Company: MCHB
Filing Date: 2025-04-15
Form Type: ARS
Source: 0001518715-25-000069
Chunk: 49

Company: Mechanics Bancorp
Filing Date: 2025-04-15
Form: ARS
Chunk 49
---
 the loan at the time of cohort establishment becomes part of the numerator of the PD calculation. The Loss Given Probability of Default ("LGPD") or Expected Loss ("EL") is the weighted average PD for each sub-pool cohort times the average LGD for each pool. The output from the model then is a series of EL rates for each loan sub-pool, which are applied to the related outstanding balances for each loan sub-pool to determine the ACL reserve based on historical loss rates. Q-Factors The Q-Factors adjust the expected historic loss rates for current and forecasted conditions that are not provided for in the historical loss information. The Company has established a methodology for adjusting historical expected loss rates based on these more recent or forecasted changes. The Q-Factor methodology is based on a blend of quantitative analysis and management judgment and reviewed on a quarterly basis. 42

Each of the thirteen factors in the FASB standard were analyzed for common risk characteristics and grouped into seven consolidated Q-Factors as listed below: Qualitative Factor Financial Instruments - Credit Losses Portfolio Credit Quality The borrower's financial condition, credit rating, credit score, asset quality or business prospects The borrower's ability to make scheduled interest or principal payments The volume and severity of past due financial assets and the volume and severity of adversely classified or rated financial assets Remaining Payments The remaining payment terms of the financial assets The remaining time to maturity and the timing and extent of payments on the financial assets Volume & Nature The nature and volume of the entity's financial assets Collateral Values The value of underlying collateral on financial assets in which the collateral-dependent practical expedient has not been utilized Economic The environmental factors of a borrower and the areas in which the entity's credit is concentrated, such as: changes and expected changes in national, regional and local economic and business conditions and developments in which the entity operates, including the condition and expected condition of various market segments Credit Culture The entity's lending policies and procedures, including changes in lending strategies, underwriting standards, collection, write-off and recovery practices, as well as knowledge of the borrower's operations or the borrower's standing in the community The quality of the entity's credit review system The experience, ability and depth of the entity's management, lending staff, and other relevant staff Business Environment The environmental factors of a borrower and the areas in which the entity's credit is concentrated, such as: regulatory, legal, or technological environment to which the entity has exposure The environmental factors of a borrower and the areas in which the entity's credit is concentrated, such as: