Analysis of Loan Quality and Losses for Direct Auto-Marine and Direct Real Estate Loans

Prepared for Hibernia National Bank Management . May 2nd, 2000.Presented by:

• Soad Abuhawas• Fabiana Cardetti• Susan Russell• Scott Sorrell

Contents:

Identification of Loan Originations and Loan PrepaymentsStatic Pool Analysis with illustrationsRevenue and Charge-off Activity by Tier for each monthSummary

Direct Auto-Marine Loans

Direct Auto-Marine Loan Originations

A and B tiers have the highest percentage of originations.

Each quarter originates more B customers than A customers.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 2 3 4 5 6 7 8 9 10 11

Auto-Marine

Unscored

D

C

B

A

1 2 3 4 5 6 7 8 9 10 11 A

0.000%

0.100%

0.200%

0.300%

0.400%

0.500%

0.600%

0.700%

0.800%

Quarter

Loan Prepayment A/M

A

B

Direct Auto-Marine Loan Prepayments

B tier has the highest prepayment percentage in each quarter.B tier prepayments increase remarkably with time. A tier prepayments are somewhat stable.

Static Pool Analysis of Auto-Marine Loans

B and C tiers demonstrate a quick and consistent increase of charge-offs since origination. B Tier’s most rapid increase of charge-off percentage occurred

typically in Quarter 3 or 4 . C Tier experiences steady increases over loan life.

A/M M23 Static Pool

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1 2 3 4 5 6 7

Quarter Since Origination

Pe

rce

nta

ge

B

C

Log. (C)

Log. (B)

A/M M26 Static Pool

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1 2 3 4 5 6 7

Quarter since Origination

Per

cen

tag

e B

C

Log. (C)

Log. (B)

SINCE M23

•C Tier decreased from 3.8% to 3.2% over first 7 quarters since origination

•B Tier increased from 1% to 1.6% over first 7 quarters since origination

A/M M30 static pool

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1 2 3 4 5 6 7

B

C

Log. (C)

Log. (B)

SINCE M26

•C Tier decreased from 3.2% to 2.6% over first 7 quarters since origination.

•B Tier remains about 1.6% over first 7 quarters since origination.

SINCE M30 :

•C Tier losses have decreased from 2.6% to about 1.8%

• B Tier losses have decreased from 1.6% to less than (1/3)%

A/M M34 Static Pool

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1 2 3 4 5 6 7

Quarter Since Origination

Per

cen

tag

e B

C

Log. (B)

Log. (C)

Static Pool Conclusions :

• C Tier’s Static Pool tends to improve in time, thus relative loss over the life of the loan for C Tier loan types decreases.

• B Tier’s Static Pool, over same months, worsened, and then improved .

The overall trend is the Static Pools of B and C Tier suggest that the bank’s corrective measures have proven to be successful.

C tier has a higher cumulative loss than B tier when comparing the loss as a percentage of originations within the tier.

Origination Volume (A/M)

A32%

B46%

C13%

Unscored9%

D0%

Loss Volume (A/M)

C33%

A6%

B43%

Unscored16%

D2%

Analysis of Bank’s Revenue from Direct Auto-Marine

Loans

B Tier has the highest rate of increase of Net Profit. C Tier has a lower rate of increase, but C Tier

still contributes to bank’s earnings. A Tier has most consistent rate of increase of

Net Profit.

Net Profit by Month (A/M)

-$100

$0

$100

$200

$300

$400

$500

$600

$700

$800

23 26 29 32 35 38 41 44 47 50 53

Th

ou

sa

nd

s

Months

Pro

fit

($)

A

B

C

D

Unscored

The total losses of all tiers by month increases only slightly.

The total combined profit is growing at a higher rate.

The continuation of this trend ensures success.

Totals of profit vs totals of losses by month (A/M)

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

23 27 31 35 39 43 47 51 55

Th

ou

san

ds

net profitlosses

Direct Real Estate Loans

Direct Real Estate Loan Originations

A high percentage of loan originations occur in A and B.After the 6th quarter the origination percentage of unscored loans seem to decrease; while it increases for A & B.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 2 3 4 5 6 7 8 9 10 11

Real Estate

Unscored

D

C

B

A

1 2 3 4 5 6 7 8 9 10 11

A

0.000%

0.050%

0.100%

0.150%

0.200%

0.250%

0.300%

0.350%

0.400%

0.450%

0.500%

Quarter

Loan prepayment RE

A

B

A & B tiers has the highest prepayment percentage.The growth of both tiers volume seem to be almost the same in most quarters.The volume of both tiers increases from quarter to quarter.

Direct Real Estate Loan Prepayments

Static Pool Analysis of Real Estate Loans

In general there are very few charge-offs. They primarily occur in either B or C tier.B tier seem to mostly start to charge-off in the 4th quarter since origination.

RE M27 static pool

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

1 2 3 4 5 6 7 8 9

Quarters Since Origination

Per

cent

age

(%)

A

B

C

D

Unscored

Log. (C)

RE M35 static pool

-0.2

-0.1

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

1 2 3 4 5 6

Quarters Since Origination

Per

cent

age

(%)

A

B

C

D

Unscored

Log. (B)

Loss volume (RE)

A20%

Unscored2%

C22%

B56%

C tier has the highest cumulative losses followed by B tier.

Origination volume (RE)

A23%

Unscored48%

C3%

B26%

Analysis of Bank’s Revenue from Direct Real EstateLoans

Net Profit by Month (RE)

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

23 26 29 32 35 38 41 44 47 50 53

Th

ou

san

ds

Months

Pro

fit ($

) A

B

C

D

Unscored

Totals of profit vs totals of losses by month (RE)

$0

$1

$2

$3

$4

$5

$6

$7

23 27 31 35 39 43 47 51 55

Mill

ions

net profitlosses

C Tier contributes heavily to bank’s losses, but still earns money for the bank in both loan types

A Tier is well-behaved as expected

B Tier contributes the most to bank’s revenue

D Tier loans are so infrequent that the data support no conclusions.

Based on delinquency and charge-off ratios, however, we do not recommend that the bank increase originations of D tier loans.

The Bank’s corrective measures have proven to be successful.

Summary