Company: BCTF
Filing Date: 2025-03-06
Form Type: 10-K
Source: 0001552781-25-000058
Chunk: 84

Company: Bancorp 34, Inc.
Filing Date: 2025-03-06
Form: 10-K
Item: Item 1
Chunk 84
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. This allows the Bank to identify the timing of default as
compared to when the actual loss event may occur. The results are then aggregated to produce segment level results and reserve requirements
for each segment. The quantitative model also incorporates forward-looking macroeconomic information over a reasonable and supportable
period of twelve months with a reversion to historical losses occurring on straight line basis over the next 12 months.

Loans that do not share
risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the pooled loan evaluation.
When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the
reporting date, adjusted for selling costs as appropriate.

Qualitative adjustments
to historical loss data are made based on management’s assessment of the risks that may lead to a future loan loss or differences
in current loan-specific risk characteristics. A ratings scale is used to tie risk metrics within lending policies and procedures, economic
factors encompassed in the quantitative model, changes in nature of the volumes and terms of loans, changes in the volume and severity
of past due assets, and concentrations within the loan portfolio. Additional factors such as staffing, loan review, collateral
values, regulatory, legal, and technological risks are also reviewed on a more qualitative basis. The ratings scale used in the qualitative
modeling is derived from the Bank’s historical loss percentages in which the highest risk metrics would align with the highest
historical loss percentages adjusted for the expected life of the current portfolio.

Management has determined
that calculating an ACL amount for accrued interest receivable on loans held-for-investment would not be significant, and this is excluded
from our estimate of credit losses for loans held-for-investment. Additionally, we write off applicable accrued interest receivable balances
in a timely manner when a loan is placed on non-accrual status, in which any accrued interest, not received in cash, is reversed from
interest income.

The ACL also excludes
loans held-for-sale and loans accounted for under the fair value option. Assets purchased with credit deterioration (“PCD”)
represent assets that are acquired with evidence of more than insignificant credit quality deterioration since origination at the acquisition
date. At acquisition, the allowance for credit losses on PCD assets is recorded directly to the ACL. Any subsequent changes in the ACL
on PCD assets are recorded through the provision for credit losses.

The ACL is a contra-asset
on our balance sheet that is deducted from the amortized cost