georgia bankers association financial risk...

MORGAN KEEGAN

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Investment Portfolio Strategiesin Today’s Market Place

January 30, 2008

Rick Trent, CPASenior Vice President

Fixed Income Research(800) 366-7426 / (901) [email protected]

Georgia Bankers AssociationFinancial Risk Management Conference

MORGAN KEEGAN

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• Today’s Market Place

• Current Relative Value

• Portfolio Management Strategies

• eFolio® Portfolio Peer Comparison

• eFolio® Pre-purchase Analysis

Agenda

MORGAN KEEGAN

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• Fed Funds & the Treasury Curve

• Bond Yield Forecast & Fed Funds Implied Probability

• Sector Spreads

• Subprime & the Mortgage Sector

• “Buffet-ed” Muni Insurers

Today’s Market Place

MORGAN KEEGAN

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Fed Funds & the Treasury Curve


bps Bias Target Bias Last Ease Target

7/13/1990 25 8.00 Inter-Meeting 31 1/8/1991 25 6.75 Inter-meeting 7.12 8.17 105 5 -99 -26 9/4/1992 3.00% 14

1/3/2001 50 6.00 Inter-Meeting 24 4/18/2001 50 4.50 Inter-meeting 4.24 5.14 90 3 -68 -1 12/11/2001 1.75% 11

9/18/2007 50 4.75 Inflation Risk 50 1/22/2008 75 3.50 Inter-meeting 2.05 * 3.54 * 149 * 4 -192 * -93 * ? ? ?

* spread and change as of 01/22/2008 a.m. Source: Bloomberg

bps

10Yr Tsy Yld Chg

(bps)

Between 1st & 4th Ease Total # of

Eases in CycleDate

2Yr / 10Yr Tsy Spread # Mos

2Yr Tsy Yld Chg

(bps)

Fed Funds vs 2- and 10-year Treasury - 1987 to PresentRate Action & Curve Position from First Fed Easing to End of Cycle

1st Ease 4th Ease

Date Target2Yr / 10Yr

Tsy Spread 10Yr Tsy2Yr Tsy

3.86 6.40 254 9/4/1992

2.97 5.05 208 12/11/2001

2Yr Tsy 10Yr Tsy

2Yr / 10Yr Tsy Spread @ Last Ease

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Bond Yield Forecast & Fed Funds Implied ProbabilityBYFC <Go> & FFIP <Go>


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Volatility HighVIX <Index> GP <Go>


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Sector Spreads – Agency


Agency Spreads (representing FHLB structures) as of 1/21/08Bermuda Call Week Month Year European Call Week Month YearStructures Spread Ago Ago Ago Structures Spread Ago Ago Ago1YR NC 3MO (IAM)1,2 +127 +136 +108 +34 2YR NC 1YR +72 +75 +82 +282YR NC 3MO +106 +111 +102 +35 3YR NC 1YR +82 +84 +92 +432YR NC 1YR +71 +76 +81 +28 5YR NC 1YR +97 +94 +106 +583YR NC 3MO +116 +119 +114 +55 5YR NC 2YR +77 +75 +85 +503YR NC 6MO +106 +112 +114 +54 10YR NC 1YR +82 +86 +93 +723YR NC 1YR +83 +87 +96 +47 10YR NC 2YR +74 +76 +87 +735YR NC 3MO +132 +133 +127 +805YR NC 6MO +122 +126 +128 +77 Bullet Week Month Year5YR NC 1YR +100 +105 +114 +72 Structures Spread Ago Ago Ago5YR NC 2YR +73 +74 +87 +54 1 Year 2 +63 +65 +73 +335YR NC 3YR +56 +58 +71 +38 2 Year +47 +52 +54 +187YR NC 3MO +139 +138 +130 +95 5 Year +56 +54 +53 +267YR NC 1YR +112 +116 +123 +86 10 Year +55 +54 +52 +3210YR NC 3MO +132 +131 +124 +11010YR NC 1YR +107 +111 +118 +103 FNMA Week Month Year10YR NC 3YR +72 +74 +85 +77 Benchmarks Spread Ago Ago Ago15YR NC 3MO +171 +170 +154 +131 5 Year +55 +52 +52 +2415YR NC 1YR +147 +151 +142 +124 10 Year +49 +50 +50 +31

30 Year +45 +44 +44 +39American Call- Callable anytime after a specified lockout periodBermuda Call- Callable on interest payment dates by a predetermined call scheduleEuropean Call- Callable one-time after a specified lockout period1IAM denotes Interest At Maturity.2Spread to the two-year treasury Source:Trading Desk†All products are spread to treasuries unless otherwise noted

MORGAN KEEGAN

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Sector Spreads – Mortgage


Week Month YearType BEEM Ago Ago Ago

GNMA - 1x1 @ 25 cpr +140 +145 +145 +95New FNMA - 1x1 @ 25 cpr +145 +140 +140 +130Seas FNMA - 1x1 @ 25 cpr +135 +130 +130 +110

Z-Spread (CPB)GNMA - 3x1 @ 15 cpb +140 +140 +150 +40FNMA - 3x1 @ 15 cpb +152 +155 +155 +30FNMA - 5x1 @ 15 cpb +162 +160 +165 +48FNMA - 7x1 @ 15 cpb +175 +170 +170 +65

FNMA - 10x1 @ 15 cpb +185 +180 +180 +80

ARMs & Hybrids - Non-Convertible 1-Year CMT

CMOsWeek Month Year

Type Avg. Life Spread Ago Ago AgoPAC 2 Year +160 +150 +145 +62PAC 5 Year +180 +170 +165 +75PAC 10 Year +165 +160 +165 +95SEQ 3 Year +190 +180 +190 +80SEQ LCF +175 +170 +170 +106

Week Month YearType Coupon Maturity PX Speed 4 Avg. Life Spread Ago Ago AgoFNMA 5.00% 10 Year 12 CPR 3.52 +173 +162 +155 +60FNMA 5.50% 10 Year 13 CPR 3.48 +197 +181 +169 +55FNMA 5.00% 15 Year 289 PSA 4.23 +182 +165 +156 +66FNMA 5.50% 15 Year 407 PSA 3.44 +202 +189 +177 +75FNMA 6.00% 15 Year 466 PSA 2.88 +209 +198 +198 +78FNMA 5.00% 20 Year 191 PSA 6.19 +179 +166 +158 +77FNMA 5.50% 20 Year 249 PSA 5.29 +212 +197 +184 +90FNMA 6.00% 20 Year 327 PSA 4.62 +241 +223 +209 +100FNMA 5.50% 30 Year 327 PSA 5.13 +224 +204 +188 +100FNMA 6.00% 30 Year 642 PSA 2.82 +234 +230 +218 +105FNMA 6.50% 30 Year 673 PSA 2.44 +219 +232 +222 +89

MBS Pass-Thrus as of 1/21/08

MORGAN KEEGAN

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Sector Spreads – Mortgage

12-Month Historical High/Low Fixed CMO Tsy Spreads

0

50

100

150

200

250

2Yr PAC F/E Seq 5Yr PAC 10Yr PAC LCF Seq

Fixe

d C

MO

Tsy

Spr

ead

12Mo Tight

Current Spread

12Mo Wide

12-Month Historical High/Low 15-year FNMA Tsy Spreads

0

50

100

150

200

250

FNCI 4.5 FNCI 5.0 FNCI 5.5 FNCI 6.0

15-y

ear F

NM

A T

sy S

prea

d

12Mo Tight

Current Spread

12Mo Wide

12-Month High/Low ARM BEEMs & Hybrid Z- Spreads

0

50

100

150

200

250

GN 1/1 New FN1/1

Seas FN1/1

GN 3/1 FN 3/1 FN 5/1 FN 7/1 FN 10/1

AR

M/H

ybrid

Spr

ead

12Mo Tight

Current Spread

12Mo Wide

BEEM @ 25 CPR Z-Spread @ 15CPB

12-Month Historical High/Low 30-year FNMA Tsy Spreads

0

50

100

150

200

250

FNCL 4.5 FNCL 5.0 FNCL 5.5 FNCL 6.0 FNCL 6.5

30-y

ear F

NM

A T

sy S

prea

d

12Mo Tight

Current Spread

12Mo Wide


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Sector Spreads – Muni


as of 1/15/08

BQ TEYTsy CurveTEY SpreadBQ Cpn% of Tsy 99%

3.36 3.70 3.98 4.10122 bps

93% 96%

10 year4.833.61

98%

3.86149 bps

4.19176 bps

30 year

176 bps

5.9520 year

5.774.01

15 year5.35

TEY AAA BQ Muni Curve versus U.S. Treasury Curve

2.5%

3.5%

4.5%

5.5%

6.5%

2008 2013 2018 2023 2028 2033 2038

Treasury CurveTEY BQ Curve

Municipal Spreads as of 1/21/08Bank Week Month Year Non-Bank Week Month Year

Qualified Rating Spread Ago Ago Ago Qualified Rating % UST Ago Ago Ago5 Year Aaa +113 +117 +119 +54 5 Year Aaa 98.2% 96.5% 89.5% 76.0%10 Year Aaa +115 +110 +123 +84 10 Year Aaa 91.0% 90.2% 87.2% 79.4%15 Year Aaa +152 +140 +147 +106 30 Year Aaa 95.9% 95.0% 94.4% 84.7%5 Year A +118 +122 +124 +59 5 Year A 112.6% 109.2% 99.7% 80.6%10 Year A +125 +120 +133 +94 10 Year A 104.1% 102.2% 98.5% 84.6%15 Year A +162 +150 +157 +116 30 Year A 106.9% 105.2% 105.2% 89.2%

Note: Assumes a 34.0% tax bracket and a 20 bps TEFRA disallowance.

MORGAN KEEGAN

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Subprime & the Mortgage Sector


• The Way We Were– Flat curve, liquidity worldwide, global boom in real estate & equity markets– Conventional risk premiums at historic lows for duration, convexity & credit

• Subprime– The catalyst, not the cause (like yelling “FIRE” in the theatre)

• CDOs– High-grade debt from low-grade collateral– Rating agency standards produced highest percentage of investment grade– Devil is in the details: Complex mortgage models

• Wall Street– Leveraged speculators; Credit Default Swaps; Hedge desk = “Drug of Choice”

• Hedge Funds (10,000+)– Common strategy = Carry trade– Leverage LIBOR + 40 into A-rated CDO at LIBOR + 50bp

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Subprime in the Agency Sector:• FN/FH subprime = 0.3% of FNMA / 0.2% of FHLMC loans• Only 0.04% of $2.4T are ARMs with FICOs <620 and LTVs > 97%• More than ½ of FNMA 3rd quarter losses from derivatives, not credit• However, FN/FH hold $230B in AAA WHLN subprime bonds

– CSFB estimates $16B OTTI loss in these bonds (excludes Alt-A exposure)

Credit Risk in the Agency MBS Sector:• FN/FH guarantee timely payment of P&I on all agency securities• If a loan in a pool goes delinquent, all investors still receive pro-rata share of

monthly contractual principal due, and coupon on par value• Generally, if a loan goes more than 120 days delinquent, FN/FH repurchase the loan

from the pool. All investors receive pro-rata share of proceeds as if the loan was refinanced, or the home was sold

• FN/FH, not the investor, bears risk of loss of any eventual loan default

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Credit Risk in the Agency MBS Sector (cont’d):• FN/FH raised $13B in preferred stock & cut dividends to shore up capital in 12/07• Perceived credit risk on agency MBS is exactly the same as on agency bullets and

callable debentures (Aaa/AAA)• Actual credit risk is even lower. MBS pools have additional layers of credit

enhancement that agency debentures do not -- secured by:– Underlying loans, in turn secured by the borrowers’ homes– FN/FH mortgages must adhere to strict standards of underwriting (conforming)– $417,000 maximum loan balance, mortgage insurance (PMI) for LTV>80%– Credit-worthy borrowers evidenced by FNMA’s average 721 FICO score and

0.43% delinquency (as of September 2007)

MORGAN KEEGAN

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“Buffet-ed” Muni Insurers


• > $2 trillion of debt insured as AAA• Warren Buffett enters bond insurer market• AMBAC guarantees > $600B; took $3.6B 4th qtr loss; may be sold

– Exposed to $60B in CDOs– Scrapped plans to raise $1B in capital due to change in view by Moody’s– Needed the capital to keep AAA / Downgraded to AA by Fitch– Fitch also took action on 137,390 bonds insured by AMBAC

• MBIA– Exposed to $130B in CDOs (only $30B mortgage-related)– Raised $1B recently @ 14%; now trading @ 25% yield

• Fallout could be minimal; No cash crunch– Issuers could pay higher yield; low 0.3% investment grade default (annually)– Insurers only pay interest on defaulted bonds until maturity

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• Agencies• Mortgage Market• Fixed MBS• ARMs & Hybrids• Fixed CMOs• Mortgages under 101-16• AAA Insured BQ Munis• Cross Sector

Current Relative Value

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Agencies


• Elevated swaption volatility increases the value of the embedded call options, providing additional income for callable structures.

• Front end of the curve: Shorter lock-out quarterly or continuous call structures• Middle portion of the curve: Mid lock-out (12 to 24 months)• Front end callables attractive vs bullets; spread differentials toward upper end of

range; take advantage of inconsistencies in call redemptions on in-the-money bonds.• Extend bullets or take gains on tighter spreads resulting from recent well-received

FN/FH preferred stock offerings that bolstered their capital position.

Callable Benchmark Curve - Current Period SpreadsComparative Points along the Curve from Prior Period

60.00

80.00

100.00

120.00

140.00

160.00

180.00

200.00

2Yr 3Mo 3Yr 3Mo 4Yr 3Mo 5Yr 3Mo 7Yr 3Mo 10Yr 3Mo

11/20/2007 12/20/2007

2Yr NC 3Mo Bermuda Spread to 2Yr OTR Bullets2Yr NC 3Mo New Issue Bermuda - 2Yr On The Run Bullets

5.0010.0015.0020.0025.0030.0035.0040.0045.0050.0055.0060.0065.0070.0075.0080.0085.00

Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07

On The Run Bullet Curve - Current Period YieldsComparative Points along the Curve from Prior Period

3.25

3.50

3.75

4.00

4.25

4.50

4.75

5.00

5.25

5.50

5.75

2Yr OTR 3Yr OTR 5Yr OTR 10Yr OTR 30Yr OTR

11/26/07 12/26/07

MORGAN KEEGAN

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Agencies


Line # Sector CUSIP Description CPNStated

Maturity Call DateMarket Price

Yield -100

Yield Base

Yield +100

AL -100

AL Base

AL +300

Price Chg+300

1 Fixed Agency 3133XP4J0 FHLB ONE-TIME CALL 4.25% 1/22/16 1/22/10 100.00 4.25 4.25 4.25 2.00 8.00 8.00 -16.0%

2 Fixed Agency 3133XP4H4 FHLB ONE-TIME CALL 4.13% 1/22/15 1/22/10 100.00 4.13 4.13 4.13 2.00 7.00 7.00 -14.4%

3 Fixed Agency 3133XNYM5 FHLB CALLABLE 4.38% 1/28/15 1/28/11 101.03 4.01 4.01 4.20 3.00 3.00 7.00 -14.3%

4 Fixed Agency 3133XP4Z4 FHLB ONE-TIME CALL 4.00% 1/28/15 1/28/11 100.00 4.00 4.00 4.00 3.00 7.00 7.00 -15.1%

5 Fixed Agency 3133XFNL6 FHLB BULLET 5.50% 6/12/15 110.12 3.91 3.91 3.91 7.39 7.39 7.39 -16.5%

6 Fixed Agency 3128X2TM7 FHLMC BULLET 5.00% 1/30/14 107.24 3.65 3.65 3.65 6.02 6.02 6.02 -14.3%

7 Fixed Agency 3128X1EJ2 FHLMC BULLET 4.25% 5/22/13 103.18 3.59 3.59 3.59 5.34 5.34 5.34 -13.2%

8 Fixed Agency 3133X1BV8 FHLB BULLET 4.50% 9/16/13 105.03 3.51 3.51 3.51 5.65 5.65 5.65 -13.7%

• 8 bonds shown below (bullets, one-time and continuous calls)– Minimum 3.5% basecase yield– Minimum 2-year in -100 and basecase– Maximum 10-year final– Basecase Yield-to-Worst ranges 3.51 to 4.25

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Mortgage Market


• Don’t be “Premium-Averse”• Steep curve = Up-in-coupon & mortgages that roll down the curve• Muted refinance risk in premium coupons• Yield Book slowed prepayment model with new assumptions

– In all rate scenarios on nearly all agency fixed-rate and hybrid ARM coupons– Lower home price appreciation (HPA) assumption– Liquidity premium added to the primary market rate for collateral– Lower housing turnover assumption– Slowing down collateral with less than perfect credit

• Higher FN/FH fees and tighter underwriting standards (Mar 2008)– Will slow refinance and purchase activity for high-LTV and/or low-FICO

borrowers, and borrowers in declining real estate markets

• Rate cuts may eventually fuel investors’ concerns about inflation

MORGAN KEEGAN

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Mortgage Market


UBS Rate Attractiveness Index

MBA Refi Index from 1/17/03 to 1/17/08

13% 20% > 150 bps

28% 19% 100 – 150 bps

36% 36% 50 – 100 bps

+58 bps (Jan ’08) +79 bps (Mar ’04) Overall

All FNMA 30Yr In-the money for Refinancing

9% 27% ARMs as % of Applications

5.88 4.81 5/1 Note Rate

5.31 3.97 1/1 Note Rate

5.71 5.78 30Yr Note Rate

Mortgage Market (1/15/04 & 1/15/08)

9.6 CPR (12/07) 32.5 CPR (12/03) 3M CPR

102-16+ (1/16/08) 103-24+ (1/16/04) $ Price

FNMA 30Yr 6.0s

37% 50% Purchases as % of Applications

- 6.1% (10/31/07)

+10.6% (10/31/03)

Home Price Appreciation

20082004

MORGAN KEEGAN

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Fixed Rate MBS


• 102$ seasoned 30-year 5.5 picks up 16 bps basecase yield vs mid-par seasoned 30-year 5.0s, and better positions for rising rates

• Seasoned 30-year 5.5 out-yields 20-year 5.5s• -100 scenario??? 10-year treasury @ 2.50% vs 40-year low of 3.11

• Interest-Only Fixed MBS 30-year 5.5s continues to trade a point back of fully-amortizing collateral, picking up 15 to 38 bps in basecase to rising rates. Slightly more WAL call protection in down rates with significant yield pickup.

Sector CUSIP Description CPNStated

MaturityMarket Price

Yield -100

Yield Base

Yield +300

AL -100

AL Base

AL +300

Price Chg+300

Fixed MBS 31402CVN9 FNCL 725221 5.500 01/01/34 FN 30yr 5.50% 1/1/34 102.19 4.37 5.05 5.20 2.41 6.62 10.09 -19.56%

Fixed MBS 31376J6J3 FNCL 357373 5.000 04/01/33 FN 30yr 5.00% 4/1/33 100.56 4.73 4.89 4.92 3.23 7.40 9.83 -19.33%

Difference 0.50% + 9 mos 1.63 -0.36 0.16 0.27 -0.82 -0.78 0.26 -0.23%


MaturityMarket Price

Yield -100

Yield Base

Yield +300

AL -100

AL Base

AL +300

Price Chg+300

Fixed MBS 31371NQX6 New 15/15 5.5 Interest-Only Fixed MBS 5.50% 1/1/38 100.88 4.53 5.25 5.42 1.29 5.01 13.54 -25.26%

Fixed MBS 31413YN72 New Fully-Amortizing 30-year 5.5 5.50% 12/1/37 102.03 3.36 4.87 5.27 1.15 4.20 12.73 -24.08%

Difference 0.00% + 1 mos -1.16 1.17 0.38 0.15 0.14 0.81 0.81 -1.18%

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ARMs & Hybrids


Curr O/S WALS[$MM] [$M] 9/07 10/07 11/07 12/07

2007 5.00 5.76 352 8 474 253 737 69 19 15 16 182006 5.00 5.69 339 21 996 223 727 73 20 18 16 172005 5.00 5.56 331 29 3,488 191 723 75 23 24 25 29All 5.00 5.60 331 29 6,329 194 725 74 25 24 24 28

2007 5.50 6.15 354 8 11,296 256 732 74 7 6 6 72006 5.50 6.05 342 18 27,540 229 730 73 11 11 10 112005 5.50 6.05 335 25 4,838 215 725 76 14 14 13 13All 5.50 6.07 345 15 56,643 238 730 73 8 10 10 11

2007 6.00 6.40 355 7 9,016 255 730 73 8 7 7 82006 6.00 6.44 344 16 11,403 238 731 73 10 9 10 112005 6.00 6.55 335 25 330 240 720 77 13 12 12 13All 6.00 6.42 348 13 20,936 245 730 73 9 9 9 10

2007 6.00 6.43 353 7 8,148 257 732 70 5 6 6 62006 6.00 6.44 344 16 8,947 253 738 70 7 8 8 92005 6.00 6.45 335 25 92 226 727 72 13 11 12 12All 6.00 6.44 348 12 17,187 255 735 70 6 7 7 8

10/1 Hybrid 6.0s

Avg CpnOrig. Yr WAC3Mo CPR

3/1 Hybrid 5.0s

5/1 Hybrid 5.5s

7/1 Hybrid 6.0s

WAM Age FICO LTV

• Value in premium dollar price hybrid ARMs even in 101- to 103-handles• Average 3-Mo CPRs on 3/1 to 10/1 premium coupons remained stable in 4th qtr• Despite Refi Index climbing from low of 1876 (9/7/07) to high of 2761 (11/30/07)

MORGAN KEEGAN

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ARMs & Hybrids


Sample of Premium Hybrids / Projected PerformancePricing as of 1/15/08 Source: Bloomberg and eFolio ARM Analyzer

3Mo CPR

6Mo CPR

12Mo CPR

Curr WAC

In (Out) of the Money

WA LTV

WA FICO GEO %

1 101-01 23 4.73 Mega FN745552 2/2/10.25 4.76 38 4.25 22 4.40 4.45 36% 38% n.a. 5.74 0.03 76 666 FL 16, CA 8

2 101-23 28 4.57 Seas 5/1 FN773351 5/2/9.57 5.04 18 4.11 21 4.25 4.17 19% -25% 7% 5.24 -0.47 75 728 CA 19, IL 4

3 101-10 32 4.48 Mega FN725476 5/2/9.48 5.06 15 4.18 19 4.35 4.22 -29% -12% -30% 5.29 -0.42 77 729 CA 8

4 101-14 55 4.59 Seas 7/1 FN826921 5/2/9.59 5.01 8 4.38 12 4.46 4.33 -36% -29% 49% 5.25 -0.46 76 722 NJ 11

5 101-18+ 75 4.90 Mega FN725844 5/1/9.90 5.19 3 4.73 12 4.64 4.59 -58% -15% 18% 5.49 -0.22 63 730 NJ 12 TX 9

6 102-02 29 4.84 Seas 5/1 FN825395 5/2/9.84 5.07 16 4.36 17 4.42 4.38 177% 45% 6% 5.37 -0.34 70 730 CA 16

7 102-08 33 5.28 Mega FN745856 5/2/10.27 5.01 11 4.71 18 4.51 4.58 15% 44% n.a. 6.01 0.30 70 726 CA 16, FL 15

8 102-23 43 5.65 Seas 5/1 FN884772 5/2/10.65 5.05 22 4.62 21 4.58 4.65 72% 80% n.a. 6.27 0.56 72 732 CA 13, IL 10

9 102-03 46 4.89 Mega FN888008 5/2/9.89 5.11 2 4.62 14 4.50 4.46 -88% -78% n.a. 5.39 -0.32 74 725 WA 10

10 102-16 56 5.17 Seas 7/1 FN833174 5/2/10.17 4.96 12 4.61 13 4.55 4.60 -44% -41% -14% 5.87 0.16 77 724 CA 14, NY 8

11 102-20+ 59 5.24 Mega FN888872 5/1/10.21 5.21 4 4.91 13 4.64 4.68 n.a. n.a. n.a. 5.83 0.12 62 749 FL 13, NY 9

12 102-13+ 70 5.14 Seas 10/1 FN753836 5/2/10.11 5.03 26 4.23 12 4.58 4.61 439% 93% 1% 5.75 0.04 70 726 TX 13, CA 9

13 102-13+ 78 5.21 Mega FN735170 5/2/10.21 5.20 3 4.93 13 4.67 4.71 -76% -11% -37% 5.80 0.09 66 733 FL 14, IL 10

14 103-11 41 5.64 Seas 5/1 FN885359 5/2/10.64 5.42 6 5.06 20 4.56 4.62 -50% -19% n.a. 6.16 0.45 75 738 FL 8, TX 6

15 103-12+ 114 5.88 Seas 10/1 FN952835 5/2/10.88 5.17 11 5.15 16 4.96 5.01 n.a. n.a. n.a. 6.31 0.60 73 740 CA 12

* Next reset coupon at current index rate, net of initial caps.

Line Pool Curr Cpn MTR CapsType

Curr 3Mo CPR

Next Reset Cpn *Price

Refinancing Opportunity

Yr1 FASB

YB CPR BEY

5Yr FASB

Chg from 1-Yr Ago

• Prepayments have slowed on a variety of 101- to 103-handle coupons (as of 1/15)• High premiums provide solid FASB accounting yields at projected long-term speeds• Some show even better FASB yields at current slower speeds• Accounting yields also compare favorably to callable agency yields• On-going refinancing potential on this collateral appears to be muted

Only 3 bonds avg more than 45 bps in-the-money for refinancing (4th column from right)

MORGAN KEEGAN

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Fixed Rate CMOsSEQ vs Benchmark Collateral (as of 1/17/08)

3.8-Year 5.0 SEQ vs Same Coupon / Same Dollar Price Seasoned 15-Year 5.0• SEQ gives up 7 bps in basecase yield for 0.4-year shorter WAL & 5-year

shorter window• SEQ gives up 131 bps in -100 due to 1.5-year shorter WAL• SEQ extends 3-years in +300 vs 1-year extension on seasoned pass-through

3-Year 5.5 SEQ vs Same Coupon / Similar Dollar Price Seasoned 15-Year 5.5• SEQ gives up 9 bps in basecase yield for 0.7-year shorter WAL and 9.5-year

shorter window• SEQ picks up 32 bps yield in -100 for similar WAL• SEQ gives up 29 bps in +100 in return for less extension and price risk


MaturityPrincipal Window Call Date

Market Price

Yield -100

Yield Base

Yield +100

AL -100

AL Base

AL +300

Price Chg+300

Fixed CMO 31396USY7 5.0 / 5.0 SEQ / FHR 3187 JA 5.00% 2/15/32 2/08 - 1/15 101.81 2.88 4.45 4.60 0.96 3.84 6.86 -15.7%

Fixed MBS 3128MMBJ1 SAME CPN / SAME $ SEAS 15Yr 5.0 MBS / FGG18040 5.00% 2/1/20 101.72 4.19 4.52 4.59 2.48 4.21 5.26 -12.2%Difference 0.00% + 145 mos 0.09 -1.31 -0.07 0.01 -1.52 -0.37 1.60 -3.5%



Market Price

Yield -100

Yield Base

Yield +100

AL -100

AL Base

AL +300

Price Chg+300

Fixed CMO 31393J6D5 5.5 / 20Yr 5.5 SEQ / FHR 2556 TB 5.50% 1/15/22 2/08 - 6/13 102.56 3.05 4.55 4.66 1.15 3.07 4.34 -10.2%

Fixed MBS 31413YJ77 SAME CPN / SIMILAR $ SEAS 15Yr MBS / FN959386 5.50% 12/1/22 102.59 2.72 4.64 4.95 1.09 3.76 6.95 -15.2%Difference 0.00% -11 mos -0.04 0.32 -0.09 -0.29 0.06 -0.69 -2.61 5.0%


MORGAN KEEGAN

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Fixed Rate CMOsPAC-1s vs Callable Agencies (as of 1/17/08)



Market Price

Yield -100

Yield Base

Yield +100

AL -100

AL Base

AL +300

Price Chg+300

Fixed CMO 31395FC77 5.0 / SEAS 5.0 PAC / FHR 2836 QD 5.00% 9/15/27 5/09 - 1/12 102.26 4.06 4.06 4.12 2.68 2.68 3.23 -8.0%

Fixed Agency 3133XLTD5 SIMILAR CALL & PRICE RISK FHLB ONE-TIME CALL 5.52% 7/30/12 7/30/10 105.60 3.20 3.20 3.20 2.52 2.52 4.53 -8.9%Difference -0.52% + 182 mos -3.34 0.87 0.87 0.93 0.16 0.16 -1.30 0.8%

2.6-Year PAC vs Similar Call & Price Risk One-Time Call• PAC picks up 87 to 93 bps yield in -100 to +100• PAC demonstrates less extension risk in +300• PAC has 1.5-Year longer basecase principal window

6-Year PAC vs Similar WAL One-Time Call• PAC picks up 42 to 45 bps yield in Basecase to +100; gives up 3 bps in -100• PAC shows 1-Year more WAL call protection in -100; ½-year more WAL

extension in +300 • PAC has 3-years more principal lock-out on basecase principal window with

similar finalSector CUSIP Description CPN

Stated Maturity

Principal Window Call Date

Market Price

Yield -100

Yield Base

Yield +100

AL -100

AL Base

AL +300

Price Chg+300

Fixed CMO 31396GU74 5.0 / SEAS 5.0 PAC / FHR 3099 OE 5.00% 7/15/31 2/13 - 2/15 102.46 4.09 4.54 4.57 3.00 6.10 7.41 -17.1%

Fixed Agency 3133XP4H4 SIMILAR WAL FHLB ONE-TIME CALL 4.13% 1/22/15 1/22/10 100.00 4.13 4.13 4.13 2.00 7.00 7.00 -14.4%Difference 0.88% + 198 mos 2.46 -0.03 0.42 0.45 1.00 -0.90 0.41 -2.6%


MORGAN KEEGAN

25

• 10/1 4.88% cpn (line 6 above) generates 4.62% accounting yield at Yield Book 11 CPR• 101$ 10/1 picks up yield in all scenarios vs 102$ 15-year 5.0%

Mortgages Under 101-16as of 01/22/08


• Discount paper non-existent except for 5.0% 10/20 Interest Only P/T (line 2)• Seasoned 30-year 5.0 (line 4) out-yields 20-year 5.0 for 1-year WAL extension• Seasoned 15-year 4.5 (line 8) picks up 6 bps to 10-year 4.5s for ½-year WAL extension.

Line # Sector CUSIP Description CPNStated Maturity

Market Price

Yield -100

Yield Base

Yield +300

AL -100

AL Base

AL +300

Price Chg+300

1 Fixed MBS 31371MPL5 FNNQ 256127 5.500 01/01/36 FN 30YR 10-15… 5.50% 1/1/36 101.19 4.51 5.25 5.38 1.62 6.80 12.92 -23.40%

2 Fixed MBS 31371NQS7 FNNP 257065 5.000 01/01/38 FN 30YR 7-10Y… 5.00% 1/1/38 99.09 5.45 5.15 5.12 1.62 8.37 14.15 -25.24%

3 Fixed MBS 31368HM26 FNCL 190377 5.000 11/01/36 FN 30yr 5.00% 11/1/36 100.47 4.47 4.91 4.95 1.49 7.39 10.89 -20.75%

4 Fixed MBS 31376J6J3 FNCL 357373 5.000 04/01/33 FN 30yr 5.00% 4/1/33 100.56 4.73 4.89 4.92 3.23 7.40 9.83 -19.33%

5 Fixed MBS 31371NQJ7 FNCT 257057 5.000 01/01/28 FN 20yr 5.00% 1/1/28 101.22 4.15 4.75 4.82 1.88 6.62 8.99 -18.60%

6 Floating MBS 31406NME1 FN99AR 814957 4.879 04/01/35 FN ARM 4.88% 4/1/35 101.07 4.39 4.63 5.46 5.74 7.44 8.13 -12.43%

7 Floating MBS 31414AFR8 FN99AR 960176 4.779 06/01/37 FN ARM 4.78% 6/1/37 101.40 3.87 4.31 5.62 2.34 6.02 8.04 -9.96%

8 Fixed MBS 31371LQ28 FNCI 255273 4.500 06/01/19 FN 15yr 4.50% 6/1/19 101.16 4.01 4.14 4.20 3.09 4.15 4.94 -11.89%

9 Fixed MBS 31371NMU6 FNCN 256971 4.500 08/01/17 FN 10yr 4.50% 8/1/17 101.25 3.81 4.07 4.14 2.33 3.76 4.36 -10.71%


MaturityReset Date

Market Price

Yield -100

Yield Base

Yield +300

AL -100

AL Base

AL +300

Price Chg+300

Floating MBS 31406NME1 FN99AR 814957 4.879 04/01/35 FN ARM 4.88% 4/1/35 4/1/15 101.07 4.39 4.63 5.46 5.74 7.44 8.13 -12.43%

Fixed MBS 31402CQW5 FNCI 725069 5.000 12/01/18 FN 15yr 5.00% 12/1/18 102.34 4.16 4.23 4.32 3.41 3.74 4.25 -10.17%

Difference -0.12% + 196 mos -1.27 0.23 0.40 1.14 2.33 3.70 3.88 -2.27%

MORGAN KEEGAN

26

AAA Insured BQ Muni


YearInsured BQ Muni

Treasury Curve % to Tsy

TEY BQ Curve

Current Spread Last Week

2009 2.50% 2.33% 107% 3.53% 1.20 0.842010 2.50% 2.10% 119% 3.53% 1.43 1.212011 2.60% 2.28% 114% 3.68% 1.40 1.172012 2.70% 2.46% 110% 3.83% 1.37 1.162013 2.80% 2.65% 106% 3.98% 1.33 1.132014 2.90% 2.82% 103% 4.14% 1.32 1.112015 3.00% 3.00% 100% 4.29% 1.29 1.132016 3.10% 3.18% 97% 4.44% 1.26 1.152017 3.20% 3.35% 96% 4.59% 1.24 1.132018 3.30% 3.51% 94% 4.74% 1.23 1.152019 3.40% 3.54% 96% 4.89% 1.35 1.222020 3.48% 3.58% 97% 5.02% 1.44 1.312021 3.55% 3.62% 98% 5.12% 1.50 1.382022 3.62% 3.66% 99% 5.23% 1.57 1.472023 3.70% 3.69% 100% 5.35% 1.66 1.522024 3.73% 3.73% 100% 5.39% 1.66 1.552025 3.78% 3.77% 100% 5.47% 1.70 1.632026 3.83% 3.80% 101% 5.55% 1.75 1.682027 3.90% 3.84% 102% 5.65% 1.81 1.722028 3.95% 3.88% 102% 5.73% 1.85 1.772033 4.00% 4.06% 99% 5.80% 1.74 1.722038 4.20% 4.22% 100% 6.11% 1.89 1.81

Tuesday, January 22, 2008AAA Bank Qualified Spreads to Treasuries

MORGAN KEEGAN

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Cross-SectorWeekly Fixed Income Spreads


2Y1Y

5Y

10Y

U.S. Treasury Yield Curve

1Y3M

2Y3M

3Y3M3Y6M

5Y3M

5Y1Y

7Y3M

7Y1Y

10Y3M

10Y1Y

15Y3M

15Y1Y

3Y1Y

5Y1Y

5Y2Y

10Y1Y10Y2Y

1Y Bill

2Y

FN10Y

FN15Y

FN20Y

FN30Y

2YPac

5YPac

3YSeq

10Y

15Y

IND5Y

IND10Y

BK5Y

BK10Y

FIN5Y

FIN10Y

UTIL5Y

UTIL10Y

FN3X1FN5X1

FN7X1

FN10X1

2.25%

2.75%

3.25%

3.75%

4.25%

4.75%

5.25%

5.75%

0 5 10 15

Years

Yiel

d

Pass-Thrus & CMOs Maturity = Avg. LifeARMs Maturity = Eff. DurationMUNIs = AAA ratedCorporates = A rated

AGY-BermudaAGY-EuroAGY-BulletsBQ MuniCorporatesFixed MBSCMOsARMs

MORGAN KEEGAN

28

• Use eFolio®

• eFolio® eSwap• Avoid Reinvestment Risk• eFolio® Likely Call Analysis• Leverage Excess Capital

• Weekly Leverage Spread Matrix• Leverage Optimizer

Portfolio Management Strategies

MORGAN KEEGAN

29

Use eFolio®


View Portfolio features give users the ability to view static and dynamic information about

the entire portfolio, each sector and each individual security

eSwap feature allows users to “theoretically” buy and sell positions in the portfolio and see

the impact to the entire portfolio over a variety of interest rate scenarios

eUpdate features allow users the ability to update and re-price the portfolio

Custom Reports feature allows users to download approximately 200+ fields of cusip

specific information for use in other applications

MORGAN KEEGAN

30

eFolio® eSwap


Take gains on in-the-money callables to offset losses in other sectors.

MORGAN KEEGAN

31

eFolio® eSwap


Picked up 84 bps book yield for 2.4-year WAL extension in basecase. Recover loss in 10 mos.

MORGAN KEEGAN

32

eFolio® eSwap


Take gains or extend short bullets & discount MBS into mortgages and BQs

MORGAN KEEGAN

33

eFolio® eSwap


Picked up 67 bps duration-weighted yield for 2.4-year more call protection in -100 shock.

MORGAN KEEGAN

34

Avoid Reinvestment Risk


Current Portfolio

Proposed Prefunded

InvestmentsPrefunded Portfolio

Portfolio Prefunding

Impact

Proposed Prefunded Investment

Prefunding Borrowings

Net Prefunding

Impact

Total Beginning Par $190,180 $25,000 $215,180 $25,000 $25,000 $25,000Principal Cashflow - 1 to 12 Mos $60,845 $25,000 $25,000 $25,000Principal Cashflow - 13 to 24 Mos $110,585 $0 $0 $0Average Par - Next 24 Mos $190,180 $25,000 $197,305 $7,125 $25,000 $7,125

Beginning Yield / COF - Month 1 3.80% 4.55% 3.94% 0.14% 4.55% 4.19% 0.36%Avg. Reinvestment Rate / COF - Next 24 Mos 4.11% 4.16% 0.06%Average Yield / COF - Next 24 Mos 4.06% 4.55% 4.11% 0.05% 4.55% 4.11% 0.44%Ending Yield - Month 25 4.11% 4.55% 4.16% 0.05% 4.55% 0.00%

Income (Expense) $15,452 $16,230 $778 $778 -$585 $193

Estimated Portfolio Impact Next 24 Mos

Morgan Keegan Summary Prefunding Analysis

• Hedge against a further decline in rates by match-funding portion of 2008 cashflows • Avoid reinvestment risk at lower rates, take advantage of current higher yields• Add lock-out, discount mortgages , BQs defensive to declining rates• As cash flows are realized, proceeds used to liquidate advances• Improve long-term performance vs simply reinvesting as cash flows become due• Diversify by hedging just a portion of the cash flows• Note that by not implementing this strategy, the investor is essentially expecting to be able to reinvest

cash flows at current or higher yields

MORGAN KEEGAN

35

eFolio® Likely Call Analysis


Automated Call Notices: 5,500 notices went to eFolio® clients on 1/17/08 alone. Portfolio call analysis is updated with live curve information every 10 minutes. Reminder: Investors can sell HTM agencies within 90 days of a likely call date.

Step-Up Structures: Call analysis compares coupon at the call date along with remaining term and call structure versus new issue, non-step up structures with like call structure and term. In practice, issuers use various methods to determine whether or not to call a step-up security. There is no industry standard.

Call Likely Criteria:

One-Time Call Structure >10bps in the money, triggers "Yes" in call likely column. Continuous Call Structure >30bps in the money, triggers "Yes" in call likely column. Qrtly/Semi Call Structures >20bps in the money, triggers "Yes" in call likely column.

Cusip Description Par Current Coupon

Coupon at Call Maturity Intent

Next Call Date

Next Call Price

In The Money

Call Likely Yes/No/Called

3133X17E1 FHLB CALLABLE 2,000,000 4.13 4.13 9/30/2008 AFS 2/1/2008 100 25 No3136F5KK6 FNMA CALLABLE 2,500,000 4.04 4.04 3/23/2010 AFS 2/1/2008 100 64 Yes3136F7TQ0 FNMA ONE-TIME CALL 2,500,000 5.60 5.60 2/8/2016 AFS 2/8/2008 100 170 Yes3128X4CT6 FHLMC CALLABLE 1,000,000 4.75 4.75 12/27/2010 AFS 3/27/2008 100 117 Yes31359M6L2 FNMA ONE-TIME CALL 2,000,000 5.39 5.39 3/27/2012 AFS 3/27/2008 100 223 Yes31339XP99 FHLB CALLABLE Cpn step 5.250 on 12/30/06 1,300,000 5.25 5.25 12/30/2011 AFS 3/30/2008 100 137 Yes3128X6UL8 FHLMC CALLABLE 2,000,000 5.00 5.00 12/11/2012 AFS 6/11/2008 100 86 Yes3133XMAQ4 FHLB CALLABLE 1,750,000 5.75 5.75 9/20/2017 AFS 9/20/2010 100 112 Yes

MORGAN KEEGAN

36

Leverage Excess Capital / Weekly Spread Matrix


Morgan Keegan’s Weekly Leverage Spread Matrix (as of 1/22/08) is a one-page report that provides depositories with current spreads using a variety of FHLB Advance

structures against a sample bond normally used in leverage transactions.

4.70 4.70 4.70 4.70 4.70 4.70 4.70

Structure BulletNo Strike

(Bermuda) No Strike (1X) 6.00% 6.50% 7.00% 7.50%

Overnight Floating 107 -- -- -- -- -- --

3 Month Bullet 142 -- -- -- -- -- --

6 Month Bullet 160 -- -- -- -- -- --

1 Year Bullet 172 -- -- -- -- -- --

Bullet 183 -- -- -- -- -- --

2NC6M -- 219 213 -- -- -- -- 2NC1 -- 207 208 -- -- -- --

Bullet 164 -- -- -- -- -- --

3NC6M -- 227 206 -- -- -- --

3NC1 -- 215 206 -- -- -- -- 3NC2 -- 188 190 -- -- -- --

Bullet 118 -- -- -- -- -- --

5NC1 -- 239 208 152 135 139 127

5NC2 -- 214 203 151 135 139 127 5NC3 -- 184 183 -- -- -- --

Bullet 73 -- -- -- -- -- --

7NC1 -- 239 231 129 111 110 94

7NC2 -- 214 235 -- -- -- -- 7NC3 -- 185 221 -- -- -- --

Bullet 26 -- -- -- -- -- --

10NC1 -- 254 186 127 109 101 84

10NC2 -- 230 198 123 109 95 84

10NC3 -- 201 185 -- -- -- -- 10NC5 -- 147 148 -- -- -- --

Advance Terms

Basecase Spread by FHLB Advance Type Bullet & No-Strike Convertible Advance Structures LIBOR Strike Rate Advances

Basecase Yield to MaturityAsset

FNCT 257057FN 20Yr 5.0WAL/EDur

6.6/4.6

10 Year

7 Year

5 Year

3 Year (Interpolated)

2 Year

MORGAN KEEGAN

37

Leverage Excess Capital / Leverage Optimizer


CUSIP Description ParMarket Value

Purchase Price

Current Coupon

StatedMaturity

CPR/ PSA Yield

Effective Duration

3128M4QW6 FGLMC G02869 5.000 11/01/35 FH 30yr GOLD 750,000 750,000 100.000 5.00% 11/01/35 9 5.02% 5.8231376J6J3 FNCL 357373 5.000 04/01/33 FN 30yr 3,000,000 3,003,750 100.125 5.00% 04/01/33 9 4.97% 6.2331402CVN9 FNCL 725221 5.500 01/01/34 FN 30yr 3,000,000 3,054,375 101.813 5.50% 01/01/34 11 5.13% 4.4331408F2D0 FN99AR 850472 5.283 11/01/35 FN ARM 3,750,000 3,837,844 102.343 5.28% 11/01/35 10 4.91% 3.66MUNI20YRA 20YR AAA BQ MUNI 10 year call 3,000,000 3,000,000 100.000 4.01% 01/01/28 na 5.79% 7.10MUNI30YRA 30YR AAA BQ MUNI 10 year call 1,500,000 1,500,000 100.000 4.25% 01/01/38 na 6.15% 7.95

$15,000,000 $15,145,969 100.973 4.90% 5.27% 5.55Totals & Weighted Averages

Suggested Assets

Use Morgan Keegan’s Asset & Funding Optimizer to analyze the impact of leverage strategies on your balance sheet, P&L and A/L risk profile.

Funding Amount

StatedMaturity

Cost of Funds

7,572,984 01/22/13 3.91%4,543,791 01/22/18 3.90%3,029,194 01/22/13 3.02%

Total $15,145,969 Wtd. Avg. Mat. 6.5 3.73%

Suggested Funding

Convertible * - 5 year / 3 year

Fixed 5 yearDescription

10Yr / 1Yr 7.5% Strike Convertible

Weighted Average Life / Repricing *

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

Assets 3.33 3.55 5.20 7.46 12.21 12.64 12.79 Funding 6.50 6.50 6.50 6.50 6.10 6.10 6.10

Down 300

Down 200

Down 100

Base Case Up 100 Up 200 Up 300

Year 1 Year 2 Year 3 Year 4 Year 5Spread 156 163 172 181 191

Pre-Tax Income $236,214 $251,261 $268,413 $287,772 $309,444

Profitability (000,s)

MORGAN KEEGAN

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Leverage Optimizer / Shocked Spread Matrix


The BQs are match funded to the 10-year call with a 10/1 7.5% 3-mo LIBOR Strike-rate advance. The mortgages are funded by the combination of a 5-year bullet and 5Yr /3Yr no-strike convertible.

Annual Pre-Tax Spread

-100

-50

0

50

100

150

200

250

300

Down 300 -3 -44 -54 -56 -57 160 163 16Down 200 63 34 26 24 25 167 173 73Down 100 130 123 121 121 123 195 205 146Base 156 163 172 181 191 202 214 183Up 100 161 177 193 191 209 182 201 188Up 200 164 188 212 199 225 158 185 190Up 300 168 198 231 207 241 137 171 193

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Average

MORGAN KEEGAN

39

Leverage Optimizer / IRR & EVE at Risk


The Optimizer provides comprehensive analysis, including impact to IRR & EVE at risk.

Down 300 Down 200 Down 100 Base Case Up 100 Up 200 Up 300

1 Change in Net Int. Income -$3,997 $95,194 $196,534 $236,214 $243,825 $249,146 $254,031

2 Change in NPV of Equity -$1,958,888 -$1,201,679 -$264,246 -$287,813 -$553,604 -$726,121Income Impact (Next 12 Months)

INCOME ANALYSIS Down 300 Down 200 Down 100 Base Case Up 100 Up 200 Up 3003 Net Interest Income (Before) $21,970,000 $22,988,000 $23,248,000 $23,501,000 $23,703,000 $04 % Change (Before) #VALUE! -5.5% -1.1% 1.1% 2.0% -100.0%5 In Policy? #VALUE! Yes Yes Yes Yes6 Net Interest Income (After) #VALUE! $22,065,194 $23,184,534 $23,484,214 $23,744,825 $23,952,146 $254,0317 % Change (After) #VALUE! -6.0% -1.3% 1.1% 2.0% -98.9%8 In Policy? #VALUE! Yes Yes Yes Yes

9 % +/(-) Net Interest Income #VALUE! 0.4% 0.9% 1.0% 1.0% 1.1% #DIV/0!

10 EQUITY ANALYSIS Down 300 Down 200 Down 100 Base Case Up 100 Up 200 Up 30011 NPVE (Before) $64,942,000 $69,964,000 $74,441,000 $74,236,000 $72,908,00012 % Change (Before) #VALUE! -12.8% -6.0% -0.3% -2.1% #VALUE!13 In Policy? #VALUE! Yes Yes Yes Yes Yes #VALUE!14 NPVE (After) #VALUE! $63,740,321 $69,699,754 $74,441,000 $73,948,187 $72,354,396 #VALUE!15 % Change (After) #VALUE! -14.4% -6.4% -0.7% -2.8% #VALUE!16 In Policy? #VALUE! Yes Yes Yes Yes #VALUE!

Down 300 Down 200 Down 100 Base Case Up 100 Up 200 Up 30017 Post Shock NPVE Ratio (Before) #VALUE! 11.1% 12.0% 13.0% 13.1% 13.1% #VALUE!18 In Policy?19 Post Shock NPVE Ratio (After) #VALUE! 10.6% 11.7% 12.6% 12.8% 12.7% #VALUE!20 In Policy?

IMPACT OF TRANSACTION ON ENTIRE COMPANY

Income & Capital Impact Shock Table

MORGAN KEEGAN

40

eFolio® Portfolio Peer Comparison

MORGAN KEEGAN

41

eFolio® Portfolio Peer / Model Depository Portfolio

Portfolio Peer Comparison

MORGAN KEEGAN

42

• Asset Optimizer• Daily Mortgage Inventory• Single Bond Analyzer

• Fixed MBS• ARMs & Hybrids

• ARM Analyzer• FASB Accounting Yields

eFolio® Pre-purchase Analysis

MORGAN KEEGAN

43

Morgan Keegan Asset Optimizer


Asset Optimizer Morgan KeeganTarget Constraints

Min Min Min Min Max Max MaxYield -100

Yield Base

Yield +100

AL -200

AL Base

AL +200

Price Chg+100

Min Max Par Sector Coupon 1.00 1.00 1.00 1.00 10.00 13.00 -10.00%0% 20% 5% 750,000 Fixed MBS 3128M4QW6 FGLMC G02869 5.000 11/01/35 FH 30yr GOLD… 5.00% 11/1/35 100.00 4.95 5.02 5.02 0.72 7.84 10.70 -8.12%0% 20% 20% 3,000,000 Fixed MBS 31376J6J3 FNCL 357373 5.000 04/01/33 FN 30yr 5.00% 4/1/33 100.13 4.89 4.97 4.98 0.89 7.41 9.84 -7.55%0% 20% 20% 3,000,000 Fixed MBS 31402CVN9 FNCL 725221 5.500 01/01/34 FN 30yr 5.50% 1/1/34 101.81 4.55 5.13 5.19 0.96 6.63 9.35 -6.30%0% 25% 25% 3,750,000 Floating MBS 31408F2D0 FN99AR 850472 5.283 11/01/35 FN ARM 5.28% 11/1/35 10/1/15 102.34 4.58 4.91 5.16 1.63 8.10 8.20 -4.34%0% 20% 20% 3,000,000 Taxfree Muni MUNI20YRA 20YR AAA BQ MUNI 10 year call 4.01% 1/1/28 1/1/18 100.00 5.79 5.79 5.79 9.96 9.96 19.96 -8.59%0% 10% 10% 1,500,000 Taxfree Muni MUNI30YRA 30YR AAA BQ MUNI 10 year call 4.25% 1/1/38 12/1/17 100.00 6.15 6.15 6.16 9.88 9.88 29.96 -10.39%END END

100% $15,000,000 Weighted Averages 100.97 5.05 5.27 5.35 3.79 8.21 13.41 -7.02%Yield -100

Yield Base

Yield +100

AL -200

AL Base

AL +200

Price Chg+100

Market PriceCUSIP & Description Call Date

Constraints Stated Maturity

Next Reset Date

OptimumWeight

Source hundreds of street inventory positions for highest yield combination within your custom constraints (Dollar Price, WAL, EDur, Price Risk, and more).

Bond by bond shock tables, portfolio impact and overall A/L risk analysis

Add FHLB, Brokered CD and Structured Repo funding options to generate a leverage tailored to a custom spread and risk/reward profile. See results in the section titled Leverage Excess Capital.

Requires Web-ex presentation by Morgan Keegan representative and FI Analyst.

MORGAN KEEGAN

44

Sort or query over 100 mortgage positions across the curve and coupon stack at your desktop.Generate short list of bonds that fit your profile. Instantly compare two positions for relative value analysis. See how this tool is used in the Current Relative Value section.

Daily Mortgage Inventory


Relative Value Comparison Morgan KeeganPrices are indications only as of close of business: 1/17/2008


Maturity Reset Date Call DateMarket Price

Yield -100

Yield Base

Yield +100

AL -100

AL Base

AL +300

Price Chg+300

165 Fixed CMO 31393J6D5 FH 2556B TB Seq Fix 100% FGTW 5.50 174 M… 5.50% 1/15/22 102.56 3.05 4.55 4.66 1.15 3.07 4.34 -10.2%153 Fixed MBS 31413YJ77 FNCI 959386 5.500 12/01/22 FN 15yr 5.50% 12/1/22 102.59 2.72 4.64 4.95 1.09 3.76 6.95 -15.2%

Difference 0.00% -11 mos -0.04 0.32 -0.09 -0.29 0.06 -0.69 -2.61 5.0%


Maturity Reset Date Call DateMarket Price

Yield -100

Yield Base

Yield +100

AL -100

AL Base

AL +300

Price Chg+300

156 Floating MBS 3128JRNX0 FH99AR 847606 5.862 09/01/36 FH ARM nonG… 5.86% 9/1/36 7/1/11 102.77 4.10 4.65 5.17 2.69 4.04 5.31 -6.4%160 Floating MBS 31408F2D0 FN99AR 850472 5.283 11/01/35 FN ARM 5.28% 11/1/35 10/1/15 101.99 4.65 4.95 5.20 5.46 8.10 8.24 -12.3%157 Floating MBS 3128QJ3Q7 FH99AR 1G1707 5.584 04/01/37 FH ARM nonG… 5.58% 4/1/37 5/1/17 102.31 2.83 4.85 5.34 1.11 5.01 11.89 -15.2%158 Floating MBS 3128QSD52 FH99AR 1G1924 5.672 05/01/37 FH ARM nonG… 5.67% 5/1/37 5/1/17 102.45 2.78 4.94 5.42 1.11 5.30 11.89 -15.2%159 Floating MBS 3128QSF27 FH99AR 1G1985 5.582 05/01/37 FH ARM nonG… 5.58% 5/1/37 6/1/17 102.29 2.72 4.86 5.35 1.06 5.01 11.91 -15.2%145 Fixed MBS 31371NRE7 FNCN 257085 4.500 01/01/18 FN 10yr 4.50% 1/1/18 100.88 4.08 4.21 4.24 2.86 4.12 4.68 -11.3%148 Fixed MBS 31403DC72 FNCI 745394 4.500 11/01/20 FN 15yr 4.50% 11/1/20 100.59 4.24 4.31 4.33 3.38 4.44 5.13 -12.2%122 Fixed MBS 3128MBLN5 FGCI G12833 4.500 09/01/22 FH 15yr GOLD… 4.50% 9/1/22 100.44 4.30 4.40 4.42 2.85 4.97 6.15 -14.1%142 Fixed MBS 31371NQU2 FNCN 257067 5.000 01/01/18 FN 10yr 5.00% 1/1/18 102.00 3.70 4.39 4.44 1.87 4.04 4.75 -11.3%126 Fixed MBS 3128MMBJ1 FGCI G18040 5.000 02/01/20 FH 15yr GOLD… 5.00% 2/1/20 101.72 4.19 4.52 4.59 2.48 4.21 5.26 -12.2%124 Fixed MBS 3128MBPY7 FGCI G12939 5.000 01/01/23 FH 15yr GOLD… 5.00% 1/1/23 101.63 3.49 4.59 4.69 1.24 4.76 6.89 -15.4%130 Fixed MBS 3128P7H71 FGTW C91154 5.000 01/01/28 FH 20yr GOLD… 5.00% 1/1/28 100.88 4.12 4.83 4.88 1.23 6.23 8.96 -18.7%140 Fixed MBS 31371NQJ7 FNCT 257057 5.000 01/01/28 FN 20yr 5.00% 1/1/28 100.88 4.35 4.82 4.86 1.89 6.63 9.00 -18.5%146 Fixed MBS 31376J6J3 FNCL 357373 5.000 04/01/33 FN 30yr 5.00% 4/1/33 100.09 4.90 4.98 4.99 3.24 7.41 9.84 -19.3%118 Fixed MBS 3128M4QW6 FGLMC G02869 5.000 11/01/35 FH 30yr GOLD… 5.00% 11/1/35 100.03 4.93 5.01 5.02 2.04 7.84 10.70 -20.1%149 Fixed MBS 31411HN71 FNCL 908614 5.000 02/01/37 FN 30yr 5.00% 2/1/37 99.97 4.83 5.00 5.01 1.47 8.11 12.28 -22.2%141 Fixed MBS 31371NQS7 FNNP 257065 5.000 01/01/38 FN 30YR 7-10Y… 5.00% 1/1/38 98.44 5.88 5.25 5.21 1.68 9.07 14.16 -24.6%143 Fixed MBS 31371NQV0 FNCN 257068 5.500 01/01/18 FN 10yr 5.50% 1/1/18 102.81 3.54 4.57 4.70 1.69 3.69 4.78 -11.1%125 Fixed MBS 3128MBQT7 FGCI G12966 5.500 01/01/23 FH 15yr GOLD… 5.50% 1/1/23 102.53 3.38 4.72 4.98 1.33 3.85 6.82 -15.0%153 Fixed MBS 31413YJ77 FNCI 959386 5.500 12/01/22 FN 15yr 5.50% 12/1/22 102.59 2.72 4.64 4.95 1.09 3.76 6.95 -15.2%137 Fixed MBS 31371NNX9 FNCT 257006 5.500 12/01/27 FN 20yr 5.50% 12/1/27 102.09 3.54 4.80 5.12 1.29 3.84 9.01 -19.1%147 Fixed MBS 31402CVN9 FNCL 725221 5.500 01/01/34 FN 30yr 5.50% 1/1/34 101.81 4.55 5.13 5.19 2.42 6.63 10.10 -19.5%154 Fixed MBS 31413YN72 FNCL 959514 5.500 12/01/37 FN 30yr 5.50% 12/1/37 101.66 3.71 4.97 5.26 1.16 4.21 12.74 -24.0%133 Fixed MBS 31371MPL5 FNNQ 256127 5.500 01/01/36 FN 30YR 10-15… 5.50% 1/1/36 100.81 4.77 5.33 5.39 1.63 6.81 12.94 -23.4%144 Fixed MBS 31371NQX6 FNNQ 257070 5.500 01/01/38 FN 30YR 10-15… 5.50% 1/1/38 100.50 4.84 5.34 5.44 1.31 5.02 13.55 -25.2%134 Fixed MBS 31371NGR0 FNNP 256808 5.500 07/01/37 FN 30YR 7-10Y… 5.50% 7/1/37 100.75 4.85 5.36 5.42 1.73 7.74 14.02 -24.3%136 Fixed MBS 31371NM77 FNCN 256982 6.000 11/01/17 FN 10yr 6.00% 11/1/17 103.63 3.07 4.41 4.89 1.42 2.71 4.54 -9.5%123 Fixed MBS 3128MBPG6 FGCI G12923 6.000 11/01/22 FH 15yr GOLD… 6.00% 11/1/22 103.47 3.32 4.71 5.19 1.44 3.13 6.21 -13.0%138 Fixed MBS 31371NNY7 FNCT 257007 6.000 12/01/27 FN 20yr 6.00% 12/1/27 103.09 3.60 4.98 5.41 1.52 3.86 9.08 -18.2%132 Fixed MBS 31371MNG8 FNNP 256091 6.000 01/01/36 FN 30YR 7-10Y… 6.00% 1/1/36 102.16 4.03 5.41 5.65 1.34 4.91 12.26 -22.4%152 Fixed MBS 31413TME9 FNNP 954957 6.000 10/01/37 FN 30YR 7-10Y… 6.00% 10/1/37 102.16 4.03 5.29 5.66 1.34 4.03 12.86 -23.4%155 Fixed MBS 31413YN80 FNCL 959515 6.000 12/01/37 FN 30yr 6.00% 12/1/37 102.91 3.00 4.87 5.57 1.13 3.22 12.90 -22.5%139 Fixed MBS 31371NP66 FNNP 257045 6.500 01/01/38 FN 30YR 7-10Y… 6.50% 1/1/38 103.34 3.86 5.19 5.93 1.50 3.22 13.01 -21.6%135 Fixed MBS 31371NKT1 FNNQ 256906 6.500 09/01/37 FN 30YR 10-15… 6.50% 9/1/37 103.16 4.06 5.31 5.97 1.54 3.37 13.53 -22.4%162 Fixed CMO 31395FC77 FH 2836C QD PAC Fix 100% FGLMC 5.00 309 … 5.00% 9/15/27 102.26 4.06 4.06 4.12 2.68 2.68 3.23 -8.0%165 Fixed CMO 31393J6D5 FH 2556B TB Seq Fix 100% FGTW 5.50 174 M… 5.50% 1/15/22 102.56 3.05 4.55 4.66 1.15 3.07 4.34 -10.2%164 Fixed CMO 31396USY7 FH 3187E JA Seq Fix 100% FGLMC 5.00 330 … 5.00% 2/15/32 101.81 2.88 4.45 4.60 0.96 3.84 6.86 -15.7%163 Fixed CMO 31396GU74 FH 3099D OE PAC Fix 100% FGLMC 5.00 328 … 5.00% 7/15/31 102.46 4.09 4.54 4.57 3.00 6.10 7.41 -17.1%

Instant Bond to Bond Relative Value

Comparison

Use Excel Data Filter to Sort or Custom

Query 10 Data Fields

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Single Bond Analyzer – Fixed MBS


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Single Bond Analyzer – ARMs & HybridsShock Table @ Yield Book CPRs


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ARM Analyzer – FASB Accounting Yields


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Month Beginning

Par Principal PayDown

Coupon Coupon Pmt Ending Par Begin Book

Value Pro Rata PayDown

Level Yield PayDown

Accretion Accretion Remaining

YieldWAvg Yield

Yearly WAvg Yield

Ending Book Value

Ending Book Price

1 4,634,561 62,344 5.672 21,906 4,572,217 4,748,302 1,530 1,932 1,932 111,810 5.048 5.048 5.048 4,684,026 102.445

2 4,572,217 61,505 5.672 21,611 4,510,712 4,684,026 1,504 1,907 1,907 109,902 5.048 5.048 5.048 4,620,614 102.436

3 4,510,712 60,678 5.672 21,321 4,450,034 4,620,614 1,478 1,883 1,883 108,019 5.048 5.048 5.048 4,558,052 102.427

4 4,450,034 59,862 5.672 21,034 4,390,172 4,558,052 1,453 1,860 1,860 106,159 5.048 5.048 5.048 4,496,331 102.418

5 4,390,172 59,056 5.672 20,751 4,331,116 4,496,331 1,428 1,837 1,837 104,322 5.048 5.048 5.048 4,435,438 102.409

6 4,331,116 58,262 5.672 20,472 4,272,854 4,435,438 1,403 1,814 1,814 102,509 5.048 5.048 5.048 4,375,363 102.399

7 4,272,854 57,478 5.672 20,196 4,215,376 4,375,363 1,379 1,791 1,791 100,718 5.048 5.048 5.048 4,316,093 102.389

8 4,215,376 56,705 5.672 19,925 4,158,671 4,316,093 1,355 1,769 1,769 98,949 5.048 5.048 5.048 4,257,620 102.379

9 4,158,671 55,942 5.672 19,657 4,102,728 4,257,620 1,331 1,746 1,746 97,203 5.048 5.048 5.048 4,199,931 102.369

10 4,102,728 55,190 5.672 19,392 4,047,539 4,199,931 1,308 1,725 1,725 95,478 5.048 5.048 5.048 4,143,017 102.359

11 4,047,539 54,447 5.672 19,131 3,993,091 4,143,017 1,284 1,703 1,703 93,775 5.048 5.048 5.048 4,086,866 102.348

12 3,993,091 53,715 5.672 18,874 3,939,377 4,086,866 1,261 1,682 1,682 92,093 5.048 5.048 5.048 4,031,469 102.338

…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

338 4,469 366 4.851 18 4,103 4,469 - (1) - - 4.851 5.036 4.851 4,103 100

339 4,103 358 4.851 17 3,745 4,103 - (1) - - 4.851 5.036 4.851 3,745 100

340 3,745 351 4.851 15 3,394 3,745 - (1) - - 4.851 5.036 4.851 3,394 100

341 3,394 343 4.851 14 3,051 3,394 - (1) - - 4.851 5.036 4.851 3,051 100

342 3,051 336 4.851 12 2,715 3,051 - (1) - - 4.851 5.036 4.851 2,715 100

343 2,715 329 4.851 11 2,386 2,715 - (0) - - 4.851 5.036 4.851 2,386 100

344 2,386 322 4.851 10 2,064 2,386 - (0) - - 4.851 5.036 4.851 2,064 100

345 2,064 315 4.851 8 1,749 2,064 - (0) - - 4.851 5.036 4.851 1,749 100

346 1,749 308 4.851 7 1,441 1,749 - (0) - - 4.851 5.036 4.851 1,441 100

347 1,441 301 4.851 6 1,140 1,441 - (0) - - 4.851 5.036 4.851 1,140 100

348 1,140 295 4.851 5 845 1,140 - (0) - - 4.851 5.036 4.851 845 100

349 845 288 4.851 3 557 845 - (0) - - 4.851 5.036 4.851 557 100350 557 282 4.851 2 275 557 - (0) - - 4.851 5.036 4.851 275 100

Cash Calculation Algorithm Details - 15CPR

ARM Analyzer – Month by Month Calculations


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Summary

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The information contained herein is based on sources considered to be reliable but is not represented to be complete and its accuracy is not guaranteed. The opinions expressed herein reflect the judgment of the author at this date and are subject to change without notice and are not complete analysis of every material fact respecting any company, industry or security. Morgan Keegan & Co., Inc. and its offices, directors, shareholders, employees and affiliates and members of their families may make investments in a company or securities mentioned herein before, after or concurrently with the publication of this report. Morgan Keegan & Co., Inc. may from time to time perform or seek to perform investment banking or other services for, or solicit investment banking or other services from any company, person or entities mentioned herein. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any security. The securities and other investment products described herein are: 1.) Not insured by the FDIC, 2.) Subject to investment risks, including possible loss of principal amount invested, 3.) Not deposits or other obligations of, nor guaranteed by Morgan Keegan & Company, Inc., Regions Financial Corporation or any other of their affiliates.

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