subject it to risks inherent in extending credit. Such credit risk includes the risk that the
. market value of the collateral it holds could fall below the amount of an investor's
indebtedness. This risk is especially great when the market value of the collateral
becomes highly volatile. Legent's agreements with margin account investors permit it to
liquidate their securities with or without prior notice in the event that the amount of
margin collateral becomes insufficient.
Despite those agreements and Legent's internal policy with respect to margin, which
may be more restrictive than is required under applicable laws and regulations, Legent
may be unable to liquidate the customers' securities for various reasons, including the
fact that:
• the pledged securities may not be actively traded;
• there may be an undue concentration of securities pledged; or
• the securities pledged have been deemed worthless or have been canceled by
their issuer.
Legent's margin lending is subject to the margin rules of the Federal Reserve Board
and FINRA, whose rules generally permit margin loans of up to 50% of the value of the
securities collateralizing the margin account loan at the time the loan is made, subject to
requirements that the customer deposit additional securities or cash in its accounts so that
the customers' equity in the account is at least 25% of the value of the securities in the
account. In certain circumstances, Legent may provide a higher degree of margin
·leverage to its correspondents with respect to their proprietary trading businesses. As a
result, Legent may increase the risks otherwise associated with margin lending with
respect to these correspondents and customer accounts.
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LEGENT ACQUISITION AND THE CLEARING lNDUSTRY
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Legent s practice of recording securities clearing transactions may expose it to off-
balance sheet risk of loss.
Legent records clients' securities clearing transactions on a settlement date basis,
which is generally three business days after the trade date. Legent is therefore exposed to
off-balance sheet risk of loss on unsettled transactions in the event clients and other
counterparties are unable to fulfill contractual obligations.
Legent:S securities clearing business may be subject to liability under its membership
agreements with exchanges and clearinghouses.
Legent is a member of numerous exchanges and clearinghouses. Under the
membership agreements, members are generally required to guarantee the performance of
other members. Additionally, if a member becomes unable to satisfy its obligations to the
clearing house, other members would be required to meet these shortfalls. To mitigate
these performance risks, the exchanges and clearinghouses often require members to post
collateral. Legent may be subject to liability under these arrangements in case of default
of a member of those exchanges or clearinghouses.
The involvement of its securities clearing business in options markets subjects Legent to
risks inherent in conducting business in those markets.
Legent clears options contracts on behalf of its correspondents and their customers.
Trading in options contracts is generally more highly leveraged than trading in other
types of securities. This additional leverage increases the risk associated with trading in
options contracts, which in turn raises the risk that a correspondent or customer may not
be able to fully repay its creditors, including Legent, if it experiences losses in its options
trading.
Legent:s securities clearing and operations outsourcing services could expose it to legal
liability for errors in performing clearing or operations outsourcing services and, in
connection with IT'S clearing services, for improper activities of its correspondents.
Any intentional failure or negligence in properly performing Legent's securities
clearing or operations outsourcing services, or any mishandling of funds and securities
held by it on behalf of its correspondents and their customers could lead to censures,
fines, or other sanctions by applicable authorities as well as actions in contract or tort
brought by parties who are financially harmed by those failures or mishandlings. Any
litigation that arises as a result of its securities clearing or operations outsourcing services
could harm its reputation and cause it to incur substantial expenses associated with
litigation and damage awards that could exceed its liability insurance by unknown but
significant amounts. In the past, clearing firms in the U.S. have been held liable for
failing to take action upon the receipt of customer complaints, failing to know about the
suspicious activities of correspondents or their customers under circumstances where they
should have known, and even aiding and abetting, or causing, the improper activities of
their correspondents. Legent cannot be assured that its procedures regarding its
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LEGENT ACQUISITION AND THE CLEARING INDUSTRY
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PAGE 23 OF 26
correspondents will be deemed adequate under' current laws and regulations or that
securities industry regulators will not enact more restrictive laws or regulations or change
their interpretations of current laws and regulations. If Legent fails to implement proper
procedures or fail to adapt its existing procedures to new or more restrictive regulations,
Legent may be subject to liability that could result in substantial costs to it and distract its
management from its business.
All aspects of Legent:S clearing business are subject to extensive regulation which may
subject it to disciplinary or other action by regulatory organizations.
The securities industry in the U.S. is subject to extensive regulation under both
federal and state laws. In addition to these laws, Legent's clearing and outsourcing
services must comply with rules and regulations of the SEC, FINRA, various stock
exchanges, state. securities commissions, and other regulatory bodies charged with
safeguarding the integrity of the securities markets and other financial markets and
protecting the interests of investors participating in these markets. Broker-dealers are
subject to regulations covering all aspects of the securities business, including:
• trade practices among broker-dealers;
• use and safekeeping of investors' funds and securities;
• capital structure;
• margin lending;
• record-keeping; and
• conduct of directors, officers, and employees.
Legent's ability to comply with these regulations depends largely upon the
establishment and maintenance of an effective compliance system as well as its ability to
attract and retain qualified compliance personnel. Legent could be subject to disciplinary
or other actions due to claimed non-compliance with these regulations in the future. If a
claim of non-compliance is made by a regulatory authority, the efforts of its management
could be diverted to responding to such claim and Legent could be subject to a range of
possible consequences, including the payment of fines and the suspension of one or more
portions of its business. Additionally, some of its securities clearing services contracts
include automatic termination provisions which are triggered in the event Legent is
suspended from any of the national exchanges of which Legent is a member for failure to
comply with the rules or regulations thereof.
In addition, because its clearing business is heavily regulated, regulatory approval
may be required before expansion of its business activities. Legent may not be able to
obtain the necessary regulatory approvals for any desired expansion. Even if approvals '
are obtained, they may impose restrictions on its business and could require it to incur
significant compliance costs or adversely affect the development of business activities in
affected markets.
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LEGENT ACQUISITION AND THE CLEARING INDUSTRY
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Legents clearing business is subject to complex regulations, the violation of which could
expose it to interruptions in its business and monetary liability from regulators, clients,
competitors and others.
Compliance with applicable laws and regulations is time consuming and costly.
Changes in laws and regulations may materially increase its direct and indirect
compliance costs and other expenses of doing business. The costs of the compliance
requirements Legent face, and the constraints they impose on its operations, could have a
material adverse effect on its business, financial condition, and results of operations.
Legal and regulatory actions are inherent in its businesses. and could result in financial
losses or harm its businesses.
If Legent s securities clearing business does not maintain the capital levels required by
regulations or does not follow the requirements of the customer protection rule, Legent
may be subject to jines, suspension, revocation of registration, or expulsion by regulatory
authorities.
Its securities clearing business is subject to stringent rules imposed by the SEC,
FINRA, and various other regulatory agencies which require broker-dealers to maintain
specific levels of net capital and to protect customer funds and customer securities. Net
capital is the net worth of a broker-dealer, less deductions for certain assets, including
assets not readily convertible into cash, and specified percentages of certain securities
positions. If Legent fail to maintain the required net capital,. or fail to protect customer
funds' or customer securities, Legent may be subject to suspension or revocation of
registration by the SEC and suspension or expulsion by FINRA, which, if not cured,
could ultimately lead to the liquidation of Legent. If the net capital rules are changed or
expanded, or if there is an unusually large charge against the net capital of Legent,
Legent might be required to limit or discontinue its securities clearing and margin lending
operations that require the intensive use of capital. In addition, its ability to withdraw
capital from Legent could be restricted, which in turn could limit its ability to pay
dividends, repay debt, and redeem or purchase shares of its outstanding stock, if
necessary. A large operating loss or charge against the net capital of its securities clearing
business could impede its ability to expand or even maintain its present volume of
business.
Procedures and requirements of the USA PATRIOT Act may expose its securities clearing
business to significant costs or penalties.
As ~ participant in the financial services industry, its securities clearing business is
subject to laws and regulations, including the USA PATRIOT Act of2001,which require
that Legent know certain information about its securities clearing services clients and
monitor transactions for suspicious financial activities. The cost of complying with the
USA PATRIOT Act and related laws and regulations is significant. Legent may face
particular difficulties in identifying its international clients and gathering the required
information about them. Legent face risks that its policies, procedures, technology, and
personnel directed toward complying with the USA PATRIOT Act are insufficient and
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LEGENT ACQUISITION AND THE CLEARING INDUSTRY
JANUARY 7,2010
PAGE 25 OF 26
that Legent could be subject to significant criminal and civil penalties due to
noncompliance. Such penalties could have a material adverse effect on its business,
financial condition, and results of operations. .
CONFLICTS OF INTEREST
Legent Holdings, Inc. was founded by Mr. Gibson in 2002, after he stepped down
from the positions of Chief Executive Officer and President of the Company. Legent
Holdings acquired Legent in June 2002 from Mutual of Omaha' wholly-owned FINRA
member firm. Mr. Gibson controlled Legent from June 2002 until February 2005,
whereupon Legent was sold to Legent Group, LLC, a company controlled by Mr. Henry
C. "Ric" Duques, the former Chairman of the Board of First Data Corporation. At the
time of the sale to Legent Group, G2 Holdings, Inc. (formerly Legent Holdings, Inc.)
retained a ~ 10% interest in Legent Group. As of this date, G2 holds a 7% interest in
Legent Group. G2's original ~ 10% interest in Legent Group has been diluted in later
financing rounds conducted since the February 2005 closing.
G2 Holdings, LLC, a Colorado limited liability company, is owned by the following
individuals:
Name Units % Ownership
Guy A. Gibson 5,908,045 73.69%
Kurt Miller 775,573 9.67%
Tom Mallinson 480,855 6.00%
Richard Barnes 180,631 2.25%
Michael J. McCloskey 170,455 2.13%
William D. Snider 170,455 2.13%
Brett Schaffer 162,638 2.03%
MichaelA. Stallings 113,636 1.42%
lim Horacek 54,755 0.68%
8
1
017P42 1.Q.Q;£Q,%
Messrs. Gibson, Snider, McCloskey and Stallings are directors of and/or officers of
the Company. Messrs. Barnes, Schaffer and Horacek are former employees of the
Company, but are now independent of the Compan/. Mr. Miller is a borrower from
United Western Bank and a member of the Bank's Boulder branch advisory board. Mr.
Mallinson is a former employee of the Company3, but otherwise has no relationship to
the Company at this time.
Mr. Gibson has expressed his intent to sell or otherwise dispose of sufficient
percentage interests in his G2 ownership to cause his indirect ownership of Legent Group
to fall to 4.99%. This will keep Mr. Gibson's indirect ownership interest in Legent below
the 5% threshold of the NASDAQ M a r ~ e t related party ownership rules which would
2 These gentlemen left the employment of the Company over a decade ago.
3 Mr. Mallinson left the Company in 2008.
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LEGENT ACQUISITION AND THE CLEARING INDUSTRY
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otherwise require shareholder approval of this transaction by the Company's
shareholders.
Mr. Gibson is currently a director of Legent Group, but will resign from this position
if this transaction proceeds.
In addition, you should know that United Western Bank has made a loan to Legent
Group in the amount of $5,000,000. Legent Group used the proceeds of this loan to
downstream subordinated indebtedness to Legent. Legent employs this subordinated
indebtedness under theFINRA rules as additional regulatory capital.
Ric Duques purchased 1,000;000 shares in our recent public offering. We do not
believe that he owns any other shares of the Company.
We should also advise you that G2 is a 3.4% common stock holder of Kane Reid
Securities, Inc, Legent's largest correspondent client and Mr. Gibson is a member of the
Kane Reid board of directors. Mr. Duques is also a member of the Kane Reid board.
MJM
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457
TabC
Exhibit 16 C (b)
458
STERLING TRUST COMPANY
BANK SECRECY ACT
AND ANTI-MONEY LAUNDERING POLICY
459
Approved by Resolution of the Board of Directors
June, 2009
TABLE OF CONTENTS
I. STATEMENT OF NEED .ANI) PURPOSE ............................................................. 3
II. POLICY ELEMENTS .............................................................................................. 3
A Authority and Responsibility .................................................................................................... 3
B. Currency Transaction Reporting ................................................................................................ 3
C. Suspicious Activity: Reporting .................................................................................................. 5
D. Funds Transfer Systems .......... , ................................................................................................. 5
E. Tax Identification Numbers ...................................................................................................... 5
F. Extensions of Credit ................................................................................................................... 6
G. Cash Sales of Monetary Instruments ......................................................................................... 6
H. Section 314(a), USA PATRIOT Act ....... , ................ , ................................................................ 6
I. Section 314(b), USA PATRIOT Act .......................................................................................... 7
J. Money Service Businesses ........................................................................................................ 7
K. Training ..•.................................................................................................................................. 7
L. Record Retention Requirements ................................................................................................ 8
M. Audit ....................................................................................................................................•.... 8
III. Conclusion ................................................................................................................. 8
ADDENDUM A: ANTI-MONEY LAUNDERING ......................................................... 8
IV. STATEMENT OF NEED .ANI) PURPOSE ............................................................. 8
V. Policy Elements ........................................................................................................ 9
A. Authority and Responsibility .................................................................................................... 9
B. Training ..................................................................................................................................... 9
ADDENDUM B: CUSTOMER INFORMATION PROGRAM (CIP ........................ 10
VI. STATEMENT OF NEED .ANI) PURPOSE ........................................................... 10
VII. POLICY ELEMENTS ............................................................................................ 10
A. Definitions ............................................................................................................................... 11
B. Authority and Responsibility ......................................................... ~ ........................................ 12
C. Risk Management ................................................................................................................... 16
D. Requirements .......................................................................................................................... 18
I) Identity Verification .......................................................................................................... 18
2) Lack of Verification .......................................................................................................... 18
3) Government List Comparison (OFAC) ............................................................................. 19
4) Customer Notice requirements .......................................................................................... 19
5) Record Keeping Requirements .......................................................................................... 19
6) Important Information about Procedures for Opening a New Account ............................. 19
STC Bank Secrecy Act Policy 5/2008
460
1. STATEMENT OF NEED AND PURPOSE
It is the policy of Sterling Trust Company ("Sterling") to comply with all requirements of the
Bank Secrecy Act (BSA) and all regulations of the Department of the Treasury and the Internal
Revenue Service (IRS) relating thereto. The federal government has required that financial
institutions assist in the criminal, tax or regulatory-related investigation process of monitoring
transactions to detect illegal money laundering often used to disguise illegal activities. Through
monitoring large currency transactions, the government can focus on suspicious individuals who
deposit or transfer large amounts of currency. The Board of Directors (Board) of Sterling
understands the necessity for regulation of large currency transactions and other record keeping
requirements.
Sterling recognizes the need to establish and enforce reporting procedures sufficient to comply
with the BSA, to periodically test for compliance with adopted policies and procedures, to
establish responsibility and authority for the implementation of the policies and procedures, to
provide training and to grant exemptions from currency transaction reporting to those qualified.
Sterling's Compliance Officer will utilize the content of the Federal Financial Institutions
Examination Council's Bank Secrecy Act Anti-Money Laundering Examination Manual, issued
June 2005, as its primary resource. To this end, the Board hereby establishes the BSA Policy.
II. POLICY ELEMENTS
A. Authority and Responsibility
The Board is the ultimate authority accountable for ensuring compliance with the laws and
regulations that govern Sterling. The Board will provide Sterling management with a BSA
policy statement that sets the tone and direction of Sterling's BSA program. The Board shall
annually review and approve the BSA policy.
The Board appoints the Compliance Officer as the person responsible for overseeing and
coordinating Sterling's day-to-day compliance with BSA. In this capacity the Compliance
Officer's responsibilities include verification that: accurate exemption lists are maintained
and reviewed annually, record keeping requirements are followed, suspicious activities are
reported and a training program is implemented, and required reports are accurately filed in a
timely manner with United Western Bancorp's BSA Compliance Officer who will file
necessary reports to the appropriate government agencies,. The Compliance Officer will also
remain abreast of regulatory changes in the BSA requirements and disseminate information
to the appropriate personnel.
B. Currency Transaction Reporting
The employee conducting the transaction is responsible for preparing the Currency
Transaction Report (CTR), FinCEN Form 104, any time a customer deposits, withdraws,
exchanges, or transfers (in one business day) currency in amounts greater than $10,000, or if
Sterling has knowledge that multiple transactions, totaling more than $10,000, have occurred
in the same business day.
Sterling may designate certain persons/entities as exempt from currency reporting; domestic
banks, departments or agencies of the US, any political or state subdivision, any entity
established under the laws of the US and any corporation whose common stock is listed on
the New York Stock Exchange (NYSE) or the American Stock Exchange (AMEX) or
NASDAQ. Non-listed businesses (commercial businesses) and payroll customers may be
exempted if they meet specific criteria; must maintain a transaction account for at least 12
STC Bank Secrecy Act Policy 5/2008
461
months at Sterling, must frequently engage in transactions in currency in ex,cess of $10,000
or must operate a firm that regularly withdraws more than $10,000 in order to pay employees
and must be incorporated or organized under laws of the US or a state or registered and
eligible to do business in the US. Certain businesses are ineligible for exempt status.
Designation of exempt persons/entity is made by filing a Designation of Exempt Person,
Form FinCEN form 110, with the IRS within 30 calendar days following the day of the first
reportable currency transaction. Information supporting the designation of an exempt person
must be reviewed (monitored) and verified at least annually and in the case of non-listed
businesses and payroll customer's designation must be renewed and re-filed every two years.
When exempting a person/entity, Sterling must take steps to ensure that an exemption is
permitted, document the basis of the conclusion, and document the Sterling's compliance
with the BSA rules. Exempting a customer from currency transaction reporting does not
constitute an exemption from suspicious activity reporting. Specific instructions for the
completion of the "Designation of Exempt Person" form and the criteria for exemptions will
be detailed in the "CTR Exemption" procedures. Since Sterling does not accept currency
deposits, it has been determined that this section does not apply.
C. Suspicious Activity Reporting
Sterling has the responsibility to report suspicious monetary activities to the Department of
the Treasury's Financial Crimes Enforcement Network (FinCEN) through United Western
Bancorp's BSA Compliance Officer. Each Sterling employee is required to report suspicious
activity directly to their department supervisor or the Compliance Officer. If warranted, a
Suspicious Activity Report (SAR), Form TDF 90-22.47, will be completed by United
Western Bancorp's BSA Compliance Officer and submitted to FinCEN. A SAR will be filed
for any known or suspected crime involving (single or aggregated transactions) $5,000 or
more in funds if there is a substantial basis for identifying a possible suspect, for any known
or suspected crime involving (single or aggregated transactions) $25,000 or more in funds if
there is no basis for identifying a possible suspect, and for any single or aggregated
transaction of $5,000 or more if the suspicion exists that the funds involved were derived
from illegal activity or violations of the BSA. Specific instructions for the completion of the
SAR are as follows:
Suspicious Activity Reporting Procedures
Should an employee come into contact with possible suspicious activities, the steps to be
taken are as follows:
1. Employee will notify direct supervisor in writing or via email of possible suspicious
activity including name, account number and a general description of the situation.
2. Supervisor is responsible for notifying BSA Compliance Officer and Account
Administration Department.
3. BSA Compliance Officer and Account Administration Department will review the
account and specific situation and determine whether further action is warranted.
4. In the event further action is warranted, BSA Compliance Officer will forward to
United Western Bancorp BSA Compliance Officer for filing of the SAR.
5. If a SAR is filed, then Sterling may choose to resign as custodian on the account in
question. The accountholder will be given the proper written notice of resignation,
and the account will be closed after the specified time provided in the notice.
STC Bank Secrecy Act Policy 5/2008
462
Sterling will follow FFIEC guidance regarding the sharing of SARs with United Western
Bancorp and its affiliates; as outlined in the Interagency Guidance on Sharing Suspicious
Activity Report with Head Offices and Controlling Companies. This guidance allows the
sharing of SARs with UWBI, but prohibits the sharing of SARs with other affiliates. The
regulation does, however, allow the sharing of information underlying a SAR filing in order
to manage risk across an organization.
D. Funds Transfer Systems
With respect to certain wire transfers and transmittal orders, Sterling will obtain and verify
all infonnation required by the BSA and will retain the infonnation in the manner and for the
period required. Funds transfers of less than $3,000, transactions covered by Regulation E or
between accounts of the same person at the same domestic Bank are not subject to the funds
transfer information rules. Funds transfer infonnation must be retrievable quickly and in the
manner indicated in the BSA. Specific instructions for the completion of a funds transfer will
be detailed in written departmental procedures.
E. Tax Identification Numbers
Sterling will obtain Tax Identification Numbers (TINs) prior to opening any account. In the
case where the applicant has applied for a TIN and provides documentation of such, the
account can be opened but the TIN must be provided within 10 business days from the date
the account is opened. TINs are not required for certain accounts; government entities, aliens
who are ambassadors, ministers, military attaches and their families, representatives entitled
to the International Organization Immunities Act of 1945, temporarily residing in the US, not
engaged in a trade or business and attending a college or university, and unincorporated,
subordinate units of a tax-exempt central organization which is covered by a group
exemption letter.
F. Extensions of Credit
For each extension of credit greater than $10,000 that is not secured by real property, at a
minimum Sterling will retain the borrower's name and address, loan amount, loan purpose
and loan date. Sterling does not provide for extensions of credit, therefore this section does
not apply. In the event that a cash account may become overdrawn, this information will be
maintained.
G. Cash Sales of Monetary Instruments
The employee conducting the transaction will be responsible for completion of the Monetary
Instrument Log. When a customer wishes to purchase, with currency, one or more monetary
instruments totaling $3,000 through $10,000, certain records will be kept. Sterling will use
standard check-cashing identification procedures to verify the identity of the purchasing
individuals. If the purchaser cannot provide the required information at the time of the
transaction or by the Sterling's previously verified records, the transaction will be refused.
Alternative forms of identification will be accepted if the person is elderly or disabled and
does not have a driver's liGense. Specific instructions for recording these transactions and
standards for identification will be delineated in the written "Purchase of Monetary
Instruments for Cash over $3000.00" procedures. Since Sterling does not offer cash sales of
monetary instruments, it has been detennined that this section does not apply.
STC Bank Secrecy Act Pol icy 5/2008
463
H. Section 314(a), USA PATRIOT Act, Cooperative Efforts to Deter Money Laundering
Section 314(a) was added to the USA PATRIOT Act to facilitate information sharing
regarding terrorist or money laundering activity with the federal government, and other
financial institutions. Pursuant to sections 314( a), any federal law enforcement agency
investigating terrorist activity or money laundering may request to act on its behalf and
solicit information from financial institutions. Once it has received proper written
certification, it may require a financial institution to search its records to determine whether
the information requested matches that of any accounts.
Sterling has established procedures pursuant to Section 314(a) of the USA PATRIOT Act,
identifying minimum requirements for the cooperation among financial institutions in the
effort to deter money laundering and terrorist activity. Procedures established encompass the
following: ,
• All requests for information per Sect. 314(a) will be referred to United Western
Bancorp's BSA Compliance Department whose members have been registered through
OTS as the Section 314(a) contacts for the institution
• Ensuring protection of the shared infOl'mation, consistent with the capacity, size, and
nature of the institution; and
• Identifying specific procedures to ensure timely collection and submission of any related
accounts to the appropriate Federal Organization.
• Specific instructions for processing 314(a) requests are detailed in the FinCEN
Notification Procedures.
1. Section 314(b), Voluntary Information Sharing Among Financial Institutions
Due to both the lack of participation and requests for information from other financial
institutions; Sterling has decided not to participate in the voluntary sharing of information as
permitted by the Section 314(b) program.
J.Money Services Business
The term "Money Services Business (MSB) includes the following:
• Currency dealers or exchangers who exchange more than $1,000.00 for anyone customer
on any day.
• Check cashers who cash checks totaling more than $1,000.00 for anyone customer on
any day.
• Issuers of traveler's checks, money orders or stored value who issue more than $1,000.00
of anyone or a combination of instruments for anyone customer on any day.
• Sellers of traveler's checks, money orders or stored value who sell more than $1,000.00
of anyone or a combination of instruments for anyone customer on any day.
• Redeemers of traveler's checks, money orders or stored value who redeem more than
$1,000.00 of any one or a combination of instruments for anyone customer on any day.
As required, Sterling will determine if a person applying for a product falls within theMSB
guidelines. If so, the employee processing the application will document that the applicant
has filed Form 107 "Registration of Money Service Business" with the United States
Treasury prior to opening an account. Since Sterling does not offer Money Services Business
activities, it has been determined that this section does not apply.
STC Bank Secrecy Act Policy 5/2008
464
K. Training
It is the responsibility of the Sterling Compliance Officer and department supervisors to
ensure that all employees are adequately trained to perform their duties and responsibilities
with respect to the BSA. To accomplish this, Sterling established an ongoing training
program for personnel in all departments, including new employees, covering the BSA and
money laundering detection procedures with examples tailored to the individuals involved.
At a minimum, training will be conducted annually for all Sterling employees. The Sterling
Compliance Officer will keep all employees informed of changes to the Bank Secrecy Act,
anti-money laundering and other related laws. All new employees will also receive training at
the time of their initial employment. BSA training will be conducted annually for the Board
of Directors.
Training may be delivered in conjunction with or through presentations at a meeting,
circulation of written materials or any other appropriate manner. A copy of the materials
utilized for training will be retained by the Sterling Compliance Officer and accompanied by
a record of attendance.
L. Record Retention Requirements
The Sterling Compliance Officer will maintain a central CTR and SAR file. Sterling will
maintain a record of all accounts and customers exempted from the reporting requirements of
the BSA, in accordance with the BSA Policy. The master exemption list will be maintained
by Sterling's Compliance Officer and will be reviewed and updated annually to reflect any
changes in the status of the exempted customers. Exemption lists and exemption certification
forms must be kept for five years from the last date that a customer's name appeared· on a
list.
All records relating to the purchase of monetary instruments totaling $3,000 through $10,000
will be retained for at least five years. In general, records related to BSA requirements will be
kept for a minimum of five years including loan data, which must be kept for a minimum of
five years from the date of the last payment made on the loan.
M. Audit
Independent testing - Internal Audit, or other qualified independent parties, will test at least
annually, per the audit schedule, Sterling's systems and procedures for compliance with BSA
requirements and will communicate results of the review to the Board and the Audit
Committee.
III. CONCLUSION
The Board understands that successful compliance with the Bank Secrecy Act requires the
cooperative effort of Sterling management and personnel, Operations management and the
Compliance Officer. The BSA Policy, procedures and training will be implemented to ensure
that all regulatory requirements are met.
STC Bank Secrecy Act Policy 5/2008
465
ADDENDUM A: ANTI-MONEY LAUNDERING
IV. STATE:MENT OF NEED AND PURPOSE
As part of Sterling's overall compliance with the Bank Secrecy Act and other related money
laundering regulations and the requirements of the Office of Thrift Supervision (OTS), it is the
policy of the Sterling to identify and report to United Western Bancorp's BSA Compliance
Officer any suspected money laundering conducted through Sterling. Money laundering is
diverse and complex but usually includes one or more of the following three basic areas:
• Placement. The process of placing unlawful cash proceeds into Sterling by deposits, wire
transfers, or other means.
• Layering. Separating the proceeds of illegal activities from their origins through the use of
layers of financial transactions such as converting cash into traveler's checks, money orders,
letters of credit, securities, or valuable assets such as art, jewelry, or precious metals.
• Integration. Using apparently legitimate transactions such as sham loans or forged or false
import/export documents to disguise illicit proceeds to allow laundered funds to be disbursed
back to the laundering party.
V. POLICY ELEMENTS
Sterling has established internal controls for money laundering detection and reporting to cover
such areas as large currency transactions, payable-through accounts, inconsistent account
activity, unusual funds transfers, customer identification program, insufficient or suspicious
information from customers, and unusual -institution to institution or employee transactions.
These controls focus on customers, transactions, and geographic locations, which lend
themselves more readily to potential money laundering situations.
Sterling established an audit program to independently assess the effectiveness of the money
laundering procedures. This program reviews transactions to insure proper suspicious activity
reporting, employee training effectiveness, and the accuracy of present procedures ..
This policy encompasses and enhances the "Customer Identification Program" procedure
implemented through the BSA Policy and is Sterling's most effective weapon against
being used unwittingly to launder money or as a conduit for other illegal activities.
A. Authority and Responsibility
The Sterling Compliance Officer is responsible for daily coordination and monitoring of
compliance within this policy and for the filing of suspicious activity reports with United
Western Bancorp's BSA Compliance Officer. All Sterling employees will be instructed to
report suspected money-laundering situations to their supervisor or the Sterling Compliance
Officer, which is also responsible for reporting such situations and other ongoing compliance
matters in this area to the Board of Directors of Sterling.
B. Training
Sterling established an ongoing training program for personnel in all departments, including
new employees, covering money laundering detection procedures with examples tailored to
the individuals involved. At a minimum, training will be conducted annually for all Sterling
employees. The Sterling Compliance Officer will keep all employees informed of changes to
STC Bank Secrecy Act Policy 5/2008
466
the Bank Secrecy Act, anti-money laundering and other related laws. All new employees will
also receive training at the time of their initial employment.
Training may be delivered in conjunction with or through presentations at a meeting,
circulation of written materials or any other appropriate manner. A copy of the materials
utilized for training will be retained by the Sterling Compliance Officer and accompanied by
a record of attendance.
STC Bank Secrecy Act Policy 5/2008
467
ADDENDUM B: CUSTOMER INFORMATION PROGRAM (CIP)
VI. STATEMENT OF NEED AND PURPOSE
The USA PATRIOT Act was signed into law on October 26,2001. Title III of the Act, captioned
"International Money Laundering Abatement and Anti-terrorist Financing Act of 2001", adds
several new provisions to the Bank Secrecy Act (BSA). These provisions are intended to
facilitate the prevention, detection, and prosecution of international money laundering and the
financing of terrorism. Section 326 of the Act sets forth minimum standards for financial
institutions that relate to the identification and verification of any person who applies to open an
account. Compliance with this law was mandated as of October 1,2003.
It is the policy of Sterling to comply with the USA PATRIOT Act, Customer Identification
Program, by implementing reasonable procedures for the verification of any person seeking to
open an account, maintain records of the information used to verify the person's identity; and
determine whether the person appears on any lists of known or suspected terrorists or terrorist
organizations provided to financial institutions by any government agency.
VII. POLICY ELEMENTS
Sterling's policy is to insure proper adherence to the provisions and intent of Section 326 of the
USA PATRIOT Act (the "Act") regarding the requirement to implement reasonable procedures
to:
1. Verify the identity of any person seeking to open an account, to the extent reasonable and
practicable;
2. Maintain records of the information used to verify the person's identity, including name,
address, and other identifying information; and
3. Determine whether the person appears on any lists of known or suspected terrorists or
terrorist organizations provided to Sterling by OF AC.
These directives require Sterling to implement and maintain identification, documentation,
verification, and record keeping procedures to ensure:
1. Compliance with state and federal regulations;
2. Adherence to safe and sound banking practices;
3. A decrease to the risk that Sterling will become a victim of illegal activities undertaken by a
customer; and
4. Protection of the reputation and strategic position of Sterling with its customers
As such, it is the authority, basis and platform for the development, communication,
implementation, interpretation and enforcement of appropriate and applicable operating policies
and procedures.
A. Definitions
For the purpose of this policy and its procedures, the listed terms have the following
definitions:
Account: A formal ongoing relationship for financial transactions, including, but not limited
to deposit accounts, or other safekeeping services, and custodian services. The term
"account" does not include any product or service where a formal relationship is not
STC Bank Secrecy Act Policy 512008
468
established with a person, including non-customer check-cashing, wire transfer, or sale of a
check or money order. Also excluded from this definition are accounts that an institution
acquires through an acquisition, merger, purchase of assets, or assumption of liabilities.
Bank: A financial institution that is subject to regulation by a Federal functional regulator,
and all credit unions, private banks, and trust companies that do not have a Federal functional
. regulator.
Customer: Any person that:
1. Opens a new account;
2. Opens a new account for another individual who lacks legal capacity, such as a minor; or
3. An individual who opens an account for another person defined below, other than an
individual.
The term "Customer" does not include another bank, or a person that maintains an existing
account with the Bank, provided that the bank has previously identified the person to the
extent required in this policy.
Person: Individuals, corporations, partnerships, trusts, estates, joint stock companies,
associations, syndicates, joint ventures, other unincorporated organizations or groups, certain
Indian Tribes, and all entities cognizable as legal personalities. .
U.S. Person: A United States citizen, or a corporation, partnership, trust, or person (other
than an individual) that is established or organized under the laws of a State or the United
States.
Non-U.S. Person: A person that is not a United States "person".
Politically Exposed Person (PEP):
It is the responsibility Sterling personnel, during the costomer identity verification prQcess, to
determine whether a customer is a Politically Exposed Person (PEP). A PEP is a person
. identified in the course of normal account opening, maintenance or compliance procedures to
be a "senior foreign political figure", any member of a senior foreign political figure's
"immediate family", and any "close associate" of senior foreign political figure. The
Compliance Officer should be notified of PEP account openings, and the Compliance Officer
should assess the degree of risk associated with opening of the account. If necessary, the CIP
Compliance Officer shall forward the information to the United Western Bancorp BSA
Officer in order to determine the need for filing a SAR.
Entity/Non- Individual Entity:
A non-individual such as corporations, partnerships, trusts, estates, joint stock companies,
associations, syndicates, joint ventures, other unincorporated organizations or groups; and
certain Indian Tribes.
B. Authority and Responsibility
The Board of Directors maintains the ultimate responsibility to ensure the proper
management of the Sterling's Customer Identification Program ("CIP"), and any policies and
procedures pertaining thereto. The Board shall approve these policies at least annually.
STC Bank Secrecy Act Policy 512008
469
The Board has charged Senior Management with the responsibility of determining the
necessary course of action to ensure that adherence to appropriate laws and regulations are
managed in an effective and consistent manner for the entire organization. By Resolution of
the Board of Directors, Sterling's Compliance Officer is designated to supervise the overall
management of Sterling's CIP.
The appointed Compliance Officer shall report directly to Sterling's Board regarding the
CIP. It is the responsibility of this individual· to be familiar with the requirements under the
USA PATRIOT Act, Section 326, and remain abreast of any regulatory changes regardi,ng its
requirements.
Sterling's Compliance Officer will maintain CIP related policies, procedures and training·
guidelines, and provide ongoing training sessions for the entire organization.
The Customer Identification Program is documented as follows:
CUSTOMERIDENTIFICA TION PROGRAM
Sterling Trust Company ("Sterling")
This policy has been designed to successfully guide Sterling's personnel through a
Customer Identification Program ("CIP") that will meet or exceed the requirements
of Section 326 of the USA PATRIOT Act and its implementing regulations.
A. Identifying the Customer
As a general rule, a customer relationship with Sterling should never be
established until the identity of the potential customer is satisfactorily
established. If a potential customer refuses to produce any of the requested
information, the relationship should not be established. Likewise, if requested
follow-up information is not forthcoming, any relationship already begun should
be terminated. The only exception to this rule, is that Sterling will not perform
an OF AC check on Customers for whom Sterling only provides record keeping
functions, as is the case with participants of a "administration only" Qualified
Plan.
B. Customer Information Collection
These CIP procedures are intended so that Sterling will be able to form a
reasonable belief that it knows the true identity of the customer. The
verification of identity must be completed prior to the account being activated.
Due to the fact that accounts are not opened online or over the telephone, the
following information is required prior to the account being activated by
Sterling:
1. Name.
2. Address - For individuals, this should include actual residential or
business street address. For an individual who does not have such an
address, the address may include an Army Post Office or Fleet Post Office
..
STC Bank Secrecy Act Policy 5/2008
470
box number, or the residential or business address of next of kin or another
contact person. For a person other than an individual (e.g., a business),
this should include the address of the principal place of business, a local
office, or some other physical location.
3. Date of birth for an individual or date of incorporation for a non-
individual.
4. A government issued identification number - The CIP Regulation
prescribes different requirements for customers who are U.S. persons and
those that are non- U.S. persons. U.S. persons are United States citizens
and businesses, and other entities that are organized under the laws of a
State or of the United States. U.S. persons must provide a U.S. taxpayer
ID number such as a social security number or employer identification
number. Non-U.S. persons can use one or more of the following: a U.S.
taxpayer lD number, a passport number and country of issuance, alien
identification card number, or number and country of issuance of any
other government-issued document evidencing nationality or residence
and bearing a photograph or similar safeguard.
C. Customer Information Verification
1. Sterling will consider all customers as high risk and will verity the
information collected from all customers through a non-documentary
method. Non-documentary verification methods include:
a. Analysis of whether or not there is logical consistency between the
identifying information provided, such as the customer's name, street
address, ZIP code, telephone number, date of birth, and Social Security
number (logical verification).
b. Information will be verified with identification software
supported "real time" by a third party to the lists issued by the Office of
Foreign Assets Control ("OF AC").
2. In the event Sterling is unable to verify a customer's identity using
the non-documentary verification method, then Sterling will use the
documentary verification method to verify the information provided by the
customer. Documentary verification methods include:
a. For individuals, an original or copy of a valid (not
expired) government-issued identification that evidences nationality or
residence and bears a photograph or similar safeguard, such as a driver's
license or passport.
b For corporations and partnerships, documents that
show the existence of the entity, such as certified articles of
incorporation, a government-issued business license, a
partnership agreement, or trust instrument. Generally,
STC Bank Secrecy Act Policy 5/2008
471
individual signatories for these accounts are usually not
subject to the CIP rules.
c. F or Trusts, the named Trustor (if not deceased),
Trustee(s), and other signatories are subject to CIP requirements.
3. Additional.verification for individuals
When an individual is unable to present a valid government
issued identification that bears a photograph or similar safeguard or
Sterling is unfamiliar with or questions the validity of the documents
presented the account will not be activated and the CIP Compliance
Officer will be notified.
4. Additional verification for nonindividuals
When Sterling cannot verify the nonindividual customer's
identity using the documentary and nondocumentary methods described
above, Sterling will obtain additional information about individuals with
authority or control over the account, including signatories.
5. Lack of verification
a. When Sterling cannot form a reasonable belief that it
knows the true identity of a customer, Sterling will not activate the
account and will not form a customer relationship with the applicant.
b. Employees should consult with the CIP Compliance
Officer when identity cannot be verified. Should the CIP Officer not be
able to verify identity, .the CIP Compliance Officer shall forward this
information to the United Western Bancorp BSA Officer in order to
determine the need for filing a SAR.
6. New Account Welcome Letter
a. Sterling will mail the accountholder a new account
letter that includes an executed copy of the Trust Agreement. Should the
letter be. returned due to an invalid address and there not be a forwarding
order on file with the US Postal Service, Sterling will take the appropriate
steps to research the issue. Should Sterling not be able to verify a new
address, the account will be closed and CIP Compliance Officer shall
forward this information to the United Western Bancorp BSA Officer in
order to determine the need for filing a SAR.
D. Recordkeeping
Sterling's elP-compliant records will include:
1. . All identifying information obtained about a customer - retained for
five years after the account is closed.
STC Bank Secrecy Act Policy 5/2008
472
2. A description of any document that was relied on, noting the type of
document, any identification number contained in the document, the place
of issuance and, if any, the date of issuance and expiration date - retained
for five years after the record is made.
3. A description of the methods and the results of any measures
undertaken to verify the identity of the customer using non-documentary
methods or verification of signatories - retained for five years after the
record is made; and
4. A description of the resolution of any substantive discrepancy
discovered when verifying the identifying information obtained - retained
for five years after the record is made.
E. Comparison with Government Lists.
Sterling will follow aU federal directives issued in connection with lists of
known or suspected terrorists or money launderers. It is the responsibility
of each employee to ensure that new accounts and all recipients of
reported distributed funds are compared with the lists. It is also the
responsibility of the Compliance Officer to ensure that existing accounts
are periodically compared with the government lists. The OF AC list is the
list now being disseminated by the federal government.
F. Customer Notice
The Notice below will be provided in all documents
containing new account agreements:
IMPORTANT INFORMATION ABOUT PROCEDURES FOR
OPENING A NEW ACCOUNT.
To help the government fight the funding of terrorism and money
laundering activities, Federal law requires all financial institutions to obtain,
verify and record information that identifies each person who opens an account.
What this means for you:
When you open an account, we will ask for your name, address, date of
birth, and o t h e ~ information that will allow us to identify you.
We may also ask to see your driver's license or other identifying
documents.
We thank you for understanding and for joining us in securing a safer
tomorrow.
G. Designation of a CIP Compliance Officer
An Officer of Sterling will act as the CIP Compliance Officer.
The CIP Compliance Officer is responsible for: Day-to-day
implementation and administration of the institution's CIP program,
including employee training, compliance auditing, periodic reporting to
STC Bank Secrecy Act Policy 5/2008
473
management on results of CIP; and recommending to management any
modifications that may be necessary. The CIP Compliance Officer will
also be responsible for notifying the United Western Bancorp BSA Officer
of the need for filing all SAR's as may be necessary and/or appropriate.
H. Training
Sterling will ensure that its applicable employees are trained on the
proper implementation of this policy and will provide employees with refresher
training, as needed.
I. Update of CIP Program
The Board of Directors of Sterling shall review this CIP Program
at least annually and update it as necessary.
C. Risk Management
Sterling, as part of its overall risk management program, has reviewed each area in which
risks associated with regulatory customer identification requirements exist. This evaluation
specifically covered areas where new account relationships are created, and the subsequent
controls and procedures established by Sterling are in place to minimize such risk. The
account review policy is as follows:
Bank Secrecy Act and Anti-MoneyLaundering (BSAIAML) Account Review Policy
The following represent the additions to the BSA/ AML policy of Sterling. The policy is
for internal quality control purposes only and not diligence or an assessment of risk by Sterling.
1. Sterling will generate Quarterly Activity Reports based on four parameters that
Sterling believes may indicate suspected activities related to money laundering, violations of
BSA, or activities that are otherwise inconsistent with an accountholder's purpose for his or her
account: (1) unusually high annualized returns within the account, regardless of geographic area;
(2) frequent deposits or withdrawals by the accountholder, regardless of geographic area; (3)
unusually large deposits or withdrawals by the accountholder within a specified period of time,
regardless of geographic area; and (4) large deposits or withdrawals by an accountholder within
certain geographic areas. Those parameters are as follows:
A. Annualized Return. Review accounts that hold an asset that experiences an
aggregate return of $25,000 or more during the quarter in question resulting in an annualized rate
of return greater than 35%. The annualized return will not be calculated for assets that score a 1
under Paragraph I(A) of the Parameters for the Administrative Review Policy.
B. Frequent Deposits or Withdrawals. Review accounts with more than 5 deposits
and/or withdrawals by the accountholder in the calendar quarter in question.
C. Size of Deposits or Withdrawals. Review accounts with one-time deposits
and/or withdrawals of $50,000 or more during the calendar quarter in question.
STC Bank Secrecy Act Policy 5/2008
474
D. Large Deposits or Withdrawals in Specified Geographies. Review accounts
within specified geographic locations that have had at least one deposit or withdrawal by the
accountholder of $1 0,000 or more within the calendar quarter in question. The specified
geography for purposeS of this parameter is an account with a primary mailing address that
contains a zip code located within the regional HIFCA (High Intensity Financial Crimes Areas).
II. The Quarterly Activity Report described in Paragraph I above will not include: (l) any
account that scores 1 under Paragraph I (A) of the Parameters for the Administrative Review
Policy; and (2) any account that would be flagged under Paragraph I of this policy solely due to
the closing of the account.
III. The reviewer will review each account identified in the Quarterly Account Report to
determine if there is reasonable suspicion to believe there has been money laundering, violations
of the BSA, or activities that are otherwise inconsistent with the accountholders purpose for his
or her account. The reviewer may perform a blanket review of accounts for which activity
related to a single investment was the sole reason for being listed on the Quarterly Account
Report (investment is liquidating, paying special dividends, etc.). The reviewer will complete a
BSAI AML account activity report attached as Exhibit A. Attached to the report will be any
relevant documentation supporting the conclusions outlined on the report.
Based on the report, if the reviewer determines that any activity appears suspicious, then either
Sterling's BSA Officer or a VP or higher of Sterling may consult compliance and legal personnel
(as necessary) and will determine whether to forward the information to the United Western
Bancorp BSA Officer in order to file the SAR. A report of findings will be submitted to the
Board of Directors quarterly, including the number of accounts reviewed and number of SAR's
filed.
STC Bank Secrecy Act Policy 5/2008
475
EXHIBIT A
Institution= ALCO
Cabinet = Compliance Documentation
BSA/AML ACCOUNT ACTIVITY REPORT
Report
Review
Dated:
Date:
Customer
Reviewed
Name:
By:
Company
Account
Number:
Number:
Details
Account
Description
Exception
or Reason
for Review
Comments/
Cause of
Exception
Conclusion
SAR
Does the activity appear suspicious? [ ] Yes [ ]No
I['Yes', does management believe a SAR should be filed? [ ] Yes [ ]No
If 'No', why?
Date Completed:
STC Bank Secrecy Act Policy 5/2008
476
D. Requirements
1. Identity Verification:
Sterling personnel must at a minimum obtain the following information to validate the
true identity of an individual or entity seeking to open an account, or for anyone added as
a signatory to an account, prior to establishing a new account relationship:
a. Name;
b. F or individuals, date of birth;
c. Address:
1. Individual- residential street address and, if different, mailing address.
ii. Entity - for persons other than individuals, principal place of business and, if
different, mailing address.
d. Identification Number:
i. A U.S. Person -a U.S. taxpayer identification number (e.g., social security
number, individual taxpayer identification number, or employer identification
number);
ii. A Non-U.S. Person - one or more of the following:
• A taxpayer identification number;
• Passport number and country of issuance
• Alien identification card number; or
• Number and country of issuance of any other government-issued document
evidencing nationality or residence and bearing a photograph or similar
safeguard.
e. Documentary and Non-Documentary Identification
i. For specific documentary and non-documentary identification requirements, refer
to. written New Account Procedures and Customer Identification Program
Procedures.
ii. Existing customers seeking to open a new account or who become a signatory on
an existing business account do not have to meet the criteria outlined in this
policy, provided that Sterling has previously verified the customer's identity in
accordance with this policy, and continues to have a reasonable belief that the true
identity of the customer is known.
2. Lack of Verification
Sterling's policy is not to allow accounts to be opened or maintained for an individual or
business in the event Sterling personnel cannot properly validate the true identity of a
customer.
Note: Sterling's BSA Compliance Officer should notify United Western Bancorp's BSA
Compliance Officer to file a Suspicious Activity Report (SAR), using the procedures
listed in the Bank Secrecy Act Policy, on a case-by-case basis in the event of a suspicious
situation where a customer's identity could not be properly identified.
STC Bank Secrecy Act Policy 5/2008
477
3. Government List Comparison (OF AC)
It is the responsibility Sterling personnel, during the customer identity verification
process, to determine whether a customer appears· on any list of known or suspected
terrorists, terrorist organizations or known money launderers provided to Sterling by
OFAC.
Sterling's software vendor updates their database whenever the OFAC list is revised.
Sterling checks its customer databases quarterly for any potential OF AC matches.
If a positive "hit" would occur, whether it is in the form of an applicant's name or that of
an existing customer, the Sterling Compliance Officer should be nbtified immediately.
Upon notification, OFAC will be contacted via United Western Bancorp's BSA
Compliance Officer who will follow all federal directives issued in connection with the
transaction.
4. Customer Notice Requirements
It is the policy of Sterling to provide· customers with adequate notice that Sterling is
requesting information to verify their identity. It is the responsibility of Sterling
personnel to provide notification to customers at the time of account opening, and ensure
that lobby signs are posted in conspicuous areas in which customers establish new
accounts. Posted lobby signs, and direct mailing notices contain the following verbiage:
Individual Entity
5. Record Keeping Requirements
It is the policy of Sterling that all the following documentation be retained related to the
identity verification of customers for a period of five {5} years after account closes:
a. All identifying information provided by a customer after the date the account is
closed or becomes dormant, including the original opening address;
b. A description of any document that was relied upon pursuant to this policy that
clearly evidences the type of document and any identification number it may contain;
c. A description of the methods and results of any measures undertaken to verify the
identity of a customer pursuant to this policy; and
d. A description of the resolution of any substantive discrepancy discovered when
verifying the identifying information obtained.
6. Important Information about Procedures for Opening a New Account.
To help the government fight the funding of terrorism and money laundering activities,
Federal law requires all financial institutions to obtain, verify, and record information that
identifies each person who opens an account. What this means for you:
a) When you open an account, we will ask for your name, address, date of birth, and
other information that will allow us to identify you:
b) We may also ask to see your driver's license or other identifying documents."
STC Bank Secrecy Act Policy 5/2008
478
TabC
Exhibit 16 C (c)
479
THE EQUITY TRUST COMPANY
APPLICATION
FOR TRADITIONAL, ROTH, AND SEP ACCOUNTS
When you want to open a Roth, Traditional, or SEP IRA with
EqultyTrust Company
At!:ountTvoe Summaries
• Traditional IRA- a tax-deferred account. Contributions are made
with pre-talC dollars and contributions can be talC deductible.
Money compounds tax free unt1l funds are wIthdrawn.
Roth IRA - a talC free $avlngs plan. Contributions are made with
after-talC dollars and are not tax deductible. Money compounds
tax free and all funds withdrawn are also tax free. Earned income
must fail within the MAGI (Modified Adjusted Gros$lncome) limits
to qualffyfor account.
• SEP (Simplified Employee Pension)- Designed for self-employed
or small business owners with up to 25 employees. Plan allows for
high annual contributions which are tax deductible and ail money
compounds tax free until funds are withdrawn. The S30S-SI'OP form
must also be completed In order to open this type of account.
FEES:
Account Setup Fee: $50.00 (one-time fee)
Account Maintenance Fees: Fees based on portfolio value of your
account. Fee Schedule 15 located on page 18 of the included IRA
Custodial Account Agreement and Disdosure Statement.
PROCESSING TIMES:
Typically. EquityTrust will open your account In approximately
3 business days unless corrections are required (transfer times
may vary per custodian).
Typical transfers take 14-30 days from the time the paperwork
Is received by the current custodian.
Choosing E)Cpress Tronsfer Service can impact this time line as
It applies to activities within EquityTrust Company's control.
Please contact your current custodian to discuss what options
they offer for expediting the processing of this transfer.
PHYSICAL ADDRESS:
EqUity Trust Company
225 Bums Road
Elyria, OH 44035
WEBSITE:
www.trustetc.com
For assistance, please
contact a Retirement Plan
Specialist at:
TOLL FREE:
8BB-ETC-IRAS (382-4727)
Or e-mail questions to:
E-MAIL:
help@trustetc.com
• Please fill In all sections of the application and fndude a copy
of ID (Social Security card or Birth Certificate for minors).
Contributions
• If making a new contribution. be sure to Include the
contribution check wIth application.
• If making a contribution with a credit card the dollar amount
Is limited to $500.
• If you would like to sign up for Automatic Contributions, be
sure to fill out the Automatic Ongoing Contributions box In
Section 4.
Transfers
• If funding by transfer, please indude transfer paperwork
and a copy of current statement from transferring account.
Rollovers
• TIME SENSITIVE - ensure your rollover Is completed within
60 days of the time you took the distribution In order to avoid
any taxes or penalties.
Need Help? Call 888-ETC-IRAS (382-4727) and a
Retirement Plan Specialist will assist you In opening
your account todayl
OVERNIGHT:
I'OquityTrust Company
225 Bums Road
. Elyria, OH 44035
REGULAR MAIL:
EqUity Trust Company
P.O. Box 1319
Elyria, OH 44036
eVANTAGE:
LOG ONTO eVANTAGE NOW to start your application online
Website Address: https:l/forms.trustetc.com/eYantage
THIS FORM CANNOT BE FAXED!
Equity Trust Company requires the original application
with a signature in order to open the account.
.. _ ...................... _._ ........... _ ............................. , ........•.............. _._--_ .......................................... -......... ~ ...................... _._._ ........... -.................... _ .. _ ... -.. _.-...................... _ ....................... _._-_ ... _ - _ . - - - . , ~ .... -.................................. .
DO NOT FAX OR MAIL THIS COVER PAGE
EQUlTV TRUST COMPANY, CL 1 SO!', Rev.l, 1110510&
480
THE EQUITY TRUST
~ JftNT4GE SYsmd
Fill-Out Your Application Online
Log on to eVANTAGE now to start your application online at
https:lIforms,trustetc,comleVantage
Take eVANTAGE of EquityTrust's Online Account
Management Tool 2417
• Easy account set-up
• Manage your account fast and . hassle-free
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481
Sign Upin
Section 5!
. ....
EQUITY TRUST COMPANY
P.O.BOX1319 • ELYRIA,OHI044036 • PHONE:888-ETC-IRAS(382-4727) • WWW.TRUSTETC.COM • EMAIL:HELP@TRUSTETC.COM
.................... _ ................... _ ...................... -_ ............ _ ...... __ ... - ...... _-_ .... _ ................ - ..................... ...................................................... _ ..... _ ..................................... _ ................................ _ ......................... -_ ........... .
o Traditional
COUNTY ZIP CODE
o Roth
MAILING ADDRESS (If different from above· P.a. Bax may be used)
o SEP (5305 form required)
SOOAL
DATE OF BIRTH (MWDD/V'I'YYl COUNTRY OF OTIZENSHIP
o USA OOther
EMAIL ADDRESS OmportQnt.· to IIOIffy yell of/nfo/mQIIon pertQlning III your /RAJ'
QUARTERLY STATEMENT !When this becomes
receive my quarterly statement electronically
HOME PHONE NUMBER
BUSINESS PHONE NUMBER
D Check box if this Is a benefidary account you have Inherited from another Individual

D Whan my pel's name? 0 my mother's malden name? 0 What high school did I attend? Answer:
The following Indlvidual(s) or entlty(les) shaH be my primary and/or contingent beneliclary(ies). If neither primary nor contingent 15 indicated, the individual or entity win
be deemed to be a primary beneficiary. If more than one primary benelidary is designated and no distribution percentages are Indicated, the beneficiaries will be deemed
to own equal share percentages In the IRA. Multiple contingent behefidaries with no share percentage Indicated will also be deemed to share equally.
If any primary or cOntingent benefidary dies before I do, hIs or her Interest and the Interest of his or her heirs shall termInate completely, and the percentage share
of any remaining beneficiary(ies) shall be Increased on II prorata basis. If no primary beneficlary(les) survives me, the contingent beneficlary(les) shall acquire the
designated share of my IRA.
Name (first. mlddllll, h,."
Date of Birth Sodal Security Relationship Primary or Country(ies) of Share'll>
Address Oncludlngcourrtrydmldencd
fmm/ddlyyyy) Number contingent Otlzenship
,.
D Primary
o Contingent
2.
o Primary
o Contingent
3.
D Primary
D Contingent
this section should be reviewed If either the trust or the residenCE of the IRA holder is located In a community or marital property state and the IRA holder 15 married. Due to the
Important taX consequences of giving up .one's community property Interest, individuals signing thIs section should consult with a mmpetent laX or legal advisor.
CURRENT MARITAL STAroS: 0 lam not married -I understand that Ifl become married in the future, I must complete II new IRA Oeslgnatlon of Beneficiary form.
o lam nI8I'I'ied -I understand that If I choose to designate a primary beneficiary other than my spouse, my SpOLlSe must sign below.
('.ONSENT OF sPOUSE: I am the spouse of the aforementioned IRA holder. I acknowledge that I have recehled a lilir and reasonable disclosure of my spouse's property and financial
obligations. Due ttl the importanttax consequences of gMng up my interest in this IRA. I have been advised ttl see a tax professional.
I hereby give the IRA holder any interest I have In the funds or property deposited In this IRA and consent to the beneficiary designation(s) Indicated above. I assume full responsibility
for any advelSe CDnsequences that rnayresult. No tax or legal advice was given to me by the .
SignatLlre of SpDuse
Date
Signature of Witness Date
( Tracking Code
IlQtlII'YTIlUST COMPANY, a.1SOf. Rev. 2, 11I05I08
482
o I hereby authorize Equity Trust Company, to initiate debit entries to my account at the Rnanciallnstitutlon Indicated below and for the Financlallnstitutlon to debit
the same to such an account through the AutOmated Clearing House (ACH) system. subject to the rules of the Financliliinstitutiort'
BANK. CITY/STATE
NAME ON DEBIT (check one) AMOUNT OF DEBIT
$ OBI-monthly 0 Monthly 0 Quarterly
TYPE OF ACCOUNT (check one) Routing Number (ABA) Account Number
;;;1 1;;;1 r-T"I ;1 I
How would you like to pay your first years maintenance fees?
o Check Endosed D CredltlDeblt card 0 Deduct from Transfer
. I acknowledge that EqultyTrust Company will calculate and charge the first year
annual fee according to the Annual AU Induslve Fee Schedule. See page 18 of the
IRA Custodial Account Agreement and Disdosure Statement for the appropriate
maintenance fee.
NAME OF CARDHOLDER (aS5ttnedon frontofcQrd)
81LUNG ADDRESS [ CITY
CREDIT CARD NUMBER
I I I I II I I I II I I I II I
Annual maintenance / account related fees can be paid by the following options:
o CredltJDeblt Card - Please charge my annual malntel),,"ce/account related
fees to the credit card on file •
D Debit IRA Account- Please deduct my annual maintenance/account related
fees from my IRA Cash Account"
*lffunds are unavailable In the alXDunt then the credit/debit card on file forthe account will
CARD TYPE:
[j VISA o Mastercard
STATE
I ZlPCODE
EXPlRAll0N DATE (mm.»wJ
I I I I I
II I
I I I I
My slgllDture below acknowledges that I hQVf! read and agree wlth Paragraph 8.04 or 9.ll4 of the IRA Custodial Account Agreement and Disclosure Statement
IMPORTANT - Please read before signing.
The signature below acknowledges that I have received, read and understand the Equity Trust Company's IRA Custodial Agreement, OIsdosure Statement and Fee Sched-
ule found in the IRA, Custodial Account Agreement and Disclosure Statement; 2.1 acknowledge that the IRA CustodIal Account Agreement and Disclosure Statement explains the
duties, hmltiltlons on duties, and the rights of Equity Trust Company and depositor; and 3. By signing this application below, the depositor assumes complete responsibiftty
for determining contribution eligibHity and tax consequences of any and all contributions or distributions. Accepts and agrees to aU of the terms and provisions set forth In
the IRA Custodlol Account Agreement and DIsclosure Statement and has read and accepted the terms of the Equity Trust Company Fee Schedule.
SIG" HERE (SignatuR!S must be originaL Copies, faxes or email attochments cannot be accepted).
IRA Holder/Parent/Guardian
Date Authorized Custodian Date
Credit Cardholder signature
Date
What's"axt1 Equity Trust processes applications within 24 hours (Monday - Friday) of receiving the original of this form. Shortly thereafter. the dlent will receive a
welcome call from tllelr Arst dass Service Team and a welcome package will be sent from EqUltyTrust via regular mail Contact Equity Trust with questlonsaboutyour new
account by calling our toll-free nur$er (877) 693-8208.
483
Form 5305-SEP
(Rev. December 2004)
Depaitment of tlie Treasury
Internal Revenue Sell/Ice
Simplified Employee Penslon-lndlvldual
Retirement Accounts Contribution Agreement
(Under section 40800 of the Internal Revenue Code)
OMB No. 1545-0499
Do not file
with the Internal
Revenue Service
makes the following agreement under section 408(1<) of the
(Name of Intemal Revenue Code and the Instructions to this form.
Article (-Eligibility Requirements (check applicable boxes-see instructions)
The employer agrees to provide discretionary contributions In each calendar year to the Individual retirement account or Individual
retirement annuity of all employees who are at least years old (not to exceed 21 years old) and have performed
services for the employer in at least years (not to exceed 3 years) of the Immediately preceding 5 years. This simplified
employee pension (SEP) 0 Includes 0 does not include employees covered under a collective bargaining agreement,
o Includes 0 does not include certain nonresident aliens, and 0 Includes 0 does not Include employees whose total
compensation during the year Is less than $450".
Article II-SEP Requirements (see instructions).
The employer agrees that contributions made on behalf of each eligible employee will be:
A. Based only on the first $205,000* of compensation.
B. The same percentage of compensation for f!NetY employee.
C. Umlted annually to the smaller of $41,000* or 25% of compensation.
D. Paid to the employee's IRA trustee, custodian, or Insurance company (for an annuity contract).
Employer's signature end date
Instructions
SectIon references are to the Inteinal
ReverNIe Code unless otherwise noted.
Purpose of Form
Form 5305-SEP (Model SEP) Is used by an
employer to make an agreement to provide
benefits to all eligible employees under a
simplified employee pension (SEP) deset1bed
In section 408(1<).
Do not file Form 5305-SEP with the IRS.
Instead, keep It with your records.
For more Information on SEPs and IRAB,
see Pub. 560, Retirement Plans for Small
Business (SEP, SIMPLE, and Qualified Plans),
and Pub. 590, Individual Retirement
Arrangements (IRAs).
Instructions to the Employer
Simplified employee pension. A SEP Is a
written arrangement (a plan) that provtdes you
with an easy way to make contributions
toward your employees' retirement Income.
Under a SEP, you can contribute to an
employee's traditional Individual retirement
account or annuity (traditional IRA). You make
contributions directly to an IRA set up by or
for each employee with a bank, Insurance
company, or other qualified financial
institution. When using Form 5305-SEP to
establish a SEP, the IRA must be a Model
traditional IRA established .on an IRS form or
a master or prototype traditional IRA for
which the IRS has Issued a favorable opinion
letter. You may not make SEP contributions
to a Roth IRA or a SIMPLE IRA. Making the
agreement on Form 5305-SEP does not
establish an employer IRA described In
section 408(c).
When not to use Form 5305-SEP. Do not
use this form if you:
1. Ourrently maintain any other qualified
retirement plan. This does not prevent you
from maintaining another SEP.
2. Have any eligible employees for whom
IRAs have not besn established.
3. Use the services of leased employees
(described in section 414(n».
. 4. Are a member of an affiliated service
group (deset1bed In section 414(rn», a
controlled group of corporations (described In
section 414(b», or trades or businesses under
common control (described In sections 414(c)
and 414(0», unless all eligible employees of \
all the members of such groups, trades, a
businesses particlpate In the SEP.
5. Will not pay the cost of the SEP
contributions. Do not use Form 5305-SCP for
a SEP that provides for elective employee
contributions even If the contributions are
made under a salary reduction agreement.
Use Form 5305A-SEP, or a nonmodel SEP.
Note. SEPs permitting elective .deferra/S
cannot be established after 1996.
Eligible employe .. ; All eligible employees
must be allowed to particlpate In the SCP. An
eUglble employee Is any employee who: (1) Is
at least 21 years old, and (2) has performed
for you in at least 3 of the
Immediately preceding. 5 years. You can
establish less restrictive eligibility
requirements, but not more restrictive ones.
Service Is any work performed for you for
any period of time, however short. If you are
a member of an affiliated service group, a
controlled group of corporations, or trades or
businesses under common control, service
Includes any work performed for any period
of time for any other member of such group,
trades, or businesses.
Excludable employees. The following
employees do not have to be covered by the
Name end title
SEP: (1) employees covered by a collective
bargaining agreement whose retirement
benefits were bargained for In good faith by
you and their union, (2) nonresident allen
employees who did not earn U.S. source
Income from you, and (3) employees who
received less than $450" In compensation
during the year.
Contribution limits. You may make an
annual contribution of up to 25% of the
employee's compensation or $41,000",
whichever Is less. Oompensatlon, for this
purpose, does not Include employer
contributions to the SCP or the employee's
compensation in excess of $205,000*, If you
also maintain a salary reduction SEP,
contributions to the two SEPs together may
not exceed the smaller of $41,000* or 25% of
compensation for any employee.
You are not required to make contributions
every year, but when you do, you must
contribute to the SEP-IRAs of all eligible
employees who actually performed services
during the year of the contribution. This
Includes eligible employees who die or quit
working before the contribution Is made.
Contributions cannot discriminate In favor of
highly compensated employees. Also, you may
not Integrate your SEP contributions with, or
offset them by. con\TIbutions made under the
Federal Insurance Oontrlbutions Act (FlCA).
If this SEP Is Intended to meet the
top-heavy .mInimum contribution rules of
section 416, but It does not cover all your
employees who participate In your salary
reduction SEP, then you must make minimum
contributions to IRAs established on behalf of
those employees.
Deducting contributions. You may deduct
contributions to a SEP subJect to the limits of
section 404(h). This SEP Is maintained on a
calendar year basis and contributions to the
" For 2005 and Ia/.er years, this amount is subject Ie annual CC/it-of-//ving adjustmenls. The IRS ennllUllC8/i tha InC1BllSB, if arry, In Ii news rsIease, In the Intemal Revenue
Bulletin, and on the IRS web&/trI at www.irs.gov.
For Paperwork Reduction Act Notice, eee page 2. Cat. No. 11825J Fonn 5305-SEP (Rev. 12-2004)
4
484
Form 5305-SEP (Rev. 12-2004)
SEP are deductible for your tax year with or
within which the calendar year ends.
Contributions made for a particular tax year
must be made by the due date of your
Income tax return Oncludlng extensions) for
that tax year.
Completing the agreement. This agreement
Is considered adopted When:
• (RAs have been established for all your
eligible employees;
• You have completed an blanks on the
agreement form without modification; and
• You have giVen all your eligible employees
the following Information:
1. A copy of Form 5305-8EP.
2. A statement that traditional IRAs other
than the tredltional IRAs Into which employer
SEP contributions wUI be made may provide
different rates of return and different terms
concerning, among other things, transfers and
withdrawals of funds from the IRAs.
3. A statement that, in addition to the
Information provided to an employee at the
time the employee becomes eligible to
participate, the administrator of the SEP must
fumish each participant within 30 days of the
effective date of any an18ndment to the SEP,
a copy of the amendment and a written
explanation of Its effects.
4. A statement that the administrator will
give written notification to each participant of
any employer contributions made .under the
SEP to that participant's IRA by the later of
: January 31 of the year following the year for
which a contribution Is made or 30 days after
the contribution Is made.
Employers who have established a SEP
using Form 5305-SEP and have fumlshed
each eligible employee with a copy of the
completed Form 5305-8EP and provided the
other documents and disclosures described In
InstnJctions 10 the Employer and information
for the Employee, are not required to file the
annual Information returns, Forms 5500 or
5500-EZ for the SEP. However, under Title I of
the Employee Retirement Incoma Security Act
of 1974 (ERISA), this reHat from the annual
reporting requirements may not be available to
an employer who selects, recommends, or
Influences Its employees to choose IRAs Into
which contributions will be made under the
SEP, if those IAAs are subject to provisions
that Impose any limits on a participant's ability
to withdraw funds (other than restrictions
Imposed by the Code that apPly to aU IRAI).
For additional Information on 11tle I
requirements, see the Department of Labor
regulation at 29 CFR 2520.104-48.
Information for the Employee
The Information below explains what a SEP Is,
how contributions are made, and how to treat
your employer's contributions for tax
purposes. For more Information, see Pub. 590.
Simplified employee pension. A SEP Is a
written arrangement (a plan) that allows an
employer to make contributions toward your
retirement. Contributions are' made to a
traditional Individual retirement
account/annuity (traditional IRA).
Contributions must be made to either a
Model traditional IRA executed on an IRS
form or a master or prototype traditional IRA
for which the IRS has Issued a favorable
opinion letter.
An employer Is not required to make SEP
contributions. if a contribution is made,
however, it must b!, allocated to all eligible
employees according to the SEP agreement.
The ModelSEP (Form 5305-8Ep) specifies
that the contribution for each eligible
employee will be the same percentage of
compensation {excluding compensation
. greater than $205,OOOj for all employees.
Your employer wi. provide you with a copy of
the agreement cc,mtainlng participation rules and
a description of how employer contributions
may be made to your IRA. Your employer must
also provide you with a copy of the completed
Form 5305-SEP and a yearly statement showing
any contributions to your IRA.
All amounts contributed to your IRA by your
employer belong to you even after you stop
working for that employer.
Contribution limits. Your employer will
determine the amount to be contributed to
your IRA eaCh year. However, the amount for
any year Is limited to the smaller of $41,000"
or 25% of your compensation for that year.
Compensation does not Include any amount
that Is contributed by your employer to your
IRA under the SEP. Your employer Is not
required to make contributions every year or
to maintain a particular level of contributIons.
Tax treatment of contributions. Employer
contributions to your SEP-IRA ere excluded
from your income unless there are
contributions In excess of the applicable limit.
Employer contributions within these limits will
not be included on your Form W-2.
Employee contributions. You may make
regular IRA contributions to an IRA. However,
the amount you can deduct may be reduced
or eliminated because, as a particIpant In a
SEP, you are covered by an employer
retirement plan.
SEP participation. if your employer does not
requIre you to participate in a SEP as a
condition of employment, and you elect not to
participate, all other employees of your
employer may be prohibited from participating.
if one or more eligible employees do not
participate and the employer tries to establish
a SEP for the remaining employees, it could
cause adverse tax consequences for the
participating employees. .
An employer may not adopt this IRS Model
SEP If the employer maintains another
qualified retirement plan. This does not
prevent your employer from adopting this IRS
Model SEP and also maintaining an IRS
Model Salary Reduction SEP or other SEP.
However. If you work for several employers,
you may be covered by a SEP of one
employer and a different SEP or pension or
profit-sharing plan of another employer.
SEP-IRA amounts-rollover or transfer to
another IRA. You can withdraw or receive
funds from your SEP-IRA if, within 60 days of
. receipt, you place those funds In the same or
another IRA. this Is called a -roRover" and
can be done without penalty only once In any
i-year period. However, there are no
restrictions on the number of times you may
make "transfers" if you arrange to have these
funds transferred between the tnJstees or the
custodians so that you never have
possession of the funds.
WIthdrawals. You may withdraw your
employer's contribution at any time, but any
amount withdrawn Is includible In your
Income unless rolled over. Also, If withdrawals
485
Page 2
occur before you reach age 5 9 ~ , you may be
subject to a tax on early withdrawal.
Exce8a SEP contributions. Contributions
exceeding the yearly limitations may be
withdrawn without penalty by the due date
(plus extensions) for filing your tax retum
{normally Aprll15}. but are Includible In your
gross Income. Excess contributions left in
your SEP-IRA after that time may have
adverse tax consequences. Withdrawals of
those contributions may be taxed as
premature withdrawals.
Flnanclallnetltutlon requirements. The
financial institution where your IRA Is .
maintained must provide you with a disclosure
statement that contains the foRowing
Information In plain, nontechnical language:
1. The law that relates to your IRA.
2. The tax consequences of various options
concerning your IRA.
3. Participation eligibility rules, and rules on
the deductibility of retirement savings.
4. Situations and procedures for revoking
your IRA, Including the name, address, and
telephone number of the person designated
to receive notice of revocation. This
Information must be clearly displayed at th!il
beginning of the disclosure statement.
5. A discussion of the penalties that may
be assessed because of prohibited activities
concerning your IRA.
6. financial disclosure that provides the
follOWing Information:
a. Projects value growth rates of your IRA
under various contribution and retirement
schedules, or describes the method of
determining annual earnings and charges that
may be assessed.
b. Describes whetIier, and for when, the
growth projections are.guaranteed, or a'
statement of the earnings rate and the terms
on Which the projections are based.'
c. states the sales commission for each
year expressed as a percentage of $1,000.
In addition, the flnanciailnstltuUon must
provide you with a financial statement each
year. You may want to keep these statements
to evaluate your IRA's Investment performance.
Paperwork Reduction Act Notice. You are
not required to provide the Information
requested on a form that is subject to the
Paperwork Reduction Act unless the form
displays a valid OMB control number. Books
or records relating to a form or Its Instructions
must be retained as long as their contents
may become material In the administration of
any Intemal Revenue law. Generally, tax
retums and raturn Information are confidential,
as required by section 6103.
The time needed to complete this form will
vary depending on Individual circumstances.
The estimated average time Is:
Recordkeeplng
Learning about the
law or the form
Preparing the form
1 hr., 40 min.
1 hr., 35 min.
1 hr.,41 min.
If you have comments concerning the
accuracy of these time estimates or suggestions
for making this form simpler, we would be
happy to hear from you. You can write to the
Intemal Revenue Service, Tax Products
Coordinating Committee,. SE:W:CAR:MP:T:T:SP,
1111 Constitution Ave. NW, Washington, DC
20224. Do not send this fenn to this address.
Instead, keep It with your records.
Table of Contents
Custodial Agreements
Traditional Individual Retirement Account
Custodial Agreement ........•........... 2
Roth Retirement Account
Custodial Agreement .... , ............... 7
Disclosure Statements
Traditional Disclosure Statement .......•. 11
Roth IRA Disclosure Statement ..........• 15
Fee Schedule .......................... 18
EQUITY TRUST COMPANY
225 Bums Rd. • Elyria, OH 44035 • www.trusteU:.com
Phone: (440) 323-5491 • Fax: (440) 366-3750
486
The Depositor named on the Application 15 establishing a Traditional IndMdual
retirement account under section 408(a) to provide for his or her retirement and for the
support of his or her beneficiaries after death.
The Custodian named on the Application has given the Depos[tor the dlsdosure
statement required ~ Regulations section 1.408-6.
The Depositor has assigned the custodial account the sum Indicated on the
Application.
The Depos[tor ilnd the Custodian make the following agreement
ARTICLE I
Except In the case of a rollover contribution described [n section 402(c). 403(a)(4),
403(b)(8), 408(d)(3), or 457(e)(16). an employer contribution to a simplified employee
pension plan as described [n section 408(k1. or a recharacterlzed contribution described
In section 408A(d)(6). the Custodian will accept only cash contributions upto $3,000 per
year for tax years 2002 through 2004. That contribution IIm[t 15 Increased to $4.000 for
tax years 2005 through 2007 and $5.000 for 2008 .and thereafter. For Indlviduals who
have reached the age of 50 before the dose of the tax year, the contribution limit Is
increased to $3.500 per year for tax years 2002 through 2004. $4,500 for 2005, $5,000 for
2006 and 2007, and $6.D00 for 2008 and thereafter. For tax years after 2008, the above
fimlts will be Increased to reflect a cost-of-lIvtng adjustment, If any.
ARTICLE II
The Depositor's Interest In the balance In the custod[al account 15 nonforfeitable.
ARTICLE III
1. No part of the custodial account funds may be Invested In life Insurance contracts.
nor may the assets of the custodial account be commingled with other property
. except In a common trust fund or common Investment fund (within the meaning
of section 408(a)15)).
2. No part of the custodial account funds may be Invested In coUectibles (within the
meaning of section 408(m)) except as otherwise pennined by section 408(m)(3),
which provides an exception for certain gold, siNer, and platinum coins. coins Issued
under the laws of any state. and certain buDlon.
ARTICLE IV
1. Notwithstanding IIny provision of this Agreement to the contrary. the distribution
of the Depositor's Interest In the custodial account shall be made In accordance
with the following requirements and shall otherwise comply with section 408(a)(6)
and the regulations thereunder, the provisions of which are heretn Incorporated by
reference.
2. The Depositor's entire Interest In the custodial account must be, or begin to be,
distributed not later than the Deposlton required beginning date, April 1 follOWing
the calendar year In which the Depositor reaches age 70 Y.z. By that date. the
Depositor may elect, In a manner acceptable to the Custodian, to have the balance
In the custodial account distributed In: (a) A single sum or (b) Payments over a
period not longer than the life of the Depositor or the joint lives of the Depositor
and his or her designated beneficiary.
3. If the Depositor dies before his or her entire Interest Is dl.s1rlbuted to him or her, the
remaining Interest will be distributed as follows:
(iI) If the Depositor dies on or after the required begInning date and:
(i) the designated beneficiary Is the Depositor's surviving spouse, tl\e
remaining Interest will be distributed over the surviving spouse's life
expectancy as determined each year until such spouse's death, or over the
period In paragraph (al0i0 below If longer. Any Interest remaining after
the spouse's death will be distributed over such spouse's remaining life
expectancy as determined In the year of the spouse's death and reduced
by 1 for each subsequent year, or, If distributions are being made over the
period In paragraph (a)(1I1) below. over such period.
(0) the designated beneficiary Is not the Depositor's survivlng spouse, the
remaining Interest will be dIstributed over the beneficiary's remaining life
expectancy as determined In the year following the death of the Depositor
and reduced by 1 for each subsequent year, or over the period In paragraph
(a)OIO below If longer.
(no there 15 no designated beneficiary. the remainIng Interest will be distributed
over the remainIng life expectancy of the Depositor as determined In the
year of the Depositor's death and reduced by 1 for each subsequent year.
(bl If the Depositor dies before the required beginning date, the remalnlng Interest
will be distributed In accordance with (i) below or, If elected or there Is no
designated beneficiary. In accordance with 01) bdow:
(I) the remaining Interest will be distributed In accordance with paragraphs
(a)(I) and (alGi) above (but not over the period In paragraph (a)OIl), even
If longer), starting by the end of the· calendar year following the year
of the Depositor's death. If, however, the designated benefldary Is the
ETC (Rev. July 2008)
Depositor's surviving spouse. then this distribution Is not required to
begin before the end of the calendar year In· which the Depositor would
have reached age 70
'
/.2. But. In such case, If the Depositor's surviving
spouse dies before distributions are required to begIn, then the remaining
Interest will be distributed In accordanCe with (01101) above (but not over the
period In paragraph (a)(III), even If longer), over such spouse's designated
benefiCiary's life expectancy, or In accordance with (0) below if there is no
such designated beneficiary.
01) the remaining Interest will be distributed by the end of the calendar year
containing the fifth anniversary of the DepDSitan death.
4. If the Depositor dIes before his or her entire Interest has been distributed and If
the designated benefldiIyY Is not the Depositor's surviving spouse, no additional
contributions may be accepted In die account.
S. The minimum amount that must be distributed each year, beginnIng with the
year containing the Depositor's required beginning date, Is known as the "required
minimum distribution" and Is determined as follows:
(a) the required minimum distribution underpa,ragraph 2(b)foranyyear,beglnnlng
with the yearthe Depositor reaches age 70 Y.z, is the Depositor's account value
at the close of business on December 31 of the preceding year divided by
the dlstrlbuticn period in the uniform lifetime table In RegUlations sectian
1A01(a)(9)-9. However, If the Depositor's designated benefldary Is his or her
surviving spouse, the required minimum distribution for a year shall not be
more than the Depositor's account value at the close of business on December
31. of the preceding year divided by the number In the joint and last survivor
table In Regulations section lAO' (a)(9)-9. The required minimum distribution
for it year under this paragraph (a) Is detennlned using the Depositor's (or. if
applicable, the Depositor and spouse's) attained age (or ages) In the year.
(b) the required minimum distribution under paragraphs 3(01) and 3(b)(I) for a
year, beginning with the year following the year of the Depositor's death (ar
the year the Depositor would have neached age 70
1
1.2, If applicable under
paragraph 3(b)(i) [s the account value at the close of business on December 31
of the preceding year divided by the life expectancy On the sIngle life table In
Regulations section 1 Am (a)(9)-9) of the Individual specltled In such paragraphs
3(a) and 3(b)O).
(e) the required minimum distribution for the Year the Depositor reaches age 701/.2
can be made as late as April 1 of the following year. The required minimum
distribution for any other year must be milde by the end of such year.
6. The owner of two or more TradltionailRAs may satisfy the minimum distribution
requirements described above by taking from one Traditional IRA the amount
required to satisfy the requirement for another In accordance with the Regulations
under section 408(a)(6}.
ARTICLE V
. 1. The Depositor agrees to provide the Custodian with all Information necessary to
prepare any reports required by section 4080) and RegUlations sections 1.408-S and
1.40Pr6.
2. The Custodian agrees to submit to the Internal Revenue Service DRS) and Depositor
2
the reports prescribed by the IRS.
ARTICLE VI
Notwithstanding any other articles which may be added or Incorporated, the provisions
of Articles I through III and this sentence will be controlling. Any additional artIdes
Inconsistent with section 408(a) and the related Regulations will be Invalid.
ARTIa.EVII
This Agreement will be ·amended as necessary to comply with the provisions of the
Code and the related Regulations. Other amendments may be made with the consent
~ : : , ~ r s o n s whose signatures appear an the Application. as provided In section 8.10
ARTICLE VIII
8.01 Deflnltfons: In this part of this Agreement (Article VII!), the words "yoii' and
"your" mean the Depositor, the words -we:·us" and "our" mean the Custodian,
"Code" means the Internal Revenue Cede. and "Regulations· means the Treasury
Regulations.
8.02 Notfces and Change of Address: Any required notice regarding this IRA will be
considered effective when we send it to the Intended reclplent at the last
address whIch we have In our records. Any notice to be given to us will be
considered effective when we actually receM! It You, or the Intended recipient,
must notify us of any change of address.
8.03 Representations and RllSpDnslbllltles:
(iI) In General. You represent and warrant to us that any Information you
have given or will give us with respect to this Agreement Is complete lind
487
accurate. Further, you agree that any directions you give us, or action you
take will be proper under this Agreement. and that we are entitled to rely
upon any such information or directions. If we fall to receive directions
from you regarding any transaction, or if we receive ambiguous
regarding any transaction, or we, in good faith. believe that any transactlon
requested is In dispute. we reserve the right to take no action until further
clarification acceptable to us Is received from you or the appropriate
government or judicial authority. We shall not be responsible for losses of
any kind that may result from your directions to us oryour actions or failures
to act, and you agree to reimburse and Indemnify us for any loss we may
Incur as a result of such directions, actions or failures to act We shall not
be responsible for any penalties, taxes, judgments or expenses you
incur in connection with your IRA. We have no duty to determine whether
your or distributions comply with the Code, Regulations,
rulings or this Agreement. We may permit you to appoint through written
notIce acceptable to us, an authorized agent to act on your behalf with
respect to this Agreement attorney..in-fact, executor, administrator.
investment manager), however, we have no duty to determine the validity
of such appointment or any instrument appointing such authorized agent.
We shall not be responsible for losses of any kind that may result from
directions, actions or failures to act by your authorlzad agent. and you
agree to reimburse and Indemnify us for any loss we may incur as a
result of such directions, actions or failures to act by your authorixed
agent Except as otherwise indicated herein, you will have sixty (60) days
after you receNe any documents, statements or other Information from
us to notify us in writing of any errors or inaccuracies reflected in these
documents, statements or other information. If you do not notify us within
60 days, the documents, statements or other information shall be deemed
correct and accurate, and we shall have no further liability or oblfgatfon
for such documents, statements, other information or the transactions
described therein.
By performing services under this Agreement we are acting as your
agent. You adcnowledge and agree thatnothing in this Agreement shllil
be construed as conferring fiduciary status upon us. We shall not be
required to perfonn any additional services unless specifically agreed
to under the terms and conditions of this Agreement, or as required
under the Code arid the Regulations promulgated thereunder with
respect to IRA,. W. may employ agents and organixations, includlng
but not limited to Equity Administrative Services, Inc., for the purpose
of performing administrative or other custodial-related services with
respect to your IRA for which we otherwise hllYe responsibility under
this Agreement. and the limitations on our duties to you und.,. this
Agreement or otherwise shall also apply with respect to each agent or
organization so employed.
You represent to us that any loss sustained in your IRA will not affect
your retirement Income standard; and if a mandatory distribution
arises, youwlll havethe ability through your IRA and/or other retirement
accounts to meet any mandatory distribution requirements.
You agree to release and indemnify, hold hal'lTlless and dtrfend us
from any and all claims, damages, liability, actions, costs, expenses
(including. without limitation, attorneys' fHs) and responsibility for
any loss, resulting to the IRA, to you 01' to any beneficiary or incurred
by or asserted against us, in connection with or by reason of any sille
01 investment made or other action taken (or omitted to be taken)
pursuant to and/or in connection with any investment transaction
directed by you or your investment advisor or resulting from serving
as the custodian hereunder, Indudlng. without limitation, dalms,
damages, liability, actions and losses asserted by you.
You agree to reimburse or advanca to us, on demand, all legal fees,
expenses, costs, fines, penalties and obligations incurred or to be
Incurred In conneetlon with the defenSCI. contest. proncution or
511tlmctlon of any daim made, threatened or asserted pertaining to
any inwstment or aetlon you or your investment advisor directed
through the custodian, Including. without limitation, daims asserted
by you, any state 01' federal regulatory authority or self regulatory
organization.
To the extent written instructions or noth::es are required under this
Agreement we may accept or provide such Information in any other form
permItted by the Code or applicable regulatl ons.
(b) Prohibited Transactions. You understand .that certain transactions are
prohibited in IRAs and qualified retirement plans .under Section 4975 of
the Intemal Revenue Code. You further understand that the determination
of a prohibited transaction depends on the factS and circumstances that
surround the particular transaction. We will make no determination as to
whether any IRA investment is prohibited. You further understand that
should your IRA engage In a prohibited transaction. you will incur a taxable
distribution as well as possible penalties. You represent to us that you have
consulted or will consult with your own tax or legal professional to ensure
that none of your IRA Investments will constitute a prohibited transaction
ETC (Rev. July 2008)
488
Traditional Individual Retirement Custodial Account Agreement
and that your IRA Investments will comply with all applfcable federal and
state iaws, regulations and requirements.
(c) Unrelated Business Income Tax (UBIT). Since your IRA is a tax-exemlJ1:
organization under federal tal! law. If your IRA earns income from an
Investment which utilizes debt-financing or which is derived from a business
regarded as not related to the exempt purpose of your IRA. It may be subject
to the so-called ·unrelated business Income tax" if it Is in excess of permitted
deductions. For example, income from an IRA Investment in a partnership
generally will result in unrelated business taxable income. In the event
that your direction of investment of IRA assets results in taxable income
(unrelated or debt-financed) pursuant to Sections 511-514 of the Internal
Revenue Code in excess of the $1,000 exclusion (as that llmount may be
adJustedlfor any taxable year, you agree to prepare or have prepared the
required Form 990-T tax return, an application for employer identification
number (If not previously obtained), and any other documents that may
be requIred, and to submIt them to us, for filing with the Internal Revenue
Service, at least five days prior to the date on which the return is due for
such taxable year, along with an appropriate payment directive authorizing
the custodian to execute the forms on behalf of your IRA and to pay the
applicable unrelated business income tax from your IRA.
(d) listed Transactions and Reportable Transa.ctions. You understand that
certain transactions are or may be Identified by the Internal Revenue Service
as abusive tax shelter schemes or transactions. You further understand that
the determination of a listed or reportable transaction may depend upon
the facts and drcumstances that surround the particular transaction. We
will make no determinatIon as to whether any IRA Investment constitutes
a listed or reportable transaction. You respresent to us that you have
consulted or will consult with your own tax or legal professional to ensure
that any listed or reportable transactions engaged In by your IRA are
identified. You further represent and acknowiedge to us that with respect to
any listed or reportable transaction you are considered the entity manager
who approved or caused your IRA to be a party to the transaction and that
you are responsible for: reporting each such transaction to the Internal
Revenue Service. USing Forms SBS6-T and 8886; paying any applicable exdse
taxes, using Form 5330: disclosing to the IRA custodian that such transaction
was a prohibited tax shelter transaction: and directing us as to any necessary
corrective action to be taken by your IRA.
(e) Passlvt! Custodian Providt!J No Investment Advice. We do not provide
legal or tax services or advice with respect to your IRA investments;
and you release and Indemnify ilnd agrH to hold harmless and dtrfend
us in the event that any Investment or sille of your IRA assets pursuilnt
to a Direction of Investment form violates any federal or state law or
regulation or otherwise results in a disqualification, penalty, fine or tax
imposed upon you, your IRA, or UJ.
(f) Investment Conforms to All Applicable Securities Laws. You represent to us
that If any Investment by your IRA is a security under applicable federal or
state securities laws. such investment has been registered or is exempt frorn
registration under federal and state securIties laws; and you release and
waive all claims against us for our role In carrying out your Instructions
with respect to such investment.
You acknowledge that the foregoing representation is being relied
upon by us in accepting your investment directions and you agree to
Indemnify us with raspect to all costs, expenses (Indudlng attorneys'
fees), fines, penaltiu, liabilities, damages, actions, judgments and
claims arising out of such investment and/or a breach of the foregoing
repreHlltatlon, including, without limitation, claims il5serted by you.
(g) Custodian Not Responsible for Insurance. We will not bear or assume any
responsibility to not!fyyou, secure or maintain fire, casualty, liability or other
insurance coverage on any personal or real property held by your IRA or
which serves as collateral under any mortgage or other security Instrument
held by your IRA with respect to any promissory note or other evidence of
Indebtedness. It is incumbent upon you as the IRA owner to arrange for
such insurance as you determine necessary or appropriate to protect your
IRA assets and to direct us In wrlting as to the payment of any premiums
therefor. Furthermore It is your responsibility to determine that payment
has been made upon your written request by verifying same with your IRA
statements.
We will not be responsible for notification or payments of any Insurance
premiums, real estate taxes, utilities, or other charges with respect to any
Investment held in your IRA. unless you specifically direct us to pay the
same in writing and sufficient funds are available to pay same from your IRA.
Furthemnore, it Is your responsibility to determine that payment has been
made from the custodial account. You must utilize an appropriate payment
directive form avallabie from us within a sufficient period of time for such
direction to be accomplished In accordance with the custodian's normal
business practices (without regard to whether we have undertaken efforts
to comply with such directive).
B.04 Service Fees; We have the right to charge an annuli! service fee or other
designated fees (e.g. a transfer, rollover or termination fee) for maintaining your
IRA. In addition, we have the right to be reimbursed for 1111 expenses, including
legal expenses, we incur in connection with the administration of your IRA.
We may charge you separately for any fees or expenses, or we may deduct the
amount of the fees or expenses from the assets In your IRA at our discretion.
We reserve the right to charge any additional fee upon 30 days notice to you
that the fee will be effective. Fees such as subaccountlng and other fees or
commissions may be paid to us or our affiliates by third parties for asslstanc:e In
performing certain transactions with respect to this IRA.
Upon establishment of the custodial account or at such time thereafter as we
may require, you shall furnish us with a vaJrd credit card account number and
related information and hereby do authorize us to charge that account for
our fees and expenses in accordance with this Section 8.04. If such credit card
account expires or otherwise Is or becomes Invalid, you shall Immediately Inform
us and provide us with anothervillid credit Cilrd number and related information
and hereby do authorize us to so charge that account. In the absence of cash or
money market shares in the custodial account sufficient to pay our fees and/or
expenses when due, we shall charge the valid credit card on tlIe for such fees
and/or expenses. If Equity Trust must produce a written invoice for any fees,
because such fees are not paid directly from your account or charged to your
credit card, you will be charged an Invoice print fee. All invoices are due and
payable upon receipt. If such charge cannot be consummated, we shall submit
an Invoice to you for all outstanding fees and expenses plus any applkable
invoice costs and late charges and lor we may liquidate sufficlent Investments
in the custodial account in accordance with Section 8.13 of this Article to pay
such fees and expenses. Such credit card account shall not be used by us forthe
purpose of paying any other investment or Investment maintenance expenses
of your IRA.
Any brokerage commissions amlbutable to the assets in your IRA will be
charged to your IRA. You cannot reimburse your IRA for those commissions.
Fees are generally based upon the fair market value of the assets held In the
IRA; provided that where such assets are nonmarketable Investments or do
not have a readily available market value, the fees shall be based upon cost
or the estimated fair market value of such assets, whichever Is greater. If an
entity in which IRA assets are invested is subject to bankruptcy, reorganization,
receivership or similar proceedings, the fee based upon such asset will not be
less than $50.00. Publidy traded securities shall be valued at their fair market
value. If cost Is not reflective of faIr market value with respect to the assets
held in your IRA, you may provide us with a qualified Independent valuation
of such assets for purposes of determining an appropriate fee; and we will
give consideration to such independent valuation. Our determination shall be
binding and conclUsive for purposes of IRA fees based upon value.
We may perform subcaccountlng, other
services related to the IRA. We may receive fees up to $40.00 'per month per
.of ,expenses from financlal.instltutlons andlor
money market funds with which IRA funds have been deposited or Invested for
these services.
8.05 Investment of Amounrsin the IRA:
(a) In General. You have exclusive responsibility for and control over the
IllVestment of the assets of your IRA. All transactions shall be subject to
any and all' restrictions or limitations, direct or Indirect, which are Imposed
by our charter, articles of Incorporation, or bylaws; any and all applicable
federal and state laws and regulations; the rules, regUlations, customs and
usages of any exchange. market or clearing house where the transaction is
executed; our Internal polfcies, standards and practices; and this Agreement.
After your death, your benefidary(ies) shall have the right to direct the
Investment of your IRA assets, subject to the same conditions that applied
to you during your lifetime under this Agreement (including, without
limitation, Section 8.03 of this article). We will not exercise the voting rights
and other shareholder rights With respect to Investments In your IRA unless
you provide timely written directions acceptable to us according to our then
current policies and procedures.
You will select the type of Investment for your IRA assets, provided, however,
that your selection of investments shall be limited to those types of
investments that we are authorized by OI.Ir charter, articles of Incorporation,
or bylaws to offer and comport with our internal policies. practices, and
standards and are deemed administratively feasible by us. We may, In our
sole discretion, make available to you, additional Investment offerings,
which shall be limited to publicly traded securities, mutual funds, money
market Instruments and other investments that are obtainable by us and
that we are capable of holdIng In the ordinary course of our business.
(b) Custodian Acting In Passive Capacity Only. We are acting solely as a passive
custodian to hold IRA assets and we have no disaetlon to direct any
Investment In your IRA. Accordingly, we are not a fiduciary (as said term is
defined In the Internal Revenue Code, ERISA, or any other applicable federal,
state or iocal laws) with respect to your IRA account However, through our
ETC (Rev. July 2008) 4
489
Traditional Individual Retirement CUstodial Account Agreement
affiliate. we may receive a commission in connection with the unsolicited
purchase or sale of a pUblicly-traded security.
It Is not our responsibility to review the prudence, merits, viability
or suitability of any Investment directed by you or your investment
advisors or to determine whether the investment is acceptable under
ERISA, the Internal Revenue Code or any other applicable law. We do
not offer any Investment advice. nor do we endorse any Investment..
Investment product or investment strategy; and we do not endorse any
Investment advisor. reprtlsentative,. broker, or other party seleCf:ll!d by
you. We have no responsibility to question any investment directions
given byyou or by any Investmentadvlsor or representative appointed
by you.
It Is your responsibility to perform proper due diligence with regard to
any such representative, Investment advisor, broker or other party. We
will follow the directions of any such investment advisor, representative,
broker or other party selected by you provided you furnish us with written
authorization and documentation acceptable to us. .and the custodian will
be entitled to all the same protections and indemnities In our reliance upon
and execution of the directives of such investment adVisor or other party as
if such directives were given by you.
We shaD be under no obligation or duty to investigate, analyze, monitor,
verily title to, or otherwise evaluate or perform due dUigence for any
Investment directed by you or your Investment advisor. representative
or agent; nor shall we be I1!sponsibleto notify you or take any action should
there be any default with regard to any Investment.
Any review performed by us with respect to an investment shall be solely
for our own purposes of determIning compliance with our internal pOlicies,
practices and standards, as we determine from time to time and the
administrative feaslbllity of the Investment and neither such review nor
its acceptance should be construed in any way as an endorsement of any
Investment, investment company or Investment strategy. We also have the
right not to effect anytransactlonlinvestment which we deem to be beyond
the scope of our administrative responsibilities, capabilities or expertise or
that we determine in our sole discretion does not comport with our Internal
polldes. practices or standards.
We have no duty or obligation to notlfyyou with respect to any Information,
knowledge, Irregularities or our concerns relating to your Investment or your
investment advlsor, broker, agent, promoter or representative, except as to
civil pleadings or court orders received by us.
We shall use reasonable efforts to acquire or sell Investments in' accordance
with your directions within a reasonable period of time after we have
received an Investment dIrection and we shall make' reasonable efforts
to notify you if we are unable or unwilling to comply with an Investment
direction. Subject to the foregoing, we shall remit funds as directed, but
have no res ponsibflity to verify or assure that such funds have been Invested
to purchase or acqul re the asset selected by you.
(el Investment Documentation. In directing us with respect to any Investment,
you must utilize our Di rection of Investment form suitable to such Investment
or such other form acceptable to us.
We shall be fully protected In acting upon any instrument, certificate, paper
or transmission believed to be genUine and to be signed or presented by
the proper person or persons whether or not by facslmile or other form
acceptable to the custodian, and the custodian shall be under no duty to
make any investigation or inquiry as to any statement contained in any such
communication, but may accept the same as conclusive evidence of the
truth and' accuracy of the statements therein contained.
You authorize and direct us to execute and deliver. on behalf of your IRA, any
and all documents delivered to us in connection with your IRA Investments;
and we shall have no responsibility to verify or determine that any such
documents are complete, accurate or constltl.lte the documents necessary
to comply with your investment direction.
You authorize and direct us to correct errors in investment titling without
notice to you and to correct other minor clerical errors with telephone or
email consent from you upon verification of your Idemlty.
(d) Deposit lnvestments. The deposit Investments available through us
may include savings, share. and/or money market accounts, and various
certificates of deposit (CDs).
(el Un-Invested Cash Funds. You direct us to sweep available free credit
balances automatically Into an FDIC Insured bank account until such time as
further direction is received from you or your designated representative(s).
You also authorize us to transfer any such funds to a different FDIC Insured
bank ilCCOU nt Without any further approval from you.
8.06 Benefidary(ies): If you die before you receive all of the amounts in your IRA,
payments from your IRA will be made to your benefldaryOes).
You may designate one or more persons or entities as beneficiary of your IRA.
This designation can only be made on a form provided by or to us,
and It will only be effective when it Is filed with us during your lifetime. Unless
otherwise spedfled, each beneficiary designation you file with us will cancel
all previous ones. The consent of a beneficiary(ies) shall not be required for
you to revoke a beneficiary designation. If you have designated both primary
and contingent beneflclaries and no primary beneficiary(ies) survives you,
the contingent beneflciary(ies) shall acquire the designated share of your IRA.
If you do not designate a beneficiary, or If all of your primary and contingent
beneflclary"es) predecease you, your estate will be the beneficiary.
A spouse beneficiary shall have all rights as granted under the Code or
applicable RegulatIons to treat your IRA as his or her own.
We may allow, If permitted by state law, an original IRA beneflclary(les) (the
beneficlary(les) who 15 entitled to receive distributlon(s) from an inherited IRA
at the time of your death) to name a successor beneficlary(les) for the Inherited
IRA. This designation can only be made on a fonn provided by or acceptable
to us, and It will only be effective when It Is filed with us during the original
IRA beneficiary's(les1 lifetime. Unless otherwise specified, each beneficiary
designation form that the original IRA beneflclary{!es) flies with us witt cancel all
previous ones. The consent of a successor benefidary(les) shall not be required
for the original IRA beneflciary{!es) to revoke a successor benefidaryQes)
designation. If the original IRA benefldaryOes) does not designate a successor
beneflciaryQes), his or her estate will be the successor beneficiary. In no event
shall the successor beneficlary(ies) be able to extend the distribution period
beyond that reqIJired for the original IRA beneficiary.
8.07 RequIred MInimum .Dlstrlburlons: Your required minimum distribution is
calculated using the uniform Ilfetlme table In Regulations section 1.401 (a)(9)-9.
However, If your spouse is your sole designated beneficiary and is more than 10
years younger than you, YOIJr required minimum dIstribution Is calculated each
year using the Joint and last survivor table in Regulations section 1.401 (a){9)-9.
If YO\J fall to request your required minimum distribution by your required
beginning date, we can, at our complete and sole discretion, do anyone of the
following:
make no distribution until you give us a proper Withdrawal request;
distribute your entire IRA to you in a single sum payment; or
determine your required minimum distrlblJtlon from your IRA with us each
year based on your life expectancy, calculated using the uniform lifetime
table In Regulations section 1 A01 (a){9)-9, and pay those distributions to you
until you direct otherwise.
We will not be liable for any penalties or taxes related to your failure to take a
required minimum distribution or to your receipt of an amount In excess of the
required minimum distribution.
B.OB TermInatIon of Resignation, or Removal of Custodian: Either party may
terminate this Agreement at any time by gIving wrItten notice to the other.
We can resign as Custodian at any time effective 30 days after we mall written
notice of our resignation to you. Upon receipt of that notIce, you must make
arrangements to transfer your IRA to another tlnanc!al organization. If you do
not complete a transfer of your IRA within 30 days from the date we mall the
notice to you, we have the right to transfer your IRA assets to a Sllccessor IRA
custodian or trustee that we choose In our sole discretion, or we may pay or
distribute your IRA assets to you In a single sum. or assignment. If we transfer
your IRA. the existing IRA documents will govern your IRA relationship with the
new custodian or trustee unless the successor custodian/trustee notifies you
in writing of any changes and/or requires new IRA documents to be signed by
you. We shall not be liable for any actions or failures to act on the part of any
successor custodian or trustee. nor for any tax consequences you may Incur that
result from the transfer or distribution of your assets pursuant to this section.
If this Agreement is terminated, we may marge to your IRA a reasonable amount
of money that we believe Is necessary to cover any associated costs, Including
but not limited to, one or more of the following:
any fees, expenses or taxes chargeable against your IRA;
, any penalties or surrender charges associated with the early withdrawal of
any savings instrument or other Investment In your IRA
After your IRA Account with us Is dosed, If there are additional assets remaining
In or subsequently credited to your IRA account, we will endeavor to distribute
or transfer such assets in accordance with your prior direction, but after
offsetting any applicable administrative expenses and custodial fees (per our
then operative fee schedule).
If we are required to comply with Regulations section 1.408-2(e), and we fail
to do so, or we are not keeping the records, making the returns or sending the
statements as are required by forms or Regulations, the IRS may, after notifying
you, require you to substitute another trustee or custodian.
We may establish a policy requiring distribution of the entire balance of your IRA
to you In cash or property If the balance of your IRA drops below the minimum
ETC (Rev. July 2008)
Tnditlonallndividual Retirement Custodial Account Agreement
balance required und.er the applicable Investment or policy established.
B.09 Successor Custodian: If our organization changes Its name, reorganizes, merges
with another organization (or comes under the control of any federal or state
agency), or If our entire organization (or any portion which Includes your
IRA) Is bought by another organization, that organization (or agency) shall
automatically become the trustee or custodian of your IRA, but only If It is the
type of organization authorized to serve as an IRA trustee or custodian.
B.l0 Amendmenrs: We have the right to amend this Agreement at any time. Any
amendment we make to comply with the Code and related RegUlations does
not require your consent. You will be deemed to have consented to any other
amendment IJnless, within 30 days from the date we mail the amendment, you
notify us In writing th at you do not consent.
B.l1 Withdrawals or Trans(e,.: All requests for withdrawal or transfer shall be In
writing on a form provided by or acceptable to us. The method of distribution
must be specified in writing. The tax Identification number of the redplent must
be provided to us before we are obligated to make a distribution. Withdrawals
shall be subject to all applicable tax and other laws and regulations, Including
possible early withdrawal penalties or surrender charges and withholding
requirements.
B.12 ffonsfers (rom Other Plans: We can receive amounts transferred to this IRA
from the custodian or trustee of another IRA. In addition, we can direct
rollovers of eligible rollover distributions from employer-sponsored retirement
plans as permitted by the Code. We reserve the right not to accept any transfer
or direct rollover.
a 13 Liquidation of Assets:We have the right to liquidate assets In your IRA if necessary
to make distributions or to pay fees, expenses, Indemnities, taxes, federal tax
levies, penalties or surrender charges properly chargeable against your IRA.
If you fall to direct us as to which assets to liqUidate. we will decide. in our
complete and sole discretion. arid you agree not to hold us liable for any adverse
consequences that result from our decision.
B.14 Restrictions on the Fund; Neither you nor any beneficiary may sell, transfer or
pledge any interest in your IRA in any manner whatsoever, except as provided
by law or this Agreement.
The assets In yourlRAshall not be responsible for the debts, contracts or torts· of
any person entitled to distributions under this Agreement.
8.15 What /.Qw Applies: This Agreement 15 subject to all applicable federal laws and
regulatIons and shall be govemed by and construed under the applicable laws
of the Sate of Ohio.
If any part of thIs Agreement Is held to be Illegal or InValid, the remaInIng parts
shall not be affected. NeIther your nor our failure to enforce at any time or for
any period of time any of the provisions of this Agreement shall be construed as
a waiver of such provisions, or your right or our right thereafter to enforce each
and every such provision.
Any suit filed against custodian arising out of or in connection with this
Agreement shall only be Instituted In the county courts of lorain County,
Ohio where custodian maintains its principal office and you agree to submit
to such jurisdiction both in connection with any such suit you may flIe and In
connection with any suit which we may file against you.
8.16 Valuations Policy; In valuing the assets of custodial account for record-
keeping and reporting purposes we shall use reasonable, good faith efforts
to ascertain the fair market value of each asset through utilization of various
outside sources avatlable to us and consideration of various relevant factors
generally recognized as appropriate to the applicatl on of custom ary valuation
techniques.
5
However where assets are Illiquid or their value Is not readily ascertainable on
either an established exchange or generally recogni:zed market, the valuation
is by necessity not a true market value and is merely an estimate of value in a
broad range of values and Its accuracy should not be relied upon by you for any
other purposes.
The precision with which a value Is assigned is a factor of the nature of the
asset and the cost effectiveness of pursuing a more comprehensive appraisal.
In certain cases where fair market value is not readily ascertainable and we do
not have a recent qualified Independent appraisal we may follow an Internal
protocol for assigning value based on the cost of the asset or we may rely upon
a current independent appraisal obtained by you.
We neither provide a guarantee of value nor the appropriateness of the appraisal
techniques applied in developing an estimate of value and we assume no
responsibrtity for the accuracy of the valuations presented with respect to assets
whose value Is not readily ascertainable on either an established exchange or a
generally recognized market.
B.11 Form 99O-T Fllfng for UBIT: Pursuant to Sections S 11·514 of the Intemal Revenue
Code you agree to prepare or have prepared the required Form 99O-T tax return,
an application for employer Identiflcation number (If not previously obtained),
and any other documents that may be required, and to submit them for filing
490
with the Internal Revenue Service to the custodian at least fifteen days prior
to the date on which the retum is due for such taxable year, along with an
appropriate payment directive authorizing the custodian to execute the forms
on behalf of your IRA and to pay the applicable unrelated business Income tax
from your IRA on unrelated business income which exceeds the current $1,000
exclusion.
8. 18 Acknowledgment of and Authorization for Telephone Recordings: We reserve the
right to Install and/or maintain automatic telephone recording equipment
on certain telephone lines used by personnel servicing the custodial account
in connection with trading functions and customer inquiries. By signing this
Agreement. you acknowledge our right and expressly authorize us to record
and play back any and all such telephone calls.
General Instructions
Section references are to the Intemal Revenue Code unless otherwise noted.
Purpose of Form
Form 5305-A Is a model custodial account agreement that meets the requirements of
section 408(a) and has been pre-approved by the IRS.A traditional individual retirement
account (Traditional IRA) is established after the form Is fully executed by both the
individual (Depositor) and the Custodian and must be completed no later than the due
date (excluding extensions) of the individual's income tax return for the tax year. This
account must be created in the United States for the exclusive benefit of the DepoSitor
and his or her benefielaries.
Do not file Form 5305-A with the IRS. Instead, keep It with your records.
For more information on IRAs, Including the required disclosures the Custodian must
give the Depositor, see Pub. 590,lndividual Retirement Arrangements (IRAs).
Definitions
Custodian. The custodian must be abank or savings and loan aSSOciation, as defined In
section 408(n), or any person who has the approval of the IRS to act as custodian.
Depositor. The depositor Is the person who establishes the custodial account.
Identifying Number
The Depositor's sodal security number will serve as the Identfflcatlon number of his or
her IRA. An employer Identification number (EIN) is required only for an IRA for which
a return is filed to report unrelated business taxable income. An EIN is required for a
common fund created for IRAs.
Traditional IRA for Nonworking Spouse
Form 5305-A may be used to establish the IRA custodial account for a nonworking
spouse. Contributions to an IRA custodial account for a nonworking spouse must be
made to a separate IRA custodial account established by the nonworking spouse.
Specific Instructions
Article IV. DIstributions made under this article may be made in a single sum, periodic
payment. or a combination of both. The distribution option should be reviewed In
the year the Depositor reaches age 70'/,2 to ensure that the requirements of section
408(a)(6) have been met
Article VIII. Article VIII and any that follow it may Incorporate additional provisions
that are agreed to by the Depositor and Custodian to complete the agreement. They
may Include, for example. definitions, investment powers, voting rights, exculpatory
prOVisions, amendment and termination, removal of the Custodian, Custodian's
fees, state law requirements. beginning date of distributions, accepting only cash,
treatment of excess contributlons, prohibited transactions with the Depositor, etc.
Attach additional pages if necessary. General InstructlonsSectlon references are to the
Intemal Revenue Code unless otherwise noted.
ETC (Rev. July 2008) 6
491
Traditional Individual Retirement Custodial Account Agreement
Form S30S-RA under 4G8A of the Intemal Revenue Code
FORM (REv. MARCH 2002)
The Depositor named on the Application Is establishing a Roth Individual Retirement
Account under section 408A to provide for his or her retirement and for the support of
his or her beneficiaries after death.
2. The Custodian agrees to submIt to the IRS and Depositor the reports prescribed by
the IRS.
The Custodian named on the Application has given the Depositor the disclosure
statement required by Regulations sectIon 1.408-6.
The DeposItor has assIgned the custodial account the sum IndIcated on the
Application.
The Depositor and the Custodian make the following agreement:
ARTICLE I
Except In the case of a rollover contrlbutlon descrIbed in section 408A{e), a
recharacterized contribution described in section 408A(d)(6), ct an IRA Conversion
Contribution, the Custodian will accept only cash contributions up to $3,000 per year
for tax years 2002 through 2004. That contribution limit Is increased to $4,000 for tax
year:s 2005 through 2007 and $5,000 for 2008 and thereafter. For individuals who have
reached the age of 50 before the close of the tax year, the contribution limit Is increased
to $3,500 per yearfor tax years 2002 through 2004, $4,s00 for 2005, $5,000 for 2006 and
2007, and $6,000 for 2008 and thereafter. For tax years after 2008, the above limits will
be Increased to reflect a cost-of-living adjustment, if any.
ARTICLE II
1. The annual contribution limit described in Artide I is gradually reduced to $0 for
higher income levels. For a single Depositor, the annual contribution Is phased
out between adjusted gross income (AGI) of $101.000 and $116,000; for a married
Depositor filing jointly, between AGI of $159.000 Bnd $169,000; and for a married
Depositor filing separately, between AGI of $0 and $10,000. In the case of a
conversion, the Custodian will notaccept IRA Conversion Contributions in a tax year
If the Depositor's AGI for the tax year the funds were distributed from the other IRA
exceeds $100,000 or if the Depositor is married and files a separate retum. Adjusted
gross Income is defined in section 4OBA(c){3) and does not include IRA Conversion
Contributions. .
2. In the case of a joint return, the AGIllmits in the preceding paragraph apply to the
combined AGI of the Depositor and his or her spouse.
ARTICLE III
The Depositor's interest in the balance in the custodial account is nonforfeitable.
ARTICLE IV
1. No part of the custodial account funds may be invested In life Insurance contracts,
nor may the assets of the custodial account be commingled with other property
except in a common trust fund or common investment fund (within the meaning
of section 408(a)(5».
2. No part of the custodial account funds may be Invested in collectibles (within the
meaning of section 408(m» except as otherwise permitted by section 408(m)(3),
which provides an exception for certain gold, sliver, and platinum COins, coins Issued
under the laws of any state, and certain bullion.
ARTICLE V
1. If the Depositor dies before his or her entire interest Is distributed to him or her and
the Depositor's surviving spouse is not the designated beneficiary, the remaining
interest will be distributed In accordance with (a) below ct, if elected or there Is no
designated benefidary, in accordance with (b) below:
(a) The remaining Interest will be distributed, starting by the end of the calendar
year follOWing the year of the Depositor's death, over the designated
beneficiary's remaining life expectancy as determined in the year following the
death of the Depositor.
(b) The remainIng interest will be distributed by the end of the calendar year
containing the fifth anniversary of the Depositor's death.
2. The minimum amount that must be distributed each year under paragraph
1(a) above Is the account value at the dose of business on December 31 ofthe
preceding year divided by the life expectancy (In the single life table In Regulations
section 1.401 (a)(9l-91 of the designated beneficiary using the attained age of the
beneficiary in the year following the year of the Depositor's death and subtracting 1
from the divisor for each subsequent year.
3. If the Depositor's surviving spouse Is the designated benefldary, such spouse will
then be treated as the Depositor.
ARTICLE VI
1. The Depositor agrees to provide the Custodian with alllnfcrmation necessary to
prepare any reports required by sections 408U) and 408A(d){3)(El. Regulations
sections 1.40&-5 and 1.408-6, or other guidance published by the Internal Revenue
Service (IRS).
ETC (Rev. Ju Iy 2008)
ARTICLE VII
Notwithstanding any other articles which may be added or Incorporated, the provisions
of Articles I through IV and this sentence will be controlling. Any additional articles
Inconsistent with section 408A. the related regulations, and other published guidance
will be Invalid.
ARTIClE VIII
This Agreement will be amended as necessary to comply with the provisions of the
Code, the related Regulations, and other published guidance. Other amendments may
be made with the consent of the persons whose signatures appear on the Application,
as provided In section 9.09 below.
AATICLEIX
9.01 Definitions: In this part of this Agreement (Article IX), the words "you" and
"your" mean the Depositor, the words "we; 'us" and ·our" mean the Custodian,
"Code" means the Internal Revenue Code, and "Regulations" means the Treasury
Regulations.
9.02 Notices and Change of Address: Any required notice regarding this Roth IRA
will be considered effective when we send it to the intended recipient at the
last address which we have In our records. Any notice to be given to us will be
considered effective when we actually receive It. You, or the Intended recipient,
must notify us of any change of address.
9.03 Representations and ResponsibilIties:
7
(a) In General. You represent and warrant to us that any information you have
given or will give us with respectto this Agreementls complete and accurate.
Further, you agree that any directions you give us, or action you take will be
proper under this Agreement, and that we are entitled to rely upon any
such Information or directions. If we fail to receive directions from you
regarding any transaction, or if we receive ambiguous directions regarding
any transact/on, or we,ln good faith. belleve that any transaction requested
Is in dispute, we reserve the right to take no action until further clarification
acceptable to us Is received from you or the appropriate government or
Judicial authority. We shall not be responsible for 1055es of any kind that
may result from your directions to us or your actions or failures to act,
and you agree to reimburse us for any loss we may incur as a result of
such directions, actions or failures to act. We shall not be responsible for
any penalties, taxes, judgments or ex.penses you incur in c.onnection with
your Roth IRA. We have no duty to determine whether your c.ontributl ons or
distributions comply With the Code.. Regulations, rulings or this Agreement.
We may permit you to appoint, through written notice acceptable to us, an
authorized agent to act on your behalf with respect to this Agreement (e.g.,
attorney-In-fact. executor, administrator, Investment manager), however,
we have no duty to determine the validity of such appointment or any
instrument appointing such authorized agent. We shall not be responsible
for losses of any Idnd that may result from directions, actions or failures to
act by your authorlied agent, and you agree to relmbur:se us for any loss
we may incur as a result of such directions, actions or failures to act by your
authorized agent. Except lIS otherwise Indicated herein, you will have sixty
(60) days after you receive any documents, statements or other information
from us to notify us in writing of any errors or Inaccuracies reflected In these
documents, statements or other Information. If you do not notify us within
60 days, the documents, statements or other Information shall be deemed
correct and accurate, and we shall have no further liability or obligation
for such documents, statements, other information or the transactions
described therein.
By performing services under this Agrnment we are acting as your
agent. You acknowledge and agree that nothing in this Agreement shall
be construed as ,omerring fiduciary status upon us. We shall not be
required to perform any additional services unless specifically agreed to
under the terms and conditions of this Agreement, or as required under
the Code and the Regulations promulgated thereunder with respect
to Roth IRAs. We may employ agents and organizations, including but
not limited to Equity AdminIstrative Services, Inc., for the purpose
of performing administrative or other custodial-related services with
respect to your Roth IRA for which we otherwise have responsibility
under this Agreement, and the limitations on our duties to you under this
Agreement or otherwise shall also apply with respect to each agent or
organization so employed.
You agree to release and indemnify, hold harmless and defend us from
any and all daims. damages. liability, actions, costs, expenses {including,
without limitation, attorneys'feesl and responsibility for any loss resulting
to the Roth IRA, to you or to any benefldary or incurred by or asserted
against us, In connectlon with or by reason of any sale or investment
492
made or other action taken (or omitted to be taken) pursuant to and/or
In connectfon with lIny Investment transaction directed by you or your
Investment advi5Ol' or resulting from serving as the custodian hereunder,
Indudlng, without Hmltllltlon, claims, damages, liability, actions and
losses lISserted by you.
You agree to reimburse or advilnce to us, on demand, all legal fees,
expense5, costs, fines, penaldes and obligations Incurred or to be Incurred
In connection with !he defense, contest, prosecution or satisfaction of
any claim madl!,. threatened or asserted pertaining to any Investment or
action you or your investment advisor directed through the CustodIan,
Indudlng, without limitation. dalms asserted by you, any state or federal
regUlatory authority or self regulatory organization.
To the ex1I!nt written Instructions or notices are required under this
Agreement, we may accept or provide such Information In any other form
permItted by the Cede or applicable regulations.
(b) Prohibited Transactions. You understand that certain transactions are
prohibited In Roth IRAs and qualified retirement plans under Section 4975 of
the Intemal Revenue Code. You further understand that the determination
of a prohibited transaction depends on the facts and circumstances that
surround the particular transaction. We will make no determInation as to
whether any Roth IRA Investment Is prohibited. You further understand that
should your Roth 1M engage In a prohibited transaction, you may Incur a
taxable distribution as well as possible penalties. You represent to us that
you hilVe consulted or will consult with your own tax or legal professional to
ensure that none of your Roth IRA investments will constitute a prohibited
transaction and that your Roth IRA Investments will comply· with all 9.04
applicable federal and state laws, regulations and requlrernenu.
(c) Unrelated Business Income Tax IUBln. Since your Roth IRA Is a tax-exempt
organization under federal tax law, If your Roth IRA eams income from an
Investment which utllizesdebt-flnandng or which Is derived from a business
regarded as not related to the exempt purpose of your Roth IRA, It may be
subject to the so-called 'unrelated business Income tax" If It Is In excess of
permitted deductions. For example. Income from a Roth IRA Investment
In a partnership generaOy will result In unrelated business taxable Income.
In the event that your dIrection of Investment of Roth IRA assets results In
taxable Income (unrelated or debt.ftnanced) pursuant to Sections 511-514
of the Internal Revenue Code In excess of the $1,000 exclusion (as that
amount may be adjusted)for any taxable year. you agree to prepare or have
prepared the reqUired Form 99O-T tax retum, an application for employer
Identification number (If not previously obtlillned).Bnd any other documents
that may be required, and to submit them to us, for filIng with the Internal
Revenue Service, at least flve days prior to the date on which the retum
Is due for such taxable year, along with an appropriate payment directive
authorizing the custodian to execute the forms on behalf of your Roth IRA
and to pay the applicable unrelated business Income tax from your Roth
IRA.
Id) Listed Transactions lind Reportable TransactIons. You understand that
certain transactions are or may be Identlfled by the inteml!ll Revenue Service
as abusive tax shelter schemes or transactions. You further understand that
the determination of a listed Dr reportable transactfon may depend upon
the facts and circumstances that surround the particular transaction. We will
make no determination as to whether any Roth IRA Investment constitutes
a listed or reportable transaction. You represent to us that you have
c:onsuited or will consult with your own tax or legal professional to ensure
that any listed or reportable transactions engatged In by your Roth IRA are
Identlfted. You further represent and acknowledge to us that with respect to
any listed or reportable transaction you are considered the entity manager
who approved or caused your Roth IRA to be a party to the transaction and
that you are responsible for: reporting each such transaction to the Internal
Revenue Service, using Forms 88B6-T and BBIKi; paying any applicable excise
taxes. usIng Form 5330; disdoslng to the Roth IRA custodian that such
transaction was a prohibited tax shelter transaction; and directing us as to
any necessary correctfve action to be taken by your Roth IRA.
(e) Passive Custodian Provides No Investment Advice. We do not provide
legal or tax serviCt!5 or advice with respect to your Roth IRA Investments;
and you release and Indemnify and agree to hold harmless and defend us
In the event that any investment or sale of your Roth IRA assets pUrsuant
to a DIrection of Investment form violates any fect.aI or state law or
regulation or otherwise results in a disqualification. penalty. fine or tax
Imposed upon you, your Roth IRA. or us.
(0 Investment Conforms to All Applicable Securities LaWs. You represent to
us that If any Investment by your Roth IRA Is a security under applicable
federal or state securities laws. such Investment has been registered or Is
exempt from registration under federal and state securities laws; and you
release and waive all daims against us for our role in carrying out your 9.05
Instructions with respect to such Investment.
You acknowledge that the foregoing representation Is being relied upon
by us In accaptlngyour Investmentdlrectlonsand you agree to indemnify
ETC (Rev. July 2008) B
493
Roth Retirement Custodial Account Agrn!Dll1t
us with respect to an costs, expenses" (Including attorneys' fees), fines,
penalties, liabilities, damages, actions. Judgments and claims artsing
out d such Investment and/or 1I breach of the foregoing representation.
Indudlng, without UmltMlon, claims asserted by you.
(g) Custodian Not Responsible for Insurance. We will not bear or assume any
responsibility to notify you, secure or inBlntain fire. casualty; lability or other
Insurance coverage on any personal or real property held by you r Roth IRA or
which serves as collateral under any mortgage or other security Instrument
held by your Roth IRA with respect to any promissory note or other. evidence
oflndebtedness.lt Is Incumbent upon you as the Roth IRA owner to arrange
for such Insurance as you determine necessary or appropriate to protect
your Roth IRA assets and to direct us in writing as to the payment of any
premiums therefor. Furthermore It Is your responsibility to determine that
payment has been made upon your written request by verifying same with
your Roth IRA statements.
We will not be responsible for notification or payments of any insurance
premiums, real estate taxes, utilities. or other charges with respect to any
Investment held In your Roth IRA, you specifically direct us to pay
the same In writing and sufficient funds are available to pay same from your
Roth IRA. Furthermore, It Is your responsibility to determine that payment
has been made from the custodial account. You must utilize an appropriate
payment directive form available from us within a sufIIdent perIod of time
for such direction to be accomplished In accordance with the
normal business practices (without regard to whether we have undertaken
efforts to comply with such directive).
Service Fees: We have the right to charge an annual service or ·other
designated fees a traJ:!Sfer, rollover or termination fee) for maintaining
your Roth 1M In addition, we have the right to be reimbursed for all expenses,
Indudlng legal expenses, we Incur In connection with the administration of
your Roth IRA. We may charge you separately for any fees or expenses. or we
may deduct the amount of the fees or expenses from the assets In your Roth
IRA at our discretion. We reserve the right to charge any additional fee upon 30
days notice to you that the fee will be effective. Fees such as subaccountlng and
other fees or commissions may be paid to us or our afflllates by third parties for
assistance In performing certain transactions With respect to this Roth IRA.
Upon establishment of the custodial account or at such time thereafter as we
may require. you shall furnish us with a valid aedlt card account number and
related Information and hereby do authorize us to charge that account for
our fees and expenses In accordance with this Section 9.04. If such credit card
account expires or otherwise Is or becomes Invalid, you shall Immediately Inform
us and provide us with another valid credit card number and related Information
and hereby do authorize us to 50 charge that account. In the absence of cash or
money market shares In the custodial account suffldent to pay our fees and/or
expenses when due. we shall charge the valid credit card on tile for such fees
and/or expenses. If Equity Trust must produce a wrItten Invoice for any fees,
because such fees are not paid directly from your account or charged to your
credit card. you Will be chjlrged an Invoice print fee. Alllnwices are due and
payable upon receipt. If stich charge cannot be consummated, we shall submit
an Invoice to you for all outstanding fees and expenses plus any appBcable
Invoice costs and latl! charges andlor we may liquidate suffldent Investments
In the custodial account in accordance with Section 9.12 of this Article to pay
such fees and expenses. Such credIt card account shall not be used by us for the
purpose of paying any other Investment or Investment maintenance expenses
of your Roth IRA.
AT'f'I brokerage commissions attributable to the assets In your Roth IRA will
be charged to your Roth IRA. You cannot reimburse )lour Roth IRA f!lr those
commissions.
Fees are generally bil$ed upon the fair market value of the assets held In the
Roth IRA; provided that where such assets are nonmarketable Investments or do
not have a readily available milrket value. the fees shall be based upon cost or
the estimated fair market value of such assets, whichever Is greater. If an entity
In which Roth IRA assets are Invested is subject to bankruptt;y, reorganization,
receivership or similar proceedings, the fee based upon such asset will not be
less than $50.00. Publicly traded securities shall be valued at their fair market
value. If cost Is not reflective of fair market value with respect to the assets held
In your Roth IRA. you may provIde us with a qualified Independent valuation
of such assets for purposes of determining an appropriate fee; and we will
give consideration to such Independent valuatiDn. OUr determination shall be
binding and conclusive for purposes of Roth IRA fees based upon value.
We may perform sub-accounting, record-keeplng, administrative andlor other
services related to the Roth IRA. We may receive fees up to $40.00 per month
per account and/or reimbursement of expenses from finandal Institutions
andlor money market funds with which Roth IRA funds have been deposited or
Invested fQr these services. .
Investment of Amounts In the Roth IRA:
(a) In General. You have exciuslve responslblRty for and control over the
Investment of the assets of your Roth IRA. All transactions shaH be subject to
any and all restrictions or limitations, dll'ector Indirect, which are Imposed by
our charter, articles of Incorporation, or bylaws; any and aU applicable federal
and state laws and regulations; the rules, regulations, customs and usages of
any exchange, market or clearing house where the transaction Is executed;
our Internal polldes, standards and practices; and this Agreement. After your
death. your beneflclary(les) shall hilVe the right to direct the Investment of
your Roth IRA assets, subject to the same conditions that applied to you
during your lifetime under this Agreement (lndudlng, without limitation.
Section 9.03 oftlilsartlde). We will not exercise the voting rights and other
shareholder rights with respect to Investments In your Roth IRA unless you
provide timely written directions acceptable to us according to our then
current policies and procedures.
You will select the type of l/M!5tI11ent for your Roth IRA assets, provided.
however, that your selection of Investments shall be limited to those types of
Investments that we are authorized by our charter. articles of Incorporation,
or bylaws to offer and comport with our Internal poRcles, practices. and
standards and are deemed adminIstratively feasible by us. We may, In our
sole discretion, make ilVilliable to you, additional Investment offerings.
which shall be Imlted to pUblicly traded securities, mutual funds, money
market Instruments and other Investments that are obtainable by us and
that we are capable of holding In the ordinary course of our business.
(b) Custodian Acting In Passive capacity Only. We are acting solely as a passive
custodian to hold Roth IRA assets and we hilVe no discretion to direct any 9.1l6
Investment In your Roth IRA. Accordingly. we are not a flduclary (as said
term Is defined In the Internal Revenue Code, ERISA. or any other applicable
federa\ state or local laws) with respect to your RQth IRA account. However.
through our affllllate, we may receIve a commission In connection with the
unsolicited purchase or sale of a publicly-traded security.
It is not our responsibility to review the prudence, merits, viability or
suitability of any Investment directed by you or your Investment advisors
011 to determine whether the Investment Is acceptable under ERISA,
the Internal Revenue Code or any other applicable law. We do not off«
any Investment advice, nor do we endorse any investment. Investment
product or Investment strategy; and we do not endorse any Investment
advisor, representative. broker, or other party selected by you. We have
no responslbUIty to question any Investment directions given by you 011
by any Investment advisor or representative appoIntwd by you.
It Is your resPQnslblllty to perform proper due diligence with regard to
any such representative, Investment advtsor. broker or other party. We
wlH follow the directions of any such Investment advisor. representative,
broker or other party selected by you provided you furnish us with written
authorization and documentation acceptable to us. and the custodian will
be entitled to all the same protections and Indemnities In. OIJr relIance upon
and execution of the directives r:lsuch investment advisor or other party as
If such directives were given by you.
We shall be under no obligation or duty to Investigate" analyze, monitor,
verify title to, or otherwise evaluate or perform due diligence for any
Investment directed by you or )"Our Investment advisor, repi-.sentatlve or
ilgent; nor shall we be responsible to notify you or to take any action should
there be any default with regard to any Investment.
Any review performed by us with respect to an Investment shaD be solely
for our own purposes of determining compMance with our Internal poIlcles.
practices and· standards, as we determine from time to time and the 9JJ7
administrative feasibility of the Investment and neither such review nor
Its acceptance should be construed In any way as an endorsement of any
Investment, Investment company or Investment strategy. We also hilVe the
right not to effect any transaction/lnves1ment which we deem to be beyond
the scope of our administrative responsibilities. capabilities or expertise. or
that we detennlne In our sole discretion does not comport with our Intemal
policies, practices or standards.
We have no duty or obligation to notIfyyou with respect to any Information,
knowledge, Irregularities or our concerns relating to your Investment oryour
Investment advisor, broker, agent promoter or representative. except as to
civil pleadings or court orders received by us.
We shall use reasonable efforts to acquire or sell Investments In accordance
with your directions within a reasonable pellod of time after we have
received an Investment direction and we shall make reasonable efforts
.to notify you If we are unable or unwilling to comply with an Investment
direction. Subject to the foregoing, we shall remit funds as directed, but
haW! no responsibility to verify or assure thaHuch funds have been Invested
to purchase or acquire the asset selected by you.
(c) Investment Documentation. In directing us with respect to any Investment,
you must ut/U:ze our Direction oflnvestmentform suitable to such Investment
or such other form acceptable to us.
We shall be fully protected In acting upon any litstrument, certIflcate, paper
or transmission believed to be genuine and to be signed or presented by
the proper person or persons whether or not by facsimile or other form
ETC (Rev. July 2008) 9
494
Roth RetIrement CUstodia! AcCount Aqrttmlnt
acceptable to the custodian, and the custodian shall be under no duty to
make any investigation or Inquiry as to any statement contained In any such
communication. but may accept the same as conduslve eYidence of the
truth and accuracy of the statements therein contained.
You authoriZe and dll'ect us to execute and deliver, on behalf of )"Our Roth
IRA, any and all documents delivered to us In connectlon with your Roth IRA
Investments; and we shall have no responslbll1ty to verify or determine that
any such documents are complete. accurate or constitute the documents
necessary to comply with your Investment direction.
You authorl:ze and direct us to correct errors In Investment titling without
notice to )"OU and to correct other minor clerical errors with telephone or
email consent from you upon verification r:I your Identity.
(eI) Deposit Investments. The deposit Investments available through us
may Indude savings, share, andlor money market accounts, and varlOlJs
certificates of deposit (CDs).
(e) Un-Invested cash Funds; You direct us to sweep available tree crealt
balances automatically Into an FDIC Insured bank account until such time as
further direction Is received from you or your designated representiltlve(s).
You also authoi1ze us to transfer any such funds :to a different FDIC Insured
bank account without any further approval from you.
Benefidory(les): If you die before you receive all of the amounts In your Roth IRA,
payments from your Roth IRA will be made to your beneficiaryPes).
You may designate one or more persons or entitles as benefldary of your Roth
IRA. ThIs designation can only be made on a form provided by or acceptable
to us. and It will only be effective when It Is flied with us during your Ufetlme.
Unless otherwise spedfled, each benefidary designation you file with us will
cancel all previous ones. The consent of a beneficiaryOes) shall not be requIred
for you to revoke a beneficiary designation. If you have designated both primary
and contingent beneficiaries and no prlm"ry beneficlaryOes) survives you, the
contingent benefldary(ies) shall acquire the designated share. of your Roth IRA.
If you do not desIgnate a beneficiary, or If all of your primary and contingent
beneficiaryOesl predecease you. your estate will be the beneficiary.
If )'Our surviving spouse 15 the designated beneficiary. your spouse may elect to
treat your Roth I.RA as his or her own Roth IRA, and would not be subject to the
required mInimum distribution rules. Your surviving spouse will also be entitled
to such additional benefldary payment options as are granted under the Code
or applicable Regulations.
We may allow, If permitted by state law, an original Roth IRA beneficlary(les)
(the benefidaryOes) who 15 entitled to receive dlstrlbutlon(s) from an Inherited
Roth IRA at the time of your death) to name a successor beneflclary(les) for the
Inherited Roth IRA. This designation can only be made on a form provided by
or acceptable to us. and It will only be effective when It Is filed with us during
the Original Roth IRA beneflclary's(les') lifetime. Unless otherwise specified. each
beneficiary designation form that the Original Roth IRA beneficiaryOes) files with
us will cancel all previous ones. The consent of a sUccessor benefldary(les) shall
not be required for the original Roth IRA benefidary(les) to revoke a successor
beneflclaryOes) designation. If the Original Roth IRA beneflclary(ies) does not
deSignate a successor benefidaryOes), his or her estate will be the successor
benefldary.ln no event shall the successor benefldarypes) be able to extend the
distribution period beyond that required for the original Roth IRA benefldary.
Termination of Agreement, Resignation, orRemoval of CustodIan: EIther party may
terminate this Agreement at any time by glYing written notice to the other.
We can resign as Custodian at any time effective 30 days after we mall written
notice r:I our resignation to you. Upon receipt of that notice, you must make
arrangements to transfer your Roth IRA to. another flnanclilll organization. If you
do not complete a transfer of your Roth IRA withIn 30 days from the date we
mall the notice to you, we have the right to transfer your Roth IRA assets to a
successor Roth IRA or trustee that we choose In our sole discretion,
or we may pay or distrIbute your Roth IRA assets to you In II single sum or
assignment. If we transfer your Roth IRA, the existing Roth IRA documents will
govem your Roth IRA relationship with the new custodian or trustee unless
the successor custodianltrustee notifies you In writing of any changes andIor
requires new Roth IRA documents to be signed byyou. We shall not be liable for
any actions or failures to act on the part of any successor custodian or trustee,
nor for any tax consequences you may Incur that result from the transfer or
distribution of your assets pursuant to this section.
If this Agreement Is terminated, we may charge to your Roth IRA a reasonable
amount r:I money that we behave is necessary to cover any assodated costs,
Indudlng but not limited to, one or more of thl!! following:
any fees, expenses or taxes chargeable against your Roth IRA;
• any penalties or surrender charges associated with the early withdrawal of
any savings Instrument or other Investment In your Roth IRA. .
Mter your Roth IRA Account with us Is closed. If there are additional assets
remaining In or subsequently credited to your Roth IRA account we .wln
endeavor to distribute or transfer such assets In accordance with your prior
direction, but after offsetting any applicable admInistrative expenses and
custodial fees (per our then operative fee schedule).
If we are required to comply with Regulations sectIon 1.4DS-2{e), and we fail
to do so, or weare not keeping the records, making the returns or sending the
statements as are required by-forms or Regulations, the IRS may, after notifying
you, requIre you to substitute another trustee or custodian.
We may establish a policy requiring distrIbution of the entire balance of your
Roth IRA to you in cash or property if the balance of your Roth IRA drops below
the mInimum balance required under the applicable Investment or policy
established.
9.08 Sua:essor Custodian: If our organization changes Its name, reorganizes, merges
with another organization (or comes under the control of any federal or state
agency), or If our entire organization (or any portion which Includes your Roth
IRAJ is bought by another organization, that organization (or agency) shall
automatically become the trustee or custodian of your Roth IRA, but only if it is
the type of organization authorized to serve as a Roth IRA trustee or custodian.
9.09 Amendments: We have the right to amend this Agreement at any time. Any
amendment we make to comply with the Code and related Regulations does
not require your consent. You will be deemed to have consented to any other
amendment unless, within 30 days from the date we mail the amendment, you
notify us In writing that you do not consent.
9.10 Withdrawals or Transfers: All requests for withdrawal or transfer shall be in
writing on a form provided by or acceptable to us. The method of distribution
must be specified in Writing. The tax identification number of the recipient must
be provided to us before we are obligated to make a distribution. Withdrawals
shall be subject to all applicable tax and other laws and regulations, Including
possible early withdrawal penalties or surrender charges and withholding
requirements.
You are not required to take a distribution from your Roth IRA at age 70 h. At
your death, however, your beneficiary(les) must begin taking distributions in
accordance with Article V and Section 9.06 of this. Agreement. We will make
no distributions to you from your Roth IRA until you provide us with a written
request for a distribution on a form provided by or acceptable to us.
9.11 Transfers from Other Plans: We can receive amounts transferred to this Roth IRA
from the custodian or trustee of another Roth IRA as permitted by the Code. We
reserve the right not to accept any transfer.
9.12 LiquidatIon of Assets: We have the right to liquidate assets In your Roth IRA If
necessary to make distributions or to pay fees, expenses, Indemnities, taxes,
penalties or surrender charges properly chargeable against your Roth IRA.
If you fall to direct us as to which assets to liquidate, we will decide, In our
complete and sole discretion, and you agree not to hold us liable for any adverse
consequences that result from our decision.
9.13 Restrictions on the Fund; Neither you nor any beneficiary may sell, transfer or
pledge any Interest In your Roth IRA In any manner whatsoever, except as
provided by law or this Agreement.
The assets in your Roth IRA shall not be responsible for the debts, contracts or
torts of any person entitled to distributions under this Agreement.
9.14 What Law Applies: This Agreement is subject to all applicable federal laws and
regulations and shall be govemed by and construed under the applicable laws
of the State of Oh 10_
If any part of this Agreement is held to be illegal or invalid, the remaining parts
shall not be affected. Neither your nor our failure to enforce at any time or for
any period of time any of the provisions of this Agreement shall be construed as
a waiver of such provisions, or your right or our right thereafter to enforce each
and every such provision.
Any suit filed against custodian arising out of or in connection with this
Agreement shall only be instituted In the county courts of Lorain County,
Ohio where custodian maintains its principal office and you agree to submit
to such jurisdiction both In connection with any such suIt you may file and in
connection with any suit which we may file against you.
9.15 ValuarJons Policy: In valuing the assets of the custodial account for record-
keeping and reporting purposes we shall use reasonable, good faith efforts
to ascertain the fair market value of each asset through utilization of various
outside sources available to US and consideration of various relevant factors
generally recognized as appropriate to the applIcation of customary valuation
techniques.
However where assets are liquid or their value is not readily ascertainable on
either an established exchange or generally recognized market, the valuation
Is by necessity not a true market value and [s merely an estimate of value in a
broad range of values and its accuracy should not be relied upon by you for any
other purposes.
The preciSion with which a value Is assigned is a factor of the nature of the
asset and the cost effectiveness of pursuing a more comprehensive appraisal.
In certain cases where fair market value Is not readily ascertaInable and we do
ETC (Rev. July 2008)
RotbRetirement CUstodial Accollnt Aareem!!nt
not have a recent quaUfied independent appraisal we may follow an internal
protocol for aSSigning value based on the cost of the asset orwe may rely upon
a current independent appraIsal obtained by you.
We provide a guarantee of value nor the appropriateness of the appraisal
techniques applied In developing an estimate of value and we assume no
responsiblifty forthe accuracy of the valuations presented with respect to assets
whose value is not readily ascertainable on either an established exchange or a
generally recognized market.
9.16 Form 990-T Filing for UBIT: Pursuantto SectIons S 11-514 of the Internal Revenue
Code you agree to prepare or have prepared the required Form 990-T tax return,
an application for employer Identification number (if not previously obtained),
any other documents that may be required, and to SUbmit them for filing
with the Internal Revenue Service to the custodian at least fifteen days prior
to the date on which the return Is due for such tal(able year, along with an
appropriate payment directive authOrizing the custodian to execute the forms
on behalf of your Roth iRA and to pay the applicable unrelated business income
tax from your Roth IRA on unrelated business income which exceeds the current
$1,000 exclusion.
9.17 Acknowledgment of and Authorization for Telephone Recordings: We reserve
the right to install and/or maintain automatic telephone recording equipment
on certain telephone lines used by personnel servidng the custodial account
In connection wIth trading functions and customer inquiries. By signing this
Agreement, you acknowledge our right and expressly authorize us to record
and play back any and all such telephone calls.
Gentrallnstructlons
Section references are to the Intemal Revenue Code unless otherwise noted.
Purpose of Form
Form 5305-RA is a model custodIal account agreement that meets the requirements
of section 40SA and has been pre-approved by the IRS. A Roth Individual Retirement
Account (Roth IRA) Is established after the form Is fully el(ecuted by both the IndivIdual
(Depositor) and the Custodian. ThIs account must be created In the UnIted States for the
exclusive benefit of the DeposItor and his or her beneficiaries.
Do not file Form 5305-RA with the IRS. instead. keep It with your records.
Unlike contributions to TraditIonal individual retirement arrangements,contrlbutions to
a Roth IRA are not deductible from the Depositor's gross Income; and distrIbutions after
S years that are made when the Depositor Is 59
1
/.! years of age or older or on account
of death, disability, or the purchase of a home by a first-time homebuyer aimited
to $10,000), are not includible in gross income. For more information on Roth IRAs,
incl.u?ing the required disclosures the Custodian must give the DepOSitor, see Pub.590,
IndIVIdual Retirement Arrangements (lRAs).
Definitions
IRA Conversion ContributIons. IRA Conversion Contributions are amounts rolled over,
transferred, or consIdered transferred from a non Roth IRA to a Roth IRA. A non Roth IRA
Is an Individual retirement account or annuity described in section 408(a) or 408(b),
other than a Roth IRA.
Custodian. The custodian must be a bank or savings and loan associatIon, as defined in
section 4()8(n), or any person who has the approval of the IRS to act as custodian.
Depositor. The depositor is the person who establishes the custodial account.
Specific Instructions
Artide I. The Depositor may be subject to a 6% tal( on excess contributions If (1)
contributions to other individual retirement arrangements of the Depositor have
been made for the same tax year, (2) the Depositor's adjusted gross Income exceeds
the applita.ble limits in Article II for the talC year, or (3) the Depositor's and spouse's
compensaUon is less than the amount contributed by or on behalf of them for the
tax year. The Depositor should see the Disclosure Statement or Pub. 590 for more
Information.
Article V. This article describes how distributions will be made from the Roth IRA after
the Depositor's death. Elections made pursuant to this article should be reviewed
periodically to ensure they correspond to the Depositor's intent. Under paragraph 3 of
Article V, the Depositor's spouse Is treated as the owner of the Roth IRA upon the death
of the Depositor, rather than as the benefiCiary. If the spouse is to be treated as the
beneficiary, and not the owner, an oveniding provision should be added to Article IX.
Artide IX. Article IX and any that follow it may incorporate additional prOVisions that
are to by the and to complete the agreement. They
may for example, definitiOns, Investment powers, voting rights, exculpatory
proviSIons, and termination, removal of the Custodian, Custodians
fees, state law reqwements, beginning date of distributions, accepting only cash,
treatment of excess contributions, prohibited transactions with the etc.
Attach additional pages if necessary. '
10
495
RIGHT TO REVOKE YOUR IRA
If you receive this DIsclosure Statement at the tIme you establish your IRA, you have
the right to revoke your IRA within seven (7) days of Its establishment If revoked,
you are entitled to a full retum of the contribution you made to your IRA. The
amount returned to you would not Indude an adjustment for such Items as sales
commissions, admlnlstrattve expenses. or fluctuation In market value. You may make
this revocatIon only by mailing or delivering a written notice to the CUstodian at the
address listed on the ApplicatIon.
If you send your notice by first class mall, your revocation will be deemed mailed as
of the postmark date.
. If you have any questIons about the proa!dure for r!:Yoklng your IRA, please call the
Custodian at the telephone number listed on the APplication.
REQUIREMENTS OF AN IRA
A. CASH CONTRIBlffiONS • Your contribution must be In cash. unless It Is a rollover
contribution.
B. MAXIMUM CONTRIBUTION· The total amount you may contribute to an IRA for
any taxable year cannot exceed the lesser of , DO percent of your compensation
or $3,000 for years 2002-2004, $4,000 for years 2005-2007, and $5.000 for 20DS,
with possible cost-of·lIvlng adjustments In years 2009 and thereafter. If you also
maintaIn a Roth IRA, the maximum contribution to your Traditional IRAs (I.e., IRAs
subject to Internal RE:Venue Code (Code) sections 40B(a) or 4OB(b» Is reduced by
any contributions you make to your Roth IRA. Your total annual contribution to
all TradltionallRAs and Roth IRAs cannot exceed.the lesser of the dollar amounts
described above or 100 percent of your compensatIon.
C. CONTRIBUTION ELIGIBILITY - You are eligible to make a regular contribution to
your IRA If you have compensation and have not attained age 701a by the end of
the taxable year for which the contribution Is made.
D. CATCH-UP CONTRIBUTIONS· If you are age SO or older by the close of the taxable
year, you may make an additional contribution to your IRA. The maximum
additional contributIon Is $500 for years 2002-2005 and $1,000 for years 2006 and
beyond.
E. NONFORFEITABILITY· Your Interest In your IRA Is nonforfeitable.
F. ELIGIBLE CUSTODIANS - The CustodIan of your IRA must be a bank, savings and
loan associatIon, credit union, or Ii person or entity approved by the Secretary of
the Treasury.
G. COMMINGLING ASSm· The assets of your IRA cannot be commingled with other
property except In a common trust fund or common Investment fund.
H. LIFE INSURANCE - No portion of your IRA may be Invested In life Insurance
contracts.
I. COlLECTIBLES· You !1IiIy not Invest the assets of your IRA in collectIbles (within
the meanIng of Code sectlon 408(m». A collectible Is defined as any work of art,
rug C)r antique. metal or gem, stamp or coIn, alcohollt beverage, or other tangible
personal property specified. by the Internal Revenue Service ORS). However,
specially minted United States gold and silver coins, and certain state-Issued .colns
are permissible Investments. Platinum coIns and certain gold, silver. platinum or
palladium bullion (as described In Code section 408(m)(3» are also permitted as
IRA Investments.
J. REQUIRED MINIMUM DISTRIBUTIONS • You are required to take minimum
distrIbutions from your IRA at certain times In accordance with Regulations
sectlon 1.408-8. Below Is a summary of the IRA distribution rules.
1. You are required to take a minImum dIstribution from your IRA for the year
In which you reach age 70112 and for each year thereafter. You must take your
first dIstribution by your requIred beginning date, which Is April 1 of the year
following the year you attain age 70
'
12. The mInimum distribution for any
taxable year Is equal to the amount obtained by dividing the acccunt balance
at the end of the prior year by the applicable divisor.
2. The applicable divisor Is generally determined using the uniform lifetime table
provided by the IRS. The table assumes a designated beneficiary exactly, 0
years younger than you, regardless of who Is named as your beneficiaryOes),
If any. If your spouse Is your sole designated beneficiary, and Is more than " 0
years younger than you, the required minimum distribution is determined
annually using the actual joint life expectancy of you and your spouse
obtained from the joint and last survivor table provided by the IRS, rather than
the life expectancy divisor from the uniform lifetime table.
We reserve the right to do anyone of the following by April 1 of the year
following the year in which you tum age 701a :
(a)· make no distribution untll you give US a proper withdrawal request,
(b) distribute your entire IRA to you In a sIngle sum payment, or
ETC(Rev. July 2008)
(t) determine your required minimum dIstributIon from your IRA with us each
year based on your life expectancy calculated using the uniform lifetime
table, and pay those distributions to you until you dIrect otherwise.
3. Your desIgnated beneficiary Is determined based on the beneficlaryOes)
designated as of. the date of your death, who remains your beneflclary(les) as
of September 30 of the year following the year of your death. If you die,
(a) on or after your requIred beginning date. distributions must be made
to your benefldary(les) over the longer of the single life expectancy of
your designated beneficlaryOes), or your remainIng life expectancy. If
a beneficiary other than an Individual or qualified trust as defined in
the Regulations Is named, you will be treated as having no designated
beneficiary of your IRA for purposes of determinIng the distribution
period. If there Is no designated beneficlary of your IRA, distributions
will commence using your single life expectancy, reduced by one in each
subsequent year.
(b) before your required beginning date, the entIre amount remaIning In your
account will. at the election of your designated beneficiary(les), either
(I) be dIstributed by December 31 of the year contaIning the fifth
aMlversary of your death, or
(II) be distributed over the remaining . life expectancy of your designated
beneficlaryOes).
Your designated beneficlary(les) must elect eIther option p) or (II) by December
31 of the year following the year of your death. If no eI.ectlon Is made,
distributIon will be calculated In accordance with option (11). In the case of
distributions under option (II), distributions must commence by December
31 of the year following the year of your death. Generally If your spouse Is the
designated beneficiary, distributions need r,ot commence until December 31
oftheyearyou would have attained age 70 :a,iflater.lta beneflclary(les) other
than an Individual or qualified trust as defined In the Regulations Is nllmed,
you will be treated as having no designated beneflciary(les) r:I your IRA for
purposes r:I determining the distribution period. If there 15 no designated
beneflcfary of your IRA, the entire IRA must be distributed by December 31 of
the year containing the fifth anniversary of your death.
A spouse who Is the sole designated beneflcfary of your entire IRA will be
deemed to elect to treat your IRA as his or her own by either (1) making
contributions to your IRA or (2) falling to timely remove a required mInImum
distribution from your IRA. Regardless of whether or not the spouse Is the sole
designated beneficIary of your IRA, a spouse beneficiary may rollover his or
her share of the assets to his or her own IRA.
INCOME TAX CONSEQUENCES OF ESTABUSHING AN IRA
A. IRA DEDUCTIBILITY· If you are eligible to contribute to your IRA, the amount
of the contribution for which you may tab a tax deduction will depend upon
whether you (or, In some cases, your spouse) are an actlve participant In an
employer-malntalned retirement plan. If you (and your spouse, if married) are not'
an active participant, your entire IRA contribution will be deductible. If you are
an active partlclpant (or are married to an active participant), the deductibiUty of
your contribution will depend on your modified adjusted gross Income (MAGI)
and your tax fll1ng status for the tax year for which the contribution was made.
MAGI Is determined on your Income tax retum using your adjusted gross Income
but disregarding any deductible IRA contribution.
11
Definition of ActIve Participant· Generally, you will be an active partldpant If you
are covered by one or more of the following employeHllillntalned retirement
plans:
1. a qualified pension, proflt sharing, 401 (k), or stock bonus plan;
2. a qualified annuity plan of an employer:
3. a simplified employee pension (SEp) plan:
4. a retirement plan estabnshed by the federal govemment, a stiIte, or a political
subdivision (except certain unfunded deferred compensation plans under
Code sectlon 457):
5. a tax-sheltered annuity for employees of certain tax-exempt organIzations or
public schools;
6. a plan meeting the requirements of Code section 501 (c)(1 8):
7. a qualified plan for self-employed Indivlduals(H.R. 10 or Keogh Plan): and
B. a savings Incentive match plan for employees of small employers (SIMPLE) IRA
plan or a SIMPLE 401 (k) plan.
If you do not know whether your employer maintaIns one of these plans, or
whether you are an active participant In It, check with your employer or your
tax advisor. Also, the IRS Form W-2, Wage and Tax Statement, that you receive at
the end of the year from your employer will Indicate whether you are an active
participant If you are an active partlclpant and are Single, the deductible amount
496
of your contribution Is determined as follows: (1) begin with the appropriate
phase-out range maximum for the applicable year (specified below), and
subtract your M A G ~ (2) divide this total by the difference between the phase-out
maximum and minimum; (3) mUltiply this number by the maximum allowable
contr1bU1fon for the applicable year, Including catch-up contributions If you are
age 50 or older. The resulting figure will be the maximum IRA deduction you
may take. For example. If you are age 30 with MAGI of $36,000 In 2002, your
maximum deductible mntr1butlon Is $2)400 (the 2002 phase-out range maximum
of $44,000 minus your MAGI of $36,000, divided by the difference between the
maximum and minimum phase-out range limits of $10,000 and multiplied by the
contribution limit of $3,000.)
If you are an active participant:, are married and you file a joint Income tax return,
the deductible amount of your contribution Is determined as follows: (1) begin
with the appropriate phase-out maKlmum for the applicable yellr (specified
below), and subtract your MAGI range; (2) divide this total by the difference
between the phase-out range maximum and minImum: (3) multiply this number
by the maximum allowable contribution for the applicable year, Indudlng
catch-up contributions If you are age 50 or older. The resulting figure will be the
maximum IRA deduction you may take. For example, If you are age 30 with MAGI
of $56,000 In 2002, your maximum deductible contribution Is $2,400 (the 2002
phase-out maximum of $64.000 minus your MAGI of $56,000, divided by the
difference between the maximum and minimum phase-out limits of $10.000 and
multiplied by the contribution limit of $3.000.)
If you are an active participant, are married and you file a separate Income tax
return, your MAGI phase-out range Is generally $0 - $1 0.000. However,lf you lived
apart for the entire tax year. you are treated as a single filer.
Tax Year
JolntRlers
Single Taxpayer
Phase-out Range
Phase-out Range
(mlnlmum)(mOJdmum)
(mlnlmumJ(maxlmumJ
2002 $54.000 - $64.000
$34,000 - $44.000
2003 $60.000 - $70.000
$40,000 - $50,000
2004 $65.000 - $7S,OOO
$4S.OOO - $55,000
200S $70,000 - $80,000
$50,000- $60,000
2006 $75,000 - $85,000
$50,000 - $60,000
2007 $83,000- $103,000
$52,000 - $62,000
2008 $85,000 - $105.000
$53.000 - $63,000
If you are not an active partldpant in an employer-maintained retirement plan,
are married to someone who Is an active participant, and you flIe a Joint Income
tax retum. your maKlmum deductible contribution Is determined as follows: (1)
begin with $160,000 and subtract your MAGI; (2) divide this total by $10.000; (3)
multiply this number by the maximum allowable contribution for the appilcabJe
year, Indudlng catch-Up contributions if you are age 50 or older. The resulting
figure will be the maximum IRA deduction you may take.
You must round the resulting deduction to the next highest $10 If the number Is
not a multiple of 1 0.1f your resulting deduction 15 between $0 and $200 you may
. round up to $200.
B. CONTRIBUTION DEADUNE - The deadline for making an IRA contribution [s your
tax retum due date (not Includ[ng extensIons). You may designate a contribution
as a contribution for the preceding taxable year In a manner acceptable to us. For
example, If you are a calendar year taxpayer, and you make your IRA contribution
on or before April 15, your contribution Is considered to have been made for the
previous tax year if you designate It as such.
C. TAX CREDIT FOR CONTRlBU110NS - For taxable years beginning on or after
January 1,2002, you may be eligible to receive a tax credit for yourTl'1Idltlonal or
Roth IRA contributions. This credit will be allowed In addition to any tax deduction
that may apply, and may not exceed $1.000 in a given year. You may be eligible for
this tax credit If you are
• age; 8 or older as of the dose of the taXable year,
• not a dependent of another taxpayer, and
• not a full-time student.
The credit Is based upon your Income (see chart below), and will range from 0
to SO percent of eligible contributions. In order to determine the amount of your
contributions, add all of the contributions made to your Traditional or Roth IRA
and reduce these contribUtions by any distributions that you have taken during
the testing period. The testing period begins two years prior to the year for which
the credit Is sought and ends on the tax retum due date (including extensions)
for the year for which the credit Is sought. In order to determine your tax credit,
multiply the applicable percentage from the chart below by the amount of your
contributions that do not exceed $2.000_
ETC (Rev. July 2008)
-Adjusted gross Income Includes foreign earned Income and Income from Guam,
America Samoa. North Mariana Islands and Puerto Rico.
D. TAX-DEFERRED EARNINGS - The Investment eamlngs of your IRA are not subject
to federal Income tax until distributions are made (or, In certain Instances, when
distributions are deemed to be made).
E. NONDEDUCTIBLE CONTRIBUTIONS - You may make nondeductible contributIons
to your IRA to the extent that deductible contributions are not allowed. The
sum of your deductible and nondeductIble IRA contributions cannot exceed
your contribution limit (the lesser of the allowable contribution limit described
prevIously, or 1 00 percent of compensation). You may elect to treat deductible IRA
contributions as nondeductible contributions.
If you make nondeductible contributions for a particular tax year, you must report
the amount of the nondeductible contribution along with your Income tax return
using IRS Form 8606. Failure to file IRS Form 8606 will result In a $50 per failure
penalty.
If you overstate the amount of designated nondeductible contributions for any
taxable year, you are subject to a $100 penalty unless reasonable cause for the
overstatement can be shown.
F. TAXATION OF DISTRIBUTIONS - The taxation of IRA distributions depends' on
whether or not you have ever made nondeductible IRA contributions. If you hilve
only made deductible contributions, any IRA dIstributIon will be fully Included In
Income.
If you have eVer made nondeductible contributions to any IRA. the following
formula must be used to determine the amount of any IRA distribution excluded
from Income. . \.
(Aggregate Nondeductible Contribudons) It
lAmountW!thdrawnl '" AmoL8'lt Excluded from Income (AggregtJte IRA BDlanre) +
(Amount oflRA Distributions)
NOTE: Aggregate nondeductible contributions Include all nondeductible
contributions made by you through the end of the year of the distribution (which
have not previously been withdrawn and excluded from Income). Also note that
the aggregate IRA balance Includes the total balance of all of your IRAs as of the
end of the year of distribution and any distributions occurring during the year.
G. ROLLOVERS AND CONVERSIONS - Your IRA may be rolled over to an IRA of yours,
may receIve rollover contributions, ilnd may be mnverted to a Roth IRA. provided
that all of the applicable rollover and converston rules are followed. Rollover Is a
term used to describe a tax-free movement of cash or other property to your IRA
from another IRA. or from your employer's qualified retirement plan,403(a) annuity
plan, 403(b) tax-sheltered annuity, or 4S7(b) elIgible governmental deferred
compensation plan. Conversion Is a term used to describe the movement of
Traditional IRA assets to a Roth IRA. A conversion is generally a taxable event. The
rollover and conversion rules are generally summarized below. These transactions
are often complex. If you have any questions regarding a rollover or conversion.
please see a competent tax advIsor. .
12
1. Traditional IRA to Traditional IRA Rollovlll"S - Funds dIstributed from your
IRA may be rolled over to an IRA of yours If the requirements of Code section
408(d)(3) are met. A proper IRA to IRA rollover Is completed If all or part of
the distribution Is rolled over not later than 60 days after the distribution Is
received. You may nOt have completed another IRA to IRA rollover from the
distributing IRA during the 12 months preceding the date you receive the
distrIbution. Further, you may roll over the same dollars or assets only once
every 12 months.
2. SIMPLE IRA to TradldonallRA Rollover. - Funds may be dIstributed from your
SIMPLE IRA and rolled over to your IRA without IRS penalty provided, two
years have passed sInce you first participated In a SIMPLE IRA plan sponsored
by your employer. As with Traditional IRA to Traditional IRA rollovers, the
requirements of Code section 408{d)(3) must be met. A proper SIMPI.E IRA to
IRA rollover Is completed If all or part of the distribution Is rolled over not later
than 60 days after the dIstribution is received. You may nOt tiave completed
another SIMPLE IRA to IRA or SlMPLE IRA to SIMPLE IRA rollover from the
distributing SIMPLE IRA during the 12 months preceding the date you receive
the dlstnDutlon. Further, you may roll over the same dollars or assets only once
every 12 months.
497
3. Employer-Sponsored Retirement Plan to Traditional IRA Rollavers - You
may roll over, directly or IndIrectly, any eligible roll ever distribution from an
eligible employer-sponsored retirement plan. An eligible rollover distribution
Is defined generally as any distrIbution from a qualified retirement plan, 4()3(a)
annulty,403(b) tax-sheltered annuity, or 457(b) eligIble governmental deferred .
compensation plan (IncludIng trustee-ta-trustee transfers after December
31,2006 to nonspouse beneficiaries) unless It 15 part of a certain series of
substantially equal periodic payments, a required minimum distribution, or a
hardship distributIon. .... .
If you elect to receive your rollover distribution prior to placing It In an IRA,
thereby conducting an Indirect rollever, your plan ildmlnlstrator will generally
be required to withhold 20 percent of your distrIbution as a payment of
Income taxes. When completing the rollover, you may make up the amount
withheld, out of pocket, and roll over the full amount dIstrIbuted from your
employer-sponsored retirement plan. To qualify as a rollever, your eligible
rollover distribution must be rolled over to your IRA not later than 60 days
after you receive It. Altematlvely, you may claIm the withheld amount as
Income, and pay the applicable Income tax and, If you are under age
the 1 0 percent early dlstrlbutton penalty (unless an exception to the penalty
applies).
As an altemative to the Indirect rollover, your employer generally must give
you the option to directly roll over your employer-sponsored retirement
plan balance to an IRA. If you elect the direct rollover option, your eligible
rollover diStrIbution will be paid directly to the IRA (or other eligible employer-
sponsored retirement plan) that you desIgnate. The 20 percent withholding
requirements do not apply to direct roIlevers.
4. Traditional IRA to Employer-Sponsored Retirement plans - You may roll
over, directly or Indirectly, any eligible rollover distribution from an IRA to
an employer's qualified retirement plan, 403(a) annuity, 403{b) tax-sheltered
annuity, or 4S7(b) eligible govemmental deferred compensation plan so long
as the employer-sponsored retirement plan accepts such rollovercontrlbutlons.
An eligible rollover dIstribution Is defined as any taxable distribution from an
IRA that Is not a part of a required minimum distribution.
S. Traditional IRA to Roth IRA Conversions - If your modified adjusted gross
Income Is not more than $100.000, and you are nDt married filing a separate
Income tax retum, you are eligible to convert all or any portion existing
Traditional IRA(s) Into your Roth IRA(s). However, If you are age 70
1
12 or older
you must remove your required minimum distribution prior to converting
yourTradltlDnallRA. The amount of the conversion from your Traditional IRA to
your Roth IRA shall be treated as a distribution for Income tax purposes, and Is
includible In your gross Income (except for any nondeductible contributions).
Although the conversion amount Is generally Included In Income, the 10
percent early dlstrl!lutlon penalty shall not apply to conversions from a
TradItional IRA to a Roth IRA, regardless of whether you qualify for any
exceptions to the 10 percent penalty.
6. Written Election - At the time you make a proper rollover to an IRA, you must
desIgnate In wrltlng to us, your electIon to treat that contribution as a rollover.
Once made, rollover election Is Irrevocable.
H. TRANSFER DUE TO DIVORCE - If all or any part of your IRA Is awarded to· your
spouse or former spouse In a divorce or legal separation proceeding. the amount
so awarded will be treated as the spouse's IRA [and may be transferred pursuant
to a court-approved divorce decree or written legal separation agreement to
another IRA of your spouse), and will not be considered a taxable dIstribution to
you. A transfer Is a direct movement of cash andlor property from one
Traditional IRA to another.
I. REOiARACTERIZATIONS -If you make a contribution to a Traditional IRA and
... later recharacterlze either all or a portion of the original contribution to a Roth
IRA along with net Income attributable. you may elect to treat the original
contribution as having been made to the Roth IRA. The same methodology
applies when recharacterizing a contribution from a Roth IRA to a Traditional IRA.
If you have converted from a Traditional IRA to a Roth IRA you may recharacterlze
the conversIon along with net Income attributable back to the TradltlonallRA. The
deadlIne for completing a recharacterl2ation Is your tax filing deadline (including
. any extensions), for the year for which the original contribution was made or
conversion completed. You must report a recharacterlzed contribution on your
federal Income tax retum In accordance with the Instructions to IRS Form 8606.
You may not recharacterlze Roth IRA contributions as contributions to a 5EP or
SIMPLE IRA.
LIMITATIONS AND RESTRICTIONS
A. SEP PLANS - Under a simplified employee pension (SEP) plan that meets the
requirements of Code section 408(k), your employer may make contributions
to your IRA. Your employer is required to provide you with Information which
describes the terms of your employer's SEP plan.
B. SPOUSAl IRA - If you are married and have compensation, you may contribute
ETC (Rev. July 2008)
Tradltlon.IIRA Disclosure Statlm.nt
to an IRA established for the benefit of your spouse for any year prior to the
year your spouse turns age 70
1
/.2, regardless of whether or not your spouse has
You may make spousal contributions even If you are age
70 12 or older. You must file a Joint Income tax retum for the year for which the
contribUtion Is made.
The amount you may contribute to your IRA and your spouse's IRA Is the lesser
of 100 percent of your combined compensation or $6,000 for 2002-2004, $8.000
for 2005-2007, ancl $10,000 for 2008. This amount may be Increased with cost-of-
living adjustments In 2009 and beyond. However, you may not contribute more
than the Individual contribution limit to each IRA.
Ifyourspouse 15 age SOor older by the close of the taxable year, and Is otherwise
eligible, you may make an additional contribution to your spouse's IRA. The
maximum additional contribution 15 $500 for years 2002-2005, and $1,000 for
years 2006 and beyond.
C. DEDUCTION OF ROLLOVERS AND TRANSFERS· A deduction Is not allowed for
rollover contributions or transfers.
D. GIFTTAX - Transfers of your IRA assets to a benefiCiary made during your life and
. at your request may be subject to federal gift tax undllr Code section 2501. '
E. SPECIAL TAX TREATMENT - Capital gains treatment and lO-year forward Income
averaging authorized by Code section 402 do not apply to IRA distributions.
F. INCOME TAX TREATMENT - Any withdrawal from your IRA Is subject to federal
Income tax withholding. You may, however, elect not to have withholding apply
to your IRA withdrawal. If withholding Is applied to your withdrawal, not less than
10 percent of the amount withdrawn must be withheld.
G. PROHIBITED TRANSACTIONS - If you or your beneficiary engage In a prohibited
transaction with your IRA, as described In Code section 4975, your IRA will lose
. Its tax-deferred status, and you must Include the value of your account In your
gross Income for the taxable year you engage In the prohibited transaction. The
following transactions are examples of prohibited transactions with your IRA:
(1) taking a loan from your IRA; (2) buying property for personal use (present or
future) with IRA funds; or (3) receiving certain bonuses or premiums because of
your IRA.
H. PLEDGING - If you pledge any portion of your IRA as collateral for a loan, the
amount so pledged wiD be treated as a distribution, and will be Included In your
gross Income for the taxable year In which you pledge the assets.
I. LISTED TRANSACTIONS AND REPORTABLE TRANSACTIONS - Certain transactions'
are or may be Identified by the Intermil Revenue Service as abusive tax shelter
schemes or transactions. A prohibited tax shelter transaction, as described In Code
section 4965, Is a transaction that Is a listed transaction (lndudlng a subsequently
listed transaction), as described In Code section 6707 A(c)(2), or a prohibited
reportable transaction. which Is either a confidential transaction or a transaction
with contractual protection and which Is a reportable transaction defined hi Code
section 6707 A(t)(1). A hsted transaction Is a transaction that Is the same as or
substantially slmilarto any of the types of transactions thatthe IRS has determined
to be a tax avoidance transaction and are Identified by notice. regulation or other
fonn of published guidance as a listed transaction. A confidential transaction Is
a transaction that Is offered under conditions of confidentiality and for which a
minimum fee was paid. A transaction with contractual protection Is iI transaction
for which the party to the transaction has the rIght to a full or partial refund of
fees If all or part of the Intended tax consequenceS from the transaction are not
sustained or with respect to which fees are contingent on the realization of tax
benefits from the transaction.
13
As a type of tax-exempt entity subject to the prohibited tax shelter transaction
rules, an IRA is required to file IRS Form B886-T to disclose Information with
respect to each prohibited tax shelter transaction, entered Into after May 17, 2006,
to whkh It Is a party. If the IRA participates In a reportable transaction (as defined
In Treasury Regulations section 1.6011-4) the IRA also may be required to file IRS
Form 8886. These forms must beflled by the entity manager, who In the case of a
self-dlrected IRA. Is the IRA owner who approved or caused the IRA to be a party to
the transaction. Code section 6011 (g) also requires a taXable party to a prohibited
tax shelter transaction to dlsdose to the IRA tustodlan that such transaction has
occurred In addition to the reporting llnd disclosure requirements, an IRA entity
manager may be )lable for excise taxes In connection with the prohIbited tax
shelter transaction. IRS Form S330 Is to be used for reporting such excise taxes.
Addltlonal penalties are Imposed by Code section 6662A for failure to
required Infonnatlon with respect to prohibited tax shelter transactions.
FEDERAl TAX PENALTIES
A. EARLY DISTRIBUTION PENALTY - If you are under age S9
1
J2 and receive an IRA
distribution, an additional tax of 10 percent will apply, unless made on account
of 1) death, 2) dlsablhty, 3) a qualifying rollover, 4) the timely withdrawal of an
excess contribution, S) a series of SUbstantially equal periodic payments (at least
annual payments) made over your life expectancy or the Joint life expectancy of
you ilnd your benefldary, 6) medical expenses which exceed 7.5 percent of your
adjusted gross income. 7) health Insurance payments If you are from
498
employment and have received unemployment compensation under a federal
or state program for at least 12 weeks, 8) certain qualified education expenses, 9)
flrsHome purchases (up to a life-time maximum of $10,000), or 10) a levy Issued
by the IRS. This additional tax will apply only to the portion of a distribution which
Is Indudlble In your taxable Income.
B. EXCESS CONTRIBUTION PENALTY· An additional tax of six percent Is Imposed
upon any excess contribution you make to your IRA. this additional tax will apply
each year In which an excess remains In your IRA. An excess contribution is any
amount that Is contributed to your IRA that exceeds the amount that you are
eligible to contribute.
C. EXCESS ACCUMULATION PENALTY • As previously described. you must take a
required minimum distribution by your required beginning date for the year you
attain age 701/,2 and by the end of each year thereafter. Your beneficiaryOes) Is
required to take certain minimum distributions after your death. An additional
tax of 50 percent Is imposed on the amount of the required minimum distribution
which should have been taken but was not.
D. PENALTY REPORTING - You must file IRS Form 5329 along with your Income tax
retum to the IRS to report and remit any additional taxes.
E. PROHIBITED TAX SHELTER TRANSACTION EXCISE TAX - For tax years beginning
after May 17, 2006, If you, as entity manager of your IRA, approve or otherwise
cause your IRA to be a party to a prohibited tax shelter transaction during
the taxable year and you know or have a reason to know the transaction Is a
prohibited tax shelter transaction, you must pay an excise tax under Code section
496S(b)(2). You must flle IRS Fonn 5330 to report this tax.
OTHER INFORMATION
A. IRS PLAN APPROVAL - Articles I through VII of the Equity Trust Trad.itlonal
Individual Retirement Custodial Account Agreement reflect the predse language
of the corresponding artldes of the IRS Model Traditional Individual Retirement
Custodial Account Agreement (Form 530S.A). Therefore. your Equity Trust
Tradition;!! Individual Retirement Custodial Account Agreement Is treated as
satisfying all applicable IRS requirements as to the form of the IRA. without the
need for specific IRS approvaL However. because this treatment relates to the
form of the IRA only, nothing In your Custodial Account Agreement constitutes
an endorsement of. Dr a determination or opinion of the merits or consequences
of. any action In connection with the operation of your Traditional IRA or of any
Investments made
B. NO PREDICTION, REPRESENTATION OR GUARANTEE OF FUTURE VAWE -The value
of your IRA at any time will depend on the amount of contributions to It. the
performance of Its Investments as selected by you or your Authorized Agent, and
the time and amount of charges to and payments from It. Equity Trust does riot
predict, represent or guarantee the value of your IRA at any future time.
C. IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT
• To help the government fight the funding of terrorism and money laundering
activities. Federal law requires all financial organIzations to obtaIn, verify. and
record Information that Identifies each person who opens an account. What this
means for you: When you open an account. you are requIred to provide your
name. resIdentIal address, date of birth, and Identification number. We may
require other Information that will allow us to Identify you.
D. STATEMENTS/ACCOUNTING - Each year EqultyTrust will furnish you a statement
of account which will state the amount of the contributions to your custodial
account, distributions from the custodial account and the total value of the
custodial account as of the end of the year. Information relating to contributions
and wIthdrawals must be reported annually to the Intemal Revenue Service
by you or, in the case of a spousal IRA, by your spouse. Statements will reflect
Information provided to EquIty Trust by you andlor your Authorized Agent.
Therefore. statements will be only as accurate as the Information provided.
Equity Trust neither assumes any responsibIHty for the accuracy of Information
provided. nor guarantees the particular tax treatment of any amounts entered In
Its records.
E. AVAILABILITY OF FUNDS AFTER DEPOsrr - Generally. before Equity Trust can or will
execute on or otherwise effectuate a directed transaction with respect to your IRA
account, Equity Trust requires knowledge that your IRA account has or Is In receipt
of good funds needed for such transaction. Thus, generally, Equity Trust will need
to walt until it knows that checks deposited or other funds transferred into your IRA
account have deared before Equity Trust can or will act on Investment directives
from you or your Authorized Agent. The availability of funds deposited with Equity
lhJst will depend upon the method utilized to accomplish such transmission and
several other factors. However. as a general rule, checks deposited from another
IRA custodian will be available within five business days from deposit, and personal
checks deposited by you as an IRA contribution or from thIrd parties In payment
of amounts owing to your IRA from Investments, etc. will be available within seven
business days from deposit. Utill%atlon of wire transfers and online banking may
expedite dearance of such funds.
F. TELEPHONE AUTIiORIZATION - Equity TrUst Is authorized. at Its option. to honor
Tradltlpna! IRA DIsclosure Statjment
telephone transaction requests placed by you or your Authori:zed Agent with
respect to your custodial account. These requests may Indude purchases, sales
and exchanges of assets whose sponsors accept telephone authori1Btlons from
EqultyTrust on your behalf. EqultyTrust may require you to complete and provide
a Telephone Authorization Form. EqultyTrust also may require the use of a spedal
Identification number and Social Security number for each transaction. EqultyTrust
Is not responsible for determining whether or not a caller Is authorized other than
verifying that such caller Is using the proper Identification number for the account.
You agree that EqultyTrust Is not responsible for unauthorized transactions In your
custodial account by callers who provide the proper Identification number for your
account.
G. AMENOMENl5 - EqultyTrust may amend, change orterminatethe Custodial Account
Agreement at any time. Any amendment made by Equity TruSt: to comply with the
Code and related Regulations does not require your consent. You win be deemed
to have consented to any other amendment unless. within 30 days from the date
Equity Trust malls or otherwise transmits the amendment, you notify Equity Trust
In writing that you do not consent. Amendments also may be made by written
agreement of EquityTrust and you.
H. ACCOUNT TERMINATION • You maytennlnate your EqultylhJst IRA at anytime upon
written notice signed by you. The nQtice must Identify your EqultyTrust IRA account
number. give Instructions on the disposition of your IRA's assets and be sent to: '
Equity Trust Company Ovemlght Delivery Address; Phone: (440) 323-5491
P.O. Box 1319 22S Bums Road Toll Free: (87n693-8209
Elyria. OH 44036 Elyria, OH 44035 Fax: (440) 366-3755
Your Equity Trust IRA will terminate upon the earliest of:
• The date the IRA assets have been disposed of In accordance with your
instructions If you terminate Equity Trust as custodian:
• The date all the IRA's assets have been distributed;
• The date the IRA ceases to meet the requirements of Code section 408; or
The date the IRA assets have been transferred to and accepted by a successor
custodian or trustee as a result of the resignation of EqultyTrust and selection
of a successor custodian or trustee.
I. GOLD LEVEL SERVICE (GLS) -If you have elected GLS on the IRA Application Form.
the GLS fee for each succeeding year will be automatically withdrawn from your
Traditional IRA account on each anniversary date of your GLS membership (the
"annual renewal date, until you submit a written notice of cancellation of your
GLS membership to Equity Trust at least 30 days prior to the annual renewal date
for such succeeding year.
. J. ADOmONAL INFORMATION - You may obtain further Information on IHAs from
your District Office of the IRS. In particular, you may wish to obtain IRS Publication
590, Individual Retirement Arrangements. by calling l-BOO-TA)(-FORM, or by
visiting www.lrs.govon the Intemet. •
ETC (Rev. July 2008) 14
499
RIGHT TO REYOKEYOUR ROTH IRA
If you receive this Disdosure Statement at the time you establish your Roth IRA, yDll
have the right to revoke your Roth IRA within seven (7) days of Its establishment. If
revoked, you are entitled to a full retum of the contribution you made to your Roth IRA. J.
The amount returned to you would not Indude an adjustment for such Items as sales
commissions, administrative expenseS, or fluctuation In market value. You may make
this revocation only by mailing or delivering a written notice to the Custodian at the
are permissIble Investments. Platinum coins and certain gold, sliver, platinum or
palladium bulRon (as described in Code section 408(m)(3» are also permitted as
Roth IRA Investments.
BENEFICIARY PAYOUT.5 • Your designated benefiCiary 15 determined based on
the benefldary(ies} designated as of the date of your death who remains your
beneflclaryOes) as of September 30 of the year following the year of your death. The
entire amount remaining In your account wilt at the election of your beneficiaryOes),
either
.address listed on the AppHcatlon. .
If you send your notice by first dass mall, your revocation wlll be deemed mailed as of
. the postmark date.
If you have any questions about the prOcedure for revoking your Roth IRA, please call
the CustOdian at the telephone number listed on the Application.
REQUIREMENTS OF A ROTH IRA
A.. CASH CON71I1BU710NS • Your contribution must be In cash, unless It Is a rollover or
conversion contribution.
B. MAXIMUM CON71IIBUTION • The total amount you may contribute to a Roth IRA for
any taxable Year cannot eJ«:eed the lesser of 1 00 percent of your compensation
or $3,000 for years 2002-2004, $4,000 for years 2005-2007, and $5,000 for 2008,
with possible cost-of-lMng adjustments In years 2009 and thereafter. If you also
maintain a Traditional IRA O.e., an IRAsubJec:t to the limits of Internal Revenue Code
(Code) sections 408(a) or 408(b», the maximum contnbutlcn to your Roth IRAs Is
reduced by any contributions you make to your Traditional IRA. Your total annual
contribution to all traditional IRAs and Roth IRAs cannot exceed the lesser of the
dollar amounts described above or 100 percent of your compensation.
Your Roth IRA contribution Is further limited If your modified adjusted gross Income
(MAGI) equals or exceeds $159,000 If you are a marrled Individual filing a Joint
Income tax retum, or equals or eJ«:eeds $101,000 If you are a single Individual.
Married Individuals filing a Joint Income tax retum with MAGI equaling or eJ«:eedlng
$169,000 may not fund a Roth IRA. Single Individuals with MAGI equaling or
eJ«:eedlng $1 I 6,000 may not fund a Roth IRA. Married Individuals filing a separate
Income tax return with MAGI equaling or exceeding $10,000 may not fund a Roth
IRA.
If you are mamed filing a Joint Income tax retum and your MAGI 15 between
$159.000 and $169,000, your maximum Roth IRA contribution Is determined as
follows: (1) Subtract your MAGI from $169,000; (2) divide the difference by $10.000;
and (3) multiply the result In step (2) by the maximum allowable contribution for
the year, Including catx:h-up contributions If you are age SO or older. For example,
If you are age 30 and your MAGI Is $165,000, your maximum Roth IRA contribution
for 200815 $2,000. This amount Is determined as follows: [($169,000 minus $165,000)
divided by $1 0,000] multiplied by $5,000.
If you are single and your MAGI Is between $101,000 and $116,000. your maximum
Roth IRA contribution Is determined as follows: (1) Subtract your MAGI from
$116,000; (2) divide the d l ~ n c e by $15,000; and (3) multiply the result In step
(2) by the maximum allowable contribution for the year, Including catch-up
contributions If you are age 50 or older. For example, If you are age 30 and your
MAGI Is $110.000, your maximum Roth IRA contribution for 2008 15 $2,000. This
amount Is determined as follows: [($116,000 minus $110.000) dMded by $IS,OOO]
multiplied by $5,000.
C. CONTRJBU71ON EUGIBILITY - You are eligible to make a regular contribution to
your Roth IRA, regardless of your age, if you have compensation and your MAGI 15
below the maximum threshold.Your Roth IRA contribution Is not limited by your
participation In a retirement plan. other than a Traditional IRA.
D. CATCH-UP CONTRIBUTION - If you are age 50 or older by the close of the taxable
year, you may make an additional contribution to your ROth IRA. The maximum
additional contributIon Is $500 for years 2002-2005 and $1,000 for years 2006 and
beyond.
E. NONFORFEITABILITY -Your Interest In your Roth IRA Is nonforfeitable.
F. EUGIBLE CUSTODIANS· The Custodian of your Roth IRA must be iI bank. savings and
loan assodation, credit union, or a person or entity approved by the Secretary of the
Treasury.
G. COMMINGUNG ASSE73' - The assets of·your Roth IRA cannot be commingled with
other property eJ«:ept In a common trust fund or common Investment fund.
H. LIFE INSURANCE. - No portion of your Roth IRA may be Invested in life Insurance
c:ontracts.
I. COI.lEC'nBLES - You may not Invest the assets of your Roth IRA In collectibles
(within the meaning of Code section 408(m)). A collectible Is defined as any work
of art. rug or antique, metal or gem, stamp or coin, alcoholic beverage, or other
tangible personal property specified by the Intemal Revenue Service (IRS). However,
speciaUy minted United States gold and silver coIns, and certain state-Issued coins
ETC (Rev. July 2008)
1. be distributed by December 31 of the year containing the fifth anniversary of
your death. or
2. be distributed over the remaining life expectancy of your designated
benefidaryOes).
Your designated beneficlaryOes) must elect either option (1) or (2) by December 31
of the year following the year of your death. If no election Is made, distribution will
be calculated In accordance with option (2l.ln the case of distributions under option
(2). distributions must commence by December 31 of the yearfollowlng the y"r of
your death. Generally If your spouse Is the designated beneficiary, distributions need
not commence until December 3·' of the year you would have attained age 70Yl,1f
later. If a benefidaryRes) other than an Individual or qualified trust as defined In the
Regulations Is named, you will be treated as havlng no designated beneficlaryRes)
of your ROth IRA for purposes of determining the distribution periOd. If there Is no
designated beneficiary of your Roth IRA, the entire Roth IRA must be distributed by
December 3' of the year containing the fifth anniversary of your death.
A spouse who 15 the sole designated benefidary at your entire Roth IRA will be
deemed to elect to treat your Roth IRA as his Dr her own by either (1) making
cOntributions to your Roth IRA or (2) failing to timely remove a required minimum
distribution from your Roth IRA.. Regardless of whether or not the spouse Is the sole
designated beneficiary of your Roth IRA, a spouse beneficiary may roll over his or
her share of the assets to his or her own Roth IRA.
INCOME TAX CONSEQUENCES OF ESTABLISHING A ROTH IRA
A. CONTRI8UT1ONSNOTDEDUCTED- Nodeductlon Is allowed forRoth IRA contributions,
Indudlng transfers, rollevers and conversion contributions.
B. CONTRIBUTION DEADLINE - The deadline for making a Roth IRA contribution Is your
tax retum due date (riot Including exlensions). You may designate a contribution
as a contribution for the preceding taxable year In a manner acceptable to us.
For example, If you are a calendar year taxpayer, and you make your Roth IRA
contribution on or before April 15, your contribution Is considered to have been
made for the previous tax year If you designate It as such.
C. W CREDfT FOR CONTRIBUTIONS - For taxable years beginning on or after January
" 2002. you may be eligible to receive a tax credit for your Traditional or Roth IRA
contribUtIons. This credit will be allowed In addition to any tax deduction that may
apply. and may not eJ«:eed $1,000 In a given year. You may be eligible for this tax
credit If you are
15
• age 18 or older as of the close of the taxable year,
• not a dependent of anothC!r taxpayer, and
• not a fuR-time student.
The credit 15 based upon your Income (see chllrt below). and will range from 0
to SO percent of eligible contributions. In order to determine the amount of your
contributions, add all of the contributions made to your Traditional or ROth IRA
and reduce these contributions by any distributions that you ha\/!! taken during
the testing period. The testing period begins tWo years prior to the year for which
the credit Is sought and ends on the tax retum due date Oncludlng extensions)
for the year for which the credit 15 sought. In order to determine your tax credit.
multiply the applicable percentage from the chart below by the amount of your
contributions that !lo not exceed $2,000. .
-Adjusted gross Income Indudes foreign earned Income and Income from Guam.
America Samoa, North Mariana Islands·and Puerto Rico.
D. W-DEFERREDEARNINGS -The Investment eamlngs of your Roth IRA are not subject
to federal Income tax as they ac:cu.mulate In your Roth IRA-In addition, distributions
of your Roth IRA earnings will be free from federal Income tax If you take a qualified
dlstri!?utlon, as desaibed below.
500
. E. tAXAT10N OF DISTRIBIJ110NS - The taxation of Roth IRA distributions depends on
whether the distribution Is a qua.fled distribution or a nonquallfled distribution.
1. Qualified Distributions • Qualified distributions from ycur Roth IRA (both
.the contributions and ellmlngsl lire not Included In your Income. A quallfled
distribution Is a distribution which Is made after the expiration of the ftve-year
period beginning January 1 of the flrst year for which you made Oil contribution
to any Roth IRA (Including a conversion from a TfildltlonallllAl. and Is made on
account of one of the following events:
attainment of age 59
1
;2,
• disability,
• the purchase of a first home, or
• death.
For example, If you made a contribution to your Roth IRA for 1998, the five-
year period for determining whether a distribution Is a qualified distribution Is
satisfied as of January 1,2003.
2. Nonquallfled Distributions -If you do not meet the requirements for a qualified
distribution, any eamlngs you withdraw from Roth IRA will. be Included In
your gross Income and. If you are under age S9 may be subject to an early
distribution penalty. However. when you take a distribution. the amounts you
contributed annually to any Roth IRA account will be deemed to be removed
first, followed by conversion contributions made to any Roth IRA on a first-In,
first-out basis. Therefore. your nonquallfled distributions will not be taxable to
you until your withdrawals exceed the amount of your annual contributions
and your conversion contributions. However. the 10 percent early distribution
penalty may apply to conversion contrIbutions distributed within the five-
year period beginning with the year In which the conversion occurred. These
·orderlng rules" are complex. If you have any questions regarding the taxation
of distributions from your Roth IRA. please see a competent tax advisor.
F. REQUIREDMINIMIJM DlS7RIBU17ONS -You are not required totake distributions from
your Roth IRA at age 701,2 (as reqUired forTrad!tlonal and SIMPLE IRAs). However.
your beneflclary6eslls genefilily required to take distributions from your Roth
IRA after your death. See the section titled Benef1dtJry Payouts In this DIsclosure
Statement regarding beneflclary's(les1 required minImum distributIons.
G. ROLLOVERS AND CONVERSIONS - Your Roth IRA may be rolled over to another
Roth IRA of yours. may receive rollover contributions. or may receive conversion
contr1butIons provided that all of the applicable rollover or conversion rules are
followed. Rollover 15 a term used to describe a tax-free movement of cash or other
property to your Roth IRA from another Roth IRA. Conversion 15 a term used to
describe the movement of Tfildltlonal IRA or SIMPlE IRA assets to a Roth IRA,
A conversion 15 generally a taxable event. The rollover and conversion rules are
generally summarized below. These transactions are often complex. If you have any
questions regarding a rollover or conversion. please see a competent tax advisor.
1. Roth IRA to Roth IRA RoIlovers· Funds distributed from your Roth IRA may be
rolled over to a Roth IRA of yours If the requirements of Code section 408(d)(3)
are met. A proper Roth IRA to Roth IRA rollover 15 completed If all or part of the
distribution Is rolled aver not later than 60 days after the distribution Is received.
You may. not have completed another Roth IRA toRoth IRA rollover from the
distributing Roth IRA during the 12 months preceding the date you receive
the distribution. Further, you may roll over the same dollars or assets only once
every 12 months. Roth IRA assets may not be rolled aver to other types of IRAs
(e.g .. TfildltlonallRA. SIMPLE IRA).
2 Traditional IRA to Roth IRA Conversions - If your MAGI Is not more than
$100.000. and you are not married filing a separate Income tax retum, you
are eligible to convert all or any portion of ypur existing TradltlonalIRA(s) Into
your Roth IRA{s). However,lf you are age 70
'
,2 or older you must remove your
required minimum distribution prior to convertlng your Tfildltlonal IRA. The
amount of the conversion from your TfiJdltlonallRA to your Roth IRA shall be
treated as a distribution for Income tax purposes, and Is Includible In your gross
Income (except for any nondeductible contributions). Although the conversion
amount is generally included In Income, the 10 percent early distribution
penalty shall not apply to conversions from a Tfildltlonal IRA to a Roth IRA.
regardless of whether you qualify for any exceptions to the 10 percent penalty.
;j. SIMPLE IRA to Roth IRA Conversions· If your MAGI Is not more than $100.000
and you are not married filing a separate Income tax return, you are eligible
to convert aK or any portion of your existing savings Incentive match plan for
employees of small employers (SIMPLE) IRACs) Into your Roth 1RA(s), provided
two years have passed· since you flrst partidpated In a SIMPLE IRA plan
sponsored by your employer. However. If you are age 701.-2 or older you must
remove your required minimum distribution prior to converting your SIMPLE
IRA. The amount of the conversion from your SIMPLE IRA to your Roth IRA shal
be treated as a distribution for Income tax puTpOSes and 15 Includible In your.
gross Income. Although the conversion amount Is generally Included In Income.
the 10 percent early distribution penalty shall not apply to conversions from a
SIMPlE IRA to a Roth IRA. regardless of whether you qualify for any exceptions
to the to percent penalty.
ETC (Rev. July 2008)
Both 1M Disdosurt Statlment
4. RoIlavers from Employer-Sponsored Retirement Plans· Effective after 2007;
If you satisfy certain requirements, you may directly roll over distributions from
your employer's qualltled retIrement plan. 403(11) annuity plan, 403(b) tax-
sheltered annuity, or 457(b) eligible governmental deferred compensation plan
Into your Roth IRA.
S. WrItten election • At the time you make a proper rollover or conversion to
a Roth IRA. you must designate In writing to us, your election to treat that
contribution as a rollover Of conversion. Once made. the election is irrevocable.
H. TRANSFER DUE 10 OIVORCE -If all or any part of your Roth IRA is awarded to your
spouse or former spouse In iI divorce Of legalseparatlon proceeding. the amount so
awarded will be treated as the spouse's Roth IRA (and may be transferred pursuant
to a court-approved dIvorce decree or written legal sepafiltlon agreement to
another Roth IRA of your spouse), and will not be considered iI taxable distribution
to you. A transfer Is a tax-free direct movement of cash and/or property from one
Roth IRA to another.
I. RECHARAmRlZA110NS - If you make a contribution to a TradItional IRA and
later rechafiltteri2l! either all or a portion of the origInal contribution to a Roth
IRA along with net Income attributable, you may elect to treat the original
contrIbution as having been made to the Roth IRA. The same methodology appUes
when recharatterlzlng a contribution from a Roth IRA to a TfildltionallRA. If you
have converted from a TfiJdltlonallRA to a Roth IRA you may recharatterl2l! the
conversIon along with net Income attributable back to the TradltlonallRA. The
deadline for completing a recharacterlzatlon Is your tax filing deadline (Including
any extenslons), for the year for which the original contribution was made or
conversion completed. You must report a recharaCtertzed contribution on your
fedefillincome tax retum In accordance with the Instructions to IRS Form 8606. You
may not rechafilcterlze Roth IRA contributions as contributions to a SEP or SIMPLE
IRA.
LIMITATtONS AND RESTRICTIONS
A. SPOUSALROffl IRA-If you are married and have compensation, you may contribute
to a Roth IRA established forthe beneflt of your spouse, regardless of whether or not
your spouse has compensation. You must file a joint Income tax retumfor the year
for which the contribution is made. Your contribution may be further limited If your
MAGI falls within the minimum and maximum thresholds.
The amount you may contribute to your Roth IRA and your spousn Roth IRA Is
the lesser of 100 percem of your combined compensation or $6,000 for 2002-2004.
$8.000 for 2005-2007 and $10.000 for 2008. This amount may be Increased with
tost-of-llvlng adjustments In 2009 and beyond. However, you may not comrlbute
more than the Individual contribution limit to each Roth IRA. Your contribution
may be further limited If your MAGI falls within the mInimum and maximum
thresholds.
If your spouse Is age SO or older by the dose of the taxable year, and Is otherwise
eligible. you may make an additional contribution to your Roth IRA. The
maximum additional contribution Is $SOO for years 2002-2005, and $1.000 for years
2006 and beyond.
B. GlFTTAX - Transfers of your Roth IRA assets to a benefldary made during Your life
and at your request may be subject to federal gift tax under Code section 2501.
C. SPEGAl. TAX TREATMENT - Capital gains treatment and 1 D-year forward Income
avefilglng authorized by Code section 402 do not apply to Roth IRA distributions.
D. INCOMETAXTREATMENT - Any nonquallfled wlthdfilWill of eamlngs from your Roth
IRA may be subject to fedefillincome tax withholding. You may, however, elect not
to have withholding apply to your Roth IRA wlthdfilwal.1f withholding Is applied
to your withdrawal, not less than 10 pen:ent of the amount withdrawn must be
withheld.
E. PROHIBITfD TRANSACTIONS - If you or your benefldary engage In a prohibited
transaction with your Roth IRA. as described In Code sectlon 4975. your Roth IRA
will lose Its tax-deferred or tax-exempt status, and you must generally Indude the
value of the earnings In your account in your gross Income for the taxable year you
engage In the prohibited transaction. The following transactions are examples of
prohIbited transactions with your Roth IRA: (1) taking a loan from your Roth IRA;
(2) buying property for personal use (present or future) with Roth IRA funds; or (3)
receiving certain bonuses or premiums because of your Roth IRA.
16
F. PLEDGING - If you pledge any portion of your Roth IRA as coJlatefill for a loan. the
amount so pledged will be treated as a distribution. and may be Included In your
gross income for the taxable year In whIch you pledge the assets to the extent It
represents earnings.
G. LISTED 1lIANSACTlONS AND REPORTABLE TRANSACTIONS - Certain transactions
are or may be Identified by the Intemal Revenue Service as abusive tax shelter
schemes or tfilosactlons. A prohibited tax shelter transaction, as described In Code
section 4965, Is a transaction that Is a listed transaction (Including a subsequently
listed tfilnsactlon). as described In Code section 6707 A(c)(2), or a prohibited
reportable transaction,· which Is either a confidential transaction or a tfilnsaction
501
with contractual protection and which lsa repOrtable transaction defined In Code
section 6707 A(c)(1). A listed transaction Is a transaction that Is the same as or
substantially similar to any d the types 01 transactions thllt the IRS has determined
to be a tax avoidance transaction and are Identified by notice, regulation or other
form of published guidance as a listed transaction. A c:onfldentlal transaction Is
a transaction that Is offered under conditions of confidentiality and for which a
minImum fee was paid. A transaction With contractual protection Is a transaction
for which the party to the transaction has the right to a full or partial refund of fees If
all or part of the Intended tax consequences from the transaction are not sustained
or with respect to whclh fees are contingent on the realilatlon of tax benefits from
the transaction.
As a type of tax-exempt entity subject to the prohibited tax shelter transaction rules,
a Roth IRA Is required to file IRS Form 8886-T to dlsdose Information with respect
to each problblted tax shelter transaction. entered Into after May 17. 2006, to whic!l
It Is a party. If the Roth IRA partldpates In a reportable transaction (as defined In
Treasury RegUlations section 1.6011-4) the Roth IRA also may be required toflle IRS
Form 8886. These forms must be flied by the entity mal'!llger; who In the case of a
self-directed Roth IRA. Is the Roth IRA owner who approved or caused the Roth IRA
to be a party to the transaction. Code section 6011 (g) also requires a taxable party
to a prohibited tax shelter transaction to disclose to the Roth IRA custodian that such
transaction has occured. In addition to the reporting and disclosure requirements.
a Roth IRA entity manager may be Hable for excise taxes In connection With the
prohibited taX shelter transaction. IRS Form 5330 Is to be used for reporting such
exdse taxes. Additional penalties are Imposed by Code section 6662A for failure to
disclose required Information With respect to prohibited tax shelter transaction.
FEDERAL TAX PENALTIES
A. EARLY DlSTRIBUTlON PENAlJY -If you are under age 59Y.z and receive a nonquaUfled
Roth IRA distribution, an additional tax of 10 percent will generally apply to the
amount Indudlble In Income In the year of the distribution. If you are under age
S91a and receive a distribution of conversion amounts Within the five..year period
beginning With the year In which the conversion occurred, an additional tax of 10
percent Will generally apply to the amount of the distribution. The additional tax of
10 percent Will generally not apply If a distribution Is made on account of 1) death. 2)
disability, 3) a qualifying 101l_r.4) the timely Withdrawal of an excess contribution,
5) a series of substantially equal periodic payments (at least annual payments) made
over your life expectancy or the joint life expectancy of you and your beneftdary.
6) medical expenses which eKceed 7.5 percent of your adjusted gross Income,
7) health Insurance payments If you are separated from employment and have
recelve:d unemployment compensation under a federal or state program for at least
12 weeks, 8) certain qualified education expenses, 9) flm-home purchases (up to a.
life-time maximum d$10.00D).or.10) a levy Issued by the IRS.
B. EXCESS CONTRIBUTION PENAlJY - An additional tax of six percent Is Imposed upon
any excess contribution you make to your Roth IRA. This additional tax Will apply
each year In which an excess remains In your Roth IRA. An excess contribution Is any
amount thllt Is contributed to your Roth IRA that exceeds the amount thllt you are
eligible to contribute.
C. EXCESS ACCUMUumoN PENALTY· As previously described. your benefldary(1es) Is
generally required to take certain required minimum distributions after your death.
An additional tax of SO percent Is Imposed on the amount of the required minimum
distribution which should have been taken but W\'s not:
D. PENALTYREPORTING-You mustflle IRS Form 5329 along With your Income tax return
to the IRS to report and remit any additional taxes.
E. PROHIBITED TAX SHELTER lRANSACTlON EXaSE TAX· For tax years beginning
after May 17.2006, If you. as entity manager of your Roth IRA. approve or otherWise
cause your Roth IRA to be a party to a prohIbited tax shelter transaction during the
taxable year and you know or have a reason to know the transaction is a prohibited
tax shelter transaction. you must pay an excise tax under COde section 4965(b){2).
You must file IRS Form S330 to report this tax.
OTHER INFORMATION
A. IRS PLAN APPROVAL - ArtJdes I through VIII of the Equity Trust Roth IndMdual
Retirement Custodial Account Agreement reflect the precise language of the
corresponding articles of the IRS Model Roth Individual Retirement Custodial
Account Agreement (Form 53DS-RA). Therefore, your Equity Trust Roth Individual
Retirement Custodial Account Agreement Is treated as satisfying all applicable
IRS requirements as to the form of the IRA. Without the need for specific IRS
approval. However, because this treatment relates to the form d the Roth IRA
only. nothing In your Custodial Account Agreement constitutes an endorsement
of, or a determination or opinion of the merits or consequences of, any action· In
connection With the operation of your Roth IRA or of any Investments made.
B. NO PREDICRON. REPRESENTATION OR GUARANTfE OF FUTURE VAUJE -The value of
your Roth IRA at any time Will depend on the amount of contributions to It, the
performance of Its Investments as selected by you or your Authori2l!d Agent, and
the time and amount of charges to and payments from It. EqUity Trust does not
predict. represent or guarantee the value of your Roth IRA at any future time.
ETC (Rev. July 2008)
Roth IRA DI,dQSUrt Stattm.nt
C. IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT
• To help the govemment fight the funding of terrorism and money laundering
activities, Federal law requires all flnandal organIzations to obtain, verify, and record
Information that Identifies each person who opens an account. Whllt this means for
you: When you open an account, you are required to provide your name,
address. date of bIrth, and Identification number. We may require other Information
that will aKow us to Identify you.
D. STATEMENTS/ACCOUNTING - Each year equity Trust Will furnish you a statement of
account which will state the amount of the contributlons to your custodial account,
dIstributions from the custodial account and the totisI value of the custodial account
as of the end c:J the year. Information relating to contributfons and withdrawals
must be reported annually to the Internal Revenue 5erv1ce by you or, In the case
of a spousal IRA. by your spouse. Statements Will reflect Information provided
to Equity Trust by you and/or your Authorized Agent Therefore. statements Will
be only as accurate as the Information proillded. eqUity Trust neither assumes
any responslbnlty for the accuracy of Information provided, nor guarantees the
particular tax trelllment of any amounts entered In Its records.
E. AVAILABIUTY OF FUNDS AFTER DEPOSIT - Generally. before Equity Trust can or Will
execute on or otherWise effectiJate a directed transaction with respect to your Roth
IRA account, Equity Trust requires knowledge that your Roth IRA account has or Is
In receipt of goo,d funds needed for such transaction. Thus, generally, EquItyTrust
Will need to walt until It knows thllt checks deposited or other funds transferred
Into your Roth IRA account have deared before equity Trust can or will act on
Investment directives from you or your Authorized Agent. The availability of funds
deposited with Equity Trust will depend upon the method utilized to accomphsh
such transmission and several other factors. However, as a general rule, checks
deposited from another IRA custodian Will be available within five business days
from deposit, and personal checks deposited by you as a Roth IRA contribution Dr
from third parties In payment of amounts oWing toyour Roth IRA from Investments.
etc. Will be available Within seven business days from deposit. utilization of wire
transfers and online banking may expedite clearance of such funds
F. TELEPHONE A1lTH0RIZAT10N - equity Trust Is authorized, lit Its option. to honor
telephone transaction requests placed by you or your Authorized With
respect to your custodial account. These requests may Include purchases, sales
and exchanges of assets whose sponsors accept telephone authorlZlltlons from
EqUity Trust on your behalf. Equity Trust may require you to complete and provide
a Telephone Authorl:zatlon Form. equity Trust also may require the use of a spedal
Identification number and Social Security number for each transaction. Equity Trust
Is not responsible for determining whether or not a caller Is authorized other than
verifying that such caller Is usIng the proper Identification number for the account
You agree that Equity Trust Is not responsible for unauthorized transactions In your
custodial account by callers who provide the proper Identification numberforyour
account
G. AMENDMENTS - Equity Trust may amend, challge or terminate the Custodial
Account Agreement lit any time. Any amendment made by EqUity Trust to comply
With the COde and related Regulations does not require your consent. You Will be
. deemed to have consented to any other amendment unless, WithIn 30 days from
the date Equity Trust malls or otherWise transmits the amendment, you notify
Equity Trust In writing that you do not consent Amendments also may be made by
written agreement of equity Trust and you.
H. ACCOUNT TERMINATION -You may terminate your Equity Trust Roth IRA at any time
upon written notice Signed by you. The notice must Identify your EqUity Trust Roth
IRA account number. give Instructions on the disposition of your Roth IRA's assets
and be sent to:
17
EqultyTrust COmpany
P.O. Box 1319
Elyria, OH 44036
OVemlght Oe1fvery

225 Bums Road
Elyria, OH 4403S
Phone: (440) 323-5491
Toll Free: (877)693-8209
Fax: (440) 366-375S
Your EqultyTrust ROth IRA will terminate upon the earilest of:
• The date the Roth IRA assets have been disposed of In accordance With
instructions if you terminate equity Trust as custodian;
• The date all the Roth IRA's assets have been distributed;
• The date the Roth IRA ceases to meet the requirements of Code section 408A;
or
• The date the Roth IRA assets have been transferred to and accepted by a
successor custodian or trustee as a result of the resignation of equity Trust and
selection of a successor custodian or trustee.
I. GOLD LEVEL SERVICE (GlS) -IfYQu have elected GLS on the IRA Application Form.
the GLS fee for each succeeding year Will be automatically Withdrawn from your
Roth IRA account on each anniversary date of your GLS membershIp (the "annual
renewal date") until you submit a written notice of cancellation of your GLS
membership to EqUity Trust at least 30 days prior to the annual renewal date for
such succeeding year.
502
Roth IRA Disdosure Statement
J. ADDITIONAL INFORMATION - You may obtain further Information on IRAs from your
District Office of the IRS. In particular, you may wish to obtain IRS Publication 590,
Individual Retirement Arrangements, by calling '-Boo-TAX-FORM, or by visiting
wwwjrs.govonthelntemet.
ETC (Rev. July 2008)
18
503
PORTFOLIO VALUE ANNUAL FEE
$1-14,999 $190.00
$15,000-24,999 $260.00
$25,000-49,999 $300.00
$50,000-99,999 $360.00
$100,000-199,999 $440.00
$200,000-299,999 $600.00
$300,000-399,999 $640.00
$400,000-499,999 $920.00
$500,000-599,999 $1,500.00
$600,000-699,999 $1,600.00
$700,000-799,999 $1,700.00
$BOO,000-B99,999 $1,750.00
$900,000-999,999 $1,800.00
$1 rOOO,ooO-over $1,850.00
The above fees effective from January to Jt11I1Hl7Y of any giW!11 calendar year,
and are subject to change. IRA maintenance fees 1IOt prorated. Fee Schedule
does not include brokerage commissions. Complete termilUl/tonfee - $200.00,
Partial termination fee - $75.00, Per asset re -registration fee for aU nOll-traditional
assets - $100.00.
Not Included with Annual Maintenance Fee. All fees are taken from your account
on the day an Investment Is processed unless you pre-pay the fees. Fees cannot
be reimbursed.
Expedited Service
Wire Transfer
Overnight Service
Certified Mail
Cashier's Check
Document ProceSSing
Returned Checks
$50.00
$30.00
$18.00
$8.00
$10.00
$5.00
$30.00
Documents must be received
by 10 a.m. ET and your account
must have available funds.
USPS Express Maills used for
Post Office Box.
Pequired when sending original
documents.
Overnight service required.
For documents requiring
a notary.
Account must be pre-established to accept checks. Checks are not held at our
office and will be deposited on date received. Personal or business checks are
available 7 business days after dale of deposit. Transfer or direct rollover checks are
available 5 business days after date of deposit.
ClEDredfunds must be avoilable In order to make an investment; available funds Indude
wires, cashiers checks, and money orders.
TabC
Exhibit 16 C (d)
504
TabC
Exhibit 16 C (d)(i)
505
"
VIAFEDEX
Board of Directors
United Western Bank
700 Seventeenth Street
Denver, CO 80202
LUSE GORMAN POMERENK & SCmCK
A PROFESSIONAL CORPORATION
ATIORNEYSATLAW
5335 WISCONSIN AVENUE, N.W., SUITE 780
WASHINGTON, D.C. 20015
TELEPHONE (202) 274·2000
FACSIMILE (202) 362·2902
www.LuseLaw.com
March 8, 2010
Re: Brokered Deposits
Dear Board Members:
As special counsel to United Western Bank (the "Bank"), we have been requested to provide
our opinion regarding whether the below described deposits held at the Bank are "brokered deposits"
under federal law and regulation.
FACTS
The Bank holds deposits from two trust companies: (1 ) Equity Trust Company ("ETC") and
Lincoln Trust Company ("LTC"). ETC is a trust company chartered under the laws of the State of
South Dakota and LTC is a trust company chartered under the laws of the State of Colorado.
ETC and LTC both provide similar services to their respective customers. In this regard,
ETC and LTC both provide custodial and business services to individual participants' accounts in
employee benefit plans, individual retirement accounts, and other qualified plan accounts
("Customers"). ETC and LTC do not exercise any investment discretion over the accounts of its
Customers. Instead, the Customers self-direct the investments in their plan.
The Customers of ETC and LTC have the ability to invest in traditional and alternative
investments. Traditional investments include such things as publicly-traded stocks, bonds and
mutual funds. Alternative investments include such things as investments in private placement
offerings of stock, limited liability companies, limited partnerships, real estate, mineral rights, and
precious metals.
In connection with the Customers' investment, ETC and LTC perform certain administrative
and managerial functions for the account, including the following:
• Reviewing the transaction to ensure that the self-dealing rules and other restrictions
imposed under the Internal Revenue Code are not violated by the Customer's
transaction;
506
LUSE GORMAN POMERENK & SCmCK
A PROFESSIONAL CORPORATION
Board of Directors
United Westem Banle
March 8, 2010
Page 2
• Taking custody of the assets;
• Holding title to the assets for the benefit of the Customers;
• Executing investment documents and take possession ofthe investment securities for
the benefit of the Customers;
• , Collecting rents and paying taxes;
• Accounting for contributions to and distributions from the Customer's account;
• Collecting annual evaluations of the assets maintained in the Customer's account;
and
• Preparing mandated tax reporting documents.
The Customers of ETC and LTC also have the option to direct that idle cash balances in their
accounts be held in money market mutual funds and/or an omnibus deposit account at the Banle
These funds represent cash awaiting investment by the Customer or for distribution, The omnibus
account at the Banle was established as a custodial account for pro-rata benefit of the underlying
Customer so that pass-through deposit insurance applies to the omnibus account. We understand
that the interest rate paid on the omnibus account is de minimis.
In connection with the establishment of ETC' s omnibus accOlmts, the Bank determined that it
was in its best interests to have ETC perform, directly or indirectly through affiliated companies,
certain sub accounting functions for the account. By agreement dated June 27, 2009 (a copy ofwhich
is attached), the Banle and ETC agreed that ETC would, among other things , provide record-keeping
and certain other services to the Customer who directed that funds be placed in the omnibus account
maintained at the Banle These record-keeping and other services related to (i) trackingdeposits to
the omnibus account from the Customer's account, (ii) tracking withdrawals from the omnibus
account to the Customer's account, (iii) accounting services for the Customer's account, (iv) data
processing services for sub-account administration of the omnibus accounts, and (v) monthly
statements, notices and disclosures to Customers in compliance with all applicable laws and
regulations. For performing the sub-accounting functions, the Banle agreed to pay a monthly fee
equal to $40.00 multiplied by the number of active accounts (as defined in the agreement); provided,
however, that the aggregate monthly fee could never exceed a percentage yield with respect to the
507
LUSE GORMAN POMERENK & SCIDCK
A PROFESSIONAL CORPORATION
Board of Directors
United Western Bank
March 8, 2010
Page 3
omnibus account equal to the applicable contract variable rate was set forth in Exhibit A to the
agreement.
The Ban1('s agreement with LTC is similar. In connection with the establishment of LTC's
Olllilibus accounts, the Bank: determined that itwas in its best interests to have LTC perform certain
sub accounting functions for the account. By agreement dated February 1, 2010 (a copy of which is
attached), the Bank and LTC agreed that LTC would, among other things, provide record-keeping
and certain other services to the Customer who directed that funds be placed in the OInnibus accounts
. maintained at the Bank. These record-keeping and other services related to (i) tracking deposits to
the omnibus account from the Customer's account, (ii) tracking withdrawals from the omnibus
account to the Customer's account, (iii) accounting services for the Customer's account, (iv) data
processing services for sub-account administration of the omnibus account, and (v) periodic
statements, notices and disclosures to Customers in compliance with all applicable laws and
regulations. For performing the sub-accounting functions, the Ban1( agreed to pay a monthly fee
equal to an annual percentage rate of75 basis points of the average collected balance of the omnibus
account.
To protect the Bank, the agreements with both ETC and LTC establish withdrawal limits
from the omnibus account, the minimum level of deposit at the account as well as the maximum
level of deposit at the Ban1c
LAW AND REGULATION
Federal law defines a "deposit broker" as "any person engaged in the business of placing
deposits, or facilitating the placement of deposits, of third parties with insured depository
institutions ... ," 12 U.S.C. § 1831£(g)(1). Excluded from the definition of "deposit broker" is:
A person acting as a plan administrator or an investment adviser in
connection with a pension plan or other employee benefit plan
provided that person is performing managerial functions with respect
to the plan ....
lei. § 1831 f(g)(2)(E),
Regulations promulgated by the Federal Deposit Insurance Corporation ("FDIC") relating to
brokered deposits mirror the above definition and exclusion; to wit, that a "deposit broker" is defmed
as "any person engaged in the business of placing deposits, or facilitating the placement of deposits,
508
LUSE GORMAN POMERENK & SCmCK
A PROFESSIONAL CORPORATION
Board of Directors
United Western Banlc .
March 8, 2010
Page 4
of third parties with insured depository institutions ... "and excluded from the defInition of "deposit
broker" is a "person acting as a plan administrator or an investment adviser in connection with a
pension plan or other employee b e n e f i ~ plan provided that person is performing managerial functions
with respect to the plan .... " 12 C.F.R. §§ 337.6(a)(5)(i)(A) and (E).
ANALYSIS, QUALIFICATIONS, ASSUMPTIQNS AND CONCLUSION
The exclusion from the defmition of "deposit broker" set out in federal law and FDIC
regulation is specific and plain. Any person "acting as a plan administrator" in connection with a
"pension plan or other employee benefIt plan" is excluded from the definition of a "deposit broker"
provided such person "is performing manageri.al functions with respect to the plan." 12 U.S.C. §
1831 f(g)(2)(E).
We reviewed the legislative history to this section of federal law as well as the preamble to
the FDIC's regulation promulgating 12 C.F.R. § 337.6, and found no discussion of any qualifIcations
or limitations to the above-referenced exception. Additionally, we found no FDIC legal
interpretations qualifying or limiting the above-referenced exception. Because the statutory language
is so plain, we believe that the above exception is self-executing by any person that meets the
statutory definition and thatthe exception is unqualified. We believe our position is supported by the
U.S. Supreme Court decision in Board of Gov. v. Dimension Fin. Corp., 474 U.S. 361 (1986),
wherein the Court stated:
[t]he "plain purpose" of legislation ... is determined in the first
instance with reference to the plain language of the statute itself.
Application of "broad purposes" of legislation at the expense of
specifIc provisions ignores the complexity of the problems Congress
is called upon to address and the dynamics of legislative action.
Congress may be unanimous in its intent to stamp out some vague
social or economic evil; however, because its Members may differ
sharply on the means for effectuating that intent, the fInal language of
the legislation may reflect hard-fought compromises.
Dimension(Fin. Corp., 474 U.S. 361,373-74 (1986). Also cited in Stoddardv. Board ofGov.,.868
F.2d 1308 (C.A.D.C. 1989) (denying the banking regulator's removal a,.ction against a bank director
who resigned before the commencement of such action because the plain language of the federal law
at the time only permitted such actions against current directors). .
509
LUSE GORMAN POMERENK & SCmCK
A PROFESSIONAL CORPORATION
Board of Directors
United Western Bank
March 8,2010
Page 5
In the instant case, ETC and LTC are acting as plan administrators for their Customers and
actually perform administrative and managerial functions for their Customers. As such, ETC and
LTC meet the "plain language" ofthe statutory exception to the term "deposit broker." Accordingly,
the deposits placed at the Bank by ETC and LTC should not be "brokered deposits" for federal law
purposes.
Further, since ETC and LTC meet the statutory exception for being deposit brokers, 'the fact
that the Bank pays them a fee (albeit a fee for sub accounting services actually performed for the
Banle and for services that the Bank determined to be in its best interests), does not alter the
application of this statutory exception to ETC and LTC and, as such, the payment of anyfees to them
is ilTelevant to the analysis.
The opinions expressed herein are based upon, and subject to, the following assumptions,
limitations, qualifications and exceptions:
1. In rendering its opinions, the firm has relied solely upon any representations
of officers of the Bank: that the facts, as stated herein, are true, complete and
correct.
2. The firm has assumed that there are no other facts that would change the
opinions contained herein.
3. The firm has not independently verified the accuracy, completeness, or
correctness of any of the facts presented above.
4. The firm expresses no opinion as to any other laws or regulations, other than
the applicable FDIC regulations discussed herein.
5. The firm expresses no opinion as to the safety and soundness of any of the
transactions contained therein.
6. The opinions and conclusions expressed herein are based upon our
interpretation of existing law and regulation, and are not intended to speak
with reference to standards hereafter adopted or evolved in subsequent
judicial or regulatory decisions or interpretations, or to laws, rules or
regulations hereafter enacted or adopted. The opinions and conclusions
expressed herein are as of the date hereof, and the firm assumes no obligation
510
LUSE GORMAN POMERENK & SCmCK
A PROFESSIONAL CORPORATION
Board of Directors
United Western Bank
March 8,2010
Page 6
to update or supplement its opinions or conclusions to reflect any facts or
circumstances that may hereafter come to our attention or any changes in law
or regulation that may hereafter occur.
7. The firm's opinions and conclusions are limited to the matters stated herein
and no opinions may be implied or inferred beyond the matters expressly
stated herein.
8. This letter is delivered solely for the benefit of the Bank relating to the
applicability of the noted FDIC regulations, and no other party or entity is
entitled to rely hereon for any purpose whatsoever without the express prior
written consent ofthis firm.
Attachments
-.tJ
<: SU;PC.
511
Luse GOlman Pomerenk & Schick,
A Professional Corporation
AMENDED AND RESTATED
SUBACCOUNTING AGREEMENT
This AMENDED AND RESTATED SUBACCOUNTING AGREEMENT (the "Agreement") is
made and entered into by and among UNITED WESTERN BANK® (flkJa Matrix Capital Bank), a
federal savings bank ("Bank"), EQUITY TRUST COMPANY, a South Dakota trust company ("ETC"),
EQUITY ADMINISTRATrvE SERVICES, INC., an Ohio corporation ("EAS"), and STERLING
ADMINISTRATIVE SERVICES'fiC' a Tex.!lS limited liabilitycompallY ("SAS" and, collectively with
EAS, the "Companies"), as of this day ofJ \J n V (the "Effective Date") (the Companies, ETC and
Bank referred to herein each as a "Party'" and collectively the "pames").
WHEREAS, EAS and Bank previously entered into an Amended and Restated Subaccounting
Agreement effective as of March 1, 2009 (the "CulTent Subaccounting Agreement") wherein, among
other things, EAS provides certain subaccounting services to Bank and Bank pays fees to EAS for such
services pursuant to the tenus of the Current Subaccounting Agreement; and
WHEREAS, ETC, SAS, Sterling Trust Company, an affiliate of Bank ("Sterling"), and United
WestcI11 Bancorp, Inc" the parent corporation of Bank ("UWBK"), are parties to an Asset Purchase
Agreement, dated April 7, 2009 (the "Purchase Agreement"), pursuant to which ETC and SAS have
agreed to acquire from Sterling its individual retirement and qualified plan business;
. WHEREAS, the Companies provide (or will provide) certain administrative management services
, . -' ,,_ ......... ,..... to· ETC-;'-and "'-' ....................... -..... ~ ............ _, .......... , ...... , ...... _-.......... , .... -...... ,. .......... - ......................... , .. , .......... _ ........................................ _ ............................ ,"'. , ...... .
\VHEREAS, ETC, as custodian, provides custodial and business services to individual
parcicipants' accounts in employee benefit plans, individual retirement plans and other qualified plan
accounts (hereinafter referred to as "Custodial Accounts") (and such individual participants of these
Custodial Accounts are hereinafter referred to as "Custodial Account Holders"); and
WHEREAS, the Companies and ETC have opened and will open various accounts with Bank (the
"Bank Accounts") for the beneflt of Custodial Account Holders; and
WHEREAS, the regulations of the FDIC provide that deposit account records of an ulsured bank
must disclose the existence of a relationship that provides the basis for additional insurance, and the
details of that relationship must be ascertainable from the records of the insured bank or the records of the
account customer; and
WHEREAS, the Companies and ETC desire that the funds maintained in the Bank Accounts be
insured to the fullest extent provided by law for each Custodial Account and Custodial Account Holder,
and consequently records and statements must be prepared for each Custodial Account Holder regarding
the status of each Custodial Account which is within and a part of each Bank Account; and
WHEREAS, Bank could pl'ovide account holder record-keeping for the Custodial Accounts and
Custodial Account Holders or obtain such services from a third-party provider; and
WHEREAS, the Companies are willing to act as agent for Bank to provide Custodial Account
Holder record-keeping and certain other services with respect to the account activity by Custodial
Accounts and balances maintained in the Bank Accounts by the individual Custodial Accounts; and
Page I of 8
512
WHEREAS, Bank and the Companies believe it appropriate to enter into an agreement that
provides for the Companies to aetas agent for Bank to provide account holder record-keeping and certain
other services for the Custodial Accounts and the Custodial Account Holders, for which Bank will pay a
fee to the Companies based upon the number of Custodial Accounts at Bank and the aggregate monthly
balance of such Custodial Accounts, in light of the amount of record keeping services and other
associated services to be provided by the Companies with respect to the Custodial Accounts .
. NOW, THEREFORE, in consideration of the mutual promises herein contained, and for other
good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, it is
mutualJy agreed as follows:
1. From the Effective Date until tennination hereof, the Companies and/or ETC shall maintain
various Bank Accounts on behalf of the Custodial Account Holders in accordance with the terms and
conditions hereof. Notwithstanding the obligations regarding deposit requirements that are set forth in
Section 10, the Companies and ETC may withdraw from the Bank Accounts an aggregate amount not
exceeding $100 million in the event the Companies and/or ETC desire to move such amount to a financial
institution in which the following individuals either collectively or individually have acquired "control"
of such financial institution ("control" shall have the meanings ascribed to it pursuant to 12 CFR 574.4);
Jeffrey A. Desich, Richard Desich and Richard A. Desich and/or any entities controlled by or for the
benefit of any of them (such institution, the "Desich Financial Institution" and such parties, the "Desich
Parties"). Any withdrawals allowed in this Section 1 must not exceed $25 million in the aggregate during
any caJendar quarter. Bank shall indicate in its records that the Bank Accounts are maintained by the
Companies in a fiduciary or custodial capacity for the benefit of the individual Custodial Account
Holders, and shall further indicate that the delineation of Custodial Account Holders' interests in the Bank
.... . Ac-counts'uraIW'parti'cular"time-'is"l1laintained-'by'ihe-eompanies;'-"The··aggregatc··balances-in··the-"B'IlIl'k',·'···· . " ..
Accollnts of the Companies, ETC and their affiliates shan not exceed $1 billion without the prior written
approval of Bank.
2. Each Company shall maintain separate accounting and record-keeping for each of its
Custodial Accounts which have balances in the Bank Accounts. Each Company shall be responsible for
providing slIch accounting and services as agent for Bank. The Companies and ETC,
jointly and severally, represent and warrant, Covenant and agree that each of the Companies, ETC and
each of the Custodial Accounts is, and at all times will continue to be, in compliance with the applicable
provisions of 12 CPR Part 204 (Regulation D relating to interest on deposits) and 12 CFR Part 230
(Regulation DD, Truth in Savings Act). The Companies, on behalf of the. Custodial Account Holders,
shall issue instructions to Bank, by wire transfer, check or other appropriate means acceptable to the
Companies and Bank, regarding transactions involving funds in the Bank Accounts. Bank shall be
entitled to rely upon such instructions and Bank shall have no liability for any act or omission hereunder
while acting in good faith. Bank shall have no duty to act in regard to the Bank Accounts in the absence
of such instructions.
3. Bank shall provide customary banking services to the Bank Accounts. It is understood and
agreed that Bank shall be responsible under this Agreement for the servicing of the Bank Accounts rmd
not for servicing the individual Custodial Accounts. Bank shall furnish to each Company on a monthly
basis a bank statement for each Bank Account as requested by such Company. Such statements shall be
mailed by Bank or be made available to the applicable Company on the third business day following the
close of the period being reported.
4. The Companies, as agents for Bank, shall provide account holder record-keeping and certain
other services for the Custodial Accounts and Custodial Account Holders as follows:
a. Deposits to the Bank Acoounts from all Custodial Accounts;
Page 2 of8
513
b. Withdrawals from the Bank Accounts for all Custodial Accounts;
c. Accounting services provided to all Custodial Accounts;
d, data processing services required for administration of the Bank
Accounts; and
e. Monthly statements, notices and disclosures in compliance with all applicable federal
and state laws and regulations.
5. The Companies shall furnish to Bank by the fifteenth (l5th) day of each month a trial balance
which reflects the account number, name, type of account and account balance of existing Custodial
Accounts (the "Active Accounts") in the Bank Accounts as of the last business day of the preceding
month. Such report shall be accompanied by a summary which is signed and certified as true and accurate
by the chief financial officer of the Companies or hlslher designate. This report shall be used to
determine the fee Bank shall pay to the Companies for the account holder record-keeping services the
Companies provide hereunder.
6. Within ten (10) days after receipt of the monthly report referred to in Section S above, Bank
shall pay to the Companies a monthly fee equal to $40.00 multiplied by the number of Active Accounts,
as determined by the provisions of Section 5. Notwithstanding anything to the contrary contained herein,
in no event shall the aggregate monthly fee exceed 8 percentage yield with respect to the Bank Accounts
equal to the applJcable Contract Variable Rate as set forth in Exhibit "A" attached hereto (the "Contract
Variable Rate"). It is understood and agreed that such fee is intended to compensate the Companies for
their prior month's record-keeping services in connection with the Active Accounts. No other fees of any
nature shall be due to the Companies for services provided hereunder,
..... '" ...... ·7:" ··-Upon· I:l"feq !;lest, .. " .
right to make a physical audit at any time of Companies' books and records relevant to the matters
covered by this Agreement to verify the accuracy of the Companies' monthly report of the number of
Custodial Accounts within each Bank Account and other matters deemed relevant by Bank. Bank shall
not make more than four (4) such audits in each calendar year.
8. Bank personnel will be made available, as reasonably requested, to consult with the
Companies in coordinating its operations pursuant to this Agreement.
9. Any amendment to this Agreement shall be valid only if in writing and signed by all of tile
Parties. The term of this Agreement shall be for a period beginning as <.If the Effective Date and
continuing until the later of (a) the fifth anniversary of the Effective Date or (b) the date all amounts
owing under the Seller Financing (as deflned in the Purchase Agreement) have been paid in full (the
"Tenn"), Upon the expiration of the Term or any renewal thereof (the date of such expiration, the
"Temlination Date"), this Agreement shall automatically renew for successive periods unless
sixty (60) days prior to the applicable Termination Date (or the anniversary date of any subsequent
Termination Date) the Companies or Bank provide written notice of their intent to terminate this
Agreement. In the event the Companies tenninate this Agreement, as provided for in this Section 9, then
for a period of six (6) months following such Termination Date, the Companies and ETC may withdraw
up to one-sixth (l/6
Ih
) of the aggregate balances in the Bank Accounts existing as of the Termination Date
at the end of each calendar month following the Termination Date. Any balances remaining in the Bank
Accounts after such six-month period may be withdrawn at any time thereafter, Notwithstanding any
termination of this Agreement, all rights, obligations, terms and conditions of this Agreement shall remain
in effect with respect to any cash balances in the Bank Accounts until such balanc·es have been fully
withdrawn or distributed.
10. During the first three (3) years of the Term, the Companies and ETC agree that Bank shall be
the sole depository pursuant to this Agreement of cash balances for the Custodial Accounts. During the
Page 3 ofB
514
remaining portion of the Tenn and during any renewal thereof, the Companies and ETC agree that they
shall deposit with Bank pursuant to this Agreement cash balances of Custodial Accounts in an amount at
least equal to (x) an amount equal to the Final Deposit Amount (as defined by and finally detennined in
with the Purchase Agreement) or (y) the aggregate amount of all the cash balances of the
Custodial Accounts, whichever is lesser. If, however, the Companies and/or ETC acquire Custodial
Accounts with cash balances over $20 million in connection with the acquisition of a custodial, trustee or
similar business or other bulk acquisition of Custodial Accounts, and the Companies an<,llor ETC are
required or otherwise obligated to maintain deposits relating to the acquired business or accounts with
another financial or depository institution in connection with such transaction, then the Companies and/or
ETC shall be pennitted to maintain such deposits with such other financial or depository institution
notwithstanding anything herein to the contrary.
Notwithstanding anything to the contrary herein, written consent of the Bank is required prior
to the Companies and ETC participating out Bank Account deposits to any other federally insured bank or
saving and loan institution chartered by an agency of the federal government or any state government
("Third Party Banks"). The Companies will take all reasonable or necessary actions to open such accounts
at Third Party Banks, including, without limitation, the execution and delivery of new account fonns and
other customary and reasonably necessary documents required by Bank or any Third Party Bank, to allow
the participation of Bank Account deposits as provided for herein. Bank acknowledges that Custodial
Account Holders have the right, at their sole option, to direct the Companies and ETC to deposit their
funds with another depository institution; however, ETC and the Companies will use
commercially reasonable efforts to have cash balances relating to Custodial Accounts retained at Bank (or
a Third Party Bank if Bank has consented to participate out any or all of the Custodial Deposits as
: ". provided above), In the event that Bank consents to participate out the deposits in the Bank Accounts with
.... ' ., ..
. then in effect, the Companies, on the one hand, and Bank, on the other hand, will split the benefit of the
difference between such higher rate and the applicable Contract Variable Rate 50/50. In the event that the
. ,deposit rate being paid on the deposits being participated by a Third Party Bank occurs at a rate that is
less than the applicable Contract Variable Rate, Bank shall be responsible for makIng the Companies
whole for the difference between such Contract Variable Rate and such lower rate. The terms of this
paragraph shall not adversely affect any rights of the Custodial Account Holders.
I L Notwithstanding Sections 9 or 10 above, upon a breach by Companies or ETC of any
covenant, agreement, promise or representation or warranty contained herein, Bank may tenninate this
Agreement upon ten (10) days prior written notice to the Companies. Upon the breach by Bank of any
covenant, agreement, promise or representation or warranty contained herein, the Companies or ETC may
terminate this Agreement at any time upon ten (10) days prior written notice to Bank. In addition, upon
receipt .by any Party of any written instruction, enforcement or other actioll by any regulatory agency with
enforcement authority over either Bank, the Companies or ETC, indicating that this Agreement, in whole
or in part, violates any applicable regulation to which either Company, ETC or Bank is subject, now or at
any time during the term of this Agreement, this Agreement shall terminate upon the expiration of ten
(10) days after receipt of such written instruction, order or notice by any Party. The Party receiving such
notice shall, within three (3) business days of receipt, provide such notice to the other Parties. This
Agreement may be terminated by the Companies or ETC upon thirty (30) days prior written notice to
. Bank after receipt by the Companies or ETC of a rating report published by IDC Financial Publishing,
Inc. indicating a composite rank for Bank of 74 or lower.
12. Bank shall indemnify and hold harmless the Companies and ETC and each of their re,spective
agents, affiliates and employees from all suits, actions, costs, expenses (including reasonable attorneys'
fees), judgments or claims of any character, type or description brought, incurred or made arising from or
relating to the gross negligence or willful misconduct of Bank in the execution of or perfonnance of this
Page 4 01'8
515
Agreement; provided that Bank shall have no liability to the Companies or ETC under this Section 12 for
allY acts or omissions taken or riot taken in good faith by Bank.
13. The Companies and ETC shall jointly indemnifY and hold harmless Bank and its agents,
affiliates and employees from all suits, actions, costs, expenses (includhlg reasonable attorneys' fees),
judgments or claims of any character, type or description brought, incurred or made ("Bank Costs")
arising from or relating to:. (A) the gross negligence or willful misconduct of the Companies or ETC, as
agent for Bank, in the execution of or perfonnance of this Agreement; and (B) any claim or assertion by
any customer of the Companies or ETC, including but not limited to a Custodial Account Holder, relating
to any Custodial Account or any service provided by the Companies or ETC to any customer of the
Companies or ETC, including but not limited to a Custodial Account Holder, provided that the foregoing
indemnification in subparagraph (B) shall not apply to the extent the Bank Costs result directly from the
gross negligence or willful misconduct of Bank.
14. The Companies or ETC and not Bank is the custodian to the Custodial Accqunt Holders who
have interests in the Bank Accounts. Bank shall have no fiduciary or custodial obligation to any Custodial
Account Holders who have interests in a Bank Account. In particular, Bank shall have 110 responsibility
for any bookkeeping or record-keeping functions of the Companies or ETC on behalf of any Custodial
Account Holder or for receipt or disposition of funds in the Bank Accounts; provided, however, that Bank
shall honor the Companies' or ETC's written instructions regarding disposition of the Bank Accounts.
15. This Agreement and the account documents entered into between the Parties relating to the
Bank Accounts (the "Account Documents") contain the entire understanding of the Parties with respect to
the subject matter hereof, and supersede all prior agreements and understandings relating to the subject
, , .......... ".. . ...... ···matterhereof.· ifiolude·-aU·oohedules··aruI·eKhlbits-Jlereto,·.In-the,,· .. .
event of any conflict between the provisions hereof and the Account Documents, the provisions of this
Agreement shall control. Upon execution of this Agreement and effective as of the Effective Date, the
Cunent SubacC0unting Agreement and any prior subaccounting agreements between the Parties shall be
null and void and of no further force and effect; however, the indemnification provisions in the Current
Subaccounting Agreement with respect to matters occurring before the Effective Date shall survive and
inure to the benefit of the Parties and their successors and assigns. Nothing in this Agreement shall limit
or otherwise impair any indemnification rights of any party under the Purchase Agreement,
notwithstanding anything herein to the contrary .
. 16. This Agreement may be executed by the Parties in separate counterparts, each of which when
so executed and delivered shall be an original, but all such counterparts shall together constitute but one
and the same instrument. Any provision of this Agreement that is invalid, illegal or unenforceable shall
not affect in any way the remaining provisions hereof.
17. This Agreement shall be governed by the laws of the United States of America and the
applicable laws of the State of Colorado.
18. Any notices provided for under this Agreement shall be in writing delivered by mail, fa.x or
overnight delivery to:
Page 5 of8
If to: Equity Administrative Services, Inc.
225 Burns Road
Elyria, OH 440)5
Phone: (440) 323-5491
Fax: (440) 323-4529
Contact: Jeffrey A. Desich
516
Ifto: Equity Trust Company
225 Bums Road
Elyria, OH 44035
Phone; (440) 323·5491
Fax: (440) 323-4529
Contact: Jeffrey A. Desich
Ifto: United Western Bank®
700 17fb. Street, Suite 2100
Denver, CO 80202
Phone: (720) 956-6548
Fax: (720) 932·3993
Contact: Thomas J. Kientz
19. The Parties acknowledge that the terms of this Agreement, including all of its exhibit<; and
other attachments, contain confidential commercial and financial infonnation of the Parties, the public
disclosure of which would have a material adverse effect on the Parties' respective businesses.
Accordingly, without the prior written consent of the other Parties or except as may be required by law
(including without limitation applicable regulations of the Securities and Exchange Commission (We
"SEC"» or legal proceeding, no Party shall, nor shall any Party permit any of its respective officers,
directors, parent companies or other affiliates to, make any public announcement or disclosure with
respect to this Agreement, including any of its exhibits or other attachments, or any of the terms h e r e o t ~ or
publicly disclose this Agreement, including any of its exhibits or other attachments, or any of the terms
hereof, to any third party. If any such public announcement or disclosure by a Party (the "Disclosing
Partyii);"or"oy"'any"of"tne"'),),i's"c!oslns-PartYfs-offi'Ceri;"oireCtors;'"parenf"coifipanfelCor"offier"'iiffilfiites;"iif····
required by law or legal proceeding, then the Disclosing Party shall use its commercially reasonable
efforts to seek an appropriate protective order, confidential treatment order or agreement, or other similar
remedy with respect to the terms of this Agreement (or such portions hereof as may reasonably be
protected pursuant to applicable regulations) and to maintain and/or renew any such order, agreement or
remedy so that it shall remain in effect through the term of this Agreement and for a period of three years
after the expiration or other termination hereof. In connection with se.eking, maintaining or renewing any
such order, agreement or remedy, unless prohibited by applicable law or regulation, (i) the Parties
shall cooperate with each other in connection with any request, filing or other submission with
the applicable governmental entity, including the SEC, (1) the Disclosing Party shall keep the
other Parties infonned in all material respects of any material comnl1..mication received from, or
given to, such governmental entity, and (iii) the Parties shall consult with each other in advance
of any meeting or conference with such govenunentaI entity. The rights and obligations of thls
section'shall survive the expiration or other termination of this Agreement.
[Signature page follows.}
Page 60f8
517
The foregoing Agreement has been executed as of the di,te and year first written above.
EQUITY ADMINISTRATIVE SERVICES, mc.
bUS10tT
Tlt1e: t.ha..vvvw;.,
STERLING ADMINISTRATIVE SERVICES, LLC
EQUITY TRUST COMPANY


Title: uO
UNITED WESTERN BANK
By: __________ _
Name:
Title:
Page 70f8
518
The foregoing Agreement has been executed as of the date and year first written above.
EQUITY ADMTNISTRA TIVE SERV1CES, INC.
By:, ________________ ~ - - -
Name:
Title:
STERLING ADMINISTRATIVE SERVICES, LLC
By: __________ _
Name:
Title:
EQUITY-TRUST COMPANY
UNITED WESTERN BANK
Page 70f9
519
Exhibit A
to the Amended anF!»estated Agreement
Effective .LL day of ,J ,2009
Contract Variable Rate Table
Contract Variable Earnings Credit
Federal Reserve
Target Rate for
Overnight Federal
Funds' Rate Rate Pass-through Rate
0.00%'
2.710%··. : ....•...•. 2.610% 0.100% .
: ....... " 0.25%:;>.
, ... :. 0.75.%:-::·',':'..
. ·····'···2:7:.10%\·.;:·:. .;:: , :2;510%'/·.,·., : ·:': .. 0.20.Q.% .... , ....
1.50%·'··.
. .. ' '.·.2.71.0%··! .. " '.:' \"·:.'2.510%.:: 0.200%:, ..•.
1.75%' . 2.835%'· ., ... , 2.585%' , '.: 0.250%
'. ·.·.2.00% .. ;: .. · . 2.960%: : ... ' 2.7,1.0%.' .' 0.250% ..
·2.25%'· " 3.085% . . ·:2.585%.' '. 0.500%
2.50% .' .' . 3.210%'" 2.710% . . '" 0.500% .'
2.75%
3.3.35% . .• 2.835% . '" '. 0.500% >
. 3.00%' . 3.460% .. 2.835% :.' . . .0.625%
'. .: 3,585% ." , . ! 2;960%' .' '.'< 0.625%
." 3.50% ' .. : .: 3.835%' .... , ': .'.: 3;085%'·" 0; 750%< .
3.7.5% " 4.085%:. " .. > ., .3.21Q% ... '. ,.,0:.875%. '.'
. 4.00%':· ..... : .. :.4.335%.'.:.:·.,··'·"3.460%\:,.· .. < 0.875%: .
4;25% ·····4.585%.·:';,· ",.3.585% .....,/ '·1.000% .. '
4;50%i< .. ' .. 4.835% ...... :.:"; .., :.3.:710%;< ;.'\ ···.1'.125%. ,.
4.75%.· .: ,', ".5.085% ..'< ':; ..... 3.835%·.·.,· . '. 1.250%.·'
5.00%, . . 5:.335%" ;. '·3.960%.· . ' ... 1.375%<: .
5.25%", 5.585%:,<·': 4.135% '." '. " :1:450%
5.50% ".5.835%:"'" 4.31.0%, 1.525%.
5.75%·.';' .. 6:085%·: .. ·
:.4.485%;" . . ": 1.600% ....
6.00% . 6:335.%': ' .. . ' 'A.660%' ..
'.:' 1.6713%'
6.25%'· 6.585%:' , .... .. ·.4.835%." , .• 1.750%.
6.50%· .... , '. 6,835% . 4.960%' '. 1.875%··
5.085%· .. . 2.000%"
7.00%· .. 7.335%' 5.210%' . 2.125% ....
7.25% '. . . 7,585%' .. :'. 5.335%:: ".2.250% .•....
..... ,7.50%<: .. '.' .. ::. ',:.'.,,: 5A13Q%.,· . . "':'2 ..375%"
':·.7.75%' ". ::·.'.e ..... ,', 8:085%"'" .. ' :",,:,.'. ·15:585%< ····.2.500%.·
"·8:00.%:'·':" ".,,'. ':',8.335.%;,"'" ..•.. ,> 5.}10%,. :'.: " 2.625%.· '.' .
...... 8.50%:" ". ····1·:·:: 8.83(5.°/&:::: ".:. /''\':;: 5:960%: : .. ' . :, .. : z'875% . . "'.
8.75·%:,.·:.,.: ." ',"))';0&5.%' .. : .. >':' I";::.:'·":' . " 3.0090/0'
. 9.25%:. ;','9;589,%:;' . . .. , .:"6.335%' : .:.: 3.250% ..
9.50%·.:· .9.835%;. ':: ., ...• : 6:460% , .. 3.375% •. :"
9.75%" 10.0850/0.',:. . 6.585%.': ,.·3;500% .'
10.00% . 10.210.%'" . ' .. ' '6.635%' , 3.575%
10.25% .. 10.335%· ... ·.6.685%:. . · .. ·.3.650%·
6.735% .... .3.725% .'
.. 10.75%.' .... . "':, 1'0'.585%.;.".:· ..... 6.785%' . 3.8000/,0
·11.00'7'0 ." .. ' .10;710% ' •
. :.:". 6.835% ..... '.
3.875%
Page 1 of 2
520
Exhibit A
to the Amended and Restated Subaccounting Agreement
Effective JJ:... day of\1!A 11:& , 2009
Federal Reserve
Target Rate for
Contract Variable Rate Table
Overnight Federal Contract Variable Earnings Credit
Funds* Rate Rate
11.25%· '. 10.835%'.: '. '. 6.885%
11.50% .. 10.960% .' 6.935%'
11.75% 11.085%: . 6.985%
12.00% 11.210% 7 . .035%
12 ..20%' .. 11.;335% ... " ". 7.085% .
. ·',12.50%" '.' 11,460% '. '. 7..13$% .. ;
Rate
' ...... 3.950,,/0
",4.025%
" ','" 4.100% •. '.
... 4.175%
.·.·,.4.250.%·.··
.. 12.75%'. '.' :;:;:>.11.585% • .5··· .. ' .:,:·7 .• 185.%::.' '. '. \.
"·.40400%' .'.;
'13.00%':· ·<··.:1.1-.710%,;· .. · '.': .. 7:.235.%..4,475%: "
.•. 14.00% ' .. <:'.': ::.:.; .·,12,21.0%.' '.,.'; .:: .. ::: ... 7,.4.35%:·:.,.,·.,.". '.4:775% .. '
'. '. ".4.8.50%." .
14.50%'., . :.'" 12,460%· .... •• ·75360/0':: ···:.4.925% .'
'.: 14.75%·· .,.'., .. 12.585.%:.;':. :.: .. ·.17.585%:·
15.00% . 12 •.7.100/0." .... " '.'. ,'.': ."
15.25% . 12.835%i .' ';'.7.6.85%'" . ',.5.150%
15.50%· 12.960% '; .' 7;735% •. ·· . ,,'., 5,225%"
15.75%. 13.085% 7.785% :.'.5.300%
16.00%' . ," .13.210%<, .. ·.·.7.83.5%·" 5.375% .
16.25% 13.335% • 7.885%
16.50%..;;,·;'·13.460%',-:,., (.>: 7.935%:·· ., .'. 5.525%'
',,17.75%::-:" ... ·:,···· .. ·• ... 14;085%·'···:.·:··'·. ',.';. •. '.:: 8;.185%·.···".):;::;: 5,900% :._
18.00%':'.· ,... 14,210%:',,';: c •. :..' 8:235%". . •.. ..... 5,975% .
•. 18.25%' ' .. 14.335%' 8;285%.- 6,050%·
·18,50% :. 14,460%.· 8.335% '. 6.125%'
18.75%' 14 .. 585% 8.385% 6.200%
19.00% 14.710% 8,435% . 6.275%
19.25% 14.835% 8.485% 6.350%
19.50%.· 14.960% S.535%·
6,425.% '.'
19.75% .: .. 15.085% . 8.$85%· 6.500% ..
20.00%:: 15.21'0%···· 8.635%': . 6,575% .
*In the event that the target rate for overnight federal funds as announced by the
Open Market Committee of the Federal Reserve of Governors is a range of values
and not a specific Federal Target Rate as shown in the attached table, .United
Western Bank is to use the lower Federal Target Rate within the announced range to
establish the Contract Variable Rate, Earnings Credit Rate and Pass Through Rate.
Page 2 of 2
521
SUBACCOUNTING AGREEMENT
Lincoln Trust ComJ;>any, a industrial bank with trust powers (':L TC"), having its
principal offices at 717 17 Street, SUlte 2100, Denver, Colorado, 80202, and Umted Western Bank
("Bank"), a federal savings bank, having its principal offices at 700 17th Street, Suite 2100,
Denver, Colorado 80202, hereby enter into this Subaccounting Agreement (the "Agreement")
this 1 st day of February, 2010 (the "Effective Date").
RECITALS
WHEREAS, Bank is a member of the Federal Deposit Insurance Corporation ("FDIC")
and a FDIC-insured.institution; and
WHEREAS, LTC, as custodian or directed trustee, provides custodial and related
services to employee benefit plan, individual retirement plans and other qualified plan accounts,
acts as custodian for self-directed IRA accounts and other retirement accounts (the "Custodial
Accounts") for which the account owners ("Owners" or "Clients") have sole responsibility for
the investments within such accouilts, and such Owners have instructed LTC with regard to the
cash or funds ("Funds") held in their Custodial Accounts to deposit such Funds with FDIC
insured institutions with which LTC has entered into agreements for such purpose; and
WHEREAS, LTC, as the custodian or directed trustee for the Owners, will deposit
Owners' Funds in an omnibus account described in more detail herein (the "Deposit Account")
with Bank for the benefit of the Owners pursuant to the of this Agreement; and
WHEREAS, the Owners desire that their Funds be insured by the FDIC to the fullest
extent possible; and
••,.".r·
WHEREAS, the aggregate balance of the Deposit <Account is expected to exceed
currently applicable FDIC insurance limits; and
WHEREAS, FDIC regulations provide ,that deposit records of insured financial
institutions must disclose the existence of any relationship that provides the basis for additional
insurance, and the details of that relationship must be ascertainable from the records of the
or by an entity that has undertaken to maintain such records; and
WHEREAS, LTC desires that the Funds maintained in the Deposit Account be insured to
the fullest extent provided by law for each Custodial Account and the Owner, and consequently
records and statements must be prepared for each Custodial Account and Owner regarding the
status of each Custodial Account which is within and a part of the Deposit Account; and
WHEREAS, Bank could provide account holder record-keeping for the Custodial
Accounts and Owners or obtain such services from a third-palty provider; and
WHEREAS, LTC is willing to act as limited agent for Ballie to provide record-keeping
and certain other services with respect to the account activity by Custodial Accounts and
balances maintained in the Deposit Account by the individual Custodial Accounts; and
WHEREAS, Bank and LTC believe it appropriate to enter into all agreement that
provides for LTC to act as limited agent for Bank to provide account holder record-keeping and
522
certain other services with· respect to balances maintained in the Deposit Account by the
Custodial Accounts and the Owners, for which Bank will pay a fee to LTC based upon the
aggregate monthly balance of such Custodial Accounts; and
WHEREAS, in order that the interests of the Owners in the Funds deposited with Bank
be ascertainable, LTC will maintain the necessary records; and
WHEREAS, Bank desires to obtain from LTC necessary data regarding each Custodial
Account Owner's interest in the Deposit Account; and
WHEREAS, LTC is willing to provide to Bank recordkeeping and certain other services
with respect to the Funds deposited in the Deposit Account; and
WHEREAS, Bank is willing to pay a sub accounting fee for the recordkeeping and other
services provided by LTC in connection with the Deposit Account; and
WHEREAS, Banl< and LTC desire to establish the terms and conditions under which
LTC will provide account owner record keeping, subaccounting services and certain other
services to Bank in cOlmection with the Deposit Account and the Custodial Accounts.
NOW, THEREFORE, in consideration of the mutual promises herein contained, it is mutually
agreed as follows:
AGREEMENT
1. Deposit Account.
1.1 LTC shall establish and maintain during the term of this Agreement the Deposit
Account at Bank for the deposit of funds on behalf of Owners of Individual Retirement Accounts
for which LTC acts as Custodian. LTC shall determine which Funds from the Owners are to be
deposited in the Deposit Account. The aggregate balance in the Deposit Account maintained at
Bank shall in no event be less $110 million and in no event exceed $150 million.
2. Subaccounting and Recordkeeping Services.
2.1 Bank's records shall expressly provide that the Deposit Account constitute trust fund
deposits made by LTC in its capacity as trustee or trustee for the benefit of account owners,
and that the records reflecting the separate interests of the account owners that compose
each Deposit Account are maintained by LTC.
2.2 LTC shall maintain separate accounting and record-keeping for each of its Custodial
Accounts which have balances in the Deposit Account. LTC shall be responsible for
providing such accounting and record-keeping services as agent for Bank. LTC
represents and warrants, covenants and agrees that (i) LTC and each of the Custodial
Accounts are, and at all times will continue to be, in compliance with the applicable
provisions of 12 CFR Part 204.130 (Regulation D relating to Eligibility for NOW
Accounts) and 12 CPR Part 230 (Regulation DD, Truth in Savings Act) and (ii) LTC is
either (a) a directed trustee of a pension or other employee benefit plan, with respect to
Page 2 of9
523
funds of the plan; (b) a person acting as a plan administrator or an investment adviser in
connection with a pension plan or other employee benefit plan provided that that person
is performing managerial functions with respect to the plan; or (c) a trustee or· custodian
of a pension or profit sharing plan qualified under section 40 1 (d) or430(a) of the Internal
Revenue Code of 1986; or (d) an agent or nominee whose primary purpose is not the
placement of funds with depository institutions. LTC, on behalf of the Custodial Account
Owners, shall issue instructions to Bank, by wire transfer, check or other appropriate means
acceptable to LTC and Bank, regarding transactions involving funds in the Deposit Account.
Bank shall be entitled to rely upon such instructions and Bank shall have no liability for any act
or omission hereunder while acting in good faith. Bank shall have no duty to act in regard to the
Deposit Account in the absence of such instructions . LTC shall maintain separate accounting
and record keeping with respect to the interest of e ~ c h Owner in a Deposit Account and
shall be primarily responsible for providing such subaccounting and record keeping services
to Banlc LTC shall provide account holder record-keeping and certain other services for the
Custodial Accounts and Owners as follows:
a. Deposits to the Deposit Account from all Custodial Accounts;
b. Withdrawals from the Deposit Account for all Custodial Accounts;
c. Accounting services provided to all Custodial Accounts;
d. data processing services required for sub-accO\.1l1t administration of the Deposit
Account; and
e. Periodic statements, notices and disclosures incompliance with all applicable federal
and state laws and regulations.
2.3 Notwithstanding the services provided by LTC hereunder, it is understood and agreed
that Bank shall be responsible at all times for maintaining and servicing the Deposit Account.
3. Fees and Invoicing.
3.1 Bank agrees to credit to the Deposit Account interest in an amount equal to the
average collected balance in the Deposit Account (as determined in Section 3.2 below)
multiplied by the interest rate based on the annual "Interest Checking" rate as published
by Barron's at the following webpage: http://online.barrons.com/public/page/9 0210-
moneyrates.html (the "Rate") If such Rate is no longer published by Barron's, then the
parties shall mutually agree on a new Rate. The Bank uses the daily-balance method to
calculate the Rate on the Deposit Account (the daily rate is 1/365 of the Rate).
LTC agrees to provide this Rate to. Bank no later than 5 days prior to the initial deposit
of funds in the Deposit Account and shall provide Bank notice of any change in such
rate no later than 5 days prior to the effective date of such notice, which effective date
shall always be on the first day of a calendar quarter. Subject to the limitations set forth in
Section 4.5 below, Bank shall credit interest to the Deposit Account on the last calendar day of
each month. Bank and LTC agree to use best efforts to promptly resolve any discrepancy
between the records of Bank and the records of LTC with respect to such interest at the end of
each month.
3.2.In addition to the Rate being paid by Bank with, respect to the Deposit Account, Bank shall
pay LTC a monthly fee equaling an annual percentage rate of 0.75% (75 basis points) of the
Page 3 of9
524
_ of 1110 Deposit Account It· is understood and agreed that such files
being paid LTC pursuant to this Section 3 (the "Subaccounting Fees") are intended to
compensate LTC for its prior month's recordkeeping services in connection with the Deposit
Account. No other fees of any nature shall be due to LTC for services provided herein. Bank shall
pay LTC the Subaccounting Fees within ten (10) days after receipt of the monthly report referred
to in Section 3.3 below. LTC agrees to send and Bank agrees to process a daily net transaction,
via wired funds in or out, to reflect transactions on LTC's books that result in a net increase or net
decrease in the aggregate balance of the Deposit Account.
3.3 LTC shall furnish to Bank by the seventh (7th) day of each month a trial balance
which reflects the account number, name, type of account and account balance of existing
Custodial .f\,ccounts in the Deposit Account as ofthe last business day of the preceding
month. Such report shall be accompanied by a summary which is signed and certified as
true and accurate by the chief financial officer or President of LTC.
3.4 Each party agrees to promptly make its personnel available, as may be reasonably
requested by the other party from time to time, to consult with the requesting party in
connection with the performance of its obligations pursuant to this Agreement at no cost to the
requesting party. Upon reasonable written notice to LTC, upon Bank's request, Banle shall
have the right to malce a physical audit at any time of LTC's books and records relevant
to the matters covered by this Agreement to verify the accuracy of LTC's monthly report
of the number of Custodial Accounts within each Deposit Account and other matters
deemed relevant by Bank. Bank shall not make more than four (4) such audits in each
calendar year.
4. Teno and Tennination.
4.1 Unless earlier terminated as provided below, the initial term of this Agreement will
commence on the Effective Date and continue for one (1) year from the Effective Date
(the "Initial Terin"). The Initial Term will be automatically renewed for successive'
twelve (12) month periods (each a "Renewal Termlt), unless and until either party
indicates in writing its intention not to renew the Agreement at least ninety (90) calendar
days prior to the end of the then-current term.
4.2 Either party may immediately terminate this Agreement upon a material breach by the
other party of any of such other party's obligations, including but not limited to LTC's
failure to maintain the minimum balance in the Deposit A9count as provided above,
which breach has not been cured within thirty (30) calendar days after the breaching party
has received notice thereof.
4.3 LTC may terminate this Agreement upon thirty (30) days' written notice to Bank in
the event that Bank no longer meets the definition of "well-capitalized" pursuant to 12
CFR § 565.4(b)( 1 )(ii). Bank: agrees to promptly notify LTC in the event that Banle ceases
to meet the definition of well-capitalized as defined herein.
4.4 The parties may terminate this Agreement at any time for whatever reason(s) by
mutual written consent.
Page 4 of9
525
5.
4.5 Upon expiration or termination of this Agreement for any reason, any amounts owed
to LTC under this Agreement before such termination will be immediately due and
payable. Upon termination for whatever reason, Bank agrees to cooperate with LTC in
the prompt and orderly transition of the Deposit Account to another bank of LTC's
choosing at no cost to LTC. Any interest accrued but unpaid with respect to any Deposit
Account will be credited to such account immediately prior to the transition of the
balances in such account to the successor institution. All rights and obligations of the
parties under this Agreement that, by their nature, do not terminate with the expiration or
termination of this Agreement shall survive the expiration or termination of this
Agreement.
Liability.
5.1 In no event shall LTC be liable 'for loss of goodwill, or for special, indirect,
incidental, consequential, punitive,exemplary, or tort damages arising out of or relating
to this agreement, regardless of whether such claim arises in tort, contract, or otherwise.
Except for claims related to proprietary rights or payment obligations, neither party may
assert any claim against the other related to this agreement more than 2 years after such
claim accrued. LTC's aggregate liability to Bank and any third party for any and all
claims and obligations relating to this agreement shall be limited to the total fees paid by
Bank to LTC in the six month period preceding the date the claim accrued.
6. Miscellaneous.
6.1 Upon reasonable request in writing no more frequently than once every 12 months,
LTC shall have the right, but not the' obligation, to review the books and records of Bank
relevant to the matters set forth in this Agreement.
6.2 The parties shall indemnify and hold harmless each other from and against any and all
claims, losses, liabilities, or damages (including reasonable attorney's fees and other
related expenses) arising from or in connection with this Agreement to the extent that the
claim, loss, liability or damage is directly related to the indemnifying party's willful
wrongdoing, gross negligence, or material breach of its duties under this Agreement.
Notwithstanding the foregoing, LTC shall indemnify and hold harmless Bank and its agents,
affiliates and employees from all suits, actions, costs, expenses (including reasonable attorneys'
fees), judgments or claims of any character, type or description brought, incurred or made ("Bank
Costs") arising from or relating to: (A) the gross negligence or willful misconduct of LTC, as
agent for Bank, in the execution of or perfonnance of this Agreement; and (B) any claim or
assertion by any customer of LTC, including but not limited to a Custodial Account Owner,
relating to any Custodial Account or any service provided by LTC to any customer, including but
not limited to a Custodial Account Owner, provided that the foregoing indemnification in this
subparagraph (B) shall not apply to the extent the Bank Costs result directly from the gross
negligence or willful misconduct of Bank.
6.3. Each party will procure and maintain at all times during the term of this Agreement
and for a period of at least two years following any termination of this Agreement, at its
own expense, comprehensive insurance policies to insure against errors, omissions or
Page 5 of9
526
misfeasance in the performance of such party's obligations under this Agreement, with
coverage that is reasonable and customary in light of such party's business, as well as
such party's duties and obligations set forth in this Agreement.
6.4 The parties agree that with the exception of claims regarding confidentiality or
proprietary rights, upon the written demand of either party, whether made before or after
the institution of any legal proceedings, but prior to the rendering of any judgment in that
proceeding, all disputes, claims and controversies between them, whether individual,
joint, or class in nature, arising from this Agreement or otherwise, including without
limitation contract disputes. and tort claims, shall be resolved by binding arbitration
pursuant to the Commercial Rules of the American Arbitration Association. Any
arbitration proceeding held pursuant to this arbitration provision shall be conducted in
Denver, Colorado, or at any other place selected by mutual agreement of the parties. The
statute of limitations, estoppel, waiver, laches and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable in any
arbitration proceeding, and the commencement of an arbitration proceeding shall be
deemed the commencement of any action for these purposes. The Federal Arbitration
Act (Title 9 of the United States Code) shall apply to the construction, interpretation, and
enforcement of this arbitration provision.
6.5 This Agreement may be executed in two or mcire counterparts, which together will
constitute one and the same instrument, each of which will be deemed an original. The
parties authorize. each other to detach and combine original signature pages and
consolidate them into a 'single identical original. Anyone of such completely executed
counterparts will be sufficient proof of this Agreement.
6.6 This Agreement, including all schedules hereto, sets forth the entire understanding
and agreement of the parties with respect to the subject matter hereof, and supersedes any
and all oral or written agreements or understandings between the parties,as to the subject
matter of the Agreement.
6.7 This Agreement, including any schedule hereto, may be amended only by a writing
signed by both parties. .
6.8 This Agreement will be governed and construed in accordance with the laws of the
State of Colorado, and where applicable, Federal law, without giving effect to conflict of
laws principles thereof.
6.9 Each party agrees to abide by all Federal and state laws and regulations applicable to
the performance of its obligations under this Agreement.
6.10 The relationship between the parties is that of independent contractors and no
agency, partnership, franchise, joint venture or employment relationship is intended or
created by this Agreement. Neither party will make any warranties or representations on
behalf of the other party.
Page 6 of9
527
6.11 Any notice under this Agreement will be in writing and delivered by personal
delivery, overnight courier, confirmed facsimile, or certified or registered mail, return
receipt requested, and will be deemed given upon personal delivery, one (1) business day
after deposit with an overnight courier, five (5) business days after deposit in the mail, or
upon confirmation of receipt of facsimile. Notices will be sent to a party at its address set
forth above or such other address as that party may specify in writing pursuant to this
Section.
6.12 If any provision herein is held to be invalid or unenforceable for any reason, the
remaining provisions will continue in full force without being impaired or invalidated in
any way. The parties may agree in writing to replace any invalid provision with a valid
provision that most closely approximates the intent and economic effect of the invalid
provision.
6.13 The waiver of a breach of any provision of this Agreement will not operate or be
interpreted as a waiver of any other or subsequent breach.
6.14 (a) Each party will keep confidential any information that it receives from the other
party (the receiving party being the "Recipient" and the other party being the
"Discloser") relating to the organization, finances, business, transactions, or affairs of the
other party and its affiliates, including without limitation, trade secrets and proprietary
information (including that of any client, supplier or licensor), client lists, plans, all
information regarding the services provided hereunder, all software and systems, and any
other information and data received from or on behalf of a party or its affiliates that the
Recipient could reasonably be expected to know is confidential (collectively,
"Confidential Information").
(b) "Confidential Information shall not include any information which (i) has properly
entered the public domain otherwise than through the fault of the other party in violation
of this . Agreement, or (ii) Recipient already possesses without obligation. of
confidentiality, develops independently without reference to Confidential Information of
the Discloser, or rightfully receives without obligation of confidentiality from a third
party ..
(c) Recipient agrees to hold as confidential all Confidential Information it receives
from the Discloser. All Discloser Confidential Information shall remain the property of
Discloser or its suppliers and licensors. Recipient will use the same care and discretion to .
avoid disclosure of Discloser's Confidential Information as it uses with its own similar
information that it does not wish disclosed, but in no event less than a reasonable
standard of care and no less than is required by law. Recipient may only use Discloser's
Confidential Information for the lawful purposes contemplated by this Agreement.
Recipient specifically agrees that it will not use or disclose any "non-public personal
information" about customers in any manner prohibited by Title V of the Gramm-Leach-
Bliley Act or the regulations issued thereunder ("GLB"), as applicable to Recipient.
Recipient may disclose Discloser's Confidential Information to: (i) its employees and
employees of permitted subcontractors and affiliates who have a need to know; (ii) its
Page 7 of9
528
attorneys and accountants as necessary in the ordinary course of its business; and (iii) any
other party with Discloser's prior written consent. Before disclosure to any of the above
parties, Recipient will have a written agreement with (or in the case of clause (ii) a
professional obligation of confidentiality from) such party sufficient to require that party
to treat Discloser's Confidential Information in accordance with the requirements of this
Agreement, and Recipient will remain responsible for any breach of this Section by any
of the above parties. Recipient may disclose Discloser's Confidential Information to the
extent required by law or legal process, provided that (A) Recipient gives Discloser
prompt notice, if legally permissible, so that Discloser may seek a protective order, (B)
Recipient reasonably cooperates with Discloser (at Discloser's expense) in seeking such
protective order, and (C) all Discloser Confidential Information shall remain subject to
the terms of this Agreement in the event of such disclosure. At Recipient's option,
Discloser's Confidential Information will be returned to Discloser or destroyed (except as
may be contained in back-up files created in the ordinary course of business that are
recycled in the ordinary course of business over an approximate 30- to 90-day period or
such longer period as required by applicable law) at the termination or expiration of this
Agreement, upon Discloser's request, Recipient will certify to Discloser in writing that it
has complied with the requirements of this sentence. Recipient acknowledges that any
breach of this Section may cause irreparable harm to Discloser for which monetary
damages alone may be insufficient, and Recipient therefore acknowledges that Discloser
shall have the right to seek injunctive or other equitable relief against such breach or
threatened breach, in addition to all other remedies available to it at law or otherwise. .
6.15 This Agreement may only be assigned upon the written permission of the non-
assigning party; provided, however, that LTC may assign this agreement to an affiliate or
to a purchaser of all or substantially all of the assets of LTC upon the giving of written
notice of such assignment to Bank.
6.16 LTC and Bank understand and agree that the services provided by each other under
this Agreement are not exclusive and that, subject to the confidentiality provisions above,
either party may enter into agreements with others for the provision of similar services.
6.17 With the exception of Bank's payment obligations, neither p81iy shall be responsible
for delays or failures in performance resulting from acts of God, acts of.civil or military
authority, fire, flood, strikes, war,epidemics, pandemics, shortage of power, or other acts
or causes reasonably beyond the control of that party. The party experiencing the force
majeure event agrees to give the other party notice promptly following the occurrence of
such event, and to use diligent efforts to re-commence performance as promptly as
commercially practicable.
6.18 The prevailing party in any arbitration, suit, or action brought against the other
party to enforce the terms oftrus Agreement or any rights or obligations hereunder, shall
be entitled to receive its reasonable costs, expenses, and attorneys' fees of bringing such
arbitration, suit, or action.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
Page 8 of9
529
by their respective officers thereto duly authorized as of the day and year first above written.
LINCOLN TRUST COMPANY (LTC)
By
Name
Title
UNITED WESTERN BANK
By
Name·
Title
Page 9 of9
530
Tab.C
Exhibit 16 C (d)(ii)
531
LUSE GORMAN POMERENK & SCmCK
A PROFESSIONAL CORPORATION
Board of Directors
United Western Bank
March 8, 2010
Page 3
provide these MSCS Administrative Services for which the Bank pay MSCS a monthly servicing fee
consisting of an amount equal to the product of the average daily balance ofMSCS deposits at the
Ban1e (subj ect to the exclusion of s o m ~ accounts identified in Exhibit A of the MSCS agreement) and
the Cap Rate as provided on Schedule A-I of the MSCS agreement. The Bank does not pay any rate
on the balances at Bank to MSCS' customers. The Cap Rate is based on the Average Daily Fed
Funds Target of interest as described on Schedule A-I to the MSCS agreement.
We understand that that MSCS currently serves more than 300 MSCS Customers by
servicing $100 billion in assets through the MSCS platform. In 2009, MSCS maintained
approximately $268 million of MSCS Customers' deposits with the Bank.
LAW AND REGULATION
A II deposit broker
ll
is defined as II any person engaged in the business of placing deposits, or
facilitating the placement of deposits, of third parties with insured depository institutions .... " 12
C.F.R. 337.6(a)(5)(i)(A). However, a deposit broker does not include II an agent or nominee whose
primary purpose is not the placement of funds with depository institutions. II Id. § 337 .6( a)(5)(ii)(I).
This exception is referred to as the "primary purpose exception."
The ''primary purpose exception" has been interpreted by the FDIC to apply to "an agent who
places funds into a depository institution for a substantial purpose other than to obtain deposit
insurance coverage for a customer or to provide the customer with a deposit-placement service."
FDIC Advisory Opinion 05-02 (February 3,2005) [emphasis added].
In Advisory Opinion 05-02, the FDIC concluded that a broker-dealer's sweep of its
customers' funds to the broker-dealer's affiliated banks did not constitute a "brokered deposit"
because the "primary purpose" of placing the funds at the ban1es was to facilitate its customers'
purchase and sale of securities.
In reaching its decision, the FDIC stated that the "primary purpose exception" is satisfied
provided the following qualifications are met:
• The funds swept to the affiliated ban1es should not exceed 10% of
the total funds the broker-dealer could sweep to the affiliated ban1es
(the IIpermissible ratio"); and
534
LUSE GORMAN POMERENK & SCmCK
A PROFESSIONAL CORPORATION
Board of Directors
United Western Bank
March 8, 2010
PageS
FDIC Advisory Opinion 05-02, the Legent deposits at the Bank should not be brokered deposits
under the FDIC's regulation. ,
With respect to MSCS, its primary business is the clearing of purchase and redemption trades
of various mutual funds for MSCS Customers, and the MSCS deposits are placed at the Bank
primarily to facilitate MSCS' clearing activities for its MSCS Customers' trades. The funds placed
at the Bank are a small percentage of the total amount offunds MSCS handles for MSCS Customers.
Additionally, the fee the Bank pays MSCS are for the MSCS Administrative Services perfonned for
the benefit· of the Bank as opposed to a fee for the placement of the funds with the Bank.
Accordingly, based on the above discussion and FDIC Advisory Opinion 05-02, the MSCS deposits
at the Bank should not be brokereddeposits under the FDIC's regulation.
The opinions expressed herein are based upon, and subject to, the following assumptions,
limitations, qualifications and exceptions:
1. In rendering its opinions, the finn has relied solely upon any representations
of officers of the Bank that the facts, as stated herein, are true, complete and
correct.
2. The firm has assumed that there are no other facts that would change the
opinions contained herein.
3. The,firm has not independently verified the accuracy, completeness, or
correctness of any of the facts presented above.
4. The firm expresses no opinion as to any other laws or regulations, other than
the applicable FDIC regulations discussed herein.
5. The firm expresses no opinion as to the safety and soundness of any of the
transactions contained therein.
6. The opinions and conclusions expressed herein are based upon our
interpretation of existing law and regulation, and are not intended to speak
with reference to standards hereafter adopted or . evolved in subsequent
judiCial or regulatory decisions or interpretations, or to laws, rules or
regulations hereafter enacted or adopted. The opinions and conclusions
expressed herein are as of the date hereof, and thefmn assumes no obligation
536
LUSE GORMAN POMERENK & SCmCK
A PROFESSIONAL CORPORATION
Board of Directors
United Western Banl(
March 8, 2010
Page 6
to update or supplement its opinions or conclusions to reflect any facts or
circumstances that may hereafter come to our attention or any changes in law
or regulation t ~ a t may hereafter occur.
7. The firm's opinions and conclusions are limited to the matters stated herein
and no opinions may be implied or inferred beyond the matters expressly
. stated herein.
8. This letter is delivered solely for the benefit of the Bank relating to the
applicability of the noted FDIC regulations, and no other party or entity is
entitled to rely hereon for any purpose whatsoever without the express prior
written consent of this firm.
Attachments
~ e r y ~ ~ q fJJ,Pc
537
Luse Gorman Pomerenk & Schick,
A Professional Corporation
,. .'
; I
l'ROGRAM BANK FEE AGREEMENT
THIS AGREEMENT, made as of November 24. 2008, is tnade between Legent Clearing LLC, a
Delaware Umiteclliability company (uLegent"), and United Western Bank. fonnerly known as Matrix Capital Bank
("Program Bank"). a fedeml savings bank.
WHEREAS, Deutsche 'Bank Trust Compimy Americas, a New York. Corporation, Program Bank and
Legent are parties to a Program Bank Money Market Deposit Account Agreement For Aocounts 0/ Broker
Dealers dated June 2006 (the "Triparty Agreemenf'); and
WHEREAS, the Triparty Agreement provides for consideration to be paid by Program Bank with respect
to Accounts in connection with the Program, and further references thls Agreement with respect to the details of
such consideration; .
NOW, THEREFORE, in consideration of the above recitals and. other good and valuable consideration
the receipt of which is hereby acknowledged, Legent and Progra.m Bank agree as follows:
Section t. Definitions a/Terms. All capitalized terms not defined in this Agreement shall have the
meaning ascribei:l to them in the Trlparty Agreement.
Section 2. Calculation o/Maximum Bank Payment. For purposes of the Triparty Agreement, the MEIJ(imum
Bank Payment shall be defined per the attached Schedule A tied to the Federal Funds lntended Rate. The Federal
Funds Intended Rate shall mean, with respect to any interest Determination Date, the rate most recently pUblished
on the website of the Board of Governors of the Federal R.eserve System at:
b.tlp,:/lwww,fe4erq!reserve.'l0vlfomclfimdsrate.htpl.
Section 3. incorporatton o/Trlparly Agreement. This Agreement incorporates and supplements the terms
of the Trlparty Agreement, as amended from time to time. In the event that any provision of this Agreement shall
be inconsistent with the Triparty Agreement, the prOVisions of this Agreement shall supersede the inconsistent
provision of the Triparty Agreement.
Section 4. Term and Minimum Balanoes. For a period of two years from December 12,2008. Legent, at
all times, will cause the uninvested cash portion of each of Legent's clients accounts controlled by Legent to be
deposited to the Legent bank account established under the Triparty Agreement in an amount per olient up to the
Federal Deposit Insurance Corporation Insurance limits for each individual beneficial account holder to an
aggregate amount of at Jeast $1 50,000.000.
I/O II< II<
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first set out
above.
LEGBNT CLBARING LLC
~ y . ~ B . ; t ;
Name: David Brant
Title: Co-President & CPO
538
TabC
Exhibit 16 C (d)(iii)
539
BUCKLEYSANDLER LLP
MarchIO, 2010
United Western Bank
700 Seventeenth Street
Denver Colorado 80202
RE: Brokered Deposits
Gentlemen:
1250 24th Street NW, Suite 700
Washingron, DC 20037
We have been requested, in our capacity as special counsel to the United Western Bank
(the "Bank") to provide our opinion as to whether certain deposits maintained at the Bank are
"brokered deposits" within the meaning of 12 USC § 1831 (f) and the rules and regulations
promulgated by the Federal Deposit Insurance Corporation.
Facts
Based on representations from the Bank, we understand the following to be the facts. The
Bank has entered into a number of agreements with institutions which have custody of customer
funds, pursuant to which the institutions maintain deposit funds in money market andlor demand
deposit accounts at the Bank, which are held on behalf of the institution'S customers in the
ordinary course of business. The accountholdel's are described in greater detail below. In each
case, appropriate agreements are entered into between the Bank and its counterparty, and each
such agreement clearly provides that these are custodial accounts maintained for the benefit of
the customers of the depositing institution, which are entitled to the pass-through of deposit
insurance. In each case, these agreements provide that sub-accounting and recordkeeping
funetions are to be performed by the depositing i n s t i t u t i o n s ~ In each case, the Bank pays the
depositing institution a fee for performing these administrative, recordkeeping andlor other
services. No amount of the fee is paid for providing the deposits. In each case, the rates paid on
deposits do not exceed the limits on rates payable by institutions subject to thebrokered deposits
restrictions under 12 C.F.R. 337.6(b).
Equity Trust Company ("ETC") .... ETC is a non-depository trust company priinarily
engaged in the business of serving as a qualified custodian for self directed IRA accounts and
other retirement accounts. ETC is the named custodian and, as a plan administrator, provides
significant administrative and management services for the accountholders, including, holding
title to assets, holding investment securities, valuation and tax reporting services, and accounting
for investments and distributions, such as lease payments. ETC offers its IRA holders the
opportunity to invest in traditional and alternative investments. Traditional investments include
stocks, bonds, mutual funds and similar instruments. Alternative investments include indirect
540
United Western Bank
March 10,2010
Page 2
investments in private placements, limited partnerships and limited liability companies and direct
investments in real estate and oil and gas interests. The decision as to selection with regard to
these investments is len to the holder of the self directed IRA. Absent directions to the contTary
from the accountholdel', ETC sweeps idle cash, if any, in the accounts to the omnibus money
market or demand deposit accounts at the Bank. Pursuant to the Subaccounting Agreement
dated June 27, 2009 between ETC, Equity Administrative Services, Inc. ("EAS"), Sterling
Administrative Services, LLC ("SAS") (EAS and SAS collectively referred to herein as the
"ETC Companies") and Bank (the "ETC Subaccounting Agreement"), the ETC Companies will
provide sub-accounting and recol'dkeeping, administrative or other services related to the
custodial account holders' accounts and the Bank shall pay the ETC Companies a monthly fee
for such services equal to $40.00 multiplied by the number of custodial accounts at Bank;
however, in no event shall the aggregate monthly fee exceed a percentage yield with respect to
the accounts equal to the rate set forth in the ETC Subaccounting Agreement. The ETC
Subaccounting Agreement has a five year term, through June 2014. Under the ETC
Subaccounting Agreement, as recently amended, ETC is contractually obligated to maintain its
customer's cash balances at the Bank unless the Bank falls below the level of "adequately
capitalized. "
ETC has used the depository services of the Bank for the idle cash of its customers since
2002. ETC required a bank that understood the exigencies of managing the idJe cash of IRA
holders and was willing to facilitate an electronic data processing interface and other services. As
the Bank then provided similar services for the IRA accounts maintained by its atliliate trust
company, the Bank's capacities represented an attractive resource to ETC and its customers,
including customers of the Bank's affiliate trust company sold to E'rC in June 2009. The ETC
relationship has provided a stable, reasonably priced source of deposits to the Bank for eight
years.
Lincoln Trust Company ("LTC") - LTC is a non-depository trust company primarily
engaged in the business of serving as a qualified custodian for self directed IRA accounts and
other retirement accounts. The LTC subaccounting relationship is similar to the ETC
subaccounting relationship wherein LTC provides subaccounting and record-keeping services for
Bank and Bank pays a fee to LTC for such services, based on the level of deposits.
LTC has used the depository services of the Bank for the idle cash of its customers since
February 2010. LTC elected to utilize the depository resources of the Bank in recognition of the
Bank's long history of being able to provide trust companies, such as ETC and UW Trust
Company, with necessary depository selyices to make the trust operations run efficienlly.
Matrix Settlement and Clearance Services, LLC ("MS'CS) - MSCS is a limited liability
company primarily engaged in providing back-of:l1ce, trust, custody, trading and mutual fund
settlement and clearing services to banks, trust companies, registered investment advisers and
third party administrators representing tax exempt retirement plans. Through the MSCS
interfaces with MSCS and certain third party administrators, the third party administrators
purchase and sell mutual fund interests in numerous mutual fund families on behalf, and at the
direction, of the participants in the benefit plans serviced by the administrators. Idle cash
541
United Western Bank
March 10, 2010
Page 4
The Bank's relationship with Legent dates to 2002, when Legent was acquired by Guy
Gibson, the Chairman of the Company and Bank and its holding company, who stepped down
from active management of the Bank. Legent has used the bank's depositary services for the idle
cash of its participant's customers since 2003. The Legent relationship has provided the Bank
with a stable source of reasonably priced deposits. The relationship continued after Legent was
sold to an independent third party. Four members of current management of the Company
andlor Bank are former members of Legent management. The Legent relationship has provided a
stable, reasonably priced source of deposits to the Bank for eight years.
Analysis
Brokered deposits are defined as "any deposit that is obtained, directly or indirectly, from
or through the mediation or assistance of a deposit broker." 12 C.F.R. §337.6(a)(2). A "deposit
broker" is defined, in relevant part, as "any person engaged in the business of placing deposits,
or facilitating the placement of deposits, of third parties with insured depository institutions, ... "
12 U .S.C. § 183litg)( J )(A), 12 C.F.R. §337 .6(a)(5). However, the term "deposit broker" does
not include, among other exclusions:
"(E) A person acting as a plan administrator or investment adviser in connection
with a pension plan or other employee benefit pian, provided that person is
performing managerial functions with respect to the plan; [or]
(I) An agent or nominee whose primary purpose is not the placement of funds
with depository institutions ... " 12 U.S.C. § 183lf(g)(2), 12 C.F.R.
§337.6(a)(5)(ii)."
The exclusion from the definition of deposit broker in subsection (E) above does not
appear to have been the subject of any official advice 01' commentary asserting additional
requirements to reliance on the exception.
The exclusion from the definition of deposit broker in subsection (1) above, is referred to
as the "primary purpose exception," and has been the subject of a number of advisory opinions
by the FDIC. In Advisory Opinion 05-02, it was explained that "the FDIC has taken the position
that "primary purpose" means "primary intent." In other words, the "primary purpose exception"
applies to an agent who places funds into a depository institution for a substantial purpose other
than to obtain deposit insurance coverage for a customer or to provide the customer with a
deposit-placement service."
In Advisory Opinion 05-02, the FDIC agreed that a broker-dealer's sweep of credit
balances in customer accounts into affiliated banks was not for the primary purpose of providing
deposit placement services, and did not constitute brokered deposits where: (i) the swept fhnds
did not exceed 10% of the total assets in the s u ~ i e c t accounts (the "permissible ratio"); (ii) the
average daily balance of swept funds during any month should not exceed 10% of the average
assets in the subject accounts handJed during the month (the "monthly ratio"); (iii) the
543
United Western Bank
March 10,2010
Page 5·
permissible ratio is not exceeded in consecutive months; and (iv) the permissible ratio is not
exceeded for three months in any twelve month period.
The Advisory Opinion also discusses the fees paid to the broker-dealer sweeping the
deposits to the bank for record keeping and administrative services. In that opinion the fees were
flat fees based on a "pel' account" or "per customer" basis. It was represented that the fees were
not fol' the placement of deposits, The opinion notes. that "[a]ssuming the accuracy of these
representations, the existence of the fees does not change our conclusion" that the primary
purpose exception is satisfied. .
Conclusion regarding ETC and LTC
Based on the facts set forth above, and subject to the additional qualifications herein
contained, we are of the opinion that to the extent that the deposits swept by ETC and/or LTC
into the Bank represent funds of IRA or other pension or retirement plans, which are deposited
by ETC and/or LTC acting as a plan administrator and performing managerial functions with
respect to the accounts or plans, then such entities are not "deposit brokers" and as such, deposits
received through such entities al'e excluded from the definition o f ~ and do not constitute,
"brokered deposits."
Conclusion regarding MSCS and Legcnt
As stated in Opinion 05-02, the primary purpose exception is intended to apply to an
agent who places funds into a depository institution for a substantial purpose other than to obtain
deposit insurance coverage for a customer 01' to provide the customer with a deposit-placement
service. It is our view that substantial purposes other than deposit placement underlie the
depositary relationships between the Bank and each of MSCS and Legent.
In the case of MSCS, its operations were developed on a highly integrated basis with the
services of the Bank. The Bank has developed significant specialized reporting and procedures
to accommodate and foster the business of MSCS, which, we are advised, are not readily
available fi'om other institutions. Termination of the depositary relationship with the Bank could
result in a significant disruption to the business of MSCS and its customers. MSCS clearly
maintains its relationship with the Bank for the purpose of providing its core mutual fund
settlement and clearing services to its customers, and not to provide its customer with a deposit
placement service for overnight idle funds resulting fl:om that fundamental business. Based on
the information provided to us, it also appears that the amount of cash in the MSCS accounts at
the Bank are well below the permissible ratio.
Similarly, in the case of Legent, the provision of depositary services is an incidental
accommodation to customers in connection with its primary business of securities settlement and
clearing services foJ' broker dealers and their customers, and not to provide deposit insurance or
deposit placement services for its customers. .
544
United Western Bank
March 10,2010
Page 6
While the arrangements between the Bank and MSCS and Legent differ from the
particular facts presented by the bank seeking advice in Opinion 05-02, we believe viewing
MSCS and Legent as within the exception from the definition of "deposit broker" in 12U.S.C.
§1831f(g)(2)(I) and 12 C.F.R. §337.6(a)(5)(ii)(I) is consistent with the principles underlying
Opinion 05-02 and the brokered deposit rules. .
In the absence of a specific prior regulatory interpretation on all fours with the Bank's
fact scenario, it is necessary to look to the language of.the statute and regulation, and to the
regulatory purposes, underlying the exception to the definition of "deposit broker." Insofar as the
restrictions on the use of brokered deposits by less than well capitalized institutions are intended
to limit reliance on volatile and high cost non-core deposits, then the purpose of the restrictions
would not be served by designating MSCS and Legent as "deposit brokers." Each of Legent and
MSCS has a long relationship with the Bank, and, as represented by the Bank, the aggregate .
interest and administration costs of the deposits to the Bank is reasonable, and in line with or
below the costs of comparable deposits originated on a retail basis; The level of deposits
provided by each institution has been stable, and not subject to volatile swings.
Therefore, we believe that there is a reasonable goad faith basis to conclude that Legent
and MSCS are not deposit brokers, and that the deposits obtained by the Bank through its
relationships with such entities should not be characterized as brokered deposits for purposes of
12 U.S.C. §1831(f).
In reaching the foregoing conclusions we have relied on the facts as represented to us and
stated herein. Any change in the facts could affect our conclusions. We have not made any
inquiries of the. FDIC or other bank regulatory agencies in connection with rendering this
opinion, and they may disagree with the views and conclusions expressed herein. We note that
the FDIC has significant discretion in the interpretation of the provisions of the brokered deposit
provisions oflaw and regulation.
Our examination of matters of law in connection with the opinions and conclusions
expressed herein has been limited to, and accordingly our opinions and conclusions expressed
herein are limited to, the fedcrallaws of the United States of America. We express no opinion
with respect to the laws of any other jurisdiction. This letter is given as of the date hereof, and
we assume no obligation to advise you after the date hereof of facts or circumstances that come
to our attention 01' changes in law that occur that could affect the opinions contained herein.
Very truly yours, .
LJ // 017.
.
BuckleySarMfer LLP ? Jctf
545
TabC
Exhibit 16 D
546
TabC
Exhibit 17
548
Office of Thrift Supervision
Department of the Treasury Western Region
Pacific I>ln7.3. 2001 Junipero Seml Boulevard, Suile 650. Daly City. CA Only City ArenOlTIce
P.O. Box 7165. SlIn francisco. CA 94120·7165· Telephone: (650) 746·7000 (650) 746·7001
june 22, 201 0
Board of Directors
United Western Bank
700 17111 Street, Suite 2100
Denver, CO 80202
Deal' Directors:
In a letter dated May 24, 2010, the FDIC informed United Western Bank that the agency had determined
that the Bank's deposits from seven institutional deposit relationships are brokered deposits. The letter
further indicated that the FDIC deemed the maturity dates of the deposits to be those of the underlying
deposit instruments rather than those of the contracts between the institutional depositors and the Bank.
The FDIC also informed the institution that its current "Adequately Capitalized" status under PCA
standards precludes United Western from accepting, renewing, 01' rolling over any brokered deposit
without a waiver from the FOTC.
United Western Bank has not demonstrated to llS that it has the ability to replace these funds in the near
future. While we acknowledge that United Western filed a request for a brokered deposit waiver 011 June
10, 2010, it is uncertain whether United Western will be able to reach agreement with the FDIC on a plan
for the orderly reduction of the institutional deposits that would provide the basis for approval of a
waiver. The duration of any sllch waiver, if approved, is also ullceltain.
In view of this situation, we believe that there is a possibility that United Western could face a severe
liquidity crisis in the near future that would threaten the viability of the institution. We, thel-efore,are
downgrading the Liquidity component rating to "5." .
If you have comments or questions, please contact me at (650) 746-7025 or Office Examiner Steve Harris
at (650) 746-7048.
Sincerely,
li·,d ... 1.w J. 'Or
Nicholas J. Dyer
Assistant Director
cc: Tom Trujillo, FDIC-Dallas
549
TabC
Exhibit 17 A
550
Office of Thrift Supervision
Department of the Treasury Western Region
Pacific Plaza, 200 I Junipero Serra Boulevard, Suite 650, Daly City, CA 94014-3897 Daly CilY Area Office
P.O. Box 7165, San Francisco, CA 94120-7165· Telephone: (650) 746-7000· Fax: (650) 746-7001
REPORT OF EXAMINATION
United Westem Bank
Denver, CO 80202·3501
Docl{et Number: 06679
Type of Examination: Comprehensive Limited
Examination Start Date: June 17, 2010
Examiner-in-Charge: Steve Harris
Examination Completion Date: June 22,2010
In a letter dated May 24, 2010, the FDIC informed United Western Bank that the agency had
determined that the Bank's deposits from seven institutional deposit relationships are brokered
deposits. The letter further indicated that the FDIC deemed the maturity dates of the deposits to be
those of the underlying deposit instruments rather than those of the contracts between the institutional
depositors and the Bank. The FDIC also informed the institution that its current "Adequately
Capitalized" status under PCA standards precludes United Western Bank from accepting, renewing, or
rolling over any brokered deposit without a waiver from the FDIC.
Together with other brokered deposits, the funds from the seven institutional relationships amounted to
about $1.4 billion on June 15, 2010, about 63 percent of total liabilities as of that date. United Western
has not demonstrated to us that it has the ability to replace these funds in the near future. The
institution requested a waiver from the FDIC on June 10, 2010 and will meet with the FDIC on
June 30,2010. It is uncertain whether United Western will be able to reach agreement with the FDIC
on a plan for the orderly reduction of the institutional deposits that would provide the basis for
approval of a waiver. The duration of any such waiver, if approved, is also uncertain.
In view of this situation, we believe that there is a possibility that United Western could face a severe
liquidity crisis in the near future that would threaten the viability of the institution. We, therefore, are
downgrading the Liquidity component rating to "5."
551
TabC
Exhibit 18
552
In the Matter of
UNITED STATES OF AMERICA
Before the
OFFICE OF THRIFT SUPERVISION
Order No.: WN-I0-019
UNITED WESTERN BANK
)
)
)
)
)
)
)
)
)
Effective Date: June 25, 2010
Denver, Colorado
OTS Docket No. 06679
ORDER TO CEASE AND DESIST
WHEREAS, United Western Bank, Denver, Colorado, OTS Docket No. 06679
(Association), by and through its Board of Directors (Board), has executed a Stipulation and
Consent to the Issuance of an Order to Cease and Desist (Stipulation); and
WHEREAS, the Association, by executing the Stipulation, has consented and agreed to
the issuance of this Order to Cease and Desist (Order) by the Office of Thrift Supervision (OTS)
pursuant to 12 U.S.C. § 1818(b); and
WHEREAS, pursuant to delegated authority, the OTS Regional Director for the Western
Region (Regional Director) is authorized to issue Orders to Cease and Desist where a savings
association has consented to the issuance of an order.
NOW, THEREFORE, IT IS ORDERED that:
Cease and Desist.
1. The Association and its directors, officers, and employees shall cease and desist from any
action (alone or with others) for or toward, causing, bringing about, participating in or
counseling, or aiding and abetting the unsafe or unsound practices that resulted in deteriorating
United Western Bank
Order to Cease and Desist
Page I of 15
553
asset quality, ineffective risk management practices, inadequate oversight and supervision of the
lending function, and inadequate liquidity planning at the Association.
2. The Association and its directors, officers, employees, and agents shall also cease and
desist from any action (alone or with another or others) for or toward causing, bringing about,
participating in, counseling or the aiding and abetting of any violation of:
(a) 12 c.P.R. § 560.93 (Lending Limitations); and
(b) 12 C.P.R. § 563.41 and Regulation W, 12 C.P.R. Part 223 (Transactions with
Affiliates) .
Capital.
3. By June 30, 2010, the Association shall meet and maintain a Tier 1 (Core) Capital ratio
equal to or greater than eight percent (8%) after the funding of an adequate Allowance for Loan
and Lease Losses (ALLL) and a Total Risk-Based Capital ratio equal to or greater than twelve
I
percent (12%).
4. Within seven (7) days, the Board shall submit a written Capital Plan to the Regional
Director for review and comment. The Capital Plan shall address how the Association will meet
and maintain the capital ratios set forth in Paragraph 3 of this Order. At a minimum, the Capital
Plan shall:
(a) take into consideration the requirements and restrictions imposed by this Order;
(b) detail capital preservation and enhancement strategies with specific narrative
goals, which shall result in new equity and a capital infusion;
I The requirement in this Order to meet and maintain a specific capital level means that the Association may not be
deemed to be "well-capitalized" for purposes of 12 U.S.C. §18310 and 12 C.F.R. Part 565, pursuant to 12 C.F.R.
§565.4(b)( I )(iv).
United Western Bank
Order to Cease and Desist
Page 2 of 15
554
(c) consider and address the amount of additional capital that would be necessary to
meet the capital requirements of Paragraph 2 of this Order under different forward-
looking scenarios involving progressively stressed economic environments;
(d) identify the specific sources of additional capital;
(e) detail timeframes by which the additional capital will be raised, if necessary, and
provide specific target month-end. capital levels; and
(0 provide for alternative methods to strengthen capital, should the primary sources
identified under subparagraph (d) of this section not be available.
5. Within fifteen (15) days after receipt of any comments from the Regional Director, the
Board shall make the changes, if any, to the Capital Plan required by the Regional Director.
Thereafter, the Board shall adopt and the Association shall implement and comply with the
Capital Plan. Within five (5) days of the Board meeting at which the Capital Plan was adopted,
the Association shall provide a copy of the Capital Plan to the Regional Director.
6. Within thirty (30) days after the end of each month, beginning with the month ending
June 30, 20lO,the Board shall review monthly variance reports Capital Plan Variance
Reports) prepared by Management on the Association's compliance with the Capital Plan. Such
Monthly Capital Plan Variance Reports shall: (a) detail actual operating results versus projected
results; (b) include detailed explanations of any material deviations; and (c) include a description
of the specific corrective actions or measures that have been implemented or are proposed to
address each material deviation.
7. The Board's review of the Monthly Capital Plan Variance Reports and evaluation of
Management and the Association's compliance with the Capital Plan shall be thoroughly
documented in the Board meeting minutes. The Association shall submit the Board meeting
minutes to the Regional Director within five (5) days of the Board meeting.
United Western Bank
Onler to Cease and Desist
Page 3 of 15
555
8. Within seven (7) days, the Association shall submit for the Regional Director's review
and comment a written Contingency Plan. The Contingency Plan shall detail the actions to be
taken, with specific time frames, to achieve one of the following results by the later of date of
receipt of all required regulatory approvals or sixty (60) days after the implementation of the
Contingency Plan: ea) merger with, or acquisition by, another federally insured depository
institution or holding company t h e r e o f ~ or (b) voluntary liquidation by filing an appropriate
application with the OTS in conformity with federal laws and regulations. The Board shall make
any changes to the Contingency Plan required by the Regional Director upon being notified of
such changes and shall provide a copy of the revised Contingency Plan to the Regional Director.
The Association shall immediately implement the Contingency Plan upon notification from the
Regional Director.
9. Once the Contingency Plan has been implemented, the' Association shall provide written
status reports to the Regional Director detailing the Association's actions taken and progress in
executing the Contingency Plan by no later than the first (1st) and fifteenth (15th) of each month
following the implementation of the Contingency Plan until such time as the Regional Director
determines such reports are no longer required. The status reports shall detail: any contacts with
investment bankers, any parties doing due diligence, any offers relating to an acquisition or a
merger, or the execution of binding letters of intent or purchase.
Business Plan.
to. Within thirty (30) days, the Association shall submit an updated written comprehensive
business plan covering the Association's operations through December 31,2012 (Business Plan)
to the Regional Director for review and comment. The Business Plan shall, at a minimum,
include: ea) a detailed narrative of the Board's plans and strategies to strengthen and improve the
Association's operations, earnings and profitability; (b) a detailed discussion of the Association's
United Western Bank
Order to Cease and Desist
Page 4 of 15
556
current financial position and resources and the Board's plans and strategies for preserving and
enhancing the Association's financial resources to meet the Association's operational projections
under the Business Plan, adequately support the Association's risk profile, maintain the capital
mtios set forth in Paragraph 2 of this Order, and satisfy the Association's liquidity needs;
(c) quarterly pro forma financial projections (balance sheet and income statement) for each
quarter covered by the Business Plan; and (d) all relevant assumptions and projections, as well as
documentation supporting such assumptions and projections.
11. Within fifteen (15) days of receipt of any comments from the Regional Director, the
Board shall make the changes, if any, to the Business Plan required by the Regional Director.
Thereafter, the Board shall adopt and the Association shall implement and comply with the
Business Plan. Within five (5) days of the Board meeting at which it was adopted, the
Association shall provide a copy of the Business Plan to the Regional Director.
12. Any material modifications to the Business Plan shall be submitted to the Regional
Director for review and written non-objection thirty (30) days prior to the proposed
implementation date unless such time period is waived in writing by the Regional Director.
13. Within forty-five (45) days after the close of each quarter, beginning with the quarter
ending September 30,2010, the Board shall review quarterly variance reports prepared by
Management on the Association's compliance with the approved Business Plan (Quarterly
Business Plan Variance Reports). The Quarterly Business Plan Variance Reports shall include:
actual operating results versus projected results, detailed explanations of any material deviations
from the Business Plan, and a specific description of the corrective actions or measures that have
been implemented, proposed or are under consideration to correct any material deviation.
14. The Board shall provide the Regional Director with a copy of each Quarterly Business
Plan Variance Report and the Board meeting minutes detailing the Board's review of the
United Western Bank
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557
Quarterly Business Plan Variance Report, including the identification of any corrective actions
adopted by the Board, and the Board's evaluation and assessment of Management and the
Association's compliance with the Business Plan within ten (10) days after the date of the Board
meeting at which the Board's review was conducted.
Classified Asset Reduction Plan.
15. Within thirty (30) days, the Association shall submit a revised written comprehensive
Classified Asset Reduction Plan to the Regional Director for review and comment. The
Classified Asset Reduction Plan shall contain specific Board strategies for reducing the
Association's ratio of classified assets to Tier One (Core) Capital plus ALLL to a level and
within a time frame acceptable to the Regional Director. The Classified Asset Reduction Plan
shall specify the manner and methods for reducing the Association's level of classified assets to
the target set therein and provide a contingent plan to further strengthen its capital base in the
event this target is not met. Further, the Classified Asset Reduction Plan shall require provision
of monthly asset quality reports to the Board (with a copy to the Regional Director) in order for
the Board to assess the Association's progress in achieving the targeted classified assets ratio.
The Board shall document its review of the periodic asset quality reports in the Board meeting
minutes.
16. Within fifteen (15) days of receipt of any comments from the Regional Director, the
Board shall make the changes, if any, to the Classified Asset Reduction Plan required by the
Regional Director. Thereafter, the Board shall adopt the Classified Asset Reduction Plan and the
Association shall implement and comply with the Classified Asset Reduction Plan. Within five
(5) days of the Board meeting at which it was adopted, the Association shall provide a copy of
the Classified Asset Reduction Plan to the Regional Director. Any request to modify the
Classified Asset Reduction Plan shall be submitted to the Regional Director for review and
United Western Bank
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558
written non-objection at least thirty (30) days prior to the proposed date to implement any such
modification.
Concentration Reduction Plan.
17. Within thirty (30) days, the Association shall submit a revised written Concentration
Reduction Plan to the Regional Director for review and comment. The Concentration Reduction
Plan shall detail how the Association will reduce its existing concentration of construction loans,
non-residential mortgage loans, and non-agency MBS as a percentage of Tier 1 (Core) Capital
plus ALLL to a level acceptable to the Regional Director within a timeframe satisfactory to the
Regional Director. At a minimum, the Concentration Reduction Plan shall include:
(a) targets for reduction of the concentrations in each category as a percentage of Tier
1 (Core) Capital plus ALLL and time frames for each such target;
(b) a description of the manner and methods for reducing the Association's
concentrations in each category to the targets set therein; and
(c) all relevant assumptions and projections and documentation supporting such
assumptions and projections.
18. Within fifteen (15) days of receipt of any comments from the Regional Director, the
Board shall make the changes, if any, to the Concentration Reduction Plan required by the
Regional Director. Thereafter, the Board shall adopt the Concentration Reduction Plan and the
Association shall implement and comply with the Concentration Reduction Plan. Within five (5)
days of the Board meeting at which it was adopted, the Association shall provide a copy of the
Concentration Reduction Plan to the Regional Director. Any request to modify the
Concentration Reduction Plan shall be submitted to the Regional Director for review and written
non-objection at least thirty (30) days prior to the proposed date to implement any such
modification.
United Western Bank
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559
Construction and Land Loans.
19. The Association shall continue to not directly or indirectly make, invest in, purchase, or
commit to make or purchase new construction or land loans without prior written non-objection
from the Regional Director.
20. Notwithstanding the restriction in Paragraph 19, the Association may originate
construction loans that are underwritten through the preferred lender program of the United
States Small Business Administration (SBA).
Investment Securities.
21. The Association shall continue to not increase its investment in non-agency s e ~ u r i t i e s
without the prior written notice of non-objection of the Regional Director .
. . Liquidity Contingency Plan.
22. Within seven (7) days, the Association shall submit a written comprehensive Liquidity
Contingency Plan to the Regional Director for review and comment. The Liquidity Contingency
Plan shall contain specific Board strategies for ensuring that the Association maintains adequate
short-term and long-term liquidity to withstand any anticipated or extraordinary demand against
its funding base, and shall, at a minimum:
(a) conform to applicable statutes, regulations, and regulatory guidance;
(b) specifically address deposit concentrations and plans·to reduce or manage such
concentrations;
(c) set forth the Association's strategies for the funding of projected lending
activities;
(d) include a cash flow analysis of liquidity that includes reasonable assumptions,
identifies anticipated funding needs and the sources of liquidity to meet those needs, and
addresses potential contingent liabilities;
United Western Bank
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560
(e) include identification of alternative funding sources to meet extraordinary
demands, including, at a minimum, the selling of assets, obtaining lines of credit from
correspondent institutions, recovering charged-off assets, and injecting additional equity
capital; and
(f) set forth the assumptions used in the formulation of the Liquidity Contingency
Plan, including, but not limited to, assumptions regarding the source of the Association's
deposits, the quality of the Association's unpledged assets, the collateral requirements for
Federal Home Loan Bank (FHLB) advances, and borrowing capability from Federal
Reserve Banks.
23. Within fifteen (15) days of receipt of any comments from the Regional Director, the
Board shall make the changes, if any, to the Liquidity Contingency Plan required by the
Regional Director. Thereafter, the Board shall adopt the Liquidity Contingency Plan and the
Association shall implement and comply with the Liquidity Contingency Plan. Within five (5)
days of the Board meeting at which it was adopted, the Association shall provide a copy of the
Liquidity Contingency Plan to the Regional Director. Any request to modify the Liquidity
Contingency Plan shall be submitted to the R.egional Director for review and written non-
objection at least thirty (30) days prior to the proposed date to implement any such modification.
24. Within five (5) days of receipt, the Association shall provide to the Regional Director any
correspondence from the FHLB or the Federal Reserve Bank imposing restrictions on the
Association's borrowing capacity or requiring additional collateral.
25. Effective immediately, the Association shall, on a weekly basis or more frequently if
requested by the Regional Director, submit a liquidity and cash flow analysis acceptable to the
Regional Director until such time as the Regional Director releases the Association from this
reporting requirement.
United Western Bank
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561
Growth Restrictions.
26. Effective immediately, the Association shall not increase its total assets during any
quarter in excess of an amount equal to net interest credited on deposit liabilities during the' prior
quarter without the prior written notice of non-objection of the Regional Director.
Directorate and Management Changes.
27. Effective immediately, the Association shall comply with the prior notification
requirements for changes in directors and Senior Executive Officers
2
set'forth in 12 C.F.R. Part
563, Subpart H.
Severance and Indemnification Payments.
28. Effective immediately, the Association shall not make any golden parachute payment
3
or
,prohibited indemnification payment
4
,unless, with respect to each such golden parachute
payment, the Association has complied with the requirements of 12 C.P.R. Part 359 and, as to
payments, 12 C.F.R. § 545.121.
Employment Contracts and Compensation Arrangements.
29. Effective immediately, the Association shall not enter into, renew, extend or revise any
contractual arrangement relating to compensation or benefits for any Senior Executive Officer or
director of the Association, unless it first provides the OTS with not less than thirty (30) days
prior written notice of the proposed transaction. The notice to the OTS shall include a copy of
the proposed employment contract or compensation arrangement or a detailed, written
description of the compensation arrangement to be offered to such officer or director, including
all benefits and perquisites. The Board shall ensure that any contract, agreement or arrangement
2 The tenn "Senior Executive Officer" is defined at 12 C.FR § 563.555.
3 The tenn "golden parachute payment" is defined at 12 C.FR § 359.1(t).
4 The term "prohibited indemnification payment" is defined at 12 C.F.R. § 359.1(1).
United Western Bank
Order to Cease and Desist
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562
submitted to the OTS fully complies with the requirements of 12 C.F.R. Part 359, 12 C.F.R. §§
563.39 and 563.161(b), and 12 C.F.R. Part 570 - Appendix A.
Third-Party Contracts.
30. Effective immediately, the Association shall not enter into any arrangement or contract
with a third party service provider that is significant to the overall operation or financial
condition of the AssociationS or outside the Association's normal course of business unless, with
respect to each such contract, the Association has: (a) provided the OTS with a minimum of
thirty (30) days prior written notice of such arrangement or contract; (b) determined that the
arrangement or contract complies with the standards and guidelines set forth in Thrift Bulletin
82a (TB 82a); and (c) received written notice of non-objection from the Regional Director.
31. Effective immediately, the Association shall provide the OTS with written notice of all
arrangements or contracts with third party service providers consistent with the requirements of
12 U.S.C. § 1464(d)(7)(D)(ii). Such notice shall be provided to the Regional Director not later
than thirty (30) days after the earlier of: (a) the date on which the Association enters into the
contract; or (b) the date on which the performance of the service is initiated. The Board shall
review all arrangements or contracts with third party service providers covered by this Paragraph
to ensure compliance with the standards and guidelines set forth in TB 82a.
Capital Distributions.
32. Effective immediately, the Association shall not declare or pay dividends or make any
other capital distributions, as that term is defined in 12 C.F.R. § 563.141, without receiving the
prior written approval of the Regional Director. The Association's written request for written
approval should be submitted to the Regional Director at least thirty (30) days prior to the
anticipated date of the proposed declaration, dividend payment or distribution of capital.
5 A contract will be considered significant to the overall operation or financial condition of the Association where
the annual contract amount equals or exceeds two percent (2%) of the Association's total capital.
United Western Bank
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563
Transaction With Affiliates Restrictions.
33. By August 31,2010, the Association shall adjust its loan portfolio to comply with the
quantitative limitations regarding covered transactions with a single affiliate set forth in 12
C.F.R. § 563.41 and Regulation W, 12 C.F.R. Part 223.
34. Effective immediately, the Association shall not engage in any transaction with an
affiliate unless, with respect to each such transaction, the Association has complied with the
notice requirements set forth in 12 C.F.R. § 563.41(c)(4), which shall include the information set
forth in 12 C.F.R. § 563.41(c)(3). The Board shall ensure that any transaction with an affiliate
for which notice is submitted pursuant to this Paragraph complies with the requirements of 12
C.F.R. § 563.41 and Regulation W, 12 C.F.R. Part 223.
Loan-to-One Borrower.
35. By August 31,2010, the Association shall reduce its loan concentrations to comply with
the lending limitations set forth in 12 C.F.R. § 560.93.
Brokered Deposits.
36. Effective immediately, the Association shall comply with the requirements of 12 C.F.R.
§ 337.6(b).
Violations of Law.
37. Within forty-five (45) days, the Association shall ensure that all violations of law and/or
regulation in this Order are corrected and that adequate policies, procedures and systems are
established or revised and thereafter implemented to prevent future violations.
Board Compliance Committee.
38. Within thirty (30) days, the Board shall appoint a committee (Regulatory Compliance
Committee) comprised of three (3) or more non-employee directors to monitor and coordinate
the Association's compliance with the provisions of this Order.
United Western Bank
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564
39. Within forty-five (45) days of the Effective Date, and within forty-five (45) days after the
end of each quarter, beginning with the quarter ending June 30, 2010, the Regulatory
Compliance Committee shall submit a written progress repOlt to the Board detailing the actions
taken to comply with each provision of this Order and the results of all such actions. The
Board's consideration of the Regulatory Compliance Committee's progress report for the period,
including comments and questions concerning the progress report and additional actions taken or
directed by the Board, shall be reflected in the minutes of the Board meetings.
40. Within forty-five (45) days of the Effective Date, and within forty-five (45) days after the
end of each quarter, beginning with the quarter ending June 30, 2010, a copy of the Regulatory
Compliance Committee's progress report for the quarter, with any revisions or comments by the
Board, shall be provided to the Regional Director.
41. Nothing contained herein shall diminish the responsibility of the entire Board to ensure
the Association's compliance with the provisions of this Order.
Effective Date, Incorporation of Stipulation.
42. This Order is effective on the Effective Date as shown on the first page. The Stipulation
is made a part hereof and is incorporated herein by this reference.
Duration.
43. This Order shall remain in effect until terminated, modified, or suspended by written
notice of such action by the Regional Director, acting by and through the Regional Director's
authorized representatives.
Time Calculations.
44. Calculation of time limitations for compliance with the terms of this Order run from the
Effective Date and shall be based on calendar days, unless otherwise noted.
United Western Bank
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565
45. The Regional Director, or an OTS authorized representative, may extend any of the
deadlines set forth in the provisions of this Order upon written request by the Association that
includes reasons in support for any such extension. Any OTS extension shall be made in writing.
Submissions and Notices.
46. All submissions, including any reports, to the OTS that are required by or contemplated
by this Order shall be submitted within the specified timeframes.
47. Except as otherwise provided herein, all submissions, requests, communications,
consents or other documents relating to this Order shall be in writing and sent by first-class U.S.
mail (or by reputable overnight carrier, electronic facsimile transmission or hand delivery by
messenger) addressed as follows:
(a) To the OTS:
Lori 1. Quigley, Acting Regional Director
Attn: Nicholas 1. Dyer, Assistant Director
Office of Thrift Supervision, Western Region
20011unipero Serra Boulevard, Suite 650
Daly City, CA 94014-3897
(b) To the Association:
James R. Peoples, Chairman
United Western Bank
700 17th Street, Suite 2100
Denver, CO 80202-3501
United Western Bank
Order to Cease and Desist
Page 140fl5
566
No Violations Authorized.
48. Nothing"in this Order or the Stipulation shall be construed as allowing the Association, its
Board, officers, or employees to violate any law, rule, or regulation.
IT IS SO ORDERED.
United Western Bank
Order to Cease and Desist
Page 15 of 15
OFFICE OF THRIFT SUPERVISION
By: - - - - - , - ~ - - , ( . . a ~ ~ - - - - . . · ~ . --'---
Lori J. Quigley
Acting Regional Director
Western Region
Date: See Effective Date on page 1
567
UNITED STATES OF AMERICA
Before the
OFFICE OF THRIFT SUPERVISION
In the Matter of
UNITED WESTERN BANK
Denver, Colorado
OTS Docket No. 06679
)
)
)
)
)
)
)
)
)
Order No.: WN-IO-019
Effective Date: June 25, 2010
STIPULATION AND CONSENT TO ISSUANCE OF ORDER TO CEASE AND DESIST
WHEREAS, the Office of Thrift Supervision (OTS), acting by and through its Regional
Director for the Western Region (Regional Director), and based upon information derived from
the exercise of its regulatory and supervisory responsibilities, has informed United Western Bank,
Denver, Colorado, OTS Docket No. 06679 (Association), that the OTS is of the opinion that
grounds exist to initiate an administrative proceeding against the Association pursuant to 12
U.S.C. § 1818(b);
WHEREAS, the Regional Director, pursuant to delegated authority, is authorized to issue
Orders to Cease and Desist where a savings association has consented to the issuance of an order;
and
WHEREAS, the Association desires to cooperate with the OTS to avoid the time and
expense of such administrative cease and desist proceeding by entering into this Stipulation and
Consent to the Issuance of Order to Cease and Desist (Stipulation) and, without admitting or
denying that such grounds exist, but only admitting the statements and conclusions in Paragraphs
1 and 2 below concerning Jurisdiction, hereby stipulates and agrees to the following terms:
United Western Bank
Stipulation and Consent to Issuance of Order to Cease and Desist
Page I of5
568
.T urisdiction.
1. The Association is a "savings association" within the meaning of 12 U.S.C. § 1813(b) and
12 U.S.C. § 1462(4). Accordingly, the Association is "an insured depository institution" as that
term is defined in 12 U.S.C. § 1813(c).
2. Pursuant to 12 U.S.C. § 1813( q), the Director of the OTS is the "appropriate Federal
banking agency" with jurisdiction to maintain an administrative enforcement proceeding against a
savings association. Therefore, the. Association is subject to the authority of the OTS to initiate
and maintain an administrative cease and desist proceeding against it pursuant to 12 U.S.C. §
1818(b).
OTS Findings of Fact.
3. OTS finds that the Association has: (a) engaged in unsafe or unsound banking practices
that resulted in deteriorating asset quality, ineffective risk management practices, inadequate
oversight and supervision of the lending function, and inadequate liquidity planning at the
Association; and (b) violated laws and regulations regarding transactions with affiliates (12 C.F.R.
§ 563.41)and loans to one borrower (12 C.F.R. § 560.93).
Consent.
4. The Association consents to the issuance by the OTS of the accompanying Order to Cease
and Desist (Order). The Association further agrees to comply with the terms of the Order upon the
Effective Date of the Order and stipulates that the Order complies with all requirements of law.
Finality.
5. The Order is issued by the OTS under 12 U.S.C. § 1818(b). Upon the Effective Date, the
Order shall be a final order, effective, and fully enforceable by the OTS under the provisions of 12
U.S.C. § 1818(i).
United Western Bank
Stipulation and Consent to Issuance of Order to Cease and Desist
Page 2 of 5
569
Waivers.
6. The Association waives the following:
(a) the right to be served with a written notice of the OTS's charges against it as
provided by 12 U.S.C. § 1818(b) and 12 C.F.R. Part 509;
(b) the right to an administrative hearing of the OTS's charges as provided by 12
U.S.C. § 1818(b) and 12 C.F.R. Part 509;
(c) the right to seek judicial review of the Order, including, without limitation, any
such right provided by 12 U.S.C. § 1818(h), or otherwise to challenge the validity of the
Order; and
(d) any and all claims against the OTS, including its employees and agents, and any
other governmental entity for the award of fees, costs, or expenses related to this OTS
enforcement matter and/or the Order, whether arising under common law, federal statutes,
or otherwise.
OTS Authority Not Mfected.
7. Nothing in this Stipulation or accompanying Order shall inhibit, estop, bar, or otherwise
prevent the OTS from taking any other action affecting the Association if at any time the OTS
deems it appropriate to do so to fulfill the responsibilities placed upon the OTS by law.
Other Governmental Actions Not Mfected.
8. The Association acknowledges and agrees that its consent to the issuance of the Order is
solely for the purpose of resolving the matters addressed herein, consistent with Paragraph 7
above, and does not otherwise release, discharge, compromise, settle, dismiss, resolve, or in any
way affect any actions, charges against, or liability of the Association that arise pursuant to this
action or otherwise, and that may be or have been brought by any governmental entity other than
the OTS.
United Western Bank
Stipulation and Consent to Issuance of Order to Cease and Desist
Page 3 of5
570
· Miscellaneous.
9. The laws of the United States of America shall govern the construction and validity of this
Stipulation and of the Order.
10. If any provision of this Stipulation andlor the Order is ruled to be invalid, illegal, or
unenforceable by the decision of any Court of competent jurisdiction, the validity, legality, and
enforceability of the remaining provisions hereof shall not in any way be affected or impaired
thereby, unless the Regional Director in his or her sole discretion determines otherwise.
11. All references to the OTS in this Stipulation and the Order shall also mean any of the
OTS's predecessors, successors, and assigns.
12. The section and paragraph headings in this Stipulation and the Order are for convenience
only and shall not affect the interpretation of this Stipulation or the Order.
13. The terms of this Stipulation and of the Order represent the final agreement of the parties
with respect to the subject matters thereof, and constitute the sole agreement of the parties with
respect to such subject matters.
14. The Stipulation and Order shall remain in effect until terminated, modified, or suspended
in writing by the OTS, acting through its Regional Director or other authorized representative.
Signature of DirectorsIBoard Resolution.
15. Each Director signing this Stipulation attests that he or she voted in favor of a Board
Resolution authorizing the consent of the Association to the issuance of the Order and the
execution of the Stipulation. This Stipulation may be executed in counterparts by the directors
after approval of execution of the Stipulation at a duly called board meeting.
United Western Bank
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571
the Association, by its directors, executes this Stipulation.
UNITED WESTERN BANK
Denver, Colorado
Guy A. Gibson, Director
James H. Bullock, Director
Bernard C. Darre, Director
United Western Bank
=
Stipulation and Consent to ISSII!1ltt of Order 10 Cease and Desist
Page SofS
572
Accepted by:
OFFICE OF THRIFr SUPERVISION
By:
Lori J. Quigl
Acting Regiona
Western Region
Date: See EffectiveDate on page 1
Tuesday, June 22, 20104:38 PM Bullock J 5055214883
WHEREFORE. the Association, by its directors, executes tbls Stipulation.
UNITED Wlt,sTERN ftANK
Deaver, Colorado
By: ________________ __
James R. Peoples. Chairman
Guy A. Gibson. Director
Charles J. Berling, l)irector
..
C. Dam. Director
Benjamin C. Hirsh. DirectoT
OMY O. DirCOlOr
unikd Wcoctcm BlInk
lItII'.lhIbm and (:M8MIIO IcC\lllOOe of Order to Cme aod DesiSl
I'IIlIPS "r:;
573
Accepted by:
OIi'rICII! or Til R1VI' mJl'KRVlSrON
By,

Acting Regional Director
Western Regioll
Dale: See BOectivt'I Date on puge ·1
p.01
WHEREFORE, the Association, by its directors. executes this Stipulation.
UNlTED WESTERN BANK
DenVel", Colorado
By: __________ ____ _
James R. Peoples, Chairman
Guy A. Gibson, Director
Charles J. Berling, Director
James H. Bullock. Director
". /
:::) " ) .
Bernard C. Dam;!, Director
Benjamiu C. Hirsb, Director
Gary G, Petak, Director
Unittd We.tern Book
Sfipldlllion and ContO"IIO 1.'''.''''0 ot o,'&.,- to COMe 8"d 011<1",1
PBge$ofS
574
Accepted by:
OFFIC:E OF THRIFT SUPERVISioN
By:

Acting Regional Director
Western Region
Date: See Effective Date on page 1
TabC
Exhibit 19
575
In the Matter of
UNITED STATES OF AMERICA
Before the
OFFICE OF THRIFT SUPERVISION
Order No.: WN-I0-020
UNITED WESTERN BANCORP, INC.
)
)
)
)
)
)
)
)
)
Effective Date: June 25, 2010
Denver, Colorado
OTS Docket No. H2192
ORDER TO CEASE AND DESIST
WHEREAS, United Western Bancorp, Inc., Denver, Colorado, OTS Docket No. H2192
(Holding Company), by and through its Board of Directors (Board), has executed a Stipulation
and Consent to the Issuance of an Order to Cease and Desist (Stipulation); and
WHEREAS, the Holding Company, by executing the Stipulation, has consented and
agreed to the issuance of this Order to Cease and Desist (Order) by the Office of Thrift
Supervision (OTS) pursuant to 12 U.S.C. § 1818(b); and
WHEREAS, pursuant to delegated authority, the OTS Regional Director for the Western
Region (Regional Director) is authorized to issue Orders to Cease and Desist where a savings and
loan holding company has consented to the issuance of an order.
NOW, THEREFORE, IT IS ORDERED that:
Cease and Desist.
1. The Holding Company and its directors, officers, employees, and agents shall cease and
desist from any action (alone or with another or others) for or toward causing, bringing about,
United Western Bancorp, Inc.
Order to Cease and Desist
Page 1 of7
576
participating in, counseling or the aiding and abetting of unsafe or unsound practices that resulted
in: (a) deteriorating asset quality, ineffective risk management practices, inadequate oversight and
supervision of the lending function, and inadequate liquidity planning at its wholly owned
subsidiary, United Western Bank, Denver, Colorado, OTS Docket No. 06679 (Association); and
(b) the Association's violation oflaws and regulations regarding transactions with affiliates (12
C.F.R. § 563.41) and loans to one borrower (12 C.F.R. § 560.93).
Capital.
2. Within seven (7) days, the Holding Company shall submit for Regional Director review
and comment a consolidated capital plan to preserve and enhance the capital of the Holding
Company and the Association (Capital Plan). At a minimum, the Capital Plan shall:
(a) consider the requirements and restrictions imposed by this Order and the Order to
Cease and Desist issued by the OTS against the Association, dated June 25, 2010; and
(b) detail how the Association shall meet and maintain a Tier 1 (Core) Capital ratio
equal to or greater than eight percent (8%) after the funding of an adequate Allowance for
Loan and Lease Losses (ALLL) and a Total Risk-Based Capital ratio equal to or greater
than twelve percent (12%), including a specific description of the methodes) by which
additional capital will be raised, if necessary, and an identification of the sources of such
capital.
3. Within fifteen (15) days of receipt of any comments from the Regional Director, the Board
shall make the changes, if any, to the Capital Plan required by the Regional Director. Thereafter,
the Board shall adopt and the Holding Company shall implement and comply with the Capital
United Western Bancorp, Inc.
Order to Cease and Desist
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577
Plan. Within five (5) days of the Board meeting at which it was adopted, the Holding Company
shall provide a copy of the Capital Plan to the Regional Director.
Capital Distributions and Stock Repurchases.
4. Effective immediately, the Holding Company shall not declare, make, or pay any
dividends or other capital distributions, or repurchase or redeem any capital stock without
receiving the prior written non-objection of the Regional Director. The Holding Company's
written request for such non-objection shall be submitted to the Regional Director at least thirty
(30) days prior to the anticipated date of the proposed dividend payment,capital distribution or
stock redemption.
Debt LimitationslRestrictions.
5. Effective immediately, the Holding Company shall not incur, issue, renew, repurchase, or
rollover any debt, increase any current lines of credit, or guarantee the debt of any entity without
receiving the prior written notice of non-objection of the Regional Director. The Holding
Company's written request for such non-objection shall be submitted to the Regional Director at
least thirty (30) days prior to the anticipated date of any such proposed action.
Payment LimitationslRestrictions.
6. Effective immediately, the Holding Company shall make no payments (including but not
limited to principal, interest, or fees of any kind) on any existing debt without receiving the prior
written non-objection of the Regional Director. The Holding Company's written request for such
non-objection shall be submitted to the Regional Director at least thirty (30) days prior to the
anticipated date of any such proposed payment.
United Western Bancorp, me.
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578
Operations Plan.
7. Within thirty (30) days, the Holding Company shall submit to the Regional Director for
I
review and comment an Operations Plan that addresses how the Holding Company will meet all
financial obligations for the remainder of2010 through 2012, including, but not limited to,
payments on senior notes, dividend payments on preferred stock, and interest payments on trust
preferred securities without reliance on dividends from the Association. The Operations Plan shall
include, at a minimum, comprehensive pro forma cash flow projections detailing all anticipated
sources and uses of funds, including, but not limited to, any scheduled payment obligations of
Holding Company related to outstanding debt, operating expenses, and equity issuances.
8. Within fifteen (15) days of receipt of any commentS fromthe Regional Director, the Board
shall make the changes, if any, to the Operations Plan required by the Regional Director.
Thereafter, the Board shall adopt and the Holding Company shall implement and comply with the
Operations Plan. Within five (5) days ofthe Board meeting at which it was adopted, the Holding
Company shall provide a copy of the Operations Plan to the Regional Director.
9. Any request to modify the Operations Plan shall be submitted to the Regional Director for
review and written non-objection at least thirty (30) days prior to the proposed date to implement
any such modification.
10. On a quarterly basis, beginning with the quarter ending September 30, 2010, the Board
shall review a report prepared by Management detailing the adequacy of the Operations Plan given
the projected fmancial obligations of the Holding Company and actual operating results, including
a detailed description of any material deviations from the Operations Plan and a description of the
corrective actions or measures that have been implemented or are proposed to address each
material deviation (Variance Analysis Report).
United Western Bancorp, Inc.
Order to Cease and Desist
Page4of7
5 7 ~
11. Within forty-five"( 45) days after the end of each quarter, beginning with the quarter ending
September 30, 2010, the Board shall provide the Regional Director with a copy of each Variance
Analysis Report, and the minutes from the Board meeting containing the Board's discussion of the
Variance Analysis Report, including, if applicable, any Board discussion of possible modifications
to the Operations Plan.
Thrift Oversight.
12. Effective immediately, the Holding Company shall ensure the Association's compliance
with applicable laws, rules and regulations and all terms and conditions of the Order to Cease and
Desist issued by the OTS against the Association, dated June 25, 2010.
Directorate and Management Changes.
13. Effective immediately, the Holding Company shall comply with the prior notification
requirements for changes in directors and Senior Executive Officers
1
set forth in 12 C.F.R. Part
563, Subpart H.
Employment Contracts/Compensation Arrangements.
14. Effective immediately, the Holding Company shall not enter into, renew, extend or
revise any contractual arrangement relating to compensation or benefits for any Senior Executive
Officer or director of the Holding Company, unless it first provides the OTS with not less than
thirty (30) days prior written notice of the proposed transaction. The notice to the OTS shall
include· a copy of the proposed employment contract or compensation arrangement or a detailed,
written description of the compensation arrangement to be offered to suchofficer or director,
including all benefits and perquisites. The Board shall ensure that any contract, agreement or
arrangement submitted to the OTS fully complies with the requirements of 12 C.F.R. Part 359.
J The tenn "Senior Executive Officer" is defmed at 12 C.F.R. § 563.555.
United Western Bancorp, Inc.
Order to Cease and Desist
PageSof7
580
Severance and Indemnification Payments.
15. Effective immediately, the Holding Company shall not make any golden parachute
paymenr o! prohibited indemnification paymene unless. with respect to each such golden
parachute payment, the Holding Company has complied with the requirements of 12 C.F.R. Part
359.
Transactions With Affiliates.
16. Effective immediately, the Holding Company shall not enter into any transaction or
otherwise engage in any action that would cause the Association to violate Regulation W, 12
C.F.R. Part 223 and 12 C.F.R. § 563.41.
Effective Date. Incorporation of Stipulation.
17. This Order is effective on the Effective Date as shown on the first page. The Stipulation is
made a part hereof and is incorporated herein by this reference.
Duration.
18. This Order shall remain in effect until terminated, modified, or suspended by written notice
of such action by the OTS, acting by and through its authorized representatives.
Time Calculations.
19. Calculation of time limitations for compliance with the terms of this Order run from the
Effective Date and shall be based on calendar days, unless otherwise noted.
20. The Regional Director, or an OTS authorized representative, may extend any of the
deadlines set forth in the provisions of this Order upon written request by the Holding Company
that includes reasons in support for any such extension. Any OTS extension shall be made in
writing.
2 The term "golden parachute payment" is defined at 12 C.F.R. § 359.l(f).
3 The term "prohibited indemnification payment" is defined at 12 C.F.R. § 359.1(1).
United Western Bancorp. Inc.
Order to C e a s ~ and Desist
Page6of7 .
581
Submissions and Notices.
21. All submissions, including any reports, to the OTS that are required by or contemplated by
this Order shall be submitted within the specified timeframes.
22. Except as otherwise provided herein, all submissions, requests, communications, consents,
or other documents relating to this Order shall be in writing and sent by first-class U. S. mail (or
by reputable overnight carrier, electronic facsimile transmission, or hand delivery by messenger)
addressed as follows:
(a) To the OTS:
Lori J. Quigley, Acting Regional Director
Attn: Nicholas J. Dyer, Assistant Director
Office of Thrift Supervision, Western Region
2001 Junipero Serra Boulevard, Suite 650
Daly City, CA 94014-3897
(b) To the Holding Company:
Guy A. Gibson, Chairman
United Western Bancorp, Inc.
700 17th Street, Suite 2100
Denver, CO 80202
No Violations Authorized.
23. Nothing in this Order or the Stipulation shall be construed as allowing the Holding
Company, its Board, officers, or employees to violate any law, rule, or regulation.
IT IS SO ORDERED.
United Western Bancorp, Inc.
Order to Cease and Desist
Page? of7
OFFICE OF THRIFT SUPERVISION

Lori J.
Acting Regional Director
Western Region
Date: See Effective Date on page 1
582
UNITED STATES OF AMERICA
Before the
OFFICE OF THRIFT SUPERVISION
In the Matter of
UNITED WESTERN BANCORP, INC.
Denver, Colorado
OTS Docket No. H2192
)
)
)
)
)
)
)
)
)
Order No.: WN-IO-020
Effective Date: June 25,2010
STIPULATION AND CONSENT TO ISSUANCE OF ORDER TO CEASE AND DESIST
WHEREAS, the Office of Thrift Supervision (OTS), acting by and through its Regional
Director for the Western Region (Regional Director), and based upon information derived from
the exercise of its regulatory and supervisory responsibilities, has infonned United Western
Bancorp, Inc., Denver, Colorado, OTS Docket No. H2192 (Holding Company), that the OTS is of
the opinion that grounds exist to initiate an administrative proceeding against the Holding
Companypursuantto 12 U.S.C. § 1818(b);
WHEREAS, the Regional Director, pursuant to delegated authority, is authorized to issue
Orders to Cease and Desist where a savings and loan holding company has consented to the
issuance of an order; and
WHEREAS, the Holding Company desires to cooperate with the OTS to avoid the time
and expense of such administrative cease and desist proceeding by entering into this Stipulation
and Consent to the Issuance of Order to Cease and Desist (StipUlation) and, without admitting or
denying that such grounds exist; but only admitting the statements and conclusions in Paragraphs
1 - 3 below concerning Jurisdiction, hereby stipulates and agrees to the following tenns:
United Western Baneorp. Inc.
Stipulation and Consent to Issuance of Order to Cease and Desist
Page lof6
583
.J urisdiction.
1. The Holding Company is a "savings and loan holding company" within the meaning of 12
U.S.C. § IS13(w)(3) and 12 U.S.C. § 1467a. Accordingly, the Holding Company is a "depository
institution holding company" as that tenn is defined in 12 U.S.C. § IS13(w)(I).
2. Pursuant to 12 U.S.C. § 1818(b)(9), the "appropriate Federal banking agency" may initiate
cease and desist proceedings against a savings and loan holding company in the same manner and
to the same extent as a savings association for regulatory violations and unsafe or unsound acts or
practices.
3. Pursuant to 12 U.S.c. § 1813(q), the Director of the OTS is the "appropriate Federal
banking agency" with jurisdiction to maintain an administrative enforcement proceeding against a
savings and loan holding company. Therefore, the Holding Company is subject to the authority of
the OTS to initiate and maintain an administrative cease and desist proceeding against it pursuant
to 12 U.S.c. § 1818(b).
OTS Findings of Fact.
4. Based on its ongoing supervision of the Holding Company, the OTS finds that the Holding
Company has engaged in unsafe and Ul1sound practices by failing to ensure that its wholly owned
savings association subsidiary, United Western Bank, Denver, Colorado, OTS Docket No. 06679
(Association), is complying with applicable laws, rules, regUlations, and agency guidelines, which
resulted in: (a) deteriorating asset quality, ineffective risk management practices, inadequate
oversight and supervision of the lending function, and inadequate liquidity planning at the
Association; and (b) the Association's violation of laws and regulations regarding transactions
with affiliates (12 C.F.R. § 563.41) and loans to one borrower (12 C.F.R. § 560.93).
United Western Bancorp. Inc.
Stipulation and Consent to Issuance of Order to Cease and Desist
Page 2 of6
584
Consent.
5. The Holding Company consents to the issuance by the OTS of the accompanying Order to
Cease and Desist (Order). The Holding Company further agrees to comply with the terms of the
. Order upon the Effective Date of the Order and stipulates that the Order complies with all
requirements of law.
Finality.
6. The Order is issued by the OTS under 12 U.S.C. § 1818(b). Upon the Effective Date,the
Order shall be a final order, effective, and fully enforceable by the OTS under the provisions of 12
U.S.C. § 1818(i).
Waivers.
7. The Holding Company waives the following:
(a) the right to be served with a written notice of the OTS's charges against it as
provided by 12 U.S.C. § 1818(b) and 12 C.F.R. Part 509;
(b) the right to an administrative hearing of the OTS's charges as provided by 12
U.S.C. § 1818(b) and 12 C.F.R. Part 509;
(c) the right to seek judicial review of the Order, including, without limitation, any
such right provided by 12 U.S.C. § 1818(h), or otherwise to challenge the validity of the
Order; and
(d) . any and all claims against the OTS, including its employees and agents; and any
other governmental entity for the award of fees, costs, or expenses related to this OTS
enforcement matter and/or the Order, whether arising under common law, federal statutes,
or otherwise.
United Western Bancorp, Inc.
Stipulation and Consent to Issuance of Order to Cease and Desist
Page 3 of6
585
OTS Authority Not Affected.
8. Nothing in this Stipulation or accompanying Order shall inhibit, estop, bar, or otherwise
prevent the OTS from taking any other action affecting the Holding Company if, at any time, the
OTS deems it appropriate to do so to fulfill the responsibilities placed upon the OTS by law.
Other Governmental Actions Not Affected.
9. The Holding Company acknowledges and agrees that its consent to the issuance of the
Order is solely for the purpose of resolving the matters addressed herein, consistent with
Paragraph 8 above, and does not otherwise release, discharge, compromise, settle, dismiss,
resolve, or in any way affect any actions, charges against, or liability of the Holding Company that
arise pursuant to this action or otherwise, and that may be or have been brought by any
governmental entity other than the OTS.
Miscellaneous.
10. The laws of the United States of America shall govern the construction and validity of this
Stipulation and of the Order.
11. If any provision of this Stipulation and/or the Order is ruled to be invalid, illegal, or
unenforceable by the decision of any Court of competent jurisdiction, the validity, legality, and
enforceability of the remaining provisions hereof shall not in any way be affected or impaired
thereby, unless the Regional Director in his or her sole discretion determines otherwise.
12. All references to the OTS in this Stipulation and the Order shall also mean any of the
OTS's predecessors, successors, and assigns.
13. The section and paragraph headings in this Stipulation and the Order are for convenience
only and shall not affect the interpretation of this Stipulation or the Order.
United Western Bancorp, Inc.
Stipulation and Coilsent to Issuance of Order to Cease and Desist
Page4of6
586
14. The terms of this Stipulation and of the Order represent the final agreement of the parties
with respect to the subject matters thereof, and constitute the sole agreement of the parties with
respect to such subject matters.
15. The Stipulation and Order shall remain in effect until terminated, modified, or suspended
in writing by the OTS, acting through its Regional Director or other authorized representative.
Signature of DirectorsIBoard Resolution.
16. Each Director signing this Stipulation attests that he or she voted in favor of a Board
Resolution authorizing the consent of the Holding Company to the issuance of the Order and the
execution of the Stipulation. This Stipulation may be executed in counterparts by the directors
after approval of the execution of the Stipulation at a duly called board meeting.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
United Western Bancorp. Inc.
Stipulation and Consent to Issuance of Order to Cease and Desist
Page 5 of6
587
WHEREFORE, the Holding Company, byits directors, executes this
UNITED WESTERN BANCORP, INC.
Denver, Colorado
__ __ _
Guy A. Gibson, Chairman
James H. Bullock. Director
Bernard C. Dane, Director
Jeffrey R. Leeds, Director
Lester Ravitz, Director
Robert T. Slezak, Director
William Snider, Director
United Western Bancorp, Inc.
Stipulation IIId Consent 10 Ji;suance otOrder to Cease and Desist
Pagc6 of6
588
Accepted by:
OFFICE OF THRIFT SUPERVISION


Acting Regional Director
Western Region
Date: See Effective Date on page 1
Tuesday, June 22, 2010 4:36 PM Bullock J 5055214883
WHEREFORE, the Holding Company. by its execules this Stipulation.
(JNlTRI) WESTERN BANCmn', INC.
ll&Dver. Colorado
By; ____ ---:::-
Guy A. Gibson, Chainnan
Ilctll."U"d C. Dam1. Din::ctm
Je(frcy R. Leeds, Director
T .ester Ravitz, Director
Robert T. Sle7.ak, Director
William Shider. Dire<..1:nr
U .. ilOO Wt.;sl<;tn /3lInoo'JI, Inc.
SlipullltiDn and (:<>n"""r ttl 1."'1•• ,,,,".<': or 0111., I .. Ceuse unci lJcs1st
I'l!RC('(lfC>
589
Accepted by:
OFFICE OF THRWI' St)

Lori J. Quig
A.cting Regional Director
Western Region
Date; See RlTective Date on page 1
p.02
WHEREFORE, the Holding Company, by its directors, executes this Stipulation.
UNITED WESTERN BANCORP, INC.
Denver! Colorado
By; ________________ __
Guy A. Gibson. Chairman
James H. Bullock, Director
... ).. :0' ··---..·b . ---" 4, . \
".J1Ad
Bemard C. Dam!. Director
Jeffrey R. Leeds, Director
Michael J. McCloskey, Director
Lester Ravitz, Director
Robert T. Slezak, Director
William Snider, Director
Onited Wosrem
Stipulation and COllse"l 10 1.sunnce of Order 10 Ceo ... nd D •• ist .
Page6of6
590
Accepted by: .
OFFICE OF THRIFT SUPERVISION

Acting Regional Director
Western Region
Date: See Effective Date 011 page 1
66/22/2818 17:21 9144262666 LEEDS
WHEREFORE, the Holding Company, by its directors, executes this Stipulation.
UNITED WESTERN BANCOR'P, INC.
Denver, Colorado
By! __________ ~ ~ __ ---
Guy A. Gibson, Chainnan
James H. Bullock, Director
Bemard C. Darre, Director
Michael J. McCloskey. Director
Lester Ravitz, Director
RobertT. Slezak, Director
William Snider, Director
Vnitcd Weslom Sancorp,lnc.
Stipulation and COIISe"l to IssuooceofOrdert<> Cease and Desist
Page6of6
591
Accepted by:
OFFICE OF THRIFT SUPERVISION
B y ' L ~ ~ ~
Acting Regional Director
Western Region
Date: See Effective Date 011 page I
PAGE 02
WHEREFORE, the HoJding Company, by its directors, executes this Stipulation.
UNITED WESTERN BANCORP, INC.
Denver, Colorado
By: ______________ __
Guy A. Gibson, Chairman
James H. Bullock, Director
Bernard C. Director
Jeffrey R. Leeds, Director
Michael 1. McCloskey, Director
_ •..... ----:;
Robert T. Slezak, Director
William Snider, Director
United W ... lem Bat\<X1I]>.Jnc.
Stipulation and CODSmlo [ .. "once ofOnl.,.-lo Ce.sc oDd Desisl
Pa(!e6ol.'6
592
Accepted by:
OFFICE OF THRIFT SUPERVISION

By: __ __ __
Lori J.Qui
Acting Regional Director
Western Region
Date: See Effective Date on page 1
""
--
WHEREFOR:E, the Holding Company, by its this Stipulation.
UNITED WESTEnN BANCORP. INC.
Denver. Colorado
By: ________________ ___
Guy A. Gibson; Che.inna.n
James a Bullock. Pirector
Benwd C. Director
Jeffrey R. Leeds, Director
MichaelJ. McCloskey, Director

Robert T, Slezak. Director
William Snider, Director
Unlmd Wesrcm InC,
SlId COMCatlO I_Met ofOrdltrlO C=O\ll1d DeNt
Df6
I 'J ltO 'ON
593
Accepted by:
OFFICE OF THR.lFT SUPJm.VlSION
By.
Lon 1. Quigl
Acting Regional Director
Western Region
Date: See Bffective Date on page 1
Jun 22 10 04:40p BillS
303-783-0805
p.2
WHEREFORE, the Holding Company, by lts directors. executes this Stipulation.
UNITED WESTERN BANCORP, INC.
Denver, Colorado
By: __________
Guy A. Gibson, Chairman
James H. Bullock, Director
Bernard C. Darr6, Director
Jeffrey R. Leeds, Director
Michael J. McCloskey, Director
Lester Ravitz. Director
Robert T. Slezak, Director

William Snider, Director
Dniled WC$ltm Bam:oJp. 1m:.
Stipulation Dl!d COI'I.'Ie1lt to lsstlllm:C ofOnkr In C""", and Desist
Page 6 of6
594
Accepted by:
OFFICE OF TBRlFT SUPERVISION

Lori J. QuigleY
Acting Regional Director
Western Regi.on
Date: See Effective Date on page 1
-
TabC
Exhibit 20
595
Office of Thrift Supervision
Department of the Treasury Regional Director. Western Region
225 East John Carpenter Freeway, Suite 500, Irving, TX 75062-2326' Telephone: (972) 277-9500
P.O. Box 619027. Oallas/Fort Worth. TX 75261-9027' Fax: (972) 277-9501
June 25,2010
VIA SECURE E-MAIL
AND UPS NEXT DAY AIR
OTS Docket No. 06679
Board of Directors
Attn: Mr. James R. Peoples
Chairman of the Board, CEO and President
United Western Bank.
700 17th Street,Suite 2100
Denver, CO 80202
Dear Members of the Boards:
OTS Docket No. H2192
Board of Directors
Attn: Mr. Guy A. Gibson
Chairman of the Board
United Western Bancorp, Inc.
700 17th Street, Suite 2100
Denver, CO 80202
The Office of Thrift Supervision (OTS) is in receipt of a letter dated June 23, 2010 (June 23
Letter) from outside counsel Paul, Hastings, Janofsky & Walker, LLP, transmitting signed
Stipulations and Consents to the Issuance of Orders to Cease and Desist (Stipulations) from the
Boards of Directors of United Western Bank: (UWB) and United Western Bancorp, Inc.
(UWBancorp ).
As provided by the Stipulations, the terms of the Stipulations, and the Orders to Cease and Desist
referenced therein (Orders), represent the final agreements of OTS and UWB and UWBancorp,
respectively, with respect to the subject matter thereof, and constitute the sole agreements of the
parties with respect to such subject matters. Also, as provided by the Stipulations, the OTS
considers the Orders, when executed and issued, to be final orders, effective and fully
enforceable by the OTS as written.
The OTS does not acknowledge any conditions, modifications, representations, agreements,
understandings, or limitations not contained in the Stipulations or the Orders. To the extent the
June 23 Letter purports to identify any such conditions, modifications, representations,
agreements, understandings, or limitations, the OTS does not agree. The sole agreements are
contained within the Stipulations and the Orders.
596
Boards of Directors
United Western Bank
United Western Bancorp, Inc.
Page 2
June 25,2010
If you have any questions, please contact me at (972) 277-9650 or Assistant Director Nicholas
Dyer at (650) 746-7025.
Sincerely,
~ ' ~ q -
Lori J. Quigley
Acting Regional Director
cc: Ms. Kristie K. Elmquist. Acting Regional Director, FDIC-Dallas
Mr. Joseph A. Meade, Assistant Regional Director, FDIC-Dallas
Mr. Thomas L. Trujillo, Case Manager, FDIC-Dallas
597
Boards of Directors
United Western Bank
United Western Bancorp, Inc.
Page 3
June 25,2010
Epdf: S. Chomicz
E. Chow
C. Coon
I. Corral-Chavez
A. Dayao
N. Dyer
S. Harris
J. Hendriksen
W. Santos
Y. Sosa
K. Swanson
M. Sweeney
K. Walter (for Lori Quigley)
598
TabC
Exhibit 21
599
~
. J J UNITED
. ·WESTERN
BANK
July 2, 2010
Ms. Lori Quigley
Acting Regional Director
Office of Thrift Supervision
225 East John Carpenter Freeway
Suite 500
Irving, TX 75062-9027
James R. Peoples
Chairman of the Board, President
And Chief Executive Officer
720-956-6576
jpeoples@uwbank.com
Mr. Nicholas Dyer
Assistant Director
Office of Thrift Supervision, West
Region
Pacific Plaza
2001 Junipero Serra Boulevard
Suite 650
Daly City, CA 94014-3897
SENT VIA EMAIL AND OVERNIGHT MAIL DELWERY
Re: Order to Cease and Desist against United Western Bancorp, Inc. (the
"Company Cease and Order") and Order to Cease and Desist against United
Western Bank (the "Bank Cease and DesistOrder")
Dear Ms. Quigley and Mr. Dyer:
Bank Capital Plan
Pursuant to Section 4 of the Bank Cease and Desist Order, the Board of Directors of
United Western Bank (the "Bank") is required to provide a written Capital Plan to the
Regional Director within seven (7) days of the date of the order for review and comment.
Enclosed please fmd a copy of the Capital Plan.
Bank Contingency Plan
. Pursuant to Section 8 of the Bank Cease and Desist Order, the Bank is required to
provide a written Contingency Plan to the Regional Director within seven (7) days of the
date of the order for review and comment. The Contingency Plan shall detail the actions·
to be taken, with specific time frames, to achieve the following results by the dates
imposed in the Bank Cease and Desist Order: .
(a) merger with, or acquisition by, another federally insured depository institution
or holding company thereof; or (b) voluntary liquidation by filing an
United Western Financial Center
700 Seventeenth Street, Denver, Colorado 80202
T ~ l . 303.595.9898. fax 303.390.0952
www.uwbankcOl:p.com
600
Ms. Lori Quigley and Mr. Nicholas Dyer
July 2, 2010
Page 2
appropriate application with the OTS in conformity with federal laws and
.
Please consider this letter and the Capital Plan submitted herewith as the Bank's
Contingency Plan. Included in the Bank's Capital Plan sUbmitted iIi connection with
Section 4 of the Bank Cease and Desist Order are three separate scenarios that are
addressed. These scenarios include (i) a significant capital raise, (ii) a capital raise that is
sufficient in size to materially de-risk the Bank's balance sheet and (iii) a scenario in
which no capital is raised.
Under the significant capital raise scenario, the Bank believes the capital ratios will
improve significantly, balance sheet de-risking actions will be implemented and the Bank
will be in a position to request modification or termination of the Bank Cease and Desist
Order and the Company Cease and Desist qrder.
Under the capital raise sufficient to de-risk the Bank's balance sheet, we anticipate the
achievement of the required capital ratios and believe that we will be able to maintain the
required level of capital ratios prospectively.
We have also considered the possibility of no capital raise .. This scenario is our
contingent capital plan at this time as we believe the two scenarios discussed above are
more likely to occur.
Under the significant capital raise scenario, the potential investors include parties that
would effectively and legally acquire the Bank through an Office of the Comptroller of
the Currency Charter. Other parties that are currently interested in the significant capital
raise scenario include potential 9.9% and 24.9% investors.
At this time the Bank and its Board of Directors believes the filing of an application for
voluntary liquidation is unwarranted and not in the best interests of the Bank, the ultimate
shareholders of the Company, the OTS or the FDIC.
Liquidity Contingency Plan
Pursuant to Section 22 of the Bank Cease and Desist Order, the Bank is required to
provide a written Liquidity Contingency Plan to the Regional Director within seven (7)
days of the date of the order for review and comment. Enclosed pleasefmd a copy of the
Liquidity Contingency Plan. With respect to the Liquidity Contingency Plan, please be
advised the Bank previously submitted its Liquidity Contingency Plan on May 7, 2010 to
the Regional Director for review and comment. To date, the Bank has not received any
feedback on this plan.
The Liquidity Contingency Plan contains various strategies for ensuring the Bank
maintains adequate short-term and long-term liquidity under a variety of scenarios that
601
Ms. Lori Quigley and Mr. Nicholas Dyer
July 2,2010
Page 3
stress the funding base. This plan was created after consultation with the OTS and the
FDIC staff during the January 2010 field visit, as well as after consideration of the CEO
letter 342 - Interagency Policy Statement on Funding and Liquidity Risk Management,
dated March 17,2010. Based on the aforementioned, we continue to believe this Policy
conforms to applicable statues, regulations and regulatory guidance.
Deposit concentrations are addressed in the Bank's Liquidity Contingency Plan and are
also specifically documented in the Bank's Capital Plan submitted herewith. We will
continue to negotiate with Equity Trust Company to further reduce its deposit
concentration to 25% of all deposits by approximately the end of 2010. We have also
developed contingency plans to accommodate the elimination of the MSCS deposit
relationship and the elimination of all deposit relationships deemed brokered at the .
January 2010 field visit. Between the date of the MOU and May 31, 2010, the Bank: has
reduced brokered deposits over $337 million and through July 1, 2010, the Bank has
reduced brokered deposits by an additional $100 million, which has reduced the excess
liqUidity c a r r i ~ d by the Bank and left the Bank with an appropriate liquidity cushion
given current conditions at the Bank and in the marketplace in general.
Lending activities as discussed in our Liquidity Contingency Plan and in the Capital Plan
will be curtailed until we are able to raise our capital levels. . Under Scenario 3 in the
Capital Plan - in which no capital is raised-the Bank plans on making loans through the
SBA group SBA 504 loans and SBA 7a loans. We anticipate the sale of the guaranteed
portion of SBA 7a loans, and continuing evidence suggests restoration of the SBA 504
secondary market in which the Bank would sell its production as well. In the community
banking portfolio, the Bank anticipates originating on a selective basis very high quality
commercial and industrial loans. Generally, we expect that overall the loan portfolio
would continue to decline on quarterly basis until the targeted capital levels were
achieved.
Under Scenario 1 or 2 in which the Bank may raise capital, loan growth would be
included in our projections and expectations; however, targeted areas would remain the
same, SBA 504 and SBA 7a loans along with community bank commercial and industrial
loans. Under Scenario 1, we would consider entering into residential mortgage lending
as well as buying agency mortgage backed securities.
The Bank provides to the OTS liquidity projections that include reasonable assumptions,
identifies anticipated funding needs and sources of liquidity to meet those needs on a
daily basis. This information is sent over the OTS secure web site to Mr. Walt Santos,
Mr. Steve Harris and Mr. Kevin Anderson.
The Liquidity Contingency Plan contains the framework that we use to document the
identification of alternative funding. sources to meet extraordinary demands including,
selling assets, obtaining access to lines of credit through the FHLBank of Topeka (the
602
, !
Ms. Lori Quigley and Mr. Nicholas Dyer
July 2,2010
Page 4
"FHLB"), and the FED, recovery and marshalling of assets by the asset recovery group
and injections of additional equity capital.
The assumptions used in the formulation of the Liquidity Contingency Plan are set forth
in the document. The Bank has designated sources of liquidity as Tier 1, Tier 2, and
secondary sources within the Plan and has identified several sources of additional
depositors for access to additional liquidity. In addition, the Plan documents that the
Bank. generally pledges all eligible collateral to the FHLB to maintain maximum access
to readily available sources of funds. Bank management is in regular discussions with
the FHLB management to keep them apprised of our condition, regulatory issues and
liquidity. The FHLB continues to state that they are ready and willing lenders to the
Banle.
The Coropany Consolidated Capital Plan
Pursuant to Section 2 of the Company Cease and Desist Order, United Western Bancorp,
Inc. (the "Company") is required to provide a consolidated Capital Plan to the Regional
Director within seven (7) days of the date of the order for review and comment. Enclosed
please find a copy of the Company's consolidated Capital Plan. Please note that the
Bank's Capital Plan and the Company's Capital Plan are included in the enclosed
document entitled "United Western Barue, United Western Bancorp, Inc. Capital Plans
submitted July 2, 2010."
Please let us know if you have any questions or comments with respect to these plans.
Enclosures
cc: Guy Gibson, Chairman, United Western Bancorp, Inc.
Larry Kaplan, Paul Hastings
603
TabC
Exhibit 21 A
604
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Page
{--
Capital Plan Assulnptions 3
{--
Capital Preservation and Enhancement Strategies 4
{--
Scenario 1 - Substantial Capital Raise 5
{--
Operating Model- Substantial Capital Raise
6
(j)
Scenari 0 2 - De-Risk Transaction
7 o
{--
Ol
{-- Operating Model- De-Risk Transaction
8
{--
Scenario 3 - No Capital Raise
9
{-- Operating Model- No Capital Raise
10
4- Scenario 1 - UWBK
11
4- UWBK Operating Model- Substantial Capital
12
Raise
13
4- Scenario 2 - UWBK
14
4- UWBK Operating Model - De-Risk Transaction
15
{--
Scenario 3 - UWBK
16
{-- UWBK Operating Model- No Capital Raise
17
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Assumptions applicable to all scenarios
-¢- Considers the requireluents and restrictions by the C&D against United Western
Bancorp, Inc. ("UWBK") and the C&D against United Western Bank (the "Bank").
-¢- Reduce classified assets in accordance with classified asset reduction plan.
-¢- Reduce concentration of construction loans, non-residential mortgage loans and non-
agencyMBS.
-¢- No new construction or land loans other than SBA loans unless the Bank receives the
prior written request from the OTS.
-¢- No purchases of non-agency securities.
0<} A.dhere to the Bank's Liquidity Plan.
0<} No growth in assets on the Bank's balance sheet during any quarter pursuant to the
BankC&D.
0<} No capital distributions at UWBK or the Bank without prior written approval froin
OTS.
0<} Closely Inonitor L TOB and Regulation W.
Go Forward with purchase of Legent Clearing.
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\ ." ... apl j"re;serva,}'o;n, an .... :, .. __ arlc·e:men.:.i Ia :"e:gles
Reduced personnel by 25 FTE in second quarter 2010.
Annualized savings achieved of $2.3 million in salaries.
Reduced Equity Trust deposits from $1 billion to $700 million;
will achieve savings of $7.4 million principally in subaccounting
fees.
Will continue to negotiate for further $50 million per month
reduction in Equity Trust relationship to reduce concentration and
for economic savings.
with review of other operating expense line items for
additional cost savings.
Restrict new commercial loan originations to SBA group and high
quality commercial and industrial loans.
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. _.) 'jj' _:_:Q<.Ii .. ,,) , .. )', :",) .,' :,Q .. :: ._ .. /.) .. _. '::: > . .:... ..... ': .. . __ .. j .../'
{>- . Substantial Capital Raise
• Entered into confidentiality agreements with 27 parties
• Seven parties expressed no interest
• Multiple or ongoing discussions with 12 parties
• Parties include private equity 9.9% purchasers, 24.9%) purchasers, and bank
charter owners that would acquire UWBK andlor the Bank.
• Capital committed by August 9,2010.
• Close transaction by September 10,2010.
• Estimated capital raise $370 million.
• Inject capital of $253 million into the Bank.
• Payoff Chase - $16.3 million plus interest.
• Maintain $100 million at UWBK for additional acquisitions.
• Bank Core Capital 14%, Risk Based Capital 28%.
• Consider Sale of all non-agency MES.
• Seek elimination of "meet and maintain" language under C&Ds, thereby
allowing the Bank to be deemed "we 11 capitalized."
• Allow the Bank to increase assets consistent with business plan that
accompanies substantial capital raise.
0)
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'_,'t 5.", 1.". ,_,,. -101 1 2Q11 3Q11 .'.'1.
Totallnterestinoome $ 22,095 $ 22,187 $ 21,963 $ 22,866 $ 33,715 $ 35,006 $ 39,753 $ 45,805
Total Interest expense 5,763 5,986 5,830 5,660 6,087 6,580 7,050 7,841
Net Interest Income 16,332 16,201 16,123 17,206 27,628 28,426 32,703 37,964
provision fOr loan loss (14,223) (6,500) (2,637) (388) (4,298) (3,682) (4,166) (5,137)
Total non-interestincome (2,218) 2,963 (81,835) 7,057 7,936 8,416 10,368 11,193
Total non-Inlerest.expense (21,968) (20,054) (17.089) (23.167) (32.633) (33.121) (36.563) (37,734)
Pre-tax (Loss) income (22,077) (7,390) (85,438) 708 (1,367) 39 3,342 6.286
Net (Loss) Income ($2',014) ($7.390) ($85.438} $841 ($1,36'7) $39 $3,342 $16,286

Cash
GNMA's
Investments
Community bank loans
Other Loans
Allowance for credit losses
: Ejroketde8Jerand I'ecewabies • ,.,
Other Assets
Total Assets
LiabjlHles;
Deposits
. Customer, BO and clearing organi,;z:ation payables
Borrowings ..
New FHLB Borrowings
Other Liabilities
Total Liabilities
Equity
Uabilitles and Equity
Capital Contrfbution and securities purchased
Bank Dividend to Parent
Dividend Payout Ratio
Risk weighted assets
Tier 1 (Core) CapHal (OTS Calculatlon- Core Capital»
Total capital (OTS Calculation)
Toer 1 capital I ave.
Nonaccrual loans I loans
Real estala owned
Allowance for credit lossB& ( loans
Net charge-offs I average loans
$ 665,205 $ 369,671 $ 763,564 $ 745,068 $ 97,135 $ 89,678 $ 232,039 $ 238,674
68,803 63,643 58,870 54,454 923,757 805,237 851,910 1,049,353
342,511 325,600 72,496 68,466 65.387 62,308 59,230 56,151
1,074,356 1,055,725 1,052,681 1,057,385 1,202,611 1,348,574 1,495,308 1,642,853
342,541 317,215 303,225 290,407 274,646 259,810 245,843 232,692
(41,614) (41,614) (40,251) (39,439) (42,657) (44,849) (48,065) (52.093)
.....•.. ' /.' ...... , ..... . .... . ....•.............•..• .', .'.201;462 '223,013 >'.246;351'
136,680 135.115 148.755 151.719 151.919 146.13_0_ J49.086
$ 1.588,482 -$2;225,355- $2-;-359;"340--[2,485.140 $2.852.215 - $2.868.350 $3.562,067
5
$
$2,153,416 $1,797.120 $1,763.310 $1,713,333 51,901,270 $2,047,481
' ....... - .. , ........ < ...... , .. 143,877..... . .157,277 ..... 1.86.280
255,154 256,000 255,000 270,070 270,070 270,070
166,541 6,837
$2,456,699
.209,924
270,070
$2,667,986
245.461
270,070 .
13,286 14,000 14,525 30,714 31,278 __ _ ____ 105
1,421.858 2,056,120 2,032,835 2,157,994 2,526.436 2,542.532 2,969,164 3,216,621
166,624 32z...t4§_ _3Z5,77:1L ___ 32MtlL_ 329,160 345 446
$2,588,48212,225;355 - -$2,852:216--$2,660;350 $ 3,298,324 $ 3,562,067
$0
$0
0.00%
$0
$0
0.00%
$252,708
$0
0.00%
$0
$0
0.00%
$0
$0
0.00%
$0
$0
0.00%
$0
50
0.00%
$0
50
0.00%
en
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1,.;:: Jl ; ... ) 4:ti __ .. " .'H_J ... __,. __ :,._,) __
<} Through UWBK the Bank raises capital sufficient for
material de-risking transaction
• Substantive negotiations on-going with interested parties.
• Potential capital raise approximately $130 million.
• Approximately $88 million transferred to Bank .
• Purchase all direct credit substitute ("DeS") securities for approximately $66
million.
• Inject capital into the Bank of $22 million.
• Results in Bank: core capital of7.91 % and risk based capital of 13.04%.
• Capital ratios expected thereafter to increase from return to profitability and
elimination of substantial exposure to OTTI.
• UWBK expects to retire the Chase line of credit. .
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.jp ... :.,(1"", :;g., -: /,:,,) >.' --::-, .'---' .. : ·a.,_.,se . . . WEST RN
"j' ¥ BAN CORP
S,uffic;}ent for Material D'e ... Risking Transa.ctio!n
Total tntarest expense
Net Interest income
ProvIsion for loan loss
Total non-interest income
TObid non-Interest e)(pense
Pre-tax (Loss) income
Net (Loss) Income

Cash
GNMA's
Investments
Community bank 10 .. "'"
Ottler Loans
Allowance for credit-losses
,.BroKer dealer.and clearing organIZation receivables
Other As$ets
Total Assets
Liabilities;
Deposits
eo cleartng organization
Borrowings
New FHLB Borrowings
Other Liabilities
Total Uabrijtles
Equity
Liabilities and Equity
Capital Contribution and securities purchased
Bank Dividend to Parent
Dlvldend Payout Ratio
Calculatlon- Core Capital»
Non.cerna. roans I loans
Real estate owned I loans
Allowance for credit losses I loans
Net charge-off$ I average loans
DepOSIts:
Community Bank Deposits
Equity Trust
MSCS
Legent
B,..,kered
Other
Trust and proce$Slng deposIts
Total Deposits
$ 666,205
68,803
342,511
1,074,356
342.541
(41,614)
136.680
$ 2,588,482
III 361,000 $ 131,000 $ 127,570 $ 161,977 $ 100,798 $ 101,048 $ 123,680
63,643 64,030 64,001 64.003 125.003 120,426 120,771
325,586 308,662 291,737 278,609 265,461 252,353 239,225
1,055,726 1,038,681 1.034.434 1.026,920 1.025,618 1.020,129 1,021,483
317,215 303.225 290,407 274.646 259,810 246,843 232,692
(41,614) (39.528) (38,474) (39,159) (39,169) (39.159) (39,169)
.... '" ' .... , .. "",."., ,, __ ....... , ... 163.0S9 __..... 158,851.- .. ,159.261 ... ____ .. 170,737
135,921 149,193 155621 ___ ____ 'l..4?,329 ___ 136.937
$ 2,217,476 $ 1,953,253 $ 2,066.853 $ 2,074,719 $ 2.041,531 $ 1.996,089 $ 2.006,366
III 2.153,418 $ 1.776,892 $ 1,516,542 $ 1,499.040 $ 1.4a1,663 $ 1.338,777 $ 1,300.201 $ 1,327,368
, . ' 99.854 113,253 120,244 121,876 135.402
251(154 .. - - 255'.'000' 255,000'255,000 . 255,000 "255,000 '266,000 ., 255,000
19,268 22,716 13,914 75,15B 126.162 115,1BS 79.245
13,286 13,70L____ 5.SS2 22,350 21,:"48 _______ 19.770 ___ 2Q,020
2,421,858 2,063.857 - 1,801,650 --1-.896.323 1,860,342 1,612.033
_ , __ 1l'i1,413, ___ 17 ... 176.396 _____ 1_8'1,190 186.055_ 169331
$2,568,462 $" 2,217,478 $ 1,953,2S:3 $ 2,08S,853 $ . $ 2,000.366
$
$0
$0
0.00%
$1.521.945
$2,544.974
$172,054
$139,670

1.54%
2.94%
0.51%
$0
$0
0.00%
$1,558.762
$2,402,980
$161,049
$126,889
6.70%
$0
$0
0.00%
$42,000
$0
0.00%
$0
$0
0.00%
$1,366.833
$2.070,785
$185,827
$0
$0
0.00%
$1.34-5.457
$2,058,124
$188,620
$205.934
9.16%
1.50%
3,05%
0.10%
$0
$0
0.00%
$0
$1.729
33.00%
$1,313,062
$2,002,227
$196,762
$214,076
e ...
545,893 $ 495,136 $ 442,836 $ 423.333 $ 542,388 $ 564,420 $ 564.985 $ 577,157
955.451 700,000 550,000 400.000 250.000 100,000 50,000
157,076 180,000 160.000 160.000 0 0 0 0
198,301 155,000 150,000 300,000 545,547 5$2,475 593,334 658,329
115,762 54,010 3,961 3,961 1,682 1,882 1.S62 1,882
180,@3-3 __ 191,7:4.6__ 1..1#1.746 191.746 91.746 90,OQQ_ li!Q,OOO 90.000
1.280,756 1.075.707 1,075.707 889,175 774,3SL_ 750.211
$1,776,692 $ 'Ui18,542'-1;-499,04b"""$ 1,431-;-563 $ 1,300,201 -'---";-327;368
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-¢-- Bank achieves required capital levels organically.
-¢-- Consider execution of balance sheet de-risking strategy(ies)
involving direct credit substitute securities.
• Would expect to be accretive to risk based capital, and likely dilutive
to core capital.
• Would Expect to significantly reduce the Bank's exposure to
additional OTT!.
-¢-- Through reduction of Equity Trust deposits, and reduction of
OTTI, the Bank is expected to become profitable and grow
capital ratios through retained earnings.
-\>- The Bank will worlc closely with regulatory agencies to
obtain approval for acquisition of Legent Clearing.
-¢-- As necessary, the Bank would execute plan to gradually
eliminate institutional deposits deemed to be brolcered.
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Total interest Income
Total Inte..,e:st expense
Net Interest incoml\:!!
Provision for loan loss
Total non-intBrest Income
Total non-Interest expense
Pre-tax (L.ass) Income
Net (Loss) Inoome

Cash
GNMA's
Investments
Community bank lOans
other Loan ..
Allowanoe for oredit lOsses
and cle-aring organization receivables
other Assets
Total Assets.
: :cu5tomer1 ",BD an.d clearing organization payables
Borrowings
New FHLB BOlTavvings
other LiabiUtiee
Total LiabiDties
equity
Llablliti .... and E:Clult,v
Capital Contribution and securities purchased
Bank DiVldend to Parent
Divldend Payout Ratto
Non6lcorualloans I bans
Real estate owned, lOans
Allowance fOr oredit losses I loans
Net Charge-off. I average loans
Doposits;
Community Bank Deposlts
Equity Trust
MSCS
Legent
Brokered
Other
Trust and prooes.aing depositS
Total DeposlW
1010 2Q10 :3010 4010 10'1'1 2Q'11 3Q-11 4011
$
$ 665,205
68,803
342,511
1,074.356
342.541
(41.614)
$ 361.000 $ 123,000 $ 118.570 $ 127,977 $ 100.798 $ 101.048 $ 122.680
83,643 64.030 64,001 64,003 81,003 68,976 89.130
32.5.586 308.662 291.737 278,609 265,481 252,353 239.225
1.055,725 1.049,681 1.047.385 1,041.628 1.038.089 1.032.385 1.033.490
317,215 303,225 290.407 274.646 259,810 248.843 232.692
(41.614) (40,146) (39,089) (39.159) (39.159) (39,159) (39.159)
.- ..... ".... ..141;657 ........ 153.089. .,58,651 .. 159.251 .. ·· .. ,70,737
136,660 135.922 149,492 _____ .iQ_ZA;!eQ ___ 136 317 . __
$ 2,568,462 $ 2.217.477 $ 1.957.944 $ 2.070,486 $ 2.053.678 $ 2,020.189 $ 1.976.996 $ 1,985.845
$ 2,153.418 $ 1.775,892 $ 1,518.542 $ 1,499.040 $ 1,431,563 $ 1,338.777 $ 1.300.201 $ 1.327.366
.. '.. '. ,. :99.854 ........ 113.253 ·120,244 ... ' 121;876 .. · .. '35,402
"'255;'154 ..... "25S;00'0' "255;1000 -." '255,000 "'255,000 255.000'" 255.000'255,000
14,940 23;600 36,475 74,533 '25,307 115.759 79,S03
13.286 14,000 5.885_ ..2-".644 . ____ 21,536 20.452 20,061 20,312
2,42'\;656 2.059,832 1,603,027-- 1,IWS,067 ---'1".859,780 1,813,897 1.817.585
166.624 157.645 154.917 155.475 157.S!>1 __ __ '1.155 099 '168,2eo
$2.588.482- $ 2.217,477 $ 1,957,944 $ 2,070,488 $ 2.OS3.S78 -- $ $ 1.978.996-$-'1,966;845
$0 $0 $0 $0 $0 $0 $0
$0 $0 $0 $0 $0 $0 $1,673
0.000/0 0.00% 0.00% 0.00% 0.00% 0.00% 33.00%
$1,497,648 $1.486,813 $1.44$.773 $1,415,238 $1,385.234 $1.360.248
$2.087,710 $2,014,216 $2,062.083 $2.036,934 $1,999.592 $1.982.421
$160,348 $160.905 $163.121 $165.840 $170.530 $173,691
$140.02
8.76

$55
4.86% 5.14% 3.89% 3.74% 3.27% 3.07% 2.89% 2.34%
1.54% 1.25% 2.30% 2.30% 2.00% 1.50% 1.00% 0.96%
2.940/0 3.03% 2.97% 2.92% 2.97% 3.02% 3.06% 3.09%
0.51% 0.47% 0.09% 0.08% 0.10% 0.04% 0.04%
$ 546,893 $ 495.136 $ 442,835 $ 423.333 $ 542.388 $ 564,420 $ 564.985 $ 577,157
955,451 700,000 5$0.000 400,000 250.000 100,000 50,000
157,078 180,000 180,000 180,000 a 0
°
0
198,301 155,000 150;000 300,000 545.547 582,475 593.334 658.329
115,762 54.010 3,981 3.961 1,882 1.882 1.862 1,682
_H!1.74E1 ___ 191,746 191.'1'46 _91.746 eo,QOO 9O,00Q __ 90.000
1;07l;,707 $89.17'_5_ 774.357 73§.:<!_1(1 750,211
2.153,418 $ 1,775,B92 $ 1,518.542 $ 1,499.040 $ 1.4:<11,563 $ 1,33$.777 $ 1.300.201 $ 1,327.368
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r,. ---"Dr ;Oif' 1 '. ; ".,.! ,-,' - - U" I· 'a·'n' i .1. a, . . tl), ,- -1. a, ,r tl),1: '--
:,Jce'_':,Q_'_,LO, ",!_ji / i ------ ,_. _':_,, __ '_---'_Q_'_,,/QP, __ ' ___ Q,-1'Se,
{> Capital raise of $370 million
{> UWBK would payoff Chase line of credit
UWBK would seek to acquire MSCS in first quarter
2011
{> Generates substantial cash flow at UWBK
Ol
....,a
Ol
UWB"" :' Kf 0" -, M;'· oj IS" . b ·t··, ,·1
... ei 1/ ..!.',' ' Jpera.: , .. .. -- __..:U.: sian :la-:


C
' O!.t IR '!,
f "tl . ..!. _:.
Other Earning Assets
Loans
Loan Loss Reserve
BD and Clearing Organization Reoeivablea
PAttniSell and Equipment
Real Estate OWned
Llabllw..
Deposita
BD and Clearing Organization Payables
Other Borrowings
Other Liabillitlea
Total Liabilities
Equity
Total Equity and Trust Preferred
813012010 813012010 1213112010 313112011 813012011 813012011 1213112011
$ 40,203 III 45,378 $ 98,132 $ 187,075 $ 137,944 III 132,137 $95,927 III 95,285
68,803 63,643 58,870 54.454 923,757 805,237 951.910 1,049.353
80,381 76,526 72,496 68,485 65,387 62,308 59.230 56,151
W,412 270,508 15,090 14,318 13,585 12,889 12,230 11604
.,793 $ 347,034 III 87,586 $ 82,783 III 78,972 III 75.197 III 71,460 11167,755
$ 625,518 $ 314.671 $ 663,564 $ 858,720 $ 0 III 0 111145,165 $ 186.038
1,420.498 1,372.940 1.355.906 1,347.792 1,477,257 1,608.383 1,741,151 1,875,545
(41,814) (41,614) (40,251) (39,439) (42,657) (44.649) (46,065) (52,093)
° 0 0 157,080 179,417 201,462 223,013 245,351
702 25,845 25,570 28,179 27,904 27,604 27,304 27,004
17,162 31,188 30,999 29,545 24,126 17,412 17
$ 2,141.509 $ 1,781,448 $1,746,824 $1,698.075 $ 1,883,279 $ 2,028,794 $ 2,437.352 $2,648,013
0 0
°
143,877 157.277 188,280 209,924 245,461
282,854 282,500 285,000 297,570 533,988 374.261 413,994 413,994
20,488 40.559 40.547 57,635 77,947 77,964 91.880 92,003
$2,444,651 $2,104,507 1112,052,371 $ 2,195.157 $2,852.469 $2,667,289 III 3,153,150 $ 3,399,471
$ 165,139 $ 155,517 $423,857 $422,790 $423,682 $428,224 $435,277 $457.926
Total Li!i!bllitiesand Equity S 2,609,790 $ 2,269,024 $ 2,478 228 $ 2,617,947 $ 3,078,151 $ 3993,513 . -IT,5§8 421---$ 3,85T,397
0.39%
2.79%
2.73%
13.17%
0.23%
2.78'!Koo
2.48'!Koo
15,49%
0)
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Scenario 2 UWBK - De-Risk Transaction
{>- UWBK raises capital sufficient for material de-
risking transaction.
• Estimated capital raise $130 million.
• Capital raised over amount used to inject into Bank and
purchase DCS securities - $42 million.
• Capital ratio target levels achieved.
• UWBK and the Bank return to profitability.
• UWBK retires Chase line of Credit.
en
1-1
00
MIIJ
UNITED
WESTERN
BANCORP
Scenario 2 UWBK - De Risk Transaction
Assets
Actual
1Q10

2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
Cash&due $ 665,720 $ 361,000 $ 131,000 $ 127,570 $ 161,977 $ 100,798 $ 101,046 $ 123,680
Agencies & Ginnie Maes
Investments
Loans
Reserve for credit loss
Broker dealer and clearing organization receivab
Premises & equipment
Real estate owned
Other assets
68,603 63,643
364,793 346.910
1,416,698 1,372,940
(41,614) (41.614)
23,701 25,645
21.757 17,162
64,030 64,001
329,063 311,218
1,339,906 1,324,841
(39,528) (38,474)
141,657
25,570 26,133
30,818 30,471
64,003 125,003 120,428 120,771
297,172 283,127 269,252 255,378
1,303,565 1,265,428 1,265,972 1,254,176
(39,159) (39,159) (39,159) (39,159)
153,089 158,651 159,251 170,737
27,858 27,558 27,256 26,998
26,071 19,281 12,660 11,915
113,360
Totalas&ets $ .... ..n .......... ' ..... '"' .£. • .c.. __ .t..llo;Il 'V ! ':;'.IVI,"w !
69,932

108,620

114,117 113,679 113,639
'""li 7non ... ........ 0,... A7n
$ 2,108,693 $ 2,074,566 $ 2,030,349 $ 2,037,856
Liabilities and Shareholder's Equity
Deposits
Customer, BID and clearing organization payablE
Other borrowings
Other liabilities
Total Liabilities
Trust Preferred Securities
Common equity (net of realized loss)
Liabilities and "hareholder's equity
Income Statement Data
$ 2,141,509 $ 1,762,104 $ 1,505,721 $ 1,486,164 $ 1,416,517 $ 1,325,565 $ 1,286,996 $ 1,312,445
99,854 113,253 120.244 121,676 135,402
282,654 300,508 302,966 294,164 355,408 406,412 395,436 359,495
20,486 42,143 34,630 49,461 48,076 47,350 47,338
2,444,651- 2,1"04,755 1,643,317 1,930,938 1,936.639 1,900,297 1,851,658 1,854,680
30,442 30,442 30,442 30,442 30,442 30,442 30,442 30,442
134.697 119,500 115,720 140,395 141,612 152,734
$ 2,609,790 $ 2,254,697 $ 1,989,479 $ 2,101,775 $ 2,108,693 $ 2,074,566 $ 2;037,856
($ In thousands) Actual
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
Income Statement
Tota' interest Income
Total Interest expense
Net interest income
PrOVision for loan loss
Total non-interest Income
Total non-interest expense
Pre-tax income
Income taxes
Net (Loss) .ncome
Key Capital Ratios:
Equity (incl. TARP) I Assets
Common Equity (inc!. Warrant) I Assets
Total Capital Ratio (Incl. TARP) (OTS)
$
22,456 22,751 22,056 22,703 22,975 22,973 22,915 22,793
6,651_ 5,905 6,009 S,361 J?,1_1;3 .. __
15,799 16,846 16,041 17,342- 11,266-- -- -16,860 16,677 -16,554
14,223 6,500 1,914 146 1,665 1,250 550 550
(3,117) (2,187) (167) (14,680) 7,560 7,753 9,307 9,771
23.,49:3 .. 22,216 u 21,PJi___ ___ 2Q..464
. - (20,993) 945-- 2.352 5,046
19 (309) (E!.15) <2,939) 189 470 1,.QP9 1,062
(15,197) $ (3,769) $ (18,054) _$ 7.56 $ n 1,862 4&3L$ 4,249
0'\
t-I



Scenario 3 UWBK - No Capital
UWBK is unable to raise capital.
• Execute a smaller balance sheet de-risking strategy
involving direct credit substitute securities.
• .. Through reduction of Equity Trust deposits and
elimination ofDCS securities UWBK becomes profitable,
capital grows through retained earnings.
• UWBK works closely with regulatory agencies to obtain
approval for the Bank's acquisition of Legent Clearing.
• As necessary, UWBK would assist the Bank in the
execution ofa plan to gradually eliminate institutional
deposits deemed to be brokered
0\
I\)
o


Scenario 3 UWBK - No Capital
($ In thousands)
Assets·
Cash &due
Agencies & Ginnie Maes
Investments
Loans
ReselVe for credit lOlls
Broker dealer and clearing organlzatlonreceivab
Premisell & equipment
Real estate owned
Intangibles
Mortgage servicing rights
Accrued Interellt & other
Total assets
Llabllltl.s and Sh .... hold ..... Equity
Actual f*}Wi.§\!i,iipr ••
1010 2010 3Q10 4Q10 1011 2011 3011 4Q11
$ 665,720 $ 3.61,000 $ 123,000 $ 118,570 $ 127,977 $ 100,798 $ 101,048 $ 122,680
68,803 63,643 64,030 64.001 64,003 91,003 88,978 89,130
384,793 346,910 329,063 311,218 297.172 283,127 269.252 255,378
1,416.698 1.372.940 1,352,906 1,337,792 1,316,274 1,297,898 1,278,208 1,266,183
(41,614) (41.614) (40,146) (39,089) (39,159) (39,159) (39,15S) (39,159)
141,657 153.089 158,651 159,251 170,737
23.701 25,845 25,570 26,133 27,858 27.558 27,258 28,998
21.757 17,162 31,117 30,769 26.325 19,468 12,782 12,029
643 643 5,387 5,217 5.046 4.875 4,705
6,770 6.421 6,072 5.724 5,441 5,159 4,876 4,594
83,162 101,455 101,613 103,246
1,99S.1J68 $2,105,408
103,460
$2,087.656
103.675 103,889 104,082
$;!,053.224 $2L()17,338
Deposits $2.141.509 $1,762,104 $1.505,721 $1,486,164 $1,418,517 $1,325.565 $1.288.996 $1,312,501
Customer. BID and clearing organization payablE 99,854 113,253 120.244 121,878 135.402
other borrowings 282.654 296.190 303.850 318.725 354,783 405,557 397,009 359.753
Other liabilities 20,488 41,850 34,338 50,756 49,461 48,076 47.351 47.338
Total Liabilities 2.444,651 2.100,144 1,843,909 1,955,499 1,936,015 1,899,443 1,853,232 1,854.994
Trust Preferred Securities 30.442 30.442 30,442 30.442 30,442 30,442 30.442 30,442
Common equity (net of realized loss) 134,697 123,819 119,517 119,467 121,199 123,339 127.584 131.901
LIabilities and ahareholder'1I equity $ 3609.790 $ 2,254.405 $ 1.993.868 $ 2, 1 05,408 $2.087.656 $ 2,053.224 $2.011.259 $ 2.017.338
Income Statement Data
'$ In thousands)
InGome Statem.nt
Total Interest Income
Total interest expense
Net Interest Income
ProVision for loan loss
Total non-interest Income
Total non-Interest expense
Pre-tax income
Income taxes
Net (LOSS) Income
Key Capital Ratios:
Equity (Incl. TARP) I Assets
Common Equity (Incl. Warrant)
Total Capital Ratio
Jt.Ctii
1010 2010 3Cl10 4tH 0 1Q11 2011 3011 4011
6,500
(3.117) (45) (167) 5.120 7,580 7.753 9,307 9.771
23.366 22,272 _20,44,!L _20.521
(25;-034--Y- (12,649) (5,002) (906) 1,588--a;a5S- .. --.r,825---5-,iOO
19 (1.771) (700) (127) 318 452 1.020
$ (25,053) $ (10,878) $ (4.302) $ m9) $ 1.270 $ 'I-;aoeS- 3,880--,--4;080
· . . . . . .. , . . .
621
TabC
Exhibit 21 B
622
UNITED WESTERN BANK
LIQUIDITY POLICY and CONTINGENCY FUNDING
PLAN
Approved byResolution of the Board of Directors dated
UNITED WESTERN BANK
Uquidity Policy
Max 7. 2010
May 7,2010
623
1
I. SUMMARY
The purpose of this Liquidity Policy (,'Policy") is to establish and document
Board-approved guidelines for the management of United Western Bank's (the
"Bank") liquidity considerations. The Board of Directors has ultimate
responsibility for the liquidity risk assumed by the Bank. This Policy is developed
and implemented as a meaningful tool and reference for the Board Investment
Committee ("IC") to carry out its oversight responsibilities and for the
AssetILiability Committee ("ALCO") and Bank management to use in its ongoing
liquidity risk measurement and management efforts, decision-making processes,
and managing the trade-offs between liquidity risk and short-term profits.
A strong liquidity risk management process is a critical element of maintaining
Bank operations in a safe and sound manner.
Effective liquidity risk management requires systems and processes that are
commensurate with the Bank's complexity, risk proftle, and scope of operations.
Thus, it will evolve as business conditions and the Bank's risk profile changes.
Liquidity risk management is intertwined with internal and external forces
including credit, market, operation, legal, and reputation risk. These forces can
shape the Bank's liquidity risk profile and need to be considered in the assessment
of liquidity and assetlliability management.
ll. AUTHORITY
Board of Directors
• Has ultimate responsibility for the liquidity risk assumed by the Bank.
• Appoint qualified members to serve on the Board Investment Committee.
• Review and approve revisions and improvements to the Liquidity Policy
and Contingency Funding Plan (CFP) on at least an annual basis.
• Monitor Bank performance and overall liquidity risk profile, ensuring that
the level of liquidity risk is maintained at prudent levels and is supported
by adequate capital.
• Ensure that the Bank implements sound fundamental policies and
principles that facilitate the identification, measurement, monitoring, and
control of liquidity risk.
• Ensure that adequate resources (personnel, budgetary and other) are
devoted to liquidity risk management. Effective risk management requires
both technical and human resources.
Board Investment Committee
• Monitors compliance with Board-approved limits and polices.
• Reviews and understands significant balance sheet and liquidity
management activity including, but not limited to: loan and deposit
activity, investment activity, wholesale funding, off-balance-sheet
transactions, including concentrations in any of the foregoing, and other
UNITED WESTERN BANK
Liquidity Policy
May 7, 2010
624
2
activities that impact liquidity risk at the Bank and significant subsidiaries
and affiliates as appropriate.
• Reviews applicable deviations from the approved policies, and provides
feedback to ALCO.
• Ensures the ALCO process reflects the Board's objectives; provides
appropriate feedback to the Board.
• Ensures that adequate resources are devoted to the liquidity management
process.
It is the intent of the Bank Board of Directors to delegate day-to-day operational
authority for the matters set forth in this Policy to senior executive officers of the
Bank. The Board directs the authority granted and requirements of this Policy to
be administered by the ALCO 'With periodic reports to the Investment Committee.
Bank ALCO Committee (at least monthly)
• Oversees the capital markets activities of the Bank.
• Reviews deviations in policies and guidelines. Recommends prospective
action plans to Board Investment Committee. .
• Approves AssetILiability Strategies.
• Reviews Contingency Funding Plan Triggers at least monthly to assess
Bank's liquidity risk status.
• Reviews effectiveness of Contingency Funding Plan and makes
modifications as necessary depending on Bank's risk profile and market
conditions.
• Reviews and understands significant balance sheet and liquidity
management activity including, but not limited to loan and deposit
activity, investment activity, wholesale funding, off-balance-sheet
transactions, and other .activities that impact liquidity risk.
• Recommends liquidity risk parameters and limits for the risk positions of
the Bank.
• Ensures an appropriate mix of existing and potential future :funding
sources.
• Ensures adequate levels of highly liquid, unencumbered marketable
securities, securities pledged to FHLB with appropriate collateral value, or
cash that can be used to meet liquidity needs in stressful situations.
• Monitors compliance 'With all regulatory limits and benchmarks regarding
capital, brokered deposits, outstanding loans and loan commitments or
other limitations on growth that may arise from time to time, including
those that may arise from the Bank becoming less than well-capitalized
pursuant to Prompt Corrective Action (PCA) provisions under Federal
Deposit Insurance Corporation Improvement Act (FDICIA). This would
include monitoring compliance 'With and developing funding
contingencies if restrictions are placed on rates paid for deposits,
participating in any approvals requested from FDIC to accept brokered
UNITED WESTERN BANK
Liquidity Policy
3
May 7, 2010
625
deposits, and partnering with Operations should the Bank be unable to
accept brokered deposits.
Management Responsibilities and Oversight
Chairman of ALCO as appointed by Board
• Recommends to the President and/or Chief Executive Officer (CEO), or
the Bank Executive Committee for interim exceptions to specific policies
and limits. These exceptions must be presented at the next ALCO.
• Chairs ALCO
• Responsible for overall liquidity risk management and executing the
Contingency Funding Plan
• In cases where the Chairman is absent the Chief Operating Officer (COO),
Chief Investment Officer and/or Chief Accounting Officer (CAO) or Chief
Financial Officer (CFO) can obtain approval from the President and/or
CEO, or the Bank Executive Committee.
• Partners with COO or appropriate designee on a daily review of balance
sheet and liquidity risk issues when the Bank is in a Stage 2 or higher
liquidity risk status.
Balance Sheet Strategy Group (weekly if needed)
Reviews the following as needed:
• Balance Sheet Growth and Trends - compare to Plan, and compared to any
documentation received from a regulatory agency that may impact balance
sheet growth.
• Product Pricing/Profitability versus Plan.
• Economic Developments that impact Earnings and customer behavior.
• Investment Portfolio Activity and Strategy
• Emerging Credit Trends
• FundingILiquidity Issues
• Reviews Contingency Funding Plan Triggers at least monthly to assess the
Bank's liquidity risk status
• Reviews effectiveness of Contingency Funding Plan and makes
modifications as necessary
• Coordinates Deposit Gathering and Pricing Strategy with Pricing
Committee
• Analyzes Net Interest Income versus Plan; versus Forecast; versus prior
periods
• Provides Feedback and Analysis for ALCO
• Monitors Compliance with all Regulatory limits and benchmarks regarding
capital, brokered deposits, outstanding loans and loan commitments or
other limitations on growth that may arise from time to time, including
those that may arise from the Bank becoming less than well-capitalized
pursuant to PCA provisions under FDICIA. This would include monitoring
UNITED WESTERN BANK 4
Liquidity Policy
May 7, 2010
626
compliance with and developing funding contingencies if restrictions are
placed on rates paid for deposits, if restrictions are placed on the types of
deposits received (e.g. certain institutional deposits), participating in any
approvals requested from FDIC to accept brokered deposits or accept a
waiver of deposit restrictions on certain deposit types (e.g., institutional
deposits), and partnering with Operations should the Bank be unable to
accept brokered deposits.
• Reviews periodically any material changes or proposed material changes to
the Bank's liquidity risk proftle.
• Develops and recommends strategies to ALCO.
Business Development Officers and others with customer contact
• Keep CEO, CFO, CAO, and other ALCO members abreast of news,
rumors, concerns,etc. regarding the Bank in the market place.
Units Engaged in Contingency Funding Plan Activitx
There are several groups authorized to execute some form. ofCFP activity.
Finance and Operations
• Manages interest rate risk, liquidity, hedging, wholesale funding,
derivatives, and investing activity.
• Adheres to the directives and policies.
• Prepares material for Balance Sheet Strategy Group and ALCO.
• Must adhere to any payments policies.
• Pledges collateral and prices deposits in concert with Pricing Committee
andALCO.
• Keeps CPO, COO, CAO and ALCO abreast of deposit gathering efforts
and challenges.
• Monitors and manages intraday liquidity and capital.
Chief Credit Officer
• Adheres to policies
• Coordinates lending activity in advance with ALCC when under Stage 2
or Stage 3 liquidity risk.
Policy Compliance Monitoring
Many compliance rules are detailed in the policies themselves. The following list sets
forth responsibilities for monitoring adherence to the policies.
UNITED WESTERN BANK
Liquidity Policy
May 7, 2010
5
627
Liquidity Risk
Contingency Funding Plan Targets
Measurement of Liquidity Risk Metrics
Trade Confinnation/EntrylReconciliation
Credit Risk
Overal1 Policy Compliance and Adequacy
Determination of Brokered Deposit Designation
IlL OBJECTIVES
ALCO
Controller and A VP-Treasury
Modeling
Controller
Chief Credit Officer (CCO)
ALCO subject to Audit and
Compliance testing of such.
General Counsel and ALCO
The objective of liquidity management is to reduce the risk to bank. earnings and
capital arising from the inability to meet obligations in a timely manner and cover
both expected and unexpected deviations from normal operations. without
incurring unacceptable losses. This entails ensuring sufficient funds are available
at a reasonable cost to meet potential demands from both fund providers and
borrowers. To achieve this objective, it is essential to be able to indentify,
measure, monitor, and control liquidity risk in a timely and comprehensive
manner. Liquidity risk management needs to be fully integrated into the Bank's
risk management process. The objective of this Policy is to outline the procedures
to accomplish these tasks.
The Board of Directors should establish the association's tolerance for liquidity
risk, set liquidity limits and thresholds, and approve policies related to . liquidity
management. The Board should also ensure senior management takes the
necessary steps to monitor and control liquidity risk; The Board should
understand the nature and level of the association's liquidity risk, and
management should inform the Board regularly of the liquidity position of the
association.
This Policy, along with related policies, will assist the IC, ALCO and
management in administering the Bank's liquidity as well as the overall asset and
liability portfolios. This Policy overlaps in some respects with the Bank's Interest
Rate Risk Policy; however, this Policy is specific to liquidity. This Policy sets
forth tolerance for liquidity risk, establishes liquidity limits and thresholds,
establishes liquidity management monitoring activities, and requires preparation
of appropriate contingency funding plans.
UNITED VllESTERN BANK
Uqulcllty Policy
May 7, 2010
6
628
IV. RISK MANAGEMENT
In addressing liquidity management issues, the Board of Directors and executive
management must be aware of the potential risks that arise related to differing
types of liquidity risk exposures faced by the Bank. In establishing a Liquidity
Policy, the Board has evaluated various risks; these risks, and their related
management techniques, which include:
Credit risk Impacting earnings or capital due to an obligor's failure to meet the
terms of a loan or an investment, or otherwise failing to perform as agreed. Credit
risk occurs any time an institution relies on another party, issuer, or borrower
performance.
Interest rate risk Addressing the potential adverse impact to the organization's
capital or earnings arising from movement in interest rates. Interest rate risk
evaluation must take into consideration the impact of complex hedging strategies
or products which become illiquid; potential impact on loans or investments due
to earnings reduction of the actual investments per changes in interest rates; or
ability to sell assets in the portfolio due to significant changes in interest rates.
Liquidity risk This is the risk that the Bank's financial condition or overall safety
and soundness is adversely affected by an inability (or perceived inability) to meet
its obligations. An institution's obligations and the funding sources used to meet
them, depend significantly on its business mix, balance sheet structure, and the
cash flow profiles of its on- and off-balance sheet obligations. In managing the
Bank's cash flows, various situations can give rise to increased liquidity risk.
These include funding mismatches, market constraints on the ability to convert
assets to cash or accessing sources of funds (i.e., market liquidity), and contingent
liquidity events. Changes in economic conditions or exposure to credit, market,
operation, legal and reputation risks can also affect the Bank's liquidity risk
profile and should be considered in the assessment of liquidity and asset/liability
management.
Price risk. Measuring and supervising the risks inherent with market-making,
dealing, and position-taking activities in interest rates, foreign exchange, equity
and commodities markets. Price risk represents a risk to earnings or capital arising
from changes in the value of portfolios of financial instruments.
Compliance risk Maintaining legal compliance with various appropriate
regulations as well as compliance with the Bank's ALCO Policies.
Reputation risk Developing and retaining marketplace confidence in handling
customers' financial transactions in an appropriate manner as well as protecting
the safety and soundness of the Bank.
V. LIQUIDITY MANAGEMENT PROCESS
The Bank will be capable of meeting financial obligations in a timely manner at a
reasonable cost without incurring unacceptable losses if the Bank has a sufficient
liquidity Management Process. Accordingly, liquidity is measured by the Bank's
ability to have sufficient cash reserves on hand, at a reasonable cost andlor with
UNITED WESTERN BANK
Liquidity Policy
May7,2010
629
7
minimum losses, as well as to meet liquidity requirements under supervisory
agency regulations.
Management shall employ general risk management strategies to ensure that the
Bank's system is commensurate with the liquidity and funding risks undertaken.
Proper funds management policies and procedures shall be adopted and followed.
The Policy shall provide for forward planning, establish appropriate cost
structures, and set realistic limitations and business strategies.
Funds management decision-making responsibilities shall be clearly defined by
applicable Bank policies, with the acceptable level of risk tolerance set forth by
the board. Sufficient due diligence procedures will be performed prior to entering
into any business relationship with a wholesale or processing / trust deposit
source. Due diligence shall be employed in assessing the potential risk to earnings
and capital associated with various deposit relationships or other rate-sensitive
deposits and prudent strategies for their use. Management will avoid excessive
reliance on funds that may be only temporarily available, which may require
premiwn rates or pose excessive operational risks to retain.
Appropriate management processes will be utilized to monitor funding
concentrations. Specific attention shall be paid to brokered funds, and other rate-
sensitive or credit-sensitive deposits obtained through wholesale or processing
and trust sources.
Management will track at least monthly non-relationship and higher-cost funding
programs to measure performance, manage funding gaps, and monitor compliance
with concentration and other risk limits. Reports will include a listing of funds
obtained through each significant program, rates paid on each instrument and an
average per program, information on maturity of the instruments, and
concentration or other limit monitoring and reporting. Management will ensure
that brokered deposits are accurately reported in regulatory reports.
Contingency funding plans shall address the risk that deposits may not "roll over"
at expected rates and terms and provide a reasonable alternative funding, risk
management and communication strategy. The Bank's contingency funding plan
will consider the potential for changes in market acceptance based on a variety of
factors, which are discussed below.
Management shall also consider the potential for triggering legal limitations that
restrict the Bank's access to brokered deposits under PCA standards, or other
regulatory actions and the effect that this would have on the Bank's liability
structure.
Liquidity is often available from both asset and liability sources, however, the
timing and confidence in the availability vary with the nature of the source and
the condition of the bank. Therefore, the analysis of liquidity is measured by
assigning a tier level to the sources based on management's confidence level in
the timing and probability of availability. For identification and ongoing
measurement purposes, liquidity is segmented as follows:
UNITED WESTERN BANK
Liquidity Policy
May 7, 2010
8
630
INDENTIFICATION AND MEASUREMENT OF LIQUIDITY
Liquidity will be indentified as Primary (Tier 1 and Tier 2) sources and Secondary
sources depending upon the assurance of its availability and the timeframe
necessary to obtain.
Tier 1 Sources - these sources with respect to which management has the highest
level of confidence in the availability of funds. NOTE: In the event of a
"Liquidity Event" as defined within the Bank's Contingency Funding Plan. Bank
Management should evaluate and utilize these liquidity sources in the order listed
below:
1. Cash - Excess vault cash, excess reserves at the Federal Reserve or other
correspondent banks, excess cash in ATMs or foreign currency reserves.
2. Money Market Assets - consists primarily of fed funds sold, commercial
paper and agency discount notes. Other instruments may occasionally be
used, however, only those alternatives that can be converted to cash in one
business day are included.
3. Any unencumbered Government or Government agency security, which is
expected to be relatively nominal as generally all eligible collateral is
pledged to the FHLB.
4. Scheduled or anticipated cash flows from loans and investment securities
principal andlor interest payments or sales.
5. Scheduled or anticipated (non-loan sale) fee income.
6. Available FHLB advances - this is tracked from the FHLB website and
reported in the daily liquidity report ..
7. Other unpledged securities that can be offered in a standard repurchase
agreement. Pledging requirements and pledged securities are tracked daily
and reported on the daily Liquidity Report, which covers all encumbered
securities.
Tier 2 Sources - these are sources with respect to which management has a high
level of confidence in the availability of funds but whose availability either has
not been tested or could change based on sudden or unexpected changes in the
market conditions or events unique to the Bank such as bad pUblicity. NOTE: In
the event of a "Liquidity Event" as defined within the Bank's Contingency
Funding Plan, Bank Management should evaluate and utilize these liquidity
sources in the order listed below once Tier 1 alternatives are considered:
1. CD's originated outside of the Bank branch network - Availability of the
funds may be sourced through internet deposit bulletin boards or other
sources. Estimates of availability are based on dealer input and market
analysis.
2. Large (non-brokered) Processing andlor Trust Deposits that can be
gathered quickly based on key and longstanding relationships between the
Bank, its management, and various processing andlor trust companies.
UNITED WESTERN BANK
Liq uidity Policy
9
May 7, 2010
631
This is a subjective estimate based on feedback from relationship Officers
and the Bank.
3. Unpledged securities that may be difficult to offer in a standard repurchase
agreement or liquidate in a short time period. Impact to capital and
earnings needs to be evaluated in advance of liquidating or pledging these
assets.
4. Brokered CDs (including CDARS®) - This channel assumes retention of
a well-capitalized status, thereby a l l o ~ g the· Bank to utilize this source
without specific FDIC approval. Altematively, it could only be utilized
with prior regulatory non-objection.
5. Deposit promotions designed by ALCO within the constraints of any
regulatory requirements that exist at the time.
Secondary Sources - These are sources that are considered subordinate to Primary
sources of liquidity. However, they consist of sources that management has a
lower level of confidence as to whether such sources will be available. The
difference is whether the source will be willing to provide liquidity when needed
and the timing of availability. Secondary sources could take as long as 90+ days
to implement.
Examples include:
1. Unused FED fund purchase lines
2. Federal Reserve Discount Window
3. Loan securitizations
4. Loan sales or participations
5. Other asset sales (e.g., liquidation ofBOLI or sale of branch real estate)
The Bank would also immediately limit new lending activities, outside of already
existing commitments in the following order:
1. Temporarily cease community bank commercial and mortgage lending.
2. Curtail small consumer loans.
3. Discontinue the purchase of GNMA loans from the MFSC servicing
portfolio.
The Bank would also consider liquidating additional assets, including branches and or
lines of business, under certain circumstances. We realize the timirlg of these asset sales
may take in excess of 90 days.
Monthly reporting and analysis of liquidity is based on current market conditions. A
Contingent Liquidity Plan is in place and updated quarterly or more frequently if
determined by the IC or the ALCO. This plan is presented to ALCO and Board
Investment Committee quarterly. Contingency profiles are covered in the Contingent
Liquidity Plan.
UNITED WESTERN BANK
LiquIdity Policy
May 7, 2010
10
632
LIQUIDITY RISK METRICS
NOTE: Many of the limits and guidelines listed below were adopted by the Board on
April 8.2010. The Board is adopting these additional limits and guidelines to move the
Bank towards the liquidity management practices outlined in the March 17. 2010
Interagency Policy Statement on Funding and Liquidity Risk Management. The Board
and Management recognize it will take some time to develop the tools to accurately
measure and report some of the limits below. It will likely take additional time for the
Bank to achieve compliance with some of these guidelines and limits.
With the adoption of this Policy, Management commits to having these ratios and
guidelines reported at the May 2010 ALCO meeting. Variances from these limits and
guidelines will be reported at each subsequent regularly scheduled ALCO and Board
Investment Committee. ALCO will develop a plan to present at the May 2010 meeting to
achieve substantial compliance with the Policy by October 31,2010.
MINIMUM LIMIT
• Maintain $100 Million in cash and at least $100 Million in off-
balance sheet funding capacity to absorb unanticipated withdrawals
from depositors. including processing and trust deposit withdrawals.
• Tier 1 Liquidity to 60 day maturity of time deposits plus 5% attrition
of non-maturity retail deposits.
• Tier 2 Liquidity to 120 day maturity of time deposits plus 10%
attrition of non-maturity retail deposits.
• Unencumbered securities and investments plus cash to 30 day
maturity liabilities plus 5% attrition of non-maturity retail deposits.
MAXIMUM LIMIT
• Pledged securities*rrotal investments plus cash.
• A vg. Total Investments plus cash to A vg. Total Assets.
• Avg. Total Loans to Avg. Total Deposits.
• Unsecured wholesale funding with <90 days to maturity to Total
Investments
• Total Non-CorelNon-Relationship (wholesale/internet channel)
Deposits as a percentage of total deposits.
• Brokered Deposits (when permitted) / Total Deposits.
UNITED WESTERN BANK
Liquidity Polley
May 7, 2010
633
100%
100%
100%
150%
65%
15%- 35%
105%
35%
25%
20%
11
MAXIMUM LIMIT Continued
• Total time deposits as a percentage of total deposits maturing in any 10%
one calendar month over the next twelve months.
• Total term debt (including CDs) as a percentage of total term debt 25%
maturing in anyone calendar month over the next twelve months.
• Percentage of deposits from anyone source including customers, 25%
deposit aggregators, individual trust andlor processing accounts,
trustees, etc. with less than one year remainlng to contractual
maturity. * *
• Percentage of deposits from anyone source including customers, 25%
deposit aggregators, individual trust andlor processing accounts,
trustees, etc. with one year or longer remaining to contractual
maturity.**
NOTE: all deposit concentrations greater than 5% of total deposits will be
reported to ALCO, but deposit concentrations due to CD or other deposits used to
collateralize a loan will not be considered a Policy Exception.
To further diversify the risk of deposit maturity concentrations, the Bank 'NiH also
work to stagger the contractual expirations of its trust and processing deposit
contracts.
Ratios which violate the limits will be highlighted and discussed at ALCO monthly.
The Committee will decide if action is warranted to manage the ratio higher or lower
and over what time period that reduction will occur. Ratios in violation oflimits will
also be reported to Board Investment Committee along with ALCO's
recommendation.
Averages will be evaluated on a monthly basis.
* Pledged securities include all investment securities pledged or otherwise provided
as committed collateral to specific debt obligations. Securities safe kept at a third
party (including the FHLB and FED) that are not pledged to a specific debt
obligation would be considered not pledged for this calculation. This liquidity
guideline ratio is defined as total pledged securities divided by total investment
securities.
** Non maturity deposits placed under an omnibus contract will have the contractual
maturity of the contraCt expiration date; otherwise non maturity deposits will be
considered to have a contractual maturity of less than one year for the purpose of this
calculation.
LIQUIDITY MONITORING
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':',' "
Liquidity is monitored in the following manner:
1. Daily Liquidity Report - reviewed daily by CFO, CAO, and COO. Reported to
Balance Sheet Strategy Group weekly, and ALeO and Board Investment
Committee monthly.
2. Balance Sheet Tracker Report. Key officers receive daily statement of condition
where changes in the· balance sheet can be observed. This is monitored by all
ALCO members for irregularities and changes in condition that could negatively
affect liquidity if not corrected.
3. Bank Cash Flow Analysis Report - produced and reviewed weekly by Balance
Sheet Strategy Committee. Report can be produced to reflect various liquidity
contingencies as part of Contingency Funding Plan.
4. Large Depositor Trend Report - produced at least monthly and reviewed by
ALCO.
5. Key officer feedback - this comes from a variety of sources that occur as part of
the nonnal conduct of business. For example:
a. Weekly Executive Staff meeting.
b. Pricing discussions. as needed between senior baJJk officers and ALCO
members.
c. Monthly Pricing Committee meetings
d. Monthly ALCO Meetings.
e. Weekly Balance Sheet Strategy Committee meetings.
6. Contingent Funding Lines Test Report (annual testing at a minimum)
7. Contingency Liquidity Plan - Financial Indicator Report
Third-party evaluations concerning the Bank's ,credit capacity may also be
indicators of more serious problems. Such evaluations include:
• Adverse news about the Bank in local or trade media
• DOwrlgrades of credit rating by rating agencies
• Customers are contacting relationship managers, fixed income sales
representatives, and branch employees requesting information
Other secondary matket events may also be early warning signs for potential
liquidity problems. Bearish activity in the Bank's securities may signal declining
value. Management shall consider:
• Drops in stock price
• Adverse earnings trends
• Wider secondary spreads on the Bank's senior and subordinated debt, and
increasing trading of the Bank's debt
• Brokers/dealers who become reluctant to show the Bank's name in the market
forcing Bank management to arrange ''friendly'' broker/dealer support
The BaJJk's funding market may also provide early information as credit support
is contracted or demanded. The funding market may also begin to ask for better
credit terms or shorter duration lending which can lead to more costly liquidity for
UNITED WESTERN BANK
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the Bank. Management will be cognizant of signs of funding deterioration to
include:
• Increases in overall funding costs
• Requests for collateral by counter parties
• Elimination or decreases in credit line availability by correspondent Banks
causing the Bank to make larger purchases in the brokered funds market
• Unusually large volumes of tum-downs in the brokered markets forcing the
Bank to deal directly with fewer willing counter parties
• Abandonment by rating-sensitive providers such as trust mangers, money
managers, and public entities
• An unwillingness by counter parties and brokers to deal in unsecured or
longer dated transactions
• Decreasing transaction sizes and counter parties that are unwilling to enter
into even short-dated transactions
ADDITONAL LIQUIDITY PROCEDURES
The Bank will always have a portion of its loan and investment securities portfolio
maturing and/or paying down or cash flowing. Yearly cash flow (principal and interest)
from. these maturities, likely call and/or pay downs will at a minimum be equal to 6% of
total assets.
Additional liquidity ratios to be monitored on a monthly basis include:
Unused Loan Commitments to Excess Funding Capacity*
All unsecured funding lines will be reviewed and tested, where practicable, on an
annual basis.
*Excess Funding Capacity is defined to the unused federal funds lines, Fed
Funds Sold, cash and unencumbered investment securities available for sale.
LIQUIDITY CONTROL
The control process for liquidity policy and risk limits is as follows:
1. Liquidity limits will be reviewed and revised at least annually in conjunction with
the annual review of this Policy.
2. ALCO reviews the liquidity position at least monthly and discusses trends within
the balance sheet that affects liquidity.
3. Finance and Operations report significant changes in liquidity to Balance Sheet
Strategy and ALCO Committees. .
4. Board Investment Committee reviews policy guidelines monthly along with
trends in the balance sheet.
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This Policy willbe reviewed at least annually with presentations to and approval by the
Board of Directors, reporting of actual versus limits will be done monthly. Any variances
must be approved by ALCO as an exception and action plan initiated to bring the Bank
within limit. Exceptions will be reported to Board Investment Committee.
VII. DEPOSITS
Deposits are the largest source of the Bank's funds. Therefore, it is important the
Bank implement policies and procedures to generate and retain a diversified
deposit base as well as to monitor its overall deposit structure, including rates,
maturities, products and concentrations. The Bank's overall deposit process will
include:
• A clearly defined marketing strategy within the business plan that identifies the
desired market share in terms of growth or shrinkage, market niche, and present
and potential competition.
• Identification of core and volatile deposits and analysis of the cost of core and
volatile deposits, including operating costs to maintain the various deposit
products and deposit branches, and
• Targeted spreads between deposit costs and earnings on assets funded by deposits.
• Periodic analysis of present and anticipated funding and liquidity needs and
comparative analysis of costs of deposits versus alternative sources of funds to
meet those needs.
• Frequent review of deposit pricing, volume, sources, volatility, and trends in
relation to overall funds management goals, interest rate risk exposure, spread, net
interest margin, and profitability.
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VIII. PROCESSING AND TRUST DEPOSITS
Processing and trust deposits comprise a majority of the overall deposits at the
Bank. The Bank has continued to capitalize on its longstanding core deposit base
through the development of processing and trust deposit relationships (which
include securities clearing and settlement, custodial, trust and escrow) that
provide a stable, long-lived and inexpensive compliment to the traditional branch
banking concept. We anticipate that management will evaluate additional sources
to this strategy, and prospectively may consider acquiring deposits from
processing businesses that have significant deposit generating capacity that is
incidental to their primary purpose.
Management will monitor processing and trust deposits as follows:
Each relationship with individual or aggregated deposits of 5 percent of total
deposits or greater shall require the following:
• Regular reporting at·ALCO
• An assigned executive officer of the Bank
• A contract term, or a contract of withdrawal notice, where possible ..
• A contractual rate of interest.
These relationships and key terms of the relationship are reported to ALCO.
More detailed reports are reviewed by the CCO, CFO, COO and/or CAO daily.
IX. BORROWINGS
Use of borrowings shall be managed prudently in order to achieve the Bank's
funding goals and assist in controlling interest rate and liquidity risks. Ensuring
. that dependable borrowing facilities are in place represents an integral part of the
Bank's liquidity and funds management practices. The Bank may utilize
borrowings obtained from financial intermediaries including: the FHLBank of
Topeka (existing borrowings outstanding at FHLBank of Dallas) other
commercial banks, securities firms and other financial entities. Other commercial
banks, securities firms and other financial entities must be approved as an
acceptable counterparty by ALCO prior to use. Because the nature and extent of
wholesale funding activities will depend greatly on the Bank's overall balance
sheet risk position, the administration of these activities falls under ALCO.
Short-term borrowings, ranging in maturities from overnight to two weeks can be
executed with prior approval from one of the ·following: BankCFO, Bank
President or CEO, Chief Accounting Officer, Chief Investment Officer, or
Assistant Treasurer. Term borrowing in excess of two weeks requires prior
approval from ALCO prior to execution. Amounts borrowed are governed by
pre-existing, board approved limits.
As a member of the FHLBank system the Bank will generally look to obtain
. borrowings from the FHLBankof Topeka as its first choice. However, approved
staff or ALCO are allowed to obtain quotes on appropriate borrowings from other
entities including commercial banks and securities firms.
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The Bank. may also borrow from the FED under terms and conditions defined by
the FED, with the same required approvals as FHLB advances and other third
party sources.
FHLBank. (HILB) Advances: The Bank. is authorized to borrow from the FHLB.
FHLB advances are generally advantageous due to both the dependability of the
FHLB as a provider of funds and the availability of a broad range of maturities
(overnight to 10+ years) with a variety of characteristics that can be tailored to the
needs of the Bank: and its interest rate risk position and interest rate risk goals.
The FHLB lends on a collateralized basis and as it exists today it must have
collateral that contains a mortgage or be guaranteed by the US Government or an
agency thereof, (i.e. single family loans, U.S. Government and Agency securities,
and commercial real estate loans). The advances are subject to an advance rate
("haircuts") based on the collateral and current market conditions applied by the
FHLB depending on the nature of the instnunents pledged.
Periodically at the direction of ALCC, a senior member of management shall
discuss or meet with FHLB of Topeka to review the financial status of the Bank,
assess the Bank's relationship with FHLB of Topeka, and ensure the continued
availability of funding on a collateralized basis. Should FHLB of Topeka indicate
that continued availability of funding will not or may not be forthcoming, this
would constitute a Stage 2 or Stage 3 Liquidity Risk, depending on all available
facts and circumstances.
Repurchase Agreements (Repo): When appropriate, the Bank may utilize reverse
repurchase agreements. These agreements serve as another form of wholesale
borrowings collateralized by securities as an alternative source of funds. In the
capacity as community Bank repos will be used to collateralize certain
community Bank deposits from known customers. In the capacity as wholesale
repos, repo lines may be established with commercial banks, securities firms and
other financial institutions that are ALCC approved counterparties. Repos range
from short- to long-term in nature (overnight to several years.) These agreements
may be structured with various instruments, including derivatives, to assist the
Bank. in managing its interest rate risk. The various instruments may include lock
outs from calling the debt by either party, and embedded derivative securities (i.e.
floors, caps or collars) that protect the Bank, up to the notional amount of the
derivative, against certain changes in interest rates.
Management understands the potential for increased sensitivity to market and
liquidity risks associated with more complex funding instruments that may
include embedded options. As such, the following management techniques shall
be considered as the Bank: secures wholesale borrowings:
• Review the Bank.' s borrowing contracts for embedded options or other
features that may affect the Bank's liquidity and sensitivity to market risks.
Management will also review collateral agreements for fees, collateral
maintenance requirements, triggers for increases in collateral, and other
features that may affect the Bank's liquidity and earnings.
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• Assess the Bank's management processes for identification and monitoring of
risks associated with the various terms of each borrowing contract, including
. penalties and option features over the expected life of the contract
• Stress testing borrowing contracts prior to entering into the agreement and
periodically thereafter. Stress testing shall not be reliant on the results and/or
assumptions provided by the funds provider. Tests will cover a reasonable
range of contractual triggers and external events, including interest rate
changes that could result in the exercise of embedded options, if any, or the
Bank's termination of the agreement. PrePayment penalties may result.
• Evaluate management processes for controlling risks, including interest rate
risks arising from the borrowings and liquidity risks. Contingent funding plans
sball encompass the potential for agreement terminations. Contingent funding
plans will also consider any hedges or other plans for minimizing the adverse
affects of penalties or interest rate changes and other triggers for embedded
options.
• Determining whether ALCO or the Board has been fully informed of the risks
and ramifications of complex wholesale borrowing agreements prior to
engaging in the transactions as well as on an ongoing basis.
• Determining whether funding strategies regarding wholesale borrowings,
particularly those with optionality, are consistent with both the portfolio
objectives of the Bank and the level of sophistication of the Bank's risk.
management.
Other funding sources, including overnight and term Fed Funds are also
authorized with prior ALCO counterparty approval.
X COMWLEXVVHOLESALEBORROvnNGS
Use of complex wholesale borrowings (with "Complex" having a definition
consistent with the FHLB's definition) shall only be utilized subsequent to
management conducting a thorough review of the borrowing and the Bank's risk
levels. Management will maintain and develop a sound risk management process
to monitor such borrowings.
In assessing the Bank's wholesale borrowing practices, the following steps shall
be performed: .
• Review of the Bank's borrowing contracts for embedded options or other ,
features that may affect the Bank's liquidity and sensitivity to market risks.
• Review collateral agreements for fees, collateral maintenance requirements
including triggers for increases in collateral, and other features that may affect
the Bank's liquidity and earnings.
• Assess the Bank's management processes for identifying and monitoring the
risks of the various terms of each borrowing contract, including penalties and
option features over the expected life of the contract.
• Completion of stress testing prior to and periodically thereafter, entering into
borrowing agreements.
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• When relymg on third party testing, review underlying assumptions and test
.
• Evaluate management processes for controlling risks, including interest rate
risks arising from the borrowings, as well as liquidity risks.
• Ensure the ALCO or board is fully informed of the risks and ramifications of
complex wholesale borrowing agreements prior to engaging in the
transactions as well as on an ongoing basis.
• Determine whether funding strategies regarding wholesale borrowings,
those with optionality, are consistent with both the portfolio
objectives of the Bank and the level of sophistication of the Bank's risk
management.
XI. BROKERED DEPOSITS
A. Regulatory Definitions and Internal Guidelines
Brokered deposits are defIned as all deposits directly or indirectly obtained
through deposit brokers for deposit in one or more accounts under 12 CFR
§337.6. Deposit brokers include any individual, partnership, or corporation that
is engaged in the business of brokering or placing deposits from third parties.
The Bank may only enter into new or renew existing brokered deposits provided
the brokering entity has been approved as a counterparty, that the Bank is
designated as well-capitalized under PCA provisions under FDICIA and is not
subject to any other regulatory objections.
The definition of deposit broker excludes insured depository institutions acting as
intermediaries or agents for government agencies and departments placing money
in Banks owned by women or minorities.
Deposit brokers are prohibited from soliciting or placing any deposit With the
Bank unless the broker has provided the FDIC with written notice that it is a
deposit broker. The FDIC may prescribe the form and content of the written
notice.
ALCO is responsible for thoroughly analyzing the terms, maturities, and sources
before contracting with any individual third party. deposit source and to
collaborate with the General Counsel to detennine whether or not a deposit wowd
be determined as "brokered" under 12 CFR §337.6. All such requests for
contracts, placement, or access to such funds will be reviewed and approved prior
· to execution by ALCO.
Dealers are restricted to reCognized names in the brokerage business, and fees will
not be paid in advance of:full disclosures of all terms concerning the availability
of such funds.
B. FDICIA Limits on Brokered Deposit Use
It is the policy of the Bank to comply with the FDrCIA limits on the use of
brokered deposits, as follows:
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D Well-capitalized insured depository institutions may accept, renew, or roll
over broke red deposits without fIrst obtaining a waiver from the FDIC. A
well-capitalized institution is one that has a total risk-based capital ratio of
10 percent or greater, a tier 1 risk-based capital ratio of 6 percent or
greater, and a leverage ratio of 5 percent or greater. Also, it is not subject
to any formal written agreement, order, capital directive, or prompt
corrective action directive to meet and maintain a specifIc capital level for
any capital measme.
D Adequately capitalized insured depository institutions are prohibited from
accepting, renewing, or rolling over brokered deposits unless they first
obtain a waiver from the FDIC. An adequately capitalized institution is
one that has a total risk-based capital ratio of 8 percent or greater, a tier 1
risk-based capital ratio of 4 percent or greater, and a leverage ratio of 4
percent or greater (or a leverage ratio of 3 percent or greater if the
institution is rated composite 1 under the CAMEL or MACRO rating
system in its most recent report of examination, subject to appropriate
federal Banking agency guidelines), and does not meet the defInition of a
well-capitalized institution.
D Undercapitalized insured depository institutions are prohibited from
accepting, renewing, or rolling over brokered deposits. An
undercapitalized institution is one that has a total risk-based capital ratio
of less than 8 percent, a tier 1 risk-based capital ratio of less than 4
percent, and a leverage ratio of less than 4 percent (or a leverage ratio of
less than 3 percent if the institution is rated composite 1 under the
CAMEL or MACRO rating system in its most recent report of
examination, subject to appropriate federal Banking agency guidelines).
D Adequately capitalized and undercapitalized institutions are prohibited
from soliciting deposits by offering rates of interest that are 75 basis points
above the "national rate" deposit market rates as reported weekly on the
FDIC web site.
D Notwithstanding any of the foregoing, if the Bank: receives any
correspondence from its regulatory agencies that affect the foregoing, that
guidance will be provided to ALCO for its immediate evaluation.
Management is responsible for monitoring the Bank's capital level and for
ensuring that the Bank is in compliance with any regulatory restrictions and
limitations.
c. Adequately Capitalized Institutions
In a situation where the Bank may fall below the well-capitalized institution
capital profiles (total risk-based capital ratio of 10 percent; Tier 1 risk-based
capital ratio of 6 percent; and a leverage ratio of 5 percent), or otherwise be
designated as less than well-capitalized, management must obtain a waiver to
accept brokered deposits. The FDIC may waive the brokered deposits prohibitions
placed on an 'adequately capitalized' depository institution; this waiver is
determined on a case-by-case basis.
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If the Bank is designated as less than well-capitalized by the regulatory agencies,
the Bank may attempt to obtain a waiver. ALCO will coordinate any attempt to
obtain a waiver with the General Counsel. In addition, restrictions limiting the
amount of interest that the Bank can pay on brokered or other deposits will also
apply.
Specifically, the FDIC. may grant such a waiver if the acceptance of broke red
deposits do not constitute an unsafe or unsound banking practice, and the
institution's brokered deposit operations do not pose an undue risk to the
organization. To obtain a waiver to accept brokered deposits, the Bank must file a
written application with its FDIC regional director for supervision. The format of
the application may be a written letter; however, it is important that the letter
includes the following:
• Time period for which the waiver may be needed
• Policy statement for the Bank establishing corporate governance regarding .
the usage of brokered deposits in the organization's overall funds
management and liquidity initiatives
• Details on the volume, rates, and maturities for the brokered deposits
currently held and anticipated during the requested waiver period,
including any internal .limits placed on terms, solicitation, and use of
brokered deposits
• Description of how the brokered deposits are cost-analyzed and compared
to other funding alternatives
• Description of the Bank's lending and investment activities will use the
brokered deposits, with specific reference to future asset growth
_ Description of procedures and controls used to solicit brokered deposits,
including identification of the principal sources of the deposits
• Description of the management information systems utilized to supervise
the solicitation, acceptance, and use of broke red deposits
• Recent consolidated statement with balance sheet and income statements
Reasons that the board of directors and management have· considered the
acceptance, renewal, or roll over of brokered deposits pose no undue risk
t o ~ B a n k . I
In addition, the waiver request should include the net interest spread being earned
on these deposits, the need for such deposits, and the maturity of matched assets.
D. Deposit Broker Records and Reports
The FDIC may require, by regulation, that each deposit broker maintain separate
records relating to the total amounts and maturities of the deposits placed by the
broker for each insured depository institution. The FDIC may also require each
deposit broker to file with the FDIC separate quarterly reports relating to the total
amounts and maturities of the deposits that the broker placed for each depository
institution during the applicable quarter.
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The Chief Accounting Officer andlor Controller are responsible for ensuring that
the Bank's regulatory reports filed with the FDIC are consistent with any reports
filed by a deposit broker.
ALCO shall manage Bank use of brokered deposits to ensure those deposits are
benefiCial to the Bank, within acceptable risk parameters, including pricing, and
maturity and source concentrations. Management shall develop prudent reviews
of brokered deposits to ensure risk identification and management of these
deposits.
The following elements shall be addressed by ALCO in the risk management
process as they relate to the Bank's usage of broke red deposits:
• Proper funds management policies
• Adequate due diligence when assessing deposit brokers
• Due diligence in assessing the potential risk to earnings and capital associated
with brokered or other rate-sensitive deposits and prudent strategies for their
use
• Reasonable control structures to limit funding concentrations. Limit structures
shall consider typical behavioral patterns for depositors or investors and be
designated to control excessive reliance on any significant sources or type of
funding.
• Management information systems (MIS) that clearly identify non-relationship
or higher-cost funding programs and allow management to track performance,
manage funding gaps, and monitor compliance with concentration and other
risk limits
• Contingency funding plans that address the risk that these. deposits may not
"roll over" and provide a reasonable alternative funding strategy
XII. CONTINGENCY FUNDING PLAN
Management has a Contingency Funding Plan (CFP) as part of the Bank's
liquidity risk management process. The CFP will include cash flow projections
and comprehensive funding plans that forecast funding needs and funding sources
under various market scenarios including aggressive asset growth or rapid liability
erosion. The Bank's CFP will be used for the following purposes:
• Routine liquidity management
• Monitoring/planning during periods of extraordinary asset growth
• Contingency planning during emergency and distress environments
The CFP will anticipate all of the Bank's funding and liquidity needs during both
temporary and long-term liquidity changes by:
• Analyzing and making quantitative projections of all significant on- and off-
balance sheet funds flows and their related effects
• Matching potential cash flow sources and uses of funds
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.• Establishing indicators that alert management to a predetermined level of
potential risks
The CFP .shall identify, quantify, and rank all sources of funding by preference
including:
• Reducing assets (e.g. regular sales of guaranteed portions of originated SBA
loans, irregular sales of other interest earning assets)
• Modifying the liability structure or increasing liabilities
• Using off-balance sheet sources, such as securitizations
• Using other alternatives for controlling balance sheet changes
Management sh8ll also consider asset management strategies for responding to a
liquidity crisis including: .
• Whether to liquidate surplus money market assets
• When held-to-maturity assets should be transferred to available-for-sale,
liquidated, if needed
• Whether to sell liquid securities in the repo markets
• When to sell longer term assets, fixed assets, or certain lines of business
The following liability funding strategies shall be addressed by management:
• Establishing an overall pricing policy for funding
• Identifying dealers who will assist in maintaining orderly markets in the
Bank's negotiable instruments
• Identifying particular funding markets to avoid, such as high-volatility
accounts
• Developing strategies on how to interact with nontraditional funding sources
• Setting forth a policy for early redemption requests by retail customers
• Estimating the Bank's potential Federal Reserve Bank. discount window
borrowings. if any, stipulating timing, duration, and source of repayment
Management will also be required to address the following administrative policies
and procedures during a liquidity crisis:
• The responsibilities of senior management during a funding crisis
• Names, addresses, and telephone numbers of members of the crisis team
• Who will be assigned responsibility to initiate external contacts with
regulators, analysts, investors, external auditors, press, significant customers,
and others
• How internal communications will flow between management, ALCO the
Board, employees, and others
• How to ensure that the ALCO receives management reports that are pertinent
and timely enough to allow membersto understand the severity of the Bank's
circumstances and to implement appropriate responses
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The Bank's CFP will be reported and approved by the Board on at least an annual
basis to ensure it remains a practical and useful management tool. Appendix A is
the Bank's CFP.
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........
Appendix A
CONTINGENCY FUNDING PLAN
The Contingency Funding Plan (CFP) is designed to provide management with a
framework for assessing and communicating the need for additional liquidity in a
dynamic market environment.
The CFP will have six key elements:
1) Define the level or stages of a potential funding crisis;
2) Defme appropriate triggers for each stage;
3) Generate estimates for potential funding needs and available funding sources, .
under different scenarios with different degrees of severity;
4) Define appropriate responses and establish reporting requirements for each crisis.
stage;
5) Plan communications and assign internal contact responsibilities between Bank
functional divisions, Bank management, ALCO and the Board. Plan and assign
external contact responsibilities for major funds providers, regulators, press, and
shareholders;
6) Testing the CFP.
Given the high level of potential risk in these activities a carefully designed
framework is in place to govern this activity. The framework is built on senior
management accountability and oversight, policies and procedmes, segregation of
duties, limits, and risk-management culture consistent with the goals of the Board of
Directors.
1) Derme the level or stages of a potential funding crisis;
ALCO has responsibility for assessing the Bank's level of liquidity risk. It will use the
Bank's adherence to Liquidity Policy limits, its Contingency Funding Plan Triggers, and
market intelligence and other qualitative factors to assess the Bank's level of liquidity
risk.
Baseline Case - Ordinary Comse of Business
Stage 1 Liquidity Risk - Minor Impairment,. the Bank retains pricing flexibility with
loans and deposits, situation's full extent may not be in public domain. ,
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Stage 1 Liquidity Risk - Reduction in Confidence - the Bank has to significantly alter
pricing to attract or retain customers, more than usual negative news on the Bank in
market place
Stage 3 Liquidity Risk -.Severe Liquidity Risk - Organization's viability is at risk
within a 30-day horizon.
2) Define appropriate triggers for each stage;
ALCO will use both quantitative and qualitative measures to assess the Bank's level of
liquidity risk.
Quantitative triggers help identify potential problems while they are manageable and are
objective. The absence of quantitative trigger breaches does not necessarily mean that
liquidity risk exposures are normal.
Qualitative triggers permit management to exercise judgment. Violating one or two
quantitative triggers does not necessarily mean risks are elevated, but warrants further
analysis and discussion.
Baseline Case - Ordinary Course of Business
Stage 1 Liquidity Risk - Will generally be declared if at least 2 or more Liquidity Risk
Metrics are out of policy during the same month or the same policy limit is out of
compliance for· 2 or more consecutive months, or if ALCO determines that any
Contingency Funding Triggers demonstrate a deteriorating trend. If these conditions
exist and ALCO does not declare a Stage 1 event, a written summary of the decision will
be provided to the Board Investment Committee. The Bank has no regulatory restrictions
to access deposit and fimding sources.
Stage 1 Liquidity Risk - Will generally be declared if at least 3 or more· Liquidity Risk: .
Metrics are out of policy during the same month or if at least 2 Metrics are out of
compliance for 2 or more consecutive months, or if the ALCO determines that multiple
Contingency Funding Triggers demonstrate a deteriorating trend. If these conditions exist
and ALCO does not declare a Stage 2 event, a written sununary of the decision will be
provided to the Board Investment Committee. The Bank has specific regulatory
limitations on either. deposit rates it can pay, e.g. FDIC rate-caps; or specific deposit or
fimding products it can enter into, e.g. brokered deposits or Fed Discount Window.
Stage 3 Liquidity Risk - Will generally be declared if at least 5 or more Liquidity Risk
Metrics are out of policy during the same month or if at least 3 Metrics are out of'
compliance for 2 or more consecutive months, or if the ALCO determines that multiple
Contingency Funding Triggers demonstrate a deteriorating trend. If these conditions exist
and ALCO does not declare a Stage 3 event, a written sununary of the decision will be
provided to the Board Investment Committee.
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CONTINGENCY LIQUIDITY PLAN TRIGGERS
• Increasing level of delinquent and non
current loans-
% ofloans 90 days Past Due/Total Loans
% of Non-accrual Loans/Total Loans
• Net Short-Term « 30 days) Fed Funds
Bought/Sold
• % Non-corelNon-relationsbip deposits
(wholesale/internet channel) / Total Deposits
• United Western Bancorp Stock Price
• Bank Earning Trends
• Core Deposit Growth Trends
Retail Transaction Deposits
CD's <$lOOK
CD's>$lOOK
CDARS Deposits
Processing and Trust Deposits
• Turndown of borrowing request?
If so, what?
UNITED WESTERN BANK
Liquidity Policy
May 7, 2010
649
Current
Last
Month
3
Months
Ago
6
Months
Ago
27
• Case-Shiller 20 City Housing Index
• Leading Economic Indicators
• National Unemployment Rate
• National GDP (quarterly)
• United Western Bank. news in the market?
3) Generate estimates for potential funding needs and available funding
sources under different scenarios with different degrees of severity;
Operations and Finance will collaborate to generate at least 3 separate estimates of
funding needs over a I80-day horizon and present them to ALCO at least monthly (more
frequently if required by liquidity risk level). Additional scenarios can be added
depending on specific situations and regulatory guidance.
If the Bank is in a Stage 2 or Stage 3 Liquidity Risk situation, Operations and Finance
will generate 2 additional scenarios, detailed below as scenarios four and five.
The first scenario will analyze the Bank's coverage of Tier 1 liquidity to maturing term
debt obligations, a 10% reduction in retail non-maturity deposits and all anticipated loan
fundings. The report will indicate whether or not the Bank has sufficient Tier 1 liquidity
to its risk limits and be called the Tier 1 Liquidity Report.
The second scenario will analyze the Bank's coverage of Tier 2 liquidity to maturing
term debt obligations, and anticipated loan fundings. The report will indicate whether or
not the Bank. has sufficient Tier 2. liquidity to its risk limits and be called the Tier 2
Liquidity Report.
The third scenario will include all the cash flows analyzed in the first two scenarios but
exclude any uncommitted Bank lines from available liquidity. It will also presume no
CDs of any kind can be renewed and includes a 5% reduction in retail non-maturity
deposits each month. This is a "worst case" scenario. An example of this report is
attached as an exhibit. It is called the Bank: Cash Flow Analysis Report.
UNITED WESTERN BANK
Liquidity Policy
May 7, 2010
28
650
The fourth scenario will presume the Bank: is less than well capitalized pursuant to PCA
provisions under FDICIA. It presumes that no CDs of any kind will be renewed,
brokered or otherwise. It presumes a 5% reduction in retail non-maturity deposits each
month, and that certain other trust and processing deposits may be deemed brokered by
FDIC. It presumes that these trust and processing deposit maturities are governed by
their omnibus contractual maturity status. Under this scenario and presumption Equity
Trust deposits would exist until June 27, 2014, MSCS deposits would remain at the Bank
until July 5, 2010, Lincoln Trust deposits would remain until February I, 2011 and
Legent Clearing deposits would remain at the Bank: until September 30, 2010.
Although management and the Board understand that the FDIC may deem these deposits
to be brokered, the Bank did obtain legal opinions from two highly regarded law firms
that expressly confirms that such deposits are not legally brokered deposits. Accordingly,
if the FDIC or another regulatory agency were to deem these brokered deposits the Bank
would respectfully pursue administrative or judicial relief from such a conclusion. In
addition, the Bank would also contemporaneously consider the application for a waiver
of either the conclusion, or for an extension of time in order to revise its liability base in a
prudent fashion.
Under scenario 4, the Bank would have already implemented many of the steps
enumerated above including increased activity in the marketplace for bulletin board
internet based certificates, ceased the majority of lending and look for the timely and
orderly disposition of certain assets.
Scenario 4 is a better scenario for the Bank than scenario 5 discussed below. Scenario 4
would be beneficial to the Bank, its processing and trust depositors, and the Bank's
regulators as it avoids possible legal action on the part of the processing and trust
depositors associated with the Bank breaking its legally enforceable contracts that were
made with these entities in the good faith understanding that such deposits were not
brokered and represent a core source of funding of the Bank's balance sheet.
The fifth scenario will presume the Bank: is less than well capitalized pursuant to PCA
provisions under FDICIA. It presumes that no CDs of any kind will be renewed,
brokered or otherwise. It presumes a 5% reduction in retail non-maturity deposits each
month, and that certain other trust and processing deposits may be deemed brokered by
FDIC. It presumes that these trust and processing deposit maturities are governed by
their sub-account contractual maturity status.
First, scenario 5 represents a scenario that based on our understanding and discussions
with our processing and trust depositors is impossible to achieve given the nature of the
systems and the requirements imposed by such a scenario. Under scenario 5, each
individual account that comprises the total of the processing or trust deposit relationship
could be prohibited from adding to their cash balance that is placed at the Bank. The
operations of the trust and processing businesses are not established in a fashion
conducive to this nor are their IT systems. All of an account holder's cash is generally
swept in accordance with the instructions provided, or swept if no instructions are
provided, which end up in the Barik. It is physically impossible for the trust and
UNITED WESTERN BANK
Liquidity Policy
May 7, 2010
29
651
processing client to say that effective on any particular date that their customer's account
is frozen at a dollar amount based on that date and that any amounts of deposits in that
same account must be placed in a different bank.
Further, scenario 5 would likely raise legal issues for the Bank if the Bank were caused to
break existing contractual obligations with these entities.
Nevertheless, in an effort to provide a smooth transition for our customer and considering
the adminstrative, judicial and waiver approach discussed above that would be
considered, the Bank would also consider and implement the following:
1. Purchase of Legent Clearing, subject to the filing of an application and receipt of
from the OTS and other appropriate regulatory authorities to do so.
The ownership of this entity provides the Bank with control over a significant
balance of deposits. The Bank has a history of successful processing and trust
deposit relationships that have been core to our operations, including Sterling
Trust. This is a significant part of our business plan for prudently reducing
certain deposit concentrations that exist on the balance sheet currently. In
addition, the Bank would call on up to $400 million of additional processing and
trust deposits from Legent prior to closing of the purchase if such deposits were
necessary relative to a risk of the withdrawal of Equity Trust deposits or a
regulatory requirement to move such deposits.
2. Request an extension of time to achieve compliance with the request of six to
twelve months depending on the nature of the specific request and determination.
3. Acquire additional internet based bulletin board deposits that are deemed non-
brokered by the FDIC. The Bank has tested this and raised $100 million of
deposits in a four week period at rates well below the FDIC imposed rate caps.
4. We would sell assets, in this order items a. through d. within 90 days:
a. SBA purchased loans and pooled securities approximately $100 million.
Sales price would be approximately 103 to 105 (the Bank owns these at
approximately 108.) The loss would not significantly impact core capital.
This would reduce availability at FHLB; however would be cash
advantageous as the haircut is approximately 15%.
b. Sale of the single tenant portfolio approximately $32 million. Estimated
sales price would be approximately par, (the Bank owns these at
approximately 101.) The loss would not significantly impact core capital.
This would reduce availability at FHLB; however, this would be cash
advantageous as the haircut is approximately 45%.
c. Sale of residential loans, specifically the DCAL loans approximately $58
million. Estimated sales price would be approximately par, (the Bank
owns these at approximately 101.5.) The loss would not significantly
UNITED WESTERN BANK
Liquidity Policy
30
May 7, 2010
652
impact core capital. This would reduce availability at FHLB; however
would be cash advantageous as the haircut is 15%.
d. Sale of GNMA buyouts approximately $20 million. Estimated sales price
at or above par. The Bank owns these at par. No impact to core capital .
. The haircut is 7% at FHLB.
e. Other community bank loans, or loan participations determined based on
maximizing cash flow and minimizing negative impact to core capital,
potentially $1.1 billion of loans graded pass or above. Longer term sale
cycle and likely bigger negative impact to core capital.
f. Redeem BOLl. We own approximately $26.5 million. Results in taxable
income and tax penalty; however, results in over $20 million of cash.
g. Sale of other assets, branch land, business line, could be done, but lower
return and longer sale cycle.
4) Define appropriate responses and establish reporting requirements
for each crisis stage;
Baseline Case - Ordinary Course of Business. Normal monthly ALCO reporting and
oversight
Stage 1 Liquidity Risk - Minor Impairment, the Bank retains pricing flexibility with
loans and deposits, situation's full extent may not be in public domain. ALCO will
prepare an action plan within 7 days of recognition of impairment The plan will be
reviewed at the next ALCO meeting and will be presented to the executive committee.
Plan will include an estimate of costs andlor diminished revenues to accomplish the task.
The Investment Committee will receive word of Stage 1 designation. The Daily
Liquidity Report will be reviewed at Balance Sheet Strategy (BSS) meetings as
scheduled.
Plan may include a review of opportunities to increase the size of the liquidity reserve,
intensify collateral management practices to free additional collateral, and review
opportunities to increase net cash flow cushions at overnight, 7-day, 30-day and 90 day
horizons.
Stage 2 Liquidity Risk - Reduction in Confidence- the Bank has to significantly alter
pricing to attract or retain customers, more than usual negative news on the Bank in
market place. ALCO will develop a plan withlnS days of ALCO meeting on steps
necessary to bring liquidity risk measures into compliance and present the plan to the
Balance Sheet Strategy Committee. Plan will include an estimate of costs andlor
diminished revenues to accomplish the task. Upon BSS review, the Plan will be shared
with the President - CEO andlor the Executive Committee.
UNITED WESTERN BANK
Liquidlty Policy
May 7, 2010
31
653
BSS will meet at least weekly. COO and CAO/CFO will have daily communication to
review Bank balance sheet and liquidity positions. Plan may include asset sales and/or
participations, and slowing new asset generation. Profonna capital ratios will also be
analyzed each week.. The Board will receive word of Stage 2 designation. The Daily
Liquidity Report will be reviewed by COO and CAO/CFO Daily. Balance Sheet Strategy
will include explicit analysis of key balance sheet trends, key depositor concentrations,
feedback from loan officers, BDOs and others on the Bank's perception in the market
place, and report on progress of liquidity risk remediation plans. It will also include a
specific discussion of emerging credit risk or other risks to earnings. CFO/CAO will
initiate more frequent contact with key liquidity providers such as FHLB, bank line
providers, FRB and report weekly to Balance Sheet Strategy Group. CEO, President
andlor Vice Chairman may initiate contact with large shareholders.
Stage 3 Liquidity Risk - Severe Liquidity Risk - Organization's viability is at risk
within a 30-day horizon. COO and CFO/CAO will develop a plan within 3 days of
ALCO meeting on steps necessary to bring liquidity risk measures into compliance and
present the plan to the Balance Sheet Strategy Group. Plan will include an estimate of
costs andlor diminished revenues to accomplish the task..
Plan may include asset sales and/or participations, and restricting new asset generation
without risking further reduction in customer confidence. Proforma capital ratios will
also be analyzed each week. Board Investment Committee will receive immediate word
of Stage 3 designation. The Daily Liquidity Report will be reviewed daily by CFO/CAO
and COO, Balance Sheet Strategy Group will include explicit analysis of key balance
sheet trends, key depositor concentrations, feedback from BDOs and others on the Bank's
perception in the market place, and report on progress of liquidity risk remediation plans.
It will also include a specific discussion of emerging credit risk or other risks to earnings.
COO and CFO/CAO will initiate more frequent contact with key liquidity providers such
as FIILB, bank line providers, FRB and institutional depositors and report weekly to BSS
Group. Plan may consider increasing cash held in branches and ATMs to avoid any
shortages, moving additional collateral to FRB, reaffirming funding plans with key
institutional depositors, intensifying efforts, employee and/or customer incentives for
deposit retention, and evaluating opportunities to sell illiquid assets or business units as
conditions dictate.
If ALCO determines that under any conditions, the Bank needs to add or augment its
liquidity under a "Liquidity Event" it will follow the list of preferred liquidity sources
spelled out in the Liquidity Policy and the summary below.
5) Plan communications and assign internal contact responsibilities
between the Bank functional divisions, layers of Bank management, and
the Board. Plan and assign external contact responsibilities for major
funds providers, regulators, press, and shareholders;
ALCO will have overall responsibility for executing the CFP communications plan. The
ALCO Chainnan will be the primary contact point and manager of a CFP
UNITED WESTERN BANK
Liquidity Policy
May 7, 2010
32
654
communications plan, in concert with the Executive Committee. The Balance Sheet
Strategy Group will be the primary forum for evaluating and refining the CFP
communication plan's ongoing effectiveness. The COO will facilitate communications
between home office and branches and LPOs. The Chief Information Technology
Officer is responsible for maintaining the Bank website in consultation with the CFO and
COO on liquidity issues. Balance Sheet Strategy Group members are responsible for
communicating with their respective teams, ensuring that the Balance Sheet Strategy
Group hears concerns or issues raised among staff. The President - CEO and Vice
Chairman will manage communications with major funds providers and the Bank. The
CFO/CAO, COO, and/or President - CEO will manage communications with regulatory
bodies. The President/CEO or Vice Chairman will coordinate communications with ,
shareholders, press, and other media. The CFO/CAO, COO, and/or President - CEO will
manage communications with the Board Investment Committee. The President - CEO
will manage communication with the Board BDOs and Regional Presidents are
responsible for managing communications with their individual customers, and ensuring
the Balance Sheet Strategy Group is apprised of all developments.
Outside . consultants may be required to assist management craft an appropriate
communication plan to external stakeholders.
6) Testing theCFP
Testing the CFP, done properly, can greatly increase the likelihood of effective liquidity
risk management.
The Chief Investment Officer and Assistant Treasurer wiil maintain a log of various third
party funding sources and report to ALCO quarterly on the timing, rate, and relative
success of sourcing funds from these providers.
The Bank may periodically test its loan liquidity by selling or participating existing loans
from time to time. Such tests will be discussed with ALCO in advance and results
reported to ALCO.
Testing may· involve running simulations late in the business day to highlight specific
issues such as difficulty sourcing :funds late in the day. It may also identify staffing
bottlenecks or lack of staff willingness to work overtime.
The ALCO will review the CFP testing program on an annual basis and report results to
the Board Investment Committee.
The following plan outlines the steps that will be followed in the Bank's
Contingency Funding Plan. in the event ALCO· deems this necessary. Each step is
laid out in order of execution with the objective of providing liquidity at the least
possible cost. It should be noted that steps below may be reordered in priority and
utilization based on current market pricing and other factOrs considered by ALCO.
UNITED WESTERN BANK
Liquidity Policy
May 7, 2010
33
655
Step 1 Initial requests for funds will be met out of the Bank's short-term. cash and
equivalent position (e.g. fed fim.ds sold). This would provide the least
expensive source offunds.
Step 2 The Bank's membership in FHLB gives it ready access to the FHLB's
advances program utilizing qualifying collateral. .
Step 3 Acquire additional trust and processing deposits.
Step 4 Acquire additional brokered deposits, if eligible.
Step 5 Borrowings against the fed:funds purchased line.
Step 6 Deposit specials and deposit programs.
Step 7 Draw on the holding company's line of credit at another institution, if
available.
In addition to the foregoing, asset . sales as discussed above, may be. used to
generate cash/increase liquidity. In the current market environment liquidity is of
significant importance and there is a general lack of liquidity for many of the
primary instruments owned by the Bank (single family loans and most J]1ortgage
backed securities), which has impacted their value. As such it is possible that the
sale of such assets would generally be a last resort as it appears. that it would
result in giving up more yield than the borrowing costs outlined above or
incurring losses which may fuel concerns and exacerbate the liquidity problem.
If ALCO determines that 1) the cause(s) of the implementation of the Liquidity
Risk Management Plan is systemic and unlikely to be corrected in the normal
course of business, and 2) the execution of the above steps is deemed inadequate
for prudently weathering the liquidity crisis, then ALCO shall at a· minimum, take
the following steps (not necessarily in this order):
Review all deposit gathering programs and accelerate those that it can without
unduly impacting A. the net income of the Bank, B. the interest rate risk profile of
the Bank.
• Access available brokered CD facilities to pay down pledged borrowings in
order to un-encumber marketable securities (or temporarily park funds in
money market instruments). In this regard, the Bank would target terms in
excess of 6 months.
• Extend the maturities of short-term borrowings, especially those highly
dependent upon the Bank's credit risk, and thus more susceptible to non-
replacement.
• Access available institutional depositing gathering facilities for possible·
increases to free up unused capacity at FHLB.
• Consider, review and prepare to implement plans to· securitize and/or sell
portions of the loan portfolio.
UNITED WESTERN BANK
Liquidity Policy
May 7,2010
34
656
• Reduce new asset growth and restrict lending to existing customers only.
If the above steps do not sufficiently· mitigate the liquidity risk management
concerns, ALCO shall (not necessarily in this order):
• Sell loans as outlined above.
• Intensify deposit-gathering programs.
• Transfer unencumbered securities and loans to the Federal Reserve and
borrow at the discount window.
• Cease all lending, except for loans approved byALCO.
The Plan Summary on the following page will be updated on a periodic basis in
order for the Bank to monitor its available liquidity under crisis conditions.
XIH. POLICY EXCEPTIONS
This Policy represents the official Policy Statement of the Board of Directors.
Any specific transactions or situations not covered by this Policy in the
foreseeable future, the IC, ALCO and CFO/CAO, COO must use sound judgment
in the decision-making process. If these guidelines do not address a material
situation occurring in the foreseeable future, an exception to this Policy may need
to be made. In those instances, the CFO/CAO, COO will communicate this to the
ALCO, IC or full Board of Directors before any action is taken if that is possible,
or report to those bodies in a timely fashion thereafter if prior communication is
not possible. All exceptions to this Policy will be documented in the minutes.
The above not withstanding, any regulatory directives received by the Bank will
supersede any policy limits, guidelines or processes enumerated above for as long
as they are in force.
UNITED WESTERN BANK
Uquldlty Policy
May 7, 2010
35
657
CONTINGENCY PLAN SUMMARY
PLAN SUMMARY AS OF: _May 7,2010, ____ _
United Western Bank
Hypothetical·Contingency Plan Scenario 5
Timing 90 days to execute
Step
TIER 1
1
2
3
4
5
6
7
Tier 2
Description
Available cash
Money Market Assets
Unencumbered Govts
Anticipated cash flows from assets
anticipated fee income
FHLB Capcaity
Other un pledged securities
Total Tier 1
1 CDs -internet bulletin board
2 Large processing and or trust deposits
3 Unpledged securities (separate from 7 above)
4 Brokered CDs & CDARS
5 Deposit promotion
Total TIer 2
Secondary .
1 Unused FED fund lines capacity
2 Federal Reserve Discount Window
3 Loan securitlzatlons
4 Loan sales or participations
5 Other asset sales
UNITED WESTERN BANK
. Uquldlty Policy
May7,2010
658
Dollars
(in thousand
333,822
-
-
45000
-
191,055
-
569877
100000
100000
-
-
5,000
205,000
20,100
25000
Description
s),.--__ .....
f------'--I From dally liquidity
Est Cost
f-----l $20 M securities, $25 million
36
ALCO Committee Composition* (as of May 7, 2010) :
Chainnan - Holding Company
President! CEO Bank
Chief Investment Officer
Chief Accounting Officer (ALCO Chair)
Chief Credit Officer
Chief Operations Officer
Assistant Treasurer
Regional President - Appointed by President - CEO Bank:
* Membership subject to Board approval.
Balance Sheet Strategy Committee Composition:
Chair - Chief Accounting Officer
Chief Investment Officer
Chief Credit Officer or designee
Chief Operations Officer or designee
Controller
Assistant·Treasurer
AppendixB
Others as may be appointed by CFO/CAO or COO depending on
circumstances
UNITED WESTERN BANK
Liquidity Policy
May 7, 2010
37
659
.. ... .
.. . ........ -. ~ .
TabC
Exhibit 22
660
Paul Hastings
Allanla
Beijing
Brussels
Chicago
Frankfurt
Hong Kong
london
los Angeles
Milan·
New York
Orange County
Palo Alto
Paris
San Diego
San Francisco
Shanghai
Tokyo
Washington. DC
(202) 551-1829
lawrencekaplan@paulhastings.com
July 2,2010
VIAE-MAIL
Lori]. Quigley, Acting Regional Director
Nicholas J. Dyer, Assistant Director
Office of Thrift Supervision, Western Region
2001 Junipero Serra Boulevard
Suite 650
Daly City, CA 94014-3897
Re: United Western Bank
Dear Ms. Quigley and Mr. Dyer:
Paul, Hastings. Janofsky & Walker liP
875 15th Street, N. W.
Washington, DC 20005
telephone 202-551-1700' faCSimile 202-551-1705· www.paulhasUngs.com
Confidential Treatment Requested
1
On behalf of United Western Bank ("UWB" or the "Bank''), this letter is to confl11n
discussions between the Bank and staff of the Office of Thrift Supervision ("OTS',) and
FDIC during a Washington, D.C. meeting on June 30, 2010 regarding the letter dated
May 24,2010 issued to UWB by the FDIC's Dallas Regional Office (<<FDIC Letter,').2
The Bank believes the meeting was productive and useful in allowing the Bank to better
understand the FDIC's position and to share with the OTS and the FDIC its proposed
approach to respond to the preliminary broker deposits determinations in the FDIC
Letter. .
As a threshold matter. as discussed at the meeting, the Bank does not believe that the
newly-deemed "brokered deposits" are deposits obtained from deposit brokers, as defined
by the Federal Deposit Insurance Act and FDIC regulations, but instead are core, low-tate
deposits that did not fuel the rapid growth of the Bank. In this regard, it was discussed
that the Bank intends to pursue its appeal rights within the FDIC appeals process and we
1 Thjs letter contains confidential information concerning United Western Bank (the ''Bank'') and is not in
the public domain. This infonnation is being provided to the Office of Thrift Supervision and Federal
Deposit Insurance Corporation, the agencies responsible for the regulation and supervision of the Bank as
materials related to the examination and operations of the Bank. Any public disclosure of confidential
information could result ill substantial harm to the Bank. Accordingly, confidential treatment of this letter is
requested, pursuant to 5 U.S.c. §§ 552(b)(4) and (8) is requested.
2 Although the FDIC Letter is dated May 24, 2010, it was not deliveted to the Bank until June 2, 2010.
661
Paul Hastings
LoriJ. Quigley, Acting Regional Director
Nicholas J. Dyer, Assistant Director
July 2, 2010
Page 2
discussed and agreed upon the appropriate steps to be taken to pursue such an appeal.
The Bank is preparing to file a request for review of the preliminary FDIC determination
with the FDIC Director of the Division of Supervision and Consumer Protection, the first
step in the appeals process. It is possible that the determination will be reversed by the
Director but, if it is not, the Bank may appeal to the FDIC Supervision Appeals Review
. Committee However, as also discussed at the meet:iJ?g, the Bank has
committed that it will at the same time pursue a multi-step strategy to address the FDIC's
preliminary determination and to achieve compliance with the June 25, 2010 Cease and
Desist Order (the "OTS (i) seeking a formal waiver from the FDIC to
permit the acceptance, renewal and rolling over of the newly-deemed brokered deposits; .
(it) undertaking a significant capital raise by the Bank's parent, United Westem Bancorp,
Inc. so as to exceed the standards required by the Order; (iii) restructuring its
operations pursuant to the Bank acquisition of Legent Clearing llC and
(iv) evaluating strategies to gradually eliminate the newly-deemed brokered deposits that
permit the Bank to continue to operate as a viable entity. .
During the meeting, the Bank sought assurance that the approach outlined above would
be acceptable to both the OTS and the FDIC and that the Bank and its officers and
directors will not be considered in violation of the OTS Order or the brokered deposit
statute or regulations during the interim period while it is appealing the preliminary
determination. It is our understanding that the FDIC and OTS agree that the Bank may
pursue the approach outlined above consistent with the expectations of both agencies.
We ask that you prompdy contact the undersigned if our understanding is in any way
inconsistent with the recollections of OTS and FDIC staff that attended the meeting or
with the views of others at the OTS and FDICwith supervisory responsibilities for this
matter.
As you are aware, on June 10, 2010, the Bank filed with the FDIC a request for a waiver
from the brokered deposit restrictions pursuant to 12 U.S.C. § 1831£ and 12 C.F.R.
§ 337.6(c). At the meeting senior FDIC staff described the FDIC Letter as a preliminary
determination. Additionally, FDIC staff expressed a willingness to consider favorably the
Bank's pending waiver request for the Bank to continue acceptance, renewal and rolling
over.of deposits newly-deemed to be brokered. FDIC staff did, however, express
concerns aboutthe Bank's fee structure and the FDIC's inability to waive fee restrictions
if it is determined that such fee restrictions ate implicated by the newly-deemedbrokered
deposits. To address this concem, the Bank will be providing the FDIC with additional
documentation that substantiate its fee and rate structures and representative industry
costs to demonstrate that the Bank's fees are not in excess of FDIC national rate
standards.
662
Paul Hastings
Lori J. Quigley, Acting Regional Director
Nicholas J. Dyer, Assistant Director
July 2, 2010
Page 3
As summarized at the meeting, UWBI currently is undertaking a significant capital raise.
To date, multiple investors, including banks have expressed interest and have been actively
conducting due diligence to evaluate strategic transactions, each with a goal of returning
the Bank to awell capitalized status. Goldman Sachs & Co, UWBI's investment banker,
has received significant expressions of interest from multiple investors, demonstrating the
high likelihood of a private-sector solution to the Bank's current challenges. As discussed
in the Bank's June 10 waiver request to the FDIC, upon consummating such a capital
transaction, the Bank and UWBI will seek modification of the OTS Order to remove the
"meet and maintain" provision, which at that time would be the only impediment to being
deemed well capitalized, triggering restrictions on the acceptance of brokered deposits.
As also discussed at the meeting, the Bank also will soon be·filing an operating subsidiary
application with the OTS and FDIC concerning the acquisition of Legent and
establishment of Legent as an operating subsidiary of the Bank. Legent is one of the
deposit relationships that was raised in the FDIC Letter. The proposed acquisition will
cause deposits attributed to Legent to be attributed to the Bank itself, as OTS's
subordinate organizations regulations$ and applicable guidance provide that an operating
subsidiary and its parent federal savings association are generally consolidated and treated
as a unit for statutory and regulatory purposes.
4
Accordingly, we will be submitting
information to support the Bank's position that to the extent deposits at Legent currently
are deemed by the agencies to be btokered deposits at the Bank, after the acquisition, they
will be core deposits.
Finally, the Bank is also exploring options to gradually elitninate the newly-deemed
brokered deposits. To accomplish such an elimination without jeopardizing the Bank's
operations and without disrupting depositors' businesses and consumers' access to the
important services provided to them will require careful planning and time.
In. conclusion, we appreciate that the staff of both agencies participated in the very
productive discussion of the issues raised in the FDIC Letter, and the Bank's multi-
pronged plan to address such. We also appreciate the time and efforts extended by both
the OTS and FDIC to work with the Bank and UWBI to overcome their current
challenges. We have sought to accurately describe in this letter the Bank's understanding
of the current expectations of the OTS and FDIC to ensure that the Bank moves forward
in a manner consistent with the expectations of its regulators as to the newly-deemed
brokered deposits, as well as compliance with the OTS Order.
3. 12 C.F,R., Part 559.
412 C.F.R. § 559.3(h)(1). See OTS Op. Chief Counsel P-2006-6, 3-4 O-uly 20, 2006}.
663
Paul Hastings
Lori J. Quigley, Acting Regional Director
Nicholas J. Dyer, Assistant Director
July 2,2010
Page 4
Please advise us if the Bank's understandings are in any way inaccurate.
Sincerely,
c?tictf
cc; Boards of Directors of UWB and UWBI
Theodore AbariotesJ Esq.
Serena L. Owens
Associate Director
Division of Supervision and Consumer Protection, FDIC
Andrew L. Sandler, Esq.
Jeremiah S. Buckley, Esq.
Liana Pietro, Esq.
Buckley Sandler, LLP
Kevin L. Petrasic, Esq.
Paul, Hastings, Janofsky & Walker LLP
664
TabC
Exhibit 23
665
Office of Thrift Supervision
Department of the Treasury
. . .. ' .
Regional Director. Wes,ern Region
22S East John Freewa)'. Suite 500. IrVing. TIC 75062-2326 • Telephone:
r.o. Box 619027. DallaslFort Worth. TX75261-9027" Fax: (972) 277-9501
July 15, 2010
VIA SECURE E·MAIL
AND UPS NEXTDAY AIR
. OTS Docket No. 06679
Board of Directors
Attn: Mr. James R.Peoples
Chairman of the Board, CEO and, President
United Western Bank
.700 17th Street, Suite 2100
Denver, CO 80202
Dear MemberS of the Board:
In light of the current liquidity position of UnitedWestetn Bank(Association), theAssociation's
current "5" Liquidity rating, and concerns raised by the Federal Deposit Insurance Corporation
, (FDIC) regarding the treatment of certain deposits under the brokered deposit restrictions set
forth in 12U.S.C. §1831fand 12 C.F.R. § 337.6, OTS imposes the following restrictions or
requirements upon the Association.
Effective immediately, upon receipt orany oral or written communication from any of the
institutional depositors listed below. indicating that such depositor: (a) intends to terminate its
deposit relationship with the Association; (b) intends to terminate, amend, or revise any contract
relating to deposits placed with the' Association; or (c) otherwise intends to withdraw in
aggregate more than five percent (5%) of the total dollar amount of deposits placed by such
depositor at the Association, the Association shall immediately notify the Regional Director of
such communication and shall immediately provide the Regional Director with a copy of any
written communication.
Such institutional depositors shall include: Equity Trust Company (ETC) and its related
· Companies (Equity Administrative Services, Inc. and Sterling Administrative Services, LLC);
Matrix Settlement and Clearance Services. LLC; Lincoln Trust Company; Legent Clearing LLC;
UW Trust Company; Deutsche Bank Trust Company Americas; Trust Management, Inc.;
Constellation Trust Company; any other one depositor or deposit broker responsible for
placement of deposits with the Association in an aggregate amount of more than $5 million; and
any successor company to any of the foregoing.
666
Board of Directors
United Western Bank
Page 2
July 15, 2010
The restrictions and requirements set forth above are effective immediately upon receipt of this
directive and shall remain in effect until terminated, modified. or suspended by the Regional
Director. The OTS reserves all of its rights. Nothing in this directive shall be construed as: (1)
restricting the OTS in any way from taking such actions (enforcement or otherwise) as it
detennines are appropriate and authorized; or (2) allowing the Association tovioJate any law,
rule. regulation. or policy statement to which it is subject.
The Order to Cease and Desist.and its accompanying Stipulation and ConsenNo the issuance by
the OTS (OTS Order No. WN-l()"()19) against the AssociationonJune 25. 2010 remain in effect.
The restrictions and requirements set forth in this Directive are in addition to the restrictions and
requirements set forth in the Order to Cease and Desist .
. If you have questions. please contact Assistant Director Nicholas J. Dyer at (650) 746-7025 or
Field Manager Kevin Swanson at (650) 746.,.7066.
tJ .•. '. lyy ••

Philip A. Gerbick
Regional Director
cc: Ms. Kristie K.Elmquist. Acting Regional Director. FDIC-Dallas
Mr. Joseph A. Meade,Assistant Regional Director. FDIC.,.DaUas
Mr. ThomasL.Trujillo, Case Manager, FDIC-Dallas .
Mr. Lawrence Kaplan, Paul, Hastings. Janofsky & Walker LLP
667
Board of Directors
United Western Bank
Page 3
July 15, 2010
epdf: E. Chow
C. Coon
I. Corral-Chavez
A. Dayao
N.Dyer
S. Harris
J. Hendriksen
W. Santos
Y. Sosa
K. Swanson
M. Sweeney
K. Walter
668
TabC
Exhibit 24
669
Office of Thrift Supervision
Department of the Treasury RegionalDirector. Western Region
Pacific Plaza. 2001 Junipero Serra Boulevard. Suite 650, Daly City, CA 94014-3897 Daly City Area Office
P.O. Box 7165, San Francisco, CA 9412(}"7165· Telephone; (650) 746-7000· Fax: (650) 746-7001
July 15; 2010
VIA SECURE E-MAIL
AND UPS NEXT DAYAIR
OTS Docket No. 06679
Mr. James R. Peoples
Chairman, CEO. and President
United Western Bank
700 17th Street. Suite 2100
Denver, CO 80202
Re: contingency Plan and Capital Deadline Extension Requests
Dear Mr. Peoples:
This is in response to two of your previous letters, as follows:
Contingency Plan
First, in your letter of July 2, 2010 to Acting Regional Director Lori Quigley and Assistant
Director Nicholas Dyer on behalf of the Board of Directors of United Western Bank (UWB or
Association). a Contingency Plan was submitted in response to Paragraph 8 of OTS Order No.
(Order);
The letter notes that the Order requires the submission of a Contingency Plan that would achieve
a:
(a) merger with, or acquisition by. another federally insured depository institution or
. holding company thereof; or (b ) voluntary liquidation by filing an appropriate application
with the OTS in conformity with federal laws and regulations.
670
Mr. James R. Peoples
Chairman, CEO, and President
United Western Bank
Page 2
July 15,2010
The letter requests that OTS consider the Capital Plan also submitted with the letter to be the
Association's Contingency Plan. The Capital Plan, however, contains no plan to achieve either
of the scenarios required by the Contingency Plan provision.ofthe Order.
Accordingly, the Association is hereby directed to prepare and submit within seven days of this
letter a Contingency Plan that specifically details the actions to be taken to achieve one of the
results described in the Contingency Plan provision of the Order.
Please be advised that OTS continues to review the Bank Capital Plan, Liquidity Contingency
Plan and Company Consolidated Capital Plan also submitted with the July 2nd letter and will
communicate comments relatedto those respective plans as appropriate.
Capital Deadline Extension Requests
In addition, we are in receipt of your letter of July 7,2010, in which the Association and its
holding company United Western Bancorp, Inc. renewed their previous requests to extend the
time to comply with the June 30,2010 capital requirement contained in the Order. We have
considered your requests and again deny the requests.
If you have any questions, please contact Assistant Director Nicholas Dyer at (650) 746-7025.

Gerbick
Regional Director
671
Mr. James R. Peoples
Chairman, CEO, and President
United Western Bank
Page 3
July 15,2010
epdf: E. Chow
C. Coon
I. Corral-Chavez
A. Dayao
N. Dyer
S. Harris
J. Hendriksen
W. Santos
Y. So sa
K. Swanson
M. Sweeney
K. Walter
672
TabC
Exhibit 25
673
J]
UNJ'I1!D
MSTE
·.·····•·· ............. ·.·····RN·· .'.' ...... .
<. • •
". . ." ." . . .
BANCORP
July30l 2010
.Y/A,EJ,ECTR()JV1CMi(l1lAJIIDtJ'VERNiC1il't DEt1JlEill
KristieK. Elmquist
ActingR.egioililtDir¢clQt .
¥eder.I DepositlJlSuratJCe Corporation

Tew15201
lfE: ... .. t to
.ndU
DearActingRegiOnaI DiieetotElii:lqUist:
'l1U$letter the appli¢JtiQl) 201 Osul>imtt«l Feder8t
DepOSit ,
nenver,Colol'ado(the to Dep6Sit lliSUtance
Secnon337.6(c) of the tuleU.nd ,. ationsoftheFPI<; _eking petmis$iortto¢Qtltinue
rolloverbrokereddep()$its(the ". .' . . Tl1jsletter addresses by the Fl)le
Waiver Request PU1l!wuu#l 1\11)'8. which the. 13an.k on JuJy U.
, ,.
lIlti'odUetion

aan.k onJune2,2010
iThi$leuet8ndtbe encloSed busineSSinformatiOiiofUnlfed WesternBankatid its holding
cOmpany that is iiOtm 1hepublic doniaiil.Thi&lett.eris beingptOvidedtothefedertll banktegulatotsofUnited western
Blilikitl 13ank and therelot'e shOuld bogr8n.teci confidential
confidential andsupervisionexemptiollStotheFreeoom .oflnfonnat1oo ACt.
5 fQld.
enclosures. us ifanyone"Submiba FreedQnl oftbi$
eiWlosures. . .'
•. the
JUly any in,
•. aletterdattdJuly27, 2010, ooJuJy 2010. a
·cQPYQf.b is setroff,hatgxhibit .
'* A copy. o'ftlieJune 10,2010 WaiVer set torthatJ3x\Ubit
4A1thQugh dleFOIC W8SJl9t Ul1iil
Iit.fact the FDIC Letter ws notevendeliveted to until Frldl,ly,.May
the B_ oftl1e .
MenioiialDaY holiday. '. .' . . ... ' . . ..

80202
.. .

Kristie K. Elmquist
Acting Regional Director
Federal Deposit Insurance Corporation
July 30,2010
Page 2 of14
institutional deposits should be deemed to be brokered deposits ("Newly-Deemed Brokered Deposits,,).l In a .
separate letter dated and received after the FDIC Letter on June 2, 2010, the Bank's primary federal regulator, the
Office of Thrift Supervision (the "OTS"), directed the Bank to file the Waiver Request with the FDIC. OTS
subse<I.zuently downgraded the Bank's Liquidity Component examination rating to a "5" as a result of the FDIC
Letter.
As noted in the Waiver Request as well as at a subsequent meeting held with representatives of the FDIC and OTS
at the FDIC's headquarters in Washington, D.C. on June 30, 2010, the Bank strongly disagrees with the
conclusions set forth in the FDIC Letter and reserved all rights with respect to seeking a review of the
determinations in the FDIC Letter. Pending such review, the Bank is taking appropriate steps to satisfy all required
regulatory directives. At the June 30th meeting, it was discussed how the Bank would seek a formal review ofthe
FDIC Letter through the FDIC's Division of Supervision and Consumer Protection and ultimately, if needed, by the
FDIC's Supervisory Appeal Review Committee ("SARC"). Such initial appeal would normally be due on August
2,2010, sixty days after the Bank's receipt of the FDIC Letter. However, on July 19,2010, at the request of the
FDIC's Assistant Regional Director, the Bank requested an extension of such deadline until October 31,2010, to
permit the FDIC to review this supplemental filing to the pending Waiver Request.
3
A formal extension until
October 2,2010 was thereafter granted in a letter dated July 27,2010.
4
In sum, for the following reasons, we believe that the conclusions set forth in the FDIC Letter have no legal basis
and that the deposit relationships discussed in the FDIC Letter are not brokered deposits. In this regard, the FDIC
Letter asserts that the various counterparties addressed in the letter meet the definition of a deposit broker because
each counterparty facilitates the placement of deposits ofthird parties with the Bank (and other insured
institutions). We strongly disagree.
As a threshold matter for present purposes, the definition of "deposit broker" in section 29 of the FDIA includes
"any person engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties
with insured depository institutions." See 12 C.F.R. § 337.6(a)(5)(i). Excluded from the defmition of "deposit
broker" are agents or nominees whose "primary purpose" is not the placement of funds with depository institutions.
12 U.S.C. § 183lf(g)(2)(I) and 12 C.F.R. § 337.6(aX5)(ii){I). Under the plain meaning of the FDIA and FDIC
regulations promulgated thereunder, a person or entity must be engaged in the "business" of placing deposits or
facilitating the placement of deposits of third parties with insured institutions in order to be considered to be a
"deposit broker" for purposes of the FD IA. Thus, if the primary purpose or intent of a person or entity is not to
place or facilitate the placement of deposits of third parties with an insured institution, such person or entity is not a
"deposit broker."
Similarly, both the FDIA and FDIC regulations explicitly exclude from the definition of a "deposit broker" "a
person acting as a plan administrator ... in connection with a pension plan or other employee benefit plan provided
that person is performing managerial functions with respect to the plan." 12 U.s.C. § 183lf{g)(2)(E) and 12 C.F.R.
§ 337.6{a)(5)(ii)(E). Accordingly, a person who acts as a plan administrator in connection with a pension plan or
other employee benefit plan also is not a deposit broker.
These explicit statutory and regulatory exceptions from the term "deposit broker" clearly are based upon the
underlying rationale for Section 29 of the FDIA, as set forth in its legislative history. Specifically, Section 29 was
enacted to preclude troubled institutions from using high rate deposits, or "hot money," to fund rapid growth and/or
1 The Bank was also directed by its primary federal regulator to file a Waiver Request pursuant to a directive dated June 2,
2010, issued upon notice that the Bank received the FDIC Letter.
2 See ors Letter dated June 22, 2010, provided at Exhibit C.
3 A copy of the Bank's request for an extension to file its appeal of the determinations set forth in the FDIC Letter is set
forth at Exhibit D.
4 A copy of the FDIC's response to the request for an extension to file an appeal of the determinations set forth in the FDIC
Letter is set forth at Exhibit Eo
675
Krlstie K.
..
Fe4eral
JUlylO.201Q
page3o.f14.
support strugglmg'msiitutlonsthat 0#etlputSiledrlsqlnvestmei1tanG l«ld1ng strategies.
t


FDIC frQm$l ..
iftheitlslitutionwere1(l and
payout •. the· eltWated
• irtterestrates thatthea«OOuhtholdersmay haverecelved fumy event-the
legiStative eoneemaddreSsedby Section29w8stQptObibitbiSh tatebtOketed 4epositsior that .
trequent1yservedaS anunstabledep6Sit '. . . ' .
. The .. ....
.
core or· loog-tenndepo$i1S •. six of seven o.fthe relanonsbips discussedlJltMFDIC Utter are. governed
ofa high or elevated; .
or llomineeS .'
PlUPose is not tbeplacing (fepositsorfacilitatingtheplacement of deposits with the Bank (orauyother bank); and
to the extent motiVationmttyb'e detected itt myc<\Uiltetpm1.Y.the' primary pui'pOse of the oountetparty
eleariyiS nottoplqfund$ vrithtbellank (adis¢ussedbelQw). .. ..' . '.
QitheF1:)lA
f;\ll Within elfOll,1$Ot)$4
any
pi'¢Stunab1y beCilUsethephIiQ;meal:iil1toftheseexclusions .. .
ThOugh theFPIChaStheStatUfory obligatiOn: tbinterpret

"dep9!litbroker" topreclude.eny pOrsoli or entity trom:relying'upqn
itt Interpreqrti()lt. .CQl,Ili:s have1qngheld
3

Thus,.FDIC cieternilitationstsucl1B,thoseset forthll,'l the cann0tIgrioreor Vitiate stIitUtOryexelusionS
1<> satiSfY a current policy concern.
anumber j)finstitutions witlladvisotY
opiniOtl$' .. inFt>lG
A4vjspO'opiniQn for the
with respect to. each oftheCQunterparties. H9W8Ver; ofadVi$ory


(long. ... '
,i$ con(leltted.by the ready above-imatket.rates.
.
iSeealSoRematkS MUrkOWski in With his tbe.brOkered deposit provi$ionin FIRREA at
135 COng. RecOtdS4238(April19.1989) (Bromeddeposita by
a tOio QUtimd·SOlicitffum iildMdUalCerlifiCateS ofdeposit.investOtsandthe1i go to .
1 oi'f$et.ther:unofftbey ha-ve had in tlieif core depoSits. 8nd these
atabigtJ,er-:than-trWbt .... Ttieyfujve wh!l!ethe
for tbe m9J10Y atahigJ1errate theh,eal,tby.tompefitor; and'
.3 SOl U.S. lQ4$112 (1991).
• thattml lettet$that ate notbindiDg on tlieFDIC. it:fBoardofDirectors.oranyboard
FDIC Law. Regulatiofis. :Related ActS';"A.dVisoiy ..
'oPinions,' .'
676
Kristie K. Elmquist
Acting Regional Director
Federal Deposit Insurance Corporation
July 30, 2010
Page40f14
June 30, 2010, Advisory Opinioil 05 .. 02 does not set forth a test that must be satisfied in all cases in order to qualify
for the primary purpose exclusion. Instead, the analysis of whether the counterparties come within the primary
purpose exclusion must be based on the statutory language and the specific facts and circumstances of these
particular deposit relationships. A proper analysis leads to the conclusion that none of the Bank's counterparties
are deposit brokers.
All of the deposit relationships at issue in the current are subject to long-term and longstanding agreements
negotiated at arms-length by the Bank and the counterparties. These agreements are structured in a manner that
allows the Bank to pay a reasonable fee for recordkeeping and similar administrative services provided by the
counterparty, as discussed below. Bank payments to the counterparties are not payments for the placement of
deposits, also as discussed in detail below. Bolstering this view is the efficient cost structure to cover the costs of
the counterparties and the low interest rate structure for these deposits, making one of Congress' primary
motivations for imposing a limit on certain banks accepting brokereddeposits inapplicable here. Further, as
previously noted, in several of the agreements under scrutiny, the counterparty is.acting in a trustee or custodial
capacity of the subject plan or as a plan administrator in connection with a pension or employee benefit plan. As
explicitly provided for in the FDIA and the FDIC's own regulations, persons or entities acting in these capacities
are not deposit brokers.
For all of these reasons, we understand the FDIC is further reviewing the conclusions set forth in the FDIC Letter
as well as the underlying assumptions relating to the determinations set forth therein to determine whether the
various counterparties subject to the agreements with the Bank are deposit brokers. Particularly compelling in this
regard is that the various agreements have been in place for many years, during which time most were subject to
review and examination by the Bank's regulators, including the FDIC. Fundamentally, none ofthe counterparties
are primarily engaged in the business of placing deposits or facilitating the placement of deposits at any insured
institution. As such, the subject of this inquiry should end there. Nonetheless, while the FDIC re-examines the
issue, we respectfully request that a waiver be granted rather than suddenly and abruptly require
material changes to the long-standing operations of the Bank based upon a preliminary determination.
The Bank's Responses to the FDIC's Questions from July 8. 2010 Letter
Notwithstanding the Bank's well-reasoned beliefs that the various institutional deposit relationships addressed in
the FDIC Letter do not result in the Bank's acceptance of broke red deposits, the Bank filed the Waiver Request. In
response to the Waiver Request, by letter dated July 8, 2010, the FDIC has requested that the Bank respond to
various questions and information requests. The Bank's responses are set forth below:
1. Provide additional background information as to why· the potential acquisition of Legent Clearing LLC
as an operating subsidiary should not be considered to be a brokered deposit relationship_ .
Preliminarily, Legent Clearing LLC ("Legent Clearing") is not a deposit broker. The provision of depository
services is an incidental accommodation to its customers in connection with its primary business of securities
settlement and clearing services for broker dealers and their customers. Neither its primary purpose nor primary
intent is to provide deposit insurance or deposit placement services for its customers. .
As announced on June 15,2010, the Bank entered into a purchase agreement to acquire Legent Clearing and
hold Legi.mt Clearing as an operating subsidiary, which will engage in securities clearing and related activities. The
purchase ofLegent Clearing is subject to the prior approval of the FDIC and OTS under Section 18(m) of the FDIA
and Part 559 of the rules and regulations of the OTS. This transaction complies with Section 18(m) of the FDIA and
Part 559 of the rules and regulations of the OTS because the activities conducted by Legent Clearing are authorized
activities for federal savings associations, as supported by the opinion of the OTS Chief Counsel, dated November
28, 2006.
1
Therefore, we believe that it is well established and non-controversial that an operating subsidiary may
lOTS Op. Chief Counsel P-2006-7 (Nov. 28, 2006), attached at Exhibit F.
677
Kristie K. Elmquist
Acting Regional Director
Federal Deposit Insurance Corporation
July 30, 2010
PageS of14
engage in securities clearing and related activities. Therefore, for the purposes of this discussion, we assume that the
acquisition ofLegent Clearing as an operating subsidiary of the Bank will be approved by the OTS and the FDIC.
Under the OTS' s subordinate organizations regulations
l
and applicable guidance, "operating subsidiaries
have traditionally been viewed as mere operating departments of or divisions of their parent savings associations.,,2
Accordingly, an operating subsidiary and its parent federal savings association are generally consolidated and treated
as a single unit for statutory and regulatory purposes? In particular, the assets of a federal savings association and an
operating subsidiary are aggregated when calculating investment limitations
4
and are consolidated for all capital
purposes.
s
Furthermore, unless otherwise specifically p r ~ v i d e d by statute, regulation, or OTS policy, allfederal
statutes and regulations apply to operating subsidiaries in the same manner as they apply to the parent savings
association, and operating subsidiaries are subject to examination and supervision by the OTS to the same extent as
the parent savings association.
6
.
As OTS guidance explains, "[t}he rationale for authorizing federal thrifts to establish operating subsidiaries
is to provide thrifts with flexibility in structuring their operations," which also "enables federal thrifts to have parity
with national banks, which have been authorized to invest in operating subsidiaries for quite some time.,,7 In the
analogous context of national banks, the United states Supreme Court has treated operating subsidiaries as equivalent
to their parent banks with respect to powers exercised under federal law (except where federal law provides
otherwise).8 Specifically, the Court held in Watters v. Wachovia Bank, N.A. that national banks may engage in
expressly permitted activities through an operating subsidiary, subject to the same terms and conditions that govern
the national bank itselr,9 . .
As an operating subsidiary of the Bank, Legent Clearing will become subject to the same terms and
conditions as federal savings associations, including the full supervisory authority of the ors.IO This change will
expose Legent Clearing to significantly more federal oversight than it currently is subject to. Moreover, as a
subsidiary of the Bank, Legent Clearing has no independent ability to collect deposits. As an incidental aspect of its
business of providing customers with securities clearing and settlement services, Legent Clearing will place deposits
at the Bank as a division of the Bank.
ll
.
1 12 C.F.R. Part 559.
2 See ors Op. Chief Counsel (Oct 17, 1994), citing to a former ors regulation authorizing the establishment of operating
subsidiaries, 12 C.F.R. § 574.74(c).
3 12 C.F.R. § 559.3(h)(1). See ors Op. Chief Counsel P-2006-6, 3-4 (July 20,2006).
4 12 C.F.R. § 559.3(i)(1).
5 12 C.F.R. § 559.30)(1).
6 12 C.F.R. § 559.3(h)(1). See also Section 730, ors Examination Handbook, 9 (Jan. 1994) (emphasis added).
7 Section 730, ors Examination Handbook, 9-10 (Jan. 1994).
8 Watters v. Wachovia Bank, N.A., 550 U,s. 1, 18 (2007). We note that Section 1044 of the recently enacted Dodd-Frank
. Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") repeals the availability offederal preemption for
operating subsidiaries of federal savings banks.
9Id at 1, 7.
10 In accordance withthe Dodd-Frank Act, the OCC will assume the supervisory ftmctions of the ors as early as July 2011.
11 Based on communications with other Banks, we are aware that other industry participants are structured in the same way,
without regulatory criticism that they are engaged in accepting brokered deposits. For example Plains Capital Corporation,
678
J(rlstieKEImqtii$t .
.. ' .'
CotpOJ:'ltiqn·


"depOsit
ic[#)ny the
:with insuted .@pOsitotY·institutions; or the.bUSiness .o.fplacing·depositJ
puq,ostfofsellmg intereSts in those deposits to third t>arties/'See and 12.C.P,R. *.
exc1Udeftoni the tenn tIsPostl b1!o1cer.llmongothertbirigs

other in.Qed. .
depoSitorfinstitUtiotiSin 12C.PiR:. "§33Uj(a)(ji)(A):'and (iii).
A
·.a; ... .;iv asano ......... Iin\T Pi1;. ..
',' ___ ·;l • .,.-r.'''' .' ... '..' W1I:'c
&sa division o(theBank. Moreover, wfthFDIC regq1atioD$ the deposit broker for·
t'Uiidsphwed ratespaidOhStich
national Jjlte. cap setbytheFPIC: .. as tile ofinierest;inex-. oithiS

Interest rates outtemly i'lidby tite Bank to
of ifltere$t offetedby forthOlltb.e$UJllirlatyOfthevarlousd '. .it
cQrtcntly
onjum,bornoney
()f 0.43rO; resultitlg ina national tate cap of 1.18% as of lu1Y21,2010.
1
Thus, even itfec;sfot serviccs.tendered .
total to LeSerttClearinJ.iS riOtsignificantly
higber.tbantlwpteVtlUiogllational
Moreover, we; notethatpaymentSrnadeby the Bank of two
. t'e¢Onikeel>in$ancfModrtiStrative'serviCeSprOVitkdon behalf0ftheBarik ..
Clearing retains payments Qn
·ofthe8ank •• •• .
. am.lengthnegotiation betWeen LegentCleartngand.tIleBank to
proVideS as4iSCUsSed in

seetion.29.oftheFOIAatulthe·FDICsregulationsitnplttnenting:sUChseetiOiL .. Aeommonlyused definlUon.of·· .
usea is "OOfiipehsatiOil to
'(tifi'lwltjet" tile fiJn(Is;;:,3 properly

a bank holding rompan)' regt.1latedby tb.eFedri Reserve. tb:roughan aequisitionvehide,PWns CapitalFk$t .
mc •• FitsfSOUthweStHolam"LLC;whicJ).beCame.a
Tbrougb thi$aequisition;PlainsNationtiBankaCq,itited FirSt Southwest tbeeUeilt
otFir$tS0uthwtS,t btOkerMdepoSfuiby PlamsNatiOnalBank,liifact. they are
. '':';'..1, '.' . PlainsNatiOililBank. . .' ".
8$00111 ..... ...,... U7 .' '. ....... ... '.
1 PUl'Suantto arecertuulemakiDg; the.FDIChasadopted



679
("'IRS")Form. l099·MlSC tOi"fees'paid iOrservices.. An;ms Form l099,.MISc,isteqWred tax yesta
•. .. 8.$SUmil1g:the,{e# fQi
be with
for,service$.
'ACCQtdIDgly. an
·c· ·t .• , ·ll·beA"""""'··ts· ... ...;a· "...:U-.:butedto· .. 1.i-Banka. .... arenot ·d·hi..,;t.. .. .,·A._- . ail"" ;...:....., f·· .' " ,":.1
... ........... ·,WJif .....•... ........... ... '
byQtherln$uted tltcJ r.te SmYey.
agreed to td:maintain.atleast $150 milJionil1 depoStfS.atth"B8rik at all tiines,these depositswiIl
Q(lntmUe'to proVide aStable, Idw-coSt 9fliqUiditJ to tMBimk. '.
.. C ...... n4brfO,.tlmlastowhf 1:rWTnstcc. ... ,. ... eo.,..ysho.14.
Ilotbe.:coltdckteda brokereddepositreiatioDShlp; .' .

•. , Pending CU$totner
instt'UmiOh$tf'lmdS'!Ue htllfina depoSitoocountat the Bank aeti.viUes, lJWtCcannOlbe
.. As··a resUlt,

ihereunder.;
fundS With depository institutibnS"u JJrQvidedf()t.at of the :Fl:>fJ\. hySeetUm

As YmQ .sbtce.
.enacted
guidiilice beYond it mererepetitionof'theleplative Over set forth
be
ld.;JQve. Accor4JnglY,unlike ij}estattUol"y gqidanee
Provl<bi . . .
Non¢tbele$$, that"ptiinaryPUXPoseJ;, as
to 19f)O);
staf'thas set.forth along..st:andin$View tbatthe "primarypurposoexception"applle$ to an agentwM plac$tUnds.
into a depOsitory mstitiltlon.forasubStantiatJ:lUiPOsemhetthan to obtain deposit fusuraiIeeOOYerage for aeUStOmet
$el'Viee, 'Applying tllis analysis mvariOU$
staft'has .tabfl.
another barikwould not be a d¢pOSit pu1'pOSe
lf
oftbeeteditcardbankwu
petfectedseCurlty interest in.ootlatetal.OOttdprovldea itS custometS .... AdWoryOpfuion
No..

, accoUnt at .a bankiti order to .S.i\tiSfY' by
satiStiesthe "pmnatyputpOSe . eXcept1on"because the btolrer..dealet's "priniary'putpose" wu.tosatiSfy the SEC rtJ10
nOt to provige @, opinioilNo.9+39 17? 1994). in
680
Krlstie KElmqui$t
Acting Regional Director
Federal Deposit lnsurdtlceCorpQration
July 30,2010
PageSof14
AdViSQIY forrecordkeeping andadmirlistratiyeserviees
and not [as]payment for the placement of deposits; . '.' the existence of the fees t:ioes notchange[theFDlC's]
cOnclusion" that the primary purposeexc!usionissatisfied.
Thepdmary intent and, therefore,.· primary pl'1rpose of UWTC's deposjt relatIonship with the Bank is not
to place deposits with Ii depository institution. but is toprovideescrowadmlnistrativeservices its cust01l)ers,
Accordingly consistent with the plain language of Secti()n;29 of the FPIA and the l1,lles and regUlations oftheF'DIC
promulgated thereunder,. each ofwruchare binding upon the Bank, andcQnsistentWithVarious FDIC. guidance
which, by their own.terms and statements. by the FDIC,are not binding on either the Ballk·or the FDIC, UWTC is. not
engaged in a deposit broket relationship with the Bank.
3) Provide additional information to demonstrate thaHheoombinedsnb-accounting fees and interest rates
paid on tlutinstitutlon;d depositS listed under Exhibit .Dol your :with the
raterestrlctions outlined within FDIC RUles and Regulation 337.6 Deposits;
ExhibitDto the WaiVer Request setS forth variousintci'estrates paid by institutional depositors addressed in
meF})ICLetter, As setforth in such exhibit, rates varied from 0.0% to 1.1%. These rate must beeompared tome
national rate for interest on jumbo money market accounts of 0,430/0, of as
ofJuly 27,2010.
1
Thns,interestpayments to each of the various institutional depositors comply withthe national.rate
caps:
The Bankalso paysvariolls fees for services rendered to the Bank on behalfofifl; custo:mers. A listing of
various setvicesby provider is set forthatExhibitG hereto, Unlikeinter¢St, which is compensation 10rJheuse oh
customer's funds, these are payments for time and tesoureese:lcpehdedby the provider of the services. The services
provldedare not.ootnntodities with standardizerlor defined l'ate$ •.. Thus,a variety of fu.ctol'S.are.oollsidered bytbe
parties in their 8l'1l'lS"'length negotiations with respect to fees for services, resulting in ratesvaryingrromprovider to
. provider.
A conclusion that fees for services renderedbya third party to the Bank constitute interest would be contrary
to the cOmmon deftnitionof what constitutes. interest - compensation for the useoffunds; FeesJof
to the Bank. are not fees for the use offuods.,but are fees fOl'tirtle and resources of the third party providing the .
services. Supporting the notion that paymentof feeS to ser\'iceproviders is not interest,we note that theBallk, under
penalty of perjury, issues to various service providers for feeS paidfotServices; An IRS Form
requiredif ducinga tax year apersOll is paidaUeast$600. in$¢rvices (including Parts and materials).
2
This requirement must be· compared to the instructions for lR.S Form l099-INT, whkbisrequiredfor amounts ()f $] ().
or more, "whether or not designated as Interest, that are paid or credittoa person's account .. /,3 for
IRS Ponn l099 .. INTprovide that"illterest is paid when it is credited or set apart foiaperson without any substantial
limitation or restcictionas to the time, manner or condition Ilf payment."
The payment of interest fees tor servicesl,mderthe varioU$ agreements the Bank
maintains with the various instiitttionaldepositorsdiscussed. in the FDIC Letter .. Ingenetal,fees for services rendered
are paid tocompensatetheproyider for administrative servicesprovlde9 to customers such mrcustomer service.
z See201Q InStntctions forFotm rQ99-MlSC,
3 See .2010 Instructions for Form 1 099.-INT;avaHable
681
Kristie K. Elmquist
Acting Regional Director
Federal Deposit Insurance Corporation
July 30,2010
Page 9 of14
staffing, third party vendor costs, printing and mailing of statements. However, unlike the Bank's unlimited
obligation to pay interest for the use of a customer's funds, the Bank has the right to stop paying fees for services if
the service provider breaches its obligations to provide the services.
Accordingly, the mere fact that the Bank pays a depositor fees for services rendered to the Bank does not
mean that such fees are interest. Banks routinely pay third parties for services rendered. Moreover, banks routinely
out-source various functions to their customers and pay valid consideration for such services. Accordingly
recharacterizing payments to a service provider as interest is inappropriate, unique and incorrect. Because a
conclusion that fees for services constitute interest would have significant consequences to the industry as a whole,
the Bank would be required to appeal such conclusion to the SARC or seek appropriate relief from such an erroneous
determination.
4) On any accounts that do not comply with the rate restrictions, provide a plan to reduce the sub-
accounting fees and or rates to ensure compliance;
The Bank has reviewed its various contractual obligations and believes that interest payments paid fully
comply with the current national rate caps. As noted on Exhibit D to the Waiver Request, and as discussed above,
interest rates paid to the institutional depositors do not exceed the national rate cap for interest on jumbo money
market accounts, which is 1.18% as of July 27, 2010. Moreover, as discussed above, the Bank is of the view that fees
paid for services rendered cannot be properly characterized as interest for purposes of compliance with the national
rate caps. Nonetheless, in the event of a final FDIC determination that fees for services cause the Bank to be paying
interest rates that exceed the national rate caps, pending an unsuccessful appeal of such conclusion, the Bank would
seek to renegotiate its current fee structure to comply with such determination, consistent with safe and sound
practices so as to not cause a liquidity crisis.
682
Kristie K. Elmquist
Acting Regional Director
Federal Deposit Insurance Corporation
July 30, 2010
PagelOof14
S) Provide additional documentation to support that the individual sub-accounting fees are arm's length
transactions between two equally advantaged parties (The March 18, 2010, Trost Company Profitability
analysis prepared by Thomas J. Kientz does not differentiate why the sub-accounting fees provided to
Equity Trust Company are substantially different than UW Trost Company, when the majority of
accounts now managed by ETC were acquired from UW Trost Company in June 2009);
The sub-accounting agreements between Equity Trust Company and the Bank as wen as UWTC and the
Bank were each arms-length transactions between two equally advantaged parties. In both cases the agreements were
individually negotiated. The terms of the agreements vary from one another with respect to contractual provisions
that include key terms and fees paid, due to a number offactors and differences between the two entities, as
summarized below: .
United Western Trust Company Equity Trost Company
UWTC and Equity Trust Company have vastly different lines of business. Equity
Trust Company handles self-directed retirement plans, which are labor intensive
and historically involve more active operations and account transactions,
including deposits, withdrawals and client contact.
UWTC focuses on escrow services. Escrowed funds are typically deposited up
front and are held for a stated period of time. Moreover, escrowed deposits
require minimal client contact and few disbursements during the life of the
account.
Light
Approximately 2,500 different escrow
arrangements, representing 15,140
accounts
$15.7 million
<-':::' .... Indefinite, however either party can
: .... \:Y<i'; ;'.: . terminate on 30 days' notice
Heavy
120,000
$9.8 billion
Approximately 400
June 2012, 2014 and 2016
The size of each institution, in terms of assets under administration, number of accounts, and number of employees
plays a significant factor in the overall cost associated with providing sub-accounting services. Finally, UWTC is an
affiliate of the Bank and, therefore, in accordance with Section 11 of the Home Owners' Loan Act, transactions
between the Bank and UWTCare subject to the restrictions of Section 23B of the Federal Reserve Act, and
Regulation W thereunder.
Another factor affecting the differences in fee payments by the Bank to each of Equity Trust Company and
UWTC relates to their internal operating systems. UWTC, which is formerly known as Sterling Trust Company,
utilizes a sophisticated proprietary trust system it developed, which was built around the sweep function. As a result,
based upon our experience, UWTC operates with greater efficiencies than Equity Trust Company in term.s of
683
Kristie K. Elmquist
Acting Regional Director
Federal Deposit Insurance Corporation
July 30, 2010
Page 11 of14
handling the day-to-day processing of deposits and withdrawals, as well as balancing and reconciling these
transactions.
Accordingly, based upon the foregoing considerations, the differences in sub-accounting fees paid by the
Bank to UWTC and Equity Trust Company are both reasonable and justifiable.
6) Provide a breakdown of the sub-accounting expenses associated with the institutional depositS&ioutlined
within Exhibit D of your application which are either applicable to iuterest expense or non-interest
expense (differentiate between each deposit and explain why one relationship may be higher or lower
than another);
From the Bank's perspective in negotiating fees to be paid to service providers, the Bank considers a variety of
factors including the length of the Bank's existing relationship with the service provider with the Bank, the
length of the term ofthe proposed agreement, market conditions when an agreement is being
negotiated/executed, proposed minimum deposit balances that the provider plans to hold at the Bank during the
term of the contract, as well as the number of accounts the provider is servicing on behalf of the Bank. These
factors result in the variety of actual fees paid to the various providers (see also, the Bank's response to
Question 5 as to why the sub-accounting fees vary. Exhibit G hereto sets forth a chart of each provider, the
various activities performed by each provider on behalf of the Bank, as well as certain factors supporting the
various fees paid to such providers.
The expense information requested by the FDIC generally is proprietary information of the various institutional
depositors. Nonetheless, in an effort to be responsive to the FDIC's request for information, counsel to the Bank
retained an independent third party (the "Consultant") to conduct a survey among various trust companies in an
effort to obtain information about their relationships with depository institutions. This survey requested the trust
companies to provide detailed information about the following:
• Number of accounts;
• Fair market value of assets under administration;
• Number of employees;
• Number of depository institutions utilized;
• Current sweep deposit balances; and
• Sub-accounting agreements, including:
a. Whether such agreements are written or implied;
b. Term of such agreements;
c. Fees paid to trust company by depository institutions;
d. Rate structure for sub-accounting fees;
e. Interest rates paid by depository institution to trust company customers; and
f. Cost incurred by trust companies to provide sub-accounting services.
During the initial phase of this project, when the Consultant made his first contact with various trust companies,
a number expressed significant concerns about providing the requested information, inasmuch as it represents
proprietary information. Information from other trust companies was not available as the appropriate officials
were out of the office on summer holidays. Notwithstanding the foregoing, the Consultant was able to obtain
certain information from several trust companies including UWTC and Lincoln Trust Company and expects he
may be able to gather several more after their senior executives return from various summer vacations. In
addition, the Bank was able to secure certain financial information relating to sub-accounting costs from Equity
Trust Company.
684
KristieK EhnquiSt
Acting Regional Director
Fedel'alDeposit InsuranceCorp6tatiort
July 30, 2010
Page 12of14
In accordance witbthe FDIC's request for actual sub-acCQuntingexpenses, based upon iIlformationknownto
the Bank, we baveprepareda chart provided at Exhibit H demoostratingthe annual eJ{pensesrelated to sub
accounting for UWTC,EquityTrust Company. and Lincoln Trustalong with what we estimate as eacb
compant sactual sub.accQunting ex;pense per account.
When juxtaposed to Exhibit O. it is cleat that service!! art! 119tc01'fimoditiesJorwhich there is a
market·basedprice. importanttoTeCogruze that the various trust companies are located in
variollS:geographic locations. and each has due in part to differences in local labor arid
facilities (rent) costs, Thus. upon reviewoftheinformati9n set forth on ExhibitsG and H,areaderwill see
significant discrepancies. For example; in 200$. Constellati9nTtllst Company negotUl,tedan annual sub,.,
accounting fee of $25.00, which equates toanttfuiual per accountfee of0J.1lY $0. 10 .. We.clearly recognize that
this. fee is.low .andcQuld be viewed as below market.; but Constellation Trust Company has never requested a
mO(iific.ation of the structure and We have no Qurselves to increase their
oompensationto provide a market-rate.
Q:mstellationTrust' s rate is in stark contrast to:the arms4ength, annUal per account
Equity Trust Company of$166.0Q. Tbefeespaid tQ Equity Trust Company are based
uponavariety of factors. First and foremost, .isthe factthat Equity Trust Company has approximately $70()
million on deposit· at the.·Barik (mitially,under thesubacoouriting agreement, the capon deposits Was set at.$l
billion. however. itwas lowered to $700 million), fromapproximfi.tely nO.OOOindividual accOtints,c()lUparedto
only $3.5 million on dep<>sitfrom COUStellatiOil Trust" from approx"unatcly 4,40() accounts, While frequently; a
iargerorganization has various economies of scale, in the case of Equity TrustCompany. the larger siZ¢ also
involves grearer services and expenses on behalf of . customers. Secolid. thehigherfeespaid .toEquity Trust
reflect their various commitments to maintain funds atthe Bank over an extended period oitime,
1
Specifically.
Equity has to maintain over$700111iUiononde.positsfora. term ()fthree. years (and
committed t6·maintain at least$32S million for two· or four more years under certain other conditionS). On the
othernaud, Lincoln Trust.Company's one-year ·agreement With the Bank contains .nocommitment.to. maintain
deposits at. the Bank for any period()f time after thefitstyear. Thus, it is and market-based to pay
Lincoln Trufit Company lowerJees than to Equity Tl'U$tCompany. Moreover, it .18 logical and
market-based that deposits associated with Equity Trust Company resultinthe Bank fees.
ExhibitsGand H document that UWTC'sexpenses per. account arelcss than Equii:)f Trust Company and
LincolnTrust Company. makes perfect sense be(;ause UWTC has less $UDaccoUllt$with
smaller cash batanC¢s, as well as less entpl()yeesprovidingservices fortbese accounts. Moreover.lJWTC's
servicesreiate to primarily to escrow· ooministrationservices. which is tess labor· intensive than the self directed
IRA accounts that both EquitY Trust Company and Lmcoln Trust Conipany service.
ExhlbitH also supports the notion that fees paid bythe13ank are rationally related to the sub-
accounting. expenses actually incurred by the·tiuSt·companies. Arms-lengilinegotiationsbetweentheparties,
resulted in the Bank a variety "f.sub-accounting fees to these trust companies that is reasomlbly
related to the actual.sub-accounting expenses incurred .bythe trust companies.
l·The FDIC's own .. WeeklyNat;ional.Ratesa,nd Caps summary demonstrates earn higher interest
rateS yl)ttlpared to deposits that can be held

685
Kristie K. Elmquist
A,ctingR,eglonalPire<;tOf
Federal. Deposit Insuran<;e Corporation
JuLy 3(),2()10
Page 13 ofl4
Please be advised thatthe Bank. through its courisel.wUl gathetindustry information
to. supplement this response witblnfonnation that is outside of the control of the· Bank.
7} Provide additioualinformationtosupporttheltte<t toanow 2S percent aggregategrowtb in <tbe
mstitutional dejKIsits Ulerequeste4waiyet' period (Le.,account bistories);
Based onhlswtical norms, theJ3ank te<;ognizesthat deposit incret\Se and decrease llasedQu market
conditions and timing. In light of the ongoing review of the FDIC Letter, the }3ank seeks to maintain its normal
course ofbusmessand nOt UnposeunnedessarychilUenges to its customers which have not yet established
relationships with altemmve depository institutions. Precluding the Bank from an increase in instituti()nal
deposits could adversely affect the Bank's customers.
8) Provide a oopyof the bank's Liquidity/Contmgeney FundiDg Plan;
$eeExhibit 1.
9) Provide a copy of the baJ'dt'sJuue30,lOlO balance sheet and iucomestatement.
See Exhibit J.
W¢ appreCiatetbetime and resol,ll'ces tliatthe FDICisdevotirigtt> re\liewingthis matter. of out clients are
concel11edthatthey have been preliminarily deemed to be deposit brokers .. based on numerous
discussiotlS,· marty· of our clientS incorrectly believe that their funds are no longer eligible for· FDIC deposit
inSura:tlce coverage becauseofsucb "broker" statUs. Accol'd.ingly, for the reasons set forth in the WaiyerReq\,lest .
and as well as set forth above, we respectfully request that the FDIC promptlypennitthe Bank to continue to
accept, reneW and roll overtheNewly-Deemed .srokered Dep<>sits penqingarevlew of the propriety of the
the FDIC Letter and for a period.of at least ninety (90) if ultima.telytJ:te
SARC'sdetertnitmlion upbolds such determinations; We believethatsucb action will avoid unnecessary ant.!
highly-preventable withdl'awalsof funds during the period in which the FDIC considers the ramifications of the
issues addressed in the FDIC Letter}
If you have any questlons regarding the fotegoing, pleli$edo not hesitate to contact me at(720)9.56-6516 or
Thomli$ Kientz at (72Q) 956-6548.
Enclosure
Sineer,ely,
./

-" James R. Peoples
Chairman, President and CEO
cc: Joseph A.Meade. Assistant Regional Direclof.FDlC
1 Toavoidatiy additional unnecessaty delays, request that our counsel be advised of any c()mmumcations
from the FDlCsO.that we can manually retrieve any communications from·tneFDlC Headquaners.in
lnsteadofhavil'lg to await delivery viaU.S. mail. .
686
Kristie K. Elmquist
Acting Regional Director
Federal Deposit Insurance Corporation
July 30, 2010
Page 14of14
Thomas L. Trujillo, Case Manager, FDIC
Serena L. Owens, FDIC
Philip A. Gerbick, Regional Director, OTS
Edwin Chow, Regional Deputy Director, OTS
Nicholas Dyer, Regional Assistant Director, OTS
Boards of Directors of United Western Bank and United Western Bancorp, Inc.
Lawrence D. Kaplan, Esq.
Kevin L. Petrasic, Esq.
Paul, Hastings, Janofsky & Walker, LLP
Andrew L. Sandler, Esq.
Jeremiah B. Buckley, Esq.
Liana R. Prieto, Esq.
BuckleySandler LLP
687
TabC
Exhibit 25 A
688
Exhibit A
689
I J J
UNITED
WESTERN
BANK®
James R. Peoples
Chairman, President &
ChiefExecuti.ve Officer
720.956.6576
jpeoples@uwbank.com
CONFIDENTIAL TREATMENT REQUESTED 1
June 10, 2010
Kristie K. Elmquist
Acting Regional Director
Federal Deposit InSUJ8llCe Corporation
1601 Bryan Street
Dallas, Texas 75201
SENTYIA OVERNIGHT MAIL DELIVERY SERVICE
RE: Brokered Deposit Waiver Request Pursuant to 12 U.S. C. § 1831(c) ud 12 C.F.R.
§ 337.6(e) by United Western Buk, Denver, Colorado
Dear Director Elmquist:
This letter is an application to the Federal Deposit Insurance Corporation (the "FDIC")
pUrsuant to Section 29{c) of the Federal Deposit Insurance Act (the "FDIA'') and Section
337.6{c) of the rules and regulations of the FDIC, seeking permission for United Western. Bank,
a federal savings bank headquartered in Denver, Colorado (the ''Bank'') to continue to accept,
renew and . rollover certain brokered deposits described in the May 24, 2010 FDIC letter
addressed to the Bank (the "FDIC Letter"), as discussed below.
2
The Bank currently is deemed to
be "adequately capitalized'· as such term is defined at Section 565.4(b)(2) of the rules and
regulations of the Office of Thrift Supervision (the "OTS"). As a result, under Section 29(a) of
the FDIA, absent a waiver, the Bank may not accept, renew or roll ()ver for deposit funds
obtained directly or indirectly by or through any deposit broker. See 12 U.S.C. § 1831f(a).
As you are aware, in the FDIC Letter, which was dated May 24, 2010, but delivered to the
Bank on June 2, 2010,3 the FDIC determined that a significant portion of the Bank's institutional
l1his letter and the Ollclosed doc::uments oontain c::onfidentia1. business iDfonnation not in the publlc domain. This letter is being
provided to the federal bank: regulators of United Western Bank in tbeir supervisory capacity over the Bank: and therefore should
be granted confidential t:rea1:Jnmlt pursuant to the bank examination and supervision exemption to'the Freedom oflDbmation
Act. According1y, we request, pursuant to 5 U.S.C. § SS2(bX8), c::onfidential treatmentofsuch materials and enc::losures. PleaSe
DO;;Uy us if anyone submits a Freedom ofInformatiOll Ac::t request for a copy of this lcUer or the enclosures.
2 A copy of the FDIC Letter is provided at Exhibit A hereto. In the FDIC Letter, the FDIC deemed the following seven
institrdional deposit relationships with the Bank to be brokmed deposits: Equity Trust Company, MSCS, Linc:oln Trust
Company, Legent Clearing, ILC, Constellation Trust Company. T.MI and UW Trust Company. The Bank: seeks a waiver from
the FDIC from accepting. renewing or rollover of such deposit relationships.
3 Although the FDIC Letter is dated Monday, May 24. 2010, it was not delivered to the Bank lDltil Wednesday, June 2, 2010. In
fact, the FDIC Letter was not even delivered to United Parcel Service until Friday, May 28, 2010. Acc::ordingly, the Bank was
United Western Financial Center
700 Seventeenth Street • Denver, Colorado 80202
tel: 303.595.9898 • fax 303390.0952
www.uwbllllCOtD·com
" 690
Ms. Kristie K. Elmquist
June 10, 2010
Page20fS
deposits should be deemed to be brokered deposits (the "Newly-Deemed Brokered Deposits',).
While the Bank strongly disagrees with the conclusions set forth in the FDIC Letter and reserves
all rights with respect to seeking a review of the determination in the FDIC Letter, pending such
review, the Bank. is taking appropriate steps to satisfy all required regulatory directives.
Specifically, via a letter dated June 2, 2010, the Bank's primary federal regulator, the
OTS, directed the Bank to file a brokered deposit waiv.er request with the FDIC. On a case-by-
case basis and upon application by an insured depository institution that is adequately capitalized.,
the FDIC is authorized to waive the applicability of such prohibition upon a finding that
acceptance of such deposits do not constitute an unsafe or unsound practice with respect to such
institution. See 12 U.S.C. § 1831f(c).
A waiver would be consistent with the FDIC Letter, which explicitly states that the FDIC
"stands ready to consider the Bank's strategies to gradually eU.".ate these brokered deposits
until such time as the Bank. becomes well capitalized and is not subject to any Federally issued
written agreement containing a 'meet and maintain' capital provision" (emphasis added). The
Bank has tentatively scheduled a meeting for the week of June 21
st
with representatives of the
FDIC in Washington, D.C. to d i s c ~ appropriate strategies and implement a plan to ensure
compliance with all applicable laws as recently interpreted by the FDIC.
A key initial component to such strategies is for the Bank to meet and maintain enhanced
capital requirements. United Western Bancorp, Inc. (the "Company"), the Bank's holding
company, expects to consummate. a capital raising transaction in the near future
4
at the
completion of which the Company will contribute additional capital to the Bank with a view to
bringing the Bank into compliance with OTS mandated enhanced core and total risk based
capital ratio requirements. Upon exceeding these enhanced capital standards, the Bank expects to
petition the agency to modify these requirements. On a longer-teJ:m basis, in the event that OTS
does not modify its ''meet and maintain" directive, as described below, the Bank will cease
renewing. any brokered deposits as they come to term. For example, frOltl March 4, 2010 to
May 31, 2010, the Barik shed over $271 million in deposits (see Exhibit B). Similarly, unless the
FDIC peimits the renewal of specific institutional deposit relationships, the Bank shall take
appropriate steps consistent with those relationships to terminate those relationships.
Finally, we note that the Bank received the FDIC Letter on Wednesday June 2, 2010,
which requires fundamental restructuring of the Bank's current operations. On the same date, the
Bank was directed by the OTS to file this waiver request. Accordingly, the Bank expects to
undertake a more comprehensive review Qf certain methods to reduce its exposure to brokered
deposits, after meeting with FDIC officials in Washington, D.C., tentatively scheduled for the
week. of June 21 fit. as well as taking into account the Bank's capital status upon Consummation of
the capital· raise transaction, which should occur dming the next ninety (90) days. As discussed
. not on notice of the determinations set forth in the FDIC Letter until Wednesday, lune 2, 2010, after the Memorial Day
holiday.
41be Company retained Goldman Sachs & Company in March 2010 to represent it in capital raising transaction. The Company.
assisted by Goldman. Sachs, is cummtly in discussions with over 10 finDs. either private ~ groups or bank holding
companies. anyone of whom may provide the required level of financing for the Company to allow the Bank to meet or
exceed its eohanced capital ratio targets.
691
Ms. Kristie K. Elmquist
, June 10,2010
Page 3 oU
below, as the initial waiver would be for a minimum of ninety (90) days, additional strategies
will be formulated and submitted to the FDIC to the extent waivers are required in the future.
Until such immediate strategies can be implemented, given the conclusions set forth in
the FDIC Letter, we believe that a waiver of the prohibition against the Bank from accepting,
renewing or rolling over deposits deemed by the FDIC Letter as brokered is appropriate for the
Bank, consistent with Section 29{c) of the FDIA, ,as discussed below, since the continued
acceptance of the deposits addressed in the FDIC Letter, does not constitute an unsafe or unsound
practice with respect to the Bank. '
Background
The Bank has taken all appropriate steps to eli:minate the acceptance of any and all
deposits that are brokered under FDIC regulations (e.g., 'CDAR.S@ deposits, traditional brokered
deposits and certain brokered institutional deposit relationships). Further, the Bank. is not
renewing any such deposits as they come ,to tenn. Attached as Exhibit B is a chart representing
the reduction in the amount of broke red deposits from March 4,2010 to May 31,2010, that the
Bank previously determined to ,be brokered deposits.
The facts surrounding the Bank's use of well recognized brokered deposits such as
CDARS® are markedly different from those in the Bank's current situation arising out of the
recent FDIC Letter in which deposit relationships of long tenure have recently been deemed to be
''brokered deposits" under applicable FDIC regulation. As previously described to the FDIC (see
attached Exhibit C. which is a copy of a White Paper entitled, United, Western Bank Core
Deposit Strategic Planning and Regulatory Positions, dated March 8, 2010 on the brokered
deposit issue, prepared by the' Bank. and previously submitted to the FDIC ), the Bank has long
term contractUa1 relationships pertaining to these accounts. These institutional relationships have
extended over a decade in many instances. As a consequence, the Bank finds itself in a unique
situation that requires a waiver under Section 29{c) of the FDIA in order to preclude a completely
preventable liquidity crisis.
As the FDIC is aware, the Bank has entered into a number of agreements ~ institutions
that have custody of customer funds, pursuant to which these institutions, as agent for, their
customers, maintain deposit funds in money market and/or demand deposit accounts at the Bank.
These are ordinary course deposit relationships between the institutions and their clients which
are provided to their retail customers as an incident of the institutions' primary businesses; in no
instance is it the primary business of any of these institutions to place deposits with the Bank or
any other bank or FDIC insured depository institution. The FDIC is well versed in the history of
these relationships, some of which have persisted fur over thirteen years and all of which show
consistent growth and stability over the time period the funds have been on dePosit with the Bank
(see Exhibit D).
As of May 31,2010, the Bank had approximately $1.2 billion in deposits (67% of the
aggregate) of the Newly-Deemed Brokered Deposits under the FDIC Letter, out of a total deposit
base of approximately $1.8 billion. The inability to accept, renew or rollover the Newly-Deemed
Brokered Deposits would have an unsafe and unsound effect on the Bank as such newly-imposed
regulatory impediment would unnecessarily impair the Bank's ability to have sufficient liquid
692
Ms. Kristie K. Elmquist
June 10,2010
Page 40f8
assets to address possible deposit withdrawals in the ordinary course by customers in compliance
with Section 29 of the FDIA.
We note that the Newly-Deemed Brokered Deposits are not inappropriate "hot money"
that has been gathered by a deposit broker who shops for financial institutions paying the highest
rates, as has previously been explained to the FDIC (see attached White P,aper in Exhibit C).
Rates paid on the deposits held by the Bank under its contractual relationships range from 0 basis
points to 1.10%.5 Moreover, these funds are stable deposits, unlikely to move out of the Bank.
absent an adverse, inappropriate regulatory determination. As set forth on Exhibit D, the balances
in the various contractual relationships have increased over time. This historical data
conclusively demonstrates that the Newly-Deemed Brokered Deposits are in reality stable and
not rate-sensitive and, therefore, do not possess the characteristics of deposits that the FDIC
typically attributes to "hot money."
Required Information for a Waiver Pursuant to Section 303.243(c)
In accordance with Section 303.243(c) of the rules and regulations of the FDIC,
applications to the FDIC for a waiver must set forth: the time frame for the waiver, a statement of
the bank's policy governing the use of brokered deposits in the bank's overall funding and
liquidity management program, current and anticipated volumes, rates and maturities, internal
limits, explanation of how brokered deposits are priced and other funding alternatives; as well as
a detailed discussion of the Bank's asset growth plans, procedures and practices to solicit
brokered deposits, management systems to oversee the solicitation, acceptance and use of such
deposits, and an explanation as to why the acceptance, renewal or rollover poses no undue risk to
the Bank. 12 C.F.R. §303.243(c). The required information is set forth below and in the
enclosures herewith.
Time Frame for Waiver
The Bank seeks a waiver from the limitation in Section 29(a) of the FDIA and Section
337.6(b) of the FDIC rules for a minimum period of ninety (90) days, subject to renewal. The
Bank's current adequately capitalized status is based upon the fact that its total risk based capital
ratio fell below 10% at March 31, 2010. At such date, the Bank's core capital ratio was 6.6%. It
should also be noted that the Bank's core capital ratio is projected to exceed 7% as of June 30,
2010. The Bank further notes that the OTS may seek to require that the Bank enter into a formal
enforcement agreement that reiterates specific "meet and maintain" capital ratios. However, as
noted above. as a result of the Company's ongoing capital raising 1ransaction, the Bank expects
to meet and exceed both the traditional prompt corrective action "well capitalized" level ratios as
well as enhanced capital ratios in the near term. Accordingly, the Bank will seek approval of the
OTS to terminate any such OTS mandated ''meet and maintain" provisions as promptly as
possible after exceeding the regulatory capital requirements in any OTS' directive.
5 Note that the rates paid on the subject deposits do not include subaccounting and administrative fees paid to the institutional
depositoIS pursuant to the contractual agreements.
693
Ms. Kristie K. Elmquist
June 10,2010
Page 5 of8
Bank's Policy Governing the Use of Brokered Deposits in the Bank's Overall Funding and
Liquidity Management Program
Bank policy eschews the use of interest rate sensitive brokered deposits as a primaxy or
secondary source of liquidity. The Bank. has and will continue to seek long-term stable sources of
deposit funding. Despite theFDIC's conclusions in the FDIC Letter, the Bank still believes that
the deposits subject to the FDIC Letter were such types of deposits.
6
The Bank's belief is based
.upon the stable, long tenured history of such deposits as evidenced by the chart on Exhibit D and
as discussed in detail in the White Paper. Generally, retail deposits will first be sought, and then
the availability of FHLB advances versus projected liquidity needs will be evaluated to detennine
the secondary source of funding. The deposits subject to the FDIC Letter are stable, generally low
rate deposits, consistent with deposits that are long-term in nature and that are not interest rate
sensitive.
In addition, the Bank will shortly enter into a binding agreement, subject to OTS and
FDIC approval as well as other regulatory approvals, to acquire a 100% interest in Legent
Clearing LLC ("Legent Clearing"), a FINRA member firm engaged in securities clearing and
processing services. Legent Clearing will become an operating subsidiary of the Bank. As the
FDIC is well aware, an operating subsidiary of a federally or nationally chartered bank is treated
as a division of the Bank itself. See e.g., Waters v. Wachovia, N.A., 550 U.S. 1, 35-36 (2007)
Legent Clearing clients currently have approximately $700 million of cash balances that will be
available to the Bank as additional liquidity and. such deposits should not be classified as
"brokered deposits."
Current and Anticipated Volumes, Rates and Maturities
Exhibit D sets forth a listing of the Newly-Deemed Brokered Deposits under the FDIC
Letter. These deposits represent approximately 75% of the Bank's deposit base, net of deposits
truly deemed to be brokered, and are critical to the Bank's current operations. In sum, these
deposits have no attributes of brokered deposits that have been criticized for years by federal
regulatory agencies. Specifically, these are low-rate and stable deposits. These deposits are not
being raised to fund unsustainable rapid growth, support risk and speculative asset investment by
a weak or insolvent institution. Requiring the Bank: to divest of this long-lived, stable source of
liquidity while the Bank is temporarily adequately capitalized is imprudent, unsafe and unsound.
Elimination of these deposits does not address the concerns repeatedly expressed about the
transient nature ofbrokered deposits by FDIC Chairman Sheila Bair.
Further, these deposits are controlled by agreements which provide that the customer
deposits will be maintained atthe Bank for a specific term. The Bank submits that the FDIC can
and should find that the tenor of the deposit relationships are controlled by these agreements, not
the terms of the underlying account paperwork as the superior agreements bind the institutions to
maintain the omnibus deposit accounts as agent for the underlying retail customers.
6 Further, notwithstanding the FDIC Letter, the Bank is ofth.e opinion, bam:d on the advice of competent collllSel, that the subject
deposits are not "brokered deposits" for pmposes of Section 29 ofllie Federal Deposit Insuamce Act and under applicable
regulations and the Bank will consider all options available to it to reconcile its position vis a vis the FDIC Letter.
694
Ms. Kristi.e K. Elmquist
1une 10,2010
Page 6 ofS
For example, the Bank's deposit relationship with MSCS is governed by an Amended and
Restated Services Agreement dated·July 5, 2007 (the "Services Agreemenf,).7 Pursuant to the
terms of such agreement, the Services Agreement automatically renews on July 5,2010. The
Bank. therefore seeks explicit FDIC waiver of the newly imposed brokered deposit restrictions
with respect to this deposit relationship pursuant to this letter.
Internal Limits
Until the time that the Bank and·the FDIC formally resolve the definition of "brokered
deposits," the Bank will treat the relationships noted in the FDIC Letter; with the ,exception of aU
deposits associated with UW Trust Company, a wholly owned subsidiary of the Company and an
affiliate of the as "brokered deposits." The Bank and the Company believe that it is
inappropriate to deem the UW Trust Company deposits as brokered since UW Trust Company is
a part of the affiliated group controlled by the Company. In addition, the UW Trust Company
deposits represent escrow deposits maintained on behalf of life settlement investors and as such
these deposits are clearly not brokered
The Bank also will limit growth of the Newly-Deemed Brokered Deposits to no more
than 25% in the aggregate the amounts held by the Bank as of the date of this letter. This
limit is to account for transitory amounts that may be deposited with the Bank due to underlying
customer demands (e.g., monthly or quarterly deposits received in light of 401k plan
contributions via employee withholding) that are in transit to mutual fund or other investments.
In no case will the Bank. employ these amounts to increase any asset position other than
gOVernD1ent gqaranteed (e.g., GNMA certificates) or deposits within the Federal
Reserve system. This self-imposed limit should adequately provide comfort to the FDIC that the
Bank is not using "hot money" to balloon its balance sheet in risky investments.
Explanation of how Brokered Deposits are Priced
The Newly-Deemed Brokered Deposits are priced in accordance with long-term
contractual relationships and are not priced as traditional "hot money" designed to fund rapid
growth. Exhibit D sets forth the pricing of the deposits for each relationship addressed in the
FDIC Letter.
As of June 1, 2010, the weekly national average interest rate for money market accounts
was 0.30% with a rate cap of 1.05%. As set forth on Exhibit D, the Bank's deposits do not
otherwise materially exceed these amounts. To the extent interest rates exceed the national
average, the Bank is notifYing the counterparties that the rates are being adjusted accordingly, as
of the date the Bank was notified of the FDIC's determination on June 2, 2010.
7 'lbe Bank's rel.lIIiooship with MSCS bas been on-goiug since'l998 and the Services Agrccmcnt bas been renewed throughout
that period.
695
,
, '
Ms. Kristie K. Elmquist
June 10, 2010
Page 7 ofs
Funding Alternatives
The Bank u t i l i z e ~ FHLB advances in addition to deposits to meet 'its funding needs.
Currently, the Bank has $268.5 million available through FHLB advances to meet funding needs,
in addition to currently outstanding FHLB advances in the amount of $180.5 million. As
described above; the acquisition of Legent Clearing, which can be accomplished within 10
business days following approval of the acquisition by the OTS and the FDIC, FINRA and the
SEC, will add approximately $700 million of liquidity to the Bank which it will employ to
supplant the deposits questioned by the FDIC in the FDIC Letter.
Asset Growth PJans
At this time, the Bank has no short term. plans to increase its asset base. In fact, from
February 28, 2010 to May 31, 2010, the Bank's total assets declined approximately $731 million.
The Bank will· limit its growth in accordance with the terms of the current or any future directive
from the OTS.
Procedures and Practices to Solicit Brokered Deposits
The Bank currently does not solicit traditional, interest rate sensitive ''hot money"
brokered deposits. The Bank, however, will not seek new deposit relationships with the retail
clients of institutional processing companies of the type giving rise to the FDIC Letter until such
time as the definition of brokered deposits is resolved with the FDIC or until the time that the
Bank returns to well capitalized status.
Management Systems to Ovenee the Solicitation, Acceptance and Use of Broke red Deposits
The Bank has procedures in place to direct brokered deposit inquiries to a centralized area
within deposit operations. The Bank's deposit operation's staff will not open any additional
accounts without the written approval of either the Bank's COO or CFO. As a final precaution,
an enhanced due diligence (EDD) questionnaire is completed on every new account prior to
opening the account. The compliance. department of the Bank reviews the questionnaires and
would determine if the deposit originated from a deposit broker. Finally, all branch personnel are
trained to identify all potential deposit brokers.
Why the Acceptance, Renewal or RoUover Poses No Undue Kilk to the Bank.
The Bank's continued acceptance, renewal and rollover of the Newly-Deemed Brokered
I?eposits poses no undue risk to the Bank because:
1. these deposits are cOntrolled by written agreements with the customers' agents which
provide for a set term. of the relationship and the Bank is not under threat of these
contracts being terminated or abrogated unless the FDIC were to cause such action due to
its recent determination as to the brokered ~ of these deposits;
2. the Bank is not expanding its balance. sheet. and is not endangering its liquidity by
. accreting additional, illiquid assets to its balance sheet;
696
Ms. Kristie K. Elmquist
June 10,2010
Page 8 ofS
3. with time and the approval of the Legent Clearing LLC acquisition as an operating
subsidiary of the Bank, the Bank will be in position to effectively release non-controlled
deposits, regardless of their status as Brok:ered Deposits or n.ot,to reduce the
concentrations at Equity Trust Company client and other client deposits; and
4. there is not now, nor does the Bank expect that, any depositor concern will cause a
sudden diminishment in the balance of deposits directed to the Bank by the clients of the
processing companies questioned in the FDIC Letter as "deposit brokers."
In fact, the Newly-Deemed Brokered Deposits enhance the safe and sound operations of
the Bank because they enhance the Bank's liquidity status. As the FDIC is aware, a significant
portion of the Bank's operations center around the deposits recently deemed by the FDIC as
brokered. EJimination of these relationships will cause significant hann to the Bank, while
retention of the deposits, or a slow, gradual elimination, as provided for in the FDIC Letter,
mitigates the harm caused by recent regulatory determinations and reactions resulting in a
precipitous withdrawal of these deposits.
• •••
. For the foregoing reasons, we respectfully request that the FDIC permit the Bank to
continue to' accept, renew and roll over the Newly-Deemed Brokered Deposits in accordance
with the terms of this request for a minimwn of ninety (90) days. We note that time is of the
essence with respect to this request for a waiver. If you have any questions regarding the .
foregoing, please do not hesitate to contact me at (720) 956-6576 or Thomas Kientz at (720) 956-
6548.
Sincerely,
~ ~ ' 4 - -
James R. Peoples .
C ~ President and CEO
cc: Joseph A. Meade, Assistant Regional Director, FDIC
Thomas L. Trujillo, Case Manager, FDIC
Lori A. Quigley, Acting Regional Director, OTS
Edwin Chow, Regional Deputy Director, OTS
Nicholas Dyer, Regional Assistant Director, OTS
Lawrence D. Kaplan, Esq. I Paul Hastings Janofsky & Walker, lLP
Enclosures
697
TabC
Exhibit 25 A (a)
698
Federal Deposit Insurance Corporation
Dallas Regional Office
1601 Bryan Street, Dallas, Texas 75201
(BOO) 568-9161 FAX (972)
lMr. James R Peoples
Chainnan of the Board
CEO and
United Western. Bank
700 17
th
Street, Suite 100
Denver, CO 80202
Re: Deposit Agreements
Dear Mr. Peoples:
Division of Supervision and Consumer Protection
Memphis Area Office
5100 Poplar Avenue, Suite 1900, Memphis, Tennessee 38137
(901) 685·1603 FAX (901) 821-5308
May 24, 2010
This letter is to notifY the Bank: that the FDIC has determined that the Bank's deposits from
seven institutional relationships described below are brokered dePosits. The seven institutional
depositors facilitate the placement of deposits of their respective customers by opening omnibus
. accounts at the Bank. These accounts. which consist ofMMDA's, non-interest bearing accounts
and NOW accounts, are typically opened in the name of the institutional depositor for the benefit
of their customers. In turn, the institutional depositors maintain detailed records at the account
level of each of their customers' ownership interest in each omnibus account. The FDIC realizes
the impact that this determination has on the Ba.nl4 particularly in light of the bank's current
··Adequately Capitalized" position under the Prompt Corrective Action provisions of Section 38
of the Federal Deposit Insurance Act, 12 U.S.C. § 18310. The current "Adequately Capitalized"
position triggers the requirement that adequately capitalized insured depository institutions may
not accept, renew or roll over any brokered. depgsit unless it has applied for and been granted a
waiver by the FDIC. Accordingly, the FDIC stands ready to consider the Bank's strategies to
gradually eliminate these deposits, until such time as the Bank becomes well
capitalized and not subject to any Federally issued written agreement containing a "meet and
maintain" capital provision. Please note that since it is the individual customers who own the
deposits in the omnibus accounts, the maturity date of the deposits is not the contractual.-maturity
date of the contracts between the institutional depositors and the Ba.nl4 but the maturity date of
the deposit instruments comprising the omnibus accounts.
In connection with FDIC's brokered deposits determination, the FDIC;s Division of Supervision
and Consumer Protection and the Legal Division reviewed numerous agreements, legal opinions
and other documents, including the following:
1. Amended and Restated Agreement between Bank, Equity Trust Company
("ETC"), Administrative Semces, Inc. (''BAS'') and Sterling Administrative
699
.....
..
. Services, Ltc ("SAS"), with an effective date of June 27, but with no year provided,
1
as
revised by the First Amendment to Amended and Restated Subaccounting Agreement
dated February 24,2010 (',?TC Agreement");'
2. Third Amended and Restated Administrative Services Agreement between Bank, Matrix .
Settlement and Clearance Services, L.L.C. ("MSCS'1 and MG Colorado Holdings, Inc.,
dated July 5, 2007, as revised by Amendment to The Addendum, dated February
11,2010 ("MSCS Agreement");
3. Subaccounting Agreement between Lincoln Trust Company ("Lincoln") and Bank, with
an effective date of February 1,2010 (''Lincoln Agreement");
4. Program Bank Fee Agreement between Bank and Legent Clearing ILC ("Legent''), dated
Novembj3f 24, 2008, as amended by Amendment Number One To Program Bank Fee
Agreement, dated January 25, 2010 (''Legent Agreement"). We were also provided with
three other agreements pertai:J;rlng to Legent: Legent Insured Deposits Bank and Broker-
Dearier Agreement between Bank and Legent, dated May 11,2006; Broker-Dealer
Money Market Deposit Account Agreement dated November 18, 2008, between
Deutsche Bank Trust Company Americas and Legent; and Program Bank
Money Market Deposit Account Agreement, dated June 2006, between DBTCA and
.
5. Subaccounting Agreement between Matrix Capital Bank, Constellation Trust Company
and Gemini Fund Services, LLC ("GFS',), dated May 11, 2005 ("Constellation Trust
Agreement'');
6. Services Agreement between Matrix Capital Bank and Trust
Management, Inc. (''TMI'j, dated May 10, 1999 ("TMI Agreement"); and
7. Amended and Restated Omnibus Subaccounting Agreement between Bank and UW Trust
'- Company ('''UWTC''), dated June 26, 2009 t'UWTC Agreement'j.
8. Four Bank counsel legal opinions from Luse Gorman Pomerenk & Schick ("Luse
GOIman"). dated February 23. 2010; .
9. Two Luse Gorman legal opinions dated March 8,2010;
10. Bank counsel legal opinion from Buckley Sandler LLP, dated March 10, 2010;
11. United Western Bank Core Deposit Management Strategic Planning and Regulatory
Positions, dated March 8, 2010 ("White Paper');
12. '"Legent and the Clearing IndustrY' Memorandum from Guy A Gibson, Michael J.
McCloskey and Michael A Stallings, to the Board of Directors of United Western
Bancorp, Inc. and United Western Bank, dated January 7, 2010 ("Legent
Memorandum'j; .' .
13. The Equity Trust Company Application For Traditional, Roth, and SEP Accounts;
14. ''Legent FDIC Insured Deposits," from wwwJegentclearing.comlps_cms.php;
15. Sterling Trust Company Self-Directed IRA Application Kit; and
16. Equity Trust Company Traditional and Roth, IRA Custodial Account Agreements a!).d
Disclosure Statements. .
A summary of our assessment of each of the seven deposit agreements reviewed is set forth.
below.
I This agreement cites other agreemeuls executed in 2009.
2
700 .
. .....
..'
,-
.. '
Equity Trust Company Agreement
According to the White Paper, ETC ''is a self directed IRA custodian that offers custodial and
managerial business services to individual participants' accounts in employee benefit plans,
individual retirement plans and other qualified plan accounts thereby providing its clients with
the ability to invest in real estate, private placements, tax liens and other non-traditional assets
witbina IRA or 401(k) plan" and has been a Bank client since 2000. Each
. individual retirement account, the White Paper indicates, maintains certain liquidity that is
typicallY less than 10% of the total assets in such This liquidity is deposited in multiple
omnibus accounts at the Bank. Under the ETC Agreement, ETC has agreed to place deposits
with the Bank in order to obtain the benefits of pass through deposit insurance coverage under 12
C.F.R. § 330.5 for the benefit ofits customers. ETC represents in the agreement that as
custodian it ''provides custodial and business services to individual participants' accounts in
employee benefit plans, individual retirement plaD:S and other quali:fied accounts." The other two
parties to the agreement, BAS and SAS, which are affiliates ofETe, agree to also open accoUnts
at the Bank in order to secure pass through deposit insurance coverage for the benefit of ETC's -
custodial account holders. EAS, SAS and the Bank further agree under the contract that BAS
and SAS, as agents for the Bank, will provide the Bank with account-holder and record-keeping
services for the custodial account holders. The agreement is for a term. consisting of the later of
five years, or the date all amounts owing under the Financing," as defined in the Purchase
Agreement of April 7, 2009, pursuant to which ETC and SAS agreed to acquire :from SAS its
individual retirement and qualified plan business. Following this initial term, the agreement
automatically renews on a yearly unless a party provides a 60-daynotice of terinination .
before the next renewal date. -
Based on the foregoing, ETC, BAS and SAS the definition of a deposit broker since they
have facilitated the placement of deposits of third parties with insured depository institutions.
The next step in the analysis is to determine whether these entities meet any of the exceptions
from the deposit broker definition as set forth in 12 C.F.R. § 337.6(a)(S)(ii). In the Luse Gonnan
legal opinion of February 23, 2010, on this contract; the Bank contends that ETC, "as a
custodian, provides.custodial and business services to individual participants' accounts in
employee benefit plans, individual retirement accomrts, and other qualified plan accounts."
Bank counsel further indicates that although ETC "does not exercise any invesbnent discretion
over the accounts ofits customers, it perfonns managerial and administrative functions for its
customers by, for example, collecting rents, paying taxes, collecting reports and annual
evaluations of the assets maintained in the custom.ers accounts and the like." Bank counsel
concludes that ETC should not be deemec;i a deposit broker because ETC "is acting as a plan
admiiristrator for its customers and performs a managerial function for its customers." Luse
Gonnan makes a:similar conclusion in its March 8, 2010, opinion on this contract, and the
Buckley Sandler LIP legal opinion of March 10, 2010, on this contract also reaches a similar
conclusion.
The FDIC intezprets the plan administrator exception to require that the entity be the plan
administrator for a pension plan or other employee benefit plan and that such entityperfonn
managerial functions with respect to the plan. Accordingly, the Bank bas not proven. that ETC
3
701
---
i
... ", ... '
.•..
meets the "plan administrator" exception since the Bank has not proven that ETC is the plan
administrator of a pension plan or other employee benefit plan.
In the legal opinion, Bank. counsel also contends that since ETC's customers have investment
discretion oyer their accounts ''the primary putpose of the deposit accounts is to facilitate the
customers' exercise.ofthat investment discretion."z Although not specifically contended in the
legal opinion, this statement from Bank counsel appears to be an attempt to bring ETC under the
primary pwpose exception of 12 C.F.R. § 337.6(a)(5).
FDIC Advisory Opinion ~ o . 05-02 explains the "primary purpose exception" by referencing
previous FDIC oginions where the phrase "primary purpose" is deemed synonymous with
"primary intent." The· FDIC Advisory Opinions clarify that the "primary purpose exception"
. applies to an agent who places funds into a depository institution when the agent's primary
intention is something other than obtaining deposit insurance coverage for a customer or to
provide the customer with a deposit placement service. For example, in Advisory Opinion No.
94-13,4 a credit card bank assisted would-be cardholders in placing security deposits at another
bank. The FDIC staff determm.ed that the ''primary purpose exception" was applicable because
the "primary purpose" ofthe credit card bank was "to obtain a perfected security interest in
collateral, not to provide a deposit-placing service to its customers." In Advisory Opinion No.
94-39,5 a registered broker-dealer placed client funds into an account at a bank in order to satisfy
a reserve requirement enforced by the SEC. In that case, the "primary purpose exception" was
applicable because the broker-dealer's "primary purpose" was to satisfy the SEC rule, not to
provide a deposit-placement service.
In FDIC Advisory Opinion 05-02,6 the FDIC applied the primary purpose exception to a sweep
program into money market and transaction accounts at two affiliated banks provided by
Company on behalf of its customers for whom Company provided securities' services. The
FDIC determined that such a program would qualify for the primary purpose exception if the
following criteria were met:
1. The swept funds should not exceed 10% ofthe total assets being handled for the
customers ("permissible ratio');
2. The 10% limit should be applied on a monthly basis (the "monthly ratio',);
3. The permissible ratio is not exceeded on consecutive months. or the permissible ratio is
not exceeded for three months during any 12-month period; and
4. The fees paid by the depository institution to Company were for recordkeeping and not
payment for the placement of deposits. .
The fact that ETC's customers possess investment discretion does not mean that ETC can not be
a "deposit broker." In fact, investment discretion is possessed by many, if not most depositors
2 Luse Gorman legal opinion of February 23, 2010.
) See, e.g., Advisoxy Opinion No. 90-21 (May 29, 1990); Advisory Opinion No. 94-13 (March 11,1994); and
Advisory Opinion No. 94-39 (August 17,1994).
4 http://www.fdic.gov/regulationsflawslrulesf4000-8850.h1ml
5 http://www.fdic.govltegulationsllawslrules/4000-9110.h1ln1.
6 http://lwww.fdic.gov/regulationsflawsfrulesl4000-10350.html.
4
702
:..:;' .. "'"' .... =' -,"'':-' .. -"'-' ''"-''_.... . ,.;...' ---'"-' ':"':':';-'=':-::;':'-;::':'--;=..-:..;:' -"'::--='--':"",
who use the services of deposit brokers. Moreover. when a customer exercises discretion to
place funds into deposit accounts, no distinction exists between "facilitating the customer's
exercise of investment discretion" and "facilitating the customer's placement of deposits." In
both cases, the facilitator is a "deposit broker" who does not qualify for the "primary purpose
exception." In addition, even assuming that "facilitating the exercise of investment discretion"
might be the type of purpose covered by the "primary pmpose exception," we do not believe that
this exception is applicable in this case.
Despite Bank: counsel's contention, there is substantial evidence in the agreement that
contravenes the contention that the primary purpose ofthe deposit accounts is to facilit:ate the
customers' exercise of that inv'estment discretion. First, under numbered paragraph I of the
agreement, ETC, BAS and SAS may withdraw from and move these deposits to another financial
institution up to $100 million should they desire to do so in the event certain individuals were to
acquire control oftbis other financial mstitution.
7
These individuals own a con.trolling interest in
BTC. Accordingly. this provision in the agreement tends to show that the selection of the BaDk
was not to facilitate an investment discretion. but to benefit the controlling shareholders of ETC
by allowing them the option to transfer $100 million to an institution these shareholders might
controL
Second, the fees paid by the Bank: to at least BAS and SAS for certain administrative services
might not be directly related to the administrative services provided. Under the ETC Agreement,
the parties agree to pay EAS and SAS ("Companies") a fee ''based upon the number of Custodial
Accounts at Bank and the aggregate monthly balance of such Custodial Accounts in light of the
amount of recordkeeping services and other associated services to be provided by the Companies
with respect to the Custodial Accounts." Specifically. under nUlllbered paragraph 6 of the
. agreement, the Bank pays BAS and SAS a monthly fee of $40 times the number of active deposit
accounts placed by ETC and the Companies with the Bank. Furthermore, this sum is subject to a
maximum cap, which is tied to the interest yield paid by the Bapk on these deposit accounts. By
tying the maximum compensation that EAS and SAS may receive for their recordkeeping and
other serviCes to the balance on deposit accounts, the Bank appears to be compensating BAS
and SAS for placing these deposits in the Bank.
In FDIC Advisory Opinion 04-04 (July 28,2004), the FDIC discussed how fees charged by a
listing service might result in the listing service being deemed a deposit broker:
""although tbestaff did not articulate the rationale for this distinction, the rationale is inferable:
compensation based on the amount of deposits placed. through a 'listing service' may create a .
motivation on the part ofthe service to become involved in the placement of deposits. Indeed,
such compensation strongly suggests that the service is involved in some manner in placing
deposits. Therefore, the existence of such compensation will result in the classification of the
'listing service' as a 'deposit broker.'" ,
Similarly, in this agreement, the compensation the BaDk paid the Companies was tied to the
number of deposit accounts and the balance in these accounts placed by these entities with the
7 The three individuals identified in the ETC Agreement are Jeffrey A. Desich, Richard Desich and Richard A.
Desich. 1
5
703
. Bank. There is present therefore a motivation on the part ofEAS, ETC and SAS to place more
customer deposits and to create more customer deposit accounts with the Bank.
Thirdly. under the 2010 revision to the ETC Agreement, the Bank, ETC and the Companies may
agree to participate out deposits in the bank accounts with a third party bank. If such third party
bank pays interest, subaccounting or other administrative fees to ETC and the that
exceed the Contract V mabie Rate the Bank pays under the ETC Agreement, the parties agree to
split on a 50-50 basis the surplus fee. Additionally, if the Contract Variable Rate exceeds the
Third party Rate, the Bank agrees to make ETC and the Companies whole. Clearly, this
provision evidences that the primary purpose of this agreement is for the placement of funds with
. ••. 8 .
depOSItOry mstltutIons.
Fourthly, ETC and the Companies, under the 2010 revision to the contract, may terminate the
agreement if the Bank: files a financial report reflecting that the Bank is neither "well capitalized"
nor "adequately capitalized." Having this provision in the agreement is an indicia that the .
deposits in question are deposits because a bank that is undercapitalized can not accept,
renew, or roll over any brokered deposit. 12 C.F.R. § 337.6(b )(ii)(B)(3)(ii). .
Fill4l11y, under the 2010 revision to the ETC Agreement, the parties acknowledge that despite the
fact Custodial Account Holders have the right to direct Companies and ETC to deposit their
funds at another inStitution, the Companies and ETC agree "to use commercially reasonable
efforts to have cash balances relating to Custodial Accounts retained at the Bank... This
provision oftlle agreement shows that the placement of the deposits in the Bankby the
Companies and ETC was not to facilitate the customers' exercise of their investment discretion
since the Companies and ETC agreed to used their best efforts to keep their customers' funds in
the Bank, presumably even if the Customers wanted to move the funds to another depQsitory
institution.
Based on the foregoing analysis, the FDIC determined that the deposits from the ETC .
Agreement are brokered deposits.
MSCS Agreement
In this agreement MSCS facilitates the clearing of purchase and redemption trades of various
mutual fund shares for its customers by placing these funds on deposit with the Ba,nk According
to the agreement, the funds "are generally qualified employee benefit plan participant funds held
in a fiduciary capacity by a custodian. or other third parties." According to the Luse Gorman
opinion of February 23, 2010. MSCS serves more than 300 MSCS customers by servicing $100
billion in assets through the MSCS platform. In 2009, MSCS kept approximately $260 million
of MSCS customers' deposits with the Bank. Under the terms of agreement, MSCS is acting
as a deposit broker since it is facilitating the placement of deposits with an insured depository
institution. .
8 Recently, ETCrequested permission for the 01'8 to exercise this provision in the contract.
6
704
• 00::
In their legal opinions, counsel contend MSCS qualifies for the primary purpose exception
and cite FDIC Advisory Opinion 05-02 in of this position. Specifically. Bank counsel
assert the following in support of this position:
1. MSCS' primary business is the clearing of the purchase and redemption trades of various
mutual :funds for MSCS customers;
MSCS' deposits are placed at the Bank primarily to facilitate MSCS' clearing activities
for its customers;
3. The funds placed at the Bank: are a small percentage of the total amount of funds MSCS
. handles for its customers; and
4. The Bank. does not pay a fee to MSCS for the p1acem.ent of the funds with the Bank:.
Despite the Bank's arguments, there are several reasons why the MSCS Agreement does not
meet the pr!nwY pmpose exception. First,. even the issue of the fee the Bank: pays to
MSCS, Bank: counsel'WaB unable to show that MSCS met the :first three factors of the :fI)IC
Advisory Opinion 05-02. Instead, Bank counsel has contended that "the funds placed at the
Bank are a small percentage the total amount of funds MSCS handles for MSCS customers."
Also, in the March 10, 2010. BucJdey Sandler LLP opinion, counsel argues: "Based on the
infonnation provided to us, it also appears that the amount of cash in the MSCS accounts at the
Bank are well below the permimoleratio.· These contentions by Bank: counsel, at best, only
satisfy the permissible ratio factor· of FDIC Advisory Opinion 05-02. Bank coUnsel's legal
opinions do not address the monthly ratio factor nor the fact that the permissible ratio is not
exceeded on consecutive months or for three months during any 12-month period.
On the other hand, if one were to assume that MSCS met the first three factors of FDIC Advisory
Opinion a5-02, the fourth factor is not met as the fees paid to MSCS appear to have been paid for
the placement of deposits. The fees that the Bank pays to MSCSfor its administrative services
on the deposit accounts MSCS opens at the Bank. for MSCS' customers are tied to the balance of
these deposits. Paragraph 4(d) of the agreement provides as follows: "As such the Bank desired
to limit the fees paid to MSCS pursuant to this Agreement to an amount based upon the actual
deposits generated by MSCS :furnishing Administrative Services to those Customers who have
chosen to deposit their funds with the Bank" In. Exhibit "A" to the MSCS Agreement, these fees
are tied to the amount on deposit at the Bank. This type of compensation for services rendered
based on the amounts deposited is a clear indication that MSCS is acting as a deposit broker.
Furthermore, unlike the parties in Opinion 05-02, MSCS and the Bank. are not affiliated.
The MS CS Agreement commenced on July 5,2007, and terminates on July 5, 2010, but is
subject to two automatic one-year renewals, unless certain conditions occur. Interestingly, one
of these conditions is MSCS' notification to the Bank. of ''its intent to solicit bids from other
depositories." Upon such notification. MSCS is given 4S days to get '"bona fide offers from
independent :financial institutions of the terms upon which such financial institutions desire to
provide the Administrative Services." The Bank. is then given 30 days to match any such bona
fide bid. These provisions clearly show that MSCS is a deposit broker since it is bidding out its
deposits to the highest bidder who will pay MSCS the most for the Administrative Services
MSCS provides.
7
705
The MSCS Agreement is subject to termination if the Bank: is not adequately capitalized
(numbered paragraph 5(b)(i). As discussed in the ETC Agreement analysis above, such a
provision is an indicia that the deposits in question are brokered deposits because a bank that is
not adequately capitalized can not accept. renew or roll over any brokered deposit. 12 C.F .R. §
337 .6(b )(2)CI;3)(3 )(ii).
Finally, two other reasons why the primary purpose of the agreement appears to be the placement
of funds with the depository institution are the provision that lists as a cause for termination of
the agreement by MSCS if the Bank refuses to renew·a certain line of credit to MO Trust
Company, LLC
9
and the provision that allows the Bank: to terminate the agreement ifMSCS'
customers fail to maintain at anytime a minimum deposit level of $1,000,000.
For the reasons set forth above, the FDIC concluded t h ~ t MSCS' deposits are brokered deposits.
Lincoln Trust Agreement
Lincoln is described in the agreement as a Colorado industrial bank with trust powers. The term
of the .agreement is for one year, with yearly renewals, unless either party provides a 90-day
notice of termination. Under the agreement, Lincoln will deposit with the Bank funds of its
clients that Lincoln holds in a custodial capacity. The Bank: will properly designate these deposit
accounts so that they will receive pass through deposit insurance coverage. Lincoln is therefore
acting as a deposit broker under this ·agreement since it is facilitating the deposits of the funds of
its customers.
The Bank: has provided a legal opinion concerning this agreement. The opinion summarizes
Bank counsel's understanding of the facts as follows:
10
"Lincoln Trust Company is an industrial bank, with trust powers, that is chartered under the laws
of the State of Colorado ("LTC"). LTC, in its capacity as a custodian, provides custodial and
related services to employee benefit plans, individual retirement accounts, and other qualified
plan accounts ("Customers''). LTC does not exercise any investment discretion over the
accounts of its Customers. ·However, it performs certain managerial and administrative functions
for its Customers (for example, collecting rents, paying taxes·, collecting reports and annual
evaluations of the assets maintained in the Customers accounts and the like). LTC·bas entered
into an agreement with the Bank. to establish various custodial deposit accounts at the Bank for
the benefit of the underlying CUstomer. The Bank: does not pay the TLC (sic) a fee for placing
these custodial deposit accounts at the Bank. The Bank, however, pays TLC (sic) a fee for
providing certain administrative services on behalf of the Bank. to its Customers."
Based on these facts, Bank counsel concluded as follows: "It is apparent from the above that
TLC ( sic) is acting as a plan administrator for its Customers and performs a managerial function
for its Customers:'
9 According to the MSCS Agreement, this line of credit was guaranteed by MG Colorado Holdings (sic) to which
entity the line of credit was provided for liquidity putposes. MG Colorado Holdings, Inc. owns MSCS.
10 Luse Gorman opinion of February 23,2010.
8
706
As discussed in the ETC Agreement analysis above, FDIC intexprets the regulatory exception for
a'plan administrator to require that the entity claiming this exception be the actual plan
administrator for a pension plan or other employee benefit plan and that such person perform
managerial functions with respect the plan., The Bank: has not provided any evidence showing
that Uncoln is such plan administrator.
The Lincoln Agreement provides that Lincoln is either "(a) a directed trustee of a pension or
other employef? benefit plan, with respect to funds of the plan; (b) a person acting as a plan
administratPf or an adviser in connection with a pension plan or other employee
benefit plan provided that that person is perfoI1l1i:ng managerial :functions with respect to the
plan; Qr, (c) a trustee Of custodian of a pension or profit sharing plan qualified under section
401(d) or 403(a) of the Internal Revenue Code of 1986; or (d) an Of nominee whose
pr:in1ary pmpose is not the placement of funds with'depository institutions." Despite these
provisions in the agreement, the only exception to the brokered deposit definition which the
Bank argued was the one f()1" a plan discussed above.l1
The Bank does not argue in its legal opinions that the primary purpose exception is applicable in
this case. Were the Bank to argue this exception, the terms of the agreement contravene this
possibility. First, under paragraph 3.2 the Bank agreed tQ pay LincOln a fee for record-keeping
services based upon the aggregate montbly balance in the\accounts of Lincoln's customers: "In
addition to the Rate being paid by Bank with respect to the Deposit Account, Bank shall pay
LTC a monthly fee equaling an annual percentage rate of 0.75% (75 basis points) of the average
collected balance of the Deposit Accomlt." As discussed above, tying the
compensation to the amount deposited is a clear indication that Lincoln is acting as a deposit
broker. In the Buckley Sandler LI.Popinion, Bank counsel concedes that the fee that the Bank
pays to Lincoln is based on the deposit balance: "The LTC (Lincoln) sub accounting relationship
is similar to the ETC subaccounting relationship wherein LTC provides subaccOlmting and
record-keeping services for Bank and Bank pays a fee to LTC fOf such services, based on the
level of deposits.,,12 ,
In light of the foregoing reasons, the FDIC concluded that Lincoln's deposits were brokered
deposits.
11 In the White Paper the BaDk indicated that the main lin,e of business of the tmst companies {"Trust Companies"
for which the Bank bas opened transaction accounts (e.g. money market and demand deposit accounts) is "serving as
an IRC qualified custodian for mAs providing administration and 1ll8Dagerial services for those aCCOUDfS as a named
custodian for such accounts." The White Paper goes on to state: "They may, from time 10 time, serve as custodian.
trustee or plan administralOm for other qualified retirement plans under IRC Sections 401 or 403, but we leave those
seIVices aside because of this discussion since the vast majority of retirement plan accounts administered by the
Trust Companies' Seep. is of White Paper.
12 In its legal opinions sul>mitted, the Bank did not argue that Lincoln qualified under the deposit broker exception
for "a 1nlStee or custodian ofa peusion or profit-sharing plan qualified under section 401( d) or 403(a) oftbe Iutemal
Revenue Code of 1986 (26 U.S.C. 401(d) or 403(a».ft 12 C.F.R.. §337.6(5)(ii)(H). Instead, the Bank made the
statement set forth in footnote 16, supra.
9
707
beyond $100,000 on the deposit accounts it holds at the Bank on behalf of its customers. A1!.a
result, Bank: agrees under the terms of the· agreement to provide that TMrs funds are being held
in a custodial capacity by 1M! and that the records reflecting the separate interests ofTMrs
customers in these accounts are maintained byTMI. This provision by the Bank enables TMI's
customers to receive pass through deposit insurance under 12 C.F.R. § 330.5. The Bank has not
provided a legal opinion on this agreement On the face of the agreement there is no exception
cited that precludes the conclusion that TMI is a deposit broker and that the funds. deposited
under this agreement are brokered deposits.
UWTC Agreement
This agreement is nearly identical to the agreement and the analysis and conclusion are the
same. In this agreement, 1;JWTC sought pass through deposit insurance fodts customers on
whose behalf it opened deposit accounts at the Bank. The Bank. agreed to properly designate
UWTC'saccounts to show that UWTC's deposits are in a custodial capacity and that the
separate interests ofUWTC's customers are maintained by uwrC.Such an indication on its
'r.ecord by the Bank enables UWTC to obtain pass through deposit insurance for its customers.
UWTC is therefore acting as a deposit broker since it is facilitating the placement of deposits
with the Bank: so as to obtain pass through deposit insurance coverage for its customers. In the
agreement, the Bank agrees to pay UWTC a fee for certain recordkeeping services on the
accounts ofUWTC's customers on whose behalfUWTC is depositing funds with the Bank. The
fee is the greater of a flat fee of $3.00 "per record-keeping non-zero balance account (with the
number of accounts and activity be measured down to the individual investor level)," or a 1%
annual fixed rate on the average daily depositbaJanced kept by UWTC at the Bank. Since the
payment of these fees by the Bank is tied to the amollD:t on deposit by UWTC, this constitutes,
under previously cited advisory guidance by FDIC, a strong indication that UWTC acted as a
deposit broker. The Bank ms not provided a legal opinion on this agreement On the face of the
agreement, there is no exception cited that precludes the conclusion that UWTC. is a deposit
broker and that the funds deposited under this agreement are brokered deposits.
If you have any questions regarding this letter; please contact .AJ?sistant Regional Director Joseph
A. Meade, '(972) 761-2068, or Case Manager Thomas L. TmjiUo, (972) 761-2255. .
..
Kristie K. Elmquist
Acting Regional Director
12
710
,":
TabC
Exhibit 25 A (b)
711
'J
.....
N
United Western Bank:
Brokered Deposit Withdrawals
March 4, 2010 through May 31, 2010
4-Mar-10
CDARS® $ 201,600 $
Traditional Brokered 104,492
The Reserve 1,000
ExhibitB
31-May-IO Comment
128,608· Rolling off as maturing, or moved to MMDA or NOW
104,042 $50 mm mature June 30, 2010, $50 million mature July 1,2010
1,000
Total Bank: Solutions 94,976 withdrawn
Insured Network Deposits 103,137 withdrawn
$ 505,205 $ 233,650
TabC
Exhibit 25 A (c)·
713
IEXHIBITC
UNITED WESTERN BANK
CORE DEPOSIT MANAGEMENT
STRATEGIC PLANNING
AND REGULATORY POSITIONS
MARCH 8, 2010
714
Executive Summary
United Western Bank has a long history as a processing bank with significant
indirect consumer deposit relationships through institutional relationships. These deposit
positions, approximately $1.6 billion at February 28, 2010, represent stable, core
liabilities that allow the Bank to be profitable from year to year ..
This, body of deposits comes to the Bank from engaged in
providing significant and regulated trust or brokerage services to United States citiZens.
As an indirect incident of these regulated businesses, their customers, United States
consumers, frequently have idle funds that are in transit from one external investment to
another or are awaiting distribution to the consumer. These funds have a legitimate and
necessary business purpose to be on deposit at banks and savings banks in the United
States during these transitory periods. The Bank serves this legitimate and necessary
. purpose by providing omnibus deposit accounts for the consumer customers of Equity
Trust Company, Matrix Settlement and Clearance Services, LLC, Legent Clearing, LLC
and others, the Bank's institutional relationships.
As demonstrated by the facts and arguments set forth below, these indirect
consumer deposits are not "brokered deposits" under applicable FDIC regulations. This is
true because the institutional relationships that create the omnibus deposit accounts with
the Bank are not "deposit brokers" under the applicable FDIC regulations. Further, there
is no policy purpose to be served by characterizing these deposits as "brokered deposits."
Consequently, we conclude, and we have provided legal opinions from qualified
regulatory counsel in support of the position, that the deposits in question are suitable
deposits for the Bank that it should be allowed to retain.
715
TABLE OF CONTENTS
Executive Summary ................................................................................................ 2
A Brief History of United Western Bancorp, Inc ................................................... 2
Formation; First Major Non-Brokered Consumer Deposit Source Identified .... 2
Second Major Non-Brokered Consumer Deposit Source Developed ... ~ ............. 3
Third Major Non-Brokered Consumer Deposit Source Developed ................... 4
Major Non-Brokered Consumer Deposit Source Expanded ...... ~ ........................ 5
Fourth Major Non-Brokered Consumer Deposit Source Identified ......... ; ......... 6
The Company Recapitalizes and Expands Directions for the Bank ................... 7
Solid History of Non-Broke red Core Consumer Deposit Development Through
Data Processing Technology ........................................................................................... 8
Strategic Direction for United Western Bank Deposits ....................................... ~ 10
The United Western Bank Perception of the Deposit Market Place ................. 10
Multi-Directional Deposit Growth Strategy ......................................................... 11
Branch Deposit Growth· .................................................................................... 11
QWICK RATE Deposit Growth ........................................................................ 12
Growth from Strength-Capturing Disintemiediated Deposits .......................... 12
Description ofNon-Brokered Consumer Deposit Relationships .......................... 15
Trust Company Omnibus Accounts .................................................................. 15
Equity Trust Company/Equity Administrative Services, IncJSterling
Administrative Services, LLC .................................................................................. 24
The Matrix Settlement & Clearance Services, Inc. Omnibus Account ............ 27
The Legent Clearing Omnibus Account ........................................................... 34
Lack of Volatility of Deposits ............................................................................... 41
Managing Deposit Concentrations ........................................................................ 43
Conclusions ........................................................................................................... 44
Exh.ibi'ts ...........•..................................................................................................... 4S
716
A Brief History of United Western Bancorp, Inc.
Formation; First Major Non-Brokered Consumer Deposit Source
. Identified
The consolidated company that is now United Western Bancorp, Inc. (the parent
company of United Western Bank) was founded in 1989 by Guy A. Gibson.
1
Mr. Gibson
started his formal business career in the business of trading mortgage servicing rights
("MSR") for third parties.
In 1989, Mr. Gibson recognized that there was a significant opportunity in the
acquisition of MSR from distressed banks and savings associations. Mr. Gibson formed
United Financial, Inc. ("United,,) in 1989. United became a full service MSR brokerage
and consulting service company to the mortgage banking industry. United was an
approved loan servicing broker forthe Resolution Trust Company ("RTC").
In 1990, Mr. Gibson formed Matrix Financial Services Corporation ("MFSC")
.which went on to become a major acquirer of MSR from the RTC in the early 1990s. As
is well known, MSR servicers are in control of significant interest free deposits in the
form of monthly principal and interest payments due from as well as low
interest rate escrow balances for the payment of casualty insurance and property taxes.
These large, interest free balances inevitably incline mortgage servicers to acquire FDIC
insured depository institutions to hold these balances in an efficient manner.
In 1993, Mr. Gibson caused MFSC to acquire United Western Bank (the ''Bank'')
which was then a federally chartered savings bank with approxiinately $35 million in
1 United Western Bancorp, Inc. was originally known to 1he OTS and the FDIC as "Matrix Capital
Corporation" and United Western Bank was originally known to OTS and FDIC as the "Donna Anna
Savings & Loan" and later ''Matrix Capital Bank." The charter for Donna Anna Savings Loan was granted
in 1962.
-2-
717
Unitedwestem Bank. Core Deposit Management
Strategic Planning and Regu1atOIy Issues
March 8, 2010
footings. MFSC acquired the Bank with a view to funding the liability side of its balance
sheet with inexpensive, stable MSR related deposits. On the asset side· of the balance
sheet, the Bank focused on acquiring 1-4 family residential mortgage loans.
Supplementary activities included MSR valuation and brokerage services and other
sources of fee income.
United Western Bancorp, Inc. (the "Company") completed an initial public
offering in 1996 to increase available capital and expand operations.
Second Major Non-Brokered Consumer Deposit Source Developed
In 1997, the Company acquired UW Trust Company (flkla Sterling Trust
Company), a Waco, Texas based, non-depository trust company regulated by the Texas
Department of Banking. UW Trust, at the time of acquisition, was engaged in the
business of providing custodial and management services for 26,550 individual
retirement account holders2. As an Internal Revenue Code ("IRC") qualified custodian,
UW Trust enabled IRA investors to invest in both traditional investments (e.g., stocks
and bonds) as well as alternative investments (e.g., real estate, energy and other types of
assets). As an incident of these investment activities, IRA holders have idle cash amounts
in their IRAs that require interim position holding. At the time of acquisition by the
Company, these idle cash amounts aggregated approximately $90 million.
Initially, the UW Trust IRA holders idle cash was directed to a third party money
market mutual fund. Following its acquisition by the Company, the Bank developed an
omnibus account for UW Trust's IRA account holders. with the Bank. This allowed
convenient deposit positioning for UW Trust clients while their funds awaited investment
2 In addition to its IRA custodial services business, UW Trost also provided administrative services to
other IRe qualified retirement plans and escrow account management for the life settlement industry
totaling approximately 3,000 additional accounts.
- 3-
718
United Western Bank:. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
or distribution and provided the Bank with an extremely efficient, low cost source of
liabilities.
As UW Trust developed its business, until it sold its IRA custodial business to
Equity Trust Company in June 2009, over 90,000 United States citizens opened accounts
with UW Trust with deposit balances aggregating $327,000,000 at June 2009. The high
water mark for deposit balances from UW Trust clients at the Bank was November 2007
with total average monthly balances of $412,000,000. Deposits decreased in the period
2008-2009 when UW Trust determined to reduce its activities in one escrow services
market.
Third Major Non-Brokered Consumer Deposit Source Deve/oped
In 1998, UW Trust formed Matrix Advisory Services, Inc. ("MAS") to perform custody
services for FlNRA member firms, third-party advisors and others. At that time, MAS
identified a material inefficiency in the mutual fund settlement and clearing business. The
mutual fund industry inefficiency identified by MAS was the inability of major third
party administrators (e.g., Chase, Fifth Third and others) ("TPAs") to efficiently process
mutual fund investments for the benefit of the IRC Section 401 and 403 funds they
managed since none of the TPAs could interact with the thousands of mutual fund
sponsors (e.g., Fidelity Investments) across a common electronic (data processing)
interface.
To resolve this problem, in 1998, MAS acquired a license for software from
Optech. The Optech software was an agnostic data processing interface that worked with
the hundreds of TPAs and.the thousands of mutual fund sponsors in the United States.
This allowed MAS to execute mutual fund trades on an electronic basis instead of with
physical applications and physical bank checks. Optech was formed by Thomas
McInerney, the then managing partner of Welsh, Carson, Anderson and Stowe, a major
private equity firm with offices in New York, NY and which manages over $20 billion of
investor funds. Welsh, Carson has always focused on the electronic processing business
(for example, Welsh Carson founded BISYS Group, now owned by Citicorp).
-4-
719
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
To further exploit and capitalize on the mutual fund industry inefficiency in
communicating with TP AS, McInerney later agreed with the Bank and MAS to joint
venture for the fonnation of Matrix Settlement & Clearance Services, LLC. ("MSCS,,)3
by contributing an exclusive license for the Optech software to MSCS. MSCS went on to
market the Optech solution to hundreds of TPAs and mutual fund families. Today, this
interface processes thousands of daily transactions for over $90 billion of investor funds.
As a result of the processing services provided by MSCS, investor funds are
transmitted into mutual funds for investment and out of mutual funds for distributions· or
reinvestment. A portion of those funds at the end of each trading settlement day are
retained in a Bank omnibus account for the benefit of the individual investors for whom
the TP As provide custodial and management services. This provides the Bank with a low
cost, stable source of liabilities that has averaged $179,000,000 over the past three years.
The Bank provides a material amount of services to MSCS as described under
Matrix Settlement & Clearance Services Omnibus Account below. The degree of services
provided to MSCS is both sophisticated and unique. This level of sophistication and
uniqueness allows MSCS to profitably service its TPA client base and encourages MSCS
to remain with the Bank.
Major Non-Brokered Consumer Deposit Source Expanded
In 2000, the Bank developed a client relationship with Equity Trust Company, a
non-depository trust company regulated by the South Dakota Division of Banking. Equity
Trust was, and is, engaged in the same manner of services for IRA holders as UW Trust
was engaged in. Equity Trust required a bank that understood the exigencies of managing
the idle cash of IRA holders and was willing to facilitate an electronic data processing
3 At the time of formation, the Company owned a 45% interest in MSCS. The Company sold an
approximately 38% ownership position in MSCS to a McInerney led group in 2004 and sold its remaining
7% to Mr. McInerney in 2009.
- 5 -
720
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
interface and other services for Equity Trust. The Bank was then, and is today, the best
source of those services for Equity Trust and the relationship progressed to the point that
UW Trust elected to sell its 90,000 IRA and IRC Section 401 account relationships to
Equity Trust in June 2009.
Over the course of the last decade, this relationship has provided a stable, well-
priced source of deposits to the Bank.
Fourth Major Non-Brokered Consumer Deposit Source Identified
In mid-2002, Mr. Gibson stepped down from the active management of the
Company and the Bank to acquire Legent Clearing, LLC, an international securities
clearing company engaged in providing securities clearing services to Financial Industry
Regulatory Authority ("FINRA") member fIrms in the United States. The securities
clearing business was attractive to Mr. Gibson since, like mortgage servicing and mutual
fund settlement and clearing services, the securities clearing company's provide access to
substantial indirect consumer deposit relationships (substantially similar to the UW Trust
and Equity Trust experience).4
When Mr. Gibson acquired Legent Clearing, client accounts held approximately
$35,000,000 of idle cash balances that required deposit account services. As Mr. Gibson
and his teamS developed the Legent Clearing business, client account balances grew to
over $500,000,000 within 24 months. While individual client accounts may have cash
balance volatility, on a collective basis the deposits are very stable and inexpensive.
6
4 The United Western Bancorp, Inc. white paper on Legent Clearing, LLC and the United States
securities clearing industry is attached hereto as Exhibit A.
5 Fonner Legent Clearing management members that continue in management at the Company include
Guy A. Gibson, Michael J. MCCloskey, William D. Snider and Michael A. Stallings.
6 For example, today TD Ameritrade sweeps client idle cash balances to TD Bank, NA., TD Bank
USA, N.A., or both. Assets at each bank are eligible for FDIC insurance of up to $250,000 per depositor.
Because there are two banks in the program, balances could be covered for up to $500,000 per depositor.
TD Bank N.A. and TD Bank USA, N.A. are affiliates of TD AMERITRADE. TD Bank, N.A. has
-6-
721
United Western Bank. Core Deposit Management
Strategic Planning and Regulatoly Issues
March 8.2010
In February 2005, Mr. Gibson sold Legent Clearing to an investor group led by
Mr. Henry C. Duques, the fonner Chairman of the Board and Chief Executive Officer of
First Data Corporation, one of the major electronic data processing companies in the
United States. Mr. Gibson did this to allow him and his team to focus on a strategic
redirection for the Bank.
Legent Clearing has had a deposit relationship with the Bank since 2003
7
• This
deposit relationship, described in greater detail below, provides the Bank with a stable
and inexpensive source of deposits. As described in Exhibit A, the Bank now has a non-
binding letter of intent to acquire Legent Clearing.
The Company Recapitalizes and Expands Directions for the Balik
In August 2005,. Mr. Gibson approached OTS with a plan to recapitalize the
Company and redirect the Bank's liability and asset focus into the community banking
sector to aid in the formation of additional, local liabilities and a s s ~ t s for the Bank. The
OTS acquiesced to this plan and Mr. Gibson completed the recapitalization of the
Company in December 2005. New management, led by Scot T. Wetzel, assumed control
of the Company and the Bank: on December 9, 2005.
Since the 2005 recapitalization, the following major developments have occurred:
a. the Bank: has built its community bank branch system to eight branches
from one, covering the front range of Colorado;
approximately $117.5 million in deposits on its latest call report, yet, it doesn't list any brokered deposits
on its call report. TO Bank USA, N.A. lists approximately $400 million of broke red deposits on latest call
report. Interest paid to the underlying customer on these balances is extremely low.
7 The initial deposit relationsbip was negotiated with the Bank by Michael J. McCloskey when he
served as Executive Vice President for Legent Group, Inc. on behalf of Legent Clearing, LLC. Mr.
McCloskey was not an affiliate of the Bank at that time, but is today the Executive Vice President and
General Counsel of United Western Bancorp, Inc.
-7-
722
United Western Bank. Core Deposit Management
Strategic Planning IUId RegulatoIy Issues
March 8, 2010
b. in 2006, both the Company and the Bank disposed of several non-critical
business lines (e.g., the charter school loan business, real estate brokerage
and other);
c. The Bank's balance sheet, comprised of approximately $1 billion in 1-4
family residential mortgage loans and $1 billion of mortgage backed
securities at December 31, 2005 has been redirected into higher earning
community bank loans;
d. Community bank deposits have grown from approximately $11,000,000 to
over $400,000,000 at December 31, 2009;
e. UW Trusts sold the significant majority of its custodial rights to service
customer accounts to Equity Trust in June 2009;
f. Equity Trust, at the instructions of and on behalf of over 100,000 IRA and
other accounts, entered into a three to seven year subaccounting agreement
in favor of the Bank;
g. in September 2009, ~ e Company raises $88.8 million of new capital via a
common stock offering and added over $65 million in n ~ w bank capital;
and
h. Total core institutional deposits equaled $1.6 billion at February 28, 2010.
Solid History of Non-Brokered Core Consumer Deposit Development
Through Datil Processing Technology
Since the commencement of significant disintermediation of deposit funds from
banks and savings banks, in 1971 with the advent of The Reserve money market mutual
-8-
723
United Western Bank. Core Deposit Management
StTategic Planning and R.cgulatmy Issues
March 8, 2010
t).md, FDIC insured banks and. thrifts have faced an ever increasing competition for
deposits from multiple sources (see chart below). There is no turning back the clock on
this development as the internet and other sources make access to deposit relationships
from non-bank sources ubiquitous.
In 1990 bank II1d thrfl depoSIts held 84:l% marke1sharaln IRA deposits. As ofthefaurth qua-1erof:lOD8,
the percemege hed dropped 10 8 mara 11 'III. 1IIft111 mutual funds Increased from :l:l% to 44% and broklragl
fhns Increased from 30% 1037%. (FmmtheUS _MIll" TNIIIQ ...... :IIlO8, t_tean,-ytJ_
Re_"'" Furrt_nIIIlr, pWlhhed FebtIJoty IIbL 11 No. 5-Q!l, pIIp 5J
44 Percent of IRA Assets Were Invested In Mutual Funds in the Fourth Quarter of 2008
Bank and thrIftdlposlta Ufalnsurance Securities held In
Mutual Funds 1 companles
z
brokarageaccounta" Totsl
A •• ta Share' A •• ta Share' A •• ta Shara' Asslta Share· .sets

1991 188 24 a83 38 43 6 260 34 776
1993 3a1 3:l :lm 26 6:l 6 347 35 993
1997 7111 45 a54 15 136 8 558 3:l 1.7:28
1999 U77 46
2001 1,176 45 :l55 10 :l11 6 978 37
2003 1.3:l7 44 :lea 9 aa5 10 11141 37 :l.993.
2005 1.700 47
2007 :l,304 49 340 7 325 e 7 17781 37 4,7478
.• ..
2008:Q2 2.155 46 359 8 321 I 7 1677 1 37 4,5128
2008:Q4 1.596 44 391 11 3011 8 13:l1e 37 3.610.
-9-
724
United Western Bank. Core Deposit Management
Strategic P_ng and Regulatory Issues
March 8, 2010
Facing up to the challenge of disintermediation, United Western Bancorp, Inc.
and United Western Bank have a solid core franchise in the development of indirect
consumer deposit relationships that provide a stable, long-lived and inexpensive
alternative to the traditional branch banking deposit concept.
More importantly, as discussed iti more detail within, these deposits are not
"brokered deposits" under either the applicable FDIC regulations or in the traditional
sense of "rate sensitive customers
s
" that may appropriately concern the various Treasury
departments. Instead, these deposits are well-planned, non-brokered deposits that are tied
to the Bank by the Bank's ability to provide electronic data interfaces for TPAs and
others who are not "deposit brokers" as defined in applicable FDIC regulations.
Strategic Direction for United Western Bank Deposits
The United Western Bank Perception of the Deposit Market Place
The Company and the Bank have surveyed the landscape of today's deposit
market place and determined the following:
a. competition for retail and business deposits will not diminish, b u ~ will
increase as the dominant national banks (e.g .• JP Morgan Chase) increase
their branch presence further; these institutions are largely indifferent to
the development cost and, more importantly, the development time of
branch distribution systems;
b. the competitive pressure from the national banks will be reinforced by
branch and deposit gathering competition from the super regional banks
(e.g .• Comerica) who are similarly, though less so, indifferent to the cost
and development schedule for branch deposits;
8 Joint Agency Advisory on Brokered and Rate-Sensitive Deposits, May II, 2001
- 10-
725
United Western Bank. Core Deposit Management
Strategic Planning and Regulatety Issues
March 8, 2010
c. the migration of business and consumer customers away from bank
branches will increase, not decrease, as the United States population is
further inundated with alternative platfonns (e.g., TD Ameritrade); this
migration will shrink the deposit market share available to banks and
savings bank in general; and
d. those banks and thrifts unable to adequately address this deposit landscape
are destined to be lack luster perfonners at best or something more dire at
worse.
Multi-Directional Deposit Growth Strategy
Branch Deposit Growth
The Bank, over the past four years, has implemented a branch strategy to
supplement its core strengths in an indirect consumer deposit base. Branch deposits are
now a viable direction for the Bank as demonstrated by the deposit growth table shown
below.
Branch deposiis-non-COARs
Branch deposlts-COARS
Total
Balance as of
December 31st (1 ,000s)
$ 217,000 $159,900 $ 89,300 $ 48,100 $ 11,400
248,000 32,000 __ - __ - __ -
$ 465,000 $191,900 $ 89,300 $ 48,100 $ 11,400
Over the next three years, the Bank expects to increase its total number of
branches to 12 and to increase aggregate branch deposits (non-CDARS) to $500,000,000
by January 2013.
- 11 -
726
United western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
QWICK RATE Deposit Growth
The Bank has recently augmented its deposit gathering strategy by participating in
two different, internet-based CD bulletin board services, Money Aisle and Qwickrate.
Neither of these sources would be considered brokered deposits. Bank Operations staff
has had training to ensure that brokered deposits will not be accepted through these
channels.
The Bank's ALCO has approved a pricing strategy that positions the bank to
generally be in the second. quartile of banks that are posting at" any point in time and to
always be below the national rate cap levels posted weekly by the FDIC.
The Bank has been posting for CD maturities ranging from 6 months to 2 years
and has raised approximately $53 million. The Bank expects this avenue to generate
$100,000,000 in aggregate deposits by the end of 2010. The Bank. will restrict total
deposits from this source to $100,000,000, subject to further analysis by the Bank's
ALCO and Board Investment Committee oversight.
Growth from Strength-Capturing Disintermediated Deposits
The Bank's best competitive position in addressing the deposit market is to
continue to focus on its historic strengths, servicing businesses which serve the United
States populations' deposit management needs as an indirect incident of other primary
activities for the client. This reversal of disintennediation allows the Bank. to profit from
its ability to service the electronic data processing needs of the third parties who have
interrupted the chain of nonnal deposit relationships over the past 35+ years.
Legent Clearing is an excellent example of this type of initiative. The oWners of
Legent Clearing have agreed to sell100% ofLegent Clearing to a to-be-formed operating
-12 -
727
United Western Bank. Core Deposit Management
Strategic Planning and RegulatOty Issues
March 8, 2010
subsidiary of the Bank at a ,favorable price to the consolidated groUp.9 This acquisition is
attractive to the Bank due to the following factors:
a. given senior management's prior experience in the industry and from
direct ownership of Legent Clearing, the Bank will have resident
experience necessary to effectively and prudently manage' this business
line;
b. significant regulatory precedent exists for ,this manner of acquisition and
the operation of the securities clearing fmn as' an operating subsidiary of a
federal savings bank;
c. a November 2006 opinion of the OTS General Counsel expressly allows
for the acquisition of 4 securities clearing company within an operating
subsidiary of a federal savings bank;
d. as recently as'the fourth quarter of 2008, the Federal Reserve pennitted a
Texas chartered
10
bank to acquire a securities clearing company as a bank
operating subsidiary;'
e. the fully-loaded costs of these deposits will be approximately 0.50% in the
first year' of operations; with increased operating efficiencies at Legent
Clearing, the cost of these deposits will decrease;
f. the Bank can provide' the full panoply of services required to service the
200,000+ client base associated with Legent Clearing; and
9 See footnote 2 above. The price for this transaction is generically defined as book value at closing
plus warrants on three million shares of the Company's common stock.
10 PlainsCapital Corp. acquired First Southwest Securities after the close of business on December 31,
2008.
-13 -
728
United western Bank. Core Deposit MarIaPment
Strategic Planning and Regulat.OIy ISsues
March 8, 2010
g. this acquisition will allow the Bank to control current deposit balances
between $500,000,000 to $700,000,000 on a current basis with growth to
$1,000,000,000 in average monthly deposit balances expected within the
next two years.
Through the auspices of UW Trust Company, we are prepared to reenter the life
settlement escrow services business. This is significantly akin to the escrow processing
business Comerica manages on a national basis from its San Francisco offices. While an
exposition of the life settlement business is beyond the scope of this paper, suffice it to
say that, with the resident experience at UW Trust from 15 years in this business sector,
the Bank and its affiliates are a prime competitor for this business which formerly
provided the Bank with over $100,000,000 of stable, low cost deposits.
With the recent scandals in the Section 1031
11
real estate exchange management
business, this market sector has become a greater opportunity for regulated entities such
as the Bank. Unregulated Section 1031 intermediaries have· simply proven to be
unreliable stewards of the public trust and banks and savings banks will inherit this
market opportunity as a resUlt
The Bank will capitalize on this opportunity by developing a Section 1031
exchange business with UW Trust We believe this sector to be a significant opportunity,
but real growth here must await a recovery of the transaction volume associated with real
estate transactions. While prices for real estate assets may fail to recover, the absolute
number of transactions may increase causing the investing public to require Section 1031
tax deferral· intermediaries. The Bank and UW Trust will combine to be one of those
providers and use the service to generate fee and deposits for the Bank. Because the Bank
can provide any electronic data face necessary to service this sector, it expects to be able
to compete as a market leader.
11 Internal Revenue Code of 1986, as amended (uIRC"), Section 1031
-14 -
729
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
Description of Non-Brokered Consumer Deposit Relationships
Prior to discussing the question of whether or not the Bank's non-brokered
consumer deposits constitute "brokered deposits" under the applicable FDIC regulations,
an introduction to the underlying business of each of our non-brokered consumer deposit
client relationships may be instructive.
Trust Company Omnibus Accounts
In at least two significant instances,12 the Bank has opened a varietx of common
transaction accounts (e.g., money market and demand deposit accounts) for trust
companiesengageii in managing IRA and other retirement accounts ( a "Trust Company"
or "Trust Companies," collectively) through which the Trust Companies act as plan
administrators for these IRAs. The main line of business for these Trust Companies is
serving as an IRC qualified custodian for IRAs providing administratiV'eand managerial
services· for those accounts as a named custodian for such accounts. They may, from time
to time, serve as custodian, trustee or plan administrators for other qualified retirement
plans under IRC Sections 401 or 403, but we leave those services aside of this discussion
since the vast majority of retirement plan accounts administered by the Trust Companies'
areIRAs.
With regard to IRAs it is important to note the following for policy
considerationS
13
:
a. approximately 40% of all United States households owned an IRA in
2009;
12 Here we refer to Equity Trust Company (which includes our fonner trust company, UW Trust, to the
extent of the 75,000 IRA and other accounts transferred to Equity Trust in June 2009) and Lincoln Trust
Company.
13 Sub-items a-c are taken from Investment Company Institute data published in Pebnwy 2010 and
sub-item dis based on the 30 years of experience vested in Paul E. Maxwell, Chairman of the Board and
Chief Executive Officer ofUW Trust Company.
-IS -
730
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
b. United States citizens of all ages own IRAs, but ownership is greatest
amongst the older age groups; incidence of IRA ownership is greatest
amongst 55 to 64 year old citizens;
c. total retirement assets in the United States as of September 2009 were
$15.6 trillion with IRAs holding approximately $4.1 trillion in assets; and
d. large, regulated c o m p ~ e s (e.g., Charles Schwab, Merrill Lynch,
Millennium Trust Company, UBS, TDAmeritrade and others) all
maintain deposit accounts for their IRA holders at FDIC insured
institutions.
Equity Trust Company is a regulated trust company chartered by the South
Dakota Division of Banking. Lincoln Trust Company· is a regulated trust company
chartered by the Colorado Department of Banking. Each of these companies is a qualified
custodian for IRAs under the IRC.
Each Trust Company offers its IRA holders the opportunity to invest in traditional
and alternative investments. Traditional investments include stocks, bonds, mutual funds
and other common variety investments. Alternative investments include indirect
investments in private placements, iimited partnerships and limited liability companies
and direct investments in real estate, oil and gas interests and others. The decision as to
I
selection with regard to these investments is left to the holder of the self directed IRA, .
but the Trust Companies provide significant plan administrative services to the· IRA
holder.
The administrative services provided by the Trust Cpmpanies include, among
others, the following:
-16 -
731
United western Bank. Core Deposit Management
Strategic Planning and Regulatoty Issues
March 8, 2010
a. conducting rigorous account opening reviews in accordance with internal
polices;
b. taking custody of all of the assets contributed to the IRA;
c. holding title to the assets of each IRA for the benefit of the individual IRA
holder;
d. executing investment documentS and· taking possession of·
securities as agent for and for the benefit of the IRA holder at the
directions of the IRA holder;
e. for real property and alterruitive investments; managing lease payments on
behalf of the IRA holder;
f. for real property and alternative inveStments, accounting for cash
investments and distributions on behalf of the IRA holder;
g. for real property and alternative investments, accounting for and paying
real estate, franchise, .excise and other taxes to appropriate agencies on
behalf of the IRA holder.
h. monitoring investments to assure that the IRA holder is not violating any
self-dealing or other restrictions of the IRe as it applies to IRA assets;
i. investing and reinvesting cash deposits on behalf of the IRA;
j. securing annual valuation reports for all assets held by the IRA and being
prepared to report such values;
-17 -
732
United western Bank. Core Deposit Management
Strategic: Planning and RegulatOJy Issues
Man:h 8, 2010
k. administering and accounting for contributions and distributions to the
IRA holder; and
1. preparing mandated tax reporting documents.
Each of the Trust Companies observes a rigorous BSA/AML procedure to assure
that they can properly discharge their duties under the applicable statutes. Copies of the
BSA/AML policy previously employed by UW Trust Company are attached as Exhibit B
to this paper (we cannot provide the confidential BSA/ AML policies of our Trust
Companies clients).
One of the services offered to IRA holders by the Trust Companies is the
opportunity to direct idle cash balances in money market mutual funds and/or cash
deposit accounts with the Bank in the form of omnibus accounts entitled to pass through
FDIC insurance by virtue of applicable regulations. The direction of idle cash balances to
a Bank omnibus account or otherwise is within the purview of the IRA holder. This idle
cash is awaiting either investment or distribution and balances may be affected from
account to account depending on the IRA holder's expectation with regard to future
market performance or future economic conditions or for other reasons. Many accounts
have no cash. Some accounts hold more cash than others. Here, once again, it is the
account holder who directs where to place the idle cash in the IRA.
Equity Trust Company has a total of over 100,000 IRA holders as well as
accounts for ~ e benefit of other qualified retirement plans. Lincoln Trust Company has a
total of over 65,000 IRA holders as well as accounts for the benefit of other qualified
retirement plans
14

14 This information is believed to be reliable and based on detailed information known or reported to
the Bank. While we have absolute confirmation of the data with r ~ g a r d to UW Trust Company, that data
ends as of June 2009, the date we sold the custodial rights to the majority of the UW Trust Company
accounts to Equity Trust Company.
-18 -
733
United western Bank. Core Deposit Management
strategicP1anning and ReguiatolY Issues
March 8, 2010
None of the customers of the Trust Companies come to the Trust Companies for
the sole purpose of investing available cash amounts. These are IRA funds that are
invested for retirement income at a date in the future. Moreover, the rates paid on idle
cash balances by the Bank
ls
in respect to the omnibus accounts is de minimus in all cases
as against other cash investment alternatives (e.g., United States Treasury obligations,
GSE obligations or money market mutual funds). In fact, we believe that the underlying
IRA holders are indifferent to the rate of interest paid on these accounts because the
funds are in suspense awaiting later investment or distribution. As shown in. the below
chart for Equity Trust customers, the rates paid to the underlying account holders on idle
cash balances is extremely low. Given the rates paid versus the national six month
COvered Assets or Exchanged Assets rate, the IRA holders can hardly be accused of
chasing the highest rate by allowing idle funds to be placed on deposit at the Bank.
From the above, it is clearly to be seen that the Trust Companies are: (i) acting as
plan administrator with respect to an employee benefit plan; and (ii) involved in the
business of administering 1RAs. They may incidentally create deposit accounts at the
direction o ~ their IRA holders in the course of their plan administration service
businesses, but they are not in the business of placing deposits with United Western Bank
or any other bank. Their primary business purpose is the administration of IRAs and not
the placement of funds with depository institutions.
15 We believe that the rate the Bank pays on the Equity Trust IRA holders' idle funds is competitive
with other banks in similar situations.
-19 -
734
-....,J
W
lJ1
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
The schematic below represents the key relationships by and between Equity Trust's IRA holders, Equity Trust and the
Bank:
I
'.1
·.1. U. N •..I.1. '.E.D
WESTERN
BANK
Schematic Description of Equity Trust COmpany
[This SChematic may also be applied to Lincoln
Trust COmpany as Lincoln Trust Company Is
substantially similar to Equity Trust Company.]
Prepared by: United Western Bank
Prepared: March 5, 2.010
- 20-
-....J
W
(J)
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
The following chart demonstrates the growth in Equity Trust IRA holders deposits on deposit with the Bank and the interest
rate paid on such deposits to those IRA holders (the spike in deposits in the second half of 2009 is attributable to the acquisition of
the UW Trust custodial account agreements):
... Deposit balaoca
Equity Trust Deposit Balance and Customer Rate History
__ UWB Customer Deposit Rate
----r 4.00%
$1,000.000
$900,000 3.50%
$800,000
3.00%
$700,000
2.50%
t
i
$600,000
I
2.00% 1
i
$600,000
- ~ . ~
$300,000
1.60%
1.00%
$200,000
0.50%
$100,000
$- III U I U I U I U I U I U IIII U I U I U I U I U I U I U I U I U I U I U I U I U a I B II U II U g !I,I II .,.111
11
,.11111,9 g.,. · P,' II P,UI 0.00%
///////////////////////////////
- 21 -
f
-...J
w
-...J
United Western Bank Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
The following detail supplements the foregoing chart of information pertaining to the Equity Trust IRA holders' deposit
accounts with the Bank::
6.000%
5.000%
4.000%
3.000%
2.000%
1.000%
0.000%
Comparison of Equity Trust
Customer Deposit Rate to National6M CD Rate
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
~ ~ # # ~ ~ ~ ~ # # ~ ~ ~ ~ # # ~ ~ ~ ~ # # ~ ~ ~
-- - - ... _----- - - - - - - - - . - - - - - - ~ -
...... Pass-through rate _6m CD
-22 -
-...J
w
co
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
The following chart shows the relationship of cash balances and assets under custody pertaining to the Equity Trust
operations:
Equity Trust
Cash Balances & Assets Under Custody
In $10,000
,--------------------------------------------------------------------------., 25.000/0
c
.2
$9,000
i
$8,000 20.00%
~ $7,000
.s
o
~
In
$6,000 ::s
(,)
15.00% i
..
CD
$5,000
"0
C
::s
$4,000
-
CD
In
~
$3,000
$2,000
$1,000
...--. . .
• • • • • • • • • • • • •
$0 I I I I
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
'lI
Ci
~ ' b - ~ ' > ~ I?/«. 0Ci ~ ' b - ~ ' > ~ c§'« 0Ci ~ ~ ' ' > ~ c§'« 'lI
Ci
~ ~ ' > ~ e:!'« rJJ
Q 'S ~ Q 'S Q 'S Q. 'S Q
-II- Asset under custody -+-Ave Cash Balances ..... % Cash Balance/AUC
- 23 -
(,)
c
as
j
10.00% .c
~
-
5.00%
I 0.00%
United Western Bank. Core Deposit Management
. Strategic Planning and RegUlatory Issues
March 8.2010
Equity Trust Company/Equity Administrative Services, Inc./Sterling
Administrative Services, LLC
Equity Trust has been a client of the Bank since 2000
16
• Equity Trust is ~ self
directed IRA custodian that offers custodial and managerial business services to
individual participants' accounts in employee benefit plans, individual retirement plans
and other qualified plan accounts thereby providing its clients with the ability to invest in
real estate, private placements, tax liens and other non-traditional assets within a self-
directed IRA or 401(k) plan. Equity Administrative Services ("EAS") and Sterling
Administrative Services ("SAS") are affiliates of Equity Trust and provide certain
administrative and managerial services. to ETC (BAS and SAS collectively referred to
herein as the ''Equity Trust Companies") .. Each individual retirement account maintains a
certain level of liquidity. This is typically less than 10% of total assets in such account.
This liquidity is deposited in multiple omnibus accounts held at Bank. The total deposits
and underlying account holders from Equity Trust have steadily increased over the last
five to six years and represent a stable and reliable source of funds for Bank. Below is a
chart detailing the amount of deposits maintained by ETC and the Equity Trust
Companies at Bank since2004:
At December 31st
2009 2008 2007 2006 2005 2004
Number of Aceouts
43,793 46,006 39,071 34,696 28,501
S balance (1,0008)
$ 557,000 $ 493,000 $ 449,000 $ 455,000 $ 427,000 $
Averall! balance I!!!r account $ 12,719 .$ 10,716 $ 11,492 $ 13,113 $ 14,982 $
Like Equity Trust, UW Trust Company acts as a custodian of self directed IRA
accounts of its clients. The Company purchased UW Trust in 1997. The liquidity created
from UW Trust's self directed IRA accounts has been swept to Bank since 1998. On
16 Equity Trust Company was originally known to the Bank: as Mid-Ohio Securities when the omnibus
accounts were initially created for the benefit of the IRA holders.
-24-
739
21,218
338,000
15,837
United Western Bank. Core Deposit Management
Strategic P1111l11ing and Regulatory Issues
March 8, 2010
June 27,2009, Equity Trust and SAS purchased approximately 90% of the total assets of
UW Trust-such assets of UW Trust relating to its self directed IRA business and
employee benefit plan business. At year end 2009, Equity Trust· and the Equity Trust
Companies had balances of $934 MM representing more than ·100,000 individual
accounts. UW Trust fmanced a portion of·the purchase price and the financing· was
secured by a first priority lien on substantially all of the assets of EtC and the Equity
Trust Companies, including the rights to the custodial accounts.
In conjunction with the sale, Bank, ETC and the Equity Trust Companies entered
into an Amended and Restated Subaccounting Agreement dated June 27,2009 whereby,
among other things: (i) ETC and the Equity Trust Companies maintain all accounts at
Bank in which ETC acts as custodian for the benefit of its custodial account holders; (ii)
the Equity Trust Companies will act as agent for Bank to provide the custodial account
holders with record keeping and certain other services with respect to the account activity
and (iii) Bank will pay a monthly fee to the Equity Trust Companies based upon the
services the Equity Trust Companies provide, such services including, but not limited to,
providing custodial account holders with quarterly statements reflecting the amount of
assets in the custodial accounts, including the amount of cash held at the Bank, providing
other record keeping services to Bank and providing correspondence and
communications to the IRA holders.
Both the Subaccounting Agreement and the ETC Account Application and
Individual Retirement Custodial Account Agreement (see copy . attached hereto as an
Exhibit C) entered into between ETC and. its customers provide that ETC will perform
subaccounting and record-keeping, administrative or other services related to the
custodial account holders' accounts and that ETC may be receive fees for such services.
The Subaccounting Agreement provides that Bank shall pay the Equity Trust Companies
a monthly fee for services equal to $40.00 multiplied by the number of custodial accounts
at Bank; however, in no event shall the aggregate monthly fee exceed a percentage yield
with respect to the accounts equal to the rate set forth in the Subaccounting Agreement
- 25-
740
United Western Bank:. COnI Deposit Management
Strategic Planning and Regulawry Issues
March 8, 2010
As of the date of this report, Bank paid the Equity Trust Companies 2.61% of the
aggregate monthly balance of the custodial. accounts at Bank. The custodial account
holders receive a customer deposit rate of .10%.
Bank also serves as the primary and sole depository for all operating and custodial
accounts of ETC and the Equity Trust Companies. The Equity Trust·Companies maintain
eight omnibus accounts that hold deposits for others and twelve operating accounts for
corporate purposes.
Bank provides customized services for ETC and the Equity Trust that
have evolved over the 10 year relationship between the two organizations. On an annual
basis, ETC and the Equity Trust Companies have the following activity:
• Checks paidlDebits
• Deposits/Credits
• Stop Payments
• Domestic Wires Incoming
• Domestic Wires Outgoing
• ACH Originations
• Deposited Items
184,212
89,160
1,668
14,268
28,992
55,176
310,896
The Equity Trust Companies utilize Remote Deposit Capture and Remote Print
for cashier's checks. The latter service is invaluable to the Equity Trust Companies given
the nature of its business. As a self directed IRA plan administrator, the Equity Trust
Companies must pay insurance and taxes on a recurring basis for those clients that hold
real estate in their JRAs. Many municipalities across the country require certified funds
for tax payments and the Equity Trust Companies, utilizing the Bank, provide this service
for them in an efficient and cost effective The Equity Trust Companies print
more than 1,500 cashier's checks monthly from their offices. The Remote ° Deposit
Capture service allows the Equity Trust Companies to deposit more than $40 MM
monthly from the convenience of their offices.
- 26-
741
United western BBDk. Core Deposit Management
Strategic Planning and RegulatOJy Issues
March 8, 2010
On a daily basis, Bank provides the Equity Trust Companies with electronic "all
items" files that are formatted to interface directly with the Equity Trust Companies trust
system. This program has been developed over time and is transmitted via a secure FTP
server. The Equity Trust Companies rely heavily on Bank's intemet banking solution
(Bm). Eighty-four individual employees of the Equity Trust Companies have access to
Bm and utilize this service throughout the month to perform transactions such as account
inquires, balance transfers, wire requests, ACH originations and general research.
Bank also provides the Equity Trust Companies with access to Bank's suite of
products. Bank's rate sheet for CD's and money markets accounts is available to all of
the Equity Trust Companies underlying custodial account holders. This is a new'service
provided to the Equity Trust Companies, but thus far 125 individuals have opened
Certificates of Deposits directly with Bank. Bank did not pay the Equity Trust Companies
a fee for these Certificates of Deposits.
ETC has maintained it relationship with Bank because of Bank's extensive
experience· as a settling bank having state of the art business electronic banking, ACH,
wire, remote deposit capture and remote deposit print features and services. As
demonstrated herein, the deposits emanating from the relationship between the parties
should not be deemed to be broketed deposits-ETC's primary purpose is not the
placement of funds with depository institutions; in fact ETC's primary purpose is to
provide administrative and managerial services for individual retirement accounts.
The Matrix Settlement & Clearance Services, Inc. Omnibus Account
We have briefly summarized Matrix Settlement & Clearance Services, LLC.
("MSCS',) above, but to refresh, MSCS is engaged in providing mutual fund settlettlent
and clearing services to 146 third party administrators (e.g., Fifth Third Bank) ("TPA")
representing approximately 41,000 tax exempt retirement plans with over
$26;000,000,000 in retirement funds that are invested in a wide ~ a y of assets including
mutual funds. MG Colorado Holdings, Inc. through is subsidiaries, MSCS and MG
-27 -
742
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
Colorado Trust MG Colorado Holdings, Inc., (MSCS and MG Colorado Trust
collectively referred to herein as "MSCS") comprise one of the nation's largest providers
of back-office, trust, custody, trading and mutual fund settlement services for financial
institutions, including banks, trust companies, registered investment advisors and record-
keepers/third-party administrators (TP As).
The Bank has had a deposit relationship with MSCS since 1999 and MSCS is and
has been headquartered in the Bank's headquarters building since 2002. It is important to
note that the Bank's relationship with MSCS developed from the point that the Company
owned a 45% interest in MSCS. MSCS was once identified and treated as Regulation W
affiliate of Bank.
Due to the sophisticated data processing interface developed by MSCS, in large
part connected to the Bank, those 146 TP As are able to contribute and withdraw funds in
the thousands of mutual fund families investing in United States stocks and bonds on a
highly efficient basis. MSCS's primary business is the management of mutual fund
execution and clearing services and providing other trust services to the TPAs on behalf
of their clients.
Every trading day, after settlement with the NSCC
I7
, some cash is incidentally
idled over night as it transits the MSCS network. Those and other trust deposits managed
by MSCS are placed in an omnibus deposit account for the benefit of the underlying
retirement account and trust account beneficiaries as an accommodation to those
beneficiaries.
17 National Securities Clearing Corporation, a division of the Depository Trust Company, Inc,
established in 1976, provides clearing, settlement, risk management, central counterparty services and a
guarantee of completion for certain transactions for virtually aU broker-to-broker trades involving equities,
corporate and municipal debt, American depositary receipts, exchange-traded funds, and unit investment
trusts.
- 28-
743
"
+::0
+::0
United Western Bank. Core Deposit Management
Strategic Planning and Regulatol)' Issues
March 8, 2010
The schematic below represents the key relationships by and between MSCS's clients, MSCS and the Bank:
Y J I . ~ ~
-29·
Schematic Description of Matrix Settlement
& Oearance Services. LLC
Prepared by: United Western Bank
Preparation date: March 5, 2010
......
..j:::o.
U'I
United Westem Bank. Core Deposit Management
Strategic Plamring and Regulatory Issues
March 8, 2010
The" following chart demonstrates the growth in MSCS clients' deposits on deposit with the Bank and the interest rate paid on such
deposits to such clients.
_ Deposit balances
MSCS Deposit Balance and Customer Rate History
__ UWB Custom .... Daposlt Rata
$3DO,OOO I 100.00%
BO.OD%
$250,000
BO.OD%
70.00%
S:lOII,ODO
6D.DO%
(
I $15D,DDO
t
50.00% 1
I
I
40.00%
SlDO,OOO
3D.DO'I'
2D.DO'I'
SSO,DOD
10.00%
$- UU I Lllln.1 1101111111111111 11,1111111111 11,111111'1" II I .. .nUIIi II I nil II I II un I nl II ...... ' 0.00%
///////////////////////////////
- 30-
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
Bank and MSCS entered into a Third Amended and Restated Administrative
Services Agreement dated July 5. 2007 (the ''MSCS'' Agreement") whereby customers of
financial institutions such as third-party record keepers, banks and registered investment
advisors transfer funds consisting of qualified employee benefit plan funds held in a
fiduciary capacity by a custodian or third party administrator to Bank for the purpose of
settlement of trades conducted by MSCS. The MSCS Agreement provides that these
customers require services of both MSCS and the Bank with respect to the transfer of
funds for settlement purposes-:-such services including the automated transmission of
data, the creation of data interfaces, the automation of funds movement from customer's
financial institution to the Bank, and the ongoing maintenance and support required for
such services to facilitate the transfer of funds (the "Administrative Services"). The Bank
could provide the Administrative Services to the customers, however, the Bank
determined to have MSCS provide these Administrative Services for which the Bank
pays MSCS a fee for providing such services. In consideration of the Administrative
Services that M ~ C S provides to Bank, Bank pays MSCS a monthly servicing fee
consisting of an amount equal to the product of the average daily balance of MSCS
deposits at the Bank (subject to the exclusion of some accounts identified in Exhibit A of
the MSCS Agreement) and the Cap Rate as provided on Schedule A-I of the MSCS
Agreement. Bank does not pay any rate on the balances at Bank to MSCS' customers.
Currently, the Cap Rate in effect is 1.50%. The Cap Rate is based on the Average Daily
Fed Funds Target of interest as described on Schedule A-1.The MSCS Agreement has a
term of three years, terminating on July 5, 2010, however. the MSCS Agreement
automatically renews for two .successive one-year terms unless MSCS notifies Bank in
writing at least 90 days before the expiration of the term of its intent not to solicit bids
from other depository institutions. Bank has the option to match a Bid from another
depository institution. Bank expects to renew the MSCS Agreement since Bank and
MSCS have an excellent working relationship providing customized services to MSCS as
described more fully below. In addition, both parties have invested significant time and
dollars in interfaces with TP As and customers, thereby making Ii move by MSCS to
- 31 -
746

United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
another depository institution unlikely. As shown from the chart below, the MSCS
deposits have grown steadily over the last nine years.
At lleI:emIJer 31st
S balance Q.OOOs)
S 268,000 $ 203,000 S 238,000 S 195,000 S 173,000, 118,000 S 179,000' 117,000' 54,000
Bank provides many customized services for MSCS. The list of services is
extensive thereby making it very difficult for MSCS to terminate its relationship with
Bank:
• Bank provides MSCS with one computer rack on the 3rd ·floor secured data
center at Bank's location in Denver, Colorado.
• Bank subleases the 2nd floor (11,864 sq ft) of office space located at it Denver
downtown location to MSCS. The lease expires in September 2016.
• MSCS utilizes Bank's parent company's telephony infrastructure. This
includes: Avaya phone switch, T1 's, DIDs, Trunks, local telephone service,
and Long Distance service.
• Bank's parent company provides certain mail room services and postage
services for MSCS.
• Bank's parent company provides certain shredding services for MSCS.
• Bank provides support for the current web based Workflow Management
System Process. This includes processes for automated communication of
Stop payments, manual check and wire requests, 1099R corrections and
access to Check Deposit Images.
• Bank and MSCS operations' teams conduct monthly meetings to discuss
operational· issues and other matters with respect to the services provided by
each party.
Bank is the primary bank for MSCS whereby Bank acts as the Settling Bank only
Member in connection with the settlement· services described in the MSCS Agreement
-32 -
747
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 20 I 0
All of MSCS' operating accounts and its custodial accounts are held at Bank. On an
annual basis, MSCS has the following activity:
• Checks paid/Debits
• Deposits/Credits
• Stop Payments
• Domestic Wires Incoming
• Domestic Wires Outgoing
• ACH Originations
• Deposited Items
• Lockbox processing
180,960
5,059
6,288
22,587
44,400
669,655
236,616
194,275
On a daily basis, Bank generates six customized files that are formatted to feed
directly into MSCS's Innovest Trust Accounting System. These formats were originally
created when MSCS was a subsidiary of the Bank's parent company and would be
difficult to recreate for another bank. The files contain all of the previous day's
information including: inbound and outbound ACH transactions, alliockbox processing,
inbound and outbound wire processing and all checks paid. The concept is similar to an
individual client downloading information from a bank directly to Quick Books. The
customized solution gives the individual TP As the ability to view and research any
activity on their account at Bank.
In addition, MSCS introduced a client, CPI, which has banked with Bank for
more than 10 years. Bank did not pay a fee to MSCS for MSCS introducing CPI to Bank.
CPI is the country's largest retirement plan administration firm. Because of the unique
nature of its business, CPI is required to open individual accounts for each and every plan
for which it conducts business. CPI currently maintains more than 3,400 individual
business checking accounts with Bank. All of these accounts are non-interest bearing
checking accounts and reside on Bank's core operating system. Bank produces
customized files on a daily basis that are integrated and formatted in such a way to allow
CPI to receive a direct feed from a secure FTP server that facilitates daily balancing
functions for CPI.
- 33 -
748
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
Annual transaction volumes for CPI are significant:
• Total Accounts 3,408
• Checks Paid 285,672
• Stop Payments 2,220
• Wire incoming 360
• Wires Outgoing 4,572
• ACH originations 321,600
The Legent Clearing Omnibus Account
As described below, the Legent Group omnibus account for the benefit of the
Legent Clearing clients was established during the time that Legent Clearing was owned
and controlled by Mr. Gibson, in 2003. As further described above, Legent Clearing is in
."
the business of providing securities clearing and settlement services to over 1 00 FINRA
member firms ("correspondents") and their associated clients.
The Bank's relationship with Legent Clearing was created directly between the
Bank and Legent Clearing. From time to time, Legent Clearing may employ third parties
to provide ministerial services to Legent Clearing with respect to the omnibus account at
the Bank, but those services are ministerial in nature only and do not impact the nature of
the Legent Clearing-Bank relationship, nor do they impact the analysis as to whether or
not Legent Clearing should be considered a "deposit broker" for the purposes of this
paper.
As a "clearing finn," Legent Clearing is in direct contractual pri¥ity with over
200,000 customers who are "introduced" to Legent Clearing by the correspondents. On
behalf of those clients, Legent Clearing takes custody of the clients' securities, cash and
other assets and provides extensive trade, execution, settlement, delivery and other
services to such clients on a daily basis.
Legent Clearing clients have more or less cash resident in their trading accounts
for the purpose of accommodating investments. Any individual account may rise or fall
- 34-
749
United Westem Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
depending on trading -activity or the client's perception of the current securities markets
. or the future economic conditions of the world markets of for other reasons.
As an accommodation to its clients, Legent Clearing allows its clients to place
idle cash in an omnibus account with the Bank. Legent Clearing clients may also elect to·
place their idle cash in a money market mutual fund or to provide credits to Legent
Clearing to allow Legent Clearing to execute margin loans to other Legent Clearing
clients.
It is clear from the above that Legent Clearing's principal business is providing
securities settlement and clearing services and that the creation of the omnibus account
for the benefit of its clients is incidental only to its primary business activity. As a
consequence, it is clear that Legent Clearing is not a "deposit broker" for our purposes.
In November 2008, Legent Clearing and Bank entered into a Program Bank Fee
Agreement whereby Bank would establish accounts at Bank for customers of broker-
dealers in which Legent Clearing provides clearing services. The accounts at Bank would
be entitled "Legent Clearing LLC as agent and custodian for the exclusive benefit of
customers of its Introducing Broker-Dealers." Under this arrangement, Deutsche Bank
Trust Company of Americas (''DBTCA'') provides certain record-keeping services to
Legent Clearing and Bank. DBTCA's services include providing recording the beneficial
interest held by each Customer in the custodial account maintained at Bank. Legent
also provides services with respect to the customer accounts at Bank. For
example, Legent Clearing will carry out each customers directions with respect to a
customer account, provide back up withholding and for sending IRS Form 1099 interest
information to each customer.
The monthly fees payable to DBTCA and Legent Clearing are for services
rendered. The monthly servicing fee that Bank pays Legent Clearing and DBTCA is
- 35-
750
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
Lack of Volatility of Deposits
The deposit balance rates charts provided for herein demonstrate the stability of
the deposit relationships by and between these parties and the Bank. Even a casual glance
will demonstrate that these relationships have been developed and enlarged over a long
period of time and are not volatile. We include charts for these four entities as they are
the most significant deposit relationships for the Bank at this time.
. While the individual deposit charts provided for herein speak loudly to the
stability of these deposit relationships, further explication of the Bank's relationship to
the indirect consumer deposits involved in these relationships is in order:
UW Trust Company. This company has been the wholly owned
subsidiary of the Company since 1997; during the pendency of the Company's
ownership, the Bank had exclusive access to the IRA holder cash deposits related
to UW Trust. UW Trust continues to maintain an omnibus deposit account with
the Bank for the benefit of certain escrow clients, but this account holds an
immaterial amount of deposits, relatively speaking, at this time. Given the control
of UW Trust by the Company, there is no threat that these deposits will leave the
Bank for any reason other than- the dictates of the some 3,000 underlying escrow
account holders. The escrow accounts arise as a part of UW Trust's escrow
processing business for the life settlement industry. As a part of this service
business, UW Trust escrows life insurance premiums and pays them in
accordance with the terms of the underlying policies. UW Trust has been in this
business since 1993.
Equity Trust. The Equity Trust relationship began in 2000 and the
deposit balances come from the idle cash awaiting investment or distribution held
by Equity Trust's IRA clients has grown consistently as Equity Trust has
increased the aggregate number of IRA holders for whom it performs
- 41-
756
United Western Bank. Core Deposit Management
Strategic P1anning and Regulatory Issues
Marcll8,2010
administrative services as an IRC custodian. As discussed herein in 2009, UW
Trust sold the majority of its custodial rights to manage IRA holder assets to
Equity Trust increasing the amount of assets under management at Equity Trust.
At the same time, the Bank was able to secure a long term agreement with Equity
Trust to have the former UW· Trust client and the Equity Trust client cash deposits
remain at the Bank. The minimum term is five years from June 2009 and is
subject to extension.
Equity Trust ~ committed to maintaining its clients' deposit relationship
with the Bank as evidenced by the recent amendments to the subaccounting
agreement between Equity Trust and the Bank. In the amendment, Equity Trust
agreed that it would be contractually bound to maintain its IRA holders' cash
balances at the Bank unless the Bank fell below the level of adequately
capitalized as defmed in the applicable OTS regulations. Clearly, the underlying
IRA holders may direct the transfer of their cash to alternative positions such as
Treasuries or money market mutual funds, but the eight year history reflected in
the above charts does not suggest that this should be of concern as the balances on
deposit in respect of Equity Trust's clients has grown consistently.
Matrix Settlement & Clearance Services, LLC. As noted above, the
Company was one of the founders of this company and has developed a l,11ajor
level of services to MSCS that MSCS relies on to execute its business. We believe
that replicating the level of services provided to MSCS by the Bank would be
cumbersome· and require extensive time to allow a replacement bank to assume
the Bank's current position (see also the services provided to MSCS as discussed
above). We believe that so long as the Bank continues to provide the level and
quality of services that it currently provides to MSCS, MSCS will continue to
execute its NSCC settlements through the Bank which will bring the idle cash
balances ofMSCS's clients to the Bank.
-42-
757
United Western Bank. Core Deposit Management
Strategic PllIIIIIing and Regulatmy Issues
March 8, 2010
In addition, the Bank continues a very favorable relationship with Mr.
McInerney and the . MSCS management which suggests that this relationship is
steady and liable to continue for the foreseeable future.
Legent Clearing. This relationship with the Bank commenced in 2003
and has been a steady relationship for the Bank since that date. As previously
described, Mr. Gibson controlled Legent Clearing when the deposit relationship
was commenced. In 2005, there was a period when Legent Clearing's client
deposits were removed from the Bank. This was due to an industry wide .
regulatory objection from FINRA which has since been resolved favorably.
As earlier described, the Bank has entered into a non-binding letter of
intent to acquire Legent Clearing. This is subject to the completion of· due
diligence and regulatory approval. In the interim, it is currently contemplated that
the Bank will assume the processing of a majority of the Legent· Clearing client
cash balances on a contractual basis with Legent Clearing; thereby removing
DBTCA and other program banks as a party to the current relationship. This will
provide the Bank with access to over $500,000,000 of Legent Clearing client
balances on a daily basis.
We have not included a separate discussion of Lincoln Trust
Company since it is the same type of relationship presented by Equity
Trust Company.
Managing Deposit Concentrations
The Liquidity Contingency Funding Plan which will be provided at the Dallas
meeting on Thursday, March 11,2010.
- 43-
758
United Western Bank. Core Deposit Management
Stmtegic Planning and RegulatOIy Issues
March 8, 2010
Conclusions
The deposits attributable to UW Trust, Equity Trust, Lincoln Trust, MSCS and
Legent Clearing allow the Bank to manage the preponderance of its deposit liabilities in a
safe and sound manner. These deposits are not "brokered deposits" since none of the
named companies are deposit brokers as defmed in applicable FDIC regulations.
I8
We conclude these parties are not deposit brokers since they are not engaged in
the business of placing deposits and they are either:
a. persons in the discharge of their substantial duties as IRC custodians for
IRAs acting as plan administrators perfonning managerial functions
with respect to IRAs; or
b. agents or nominees for the IRA holders whose primary purpose is not
. the placement of funds with depository institutions.
The policy issue relating to brokered deposits, namely that there is reason to be
well concerned regarding customers who focus exclusively on rates and are rate-sensitive
since they have no loyalty to any bank, is not at hand in our case. As demonstrated above:
a. these deposit relationships are of lengthy vintage;
b. the interest rates paid on these deposits have been very low relative to other
market rates;
c. the pro-active involvement of the institutions (e.g., Equity Trust and MSCS)
in amending the applicable agreements in favor of the Bank demonstrate the
intent and ability of these institutions to continue their relationship with the
Bank;
18 See also the attached legal opinions ofLuse Gorman Pomerenk & Schick, P.C. and BucldeySandler
LLP attached here to as Exhibit D.
-44-
759
United Western Bank. Core Deposit Management
Strategic Planning and Regulatory Issues
March 8, 2010
d. the deposit balance· growth curves, coupled with the interest rate paid, provide
convincing evidence that the deposits in question are not being placed by rate
sensitive clients; and
e. none of these deposits are to wholesale investors nor do they exhibit the
characteristics ofwholesaIe investors.
As a consequence, no policy issue articulated by any of the Bank's regulators is at
hand in this discussion.
Following from the above, we conclude that the Bank should be allowed to
maintain the subject relationships as non-brokered deposit relationShips; provided that the
Bank will, within the strictures of its pQlicy and procedures, manage deposit levels from
each such relationship.
Exhibits
Exhibit A
ExhibitB
Exhibit C
ExhibitD
White Paper on Legent Clearing Transaction
BSAlAML Policy from UW Trust Company
Equity Trust Company Account Application
Legal O p i n i o ~
- 4S-
760
TabC
Exhibit 25 A (d)
761
TabC
Exhibit 25 B
763
I ExhihitB I
764
FDII'
Federal Deposit Insurance Corporation
Dallas Regional OffIce '
1601 Bryan Street, Dallas, Texas 75201
(214) 754-0098 FAX (972) 761·2082
Mr. James R. Peoples
Chairman of the Board
CEO and PresideIi.t
United western Bank
700 17
th
. Street, Suite 100
Denver, CO 80202
Subject: Brokered De;posit Waiver
Dear Mr. Peoples:
r
Division of Supervision and Consumer Protection
Memphis Area omce
5100 Poplar Avenue, Suite MerJ1lllis, Tennessee 38137
(901) 685·1603 FAX (901)
" July 8, 2010
UtIleDWESlERI"
lJUL J3.:2010
Your letter application dated June 10,2010, is acknowledged. The application 8.ppears to be
incomplete and is not acce,pted. Following our discussion with your institution and the
FDIC Washington Office on June 30, 20 I 0, it was determined that the following information
and answers to the listed questions are needed for the application to be considered accepted.:
1) Provide additional background infonnation as to why bJ.e potential acquisition of
Legent Clearing LLC as an operati:itg subsidiary should not be considered a bromed
deposit relationship;
2) Provide additional background infonnation as to why UW Trust Company an
affiliated company should not'be considered a brok:ered deposit relationship;
3) Provide additional infolllljltion to demonstrate that the combined sub-accounting fees
and interest rates paid on the inStitutional deposits listed under Exhibit D of your
applicatiOn are in compliance with the with interest rate restrictions outlined within
FDIC Rules and Regulation 337.6 Brokered Deposits;
4) On any accounts that do not comply with the rate restrictions, provide a plan to
reduce the sub-accounting fees and or rates 10 ensure .
5) Provide additional documentation to support' that the individual sub-accounting fees
are arm's length transactions between two equally advantaged parties (The March 18.
2010, Trust Company Profitability analysis prepared by Thomas J. Kientz does not
differentiate why the sub-accounting fees provided to Equity Trust Company are
substantially different than UW Trust Company. when the majority of accounts now
managed by ETC were acquired from UW Company in June 2009);
6) Provide a breakdown of the sub-accounting expenses associated with the institutional
deposits outlined within Exhibit D o:(your which are either applicable to
interest expense or nonMinterest expense (differentiate between each deposit and
explain why one relationship may be higher or lower than another);
765
Mr. Peoples
2 July 8, 2010
7) Provide additional infonnation to support the need to allow 25 percent aggregate
growth in the institutional deposits during the requested waiver period (Le., account
histories);
'8) Provide a copy of the bank's Liquidity/Contingency Plan;
9) Provide a copy 9fthe bank's June 30,2010, balance sheet and income statements.
Please furnish the requested infonnation to ibis office by July 30, 2010. Failure supply
this office with the requested information by this date will cause the application to be
returned and deemed abandoned. '
.. It is our llIlderstanding from our meeting on June 30,2010, that separate from this request
you will provide additional information to support your position in regards to the legal
,opiriion outlined within our May 24,,2010, FDIC Letter Demosi! Agreements, deteimining
the institutional deposits were brokered deposits.
"
If you have any questions, please call Case Manager Thomas L. (972) 761-
2255. Correspondence may be addressed to Kristie K.. Elmquist, Acting Regional'
Director, Dallas Office, 1601 Bryan Street, Dallas, Texas 75201.
Cc: Office of Thrift Supervision
766

K. E1mquist
Acting Regional Director '
TabC
Exhibit 25 C
767
Exhibit C
768
Office of Thrift Supervision
Department of the Treasury
Pacific Plaza. 2001 Junipero Serra Boulevard, Suite 650, Daly City, CA 94014-3897
P.O. Box 7165, San Francisco, CA 94120-7165 • Telephone: (650) 746-7000· Fax: (650) 746-7001
June 22, 2010
Board of Directors
United Western Bank
700 17
th
Street, Suite 2100
Denver, CO 80202
Dear Directors:
Western Region
Daly City Area Office
In a letter dated May 24, 2010, the FDIC informed UnitedWestem Bank that the agency had determined
that the Bank's deposits from seven institutional deposit relationships are brokered deposits. The letter
further indicated that the FDIC deemed the maturity dates of the deposits to be those of the underlying.
deposit instruments rather than those of the contracts between the institutional depositors and the Bank.
The FDIC also infonned the institution that its current "Adequately Capitalized" status under PCA
standards precludes United Western from accepting. renewing, or rolling over any brokered deposit
without a waiver from the FDIC.
United Western Bank has not demonstrated to us that it haS the ability to replace these funds in the near
future. While we acknowledge that United Western filed a request for a brokered· deposit waiver on June
10,2010, it is uncertain whether United Western will be able to reach agreement with the FDIC on a plan
for the orderly reduction of the institutional deposits that would provide the basis for approval of a
waiver. The duration of any such waiver, if approved, is also uncertain.
In view of this situation, we believe that there is a possibility that United Western could face a severe
liquidity crisis in the near future that would threaten the viability of the institution. We, therefore, are
downgrading the L i q ~ d i t y component rating to "S."
If you have comments or questions, please contact me at (6S0) 746 .. 7025 or Office Examiner Steve Harris
at (650) 746-7048.
Sincerely,
#J...'" T -5);:-
Nicholas J. Dyer
Assistant Director
cc:t:;: Trujillo, FDIC-Dallas
769
TabC
Exhibit 25 D
770
ExhibitD
771
1.111.JI =RN

July 19, 2010
VIA e-mail and Overnight Delivery
Kristie K. Elmquist
Acting Regional Director
Federal Deposit Insurance Corporation
1601 BlY-an
Dal1as, Texas 75201
James R. Peoples
Chairmati, President &. ChiefExecuti,ve Officer
United Western Bank:
720.956.6576
.ipeopJes@l,!w·bank.com
RE: United Western Bank ... Brokered Deposit Waiver and Pending FDIC
Administrative Appeal of a May 24, 2010 FDIC Determination
Dear Ms. Elmquist:.
This letter is in response to a conversation between Joseph Assistant Regional
Director and myself on Friday July 16, 2010; As you are aware, by letter dated May 24,. 2010,
the Dallas Regional Office of the Federal Deposit Insurance Corporation ("FDIC") issued a letter
to United Western Bank (the "Bank") addressing various deposit relationships with certam
institutional depositors, and concluded that such relationships involve' the Bank accepting
"broketed deposits" under Section 29 of the F*ral Deposit Insurance Act and, Section 331..6 of
the rules and, regulations of the FDIC (the "Determination',). As you are also aware, the Bank
strongly di,sagrees with the Determination and is pursuing all necessary steps to initially mitigate
the. effect of the Determination and ultimately have the Determination reversed. For example, on
June 2010, the Bank filed a brokered. deposit waiver (the Request") seeking
immediate relief from the conseqUences of the Determination and on June 30, 2010,
representatives of the Bank met with FDIC staff in Washington, D.C. to discuss the proprietY of
the Determination.
At such. meeting, we. discussed the FDIC's admjnistrative appeals process of the
Determination, including an appeal to the FDIC'.s Supervisory Appeals Review Committee (the
"SARe"). FDIC guidance on filings with the SARC require that seeking review of
a material supervisory determination must. file their request witbin6Q days following the receipt
of the written communication of the determination. As the Bank received the Determination on
June 2, 2010, the deadline for the Bank to file It request for SARC review is Monday, August 2,
2010. However, by letter dated July 8, 2010 'that was received by the Bank on July 12, 2010,. the
FDIC requested additional information concerning the Waiver Request, and imposed a response
deadline of Friday JUly 30, 2010. As a result, the Bank bas a requirement to provide the FDIC
with certain clarifying information. on July 3Q, 2010 and must file an appeal to the SARC on the
next business day.
772
Ms. Elmquist
FDIC
July 19,2010
Page 2 oi2
Given the timing of these two material filings, Assistant Regional Director Joseph
Meade, suggested that if the Bank. requested an extension from the deadline for the SARC
appeal, the FDIC would be inclined to grant a reasonable extension of time so that the FDIC first
had the opportunity to review the additional information to be filed by the Bank by July 30,
2010.
Therefore, in accordance with Mr. Meade's suggestion, we respectfully request an
extension of the requirement that the Bank. file an appeal with SARC for at least ninety (90) days
or UIltil at least October 31, 2010 .. Moreover, as the SARC review of the Determination is
critical to the Bank's ongoing operations, we respectfully request that the FDIC's approval of the
extension be issued in writing from an FDIC official authorized to grant such an extension, as
public FDIC guidance regarding appeals to the SARC is silent with respect to a formal extension
process.
issue.
We appreciate the FDIC's willingness to work with the Bank. to appropriately resolve this
Sincerely,
/-
.
--:? //
w ·r
'.. .... .........- !. .. ___ ..
James R.Peoples
Chairman of the Board. CEO and President
United Western Bank
cc: Boards of Directors of United Western Bank: and United Western Bancorp, hlC.
Theodore Abariotes, General Counsel, United Western Bank.
Joseph A. Meade, Assistant Regional Director, FDIC
Serena L. Owens, Associate Director, FDIC
Thomas L. Trujillo, Case Manager
Phillip A. Gerbick, Regional Director, Office of Thrift Supervision
Nicholas J. Dyer, Assistant Regional Director,. Office of Thrift Supervision
Andrew L. Sandler, BuckelySandler, LLP
Jeremiah B. Buckley, Esq., BuckleySandler, LLP
Lawrence D. Kaplan, Esq., Paul Hastings Janofsky & Walker, LLP
773
TabC,
Exhibit 25 E
774
I Exhibit E I
775
FDII
Federal Deposit Insurance Corporation
550 17th Street NW. Washington. D.C. 20429·9990
Mr. James R. Peoples
Chairman, President and Chief Executive Officer
United Western Bank
700 17
th
Street, Suite 100
Denver, Colorado 80202
Division of Supervision and Consumer Protection
July 27, 2010
Re: Request for Extension of the Deadline to Submit a Request for Review of a Material
Supervisory Determination - United Western Bank, Denver, Colorado
Dear Mr. Peoples:
I am writing in response to your July 19,2010 letter requesting an extension ofthe
deadline by which United Western Bank may request a review of the material-supervisory
determination contained in the FDIC's May 24, 2010 Brokered Deposit Detennination
(Determination). The Bank received the Determination on June 2, 2010, and the deadline for the
Bank to file a request for review is August 2. 2010. As reflected in your letter, the Bank is in the
process of providing additional information related to the Determination, and this information is
due to the FDIC no later than July 30, 2010. In light of the Bank's ongoing efforts to resolve
outstanding issues outside of the appeals process, we are granting a 60-day extension of the filing
deadline until October 2, 2010.
Please be advised that matters relating to the review and appeal of material supervisory
determinations should be referred directly to the FDIC's Division of Supervision and Consumer
Protection in Washington. D.C .• to my attention. Should you have any questions regarding this
matter, please contact Associate Director Serena L. Owens at (202) 898-8996.
Sincerely,
? ) ~
Director
cc: Board of Directors. United Western Bank and United Western Bancorp
Mr. Lawrence D. Kaplan, Esq., Paul Hastings Janofsky & Walker LLP
Mr. Phillip A. Gerbick, Regional Director, office of Thrift Supervision
Ms. Kristie K. Elmquist, Dallas Acting Regional Director. FDIC
776
TabC
Exhibit 25 F
777
Exhibit F
778
,
Dear
Office of Thrift Supervision
Department of the Treasury
1700 G Street, N.W., Washington, DC 20551· (202) 906-6372
,November 28, 2006 '
Re: Permissibility of Securities Clearing Activities and Paying
Interest oil Free Credit Balances
John E. Bowman
Chief COllns,1
This responds to your request in connection with the application and notice to establish an
operating subsidiary filed by , :' . {Association) with the Office
of Thrift Supervision (OTS). The operating subsidiary would be a registered broker-dealer, and
would not be a depository institution. You request legal determinations conceming two
First, you seek OTS's concurrence that certain secmities clearing and related activities are
permissible activities for a federal savings association and, therefore, would also be permissible
for the Association's operating subsidiary. Second, you seek a determination. based on the facts
you have that a provision of federal law prohibiting federal savings associations from
paying interest on demand accounts would not bar the Association's operating subsidiary from
paying interest on its customers' free credit balances.
"
We conclude that the securities clearing and related activities described in your request are
permissible activities for a federal savings association and, therefore, the,Association's operating
subsidiarY would be able to engage in the same permissible activities. We also conclude that the
law federal savings' associations 'from paying interest on demand accounts would not
preclude the Association's operating subsidiary from paying interest on its customers' free credit
balances.
I. Background
You have provided the following information. The Association is a subsidiary of
, ' , . (Holding Company). ' , (LLC), a
whoUy owned, indirect subsidiary of Holding Company, is a securities clearing fmn. LLC'is a
broker-dealer registered with the Securities and Exchange Commission (SEC) and is a member
of the National Association of Securities Dealers, the New York Stock Exchange, and several
exchanges. I LLC is a clearing member of the National Securities Clearing Corporation (NSCC),
I These include the NASDAQ Stock Exchange. the National Stock Exchange, the IntematiomiJ Securities Exchange,
the Pacific Stock Exchange, and the Philadelphia StoCk Exchange. .
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Depository Trust Company (DTC), and the Options Clearing Corporation. As a clearing broker-
dealer, LLC provides a variety of securities clearing and related services to affiliated and non-
affiliated:.introducing broker-dealers and their brokerage customers. These services include:
(i) cleanuice and settlement services as agent for broker-dealer customers, and not as principal;2
(ii) custodial services, such as receipt. custody, and delivery of brokerage customers' securities
and funds; (iii) margin lending. i.e., making loans to brokerage customers to fmance,their
securities purchases; (iv) order flow, i.e., at the direction of introducing broker-dealers. delivery
of trade orders to specific market centers for execution; and (v) recordkeeping. LLC also
engages in activities related to the foregoing that clearing broker-dealers often perform, including
securities lending to 'fund brokerage customers' margin loans,3 stock borrowing,4 and. conduit
.. lending 5
sectulues •
You represent that LLC does not engage in securities dealing, market making, or
lDlderwriting activities, and does not purchase or sell securities when acting in a principal
capacity, exeept for certain securities purchases that are incidental to its s ~ u r i t i e s clearing
activities.
6
You also represent that LLC neither provides investment advice to its customers,
nor is it a registered investment· adviser under the Investment Advisers Act of 1940.
7
LLC's primary sources of revenue are clearing revenue derived from transaction charges
to introducing broker-dealers to compensate LLC for its clearance, settlement, custodial, and
routing services; interest revenue from margin lending; and activity-based fees charged by LLC
to its introducing broker-dealers for services provided to their customers. B Approximately 98%
2 The specific clearing services consist of comparing and conflnning with counterparties the identity and quantity of
securities traded, the transaction price and date. and the identity of the buyer and seller. The settlement services
involve LLC, as a member ofa clearinghouse, fulfilling trade obligations by paying for securities. purchased or
delivering securities sold. .
S According to your request. In a typical transaction, LLC lends shares to another financial institution, receives cash
as collateral for those shares, and pays interest on the funds received.
4 • In stock borrowing. LLC borroWs stock from another broker-dealer. provides cash collateral for those shares, and
receives iilterest 9n the cash it provides. LLC "typically borrows stock to fund a customer's shOrt sale and uses the
proceeds oCthe short sale as cash collateral for the stock borrow."
S In conduit securities lending, LLC "acts as an intermedialy. typically between two other broker-dealers. one
wishing to borrow securities, and the other willing to lend" and UC "typical1y captUres a spread in the transaction,
representing the difference in rebate rates paid on each side of the transaction."
6 As described in your request, these incidental purchases include purc.s to make customers whole in flUled
trades: correction of error and fraud; purchases of essentially worthless securities in customer accounts to reduce
third-patty custodial charges; liquidation of margin accountS; and purchases or sales in certain securities lending
transactions.
1 IS U.S.C. §§ SOb et seq. (West 1997 & Supp.2006) .
. 8 These services include confmnations; statements; wire processing; margin calls; check writing; account transfers;
account maintenance; new account processing; and broker-assisted trades.
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of LLC's clearing, interest, and other revenue is from its affiliated broker-dealers and their
customers.
For a variety of business reasons. the AssociatioD. wishes to establish LLCas an operating
subsidiary (OpSub-LLC) of the Association. You indicate that the Association and its patent
companies have identified several financial benefits for the AssociatioD., and potentially for
LLC's brokerage customers •. that would result from reorganizing and having LLC . become an
operating subsidiary of the Association.
9
However. because an operating subsidiary may only
engage in activities that are permissible for a federal savings association. you ask whether LLC
may continue its current activities, as descriQed above, if it becomes OpSub-LLC, an operatiD.g
subsidiary of the Association. In other words" may a federal savings association engage directly
in the activities that LLC currently conducts, including serving as a member of a clearing
exchange?
You also seek our concurrence that following the proposed reorganization, § S(b)( 1 )(B)(i)
of the Home Owners t Loan Act (HOLA).IO which prohibits a federal savings association from
paying interest on a demand account, would not apply to OpSub-LLC or to feee credit balances
held by OpSub-LLC. so that it may continue LLC's current practice ofpayiD.g interest on
customers' free credit balances.
ll
n. Discussion
A. Permissibility of Clearial and Settlement Activities
Under OTS regulations, an operating subsidiary may engage in any activity that its parent
federal savings association may conduet directly.ll Accordingly. the relevant inquiry here is
whether the activities proposed for OpSub-LLC. and that are currently being conducted by LLC
as described above. are permissible for a federal savings association. Federal savings
associations have authority to engage in a broad range of securities activities, based on either
express authority uncler the HOLA or the well-established doctrine of incidental powers.
Most of the brokerage activities are customary for a federal savings association that
provides securities brokerage or similarserviees.
13
We have not consideied whether serving as a
9 You indicate that some of theses benefits include reduced operating expenses, reduced cost offilnds to the
Association, and improved customer service. You also suggest that the, Association may have an improved capital
positiola and increasedeamings when the Association and OpSub-LLC are consolidated for financial reponing
purposes .

10 12U.S.C. § 1464(b)(1)(B)(j)(West2001).
II You define the term "free credit balances" to mean "funds in . customers' brokerage accounts
that are not swept into [Association1 sweep deposit accounts or money market mutual funds that are held by [LLC]."
12 12 C.F.R. § 559.3(1')(1)(2006).
13 See, e.g., NASD Rule 3230, which lists the responsibilities of introducing and clearing brokers.
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clearing broker with membership in a clearinghouse is permissible for a federal savings
association, however.
The activities proposed for OpSub-LLC are customary for a clearing broker. Clearing
and introducing brokers that work together dIvide the responsibilities of a broker between them.
While a clearing broker performs "back office functions" with respect to securities transactions,
the introducing broker performs the "front office functions." The introducing broker opens,
approves, and monitors customer accounts and later accepts orders and executes transactions.
The back office functions of the clearing broker include credit extension; recordkeeping; receipt
and deliverr, of funds and securities; safeguarding of funds and securities; and confirmations and
statements. 4 A clearing broker extends credit when it substitutes its credit for that of its
. customers and becomes liable to a clearinghouse for performance of contracts that it submits. It
assumes the risk of default with respect to the exchange, clearinghouse, and counterparties to the
trades. IS
Express Powers
Section 5(c) of the HOLA expressly authorizes a federal savings association to "invest in,
sell,. or otherwise deal in" a wide range of securities, such as government securities and
mortgage.backed securities.
16
The OTS's implementing regulation
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clarifies that section 5(c)
authorizes a federal savings association to provide brokerage or warehousing services for all
loans and investments' allowed under Section 5(C).18 This express authority includes the power to
sell and deal in asset-backed securities where the underlying assets are those in which federal
savings associations are authorized to originate, purchase, or invest.
19
In addition, we addressed
some aspects of retail securities brokerage by operating subsidiaries of federal savings
14 SEC Release No. 34-49879, at n.289 (Regulation B: Proposed Rule), 69 Fed. Register 39,682, 39712 n.289
(2004), citing National Association of Securities Dealers Rule 3230, "Clearing Agreements," and New York Stock
Exchange Rule 382, "Carrying Agreements" (another term for "clearing agreements"). .
15 See, e.g., NA8D Rule 3230; Henry R. Minnerop, Clearing A"ongements, 58 Bus. Law. 917 (May 2003).
16 12 U.S.C. § 1464(c)(West 2001 & Supp. 2006). Other types of securities include securities issued or fully
guaranteed by the Federal National Mortgage Association. the Student Loan Marketing Association. the Government
National Mortgage Association, or any agency of the United States, Federal Home Loan Bank: securities. state and
municipal securities, small business-related securities, and corporate debt securities. 12 U.S.C. § 1464(c)«I)(D),
(E), (F), (H), (8). & (2)(D).
I' In 1996 OTS removed flom its implementing regulation a prohibition against savings associations contracting
with third parties for brokerage activities. OTS thus has permitted a federal savings association to engage in third
party brokerage (networking) arrangements that make securities brokerage services available to the association'S
customers by a broker-dealer that leases space on the association's premises. See 61 Fed. Reg. 66,561,66,568 and
66,570 (Dec. 18, 1996) (preamble).
18 See 12 C.F.R. § 560.30 (2006). Like other insured depository institutions, a federa1 savings association may use
asset securitization to sell any type of loan that it originates or purchases. OTS Op. Chief Counsel P-2004-5, at 3
and n.l0 (Sept. 14,2004). citing Interagency Guidance on Asset Securitization AClivities (Dec. 13, 1999).
19 See OTS Op. Chief Counsel P-2004-5 (September ]4,2004).
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associations in the Interagency Statement on Retail Sales o/Nondeposit Investment ,roducts
(Interagency Statement) issued in 1994.
20
The authority of federal savings associations to
provide securities brokerage and related services to customers is not of recent vintage.
21
Most of the proposed related services are expressly permissible when provided outside
the context of securities brokerage, as well as when provided in connection with securities
brokerage. In fact. Congress has recognized that these services, in some circumstances, are core
banking services that both banks and savings associations provide to customers.
22
OTS fiduciary
regulations authorize federal savings associations to act in a variety of capacities that involve
securities, such as registrar of stocks· and bonds and transfer agent. 13 Federal savings
associations have broad authority under Section S(c) of the HOLA to make a wide variety of
loans,24 and to borrow, subject to regulatory Iimitations.
2S
Margin lending, securities conduit
lending, and lending and borrowing securities 81C permissible pursuant to this authority.26
Moreover, federal savings associations have express authority to provide order flow and
20. See Thrift Bulletin 23-2 (Feb. 22, 1994). The Board ofGovemors of the Federal Reserve System (FRS), Federal
Deposit Insurance Corporation (FDIC), the Office of thO' Comptroller of the Currency (OCC), and OTS issued this
statement on February 15, 1994. The Interagency Statement requires disclosure to retail customers that securities
sold are not Insured by the FDIC; are not deposits or other obligations of, or guaranteed by, a depository institution;
and are subject to investment See also Joint Interpretations a/the Interagency Statement, OTS Thrift Bulletin
23-3 (Oct. 13, 1995).
%1 Guidance on securities lending has an even longer history. The FFIEC Supervisory Policy on Securities Lending,
Issued in 1985, explained that our predecessor, the Federal Home Loan Bank Board. had already developed rules .
and regulations (now obso!ete) addressing securities lending for institutions that it supervised. See FFIEC
Supervl80ry Policy: Securities Lent!ing 8, attached to OCC Banking Issuance BC·196 (May 1, 1985), citing 12
C.F.R. § 545.49 and.memorandaR48 andT 34-5. One ofour current regulations, 12 C.F.R. § 560.30 n.12 (2006).
supersedes the Federal Home Loan Bank Board regulations and governs securities lending bY federal savings
associations.
12 Congress recently enacted legislation that applies to savings associations the same exceptions as to banks ttom the
definitions of "broker" and "dealer" under the Securities Exchange Act of 1934. See Financial Services Regulatory
Relief Act of2006, § 401(a). Pub. L. No. 109-351, to be codified at IS U.S.C. § 78c(a)(6) (defining "bani(' to
include savings association); IS U.S.C. §§ 18c(a)( 4) & (5)(definitions and "dealer"). These excepted
services include, among others, effecting securities transactions in a trust department. proViding safekeeping and
custody services. and serVing as custodian to pension and other benefit plans. 15 U.S.C. § 7Bc(a}(4).
23 12 C.P.R. § 550.30 (2006). A federal savings association may also provide investment advice through a trust
department and exercise inveStment discretion over customer accounts. ld. OpSub·LLC would not provide such
se-rvices, however.
24 See, e.g., 12 U.S.C. § 1464(c)(2)(A)(commercialloans). (c)(2)(B)(nonresideDtial real property loans);
(cX2XDXconsumer loans); (c)(l)(1') and (U)(eredit card and educational loans, respectively); and
(c)(3)(C)(coDS1nJction loans for primary residences).
:IS See 12 C.F.R. § 563.&0.(2006). .
26 Margin and securities lending would be permissible as either commercial or consumer lending. See 12
U.S.C. §1464(c)(2)(A)(commerciallending) and (c)(2)(D)(consumer lending). See also 12 C.F.R. § 563.80
(2006)(borrowing authority).
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recordkeeping services to both fiduciary and brokerage customers,27 and to act as custodian of
residential mortgage loans documents as part of mortgage servicing.
28
In addition. federal
savings associations have express statutory authority to issue passbooks, certificates, or other
evidence of deposit accounts, 29 all of which involve recordkeeping activities. Thus, many of the
activities proposed for OpSub-LLC are customary and permissible activities for a federal savings
association and, therefore, its operating subsidiary.
We therefore conclude that a federal savings association has express authority to provide:
(1) clearance and settlement services as agent for broker-dealer customers, and not as principal;
(2) custodial services. such as receipt, custody, and delivery of brokerage customers' securities
and funds; (3) margin lending, i.e., making loans to brokerage customers to finance their
securities purchases; (4) order flow, i.e., at the direction of introducing broker«alers, delivery
of trade orders to specific market for execution; and (5) recordkeeping, with respect to
any type of securities in which a federal savings association may invest pursuant to section 5( c)
of the HOJ.,A. A federal savings association also bas express authority to provide services related
to the foregoing that clearing broker-dealers often perform, including securities lending to fund
brokerage customers' margin loans, stock borrowing, and conduit securities lending.
We have not previously explicitly addressed the authority of a federal savings association
to provide, as agent, brokerage and clearing services with respect to types of securities that
federal savings associations are not expressly authorized to invest in pursuant to section 5(c) of
the HOLA. Moreover. neither the HOLA nor our regulations provide express authority for a
federal savings association or its operating subsidiary to serve as a clearing member of a
clearinghouse or similar organization. However, our inquiry does not end here.
Incidental Powers
In addition to express statutory and regulatory authorizations, this Office has recognized
that federal savings associations possess extensive powers that are incidental to the express
powers to federal savings associations by the HOLA.
30
These incidental powers provide
27 See 12 C.F.R. § SSI.20(a) (2006). See also 12 C.F.R. §§ 551.30 (requiring maintenance of effective systems of
records and controls regarding customers' securities transactions); SSl.SO (specific recordkeeping requirements);
551.60 (how records must be maintained). See also 12 C.F.R. Part 5S I, Subpart B "Content and Timing of Notice,"
including confirmations, Subpart C "Settlement of Securities Transactions." and Subpart D "Securities Trading
Policies and Procedures" (2006). Section 5(n) of the RotA, 12 U.S.C. § 1464(n). provides express authority to
federal savings associations to act as a fiduciary.
28 OTS Op. Chief Counsel (Jan. 31. 1994) (concluding that a federal savings association has express authority
pursuant to 5(c)(J)(B) afthe HOLA to act as custodian ofJoan documents for third parties).
29 12 V.S.C. § 1464(b)(l)(ii).
30 OTS Op. Chief Counsel P-2004-S (Sept. 14, 2004); OTS Op. Chief Counsel (Oct. 29,2001).
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a basis for our conclusions concerning providing clearing and related services in connection with
other types of securities, and service as a member of a clearinghouse.
We consider' four factors to determine whether a particular activity lies within the scope
of an express power under section 5 of the HOLA. These include:
(1) is the activity consistent with Congressional purpose for federal
savings associations; (2) is the activity similar to, or does it
facilitate the conduct of, an activity already expressly authorized by
Congress; (3) does the activity relate to the financial intermediary
role that federal savings associations were intended to fulfill; and
(4) is the activity necessary for the federal savings association to
remain competitive and relevant in the modem economy?31
OTS has determined that federal savings associations have incidental power to conduct
diverse securities and securities-related activities. These incidental powers include, for example.
conducting certain sweep arrangements,32 acting' as principal in certain interest rate hedges,33 '
providing ministerial support services as agent for a trust company.34 and purchasing Farmer Mac
common stock.
35
A federal savings association has incidental power to offer escrow accounts
that do not relate to loans that it made.
36
,
OTS also has permitted a federal savings association to establish a foreign agency to
perform clearinghouse functions that would facilitate trust services provided by the federal
savings association to U.S.-based institutional trust customers. OTS permitted the agency to
provide global custody services, securities lending services solely on an agency basis,
safekeeping, custody, recordkeeping and other ministerial services while acting as a paying agent,
and custodial services for securities certificates.
37
These services are substantially similar to the
services that OpSub-LLC would provide, except that the agency did not become a member of a
clearinghouse.
31 See, e.g., OTS Op. Chief Counsel P-2004-S, supra note 30, at 4.
Jl OTSOp. Chief Counsel (Aug. I, 2000); OTS Op. Chief Counsel (March 2, 1998).
33 OTS Op. CbiefCounsel (Dec. 30, 1999).
J ~ OTS Op. CbiefCounsel (Oct. 17, 1995).
35 OTS Op. CbiefCounsel (Oct. 14, 1997).
36 See, e.g., OTS Op. Chief Counsel (Aug. 19, 1998) (commercial escrowacwunts). Moreover, we have recognized
that certain activities and services, such as- serving as document custodian or providing escrow or recordkeeping
services, do not require OTS-conferred trust powers. See. e.g .• id; OTS Op. Chief Counsel (Jan. 3), 1994)( escrow,
safekeeping, custodial, and similar services). See also 12 C.F.R. Part 550 (2006).
31 The agency acted as custodian of certificates of CEDEL, a depository organization located in Europe that allowed
its members to effect transfers of securities in book entry form. The agency also provided related services. such as
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In addition, ministerial, non-discretionary support services "are permissible under a long
line of precedent recognizing that federal savings associations have incidental authority to
provide such services.,,38 These correspondent services are services that the federal savings
association "provides to others that the institution is authorized to generate in-house for itself in
the regular course ofbusiness.,,39 They typically include clearing checks, collecting debts,
participating in large loans, providing legal advice, assisting in building securities portfolios,
counseling as to personnel policies, training staff. helping with site selection. auditing, and
providing electronic data processing.
40
OTS has not limited permissible correspondent services
to those on this list, but, for example, has pennitted a federal savings association to provide
management and consulting services to foreign financial institutions.
41
Some of the services that OpSub-LLC would provide for customers are the types of
services that OpSub-LLC could perform for itself if it were engaging in the permissible activity
of buying and selling certain types of securities for its own account, subject to statutory and
regulatory limitations.
42
These include custody, order flow, and recordkeeping services. They are
authentication of certificates and clipping and presentation of coupons to the fiscal/paying agency for payment. OTS
Op. Chief Counsel 94-CC-09. at 4 (June 13.1994).
The global custody services that OTS permitted the agency to provide to broker/dealers. investment managers,
private institutions, and other members afthe public included:
reporting to customers regarding their holdings of different types of currencies,
analyzing and tracking of claims made to foreign nations for tax refunds; settling
customer instructions to purchase and sell securities; collecting dividend interest
and other sources of income on behalf of customers, and related processing
services; assisting customers in foreign exchange transactions; and providing
related recordkeeping. reporting and bookkeeping services.
Id at 2. OTS also pennitted the agency at times to provide settlement and intra-day and ovemight overdrafts relating
to settlement of customer security transactions and to provide safekeeping of securities certificates for customers. Id
As agent for its customers, the agency loaned U.S. and foreign securities collateralized by U.S. dollars. letters of
credit, or U.S. government securities and assist with related recordkeeping and reporting. Id at 3.
38 See, e.g., OTS Op. Chief Counsel, supra note 34, at 3.
39 OTS Op. Chief Counsel. supra note 34, at 3 (citations omitted).
40 OTS Op. Chief Counsel. supra note 34, at 3, citing United States v. Citizens & Southern National Danle, 422 U.S.
86. lIS (1975).
41 See OTS Op. Chief Counsel. at 9 (May 10, 1995) (advice regarding the internal procedures required to originate
pools of loans supporting residential mortgage-backed securities).
42 See, e.g., 12 U.S.C. §§ 1 464(c)(I)(C)(U.S. govemmentsecurities). I 464(c)(J)(F) and (H)(other govemment and
state securities); 12 C.F .R. Part 560 (2006). An operating subsidiary of a federal savings association may only
engage in activities that are permissible for a federal savings association. 12 C.F.R. § 559.3(e)(I)(2006).
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correspondent services that are permissible incidental services, in addition to expressly
permissible services.
To determine whether providing clearing services for transactions involving a wider range
ofsecurities than those referenced in section S(c) of the ROLA and whether membership as a
clearing member of a secmities exchange are permissible as incidental activities, the first factor
that we consider is whether the activity is consistent with· the Congressional purpose for federal
savings associations. In recent legislation, Congress accorded Savings associations parity with
banks with respect to broker-dea1er registration requirements.
43
Congress thereby evidenced its
belief that savings associations have the power to provide such services and that such power is
consistent with the purpose and role Congress envisioned for federal savings associations.
During the last several decades. Congress bas amended the ROLA to expand the powers of
federal savings associations and ·enhance the ability of federal savings associations to meet the
needs of their retail and commercial customers, while strengthening the safety and soundness
framework within which associations e x ~ i s e these powers. The amendments granted or
expanded lending' or investment authority for additional consumer products, commercial loans,
commercial paper, and nonresidential real estate loans, among others. Congress intended to
. provide federal savings associations "flexibility .•• to improve the range of services [that] thrift
institutions may provide to their customers. ,""
Providing clearing services for a broad range of securities, beyond those merely
referenced in section S(c) of the HOLA, 45 is entirely consistent with the role envisioned for
federal savings associations. Performing clearing services would not involve holding or
underwriting securities. Thererore any associated risks would be similar to acting as agent in
performing <?ther activities. This activity therefore would be consistent with the Congressional
purpose offederal savings associations, as reflected in the recently enacted legislation. Similarly,
the authority to clear and settle securities transactions as a member of a clearinghouse is
consistent with the Congressional purpose to permit a federal savings association to remain
competitive and relevant. To do s o ~ a' federal savings associati.on must be able to provide the full
range of services expected of a clearing broker. Granting federal savings associations parity with
respect to broker-dealer registration requirements.is a clear expression of Congressional· intent.
The second factor tbat we consider is whether serving as a clearing member of a
securities exchange is an activity that is similar to, or would facilitate the conduct of, an activity
already expressly authorized for federal savings associations. Section S(cXl) of the ROLA and
the OTS's implementing regulation provide that a federal savings association has authority to
43 Financial Services Regulatory Relief Act of2006, § 401(b), Pub. L. No. 109-351, (Oct. 13.2006). See note 22,
supra.
44 OTS Op. Chief Counsel P-98-9, at 4 (Aug. 19. 1998), quotingS. ConI. Rep. No. 641, 9'fhCong •• 2nd Sess. 87
(1982).
4$ These sec:urities are descn"bed in note 16, mpra. and accompanying text.
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provide"brokerage services for all loans, investments, and securities allowed under Section 5(c).46
LLC's ability to clear securities transactions by virtue of being a clearing-member, and for a
wider range of securities than merely those authorized in section S(c) of the ROLA, clearly
facilitates securities brokerage, an activity expressly authc?rized for federal savings associations.
47
The third factor that we:; consider is whether the proposed clearing and settlement
services, including membership in a clearinghouse for securities transactions, would relate to the
financial intermediary role that federal savings associations were intended to fulfill. The role of a
financial intermediary is to facilitate the flow of money and credit among different parts of the
economy. It illay do so through various means, such as receiving and transmitting funds,
borrowing from savers and lending to users, providing financial support for transactions, and
participatiJ).g in the capital markets.
48
The proposed clearing and services, as a
member of a clearinghouse, and for a wide range of securities, include of credit and
receipt and delivery of:funds and securities. These services are integral to the role -of the
tin iaI
· te ediary 49
ane mrm .
The- fourth and (mal factor that we consider is whether the clearing and settlement
services are necessary for a federal savings association to remain competitive and relevant in the
modem economy. We observe that the Board ofOovemors of the Federal Reserve System
(FRB) by regulation pennits bank holding companies to provide clearing services on a securities
exchange "and incidental activities (including related securities credit activities and custodial
services), uthe securities brokerage services are restricted to buying and selling securities solely
- as agent for the account of customers and do not include securities underwriting or dealing.'.so
Regulation Y also permits bank holding companies to provide clearing services for any futures
contracts and options on futures traded on exchanges subject to two
conditions: first. the activity is conducted through a separately incorporated subsidiary, which
may engage in other activities; and second, the bank holding company parent does not provide a
guarantee or otherwise become liable to the exchange or clearing association other than for trades
conducted by the subsidiary for its own account or for the account of any affiliate.
51
46 See 12 U.S.C •. § 1464{c); 12 C.P.R. § 560.30 (2006).
47 W. note that with respect to clearing transactions involving securities not aUthorized in HOLA section S(c),
OpSub-LLC would not be making investments for itself or engaging in underwriting.
41 OTSOp. Chief Counsel at S (Aug. 19. 1998), citing AutenY. United Stales Hal 'I Bank, 174 U.S. 125,
143 Accord. OCC Interpretive Letter No. 1014, at S «Jan. 10. 200SXnationai banks may become netting
members of a clearing corporation, which includes participating in its loss allocation system, and may clear, net, and
settle U.S. government securities). -
49 See OCC Interpretive Letter No. 929, 5 (Feb. II, 2002)(clearing and execution activities are consistent with role
of financial intermediaries.).
50 Regulation Y. 12 C.F.R. § 22S.2&{b)(7Xi) (2006).
51 12 C.F.R. § 22S.28(bX7)(iv) (2006). In a revision of its Regulation Yin 1997.tbe FRB determined that
permitting the bank holding company to guarantee proprietary trades on a commodities exchange is appropriate. It
also determined that it no longer would require review of tile rules oca commodities exchange or clearinghouse
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