Presenters:Brad Beal; CEO

Tom Ernsperger; SVP LendingPete Jenkins; SVP Administrative Services

Carefully Serving theCareless Consumer

About Nevada Federal

Disclaimer

Caution:Some viewers may find

the following images offensive

What’s going on?

2004 Survey of NFCU members: 32% say they have used a payday lender

Successof

Courtesy Pay Programs

Credit Score Distribution% of Population

U.S Las Vegas700+ 54% 42%

650 - 699 13% 16%

649 - or less 33% 42%

Source: Experian

Generation Y(age 18 – 30)

Average credit score: 635

According to USA Today, about half of Gen Y’ers already have at least one charge-off on their credit report.

Created a new Acronym:

“IMM”Ineffective Money Manager

IMMs:Includes all demographic groups

IMMs arelargely contributors of fee revenue

Learning Curve

Risk Management

Nevada Federal’sAdvancPay® Program

Payday alternative(est. 2004)

ResearchOver 200,000 payday loans are taken out every week in Nevada.On average, local consumers were paying approximately $16 per $100 borrowed. Equating to approximately $80 to obtain a $500 payday loan.NFCU obtained legal guidance in structuring our program.

Key: Reg. Z exempts an “application fee” from consideration as a finance charge if the fee is charged to all applicants, regardless whether the credit is actually extended.

Program Structure/QualificationsAll applicants are assessed a non-refundable application fee, paid up-front.

Fee does not vary by the amount requested.Interest rate is 0%.

Maximum transaction amount: $500Maximum term: up to two weeks.Must be member in good standing.$40 application fee if direct deposit with NFCU.

$50 application fee if no direct deposit.

Program Structure/Risk Management

Exposure limited to $500 per.

Must have verifiable current employment.

Must have a satisfactory Teletrack® report (NFCU also reports to Teletrack®).

One two-week extension permitted…member is assessed another application fee.

After two-week extension, AdvancPay®

must be paid in full, then member can apply for a new AdvancPay® if desired.

BalanceSM financial counseling program flyer extended with each transaction.

Program Structure/Risk Management (cont’d)

Program Performance

Averaging approximately 900 to 1,000 AdvancPay® transactions per month.

Denial rate averaging 3% - 4% per month.

Most delinquent AdvancPay® loans are cleared with next direct deposit.

DemographicsAverage age: 43 Average income: $40,000 - $49,000 annuallyAverage Credit Score: 571

67% of all users have credit scores of 599 or less.

Conduct an average of 10 AdvancPay®

transactions per year.90% are homeowners!!

Program Performance

2006:Fee Income: $245,000Losses: $9,100

2007:Fee Income: $378,000Losses: $30,000

Does not include origination, servicing, collections, and other costs.

Break The Cycle® loan available to those wishing to amortize remaining AdvancPay®

balance.15% rate for terms up to 12 months.

Members utilizing Break The Cycle® cannot obtain an AdvancPay® until loan is paid in full.

12/31/07: 125 loans @ $33,000 outstanding; 4 loans @ $830 delinquent; 19 loans @ $4,400 charged-off.

Breaking The Cycle®

New Start VISA®

Brand new credit card product currently in “pilot” program phase.

Looking to open 300 to 400 cards on a limited basis and gauge performance.

Designed for members who have had trouble managing a credit card in the past.

Many of today’s routine transactions require a credit card (car rentals, airlines, online shopping, etc).

New Start VISA®

Program Design

Transitioning from “risk-reward” to “reward-risk.”

Due to the inherent risk involved with this type of borrower, many of our “rewards” must be obtained upfront: fees.

New Start VISA® Program Design (cont’d)

Credit scores of 550 to 623 $500 maximum credit limit18% APR$49.95 application fee$15 monthly feeNo grace periodVarious other associated fees: overlimit, returned item, cash advance, etc.

New Start VISA® Risk Management

Daily performance monitoring.

Collection activity begins on payment due date.

Card usage suspended at 7 days past due.

Lower “overlimit” tolerance.

New Start VISA® Risk Management (cont’d)

5% minimum monthly payment.No limit increases for at least 6 months.

Borrower must re-qualify for new limit.

Borrowers can “graduate” to traditional VISA® products after 12 months of satisfactory performance.

Specialty Auto FinanceNationally, nearly 1 in 5 auto loans made in 2006 was “non-prime.”

Nationally, 12 percent of consumers have at least one late auto payment.

In order to provide vital lending services to those in need, we need to adapt our current lending models to fit today’s borrower.

Specialty Auto Finance (cont’d)

Specialized expertise is the key to a successful operation.

Traditional “A” credit lenders (and underwriters) may have trouble adapting.

Consistency is important: credit decisions, credit stipulations, collection messages, member and dealer service.

Specialty Auto Finance (cont’d)

Nevada Federal enlisted an outside consultant to help design polices, procedures, position descriptions, pricing models, risk management reports, etc.

Although an outside consultant was enlisted, all policy, procedure, and individual loan decisions are made by the Credit Union:

DON’T RELINQUISH CONTROL!

Specialty Auto Finance (cont’d)

Four credit programs designed to cover a range of credit histories: 11.99% through 17.99% (first time buyers).

As a Federally chartered credit union, our risk management approach is tempered by the maximum 18% allowable APR.

Specialty Auto Finance (cont’d)

While the traditional “5 Cs” of lending remain important, this type of lending requires additional considerations.VERIFY, VERIFY, VERIFY!!“Debt-to-Income” AND “Payment-to-Income.”BKs, repos, and foreclosures are not necessarily “deal killers.”Collateral will tend to be older, higher in mileage.

Specialty Auto FinanceRisk Management

Slow, “managed” growth.

Collections also requires a different mindset.

Collection contacts begin on payment due date.

Specialty Auto FinanceRisk Management (cont’d)

Quicker repos: at 30 days delinquent.Trend analysis:

30, 60, and 90 day delinquency trends.First payment defaults.Dealer performance (volume, funding, fraud).Static pool analysis (after 6 months of origination).

Courtesy Pay,New Start Checking®

and Risk Management

Courtesy Pay

• 87% of consumers don’t balance their checking accounts. *

• Having a check returned due to insufficient funds is an embarrassing and humiliating experience.

* Moebs Services, an economic research firm

• Having a check returned is costly because of merchant fees.

• Inconvenient to purchase a money order or cashier’s check and go retrieve the unpaid item.

Courtesy Pay (cont’d)

Courtesy Pay Program Design

Checks, ATM withdrawals, POS.Tiered Courtesy Pay limits (65,000 members qualify; 6,000 users).Same fee for paid or returned checks.Fee refund and opt-out feature is offered (1,830 opt-outs).

Courtesy Pay Program Design (cont’d)

Not advertised or promoted.

Notices refer members to the BalanceSM

Financial Counseling Program.

Financial literacy seminars.

Courtesy PayA Few Statistics

NSF Fee Income $4,448,344Refunds $378,351Charged Off Shares $766,658Net Revenue $3,303,336

2006 2007

$5,309,251$343,713$823,101

$4,142,438

Courtesy Pay Risk Management

Daily suspect reports reviewed by staff.

Differentiate between fraud and ineffective management.

Negative share balance is monitored daily.

Watch and adjust for seasonal trends.

Various availability codes that are updated monthly.

Pre-established Limits

Class code 1 $2,000

Class code 2 $1,000

Class code 3 $500

Class code 4 $500

Class code 5 $300

• Class code 6 $-0-

• Class code 7 Manual Lower

• Class code 8 $200 NS

• Class code 9 $100 NS

• Class code 10 $100 REG

Pre-established Limits (cont’d)

New Start Checking®

15 million Americans are “unbanked.” * (no credit card, no ATM card, no bank account)In the United States, about 13 percent of all families do not have a checking account. ** The majority of the unbanked previously owned a checking account 8 Million ChexSystemsSM exiles

*Scarborough Research **Synergistics Research Corporation

New Start Checking®(cont’d)

Payday lenders continue their march into the IMM segment. Un- and under-banked spend $10.9 billion on more than $324 million alternative financial transactions, including check cashing and payday loans, every year. **NFCU can help the IMM segment reduce the costs of their financial transactions.

**Synergistics Research Corporation

New Start Checking®(cont’d)

Qualifile inquiry (customizable ChexSystemsSM).

3 or less closures for account abuse.Less than $1,000 owed to a financial institution.No fraud activity.

New Start Checking®(cont’d)

Class code 9; $100 first 90 days.

Class code 8; $200 after 90 days.

Can graduate to regular checking after 12-months of satisfactory performance.

New Start Checking®

A Few Statistics

4,000 New Start Checking® accounts$19.50 monthly maintenance fee = $78,000Monthly NSF fee revenue (net after charge-offs) = $45,000

Important Considerations

1. Serving IMMs is radically different.2. Product development and pricing is

important. 3. IMM transaction activity must be

monitored closely.4. The entire organization must be

vigilant. 5. Creativity and flexibility are vital

characteristics.

Establish RiskManagement Operation

Participates in product development.Monitors account activity.Evaluates and predicts impact of changes.Closely monitors performance trends.Keeps loss exposure within acceptable limits.Regulatory compliance.

Enterprise Risk Management

Centralized focus.

Product development.

Cross-functional IMM team.

Challenges:

Philosophical IssuesUnderstanding IMM Behavior

Staff MindsetRegulatory MindsetRisk ManagementAchieving Scale

Market Recognition

Meet Member Needs

Market Potential

Reduce Dependence on Interest Margin

Financial Education

Credit Union Philosophy

Opportunities:

Questions