| LOANS AND ALLOWANCE FOR CREDIT LOSSES | NOTE 6: LOANS AND ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses is measured using an average historical loss model that 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 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, gross domestic product (“GDP”), commercial real estate price index, consumer sentiment and construction spending. 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. The forecast-adjusted loss rate is applied to the principal balance over the remaining contractual lives, adjusted for expected prepayments. The contractual term excludes expected extensions, renewals and modifications. 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. In addition, the Company is required to record 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 March 31, 2024 and December 31, 2023 were as follows: March 31, December 31, 2024 2023 (In Thousands) One- to four-family residential construction $ 33,984 $ 29,628 Subdivision construction 20,252 23,359 Land development 45,878 48,015 Commercial construction 692,550 703,407 Owner occupied one- to four-family residential 757,975 769,260 Non-owner occupied one- to four-family residential 122,383 121,275 Commercial real estate 1,502,625 1,521,032 Other residential (multi-family) 1,040,306 942,071 Commercial business 259,476 318,050 Industrial revenue bonds 11,812 12,047 Consumer auto 26,953 28,343 Consumer other 28,524 28,978 Home equity lines of credit 115,399 115,883 4,658,117 4,661,348 Allowance for credit losses (65,087) (64,670) Deferred loan fees and gains, net (6,777) (7,058) $ 4,586,253 $ 4,589,620 Weighted average interest rate 6.26 % 6.25 % Classes of loans by aging were as follows as of the dates indicated: March 31, 2024 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 $ — $ — $ — $ — $ 33,984 $ 33,984 $ — Subdivision construction — — — — 20,252 20,252 — Land development — — 384 384 45,494 45,878 — Commercial construction — — — — 692,550 692,550 — Owner occupied one- to four-family residential 2,385 — 626 3,011 754,964 757,975 — Non-owner occupied one- to four-family residential 503 — — 503 121,880 122,383 — Commercial real estate 13,545 — 10,612 24,157 1,478,468 1,502,625 — Other residential (multi-family) — — 9,572 9,572 1,030,734 1,040,306 — Commercial business 823 — — 823 258,653 259,476 — Industrial revenue bonds — — — — 11,812 11,812 — Consumer auto 56 20 9 85 26,868 26,953 — Consumer other 107 8 27 142 28,382 28,524 — Home equity lines of credit 57 — 41 98 115,301 115,399 — Total $ 17,476 $ 28 $ 21,271 $ 38,775 $ 4,619,342 $ 4,658,117 $ — December 31, 2023 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 $ — $ — $ — $ — $ 29,628 $ 29,628 $ — Subdivision construction — — — — 23,359 23,359 — Land development — — 384 384 47,631 48,015 — Commercial construction — — — — 703,407 703,407 — Owner occupied one- to four-family residential 2,778 125 722 3,625 765,635 769,260 — Non-owner occupied one- to four-family residential — — — — 121,275 121,275 — Commercial real estate 187 92 10,552 10,831 1,510,201 1,521,032 — Other residential (multi-family) 9,572 — — 9,572 932,499 942,071 — Commercial business — — 31 31 318,019 318,050 — Industrial revenue bonds — — — — 12,047 12,047 — Consumer auto 116 65 8 189 28,154 28,343 — Consumer other 137 — 42 179 28,799 28,978 — Home equity lines of credit 335 26 9 370 115,513 115,883 — Total $ 13,125 $ 308 $ 11,748 $ 25,181 $ 4,636,167 $ 4,661,348 $ — 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 are summarized as follows: March 31, December 31, 2024 2023 (In Thousands) One- to four-family residential construction $ — $ — Subdivision construction — — Land development 384 384 Commercial construction — — Owner occupied one- to four-family residential 626 722 Non-owner occupied one- to four-family residential — — Commercial real estate 10,612 10,552 Other residential (multi-family) 9,572 — Commercial business — 31 Industrial revenue bonds — — Consumer auto 9 8 Consumer other 27 42 Home equity lines of credit 41 9 Total non-accruing loans $ 21,271 $ 11,748 No interest income was recorded on nonaccrual loans for the three months ended March 31, 2024 and 2023, respectively. Nonaccrual loans for which there is no related allowance for credit losses as of March 31, 2024 and December 31, 2023, had an amortized cost of $2.6 million and $792,000, respectively. 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 primarily by a classified risk rating with 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 table presents the activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2024 and 2023. During the three months ended March 31, 2024, the Company recorded provision expense of $500,000 on its portfolio of outstanding loans. During the three months ended March 31, 2023, the Company recorded provision expense of $1.5 million on its portfolio of outstanding loans. 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, January 1, 2023 $ 11,171 $ 12,110 $ 27,096 $ 2,865 $ 5,822 $ 4,416 $ 63,480 Provision (credit) charged to expense 647 1,079 (1,590) (363) 1,851 (124) 1,500 Losses charged off (31) — — — — (434) (465) Recoveries 10 — — — 148 314 472 Balance, March 31, 2023 $ 11,797 $ 13,189 $ 25,506 $ 2,502 $ 7,821 $ 4,172 $ 64,987 Allowance for credit losses Balance, January 1, 2024 $ 9,820 $ 13,370 $ 28,171 $ 2,844 $ 6,935 $ 3,530 $ 64,670 Provision (credit) charged to expense (107) 516 1,298 (96) (1,596) 485 500 Losses charged off (56) — — — (31) (340) (427) Recoveries 3 — — — 88 253 344 Balance, March 31, 2024 $ 9,660 $ 13,886 $ 29,469 $ 2,748 $ 5,396 $ 3,928 $ 65,087 The following table presents the activity in the allowance for unfunded commitments by portfolio segment for the three months ended March 31, 2024 and 2023. The provision for losses on unfunded commitments for the three months ended March 31, 2024 was a provision expense of $130,000, compared to a credit (negative expense) of $826,000 for the three months ended March 31, 2023. 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, January 1, 2023 $ 736 $ 8,624 $ 416 $ 802 $ 1,734 $ 504 $ 12,816 Provision (credit) charged to expense 96 (566) 29 89 (471) (3) (826) Balance, March 31, 2023 $ 832 $ 8,058 $ 445 $ 891 $ 1,263 $ 501 $ 11,990 Allowance for unfunded commitments Balance, January 1, 2024 $ 706 $ 4,006 $ 619 $ 741 $ 959 $ 456 $ 7,487 Provision (credit) charged to expense (27) (28) (5) (232) 394 28 130 Balance, March 31, 2024 $ 679 $ 3,978 $ 614 $ 509 $ 1,353 $ 484 $ 7,617 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 (multi-family) segment corresponds to the other residential (multi-family) 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: March 31, 2024 December 31, 2023 Principal Specific Principal Specific Balance Allowance Balance Allowance (In Thousands) One- to four-family residential construction $ — $ — $ — $ — Subdivision construction — — — — Land development 384 13 384 — Commercial construction — — — — Owner occupied one- to four- family residential 529 15 691 29 Non-owner occupied one- to four-family residential — — — — Commercial real estate 10,523 1,200 10,548 1,200 Other residential (multi-family) 16,734 126 7,162 — Commercial business — — — — Industrial revenue bonds — — — — Consumer auto — — — — Consumer other — — — — Home equity lines of credit — — — — Total $ 28,170 $ 1,354 $ 18,785 $ 1,229 Modified Loans. Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures prospectively. Loan modifications are reported if concessions have been granted to borrowers that are experiencing financial difficulty. The estimate of lifetime expected losses utilized in the allowance for credit losses model is developed using average historical loss on loans with similar risk characteristics, which includes losses from modifications of loans to borrowers experiencing financial difficulty. As a result, a charge to the allowance for credit losses is generally not recorded upon modification. For modifications to loans made to borrowers experiencing financial difficulty that are adversely classified, the Company determines the allowance for credit losses on an individual basis, using the same process that it utilizes for other adversely classified loans. If collection efforts have begun and the modified loan is subsequently deemed collateral-dependent, the loan is placed on non-accrual status and the allowance for credit losses is determined based on an individual evaluation. If necessary, the loan is charged down to fair market value less estimated sales costs. The following tables show the composition of loan modifications made to borrowers experiencing financial difficulty by the loan portfolio and type of concessions granted as of the dates and for the periods indicated. Each of the types of concessions granted comprised 2.0% or less of their respective classes of loan portfolios. No new loan modifications were made to borrowers experiencing financial difficulty during the three months ending March 31, 2024. During the three months ended March 31, 2024, principal forgiveness of $14,000 was completed on consumer loans. During the three months ended March 31, 2023, principal forgiveness of $4,000 was completed on consumer loans. Amortized Cost Basis at March 31, 2024 Interest Rate Term Total Reduction Extension Combination Modification (In Thousands) Construction and land development $ — $ — $ 1,516 $ 1,516 One- to four-family residential — — — — Other residential (multi-family) — 2,744 — 2,744 Commercial real estate — 75 20,185 20,260 Commercial business — — — — Consumer 5 7 — 12 $ 5 $ 2,826 $ 21,701 $ 24,532 Amortized Cost Basis at December 31, 2023 Interest Rate Term Total Reduction Extension Combination Modifications (In Thousands) Construction and land development $ — $ — $ 1,553 $ 1,553 One- to four-family residential — — — — Other residential (multi-family) — 2,750 — 2,750 Commercial real estate — 77 20,365 20,442 Commercial business — — — — Consumer 5 7 — 12 $ 5 $ 2,834 $ 21,918 $ 24,757 The Company closely monitors the performance of loans to borrowers experiencing financial difficulty that are modified to understand the effectiveness of its modification efforts. The following tables depict the performance (under modified terms) at March 31, 2024 and at December 31, 2023 of loans that were modified at March 31, 2024 and December 31, 2023, respectively: March 31, 2024 30-89 Days Over 90 Days Current Past Due Past Due Total (In Thousands) Construction and land development $ 1,516 $ — $ — $ 1,516 One- to four-family residential — — — — Other residential (multi-family) 2,744 — — 2,744 Commercial real estate 12,333 — 7,927 20,260 Commercial business — — — — Consumer 12 — — 12 $ 16,605 $ — $ 7,927 $ 24,532 December 31, 2023 30-89 Days Over 90 Days Current Past Due Past Due Total (In Thousands) Construction and land development $ 1,553 $ — $ — $ 1,553 One- to four-family residential — — — — Other residential (multi-family) 2,750 — — 2,750 Commercial real estate 12,384 — 8,058 20,442 Commercial business — — — — Consumer 12 — — 12 $ 16,699 $ — $ 8,058 $ 24,757 Loan Risk Ratings Satisfactory loans range from Excellent to Moderate Risk, but generally are loans supported by strong recent financial statements. The character and capacity of the borrower are solid, including reasonable project performance, good industry experience, liquidity and/or net worth. The 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 borrower may have somewhat limited access to other financial institutions, and that access 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 future date. This is a transitional grade closely monitored for improvement or deterioration. The Substandard rating is applied to loans where the borrower exhibits well-defined weaknesses that jeopardize its continued performance and are of a severity that the distinct possibility of default exists. Loans are placed on “non-accrual” when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment. Doubtful loans have all the weaknesses inherent to those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable. The Loss category is used when loans are considered uncollectable and no longer included as an asset. All loans are analyzed for risk rating updates regularly. For larger loans, rating assessments may be more frequent if relevant information is obtained earlier through debt covenant monitoring or overall relationship management. Smaller loans are monitored as identified by the loan officer based on the risk profile of the individual borrower or if the loan becomes past due related to credit issues. Loans rated Watch, Special Mention, Substandard or Doubtful are subject to quarterly review and monitoring processes. In addition to the regular monitoring performed by the lending personnel and credit committees, loans are subject to review by the credit review department, which verifies the appropriateness of the risk ratings for the loans chosen as part of its risk-based review plan. The following tables present a summary of loans by category and risk rating separated by origination and loan class as of March 31, 2024 and December 31, 2023. Term Loans by Origination Year Revolving March 31, 2024 2024 YTD 2023 2022 2021 2020 Prior Loans Total (In Thousands) One- to four-family residential construction Satisfactory (1-4) $ 1,514 $ 16,483 $ 8,388 $ 40 $ — $ — $ 7,559 $ 33,984 Watch (5) — — — — — — — — Special Mention (6) — — — — — — — — Classified (7-9) — — — — — — — — Total 1,514 16,483 8,388 40 — — 7,559 33,984 Current Period Gross Charge Offs — — — — — — — — Subdivision construction Satisfactory (1-4) — 288 910 18,629 40 385 — 20,252 Watch (5) — — — — — — — — Special Mention (6) — — — — — — — — Classified (7-9) — — — — — — — — Total — 288 910 18,629 40 385 — 20,252 Current Period Gross Charge Offs — — — — — — — — Construction and land development Satisfactory (1-4) 4,310 14,900 8,549 5,609 3,663 7,863 600 45,494 Watch (5) — — — — — — — — Special Mention (6) — — — — — — — — Classified (7-9) — — — — — — 384 384 Total 4,310 14,900 8,549 5,609 3,663 7,863 984 45,878 Current Period Gross Charge Offs — — — — — — — — Other construction Satisfactory (1-4) 4,182 80,004 445,698 144,609 18,057 — — 692,550 Watch (5) — — — — — — — — Special Mention (6) — — — — — — — — Classified (7-9) — — — — — — — — Total 4,182 80,004 445,698 144,609 18,057 — — 692,550 Current Period Gross Charge Offs — — — — — — — — One- to four-family residential Satisfactory (1-4) 8,672 66,264 326,568 196,149 105,903 174,438 410 878,404 Watch (5) — — — — 147 1,016 43 1,206 Special Mention (6) — — — — — — — — Classified (7-9) — — — 529 — 196 23 748 Total 8,672 66,264 326,568 196,678 106,050 175,650 476 880,358 Current Period Gross Charge Offs — 49 — — — 7 — 56 Other residential (multi-family) Satisfactory (1-4) 275 48,301 167,404 449,119 182,031 170,103 3,595 1,020,828 Watch (5) — — — — — — — — Special Mention (6) — — — — — 2,744 — 2,744 Classified (7-9) — — — — — 16,734 — 16,734 Total 275 48,301 167,404 449,119 182,031 189,581 3,595 1,040,306 Current Period Gross Charge Offs — — — — — — — — Commercial real estate Satisfactory (1-4) 5,112 54,577 322,082 219,937 98,783 748,883 33,060 1,482,434 Watch (5) — — 104 — — 5,097 — 5,201 Special Mention (6) — — — — — 4,377 — 4,377 Classified (7-9) — — — 87 — 10,526 — 10,613 Total 5,112 54,577 322,186 220,024 98,783 768,883 33,060 1,502,625 Current Period Gross Charge Offs — — — — — — — — Commercial business Satisfactory (1-4) 4,734 31,850 69,825 24,769 10,338 59,852 54,255 255,623 Watch (5) — — — — — 13 — 13 Special Mention (6) — — 1,142 3,755 43 — 10,700 15,640 Classified (7-9) — — — — 12 — — 12 Total 4,734 31,850 70,967 28,524 10,393 59,865 64,955 271,288 Current Period Gross Charge Offs — — — 4 27 — — 31 Consumer Satisfactory (1-4) 5,038 14,466 10,141 4,940 2,224 11,830 121,293 169,932 Watch (5) — — 3 19 5 202 152 381 Special Mention (6) — — — — — — 393 393 Classified (7-9) 2 20 28 10 — 67 43 170 Total 5,040 14,486 10,172 4,969 2,229 12,099 121,881 170,876 Current Period Gross Charge Offs — 2 80 1 3 246 8 340 Combined Satisfactory (1-4) 33,837 327,133 1,359,565 1,063,801 421,039 1,173,354 220,772 4,599,501 Watch (5) — — 107 19 152 6,328 195 6,801 Special Mention (6) — — 1,142 3,755 43 7,121 11,093 23,154 Classified (7-9) 2 20 28 626 12 27,523 450 28,661 Total $ 33,839 $ 327,153 $ 1,360,842 $ 1,068,201 $ 421,246 $ 1,214,326 $ 232,510 $ 4,658,117 Current Period Gross Charge Offs $ — $ 51 $ 80 $ 5 $ 30 $ 253 $ 8 $ 427 Term Loans by Origination Year Revolving December 31, 2023 2023 2022 2021 2020 2019 Prior Loans Total (In Thousands) One- to four-family residential construction Satisfactory (1-4) $ 12,528 $ 9,878 $ 41 $ — $ — $ — $ 7,181 $ 29,628 Watch (5) — — — — — — — — Special Mention (6) — — — — — — — — Classified (7-9) — — — — — — — — Total 12,528 9,878 41 — — — 7,181 29,628 Current Period Gross Charge Offs — — — — — — — — Subdivision construction Satisfactory (1-4) 532 1,022 21,333 43 64 365 — 23,359 Watch (5) — — — — — — — — Special Mention (6) — — — — — — — — Classified (7-9) — — — — — — — — Total 532 1,022 21,333 43 64 365 — 23,359 Current Period Gross Charge Offs — — — — — — — — Construction and land development Satisfactory (1-4) 14,860 12,564 5,658 3,682 5,458 4,531 878 47,631 Watch (5) — — — — — — — — Special Mention (6) — — — — — — — — Classified (7-9) — — — — — — 384 384 Total 14,860 12,564 5,658 3,682 5,458 4,531 1,262 48,015 Current Period Gross Charge Offs — — — — — — — — Other construction Satisfactory (1-4) 60,895 422,727 203,918 15,867 — — — 703,407 Watch (5) — — — — — — — — Special Mention (6) — — — — — — — — Classified (7-9) — — — — — — — — Total 60,895 422,727 203,918 15,867 — — — 703,407 Current Period Gross Charge Offs — — — — — — — — One- to four-family residential Satisfactory (1-4) 66,733 330,489 203,781 108,232 60,288 118,570 483 888,576 Watch (5) — — — — 171 862 46 1,079 Special Mention (6) — — — — — — — — Classified (7-9) — — 543 148 — 189 — 880 Total 66,733 330,489 204,324 108,380 60,459 119,621 529 890,535 Current Period Gross Charge Offs — — — — — 11 20 31 Other residential (multi-family) Satisfactory (1-4) 18,795 108,389 391,516 180,916 108,173 111,462 3,335 922,586 Watch (5) — — — — — — — — Special Mention (6) — — — — — 12,322 — 12,322 Classified (7-9) — — — — — 7,163 — 7,163 Total 18,795 108,389 391,516 180,916 108,173 130,947 3,335 942,071 Current Period Gross Charge Offs — — — — — — — — Commercial real estate Satisfactory (1-4) 53,158 284,738 237,822 103,393 161,680 624,515 35,276 1,500,582 Watch (5) — — — — 154 5,348 — 5,502 Special Mention (6) — — — — — 4,396 — 4,396 C |
