# MIP95: $100M of Cogent Bank Loan Participations

## Preamble

```
MIP#: 95
Title:  $100M of Cogent Bank Loan Participations
Author(s): @maxglass, Kyle Feldman (kfeldman@cogentbank.net)
Contributors:
Tags: RWA
Type: Real World Asset
Status: Rejected
Date Proposed: 2023-01-06
Date Ratified: <yyyy-mm-dd>
Forum URL: https://forum.makerdao.com/t/mip95-simple-to-onboard-rwa-100m-in-cogent-bank-loan-participations/19338
Ratification Poll URL: https://vote.makerdao.com/polling/QmRh87bm#vote-breakdown
Dependencies: MIP21
Replaces: N/A
```

## References

- [HVBank Collateral Onboarding Application](https://forum.makerdao.com/t/mip6-huntingdon-valley-bank-loan-syndication-collateral-onboarding-application/14219)
- [Bylaws of Cogent Bancorp, Inc.](https://docs.google.com/document/d/17570Wky6BUTWlR9FOw8F9o8RykuhBVMuWDfDGJMsF2Y/edit?usp=sharing)
- [Articles of Incorporation](https://www.dropbox.com/s/igjbcg1o5i1z2bt/Articles%252520of%252520Incorporation%252520as%252520of%2525209.28.2022.pdf?dl=0) for Pinnacle Bank, Cogent’s predecessor
- [Amended Articles of Incorporation](https://www.dropbox.com/s/0qz8gst9ukwcl3v/Articles%252520of%252520Incorporation%252520Name%252520Change%252520to%252520COGENT%252520as%252520of%2525209.28.2022.pdf?dl=0) and name change to Cogent Bank

## Sentence Summary

Cogent Bank, an FDIC regulated Florida commercial bank, proposes participating $100M of loans to MakerDAO's existing RWA Master Participation Trust, on the same terms and with the same legal documents as Huntingdon Valley Bank.

## Paragraph Summary

Cogent Bank is an FDIC regulated Florida bank with $1.2B of assets and a $28M legal lending limit. Cogent proposes participating $100M of loans to MakerDAO’s existing RWA Master Participation Trust using the same Participation Agreement with the same exact terms as [MakerDAO’s deal with Huntingdon Valley Bank](https://forum.makerdao.com/t/mip6-huntingdon-valley-bank-loan-syndication-collateral-onboarding-application/14219). Cogent and MaxStability will pay MakerDAO's legal fees. This transaction is an opportunity for MakerDAO to reinforce its strategic value for community banks by doubling Cogent's capacity to originate loans to existing and new customers

## Motivation

MakerDAO will benefit in many ways. This proposal:

* Demonstrates (again) that MakerDAO can be strategically valuable to community banks.
* Garners an excellent risk-adjusted yield.
* Scales investment grade RWA that is originated by an FDIC regulated bank.
* Has the potential to scale quickly because Cogent Bank has a $28M legal lending limit.
* Increases geographic diversification of RWA because Cogent covers the southeast USA.

The proposed transaction will be strategic to Cogent insofar as it doubles the Bank’s capacity to originate loans to existing and new customers --- this is MakerDAO's value to community banks.

## Component Summary

**MIP95c1: Summary Deal Terms**
The terms and legal structure are the same as the existing Huntingdon Valley Bank RWA

**MIP95c2: Counterparty, Loan Originator**
Cogent Bank is regulated by FDIC and by Florida’s Office of Financial Regulation (OFR)

* MIP95c2.1: About Cogent Bank
* MIP95c2.2: Cogent's Crypto Offering
* MIP95c2.3: Regulatory Oversight, Compliance, Audit, Risk Management, Portfolio Management
* MIP95c2.4: Cogent’s Leaders and Business Units
* MIP95c2.5: Public Reporting: Quarterly Call Reports
* MIP95c2.6: Loan Categories MakerDAO Will Participate In
* MIP95c2.7: Track Record as Loan Originator
* MIP95c2.8: Cogent's Risk Rating (Credit Rating) System

**MIP95c3: The Proposed Transaction and Terms**

* MIP95c3.1: Transaction Legal and Financial Structure (Replication of HVBank Structure)
* MIP95c3.2: Proposed Debt Ceiling, and Long Term Capacity
* MIP95c3.3: Minimum Net Yield to the Trust
* MIP95c3.4: Loan Eligibility Criteria
* MIP95c3.5: Loan Servicing
* MIP95c3.6: Uninvested Funds
* MIP95c3.7: Special Purpose Vehicle, RWA Master Participation Trust

**MIP95c4: Legal Fees, Governance Fee, and Servicing Fee**

* MIP95c4.1: Legal Fees
* MIP95c4.2: Governance Consulting & Reporting Fee
* MIP95c4.3: Servicing Fee

**MIP95c5: MakerDAO Specific Issues**

* MIP95c5.1: Special Purpose Vehicle and Counterparties
* MIP95c5.2: In The Event of Ambiguity

**MIP95c6: Disclaimer**

## Specification / Proposal Details

![cashflow](https://github.com/makerdao/mips/blob/master/MIP95/cashflow.png)

Cash flow diagram (Dai to USD, and back to Dai)

### MIP95c1: Summary Deal Terms

* **Counterparty, Loan Originator:** (RWA-95) Cogent Bank is a state-chartered commercial bank supervised by Florida’s Office of Financial Regulation (OFR) and the Federal Deposit Insurance Corporation (FDIC) (“Cogent”).
* **Legal Entity for the benefit of MakerDAO:** Use the existing RWA Master Participation Trust, a Delaware statutory trust for the benefit of MakerDAO (the “MakerTrustDE”), currently in use with Huntingdon Valley Bank.
* **The Real World Asset(s):** 50% participation(s) pari passu in loans originated by Cogent bank that have been assigned a “Pass” rating in accordance with a federal regulatory grading framework.
* **An Initial Debt Ceiling of:** $100M
* **24-month goal:** $250M to $1B
* **Yield Benchmarks (as of January 5th, 2023):** [30-Day Average SOFR](https://www.newyorkfed.org/markets/reference-rates/sofr-averages-and-index) (4.15%) **&** [“Like-Term” US Treasury](https://home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics) (e.g. 5-year UST 3.85%)
* **Minimum Yield (a spread over benchmarks) to the MakerTrustDE at the time of origination and participation (net of all S,G,&R Fees):**
  * For floating-rate loans: 75 basis points over the 30-day average SOFR (implying a minimum floating yield of 4.85% as of January 5th, 2023)
  * For fixed-rate loans: 30 basis points over the like-term treasury for fixed rate loans (implying a minimum fixed yield of 4.15% as of January 5th, 2022)
* **Servicing Fee and Fee for Governance & Reporting (S,G,&R):** 125bps on first $10M of each participation, 75bs thereafter
* **Uninvested dollars:** will be invested in a short-term treasury money market such as [SDIT Treasury II Fund Class F (SCPXX)](https://seidocs.filepoint.live/assets/pdfs/Summary_Prospectuses/SDIT-TreasuryII-Fund-Summary-ClassF.pdf)
* **Vault stability fee will be set to 0% but a Minimum Yield will be stipulated in the Participation Agreement and all net interest will be sent to the Surplus Buffer.**
* **Legal Fees:** Cogent Bank and MaxStability will pay all legal fees

|The Guaranteed Minimum Net Yields to the RWA Master Participation Trust ||
|---|---|
|**Date of Example Benchmark Yields:**|**January 5, 2023**|
|Floating rate loans: 30 Day Average SOFR (replaces LIBOR)|4.150%|
|Fixed rate loans: The Like-term US treasury, e.g. the 5yr|3.850%|
|**Minimum Spreads Over the Benchmarks**|
|Floating-rate loans: 75 bps over 30 Day SOFR|0.750%|
|Fixed-rate loans: 30 bps over The Like-term US treasury|0.300%|
|**Guaranteed Minimum Net Yields to the Trust at the time of Origination and Participation (after S,G,&R Fees)**|
|Floating rate: Guaranteed minimum net yield|4.900%|
|Fixed rate: Guaranteed minimum net yield (an example of 5 year fixed)|4.150%|

### MIP95c2: Counterparty, Loan Originator

#### MIP95c2.1: About Cogent Bank

This proposal is submitted by Cogent Bank (“Cogent” or “The Bank” or “Counterparty”), a State Chartered American commercial bank wholly owned by Cogent Bancorp, Inc., a privately held U.S. bank holding company. Cogent Bancorp, Inc. and its subsidiaries are subject to regulatory oversight by the Federal Deposit Insurance Corporation (FDIC) and the Florida Office of Financial Regulation (OFR).

Cogent Bank’s operations are focused in the state of Florida through relationship management teams and banking centers located in seven Florida counties including Duval, Volusia, Orange, Hillsborough, Pinellas, Collier, and Lee counties as well as statewide lending teams focused on residential lending, small business lending, specialty lending (throughout the southeast), SBA (nation wide), and USDA lending (throughout the southeast).

#### MIP95c2.2: Cogent's Crypto Offering

Cogent is open for business with crypto clients: investors, infrastructure providers, engineers, startups, and DAOs. Cogent has the ability to service clients nationally and the Bank has physical offices in the crypto hubs Miami and Tampa. Cogent is unique among banks that serve the crypto market because Cogent is a community bank. That means clients get personalized service that is high-touch. If you would like to explore banking with Cogent, please email the bank President, Chirag Bhavsar, at cbhavsar@cogentbank.net

#### MIP95c2.3: Regulatory Oversight, Compliance, Audit, Risk Management, Portfolio Management:

Cogent, across all departments, is subjected to multiple regulatory audits annually, plus external reviews from supervisory agencies and audit firms. Some of the key reviews and audits are:

1. **Regulatory:** Annually, the Federal Deposit Insurance Corp (FDIC) and Florida Office of Financial Regulation (OFR) perform a complete audit of the loan portfolio, loan underwriting, appraisals, credit quality, collateral, risk ratings, concentrations, stress testing, and reporting.
2. **Financial:** Financial audits are provided annually by the outside auditor Hacker, Johnson & Smith PA (https://www.hackerjohnson.com). Hacker is an independent firm of certified public accountants that has been providing audit and tax services to financial institutions since 1974. **Internal audits** focused on commercial and consumer loans, loan administration, loan operations, and loan servicing are provided by Saltmarsh, Cleaveland & Gund (https://www.saltmarshcpa.com). Saltmarsh is an independent firm of certified public accountants recognized as one of the top 200 accounting and advisory firms in the U.S.
3. **Compliance:** Independent regulatory and compliance oversight is supported by Saltmarsh, Cleaveland & Gund and by Mauldin & Jenkins (https://www.mjcpa.com)
4. **Loan Review:** The bank’s residential loan portfolio is reviewed monthly by the StoneHill Group (https://www.stonehillgroup.com). StoneHill is an independent loan quality control reviewer with expertise in financial services. Loan Quality Review is currently audited semi-annually by Saltmarsh, Cleaveland & Gund.

#### MIP95c2.4: Cogent’s Leaders and Business Units

[Full bios here](https://docs.google.com/document/d/1p-sp1pwj5yeTczCC-Dzlm-9YXjb40ASgQjLxtdyB9Hk/edit?usp=sharing)

* Chirag Bhavsar, President
* Kyle Feldman, Chief Credit Officer

The executive leadership team at Cogent is led by Chief Executive Officer, Lee Hanna, and President, Chirag Bhavsar, both of whom sit on Cogent’s board. A complete [list of all corporate officers can be viewed here](https://cogentbank.com/leadership-team/) and a [list of the members of the board can be viewed here](https://cogentbank.com/board-of-directors/).

More information about Cogent’s business units, leadership, and technology is available [here](https://docs.google.com/document/d/1p-sp1pwj5yeTczCC-Dzlm-9YXjb40ASgQjLxtdyB9Hk/edit?usp=sharing).

#### MIP95c2.5: Public Reporting: Quarterly Call Reports

The quarterly Call report collects basic financial data of commercial banks in the form of a balance sheet, an income statement, and supporting schedules. The Report of Condition schedules provide details on assets, liabilities, and capital accounts.

* [June, 2022 call report](https://www.dropbox.com/s/prukleb77orij8k/June%2525202022.pdf?dl=0)
* [September, 2022 call report](https://www.dropbox.com/s/zhvhfflz572xw2p/September%202022.pdf?dl=0)
* [Year End, December 31st, 2022](https://www.dropbox.com/s/4tkzw7sxobnshfu/Call%20Report%2012.31.2022.PDF?dl=0)

#### MIP95c2.6: Loan Categories MakerDAO Will Participate In

* **Commercial & Industrial:** A commercial and industrial (C&I) loan is a loan made to a business or corporation. Typically, C&I loans are short-term loans with variable interest rates backed by collateral. Commercial and industrial loans provide companies with funds that can be used for working capital or to finance capital expenditures such as purchasing machinery.
* **CRE Land & Development:** A commercial-based loan where the activities are building, developing, or holding an asset secured by real estate (as well as horizontal improvements) where the primary source of repayment shall be derived from the sale of the asset. The majority of the loans originated have an LTV less than 75%.
* **CRE Non-Owner Occupied:** A commercial-based loan where the primary source of repayment is derived from either the lease revenue, sale of units, or a building/structure that is for sale. The majority of the loans originated have an LTV less than 85%.
* **CRE Owner Occupied:** A commercial building where greater than 51% of the lease revenue and/or physical space is leased to an entity who is also related to the borrowing entity. The majority of the loans originated have an LTV less than 85%.
* **Life Insurance:** A commercial-based loan where a group or trust has an opportunity to enter a life insurance contract and the bank shall finance short fall of investments within the first two (2) years of collateral gap. This type of financing is done on a selective basis with certain insurance carriers as well as having maturities less than 24 months.
* **Consumer and Other:** Currently the bank offers HELOCS, installment and secured financing on stock accounts (via a tri-party agreement) to commercial customers. This is a complimentary product for existing commercial customers with a commercial relationship.
* **Specialty Lending:** This type of financing consists of accounts receivable, inventory, purchase order financing for various types of commercial and industrial companies. The lending vertical is collateral driven and, from a risk management perspective, Cogent has specialized operating individuals and uses Kadence monitoring system for adequate downside protection.
* **SBA Guaranteed:** This type of financing consists of 7A, 504, and pari passu financing on a national basis. The bank currently has a PLP (Preferred Lender Program) license in place with the SBA.
* **Residential Lending:** Portfolio loans and agency financing is offered to commercial relationships. Within the portfolio products, the bank has a Construction to Perm product as well as ARM products.
* **Public Finance:** This type of financing consists of municipalities domiciled in the U.S. which also include, but are not limited to states on a national basis, local governments (towns, cities, villages, etc…), universities, colleges and certain not for profit entities.

|Loan Category|Rate Type|
|---|---|
|Commercial & Industrial |Primarily fixed rate|
|Commercial Real Estate: Land & Development|Mostly floating rate|
|Commercial Real Estate: non-owner occupied and owner-occupied|Primarily fixed rate|
|Life Insurance |Floating rate|
|Consumer and Other|Primarily fixed rate|
|Life Insurance |Floating rate|
|Consumer and Other|Primarily fixed rate|
|Specialty Lending|Primarily floating rate|
|Residential Lending|Primarily fixed rate|
|Public Finance |Primarily fixed rate, tax exempt|

#### MIP95c2.7: Track Record as Loan Originator

Pinnacle Bank was acquired and renamed Cogent Bank on September 13th, 2018. Pinnacle Bank had $72M of assets at the time of acquisition and today, four years later, Cogent Bank has $1.3B of assets. That growth has happened organically (loan origination) from experienced leadership and dependable operations, as evidenced by negligible loan losses of less than 0.01% of assets over the same period.

In 2019, Cogent originated $300M of loans. In 2020, originations grew to $513M. In 2021, volume grew to $873M. In 2022, through the end of August, Cogent had originated $602M. The details of this activity are broken down by loan category in tables that follow.

|**2019**||||
|---|---|---|---|
|**Type**|**Annual Production**|**Average Duration**|**Average Rate**|
|Commercial|$69,876,587|34|4.99%|
|Owner Occupied CRE|$31,404,415|51|4.66%|
|Commercial Real Estate|$48,843,582|41|5.35%|
|1 to 4 Family Residential|$91,136,507|67|4.76%|
|Specialty Lending|$43,014,000|34|6.11%|
|USDA Lending|$15,390,000|36|5.47%|
|**Total**|$**299,665,091**|**39**|**5.09%**|
|||||
|---|---|---|---|
|**2020**||||
|**Type**|**Annual Production**|**Average Duration**|**Average Rate**|
|Commercial|$75,209,501|34|4.05%|
|Owner Occupied CRE|$22,897,495|51|4.15%|
|Commercial Real Estate|$68,407,694|41|4.30%|
|1 to 4 Family Residential|$130,396,152|67|4.20%|
|Specialty Lending|$34,174,041|34|5.10%|
|USDA Lending|$7,817,500|36|5.25%|
|SBA Lending|$5,728,300|34|7.50%|
|PPP Lending|$168,559,770||1.00%|
|**Total**|**$513,190,453**|**39**|**3.77%**|
|||||
|---|---|---|---|
|**2021**||||
|**Type**|**Annual Production**|**Average Duration**|**Average Rate**|
|Commercial|$149,602,921|38|4.11%|
|Owner Occupied CRE|$88,022,499|43|4.10%|
|Commercial Real Estate|$176,289,656|54|5.25%|
|1 to 4 Family Residential|$171,222,662|95|3.77%|
|Consumer Lending|$16,846,593|48|3.42%|
|Specialty Lending|$84,690,024|18|4.70%|
|USDA Lending|$10,054,388|36|4.75%|
|SBA Lending|$35,497,050|34|5.25%|
|PPP Lending|$141,021,145||1.00%|
|**Total**|$**873,246,938**|**28**|**4.22%**|
|||||
|---|---|---|---|
|**2022 through 9/30/2022**||||
|**Type**|**YTD Production**|**YTD Avg. Duration**|**YTD Avg. Note Rate**|
|Commercial & Industrial|$135,599,740 |38|5.28%|
|CRE Land & Development (100 Bucket)|$109,399,000 |43|4.87%|
|CRE Non-Owner Occupied|$90,993,767 |54|5.06%|
|CRE Owner Occupied|$58,128,170 |95|5.68%|
|Life Insurance|$11,691,647 |48|6.80%|
|Consumer and Other|$23,007,222 |18|6.40%|
|Specialty Lending|$47,629,000 |36|7.80%|
|SBA Guaranteed|$50,174,050 |34|5.67%|
|Residential Lending|$136,672,717 |44|5.16%|
|PPP Lending|$0 ||0.00%|
|Public Finance|$17,130,352 |37|4.00%|
|**Total**|**$680,425,665** |**29**|**5.38%**|

##### Non-Performing Loans, as of September 30th, 2022

|Type|07/31/2022|08/31/2022|09/30/2022|Non-Accrual Date|
|---|---|---|---|---|
|Commercial & Industrial|$2,995,674 |$2,995,674 |$2,995,674 |01/24/22|
|Owner Occupied CRE|$540,040 |$534,750 |$529,461 |12/10/12|
|Owner Occupied CRE|$407,938 |$405,204 |$402,471 |01/24/22|
|Owner Occupied CRE|$146,331 |$144,899 |$143,467 |12/10/12|
|CRE Investor|$0 |$0 |$0 |03/04/13|
|**Total Non-Performing Loans (NPAs)**|**$4,089,983** |**$4,080,527** |**$4,071,072** ||
||||||
|Total Loans|$997,863,394|$1,024,021,590|$1,047,958,145||
|**Non-Perfoming Assets (NPAs)/ Total Loans**|**0.410%**|**0.398%**|**0.389%**||
|---|---|---|---|

#### MIP95c2.8: Cogent’s Risk Rating (Credit Rating) System

Every loan in Cogent’s portfolio is subjected to the same grading system, which has [nine grades detailed here](https://docs.google.com/document/d/16Dj7pKjzvLVVwCUzzTivj1x5hKjVEG-Q0xKp1oGifws/edit?usp=sharing). Ratings 1 through 5 are “Pass” ratings, and the rest, 6 through 9, are “Cited”

**Cogent’s Algorithm For Calculating a Loan’s Risk Rating:** Weighted Asset Risk Evaluation (WARE)

Cogent calculates the risk rating of each loan using a methodology called the Weighted Asset Risk Evaluation (WARE) which is structured to reduce subjectivity from the credit grading process by setting objective rules for choosing a score across criteria categories. There is an algorithm whereby the score for each category is weighted in the final grade calculation. For [more information about the WARE algorithm, see here](https://docs.google.com/spreadsheets/d/1e65NBSiE7JZzzdqgyMij7999EvScbqjq/edit?usp=sharing&ouid=101823928177955810348&rtpof=true&sd=true).

### MIP95c3: The Proposed Transaction and Terms

#### MIP95c3.1: Transaction Legal and Financial Structure (Replication of HVBank Structure

Cogent proposes using the same terms, the same legal structure, legal documents, and financial structure that MakerDAO is now using with Huntingdon Valley Bank. Using that structure, Cogent will participate loans to the RWA Master Participation Trust (“MakerTrustDE”).

The value in replicating the HVBank structure and using the same documents is:

* Replicating what has been done before minimizes the risk to MakerDAO of doing something brand new.
* In particular, it eliminates MakerDAO’s reliance on anyone to negotiate new agreements.
* Further, it makes the proposed transaction simple to close quickly.
* Most importantly, replication reinforces a standard model for transactions with American commercial banks, which MakerDAO can use to scale RWA with many banks.

#### MIP95c3.2: Proposed Debt Ceiling, Long Term Capacity, and Balance Sheet Management (Scaling Up and Scaling Down)

**Scaling Up**
Cogent proposes an initial Debt Ceiling of $100M, and over the next 24 months, Cogent can participate $250M to $1B in loans that conform to these terms.

**Scaling Down**
If and when MakerDAO seeks liquidity on a loan prior to the loan's maturity, we anticipate that MakerTrustDE will get liquidity in an amount and with timing dependent on market conditions. **Cogent cannot agree in advance to buy back any loan.**  

#### MIP95c3.3: Minimum Net Yield to the Trust  (lifted from Annex I of HVB-MakerDAO Master Participation Agreement)
The Loan shall be eligible for purchase if the interest yield, as of the close of business on the Business Day prior to the day Seller (Cogent) sends the Participation Certificate related to such Loan to Buyer (RWA Master Participation Trust) and Calculation Agent (“**Participation Send Date**”), meets the following thresholds:

1. For floating-rate loans, the minimum interest rate less servicing fees shall be greater than or equal to 75 basis points in excess of the thirty (30) day average Secured Overnight Financing Rate (SOFR) issued by the Federal Reserve Bank of New York as published on the following website: [SOFR Averages and Index Data - FEDERAL RESERVE BANK of NEW YORK ](https://www.newyorkfed.org/markets/reference-rates/sofr-averages-and-index); **or**
2. For fixed-rate loans, the minimum interest rate less servicing fees shall be greater than or equal to the like-term US Treasury Par Yield Curve Rate (as published by the US Department of the Treasury on the following website: [Interest Rate Statistics | U.S. Department of the Treasury](https://home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics)) plus 30 basis points.

This formula shall be expressed as:

`LOAN RATE – SERVICING FEES >= BENCHMARK + SPREAD`

#### MIPc3.4: Loan Eligibility Criteria (lifted from Annex I of HVB-MakerDAO Master Participation Agreement)

All Loans shall have been originated or purchased by Cogent (i) in its ordinary course of business and in all factors shall have complied with the Cogent’s credit policy and loan origination guidelines then in effect and (ii) in no way that is more restrictive than the regulatory or supervisory limits that are required by the Cogent’s primary state and federal regulators.

**The proposed terms for the Participation Agreement (the same as with Huntingdon Valley Bank) are:**

* Cogent will retain a minimum of fifty percent (50%) ownership in the principal of the Cogent participated loans.
* Cogent and MakerTrustDE shall have a pari-passu relationship in each participation.
* All loans must be assigned a “Pass” credit rating by Cogent Bank.
* For loans that include a fixed rate period, said fixed period shall not exceed five (5) years.
* Cogent shall be the servicer.

To be eligible for participation (lifted from Annex I of HVB-MakerDAO Master Participation Agreement):

1. Loan is currently in good standing with Cogent
2. Loan was made according to Cogent’s approved credit and loan policies
3. Properly collateralized and secured (as evidenced by the customary agreements and filings for the creation of a security interest if collateralized), with collateralization calculated as:

`Loan principal / Appraised value < Maximum allowable LTV per asset type`

For stabilized commercial real estate loans, non-investment real estate business loans and equipment secured loans, the denominator “Appraised Value” will be the “as is” appraised value.

For construction loans, the denominator “Appraised Value” will be the “as renovated” appraised value.

1. Satisfactory cash flow coverage of loan payments (for new construction, satisfactory payment plan during construction and satisfactory pro forma cash flow based on underwriting of the subject property and market fundamentals following completion), with Cogent providing its methodology for, and its calculation of, Debt Service Coverage for each loan as contemplated for each asset type below.
2. For loans that include a fixed-rate period, said fixed period shall not exceed five (5) years (without regard for the overall term of the loan).
3. No events of default are continuing
4. No loans to insiders or other person prohibited by Regulation O.
5. All loans meet standard compliance measures and searches.

#### MIP95c3.5: Loan Servicing

Cogent will perform the loan servicing in accordance with a Servicing Agreement that is the same as the Servicing Agreement with Huntingdon Valley Bank. In the event of a Borrower’s Default, Cogent will manage a workout (as “Special Servicer”) and is capable of liquidating the collateral so that loan principal is paid back to the RWA Master Participation Trust (and to Cogent).

#### MIP95c3.6: Uninvested Funds

Cash sitting in MakerTrustDE will be invested in a money market such as [SDIT Treasury II Fund Class F (SCPXX)](https://seidocs.filepoint.live/assets/pdfs/Summary_Prospectuses/SDIT-TreasuryII-Fund-Summary-ClassF.pdf)

#### MIP95c3.7: Special Purpose Vehicle, RWA Master Participation Trust

The special purpose vehicle (SPV) proposed is an existing Delaware Statutory Trust for the benefit of MakerDAO, the RWA Master Participation Trust, which is Administered by a regulated corporate Trustee in Delaware, Wilmington Savings Financial Society (WSFS). The Trustee is a bank that is well capitalized and WSFS carries insurance such as Directors and Officers insurance and/or errors and omissions insurance. This Trust is a Directed Trust, and the Trust Sponsor which provides this direction is an entity that seeks its own direction from a committee appointed by MakerDAO. The Trust Sponsor has limited administrative and commercial decision-making power, and material terms in the Masters Participation Agreement cannot be amended without the affirmative vote of MakerDAO --- as verified by the Delaware Trustee (acting as the “Verification Agent’').

### MIP95c4: Legal Fees, Governance Fee, and Servicing Fee

#### MIP95c4.1: Legal Fees

MaxStability and Cogent will pay whatever legal fees are needed to prepare the documents, engage service providers, and consummate this transaction.

#### MIP95c4.2: Governance Consulting & Reporting Fee

MaxStability LLC (“MaxStability”) has helped Cogent Bank prepare this proposal. MaxStability is consulting on MakerDAO governance communications and will help with legal structuring, closing, and onboarding. As part of MaxStability’s Reporting Service, MaxStability will retrieve and deliver the off-chain data about assets relevant to the facility, and distribute this information to the MakerDAO community (unless said data must be permissioned, in which case MaxStability will distribute that data to relevant Core Units or SubDAO members who are under NDA). MaxStability will not in any way impede communication between any counterparty and any relevant Core Units or the community.

#### MIP95c4.3: Servicing Fee

Fees for the loan servicing by Cogent, and for off-chain data reporting by MaxStability, and for governance consulting by MaxStability are collectively the “S,G,&R Fees”.

The total S,G,&R Fees will be equal to one and one-quarter of one percent (1.25%) per annum on the first $10,000,000 participated to the MakerTrustDE of each individual Participated Loan (the “Base Loan Balance”). Over the Base Loan Balance, S,G,&R Fees on amounts participated to the MakerTrustDE out of each Participated Loan shall be three quarters of one percent (0.75%) per annum. For example, if Cogent participates $12M of a loan ($24M total loan size) to the MakerTrustDE, the S,G,&R Fees shall be ($10MM * 1.25%) + ($2M *.75%) = $125,000 + $15,000 = $140,000 per year, reducing proportionately to any amortization of the underlying loan (S,G,&R Fees decline on each participated loan as each loan amortizes).

G&R will be 25 bps (0.25%) paid to MaxStability, and the remainder will be paid to Cogent as the Servicing Fee.

### MIP95c5: MakerDAO Specific Issues

#### MIP95c5.1: Special Purpose Vehicle and Counterparties

Cogent proposes participating loans to the existing RWA Master Participation Trust. Cogent proposes using all of the same legal documents and structures currently in use for the Huntingdon Valley Bank deal. The counterparty entities for the proposed Trust Structure are as follows:

* Trust Sponsor
  * The Trust Sponsor is currently proposed to be the Cayman Islands Foundation RWA Foundation whose sole legal representative is its Supervisor. The jurisdiction and corporate structure of the Trust Sponsor may be amended on the advice of counsel. The Cayman Foundation, in its capacity as Trust Sponsor, will seek instruction from a committee elected and maintained by Maker Governance. It will pass this instruction to the Delaware Trustee when appropriate. It is anticipated that the Trust Sponsor will occasionally be required to weigh in on commercial and managerial issues with the facility. The Trust Agreement itself and any material term (the definition of which will be mutually defined by Cogent and MakerDAO) in the Participation Agreement may only be amended by using a Verification Agent, which checks for the affirmative vote of MakerDAO to corroborate the content of any amendment. The Trust Sponsor will issue irrevocable instructions to the Delaware Trustee and to the broker-dealer in order to ensure the security of cash flows.
* A Delaware Statutory Trust (the existing RWA Master Participation Trust)
  * The Trust is a legal entity which will purchase and custody the assets, or liens over assets. It will be a Delaware Statutory Trust. This entity will enter into a Participation Agreement with Cogent Bank (the “Transaction Documents”). Said Transaction Documents will provide clear rules around the ability of Cogent Bank to participate loans to the Trust. All Transaction Documents pertaining to or entered into by the Trust will require an affirmative vote of MakerDAO, via a Verification Agent, to amend. Any actions deemed “immaterial” in the agreements will be referred to the Trust Sponsor. The Delaware Trustee will have irrevocable instructions from the Trust Sponsor to only transfer USD from its escrow account to the Trust or to the bank account of the broker-dealer.
* Broker-Dealers
  * In order to ensure secure transactions from Dai to USD and vice versa, the address of a regulated broker-dealer will be encoded into the MIP21 secure conduit. It is only this entity which will ever touch Dai. The broker-dealer has irrevocable instructions from the Trust Sponsor to only exchange Dai for USD and vice versa based on pre-agreed upon terms and may only send that Dai or USD to the Trust Sponsor’s escrow account with the Trustee’s bank or to the secure conduit. Multiple broker-dealers will be engaged so that there is redundancy in this part of the structure, which is needed as evidenced by the challenges with Genesis and the ongoing Genesis bankruptcy.

#### MIP95c5.2: In The Event of Ambiguity

The terms and the final Agreements for this transaction will be approved by a vote of MKR token holders. Thereafter, decisions by all Parties will be in accordance with those Agreements and, if the Agreements are ambiguous, then clarifying amendments will be brought to an MKR vote or to a trusted third party appointed by an MKR vote.

#### MIP95c5.3: If Greenlit, Who Will Perform the Legal Review and the Credit/Risk Review for MakerDAO?

This is a great question, considering the recent off-boarding of the RWF Core Unit. @Aes of the Strategic Finance Core Unit says that SF has the human resources on hand to perform both the legal review and the credit/risk review for MakerDAO.  

### MIP95c6: Disclaimer

*Except for statements of historical fact, certain information set forth in this presentation contains forward-looking information and forward-looking statements.*

*These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or result expressed or implied by such forward-looking statements.*

*Although forward-looking statements contained in this presentation are based upon what management of the Cogent believes are reasonable assumptions, there can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Cogent undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements.*

*The terms and conditions set forth herein are not intended to, and do not and shall not, constitute a binding agreement, nor an agreement by any party to enter into a binding agreement. Rather, such terms and conditions are intended to serve as the basis for due diligence, and the potential negotiating and drafting one or more definitive agreements on the terms and conditions stated herein (or as such terms may hereinafter be amended during further negotiations), as well as other terms and conditions to be determined. In addition, any terms and conditions of any definitive agreement(s) that may arise out of this proposal or the negotiations surrounding the same are subject to, among other things, the review and approval of Cogent’s Board of Directors, legal advisors, and other appropriate decision makers. Neither party can or shall rely on this proposal as binding on the other, and neither party will be bound unless and until one or more definitive agreement(s) have been fully executed by both parties. Until such time, neither party is bound to continue negotiations, and each party reserves the right to cease negotiations at any time, for any reason or no reason. The terms and conditions herein shall be governed by and construed in accordance with the laws of the State of Florida, without regard to conflict of law principles.*

*No owner, contractor, nor employee of MaxStability LLC holds an equity or debt position in Cogent Bank or Cogent Bancorp, Inc.*