Financial Institutions Consulting

FICs Shared-Loss Capabilities Overview

January 2010
www.ficinc.com

About FIC

FIC provides in-depth expertise and proprietary technology to allow banks and investors to maximize the benefits and minimize the costs associated with managing FDIC Shared-Loss Agreements
Founded in 1995, Financial Institutions Consulting (FIC) focuses on issues related to growth, acquisition, and integration We provide practical, bottom-line results based on quantitative and qualitative analysis conducted by highly experienced practitioners who possess an in-depth understanding of industry dynamics

What we do:
Related to Shared-Loss FIC offers clients targeted tactical Shared-Loss, modules and technology that enhance a banks existing capabilities, increasing efficiency and capacity Beyond Shared-Loss, we conduct projects related to profitability, portfolio analysis, cost containment, process streamlining, and acquisition/integration. We also emphasize ongoing strategic advisory relationships and project implementation management

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FICs Shared-Loss Expertise

FICs Shared-Loss experience centers on supporting all elements of the process, from acquisition through implementation and portfolio management
FIC services provided include: Acquisition/Due Diligence Support- Conduct portfolio due diligence, profile portfolio characteristics, and identify concentration risk Valuation and Accounting Services Stratify acquired portfolios into homogeneous pools Servicesto support purchase accounting (FAS 141-R and SOP 03-3). Create and document accounting controls, processes, and procedures to support the audit requirements of the FDIC Shared-Loss agreements Portfolio Support- Review/assess each loan in commercial portfolios, perform credit file audits, obtain updated financials, recommend risk rating changes, address accrual/nonaccrual status, and create audit proof submissions FDIC S b i i Submissions- M Manage monthly/quarterly submissions, d t d thl / t l b i i data downloads, and l d d supporting documentation management and reporting Software Tracking System- Provide a turn-key software application that allows for loan level tracking/reporting and produces automated FDIC monthly/quarterly certificates

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FIC Capabilities

Acquisition/Due Diligence Support (Commercial & Residential)

Our activities include: Onsite review of loans in portfolio Assessment of management, credit quality, and portfolio performance Determine concentration risk, key loss areas, and portfolio characteristics

Valuation and Accounting Services

Activities include: Support for acquisition accounting issues related to SOP 03-3 and FAS 141-R Support for fair value determination including portfolio stratification and valuation (FAS 157) Create and document accounting controls, processes and procedures to support the audit requirements of the FDIC shared-loss agreements
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Once the Shared-Loss Agreement is in effect, depending on client needs, we focus on activities tied to the loan assessment, certification and monitoring assessment certification,
Portfolio Support
1. Analyze portfolio and assess risk based on collateral quality and borrowers financial capacity 2. Re-classify loans after updated risk assessment 3. Maximize shared-loss claims, employing efficient, cost effective processes and technology

FDIC Submissions
4. Automate Monthly/Quarterly Certificate preparation 5. Provide secure electronic submission in FDIC required data format

Software Tracking System

6. Track payments and recoveries 7. Generate automated quarterly submissions until final asset disposition 8. Offer real-time audit capabilities through customizable Business Intelligence portal 9. Ensure secure multi-level user access managed by the bank 10. Forecast quarterly sharedloss claims, based on portfolio quality assessment and ongoing loan reviews

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The Shared-Loss process requires data collection from multiple internal systems and detailed reporting both for the bank and the FDIC

Inputs:

FIC Shared-Loss Management (SLM)

SLM Logic: Transform and reconcile loan level transactions to FDIC required format Produce FDIC shared-loss certificates

Bank Loan System Monthly Loan Level Transactions SLM Data

FDIC Shared-Loss Certificates

Accounts Payable P bl

Underwriting

Reporting: FDIC Required Shared-Loss Reporting Accounting Audit / Control

Stakeholder View Recoverable / Reimbursable Expenses Loan Level Analysis Shared-Loss Request & Approval Management

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Portfolio Support- Residential

FICs Residential focus includes: Generating loan modification tracking reports/providing monthly download management
Active SFR Active REO Inventory Loans Paid in Full

Calculating FDIC Loss Certificates

Foreclosure/REO Short Sales Additional Recovery/Expenses Charge Offs

Providing FDIC Monthly Certificate Summaries In addition, FIC partners with a major residential mortgage sub-servicer that can provide that service to acquirers p q

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Portfolio Support-Commercial
Our Commercial focus includes: Providing a swat team of credit p g professionals to conduct loan by loan analysis y y Performing individual credit file audits, detailing file update requirements Leading the collateral/appraisal valuation process for real estate secured loans Determining those credits requiring field exams, review borrowing base certificates, and determine collateral position/coverage Evaluating loans for accrual/non-accrual status Recommending risk rating changes Reviewing and prioritizing of loans for FDIC submission claims Submitting claims, transferring loans to Special Assets Department for ongoing support/handling

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Elements of our commercial credit analysis include:

Appraisal Tracking
Note Name Branch 4/30/2009 New Appraiser Selected Quote Request Sent Y/N Engaged Fee Due Date Date Estimate Recvd of Value Value Date LTV Review Ordered Review Appraiser Review Fee Review Due Date Recvd Notes

3523 XYZ Builders

CRE

4,420,464

Sam Smith

YES

08/12/09

$5,000 09/30/09

Credit File Audit Report

Borrower(Corp/Partnerships) TaxReturns Loan# Loan # RM/LoanOfficer RM / Loan Officer Borrower(s)&Guarantor(s) Borrower(s) & Guarantor(s) XYZRefrigeration OscarJohnson RalphDavidson LoanUpdate /CallMemo / Call Memo X 2007 X 2008 X FYE FinancialStatement Financial Statement 12/31/08 Audited X X X X X RMcontactedclienton8/25,willhave infoby9/30/09 Guarantor(PersonalorBusiness) TaxReturns 2007 2008 CurrentPFS(Asof September2009) September 2009) Notes

4441 MaryJones

Portfolio Segmentation Report

BorrowerName NotePurpose
Commercial&Industrial Loans

Type

CollateralType

Undisbursed Note Dateof TimesPast TimesPast TimesPast Non Maturity Interest Balance Commitment risk Non outstanding Due3059 Due6089 Due90+ accrual Date Rate availability rating Accrual
100,000.00 25,000.00 5 000 000 000 N 20091231 5.75

City

State

Zip Code
43123

XYZRefrigeration

71

SecuredbyOther

Houston

TX

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Each commercial loan, both CRE and C&I, requires individual analysis
Shared-Loss Analysis
Date Prepared: Prepared By: Borrower Information Borrower Name: Loan ID: Guarantor(s): Related Facilities: Maximum Credit: Originating Officer: Non-Accrual Date: Interest Rate: Rate Note Date: Maturity Date: Loan Information WAR Officer: Reversed Interest: Next D e Date: Ne t Due Date Principal Balance: Available Credit: Risk Rating Principal Charge Off: Remaining Principal: Appraisal Date: Description: Comments Recommendation Shared-Loss Claim Information Certificate Date: Principal Balance: Less Appraised Value: Principal Charge Off: Escrow Charge Off: Reimbursable Expenses: Reimbursable Interest (90 days): Total Ch T t l Charge Off Off: Shared Loss Request (@80%): Current Rating: Rating: New/Split Rating: Collateral Information Appraised Value: FIC

Claim ID:

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The commercial portfolio requires close tracking to capture additional claim opportunities
Shared Loss Shared-Loss Submission Tracking Report
Shared-Loss Claim SharedAppraisal Call Loss Appraisal Review Memo Claim ID (Y/N) (Y/N) (Y/N) Complete Submission Financials Form (Y/N) (Y/N) Charge-Off Principal Charge-Off Interest Escrow Charge Off Total Share-Loss Claim (@80% or 95%)

Borrower Non-Performing Loans

Kings Company (NA) Beverly Hills Ventures, LLC (NA) y , ( ) More Of The Same Properties, LLC (NA)

Loan #

Expenses

Total Charge Off

9999 8888 7777

17 N/A 43

y y y

n/a n/a n/a

y y y

n n n

y y y

327,920.21 -

14,322.66 27,035.71

7,500.00 900.00 -

349,742.87 27,935.71

279,794.30 22,348.57

Total Non-Performing

327,920.21

41,358.37

8,400.00

377,678.58

302,142.86

Transfer to Non-Accrual for Sept 30 Claim

Lots of Money LLC Money, Big Time Investments 2211 4321 10 19
n/a y n/a n/a y y y n y y 14,181.79 87,181.00 4,000.00 14,181.79 91,181.00 11,345.43 72,944.80

Total Transfer to Non-Accrual

101,362.79

4,000.00

105,362.79

84,290.23

Total September 30 Claim

429,283.00

41,358.37

12,400.00

483,041.37

386,433.10

Prior Quarter Submissions/Net Changes

Jones Company (None this Qtr)

4422

43

5,400.00

5,400.00

4,320.00

Total Adjustments/Net Changes

No Claim but Transfer to Non-Accrual for Dec 31, 2009 Certificate

ABC Suppy Jackson Apartments Tryit Developer 4344 3233 1414
y y y n/a n/a n/a y y y n n n y y y 637,802.20 752,695.80 378,999.51 378 999 51

Total Transfer for December 31, 2009

1,769,497.51

No Claim, Ongoing Monitoring

Johnson Builders Jones Construction XYZ Company Smith Developers Total "No Claim" 1234 5678 9101 2233 N/A N/A N/A N/A
y y y y n/a n/a y y y n y n n n y n y y y y

Principal Balance
1,387,500.00 148,211.53 2,981,301.00 1,643,254.36 6,160,266.89 -

Expenses
450.00 4,500.00 6,200.00 6,850.00 -

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FDIC Submissions (Commercial & Residential)

FIC understands the intricacies of the Certificate process and can assist in key aspects of completing certificates: Preparing and submitting Monthly/Quarterly Certificates Developing backup files required for future audits (includes all supporting documentation) Overseeing initial data download management and tracking

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Software Tracking System (Commercial & Residential)

FIC has developed the FIC Shared-Loss Portal to provide detailed loan tracking, certificate preparation, and ongoing Shared-Loss reporting The softwares features/capabilities include: Knowledge-based software developed as a result of hands-on experience, manual learning environment Loan level tracking (Opening Balances, Transactions, Closing Balances, Adjustment Tracking, Recoveries, Reimbursable/Recoverable Expenses) g p g g Detailed management reporting for life of Agreement Multiple Certificate, multi-acquisition capability Support for audit requirements

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The software application provides detailed loan level tracking through the life of the Agreement

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The software automates the monthly/quarterly FDIC Certificate generation

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Additionally, FICs Shared-Loss Portal features extensive management reporting capabilities

Formatted reports include:
Loan Detail Report This report provides detailed, current information for each loan covered under the Agreement, including loan information, analysis/claim summary, and expense summary. Loan Analysis/Claim Report Includes loan level analysis detail (See slide 9) Loan Level Reconciliation Report For each loan, this report provides a reconciliation of the Shared-Loss l Sh d L loan b l balance th through th most recent C tifi t h the t t Certificate

In addition to formatted reports, users have the ability to download any data from the Portal in Excel format. Standard downloads include:
Analysis Data Provides a listing of loan analyses Claim Data Provides a listing of all claims Expense Data Provides details on all expense items both open and claimed items, Adjustment Data For audit purposes, this download provides details on all manual adjustments Transaction Data Includes all transaction details

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Lessons Learned

Several key principles for managing a Shared-Loss Agreement emerge from our experience
Separate and Centralize Shared-Loss Assets. FDIC reporting requirements require loans to be flagged as share-loss assets, and access to loans should not be bank wide . bank wide. Create a Dedicated Team. The specific requirements related to managing SharedLoss loans in compliance with the Agreement underscore the need for a specialized group of experts. Failure to dedicate Shared-Loss experts may cause errors that experts Shared Loss experts preclude loans from future submission Engage Key Internal Constituencies. The Shared-Loss process requires the involvement of Workout Finance Accounting IT Audit and other areas Creating a Workout, Finance, Accounting, IT, Audit, areas. knowledgeable and engaged Shared-Loss working team is critical View Shared-Loss as a Line of Business, Not a One-Off Transaction. The upfront investment to manage a Shared-Loss transaction can only be justified if the bank maximizes cash flow and, ideally, builds a portfolio of transactions Operate With a Sense of Urgency. Optimizing cash flow from the transaction and ensuring that acquired customers are handled efficiently and effectively underscores the need to prioritize activities related to Shared-Loss
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Our Senior Professionals

Charles B. Wendel

President of Financial Institutions Consulting, Inc. 20 years experience as consultant and b k 20+ i l d banker Expertise in retail banking, business, commercial banking, and wealth management Functional experience in strategy, acquisition integration, segmentation, reduction, cost reduction and productivity improvement Contact: cwendel@ficinc.com Telephone: 917-744-6600 Thomas McMillen, CPA CPA with 20+ years experience, including as CIO Expertise in financial and operational p p processes, information technology, and systems evaluation and integration Robert White 20+ years experience as consultant and banker; previously with GE Capital and Citizens Bank Expertise in commercial real estate, C&I lending, business banking, and commercial finance

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Selected Clients Over the past 15 years FICs clients have included top national and years, FIC s international financial institutions as well as regional and community players
We adapt to the needs of our clients, no matter their size United States Bank One/First USA BankUnited Capital One (Card) Capital One Bank Citibank and CitiCapital Citizens/RBS City National Bank Commerce Bancshares Eastern Bank Equipment Leasing Association First Horizon Bank FleetBoston GE Capital Guaranty Bank IBM Credit Intuit JP Morgan Chase M&T Bank MasterCard Advisors MasterCard International Metavante National City Bank North Fork Bank Principal Financial Group Sovereign Bank USAA Visa USA Wachovia Wells Fargo International ABN-AMRO (Asia) ASB Bank Bank of New Zealand CIB (Egypt) Credit Union Central of Canada ICICI Bank (India) ING Kiwi Bank (New Zealand) Laurentian Bank Raiffeisen Bank (Austria) Scotiabank Inverlat Standard Chartered Bank Visa International World Bank

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