Company: BCTF
Filing Date: 2025-03-06
Form Type: 10-K
Source: 0001552781-25-000058
Chunk: 478

Company: Bancorp 34, Inc.
Filing Date: 2025-03-06
Form: 10-K
Item: Item 1B
Chunk 478
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 involve significant assumptions and a high degree of management’s judgment. The qualitative risk
factors included consideration of the following: 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. Given the significant
estimates and assumptions management makes to estimate qualitative adjustments within the allowance for credit losses for collectively
evaluated loans, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions required
a high degree of auditor judgment.

How
the Critical Audit Matter Was Addressed in the Audit

Our
primary audit procedures related to the qualitative adjustments to the collectively evaluated allowance for credit losses of loans included
the following, among others:

    ●
    We
    obtained an understanding of management’s process for development
of the qualitative factors and evaluated the design of controls over the application of management’s qualitative factor methodology.

    ●
    We
    developed an independent range of reasonable outcomes by developing
a model to estimate the allowance for credit losses on collectively evaluated loans, which involved independently obtaining significant
inputs from external sources.

    ●
    We
    selected a methodology based on its relevance and reliability of information
to develop a reasonable range for the estimate.

    ●
    Where
    applicable, we evaluated the reliability of data provided by third
parties used in the development of our estimated range.

    ●
    We
    tested the accuracy and completeness of relevant data provided by management
used in the development of our estimated range.

    ●
    We
    assessed the adequacy of the disclosures related to the allowance for
credit losses.

Valuation
                                            of the Consideration Paid and Acquired Loan Portfolio in Business Combination - Refer to
                                            Notes 1 and 2 to the Financial Statements

Critical
Audit Matter Description

As
described in Notes 1 and 2 to the consolidated financial statements, during 2024, the Company acquired CBOA Financial, Inc. In connection
with the acquisition, management estimated the fair value of consideration paid and the fair value of acquired loans. The fair value
of consideration paid was based on market multiples of peer community banks rather than the stock price due to the lack of trading volume.
The fair value of acquired loans was based on a discounted cash flow methodology that involves assumptions about credit risk, repayments,
and discount