Presented by:

Mike Lubansky, Sageworks, Inc.

Tom Danielson, CliftonLarsonAllen

Todd Sprang, CliftonLarsonAllen

Moderated by:

Ed Bayer, Sageworks, Inc.

Financial information company that provides credit and risk management solutions to financial institutions

Data and applications used by thousands of financial institutions and accounting firms across North America

Awards ◦ Named to Inc. 500 list of fastest growing privately

held companies in the U.S.

◦ Named to Deloitte’s Technology Fast 500

Top 10 accounting firm

Serve over 1,200 financial institutions in the country

200 professionals, including 25 partners, who focus exclusively on financial institutions

Concentrate on community banks, thrifts and credit unions

Opinions expressed today represent personal views of Todd and Tom. Our personal opinions are still rapidly evolving as we continue to evaluate the exposure draft. CliftonLarsonAllen is in the process of writing a formal comment letter for the Exposure Draft which will then express the official views of our firm.

Mike Lubansky ◦ Mike Lubansky is a director of consulting services at

Sageworks and serves as the in-house ALLL expert. He has led the implementation of an automated ALLL solution for more than 70 financial institutions ranging in size from $37 million to $20 billion in assets.

Tom Danielson ◦ Tom is a partner with 30 years experience providing audit, tax,

loan review and consulting services to community banks.

Todd Sprang ◦ Todd, also a partner, has 20 years of auditing and consulting

experience in the financial institutions industry. He serves as a

member of the AICPA Depository Institutions Expert Panel.

Currently using ‘Incurred Loss Model’

Backward looking

Must pass “probable” threshold

Credit deterioration not recognized in a timely manner

Five different methods for measuring impairment

Forward-looking requirements

“Probable” threshold removed

Longer loss horizon

Time value of money plays a role

Collateral definitions

We don’t yet know how it will impact allowance levels

Some are speculating that it may increase 10 to 50 percent

Be skeptical of such statements ◦ Still working on the math

◦ Depends on the type of lending that you do

◦ Our first impression that it will most impact long-term non-revolving loans (HELOC’s and RLOC)

ALLL should be more volatile—especially upwardly

Climb more quickly during economic downturn

In theory, it will also drop more quickly as the economy improves

Concerns over regulatory scrutiny may dampen management’s willingness to lower ALLL

Even more judgment is required

Greater regulatory scrutiny

More challenging math

Lack of data, especially for small to mid-size banks

Attempting to predict the future

Need to know where we are in the economic cycle

Implies we can identify when a downturn/recovery starts

Implies we can predict the severity of a downturn

Discourages longer-term lending that customers may desire

Comment period ends April 30

Talk to auditors, accounting firms, examiners, etc.

Submit formal feedback: What you like, don’t like, etc.

There are good parts to the Exposure Draft

We are not trying to imply that no changes are needed

Draft a comment letter to FASB

Exposure Draft contains questions from FASB to address

Don’t need to comment on everything in the Exposure Draft ◦ (ex – implementation timeframe)

Form letters aren’t effective

Read comment letters from others

Industry analysts suggest late 2015 – early 2017

Typically standards are applied first to public companies. Privately-held companies often get an extra year to comply

LinkedIn Group – ALLL Forum for Bankers

Future Webinars ◦ Sageworks Surety – Thursday, 2/28, 2:00pm EST

Sageworks Risk Management Consultants ◦ surety@sageworks.com

◦ (919) 851-7474

CliftonLarsonAllen ◦ Todd.Sprang@CliftonLarsonAllen.com

◦ (630) 954-8175

◦ Thomas.Danielson@CliftonLarsonAllen.com

◦ (612) 376-4795