CECL planning requires collaboration between a bank or credit union's credit and finance functions for the aggregation and analysis of credit loss history. In these slides, find out how decisions made early in your implementation process will influence your ability to leverage results/outputs.

1. CECL - Credit & Finance
ENSURING YOUR CECL MODEL BENEFITS LENDING,
CREDIT, ACCOUNTING AND FINANCE
October 19 · 2017

2. Disclaimer
3
This presentation may include statements that constitute “forward-looking statements” relative to publicly
available industry data. Forward-looking statements often contain words such as “believe,” “expect,”
“plans,” “project,” “target,” “anticipate,” “will,” “should,” “see,” “guidance,” “confident” and similar terms.
There can be no assurance that any of the future events discussed will occur as anticipated, if at all, or that
actual results on the industry will be as expected. Sageworks is not responsible for the accuracy or validity
of this publicly available industry data, or the outcome of the use of this data relative to business or
investment decisions made by the recipients of this data. Sageworks disclaims all representations and
warranties, express or implied. Risks and uncertainties include risks related to the effect of economic
conditions and financial market conditions; fluctuation in commodity prices, interest rates and foreign
currency exchange rates. No Sageworks employee is authorized to make recommendations or give advice
as to any course of action that should be made as an outcome of this data. The forward-looking statements
and data speak only as of the date of this presentation and we undertake no obligation to update or revise
this information as of a later date.

3. About Sageworks
4

4. CECL - Credit & Finance
6
AGENDA
• CECL Paradigm: Governing thought pattern that maximizes success for all stakeholders
» What, When, How to execute
• Cross Application: Leverage CECL models and model results for more than journal entries
» Quantify value
• Evaluation: The observed performance of underlying assets can provide meaningful
managerial insight
» Quantify experience
• Summary: The relationship between CECL, valuation, and evaluation

5. CECL - Credit & Finance
7
AGENDA
• CECL Paradigm: Governing thought pattern that maximizes success for all stakeholders
» What, When, How to execute
• Cross Application: Leverage CECL models and model results for more than journal entries
» Quantify value
• Evaluation: The observed performance of underlying assets can provide meaningful
managerial insight
» Quantify experience
• Summary: The relationship between CECL, valuation, and evaluation

6. 8
• Link to FASB

7. CECL Paradigm – Why
9
FASB – ASU 2016-13
Example balance sheet (assets) contains long-term
instruments in the form of loans and leases.
“An entity shall estimate expected credit
losses over the contractual term of the
financial asset(s)”
“When developing an estimate of expected
credit losses on financial asset(s), an entity
shall consider available information
relevant to assessing the collectability of
cash flows”
• Link to FASB

8. CECL Paradigm – Why
10
KEY QUESTIONS
Flexibility, methodology comparisons, volatility, and cross-application
are key considerations for implementation.
Will the first attempt be the final
model?
Will the industry evolve in it’s
interpretation and application?
Will other stakeholders within the
institution leverage the analytical
outputs for managerial purposes?

9. CECL Paradigm
11
What When How

10. CECL Paradigm
12
What specific
objectives need to
be accomplished
When How

11. CECL Paradigm
13
What specific
objectives need to
be accomplished
When does each
objective need to
be accomplished
How

12. CECL Paradigm
14
What specific
objectives need to
be accomplished
When does each
objective need to
be accomplished
How will each
objective be
accomplished

13. CECL Paradigm – What
15
Data – Adequacy, Accuracy, Availability

14. CECL Paradigm – What
16
Data – Adequacy, Accuracy, Availability
Historical Performance – Life, Loss, Methodology

15. CECL Paradigm – What
17
Data – Adequacy, Accuracy, Availability
Historical Performance – Life, Loss, Methodology
Forecasting – Impact to Life, Loss, and Methodology

16. CECL Paradigm – What/When
18
Data – Adequacy, Accuracy, Availability/LATE
Historical Performance – Life, Loss, Methodology/NOW/2018
Forecasting – Impact to Life, Loss, and Methodology/2019/20

17. 19
2018 Q1 Q2 Q4 2019 Q2 Q3 Q4 2020 2021
2018 • Data assurance is complete/remediation started
• Methodology/Segmentation comparisons
• Forecasting exploration
• Formal/documented parallel calculations
• Disclosure preparation
• Processes, procedures, and control documentation
2019
• SEC filers go-live/record journal entries
• Non-SEC filers common size comparisons with analogous SEC filers
2020
CECL Paradigm – What/When

18. 20
2018 Q1 Q2 Q4 2019 Q2 Q3 Q4 2020 2021
2018 • Data assurance is complete/remediation started
• Methodology/Segmentation comparisons
• Forecasting exploration
• Formal/documented parallel calculations
• Disclosure preparation
• Processes, procedures, and control documentation
2019
• SEC filers go-live/record journal entries
• Non-SEC filers common size comparisons with analogous SEC filers
2020
CECL Paradigm – What/When

19. 21
2018 Q1 Q2 Q4 2019 Q2 Q3 Q4 2020 2021
2018 • Data assurance is complete/remediation started
• Methodology/Segmentation comparisons
• Forecasting exploration
• Formal/documented parallel calculations
• Disclosure preparation
• Processes, procedures, and control documentation
2019
• SEC filers go-live/record journal entries
• Non-SEC filers common size comparisons with analogous SEC filers
2020
CECL Paradigm – What/When

20. 22
2018 Q1 Q2 Q4 2019 Q2 Q3 Q4 2020 2021
2018 • Data assurance is complete/remediation started
• Methodology/Segmentation comparisons
• Forecasting exploration
• Formal/documented parallel calculations
• Disclosure preparation
• Processes, procedures, and control documentation
2019
• SEC filers go-live/record journal entries
• Non-SEC filers common size comparisons with analogous SEC filers
2020
CECL Paradigm – What/When

21. 23
Poll Question

22. 24
CECL Transition - Example
Continued >>

23. 25
CECL Transition - Example
<< Continued

24. CECL - Credit & Finance
26
AGENDA
CECL Paradigm: Governing thought pattern that maximizes success for all stakeholders
» What, When, How to execute
• Cross Application: Leverage CECL models and model results for more than journal entries
» Quantify value
• Evaluation: The observed performance of underlying assets can provide meaningful
managerial insight
» Quantify experience
• Summary: The relationship between CECL, valuation, and evaluation

25. CECL - Credit & Finance
27
AGENDA
CECL Paradigm: Governing thought pattern that maximizes success for all stakeholders
» What, When, How to execute
• Cross Application: Leverage CECL models and model results for more than journal entries
» Quantify value
• Evaluation: The observed performance of underlying assets can provide meaningful
managerial insight
» Quantify experience
• Summary: The relationship between CECL, valuation, and evaluation

26. Loan Valuation – Why
28
FASB – DECEMBER 20, 2012
Example balance sheet (assets) contains long-term
instruments in the form of loans and leases.
“The CECL model uses a single expected
credit loss measurement objective for the
allowance for credit loss. Under this model,
the allowance for expected credit losses
would reflect management’s current
estimate of the contractual cash flows that
the company does not expect to collect,
based on its assessment of credit risk as of
the reporting date.”
• Link to FASB

27. CECL - Credit & Finance
29
WHO OWNS THE PROCESS NOW?

28. CECL - Credit & Finance
30
WHO WILL OWN THE NEW PROCESS?

29. CECL - Credit & Finance
31
CROSS-FUNCTIONAL OPPORTUNITIES
• Credit Risk Evaluation: Leverage risk-level history for underwriting/pricing considerations
» Are better rated credits experiencing better default and loss performance
• Risk Rating Testing: Do risk ratings correlate to risk and are risk ratings being updated
» Do loans move to loss from pass quickly and are loans migrating or stagnant
• ALM: Prepayment speed and/or life assumption confirmation and/or testing
» Ensure symmetry or explain asymmetry
• Stress Testing: Some CECL methodologies align with stress testing exercises
» What happens to the loan portfolio under defined economic conditions
• Fair Value: Some CECL methodologies align with fair value exercises

30. 32
• Link to FASB

31. Loan Valuation/Fair Value/Exit Price
33
What When How

32. Loan Valuation/Fair Value/Exit Price
34
What are the
purposes of loan
valuations
When How

33. Loan Valuation/Fair Value/Exit Price
35
What are the
purposes of loan
valuations
When are loan
valuations
required
How

34. Loan Valuation/Fair Value/Exit Price
36
What are the
purposes of loan
valuations
When are loan
valuations
required
How are loan
valuations
executed

35. Loan Valuation – What is the Purpose
37
Classification and Measurement – ASU 2016-1 (PBE/SEC)

36. Loan Valuation – What is the Purpose
38
Classification and Measurement – ASU 2016-1 (PBE/SEC)
Fair Value – How market participants value the loan portfolio

37. Loan Valuation – What is the Purpose
39
Profitability – Lifetime profitability not next year’s net income
Classification and Measurement – ASU 2016-1 (PBE/SEC)
Fair Value – How market participants value the loan portfolio

38. Loan Valuation – When
40
Profitability – Whenever earnings are of interest
Classification and Measurement – Q1 2018 PBE and SEC filers
Fair Value – “As of” an acquisition, merger or asset purchase

39. Period Balance Principal Interest Payment Prepayment Defaults Estimated Loss Cash Flow NPV
1 200,511 1,228 769 1,996 2,478 422 63 4,474 4,457
2 196,383 1,103 749 1,852 2,427 414 62 4,279 4,246
3 192,439 1,229 738 1,966 2,376 405 61 4,343 4,293
4 188,429 1,097 718 1,815 2,327 397 60 4,142 4,078
5 184,608 1,143 707 1,851 2,277 389 58 4,128 4,048
6 180,798 1,147 693 1,839 2,229 381 57 4,068 3,974
7 177,042 1,125 674 1,799 2,181 373 56 3,980 3,873
8 173,363 1,247 664 1,911 2,133 365 55 4,044 3,920
9 169,618 1,388 646 2,033 2,086 357 54 4,120 3,979
10 165,787 1,197 635 1,832 2,040 349 52 3,872 3,724
11 … … … … … … … … …
Loan Valuation – How
41
DISCOUNTED CASH FLOW – CECL
Aggregated loan-level - presented in 000’s

40. Period Balance Principal Interest Payment Prepayment Defaults Estimated Loss Cash Flow NPV
1 200,511 1,228 769 1,996 2,478 422 63 4,474 4,457
2 196,383 1,103 749 1,852 2,427 414 62 4,279 4,246
3 192,439 1,229 738 1,966 2,376 405 61 4,343 4,293
4 188,429 1,097 718 1,815 2,327 397 60 4,142 4,078
5 184,608 1,143 707 1,851 2,277 389 58 4,128 4,048
6 180,798 1,147 693 1,839 2,229 381 57 4,068 3,974
7 177,042 1,125 674 1,799 2,181 373 56 3,980 3,873
8 173,363 1,247 664 1,911 2,133 365 55 4,044 3,920
9 169,618 1,388 646 2,033 2,086 357 54 4,120 3,979
10 165,787 1,197 635 1,832 2,040 349 52 3,872 3,724
11 … … … … … … … … …
Loan Valuation – How
42
DISCOUNTED CASH FLOW – CECL
Aggregated loan-level - presented in 000’s

41. Period Balance Principal Interest Payment Prepayment Defaults Estimated Loss Cash Flow NPV
1 200,511 1,228 769 1,996 2,478 422 63 4,474 4,457
2 196,383 1,103 749 1,852 2,427 414 62 4,279 4,246
3 192,439 1,229 738 1,966 2,376 405 61 4,343 4,293
4 188,429 1,097 718 1,815 2,327 397 60 4,142 4,078
5 184,608 1,143 707 1,851 2,277 389 58 4,128 4,048
6 180,798 1,147 693 1,839 2,229 381 57 4,068 3,974
7 177,042 1,125 674 1,799 2,181 373 56 3,980 3,873
8 173,363 1,247 664 1,911 2,133 365 55 4,044 3,920
9 169,618 1,388 646 2,033 2,086 357 54 4,120 3,979
10 165,787 1,197 635 1,832 2,040 349 52 3,872 3,724
11 … … … … … … … … …
Loan Valuation – How
43
DISCOUNTED CASH FLOW – CECL
Aggregated loan-level - presented in 000’s

42. Period Balance Principal Interest Payment Prepayment Defaults Estimated Loss Cash Flow NPV
1 200,511 1,228 769 1,996 2,478 422 63 4,474 4,457
2 196,383 1,103 749 1,852 2,427 414 62 4,279 4,246
3 192,439 1,229 738 1,966 2,376 405 61 4,343 4,293
4 188,429 1,097 718 1,815 2,327 397 60 4,142 4,078
5 184,608 1,143 707 1,851 2,277 389 58 4,128 4,048
6 180,798 1,147 693 1,839 2,229 381 57 4,068 3,974
7 177,042 1,125 674 1,799 2,181 373 56 3,980 3,873
8 173,363 1,247 664 1,911 2,133 365 55 4,044 3,920
9 169,618 1,388 646 2,033 2,086 357 54 4,120 3,979
10 165,787 1,197 635 1,832 2,040 349 52 3,872 3,724
11 … … … … … … … … …
Loan Valuation – How
44
DISCOUNTED CASH FLOW – CECL
Aggregated loan-level - presented in 000’s

43. Period Balance Principal Interest Payment Prepayment Defaults Estimated Loss Cash Flow NPV
1 200,511 1,228 769 1,996 2,478 422 63 4,474 4,457
2 196,383 1,103 749 1,852 2,427 414 62 4,279 4,246
3 192,439 1,229 738 1,966 2,376 405 61 4,343 4,293
4 188,429 1,097 718 1,815 2,327 397 60 4,142 4,078
5 184,608 1,143 707 1,851 2,277 389 58 4,128 4,048
6 180,798 1,147 693 1,839 2,229 381 57 4,068 3,974
7 177,042 1,125 674 1,799 2,181 373 56 3,980 3,873
8 173,363 1,247 664 1,911 2,133 365 55 4,044 3,920
9 169,618 1,388 646 2,033 2,086 357 54 4,120 3,979
10 165,787 1,197 635 1,832 2,040 349 52 3,872 3,724
11 … … … … … … … … …
Loan Valuation – How
45
DISCOUNTED CASH FLOW – CECL
Aggregated loan-level - presented in 000’s

44. Loan Valuation – How
46
DISCOUNTED CASH FLOW – CECL
Aggregated loan-level - presented in 000’s
Period Balance Cash Flow NPV
1 200,511 4,474 4,457
2 196,383 4,279 4,246
3 192,439 4,343 4,293
4 188,429 4,142 4,078
5 184,608 4,128 4,048
6 180,798 4,068 3,974
7 177,042 3,980 3,873
8 173,363 4,044 3,920
9 169,618 4,120 3,979
10 165,787 3,872 3,724
11 … … …
Aggregate NPV of projected cash flow (effective yield
discount rate) relative to book balance/amortized cost
basis.

45. Loan Valuation – How
47
DISCOUNTED CASH FLOW – CECL
Aggregated loan-level - presented in 000’s
Period Balance Cash Flow NPV
1 200,511 4,474 4,457
2 196,383 4,279 4,246
3 192,439 4,343 4,293
4 188,429 4,142 4,078
5 184,608 4,128 4,048
6 180,798 4,068 3,974
7 177,042 3,980 3,873
8 173,363 4,044 3,920
9 169,618 4,120 3,979
10 165,787 3,872 3,724
11 … … …
Aggregate NPV of projected cash flow (effective yield
discount rate) relative to book balance/amortized cost
basis.

46. Loan Valuation – How
48
DISCOUNTED CASH FLOW – VALUATION “LEVEL 3” INPUTS
Aggregated loan-level - presented in 000’s
Period Balance Principal Interest Payment Prepayment Defaults Estimated Loss Cash Flow NPV
1 200,511 1,228 769 1,996 2,478 422 63 4,474 4,457
2 196,383 1,103 749 1,852 2,427 414 62 4,279 4,245
3 192,439 1,229 738 1,966 2,376 405 61 4,343 4,292
4 188,429 1,097 718 1,815 2,327 397 60 4,142 4,077
5 184,608 1,143 707 1,851 2,277 389 58 4,128 4,047
6 180,798 1,147 693 1,839 2,229 381 57 4,068 3,973
7 177,042 1,125 674 1,799 2,181 373 56 3,980 3,871
8 173,363 1,247 664 1,911 2,133 365 55 4,044 3,918
9 169,618 1,388 646 2,033 2,086 357 54 4,120 3,976
10 165,787 1,197 635 1,832 2,040 349 52 3,872 3,722
11 … … … … … … … … …

47. Loan Valuation – How
49
DISCOUNTED CASH FLOW – VALUATION “LEVEL 3” INPUTS
Aggregated loan-level - presented in 000’s
Period Balance Cash Flow NPV
1 200,511 4,474 4,457
2 196,383 4,279 4,245
3 192,439 4,343 4,292
4 188,429 4,142 4,077
5 184,608 4,128 4,047
6 180,798 4,068 3,973
7 177,042 3,980 3,871
8 173,363 4,044 3,918
9 169,618 4,120 3,976
10 165,787 3,872 3,722
11 … … …
Aggregate NPV of projected cash flow (effective yield discount
rate vs. fair value discount rate).
Period Balance Cash Flow NPV Discount
Total 200,511 225,705 196,619 1.94%
Period Balance Cash Flow NPV ALLL
Total 200,511 225,705 197,931 1.29%
Period Balance Cash Flow NPV Variance
Total 200,511 225,705 -1,312 -.65%

48. Loan Valuation – How
50
DISCOUNTED CASH FLOW – VALUATION “LEVEL 3” INPUTS
Aggregated loan-level - presented in 000’s
Period Balance Cash Flow NPV
1 200,511 4,474 4,457
2 196,383 4,279 4,245
3 192,439 4,343 4,292
4 188,429 4,142 4,077
5 184,608 4,128 4,047
6 180,798 4,068 3,973
7 177,042 3,980 3,871
8 173,363 4,044 3,918
9 169,618 4,120 3,976
10 165,787 3,872 3,722
11 … … …
Period Balance Cash Flow NPV Discount
Total 200,511 225,705 196,619 1.94%
Period Balance Cash Flow NPV ALLL
Total 200,511 225,705 197,931 1.29%
Period Balance Cash Flow NPV Variance
Total 200,511 225,705 -1,312 -.65%
Aggregate NPV of projected cash flow (effective yield discount
rate vs. fair value discount rate).

49. Loan Valuation – How
51
DISCOUNTED CASH FLOW – LIFETIME PROFITABILITY
Aggregated loan-level - presented in 000’s
Period Balance Principal Interest Payment Prepayment Defaults Estimated Loss Cash Flow NPV
1 200,511 1,228 769 1,996 2,478 422 63 4,474 4,459
2 196,383 1,103 749 1,852 2,427 414 62 4,279 4,249
3 192,439 1,229 738 1,966 2,376 405 61 4,343 4,298
4 188,429 1,097 718 1,815 2,327 397 60 4,142 4,085
5 184,608 1,143 707 1,851 2,277 389 58 4,128 4,057
6 180,798 1,147 693 1,839 2,229 381 57 4,068 3,985
7 177,042 1,125 674 1,799 2,181 373 56 3,980 3,885
8 173,363 1,247 664 1,911 2,133 365 55 4,044 3,934
9 169,618 1,388 646 2,033 2,086 357 54 4,120 3,994
10 165,787 1,197 635 1,832 2,040 349 52 3,872 3,740
11 … … … … … … … … …

50. Loan Valuation – How
52
DISCOUNTED CASH FLOW – LIFETIME PROFITABILITY
Aggregated loan-level - presented in 000’s
Period Balance Cash Flow NPV
1 200,511 4,474 4,459
2 196,383 4,279 4,249
3 192,439 4,343 4,298
4 188,429 4,142 4,085
5 184,608 4,128 4,057
6 180,798 4,068 3,985
7 177,042 3,980 3,885
8 173,363 4,044 3,934
9 169,618 4,120 3,994
10 165,787 3,872 3,740
11 … … …
Period Balance Cash Flow NPV Discount
Total 200,511 225,705 196,619 1.94%
Period Balance Cash Flow NPV ALLL
Total 200,511 225,705 197,931 1.29%
Period Balance Cash Flow NPV +/- bps
Total 200,511 225,705 199,922 -0.29%
Aggregate NPV of projected cash flow (effective yield discount
rate vs. fair value discount rate vs. profitability & cost build-up
discount rate).

51. Loan Valuation – How
53
DISCOUNTED CASH FLOW – LIFETIME PROFITABILITY
Aggregated loan-level - presented in 000’s
Period Balance Cash Flow NPV
1 200,511 4,474 4,459
2 196,383 4,279 4,249
3 192,439 4,343 4,298
4 188,429 4,142 4,085
5 184,608 4,128 4,057
6 180,798 4,068 3,985
7 177,042 3,980 3,885
8 173,363 4,044 3,934
9 169,618 4,120 3,994
10 165,787 3,872 3,740
11 … … …
Period Balance Cash Flow NPV Discount
Total 200,511 225,705 196,619 1.94%
Period Balance Cash Flow NPV ALLL
Total 200,511 225,705 197,931 1.29%
Period Balance Cash Flow NPV +/- bps
Total 200,511 225,705 199,922 -0.29%
Aggregate NPV of projected cash flow (effective yield discount
rate vs. fair value discount rate vs. profitability & cost build-up
discount rate).

52. CECL - Credit & Finance
54
AGENDA
CECL Paradigm: Governing thought pattern that maximizes success for all stakeholders
» What, When, How to execute
Cross Application: Leverage CECL models and model results for more than journal entries
» Quantify value
• Evaluation: The observed performance of underlying assets can provide meaningful
managerial insight
» Quantify experience
• Summary: The relationship between CECL, valuation, and evaluation

53. CECL - Credit & Finance
55
AGENDA
CECL Paradigm: Governing thought pattern that maximizes success for all stakeholders
» What, When, How to execute
Cross Application: Leverage CECL models and model results for more than journal entries
» Quantify value
• Evaluation: The observed performance of underlying assets can provide meaningful
managerial insight
» Quantify experience
• Summary: The relationship between CECL, valuation, and evaluation

54. Loan Evaluation
56
What When How

55. Loan Evaluation
57
What PD, LGD,
migration,
cumulative loss,
average life, etc.
When How

56. Loan Evaluation
58
What PD, LGD,
migration,
cumulative loss,
average life, etc.
When Often –
observe changes
in levels and
trends
How

57. Loan Evaluation
59
What PD, LGD,
migration,
cumulative loss,
average life, etc.
When Often –
observe changes
in levels and
trends
How Proper CECL
models will allow
for a variety of
independent
evaluations

58. Loan Evaluation – What/How
60
Period Start Date Risk Rating Loss Rate
6/30/2011 4 1.48%
9/30/2011 4 1.09%
12/31/2011 4 .95%
3/31/2012 4 .72%
6/30/2012 4 .67%
9/30/2012 4 .63%
… … …
MIGRATION – 3 YEAR LOSS %
Weighted average 3-year loss rate observations
summarized within Sageworks’ ALLL solution.

59. 0.00% 2.00% 4.00% 6.00% 8.00% 10.00%
7
6
5
4
3
2
3-Year Loss Experience
RiskRating
Loan Evaluation
61
0%
2%
4%
6%
8%
10%
12%
0.5 1.0 2.0 3.0 4.0
LossExperience
Duration
2 3 4 5 6 7

60. 0%
2%
4%
6%
8%
10%
12%
0.5 1.0 2.0 3.0 4.0
LossExperience
Duration
2 3 4 5 6 7
Loan Evaluation
62

61. Loan Evaluation
63
-2%
0%
2%
4%
6%
8%
10%
12%
0.5 1.0 2.0 3.0 4.0
LossExperience
Duration

62. Risk Rating - 1 2 3 4 5 6 7 8 9 Exit
- 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
1 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 30%
2 0% 0% 93% 5% 2% 0% 0% 0% 0% 0% 10%
3 0% 0% 0% 99% 0% 0% 0% 0% 0% 0% 14%
4 0% 0% 0% 3% 94% 2% 1% 1% 0% 0% 15%
5 0% 0% 0% 19% 8% 48% 12% 13% 0% 0% 21%
6 0% 0% 0% 11% 16% 17% 37% 20% 0% 0% 24%
7 0% 0% 0% 4% 0% 1% 6% 89% 0% 0% 38%
8 0% 0% 0% 0% 0% 0% 0% 0% 100% 0% 100%
Loan Evaluation – What/How
64
MIGRATION – ANNUAL CHANGE Summary of loan migration – the percentage of all loans’
ending Risk Rating relative to their beginning Risk Rating

63. Risk Rating - 1 2 3 4 5 6 7 8 9 Exit
- 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
1 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 30%
2 0% 0% 93% 5% 2% 0% 0% 0% 0% 0% 10%
3 0% 0% 0% 99% 0% 0% 0% 0% 0% 0% 14%
4 0% 0% 0% 3% 94% 2% 1% 1% 0% 0% 15%
5 0% 0% 0% 19% 8% 48% 12% 13% 0% 0% 21%
6 0% 0% 0% 11% 16% 17% 37% 20% 0% 0% 24%
7 0% 0% 0% 4% 0% 1% 6% 89% 0% 0% 38%
8 0% 0% 0% 0% 0% 0% 0% 0% 100% 0% 100%
Loan Evaluation – What/How
65
MIGRATION – ANNUAL CHANGE Summary of loan migration – the percentage of all loans’
ending Risk Rating relative to their beginning Risk Rating

64. Loan Evaluation – What/How
66
PD/LGD – 3 YEAR
3-year probability of default trend observed within Sageworks’ ALLL solution.
Risk Rating PD x LGD
0 .90%
2 1.52%
3 .61%
4 1.22%
5 1.75%
6 3.58%
7 9.62%

65. Loan Evaluation – What/How
67
PD/LGD – 3 YEAR
Risk Rating PD x LGD
0 .90%
2 1.52%
3 .61%
4 1.22%
5 1.75%
6 3.58%
7 9.62%
3-year loss given default trend observed within Sageworks’ ALLL
solution.

66. Loan Evaluation – What/How
68
PD/LGD/DCF/FORECAST
Probability of default expectation based on forecasted current and
future conditions
Aggregate NPV of projected cash flow relative to
book balance/amortized cost basis.

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AGENDA
CECL Paradigm: Governing thought pattern that maximizes success for all stakeholders
» What, When, How to execute
Valuation: The economic worth of our institutions and underlying assets
» Quantify value
Evaluation: The observed performance of underlying assets can provide meaningful
managerial insight
» Quantify experience
• Summary: The relationship between CECL, valuation, and evaluation

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CECL – Ensure that your process benefits the organization

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CECL – Ensure that your process benefits the organization
Valuation – Understand the value of each loan in our portfolio

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Evaluation – Understand the performance of our loan portfolio
CECL – Ensure that your process benefits the organization
Valuation – Understand the value of each loan in our portfolio