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cliftonlarsonallen.com

FASB CECL Model: How to Prepare Now August 27, 2013

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About CliftonLarsonAllen LLP

• Top 10 accounting firm

• Serve over 1,100 financial institutions in the country

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

• We concentrate on community banks, thrifts and credit unions

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About Sageworks

• 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

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Today’s Presenters

Todd Sprang, CliftonLarsonAllen

Todd has 20 years auditing and consulting experience the financial institutions industry. He serves as a member of the AICPA Depository Institutions Expert Panel.

Vimal Patel, Sageworks

Vimal has been with Sageworks for 7 years helping financial institutions reduce risk and increase profitability in their portfolios.

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Summary of Expected Loss Model

• FASB released latest proposal December 2012

• How does it impact financial institutions?

– Forward-looking requirements

– “Probable” threshold removed

– Longer loss horizon

– Time value of money plays a role

– Collateral definitions

• Comment period ended May 31, 2013

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Overall Comment Letter Themes

1. Clear distinction between supporters of the proposed model and opponents

2. Proposed model will not fully correct the problem of “too little too late”

3. Interaction with Recognition and Measurement proposal and Basel III

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Comments from Large Institutions

1. Significant implementation time is required

2. Concur with proposed PCI asset accounting

3. Modify the proposed forecast loss period

4. Remove the concept of time value of money

5. Modify or exclude application to debt securities

6. Eliminate TDR designation

7. Reconcile with IASB

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Comments from Smaller Institutions

1. Inability to accurately predict losses and lack of available data

2. Requires significant implementation cost

3. Regulators will utilize this as a tool to increase ALLL and decrease capital

4. Violates matching principle

5. Exclude smaller or non-public institutions

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Comments from Auditors of Smaller Institutions

1. Proposed model will be more challenging to support and audit

2. Life of loan losses aren’t “reasonable and supportable”

3. Modify or exclude application to debt securities

4. Costs of additional disclosure requirements outweigh benefits

5. Eliminate TDR designation

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Comments from Regulators

1. Addresses the problem of “too little, too late”

2. Encourage convergence with IASB

3. Suggest practical expedients and transition periods for smaller institutions

4. Support application of nonaccrual and write-off provisions to non-regulated entities

5. Alternatives to TDR recognition and disclosure

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What Should I Do Now?

• Improve data processes

• Increase data integrity

• Reduce dependency on spreadsheets

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Wrap-Up/Questions and Answer

Questions?

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Contact Information

Todd A. Sprang

1301 West 22nd St, Suite 1100

Oak Brook, IL 60523

Todd.Sprang@CliftonLarsonAllen.com

Direct (630) 954-8175

Vimal Patel

5565 Centerview Drive

Raleigh, NC 27606

Vimal.Patel@Sageworks.com

Direct (919) 656-6531