Company: BCTF
Filing Date: 2025-03-06
Form Type: 10-K
Source: 0001552781-25-000058
Chunk: 41

Company: Bancorp 34, Inc.
Filing Date: 2025-03-06
Form: 10-K
Item: Item 1
Chunk 41
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 or downgrades of our loans,
increases in our allowance for credit losses or other credit costs, imposition of new or more stringent concentration limits, restrictions
in our lending activities and/or recognition of further losses. Further, if actual charge-offs in future periods exceed the amounts allocated
to the allowance for credit losses, we may need additional provisions for credit losses to restore the adequacy of our allowance for
credit losses.

We
are exposed to higher credit risk by commercial real estate, commercial business, and construction lending.

Commercial real estate,
commercial business and construction lending usually involves higher credit risks than that of single-family residential lending. At
December 31, 2024, the following loan types accounted for the stated percentages of our total loan portfolio: commercial real estate
(owner and non-owner occupied) 60.7%, commercial and industrial business 16.3%, and construction and land development lending 3.9%. These
types of loans involve larger loan balances to a single borrower or groups of related borrowers.

Commercial real estate
loans may be affected to a greater extent than residential loans by adverse conditions in real estate markets or the economy because
commercial real estate borrowers’ ability to repay their loans depends in some cases on successful development of their properties,
as well as the factors affecting residential real estate borrowers. These loans may involve greater risk because they generally are not
fully amortizing over the loan period, but have a balloon payment due at maturity. A borrower’s ability to make a balloon payment
typically will depend on being able to either refinance the loan or sell the underlying property in a timely manner. The increase in
market rates could increase the risk that a borrower is unable to meet the credit standards needed to refinance a loan.

32

Commercial and industrial
business loans are typically based on the borrowers’ ability to repay the loans from the cash flow of their businesses, which may
be unpredictable, and the collateral securing these loans may fluctuate in value. Although commercial and industrial business loans are
often collateralized by equipment, inventory, accounts receivable, or other business assets, the liquidation of collateral in the event
of default is often an insufficient source of repayment because, for instance, accounts receivable may be uncollectible and inventories
may be obsolete or of limited use. In addition, business assets may depreciate over time, may be difficult to appraise, and may fluctuate
in value based on the success of the business. Accordingly, the repayment of commercial business loans depends primarily on the