PayNet Absolute PD®

Portfolio Manager

Small Business Credit Ratings That Enable Cost Efficient, Proactive Management of Your Borrower & Portfolio Risks.

• Identify organic growth opportunities

• Increase precision of loan loss and capital reserve forecasting

• Enhance early warning system to mitigate losses

• Lower cost and increase accuracy of loan review process

• Improve risk rating and monitor concentration risk

• Reduce cost of compliance reporting function

Taking the Risk Out of Small Business Lending

Our ground breaking Probability of Default (PD) model combines the largest North American small business borrower debt database with macroeconomic factors to create PD forecasts 8 quarters into the future.

PayNet AbsolutePD® Model

• PayNet AbsolutePD is derived from PayNet’s proprietary loan database consisting of:

3 Over 884,000 financial contracts 3 Over $77 Billion in loan value

• AbsolutePD produces accurate credit ratings without the need for financial statements.

• The AbsolutePD model was developed exclusively in collaboration with Professor Darrell Duffie (Stanford Graduate School of Business), a leading expert on credit-management and financial economics.

• The model is refreshed every quarter with the latest borrower performance information and calibrated to current macroeconomic conditions - self-correcting on a quarterly basis to adjust for past variances and incorporating structural changes, such as changes in a lender’s footprint.

• The model produces individual Probability of Default (PD) forecasts for each of eight future quarters for every small business borrower in a lender’s portfolio. These PD’s are available in dataset form as well as through the AbsolutePD Portfolio Manager online reporting platform.

Payment and Delinquency History & PatternsHistory of Serious DelinquencyYears in Business & Years BorrowingBorrowing PracticesPaydown of BorrowingsBorrower & Borrowings Size/MagnitudeIndustry Segment & SIC Code

Borrower Factors

Gross Domestic ProductOvernight RateIndustry Default PerformanceBorrower Size & IndustryHistoric Risk of Geographic Region & Area Economic ConditionsIterative Adjustment based on Recent Actual Sector Performance

Macroeconomic & Industry Factors

CalibrationPowerPayNet

AbsolutePD®

PayNetRisk Rating

Engine

Small Business Portfolio Risk Management

ChallengesAnticipating the direction of risk and positioning your small business portfolio for future risk is critical. Forecasting risk utilizing score and pool-based techniques are biased to historical trends. Historic measures consistently lag actual default levels.

PayNet SolutionsPayNet AbsolutePD mitigates the difficulty in assessing and forecasting the performance of small business borrowers.

• Forecast credit ratings 8 quarters in advance AbsolutePD combines your small business portfolio data with our powerful analytics to accurately forecast probabilities of default.

11.1% 21.3% 31.6% 41.8%

52.1% 62.5% 73.1% 83.2%

• Apply forward-looking credit ratings to enhance loss mitigation activities, identify areas for growth, and set appropriate capital levels

Updated quarterly, forecast probabilities of default can be applied to monitor changes in the credit rating forecast and

facilitate sector selection. Credit rating migration is easily seen using PayNet AbsolutePD Portfolio Manager, an online reporting platform.

Migration Monitoring

Sector Selection

Migration Detail List – Favorable ChangesReview potential upgrades from Pass

Borrower No. Borrower Name Province Business Unit

Current Exposure

($000)

Absolute PD*

Absolute PD*Change

Summary of 3 selected borrowers $ 3,500 0.45% -3.04%

*6688 Moosejaw Foodservice SK SBB-CI 2,117 0.47% -3.88%

*7405 Chinook Appliances AB SBB-CI 1,344 0.43% -1.74%

*7173 Tamarack Construction MB SBB-CI 39 0.31% -2.18%3434

Migration Detail List – Adverse ChangesReview potential downgrades from Pass to Special Mention

Borrower No. Borrower Name Province Business Unit

Current Exposure

($000)

Absolute PD*

Absolute PD*Change

Summary of 4 selected borrowers $ 1,468 7.38% 3.85%

*7001 Grizzly Trucking BC SBB-CI 531 5.32% 1.99%

*6794 Niagara Trucking ON SBB-CR 413 9.17% 4.36%

*6498 Halifax Trucking NS SBB-CI 304 9.52% 7.29%

*6943 Caribou Trucking QC SBB-CI 220 6.01% 2.64%

AbsolutePD Rating Migration - Regulatory ScaleShowing change in AbsolutePD Rating from Q3 to Q4

PD Range Risk Rating

Adverse Rating Change Favorable Rating Change

>= 5 4 3 2 1 0 1 2 3 4 >= 5 Total

0.00% - 0.05% 1 -

0.05% - 0.20% 2 -

0.20% - 0.50% 3 308 328 3 2 1 642

0.50% - 2.00% 4 6 6,244 877 29 8 7,164

2.00% - 5.00% 5 119 1,721 164 33 2,037

5.00% - 10% 6 4 90 204 76 2 376

10% - 40% 7 3 7 58 250 8 326

40% - 90% 8 1 1 23 16 41

90% - 100% 9 1 1

Total Changed by - 1 3 12 297 8,743 1,453 67 10 1 - 10,587

16 (or 0.1% of total) significantly deteriorated

10,493 (or 99.2%) are not materially changed

78 (or 0.7% of total) significantly improved

Drill down from views of risk grade migration to identify the specific accounts that have migrated.

Track and understand the degree of risk grade migration.

Migration Monitoring

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Risk Trend by NAICS Industry & ProvinceTruck Transportation (484)

12 Month Credit Rating Forecast

Current Last Quarter Change

Summary: 2.24% 1.96% 0.28%

BC 2.56% 2.21% 0.35%

SK 2.45% 2.30% 0.15%

QC 2.37% 2.27% 0.10%

ON 2.35% 2.42% -0.07%

MB 2.34% 2.27% 0.07%

Identify sectors most likely to improve or deteriorate in the next 12 months.

Drill down further to see an individual borrower’s likely performance.

Borrower Profile Report As reported Oct. 1stName

North Star TruckingBorrower No.

*6544Province Reported Exposure Business Unit Branch Portfolio NAICS

AB $431,394 SBB-CR Edmonton Internal General Freight Trucking, Local (484110)

Rating Characteristics

System 4 AbsolutePD 9.17%AbsolutePD Ratings

Scale Current Rating Prior Quarter Prior Year

Lender 6 5 4PayNet (1-18) 12 10 8

Industry Segment Transportation

Rating Factors (for latest APD) • Recent / Frequent Delinquency • Higher Risk Borrowing Practices • Serious Delinquency

$0

$200

$400

$600

$800

$1,000

0% 2% 4% 6% 8% 10%

Peer Group Ratings for all Alberta borrowers

Borrower Industry Province

Sector Selection

Credit History Report PayNet Direct® AbsolutePD® Portfolio Manager SBDI Reports Edit Profile Member List HelpAbsolutePD® Portfolio Manager

PayNet AbsolutePD Portfolio Manager is an online platform that applies forward-looking small business credit risk ratings from the AbsolutePD model to create customized reports that identify emerging risks and opportunities across multiple segments of your portfolio (i.e. province, exposure, risk grades, industry or business unit), track risk migration, and allow you to evaluate risks in your portfolio by many dimensions.

PayNet, Inc.2425 Matheson Blvd. EastMississagua, ON L4W 5K4866-825-3400

WEBwww.paynetonline.ca

PORTALPayNet Risk Insight Suite®www.sbinsights.paynetonline.ca

PayNet, PayNet AbsolutePD, and PayNet Risk Insight Suite are registered trademarks of PayNet, Inc. ©2016 PayNet, Inc.CPN-69

Risk Trend by Exposure Range Segmentation: ExposureReport is filtered to include borrowers with a status of (Active) in the current period and Industry Segments: Agriculture, Construction, General, Healthcare, Retail, Transportation

Current Qtr. 12-Month AbsolutePD Forecast Prior Qtr. 12-Month AbsolutePD Forecast Change

No. ofBorrowers

Exposure($000)

Exp WtdPD*

AbsolutePD*

No. ofBorrowers

Exposure($000)

Exp WtdPD*

AbsolutePD*

No. ofBorrowers

Exposure($000)

Exp WtdPD*

AbsolutePD*

Summary: 10,547 $2,049,959 $44,548 2.17% 10,535 $2,126,656 $ 49,549 2.33% 12 $ -76,697 $ -5,001 -0.16%

$ 0 to 250m 8,884 463,561 10,356 2.23% 8,828 494,109 12,113 2.45% 56 -30,548 -1,756 -0.22%

$ 250 to 500m 726 259,845 5,522 2.13% 749 266,981 6,268 2.35% -23 -7,136 -746 -0.22%

$ 500m to 1mm 445 315,031 6,383 2.03% 450 318,220 7,027 2.21% -5 -3,189 -644 -0.18%

$ 1 to 1.5mm 185 226,633 4,830 2.13% 189 231,006 5,382 2.33% -4 -4,374 -552 -0.20%

$ 1.5 to 2.5mm 174 335,831 7,574 2.26% 182 348,633 8,112 2.33% -8 -12,802 -538 -0.07%

$ 2.5mm+ 133 449,058 9,883 2.20% 137 467,706 10,647 2.28% -4 -18,648 -764 -0.08%

PayNet AbsolutePD® Portfolio Manager

Distribution by Lender Scale Distribution: SnapshotBased on exposure dollars (C$ 000) for all ratings.

1,000,000

900,000

800,000

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0

Expo

sure

($00

0)

PD Range* Risk Rating Prior Qtr. Current Qtr.

0.00% - 0.78% 1 225,257 347,796

0.78% - 1.56% 2 695,092 768,523

1.56% - 3.13% 3 991,035 854,596

3.13% - 6.25% 4 323,304 228,398

6.25% - 13% 5 50,768 56,710

13% - 25% 6 25,697 24,330

25% - 50% 7 23,518 7,264

50% - 100% 8 770 2,103

Total 2,335,440 2,289,720

*Note: Borrowers are aggregated within a given range and its respective risk rating based on each borrower’s 12 month AbsolutePD forecast beginning on that date.

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AbsolutePD Rating

7/1/2011 10/1/2011Prior Qtr. Current Qtr.

Portfolio Manager

HighlightsKey StatisticsTop 10 Borrower MovementTop 10 Borrower ExposureTop 10 Borrower Segment

MigrationRisk Rating MigrationPortfolio Risk Roll Forward

SegmentationRisk Trend by ProvinceRisk Trend by ExposureRisk Trend by NAICSRisk Trend by SBU

GrowthPortfolio Growth

DistributionRisk Rating SnapshotRisk Rating Comparison

BorrowerBorrower Profile

Risk Rating Scale

PayNet Risk Rating Scale Show More Clear

As of Date(s)

Measure

Include Non-Performing

Portfolio