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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2024

OR

 Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______ to _______

Commission File Number 001-39068

 

BANCORP 34, INC.

(Exact name of registrant as specified in its charter)

 

Maryland   333-273901   74-2819148
(State or other jurisdiction
of incorporation)
  (Commission File Number)   (IRS Employer Identification No.)
         

8777 E. Hartford Drive, Suite 100

Scottsdale, Arizona 85255

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (623) 334-6064

Not Applicable

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  Accelerated filer  Non-accelerated Filer 
Smaller reporting company  Emerging growth company     

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

As of May 15, 2024, the registrant had 6,609,428 shares of common stock, par value $0.01 per share, issued and outstanding.

 
 

BANCORP 34, INC.

Quarterly Report on Form 10-Q

March 31, 2024

Table of Contents

 

  Page Number
     

PART I. FINANCIAL INFORMATION

 2
      
Item 1. Financial Statements 2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 39
Item 3. Quantitative and Qualitative Disclosures About Market Risk  61
Item 4. Controls and Procedures  61
     
PART II. OTHER INFORMATION  62
     
Item 1. Legal Proceedings  62
Item 1A. Risk Factors  62
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  62
Item 3. Defaults Upon Senior Securities 62
Item 4. Mine Safety Disclosures 62
Item 5. Other Information 62
Item 6. Exhibits  62
     
Signature Page  63
     
Exhibit Index  64

 

 
 

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are not statements of historical or current fact nor are they assurances of future performance and generally can be identified by the use of forward-looking terminology, such as “believe,” “expect,” “anticipate,” “intend,” “target,” “estimate,” “continue,” “positions,” “plan,” “predict,” “project,” “forecast,” “guidance,” “goal,” “objective,” “prospects,” “possible” or “potential,” by future conditional verbs such as “assume,” “will,” “would,” “should,” “could” or “may,” or by variations of such words or by similar expressions. These forward-looking statements include, but are not limited to, statements related to our belief that sources of available liquidity are adequate to meet our current and expected liquidity needs, our plans to meet future cash needs through the generation of deposits, and statements regarding our business plan and strategies. These forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time, are difficult to predict and are generally beyond our control.

 

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:

 

·the possibility that the anticipated benefits of our recently completed merger (the “merger”) with CBOA Financial, Inc. (“CBOA”), including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy, competitive factors in the areas where the Company and CBOA do business or as a result of other unexpected factors or events;
·the impact of purchase accounting with respect to the merger, or any change in the assumptions used regarding the assets purchased and liabilities assumed to determine their fair value;
·diversion of management’s attention from ongoing business operations and opportunities;
·potential adverse reactions or changes to business or employee relationships, including those resulting from the completion of the merger;
·the integration of the business and operations of CBOA, which may take longer than anticipated or be more costly than anticipated or have unanticipated adverse results relating to CBOA’s existing business;
·challenges retaining or hiring key personnel;
·business disruptions resulting from or following the merger;
·the outcome of pending or threatened litigation or of matters before regulatory agencies, whether currently existing or commencing in the future, including litigation related to the merger;
·increased capital requirements, other regulatory requirements or enhanced regulatory supervision;
·the inability to grow revenue and earnings;
·the inability to efficiently manage operating expenses;
·changes in interest rates and capital markets;
·changes in asset quality and credit risk;
·changes in deposit costs and liquidity risk;
·adverse changes in economic conditions;
·customer borrowing, repayment, investment and deposit practices;
·the impact, extent and timing of technological changes;
·changes in legislation, regulation, policies or administrative practices, whether by judicial, governmental or legislative action, including, but not limited to, the Coronavirus Aid, Relief, and Economic Security Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, which we refer to as the Dodd-Frank Act, and other changes pertaining to banking, securities, taxation, rent regulation and housing, financial accounting and reporting, environmental protection and insurance, and the ability to comply with such changes in a timely manner;
·changes in the monetary and fiscal policies of the U.S. Government, including policies of the U.S. Department of the Treasury and the Federal Reserve;
·changes in interest rates, which may affect the Company’s net income and other future cash flows, or the market value of the Company’s assets, including its investment securities;
·changes in accounting principles, policies, practices or guidelines;
·failure to attract new customers and retain existing customers in the manner anticipated;
·any interruption or breach of security resulting in failures or disruptions in customer account management, general ledger, deposit, loan or other systems;
·the adverse effects of events beyond each party’s control that may have a destabilizing effect on financial markets and the economy, such as epidemics and pandemics, war or terrorist activities, essential utility outages, deterioration in the global economy, instability in the credit markets, disruptions in each party’s customers’ supply chains or disruption in transportation; and
·other actions of the Federal Reserve and legislative and regulatory actions and reforms.

 

We caution readers that the foregoing list of factors is not exclusive, is not necessarily in order of importance and readers should not place undue reliance on any forward-looking statements. You should also consider the risks, assumptions and uncertainties set forth in the “Risk Factors” section of our 2023 Annual Report on Form 10-K. Further, any forward-looking statement speaks only as of the date on which it is made, and we do not intend to and disclaim any obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, unless required to do so under the federal securities laws.

1
 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

BANCORP 34, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

   (Unaudited)
March 31,
2024
   December 31,
2023
 
ASSETS          
Cash and due from banks  $66,234   $27,182 
Federal funds sold   6,510    1,715 
Total cash and cash equivalents   72,744    28,897 
           
Available-for-sale securities, at fair value   102,226    56,690 
           
Held-to-maturity securities, at amoritzed cost, net of allowance for credit losses   5,645    5,684 
           
Loans held for investment   750,307    457,027 
Allowance for credit losses   (10,675)   (5,860)
           
Loans held for investment, net   739,632    451,167 
           
Other real estate owned       3,000 
Premises and equipment, net   8,875    7,350 
Operating leases right-of-use assets   4,599    1,819 
Other investments   6,097    4,063 
Accrued interest receivable   2,961    1,597 
Deferred income tax asset, net   9,086    4,884 
Bank owned life insurance   11,915    11,847 
Core deposit intangible, net   8,868     
Prepaid and other assets   7,531    4,267 
Total assets  $980,179   $581,265 

 

See accompanying notes to unaudited consolidated financial statements.

2
 

BANCORP 34, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par value data)

 

LIABILITIES AND STOCKHOLDERS’ EQUITY 
  
   (Unaudited)
March 31,
2024
   December 31,
2023
 
LIABILITIES          
Deposits          
Demand deposits  $220,201   $88,091 
Savings and NOW deposits   371,080    243,505 
Time deposits   215,125    128,403 
Total deposits   806,406    459,999 
           
Federal Reserve Bank BTFP Advances   49,000    29,000 
Subordinate debt, net of issuance costs   23,108    24,595 
Subordinated debentures, trust preferred securities   4,145     
Escrows   274    168 
Operating lease liabilities   5,202    2,011 
Accrued interest and other liabilities   9,845    4,771 
Total liabilities   897,980    520,544 
           
STOCKHOLDERS’ EQUITY          
Common stock, $0.01 par value
Authorized: 100,000,000 shares, including 1,100,000 shares of non-voting common stock
          
Voting common stock, $0.01 par value
Issued and outstanding: 6,616,152 and 3,873,895 on March 31, 2024, and December 31, 2023, respectively
   66    39 
Non-voting common stock, $0.01 par value
Issued and outstanding: 820,115 and 820,115 on March 31, 2024, and December 31, 2023, respectively
   8    8 
Additional paid-in capital   66,577    43,279 
Retained earnings   22,762    24,301 
Accumulated other comprehensive loss   (5,883)   (5,560)
Unearned Employee Stock Ownership Plan (ESOP) shares   (1,331)   (1,346)
Total stockholders’ equity   82,199    60,721 
           
Total liabilities and stockholders’ equity  $980,179   $581,265 

 

See accompanying notes to unaudited consolidated financial statements.

3
 

BANCORP 34, INC.

CONSOLIDATED STATEMENTS OF (LOSS) INCOME (Unaudited)

(Dollars in thousands, except per share data)

         
   Three Months Ended 
   March 31, 
   2024   2023 
Interest and dividend income:          
Interest and fees on loans  $6,890   $6,110 
Interest on securities   470    417 
Interest on other interest-earning assets   560    138 
Total interest income   7,920    6,665 
           
Interest expense:          
Interest on deposits   3,612    2,201 
Interest on borrowings   643    395 
Total interest expense   4,255    2,596 
           
Net interest income   3,665    4,069 
           
Provision (benefit) for credit losses   3,916    (1)
           
Net interest (loss) income after provision for credit losses   (251)   4,070 
           
Noninterest income:          
Service charges on deposit accounts   91    96 
Bank owned life insurance   68    59 
Loss on sale of other real estate owned   (432)    
Preliminary bargain purchase gain on the merger (Note 2)   5,136     
Other income   3   3
Total noninterest income   4,866    158 
           
Noninterest expense:          
Salaries and employee benefits   2,525    2,103 
Occupancy   421    258 
Data processing   742    617 
FDIC and other insurance expense   96    64 
Professional Fees   542    267 
Merger Costs   3,348     
Advertising   11    20 
Other expenses   472    297 
Total noninterest expense   8,157    3,626 
           
(Loss) income before provision for income taxes   (3,542)   602 
(Benefit from) provision for income taxes   (2,003)   158 
Net (loss) income  $(1,539)  $444 
           
Earnings per share:          
Basic  $(0.31)  $0.11 
Diluted  $(0.31)  $0.11 

 

See accompanying notes to unaudited consolidated financial statements.

4
 

BANCORP 34, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)

(Dollars in thousands)

         
   Three Months Ended 
   March 31, 
   2024   2023 
Net (loss) income  $(1,539)  $444 
Other comprehensive (loss) gain:          
Unrealized holding (losses) gains on securities available for sale   (427)   1,300 
Tax effect   105    (374)
Comprehensive (loss) income  $(1,861)  $1,370 

 

See accompanying notes to unaudited consolidated financial statements.

5
 

BANCORP 34, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

(Dollars in thousands, except share data)

 

     Shares     Balances 
   Voting
Common
Shares
   Non-voting
Common
Shares
   Series A
Preferred
Shares
   Voting
Common
Stock
   Non-voting
Common
Stock
   Series A
Preferred
Stock
   Additional
Paid-In
Capital
   Retained
Earnings
   Accumulated
Other
Comprehensive
Income
(Loss), Net
   Unearned
ESOP
Shares
   Total 
BALANCE, JANUARY 1, 2023   3,032,606        521,849   $30   $   $5   $28,369   $29,013   $(6,773)  $(1,406)  $49,238 
Cumulative adjustment for day one adoption of ASU 2016-13, net of tax                               (654)           (654)
                                                      
                                                      
BALANCE, JANUARY 1, 2023(as adjusted for the adoption of ASU 2016-13)   3,032,606        521,849   $30   $   $5   $28,369   $28,358   $(6,773)  $(1,406)  $48,583 
                                                      
                                                      
Net income                               444            444 
Other comprehensive income on AFS securities, net of tax                                   926        926 
Amortization of equity awards                           16            15    31 
Share repurchase   (15,000)                       (210)               (210)
Issuance of common stock, net of costs   848,089            8            10,858                10,866 
Issuance of Series A preferred stock, net of costs           298,266            3    4,173                4,176 
Dividends                               (328)           (328)
                                                        
BALANCE, MARCH 31, 2023   3,865,695        820,115   $39   $   $8   $43,205   $28,474   $(5,847)  $(1,391)  $64,488 
                                                        
BALANCE, JANUARY 1, 2024   3,873,895    820,115       $39   $8   $   $43,279   $24,301   $(5,560)  $(1,346)  $60,721 
Net loss                               (1,539)           (1,539)
Other comprehensive loss on AFS securities, net of tax                                   (323)       (323)
Amortization of equity awards                           15            15    30 
Issuance of common stock for the Merger, (Note 2)   2,742,257            27            23,283                23,310 
                                                        
BALANCE, MARCH 31, 2024   6,616,152    820,115       $66   $8   $   $66,577   $22,762   $(5,883)  $(1,331)  $82,199 
                                                        

See accompanying notes to unaudited consolidated financial statements.

6
 

BANCORP 34, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)

 

   Three months ended March, 
   2024   2023 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net (loss) income  $(1,539)  $444 
Adjustments to reconcile net (loss) income to net cash used in operating activities          
Depreciation and amortization   189    133 
Stock dividends on other investments       (32)
Amortization of premiums and discounts on securities, net   74    65 
Amortization of equity awards   30    31 
Loss on sale other real estate owned   432     
Provision for credit losses   3,916    (1)
Net appreciation on bank-owned life insurance   (68)   (59)
Deferred income tax (benefit) expense   (839)   (1)
Preliminary bargain purchase gain from CBOA Financial, Inc. merger   (5,136)    
Accretion of discount on loans   (309)    
Core deposit intangible amortization   62     
           
Changes in operating assets and liabilities:          
Accrued interest receivable   214    62 
Prepaid and other assets   (1,705)   898 
Accrued interest and other liabilities   3,435    (781)
           
Net cash (used in) provided by operating activities   (1,244)   759 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
CBOA Financial, Inc. merger, cash acquired   30,927     
Proceeds from calls, sales, maturities, or principal payments on available-for-sale securities   8,354    1,971 
Purchases of available-for-sale securities        
Purchases of held-to-maturity securities        
Net (purchase) redemptions of other investments   (184)   (956)
Net change in loans held for investment   18,878    (8,650)
Proceeds from sale of other real estate owned   2,568     
Proceeds from disposals of premises and equipment        
Purchases of premises and equipment   (100)   (38)
           
Net cash provided by (used in) investing activities   60,443    (7,673)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Net change in deposits   (352)   (26,763)
Proceeds from Federal Home Loan Bank advances       110,399 
Repayments of Federal Home Loan Bank advances       (98,399)
Proceeds from Federal Reserve advances        
Repayments of Federal Reserve advances   (15,000)    
Common stock repurchases       (210)
Common stock issuance, net       10,866 
Preferred stock issuance, net       4,176 
Payment of dividends       (328)
           
Net cash (used in) financing activities   (15,352)   (259)
           
NET CHANGE IN CASH AND CASH EQUIVALENTS   43,847    (7,173)
CASH AND CASH EQUIVALENTS, beginning of period   28,897    16,947 
           
CASH AND CASH EQUIVALENTS, end of period  $72,744   $9,774 
           
SUPPLEMENTAL DISCLOSURES          
Interest on deposits and borrowings paid  $4,270   $2,443 

 

See accompanying notes to unaudited consolidated financial statements.

7
 

BANCORP 34, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Bancorp 34, Inc. (“Bancorp 34” or the “Company”) is a Maryland corporation organized in 2016 and owns 100% of Southwest Heritage Bank (formerly Bank 34) (the “Bank”) and CBOA Financial Statutory Trust #1. On March 19, 2024, Bancorp 34 acquired CBOA Financial, Inc. (“CBOA”). Immediately following the acquisition, CBOA’s wholly-owned subsidiary, Commerce Bank of Arizona, was merged with and into Bancorp 34’s wholly-owned subsidiary, Bank 34, a federally chartered stock covered savings association. Bank 34 was subsequently rebranded as Southwest Heritage Bank. Also, as part of the acquisition of CBOA, the company acquired CBOA Financial Statutory Trust #1, a trust formed by CBOA in November 2005 to close a pooled private offering of 5,000 trust preferred securities with a liquidation amount of $1,000 per security. Southwest Heritage Bank provides a variety of banking services to individuals and businesses through its eight full-service community bank branches, three in Maricopa County, Arizona, in the cities of Scottsdale and Gilbert; three in Pima County, Arizona, in the cities of Tucson and Green Valley; one branch in Otero County, New Mexico in the city of Alamogordo; and one branch in Dona Ana County New Mexico, in the city of Las Cruces.

Basis of presentation – The unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and may not include all the information required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements and related footnote disclosures although the Company believes that the disclosures made are adequate to make the information not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2023 Annual Report on Form 10-K.

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 the prior period’s financial information to conform to the current period presentation. Reclassifications had no effect on Equity or Net Income.

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 credit losses, the fair value marks used in accounting for the acquisition of CBOA and estimating the effective tax rate for the Company for 2024 in full. The Company holds collateral dependent loans that are categorized as level three investments and are valued on a nonrecurring basis using unobservable inputs further described in Note 14.

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

Cash and cash equivalents – Cash and cash equivalents include cash, due from banks, and federal funds sold. Generally, the Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents. In monitoring credit risk associated with deposits in other banks, the Bank periodically evaluates the stability of the correspondent financial institutions. Banks may be required to maintain reserve funds in cash or on deposit with the Federal Reserve Bank. No reserves were required at March 31, 2024 and December 31, 2023.

Securities – If management has the intent and the Company has the ability at the time of purchase to hold securities until maturity, they are classified as held-to-maturity and carried at amortized historical cost less the allowance for credit losses. Securities to be held for an undeterminable period of time and not intended to be held until maturity are classified as available-for-sale and carried at fair value, with unrealized gains and losses reported in other comprehensive income or loss, net of tax. Securities classified as available-for-sale include securities that management intends to use as part of its asset/liability management strategy and that may be sold in response to changes in interest rates, prepayment risk, and other factors. Management determines the appropriate classification of securities at the time of purchase but may reassess the classification.

Net purchase premiums and discounts on securities are recognized in interest income using the level yield method over the estimated life of the security. Premiums are amortized to the earliest call date. Gains and losses on the sale of securities are determined using the specific identification method.

8
 

For available-for-sale (AFS) securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that the Company will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through net income. For AFS securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (loss), net of applicable taxes.

Allowance for credit losses - held-to-maturity securities: Held-to maturity securities are carried at amortized cost net of allowance for credit losses (“ACL”) when management has the positive intent and ability to hold them to maturity. The Company’s held-to maturity portfolio consists solely of bank subordinated debt. Management measures expected credit losses on held-to-maturity debt securities on an individual basis. When accrued interest is reversed or charged-off in a timely manner, the CECL standard provides a practical expedient to exclude accrued interest from ACL measurement. The Company considers it’s nonaccrual and charge-off policies to be timely for all investments and securities, as such, accrued interest receivable on held-to-maturity debt securities is excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

Loans held for investment, net – Loans the Bank originates and that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balances reduced by any charge-offs and net of any deferred fees or costs. Loans are considered past due, or delinquent based on the contractual terms in the loan agreement and how recently repayments have been received. Interest income is recognized based upon principal amounts outstanding. The accrual of interest is discontinued at the time the loan is 90 days past due or when, in the opinion of management, there is doubt about the ability of the borrower to pay interest or principal, unless the credit is well secured and in process of collection. Interest previously accrued but uncollected on such loans is reversed and charged against current income. Loans are charged-off as uncollectible when, in the opinion of management, collectability of principal is improbable. If payment is received on a nonaccrual loan, generally the payment is first applied to the remaining principal balance. Payments are then applied to recover any charged-off amounts related to the loan. Finally, if both the principal balance and any charge-offs have been recovered, then the payment will be recorded as fee and interest income. Personal loans are typically charged off when no later than 180 days past due.

Loan origination fees on loans the Bank originates, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method. See Note 2 - BUSINESS COMBINATION, for our accounting methodology for the loans acquired in the merger.

Allowance for credit losses - loans: The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. The ACL excludes loans held-for-sale and loans accounted for under the fair value option. The Company elected to not measure an ACL for accrued interest receivables, as we write off applicable accrued interest receivable balances in a timely manner when a loan is placed on non-accrual status, in which any accrued but uncollected interest is reversed from current income. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Management estimates the allowance balance using relevant available information, from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts. An industry index is used in the model to provide historical credit loss experience and provides the basis for the estimation of expected credit losses. The Company identified and grouped portfolio segments based on risk characteristics and underlying collateral.

9
 

The principal segments of our loan portfolio are discussed below:

 

Commercial loans. We provide a mix of variable and fixed rate commercial loans. The loans are typically made to small- and medium-sized manufacturing, wholesale, retail and service businesses for working capital needs and business expansion. Commercial loans generally include lines of credit and loans with maturities of five years or less. The loans are generally made with business operations as the primary source of repayment, but may also include collateralization by inventory, accounts receivable, and equipment. Personal guarantees are typically obtained on commercial loans as well.

 

Commercial real estate loans. Our commercial real estate loans consist of both real estate occupied by the borrower for ongoing operations and non-owner occupied real estate properties. The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as owner and non-owner-occupied offices, warehouses and production facilities, office buildings, hotels, mobile home parks, retail centers, and assisted living facilities.

 

Multifamily. Our multifamily portfolio includes properties with 5 or more dwellings where the use is primarily residential.

Construction and land development loans. Our construction and land development loans are comprised of residential construction, commercial construction, and land acquisition and development loans.

 

Residential real estate loans. Our residential real estate loans consist of residential properties that generally do not qualify for secondary market sale.

 

Consumer loans. Our consumer loans include direct personal loans and automobile loans. Personal loans are generally unsecured or secured by cash held at the bank.

 

The ACL for pooled loans is estimated using a non-discounted cash flow methodology. The bank then applies probability of default and loss given default to the cash flow methodology to calculate expected losses within the model. This allows the bank to identify the timing of default as compared to when the actual loss event may occur. The results are then aggregated to produce segment level results and reserve requirements for each segment. The Company uses a 12-month forecast that is reasonable and supportable within the ACL calculation and then reverts to historical credit loss experience on a straight-line basis over a one-year timeline. Historical loss experience is then used for the remaining life of the assets. The Company uses several economic variables in the calculation of the ACL, the most significant of which is the economic forecast for the national unemployment rate. Changes in the economic forecast for unemployment rates could significantly affect the estimated credit losses which could potentially lead to materially different allowance levels from one reporting period to the next.

 

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the pooled loan evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

Qualitative adjustments to historical loss data are made based on management’s assessment of the risks that may lead to a future loan loss or differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, changes in environmental and economic conditions, or other relevant factors.

 

10
 

The allowance is increased by a provision for credit losses, which is charged to expense and reduced by charge-offs, net of recoveries.

Acquired Loans - At the purchase or acquisition date, loans are evaluated to determine whether there has been more than insignificant credit deterioration since origination. Loans that have experienced more than insignificant credit deterioration since origination are referred to as purchase credit deteriorated (PCD) loans. In its evaluation of whether a loan has experienced more than insignificant deterioration in credit quality since origination, the Company takes into consideration loan grades, payment performance, past due status, and nonaccrual status. The Company also considered the results of an independent external credit review completed during the due diligence phase to identify other loans that have experienced deterioration. At the purchase or acquisition date, the amortized cost basis of PCD loans is equal to the purchase price and an initial estimate of credit losses. The initial recognition of expected credit losses on PCD loans has no impact on net income. When the initial measurement of expected credit losses on PCD loans is calculated on a pooled loan basis, the expected credit losses are allocated to each loan within the pool. Any difference between the initial amortized cost basis and the unpaid principal balance of the loan represents a noncredit discount or premium, which is accreted (or amortized) into interest income over the life of the loan. Subsequent changes to the ACL on PCD loans are recorded through the provision for credits losses. For purchased loans that are not deemed to have experienced more than insignificant credit deterioration since origination and are therefore not deemed PCD, any discounts or premiums included in the purchase price are accreted (or amortized) over the contractual life of the individual loan. See Note 2 - BUSINESS COMBINATIONS for further information related to PCD and Non-PCD loans acquired in connection with the merger.

Premises and equipment – Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method in amounts sufficient to relate the cost of depreciable assets to operations over the estimated useful lives of the assets which range from three to seven years for equipment and 15 to 40 years for leasehold improvements and buildings. Maintenance and repairs that do not extend the useful lives of premises and equipment are charged to expense as incurred.

 

Leases – Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

Other investments – The Bank has investments in The Independent Bankers Bank (TIB), Pacific Coast Bankers’ Bancshares (PCBB) and the Federal Home Loan Bank (FHLB) of Dallas. The Bank is a member of FHLB system. The Bank is required to maintain minimum levels of FHLB stock-based on various factors, including the amount of borrowings outstanding, mortgage assets, and the Bank’s total assets. Financial institution stock is carried at cost, is classified as a restricted security, and is periodically evaluated for impairment based on ultimate recovery. The carrying value of financial institution stocks at March 31, 2024, and December 31, 2023, was $4,948,000 and $3,254,000, respectively. Cash and stock dividends are recorded in Other Income in the Consolidated Statement of Comprehensive Income.

The Company invested in the Castle Creek Launchpad Fund I, LP in April 2022. The Company has committed to funding up to $2 million over a 4-year funding period. As of March 31, 2024, the investment has a carrying value of $994,000 compared to $828,000 as of December 31, 2023. As of both dates, the investment was valued using the net asset value practical expedient. The scope of the NAV practical expedient is limited to investments without readily determinable fair values in entities that calculate NAV per share consistently with the measurement principles of ASC 946, Financial Services — Investment Companies. Both criteria were present at March 31, 2024, and December 31, 2023.

11
 

Transfers of financial assets – Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Bank Owned Life Insurance (BOLI) – The Bank holds BOLI representing life insurance on the lives of certain executives of the Bank purchased in order to help offset the costs of the Bank’s benefit expenses. BOLI is carried on our consolidated balance sheets at the net cash surrender value of the policies and increases in the net cash surrender value are recorded in noninterest income in the consolidated statements of comprehensive income (loss) as bank owned life insurance income.

Other real estate owned – Other real estate owned is comprised of properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure. Generally, these properties are initially recorded at fair value, less estimated cost to sell at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are periodically performed by management; other real estate owned is carried at the lower of the carrying amount or fair value, less the estimated cost to sell. Expenses, gains and losses on disposition, and reductions in carrying value are reported as non-interest expenses. There was no other real estate owned as of March 31, 2024, and $3,000,000 of other real estate owned at December 31, 2023.

Fair value measurements – Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A three-level fair value hierarchy prioritizes the inputs used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities; includes certain U.S. Treasury and other U.S. Government agency debt that is highly-liquid and is actively traded in over-the-counter markets.

Level 2 – Inputs that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

 

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Escrow accounts – Funds collected from loan customers for insurance, real estate taxes and other purposes are maintained in escrow accounts and carried as a liability in the Consolidated Balance Sheets. These funds are periodically remitted to the appropriate entities to satisfy those claims.

Financial Instruments with off-balance-sheet risk – In the ordinary course of business, the Bank enters into off-balance-sheet financial instruments consisting of commitments to extend credit and letters of credit. Such financial instruments are recorded in The Consolidated Financial Statements when they are funded or related fees are incurred or received. The credit risk associated with these instruments is generally evaluated using the same methodology as for loans held for investment.

12
 

Allowance for credit losses - off-balance sheet credit exposures: The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted through the Provision for credit losses and is recorded in Other liabilities. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The probability of funding is based on historical utilization statistics for unfunded loan commitments that are not unconditionally cancelable by the Company. The loss rates used are calculated using the same assumptions as the associated funded balance.

Advertising cost – The Bank conducts direct and non-direct response advertising and purchases prospective customer lists from various sources. These costs are expensed as incurred. Advertising costs from continuing operations are not material.

Employee Stock Ownership Plan (ESOP) – The Bank sponsors an internally leveraged ESOP. The cost of shares issued to the ESOP but not yet released is shown as unearned ESOP shares, an element of stockholders’ equity in our consolidated balance sheets. As shares are committed to be released, compensation expense is recorded equal to the market price of the shares, and the shares become outstanding for purposes of earnings per share calculations. To the extent that the fair value of ESOP shares committed differs from the cost of such shares, the difference is charged or credited to additional paid-in capital in stockholders’ equity.

Cash dividends on unallocated ESOP shares may be used to make payments on the ESOP loan and may be allocated to participant accounts in proportion to their account balances. Cash dividends paid on allocated shares are recorded as a reduction of retained earnings and, at the direction of the employer may be: a) credited directly to participant accounts in proportion to their account balances, or b) distributed directly to participants (outside the plan) in proportion to their account balances, or c) used to make payments on the ESOP loan requiring the release of shares with at least a similar fair market value be allocated to participant accounts. In addition, participants have the right to receive an immediate distribution of their vested cash dividends paid on shares of common stock credited to their accounts.

Other stock-based compensation – The Company has stock-based compensation plans which provide for the award of various benefits to directors and employees, including restricted stock and options to purchase stock. Each restricted stock award is separated into vesting tranches and compensation expense is recognized based on the fair value at the date of grant for each tranche on a straight-line basis over the vesting period reduced for estimated forfeitures. Cash dividends on unvested restricted shares are charged to compensation expense. The fair value of stock option awards granted is estimated using the Black-Scholes-Merton option pricing model using inputs including the option exercise price and risk-free rate of return, and assumptions for expected dividend yield, expected stock price volatility and the expected life of the awards. The closing market price of the Company’s stock on the date of grant is the exercise price for the stock options and the estimated fair value of the restricted stock awards. Expense is recognized over the required service period, defined as the vesting period. For awards with graded vesting, expense is recognized on a straight-line basis over the requisite service period for the entire award. The Company’s accounting policy is to recognize expense net of actual forfeitures.

Employee retention credit - The Company qualified for identified refunds based upon federal laws that allow an eligible employer to obtain a refundable employment tax credit under the Coronavirus Aid, Relief, and Economic Security Act, as amended by Taxpayer Certainty and Disaster Tax Relief Act of 2020, the American Rescue Plan Act of 2021, and the Infrastructure Investment and Jobs Act. A portion of the credits the Company received, $254,000, met the substantial authority to file a claim with the IRS. However, based on uncertainty associated with the IRS’s regulation and notices associated with qualifying under the governmental order eligibility criteria, the Company has concluded the claim meets the probable threshold required to recognize the benefits of the credit. As such, the Company will not recognize the income until the statute of limitations has elapsed.

Income taxes – Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Accrued interest and penalties associated with uncertain tax positions are recognized as part of the income tax provision. The Company has no uncertain tax positions.

13
 

Comprehensive income (loss) – Comprehensive income (loss) consists solely of unrealized gains and losses on securities available-for-sale (net of taxes) as of March 31, 2024, and December 31, 2023.

Earnings per common share – Basic earnings per common share is net income divided by the weighted-average number of common shares outstanding during the period. ESOP shares are considered outstanding for this calculation unless unearned. Maryland corporate law does not provide for treasury shares; therefore, shares repurchased are removed from issued and outstanding immediately and would not be considered outstanding. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options. Earnings per share are restated for all stock splits and stock dividends through the date of issuance of the consolidated financial statements. The two-class method is an earnings allocation method under which earnings per share is calculated for each class of common stock and participating security considering both dividends declared (or accumulated) and participation rights in undistributed earnings as if all such earnings had been distributed during the period.

 

Recent Accounting Guidance That Has Not Yet Been Adopted – The following new accounting standard has yet to be adopted by the Company but may have an impact on financial statements and/or related disclosures once implemented.

In December 2023, the Financial Accounting Standards Board issued a final standard on improvements to income tax disclosures. The standard requires, among other things, disaggregated information regarding effective tax rate reconciliation components, as well as information on income taxes paid. This standard, Accounting Standards Update No. 2023-9, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, applies to all entities subject to income taxes. For public business entities, the new requirements will be effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted.

 

NOTE 2 – BUSINESS COMBINATION

On March 19, 2024, Bancorp 34 completed its previously announced merger with CBOA pursuant to the Agreement and Plan of Merger, dated as of April 27, 2023, as amended (the “Merger Agreement”). Under the Merger Agreement, CBOA was merged with and into Bancorp 34, with Bancorp 34 continuing as the surviving entity (the “Merger”). Immediately following the completion of the Merger, CBOA’s wholly-owned subsidiary, Commerce Bank of Arizona, an Arizona state-chartered bank, was merged with and into the Bank, with the Bank continuing as the surviving bank.

 

Pursuant to the terms of the Merger Agreement, at the effective time of the Merger, each CBOA shareholder had the right to receive 0.2628 shares of Bancorp 34 common stock, for each share of CBOA common stock owned by the CBOA shareholder, with cash to be paid in lieu of fractional shares. Additionally, each outstanding CBOA restricted stock unit vested and was cancelled and converted automatically into the right to receive 0.2628 shares of Bancorp 34 common stock with respect to each share of CBOA common stock underlying such restricted stock unit. In connection with the Merger, Bancorp 34 issued 2,742,257 shares of Bancorp 34 common stock, which had a fair value of approximately $23.3 million based on a common shares valuation as of the Merger date. Each outstanding share of Bancorp 34 common stock remained outstanding and was unaffected by the Merger.

 

Commerce Bank of Arizona operated five full-service offices serving customers in Gilbert, Green Valley, Oro Valley, Scottsdale and Tucson, Arizona. Completing the Merger further enhanced the Bank’s Arizona footprint, allowed for greater efficiencies based on size and scale, and strengthened the depth of the management team. The combined banks operate as Southwest Heritage Bank and serve customers from eight full-service offices in Arizona and southern New Mexico. The core system conversion was executed in March 2024.

14
 

We accounted for the Merger using the acquisition method of accounting in accordance the Financial Accounting Standards Board’s Accounting Standards Code 805 (“ASC 805”), Business Combinations, and accordingly, the assets and liabilities of CBOA were recorded at their respective Merger date estimated fair values. The estimated fair values of assets and liabilities are preliminary and subject to refinement during the measurement period (which cannot exceed one year from the Merger date), as additional information relative to the Merger date fair values becomes available. Effective in March 2024, we recognized a preliminary bargain purchase gain of $5.1 million in connection with the Merger (not taxable for income tax purposes), which is recognized in our first quarter 2024 operating results. The core deposit intangible asset of $8.9 million represents the estimated value of Commerce Bank of Arizona’s long-term deposit relationships with its customers and will be amortized over an estimated weighted average life of ten years using an accelerated method, which approximates the estimated run-off of the acquired deposits. During 2023 and through March 31, 2024, Bancorp 34 incurred, on a cumulative basis, approximately $6.4 million of merger-related expenses.

 

The primary cause of the $5.1 million preliminary bargain purchase gain was a decrease in Bancorp 34, Inc.’s common share valuation from April 2023 to March 2024. In April 2023 and upon the announcement of the Merger, the common share exchange ratio was 0.24, and Bancorp 34, Inc’s common share valuation was estimated to be $12.16 per share, based upon a third-party fairness opinion obtained in connection with the Merger. As of the Merger date in March 2024 and before Bancorp 34, Inc. issued its 2.7 million shares for the Merger, the common share exchange ratio was 0.2628 and Bancorp, Inc’s common share valuation was estimated to be $8.50, based on a March 2024 common share valuation completed by an independent third party.

15
 

The following table includes the: (i) total consideration paid on March 19, 2024, in connection with the Merger; (ii) fair values of the assets acquired; (iii) fair values of the liabilities assumed; and (iv) resulting preliminary bargain purchase gain (in thousands).

 

(in thousands)  As Recorded
by CBOA
   Estimated
Fair Value
Adjustments
   Estimated
Fair Values
as Recorded
by Bancorp 34
 
Fair Value of the common stock consideration            $23,310 
                
Identifiable assets acquired:               
Cash and cash equivalents  $30,927   $   $30,927 
Debt securities available for sale, at fair value   57,844    376    58,220 
Loans               
Purchased performing   300,080    (15,357)   284,723 
Purchased credit deteriorated   30,425    (4,262)   26,163 
Allowance for credit losses on loans   (3,855)   3,855     
Deferred loan fees   (1,033)   1,033     
Deferred tax on assets acquired       1,233    1,233 
Operating right-of-use assets   2,866        2,866 
Core deposit intangibles       8,930    8,930 
Other assets   6,284    (20)   6,264 
Total identifiable assets acquired  $423,538   $(4,212)  $419,326 
                
Identifiable liabilities assumed:               
Deposits   346,995    (252)   346,743 
Short-term borrowings   35,000        35,000 
Long-term borrowings   5,155    (1,012)   4,143 
Deferred taxes on liabilities assumed       253    253 
Other liabilities   4,661    80    4,741 
Total identifiable liabilities assumed  $391,811   $(931)  $390,880 
                
Net identifiable assets acquired  $31,727   $(3,281)  $28,446 
                
Preliminary bargain purchase gain            $(5,136)

 

As permitted by ASC 805, Business Combinations, the above preliminary estimates may be refined during the measurement period (which cannot exceed one year from the Merger date), to reflect any new information obtained about facts and circumstances existing at the Merger date. Any changes in the above preliminary estimates will be recognized in the period identified.

 

Purchased Performing Loans (Non-Purchased Credit Deteriorated Loans)

 

Non-purchased credit deteriorated loans (“non-PCD loans”) are loans, of the date of the Merger and based upon management’s assessment, which have not experienced a more-than-insignificant deterioration in credit quality since the date the loans were originated. The loan’s purchase price becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the unpaid principal balance of the loan is a discount, which is comprised of a credit and non-credit component, and is accreted as interest income over the life of the loan.

 

An allowance for credit losses is determined using the same methodology as other loans held for investment. A $4.1 million “Day Two” allowance for credit losses for non-PCD loans was recorded through the provision expense for credit losses. This $4.1 million allowance for credit losses for non-PCD loans represents management’s estimate of lifetime credit losses on these non-PCD loans.

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Purchased Credit Deteriorated Loans

 

Purchased Credit Deteriorated Loans

 

Purchased credit deteriorated loans (“PCD loans”) represent loans, as of the date of the Merger and based upon management’s assessment, which had experienced a more-than-insignificant deterioration in credit quality since the date the loans were originated. An allowance for credit losses for PCD loans was determined using the same methodology as other loans held for investment. The initial allowance for credit losses for PCD loans was determined on a collective basis and was allocated to individual PCD loans. This allowance for credit losses is reflected as a “Day 2” on-balance sheet gross-up to the allowance for credit losses and as an increase to PCD loans. The PCD loans’ purchase price of $26.2 million plus the allowance for credit losses of $1.1 million, becomes the initial amortized cost basis of $27.3 million for the PCD loans. The difference between the initial amortized cost basis and the unpaid principal balance of the PCD loans of $30.4 million, results in a non-credit discount for the PCD loans of $3.1 million, which is accreted as interest income over the life of the PCD loans. Thereafter, the PCD loans are subject to the same interest rate recognition and impairment model as non-PCD loans, with changes to the allowance for credit losses recorded through provision expense.

 

As of the Merger date and as described above, the PCD Loans included the following components (in thousands):

 

Unpaid principal balance  $30,425 
Allowance for credit losses at acquisition   (1,164)
Non-credit discount   (3,098)
Purchase price  $26,163 

 

Pro Forma Information

 

The pro forma revenues and pro forma earnings in the following table combine CBOA’s consolidated operating results and Bancorp 34’s consolidated operating results as if the Merger had occurred at the beginning of each of the periods presented.

 

The pro forma amounts for the three months ended March 31, 2024, exclude the following pre-tax adjustments, each of which management deemed material, nonrecurring and directly attributable to the Merger: (i) the $5.1 million preliminary bargain purchase gain (not taxable for income tax purposes); (ii) $4 million of combined merger-related expenses, a portion of which is not tax deductible; and (iii) the $4.1 million “Day Two” non-PCD loans’ provision expense for credit losses. These pre-tax adjustments were partially offset by a combined $2 million tax benefit. The pro forma amounts for the three months ended March 31, 2024, include the following recurring “Day 2” items, which initially occurred in March 2024 in connection with the Merger: (i) $309,000 for 13 days of income accretion from the loan-related fair value adjustments; and (ii) $62,000 for 13 days of Core Deposit intangible amortization expense.

 

Management prepared these pro forma results for comparative purposes only and these pro forma results are not necessarily indicative of the actual results that would have been obtained had the Merger actually occurred at the beginning of each of the periods presented. No assumptions have been applied to the pro forma revenues and pro forma earnings regarding, for example, possible revenue enhancements, expense efficiencies, fixed cost leverage opportunities, or asset dispositions.

 

Additionally, the pro forma amounts for Bancorp 34’s weighted average basic and diluted common shares outstanding are based upon: (i) Bancorp 34’s actual weighted average basic and diluted common shares outstanding for each of the periods presented; together with (ii) Bancorp’s approximate 2.7 million common shares issued in connection with the Merger, as if the Merger had occurred at the beginning of each of the periods presented.

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Business Combination Pro Forma Information

   Pro Forma 
   Three months ended March 31, 
(in thousands, except per share data)  2024   2023 
Total revenues (net interest income and non-interest income)  $6,769   $8,464 
Net (loss) income  $(589)  $1,245 
(Loss) earnings per share - basic  $(0.09)  $0.20 
(Loss) earnings per share - diluted  $(0.09)  $0.20 
           

Separately, management has determined that it is impractical to report amounts of revenue and earnings of CBOA after the Merger date of March 19, 2024. Bank core systems and related data conversions occurred after the Merger date, from March 22, 2024, through March 25, 2024. Accordingly, management believes that reliable, accurate, separate, and complete revenue and earnings information for CBOA is no longer available.

 

NOTE 3 – SECURITIES

Available-for-sale and held-to-maturity securities have been classified in the consolidated balance sheets according to management’s intent on March 31, 2024, and December 31, 2023. The amortized cost of such securities and their approximate fair values were as follows (dollars in thousands):

 

Available-for-sale  March 31, 2024 
   Gross   Gross   Gross   Estimated 
   Amortized   Unrealized   Unrealized   Fair 
(Dollars in thousands)  Cost   Gains   Losses   Value 
Mortgage-backed securities  $74,530   $236   $(5,003)  $69,763 
U.S. Treasuries   3,066        (296)   2,770 
U.S. government agencies   8,571    28    (14)   8,585 
Municipal obligations   22,902        (2,650)   20,252 
Corporate debt   1,000        (144)   856 
Total  $110,069   $264   $(8,107)  $102,226 
                               
Held-to-maturity  March 31, 2024 
   Gross   Gross   Gross   Estimated 
   Amortized   Unrealized   Unrealized   Fair 
(Dollars in thousands)  Cost   Gains   Losses   Value 
Corporate debt  $5,791   $   $(556)  $5,235 
Total  $5,791   $   $(556)  $5,235 
Allowance for Credit Losses  $(146)               
Net Carrying Value of Held-to-maturity securities  $5,645                

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Available-for-sale  December 31, 2023 
   Gross   Gross   Gross   Estimated 
   Amortized   Unrealized   Unrealized   Fair 
(Dollars in thousands)  Cost   Gains   Losses   Value 
Mortgage-backed securities  $36,829   $   $(4,362)  $32,467 
U.S. Treasuries   3,069        (277)   2,792 
U.S. government agencies   287        (17)   270 
Municipal obligations   22,921        (2,593)   20,328 
Corporate debt   1,000        (167)   833 
Total  $64,106   $   $(7,416)  $56,690 
                               
Held-to-maturity  December 31, 2023 
   Gross   Gross   Gross   Estimated 
   Amortized   Unrealized   Unrealized   Fair 
(Dollars in thousands)  Cost   Gains   Losses   Value 
Corporate debt  $5,799   $   $(692)  $5,107 
Total  $5,799   $   $(692)  $5,107 
Allowance for Credit Losses  $(115)               
Net Carrying Value of Held-to-maturity securities  $5,684                

 

There was no allowance for credit losses related to available for sale securities as of March 31, 2024, or December 31, 2023.

 

Securities with unrealized losses on March 31, 2024, and December 31, 2023, that have not been recognized in income are as follows (dollars in thousands):

 

   Continued Unrealized
Loss for
Less than 12 Months
   Continued Unrealized
Loss for
12 Months or More
   Total 
Description of securities  Fair
Value
   Unrealized
Loss
   Fair
Value
   Unrealized
Loss
   Fair
Value
   Unrealized
Loss
 
                         
Available-for-sale, March 31, 2024                              
Mortgage-backed securities  $11,953   $(88)  $29,014   $(4,915)  $40,967   $(5,003)
U.S. Treasuries           2,770    (296)   2,770    (296)
U.S. government agencies   454    (1)   246    (13)   700    (14)
Municipal obligations           20,251    (2,650)   20,251    (2,650)
Corporate debt           856    (144)   856    (144)
                               
Total temporarily impaired  $12,407   $(89)  $53,137   $(8,018)  $65,544   $(8,107)
                               
Held to Maturity March 31, 2024                              
Corporate debt  $   $   $5,235   $(556)  $5,235   $(556)
Total temporarily impaired  $   $   $5,235   $(556)  $5,235   $(556)
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   Continued Unrealized
Loss for
Less than 12 Months
   Continued Unrealized
Loss for
12 Months or More
   Total 
Description of securities  Fair
Value
   Unrealized
Loss
   Fair
Value
   Unrealized
Loss
   Fair
Value
   Unrealized
Loss
 
                         
Available-for-sale, December 31, 2023                              
Mortgage-backed securities  $   $   $30,462   $(4,362)  $30,462   $(4,362)
U.S. Treasuries           2,792    (277)   2,792    (277)
U.S. government agencies           270    (