A User’s Guideto

N-Abler GradingBest Practices

Today’s Environment

Stakeholder Demands

Pressureson Profits

Doing MoreWith Less

Boards, Regulators and other stakeholders are demandingmore reporting, more compliance and more analysis

Cost of compliance, a sluggish economy and creeping collectioncosts all are impacting the bottom line of most Lenders

Lenders everywhere are looking for ways to maximize efficienciesand improve business without having to put out material dollars on expensive system upgrades

N-AblerGrading

Solutions

The N-Abler Grading helps Lenders by:bringing in unique reporting approachesdelivering services on an as needed basis providing independent assessments that can be

incorporated into the overall credit risk management process

The N-Abler has multiple applications, today we will look at four of the more important functions:

the efficiencies gradings can bring to collections workways the gradings can help maximize a borrower

basehow the gradings can help maximize returns on

capitalthe value of the extended reporting and analysis

Understanding

the Gradings

Each N-Abler grade carries a score of 0.0 to 5.05.0 represents the highest score0.0 being the weakest scoregrades of 3.5 or higher are generally considered

strong credits by most lenders

Each N-Abler grade provides 2 benchmarks the credit grade provides the indicator of borrower’s

credit profilethe security grade is the indicator of strength of

underlying securitygrading structures between different loan classes are

similar to allow cross loan-type comparisons

GradingScores

TwoBenchmarks

Understanding

the Gradings

N-Abler grades do not solely rely on credit scores and appraisal values:

N-Abler grades take into key credit and economic factors that also effect grading values

Factors such as the borrower’s reliance on the underlying assets and asset disposal

options arealso assessed

The combined views provided by the two benchmarks give a clearer picture of loan and how it should be managed:

A strong grade from one benchmark can, in part, mitigate a weakness in the other

Strengths and weakness in each benchmark can focus loan management and collections activities

EconomicFactors

Used inTandem

Gradings andCollections

Using the grades as indicators can better manage the realization processat the earliest possible stage:

Where there are consistently strong security grades ensure a part of your collection team is an active realization/reseller group or has a third party realization group it contracts out to

Security grades take in more factors than current market values – if a high appraisal value comes in where there is a weak security grade - investigate

Using the grades can focus staff efforts to where they candeliver better results

A loan has a weak credit grade but a very strong security grademay not support a protracted collection negotiation – focus staff onsecuring and disposing of the asset

Tie grades to staff seniority – lowest grades should go directly to best collectors. Don’t pass on accounts with stronger grades that can be handed by more junior staff

Staff Efficiency

Default Realization

Gradings andCollections

On going monitoring of gradings provides in-depth risk assessments and gives Management indicators of future resource needs:

Where a negative market event occurs the grades can provide advance indicators of loans that will require additional monitoring and administration

Correct developing negative grading trends by coaching credit underwriters to avoid them in future

FlaggingFuture Issues

Gradings andCustomer Relations

Reviewing grades should be a preliminary step to an annual reviewis the borrower’s risk satisfactory for the revenues generatedfor strong customers you want to retain put flags in place to

move early to reduce the risk the borrower will shop elsewhere

Grades can differ by loan type. Don’t assume a strong borrower forone loan class will be equally as strong in another

N-Abler security grade will help identify risks between different loans from a single borrower

Loan level grading produces a unique assessment point to compare a single loan against all other loans in the same portfolio

while a loan may pass general acceptance guidelines grading can identify those weaker or stronger than others in the pool

CustomerRetention

PickingPreferredBusiness

PortfolioFocus

Gradings andRevenues

Risk/ReturnAnalysis

Better CapitalDeployment

PortfolioRebalancing

Grades can show where the max risk/returns are found in a portfolio grades often reflect the Lender’s best returns come from mid-range risks:

ensure overall portfolio returns are not limited because of excessive focus on low risk / low return loans

Grades makes the decision process to sell limited pools of loanseasier and more efficient:

grades quickly identify excessive concentrations of high risk or low return loans in a portfolio

grades can accelerate the internal analysis process where loan sales are being considered

Grades can provide a quick-view indication of whether returns arein line with the underlying loan risk:

the simple reality is that higher risk loans should come with higher interest rates not enough Lenders fully apply this rule when

dealing with consumer loans and mortgages

Gradings andReporting

Combining grades with other portfolio factors brings a new prospective to standard analysis

compare risk grading across geographic disbursements to identify weaker locations that should be avoided

Once initial grading has been completed targets can be set to improve future results

set and track average security grading within a portfolio as support for regulatory reporting

set and track lower grades to assess the impact of collections costs

Cross-RiskAnalysis

SettingRisk

Targets

Gradings andReporting

Identifying consistently strong grades can lead to new businessacquisition strategies:

match risk grades to borrower industries to spot previously unidentified marketing opportunities

strong security grades concentrated in geographic locations can focus new mortgage selling activities

Grades can be used to assess credit staffreview averaged grade results by credit officer to identify trends

or areas where coaching is suggested

OpportunityAnalysis

StaffAssessments

Thank You

For more information of the N-Abler and how loan level gradingcan improve your lending operations

please contact us anytime

inquiries@n-bgroup.com

www.n-bgroup.com