1. SECOND ANGEL BANCORP NOVEMBER 2008
An Introduction to our Fund
HIGH YIELD INCOME FUND
SAF I provides investors with a steady stream of high returns, uncorrelated to major equity and fixed income
indices. The Fund makes conservative, short term, bridge loans secured by commercial real estate. Focusing on the
unique needs of borrowers – typically, short time horizons – the Fund takes advantage of markets under-served by
traditional institutional financing sources.
SAF is a pure ABL (asset backed lending) fund. It has NO connection with ABS (asset backed securities) or any
credit markets. It is an on-balance sheet lender: loans remain on its books, and are not sold.
The Fund has no exposure to sub-prime mortgages, CDOs, or CLOs.
The Fund targets consistent returns of 9% to 11%, net to investors. Since inception, it has
generated cumulative IRR of 25.04%, with YTD 2008 of 9.88%
Second Angel Bancorp manages the fund. It originates, underwrites, makes and services the loans. Loans are
secured by commercial real property located in California and other select states.
All returns stated are net to investors
•
Investors need not be Accredited
•
The Fund has 100% positive monthly performance
•
The Fund has independent quarterly reviews, together with annual audits.
•
Second Angel and SAF I are regulated by the California Department of Corporations; SAB is in its sixth
•
year of business and has originated over $300 million in loans.
SAF I account holders enjoy annualized returns of 9% to 11%. For every $100,000 in their account, they
receive payments of approximately $830 each month.
SAF I Monthly Annualized Returns
15.00
11.25
7.50
3.75
0
11/06 12/06 1/07 2/07 3/07 4/07 5/07 6/07 7/07 8/07 9/07 10/07 11/07 12/07 1/08 2/08 3/08 4/08 5/08 6/08 7/08 8/08 9/08 10/08 11/08
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SECOND ANGEL FUND I
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2. Second Angel Fund I, LLC
YTD 9.88%
Risk Return Summary
0.90% 0.01
Average Monthly Beta
0.97% 1.97
Highest Month Correlation Coefficient
0.79% 3.89
Lowest Month R-squared
100% David Gruebele
% of Positive Months Portfolio Managers
Richard Zahm
0.79% Second Angel Bancorp
Maximum Drawdown Marketer’s Name
25 Asset Based Lender (ABL)
Longest Winning Streak Primary Strategy
0 Fixed Income
Longest Losing Streak Sub-Strategy
0.90% Jun 1, 2006
Compounded Monthly Inception
Return
11.32% USA
Compounded Annual Domicile
Return
25.04% 24 months
Cumulative Return Track Record
0.05% USD
Standard Deviation Base Currency
(Monthly)
0.17% $11 million
Standard Deviation Firm AUM
(Annualized)
0.00% $7 million
Downside Deviation Fund AUM
(Monthly)
0.00% $50 million
Downside Deviation Capacity
(Annualized)
10.07 Yes
Sharpe Ratio (Monthly) Take seed capital?
34.89 Yes
Sharpe Ratio (Annualized) Open to new investors?
0.99% Yes - Low
Alpha (Monthly) Does the fund use
leverage?
12.61%
Alpha (Annualized)
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3. SECOND ANGEL BANCORP
Second Angel Fund I, LLC
The following information is only a brief summary of, and is qualified in its entirety by, the detailed
information appearing elsewhere in the Offering Circular.
LLC Investment Focus A California Limited Liability Company that makes and invests in loans
•
secured by deeds of trust on commercial, industrial and residential real
estate and land located primarily in California.
Concentration: [Approximate] 80% 1st Trust Deeds, 20% 2nd Trust Deeds. Construction
•
25%, Unimproved land 25%, Commercial property 20% Acquisition and
Development 20%, Residential 10%. Loan terms 1-7 years. Loan sizes:
$500,000 - $5,000,000.
Capitalization Minimum: $500,000
•
Maximum: $50,000,000
•
Maximum No. of Investors 500
•
Investor Qualifications for California residents and non-US citizens residing abroad. Annual income
•
Admission to Fund of at least $65,000 with net worth of at least $250,000 (excluding home,
furnishings, automobiles). IRA & 401(k) funds invited.
Investment Amounts Minimum initial investment: $25,000.
•
Additional investment: $1,000 increments or higher.
•
Investment cap: 10% of net worth.
•
Cash Distributions Investors choose to:
•
o Receive regular monthly cash distributions (30%);
o Reinvest income created back into Fund (70%).
Withdrawal from Fund After 60 days written notice, subject to cash flow and other limitations.
•
Manager, Loan Originator & Second Angel Bancorp, a California Licensed Lender and mortgage bank.
•
Loan Servicer
Management Richard Zahm, 49, a California licensed attorney and mortgage broker.
•
David Gruebele, 45 a California licensed mortgage broker.
•
Accounting Oversight Annual audit by independent CPA.
•
Regulatory Oversight California Department of Corporations, California Department of Real
•
Estate, California Department of Labor.
Other Fund may also make or invest in loans secured by construction or
•
rehabilitation loans where all or a portion of the loan proceeds may be
used to construct or rehabilitate improvements in the security property.
Professional References Attorneys: DossLaw, Irvine, CA
•
Accountants: Murray & Young; Williams & Olds, Sacramento
•
Auditor: Schoenholz & Spiegel, Walnut Creek, CA
•
Commercial Bankers: Wells Fargo, Five Star Bank.
•
Additional Information & Second Angel Bancorp (916) 863-7300 (866) 648-2422
•
Offering Circular e-mail investment@SecondAngel.net; www.SecondAngel.net
•
10217 Fair Oaks Boulevard, Second Floor, Fair Oaks, CA 95628
•
(916) 863-7300
SECOND ANGEL FUND I
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4. SECOND ANGEL BANCORP
Investor Motivations
Investor Attributes
Retired/semi-retired
• •Capital preservation
Non-accredited and Accredited
• •Competitive yield
California or international residents
• •Bond-like structure and risk
Seeks to maximize fixed income
• •Short term investment haven: “parking place”
Desires dependability/low volatility
• •Long term balance with equity portfolio risk
Risk averse
•
Fund Attributes and Uses
Stability, low volatility
•
Steady, uncorrelated performance
•
Liquidity
•
High yield
•
Transparent business model
•
Solid track record
•
Pre-defined investment parameters
•
As a high yield place holder for funds between
•
investments
25.04%* Investor Eligibility
• California residents or non-US citizens residing abroad
• Annual income of at least $65,000 with net worth of at least
$250,000 (excluding home, furnishings, automobiles) or
• Net worth of $500,000 (excluding home, furnishings, automobiles)
• IRA & 401(k) funds invited.
*Cumulative return since inception. Based upon historical performance. YTD (1/01/08) Compounded Annual Return
11.32%. Past performance is not a guarantee of future performance. Offer limited to qualified investors meeting standards
provided in the Offering Circular. The California Department of Corporations does not endorse this investment. Permit is
permissive only and does not constitute a recommendation or endorsement of the securities permitted to be issued. CFL
607-2568
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5. SECOND ANGEL BANCORP
WHAT THEY’RE
SAYING ABOUT
SECOND ANGEL
“The checks arrive like clockwork.” “I frequently recommend Second Angel’s Fund to my friends.
They don’t miss.”
Nancy Hale, Pebble Beach, CA
Steve Reubens, Redwood Shores, CA
“Second Angel’s the best performing investment I’ve made in
2007.”
A.P., Roseville, CA
“Second Angel gives great returns (11%
plus) on my investment and has an ‘open
book’ policy. It’s the perfect complement to my
real estate investments and a lot less bother.
Detailed monthly statements and newsletters
100 percent
give me confidence that, even in this time of
financial turmoil in the mortgage industry,
my money is invested wisely. On top of that,
the people at Second Angel are great, and I of Second Angel investors have
am proud to be one of their clients.” chosen to invest additional amounts
K.F., Lake Tahoe, CA into the Fund.
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6. SECOND ANGEL BANCORP
TRANSPARENCY
SAF is an open book.
We tell our investors how we invest, up front. What types of property we’ve
secured loans with, where it’s located, and where each loan fits into our
investment portfolio. Then, we show what we’ve done.
Our investors are invited to participated in site reviews. They’re invited to meet
our borrowers, face-to-face.
There isn’t any proprietary formula. Just good business judgment and banking
discipline.
Our investors are welcome to review our books and records. We’re audited
annually by an independent CPA, Schoenholz & Spiegel. And every eighteen
months, we’re visited by the California Department of Corporation’s auditing
team.
METRICS
• Total number of investors
• Total investor capital
• Total secured loans outstanding
• Number of loans
• Average loan size
• Average secured loan as percent of members’ capital
• Largest secured loan outstanding
• Largest secured loan as percent of total
• Largest secured loan as a percent of members’ capital
• Counties where properties are located
• Largest percent of loans in one county
• Loan categories: construction; construction completion;
bridge; other
• Loan terms: time
• Loan terms: interest rates
• Loans by property type
• Portfolio LTV
(916) 863-7300
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7. SECOND ANGEL BANCORP
Our Tools
HERFINDAHL SCORE We use the Herfindahl score to measure the
diversity of the loans in our portfolio. It’s a measure
of the effective number of assets in a collateral pool.
n Borrowing from the CMBS model, we divide (i) one
by (ii) the sum of, for each asset in the pool, the
Σ (a /P)
1/ square of, (x) the principal balance of each loan in
2
i
the pool divided by, (y) the aggregate principal
i=1 balance of the collateral assets in the pool.
Here, ai = the principal balance of each loan in a
pool of n total assets and P = the total principal
balance of the collateral pool.
COLLATERAL VOLATILITY We cross-collateralize our loans, securing them with
additional properties to provide additional
protective equity. To protect our portfolio from
adverse changes in collateral cash flow and value,
we measure collateral volatility. This volatility means
σp ) = 1 − N N wiwjρij the deviation (or standard deviation) of future
(1 − σ collateral cash flow and value from assessed and
∑∑ expected ones. The reduction in collateral volatility
is positively affected by the number of properties and
i=1 j =1 negatively affected by the correlation between capital.
When loans are crossed, to the extent that their
collateral values are not correlated, the pool’s
volatility is reduced as compared to the weighted
average of each individual loan’s volatility. This
reduction in collateral volatility has the effect of
reducing downside loan exposure. When
properties have unequal values in the crossed pool,
the “effective” number of properties is less than the
actual number. For example, for a pool with five
properties, if one property represents 90% of the
total collateral value, this pool is effectively a one-
asset pool, and the crossing benefit is minimal. We
use a version of this equation to measure this.
Where:
σ: Individual property value standard deviation
(uncrossed)
σρ: Pool property value standard deviation (crossed)
W: Percentage share of a property in the crossed
pool by value
ρij: Correlation between collateral i and j.
A Second Angel principal personally visits each
PERSONAL SITE REVIEWS property as a final underwriting step for each loan.
ACTIVE INVOLVEMENT Our roots are in Turnaround Management. We get
to know our borrowers and their business.
CONSERVATIVE LTVs We appraise properties meticulously, often more
than once. Our due diligence process penetrates.
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8. SECOND ANGEL BANCORP
Q&A About Private Money & SAF
Private Money investments with SAF are comprised of conservative, short-term
What is Private Money investing?
bridge loans secured by commercial real estate.
Benefits include: consistent, predictable returns and growth from the outset of the
What are the benefits of Private
investment. These are ideal for anyone seeking to preserve capital while obtaining a
Money and SAF?
secure, high rate of return with minimal -- if any -- market risk.
SAF investors receive interest income significantly greater than that earned on an
How does SAF compare to bond fund
intermediate investment grade corporate bond fund, but without interest rate risk.
investment?
SAF provides comparable liquidity and stability, but with substantially higher
How does SAF compare to money
interest rates.
market fund investment?
There are no penalties for withdrawal at any time. Unlike a certificate of deposit,
Are there any penalties for
it is not necessary to wait until maturity to avoid an interest penalty on withdrawals.
withdrawing SAF investments?
California residents or non-US citizens residing abroad.
Eligibility: Who can invest in SAF? •
Annual income of at least $65,000 with net worth of at least $250,000 (excluding
•
home, furnishings, automobiles) or $500,000 net worth (excluding home,
furnishings, automobiles)
IRA & 401(k) funds invited.
•
Studies (Dreyfus Fund, John Hancock) indicate that nearly 70% of investors will
Do Private Money and SAF encourage
only consider a safe or guaranteed investment vehicle. SAF is compatible with the
people to save for retirement?
risk profile of this majority, making the decision to invest easier.
Over time, stock funds will likely produce a higher return than Private Money
Aren’t stocks a better long-term
funds. However, Private Money’s unique risk/return characteristics makes it an
investment than Private Money?
excellent choice for investors seeking to protect assets and balance portfolio risk.
Since SAF is only minimally subject to market risk, it is an excellent choice for
How do investors use SAF in their
those wishing to diversify a stock portfolio. Substituting SAF for an actively managed
portfolios?
bond portfolio will allow an investor to increase his allocation to equities without
increasing risk to his overall investment portfolio. Also, because funds can be withdrawn
from SAF without penalty, it is ideal for those wishing to keep a portion of funds liquid.
SAF exclusively invests in conservative, short-term loans secured by first and second
What types of investments are held in
trust deeds on commercial real estate. SAF pays investors a predicable return,
SAF?
preserving principal and accumulated interest earnings.
(916) 863-7300
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