Company: BCTF
Filing Date: 2025-03-06
Form Type: 10-K
Source: 0001552781-25-000058
Chunk: 441

Company: Bancorp 34, Inc.
Filing Date: 2025-03-06
Form: 10-K
Item: Item 1B
Chunk 441
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 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. 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