BCTF 10-Q Quarter ended June 30, 2018

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		June 30, 2018				December 31, 2017
ASSETS
Cash and due from banks		$	6,860,541			$	4,988,178
Interest-bearing deposits with banks			14,360,000				4,885,000
Total cash and cash equivalents			21,220,541				9,873,178
Available-for-sale securities, at fair value			29,233,376				24,399,881
Loans held for sale			21,308,019				15,423,670
Loans held for investment			279,758,593				261,012,786
Allowance for loan losses			(3,199,420	)			(3,117,190	)
Loans held for investment, net			276,559,173				257,895,596
Premises and equipment, net			9,935,524				10,120,904
Stock in financial institutions, restricted, at cost			3,860,961				3,825,861
Accrued interest receivable			899,753				838,960
Deferred income taxes, net			2,163,799				2,191,526
Bank owned life insurance			10,429,970				10,135,672
Core deposit intangible, net			194,462				220,664
Prepaid and other assets			1,968,287				1,294,606
TOTAL ASSETS		$	377,773,865			$	336,220,518
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Demand deposits		$	45,188,344			$	37,502,593
Savings and NOW deposits			129,434,483				135,009,406
Time deposits			71,885,388				63,049,334
Total deposits			246,508,215				235,561,333
Federal Home Loan Bank advances			80,000,000				45,000,000
Escrows			391,803				296,847
Accrued interest and other liabilities			4,885,048				4,391,649
Total liabilities			331,785,066				285,249,829
Commitments and contingencies (note 4)			-				-
Stockholders’ equity
Preferred stock, $0.01 par value, 50,000,000 authorized, 0 issued and outstanding			-				-
Common stock, $0.01 par value, 100,000,000 authorized, 3,404,065 and 3,490,672 issued and outstanding.			34,041				34,907
Additional paid-in capital			25,617,057				26,849,822
Retained earnings			22,649,672				26,060,598
Accumulated other comprehensive loss, net of tax			(639,528	)			(274,266	)
Unearned employee stock ownership plan (ESOP) shares			(1,672,443	)			(1,700,372	)
Total stockholders’ equity			45,988,799				50,970,689
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	377,773,865			$	336,220,518

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		Three Months Ended June 30,								Six Months Ended June 30,
		2018				2017				2018				2017
Interest income
Interest and fees on loans		$	3,998,915			$	3,814,226			$	7,874,923			$	7,252,496
Interest on securities			147,407				144,847				295,988				275,313
Interest on other interest-earning assets			73,546				46,375				141,576				100,356
Total interest income			4,219,868				4,005,448				8,312,487				7,628,165
Interest expense
Interest on deposits			512,966				390,643				1,006,702				766,951
Interest on borrowings			274,006				142,806				423,436				245,881
Total interest expense			786,972				533,449				1,430,138				1,012,832
Net interest income			3,432,896				3,471,999				6,882,349				6,615,333
Provision for loan losses			71,000				150,000				93,000				400,000
Net interest income after provision for loan losses			3,361,896				3,321,999				6,789,349				6,215,333
Noninterest income
Gain on sale of loans			4,059,747				2,544,599				7,413,140				4,509,071
Service charges and fees			94,575				89,219				178,964				175,176
Bank owned life insurance income			91,149				43,363				179,746				86,176
Other			2,335				16,806				26,941				23,597
Total noninterest income			4,247,806				2,693,987				7,798,791				4,794,020
Noninterest expense
Salaries and benefits			4,859,405				3,550,403				9,089,382				6,849,749
Occupancy			524,711				486,860				1,030,662				910,618
Data processing fees			735,425				584,342				1,458,831				1,191,365
FDIC and other insurance expense			51,332				32,696				101,865				89,307
Professional fees			259,999				303,560				587,055				681,430
Advertising			120,748				101,474				276,774				243,355
Net other real estate expenses			-				-				-				80
Other			559,225				468,797				1,078,944				899,017
Total noninterest expense			7,110,845				5,528,132				13,623,513				10,864,921
Income before provision for income taxes			498,857				487,854				964,627				144,432
Provision for income taxes			119,296				149,756				214,439				4,084
NET INCOME			379,561				338,098				750,188				140,348
Other comprehensive income
Unrealized (loss) gain on available-for-sale securities			(143,091	)			57,136				(490,358	)			70,801
Tax effect of unrealized (loss) gain on available-for-sale securities			36,417				(21,546	)			125,096				(26,699	)
Unrealized (loss) gain on available-for-sale securities, net of tax			(106,674	)			35,590				(365,262	)			44,102
COMPREHENSIVE INCOME		$	272,887			$	373,688			$	384,926			$	184,450
Earnings per common share:
Basic		$	0.12			$	0.10			$	0.23			$	0.04
Diluted		$	0.12			$	0.10			$	0.23			$	0.04

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																		Accumulated
																		Other
										Additional								Comprehensive				Unearned				Total
		Common				Common				Paid-In				Retained				Income				ESOP				Stockholders'
		Shares				Stock				Capital				Earnings				(Loss)				Shares				Equity
BALANCE, DECEMBER 31, 2016			3,438,190			$	34,382			$	27,161,856			$	25,700,007			$	(363,437	)		$	(1,756,231	)		$	50,776,577
Net income			-				-				-				360,591				-				-				360,591
Unrealized gain on available-for-sale securities, net			-				-				-				-				89,171				-				89,171
Stock option exercise			5,732				57				55,257				-				-				-				55,314
Restricted stock awards			74,750				748				(748	)			-				-				-				-
Amortization of equity awards			-				-				47,577				-				-				55,859				103,436
Share repurchase			(28,000	)			(280	)			(414,120	)			-				-				-				(414,400	)
BALANCE, DECEMBER 31, 2017			3,490,672			$	34,907			$	26,849,822			$	26,060,598			$	(274,266	)		$	(1,700,372	)		$	50,970,689
Net income			-				-				-				750,188				-				-				750,188
Unrealized gain on available-for-sale securities, net			-				-				-				-				(365,262	)			-				(365,262	)
Stock option exercise			15,464				155				149,073				-				-				-				149,228
Restricted stock awards			429				4				(4	)			-				-				-				-
Amortization of equity awards			-				-				189,191				-				-				27,929				217,120
Share repurchase			(102,500	)			(1,025	)			(1,571,025	)			-				-				-				(1,572,050	)
Dividend paid - $1.25 per share			-				-				-				(4,161,114	)			-				-				(4,161,114	)
BALANCE, JUNE 30, 2018			3,404,065			$	34,041			$	25,617,057			$	22,649,672			$	(639,528	)		$	(1,672,443	)		$	45,988,799

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		Six Months Ended June 30,
		2018				2017
Cash flows from operating activities
Net income		$	750,188			$	140,348
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization			355,997				325,872
Stock dividend on financial institution stock			(35,100	)			(22,400	)
Amortization of premiums and discounts on securities, net			149,740				217,505
Amortization of ESOP awards			27,929				37,530
Amortization of stock-based compensation			189,191				-
Amortization of core deposit intangible			26,202				33,600
Gain on sale of loans			(7,413,140	)			(4,509,071	)
Proceeds from sale of loans held for sale			167,786,581				122,584,202
Funding of loans held for sale			(164,814,284	)			(112,663,013	)
Provision for loan losses			93,000				400,000
Net appreciation on bank-owned life insurance			(139,298	)			(60,979	)
Deferred income tax expense			64,144				136,544
Changes in operating assets and liabilities:
Accrued interest receivable			(60,793	)			20,849
Prepaid and other assets			(585,001	)			(98,167	)
Accrued interest and other liabilities			493,398				129,578
Net cash from operating activities			(3,111,246	)			6,672,398
Cash flows from investing activities
Proceeds from principal payments on available-for-sale securities			2,559,998				3,032,673
Purchases of available-for-sale securities			(8,033,591	)			-
Purchase of bank-owned life insurance			(155,000	)			-
Net change in loans held for investment			(20,200,083	)			(23,350,057	)
Purchases of premises and equipment			(170,617	)			(265,554	)
Net cash from investing activities			(25,999,293	)			(20,582,938	)
Cash flows from financing activities
Net change in deposits			10,946,882				4,599,324
Net change in escrows			94,956				1,914
Net change in Federal Home Loan Bank advances			35,000,000				5,000,000
Exercise of stock options			149,228				-
Dividends paid			(4,161,114	)			-
Common stock repurchases			(1,572,050	)			-
Net cash from financing activities			40,457,902				9,601,238
Net increase (decrease) in cash and cash equivalents			11,347,363				(4,309,302	)
Cash and cash equivalents, beginning of period			9,873,178				16,411,344
Cash and cash equivalents, end of period		$	21,220,541			$	12,102,042
Supplemental disclosures:
Interest on deposits and advances paid		$	1,281,600			$	1,005,142
Income taxes paid		$	109,100			$	74,089
Loans transferred to loans held for sale		$	1,443,506			$	2,438,034

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NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES

Bancorp 34, Inc. (“Bancorp 34” or the “Company”) is a Maryland corporation and savings and loan holding company which owns 100% of the common stock of Bank 34 (the “Bank”).

The Bank provides a variety of banking services to individuals and businesses through its full-service branches in Alamogordo and Las Cruces, New Mexico, and Scottsdale and Peoria, Arizona. The Bank also operates ten mortgage loan production offices in El Paso, Texas, Phoenix, Arizona, Scottsdale, Arizona, Yuma, Arizona, Tubac, Arizona, Albuquerque, New Mexico, Lynnwood, Washington, Puyallup, Washington, West Linn, Oregon and Medford, Oregon.

A large portion of the Bank’s New Mexico loans are secured by real estate in Otero and Dona Ana Counties. The economy for these counties is heavily dependent on two U.S. Government military installations located in those counties. Accordingly, the ultimate collectability of the Bank’s New Mexico loans is susceptible to changes in U.S. Government military operations in southern New Mexico.

The primary deposit products are demand deposits, time deposits, NOW, savings and money market accounts. The primary lending products are real estate mortgage loans and commercial loans. The Bank is subject to competition from other financial institutions and regulated and non-regulated financial services providers, regulation by certain federal agencies and undergoes periodic examinations by regulatory authorities.

Rising and falling interest rate environments can have various impacts on the Bank’s net interest income, depending on the short-term interest rate gap that the Bank maintains. The Bank’s net interest income is also affected by prepayments of loans and early withdrawals of deposits.

Basis of Presentation – The accompanying unaudited consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, the accompanying consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition, cash flows and results of operations at the dates and for the periods presented. The results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results of operations for the full fiscal year or for any other period. This information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Basis of Consolidation – The consolidated financial statements include the accounts of Bancorp 34 and the Bank. All significant intercompany accounts and transactions have been eliminated.

Reclassifications – Certain reclassifications have been made to prior period’s financial information to conform to the current period presentation.

Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates include, but are not limited to, allowance for loan losses, other-than-temporary impairment of securities, useful lives used in depreciation and amortization, deferred income taxes, valuation of other real estate and core deposit intangibles.

Subsequent Events – Subsequent events have been evaluated through the date the unaudited consolidated financial statements were issued.

Summary of Recent Accounting Pronouncements :

Bancorp 34 is an emerging growth company and has elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. The Company expects to lose its status as an emerging growth company on August 29, 2019, five years after the completion of the acquisition of Bank 1440.

Revenue Recognition - In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014 - 09, “Revenue from Contracts with Customers (Topic 606 ) .” ASU 2014-09 implements a comprehensive new revenue recognition standard that will supersede substantially all existing revenue recognition guidance. The new standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2015 - 4 “Revenue from Contracts with Customers – Deferral of the Effective Date” deferred the effective date of ASU 2014-09 by one year. The Company’s revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. The Company does not expect adoption of ASU 2014-09 will have a material impact on our consolidated financial statements and disclosures. We plan to adopt the revenue recognition guidance in the first quarter of 2019 with a cumulative effect adjustment to opening retained earnings, if management deems such adjustment significant. Our implementation efforts to date include identification of revenue streams within the scope of the guidance.

Financial Instruments – In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10). The amendment has a number of provisions including the requirements that public business entities use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, a separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e. securities or loans receivables), and eliminating the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The amendment is effective for the Company in the first quarter of 2019 and is not expected to have a significant impact on the consolidated financial statements.

Leases – In February 2016, the FASB issued ASU 2016 - 02 “Leases (Topic 842 ).” This standard requires entities that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The standard is effective for the Company in the first quarter of 2020. The guidance is required to be applied by the modified retrospective transition approach. Early adoption is permitted. We are currently assessing the impact of the adoption of this authoritative guidance on our consolidated financial statements.

Credit Losses - In June 2016, the FASB issued ASU 2016 - 13, “Financial Instruments—Credit Losses (Topic 326 ): Measurement of Credit Losses on Financial Instruments.” The amendments in this update replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to create credit loss estimates. The new guidance is effective for the Company in the first quarter of 2020. The guidance is required to be applied by the modified retrospective approach. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently assessing the impact of the adoption of this authoritative guidance on our consolidated financial statements.

Premium on Callable Debt - In March 2017, the FASB issued ASU 2017 - 08, “Receivables–Nonrefundable Fees and Other Costs (Subtopic 310 - 20 )” to shorten the amortization period for certain purchased callable debt securities held at a premium to the earliest call date. Currently, entities generally amortize the premium as a yield adjustment over the contractual life of the security. The guidance does not change the accounting for callable debt securities held at a discount. For public business entities, the guidance is effective for the Company in the first quarter of 2020. Early adoption is permitted, including in an interim period. ASU 2017-08 is not expected to have a significant impact on our consolidated financial statements.

Share-Based Payment Modification - In May 2017, the FASB issued ASU 2017 - 09, “Compensation - Stock Compensation (Subtopic 718 ): Scope of Modification Accounting.” ASU 2017-09 clarifies when changes to terms or conditions of a share-based payment award must be accounted for as a modification. Under the new guidance, an entity will not apply modification accounting to a share-based payment award if all of the following are the same immediately before and after the change: (i) the fair value of the award, (ii) the vesting conditions of the award, and (iii) the classification of the award as either an equity or liability instrument. ASU 2017-09 was effective for the Company in the quarter ended March 31, 2018. The guidance requires companies to apply the requirements prospectively to awards modified on or after the adoption date. The adoption of ASU 2017-09 did not have a significant impact on our consolidated financial statements.

Reporting Tax Effects of Tax Cuts and Jobs Act - In February 2018, the FASB issued ASU 2018 - 02, “Income Statement-Reporting Comprehensive Income (Topic 220 ): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” that helps organizations address certain stranded income tax effects in accumulated other comprehensive income ("AOCI") resulting from the 2017 Tax Cuts and Jobs Act. The ASU provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The ASU requires financial statement preparers to disclose a description of the accounting policy for releasing income tax effects from AOCI, whether they elect to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act, and information about the other income tax effects that are reclassified. The amendments are effective for the Company in the first quarter of 2019. Early adoption is permitted. Organizations should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. ASU 2018-02 is not expected to have a significant impact on our consolidated financial statements.

NOTE 2 – AVAILABLE-FOR-SALE SECURITIES

Available-for-sale securities have been classified in the consolidated balance sheets according to management’s intent at June 30, 2018 and December 31, 2017. The carrying amount of such securities and their approximate fair values were as follows:

There were no sales of available-for-sale securities during the six months ended June 30, 2018 or 2017.

Amortized cost and fair value of securities by contractual maturity as of June 30, 2018 and December 31, 2017 are shown below. For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the actual contractual maturities of underlying collateral. Expected maturities may differ from contractual maturities because borrowers may call or prepay obligations.

The scheduled maturities of available-for-sale securities at June 30, 2018 and December 31, 2017 were as follows:

At June 30, 2018 and December 31, 2017, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

At June 30, 2018 and December 31, 2017, mortgage-backed securities included collateralized mortgage obligations of $10.8 million and $10.0 million, respectively, which are backed by single-family mortgage loans. The Company does not hold any securities backed by commercial real estate loans.

Gross Unrealized Losses and Fair Value – The following tables show the gross unrealized losses and fair values of securities by length of time that individual securities in each category have been in a continuous loss position.

At June 30, 2018 and December 31, 2017, all of the government agencies and mortgage-backed securities held by the Company were issued by U.S. Government-sponsored entities and agencies, primarily Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2018.

Loans and securities with a carrying value of approximately $137.8 million at June 30, 2018 were pledged to secure Federal Home Loan Bank (“FHLB”) advances. In addition, securities with a carrying value of approximately $4.2 million at June 30, 2018 were pledged to secure public deposits.

NOTE 3 – LOANS HELD FOR INVESTMENT, NET

The components of loans held for investment, net in the consolidated balance sheets were as follows:

At June 30, 2018 and December 31, 2017, loans held for investment includes construction loans of $20.3 million and $16.4 million, respectively.  Commercial real estate construction loans were $16.7 million and $13.4 million at June 30, 2018 and December 31, 2017, respectively.   One- to four-family residential real estate construction loans were $1.9 million and $1.3 million as of June 30, 2018 and December 31, 2017, respectively. Consumer construction loans were $1.7 million at each of June 30, 2018 and December 31, 2017, respectively

Allowance for Loan Losses and Recorded Investment in Loans – The following is a summary of the allowance for loan losses and recorded investment in loans as of June 30, 2018 and December 31, 2017:

The following tables summarize activities for the allowance for loan losses for the six months ended June 30, 2018 and 2017 by quarter:

Nonperforming Assets – The following tables present an aging analysis of the recorded investment of past due loans as of June 30, 2018 and December 31, 2017. Payment activity is reviewed by management on a monthly basis to determine the performance of each loan. Per Company policy, loans past due 90 days or more no longer accrue interest.

The following table sets forth nonaccrual loans and other real estate at June 30, 2018 and December 31, 2017:

Two large loan relationships partially secured by real estate comprise $4.5 million, or 80.0%, of the $5.6 million in nonaccrual loans at June 30, 2018.  At June 30, 2018, $3.6 million, or 64.2% of the total nonaccrual loan balance, is guaranteed by the Small Business Administration ("SBA").

Credit Quality Indicators – The following table represents the credit exposure by internally assigned grades at June 30, 2018 and December 31, 2017. This grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements in accordance with the loan terms. The Bank’s internal credit risk grading system is based on management’s experiences with similarly graded loans. Credit risk grades are reassessed each quarter based on any recent developments potentially impacting the creditworthiness of the borrower, as well as other external statistics and factors, which may affect the risk characteristics of the respective loan.

The Bank’s internally assigned grades are as follows:

Pass – Strong credit with no existing or known potential weaknesses deserving of management’s close attention.

Special Mention – Potential weaknesses that deserve management’s close attention. Borrower and guarantor’s capacity to meet all financial obligations is marginally adequate or deteriorating.

Substandard – Inadequately protected by the paying capacity of the Borrower and/or collateral pledged. The borrower or guarantor is unwilling or unable to meet loan terms or loan covenants for the foreseeable future.

Doubtful – All the weakness inherent in one classified as substandard with the added characteristic that those weaknesses in place make the collection or liquidation in full, on the basis of current conditions, highly questionable and improbable.

Loss – Considered uncollectible or no longer a bankable asset. This classification does not mean that the asset has absolutely no recoverable value. In fact, a certain salvage value is inherent in these loans. Nevertheless, it is not practical or desirable to defer writing off a portion or whole of a perceived asset even though partial recovery may be collected in the future.

Impaired Loans – The following tables include the recorded investment and unpaid principal balances, net of charge-offs for impaired loans with the associated allowance amount, if applicable. Management determined the allocated allowance based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for the loan is the operation or liquidation of the collateral. In those cases, the current fair value of the collateral, less selling costs was used to determine the allocated allowance recorded.

During the six months ended June 30, 2018 and 2017, $4,000 and $0 of interest income, respectively, was recognized on nonaccrual loans.

Certain loans within the Company’s loan and ORE portfolios are guaranteed by the Veterans Administration (VA). In the event of default by the borrower, the VA can elect to pay the guaranteed amount or take possession of the property. If the VA takes possession of the property, the Company is entitled to be reimbursed for the outstanding principal balance, accrued interest and certain other expenses. There were no commitments from the VA to take title to foreclosed VA properties at June 30, 2018 and December 31, 2017.

Troubled Debt Restructurings – Restructured loans are considered “troubled debt restructurings” if due to the borrower’s financial difficulties, the Bank has granted a concession that they would not otherwise consider. This may include a transfer of real estate or other assets from the borrower, a modification of loan terms, rates, or a combination of the two. All troubled debt restructurings placed on nonaccrual status must show no less than six consecutive months of repayment performance by the borrower in accordance with contractual terms to return to accrual status. Once a loan has been identified as a troubled debt restructuring, it will continue to be reported as such until the loan is paid in full.

There were no troubled debt restructurings as of June 30, 2018 or December 31, 2017.

In the normal course of business, the Company may modify a loan for a credit-worthy borrower where the modified loan is not considered a troubled debt restructuring. In these cases, the modified terms are consistent with loan terms available to credit-worthy borrowers and within normal loan pricing. The modifications to such loans are done according to existing underwriting standards which include review of historical financial statements, including current interim information if available, an analysis of the causes of the borrower’s decline in performance, and projections intended to assess repayment ability going forward.