Company: BCTF
Filing Date: 2025-03-06
Form Type: 10-K
Source: 0001552781-25-000058
Chunk: 42

Company: Bancorp 34, Inc.
Filing Date: 2025-03-06
Form: 10-K
Item: Item 1
Chunk 42
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 cash
flow and credit worthiness of the borrower and secondarily on the underlying collateral value provided by the borrower and liquidity
of the guarantor.

Risk of loss on a construction
and land development loan depends largely upon whether our initial estimate of the property’s value at completion of construction
exceeds the cost of the property construction (including interest) and the availability of permanent take-out financing. During the construction
phase, a number of factors can result in delays and cost overruns. If estimates of value are inaccurate or if actual construction costs
exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent
loan or by seizure of collateral.

Commercial real estate,
commercial business, and construction loans are more susceptible to a risk of loss during a downturn in the business cycle. Our underwriting,
review, and monitoring cannot eliminate all of the risks related to these loans.

As of December 31, 2024,
our commercial real estate loans (owner and non-owner occupied) were equal to 367.2% of the bank’s total risk-based capital. The
banking regulators give commercial real estate lending greater scrutiny, and may require banks with higher levels of commercial real
estate loans to implement enhanced underwriting, internal controls, risk management policies and portfolio stress testing, as well as
possibly higher levels of allowances for credit losses and capital levels as a result of commercial real estate lending growth and exposures.

A
significant portion of our loan portfolio is secured by real estate, and events that negatively impact the real estate market could hurt
our business.

A significant portion
of our loans are secured by real estate. As of December 31, 2024, approximately 83.7% of such loans had real estate as primary
collateral. 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