Company: BCTF
Filing Date: 2025-03-06
Form Type: 10-K
Source: 0001552781-25-000058
Chunk: 83

Company: Bancorp 34, Inc.
Filing Date: 2025-03-06
Form: 10-K
Item: Item 1
Chunk 83
---
itative
factors are used in the CECL model to address various internal and external factors that may not be captured by the quantitative modeling
or historical data needed to assess the expected credit losses. Qualitative factors considered include, but may not be limited to, the
following: lending policies and procedures; changes in underwriting standards; nature and volume of financial assets; changes in lending
staff; volume and severity of past due or adversely classified assets; changes in collateral values; and the internal credit review function.

The Company
uses a 12-month forecast that is reasonable and supportable within the ACL calculation and then reverts to historical credit loss experience
on a straight-line basis over a one-year timeline. Historical credit loss experience is then used for the remaining life of the assets.
The Company uses several economic variables in the calculation of the ACL, the most significant of which is the economic forecast for
the national unemployment rate. In our December 31, 2024, ACL estimate, the Company assumed a forecasted unemployment rate of 4.4%, which
slightly improved from the December 31, 2023, forecasted rate of 4.7%. Changes in the economic forecast for unemployment rates could
significantly affect the estimated credit losses which could potentially lead to materially different ACL levels from one reporting period
to the next.

For our bank, CECL
requires a separate ACL for each of: (i) loans held-for-investment; (ii) unfunded commitments; and (iii) held-to-maturity debt securities.

58

ACL
– Loans held-for-investment

The level of the ACL
on loans held-for-investment is calculated to maintain a credit loss reserve level that management considers sufficient to absorb estimated
credit losses. Management’s determination of the adequacy of the ACL is based on the periodic evaluation of borrowers’ abilities
to make loan payments, local and national economic conditions, and other subjective factors. The evaluation has subjective components
requiring significant estimates that include default probabilities, expected loss given default, and estimated credit losses based on
historical credit loss experience and forecasted economic conditions. All these factors may be susceptible to significant change and
when actual results differ from the estimates, additional provisions for credit losses may be required, which would adversely impact
profitability.

The ACL for pooled
loans is estimated using a non-discounted cash flow methodology. The Bank then applies probability of default and loss given default
to the cashflow methodology to calculate expected losses within the model