GOING CONCERN

12 Months Ended

Dec. 31, 2018

GOING CONCERN

19. GOING CONCERN

19. GOING CONCERN

The Company’s consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in its consolidated financial statements, the Company reported a net loss of approximately $1,486,000 and $319,000 for the years ended December 31, 2018 and 2017, respectively. Further, the Company has entered into Consent Orders with the FDIC and the Department that, among other provisions, require the Bank to increase its tier one leverage capital ratio to 8.00% and its total risk-based capital ratio to 12.50%. As of December 31, 2018, the Bank’s Tier 1 leverage capital ratio was 3.00% and its total risk-based capital ratio was 6.34%, which is considered “under- capitalized”. The Bank’s failure to comply with the terms of the Consent Orders could result in additional regulatory

supervision and/or actions. The ability of the Bank to continue as a going concern is dependent on many factors, including achieving required capital levels, earnings and fully complying with the Consent Orders. The Consent Orders raise substantial doubt about the Company’s ability to continue as a going concern.

Management developed a plan to alleviate the substantial doubt about the Company’s ability to continue as a going concern. This plan is primarily based on the following:

· Increase earnings: Core profitability is essential to stop the erosion of capital. Noninterest income will continue to be an important element of the Bank’s earnings enhancement plan, specifically noninterest income from SBA loans will continue to be an important income strategy for the Bank. In addition, management will seek to reduce noninterest expense by reducing targeted areas of overhead including the closure of the Mount Airy branch in 2018 as well as the recovery of SBA loan fair value write-downs and other cost reduction strategies. During 2018 and 2019, there were SBA fair value write-downs on defaulted loans that totaled approximately $1.2 million. Management has developed forbearance agreements and implemented other collection strategies including the sale of underlying collateral to mitigate the exposure on these loans that has resulted in the reversal of approximately $200,000 in fair value write-downs. In 2020, as a result of collection efforts as well as increased capital levels, there has been an improvement in asset quality ratios that comply with the Bank’s Consent Orders.

· Strengthen Capital: A concentrated effort will continue to be made to stabilize and strengthen the Bank’s capital. Management has identified sources of external capital that have been received in 2020 and 2021. This capital will be used to further strengthen the Bank’s balance sheet. As of March 31, 2022, the Bank’s tier one leverage capital ratio was 9.83% and its total risk-based capital ratio was 23.01%, which is considered “well - capitalized”.

· Comply with the Consent Orders: Management has developed a Restoration Plan to address matters outlined in the Consent Orders including strengthening management, asset quality, profitability and capital. This plan received a “non-objection” from the Bank’s primary regulators in March 2021. Management plans to implement the Restoration Plan to comply with the terms and conditions of the Orders.

Based on management’s assessment of the Company’s ability to alleviate the substantial doubt about the its ability to continue as a going concern, these consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.