| LOANS AND ALLOWANCE FOR CREDIT LOSSES | NOTE 6: LOANS AND ALLOWANCE FOR CREDIT LOSSES The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2021, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $1.9 million of the allowance for credit losses. Results for reporting periods after December 31, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. Under the incurred loss model, the Company delayed recognition of losses until it was probable that a loss was incurred. The allowance for loan losses was established as losses were estimated to have occurred through a provision for loan losses charged to earnings. Loan losses were charged against the allowance when management believed the uncollectability of a loan balance was confirmed. The allowance for loan losses was evaluated on a regular basis by management and was based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. The allowance consisted of allocated and general components. The allocated component relates to loans that are classified as impaired. For loans classified as impaired, an allowance is established when the present value of expected future cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Results for reporting periods after December 31, 2020 include loans acquired and accounted for under ASC 310-30 net of discount within the loan classes, while for reporting periods prior to January 1, 2021 the loans acquired and accounted for under ASC 310-30 are separate. Beginning on January 1, 2021, the allowance for credit losses is measured using an average historical loss model which incorporates relevant information about past events (including historical credit loss experience on loans with similar risk characteristics), current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the loans. The allowance for credit losses is measured on a collective (pool) basis. Loans are aggregated into pools based on similar risk characteristics including borrower type, collateral and repayment types and expected credit loss patterns. Loans that do not share similar risk characteristics, primarily classified and/or TDR loans with a balance greater than or equal to $100,000, are evaluated on an individual basis. For loans evaluated for credit losses on a collective basis, average historical loss rates are calculated for each pool using the Company’s historical net charge-offs (combined charge-offs and recoveries by observable historical reporting period) and outstanding loan balances during a lookback period. Lookback periods can be different based on the individual pool and represent management’s credit expectations for the pool of loans over the remaining contractual life. In certain loan pools, if the Company’s own historical loss rate is not reflective of the loss expectations, the historical loss rate is augmented by industry and peer data. The calculated average net charge-off rate is then adjusted for current conditions and reasonable and supportable forecasts. These adjustments increase or decrease the average historical loss rate to reflect expectations of future losses given economic forecasts of key macroeconomic variables including, but not limited to, unemployment rate, GDP, disposable income and market volatility. The adjustments are based on results from various regression models projecting the impact of the macroeconomic variables to loss rates. The forecast is used for a reasonable and supportable period before reverting to historical averages using a straight-line method. The forecast-adjusted loss rate is applied to the amortized cost of loans over the remaining contractual lives, adjusted for expected prepayments. The contractual term excludes expected extensions, renewals and modifications unless there is a reasonable expectation that a troubled debt restructuring (“TDR”) will be executed. Additionally, the allowance for credit losses considers other qualitative factors not included in historical loss rates or macroeconomic forecasts such as changes in portfolio composition, underwriting practices, or significant unique events or conditions. ASU 2016-13 requires an allowance for off balance sheet credit exposures; unfunded lines of credit, undisbursed portions of loans, written residential and commercial commitments, and letters of credit. To determine the amount needed for allowance purposes, a utilization rate is determined either by the model or internally for each pool. Our loss model calculates the reserve on unfunded commitments based upon the utilization rate multiplied by the average loss rate factors in each pool with unfunded and committed balances. The liability for unfunded lending commitments utilizes the same model as the allowance for credit losses on loans; however, the liability for unfunded lending commitments incorporates assumptions for the portion of unfunded commitments that are expected to be funded. Classes of loans at June 30, 2021 and December 31, 2020 were as follows: June 30, December 31, 2021 2020 (In Thousands) One- to four-family residential construction $ 46,943 $ 42,793 Subdivision construction 7,771 30,894 Land development 52,907 54,010 Commercial construction 1,192,342 1,212,837 Owner occupied one- to four-family residential 547,503 470,436 Non-owner occupied one- to four-family residential 133,197 114,569 Commercial real estate 1,605,663 1,553,677 Other residential 1,045,647 1,021,145 Commercial business 307,539 370,898 Industrial revenue bonds 14,439 14,003 Consumer auto 63,625 86,173 Consumer other 39,073 40,762 Home equity lines of credit 114,616 114,689 Loans acquired and accounted for under ASC 310-30, net of discounts (1) — 98,643 5,171,265 5,225,529 Undisbursed portion of loans in process (879,617) (863,722) Allowance for credit losses (66,602) (55,743) Deferred loan fees and gains, net (10,779) (9,260) $ 4,214,267 $ 4,296,804 Weighted average interest rate 4.34 % 4.29 % (1) Loans acquired and accounted for under ASC 310-30 of $84.4 million have been included in the totals by loan class as of June 30, 2021. At the date of CECL adoption, the Company did not reassess whether PCI loans met the criteria of PCD loans. The following tables present the classes of loans by aging. Loans originally acquired and accounted for under ASC 310-30 of $84.4 million have been included in the totals by loan class as of June 30, 2021. June 30, 2021 Total Loans Over 90 Total > 90 Days Past 30-59 Days 60-89 Days Days Total Past Loans Due and Past Due Past Due Past Due Due Current Receivable Still Accruing (In Thousands) One- to four-family residential construction $ — $ — $ — $ — $ 46,943 $ 46,943 $ — Subdivision construction — — — — 7,771 7,771 — Land development — — 468 468 52,439 52,907 — Commercial construction — — — — 1,192,342 1,192,342 — Owner occupied one- to four-family residential 229 203 2,979 3,411 544,092 547,503 — Non-owner occupied one- to four-family residential — — 102 102 133,095 133,197 — Commercial real estate — — 3,308 3,308 1,602,355 1,605,663 — Other residential — — — — 1,045,647 1,045,647 — Commercial business — — 99 99 307,440 307,539 — Industrial revenue bonds — — — — 14,439 14,439 — Consumer auto 232 54 81 367 63,258 63,625 — Consumer other 184 43 81 308 38,765 39,073 — Home equity lines of credit 284 22 707 1,013 113,603 114,616 — 929 322 7,825 9,076 5,162,189 5,171,265 — Less: FDIC-acquired loans 150 75 2,439 2,664 81,718 84,382 — Total $ 779 $ 247 $ 5,386 $ 6,412 $ 5,080,471 $ 5,086,883 $ — December 31, 2020 Total Loans Over 90 Total > 90 Days Past 30-59 Days 60-89 Days Days Total Past Loans Due and Past Due Past Due Past Due Due Current Receivable Still Accruing (In Thousands) One- to four-family residential construction $ 1,365 $ — $ — $ 1,365 $ 41,428 $ 42,793 $ — Subdivision construction — — — — 30,894 30,894 — Land development 20 — — 20 53,990 54,010 — Commercial construction — — — — 1,212,837 1,212,837 — Owner occupied one- to four-family residential 1,379 113 1,502 2,994 467,442 470,436 — Non-owner occupied one- to four-family residential — — 69 69 114,500 114,569 — Commercial real estate — 79 587 666 1,553,011 1,553,677 — Other residential — — — — 1,021,145 1,021,145 — Commercial business — — 114 114 370,784 370,898 — Industrial revenue bonds — — — — 14,003 14,003 — Consumer auto 364 119 169 652 85,521 86,173 — Consumer other 443 7 94 544 40,218 40,762 — Home equity lines of credit 153 111 508 772 113,917 114,689 — Loans acquired and accounted for under ASC 310-30, net of discounts 1,662 641 3,843 6,146 92,497 98,643 — 5,386 1,070 6,886 13,342 5,212,187 5,225,529 — Less: Loans acquired and accounted for under ASC 310-30, net of discounts 1,662 641 3,843 6,146 92,497 98,643 — Total $ 3,724 $ 429 $ 3,043 $ 7,196 $ 5,119,690 $ 5,126,886 $ — Loans are placed on nonaccrual status at 90 days past due and interest is considered a loss unless the loan is well secured and in the process of collection. Payments received on nonaccrual loans are applied to principal until the loans are returned to accrual status. Loans are returned to accrual status when all payments contractually due are brought current, payment performance is sustained for a period of time, generally six months, and future payments are reasonably assured. With the exception of consumer loans, charge-offs on loans are recorded when available information indicates a loan is not fully collectible and the loss is reasonably quantifiable. Consumer loans are charged-off at specified delinquency dates consistent with regulatory guidelines. Non-accruing loans as of December 31, 2020 shown below exclude $3.8 million in loans acquired and accounted for under ASC 310-30, while the non-accruing loans as of June 30, 2021 shown below include $2.4 million in loans acquired through various FDIC-assisted transactions in the loan classes listed. June 30, December 31, 2021 2020 (In Thousands) One- to four-family residential construction $ — $ — Subdivision construction — — Land development 468 — Commercial construction — — Owner occupied one- to four-family residential 2,979 1,502 Non-owner occupied one- to four-family residential 102 69 Commercial real estate 3,308 587 Other residential — — Commercial business 99 114 Industrial revenue bonds — — Consumer auto 81 169 Consumer other 81 94 Home equity lines of credit 707 508 Total non-accruing loans 7,825 Less: FDIC-acquired loans 2,439 Total non-accruing loans net of FDIC-acquired loans $ 5,386 $ 3,043 No interest income was recorded on these loans for the three and six months ended June 30, 2021 and 2020, respectively. Nonaccrual loans for which there is no related allowance for credit losses as of June 30, 2021 had an amortized cost of $3.2 million. These loans are individually assessed and do not require an allowance due to being adequately collateralized under the collateral-dependent valuation method. A collateral-dependent loan is a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Company’s assessment as of the reporting date. Collateral-dependent loans are identified by either a classified risk rating or TDR status and a loan balance equal to or greater than $100,000, including, but not limited to, any loan in process of foreclosure or repossession. The following tables present the activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2021. On January 1, 2021, the Company adopted the CECL methodology, which added $11.6 million to the total Allowance for Credit Loss, which included $1.9 million remaining discount on loans that were previously accounted for as PCI. During the three months ended June 30, 2021, the Company recorded a negative provision expense of $1.0 million on its portfolio of outstanding loans, compared to a $6.0 million provision expense recorded for the quarter ended June 30, 2020. During the six months ended June 30, 2021, the Company recorded a negative provision expense of $700,000 on its portfolio of outstanding loans, compared to a $9.9 million provision expense recorded for the six months ended June 30, 2020. One- to Four- Family Residential and Other Commercial Commercial Commercial Construction Residential Real Estate Construction Business Consumer Total (In Thousands) Allowance for credit losses Balance, March 31, 2021 $ 9,101 $ 15,299 $ 31,500 $ 2,366 $ 3,936 $ 5,500 $ 67,702 Provision charged to expense — — (1,000) — — — (1,000) Losses charged off (136) — — (154) (57) (552) (899) Recoveries 244 — 7 3 53 492 799 Balance, June 30, 2021 $ 9,209 $ 15,299 $ 30,507 $ 2,215 $ 3,932 $ 5,440 $ 66,602 Allowance for credit losses Balance, December 31, 2020 $ 4,536 $ 9,375 $ 33,707 $ 3,521 $ 2,390 $ 2,214 $ 55,743 CECL adoption 4,533 5,832 (2,531) (1,165) 1,499 3,427 11,595 Balance, January 1, 2021 9,069 15,207 31,176 2,356 3,889 5,641 67,338 Provision charged to expense — — (700) — — — (700) Losses charged off (142) — — (154) (57) (1,201) (1,554) Recoveries 282 92 31 13 100 1,000 1,518 Balance, June 30, 2021 $ 9,209 $ 15,299 $ 30,507 $ 2,215 $ 3,932 $ 5,440 $ 66,602 The following table presents the activity in the allowance for unfunded commitments by portfolio segment for the three and six months ended June 30, 2021. On January 1, 2021, the Company adopted the CECL methodology, which created an $8.7 million allowance for unfunded commitments. The provision for losses on unfunded commitments for the three and six months ended June 30, 2021 was a credit of $307,000 and $981,000, respectively, as the level and mix of unfunded commitments resulted in a decrease in the required reserve for such potential losses. One- to Four- Family Residential and Other Commercial Commercial Commercial Construction Residential Real Estate Construction Business Consumer Total (In Thousands) Allowance for unfunded commitments Balance, March 31, 2021 $ 957 $ 4,814 $ 457 $ 510 $ 956 $ 322 $ 8,016 Provision (benefit) charged to expense (197) 158 (40) (156) (135) 63 (307) Balance, June 30, 2021 $ 760 $ 4,972 $ 417 $ 354 $ 821 $ 385 $ 7,709 Allowance for unfunded commitments Balance, December 31, 2020 $ — $ — $ — $ — $ — $ — $ — CECL adoption 917 5,227 354 910 935 347 8,690 Balance, January 1, 2021 917 5,227 354 910 935 347 8,690 Provision (benefit) charged to expense (157) (255) 63 (556) (114) 38 (981) Balance, June 30, 2021 $ 760 $ 4,972 $ 417 $ 354 $ 821 $ 385 $ 7,709 The following table presents the activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2020, prepared using the previous GAAP incurred loss method prior to the adoption of ASU 2016-13. One- to Four- Family Residential and Other Commercial Commercial Commercial Construction Residential Real Estate Construction Business Consumer Total (In Thousands) Allowance for loan losses Balance, April 1, 2020 $ 4,739 $ 6,146 $ 25,923 $ 2,221 $ 1,579 $ 3,320 $ 43,928 Provision (benefit) charged to expense (250) 2,866 2,982 563 200 (361) 6,000 Losses charged off (11) — — — — (746) (757) Recoveries 14 52 — 9 38 517 630 Balance, June 30, 2020 $ 4,492 $ 9,064 $ 28,905 $ 2,793 $ 1,817 $ 2,730 $ 49,801 Allowance for loan losses Balance, January 1, 2020 $ 4,339 $ 5,153 $ 24,334 $ 3,076 $ 1,355 $ 2,037 $ 40,294 Provision (benefit) charged to expense 144 3,738 4,538 (304) 369 1,386 9,871 Losses charged off (40) — — (1) (9) (1,852) (1,902) Recoveries 49 173 33 22 102 1,159 1,538 Balance, June 30, 2020 $ 4,492 $ 9,064 $ 28,905 $ 2,793 $ 1,817 $ 2,730 $ 49,801 The following table presents the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2020, prepared using the previous GAAP incurred loss method prior to the adoption of ASU 2016-13. One- to Four- Family Residential and Other Commercial Commercial Commercial Construction Residential Real Estate Construction Business Consumer Total (In Thousands) Allowance for loan losses Individually evaluated for impairment $ 90 $ — $ 445 $ — $ 14 $ 164 $ 713 Collectively evaluated for impairment $ 4,382 $ 9,282 $ 32,937 $ 3,378 $ 2,331 $ 2,040 $ 54,350 Loans acquired and accounted for under ASC $ 64 $ 93 $ 325 $ 143 $ 45 $ 10 $ 680 Loans Individually evaluated for impairment $ 3,546 $ — $ 3,438 $ — $ 167 $ 1,897 $ 9,048 Collectively evaluated for impairment $ 655,146 $ 1,021,145 $ 1,550,239 $ 1,266,847 $ 384,734 $ 239,727 $ 5,117,838 Loans acquired and accounted for under ASC 310-30 $ 57,113 $ 6,150 $ 24,613 $ 2,551 $ 2,549 $ 5,667 $ 98,643 The portfolio segments used in the preceding tables correspond to the loan classes used in all other tables in Note 6 ● The one- to four-family residential and construction segment includes the one- to four-family residential construction, subdivision construction, owner occupied one- to four-family residential and non-owner occupied one- to four-family residential classes. ● The other residential segment corresponds to the other residential class. ● The commercial real estate segment includes the commercial real estate and industrial revenue bonds classes. ● The commercial construction segment includes the land development and commercial construction classes. ● The commercial business segment corresponds to the commercial business class. ● The consumer segment includes the consumer auto, consumer other and home equity lines of credit classes. The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of June 30, 2021: June 30, 2021 Principal Specific Balance Allowance (In Thousands) One- to four-family residential construction $ — $ — Subdivision construction — — Land development 468 — Commercial construction — — Owner occupied one- to four- family residential 3,045 22 Non-owner occupied one- to four-family residential — — Commercial real estate 5,721 1,586 Other residential — — Commercial business — — Industrial revenue bonds — — Consumer auto — — Consumer other — — Home equity lines of credit 387 — Total $ 9,621 $ 1,608 The following table presents information pertaining to impaired loans as of December 31, 2020, in accordance with previous GAAP prior to the adoption of ASU 2016-13. A loan is considered impaired, in accordance with the impairment accounting guidance (FASB ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include not only nonperforming loans but also loans modified in TDRs where concessions have been granted to borrowers experiencing financial difficulties. At or for the Year Ended December 31, 2020 Average Unpaid Investment Interest Recorded Principal Specific in Impaired Income Balance Balance Allowance Loans Recognized (In Thousands) One- to four-family residential construction $ — $ — $ — $ — $ — Subdivision construction 20 20 — 115 3 Land development — — — — — Commercial construction — — — — — Owner occupied one- to four- family residential 3,457 3,776 90 2,999 169 Non-owner occupied one- to four-family residential 69 106 — 309 18 Commercial real estate 3,438 3,472 445 3,736 135 Other residential — — — — — Commercial business 166 551 14 800 34 Industrial revenue bonds — — — — — Consumer auto 865 964 140 932 91 Consumer other 403 552 19 298 47 Home equity lines of credit 630 668 5 550 36 Total $ 9,048 $ 10,109 $ 713 $ 9,739 $ 533 June 30, 2020 Unpaid Recorded Principal Specific Balance Balance Allowance (In Thousands) One- to four-family residential construction $ — $ — $ — Subdivision construction 24 24 — Land development — — — Commercial construction — — — Owner occupied one- to four- family residential 2,751 3,034 78 Non-owner occupied one- to four-family residential 279 471 — Commercial real estate 3,674 3,711 486 Other residential — — — Commercial business 1,220 1,726 9 Industrial revenue bonds — — — Consumer auto 753 959 122 Consumer other 246 374 12 Home equity lines of credit 527 557 4 Total $ 9,474 $ 10,856 $ 711 Three Months Ended Six Months Ended June 30, 2020 June 30, 2020 Average Average Investment Interest Investment Interest in Impaired Income in Impaired Income Loans Recognized Loans Recognized (In Thousands) One- to four-family residential construction $ — $ — $ — $ — Subdivision construction 170 1 209 3 Land development — — — — Commercial construction — — — — Owner occupied one- to four-family residential 2,882 34 2,702 80 Non-owner occupied one- to four-family residential 418 5 425 11 Commercial real estate 3,885 37 4,004 67 Other residential — — — — Commercial business 1,223 9 1,243 25 Industrial revenue bonds — — — — Consumer auto 868 14 973 40 Consumer other 265 6 276 16 Home equity lines of credit 500 7 538 19 Total $ 10,211 $ 113 $ 10,370 $ 261 At December 31, 2020, $4.8 million of impaired loans had specific valuation allowances totaling $713,000. TDRs by class are presented below as of June 30, 2021 and December 31, 2020. The December 31, 2020 table excludes $1.7 million of FDIC-acquired loans accounted for under ASC 310-30, while the June 30, 2021 table includes the loans acquired through various FDIC-assisted transactions in the loan classes listed. June 30, 2021 Accruing TDR Loans Non-accruing TDR Loans Total TDR Loans Number Balance Number Balance Number Balance (In Thousands) Construction and land development 1 $ 17 — $ — 1 $ 17 One- to four-family residential 7 571 13 1,175 20 1,746 Other residential — — — — — — Commercial real estate 2 1,829 — — 2 1,829 Commercial business — — 1 60 1 60 Consumer 32 293 19 102 51 395 42 $ 2,710 33 $ 1,337 75 $ 4,047 December 31, 2020 Restructured Troubled Debt Accruing Restructured Non-accruing Interest Troubled Debt (In Thousands) Commercial real estate $ — $ 646 $ 646 One- to four-family residential 778 1,121 1,899 Other residential — — — Construction — 20 20 Commercial 75 52 127 Consumer 118 511 629 $ 971 $ 2,350 $ 3,321 The following tables present newly restructured loans, which were considered TDRs, during the three and six months ended June 30, 2021 and 2020, respectively, by type of modification: Three Months Ended June 30, 2021 Total Interest Only Term Combination Modification (In Thousands) One- to four-family residential $ — $ 157 $ — $ 157 Consumer — 79 — 79 $ — $ 236 $ — $ 236 Three Months Ended June 30, 2020 Total Interest Only Term Combination Modification (In Thousands) Consumer $ — $ 16 $ 28 $ 44 $ — $ 16 $ 28 $ 44 Six Months Ended June 30, 2021 Total Interest Only Term Combination Modification (In Thousands) Commercial Real Estate $ 1,768 $ — $ — $ 1,768 One- to four-family residential — 157 — 157 Consumer — 100 — 100 $ 1,768 $ 257 $ — $ 2,025 Six Months Ended June 30, 2020 Total Interest Only Term Combination Modification (In Thousands) Consumer $ — $ — $ 130 $ 130 One- to four-family residential — 16 76 92 $ — $ 16 $ 206 $ 222 At June 30, 2021, of the $4.0 million in TDRs, $3.1 million were classified as substandard using the Company’s internal grading system, which is described below. The Company had no TDRs that were modified in the previous 12 months and subsequently defaulted during the six months ended June 30, 2021. At December 31, 2020, of the $3.3 million in TDRs, $1.6 million were classified as substandard using the Company’s internal grading system. The Company had no TDRs that were modified in the previous 12 months and subsequently defaulted during the year ended December 31, 2020. During the three and six months ended June 30, 2021, $310,000 and $337,000 of loans, respectively, met the criteria for placement back on accrual status. The criteria are generally a minimum of six months of consistent and timely payment performance under original or modified terms. During the three and six months ended June 30, 2020, there were In addition to the above loans considered TDRs, at June 30, 2021, the Company had remaining 15 modified commercial loans with an aggregate principal balance outstanding of $91 million and 30 modified consumer and mortgage loans with an aggregate principal balance outstanding of $ 876,000 . At June 30, 2021, the largest total modified loans by collateral type were in the following categories: hotel/motel - At December 31, 2020, the Company had remaining 65 modified commercial loans with an aggregate principal balance outstanding of $233 million and 581 modified consumer and mortgage loans with an aggregate principal balance outstanding of $18 million. The loan modifications are within the guidance provided by the CARES Act and subsequent legislation, the federal banking regulatory agencies, the SEC and the FASB; therefore, they are not considered troubled debt restructurings. A portion of the loans modified at June 30, 2021, may be further modified, and new loans may be modified, within the guidance provided by the CARES Act (and subsequent legislation enacted in December 2020), the federal banking regulatory agencies, the SEC and the FASB if a more severe or lengthier deterioration in economic conditions occurs in future periods. The Company utilizes an internal risk rating system comprised of a series of grades to categorize loans according to perceived risk associated with the expectation of debt repayment. The analysis of the borrower’s ability to repay considers specific information, including but not limited to current financial information, historical payment experience, industry information, collateral levels and collateral types. A risk rating is assigned at loan origination and then monitored throughout the contractual term for possible risk rating changes. Satisfactory loans range from Excellent to Moderate Risk, but generally are loans supported by strong recent financial statements. Character and capacity of individuals or company are strong, including reasonable project performance, good industry experience, liquidity and/or net worth of individuals or company. Probability of financial deterioration seems unlikely. Repayment is expected from approved sources over a reasonable period of time. Watch loans are identified when the borrower has capacity to perform according to terms; however, elements of uncertainty exist. Margins of debt service coverage may be narrow, historical patterns of financial performance may be erratic, collateral margins may be diminished and the borrower may be a new and/or thinly capitalized company. Some management weakness may also exist, the borrowers may have somewhat limited access to other financial institutions, and that ability may diminish in difficult economic times. Special Mention loans have weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects or the Bank’s credit position at some |
