PENRITH GROUP

Financial Advisory Services

and

present
CEO Luncheon Discussion
Net Worth ~ Loss Reserves ~ Compliance
June 23, 2010
6/28/2010 Penrith Confidential 1
Current Context
Objectives Benefits
Portfolio Rebalancing for Risk-Based Net Worth requirements;
Net worth & Capitalization
achieving required capitalization classification; resumption and
Requirements
growth in lending activities

Regulatory Compliance (meet NCUA requirements); FAS 5 & FAS 114

ALLL Allocation compliance; Standardization of practices

Determine portfolio and loan-level pricing based on Industry standard

Portfolio Valuation practices

Participation in Board, Audit and Regulatory reviews; financial

Advisory Services
engineering services

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Penrith Group
About Us Focus Areas

Allowance for Loan and Lease Losses

Financial Advisory Risk Assessment (ALLL); Compliance to FAS5 and
FAS114
Firm Specializing in
Risk Assessment and
Time based Analysis; Stress Testing;
Valuation of Portfolio Strategy
Portfolio Benchmarking
Commercial,
Residential &
Consumer Debt Portfolio Valuation Time and Scenario based Analysis;
Portfolio Stress Testing

Net Worth & Risk Based Net Worth Analysis;

Capitalization Analysis Portfolio Rebalancing
Clients comprising of
Banks, Credit Unions,
Hedging Strategies to manage
Private Equity Firms Hedging Strategies exposure to fixed or floating rate
and Other Financial assets & liabilities
Institutions
Transaction & Deal Deal Structure Analysis, Cash-flow
Advisory waterfalls, Calculation of IRR

6/28/2010 Penrith Confidential 3

Recent Engagements

Federal Credit Union Credit Union Private Equity Firm

Los Angeles Las Vegas New York

Risk Assessment of $500 Risk Assessment of $440

Deal Advisory for bid on
mm Commercial, mm Residential plus $300
$1.3 bn Residential Loan
Residential & Consumer mm Auto and Consumer
portfolio
Loan portfolio Loan Portfolio

Sept 2009 - Present Jun 2010 Aug 2009

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Net worth & Capitalization Analysis

Net worth Ratio & Risk Based Well Capitalized or Adequately Capitalized Credit Unions are
Net worth (RBNW) subject to fulfilment of both requirements

Net worth Ratio (Net Worth 7% or more is considered well capitalized ; 6-6.99% is
to Assets) considered adequately capitalized

Long Term Real Estate Loans, MBL outstanding, Investments,

RBNW (8 types of Risk Based
Loans with recourse, Low Risk Assets, Average Risk Assets,
Asset Classification)
Unused MBL commitments and Allowances

Weighted average of the corresponding risk based Net Worth

RBNW Calculation
requirement of the individual components

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Net worth Analysis Process

RBNW Calculation &

Asset Segmentation RBNW based Comparison based on
based on Risk Stratification Standard Component
Classification (e.g., Maturity) and Alternative
Component Methods

Look at Weighted Avg. Portfolio Rebalancing

impact of strategies for achieving
assets/segments on required capitalization
RBNW classification

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Risk Assessment (1 of 2)

Forward Looking
Portfolio
Analysis of Credit Cash Flow Analysis
Composition
Risk & Interest (Loan Level)
Analysis
Rates

ALLL
Recommendations
Statistical Analysis
(FAS5 and FAS114
Compliance)

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Risk Assessment (2 of 2)
Type of Loans Treatment

FAS 5 treatment: Aggregate loans and

Consumer Loans (Auto,
use historical statistics & other
Credit Card, HELOC and composite measures for evaluating
Unsecured) impairment

FAS 114 treatment: Measure

Commercial and impairment based on present value of
Residential Mortgages expected future cash-flows discounted
at effective interest rate

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Portfolio Strategy
Time based Analysis & Portfolio Benchmarking
Stress Testing Portfolio Strategy & Risk vs. Return
Base Case
0.60 National Trends

0.40
Market Snapshot
LS

0.20
Loan Ranking
Time based Portfolio
0.00 Analysis Benchmarking
0.00 0.10 0.20 0.30 0.40

DR
Penrith • Portfolio
Recession
Segmentation
0.60
Risk vs. Return • Delinquency Trends
Stress Testing
Analysis • Ranking based on
0.40
Comp Set, MSA and
LS

region
0.20

• Growth & Liquidation

0.00 Strategies
0.00 0.10 0.20 0.30 0.40

DR

6/28/2010 Penrith Confidential 9

Portfolio Valuation
Price Distribution
400

350
Stochastic Analysis of
Portfolio Analysis 300

Credit Risk Vectors

Price (% of CB)
250

200

150

100

50

0
20-40 40-50 50-60 60-80 80-100 100-110

Statistical Analysis 400 bps 600 bps 800 bps 1000 bps

Cash Flow Analysis

(based on standard
(Loan Level)
normal distribution)

OAS Pricing at
multiple spreads to
benchmark yield
(e.g., 400, 800, 1200
bps)

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Hedging Strategies
Hedging Parameters
Treasury 5-Year
Notional Amount / Optimal
Hedge Size Hedge Ratio 5.00%
4.50%
4.00%
Basis Risk Frequency of Payment Stream
3.50%
3.00%
Matching Hedge Instrument
WAL and Duration 2.50%
with Asset or Liability
2.00%

Calculation of changing size of 1.50%

Amortization
Hedge 1.00%
1 6 11 16 21 26 31 36

Hedge Term Static vs. Rollover Positions Flat Falling Double Dip Moodys

Interest Rate Derivatives

Can be customized; minimal basis risk; subject to counterparty credit risk;

Swaps
can result in negative net cash-flows

Exchange Traded; Established settlement process; virtually no counterparty

Futures credit risk; High basis risk; Variability in Optimal Hedge Ratio; can result in
negative net cash-flows

6/28/2010 Penrith Confidential 11

Transaction & Deal Advisory

Senior-Subordination, Leverage, Embedded Call

Term-Sheet Analysis
Options

Credit, Capacity, Collateral Risk Analysis and Deal

Deal Evaluation
Pricing

Cash Flow Priority, Performance Triggers, Step

Cash-Flow Waterfall
Downs & Step Ups, Principal & Interest Payoffs

B/E Analysis and IRR at different economic

Returns Analysis
scenarios

6/28/2010 Penrith Confidential 12

Proven Track Record
File Reviews & Due Diligence; Financial Modeling;
Cross-Functional Expertise Statistical Analysis; Risk Management; Data
Management Systems

Expertise spanning Origination, Servicing (Special

Extensive Mortgage
Servicing), REO Property Preservation and Secondary
Background Marketing

Experience in handling Multiple Asset Types

Diverse Asset Expertise (Commercial, Residential – 1st TD and 2nd TD,
Consumer – Auto, Credit Card, Unsecured and HELOC)

In the Mortgage Banking Industry for more than 15

Impeccable Credentials
years with solid reputation and long-lasting clientele

Partnerships with Standard & Poor’s, PPR Compass

Strong Partnerships and TREPP for highly discounted pricing to Penrith’s
Credit Union clients

6/28/2010 Penrith Confidential 13

Leadership Team (1 of 2)
Mr. Meiswinkel is the President of Penrith Group. Prior to joining Penrith, Mr.
Meiswinkel founded Lucre International Corporation, a national due diligence and
software development firm. Mr. Meiswinkel successfully managed the sale of Lucre’s
due diligence platform, an acquisition by Clayton Holdings.
Carl Meiswinkel
President Prior to founding Lucre, Mr. Meiswinkel co-founded The Bohan Group and acted as
President and COO 1995-2004 where he managed all aspects of nation wide
operations in San Francisco, New York, and Irvine. He oversaw more than 2,500
transactions between originators and investment banks totaling over 5 million loans
and managed more than 30 national audit teams weekly.

Mr. Narayanan is co-head of the Portfolio Management Team and specializes in

valuation and risk management of mortgage assets. Prior to joining Penrith, Mr.
Narayanan was co-founder and managing partner of 14e Capital Advisors.

Anand Narayanan Previously, Mr. Narayanan was a Capital Markets consultant at a top Mortgage
VP, Risk Management Company and a JSDA licensed trader at Lehman Brothers in Japan. Mr. Narayanan is
also a regular speaker at national mortgage conferences.

Mr. Narayanan has an MBA from Indian Institute of Management and UCLA,
Anderson School of Management.

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Leadership Team (2 of 2)
Mr. Raghavan is co-head of Penrith’s Portfolio Management and specializes in
portfolio strategy and risk assessment of mortgage assets. Prior to joining Penrith,
Mr. Raghavan was co-founder and managing partner of 14e Capital Advisors.
Sanjay Raghavan
Previously, Mr. Raghavan was a consultant at a top Mortgage Company and an
VP, Portfolio Strategy analyst at Kothari Pioneer Asset Management Company. Mr. Raghavan is also a
regular speaker at national mortgage conferences.

Mr. Raghavan holds a MBA from The Wharton School, University of Pennsylvania

6/28/2010 Penrith Confidential 15

Contact Us

Kara Harrington Carl Meiswinkel

Managing Director President
Kara@penrithgroup.com carl@penrithgroup.com
Office: (336) 510-9901 Office: (949) 347-7700
Mobile: (336) 324-7173 Mobile: (949) 933-9803

Anand Narayanan Sanjay Raghavan

VP, Risk Management VP, Portfolio Analysis
anand.narayanan@penrithgroup.com sanjay.raghavan@penrithgroup.com
Office: (949) 347-7700 Office: (949) 347-7700
Mobile: (714) 658-6053 Mobile: (714) 922-0230

7 Corporate Center, Suite B 28202 Cabot Road, Suite 225 10 G Street NE, Suite 710
Greensboro, NC 27408 Laguna Niguel, CA 92677 Washington, DC 20002
T 336.510.9901 F 336.510.1405 T 949.347.7700 F 949.347.7701 T 202.248.5012 F 202.558.5210
www.penrithgroup.com www.penrithgroup.com www.penrithgroup.com

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