Bancorp 34 Inc
For the period ended Sep 30, 2024. Filed Nov 13, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 13, 2024
BCTF$15.290.0%Stored close · as of Jun 29, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-14.
0001552781-24-000486
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-13.
0001552781-24-000598
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 145 previous paragraphs and 166 current paragraphs.
79 unchanged; 60 reworded; 25 added; 5 removed; 1 previous and 2 current paragraphs rearranged.
Tables are not compared: 20 previous and 20 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (25)
Current report
Derivatives and Hedging activities
Current report
At the inception of derivative contracts, we designate derivatives as one of two types based on our intention and belief as to the likely effectiveness of the hedge. These two types are: (i) a hedge of changes in fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”); and (ii) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”).
Current report
For a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item, are recognized in current earnings as fair values change. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same period during which the hedged transaction affects the earnings. The changes in fair value of derivatives that do not qualify for hedge accounting are reported in current earnings.
Current report
Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Cash flows on hedges are classified in the cash flow statement in the same line item as the cash flows of the item being hedged.
Current report
The initial fair value of hedge components excluded from the assessment of effectiveness are recognized in the consolidated balance sheet under a systematic and rational method over the life of the hedging relationship and are presented in the same income statement line item as the earnings effect of the hedged item. Any difference between the change in the fair value of the hedge components excluded from the assessment of effectiveness and the amounts recognized in earnings are recorded as a component of other comprehensive income.
Current report
We discontinue hedge accounting when we determine the derivative is no longer effective in offsetting changes in fair values or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or the treatment of the derivative as a hedge is no longer appropriate or intended. When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as noninterest income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods in which the hedged transactions will affect earnings.
Current report
We are exposed to losses if a counterparty fails to make its payments under a contract in which the Company is in the net receiving position. We anticipate that the counterparties will be able to fully satisfy their obligation under our derivative contracts with them. All the contracts to which we are a party have cash flows that settle monthly or semi-annually.
Current report
Our income tax expense, deferred tax assets and liabilities, current income taxes payable and receivable, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid or refunded. We are subject to income taxes in the United States and multiple states. Significant judgments and estimates are required in the determination of the consolidated income tax expense and related income tax assets and liabilities.
Current report
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent and future operations. In projecting future taxable income, we begin with historical results adjusted for the CBOA Merger and incorporate assumptions about the amount of future state, federal, and foreign pre-tax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income (loss).
Current report
We believe that it is more likely than not that the benefit from certain state NOL carryforwards will be realized. As such, we have not provided a valuation allowance on the deferred tax assets related to these state NOL carryforwards. If our assumptions change and we determine that we will not be able to realize these NOLs, the tax benefits would then be subject to an estimated valuation allowance on deferred tax assets, that management would be required to estimate.
Current report
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our U.S. operations. ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.
Current report
We record unrecognized tax benefits as liabilities in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment or refund that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences would then be reflected as increases or decreases to income tax expense in the period in which new information is available.
Current report
For further information regarding the CBOA Merger, see Note 2 in our unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Current report
We had net income of $1.6 million and a net loss of $2.3 million for the third quarters of 2024 and 2023, respectively. Our third quarter 2024 net income reflects the second full quarter inclusive of CBOA’s operating results. Our net loss for the third quarter of 2023, in large part, reflects: (i) a $3 million provision for credit losses related to a troubled commercial real estate credit; and (ii) $529,000 of merger costs.
Current report
Return on average assets and average equity
Current report
Income Taxes
Current report
Our held-to-maturity securities which are carried on our balance sheet at amortized costs and net of an allowance for credit losses, were $5.6 million and $5.7 million as of September 30, 2024, and December 31, 2023, respectively.
Current report
Derivatives and Hedging activities
Current report
Southwest Heritage Bank is exposed to certain risks relating to its ongoing business operations. As such, from time to time, we enter into interest rate derivatives as part of our asset liability management strategy to help manage the Bank’s interest rate risk position. Derivative instruments represent contracts between parties that result in one party delivering cash to the other party based on a notional amount and an underlying term (such as a rate, security price or price index) as specified in the derivative contract. The amount of cash delivered from one party to the other is determined based on the interaction of the notional amount of the contract with the underlying term. Derivatives may also be implicit in certain contracts and commitments.
Current report
We recognize derivative financial instruments in the consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. We record derivative assets and derivative liabilities on the balance sheet within other assets and other liabilities, respectively. Changes in fair values of derivative financial instruments are either recognized in income or shareholders’ equity as a component of accumulated other comprehensive income or loss depending on whether the derivative financial instrument qualifies for hedge accounting and, if so, whether it qualifies as a fair value hedge or cash flow hedge.
Current report
As part of our interest rate risk management strategy to manage the Bank’s exposure to interest rate movements as a result of the Bank’s available-for-sale fixed rate bond portfolio and in the third quarter of 2024, we entered into two pay-fixed/receive-floating interest rate swaps (the “Pay Fixed Swap Agreements”) for a total notional amount of $30 million, both of which were designated as fair value hedges. The Pay Fixed Swap Agreements involve the Bank’s receipt of variable-rate amounts from a counterparty in exchange for the Bank making fixed-rate payments over the life of the derivative contracts without the exchange of the underlying notional amount. For all period presented, there were no other derivatives.
Current report
The following items are included on the September 30, 2024, consolidated balance sheet in connection with the Pay Fixed Swap Agreements: (i) $300,000 related to a cash margin account included in cash and cash equivalents; (ii) mark-to-market values of $200,000 as an increase to accrued interest and other liabilities; and (iv) a $205,000 pre-tax charge as part of accumulated other comprehensive income in equity. Our third quarter income statement also includes a $45,000 increase to interest income in connection with the Pay Fixed Swap Agreements. As of September 30, 2024, the amortized cost of the underlying available-for-sale investments being hedged by the Pay Fixed Swap Agreements was $52 million.
Current report
In October 2024, the Bank paid off in full its $27 million BTFP borrowing from the FRB and transferred the related pledged available-for-sale securities of $27.6 million, securing this BTFP borrowing, to the Federal Reserve Bank of San Francisco’s Discount Window. In addition, $990,000 of accrued interest payable was paid off in connection with the October 2024 full pay off of the BTFP borrowing described above.
Current report
Southwest Heritage Bank (the Bank)
Current report
In October 2024, the Bank paid off in full its $27 million BTFP borrowing from the FRB and transferred the related pledged available-for-sale securities of $27.6 million, securing this BTFP borrowing, to the Federal Reserve Bank of San Francisco’s Discount Window. In addition, $990,000 of accrued interest payable was paid off in connection with the October 2024 full pay off of the BTFP borrowing described above.
Removed paragraphs (5)
Previous report
For further information regarding our Allowance for Credit Losses see Note 1 and Note 4—Loans and Allowance for Credit Losses in our unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Previous report
For further information regarding the Merger, see Note 2 in our unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Previous report
We had net income of $1.5 million and $104,000 for the second quarters ended June 30, 2024, and 2023, respectively. Our second quarter 2024 net income reflects the first full quarter that reflects CBOA’s operating results and Merger costs of $414,000. Our net income for the second quarter of 2023 primarily reflects net interest income of $3.8 million, operating expenses of $3.8 million (including $766,000 of Merger costs), and non-interest income of $228,000.
Previous report
Return on equity and assets
Previous report
Southwest Heritage Bank
Reworded paragraphs (60)
Previous wording
The purpose of this discussion and analysis is to focus on significant changes in: (i) the financial condition of Bancorp 34, Inc. and our wholly owned subsidiary, Southwest Heritage Bank, from December 31, 2023, through June 30, 2024; and (ii) on our results of operations for the three and six months ended June 30, 2024, and 2023. This discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2023, included in our Annual Report on Form 10-K, and information presented elsewhere in this Quarterly Report on Form 10-Q, particularly the unaudited consolidated financial statements and related notes appearing in Item 1.
Current wording
The purpose of this discussion and analysis is to focus on significant changes in: (i) the financial condition of Bancorp 34, Inc. and our wholly owned subsidiary, Southwest Heritage Bank, from December 31, 2023, through September 30, 2024; and (ii) our results of operations for the three and nine months ended September 30, 2024, and 2023, respectively. This discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2023, included in our Annual Report on Form 10-K, and information presented elsewhere in this Quarterly Report on Form 10-Q, particularly the unaudited consolidated financial statements and related notes appearing in Item 1.
Previous wording
Bancorp 34, headquartered in Scottsdale, Arizona, is the holding company for Southwest Heritage Bank (formerly Bank 34). 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. 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.
Current wording
Bancorp 34, headquartered in Scottsdale, Arizona, is the holding company for Southwest Heritage Bank (formerly Bank 34). 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 (“the CBOA Merger”). Bank 34 was subsequently rebranded as Southwest Heritage Bank. 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.
Previous wording
We offer a full range of relationship-focused services to meet our clients’ business and personal financial objectives, with branches in Arizona and New Mexico. Our product lines include commercial loans, commercial real estate loans, and a variety of commercial and consumer deposit products, including noninterest bearing accounts, interest-bearing demand products, savings accounts, money market accounts and certificates of deposit. We also offer online banking and bill payment services, online cash management, safe deposit box rentals, debit card and ATM card services and the availability of a network of ATMs for our customers.
Current wording
We offer a full range of relationship-focused services to meet our clients’ business and personal financial objectives. Our product lines include commercial loans, commercial real estate loans, and a variety of commercial and consumer deposit products, including noninterest bearing accounts, interest-bearing demand products, savings accounts, money market accounts and certificates of deposit. We also offer online banking and bill payment services, online cash management, safe deposit box rentals, debit card and ATM card services and the availability of a network of ATMs for our customers.
Previous wording
We generate most of our income from interest income on loans, investment securities and deposits in other financial institutions, and service charges on customer accounts. We incur interest expenses on deposits and other borrowed funds and noninterest expenses such as salaries and employee benefits, occupancy expenses, and technology expenses. Net interest income is the largest source of our revenue. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as net interest income divided by average interest-earning assets. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and shareholders’ equity, also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources.
Current wording
We generate most of our income from interest income on loans, investment securities and deposits in other financial institutions, and service charges on customer accounts. We incur interest expenses on deposits and other borrowed funds and non-interest expenses such as salaries and employee benefits, occupancy expenses, and technology expenses. Net interest income is the largest source of revenue. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as net interest income divided by average interest-earning assets. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and shareholders’ equity, also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources.
Previous wording
Our consolidated financial statements are prepared based on the application of accounting policies in accordance with generally accepted accounting principles, or “GAAP,” and follow general practices within the banking industry. These policies require the reliance on estimates, assumptions and judgments, which may prove inaccurate and are subject to variations. Changes in underlying factors, estimates, assumptions or judgements could have a material impact on our future financial condition and results of operations.
Current wording
Our consolidated financial statements are prepared based on the application of accounting policies in accordance with generally accepted accounting principles, or “GAAP,” and follow general practices within the banking industry. These policies require reliance on estimates, assumptions and judgments, which may prove inaccurate and are subject to variations. Changes in underlying factors, estimates, assumptions or judgements could have a material impact on our future financial condition and results of operations.
Previous wording
Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. We have identified the following as critical accounting estimates: (i) determining the fair values of the net assets acquired and the fair value of the common stock consideration in connection with the CBOA Merger; (ii) determination of the allowance for credit losses; (iii) other fair value measurements; and (iv) estimating the effective tax rate for the Company for 2024 in full to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new or additional information becomes available or circumstances change, including overall changes in the economic climate and/or market interest rates. Therefore, we consider these policies, discussed below, to be critical accounting estimates and discuss them directly with the Audit Committee of our board of directors.
Current wording
Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. We have identified the following as critical accounting estimates: (i) determination of the allowance for credit losses; (ii) determining the fair values of the net assets acquired and the fair value of the common stock consideration in connection with the CBOA Merger; (iii) other fair value measurements; (iv) accounting for derivatives and hedging activities; and (v) estimating the effective tax rate for the Company for 2024 in full to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new or additional information becomes available or circumstances change, including overall changes in the economic climate and/or market interest rates. Therefore, we consider these policies, discussed below, to be critical accounting estimates and discuss them directly with the Audit Committee of our board of directors.
Previous wording
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 credit 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. In our June 30, 2024, ACL estimate, the Company assumed a forecasted unemployment rate of 4.3%, which has improved from the December 31, 2023, forecasted rate of 4.7%. Changes in the economic forecast for unemployment rates could significantly affect the estimated credit losses which could potentially lead to materially different ACL levels from one reporting period to the next.
Current wording
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 credit 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. In our September 30, 2024, ACL estimate, the Company assumed a forecasted unemployment rate of 4.6%, which slightly improved from the December 31, 2023, forecasted rate of 4.7%. Changes in the economic forecast for unemployment rates could significantly affect the estimated credit losses which could potentially lead to materially different ACL levels from one reporting period to the next.
Previous wording
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. A ratings scale is used to tie risk metrics within lending policies and procedures, economic factors note encompassed in the quantitative model, changes in nature of the volumes and terms of loans, changes in the volume and severity of past due assets, concentrations within the loan portfolio. Additional factors such staffing, loan review, collateral values, regulatory, legal, and technological risks are also reviewed on a more qualitative basis. The ratings scale used in the qualitative modeling is derived from the Bank’s historical loss percentages in which the highest risk metrics would align with the highest historical loss percentages adjusted for the expected life of the current portfolio.
Current wording
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. A ratings scale is used to tie risk metrics within lending policies and procedures, economic factors encompassed in the quantitative model, changes in nature of the volumes and terms of loans, changes in the volume and severity of past due assets, and concentrations within the loan portfolio. Additional factors such staffing, loan review, collateral values, regulatory, legal, and technological risks are also reviewed on a more qualitative basis. The ratings scale used in the qualitative modeling is derived from the Bank’s historical loss percentages in which the highest risk metrics would align with the highest historical loss percentages adjusted for the expected life of the current portfolio.
Previous wording
The ACL also excludes loans held-for-sale and loans accounted for under the fair value option. Assets purchased with credit deterioration (“PCD”) assets represent assets that are acquired with evidence of more than insignificant credit quality deterioration since origination at the acquisition date. At acquisition, the allowance for credit losses on PCD assets is booked directly to the ACL. Any subsequent changes in the ACL on PCD assets is recorded through the provision for credit losses.
Current wording
The ACL also excludes loans held-for-sale and loans accounted for under the fair value option. Assets purchased with credit deterioration (“PCD”) assets represent assets that are acquired with evidence of more than insignificant credit quality deterioration since origination at the acquisition date. At acquisition, the allowance for credit losses on PCD assets is recorded directly to the ACL. Any subsequent changes in the ACL on PCD assets are recorded through the provision for credit losses.
Previous wording
The ACL is a contra-asset on our balance sheet that is deducted from the amortized cost of loans held-for-investment to present on our balance the net amount expected to be collected. Loans are charged-off against the ACL when management believes the full or partial collectability is confirmed.
Current wording
The ACL is a contra-asset on our balance sheet that is deducted from the amortized cost of loans held-for-investment to present on our balance sheet the net amount expected to be collected. Loans are charged off against the ACL when management believes the full or partial non-collectability is confirmed.
Previous wording
Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. Our held-to-maturity debt securities is comprised of bank subordinated debt. The ACL on held-to-maturity securities is adjusted through provision for credit losses and is recorded as a contra asset to held-to-maturity securities. Management has determined that calculating an ACL amount for accrued interest receivable on held-to-maturity debt securities would not be significant, and this is excluded from our estimate of credit losses for held-to-maturity debt securities.
Current wording
Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. Our held-to-maturity debt securities is comprised of bank subordinated debt. The ACL on held-to-maturity debt securities is adjusted through provision for credit losses and is recorded as a contra asset to held-to-maturity debt securities. Management has determined that calculating an ACL amount for accrued interest receivable on held-to-maturity debt securities would not be significant, and this is excluded from our estimate of credit losses for held-to-maturity debt securities.
Previous wording
Assets acquired, including identified intangible assets such as core deposit intangibles, and liabilities assumed as a result of a merger or acquisition transaction are recorded at their estimated fair values. The difference between the net fair value of assets acquired and liabilities assumed, and the consideration paid is recorded as a bargain purchase gain. Management engages third-party specialists to assist in the development of fair value estimates. Significant estimates and assumptions used to value acquired assets and liabilities assumed include, but are not limited to, projected cash flows, future growth rates, repayment rates, default rates and losses assuming default, discount rates, and realizable collateral values. The allowance for credit losses for PCD loans is recognized within acquisition accounting. The allowance for credit losses for non-PCD assets is recognized as provision for credit losses in the same reporting period as the merger or acquisition. Fair value adjustments are amortized or accreted into the income statement over the estimated lives of the acquired assets and assumed liabilities. The purchase date valuations and any subsequent adjustments determine the amount of bargain purchase gain recognized in connection with the merger or acquisition.
Current wording
Assets acquired, including identified intangible assets such as core deposit intangibles, and liabilities assumed as a result of a merger or acquisition transaction are recorded at their estimated fair values. The difference between the net fair value of assets acquired and liabilities assumed, and the consideration paid is recorded as a bargain purchase gain or goodwill. Management engages third-party specialists to assist in the development of fair value estimates. Significant estimates and assumptions used to value acquired assets and liabilities assumed include, but are not limited to, projected cash flows, future growth rates, repayment rates, default rates and losses assuming default, discount rates, and realizable collateral values. The allowance for credit losses for PCD loans is recognized as part of the acquisition accounting. The allowance for credit losses for non-PCD loans is recognized as provision for credit losses in the same reporting period as the merger or acquisition. Fair value adjustments are amortized or accreted into the income statement over the estimated lives of the acquired assets and assumed liabilities. The purchase date valuations and any subsequent adjustments determine the amount of bargain purchase gain or goodwill recognized in connection with the merger or acquisition.
Previous wording
Preliminary estimates of fair values may be adjusted for a period of time no greater than one year subsequent to the merger or acquisition date if new information is obtained about facts and circumstances that existed as of the merger or acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Adjustments recorded during this period are recognized in the current reporting period. For further information regarding the Merger, see Note 2 in our unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Current wording
Preliminary estimates of fair values may be adjusted for a period of no greater than one year subsequent to the merger or acquisition date if new information is obtained about facts and circumstances that existed as of the merger or acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Adjustments recorded during this measurement period are recognized in the current reporting period. For further information regarding the CBOA Merger, see Note 2 in our unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Previous wording
The significant assumptions used in the models are independently verified against observable market data where possible. When observable market data is not available, the estimate of fair value becomes more subjective and involves a high degree of judgment. In this circumstance, fair value is estimated based on our judgment regarding the value that market participants would assign to the asset or liability. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there are inherent limitations to any valuation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values.
Current wording
The significant assumptions used in the models are independently verified against observable market data where possible. When observable market data is not available, the estimate of fair value becomes more subjective and involves a high degree of judgment. In this circumstance, fair value is estimated based on our judgment regarding the value that market participants would assign to the asset or liability. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Also, there are inherent limitations to any valuation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values.
Previous wording
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.
Current wording
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 CBOA Merger”). Immediately following the completion of the CBOA 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.
Previous wording
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 2.7 million shares of Bancorp 34 common stock, which had a fair value of approximately $23.3 million based on a common shares valuation completed by an independent third party as of the Merger date. Each outstanding share of Bancorp 34 common stock remained outstanding and was unaffected by the Merger.
Current wording
Pursuant to the terms of the Merger Agreement, at the effective time of the CBOA 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 CBOA Merger, Bancorp 34 issued approximately 2.7 million shares of Bancorp 34 common stock, which had a fair value of approximately $23.3 million based on a common share valuation completed by an independent third party as of the CBOA Merger date. Each outstanding share of Bancorp 34 common stock remained outstanding and was unaffected by the CBOA Merger.
Previous wording
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 fair values. The fair values of assets and liabilities are preliminary and subject to refinement for up to one year after 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 was 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. Through June 30, 2024, Bancorp 34 incurred approximately $6.8 million of merger-related expenses, $414,000 of which was incurred during the second quarter of 2024. These amounts exclude pre-Merger date CBOA merger-related expenses.
Current wording
We accounted for the CBOA 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 fair values. The fair values of assets and liabilities are preliminary and subject to refinement for up to one year after the merger date as additional information related 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 CBOA Merger (not taxable for income tax purposes), which was 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.
Previous wording
Results of Operations for the Three and Six Months Ended June 30, 2024, and 2023
Current wording
Results of Operations for the Three and Nine Months Ended September 30, 2024, and 2023
Previous wording
Our results of operations depend substantially on net interest income, which is the difference between interest income on interest-earning assets, consisting primarily of interest income on loans, investment securities and other short-term investments, and interest expense on interest-bearing liabilities, consisting primarily of deposits and borrowings. Our results of operations are also dependent on our generation of non-interest income, consisting primarily of income from service charges on deposit accounts, interchange and ATM fees, and gains on sales loans. Other factors contributing to our results of operations include our provisions for credit losses, income taxes, and non-interest expenses, such as salaries and employee benefits, occupancy, amortization of intangible assets, and other operating costs.
Current wording
Our results of operations depend substantially on net interest income, which is the difference between interest income on interest-earning assets, consisting primarily of interest income on loans, investment securities and other short-term investments, and interest expense on interest-bearing liabilities, consisting primarily of deposits and borrowings. Our results of operations are also dependent on our generation of non-interest income, consisting primarily of income from service charges on deposit accounts, interchange and ATM fees, and gains on sales of loans. Other factors contributing to our results of operations include our provisions for credit losses, income taxes, and non-interest expenses, such as salaries and employee benefits, occupancy, amortization of intangible assets, and other operating costs.
Previous wording
For the six months ended June 30, 2024, and 2023, we had a cumulative net loss of $34,000 and net income of $549,000, respectively. The 2024 net loss reflects the positive results from the second quarter noted above, substantially all offset by non-recurring material Merger-related items reflected in our first quarter 2024 results, which included: (i) a one-time preliminary bargain purchase gain on the Merger of $5.1 million (none of which is taxable); (ii) $3.8 million of Merger expenses (a portion of which is not deductible for income taxes); and (iii) a $4.1 million pre-tax non-PCD loan provision related to the Merger. Merger costs expensed during the six months ended June 30, 2023, were $805,000.
Current wording
For the nine months ended September 30, 2024, and 2023, we had net income of $1.5 million and a net loss of $1.7 million, respectively. Our year-to-date 2024 net income is comprised of pre-tax income of $366,000 and an income tax benefit of $1.2 million. Non-recurring merger-related items also are reflected in our year-to-date 2024 results, which include: (i) a one-time preliminary bargain purchase gain on the CBOA Merger of $5 million (none of which is taxable); (ii) $3.8 million of merger expenses (a portion of which is not deductible for income taxes); and (iii) a Day-2 $4.1 million non-PCD loan provision for credit losses in connection with the CBOA Merger. We also incurred a $432,000 loss on the sale of other real estate owned in the 2024 period. Our $1.7 million net loss for the nine months ended September 30, 2023, includes the $3 million provision for credit losses noted above and $1.3 million of merger expenses.
Previous wording
Our net interest income was $9.0 million and $3.7 million for the second quarter of 2024 and 2023, respectively. This $5.3 million increase reflects the full quarter inclusion of CBOA in our results, given the closing of the Merger on March 19, 2024, including $1.4 million of accretion income on the CBOA loan fair value mark. Net interest income for the six months ended June 30, 2024, and 2023, was $12.6 million and $7.9 million, respectively and this increase reflects the positive impacts from the March 19, 2024, Merger with CBOA, including $1.6 million of accretion income on the CBOA loan fair value mark.
Current wording
Our net interest income was $8.4 million and $3.7 million for the third quarter of 2024 and 2023, respectively. This $4.9 million increase reflects the full quarter inclusion of CBOA in our 2024 results, given the closing of the CBOA Merger on March 19, 2024, including $936,000 of accretion income on the CBOA loan fair value mark. Net interest income for the nine months ended September 30, 2024, and 2023, was $21 million and $11.6 million, respectively and this increase similarly reflects the positive impacts from the March 19, 2024, CBOA Merger, including $2.6 million of accretion income on the CBOA loan fair value mark. The Company expects that easing of monetary policy by the Federal Reserve Bank, which commenced in late September 2024, will exert downward pressure on earning asset yields as interest bearing bank balances and variable rate commercial loans reprice lower. The expected decline in earning asset yields will be partially offset by deposit costs repricing lower.
Previous wording
Reflecting the positive impact of the CBOA Merger, average earning assets were $936.9 million and $582.3 million during the second quarter of 2024 and 2023, respectively. Average earning asset yields in the second quarter of 2024 and 2023 were 6.56% and 4.99%, respectively and reflective of our loan portfolio repricing in the current interest rate environment.
Current wording
Reflecting the positive impact of the CBOA Merger, average earning assets were $926.7 million and $581.9 million during the third quarter of 2024 and 2023, respectively. Average earning asset yields in the third quarter of 2024 and 2023 were 6.52% and 5.15%, respectively and reflective of our loan portfolio repricing in the current interest rate environment.
Previous wording
Average interest-bearing liabilities in the second quarter of 2024 of $657.9 million reflect the impacts of the March 2024 CBOA Merger. Average interest-bearing liabilities in the second quarter of 2023 were $415.1 million. Unrelated to the Merger, the changing deposit mix reflects a continued increase in time deposits and the broader market trends in which customers have reduced non-interest- and interest-bearing demand deposits in favor of term CDs given the rising bank deposit rate environment.
Current wording
Average interest-bearing liabilities in the third quarter of 2024 of $614.0 million reflect the impacts of the March 2024 CBOA Merger. Average interest-bearing liabilities in the third quarter of 2023 were $417.7 million. Unrelated to the CBOA Merger, the changing deposit mix reflects a continued increase in time deposits and the broader market trends in which customers have reduced non-interest- and interest-bearing demand deposits in favor of term CDs given the rising interest rate environment.
Previous wording
Average noninterest bearing deposits were $184.3 million and $93.7 million for the second quarter of 2024 and 2023, and this increase reflects the CBOA Merger as previously described.
Current wording
Average noninterest bearing deposits were $214.5 million and $91.5 million for the third quarter of 2024 and 2023, and this increase reflects the CBOA Merger as previously described.
Previous wording
At June 30, 2024, and 2023, our ACL for loans held for investment was $10.8 million and $5.2 million, respectively, which represents 1.47% and 1.09% of loans held for investment, respectively. We maintain the ACL at a level that management believes is adequate to absorb expected credit losses over the lifetime of our loans held-for-investment. Specifically, identifiable and quantifiable losses are immediately charged off against the allowance; recoveries are generally recorded only when sufficient cash payments are received subsequent to the charge-off. Our ACL at March 31, 2024, and in connection the Merger, included: (i) a $4.1 million provision expense related to the performing loans, “Non-PCD” loans of $300 million; and (ii) a $1.2 million on-balance sheet gross up of loans identified as purchased credit deteriorated loans, “PCD” loans of $30 million. For more information on the Merger, Non-PCD loans, and PCD loans, please see Note 2 in our unaudited financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Current wording
At September 30, 2024, and 2023, our ACL for loans held for investment was $10.5 million and $8.4 million, respectively, which represents 1.52% and 1.74% of loans held for investment, respectively. We maintain the ACL at a level that management believes is adequate to absorb expected credit losses over the lifetime of our loans held-for-investment. Specifically, identifiable and quantifiable losses are immediately charged off against the allowance; and recoveries are generally recorded only when sufficient cash payments are received subsequent to the charge-off.
Previous wording
The provision for credit losses, from time to time, includes a charge to our operating results in order to maintain the ACL at a level consistent with management’s assessment of the collectability of the loans held-for-investment in light of current economic conditions and market trends. Our provision for credit losses was $3.9 million and $133,000 for the six months ended June 30, 2024, and 2023, respectively. The 2024 $3.9 million provision for credit loss expense primarily reflects the Merger-related $4.1 million charge for Non-PCD loans described above. The relatively low provision for credit loss expense in the first six months of 2023 reflects the impact from our CECL adoption effective January 1, 2023, which resulted in a one-time net of income tax charge to retained earnings of $654,000.
Current wording
The provision for credit losses, from time to time, includes a charge to our operating results in order to maintain the ACL at a level consistent with management’s assessment of the collectability of the loans held-for-investment in light of current economic conditions and market trends. Our provision for credit losses was $3.9 million and $3.3 million for the nine months ended September 30, 2024, and 2023, respectively. The 2024 $3.9 million provision for credit loss expense primarily reflects the merger-related $4.1 million charge for Non-PCD loans. The 2023 provision for credit losses reflects one problem credit which resulted in $3 million of provision for credit losses and was reflective of management’s best estimate, at the time, of the real estate value underlying this one problem credit. The impact from our CECL adoption effective January 1, 2023, resulted in a one-time net of income tax charge to retained earnings of $654,000.
Previous wording
Our noninterest income for the first six months of 2024, primarily reflects a $5.0 million one-time preliminary bargain purchase gain, inclusive of a $118,000 reduction related to certain second quarter 2024 measurement period adjustments, partially offset by a $432,000 pre-tax loss on the sale of a note associated with a loan which was classified as other real estate owned. For further information regarding the Merger and the preliminary bargain purchase gain, see Note 2 in our unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Current wording
Our noninterest income for the first nine months of 2024, primarily reflects a $5.0 million one-time preliminary bargain purchase gain, inclusive of a $118,000 reduction related to certain second quarter 2024 measurement period adjustments, partially offset by a $432,000 pre-tax loss on the sale of a note associated with a loan which was previously classified as other real estate owned. For further information regarding the CBOA Merger and the preliminary bargain purchase gain, see Note 2 in our unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Previous wording
Our noninterest expense increased $3.5 million in the second quarter of 2024 from the second quarter of 2023, and $8 million for the six months ended June 30, 2024, from the six months ended June 30, 2023. Both of these increases reflect, in large part, the addition of CBOA to the Bank’s operations as a result of the March 19, 2024, Merger, partially offset by $352,000 of lower Merger costs. Merger costs in the second quarter of 2024 are primarily related to the digital conversion of the bank’s mobile and online banking platform which occurred in May. Included within the $3.8 million of Merger costs incurred during the six months ended June 30, 2024, is $1.2 million in core processing and online banking contract termination fees. Additionally, our six months ended June 30, 2024, noninterest expense includes a one-time change-in-control charge of $654,000, in connection with the Merger with CBOA. For the three and six months ended June 30, 2024 and in connection with the Merger, we expensed $434,000 and $496,000, respectively, of amortization expense on the Merger-related core deposit intangible.
Current wording
Our noninterest expense increased $3 million in the third quarter of 2024 from the third quarter of 2023, and $11 million for the nine months ended September 30, 2024, from the nine months ended September 30, 2023. Both of these increases reflect, in large part, the addition of CBOA to the Bank’s operations as a result of the March 19, 2024, CBOA Merger. Merger costs were nil in the third quarter of 2024 compared to $529,000 in the third quarter of 2023. Included within the $3.8 million of merger costs incurred during the nine months ended September 30, 2024, is $1.2 million in core processing and online banking contract termination fees. Additionally, our nine months ended September 30, 2024, noninterest expense includes a one-time change-in-control charge of $654,000, in connection with the CBOA Merger. For the three and nine months ended September 30, 2024, and in connection with the CBOA Merger, we expensed $430,000 and $926,000, respectively of amortization expense on the merger-related core deposit intangible. For more information on the CBOA Merger, see Note 2 in our unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Previous wording
Our efficiency ratio was 80.15% and 93.64% for the three months ended June 30, 2024, and 2023, and was 87.64% and 89.59% the six months ended June 30, 2024, and 2023, respectively. This improvement is partially reflective of the March 19, 2024, CBOA Merger and related non-recurring, material charges in connection with the March 19, 2024, Merger. For more information on the Merger, see Note 2 in our unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Current wording
Our efficiency ratio was 76.15% and 90.69% for the three months ended September 30, 2024, and 2023, and was 83.90% and 90.84% the nine months ended September 30, 2024, and 2023, respectively. This improvement is partially reflective of the CBOA Merger and related non-recurring material financial impacts in connection with the CBOA Merger. For more information on the CBOA Merger, see Note 2 in our unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Previous wording
The following table sets forth our ROAA, ROAE, dividend payout and average stockholders’ equity to average assets ratio for the periods ended:
Current wording
The following table sets forth our ROAA, ROAE, dividend payout and average stockholders’ equity to average assets ratio for the periods indicated below:
Previous wording
We had a $1.7 million income tax benefit for the six months ended June 30, 2024, on a $1.7 million net loss. This relatively high effective income tax rate reflects two Merger-related items: (i) non-taxable preliminary bargain purchase gain of $5 million; and (ii) partially deductible Merger costs of $3.8 million. Our effective rate was 24.4% for the six months ended June 30, 2023. For further information on income taxes, please reference Note 10 in our unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Current wording
We had a $1.2 million income tax benefit for the nine months ended September 30, 2024, on $366,000 of pre-tax income. This was primarily a result of two CBOA Merger-related items: (i) non-taxable preliminary bargain purchase gain of $5 million; and (ii) partially deductible merger costs of $3.8 million. Our effective rate was 19.8% for the nine months ended September 30, 2023. For further information on income taxes, please reference Note 10 in our unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Previous wording
Our total assets were $922.3 million at June 30, 2024, and $581.3 million at December 31, 2023. Our total loans held for investment were $735.5 million at June 30, 2024, and $457.0 million at December 31, 2023. The increase in our total assets and total loans, respectively, largely reflects total assets, as adjusted for estimated fair values of $419.3 million, and total loans, as adjusted for estimated fair values, of $310.9, which were acquired in connection with the Merger. For further information regarding the Merger, see Note 2 in our unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Current wording
Our total assets were $939.4 million at September 30, 2024, and $581.3 million at December 31, 2023. Our total loans held for investment were $703.1 million at September 30, 2024, and $457 million at December 31, 2023. The increase in our total assets and total loans, respectively, largely reflects total assets, as adjusted for estimated fair values of $419.3 million, and total loans, as adjusted for estimated fair values, of $310.9 million, which were acquired in connection with the CBOA Merger. For further information regarding the CBOA Merger, see Note 2 in our unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Previous wording
Our securities available-for-sale were $56.3 million and $56.7 million at June 30, 2024, and December 31, 2023, respectively. After the CBOA Merger date, management liquidated the entire $58.2 million acquired investment portfolio in late March and early April, and management determined that these sales prices were the best indicator of the fair value of the investment portfolio effective as of the Merger date. For further information regarding the Merger, see Note 2 in our unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Current wording
Our securities available-for-sale were $58.2 million and $56.7 million at September 30, 2024, and December 31, 2023, respectively. After the CBOA Merger date, management liquidated the entire acquired CBOA available-for-sale investment portfolio in late March and early April, and management determined that these sales prices were the best indicator of the fair value of the CBOA available-for-sale-investment portfolio effective as of the CBOA Merger date. For further information regarding the CBOA Merger, see Note 2 in our unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Previous wording
Commercial loans include commercial and industrial loans to commercial customers for use in normal business operations to finance working capital needs, equipment and inventory purchases, and other expansion projects. SBA, USDA and other small business lending products are also included. These loans are made primarily in our market areas are underwritten on the basis of the borrower’s ability to service the debt from revenue, and are generally extended under our normal credit standards, controls and monitoring systems.
Current wording
Commercial loans include commercial and industrial loans to commercial customers for use in normal business operations to finance working capital needs, equipment and inventory purchases, and other expansion projects. SBA, USDA and other small business lending products are also categorized as commercial loans. These loans are made primarily in our market areas are underwritten on the basis of the borrower’s ability to service the debt from revenue, and are generally extended under our normal credit standards, controls and monitoring systems.
Previous wording
Consumer and other include direct consumer installment loans, overdrafts and other revolving loans.
Current wording
Consumer and other loans include direct consumer installment loans, overdrafts and other revolving loans.
Previous wording
Construction loans include both residential and commercial projects. Construction loan terms are dependent upon the project, but in some cases the loan will be longer term and include both the construction phase as well as longer term financing.
Current wording
Construction loans include both residential and commercial projects. Construction loan terms are dependent upon the project, but in some cases will be longer term and include both the construction phase as well as longer term financing.
Previous wording
Commercial real estate (“CRE”) loans include owner occupied and non-owner occupied commercial real estate mortgage loans to operating commercial businesses and include loans for long-term financing of land and buildings. No significant concentrations are present within the CRE portfolio as the bank has made an effort to diversify across various industries and geographic locations. While the majority of these loans are made primarily in our market area, some of the loans have out of market properties. In response to the deterioration of a large out of market commercial real estate loan during 2023, management engaged an external party to complete a loan review that included approximately 90% of the out of market collateral portfolio. Additionally, management reviewed the property appraisals associated with the out of market loans and plans to limit out of market lending moving forward. There is currently heightened CRE loan credit risk across the U.S. due to continued increasing ecommerce volumes, hybrid or remote work arrangements in many industries following the COVID-19 pandemic, higher vacancy rates, higher interest rates, property fraud and other factors. In addition, higher interest rates have exacerbated the declining property values of CRE by increasing initial financing and refinancing costs for CRE borrowers.
Current wording
Commercial real estate (“CRE”) loans include owner occupied and non-owner occupied commercial real estate mortgage loans for operating commercial businesses and include loans for long-term financing of land and buildings. No significant concentrations are present within the CRE portfolio as the bank has made an effort to diversify across various industries and geographic locations. While the majority of these loans are made primarily in our market area, some of the loans have out of market properties. In response to the deterioration of a large out of market commercial real estate loan during 2023, management engaged an external party to complete a loan review that included approximately 90% of the out of market collateral portfolio. Additionally, management reviewed the property appraisals associated with the out of market loans and plans to limit out of market lending moving forward. There is currently heightened CRE loan credit risk across the U.S. due to continued increasing ecommerce volumes, hybrid or remote work arrangements in many industries following the COVID-19 pandemic, higher vacancy rates, higher interest rates, property fraud and other factors. In addition, higher interest rates have exacerbated the declining property values of CRE by increasing initial financing and refinancing costs for CRE borrowers.
Previous wording
The ACL increase from December 31, 2023, primarily reflects impacts from the March 19, 2024, CBOA Merger as more fully discussed above. For further information regarding the Merger, also see Note 2 in our unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Current wording
The ACL increase from December 31, 2023, primarily reflects impacts from the March 19, 2024, CBOA Merger as more fully discussed above. For further information regarding the CBOA Merger, also see Note 2 in our unaudited consolidated financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Previous wording
The following tables set forth our non-performing assets, non-performing asset ratios, and net losses as a percentage of average loans for each period presented:
Current wording
The following tables set forth our non-performing assets and related ratios as of each balance sheet date indicated below:
Previous wording
Total nonperforming assets were $4.5 million as of June 30, 2024, compared to $5.2 million at December 31, 2023. The decrease reflects the sale of the note for the prior OREO balance, partially offset by the non-accrual loans acquired through the CBOA Merger on March 19, 2024.
Current wording
Total nonperforming assets were $3.3 million as of September 30, 2024, compared to $5.2 million at December 31, 2023. The decrease reflects the sale of the note for the prior OREO balance, partially offset by certain non-accrual loans acquired through the CBOA Merger on March 19, 2024.
Showing the first 40 of 60 pairs. Open the source sections for the rest.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
For more information on the CBOA Merger, please see Note 2 in our unaudited financial statements included in Item 1. of this Quarterly Report on Form 10-Q.
Current report — wording carried from elsewhere
Regulatory capital rules adopted in July 2013 and fully phased in as of January 1, 2019, which we refer to as the Basel III rules, impose minimum capital requirements for bank holding companies and banks. The Basel III rules apply to all national and state banks and savings associations regardless of size and bank holding companies and savings and loan holding companies with consolidated assets of more than $3 billion. While Bancorp 34 is not subject to the regulation, the ratios are monitored by management should compliance be required.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
The average balance sheet amounts, the related interest income or expense, and average rates earned or paid are presented in the following table. In the following table, subtotals and totals may not add up due to rounding. Rounding differences may occur in the presentation of numbers, and these variances do not impact the accuracy or reliability of the underlying financial data. All figures are presented in thousands unless otherwise stated.