| 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 balances 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 reflect 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, including unfunded lines of credit, undisbursed portions of loans, written residential and commercial loan 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, 2024 and December 31, 2023 were as follows: June 30, December 31, 2024 2023 (In Thousands) One- to four-family residential construction $ 29,718 $ 29,628 Subdivision construction 19,427 23,359 Land development 43,191 48,015 Commercial construction 550,231 703,407 Owner occupied one- to four-family residential 740,955 769,260 Non-owner occupied one- to four-family residential 123,168 121,275 Commercial real estate 1,511,672 1,521,032 Other residential (multi-family) 1,250,976 942,071 Commercial business 255,917 318,050 Industrial revenue bonds 11,699 12,047 Consumer auto 26,200 28,343 Consumer other 28,471 28,978 Home equity lines of credit 113,483 115,883 4,705,108 4,661,348 Allowance for credit losses (65,255) (64,670) Deferred loan fees and gains, net (6,225) (7,058) $ 4,633,628 $ 4,589,620 Weighted average interest rate 6.35 % 6.25 % The following tables present the classes of loans by aging as of the dates indicated. June 30, 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 $ — $ — $ — $ — $ 29,718 $ 29,718 $ — Subdivision construction — — — — 19,427 19,427 — Land development 553 — — 553 42,638 43,191 — Commercial construction — — — — 550,231 550,231 — Owner occupied one- to four-family residential 140 34 554 728 740,227 740,955 — Non-owner occupied one- to four-family residential — — 593 593 122,575 123,168 — Commercial real estate 88 — 9,764 9,852 1,501,820 1,511,672 — Other residential (multi-family) — — — — 1,250,976 1,250,976 — Commercial business — — — — 255,917 255,917 — Industrial revenue bonds — — — — 11,699 11,699 — Consumer auto 28 19 2 49 26,151 26,200 — Consumer other 107 16 39 162 28,309 28,471 — Home equity lines of credit 93 — 32 125 113,358 113,483 — Total $ 1,009 $ 69 $ 10,984 $ 12,062 $ 4,693,046 $ 4,705,108 $ — 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: June 30, December 31, 2024 2023 (In Thousands) One- to four-family residential construction $ — $ — Subdivision construction — — Land development — 384 Commercial construction — — Owner occupied one- to four-family residential 554 722 Non-owner occupied one- to four-family residential 593 — Commercial real estate 9,764 10,552 Other residential (multi-family) — — Commercial business — 31 Industrial revenue bonds — — Consumer auto 2 8 Consumer other 39 42 Home equity lines of credit 32 9 Total non-accruing loans $ 10,984 $ 11,748 No interest income was recorded on nonaccrual loans for the three or six months ended June 30, 2024 and 2023, respectively. Nonaccrual loans for which there is no related allowance for credit losses as of June 30, 2024 and December 31, 2023, had an amortized cost of $2.4 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 tables present the activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2024 and 2023. During the three months ended June 30, 2024, the Company did not record a provision expense on its portfolio of outstanding loans and during the six months ended June 30, 2024, recorded provision expense of $500,000 on its portfolio of outstanding loans. During the three months ended June 30, 2023, the Company did not record a provision expense on its portfolio of outstanding loans and during the six months ended June 30, 2023, 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, March 31, 2023 $ 11,797 $ 13,189 $ 25,506 $ 2,502 $ 7,821 $ 4,172 $ 64,987 Provision (credit) charged to expense — — — — — — — Losses charged off — — — — — (477) (477) Recoveries 21 — 2 — 6 313 342 Balance, June 30, 2023 $ 11,818 $ 13,189 $ 25,508 $ 2,502 $ 7,827 $ 4,008 $ 64,852 Allowance for credit losses Balance, March 31, 2024 $ 9,660 $ 13,886 $ 29,469 $ 2,748 $ 5,396 $ 3,928 $ 65,087 Provision (credit) charged to expense — — — — — — — Losses charged off (9) — — (101) — (439) (549) Recoveries 27 — — 194 281 215 717 Balance, June 30, 2024 $ 9,678 $ 13,886 $ 29,469 $ 2,841 $ 5,677 $ 3,704 $ 65,255 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) — — — — (911) (942) Recoveries 31 — 2 — 154 627 814 Balance, June 30, 2023 $ 11,818 $ 13,189 $ 25,508 $ 2,502 $ 7,827 $ 4,008 $ 64,852 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 (65) — — (101) (31) (779) (976) Recoveries 30 — — 194 369 468 1,061 Balance, June 30, 2024 $ 9,678 $ 13,886 $ 29,469 $ 2,841 $ 5,677 $ 3,704 $ 65,255 The following tables present the activity in the allowance for unfunded commitments by portfolio segment for the three and six months ended June 30, 2024 and 2023. The provision for losses on unfunded commitments for the three months ended June 30, 2024 was a credit (negative expense) of $607,000, compared to a credit (negative expense) of $1.6 million for the three months ended June 30, 2023. The provision for losses on unfunded commitments for the six months ended June 30, 2024 was a credit (negative expense) of $477,000, compared to a credit (negative expense) of $2.4 million for the six months ended June 30, 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, March 31, 2023 $ 832 $ 8,058 $ 445 $ 891 $ 1,263 $ 501 $ 11,990 Provision (credit) charged to expense (74) (1,267) 19 (20) (276) (1) (1,619) Balance, June 30, 2023 $ 758 $ 6,791 $ 464 $ 871 $ 987 $ 500 $ 10,371 Allowance for unfunded commitments Balance, March 31, 2024 $ 679 $ 3,978 $ 614 $ 509 $ 1,353 $ 484 $ 7,617 Provision (credit) charged to expense (6) (632) 32 41 (10) (32) (607) Balance, June 30, 2024 $ 673 $ 3,346 $ 646 $ 550 $ 1,343 $ 452 $ 7,010 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 22 (1,833) 48 69 (747) (4) (2,445) Balance, June 30, 2023 $ 758 $ 6,791 $ 464 $ 871 $ 987 $ 500 $ 10,371 Allowance for unfunded commitments Balance, January 1, 2024 $ 706 $ 4,006 $ 619 $ 741 $ 959 $ 456 $ 7,487 Provision (credit) charged to expense (33) (660) 27 (191) 384 (4) (477) Balance, June 30, 2024 $ 673 $ 3,346 $ 646 $ 550 $ 1,343 $ 452 $ 7,010 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: June 30, 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 — Commercial construction — — — — Owner occupied one- to four- family residential 525 10 691 29 Non-owner occupied one- to four-family residential 593 333 — — Commercial real estate 13,948 293 10,548 1,200 Other residential (multi-family) — — 7,162 — Commercial business 200 200 — — Industrial revenue bonds — — — — Consumer auto — — — — Consumer other — — — — Home equity lines of credit 498 — — — Total $ 15,764 $ 836 $ 18,785 $ 1,229 Modified Loans. Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures 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, as of the dates indicated, the composition of modifications made to loans to borrowers experiencing financial difficulty, by loan class and type of concession granted. Each of the types of concessions granted comprised 1.0% or less of their respective loan classes at June 30, 2024. During the three and six months ended June 30, 2024, principal forgiveness of $241,000 and $255,000, respectively, was completed on consumer loans and a land development loan. During the three and six months ended June 30, 2023, principal forgiveness of $6,000 and $39,000, respectively, was completed on consumer loans. Amortized Cost Basis at June 30, 2024 Interest Rate Term Total Reduction Extension Combination Modifications (In Thousands) Construction and land development $ — $ — $ — $ — One- to four-family residential — — — — Other residential (multi-family) — 2,732 — 2,732 Commercial real estate — 75 7,174 7,249 Commercial business — — — — Consumer — 6 — 6 $ — $ 2,813 $ 7,174 $ 9,987 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 of loans (under modified terms) at June 30, 2024 and at December 31, 2023, respectively: June 30, 2024 30-89 Days Over 90 Days Current Past Due Past Due Total (In Thousands) Construction and land development $ — $ — $ — $ — One- to four-family residential — — — — Other residential (multi-family) 2,732 — — 2,732 Commercial real estate 75 7,174 — 7,249 Commercial business — — — — Consumer 6 — — 6 $ 2,813 $ 7,174 $ — $ 9,987 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 information, including but not limited to current financial information, historical payment experience, industry information and collateral levels and 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. 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 or 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 formal quarterly review and continuous 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 June 30, 2024 and December 31, 2023. Term Loans by Origination Year Revolving June 30, 2024 2024 YTD 2023 2022 2021 2020 Prior Loans Total (In Thousands) One- to four-family residential construction Satisfactory (1-4) $ 3,519 $ 16,346 $ 3,704 $ 40 $ — $ — $ 6,109 $ 29,718 Watch (5) — — — — — — — — Special Mention (6) — — — — — — — — Classified (7-9) — — — — — — — — Total 3,519 16,346 3,704 40 — — 6,109 29,718 Current Period Gross Charge Offs — — — — — — — — Subdivision construction Satisfactory (1-4) — 284 703 17,681 31 269 459 19,427 Watch (5) — — — — — — — — Special Mention (6) — — — — — — — — Classified (7-9) — — — — — — — — Total — 284 703 17,681 31 269 459 19,427 Current Period Gross Charge Offs — — — — — — — — Construction and land development Satisfactory (1-4) 6,524 12,766 7,068 5,191 3,651 7,286 705 43,191 Watch (5) — — — — — — — — Special Mention (6) — — — — — — — — Classified (7-9) — — — — — — — — Total 6,524 12,766 7,068 5,191 3,651 7,286 705 43,191 Current Period Gross Charge Offs — — — — — 101 — 101 Other construction Satisfactory (1-4) 22,655 68,085 353,154 87,020 19,317 — — 550,231 Watch (5) — — — — — — — — Special Mention (6) — — — — — — — — Classified (7-9) — — — — — — — — Total 22,655 68,085 353,154 87,020 19,317 — — 550,231 Current Period Gross Charge Offs — — — — — — — — One- to four-family residential Satisfactory (1-4) 22,252 64,870 320,685 185,819 101,946 165,704 533 861,809 Watch (5) — — — — 146 694 — 840 Special Mention (6) — — — — — — — — Classified (7-9) — — — 524 — 950 — 1,474 Total 22,252 64,870 320,685 186,343 102,092 167,348 533 864,123 Current Period Gross Charge Offs — 49 — — — 15 — 64 Other residential (multi-family) Satisfactory (1-4) 6,542 66,124 310,672 511,679 181,521 168,425 3,282 1,248,245 Watch (5) — — — — — — — — Special Mention (6) — — — — — 2,731 — 2,731 Classified (7-9) — — — — — — — — Total 6,542 66,124 310,672 511,679 181,521 171,156 3,282 1,250,976 Current Period Gross Charge Offs — — — — — — — — Commercial real estate Satisfactory (1-4) 21,138 70,090 319,641 225,881 97,191 730,152 28,379 1,492,472 Watch (5) — — — — — 5,078 — 5,078 Special Mention (6) — — — — — — — — Classified (7-9) — — 111 87 — 13,924 — 14,122 Total 21,138 70,090 319,752 225,968 97,191 749,154 28,379 1,511,672 Current Period Gross Charge Offs — — — — — — — — Commercial business Satisfactory (1-4) 9,439 35,741 69,722 23,728 9,820 50,642 51,301 250,393 Watch (5) — — 994 — — 11 — 1,005 Special Mention (6) — — 1,098 3,670 43 — 11,200 16,011 Classified (7-9) 200 — — — 7 — — 207 Total 9,639 35,741 71,814 27,398 9,870 50,653 62,501 267,616 Current Period Gross Charge Offs — — — 4 27 — — 31 Consumer Satisfactory (1-4) 10,524 12,545 8,584 3,921 1,745 10,821 118,894 167,034 Watch (5) — — 2 18 4 199 111 334 Special Mention (6) — — — — — — — — Classified (7-9) 2 3 25 37 — 76 643 786 Total 10,526 12,548 8,611 3,976 1,749 11,096 119,648 168,154 Current Period Gross Charge Offs 5 67 93 23 3 548 41 780 Combined Satisfactory (1-4) 102,593 346,851 1,393,933 1,060,960 415,222 1,133,299 209,662 4,662,520 Watch (5) — — 996 18 150 5,982 111 7,257 Special Mention (6) — — 1,098 3,670 43 2,731 11,200 18,742 Classified (7-9) 202 3 136 648 7 14,950 643 16,589 Total $ 102,795 $ 346,854 $ 1,396,163 $ 1,065,296 $ 415,422 $ 1,156,962 $ 221,616 $ 4,705,108 Current Period Gross Charge Offs $ 5 $ 116 $ 93 $ 27 $ 30 $ 664 $ 41 $ 976 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 — |
