Company: BCTF
Filing Date: 2025-03-06
Form Type: 10-K
Source: 0001552781-25-000058
Chunk: 242

Company: Bancorp 34, Inc.
Filing Date: 2025-03-06
Form: 10-K
Item: Item 1A
Chunk 242
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ateral. Additionally, certain loans may have real estate as a secondary component of collateral. The real estate collateral in each
case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the
credit is extended. Deterioration in the real estate market could cause us to adjust our opinion of the level of credit quality in our
loan portfolio. Such a determination may lead to an additional increase in our provisions for credit losses, which could also adversely
affect our business, financial condition, and results of operations.

In
2023 we experienced the deterioration of a large out of market commercial real estate credit, and future deterioration in our commercial
real estate loan portfolio could adversely affect our results of operations and financial condition.

To diversify the geographic
scope of our commercial real estate loan portfolio, a portion of our commercial real estate and construction loan portfolios is secured
by real estate outside of our market areas. At December 31, 2024, approximately 83.7% of our commercial real estate and construction
loan portfolios were collateralized with out of market real estate. As of September 30, 2023, we experienced a deterioration of a large
out of market commercial real estate loan which resulted in this loan becoming nonperforming as of September 30, 2023. As of December
31, 2023, a $3.3 million loss was recognized, and the remaining $3 million balance was transferred to other real estate owned. The note
associated with the loan was sold for $2.6 million and an additional $0.4 million loss was taken in the first quarter of 2024.

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Due to this event, management
engaged an external third-party to complete a loan review in the fourth quarter of 2023. This loan review included a review of approximately
90% of our out of market collateral loan portfolio. In addition, management conducted a review of the largest out of market credits,
which included a review of the real estate appraisals for the out of market collateral real estate securing these credits. While the
external third-party and management reviews did not indicate significant deterioration in our out of market collateral loan portfolio,
we may experience material deteriorations with other existing real estate loans, including real estate loans in our out of market commercial
real estate loan portfolio. In addition, management plans to limit out of market lending in the future.

Future deterioration
in our commercial real estate loan portfolio could adversely affect our