Company: BCTF
Filing Date: 2025-03-06
Form Type: 10-K
Source: 0001552781-25-000058
Chunk: 121

Company: Bancorp 34, Inc.
Filing Date: 2025-03-06
Form: 10-K
Item: Item 1
Chunk 121
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 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 rates.

Significant
judgment was required by management in the selection and application of certain subjective assumptions. Accordingly, performing audit
procedures to evaluate the Company’s estimates of the fair value of consideration paid and acquired loans involved a high degree
of auditor judgment and required significant effort, including the involvement of professionals with specialized skill and knowledge.

79

To
the Shareholders and Board of Directors

Bancorp
34, Inc.

How
the Critical Audit Matter Was Addressed in the Audit

Our
audit procedures related to the Company’s valuation of consideration paid and its valuation of the acquired loan portfolio included,
but was not limited to, the following:

    ●
    We
    obtained an understanding of management’s process for development
of the estimates and evaluated the design of controls, including management’s review of the calculations performed by third parties.

    ●
    We
    involved our firm’s valuation specialists to assist us:

    o
    Develop
    an independent range of reasonable outcomes by developing a model to
estimate the valuation of consideration paid and acquired loans, which involved independently obtaining significant inputs from external
sources.

    o
    Select