20 Church Street Liberty Corner, NJ 07938 P: (908) 604-9336 F: (908) 604-5951 ...

20 Church Street Liberty Corner, NJ 07938 P: (908) 604-9336 F: (908) 604-5951 [email protected] www.finpro.us20 Church Street Liberty Corner, NJ 07938 P: (908) 604-9336 F: (908) 604-5951 [email protected] www.finpro.us

About the Firm

20 Church Street Liberty Corner, NJ 07938 P: (908) 604-9336 F: (908) 604-5951 [email protected] www.finpro.us

Consulting Division

REGULATORY • Formal and Informal Order Resolutions• Expert Testimony• Regulatory Consulting• Policy Development and Review• CRA

CORPORATE GOVERNANCE• Corporate Governance system• Meeting reviews

LEADERSHIP AND EDUCATION • Board and staff training• Active talent management• Succession planning• Compensation and staffing review

BALANCE SHEET MANAGEMENT • Dynamic Asset Liability Management• Deposit Study• Asset Liability Management Review• Allowance for Loan and Lease Loss Methodology

INVESTMENT DUE DILIGENCE• 939A Investment Analysis• Portfolio Review

ENTERPRISE RISK MANAGEMENT• Enterprise Risk Management

DE NOVO BANK CONSULTATION • De Novo Strategic Business Plan

MARKET FEASIBILITY• Site Study• Market Ranking• Branch Improvement• Customer Segmentation

The Consulting Division is focused on serving FinPro clients throughout their lifecycle providing institution specific advice. FinPro offers a full array of consulting services designed to align with our core principle of building value together.

PARTNERSHIP• Partnership with Enterprise Risk Management• Limited Partnership

STRATEGIC ADVISORY• Strategic Plan• Conversion Plan• Conversion Appraisal• Plan Update• Capital Plan• Strategic Alternative Review

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Enterprise Risk Management • Enterprise Risk Management (“ERM”) is the process of Identifying,

Measuring, Monitoring and Controlling all risks in a given entity. • Many banks have some form of risk assessment, but the various

risks are often modeled and analyzed in silos. • ERM, in a CAMELS+ format, brings all of the risk assessments

under one common umbrella, with one process and one model.• Combined regulatory expertise and management consulting

uniquely positions FinPro to assist financial institutions in assessing the overall risk profile.

Regulatory Advisory• FinPro’s seasoned professional staff has over 150 years combined

of regulatory experience and understands the complexities of regulatory issues and the changing regulatory landscape.

• FinPro keep its partners aware of all regulatory “hot buttons” and pending legislation that could affect your institution in the future.

• By staying “ahead of the curve” on all future rules and regulations, you will save both time and money and be able to focus on what matters most at your institution, building value.

Capital Markets Advice• FinPro will provide ongoing capital markets advisory services to

the Partner, including recommendations on how and when to raise capital, forms of capital, dividends, and stock repurchases.

• FinPro’s expertise in Merger and Acquisition Advisory also provide its partners with comprehensive analysis of strategic alternatives.

Branching/Markets Advice• Detailed data and market research allow a partner to make

effective branching decisions. • Proactive measures will allow institutions to specifically target

markets and customers that match strategic objectives.

PartnershipPartnership with Enterprise Risk ManagementThe Partnership Package is an exclusive annual retainer service established to provide a client with the highest level of FinPro assistance on an ongoing basis. Subscribers receive the following benefits:

Ongoing Strategic Advice • FinPro provides priority service to its partnership clients. • Partners are provided with continuous strategic advice.• Partners will have priority access to FinPro’s principals.

Financial Modeling and Business Planning• FinPro’s single model and engine allow a bank to establish a

comprehensive projection incorporating all aspects of the bank. • Financial projections are developed interactively with the bank for

a budget, business plan or strategic plan. • The projections are updated quarterly and contain all necessary

financial components including all key ratios. • Stress testing and what-if financial modeling provide the bank with

different scenarios for the bank to make informed decisions.

Asset/Liability Advice• Managing interest rate risk is not just a regulatory requirement but

an essential element to the overall success of your institution. • FinPro will provide the most accurate analytics possible utilizing

account level information with output that is easy to comprehend. • Analyses include both dynamic and static balance sheet analysis

of Net Interest Income simulation and Economic Value of Equity.

Investment Portfolio and Securities Review• Purchasing securities needs thorough due diligence and brokers

often try to mark up securities for their benefit. • FinPro will review investment purchases in the context of a client’s

balance sheet and overall strategy.

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Regulatory Advisory• FinPro’s seasoned professional staff has over 150 years combined

of regulatory experience and understands the complexities of regulatory issues and the changing regulatory landscape.

• FinPro keep its partners aware of all regulatory “hot buttons” and pending legislation that could affect your institution in the future.

• By staying “ahead of the curve” on all future rules and regulations, you will save both time and money and be able to focus on what matters most at your institution, building value.

Capital Markets Advice• FinPro will provide ongoing capital markets advisory services to

the Partner, including recommendations on how and when to raise capital, forms of capital, dividends, and stock repurchases.

• FinPro’s expertise in Merger and Acquisition Advisory also provide its partners with comprehensive analysis of strategic alternatives.

Branching/Markets Advice• Detailed data and market research allow a partner to make

effective branching decisions. • Proactive measures will allow institutions to specifically target

markets and customers that match strategic objectives.

PartnershipLimited PartnershipThe Limited Partnership Package excludes Enterprise Risk Management services which tie together all of the other services included in the partnership. However, the partnership still provides a bundled level of services to a client:

Ongoing Strategic Advice • FinPro provides priority service to its partnership clients. • Partners are provided with continuous strategic advice.• Partners will have priority access to FinPro’s principals.

Financial Modeling and Business Planning• FinPro’s single model and engine allow a bank to establish a

comprehensive projection incorporating all aspects of the bank. • Financial projections are developed interactively with the bank for

a budget, business plan or strategic plan. • The projections are updated quarterly and contain all necessary

financial components including all key ratios. • Stress testing and what-if financial modeling provide the bank with

different scenarios for the bank to make informed decisions.

Asset/Liability Advice• Managing interest rate risk is not just a regulatory requirement but

an essential element to the overall success of your institution. • FinPro will provide the most accurate analytics possible utilizing

account level information with output that is easy to comprehend. • Analyses include both dynamic and static balance sheet analysis

of Net Interest Income simulation and Economic Value of Equity.

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Strategic AdvisoryStrategic Plan and Conversion Plan

The Situation Assessment:Overview

1. Summary (Strengths, Weaknesses, Opportunities, and Threats - SWOTs)

Risk, Regulatory, and Governance2. Internal Environment3. External Environment4. Asset/Liability Analysis5. Community Reinvestment Act (CRA)6. Bank Secrecy Act (BSA)

Market, Customer, and Franchise7. Franchise and Market Assessments8. Customer Analysis

Historical Performance9. Value Book10. Historical Building Value

The Strategic Plan:Overview

11. Executive Summary12. Value Creation

Building Value2. Franchise and markets3. Capital4. Loans5. Deposits6. Customers7. Non interest expense8. Non interest income

AppendixA. Modeling Assumptions and OutputB. Cost Center and Strategic Alternative Summary

The FinPro strategic planning process is designed to help clients build value by establishing the structure the institution needs to determine its financial goals and implement them. The plan includes all regulatory required elements and the interactive, what-if modeling results in a one year budget, three year business plan, and five year strategic plan.

Conversion Plans require an understanding of the process, structure and regulatory requirements involved. FinPro works closely with the institution’s legal counsel and other advisors to ensure timelines are met and the regulators receive the detailed information needed.

Interactive and Iterative Board and Management Involvement to: • provide an understanding of the building blocks of the plan including

the situation assessment and the assumptions utilized;• facilitate decision making through understanding results;• promote institution ownership of the plan;• identify and assign direct accountability to the individuals responsible

for each area of the institution.

The Process Drives the ResultsThe typical planning process involves two phases, each includes a planning retreat.• Phase One: identify the existing situation assessment. Fact patterns

are utilized to spur discussions between management and the board about the strengths, weaknesses, core competencies, primary thrusts, major objectives, and the ultimate goals.

• Phase Two: scenario building phase. FinPro and management meet to create the financial projections for the institution based on the direction given during the first board meeting. The corresponding retreat is held to review the various scenarios, discuss the recommended scenario and strategies outlined to achieve the results.

Results Driven, Built Incrementally• Unlike other firms that plan at the bank level, FinPro takes a more

granular approach and builds value by planning at the following levels: Product by Product, Segment by Segment, Person by Person, Strategy by Strategy, Market by Market.

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Strategic AdvisoryConversion Appraisal

MHC Reorganization

FinPro prepared the appraisal for this offering.

$83.6 Million in Gross Proceeds


MHC Reorganization



MHC Reorganization


Clifton, New Jersey


MHC Reorganization



MHC Reorganization


Rockville, Connecticut Hatboro, Pennsylvania

$1.0 Billion in Gross Proceeds

MHC Reorganization


Washington Township, NJ



Millburn, New Jersey

Standard Conversion MHC ReorganizationSecond Step Conversion


Cleveland, Ohio


Avenel, New JerseyHatboro, Pennsylvania


Honolulu, Hawaii


Industry LeaderFinPro is a regulatory approved conversion appraiser and has been nationally ranked as one of the top three conversion appraisal firms for the past several years. Undertaking a conversion is a significant strategic step and having an experienced appraisal firm to guide management and the Board of Directors through the process is essential.

Unmatched ExpertiseFinPro’s professionals have unmatched experience which provides a competitive advantage in navigating the regulatory approval process.

FinPro has provided valuations for all types of mutual conversions including:

• Full Conversions• Mutual Holding Company Reorganizations• Second Step Conversions• Conversions with a simultaneous acquisition• Conversions with a charitable foundation

One Size Doesn’t Fit AllFinPro’s deals have ranged in size from $9 million to $1.0 billion in gross proceeds. Every transaction receives the specialized attention it deserves. FinPro will work closely with management, legal counsel and other advisors to ensure the appraisal accurately reflects the market value of the institution.

The following table represents some recent selected transactions in which FinPro served as conversion appraiser.

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Strategic AdvisoryPlan Update

Variances May Cause Mid Course Adjustments• The FinPro plan update process typically involves a what-if modeling

phase and a board retreat. • During this process FinPro and management meet to create multiple

financial projections for the institution. • The corresponding retreat is held to review the various scenarios,

discuss the recommended scenario and the various strategies outlined to achieve the scenario.

Ensure the Monitoring and Maintenance• The FinPro strategic plan update process is designed to revise the

financial projections for an institution on a yearly basis. • The process allows the institution to monitor the implementation

success of the prior years of the plan and allows mid-course adjustments based on changes in the environment.

The Components for Continued Success A typical Strategic Plan Update includes:

• Variance to Prior Plan • Modeling Output and Assumptions• Cost Center and Strategic Alternative Summary• Goals and Implementation Overview

Understanding the current and future conditions facing an institution is the first step to success. Changes in market conditions can cause divergences from the original strategic plan financials, which may result in mid-course actions and adjustments. As such strategic plans need to be continuously updated to accurately reflect the institution’s financial performance.

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Strategic AdvisoryCapital Plan

Identifying and Evaluating Risks:The first component of capital planning is to identify and evaluate all material risks.• Conduct a situation assessment of the Bank which includes a

review of recent historical growth, expected growth, recent financial performance, and overall potential utilization of and need for capital;

• Identify the largest areas of risk associated with the Bank’s capital and rank these risks as low, moderate, or high risk;

• Determine appropriate vertical and horizontal stress tests for each risk identified; and

• Illustrate the impact of these stress tests through forward looking financial modeling of each scenario.

Setting and Assessing Capital Adequacy Goals:The second component of effective capital planning is to determine the bank’s capital needs in relation to the material risks.• Determine the appropriate ratios to measure capital;• Identify bank specific trigger points for each ratio;• Set appropriate thresholds to delineate low, moderate, and high

risk for each ratio; and• Overlay the results of the forward looking projections and stress

tests to determine the capital adequacy at any given point in the future.

Maintaining a Strategy to Ensure Capital Adequacy andContingency Planning:The third component of effective capital planning is to have a strategy to maintain capital adequacy and build capital, if needed.• Identify mitigation strategies for the high risk areas and/or those

stress tests that drop the ratios near into the moderate to high risk areas;

• Establish timelines for specific mitigation strategies depending upon the level of risk or the likelihood of the stressed event; and

• Plan for contingencies and build a decision tree.

Ensuring Integrity in the Capital Planning Process and Capital Adequacy Assessments: The final component of effective capital planning is to ensure integrity, objectivity and consistency of the process:

• Ensure that the Bank’s current policy meet current best practices and appropriately documents the process the Bank conducts;

• Conduct ongoing capital planning; and• Ensure Board and senior management involvement

FinPro’s capital planning process interactively helps management and the Board to determine the appropriate levels of capital for the organization. The process not only evaluates the Bank at its current position, but evaluates the future capital needs of the Bank based upon the Bank’s individual strategic plan and inherent risks.

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Strategic AdvisoryStrategic Alternative ReviewIn today’s competitive, rapidly changing market, it is important that a Board of Directors be informed and make sound business decisions. At times, an independent third party is required to assess all available strategic alternatives.

Can an institution build more shareholder value by remaining independent relative to selling today?• Difficult questions require thorough independent analysis. FinPro

is skilled at educating and advising management and the board of directors.

• Unlike our competition, FinPro does not believe that “reviewing strategic alternatives” necessarily means that the company should be sold.

What is the optimal capital structure?• FinPro focuses on building long-term value for our clients.

Utilizing our valuation, financial modeling and research skills, FinPro brings clarity to complicated and difficult strategic issues.

What is the best use of capital?• Each financial institution is unique and has its own strategic

issues. FinPro will work closely with management and the board of directors to define the specific critical issues, provide market research, analyze the financial impact of various strategies and moderate retreats.

Balance sheet and Corporate Restructuring• A bank will need to analyze possible restructuring of its balance

sheet or corporate structure in order to create the most value, whether that means staying independent or selling the company.

• Utilizing a decision tree methodology, different choices will need to be made based upon the strategic path chosen.

Refinance HC Line of Credit, Refinance

Debenture

No Dividend Until 2017

Payoff both the HC Line of Credit and Debenture

over time through Retained Earnings

Blow Out of Problem Assets

Raise Common

Equity

Sell the Company

Convert $1.5 MM of Debenture to Common,

Payoff other Debt

No Dividend Until 2015

First National

Bank

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Balance Sheet ManagementDynamic Asset Liability Management (ALM)FinPro’s Asset Liability Management Service utilizes FinPro’s proprietary ALM model to provide the analytics necessary to define, measure, monitor, and manage interest rate risk.

Managing Risk is a Key to Success• Managing interest rate risk is not just a regulatory requirement but an essential element to the overall success of your institution. • FinPro will provide the most accurate analytics possible utilizing account level information with output that is easy to comprehend. • Analyses include both dynamic and static balance sheet analysis of Net Interest Income simulation and Economic Value of Equity. FinPro will

also incorporate internal policy limits and compare each of these ratios against those limits.

Precise AnalyticsReliable and accurate information is the key to managing interest rate risk. Our independently audited model enables FinPro to:

• Measure interest rate risk in account-by-account detail for all investments, loans, deposits, and borrowings. • Incorporate specific product details including call options, prepayment speeds, deposit decay rates, beta values, and actual repricing

information.• Produce customized interest rate scenarios to capture “realistic” rising and falling interest rate environments, as well as instantaneous rate

shock scenarios.

Save Time and MoneyBy outsourcing the ALM process, management can focus on implementing the strategies necessary to manage interest rate risk while maximizing value. The FinPro ALM process includes:

• Data collection and consultation with the institution to customize analysis and report• ALM modeling and analysis• Report presentation

Sophistication Made Simple Once the data is compiled, a FinPro consultant will analyze the data and produce a report with commentary in a format that is easy to comprehend. Our interest rate risk report includes:

• Current and projected interest rate risk analysis including Gap, EVE, and Net Interest Income analysis.

• Historical trend analysis of investments, loans, deposits and borrowings in account level detail

• In-depth analysis of the time deposit portfolio including remaining maturity balance and repricing of maturing time deposit balances

• External interest rate environment report• Threats, opportunities, and strategies

A True Service PartnerAt FinPro, we’re tied to the overall success of your institution. As such, our service also includes periodic presentations to the Board and Management to discuss interest rate risk as well as any other banking topics. At the client’s request, we can also provide investment advice, balance sheet restructuring recommendations, IRR and ALM training, and interest rate risk and ALCO policy review.

One Year Cumulative Change In Net Interest Income12.00%

9.51%6.82%

4.05%1.46%

0.00%

-0.45%

-30.00%

-25.00%

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

+500 bps.+400 bps.+300 bps.+200 bps.+100 bps.Flat-100 bps.

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Balance Sheet ManagementDeposit StudyFinPro’s Deposit Study service develops both the historical beta values and decay rates of the institution and then overlays a propensity to renew factor of each individual account.

Builds Franchise Value: • The output builds value for our clients by establishing quantitative ways to measure customer loyalty. As these bank specific variables are

improved they aid in building franchise value. • Additionally, the output is used to make strategic decisions regarding minimizing a bank’s future interest expense, improving customer

retention, and developing more robust funding plans. • In addition, the process also satisfies all regulatory requirements for validating beta and decay modeling assumptions.

Improve Planning Process With Better Assumptions: • Each bank must formulate a deposit rate plan that is tied to specific triggers in local market interest rates and liquidity ratios.• This plan will determine how the bank intends to react to movements in interest rates, which will help drive assumptions utilized.

Do Not Overpay for Deposits: • The sensitivity of decays to betas increases and decreases with the propensity to renew factor. Accounts with high propensity to renew are

more loyal and not as rate sensitive. • Banks need to know how loyal their account holders are so as not to overpay for deposits.

Satisfy Regulatory Beta and Decay Analysis Requirements: • The modeling process and assumptions are becoming a bigger and bigger focus of regulatory scrutiny, regulators now require a 3 to 5 year

decay study to justify assumptions;• A key part of the analysis is a deep dive into institutions’ beta values, decay rates and customer retention.

Highly Loyal Customers

Less Loyal Customers

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Balance Sheet ManagementAsset Liability Management ReviewFinPro’s Asset Liability Management Review service will provide an independent review of a bank’s current asset liability management report and process.

Independent Review• FinPro conducts quarterly detailed ALM modeling for nearly 100 clients of different asset sizes and with different balance sheet structures.

This provides FinPro with expansive market knowledge and expertise regarding ALM modeling assumptions and processes.• FinPro will:

• Perform an independent review of the Bank’s current interest rate risk report, assumptions, processes and procedures for analyzing interest rate risk.

• Review the Bank’s interest rate risk policies.• Interview Bank managers to determine the appropriateness of the assumptions.• Discuss possible alternative assumptions with management• Provide management with comments, suggestions, and letter summarizing FinPro’s findings.

Regulatory Requirement • Regulators have stated in Financial Institution Letters that asset liability management models must be validated. • It is key to conduct an independent review of the client specific assumptions and information utilized even when the mechanics and

mathematics of the measurement model have already been validated.

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Balance Sheet ManagementAllowance for Loan and Lease Loss MethodologyFinPro's ALLL Methodology Review ensures that the Bank is up-to-date on the most recent industry best practices. The review is conducted by the members of FinPro's senior bank regulatory staff.

Evolving Regulations:ALLL processes are constantly being refined. The process for ALLL methodology review includes a: • Review of last internal loan review;• Review of last external loan review;• Review of the FAS 114 (ASC 310) analysis on each significant credit; and• Review of the stratification of FAS 5 (ASC 450) pools.

FinPro will work with the bank to establish the application of qualitative and environmental adjustments to each FAS 5 pool:• Change in lending practices and procedures• Change in economic and business conditions• Change in nature and volume of portfolio and loan terms• Change in the experience, ability and depth of the lending department• Change in the volume and severity of past dues, nonaccrual and

adversely classified assets• Change in the quality of the loan review • Change in value for collateral dependent loans• Impact of concentrations• Other (legal, regulatory, competition)

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Comprehensive Solutions for Ongoing Demands FinPro’s Professionals are uniquely positioned to meet the increasingly complex demands of regulatory compliance within Section 939A of the Dodd-Frank Act. Utilizing research, live market information and valuation expertise FinPro can fulfill the required post analysis, detailed documentation and ongoing reviews.

Requirement of an internal or independent third-party assessment on all securities of safety and soundness and creditworthiness.

• Safety and Soundness compliance includes answers to the following questions:

• Is the type / category of security permitted by policy?• Can the individual security purchase occur without violating

any current policy or regulatory limits?• Has the Bank reviewed this proposed purchase for any

impact on its overall concentration levels?• Does the purchase fit with the bank’s overall interest rate,

liquidity, and credit risk profile?• Investments are “investment grade” if they a pass a group of 13

specific questions, which can be grouped into the following two categories:

• Is the risk of default by the obligor low?• Is the full and timely repayment of principal and interest

expected over the life of the investment?• Banks may no longer solely rely on credit ratings to determine

safety of an investment.

FinPro Advantage:• An Investment Due Diligence engagement with FinPro protects the

Bank by putting the firm on retainer for post-purchase investment due diligence analysis and documentation, with no commitment from the Bank.

• Investment Due Diligence engagements are an a la carte approach whereby the Bank selects only the securities it wishes FinPro to analyze.

As an early leader in this space, FinPro has been able to develop services that are less expensive then competitors and are available for every type of security.

.

Investment Due Diligence939A Investment Analysis

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Investment Due DiligencePortfolio ReviewFinPro’s Portfolio Review service provides access to professionals who will know your institution, and offer un-biased advice that utilizes both research and live market information placed in the context of the asset/liability position of your institution.A full portfolio review allows the bank to gain a detailed understanding of all its investments, receives a detailed summary report of analysis, and, where appropriate, receives recommendations for the sale of specific securities where high-risks signify imminent price erosion

Analyses of Individual Securities and Portfolios for Price, Risks and Creditworthiness FinPro professionals provide timely analytics including real time pricing data. Services include:

• Portfolio monitoring including segmentation and details on duration, cash flows, credit, concentrations, and potential concerns.

• Cash flow forecasting, incorporating exposure to prepayments and calls under multiple interest rate scenarios.

• OTTI calculations and reviews of legacy assets.• Due diligence and reviews on potential portfolio acquisitions.• Managed auctions, coordinating and evaluating multiple portfolio

bids (buy and sell sides.)

Proactive Portfolio and Balance Sheet Restructuring RecommendationsMarkets move rapidly, presenting opportunities to capitalize upon. FinPro professionals constantly analyze the markets to present your institution with strategies and opportunities. Alternative investment and borrowing strategies will be suggested to improve profitability and/or improve your institution’s interest rate position. FinPro will also objectively evaluate recommendations presented to you by brokers and investment bankers.

CUSIP MOODY'S FITCH S & P Tranche Type Coll type Speed Type State

12669gdj712669gdj7 MtgeCWHL 2004-J8 1A2 A AAA SEQ,AS WH15 5 19.83 CPR FAIL 0.00 0.00 0.90 0.90 0.01 CA 21.4 FL 18.3 TN 12.2 43.26 12.00225458es3225458es3 MtgeCSFB 2005-2 1A1 BB AAA SEQ,AS WH30 5.5 17.94 CPR FAIL 0.30 2.40 0.28 5.26 4.95 0.18 729.92 CA 49.7 WA 8.3 NY 5.4 61.82 63.10251510br3251510br3 MtgeDBALT 2003-3 4A1 Aaa AAA PT,AS AltA15.1 7.52 CPR FAIL 0.00 0.00 0.00 3.87 1.80 0.18 732.22 CA 36.7 TX 11.7 VA 8.6 40.89 91.5036297xak936297xak9 MtgeGSR 2006-5F 5A1 CCC B- PT,AS WH20 5.7 21.98 CPR FAIL 7.22 0.00 0.00 3.92 3.92 0.25 731.14 CA 52.0 OH 10.2 AZ 9.4 58.54 30.6012667f5e112667f5e1 MtgeCWALT 2005-6CB 1A3 CCC AA SEQ,AS AltA35.7 11.07 CPR 39.19 FAIL 1.51 2.65 1.00 8.59 6.78 0.33 CA 27.2 FL 5.9 NY 5.0 66.19 43.1012543tam712543tam7 MtgeCWHL 2006-13 1A12 Ba1 CC SEQ,AS WH30 6.5 14.42 CPR 27.21 FAIL 1.88 4.78 1.59 14.44 12.87 0.45 742.48 CA 32.4 NY 8.0 FL 5.5 72.64 56.8016163bat116163bat1 MtgeCHASE 2006-S2 1A18 Ba3 B CCC SEQ,AS WH30 6.5 21.42 CPR 53.73 FAIL 0.00 5.07 0.37 9.31 8.53 0.80 739.89 NY 29.9 CA 17.5 FL 12.6 67.91 56.2036266wag736266wag7 MtgeGSR 2006-10F 5A1 CCC CCC PT,AS WH20 6.1 26.95 CPR FAIL 0.00 0.79 0.00 4.10 4.10 0.64 740.79 CA 36.7 NY 12.2 VA 5.9 62.03 42.303622mpal23622mpal2 MtgeGSR 2007-1F 2A2 B2 CCC EXCH,SEQ,AS WH30 5.7 18.53 CPR 35.89 FAIL 0.56 1.42 0.07 4.26 3.69 0.21 744.95 CA 39.6 NY 7.4 FL 6.4 64.95 27.60225470p64225470p64 MtgeCSMC 2006-3 3A1 Caa1 CCC PT,AS WH30 6.3 14.78 CPR 37.07 FAIL 0.65 2.12 0.00 8.29 7.66 5.23 732.80 CA 35.2 FL 10.4 NY 8.6 67.11 64.60362669av5362669av5 MtgeGSR 2007-4F 6A1 CCC CCC PT,AS WH20 6.0 21.05 CPR FAIL 0.00 1.56 1.42 5.84 5.16 0.30 730.07 CA 34.9 IL 9.5 WA 7.2 62.02 50.6061756haa861756haa8 MtgeMSM 2007-13 1A1 CCC CCC SEQ,AS WH15 5.9 26.94 CPR FAIL 0.00 0.00 0.00 0.00 0.00 1.83 750.67 NY 28.0 CA 9.9 VA 9.0 52.33 15.30466247b51466247b51 MtgeJPMMT 2005-S3 2A2 CCC CCC PT,AS WH15 5.4 24.39 CPR FAIL 1.02 2.44 0.00 5.89 5.29 0.44 744.13 CA 25.4 FL 6.6 NY 5.9 52.59 35.001729735f21729735f2 MtgeCMSI 2006-1 2A1 Baa1 BB SEQ,AS WH15 5.3 25.37 CPR FAIL 0.53 0.00 0.00 1.30 1.30 743.96 CA 29.6 NY 17.5 FL 9.5 44.28 20.5022541suv822541suv8 MtgeCSFB 2004-4 3A9 Aaa AAA SEQ,SSNR,AS WH30 5.5 25.61 CPR 9.84 FAIL 0.60 0.77 0.00 1.39 0.77 0.06 741.85 CA 39.5 MA 8.5 NY 6.7 61.29 29.3094983fac294983fac2 MtgeWFMBS 2006-1 A3 Baa3 BBB PT,AS WH15 5.3 26.79 CPR FAIL 0.91 1.37 0.00 2.72 2.20 0.00 744.13 CA 27.5 NY 8.4 TX 7.3 48.87 45.2086359b2z386359b2z3 MtgeSASC 2005-1 4A1 BB A PT,AS WH15 5.2 20.5 CPR FAIL 0.00 0.19 0.00 0.19 0.19 0.25 733.52 CA 62.1 TX 7.9 NY 7.5 42.26172973w88172973w88 MtgeCMSI 2005-4 2A1 Baa1 BBB SEQ,AS WH15 5.2 25.4 CPR FAIL 0.82 0.00 0.00 1.84 1.84 750.65 CA 25.2 NY 12.1 FL 9.6 44.74 0.00

Security ID Basic data Pricing / Stress Model Inputs Delinquencies Additional collateral data

CUSIP NAMECurrent Ratings Descriptive data Prepayment

SeverityTrigger

Bnkrt Forecl REO 60+ 90+Cum

lossesFICO Geo 1 Geo 2 Geo 3 WALTV

% Lim. Doc

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Enterprise Risk ManagementEnterprise Risk ManagementIdentify, Measure, Monitor, ControlEnterprise Risk Management (“ERM”) is the process of Identifying, Measuring, Monitoring and Controlling all risks in a given entity. Many banks have some form of risk assessment, but the various risks are often modeled and analyzed in silos. ERM brings all of the risk assessments under one common umbrella, with one process and one model. The ERM process:

• Identifies risk through a CAMELS +++ self-assessment which includes detailed ratio analytics, regulatory targets, peer benchmarking, and future projections.

• Measures risk by identifying each risk component, delineating the data and analytics required to measure the risk, prioritizing and rating the risk and finally identifying key measurement metrics for each risk component.

• Monitors risk by modeling projections using a single comprehensive model. When done this way, banks can stress test risks on a single variable or multiple variable approach and instantaneously see the results on the entire organization, eliminating the “silo” effect.

• Controls risk by re-evaluating policies and procedures, ensuring that the bank has the appropriate infrastructure (people, systems, process, etc.) and by forecasting the ERM position of the bank at any point in the future.

Interactive and Straight Forward Process• Banks must understand that ERM is not a “one size fits all”

activity and that each institution has a unique prioritization of risks. • ERM allows the bank to analyze the way in which risk affects the

overall institution so that no one risk is looked at in a vacuum.• By identifying and proactively addressing risks, institutions can

protect and create value.• FinPro’s ERM service provides quarterly updates of the analysis

which is needed as the institution’s risk profile changes over time.• FinPro’s staff of former senior regulators with over 200 years of

combined regulatory experience provide extensive expertise and are uniquely positioned to assist financial institutions in assessing the overall risk profile.

Eight Phases of the FinPro Enterprise Risk Management Process1. Phase One: Make planning, budgeting, stress testing, asset/liability

management and compliance modeling ONE process.2. Phase Two: Conduct an Enterprise Risk Assessment for your

organization utilizing the CAMELS+++ approach. Identify the risks by area.

3. Phase Three: Prioritize the risks based on quantified and qualified results.

4. Phase Four: Ensure the data integrity and define the data sources.5. Phase Five: For all high priority risks, define and conduct stress tests.6. Phase Six: Prepare alternative plan scenarios for high risk

assessments and model at an incremental balance sheet and income statement basis.

7. Phase Seven: Ensure people, policies and procedures are established to properly manage risks.

8. Phase Eight: Review performance in context of overall enterprise risk management.

Phase One: Combine modeling into ONE processPhase Two: Identify enterprise risk in the CAMELS+++ approach

COSO Step Four:Conduct the Initial Enterprise-wide Assessment and Develop an Action Plan

Phase Three: Prioritize risksPhase Four: Ensure data integrity

COSO Step Five:Inventory the Existing

Risk Management Practices

COSO Step Seven:Develop the Next Phase of Action Plans and Ongoing Communications

Phase Seven: Establish people, policiesand procedures.Phase Eight: Review in context of overall enterprise risk management

COSO Step Six:Develop Your Initial

Reporting System

Phase Five: Conduct stress testsPhase Six: Prepare alternative plan scenarios

EnterpriseRisk

Management

COSO recommends that these initial steps be followed before the ERM process is started: COSO Step One: Seek Board and Senior Management Leadership, Involvement and Oversight. COSO Step Two: Select a Strong Leader to Drive the ERM Initiative. COSO Step Three: Establish a Management Risk Committee or Working Group.

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FinPro’s De Novo Bank Consultation service guides investor groups through every step of forming a de novo bank and beyond.

Identify the Key Elements for SuccessOur consultants will guide you through every stage of the de novo process, including, but not limited to:

• Forming a Board built to generate business • Finding qualified executives to lead the new institution• Focusing strategic directives to ensure success• Raising the optimal starting capital level• Creating a ranking of a market area and compiling a market feasibility study• Developing aggressive marketing programs• Compiling a projections and strategic business plan• Assisting counsel in the preparation of regulatory applications• Assisting in the compilation of materials required for stock solicitation

Initial Meeting• FinPro consultants will sit down with founders, establish a timeline, and outline the entire process of forming a de novo bank.

Modeling of Strategic Business Plan• The strategic business plan and pro forma financial projections are developed through an interactive process between FinPro, founders, and

management. The business plan is produced in a format designed for the regulatory agencies.

Application and Regulatory Approval• FinPro will continue to advise through the application process, attend regulatory hearings, and assist the Bank with regulatory questions to

ensure that approval is attained.

Nationally Recognized• FinPro is an industry leader in working with start-up banks. • Nationally, FinPro has helped established de novo banks in numerous states and geographic regions.• FinPro can assist on national or state, ethnic, cultural, lifestyle or business niche, a de novo as a subsidiary of a parent bank, and many

other strategic directives.

Unparalleled Industry Knowledge• FinPro’s extensive library of detailed market information encompasses all aspects of the marketplace so that decisions on branch locations

can be made based upon detailed demographic and competitive data.• FinPro has several former regulators on staff that provide great insight into the key factors in getting a de novo application approved.• Periodic research studies on national de novo trends keep FinPro abreast of emerging issues.

A Long Term Relationship • FinPro is one of the few de novo consulting firms that are capable of providing ongoing advisor services after the bank begins operations in

the areas of consulting, capital markets strategies, M&A advisory, leadership and education, corporate governance and much more.• Many de novos that have struggled to succeed engage FinPro in the third or fourth year of operation in order to achieve better

performance.• FinPro is currently working with dozens of maturing de novo institutions throughout the country.• We invite you to check our many references across the country for feedback on our expertise and our commitment to guide you through to

a successful opening.

De Novo Bank ConsultationDe Novo Strategic Business Plan

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Market FeasibilitySite StudyWhat is the Potential of a Branch Site?FinPro’s Site Study is a comprehensive analysis of a proposed branch location. This study provides an independent, third-party review of a proposed site, its geographic strengths and weaknesses and its overall deposit generating capacity.

Avoid Mistakes• The study provides a competitive analysis based on a comprehensive tour

of the market including branch hours, rates, product and service offerings, and physical attributes such as drive-up facility, parking capacity and type and number of ATMs.

• In addition, it is a basis for establishing a market entrance strategy based directly on the market’s characteristics.

Financial Projections• In addition to projecting deposit growth over five years, FinPro also creates

a pro forma balance sheet and income statement based on criteria and assumptions unique to the institution and proposed site to determine profitability and breakeven points for the branch.

Proven MethodologyFinPro’s Site Study includes:

• Development of a market area for the proposed site. FinPro has the flexibility to define a market in any geographic terms and aggregate all of its data sources accordingly.

• Analysis of the market relative to: Demographic data, retail customer segmentation data, retail product propensity data, business / commercial data, and competitive data

• Tour of the markets and all competitors to summarize facility attributes, delivery alternatives and product offerings.

• Discussions with township officials, planning boards and business organizations to determine growth potential and patterns.

Primary and Secondary Market Definitions

Retail Product Propensity

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Market FeasibilityMarket RankingWhere Should an Institution Add Branches?• As prime site locations become more and more difficult to find,

institutions need to utilize proactive measures that allow them to specifically target towns and markets that match their strategic branching objectives, and offer branching potential.

• Acting in a proactive manner, rather than reacting to changes in the market or site availability, results in a more efficient and effective branching strategy.

Customizable Market Data • As such, FinPro’s Market Ranking Study utilizes market, commercial

and competitive data to analyze and rank a group of markets based on a customizable set of criteria defined and established by the institution.

• In fact FinPro has developed an extensive library of databases which provide the required foundation for the development of a detailed market profile encompassing all aspects of the marketplace.

Proven MethodologyFinPro’s Market Ranking Study includes:

• Development of an optimal market profile specific to the institution.• Analysis of each market and how well it fits the optimal market

profile based on:– Demographic Data– Retail Customer Segmentation Data– Retail Product Propensity Data– Business / Commercial Data– Competitive Data

• Analysis of the institution’s existing customer base and how it may influence branching strategies.

• Identification of top quartile markets that fit with the institution’s strategy and offer de novo branching potential.

• Tour of the top three markets, as selected by the bank, to identify trends and establish future growth potential.

Geocode accountsGeocode accountsMap customersMap customers

Segment customer baseSegment customer base

IdentifyIdentify Market Market

AreaArea

DemographicDemographicDataData

CustomerCustomer Segments Segments

ProductProductPropensityPropensity

BusinessBusinessDataData

CompetitionCompetition

Bank DataBank Data

InteractiveInteractive Market Area Market AreaAssessmentAssessment

MarketMarketRankingsRankings

“MPG Grid”“MPG Grid”

MarketMarketSummarySummary“BIG Grid”“BIG Grid”

Data SourcesData Sources

For any geographyCompare multiple areas

Over 1,200 variablesSelect criteriaWeight Criteria

Rank marketsSelect top markets

Market summariesMarket toursWeight BIG criteriaBIG grid top markets

Market Ranking Process

Geographic Results

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Market FeasibilityBranch ImprovementDe novo branching is becoming more and more difficult - particularly in high density markets where more-aggressive, highly-capitalized institutions are competing for the same prime locations.

Improve Market Share• In response, FinPro developed a means for providing a course of action for

proactively improving market share within existing markets and wallet share among current customers.

• By focusing efforts on strengthening existing facilities and customer relationships, institutions can achieve an effective means of growth without the need for large capital investments.

Comprehensive Analysis• FinPro’s Branch Improvement Study examines all aspects of an institution’s

existing branch network in order to identify growth opportunities and strategies to increase market share and wallet share.

Proven Methodology FinPro’s Branch Improvement Study includes:

• Custom identification of each market to be analyzed.• Development of a detailed profile of each market.• Determination of existing market share by product and customer.• Tour of the market and all competitors to summarize facility attributes,

delivery alternatives and product offerings.• Branch profitability analysis using detailed cost center data from the general

ledger.• Identifying, locating and targeting specific customer segments to proactively

focus on both cross sell and new customer opportunities.• Development of detailed product and service bundles designed to meet the

needs of the specifically targeted customers in each market.• A recommended course of action for each market that details facility,

staffing, product, customer and marketing findings.

Proven Results• As a result of recommendations made by FinPro, institutions have improved

market share and wallet share through the effective implementation of direct mail campaigns and improved product placement strategies.

Top Five Segments

Product Bundle Grid

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Market FeasibilityCustomer SegmentationWho are the Institution’s Customers?FinPro’s Customer Segmentation analysis looks at an institution’s existing customer base in each of its markets in order to determine an effective methodology for improving wallet share and market penetration.

Achieve Sustainable GrowthBy stratifying its existing customer base by household type, affluency and lifecycle, and comparing this distribution to that of the market, an institution is able to accurately determine exactly which segments of the market to target in order to achieve sustainable growth.

Targeted Marketing Saves MoneyBy focusing marketing dollars on specific targeted segments, of both the retail and commercial sectors, the institution saves marketing dollars, strengthens existing customer relationships and forges highly profitable new relationships.

Proven MethodologyFinPro’s Customer Segmentation Analysis includes:

• Custom identification of each market to be analyzed.• Comprehensive analysis of the institution’s existing customer

base as well as the customer distribution in the market.• Determination of the institution’s existing market share by

product and customer.• Identification of cross sell targets and new customer targets.• Development of detailed product and service bundles designed

to meet the needs of the specifically targeted customers in each market.

• A recommended course of action for each market that details both product and customer findings.

Customer Segmentation Matrix

Customer Distribution: Market vs. Institution

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RegulatoryFormal and Informal Order ResolutionsOver 150 Years Combined of Regulatory Experience FinPro’s staff of former senior regulators provide extensive expertise and are uniquely positioned to recognize deficiencies at an institution. FinPro maintains close contact with all bank regulatory agencies and departments in order to stay current with upcoming policies and rules.

Review, Assess, Mitigate, Perform, Understand, PresentFinPro can provide a bank with assistance to prepare for an examination or will assist with resolution of a regulatory enforcement action. This process includes:1. Review data - A quantitative and qualitative review of bank files

and information will be conducted. FinPro can also assist with negotiation of the order to ensure proper terms, timelines, and requirements.

2. Assess risk - Using the information gathered in the review stage, conduct an assessment of each of the elements of the CAMELS rating system, plus additional vulnerable areas, to identify potential risks and the severity of risks.

3. Mitigate risk - Upon assessing its risk profile, proactively make changes to deficient areas and develop plans to mitigate risks going forward.

4. Perform to plan - In order to effectively manage the risk profile of the institution, the Board needs to monitor its performance on a periodic basis.

5. Understand implications - After the review process, each Board member should know the answers to important questions and understand the implications of the institution’s position.

6. Present actions - The actions taken by the institution need to be communicated across the entire spectrum of the organization. FinPro will help the Board and management effectively tailor the message of the organization to both internal and external audiences.

Why Banks Need to Prepare for Regulatory Exams• Examinations are leading to more enforcement actions.• Major criticisms in recent regulatory enforcement actions lead to

required corrective actions that could have a severe impact on an institution.

• Advanced preparation saves time and money.• A CAMELS rating downgrade by the regulators can result in as

much as an additional $100,000 per year in FDIC insurance premiums for every $100 million in deposits.

• In addition to FDIC assessment hikes, institutions can expect increases in other noninterest expense items such as legal, consulting, D&O and fidelity insurance.

• A prolonged period of regulatory oversight will limit business opportunities and value creation.

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RegulatoryExpert TestimonyIn the event of pending litigation against or by your institution, it may be necessary to hire a person who by virtue of education, profession, or experience is believed to have special knowledge of his or her subject beyond that of the average person and which is sufficient that others may officially (and legally) rely upon his or her opinion as an expert witness to provide both oral and/or written testimony to assist the trier of fact to understand the evidence or to determine a fact at issue. The courts often rely heavily on the expert witness testimony to provide an analytical opinion supported by factual statements to give a clearer picture of the situation.

Experts on StaffOn a combined basis, senior staff of FinPro have over 175 years experience in management, operations and regulation of banks, thrifts and credit unions. Given this wide level of experience, members of our firm are uniquely equipped to serve as expert witnesses and/or forensic consultants in legal matters involving financial institutions and provide expert reports and testimony.

Retain Our ExpertiseOur expert testimony services are performed on a retainer basis. We use our experience and expertise to strengthen your position and provide the basis for supporting testimony. Our retainer can be structured such that FinPro may:

• act as an informal consultant;• prepare formal expert reports; and/or• testify as an expert witness.

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RegulatoryRegulatory ConsultingBanking institutions have historically been the most highly regulated companies in the United States and since the mid 1980s, the increase in the number of laws, rules, and regulations affecting them has increased almost exponentially. As a result, the costs associated with regulatory compliance have also grown for institutions of all sizes. However, noncompliance, even if inadvertent, can result in much higher costs and expenditures of staff time.

Extensive Regulatory ExpertiseFinPro, with a cadre of former senior regulators, led by Scott Polakoff, former FDIC Regional director and Office of Thrift Supervision Chief Operating Officer, is uniquely positioned to recognize and deal with potential problems before they become compounded and to assist your institution in both troubled and normal situations.

Save Time and MoneyBy retaining FinPro to assist with regulatory matters, you will ensure that your institution is compliant with all the current rules and regulations. We will also keep you aware of all regulatory “hot buttons” and pending legislation that could affect your institution in the future. By staying “ahead of the curve” on all future rules and regulations, you will save both time and money and be able to focus on what matters most at your institution, building value.

Assist with Regulatory ProblemsIn the event of regulatory problems, FinPro can assist banks and their management teams in dealing with: Civil Money Penalties, Memoranda of Understanding, Cease and Desist or Consent Orders, Written or Letter Agreements, Administrative Hearings, and Removal Actions.

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RegulatoryPolicy Development and ReviewBanking rules and regulations are constantly evolving and an institution’s policies and procedures must be kept up-to-date. FinPro’s policy development and review service provide a banking institution with the expertise of former banking regulators to ensure all policies are kept current.

Policy Review and Enhancement• Boards must ensure that policies are reviewed and approved at

least annually, and that such policies incorporate key regulatory changes. FinPro will review a list of policies and recommend any new policies or procedures that are needed.

• Boards must review and approve appropriate policies, procedures and internal controls, including appropriate limits and methods for monitoring and controlling risk to ensure safe and sound operations. Policies are the documentation of these established controls.

• FinPro will review major policies and procedures, and make specific recommendations pursuant to the standards of the banking agencies as it pertains to each policy.

• Boards should have policies to address concentration risk. Such policies must have a granular approach by homogeneous risk factors. FinPro can assist boards and management with robust concentration policies.

• The process by which policies and procedures are reviewed and approved by the board of directors will be analyzed and recommendations will be made for improvement.

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RegulatoryCRAFinPro’s CRA analysis is designed to assess an institution’s current position relative to the Community Reinvestment Act guidelines with the goal of quantifying its outstanding portfolios, geographic distributions and performance trends.

Proactive ManagementThe program follows the regulatory examination guidelines and assists an institution in being thoroughly prepared for regulatory examinations and puts management in a position to proactively address regulatory issues.

This review thoroughly evaluates the assessment area to ensure that it meets the regulatory guidelines.

Thorough Performance EvaluationCRA performance is quantified based on the regulatory criteria and examination guidelines, and covers:

• Evaluation of the institution’s loan-to-deposit ratio.• Evaluation of the level of lending within the assessment area,

evaluating all loans and deposits, not just those subject to HMDA.• Computation of the geographic distribution of the institution’s loans to

borrowers and geography’s of different income levels.• Evaluation of HMDA data and trends, both for the Institution and all

lenders within the assessment area.• Evaluation of Small Business Loan data and trends, both for the

Institution and all lenders within the assessment area.• Evaluation of the level of Community Development Lending.• Evaluation of the use of innovative and flexible lending practices.• Evaluation of the level of CRA qualified investments and grants.• Evaluation of the criteria for the service test.• Summary of the institution’s other CRA activities including special

products and programs and Community Development Services.• Recommendations to improve performance.

The Lending Distribution is Analyzed

And Mapped to the Assessment Area

Loan Count Loan Balance

Count in CRA Area

Balance in CRA Area

% Count within Area

% Balance within Area

Mortgage Loans 2,837 178,634,265 1,956 118,470,245 68.95% 66.32%

Home Equity Loans 426 5,362,945 231 2,846,115 54.23% 53.07%

Student Loans 75 1,213,407 68 1,089,276 90.67% 89.77%

Account Loans 321 2,457,264 293 2,217,189 91.28% 90.23%

Commecial RE 24 10,937,003 15 8,093,383 62.50% 74.00%

Total 3,683 198,604,885 2,563 132,716,207 69.59% 66.82%

Branch 2Branch 2Branch 2Branch 2Branch 2Branch 2Branch 2Branch 2Branch 2

Branch 1Branch 1Branch 1Branch 1Branch 1Branch 1Branch 1Branch 1Branch 1

Total Loan Count8 to 100 (39)3 to 8 (40)1 to 3 (179)all others (1680)

CRA Income Leveln/aLowModerateMiddleUpper

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