INTEREST RATE RISK & AUTO LOAN PORTFOLIOS

INTEREST RATE RISK & AUTO LOAN PORTFOLIOS T I. PURPOSE he purpose of this paper is to analyze new and used auto loan portfolios to determine their behavior and related risk attributes that should be considered when examining the interest rate risk (IRR) of a financial institution. Among the characteristics examined are the analytical differences between new and used auto loan portfolios in terms of prepayment speeds, stability of principal cash flows, average lives, and the extent of prepayment sensitivity to interest rates, all of which should be considered in the modeling process. From the time the Federal Reserve initiated its zero interest rate policy (ZIRP) in late 2008 and its subsequent quantitative easing (QE) programs, interest rates declined to record low levels. On both the managerial and regulatory fronts this market manipulation has raised serious and legitimate concerns over the potential for ultimately increasing both credit and interest rate risk. The specific problem this created for financial institutions was significant margin pressure as the spread between short-term rates and longer-term rates narrowed considerably, i.e., the yield curve flattened. (The yield curve steepened somewhat in mid- 2013 after the Fed announced that it might soon begin to exit or taper its QE strategy.) In response, some institutions lowered credit standards or lengthened maturities on the asset side, or both. This has spawned regulatory warnings about increased levels of credit risk and IRR. Not surprisingly, credit-related stress testing and more effective IRR policies are now aggressively pursued by regulators. With respect to modeling IRR, the emphasis is virtually always focused on fixed-rate first mortgage loans. This is understandable given their long amortization terms and price volatility. 1 However, largely absent from these discussions is the role of auto loans in the IRR management process. This is due to the widespread perception that these loans have a low degree of IRR because of their short terms. As will be shown, this perception is correct but there may be more to consider, that is, the extent to which these loans offset or mitigate the IRR resulting from other loans. In other words, and as shown in the sections that follow, this risk mitigation may have a much stronger and desirable effect than is generally perceived. This is why it is important to thoroughly understand the characteristics of auto loan portfolios. II. CHARACTERISTICS OF AUTO LOAN PORTFOLIOS Industry-wide auto loan data for IRR assessments is not readily available. To overcome this problem and obtain insight, analysts often refer to publicly available data from asset-backed securities (ABS) made up of auto loans. For example, consider the results reported in a comprehensive ABS analysis by Citigroup Global Markets: Auto prepayment speeds are significantly more stable than prepayments on other assetbacked classes. This is because auto loans are not sensitive to refinancing if interest rates decline. Unlike the home mortgage market, auto owners cannot refinance their used vehicle at a better interest rate if rates decline. Autos are depreciating assets. Therefore, the cost of refinancing a used auto is greater than the cost to finance a new vehicle. Because auto loans are short obligations (generally 36 to 72 months), the effect of variability of speeds on cash flow is minimal. 2 1 For a discussion of the role of these loans in the collapse of the S&L industry in the 1980s, see Asset-Liability Management and the Role of Judgment, January 2012, by John R. Brick, available at www.brickinc.com 2 Citigroup Global Markets, Inc., Guide to Auto ASB, 3 rd ed, July 2009, p 58. 2

The Citigroup study did find some degree of interest rate sensitivity. Auto loans that were seasoned by 2.5 to 3 years and with an above-market weighted average coupon (WAC) tended to induce some borrowers to trade in their vehicle sooner for a new one. The study went on to say that the prepayment speed convention for valuation purposes on prime auto loans is to price such pools generally at 1.5 ABS. This means that the number of loans prepaying monthly is assumed to be around 1.5% of the number of loans in the pool. The study also cites a range of 1.3 to 1.7 ABS depending on the issuer. This range corresponds roughly to an annualized prepayment speed of 15 to 20%. Although studies such as this are certainly useful in the absence of more definitive information, the results should be used with care because ABS portfolios have different characteristics from those of financial institutions and they can affect the IRR assessment. Such pools are funded with relatively homogeneous loans with similar characteristics such as new car loans with, for example, six-year terms. In contrast, institutional portfolios are comprised of new and used car loans that are likely to have different characteristics. Furthermore, when an ABS portfolio is seasoned, this means that after two years a pool made up primarily of six-year loans would have a remaining amortization term of four years. However, institutional auto loan portfolios are fully seasoned. In contrast to ABS pools that contain loans with relatively homogeneous remaining terms, an institution s portfolio contains loans with remaining terms ranging from old loans with one month to brand new loans with up to 72 months or however many months they may extend. This is critical in an IRR assessment because the typical average life of an institution s auto loan portfolio is consistently quite short, much shorter than new or recently offered ABS pools. In addition to typically having a shorter average life than an ABS pool, a fully seasoned portfolio has a large number of loans with small balances and/or a small number of payments remaining. Unlike the large balances associated with mortgage loans and except under unusual circumstances, borrowers are unlikely to benefit in a material way by refinancing into a lower rate loan. This is in addition to the other refinancing barriers mentioned in the Citigroup study. Another important difference is in the weighted average coupons of ABS pools versus that of an institution s portfolio. ABS pools are primarily comprised of so-called standard loans that are made by the subsidiaries of auto companies along with several other lenders such as Capital One. This term refers to loans that are not incentivized with below-market rates so they have a higher contractual rate. Many vehicles are not subject to these incentives and in certain parts of the country, mainly major metropolitan areas, most of the cars sold by dealers are financed by standard loans. The rates on these loans are considerably higher than those offered by many institutions, especially credit unions. Thus, credit union portfolios should be even less susceptible to refinancing than ABS pools during a period of falling rates. Since Citigroup found no such refinancing sensitivity in ABS pools, a reasonable expectation is that there is little or no such sensitivity in credit union portfolios. If this is confirmed by the analysis later in this paper, the lack of prepayment sensitivity to interest rates would be another important aspect of IRR modeling. In addition to having higher interest rates, the standard dealer loans in auto loan pools usually have LTV ratios of 90-100%. These loans are less likely to be upside down over time in a meaningful way. In contrast, credit unions virtually always write loans in excess of 100% LTV ratios, often by a considerable margin by wrapping in the old loan and paying for taxes and expensive add-ons. This is yet another barrier to a credit union s loan portfolio refinancing in a low- or falling-rate environment. With respect to interest rate sensitivity, it is well recognized that in a rising rate environment any refinancing incentive will decline. Those same rising rates may also impede auto loan sales and thus trade-ins and the resulting prepayments on the old loans. However, it could also be argued that if rising rates are a result of a stronger economy as is usually the case, car sales may be stronger because of rising incomes and as more unemployed and under-employed people get back to work. In this way, prepayment experience may be unlike that of the mortgage loan market where prepayments due to refinancing collapse in a rising rate 3

environment. Another difference is the fact that unlike the housing market, autos consistently depreciate over time and must be replaced regardless of the level of interest rates. Another potential impact of interest rates on auto loan prepayments relates to the irrational behavior of individuals. That is, it would be perfectly rational for someone getting 1% (or less) on a savings account to take those savings and pay off a car loan with a rate of 4 or 5%. Although it is likely that this has happened, its effect is likely to be minimal and not measurable. Extensive research over the past 20 years shows that models based on rational economic behavior are badly flawed because most people are not rational to say nothing of many people not having much in the way of savings to pay off the loan. As pointed out earlier, auto loans are widely and properly perceived as having very little interest rate risk due to their typically short average lives. However, other than work on auto-related, asset-backed securities by investment bankers, little research has been conducted on actual institutional portfolios. While common sense suggests that institutional auto loan portfolios have a low degree of IRR, based on a comparison with the characteristics of ABS pools the actual risk may be even lower than is widely perceived. If so, these assets may even be risk-reducing rather than risk-neutral. Now the question is what does an analysis of auto loan portfolio data tell us? In the following sections we will analyze extensive data to determine the analytical differences between new and used auto loan portfolios, principal cash flow stability, average lives, prepayment speeds, and the sensitivity of auto loan prepayments to interest rates. III. ANALYZING THE DATA Since industry-wide data is unavailable for institutional portfolios, the data used in this study is from a single institution, albeit one with large portfolios of both new and used auto loans. Monthly loan data for these portfolios was obtained over the period from January 2004 through June 2013 for a total of 114 data points. The new car portfolio was made up of 5,773 loans totaling $89 million as of June 2013. The used car portfolio had 26,530 loans totaling $260 million. Note that roughly one-half of this period encompasses the Fed s zero interest rate policy (ZIRP) that began in late 2008. The data for new car loans is shown in Exhibit 1 and the used auto loan data is in Exhibit 2. A. Prepayment Speeds & Average Life Since core systems do not separate monthly principal payments between contractual payments and prepayments, the breakdown must be estimated. This involved several steps the first of which was to determine the total principal payoffs on new auto loans on a monthly basis. The procedure is shown below for the month of June 2013 in Exhibit 1. Ending Balance ($ in 000s) $89,056 Less: Beginning Balance $86,083 Equals: Monthly Change $2,973 Less: New Loans Made $6,800 Equals: Principal Payoff s ($3,827) In order to find the breakdown between contractual payments and prepayments, the next step was to determine the average original term of the new auto loan portfolio. An extensive review of recent auto loans 4

found that this was 62 months. 3 Bear in mind that institutional auto loan portfolios are fully seasoned. This means that the portfolio is made up of loans with remaining terms ranging from one month to, in this case, an average of 62 months. Assuming zero prepayments and an actual portfolio interest rate of 3.58% on the new auto loan portfolio, the monthly required contractual portion of the $3,827 ($000s) total principal payoffs in June was determined to be $2,669 as shown in column 7. This represents 3.1% of the beginning loan balance of $86,083. Thus, the estimated prepayment portion of the June 2013 principal payoffs was $3,827 - $2,669 = $1,158 as shown in column 8. This was 1.35% of the beginning loan balance of $86,083, or about 16.1% annualized for that month. The average annualized prepayment speed over the entire 9.5-year period was 12.5% for the new auto loan portfolio. From a cash flow standpoint note in column 6a of Exhibit 1 that the Total Principal Payoff as a % of the Beginning Loan Balance was 4.4% for the month of June, or 53.3% annualized as shown in column 6b. Over the entire period this annualized payoff speed averaged a remarkably fast 49.7%. The same procedure was employed for the used auto loan portfolio shown in Exhibit 2. For this analysis the average original term of used auto loans was determined to be 56 months. Assuming a fully seasoned portfolio and a portfolio yield of 3.80%, the monthly required contractual payoffs were estimated to be 3.5% of the beginning loan balance. This resulted in a monthly prepayment speed of 1.65% for June with an annualized speed of about 19.8% for that month. The average annualized prepayment speed over the entire period was 15.5%. Since used cars are older than new cars and must be replaced more frequently, it makes sense that the average prepayment speed is several percentage points higher than for new cars, that is, 15.5% versus 12.5%. Again, from a cash flow standpoint, note in column 6a of Exhibit 2 that the Total Principal Payoff was 5.1% for the month of June, or about 61.8% annualized. Over the entire period this annualized payoff speed averaged 57.5%. Clearly, auto loan portfolios are an important source of liquidity and repricing opportunities, both of which are highly desirable ALM characteristics in a rising rate environment. These results raise two important questions related to IRR assessments. First, what is the average life of fully seasoned, new and used auto loan portfolios and second, how sensitive are the average lives to the estimated prepayment speeds? The answers are shown in Table 1 below using a 15% constant prepayment rate (CPR) as a baseline. Table 1 Weighted Average Life of Fully Seasoned Auto Loan Portfolios* (in months) 0% CPR 5% CPR 15% CPR 25% CPR New Autos 21.7 20.3 18.0 16.1 Used Autos 19.3 18.2 16.4 14.8 *The weighted average life (WAL) is the weighted average time to receipt of the principal cash flows. Generally, this term also refers to the time it takes to get back one-half of the principal. These results are important for several reasons. Assuming fully seasoned, institutional auto loan portfolios in general have a prepayment speed averaging around 15%, the average life of such portfolios is only about 18 months for new car loans and 16.4 months for used car loans. From an IRR perspective, these are important statistics because they are so short, shorter perhaps, than most analysts realize. This means that rather than 3 This figure was based on recent lending activity. Since older data was not available going back almost a decade or so, this average original term was assumed to be constant over the entire period. It is unlikely that this average remained constant over time but the results discussed later suggest that this assumption would not materially alter the conclusions. 5

just having a low or neutral degree of IRR, these portfolios are so short that they may be risk-reducing. That is, like a very short investment portfolio, they may help to mitigate the risk of other assets with much longer average lives such as fixed-rate mortgage loans. When analyzing the IRR attributes of mortgage loans it is well recognized that the prepayment assumption plays a critical role. In fact, this assumption dominates the principal cash flow estimates for the purpose of valuation. This means that mortgage loan prepayments can overwhelm the contractual payments and by a wide margin, often exceeding ten to one on long-term mortgage loans. This is due to the long amortization term and the resulting monthly payment that has a very small contractual principal component. In contrast, auto loan portfolios are so short that the contractual principal payments are very large relative to the prepayments so they overwhelm the prepayments by about three or four to one. This relationship is evident when comparing the data in columns 7 and 8 in Exhibits 1 and 2. This has important IRR implications. As shown in Table 1 above, note that when the prepayment estimate is incorrect by as much as +/-10 percentage points from the 15% baseline, the WAL changes in both directions by only about two months! Thus, unlike mortgage loans and regardless of the cause, incorrect prepayment estimates have a minimal distorting effect on cash flows and the IRR assessment. 4 The lack of meaningful extension or contraction risk is a distinct benefit because the resulting principal cash flows are stable rather than increasing or decreasing significantly at inopportune times as is the case with mortgage loan portfolios. But this does raise a question to what extent are auto loans and their IRR characteristics sensitive to interest rates? B. Interest Rates & IRR Characteristics When analyzing the relationship between movements in interest rates and the IRR attributes of auto loan portfolios, the ultra-low rate environment since late 2008 greatly complicates the analytical procedure. From the inception of the study in 2004 until late 2008, interest rates were subject to the normal variation that characterizes the bond market. However, around the end of 2008 and during the Great Recession the Federal Reserve began to manipulate the bond market in an unprecedented manner by means of reducing the Fed Funds target to 0 to.25% and implementing its Quantitative Easing (QE) policy of buying Treasury Bonds and mortgage-backed securities, a program designed to lower intermediate- and long-term interest rates and flatten the yield curve. This program continued through the end point of the study, June 2013. Regarding short-term interest rates, the Fed has been using forward guidance to convince the market that these rates will remain low for an extended period. Volatility in the ultra-short sector was dramatically reduced from that of the earlier period. 1. Analytical Procedure To at least partially overcome the potentially distorting effects of this environment, several steps were taken. First, the 2-year Treasury rate was selected as the rate index since this series still had some degree of volatility unlike the overnight rate that was virtually fixed. Furthermore, the maturity roughly corresponds with the average life of auto portfolios as discussed earlier. The data was first analyzed by determining the relationship between contemporaneous changes in interest rates and changes in the monthly prepayments over the entire period from 2004 to mid-2013. The entire period was then re-analyzed but the changes in prepayments were lagged three months behind the changes in interest rates in order to detect any delayed responses. Then the period was broken down into two subperiods to reflect the vastly different rate environments, that is, the free market and the Fed s QE market. 4 Recall that an assumption was made earlier that the estimated original term was constant. This is clearly not the case since these terms have increased over the past decade. However, the fact that these portfolios are so short even with the more recent, longer average original term suggests that this assumption would not alter the conclusions in a meaningful way. 6

The analytical procedure used was a correlation analysis. The correlation coefficient ranges from +1.0 which reflects a perfect positive relationship to -1.0 reflecting a perfect negative relationship. If falling or low interest rates are associated with an increase in prepayments as is the case in the mortgage loan market, a high and statistically significant degree of negative correlation would be indicated. Coefficients around zero would indicate no relationship. Using this method, the monthly changes in 2-year Treasury rates were correlated with the monthly changes in the prepayment speeds as a percent of the beginning loan balance. 5 2. Graphical Overview & the Results It is insightful to obtain a graphical representation of the data and the analytical results. In Figure 1 below for new auto loans, the volatility of the 2-year Treasury rates in the pre-qe environment is evident and in sharp contrast to that of the more stable QE environment from January 2009 to mid-2013. With the exception of a few outliers, the monthly prepayment speeds generally range from a low of around.5% to about 1.5% over the entire period with an average of 1.04%. 6 Figure 1 New Auto Loan Prepayments & Interest Rates 6% 5% r = -.07 (r =.08 Lagged 3 mo) 6% 5% r = -.19 r =.29 4% 4% 3% 2-Yr Treasury Rates Monthly % Prepayments 3% 2% 2% Avg = 1.04% 1% 1% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 0% Copyright (c) Brick & Associates, Inc., 2014. All rights reserved. YEAR Shaded area represents recession. If there is a linkage between low or falling interest rates and higher prepayments resulting from more tradeins or refinancing, a high and statistically significant negative correlation coefficient would result. Note that the correlation coefficient (r) over the entire period was only -.07 which is not statistically different from zero. 7 When changes in prepayments are lagged three months behind changes in interest rates, the coefficient was.08. Again, this is not statistically significant. 5 From a statistical standpoint, when the actual data from two non-stationary times series such as these are correlated, a high but spurious (false) correlation coefficient often results. Taking the first difference (monthly change) usually induces the necessary correlation requirement, a stationary process. 6 The prepayment outliers in 2011 were a result of extensive and competitive loan rate promotions in the institution s primary service area. To the extent that these were related to below-market interest rates, the promotions may have induced trade-ins and thus prepayments. However, such prepayments should be considered self-induced rather than brought about primarily by market conditions. 7 Statistical significance at the 95% level is given by +/- 1.96/(n-k).5 where n = the number of observations and k = the lag term. The level of significance for the entire period of 114 observations is +/-.18. 7

When the data is partitioned as explained above, the correlation coefficient for the pre-qe period was -.19 which is not statistically significant at the 95% level (+/-.25). However, the coefficient and negative sign indicates that there may have been weak prepayment sensitivity during this period. A visual inspection of Figure 1 indicates that as interest rates increased significantly, prepayments tended to decline somewhat during this period although not in a statistically meaningful or material way. As rates declined toward the end of that period, i.e., just prior to and during the recession, the behavior of prepayments was mixed. In the partitioned QE period beginning in 2009 the results are the opposite of the earlier period with a coefficient of +.29. This was statistically significant (+/-.27). The problem here is that the sign of the coefficient is positive rather than negative. That is, as interest rates declined prepayment speeds tended to decline and when rates increased, prepayments appeared to increase as well with the exception of the few outliers mentioned earlier. Before explaining these results in more detail, it is insightful to examine the results for used car portfolios. With the exception of the one statistically significant coefficient for new auto portfolios, the analytical results for the used car loan portfolio are similar to those of new car loans as shown in Figure 2 below. Over the entire period the correlation coefficient (r) was.08. When prepayments are lagged three months to detect a delayed response, the correlation coefficient was.10. Neither measure is statistically significant. Figure 2 Used Auto Loan Prepayments & Interest Rates 6% 5% r =.08 (r =.10 Lagged 3 mo) 6% 5% r =.10 r =.03 4% 4% 3% 2-Yr Treasury Rates Monthly % Prepayments 3% 2% 2% Avg = 1.30% 1% 1% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 0% Copyright (c) Brick & Associates, Inc., 2014. All rights reserv ed. YEAR Shaded area represents recession. When the data was partitioned, the correlation coefficient for the pre-qe period was only.10 and.03 during the quantitative easing period beginning in 2009. Again, neither coefficient was statistically different from zero. Note that the average prepayment as a percent of the beginning monthly balance was only 1.30% with a range of about.5% to 2%, excluding several outliers. Like new auto loans this indicates that cash flows are dominated by the much more stable contractual payments. 8

IV. INTERPRETING THE RESULTS The results are summarized in Table 2 below. With the exception of the more recent partitioned section for new auto loans, all of the coefficients are weak and statistically insignificant. The Pre-QE negative coefficient of -.19 seems to indicate that there may have been some relationship between rising interest rates and declining prepayments similar to that of the mortgage loan market. However, the coefficient is not statistically significant and numerically weak at best. Furthermore, the results are inconsistent with those of the QE period that has a statistically significant positive coefficient of +.29. This means that interest rates and prepayments were positively related. That is, falling interest rates were accompanied by falling prepayments during the period from 2009 through mid-2013. Thus, the question arises what could account for these conflicting results relative to the Pre-QE period? Table 2 Summary of Correlation Coefficients Entire Period Partitioned No Lag Lagged 3 Mos. Pre-QE QE Period New Autos -.07.08 -.19.29* Used Autos.08.10.10.03 *Significant at 95% level (+/-.27). One answer to this question may lie in the Great Recession which was officially dated December 2007 to June 2009. During and subsequent to this period, unemployment and under-employment increased, real income fell, and car sales and thus trade-ins collapsed despite falling interest rates. This disrupted the normal replacement cycle. But the aftermath of this recession continued for several years after the official end of the recession. Prepayments fell correspondingly throughout the recession and for several years thereafter as people kept their cars for longer periods, extending the average age of cars on the road to a recent record of 11 years in 2013. Thus, it is likely that the positive correlation (.29) was an anomaly and primarily a result of the Great Recession, its extended aftermath, and a delayed replacement cycle. If so, it is also likely that as the economy recovers, a return to a more normal replacement cycle will once again alter the weak relationship between interest rates and prepayments. Perhaps the most interesting finding of this study is the impact of interest rates on prepayments. This is important because if prepayments are influenced by changing interest rates as is the case with mortgage loans, a negative convexity function would be necessary when modeling IRR. 8 However, the results are inconsistent over time and the effect ranges from zero to immaterial in a IRR assessment so such a function is unnecessary. It appears that this would be the case even if all of the coefficients were statistically significant and they had the proper (negative) sign. When a correlation coefficient is statistically significant this means that there is a relationship but not necessarily a material one. This becomes evident when examining the relationship between prepayments and the total principal payments. Recall from Table 1 that the weighted average life (WAL) of fully seasoned auto loan pools is only about 18 months for new auto loans and 16.4 months for used car loans assuming a 15% annual prepayment speed. The sensitivity analysis showed that an extreme error range of +/-10 percentage points in the prepayment speed changes the WAL by only about two months. The reason is that since auto loans are so short with original terms typically of three to seven years, a large proportion of the contractual monthly payment is principal starting in the first month. When the portfolio is fully seasoned, this proportion increases even more. This interpretation is further supported by the data itself. At the bottom of Exhibit 1 in column 6a, note that the average monthly Total Principal Payoffs as a % of the Beginning Loan Balance was 4.1% over the entire period. In column 9a, however, the average of the monthly Prepayments as a % of the Beginning Loan 8 Such a function would cause the average life of an auto loan portfolio to extend as rates increase and contract as rates decrease as is the case with mortgage loan portfolios. 9

Balance is only 1.04%. (This is also shown in Figure 1.) In other words, prepayments made up only about one-quarter of the total principal cash flows over the entire period. This is why the extreme 10 percentage point error range for prepayments in Table 1 had such a small effect regardless of any interest rate effects. The used auto loan portfolio has a similar interpretation. The monthly Total Principal Payoffs averaged 4.8% over the entire period with prepayments making up 1.3 percentage points, or a little over one-quarter of the total. Again, reasonable prepayment estimation errors regardless of the cause are unlikely to have a material impact on an IRR assessment due to the very short-term nature of these portfolios. Furthermore, it is likely that this interpretation extends to other short-term consumer loans as well. V. CONCLUSION Despite the lack of evidence, interest rates may have some effects on auto loan portfolio IRR characteristics. However, unlike the mortgage loan market, these effects appear to be immaterial or not measurable from a modeling standpoint. Even to the extent that such effects do exist, they are offset or obscured by numerous other factors that are unique to the auto loan market and not relevant in the mortgage loan market. The most important of these factors are the very short average lives, low prepayments relative to contractual payments, impact of economic conditions, the fact that autos are depreciating assets, and a replacement cycle that extends and contracts independent of interest rates. The lack of consistency in the results over time may be a product of the vastly different rate environments, a fundamentally unstable relationship in the underlying data over time, the effects of the other factors that distinguish auto loans from mortgage loans, or some combination of these. Auto loan portfolios are widely and properly perceived as having a low degree of interest rate risk. The high proportion of principal cash flows from contractual payments results in stable cash flows regardless of interest rates and the actual or estimated prepayment speed. This is a very desirable ALM attribute since those cash flows do not increase or decrease at inopportune times as is routine in the mortgage loan market. With an estimated weighted average life of only about 16 to 18 months under typical underwriting criteria, very little prepayment risk, and stable cash flows, these fully seasoned portfolios may not only be low-risk, they may be risk-reducing and thus help offset the risk posed by other assets. The results are consistent with the findings of the Citigroup study on auto-related asset-backed securities cited earlier. Finally, the stable and unusually rapid cash flows may also be a largely unrecognized source of liquidity, much like the maturity runoff from a short-term investment portfolio. ABOUT THE AUTHOR John R. Brick is President of Brick & Associates, Inc., the developer of the CU/ALM-ware System, an assetliability management model, and CU/BUDGET-ware, a budgeting and a multi-year strategic planning model. The firm specializes in ALM Consulting and Strategic Planning for depository financial institutions. Dr. Brick has conducted educational and training sessions for leagues and trade associations as well as state and federal examiners. He was also Professor of Finance on the faculty of Michigan State University where he taught Financial Markets, Management of Financial Institutions, Bank Management, and Investments. Dr. Brick has authored/edited three textbooks dealing with financial institutions and the financial markets, and has published over twenty articles dealing with asset-liability management, interest rates, investments, and the management of financial institutions. He received his undergraduate, MBA and PhD degrees from the University of Wisconsin-Madison and holds the Chartered Financial Analyst (CFA) designation. He has served as Chairman of the Michigan State University Federal Credit Union Board of Directors and Co-Chair of its asset-liability management committee (ALCO). This institution has assets of $2.5 billion and over 180,000 members. He may be reached at (800) 332-8188 or via email at jack@brickinc.com. 10

Exhibit 1 New Auto Loans ($ in 000s) Average Annualized Prepayments: 12.5% 7. Required Contractual 11. Monthly Change in 1. Ending 2. Less: 3. Equals: 5. Equals: 6. Total Principal Payoffs as Payoffs 9. Prepayments as 10. 2-Year a. Prepayments b. 2-Year Loan Begin Loan Monthly 4. Less: Total Principal a % of Beg. Loan Bal. Monthly 8. Estimated % of Beg. Loan Bal. Treasury as % of Beg. Treasury Balance Balance Change New loans Payoffs a. Monthly b. Annualized @ 3.1% Prepayments a. Monthly b. Annualized Rate Loan Bal. Rate 6/30/2013 89056 86083 2973 6800 3827 4.4% 53.3% 2669 1158 1.35% 16.1% 0.32% 0.21% 0.08% 5/31/2013 86083 83359 2724 6256 3532 4.2% 50.8% 2584 948 1.14% 13.6% 0.24% -0.58% 0.01% 4/30/2013 83359 80294 3065 6935 3870 4.8% 57.8% 2489 1381 1.72% 20.6% 0.23% 0.36% -0.01% 3/31/2013 80294 79337 957 4496 3539 4.5% 53.5% 2459 1080 1.36% 16.3% 0.24% 0.39% -0.01% 2/28/2013 79337 79317 20 3252 3232 4.1% 48.9% 2459 773 0.97% 11.7% 0.25% -0.29% 0.00% 1/31/2013 79317 78991 326 3775 3449 4.4% 52.4% 2449 1000 1.27% 15.2% 0.25% 0.09% 0.00% 12/31/2012 78991 79555-564 2837 3401 4.3% 51.3% 2466 935 1.18% 14.1% 0.25% -0.01% -0.01% 11/30/2012 79555 79773-218 3198 3416 4.3% 51.4% 2473 943 1.18% 14.2% 0.26% -0.29% -0.01% 10/31/2012 79773 80438-665 3013 3678 4.6% 54.9% 2494 1184 1.47% 17.7% 0.27% 0.51% 0.02% 9/30/2012 80438 81352-914 2391 3305 4.1% 48.8% 2522 783 0.96% 11.6% 0.25% -0.56% -0.01% 8/31/2012 81352 81616-264 3507 3771 4.6% 55.4% 2530 1241 1.52% 18.2% 0.26% 0.40% 0.02% 7/31/2012 81616 80123 1493 4874 3381 4.2% 50.6% 2484 897 1.12% 13.4% 0.24% -0.23% -0.04% 6/30/2012 80123 79076 1047 4567 3520 4.5% 53.4% 2451 1069 1.35% 16.2% 0.28% -0.31% 0.01% 5/31/2012 79076 76713 2363 6012 3649 4.8% 57.1% 2378 1271 1.66% 19.9% 0.27% 0.30% -0.02% 4/30/2012 76713 74784 1929 5262 3333 4.5% 53.5% 2318 1015 1.36% 16.3% 0.29% -0.29% -0.05% 3/31/2012 74784 73569 1215 4705 3490 4.7% 56.9% 2281 1209 1.64% 19.7% 0.34% 0.37% 0.07% 2/29/2012 73569 72902 667 3855 3188 4.4% 52.5% 2260 928 1.27% 15.3% 0.27% -0.25% 0.04% 1/31/2012 72902 73469-567 2829 3396 4.6% 55.5% 2278 1118 1.52% 18.3% 0.23% 0.56% -0.02% 12/31/2011 73469 71408 2061 4965 2904 4.1% 48.8% 2214 690 0.97% 11.6% 0.25% -0.76% 0.01% 11/30/2011 71408 64056 7352 10443 3091 4.8% 57.9% 1986 1105 1.73% 20.7% 0.24% -1.57% -0.03% 10/31/2011 64056 60670 3386 7269 3883 6.4% 76.8% 1881 2002 3.30% 39.6% 0.27% 1.91% 0.07% 9/30/2011 60670 61889-1219 1562 2781 4.5% 53.9% 1919 862 1.39% 16.7% 0.20% -0.72% -0.02% 8/31/2011 61889 62815-926 2349 3275 5.2% 62.6% 1947 1328 2.11% 25.4% 0.22% 0.41% -0.17% 7/31/2011 62815 63638-823 2233 3056 4.8% 57.6% 1973 1083 1.70% 20.4% 0.39% 0.14% -0.01% 6/30/2011 63638 64066-428 2559 2987 4.7% 55.9% 1986 1001 1.56% 18.7% 0.40% -0.56% -0.14% 5/31/2011 64066 65372-1306 2107 3413 5.2% 62.7% 2027 1386 2.12% 25.5% 0.54% 0.27% -0.17% 4/30/2011 65372 65979-607 2660 3267 5.0% 59.4% 2045 1222 1.85% 22.2% 0.71% 0.05% 0.03% 3/31/2011 65979 67379-1400 1903 3303 4.9% 58.8% 2089 1214 1.80% 21.6% 0.68% 0.32% -0.08% 2/28/2011 67379 69018-1639 1524 3163 4.6% 55.0% 2140 1023 1.48% 17.8% 0.76% 0.43% 0.16% 1/31/2011 69018 70779-1761 1176 2937 4.1% 49.8% 2194 743 1.05% 12.6% 0.60% 0.08% 0.00% 12/31/2010 70779 72346-1567 1378 2945 4.1% 48.8% 2243 702 0.97% 11.6% 0.60% 0.24% 0.16% 11/30/2010 72346 73325-979 1830 2809 3.8% 46.0% 2273 536 0.73% 8.8% 0.44% -0.12% 0.07% 10/31/2010 73325 74224-899 2030 2929 3.9% 47.4% 2301 628 0.85% 10.2% 0.37% -0.11% -0.10% 9/30/2010 74224 75451-1227 1830 3057 4.1% 48.6% 2339 718 0.95% 11.4% 0.47% -0.13% -0.04% 8/31/2010 75451 76677-1226 1979 3205 4.2% 50.2% 2377 828 1.08% 13.0% 0.51% 0.16% -0.09% 7/31/2010 76677 77382-705 2408 3113 4.0% 48.3% 2399 714 0.92% 11.1% 0.60% 0.27% -0.11% 6/30/2010 77382 77790-408 2508 2916 3.7% 45.0% 2411 505 0.65% 7.8% 0.71% -0.07% -0.10% 5/31/2010 77790 79180-1390 1633 3023 3.8% 45.8% 2455 568 0.72% 8.6% 0.81% -0.50% -0.22% 4/30/2010 79180 80646-1466 2014 3480 4.3% 51.8% 2500 980 1.22% 14.6% 1.03% 0.12% 0.09% 3/31/2010 80646 82216-1570 1875 3445 4.2% 50.3% 2549 896 1.09% 13.1% 0.94% 0.66% 0.10% 2/28/2010 82216 84064-1848 1123 2971 3.5% 42.4% 2606 365 0.43% 5.2% 0.84% -0.17% -0.07% 1/31/2010 84064 85564-1500 1673 3173 3.7% 44.5% 2652 521 0.61% 7.3% 0.91% 0.05% 0.06% 12/31/2009 85564 86983-1419 1762 3181 3.7% 43.9% 2696 485 0.56% 6.7% 0.85% 0.24% 0.06% 11/30/2009 86983 87609-626 2370 2996 3.4% 41.0% 2716 280 0.32% 3.8% 0.79% -0.11% -0.14% 10/31/2009 87609 87867-258 2843 3101 3.5% 42.4% 2724 377 0.43% 5.2% 0.93% 0.19% -0.01% 9/30/2009 87867 88227-360 2585 2945 3.3% 40.1% 2735 210 0.24% 2.9% 0.94% -0.43% -0.15% 8/31/2009 88227 85501 2726 5947 3221 3.8% 45.2% 2651 570 0.67% 8.0% 1.09% 0.04% 0.10% 7/31/2009 85501 82797 2704 5789 3085 3.7% 44.7% 2567 518 0.63% 7.5% 0.99% -0.38% -0.17% 6/30/2009 82797 79936 2861 6141 3280 4.1% 49.2% 2478 802 1.00% 12.0% 1.16% 0.43% 0.25% 5/31/2009 79936 78996 940 3843 2903 3.7% 44.1% 2449 454 0.57% 6.9% 0.91% -0.14% 0.00% 4/30/2009 78996 78850 146 3155 3009 3.8% 45.8% 2444 565 0.72% 8.6% 0.91% -0.19% -0.01% 3/31/2009 78850 78260 590 3726 3136 4.0% 48.1% 2426 710 0.91% 10.9% 0.92% 0.20% -0.04% 2/28/2009 78260 77611 649 3600 2951 3.8% 45.6% 2406 545 0.70% 8.4% 0.96% -0.21% 0.17% 1/31/2009 77611 73751 3860 6822 2962 4.0% 48.2% 2286 676 0.92% 11.0% 0.79% -0.12% -0.03% 12/31/2008 73751 72703 1048 4057 3009 4.1% 49.7% 2254 755 1.04% 12.5% 0.82% 0.43% -0.38% 11/30/2008 72703 70108 2595 5193 2598 3.7% 44.5% 2173 425 0.61% 7.3% 1.20% -0.38% -0.38% 10/31/2008 70108 65363 4745 7413 2668 4.1% 49.0% 2026 642 0.98% 11.8% 1.58% 0.01% -0.47% 9/30/2008 65363 61536 3827 6334 2507 4.1% 48.9% 1908 599 0.97% 11.7% 2.05% -0.38% -0.36% 8/31/2008 61536 59539 1997 4651 2654 4.5% 53.5% 1846 808 1.36% 16.3% 2.41% 0.13% -0.15% 7/31/2008 59539 58804 735 3282 2547 4.3% 52.0% 1823 724 1.23% 14.8% 2.56% 0.11% -0.19% 6/30/2008 58804 58496 308 2776 2468 4.2% 50.6% 1813 655 1.12% 13.4% 2.75% -0.46% 0.32% 5/31/2008 58496 58989-493 2269 2762 4.7% 56.2% 1829 933 1.58% 19.0% 2.43% 0.08% 0.40% 4/30/2008 58989 59859-870 1887 2757 4.6% 55.3% 1856 901 1.51% 18.1% 2.03% 0.16% 0.43% 3/31/2008 59859 61050-1191 1525 2716 4.4% 53.4% 1893 823 1.35% 16.2% 1.60% 0.12% -0.36% 2/29/2008 61050 61977-927 1757 2684 4.3% 52.0% 1921 763 1.23% 14.8% 1.96% 0.08% -0.51% 1/31/2008 61977 60714 1263 3844 2581 4.3% 51.0% 1882 699 1.15% 13.8% 2.47% 0.43% -0.64% 12/31/2007 60714 60496 218 2528 2310 3.8% 45.8% 1875 435 0.72% 8.6% 3.11% -0.21% -0.22% 11/30/2007 60496 60856-360 2094 2454 4.0% 48.4% 1887 567 0.93% 11.2% 3.33% 0.06% -0.64% 10/31/2007 60856 61695-839 1614 2453 4.0% 47.7% 1913 540 0.88% 10.5% 3.97% -0.08% -0.03% 9/30/2007 61695 62530-835 1702 2537 4.1% 48.7% 1938 599 0.96% 11.5% 4.00% -0.11% -0.31% 8/31/2007 62530 62958-428 2193 2621 4.2% 50.0% 1952 669 1.06% 12.8% 4.31% 0.04% -0.49% 7/31/2007 62958 63716-758 1872 2630 4.1% 49.5% 1975 655 1.03% 12.3% 4.80% 0.15% -0.17% 6/30/2007 63716 63831-115 2421 2536 4.0% 47.7% 1979 557 0.87% 10.5% 4.97% -0.03% 0.21% 5/31/2007 63831 63836-5 2551 2556 4.0% 48.0% 1979 577 0.90% 10.8% 4.76% -0.44% 0.10% 4/30/2007 63836 64446-610 2255 2865 4.4% 53.3% 1998 867 1.35% 16.1% 4.66% -0.09% 0.08% 3/31/2007 64446 65294-848 2116 2964 4.5% 54.5% 2024 940 1.44% 17.3% 4.58% 0.46% -0.26% 2/28/2007 65294 66578-1284 1431 2715 4.1% 48.9% 2064 651 0.98% 11.7% 4.84% 0.06% -0.03% 1/31/2007 66578 67013-435 2260 2695 4.0% 48.3% 2077 618 0.92% 11.1% 4.87% 0.51% 0.20%

Exhibit 1 New Auto Loans ($ in 000s) Average Annualized Prepayments: 12.5% 7. Required Contractual 11. Monthly Change in 1. Ending 2. Less: 3. Equals: 5. Equals: 6. Total Principal Payoffs as Payoffs 9. Prepayments as 10. 2-Year a. Prepayments b. 2-Year Loan Begin Loan Monthly 4. Less: Total Principal a % of Beg. Loan Bal. Monthly 8. Estimated % of Beg. Loan Bal. Treasury as % of Beg. Treasury Balance Balance Change New loans Payoffs a. Monthly b. Annualized @ 3.1% Prepayments a. Monthly b. Annualized Rate Loan Bal. Rate 12/31/2006 67013 67779-766 1617 2383 3.5% 42.2% 2101 282 0.42% 5.0% 4.67% -0.50% -0.07% 11/30/2006 67779 68070-291 2443 2734 4.0% 48.2% 2110 624 0.92% 11.0% 4.74% 0.37% -0.05% 10/31/2006 68070 68177-107 2380 2487 3.6% 43.8% 2113 374 0.55% 6.6% 4.79% 0.00% 0.02% 9/30/2006 68177 68445-268 2232 2500 3.7% 43.8% 2122 378 0.55% 6.6% 4.77% -0.13% -0.13% 8/31/2006 68445 67714 731 3292 2561 3.8% 45.4% 2099 462 0.68% 8.2% 4.90% -0.08% -0.21% 7/31/2006 67714 67683 31 2648 2617 3.9% 46.4% 2098 519 0.77% 9.2% 5.11% 0.24% 0.00% 6/30/2006 67683 67645 38 2488 2450 3.6% 43.5% 2097 353 0.52% 6.3% 5.11% -0.45% 0.15% 5/31/2006 67645 68314-669 2116 2785 4.1% 48.9% 2118 667 0.98% 11.7% 4.96% 0.26% 0.08% 4/30/2006 68314 69568-1254 1401 2655 3.8% 45.8% 2157 498 0.72% 8.6% 4.88% -0.62% 0.15% 3/31/2006 69568 69881-313 2787 3100 4.4% 53.2% 2166 934 1.34% 16.0% 4.73% 1.25% 0.07% 2/28/2006 69881 70783-902 1354 2256 3.2% 38.2% 2194 62 0.09% 1.0% 4.66% -0.75% 0.27% 1/31/2006 70783 71534-751 2063 2814 3.9% 47.2% 2218 596 0.83% 10.0% 4.39% 0.37% 0.00% 12/31/2005 71534 71726-192 2367 2559 3.6% 42.8% 2224 335 0.47% 5.6% 4.39% 0.35% -0.02% 11/30/2005 71726 71748-22 2285 2307 3.2% 38.6% 2224 83 0.12% 1.4% 4.41% -0.54% 0.16% 10/31/2005 71748 71944-196 2505 2701 3.8% 45.1% 2230 471 0.65% 7.9% 4.25% -0.02% 0.31% 9/30/2005 71944 71451 493 3188 2695 3.8% 45.3% 2215 480 0.67% 8.1% 3.94% -0.53% -0.09% 8/31/2005 71451 69466 1985 4976 2991 4.3% 51.7% 2153 838 1.21% 14.5% 4.03% 0.30% 0.17% 7/31/2005 69466 66120 3346 5996 2650 4.0% 48.1% 2050 600 0.91% 10.9% 3.86% -0.13% 0.23% 6/30/2005 66120 64053 2067 4715 2648 4.1% 49.6% 1986 662 1.03% 12.4% 3.63% 0.42% 0.00% 5/31/2005 64053 62621 1432 3756 2324 3.7% 44.5% 1941 383 0.61% 7.3% 3.63% -0.19% 0.00% 4/30/2005 62621 62097 524 2945 2421 3.9% 46.8% 1925 496 0.80% 9.6% 3.63% -0.25% -0.08% 3/31/2005 62097 61792 305 2871 2566 4.2% 49.8% 1916 650 1.05% 12.6% 3.71% 0.49% 0.34% 2/28/2005 61792 62189-397 1881 2278 3.7% 44.0% 1928 350 0.56% 6.8% 3.37% 0.14% 0.17% 1/31/2005 62189 62231-42 2149 2191 3.5% 42.2% 1929 262 0.42% 5.0% 3.20% -0.01% 0.21% 12/31/2004 62231 62206 25 2220 2195 3.5% 42.3% 1928 267 0.43% 5.1% 2.99% 0.03% 0.15% 11/30/2004 62206 61571 635 2789 2154 3.5% 42.0% 1909 245 0.40% 4.8% 2.84% -0.55% 0.28% 10/31/2004 61571 61030 541 3010 2469 4.0% 48.5% 1892 577 0.95% 11.3% 2.56% -0.48% 0.06% 9/30/2004 61030 60500 530 3265 2735 4.5% 54.2% 1876 860 1.42% 17.0% 2.50% 0.35% -0.01% 8/31/2004 60500 60120 380 2890 2510 4.2% 50.1% 1864 646 1.07% 12.9% 2.51% -0.32% -0.10% 7/31/2004 60120 59534 586 3262 2676 4.5% 53.9% 1846 830 1.39% 16.7% 2.61% 0.09% -0.13% 6/30/2004 59534 59127 407 3011 2604 4.4% 52.8% 1833 771 1.30% 15.6% 2.74% 0.47% 0.24% 5/31/2004 59127 58465 662 2964 2302 3.9% 47.2% 1812 490 0.84% 10.0% 2.50% -0.37% 0.46% 4/30/2004 58465 58966-501 2041 2542 4.3% 51.7% 1828 714 1.21% 14.5% 2.04% -0.51% 0.49% 3/31/2004 58966 59014-48 2796 2844 4.8% 57.8% 1829 1015 1.72% 20.6% 1.55% 0.88% -0.16% 2/29/2004 59014 59598-584 1765 2349 3.9% 47.3% 1848 501 0.84% 10.1% 1.71% -0.19% -0.01% 1/31/2004 59598 60373-775 1722 2497 4.1% 49.6% 1872 625 1.04% 12.4% 1.72% 0.25% -0.16% 12/31/2003 60373 59831 542 2866 2324 3.9% 46.6% 1855 469 0.78% 9.4% 1.88% -0.25% 1.88% 2887 4.1% 49.7% 2170 718 1.04% 12.5%

Exhibit 2 Used Auto Loans ($ in 000s) Average Annualized Prepayments: 15.5% 7. Required Contractual 11. Monthly Change in 1. Ending 2. Less: 3. Equals: 5. Equals: 6. Total Principal Payoffs as Payoffs 9. Prepayments as 10. 2-Year a. Prepayments b. 2-Year Loan Begin Loan Monthly 4. Less: Total Principal a % of Beg. Loan Bal. Monthly 8. Estimated % of Beg. Loan Bal. Treasury as % of Beg. Treasury Balance Balance Change New Loans Payoffs a. Monthly b. Annualized @ 3.5% Prepayments a. Monthly b. Annualized Rate Loan Bal. Rate 6/30/2013 260675 252000 8675 21649 12974 5.1% 61.8% 8820 4154 1.65% 19.8% 0.32% -0.1% 0.08% 5/31/2013 252000 244926 7074 19971 12897 5.3% 63.2% 8572 4325 1.77% 21.2% 0.24% -0.3% 0.01% 4/30/2013 244926 235845 9081 22319 13238 5.6% 67.4% 8255 4983 2.11% 25.4% 0.23% 0.0% -0.01% 3/31/2013 235845 232913 2932 15939 13007 5.6% 67.0% 8152 4855 2.08% 25.0% 0.24% 0.8% -0.01% 2/28/2013 232913 233376-463 10736 11199 4.8% 57.6% 8168 3031 1.30% 15.6% 0.25% -0.1% 0.00% 1/31/2013 233376 233353 23 11369 11346 4.9% 58.3% 8167 3179 1.36% 16.3% 0.25% 0.4% 0.00% 12/31/2012 233353 234960-1607 8821 10428 4.4% 53.3% 8224 2204 0.94% 11.3% 0.25% -0.5% -0.01% 11/30/2012 234960 236682-1722 9987 11709 4.9% 59.4% 8284 3425 1.45% 17.4% 0.26% -0.1% -0.01% 10/31/2012 236682 238555-1873 10127 12000 5.0% 60.4% 8349 3651 1.53% 18.4% 0.27% 0.7% 0.02% 9/30/2012 238555 240177-1622 8898 10520 4.4% 52.6% 8406 2114 0.88% 10.6% 0.25% -0.7% -0.01% 8/31/2012 240177 240744-567 11673 12240 5.1% 61.0% 8426 3814 1.58% 19.0% 0.26% 0.3% 0.02% 7/31/2012 240744 238767 1977 13432 11455 4.8% 57.6% 8357 3098 1.30% 15.6% 0.24% -0.1% -0.04% 6/30/2012 238767 235062 3705 15317 11612 4.9% 59.3% 8227 3385 1.44% 17.3% 0.28% -0.1% 0.01% 5/31/2012 235062 231268 3794 15465 11671 5.0% 60.6% 8094 3577 1.55% 18.6% 0.27% 0.0% -0.02% 4/30/2012 231268 228048 3220 14729 11509 5.0% 60.6% 7982 3527 1.55% 18.6% 0.29% -0.2% -0.05% 3/31/2012 228048 224473 3575 15407 11832 5.3% 63.3% 7857 3975 1.77% 21.3% 0.34% 0.7% 0.07% 2/29/2012 224473 223987 486 10821 10335 4.6% 55.4% 7840 2495 1.11% 13.4% 0.27% -0.2% 0.04% 1/31/2012 223987 221309 2678 13271 10593 4.8% 57.4% 7746 2847 1.29% 15.4% 0.23% 0.3% -0.02% 12/31/2011 221309 217523 3786 13517 9731 4.5% 53.7% 7613 2118 0.97% 11.7% 0.25% -0.7% 0.01% 11/30/2011 217523 202620 14903 25339 10436 5.2% 61.8% 7092 3344 1.65% 19.8% 0.24% -0.6% -0.03% 10/31/2011 202620 188511 14109 24857 10748 5.7% 68.4% 6598 4150 2.20% 26.4% 0.27% 0.7% 0.07% 9/30/2011 188511 189492-981 8464 9445 5.0% 59.8% 6632 2813 1.48% 17.8% 0.20% -0.4% -0.02% 8/31/2011 189492 186898 2594 12606 10012 5.4% 64.3% 6541 3471 1.86% 22.3% 0.22% 0.1% -0.17% 7/31/2011 186898 183842 3056 12721 9665 5.3% 63.1% 6434 3231 1.76% 21.1% 0.39% 0.1% -0.01% 6/30/2011 183842 181218 2624 11910 9286 5.1% 61.5% 6343 2943 1.62% 19.5% 0.40% 0.1% -0.14% 5/31/2011 181218 180525 693 9741 9048 5.0% 60.1% 6318 2730 1.51% 18.1% 0.54% -0.4% -0.17% 4/30/2011 180525 177498 3027 12564 9537 5.4% 64.5% 6212 3325 1.87% 22.5% 0.71% -0.5% 0.03% 3/31/2011 177498 176126 1372 11674 10302 5.8% 70.2% 6164 4138 2.35% 28.2% 0.68% 1.3% -0.08% 2/28/2011 176126 176226-100 7997 8097 4.6% 55.1% 6168 1929 1.09% 13.1% 0.76% -0.2% 0.16% 1/31/2011 176226 177661-1435 7070 8505 4.8% 57.4% 6218 2287 1.29% 15.4% 0.60% 0.4% 0.00% 12/31/2010 177661 177743-82 7708 7790 4.4% 52.6% 6221 1569 0.88% 10.6% 0.60% -0.3% 0.16% 11/30/2010 177743 179118-1375 6963 8338 4.7% 55.9% 6269 2069 1.16% 13.9% 0.44% 0.2% 0.07% 10/31/2010 179118 179347-229 7772 8001 4.5% 53.5% 6277 1724 0.96% 11.5% 0.37% -0.1% -0.10% 9/30/2010 179347 179392-45 8072 8117 4.5% 54.3% 6279 1838 1.02% 12.3% 0.47% -0.2% -0.04% 8/31/2010 179392 177533 1859 10179 8320 4.7% 56.2% 6214 2106 1.19% 14.2% 0.51% -0.1% -0.09% 7/31/2010 177533 175682 1851 10247 8396 4.8% 57.3% 6149 2247 1.28% 15.3% 0.60% 0.1% -0.11% 6/30/2010 175682 174262 1420 9492 8072 4.6% 55.6% 6099 1973 1.13% 13.6% 0.71% 0.5% -0.10% 5/31/2010 174262 172478 1784 8893 7109 4.1% 49.5% 6037 1072 0.62% 7.5% 0.81% -0.4% -0.22% 4/30/2010 172478 172563-85 7698 7783 4.5% 54.1% 6040 1743 1.01% 12.1% 1.03% -0.3% 0.09% 3/31/2010 172563 173117-554 7855 8409 4.9% 58.3% 6059 2350 1.36% 16.3% 0.94% 0.7% 0.10% 2/28/2010 173117 174209-1092 6076 7168 4.1% 49.4% 6097 1071 0.61% 7.4% 0.84% 0.1% -0.07% 1/31/2010 174209 175076-867 6209 7076 4.0% 48.5% 6128 948 0.54% 6.5% 0.91% 0.0% 0.06% 12/31/2009 175076 175564-488 6676 7164 4.1% 49.0% 6145 1019 0.58% 7.0% 0.85% 0.0% 0.06% 11/30/2009 175564 176134-570 6618 7188 4.1% 49.0% 6165 1023 0.58% 7.0% 0.79% 0.0% -0.14% 10/31/2009 176134 174959 1175 8229 7054 4.0% 48.4% 6124 930 0.53% 6.4% 0.93% -0.1% -0.01% 9/30/2009 174959 173529 1430 8575 7145 4.1% 49.4% 6074 1071 0.62% 7.4% 0.94% 0.0% -0.15% 8/31/2009 173529 170243 3286 10372 7086 4.2% 49.9% 5959 1127 0.66% 7.9% 1.09% -0.1% 0.10% 7/31/2009 170243 167598 2645 9821 7176 4.3% 51.4% 5866 1310 0.78% 9.4% 0.99% 0.0% -0.17% 6/30/2009 167598 164212 3386 10380 6994 4.3% 51.1% 5747 1247 0.76% 9.1% 1.16% 0.2% 0.25% 5/31/2009 164212 163048 1164 7784 6620 4.1% 48.7% 5707 913 0.56% 6.7% 0.91% -0.4% 0.00% 4/30/2009 163048 160879 2169 9416 7247 4.5% 54.1% 5631 1616 1.00% 12.1% 0.91% 0.0% -0.01% 3/31/2009 160879 158386 2493 9669 7176 4.5% 54.4% 5544 1632 1.03% 12.4% 0.92% 0.3% -0.04% 2/28/2009 158386 157426 960 7595 6635 4.2% 50.6% 5510 1125 0.71% 8.6% 0.96% -0.1% 0.17% 1/31/2009 157426 153355 4071 10676 6605 4.3% 51.7% 5367 1238 0.81% 9.7% 0.79% 0.1% -0.03% 12/31/2008 153355 151904 1451 7779 6328 4.2% 50.0% 5317 1011 0.67% 8.0% 0.82% 0.5% -0.38% 11/30/2008 151904 150116 1788 7333 5545 3.7% 44.3% 5254 291 0.19% 2.3% 1.20% -0.6% -0.38% 10/31/2008 150116 147328 2788 9148 6360 4.3% 51.8% 5156 1204 0.82% 9.8% 1.58% 0.0% -0.47% 9/30/2008 147328 144744 2584 8778 6194 4.3% 51.4% 5066 1128 0.78% 9.4% 2.05% -0.3% -0.36% 8/31/2008 144744 141668 3076 9507 6431 4.5% 54.5% 4958 1473 1.04% 12.5% 2.41% 0.2% -0.15% 7/31/2008 141668 138849 2819 8787 5968 4.3% 51.6% 4860 1108 0.80% 9.6% 2.56% -0.2% -0.19% 6/30/2008 138849 136860 1989 8141 6152 4.5% 53.9% 4790 1362 1.00% 11.9% 2.75% -0.6% 0.32% 5/31/2008 136860 136320 540 7471 6931 5.1% 61.0% 4771 2160 1.58% 19.0% 2.43% 0.3% 0.40% 4/30/2008 136320 134265 2055 8526 6471 4.8% 57.8% 4699 1772 1.32% 15.8% 2.03% -0.2% 0.43% 3/31/2008 134265 133948 317 7018 6701 5.0% 60.0% 4688 2013 1.50% 18.0% 1.60% 0.2% -0.36% 2/29/2008 133948 133361 587 6987 6400 4.8% 57.6% 4668 1732 1.30% 15.6% 1.96% 0.1% -0.51% 1/31/2008 133361 132370 991 7241 6250 4.7% 56.7% 4633 1617 1.22% 14.7% 2.47% 0.6% -0.64% 12/31/2007 132370 132390-20 5439 5459 4.1% 49.5% 4634 825 0.62% 7.5% 3.11% -0.1% -0.22% 11/30/2007 132390 132201 189 5729 5540 4.2% 50.3% 4627 913 0.69% 8.3% 3.33% -0.6% -0.64% 10/31/2007 132201 132229-28 6293 6321 4.8% 57.4% 4628 1693 1.28% 15.4% 3.97% 0.4% -0.03% 9/30/2007 132229 132951-722 5155 5877 4.4% 53.0% 4653 1224 0.92% 11.0% 4.00% -0.3% -0.31% 8/31/2007 132951 131560 1391 7616 6225 4.7% 56.8% 4605 1620 1.23% 14.8% 4.31% 0.3% -0.49% 7/31/2007 131560 130649 911 6699 5788 4.4% 53.2% 4573 1215 0.93% 11.2% 4.80% -0.2% -0.17% 6/30/2007 130649 129243 1406 7365 5959 4.6% 55.3% 4524 1435 1.11% 13.3% 4.97% -0.3% 0.21% 5/31/2007 129243 127654 1589 7829 6240 4.9% 58.7% 4468 1772 1.39% 16.7% 4.76% -0.2% 0.10% 4/30/2007 127654 126985 669 7135 6466 5.1% 61.1% 4444 2022 1.59% 19.1% 4.66% 0.1% 0.08% 3/31/2007 126985 127087-102 6194 6296 5.0% 59.4% 4448 1848 1.45% 17.4% 4.58% 0.1% -0.26% 2/28/2007 127087 128404-1317 4906 6223 4.8% 58.2% 4494 1729 1.35% 16.2% 4.84% 0.1% -0.03% 1/31/2007 128404 129439-1035 5120 6155 4.8% 57.1% 4530 1625 1.26% 15.1% 4.87% 0.6% 0.20%

Exhibit 2 Used Auto Loans ($ in 000s) Average Annualized Prepayments: 15.5% 7. Required Contractual 11. Monthly Change in 1. Ending 2. Less: 3. Equals: 5. Equals: 6. Total Principal Payoffs as Payoffs 9. Prepayments as 10. 2-Year a. Prepayments b. 2-Year Loan Begin Loan Monthly 4. Less: Total Principal a % of Beg. Loan Bal. Monthly 8. Estimated % of Beg. Loan Bal. Treasury as % of Beg. Treasury Balance Balance Change New Loans Payoffs a. Monthly b. Annualized @ 3.5% Prepayments a. Monthly b. Annualized Rate Loan Bal. Rate 12/31/2006 129439 130317-878 4601 5479 4.2% 50.5% 4561 918 0.70% 8.5% 4.67% -0.3% -0.07% 11/30/2006 130317 130065 252 6094 5842 4.5% 53.9% 4552 1290 0.99% 11.9% 4.74% -0.3% -0.05% 10/31/2006 130065 129198 867 7057 6190 4.8% 57.5% 4522 1668 1.29% 15.5% 4.79% 0.2% 0.02% 9/30/2006 129198 128333 865 6727 5862 4.6% 54.8% 4492 1370 1.07% 12.8% 4.77% -0.2% -0.13% 8/31/2006 128333 126409 1924 7977 6053 4.8% 57.5% 4424 1629 1.29% 15.5% 4.90% -0.3% -0.21% 7/31/2006 126409 125109 1300 7693 6393 5.1% 61.3% 4379 2014 1.61% 19.3% 5.11% 0.3% 0.00% 6/30/2006 125109 123809 1300 7226 5926 4.8% 57.4% 4333 1593 1.29% 15.4% 5.11% 0.0% 0.15% 5/31/2006 123809 123671 138 6097 5959 4.8% 57.8% 4328 1631 1.32% 15.8% 4.96% 0.1% 0.08% 4/30/2006 123671 123354 317 6184 5867 4.8% 57.1% 4317 1550 1.26% 15.1% 4.88% -0.7% 0.15% 3/31/2006 123354 122979 375 7101 6726 5.5% 65.6% 4304 2422 1.97% 23.6% 4.73% 0.7% 0.07% 2/28/2006 122979 124520-1541 4412 5953 4.8% 57.4% 4358 1595 1.28% 15.4% 4.66% 0.1% 0.27% 1/31/2006 124520 125728-1208 4725 5933 4.7% 56.6% 4400 1533 1.22% 14.6% 4.39% 0.3% 0.00% 12/31/2005 125728 126471-743 4835 5578 4.4% 52.9% 4426 1152 0.91% 10.9% 4.39% 0.0% -0.02% 11/30/2005 126471 126642-171 5414 5585 4.4% 52.9% 4432 1153 0.91% 10.9% 4.41% 0.0% 0.16% 10/31/2005 126642 125898 744 6297 5553 4.4% 52.9% 4406 1147 0.91% 10.9% 4.25% -0.4% 0.31% 9/30/2005 125898 125626 272 6340 6068 4.8% 58.0% 4397 1671 1.33% 16.0% 3.94% -1.1% -0.09% 8/31/2005 125626 124219 1407 8736 7329 5.9% 70.8% 4348 2981 2.40% 28.8% 4.03% 0.8% 0.17% 7/31/2005 124219 122015 2204 8426 6222 5.1% 61.2% 4271 1951 1.60% 19.2% 3.86% 0.0% 0.23% 6/30/2005 122015 120694 1321 7435 6114 5.1% 60.8% 4224 1890 1.57% 18.8% 3.63% 0.0% 0.00% 5/31/2005 120694 120333 361 6434 6073 5.0% 60.6% 4212 1861 1.55% 18.6% 3.63% -0.4% 0.00% 4/30/2005 120333 119317 1016 7531 6515 5.5% 65.5% 4176 2339 1.96% 23.5% 3.63% -0.4% -0.08% 3/31/2005 119317 119216 101 7080 6979 5.9% 70.2% 4173 2806 2.35% 28.2% 3.71% 1.0% 0.34% 2/28/2005 119216 119763-547 5309 5856 4.9% 58.7% 4192 1664 1.39% 16.7% 3.37% -0.1% 0.17% 1/31/2005 119763 119515 248 6172 5924 5.0% 59.5% 4183 1741 1.46% 17.5% 3.20% 0.0% 0.21% 12/31/2004 119515 120591-1076 4874 5950 4.9% 59.2% 4221 1729 1.43% 17.2% 2.99% 0.0% 0.15% 11/30/2004 120591 122272-1681 4338 6019 4.9% 59.1% 4280 1739 1.42% 17.1% 2.84% -0.5% 0.28% 10/31/2004 122272 122592-320 6276 6596 5.4% 64.6% 4291 2305 1.88% 22.6% 2.56% 0.1% 0.06% 9/30/2004 122592 122702-110 6388 6498 5.3% 63.5% 4295 2203 1.80% 21.5% 2.50% -0.3% -0.01% 8/31/2004 122702 122656 46 6902 6856 5.6% 67.1% 4293 2563 2.09% 25.1% 2.51% 0.2% -0.10% 7/31/2004 122656 123079-423 6242 6665 5.4% 65.0% 4308 2357 1.92% 23.0% 2.61% 0.1% -0.13% 6/30/2004 123079 122919 160 6674 6514 5.3% 63.6% 4302 2212 1.80% 21.6% 2.74% 0.0% 0.24% 5/31/2004 122919 122078 841 7292 6451 5.3% 63.4% 4273 2178 1.78% 21.4% 2.50% -0.1% 0.46% 4/30/2004 122078 122079-1 6546 6547 5.4% 64.4% 4273 2274 1.86% 22.4% 2.04% -0.3% 0.49% 3/31/2004 122079 122172-93 6875 6968 5.7% 68.4% 4276 2692 2.20% 26.4% 1.55% 0.9% -0.16% 2/29/2004 122172 123053-881 4979 5860 4.8% 57.1% 4307 1553 1.26% 15.1% 1.71% -0.2% -0.01% 1/31/2004 123053 123466-413 5665 6078 4.9% 59.1% 4321 1757 1.42% 17.1% 1.72% -0.3% -0.16% 12/31/2003 123466 123647-181 6330 6511 5.3% 63.2% 4328 2183 1.77% 21.2% 1.88% 0.5% 1.88% 7668 4.8% 57.5% 5597 2071 1.30% 15.5%