CECL SUMMER GAMES Part 5: Key Disclosures & Reports 6/29/2017

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1 CECL SUMMER GAMES Part 5: Key Disclosures & Reports 6/29/2017 1

2 CPE Credits Visible Equity and the content of this webinar is officially approved with the NASBA (National Association of State Boards of Accountancy) for live presentations, but not a webinar format. However, we would be happy to provide you with a certificate of attendance showing you attended the webinar, but we can not guarantee this will be sufficient proof of CPE. training@visibleequity.com to request a certificate of attendance.

3 PRESENTERS Ian Dunn, EVP Products 3 Rachel Messick, Data Scientist

4 CECL Summer Games Series Overview Loss Rate Method (Static Pool & Vintage) Probability of Default Method Incorporating Forecasts Reports / Disclosures 4

5 Prize Time SPORTS BAG 5

6 Trivia What country s national anthem is being played? Germany 6

7 Required Disclosures Broad Goals Enable financial statement users to: 1. Understand the credit risk inherent in the portfolio and how management monitors the credit quality of the portfolio. 2. Understand management s estimation of expected credit losses. 3. Understand changes in the estimate that have taken place during the reporting period. 7

8 Disclosure Sections 1 2 Credit Quality Information Allowance for Credit Losses Past-due Status Nonaccrual status Other 8

9 1 Credit Quality Information Enable financial statement users to: 1. Understand how management monitors credit quality 2. Assess the quantitative and qualitative risks arising from credit quality The balance of each Class and CQI, by origination year *Internal risk ratings should indicate how they relate to likelihood of loss 9 A description of the Credit Quality Indicator (CQI)* for each Loan Class or Major Security Type and an indicator of when each CQI was last updated

10 2 Allowance for Credit Losses Enable financial statement users to: A description of how expected loss estimates are developed. 1. Understand management s method for developing its allowance Past events, current conditions, and R&S forecasts Understand the information used in developing its estimate of expected credit loss Risk characteristics of each segment 3. Understand the circumstances that caused changes to the allowance for credit losses Changes in portfolio mix, grades/ratings, underwriting, and any significant events/conditions 10

11 2 Allowance for Credit Losses (Roll forward) Segment: Residential Lending From prior period June 30, 2017 Sept 30, 2017 Beginning Balance $1,100 $1,000 -Charge-offs $700 +Recoveries $100 Balance Before Expected Credit Loss Provision $500 +Provision for Expected Credit Loss $500 Ending Balance $1,000 You first calculate the required Allowance for Expected Credit Loss Then use the Provision to balance 11

12 3 Past-Due Status An aging analysis by class Delinquency Aging Segment/Class 0 DPD 1-29 DPD DPD DPD DPD >=120 DPD TOTAL >60 DPD Residential Lending First Mortgage Second Mortgage Residential Other Subtotal Consumer Lending New Auto Used Auto Credit Cards Con. Other Unsecured Subtotal TOTAL $279,082,411 $62,854,972 $3,456,122 $345,393,505 $57,500,989 $84,699,032 $19,065,300 $12,564,425 $170,829,746 $5,979,719 $42,460 $6,022,178 $17,980 $3,206,178 $3,010,662 $143,601 $6,378,421 $822,075 $822,075 $1,590,475 $224,736 $126,132 $1,941,343 $516,633 $516,633 $295,733 $17,169 $312,902 $78,937 $102,961 $101,468 $283,366 $532,410 $532,410 $149,947 $197,573 $5,840 $353,360 $1,049,043 $6,801,794 $42,460 $7,893,296 $17,980 $5,321,270 $3,535,932 $394,210 $9,269,392 12

13 4 Nonaccrual Status Provide a summary of policies related to: 1. Discontinuing accrual of interest, recording payments on nonaccruals, and resuming accrual of interest 2. Determining past due or delinquency status 3. Recognizing write-offs Report on: -Nonaccrual Balances -Interest Income on Nonaccruals -90 DPD but not Nonaccrual Status -Nonaccruals with no Related Allowance 13

14 5 Other Disclosures 1. Purchased Financial Assets with Credit Deterioration 2. Collateral Dependent Financial Assets 3. Off Balance Sheet Credit Exposures 4. Securities (Unrealized gains/losses, etc.) 5. Foreclosed & Repossessed Assets 6. TDR/Modifications (Type of Modification, Subsequent Defaults) 14

15 Home Products: CECL v Report Packets Upload/Manage Data Tools Settings Search Institution Settings Institution Messages Messages Settings David Ian Ian vv v CECL Home Step 1. Select Allowance Profile Step 2. Review Data Step 3. Individually Review Step 4. Collectively Review Step 5. Review Securities Standard Reports Executive Summary Individually Reviewed Collectively Reviewed Allowance Roll forward Q&E Summary Standard reports and disclosures V Setup Allowance Profiles Credit Quality Summary Setup Stress Scenarios Credit Quality by Vintage Reports Delinquency Aging Standard Reports > Saved Reports Build New Report Charge-off Analysis Non-accruals Help TDR / Modifications Stress Test Results Data Quality 15

16 Home Products: CECL v Report Packets Upload/Manage Data Tools Settings Search Institution Settings Institution Messages Messages Settings David Ian Ian vv v Executive Summary Return to Standard Reports 6/30/2017 v Export v Save v Allowance $15,734,160 Balance $634,390,769 Allowance Ratio 2.48% V Allowance % Change (Yr.) +8.22% Allowance Trends $15,000,000 - $10,750,000 - $7,500,000 - $3,250, $15,734,160 $14,538,142 6/30/2017 3/31/ /31/2016 9/30/2016 6/30/2016 Individually Reviewed Summary Individually Reviewed Collectively Allowance $1,257,030 Reviewed Individually Reviewed Balance $2,660,769 Individually Reviewed Allowance Ratio 47.24% Collectively Reviewed Summary Collectively Reviewed Allowance $14,467,130 Collectively Reviewed Balance $619,730,000 Collectively Reviewed Allowance Ratio 2.33% Securities & Other Summary Securities & Other Allowance $10,000 Securities & Other Balance $1,200,000 Securities & Other Allowance Ratio 0.01% 16

17 Executive Summary (Cont d) Loan Allowance by Segment Individually Reviewed Individually Reviewed Collectively Reviewed Adjusted Collectively Reviewed Loan Loan Allowance Segment Balance Balance Allowance Balance Loss Rate Allowance Allowance Ratio Residential Lending $352,174,901 $1,158,355 $509,612 $351,016, % $6,107,688 $6,617, % Consumer Lending $183,602,938 $224,356 $201,920 $183,378, % $3,905,964 $4,107, % Business Lending $86,555,994 $1,278,058 $545,498 $85,277, % $4,451,508 $4,997, % Other $56,936 $56, % $1,970 $1, % AVG./TOTAL $622,390,769 $2,660,769 $1,257,030 $619,730, % $14,467,130 $15,724, % 17

18 Home Products: CECL v Report Packets Upload/Manage Data Tools Settings Search Institution Settings Institution Messages Messages Settings David Ian Ian vv v Individually Reviewed Return to Standard Reports 6/30/2017 v Export v Save v Individually Reviewed Allowance $1,257,030 Individually Reviewed Balance $2,660,769 Individually Reviewed Allowance Ratio 47.24% Individually Reviewed V % Change (1 Yr.) -7.03% Individually Reviewed Allowance Trends $2,500,000 - $2,000,000 - $1,500,000 - $1,000, $1,257,030 $1,352,038 6/30/2017 3/31/ /31/2016 9/30/2016 6/30/2016 Individually Reviewed - Allowance Provided Individually Reviewed Discounted Cash Flow Individually Reviewed Fair Value Less Cost to Sell Collectively Impaired Not Impaired Reviewed Count 5 0 Impaired Not Impaired Count 5 0 Impaired Not Impaired Count 7 0 Balance $1,278,058 Balance $224,356 Balance $1,158,355 Allowance $545,498 - Allowance $201,920 Allowance $509,612 18

19 Individually Reviewed (Cont d) Individually Reviewed Individually Reviewed Individually Reviewed Not Impaired Not Impaired Impaired Impaired Individually Reviewed Segment / Class Count Balance Count Balance Count Balance Allowance Residential Lending 1 st Mortgage 2 $758, $758,312 $189,578 2 nd Mortgage 5 $400, $400,043 $320,034 Residential Other Subtotal 7 $1,158, $1,158,355 $509,612 Consumer Lending New Auto 1 $25, $25,386 $22,847 Used Auto 1 $18, $18,956 $17,060 Credit Cards Con. Other Secured 3 $180, $180,014 $162,013 Subtotal 5 $224, $224,356 $201,920 Business Lending Business (C&I) 1 $226, $226,845 $170,134 Business (CRE) 1 $751, $751,213 $225,364 Business (Other) 3 $300, $300,000 $150,000 Subtotal 5 $1,278, $1,278,058 $545,498 TOTAL 17 $2,660, $2,660,769 $1,257,030 19

20 Home Products: CECL v Report Packets Upload/Manage Data Tools Settings Search Institution Settings Institution Messages Messages Settings David Ian Ian vv v Collectively Reviewed Return to Standard Reports 6/30/2017 v Export v Save v Collectively Reviewed Allowance $14,467,130 Collectively Reviewed Balance $619,730,000 Collectively Reviewed Allowance Ratio 2.33% Collectively Reviewed V % Change (1-Yr.) +4.54% Allowance Trends $15,000,000 - $10,750,000 - $7,500,000 - $3,250, $14,467,130 $13,838,149 6/30/2017 3/31/ /31/2016 9/30/2016 6/30/

21 Institution Settings Institution Messages Settings Ian Ian v v Collectively Reviewed (Cont d) Collectively Reviewed Collectively Reviewed Base Loss Base Loss Q&E Forecast Adjusted Collectively Reviewed Segment/Class Balance Method Rate Adjustment Adjustment Loss Rate Allowance Residential Lending First Mortgage Second Mortgage Residential Other Subtotal Consumer Lending New Auto Used Auto Etc. Business Lending Other $279,886,553 $66,473,056 $3,498,582 $349,858,191 $57,518,969 $90,020,302 $35,614,955 $85,277,936 $56,936 AVG./TOTAL $619,730,000 $6,887,000 21

22 Home Products: CECL v Report Packets Upload/Manage Data Tools Settings Search Institution Settings Institution Messages Messages Settings David Ian Ian vv v Allowance Rollfoward Return to Standard Reports 6/30/2017 v Export v Save v Mortgages V Dec. 31, 2016 Mar. 31, 2017 Beginning Balance $1,100 $1,000 -Charge-offs $700 +Recoveries $100 Balance Before Expected Credit Loss Provision $500 +Provision for Expected Credit Loss $500 Ending Balance $1,000 22

23 Home Products: CECL v Report Packets Upload/Manage Data Tools Settings Search Institution Settings Institution Messages Messages Settings David Ian Ian vv v Q & E Summary Return to Standard Reports 6/30/2017 v Export v Save v Summary Class 1 (Policy) 2 (Econ) 3 (Mix) 4 (Mng t) 5 (Delq) 6 (Reviews) 7 (Collateral) 8 (Conc.) 9 (Comp/Reg) 1 st Mortgage 0% -0.03% 0% 0% 0% 0% 0% 0% 0% 2 nd Mortgage 0% -0.03% 0% 0% 0% 0% 0% 0% 0% Residential Other 0% -0.03% 0% 0% 0% 0% 0% 0% 0% New Auto 0% -0.01% 0% 0% 0% 0% 0% 0% 0% 1. Lending Policies. Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses. 2. Economic Conditions. Changes in international, national, regional, and local economic and business conditions and developments that affect the collectibility of the portfolio, including the condition of various market segments. 3. Loan Mix. Changes in the nature and volume of the portfolio and in the terms of loans. 4. Management Expertise. Changes in the experience, ability, and depth of lending management and other relevant staff. 5. Delinquency/Loan Quality. Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified loans. 6. Loan Reviews. Changes in the quality of the institution's loan review system. 7. Collateral Values. Changes in the value of underlying collateral for collateral-dependent loans. 8. Concentrations. The existence and effect of any concentrations of credit, and changes in the level of such concentrations. 9. Competition/Regulatory. The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution's existing portfolio.

24 Home Products: CECL v Report Packets Upload/Manage Data Tools Settings Search Institution Settings Institution Messages Messages Settings David Ian Ian vv v Credit Quality Summary Return to Standard Reports 6/30/2017 v Export v Save v Credit Quality Summary Segment / Class A+ (1) A (2) B (3) C (4) D (5) E (6) TOTAL Residential Lending 1 st Mortgage 2 nd Mortgage Residential Other Subtotal Consumer Lending New Auto Used Auto Credit Cards Con. Other Unsecured Subtotal $212,433,894 $47,510,742 $12,384,980 $3,148,724 $2,449,007 $2,204,107 $280,131,454 $49,155,076 $10,180,873 $5,877,618 $2,693,908 $979,603 $769,688 $69,656,766 $34,986 $34,986 $261,588,970 $57,691,616 $18,262,598 $5,842,632 $3,428,610 $3,008,780 $349,823,205 $30,275,385 $16,015,262 $6,426,125 $3,125,124 $1,012,574 $689,886 $57,544,355 $46,129,642 $27,637,973 $8,480,261 $4,516,672 $2,871,902 $402,808 $90,039,258 $10,421,476 $5,384,734 $3,516,561 $1,501,865 $952,402 $824,194 $22,601,232 $5,879,250 $2,820,575 $2,197,851 $1,007,348 $476,201 $604,409 $12,985,635 $97,969,196 $35,861,598 $24,212,989 $11,025,884 $6,300,505 $7,582,585 $182,952,756 Credit quality tiers may be grouped if different Credit Quality Indicators have a different number of tiers. 24

25 Home Products: CECL v Report Packets Upload/Manage Data Tools Settings Search Institution Settings Institution Messages Messages Settings David Ian Ian vv v Credit Quality by Vintage Return to Standard Reports 6/30/2017 v Export v Save v 1 st Mortgage* 1 st Mortgages are analyzed for credit quality using a Probability of Default method. This method utilizes factors such as credit scores and loan-to-values (LTV s), among other variables. Credit scores are updated Quarterly. LTV s are updated monthly. A+ (< 0.50% ) A (< 1.00%) B (< 5.00%) C (< 10.00%) D (< 20.00%) E (> 30.0%) $1,175,524 $5,541,754 $7,193,084 $3,190,707 $15,197,840 $31,907,067 $16,177,443 $5,765,663 $363,852 $783,682 $503,795 $111,954 $839,656 $167,932 $279, All Others Total $5,569,742 $13,322,600 $35,993,411 $4,142,321 $12,342,997 $85,533,331 $167,931 $1,007,592 $2,938,809 $111,955 $867,648 $1,231,501 $111,955 $251,898 $363,853 $111,955 $363,853 $755,694 *Repeat for each class 25

26 Home Products: CECL v Report Packets Upload/Manage Data Tools Settings Search Institution Settings Institution Messages Messages Settings David Ian Ian vv v Delinquency Report Return to Standard Reports 6/30/2017 v Export v Save v Pre-Delinquent (1-59) $531,387,268 Delinquent Balance $1,998,671 Delinquent (>=90) $886,419 Delinquency Ratio.37% Delinquency Aging Segment/Class 0 DPD 1-29 DPD DPD DPD DPD >=120 DPD TOTAL >=60 DPD Residential Lending First Mortgage Second Mortgage Residential Other Subtotal Consumer Lending New Auto Used Auto Credit Cards Con. Other Unsecured Subtotal $279,082,411 $62,854,972 $3,456,122 $345,393,505 $57,500,989 $84,699,032 $19,065,300 $12,564,425 $170,829,746 $5,979,719 $42,460 $6,022,178 $17,980 $3,206,178 $3,010,662 $143,601 $6,378,421 $822,075 $822,075 $1,590,475 $224,736 $126,132 $1,941, $516,633 $516,633 $295,733 $17,169 $312,902 $78,937 $102,961 $101,468 $283,366 $532,410 $532,410 $149,947 $197,573 $5,840 $353,360 $1,049,043 $6,801,794 $42,460 $7,893,296 $17,980 $5,321,270 $3,535,932 $394,210 $9,269,392

27 Delinquency Report (Cont d) Institution Settings Ian v Delinquency Rates Segment/Class Delinquent Count Delinquent Balance Balance Delinquency Ratio Residential Lending 1 st Mortgage 2 nd Mortgage Residential Other Subtotal Consumer Lending New Auto Used Auto Credit Cards Con. Other Unsecured Subtotal Business Lending Business (C&I) $1,049,043 $1,049,043 $524,617 $228,884 $123,477 $800,524 $280,131,454 $69,656,766 $34,986 $349,823,206 $164,839 $147,201,051 $12,985,635 $22,601,232 $85,277,936.37% 0% 0%.03% 0% 0.36% 1.76%.55%.94% 27

28 Home Products: CECL v Report Packets Upload/Manage Data Tools Settings Search Institution Settings Institution Messages Messages Settings David Ian Ian vv v Charge-off Report Return to Standard Reports 6/30/2017 v Export v Save v Charge-off Count (1 Yr.) 557 Charge-off Balance (1-Yr.) $2,756,538 Avg. Balance (1-Yr.) $499,405,567 Charge-off Ratio (1 Yr.) 0% Delinquency Aging Segment/Class Charge-off Count (1 Yr.) Gross Charge-off Balance (1 Yr.) Recovery Balance ( 1 Yr.) Charge-off Balance (1 Yr.) Avg. Balance (1-Yr.) Charge-off Ratio (1 Yr.) Residential Lending 1 st Mortgage 2 nd Mortgage Residential Other $52,487 $22,234 $30,253 $274,845,952 $65,248,329 $30,121 0% % 0% Subtotal 2 $22,234 $30,253 $340,124, % Consumer Lending New Auto Used Auto Credit Cards $560,982 $1,346,133 $886,998 $156,378 $324,458 $42,956 $404,604 $1,021,675 $844,042 $51,482,351 $78,942,315 $18,594, % 1.29% 4.54% Con. Other Unsecured 105 $479,178 $23,214 $455,964 $10,261, % Subtotal 555 $3,273,291 $547,006 $2,726,285 $159,281, % 28

29 Charge-off Report (Cont d) Institution Settings Ian v Charge-off History Segment/Class Charge-off Balance (2017 YTD) Charge-off Balance (2016 ) Charge-off Balance (2015) Charge-off Balance (2014) Charge-off Balance (2013) Residential Lending 1 st Mortgage 2 nd Mortgage Residential Other Subtotal Consumer Lending New Auto Used Auto Credit Cards Con. Other Unsecured Business Lending Business (C&I) $30,624 $30,624 $260,728 $528,256 $435,872 $212,967 $25,375 $125,798 $58,374 $184,172 $512,374 $978,642 $725,891 $362,746 $30,124 $76,324 $44,374 $120,698 $475,126 $1,052,413 $811,734 $405,891 $44,675 $85,283 $38,842 $124,125 $462,973 $942,716 $862,411 $378,954 $40,348 $101,537 $50,114 $151,651 $488,672 $998,732 $900,688 $388,735 $36,719 29

30 Home Products: CECL v Report Packets Upload/Manage Data Tools Settings Search Institution Settings Institution Messages Messages Settings David Ian Ian vv v Non-Accrual Report Return to Standard Reports 6/30/2017 v Export v Save v Non-Accrual Count 223 Non-Accrual Balance $1,169,136 Balance $531,824,550 Non-Accrual Ratio 0.22% Non -Accrual Ratios Nonaccrual Nonaccrual Interest Income >= 90 DPD but not on Nonaccruals with no Segment/Class Count Balance Balance Nonaccrual Ratio on Nonaccruals Nonaccrual Status Related Allowance Residential Lending 1 st Mortgage 2 nd Mortgage Residential Other Subtotal Consumer Lending New Auto Used Auto Credit Cards Con. Other Unsecured Subtotal $532,410 $532,410 $228,884 $300,534 $107,308 $636,726 $279,599,044 $69,656,766 $34,986 $349,290,796 $57,544,355 $89,810,374 $22,300,698 $12,878,327 $182,533, % 0% 0% 0.15% 0% 0.25% 1.35% 0.83% 0.35% 30

31 Home Products: CECL v Report Packets Upload/Manage Data Tools Settings Search Institution Settings Institution Messages Messages Settings David Ian Ian vv v TDR / Modification Report Return to Standard Reports 6/30/2017 v Export v Save v TDR / Modification Count 123 TDR / Modification Balance $2,249,868 Balance $529,006,922 TDR / Modification Ratio 0.43% Non -Accrual Ratios Segment/Class TDR / Modification Count TDR / Modification Balance Balance TDR / Modification Ratio Residential Lending 1 st Mortgage 2 nd Mortgage Residential Other Subtotal Consumer Lending New Auto Used Auto Credit Cards Con. Other Unsecured Subtotal $758,312 $400,043 $1,158,355 $553,867 $318,956 $38,679 $180,014 $1,091,516 $279,373,142 $66,473,056 $3,498,582 $345,849,696 $57,518,969 $90,020,302 $22,958,998 $12,655,957 $183,157, % 0.6% 0% 0.33% 0.96% 0.35% 0.17% 1.42% 0.6% 31

32 Institution Settings Ian v TDR / Modification Report (Cont d) Modification Reasons Modified Modified Modified Modified Modified Pre-Modification Post-Modification Subsequent Segment/Class Rate Payment Term Balance Other/Combo Balance Balance Deafult Residential Lending 1 st Mortgage 2 nd Mortgage Residential Other Subtotal Consumer Lending New Auto Used Auto Credit Cards Con. Other Unsecured Subtotal 32

33 Home Products: CECL v Report Packets Upload/Manage Data Tools Settings Search Institution Settings Institution Messages Messages Settings David Ian Ian vv v Stress Test Report Return to Standard Reports 6/30/2017 v Export v Save v Allowance Allowance Optimistic Scenario Allowance Adverse Scenario Allowance Severely Adverse Scenario Stress Test Results Individually Reviewed Collectively Reviewed Collectively Reviewed Collectively Reviewed Collectively Reviewed Collectively Reviewed Segment/Class Allowance Balance Allowance Allowance-Optimistic Allowance-Adverse Allowance Sev. Adverse Residential Lending First Mortgage Second Mortgage Etc. Consumer Lending New Auto Used Auto Etc. Business Lending Other AVG./TOTAL 33

34 Stress Test Report (Cont d) Optimistic Scenario. Description Adverse Scenario. Description Severely Adverse Scenario. Description 34

35 Medal Ceremony

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SAVE THE DATE! 22nd Annual CFO Council Conference The Disneyland Hotel Anaheim, CA May 15 18, 2016

SAVE THE DATE! 22nd Annual CFO Council Conference The Disneyland Hotel Anaheim, CA May 15 18, 2016 2 A Practical Guide to the Allowance for Expected Credit Loss FASB Subtopic 825-15 Agenda 1 2 3 4 Introduction