S-4 1 e23308_bctf-s4.htm

As filed with the Securities and Exchange Commission on August 10, 2023

File No. 333-_________

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-4

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

BANCORP 34, INC.
(Exact Name of Registrant as Specified in its Charter)

Maryland
(State or Other Jurisdiction
of Incorporation or Organization)

6021
(Primary Standard Industrial
Classification Code Number)

74-2819148

(IRS Employer
Identification Number)

8777 E. Hartford Drive, Suite 100

Scottsdale, Arizona 85255
(623) 334-6064

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

James T. Crotty

Chief Executive Officer and President

Bancorp 34, Inc.

8777 E. Hartford Drive, Suite 100

Scottsdale, Arizona 85255
(623) 334-6064

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

Copies to:

J. Brennan Ryan	James T. Crotty	Christian Otteson
John M. Willis	Chief Executive Officer and President	Bo Anderson
Nelson Mullins Riley & Scarborough LLP	Bancorp 34, Inc.	Otteson Shapiro LLP
Atlantic Station	8777 E. Hartford Drive, Suite 100	7979 E. Tufts Avenue, Suite 1600 Denver, Colorado 80237 (720) 488-0220
201 17^th Street NW, Suite 1700 Atlanta, Georgia 30363	Scottsdale, Arizona 85255 (623) 334-6064
(404) 322-6000

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective and upon completion of the merger described in the enclosed proxy statement/prospectus.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: o

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

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

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	x
		Emerging Growth Company	o

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)	o
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)	o

Information contained herein is subject to completion or amendment. A registration statement relating to the shares of Bancorp 34, Inc. common stock to be issued in the merger has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This document shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale is not permitted or would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

PRELIMINARY—SUBJECT TO COMPLETION—DATED AUGUST 10, 2023

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

To the Shareholders of Bancorp 34, Inc. and CBOA Financial, Inc.:

On April 27, 2023, Bancorp 34, Inc., which we refer to as “Bancorp 34,” and CBOA Financial, Inc., which we refer to as “CBOA,” entered into an Agreement and Plan of Merger, which we refer to as the “merger agreement,” that provides for the combination of Bancorp 34 and CBOA. Under the merger agreement, CBOA will merge with and into Bancorp 34, with Bancorp 34 remaining as the surviving entity, in a transaction we refer to as the “merger.” Immediately following the completion of the merger or at such later time as the parties may mutually agree, CBOA’s wholly-owned subsidiary, Commerce Bank of Arizona, an Arizona chartered banking corporation, will merge with and into Bancorp 34’s wholly-owned subsidiary, Bank 34, a federally charted stock covered savings association, with Bank 34 as the surviving bank, in a transaction we refer to as the “bank merger.”

If the merger is completed, each outstanding share of CBOA common stock will be converted into the right to receive 0.24 shares of Bancorp 34 common stock, plus cash in lieu of fractional shares, except for treasury stock or shares owned by Bancorp 34 or CBOA, in each case, other than in a fiduciary or agency capacity or as a result of debts previously contracted, which will be cancelled, and shares held by shareholders who properly exercise dissenters’ rights.

Bancorp 34 common stock is quoted on the OTC Markets Groups, Inc.’s OTCQB Venture Market under the symbol “BCTF.” The closing price of Bancorp 34’s common stock on the OTCQB Venture Market on April 27, 2023, the last day that there were trades in Bancorp 34 common stock before the public announcement of the merger, was $10.85 per share. OTCQB Venture Market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. We urge you to obtain current market quotations for Bancorp 34 common stock. The shares of Bancorp 34 common stock that will be issued to CBOA shareholders in the merger will be freely transferable.

CBOA common stock is quoted on the OTC Markets Groups, Inc.’s Pink Open Market under the symbol “CBOF.” The closing price of CBOA common stock on the Pink Open Market on April 24, 2023, the last day that there were trades in CBOA common stock before the public announcement of the merger, was $2.80 per share. OTC Pink Open Market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. We urge you to obtain current market quotations for CBOA common stock.

Based on the number of shares of CBOA common stock outstanding as of August 10, 2023, the total number of shares of Bancorp 34 common stock expected to be issued in connection with the merger is approximately 2,511,478 shares. In addition, based on the number of outstanding shares of Bancorp 34 common stock and CBOA common stock as of August 10, 2023, and based on the exchange ratio of 0.24, it is expected that Bancorp 34 stockholders will hold approximately 65.2% and CBOA shareholders will hold approximately 34.8% of the issued and outstanding shares of Bancorp 34 voting and non-voting common stock immediately following the closing of the merger.

CBOA will hold a special meeting of its shareholders in connection with the merger. CBOA shareholders will be asked to vote to adopt and approve the merger agreement as described in this joint proxy statement/prospectus. CBOA shareholders will also be asked to approve a proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal to adopt and approve the merger agreement, as described in this joint proxy statement/prospectus. Certain CBOA shareholders have entered into voting and support agreements with Bancorp 34 pursuant to which they have agreed to vote “FOR” the approval of the merger agreement, subject to the terms of the voting and support agreements.

The special meeting of CBOA shareholders will be held on [ ], 2023 at [ ], local time, at [ ].

The CBOA board of directors has unanimously determined that the merger agreement, the merger, and the transactions contemplated by the merger agreement are advisable and in the best interests of CBOA and its shareholders and unanimously authorized, adopted and approved the merger agreement, the merger and the transactions contemplated by the merger agreement, and unanimously recommends that CBOA shareholders vote “FOR” the proposal to adopt and approve the merger agreement and “FOR” the proposal to adjourn the CBOA special meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal to adopt and approve the merger agreement.

Bancorp 34 will hold a special meeting of its stockholders in connection with the merger. Bancorp 34 stockholders will be asked to vote to adopt and approve the merger agreement as described in this joint proxy statement/prospectus. Bancorp 34 stockholders will also be asked to approve a proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal to adopt and approve the merger agreement, as described in this joint proxy statement/prospectus. Certain Bancorp 34 stockholders have entered into voting and support agreements with CBOA pursuant to which they have agreed to vote “FOR” the approval of the merger agreement, subject to the terms of the voting and support agreements.

The special meeting of Bancorp 34 stockholders will be held on [ ], 2023 at [ ], local time, at [ ].

The Bancorp 34 board of directors has unanimously determined that the merger agreement, the merger, and the transactions contemplated by the merger agreement are advisable and in the best interests of Bancorp 34 and its stockholders and unanimously authorized, adopted and approved the merger agreement, the merger and the transactions contemplated by the merger agreement, and unanimously recommends that Bancorp 34 stockholders vote “FOR” the proposal to adopt and approve the merger agreement and “FOR” the proposal to adjourn the Bancorp 34 special meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal to adopt and approve the merger agreement.

This document, which serves as a proxy statement for the special meeting of CBOA shareholders and the Bancorp 34 stockholders and as a prospectus for the shares of Bancorp 34 common stock to be issued in the merger to CBOA shareholders, describes the special meeting of CBOA shareholders, the special meeting of the Bancorp 34 stockholders, the merger, the documents related to the merger, and other related matters. Please carefully read this entire joint proxy statement/prospectus. In particular, you should carefully read the information under the section entitled “Risk Factors” beginning on page 27.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued in the merger or passed upon the adequacy or accuracy of this joint proxy statement/prospectus. Any representation to the contrary is a criminal offense.

The securities to be issued in the merger are not savings or deposit accounts or other obligations of any bank or non-bank subsidiary of either Bancorp 34 or CBOA, and they are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

The date of this joint proxy statement/prospectus is [ ], 2023, and it is first being mailed or otherwise delivered to CBOA shareholders and Bancorp 34 stockholders on or about [ ], 2023.

NOTICE OF THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON [ ], 2023

To the Stockholders of Bancorp 34, Inc.:

We are pleased to invite you to attend the special meeting of stockholders, which we refer to as the Bancorp 34 special meeting, of Bancorp 34, Inc. (which we refer to as “Bancorp 34”), to be held on [ ], 2023 at [ ] local time, at [ ], for the following purposes:

To consider and vote on the proposal to adopt and approve the Agreement and Plan of Merger, dated as of April 27, 2023, by and between CBOA Financial, Inc., which we refer to as “CBOA” and Bancorp 34, as it may be amended from time to time, which we refer to as the “merger agreement,” a copy of which is included as Annex A to the joint proxy statement/prospectus of which this notice is a part, under which CBOA will merge with and into Bancorp 34 with Bancorp 34 as the surviving corporation in the merger, which we refer to as the “Bancorp 34 merger proposal”; and

To consider and vote on the proposal to adjourn the Bancorp 34 special meeting, if necessary or appropriate to permit further solicitation of proxies in favor of the Bancorp 34 merger proposal, which we refer to as the “adjournment proposal.”

The Bancorp 34 board of directors has set [ ], 2023 as the record date for the Bancorp 34 special meeting. Only holders of record of Bancorp 34 common stock entitled to vote on the above proposals at the close of business on [ ], 2023 will be entitled to notice of and to vote at the Bancorp 34 special meeting and any adjournments or postponements thereof. Any stockholder entitled to attend and vote at the Bancorp 34 special meeting is entitled to appoint a proxy to attend and vote on such stockholder’s behalf. Such proxy need not be a holder of Bancorp 34 common stock.

The affirmative vote the majority of the outstanding shares of Bancorp 34 common stock entitled to vote thereon is required to approve the Bancorp 34 merger proposal. Assuming a quorum is present, approval of the adjournment proposal requires the affirmative vote of a majority of the votes cast by the holders of Bancorp 34 common stock entitled to vote. Bancorp 34 will transact no other business at the special meeting, except for business properly brought before the Bancorp 34 special meeting or any adjournment or postponement thereof. Certain Bancorp 34 stockholders have entered into voting and support agreements with CBOA pursuant to which they have agreed to vote “FOR” the approval of the merger agreement, subject to the terms of the voting and support agreements.

Bancorp 34 stockholders must approve the Bancorp 34 merger proposal in order for the merger to occur. If Bancorp 34 stockholders fail to approve the Bancorp 34 merger proposal, the merger will not occur. The joint proxy statement/prospectus accompanying this notice explains the merger agreement and the transactions contemplated thereby, as well as the proposals to be considered at the Bancorp 34 special meeting. Please review the joint proxy statement/prospectus and its annexes carefully and in their entirety.

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES OF Bancorp 34 COMMON STOCK YOU OWN. Whether or not you plan to attend the Bancorp 34 special meeting, please complete, sign, date and return the enclosed proxy card in the postage-paid envelope provided at your earliest convenience. You may also submit a proxy by telephone or via the Internet by following the instructions in the enclosed joint proxy statement/prospectus and on your proxy card. If you hold your shares in “street name” through a broker, bank or other nominee, you should direct the vote of your shares in accordance with the voting instruction form received from your broker, bank or other nominee.

The Bancorp 34 board of directors has unanimously determined that the merger agreement, the merger, and the transactions contemplated by the merger agreement are advisable and in the best interests of Bancorp 34 and its stockholders and unanimously authorized, adopted and approved the merger agreement, the merger and the transactions contemplated by the merger agreement, and unanimously recommends that Bancorp 34 stockholders vote “FOR” the proposal to adopt and approve the merger agreement and “FOR” the proposal to adjourn the Bancorp 34 special meeting, if necessary or appropriate, to solicit additional proxies in favor of the Bancorp 34 merger proposal.

If you have any questions or need assistance with voting, please contact Kevin Vaughn at (623) 334-6064.

If you plan to attend the Bancorp 34 special meeting in person, please bring valid photo identification. Bancorp 34 stockholders that hold their shares of Bancorp 34 common stock in “street name” are required to bring valid photo identification and proof of stock ownership in order to attend the Bancorp 34 special meeting, and a legal proxy, executed in such stockholder’s favor, from the record holder of such stockholder’s shares, such as a broker, bank or other nominee.

	BY ORDER OF THE BOARD OF DIRECTORS,

	James T. Crotty
	President and Chief Executive Officer

[ ], 2023

NOTICE OF THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON [ ], 2023

To the Shareholders of CBOA Financial, Inc.:

We are pleased to invite you to attend the special meeting of shareholders, which we refer to as the CBOA special meeting, of CBOA Financial, Inc. (which we refer to as “CBOA”), to be held on [ ], 2023 at [ ] local time, at [ ], for the following purposes:

To consider and vote on the proposal to adopt and approve the Agreement and Plan of Merger, dated as of April 27, 2023, by and between Bancorp 34, Inc., which we refer to as “Bancorp 34” and CBOA, as it may be amended from time to time, which we refer to as the “merger agreement,” a copy of which is included as Annex A to the joint proxy statement/prospectus of which this notice is a part, under which CBOA will merge with and into Bancorp 34, with Bancorp 34 as the surviving corporation in the merger, which we refer to as the “CBOA merger proposal”; and

To consider and vote on the proposal to adjourn the CBOA special meeting, if necessary or appropriate to permit further solicitation of proxies in favor of the CBOA merger proposal, which we refer to as the “adjournment proposal.”

The CBOA board of directors has set [ ], 2023 as the record date for the CBOA special meeting. Only holders of record of CBOA common stock at the close of business on [ ], 2023 will be entitled to notice of and to vote at the CBOA special meeting and any adjournments or postponements thereof. Any shareholder entitled to attend and vote at the CBOA special meeting is entitled to appoint a proxy to attend and vote on such shareholder’s behalf. Such proxy need not be a holder of CBOA common stock.

The affirmative vote of majority of the outstanding shares of CBOA common stock entitled to vote thereon is required to approve the CBOA merger proposal. Assuming a quorum is present, approval of the adjournment proposal requires the affirmative vote of a majority of the votes cast by the holders of CBOA common stock entitled to vote. CBOA will transact no other business at the special meeting, except for business properly brought before the CBOA special meeting or any adjournment or postponement thereof. Certain CBOA shareholders have entered into voting and support agreements with Bancorp 34 pursuant to which they have agreed to vote “FOR” the approval of the merger agreement, subject to the terms of the voting and support agreements.

CBOA shareholders must approve the CBOA merger proposal in order for the merger to occur. If CBOA shareholders fail to approve the CBOA merger proposal, the merger will not occur. The joint proxy statement/prospectus accompanying this notice explains the merger agreement and the transactions contemplated thereby, as well as the proposals to be considered at the CBOA special meeting. Please review the joint proxy statement/prospectus and its annexes carefully and in their entirety.

CBOA shareholders who do not vote in favor of the proposal to adopt and approve the merger agreement, and who object in writing to the merger prior to the special meeting and comply with all the requirements of the laws of the State of Arizona, which are summarized in the accompanying joint proxy statement/prospectus and reproduced in their entirety in Annex D to the accompanying joint proxy statement/prospectus, will be entitled to dissenters’ rights of appraisal to obtain the fair value of their shares of CBOA common stock.

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES OF CBOA COMMON STOCK YOU OWN. Whether or not you plan to attend the CBOA special meeting, please complete, sign, date and return the enclosed proxy card in the postage-paid envelope provided at your earliest convenience. You may also submit a proxy by telephone or via the Internet by following the instructions in the enclosed joint proxy statement/prospectus and on your proxy card. If you hold your shares in “street name” through a broker, bank or other nominee, you should direct the vote of your shares in accordance with the voting instruction form received from your broker, bank or other nominee.

If you have any questions or need assistance with voting, please contact Heather Hansen at (520) 544-6516.

If you plan to attend the CBOA special meeting in person, please bring valid photo identification. CBOA shareholders that hold their shares of CBOA common stock in “street name” are required to bring valid photo identification and proof of stock ownership in order to attend the CBOA special meeting, and a legal proxy, executed in such shareholder’s favor, from the record holder of such shareholder’s shares, such as a broker, bank or other nominee.

	BY ORDER OF THE BOARD OF DIRECTORS,

	Chris Webster
	President and Chief Executive Officer

[ ], 2023

ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

This joint proxy statement/prospectus, which forms part of a Registration Statement on Form S-4 filed with the SEC by Bancorp 34, constitutes a prospectus of Bancorp 34 under Section 5 of the Securities Act of 1933, as amended, which we refer to as the “Securities Act,” with respect to the shares of Bancorp 34 common stock to be offered to CBOA shareholders in connection with the merger. This joint proxy statement/prospectus also constitutes a notice of meeting and proxy statement being used by the Bancorp 34 board of directors and CBOA board of directors to solicit proxies of CBOA shareholders and Bancorp 34 stockholders in connection with approval of the merger and related matters.

All references in this joint proxy statement/prospectus to “Bancorp 34” refer to Bancorp 34, Inc., a Maryland corporation and all references to “Bank 34” refer to Bank 34, a covered savings association.

All references in this joint proxy statement/prospectus to “CBOA” refer to CBOA Financial Inc., an Arizona corporation, and all references to “Commerce Bank” refer to Commerce Bank of Arizona, an Arizona charted banking corporation.

All references in this joint proxy statement/prospectus to the “combined company” refer to Bancorp 34 immediately following completion of the merger.

All references in this joint proxy statement/prospectus to “Bancorp 34 common stock” refer to the voting common stock of Bancorp 34, par value $0.01 per share, and all references in this joint proxy statement/prospectus to “CBOA common stock” refer to the common stock of CBOA, no par value per share.

All references in this joint proxy statement/prospectus to the “merger agreement” refer to the Agreement and Plan of Merger dated April 27, 2023, by and between Bancorp 34 and CBOA.

All references in this joint proxy statement/prospectus to “we,” “our” and “us” refer to Bancorp 34 and CBOA collectively, unless otherwise indicated or as the context requires.

WHERE YOU CAN FIND MORE INFORMATION

No information regarding Bancorp 34 or CBOA has been incorporated by reference into this joint proxy statement/prospectus.

Bancorp 34 and CBOA do not currently have a class of securities registered under Section 12 of the Securities Exchange Act of 1934, which we refer to as the “Exchange Act,” are not currently subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act, and accordingly do not currently file documents and reports with the SEC pursuant to such sections.

Bancorp 34 has filed a Registration Statement on Form S-4 to register with the SEC the shares of Bancorp 34 common stock to be issued pursuant to the merger. This joint proxy statement/prospectus is a part of that Registration Statement on Form S-4. As permitted by SEC rules, this joint proxy statement/prospectus does not contain all of the information included in the Registration Statement on Form S-4 or in the exhibits or schedules to the Registration Statement on Form S-4. The Registration Statement on Form S-4, including any amendments, schedules and exhibits, is available, free of charge, by accessing the SEC’s website at http://www.sec.gov, or by requesting them from Bancorp 34 or CBOA in writing or by telephone at the addresses below:

Bancorp 34, Inc.

8777 E. Hartford Drive, Suite 100

Scottsdale, AZ 85255

Attention: Kevin Vaughn

(623) 334-6064

CBOA Financial, Inc.

7315 North Oracle Road, Suite 181

Tucson, AZ 85704

Attention: Heather Hansen

(520) 544-6516

iii

You will not be charged for any of these documents that you request. To obtain timely delivery of these documents, you must request them no later than [ ], 2023 in order to receive them before the CBOA special meeting, no later than [ ], 2023 in order to receive them before the Bancorp 34 special meeting, and no later than five business days before the date of the applicable special meeting. This means that holders of Bancorp 34 common stock requesting documents must do so by [ ], 2023 in order to receive them before the Bancorp 34 special meeting, and holders of CBOA common stock requesting documents must do so by [ ], 2023 in order to receive them before the CBOA special meeting.

No person has been authorized to give any information or make any representation about the merger or Bancorp 34 or CBOA that differs from, or adds to, the information in this joint proxy statement/prospectus or in documents that are publicly filed with the SEC. We take no responsibility for, and provide no assurance as to the reliability of, any other information that others may give you. You should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any date other than the date of this joint proxy statement/prospectus, and neither the mailing of this joint proxy statement/prospectus to Bancorp 34 stockholders or CBOA shareholders nor the issuance of Bancorp 34 common stock in the merger will create any implication to the contrary.

This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

MARKET AND INDUSTRY DATA

This joint proxy statement/prospectus includes government, industry and trade association data, forecasts and information that Bancorp 34 and CBOA have prepared based, in part, upon data, forecasts and information obtained from independent trade associations, industry publications and surveys, government agencies and other information available to us, which information may be specific to particular markets or geographic locations. Statements as to market position are based on market data currently available to Bancorp 34 and CBOA. Industry publications and surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. Although Bancorp 34 and CBOA believe these sources are reliable, Bancorp 34 and CBOA have not independently verified the information. Some data is also based on Bancorp 34’s and CBOA’s good faith estimates, which are derived from management’s knowledge of the industry and independent sources. Bancorp 34 and CBOA believe their internal research is reliable, even though such research has not been verified by any independent sources. While Bancorp 34 and CBOA are not aware of any misstatements regarding industry data presented herein, Bancorp 34’s and CBOA’s estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this joint proxy statement/prospectus. Forward-looking information obtained from these sources is subject to the same qualifications and the additional uncertainties regarding the other forward-looking statements in this joint proxy statement/prospectus.

TABLE OF CONTENTS

ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS	iii
WHERE YOU CAN FIND MORE INFORMATION	iii
MARKET AND INDUSTRY DATA	v
QUESTIONS AND ANSWERS	1
SUMMARY	9
SELECTED HISTORICAL FINANCIAL DATA FOR BANCORP 34	17
SELECTED HISTORICAL FINANCIAL DATA FOR CBOA	19
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION	21
UNAUDITED COMPARATIVE PER COMMON SHARE DATA	22
SUMMARY OF MATERIAL RISKS	23
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS	25
RISK FACTORS	27
BANCORP 34 SPECIAL MEETING OF STOCKHOLDERS	51
BANCORP 34 PROPOSALS	55
Proposal No. 1 – Bancorp 34 Merger Proposal	55
Proposal No. 2 – Adjournment Proposal	55
CBOA SPECIAL MEETING OF SHAREHOLDERS	56
CBOA PROPOSALS	60
Proposal No. 1 – Merger Proposal	60
Proposal No. 2 – Adjournment Proposal	60
THE MERGER	61
Terms of the Merger	61
Background of the Merger	61
CBOA’s Reasons for the Merger; Recommendation of the CBOA Board of Directors	63
Opinion of CBOA’s Financial Advisor	65
Certain Unaudited Prospective Financial Information	76
Bancorp 34’s Reasons for the Merger	78
Opinion of Bancorp 34’s Financial Advisor	80
Interests of Bancorp 34’s Directors and Executive Officers in the Merger	86
Interests of CBOA’s Directors and Executive Officers in the Merger	86
Governance of the Combined Company After the Merger	88
Listing of Bancorp 34 Common Stock and No Restrictions on Resale	88
Regulatory Approvals Required for the Merger	89
THE MERGER AGREEMENT	91
Explanatory Note Regarding the Merger Agreement	91
Structure of the Merger	91
Treatment of CBOA Equity Awards	92
Closing and Effective Time of the Merger	92
Conversion of Shares; Exchange of Certificates	92
Representations and Warranties	93
Covenants and Agreements	95
The CBOA Shareholder Meeting and Bancorp 34 Stockholder Meeting	100
Agreement Not to Solicit Other Offers	101

Adverse Recommendation Change	101
Conditions to Complete the Merger	102
Termination of the Merger Agreement	103
Effect of Termination	104
Termination Fee	104
Expenses and Fees	104
Amendment, Waiver and Extension of the Merger Agreement	105
ACCOUNTING TREATMENT	107
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER	108
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION	111
DISSENTERS’ RIGHTS TO THE MERGER	119
INFORMATION ABOUT BANCORP 34, INC.	121
Management’s Discussion and Analysis of Financial Condition and Result of Operations of Bancorp 34	129
BANCORP 34 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	158
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BANCORP 34	159
MANAGEMENT OF BANCORP 34	161
Executive Compensation AND OTHER INFORMATION OF Bancorp 34	164
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF BANCORP 34	176
INFORMATION ABOUT CBOA FINANCIAL, INC.	178
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CBOA	181
CBOA Quantitative and Qualitative Disclosures about Market Risk	201
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CBOA	202
DESCRIPTION OF CAPITAL STOCK OF BANCORP 34	203
COMPARISON OF STOCKHOLDERS’ RIGHTS	210
SUPERVISION AND REGULATION	215
LEGAL MATTERS	228
EXPERTS	228
CHANGE IN AUDITOR	228
INDEX TO FINANCIAL STATEMENTS OF BANCORP 34, INC.	F-1
INDEX TO FINANCIAL STATEMENTS OF CBOA FINANCIAL, INC.	F-79

ANNEX A – Agreement and Plan of Merger, as amended	A-1
Exhibit A – Form of Bank Merger Agreement
Exhibit B – Form of CBOA Voting and Support Agreement
Exhibit C – Form of B34 Voting and Support Agreement
Exhibit D-1 – Form of Officer Agreement
Exhibit D-2 – Form of Officer Agreement
Exhibit D-3 – Form of Officer Agreement
ANNEX B – Opinion of Piper Sandler & Co.	B-1
ANNEX C – Opinion of MJC Partners, LLC	C-1
ANNEX D – Sections 10-1301 through 10-1331 of the Arizona Business Corporation Act	D-1

QUESTIONS AND ANSWERS

The following are answers to certain questions that you may have regarding the merger and the Bancorp 34 and CBOA special meetings. We urge you to read carefully the remainder of this joint proxy statement/prospectus because the information in this section may not provide all the information that might be important to you in determining how to vote. Additional important information is also contained in the annexes to this joint proxy statement/prospectus.

What is the merger?

Bancorp 34 and CBOA have entered into an Agreement and Plan of Merger, dated as of April 27, 2023, as such agreement may be amended from time to time. Under the merger agreement, CBOA will merge with and into Bancorp 34, with Bancorp 34 remaining as the surviving entity, in a transaction we refer to as the “merger.” Immediately following the completion of the merger, CBOA’s wholly-owned subsidiary, Commerce Bank of Arizona, an Arizona chartered banking corporation, will merge with and into Bancorp 34’s wholly-owned subsidiary, Bank 34, a covered savings association, with Bank 34 as the surviving bank, in a transaction we refer to as the “bank merger.”

A copy of the merger agreement is attached to this joint proxy statement/prospectus as Annex A. We urge you to read carefully this joint proxy statement/prospectus and the merger agreement in their entirety.

The merger cannot be completed unless, among other things, CBOA’s shareholders approve the CBOA merger proposal and Bancorp 34’s stockholders approve the Bancorp 34 merger proposal.

Why am I receiving this joint proxy statement/prospectus?

In order to complete the merger, among other things:

Bancorp 34’s stockholders must approve the Bancorp 34 merger proposal; and

CBOA’s shareholders must approve the CBOA merger proposal.

Each of Bancorp 34 and CBOA is sending this joint proxy statement/prospectus to its shareholders to help them decide how to vote their shares of common stock with respect to such matters to be considered at their respective special meetings of stockholders and shareholders.

Information about these meetings, the merger and the other business to be considered by Bancorp 34 stockholders at its special meeting or by CBOA shareholders at its special meeting, as applicable, is contained in this joint proxy statement/prospectus and you should read it carefully and in its entirety.

This document constitutes both a joint proxy statement of Bancorp 34 and CBOA and a prospectus of Bancorp 34. It is a joint proxy statement because each of the boards of directors of Bancorp 34 and CBOA is soliciting proxies from their shareholders using this document. It is a prospectus because Bancorp 34, in connection with the merger, will issue shares of Bancorp 34 common stock to CBOA shareholders, and this joint proxy statement/prospectus contains information about that common stock.

The enclosed materials allow you to have your shares of Bancorp 34 or CBOA common stock voted by proxy without attending their respective special meetings. Your vote is important and we encourage you to submit your proxy as soon as possible whether or not you plan to attend the Bancorp 34 special meeting or CBOA special meeting, as applicable.

What will CBOA shareholders receive in the merger?

If the merger is completed, each outstanding share of CBOA common stock will be converted into the right to receive 0.24 shares of Bancorp 34 common stock (which we refer to as the “exchange ratio” and together with cash in lieu of fractional shares as discussed below, the “merger consideration”), except for treasury stock or shares owned by Bancorp 34 or CBOA, in each case, other than in a fiduciary or agency capacity or as a result of debts previously contracted, which will be cancelled, and shares held by CBOA shareholders who properly exercise dissenters’ rights. Bancorp 34 will not issue any fractional shares of Bancorp 34 common stock in the merger. Instead, a CBOA shareholder who otherwise would have received a fraction of a share of Bancorp 34 common stock will receive an amount in cash (without interest) equal to such fractional part of a share of Bancorp 34 common stock multiplied by $12.16.

For example, if you own 105 shares of CBOA common stock at the effective time of the merger, in the merger, you will receive 25 shares of Bancorp 34 common stock (calculated by multiplying your 105 shares by the 0.24 exchange ratio) and $2.43 in cash, the value of the fractional 0.2 share of Bancorp 34 common stock (calculated by multiplying the 0.2 fraction of a share by $12.16).

Will the value of the merger consideration change between the date of this joint proxy statement/prospectus and the time the merger is completed?

Yes. The value of the merger consideration may fluctuate based upon the market value for Bancorp 34 common stock between the date of this joint proxy statement/prospectus and the completion of the merger. CBOA shareholders will receive 0.24 share of Bancorp 34 common stock for each share of CBOA common they hold. Any fluctuation in the market price of Bancorp 34 common stock after the date of this joint proxy statement/prospectus will change the value of the shares of Bancorp 34 common stock that CBOA shareholders may receive.

Based on the closing price of Bancorp 34 common stock on April 27, 2023, the last full trading day before the public announcement of the merger agreement, of $10.85 per share, the exchange ratio represented approximately $2.60 in value for each share of CBOA stock to be converted into Bancorp 34 common stock. Based on the most recent reported closing sale price of Bancorp 34 common stock on [ ], 2023 of $[ ] per share, the exchange ratio represented $[ ] in value for each share of CBOA stock to be converted into Bancorp 34 common stock. The market price of shares of Bancorp 34 common stock when CBOA shareholders receive those shares after the merger is completed could be greater than, less than or the same as the market price of Bancorp 34 common stock on the date of this joint proxy statement/prospectus or at the time of the CBOA special meeting or any adjournment of postponement thereof.

What will happen to shares of Bancorp common stock in the merger?

Nothing. Each share of Bancorp 34 common stock outstanding will remain outstanding as a share of Bancorp 34 common stock following the effective time of the merger.

How will the merger affect CBOA restricted stock units?

Under the merger agreement, at the effective time of the merger, each outstanding CBOA restricted stock unit will vest (with any performance-based vesting condition applicable to such restricted stock unit deemed to have been achieved to the extent set forth in the award agreement applicable to such CBOA restricted stock unit) and be cancelled and converted automatically into the right to receive the merger consideration with respect to each share of CBOA common stock underlying such restricted stock unit.

What are the U.S. federal income tax consequences of the merger to CBOA shareholders?

The merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, which we refer to as the “Code.” It is a condition to the completion of the merger that Bancorp 34 and CBOA receive written opinions from their respective counsel to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. If the merger so qualifies, a U.S. holder (as defined under “Material U.S. Federal Income Tax Consequences of the Merger”) of CBOA common stock generally will not recognize gain or loss for U.S. federal income tax purposes upon the exchange of shares of CBOA common stock for shares of Bancorp 34 common stock pursuant to the merger, except with respect to any cash received in lieu of fractional shares of Bancorp 34 common stock or from the exercise of dissenters’ rights. For further information, see “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 108. CBOA shareholders should consult their own tax advisors for a full understanding of the particular tax consequences of the merger to them.

If I am a CBOA shareholder, should I send in my CBOA stock certificate(s) now?

No. Please do not send in your CBOA stock certificate(s) with your proxy. After the merger closes, an exchange agent will send you instructions for exchanging CBOA stock certificates for the merger consideration. See “The Merger Agreement—Conversion of Shares; Exchange of Certificates.”

When and where is the Bancorp 34 special meeting and the CBOA special meeting?

Bancorp 34 Special Meeting. The Bancorp 34 special meeting will be held on [ ], 2023 at [ ], local time at [ ].

CBOA Special Meeting. The CBOA special meeting will be held on [ ], 2023 at [ ], local time at [ ].

What are Bancorp 34 stockholders and CBOA shareholders being asked to vote on at the Bancorp 34 special meeting and the CBOA Special Meeting?

Bancorp 34 Special Meeting. Bancorp 34 is soliciting proxies from its stockholders with respect to the following proposals:

a proposal to adopt and approve the merger agreement, which we refer to as the “Bancorp 34 merger proposal”; and

a proposal to adjourn the Bancorp 34 special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies in favor of the Bancorp 34 merger proposal, which we refer to as the “adjournment proposal.”

CBOA Special Meeting. CBOA is soliciting proxies from its shareholders with respect to the following proposals:

a proposal to adopt and approve the merger agreement, which we refer to as the “CBOA merger proposal”; and

a proposal to adjourn the CBOA special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies in favor of the CBOA merger proposal, which we refer to as the “adjournment proposal.”

What constitutes a quorum at each special meeting?

Bancorp 34 Special Meeting. The stockholders present at the Bancorp 34 special meeting in person or by proxy who, as of the Bancorp 34 record date, were holders of at least a majority of the outstanding shares of Bancorp 34 common stock entitled to vote at the Bancorp 34 special meeting, constitutes a quorum. Abstentions will be included in determining the number of shares present at the Bancorp 34 special meeting for the purpose of determining the presence of a quorum.

CBOA Special Meeting. The shareholders present at the CBOA special meeting in person or by proxy who, as of the CBOA record date, were holders of at least a one-third of the outstanding shares of CBOA common stock entitled to vote at the CBOA special meeting, constitutes a quorum. Abstentions will be included in determining the number of shares present at the CBOA special meeting for the purpose of determining the presence of a quorum.

What is the vote required to approve each proposal at the Bancorp 34 special meeting?

Bancorp 34 Merger proposal

Standard: Approval of the Bancorp 34 merger proposal requires the affirmative vote of a majority of the issued and outstanding shares of Bancorp 34 common stock entitled to vote. Bancorp 34 stockholders must approve the Bancorp 34 merger proposal in order for the merger to occur. If Bancorp 34 stockholders fail to approve the Bancorp 34 merger proposal, the merger will not occur.

Effect of abstentions and broker non-votes: If you fail to vote, mark “ABSTAIN” on your proxy card or fail to instruct your bank or broker how to vote with respect to the Bancorp 34 merger proposal, it will have the same effect as a vote “AGAINST” the proposal.

Adjournment proposal

Standard: Assuming a quorum is present, approval of the adjournment proposal requires the affirmative vote of a majority of the votes cast by the holders of Bancorp 34 common stock entitled to vote. If Bancorp 34 stockholders fail to approve the adjournment proposal, but approve the Bancorp 34 merger proposal, the merger may nonetheless occur.

Effect of abstentions and broker non-votes: If you fail to vote, mark “ABSTAIN” on your proxy card or fail to instruct your bank or broker how to vote with respect to the adjournment proposal, you will be deemed not to have cast a vote with respect to the proposal and it will have no effect on the proposal.

For information regarding the voting and support agreements between CBOA and certain holders of shares of Bancorp 34 common stock, see “Bancorp 34 Special Meeting of Stockholders—Shares Subject to Voting and Support Agreements.”

What is the vote required to approve each proposal at the CBOA special meeting?

CBOA Merger proposal

Standard: Approval of the CBOA merger proposal requires the affirmative vote of a majority of the issued and outstanding shares of CBOA common stock entitled to vote. CBOA shareholders must approve the CBOA merger proposal in order for the merger to occur. If CBOA shareholders fail to approve the CBOA merger proposal, the merger will not occur.

Effect of abstentions and broker non-votes: If you fail to vote, mark “ABSTAIN” on your proxy card or fail to instruct your bank or broker how to vote with respect to the CBOA merger proposal, it will have the same effect as a vote “AGAINST” the proposal.

Adjournment proposal

Standard: Assuming a quorum is present, approval of the adjournment proposal requires the affirmative vote of a majority of the votes cast by the holders of CBOA common stock entitled to vote. If CBOA shareholders fail to approve the adjournment proposal, but approve the CBOA merger proposal, the merger may nonetheless occur.

For information regarding the voting and support agreements between Bancorp 34 and certain holders of shares of CBOA common stock, see “CBOA Special Meeting of Shareholders—Shares Subject to Voting and Support Agreements.”

How does the Bancorp 34 board of directors and the CBOA board of directors recommend that I vote?

Bancorp 34. The Bancorp 34 board of directors unanimously recommends that you vote “FOR” the Bancorp 34 merger proposal and “FOR” the adjournment proposal.

CBOA. The CBOA board of directors unanimously recommends that you vote “FOR” the CBOA merger proposal and “FOR” the adjournment proposal.

What do I need to do now?

After carefully reading and considering the information contained in or incorporated by reference into this joint proxy statement/prospectus, including its annexes, please vote your shares as soon as possible so that your shares will be represented at your respective company’s special meeting of shareholders. Please follow the instructions set forth herein or on the enclosed proxy card or on the voting instruction form provided by your bank, broker or other nominee if your shares are held in “street name” by a bank, broker or other nominee.

How do I vote my shares?

If you are a stockholder of record of Bancorp 34 as of [ ], 2023, the record date for the Bancorp 34 special meeting, you may submit your proxy before the Bancorp 34 special meeting in any of the following ways:

by mail, by completing, signing, dating and returning the enclosed proxy card to [ ] using the enclosed postage-paid envelope;

by telephone, by calling toll-free [ ] and following the recorded instructions; or

via the Internet, by accessing the website [ ] and following the instructions on the website.

If you intend to submit your proxy by telephone or via the Internet, you must do so by 11:59 p.m. Eastern Time on the day before the Bancorp 34 special meeting. If you intend to submit your proxy by mail, your completed proxy card must be received before the Bancorp 34 special meeting.

If you are a Bancorp 34 stockholder as of the Bancorp 34 record date, you may also cast your vote in person at the Bancorp 34 special meeting. If you plan to attend the Bancorp 34 special meeting, you must hold your shares in your own name or have a letter from the record holder of your shares confirming your ownership. In addition, you must bring a form of personal photo identification with you in order to be admitted to the meeting. Bancorp 34 reserves the right to refuse admittance to anyone without proper proof of stock ownership or without proper photo identification. Whether or not you intend to be present at the Bancorp 34 special meeting, you are urged to complete, sign, date and return the enclosed proxy card to [ ] in the enclosed postage-paid envelope or submit a proxy by telephone or via the Internet as described on the enclosed instructions as soon as possible. If you are then present and wish to vote your shares in person, your original proxy may be revoked by attending and voting at the Bancorp 34 special meeting.

If you hold your shares in “street name” through a broker, bank or other nominee, your broker, bank or other nominee will send you separate instructions describing the procedure for voting your shares. If your shares are held in “street name,” you must obtain a legal proxy, executed in your favor, from the record holder of your shares, such as a broker, bank or other nominee, to vote your shares in person at the Bancorp 34 special meeting.

If you are a shareholder of record of CBOA as of [ ], 2023, the record date for the CBOA special meeting, you may submit your proxy before the CBOA special meeting in any of the following ways:

by mail, by completing, signing, dating and returning the enclosed proxy card to [ ] using the enclosed postage-paid envelope;

by telephone, by calling toll-free [ ] and following the recorded instructions; or

via the Internet, by accessing the website [ ] and following the instructions on the website.

If you intend to submit your proxy by telephone or via the Internet, you must do so by 11:59 p.m. Eastern Time on the day before the CBOA special meeting. If you intend to submit your proxy by mail, your completed proxy card must be received before the CBOA special meeting.

If you are a CBOA shareholder as of the CBOA record date, you may also cast your vote in person at the CBOA special meeting. If you plan to attend the CBOA special meeting, you must hold your shares in your own name or have a letter from the record holder of your shares confirming your ownership. In addition, you must bring a form of personal photo identification with you in order to be admitted to the meeting. CBOA reserves the right to refuse admittance to anyone without proper proof of stock ownership or without proper photo identification. Whether or not you intend to be present at the CBOA special meeting, you are urged to complete, sign, date and return the enclosed proxy card to [ ] in the enclosed postage-paid envelope or submit a proxy by telephone or via the Internet as described on the enclosed instructions as soon as possible. If you are then present and wish to vote your shares in person, your original proxy may be revoked by attending and voting at the CBOA special meeting.

If my shares are held in “street name” by my bank, broker or other nominee, will my bank, broker or other nominee automatically vote my shares for me?

No. Your bank, broker, or other nominee cannot vote your shares without instructions from you. You should instruct your bank, broker, or other nominee how to vote your shares in accordance with the instructions provided to you. Please check the voting form used by your bank, broker, or other nominee. Because your bank, broker, or nominee cannot vote your shares without instruction from you, it is critical that you cast your vote by instructing your bank, broker or other nominee on how to vote.

Please follow the voting instructions provided by your broker, bank or other nominee. Please note that you may not vote shares held in “street name” by returning a proxy card directly to [ ] (in the case of the Bancorp 34 special meeting) or [ ] (in the case of the CBOA special meeting) or by voting in person at the applicable special meeting, unless you provide a legal proxy, executed in your favor, from the broker, bank or other nominee that is the record holder of your shares. In addition to such legal proxy, if you plan to attend the company’s respective special meeting, but you are not a shareholder of record because you hold your shares in “street name,” please bring evidence of your beneficial ownership of your shares (e.g., a copy of a recent brokerage statement showing the shares) and valid photo identification with you to the company’s respective special meeting.

Can I change my vote?

Yes. If you are the record holder of Bancorp 34 or CBOA common stock, you can change your vote or revoke your proxy at any time before your proxy is voted at the applicable meeting. You can do this by:

timely delivering a signed written notice of revocation to the Corporate Secretary of Bancorp 34 or CBOA, as applicable;

timely delivering a new, valid proxy bearing a later date;

attending the Bancorp 34 special meeting or the CBOA special meeting and voting in person. Simply attending the Bancorp 34 special meeting or the CBOA special meeting without voting will not revoke any proxy that you have previously given or change your vote; or

Voting by telephone or the internet at a later time.

If you hold your shares in “street name” through a bank, broker, or other holder of record, you should contact your record holder to change your vote.

Why is my vote important?

If you do not vote, it will be more difficult for Bancorp 34 or CBOA to obtain the necessary quorum to hold the Bancorp 34 special meeting or the CBOA special meeting. In addition, your failure to submit a proxy or vote in person, or failure to instruct your bank, broker other nominee how to vote, or an abstention will have the same effect as a vote “AGAINST” the applicable merger proposal.

What will happen if I return my proxy card without indicating how to vote?

If you sign and return your proxy card without indicating how to vote on any particular proposal, the shares of Bancorp 34 common stock represented by your proxy will be voted as recommended by the Bancorp 34 board of directors with respect to such proposal or the shares of CBOA common stock represented by your proxy will be voted as recommended by the CBOA board of directors with respect to such proposal, as the case may be.

What should I do if I receive more than one set of voting materials?

Bancorp 34 stockholders or CBOA shareholders may receive more than one set of voting materials, including multiple copies of this joint proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold shares of Bancorp 34 common stock or CBOA common stock in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold such shares. If you are a holder of record of Bancorp 34 common stock or CBOA common stock and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date, and return each proxy card and voting instruction card that you receive or otherwise follow the voting instructions set forth in this joint proxy statement/prospectus to ensure that you vote every share of Bancorp 34 common stock or CBOA common stock that you own.

Are CBOA shareholders entitled to appraisal or dissenters’ rights?

Yes, CBOA shareholders have the right to dissent from the merger and seek payment of the appraised fair value of their shares of CBOA common stock in cash. In order to perfect your dissenters’ rights, you must (a) deliver a written notice to CBOA, before the CBOA special meeting, stating that you intend to demand payment for your shares of CBOA common stock if the merger agreement is approved and the merger is completed, (b) not vote your shares of CBOA common stock in favor of the CBOA merger proposal at the CBOA special meeting, (c) demand payment for your shares of CBOA common stock, certify whether you acquired beneficial ownership of your shares of CBOA common stock before the date required by a notice that will be sent to you and deposit your CBOA stock certificates in accordance with the terms of the notice.

The steps you must follow to perfect your right of dissent are described in greater detail under the section of this joint proxy statement/prospectus entitled “Dissenters’ Rights in the Merger” beginning on page 119, and this discussion is qualified by that description and by the text of the provisions of the Arizona Business Corporation Act, which we refer to as the “ABCA,” relating to rights of dissent attached as Annex D to this joint proxy statement/prospectus. The fair value, as determined under the statute, could be more than the merger consideration but could also be less. In addition, it is a closing condition of the merger that no more than 7.5% of the shares of CBOA common stock take the proper actions required under the ABCA to qualify as dissenting shareholders.

Are Bancorp 34 stockholders entitled to appraisal or dissenters’ rights?

No, under Bancorp 34’s Articles of Incorporation, the holders of Bancorp 34 common stock will not be entitled to any appraisal rights or dissenters’ rights in connection with the merger.

When do you expect to complete the merger?

Bancorp 34 and CBOA expect to complete the merger in the fourth quarter of 2023. However, neither Bancorp 34 nor CBOA can assure you of when or if the merger will be completed. Bancorp 34 and CBOA must obtain the approval of the merger agreement by the Bancorp 34 stockholders and the CBOA shareholders at the applicable company’s special meeting, and also must obtain necessary regulatory approvals in addition to satisfying certain other closing conditions.

What happens if the merger is not completed?

If the merger is not completed, CBOA shareholders will not receive any consideration for their shares of CBOA common stock in connection with the merger. Instead, CBOA will remain an independent company. In addition, if the merger agreement is terminated in certain circumstances, a termination fee may be required to be paid by Bancorp 34 or CBOA. See “The Merger Agreement—Termination Fee” for a complete discussion of the circumstances under which any such termination fee will be required to be paid.

Whom should I call with questions?

Bancorp 34 Stockholders. If you have any questions about the merger or how to submit your proxy or voting instruction card, or you need additional copies of this document or the enclosed proxy card or voting instruction card, you should contact:

Bancorp 34, Inc.

Attn: Kevin Vaughn

8777 E. Hartford Drive, Suite 100

Scottsdale, AZ 85255

Telephone: (623) 334-6064

E-mail: Kevin.V@bank34.com

CBOA Shareholders. If you have any questions about the merger or how to submit your proxy or voting instruction card, or you need additional copies of this document or the enclosed proxy card or voting instruction card, you should contact:

CBOA Financial, Inc.

Attn: Heather Hansen

7315 North Oracle Road, Suite 181

Tucson, AZ 85704

Telephone: (520) 544-6516

Email: hhansen@commercebankaz.com

SUMMARY

This summary highlights selected information included in this joint proxy statement/prospectus and does not contain all of the information that may be important to you. You should read this entire document and its annexes. Each item in this summary includes a page reference directing you to a more complete description of that item.

The Merger (page 61)

Bancorp 34 and CBOA have entered into the merger agreement that provides for the combination of Bancorp 34 and CBOA. Under the merger agreement, CBOA will merge with and into Bancorp 34, with Bancorp 34 remaining as the surviving entity. The terms and conditions of the merger are contained in the merger agreement, which is attached as Annex A to this joint proxy statement/prospectus. We encourage you to read the merger agreement carefully, as it is the legal document that governs the merger. Immediately following the merger or at such later time as the parties may mutually agree, Commerce Bank will merge with and into Bank 34, with Bank 34 as the surviving bank.

Merger Consideration (page 91)

If the merger is completed, each outstanding share of CBOA common stock will be converted into the right to receive the merger consideration of 0.24 shares of Bancorp 34 common stock (which we refer to as the “exchange ratio” and together with cash in lieu of fractional shares as discussed below, the “merger consideration”), except for treasury stock or shares owned by CBOA or Bancorp 34, in each case, other than in a fiduciary or agency capacity or as a result of debts previously contracted, which will be cancelled, and shares held by shareholders who properly exercise dissenters’ rights. Bancorp 34 will not issue any fractional shares of Bancorp 34 common stock in the merger. Instead, a CBOA shareholder who otherwise would have received a fraction of a share of Bancorp 34 common stock will receive an amount in cash (without interest) equal to such fractional part of a share of Bancorp 34 common stock multiplied by $12.16.

As a result of the merger, based on the number of shares of CBOA common stock and Bancorp 34 voting and non-voting common stock outstanding as of August 10, 2023, it is expected that Bancorp 34 stockholders will hold approximately 65.2% and CBOA shareholders will hold approximately 34.8% of the issued and outstanding shares of the combined company outstanding (inclusive of both voting and non-voting shares of the combined company) immediately after the effective time of the merger, which we refer to as the “effective time.”

The exchange ratio is fixed, which means that it will not change between now and the date of the merger, regardless of whether the market price of either shares of Bancorp 34 common stock or CBOA common stock changes. Therefore, the value of the merger consideration will depend on the market price of shares of Bancorp 34 common stock at the time CBOA shareholders receive shares of Bancorp 34 common stock in the merger. Bancorp 34 common stock is listed on the OTC Markets Groups, Inc.’s OTCQB Venture Market under the symbol “BCTF” and CBOA’s common stock is listed on the OTC Markets Groups, Inc.’s Pink Open Market under the symbol “CBOF.”

The following table shows the closing sale prices of Bancorp 34 common stock and CBOA common stock as reported on the OTCQB Venture Market and the OTC Pink Open Market, respectively, on April 27, 2023, the last trading day before the public announcement of the merger agreement, and on [ ], 2023, the latest practicable trading day before the printing of this joint proxy statement/prospectus. The table also shows the implied value of the merger consideration payable for each share of CBOA common stock, which we calculated by multiplying the closing price per share of Bancorp 34 common stock on those dates by the exchange ratio.

	Bancorp 34 Common Stock		CBOA Common Stock		Implied Value of One Share of CBOA Common Stock
April 27, 2023	$	10.85	$	2.80	$	2.60
[ ],2023	$	[ ]	$	[ ]	$	[ ]

The market price of shares of Bancorp 34 common stock has fluctuated since the date of the announcement of the merger agreement and will continue to fluctuate from the date of this joint proxy statement/prospectus to the date of the CBOA special meeting and the date the merger is completed and thereafter. The market price of shares of Bancorp 34 common stock when received by CBOA shareholders after the merger is completed could be greater than, less than or the same as the market price of shares of Bancorp 34 common stock on the date of this joint proxy statement/prospectus or at the time of the CBOA special meeting or any adjournment or postponement thereof.

Treatment of CBOA Equity Awards (page 92)

CBOA Restricted Stock Units

Bancorp 34’s Reasons for the Merger; Recommendation of the Bancorp 34 Board of Directors (page 78)

The Bancorp 34 board of directors has unanimously determined that the merger agreement, the merger, and the transactions contemplated by the merger agreement are advisable and in the best interests of Bancorp 34 and its stockholders and unanimously authorized, adopted and approved the merger agreement, the merger and the transactions contemplated by the merger agreement. The Bancorp 34 board of directors unanimously recommends that the Bancorp 34 stockholders vote “FOR” the Bancorp 34 merger proposal and “FOR” the adjournment proposal. For the factors considered by the Bancorp 34 board of directors in reaching its decision to approve the merger agreement, see “The Merger—Bancorp 34’s Reasons for the Merger; Recommendation of the Bancorp 34 Board of Directors,” beginning on page 78.

CBOA’s Reasons for the Merger; Recommendation of the CBOA Board of Directors (page 63)

The CBOA board of directors has unanimously determined that the merger agreement, the merger, and the transactions contemplated by the merger agreement are advisable and in the best interests of CBOA and its shareholders and unanimously authorized, adopted and approved the merger agreement, the merger and the transactions contemplated by the merger agreement. The CBOA board of directors unanimously recommends that the CBOA stockholders vote “FOR” the CBOA merger proposal and “FOR” the adjournment proposal. For the factors considered by the CBOA board of directors in reaching its decision to approve the merger agreement, see “The Merger—CBOA’s Reasons for the Merger; Recommendation of the CBOA Board of Directors,” beginning on page 63.

Opinion of Bancorp 34’s Financial Advisor (page 80 and Annex C)

At the meeting of the Bancorp 34 board of directors on April 26, 2023, Bancorp 34’s financial advisor, MJC Partners, LLC, which we refer to as “MJC,” rendered its oral opinion to the Bancorp 34 board of directors, subsequently confirmed in writing, that, as of such date and based upon and subject to the factors and assumptions set forth in its opinion, the exchange ratio in the proposed merger was fair, from a financial point of view, to the holders of Bancorp 34 voting and non-voting common stock.

The MJC written opinion, dated April 26, 2023, is sometimes referred to herein as the MJC opinion. The full text of the opinion, which describes the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by MJC in preparing the opinion, is attached as Annex C to this joint proxy statement/prospectus and is incorporated herein by reference. The summary of the MJC opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion. You are urged to read the opinion in its entirety. The opinion was for the information of, and was directed to, the Bancorp 34 board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion did not address the underlying business decision of Bancorp 34 to engage in the merger or enter into the merger agreement or constitute a recommendation to the Bancorp 34 board of directors in connection with the merger, and it does not constitute a recommendation to any holder of Bancorp 34 common stock as to how to vote in connection with the merger or any other matter.

For more information, see the section entitled “The Merger—Opinion of Bancorp 34’s Financial Advisor” beginning on page 80 of this joint proxy statement/prospectus and the copy of the MJC opinion included in this joint proxy statement/prospectus as Annex C.

Opinion of CBOA’s Financial Advisor (page 65 and Annex B)

At the meeting of the CBOA board of directors on April 27, 2023, CBOA’s financial advisor, Piper Sandler & Companies, which we refer to as “Piper Sandler,” rendered its oral opinion to the CBOA board of directors, subsequently confirmed in writing, that, as of such date and based upon and subject to the factors and assumptions set forth in its opinion, the exchange ratio in the proposed merger was fair, from a financial point of view, to the holders of CBOA common stock.

The Piper Sandler written opinion, dated April 27, 2023, is sometimes referred to herein as the Piper Sandler opinion. The full text of the opinion, which describes the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Piper Sandler in preparing the opinion, is attached as Annex B to this joint proxy statement/prospectus and is incorporated herein by reference. The summary of the Piper Sandler opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion. You are urged to read the opinion in its entirety. The opinion was for the information of, and was directed to, the CBOA board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion did not address the underlying business decision of CBOA to engage in the merger or enter into the merger agreement or constitute a recommendation to the CBOA board of directors in connection with the merger, and it does not constitute a recommendation to any holder of CBOA common stock as to how to vote in connection with the merger or any other matter.

For more information, see the section entitled “The Merger—Opinion of CBOA’s Financial Advisor” beginning on page 65 of this joint proxy statement/prospectus and the copy of the Piper Sandler opinion included in this joint proxy statement/prospectus as Annex B.

Bancorp 34 Special Meeting (page 51)

The Bancorp 34 special meeting will be held on [ ], 2023, at [ ] local time, at [ ]. At the Bancorp 34 special meeting, Bancorp 34 stockholders will be asked to approve the Bancorp 34 merger proposal and the adjournment proposal.

The Bancorp 34 board of directors has fixed the close of business on [ ], 2023 as the record date for determining the holders of Bancorp 34 common stock entitled to receive notice of, and to vote at, the Bancorp 34 special meeting. As of the Bancorp 34 record date, there were [ ] shares of Bancorp 34 common stock outstanding and entitled to vote at the Bancorp 34 special meeting held by [ ] holders of record.

The presence, in person or represented by proxy, of at least a majority of the total number of outstanding shares of Bancorp 34 common stock entitled to vote is necessary in order to constitute a quorum for purposes of the matters being voted on at the Bancorp 34 special meeting.

Bancorp 34 Voting and Support Agreements (page 106)

At the close of business on the record date for the Bancorp 34 special meeting, Bancorp 34 directors, executive officers and their affiliates were entitled to vote [ ] shares, representing approximately [ ]%, of the Bancorp 34 common stock issued and outstanding on that date and entitled to vote at the Bancorp 34 special meeting. In addition, at the close of business on the record date for the Bancorp 34 special meeting, Bancorp 34’s largest stockholders, Castle Creek Capital Partners VIII, L.P. (“Castle Creek”), and Brush Creek-B 34, LLC (“Brush Creek”) were entitled to vote [ ] shares, representing approximately [ ]%, of the Bancorp 34 common stock issued and outstanding on that date and entitled to vote at the Bancorp 34 special meeting.

Bancorp 34’s directors, Castle Creek and Brush Creek have entered into voting and support agreements with CBOA obligating them to vote their shares “FOR” the approval of the merger agreement, subject to the terms of the voting and support agreements. Accordingly, a total of [ ] shares of Bancorp 34 common stock, representing approximately [ ]% of the outstanding shares of Bancorp 34 common stock entitled to vote at the Bancorp 34 special meeting, are subject to voting and support agreements between CBOA and the holders of such shares.

CBOA Special Meeting (page 56)

The CBOA special meeting will be held on [ ], 2023, at [ ] local time, at [ ]. At the CBOA special meeting, CBOA shareholders will be asked to approve the CBOA merger proposal and the adjournment proposal.

The CBOA board of directors has fixed the close of business on [ ], 2023 as the record date for determining the holders of CBOA common stock entitled to receive notice of, and to vote at, the CBOA special meeting. As of the CBOA record date, there were [ ] shares of CBOA common stock outstanding and entitled to vote at the CBOA special meeting held by [ ] holders of record.

The presence, in person or represented by proxy, of at least a one-third of the total number of outstanding shares of CBOA common stock entitled to vote is necessary in order to constitute a quorum for purposes of the matters being voted on at the CBOA special meeting.

CBOA Voting and Support Agreements (page 105)

At the close of business on the record date for the CBOA special meeting, CBOA directors and executive officers and their affiliates were entitled to vote [ ] shares, representing approximately [ ]%, of the CBOA common stock issued and outstanding on that date.

CBOA’s directors have entered into voting and support agreements with Bancorp 34 obligating them to vote their shares “FOR” the approval of the merger agreement, subject to the terms of the voting and support agreements. Accordingly, a total of [ ] shares of CBOA common stock, representing approximately [ ]% of the outstanding shares of CBOA common stock entitled to vote at the CBOA special meeting, are subject to voting and support agreements between Bancorp 34 and the holders of such shares.

Material U.S. Federal Income Tax Consequences of the Merger (page 108)

The merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. It is a condition to the completion of the merger that Bancorp 34 and CBOA receive written opinions from their respective counsel to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. If the merger so qualifies, a U.S. holder (as defined under “Material U.S. Federal Income Tax Consequences of the Merger”) of CBOA common stock generally will not recognize gain or loss for U.S. federal income tax purposes upon the exchange of shares of CBOA common stock for shares of Bancorp 34 common stock pursuant to the merger, except with respect to cash received in lieu of fractional shares of Bancorp 34 common stock or from the exercise of dissenters’ rights. All CBOA shareholders should consult their own tax advisors for a full understanding of the particular tax consequences of the merger to them.

Interests of CBOA Directors and Executive Officers in the Merger (page 86)

These interests include, among others:

Accelerated Vesting of CBOA Restricted Stock Units. In connection with the merger, unvested CBOA restricted stock units will vest (with any performance-based vesting condition applicable to such restricted stock unit deemed to have been achieved to the extent set forth in the award agreement applicable to such CBOA restricted stock unit) and be cancelled and converted automatically into the right to receive the merger consideration.

Change in Control Payments. In connection with the merger, each of Messrs. Webster, Anderson and Tees will receive a lump sum cash change in control payment pursuant to his retention agreement with CBOA. For a more complete description of these agreements and payments, see the section entitled “The Merger — Interests of CBOA’s Directors and Executive Officers in the Merger—Change in Control Payments,” beginning on page 86.

New Employment Agreements. In connection with the merger, each of Messrs. Webster, Anderson and Tees have entered into employment agreements with Bank 34. For a more completed description of these agreements, see the section entitled “The Merger — Interests of CBOA’s Directors and Executive Officers in the Merger—New Employment Agreements,” beginning on page 87.

Director Arrangements. Under the merger agreement, three directors from the CBOA board of directors or other CBOA nominees will be appointed to the Bancorp 34 board of directors and three directors from the CBOA board of directors or other nominees will be appointed to the Bank 34 board of directors.

Indemnification and Insurance. Bancorp 34 has agreed to indemnify the directors and officers of CBOA following the merger against certain liabilities arising from their acts or omissions before the merger. Bancorp 34 has also agreed to provide directors’ and officers’ liability insurance and fiduciary liability insurance for the directors and officers of CBOA for a period of six years following the merger with respect to acts or omissions occurring before the merger that were committed by such officers and directors.

For a more complete description of these interests, see the section entitled “The Merger — Interests of CBOA’s Directors and Executive Officers in the Merger,” beginning on page 86.

Interests of Bancorp 34 Executive Officers in the Merger (page 86)

In considering the recommendation of the Bancorp 34 board of directors with respect to the merger, Bancorp 34 stockholders should be aware that certain of Bancorp 34’s executive officers have interests in the merger, including financial interests, that may be different from, or in addition to, the interests of the other Bancorp 34 stockholders generally. The Bancorp 34 board of directors was aware of and considered these interests during its deliberations of the merits of the merger and in determining to recommend to Bancorp 34 stockholders that they vote to approve the Bancorp 34 merger proposal and thereby approve the transactions contemplated by the merger agreement, including the merger.

These interests include, among others:

New Employment Agreements. In connection with the merger, Mr. Crotty has entered into a new employment agreement with Bank 34, and Ms. Yacuel and Mr. Vaughn have entered into new change in control agreements with Bank 34. For a more complete description of these agreements, see the section entitled “The Merger — Interests of Bancorp 34’s Executive Officers in the Merger—New Employment Agreements,” beginning on page 86.

Governance of the Combined Company After the Merger (page 88)

Boards of Directors

Immediately after the effective time of the merger, Bancorp 34 and Bank 34 will each decrease the size of its board of directors to eight directors, and to create three vacancies on each board of directors. Each of Bancorp 34 and Bank 34 will then appoint three of the current members of CBOA’s board of directors or other nominees of CBOA, in each case mutually agreed to by Bancorp 34 and CBOA prior to the effective time to serve as directors of the surviving entity and Bank 34, respectively. The three directors nominated by CBOA and agreed to by Bancorp 34 will be nominated for reelection to the board of directors of Bancorp 34 and Bank 34 until the 2025 annual meeting of the stockholders of Bancorp 34 and the Bank.

Officers

Immediately after the effective time Bancorp 34 will, and will cause Bank 34 to, appoint Paul Tees as Chief Credit Officer of Bank 34, Chris Webster as the President of Bancorp 34 and Bank 34, and Evan Anderson as the Chief Information Officer and Chief Risk Officer of Bancorp 34 and Bank 34.

Regulatory Approvals Required for the Merger (page 89)

Subject to the terms of the merger agreement, both Bancorp 34 and CBOA have agreed to use their reasonable best efforts to obtain as promptly as possible all regulatory approvals necessary or advisable to complete the transactions contemplated by the merger agreement, including the merger and the bank merger. These approvals include approvals from the Board of Governors of the Federal Reserve System, which we refer to as the “Federal Reserve,” in connection with the merger, and the Office of the Comptroller of the Currency, which we refer to as the “OCC,” in connection with the bank merger. Notifications and/or applications requesting approval for the transactions contemplated by the merger agreement may also be submitted to other federal and state regulatory authorities and self-regulatory organizations. Bancorp 34, CBOA and/or their respective subsidiaries have filed notices and applications to obtain the necessary regulatory approvals. The completion of the merger is also subject to the expiration of certain waiting periods and other requirements. Although neither Bancorp 34 nor CBOA knows of any reason why it would not be able to obtain the necessary regulatory approvals to complete the merger and bank merger, as applicable, in a timely manner, neither Bancorp 34 nor CBOA can be certain when or if it will obtain such approvals or, if obtained, whether such approvals will contain terms, conditions or restrictions not currently contemplated that will restrain, prevent or delay the closing of the merger or contain any condition or restriction that would reasonably be expected to have a material adverse effect on the combined company, which we refer to as a “burdensome condition.” Bancorp 34 received the OCC’s approval of its application to merge Commerce Bank of Arizona with and into Bank 34 on August 4, 2023.

Conditions to Complete the Merger (page 102)

Each party’s obligation to complete the merger is subject to the satisfaction or waiver (to the extent permitted under applicable law) of certain conditions, including: (a) the approval of the merger agreement by the requisite vote of CBOA shareholders and Bancorp 34 stockholders; (b) the receipt of all required regulatory approvals and expiration or termination of all statutory waiting periods in respect thereof, each as described in this joint proxy statement/prospectus; (c) the receipt of consents of third-parties required for the consummation of the merger or to prevent defaults under contracts, which if not obtained, would have a material adverse effect on Bancorp 34 or CBOA; (d) effectiveness of the Registration Statement on Form S-4 and the qualification under applicable state securities laws of the shares of the Bancorp 34 common stock to be issued in the merger; (e) the approval of the shares of Bancorp 34 common stock to be issued in the merger to be traded on the primary exchange on which Bancorp 34 common stock is currently listed; (f) the absence of any order, injunction, decree or judgment or other legal restraint preventing the completion of the merger or making the completion of the merger illegal; (g) CBOA and Bancorp 34 having received opinions from their tax counsel or advisors that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code; (h) subject to certain exceptions, the accuracy of the representations and warranties of each party; (i) performance in all material respects by each party of its obligations under the merger agreement; (j) the holders of no more than 7.5% of CBOA common stock that would have in the aggregate been converted into the right to receive Bancorp 34 common stock in the merger, will have properly notified CBOA of their intent to exercise appraisal rights; (k) the officer agreements for each of Messrs Tees, Webster and Anderson shall have been executed by the parties and delivered to Bancorp 34, and Bancorp 34 will not have adversely modified or terminated the applicable officer agreement without the officer’s consent; and (l) the receipt by Bancorp 34 of a tax certificate executed by CBOA, certifying that the shares of capital stock of CBOA do not constitute a “United States real property interests” under Section 897(c) of the Code for purpose of satisfying Bancorp 34’s obligations under Treasury Regulation Section 1.1445-2(c)(3).

Neither Bancorp 34 nor CBOA can be certain when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed. For more information, see “The Merger Agreement — Conditions to Complete the Merger,” beginning on page 102.

Termination of the Merger Agreement

The merger agreement may be terminated at any time before the effective time, in the following circumstances:

by mutual written agreement of the Bancorp 34 and CBOA; or

if any governmental entity that must grant a requisite regulatory approval has denied approval of the merger or the bank merger and such denial has become final and non-appealable, or an application for any such regulatory approval is permanently withdrawn at the request of a governmental agency, or if any requisite regulatory approval will not be issued without imposition of a burdensome condition (provided that this right to terminate is not available to a party whose failure or the failure of any of its affiliates to fulfill any of its obligations (excluding representations and warranties) under the merger agreement has been the cause or resulted in the aforementioned failure to obtain regulatory approval);

if the approval by CBOA shareholders of the CBOA merger proposal is not obtained;

if the approval by Bancorp 34 stockholders of the Bancorp 34 merger proposal is not obtained;

if the merger has not been completed on or before April 27, 2024, which we refer to as the termination date, unless the failure of the merger to be consummated by the termination date is due to the material breach of the merger agreement by the party seeking to terminate or all conditions to closing have been satisfied except receipt of regulatory approvals in which case the termination date shall be extended to June 11, 2024; or

if there is a breach of any of the covenants or agreements or any of the representations or warranties set forth in the merger agreement on the part of the other party which, either individually or in the aggregate, would constitute, if occurring or continuing on the date the merger is completed, the failure of a closing condition of the terminating party and which is not cured within the earlier of 30 days following written notice to the party committing such breach or the termination date (provided that the terminating party is not then in material breach of any representation, warranty, covenant, or other agreement contained in the merger agreement).

In addition, the merger agreement may be terminated:

by Bancorp 34, if, prior to the receipt of the CBOA shareholders’ adoption and approval of the merger agreement, (i) CBOA has materially breached its obligations to call, give notice of and hold the CBOA shareholders meeting, (ii) CBOA has materially breached its non-solicitation obligations, or (iii) the CBOA board of directors has failed to recommend that CBOA shareholders adopt and approve the merger proposal or has made an adverse recommendation change;

by CBOA, prior to obtaining the approval of the CBOA shareholders of the merger proposal, in order to accept an acquisition proposal from a third party involving the acquisition of a majority of the outstanding equity interest in, or all or substantially all of the assets and liabilities of CBOA with respect to which the CBOA board has determined in good faith that such proposal, if accepted, is reasonably likely to be consummated on a timely basis, and that such proposal is more favorable to CBOA shareholders than the merger with Bancorp 34; provided CBOA has complied in all material respects with its non-solicitation and shareholder meeting obligations under the merger agreement;

Termination Fee (page 104)

CBOA must pay Bancorp 34 a termination fee of $1,200,000 if the merger agreement is terminated in the following circumstances:

in the event that (i) after the date of the merger agreement, a bona fide acquisition proposal has been made known to CBOA or any person has publicly announced (and not withdrawn) an acquisition proposal with respect to CBOA and (ii) thereafter, the merger agreement is terminated (A) by either Bancorp 34 or CBOA because the merger has not been completed prior to the termination date (and Bancorp 34 has not obtained stockholder approval of the merger proposal), (B) by Bancorp 34 as a result of a breach of a representation, warranty, covenant or other agreement in the merger agreement by CBOA that would constitute the failure of a closing condition and that has not been cured during the permitted time period, or by its nature cannot be cured during such period or (C) by Bancorp 34 or CBOA because the approval of the merger proposal by CBOA shareholders is not obtained and (iii) prior to the date that is 12 months after the date of such termination, CBOA enters into a definitive agreement or consummates a transaction with respect to an acquisition proposal;

if, prior to receipt of the CBOA shareholders’ adoption and approval of the merger agreement, (i) CBOA has materially breached its obligations to call, give notice of, and hold the CBOA shareholders meeting, (ii) CBOA has materially breached its non-solicitation obligations or (iii) the CBOA board of directors has failed to recommend that CBOA shareholders adopt and approve the merger proposal or has made an adverse recommendation change; or

Bancorp 34 must pay CBOA a termination fee of $1,200,000, if the merger agreement is terminated in the following circumstance:

if, prior to receipt of the Bancorp 34 stockholders’ adoption and approval of the merger agreement, (i) Bancorp 34 has materially breached its obligations to call, give notice of, and hold the Bancorp 34 stockholders meeting, and (ii) the Bancorp 34 board of directors has failed to recommend that Bancorp 34 stockholders adopt and approve the merger proposal or has made an adverse recommendation change.

Comparison of Rights of CBOA Shareholders and Bancorp 34 Stockholders (page 210)

The rights of CBOA shareholders will change as a result of the merger due to differences in Bancorp 34’s and CBOA’s governing documents. The rights of CBOA shareholders are governed by Arizona law and by the CBOA articles of incorporation and bylaws. Upon the completion of the merger, CBOA shareholders will become Bancorp 34 stockholders, as the continuing legal entity in the merger, and the rights of CBOA shareholders will therefore be governed by Maryland law and the Bancorp 34 articles of incorporation and bylaws.

Dissenters’ Rights to the Merger (page 119)

CBOA shareholders have the right to dissent from the merger and obtain payment in cash of the appraised fair value of their shares of CBOA common stock under Title 10, Chapter 13 of the ABCA. In order for a CBOA shareholder to perfect such right to dissent, the shareholder must carefully follow the procedure set forth in the applicable provisions of the ABCA. A copy of the applicable statutory provisions of the ABCA is included as Annex D to this joint proxy statement/prospectus and a summary of the provisions can be found under the section of this joint proxy statement/prospectus entitled “Dissenters’ Rights in the Merger.”

Risk Factors (page 27)

You should consider all the information contained in this joint proxy statement/prospectus in deciding how to vote for the proposals presented in the proxy statement/prospectus. In particular, you should consider the factors described under “Risk Factors” beginning on page 27.

Information About the Companies (pages 121 and 178)

Bancorp 34

Bancorp 34, Inc.

8777 E. Hartford Drive, Suite 100

Scottsdale, AZ 85255

Telephone: (623) 463-1440

Bancorp 34, Inc., headquartered in Scottsdale, Arizona, is the bank holding company for Bank 34. Bank 34 provides various financial products and services for small- to medium-size businesses and consumers, including deposits, such as checking, savings, money market, and term certificate accounts, and lending products, consisting of commercial, construction and land development, and consumer loans, with three full-service community branches, one in Maricopa County, Arizona in the city of Scottsdale and one each in Otero and Dona Ana Counties in the cities of Alamogordo and Las Cruces in southern New Mexico. As of March 31, 2023, Bancorp 34 had consolidated total assets of $574 million, total net loans of $467 million, total deposits of $461 million and total stockholders’ equity of $64 million.

Bancorp 34 common stock is currently quoted on the OTC Markets Groups, Inc.’s OTCQB Venture Market under the symbol “BCTF.”

CBOA

CBOA Financial, Inc.

7315 North Oracle Road, Suite 181

Tucson, AZ 85704

Telephone: (520) 797-4160

CBOA Financial, Inc., headquartered in Tucson, Arizona is the bank holding company for Commerce Bank of Arizona, which provides various financial products and services for small- to medium-size businesses and consumers, including deposits, such as checking, savings, money market, and term certificate accounts, and lending products, consisting of commercial, construction and land development, commercial and residential mortgage, and consumer loans. Commerce Bank operates 5 banking offices located in Green Valley, Scottsdale, Tucson and Gilbert, Arizona. As of March 31, 2023, CBOA had consolidated total assets of $372 million, total net loans of $273 million, total deposits of $306 million and total shareholders’ equity of $31 million.

CBOA common stock is currently quoted on the OTC Markets Groups, Inc.’s Pink Open Market under the symbol “CBOF.” If the merger is completed, CBOA common stock will no longer be quoted or traded on the Pink Open Market.

SELECTED HISTORICAL FINANCIAL DATA FOR BANCORP 34

The following table sets forth the selected historical consolidated financial data of Bancorp 34 for the periods and as of the dates indicated. You should read this information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Bancorp 34” and Bancorp 34’s consolidated financial statements and the related notes thereto, which are included elsewhere in this joint proxy statement/prospectus. The selected historical consolidated financial data for the years ended December 31, 2022 and 2021 are derived from Bancorp 34’s audited consolidated financial statements, which are included elsewhere in this joint proxy statement/prospectus, or derived from other unaudited financial records of Bancorp 34. Bancorp 34’s financial information for the year ended December 31, 2020 was derived from its audited financial statements, which are not included in this joint proxy statement/prospectus, or derived from other unaudited financial records of Bancorp 34. The selected historical consolidated financial data as of and for the three months ended March 31, 2023 and 2022 are derived from Bancorp 34’s unaudited interim consolidated financial statements, which are included elsewhere in this joint proxy statement/prospectus, or derived from other unaudited financial records of Bancorp 34. Bancorp 34 has prepared its unaudited consolidated financial statements on the same basis as its audited financial statements and has included all adjustments, consisting of normal and recurring adjustments, that it considers necessary for a fair presentation of its financial position and operating results for the unaudited periods. Bancorp 34’s historical results shown below and elsewhere in this joint proxy statement/prospectus are not necessarily indicative of our future performance.

(In thousands, except per share amounts)	As of and for the three months ended March 31,					As of and for the year ended December 31,
	2023			2022		2022		2021		2020
Earnings Summary:
Interest income	$	6,665		$	5,484	$	23,761	$	20,880	$	19,692
Interest expense		2,596			663		5,314		2,162		3,709
Net interest income		4,069			4,821		18,447		18,718		15,983
(Benefit from) provision for loan losses		(1	)		505		2,420		500		1,944
Net interest income after provision for loan losses		4,070			4,316		16,027		18,218		14,039
Noninterest income		137			64		664		1,295		754
Noninterest expense		3,605			2,984		15,302		13,387		12,501
Income before income taxes		602			1,396		1,388		5,926		2,292
Provision (benefit) for income taxes		158			350		58		1,291		497
Net income	$	444		$	1,046	$	1,330	$	4,635	$	1,795

Selected Period End Balances:
Total assets	$	574,165		$	569,654	$	574,340	$	528,009	$	441,922
Total cash and cash equivalents		9,774			12,844		16,947		15,501		11,986
Total securities		63,635			75,092		64,414		73,282		54,343
Loans held-for-sale, at fair value		—			—		—		—		—
Loans held-for investment		466,627			448,304		458,582		410,295		348,745
Mortgage serving rights, at fair value		28			53		31		60		63
Other real estate owned and foreclosed assets, net		—			—		—		—		—
Bank-owned life insurance		11,657			11,419		11,598		11,360		11,112
Total deposits		460,724			445,690		487,587		437,782		370,750
FHLB advances		17,000			55,000		5,000		19,000		19,000
Convertible notes payable, net		—			—		—		—		—
Subordinated debt, net		24,554			24,500		24,531		24,447		—
Total stockholders’ equity		64,488			38,589		49,238		40,670		46,033

(In thousands, except per share amounts)	As of and for the three months ended March 31,						As of and for the year ended December 31,
	2023			2022			2022			2021			2020
Per Share Data (Common Stock):
Earnings:
Basic	$	0.13		$	0.56		$	0.45		$	1.69		$	0.59
Diluted		0.13			0.56			0.45			1.69			0.59
Book value per share		13.76			15.25			13.85			16.12			14.51
Weighted average common shares outstanding, basic		3,467,063			2,372,296			2,358,670			2,715,533			2,987,545
Weighted average common shares, outstanding diluted		3,472,409			2,379,089			2,371,477			2,721,123			2,991,300

Selected Performance Metrics:
Return on average assets		0.31	%		0.76	%		0.23	%		0.96	%		0.41	%
Return on average equity		3.04	%		10.41	%		3.44	%		10.31	%		3.91	%
Net interest spread		2.51	%		3.59	%		3.21	%		4.04	%		3.62	%
Net interest margin		3.10	%		3.73	%		3.46	%		4.20	%		3.89	%
Efficiency ratio		85.81	%		61.32	%		80.07	%		67.89	%		74.69	%
Noninterest income to average assets		0.10	%		0.05	%		0.12	%		0.27	%		0.17	%
Noninterest expense to average assets		2.55	%		2.17	%		2.67	%		2.82	%		2.87	%

Asset Quality Ratios:
Nonperforming loans to total loans		0.86	%		1.16	%		0.90	%		1.07	%		0.81	%
Nonperforming assets to total assets		0.71	%		0.92	%		0.73	%		0.85	%		0.64	%
Allowance for credit losses to nonperforming loans		132.55	%		110.99	%		114.22	%		118.90	%		1.82	%
Allowance for credit losses to total loans		1.14	%		1.28	%		1.03	%		1.28	%		1.47	%
Net charge-offs to average loans		0.00	%		0.00	%		0.65	%		0.00	%		0.01	%

Capital Ratios (Bank 34 only):
Tier 1 leverage capital ratio		12.09	%		10.65	%		10.34	%		11.14	%		9.41	%
Tier 1 risk-based capital ratio		14.37	%		12.35	%		12.57	%		13.13	%		11.90	%
Total risk-based capital ratio		15.52	%		13.57	%		13.57	%		14.35	%		13.15	%
Common equity tier 1 capital ratio		14.37	%		12.35	%		12.57	%		13.13	%		11.90	%

Capital Ratios (Consolidated):
Tier 1 leverage capital ratio		11.97	%		7.53	%		9.48	%		7.88	%		9.41	%
Tier 1 risk-based capital ratio		14.22	%		8.76	%		11.52	%		9.29	%		11.90	%
Total risk-based capital ratio		20.47	%		15.22	%		17.72	%		16.17	%		13.15	%
Common equity tier 1 capital ratio		14.22	%		8.76	%		11.52	%		9.29	%		11.90	%

SELECTED HISTORICAL FINANCIAL DATA FOR CBOA

The following table sets forth the selected historical consolidated financial data of CBOA for the periods and as of the dates indicated. You should read this information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of CBOA” and CBOA’s consolidated financial statements and the related notes thereto, which are included elsewhere in this joint proxy statement/prospectus. The selected historical consolidated financial data for the years ended December 31, 2022 and 2021 are derived from CBOA’s audited consolidated financial statements, which are included elsewhere in this joint proxy statement/prospectus, or derived from other unaudited financial records of CBOA. CBOA’s financial information for the year ended December 31, 2020 was derived from its audited financial statements, which are not included in this joint proxy statement/prospectus, or derived from other unaudited financial records of CBOA. The selected historical consolidated financial data as of and for the three months ended March 31, 2023 and 2022 are derived from CBOA’s unaudited interim consolidated financial statements, which are included elsewhere in this joint proxy statement/prospectus, or derived from other unaudited financial records of CBOA. CBOA has prepared its unaudited consolidated financial statements on the same basis as its audited financial statements and has included all adjustments, consisting of normal and recurring adjustments, that it considers necessary for a fair presentation of its financial position and operating results for the unaudited periods. CBOA’s historical results shown below and elsewhere in this joint proxy statement/prospectus are not necessarily indicative of our future performance.

	As of and for the three months ended March 31,				As of and for the year ended December 31,
(in thousands, except per share amounts)	2023		2022		2022		2021		2020
Earnings Summary:
Interest income	$	4,912	$	3,308	$	15,697	$	14,122	$	12,857
Interest expense		797		140		830		829		1,486
Net interest income		4,115		3,168		14,867		13,293		11,372
Provision for loan losses		—		37		37		494		(279	)
Net interest income after provision for loan losses		4,115		3,131		14,830		12,799		11,650
Noninterest income		92		452		859		358		(420	)
Noninterest expense		3,127		2,705		11,017		9,781		10,475
Income before income taxes		1,080		878		4,672		3,376		755
Provision for income taxes		278		228		1,210		515		(2,043	)
Net income	$	802	$	650	$	3,462	$	2,861	$	2,798

Selected Period End Balances:
Total assets	$	372,386	$	355,534	$	370,926	$	345,281	$	355,798
Total cash and cash equivalents		27,828		50,749		16,692		52,564		72,060
Total securities		60,221		59,339		65,497		54,599		36,162
Loans held-for-sale, at fair value		0		0		0		0		0
Total net loans held for investment		273,363		234,123		277,304		227,380		237,061
Deferred tax asset, net		2,312		2,815		2,612		1,699		2,043
Bank-owned life insurance		0		0		0		0		0
Other real estate owned		3		5		3		5		562
Total deposits		307,076		318,017		305,443		305,274		303,931
FHLB advances		24,150		0		26,050		0		0
Total shareholders’ equity		31,051		27,024		29,012		29,197		25,070

	As of and for the three months ended March 31,						As of and for the year ended December 31,
(in thousands, except per share amounts)	2023			2022			2022			2021			2020
Per Share Data (Common Stock):
Earnings
Basic	$	0.08		$	0.07		$	0.36		$	0.33		$	0.34
Diluted		0.08			0.06			0.35			0.29			0.26
Book value per common share		3.00			2.89			2.84			3.12			3.05
Weighted average common shares outstanding, basic		10,326			9,356			9,646			8,790			8,211
Weighted average common shares, outstanding diluted		10,375			10,329			9,807			7,763			9,662

Selected Performance Metrics:
Return on average assets		0.86	%		0.75	%		0.96	%		0.82	%		0.94	%
Return on average equity		10.59	%		9.26	%		12.61	%		11.02	%		12.43	%
Net interest spread		3.84	%		3.67	%		4.09	%		3.81	%		3.81	%
Net interest margin		4.48	%		3.80	%		4.25	%		3.98	%		4.09	%
Efficiency ratio		74.3	%		75.5	%		70.2	%		74.3	%		93.3	%
Noninterest income to average assets		0.10	%		0.52	%		0.22	%		0.10	%		-0.15	%
Noninterest expense to average assets		3.37	%		3.12	%		3.05	%		2.81	%		3.52	%

Asset Quality Ratios:
Nonperforming loans to total loans		0.0	%		0.5	%		0.0	%		0.6	%		0.9	%
Nonperforming assets to total assets		0.0	%		0.4	%		0.0	%		0.4	%		0.8	%
Allowance for credit losses to nonperforming loans		N/A			279	%		N/A			248	%		106	%
Allowance for credit losses to total loans		1.34	%		1.44	%		1.32	%		1.44	%		1.23	%
Net charge-offs to average loans		0.00	%		-0.13	%		-0.14	%		0.05	%		-0.12	%

Capital Ratios (Commerce Bank of Arizona only)⁽¹⁾:
Tier 1 leverage capital ratio		10.72	%		9.72	%		10.31	%		9.87	%		8.56	%
Tier 1 risk-based capital ratio		N/A			N/A			N/A			N/A			12.96	%
Total risk-based capital ratio		N/A			N/A			N/A			N/A			14.21	%
Common equity tier 1 capital ratio		N/A			N/A			N/A			N/A			12.96	%

(1)	Starting in 2021, Commerce Bank of Arizona was a qualifying organization as defined by the federal banking agencies and elected to measure capital adequacy under the Community Bank Leverage Ratio framework.

SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION

The following table shows selected unaudited pro forma condensed combined financial information about the financial condition and results of operations of Bancorp 34 after giving effect to the merger and other pro forma adjustments, for the year ended December 31, 2022 and as of and for the three months ended March 31, 2023.

The selected unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting, adjusted from Bancorp 34’s unaudited interim financial statements as of and for the period ended March 31, 2023 and Bancorp 34’s audited financial statements for the year ended December 31, 2022 to give effect to the merger and the estimated acquisition accounting adjustments resulting from the merger. The unaudited pro forma condensed combined balance sheet information as of March 31, 2023 in the tables below are presented as if the merger occurred on March 31, 2023, and the unaudited pro forma condensed combined statements of income information for the three months ended March 31, 2023 and the year ended December 31, 2022 is presented as if the merger occurred on January 1, 2022.

The selected unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not necessarily indicate the financial results of the combined companies had Bancorp 34 and CBOA actually been combined as of the dates indicated and at the beginning of the periods presented, nor does it necessarily indicate the results of operations in future periods or the future financial position of the combined entities, which could differ materially from those shown in this information. The selected unaudited pro forma condensed combined financial information does not reflect the benefits of expected synergies or other factors that may result as a consequence of the merger.

The selected unaudited pro forma condensed combined financial information has been derived from, and should be read in conjunction with, the unaudited pro forma condensed combined financial information, including the notes thereto, which is included in this joint proxy statement/prospectus under “Unaudited Pro Forma Condensed Combined Financial Statements.”

(In thousands)	For the three months ended March 31, 2023			For the year ended December 31, 2022
Unaudited Pro Forma Condensed Combined Income Statement Information:
Total interest income	$	12,213		$	42,004
Total interest expense		3,260			5,613
Net interest income		8,953			36,392
(Benefit from) provision for loan losses		(1	)		2,457
Noninterest income		229			6,965
Noninterest expense		7,134			29,006
Income before income taxes		2,049			11,894
Net income	$	1,536		$	9,400

(In thousands)	As of March 31, 2023
Unaudited Pro Forma Condensed Combined Balance Sheet Information:
Net loans	$	734,968
Investment securities		124,024
Total assets		945,736
Deposits		766,948
Borrowings		69,973
Total stockholders’ equity	$	96,419

UNAUDITED COMPARATIVE PER COMMON SHARE DATA

The historical per share data for Bancorp 34 common stock and CBOA common stock below has been derived from the unaudited interim consolidated financial statements of each of Bancorp 34 and CBOA as of and for the three months ended March 31, 2023 and the audited consolidated financial statements of each of Bancorp 34 and CBOA as of and for the year ended December 31, 2022, each of which is included with this joint proxy statement/prospectus.

The unaudited pro forma combined per share data set forth below gives effect to the merger as if it had occurred on January 1, 2022, the beginning of the earliest period presented, in the case of continuing net income per share data, and as of March 31, 2023, in the case of book value per share data, assuming that each outstanding share of CBOA common stock had been converted into shares of Bancorp 34 common stock based on the exchange ratio of 0.24 shares of Bancorp 34 common stock for each share of CBOA common stock. The unaudited pro forma combined per share data has been derived from the unaudited interim consolidated financial statements for each of Bancorp 34 and CBOA as of and for three months ended March 31, 2023 and the audited consolidated financial statements of each of Bancorp 34 and CBOA as of and for the year ended December 31, 2022.

The unaudited pro forma combined per share data has been derived using the acquisition method of accounting. See “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 111 for more information. Accordingly, the pro forma adjustments reflect the assets and liabilities of CBOA at their preliminary estimated fair values. Differences between these preliminary estimates and the final values in acquisition accounting will occur and these differences could have a material impact on the unaudited pro forma combined per share information set forth below.

The unaudited pro forma combined per share data does not purport to represent the actual results of operations that the combined company would have achieved had the merger been completed during these periods or to project the future results of operations that the combined company may achieve after the merger. The unaudited pro forma financial information also does not consider any potential impacts of current market conditions on revenues, potential revenue enhancements, anticipated cost savings and expense efficiencies, or asset dispositions, among other factors.

The unaudited pro forma combined per share equivalent data set forth below shows the effect of the merger from the perspective of an owner of CBOA common stock. The information was calculated by multiplying the unaudited pro forma combined per share data by the exchange ratio of 0.24.

Comparative Per Share Data	Bancorp 34 Historical		CBOA Historical		Pro Forma Combined		Equivalent Pro Forma Per Share of CBOA⁽¹⁾

Book value per share
As of March 31, 2023	$	13.76	$	3.00	$	12.56	$	12.50
As of December 31, 2022		13.85		2.84		12.11		11.83

Cash dividends paid
For the three months ended of March 31, 2023	$	0.07		—		—		—
For the year ended December 31, 2022	$	0.28		—		—		—

Basic earnings
For the three months ended of March 31, 2023	$	0.11	$	0.08	$	0.19	$	0.33
For the year ended December 31, 2022		0.56		0.36		0.91		1.50

Diluted earnings
For the three months ended of March 31, 2023	$	0.11	$	0.08	$	0.19	$	0.33
For the year ended December 31, 2022		0.56		0.35		0.91		1.46

(1)	The equivalent pro forma per share amounts of CBOA were calculated by multiplying the pro forma combined amounts by the fixed exchange ratio of 0.24 shares of Bancorp 34 common stock for each share of CBOA common stock.

SUMMARY OF MATERIAL RISKS

There are risks you should consider in evaluating the merger. In addition, an investment by CBOA shareholders in Bancorp 34 common stock as a result of the merger involves certain risks, see Risk Factors beginning on page 27.

Risk Related to the Merger

The success of the merger will depend on a number of uncertain factors, including our ability to complete the integration, limit deposit outflows, limit expenses, retain personnel and earn income.

Combining our operations may be more difficult or costly than expected, and we will incur substantial expenses.

Because CBOA common stock is traded infrequently, the prices of recent trades in CBOA common stock may not represent the fair value of CBOA common stock compared with the merger consideration.

Because of the fixed exchange ratio and the fluctuation of the market price of Bancorp 34 common stock, CBOA shareholders will not know at the time of the CBOA special meeting the market value of the merger consideration at the effective time of the merger.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the merger.

The unaudited pro forma combined financial information is preliminary and the actual financial condition and results of operations of the combined company after the merger may differ materially.

Certain of CBOA’s directors and executive officers may have interests in the merger that may differ from, or are in addition to, the interests of holders of CBOA common stock generally.

Termination of the merger agreement could negatively affect CBOA or Bancorp 34, including requiring CBOA or Bancorp 34 to pay a termination fee, which, with respect to CBOA may discourage other companies from trying to acquire CBOA for greater merger consideration.

CBOA and Bancorp 34 will be subject to business uncertainties and contractual restrictions while the merger is pending.

The shares of Bancorp 34 common stock you receive in the merger will have different rights than do the shares of CBOA common stock.

You will have a reduced ownership and voting interest in the combined company after the merger.

We do not expect MJC or Piper Sandler to update their respective fairness opinion for any changes that occur after the date of their respective opinions.

There is a limited trading market for Bancorp 34 common stock, and the market price of Bancorp 34 common stock after the merger will be affected by different factors than those affecting the shares of CBOA or Bancorp 34 currently.

There is no assurance that Bancorp 34 will continue paying dividends at the current rate.

Recent events impacting the financial services industry may adversely affect the business of Bancorp 34, CBOA and the market price of their common stock.

Risks Related to Bancorp 34 and its Business

Economic and Geographic-Related Risks

Our business may be adversely affected by economic and market conditions, including inflation.

The Federal Reserve’s implementation of significant economic strategies that have affected interest rates, inflation, asset values and the yield curve may have a significant negative effect on our business and clients.

Lending and Interest Rate Risk

If we fail to effectively manage credit risk, our business and financial condition will suffer.

Our estimated allowance for credit losses may be insufficient to absorb actual losses in our loan portfolio, which may adversely affect our business, financial condition and results of operations.

We are exposed to higher credit risk by commercial real estate, commercial business, and construction lending.

A significant portion of our loan portfolio is secured by real estate, and events that negatively impact the real estate market could hurt our business.

Nonperforming assets take significant time and resources to resolve and adversely affect our results of operations and financial condition.

We are subject to interest rate risk, which could adversely affect our financial condition and profitability.

Rapidly rising interest rates may negatively affect our investments in securities and the cost of our funding sources, including deposits.

A flat or inverted yield curve may reduce the net interest margin and adversely affect our loan and investment portfolios.

We are subject to environmental liability risk associated with our lending activities.

Operational Risks

We are subject to losses due to errors, omissions or fraudulent behavior by our employees, clients or others.

We are exposed to the possibility of technology failure and a disruption in our operations may adversely affect us.

Fraud is a major, and increasing, operational risk for us and all banks.

A failure in, or breach of, our operational or security systems or infrastructure, or those of our third party vendors, including as a result of cyber-attacks, could disrupt our businesses, damage our reputation, and cause losses.

Our risk management framework may not be effective in mitigating risks or losses.

Our ability to maintain our reputation is critical to the success of our business.

We depend on our executive officers and other key employees, and our ability to attract additional key personnel, and we could be harmed by the unexpected loss of their services.

Failure to keep pace with technological change could adversely affect our business.

Industry-Related Risks

We are exposed to the possibility that more prepayments may be made by customers to pay down loan balances, which could reduce our interest income and profitability.

We could experience a loss due to competition with other banks or because consumers decide not to use banks.

Failure to keep pace with technological change could result in losses.

Our industry is subject to technology-driven disruption.

We may be adversely affected by the lack of soundness of other financial institutions.

The value of securities in our investment portfolio may decline in the future.

Our deposit insurance premiums could be higher in the future, which could have an adverse effect on our future earnings.

Capital and Liquidity Risks

We may need additional capital resources in the future, which may not be available when needed or at all.

Liquidity, primarily through deposits, is essential to our business model, and a lack of liquidity or an increase in the cost of liquidity could materially impair our ability to fund our operations.

We may not be able to maintain a strong core deposit base or access other low-cost funding sources.

Deposit levels may be affected, fairly quickly, by changes in monetary policy.

Risks Related to Strategic Plans

Future mergers and acquisitions may subject us to risks, which could disrupt our business and dilute stockholder value.

We may be unable to grow our business organically, which could adversely affect our business.

New lines of business or new products and services may subject us to additional risk.

Legal, Accounting, Regulatory and Compliance Risks

The banking industry is heavily regulated and that regulation, together with any future legislation or regulatory changes, could limit or restrict our activities and adversely affect our operations or financial results.

Failure to maintain regulatory capital ratios could result in regulatory actions.

We face risks related to compliance with the Bank Secrecy Act and other anti-money laundering statutes and regulations.

Consumer lending laws restrict our ability to originate certain mortgage loans and increase our risk on such loans.

We are subject to fair lending laws, and failure to comply with these laws could lead to material penalties.

The Federal Reserve may require us to commit capital resources to support Bank 34.

We are subject to claims and litigation, which could result in additional expenses and reputational damage.

The expanding body of federal, state and local regulations may increase the cost of compliance and the risk of noncompliance regarding servicing and selling loans.

We could be subject to changes in tax laws, regulations and interpretations or challenges to our income tax provision.

Risks Related to Bancorp 34 Common Stock

Some provisions of our organizational documents may have anti-takeover effects that could discourage an acquisition.

An investment in Bancorp 34 common stock is not an insured deposit and is subject to risk of loss.

We are a “smaller reporting company,” and the reduced reporting requirements applicable to Bancorp 34 may make our common stock less attractive to investors.

Substantial future sales of our common stock could cause our stock price to decline.

General Risk Factor

Our historical operating results may not be indicative of our future operating results.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus contains forward-looking statements regarding Bancorp 34’s and CBOA’s outlook or expectations with respect to the merger, including the expected costs to be incurred and cost savings to be realized in connection with the merger, the expected impact of the merger on the combined company’s future financial performance (including anticipated accretion to earnings per share), the assumed purchase accounting adjustments, other key transaction assumptions, the timing of the closing of the merger and consequences of the integration of the businesses and operations of Bancorp 34 and CBOA. Words 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 are intended to identify such forward-looking statements. These forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time, are difficult to predict and are generally beyond the control of either company. Forward-looking statements speak only as of the date they are made and Bancorp 34 and CBOA assume no duty to update forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results. Actual results may differ materially from current projections.

In addition to factors identified elsewhere in this joint proxy statement/prospectus (including the “Risk Factors” beginning on page 27), the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance:

the failure to obtain necessary regulatory approvals when expected or at all (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction);

the failure of Bancorp 34 or CBOA to obtain the requisite shareholder approval, or the failure of either party to satisfy any of the other closing conditions to the merger on a timely basis or at all;

the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the merger agreement;

the possibility that the anticipated benefits of the merger, 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 Bancorp 34 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 announcement or 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;

delay in closing the merger and the bank 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 sustain revenue and earnings growth;

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;

capital management activities;

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 Bancorp 34’s and CBOA’s net income and other future cash flows, or the market value of Bancorp 34’s or CBOA’s assets, including its investment securities;

changes in accounting principles, policies, practices or guidelines;

the potential impact of announcement or consummation of the merger on relationships with third parties, including customers, vendors, employees and competitors;

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 (including COVID-19), 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.

These and other factors are representative of the risk factors that may emerge and could cause a difference between an ultimate actual outcome and a forward-looking statement.

RISK FACTORS

An investment by CBOA shareholders in Bancorp 34 common stock as a result of the exchange of shares of CBOA common stock for shares of Bancorp 34 common stock in the merger involves certain risks. Certain material risks and uncertainties connected with the merger agreement and transactions contemplated thereby, including the merger and bank merger, and ownership of Bancorp 34 common stock are discussed below.

You should carefully read and consider all of these risks and all other information contained in this joint proxy statement/prospectus in deciding whether to vote to approve the merger agreement. The risks described in this joint proxy statement/prospectus may adversely affect the value of Bancorp 34 common stock that an existing holder of CBOA common stock, will hold upon consummation of the merger, and could result in a significant decline in the value of Bancorp 34 common stock and cause the current holders of CBOA common stock to lose all or part of the value of their investment in Bancorp 34 common stock.

Risks Related to the Merger

The success of the merger and bank merger will depend on a number of uncertain factors.

The success of the merger will depend on a number of factors, including, without limitation:

Bancorp 34’s ability to integrate the branches acquired from CBOA in the merger, which we refer to as the “acquired branches,” into Bancorp 34’s current operations;

Bancorp 34’s ability to limit the outflow of deposits held by its new customers in the acquired branches and to successfully retain and manage interest-earning assets (i.e., loans) acquired in the merger;

Bancorp 34’s ability to control the incremental noninterest expense from the acquired branches in a manner that enables it to maintain a favorable overall efficiency ratio;

Bancorp 34’s ability to retain and attract the appropriate personnel to staff the acquired branches; and

Bancorp 34’s ability to earn acceptable levels of interest and noninterest income, including fee income, from the acquired branches.

Additionally, no assurance can be given that the operation of the acquired branches will not adversely affect Bancorp 34’s existing profitability, that Bancorp 34 will be able to achieve results in the future similar to those achieved by its existing banking business, or that Bancorp 34 will be able to manage any growth resulting from the merger effectively.

Combining Bancorp 34 and CBOA may be more difficult, costly or time consuming than expected and Bancorp 34 may fail to realize the anticipated benefits of the merger.

The success of the merger will depend, in part, on the ability to realize the anticipated cost savings from combining the businesses of Bancorp 34 and CBOA. To realize the anticipated benefits and cost savings from the merger, Bancorp 34 and CBOA must successfully integrate and combine their businesses in a manner that permits those cost savings to be realized. If Bancorp 34 and CBOA are not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost savings and anticipated benefits of the merger could be less than anticipated, and integration may result in additional unforeseen expenses.

Bancorp 34 and CBOA have operated and, until the completion of the merger, must continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the companies’ ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the merger. Integration efforts between the two companies may also divert management attention and resources. These integration matters could have an adverse effect on each of Bancorp 34 and CBOA during this transition period and for an undetermined period after completion of the merger on the combined company.

The combined company may be unable to retain important personnel successfully after the merger is completed.

The success of the merger will depend in part on the combined company’s ability to retain the talents and dedication of key employees currently employed by CBOA. It is possible that these employees may decide not to remain with CBOA while the merger is pending or with the combined company after the merger is consummated. If key employees terminate their employment, or if an insufficient number of employees are retained to maintain effective operations, the combined company’s business activities may be adversely affected and management’s attention may be diverted from successfully integrating CBOA to hiring suitable replacements, all of which may cause the combined company’s business to suffer. In addition, Bancorp 34 may not be able to locate suitable replacements for any key employees who leave the combined company, or to offer employment to potential replacements on reasonable terms.

The combined company is likely to incur substantial expenses related to the merger.

The combined company is likely to incur substantial expenses in connection with completing the merger and combining the business, operations, networks, systems, technologies, policies and procedures of Bancorp 34 and those of CBOA. Although Bancorp 34 and CBOA have assumed that a certain level of transaction and combination expenses would be incurred, there are a number of factors beyond their control that could affect the total amount or the timing of their combination expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. Due to these factors, the transaction and combination expenses associated with the merger could, particularly in the near term, exceed the savings that the combined company is expected to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings related to the combination of the businesses following the completion of the merger.

In addition, before completing the merger, each of Bancorp 34 and CBOA will incur or have incurred substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement. In preparation for the consummation of the merger, the companies will also incur the additional costs and expenses of preparing and filing the Registration Statement of which this joint proxy statement/prospectus forms a part, printing and mailing this joint proxy statement/prospectus to solicit Bancorp 34 stockholder and CBOA shareholder approval of the merger, and all filing and other fees expected to be paid to the SEC, bank regulatory authorities and other governmental agencies in connection with the proposed merger. If the merger is not completed, Bancorp 34 and CBOA would have to recognize these expenses without realizing the anticipated benefits of the merger.

Because CBOA common stock is traded infrequently, it is difficult to determine how the fair value of CBOA common stock compares with the merger consideration.

CBOA’s common stock is quoted on the OTC Markets Groups, Inc.’s Pink Open Market. The market for CBOA common stock has historically been illiquid and irregular. This lack of liquidity makes it difficult to determine the fair value of CBOA common stock. Because the merger consideration was determined based on negotiations between the parties, it may not be indicative of the fair value of shares of CBOA common stock.

Because of the fixed exchange ratio and the fluctuation of the market price of Bancorp 34 common stock, CBOA shareholders will not know at the time of the special meeting the market value of the merger consideration they will receive at the effective time of the merger.

Pursuant to the merger agreement, each share of CBOA stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive 0.24 shares of Bancorp 34 common stock.

The market value of the merger consideration may vary from the market value on the date CBOA and Bancorp 34 announced the merger, on the date that this joint proxy statement/prospectus is mailed, on the date of the CBOA special meeting and on the date the merger is completed and thereafter due to fluctuations in the market price of Bancorp 34 common stock. Any fluctuation in the market price of Bancorp 34 common stock after the date of this joint proxy statement/prospectus will change the value of the shares of Bancorp 34 common stock that CBOA shareholders may receive. Stock price changes may result from a variety of factors that are beyond the control of Bancorp 34 and CBOA, including but not limited to general market and economic conditions, changes in their respective businesses, operations and prospects and regulatory considerations. Therefore, at the time of the CBOA special meeting, CBOA shareholders will not know the precise market value of the merger consideration they may receive at the effective time of the merger. CBOA shareholders should obtain current sale prices for shares of Bancorp 34 common stock before voting their shares at the CBOA special meeting.

Before the merger and the bank merger may be completed, various approvals, consents and non-objections must be obtained from the Federal Reserve, the OCC and other regulatory authorities. In determining whether to grant these approvals, the regulators consider a variety of factors, including the regulatory standing of each party and the factors described under “The Merger—Regulatory Approvals Required for the Merger” beginning on page 89. These approvals could be delayed or not obtained at all, including due to any or all of the following: an adverse development in either party’s regulatory standing, or any other factors considered by regulators in granting such approvals; governmental, political or community group inquiries, investigations or opposition; changes in legislation or the political environment, including as a result of changes of the U.S. executive administration, or Congressional leadership and regulatory agency leadership.

The approvals that are granted may impose terms and conditions, limitations, obligations or costs, or place restrictions on the conduct of the combined company’s business or require changes to the terms of the transactions contemplated by the merger agreement. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions or that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the merger agreement, imposing additional material costs on or materially limiting the revenues of the combined company following the merger or will otherwise reduce the anticipated benefits of the merger. In addition, there can be no assurance that any such conditions, limitations, obligations or restrictions will not result in the delay or abandonment of the merger. Additionally, the completion of the merger is conditioned on the absence of certain orders, injunctions or decrees by any governmental entity of competent jurisdiction that would prohibit or make illegal the completion of any of the transactions contemplated by the merger agreement.

Despite the parties’ commitments to use their reasonable best efforts to take all actions to consummate the merger, neither Bancorp 34, nor CBOA nor their respective subsidiaries are required under the terms of the merger agreement to take any action, commit to take any action, or agree to any condition or restriction in connection with obtaining regulatory approvals, that would reasonably be likely to have a material adverse effect on the combined company and its subsidiaries, taken as a whole, after giving effect to the merger. See the section entitled “The Merger—Regulatory Approvals Required for the Merger” beginning on page 89.

The unaudited pro forma combined financial information included in this joint proxy statement/prospectus is preliminary and the actual financial condition and results of operations of the combined company after the merger may differ materially.

The unaudited pro forma combined financial information in this joint proxy statement/prospectus is presented for illustrative purposes only and is not necessarily indicative of what the combined company’s actual financial condition or results of operations would have been had the merger been completed on the dates indicated. The unaudited pro forma combined financial information reflects adjustments, which are based upon preliminary estimates, to record the CBOA identifiable assets acquired and liabilities assumed at fair value, and to record the resulting goodwill recognized. The fair value estimates reflected in this joint proxy statement/prospectus are preliminary, and final amounts will be based upon the actual consideration paid and the fair value of the assets and liabilities of CBOA as of the date of the completion of the merger. Accordingly, the final acquisition accounting adjustments may differ materially from the pro forma adjustments reflected in this joint proxy statement/prospectus. For more information, see the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 111.

Certain of CBOA’s directors and executive officers may have interests in the merger that may differ from, or be in addition to, the interests of holders of CBOA common stock generally.

Holders of CBOA common stock should be aware that some of CBOA’s directors and executive officers may have interests in the merger and have arrangements that are different from, or in addition to, those of holders of CBOA common stock generally. These interests and arrangements may create potential conflicts of interest. The CBOA board of directors was aware of these interests and considered these interests, among other matters, when making its decision to approve the merger and merger agreement, and in recommending that CBOA shareholders vote to approve the merger agreement. For a more complete description of these interests, please see the section entitled “The Merger—Interests of CBOA’s Directors and Executive Officers in the Merger” beginning on page 86.

Termination of the merger agreement could negatively affect CBOA or Bancorp 34.

If the merger is not completed for any reason, including as a result of CBOA shareholders or Bancorp 34 stockholders failing to approve the respective merger proposal, there may be various adverse consequences. For example, CBOA’s businesses may have been affected adversely by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. Additionally, if the merger agreement is terminated under certain circumstances, CBOA or Bancorp 34 may be required to pay the other party a termination fee of $1,200,000.

CBOA and Bancorp 34 will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on customers may have an adverse effect on CBOA and/or Bancorp 34. These uncertainties could cause customers and others that deal with CBOA and/or Bancorp 34 to seek to change existing business relationships with CBOA and/or Bancorp 34. In addition, subject to certain exceptions, CBOA and Bancorp 34 have each agreed to operate its business in all material respects in the usual, regular and ordinary course and to use commercially reasonable efforts to preserve its business organization and assets and franchise until the merger occurs and to refrain from taking other specified actions without the consent of the other party. These restrictions may prevent CBOA and/or Bancorp 34 from pursuing attractive business opportunities that may arise prior to the completion of the merger. See “The Merger Agreement — Covenants and Agreements” beginning on page 95.

The merger agreement contains provisions that may discourage other companies from trying to acquire CBOA for greater merger consideration.

The merger agreement contains provisions that may discourage a third-party from submitting an acquisition proposal to CBOA that might result in greater value to CBOA shareholders than the proposed merger with Bancorp 34 or may result in a potential competing acquirer proposing to pay a lower per share price to acquire CBOA than it might otherwise have proposed to pay absent such provisions. These provisions include a general prohibition on CBOA from soliciting, or entering into discussions with any third-party regarding, any acquisition proposal or offers for competing transactions, subject to certain exceptions relating to the exercise of fiduciary duties by the CBOA board of directors. In addition, CBOA may be required to pay Bancorp 34 a $1,200,000 termination fee upon termination of the merger agreement in certain circumstances involving acquisition proposals for competing transactions. See “The Merger Agreement—Termination Fee” beginning on page 104.

The shares of Bancorp 34 common stock to be received by holders of CBOA common stock as a result of the merger will have different rights from the shares of CBOA common stock.

In the merger, holders of CBOA common stock will become holders of Bancorp 34 common stock and their rights as shareholders will be governed by Maryland law and the governing documents of the combined company. The rights associated with Bancorp 34’s common stock are different from the rights associated with CBOA common stock. See the section entitled “Comparison of Stockholders’ Rights” beginning on page 210 for a discussion of the different rights associated with Bancorp 34 common stock.

Bancorp 34 stockholders and CBOA shareholders will each have reduced ownership and voting interest in and will exercise less influence over management of the combined company.

Bancorp 34 common stockholders currently have the right to vote in the election of Bancorp 34’s board of directors and on other matters affecting Bancorp 34, and CBOA common shareholders currently have the right to vote in the election of CBOA’s board of directors and on other matters affecting CBOA. When the merger occurs, each CBOA shareholder will become a stockholder of Bancorp 34, and each CBOA shareholder and Bancorp 34 stockholder will have a percentage ownership in the combined company that is much smaller than the shareholder’s percentage ownership of either CBOA or Bancorp 34 individually. Based on the number of shares of Bancorp 34 common stock and CBOA common stock outstanding at the close of business on the CBOA record date of [ ], 2023, and based on the number of shares of Bancorp 34 voting and non-voting common stock expected to be issued in the merger, the former holders of CBOA common stock as a group will receive shares in the merger constituting approximately [ ]% of the outstanding shares of Bancorp 34 voting common stock and [ ]% of the outstanding shares of Bancorp 34 voting and non-voting common stock immediately after the merger. As a result, current stockholders of Bancorp 34 as a group will own approximately [ ]% of the outstanding shares of Bancorp 34 voting common stock and [ ]% of the outstanding shares of Bancorp 34 voting and non-voting common stock immediately after the merger. Because of this, each CBOA shareholder and Bancorp 34 stockholder will have less influence on the management and policies of the combined company than each now has on the management and policies of CBOA or Bancorp 34 individually.

The opinions of Bancorp 34’s and CBOA’s financial advisors delivered to the parties’ respective boards of directors prior to the signing of the merger agreement will not reflect changes in circumstances occurring after the date of such opinions.

Each of the opinions of Bancorp 34’s and CBOA’s financial advisors was delivered on, and dated, April 26, 2023 and April 27, 2023, respectively. Changes in the operations and prospects of Bancorp 34 or CBOA, general market and economic conditions and other factors that may be beyond the control of Bancorp 34 or CBOA may significantly alter the value of Bancorp 34 or CBOA or the prices of Bancorp 34 common stock or CBOA common stock by the time the merger is completed. The opinions do not speak as of the time the merger will be completed or as of any date other than the date of such opinions. See “The Merger — Opinion of Bancorp 34’s Financial Advisor” beginning on page 80 and “The Merger — Opinion of CBOA’s Financial Advisor” beginning on page 65.

There is a limited trading market in Bancorp 34 common stock, which would hinder your ability to sell Bancorp 34 common stock and may lower the market price of the stock.

If the merger is completed, the shares of Bancorp 34 common stock which will be issued to CBOA shareholders in the merger will be freely transferable. Our common stock is currently quoted on the OTC Markets Groups, Inc.’s OTCQB Venture Market under the symbol “BCTF.” The development of an active trading market depends on the existence of willing buyers and sellers, the presence of which is not within our control, or that of any market maker. The number of active buyers and sellers of the shares of our common stock at any particular time may be limited. Under such circumstances, you could have difficulty selling your shares of Bancorp 34 common stock on short notice. In addition, Bancorp 34’s public float, which is the total number of our outstanding shares less the shares held by Bank 34 and Bancorp 34’s directors and executive officers and their related stockholders, is quite limited. As a result, there is not currently an active trading market for Bancorp 34’s common stock. Accordingly, shareholders should consider the potential illiquid and long-term nature of an investment in Bancorp 34 common stock. Even though the Bancorp 34 stockholder base will increase as a result of the merger, there can be no assurance that an active and liquid trading market for Bancorp 34 will develop, or once developed, will continue, nor any assurance that CBOA shareholders will be able to sell their shares at or above any particular price following the merger.

The market price of Bancorp 34 common stock after the merger may be affected by factors different from those affecting the shares of CBOA or Bancorp 34 currently.

In the merger, holders of CBOA common stock will become holders of Bancorp 34 common stock. Bancorp 34’s business differs from that of CBOA. Accordingly, the results of operations of the combined company and the market price of Bancorp 34 common stock after the completion of the merger may be affected by factors different from those currently affecting the independent results of operations of each of Bancorp 34 and CBOA. For a discussion of the business and market of Bancorp 34 and of some important factors to consider in connection with its business, please see “Information About Bancorp 34.” For a discussion of the business and market of CBOA and of some important factors to consider in connection with its business, please see “Information About CBOA.”

There is no assurance that Bancorp 34 will continue paying dividends at the current rate.

Bancorp 34’s board of directors has adopted a current dividend practice for the payment of a quarterly cash dividend. This practice can be changed at any time at the discretion of the board of directors of Bancorp 34, and Bancorp 34’s stockholders or CBOA’s shareholders have no contractual or other legal right to dividends. In addition, the other risk factors described in this section could materially reduce the cash available from operations of Bancorp 34, CBOA and the combined entity following the merger, and these outcomes could cause capital not to be available when needed in an amount sufficient to support Bancorp 34’s dividend practice. The amount of dividends that Bancorp 34 may distribute will also be subject to restrictions under applicable state law and applicable bank regulatory provisions. If Bancorp 34’s board of directors were to adopt a change to Bancorp 34’s current dividend practice that resulted in a reduction in the amount of dividends, such change could have a material and adverse effect on the market price of Bancorp 34’s common stock.

Recent events impacting the financial services industry may adversely affect the business of Bancorp 34, CBOA and the market price of their common stock.

Recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short period of time at Silicon Valley Bank, Signature Bank and First Republic Bank that resulted in the failure of those institutions have resulted in decreased confidence in banks among depositors, other counterparties and investors, as well as significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets. These events have occurred against the backdrop of a rapidly rising interest rate environment which, among other things, has resulted in unrealized losses in longer duration securities and loans held by banks, more competition for bank deposits and may increase the risk of a potential recession. These events and developments could materially and adversely impact the business or financial condition of Bancorp 34 and CBOA, including through potential liquidity pressures, reduced net interest margins, and potential increased credit losses. These recent events and developments have, and could continue to, adversely impact the market price and volatility of Bancorp 34’s and CBOA’s common stock. These recent events may also result in changes to laws or regulations governing banks and bank holding companies or result in the impositions of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on the businesses of Bancorp 34 and CBOA. The cost of resolving the recent failures may prompt the FDIC to increase its premiums above the recently increased levels or to issue additional special assessments. Bancorp 34 and CBOA are generally unable to control the amount of premiums or special assessments that their respective banking subsidiaries may be required to pay for FDIC insurance.

Certain Stockholders, including Castle Creek and Brush Creek following the merger, will exercise significant influence over the combined company, and their interests in the combined company may be different than yours.

Upon the closing of the merger, certain of the stockholders of Bancorp 34, including Castle Creek, Brush Creek and AB Financial Services Opportunities will own, in the aggregate, approximately 27.0% of the outstanding shares of the combined company common stock (assuming the conversion of non-voting common stock to common stock and the exercise of warrants held), and will exercise significant influence over the combined company through such ownership.

In addition, following the merger, under the Securities Purchase Agreements with Castle Creek and Brush Creek, Castle Creek and Brush Creek, will be entitled to designate two of our eight directors, so long as certain stock ownership thresholds are maintained. See “Certain Relationships and Related Party Transactions of Bancorp 34— Arrangements with Castle Creek Fund VIII, L.P. and Brush Creek-B 34, LLC” beginning on page 176. The directors nominated by Castle Creek and Brush Creek will have significant authority to make decisions affecting our business, including, among others, the issuance of additional capital stock, the incurrence of additional indebtedness, mergers and acquisitions, the decision of whether or not to declare dividends and other extraordinary corporate matters.

The interests of these significant stockholders of Bancorp 34 may conflict with the interests of other combined company stockholders. For example, some or all of Bancorp 34’s significant stockholders may support certain long-term strategies or objectives for the combined company that may not be accretive to combined company stockholders in the short term. The concentration of ownership may also delay, defer or even prevent a change in control of the combined company, even if such a change in control would benefit the other combined company stockholders, and may make some transactions more difficult or impossible without the support of Bancorp 34’s significant stockholders.

Risks Related to Bancorp 34 and its Business

As used in the remaining sections of these Risk Factors, unless the context requires otherwise, the terms “Bancorp 34,” “we,” “us” and “our” refer to Bancorp 34 and its consolidated subsidiaries before the merger with CBOA.

Economic and Geographic-Related Risks

Our business may be adversely affected by economic conditions. Generally, in periods of economic downturns, including periods of rising interest rates and recessions, our realized credit losses increase, our deposit and funding costs increase, demand for our products and services declines, and the credit quality of our loan portfolio declines.

Our financial performance generally, and in particular, the ability of borrowers to pay interest on and repay the principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services we offer and whose success we rely on to drive our growth, is highly dependent upon the business environment in the primary markets where we operate and in the United States as a whole. Unlike larger financial institutions that are more geographically diversified, we are a community bank that provides banking and financial services to customers primarily in Arizona and New Mexico. The economic conditions in these markets may be different from, and in some instances worse than, the economic conditions in the United States as a whole.

Some elements of the business environment that affect our financial performance include short-term and long-term interest rates, the prevailing yield curve, inflation, monetary supply, fluctuations in the debt and equity capital markets, and the strength of the domestic economy and the local economies in the markets in which we operate. Unfavorable market conditions can result in a deterioration of the credit quality of borrowers, an increase in the number of loan delinquencies, defaults and charge-offs, foreclosures, additional provisions for loan losses, adverse asset values, a reduction in assets under management or administration, and an increase in our deposit and funding costs. A substantial component of our loan portfolio is secured by real estate. A decline in real estate values can negatively impact our ability to recover our investment should the borrower become delinquent. Loans secured by stock or other collateral may be adversely impacted by a downturn in the economy and other factors that could reduce the recoverability of our investment. Unsecured loans are dependent on the solvency of the borrower, which can deteriorate, leaving us with a risk of loss. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence, limitations on the availability of or increases in the cost of credit and capital, increases in inflation or interest rates, high unemployment, natural disasters, epidemics and pandemics (such as COVID-19), state or local government insolvency, or a combination of these or other factors.

More specifically, the market conditions in the markets in which we have a presence may be different from, and could be worse than, the economic conditions in the United States as a whole. As discussed elsewhere in these Risk Factors, inflationary pressures have caused the Federal Reserve to recently increase interest rates and indicate its intention to continue to do so. Increases in interest rates in the past have led to recessions of various lengths and intensities and might lead to such a recession in the near future. Such a recession or any other adverse changes in business and economic conditions generally or specifically in the markets in which we operate could affect our business, including causing one or more of the following negative developments:

an increase in our deposit and funding costs;

a decrease in the demand for loans and other products and services we offer;

a decrease in our deposit account balances as customers move funds to seek to obtain maximum federal deposit insurance coverage or to seek higher interest rates;

a decrease in the value of the collateral securing our residential or commercial real estate loans;

a permanent impairment of our assets; or

an increase in the number of customers or other counterparties who default on their loans or other obligations to us, which could result in a higher level of NPAs, net charge-offs and provision for loan losses.

The impact of the COVID-19 pandemic is fluid and there is pervasive uncertainty surrounding the future economic conditions that will emerge in the years following the onset of the pandemic. Moreover, as economic conditions relating to the pandemic have improved over time, the Federal Reserve has shifted its focus to limiting inflationary and other potentially adverse effects of the pandemic-related government stimulus, which signals the potential for a continued period of economic uncertainty. In addition, there are continuing concerns related to, among other things, the level of U.S. government debt and fiscal actions that may be taken to address that debt, the potential resurgence of economic and political tensions with China or the Russian invasion of Ukraine, each of which may have a destabilizing effect on financial markets and economic activity. Economic pressure on consumers and overall economic uncertainty may result in changes in consumer and business spending, borrowing and saving habits. These economic conditions and/or other negative developments in the domestic or international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability. Declines in real estate values and sales volumes and high unemployment or underemployment may also result in higher than expected loan delinquencies, increases in our levels of nonperforming and classified assets and a decline in demand for our products and services. These negative events may cause us to incur losses and may adversely affect our capital, liquidity and financial condition.

Inflationary pressures present a potential threat to our results of operation and financial condition.

The United States generally and the regions in which we operate specifically have recently experienced, for the first time in decades, significant inflationary pressures, evidenced by higher gas prices, higher food prices and higher prices for other consumer items. Inflation represents a loss in purchasing power because the value of investments does not keep up with inflation and erodes the purchasing power of money and the potential value of investments over time. Accordingly, inflation can result in material adverse effects upon our customers, their businesses and, as a result, our financial position and results of operation. Inflation also can and does generally lead to higher interest rates, which have their own separate risks. Decreased deposit balances could result in our reliance upon higher cost funding sources. See Lending and Interest Rate Risks included in these Risk Factors below.

The Federal Reserve has implemented significant economic strategies that have affected interest rates, inflation, asset values, and the shape of the yield curve. These strategies have had, and will continue to have, a significant impact on our business and on many of our clients.

To illustrate: in response to the recession in 2008-09 and the following uneven recovery, the Federal Reserve implemented a series of domestic monetary initiatives designed to lower rates and make credit easier to obtain. The Federal Reserve changed course in 2015, raising rates several times through 2018. The last raise in 2018 was accompanied by a substantial and broad stock market decline. In 2019, the Federal Reserve began to lower rates. In 2020, in response to economic disruption associated with the COVID-19 pandemic, the Federal Reserve quickly reduced short-term rates to extremely low levels and acted to influence the markets to reduce long-term rates as well. During 2021, the Federal Reserve significantly reduced its “easing” actions that held down long-term rates. During 2022, the Federal Reserve switched to a tightening policy. It raised short term rates significantly and rapidly over most of the year. Those actions triggered a significant decline in the values of most categories of U.S. stocks and bonds; impacted bank asset values, funding costs, and liquidity resources; significantly raised recessionary expectations for the U.S.; and inverted the yield curve through the second quarter of 2023. For the second half of 2023, the Federal Reserve has not yet indicated when it will stop raising short term rates, although the rate of increases has slowed.

Federal Reserve strategies can, and often are intended to, affect the domestic money supply, inflation, interest rates, and the shape of the yield curve.

Effects on the yield curve often are most pronounced at the short end of the curve, which is of particular importance to us and other banks. Among other things, easing strategies are intended to lower interest rates, expand the money supply, and stimulate economic activity, while tightening strategies are intended to increase interest rates, discourage borrowing, tighten the money supply, and restrain economic activity. However, as noted above, in 2022 short term rates rose faster than long term rates to the point that the yield curve inverted for much of the final two quarters of the year. This sort of phenomenon—where short term rates are raised more strongly and rapidly than long-term rates can follow—is relatively common. It is not clear when long term rates are likely to catch up.

Many external factors may interfere with the effects of these plans or cause them to be changed, sometimes quickly. Such factors include significant economic trends or events as well as significant international monetary policies and events. As exemplified by the March 2023 bank failures in the U.S., such strategies also can affect the U.S. and world-wide financial systems in ways that may be difficult to predict. Risks associated with interest rates and the yield curve and their potential effects on financial institutions are discussed in these Risk Factors under the Caption Lending and Interest Rate Risks.

Lending and Interest Rate Risks

If we fail to effectively manage credit risk, our business and financial condition will suffer.

We must effectively manage credit risk. There are risks inherent in making any loan, including risks with respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting and guidelines, risks resulting from changes in economic and industry conditions, risks inherent in dealing with individual borrowers and risks resulting from uncertainties as to the future value of collateral. There is no assurance that our credit risk monitoring and loan approval procedures are or will be adequate or will reduce the inherent risks associated with lending.

Our risk management practices, such as monitoring the concentration of our loans within specific industries and our credit approval, review and administrative practices, may not adequately reduce credit risk, and our credit administration personnel, policies and procedures may not adequately adapt to changes in economic or any other conditions affecting customers and the quality of the loan portfolio. Many of our loans are made to small and medium-sized businesses that are less able to withstand competitive, economic and financial pressures than larger borrowers. Consequently, we may have significant exposure if any of these borrowers become unable to pay their loan obligations as a result of economic or market conditions, or personal circumstances. A failure to effectively measure and limit the credit risk associated with our loan portfolio may result in loan defaults, foreclosures and additional charge-offs, and may necessitate that we significantly increase our allowance for credit losses, each of which could adversely affect our net income. As a result, our inability to successfully manage credit risk could have a material adverse effect on our business, financial condition and results of operations.

Our estimated allowance for credit losses and fair value adjustments with respect to acquired loans may prove to be insufficient to absorb actual losses in our loan portfolio, which may adversely affect our business, financial condition and results of operations.

We are exposed to the risk that our customers will be unable to repay their loans according to their terms and that any collateral securing the payment of their loans will not be sufficient to ensure full repayment. Credit losses are inherent in the lending business and could have a material adverse effect on our operating results and ability to meet our obligations. We evaluate the collectability of our loan portfolio and we maintain an allowance for credit losses that represents management’s judgment of probable losses and risks inherent in our loan portfolio that we believe to be adequate based on a variety of factors including but not limited to: the risk characteristics of various classifications of loans, previous loan loss experience, specific loans that have loss potential, delinquency trends, estimated fair market value of the collateral, current economic conditions, the views of our regulators, and geographic and industry loan concentrations. If our evaluation is incorrect and defaults by borrowers lead to loan losses that exceed our allowance for credit losses, our earnings could be significantly and adversely affected. No assurance can be given that the allowance will be adequate to cover loan losses incurred in our portfolio. We may experience losses in our loan portfolio or perceive adverse conditions and trends that may require us to significantly increase our allowance for credit losses in the future, a decision that would reduce earnings.

The application of the acquisition method of accounting in any future acquisitions, including the proposed merger with CBOA, will impact our allowance for credit losses. Under the acquisition method of accounting, all acquired loans will be recorded in our consolidated financial statements at their estimated fair value at the time of acquisition and any related allowance for credit loss was eliminated because credit quality, among other factors, was considered in the determination of fair value. To the extent that our estimates of fair value are too high, we will incur losses associated with the acquired loans.

In addition, our regulators, as an integral part of their periodic examination, review our methodology for calculating, and the adequacy of, our allowance and provision for credit losses. Although we believe that the methodology used by us to determine the amount of both the allowance for credit losses and provision is effective, the regulators or our auditor may conclude that changes are necessary based on information available to them at the time of their review, which could impact our overall credit portfolio. Such changes could result in, among other things, modifications to our methodology for determining our allowance or provision for credit losses or models, reclassification or downgrades of our loans, increases in our allowance for credit losses or other credit costs, imposition of new or more stringent concentration limits, restrictions in our lending activities and/or recognition of further losses. Further, if actual charge-offs in future periods exceed the amounts allocated to the allowance for credit losses, we may need additional provisions for credit losses to restore the adequacy of our allowance for credit losses.

We are exposed to higher credit risk by commercial real estate, commercial business, and construction lending.

Commercial real estate, commercial business and construction lending usually involves higher credit risks than that of single-family residential lending. At March 31, 2023, the following loan types accounted for the stated percentages of our total loan portfolio: commercial real estate (owner and non-owner occupied)— 52.8%, commercial and industrial business—11.2%, and construction and land development lending—10.5%. These types of loans involve larger loan balances to a single borrower or groups of related borrowers.

Commercial real estate loans may be affected to a greater extent than residential loans by adverse conditions in real estate markets or the economy because commercial real estate borrowers’ ability to repay their loans depends in some cases on successful development of their properties, as well as the factors affecting residential real estate borrowers. These loans may involve greater risk because they generally are not fully amortizing over the loan period, but have a balloon payment due at maturity. A borrower’s ability to make a balloon payment typically will depend on being able to either refinance the loan or sell the underlying property in a timely manner. The increase in market rates could increase the risk that a borrower is unable to meet the credit standards needed to refinance a loan.

Commercial and industrial business loans are typically based on the borrowers’ ability to repay the loans from the cash flow of their businesses, which may be unpredictable, and the collateral securing these loans may fluctuate in value. Although commercial and industrial business loans are often collateralized by equipment, inventory, accounts receivable, or other business assets, the liquidation of collateral in the event of default is often an insufficient source of repayment because accounts receivable may be uncollectible and inventories may be obsolete or of limited use. In addition, business assets may depreciate over time, may be difficult to appraise, and may fluctuate in value based on the success of the business. Accordingly, the repayment of commercial business loans depends primarily on the cash flow and credit worthiness of the borrower and secondarily on the underlying collateral value provided by the borrower and liquidity of the guarantor.

Risk of loss on a construction and land development loan depends largely upon whether our initial estimate of the property’s value at completion of construction exceeds the cost of the property construction (including interest) and the availability of permanent take-out financing. During the construction phase, a number of factors can result in delays and cost overruns. If estimates of value are inaccurate or if actual construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan or by seizure of collateral.

Commercial real estate, commercial business, and construction loans are more susceptible to a risk of loss during a downturn in the business cycle. Our underwriting, review, and monitoring cannot eliminate all of the risks related to these loans.

As of March 31, 2023, our commercial real estate loans (owner and non-owner occupied) were equal to 330.0% of our total risk-based capital. The banking regulators give commercial real estate lending greater scrutiny, and may require banks with higher levels of commercial real estate loans to implement enhanced underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for losses and capital levels as a result of commercial real estate lending growth and exposures.

A significant portion of our loan portfolio is secured by real estate, and events that negatively impact the real estate market could hurt our business.

A significant portion of our loans are secured by real estate. As of March 31, 2023, approximately 88.5% of such loans had real estate as primary collateral (owner occupied and non-owner occupied real estate loans). Additionally, certain loans may have real estate as a secondary component of collateral. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. Deterioration in the real estate market could cause us to adjust our opinion of the level of credit quality in our loan portfolio. Such a determination may lead to an additional increase in our provisions for loan losses, which could also adversely affect our business, financial condition, and results of operations.

Nonperforming assets take significant time and resources to resolve and adversely affect our results of operations and financial condition.

At March 31, 2023, we had a total of approximately $4.1 million of nonperforming assets or approximately 0.7% of total assets. Our nonperforming assets adversely affect our net income in various ways. We do not record interest income on nonaccrual loans or other real estate owned, thereby adversely affecting our net income and returns on assets and equity, increasing our loan administration costs and adversely affecting our efficiency ratio. When we take collateral in foreclosures and similar proceedings, we are required to mark the related asset to the then fair market value of the collateral, which may ultimately result in a loss. An increase in the level of nonperforming assets increases our risk profile and may impact the capital levels regulators believe are appropriate in light of the ensuing risk profile. In addition, the resolution of nonperforming assets requires significant commitments of time from management, which may materially and adversely impact their ability to perform their other responsibilities. If we experience increases in nonperforming loans and nonperforming assets, our net interest income may be negatively impacted and our loan administration costs could increase, each of which could have an adverse effect on our net income and related ratios, such as return on assets and equity.

New accounting standards such as ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) (CECL) could require us to increase our allowance for loan losses and may have a material adverse effect on our financial condition and results of operations.

The measure of our allowance for loan losses has been impacted by the adoption and interpretation of accounting standards. The Financial Accounting Standards Board, or FASB, has issued a new credit impairment model, the Current Expected Credit Loss, or CECL model, which became applicable to us in 2023. Under the CECL model, we are required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement takes place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model previously required under GAAP, which delayed recognition until it is probable a loss was incurred. Accordingly, the CECL model may create more volatility in the level of our allowance for credit losses. If we are required to materially increase our level of allowance for credit losses for any reason, such increase could adversely affect our business, financial condition and results of operations. Upon adoption, we recorded an increase to the allowence for credit losses (ACL) on loans held-for-investment of $604,000, established an ACL on unfunded commitments of $164,000, established an ACL on held-to-maturity investments of $38,000, recorded an increase to deferred tax assets of $152,000, and a corresponding one-time cumulative reduction to retained earnings, net of tax, of $654,000 in the consolidated balance sheet as of January 1, 2023.

We are subject to interest rate risk, which could adversely affect our financial condition and profitability.

The majority of our banking assets are subject to changes in interest rates. For example, as of March 31, 2023, 28.8% of our loan portfolio, including loan level derivative instruments, consisted of floating and adjustable interest rate loans. Like most financial institutions, our earnings significantly depend on our net interest income, the principal component of our earnings, which is the difference between interest earned by us from our interest-earning assets, such as loans and investment securities, and interest paid by us on our interest-bearing liabilities, such as deposits and borrowings. We expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. In either event, if market interest rates should move contrary to our position, this “gap” will negatively impact our earnings. Many factors beyond our control impact interest rates, including economic conditions, governmental monetary policies, inflation, recession, changes in unemployment, the money supply, and disorder and instability in domestic and foreign financial markets. Changes in monetary policies of the various government agencies could influence not only the interest we receive on loans and securities and the interest we pay on deposits and borrowings, but such changes could also affect our ability to originate loans and obtain deposits, the fair value of our financial assets and liabilities, and the average duration of our assets and liabilities.

In addition, inflationary pressures will increase our operating cost and could have a significant negative effect on our borrowers, especially our business borrowers, and the values of collateral securing loans, which could negatively affect our financial performance. Changes in monetary policy, including changes in interest rates, will influence the origination of loans, the prepayment of loans, and the rates received on loans.

In a declining interest rate environment, there may be an increase in prepayments on loans as borrowers refinance their loans at lower rates. Interest rate increases often result in larger payment requirements for our floating interest rate borrowers, which increases the potential for default. At the same time, the marketability of the property securing a loan may be adversely affected by any reduced demand resulting from higher interest rates. An increase (or decrease) in interest rates may also require us to increase (or decrease) the interest rates that we pay on our deposits.

Changes in interest rates also can affect the value of loans, securities and other assets. An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to increases in nonperforming assets, charge-offs and delinquencies, further increases to the allowance for credit losses, and a reduction of income recognized, among others, which could have a material adverse effect on our results of operations and cash flows. Further, when we place a loan on non-accrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. At the same time, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense. Thus, an increase in the amount of nonperforming assets could have a material adverse impact on our net interest income.

Additionally, an increase in interest rates may not increase our net interest income to the same extent we currently anticipate based on our modeling estimates and the assumptions underlying such modeling. Our failure to benefit from an increased interest rate environment to the extent we currently estimate, to the same extent as our competitors or at all could have a material adverse effect on our business, financial condition and results of operations.

In response to the COVID-19 pandemic, the Federal Open Market Committee cut short-term interest rates to a record low range of 0% to 0.25%. Over the course of 2022 these record low rates were reversed, with the Federal Reserve continuing to signal its concerns with respect to inflation.

Our cost of funds may increase as a result of general economic conditions, FDIC insurance assessments, interest rates and competitive pressures.

We have traditionally obtained funds through local deposits and thus we have a base of lower cost transaction deposits. Generally, we believe local deposits are a cheaper and more stable source of funds than other borrowings because interest rates paid for local deposits are typically lower than interest rates charged for borrowings from the Federal Reserve or from other institutional lenders and reflect a mix of transaction and time deposits, whereas brokered deposits typically are higher cost time deposits. Further, economic conditions and rising interest rates could result in a decrease in our transaction deposit account balances as customers seek to obtain maximum federal deposit insurance coverage or to seek higher interest rates. Our cost of funds has increased in the past 12 months due largely to overall increases in the cost of our deposits. These trends are likely to continue in the remainder of 2023. Additionally, our costs of funds and our profitability and liquidity are likely to be adversely affected if, and to the extent, we have to rely upon higher cost borrowings from the Federal Reserve or other institutional lenders, such as the Federal Home Loan Bank (“FHLB”), or upon brokers to fund liquidity needs, and changes in our deposit mix, pricing, and growth could adversely affect our profitability and the ability to expand our loan portfolio. Further, as a result of the March 2023 bank closures and in an effort to strengthen public confidence in the banking system and protect depositors, regulators have announced that any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law, which could increase the cost of our FDIC insurance assessments and affect our profitability.

Rapidly rising interest rates will impact the value of our investment securities and the cost of our funding sources, including deposits.

Our profitability is highly dependent on our net interest income, which is the difference between the interest income paid to us on our loans and investments and the interest we pay to third parties such as our depositors, lenders and debt holders. Changes in interest rates can impact our profits and the fair values of certain of our assets and liabilities. Higher market interest rates and increased competition for deposits may result in higher interest expense, as we may offer higher rates to attract or retain customer deposits. Increases in interest rates also may increase the amount of interest expense we pay to creditors on short and long-term debt. Interest rate risk can also result from mismatches between the dollar amounts of re-pricing or maturing assets and liabilities and from mismatches in the timing and rates at which our assets and liabilities re-price. Changes in market values of investment securities classified as available for sale are impacted by higher rates and can negatively impact our other comprehensive income and equity levels through accumulated other comprehensive income, which includes net unrealized gains and losses on those securities. Further, such losses could be realized into earnings should liquidity and/or business strategy necessitate the sales of securities in a loss position. In March 2023, the Federal Reserve announced the creation of a new Bank Term Funding Program in an effort to minimize the need for banks to sell securities at a loss in times of stress. We may elect to use the Bank Term Funding Program on an as needed basis. We actively monitor and manage the balances of our maturing and re-pricing assets and liabilities to reduce the adverse impact of changes in interest rates, but there can be no assurance that we will be able to avoid material adverse effects on our net interest margin in all market conditions.

A flat or inverted yield curve may reduce our net interest margin and adversely affect our loan and investment portfolios.

The yield curve is a reflection of interest rates applicable to short and long-term debt. The yield curve is steep when short-term rates are much lower than long-term rates; it is flat when short-term rates and long-term rates are nearly the same; and it is inverted when short-term rates exceed long-term rates. Historically, the yield curve is usually upward sloping (higher rates for longer terms). However, the yield curve can be relatively flat or inverted (downward sloping), which has happened several times in the past few years, and in fact was common in the second half of 2022 and early 2023. A flat or inverted yield curve, which tends to decrease net interest margin, which would adversely impact our lending businesses and investment portfolio. The Federal Reserve, consistent with long-term goals, has been raising rates in response to inflation. We cannot predict how long those conditions will exist. In 2023 there is significant risk, especially if inversion remains common and a recession begins, that our net interest margin could compress.

We are subject to environmental liability risk associated with our business activities.

We own certain of our properties, and, in the course of our business, we may purchase real estate, or we may foreclose on and take title to real estate. As a result, we could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination or may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial and could exceed the value of the underlying properties. In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. Any significant environmental liabilities could have a material adverse effect on our business, financial condition and results of operations.

In addition, we are subject to the growing risk of climate change. Among the risks associated with climate change are more frequent severe weather events. Severe weather events such as droughts, heat waves, hurricanes, tropical storms, tornados, winter storms, freezes, flooding and other large-scale weather catastrophes in our markets subject us to significant risks and more frequent severe weather events magnify those risks. Large-scale weather catastrophes or other significant climate change effects that either damage or destroy residential or multifamily real estate underlying mortgage loans or real estate collateral, or negatively affects the value of real estate collateral or the ability of borrowers to continue to make payments on loans, could decrease the value of our real estate collateral or increase our delinquency rates in the affected areas and thus diminish the value of our loan portfolio. Such events could also cause downturns in economic and market conditions generally, which could have an adverse effect on our business and financial results. The potential losses and costs associated with climate change related risks are difficult to predict and could have a material adverse effect on our business, financial condition and results of operation.

Operational Risks

We are subject to losses due to errors, omissions or fraudulent behavior by our employees, clients, counterparties or other third parties.

We are exposed to many types of operational risk, including the risk of fraud by employees and third parties, clerical recordkeeping errors and transactional errors. Our business is dependent on our employees as well as third-party service providers to process a large number of increasingly complex transactions. We could be materially and adversely affected if employees, clients, counterparties or other third parties caused an operational breakdown or failure, either as a result of human error, fraudulent manipulation or purposeful damage to any of our operations or systems.

In deciding whether to extend credit or enter into other transactions with clients and counterparties, we may rely on information furnished to us by or on behalf of clients and counterparties, including financial statements and other financial information. We also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to clients, we may assume that a customer’s audited financial statements conform to GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. Our earnings are significantly affected by our ability to properly originate, underwrite and service loans. Our financial condition and results of operations could be negatively impacted to the extent we incorrectly assess the creditworthiness of our borrowers, fail to detect or respond to deterioration in asset quality in a timely manner, or rely on financial statements that do not comply with GAAP or are materially misleading.

We are exposed to the possibility of technology failure and a disruption in our operations may adversely affect our business.

We rely on our computer systems and the technology of outside service providers. Our daily operations depend on the operational effectiveness of their technology. We rely on our systems to accurately track and record our assets and liabilities. If our computer systems or outside technology sources become unreliable, fail, or experience a breach of security, our ability to maintain accurate financial records may be impaired, which could materially affect our business operations and financial condition. In addition, a disruption in our operations resulting from failure of transportation and telecommunication systems, loss of power, interruption of other utilities, natural disaster, fire, global climate changes, computer hacking or viruses, failure of technology, terrorist activity or the domestic and foreign response to such activity or other events outside of our control could have an adverse impact on the financial services industry as a whole and/or on our business. Our business recovery plan may not be adequate and may not prevent significant interruptions of our operations or substantial losses. The increased number of cyberattacks during the past few years has further heightened our attention to this risk. As such, we are continuously reviewing and implementing additional security controls and generally expanding our cybersecurity team to monitor and assist with the mitigation of this ever-increasing risk.

Fraud is a major, and increasing, operational risk for us and all banks.

Two traditional areas, deposit fraud (check kiting, wire fraud, etc.) and loan fraud, continue to be major sources of fraud attempts and loss. The sophistication and methods used to perpetrate fraud continue to evolve as technology changes. In addition to cybersecurity risk (discussed below), new technologies have made it easier for bad actors to obtain and use client personal information, mimic signatures and otherwise create false documents that look genuine. The industry fraud threat continues to evolve, including but not limited to card fraud, check fraud, social engineering and phishing attacks for identity theft and account takeover. Our anti-fraud measures are both preventive and, when necessary, responsive; however, some level of fraud loss is unavoidable, and the risk of a major loss cannot be eliminated.

Our ability to conduct and grow our businesses is dependent in part upon our ability to create, maintain, expand, and evolve an appropriate operational and organizational infrastructure, manage expenses, and recruit and retain personnel with the ability to manage a complex business.

Operational risk can arise in many ways, including: errors related to failed or inadequate physical, operational, information technology, or other processes; faulty or disabled computer or other technology systems; fraud, theft, physical security breaches, electronic data and related security breaches, or other criminal conduct by associates or third parties; and exposure to other external events. Inadequacies may present themselves in myriad ways. Actions taken to manage one risk may be ineffective against others. For example, information technology systems may be sufficiently redundant to withstand a fire, incursion, malware, or other major casualty, but they may be insufficiently adaptable to new business conditions or opportunities. Efforts to make systems more robust may make them less adaptable, and vice-versa. Also, our efforts to control expenses, which is a significant priority for us, increases our operational challenges as we strive to maintain client service and compliance at high quality and low cost.

A failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors and other service providers or other third parties, including as a result of cyber-attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses.

We rely heavily on communications and information systems to conduct our business. Information security risks for financial institutions such as ours have generally increased in recent years in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, activists, and other external parties. As client, public, and regulatory expectations regarding operational and information security have increased, our operational systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions, and breakdowns. Our business, financial, accounting and data processing systems, or other operating systems and facilities may stop operating properly or become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond our control. For example, there could be electrical or telecommunications outages; natural disasters such as earthquakes, tornadoes, and hurricanes; disease pandemics (such as the COVID-19 pandemic); events arising from local or larger scale political or social matters, including terrorist acts; and cyber-attacks.

As noted above, our business relies on our digital technologies, computer and email systems, software, and networks to conduct our operations. Although we have information security procedures and controls in place, our technologies, systems, networks, and our clients’ devices may become the target of cyberattacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our clients’ confidential, proprietary and other information, or otherwise disrupt our or our clients’ or other third parties’ business operations. Third parties with whom we do business or that facilitate our business activities, including financial intermediaries, or vendors that provide services or security solutions for our operations, and other third parties, could also be sources of operational and information security risk to us, including from breakdowns or failures of their own systems or capacity constraints.

While we have disaster recovery and other policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of our information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. Our risk and exposure to these matters remains heightened because of the evolving nature of these threats. As a result, cybersecurity and the continued development and enhancement of our controls, processes and practices designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a focus for us. As threats continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate information security vulnerabilities. Disruptions or failures in the physical infrastructure or operating systems that support our businesses and clients, or cyber-attacks or security breaches of the networks, systems or devices that our clients use to access our products and services could result in client attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect our results of operations or financial condition.

Our risk management framework may not be effective in mitigating risks and/or losses.

We have implemented a risk management framework to mitigate our risk and loss exposure. This framework is comprised of various processes, systems and strategies, and is designed to identify, measure, monitor, report and manage the types of risk to which we are subject, including, among others, credit risk, interest rate risk, liquidity risk, legal and regulatory risk, compliance risk, strategic risk, reputational risk and operational risk related to our employees, systems and vendors, among others. Any system of control and any system to reduce risk exposure, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met and will be effective under all circumstances or that it will adequately identify, manage or mitigate any risk or loss to us. Additionally, instruments, systems and strategies used to hedge or otherwise manage exposure to various types of interest rate, price, legal and regulatory compliance, credit, liquidity, operational and business risks and enterprise-wide risk could be less effective than anticipated. As a result, we may not be able to effectively mitigate our risk exposures in particular market environments or against particular types of risk. If our risk management framework is not effective, we could suffer unexpected losses and become subject to litigation, negative regulatory consequences, or reputational damage among other adverse consequences, any of which could result in our business, financial condition, results of operations or prospects being materially adversely affected.

We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance.

We are a community bank, and our reputation is one of the most valuable components of our business. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values: being an integral part of the communities we serve; delivering superior service to our customers; and caring about our customers and associates. Damage to our reputation could undermine the confidence of our current and potential clients in our ability to provide financial services. Such damage could also impair the confidence of our counterparties and business partners, and ultimately affect our ability to effect transactions. Maintenance of our reputation depends not only on our success in maintaining our core values and controlling and mitigating the various risks described herein, but also on our success in identifying and appropriately addressing issues that may arise in areas such as potential conflicts of interest, anti-money laundering, client personal information and privacy issues, record-keeping, regulatory investigations and any litigation that may arise from the failure or perceived failure of us to comply with legal and regulatory requirements. If our reputation is negatively affected, by the actions of our employees or otherwise, our business and, therefore, our operating results may be materially adversely affected. Further, negative public opinion can expose us to litigation and regulatory action as we seek to implement our growth strategy, which could adversely affect our business, financial condition and results of operations.

We depend on our executive officers and other key employees, and our ability to attract additional key personnel, to continue the implementation of our long-term business strategy, and we could be harmed by the unexpected loss of their services.

We believe that our continued growth and future success will depend in large part on the skills of our executive officers and other key employees and our ability to motivate and retain these individuals, as well as our ability to attract, motivate and retain highly qualified senior and middle management and other skilled employees. Our business is primarily relationship-driven in that many of our key personnel have extensive customer or asset management relationships. Loss of key personnel with such relationships may lead to the loss of business if the customers were to follow that employee to a competitor or if asset management expertise was not replaced in a timely manner. Competition for employees is intense, and the process of locating key personnel with the combination of skills and attributes required to execute our business strategy may be lengthy. We may not be successful in retaining key personnel, and the unexpected loss of services of one or more of our key personnel could have a material adverse effect on our business because of their skill, knowledge of our primary markets, years of industry experience and the difficulty of promptly finding qualified replacement personnel. If the services of any of our key personnel should become unavailable for any reason, we may not be able to identify and hire qualified persons on terms acceptable us, or at all, which could have a material adverse effect on our business, financial condition, results of operation and future prospects.

Failure to keep pace with technological change could adversely affect our business.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business, financial condition and results of operations.

Industry-Related Risks

We are exposed to the possibility that more prepayments may be made by customers to pay down loan balances, which could reduce our interest income and profitability.

Prepayment rates stem from consumer behavior, conditions in the housing and financial markets, general U.S. economic conditions, and the relative interest rates on fixed-rate and adjustable-rate loans. Therefore, changes in prepayment rates are difficult to predict. Recognition of deferred loan origination costs and premiums paid in originating these loans are normally recognized over the contractual life of each loan. As prepayments occur, the rate at which net deferred loan origination costs and premiums are expensed will accelerate. The effect of the acceleration of deferred costs and premium amortization may be mitigated by prepayment penalties paid by the borrower when the loan is paid in full within a certain period of time, which varies between loans. If prepayment occurs after the period of time when the loan is subject to a prepayment penalty, the effect of the acceleration of premium and deferred cost amortization is no longer mitigated. We recognize premiums paid on mortgage-backed securities as an adjustment from interest income over the expected life of the security based on the rate of repayment of the securities. Acceleration of prepayments on the loans underlying a mortgage-backed security shortens the life of the security, increases the rate at which premiums are expensed and further reduces interest income. We may not be able to reinvest loan and security prepayments at rates comparable to the prepaid instrument particularly in a period of declining interest rates.

We could experience a decline in profitability due to competition with other financial institutions.

We face substantial competition in all areas of our operations from a variety of different competitors, both within and beyond our principal markets, many of which are larger and may have more financial resources. Such competitors primarily include national, super-regional, and internet banks within the various markets in which we operate. We also face competition from many other types of financial institutions, including, without limitation, savings and loans, credit unions, finance companies, brokerage firms, insurance companies, and other financial intermediaries. The financial services industry could become even more competitive as a result of legislative and regulatory changes and continued consolidation. In addition, as customer preferences and expectations continue to evolve, technology has lowered barriers to entry and made it possible for nonbanks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Many of our competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can.

Our ability to compete successfully depends on a number of factors, including, among other things:

our ability to develop, maintain, and build upon long-term customer relationships based on top quality service, high ethical standards, and safe and sound assets;

our ability to expand our market position;

the scope, relevance, and pricing of the products and services we offer to meet our customers’ needs and demands;

the rate at which we introduce new products and services relative to our competitors;

customer satisfaction with our level of service; and

industry and general economic trends.

Failure to perform in any of these areas could significantly weaken our competitive position, making it more difficult to attract new and retain existing clients and our net interest margin, net interest income and wealth management fees could decline, which would adversely affect our results of operations and could cause us to incur losses in the future.

Consumers may decide not to use banks to complete their financial transactions.

Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds or general-purpose reloadable prepaid cards. Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

Failure to keep pace with technological change could adversely affect our business.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business, financial condition and results of operations.

Through technological innovations and changes in client habits, the manner in which clients use financial services continues to change at a rapid pace.

We provide a large number of services remotely (online and mobile), and physical branch utilization has been in long-term decline throughout the industry for many years. Technology has helped us reduce costs and improve service, but also has weakened traditional geographic and relationship ties, and has allowed disruptors to enter traditional banking areas. Through digital marketing and service platforms, many banks are making client inroads unrelated to physical presence. This competitive risk is especially pronounced from the largest U.S. banks, and from online-only banks, due in part to the investments they are able to sustain in their digital platforms. Companies as disparate as PayPal and Starbucks provide payment and exchange services which compete directly with banks in ways not possible traditionally. Recently, some government leaders have discussed having the U.S. Post Office offer banking services.

The nature of technology-driven disruption to our industry is changing, in some cases seeking to displace traditional financial service providers rather than merely enhance traditional services or their delivery.

A number of recent technologies have worked with the existing financial system and traditional banks, such as the evolution of ATM cards into debit/credit cards and the evolution of debit/credit cards into smart phones. These sorts of technologies often have expanded the market for banking services overall while siphoning a portion of the revenues from those services away from banks and disrupting prior methods of delivering those services. Additionally, some recent innovations may tend to replace traditional banks as financial service providers rather than merely augmenting those services.

We may be adversely affected by the lack of soundness of other financial institutions.

Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. Many of these transactions expose us to credit risk in the event of a default by a counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to us. Any such losses could have a material adverse effect on our financial condition and results of operations.

The value of securities in our investment portfolio may decline in the future.

As of March 31, 2023, we had a carrying amount of $63.6 million of investment securities. The fair value of our investment securities may be adversely affected by market conditions, including changes in interest rates, and the occurrence of any events adversely affecting the issuer of particular securities in our investments portfolio. We analyze our securities on a quarterly basis to determine if an other-than-temporary impairment has occurred. The process for determining whether impairment is other-than-temporary usually requires complex, subjective judgments about the future financial performance of the issuer in order to assess the probability of receiving all contractual principal and interest payments on the security. Because of changing economic and market conditions affecting issuers, we may be required to recognize other-than-temporary impairment in future periods, which could have a material adverse effect on our business, financial condition or results of operations.

Our deposit insurance premiums could be higher in the future, which could have an adverse effect on our future earnings.

The FDIC insures deposits at FDIC-insured depository institutions, such as Bank 34, up to $250,000 per account. Our regular assessments are based on its average consolidated total assets minus average tangible equity as well as by risk classification, which includes regulatory capital levels and the level of supervisory concern. In addition to ordinary assessments described above, the FDIC has the ability to impose special assessments in certain instances.

We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are additional bank or financial institution failures, we may be required to pay even higher FDIC premiums. For example, in response to March 2023 bank closures and in an effort to strengthen public confidence in the banking system and protect depositors, regulators have announced that any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law, which could increase the cost of our FDIC insurance assessments and affect our profitability. If our financial condition deteriorates or if the bank regulators otherwise have supervisory concerns about us, then our assessments could rise. Any future additional assessments, increases or required prepayments in FDIC insurance premiums could reduce our profitability, may limit our ability to pursue certain business opportunities, or otherwise negatively impact our operations.

Capital and Liquidity Risks

We may be exposed to a need for additional capital resources in the future and these capital resources may not be available when needed or at all.

We may need to incur additional debt or equity financing in the future to make strategic acquisitions or investments or to strengthen our capital position. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control and our financial performance. Accordingly, we cannot provide assurance that such financing will be available to us on acceptable terms or at all. If we cannot raise additional capital when needed, our ability to further expand our operations through internal growth and acquisitions could be materially impaired. In addition, if we decide to raise additional equity capital, our current stockholders’ interests could be diluted.

Liquidity, primarily through deposits, is essential to our business model and a lack of liquidity, or an increase in the cost of liquidity could materially impair our ability to fund our operations and jeopardize our results of operation, financial condition and cash flows.

Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors, borrowers and other creditors by either converting assets into cash or accessing new or existing sources of incremental funds. Liquidity risk arises from the possibility that we may be unable to satisfy current or future funding requirements and needs.

Deposit levels may be affected by several factors, including rates paid by competitors, general interest rate levels, returns available to customers on alternative investments, customers seeking to maximize deposit insurance by limiting their deposits at a single financial institution to the maximum federal deposit insurance level, general economic and market conditions and other factors. Loan repayments are a relatively stable source of funds but are subject to the borrowers’ ability to repay loans, which can be adversely affected by a number of factors including changes in general economic conditions, adverse trends or events affecting business industry groups or specific businesses, declines in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters and other factors. Furthermore, loans generally are not readily convertible to cash.

From time to time, if deposits and loan payments are not sufficient to meet our needs, we may be required to rely on secondary sources of liquidity to meet growth in loans, deposit withdrawal demands or otherwise fund operations. Such secondary sources include FHLB advances, brokered deposits, secured and unsecured federal funds lines of credit from correspondent banks, Federal Reserve borrowings and/or accessing the equity or debt capital markets. The availability of these secondary funding sources is subject to broad economic conditions, to regulation and to investor assessment of our financial strength and, as such, the cost of funds may fluctuate significantly and/or the availability of such funds may be restricted, thus impacting our net interest income, our immediate liquidity and/or our access to additional liquidity. Additionally, if we fail to remain “well-capitalized” our ability to utilize brokered deposits may be restricted. We have somewhat similar risks to the extent high balance core deposits exceed the amount of deposit insurance coverage available.

We anticipate we will continue to rely primarily on deposits, loan repayments, and cash flows from our investment securities to provide liquidity. Additionally, when necessary, the secondary sources of borrowed funds described above will be used to augment our primary funding sources. In March 2023, the Federal Reserve announced the creation of a new Bank Term Funding Program in an effort to minimize the need for banks to sell securities at a loss in times of stress. We may use the Bank Term Funding Program on an as needed basis. An inability to maintain or raise funds (including the inability to access secondary funding sources) in amounts necessary to meet our liquidity needs would have a substantial negative effect, individually or collectively, on our liquidity. Our access to funding sources in amounts adequate to finance our activities, or on terms attractive to us, could be impaired by factors that affect us specifically or the financial services industry in general. For example, factors that could detrimentally impact our access to liquidity sources include our financial results, a decrease in the level of our business activity due to a market downturn or adverse regulatory action against us, a reduction in our credit rating, any damage to our reputation, counterparty availability, changes in the activities of our business partners, changes affecting our loan portfolio or other assets, or any other event that could cause a decrease in depositor or investor confidence in our creditworthiness and business. Those factors may lead to depositors withdrawing their deposits or creditors limiting our borrowings. Our access to liquidity could also be impaired by factors that are not specific to us, such as general business conditions, interest rate fluctuations, severe volatility or disruption of the financial markets, bank closures or negative views and expectations about the prospects for the financial services industry as a whole, or legal, regulatory, accounting, and tax environments governing our funding transactions. In addition, our ability to raise funds is strongly affected by the general state of the U.S. and world economies and financial markets as well as the policies and capabilities of the U.S. government and its agencies, and may remain or become increasingly difficult due to economic and other factors beyond our control. Any such event or failure to manage our liquidity effectively could affect our competitive position, increase our borrowing costs and the interest rates we pay on deposits, limit our access to the capital markets and have a material adverse effect on our results of operations or financial condition.

We may not be able to maintain a low cost deposit base or access other low-cost funding sources.

We rely on bank deposits to be a low cost and stable source of funding. In addition, our future growth will largely depend on our ability to maintain and grow a strong core deposit base. If we are unable to continue to attract and retain core deposits, to obtain third party financing on favorable terms, or to have access to interbank or other liquidity sources, we may not be able to grow our assets as quickly. We compete with banks and other financial services companies for deposits. If our competitors raise the rates they pay on deposits in response to interest rate changes initiated by the Federal Reserve or for other reasons of their choice, our funding costs may increase, either because we raise our rates to retain deposits or because of deposit outflows that require us to rely on more expensive sources of funding. In addition, we could experience deposit outflows as a result of depositors seeking to maximize deposit insurance by limiting their deposits at a single financial institution to the maximum federal deposit insurance level. Inflation and higher interest rates, along with monetary events, can cause some of our business customers who have greater operating cash needs to reduce their deposit balances with us. Higher funding costs could reduce our net interest margin and net interest income. Any decline in available funding could adversely affect our ability to continue to implement our business strategy which could have a material adverse effect on our liquidity, business, financial condition and results of operations.

Deposits traditionally have provided our most affordable funds and by far the largest portion of funding. However, deposit trends can shift with economic conditions.

If interest rates fall, deposit levels in our Bank might fall, perhaps fairly quickly if a tipping point is reached, as depositors become more comfortable with risk and seek higher returns in other vehicles. Further, if interest rates remain high, our competitors, which include other banks and non-banks, may raise interest rates for deposits materially and our depositors may move their funds to other institutions, a process which has become easier with advances in technology and operations. These circumstances could result in material changes in deposit levels over relatively short time periods, and they could pressure us to raise interest we pay on our deposits, which could shrink our net interest margin if loan rates do not rise correspondingly.

The extremely low interest rate environment in recent years ended in 2022. Contrary to the expectations outlined in the paragraph above, deposit levels prior to 2022 climbed, possibly buoyed by the severe volatility experienced by the stock markets in 2018-2020 coupled with Federal pandemic assistance, particularly direct cash payments to most citizens, in 2020 and 2021. Significant market volatility resumed in 2022, and we have generally raised deposit interest rates to attract and maintain clients. We are unsure whether or not deposit levels will continue to rise appreciably in 2023 as the Federal Reserve continues to tighten monetary policy to curb inflation. In addition, recent economic events have highlighted the current market volatility related to deposits, and regulators are taking action to strengthen public confidence in the banking system and protect depositors. We are unable to predict how current economic conditions might affect our deposits and whether these regulatory actions will be successful.

Deposit levels may be affected, fairly quickly, by changes in monetary policy.

The Federal Reserve currently is pursuing an aggressive tightening policy. The Federal Reserve has indicated it intends to continue tightening based on economic events during the year, including inflationary pressures, employment data, and overall economic activity, and this tightening is contributing to a reduction in overall deposits in banks. Additional information concerning monetary policy changes appears in these Risk Factors under the caption Economic and Geographic-Related Risks.

Risks Related to Strategic Plans

We may be adversely affected by risks associated with future mergers and acquisitions, including execution risk, which could disrupt our business and dilute stockholder value.

In accordance with our strategic plan, we evaluate opportunities to acquire other banks and branch locations, as well as other fee generating lines of business. As a result, we may engage in mergers, acquisitions and other transactions that could have a material effect on our operating results and financial condition, including short and long-term liquidity.

Our merger and acquisition activities could be material and could require us to issue a significant number of shares of our common stock or other securities and/or to use a substantial amount of cash, other liquid assets, and/or incur debt.

Our merger and acquisition activities could involve a number of additional risks, including the risks of:

the incurrence and possible impairment of goodwill and other intangible assets associated with an acquisition or merger and possible adverse short-term effects on our results of operations;

the possibility that the expected benefits of a transaction may not materialize in the timeframe expected or at all, or may be costlier than expected to achieve;

incurring the time and expense associated with identifying and evaluating potential merger or acquisition targets;

diversion of our management’s attention to the negotiation of a transaction, and the integration of the operations and personnel of the combining businesses;

our estimates and judgments used to evaluate credit, operations, management and market risks with respect to the acquired or merged company may not be accurate;

potential exposure to unknown or contingent liabilities of the acquired or merged company;

difficulty or unanticipated expense associated with converting the operating systems of the acquired or merged company into ours;

the possibility that we will be unable to successfully implement integration strategies, due to challenges associated with integrating complex systems, technology, banking centers, and other assets of the acquired or merged company in a manner that minimizes any adverse effect on customers, suppliers, employees, and other constituencies;

delay in completing a merger or acquisition due to litigation, closing conditions or the regulatory approval process;

the possibility that a proposed acquisition or merger may not be timely completed, if at all;

creating an adverse short-term effect on our results of operations; and

the possible loss of our key employees and customers or of the acquired or merged company.

If we do not successfully manage these risks, our merger and acquisition activities could have a material adverse effect on our business, financial condition, and results of operations, including short-term and long-term liquidity, and our ability to successfully implement our strategic plan.

Failure to achieve one or more key elements needed for successful organic growth could adversely affect our business and earnings.

There are a number of risks to the successful execution of our organic growth strategy that could result in a material and adverse effect upon our results of operation and financial condition. These risks include, without limitation, the following:

our inability to attract and retain clients in our banking market areas;

our inability to achieve and maintain growth in our earnings while pursuing new business opportunities;

our inability to maintain a high level of client service while optimizing our physical branch count due to changing client demand, all while expanding our remote banking services and expanding or enhancing our information processing, technology, compliance, and other operational infrastructures effectively and efficiently;

our inability to maintain loan quality in the context of significant loan growth;

our inability to attract or maintain sufficient deposits and capital to fund anticipated loan growth;

our inability to maintain adequate common equity and regulatory capital while managing the liquidity and capital requirements associated with growth, especially organic growth and cash-funded acquisitions;

our inability to hire or retain adequate management personnel and systems to oversee and support such growth;

our inability to implement additional policies, procedures and operating systems required to support our growth; and

our inability to manage effectively and efficiently the changes and adaptations necessitated by a complex, burdensome, and evolving regulatory environment.

New lines of business or new products and services may subject us to additional risk.

From time to time, we may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services, we may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business and/or a new product or service. Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business and/or new products or services could have a material adverse effect on our business, financial condition and results of operations.

Legal, Accounting, Regulatory and Compliance Risks

We operate in an extensively regulated industry and we are subject to examination, supervision, and comprehensive regulation by various federal and state agencies. Bancorp 34 is subject to Federal Reserve regulations, and Bank 34 is subject to regulation, supervision and examination by the OCC. Our compliance with banking regulations is costly and restricts some of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates and locations of offices. We are also subject to capitalization guidelines established by our regulators, which require us to maintain adequate capital to support our business. If, as a result of an examination, a banking agency were to determine that the financial condition, capital adequacy, asset quality, asset concentration, earnings prospects, management, liquidity sensitivity to market risk or other aspects of any of our operations has become unsatisfactory, or that we or our management are in violation of any law or regulation, the banking agency could take a number of different remedial actions as it deems appropriate.

Regulation by these agencies is intended primarily for the protection of our depositors and the deposit insurance fund and not for the benefit of our stockholders. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. The Dodd-Frank Act, enacted in July 2010, instituted major changes to the banking and financial institutions regulatory regimes. The burden of regulatory compliance has increased under the Dodd-Frank Act and has increased our costs of doing business and, as a result, may create an advantage for our competitors who may not be subject to similar legislative and regulatory requirements. Regulations and laws may be modified at any time, and new legislation may be enacted that will affect us or our subsidiaries.

Furthermore, our regulators also have the ability to compel us to take certain actions, or restrict us from taking certain actions entirely, such as actions that our regulators deem to constitute an unsafe or unsound banking practice. Our failure to comply with any applicable laws or regulations, or regulatory policies and interpretations of such laws and regulations, could result in sanctions by regulatory agencies (such as a memorandum of understanding, a written supervisory agreement or a cease and desist order), civil money penalties or damage to our reputation, all of which could have a material adverse effect on our business, financial condition or results of operations.

Failure to maintain certain regulatory capital levels and ratios could result in regulatory actions that would be materially adverse to our shareholders.

U.S. capital standards are discussed under the section titled Supervision and Regulation beginning on page 215 of this joint proxy statement/prospectus. Pressures to maintain appropriate capital levels and address business needs in a changing economy could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could be dilutive or otherwise have an adverse effect on our shareholders. Such actions could include: reduction or elimination of dividends; the issuance of common or preferred stock, or securities convertible into stock; or the issuance of any class of stock having rights that are adverse to those of the holders of our existing classes of common or preferred stock. In addition, these requirements could have a negative impact on our ability to lend, grow deposit balances, make acquisitions or make share repurchases or redemptions. Higher capital levels could also lower our return on equity.

We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.

The federal Bank Secrecy Act, the USA Patriot Act and other laws and regulations require financial institutions, among other duties, to institute and maintain effective anti-money laundering programs and file suspicious activity and currency transaction reports as appropriate. The federal Financial Crimes Enforcement Network, established by the U.S. Treasury Department to administer the Bank Secrecy Act, is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service, or the “IRS.” There is also increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control. Federal and state bank regulators also have begun to focus on compliance with Bank Secrecy Act and anti-money laundering regulations. If our policies, procedures and systems are deemed deficient or the policies, procedures and systems of the financial institutions that we have already acquired or may acquire in the future are deficient, we would be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans, which would negatively impact our business, financial condition and results of operations. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us.

Federal, state and local consumer lending laws restrict our ability to originate certain mortgage loans and increase our risk of liability with respect to such loans and increase our cost of doing business.

Federal, state and local laws have been adopted that are intended to eliminate certain lending practices considered “predatory.” These laws prohibit practices such as steering borrowers away from more affordable products, selling unnecessary insurance to borrowers, repeatedly refinancing loans and making loans without a reasonable expectation that the borrowers will be able to repay the loans irrespective of the value of the underlying property. Over the course of 2013, the CFPB issued several rules on mortgage lending, notably a rule requiring all home mortgage lenders to determine a borrower’s ability to repay the loan. Loans with certain terms and conditions and that otherwise meet the definition of a “qualified mortgage” may be protected from liability to a borrower for failing to make the necessary determinations. In response to these laws and related CFPB rules, we have tightened, and in the future may further tighten, our mortgage loan underwriting standards to determine borrowers’ ability to repay. Although it is our policy not to make predatory loans and to determine borrowers’ ability to repay, these laws and related rules create the potential for increased liability with respect to our lending and loan investment activities. They increase our cost of doing business and, ultimately, may prevent us from making certain loans and cause us to reduce the average percentage rate or the points and fees on loans that we do make.

We are subject to federal and state fair lending laws, and failure to comply with these laws could lead to material penalties.

Federal and state fair lending laws and regulations, such as the Equal Credit Opportunity Act and the Fair Housing Act, impose nondiscriminatory lending requirements on financial institutions. The U.S. Department of Justice, CFPB and other federal and state agencies are responsible for enforcing these laws and regulations. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. A successful challenge to our performance under the fair lending laws and regulations could adversely impact our rating under the Community Reinvestment Act and result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on merger and acquisition activity and restrictions on expansion activity, which could negatively impact our reputation, business, financial condition and results of operations.

The Federal Reserve may require us to commit capital resources to support Bank 34.

The Federal Reserve requires a bank holding company to act as a source of financial and managerial strength to a subsidiary bank and to commit resources to support such subsidiary bank. Under the “source of strength” doctrine, the Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank and may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to such a subsidiary bank. In addition, the Dodd-Frank Act directs the federal bank regulators to require that all companies that directly or indirectly control an insured depository institution serve as a source of strength for the institution. Under these requirements, in the future, we could be required to provide financial assistance to Bank 34 if it experiences financial distress.

A capital injection may be required at times when we do not have the resources to provide it, and therefore we may be required to borrow the funds. In the event of a bank holding company’s bankruptcy, the bankruptcy trustee will assume any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank. Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the holding company’s general unsecured creditors, including the holders of its note obligations. Thus, any borrowing that must be done by the holding company in order to make the required capital injection becomes more difficult and expensive and will adversely impact the holding company’s cash flows, financial condition, results of operations and prospects.

We are party to various claims and lawsuits incidental to our business. Litigation is subject to many uncertainties such that the expenses and ultimate exposure with respect to many of these matters cannot be ascertained.

From time to time, we, our directors and our management are the subject of various claims and legal actions by customers, employees, stockholders and others. Whether such claims and legal actions are legitimate or unfounded, if such claims and legal actions are not resolved in our favor, they may result in significant financial liability and/or adversely affect our reputation and our products and services as well as impact customer demand for those products and services. In light of the potential cost and uncertainty involved in litigation, we have in the past and may in the future settle matters even when we believe we have a meritorious defense. Certain claims may seek injunctive relief, which could disrupt the ordinary conduct of our business and operations or increase our cost of doing business. Our insurance or indemnities may not cover all claims that may be asserted against us. Any judgments or settlements in any pending litigation or future claims, litigation or investigation could have a material adverse effect on our business, reputation, financial condition and results of operations.

The expanding body of federal, state and local regulations and/or the licensing of loan servicing, collections or other aspects of our business and our sales of loans to third parties may increase the cost of compliance and the risks of noncompliance and subject us to litigation.

We service some of our own loans, and loan servicing is subject to extensive regulation by federal, state and local governmental authorities as well as to various laws and judicial and administrative decisions imposing requirements and restrictions on those activities. The volume of new or modified laws and regulations has increased in recent years and, in addition, some individual municipalities have begun to enact laws that restrict loan servicing activities including delaying or temporarily preventing foreclosures or forcing the modification of certain mortgages. If regulators impose new or more restrictive requirements, we may incur additional significant costs to comply with such requirements which may further adversely affect us. In addition, were we to be subject to regulatory investigation or regulatory action regarding our loan modification and foreclosure practices, our financial condition and results of operation could be adversely affected.

We could be subject to changes in tax laws, regulations and interpretations or challenges to our income tax provision.

We compute our income tax provision based on enacted tax rates in the jurisdictions in which we operate. Any change in enacted tax laws, rules or regulatory or judicial interpretations, or any change in the pronouncements relating to accounting for income taxes could adversely affect our effective tax rate, tax payments and results of operations. The taxing authorities in the jurisdictions in which we operate may challenge our tax positions, which could increase our effective tax rate and harm our financial position and results of operations. We are subject to audit and review by U.S. federal and state tax authorities. Any adverse outcome of such a review or audit could have a negative effect on our financial position and results of operations. In addition, changes in enacted tax laws, such as adoption of a lower income tax rate in any of the jurisdictions in which we operate, could impact our ability to obtain the future tax benefits represented by our deferred tax assets. In addition, the determination of our provision for income taxes and other liabilities requires significant judgment by management. Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and could have a material adverse effect on our financial results in the period or periods for which such determination is made.

Risks Related to Bancorp 34 Common Stock

Some provisions of our organizational documents may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders.

Provisions in our certificate of incorporation and bylaws, federal banking laws, as well as provisions of the Maryland General Corporate Law (“MGCL”), could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions include:

establishing a classified board of directors such that not all members of the board are elected at one time; nominees for two of our eight director seats following the merger will continue to be designated by Castle Creek, and Brush Creek under the Securities Purchase Agreement, so long as certain stock ownership thresholds are maintained;

prohibiting any persons from voting more than 10% of our outstanding shares of common stock;

providing for a plurality voting standard in the election of directors without cumulative voting;

providing that our stockholders may remove members of our board of directors only for cause;

enabling our board of directors to issue additional shares of authorized, but unissued capital stock;

enabling our board to issue “blank check” preferred stock without further stockholder approval; and

enabling our board of directors to amend our bylaws without stockholder approval.

An investment in Bancorp 34 common stock is not an insured deposit and is subject to risk of loss.

An investment in Bancorp 34 common stock will not be a bank deposit and will not be insured or guaranteed by the FDIC or any other government agency. Your investment will be subject to investment risk, and you must be capable of affording the loss of your entire investment.

Bancorp 34 qualifies as a “smaller reporting company,” and the reduced disclosure obligations applicable to smaller reporting companies may make its common stock less attractive to investors.

Bancorp 34 is a “smaller reporting company,” as defined in federal securities laws, and will remain a smaller reporting company until the fiscal year following the determination that the market value of its voting and non-voting common shares held by non-affiliates is more than $250 million measured on the last business day of its second fiscal quarter, or its annual revenues are less than $100 million during the most recently completed fiscal year and the market value of its voting and non-voting common shares held by non-affiliates is more than $700 million measured on the last business day of its second fiscal quarter. Smaller reporting companies have reduced disclosure obligations, such as an exemption from providing selected financial data and an ability to provide simplified executive compensation information and only two years of audited financial statements. If some investors find Bancorp 34’s common stock less attractive because Bancorp 34 may rely on these reduced disclosure obligations, there may be a less active trading market for its common stock and its stock price may be more volatile.

Substantial future sales of our common stock, or the perception that these sales may occur, could cause the price of our common stock to decline, or could result in dilution.

Sales of substantial amounts of Bancorp 34 common stock following the merger or in future offerings, or the perception that these sales could occur, could cause the market price of Bancorp 34 common stock to decline. These sales could also make it more difficult for us to sell equity or equity-related securities in the future, at a time and place that we deem appropriate. Castle Creek and Brush Creek are party to a Registration Rights Agreement under which we may be required to register their approximately 1.5 million shares of Bancorp 34 common stock under the Securities Act. See “Certain Relationships and Related Party Transactions of Bancorp 34—Registration Rights Agreement.” Accordingly, the market price of Bancorp 34 common stock could be adversely affected by actual or anticipated sales of a significant number of shares of Bancorp 34 common stock in the future.

We are authorized to issue up to 100,000,000 shares of our common stock without further stockholder approval. We may issue additional shares of our common stock in the future pursuant to current or future equity compensation plans or in connection with future acquisitions or financings. If we choose to raise capital by selling shares of our common stock for any reason, the issuance would have a dilutive effect on the holders of our common stock and could have a material negative effect on the value of our common stock.

General Risk Factors

Our historical operating results may not be indicative of our future operating results.

We may not be able to sustain our historical rate of growth, and, consequently, our historical results of operations will not necessarily be indicative of our future operations. Various factors, such as economic conditions, regulatory and legislative considerations, and competition, may also impede our ability to expand our market presence. If we experience a significant decrease in our historical rate of growth, our results of operations and financial condition may be adversely affected because a high percentage of our operating costs are fixed expenses.

BANCORP 34 SPECIAL MEETING OF STOCKHOLDERS

Date, Time and Place

The Bancorp 34 special meeting will be held on [ ], 2023 at [ ] local time, at [ ]. On or about [ ], 2023, Bancorp 34 commenced mailing this joint proxy statement/prospectus and the enclosed form of proxy to its stockholders entitled to vote at the Bancorp 34 special meeting.

Purpose of the Bancorp 34 Special Meeting

At the Bancorp 34 special meeting, Bancorp 34 stockholders will be asked to vote on the following:

a proposal to adopt and approve the merger agreement, which we refer to as the Bancorp 34 merger proposal; and

a proposal to approve of the adjournment of the Bancorp 34 special meeting to a later date or dates, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Bancorp 34 merger proposal, which we refer to as the adjournment proposal.

Completion of the merger is conditioned on approval of the Bancorp 34 merger proposal, among other conditions.

Completion of the merger is not conditioned on approval of the adjournment proposal.

Recommendation of the Bancorp 34 Board of Directors

The Bancorp 34 board of directors unanimously recommends that Bancorp 34 stockholders vote “FOR” the Bancorp 34 merger proposal and “FOR” the adjournment proposal. See “The Merger—Bancorp 34 Reasons for the Merger; Recommendation of the Bancorp 34 Board of Directors” beginning on page 78.

Bancorp 34 Record Date and Quorum

To transact business at the Bancorp 34 special meeting, the presence, in person or represented by proxy, of at least a majority of the total number of outstanding shares of Bancorp 34 common stock entitled to vote at the Bancorp 34 special meeting is necessary in order to constitute a quorum for purposes of the matters being voted on at the Bancorp 34 special meeting. Abstentions will be treated as present at the Bancorp 34 special meeting for purposes of determining the presence or absence of a quorum, but broker non-votes will not be counted for the purposes of determining whether a quorum exists. In the event that a quorum is not present at the Bancorp 34 special meeting, the holders of a majority of the voting shares represented at the Bancorp 34 special meeting, in person or by proxy, may adjourn the meeting from time to time to another time and/or place until a quorum is so present or represented.

Bancorp 34 Voting Rights

Each share of Bancorp 34 common stock entitles the holder thereof to one vote on each proposal to be considered at the Bancorp 34 special meeting.

Required Vote; Treatment of Abstentions; Failure to Vote

Merger proposal

Effect of abstentions and broker non-votes: If you fail to vote, mark “ABSTAIN” on your proxy card or fail to instruct your bank or broker how to vote with respect to the merger proposal, it will have the same effect as a vote “AGAINST” the proposal.

Adjournment proposal

For information regarding the voting and support agreements between CBOA and certain holders of shares of Bancorp 34 common stock, see “—Shares Subject to Voting and Support Agreements.”

Voting by Bancorp 34’s Directors and Executive Officers

As of the Bancorp 34 record date, directors and executive officers of Bancorp 34 and their affiliates owned and were entitled to vote [ ] shares of Bancorp 34 common stock entitled to vote at the Bancorp 34 special meeting, representing approximately [ ]% of the shares of Bancorp 34 common stock entitled to vote at the Bancorp 34 special meeting outstanding on that date.

Shares Subject to Voting and Support Agreements

At the close of business on the record date for the Bancorp 34 special meeting, Bancorp 34 directors and executive officers and their affiliates were entitled to vote 3,875,945 shares, representing approximately 22.0%, of the Bancorp 34 common stock issued and outstanding on that date. In addition, at the close of business on the record date for the Bancorp 34 special meeting, Bancorp 34’s largest stockholders, Castle Creek, and Brush Creek, were entitled to vote 380,580 and 321,428 shares respectively, representing approximately 9.8% and 8.3% respectively and 18.1% in the aggregate, of the Bancorp 34 common stock issued and outstanding on that date.

A total of 3,875,945 shares of Bancorp 34 common stock, representing approximately 22.0% of the outstanding shares of Bancorp 34 common stock entitled to vote at the Bancorp 34 special meeting are subject to voting and support agreements between CBOA and the holders of such shares. Pursuant to the voting and support agreements, each such holder of Bancorp 34 common stock, at any meeting of Bancorp 34 stockholders, however called, or any adjournment or postponement thereof (and subject to certain exceptions), agrees to:

vote (or cause to be voted) all shares of Bancorp 34 common stock beneficially owned by such holder, or with respect to which such holder has the right to vote, in favor of the Bancorp 34 merger proposal;

not grant any proxies to any third party, except where such proxies are directed to vote in favor of the merger proposal; and

vote (or cause to be voted) such holder’s shares against any competing transaction.

Pursuant to the voting and support agreements, without the prior written consent of CBOA, each holder has further agreed not to sell or otherwise transfer any shares of Bancorp 34 common stock.

For more information about the beneficial ownership of Bancorp 34 common stock by each 5% or greater beneficial owner, each director and executive officer, and directors and executive officers as a group, see “Security Ownership of Certain Beneficial Owners and Management of Bancorp 34.”

Voting on Proxies; Incomplete Proxies

Giving a proxy means that a Bancorp 34 stockholder authorizes the persons named in the enclosed proxy card to vote its shares of Bancorp 34 common stock at the Bancorp 34 special meeting in the manner such stockholder directs. A Bancorp 34 stockholder may vote by proxy or in person at the Bancorp 34 special meeting. If you hold your shares of Bancorp 34 common stock in your name as a stockholder of record, to submit a proxy, you, as a Bancorp 34 stockholder, may use one of the following methods:

By mail: Mark, sign and date your proxy card and return it in the postage paid envelope we have provided or return it to [ ].

By telephone: Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time on [ ], 2023. Have your proxy card available when you call and then follow the instructions.

Via the Internet: Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time on [ ], 2023. Have your proxy card available when you access the website [ ] and follow the instructions to obtain your records and to create an electronic voting instruction form.

When the accompanying proxy is returned properly executed prior to the Bancorp 34 special meeting, the shares of Bancorp 34 common stock represented by it will be voted at the Bancorp 34 special meeting in accordance with the instructions contained on the proxy card. If any proxy is returned without indication as to how to vote, the shares of Bancorp 34 common stock represented by the proxy will be voted as recommended by the Bancorp 34 board of directors.

If a Bancorp 34 stockholder’s shares of Bancorp 34 common stock are held in “street name” by a broker, bank or other nominee, the Bancorp 34 stockholder may not vote their shares by returning a proxy card directly to Bancorp 34. Bancorp 34 stockholders who hold their shares in “street name” must follow the voting instructions provided by the broker, bank or other nominee that is the record holder of their shares.

Your vote is very important, regardless of the number of shares of Bancorp 34 common stock you own. Accordingly, each Bancorp 34 stockholder should complete, sign, date and return the enclosed proxy card in the enclosed postage-paid envelope, or vote via the Internet or by telephone as soon as possible, whether or not you plan to attend the Bancorp 34 special meeting in person.

Shares Held in Street Name

If you are a Bancorp 34 stockholder and your shares of Bancorp 34 common stock are held in “street name” through a broker, bank or other nominee, your broker, bank or other nominee’s ability to vote your shares of Bancorp 34 common stock for you may be subject to Rule 452 of the New York Stock Exchange (the “NYSE”), which apply to all brokers who are members of the NYSE (“Rule 452”). Without your specific instruction, a broker, bank or other nominee subject to Rule 452 may only vote your shares of Bancorp 34 common stock on routine proposals. As such, a broker, bank or other nominee subject to Rule 452 will submit a proxy card on your behalf as to routine proposals but leave your shares of Bancorp 34 common stock unvoted on non-routine proposals—this is known as a “broker non-vote.” The Bancorp 34 merger proposal and the adjournment proposal are regarded as non-routine matters and a broker, bank or other nominee subject to Rule 452 will not vote on these matters without instructions from you. Therefore, if you are a Bancorp 34 stockholder holding your shares of Bancorp 34 common stock in “street name” and you do not instruct your broker, bank or other nominee on how to vote, your shares of Bancorp 34 common stock will generally have the same effect as a vote “AGAINST” the Bancorp 34 merger proposal and will have no effect on the adjournment proposal.

Revocability of Proxies and Changes to a Bancorp 34 Stockholder’s Vote

If you are the owner of record of your shares and have submitted your proxy and would like to revoke it, you may do so before your shares of Bancorp 34 common stock are voted at the Bancorp 34 special meeting by taking any of the following actions:

delivering a written notice bearing a date later than the date of your proxy to the secretary of Bancorp 34 stating that you revoke your proxy, which notice must be received by Bancorp 34 prior to the beginning the Bancorp 34 special meeting;

completing, signing, dating and returning to the secretary of Bancorp 34 a new proxy card relating to the same shares of Bancorp 34 common stock and bearing a later date, which new proxy card must be received by Bancorp 34 prior to the beginning of the Bancorp 34 special meeting;

casting a new vote by telephone or via the Internet at any time before 11:59 p.m. Eastern Time on [ ], 2023; or

attending the Bancorp 34 special meeting and voting in person, although attendance at the Bancorp 34 special meeting will not, by itself, revoke a proxy.

If you choose to send a written notice of revocation or to mail a new proxy to Bancorp 34, you must submit your notice of revocation or your new proxy to Bancorp 34, Inc., Attention: [ ], Bancorp 34, Inc., 877 E. Hartford Drive, Suite 100, Scottsdale, AZ 85255, and it must be received at any time before the vote is taken at the Bancorp 34 special meeting.

If you have instructed a broker, bank or other nominee to vote your shares of Bancorp 34 common stock, you must follow the directions you receive from your broker, bank or other nominee in order to change or revoke your vote.

Bancorp 34 stockholders retain the right to revoke their proxies in the manner described above. Unless so revoked, the shares of Bancorp 34 common stock represented by such proxies will be voted at the Bancorp 34 special meeting and all adjournments or postponements thereof.

Solicitation of Proxies

The cost of solicitation of proxies for the Bancorp 34 special meeting will be borne by Bancorp 34. Bancorp 34 will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the beneficial owners of common stock. In addition, Bancorp 34’s directors, officers and employees may also solicit proxies by mail, telephone, facsimile, electronic mail or in person, but no additional compensation will be paid to them.

Attending the Bancorp 34 Special Meeting

All Bancorp 34 stockholders of record as of the record date, or their duly appointed proxies, may attend the Bancorp 34 special meeting. If you plan to attend the Bancorp 34 special meeting, you must hold your shares of Bancorp 34 common stock in your own name or have a letter from the record holder of your shares confirming your ownership. In addition, you must bring a form of personal photo identification with you in order to be admitted to the Bancorp 34 special meeting. Bancorp 34 reserves the right to refuse admittance to anyone without proper proof of stock ownership or without proper photo identification.

If your shares of Bancorp 34 common stock are held in “street name” by a bank, broker or other nominee and you wish to attend the Bancorp 34 special meeting, please bring evidence of your beneficial ownership of your shares (e.g., a copy of a recent brokerage statement showing the shares) in addition to your valid photo identification. If you intend to vote in person at the Bancorp 34 special meeting and you own your shares in “street name,” you also are required to bring to the Bancorp 34 special meeting a legal proxy, executed in your favor, from the record holder of your shares, such as a broker, bank or other nominee.

Questions and Additional Information

If you have more questions about the merger or how to submit your proxy or vote, or if you need additional copies of this joint proxy statement/prospectus or the enclosed proxy card or voting instructions, please contact Bancorp 34 at:

Kevin Vaughn

(623) 334-6064

BANCORP 34 PROPOSALS

Proposal No. 1 – Bancorp 34 Merger Proposal

At the Bancorp 34 special meeting, the Bancorp 34 stockholders will be asked to adopt and approve the merger agreement. Bancorp 34 stockholders should read this joint proxy statement/prospectus carefully and in its entirety, including the annexes, for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Annex A.

After careful consideration, the Bancorp 34 board of directors unanimously adopted the merger agreement, authorized and approved the merger and the transactions contemplated by the merger agreement and determined the merger agreement and the merger to be advisable and in the best interests of Bancorp 34 and its stockholders. Please see “The Merger—Bancorp 34’s Reasons for the Merger; Recommendation of the Bancorp 34 Board of Directors” included elsewhere in this joint proxy statement/prospectus for a more detailed discussion of the Bancorp 34 board of directors’ recommendation.

The Bancorp 34 board of directors unanimously recommends that Bancorp 34 stockholders vote “FOR” the Bancorp 34 merger proposal.

Proposal No. 2 – Adjournment Proposal

The Bancorp 34 special meeting may be adjourned to another time, if necessary or appropriate, to permit, among other things, further solicitation of proxies if necessary to obtain additional votes in favor of the merger proposal.

If, at the Bancorp 34 special meeting, the number of shares of Bancorp 34 common stock present or represented and voting in favor of the merger proposal is insufficient to approve such proposal, Bancorp 34 intends to move to adjourn the Bancorp 34 special meeting in order to solicit additional proxies for the approval of the merger agreement. To allow proxies that have been received by Bancorp 34 at the time of the special meeting to be voted for an adjournment, if deemed necessary, Bancorp 34 has submitted the Bancorp adjournment proposal to its stockholders as a separate matter for their consideration. If the Bancorp 34 stockholders approve the adjournment proposal, Bancorp 34 could adjourn the Bancorp 34 special meeting and any adjourned session of the Bancorp 34 special meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from Bancorp 34 stockholders who have previously voted. Bancorp 34 does not intend to call a vote on adjournment of the special meeting to solicit additional proxies if the Bancorp 34 merger proposal is adopted at the Bancorp 34 special meeting.

The Bancorp 34 board of directors unanimously recommends that Bancorp 34 stockholders vote “FOR” the adjournment proposal.

CBOA SPECIAL MEETING OF SHAREHOLDERS

Date, Time and Place

The CBOA special meeting will be held on [ ], 2023 at [ ] local time, at [ ]. On or about [ ], 2023, CBOA commenced mailing this joint proxy statement/prospectus and the enclosed form of proxy to its shareholders entitled to vote at the CBOA special meeting.

Purpose of the CBOA Special Meeting

At the CBOA special meeting, CBOA shareholders will be asked to vote on the following:

a proposal to adopt and approve the merger agreement, which we refer to as the CBOA merger proposal; and

a proposal to approve of the adjournment of the CBOA special meeting to a later date or dates, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the CBOA merger proposal, which we refer to as the adjournment proposal.

Completion of the merger is conditioned on approval of the CBOA merger proposal, among other conditions.

Completion of the merger is not conditioned on approval of the adjournment proposal.

Recommendation of the CBOA Board of Directors

The CBOA board of directors unanimously recommends that CBOA shareholders vote “FOR” the CBOA merger proposal and “FOR” the adjournment proposal. See “The Merger— CBOA Reasons for the Merger; Recommendation of the CBOA Board of Directors” beginning on page 63.

CBOA Record Date and Quorum

To transact business at the CBOA special meeting, the presence, in person or represented by proxy, of at least a one-third of the total number of outstanding shares of CBOA common stock entitled to vote at the CBOA special meeting is necessary in order to constitute a quorum for purposes of the matters being voted on at the CBOA special meeting. Abstentions will be treated as present at the CBOA special meeting for purposes of determining the presence or absence of a quorum, but broker non-votes will not be counted for the purposes of determining whether a quorum exists. In the event that a quorum is not present at the CBOA special meeting, the holders of a majority of the voting shares represented at the CBOA special meeting, in person or by proxy, may adjourn the meeting from time to time to another time and/or place until a quorum is so present or represented.

CBOA Voting Rights

Each share of CBOA common stock entitles the holder thereof to one vote on each proposal to be considered at the CBOA special meeting.

Required Vote; Treatment of Abstentions; Failure to Vote

CBOA merger proposal

Standard: Approval of the CBOA merger proposal requires the affirmative vote of a majority of the issued and outstanding shares of CBOA common stock. CBOA shareholders must approve the CBOA merger proposal in order for the merger to occur. If CBOA shareholders fail to approve the CBOA merger proposal, the merger will not occur.

Adjournment proposal

For information regarding the voting and support agreements between Bancorp 34 and certain holders of shares of CBOA common stock, see “—Shares Subject to Voting and Support Agreements.”

Voting by CBOA’s Directors and Executive Officers

As of the CBOA record date, directors and executive officers of CBOA and their affiliates owned and were entitled to vote 1,684,899 shares of CBOA common stock, representing approximately 16.2% of the shares of CBOA common stock outstanding on that date.

Shares Subject to Voting and Support Agreements

At the close of business on the record date for the CBOA special meeting, CBOA directors and executive officers and their affiliates were entitled to vote 1,684,899 shares, representing approximately 16.2%, of the CBOA common stock issued and outstanding on that date.

A total of [ ] shares of CBOA common stock, representing approximately [ ]% of the outstanding shares of CBOA common stock entitled to vote at the CBOA special meeting are subject to voting and support agreements between Bancorp 34 and the holders of such shares. Pursuant to the voting and support agreements, each such holder of CBOA common stock, at any meeting of CBOA shareholders, however called, or any adjournment or postponement thereof (and subject to certain exceptions), to:

vote (or cause to be voted) all shares of CBOA common stock beneficially owned by such holder, or with respect to which such holder has the right to vote, in favor of the CBOA merger proposal;

not grant any proxies to any third party, except where such proxies are directed to vote in favor of the CBOA merger proposal; and

vote (or cause to be voted) such holder’s shares against any competing transaction.

Pursuant to the voting and support agreements, without the prior written consent of Bancorp 34, each holder has further agreed not to sell or otherwise transfer any shares of CBOA common stock.

For more information about the beneficial ownership of CBOA common stock by each 5% or greater beneficial owner, each director and executive officer, and directors and executive officers as a group, see “Security Ownership of Certain Beneficial Owners and Management of CBOA.”

Voting on Proxies; Incomplete Proxies

Giving a proxy means that a CBOA shareholder authorizes the persons named in the enclosed proxy card to vote its shares of CBOA common stock at the CBOA special meeting in the manner such shareholder directs. A CBOA shareholder may vote by proxy or in person at the CBOA special meeting. If you hold your shares of CBOA common stock in your name as a shareholder of record, to submit a proxy, you, as a CBOA shareholder, may use one of the following methods:

By mail: Mark, sign and date your proxy card and return it in the postage paid envelope we have provided or return it to [ ].

When the accompanying proxy is returned properly executed prior to the CBOA special meeting, the shares of CBOA common stock represented by it will be voted at the CBOA special meeting in accordance with the instructions contained on the proxy card. If any proxy is returned without indication as to how to vote, the shares of CBOA common stock represented by the proxy will be voted as recommended by the CBOA board of directors.

If a CBOA shareholder’s shares of CBOA common stock are held in “street name” by a broker, bank or other nominee, the CBOA shareholder may not vote their shares by returning a proxy card directly to CBOA. CBOA shareholders who hold their shares in “street name” must follow the voting instructions provided by the broker, bank or other nominee that is the record holder of their shares.

Your vote is very important, regardless of the number of shares of CBOA common stock you own. Accordingly, each CBOA shareholder should complete, sign, date and return the enclosed proxy card in the enclosed postage-paid envelope, or vote via the Internet or by telephone as soon as possible, whether or not you plan to attend the CBOA special meeting in person.

Shares Held in Street Name

If you are a CBOA shareholder and your shares of CBOA common stock are held in “street name” through a broker, bank or other nominee, your broker, bank or other nominee’s ability to vote your shares of CBOA common stock for you may be subject to Rule 452 of the NYSE, which applies to all brokers who are members of the NYSE. Without your specific instruction, a broker, bank or other nominee subject to Rule 452 may only vote your shares of CBOA common stock on routine proposals. As such, a broker, bank or other nominee subject to Rule 452 will submit a proxy card on your behalf as to routine proposals but leave your shares of CBOA common stock unvoted on non-routine proposals—this is known as a “broker non-vote.” The CBOA merger proposal and the CBOA adjournment proposal are regarded as non-routine matters and a broker, bank or other nominee subject to Rule 452 will not vote on these matters without instructions from you. Therefore, if you are a CBOA shareholder holding your shares of CBOA common stock in “street name” and you do not instruct your broker, bank or other nominee on how to vote, your shares of CBOA common stock will generally have the same effect as a vote “AGAINST” the CBOA merger proposal and will have no effect on the CBOA adjournment proposal.

Revocability of Proxies and Changes to a CBOA Shareholder’s Vote

If you are the owner of record of your shares and have submitted your proxy and would like to revoke it, you may do so before your shares of CBOA common stock are voted at the CBOA special meeting by taking any of the following actions:

delivering a written notice bearing a date later than the date of your proxy to the secretary of CBOA stating that you revoke your proxy, which notice must be received by CBOA prior to the beginning the CBOA special meeting;

completing, signing, dating and returning to the secretary of CBOA a new proxy card relating to the same shares of CBOA common stock and bearing a later date, which new proxy card must be received by CBOA prior to the beginning of the CBOA special meeting;

casting a new vote by telephone or via the Internet at any time before 11:59 p.m. Eastern Time on [ ], 2023; or

attending the CBOA special meeting and voting in person, although attendance at the CBOA special meeting will not, by itself, revoke a proxy.

If you choose to send a written notice of revocation or to mail a new proxy to CBOA, you must submit your notice of revocation or your new proxy to CBOA Financial, Inc., Attention: [ ], CBOA Financial, Inc., 7315 North Oracle Road, Suite 181, Tucson, AZ 85704, and it must be received at any time before the vote is taken at the CBOA special meeting.

If you have instructed a broker, bank or other nominee to vote your shares of CBOA common stock, you must follow the directions you receive from your broker, bank or other nominee in order to change or revoke your vote.

CBOA shareholders retain the right to revoke their proxies in the manner described above. Unless so revoked, the shares of CBOA common stock represented by such proxies will be voted at the CBOA special meeting and all adjournments or postponements thereof.

Solicitation of Proxies

The cost of solicitation of proxies for the CBOA special meeting will be borne by CBOA. CBOA will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the beneficial owners of common stock. In addition, CBOA’s directors, officers and employees may also solicit proxies by mail, telephone, facsimile, electronic mail or in person, but no additional compensation will be paid to them.

Attending the CBOA Special Meeting

All CBOA shareholders of record as of the record date, or their duly appointed proxies, may attend the CBOA special meeting. If you plan to attend the CBOA special meeting, you must hold your shares of CBOA common stock in your own name or have a letter from the record holder of your shares confirming your ownership. In addition, you must bring a form of personal photo identification with you in order to be admitted to the CBOA special meeting. CBOA reserves the right to refuse admittance to anyone without proper proof of stock ownership or without proper photo identification.

If your shares of CBOA common stock are held in “street name” by a bank, broker or other nominee and you wish to attend the CBOA special meeting, please bring evidence of your beneficial ownership of your shares (e.g., a copy of a recent brokerage statement showing the shares) in addition to your valid photo identification. If you intend to vote in person at the CBOA special meeting and you own your shares in “street name,” you also are required to bring to the CBOA special meeting a legal proxy, executed in your favor, from the record holder of your shares, such as a broker, bank or other nominee.

Questions and Additional Information

Heather Hansen

(520) 544-6516

CBOA PROPOSALS

Proposal No. 1 – Merger Proposal

At the CBOA special meeting, the CBOA shareholders will be asked to adopt and approve the merger agreement. CBOA shareholders should read this joint proxy statement/prospectus carefully and in its entirety, including the annexes, for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Annex A.

After careful consideration, the CBOA board of directors unanimously adopted the merger agreement, authorized and approved the merger and the transactions contemplated by the merger agreement and determined the merger agreement and the merger to be advisable and in the best interests of CBOA and its shareholders. Please see “The Merger—CBOA’s Reasons for the Merger; Recommendation of the CBOA Board of Directors” included elsewhere in this joint proxy statement/prospectus for a more detailed discussion of the CBOA board of directors’ recommendation.

The CBOA board of directors unanimously recommends that CBOA shareholders vote “FOR” the CBOA merger proposal.

Proposal No. 2 – Adjournment Proposal

The CBOA special meeting may be adjourned to another time, if necessary or appropriate, to permit, among other things, further solicitation of proxies if necessary to obtain additional votes in favor of the merger proposal.

If, at the CBOA special meeting, the number of shares of CBOA common stock present or represented and voting in favor of the merger proposal is insufficient to approve such proposal, CBOA intends to move to adjourn the CBOA special meeting in order to solicit additional proxies for the approval of the merger agreement. Arizona law provides that the holders of a majority of the shares represented, and who would be entitled to vote at the special meeting if a quorum were present, where a quorum is not present, may adjourn such meeting from time to time.

The CBOA board of directors unanimously recommends that CBOA shareholders vote “FOR” the adjournment proposal.

THE MERGER

The following discussion contains certain information about the merger. The discussion is subject, and qualified in its entirety by reference, to the merger agreement attached as Annex A to this joint proxy statement/prospectus and incorporated herein by reference. We urge you to read carefully this entire proxy statement/prospectus, including the merger agreement attached as Annex A, for a more complete understanding of the merger.

Terms of the Merger

Each of the Bancorp 34 board of directors and the CBOA board of directors has approved the merger agreement. Under the merger agreement, CBOA will merge with and into Bancorp 34, with Bancorp 34 remaining as the surviving entity. Immediately following the completion of the merger or at such later time as the parties may mutually agree, CBOA’s wholly-owned subsidiary, Commerce Bank, will merge with and into Bancorp 34’s wholly-owned subsidiary, Bank 34, with Bank 34 as the surviving bank.

If the merger is completed, each outstanding share of CBOA common stock, except for treasury stock or shares owned by CBOA or Bancorp 34, in each case, other than in a fiduciary or agency capacity or as a result of debts previously contracted, will be converted into the right to receive 0.24 shares of Bancorp 34 common stock which we refer to as the “exchange ratio.” Bancorp 34 will not issue any fractional shares of Bancorp common stock in the merger. Instead, a CBOA shareholder who otherwise would have received a fraction of a share of Bancorp 34 common stock will receive an amount in cash (without interest) equal to such fractional part of a share of Bancorp 34 common stock multiplied by $12.16.

Bancorp 34 stockholders and CBOA shareholders are being asked to approve the merger agreement. See “The Merger Agreement” for additional and more detailed information regarding the legal documents that govern the merger, including information about conditions to the completion of the merger and provisions for terminating or amending the merger agreement.

Background of the Merger

From time to time, the CBOA board of directors, which we refer to as “the CBOA board,” with the involvement of CBOA executive management, has engaged in reviews and discussions of CBOA’s long-term strategies and objectives, considering ways that it might enhance shareholder value and CBOA’s performance and prospects in light of competitive and other relevant factors. Strategic options considered by the CBOA board have included expanding organically, raising additional capital through private placements or public offerings of equity or debt securities, and merging with another financial institution.

From time to time, the Bancorp 34 board of directors, with the involvement of Bancorp 34 executive management, has engaged in reviews and discussions of Bancorp 34’s long-term strategies and objectives, considering ways that it might enhance shareholder value and Bancorp 34’s performance and prospects in light of competitive and other relevant factors. Strategic options considered by the Bancorp 34 board of directors have included expanding organically, expanding through acquisitions of other financial institutions, and raising additional capital through private placements or public offerings of equity or debt securities.

In November of 2020, Mr. Jim Crotty from Bancorp 34 and Mr. Chris Webster from CBOA were first introduced and began discussing the aspirational goals of their respective companies and how those goals may be more easily and swiftly achieved in a combination of the two companies. In December of 2020 Mr. Crotty and Mr. Webster met in person and discussed the similarities and alignment of each of their respective companies. For the rest of that month and throughout 2021, Mr. Crotty and Mr. Webster kept in contact, discussing the strengths and challenges of their respective companies, the challenges and opportunities in the banking industry generally and how their two companies might come together in a merger to best maximize value for their respective shareholders.

As a result of these discussions, on December 14, 2021, Bancorp 34 and CBOA entered into a mutual non-disclosure agreement, and Bancorp 34 was given access to preliminary diligence materials regarding CBOA. In December of 2021 and January 2022, financial information was shared by Bancorp 34 and CBOA.

In January 2022, the Bancorp 34 board of directors held a one-day retreat in Scottsdale, Arizona. The Bancorp 34 board of directors invited Mr. Webster and Mr. Bill Assenmacher, Chairman of CBOA to attend an introductory meeting and on January 21, 2022, Messrs. Assenmacher and Webster met with the Bancorp 34 board of directors.

In the spring and summer of 2022 market sentiments changed as a result of the Federal Reserve increasing interest rates, and as a result, Bancorp 34 and CBOA agreed to pause their conversations based on Bancorp 34’s desire to consider a potential capital raise to enhance its ability to pursue a transaction. In the meantime, CBOA came to the conclusion that it would itself consider pursuing a capital raise in the coming years if it did not move forward with a transaction. On September 20, 2022, Mr. Crotty and Mr. Webster met again in person to discuss a potential merger of the companies and the parties continued with high level due diligence.

In the summer of 2022, CBOA management engaged the CBOA board in a number of discussions centered on capital planning to support the development of a new strategic plan. It was agreed that additional capital would be needed to grow Commerce Bank to the size needed to achieve the goals in that strategic plan. Management engaged in discussions with an interested private capital investor during this time, who performed preliminary due diligence with Commerce Bank management and discussed pricing. On September 20, 2022, Mr. Crotty and Mr. Webster met in person to discuss a potential merger of the companies and the parties continued with high level due diligence. During that meeting, Mr. Crotty informed CBOA that Bancorp 34 was in the process of finalizing a capital raise that would close in the fourth quarter. The CBOA board decided at this time that it would temporarily pause its efforts to raise capital as the additional capital that would be made available to Commerce Bank by a potential merger represented an attractive alternative to support growth.

In late November 2022, Mr. Webster contacted Piper Sandler to act as independent financial advisor in connection with CBOA’s ongoing strategic planning and the consideration by the CBOA board of alternative strategies to continue to enhance long-term shareholder value. As part of its engagement, Piper Sandler worked with the management of CBOA to review CBOA’s financial performance, review strategic alternatives and periodically present to management and the CBOA board on matters of potential strategic interest.

On November 25, 2022, Bancorp 34 submitted an initial nonbinding letter of intent to CBOA which outlined high-level terms of a proposed merger. On December 9, 2022, CBOA submitted a counter to the initial nonbinding letter of intent with revisions to certain terms.

In December of 2022 and January of 2023, the parties continued to refine their financial metrics in light of the changing interest rate environment and changing economic conditions, and Bancorp 34’s then-pending equity capital raise, which it subsequently completed on December 30, 2022, with gross proceeds totalling approximately $14.0 million.

On January 12, 2023, the CBOA board held a special meeting to review, consider, and discuss the proposed merger with Bancorp 34. At the meeting, representatives of Piper Sandler explained the terms of the non-binding letter of intent to CBOA, and the CBOA board decided to engage in further discussions and negotiations with Bancorp 34. In making the decision to pursue further negotiations with Bancorp 34, the CBOA board exercised its business judgment to determine that the proposed merger with Bancorp 34 would be beneficial for CBOA and its shareholders based on several factors, including, but not limited to, the long-term financial prospects of the proposed merger as compared to the prospects of CBOA on a stand-alone basis. The CBOA board considered several additional factors, including the strategic fit of CBOA and Bancorp 34; the capital resources that would be available upon completion of Bancorp 34’s capital raises compared to other potential buyers; that, post-merger, CBOA’s executive team would have a significant role in the leadership of the combined company; the all-stock nature of the merger consideration; the likelihood that the merger would enable both parties to continue executing on their respective business plans; the fact that, post-merger, the combined entity would operate in Phoenix, the fastest-growing metropolitan market in Arizona; and the impact of institutional investors on the prospects for the combined company. In considering these and other factors, the CBOA board determined that the proposed merger with Bancorp 34 represented a transaction that was in the best interest of CBOA and its shareholders in the long-term and executed the non-binding letter of intent on January 20, 2023. The non-binding letter of intent contemplated Bancorp 34 acquiring all of the issued and outstanding shares of CBOA common stock in exchange for shares of Bancorp 34 common stock, subject to, among other things, completion of due diligence and entry into a definitive agreement.

On January 27, 2023, Bancorp 34 completed a subsequent equity capital raise totaling $15.7 million in gross proceeds.

In February 2023, CBOA engaged Otteson Shapiro LLP, which we refer to as “Otteson Shapiro,” as legal counsel, to assist with matters related to ongoing strategic planning and the consideration by the CBOA board of alternative strategies.

On February 24, 2023, Mr. Webster and Mr. Paul Tees of CBOA and Mr. Crotty had an in-person meeting to discuss the proposed merger. On March 20, 2023, Mr. Crotty and Mr. Randall Rabon of Bancorp 34 spent a day in Tucson, Arizona meeting with Messrs. Assenmacher, Webster and Tees to discuss additional details regarding the potential merger.

At its meetings on February 16, 2023 and March 16, 2023 the CBOA board discussed the status of discussions with Bancorp 34.

Between January and April of 2023, the parties conducted detailed mutual due diligence and negotiated the definitive merger agreement and ancillary agreements. Bancorp 34 provided an initial draft of the merger agreement to CBOA on March 8, 2023. During the next few weeks, Otteson Shapiro and management of CBOA discussed and negotiated with Nelson Mullins Riley & Scarborough LLP (“Nelson Mullins”) and management of Bancorp 34 the various legal and business terms of the merger agreement and the proposed merger. The parties exchanged multiple drafts of the merger agreement and ancillary agreements and had numerous calls to discuss and negotiate various issues. Primary subjects of these negotiations included the amount of the aggregate merger consideration calculation; the exchange ratio; treatment of restricted stock awards; tax, accounting and contract issues relating to labor and employee benefit matters, including employee compensation after the closing of the merger; the timing of the merger and the structure of the board of directors of the combined company; the operations of Commerce Bank between signing and closing; representations, warranties and covenants of CBOA and Bancorp 34; and the amount of any fees upon termination.

On April 3, 2023, the CBOA board formally engaged Piper Sandler in connection with the merger.

On April 20, 2023, the CBOA board met to discuss the terms of the proposed merger. At the meeting Otteson Shapiro walked the members of the board through their fiduciary duties in connection with the proposed merger and provided an update on the status of the merger agreement. Piper Sandler likewise walked the board through its financial analysis prepared in connection with the proposed merger.

On April 26, 2023, the Bancorp 34 board of directors held a special meeting to review and consider the proposed merger. At the meeting, management discussed the due diligence conducted on CBOA, representatives of Nelson Mullins discussed the board’s fiduciary duties, explained the terms of the merger agreement and related transaction documents, and representatives of MJC reviewed the financial aspects of the proposed merger and summarized the strategic and financial rationale for the merger and responded to questions by the Bancorp 34 board. Additionally, MJC delivered its oral opinion, which was confirmed in writing on April 26, 2023, to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by MJC as set forth in its opinion, the per share merger consideration was fair, from a financial point of view, to the holders of Bancorp 34 common stock. After further discussion among the directors and Bancorp 34’s advisors, including with respect to the factors described in “The Merger-Bancorp 34’s Reasons for the Merger; Recommendation of the Bancorp 34 Board,” the Bancorp 34 board unanimously determined that the merger and the merger agreement were advisable, and fair to, and in the best interests of, Bancorp 34 and its stockholders, and unanimously approved the merger agreement and related actions and recommended the adoption and approval of such agreement and transactions to the Bancorp 34 stockholders.

On April 27, 2023, the CBOA board held a special meeting to review and consider the proposed merger. At the meeting, CBOA management presented an overview of the reverse due diligence conducted on Bancorp 34, representatives of Otteson Shapiro explained the terms of the merger agreement and related transaction documents, and representatives of Piper Sandler reviewed the financial aspects of the proposed merger and responded to questions by the CBOA board. Additionally, Piper Sandler delivered its oral opinion, which was confirmed in writing on April 27, 2023, to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by Piper Sandler as set forth in its opinion, the per share merger consideration was fair, from a financial point of view, to the holders of CBOA common stock. After further discussion among the directors and CBOA’s advisors, including with respect to the factors described in “The Merger-CBOA’s Reasons for the Merger; Recommendation of the CBOA Board,” the CBOA board unanimously determined that the merger and the merger agreement were advisable, and in the best interests of, CBOA and its shareholders, and unanimously approved the merger agreement and related actions and recommended the adoption and approval of such agreement and transactions to the CBOA shareholders. After the conclusion of this meeting, the parties continued work to finalize the merger agreement and entered into the merger agreement and announced the transaction in a joint press release.

CBOA’s Reasons for the Merger; Recommendation of the CBOA Board of Directors

After careful consideration, including consideration of Piper Sandler’s opinion that the consideration to be received in the merger is fair from a financial point of view to the CBOA shareholders at its meeting on April 27, 2023, the CBOA board determined that the merger is in the best interests of CBOA and its shareholders. Accordingly, the CBOA directors present at the meeting on April 27, 2023, unanimously approved the merger agreement and recommended that the CBOA shareholders vote “FOR” the CBOA merger proposal.

The CBOA board believes that partnering with Bancorp 34 will maximize the long-term value of its shareholders’ investment in CBOA, and that the merger will provide the combined company with additional resources necessary to compete more effectively in Arizona.

In reaching its decision to approve the merger agreement and recommend the merger to its shareholders, the CBOA board evaluated the merger and the merger agreement, in consultation with CBOA’s management, as well as its legal and financial advisors, and considered a number of positive factors, including the following material factors, which are not presented in order of priority:

its knowledge of the business, operations, financial and regulatory condition, earnings and prospects of CBOA and Bancorp 34;

its knowledge of the current environment in the financial services industry, including national and regional economic conditions, increased regulatory burdens, evolving trends in technology, increasing competition, the current financial market and regulatory conditions and the likely effects of these factors on the potential growth of CBOA and Bancorp 34, and their respective development, productivity, profitability and strategic options;

the complementary aspects of CBOA’s and Bancorp 34’s respective businesses, including customer focus, geographic coverage, business orientation and compatibility of the companies’ management and operating styles;

the fact that CBOA’s executive team would occupy important positions in the combined company, and therefore reduce execution risk;

CBOA’s belief that an all-stock merger with Bancorp 34 would allow CBOA shareholders to participate in the future performance of a combined company that would have better future prospects than CBOA was likely to achieve on a stand-alone basis or through other strategic alternatives;

Bancorp 34’s relatively strong capital position and the fact that the combined company would have more growth capital than CBOA on a stand-alone basis;

Bancorp 34’s commitment to enhancing its strategic position, with a particular focus on its growing markets;

the fact that the receipt of merger consideration paid in the form of Bancorp 34 common stock is expected to be tax-free to CBOA shareholders for U.S. federal income tax purposes;

the terms of the merger agreement, and the presentation by CBOA’s legal advisors regarding the merger and the merger agreement;

the financial presentation of Piper Sandler, dated April 27, 2023, to the CBOA board and the opinion of Piper Sandler, dated April 27, 2023, to the CBOA board to the effect that, as of April 27, 2023, and subject to the assumptions, limitations and qualifications set forth in the opinion, the per share merger consideration was fair, from a financial point of view, to the holders of CBOA common stock, as more fully described below under the section of this joint proxy statement/prospectus entitled “Opinion of CBOA’s Financial Advisor” beginning on page 65; and

the regulatory and other approvals required in connection with the merger and the likelihood that the approvals needed to complete the merger will be obtained within a reasonable time and without unacceptable conditions.

The CBOA board also considered potential risks and potentially negative factors concerning the merger in connection with its deliberations of the proposed transaction, including the following material factors:

the challenges of combining the businesses, assets and workforces of two financial institutions;

the potential risk of diverting management focus and resources from other strategic opportunities and from operational matters while working to complete the merger;

the risks and costs to CBOA if the merger is not completed;

the fact that the merger consideration, which consists of shares of Bancorp 34 common stock, provides less certainty of value to CBOA shareholders compared to a transaction in which they would receive only cash consideration;

the potential for a decline in the value of Bancorp 34 common stock—whether before or after consummation of the merger—reducing the value of the consideration received by CBOA’s shareholders;

the provisions of the merger agreement restricting CBOA’s solicitation of third-party acquisition proposals and the fact that CBOA would be obligated to pay a termination fee following the termination of the merger agreement in certain circumstances;

the potential for unintended delays in the regulatory approval process; and

the interests of certain of CBOA’s directors and executive officers in the merger that are different from, or in addition to, their interests as CBOA shareholders, which are further described in the section of this joint proxy statement/prospectus entitled “Interests of CBOA’s Directors and Executive Officers in the Merger” beginning on page 86.

The foregoing discussion of the factors considered by the CBOA board is not intended to be exhaustive, but is believed to include the material factors considered by the CBOA board. The CBOA board members present at the meeting of the board of directors on April 27, 2023, collectively reached the unanimous conclusion to approve the merger agreement and the merger in light of the various factors described above and other factors that each member of the CBOA board determined was appropriate. In view of the wide variety of the factors considered in connection with its evaluation of the merger and the complexity of these matters, the CBOA board did not find it useful, and did not attempt to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, the individual members of the CBOA board may have given different weight to different factors. The CBOA board conducted an overall analysis of the factors described above including thorough discussions with CBOA management and CBOA’s advisors, and considered the factors overall to be favorable to, and to support, its determination.

Opinion of CBOA’s Financial Advisor

CBOA retained Piper Sandler to act as financial advisor to CBOA’s board of directors in connection with CBOA’s consideration of a possible business combination with Bancorp 34. CBOA selected Piper Sandler to act as its financial advisor because Piper Sandler is a nationally recognized investment banking firm specializing in financial institutions. In the ordinary course of its investment banking business, Piper Sandler is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.

Piper Sandler acted as financial advisor to CBOA’s board of directors in connection with the proposed merger and participated in certain of the negotiations leading to the execution of the merger agreement. At the April 27, 2023 meeting at which CBOA’s board of directors considered the merger and the merger agreement, Piper Sandler delivered to the board of directors its oral opinion, which was subsequently confirmed in writing on April 27, 2023, to the effect that, as of such date, the merger consideration was fair to the holders of CBOA’s common stock from a financial point of view. The full text of Piper Sandler’s opinion is attached as Annex B to this joint proxy statement/prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Piper Sandler in rendering its opinion. The description of the opinion set forth below is qualified in its entirety by reference to the full text of the opinion. Holders of CBOA common stock are urged to read the entire opinion carefully in connection with their consideration of the proposed merger.

Piper Sandler’s opinion was directed to the board of directors of CBOA in connection with its consideration of the merger and the merger agreement and does not constitute a recommendation to any shareholder of CBOA as to how any such shareholder should vote at any meeting of shareholders called to consider and vote upon the approval of the merger. Piper Sandler’s opinion was directed only to the fairness, from a financial point of view, of the merger consideration to the holders of CBOA common stock and did not address the underlying business decision of CBOA to engage in the merger, the form or structure of the merger or any other transactions contemplated in the merger agreement, the relative merits of the merger as compared to any other alternative transactions or business strategies that might exist for CBOA or the effect of any other transaction in which CBOA might engage. Piper Sandler also did not express any opinion as to the fairness of the amount or nature of the compensation to be received in the merger by any officer, director or employee of CBOA or Bancorp 34, or any class of such persons, if any, relative to the compensation to be received in the merger by any other shareholder. Piper Sandler’s opinion was approved by Piper Sandler’s fairness opinion committee.

In connection with its opinion, Piper Sandler reviewed and considered, among other things:

a draft of the merger agreement, dated April 27, 2023;

certain publicly available financial statements and other historical financial information of CBOA and its banking subsidiary, Commerce Bank, that Piper Sandler deemed relevant;

certain publicly available financial statements and other historical financial information of Bancorp 34 and its banking subsidiary, Bank 34, that Piper Sandler deemed relevant;

the relative contributions of assets, liabilities, equity and earnings of CBOA and Bancorp 34 to the combined entity;

certain internal financial projections for CBOA for the years ending December 31, 2023 through December 31, 2027, as provided by the senior management of CBOA;

certain internal financial projections for Bancorp 34 for the years ending December 31, 2023 through December 31, 2027, as provided by the senior management of Bancorp 34;

the pro forma financial impact of the merger on the combined company based on certain assumptions relating to transaction expenses, purchase accounting adjustments and cost savings, as provided by the senior management of Bancorp 34;

the publicly reported historical price and trading activity for CBOA common stock and Bancorp 34 common stock, including a comparison of certain stock market information for CBOA common stock and Bancorp 34 common stock and certain stock indices as well as publicly available information for certain other similar companies, the securities of which are publicly traded;

a comparison of certain financial information for CBOA and Bancorp 34 with similar financial institutions for which information is publicly available;

certain financial terms and social considerations of recent merger of equals transactions in the bank and thrift industry (on a nationwide basis), to the extent publicly available;

the current market environment generally and the banking environment in particular; and

such other information, financial studies, analyses and investigations and financial, economic and market criteria as Piper Sandler considered relevant.

Piper Sandler also discussed with certain members of the senior management of CBOA and its representatives the business, financial condition, results of operations and prospects of CBOA and held similar discussions with certain members of the management of Bancorp 34 and its representatives regarding the business, financial condition, results of operations and prospects of Bancorp 34.

In performing its analysis, Piper Sandler used certain historical financial information for CBOA and Bancorp 34, as provided by the senior management of CBOA and Bancorp 34. The financial data used by Piper Sandler, as referenced in the tables below, may not correspond to the data presented in CBOA’s or Bancorp 34’s financial statements as a result of certain updates to such financial information which were made by the senior management of CBOA and Bancorp 34 after the date of Piper Sandler’s fairness opinion.

In performing its review, Piper Sandler relied upon the accuracy and completeness of all of the financial and other information that was available to and reviewed by Piper Sandler from public sources, that was provided to Piper Sandler by CBOA or Bancorp 34 or their respective representatives, or that was otherwise reviewed by Piper Sandler, and Piper Sandler assumed such accuracy and completeness for purposes of rendering its opinion without any independent verification or investigation. Piper Sandler relied on the assurances of the respective senior managements of CBOA and Bancorp 34 that they were not aware of any facts or circumstances that would have made any of such information inaccurate or misleading in any respect material to Piper Sandler’s analysis. Piper Sandler was not asked to and did not undertake an independent verification of any of such information and Piper Sandler did not assume any responsibility or liability for the accuracy or completeness thereof. Piper Sandler did not make an independent evaluation or perform an appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of CBOA or Bancorp 34, nor was Piper Sandler furnished with any such evaluations or appraisals. Piper Sandler rendered no opinion or evaluation on the collectability of any assets or the future performance of any loans of CBOA or Bancorp 34 or any of their respective subsidiaries. Piper Sandler did not make an independent evaluation of the adequacy of the allowance for credit losses of CBOA or Bancorp 34, any of their respective subsidiaries or of the combined entity after the merger, and Piper Sandler did not review any individual credit files relating to CBOA or Bancorp 34 or any of their respective subsidiaries. Piper Sandler assumed, with CBOA’s consent, that the respective allowances for credit losses for both CBOA and Bancorp 34 were adequate to cover such losses and would be adequate on a pro forma basis for the combined entity.

In preparing its analyses, Piper Sandler used internal financial projections for CBOA for the years ending December 31, 2023 through December 31, 2027, as provided by the senior management of CBOA. In addition, Piper Sandler used internal financial projections for Bancorp 34 for the years ending December 31, 2023 through December 31, 2027, as provided by the senior management of Bancorp 34. Piper Sandler also received and used in its pro forma analyses certain assumptions relating to transaction expenses, cost savings and purchase accounting adjustments, as provided by the senior management of Bancorp 34. With respect to the foregoing information, the respective senior managements of CBOA and Bancorp 34 confirmed to Piper Sandler that such information reflected the best currently available projections, estimates and judgments of those respective senior managements as to the future financial performance of CBOA and Bancorp 34, respectively, and Piper Sandler assumed that the financial results reflected in such information would be achieved. Piper Sandler expressed no opinion as to such projections, estimates or judgements, or the assumptions on which they are based. Piper Sandler also assumed that there had been no material change in the respective assets, financial condition, results of operations, business or prospects of CBOA or Bancorp 34 since the date of the most recent financial statements made available to Piper Sandler. Piper Sandler assumed in all respects material to its analyses that CBOA and Bancorp 34 would remain as going concerns for all periods relevant to its analyses.

Piper Sandler also assumed, with CBOA’s consent, that (i) each of the parties to the merger agreement would comply in all material respects with all material terms and conditions of the merger agreement and all related agreements, that all of the representations and warranties contained in such agreements were true and correct in all material respects, that each of the parties to such agreements would perform in all material respects all of the covenants and other obligations required to be performed by such party under such agreements and that the conditions precedent in such agreements were not and would not be waived, (ii) in the course of obtaining the necessary regulatory or third party approvals, consents and releases with respect to the merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on CBOA, Bancorp 34, the merger or any related transactions, and (iii) the merger and any related transactions would be consummated in accordance with the terms of the merger agreement without any waiver, modification or amendment of any material term, condition or agreement thereof and in compliance with all applicable laws and other requirements. Finally, with CBOA’s consent, Piper Sandler relied upon the advice that CBOA received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the merger and the other transactions contemplated by the merger agreement. Piper Sandler expressed no opinion as to any such matters.

Piper Sandler’s opinion was necessarily based on financial, economic, regulatory, market and other conditions as in effect on, and the information made available to Piper Sandler as of, the date thereof. Events occurring after the date thereof could materially affect Piper Sandler’s opinion. Piper Sandler has not undertaken to update, revise, reaffirm or withdraw its opinion or otherwise comment upon events occurring after the date thereof. Piper Sandler expressed no opinion as to the trading value of CBOA’s common stock or Bancorp 34’s common stock at any time or what the value of Bancorp 34’s common stock would be once it is actually received by the holders of CBOA’s common stock.

In rendering its opinion, Piper Sandler performed a variety of financial analyses. The summary below is not a complete description of all the analyses underlying Piper Sandler’s opinion or the presentation made by Piper Sandler to CBOA’s board of directors, but is a summary of the material analyses performed and presented by Piper Sandler. The summary includes information presented in tabular format. In order to fully understand the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. The process, therefore, is not necessarily susceptible to a partial analysis or summary description. Piper Sandler believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses to be considered without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process underlying its opinion. Also, no company included in Piper Sandler’s comparative analyses described below is identical to CBOA or Bancorp 34 and no transaction is identical to the merger. Accordingly, an analysis of comparable companies or transactions involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values or transaction values, as the case may be, of CBOA and Bancorp 34 and the companies to which they were compared. In arriving at its opinion, Piper Sandler did not attribute any particular weight to any analysis or factor that it considered. Rather, Piper Sandler made qualitative judgments as to the significance and relevance of each analysis and factor. Piper Sandler did not form an opinion as to whether any individual analysis or factor (positive or negative) considered in isolation supported or failed to support its opinion, rather, Piper Sandler made its determination as to the fairness of the merger consideration to the holders of CBOA’s common stock on the basis of its experience and professional judgment after considering the results of all its analyses taken as a whole.

In performing its analyses, Piper Sandler also made numerous assumptions with respect to industry performance, business and economic conditions and various other matters, many of which cannot be predicted and are beyond the control of CBOA, Bancorp 34, and Piper Sandler. The analyses performed by Piper Sandler are not necessarily indicative of actual values or future results, both of which may be significantly more or less favorable than suggested by such analyses. Piper Sandler prepared its analyses solely for purposes of rendering its opinion and provided such analyses to CBOA’s board of directors at its April 27, 2023 meeting. Estimates on the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Such estimates are inherently subject to uncertainty and actual values may be materially different. Accordingly, Piper Sandler’s analyses do not necessarily reflect the value of CBOA’s common stock or Bancorp 34’s common stock or the prices at which CBOA’s or Bancorp 34’s common stock may be sold at any time. The analyses of Piper Sandler and its opinion were among a number of factors taken into consideration by CBOA’s board of directors in making its determination to approve the merger agreement and the analyses described below should not be viewed as determinative of the decision of CBOA’s board of directors with respect to the fairness of the merger consideration.

Summary of Proposed Merger Consideration and Implied Transaction Metrics.

Piper Sandler reviewed the financial terms of the proposed merger. Pursuant to the terms of the merger agreement, at the effective time of the merger each share of CBOA common stock issued and outstanding immediately prior to the effective time of the transaction, except for certain shares as set forth in the merger agreement, shall be converted into the right to receive 0.24 of a share of Bancorp 34 common stock. Piper Sandler calculated an aggregate implied transaction value of approximately $27.9 million and an implied purchase price per share of $2.70 consisting of the implied value of 10,344,660 shares of CBOA common stock and based on the $11.25 per share closing price of Bancorp 34 common stock on April 26, 2023. Based upon financial information for CBOA as of or for the last twelve months (“LTM”) ended March 31, 2023 and the $2.80 per share closing price of CBOA’s common stock on April 26, 2023, Piper Sandler calculated the following implied transaction metrics:

Transaction Price Per Share / Tangible Book Value Per Share	90	%
Transaction Price Per Share / LTM Earnings Per Share	8.0	x
Transaction Price Per Share / 2023E Earnings Per Share¹	9.2	x
Tangible Book Premium / Core Deposits (CDs > $250K)²	(1.1	%)
Premium to CBOA Market Price as of April 26, 2023	(3.6	%)

(1)

As provided by CBOA management

(2)

Core deposits defined as total deposits less time deposits with balances greater than $250,000

Contribution Analysis.

Piper Sandler reviewed the relative contribution of CBOA and Bancorp 34 to the pro forma balance sheet, earnings and market value of the combined entity. This analysis excluded mark-to-market and other transaction-related adjustments. The results of this analysis are set forth in the following table, which also compares the results of this analysis with the implied pro forma ownership percentages of CBOA and Bancorp 34 shareholders in the combined company:

$ value in millions	CBOA				Bancorp 34				Pro Forma
	$		%		$		%		$
Assets:
Gross Loans		277.1		37.0		472.0		63.0		749.1
Total Assets		372.2		39.3		574.9		60.7		947.1
Liabilities:
Noninterest Bearing Deposits		127.4		51.9		117.9		48.1		245.3
Total Deposits		307.9		40.1		460.7		59.9		768.6
Shareholders’ Equity:
Tangible Common Equity		31.1		32.4		64.7		67.6		95.7
Shareholders’ Equity		31.1		32.4		64.7		67.6		95.7
Earnings:
LTM Net Income		3.6		70.6		1.5		29.4		5.1
2023 Estimated Net Income (Inc. Bancorp 34 C/O)		3.0		74.7		1.0		25.3		4.0
2023 Estimated Net Income (Ex. Bancorp 34 C/O)¹		3.0		51.9		2.8		48.1		5.8
2024 Estimated Net Income		3.3		43.9		4.3		56.1		7.6
Market Valuation:
Market Capitalization²		29.0		35.4		52.8		64.6		81.8
Market Capitalization (Ex. New Investors)³		29.0		50.6		28.3		49.4		57.3
Proposed Pro Forma Ownership (%)²				34.6				65.4
Proposed Pro Forma Ownership – Excluding New Investors (%)³				49.7				50.3

Excludes Bancorp 34 1Q2023 charge-off of $2.4M pretax

Bancorp 34 market cap. shown inclusive of recently issued preferred shares; market data as of April 26, 2023 (CBOA share price of $2.80 and Bancorp 34 share price of $11.25)

Bancorp 34 market cap. excluding impact of December 2022 and January 2023 capital raises

Stock Trading History.

Piper Sandler reviewed the publicly available historical reported trading prices of CBOA common stock and Bancorp 34 common stock for the one-year and three-year periods ending April 26, 2023. Piper Sandler then compared the relationship between the movements in the price of CBOA common stock and Bancorp 34 common stock, respectively, to movements in their respective peer groups (as described below) as well as certain stock indices.

CBOA’s One-Year Stock Performance

	Beginning Value April 26, 2022			Ending Value April 26, 2023
CBOA		100	%		87.5	%
Bancorp 34		100	%		74.7	%
CBOA Peer Group		100	%		97.1	%
S&P 500 Index		100	%		97.1	%
S&P U.S. SmallCap Banks Index		100	%		72.6	%

CBOA’s Three-Year Stock Performance

	Beginning Value April 24, 2020			Ending Value April 26, 2023
CBOA		100	%		130.2	%
Bancorp 34		100	%		118.5	%
CBOA Peer Group		100	%		119.3	%
S&P 500 Index		100	%		143.0	%
S&P U.S. SmallCap Banks Index		100	%		127.6	%

Bancorp 34’s One-Year Stock Performance

	Beginning Value April 26, 2022			Ending Value April 26, 2023
Bancorp 34		100	%		74.7	%
CBOA		100	%		87.5	%
Bancorp 34 Regional Peer Group		100	%		88.4	%
Bancorp 34 Nationwide Peer Group		100	%		86.7	%
S&P 500 Index		100	%		97.1	%
S&P U.S. SmallCap Banks Index		100	%		72.6	%

Bancorp 34’s Three-Year Stock Performance

	Beginning Value April 24, 2020			Ending Value April 26, 2023
Bancorp 34		100	%		118.5	%
CBOA		100	%		130.2	%
Bancorp 34 Regional Peer Group		100	%		130.4	%
Bancorp 34 Nationwide Peer Group		100	%		118.2	%
S&P 500 Index		100	%		143.0	%
S&P U.S. SmallCap Banks Index		100	%		127.6	%

Comparable Company Analyses.

Piper Sandler used publicly available information to compare selected financial information for CBOA with a group of publicly-traded financial institutions selected by Piper Sandler. The CBOA peer group included banks and thrifts, headquartered in California and the Southwest Region with total assets between $250 million and $500 million, but excluded targets of announced merger transactions, banks with unique business models, mutual holding companies, cooperative banks and nondepository trusts (the “CBOA Peer Group”). The Southwest Region was defined as Arizona, Colorado, New Mexico, Nevada, Texas and Utah. The CBOA Peer Group consisted of the following companies:

Golden Valley Bancshares, Inc.

Partners Bank of California

Trinity Bank, N.A.

High Country Bancorp, Inc.

Chino Commercial Bancorp

Texas Community Bancshares, Inc.

Community Bancorp of Santa Maria

Pacific Alliance Bank

Friendly Hills Bancorp

Summit Bancshares, Inc.

Infinity Bancorp

CMUV Bancorp

Denver Bankshares, Inc.

The analysis compared publicly available financial information for CBOA with corresponding data for the CBOA Peer Group as of or for the year ended March 31, 2023 (unless otherwise noted) with pricing data as of April 26, 2023. The table below sets forth the data for CBOA and the median, mean, low and high data for the CBOA Peer Group.

CBOA Comparable Company Analysis¹

				Peer Group		Peer Group		Peer Group			Peer Group
	CBOA			Median		Mean		Low			High

Total assets ($mm)		372			406		396		276			476
Loans / Deposits (%)		90			78		75		55			108
Nonperforming assets / Total assets (%)² ⁴		0.00			0.10		0.20		0.00			0.61
Tangible common equity/Tangible assets (%)		8.3			9.1		9.3		6.3			13.3
LTM ROAA (%)		0.99			0.94		0.92		(0.35	)		1.63
LTM ROATCE (%)		12.9			11.1		10.7		(4.5	)		18.4
LTM Net interest margin (%)²		4.43	³		3.41		3.56		2.88			4.15
LTM Efficiency ratio (%)²		70			63		65		45			108
Price/Tangible book value (%)		93			103		104		56			260
Price/LTM Earnings per share (x)		8.3			9.2		10.1		4.8			19.3
Current Dividend Yield (%)		0.0			0.8		1.1		0.0			4.4
Market value ($mm)		29			31		36		20			96

Financial information is shown as of December 31, 2022 for TYBT, HCBC, TCBS, SMAL, INFT, and DNVB

Financial information is shown as of December 31, 2022 for CYSM

Financial information is reported at the bank-level based on regulatory filings as of March 31, 2023 for CBOA

Financial information is reported at the bank-level based on regulatory filings as of March 31, 2023 for CMUV

Piper Sandler used publicly available information to perform a similar analysis for Bancorp 34 by comparing selected financial information for Bancorp 34 with two groups of publicly traded financial institutions selected by Piper Sandler. The first Bancorp 34 peer group included banks and thrifts, headquartered in California and the Southwest Region with total assets between $400 million and $900 million, but excluding securities that trade on the OTC Pink Market, targets of announced merger transactions, banks with unique business models, mutual holding companies, cooperative banks and non-depository trusts (the “Bancorp 34 Regional Peer Group”). The Bancorp 34 Regional Peer Group consisted of the following companies:

	Pinnacle Bank GBank Financial Holdings, Inc. Bank of San Francisco Mission Valley Bancorp Redwood Capital Bancorp
	Endeavor Bancorp
	First Bancshares, Inc.
	High Country Bancorp, Inc.
	Texas Community Bancshares, Inc.
	Community Bancorp of Santa Maria

The analysis compared publicly available financial information for Bancorp 34 with corresponding data for the Bancorp 34 Regional Peer Group as of or for the year ended March 31, 2023 (unless otherwise noted) with pricing data as of April 26, 2023. The table below sets forth the data for Bancorp 34 and the median, mean, low and high data for the Bancorp 34 Regional Peer Group.

Bancorp 34 Regional Peer Group Comparable Company Analysis¹

			Regional Peer Group		Regional Peer Group		Regional Peer Group		Regional Peer Group
	Bancorp 34⁵		Median		Mean		Low		High

Total assets ($mm)		575		521		539		406		756
Loans / Deposits (%)		102		82		82		58		100
Nonperforming assets / Total assets (%)² ⁴		0.71		0.15		0.22		0.10		0.37
Tangible common equity/Tangible assets (%)		11.2		9.1		9.4		6.3		13.3
LTM ROAA (%)		0.26		1.05		1.08		0.47		1.66
LTM ROATCE (%)		3.4		12.7		12.7		4.3		18.4
LTM Net interest margin (%)³		3.22		3.94		3.84		2.88		4.84
LTM Efficiency ratio (%)³		76		66		65		52		79
Price/Tangible book value (%)		82		89		95		67		172
Price/LTM Earnings per share (x)		21.8		7.9		9.1		4.8		19.3
Current Dividend Yield (%)		2.5		0.0		0.6		0.0		2.2
Market value ($mm)		53		39		52		20		156

Financial information is shown as of December 31, 2022 for PBNK, BSFO, RWCB, HCBC, TCBS

Financial information is shown as of December 31, 2022 for CYSM and FBSI

Financial information is shown as of December 31, 2022 for CYSM

Financial information is reported at the bank-level based on regulatory filings as of March 31, 2023 for MVLY and RWCB

Bancorp 34 market capitalization and common equity shown inclusive of recently issued preferred shares

Piper Sandler used publicly available information to perform a second analysis for Bancorp 34 by comparing selected financial information for Bancorp 34 with a group of publicly traded financial institutions selected by Piper Sandler. The second Bancorp 34 peer group included banks and thrifts headquartered in the United States with total assets between $400 million and $900 million and LTM ROAA 0.00% - 0.75%, but excluded securities that trade on the OTC Pink Market, targets of announced merger transactions, mutual holding companies, cooperative banks and non-depository trusts (the “Bancorp 34 Nationwide Peer Group”). The Bancorp 34 Nationwide Peer Group consisted of the following companies:

	William Penn Bancorporation
	IF Bancorp, Inc.
	University Bancorp, Inc.
	CIB Marine Bancshares, Inc.
	IBW Financial Corporation
	Glenville Bank Holding Company, Inc.
	Merchants & Marine Bancorp, Inc.
	Mars Bancorp, Inc.
	TC Bancshares, Inc.
	Texas Community Bancshares, Inc.

The analysis compared publicly available financial information for Bancorp 34 with corresponding data for the Bancorp 34 Nationwide Peer Group as of or for the year ended March 31, 2023 (unless otherwise noted) with pricing data as of April 26, 2023. The table below sets forth the data for Bancorp 34 and the median, mean, low and high data for the Bancorp 34 Nationwide Peer Group.

Bancorp 34 Nationwide Peer Group Comparable Company Analysis¹

			Nationwide Peer Group		Nationwide Peer Group		Nationwide Peer Group		Nationwide Peer Group
	Bancorp 34²		Median		Mean		Low		High

Total assets ($mm)		575		707		671		417		862
Loans / Deposits (%)		102		83		82		56		103
Nonperforming assets / Total assets (%)		0.71		0.37		0.47		0.01		1.71
Tangible common equity/Tangible assets (%)		11.2		9.2		10.4		3.8		19.8
LTM ROAA (%)		0.26		0.45		0.48		0.20		0.69
LTM ROATCE (%)		3.4		4.7		5.1		1.9		10.0
LTM Net interest margin (%)		3.22		3.21		3.20		2.80		3.65
LTM Efficiency ratio (%)		76		85		83		69		93
Price/Tangible book value (%)		82		76		74		41		104
Price/LTM Earnings per share (x)		21.8		14.9		18.8		4.1		42.0
Current Dividend Yield (%)		2.5		0.8		1.1		0.0		3.0
Market value ($mm)		53		42		51		15		137

Financial information is shown as of December 31, 2022 for IROQ, UNIB, IBWC, GLNV, MNBP, TCBC, TCBS

Bancorp 34 market capitalization and common equity shown inclusive of recently issued preferred shares

Analysis of Precedent Transactions.

Piper Sandler reviewed a group of precedent merger and acquisition transactions. The group consisted of nationwide bank and thrift merger of equals transactions, as defined by S&P Capital IQ Pro, for publicly traded banks and thrifts with deal value less than $500 million, announced from January 1, 2018 through April 24, 2023, but excluding three-party merger transactions and excluding terminated transactions (the “Precedent Transactions”).

The Precedent Transactions group was composed of the following transactions:

	Larger Entity		Smaller Entity
	CCFNB Bancorp Inc.		Muncy Bank Financial
	Main St Finl Svcs Corp⁽¹⁾		Wayne Savings Bancshares
	LINKBANCORP Inc. ⁽¹⁾		Partners Bancorp
	Shore Bancshares Inc.		The Community Financial Corp.
	GNB Financial Services Inc⁽¹⁾		LINKBANCORP Inc.
	Virginia National Bankshares		Fauquier Bankshares
	Broadway Financial Corp.		CFBanc Corp.
	Blue Ridge Bankshares		Bay Banks of Virginia
	Dime Community⁽¹⁾		Bridge Bancorp
	ChoiceOne Fin’l		County Bank Corp
	Delmar Bancorp		Virginia Partners

Reverse merger-of-equals

Using the latest publicly available information prior to the announcement of the relevant transaction, Piper Sandler reviewed the following transaction metrics: deal value and 1-day market premium. Piper Sandler compared the indicated transaction metrics for the merger to the median, mean, low and high metrics of the Precedent Transactions.

							Precedent Transactions
	Bancorp 34/ CBOA			Bancorp 34/ CBOA¹			Median		Mean		Low			High
Deal Value ($M)		28			28			67		131		40			498
Relative Ownership of Smaller Entity (%)		35			50			49		49		40			56
Relative Market Cap of Smaller Entity (%) (prior to deal announcement)		35			51			48		47		37			58
1-Day Stock Market Premium (%)		(3.6	)		(3.6	)		10.0		7.4		(7.3	)		21.4
Proportion of Board of Directors from Smaller Entity (%)		38			50			46		47		40			56

Bancorp 34 market capitalization and ownership adjusted to exclude Dec 2022 and January 2023 capital raises. In addition, Bancorp 34 board representation adjusted to remove two board seats assigned to the new investors

In addition to the items presented in the table above, Piper Sandler also considered a selection of non-financial attributes often reviewed in connection with merger of equals transactions. Piper Sandler reviewed items such as the location of the pro forma corporate headquarters, composition of the board of directors and management teams, as well as relative pro forma ownership and market cap. Piper Sandler compared the respective non-financial attributes for the merger to those for the Precedent Transactions.

Net Present Value Analyses.

Piper Sandler performed an analysis that estimated the net present value of a share of CBOA common stock assuming CBOA performed in accordance with internal projections for CBOA for the years ending December 31, 2023 through December 31, 2027, as provided by CBOA senior management. To approximate the terminal value of a share of CBOA common stock on April 26, 2023, Piper Sandler applied price to 2027 earnings multiples ranging from 6.0x to 13.5x and multiples of 2027 tangible book value ranging from 70% to 110%. The terminal values were then discounted to present values using different discount rates ranging from 10.0% to 14.0%, which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of CBOA common stock. As illustrated in the following tables, the analysis indicated an imputed range of values per share of CBOA common stock of $1.36 to $3.62 when applying multiples of earnings and $1.81 to $3.37 when applying multiples of tangible book value.

Earnings Per Share Multiples

Discount
Rate	6.0x	7.5x	9.0x	10.5x	12.0x	13.5x
10.0%	$1.61	$2.01	$2.41	$2.81	$3.22	$3.62
11.0%	$1.54	$1.93	$2.31	$2.70	$3.08	$3.47
12.0%	$1.48	$1.85	$2.21	$2.58	$2.95	$3.32
13.0%	$1.42	$1.77	$2.12	$2.48	$2.83	$3.18
14.0%	$1.36	$1.70	$2.04	$2.38	$2.71	$3.05

Tangible Book Value Per Share Multiples

Discount
Rate	70%	80%	90%	100%	110%
10.0%	$2.15	$2.45	$2.76	$3.07	$3.37
11.0%	$2.06	$2.35	$2.64	$2.94	$3.23
12.0%	$1.97	$2.25	$2.53	$2.81	$3.10
13.0%	$1.89	$2.16	$2.43	$2.70	$2.97
14.0%	$1.81	$2.07	$2.33	$2.59	$2.85

Piper Sandler also considered and discussed with the CBOA board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to the earnings projections. To illustrate this impact, Piper Sandler performed a similar analysis, assuming CBOA’s earnings varied from 20% above projections to 20% below projections. This analysis resulted in the following range of per share values for CBOA’s common stock, applying the price to 2027 earnings multiples range of 6.0x to 13.5x referred to above and a discount rate of 11.77%.

Earnings Per Share Multiples

Annual Projection
Variance	6.0x	7.5x	9.0x	10.5x	12.0x	13.5x
(20.0%)	$1.19	$1.49	$1.79	$2.09	$2.39	$2.68
(10.0%)	$1.34	$1.68	$2.01	$2.35	$2.68	$3.02
0.0%	$1.49	$1.86	$2.24	$2.61	$2.98	$3.35
10.0%	$1.64	$2.05	$2.46	$2.87	$3.28	$3.69
20.0%	$1.79	$2.24	$2.68	$3.13	$3.58	$4.03

Piper Sandler also performed an analysis that estimated the net present value per share of Bancorp 34 common stock, assuming Bancorp 34 performed in accordance with internal financial projections for Bancorp 34 for the years ending December 31, 2023 through December 31, 2027, as provided by the senior management of Bancorp 34. To approximate the terminal value of a share of Bancorp 34 common stock on April 26, 2023, Piper Sandler applied price to 2027 earnings multiples ranging from 6.0x to 16.0x and multiples of 2027 tangible book value ranging from 70% to 110%. The terminal values were then discounted to present values using different discount rates ranging from 10.0% to 14.0%, which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of Bancorp 34 common stock. As illustrated in the following tables, the analysis indicated an imputed range of values per share of Bancorp 34 common stock of $6.02 to $17.05 when applying multiples of earnings and $7.62 to $13.48 when applying multiples of tangible book value.

Earnings Per Share Multiples

Discount
Rate	6.0x	8.0x	10.0x	12.0x	14.0x	16.0x
10.0%	$7.05	$9.05	$11.05	$13.05	$15.05	$17.05
11.0%	$6.77	$8.69	$10.60	$12.52	$14.43	$16.35
12.0%	$6.51	$8.34	$10.18	$12.01	$13.85	$15.68
13.0%	$6.26	$8.02	$9.77	$11.53	$13.29	$15.05
14.0%	$6.02	$7.70	$9.39	$11.08	$12.77	$14.45

Tangible Book Value Per Share Multiples

Discount
Rate	70%	80%	90%	100%	110%
10.0%	$8.95	$10.08	$11.22	$12.35	$13.48
11.0%	$8.59	$9.68	$10.76	$11.85	$12.93
12.0%	$8.25	$9.29	$10.33	$11.37	$12.41
13.0%	$7.93	$8.93	$9.92	$10.92	$11.92
14.0%	$7.62	$8.58	$9.53	$10.49	$11.44

Piper Sandler also considered and discussed with the CBOA board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to the earnings projections. To illustrate this impact, Piper Sandler performed a similar analysis assuming Bancorp 34’s earnings varied from 20.0% above projections to 20.0% below projections. This analysis resulted in the following range of per share values for Bancorp 34 common stock, applying the price to 2027 earnings multiples range of 6.0x to 16.0x referred to above and a discount rate of 11.77%.

Earnings Per Share Multiples

Annual Projection
Variance	6.0x	8.0x	10.0x	12.0x	14.0x	16.0x
(20.0%)	$5.45	$6.94	$8.42	$9.90	$11.39	$12.87
(10.0%)	$6.01	$7.68	$9.35	$11.01	$12.68	$14.35
0.0%	$6.57	$8.42	$10.27	$12.13	$13.98	$15.83
10.0%	$7.12	$9.16	$11.20	$13.24	$15.28	$17.32
20.0%	$7.68	$9.90	$12.13	$14.35	$16.58	$18.80

Piper Sandler noted that the net present value analysis is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.

Pro Forma Analysis.

Piper Sandler analyzed certain potential pro forma effects of the merger on Bancorp 34 assuming the transaction closes on December 31, 2023. Piper Sandler utilized the following information and assumptions: (a) certain assumptions related to transaction expenses, purchase accounting adjustments and cost savings, as provided by the senior management of Bancorp 34, (b) internal financial projections for Bancorp 34 for the years ending December 31, 2023 through December 31, 2027, as provided by the senior management of Bancorp 34, and (c) internal financial projections for CBOA for the years ending December 31, 2023 through December 31, 2027, as provided by the senior management of CBOA and adjusted by the senior management of Bancorp 34. The analysis indicated that the transaction could be accretive to Bancorp 34’s projected earnings per share (excluding one-time transaction costs and expenses) in the years ending 2024 through 2027, dilutive to Bancorp 34’s estimated tangible book value per share at close through 2025, and accretive to estimated tangible book value per share in 2026 onward. The analysis indicated that the transaction could be accretive to CBOA’s projected earnings per share (excluding one-time transactions costs and expenses) in the years ending 2024 through 2027.

In connection with this analysis, Piper Sandler considered and discussed with the CBOA board of directors how the analysis would be affected by changes in the underlying assumptions, including the impact of final purchase accounting adjustments determined at the closing of the transaction, and noted that the actual results achieved by the combined company may vary from projected results and the variations may be material.

Piper Sandler’s Relationship.

Piper Sandler is acting as CBOA’s financial advisor in connection with the transaction and will receive a fee for such services in an amount equal to 2.00% of the aggregate purchase price, which advisory fee is contingent upon the closing of the merger. At the time of announcement of the transaction Piper Sandler’s fee was approximately $662,000. Piper Sandler also received a $100,000 fee from CBOA upon rendering its opinion, which opinion fee will be credited in full towards the advisory fee which will become payable to Piper Sandler upon closing of the transaction. CBOA has also agreed to indemnify Piper Sandler against certain claims and liabilities arising out of Piper Sandler’s engagement and to reimburse Piper Sandler for certain of its out-of-pocket expenses incurred in connection with Piper Sandler’s engagement.

Piper Sandler did not provide any other investment banking services to CBOA in the two years preceding the date of its opinion, nor did Piper Sandler provide any investment banking services to Bancorp 34 in the two years preceding the date thereof. In the ordinary course of Piper Sandler’s business as a broker-dealer, Piper Sandler may purchase securities from and sell securities to CBOA, Bancorp 34 and their respective affiliates. Piper Sandler may also actively trade the equity and debt securities of CBOA, Bancorp 34 and their respective affiliates for its own account and for the accounts of its customers.

Certain Unaudited Prospective Financial Information

Bancorp 34 and CBOA do not, as a matter of course, publicly disclose forecasts or internal projections as to their respective future performance, financial condition, revenues, earnings or other results due to, among other reasons, the inherent uncertainty of the underlying assumptions and estimates.

However, in connection with the merger, Bancorp 34’s senior management and CBOA’s senior management prepared or approved for use certain unaudited prospective financial information which was provided to and considered by Piper Sandler for the purpose of performing financial analyses in connection with its fairness opinion, as described in this joint proxy statement/prospectus under “— Opinion of CBOA’s Financial Advisor” beginning on page 65. We refer to this information collectively as the “prospective financial information.”

The prospective financial information was not prepared for the purpose of, or with a view toward, public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information, published guidelines of the SEC regarding forward-looking statements or generally accepted accounting principles, or GAAP. A summary of certain significant elements of this information is set forth below, and is included in this joint proxy statement/prospectus solely for the purpose of providing holders of CBOA common stock and Bancorp 34 common stock access to certain nonpublic information made available to CBOA’s financial advisors for the purpose of performing financial analyses in connection with their respective fairness opinions.

Although presented with numeric specificity, the prospective financial information reflects numerous estimates and assumptions made by Bancorp 34’s senior management or CBOA’s senior management, as applicable, at the time such prospective financial information was prepared or approved for use by CBOA’s financial advisor and represents Bancorp 34 senior management’s or CBOA senior management’s respective evaluation of Bancorp 34’s expected future financial performance on a stand-alone basis, without reference to the merger, and CBOA’s expected future financial performance on a stand-alone basis, without reference to the merger. These and the other estimates and assumptions underlying the prospective financial information involve judgments with respect to, among other things, economic, competitive, regulatory and financial market conditions and future business decisions that may not be realized and that are inherently subject to significant business, economic, competitive and regulatory uncertainties and contingencies, including, among other things, the inherent uncertainty of the business and economic conditions affecting the industry in which Bancorp 34 and CBOA operate and the risks and uncertainties described under “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Information” in this joint proxy statement/prospectus, all of which are difficult to predict and many of which are outside the control of Bancorp 34 and CBOA and will be beyond the control of the combined company. There can be no assurance that the underlying assumptions would prove to be accurate or that the projected results would be realized, and actual results could differ materially from those reflected in the prospective financial information, whether or not the merger is completed. Further, these assumptions do not include all potential actions that the senior management of Bancorp 34 or CBOA could or might have taken during these time periods. The inclusion in this joint proxy statement/prospectus of the unaudited prospective financial information below should not be regarded as an indication that Bancorp 34, CBOA or their respective boards of directors or financial advisors considered, or now consider, this prospective financial information to be material information to any holders of CBOA common stock, particularly in light of the inherent risks and uncertainties associated with such prospective financial information. The prospective financial information is not fact and should not be relied upon as being necessarily indicative of actual future results. The prospective financial information also reflects numerous variables, expectations and assumptions available at the time it was prepared as to certain business decisions that are subject to change and do not take into account any circumstances or events occurring after the date they were prepared. No assurances can be given that if the prospective financial information and the underlying assumptions had been prepared as of the date of this joint proxy statement/prospectus, similar assumptions would be used. In addition, the prospective financial information may not reflect the manner in which the combined company would operate after the merger.

The prospective financial information included in this document has been prepared by, and is the responsibility of, management of Bancorp 34 and CBOA. Neither Plante & Moran, PLLC, Bancorp 34’s independent registered public accounting firm, nor Eide Bailly LLP, CBOA’s independent auditor, has audited, reviewed, examined, compiled nor applied agreed upon procedures with respect to the prospective financial information and, accordingly, neither Plante & Moran, PLLC nor Eide Bailly LLP has expressed any opinion or given any other form of assurance with respect thereto and assumes no responsibility for the prospective financial information. The reports of Bancorp 34’s independent registered public accounting firm and CBOA’s independent auditor included in this joint proxy statement/prospectus relate to the historical financial information of Bancorp 34 and CBOA, respectively. Such reports do not extend to the prospective financial information and should not be read to do so. No independent registered public accounting firm has examined, compiled or otherwise performed any procedures with respect to the prospective financial information and, accordingly, no independent registered public accounting firm has expressed any opinion or given any other form of assurance with respect thereto and no independent registered public accounting firm assumes any responsibility for the prospective financial information.

In light of the foregoing, and taking into account that the CBOA and Bancorp 34 special meetings will be held several months after the prospective financial information was prepared, as well as the uncertainties inherent in any forecasted information, CBOA shareholders and Bancorp 34 stockholders are strongly cautioned not to place unwarranted reliance on such information.

CBOA Prospective Financial Information

The following prospective financial information was approved by CBOA senior management for use by Piper Sandler in connection with Piper Sandler performing its financial analyses with respect to CBOA on a stand-alone basis: (i) $10 million common equity raised in the second quarter of 2024 at a price of $3.30 per share, (ii) estimates of net income for calendar years 2023 through 2027 of $3.0 million, $3.3 million, $4.3 million, $4.9 million and $5.7 million, respectively (iii) estimates of earnings per share for the calendar years 2023 through 2027 of $0.29, $0.27, $0.32, $0.37 and $0.42, respectively (iv) no cash dividends paid to shareholders for the calendar years 2023 through 2027, (v) estimates of end of year tangible book value per share for the calendar years ended 2023 through 2027 of $3.22, $3.50, $3.88, $4.32, and $4.82, respectively.

Bancorp 34 Prospective Financial Information

The following prospective financial information was approved by Bancorp 34 senior management for use by Piper Sandler in connection with Piper Sandler performing its financial analyses with respect to Bancorp 34 on a stand-alone basis: (i) estimates of net income for calendar years 2023 through 2027 of $1.0 million, $4.3 million, $5.3 million, $6.3 million and $7.2 million, respectively (ii) estimates of earnings per share for the calendar years 2023 through 2027 of $0.23, $0.93, $1.16, $1.37 and $1.57, respectively (iii) annual cash dividends paid to common shareholders for the calendar years 2023 through 2027 of $0.28 per share, (iv) estimates of end of year tangible book value per share for the calendar years ended 2023 through 2027 of $13.97, $14.61, $15.47, $16.54, and $17.81, respectively.

Pro Forma Assumptions — Estimated Costs Savings and Expenses Resulting or Derived from the Merger

For purposes of the Pro Forma Transaction Analysis performed by Piper Sandler, senior management of Bancorp 34 provided to Piper Sandler certain additional prospective financial information including the financial information described under “CBOA Prospective Financial Information” (excluding the $10 million common equity capital raise), an estimate of one-time pretax transaction expenses of $6.0 million assumed to be realized as of the closing date of the transaction, and an estimate of pretax synergies expected to result or be derived from the transaction of $2.0 million in calendar year 2024 and $2.9 million in calendar year 2025, in all cases assuming that the transaction closed on December 31, 2023. For purposes of the Pro Forma Transaction Analysis Piper Sandler also utilized the financial information provided by Bancorp 34 senior management and described under “Bancorp 34 Prospective Financial Information.”

Bancorp 34’s Reasons for the Merger; Recommendation of the Bancorp 34 Board of Directors

After careful consideration, including considering MJC’s opinion that the consideration to be paid to CBOA pursuant to the merger agreement is fair, from a financial point of view to the stockholders of Bancorp 34 at its meeting on April 26, 2023, the Bancorp 34 board of directors determined that the merger is in the best interests of Bancorp 34 and its stockholders. Accordingly, the Bancorp 34 board of directors unanimously approved the merger agreement and recommended that the Bancorp 34 stockholders vote “FOR” the Bancorp 34 merger proposal.

In evaluating the merger, the Bancorp 34 board of directors consulted with Bancorp 34 management, as well as independent legal and financial advisors. The Bancorp 34 board of directors found CBOA to be an attractive target for a potential merger based on a number of factors, including, without limitation:

the geographical alignment of Bank 34 and Commerce Bank and the market areas served by Commerce Bank which will allow the combined bank to further grow its presence in the greater Phoenix, Arizona market and Commerce Bank’s footprint in Tucson, Arizona which is a natural fit to bridge Bank 34’s existing locations in Scottsdale, Arizona and Southern New Mexico;

the prior financial performance of CBOA, including its lower cost core deposit base and the expected operating efficiencies that may be realized in a combination with CBOA;

the strength and expertise of CBOA’s executive management team and the agreement of certain of CBOA’s executive management team to join the combined company; and

the ability of the combined entity to strengthen its regulatory compliance capabilities.

In addition to the considerations above, in the course of reaching its decision to approve the merger agreement, to adopt the merger and the other transactions contemplated by the merger agreement, the Bancorp 34 board of directors considered a number of factors, including the following material factors:

its understanding of the current and prospective environment in which Bancorp 34 and CBOA operate, including national and local economic conditions, the interest rate environment, increasing operating costs resulting from regulatory initiatives and compliance mandates, the competitive environment for financial institutions generally, and the likely effect of these factors on Bancorp 34 both with and without the proposed transaction;

each of Bancorp 34’s, CBOA’s, and the combined company’s business, operations, financial condition, asset quality, earnings, and prospects. In reviewing these factors, the Bancorp 34 board of directors considered its view that CBOA’s financial condition and asset quality were sound, that CBOA’s business and operations complemented those of Bancorp 34, and that the merger would result in a combined company with a larger market presence as well as an attractive funding base, including through core deposit funding, and stronger asset quality;

CBOA’s earnings and prospects, and synergies potentially available in the proposed transaction, created an opportunity for the combined company to have superior future earnings and prospects compared to Bancorp 34’s earnings and prospects on a stand-alone basis. In particular, the Bancorp 34 board of directors considered the following:

the strategic rationale for the merger, including the ability of the combined company to serve the banking needs of consumers and businesses in highly attractive markets, including the combination of Bancorp 34’s and CBOA’s operations in Arizona;

the expanded possibilities, including organic growth and future acquisitions, that would be available to the combined company given its larger size, asset base, capital and geographic footprint;

the increased size, scale and brand awareness of the combined company that would enable each companies’ customer relationships to grow, and the ability of Bank 34 to service larger customers going forward;

the anticipated pro forma financial impact of the merger on the combined company, including the expected positive impact on financial metrics, including earnings per share, and the expectation that the tangible book value per share dilution from the merger would be earned back within a reasonable period following closing;

Bancorp 34’s belief that Bancorp 34 will be able to integrate CBOA with Bancorp 34 successfully;

the potential for bringing together seasoned bank operators built on a common vision with similar values, with talented, motivated workforces and compatible corporate cultures;

the increased scale of the combined company enabling it to continue to invest in new technology and products and services;

the similarity of the businesses, balance sheets and management teams;

its review and discussions with Bancorp 34’s management and advisors concerning the due diligence review of CBOA;

its expectation that the required regulatory approvals could be obtained in a timely fashion;

the financial information and analyses presented by Bancorp 34’s financial advisor to the board of directors; and

its review with Bancorp 34’s outside legal counsel, Nelson Mullins, of the terms of the merger agreement.

The Bancorp 34 board of directors also considered potential risks relating to the merger but concluded that the anticipated benefits of the merger were likely to substantially outweigh these risks. These potential risks included:

the possibility of encountering difficulties in achieving anticipated cost savings in the amounts estimated or in the time frame contemplated;

the possibility of encountering difficulties in successfully integrating CBOA’s business, operations, and workforce with those of Bancorp 34;

the transaction-related restructuring charges and other merger-related costs;

diversion of management attention and resources from the operation of Bancorp 34’s business towards the completion of the merger;

the possibility of changing market conditions and the impact those changes could have on the projected or actual financial performance of each bank, and

the regulatory and other approvals required in connection with the merger and the risk that such regulatory approvals will not be received in a timely manner or may impose unacceptable conditions.

This discussion of the information and factors considered by the Bancorp 34 board of directors in reaching its conclusions and recommendation includes principal factors considered by the board of directors, but is not intended to be exhaustive and may not include all of the factors considered by the Bancorp 34 board of directors. In view of the wide variety of factors considered in connection with its evaluation of the merger and the other transactions contemplated by the merger agreement, and the complexity of these matters, the Bancorp 34 board of directors did not find it useful and did not attempt to quantify, rank or assign any relative or specific weights to the various factors that it considered in reaching its determination to adopt and approve the merger and the other transactions contemplated by the merger agreement. Rather, the Bancorp 34 board of directors viewed its decisions as being based on the totality of the information presented to it and the factors it considered. In addition, individual members of the Bancorp 34 board of directors may have assigned different weights to different factors. The explanation of Bancorp 34’s reasons for the merger includes statements that are forward-looking in nature and, therefore, should be read in light of the factors discussed above under “Cautionary Statement Regarding Forward-Looking Statements.”

Opinion of Bancorp 34’s Financial Advisor

Bancorp 34’s board of directors engaged MJC Partners, LLC (“MJC”) to act as its financial advisor and to provide an opinion of the fairness, from a financial point of view, to Bancorp 34 of the exchange ratio in the proposed merger.

Bancorp 34’s board of directors selected MJC based upon its reputation, its knowledge of financial institutions and its experience as a financial advisor in mergers and acquisitions of financial institutions similar to the merger. Bancorp 34 imposed no limitations on MJC’s investigations or the procedures it followed to render its opinion.

MJC acted as an independent financial advisor to the Bancorp 34 board of directors in connection with the proposed merger and participated in certain of the negotiations leading to the execution of the merger agreement. At the April 26, 2023 meeting, at which the Bancorp 34 board of directors approved the merger agreement, MJC issued its written opinion that, as of that date, from a financial point of view, the exchange ratio in the proposed merger was fair to Bancorp 34. This joint proxy statement/prospectus summary of the MJC opinion is qualified in its entirety by reference to the full text of the opinion. The full text of the opinion of MJC, dated April 26, 2023, which describes the procedures followed, assumptions made, matters considered and limitations on the review undertaken, is attached hereto as Annex C. Bancorp 34 stockholders should read this opinion in its entirety.

MJC’s opinion is directed only to the fairness, from a financial point of view, of the exchange ratio in the proposed merger, and, as such, does not constitute a recommendation to any Bancorp 34 stockholder as to how the stockholder should vote at the special meeting. The summary of the opinion of MJC set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of the opinion.

The following summary of the analyses performed by MJC is not a complete description of the analyses performed by MJC to render its fairness opinion and is not a complete description of the presentation made by MJC to the Bancorp 34 board of directors. MJC did not attribute any particular weight to any analysis and factor considered by it, but rather made qualitative judgments about the significance and relevance of each analysis and factor. MJC did not express any opinion as to the fairness of the amount or nature of the compensation to be received in the merger by any officer, director or employee of Bancorp 34, or any class of such persons. MJC believes that its analyses and the following summary must be considered as a whole, and that selecting portions of the analyses without considering all factors could create an incomplete account of its analyses and its fairness opinion.

To carry out its analyses and to render its opinion concerning the fairness of the per share merger consideration, MJC:

(1)

reviewed the most current version of the merger agreement and terms of the proposed merger;

(2)

reviewed certain historical publicly available business and financial information concerning Bancorp 34 and CBOA, including among other things, quarterly and annual reports filed with the FDIC;

(3)

analyzed certain financial projections prepared by the managements of Bancorp 34 and CBOA;

(4)

reviewed certain potential scenarios, and business plans, provided by Bancorp 34 and CBOA, concerning Bancorp 34 following the merger;

	(5)	held discussions with members of the senior management of Bancorp 34 and CBOA for the purpose of reviewing the future prospects of the surviving company and bank;
	(6)	reviewed the terms of recent merger and acquisition transactions, to the extent publicly available, involving banks and bank holding companies that MJC considered relevant; and

(7)

performed such other analyses and considered such other factors as MJC considered appropriate.

MJC also took into account its assessment of general economic, market and financial conditions and its experience in other transactions as well as its knowledge of the banking industry and its general experience in securities valuations.

Without independent verification, MJC assumed the accuracy and completeness of the financial and other information and representations contained in the materials provided by Bancorp 34 and in discussions with Bancorp 34. MJC assumed that financial forecasts, including, without limitation, the projections regarding under-performing and nonperforming assets and net charge-offs were reasonably prepared on a basis reflecting best currently available information and judgments of Bancorp 34, and that the forecasts will be realized in the amounts and at the times contemplated thereby. MJC did not evaluate the loan and lease portfolio to assess the adequacy of the allowances for losses, and assumed that the allowance is adequate to cover loan and lease losses. MJC did not conduct a physical inspection of any properties or facilities, did not review individual credit files, and did not make an independent evaluation or appraisal of any properties, assets, or liabilities of Bancorp 34 or CBOA, or any of their respective subsidiaries and MJC was not furnished with any such evaluations or appraisals. MJC assumed that the merger will be consummated substantially in accordance with the terms set forth in the merger agreement. MJC further assumed that the merger will be accounted for as a purchase under generally accepted accounting principles. MJC assumed that the merger is, and will be, in compliance with all laws and regulations that are applicable to Bancorp 34 and CBOA.

MJC reviewed the financial terms of the proposed merger. Pursuant to the terms of the merger agreement, at the effective time of the merger each share of CBOA common stock issued and outstanding immediately prior to the effective time of the transaction, except for certain shares as set forth in the merger agreement, shall be converted into the right to receive, without interest 0.24 shares of Bancorp 34 common stock. MJC calculated an aggregate implied transaction value of approximately $30.2 million and an implied purchase price per share of $2.92 consisting of the implied value of 2,482,704 shares of Bancorp 34 common stock based on the 30-day VWAP of Bancorp 34’s common stock as of April 18, 2023. Based upon financial information for CBOA as of or for the last twelve months (“LTM”) ended March 31, 2023 and the closing price of CBOA’s common stock on April 18, 2023, MJC calculated the following implied transaction metrics:

Transaction Price Per Share / March 31, 2023 Tangible Book Value Per Share	97	%
Transaction Price Per Share / LTM Earnings Per Share	8.8	x
Transaction Price Per Share / Estimated 2024 Earnings per Share	12.0	x
Tangible Book Value Premium to Core Deposits⁽¹⁾	(0.3	%)
Market Premium as of April 18, 2023	8.1	%

(1)

Calculated as (aggregate deal value minus target’s tangible common equity) divided by (target’s non-time deposits).

Present Value.

Using CBOA’s projected earnings and tangible book value for years ending December 31, 2023 through December 31, 2025 and assuming 7.5% to 9.0% annual asset growth through 2027, based on CBOA guidance, MJC estimated the terminal value of CBOA’s common stock as a multiple of tangible book value and as a multiple of earnings per share. MJC discounted the terminal values back to present value using a range of discount rates. For terminal values at the end of the fifth year, MJC performed two analyses, one assuming a trading multiple range from 1.40x to 1.60x times projected tangible book value per share, and the other assuming a trading multiple range from 13.0x to 17.0x times projected earnings per share. MJC calculated the present value of these terminal amounts based on discount rates ranging from 10.9% to 12.9%. These rates and values were chosen to reflect different assumptions regarding the required rates of return of holders or prospective buyers of CBOA’s common stock. The number of shares of CBOA common stock outstanding remained constant in the projections at the then current number outstanding of 13,568,835 beginning in 2025E. Based on projecting earnings per share of $0.41 in 2027 and tangible book value per share value of $4.50 at the end of 2027 and applying a range of multiples of earnings per share and tangible book value per share, MJC arrived at a range of present values from a low of $3.44 to a high of $4.29 on a tangible book value per share basis, and a low of $2.89 to a high of $4.13 on an earnings per share basis.

Terminal value as a multiple of tangible book value per share, discounted to present value
		Discount Rate
		10.9%	11.4%	11.9%	12.4%	12.9%
Terminal Price / TBV	1.40x	$3.76	$3.67	$3.59	$3.51	$3.44
	1.45x	$3.89	$3.80	$3.72	$3.64	$3.56
	1.50x	$4.02	$3.94	$3.85	$3.76	$3.68
	1.55x	$4.16	$4.07	$3.98	$3.89	$3.80
	1.60x	$4.29	$4.20	$4.10	$4.01	$3.93

Terminal value as a multiple of earnings per share, discounted to present value
		Discount Rate
		10.9%	11.4%	11.9%	12.4%	12.9%
Terminal Price / EPS	13.0x	$3.16	$3.09	$3.02	$2.96	$2.89
	14.0x	$3.41	$3.33	$3.26	$3.18	$3.11
	15.0x	$3.65	$3.57	$3.49	$3.41	$3.34
	16.0x	$3.89	$3.81	$3.72	$3.64	$3.56
	17.0x	$4.13	$4.04	$3.95	$3.87	$3.78

Comparable Transactions.

MJC reviewed a group of comparable merger and acquisition transactions selected by MJC consisting of whole commercial bank, savings bank, and thrift acquisition transactions throughout the United States announced on or after January 1, 2021 with publicly available pricing data and in which the target’s total assets were less than $500 million and target assets to buyer assets between 20% – 100%, resulting in 18 transactions satisfying the criteria. The group of comparable merger and acquisition transactions is summarized in the table immediately following.

18 U.S. Transactions
Acquirer Information		Target Information			Transaction Overview
							Multiples / Ratio
Company	State	Company	City, State	Total Assets ($millions)	Announce Date	Deal Value ($millions)	price to last 12 months earnings per share (x)	price to tangible book value (x)	tangible book value premium / core deposits (%)
Fisher Bancorp, Inc.	IL	Butler Point, Inc.	Catlin, IL	$84.4	10/11/22	$11.2	12.1x	1.37x	4.5%
Thumb Bancorp, Inc.	MI	Exchange State Bank Corp.	Carsonville, MI	$212.8	8/29/22	$29.9	16.0x	1.74x	6.9%
Middlefield Banc Corp.	OH	Liberty Bancshares, Inc.	Ada, OH	$437.3	5/26/22	$64.4	13.5x	1.19x	NA
Rosedale Federal Savings and Loan Association	MD	CBM Bancorp, Inc.	Baltimore, MD	$249.5	1/28/22	$63.2	50.7x	1.26x	9.1%
Carver Financial Corporation	GA	Alamerica BanCorp, Inc.	Birmingham, AL	$15.4	1/14/22	$1.1	NA	0.77x	(6.6%)
Gouvrneur Bancorp, Inc.	NY	Citizens Bank of Cape Vincent	Cape Vincent, NY	$87.2	1/6/22	$8.4	31.8x	1.16x	1.5%
InBankshares, Corp	CO	Legacy Bank	Wiley, CO	$497.3	11/30/21	$56.0	8.8x	1.33x	3.9%
Friendship Bancshares, Inc.	MO	St. Elizabeth Bancshares, Inc.	Saint Elizabeth, MO	$198.9	10/27/21	$33.8	9.4x	1.67x	8.7%
Bank7 Corp.	OK	Watonga Bancshares, Inc.	Watonga, OK	$253.8	10/7/21	$32.0	36.1x	1.41x	4.3%
Eagle Bancorp Montana, Inc.	MT	First Community Bancorp, Inc.	Glasgow, MT	$376.8	10/1/21	$41.3	7.2x	1.40x	4.1%
SouthPoint Bancshares, Inc.	AL	Merchants Financial Services, Inc.	Cullman, AL	$388.8	8/25/21	$45.4	13.0x	1.50x	4.9%
Newtek Business Services Corp	FL	National Bank of New York City	Flushing, NY	$203.6	8/2/21	$20.0	20.6x	0.55x	NM

18 U.S. Transactions
Acquirer Information		Target Information			Transaction Overview
							Multiples / Ratio
Company	State	Company	City, State	Total Assets ($millions)	Announce Date	Deal Value ($millions)	price to last 12 months earnings per share (x)	price to tangible book value (x)	tangible book value premium / core deposits (%)
First Western Financial, Inc.	CO	Teton Financial Services, Inc.	Wilson, WY	$420.5	7/22/21	$47.8	17.6x	1.27x	3.0%
Savings Bancorp, Inc.	OH	SSNB Inc.	Lancaster, OH	$107.1	6/15/21	$17.5	NA	NA	NA
Southern California Bancorp	CA	Bank of Santa Clarita	Santa Clarita, CA	$421.2	4/27/21	$56.4	15.6x	1.25x	5.2%
First Bancorp of Taylorville, Inc.	IL	Mackinaw Valley Financial Services, Inc.	Mackinaw, IL	$95.4	4/23/21	$6.1	NA	1.66x	3.5%
Fidelity D&D Bancorp, Inc.	PA	Landmark Bancorp, Inc.	Pittston, PA	$353.7	2/26/21	$44.0	32.4x	1.21x	3.0%
First National Corporation	VA	Bank of Fincastle	Fincastle, VA	$256.3	2/18/21	$31.6	19.3x	1.04x	0.7%
		25th Percentile		$130.1		$18.1	12.6x	1.19x	3.0%
		Average		$258.9		$33.9	20.3x	1.28x	3.8%
		Median		$251.6		$32.9	16.0x	1.27x	4.1%
		75th Percentile		$385.8		$47.2	26.2x	1.41x	5.0%

MJC calculated the average, median, 25^th percentile rank, and 75^th percentile rank in terms of deal price as a percent tangible book value; deal price as a percent of LTM earnings per share, and deal price minus tangible book value as a percent of core deposits. MJC applied these results to produce a range of implied values for CBOA common stock based on LTM earnings per share, tangible book value, and core deposits as of March 31, 2023; taking the average of deal price as a percent of last-twelve-months earnings per share, deal price as a percent of tangible book value, and deal price minus tangible book value as a percent of core deposits to establish a range from 25^th percentile to 75^th percentile and median. MJC utilized the 25^th percentile, median, and 75^th percentile multiples to determine an implied value of CBOA’s common stock. Based on this analysis of the selected transactions, the implied value of CBOA common stock using the average of the three multiples ranged from $3.83 to $5.71 when all transactions were considered as summarized in the tables immediately following.

18 U.S. transactions
	Deal price multiple			CBOA implied value per share
	25^hpercentile	Median	75^thpercentile	25^thpercentile	Median	75^thpercentile
Deal price as a percent of last 12 months earnings per share	12.6x	16.0x	26.2x	$4.17	$5.30	$8.69
Deal price as a percent of tangible book value	1.19x	1.27x	1.41x	$3.58	$3.81	$4.22
Deal price minus tangible book value, as a percent of core deposits	3.0%	4.1%	5.0%	$3.74	$4.00	$4.23
	Three factor average			$3.83	$4.37	$5.71

Operating Metrics.

MJC considered CBOA’s financial performance as of or for the twelve months ended March 31, 2023 relative to the selected group of target institutions, considering target financial performance as of or for the most recent twelve months ended at the transaction announcement dates. Specifically, MJC considered four financial metrics: (1) tangible common equity as a percent of total assets, (2) last 12 months’ return on average assets, (3) last 12 months’ return on average equity, and (4) nonperforming assets as a percent of total assets. For this purpose, nonperforming assets include all nonaccrual loans, loans 90 days or more past due but still accruing, restructured loans, and other real estate owned.

		Total Assets ($ millions)	Tangible common equity as a percent of total assets	Last 12 months’ return on assets	Last 12 months’ return on equity	Nonperforming assets as a percent of total assets
18 U.S. Transactions	25^thpercentile	$130.1	9.3%	0.38%	3.3%	0.98%
	Average	$258.9	11.2%	0.71%	6.3%	0.75%
	Median	$251.6	10.2%	0.70%	7.0%	0.35%
	75^thpercentile	$385.8	11.8%	1.03%	10.3%	0.10%
	CBOA⁽¹⁾	$371.7	8.4%	1.05%	12.2%	0.00%

(1)

TCE / TA on a consolidated basis, while LTM ROAA, LTM ROAE, and NPAs ratio based on bank level regulatory financial data.

Based on CBOA’s financial performance as measured by these four financial metrics and the Present Value – tangible book value basis, present value – earnings per share basis and the comparable transaction analyses described above, MJC derived an estimated range of minimum and maximum values for CBOA common stock as follows:

	Estimate of value per share
	Minimum	Maximum
Present Value – TBV basis	$3.44	$4.29
Present Value – EPS basis	$2.89	$4.13
U.S. Transactions (18 transactions)	$3.83	$5.71
BCTF’s final offer price⁽¹⁾	$2.92

(1)

Based on the 30-day VWAP of Bancorp 34’s common stock as of April 18, 2023.

Proforma Merger Analysis.

MJC analyzed certain potential pro forma effects of the merger, based on the assumptions that (i) the merger is completed in the fourth calendar quarter of 2023 and (ii) each share of outstanding CBOA common stock will be converted into the right to receive 0.24 shares of Bancorp 34 common stock. MJC also incorporated the following assumptions: (i) financial projections for Bancorp 34 for the years ending December 31, 2023 through December 31, 2025 based on Bancorp 34 management guidance and per MJC thereafter through the year ending December 31, 2028 based on MJC estimates; (ii) internal financial projections for CBOA for the years ending December 31, 2023 through December 31, 2025 based on CBOA management guidance and per MJC thereafter through the year ending December 31, 2028; (iii) purchase accounting adjustments consisting of (a) a credit mark on loans, (b) interest rate mark, (c) core deposit intangibles, (d) time deposit mark, (e) trust preferred securities mark, and (f) lease fair value mark; (iv) estimated annual cost savings based on estimates provided by Bancorp 34 and its representatives; and (v) estimated, pre-tax, one-time transaction costs based on estimates provided by Bancorp 34 and CBOA Financial. The analysis indicated that the merger could be accretive to Bancorp 34’s estimated earnings per share in 2024 and immediately dilutive to estimated tangible book value. In connection with these analyses, MJC considered and discussed with Bancorp 34’s board of directors and senior management of CBOA how the analysis would be affected by changes in the underlying assumptions, including the impact of final purchase accounting adjustments determined at the closing of the merger, and noted that the actual results achieved by the combined company may vary from projected results and the variations may be material.

Based on these analyses and other investigations and assumptions set forth in its opinion, MJC determined that as of April 26, 2023, the date on which the Bancorp 34’s board of directors approved the merger agreement, the exchange ratio was fair from a financial point of view to Bancorp 34.

MJC’s Relationship.

MJC is acting as Bancorp 34’s financial advisor in connection with the merger. MJC received a fee of $100,000 for rendering its written opinion to the Bancorp 34 board of directors concerning the fairness to Bancorp 34 of the exchange ratio. This fee is creditable against a transaction success fee equal to $400,000 which MJC will be entitled to receive if the merger is completed. In addition, Bancorp 34 has agreed to indemnify MJC against certain claims or liabilities arising out of MJC’s engagement. In the two years prior the issuance of this opinion, MJC had a material relationship with Bancorp 34 for which MJC received compensation.

Interests of Bancorp 34’s Directors and Officers in the Merger

New Employment Agreements

In connection with the merger, Bank 34 has entered into a new employment agreement with Mr. Crotty and a new change in control agreement with each of Ms. Yacuel and Mr. Vaughn. For more information regarding the terms of these agreements, see “Executive Compensation and Other Information of Bancorp 34—Narrative to Summary Compensation Table; Employment Agreements with Named Executive Officers,” beginning on page 165.

Interests of CBOA’s Directors and Executive Officers in the Merger

In considering the recommendation of the CBOA board of directors with respect to the merger, CBOA shareholders should be aware that certain of CBOA’s directors and executive officers have interests in the merger, including financial interests that may be different from, or in addition to, the interests of the other CBOA shareholders generally. The CBOA board of directors was aware of and considered these interests during its deliberations of the merits of the merger and in determining to recommend to CBOA shareholders that they vote to approve the CBOA merger proposal and thereby approve the transactions contemplated by the merger agreement, including the merger. These interests are described in more detail below, and certain of them are quantified in the narrative and tables below. These amounts are based on multiple assumptions, which may or may not be accurate on the relevant date, and do not reflect certain compensation actions that may occur before the effective time of the merger.

Accelerated Vesting of CBOA Restricted Stock Units

As of August 10, 2023, three CBOA executive officers held an aggregate of 49,632 unvested CBOA restricted stock units. Under the merger agreement, at the effective time, each outstanding CBOA restricted stock unit will vest (with any performance-based vesting condition applicable to such restricted stock award deemed to have been achieved to the extent set forth in the applicable award agreement) and be cancelled and converted automatically into the right to receive the merger consideration with respect to each share of CBOA common stock underlying such restricted stock unit. The estimated cash value of the aggregate shares of Bancorp 34 common stock that would be issued, together with CGS in lieu of fractional shares to such executive officers upon settlement of the executives’ unvested CBOA restricted stock units if the consummation of the merger occurred on March 31, 2023 is $118,759, based on a price per share of Bancorp 34 common stock of $9.97, the average closing price per share over the first five business days following the announcement of the merger.

Change in Control Payments

Each of Mr. Webster, Mr. Anderson and Mr. Tees, have entered into employment agreements and retention agreements with CBOA, which provide for, among other things, severance benefits following a change in control. The closing of the merger will constitute a change in control for purposes of each employment agreement and retention agreement.

Under each retention agreement, following a change in control, provided that the executive remains employed by CBOA at the time the change in control occurs, the executive is entitled to a lump sum severance payment equal to (i) the executive’s average taxable cash compensation (consisting of salary and cash bonuses only) paid by CBOA over the five most recent tax years preceding the change in control multiplied by (ii) a “change of control multiple” which equals the multiple over the per share tangible book value of CBOA stock disregarding goodwill and any other intangible asset, divided by the total number of CBOA shares issued and outstanding, including any shares reserved for issuance under any equity compensation program or for any warrants issued and outstanding. The following table provides the change in control multiple and the estimated severance payment due to each executive under their respective retention agreement.

Name	Change of Control Multiple⁽¹⁾		Severance Payment ($)
Chris Webster		0.91		275,939
Evan Anderson		0.91		170,931
Paul Tees		0.91		234,194

(1)

The change in control multiple utilizes the tangible book value of CBOA as calculated pursuant to the retention agreement as of March 31, 2023 and the volume-weighted average price of Bancorp 34 common stock as of April 27, 2023.

In addition to the severance payment described above, each retention agreement provides that the executive will be entitled to receive monthly installments equal to the COBRA premium the executive would be obligated to pay if the executive elected, pursuant to COBRA, to continue health care coverage for a maximum period of twelve months. The executives would not be entitled to this benefit if the executive becomes covered by another employer’s group health policy or Medicare.

Each retention agreement also provides that if the value of the aggregate benefits to be received by any executive in connection with a change in control would constitute an “excess parachute payment” under Sections 280G of the Code, the amount of such benefits will be reduced to eliminate the “excess parachute payment.”

New Employment Agreements

In connection with the merger, Bank 34 has entered into employment agreements with each of the above-referenced CBOA executive officers. Mr. Webster has agreed to serve as the President of Bank 34 and Bancorp 34 for a two-year term ending April 30, 2025, that may be extended for additional one-year periods upon each anniversary of the agreement. Mr. Webster’s initial base salary will be $275,000. Mr. Anderson has agreed to serve as the Executive Vice President, Chief Information Officer and Chief Risk Officer of Bank 34 and Bancorp 34 for a two-year term ending April 30, 2023, that may be extended for additional one-year periods upon each anniversary of the agreement. Mr. Anderson’s initial base salary will be $214,500. Mr. Tees has agreed to serve as the Executive Vice President, Chief Credit Officer of Bank 34 for a two-year term ending April 30, 2023, that may be extended for additional one-year periods upon each anniversary of the agreement. Mr. Tee’s initial base salary will be $247,500. In addition to their base salaries, Mr. Webster, Mr. Anderson, and Mr. Tees will be entitled to receive cash bonuses equaling up to 40% of his annual base salary if the employee achieves certain performance levels established from time to time by the board of directors or its authorized designee.

The agreements will provide that each of Mr. Webster, Mr. Anderson and Mr. Tees will be reimbursed for reasonable and necessary travel, mobile cellular and data plans, and other business expenses. The executive officers will participate in Bank 34’s retirement, welfare, health, and other benefit programs. The executive officers will be prohibited from disclosing our trade secrets or confidential information.

The employment agreement provides that, if Bank 34 terminates the executive’s employment without cause prior to a change in control or more than 12 months following a change in control, Bank 34 will pay the executive on the first day of the month following the date of termination, and thereafter on the first day of the month for the next 11 months, compensation in an amount equal to 100% of his then current monthly base salary, plus any bonus earned or accrued through the date of termination.

In addition, if, within 12 months following a change in control Bank 34 terminates an executive without cause or an executive terminates the executive’s employment for good reason, Mr. Webster will be entitled to severance equal to the sum of Mr. Webster’s then current base salary plus the average of his last two years’ bonuses multiplied by two, plus any bonuses awarded for previous years but which have not been paid, and Mr. Anderson and Mr. Tees will be entitled to severance equal to the sum of the executive’s then current base salary plus the average of his last two years’ bonuses, plus any bonuses awarded for previous years but which have not been paid. While we believe the amounts to be paid to Mr. Webster, Mr. Anderson and Mr. Tees upon termination are reasonable compensation for services under the applicable provisions of the Internal Revenue Code, if Bank 34’s independent accounting firm or independent tax counsel determine that payments to the executives would constitute “excess parachute payments,” the payments to the executives will be either delivered in full or reduced such that no portion would be subject to any additional tax liability applicable to the executives as a result of such payments, whichever results in the greatest amount of benefits to the executives, as determined by the Bank 34’s independent accounting firm or independent tax counsel.

Finally, during their employment and for a period of 12 months thereafter (other than a termination within one year following a change in control), the executive officers may not, subject to limited exceptions, (i) compete with us by forming, serving as an organizer, director, or officer of, or consultant to, or acquiring or maintaining more than a 1% passive investment in, a depository financial institution or holding company of a depository financial institution, if the depository institution or holding company has one or more offices or branches within our territory, (ii) solicit our customers for a competing business, or (iii) solicit our employees for a competing business.

Director Arrangements

Immediately after the effective time of merger, Bancorp 34 and Bank 34 will each decrease the size of its board of directors to eight directors and will create three vacancies on each of its board of directors. Each of Bancorp 34 and Bank 34 will then appoint three of the current members of CBOA’s board of directors or other nominees of CBOA, in each case mutually agreed to by Bancorp 34 and CBOA prior to the effective time to serve as directors of the surviving entity and Bank 34, respectively. The three directors nominated by CBOA and agreed to by Bancorp 34 will be nominated for relelection to the board of directors of Bancorp 34 and Bank 34 until the 2025 annual meeting of the stockholders of Bancorp 34 and the Bank.

Indemnification and Insurance

The parties have agreed that following completion of the merger and for a period of six years thereafter, the combined company will indemnify, defend and hold harmless, to the fullest extent permitted by law, all present and former directors, officers, and employees of CBOA and its subsidiaries (in their capacity as such) against any costs and liabilities, based on or arising out of the fact that such person is or was a director, officer, or employee of CBOA or its subsidiaries, and pertaining to matters existing or occurring at or prior to the effective time, and will also advance expenses to such persons to the fullest extent permitted by law, provided that such person provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification. The combined company will maintain in effect for six years after the effective time, the current directors’ and officers’ liability insurance policies maintained by CBOA (provided that the surviving corporation may substitute therefor policies of at least the same coverage and amounts containing terms and conditions which are no less advantageous to such officers and directors), provided that the surviving corporation will not be required to expend more than 200% of the current annual premiums paid by CBOA for such insurance.

Governance of the Combined Company After the Merger

Boards of Directors

Immediately after the effective time of the merger, Bancorp 34 and Bank 34 will decrease the size of each of its board of directors to eight directors, and create three vacancies on each of its board of directors. Each of Bancorp 34 and Bank 34 will then appoint three of the current members of CBOA’s board of directors or other nominees of CBOA, in each case mutually agreed to by Bancorp 34 and CBOA prior to the effective time to serve as directors of the surviving entity and Bank 34, respectively. The three directors nominated by CBOA and agreed to by Bancorp 34 will be nominated for reelection to the board of directors of Bancorp 34 and Bank 34 until the 2025 annual meeting of the stockholders of Bancorp 34 and the Bank.

Listing of Bancorp 34 Common Stock and No Restrictions on Resale

There is no established public trading market for Bancorp 34 common stock. Bancorp 34 common stock is currently quoted under the symbol “BCTF” on the OTC Markets Groups, Inc.’s OTCQB Venture Market. Bancorp 34 has agreed to take all actions reasonably necessary to and otherwise use its reasonable best efforts to permit the shares of Bancorp 34 common stock issued to CBOA shareholders in the merger to be listed on the primary exchange, or broker-dealer network on which Bancorp 34 common stock is listed or quoted. Upon the effectiveness of the registration statement of which this joint proxy statement/prospectus is a part, the shares issued in connection with the merger will be freely transferable under the Securities Act by holders who will not be affiliates of Bancorp 34 after the merger.

Bancorp 34 will become a reporting company pursuant to Section 15(d) of the Exchange Act, and accordingly will file annual, quarterly, and current reports on Forms 10-K, 10-Q, and 8-K with the SEC. These reports will be available on the SEC’s website at http://www.sec.gov. However, by virtue of Bancorp 34 becoming subject to Section 15(d) (as opposed to registering its common stock under Section 12), Bancorp 34 (and its directors, officers and principal stockholders) will not be subject to compliance with Sections 16, 13(d) and 13(f) beneficial ownership reporting and short-swing trading rules. Similarly, Bancorp 34 will not have to comply with the tender offer and proxy rules.

Affiliates of Bancorp 34 may resell shares of Bancorp 34 common stock issued in connection with the merger only if the shares are registered for resale under the Securities Act or an exemption is available. Affiliates of Bancorp 34 may resell under the safe harbor provisions of Rule 144 under the Securities Act or as otherwise permitted under the Securities Act. We encourage any such person to obtain advice of securities counsel before reselling any Bancorp 34 common stock.

Regulatory Approvals Required for the Merger

Completion of the merger is subject to the receipt of all approvals, consents and waivers required to complete the transactions contemplated by the merger agreement from applicable governmental and regulatory authorities, and the expiration of any applicable statutory waiting periods, in each case, without the imposition of a condition or restriction that would reasonably be expected to have a material adverse effect on the combined company. Subject to the terms and conditions of the merger agreement, Bancorp 34 and CBOA have agreed to use their reasonable best efforts to promptly prepare, and within 60 days of the date of the merger agreement file, all necessary documentation, to obtain as promptly as possible all regulatory approvals necessary or advisable to complete the transactions contemplated by the merger agreement. As of the date hereof, Bancorp 34, CBOA and/or their respective subsidiaries have filed notices and applications to obtain the necessary regulatory approvals. Bancorp 34 received the OCC’s approval of its application to merge Commerce Bank of Arizona with and into Bank 34 on August 4, 2023.

Federal Reserve

Completion of the merger is subject, among other things, to approval by the Federal Reserve pursuant to Section 3 of the Bank Holding Company Act of 1956, which we refer to as the BHC Act. In considering the approval of an application under Section 3 of the BHC Act, the Federal Reserve reviews certain factors, including: (i) the competitive impact of the transaction, (ii) the financial and managerial resources of the bank holding companies and banks involved (including consideration of capital adequacy, liquidity, and earnings performance; the competence, experience, and integrity of the officers, directors, and principal shareholders; and the records of compliance with applicable laws and regulations) and the future prospects of the combined organization (including consideration of the current and projected capital positions and levels of indebtedness), (iii) the convenience and needs of the communities to be served, (iv) the effectiveness of the companies in combating money laundering, and (v) the extent to which the proposal would result in greater or more concentrated risks to the stability of the United States banking or financial system.

In considering an application under Section 3 of the BHC Act, the Federal Reserve also reviews the records of performance of the relevant insured depository institutions under the Community Reinvestment Act of 1977, which we refer to as the CRA. In addition, in connection with an interstate merger transaction, the Federal Reserve considers certain additional factors under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, including the capital position of the acquiring bank holding company, state laws regarding the minimum age of the bank to be acquired, the concentration of deposits on a nationwide and statewide basis, and compliance with any applicable state community reinvestment and antitrust laws.

Office of the Comptroller of the Currency

The prior approval of the OCC under the Bank Merger Act is required for the merger of Commerce Bank with and into Bank 34. In reviewing applications under the Bank Merger Act, the OCC must consider a number of factors, including: (i) the effect of a proposed merger on competition, (ii) financial and managerial resources of the depository institutions party to the bank merger and future prospects of the resulting institution, (iii) convenience and needs of the communities to be served, (iv) the effectiveness of both institutions in combating money laundering, and (v) the risk to the stability of the U.S. banking and financial system. Additionally, the OCC considers the capital level of the resulting bank, the conformity of the transaction to applicable law, the purpose of the merger, the impact of the merger on the safety and soundness of the bank, and the effect on the bank’s or savings association’s shareholders, depositors, other creditors and customers. In addition, in connection with an interstate bank merger transaction, OCC considers certain additional factors under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, including the capital position of the acquiring bank, state laws regarding the minimum age of the bank to be acquired, the concentration of deposits on a nationwide and statewide basis, and compliance with any applicable state community reinvestment and antitrust laws.

Additionally, as required by the CRA, and in reviewing the convenience and needs of the communities to be served, the OCC will consider the records of performance of the relevant insured depository institutions under the CRA. Bank 34’s establishment and operation of branches at Commerce Bank’s existing branch locations is also subject to approval by the OCC.

Public Comments and Notice

Furthermore, the BHC Act, the Bank Merger Act, Federal Reserve and OCC regulations require published notice of, and the opportunity for public comment on, the applications to the Federal Reserve and OCC, as applicable, and authorize the Federal Reserve and OCC to hold a public hearing or meeting if the Federal Reserve or OCC, as applicable, determines that a hearing or meeting would be appropriate. The Federal Reserve and the OCC takes into account the views of third party commenters, particularly on the subject of the merging parties’ CRA performance and record of service to their communities. As part of the review process in merger transactions, the Federal Reserve and OCC frequently receive protests from community groups and others. Any hearing, meeting or comments provided by third parties could prolong the period during which the applicable application is under review by the Federal Reserve or the OCC. As of their last respective CRA examinations, Bank 34 received an overall “satisfactory,” and Commerce Bank received an overall “satisfactory,” regulatory rating with respect to CRA compliance.

Waiting Periods

Transactions approved under Section 3 of the BHC Act or the Bank Merger Act generally may not be completed until 30 days after the approval of the applicable federal agency is received, during which time the Department of Justice, which we refer to as the DOJ, may challenge the transaction on antitrust grounds. With the approval of the applicable federal agency and the concurrence of the DOJ, the waiting period may be reduced to no less than 15 days. The commencement of an antitrust action would stay the effectiveness of such an approval unless a court specifically ordered otherwise. In reviewing the merger, the DOJ could analyze the merger’s effect on competition differently than the Federal Reserve or the OCC, and thus it is possible that the DOJ could reach a different conclusion than the Federal Reserve or the OCC regarding the merger’s effects on competition. A determination by the DOJ not to object to the merger may not prevent the filing of antitrust actions by private persons or state attorneys general. There can be no assurance if and when DOJ clearance will be obtained, or as to the conditions or limitations that such DOJ approval may contain or impose.

Additional Regulatory Approvals and Notices

Commerce Bank is regulated by the Arizona Department of Insurance and Financial Institutions, which we refer to as the DIFI. As required by Arizona law, a notice has been filed with the DIFI advising the agency that Commerce Bank intends to merge with and into Bank 34.

Notifications and/or applications requesting approval may be submitted to various other federal and state regulatory authorities and self-regulatory organizations.

Based on information available to us as of the date hereof, Bancorp 34 and CBOA believe that neither the merger nor the bank merger raises substantial antitrust or other significant regulatory concerns and that we will be able to obtain all requisite regulatory approvals. However, neither Bancorp 34 nor CBOA can assure you that all of the regulatory approvals described above will be obtained and, if obtained, we cannot assure you as to the timing of any such approvals, each party’s ability to obtain the approvals on satisfactory terms, or the absence of any litigation challenging such approvals. In addition, there can be no assurance that such approvals will not impose conditions or requirements that would reasonably be expected to have a material adverse effect on the financial condition, results of operations, assets or business of the combined company and its subsidiaries, taken as a whole, after giving effect to the merger. There can likewise be no assurances that U.S. federal or state regulatory authorities will not attempt to challenge the merger on antitrust grounds or for other reasons, or if such a challenge is made, as to the result of such challenge.

If there is an adverse development in either party’s regulatory standing, Bancorp 34 may be required to withdraw some or all of its applications for approval of the merger and the bank merger, and, if possible, resubmit it after the applicable supervisory concerns have been resolved.

THE MERGER AGREEMENT

The following describes certain aspects of the merger, including certain material provisions of the merger agreement. The following description of the merger agreement is subject to, and qualified in its entirety by reference to, the merger agreement, which is attached to this joint proxy statement/prospectus as Annex A and is incorporated by reference into this joint proxy statement/prospectus. We urge you to read the merger agreement carefully and in its entirety, as it is the legal document governing the merger.

Explanatory Note Regarding the Merger Agreement

The merger agreement is included to provide you with information regarding its terms. Neither the merger agreement nor the summary of its material terms included in this section is intended to provide any factual information about Bancorp 34 or CBOA. Factual disclosures about Bancorp 34 and CBOA contained in this joint proxy statement/prospectus may supplement, update or modify the disclosures about Bancorp 34 and CBOA contained in the merger agreement. The merger agreement contains representations and warranties and covenants of the parties customary for transactions of this nature. The representations and warranties contained in the merger agreement were made only for purposes of the merger agreement as of the specific dates therein; were made solely for the benefit of the parties to the merger agreement; may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the merger agreement instead of establishing these matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors are not third-party beneficiaries under the merger agreement and should not rely on the representations and warranties or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of representations and warranties may change after the date of the merger agreement. Accordingly, the representations and warranties in the merger agreement should not be relied on by any person as characterizations of the actual state of facts about Bancorp 34 and CBOA at the time they were made or otherwise.

Structure of the Merger

The boards of directors of Bancorp 34 and CBOA have approved the merger agreement and the transactions contemplated thereby, which provides for the merger of CBOA with and into Bancorp 34, with Bancorp 34 as the surviving company in the merger. Immediately following the completion of the merger, CBOA’s wholly-owned subsidiary, Commerce Bank of Arizona, an Arizona chartered banking corporation, will merge with and into Bancorp 34’s wholly-owned subsidiary, Bank 34, a federally chartered savings association, with Bank 34 as the surviving bank.

Merger Consideration

Each outstanding share of CBOA common stock, will be converted into the right to receive the merger consideration of 0.24 shares of Bancorp 34 common stock (which we refer to as the “exchange ratio” and together with cash in lieu of fractional shares as discussed below, the “merger consideration”), except for treasury stock or shares owned by CBOA or Bancorp 34, in each case, other than in a fiduciary or agency capacity or as a result of debts previously contracted, which will be cancelled, and shares held by shareholders who properly exercise dissenters’ rights.

If, prior to the effective time of the merger, the number of outstanding shares of Bancorp 34 common stock or CBOA common stock is increased, decreased, changed into or exchanged for a different number or kind of shares or securities as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in capitalization, an appropriate and proportionate adjustment will be made to the exchange ratio.

Fractional Shares

Bancorp 34 not issue any fractional shares of Bancorp 34 stock in the merger. Instead, a CBOA shareholder who otherwise would have received a fraction of a share of Bancorp 34 common stock will receive an amount in cash (without interest) in an amount equal to such fractional part of a share of Bancorp 34 common stock multiplied by $12.16.

Governing Documents

After completion of the merger, the articles of incorporation and bylaws of Bancorp 34 in effect immediately prior to the effective time of the merger will be the articles of incorporation and bylaws of Bancorp 34, the surviving entity, until otherwise duly amended or repealed.

Treatment of CBOA Equity Awards

CBOA Restricted Stock

Closing and Effective Time of the Merger

The merger will be completed only if all conditions to the merger discussed in this joint proxy statement/prospectus and set forth in the merger agreement are either satisfied or waived (subject to applicable law). Please see “—Conditions to Complete the Merger.”

The merger will become effective upon the filing of the articles of merger to be filed with the State Department of Assessments and Taxation of Maryland and the Arizona Corporation of Commission – Corporate Division or at such later time as may be mutually agreed upon and specific in the articles of merger. The closing of the merger will take place on a date no later than five business days after the satisfaction or waiver (subject to applicable law) of all the conditions set forth in the merger agreement, unless extended by mutual agreement of the parties. It currently is anticipated that the completion of the merger will occur in the fourth quarter of 2023 subject to the receipt of CBOA shareholder approval, Bancorp 34 stockholder approval, regulatory approvals and other customary closing conditions, but neither Bancorp 34 nor CBOA can guarantee when or if the merger will be completed.

Conversion of Shares; Exchange of Certificates

The conversion of CBOA common stock into the right to receive the merger consideration will occur automatically at the effective time of the merger. After completion of the merger, an exchange agent designated by Bancorp 34 and reasonably acceptable to CBOA, which we refer to as the “exchange agent,” will exchange certificates representing shares of CBOA common stock for the merger consideration to be received pursuant to the terms of the merger agreement.

Letter of Transmittal

As soon as reasonably practicable after the effective time, and in any event within five business days thereafter, the exchange agent will mail to each CBOA shareholder appropriate transmittal materials and instructions on how to surrender shares of CBOA common stock in exchange for the merger consideration such holder is entitled to receive under the merger agreement.

If a certificate for CBOA common stock has been lost, stolen, mutilated, or destroyed, upon (a) the making of an affidavit of that fact by the person claiming such certificate to be lost, stolen, mutilated, or destroyed and (b) the posting by such person of a bond in such amount as Bancorp 34 may reasonably direct as indemnity against any claim that may be made against it with respect to such certificate, the exchange agent will issue in exchange for such lost, stolen, mutilated, or destroyed certificate the merger consideration as provided for in the merger agreement.

Bancorp 34 or its exchange agent will maintain a book entry list of Bancorp 34 common stock to which each former CBOA shareholder is entitled. Certificates evidencing Bancorp 34 common stock into which CBOA common stock has been converted will not be issued.

At the effective time of the merger, there will be no further transfers on the stock transfer books of CBOA of shares of CBOA common stock that were issued and outstanding immediately prior to the effective time, and record holders of certificates or book entry shares that represented outstanding CBOA common stock immediately prior to the effective time of the merger will have no rights with respect to the certificates or book entry shares other than the right to surrender the certificates and receive in exchange the merger consideration.

Withholding

Bancorp 34 and the exchange agent will be entitled to deduct and withhold from any consideration payable under the merger agreement the amounts they are required to deduct and withhold under the Code or any provision of state, local, or foreign tax law or by any taxing authority or governmental entity. If any such amounts are deducted or withheld by Bancorp 34 or the exchange agent, as the case may be, and paid over to the appropriate governmental entity, these amounts will be treated for all purposes of the merger agreement as having been paid to such person from whom they were deducted or withheld.

Dividends and Distributions

No dividends or other distributions declared with respect to Bancorp 34 common stock will be paid to the holder of any unsurrendered certificates or book entry shares of CBOA common stock until the holder surrenders such certificate or book entry shares in accordance with the merger agreement. After the surrender of a certificate in accordance with the merger agreement, the record holder thereof will be entitled to receive any such dividends or other distributions, without any interest, which had previously become payable with respect to the whole shares of Bancorp 34 common stock that the shares of CBOA common stock represented by such certificate have been converted into the right to receive under the merger agreement.

Representations and Warranties

The merger agreement contains customary representations and warranties of each of Bancorp 34 and CBOA relating to their respective businesses. The representations and warranties of Bancorp 34 and CBOA have been made solely for the benefit of the other party, and these representations and warranties should not be relied on by any other person. In addition, these representations and warranties:

have been qualified by information set forth in confidential disclosure schedules in connection with signing the merger agreement, which information modifies, qualifies, and creates exceptions to the representations and warranties in the merger agreement;

will not survive consummation of the merger;

may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties to the merger agreement if those statements turn out to be inaccurate;

are in some cases subject to a materiality standard described in the merger agreement which may differ from what may be viewed as material by you; and

were made only as of the date of the merger agreement or such other date as is specified in the merger agreement.

The merger agreement contains representations and warranties made by each of Bancorp 34 and CBOA relating to a number of matters, including the following:

corporate matters, including due organization and qualification and subsidiaries;

authority relative to execution and delivery of the merger agreement and the absence of conflicts with, or violations of, organizational documents or other obligations as a result of the merger;

required governmental and other regulatory filings and consents and approvals in connection with the merger;

capitalization;

financial statements, internal controls, and books and records;

the absence of undisclosed liabilities;

the absence of certain changes or events;

tax matters;

and the absence of actions that would prevent the merger from qualifying as a “reorganization” under Section 368(a) of the Code;

allowance for loan losses;

loan matters;

interest rate risk management instruments;

investment securities;

deposits;

BSA, AML, OFAC and CRA compliance;

real property and title to assets;

intellectual property;

environmental matters;

compliance with applicable laws;

labor relations and employee benefit plan matters;

certain material contracts;

fiduciary activities;

investment advisory, insurance and broker-dealer matters

mortgage banking matters;

related-party transactions;

legal proceedings;

reports to regulatory authorities;

insurance matters;

inapplicability of takeover statutes;

broker’s fees payable in connection with the merger and fairness opinion; and

the accuracy of information supplied for inclusion in this joint proxy statement/prospectus and other similar documents.

Certain representations and warranties of Bancorp 34 and CBOA are qualified as to knowledge, “materiality” or “material adverse effect.” For purposes of the merger agreement, a “material adverse effect,” means, with respect to CBOA or Bancorp 34, as the case may be, any effect, change, event, circumstance, condition, occurrence or development that, either individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on (i) the business, assets, liabilities, properties, results of operations or financial condition of such Party and its Subsidiaries taken as a whole or (ii) the ability of such Party to consummate the transactions contemplated by this Agreement by the termination date; (provided that with respect to this clause (i), “Material Adverse Effect” shall not be deemed to include the impact of (A) changes in GAAP or applicable regulatory accounting requirements, (B) changes in laws, rules or regulations of general applicability or interpretations thereof by courts or governmental authorities, (C) changes in economic conditions affecting financial institutions generally, including changes in interest rates, credit availability and liquidity, and price levels or trading volumes in securities markets, except to the extent that such company is materially and adversely affected in a disproportionate manner as compared to other comparable participants in the banking industry, (D) changes resulting from the public disclosure of the execution of the merger agreement, public disclosure or contemplated consummation of the transactions contemplated by the merger agreement (including any effect on a party’s relationships with its customers or employees) or actions expressly required by the merger agreement or the pendency of the transactions contemplated by the merger agreement, (E) a decline in the trading price of Bancorp 34’s or CBOA’s common stock or the failure, in and of itself, to meet earnings projections or internal financial forecasts (it being understood that the underlying cause of such decline or failure may be taken into account in determining whether a material adverse effect has occurred), or (F) the occurrence of any natural or man-made disaster or from any outbreak of any disease or other public health event; except, with respect to clauses (A), (B), (C) and (F), to the extent that the effects of such change are materially disproportionately adverse to the business, properties, assets, liabilities, results of operations or financial condition of such party and its subsidiaries, taken as a whole, as compared to other companies in the industry in which such Party and its Subsidiaries operate.

Covenants and Agreements

Conduct of Business Prior to the Completion of the Merger

CBOA and Bancorp 34 have each agreed that, except as expressly contemplated by or permitted by the merger agreement, required by law or as consented to in writing by the other party (such consent not to be unreasonably withheld or delayed), during the period from the date of the merger agreement to the effective time, it will, and will cause each of its subsidiaries to, (a) conduct its business in the usual, regular and ordinary course; (b) use commercially reasonable efforts to maintain and preserve intact its business organization and its assets and maintain its rights and franchises; (c) use commercially reasonable efforts to cause its representations and warranties to be correct at all times; and (d) take no action that would reasonably be expected to adversely affect or materially delay the ability to obtain any necessary approvals of any governmental entity required for the transactions contemplated by the merger agreement, or to perform its respective covenants and agreements under the merger agreement or to consummate the transactions contemplated by the merger agreement.

Additionally, Bancorp 34 and CBOA have undertaken further covenants. Prior to the effective time (or earlier termination of the merger agreement), subject to specified exceptions, CBOA may not, and may not permit any of its subsidiaries to, without the prior written consent of Bancorp 34 (which consent will not be unreasonably withheld or delayed), undertake the following:

amend its articles of incorporation or bylaws or comparable governing documents of its subsidiaries;

incur any indebtedness for borrowed money, other than in the ordinary course of business consistent with past practice or grant any lien on any material asset of such entity;

repurchase, redeem, or otherwise acquire or exchange, directly or indirectly, any shares, or any securities convertible into any shares, of the capital stock of CBOA or is subsidiaries, except pursuant to the settlement of CBOA equity awards in accordance with their terms;

issue, sell or otherwise permit to become outstanding any additional shares of capital stock or securities convertible or exchangeable into, or exercisable for, any shares of its capital stock or any options, warrants, or other rights of any kind to acquire any shares of capital stock, except pursuant to the settlement of CBOA equity awards in accordance with their terms;

declare or pay any dividend or make any other distribution in respect of CBOA’s capital stock, other than dividends from wholly owned subsidiaries of CBOA to CBOA;

sell, lease, transfer, mortgage, encumber or otherwise dispose of any of its properties or assets with a book value greater than $150,000, other than in the ordinary course of business consistent or as contemplated by the merger agreement;

adjust, split, combine or reclassify any capital stock or issue or authorize the issuance of any other securities in respect of or in substation for shares of CBOA common stock, or sell, lease, mortgage, or otherwise dispose of any shares of capital stock of any subsidiary of CBOA;

acquire or announce an intention to acquire or enter into any agreements providing for any acquisitions of, direct or indirect control over any other business or entity or otherwise make an investment in any other business, entity or assets outside the ordinary course of business, with certain exceptions;

except as required under any employee benefit plan in effect as of the date of the merger agreement, (i) increase the compensation or benefits payable to any current or former employee, officer, director or individual independent contractor, except for nonmaterial increases in base salary in an amount not in excess of 4% annually or benefits made in the ordinary course of business consistent with past practice, including specifically, but not limited to, in connection with the opening of new branches or offices, (ii) pay or award, or commit to pay or award, any bonuses or incentive compensation, (iii) establish, amend or terminate any employee benefit plan or collective bargaining agreement or (iv) take any action to accelerate any employee payment or benefit;

hire, transfer or promote any employee or other service provider CBOA or any of its subsidiaries, who has or will have a target annual compensation opportunity of $150,000 or more, or terminate the employment of any employee or other service provider of CBOA or any of its subsidiaries who has a target annual compensation opportunity of $150,000 or more other than for cause;

grant any equity interests or awards, or enter into any agreement with respect to the voting of its capital stock;

except as disclosed on CBOA’s confidential disclosure memorandum, adopt any new employee benefit plan of such entity or terminate or withdraw from, or make any material change in or to, any existing employee benefit plans other than any such change that is required by law or to maintain continuous benefits at current levels or that is necessary or advisable to maintain the tax qualified status of any such plan, or make any distributions from such employee benefit plans, except as required by law, the terms of such plans or in the ordinary course consistent with past practice;

make or change any material tax election different from its prior course of practice, settle or compromise any material tax liability, or fail to file any tax return when due, with certain exceptions;

make any change to its tax or accounting practices or methods, principles or practices, except as required by accounting standards or law;

commence or settle any material legal proceedings, other than in the ordinary course of business, or settlements which (i) solely involve monetary remedies in an amount not to exceed $25,000 individually or $50,000 in the aggregate, (ii) reasonably would not be expected to prohibit or restrict CBOA or its subsidiaries from operating its respective businesses in the ordinary course and (iii) does not involve any admission of wrongdoing by CBOA or its subsidiaries;

enter into, renew, amend or terminate any material contract other than (i) renewing or terminating any material contract in the ordinary course of business or (ii) entering into a new material contract which calls for aggregate annual payments of not more than $100,000 and which is terminable on sixty (60) days or less notice without payment of any termination fee or penalty;

change in any material respect its credit policies and collateral eligibility requirements and standards except as required by Law or polices or guidance issued by any governmental authority;

with certain exceptions, make, acquire, or issue a commitment for (i) any commercial real estate loan in a principal amount greater than $4,000,000, (ii) any residential loan to be retained in its loan portfolio in a principal amount greater than $1,000,000 or with loan to value ratios in excess of CBOA’s internal polices in effect as of the merger agreement, or (iii) any commercial and industrial loan in a principal amount in excess of $2,000,000;

extend additional funds to a loan qualified as “criticized,” except for protective advances and extensions of credit of up to $500,000;

restructure or materially change its investment securities portfolio or its interest rate risk position, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported, in each case except as required by a governmental authority (except that, subject to CBOA’s prior consultation with Bancorp 34, the foregoing does not prohibit the reinvestment of the proceeds of maturing investment securities into investment securities of the type currently held in CBOA’s or its subsidiaries’ investment securities portfolio);

make any capital expenditures in excess of $100,000 other than pursuant to binding commitments existing as of the date of the merger agreement and as necessary to maintain existing assets in good repair or to make payments of necessary taxes;

file any application to relocate or terminate the operations of, any banking office, or establish or commit to the established of any new branch or other office or facilities;

enter into any new line of business or change in any material respect its lending, investment, underwriting, risk and asset liability management, interest rate or fee pricing with respect to depository accounts, hedging and other material banking and operating policies or practices, except as consistent with prudent banking practices;

fail to use commercially reasonable efforts to maintain existing insurance policies or comparable replacement policies;

acquire or accept any brokered deposit having a maturity longer than one year, except in the ordinary course of business;

adopt a plan of complete or partial liquidation or dissolution or enter into any restructuring or reorganization;

take or fail to take any action that would prevent the merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code;

take or fail to take any action that would reasonably be expected to cause CBOA’s representations and warranties in the merger agreement to be inaccurate in any material respect or preclude CBOA form making such representations and warranties at the time of closing of the merger;

take any action that is intended or reasonably likely to result in the failure of any closing condition of the merger or to otherwise delay the consummation of the merger;

take any action that is intended or reasonably likely to delay or affect the ability CBOA to obtain any regulatory approvals required to complete the merger; or

agree to take, make any commitment to take, or adopt any resolutions of the CBOA of directors in support of, any of the actions prohibited by the merger agreement.

Prior to the effective time (or earlier termination of the merger agreement), subject to specified exceptions, Bancorp 34 may not, and may not permit any of its subsidiaries to, without the prior written consent of CBOA (which consent will not be unreasonably withheld or delayed), undertake the following:

except as disclosed in Bancorp 34’s confidential disclosure memorandum, amend its articles of incorporation or bylaws or comparable governing documents of its subsidiaries in a manner (i) that changes any material term or provision of Bancorp 34’s common stock, (ii) that would adversely affect the holders of CBOA common stock relative to the holders of Bancorp 34 common stock or the economic benefits to the merger to the holders of CBOA common stock, or (iii) that would materially impede Bancorp 34’s ability to consummate the merger;

adjust, split, combine or reclassify any capital stock or equity interest, or set any record or payment dates of the payment of any dividends or distributions on its capital stock or other equity interest or make or declare or pay any dividend or distribution (except for (i) dividends paid in the ordinary course of business by any direct or indirect wholly owned subsidiary of Bancorp 34 to Bancorp 34 or any other direct or indirect wholly owned subsidiary of Bancorp 34, and (ii) quarterly cash dividends at a rate not in excess of $0.07 per share of Bancorp 34 voting and non-voting common stock consistent with past practice and consistent with record and payment dates as have been utilized in the past);

sell, lease, transfer, mortgage, encumber or otherwise dispose of any capital stock in any material subsidiary of Bancorp 34;

acquire or announce an intention to acquire or enter into any agreements providing for any acquisitions of, direct or indirect control over any other business or entity;

merge or consolidate with any other party or restructure, reorganize or completely or partially liquidate or dissolve, in each case if such transaction would reasonably be expected to prevent or materially delay the ability of Bancorp 34 and CBOA to consummate the merger;

make any change to its tax or accounting practices or methods, principles or practices, except as required by accounting standards or law;

change in any material respect its credit policies and collateral eligibility requirements and standards except as required by law or polices or guidance issued by any governmental authority;

extend additional funds to a loan qualified as “criticized,” except for protective advances and extensions of credit of up to $500,000;

restructure or materially change its investment securities portfolio or its interest rate risk position, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported, in each case except as required by a governmental authority (except that the foregoing does not prohibit the reinvestment of the proceeds of maturing investment securities into investment securities of the type currently held in Bancorp 34’s or its subsidiaries’ investment securities portfolio;

except as disclosed in Bancorp 34’s confidential disclosure memorandum, enter into any new line of business or change in any material respect its lending, investment, underwriting, risk and asset liability management, interest rate or fee pricing with respect to depository accounts, hedging and other material banking and operating policies or practices, except as consistent with prudent banking practices;

fail to use commercially reasonable efforts to maintain existing insurance policies or comparable replacement policies;

acquire or accept any brokered deposit having a maturity longer than one year, except in the ordinary course of business;

adopt a plan of complete or partial liquidation or dissolution or enter into any restructuring or reorganization;

take or fail to take any action that would prevent the merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code;

take or fail to take any action that would reasonably be expected to cause Bancorp 34’s representations and warranties in the merger agreement to be inaccurate in any material respect or preclude Bancorp 34 form making such representations and warranties at the time of closing of the merger;

take any action that is intended or reasonably likely to result in the failure of any closing condition of the merger or to otherwise delay the consummation of the merger;

take any action that is intended or reasonably likely to delay or affect the ability Bancorp 34 to obtain any regulatory approvals required to complete the merger; or

agree to take, make any commitment to take, or adopt any resolutions of the Bancorp 34 of directors in support of, any of the actions prohibited by the merger agreement.

Regulatory Matters

Bancorp 34 and CBOA have agreed to promptly prepare and file with the SEC a registration statement on Form S-4, which this joint proxy statement/prospectus forms a part and Bancorp 34 has agreed to promptly prepare and file with the SEC a registration statement, in which this joint proxy statement/prospectus will be included as a prospectus. Bancorp 34 and CBOA have agreed to use reasonable best efforts to have the Form S-4 declared effective by the SEC, and Bancorp 34 and CBOA will thereafter as promptly as practicable mail or deliver this joint proxy statement/prospectus to their respective stockholders and shareholders. With CBOA’s cooperation, Bancorp 34 will take any action required to be taken under applicable state securities laws in connection with the merger.

Bancorp 34 and CBOA have agreed to cooperate and use their respective reasonable best efforts to promptly prepare and file, or cause to be prepared and filed, all necessary documentation, to effect all applications, notices, petitions and filings, to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties and governmental entities which are necessary or advisable to consummate the transactions contemplated by the merger agreement and to comply with the terms and conditions of all such permits, consents, approvals and authorizations of all such government entities. However, in no event will Bancorp 34 or CBOA be required to take any action or commit to take any action or agree to any condition or restriction, in connection with obtaining the required permits, consents, approvals and authorizations of governmental entities that would reasonably be expected to have a material adverse effect on the surviving company and its subsidiaries, taken as a whole, after giving effect to the merger, which we refer to as a “burdensome condition.” Bancorp 34 and CBOA have also agreed to furnish each other with all information reasonably necessary or advisable in connection with any statement, filing, notice or application to any governmental entity in connection with the merger, as well as to promptly keep each other apprised of the status of matters related to the completion of the transactions contemplated by the merger agreement.

Employee Benefit Matters

As of the effective time of the merger or the bank merger, as applicable, all employees of CBOA and Commerce Bank will become employees of Bancorp 34 or Bank 34, which we refer to as a “continuing employee.” Each continuing employee will be employed on the same terms and conditions as similarly situated employees of Bancorp 34 or Bank 34 and eligible to participate in each applicable Bancorp 34 employee health and benefit plan with full credit for prior service with CBOA for purposes of eligibility and vesting except for benefit accruals other than paid time off, vacation and severance policies and plans, and Bancorp 34 will make available employer-provided benefits under Bancorp 34’s health and benefit plans to each continuing employee on the same basis as it provides such coverage to similarly situated CBOA or Commerce Bank employees. Bancorp 34 will use commercially reasonable efforts to cause any pre-existing condition, eligibility waiting period, or other limitations or exclusions otherwise applicable under such plans to new employees not to apply to a continuing employee or their covered dependents who were covered under a similar CBOA health or benefit plan immediately prior to the effective time of the merger.

Bancorp 34 has agreed that any continuing employees who are not parties to an employment, change in control, or other type of agreement that provides for severance or other compensation upon a change in control or upon a separation from service following a change in control, who remain employed by Bancorp 34 or any of its subsidiaries as of the effective time of the merger, and whose employment is terminated without cause by Bancorp 34 or any of its subsidiaries prior to the first anniversary of the effective time of the merger, will receive, subject to such continuing employee’s execution and non-revocation of a general release of claims in a form reasonably satisfactory to Bancorp 34: one week of base salary for continuing employees with less than 12 months of prior employment with CBOA, one week per year of service for continuing employees with more than 12 months but less than six years of prior employment with CBOA, and two weeks of base salary for each year of service for continuing employees with more than six years of prior employment with CBOA, subject to a maximum of 16 weeks of base salary.

Simultaneously with the execution of the merger agreement, Paul Tees, Chris Webster and Evan Anderson entered into the form of the employment agreement attached to the merger agreement. For a discussion of these employment agreements see the section entitled “Interests of CBOA Directors and Executive Officers in the Merger” beginning on page 86 of this joint proxy statement/prospectus.

Director and Officer Indemnification and Insurance

The merger agreement provides that following completion of the merger and for a period of six years thereafter, the surviving corporation will indemnify and hold harmless, to the fullest extent permitted by applicable law, all present and former directors or officers of CBOA and its subsidiaries (in their capacity as such) against any costs and liabilities, whether arising before or after the effective time, based on or arising out of the fact that such person is or was a director or officer of CBOA or its subsidiaries, and pertaining to matters existing or occurring at or prior to the effective time, and will also advance expenses to such persons to the fullest extent permitted by applicable law, provided that such person provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification.

The merger agreement requires the surviving corporation to maintain, for a period of six years after completion of the merger, CBOA’s existing directors’ and officers’ liability insurance policy, or policies which provide coverage in an amount not less than the existing coverage and to have other terms not less favorable to the insured persons than the directors’ and officers’ liability insurance policy currently maintained by CBOA, with respect to matters occurring prior to the effective time, subject to a maximum expendable amount equal to 200% of the current annual premiums paid by CBOA, which we refer to as the base amount. In lieu of the foregoing, the surviving corporation may obtain a prepaid “tail” policy with the same terms, conditions and coverage to that described in the preceding sentence, provided that CBOA shall in good faith cooperate with Bancorp 34 prior to the effective time with respect to the procurement of such “tail” policy, including acquiring such “tail” policy through an insurance broker designated by Bancorp 34 and shall not acquire any “tail” policy without Bancorp 34’s prior written consent. If prior to closing, CBOA has not acquired such a “tail” policy, Bancorp 34 may purchase a “tail” directors’ and officers’ liability insurance policy for CBOA and its current directors and officers who are currently covered by CBOA’s directors’ and officers’ liability insurance policy. Such Bancorp 34-purchased “tail” policy will provide coverage in an amount not less than the existing coverage and to have other terms not less favorable to the insured persons than the directors’ and officers’ liability insurance policy currently maintained by CBOA, provided that in no event shall the cost of the “tail” policy exceed the base amount.

Corporate Governance

Effective immediately after the effective time of the merger, Bancorp 34 will decrease the size of its board of directors to 8 directors and shall take steps necessary to create 3 vacancies and appoint 3 current members of the board of directors of CBOA or other nominees of CBOA, in each case as mutually agreed by Bancorp 34 and CBOA prior to the effective time, to serve as directors of Bancorp 34 as the surviving corporation, which directors will be nominated for reelection, including recommendations in favor of such election included in the accompanying proxy materials, until the 2025 annual meeting of stockholders of Bancorp 34.

Effective immediately after the bank merger, Bank 34 will decrease the size of its board of directors to 8 directors and shall take steps necessary to create 3 vacancies and appoint 3 current members of the board of directors of CBOA or other nominees of CBOA, in each case as mutually agreed by Bank 34 and CBOA prior to the effective time, to serve as directors of Bank 34 as the surviving bank in the bank merger, which directors will be nominated for reelection, including recommendations in favor of such election included in the accompanying proxy materials, until the 2025 annual meeting of stockholders of Bancorp 34.

Effective immediately after the effective time of the merger, Bancorp 34 shall, and shall cause Bank 34 to, appoint each of (i) Paul Tees as Chief Credit Officer of Bank 34, (ii) Chris Webster as the President of the Bancorp 34 and of Bank 34, and (iii) Evan Anderson as the Chief Information Officer and Chief Risk Officer of the Bancop34 and of Bank 34, each to serve until the next annual election of officers and until their respective successors are chosen. The remaining officers of Bancorp 34 and Bank 34 in office immediately prior to the effective time of the merger and the effective time of the bank merger, respectively, will continue to serve as the officers of Bancorp 34 as the surviving corporation and Bank 34 as the surviving bank in the bank merger from and after the effective time of the merger and the effective time of the bank merger, respectively, in accordance with the respective bylaws of Bancorp 34 and Bank 34.

Certain Additional Covenants

The merger agreement also contains additional covenants, including, among others, covenants relating to the filing of this proxy statement/prospectus, obtaining required consents, the listing of the shares of Bancorp 34 common stock to be issued in the merger, access to information and delivery of financial statements, public announcements with respect to the transactions contemplated by the merger agreement, and litigation in connection with the merger agreement.

The CBOA Shareholder Meeting and Bancorp 34 Stockholder Meeting

Each of CBOA and Bancorp 34 have agreed to hold a meeting of their respective shareholders/stockholders within 60 days after the registration statement is declared effective for the purpose of voting upon approval of the merger agreement and the transactions contemplated by the merger agreement. Each of CBOA and Bancorp 34 has agreed to use its reasonable efforts to obtain from its shareholders/stockholders the vote required to approve the merger agreement, including by communicating to its shareholders/stockholders its recommendation (and including such recommendation in this joint proxy statement/prospectus) that they approve the merger agreement and the transactions provided for in the merger agreement. However, in certain limited circumstances, and only if the CBOA board, after receiving the advice of its outside counsel and financial advisors, determines in good faith that it would be a violation of its fiduciary duties under applicable law to continue to recommend the merger agreement, then the CBOA board may withdraw, qualify or modify, or propose publicly to withdraw, qualify or modify its recommendation.

Notwithstanding anything in the merger agreement to the contrary, unless the merger agreement has been terminated in accordance with its terms, each of CBOA and Bancorp 34 is required to convene a meeting of its shareholders/stockholders and to submit the merger proposal to a vote of its shareholders/stockholders. In the event there are insufficient shares of common stock represented to constitute a quorum necessary to conduct the business of such meeting, or if on the date of such meeting, CBOA or Bancorp 34, as applicable, has not received proxies representing a sufficient number of shares necessary to obtain approval in favor of the merger proposal, CBOA or Bancorp 34, as applicable, shall adjourn or postpone the shareholders’/stockholders’ meeting; providing, however, CBOA and Bancorp 34 shall only be required to adjourn or postpone the shareholders’/stockholders’ meeting 2 times each in the event that the adjournment results from an insufficient number of shares necessary to obtain the necessary approval of the merger proposal and for adjournments or postponements not exceeding 60 days from the originally scheduled shareholders’/stockholders’ meeting without the prior written consent of the other.

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Agreement Not to Solicit Other Offers

CBOA has agreed that it will not, and will cause its directors, officers, employees, advisors, representatives and affiliates not to, and will use its reasonable best efforts to cause its other employees, and any investment banker, financial adviser, attorney, accountant or other representative retained by it or any of its affiliates not to, directly or indirectly, (i) initiate, solicit, knowingly encourage or facilitate inquiries or proposals with respect to, (ii) engage or participate in any negotiations concerning, enter into any letter of intent, agreement in principle, memorandum of understanding, merger, acquisition, option, joint venture, partnership or other agreement or any other commitment or understanding providing for or otherwise contemplating or (iii) provide any confidential or nonpublic information or data to, or have or participate in any discussions with, any person relating to, any acquisition proposal (including with respect to any inquiries regarding, or the making of, any proposal the consummation of which would constitute an acquisition proposal). For purposes of the merger agreement, an “acquisition proposal” means a proposal for an “acquisition transaction”, which means, any acquisition or purchase from CBOA by any third party (other than Bancorp 34 or any of its affiliates) of 50% or more in interest of the total outstanding voting securities of CBOA, or any tender offer or exchange offer that if consummated would result in any third party (other than Bancorp 34 or any of its affiliates) beneficially owning 50% or more in interest of the total outstanding voting securities of CBOA, or any merger, consolidation, business combination or similar transaction involving CBOA pursuant to which the shareholders of CBOA immediately preceding such transaction hold less than 75% of the equity interests in the surviving or resulting entity (which includes the buyer corporation of any constituent corporation to any such transaction) of such transaction, (ii) any sale or lease (other than in the ordinary course of business), or exchange, transfer, license (other than in the ordinary course of business), acquisition or disposition of 50% or more of the consolidated Assets of CBOA and its subsidiaries, taken as a whole, or (iii) any liquidation or dissolution of CBOA.

However, in the event that prior to the approval of the merger agreement by CBOA’s stockholders, CBOA receives an unsolicited bona fide written acquisition proposal, and CBOA’s board of directors concludes in good faith that there is a reasonable likelihood that such acquisition proposal constitutes or is reasonably likely to result in a superior proposal, it may, and may permit its officers and representatives to, furnish or cause to be furnished nonpublic information or data and participate in negotiations or discussions to the extent that its board of directors concludes in good faith (after receiving the advice of its outside counsel) that failure to take such actions would constitute, or would be reasonably likely to result in, a breach of its fiduciary duties under applicable law, provided that, prior to providing any such nonpublic information, CBOA enters into a confidentiality agreement with such third party on terms no less favorable to it than the confidentiality agreement between CBOA and Bancorp 34. For purposes of the merger agreement, a “superior proposal” means any bona fide written acquisition proposal (on its most recently amended or modified terms, if amended or modified) made by a third party, which, upon acceptance by CBOA, would create a legally binding obligation of such third party (subject to regulatory approval) to consummate the acquisition proposal, on terms that the CBOA’s board of directors determines in its good faith judgment, after consultation with its outside legal counsel and financial advisors, (A) would, if consummated, result in the acquisition of all, but not less than all, of the issued and outstanding shares of CBOA common stock or all, or substantially all, of the assets of CBOA and its subsidiaries on a consolidated basis, and (B) would result in a transaction that (1) involves consideration to CBOA’s shareholders that is more favorable, from a financial point of view, than the consideration to be paid to CBOA’s shareholders pursuant to the merger agreement, considering, among other things, the nature of the consideration being offered and any material regulatory approvals or other risks associated with the timing of the proposed transaction beyond or in addition to those specifically contemplated by the merger agreement, (2) is, in light of the other terms of such proposal, more favorable to CBOA’s shareholders than the merger and the other transactions contemplated by the merger agreement, and (3) is reasonably likely to be completed on the terms proposed, in each case taking into account all legal, financial, regulatory and other aspects of the proposal.

CBOA will immediately cease and cause to be terminated any activities, discussions or negotiations conducted before the date of the merger agreement with any person other than Bancorp 34 and its subsidiaries with respect to any acquisition proposal and will promptly (and in any event within one business day) after the execution of the merger agreement (A) terminate access of the third party to any data room containing any information of or relating to CBOA and its subsidiaries and (B) instruct each such third party that has executed a confidentiality agreement relating to an acquisition proposal to promptly return to CBOA or destroy all information, documents and materials relating to such acquisition proposal or to CBOA or its businesses, operations or affairs that CBOA or its representatives has furnished in accordance with the terms of the confidentiality agreement with such third party. CBOA will promptly (and in any event within two business days) advise Bancorp 34 following receipt of any inquiry regarding, or the making of, any proposal the consummation of which would constitute an acquisition proposal and will provide Bancorp 34 an unredacted copy of any such acquisition proposal and any draft agreements, proposals or other materials received from or on behalf of the person making such inquiry or acquisition proposal, and will keep Bancorp 34 promptly apprised of any related developments, discussions, and negotiations on a current basis.

Adverse Recommendation Change

The CBOA board of directors is required not to (i) fail to recommend to the CBOA shareholders that they adopt and approve the merger agreement and the transactions contemplated thereby or fail to include such recommendation in this joint proxy statement/prospectus, (ii) change, qualify, withhold, withdraw or modify, or publicly propose to change, qualify, withhold, withdraw or modify, in a manner adverse to Bancorp 34, such recommendation, (iii) fail to recommend against acceptance of a tender offer or exchange offer constituting an acquisition proposal within ten business days after the commencement of such tender or exchange offer or (iv) adopt, approve or recommend, or publicly propose to approve or recommend to the CBOA shareholders, an acquisition proposal (each of the actions described in (i) – (iv) being referred to as a CBOA adverse recommendation change).

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Notwithstanding the above, if the CBOA board of directors concludes in good faith (and based upon consultation with outside legal counsel and, with respect to financial matters, its financial advisor) that an acquisition proposal constitutes a superior proposal and that recommending CBOA shareholders adopt and approve the merger agreement and/or including such recommendation in the proxy statement/prospectus would constitute, or would be reasonably likely to result in, a breach of its fiduciary obligations to the CBOA shareholders, the CBOA board of directors may prior to the CBOA shareholder vote effect and adverse recommendation change or, subject to payment of a termination in accordance with the merger agreement, terminate the merger agreement to enter into a definitive agreement with respect to such superior propose as set forth in the merger agreement; provided, however, that the CBOA board of directors may not take such action unless (i) CBOA has complied with its non-solicitation obligations under the merger agreement and (ii) (A) the CBOA board of directors determines in good faith (after consultation with its outside counsel and its financial advisors) that such superior proposal has been made and has not been withdrawn and continues to be a superior proposal after taking into account all adjustments to the terms of the merger agreement that may be offered by Bancorp 34; (B) CBOA has given Bancorp 34 at least five business days’ prior written notice of its intention to take such action, including information and documentation relating to the superior proposal; and (C) before making such adverse recommendation change or electing to terminate the merger agreement, CBOA has negotiated, and has caused its representatives to negotiate in good faith with Bancorp 34 during such notice period to the extent Bancorp 34 wishes to negotiate, to enable Bancorp 34 to revise the terms of the merger agreement such that it would cause such superior proposal to no longer constitute a superior proposal, which such terms CBOA and its board of directors must consider in good faith. In the event of any material revisions to an acquisition proposal that could have an impact, influence, or other effect on the CBOA board of directors’ decision or discussion with respect to whether such proposal is a superior proposal, CBOA must deliver a new written notice to Bancorp 34 and Bancorp 34 will again have the five-business day match right as set forth above.

Conditions to Complete the Merger

The respective obligations of each of Bancorp 34 and CBOA to complete the merger is subject to the satisfaction or waiver of the following conditions:

the approval of the merger agreement by the requisite vote of CBOA shareholders;

the approval of the merger agreement by the requisite vote of Bancorp 34 stockholders;

the receipt and effectiveness of the requisite regulatory approvals contemplated by the merger agreement and the expiration of all statutory waiting periods in respect thereof, without the imposition of a burdensome condition;

the receipt of all consents (other than those described in the preceding bullet) required for consummation of the merger and for the prevention of a default under any contract of such party which, if not obtained or made, would reasonably likely have, individually or in the aggregate, a material adverse effect on such party;

effectiveness of the registration statement on Form S-4 of which this joint proxy statement/prospectus is a part, and the absence of any stop order suspending the effectiveness of such registration statement and the qualification under applicable state securities laws of the shares of the Bancorp 34 common stock to be issued in the merger;

authorization of the Bancorp 34 common stock to be issued in the merger for listing on the primary exchange, or quoted on any broker-dealer network, on which the Bancorp 34 common is listed or quoted;

the absence of any injunction, judgment, order or other legal restraint preventing the consummation of the transactions contemplated by the merger agreement or making the consummation of the merger illegal;

receipt by each party’s tax advisors of an opinion that (a) the merger will be treated as a reorganization within the meaning of Section 368(a) of the Code, and (b) Bancorp 34 and CBOA will each be treated as a party to that reorganization within the meaning of Section 368(b) of the Code;

the accuracy of the representations and warranties of the other party contained in the merger agreement as of the date of the merger agreement and as of the closing date of the merger, without giving effect to any qualification as to materiality or material adverse effect provided in the merger agreement (with certain exceptions) (and the receipt by such party of an officer’s certificate from the other party to such effect);

the performance by the other party in all material respects of all obligations required to be performed by it under the merger agreement at or prior to the closing date of the merger;

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Bancorp 34’s obligation to complete the merger is further subject to:

no more than 7.5% of the aggregate outstanding shares of CBOA stock having taken the actions required under applicable law to qualify as dissenting shares;

the officer agreements attached as forms to the merger agreement have been executed by the proposed respective parties thereto and such parties shall not have advised Bancorp 34 that they intend to breach any such agreement.

CBOA’s obligation to complete the merger is further subject to:

Bancorp 34 shall not have terminated the officer agreements attached as forms to the merger agreement or modify the terms of the applicable officer’s employment thereunder without such officer’s prior written consent.

Neither Bancorp 34 nor CBOA can provide assurance as to when or if all of the conditions to the merger can or will be satisfied or waived by the appropriate party. As of the date of this joint proxy statement/prospectus, neither Bancorp 34 nor CBOA has reason to believe that any of these conditions will not be satisfied.

Termination of the Merger Agreement

The merger agreement may be terminated at any time before the effective time, whether before or after adoption and approval by Bancorp 34 stockholders and CBOA shareholders of the merger has been obtained, in the following circumstance:

by mutual written agreement of the Bancorp 34 and CBOA; or

by either Bancorp 34 or CBOA:

if the approval by CBOA shareholders of the merger proposal is not obtained (provided that this right to terminate is not available if CBOA is in breach of its non-solicitation or stockholder meeting obligations);

if the approval by Bancorp 34 stockholders of the merger proposal is not obtained (provided that this right to terminate is not available if Bancorp 34 is in breach of its non-solicitation or stockholder meeting obligations);

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by Bancorp 34:

if, prior to the receipt of the CBOA shareholders’ adoption and approval of the merger agreement, (i) CBOA has materially breached its obligations to call, give notice of and hold the CBOA shareholders meeting, (ii) CBOA has materially breached its non-solicitation obligations, or (iii) the CBOA board of directors has failed to recommend that CBOA shareholders adopt and approve the merger proposal or has made an adverse recommendation change.

by CBOA:

prior to obtaining the approval of the CBOA shareholders of the merger proposal, in order to accept an acquisition proposal from a third party involving the acquisition of a majority of the outstanding equity interest in, or all or substantially all of the assets and liabilities of CBOA with respect to which the CBOA board has determined in good faith that such proposal, if accepted, is reasonably likely to be consummated on a timely basis, and that such proposal is more favorable to CBOA shareholders than the merger with Bancorp 34; provided CBOA has complied in all material respects with its non-solicitation and shareholder meeting obligations under the merger agreement.

Effect of Termination

If the merger agreement is terminated, it will become void and have no effect, except that (1) CBOA and Bancorp 34 will remain liable for any liabilities or damages arising out of its material breach of any provision of the merger agreement and (2) designated provisions of the merger agreement will survive the termination, including those relating to any payment of a termination fee and the confidential treatment of information.

Termination Fee

CBOA will pay Bancorp 34 a termination fee of $1,200,000 by wire transfer of immediately available funds, which we refer to as the termination fee, if the merger agreement is terminated in the following circumstances:

Bancorp 34 will pay CBOA a termination fee of $1,200,000 by wire transfer of immediately available funds, which we refer to as the termination fee, if the merger agreement is terminated in the following circumstance:

if, prior to receipt of the Bancorp 34 stockholders’ adoption and approval of the merger agreement, (i) Bancorp 34 has materially breached its obligations to call, give notice of, and hold the Bancorp 34 stockholders meeting, (ii) the Bancorp 34 board of directors has failed to recommend that Bancorp 34 stockholders adopt and approve the merger proposal or has made an adverse recommendation change.

Expenses and Fees

All costs and expenses incurred in connection with the merger agreement and the transactions contemplated thereby will be paid by the party incurring such expense.

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Amendment, Waiver and Extension of the Merger Agreement

Subject to compliance with applicable law, the merger agreement may be amended in writing by Bancorp 34 and CBOA at any time before or after the approval of the merger proposal, except that after approval of the merger proposal by CBOA shareholders, there may not be any amendment of the merger agreement that reduces or modifies in any respect the consideration to be received by holders of CBOA common stock.

At any time prior to the effective time, the parties may, to the extent legally permissible, extend the time for the performance of any of the obligations or other acts of the other parties, waive any inaccuracies in the representations and warranties contained in the merger agreement or in any document delivered pursuant to the merger agreement, and waive compliance with any of the agreements or conditions contained in the merger agreement.

Voting and Support Agreements

CBOA Voting and Support Agreements

In connection with, and as a condition to, Bancorp 34 entering into the merger agreement, each of the directors of CBOA and Commerce Bank entered into a voting and support agreement with Bancorp 34. The following summary of the voting and support agreements is subject to, and qualified in its entirety by reference to, the form voting and support agreement attached as Exhibit B to the merger agreement attached as Annex A to this document.

Pursuant to the voting and support agreements, each party to a voting and support agreement has agreed to appear at every meeting of the shareholders of CBOA called, and at every postponement, recess, adjournment or continuation thereof, and on every action, consent or approval (including by written consent) of shareholders of CBOA meeting (in person or by proxy) and to vote his or her shares of CBOA common stock:

in favor of approval of the merger agreement, the merger and the other transactions contemplated by the merger agreement;

in favor of any other matter that is required to be approved by the shareholders of CBOA to facilitate the transactions contemplated by the merger agreement;

against any proposal made in opposition to approval of the merger agreement, the merger and the other transactions contemplated by the merger agreement, or in competition with the merger or the transactions contemplated by the merger agreement;

against any action, proposal, transaction or agreement which could reasonably be expected to result in a breach of any covenant, representation or warranty or other obligation or agreement of CBOA under the merger agreement or shareholder under the voting and support agreement;

against any acquisition proposal other than the merger;

against any proposal, transaction, agreement, amendment of the CBOA organizational documents or other action, in each case which could reasonably be expected to prevent, impede, interfere with, delay, postpone, discourage, frustrate the purposes of or adversely affect the consummation of the merger or the other transactions contemplated by the merger agreement or the fulfillment of the conditions under the merger agreement;

as reasonably directed by Bancorp 34 with respect to any postponement, recess, adjournment, continuation or other procedural matter at any meeting of the shareholders of CBOA relating to any of the matters set forth in the foregoing bulleted list above.

In addition, the voting and support agreements provide that each shareholder party to a voting and support agreement will not:

directly or indirectly sell, transfer, pledge, assign or otherwise dispose of, or enter into any contract, option, commitment or other arrangement or understanding with respect to the sale, transfer, pledge, assignment or other disposition of, any of such shareholder’s shares of CBOA common stock;

enter into any agreement, arrangement or understanding with any person, or take any other action, that violates or conflicts with or could reasonably be expected to violate or conflict with shareholder’s representations, warranties, covenants and obligations under the voting and support agreement;

take any other action that could reasonably be expected to impair or otherwise adversely affect, in any material respect, shareholder’s power, authority and ability to comply with and perform shareholder’s covenants and obligations under the voting and support agreement; or

take any actions that CBOA is prohibited from taking by the non-solicitation provisions in the merger agreement.

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The voting and support agreements will automatically terminate upon the earlier of (i) the effective date of the merger, or (ii) termination of the merger agreement.

As of the record date, shareholders who are party to the voting and support agreements beneficially owned and were entitled to vote an aggregate of approximately [ ] shares of CBOA common stock, which represented approximately [ ]% of the shares of CBOA common stock outstanding on that date.

Bancorp 34 Voting and Support Agreements

In connection with, and as a condition to, CBOA entering into the merger agreement, each of the directors of Bancorp 34 and certain other shareholders entered into a voting and support agreement with CBOA. The following summary of the voting and support agreements is subject to, and qualified in its entirety by reference to, the form voting and support agreement attached as Exhibit C to the merger agreement attached as Annex A to this document.

Pursuant to the voting and support agreements, each party to a voting and support agreement has agreed to appear at every meeting of the stockholders of Bancorp 34 called, and at every postponement, recess, adjournment or continuation thereof, and on every action, consent or approval (including by written consent) of stockholders of Bancorp 34 meeting (in person or by proxy) and to vote his or her shares of Bancorp 34 common stock:

in favor of approval of the merger agreement, the merger and the other transactions contemplated by the merger agreement;

in favor of any other matter that is required to be approved by the stockholders of Bancorp 34 to facilitate the transactions contemplated by the merger agreement;

against any acquisition proposal other than the merger;

against any proposal, transaction, agreement, amendment of the Bancorp 34 organizational documents or other action, in each case which could reasonably be expected to prevent, impede, interfere with, delay, postpone, discourage, frustrate the purposes of or adversely affect the consummation of the merger or the other transactions contemplated by the merger agreement or the fulfillment of the conditions under the merger agreement;

as reasonably directed by CBOA with respect to any postponement, recess, adjournment, continuation or other procedural matter at any meeting of the stockholders of Bancorp 34 relating to any of the matters set forth in the foregoing bulleted list above.

In addition, the voting and support agreements provide that each stockholder party to a voting and support agreement will not:

enter into any agreement, arrangement or understanding with any person, or take any other action, that violates or conflicts with or could reasonably be expected to violate or conflict with stockholder’s representations, warranties, covenants and obligations under the voting and support agreement;

take any other action that could reasonably be expected to impair or otherwise adversely affect, in any material respect, stockholder’s power, authority and ability to comply with and perform stockholder’s covenants and obligations under the voting and support agreement; or

The voting and support agreements will automatically terminate upon the earlier of (i) the effective date of the merger, or (ii) termination of the merger agreement.

As of the record date, stockholders who are party to the voting and support agreements beneficially owned and were entitled to vote an aggregate of approximately [ ] shares of Bancorp 34 common stock, which represented approximately [ ]% of the shares of Bancorp 34 common stock outstanding on that date.

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ACCOUNTING TREATMENT

The merger will be accounted for as a business combination by Bancorp 34 using the acquisition method of accounting. Accordingly, the assets (including identifiable intangible assets) and liabilities (including executory contracts and other commitments) of CBOA as of the effective time will generally be recorded at their respective fair values and added to those of Bancorp 34. Any excess of purchase price over the acquisition accounting values will be recorded as goodwill. Consolidated financial statements of Bancorp 34 issued after the merger will reflect these acquisition accounting values and will not be restated retroactively to reflect the historical financial position or results of operations of CBOA.

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

The following discussion summarizes the anticipated material U.S. federal income tax consequences of the merger generally applicable to U.S. holders (as defined below) of CBOA common stock who exchange their shares of CBOA common stock for shares of Bancorp 34 common stock pursuant to the merger. This summary is based upon the Internal Revenue Code of 1986, as amended, the “Code,” Treasury regulations promulgated thereunder, judicial authorities, published positions of the Internal Revenue Service, the “IRS,” and other applicable authorities, all as in effect on the date of this discussion and all of which are subject to change (possibly with retroactive effect) and differing interpretations.

The following discussion applies only to U.S. holders of CBOA common stock who hold such stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). Further, the discussion does not purport to consider all aspects of U.S. federal income taxation that might be relevant to holders in light of their particular circumstances and does not apply to holders subject to special treatment under the U.S. federal income tax laws (such as, for example, dealers or brokers in securities, commodities or foreign currencies; traders in securities that elect to apply a mark-to-market method of accounting; banks and certain other financial institutions; insurance companies; mutual funds; tax-exempt organizations; holders subject to the alternative minimum tax provisions of the Code; persons who are required to recognize income or gain with respect to the merger no later than such income or gain is required to be reported on an applicable financial statement under Section 451(b) of the Code; partnerships, S corporations or other pass-through entities (or investors therein); regulated investment companies; real estate investment trusts; former citizens or residents of the United States; U.S. expatriates; U.S. holders whose functional currency is not the U.S. dollar; holders who hold shares of CBOA common stock as part of a hedge, straddle, constructive sale or conversion transaction or other integrated investment; U.S. holders who acquired CBOA common stock pursuant to the exercise of stock options, through a tax qualified retirement plan or otherwise as compensation; or holders who exercise dissenters’ rights).

In addition, the discussion does not address any tax consequences arising under any state, local or foreign tax, or under any U.S. federal laws other than those pertaining to income tax, nor does it address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, or any withholding considerations under the Foreign Account Tax Compliance Act of 2010 (including the U.S. Treasury Regulations issued thereunder and intergovernmental agreements entered into pursuant thereto or in connection therewith).

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of CBOA common stock that is, for U.S. federal income tax purposes, (1) an individual citizen or resident of the United States, (2) a corporation, or entity treated as a corporation for U.S. federal income tax purposes, organized in or under the laws of the United States, any state thereof or the District of Columbia, (3) a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) such trust has made a valid election to be treated as a U.S. person for U.S. federal income tax purposes or (4) an estate, the income of which is includible in gross income for U.S. federal income tax purposes, regardless of its source.

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes is a holder of CBOA common stock, the tax treatment of a partner in such partnership generally will depend on the status of the partner and the activities of the partnership. Any entity treated as a partnership for U.S. federal income tax purposes that is a holder of CBOA common stock, and any partners in such partnership, should consult their tax advisors regarding the tax consequences of the merger to their specific circumstances.

All holders of CBOA common stock should consult their tax advisors regarding the specific tax consequences to them of the merger in light of their particular facts and circumstances, including the applicability and effect of any state, local, foreign and other tax laws.

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In General

Consummation of the merger is conditioned upon Bancorp 34 receiving an opinion from Nelson Mullins Riley & Scarborough LLP and upon CBOA receiving an opinion from Otteson Shapiro LLP, dated as of the closing date, in form and substance customary to transactions similar to the merger, both to the effect that, based upon facts, representations and assumptions set forth in such opinions, the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code and Bancorp 34 and CBOA will each be a party to that reorganization within the meaning of Section 368(c) of the Code.

It is the opinion of Nelson Mullins Riley & Scarborough LLP, counsel to Bancorp 34, and Otteson Shapiro LLP, counsel to CBOA, that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code for U.S. federal income tax purposes and that accordingly the material U.S. federal income tax consequences of the merger generally applicable to U.S. holders of CBOA common stock who exchange their shares of CBOA common stock for shares of Bancorp 34 common stock pursuant to the merger will be those set forth in this section entitled “Material U.S. Federal Income Tax Consequences of the Merger.”

The opinions described in the preceding paragraphs are and will be based on, among other things, representation letters from each of CBOA and Bancorp 34, in each case in form and substance reasonably satisfactory to such counsel, and on customary factual assumptions, including, but not limited to, the assumption that the mergers will be consummated in accordance with the terms of the merger agreement. If any of the representations or assumptions upon which those opinions are based is incorrect or incomplete, the validity of the opinions may be affected and the tax consequences of the merger could differ from those described in this joint proxy statement/prospectus. None of these opinions of counsel, including the opinions delivered in connection with the filing of this Registration Statement on Form S-4 of which this joint proxy statement/prospectus forms a part, is binding on the IRS or any court. No ruling has been, or will be, sought from the IRS by Bancorp 34 or CBOA as to the U.S. federal income tax consequences of the merger, and as a result, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth herein. Accordingly, each holder of CBOA common stock should consult its own tax advisor with respect to the particular tax consequences of the merger to such holder.

U.S. Federal Income Tax Consequences to Bancorp 34 and CBOA

Each of Bancorp 34 and CBOA will be a party to the reorganization within the meaning of Section 368(b) of the Code, and neither Bancorp 34 nor CBOA will recognize any gain or loss as a result of the merger.

U.S. Federal Income Tax Consequences to U.S. Holders of CBOA Common Stock

The U.S. federal income tax consequences of the merger to U.S. holders of CBOA common stock generally will be as follows:

a U.S. holder of CBOA common stock generally will not recognize gain or loss upon the exchange of shares of CBOA common stock for shares of Bancorp 34 common stock pursuant to the merger, except with respect to cash received in lieu of fractional shares of Bancorp 34 common stock;

a U.S. holder of CBOA common stock will have an aggregate tax basis in the Bancorp 34 common stock received in the merger (including any fractional shares deemed received and redeemed for cash as described below) equal to the aggregate adjusted tax basis in the shares of CBOA common stock surrendered in the merger; and

a U.S. holder of CBOA common stock will have a holding period for the shares of Bancorp 34 common stock received in the merger (including any fractional share deemed received and redeemed for cash as described below) that includes the holding period of the shares of CBOA common stock surrendered in the merger.

If a U.S. holder acquired different blocks of CBOA common stock at different times or at different prices, the Bancorp 34 common stock such holder receives will be allocated pro rata to each block of CBOA common stock and the basis and holding period of each block of Bancorp 34 common stock received will be determined on a block-for-block basis depending on the basis and holding period of the blocks of CBOA common stock exchanged for such Bancorp 34 common stock.

A U.S. holder of CBOA common stock who receives cash in lieu of a fractional share of Bancorp 34 common stock, generally will be treated as having received such fractional share of Bancorp 34 common stock pursuant to the merger and then as having received cash in redemption of such fractional share of Bancorp 34 common stock. Any such holder generally will recognize gain or loss equal to the difference between the amount of cash received and the tax basis in the fractional share of Bancorp 34 common stock (as set forth above). Such gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if, as of the effective date of the merger, the holding period for such fractional share (including the holding period of shares of CBOA common stock surrendered therefor) exceeds one year. Long-term capital gains of certain non-corporate holders of CBOA common stock, including individuals, are generally taxed at preferential rates. The deductibility of capital losses is subject to limitations.

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Backup Withholding and Reporting Requirements

U.S. holders of CBOA common stock, other than certain exempt recipients, may be subject to backup withholding at a rate of 24% with respect to any cash payment received in the merger in lieu of fractional shares. However, backup withholding will not apply to any U.S. holder that either (a) furnishes to Bancorp 34 a correct taxpayer identification number and certifies that it is not subject to backup withholding by providing a properly completed and signed IRS Form W-9 (or substantially similar form) and otherwise complies with all applicable requirements of the backup withholding rules and Bancorp 34 and its exchange agent have not received notice to the contrary or (b) otherwise proves to Bancorp and its exchange agent that the U.S. holder is exempt from backup withholding.

Backup withholding is not an additional tax. Any amount withheld under the backup withholding rules may be refunded or credited against a U.S. holder’s U.S. federal income tax liability if the required information is supplied to the IRS in a timely manner.

In addition, U.S. holders of CBOA common stock who receive Bancorp 34 common stock as a result of the merger are required to retain permanent records and make such records available to any authorized IRS officers and employees. The records should include the number of shares of CBOA stock exchanged, the number of shares of Bancorp 34 stock received, the fair market value and tax basis of CBOA shares exchanged and the U.S. holder’s tax basis in the Bancorp 34 common stock received.

If a U.S. holder of CBOA common stock that exchanges such stock for Bancorp 34 common stock is a “significant holder” with respect to CBOA and is required to file a U.S. income tax return, the U.S. holder is required to include a statement with respect to the exchange on or with the federal income tax return of the U.S. holder for the year of the exchange, and to retain permanent records of the facts in the statement relating to the merger. A U.S. holder of CBOA common stock will be treated as a significant holder in CBOA if the U.S. holder’s ownership interest in CBOA, immediately before the merger, is 5% or more of CBOA’s issued and outstanding common stock or if the U.S. holder’s basis in the shares of CBOA stock exchanged is one million dollars ($1,000,000) or more. The statement must be prepared in accordance with Treasury Regulation Section 1.368-3 and must be entitled “STATEMENT PURSUANT TO §1.368-3 BY [INSERT NAME AND TAXPAYER IDENTIFICATION NUMBER (IF ANY) OF TAXPAYER], A SIGNIFICANT HOLDER”. The statement must include the names and employer identification numbers of CBOA and Bancorp 34, the date of the merger, and the fair market value and tax basis of CBOA shares exchanged (determined immediately before the merger).

This discussion of certain material U.S. federal income tax consequences is not intended to be, and should not be construed as, tax advice. All holders of CBOA common stock should consult their tax advisors with respect to the application of U.S. federal income tax laws to their particular situations as well as any tax consequences arising under the U.S. federal estate or gift tax rules, or under the laws of any state, local, foreign or other taxing jurisdiction or under any applicable tax treaty.

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following tables show the condensed combined financial information for each of Bancorp 34 and CBOA, as well as unaudited pro forma condensed combined financial information for Bancorp 34 and CBOA reflecting the merger, for the year ended December 31, 2022 and as of and for the three months ended March 31, 2023, and pro forma adjustments described in the accompanying notes. Except as otherwise noted in the footnotes to the table, (a) the financial information included under the “Bancorp 34 Historical” column is derived from the unaudited interim financial statements of Bancorp 34 as of and for the period ended March 31, 2023 and the audited financial statements for the year ended December 31, 2022, and (b) the financial information under the “CBOA Historical” column is derived from CBOA’s unaudited financial statements for the period ended March 31, 2023 and CBOA’s audited financial statements for the year ended December 31, 2022, each of which are included elsewhere in this joint proxy statement/prospectus.

The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting, adjusted from Bancorp 34’s unaudited interim financial statements as of and for the period ended March 31, 2023 and Bancorp 34’s audited financial statements for the year ended December 31, 2022 to give effect to the merger and the estimated acquisition accounting adjustments resulting from the merger. The unaudited pro forma condensed combined balance sheet as of March 31, 2023 in the table below is presented as if the merger occurred on March 31, 2023, and the unaudited pro forma condensed combined statements of income for the three months ended March 31, 2023 and the year ended December 31, 2022 are presented as if the merger occurred on January 1, 2022. You should read such information in conjunction with Bancorp 34’s and CBOA’s consolidated financial statements for the three months ended March 31, 2023 and the year ended December 31, 2022 and related notes, each of which are included elsewhere in this joint proxy statement/prospectus, as well as the accompanying Notes to Unaudited Pro Forma Condensed Combined Balance Sheet and Statements of Income.

The pro forma condensed combined financial information is presented for illustrative purposes only and does not necessarily indicate the financial results of the combined company had the companies actually been combined at the beginning of the period presented. The unaudited pro forma condensed combined financial information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the realization of potential cost savings, revenue synergies, changes in market conditions and asset dispositions, among other factors, and, accordingly, does not attempt to predict or suggest future results. The pro forma condensed combined income statement does not include estimated merger and integration costs expected to be incurred in conjunction with the merger. See Note 4 accompanying the pro forma condensed combined financial information for additional information regarding merger and integration costs.

In addition, as explained in more detail in the accompanying notes, the preliminary allocation of the pro forma purchase price reflected in the pro forma condensed combined financial information is subject to adjustment and may vary significantly from the actual purchase price allocation that will be recorded upon completion of the merger.

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UNAUDITED CONDENSED COMBINED BALANCE SHEET

	As of March 31, 2023
(in thousands) Assets	Bancorp 34 Historical			CBOA Historical			Pro Forma Adjustments			Notes	Pro Forma Bancorp 34 and CBOA
Cash and Cash Equivalents	$	9,774		$	27,828		$	(5,121	)	A		32,481
Investment Securities		63,635			60,389			—				124,024
Loans held-for-sale		—			—			—				0
Total Loans		472,010			277,079			(7,743	)	B		741,346
Allowance for credit losses		(5,383	)		(3,716	)		2,721		C		(6,378	)
Net Loans		466,627			273,363			(5,022	)			734,968
Goodwill		—			—			—				—
Other Intangible assets		—			—			8,840		D		8,840
Premises & Equipment, net		7,982			1,873			—				9,855
Other Assets		26,147			8,933			488		E		35,568
Total Assets	$	574,165		$	372,386			(815	)			945,736

Liabilities and Stockholders’ Equity
Total Deposits	$	460,724		$	307,033		$	(809	)	F		766,948
Borrowings		41,554			29,305			(886	)	G		69,973
Other Liabilities		7,399			4,997			—				12,396
Total Liabilities		509,677			341,335			(1,695	)			849,317

Stockholders’ Equity
Preferred Stock		8			—			—				8
Common Stock, $0.01 par value		39			31,297			(31,272	)	H		64
Additional Paid in Capital		43,205			458			29,853		I		73,516
Retained Earnings (Deficit)		28,474			4,283			(4,306	)	J		30,069
Accumulated Other Comprehensive Income		(5,847	)		(4,987	)		4,987		K		(5,847	)
Unearned ESOP shares ownership plan shares		(1,391	)		—			—				(1,391	)
Total Stockholders’ Equity		64,488			31,051			(880	)			96,419

Total Liabilities and Stockholders’ Equity		574,165			372,386		$	(815	)			945,736

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UNAUDITED CONDENSED COMBINED STATEMENTS OF INCOME

	For the Three Months Ended March 31, 2023
(in thousands, except per share amounts)	Bancorp 34 Historical			CBOA Historical		Pro Forma Adjustments			Notes	Pro Forma Bancorp 34 and CBOA
Interest income
Interest and fees on loans	$	6,110		$	4,356		387		L	$	10,853
Interest on securities and other		555			555		249		M		1,360
Total interest income		6,665			4,912		636				12,213
Interest expense
Deposits		2,201			415		(101	)	N		2,515
Borrowings		395			382		(32	)	O		745
Total interest expense		2,596			797		(133	)			3,260
Net interest income		4,069			4,115		769				8,952
(Benefit from) provision for credit losses		(1	)		—		—				(1	)
Net interest income after provision for loan losses		4,070			4,115		769				8,954
Noninterest income		137			92		—				229
Noninterest expense		3,605			3,127		402		P		7,134
Income before income taxes		602			1,080		367				2,049
Income tax expense		158			278		77		Q		513
Net income	$	444		$	802		290				1,536

Earnings per common share
Basic	$	0.11		$	0.07					$	0.26
Diluted	$	0.11		$	0.07					$	0.26

Weighted average basic shares		3,467			10,326		(7,831	)	AA		5,962
Weighted average diluted shares		3,472			10,375		(7,881	)	AA		5,967

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	For the Year Ended December 31, 2022
(in thousands, except per share amounts)	Bancorp 34 Historical		CBOA Historical		Pro Forma Adjustments			Notes	Pro Forma Bancorp 34 and CBOA
Interest income
Interest and fees on loans	$	21,818	$	13,833	$	1,549		S	$	37,200
Interest on securities and other		1,943		1,864		997		T		4,804
Total interest income		23,761		15,697		2,546				42,004
Interest expense
Deposits		3,684		563		(405	)	U		3,843
Borrowings		1,630		267		(127	)	V		1,770
Total interest expense		5,314		830		(532	)			5,613
Net interest income		18,447		14,867		3,078				36,392
(Benefit from) Provision for credit losses		2,420		37		—		W		2,457
Net interest income after provision for loan losses		16,027		14,830		3,078				33,935
Noninterest income		664		859		5,442		X		6,965
Noninterest expense		15,302		11,017		2,687		Y		29,006
Income before income taxes		1,389		4,672		5,833				11,894
Income tax expense		59		1,210		1,225		Z		2,494
Net income	$	1,330	$	3,462	$	4,608			$	9,400

Earnings per common share
Basic	$	0.56	$	0.36					$	1.59
Diluted	$	0.56	$	0.35					$	1.58

Weighted average basic shares		2,359		9,646		(7,151	)	AA		4,854
Weighted average diluted shares		2,371		9,807		(7,313	)	AA		4,866

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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED

BALANCE SHEET AND STATEMENTS OF INCOME

Note 1—Basis of Presentation

The pro forma condensed combined financial information and explanatory notes have been prepared to illustrate the effects of the merger involving Bancorp 34 and CBOA under the acquisition method of accounting with Bancorp 34 treated as the acquirer. The pro forma condensed combined financial information is presented for illustrative purposes only and does not necessarily indicate the financial results of the combined companies had the companies actually been combined at the beginning of the period presented, nor does it necessarily indicate the results of operations in future periods or the future financial position of the combined entities. Under the acquisition method of accounting, the assets and liabilities of CBOA, as of the effective date of the merger, will be recorded by Bancorp 34 at their respective fair values and the excess of the merger consideration over the fair value of CBOA’s net assets will be allocated to goodwill.

The merger, which is currently expected to be completed in the fourth quarter of 2023, provides that the CBOA shareholders will receive 0.24 shares of Bancorp 34 common stock for each share of CBOA common stock they hold immediately prior to the merger. The value of the merger consideration to shareholders of CBOA of $12.16 per share used herein is based on the estimated fair value of a share of Bancorp 34 common stock.

The pro forma allocation of the purchase price reflected in the pro forma condensed combined financial information is subject to adjustment and may vary from the actual purchase price allocation that will be recorded at the time the merger is completed. Adjustments will include, but not be limited to, changes in (i) CBOA’s balance sheet and operating results through the effective time of the merger; (ii) the aggregate value of merger consideration paid if the fair value of shares of Bancorp 34 on the date the merger becomes effective varies from the estimated fair value of $12.16 per share used herein; (iii) total merger related expenses from amounts included herein; and (iv) the underlying values of assets and liabilities if market conditions differ from current assumptions.

Note 2—Preliminary Purchase Price Allocation

The pro forma adjustments include the estimated purchase accounting entries to record the merger transaction. The excess of the purchase price over the fair value of net assets acquired, net of deferred taxes, is allocated to goodwill. Estimated fair value adjustments included in the pro forma condensed combined financial statements are based upon available information and certain assumptions considered reasonable, and may be revised as additional information becomes available.

Core deposit intangible assets of $8.8 million are included in the pro forma adjustments separate from goodwill and amortized on an accelerated method over ten years. A bargain purchase gain of $5.1 million is included in the pro forma adjustments. The purchase price will be based on the fair value per share of Bancorp 34 common stock at the closing date of the merger, which has not yet occurred. Accordingly, a 10% increase or decrease in the fair value per share of Bancorp 34 common stock would result in a corresponding purchase price and bargain purchase gain adjustment of approximately $3.0 million.

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The preliminary purchase price allocation is as follows:

(in thousands, except per share amounts)
Pro Forma Purchase Price
Equity consideration:
CBOA shares outstanding as of March 31, 2023		10,345
Exchange ratio		0.24
Bancorp 34 shares issued		2,483
Bancorp 34 common share estimated fair value	$	12.16

Equity portion of purchase price			$	30,190

Change in Control consideration⁽¹⁾:
Change in Control portion of purchase price			$	145
Total consideration to be paid (transaction value)			$	30,335

CBOA Net Assets at Fair Value
Assets acquired:
Cash and cash equivalents			$	27,828
Investment securities				60,389
Loans held for sale				—
Net loans				268,341
Premises and equipment, net				1,873
Other intangible assets				8,840
Other assets				8,933
Total assets acquired				376,204

Liabilities assumed:
Deposits				306,224
Borrowings				28,419
Other liabilities				5,784
Total liabilities assumed				340,427
Net assets acquired				35,777
Preliminary pro forma goodwill / (bargain purchase gain)			$	(5,442	)

(1) The fair value of the change in control consideration is based on the excess of the estimated transaction fair value per common share as of March 31, 2023 of $12.16 with 49,632 shares being converted into 11,912 Bancorp 34 shares.

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Note 3—Pro Forma Adjustments

The following pro forma adjustments have been reflected in the pro forma condensed combined financial information. All adjustments are based on current assumptions and valuations, which are subject to change. Not included in the pro forma analysis is a Day 2 CECL adjustment of $2.2 million.

Balance Sheet

A	Adjustments to cash and cash equivalents
	To reflect for estimated pre-tax merger costs of $5.1 million	$	(5,121	)
B	Adjustments to loans
	To reflect the fair value credit discount for CBOA’s non-PCD loans	$	(1,738	)
	To reflect the fair value liquidity discount for CBOA’s PCD and non-PCD loans	$	(6,005	)
		$	(7,743	)
C	Adjustments to allowance for credit losses:
	To reflect elimination of CBOA’s existing allowance	$	3,716
	To reflect allowance for CBOA’s loans designated as PCD loans	$	(995	)
		$	2,721
D	Adjustments to core deposit intangible
	To reflect estimated fair value of core deposit intangible assets	$	8,840
E	Adjustments to other assets
	To reflect net deferred tax asset as a result of the merger fair value adjustments and merger related expenses	$	1,025
F	Adjustments to interest-bearing deposits
	To reflect estimated fair value adjustment for certificates of deposits	$	(809	)
G	Adjustment trust preferred securities
	To reflect the fair value adjustment for trust preferred securities	$	(886	)
H	Adjustments to common stock
	To reflect the elimination of historical CBOA common stock par value	$	(31,297	)
	To reflect increase par value related to new Bancorp 34 common stock issued for CBOA shares	$	25
		$	(31,272	)
I	Adjustments to additional paid-in-capital
	To reflect the elimination of CBOA’s historical additional paid-in-capital	$	(458	)
	To reflect increase in additional paid-in capital related to merger	$	30,311
		$	29,853
J	Adjustments to retained earnings
	To reflect the elimination of CBOA’s historical retained earnings	$	(4,283	)
	To reflect the after- tax provision for credit losses associated with CBOA’s non-PCD loans shown as a direct reduction of retained earnings	$	(1,619	)
	To reflect Bancorp 34’s after-tax merger expenses shown as a direct reduction of retained earnings at Bancorp 34’s 24.9% effective tax rate	$	(3,846	)
	To reflect the bargain purchase gain on CBOA	$	5,442
		$	(4,306	)

K	Adjustment to eliminate accumulated other comprehensive loss	$	4,987

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Three months Ended March 31, 2023
L	Adjustments to interest and fees on loans
	To reflect net accretion of loan credit mark over an estimated 5.00 year average life using the level yield method	$	87
	To reflect net accretion of loan rate mark over an estimated 5.00 year average life using the level yield method	$	300
		$	387
M	Adjustment to taxable securities
	To reflect the fair value of securities which will be accreted into income over 5.0 years	$	249
N	Adjustment to interest expense on deposits
	To reflect amortization of deposits rate mark over an estimated 5.00 average life using the sum of digits method	$	(101	)
O	Adjustment to interest expense on trust preferred securities
	To reflect to amortization of trust preferred securities mark over an estimated 7 year average life using straight-line	$	(32	)
P	Adjustments to other non-interest expenses
	To reflect the amortization of the acquired core deposit intangible asset over a 10.00 year life by the sum of the years digits method	$	(402	)
Q	Adjustment to income tax expense
	To reflect the income tax effect of pro forma adjustments at estimated marginal tax rate of 21%	$	77
R	Adjustment to weighted average shares
	Reflects the issuance of shares of Bancorp 34 common stock in consideration for the outstanding shares of CBOA		2,483
	Reflects the elimination of CBOA’s average shares outstanding		(10,345	)
			(7,862	)

Year ended December 31, 2022
S	Adjustments to interest and fees on loans
	To reflect net accretion of loan credit mark over an estimated 5.00 year average life using the level yield method	$	348
	To reflect net accretion of loan rate mark over an estimated 5.00 year average life using the level yield method	$	1,201
		$	1,549
T	Adjustment to taxable securities
	To reflect the fair value of securities which will be accreted into income over 5.0 years	$	997
U	Adjustment to interest expense on deposits
	To reflect amortization of deposits rate mark over an estimated 3.00 average life using the sum of digits method	$	(405	)
V	Adjustment to interest expense on borrowings
	To reflect amortization of trust preferred securities over an estimated 7.00 year average life using straight-line	$	(127	)
W	Adjustment to provision for credit losses
	To record the one-time provision for credit losses associated with CBOA’s non-PCD loans	$	(2,155	)
X	Adjustments to noninterest income
	To reflect the non-recurring gain on bargain purchase recorded on merger of COBA	$	5,442
Y	Adjustments to other non-interest expenses
	To reflect the amortization of the acquired core deposit intangible asset over a 10.00 year life by the sum of the years digits method	$	(1,607	)
	To reflect the one-time rebranding expense	$	(1,080	)
		$	(2,687	)
Z	Adjustment to income tax expense
	To reflect the income tax effect of pro forma adjustments at estimated marginal tax rate of 21%	$	772
AA	Pro forma earnings per share were calculated by eliminating COBA’s basic and diluted common shares outstanding and adding the issuance of common shares by Bancorp 34.

Note 4—Merger Integration Costs

Total merger and integration costs are estimated to be approximately $6.6 million on a pre-tax basis, with contractually obligated pre-tax merger costs of $4.5 million ($3.4 million net of tax) due at closing. Contractually obligated merger costs are reflected in the pro forma condensed combined balance sheet as part of the pro forma adjustments discussed in Note 3. Merger and integration related costs are not included in the pro forma condensed combined statement of income since they will be recorded in the combined results of operations as they are incurred prior to, or after completion of, the merger and are not indicative of what the historical results of the combined company would have been had the companies actually been combined during the periods presented.

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DISSENTERS’ RIGHTS TO THE MERGER

General

If you hold shares of CBOA common stock, you have the right to dissent from the merger and have the appraised fair value of your shares of CBOA common stock as of the date immediately prior to the effective date of the merger paid to you in cash under the ABCA. The appraised fair value may be more or less than the value of the shares of Bancorp 34 common stock being paid in the merger in exchange for shares of CBOA common stock. If you are contemplating exercising your right to dissent, we urge you to read carefully the provisions of Title 10, Chapter 13 of the ABCA, a copy of which is attached to this joint proxy statement/prospectus as Annex D and which qualify in all respects the following discussion of those provisions, and consult with your legal counsel before electing or attempting to exercise these rights. The following discussion describes the steps you must take if you want to exercise your right to dissent. You should read this summary and the full text of the law carefully.

How to Exercise and Perfect Your Right to Dissent

A shareholder who wishes to assert dissenters’ rights must:

deliver to CBOA before the special meeting written notice of the shareholder’s intent to demand payment for the shareholder’s shares if the merger is completed, and

not vote in favor of the merger.

A shareholder wishing to deliver a notice asserting dissenters’ rights should hand deliver or mail the notice to the following address:

CBOA Financial Inc.

7315 North Oracle Road, Suite 181

Tucson, AZ 85704

Attention: Heather Hansen

A shareholder who wishes to exercise dissenters’ rights generally must dissent with respect to all of the shares the shareholder owns or over which the shareholder has the power to direct the vote. However, if a record shareholder is a nominee for several beneficial shareholders, some of whom wish to dissent and some of whom do not, then the record holder may dissent with respect to all the shares beneficially owned by any one person by notifying CBOA in writing of the name and address of each person on whose behalf the record owner asserts dissenters’ rights. A beneficial shareholder may assert dissenters’ rights directly by submitting to CBOA the record shareholder’s written consent and by dissenting with respect to all the shares of which the shareholder is the beneficial shareholder or over which the shareholder has the power to direct the vote.

A shareholder who does not, prior to the CBOA special meeting, deliver to CBOA a written notice of the shareholder’s intent to demand payment for the shares will lose the right to exercise dissenters’ rights. In addition, any shareholder electing to exercise dissenters’ rights must either vote against the merger or abstain from voting.

If the merger is completed, Bancorp 34 (as the surviving corporation) will, within 10 days after the effective date of the merger, deliver a written notice to all CBOA shareholders who properly gave notice of their intent to exercise dissenters’ rights. The notice will, among other things:

state where the payment demand must be sent and where and when certificates for certificated shares must be deposited;

inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received;

supply a form for demanding payment that includes the date of the first announcement of the terms of the merger and that requires that the person asserting dissenters’ rights certify whether or not the person acquired beneficial ownership of the shares before that date;

set a date by which CBOA must receive the payment demand, which date must be at least 30 but not more than 60 days after the date the notice is delivered; and

be accompanied by a copy of the dissenters’ rights provisions of the ABCA, Sections 10-1320 through 10-1331.

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A shareholder sent a notice as described above must demand payment, certify whether the shareholder acquired beneficial ownership of the shares before the date the terms of the merger were first announced as set forth in the notice, and deposit the shareholder’s certificates in accordance with the terms of the notice. A shareholder who demands payment and deposits the shareholder’s certificates retains all other rights of a shareholder until these rights are canceled or modified.

A shareholder who does not demand payment or does not deposit the shareholder’s certificates if required, each by the date set in the notice, is not entitled to payment for the shareholder’s shares.

The ABCA provides that Bancorp 34 (as the surviving corporation) must pay any dissenter who has complied with the requirements summarized above the “fair value” of the shareholder’s shares plus interest from the effective date of the merger. With respect to a dissenter who did not beneficially own shares of CBOA prior to the public announcement of the merger, Bancorp 34 is not required to make the payment until the dissenter has agreed to accept the payment in full satisfaction of the dissenter’s demands. “Fair value” means the value of the shares immediately before the effective date of the merger, excluding any appreciation or depreciation in anticipation of the merger unless exclusion is inequitable. The “fair value” may be less than, equal to, or greater than the value of the consideration that a CBOA shareholder would be entitled to receive under the merger agreement. Investment banker opinions as to the fairness, from a financial point of view, of the consideration payable in a transaction such as the merger are not opinions as to, and do not address, “fair value” under the ABCA.

Within 30 days of Bancorp 34’s payment (or offer of payment in the case of shares acquired after public announcement of the merger) to a dissenting shareholder, a dissenter dissatisfied with Bancorp 34’s estimate of the fair value may notify Bancorp 34 of the dissenter’s own estimate of the fair value and demand payment of that amount. If Bancorp 34 does not accept the dissenter’s estimate and the parties do not otherwise settle on a fair value, then Bancorp 34 must, within 60 days of receiving the estimate and demand, petition a court to determine fair value.

In view of the complexity of the Arizona statutes governing dissenters’ rights, CBOA shareholders who wish to dissent from the merger and pursue dissenter’s rights should consult their legal advisors.

The failure of a CBOA shareholder to comply strictly with the Arizona statutory requirements will result in a loss of dissenters’ rights. A copy of the relevant statutory provisions is attached as Annex D. You should refer to Annex D for a complete statement concerning dissenters’ rights and the foregoing summary of such rights is qualified in its entirety by reference to Annex D.

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INFORMATION ABOUT BANCORP 34, INC.

In this section, unless the context suggests otherwise, references to “we,” “us,” and “our” mean the combined business of Bancorp 34, Inc. and its wholly-owned subsidiary, Bank 34.

Description of Business

Our Company

Bancorp 34, Inc., a bank holding company headquartered in Scottsdale, Arizona, provides a full spectrum of deposit, lending, treasury management, and online banking products and services through its wholly-owned subsidiary—Bank 34, a covered savings association. Bancorp 34 manages its operations as one unit, and thus does not have separate operating segments. Our common stock is currently quoted on the OTC Markets Groups, Inc.’s OTCQB Venture Market under the symbol “BCTF.”

Bank 34 offers a full range of specialized financial services to business customers as well as relationship-focused services to meet personal, business and financial objectives for its customers. Bank 34 operates three full-service banking centers, one each in Otero and Dona Ana counties in New Mexico and one in Maricopa County, Arizona. Bank 34’s main office and corporate headquarters is located in Scottsdale, Arizona. Bank 34’s business model focuses on two primary areas. The commercial focus is on the credit, deposit and treasury management needs of small businesses and real estate professionals and investors. Bank 34 originates conventional, SBA and USDA loans within its primary market areas. Commercial loan types offered include: owner and non-owner occupied real estate (including construction loans), multi-family loans, and commercial and industrial loans. The consumer focus is on deposit, online banking and ancillary financial service needs of families and businesses served by Bank 34. While most of Bank 34’s real estate loans are secured by properties in the counties served by its branch offices, it does business in other areas of New Mexico, Arizona and the United States.

Bank 34 originates deposits from its business and consumer customers predominantly from the areas where its branch offices are located. Bank 34’s emphasis is on generating business operating accounts and consumer checking and money market accounts.

As of March 31, 2023, we had total assets of $574.2 million, total loans of $472.0 million, total deposits of $460.7 million and total stockholders’ equity of $64.5 million.

History and Growth

Bancorp 34, Inc. is a Maryland corporation that was organized in 2016 and originally headquartered in Alamogordo, New Mexico. Bancorp 34 was formed to be the successor to Alamogordo Financial Corp. upon completion of the second step mutual-to-stock conversion (the “conversion”) of AF Mutual Holding Company (the “MHC”), the top tier mutual holding company of Alamogordo Financial Corp. Alamogordo Financial Corp. was the former mid-tier holding company for Bank 34. Prior to completion of the conversion, approximately 54.7% of the shares of common stock of Alamogordo Financial Corp. were owned by the MHC. In conjunction with the conversion, the MHC and Alamogordo Financial Corp. merged into the Bancorp 34, Inc. The conversion was completed on October 11, 2016. We sold a total of 1,879,484 shares of common stock at $10.00 per share in the second-step offering. Concurrent with the completion of the stock offering, each share of Alamogordo Financial Corp. stock owned by public stockholders (stockholders other than the MHC) was exchanged for 2.0473 shares of our common stock. The conversion was accounted for as a capital raising transaction by entities under common control.

Bancorp 34 common stock was previously traded on the NASDAQ Stock Market. On August 14, 2020, Bancorp 34 notified the NASDAQ Stock Market of its intent to file a Notification of Removal from Listing and/or Registration Under Section 12(b) of the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission on or about August 25, 2020 to effect the voluntary delisting of its common stock from NASDAQ. The delisting of Bancorp 34’s common stock became effective on or about August 25, 2020. As of September 2020, Bancorp 34 also terminated the registration of its common stock under Section 12(b) of the Exchange Act and suspended its periodic reporting obligations with the SEC. Bancorp 34’s common stock is currently quoted on the OTC Markets Groups, Inc.’s OTCQB Venture Market under the symbol “BCTF.”

On December 30, 2022, and January 27, 2023, we entered into Securities Purchase Agreements, which we refer to collectively, as the “securities purchase agreements,” with Castle Creek, Brush Creek and other accredited investors, pursuant to which we sold: (i) 1,359,497 shares of our common stock, par value $0.01 per share, at a purchase price of $14.00 per share; (ii) 820,115 shares of a new series of preferred stock, Series A convertible perpetual preferred stock, par value $0.01 per share, at a purchase price of $14.00 per share (the “Series A Preferred Stock”); and (iii) warrants to purchase 211,667 shares of Non-Voting Common Stock (as defined below) at an exercise price equal to $14.00 per share, in private placement transactions, which we collectively refer to as the “private placement”, for net proceeds of approximately $29.6 million after considering a portion of the placement fee was paid with 62,000 shares of common stock. The final net cash received from the private placement, after all issuance expenses, including placement fees and all other issuance/due diligence costs of $880,660 and $193,302, respectively, was $28.6 million.

In connection with the private placement, effective July 19, 2023, we filed Articles Supplementary with the Maryland State Department of Assessments and Taxation to convert the 1,100,000 shares of Series A Preferred Stock to Castle Creek and other accredited investors to Non-Voting Common Stock. For more information regarding the securities purchase agreements, see Certain Relationships and Related Party Transactions of Bancorp 34-Arrangements with Castle Creek Fund VIII, L.P. and Brush Creek-B 34, LLC, beginning on page 176.

On January 4, 2023, Bank 34 notified the OCC of its election to operate as a covered savings association, which election was confirmed by the OCC, effective January 31, 2023. As a covered savings association, Bank 34 has the same rights and privileges as a national bank that has it main office situated in Scottsdale, Arizona and is subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations that would apply to such a national bank. In addition Bank 34’s activities became subject to the laws, regulations, and safety and soundness expectations as a similarly located national bank, except for certain limited enumerated purposes. For more information regarding the supervision and regulatory requirements of Bank 34, see Supervision and Regulation-Bank Regulation, beginning on page 215.

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Our Competitive Strengths

We believe the following strengths differentiate us from our competitors and position us to execute our business strategy successfully:

Specialized commercial bank operating in key high growth Arizona and New Mexico markets. Following the completion of the merger with CBOA, we will be the second largest commercial bank in Arizona and the largest commercial bank in Arizona with assets under $10 billion. Our extensive suite of financial products and services combined with our growth goals and initiatives has made us attractive to bankers and business development professionals who prefer to work with a specialized commercial bank. Over the past several years our capital investments have focused around building talent and expertise in commercial lending. Combined with the fact that our current footprint, inclusive of the potential merger with CBOA, positions us in growth areas in Arizona and New Mexico, we believe there is a high degree of further organic growth opportunity.

Effective talent and customer acquisition strategy in growth markets benefitting from recent consolidations. The markets we serve have experienced significant bank consolidation, and we have a demonstrated track record in attracting both talent and customers created from this disruption. Particularly in our Arizona and New Mexico markets, we have been able to recruit high quality teams and successfully grow organically. We were able to make significant capital investments in people, technology, and infrastructure to create a top-tier commercial platform, and we recruited seasoned bankers in our markets of operation.

Attractive core deposit franchise. Our deposit franchise is supported by substantial core deposits, which we define as total deposits less certificates of deposit greater than $250,000, less repurchase obligations and brokered deposits. As of March 31, 2023, core deposits comprised 87.2% of total deposits, while noninterest bearing core deposits comprised 20.6% of total deposits. Our core deposit base results from a focus on commercial and consumer banking opportunities in our markets and opportunistic growth in commercial treasury management related accounts across our higher growth markets. We believe that our core deposit generation is powered by our strong personal service, visibility in our markets, broad commercial banking and treasury management product offerings, and convenient services such as remote deposit capture and commercial internet banking. As of March 31, 2023, less than half of bank’s deposit base was uninsured.

Our Market Areas

At June 30, 2022, we operated four branches located in two states, Arizona and New Mexico, which we refer to as our “geographic footprint.”

			Bank 34
State	Total Deposits ($000)⁽¹⁾		# of Branches⁽¹⁾⁽²⁾		Market Share⁽¹⁾			Deposits in Market ($000)⁽¹⁾
Arizona		227,883,554		2		0.12	%		282,886
New Mexico		45,314,085		2		0.39	%		175,248

(1)

Based solely on FDIC data, including total deposits, number of branches, market share and deposits in market as of June 30, 2022.

(2)

The Arizona branches were consolidated into one branch location as of December 31, 2022. Bank 34 currently operates one branch location in Arizona.

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Our Business Strategy

Our goal is to build a premier regional bank serving the key markets of Phoenix and Tucson, Arizona as well as Southern New Mexico, primarily by investing in people, technology and infrastructure to create a top-tier banking platform. Our business is focused on providing specialized commercial and consumer banking services to our clients, with an emphasis on key growth markets. Our unwavering commitment to serving local communities has led to a high-quality core deposit franchise focused in stable and growing markets that provides a low-cost funding base for our lending opportunities. In addition, our growing treasury management businesses provide revenue diversification and fee income generation.

Leverage our Relationships and Service Capabilities to Drive Organic Growth. Our core competencies include a relationship-centered and multi-line sales approach, a focus on collaboration across a highly skilled and seasoned team of bankers and a dynamic ability to provide our clients with the highest quality services and solutions. This strategy has enabled us to attract business customers across our traditional and expanded geographic footprint. The objective is to be a trusted advisor to our clients as they build their businesses with our resources, support and advice. Successful growth has been achieved in both loans and core deposits over the past three fiscal years.

Continue to grow our core deposit franchise. The strength of our deposit franchise is derived from strong, lasting relationships with our clients and a focus on being an integral part of the communities where we do business. Our deposit footprint has provided, and we believe will continue to provide, principal support for the growth of our loan portfolio. As of March 31, 2023, core deposits comprised 87.2% of total deposits, driving a total average deposit cost of 1.91% for the quarter ended March 31, 2023. A key element of our funding strategy is a focus on commercial and consumer banking relationships in our markets, specifically growing traditional commercial and industrial relationships. Additionally, we believe our growing treasury management business will continue to benefit our attractive funding base.

Continue our greater Southern Arizona and New Mexico market expansion. The greater Phoenix and Tucson markets has been a top strategic priority for our organization from an organic and acquisition perspective. The Arizona market has been our fastest growing market and its robust economy will allow for further growth opportunity. In addition to our organic expansion, on a pro forma basis, if we close our proposed merger with CBOA, the acquired CBOA business will represent ~40% of our pro forma deposit base, as of March 31, 2023, and if the merger closes, we anticipate continuing to grow our Southern Arizona deposit base in the years to come.

Engage in Opportunistic M&A. Our executive team will continue to evaluate acquisitions that we believe could produce attractive returns for our stockholders. These could include fee-based businesses, whole bank or branch acquisitions that would improve or expand our market position into geographies with attractive demographics and business trends, expand our existing branch network in existing markets, enhance our earnings power or product and service offerings.

Competition

The financial services industry is highly competitive and we compete for loans, deposits and customer relationships in our geographic footprint. We compete with commercial banks, credit unions, savings institutions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds and other mutual funds, loan production offices and other providers of financial services, including nontraditional financial technology companies or FinTech companies, as well as super-regional, national and international financial institutions that operate offices in our market areas and elsewhere. Many of our nonbank competitors which are not subject to the same extensive federal regulations that govern bank holding companies and banks, may have certain competitive advantages.

We compete for loans principally through the quality of our client service and our responsiveness to client needs in addition to competing on interest rates and loan fees. Management believes that our long-standing presence in the community and personal one-on-one service philosophy enhances our ability to compete favorably in attracting and retaining individual and business customers. We actively solicit deposit-related clients and compete for deposits by offering personal attention, competitive interest rates, and professional services made available through experienced bankers and multiple delivery channels that fit the needs of our markets.

We believe the financial services industry will likely continue to become more competitive as further technological advances enable more financial institutions to provide expanded financial services without having a physical presence in our markets. We have focused on providing value-added products and services to our clients, which we are able to do because of our close relationships with them. We believe our ability to provide a flexible, sophisticated products and a customer-centric process to our customers and clients allows us to stay competitive in the financial services environment.

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Our Banking Services

Our banking segment has been, and is, the cornerstone of our operations and our primary segment, through which we provide a full range of deposit and lending products. We are dedicated to serving the banking needs of businesses, professionals and individuals in our markets through our approach of personalized, relationship-based service. We strive to become trusted advisers to our clients and achieve long-term relationships. We deliver a wide range of banking products and services tailored to meet the needs of our clients across our geographic footprint.

Lending Activities

We offer a range of lending services, including commercial and industrial loans, commercial and residential real estate loans, real estate construction loans, and consumer loans. Our customers are generally commercial businesses, professional services and retail consumers within our market areas.

Our loan portfolio as of the date indicated was comprised as follows:

(Dollars in 000s)	Amount as of March 31, 2023		Percentage of loans
1-4 Family residential real estate	$	59,612		12.8	%
Commercial		53,215		11.5
Consumer and other		1,069		0.2
Construction		49,690		10.7
Non Owner Occupied CRE		188,453		40.6
Owner Occupied CRE		61,678		13.3
Multifamily		59,617		12.8
Total gross loans	$	473,334		100	%

Commercial and Industrial Loans

Our commercial and industrial loans are typically made to small- and medium-sized manufacturing, service, wholesale and retail businesses for working capital and operation needs and business expansions, including the purchase of capital equipment. Commercial and industrial loans include our specialty lending verticals such as public finance offerings to our charter school and municipal based customers, asset based lending and structured finance products. Commercial and industrial also includes our healthcare, SBA and other small business lending products. Commercial and industrial loans generally include lines of credit and loans with maturities of five years or less. Because we are a bank with long standing ties to the businesses and professionals operating in our geographic footprint, we are able to tailor our commercial and industrial loan programs to meet the needs of our clients. Growing our commercial and industrial loan portfolio is an important area of emphasis for us and we intend to continue to grow this portfolio.

Commercial and industrial loans are generally made with operating cash flows as the primary source of repayment, but may also include collateralization by inventory, accounts receivable, equipment and personal guarantees. As a result, the repayment risk is subject to the ongoing business operations of the borrower. Any interruption or discontinuance of operating cash flows from the business, which may be influenced by events not under the control of the borrower such as economic events and changes in governmental regulations, could materially affect the ability of the borrower to repay the loan. Further, commercial and industrial loans may be secured by the collateral described above, which if the business is unsuccessful, typically have values insufficient to satisfy the loan without a loss.

SBA loans. We participate in the SBA 7(a) program in order to meet the needs of our small business. SBA guarantees are conditional and cover a portion of the risk of payment default by the borrower, but not the risk of improper closing and servicing by the lender. As such, prudent underwriting and closing processes are essential to effective utilization of the 7(a) program.

Commercial and Residential Real Estate Loans

Real estate loans are subject to the same general risks as other loans and are particularly sensitive to fluctuations in the value of real estate. Fluctuations in the value of real estate, as well as other factors arising after a loan has been made, could negatively affect a borrower’s cash flow, creditworthiness and ability to repay the loan. When we make new real estate loans, we obtain a security interest in real estate whenever possible, in addition to any other available collateral, to increase the likelihood of the ultimate repayment of the loan. To assess concentration risk, we monitor collateral type and industry concentrations within this portfolio.

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Commercial Real Estate Loans. Our commercial real estate loans consist of both owner-occupied and non-owner occupied commercial real estate loans. The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as offices, warehouses, production facilities, health care facilities, hotels, mixed-use residential/commercial, retail centers, assisted living facilities and self-storage facilities. As of March 31, 2023, $61.7 million of our commercial real estate loan portfolio, or 13.3% of our loan portfolio, was owner-occupied commercial real estate loans, and $188.5 million of our commercial real estate loan portfolio, or 40.6% of our loan portfolio, was non-owner occupied commercial real estate loans. Commercial real estate loans are often larger and involve greater risks than other types of lending. Adverse developments affecting commercial real estate values in our market areas could increase the credit risk associated with these loans, impair the value of property pledged as collateral for these loans, and affect our ability to sell the collateral upon foreclosure without a loss. Furthermore, adverse developments affecting the business operations of the borrowers of our owner-occupied commercial real estate loans could significantly increase the credit risk associated with these loans. Due to the larger average size of commercial real estate loans, we face the risk that losses incurred on a small number of commercial real estate loans could have a material adverse impact on our financial condition and results of operations.

Multifamily Loans. Multifamily loans are those properties that have five or more units with borrowers who are primarily commercial entities. The bank finances loans in several different multifamily types but does not have a concentration in any one type and does not do any specialty lending in this area. As with commercial real estate loans, adverse developments within that sector of the economy could increase the credit risk associated with multifamily loans. These loans are made primarily in our marketplace.

Residential Real Estate Loans. Like our commercial real estate loans, our residential real estate loans are secured by real estate, the value of which may fluctuate significantly over a short period of time as a result of market conditions in the area in which the real estate is located. Adverse developments affecting real estate values in our market areas could therefore increase the credit risk associated with these loans, impair the value of property pledged as collateral on loans and affect our ability to sell the collateral upon foreclosure without a loss or additional losses. We primarily make our residential real estate loans to qualified individuals and investors in accordance with our real estate lending policies, which detail maximum loan to value ratios and maturities. The repayment of these loans are also affected by a borrower’s adverse personal circumstances.

Construction Loans. Our construction real estate loans include commercial construction, land acquisition, and land development loans and single-family interim construction loans to small- and medium-sized businesses and individuals. We target experienced local developers to lend to. Construction loans carry a high risk because repayment of these loans is dependent, in part, on the success of the ultimate project or, to a lesser extent, the ability of the borrower to refinance the loan or sell the property upon completion of the project, rather than the ability of the borrower or guarantor to repay principal and interest.

Deposit Products

We obtain most of our deposits from small and medium-sized businesses and individuals in our markets. We solicit deposits through our relationship-driven team of dedicated and accessible bankers and through community-focused marketing. We emphasize obtaining deposit relationships at loan origination. We provide a high level of customer service to our depositors. We have invested in personnel, business and compliance processes and technology that enable us to acquire, and efficiently and effectively serve, a wide array of business deposit accounts, while continuing to provide the level of customer service for which we are known. We currently offer a comprehensive range of business deposit products and services to assist with the banking needs of our business customers, including a variety of remote deposit and cash management products along with commercial transaction accounts.

Credit Administration and Loan Review

Certain credit risks are inherent in making loans. These include repayment risks, risks resulting from uncertainties in the future value of collateral, risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual borrowers. We seek to control credit risk both through disciplined underwriting of each transaction, as well as active credit management processes and procedures to manage risk and minimize loss throughout the life of a loan. We seek to maintain a broadly diversified loan portfolio in terms of type of customer, type of loan product, geographic area and industries in which our business customers are engaged. We have developed tailored underwriting criteria and credit management processes for each of the various loan product types we offer our customers.

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Underwriting. In evaluating each potential loan relationship, we adhere to a disciplined underwriting evaluation process that includes the following:

understanding the customer’s financial condition and ability to repay the loan;

verifying that the primary and secondary sources of repayment are adequate in relation to the amount and structure of the loan;

observing appropriate loan-to-value guidelines for collateral secured loans; and

ensuring that each loan is properly documented with perfected liens on collateral.

Loan Approval Authority. Our lending activities follow written, non-discriminatory, underwriting standards and loan origination procedures established by our board of directors and management. We have established several levels of lending authority that have been delegated by the board of directors to our Chief Executive Officer, Chief Credit Officer and other personnel in accordance with our loan policy. Authority limits are based on the total exposure of the borrower and are conditioned on the loan conforming to the policies contained in the loan policy. Any loan policy exceptions are fully disclosed to the approving authority.

Ongoing Credit Risk Management. In addition to the tailored underwriting process described above, we perform ongoing risk monitoring and review processes for credit exposures. Although we grade and classify our loans internally, we engage an independent third-party professional firm to perform regular loan reviews and confirm loan classifications. We strive to identify potential problem loans early in an effort to aggressively seek resolution of these situations before they create a loss. We record any necessary charge-offs promptly and maintain adequate allowance levels for probable loan losses incurred in the loan portfolio.

In general, whenever a particular loan or overall borrower relationship is downgraded from a pass grade to a watch or substandard grade based on one or more standard loan grading factors, our relationship manager (who is typically the loan officer) and credit team members engage in active evaluation of the asset to determine the appropriate resolution strategy. Management regularly reviews the status of the watch list and classified assets portfolio as well as the larger credits in the portfolio.

Concentrations of Credit Risk. Diversification of risk is a key factor in prudent asset management. While the loan portfolio is concentrated in real estate, management monitors the diversification within the commercial real estate portfolio closely and no segments exceed 15% of the loan portfolio. Concentration risk is actively monitored by management and reviewed by our board of directors, and exposures relating to borrower, industry and commercial real estate categories are tracked and measured against established policy limits and guidelines.

Lending Limits. Our lending activities are subject to a variety of lending limits imposed by federal law. In general, Bank is subject to a legal lending limit on loans to a single borrower of 15% of the bank’s capital and unimpaired surplus, or 25% if the loan is fully secured. The dollar amounts of the Bank 34’s lending limit increases or decreases as the bank’s capital increases or decreases. We are able to sell participations in its larger loans to other financial institutions, which allows us to better manage the risk and exposure involved with larger loans and to meet the lending needs of our customers requiring extensions of credit in excess of regulatory limits.

Bank 34’s legal lending limit as of March 31, 2023, on loans to a single borrower was $11.3 million (15%), and $18.9 million (25%), for fully secured loans.

Human Capital Resources

We are committed to provide, develop and retain a high performing and diverse workforce that fosters a healthy, safe and productive work environment for our employees to maximize individual and organizational potential and position us as an employer of choice.

Employee Profile. As of March 31, 2023, we had 61 full-time employees and 2 part-time employees. Our employees are not covered by a collective bargaining agreement. We consider our relationship with our employees to be good and have not experienced interruptions of operations due to labor disagreements.

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Compensation and Benefits. We believe our competitive compensation and benefits package, along with our positive and inclusive work environment, bring out the best in our employees. We have designed our compensation program around the philosophy of mutual respect and the continued success of our organization. We know that our most valuable asset is our people. We offer competitive benefits to our employees and their families. These programs include a 401(k) plan with an employer matching contribution, an Employee Stock Ownership Plan (ESOP), healthcare and insurance benefits, flexible spending accounts, paid time off, tuition reimbursement, volunteer and parenting leave and an employee assistance program.

We annually review benefit programs and compensation programs to seek to ensure that we remain competitive in our markets to meet the needs of our employees and their families.

Learning and Development. Our goal is to better equip our managers and leaders with the most effective resources and tools to succeed in their roles. We want to create strong leaders with a platform that allows open communication, provides consistency across regions as well as fosters growth and development. Our goal is to establish strong leaders who will be able to effectively engage their employees to meet and reinforce the mission and goals of Bank 34. We have internal programs for emerging managers and leaders that are designed to train and enhance the skills of our employees to promote career advancement from within our company. In addition, we facilitate the educational and professional development of our employees through financial support to attend conferences and obtain degrees, licenses and certifications while employed by us.

Properties

Our principal executive offices and Bank 34’s main office is located at 8777 East Hartford Drive, Suite 100, Scottsdale, Arizona 85255. In addition, we currently operate two additional branches, one branch located in Las Cruces, New Mexico and one branch located in Alamogordo, New Mexico.

We own both New Mexico banking branches and lease our Scottsdale banking branch. We believe that our facilities are in good condition and are adequate to meet our operating needs for the foreseeable future.

Legal Proceedings

Bancorp 34 and its subsidiaries are from time to time subject to claims and litigation arising in the ordinary course of business. One or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially adversely affect our reputation, even if resolved in our favor.

Available Information

Bancorp 34 does not currently have a class of securities registered under Section 12 of the Securities Exchange Act of 1934, which we refer to as the “Exchange Act,” is not currently subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act, and accordingly does not currently file documents and reports with the SEC pursuant to such sections.

Upon the effectiveness of this registration statement of which this joint proxy statement/prospectus is a part, we will become a reporting company pursuant to Section 15(d) of the Exchange Act and accordingly will file annual, quarterly, and current reports on Forms 10-K, 10-Q, and 8-K with the SEC. These reports will be available on the SEC’s website at http://www.sec.gov. We intend to furnish to our stockholders our annual reports containing our audited consolidated financial statements certified by an independent registered public accounting firm.

We also maintain a website at www.bank34.com. The information on, or accessible through, our website or any other website cited in this joint proxy statement/prospectus is not part of, or incorporated by reference into, this joint proxy statement/prospectus.

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Market For Bancorp 34 Common Stock

There is no established public trading market for Bancorp 34 common stock. Bancorp 34 common stock is currently quoted under the symbol “BCTF” on the OTC Markets Groups, Inc.’s OTCQB Venture Market. The following table sets forth the high and low bid information for our common stock for the periods indicated, which reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions.

	High		Low
Fiscal Year Ended December 31, 2023
Second Quarter	$	12.11	$	8.93
First Quarter	$	13.65	$	11.50

Fiscal Year Ended December 31, 2022
Fourth Quarter	$	14.40	$	13.05
Third Quarter	$	14.75	$	14.06
Second Quarter	$	16.20	$	14.25
First Quarter	$	17.00	$	13.78

Fiscal Year Ended December 31, 2021
Fourth Quarter	$	14.00	$	12.80
Third Quarter	$	13.00	$	12.00
Second Quarter	$	12.65	$	11.94
First Quarter	$	12.30	$	11.18

Dividends on Bancorp 34 Stock

In 2018 Bancorp 34 paid a special dividend of $1.25 per share. In the second quarter of 2019 Bancorp 34 began paying regular quarterly dividends of $0.05 per share. In the first quarter of 2022 the regular quarterly dividend was increased to $0.07 per share.

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Management’s Discussion and Analysis of Financial Condition and Result of Operations of Bancorp 34

In this section, unless the context suggests otherwise, references to “we,” “us,” and “our” mean the combined business of Bancorp 34 and its wholly-owned subsidiary, Bank 34.

The following discussion and analysis of Bancorp 34’s consolidated financial condition and results of operations for the three months ended March 31, 2023, and 2022, and the years ended December 31, 2022, and 2021, should be read in conjunction with Bancorp 34’s consolidated financial statements and related notes thereto included elsewhere in this joint proxy statement/prospectus. Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate trends in operations or results of operations for any future periods.

Comments regarding Bancorp 34’s business that are not historical facts are considered forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements. For additional information regarding our cautionary disclosures, see the “Cautionary Note Regarding Forward-Looking Statements” beginning on page 25 of this joint proxy statement/prospectus.

Overview

Bancorp 34, headquartered in Scottsdale, Arizona, is the bank loan holding company for Bank 34. We conduct a full-service community banking business through our wholly-owned subsidiary Bank 34.

We offer a full range of relationship-focused services to meet our client’s 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.

Bancorp 34 generates most of its income from interest income on loans, investment securities and deposits in other financial institutions, and service charges on customer accounts. Bancorp 34 incurs interest expense 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 Bancorp 34’s 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.

Changes in the market interest rates and interest rates Bancorp 34 earns on interest-earning assets or pays on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities, and shareholders’ equity, are usually the largest drivers of periodic changes in net interest spread, net interest margin, and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions, and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in Bank 34’s loan portfolio are affected by, among other factors, economic and competitive conditions in Arizona and New Mexico, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and homebuilding sectors within Bank 34’s target market.

Bancorp 34 manages its operations as one unit, and thus does not have separate operating segments.

Critical Accounting Estimates

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.

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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 determination of the allowance for loan losses and fair value measurements 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.

Our significant accounting policies are presented in Note 1—Summary of Significant Accounting Policies of our audited consolidated financial statements included in this joint proxy statement/prospectus. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Recent accounting pronouncements and standards that have impacted or could potentially affect us are also discussed in Note 1 of our audited consolidated financial statements.

Allowance for credit losses

A critical accounting policy is our accounting policy related to the allowance for credit losses. The allowance is based in large measure upon management’s evaluation of borrowers’ abilities to make loan payments, local and national economic conditions, and other subjective factors. If any of these factors were to deteriorate, management would update its estimates and judgments which may require additional loss provisions. Effective January 1, 2023, we adopted ASU 2016-13, Financial Instruments – Measurement of Current Expected Credit Losses on Financial Instruments (“CECL”), which modified the accounting for the allowance for loan losses from an incurred loss model to an expected loss model. For further information regarding our Allowance for Credit Losses see Note 1 and Note 3—Loans in our audited consolidated financial statements included elsewhere in this joint proxy statement/prospectus.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based on quoted market prices, or if market prices are not available, is estimated using models employing various techniques.

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.

A portion of our assets and liabilities are carried at fair value on our consolidated balance sheet. The majority of these assets and liabilities are measured at fair value on a recurring basis, however, certain assets are measured at fair value on a nonrecurring basis based on the fair value of the underlying collateral.

For further information regarding the valuation of our financial instruments, see Note 1 and Note 15 - Fair Value Information in our audited consolidated financial statements included elsewhere in this joint proxy statement/prospectus.

Results of Operations

General

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 SBA loans. Other factors contributing to our results of operations include our provisions for loan losses, income taxes, and non-interest expenses, such as salaries and employee benefits, occupancy, amortization of intangible assets and other operating costs.

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We had net income of $444,000 for the first quarter of 2023, compared to net income of $1,046,000 for the first quarter of 2022. The $602,000 decrease in net income for the first quarter of 2023, compared to the same period in 2022, was primarily due to a decrease of $751,000 in net interest income and a $624,000 increase in other expenses. These were partially offset by a $506,000 decrease in the provision for credit losses.

We had net income of $1,300,000 for the year ended December 31, 2022, compared to $4,635,000 for the year ended December 31, 2021. The $3,305,000 decline in net income for the year ended December 31, 2022, compared to the year ended 2021, was primarily due to a $1,920,000 increase in provisions to fund the Allowance for Loan and Lease Losses, a $869,000 increase in salary and benefit expenses, a $846,000 increase in other expenses, a $442,000 decline in gains on loan and investment sales, and a $271,000 decline in net interest income. Provisions for income taxes declined $1,232,000 partially offsetting the aforementioned negative impacts to earnings.

Net Interest Income

Net interest income, representing interest income less interest expense, is a significant contributor to our revenues and earnings. We generate interest income from interest and dividends on interest-earning assets, which are principally comprised of loans and investment securities. We incur interest expense from interest owed or paid on interest-bearing liabilities, including interest-bearing deposits, FHLB advances and other borrowings. Net interest income and margin are shaped by the characteristics of the underlying products, including volume, term, and structure of each product. We measure and monitor yields on our loans and other interest-earning assets, the costs of our deposits and other funding sources, our net interest spread and our net interest margin. 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 the annualized net interest income divided by average interest-earning assets.

Interest earned on our loan portfolio is the largest component of our interest income. Our loan portfolio is presented at the principal amount outstanding net of deferred origination fees and unamortized discounts and premiums. Interest income is recognized based on the principal balance outstanding and the stated rate of the loan. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield on the related loan. Loans acquired through acquisition are initially recorded at fair value. Discounts or premiums created when the loans were recorded at their estimated fair values at acquisition are accreted over the remaining term of the loan as an adjustment to the related loan’s yield.

Our net interest income can be significantly influenced by a variety of factors, including overall loan demand, economic conditions, credit risk, the amount of non-earning assets including nonperforming loans and OREO, the amounts of and rates at which assets and liabilities reprice, variances in prepayment of loans and securities, exercise of call options on borrowings or securities, a general rise or decline in interest rates, changes in the slope of the yield-curve, the relative mix of the various elements of interest earning assets and interest bearing liabilities and balance sheet growth or contraction.

Three Months Ended March 31, 2023, and 2022

Our net interest income was $4,069,000 for the first quarter of 2023, a decrease of $751,000, or 16%, from the same period in 2022. This decrease was primarily attributable to the rapid increase in market interest rates causing the average rates paid on interest bearing liabilities to increase much faster than the average rates paid on interest earning assets. We incurred a $1,932,000, or 292%, increase in interest expense, partially offset by a $1,182,000, or 22%, increase in interest income for the first quarter of 2023, compared to the first quarter of 2022, largely driven by a 198 basis point increase in average rates paid on interest bearing liabilities to 2.64% in the first quarter of 2023 compared to 0.64% in the first quarter of 2022. The average rate paid on interest earning assets increased 82 basis points from the first quarter of 2022 to the first quarter of 2023. Average loans in the first quarter of 2023 were $24,707,000, or 5.6%, larger than the like period in 2022.

Average earning assets for the first quarter of 2023 were $532,962,000, an increase of $9,285,000, or 1.8%, compared to the first quarter of 2022. Total average loans in the first quarter of 2023 were $465,633,000, $24,707,000, or 5.6%, larger than the first quarter of 2022. Average loan yield in the first quarter of 2023 was 65 basis points higher than the first quarter of 2022. Interest income from investment securities in the first quarter of 2023 was $24,000 larger than the first quarter of 2022 due to a 52 basis point increase in average yield, partially offset by an $11,001,000, or 15%, decrease in average balance, respectively.

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Average interest-bearing liabilities decreased $10,835,000, or 2.6%, in the first quarter of 2023, compared to the first quarter of 2022. The $29,527,000, or 68%, decrease in average FHLB borrowings in the first quarter of 2023 compared to the first quarter of 2022 was the primary driver of the decrease in average interest-bearing liabilities. Average interest-bearing deposits were $19,149,000, or 2.1%, larger in the first quarter of 2023 compared to the first quarter of 2022, including a $39,886,000 increase in average certificates of deposit partially offset by $20,737,000 decrease in average interest-bearing demand deposits over those same time periods. We also had growth in average noninterest bearing deposits of $5,989,000 in the first quarter of 2023, compared to the like period in 2022. Deposit growth in the first quarter of 2023 is attributed to an increase in brokered deposits as well as the establishment of a high-yield savings account only accessible through an online banking platform.

Our net interest margin was 3.10% for the first quarter of 2023, compared to 3.73% for the first quarter of 2022, a decrease of 63 basis points. While our total cost of funds increased 198 basis points year over year, we also experienced a 82 basis point increase in yield on our earning assets over the same period, due to the overall increase in market interest rates. Federal Open Market Committee (FOMC) target Federal Funds rates increased 475 basis points through 9 rate hikes between March 2022 and March 2023.

Years Ended December 31, 2022, and 2021

Our net interest income was $18,447,000 for the year ended 2022, a decrease of $271,000 from 2021. This decrease was primarily attributable to a 74 basis point, or 18%, decrease in net interest margin, as rapid market interest rate increases starting in March 2022 caused rates paid on interest-bearing liabilities to increase faster than interest-earning asset yields. FOMC target Federal Funds interest rates remained at historical lows from March 2020 through February 2022 due to fear of COVID-19’s effect on the economy, then increased 425 basis points with 7 rate hikes in 2022 and another 50 basis points with 2 rate hikes in the first quarter of 2023 due to inflation concerns. The margin decrease was partially offset by a $86,661,000, or 19%, increase in average interest-earning assets. Interest income on loans increased $2,346,000 and interest earned on investments increased $296,000 in 2022 as compared to 2021. Interest expense from interest-bearing liabilities increased by $3,152,000 driven by the increases in overall market interest rates.

Average earning assets for 2022 were $532,848,000, an increase of $86,661,000, or 19%, compared to 2021. Total average loans grew to $456,297,000 in 2022, an increase of $85,951,000, or 23%, compared to 2021. The year over year growth in interest income on loans due to growth in loan balances was partially offset by a 48 basis point decline in the yield on loans in 2022, compared to 2021, due mostly to a decrease of $1.7 million in PPP loan interest and fee income from 2021 to 2022 as the majority of PPP loans were paid off in 2021. The average balance of investment securities increased by $9,177,000, or 15%, year over year, while the yield increased 14 basis points.

Average interest-bearing liabilities increased $86,158,000, or 26%, in 2022, compared to 2021. The average interest-bearing liabilities increase included: $45,918,000, or 15%, in deposits, $28,490,000, or 189%, in FHLB advances and $11,749,000, or 96%, in Sub Debt. We also saw growth in noninterest bearing deposits of $9,930,000, or 11%, in 2022, compared to 2021.

Our net interest margin was 3.39% for 2022, compared to 4.20% for 2021, a decrease of 81 basis points. The total cost of funds increase of 61 basis points year over year, and the 27 basis point decline in yield from earning assets over the same period lead to the overall year over year decline in net interest margin. If interest and fee income from the Paycheck Protection Program is deducted from 2021 net interest income, the core net interest margin equates to 3.78% for the year.

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The following tables set forth information related to our average balance sheet, average yields on assets, and average costs of liabilities for the periods presented. We derived these yields by dividing income or expense by the average balance of the corresponding assets or liabilities. We derived average balances from the daily balances throughout the periods indicated.

Three Months Ended March 31, 2023, and 2022

	For the three months ended March 31, 2023								For the three months ended March 31, 2022
(In thousands)	Average Balance		Interest			Average Yield/Rate			Average Balance		Interest			Average Yield/Rate
Interest Earning Assets
Loans⁽¹⁾	$	465,633	$	6,110			5.32	%	$	440,926	$	5,078			4.67	%
Investment securities		63,918		417			2.65	%		74,919		394			2.13	%
Other interest earning assets		13,722		138			16.41	%		14,698		11			0.30	%
Total earning assets		543,273	$	6,665			5.07	%		530,543	$	5,483			4.19	%
Noninterest-earning assets		30,479								25,592
Total assets	$	573,752							$	556,135

Interest-bearing liabilities
Checking, money market and savings deposits	$	279,553	$	1,579			2.29	%	$	286,971	$	261			0.37	%
Time deposits		93,073		622			2.71	%		53,187		95			0.72	%
Total interest-bearing deposits		372,626		2,201			2.40	%		340,158		356			0.42	%
FHLB advances		14,206		132			3.74	%		43,733		43			0.40	%
Subordinated debt, net of issue costs		24,543		263			4.36	%		25,000		264			4.28	%
Total interest-bearing liabilities		411,375	$	2,596			2.56	%		408,891	$	663			0.66	%
Noninterest-bearing deposits		94,301								101,631
Other liabilities		8,835								5,369
Shareholders’ equity		59,241								40,799
Total liabilities and stockholders’ equity	$	573,752							$	556,135

Net interest income			$	4,069							$	4,820
Net interest spread				2.42	%							3.45	%
Net interest margin				3.10	%							3.68	%

(1)	Includes nonaccrual loans.

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Years ended December 31, 2022, and 2021

	For the year ended December 31, 2022								For the year ended December 31, 2021
(In thousands)	Average Balance		Interest			Average Yield/Rate			Average Balance		Interest			Average Yield/Rate
Interest Earning Assets
Loans⁽¹⁾	$	456,297	$	21,818			4.78	%	$	370,346	$	19,472			5.26	%
Investment securities		70,389		1,651			2.35	%		61,212		1,355			2.21	%
Other interest earning assets		17,492		292			4.67	%		14,629		53			0.36	%
Total earning assets		544,178	$	23,761			4.37	%		446,187	$	20,880			4.68	%
Noninterest-earning assets		29,083								35,714
Total assets	$	573,261							$	481,901

Interest-bearing liabilities
Checking, money market and savings deposits	$	294,000	$	2,920			0.99	%	$	247,889	$	880			0.36	%
Time deposits		62,811		764			1.22	%		63,003		605			0.96	%
Total interest-bearing deposits		356,811		3,684			1.03	%		310,892		1,485			0.48	%
FHLB advances		43,533		576			1.32	%		15,042		144			0.96	%
Subordinated debt, net of issue costs		24,489		1,054			4.30	%		12,740		533			4.18	%
Total interest-bearing liabilities		424,832	$	5,314			1.25	%		338,675	$	2,162			0.64	%
Noninterest-bearing deposits		101,790								91,860
Other liabilities		7,932								6,416
Shareholders’ equity		38,706								44,950
Total liabilities and stockholders’ equity	$	573,261							$	481,901

Net interest income			$	18,447							$	18,718
Net interest spread				3.12	%							4.04	%
Net interest margin				3.39	%							4.20	%

(1) Includes nonacrual loans.

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Rate-Volume Analysis

The table below presents the effect of volume and rate changes on interest income and expense. Changes in volume are changes in the average balance multiplied by the previous period’s average rate. Changes in rate are changes in the average rate multiplied by the average balance from the previous period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.

	For the Quarter Ended March 31,
	2023 Versus 2022 Increase (Decrease) Due to Change in:
(In thousands)	Volume			Rate			Total
Interest Earning Assets
Loans	$	296		$	735		$	1,031
Investment securities		(36	)		60			24
Other interest-earning assets		(3	)		130			127
Total interest-earning assets		257			925			1,182

Interest Bearing Liabilities
Checking, money market and savings accounts deposits		(7	)		1,325			1,318
Certificates of deposits		113			414			527
Total deposits		107			1,738			1,845
FHLB advances		(8	)		96			88
Subordinated debt, net of issue costs		—			—			—
Total interest-bearing liabilities		99			1,834			1,933
Net interest income	$	158		$	(909	)	$	(751	)

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Allowance and Provision for Credit Losses

On January 1, 2023, we adopted the ASC 326. The FASB issued ASC 326 (also known as CECL, for Current Expected Credit Losses) to replace the incurred loss model for loans and other financial assets with an expected loss model that requires consideration of a wider range of reasonable and supportable information to determine credit losses. In accordance with ASC 326, we have developed an Allowance for Credit Loss (ACL) methodology effective January 1, 2023, which replaces its previous allowance for loan losses methodology. The ACL is a valuation account that is deducted from loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged-off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Upon adoption, we recorded an increase to the ACL on loans held-for-investment of $604,000, established an ACL on unfunded commitments of $165,000, established an ACL on held-to-maturity investments of $38,000, recorded an increase to deferred tax assets of $152,000, and a corresponding one-time cumulative reduction to retained earnings, net of tax, of $452,000 in the consolidated balance sheet as of January 1, 2023.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environment conditions, such as changes in unemployment rates, property values, or other relevant factors. Management may selectively apply external market data to subjectively adjust our own loss history including index or peer data. Management evaluates the adequacy of the ACL quarterly and makes provisions for credit losses based on this evaluation. See Note B – Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this report for a complete description of our methodology and the quantitative and qualitative factors included in the calculation.

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At March 31, 2023, the ACL was $5,383,000, or 1.14% of loans, an increase of $605,000, or 13% when compared to the allowance for loan losses at December 31, 2022. Due to the adoption of CECL, the increase in the ACL was not taken as a provision expense, but was run through equity, net of tax. At December 31, 2022, the allowance for loan losses was $4,778,000, or 1.03% of loans, an decrease of $550,000, or 10% when compared to December 31, 2021. At December 31, 2021, the allowance for loan losses was $5,328,000, which was 1.28% of loans. We maintain the allowance at a level that management believes is adequate to absorb probable expected losses inherent in the loan portfolio. 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.

The provision for credit losses is a charge to earnings to maintain the ACL at a level consistent with management’s assessment of the collectability of the loan portfolio in light of current economic conditions and market trends. Our provision for credit losses was negative $1,000 for the quarter ended March 31, 2023, $2,420,000 for the year ended December 31, 2022, and $500,000 for the year ended December 31, 2021. In the fourth quarter of 2022, we charged off $2.9 million of a commercial loan and the $1,640,000 provision for that quarter was intended to replenish the allowance to an acceptable level. The 2022 and 2021 increases in the ACL or allowance for loan losses through provisions for credit losses were primarily to cover loan portfolio growth.

At March 31, 2023, management believes the allowance is appropriate and has been derived from consistent application of our methodology. Should any of the factors considered by management in evaluating the appropriateness of the allowance for credit losses change, management’s estimate of inherent losses in the portfolio could also change, which would affect the level of future provisions for credit losses. A significant input into the allowance methodology is forecasted unemployment rate. Given the historically low default and loss given default rates, changes to the forecasted future unemployment rate can significantly change the required allowance level. The forecasted rates used in the model experienced a slight improvement in the first quarter compared to the rates used at the adoption date.

Allowance for Credit Losses on Off Balance Sheet Credit Exposures

On January 1, 2023, we adopted ASC 326. We estimate expected credit losses over the contractual period in which we are exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by us. The ACL on off-balance sheet credit (“OBSC”) exposures is adjusted as a provision for credit loss expense. 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. Upon adoption of ASC 326, we recorded an ACL on unfunded commitments of $165,000.

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Noninterest Income

The following table presents our noninterest income for the three months ended March 31, 2023 and 2022 and the years ended December 31, 2022 and 2021.

	Three months ended March 31,						Year Ended December 31,
(In thousands)	2023			2022			2022			2021
Service charges and fees	$	96		$	(13	)	$	391		$	324
Gain on sale of loans		—			—			—			240
Gain on sale of investments		—			—			—			202
Bank owned life insurance		59			59			357			359
Loss on disposal/impairment of fixed assets		—			—			(25	)		(15	)
Other		(18	)		17			(59	)		185
Total noninterest income	$	137		$	63		$	664		$	1,295

Three months ended March 31, 2023 and 2022

Our noninterest income increased $74,000 to $137,000 in the first quarter of 2023, from $63,000 in the prior year period. The increase in noninterest income for the first quarter of 2023, compared to the first quarter of 2022, was primarily due to several customer refunds provided due to a core conversion completed by the bank in February 2022. Fees refunded to customers were aggregated to one account during the conversion process until certain items were corrected and processed correctly.

Service charges and fees include deposit account overdraft and non-sufficient funds charges, treasury management services provided to our business customers, credit and debit card fees, interchange fees and other maintenance fees on deposit accounts.

Years ended December 31, 2022, and 2021

Our noninterest income decreased $631,000 to $664,000 for the year ended 2022, from $1,295,000 for the year ended 2021. The decrease in noninterest income in 2022, compared to 2021, was primarily due to $442,000 in gains on sales of loans and investments in 2021 compared to none in 2022 and a $244,000 decrease in other noninterest income.

Other noninterest income was negative in 2022 compared to $185,000 in 2021. The loss in 2022 was due to SBA and USDA servicing fees exceeding servicing income and 2021 income included more building sublease income from properties used in the mortgage banking operation we exited in 2020, which expired in 2021 and 2022.

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Noninterest Expense

The following table presents noninterest expense for the three months ended March 31, 2023 and 2022 and the years ended December 31, 2022 and 2021.

	Three months ended March 31,				Year Ended December 31,
(In thousands)	2023		2022		2022		2021
Salary and employee benefits	$	2,103	$	1,653	$	9,210	$	8,341
Occupancy		258		313		1,292		1,325
Data processing		617		457		2,107		1,967
Federal insurance premiums and other insurance		64		102		427		231
Professional fees		267		97		525		499
Advertising		20		28		89		112
Other		276		334		1,652		1,112
Total noninterest expenses	$	3,605	$	2,984	$	15,302	$	13,587

Three months ended March 31, 2023, and 2022

Our noninterest expense increased $621,000 to $3,605,000 for first quarter of 2023, from $2,984,000 for the first quarter of 2022. The increase in noninterest expense in the first quarter of 2023, compared to the first quarter of 2022, was primarily due to an increase in salary and employee benefits.

Salary and employee benefits expense is the largest component of our noninterest expense and includes employee payroll expense, incentive compensation, health benefits and payroll taxes. Salary and employee benefits increased $452,000 for the first quarter of 2023, compared to the prior year period, due primarily to a $547,000 Employee Retention Credit (ERC) booked in the first quarter of 2022 under the 2021 Consolidated Appropriations (CARES) Act.

Professional fees increased $170,000 during the first quarter of 2023, compared with 2022, primarily due to merger and credit related consulting services.

Years ended December 31, 2022, and 2021

Our noninterest expense increased $1,715,000, or 13%, to $15,302,000 for the year ended 2022, from $13,587,000 for the year ended 2021. The increase in noninterest expense in 2022, compared to 2021, was primarily due to $1,617,000 in defined benefit pension plan termination costs incurred in 2022.

Salary and employee benefits expense is our largest noninterest expense category and was $869,000 higher in 2022 than 2021 primarily due to the aforementioned defined benefit pension plan termination costs incurred and Employee Retainment Credit (ERC) received in the first quarter of 2022 under the 2021 Consolidated Appropriations (CARES) Act.

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Efficiency ratio

The efficiency ratio is one measure of profitability in the banking industry. This ratio measures the cost of generating one dollar of revenue. That is, the ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue. We calculate this ratio by dividing noninterest expense by the sum of net interest income and noninterest income.

Our efficiency ratio was 85.81% for the first quarter of 2023, and 80.07% and 67.89%, for the years ended December 31, 2022, and 2021, respectively.

Return on equity and assets

The following table sets forth our ROAA, ROAE, dividend payout and average stockholders’ equity to average assets ratio for the periods ended:

	March 31,			December 31,
	2023			2022			2021
Return on average total assets (ROAA)		0.31	%		0.23	%		0.96	%
Return on average stockholders’ equity (ROAE)		3.04	%		3.44	%		10.31	%
Dividend payout ratio		54.62	%		50.08	%		11.81	%
Average stockholders’ equity to average assets		10.33	%		6.75	%		9.33	%

Income Taxes

Three months ended March 31, 2023, and 2022

We had an income tax expense for the first quarter of 2023 of $158,000, compared to income tax expense of $350,000 for the first quarter of 2022. The difference between the two periods was primarily due to the $793,000 decrease in pre-tax income in the first quarter of 2023 compared to the first quarter of 2022. Our effective tax rate was 26.23% for the first quarter of 2023, compared to 25.05% for the prior year period.

Years ended December 31, 2022, and 2021

We had income tax expense for the year ended 2022 of $59,000 compared to $1,291,000 for the year ended 2021. The decrease in income tax expense was primarily due to our decreased income during 2022. Our effective tax rate was 4.22% for the year ended 2022, compared to 21.79% for the year ended 2021.

Further information on our annual income taxes is presented in Note 11 – Income Taxes in our audited consolidated financial statements included elsewhere in this joint proxy statement/prospectus.

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Financial Condition

Balance Sheet

Our total assets were $574.2 million at March 31, 2023, compared to $574.3 million at December 31, 2022. Our total loans were $472.0 million at March 31, 2023, an increase of $8.7 million, compared to total loans of $463.4 million at December 31, 2022.

Investment Securities

Our securities portfolio is used to make various term investments, maintain a source of liquidity and serve as collateral for certain types of deposits and borrowings. We manage our investment portfolio according to written investment policies approved by our board of directors. Investment in our securities portfolio may change over time based on our funding needs and interest rate risk management objectives. Our liquidity levels take into account anticipated future cash flows and other available sources of funds, and are maintained at levels that we believe are appropriate to provide the necessary flexibility to meet our anticipated funding requirements.

Our investment securities portfolio consists of securities classified as available-for-sale and held-to-maturity. There were no trading securities in our investment portfolio as of March 31, 2023, December 31, 2022, and December 31, 2021. All available-for sale securities are carried at fair value and may be used for liquidity purposes should management consider it to be in our best interest.

Our securities available-for-sale decreased by $0.7 million to $57.9 million at March 31, 2023, compared to December 31, 2022. The decrease was due to unrealized losses resulting from the rising interest rate environment. Securities held-to-maturity were $5.8 million at March 31, 2023 and December 31, 2022.

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Allowance for Credit Losses for HTM Securities

On January 1, 2023, Bank 34 adopted the new CECL standard, ASU 2016-13, using the modified retrospective method for all financial assets measured at amortized cost. Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. All of our held-to-maturity investment portfolio consists of bank subordinated debt. Accrued interest receivable on held-to-maturity debt securities is immaterial and is excluded from the estimate of credit losses. The allowance for credit losses on held-to-maturity investments is adjusted through provision for credit losses and is recorded as a contra asset to held-to-maturity investments. The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity by major security type for the three months ended March 31, 2023:

March 31, 2023 (in 000s)	Corporate Bonds
Allowance for credit losses:
Beginning balance	$	—
Impact of adopting ASU 2016-13		38
Provision for credit losses		8
Securities charged-off (recoveries)		—
Total ending allowance balance	$	46

Loans

Our loan portfolio represents a broad range of borrowers primarily in our markets in Arizona and New Mexico, comprised of construction, commercial, commercial real estate, residential real estate and consumer financing loans.

Gross loans as of March 31, 2023, were $472.0 million, compared to $463.3 million as of December 31, 2022, and $415.6 million as of December 31, 2021. The commercial loan portfolio included Paycheck Protection Program (PPP) loans outstanding of $43 thousand and $47 thousand as of March 31, 2023, and December 31, 2022, respectively, all of which were guaranteed by the Small Business Administration. No other material financial impacts from the COVID-19 pandemic remained at the end of 2022.

The following tables set forth the composition of our loan portfolio, as of the periods presented:

	March 31, 2023						December 31, 2022
(In thousands)	Amount			% of total loans			Amount			% of total loans
1-4 Family residential real estate	$	59,612			12.8	%	$	63,176			13.6	%
Commercial		53,215			11.5	%		48,567			10.5	%
Consumer and other		1,069			0.2	%		1,048			0.2	%
Construction		49,690			10.7	%		43,664			9.4	%
Non Owner Occupied CRE		188,453			40.6	%		185,699			40.0	%
Owner Occupied CRE		61,678			13.3	%		61,375			13.2	%
Multifamily		59,617			12.8	%		61,201			13.2	%
Total gross loans	$	473,334			100	%	$	464,730			100	%
Deferred loan fees		(1,324	)					(1,370	)
Loans held for investment	$	472,010					$	463,360
Less: allowance for credit losses		(5,383	)					(4,778	)
Loans, net	$	466,627					$	458,582

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Commercial real estate loans include owner occupied and non-owner occupied commercial real estate mortgage loans to operating commercial businesses and include both 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. These loans are made primarily in our marketplace.

Multifamily loans are those properties that have five or more units with borrowers who are primarily commercial entities. The bank finances loans in several different multifamily types but does not have a concentration in any one type and does not do any specialty lending in this area. These loans are made primarily in our marketplace.

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 and 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.

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 the longer term financing.

Residential real estate loans represent loans to consumers collateralized by a mortgage on a residence and include purchase money, refinancing, secondary mortgages, and home equity loans and lines of credit.

Consumer loans and other include direct consumer installment loans, overdrafts and other revolving loans.

The 2020 Coronavirus Response and Consolidated Appropriations (CARES) Act created the Paycheck Protection Program (PPP) to provide certain small businesses with liquidity to support their operations during the COVID-19 pandemic. Under the PPP, eligible small businesses could apply to an SBA-approved lender for a loan that does not require collateral or personal guarantees. Entities must meet certain eligibility requirements to receive PPP loans, and they must maintain specified levels of payroll and employment to have the loans forgiven. The conditions are subject to audit by the U.S. government, but entities that borrow less than $2.0 million (together with any affiliates) will be deemed to have made the required certification concerning the necessity of the loan in good faith. However, the SBA does reserve the right to audit any PPP borrower.

PPP loans issued prior to June 5, 2020 mature in two years unless otherwise modified and loans issued after June 5, 2020 mature in five years. However, PPP loans are eligible for forgiveness (in full or in part, including any accrued interest) under certain conditions. All borrowers are required to retain the supporting documents for six years. For loans (or parts of loans) that are forgiven, the lender will collect the forgiven amount from the U.S. government. The average balance of PPP loans outstanding was approximately $45 thousand for the quarter ended March 31, 2023 and $256 thousand for the year ended December 31, 2022.

In response to the COVID-19 pandemic, in 2020 and 2021 we took several actions to offer various forms of support to our customers that had experienced impacts from this development. We actively worked with customers impacted by the economic downturn. The PPP loans have a 1% fixed interest rate, but produce much larger annualized yields due to the amortization of net deferred loan fees and the accelerated recognition of loan fees in conjunction with loan forgiveness occurring prior to a scheduled maturity. PPP loan income was not material to income in the first quarter of 2023 or in the year ended 2022. Our PPP loans are included in the commercial loans category.

Maturities and Sensitivity of Loans to Changes in Interest Rates

The information in the following table is based on the contractual maturities of individual loans, including loans that may be subject to renewal at their contractual maturity. Renewal of these loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below because borrowers have the right to prepay obligations with or without prepayment penalties. The following table summarizes the loan maturity distribution by type and related interest rate characteristics as of the periods presented:

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(In thousands) As of March 31, 2023	One year or less		After one through five years				After five through 15 years				After 15 years				Total
			Fixed		Variable		Fixed		Variable		Fixed		Variable
1-4 Family residential real estate	$	1,494	$	34,509	$	2,036	$	9,105	$	960	$	5,732	$	5,776	$	59,612
Commercial		15,022		23,499		696		8,008		5,990		—		—		53,215
Consumer and other		876		193		—		—		—		—		—		1,069
Construction		10,052		16,966		4,262		1,099		15,325		1,986		—		49,690
NOO CRE		18,815		82,583		8,510		13,168		48,823		—		16,553		188,452
OO CRE		3,855		20,741		4,650		14,006		15,764		114		2,549		61,679
Multifamily		3,490		31,379		2,302		20,118		2,328		—		—		59,617
Total loans	$	53,604	$	209,870	$	22,456	$	65,504	$	89,190	$	7,832	$	24,878	$	473,334

Allowance for Credit Losses on Loans

On January 1, 2023, Bank 34 adopted ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) (“ASU 2016-13”). ASU 2016- 13 replaces the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on the financial assets measured at amortized cost, including loan receivables.

The allowance for credit losses (“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. Bank 34 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. Actual Company and peer historical credit loss experience provides the basis for the estimation of expected credit losses. Bank 34 identified and grouped portfolio segments based on risk characteristics and underlying collateral.

ACL for pooled loans is estimated using a discounted cash flow (“DCF”) methodology using the amortized cost basis (excluding interest) for all loans modeled within a performing pool of loans. The DCF analysis pairs loan-level term information, for example, maturity date, payment amount, interest rate, with top-down pool assumptions such as default rates, prepayment speeds, to produce individual expected cash flows for every instrument in the segment. The results are then aggregated to produce segment level results and reserve requirements for each segment.

The quantitative DCF model also incorporates forward-looking macroeconomic information over a reasonable and supportable period of one year. 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.

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Allocation of Allowance for Credit Losses

The following tables present the allocation of the allowance for loan losses and the percentage of the total amount of loans in each loan category listed as of the dates indicated:

	March 31, 2023					December 31, 2022					December 31, 2021
(In thousands)	Allowance Amount		% of Portfolio			Allowance Amount		% of Portfolio			Allowance Amount		% of Portfolio
1-4 Family residential real estate	$	422		0.71	%	$	454		0.72	%	$	470		1.05	%
Commercial		1,075		2.02	%		1,382		2.85	%		647		1.50	%
Consumer and other		6		0.56	%		56		5.34	%		101		88.91	%
Construction		663		1.33	%		222		0.51	%		282		0.71	%
NOO CRE		1,951		1.04	%		1,680		0.90	%		2,565		1.40	%
OO CRE		697		1.13	%		555		0.90	%		731		1.40	%
Multifamily		569		0.95	%		429		0.70	%		532		1.00	%
Total	$	5,383		1.14	%	$	4,778		1.03	%	$	5,328		1.28	%

The ACL increased by $605,000 during the first three months of 2023. The primary reason for the increase was the adoption of CECL. The change in methodologies from an incurred loss model to an expected loss model resulted in allowance allocations increasing across the construction, Non-owner occupied commercial real estate, owner occupied commercial real estate, and multifamily portfolios. The change also resulted in lower allowance allocations in the 1-4 family residential real estate, commercial, and consumer and other portfolios.

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Nonperforming Assets

We have established policies and procedures to guide us in originating, monitoring and maintaining the credit quality of our loan portfolio. These policies and procedures are required to be followed by our bankers and underwriters and exceptions to these policies require elevated levels of approval and are reported to our board of directors.

Nonperforming assets include all loans categorized as nonaccrual, other real estate owned and other repossessed assets. The accrual of interest on loans is discontinued, or the loan is placed on nonaccrual, when the full collection of principal and interest is in doubt. We do not generally accrue interest on loans that are 90 days or more past due. When a loan is placed on nonaccrual, previously accrued but unpaid interest is reversed and charged against interest income and future accruals of interest are discontinued. Payments by borrowers for loans on nonaccrual are applied to loan principal. Loans are returned to accrual status when, in our judgment, the borrower’s ability to satisfy principal and interest obligations under the loan agreement has improved sufficiently to reasonably assure recovery of principal and the borrower has demonstrated a sustained period of repayment performance. In general, we require a minimum of six consecutive months of timely payments in accordance with the contractual terms before returning a loan to accrual status.

OREO represents assets acquired through, or in lieu of, foreclosure. The amounts reported as OREO are supported by recent appraisals, with the appraised values adjusted, where applicable, for expected transaction fees likely to be incurred upon sale of the property. We incur recurring expenses relating to OREO in the form of maintenance, taxes, insurance, and legal fees, among others, until the OREO parcel is disposed. While disposition efforts with respect to our OREO are generally ongoing, if these properties are appraised at lower-than-expected values or if we are unable to sell the properties at the prices for which we expect to be able to sell them, we may incur additional losses. Bank 34 held no OREO at March 31, 2023, or December 31, 2022, and incurred no losses, gains, or expenses related to OREO in 2022 or to date in 2023.

The CARES Act, as extended by certain provisions of the Consolidated Appropriations Act, 2021, permits banks to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that may otherwise be characterized as a TDR and suspend any determination related thereto if (i) the borrower was not more than 30 days past due as of December 31, 2019, (ii) the modifications are related to COVID-19, and (iii) the modification occurs between March 1, 2020 and the earlier of 60 days after the date of termination of the national emergency or January 1, 2022. Federal bank regulatory authorities also issued guidance to encourage banks to make loan modifications for borrowers affected by COVID-19. As of March 31, 2023, and December 31, 2022, we had no active payment deferrals.

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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:

(In thousands)	March 31, 2023			December 31, 2022			December 31, 2021
Nonaccrual loans:
1-4 Family residential real estate	$	617		$	659		$	98
Commercial		2,215			1,641			4,240
Consumer and other		—			—			—
Construction		50			1,591			—
NOO CRE		—			—			—
OO CRE		—			—			—
Multifamily		1,179			—			—
Total nonaccrual loans		4,061			3,891			4,338
Accrual loans greater than 90 days past due		—			292			143
Total nonperforming loans		4,061			4,183			4,481
Other real estate owned and foreclosed assets, net		—			—			—
Total nonperforming assets (NPAs)	$	4,061		$	4,183		$	4,481

ACL		5,383			4,778			5,328
Non-performing assets		4,061			4,183			4,481
ACL to nonaccrual loans		132.55	%		114.22	%		118.90	%

NPA’s		4,061			4,183			4,481
Total Assets		574,165			574,340			528,009
Nonperforming assets to total assets		0.71	%		0.73	%		0.85	%

NPA’s		4,061			4,183			4,481
Total Gross Loans		473,334			464,730			417,027
Nonperforming loans to total loans		0.86	%		0.90	%		1.07	%

	March 31, 2023							December 31, 2022								December 31, 2021
(In thousands)	Net Loss		Average Balance		Loss %			Net Loss			Average Balance		Loss %			Net Loss		Average Balance		Loss %
1-4 Family residential real estate	$	1	$	59,561		0.00	%	$	(65	)	$	59,025		0.11	%	$	8	$	44,632		-0.02	%
Commercial		—		51,861		0.00	%		(2,905	)		44,007		6.60	%		—		49,939		0.00	%
Consumer and other		—		1,011		0.00	%		—			459		0.00	%		—		257		0.00	%
Construction		—		49,730		0.00	%		—			44,175		0.00	%		—		26,027		0.00	%
NOO CRE		—		182,079		0.00	%		—			185,892		0.00	%		—		158,902		0.00	%
OO CRE		—		61,717		0.00	%		—			62,988		0.00	%		—		47,166		0.00	%
Multifamily		—		59,674		0.00	%		—			59,751		0.00	%		—		43,423		0.00	%
Total	$	1	$	465,633		0.00	%	$	(2,970	)	$	456,297		0.65	%	$	8	$	370,346		0.00	%

Total nonperforming assets were $4.1 million as of March 31, 2023, compared to $4.2 million at December 31, 2022. The change was due to the payoff of one construction credit that was on non-accrual being offset by an increase in commercial and multifamily non-accrual loan balances.

Total nonperforming assets were $4.2 million at December 31, 2022, compared to $4.5 million at December 31, 2022. The $0.3 million decrease was primarily a result of a $2.9 million charge-off in 2022 being offset by an increase in 1-4 family and construction non-accrual loan balances.

Potential problem loans are impaired loans which management has serious doubts as to the ability of the borrowers to comply with the present loan repayment terms. Management has not identified any potential problem loans not included in the nonperforming assets table above.

147

Allowance for Credit Losses for off balance sheet exposures

On January 1, 2023, Bank 34 adopted the new CECL standard, ASU 2016-13, using the modified retrospective method for all financial assets measured at amortized cost. The allowance for credit losses on off-balance sheet credit exposures is adjusted through 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. The loss rates used are calculated using the same assumptions as the associated funded balance. The following table presents the changes in the ACL on unfunded loan commitments for the three months ended March 31, 2023:

March 31, 2023 (in 000s)	Corporate Bonds
Allowance for credit losses:
Beginning balance	$	—
Impact of adopting ASU 2016-13		165
Provision for credit losses		(9	)
Total ending allowance balance	$	156

148

Deposits

Deposits represent our primary source of funds. We are focused on growing our core deposits through relationship-based banking with our business and consumer clients. Total deposits decreased to $460.7 million at March 31, 2023, compared to $487.6 million and $437.8 million at December 31, 2022 and 2021, respectively. The departure of a large deposit customer in January was offset by growth in brokered CDs of $7.5 million and $18.5 million in growth due to the launch of a new high yield savings account through an online banking platform. Our certificates of deposit have increased $30.million from the period of December 2022 to March 2023 primarily due to customers wishing to lock in higher interest rates for longer periods, CD promotions to attract new customers, and the growth in brokered deposits.

The following table sets forth the average balance amounts and the average rates paid on deposits held by us for the periods presented:

	For the three months ended					For the years ended
	March 31, 2023					December 31, 2022					December 31, 2021
(Dollars in thousands)	Average Balance		Average Rate Paid			Average Balance		Average Rate Paid			Average Balance		Average Rate Paid
Noninterest-bearing demand deposits	$	94,301		—	%	$	101,790		—	%	$	91,860		—	%
Interest-bearing demand and NOW deposits		279,553		2.29			294,000		0.99			247,899		0.36
Certificates of deposit		93,073		2.71			62,811		1.22			63,003		0.96
Total deposits	$	466,927		1.91	%	$	458,601		0.80	%	$	402,753		0.37	%

The following table sets forth the portion of the Bank’s time deposits, by account, that are in excess of the FDIC insurance limit, by remaining time until maturity, as of March 31, 2023:

(In thousands)	March 31, 2023
Three months or less	$	2,344
Over three months through twelve months		25,920
Over twelve months through three years		18,070
Over three years		324
Total	$	46,658

149

As of March 31, 2023, December 31, 2022 and 2021, approximately $233.4 million, $283.5 million and $214.4 million, respectively, of our deposit portfolio was uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.

Federal Home Loan Bank Advances

Other than deposits, we also utilize Federal Home Loan Bank (FHLB) advances as a supplementary funding source to finance our operations. At March 31, 2023, December 31, 2022 and December 31, 2021, our FHLB fixed rate term advances amounted to $17.0 million, $5.0 million and $19.0 million, respectively. Our advances from the FHLB are collateralized by residential, multi-family, and commercial real estate loans and securities. At March 31, 2023, December 31, 2022 and December 31, 2021, we had additional borrowing capacity from the FHLB of $187.2 million, $198.1 million and $163.0 million, respectively, subject to the availability of collateral.

The following tables outline our FHLB Advances during the three months ended March 31, 2023, and the years ended December 31, 2022, 2021 and 2020, and the amounts outstanding at the end of each period, the maximum month end amount for each component during the periods, the average amounts for each period, and the average interest rate that we paid for the advances. The maximum month-end balance represents the high indebtedness at any month end during each of the periods shown.

						Maximum
	Ending		Period End			Month End		Period Average
	Balance		Rate			Balance		Balance		Rate
As of and for the three months ended March 31, 2023
FHLB Advances	$	17,000		5.02	%		24,000		14,206		3.74	%
Subordinated debt, net of issuance costs		24,554		4.00			24,554		24,543		4.27
Total	$	41,554				$	48,554	$	38,749

As of and for the year ended December 31, 2022
FHLB Advances	$	5,000		1.40	%		71,500		43,533		1.32	%
Subordinated debt, net of issuance costs		24,531		4.00			24,531		24,489		4.22
Total	$	29,531				$	96,031	$	68,022

As of and for the year ended December 31, 2021
FHLB Advances	$	19,000		0.73	%		30,000		15,042		0.96	%
Subordinated debt, net of issuance costs		24,447		4.00			24,447		12,458		4.18
Total	$	43,447				$	54,447	$	27,500

As of and for the year ended December 31, 2020
FHLB Advances	$	19,000		0.74	%		75,000		45,923		1.20	%
Subordinated debt, net of issuance costs		—		—			—		—		—
Total	$	19,000				$	75,000	$	45,923

Subordinated Debt

In addition to our FHLB advances, we also have subordinated debt amounting to $24.6 million at March 31, 2023, $24.5 million at December 31, 2022 and $24.4 million at December 31, 2021, net of remaining origination fees. For more information about these borrowings, see Note 6—Borrowings in our audited consolidated financial statements included elsewhere in this proxy statement/prospectus.

150

Capital Raises

Between December 2022 and January 2023, Bancorp 34 completed two private placements of common and preferred stock. Bancorp 34 issued a total of 1,359,497 shares of common stock and 820,115 shares of convertible, non-voting Series A perpetual preferred Stock at $14.00 per share each, generating net cash proceeds of approximately $28.6 million. Bancorp 34 will use the net proceeds from these private placements to fund organic growth, transact on potential acquisition opportunities, enter complementary new business lines, and to enhance capital ratios.

In conjunction with the private placements, Bancorp 34 issued warrants to purchase up to 211,667 shares of Common Stock at a price of $14.00. The approximate fair value of the warrants at the date of grant was not considered significant. The warrants are exercisable at any time after their grant date, and from time to time, in whole or in part, for 7 years from their grant dates, between December 2029 and January 2030. The exercise of such warrants remains subject to certain contractual provisions and a “cashless exercise” may be executed.

For more information about these private placements, see Note 17--Private Placements of Common and Preferred Stock and Note 20—Subsequent Events, in our audited consolidated financial statements included elsewhere in this registration statement.

151

Liquidity

Liquidity refers to our ability to maintain cash flow that is adequate to fund operations, support asset growth, maintain reserve requirements and meet present and future obligations of deposit withdrawals, lending obligations and other contractual obligations.

Bancorp 34 (Parent Company)

Bancorp 34 has routine cash needs consisting primarily of operating expenses, debt service, and funds used for acquisitions. Bancorp 34 can obtain funding to meet its obligations from dividends collected from its subsidiary, Bank 34, and through the issuance of varying forms of debt. At March 31, 2023, Bancorp 34 has cash and cash equivalents of $20.9 million, a $1.6 million note receivable from the Bank 34 ESOP, and debt outstanding, net of issuance costs, of $24.6 million. Management believes Bancorp 34 has the ability to generate and obtain adequate amounts of liquidity to meet its requirements in the short-term and the long-term.

Federal banking laws regulate the amount of dividends that may be paid by banking subsidiaries without prior approval. Bank 34 may declare dividends without prior regulatory approval that do not exceed the total of retained net income for the current year combined with its retained net income for the preceding two years, subject to maintenance of minimum capital requirements. Prior regulatory approval to pay dividends was not required in 2022 or 2023 and is not currently required. At March 31, 2023, Bank 34 could pay dividends to Bancorp 34 of approximately $6.4 million without prior regulatory approval. During the year ended December 31, 2022, Bank 34 did not pay a dividend to Bancorp 34.

Bank 34

Bank 34’s liquidity management policy and our asset and liability management policy, or ALM policy, provides the framework that we use to seek to maintain adequate liquidity and sources of available liquidity at levels that will enable us to meet all reasonably foreseeable short-term, long-term and strategic liquidity demands. Our Asset and Liability Management Committee, or ALCO, is responsible for oversight of our liquidity risk management activities in accordance with the provisions of our ALM Policy and applicable bank regulatory capital and liquidity laws and regulations. Our liquidity risk management process includes (i) ongoing analysis and monitoring of our funding requirements under various economic and interest rate scenarios, (ii) review and monitoring of lenders, depositors, brokers and other liability holders to ensure appropriate diversification of funding sources and (iii) liquidity contingency planning to address liquidity needs in the event of unforeseen market disruption, including appropriate allocation of funds to a liquid portfolio of marketable securities and investments. We continuously monitor our liquidity position in order for our assets and liabilities to be managed in a manner that we believe will meet our immediate and long-term funding requirements. We seek to manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our stockholders. We also monitor our liquidity requirements in light of interest rate trends, changes in the economy, and the scheduled maturity and interest rate sensitivity of our securities and loan portfolios and deposits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control when we make investment decisions. Net deposit inflows and outflows, however, are far less predictable and are not subject to the same degree of certainty.

Our liquidity position is supported by management of our liquid assets and liabilities and access to alternative sources of funds. Our short-term and long-term liquidity requirements are primarily to fund on-going operations, including payment of interest on deposits and debt, extensions of credit to borrowers and capital expenditures. These liquidity requirements are met primarily through our deposits, FHLB advances, subordinated debt and the principal and interest payments we receive on loans and investment securities. Cash, interest-bearing deposits in third party banks, securities available for sale and maturing or prepaying balances in our investment and loan portfolios are our most liquid assets. Other sources of liquidity that are available to us include the sale of loans we hold for investment, the ability to acquire additional national market non-core deposits, borrowings through the Federal Reserve’s discount window and the issuance of additional debt or equity securities.

152

At March 31, 2023, our liquid assets, which consist of cash and amounts due from banks and interest-bearing deposits in other financial institutions, amounted to $9.8 million, or 2% of total assets, compared to $16.9 million, or 3% of total assets, at December 31, 2022. The decrease in our liquid assets was primarily due to a decrease in cash held at the Federal Reserve. Our available-for-sale securities at March 31, 2023 were $57.9 million, or 10% of total assets, compared to $58.6 million, or 10% of total assets, at December 31, 2022. Investment securities with an aggregate carrying value of $7.6 million and $8.2 million at March 31, 2023 and December 31, 2022, respectively, were pledged to secure various liquidity sources.

The liability portion of our balance sheet serves as a primary source of liquidity. We plan to meet our future cash needs primarily through the generation of deposits. Customer deposits have historically provided a sizeable source of relatively stable and low-cost funds. At March 31, 2023, net loans as a percentage of customer deposits were 102%, compared with 95% at December 31, 2022. For additional information related to our deposits, see Deposits section above. We are also a member of the FHLB, from which we can borrow for leverage or liquidity purposes. The FHLB requires that securities and qualifying loans be pledged to secure any advances. At March 31, 2023, we had $17.0 million in advances from the FHLB and a remaining credit availability of $187.2 million. In addition, we have unused lines-of-credit with certain other financial institutions totaling $40 million as of March 31, 2023.

Management believes the Bank has the ability to generate and obtain adequate amounts of liquidity to meet its requirements in the short-term and the long-term.

153

Capital Resources

Stockholders’ equity at March 31, 2023 was $64.5 million, compared to $49.2 million at December 31, 2022, an increase of $15.2 million, or 31%. The increase was primarily driven by the private placement of common and preferred shares generating $15.0 million in new equity, partially offset by dividends paid in the quarter. The private placement of equity was completed on January 27, 2023, representing the second round of the capital raise begun on December 30, 2022.

Stockholders’ equity at December 31, 2022 was $49.2 million, compared to $40.7 million at December 31, 2021, an increase of $8.6 million, or 21%. The increase was primarily driven by $13.5 million net proceeds from a December 30, 2022 private placement capital raise and $1.0 net income for 2022, partially offset by a $7.2 million decrease in other comprehensive income from temporary declines in AFS security fair values and dividends paid.

We are subject to various regulatory capital requirements administered by federal banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by federal banking regulators that, if undertaken, could have a direct material effect on our financial statements.

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. In order to avoid restrictions on capital distributions or discretionary bonus payments to executives, a covered banking organization must maintain the fully-phased in “capital conservation buffer” of 2.5% on top of its minimum risk-based capital requirements. This buffer must consist solely of common equity Tier 1 risk-based capital, but the buffer applies to all three measurements (common equity Tier 1 risk-based capital, Tier 1 capital and total capital). At March 31, 2023, Bancorp 34 and Bank 34 exceeded the regulatory minimums and met the regulatory definition of well-capitalized.

154

The following table shows the regulatory capital ratios for Bancorp 34 at the dates indicated:

	Actual					For Capital Adequacy Purposes⁽¹⁾					To be Well- Capitalized under Prompt Corrective Action Provisions⁽²⁾
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount	Ratio
As of March 31, 2023
Total risk-based capital to risk-weighted assets	$	100,290		20.50	%	$	39,142		8.00	%	N/A		N/A
Tier 1 risk-based capital to risk-weighted assets		69,705		14.25			29,357		6.00		N/A		N/A
Common Equity Tier 1 (CET 1) to risk-weighted assets		N/A		N/A			N/A		N/A		N/A		N/A
Tier 1 leverage capital to average assets		69,705		11.99			23,252		4.00		N/A		N/A

As of December 31, 2022
Total risk-based capital to risk-weighted assets	$	85,108		17.72	%	$	38,422		8.00	%	N/A		N/A
Tier 1 risk-based capital to risk-weighted assets		55,329		11.52			28,816		6.00		N/A		N/A
Common Equity Tier 1 (CET 1) to risk-weighted assets		N/A		N/A			N/A		N/A		N/A		N/A
Tier 1 leverage capital to average assets		55,329		9.48			23,335		4.00		N/A		N/A

As of December 31, 2021
Total risk-based capital to risk-weighted assets	$	71,235		16.17	%	$	35,238		8.00	%	N/A		N/A
Tier 1 risk-based capital to risk-weighted assets		40.907		9.29			26,429		6.00		N/A		N/A
Common Equity Tier 1 (CET 1) to risk-weighted assets		N/A		N/A			N/A		N/A		N/A		N/A
Tier 1 leverage capital to average assets		40.907		7.88			20,758		4.00		N/A		N/A

(1)	Amounts are shown exclusive of the 2.5% capital conservation buffer applicable to total risk-based capital to risk-weighted assets, Tier 1 risked-based capital to risk-weighted assets and CET1 to risk-weighted assets.

(2)	Prompt corrective action provisions are only applicable at the bank level.

155

The following table shows the regulatory capital ratios for Bank 34 at the dates indicated:

	Actual					For Capital Adequacy Purposes⁽¹⁾					To be Well- Capitalized under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of March 31, 2023
Total risk-based capital to risk-weighted assets	$	75,804		15.54	%	$	39,024		8.00	%	$	48,780		10.00	%
Tier 1 risk-based capital to risk-weighted assets		70,219		14.40			29,258		6.00			39,011		8.00
Common Equity Tier 1 (CET 1) to risk-weighted assets		70,219		14.40			21,943		4.50			31,696		6.50
Tier 1 leverage capital to average assets		70,219		12.12			23,175		4.00			28,968		5.00

As of December 31, 2022
Total risk-based capital to risk-weighted assets	$	64,942		13.57	%	$	38,286		8.00	%	$	47,857		10.00	%
Tier 1 risk-based capital to risk-weighted assets		60,163		12.57			28,717		6.00			38,290		8.00
Common Equity Tier 1 (CET 1) to risk-weighted assets		60,163		12.57			21,538		4.50			31,111		6.50
Tier 1 leverage capital to average assets		60,163		10.34			23,274		4.00			29,092		5.00

As of December 31, 2021
Total risk-based capital to risk-weighted assets	$	62,978		14.35	%	$	35,110		8.00	%	$	43,887		10.00	%
Tier 1 risk-based capital to risk-weighted assets		57,650		13.13			26,344		6.00			35,126		8.00
Common Equity Tier 1 (CET 1) to risk-weighted assets		57,650		13.13			19,758		4.50			28,540		6.50
Tier 1 leverage capital to average assets		57,650		11.14			20,700		4.00			25,875		5.00

(1)	Amounts are shown exclusive of the 2.5% capital conservation buffer applicable to total risked-based capital to risk-weighted assets, Tier 1 risked-based capital to risk-weighted assets and CET1 to risk-weighted assets.

Off-Balance Sheet items

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit, commercial letters of credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. The contractual or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral is primarily obtained in the form of commercial and residential real estate, including income producing commercial properties.

Standby letters of credit are conditional commitments issued by us to guarantee to a third-party the performance of a customer. Those guarantees are primarily issued to support public and private borrowing arrangements, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

156

Commitments to make loans are generally made for periods of 90 days or less.

Our exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as for funded instruments. We do not anticipate any material losses as a result of the commitments and standby letters of credit.

The following table summarizes commitments as of the dates presented:

(In thousands)	March 31, 2023		December 31, 2022		December 31, 2021
Undistributed portion of committed loans	$	21,779	$	23,202	$	39,807
Unused lines of credit		20,482		18,706		18,672
Total	$	42,261	$	41,908	$	58,479

Contractual Obligations

We have entered into contractual obligations in the normal course of business that involve elements of credit risk, interest rate risk and liquidity risk.

The following table summarizes our contractual obligations as of March 31, 2023 and December 31, 2022:

(In thousands)	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 Years
March 31, 2023
Long-term debt:
FHLB advances	$	17,000	$	17,000	$	—	$	—	$	—
Subordinated debt, net of issuance costs		24,554		—		—		—		24,554
Total long-term debt		41,554		17,000		—		—		24,554
Operating leases		2,578		263		716		740		859
Certificates of deposit		110,598		66,500		39,503		4,595		—
Total	$	154,730	$	83,763	$	40,219	$	5,335	$	25,413

December 31, 2022
Long-term debt:
FHLB advances	$	5,000	$	5,000	$	—	$	—	$	—
Subordinated debt, net of issuance costs		24,531		—		—		—		24,531
Total long-term debt		29,531		5,000		—		—		24,531
Operating leases		2,578		205		714		738		921
Certificates of deposit		73,493		50,025		21,627		1,841		—
Total	$	105,602	$	55,230	$	22,341	$	2,579	$	25,452

157

BANCORP 34 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of reduced earnings and/or declines in the net market value of the balance sheet due to changes in market rates. Our primary market risk is interest rate risk which impacts our net interest income, fee income related to interest sensitive activities such as mortgage origination and servicing income and loan and deposit demand.

We are subject to interest rate risk due to:

the maturity or repricing of assets and liabilities at different times or for different amounts;

differences in short-term and long-term market interest rate changes; and

the remaining maturity of various assets or liabilities may shorten or lengthen as interest rates change.

Our Asset Liability Committee, or ALCO, which is composed of our executive officers, certain board members and other members of management, monitors interest rate risk on an ongoing basis in accordance with policies approved by our board of directors. The ALCO reviews interest rate positions and considers the impact projected interest rate scenarios have on earnings, liquidity, business strategies and other factors. However, management has the latitude to change interest rate positions within certain limits if, in management’s judgment, the change will enhance profitability or minimize risk.

To assess and manage interest rate risk, sensitivity analysis is used to determine the impact on earnings and the net market value of the balance sheet across various interest rate scenarios, balance sheet trends, and strategies.

Management uses a simulation model to analyze the sensitivity of net interest income to changes in interest rates across various interest rate scenarios, which seeks to demonstrate the level of interest rate risk inherent in the existing balance sheet. The analysis holds the current balance sheet values constant and does not take into account management intervention. In addition, we assume certain correlation rates, often referred to as a “deposit beta,” for interest-bearing deposits, wherein the rates paid to customers change relative to changes in benchmark interest rates. The effect on net interest income over a 12-month time horizon due to hypothetical changes in market interest rates is presented in the table below. In this interest rate shock simulation, as of the periods presented, interest rates have been adjusted by instantaneous parallel changes rather than in a ramp simulation, which applies interest rate changes over time. All rates, short-term and long-term, are changed by the same amount (e.g. plus or minus 100 basis points) resulting in the shape of the yield curve remaining unchanged.

	% Change in Net Interest Income						% Change in Economic Value of Equity
Changes in Interest Rates (Basis Points)	As of March 31, 2023			As of December 31, 2022			As of March 31, 2023			As of December 31, 2022
+300		(9.21	%)		(10.77	%)		(7.65	%)		(5.36	%)
+200		(4.64	)		(5.44	)		(2.70	)		(0.66	)
+100		(0.25	)		0.57			0.47			1.96
Base		0.0			0.0			0.0			0.0
-100		(0.20	)		(0.59	)		(2.06	)		(4.07	)
-200		2.66			4.71			(5.34	)		(7.69	)
-300		5.00			8.77			(9.77	)		(11.86	)

158

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BANCORP 34

The following table sets forth information about the beneficial ownership of Bancorp 34 common stock as of August 10, 2023:

each person known to Bancorp 34 to be the beneficial owner of more than 5% of its common stock;

each named executive officer of Bancorp 34;

each director of Bancorp 34;

the Bank 34 Employee Stock Ownership Plan; and

all of Bancorp 34’s executive officers and directors as a group.

Unless otherwise noted in the footnotes below, the address of each beneficial owner listed in the table is c/o Bancorp 34, Inc., 8777 E. Hartford Drive, Suite 100, Scottsdale, Arizona 85255. Except as indicated by the footnotes below, Bancorp 34 believes, based on the information furnished to it, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of our common stock that they beneficially own, subject to applicable community property laws..

In computing the number of shares of Bancorp 34 common stock beneficially owned by a person and the percentage ownership of that person, it deemed outstanding shares of its common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of August 10, 2023. Bancorp 34, however, did not deem these shares outstanding for the purpose of computing the percentage ownership of any other person.

	Amount of Voting Shares Owned		Right to Acquire⁽¹⁾		Total Non- Voting Shares Held		Total (Voting)⁽²⁾			Percent of Class (Voting)			Percent of Class (Voting and Non- Voting)⁽³⁾
Directors and Named Executive Officers
Kevin W. Ahern⁽⁴⁾		—		—		—		—			—			—
William F. Burt		21,563		9,600		—		31,163	⁽⁵⁾		*			*
Spencer T. Cohn⁽⁶⁾		—		—		—		—			—			—
Wortham A. (Pete) Cook		26,303		9,400		—		35,703	⁽⁷⁾		*			*
James T. Crotty		30,089		11,200		—		41,289	⁽⁸⁾		1.04	%		*
Randall L. Rabon		51,445		10,114		—		61,559	⁽⁹⁾		1.55	%		1.26	%
Elaine E. Ralls		27,555		9,700		—		37,255	⁽¹⁰⁾		*			*
Kevin Vaughn		2,500		400		—		2,900	⁽¹¹⁾		*			*
Don P. Van Winkle		8,986		9,471		—		18,457	⁽¹²⁾		*			*
Kim Yacuel		7,100		6,600		—		13,700	⁽¹³⁾		*			*
All directors and executive officers as a group (10 persons)		175,541		31,014		—		206,555			5.19	%		4.22	%

5% Stockholders
Brush Creek-B34, LLC⁽¹⁴⁾		321,428		32,143		—		353,571			8.88	%		7.22	%
Castle Creek Capital Partners VIII, L.P.⁽¹⁵⁾		380,580		108,242		701,849		394,299			9.90	%		24.31	%
AB Financial Services Opportunities⁽¹⁶⁾		299,580		29,999		118,266		329,579			8.28	%		9.14	%
Bank 24 Employee Stock Ownership Plan		190,073		—		—		190,073			4.77	%		3.88	%

*	Indicates ownership which does not exceed 1.0%.

(1)

The shares in this column represents (i) restricted stock of Bancorp 34 held by the person or entity and (ii) stock options and warrants of Bancorp 34 that are currently exercisable or exercisable within 60 days of August 10, 2023.

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(2)

Bancorp 34 has based its calculation of the percentage of beneficial ownership on 3,982,820 shares which represent all of Bancorp 34 voting common voting stock outstanding as of August 10, 2023, plus those shares of non-voting common stock and warrants held by the person or entity which are immediately convertible to voting common stock.

(3)

Bancorp 34 has based its calculation of the percentage of beneficial ownership on 4,897,458 share of its voting common stock, non-voting common stock and warrants.

(4)

Mr. Ahern serves as the director designee for Brush Creek-B34, LLC. Mr. Ahern is a Managing Partner at BCP Manager, LLC, which is the general partner of Brush Creek Partners, LP, the sole owner of Brush Creek-34, LLC, which entity owns 321,428 shares of Bancorp 34 voting common stock and 32,143 warrants to purchase Bancorp 34 common stock. Mr. Ahern disclaims beneficial ownership of such shares held by Brush Creek-B34, LLC except to the extent of his pecuniary interest therein.

(5)

Represents 21,563 shares and 9,600 options held by Mr. Burt.

(6)

Mr. Cohn serves as the director designee for Castle Creek Partners VIII, L.P. Mr. Cohn is a director at Castle Creek Capital LLC which is the sole general partner of Castle Creek Partners VIII, L.P., which entity owns 380,580 shares of Bancorp 34 voting common stock, 701,849 shares of non-voting stock and 108,242 warrants to purchase Bancorp 34 common stock. Mr. Cohn disclaims beneficial ownership of such shares held by Castle Creek Partners VIII, L.P., except to the extent of his pecuniary interest therein.

(7)

Represents 26,303 shares and 9,400 options held by Mr. Cook.

(8)

Represents 21,949 shares held by Mr. Crotty, individually, 740 shares held by Mr. Crotty’s spouse in an IRA, 11,200 options, and 7,400 shares of unvested restricted stock.

(9)

Represents 19,835 shares held by Mr. Rabon individually, 28,439 held jointly with his spouse, 3,171 shares held jointly with his spouse and grandchildren, 9,400 options, and 714 warrants to purchase common stock.

(10)

Represents 27,555 shares held in Ms. Ralls living trust, 9,400 options, and 300 vested warrants to purchase common stock.

(11)

Represents 200 shares held by Mr. Vaughn individually, 400 options, and 2,100 shares of unvested restricted stock.

(12)

Represents 8,986 shares held by Mr. Van Winkle and 9,471 options to purchase common stock.

(13)

Represents 4,400 shares held by Ms. Yacuel individually, 6,600 options, and 3,700 shares of unvested restricted stock.

(14)

The address of Brush Creek-B34, LLC is 2549 V. Maih Street, Suite 201, Littletown, co 80120. BCP Manager, LLC is the general partner of Brush Creek Partners, LP, the sole owner of Brush Creek-34, LLC.

(15)

The address of Castle Creek Capital Partners VIII, L.P. is 11682 EI Camino Real, ste 320, San Diego, CA 92130. Castle Creek Capital LLC is the sole general partner of Castle Creek Partners VIII, L.P.

(16)

The address of AB Financial Services Opportunities is LC Alliace Bernstein, LP., 1345 Avenue of the Americas, New York, NY 10105.

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MANAGEMENT OF BANCORP 34

Directors

The Bancorp 34 board of directors is divided into three classes approximately equal in number, serving staggered three-year terms. As a result, the terms of only approximately one-third of Bancorp 34’s board members expire at each annual meeting. The term of Bancorp 34’s Class I directors will expire at the 2024 annual meeting, the term of its Class II directors will expire at the 2025 annual meeting and the term of its Class III directors will expire at the 2026 annual meeting.

Two of our directors currently serve on the board of directors pursuant to the securities purchase agreements entered into with Castle Creek and Brush Creek. This agreement will not terminate upon the completion of the merger. See the section entitled “Certain Relationships and Related Party Transaction—Arrangements with Castle Creek Fund VIII, L.P. and Brush Creek-B 34, LLC” for a description of the terms of the securities purchase agreements.

Name	Age	Served as Director Since
Class I (term expires 2024)
Randal L. Rabon	66	2007
Wortham A. (Pete) Cook	74	2015

Class II (term expires 2025)
William F. Burt	72	2007
Don P. Van Winkle	66	2013
Spencer T. Cohn	36	2023

Class III (term expires 2026)
Elaine E. Ralls	74	2014
James T. Crotty	44	2020
Kevin Ahern	60	2023

Biographical Information for Directors

Elaine E. Ralls, Ph.D has served as a director since 2014 following the acquisition of Bank 1440, where she was an organizer and served as a Vice Chair of the Board. She serves as Chair of the Audit Committee for Bank 34. Ms. Ralls is on the Board of Directors of the Pacific Southwest Better Business Bureau, is a founding partner of Commit Agency, an active member of Women Presidents Organization, Central Christian Church and the Sun Lakes Rotary Club. Previously she has served in leadership with Women on Boards 2020, as a director for the Arizona Foundation for Women, on the Steering Committee for Women in Leadership for the Chandler Chamber, as an active member of Vistage International, and as an adjunct professor in the Colangelo College of Business at Grand Canyon University. Ms. Ralls’ OneBigLife personal brand has been featured in “Think and Grow Rich for Women”, by Sharon Lechter, as well as “Discover Your Inner Strength” which she co-authored with Ken Blanchard, Stephen Covey, and Brian Tracy. Ms. Ralls has earned an MBA from Arizona State University as well as a Ph.D. from Nova Southeastern University’s Wayne Huizenga’s College of Business and Entrepreneurship. She has built and transitioned multiple businesses in Arizona, spanning many industries including healthcare, education, and banking, and has been dubbed a serial entrepreneur by Biz AZ magazine. Her experience with numerous company mergers and associated integration of companies and cultures provides us with a strong resource for guidance pertaining to our business expansion via strategic alliances and acquisitions.

James T. (“Jim”) Crotty is the current Chief Executive Officer and President of Bancorp 34 and Bank 34. Mr. Cotty was appointed Co-President and Co-Chief Executive Officer of Bancorp 34 and Bank 34 in July 2020, and was named President and Chief Executive Officer of each entity in September 2020. Before joining Bank 34, Mr. Crotty spent 16 years of his career at Keefe, Bruyette & Woods as an investment banker advising and working with community banks on a variety of strategic initiatives. Mr. Crotty’s primary focus was on mergers and acquisitions, debt and equity capital raising (including mutual to stock conversions and initial public offerings), branch and asset purchases and divestitures as well as overall strategic planning initiatives. Prior to his time at KBW, Mr. Crotty served as a software engineer and consultant for a software development firm. Mr. Crotty is a graduate of Miami University.

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Kevin Ahern is currently a co-founder and Managing Partner of Brush Creek Partners (formed in 2020), a private opportunistic investment vehicle focused on making investments in operating companies in the specialty finance, banking and financial services, manufacturing, distribution, media, and business and consumer services sectors. Mr. Ahern has 35 years of experience as an executive, entrepreneur, and operator in the financial services industry including commercial banking, private equity, institutional investment management, alternative investments, insurance, investment banking, and mergers and acquisitions. He also actively provides consulting and advisory services to several banking and wealth management organizations via Colorow Capital Partners, a strategic advisory and consulting company that was formed in 2017.

Mr. Ahern currently serves on the board of directors of InBank Corp and InBank, ERI Group, Inc., a Colorado-based medical device contract design and manufacturing firm, GXIII, a New York-based digital audio company, and is an active board observer with the Bank of Idaho Holding Company. He is also Chairman of Investment Trust Company, a Colorado-based independent trust company. Mr. Ahern is the former Founder, Chairman, and CEO of CIC Bancshares, a bank holding company that was formed in 2009. Following CIC’s sale to Heartland Financial USA in 2016, Mr. Ahern remained as Executive Chairman of Centennial Bank and as Chairman of the Board of Citywide Banks, a Colorado-chartered community bank and Heartland Financial member bank. From 2005 to 2008, Mr. Ahern served as President and COO of Braddock Financial Corporation, a Colorado-based alternative asset management and private equity firm, and previously held executive positions with CoBiz Financial and CoBiz Bank, NA, Aetna Investment Management, ING Investment Management, and Sterling Partners.

Mr. Ahern was appointed by the Governor of Colorado and served two terms on the Board of Trustees for the University of Northern Colorado. He formerly served on the board of the UNC Foundation, Inc. and chaired the investment committee. He is currently a member of the Dean’s Leadership Council of the Monfort College of Business and is a frequent adjunct faculty member teaching an undergraduate senior level investments course. Mr. Ahern serves on the ACE Scholarships Board of Trustees. He is also an active member and former board member of YPO-Gold Rocky Mountain and is a Chartered Financial Analyst (CFA).

Randal L. Rabon has served as a director of Bancorp 34 since 2007 and is currently Chairman of Bancorp 34. He is a lifelong resident of Alamogordo where he co-owns and operates several businesses. His primary interests include C&R Ventures; Mesa Verde Enterprises (which is Otero County’s largest civil contractor); Aggregate Technologies; The Heritage Group (developer of Mesa Village and Cielo Vista Ranch subdivisions); and the Mesa Verde Ranch. Mr. Rabon’s deep economic roots in the community and experience dealing with regulatory matters associated with banking and government contracts is highly beneficial in bringing perspective to corporate governance matters.

Wortham A. (Pete) Cook has served as a director of Bancorp 34 since 2015. Prior to his appointment to the Board of Directors, Mr. Cook served as a financial consultant to Bank 34 from January 2014 to March 2015. From 1989 until his retirement in 2013 he served as President, Chief Executive Officer and Director at First National Bank in Alamogordo, New Mexico. Mr. Cook also served as Executive Vice President and Vice President at First National Bank from 1987 to 1989. He held the position of Executive Vice President and managed commercial lending, corporate strategy and administration at United Bank of Lea County, Hobbs, New Mexico, from 1982 through 1987. He served as an executive branch manager overseeing consumer finance and administration from 1971 through 1982 in Hobbs, New Mexico and Farmington, New Mexico. Mr. Cook is past chairman of the Economic Development Council of Otero County and a former member of the Committee of 50 (military support committee). His director experience spanned other organizations including: Federal Reserve Bank, El Paso, Texas; Federal Reserve Bank, Dallas, Texas; and the New Mexico Bankers Association. Mr. Cook’s banking background and leadership experience brings valuable insight in the areas of leadership, bank operations, credit evaluation and corporate governance.

William F. Burt has served as director of Bancorp 34 since 2007 and is currently Vice Chairman of Bancorp 34. Mr. Burt has served in several different capacities in the broadcast industry since receiving his degree in Mass Communications from New Mexico State University in 1974. He has been the owner and general manager of Burt Broadcasting, Inc. since 1988. Mr. Burt is a current State Senator representing District #33. He has spent many years actively supporting the U.S. Air Force and Army. Mr. Burt was a charter member of the Governor Appointed New Mexico Military Base Planning Commission and is a member of the Military and Veterans Affairs Committee. He also serves as a Holloman Wingman and a former member of the Air Force Air Combat Command Commanders Group. In the New Mexico State Senate, Mr. Burt serves on the Senate Finance Committee, as well as the Revenue Stabilization and Tax Committee and Science and Technology Committee. Mr. Burt has been awarded the New Mexico Broadcaster of the Year Award, Owner of the Radio Station of the Year Award and was named Alamogordo Citizen of the Year. He has also served as Chairman of the Alamogordo Chamber of Commerce, the Committee of 50 (military support committee), Flickinger Center for Performing Arts Board and the New Mexico Broadcasters Association. Mr. Burt’s media background, senatorial experience and experience in our local markets provides the franchise with substantial insights and discipline for enhancing our public perception and corporate citizenship initiatives.

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Don P. Van Winkle has served as a director of Bancorp 34 since 2013. He works with mid-market companies in an out-sourced corporate development and Board role to include managing acquisitions and divestitures, bank-relations and other capital access options. Previous experience includes: Vistage Chair for Vistage International from 2011 through 2014 (a CEO peer advisory organization); Managing Director for SDR Ventures, a Denver-based investment banking firm and mezzanine debt fund; Three years as both President and Corporate Banking Manager for two Denver-based middle-market banking groups; Seven years as Chairman & Chief Executive Officer of Van Winkle’s Farmers Market, Inc. (a 500 employee IGA retail grocery store group based in New Mexico), which he successfully sold in 2002; Chief Financial Officer and Chief Operating Officer of Fresh Produce Sportswear, Inc., a sportswear design and distribution firm based in Boulder, Colorado where he additionally served on the Board of Directors for 10 years. Mr. Van Winkle began his career as a corporate banker in Denver (1980 to 1991) after spending two years as a bank examiner with the Comptroller of the Currency. Mr. Van Winkle’s experience is instrumental in high level evaluation of our credit management processes and practices and his experience as a chief financial officer and chief executive officer qualify him to serve as our audit committee financial expert.

Spencer T. Cohn currently works and has worked for a private equity fund, Castle Creek, since 2014. He sits on the board of directors at several bank portfolio companies. Prior to joining the firm, Mr. Cohn worked at Keefe, Bruyette & Woods, Inc. as an Investment Banking Associate in the Financial Institutions Group. At KBW, he concentrated on mergers and acquisitions including bankruptcy structures, recapitalizations and restructurings, and capital markets transactions. Mr. Cohn is a Director of the Cystic Fibrosis Foundation and serves as Co-Chair of the Cystic Fibrosis Foundation’s Tomorrow’s Leaders program (San Diego Chapter). In addition to his charitable involvement, Mr. Cohn is a Senior Mentor and Resume Reviewer for Wall Street Oasis.

Director Independence

Our securities are not listed on a national securities exchange or any inter-dealer quotation system which has a requirement that a majority of directors be independent. Our board has undertaken a review of the independence of each director on the Bancorp 34 board of directors under the standards for director independence set forth in the NASDAQ Marketplace Rules. Under these rules, our board has affirmatively determined that Ms. Ralls, Mr. Ahern, Mr. Cohn, Mr. Van Winkle, Mr. Burt, Mr. Cook and Mr. Rabon are “independent directors.” We have determined that Mr. Crotty does not qualify as independent director because he is an executive officer of both Bancorp 34 and Bank 34.

Biographical Information for Executive Officers

Our executive officers are:

Name	Age	Position
James T. Crotty	44	President and Chief Executive Officer of Bancorp 34 and Bank 34

Kim Yacuel	55	Senior Vice President and Chief Operating Officer of Bancorp 34 and Bank 34

Kevin Vaughn	42	Senior Vice President and Chief Financial Officer of Bancorp 34 and Bank 34

Because Mr. Crotty also serves on our board of directors, we have provided biographical information for him above. Biographical information for each of Ms. Yacuel and Mr. Vaughn is provided below:

Kim Yacuel currently serves as Senior Vice President and Chief Operations Officer of Bancorp 34 and Bank 34, a position she has held since 2014. Prior to joining Bank 34, Ms. Yacuel held the position of Executive Vice President at First Scottsdale Bank in Scottsdale, Arizona. During her 33 years of banking, Ms. Yacuel has gained experience in areas such as BSA, strategic project management, compliance and risk management, core conversion process integration, systems conversion and managing teams with best practice operational support, products, ongoing employee development program, and customer servicing processes.

Kevin Vaughn currently serves as the Senior Vice President and Chief Financial Officer of Bancorp 34 and Bank 34, a position he has held since March of 2022. Mr. Vaughn has 20 years of banking industry experience. Prior to joining Bancorp 34, Mr. Vaughn served for twelve years as a bank examiner with the Indiana Department of Financial Institutions. Prior to joining the Indiana Department of Financial Institutions, Mr. Vaughn spent seven years with a $1+ billion institution in the Midwest in a senior finance role with responsibility for investments, financial reporting, and other related functions.

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Executive Compensation AND OTHER INFORMATION OF Bancorp 34

Compensation of Executive Officers

In this joint proxy statement/prospectus, we refer to the individuals who served as our principal executive officer and our two other most highly compensated executive officers, as the “named executive officers.” Our named executive officers as of December 31, 2022 were:

James T. Crotty, President and Chief Executive Officer of Bancorp 34 and Bank 34;

Kim Yacuel, Senior Vice President and Chief Operations Officer of Bancorp 34 and Bank 34; and

Kevin Vaughn, Senior Vice President and Chief Financial Officer of Bancorp 34 and Bank 34.

Summary Compensation Table

The following table sets forth information concerning all compensation awarded to, earned by or paid to our named executive officers for all services rendered in all capacities to us and our subsidiaries for the fiscal year ended December 31, 2022.

Name and Principal Position	Year		Salary ($)		Bonus ($)⁽¹⁾		Stock Awards ($)⁽²⁾		Option Awards ($)⁽³⁾		Non- Equity Incentive Plan Compen- sation ($)⁽⁴⁾		Nonqualified Deferred Compensation Earnings ($)⁽⁵⁾		All Other Compen- sation ($)⁽⁶⁾		Total ($)
James T. Crotty		2022		302,333		208,000		44,910		17,940		—		—		17,038		590,221
Chief Executive Officer and President

Kim Yacuel		2022		164,183		96,000		22,455		8,970		15,345		—		24,212		331,165
Senior Vice President and Chief Operations Officer

Kevin Vaughn⁽⁷⁾		2022		128,906		25,000		14,480		6,080		575		—		5,276		180,317
Senior Vice President and Chief Financial Officer

(1)	See discussion under “Annual Bonus Payment” below.

(2)

The amounts shown in this column reflect the aggregate grant date fair value of the restricted stock awards computed in accordance with FASB ASC Topic 718. Assumptions made in the valuation of awards can be found in Note 14 of the Consolidated Financial Statements for the fiscal year ended December 31, 2022. For the year ended December 31, 2022, the amounts shown are not an indication of actual compensation received but rather the maximum potential compensation (based on the grant date fair value of the restricted stock awards) if all performance and service requirements are met over the entire five-year vesting period.

(3)

The amounts shown in this column reflect the aggregate grant date fair value of the option awards computed in accordance with FASB ASC Topic 718. Assumptions made in the valuation of awards can be found in Note 14 of the Consolidated Financial Statements for the fiscal year ended December 31, 2022. For the year ended December 31, 2022, the amounts shown are not an indication of actual compensation received but rather the maximum potential compensation (based on the grant date fair value of the option awards) if all performance and service requirements are met over the entire five-year vesting period. The per share exercise price of each option award was equal to the market value of Bancorp 34’s common stock on the date each option was granted.

(4)	See discussion under “Jet Fuel Cash Incentive Plan” below.

(5)	There were no above-market or preferential earnings on our nonqualified deferred compensation plan.

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(6)	The amounts set forth in this column include the following:

	Mr. Crotty ($)		Ms. Yacuel ($)		Mr. Vaughn ($)
401(k) match		8,138		9,986		3,876
ESOP Stock Allocation		—		5,277		—
Split Dollar Death Benefit BOLI		—		49		—
Christmas Gift		500		500		500
Car Allowance		7,200		7,200		—
Cell phone		1,200		1,200		900
Total		17,038		24,212		5,267

(7)	Mr. Vaughn joined Bancorp 34 on March 21, 2022, and his compensation is based on a partial year of employment.

Narrative to Summary Compensation Table

Employment Agreements with Named Executive Officers

We currently have employment agreements with each of our named executive officers. We have included below descriptions of the current employment agreements for each of these officers.

Current Employment Agreement with James T. Crotty

Bancorp 34 entered into an employment agreement (the “current employment agreement”) with Mr. Crotty, effective July 20, 2020, pursuant to which he serves as President and Chief Executive Officer of Bancorp 34. The initial term of the current employment agreement was two years. Mr. Crotty’s current employment agreement was amended on April 1, 2022 to amend the term of the agreement until May 1, 2024, to renew each year on May 1 for a successive two year period, subject to the disinterested members of the board of directors conducting a comprehensive performance evaluation and review of Mr. Crotty at least 60 days prior to renewal of the agreement and affirmative approval the renewal of the agreement. In addition, in the event of a change in control, the agreement is automatically extended for an additional 24 months.

Under the current employment agreement, Mr. Crotty is entitled to an annual base salary of $260,000. His base salary will be reviewed during the term of the agreement and may be increased, but not decreased, at the discretion of the board. Mr. Crotty’s current base salary is $320,000. The current employment agreement also entitles Mr. Crotty to a $200,000 retention bonus, payable ratably over 5 years on each anniversary of Mr. Crotty’s employment date. The retention bonus is expected to be used for the purchase of Bancorp 34 common stock, unless the value of Mr. Crotty’s investment in Bancorp 34, excluding equity benefits provided by Bancorp 34, exceeds the cumulative retention bonus paid. Upon 90 days of employment the agreement also provides that Mr. Crotty receive a grant of 25,000 Bancorp 34 stock options, which vest in equal installments over a five-year period, provided Mr. Crotty remains employed.

Mr. Crotty is entitled to receive performance or other bonuses based upon the achievement of the goals and objectives agreed upon with the board of directors, and Mr. Crotty is also eligible to participate in all employee benefit plans, arrangements and perquisites offered to other employees and officers of the company. In addition, Mr. Crotty is entitled to participate in a non-qualified deferred compensation plan which will allow Mr. Crotty to defer up to 100% of his base salary per year. Bancorp 34 also provides Mr. Crotty a $600 per month automobile allowance and a $100 per month cell phone allowance. Mr. Crotty is also entitled to 25 days per year in paid time off and reimbursement for reasonable travel, entertainment and other reasonable business expenses incurred.

We may terminate Mr. Crotty’s employment with or without cause, and Mr. Crotty may terminate his employment with or without good reason. Mr. Crotty is eligible for certain severance benefits upon termination, as described below under “Potential Payments Upon Termination or Change in Control.” If Mr. Crotty is terminated without cause, he is entitled to a cash lump sum payment equal to his base salary at the time of termination through the last day of the remaining term of his employment agreement, subject to Mr. Crotty executing a customary release.

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Ms. Crotty’s current employment agreement requires that he keep information about Bancorp 34 confidential. He is also subject to provisions related to non-competition and non-solicitation that generally preclude him, for a period of 1 year following termination (other than a termination following a change in control), from, among other things, (a) competing with Bancorp 34 or Bank 34 or otherwise being employed directly or indirectly in any capacity, including as a consultant, for any entity that competes with Bancorp 34 or Bank 34 and has an office within 25 miles of any location in which Bancorp 34 has business operations or has filed an application with regulatory authorities to establish an office; (b) soliciting any business relation to terminate its an existing business relationship with Bancorp 34; (c) soliciting for employment any person employed by Bancorp 34 or Bank 34 to work for any business that competes with Bancorp 34 or Bank 34 within the restricted territory.

New Employment Agreement with James T. Crotty

In connection with the merger, and contingent upon the consummation of the merger, Bank 34 has entered into a new employment agreement (the “new employment agreement”) with Mr. Crotty. Mr. Crotty has agreed to serve as the Chief Executive Officer of Bank 34 and Bancorp 34 for a two-year term ending April 30, 2025, that may be extended for additional one-year periods upon each anniversary of the agreement. Mr. Crotty’s initial base salary will be $320,000. In addition to his base salary, Mr. Crotty, will be entitled to receive cash bonuses equaling up to 40% of his annual base salary if Mr. Crotty achieves certain performance levels established from time to time by the board of directors or its authorized designee.

The new employment agreement provides that Mr. Crotty will be reimbursed for reasonable and necessary travel, mobile cellular and data plans, and other business expenses. Mr. Crotty will participate in Bank 34’s retirement, welfare, health, and other benefit programs. Mr. Crotty will be prohibited from disclosing our trade secrets or confidential information.

The new employment agreement provides that, if Bank 34 terminates the executive’s employment without cause prior to a change in control or more than 12 months following a change in control, Bank 34 will pay the executive on the first day of the month following the date of termination, and thereafter on the first day of the month for the next 11 months, compensation in an amount equal to 100% of his then current monthly base salary, plus any bonus earned or accrued through the date of termination.

Finally, during their employment and for a period of 12 months thereafter (other than a termination within one year following a change in control), Mr. Crotty may not, subject to limited exceptions, (i) compete with us by forming, serving as an organizer, director, or officer of, or consultant to, or acquiring or maintaining more than a 1% passive investment in, a depository financial institution or holding company of a depository financial institution, if the depository institution or holding company has one or more offices or branches within our territory, (ii) solicit our customers for a competing business, or (iii) solicit our employees for a competing business.

Current Change in Control Agreement with Kim Yacuel

Bancorp 34 entered into a change in control agreement with Ms. Yacuel, effective January 1, 2017 (the “current change in control agreement”). The initial term of the current change in control agreement was two years. Ms. Yacuel’s current change in control agreement was amended on April 1, 2022 to amend the term of the agreement until May 1, 2024, to renew each year on May 1 for a successive two year period, subject to the disinterested members of the board of directors conducting a comprehensive performance evaluation and review of Mr. Crotty at least 60 days prior to renewal of the agreement and affirmative approval of the renewal of the agreement.

We may terminate Ms. Yacuel’s employment with or without cause, and Ms. Yacuel may terminate her employment with or without good reason. Under the change in control agreement Ms. Yacuel is eligible for certain severance benefits upon termination, as described below under “Potential Payments Upon Termination or Change in Control.”

166

New Change in Control Agreement with Kim Yacuel

In connection with the merger, and contingent upon the consummation of the merger, Bank 34 has entered into a new change in control agreement with Ms. Yacuel (the “new change in control agreement”). The new change in control agreement is for a two-year term ending April 30, 2025, that may be extended for additional one-year periods upon each anniversary of the agreement. Under the new change in control agreement Ms. Yacuel is eligible for certain severance benefits upon termination, as described below under “Potential Payments Upon Termination or Change in Control.”

Change in Control Agreement with Kevin Vaughn

In connection with the merger, and contingent upon the consummation of the merger, Bank 34 has entered into a new change in control agreement with Mr. Vaughn. The change in control agreement is for a two-year term ending April 30, 2025, that may be extended for additional one-year periods upon each anniversary of the agreement. Under the change in control agreement Mr. Vaughn is eligible for certain severance benefits upon termination, as described below under “Potential Payments Upon Termination or Change in Control.”

Annual Bonus Payments

Annual bonus compensation is an integral component of our total compensation program that links executive decision-making and performance with our annual strategic objectives. Our named executive officers were eligible for bonus payments in 2022.

In 2022, the board of directors did not establish any specific set of corporate metrics or measures to determine annual bonuses for our named executive officers. However, in consultation with our Chief Executive Officer, the board of directors took into consideration, among other things, the following achievements of management:

Record annual earnings for Bancorp 34 in 2021;

Strong credit metrics in Bank 34’s loan portfolio with no charge offs for the year;

Completion of major preliminary steps to terminate and exit a legacy defined benefit plan;

Record loan growth;

Record deposit growth in addition to an improved mix within the deposit portfolio;

Favorable results from 3^rd party reviews;

Overall growth of the balance sheet in 2021; and

Increased the net interest margin to above 4% for the year.

In 2022, based on their individual performance, Mr. Crotty received an annual bonus equal to 69% of his base salary, Ms. Yacuel received an annual bonus equal to 58% of her base salary, and Mr. Vaughn received an annual bonus equal to 19% of his base salary.

Jet Fuel Cash Incentive Plan

The Bank 34 Jet Fuel Incentive Plan is a plan under which Bank 34 officers can earn cash incentives based upon the solicitation and opening of new deposit accounts at Bank 34. Under the plan, for an opened demand deposit account, an officer receives 30 basis points of the total amount deposited by the customer at the 90 day anniversary of the account opening date, and an additional 60 basis points of the amount deposited by the customer at the one year anniversary of the account opening date. For interest bearing deposit accounts, an officer receives 25 basis points of the total amount deposited by the customer at the 90 day anniversary of the account opening date, with a maximum payout of $1,000.

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2017 Equity Incentive Plan

The Bancorp 34, Inc. 2017 Equity Incentive Plan, which we refer to as the “2017 Equity Plan,” was adopted by the Bancorp 34 board of directors and approved by our stockholders on November 17, 2017. The 2017 Equity Plan remains effective as long as any awards are existing under the plan, provided that no awards may be granted under the plan after the ten-year anniversary date of the of plan. The Equity Plan was designed to enable us to attract, retain and reward individuals who contribute to the further success and to further align the participant’s interest with those of the company’s stockholders.

Shares Subject to the Equity Plan. The shares issuable under the 2017 Equity Plan are 263,127 shares of Bancorp 34 common stock that are authorized but unissued or reacquired common stock. The maximum number of stock options that may be issuable under the plan is 187,948, and the maximum number of restricted stock or restricted stock unit awards that may be issuable under the plan is 75,179. Generally, shares that have not been delivered because they were forfeited or cancelled or the award was settled in cash, and that have not been applied to pay the exercise price or taxes, may again be issued pursuant to new awards. The compensation committee of the board of directors of Bancorp 34 (the “committee”) must equitably adjust awards and the shares available under the 2017 Equity Plan in the event of certain corporate restructurings and corporate events, such as recapitalization, reorganization, stock split, or stock dividend.

Types of Awards and Eligibility. There are four types of awards that may be made under the 2017 Equity Plan including options (both incentive stock options (“ISOs”) and nonqualified stock options (“NQSOs”)), restricted stock awards and restricted stock units. Awards are memorialized in an award agreement and are subject to the conditions, restrictions and contingencies specified by the committee in such agreement (and the 2017 Equity Plan). Employees and directors of Bancorp 34 or any of its subsidiaries are eligible to receive awards.

Stock Options. Options can be issued as ISOs or NQSOs. ISOs are options to purchase our common stock that receive tax benefits under Section 422 of the Code. NQSOs are options to purchase our common stock that do not meet those requirements. Unless otherwise specified by the award agreement, any stock option granted to an employee under the plan will be an ISO to the maximum extent permitted, and ISO’s may not be granted to a non-employee. As a general rule, the exercise price of each option must be at least 100% (or, in the case of an ISO granted to a 10% or more stockholder, 110%) of the fair market value of a share on the date of grant. A higher or lower exercise price may be permissible in connection with a merger or other corporate transaction if it would not violate Section 409A of the Code. The maximum term of any option is ten years from the date of grant (or five years, for ISOs granted to an employee who is a 10% or more stockholder). The maximum shares covered by stock options granted in any calendar year to an employee is 46,987 and to any non-employee director is 9,397 (or to all non-employee directors in the aggregate, 56,384).

Restricted Stock. A restricted stock award can be issued as a restricted stock award or restricted stock unit. A restricted stock award and a restricted stock unit is a grant of shares subject to restrictions specified by the committee that generally lapse upon vesting. The maximum shares covered by restricted stock or restricted stock unit awards granted in any calendar year to an employee is 18,794 and to any non-employee director is 3,759 (or to all non-employee directors in the aggregate, 22,553).

Restricted Stock Awards. Except to the extent that dividend equivalent rights are provided in the award agreement, a participant of a restricted stock award has stockholder rights, such as voting and cash dividend rights, provided that dividends for restricted stock awards that are performance awards will not be paid until the vesting of the performance based restricted stock award.

Restricted Stock Units. Unless otherwise provided in the award agreement, a participant of a restricted stock unit has no stockholder rights, such as voting or cash dividend rights, until vesting of the restricted stock.

Performance Awards. A performance award means the grant of a right to receive shares or share units based on our performance, or the performance of any one or more of our subsidiaries, or business units of either, during a performance period set forth in the award agreement. The number of performance shares earned by the participant depends on the extent to which the performance goals are attained. While the 2017 Equity Plan was drafted to allow the grant of “performance-based compensation” awards that would be exempt from the $1 million deduction limit that applies to publicly-held corporations under Section 162(m) of the Code, this special exclusion was repealed December 31, 2017 and is not available for awards granted after that date.

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Other Stock-Based Awards. Other stock-based incentives valued in whole or in part by reference to, or otherwise based on, shares (such as restricted stock units) may be granted under the 2017 Equity Plan, with such restrictions and other conditions as the board determines.

Administration. The 2017 Equity Plan is administered by the members of the committee who are disinterested board members (as defined in the plan). The board of directors may, in their discretion, take any action or exercise any power, privilege or discretion conferred on the committee under the plan with the same force and effect as if done or exercised by the committee. Among other powers, the committee has the authority to grant awards, choose participants to receive awards, determine the number of shares of Bancorp 34 common stock that will be subject to the awards, interpret the 2017 Equity Plan, and establish, amend or rescind any rules and regulations relating to the 2017 Equity Plan. Except with respect to certain capitalization adjustments, the committee, however, does not have the power to make any adjustment or amendment to an award that reduces or would have the effect of reducing the exercise price of a stock option previously granted under the plan, whether through amendment, cancellation (including cancellation in exchange for a cash payment in excess of the stock option’s in-the-money value or in exchange for options or other awards), replacement grants, or other means.

Vesting; Forfeiture & Transferability. The committee determines the time and conditions under which an option holder may exercise an award or when the period of restriction that applies to an award will lapse (“vesting”) and specifies these terms in the award agreement. Unless the committee specifies a different vesting schedule at the time of grant, awards other than performance awards are granted with a vesting rate not to exceed 20% per year, with the first installment vesting no earlier than the one year anniversary of the date of grant. All awards granted under the 2017 Equity Plan are subject to a vesting requirement of at least one year of employment or service as a director following the grant of the award (subject to acceleration upon death, disability or certain involuntary terminations following a change in control). Vesting may be based upon employment or service, or achievement of performance goals, or both. Unless provided otherwise in the award agreement or an employment or severance agreement, all unexercised or unvested awards are forfeited upon termination of employment or service and vested options continue to be exercisable for three months (or, in the case of disability or death, 12 months), or their earlier expiration. Awards may be subject to certain clawback rights to the extent required by the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or a policy adopted by the board for Bancorp 34. The committee may at any time accelerate vesting of an award or extend the exercise period of an option in a manner in compliance with section 409A of the Code, except for any award within the first year after the grant of the award. Awards are generally only exercisable by the participant, and are transferable only by will or by the laws of descent and distribution, except in certain limited cases of divorce or where otherwise provided by the committee.

Change in Control. In the event of any merger, consolidation or other business reorganization of Bancorp 34 (including, but not limited to a change in control, as defined in the 2017 Equity Plan) in which Bancorp 34 is not the surviving entity, unless otherwise determined by the committee prior to such event, outstanding stock options will automatically convert to stock options to purchase voting securities of the surviving entity with substantially the same terms as in effect prior to the event and reflecting the same economic benefit; provided, however, that the committee may direct that outstanding stock options are canceled as of the merger for a cash payment equal to the spread (or, in the case of underwater stock options, for no consideration). Otherwise in the event of a change in control, if the acquiring corporation fails to assume any awards or to convert the awards to awards for the acquiror’s stock options, restricted stock or restricted stock units, such awards will vest immediately upon the effective time of the change in control. If, at or following a change in control, the participant is involuntarily terminated (including a constructive termination for “good reason”), all stock options will fully vest and remain exercisable until one year following the involuntary termination, and all awards of restricted stock subject to time-based vesting will fully vest immediately; and any restricted stock or restricted stock unit awards subject to performance-based vesting conditions will be vested at the “target” level of performance unless data supports and the committee certifies the performance measures have been achieved at a higher level than “target” in which case the award will vest at such higher level. To the extent not specified in the award agreement or the plan, the committee shall have the discretion to determine the treatment of outstanding unvested awards, provided that such awards shall be deemed earned and shall vest if not assumed by the successor entity.

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Amendment & Termination. The 2017 Equity Plan became effective immediately upon our stockholder approval, and terminates on the tenth anniversary of its effective date. The board may, as permitted by law, at any time amend or terminate the 2017 Equity Plan or any award agreement, without consent of stockholders or participants, provided, however, that no amendment may cause the repricing of a stock option or without the consent of such participants impair the rights of participants with outstanding awards; and provided further that no amendment may (i) materially increase the benefits accruing to participants under the plan, (ii) materially increase the aggregate number of securities which may be issued under the plan, other than pursuant to a corporate transaction, or (iii) materially modify the requirements for participation in the plan, unless the amendment under (i), (ii) or (iii) above is approved by Bancorp 34’s stockholders. Notwithstanding the foregoing, the committee may amend the 2017 Equity Plan or any award to conform to law or avoid certain negative accounting treatments.

2022 Equity Incentive Plan

The Bancorp 34, Inc. 2022 Equity Incentive Plan, which we refer to as the “2022 Equity Plan,” was adopted by the Bancorp 34 board of directors and approved by our stockholders on May 25, 2022. The 2022 Equity Plan remains effective as long as any awards are existing under the plan, provided that no awards may be granted under the plan after the ten-year anniversary date of the of plan. The Equity Plan was designed to enable us to attract, retain and reward individuals who contribute to the further success and to further align the participant’s interest with those of the company’s stockholders.

Shares Subject to the Equity Plan. The shares issuable under the 2022 Equity Plan are 252,340 shares of Bancorp 34 common stock that are authorized but unissued or reacquired common stock. The maximum number of stock options that may be issuable under the plan is 84,113, and the maximum number of restricted stock or restricted stock unit awards that may be issuable under the plan is 168,227. Generally, shares that have not been delivered because they were forfeited or cancelled or the award was settled in cash, and that have not been applied to pay the exercise price or taxes, may again be issued pursuant to new awards. The compensation committee of the board of directors of Bancorp 34 (the “committee”) must equitably adjust awards and the shares available under the 2022 Equity Plan in the event of certain corporate restructurings and corporate events, such as recapitalization, reorganization, stock split, or stock dividend.

Types of Awards and Eligibility. There are four types of awards that may be made under the 2017 Equity Plan including options (both incentive stock options (“ISOs”) and nonqualified stock options (“NQSOs”)), restricted stock awards and restricted stock units. Awards are memorialized in an award agreement and are subject to the conditions, restrictions and contingencies specified by the committee in such agreement (and the 2022 Equity Plan). Employees, directors and certain consultants and advisors of Bancorp 34 or any of its subsidiaries are eligible to receive awards.

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Restricted Stock Awards. Unless otherwise provided in the award agreement, a participant of a restricted stock award has stockholder rights, such as voting and dividend rights, provided that dividends payable with respect to restricted stock awards will be subject to the same vesting conditions appliable to the restricted stock award and will be paid when any vesting conditions lapse.

Restricted Stock Units. Unless otherwise provided in the award agreement, a participant of a restricted stock unit has no stockholder rights, such as voting or dividend rights, until vesting of the restricted stock.

Performance Awards. A performance award means an award that vests in whole or in part upon the achievement of one or more specified performance measures as determined by the committee. Performance measures may be based on our performance as a whole or on any one or more of our subsidiaries, or our or our subsidiary’s business units, may provide that partial achievement of performance measures may result in the partial payment or vesting of the award or that the achievement of a performance measure may be measured over more than one period in a fiscal year. The number of performance shares earned by the participant depends on the extent to which the performance goals are attained as determined by the committee.

Other Stock-Based Awards. Other stock-based incentives valued in whole or in part by reference to, or otherwise based on, shares (such as restricted stock units) may be granted under the Equity Plan, with such restrictions and other conditions as the board determines.

Administration. The 2022 Equity Plan is administered by the members of the committee who are disinterested board members (as defined in the plan). The board of directors may, in their discretion, take any action or exercise any power, privilege or discretion conferred on the committee under the plan with the same force and effect as if done or exercised by the committee. Among other powers, the committee has the authority to grant awards, chose participants to receive awards, and to determine the number of shares of Bancorp 34 common stock that will be subject to the awards, interpret the 2022 Equity Plan, and establish, amend or rescind any rules and regulations relating to the 2022 Equity Plan. Except with respect to certain capitalization adjustments, the committee, however, does not have the power to make any adjustment or amendment to an award that reduces or would have the effect of reducing the exercise price of a stock option previously granted under the plan, whether through amendment or cancellation (including cancellation in exchange for a cash payment in excess of the stock option’s in-the-money value or in exchange for options or other awards) or replacement grants, or other means.

Vesting; Forfeiture & Transferability. The committee determines the time and conditions under which an option or restricted stock holder may exercise an award or when the period of restriction that applies to the award will lapse (“vesting”) and specifies these terms in the award agreement, provided that at least 95% of the awards available under the plan will vest no earlier than one year after the date of grant. Vesting may be based upon employment or service, or achievement of performance goals, or both. Unless provided otherwise in the award agreement or an employment or severance agreement, all unexercised or unvested awards are forfeited upon termination of employment or service and vested options continue to be exercisable for three months (or, in the case of disability or death, 12 months), or their earlier expiration. Awards may be subject to certain clawback rights to the extent required by the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or a policy adopted by the board for Bancorp 34. The committee may at any time accelerate vesting of an award or extend the exercise period of an option in a manner in compliance with section 409A of the Code, except that the committee may not accelerate the vesting period of any award within the first year following the date of the grant if the exercise of such discretion would result in more than 5% of the aggregate awards under the plan vesting in less than one year from the date of grant. Awards are generally only exercisable by the participant, and are transferable only by will or by the laws of descent and distribution, except in certain limited cases of divorce or where otherwise provided by the committee. The award agreement may require the participant to agree to hold a vested award or shares of stock received upon exercise of a stock option for a specified holding period, subject to certain exceptions.

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Merger; Change in Control. If the event of a merger, consolidation or other business reorganization (including a change in control) in which the company is not the surviving entity, outstanding stock options will automatically convert to stock options to purchase voting securities of the surviving entity with substantially the same terms as in effect prior to the event and reflecting the same economic benefit. Similar, any outstanding restricted stock or restricted stock unit award will be assumed by and become restricted stock or restricted stock unit award of the surviving entity. If the surviving entity fails to assume the outstanding awards, any service-based awards will vest immediately at or immediately before the effective time of the merger, and performance-based awards will vest at the greater of the “target” level of performance or actual annualized performance measured as of the most recent completed fiscal quarter. Unless otherwise provided in the 2022 Equity Plan, any holder of vested restricted stock or restricted stock unit award will receive the same value as received by other stockholders in the event and any holder of vested stock options will receive the spread based on the value as received by other stockholders in the event. If, at or following a change in control, the participant is involuntarily terminated (including a constructive termination for “good reason”), then, except as otherwise provided in the plan or otherwise specified in the award agreement, all service-based stock options will fully vest and remain exercisable until one year following the termination, all service-based restricted stock or restricted stock unit awards will fully vest immediately, and any restricted stock or restricted stock unit awards subject to performance-based vesting conditions will vest at the greater of the “target” level of performance or actual annualized performance measured as of the most recent completed fiscal quarter.

Amendment & Termination. The 2022 Equity Plan became effective immediately upon our stockholder approval, and terminates on the tenth anniversary of its effective date. The board may, as permitted by law, at any time amend or terminate the 2022 Equity Plan or any award agreement, without consent of stockholders or participants, provided, however, that no amendment may cause the repricing of a stock option or without the consent of such participants impair the rights of participants with outstanding awards; and provided further that no amendment may (i) materially increase the benefits accruing to participants under the plan, (ii) materially increase the aggregate number of securities which may be issued under the plan, other than pursuant to a corporate transaction, or (iii) materially modify the requirements for participation in the plan, unless the amendment under (i), (ii) or (iii) above is approved by Bancorp 34’s stockholders. Notwithstanding the foregoing, the committee may amend the 2022 Equity Plan or any award to conform to law or avoid certain negative accounting treatments.

Outstanding Equity Awards at 2022 Fiscal Year-End

The following table provides a summary of equity awards outstanding as of December 31, 2022 for the named executive officers.

		Option Awards									Stock Awards
Name	Grant Date	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable			Option Exercise Price ($)		Option Expiration Date		Number of shares or units of stock that have not vested (#)			Market value of shares of units of stock that have not vested ($)
James T. Crotty	10/19/2020		10,000		15,000	⁽¹⁾		9.85		10/19/2027		—			—
	2/15/2022		—		—			—		—		3,000	⁽²⁾		14.97
Kim Yacuel	12/6/2017		6,000		—			14.90		12/6/2024		—			—
	2/15/2022		—		—			—		—		1,500	⁽²⁾		14.97
Kevin Vaughn	6/19/2022		—		2,000	⁽¹⁾		14.52		6/19/2029		—			—
	6/19/2022		—		—			—		—		1,000	⁽²⁾		14.48

(1)	Represents stock options that vest ratably over a five year period on each anniversary date of the grant date.

(2)	Represents restricted stock grants that vest ratably over a five year period on each anniversary date of the grant date.

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Potential Payments Upon Termination or Change in Control

Employment Agreements

Current Employment Agreement with James T. Crotty

Mr. Crotty’s current employment agreement was amended on December 16, 2020 to provide for an amended change in control benefit to Mr. Crotty. Under the amendment to the employment agreement, upon the termination of Mr. Crotty without cause or with good reason (as those terms are defined in the current employment agreement) after the time of a change in control (as defined in the current employment agreement), Bancorp 34 will pay Mr. Crotty an amount equal to three times the sum of (i) his highest rate of base salary, and (ii) the highest annual bonus paid to, or earned by, Mr. Crotty during the current calendar year of the date of termination or either of the two prior years. The amendment also requires Bancorp 34 to pay Mr. Crotty any unpaid portion of the retention bonus in a single lump sum within ten days following the date of termination. If Mr. Crotty’s employment is terminated within six months of a change in control, Mr. Crotty is entitled to the difference of any amounts otherwise received upon termination and the amount Mr. Crotty would have received based upon termination due to a change in control.

New Employment Agreement with James T. Crotty

Mr. Crotty’s new employment agreement provides for certain change in control benefits to Mr. Crotty. If, within 12 months following a change in control Bank 34 terminates Mr. Crotty without cause or Mr. Crotty terminates his employment for good reason, Mr. Crotty will be entitled to severance equal to the sum of Mr. Crotty’s then current base salary plus the average of his last two years’ bonuses multiplied by three, plus any bonuses awarded for previous years but which have not been paid. While we believe the amounts to be paid to Mr. Crotty upon termination are reasonable compensation for services under the applicable provisions of the Internal Revenue Code, if Bank 34’s independent accounting firm or independent tax counsel determine that payments to the executive would constitute “excess parachute payments,” the payments to the executive will be either delivered in full or reduced such that no portion would be subject to any additional tax liability applicable to the executive as a result of such payments, whichever results in the greatest amount of benefits to the executive, as determined by the Bank 34’s independent accounting firm or independent tax counsel.

Current Change in Control Agreement with Kim Yacuel

Under the current change in control agreement with Ms. Yacuel, upon the termination of Ms. Yacuel without cause or with good reason (as those terms are defined in the change in control agreement) within six months of a change in control or after a change in control (as defined in the change in control agreement), Bancorp 34 will pay Ms. Yacuel an amount equal to one times the executive’s highest rate of base salary, and the average bonus paid to Ms. Yacuel during the current calendar year of the date of termination and the two prior years. If this payment constitutes an “excess parachute payments” the payment will be reduced by the minimum amount necessary to such that the payments due to the executive are not subject to penalties under IRS code sections 280G and 4999.

New Change in Control Agreement with Kim Yacuel

Under the new change in control agreement with Ms. Yacuel, if simultaneous with or with one year following a change in control Bank 34 terminates Ms. Yacuel without cause or Ms. Yacuel terminates her employment for good reason, Ms. Yacuel will be entitled to severance equal to the sum of Ms. Yacuel’s then current base salary plus the average of her last two years’ bonuses, plus any bonuses awarded for previous years but which have not been paid. While we believe the amounts to be paid to Ms. Yacuel upon termination are reasonable compensation for services under the applicable provisions of the Internal Revenue Code, if Bank 34’s independent accounting firm or independent tax counsel determine that payments to the executive would constitute “excess parachute payments,” the payments to the executive will be either delivered in full or reduced such that no portion would be subject to any additional tax liability applicable to the executive as a result of such payments, whichever results in the greatest amount of benefits to the executive, as determined by the Bank 34’s independent accounting firm or independent tax counsel.

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Change in Control Agreement with Kevin Vaughn

Under the change in control agreement with Mr. Vaughn, if simultaneous with or with one year following a change in control Bank 34 terminates Mr. Vaughn without cause or Mr. Vaughn terminates his employment for good reason, Mr. Vaughn will be entitled to severance equal to the sum of Mr. Vaughn’s then current base salary plus the average of his last two years’ bonuses multiplied by 0.5, plus any bonuses awarded for previous years but which have not been paid. While we believe the amounts to be paid to Mr. Vaughn upon termination are reasonable compensation for services under the applicable provisions of the Internal Revenue Code, if Bank 34’s independent accounting firm or independent tax counsel determine that payments to the executive would constitute “excess parachute payments,” the payments to the executive will be either delivered in full or reduced such that no portion would be subject to any additional tax liability applicable to the executive as a result of such payments, whichever results in the greatest amount of benefits to the executive, as determined by the Bank 34’s independent accounting firm or independent tax counsel.

Equity Incentive Plan

Stock Options

Each option award granted to our named executive officers was granted under the 2017 Equity Plan. Under our option award agreements with our named executive officers, outstanding stock options vest ratably over a five year period on each anniversary of the grant date.

If the executive is terminated for any reason other than due to death, disability, retirement, involuntary termination (including for good reason) following a change in control or for cause (as those terms are defined in the 2017 Equity Plan), any options that were exercisable at the time of termination, may be exercised for a period of three months following the time of such termination, subject to termination on the option’s expiration date, if earlier. If the executive is terminated for death or disability, all options become vested and exercisable for a period of one year from the date of termination, subject to termination on the option’s expiration date, if earlier. If the executive is terminated for retirement, vested options may be exercised for a period of one year from the date of termination, subject to termination on the option’s expiration date, if earlier. If the executive is terminated for cause, all options that have not been exercised expire and are forfeited.

In addition, in the event of the executive’s involuntary termination (including for good reason) following a change in control (as those terms are defined in the 2017 Equity Plan) all options held by the executive, whether or not exercisable, will become fully exercisable, subject to the expiration provisions otherwise applicable to the option. In addition, the committee can determine, prior to the effective date of the change in control, to require options to be cancelled for a cash payment in accordance with the 2017 Equity Plan.

Restricted Stock

Each restricted stock award granted to our named executive officers was granted under the 2017 Equity Plan. Under our restricted stock award agreements with our named executive officers, outstanding restricted stock vests ratably over a five year period on each anniversary of the grant date.

In addition, in the event of the executive’s involuntary termination (including for good reason) following a change in control (as those terms are defined in the 2017 Equity Plan) all restricted stock awards held by the executive become fully vested. In addition, the committee can determine, prior to the effective date of the change in control, to require options to be cancelled for a cash payment in accordance with the 2017 Equity Plan.

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Compensation of Directors for Fiscal Year 2022

We do not pay our “inside” employee-directors any additional compensation for their service as directors. For 2022, we provided the following annual compensation to our non-employee directors for their service as directors, which consist primarily of a monthly cash retainer of $3,000; and a Christmas bonus of $500.

The following table sets forth, for the fiscal year ended December 31, 2022, certain information regarding the compensation of each non-employee director of Bancorp 34.

Name	Fees Earned or Paid in Cash ($)		All Other Compensation ($)⁽¹⁾		Nonqualified Deferred Compensation Earnings ($)			Total ($)
Kevin W. Ahern⁽²⁾		—		—		—			—
William P. Burt		36,000		500		—			36,500
Spencer T. Cohn⁽³⁾		—		—		—			—
Wortham A. (Pete) Cook		—		500		36,000	⁽⁴⁾		36,500
Jill Gutierrez⁽⁵⁾		36,000		500		—			36,500
James Harris⁽⁶⁾		15,000		—		—			15,000
Randal L. Rabon		—		500		36,000	⁽⁷⁾		36,500
Elaine E. Ralls		—		500		36,000	⁽⁸⁾		36,500
Don P. Van Winkle		36,000		500		—			36,500

(1)

The amounts included in “All Other Compensation” include a $500 Christmas bonus paid to certain of our directors.

(2)

Mr. Ahern joined the board of directors in 2023 and thus did not have any compensation for the year ended December 31, 2022.

(3)

Mr. Cohn joined the board of directors in 2023 and thus did not have any compensation for the year ended December 31, 2022.

(4)

The director compensation for Mr. Cook is contributed to a vested deferred compensation account for Mr. Cook.

(5)

Mr. Gutierrez resigned from the board of directors in February of 2023.

(6)

Mr. Harris resigned from the board of directors in May of 2022.

(7)

The director compensation for Mr. Rabon is contributed to a vested deferred compensation account for Mr. Rabon.

(8)

The director compensation for Ms. Ralls is contributed to a vested deferred compensation account for Ms. Ralls.

Compensation Committee Interlocks and Insider Participation

None of the members of our Compensation Committee is or has been an officer or employee of Bancorp 34 or any of our subsidiaries. In addition, none of our executive officers serves or has served as a member of the board of directors, compensation committee or other board committee performing equivalent functions of any entity that has one or more executive officers serving as one of our directors or on our Compensation Committee.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF BANCORP 34

The following section summarizes the material provisions of certain agreements entered into by Bancorp 34 with its related parties. The summaries of agreements in this section and elsewhere in this joint proxy statement/prospectus are qualified in their entirety by reference to the forms of such agreements, which have been filed as exhibits to the registration statement of which this joint proxy statement/prospectus is a part. The summaries do not purport to be complete and may not contain all of the information about the applicable agreement that is important to CBOA shareholders. Bancorp 34 and CBOA encourage you to carefully read the forms of these agreements in their entirety.

Arrangements with Castle Creek Fund VIII, L.P. and Brush Creek-B 34, LLC

Under a Securities Purchase Agreement entered into between Bancorp 34 and Castle Creek Capital Fund VIII, L.P. (“Castle Creek”) and a Securities Purchase Agreement entered into between Bancorp 34 and Brush Creek-B 34, LLC (“Brush Creek,” and collectively with Castle Creek, the “Funds”) the Funds purchased for aggregate cash consideration of $15.4 million from Castle Creek and $4.5 million from Brush Creek, in our private placements an aggregate of 702,008 shares of our voting common stock, 701,849 shares of non-voting common stock (in the case of Castle Creek only) and warrants to purchase 140,385 shares of our common stock. As a result, as of August 10, 2023 the Funds currently beneficially own 18.8% of our voting common stock (assuming the exercise of all immediately exercisable warrants to voting common stock and immediately convertible non-voting common stock to voting common stock), and 31.9% of our outstanding common stock (including both voting and non-voting common stock and assuming the exercise of all immediately exercisable warrants held by them). Pursuant to the Securities Purchase Agreements with Castle Creek and Brush Creek, unless appropriate regulatory approvals are obtained, the Funds were each limited to purchasing no more than 24.9% of our total equity, and no more than 9.9% of any class of our voting securities. Pursuant to the Articles Supplementary to our Articles of Incorporation for Non-Voting Common Stock, each of the Funds is permitted to convert, or upon the written request of Bancorp 34 will convert, its shares of non-voting common stock to voting common stock at any time, provided that the Fund, together with its affiliates, own no more than 9.9% of our voting common stock.

Additionally, under the Securities Purchase Agreements with Brush Creek and Castle Creek, as long as each of Brush Creek or Castle Creek (together with their affiliates) owns at least 4.9% of our common stock then outstanding (the “minimum ownership interest”), each of Brush Creek and Castle Creek has the right to designate a representative reasonably acceptable to Bancorp 34 to the Bancorp 34 and Bank 34 Boards of Directors. To the extent that Brush Creek or Castle Creek maintain the minimum ownership and does not have a representative appointed to the board of directors of Bancorp 34 or Bank 34, or the board representative is unable to attend a board meeting, Brush Creek and Castle Creek have the right to appoint a representative to attend meetings of the boards of directors in a non-voting observer capacity. Bancorp 34 has agreed to use its reasonable efforts to have the board representative elected as a director of the company by the shareholders of the company, and will solicit proxies for the board representative to the same extent as it does for any of its other nominees to the board. Each board member appointed is entitled to compensation and indemnification and insurance coverage in connection with his or her role as a board member to the same extent as other members of our boards of directors.

Each of Brush Creek’s and Castle Creek’s nominating right will terminate at such time as the applicable Fund owns less than 4.9% of our common stock. Mr. Ahern currently serves as the Brush Creek representative on Bancorp 34’s and Bank 34’s Boards of Directors. See “Management—Board of Directors—Kevin Ahern” for Mr. Ahern’s biography. Mr. Cohn currently serves as the Castle Creek representative on Bancorp 34’s and Bank 34’s Boards of Directors. See “Management—Board of Directors—Spencer Cohn” for Mr. Cohn’s biography.

In consideration of a portion of the purchase price in our 2022 and 2023 private placement, we issued warrants to purchase an aggregate of 140,385 shares of our common stock to the Funds. The aggregate proceeds from the Funds of $19.9 million in our 2022 and 2023 private placement were allocated between the 702,008 voting common shares purchased, 701,849 common nonvoting shares purchased and the 140,385 warrants purchased based on the relative fair value of the warrants, resulting in a purchase price allocation of $19.9 million for the shares of common stock and non-voting common stock and $0.0 million for the warrants. The warrants are exercisable until December 30, 2029 and have an exercise price of $14.00 per share. In addition, we paid approximately $104,000 to the Funds, as reimbursement for due diligence and related expenses in connection with its investment in our private placement. The Securities Purchase Agreement for the 2022 and 2023 private placement included representations, warranties and covenants customary for a transaction of this type and was materially similar to the stock subscription agreements entered into between Bancorp 34 and the other investors in the offering, except that the other investors (i) except for Brush Creek and Castle Creek, were not entitled to designate a board representative and board observer, (ii) purchased common stock in the private placement at $14.00 per share (the same price as the Funds), and (iii) were not reimbursed for due diligence and related expenses in connection with the private placement, each as described above. In addition, the Funds were granted “venture capital operating company” rights that were not provided to the other investors, including consultation rights, inspection and access rights, and rights to receive materials for all meetings of our Board of Directors, and the right to audited and unaudited financial statements, annual budget and other financial and operations information, including consultation with officers and directors of the company no more than once per calendar quarter, for so long as the Funds maintain an investment in our common stock, subject to their agreement to maintain the confidentiality of any non-public information provided to them and to comply with applicable securities laws.

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Registration Rights Agreement

Registration Rights Agreement with the Funds. In connection with our 2022 and 2023 private placement, we entered into a registration rights agreement for the benefit of the Funds with respect to our common stock sold to the Funds in the private placements. Under the terms of the registration rights agreement, we agreed to file a registration statement under the Securities Act as would allow the Funds to resell shares of common stock acquired in the private placements (including those received upon exercise of the Funds’ warrants) (the “registrable securities”) no later than December 30, 2027 (with respect to Castle Creek) and January 27, 2028 (with respect to Brush Creek) for an offering to be made on a continuous basis pursuant to Rule 415 (or if a registration under Rule 415 is not available for offers and sales of the registrable securities, by such other means as Bancorp 34 may reasonably determine). We agreed to use commercially reasonable efforts to cause the registration statement to be declared effective by the SEC as soon practicable, but in no event later than the tenth trading day after the date Bancorp 34 is notified by the Securities and Exchange Commission that the registration statement will not be reviewed or will not be subject to further review, and then to maintain the effectiveness of the registration statement. As described in our registration rights agreement, if we do not comply with our obligations to file the registration statement and ensure that it is declared and remains effective, we could be obligated to contractual penalties, including liquidated damages.

Under the registration rights agreement, we are required to provide written notice to the Funds of our intent to file a registration statement covering a primary or secondary public offering of our common stock, non-voting common stock, warrants or other securities (a “Primary or Secondary Registration Statement”) other than in connection with registration statement to implement an employee benefit plan pursuant to a registration statement on Form S-8 (or successor form) or a registration statement on Form S-4 (or successor form) or a transaction to which Rule 145 or any other similar rule of the Securities and Exchange Commission is applicable. The Funds have “piggy-back” registration rights that permit them to have shares of common stock owned by them included in the Primary or Secondary Registration Statement upon written notice to us within the prescribed time limit. The ability of the Funds to register shares under the Primary or Secondary Registration Statement is subject to the terms of the registration rights agreement. The managing underwriter may under certain circumstances limit, or cut back the number of shares owned by such holders that are included in the offering.

We will pay all expenses incident to our performance under the registration rights agreement with the Funds, including, without limitation, all SEC and Financial Industry Regulatory Authority, Inc. (“FINRA”) registration, filing and review fees, all fees and expenses of complying with securities or state “blue sky” laws, all fees of counsel and independent public accountants retained by us and those expenses of each Fund actually and reasonably incurred, including reasonable attorneys’ fees, not to exceed $50,000 in the aggregate per Fund. We are not required, however, to pay any underwriting discounts and selling commissions, stock transfer taxes and fees of counsel (except as provided in the prior sentence) for the holders of registrable securities. We have also agreed to indemnify the Funds and their affiliates who have securities included in a registration statement against specified liabilities, including certain potential liabilities arising under the Securities Act, and the Funds have similarly agreed to indemnify us against specific liabilities.

Related Party Transaction Policy

Transactions by us with related parties are subject to regulatory requirements and restrictions. These requirements and restrictions include Sections 23A and 23B of the Federal Reserve Act (which govern certain transactions by us with our affiliates) and the Federal Reserve’s Regulation O (which governs certain loans by us to our executive officers, directors and principal stockholders). We have also adopted policies to comply with these regulatory requirements and restrictions, including policies governing the approval of related party transactions. Under our policies, all transactions between us and our directors, officers and 5% stockholders are subject to the approval of a majority of the independent and disinterested outside directors and are conducted on terms no less favorable than could be obtained from unaffiliated third parties on an arm’s-length basis. In addition, we conduct an appropriate review of all related person transactions for potential conflicts of interest on an ongoing basis, and all such transactions must be approved by the Audit Committee (or another independent body of the board).

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INFORMATION ABOUT CBOA FINANCIAL, INC.

CBOA is an Arizona corporation that owns all of the outstanding shares of common stock of Commerce Bank, an Arizona-chartered commercial bank with operational headquarters in Tucson, Arizona. Commerce Bank offers full commercial banking services to customers throughout its market areas in Arizona. Commerce Bank has five banking locations: two located throughout the greater Phoenix metropolitan area, and three located throughout the greater Tucson metropolitan area, which includes Green Valley, Arizona.

CBOA’s principal executive offices are located at 7315 N. Oracle Rd., Suite 181, and its telephone number at that location is (520) 797-4160.

Information About CBOA’s Business

General. CBOA was incorporated as an Arizona corporation in 2004 to serve as a bank holding company for Commerce Bank. CBOA does not, as an entity, engage in separate business activities of a material nature apart from the activities it performs for Commerce Bank. Its primary activities are to provide assistance in the management and coordination of Commerce Bank’s financial resources. CBOA’s principal asset is the outstanding common stock of Commerce Bank. CBOA derives its revenues primarily from the operations of Commerce Bank in the form of dividends received from Commerce Bank.

Commerce Bank is an Arizona bank chartered in 2002, and has served since that time as a community-based financial institution with operations solely in Arizona.

As a bank holding company, CBOA is subject to supervision and regulation by the Federal Reserve, in accordance with the requirements set forth in the BHC Act and by the rules and regulations issued by the Federal Reserve.

As of March 31, 2023 CBOA, on a consolidated basis, reported total assets of $372 million, total net loans of $273 million, total deposits of $307 million and shareholders’ equity of $31 million. CBOA does not file reports with the SEC.

Products and Services. Commerce Bank is a commercial bank offering a variety of banking services to small to medium small business customers, their owners, and other select high net worth individuals throughout Arizona. Commerce Bank offers a range of lending services, including real estate, commercial & industrial, mortgages, and other consumer loans to individuals and small to medium-sized business and professional firms that are located in or conduct a substantial portion of their business in Commerce Bank’s market areas. Real estate loans offered by Commerce Bank are typically secured by first or second mortgages on the subject collateral, and often relate to both owner-occupied and non-owner-occupied office, retail, and multi-family buildings. Commercial & industrial loans offered include loans to small and medium-sized businesses for the purpose of purchasing equipment, inventory, facilities or for working capital. Consumer loans offered include loans for the purpose of purchasing automobiles, recreational vehicles, personal residences, household goods, home improvements or for other personal needs.

Commerce Bank offers depository services and various checking account services. Commerce Bank also offers commercial treasury management services, safe deposit boxes, debit cards, merchant bank card services, traveler’s checks, wire transfer services, cashier’s checks, money orders, telephone banking, digital banking, mobile banking, bill pay, direct deposit, overdraft, and automatic transfers between accounts. Commerce Bank has ATMs at most of its locations. Commerce Bank’s business is not seasonal in any material respect.

Commerce Bank funds its lending activities primarily from the core deposit base. Commerce Bank obtains deposits from its local markets and is not heavily dependent on any single depositor, though it utilizes cost-effective brokered deposits opportunistically, from time to time. FHLB borrowings and Fed Funds borrowing lines are used to fund certain investment strategies.

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Competition. The table below summarizes certain key deposit information relating to CBOA’s target markets and its presence within those markets as of December 31, 2022.

Metropolitan Statistical Area (“MSA”)	Market Rank⁽¹⁾		Branch Count		CBOA Deposits in Market (in thousands)		Market Share (%)
Phoenix MSA		46		2	$	58,042		0.03	%
Tucson MSA		11		3	$	269,533		1.17	%

(1)	Deposit information used to determine market rank was provided by the FDIC’s Summary of Deposits as of December 31, 2022.

Each activity in which CBOA is engaged involves competition with other commercial banks, nonbanking financial institutions and nonfinancial enterprises. In addition to competing with other financial institutions within and outside its primary service area, CBOA competes with other financial institutions engaged in the business of making loans or accepting deposits, such as internet banks, internet lenders, credit unions, industrial loan associations, insurance companies, small loan companies, financial companies, mortgage companies, real estate investment trusts, certain governmental agencies, credit card organizations and other enterprises. Banks and other financial institutions with which CBOA competes may have capital resources and legal loan limits substantially higher than those maintained by CBOA.

Employees. As of March 31, 2023 CBOA had 58 full-time employees, no part-time employees and no temporary employees, none of whom are covered by a collective bargaining agreement.

Information About CBOA’s Properties

Commerce Bank leases its principal executive office which also serves as a full-service banking branch, and is located at 7315 N. Oracle Road, Suite 181, Tucson, AZ 85704. Commerce Bank also leases its branches at the following locations:

5210 E. Williams Circle, Suite 110, Tucson, AZ 85711;

16435 N Scottsdale Rd, Suite 140, Scottsdale AZ 85254;

265 W Continental Rd, Green Valley AZ 85622;

2915 E Baseline Rd, Suite 112, Gilbert AZ 85234

CBOA Legal Proceedings

From time to time, CBOA or Commerce Bank may become a party to various litigation matters incidental to the conduct of its business. Neither CBOA nor Commerce Bank is presently a party to any legal proceeding the resolution of which, in the opinion of CBOA’s management, would be expected to have a material adverse effect on CBOA’s business, operating results, financial condition or prospects.

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Market Price of Common Stock and other Stockholder Matters

There is no established public trading market for CBOA common stock. CBOA common stock is currently quoted under the symbol “CBOF” on the OTC Markets Groups, Inc.’s Pink Open Market. The following table sets forth the high and low bid information for our common stock for the periods indicated, which reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions. If the merger is completed, CBOA common stock will no longer be quoted or traded on the Pink Open Market.

	High		Low
Fiscal Year Ended December 31, 2023
Second Quarter	$	2.80	$	2.05
First Quarter	$	3.10	$	2.50

Fiscal Year Ended December 31, 2022
Fourth Quarter	$	3.08	$	2.96
Third Quarter	$	3.00	$	2.96
Second Quarter	$	3.15	$	3.12
First Quarter	$	3.19	$	3.04

Fiscal Year Ended December 31, 2021
Fourth Quarter	$	3.10	$	3.00
Third Quarter	$	3.00	$	2.96
Second Quarter	$	3.25	$	2.83
First Quarter	$	2.62	$	2.53

Holders

As of April 24, 2023, there were 388 registered holders of record of CBOA common stock and 10,344,660 shares of CBOA common stock were issued and outstanding.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CBOA

As used in this section, unless the context otherwise requires, references to “CBOA”, “we,” “us” and “our” refer to CBOA Financial, Inc. and Commerce Bank of Arizona, on a consolidated basis.

The following discussion and analysis is intended to provide an overview of the significant factors affecting the financial condition and results of operations of CBOA for the three months ended March 31, 2023 and 2022 and the years ended December 31, 2022 and 2021. The following discussion and analysis should be read in conjunction with the sections of this joint proxy statement/prospectus entitled “Cautionary Statement Regarding Forward-Looking Statements,” “Risk Factors,” “Selected Historical Financial Data of CBOA” and CBOA’s consolidated financial statements and the accompanying notes included elsewhere in this joint proxy statement/prospectus. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that CBOA believes are reasonable but may prove to be inaccurate. CBOA assumes no obligation to update any of these forward-looking statements.

Overview

CBOA Financial, Inc. is an Arizona corporation that owns all of the outstanding shares of common stock of Commerce Bank of Arizona, Inc. an Arizona-chartered financial institution that offers community banking services through five full-service banking locations in Arizona from the greater Phoenix area to Tucson.

CBOA generates most of its income from interest income on loans, service charges on customer accounts and interest income from investment securities and deposits in other financial institutions. CBOA incurs interest expense 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 CBOA’s 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.

Changes in the market interest rates and interest rates CBOA earns on interest-earning assets or pays on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities and shareholders’ equity, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in CBOA’s loan portfolio are affected by, among other factors, economic and competitive conditions in Arizona, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and homebuilding sectors within CBOA’s target market.

Critical Accounting Estimates

Our consolidated financial statements are prepared based on the application of accounting policies in accordance with generally accepted accounting principles (“GAAP”) and follow general practices within the banking industry. These policies require the reliance on estimates, assumptions and judgments, which may prove inaccurate or 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.

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 determination of the allowance for loan losses, valuation of deferred tax assets, and the estimated fair value of financial instruments 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.

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Our significant accounting policies are presented in Note 1 of our audited consolidated financial statements included in this joint proxy statement/prospectus. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Recent accounting pronouncements and standards that have impacted or could potentially affect us are also discussed in Note 1 of our audited consolidated financial statements.

Allowance for credit losses

We maintain the allowance for loan losses, or allowance, at a level we believe is sufficient to absorb probable incurred losses in our loan portfolio given the conditions at the time. Determining the allowance is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses based on risk characteristics of loans and consideration of other qualitative factors, all of which may be susceptible to significant change. In addition, events that are not within our control, such as changes in economic factors, could change subsequent to the reporting date and could cause the allowance to be overstated or understated. The amount of the allowance is affected by loan charge-offs, which decrease the allowance; recoveries on loans previously charged off, which increase the allowance; and the provision for credit losses charged to earnings, which increases the allowance. In determining the provision for credit losses, management monitors fluctuations in the allowance for loan losses resulting from actual charge-offs and recoveries and reviews the size and composition of the loan portfolio in light of current and anticipated economic conditions.

We adopted ASU 2016-13, Financial Instruments- Credit Losses (Topic 325), “Measurement of Credit Losses on Financial Instruments” as of January 1, 2023 with no impact to equity. See also Notes 1 and 3 to the unaudited consolidated financial statements for further discussion on our adoption of ASU 2016-13.

For further information regarding our allowance for loan losses see Note 1 and Note 3 in our audited consolidated financial statements included elsewhere in this joint proxy statement/prospectus.

Valuation of deferred tax assets

CBOA recognizes deferred tax assets and liabilities for future tax consequences arising from differences between the carrying amounts of existing assets and liabilities under GAAP and their respective tax basis, and for net operating loss carryforwards. CBOA evaluates the recoverability of its deferred tax assets at each year-end, weighing all positive and negative evidence, and establishes or maintains a valuation allowance for these assets if it is determined that it is more likely than not that some or all of the deferred tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which the evidence can be objectively verified. If negative evidence exists, positive evidence of greater weight is necessary to support a conclusion that a valuation allowance is not needed.

The framework for assessing the recoverability of deferred tax assets requires all evidence available to be weighed, including: (1) the sustainability of recent profitability required to realize the deferred tax assets; (2) the cumulative net income or losses in the consolidated statements of operations in recent years; (3) unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels on a continuing basis in future years; and, (4) the carryforward periods for net operating losses.

For further information regarding our deferred tax assets and liabilities see Note 1 and Note 10 in our audited consolidated financial statements included elsewhere in this joint proxy statement/prospectus.

Fair value measurements

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For further information regarding the valuation of our financial instruments, see Note 1 and Note 14 in our audited consolidated financial statements included elsewhere in this joint proxy statement/prospectus.

Results of Operations

Results of Operations for the Three Months Ended March 31, 2023 and 2022

Net income was $802 thousand for the three months ended March 31, 2023 compared with $650 thousand for the three months ended March 31, 2022, an increase of $152 thousand, or 23%. The increase in net income was primarily the result of higher net interest income in the three months ended March 31, 2023 compared to the three months ended March 31, 2022. Annualized returns on average equity were 10.59% and 9.26% and annualized returns on average assets were 0.86% and 0.75%, for the three months ended March 31, 2023 and 2022, respectively.

Net Interest Income

Net interest income is the difference between interest income on earning assets, such as loans and securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and net interest margin.

Three months ended March 31, 2023 compared to March 31, 2022. Net interest income before the provision for credit losses for the three months ended March 31, 2023 was $4.1 million compared with $3.2 million for the three months ended March 31, 2022, an increase of $947 thousand, or 29%. The increase in net interest income was primarily due to increases in interest income earned for both loans and investments of $1.6 million, or 48%. The increases in interest income were partially offset by increases in interest expense on deposits and borrowings of $602 thousand, or 469%.

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The following table presents, for the periods indicated, the total dollar amount of average balances, interest income from average interest-earning assets and the annualized resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed in both dollars and rates. Any nonaccruing loans have been included in the table as loans carrying a zero yield.

	Three Months Ended
	March 31, 2023							March 31, 2022
	Average Balance		Interest Earned/ Interest Paid		Average Yield/ Rate			Average Balance		Interest Earned/ Interest Paid		Average Yield/ Rate
	(Dollars in thousands)
Assets
Interest-Earning Assets:
Loans	$	280,769	$	4,357		6.21	%	$	230,067	$	2,942		5.12	%
Securities		72,565		405		2.23	%		57,886		347		2.40	%
Deposits in other financial institutions		13,991		150		4.29	%		45,616		18		0.16	%
Total interest-earning assets		367,325		4,912		5.35	%		333,569		3,308		3.97	%
Allowance for loan losses		-3,716							-3,431
Interest-earning assets, net		363,609							330,138
Noninterest-earning assets		7,654							16,748
Total assets	$	371,263						$	346,886

Liabilities and Shareholders’ Equity
Interest-Bearing Liabilities:
Interest-bearing demand deposits	$	46,802		17		0.15	%	$	49,172		18		0.15	%
Money market and savings deposits		81,443		80		0.39	%		94,720		48		0.20	%
Certificates and other time deposits		53,351		318		2.38	%		37,035		48		0.52	%
Borrowed funds		29,898		382		4.37	%		5,155		26		2.02	%
Total interest-bearing liabilities		211,494		797		1.40	%		186,082		140		0.30	%
Noninterest-Bearing Liabilities:
Noninterest-bearing demand deposits		124,155							121,943
Other liabilities		6,031							10,142
Total liabilities		341,680							318,167
Shareholders’ equity		29,583							28,719
Total liabilities and shareholders’ equity	$	371,263						$	346,886
Net interest rate spread						3.84	%						3.67	%
Net interest income and margin ⁽¹⁾			$	4,115		4.48	%			$	3,168		3.80	%

(1)

The net interest margin is equal to annualized net interest income divided by average interest-earning assets.

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The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes in interest rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.

	For the Three Months Ended March 31
	2023 vs. 2022
	Increase (Decrease) Due to Change in
	Volume			Rate			Total
	(Dollars in thousands)
Interest-Earning assets:
Loans	$	648		$	767		$	1,415
Securities		88			(30	)		58
Deposits in other financial institutions		(12	)		144			132
Total increase in interest income		724			881			1,605

Interest-Bearing liabilities:
Interest-bearing demand deposits		(1	)		0			(1	)
Money market and savings deposits		(7	)		39			32
Certificates and other time deposits		21			249			270
Borrowed funds		125			176			301
Total increase in interest expense		138			464			602
Increase (decrease) in net interest income	$	586		$	417		$	947

Provision for Credit Losses

CBOA’s provision for credit losses is a charge to income in order to bring its allowance for credit losses to a level deemed appropriate by management. The provision for credit losses was $0 for the three months ended March 31, 2023 compared to $37 thousand for the same period in 2022, a decrease of $37 thousand, or 100%. The decrease in credit loss expense was due to there being no significant changes to the macroeconomic forecast assumptions utilized for the reserves associated with collectively evaluated loans within the portfolio, as well as having a large reserve for environmental factors.

Noninterest Income

CBOA’s primary sources of noninterest income are service charges on deposit accounts, including debit card and ATM card income, as well as gains recognized on the sales of mortgages and securities. Noninterest income does not include loan origination fees, which are recognized over the life of the related loan as an adjustment to yield using the straight-line method.

Three months ended March 31, 2023 compared with the three months ended March 31, 2022. Noninterest income totaled $92 thousand for the three months ended March 31, 2023 compared to $452 thousand for the same period in 2022, a decrease of $360 thousand, or 79%.

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The following table presents, for the periods indicated, the major categories of noninterest income:

	For the Three Months Ended March 31,					Increase
	2023			2022		(Decrease)
	(Dollars in thousands)
Service charges on deposit accounts	$	26		$	30	$	(4	)
Debit card and ATM card income		(1	)		0		(1	)
Bank owned life insurance income		0			0		0
Gain on sale of loans		26			387		(361	)
Gain on sale of securities		(1	)		0		(1	)
Other		43			35		8
Total noninterest income	$	92		$	452	$	(360	)

Noninterest Expense

Three months ended March 31, 2023 compared with three months ended March 31, 2022. Noninterest expense was $3.1 million for the three months ended March 31, 2023 compared to $2.7 million for the three months ended March 31, 2022, an increase of $423 thousand, or 15.6%.

The following table presents, for the periods indicated, the major categories of noninterest expense:

	For the Three Months Ended March 31,				Increase
	2023		2022		(Decrease)
	(Dollars in thousands)
Salaries and employee benefits	$	2,013	$	1,576	$	437
Occupancy and equipment expense		304		425		(121	)
Data processing		330		285		45
Regulatory assessments and FDIC insurance		77		72		5
Professional fees		56		40		16
Marketing and business development		85		68		17
Other		263		239		24
Total noninterest expense	$	3,127	$	2,705	$	423

Salaries and Employee Benefits. Salaries and benefits increased $437 thousand, or 28%, for the three months ended March 31, 2023 compared to the same period in 2022. This increase was primarily attributable to hiring additional loan officers during the three months ended March 31, 2023.

Occupancy and equipment expense. Occupancy expense decreased $121 thousand, or 28%, for the three months ended March 31, 2023 compared to the same period in 2022. Expense was higher in the first quarter of 2022 due to the opening of a new branch and the associated rent and equipment expense. Expenses returned to the lower level the following quarter as another branch was closed.

Data Processing. Data processing increased $45 thousand, or 15.3%, for the three months ended March 31, 2023 compared to the same period in 2022. This increase was primarily attributable to increases in IT support costs related to an increase in employees during the three months ended March 31, 2023.

Marketing and business development. Marketing and business development expense increased $17 thousand, or 25%, for the three months ended March 31, 2023 compared to the same period in 2022. This increase was due to higher levels of print advertising utilized by CBOA during the three months ended March 31, 2023.

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Efficiency Ratio

The efficiency ratio is a supplemental financial measure utilized in management’s internal evaluation of CBOA’s performance and is not calculated based on generally accepted accounting principles. A GAAP-based efficiency ratio is calculated by dividing total noninterest expense by net interest income plus total noninterest income, as shown in the Consolidated Statements of Income. The efficiency ratio is calculated by excluding from noninterest income the net gains and losses on the sale of securities, which can vary widely from period to period. Additionally, taxes and provision for credit losses are not included in this calculation. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income and/or being invested to generate future income, while a decrease would indicate a more efficient allocation of resources. CBOA’s efficiency ratio was 74.3% for the three months ended March 31, 2023 compared to 75.5% for the three months ended March 31, 2022.

Income Taxes

The amount of federal and state income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income and the amount of other nondeductible expenses. Income tax expense increased $50 thousand, or 22%, to $278 thousand for the three months ended March 31, 2023 compared with $228 thousand for the same period in 2022. CBOA’s effective tax rate was unchanged at 25.9% for the three months ended March 31, 2023 and 2022.

Results of Operations for the Years Ended December 31, 2022 and 2021

Net income was $3.5 million for the year ended December 31, 2022 compared with $2.9 million for the year ended December 31, 2021, an increase of $0.6 million, or 20.7%. The increase in net income was primarily the result of $1.6 million in interest income due to rising interest rates, partially offset by an increase in non-interest expense mostly due to increases in employee compensation and benefits. Returns on average equity were 11.58% and 9.87% and returns on average assets were 1.01% and 0.76%, for the years ended December 31, 2022 and 2021, respectively.

Net interest income before the provision for loan losses for the year ended December 31, 2022 was $14.9 million compared with $13.3 million for the year ended December 31, 2021, an increase of $1.6 million, or 11.8%. The increase in net interest income was primarily due to increases in interest rates implemented by the Federal Reserve which accounted for $1.6 million, or 11.2%, for the year ended December 31, 2022 compared with the year ended December 31, 2021. Interest expense increased by only $1 thousand for the year ended December 31, 2022 compared with the year ended December 31, 2021.

Interest income was $15.7 million for the year ended December 31, 2022, an increase of $1.6 million, or 11.2%, compared with the year ended December 31, 2021 primarily due to the effect of higher interest rates implemented by the Federal Reserve beginning in 2022.

Interest expense was $830 thousand for the year ended December 31, 2022, an increase of $1 thousand, or 0.1%, compared with the year ended December 31, 2021. This increase was primarily due to increases in subordinated debt and short-term borrowings, partially offset by lower costs of deposits. Average interest-bearing liabilities increased $12.7 million, or 6.8%, for the year ended December 31, 2022 compared with the year ended December 31, 2021. The increase in average interest-bearing liabilities was primarily due to CD specials that were issued in the second half of 2022.

Tax equivalent net interest margin was 4.25% and 3.98% for the years ended December 31, 2022 and 2021, respectively. The average yield on interest-earning assets and the average rate paid on interest-bearing liabilities are primarily impacted by changes in market interest rates as well as changes in the volume and relative mix of the underlying assets and liabilities.

187

The following table presents, for the periods indicated, the total dollar amount of average balances, interest income from average interest-earning assets and the annualized resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed in both dollars and rates. Any non-accruing loans have been included in the table as loans carrying a zero yield.

	Years Ended
	December 31, 2022							December 31, 2021
	Average Balance		Interest Earned/ Interest Paid		Average Yield/ Rate			Average Balance		Interest Earned/ Interest Paid		Average Yield/ Rate
	(Dollars in thousands)
Assets
Interest-Earning Assets:
Loans	$	250,861	$	13,833		5.51	%	$	247,853	$	13,429		5.42	%
Securities		62,701		1,294		2.06	%		43,184		633		1.47	%
Deposits in other financial institutions		36,369		571		1.57	%		42,632		60		0.14	%
Total interest-earning assets		349,931		15,698		4.49	%		333,669		14,122		4.23	%
Allowance for loan losses		-3,591							-3,107
Interest-earning assets, net		346,340							330,562
Noninterest-earning assets		15,445							17,128
Total assets	$	361,785						$	347,690

Liabilities and Shareholders’ Equity
Interest-Bearing Liabilities:
Interest-bearing demand deposits	$	61,869		95		0.15	%	$	44,878		77		0.17	%
Money market and savings deposits		102,416		222		0.22	%		91,071		264		0.29	%
Certificates and other time deposits		36,848		235		0.64	%		45,911		354		0.77	%
Borrowed funds		7,256		278		3.83	%		13,805		134		0.97	%
Total interest-bearing liabilities		208,389		830		0.40	%		195,665		829		0.42	%

Noninterest-Bearing Liabilities:
Noninterest-bearing demand deposits		120,427							120,541
Other liabilities		5,378							5,653
Total liabilities		334,194							321,859
Shareholders’ equity		27,591							25,831
Total liabilities and shareholders’ equity	$	361,785						$	347,690

Net interest rate spread						4.09	%						3.81	%

Net interest income and margin⁽¹⁾			$	14,868		4.25	%			$	13,293		3.98	%

(1)

The net interest margin is equal to annualized net interest income divided by average interest-earning assets. Net interest margin is presented on a taxable equivalent basis.

188

	For the Years Ended December 31,
	2022 vs. 2021
	Increase (Decrease) Due to Change in
	Volume			Rate			Total
	(Dollars in thousands)
Interest-Earning assets:
Loans	$	163		$	241		$	404
Securities		286			375			661
Deposits in other financial institutions		(9	)		520			511
Total increase in interest income		440			1,136			1,576

Interest-Bearing liabilities:
Interest-bearing demand deposits		29			(11	)		18
Money market and savings deposits		33			(75	)		(42	)
Certificates and other time deposits		(70	)		(49	)		(119	)
Borrowed funds		(64	)		208			144
Total increase in interest expense		(71	)		72			1
Increase (decrease) in net interest income	$	512		$	1,063		$	1,575

Provision for Credit Losses

The provision for credit losses for the year ended December 31, 2022 was $37 thousand compared to $494 thousand for the year ended December 31, 2021. The decreased provision in 2022 was due to more favorable macroeconomic forecast assumptions in 2022 compared to the economic uncertainties caused by COVID-19 in the previous year.

Noninterest Income

CBOA’s primary sources of noninterest income are service charges on deposit accounts, including debit card and ATM card income, as well as gains recognized on the sale of mortgages and securities. Noninterest income does not include loan origination fees which are recognized over the life of the related loan as an adjustment to yield using the interest method.

Year ended December 31, 2022 compared with the year ended December 31, 2021. Noninterest income totaled $859 thousand for the year ended December 31, 2022 compared to $357 thousand for the year ended December 31, 2021, an increase of $502 thousand, or 140%. This was primarily due to an increase in SBA loan sales and loan fees from the Main Street Loan Program.

The following table presents, for the periods indicated, the major categories of noninterest income:

	Years Ended December 31,					Increase
	2022		2021			(Decrease)
	(Dollars in thousands)
Service charges on deposit accounts	$	112	$	106		$	6
Debit card and ATM card income		2		4			(2	)
Bank owned life insurance income		0		0			0
Gain on sale of loans		444		181			263
Gain on sale of securities		0		2			(2	)
Loss on sale of other real estate		0		(71	)		0
Other		301		136			237
Total noninterest income	$	859	$	358		$	502

189

Noninterest Expense

Year ended December 31, 2022 compared with the year ended December 31, 2021. Noninterest expense was $11.0 million for the year ended December 31, 2022 compared to $9.8 million for the year ended December 31, 2021, an increase of $1.2 million, or 12.6%.

The following table presents, for the periods indicated, the major categories of noninterest expense:

	For the Years Ended December 31,				Increase
	2022		2021		(Decrease)
	(Dollars in thousands)
Salaries and employee benefits	$	6,560	$	5,441	$	1,119
Occupancy and equipment		1,383		1,342		41
Data processing		1,163		1,201		(38	)
Regulatory assessments and bank insurance		341		346		(5	)
Professional fees		363		268		95
Marketing and business development		256		198		58
Core deposit intangible amortization		0		0		0
Other		951		985		(33	)
Total noninterest expense	$	11,017	$	9,781	$	1,237

Salaries and Employee Benefits. Salaries and benefits were $6.6 million for the year ended December 31, 2022, an gross of $1.1 million, or 20.6%, compared to the year ended December 31, 2021. This increase was primarily attributable to wage increases and incentive pay. The number of CBOA full-time employees increased to 54 at December 31, 2022 from 53 employees at December 31, 2021.

Marketing and business development. Marketing and business development expense increased $58 thousand, or 29.3%, for the year ended December 31, 2022 compared to the same period in 2021. This increase was due to higher levels of print advertising utilized by CBOA during the period.

Professional Fees. Professional fees increased $95 thousand, or 35.4%, for the year ended December 31, 2022 to $363 thousand from $268 thousand for the year ended December 31, 2021 due to audit expenses and recruiting expenses incurred.

Efficiency Ratio

CBOA calculates the efficiency ratio by dividing total noninterest expense by the sum of net interest income and noninterest income, excluding net gains and losses on the sale of securities. Additionally, taxes and provision for loan losses are not part of this calculation. The efficiency ratio was 70.2% for the year ended December 31, 2022 compared with 74.3% for the year ended December 31, 2021.

Income Taxes

The amount of federal and state income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income and the amount of other nondeductible expenses. Income tax expense increased $695 thousand, or 135%, to $1.2 million for the year ended December 31, 2022 compared with $515 thousand for the same period in 2021 primarily due to an increase in pre-tax net income in 2022 as well as an adjustment to the deferred tax asset.

The effective tax rates were 35.0% and 17.8% for the years ended December 31, 2022 and 2021, respectively.

190

Financial Condition

Loan Portfolio

At March 31, 2023, total loans held for investment decreased $3.9 million from December 31, 2022. Total loans at December 31, 2022 were $282 million, an increase of $50.3 million, or 21.8%, compared to $231 million as of December 31, 2021 primarily due to organic net loan growth during the period.

Total loans held for investment as a percentage of deposits were 90.0%, 91.8% and 75.6% as of March 31, 2023, December 31, 2022 and December 31, 2021, respectively. Total loans held for investment as a percentage of assets were 73.4%, 74.8% and 65.9% as of March 31, 2023, December 31, 2022 and December 31, 2021, respectively.

The following table summarizes CBOA’s loan portfolio by type of loan as of the dates indicated:

	March 31, 2023						December 31, 2022						December 31, 2021
	Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
Commercial	$	76,836			27.6	%	$	76,650			27.2	%	$	65,388			28.3	%
Paycheck Protection Program		0			0	%		0			0	%		1,838			0.8	%
Commercial real estate		167,788			60.3	%		166,878			59.1	%		117,230			50.7	%
Construction		27,371			9.8	%		31,777			11.3	%		39,634			17.1	%
Consumer		15			0.0	%		13			0.0	%		182			0.1	%
Residential real estate		960			0.3	%		973			0.3	%		2,539			1.1	%
Land and lot		3,137			1.1	%		3,505			1.2	%		3,380			1.5	%
Home equity		2,009			0.7	%		2,354			0.8	%		1,191			0.5	%
Total loans		278,116			100	%		282,150			100	%		231,382			100	%
Net deferred loan origination fees		(1,037	)					(1,130	)					(681	)
Allowance for credit losses		(3,716	)					(3,716	)					(3,320	)
Loans, net	$	273,363					$	277,304					$	227,381

CBOA has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. Diversification of the loan portfolio is a means of managing the risks associated with fluctuations in economic conditions.

In order to manage the diversification of the portfolio, CBOA segments loans into classes. The real estate loan segment is sub-segmented into classes that primarily include commercial real estate mortgage loans, construction and land development loans, 1-4 family residential loans and multi-family residential loans. CBOA segments consumer loans into classes that primarily include automobile and other consumer loans. CBOA analyzes the overall ability of the borrower and guarantors to repay a loan. Information and risk management practices specific to CBOA’s loan segments and classes follows.

Commercial. Commercial loans are loans primarily underwritten based on the cash flows of the business operations of the borrower and secured by assets being financed such as accounts receivable, inventory, and equipment. CBOA’s commercial loans represent credit extended to small to medium sized businesses. Commercial loans often are dependent on the profitable operations of the borrower. These credits are primarily made based on the expected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may also incorporate a personal guarantee. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. The cash flows of borrowers may not be as expected and the collateral securing these loans may fluctuate, increasing the risk associated with this loan segment. As a result of the additional complexities, variables, and risks, commercial loans typically require more thorough underwriting and servicing than other types of loans. The commercial loan portfolio increased $186 thousand, or 0.2%, to $76.8 million as of March 31, 2023 compared to $76.6 million as of December 31, 2022. Total commercial loans as of December 31, 2022 increased $11.2 million, or 17.2%, compared to $65.4 million as of December 31, 2021.

191

Paycheck Protection Program. CBOA made loans to eligible businesses under the CARES Act which authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a 7(a) loan program called the Paycheck Protection Program. As a qualified SBA lender, CBOA was automatically authorized to originate PPP loans which are 100% guaranteed by the SBA. There were no remaining loans made under the Paycheck Protection Program as of December 31, 2022. Remaining Paycheck Protection Program loans totaled $1.8 million as of December 31, 2021.

Commercial real estate. CBOA makes commercial real estate mortgage loans which are primarily viewed as cash flow loans and secondarily as loans secured by real estate. The properties securing CBOA’s commercial real estate loans can be owner occupied or non-owner occupied. Concentrations within the various types of commercial properties are monitored by management in order to assess the risks in the portfolio. The commercial real estate loan portfolio increased $910 thousand, or 0.5% to 167.8 million as of March 31, 2023 compared to $166.9 million as of December 31, 2022. Total commercial real estate loans as of December 31, 2022 increased $49.6 million, or 42.4%, compared to $117.2 million as of December 31, 2021.

The repayment of these loans is largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Accordingly, repayment of these loans may be subject to adverse conditions in the real estate market or the economy to a greater extent than other types of loans. CBOA seeks to minimize these risks in a variety of ways in connection with underwriting these loans, including giving careful consideration to the property’s operating history, future operating projections, current and projected occupancy, location and physical condition.

Construction. CBOA makes construction loans to fund commercial construction, residential construction, and real estate development construction. Construction loans involve additional risks as they often involve the disbursement of funds with the repayment dependent on the ultimate success of the project’s completion. Sources of repayment for these loans may be pre-committed permanent financing or sale of the developed property. The loans in this portfolio are monitored closely by management. Due to uncertainties inherent in estimating construction costs, the market value of the completed project and the effects of governmental regulation on real property, it can be difficult to accurately evaluate the total funds required to complete a project and the related loan to value ratio. As a result of these uncertainties, construction lending often includes the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan. The construction loan portfolio decreased $4.4 million, or 13.9%, to $27.4 million as of March 31, 2023 compared to $31.8 million as of December 31, 2022. Total construction loans as of December 31, 2022 increased $4.2 million, or 14.2%, compared to $29.8 million as of December 31, 2021.

192

Consumer. CBOA’s consumer loans include automobile loans, personal loans (collateralized and uncollateralized) and deposit account collateralized loans. The terms of these loans typically range from 1 to 15 years and vary based on the nature of collateral and size of the loan. Consumer loan collections are dependent on the borrower’s continuing financial stability, and thus more likely to be adversely affected by job loss, illness or personal bankruptcy. Furthermore, the application of various federal and state laws may limit the amount which can be recovered on such loans. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as deemed appropriate by CBOA’s management. The consumer loan portfolio increased $2 thousand, or 18.7%, to $15 thousand as of March 31, 2023 compared to $12.6 thousand as of December 31, 2022. Total consumer loans as of December 31, 2022 decreased $169 thousand, or 93.1%, compared to $182 thousand as of December 31, 2021. This decrease was primarily due to the payoff of a single automobile loan.

Residential real estate. CBOA’s residential real estate loans include the origination of 1-4 family residential mortgage loans collateralized by owner-occupied residential properties generally located in our market area. The residential real estate loan portfolio decreased $13 thousand, or 1.3%, to $960 thousand as of March 31, 2023 compared to $973 thousand as of December 31, 2022. Total residential real estate loans as of December 31, 2022 decreased $1.6 million, or 61.7%, compared to $2.5 million as of December 31, 2021.

Land and Lot. CBOA’s land and lot loans include loans to fund the purchase of land for the purposes of commercial or residential development. These loans involve additional risk as land values can fluctuate more than other real estate property types. CBOA has more stringent loan to value policy limits for this segment due to the potential fluctuation in collateral value. Sources of repayment for these loans may be pre-committed permanent financing, the sale of individual residential lots, or the sale of the developed commercial property. The land and lot loan portfolio decreased $368 thousand, or 10.5%, to $3.1 million as of March 31, 2023 compared to $3.5 million as of December 31, 2022. Total land and lot loans as of December 31, 2022 increased $125 thousand, or 3.7%, compared to $3.4 million as of December 31, 2021.

Home Equity. CBOA’s home equity loans include the origination of home equity lines of credit collateralized by owner-occupied residential properties generally located in our market area. The home equity loan portfolio decreased $346 thousand, or 14.7%, to $2.0 million as of March 31, 2023 compared to $2.4 million as of December 31, 2022. Total home equity loans as of December 31, 2022 increased $1.2 million, or 97.7%, compared to $1.2 million as of December 31, 2021.

Concentrations of Credit

The vast majority of CBOA’s lending activity occurs in Arizona. CBOA’s loans are primarily secured by real estate, including commercial and residential construction, owner occupied and non-owner occupied and multi-family commercial real estate, raw land and other real estate based loans located in Arizona. As of March 31, 2023, December 31, 2022 and 2021, real estate loans represented 75.4%, 76.3% and 77.6%, respectively, of CBOA’s total loans.

Asset Quality

Nonperforming Assets and Potential Problem Loans. CBOA has procedures in place to assist in maintaining the overall quality of its loan portfolio. CBOA has established underwriting guidelines to be followed by its officers to monitor CBOA’s delinquency levels for any negative or adverse trends.

CBOA had $0, $0 and $1.3 million in nonaccrual loans as of March 31, 2023, December 31, 2022 and 2021, respectively.

193

The following table presents information regarding nonperforming assets as of the dates indicated:

	As of March 31, 2023			As of December 31, 2022			As of December 31, 2021
	(Dollars in thousands)
Nonaccrual loans:
Commercial	$	—		$	—		$	—
Commercial real estate		—			—			—
Construction		—			—			—
Consumer		—			—			—
Residential real estate		—			—			206
Land and lot		—			—			1,128
Home equity		—			—			—
Total nonaccrual loans		—			—			1,334
Accruing loans 90 or more days past due		—			—			—
Total nonperforming loans		—			—			1,334
Other real estate		3			3			5
Other repossessed assets		—			—			—
Total nonperforming assets	$	3		$	3		$	1,339
Restructured loans⁽¹⁾	$	—		$	—		$	0
Nonperforming assets to total assets		0.0	%		0.0	%		0.4	%
Nonperforming loans to total loans		0.0	%		0.0	%		0.6	%

(1)

Restructured loans represent the balance at the end of the respective period for those performing loans modified in a troubled debt restructuring that are not already presented as a nonperforming loan.

Allowance for Loan/Credit Losses

The allowance for loan/credit losses is a valuation allowance that is established through charges to earnings in the form of a provision for loan/credit losses. The amount of the allowance for loan/credit losses is affected by the following: (1) charge-offs of loans that decrease the allowance, (2) subsequent recoveries on loans previously charged off that increase the allowance and (3) provisions for loan/credit losses charged to income that increase the allowance. For purposes of determining the allowance for loan/credit losses, CBOA considers the loans in its portfolio by segment, class and risk grade. Management uses judgment to determine the estimation method that fits the credit risk characteristics of each portfolio segment or loan class. To assist in the assessment of risk, management reviews reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans. CBOA utilizes an independent third party loan review service to review the credit risk assigned to loans on a quarterly basis and the results are presented to management and the Board of Directors for review.

At March 31, 2023 and December 31, 2022, the allowance for loan/credit losses amounted to $3.7 million, or 1.34% and 1.32% of total loans, respectively compared with $3.3 million, or 1.44%, as of December 31, 2021. CBOA believes that the allowance for loan/credit losses at March 31, 2023, December 31, 2022 and December 31, 2021 was adequate to cover probable incurred losses in the loan portfolio as of such dates.

194

The following table presents, as of and for the periods indicated, an analysis of the allowance for loan/credit losses and other related data:

	Three Months Ended March 31, 2023			For the Year Ended December 31, 2022			For the Year Ended December 31, 2021
	(Dollars in thousands)
Average loans outstanding	$	280,769		$	250,861		$	247,853
Gross loans outstanding at end of period		278,117			282,150			231,382
Allowance for loan losses at beginning of period		3,716			3,320			2,955
Provision for loan losses		—			37			494
Charge-offs:
Commercial and industrial		—			(28	)		(207	)
Commercial real estate		—			—			—
Commercial real estate construction & land development		—			—			—
1-4 family residential real estate		—			—			—
Residential construction		—			—			—
Consumer and other		—			—			—
Total charge-offs for all loan types		—			(28	)		(207	)
Recoveries:
Commercial and industrial		0			152			11
Commercial real estate		—			190			51
Commercial real estate construction & land development		—			—			—
1-4 family residential real estate		—			43			8
Residential construction		—			—			—
Consumer and other		—			2			1
Total recoveries for all loan types		—			387			78
Net charge-offs		0			9			(129	)
Allowance for loan/credit losses at end of period	$	3,716		$	3,716		$	3,320
Allowance for loan/credit losses to total loans		1.34	%		1.32	%		1.44	%
Net charge-offs to average loans⁽¹⁾		0.0	%		0.0	%		0.0	%
Allowance for loan/credit losses to nonperforming loans		N/A			1,239	%		248	%

(1)

Interim period annualized.

195

The following table shows the allocation of the allowance for loan/credit losses among CBOA’s loan categories and the percentage of the respective loan category to total loans held for investment as of the dates indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which future losses may occur. The total allowance is available to absorb losses from any loan category.

	As of March 31, 2023					As of December 31, 2022					As of December 31, 2021
	Amount		Percent of Loans to Total Loans			Amount		Percent of Loans to Total Loans			Amount		Percent of Loans to Total Loans
						(Dollars in thousands)
Balance of allowance for loan/credit losses applicable to:
Commercial and industrial		812		1.06	%		729		0.95	%		810		1.20	%
Commercial real estate		2,521		1.50	%		2,450		1.47	%		1,892		1.61	%
Construction		266		0.97	%		482		1.52	%		555		1.40	%
Consumer and other		2		14.69	%		0		0.59	%		1		0.55	%
Residential Real Estate		33		3.42	%		8		0.82	%		21		0.83	%
Land and Lot		78		2.48	%		27		0.77	%		31		0.92	%
Home Equity		5		0.26	%		20		0.85	%		10		0.84	%
Total allowance for loan/credit losses	$	3,716		1.34	%	$	3,716		1.32	%	$	3,320		1.44	%

Available for Sale Securities

As of March 31, 2023, the carrying amount of investment securities totaled $60.2 million, a decrease of $5.3 million, or 8.1%, compared with $65.5 million as of December 31, 2022. The carrying amount of investment securities at December 31, 2022 increased $10.9 million, or 20.0%, compared with $54.6 million as of December 31, 2021. Securities represented 16%, 18% and 16% of total assets as of March 31, 2023, December 31, 2022 and 2021, respectively.

Securities in the portfolio are classified as available for sale. Securities classified as available for sale are measured at fair value in the financial statements with unrealized gains and losses reported, net of tax, as accumulated comprehensive income or loss until realized. Interest earned on securities is included in interest income.

The following table summarizes the amortized cost and fair value of the securities in the securities portfolio as of the dates shown:

	March 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Available for Sale
U.S. Government and agency securities:
Bonds	$	8,099		—	$	(881	)	$	7,218
Mortgage-backed securities		57,372		—		(5,730	)		51,642
Corporate securities		1,500		—		(139	)		1,361
Taxable municipal securities		—		—		—			—
Tax-exempt municipal securities		—		—		—			—
SBA pools		—		—		—			—
Total securities available for sale	$	66,971	$	—	$	(6,750	)	$	60,221

196

	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Available for Sale
U.S. Government and agency securities:
Bonds	$	7,655	$	—	$	(1,066	)	$	6,589
Mortgage-backed securities		64,359		49		(6,832	)		57,574
Corporate securities		1,500		—		(168	)		1,332
Taxable municipal securities		—		—		—			—
Tax-exempt municipal securities		—		—		—			—
SBA pools		—		—		—			—
Total securities available for sale	$	73,514	$	49	$	(8,066	)	$	65,496

	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Available for Sale
U.S. Government and agency securities:
Bonds	$	7,878	$	4	$	(56	)	$	7,826
Mortgage-backed securities		45,722		135		(335	)		45,188
Corporate securities		1,500		—		(21	)		1,479
Taxable municipal securities		106		—		—			106
Tax-exempt municipal securities		—		—		—			—
SBA pools		—		—		—			—
Total securities available for sale	$	55,206	$	—	$	(607	)	$	54,599

The unrealized losses are attributable primarily to changes in market interest rates relative to those available when the securities were acquired. The fair value of these securities is expected to recover as the securities reach their maturity or re-pricing date, or if market rates for such investments decline.

CBOA does not believe that any of the securities are impaired due to reasons of credit quality. Accordingly, as of March 31, 2023, December 31, 2022 and 2021, CBOA believes the impairments were temporary, and no impairment loss has been realized in its consolidated statements of income for the periods then ended.

The average yield of CBOA’s securities portfolio was 2.23% during the three months ended March 31, 2023 compared to 2.40% for the same period in 2022. The average yield for the year ended December 31, 2022 was 2.06% compared with 1.47% for the year ended December 31, 2021.

Deposits

CBOA’s lending and investing activities are primarily funded by deposits. CBOA offers a variety of deposit accounts having a range of interest rates and terms including demand, savings, money market and certificates and other time accounts.

Total deposits at March 31, 2023, were $307.1 million, an increase of $0.8 million, or 0.3%, compared with $306.3 million at December 31, 2022. Deposits at December 31, 2022 increased $593 thousand, or 0.2%, compared with $305.7 million at December 31, 2021.

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CBOA’s ratio of average noninterest-bearing deposits to average total deposits was 40.7% for the three months ended March 31, 2023 and 37.6% and 40.0% for the years ended December 31, 2022 and 2021, respectively.

Borrowings

CBOA has an available line of credit with the FHLB of San Francisco, which allows us to borrow on a collateralized basis. FHLB advances are used to manage liquidity as needed. The advances are secured by a blanket lien on certain loans pledged to the FHLB. Maturing advances are replaced by drawing on available cash, making additional borrowings or through increased customer deposits. At March 31, 2023, CBOA had total borrowing capacity of $112 million, of which $67 million was available under this agreement and $24 million was outstanding. FHLB advances of $24 million were outstanding at March 31, 2022 at a rate of 5.11%. CBOA had no outstanding letters of credit at March 31, 2023.

In November 2005, CBOA Financial Statutory Trust #1, a trust formed by CBOA, closed a pooled private offering of 5,000 trust preferred securities with a liquidation amount of $1,000 per security. CBOA made a required equity contribution of $155,000 to form the trust and CBOA issued $5,000,000 of subordinated debentures to the trust in exchange for ownership of all of the common security of the trust and the proceeds of the preferred securities sold by the trust. CBOA is able to redeem the subordinated debentures, in whole or in part, in a principal amount with integral multiples of $1,000, on or after April 7, 2009 at 100% of the principal amount, plus accrued and unpaid interest. The subordinated debentures mature in 2036. The subordinated debentures are also redeemable in whole or in part from time to time, upon the occurrence of specific events defined within the trust indenture. CBOA has the option to defer interest payments on the subordinated debentures from time to time, for a period not to exceed five consecutive years. CBOA has elected not to defer interest payments on the subordinated debentures and interest expense was $83,595, $181,200, and $97,319 for the periods ended March 31, 2023, December 31, 2022, and December 31, 2021, respectively. CBOA had interest payable of $35,085, $35,696, and $10,410 for the periods ended March 31, 2023, December 31, 2022, and December 31, 2021, respectively. The trust preferred securities may be included in Tier I capital (with certain limitations applicable) under current regulatory guidelines and interpretations. The trust preferred securities and subordinated debentures had a fixed rate of 6.75% through February 23, 2011, and a variable rate of interest, reset quarterly on the 23^rd of each February, May, August, and November, equal to the sum of the three-month London Interbank Offered Rate (LIBOR) plus 1.70% thereafter (3 month LIBOR was replaced by 3 month CME term SOFR following June 2023). As of March 31, 2023, December 31, 2023, and December 31, 2022, based on the formula previously described, the rate was 6.62%, 6.39%, and 1.86%, respectively. CBOA’s investment in the common stock of the trust was $155,000 and is included in other assets.

Contractual Obligations

CBOA’s FHLB advance was paid off after March 31, 2023 and an advance was taken from the FRB BTFP. The BTFP advance is 1 year or less. CBOA leases office facilities and equipment under operating leases. The following table presents maturity of the FHLB advance and the future minimum lease payments under the noncancelable operating leases as of March 31, 2023:

	1 year or less		More than 1 year but less than 3 years		3 years or more but less than 5 years		5 years or more		Total
	(Dollars in thousands)
Operating leases	$	—	$	118	$	1,462	$	2,288	$	3,868
FHLB advances		24,150		—		—		—		24,150
Total	$	24,150	$	118	$	1,462	$	2,288	$	28,018

Off-Balance Sheet Items

CBOA is party to various financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit under commercial lines of credit, revolving credit lines, overdraft protection agreements and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The contract amounts of the instruments reflect the extent of the CBOA’s involvement in particular classes of financial instruments. CBOA’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. CBOA uses the same credit policies in making these commitments and conditional obligations as it does for on-balance-sheet instruments.

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CBOA evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if considered necessary by CBOA upon extension of credit, is based on management’s credit evaluation of the customer.

The following is a summary of the various financial instruments entered into by CBOA as of the dates indicated:

	March 31,		December 31,		December 31,
	2023		2022		2021
	(Dollars in thousands)
Commitments to extend credit - fixed rate	$	9,286	$	11,519	$	7,760
Commitments to extend credit - variable rate		60,770		54,088		51,426
Standby letters of credit		—		—		—

Commitments to Extend Credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements. Some of the loans that have outstanding commitments may be subject to participation agreements in which CBOA will sell off a percentage of the commitment when funded, pursuant to the participation agreement.

Liquidity and Capital Resources

Liquidity

Liquidity is the measure of CBOA’s ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting CBOA’s operating, capital and strategic cash flow needs and to maintain reserve requirements to operate on an ongoing basis and manage unexpected events, all at a reasonable cost. For the three months ended March 31, 2023 and the years ended December 31, 2022 and 2021, CBOA’s liquidity needs have been met by core deposits, borrowed funds, security and loan maturities and amortizing investment and loan portfolios. CBOA has access to purchased funds from correspondent banks, and advances from the FHLB are available under a security and pledge agreement to take advantage of investment opportunities.

Capital Resources

CBOA is subject to various regulatory capital requirements administered by bank regulators. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures and risk weighting of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.

Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on CBOA’s consolidated financial statements. CBOA believes, as of March 31, 2023, December 31, 2022 and December 31, 2021, that it met all of the capital adequacy requirements to which it is subject.

In 2019, the federal banking agencies jointly issued a final rule that provides for an optional, simplified measure of capital adequacy, the Community Bank Leverage Ratio framework (“CBLR framework”), for qualifying community banking organizations, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule became effective on January 1, 2020, and was elected by the Bank as of December 31, 2021. In April 2020, the federal banking agencies issued an interim final rule that makes temporary changes to the CBLR framework, pursuant to Section 4012 of the CARES Act, and a second interim final rule that provides graduated increases in the CBLR requirement after the expiration of the temporary changes implemented pursuant to Section 4012 of the CARES Act.

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The CBLR removes the requirement for qualifying banking organizations to calculate and report risk-based capital but rather only requires a Tier 1 to average assets (leverage) ratio. Qualifying banking organizations that elect to use the CBLR framework and that maintain a leverage ratio of greater than required minimums will be considered to have satisfied the generally applicable risk based and leverage capital requirements in the agencies’ capital rules and, if applicable, will be considered to have met the well capitalized ratio requirements for purposes of Section 38 of the Federal Deposit Insurance Act. Under the interim final rules, the CBLR minimum requirement gradually increased to 9%. The interim rule allows for a two-quarter grace period to correct a ratio that falls below the required amount, provided that a bank maintains a leverage ratio of 7% as of December 31, 2020, 7.5% as of December 31, 2021, and 8% for calendar year 2022 and beyond. Under the final rule, an eligible banking organization can opt out of the CBLR framework and revert back to the risk-weighting framework without restriction. At March 31, 2023, the Bank was a qualifying community banking organization as defined by the federal banking agencies and elected to measure capital adequacy under the CBLR framework.

The Bank’s actual and required capital amounts and ratios are presented below at March 31, 2023 and December 31, 2022 (amounts in thousands):

	Actual					Minimum to be Well Capitalized Under Prompt Corrective Action Provisions (CBLR Framework)
	Amount		Ratio			Amount		Ratio

Commerce Bank of Arizona, Inc.
(Commerce Bank of Arizona only)
As of March 31, 2023
Common Equity Tier 1 Capital
(to risk weighted assets)	$	39,724		10.7	%	$	33,350		9.0	%
Tier 1 Capital

As of December 31, 2022
Common Equity Tier 1 Capital
(to risk weighted assets)	$	37,877		10.3	%	$	29,016		9.0	%

Total shareholder’s equity was $31.0 million at March 31, 2023 compared with $29.0 million at December 31, 2022, an increase of $2.0 million, or 6.9%, primarily due to increases in retained earnings and a decrease in unrealized losses on securities. Total shareholder’s equity decreased at December 31, 2022 compared to $29.2 million at December 31, 2021, a decrease of $200 thousand, or 0.7%. This decrease was primarily due to issued stock and increases in retained earnings which was offset by an increase in unrealized losses on securities.

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CBOA Quantitative and Qualitative Disclosures about Market Risk

CBOA manages market risk, which for CBOA is primarily interest rate risk related to the operations of its subsidiary bank, through the Asset-Liability Committee of Commerce Bank. This committee is composed of Commerce Bank executive officers in accordance with asset liability and funds management policies approved by the full board of directors of Commerce Bank. Commerce Bank uses an interest rate risk simulation model and shock analysis to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics.

The following table summarizes the simulated change in net interest income and the economic value of equity over a 12-month horizon as of the dates indicated:

	Percent Change in Net Interest Income						Percent Change in Economic Value of Equity
Change in Interest Rates (Basis Points)	As of March 31, 2023			As of December 31, 2022			As of March 31, 2023			As of December 31, 2022
+300		8.81	%		8.33	%		(17.39	)%		(16.54	)%
+200		5.91	%		5.68	%		(10.69	)%		(9.71	)%
+100		2.96	%		2.83	%		(4.99	)%		(4.31	)%
Base		0.0	%		0.0	%		0.0	%		0.0	%
-100		(2.95	)%		(2.85	)%		(0.38	)%		(2.02	)%

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CBOA

The following table sets forth certain information regarding the beneficial ownership of CBOA common stock as of March 31, 2023 by: (i) each person who is known by CBOA to beneficially own 5% or more of CBOA’s common stock; (ii) each director of CBOA; (iii) the principal executive officer and the two other most highly compensated executive officers of CBOA; and (iv) all directors and executive officers of CBOA as a group. Unless otherwise indicated, based on information furnished by such shareholders, the management of CBOA believes that each person has sole voting and dispositive power over the shares indicated as owned by such person. Unless otherwise indicated, the address for each of the listed beneficial owners is c/o CBOA Financial, Inc. 7315 N. Oracle Rd. Suite 181, Tucson, AZ 85704.

Name of Beneficial Owner	Number of Shares Beneficially Owned			Percentage Beneficially Owned⁽¹⁾
Principal Shareholder: N/A

Directors and Executive Officers:
William Assenmacher		761,000	^(1)(a)		7.45	%
Steven A. Pickering		250,000	^(1)(b)		2.42	%
Rhonda Pina		0	⁽¹⁾		*
Robert Decker		74,572	^(1)(c)		*
Mike Hammond		70,818	^(1)(d)		*
Kim Soule		5,718	^(1)(e)		*
Jim Zarling		80,000	^(1)(f)		*
W. Sean Lawley		395,007	^(1)(g)		3.82	%
Chris Webster		56,880	^(1)(h)		*
Evan Anderson		15,689	⁽¹⁾		*
Paul Tees		15,697	⁽¹⁾		*

Directors and Executive Officers as a group (11 persons)		1,725,381			16.68	%

*	Indicates ownership which does not exceed 1.0%.

(1)

The percentage beneficially owned was calculated on a fully diluted basis based on 10,344,660 shares of CBOA common stock issued and outstanding as of the record date or subject to options. The percentage assumes the immediate vesting of all outstanding equity awards upon closing of the transaction based upon the change of control clause contained in each agreement and the exercise by the shareholder or group named in each row of all options for the purchase of CBOA common stock held by such shareholder or group.

(a)

Consists of 75,000 shares held of record by the William R Assenmacher & Molly Assenmacher Joint Trust, of which Mr. Assenmacher is a trustee; 125,000 shares jointly held with spouse; 120,000 shares held by WRA Investments LLC, which is owned by Mr. Assenmacher; 118,056 shares held by direct family members of Mr. Assenmacher.

(b)	Consists of 200,000 shares held of record by the Steven A. Pickering & Ann L. Pickering Family Trust, of which Mr. Pickering is a trustee.

(c)	Consists of 4,762 shares held of record by the Decker Living Trust, of which Mr. Decker is a trustee.

(d)	Consists of 70,818 shares held of record by the Michael S. Hammond & Leslie K Hammond Trust, of which Mr. Hammond is a trustee.

(e)	Consists of 5,718 shares held of record jointly by Kimberlea Soule & Thomas D Montoya

(f)	Consists of 80,000 shares held of record jointly by the James Bradley Zarling & Terri Marie Zarling Family Trust, of which Mr. Zarling is a trustee.

(g)	Consists of 202,201 shares held of record jointly by the William S. & Catherine Lawley Living Trust, of which Mr. Lawley is a trustee.

(h)	Consists of 24,280 shares held by an IRA account for the benefit of Mr. Webster.

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DESCRIPTION OF CAPITAL STOCK OF BANCORP 34

As a result of the merger, CBOA shareholders who receive shares of Bancorp 34 common stock in the merger will become stockholders of Bancorp 34. Your rights as stockholder of Bancorp 34 will be governed by the MDGL, the Bancorp 34 articles of incorporation and the Bancorp 34 bylaws. The following briefly summarizes the material terms of Bancorp 34 common stock that will be issued in connection with the merger. We urge you to read the applicable provisions of the MDGL, the Bancorp 34 articles of incorporation and the Bancorp 34 bylaws. Bancorp 34’s articles of incorporation and bylaws are incorporated herein by reference and will be sent to shareholders of CBOA upon request. See “Where You Can Find More Information.”

General

The Bancorp 34 articles of incorporation authorize the issuance of capital stock consisting of 100,000,000 shares of common stock, par value $0.01 per share, 1,100,000 shares of non-voting common stock, par value $0.01 per share, and 50,000,000 shares of preferred stock, par value $0.01 per share. As of April 27, 2023, Bancorp 34 had 15,650 shares of common stock attributable to outstanding Bancorp 34 restricted stock awards, 145,750 shares common stock reserved for issuance upon the exercise of outstanding stock options, 211,667 shares common stock reserved for issuance upon the exercise of outstanding warrants, and 270,767 shares of common stock reserved for issuance pursuant to future grants under Bancorp 34’s existing equity compensation plans.

If the merger is completed, Bancorp 34 will have approximately (a) 7,207,538 shares of common stock outstanding, (b) 820,115 shares of non-voting common stock outstanding (c) 323,367 shares of common stock reserved for issuance underlying options and warrants that are or may become exercisable, and (d) 270,767 shares of common stock that it may issue pursuant to options, restricted stock, restricted stock units, warrants and other equity awards that may be granted in the future under Bancorp 34’s existing equity compensation plans.

As of April 27, 2023, Bancorp 34 had 820,115 shares of Series A Preferred Stock outstanding and no shares of non-voting common stock outstanding.

The authorized but unissued shares of Bancorp 34’s common stock, non-voting common stock and preferred stock are available for general purposes, including, but not limited to, the possible issuance as stock dividends, use in connection with mergers or acquisitions, cash dividend reinvestments, stock purchase plans, public or private offerings, or Bancorp 34’s equity compensation plans. Except as may be required to approve a merger or other transaction in which additional authorized shares of common stock would be issued, no stockholder approval will be required for the issuance of those shares.

Common Stock

General

Each share of common stock has the same relative rights as, and is identical in all respects to, each other share of common stock. All outstanding shares of Bancorp 34 common stock are fully paid and nonassessable.

Voting Rights

Generally, each holder of common stock will be entitled to one vote per share and will not have any right to cumulate votes in the election of directors. Any person who beneficially owns more than 10% of the then-outstanding shares of Bancorp 34’s common stock, however, will not be entitled or permitted to vote any shares of common stock held in excess of the 10% limit. The holders of Bancorp 34 common stock possess exclusive voting power, except as otherwise provided by law or by a certificate of amendment establishing any series of Bancorp 34 preferred stock.

There is no cumulative voting in the election of directors. Assuming a quorum is present, Bancorp 34’s directors, are elected by holders of common stock by a plurality vote.

All other questions brought before a meeting of stockholders at which a quorum is present are decided by a majority of all the votes cast at the meeting, whether cast in person or by proxy. Bancorp 34’s articles of incorporation and bylaws contain certain provisions that may limit stockholders’ ability to effect a change in control as described under the section below entitled “Anti-Takeover Provisions of Bancorp 34’s Articles of Incorporation and Bylaws and Provisions of Maryland Law.”

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Dividend, Liquidation and Other Rights

Subject to all rights of holders of any other class or series of stock, holders of common stock are entitled to receive dividends if and when the Bancorp 34 board of directors declares dividends out of funds legally available therefor. Dividends may only be declared by the board of directors, and the board’s ability to declare dividends is subject to limitations under applicable law and regulation. If Bancorp 34 issues preferred stock, the holders of such preferred stock may have a priority over the holders of common stock with respect to dividends.

If Bancorp 34 voluntarily or involuntarily liquidates, dissolves or winds up, holders of Bancorp 34 common stock are entitled to share equally and ratably in Bancorp 34’s assets legally available for distribution after payment of, or adequate provision for, all of Bancorp 34’s debts and liabilities and after distributions to Eligible Account Holders in settlement of the liquidation account. These rights are subject to the preferential liquidation rights of any series of Bancorp 34 preferred stock that may then be outstanding.

Holders of Bancorp 34 common stock have no preference, conversion, exchange, sinking fund or redemption rights and have no preemptive rights to purchase or subscribe for any of securities of Bancorp 34.

Non-Voting Common Stock

Each share of non-voting common stock has the same relative rights as, and is identical in all respects to, each other share of non-voting common stock. The holders of non-voting common stock do not have any voting rights, except as may otherwise be required by law.

Holders of Bancorp 34 non-voting common stock are entitled to receive dividends on a pari passu basis with the holders of Bancorp 34 common stock, provided, that if a dividend is declared on common stock which is payable solely in common stock, then the holders of non-voting common stock are entitled to a stock dividend payable solely in shares of non-voting common stock. If Bancorp 34 issues preferred stock, the holders of such preferred stock may have a priority over the holders of non-voting common stock with respect to dividends.

If Bancorp 34 voluntarily or involuntarily liquidates, dissolves or winds up, holders of Bancorp 34 non-voting common stock are entitled to share equally and ratably in Bancorp 34’s assets legally available for distribution after payment of, or adequate provision for, all of Bancorp 34’s debts and liabilities and after distributions to Eligible Account Holders in settlement of the liquidation account. These rights are subject to the preferential liquidation rights of any series of Bancorp 34 preferred stock that may then be outstanding.

A holder of Bancorp 34 non-voting common stock is permitted to covert, or upon Bancorp 34’s written request shall covert, shares of non-voting common stock into shares of common stock at any time provided that upon such conversion the holder, together with all affiliates of the holder, will not own or control in the aggregate more than 9.9% of the common stock of Bancorp 34.

Preferred Stock

Each share of Series A Preferred Stock has the same relative rights as, and is identical in all respects to, each other share Series A Preferred Stock. The holders of Series A Preferred Stock do not have any voting rights, except as may otherwise be required by law.

Holders of Bancorp 34 Series A Preferred Stock are entitled to receive dividends on a pari passu basis with the holders of Bancorp 34 common stock, provided, that if a dividend is declared on common stock which is payable solely in common stock, then the holders of Series A Preferred Stock are entitled to a stock dividend payable solely in shares of Series A Preferred Stock. If Bancorp 34 issues preferred stock, the holders of such preferred stock may have a priority over the holders of Series A Preferred Stock with respect to dividends.

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If Bancorp 34 voluntarily or involuntarily liquidates, dissolves or winds up, holders of Bancorp 34 Series A Preferred Stock are entitled to share equally and ratably in Bancorp 34’s assets legally available for distribution after payment of, or adequate provision for, all of Bancorp 34’s debts and liabilities and after distributions to Eligible Account Holders in settlement of the liquidation account. These rights are subject to the preferential liquidation rights of any series of Bancorp 34 preferred stock that may then be outstanding.

A holder of Bancorp 34 Series A Preferred Stock is permitted to covert, or upon Bancorp 34’s written request shall covert, shares of Series A Preferred Stock into shares of common stock at any time provided that upon such conversion the holder, together with all affiliates of the holder, will not own or control in the aggregate more than 9.9% of the common stock of Bancorp 34.

Quorum of the Board and Manner of Acting

Under Bancorp 34’s articles of incorporation and bylaws, a majority of the whole board of directors constitutes a quorum at any meeting. Unless otherwise required by law, Bancorp 34’s articles of incorporation, and bylaws, and as described in more detail below, the act of a majority of the board of directors at which a quorum is present constitutes the act of the board.

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Supermajority Stockholder Approval for Certain Matters

Under Bancorp 34’s articles of incorporation, Bancorp 34 may, subject to the rights of the holders of any series of Bancorp 34 preferred stock that may then be outstanding, remove any director, or the entire board of directors, but only for cause, with the affirmative vote of at least two-thirds of voting power of all of the then-outstanding shares of capital stock of Bancorp 34.

Supermajority Board Approval for Certain Matters

Under Bancorp 34’s bylaws, Bancorp 34 may not fill any vacancy in the board of directors resulting from an increase in the size of the board of directors or the death, resignation or removal of a director without the affirmative vote of at least two-thirds of its board of directors.

Amending Bancorp 34’s Articles of Incorporation or Bylaws

Articles of Incorporation

Any provision of Bancorp 34’s articles of incorporation may be amended, altered, changed or repealed by approval of holders of at least 66 2/3% of the outstanding shares of Bancorp 34’s capital stock entitled to vote; provided that approval by a majority the outstanding shares of Bancorp 34’s capital stock entitled to vote shall only be required if such amendment or repeal is first approved by at least 66 2/3% of the board of directors.

Notwithstanding the foregoing, holders of at least 80% of the outstanding shares of Bancorp 34’s capital stock entitled to vote must approve changes to the provisions in Bancorp 34’s articles of incorporation regarding certain capital stock provisions, board of directors, the bylaws, the evaluation of certain offers, indemnification and limitation of liability, selection of forum, and amendment of the articles of incorporation.

Bylaws

The bylaws may be amended or repealed by the Bancorp 34 board of directors or the stockholders in accordance with the articles of incorporation.

Anti-Takeover Provisions of Bancorp 34’s Articles of Incorporation and Bylaws and Provisions of Maryland Law

Bancorp 34’s articles of incorporation and bylaws, in addition to the MDGL, contain certain provisions that might be deemed to have a potential “anti-takeover” effect. The following description of certain provisions of Bancorp 34’s articles of incorporation, bylaws and the MDGL that may have anti-takeover effects is a summary only and is subject to, and is qualified by reference to, applicable provisions of Bancorp 34’s articles of incorporation and bylaws as well as applicable provisions of the MDGL.

Classification of the Board of Directors. Bancorp 34’s directors are divided into three classes with each class consisting of an equal number of directors, or as nearly equal as possible. Each director generally serves for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected. A classified board of directors promotes continuity and stability of management, but makes it more difficult for the stockholders to change a majority of the directors because it generally takes at least two annual elections of directors for this to occur. Bancorp 34 believes that classification of the board of directors will help to assure the continuity and stability of its business strategies and policies as determined by its board of directors.

Evaluation of Offers. The articles of incorporation of Bancorp 34 provide that its board of directors, when evaluating a transaction that would or may involve a change in control of Bancorp 34 (whether by purchases of its securities, merger, consolidation, share exchange, sale of all or substantially all of its assets or otherwise), may, in connection with the exercise of its business judgment in determining what is in the best interests of Bancorp 34 and its stockholders and in making any recommendation to the stockholders, give due consideration to all relevant factors, including, but not limited to:

the economic effect, both immediate and long-term, upon Bancorp 34’s stockholders, including stockholders, if any, who do not participate in the transaction;

the social and economic effect on the present and future employees, creditors and customers of, and others dealing with, Bancorp 34 and its subsidiaries and on the communities in which Bancorp 34 and its subsidiaries operate or are located;

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whether the proposal is acceptable based on the historical, current or projected future operating results or financial condition of Bancorp 34;

whether a more favorable price could be obtained for Bancorp 34’s stock or other securities in the future;

the reputation and business practices of the other entity to be involved in the transaction and its management and affiliates as they would affect the employees of Bancorp 34 and its subsidiaries;

the future value of the stock or any other securities of Bancorp 34 or the other entity to be involved in the proposed transaction;

any antitrust or other legal and regulatory issues that are raised by the proposal;

the business and historical, current or expected future financial condition or operating results of the other entity to be involved in the transaction, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the proposed transaction, and other likely financial obligations of the other entity to be involved in the proposed transaction; and

the ability of Bancorp 34 to fulfill its objectives as a financial institution holding company and on the ability of its subsidiary financial institution to fulfill the objectives of a federally insured financial institution under applicable statutes and regulations.

Removal of Directors. Bancorp 34’s certificate of incorporation and bylaws provide that a director may only be removed with cause by the affirmative vote of holders of at least 66 2/3% of the votes entitled to be cast in the election of directors. In addition, a director may be removed at any time by the affirmative vote of a majority of the board.

Ability to Call a Special Meeting. Special meetings of Bancorp 34 stockholders can be called by the president, the chairperson, by a majority of the whole board of directors, or upon the written request of stockholders entitled to cast at least a majority of all votes entitled to vote at the meeting.

Absence of Cumulative Voting. There is no cumulative voting in the election of Bancorp 34 directors. Cumulative voting means that holders of stock of a corporation are entitled, in the election of directors, to cast a number of votes equal to the number of shares that they own multiplied by the number of directors to be elected. Because a stockholder entitled to cumulative voting may cast all of his, her or its votes for one nominee or disperse his, her or its votes among nominees as the stockholder chooses, cumulative voting is generally considered to increase the ability of minority stockholders to elect nominees to a corporation’s board of directors.

Limitation of Voting Rights. The articles of incorporation provide that no record owner of any of Bancorp 34’s outstanding common stock that is beneficially owned, directly or indirectly, by a person who beneficially owns more than 10% of the outstanding shares of common stock will be permitted to vote any shares in excess of such 10% limit. This provision has been included in the articles of incorporation in reliance on Section 2-507(a) of the Maryland General Corporation Law, which entitles stockholders to one vote for each share of stock unless the articles of incorporation provide for a greater or lesser number of votes per share or limit or deny voting rights.

Restrictions on Removing Directors from Office. The articles of incorporation provide that directors may be removed only for cause, and only by the affirmative vote of the holders of at least two-thirds of the voting power of all of Bancorp 34’s then-outstanding common stock entitled to vote (after giving effect to the limitation on voting rights discussed above in “—Limitation of Voting Rights”).

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Authorized and Unissued Shares. After the merger, Bancorp 34 will have authorized but unissued shares of common and preferred stock. The articles of incorporation authorize 100,000,000 shares of common stock and 50,000,000 shares of serial preferred stock. Bancorp 34 is authorized to issue preferred stock from time to time in one or more series subject to applicable provisions of law, and the board of directors is authorized to fix the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the shares of each such shares. In the event of a proposed merger, tender offer or other attempt to gain control of Bancorp 34 that the board of directors does not approve, it may be possible for the board of directors to authorize the issuance of a series of preferred stock with rights and preferences that would impede the completion of the transaction. An effect of the possible issuance of preferred stock therefore may be to deter a future attempt to gain control of Bancorp 34. The board of directors has no present plan or understanding to issue any preferred stock.

Amendments to Articles of Incorporation and Bylaws. Amendments to the articles of incorporation must be approved by the board of directors and also by of the affirmative vote of at least 66 2/3% of the outstanding shares of common stock, or by the affirmative vote of the majority of the outstanding shares of our common stock if at least 66 2/3% of the members of the whole board of directors approves such amendment; provided, however, that approval by at least 80% of the outstanding voting stock is generally required to amend certain provisions:

the limitation on voting rights of persons who directly or indirectly beneficially own more than 10% of the outstanding shares of common stock;

the division of the board of directors into three staggered classes;

the ability of the board of directors to fill vacancies on the board;

the requirement that directors may only be removed for cause and by the affirmative vote of at least two-thirds of the votes eligible to be cast by stockholders;

the ability of the board of directors to amend and repeal the bylaws;

the ability of the board of directors to evaluate a variety of factors in evaluating offers to purchase or otherwise acquire Bancorp 34;

the authority of the board of directors to provide for the issuance of preferred stock;

the validity and effectiveness of any action lawfully authorized by the affirmative vote of the holders of a majority of the total number of outstanding shares of common stock;

the number of stockholders constituting a quorum or required for stockholder consent;

the indemnification of current and former directors and officers, as well as employees and other agents, by Bancorp 34;

the limitation of liability of officers and directors to Bancorp 34 for money damages;

the inability of stockholders to cumulate their votes in the election of directors;

the advance notice requirements for stockholder proposals and nominations;

the requirement that the forum for certain actions or disputes will be a state or federal court located within the State of Maryland; and

the provision of the articles of incorporation requiring approval of at least 80% of the outstanding voting stock to amend the provisions of the articles of incorporation provided in the bulleted list of items directly above.

The bylaws may be amended or repealed by the approval of the majority of the whole board of directors of Bancorp 34. The bylaws may be amended or repealed by the approval by the affirmative votes of the holders of at least 80% of the voting power of all of the then-outstanding shares o the capital stock of Bancorp 34.

Effect of Anti-Takeover Provisions

The foregoing provisions of Bancorp 34’s articles of incorporation, bylaws and Maryland law could have the effect of discouraging an acquisition of Bancorp 34 or stock purchases in furtherance of an acquisition, and could accordingly, under certain circumstances, discourage transactions that might otherwise have a favorable effect on the price of Bancorp 34 common stock. In addition, such provisions may make Bancorp 34 less attractive to a potential acquirer and/or might result in stockholders receiving a lesser amount of consideration for their shares of common stock than otherwise could have been available.

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The Bancorp 34 board of directors believes that the provisions described above are prudent and will reduce Bancorp 34’s vulnerability to takeover attempts and certain other transactions that are not negotiated with and approved by the Bancorp 34 board of directors. The Bancorp 34 board of directors believes that these provisions are in its best interests and the best interests of Bancorp 34 stockholders. In the board of directors’ judgment, the board of directors is in the best position to determine Bancorp 34’s true value and to negotiate more effectively for what may be in the best interests of Bancorp 34 stockholders. Accordingly, the board of directors believes that it is in Bancorp 34’s best interests and in the best interests of Bancorp 34 stockholders to encourage potential acquirers to negotiate directly with the board of directors and that these provisions will encourage such negotiations and discourage hostile takeover attempts.

Despite the board of directors’ belief as to the benefits of the foregoing provisions, these provisions also may have the effect of discouraging a future takeover attempt in which stockholders might receive a substantial premium for their shares over then current market prices and may tend to perpetuate existing management. As a result, stockholders who might desire to participate in such a transaction may not have an opportunity to do so. The Bancorp 34 board of directors, however, believes that the potential benefits of these provisions outweigh their possible disadvantages.

Registration Rights Agreement

Bancorp 34 is party to a Registration Rights Agreement with certain of its stockholders pursuant to which it is obligated to register the sale of shares of Bancorp 34 common stock owned by the stockholders party to the agreement under certain circumstances. These rights include “demand” registration rights requiring Bancorp 34 to register the sale of shares of a specific stockholder, and they may be exercised at any time, subject to the provisions of the Registration Rights Agreement, which agreement will remain in effect following the merger. No CBOA shareholder will become a party to the Registration Rights Agreement as a result of the merger. For a description of the Registration Rights Agreement, see “Certain Relationships and Related Party Transactions of Bancorp 34—Registration Rights Agreement.”

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COMPARISON OF STOCKHOLDERS’ RIGHTS

If the merger is completed, CBOA shareholders will receive shares of Bancorp 34 common stock in the merger. Bancorp 34 is organized under the laws of the State of Maryland and CBOA is organized under the laws of the State of Arizona. The following is a summary of the material differences between (a) the current rights of CBOA shareholders under the CBOA articles of incorporation and bylaws and (b) the current rights of Bancorp 34 stockholders under the Bancorp 34 articles of incorporation and bylaws.

Bancorp 34 and CBOA believe that this summary describes the material differences between the rights of Bancorp 34 stockholders as of the date of this joint proxy statement/prospectus and the rights of CBOA shareholders as of the date of this joint proxy statement/prospectus; however, it does not purport to be a complete description of those differences. Copies of Bancorp 34’s governing documents have been filed with the SEC. To find out where copies of these documents can be obtained, please see “Where You Can Find More Information.”

CBOA		BANCORP 34
AUTHORIZED CAPITAL STOCK
CBOA is authorized to issue up to 50,000,000 shares of common stock, no par value per share. As of the date hereof, there were 10,414,660 shares of CBOA common stock outstanding.		Bancorp 34 is authorized to issue up to 100,000,000 shares of common stock, par value $0.01 per share, 1,100,000 shares of non-voting common stock, par value $0.01 per share, and 50,000,000 shares of preferred stock, par value $0.01 per share. As of the date hereof, there were 3,875,945 shares of Bancorp 34 common stock outstanding, 820,115 shares of Bancorp 34 non-voting common stock outstanding and 0 shares of Series A Preferred Stock outstanding.

RIGHTS OF PREFERRED STOCK

CBOA’s articles of incorporation do not provide for the issuance of preferred stock		Bancorp 34’s articles of incorporation provides that the Bancorp 34 board of directors may issue, without stockholder approval, in one or more series, and, with respect to each such series, fix the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the shares of each such series.

CLASSES OF DIRECTORS

CBOA’s directors are divided into four classes, with each class consisting, as nearly as may be possible, of one fourth of the total number of directors constituting the board of directors. Each director generally serves for a term ending on the date of the fourth annual meeting following the annual meeting at which such director was elected.		Under Bancorp 34’s articles of incorporation and bylaws, the Bancorp 34 board of directors is divided into three classes with each class consisting of an equal number of directors, or as nearly equal as possible. Each director generally serves for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected.

SIZE AND COMPOSITION OF THE BOARD OF DIRECTORS

CBOA’s articles of incorporation provide that the authorized number of directors, as adopted by a resolution of the board of directors, shall be not fewer than one or more than 15. CBOA’s board of directors is currently comprised of nine directors, consisting of two Class I directors, two Class II directors, three Class III directors and two Class IV directors.		Bancorp 34’s articles of incorporation provides that Bancorp 34 will initially have 8 directors, which may be increased or decreased from time to time solely by resolution adopted by the affirmative vote of 66 2/3% of the board of directors. The board of directors shall never be less than the minimum number of directors required by the MGCL.

		Bancorp 34’s board of directors is currently comprised of 8 directors.

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CBOA		BANCORP 34
Quorum of the Board and Manner of Acting

CBOA’s bylaws provide that directors having a majority vote of the entire board of directors will constitute a quorum at any meeting, and except as otherwise provided, the vote of a majority of the directors present at any meeting at which a quorum is present will be the act of the board. If CBOA’s board of directors consists of two directors, both directors must be present to transact business at a meeting and both must consent for any act to be an act of CBOA.		Bancorp 34’s certificate of incorporation and bylaws provide that a majority of the whole board of directors constitutes a quorum at any meeting. Unless otherwise required by law, Bancorp 34’s articles of incorporation, and bylaws, and as described in more detail below, the act of a majority of the board of directors at which a quorum is present constitutes the act of the board.

REMOVAL OF DIRECTORS

CBOA’s articles of incorporation provide that a director may be removed with or without cause by the affirmative vote of not less than a majority of the issued and outstanding shares of CBOA common stock.		Under Bancorp 34’s articles of incorporation, Bancorp 34 may, subject to the rights of the holders of any series of Bancorp 34 preferred stock that may then be outstanding, remove any director, or the entire board of directors, but only for cause, with the affirmative vote of at least two-thirds of voting power of all of the then-outstanding shares of capital stock of Bancorp 34.

FILLING VACANCIES ON THE BOARD OF DIRECTORS

If any CBOA directorship becomes vacant for any reason (including newly created directorships) such vacancy may be filled by the approval of at least a majority of the board of directors then in office (although less than a quorum) or by the sole remaining director, and each director so elected will hold office for a term that coincides with the term of the class to which the director was elected.		Any vacancies in the board of directors resulting from an increase in the size of the board of directors or the death, resignation or removal of a director may be filled only by the affirmative vote of two-thirds of the remaining directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred and until a successor is elected and qualifies.

VOTING RIGHTS

Each share of CBOA common stock is entitled to one vote on each matter voted on at a meeting of CBOA’s shareholders, including the election of directors. Holders of CBOA common stock have cumulative voting rights in the election of directors.		Each holder of common stock is entitled to one vote per share and will not have any right to cumulate votes in the election of directors. Any person who beneficially owns more than 10% of the then-outstanding shares of Bancorp 34’s common stock, however, will not be entitled or permitted to vote any shares of common stock held in excess of the 10% limit. The holders of non-voting common stock do not have any voting rights, except as may otherwise be required by law.

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CBOA		BANCORP 34
SPECIAL MEETINGS OF STOCKHOLDERS

Special meetings of CBOA’s shareholders, other than those regulated by statute, may be called by a majority of CBOA’s directors or by its president.		Special meetings of Bancorp 34 stockholders can be called by the president, the chairperson, by a majority of the whole board of directors, or upon the written request of stockholders entitled to cast at least a majority of all votes entitled to vote at the meeting.

STOCKHOLDER QUORUM

CBOA’s bylaws provide that the presence of one-third of the votes entitled to be cast by the shareholders entitle to vote, represented in person or by proxy, will constitute a quorum.		Bancorp 34’s bylaws generally provide that the presence of a majority in voting power, represented in person or by proxy, of the outstanding shares of stock entitled to vote at any meeting is necessary to constitute a quorum.

NOTICE OF STOCKHOLDER MEETINGS

Notice of each CBOA shareholder meeting must be delivered to each shareholder not less than 10 nor more than 50 days before the meeting date.		Notice of each Bancorp 34 stockholder meeting must be delivered to each stockholder not less than 10 nor more than 90 days before the meeting date.

LIMITATION OF PERSONAL LIABILITY OF DIRECTORS AND/OR OFFICERS

Pursuant to CBOA’s articles of incorporation, the liability of a director or officer of CBOA for monetary damages for a breach of fiduciary duty is eliminated to the fullest extent permitted by the ABCA.		Pursuant to Bancorp 34’s articles of incorporation and bylaws, the liability of a director to Bancorp or its stockholders for monetary damages for a breach of fiduciary duty as a director is eliminated or limited to the fullest extent permitted by applicable law.

INDEMNIFICATION OF DIRECTORS AND OFFICERS AND INSURANCE

CBOA’s articles of incorporation provide that CBOA shall indemnify, to the fullest extent permitted by law, any person who incurs any liability or expense by reason of that person acting in good faith as an officer or director of CBOA. The indemnification provisions in CBOA’s articles of incorporation and bylaws are effective only to the extent that they do not conflict with any statute, rule or regulation promulgated by or pursuant to the authority of the FDIC.		Bancorp 34’s articles of incorporation requires it to indemnify and hold harmless, to the fullest extent permitted by the MDGL or any other applicable law, any current and director or officer of Bancorp 34. This right to indemnification also includes the right to be advanced expenses by Bancorp 34to the fullest extent authorized by the MDGL. Bancorp 34’s articles of incorporation provide that Bancorp 34 may purchase and maintain insurance to protect any indemnitee against any claim, regardless of whether Bancorp 34 would have the power to indemnify such indemnitee.

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CBOA		BANCORP 34
AMENDMENTS TO CERTIFICATE OF INCORPORATION AND BYLAWS

CBOA’s articles of incorporation may be amended by the board of directors to the extent permitted by the ABCA or generally may be amended by the shareholders by the approval of a majority of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters’ rights. CBOA’s bylaws may be repealed, altered or amended by the affirmative vote of 75% of all directors or by a vote of a majority of the outstanding shares of CBOA common stock.		Amendments to the articles of incorporation must be approved by the board of directors and also by of the affirmative vote of at least 66 2/3% of the outstanding shares of common stock, or by the affirmative vote of the majority of the outstanding shares of our common stock if at least 66 2/3% of the members of the whole board of directors approves such amendment; provided, however, that approval by at least 80% of the outstanding voting stock is generally required to amend certain provisions: · the limitation on voting rights of persons who directly or indirectly beneficially own more than 10% of the outstanding shares of common stock; · the division of the board of directors into three staggered classes’ · the ability of the board of directors to fill vacancies on the board; · the requirement that directors may only be removed for cause and by the affirmative vote of at least two-thirds of the votes eligible to be cast by stockholders; · the ability of the board of directors to amend and repeal the bylaws; · the ability of the board of directors to evaluate a variety of factors in evaluating offers to purchase or otherwise acquire Bancorp 34; · the authority of the board of directors to provide for the issuance of preferred stock; · the validity and effectiveness of any action lawfully authorized by the affirmative vote of the holders of a majority of the total number of outstanding shares of common stock; · the number of stockholders constituting a quorum or required for stockholder consent; · the indemnification of current and former directors and officers, as well as employees and other agents, by Bancorp 34; · the limitation of liability of officers and directors to Bancorp 34 for money damages; · the inability of stockholders to cumulate their votes in the election of directors; · the advance notice requirements for stockholder proposals and nominations; · the requirement that the forum for certain actions or disputes will be a state or federal court located within the State of Maryland; and · the provision of the articles of incorporation requiring approval of at least 80% of the outstanding voting stock to amend the provisions of the articles of incorporation provided in the bulleted list of items directly above.

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CBOA		BANCORP 34
		Bancorp 34’s bylaws may be amended or repealed by the approval of the majority of the whole board of directors of Bancorp 34. The bylaws may be amended or repealed by the approval by the affirmative votes of the holders of at least 80% of the voting power of all of the then-outstanding shares of the capital stock of Bancorp 34.

ACTION BY WRITTEN CONSENT OF THE STOCKHOLDERS

Pursuant to CBOA’s certificate of incorporation, CBOA’s shareholders may take action without a meeting and without prior notice if written consents describing the action to be taken are signed by the holders of all of the outstanding shares entitled to vote with respect to the subject matter of the action.		The articles of incorporation and bylaws of Bancorp 34 do not address actions without a meeting taken by written consent of the stockholders.

PREEMPTIVE RIGHTS

There are no preemptive rights provided in CBOA’s articles of incorporation or bylaws.		There are no preemptive rights provided in Bancorp 34’s articles of incorporation or bylaws.

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SUPERVISION AND REGULATION

In this section, unless the context suggests otherwise, references to “we,” “us,” and “our” mean the combined business of Bancorp 34 and Bank 34, and references to the “Bank” refer to Bank 34.

General

Bancorp 34 and Bank 34 are subject to extensive banking regulations that impose restrictions on and provide for general regulatory oversight of their operations. These laws generally are intended to protect consumers and depositors, rather than Bancorp 34 stockholders.

The following discussion is not intended to be a complete list of all the activities regulated by the banking laws or of the impact of such laws and regulations on our operations. It is intended only to briefly summarize some material provisions. The following summary is qualified by reference to the statutory and regulatory provisions discussed. These statutes and regulations are subject to change, and additional statutes, regulations, and corresponding guidance may be adopted. We are unable to predict these future changes or the effects, if any, that these changes could have on our business, revenues, and results of operations.

Legislative and Regulatory Developments

Although the 2008 financial crisis has now passed, the legislative and regulatory response, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), will continue to have an impact on our operations.

The Dodd-Frank Wall Street Reform and Consumer Protection Act

The Dodd-Frank Act was signed into law in July 2010 and impacts financial institutions in numerous ways, including:

The creation of a Financial Stability Oversight Council responsible for monitoring and managing systemic risk;

Granting additional authority to the Federal Reserve to regulate certain types of nonbank financial companies;

Granting new authority to the FDIC as liquidator and receiver;

Changing the manner in which deposit insurance assessments are made;

Requiring regulators to modify capital standards;

Establishing the Consumer Financial Protection Bureau (the “CFPB”);

Capping interchange fees that certain banks charge merchants for debit card transactions;

Imposing more stringent requirements on mortgage lenders; and

Limiting banks’ proprietary trading activities.

There are many provisions in the Dodd-Frank Act mandating regulators to adopt new regulations and conduct studies upon which future regulation may be based. While some have been issued, many remain to be issued. Governmental intervention and new regulations could materially and adversely affect our business, financial condition and results of operations.

Bank Holding Company Regulation

We own 100% of the outstanding capital stock of Bank 34, a federal savings association which elected to be treated as a “covered savings association” in January 2023, and, therefore, we are considered to be a bank holding company registered under the federal Bank Holding Company Act of 1956 (the “BHC Act”). As a result, we are primarily subject to the supervision, examination and reporting requirements of the Federal Reserve under the BHC Act and its regulations promulgated thereunder.

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Permitted Activities

Under the BHC Act, a bank holding company is generally permitted to engage in, or acquire direct or indirect control of more than 5% of the voting shares of any company engaged in, the following activities:

banking or managing or controlling banks;

furnishing services to or performing services for our subsidiaries; and

any activity that the Federal Reserve determines to be so closely related to banking as to be a proper incident to the business of banking.

Activities that the Federal Reserve has found to be so closely related to banking as to be a proper incident to the business of banking include:

factoring accounts receivable;

making, acquiring, brokering or servicing loans and usual related activities;

leasing personal or real property;

operating a non-bank depository institution, such as a savings association;

trust company functions;

financial and investment advisory activities;

conducting discount securities brokerage activities;

underwriting and dealing in government obligations and money market instruments;

providing specified management consulting and counseling activities;

performing selected data processing services and support services;

acting as agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions; and

performing selected insurance underwriting activities.

The Federal Reserve has the authority to order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding company’s continued ownership, activity or control constitutes a serious risk to the financial safety, soundness or stability of it or any of its bank subsidiaries.

Financial Holding Company

A bank holding company can elect to be treated as a “financial holding company,” which would allow it to engage in a broader array of activities. In summary, a financial holding company can engage in activities that are financial in nature or incidental or complementary to financial activities, including insurance underwriting, sales and brokerage activities, providing financial and investment advisory services, underwriting services and limited merchant banking activities.

Bancorp 34 has not elected to be treated as a financial holding company.

Expansion Activities

The BHC Act requires a bank holding company to obtain the prior approval of the Federal Reserve before merging with another bank holding company, acquiring substantially all the assets of any bank or bank holding company, or acquiring directly or indirectly any ownership or control of more than 5% of the voting shares of any bank. A bank holding company is also prohibited from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company engaged in nonbanking activities, other than those determined by the Federal Reserve to be so closely related to banking as to be a proper incident to the business of banking. In addition, the prior approval of the OCC is required for a federal savings association to merge with another bank or purchase the assets or assume the deposits of another bank. In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution’s record of addressing the credit needs of the communities it serves, including the needs of low and moderate income neighborhoods, consistent with the safe and sound operation of the bank, under the Community Reinvestment Act (discussed below).

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Change in Control

Two statutes, the BHC Act and the Change in Bank Control Act, together with regulations promulgated under them, require some form of regulatory review before any company may acquire “control” of a bank or a bank holding company. Under the BHC Act, control is deemed to exist if a company acquires 25% or more of any class of voting securities of a bank holding company; controls the election of a majority of the members of the board of directors; or exercises a controlling influence over the management or policies of a bank or bank holding company. On January 30, 2020, the Federal Reserve issued a final rule (which became effective September 30, 2020) that clarified and codified the Federal Reserve’s standards for determining whether one company has control over another. The final rule established four categories of tiered presumptions of noncontrol that are based on the percentage of voting shares held by the investor (less than 5%, 5-9.9%, 10-14.9% and 15-24.9%) and the presence of other indicia of control. As the percentage of ownership increases, fewer indicia of control are permitted without falling outside of the presumption of noncontrol. These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants. Under the final rule, investors can hold up to 24.9% of the voting securities and up to 33% of the total equity of a company without necessarily having a controlling influence.

Under the Change in Bank Control Act, a person or company is required to file a notice with the Federal Reserve if it will, as a result of the transaction, own or control 10% or more of any class of voting securities or direct the management or policies of a bank or bank holding company and either if the bank or bank holding company has registered securities or if the acquirer would be the largest holder of that class of voting securities after the acquisition. For a change in control at the holding company level, both the Federal Reserve and the subsidiary bank’s primary federal regulator must approve the change in control; at the bank level, only the bank’s primary federal regulator is involved. Transactions subject to the BHC Act are exempt from Change in Control Act requirements.

Source of Strength

There are a number of obligations and restrictions imposed by law and regulatory policy on bank holding companies with regard to their depository institution subsidiaries that are designed to minimize potential loss to depositors and to the FDIC insurance funds in the event that the depository institution becomes in danger of defaulting under its obligations to repay deposits. Under a policy of the Federal Reserve, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so absent such policy. Under the Federal Deposit Insurance Corporation Improvement Act of 1991, to avoid receivership of its insured depository institution subsidiary, a bank holding company is required to guarantee the compliance of any insured depository institution subsidiary that may become “undercapitalized” within the terms of any capital restoration plan filed by such subsidiary with its appropriate federal banking agency up to the lesser of (a) an amount equal to 5% of the institution’s total assets at the time the institution became undercapitalized, or (b) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with such capital restoration plan.

The Federal Reserve also has the authority under the BHC Act to require a bank holding company to terminate any activity or relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal Reserve’s determination that such activity or control constitutes a serious risk to the financial soundness or stability of any subsidiary depository institution of the bank holding company. Further, federal law grants federal bank regulatory authorities’ additional discretion to require a bank holding company to divest itself of any bank or nonbank subsidiary if the agency determines that divestiture may aid the depository institution’s financial condition.

In addition, the “cross guarantee” provisions of the Federal Deposit Insurance Act (the “FDIA”) require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by the FDIC as a result of the default of a commonly controlled insured depository institution or for any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of default. The FDIC’s claim for damages is superior to claims of stockholders of the insured depository institution or its holding company, but is subordinate to claims of depositors, secured creditors and holders of subordinated debt (other than affiliates) of the commonly controlled insured depository institutions.

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The FDIA also provides that amounts received from the liquidation or other resolution of any insured depository institution by any receiver must be distributed (after payment of secured claims) to pay the deposit liabilities of the institution prior to payment of any other general or unsecured senior liability, subordinated liability, general creditor or stockholder.

Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

Capital Requirements

The Federal Reserve imposes certain capital requirements on bank holding companies under the BHC Act, including a minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted assets. These requirements are essentially the same as those that apply to such holding company’s bank subsidiary and are described below under “Bank Regulation—Capital and Related Requirements.”

Dividend Payments

Our ability to pay dividends to our stockholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies. Bancorp 34 is a Maryland corporation and subject to the limitations of the MGCL. The MGCL allows Bancorp 34 to pay dividends from the net earnings of the corporation for the fiscal year in which the dividend is made, the net earnings of the corporation for the preceding fiscal year, or the sum of net earnings of the corporation for the preceding eight fiscal quarters. The MGCL provides that no dividends may be made by a corporation if, after giving effect to the dividend, the corporation would not be able to pay its indebtedness as it becomes due in the usual course of business, or the corporation’s total assets would be less than the sum of the corporation’s total liabilities plus, unless the charter permits otherwise, the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights on dissolution are superior to those receiving the distribution.

In addition, as a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer or significantly reduce dividends to stockholders if: (a) the company’s net income available to stockholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (b) the prospective rate of earnings retention is inconsistent with the company’s capital needs and overall current and prospective financial condition; or (c) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies. In addition, under the Basel III rules, financial institutions that seek to pay dividends must maintain the 2.5% capital conservation buffer. See “Bank Regulation—Capital and Related Requirements” below.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002, which we refer to as “Sarbanes-Oxley,” implemented a broad range of corporate governance, accounting and reporting measures for companies, that have securities registered under the Exchange Act. Although Bancorp 34 is not currently, and CBOA has not previously, been subject to Sarbanes-Oxley, Bancorp 34 will become subject to Sarbanes-Oxley upon the effectiveness of the registration statement of which this joint proxy statement/prospectus is a part. Sarbanes-Oxley and the various regulations promulgated under Sarbanes-Oxley, established, among other things: (a) requirements for audit committees, including independence, expertise, and responsibilities; (b) additional responsibilities relating to financial statements for the Chief Executive Officer and Chief Financial Officer of reporting companies; (c) standards for auditors and regulation of audits, including independence provisions that restrict non-audit services that accountants may provide to their audit clients; (d) increased disclosure and reporting obligations for reporting companies and their directors and executive officers, including accelerated reporting of stock transactions and a prohibition on trading during blackout periods; and (e) a range of civil and criminal penalties for fraud and other violations of the securities laws.

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Bank Regulation

Bank 34 is a federal savings association, which elected and was approved to be treated as a “covered savings association” (CSA) in January of 2023. A CSA has the same rights and privileges as a national bank that has its main office situated in the same location as the home office of the CSA and is subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations that would apply to such a national bank. As such, Bank 34’s activities are now subject to the same laws, regulations, and safety and soundness expectations as a national bank located in the State of Arizona, including any appropriate enforcement action for failure to comply with applicable laws and regulations. As a CSA, Bank 34 retained its federal savings association charter and must continue to comply with the provisions of law applicable to federal savings associations for certain limited purposes enumerated in federal regulations, including governance (e.g., incorporation, organization, charter, bylaws, board of directors, shareholders, mutual members, and dividends), consolidation, merger, dissolution, conversion, conservatorship, receivership, and other purposes determined by OCC regulation.

As a covered federal savings association, Bank 34 is subject to regulation and supervision primarily by the OCC and secondarily by the Federal Reserve, the FDIC, and the Consumer Financial Protection Bureau, which we refer to as the “CFPB.” We are subject to requirements and restrictions under federal law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of Bank 34.

Capital and Related Requirements

We are subject to comprehensive capital adequacy requirements intended to protect against losses that we may incur. Regulatory capital rules adopted in July 2013 and fully phased in as of January 1, 2019, which we refer to as Basel III, impose minimum capital requirements for bank holding companies and banks. The BASEL III rules apply to all state and national banks and savings and loan associations regardless of size and bank holding companies and savings and loan holding companies other than “small bank holding companies,” generally holding companies with consolidated assets of less than $3 billion. More stringent requirements are imposed on “advanced approaches” banking organizations—those organizations with $250 billion or more in total consolidated assets, $10 billion or more in total foreign exposures, or that have opted into the Basel II capital regime.

The rules include certain higher risk-based capital and leverage requirements than those previously in place. Specifically, we are required to maintain the following minimum capital requirements:

a common equity Tier 1 (“CET1”) risk-based capital ratio of 4.5%;

a Tier 1 risk-based capital ratio of 6%;

a total risk-based capital ratio of 8%; and

a leverage ratio of 4%.

Under Basel III, Tier 1 capital includes two components: CET1 capital and additional Tier 1 capital. The highest form of capital, CET1 capital, consists solely of common stock (plus related surplus), retained earnings, accumulated other comprehensive income, otherwise referred to as AOCI, and limited amounts of minority interests that are in the form of common stock. Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock, Tier 1 minority interests and grandfathered trust preferred securities. Tier 2 capital generally includes the allowance for loan losses up to 1.25% of risk-weighted assets, qualifying preferred stock, subordinated debt and qualifying tier 2 minority interests, less any deductions in Tier 2 instruments of an unconsolidated financial institution. AOCI is presumptively included in CET1 capital and often would operate to reduce this category of capital. When implemented, Basel III provided a one-time opportunity for covered banking organizations to opt out of much of this treatment of AOCI. We made this opt-out election.

In addition, in order to avoid restrictions on capital distributions or discretionary bonus payments to executives, under Basel III, a banking organization must maintain a “capital conservation buffer” on top of its minimum risk-based capital requirements. This buffer must consist solely of Tier 1 Common Equity, but the buffer applies to all three risk-based measurements (CET1, Tier 1 capital and total capital). The 2.5% capital conservation buffer was phased in incrementally over time, and became fully effective for us on January 1, 2019, resulting in the following effective minimum capital plus capital conservation buffer ratios: (a) a CET1 capital ratio of 7.0%, (b) a Tier 1 risk-based capital ratio of 8.5%, and (c) a total risk-based capital ratio of 10.5%.

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The capital rules require that goodwill and other intangible assets (other than mortgage servicing assets), net of associated deferred tax liabilities (“DTLs”), be deducted from CET1 capital. Additionally, deferred tax assets (“DTAs”) that arise from net operating loss and tax credit carryforwards, net of associated DTLs and valuation allowances, are fully deducted from CET1 capital. However, DTAs arising from temporary differences that could not be realized through net operating loss carrybacks, along with mortgage servicing assets and “significant” (defined as greater than 10% of the issued and outstanding common stock of the unconsolidated financial institution) investments in the common stock of unconsolidated “financial institutions” are partially includible in CET1 capital, subject to deductions defined in the rules.

The OCC also considers interest rate risk (arising when the interest rate sensitivity of Bank 34’s assets does not match the sensitivity of its liabilities or its off-balance sheet position) in the evaluation of the bank’s capital adequacy. Banks with excessive interest rate risk exposure are required to hold additional amounts of capital against their exposure to losses resulting from that risk. Through the risk-weighting of assets, the regulators also require banks to incorporate market risk components into their risk-based capital. Under these market risk requirements, capital is allocated to support the amount of market risk related to a bank’s lending and trading activities.

Bank 34’s capital categories are determined solely for the purpose of applying the “prompt corrective action” rules described below and they are not necessarily an accurate representation of its overall financial condition or prospects for other purposes. Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits, and certain other restrictions on its business. See “Prompt Corrective Action” below.

In November 2019, the federal banking regulators published final rules implementing a simplified measure of capital adequacy for certain banking organizations that have less than $10 billion in total consolidated assets. Under the final rules, which went into effect on January 1, 2020, banks and holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, off-balance-sheet exposures of 25% or less of total consolidated assets and trading assets plus trading liabilities of 5% or less of total consolidated assets, are deemed “qualifying community banking organizations” are eligible to opt into the “community bank leverage ratio framework.” A qualifying community banking organization that elects to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9% is considered to have satisfied the generally applicable risk-based and leverage capital requirements under the Basel III rules and, if applicable, is considered to have met the “well capitalized” ratio requirements for purposes of its primary federal regulator’s prompt corrective action rules, discussed below. The final rules include a two-quarter grace period during which a qualifying community banking organization that temporarily fails to meet any of the qualifying criteria, including the greater-than-9% leverage capital ratio requirement, is generally still deemed “well capitalized” so long as the banking organization maintains a leverage capital ratio greater than 8%. A banking organization that fails to maintain a leverage capital ratio greater than 8% is not permitted to use the grace period and must comply with the generally applicable requirements under the Basel III rules and file the appropriate regulatory reports. We do not have any immediate plans to use the community bank leverage ratio framework but may make such an election in the future.

Prompt Corrective Action

As an insured depository institution, we are required to comply with the capital requirements promulgated under the Federal Deposit Insurance Act (the “FDIA”). The FDIA requires each federal banking agency to take prompt corrective action (“PCA”) to resolve the problems of insured depository institutions, including those that fall below one or more prescribed minimum capital ratios. The law requires each federal banking agency to promulgate regulations defining the following five categories in which an insured depository institution will be placed, based on the level of capital ratios: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized.” As of December 31, 2022, we maintained capital ratios that exceeded the minimum ratios established for a “well capitalized” institution.

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The following is a list of the criteria for each PCA capital category:

Well Capitalized—The institution exceeds the required minimum level for each relevant capital measure. A well-capitalized institution:

has total risk-based capital ratio of 10% or greater; and

has a Tier 1 risk-based capital ratio of 8% or greater; and

has a common equity Tier 1 risk-based capital ratio of 6.5% or greater; and

has a leverage capital ratio of 5% or greater; and

is not subject to any order or written directive to meet and maintain a specific capital level for any capital measure.

Adequately Capitalized—The institution meets the required minimum level for each relevant capital measure. The institution may not make a capital distribution if it would result in the institution becoming undercapitalized. An adequately capitalized institution:

has a total risk-based capital ratio of 8% or greater; and

has a Tier 1 risk-based capital ratio of 6% or greater; and

has a common equity Tier 1 risk-based capital ratio of 4.5% or greater; and

has a leverage capital ratio of 4% or greater.

Undercapitalized—The institution fails to meet the required minimum level for any relevant capital measure. An undercapitalized institution:

has a total risk-based capital ratio of less than 8%; or

has a Tier 1 risk-based capital ratio of less than 6%; or

has a common equity Tier 1 risk-based capital ratio of less than 4.5% or greater; or

has a leverage capital ratio of less than 4%.

Significantly Undercapitalized—The institution is significantly below the required minimum level for any relevant capital measure. A significantly undercapitalized institution:

has a total risk-based capital ratio of less than 6%; or

has a Tier 1 risk-based capital ratio of less than 4%; or

has a common equity Tier 1 risk-based capital ratio of less than 3% or greater; or

has a leverage capital ratio of less than 3%.

Critically Undercapitalized—The institution fails to meet a critical capital level set by the appropriate federal banking agency. A critically undercapitalized institution has a ratio of tangible equity to total assets that is equal to or less than 2%.

Depending upon the capital category to which an institution is assigned, the primary federal regulators’ corrective powers include: (a) requiring the institution to submit a capital restoration plan; (b) limiting the institution’s asset growth and restricting its activities; (c) requiring the institution to issue additional capital stock (including additional voting stock) or to sell itself; (d) restricting transactions between the institution and its affiliates; (e) restricting the interest rate that the institution may pay on deposits; (f) ordering a new election of directors of the institution; (g) requiring that senior executive officers or directors be dismissed; (h) prohibiting the institution from accepting deposits from correspondent banks; (i) requiring the institution to divest certain subsidiaries; (j) prohibiting the payment of principal or interest on subordinated debt; and (k) ultimately, appointing a receiver for the institution.

CECL

On December 21, 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to (a) address the upcoming implementation of a new credit impairment model, the Current Expected Credit Loss, or CECL model, an accounting standard under GAAP; (b) provide an optional three-year phase-in period for the day-one adverse regulatory capital effects that banking organizations are expected to experience upon adopting CECL; and (c) require the use of CECL in stress tests beginning with the 2020 capital planning and stress testing cycle for certain banking organizations that are subject to stress testing. We are currently evaluating the impact the CECL model will have on our accounting. We expect to recognize a one-time cumulative-effect adjustment to our allowance for loan losses as of the beginning of the first quarter of 2023, the first reporting period in which the new standard will become effective for us. The results of our most recent parallel run have indicated the initial adoption of ASU 2016-13 to not be material to our consolidated balance sheet.

The CECL methodology was adopted on January 1, 2023. Upon adoption, we recorded an increase to the ACL on the loans held-for-investment of $604,000, established an ACL on unfunded commitments of $164,000 established an ACL on held-to-maturity investments of $38,000 recorded an increase to deferred tax asset of $152,000 and a corresponding one-time cumulative reduction to retained earnings, net of tax, of $654,000 in the consolidated balance sheet as of January 1, 2023.

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Dividend Payments

Both OCC and Federal Reserve regulations govern capital distributions by federal savings associations to their holding companies. Covered distributions include cash dividends, stock repurchases and other transactions charged to the capital account of a savings association. A savings association must file a notice with the Federal Reserve at least 30 days before making any capital distribution. A federal savings association also must file an application with the OCC for approval of a capital distribution if, among other things: (1) the total capital distributions for the current calendar year (including the proposed capital distribution) exceed the sum of the institution’s net income for that year to date plus the institution’s retained net income for the preceding two years, (2) the institution would not be well capitalized following the distribution, or (3) the distribution would violate any applicable statute, regulation, agreement or OCC-imposed condition. If an application to the OCC is not required, the federal savings association must provide the OCC a copy of the notice it files with the Federal Reserve.

The OCC may prohibit a proposed capital distribution that would otherwise be permitted by OCC regulations, if the OCC determines that such distribution would constitute an unsafe or unsound practice.

Under federal law, an insured depository institution cannot make any capital distribution if the capital distribution would cause the institution to become undercapitalized or if it is already undercapitalized. The FDIC also prohibits an insured depository institution from paying dividends on its capital stock or interest on its capital notes or debentures (if such interest is required to be paid only out of net profits) or distributing any of its capital assets while it remains in default in the payment of any assessment due the FDIC. Bank 34 is currently not in default in any assessment payment to the FDIC.

Community Reinvestment Act and Fair Lending Requirements

Bank 34 is subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations. Each bank is also subject to certain requirements and reporting obligations under the Community Reinvestment Act (“CRA”). The CRA generally requires federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of its local communities, including low- and moderate-income neighborhoods. The CRA further requires the agencies to take into account a bank’s record of meeting community credit needs when evaluating applications for, among other things, new branches or mergers. Bank 34 received a “satisfactory” CRA Assessment Rating from the OCC in its most recent examination. In addition to substantive penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with such laws and CRA into account when regulating and supervising other activities of the bank, including in acting on expansionary proposals.

In December 2019, the OCC and the FDIC issued a notice of proposed rulemaking intended to (a) clarify which activities qualify for CRA credit; (b) update where activities count for CRA credit; (c) create a more transparent and objective method for measuring CRA performance; and (d) provide for more transparent, consistent, and timely CRA-related data collection, recordkeeping, and reporting. However, the Federal Reserve has not joined the proposed rulemaking. In May 2020, the OCC issued its final CRA rule, which was later rescinded in December 2021, and was replaced with a rule based on the rules adopted jointly by the federal banking agencies in 1995. On the same day that the OCC announced its plans to rescind the CRA final rule, the OCC, FDIC, and Federal Reserve announced that they are working together to “strengthen and modernize the rules implementing the CRA.” The effects on the Bank of any potential change to the CRA rules will depend on the final form of any federal rulemaking and cannot be predicted at this time. Management will continue to evaluate any changes to the CRA’s regulations and their impact to the Bank.

Fair Lending Requirements

We are subject to certain fair lending requirements and reporting obligations involving lending operations. A number of laws and regulations provide these fair lending requirements and reporting obligations, including, at the federal level, the Equal Credit Opportunity Act, or the “ECOA,” as amended by the Dodd-Frank Act, and Regulation B, as well as the Fair Housing Act, or the “FHA,” and regulations implementing the FHA. ECOA and Regulation B prohibit discrimination in any aspect of a credit transaction based on a number of prohibited factors, including race or color, religion, national origin, sex, marital status, age, the applicant’s receipt of income derived from public assistance programs, and the applicant’s exercise, in good faith, of any right under the Consumer Credit Protection Act. ECOA and Regulation B include lending acts and practices that are specifically prohibited, permitted, or required, and these laws and regulations proscribe data collection requirements, legal action statute of limitations, and disclosure of the consumer’s ability to receive a copy of any appraisal(s) and valuation(s) prepared in connection with certain loans secured by dwellings. FHA prohibits discrimination in all aspects of residential real-estate related transactions based on prohibited factors, including race or color, national origin, religion, sex, familial status, and handicap.

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In addition to prohibiting discrimination in credit transactions on the basis of prohibited factors, these laws and regulations can cause a lender to be liable for policies that result in a disparate treatment of or have a disparate impact on a protected class of persons. If a pattern or practice of lending discrimination is alleged by a regulator, then the matter may be referred by the agency to the U.S. Department of Justice, or the “DOJ,” for investigation. In December 2012, the DOJ and CFPB entered into a Memorandum of Understanding under which the agencies have agreed to share information, coordinate investigations, and have generally committed to strengthen their coordination efforts. In addition to substantive penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with fair lending requirements into account when regulating and supervising other activities of the bank, including in acting on expansionary proposals.

Consumer Protection Regulations

Our activities are subject to a variety of statutes and regulations designed to protect consumers. Interest and other charges collected or contracted for by us are subject to state usury laws and federal laws concerning interest rates. Our loan operations are also subject to federal laws applicable to credit transactions, such as:

the Truth-In-Lending Act (“TILA”) and Regulation Z, governing disclosures of credit and servicing terms to consumer borrowers and including substantial new requirements for mortgage lending and servicing, as mandated by the Dodd-Frank Act;

the Home Mortgage Disclosure Act of 1975 and Regulation C, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the communities it serves;

the ECOA and Regulation B, prohibiting discrimination on the basis of race, color, religion, or other prohibited factors in extending credit;

the Fair Credit Reporting Act of 1978, as amended by the Fair and Accurate Credit Transactions Act and Regulation V, as well as the rules and regulations of the FDIC governing the use and provision of information to credit reporting agencies, certain identity theft protections and certain credit and other disclosures;

the Fair Debt Collection Practices Act and Regulation F, governing the manner in which consumer debts may be collected by collection agencies and intending to eliminate abusive, deceptive, and unfair debt collection practices;

the Real Estate Settlement Procedures Act, or “RESPA,” and Regulation X, which governs various aspects of residential mortgage loans, including the settlement and servicing process, dictates certain disclosures to be provided to consumers, and imposes other requirements related to compensation of service providers, insurance escrow accounts, and loss mitigation procedures;

the Secure and Fair Enforcement for Mortgage Licensing Act of 2018 which mandates a nationwide licensing and registration system for residential mortgage loan originators. The act also prohibits individuals from engaging in the business of a residential mortgage loan originator without first obtaining and maintaining annually registration as either a federal or state licensed mortgage loan originator; and

The Homeowners Protection Act, or the PMI Cancellation Act, provides requirements relating to private mortgage insurance on residential mortgages, including the cancellation and termination of PMI, disclosure and notification requirements, and the requirement to return unearned premiums;

The Fair Housing Act prohibits discrimination in all aspects of residential real-estate related transactions based on race or color, national origin, religion, sex, and other prohibited factors;

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The Servicemembers Civil Relief Act and Military Lending Act, providing certain protections for servicemembers, members of the military, and their respective spouses, dependents and others;

the Mortgages Acts and Practices - Advertising (Regulation N) prohibits any person from making any material misrepresentation in connection with an advertisement for any mortgage credit product; and

Section 106(c)(5) of the Housing and Urban Development Act requires making home ownership available to eligible homeowners.

Our deposit operations are also subject to federal laws, such as:

the FDIA, which, among other things, limits the amount of deposit insurance available per account to $250,000 and imposes other limits on deposit-taking;

the Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

the Electronic Funds Transfer Act and Regulation E, which governs the rights, liabilities, and responsibilities of consumers and financial institutions using electronic fund transfer services, and which generally mandates disclosure requirements, establishes limitations on liability applicable to consumers for unauthorized electronic fund transfers, dictates certain error resolution processes, and applies other requirements relating to automatic deposits to and withdrawals from deposit accounts;

The Expedited Funds Availability Act and Regulation CC, setting forth requirements to make funds deposited into transaction accounts available according to specified time schedules, disclose funds availability policies to customers, and relating to the collection and return of checks and electronic checks, including the rules regarding the creation or receipt of substitute checks; and

the Truth in Savings Act and Regulation DD, which requires depository institutions to provide disclosures so that consumers can make meaningful comparisons about depository institutions and accounts.

The CFPB is an independent regulatory authority housed within the Federal Reserve. The CFPB has broad authority to regulate the offering and provision of consumer financial products. The CFPB has the authority to supervise and examine depository institutions with more than $10 billion in assets for compliance with federal consumer laws. The authority to supervise and examine depository institutions with $10 billion or less in assets such as us, for compliance with federal consumer laws remains largely with those institutions’ primary regulators. However, the CFPB may participate in examinations of smaller institutions on a “sampling basis” and may refer potential enforcement actions against such institutions to their primary regulators. As such, the CFPB may participate in examinations of Bank 34. In addition, states are permitted to adopt consumer protection laws and regulations that are stricter than the regulations promulgated by the CFPB, and state attorneys general are permitted to enforce consumer protection rules adopted by the CFPB against certain institutions.

The CFPB has issued a number of significant rules that impact nearly every aspect of the lifecycle of consumer financial products and services, including rules regarding residential mortgage loans. These rules implement Dodd-Frank Act amendments to ECOA, TILA and RESPA. Among other things, the rules adopted by the CFPB require banks to: (i) develop and implement procedures to ensure compliance with a “reasonable ability-to-repay” test; (ii) implement new or revised disclosures, policies and procedures for originating and servicing mortgages, including, but not limited to, pre-loan counseling, early intervention with delinquent borrowers and specific loss mitigation procedures for loans secured by a borrower’s principal residence, and mortgage origination disclosures, which integrate existing requirements under TILA and RESPA; (iii) comply with additional restrictions on mortgage loan originator hiring and compensation; and (iv) comply with new disclosure requirements and standards for appraisals and certain financial products.

Bank regulators take into account compliance with consumer protection laws when considering approval of proposed expansionary proposals.

Anti-Money Laundering Regulation and the USA Patriot Act

Financial institutions must maintain anti-money laundering programs that include established internal policies, procedures, and controls; a designated compliance officer; an ongoing employee training program; and testing of the program by an independent audit function. The program must comply with the anti-money laundering provisions of the Bank Secrecy Act, or the “BSA.” Bancorp 34 and the Bank are also prohibited from entering into specified financial transactions and account relationships and must meet enhanced standards for due diligence and “knowing your customer” in their dealings with foreign financial institutions, foreign customers, and other high risk customers. Financial institutions must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious transactions, and certain laws provide law enforcement authorities with increased access to financial information maintained by banks. Financial institutions must comply with requirements regarding risk-based procedures for conducing ongoing customer due diligence, which requires the institutions to take appropriate steps to understand the nature and purpose of customer relationships and identify and verify the identity of the beneficial owners of legal entity customers.

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Anti-money laundering obligations have been substantially strengthened as a result of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act, which we refer to as the “USA PATRIOT Act.” Bank regulators routinely examine institutions for compliance with these obligations and are required to consider compliance in connection with the regulatory review of applications. The regulatory authorities have been active in imposing cease and desist orders and money penalty sanctions against institutions that have not complied with these requirements.

The USA PATRIOT Act amended the Bank Secrecy Act and provides, in part, for the facilitation of information sharing among governmental entities and financial institutions for the purpose of combating terrorism and money laundering by enhancing anti-money laundering and financial transparency laws, as well as enhanced information collection tools and enforcement mechanics for the U.S. government, including: (a) requiring standards for verifying customer identification at account opening; (b) rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering; (c) reports by nonfinancial trades and businesses filed with the U.S. Treasury Department’s Financial Crimes Enforcement Network for transactions exceeding $10,000; (d) filing suspicious activities reports if a bank believes a customer may be violating U.S. laws and regulations; and (e) requires enhanced due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons. Bank regulators routinely examine institutions for compliance with these obligations and are required to consider compliance in connection with the regulatory review of applications.

Under the USA PATRIOT Act, the regulators can provide lists of the names of persons suspected of involvement in terrorist activities. The Bank can be requested, to search its records for any relationships or transactions with persons on those lists. If the Bank finds any relationships or transactions, it must file a suspicious activity report and contact the applicable governmental authorities.

On January 1, 2021, Congress overrode former President Trump’s veto and thereby enacted the National Defense Authorization Act for Fiscal Year 2022, or “NDAA.” The NDAA provides for one of the most significant overhauls of the BSA and related anti-money laundering laws since the USA Patriot Act. Notably, changes include:

expansion of coordination and information sharing efforts among the agencies tasked with administering anti-money laundering and countering the financing of terrorism requirements, including the Financial Crimes Enforcement Network, or “FinCEN,” the primary federal banking regulators, federal law enforcement agencies, national security agencies, the intelligence community, and financial institutions;

providing additional penalties with respect to violations of BSA and enhancing the powers of FinCEN;

significant updates to the beneficial ownership collection rules and the creation of a registry of beneficial ownership which will track the beneficial owners of reporting companies which may be shared with law enforcement and financial institutions conducting due diligence under certain circumstances;

improvements to existing information sharing provisions that permit financial institutions to share information relating to SARs with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit finance risks; and

enhanced whistleblower protection provisions, allowing whistleblower(s) who provide original information which leads to successful enforcement of anti-money laundering laws in certain judicial or administrative actions resulting in certain monetary sanctions to receive up to 30% of the amount that is collected in monetary sanctions as well as increased protections.

Under the USA PATRIOT Act, FinCEN can send our banking regulatory agencies lists of the names of persons suspected of involvement in terrorist activities. The Bank can be requested, to search its records for any relationships or transactions with persons on those lists. If the Bank finds any relationships or transactions, it must file a suspicious activity report and contact FinCEN.

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The Office of Foreign Assets Control

The Office of Foreign Assets Control (“OFAC”), which is an office in the U.S. Department of the Treasury, is responsible for helping to ensure that U.S. entities do not engage in transactions with “enemies” of the United States, as defined by various Executive Orders and Acts of Congress. OFAC publishes lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts; owned or controlled by, or acting on behalf of target countries, and narcotics traffickers. If a bank finds a name on any transaction, account or wire transfer that is on an OFAC list, it must freeze or block the transactions on the account.

Financial Privacy and Cybersecurity

Under privacy protection provisions of the Gramm-Leach-Bliley Act of 1999, the “GBL,” and related regulations, we are limited in our ability to disclose non-public information about consumers to nonaffiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party. Federal banking agencies, including the OCC, have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of the board of directors. These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third parties in the provision of financial services.

Consumers must be notified in the event of a data breach under applicable federal and state laws. Under federal regulations, banking organizations are required to notify their primary federal regulator as soon as possible and no later than 36 hours after the discovery of a “computer-security incident” that rises to the level of a “notification incident” within the meaning attributed to those terms by the federal regulation. Banks’ service providers are required under the federal regulation to notify any affected bank to or on behalf of which the service provider provides services “as soon as possible” after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for as much as four hours.

Deposit Premiums and Assessments

Bank 34’s deposits are insured by the Deposit Insurance Fund (DIF) of the FDIC up to $250,000, the maximum amount permitted by law. The FDIC uses the DIF to protect against the loss of insured deposits if an FDIC-insured bank or savings association fails. As an FDIC-insured bank, we must pay deposit insurance assessments to the FDIC based on our average total assets minus our average tangible equity.

As an institution with less than $10 billion in assets, our assessment rates are based on the level of risk we pose to the FDIC’s deposit insurance fund (DIF). Pursuant to changes adopted by the FDIC that were effective July 1, 2016, the initial base rate for deposit insurance is between three and 30 basis points. Total base assessment after possible adjustments now ranges between 1.5 and 40 basis points. For established smaller institutions, such as us, the total base assessment rate is calculated by using supervisory ratings as well as (a) an initial base assessment rate, (b) an unsecured debt adjustment (which can be positive or negative), and (c) a brokered deposit adjustment.

In addition to the ordinary assessments described above, the FDIC has the ability to impose special assessments in certain instances. For example, under the Dodd-Frank Act, the minimum designated reserve ratio for the DIF was increased to 1.35% of the estimated total amount of insured deposits. Extraordinary growth in insured deposits during the first and second quarters of 2020 caused the DIF reserve ratio to decline below the statutory minimum of 1.35%. In October 2022, the FDIC announced a uniform two basis point increase in the deposit insurance assessment rate beginning in the first quarterly assessment period of 2023, with the intended purpose of having the DIF reach its statutory limit of 1.35% by the statutory deadline of September 30, 2028.

The FDIC may terminate the deposit insurance of any insured depository institution if it determines after a notice and hearing that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

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CRE Guidance

In December 2015, the federal banking regulators released a statement entitled “Interagency Statement on Prudent Risk Management for Commercial Real Estate Lending” (the “CRE Guidance”). In the CRE Guidance, the federal banking regulators (a) expressed concerns with institutions that ease CRE underwriting standards, (b) directed financial institutions to maintain underwriting discipline and exercise risk management practices to identify, measure and monitor lending risks, and (c) indicated that they will continue to pay special attention to CRE lending activities and concentrations. The federal banking regulators previously issued guidance in December 2006, entitled “Interagency Guidance on Concentrations in CRE Lending, Sound Risk Management Practices,” which stated that an institution that is potentially exposed to significant CRE concentration risk should employ enhanced risk management practices. Specifically, the guidance states that such institutions have (i) total CRE loans representing 300% or more of the institution’s total capital and (ii) the outstanding balance of such institution’s CRE loan portfolio has increased by 50% or more during the prior 36 months.

Effect of Governmental Monetary Policies

Our earnings are affected by domestic economic conditions and the monetary policies of the U.S. and its agencies. The Federal Open Market Committee’s monetary policies have had, and are likely to continue to have, an important effect on the operating results of banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve have major effects on the levels of bank loans, investments and deposits through its open market operations in U.S. government securities and through its regulation of the discount rate on borrowings of member banks and the reserve requirements against member bank deposits. We cannot predict the nature or effect of future changes in such monetary policies.

Future Legislation and Regulation

Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states. Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which existing regulations are applied or interpreted. The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the proposed legislation has in the past and may in the future affect the regulatory structure under which we operate and may significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital or modify our business strategy, or limit our ability to pursue business opportunities in an efficient manner. Our business, financial condition, results of operations or prospects may be adversely affected, perhaps materially, as a result.

227

LEGAL MATTERS

The validity of the Bancorp 34 common stock to be issued in connection with the merger will be passed upon for Bancorp 34 by Nelson Mullins Riley & Scarborough LLP, Atlanta, Georgia. Certain U.S. federal income tax consequences relating to the merger will also be passed upon for Bancorp 34 by Nelson Mullins Riley & Scarborough LLP, Atlanta, Georgia and for CBOA by Otteson Shapiro, LLP.

EXPERTS

Bancorp 34

The restated consolidated financial statements of Bancorp 34 and its subsidiaries as of and for the years ended December 31, 2022 and 2021, have been audited by Plante & Moran, PLLC, an independent registered public accounting firm, and are included in reliance upon the reports of such auditor given on the authority of such firm as experts in accounting and auditing.

CBOA

The consolidated financial statements of CBOA and its subsidiaries as of and for the years ended December 31, 2022 and 2021, have been audited by Eide Bailly LLP, an independent auditor, and are included in reliance upon the reports of such auditor given on the authority of such firm as experts in accounting and auditing.

CHANGE IN AUDITOR

On May 26, 2023, Bancorp 34 dismissed its previous independent accounting firm, Moss Adams LLP (“Moss Adams”), and engaged Plante & Moran, PLLC (“Plante Moran”) as its independent auditor. This change in auditors was approved by Bancorp 34’s board of directors in connection with the Bancorp 34’s determination to proceed with the registration of Bancorp 34 common stock to be issued to CBOA shareholders pursuant to this joint proxy statement/prospectus. Plante Moran was engaged to audit the financial statements of the for the year ending December 31, 2022 and the year ended December 31, 2021 according to auditing standards of the Public Company Accounting Oversight Board.

Before the engagement of Plante Moran, Bancorp 34 did not consult with Plante Moran regarding the application of accounting principles to a specific completed or proposed transaction or regarding the type of audit opinion that might be rendered by Plante Moran on Bancorp 34’s financial statements, and Plante Moran did not provide any written or oral advice that was an important factor considered by Bancorp 34 in reaching a decision as to any such accounting, auditing or financial reporting issue, and Bancorp 34 did not consult with Plante Moran regarding any of the matters or events set forth in Item 304(a)(2)(ii) of Regulation S-K.

The report of Moss Adams on its audit of the financial statements of Bancorp 34 for the years ended December 31, 2022 and 2021, performed under AICPA auditing standards, did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principle. In connection with its audit of the financial statements of Bancorp 34 for the years ended December 31, 2022 and 2021, there were no disagreements with Moss Adams on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Moss Adams, would have caused them to make reference thereto in their reports, and there have been no reportable events as described in Item 304(a)(1)(v) of Regulation S-K.

Bancorp 34 provided Moss Adams with a copy of this disclosure before its filing with the SEC and requested that Moss Adams furnish Bancorp 34 with a letter addressed to the SEC stating whether it agrees with the above statements and, if it does not agree, the respects in which it does not agree. A copy of the letter confirming Moss Adam’s agreement with the disclosure is filed as an exhibit to this registration statement.

228

INDEX TO FINANCIAL STATEMENTS OF BANCORP 34, INC.

For the Three Months Ended March 31, 2023 (Unaudited)
Consolidated Balance Sheets as of March 31, 2022 and December 31, 2023		F-2
Consolidated Statements Comprehensive Income for the three months ended March 31, 2023 and 2022		F-4
Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2023 and 2022		F-5
Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022		F-6
Notes to Consolidated Financial Statements		F-7

For the Years Ended December 31, 2022 and 2021 (Audited)
Report of Independent Registered Public Accounting Firm		F-44
Consolidated Balance Sheets (As Restated)		F-47
Consolidated Statements of Comprehensive Income (As Restated)		F-48
Consolidated Statements of Changes in Stockholders’ Equity (As Restated)		F-49
Consolidated Statements of Cash Flows (As Restated)		F-50
Notes to Consolidated Financial Statements (As Restated)		F-51

F-1

Consolidated Balance Sheets

(Dollars in Thousands, Except Share Data)

March 31, 2023 and December 31, 2022

	Unaudited
	2023			2022

ASSETS
Cash and due from banks	$	8,709		$	16,112
Fed funds sold		1,065			835
Total cash and cash equivalents		9,774			16,947

Available-for-sale securities, at fair value		57,857			58,582

Held-to-maturity securities, at amortized cost, net of allowance for credit loss		5,778			5,832

Loans held for investments		472,010			463,360
Allowance for credit loss		(5,383	)		(4,778	)

Loans held for investment, net		466,627			458,582

Premises and equipment, net		7,982			8,077
Operating lease right of use assets		2,007			2,067
Other investments		2,265			1,277
Accrued interest receivable		1,443			1,505
Deferred income tax asset, net		4,702			4,924
Bank owned life insurance		11,657			11,598
Prepaid and other assets		4,073			4,949
Total assets	$	574,165		$	574,340

See accompanying notes (unaudited).

F-2

Consolidated Balance Sheets (Continued)

(Dollars in Thousands, Except Share Data)

March 31, 2023 and December 31, 2022

LIABILITIES AND STOCKHOLDERS’ EQUITY

	Unaudited
LIABILITIES	2023			2022
Deposits
Demand deposits	$	94,697		$	102,699
Savings and NOW deposits		255,429			311,395
Time deposits		110,598			73,493
Total deposits		460,724			487,587

Federal Home Loan Bank advances		17,000			5,000
Subordinate debt, net of issuance costs		24,554			24,531
Escrows		279			179
Operating lease liabilities		2,177			2,153
Accrued interest and other liabilities		4,943			5,652
Total liabilities		509,677			525,102

STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value Authorized: 50,000,000 shares Issued and outstanding: 820,115 and 521,849 on March 31, 2023 and December 31, 2022, respectively		8			5
Common stock, $0.01 par value Authorized: 100,000,000 shares Issued and outstanding: 3,865,695 and 3,032,606 on March 31, 2023 and December 31, 2022, respectively		39			30
Additional paid-in capital		43,205			28,369
Retained earnings		28,474			29,013
Accumulated other comprehensive loss		(5,847	)		(6,773	)
Unearned Employee Stock Ownership Plan (ESOP) share		(1,391	)		(1,406	)
Total stockholders’ equity		64,488			49,238

Total liabilities and stockholders’ equity	$	574,165		$	574,340

F-3

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in Thousands, Except Per Share Data)

Three Months Ended March 31, 2023 and 2022

	2023			2022

INTEREST INCOME
Interest and fees on loans	$	6,110		$	5,078
Interest on securities		417			394
Interest on other interest-earning assets		138			12

Total interest income		6,665			5,484

Interest expense
Interest on deposits		2,201			356
Interest on borrowings		395			307

Total interest expense		2,596			663

Net interest income		4,069			4,821
Provision (benefit) for credit losses		(1	)		505

Net interest income after provision for credit losses		4,070			4,316

NON-INTEREST INCOME
Service charges and fees		96			(13	)
Bank owned life insurance		59			59
Other		(18	)		18

Total non-interest income		137			64

NON-INTEREST EXPENSE
Salaries and employee benefits		2,103			1,653
Occupancy		258			313
Data processing fees		617			457
FDIC and other insurance expense		64			102
Professional fees		267			97
Advertising		20			28
Other		276			334

Total non-interest expense		3,605			2,984

Income before provision for income taxes		602			1,396
Provision for income tax		158			350

Net income		444			1,046

Other comprehensive income (loss)
Other comprehensive income (loss)		1,300			(3,991	)
Tax effect of other comprehensive income (loss)		(374	)		1,015

Other comprehensive income (loss), net of tax		926			(2,976	)

Comprehensive income (loss)	$	1,370		$	(1,930	)

Earnings per common share – Basic	$	0.11		$	0.44

Earnings per common share – Diluted	$	0.11		$	0.44

F-4

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(Dollars in Thousands, Except Number of Shares and Per Share Data)

Three Months Ended March 31, 2023, and 2022

	Common Shares			Series A Preferred Shares		Common Stock		Series A Preferred Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss), Net			Unearned ESOP Shares			Total

BALANCE, DECEMBER 31, 2021		2,523,398			—	$	25	$	—	$	14,647		$	28,383		$	(920	)	$	(1,465	)	$	40,670

Net income		—			—		—		—		—			1,046			—			—			1,046
Other comprehensive (loss) income on AFS securities		—			—		—		—		—			—			(2,976	)		—			(2,976	)
Restricted stock award		8,500			—		—		—		—			—			—			—			—
Amortization of equity awards		—			—		—		—		88			—			—			15			103
Share repurchase		(5,297	)		—		—		—		(78	)		—			—			—			(78	)
Dividends		—			—		—		—		—			(175	)		—			—			(175	)

BALANCE, MARCH 31,2022		2,526,601			—	$	25	$		$	14,658		$	29,253		$	(3,896	)	$	(1,450	)	$	38,589


BALANCE, January 1, 2023 (as adjusted for the		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 (loss) income on AFS securities		—			—		—		—		—			—			926			—			926
Amortization of equity awards		—			—		—		—		16			—			—			15			31
Share repurchase		(15,000	)		—		—		—		(210	)		—			—			—			(210	)
Issuance of common stock, net of cost		848,089			—		8		—		10,858			—			—			—			10,866
Issuance of Series A pref stock, net of cost		—			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

See accompanying notes (unaudited).

F-5

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in Thousands)

Three Months Ended March 31, 2023 and 2022

	2023			2022

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	444		$	1,046
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization		133			118
Stock dividends on financial institution stock		(32	)		(2	)
Amortization of premiums and discounts on securities, net		65			110
Amortization of equity awards		31			103
Provision for credit losses		(1	)		505
Net appreciation on bank-owned life insurance		(59	)		(59	)
Deferred income tax expense (benefit)		(1	)		—
Changes in operating assets and liabilities
Accrued interest receivable		62			(115	)
Prepaid and other assets		898			(3,196	)
Accrued interest and other liability		(781	)		(182	)

Net cash from operating activities		759			(1,672	)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from calls, sales, or principal payments on available-for-sale securities		1,971			2,649
Purchases of available-for-sale securities		—			(8,060	)
Purchases of held-to-maturity securities		—			(500	)
Net (purchase) redemptions of stock in financial institutions		(956	)		(1,860	)
Net change in loans held for investment		(8,650	)		(38,512	)
Purchases of premises and equipment		(38	)		(12	)

Net cash from investing activities		(7,673	)		(46,295	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits		(26,863	)		7,909
Net change in escrows		100			74
Proceeds from Federal Home Loan Bank advances		110,399			182,500
Repayments of Federal Home Loan Bank advances		(98,399	)		(146,500	)
Common stock repurchases		(210	)		(78	)
Common stock issuance, net		10,866			—
Preferred stock issuance, net		4,176			—
Payment of dividends		(328	)		(175	)
		—			—
Net cash from financing activities		(259	)		43,730

NET CHANGE IN CASH AND CASH EQUIVALENTS		(7,173	)		(4,237	)
CASH AND CASH EQUIVALENTS, beginning of period		16,947			15,501

CASH AND CASH EQUIVALENTS, end of period	$	9,774		$	11,264

SUPPLEMENTAL DISCLOSURES
Interest on deposits and borrowings paid	$	2,443			662
Income taxes paid	$	—		$	(6	)

See accompanying notes (unaudited).

F-6

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

Note 1 – Nature of Operations and Significant Accounting Policies

Bancorp 34, Inc. (“Bancorp 34” or the “Company”) is a Maryland corporation organized in 2016 to be the successor to Alamogordo Financial Corp (“AFC”), a savings and loan holding company, upon completion of the October 2016 second-step conversion of Bank 34 (the “Bank”) from the two-tier mutual holding company structure to the stock holding company structure. Bancorp 34 owns 100% of the Bank.

The Bank provides a variety of banking services to individuals and businesses through its full-service branches in Scottsdale, Arizona as well as Alamogordo and Las Cruces, New Mexico.

Basis of presentation – The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP). The condensed consolidated financial statements and notes should be read in conjunction with the Company’s 2022 Annual Report that contains its restated financials.

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 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 loan losses and fair value of investment securities.

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, 2023 and December 31, 2022.

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. 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.

F-7

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

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 available-for-sale securities are determined using the specific identification method. Securities are written down to fair value and reflected as a loss.

Loans held for sale – Loans held for sale includes one- to four-family residential real estate loans, and periodically, a portion of Small Business Administration (“SBA”) or United States Department of Agriculture (USDA) loans the Bank intends to sell. They are carried at fair value. Gains and losses on the sale of mortgage loans are recognized upon sale and are determined by the difference between the sales proceeds and carrying value of the loans. Net unrealized losses, if any, are recorded as a valuation allowance and charged to operations. There were no loans held for sale at March 31, 2023 and December 31, 2022.

Loans held for investment, net – Loans 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. Subsequent interest collected on such loans is credited to loan principal if, in the opinion of management, collectability of principal is doubtful; otherwise, the interest collected is recognized as income and resumption of interest accruals may occur. Loans are charged-off as uncollectible when, in the opinion of management, collectability of principal is improbable. Personal loans are typically charged off when no later than 180 days past due.

Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

The allowance for credit losses (ACL) is maintained at a level which, in management’s judgment, is adequate to absorb probable credit losses inherent in the loan portfolio. Under the recently adopted ASC 326 methodology, management estimates the allowance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Industry historical credit loss experience is a significant input for the estimation of expected credit losses. Additionally, management’s assessment involves evaluating key factors, which include credit and macroeconomic indicators, such as changes in economic growth levels, unemployment rates, property values, and other relevant factors, to account for current and forecasted market conditions that are likely to cause estimated credit losses over the life of the loans to differ from historical credit losses. Expected credit losses are generally estimated over the contractual term of the loans, adjusted by prepayments when appropriate. See the recently adopted accounting standards section located within this footnote for additional information.

F-8

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

Prior to the adoption of ASC 326 methodology, the allowance consisted of specific and general components. Allowances for impaired loans were generally determined based on collateral values or the present value of estimated cash flows and made up the specific reserve component of the reserve. Because of uncertainties associated with regional economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that management’s estimate of probable credit losses inherent in the loan portfolio and the related allowance may change materially. The general component of the allowance covered non-impaired loans and had a quantitative component (historical loss) and a qualitative component (current risk factors). The current qualitative risk factors included consideration of the following: changes in lending policies and underwriting standards; changes in economic conditions; changes in nature and volume of loans; changes in the depth of lending staff; changes in the volume and severity of past due, non-accrual and adversely classified loans; changes in the levels and trends of charge offs and recoveries; changes in the quality of the loan review system; changes in concentrations of credit; and, the effects of other external factors such as competition and legal and regulatory requirements. The allowance was increased by a provision for loan losses, which is charged to expense and reduced by charge-offs, net of recoveries.

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 fifteen to forty 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, 2023 and December 31, 2022, was $1,917,000 and $963,000, 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 fund up to $2 million over a 4-year funding period. As of March 31, 2023, the investment totals $348,000 compared to $315,000 as of December 31, 2022. Given that the fund has limited seasoning from a time and investment dollar perspective, the investment in the fund is being carried at cost.

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.

F-9

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

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. 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 expense. There was no other real estate owned as of March 31, 2023 and December 31, 2022.

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 evaluated using the same methodology as for loans held for investment.

F-10

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

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 employee stock ownership plan (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.

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 provisions.

F-11

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

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 Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), as amended by Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act), enacted December 27, 2020, the American Rescue Plan Act of 2021 (ARP Act), enacted March 11, 2021, and the Infrastructure Investment and Jobs Act (Infrastructure Act), enacted November 15, 2021, if they experienced a significant decline in gross receipts or more than a nominal portion of its business operations are impacted by a governmental order. The Company recorded a net benefit of $547,000 which offset salary and benefit expenses in 2022. An additional $254,000 is held as deferred income and included in the Accrued interest and other liabilities section of the balance sheet, given its uncertain nature and will be held as such until the five-year statute of limitations has elapsed.

Comprehensive income (loss) – Comprehensive income (loss) consists solely of unrealized gains and losses on securities available-for-sale (net of taxes).

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.

Recently adopted accounting pronouncements - The following reflects recent accounting pronouncements that were adopted by the Company since the end of the Company’s fiscal year ended December 31, 2022.

On January 1, 2023, we adopted the ASC 326. The FASB issued ASC 326 (also known as CECL, for Current Expected Credit Losses) to replace the incurred loss model for loans and other financial assets with an expected loss model that requires consideration of a wider range of reasonable and supportable information to determine credit losses. In accordance with ASC 326, we have developed an Allowance for Credit Loss (ACL) methodology effective January 1, 2023, which replaces its previous allowance for loan losses methodology. The ACL is a valuation account that is deducted from loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged-off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Upon adoption, we recorded an increase to the ACL on loans held-for-investment of $604,000, established an ACL on unfunded commitments of $164,000, established an ACL on held-to-maturity investments of $38,000, recorded an increase to deferred tax assets of $152,000, and a corresponding one-time cumulative reduction to retained earnings, net of tax, of $654,000 in the consolidated balance sheet as of January 1, 2023.

F-12

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

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.

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 quantitative model also incorporates forward-looking macroeconomic information over a reasonable and supportable period of twelve months with a reversion to historical losses occurring on straight line basis over the next 12 months.

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.

F-13

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

Allowance for credit losses - held-to-maturity securities: Held-to maturity securities are carried at amortized cost 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. 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.

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.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326); Troubled Debt Restructurings (“TDR”) and Vintage Disclosures. This ASU was effective for the Company on January 1, 2023. The amendments eliminate the TDR recognition and measurement guidance and instead require an entity to evaluate whether the modification represents a new loan or a continuation of an existing loan (consistent with accounting for other modifications). The amendments also enhance existing disclosure requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. The Company adopted ASU 2022-02 on January 1, 2023. Refer to Note 3 - Loans and Allowance for Loan Losses for additional information on the required disclosures.

Note 2 – 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, 2023 and December 31, 2022. The amortized cost of such securities and their approximate fair values were as follows (dollars in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value

Available-for-sale, March 31, 2023
Mortgage-backed securities	$	38,243	$	—	$	(4,609	)	$	33,634
U.S. Treasuries		3,080		—		(311	)		2,769
U.S. government agencies		358		—		(21	)		337
Municipal obligations		22,980		—		(2,719	)		20,261
Corporate debt		1,000		—		(144	)		856

Total	$	65,661	$	—	$	(7,804	)	$	57,857

F-14

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

				Gross		Gross
	Amortized			Unrealized		Unrealized			Fair
	Cost			Gains		Losses			Value

Held-to-maturity, March 31, 2023
Corporate debt	$	5,824		$	—	$	(436	)	$	5,388

Total	$	5,824		$	—	$	(436	)	$	5,388
Allowance for Credit Losses	$	(46	)
Net Carrying Value of HTM securities	$	5,778

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value

Available-for-sale, December 31, 2022
Mortgage-backed securities	$	39,709	$	—	$	(5,177	)	$	34,532
U.S. Treasuries		3,083		—		(366	)		2,717
U.S. government agencies		396		—		(26	)		370
Municipal obligations		23,500		—		(3,349	)		20,151
Corporate debt		1,000		—		(188	)		812

Total	$	67,688	$	—	$	(9,106	)	$	58,582

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value

Held-to-maturity, December 31, 2022
Corporate debt	$	5,832	$	9	$	(409	)	$	5,432

Total	$	5,832	$	9	$	(409	)	$	5,432

F-15

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

Securities with unrealized losses for the three months ended March 31, 2023, and year ended December 31, 2022, that have not been recognized in income are as follows (dollars in thousands):

	Continued Unrealized					Continued Unrealized
	Loss for					Loss for
	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of securities	Value		Loss			Value		Loss			Value		Loss

Available-for-sale, March 31, 2023
Mortgage-backed securities	$	3,240	$	(142	)	$	30,394	$	(4,467	)	$	33,634	$	(4,609	)
U.S. Treasuries		—		—			2,770		(311	)		2,770		(311	)
U.S. government agencies		—		—			337		(21	)		337		(21	)
Municipal obligations		3,519		(219	)		16,741		(2,500	)		20,260		(2,719	)
Corporate debt		—		—			856		(144	)		856		(144	)

Total temporarily impaired	$	6,759	$	(361	)	$	51,098	$	(7,443	)	$	57,857	$	(7,804	)

Held to Maturity March 31, 2023
Corporate debt	$	3,128	$	(182	)	$	2,260	$	(254	)		5,388		(436	)
Total temporarily impaired	$	3,128	$	(182	)	$	2,260	$	(254	)		5,388		(436	)

	Continued Unrealized					Continued Unrealized
	Loss for					Loss for
	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of securities	Value		Loss			Value		Loss			Value		Loss

Available-for-sale, December 31, 2022
Mortgage-backed securities	$	21,377	$	(2,080	)	$	13,155	$	(3,097	)	$	34,532	$	(5,177	)
U.S. Treasuries		—		—			2,717		(366	)		2,717		(366	)
U.S. government agencies		171		(10	)		199		(16	)		370		(26	)
Municipal obligations		12,547		(1,698	)		7,104		(1,651	)		19,651		(3,349	)
Corporate debt		—		—			812		(188	)		812		(188	)

Total temporarily impaired	$	34,095	$	(3,788	)	$	23,987	$	(5,318	)	$	58,082	$	(9,106	)

Held to Maturity December 31, 2022
Corporate debt	$	2,615	$	(202	)	$	1,793	$	(207	)		4,408		(409	)
Total temporarily impaired	$	2,615	$	(202	)	$	1,793	$	(207	)		4,408		(409	)

F-16

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

Unrealized losses have not been recognized through the income statement, as management believes the issuers are of sound credit quality, management has no intent to sell the securities, the Company can hold the securities to maturity, and the decline in fair value is largely due to changes in market interest rates. The fair value is expected to recover as the securities approach their maturity date. There were 110 and 109 securities in an unrealized loss position as of the three months ended March 31, 2023, and year ended December 31, 2022, respectively. Of the securities in an unrealized loss position as of March 31, 2023, approximately 51% were backed by a government agency.

The were no sales of securities for the three months ended March 31,2023, and for the year ended December 31, 2022.

The amortized cost and fair value of the investment securities portfolio are shown by contractual maturity. Contractual maturities of debt securities at March 31, 2023, were as follows (dollars in thousands):

	Amortized		Fair		Average
	Cost		Value		Yield

Available-for-sale
Due in one year or less		—		—		—
Due from one to five years	$	4,951	$	4,650		1.87	%
Due from five to ten years		28,345		25,135		2.29	%
Due after ten years		32,365		28,072		1.95	%

Total	$	65,661	$	57,857		2.09	%

	Amortized		Fair		Average
	Cost		Value		Yield

Held-to-maturity
Due in one year or less		—		—		—
Due from one to five years		—		—		—
Due from five to ten years	$	5,824	$	5,388		4.30	%
Due after ten years		—		—		—

Total	$	5,824	$	5,388		4.30	%

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities are disclosed using their contractual maturity date.

Securities pledged at March 31, 2023 and December 31, 2022 had a carrying amount of $7,603,000 and $8,193,000, respectively.

The Company had no investment in securities of issuers outside of the United States as of March 31, 2023, and December 31, 2022.

F-17

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

Allowance for Credit Losses for HTM Securities

Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. The held-to-maturity investment portfolio consists solely of bank subordinated debt. Accrued interest receivable on held-to-maturity debt securities totaled $50,000 at March 31, 2023, and is excluded from the estimate of credit losses. Refer to Note 1 – Nature of Operations and Significant Accounting Policies for additional information on the Company’s methodology on estimating credit losses. The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity by major security type for the three months ended March 31, 2023 (dollars in thousands):

	Corporate Bonds
Allowance for credit losses:
Beginning balance	$	—
Impact of ASU 2016-13 adoption		38
Provision for credit losses		8
Securities charged -off (recoveries)		—
Total ending allowance balance		46

The Company monitors the credit quality of held-to-maturity securities on a quarterly basis. As of March 31, 2023, there were no held-to-maturity securities past due or on non-accrual.

Note 3 – Loans and Allowance for Credit Losses

On January 1, 2023, the Company adopted the new CECL standard, ASU 2016-13, using the modified retrospective method for all financial assets measured at amortized cost. For comparability, the Company has adjusted certain prior period amounts to conform to the current presentation under CECL. Refer to Note 1 - Nature of Operations and Significant Accounting Policies for additional information related to the Company’s methodology for estimating the allowance for credit losses.

F-18

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

The following presents a summary of the Company’s loans at amortized cost as of the dates noted (dollars in thousands):

	March 31,			December 31,
	2023			2022
1-4 Family residential real estate	$	59,612		$	63,176
Commercial		53,215			48,567
Consumer and other		1,069			1,048
Construction		49,690			43,664
Non-Owner Occupied (NOO) CRE		188,453			185,699
Owner Occupied (OO) CRE		61,678			61,375
Multifamily		59,617			61,201

Gross loans		473,334			464,730

Deferred loan fees		(1,324	)		(1,370	)

Loans held for investment		472,010			463,360

Less: allowance for credit losses		(5,383	)		(4,778	)

Loans, net	$	466,627		$	458,582

Allowance for Credit Losses on Loans

Beginning January 1, 2023, the allowance for credit losses for loans is measured on the loan’s amortized cost basis, excluding interest receivable. Interest receivable excluded at March 31, 2023, and December 31, 2022, was $1.1 million and $1.2 million, respectively, presented in Accrued interest receivable on the Condensed Consolidated Balance Sheets. Refer to Note 1 - Nature of Operations and Significant Accounting Policies for additional information related to the Company’s methodology on estimated credit losses.

F-19

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

Allocation of a portion of the allowance for credit losses to one category of loans does not preclude its availability to absorb losses in other categories. The following table presents the activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2023, (dollars in thousands):

	1–4 Family Residential Real Estate			Commercial			Consumer and Other			Construction		NOO Commercial Real Estate		OO Commercial Real Estate		Multifamily		Total
Changes in allowance for loan losses for the three months ended March 31, 2023 Beginning balance	$	454		$	1,382		$	56		$	222	$	1,680	$	555	$	429	$	4,778
Impact of adopting of ASU 2016-13		(33	)		(307	)		(50	)		441		271		142		140		604
Provision (credit) for loan losses		—			—			—			—		—		—		—		—
Loans charged off		—			—			—			—		—		—		—		—
Recoveries		1			—			—			—		—		—		—		1
Balance on March 31, 2023	$	422		$	1,075		$	6		$	663	$	1,951	$	697	$	569	$	5,383

Allowance for credit losses - March 31, 2023
Ending balance individually evaluated	$	—		$	310		$	—		$	—	$	—	$	—	$	—	$	310
Ending balance collectively evaluated		422			765			6			663		1,951		697		569		5,073

Total	$	422		$	1,075		$	6		$	663	$	1,951	$	697	$	569	$	5,383

Gross loans - March 31, 2023
Ending balance individually evaluated	$	617		$	2,216		$	—		$	50	$	—	$	—	$	1,178	$	4,061
Ending balance collectively evaluated		58,995			50,999			1,069			49,640		188,453		61,678		58,439		469,273

Total	$	59,612		$	53,215		$	1,069		$	49,690	$	188,453	$	61,678	$	59,617	$	473,334

F-20

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

	1–4 Family Residential Real Estate			Commercial			Consumer and Other			Construction			NOO Commercial Real Estate			OO Commercial Real Estate			Multifamily			Total
Changes in allowance for loan losses for the year ended December 31, 2022
Beginning balance	$	470		$	647		$	101		$	282		$	2,565		$	731		$	532		$	5,328
Provision (credit) for loan losses	$	49		$	3,640		$	(45	)	$	(60	)	$	(885	)	$	(176	)	$	(103	)		2,420
Loans charged off		(72	)		(2,905	)		—			—			—			—			—			(2,977	)
Recoveries		7			—			—			—			—			—			—			7

Balance on December 31, 2022	$	454		$	1,382		$	56		$	222		$	1,680		$	555		$	429		$	4,778

Allowance for loan losses - December 31, 2022

Ending balance individually evaluated for impairment	$	—		$	99		$	—		$	—		$	—		$	—		$	—		$	99
Ending balance collectively evaluated for impairment		454			1,283			56			222			1,680			555			429			4,679

Total	$	454		$	1,382		$	56		$	222		$	1,680		$	555		$	429		$	4,778

Gross loans - December 31, 2022
Ending balance individually evaluated for impairment	$	719		$	1,641		$	—		$	1,591		$	—		$	—		$	—		$	3,951
Ending balance collectively evaluated for impairment		62,457			46,926			1,048			42,073			185,699			61,375			61,201			460,779

Total	$	63,176		$	48,567		$	1,048		$	43,664		$	185,699		$	61,375		$	61,201		$	464,730

F-21

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

The following tables presents the aging of the recorded investment in past due and nonaccrual loans, as of March 31, 2023, and December 31, 2022. It is shown by class of loans (dollars in thousands):

	Loans Past Due Accruing Interest										Loans Not
	30–59		60–89		Over 90				Loans on		Past Due or
March 31, 2023	Days		Days		Days		Total		Non-Accrual		Non-Accrual		Total
1-4 Family residential real estate	$	329	$	—	$	—	$	329	$	617	$	58,666	$	59,612
Commercial		140		—		—		140		2,216		50,859		53,215
Consumer and other		—		—		—		—		—		1,069		1,069
Construction		—		—		—		—		50		49,640		49,690
NOO CRE		—		—		—		—		—		188,453		188,453
OO CRE		—		—		—		—		—		61,678		61,678
Multifamily		—		—		—		—		1,178		58,439		59,617

Total	$	469	$	—	$	—	$	469	$	4,061	$	468,804	$	473,334

	Loans Past Due Accruing Interest										Loans Not
	30–59		60–89		Over 90				Loans on		Past Due or
December 31, 2022	Days		Days		Days		Total		Non-Accrual		Non-Accrual		Total
1-4 Family residential real estate	$	536	$	441	$	—	$	977	$	659	$	61,540	$	63,176
Commercial		313		427		292		1,032		1,641		45,894		48,567
Consumer and other		—		—		—		—		—		1,048		1,048
Construction		—		—		—		—		1,591		42,073		43,664
NOO CRE		512		—		—		512		—		185,187		185,699
OO CRE		—		—		—		—		—		61,375		61,375
Multifamily		—		519		—		519		—		60,682		61,201

Total	$	1,361	$	1,387	$	292	$	3,040	$	3,891	$	457,799	$	464,730

Non-accrual loan balances guaranteed by the SBA are $650,000, or 16%, and $99,000, or 1.5%, of the nonaccrual loan balances at March 31, 2023 and December 31, 2022, respectively.

Impaired Loans: The following table includes the recorded investment and unpaid principal balances, net of charge-offs for impaired loans with the associated allowance amount, if applicable as of December 31, 2022. Management determined the allocated allowance based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for the loan is the operation or liquidation of the collateral. In those cases, the current fair value of the collateral, less selling costs was used to determine the allocated allowance recorded.

December 31, 2022	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment

With no related allowance recorded:
Commercial Real Estate	$	1,591	$	1,591	$	—	$	1,464
1-4 Family Residential RE		719		719		—		739
Commercial and Industrial		—		—		—		—
Consumer		—		—		—		—

With an allowance recorded:
Commercial Real Estate		—		—		—		—
1-4 Family Residential RE		—		—		—		—
Commercial and Industrial		4,546		1,641		99		4,333
Consumer		—		—		—		—

Total	$	6,856	$	3,951	$	99	$	6,536

F-22

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

Credit quality indicators – The following table represents the credit exposure by internally assigned grades at March 31, 2023 and December 31, 2022. This grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements in accordance with the loan terms. The Bank’s internal credit risk grading system is based on management’s experiences with similarly graded loans. Credit risk grades are reassessed each quarter based on any recent developments potentially impacting the creditworthiness of the borrower, as well as other external statistics and factors, which may affect the risk characteristics of the respective loan. The Company uses the following definitions for risk ratings:

Pass: Strong credit with no existing or known potential weaknesses deserving of management’s close attention.

Special Mention: Potential weaknesses that deserve management’s close attention. Borrower and guarantor’s capacity to meet all financial obligations is marginally adequate or deteriorating.

Substandard: Inadequately protected by the paying capacity of the Borrower and/or collateral pledged. The borrower or guarantor is unwilling or unable to meet loan terms or loan covenants for the foreseeable future.

Doubtful: All the weakness inherent in one classified as substandard with the added characteristic that those weaknesses in place make the collection or liquidation in full, on the basis of current conditions, highly questionable and improbable.

Loss – Considered uncollectible or no longer a bankable asset. This classification does not mean that the asset has no recoverable value. In fact, a certain salvage value is inherent in these loans. Nevertheless, it is not practical or desirable to defer writing off a portion or whole of a perceived asset even though partial recovery may be collected in the future.

The following table presents the amortized cost basis of loans by credit quality indicator, by class of financing receivable, and year of origination for term loans as of March 31, 2023. For revolving lines of credit that converted to term loans, if the conversion involved a credit decision, such loans are included in the origination year in which the credit decision was made. If revolving lines of credit converted to term loans without a credit decision, such lines of credit are included in the “Revolving lines of credit converted to term” column in the following table (dollars in thousands).

F-23

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

			Term Loans Amortized Cost by Origination
													Revolving		Revolving
													Loans		Loans
													Amortized		Converted
March 31, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		to Term		Total
1-4 Family
Pass	$	493	$	23,564	$	12,875	$	8,460	$	1,760	$	10,317	$	1,528	$	—	$	58,996
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		617		—		—		617
Not rated		—		—		—		—		—		—		—		—		—
Total 1-4 Family		493		23,564		12,875		8,460		1,760		10,933		1,528		—		59,612
Current year-to-date gross writie-offs		—		—		—		—		—		—		—		—		—
Commercial
Pass		9,643		18,270		2,227		6,443		467		1,195		11,819		—		50,064
Special Mention		—		—		107		33		—		—		411		318		869
Substandard		—		—		29		471		591		—		1,191		—		2,282
Not rated		—		—		—		—		—		—		—		—		—
Total Commercial		9,643		18,270		2,363		6,947		1,058		1,195		13,421		318		53,215
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Consumer and other
Pass		—		169		6		8		15		3		814		—		1,016
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Not rated		53		—		—		—		—		—		—		—		53
Total Consumer and Other		53		169		6		8		15		3		814		—		1,069
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Construction
Pass		5,903		40,349		2,264		135		322		656		11		—		49,640
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		50		—		—		—		—		—		—		50
Not rated		—		—		—		—		—		—		—		—		—
Total Construction		5,903		40,399		2,264		135		322		656		11		—		49,690
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
NOO CRE
Pass		4,523		49,099		72,118		25,031		16,104		15,978		5,600		—		188,453
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Not rated		—		—		—		—		—		—		—		—		—
Total NOO CRE		4,523		49,099		72,118		25,031		16,104		15,978		5,600		—		188,453
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
OO CRE
Pass		2,211		16,589		21,662		8,313		7,253		1,888		350		—		58,266
Special Mention		1,296		—		—		—		—		1,847		—		—		3,142
Substandard		—		—		—		—		—		270		—		—		270
Not rated		—		—		—		—		—		—		—		—		—
Total OO CRE		3,507		16,589		21,662		8,313		7,253		4,004		350		—		61,678
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Multi Family
Pass		221		14,288		28,984		9,954		3,719		924		349		—		58,439
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		1,178		—		—		—		—		—		1,178
Not rated		—		—		—		—		—		—		—		—		—
Total Multi Family		221		14,288		30,162		9,954		3,719		924		349		—		59,617
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Total	$	24,342	$	162,379	$	141,450	$	58,848	$	30,232	$	33,693	$	22,072	$	318	$	473,334

F-24

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022, based on the most recent analysis performed, the risk category of loans by class of loans was as follows (dollars in thousands):

			Special						Not Risk
December 31, 2022	Pass		Mention		Substandard		Doubtful		Rated		Total
1-4 Family	$	62,517	$	—	$	659	$	—	$	—	$	63,176
Commercial		46,474		377		1,716		—		—		48,567
Consumer and other		993		—		—		—		55		1,048
Construction		42,073		—		1,591		—		—		43,664
NOO CRE		185,699		—		—		—		—		185,699
OO CRE		57,407		3,685		283		—		—		61,375
Multi Family		61,201		—		—		—		—		61,201

Total	$	456,364	$	4,062	$	4,249	$	—	$	55	$	464,730

Non-accrual loans – The accrual of interest on loans is discontinued at the time the loan becomes 90 or more days delinquent unless the loan is well secured and in the process of collection or renewal due to maturity. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on non-accrual status or charged off if collection of interest or principal is considered doubtful. There was no interest income recognized from non-accrual loans in the income statement for the three months ending March 31, 2023, and March 31, 2022. The following presents the amortized cost basis of loans on non-accrual status and loans past due over 89 days still accruing by class as of the date noted (dollars in thousands).

F-25

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

	As of March 31, 2023
	Non-accrual loans				Loans past due
	with		Total non-accrual		over 89 days and
	no ACL		loans		still accruing
1-4 Family residential real estate	$	617	$	617	$	—
Commercial		—		2,216		—
Consumer and other		—		—		—
Construction		50		50		—
NOO CRE		—		—		—
OO CRE		—		—		—
Multifamily		1,178		1,178		—

Total	$	1,845	$	4,061	$	—

	As of December 31, 2022
	Non-accrual loans				Loans past due
	with		Total non-accrual		over 89 days and
	no ACL		loans		still accruing
1-4 Family residential real estate	$	719	$	659	$	—
Commercial		—		1,641		292
Consumer and other		—		—		—
Construction		1,591		1,591		—
NOO CRE		—		—		—
OO CRE		—		—		—
Multifamily		—		—		—

Total	$	2,310	$	3,891	$	292

Collateral dependent loans – Non-accrual loans, excluding loans held for investment measured at fair value, are classified as collateral dependent loans and are individually evaluated. The following presents the amortized cost basis of collateral-dependent loans, which are individually evaluated to determine expected credit losses by class of loans as of the date noted (dollars in thousands):

	As of March 31, 2023 Collateral Dependent Loans
	Secured by Real Estate		Secured by Other		Total
1-4 Family residential real estate	$	617	$	—	$	617
Commercial		—		2,216		2,216
Consumer and other		—		—		—
Construction		50		—		50
NOO CRE		—		—		—
OO CRE		—		—		—
Multifamily		1,178		—		1,178

Total	$	1,845	$	2,216	$	4,061

F-26

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

Loan Modifications Made to Borrowers Experiencing Financial Difficulty – The ACL incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. The analysis includes losses from modifications of receivables to borrowers experiencing financial difficulty. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the ACL allowance for credit losses, a change to the ACL is generally not recorded when a loan is modified. During the three months ended March 31, 2023, no loans received a material modification based on borrower financial difficulty.

Note 4 – Premises and Equipment, Net

Components of premises and equipment, net included in the consolidated balance sheets at March 31 were as follows (dollars in thousands):

	March 31,			December 31,
	2023			2022

Land and improvements	$	2,170		$	2,170
Buildings and improvements		12,433			12,439
Furniture and equipment		1,820			1,776

Total cost		16,423			16,385

Accumulated depreciation and amortization		(8,441	)		(8,308	)

Net book value	$	7,982		$	8,077

Depreciation and amortization expense was $133,000 and $118,000 for the three months ended March 31, 2023, and March 31, 2022, respectively. Two Alamogordo ATM properties were sold for $50,000 in 2022. The Peoria branch was closed December 31, 2022, which resulted in the acceleration of rent expense totaling $43,000 and a loss on the disposal of fixed assets of $3,000.

Note 5 – Time Deposits

Following are maturities of time deposits at March 31, 2023 and December 31, 2022 (dollars in thousands):

	March 31,		December 31,
	2023		2022

Maturity
One year or less	$	66,500	$	50,025
Over one through three years		39,503		21,627
Over three through five years		4,595		1,841

Total	$	110,598	$	73,493

F-27

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

On March 31, 2023 and December 31, 2022, the Bank had $47.2 million and $23.4 million, respectively, in time deposits of $250,000 or more. On March 31, 2023 and December 31, 2022, $33.0 million and $19.8 million, respectively, of such time deposits mature within one year.

Note 6 – Borrowings

The Bank has established a borrowing line with the FHLB of Dallas. As of March 31, 2023, the Bank had three outstanding advances totaling $17.0 million carrying and weighted average interest rate of 5.02%. All three advances have a maturity date in April 2023. As of March 31, 2023, loans and securities with a carrying value of $204.9 million were pledged to secure FHLB advances, with remaining availability of $187.2 million. At December 31, 2022, FHLB borrowings totaled $5.0 million carrying interest rates of 1.40%. As of December 31, 2022, loans and securities with a carrying value of $203.8 million were pledged to secure FHLB advances, with remaining availability of $198.1 million at year end.

On June 29, 2021, the Company completed a private placement of $25.0 million of 10 year, fixed-to-floating rate subordinated notes. The subordinated notes will initially bear interest at 4.00% per annum for five years, floating at Three-Month SOFR plus 328 basis points quarterly thereafter. The ten-year notes mature on July 15, 2031, and are callable at the Company’s option after five years. The subordinated notes are presented net of remaining origination fees of $446,000 at March 31, 2023.

The following are maturities of outstanding borrowings as of March 31, 2023 (dollars in thousands):

Maturity
One year or less	$	17,000
Over one through three years		—
Over three through five years		—
Over five through ten years		24,554

Totals	$	41,554

Note 7 – Financial Instruments with Off-Balance-Sheet Risk

In the normal course of business, the Bank has outstanding commitments to extend credit and standby letters of credit which are not included in the accompanying consolidated financial statements. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Bank uses the same credit policies in making commitments as it does for instruments that are included in the consolidated balance sheets.

F-28

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

Financial instruments whose contract amounts represent off-balance-sheet credit risk are as follows as of March 31 (dollars in thousands):

	March 31,		December 31,
	2023		2022

Commitments to extend credit	$	21,779	$	23,202
Unused lines of credit		20,482		18,706

Totals	$	42,261	$	41,908

Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation Collateral held varies by and may include accounts receivable, inventory, property and equipment, and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third-party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit.

Note 8 – Leases

The Bank has noncancelable operating leases that expire over the next seven years that require the payment of base lease amounts and executory costs such as taxes, maintenance, and insurance. At March 31, 2023, the bank had one active operating lease. Rental expense for leases was $85,000 and $121,000 for the three months ended March 31, 2023, and March 31, 2022, respectively.

F-29

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

Approximate future minimum rental commitments under noncancelable leases are (dollars in thousands):

2023	$	263
2024		355
2025		361
2026		367
2027		373
2028		378
2029		384
2030		97

Total minimum lease payments		2,578

Amounts representing interest (present value discount)		(401	)

Operating lease liabilities (present value of minimum lease payments)		2,177

Weighted-average remaining term (in years)		7.3
Weighted-average discount rate		4.7	%

Note 9 – Employee Retirement Benefit Plans

Profit sharing plan – The Company has established a profit-sharing 401(k) type salary reduction plan (Plan) for all employees that meet the necessary eligibility requirements and participants are fully vested after six years of service. For Company matching contributions made for plan years prior to 2014, annual Company contributions were at the discretion of the Board of Directors. From 2014 through 2019, the Company adopted a Safe Harbor matching contribution provision, whereby it agreed to match 100% of participant’s contributions up to the first 3% of salary and 50% of the next 2%, for a total maximum Company matching contribution of 4% of participant salary, as defined by the Plan. The Safe Harbor matching contribution was guaranteed. The Company elected not to adopt a safe harbor matching contribution for 2022 or 2023.

Employee Stock Ownership Plan – The ESOP covers substantially all employees that meet certain age and service requirements. Under the plan, annual retirement expense is generally defined as a percentage of employee compensation, net of forfeitures from employees who have terminated employment.

In October 2016, the ESOP borrowed $1.5 million from the Company to purchase 150,358 shares of common stock from the Company at $10 per share. Bancorp 34 accepted a $1.8 million note from the ESOP secured by all unallocated shares in the plan with a 30-year repayment term. The principal balance includes $1.5 million used to purchase stock in 2016 and $266,000 used to pay off already outstanding ESOP loans used to purchase shares in 2012 and 2014. Principal and interest payments on the note are made every December 31 and the interest rate on the loan adjusts annually on January 1st to the prime rate of interest as published in the Wall Street Journal. The Bank makes at least annual discretionary contributions to the ESOP and the ESOP uses all funds it receives to repay the loan. When loan payments are made, ESOP shares are allocated to participants based on relative compensation for that plan year. At the discretion of the employer, participants may receive the shares, cash, or a combination of stock and cash at the end of employment.

F-30

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

Since the Bank is the primary source of repayment on ESOP loans, the Bank records the note payable and an equal contra-equity account on its balance sheet and interest expense and ESOP benefit plan expense on its statement of comprehensive income equal to the annual loan payments. As inter-company borrowings, all bank-recorded balance sheet items, Bancorp 34 interest income and Bank 34 interest expense on the ESOP loan are eliminated in consolidation. Bancorp 34 consolidated financial statements include a contra-equity account with a balance equal to the purchase price of all unallocated shares in the ESOP.

Bank 34 Employees DB Retirement Plan – Effective April 1, 2020, the Company withdrew from the Pentegra DB Plan and established the Bank 34 Employee Defined Benefit Retirement Plan (“Bank DB Plan”). On June 2, 2020, all assets and liabilities were transferred from the Pentegra DB Plan to the newly established Bank DB Plan. The Bank DB Plan is a funded noncontributory defined benefit pension plan covering 49 current and former employees. Similar to its predecessor plan, benefits available under the Bank DB Plan are frozen. The plan provides defined benefits based on years of service and final average salary. The Company uses December 31 as the measurement date for this plan. The initial plan year was April 1, 2020, through December 31, 2020. The fair value of plan assets and accumulated benefit obligation on the April 1, 2020, Bank DB Plan adoption date were $2,392,000 and $3,951,000, respectively. Accumulated other comprehensive income at December 31, 2020, included $1,346,000 which represented $1,807,000 prior service cost related to this plan net of $461,000 estimated tax benefits.

During the year ended December 31, 2022, the Company extinguished the Bank DB Plan. At December 31, 2022, there were no plan assets or liabilities included in the Consolidated Balance Sheet. No contributions were made to the plan for the periods ending March 31, 2023, and March 31, 2022.

Deferred compensation and director’s fee plans – A deferred compensation plan covers all senior officers and a deferred director’s fee plan covers all directors. Under these plans, the company pays each participant that elects to defer, or their beneficiary, the amount deferred plus interest over a pre-selected period up to 10 years, beginning with the participant’s termination of service. A liability is accrued monthly for the deferred amount plus interest earned. The interest rate on deferred balances is determined annually on January 1st at the greater of Wall Street Journal Prime or 5%, and was 7.5% for the period ended March 31, 2023, and 5.0% for the period ended December 31, 2022. Interest expense for the deferred plans was $37,000 and $24,000 for the periods ended March 31, 2023, and March 31, 2022, respectively. Deferred plan liabilities, included in accrued interest and other liabilities on the consolidated balance sheet, were $1,965,000 and $1,949,000 as of March 31, 2023 and December 31, 2022, respectively.

Note 10 – Board of Directors’ Retirement Policy

The Board previously had a deferred compensation policy (Policy) to compensate Board members for their service to the Company. The retirement date for directors was the later of the last month in which they reached age 70 or completion of their term if they were elected to the Board during the annual meeting resulting in service beyond age 70. Upon retirement, Board members receive deferred compensation for the remainder of their life up to a maximum of $2,000 per month. Board members vested in the Policy based on service as follows: zero to four years of service (20%), five years of service (40%), six years of service (60%), seven years of service (80%) and eight years of service (100%). On September 21, 2011, the Board rescinded this retirement policy for current directors.

The total liability for the combined policies and agreements was $250,000 and $256,000 at March 31, 2023 and December 31, 2022, respectively.

F-31

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

Note 11 – Income Taxes

During the three months ended March 31, 2023, and 2022, the Company recorded an income tax provision of $158,000 and $350,000, respectively, reflecting an effective tax rate of 26.2% and 25.1%, respectively.

Note 12 – Regulatory Matters

Bank 34 is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by regulators that if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts, and classification are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total risk-based capital and Tier 1 capital to risk-weighted assets, and Tier 1 capital to adjusted total assets. Management believes, as of March 31, 2023 and December 31, 2022, the Bank meets all capital adequacy requirements to which it is subject.

Banks are also subject to certain restrictions on the dollar amount of dividends that they may declare without prior regulatory approval.

As of March 31, 2023, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank has to maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as disclosed in the table below. There are no conditions or events that management believes have changed the Bank’s prompt corrective action category. The Bank has not opted into the Community Bank Leverage Ratio (“CBLR”) and therefore is required to continue calculating and reporting risk-based capital ratios.

F-32

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

The Bank’s actual and required capital amounts and ratios are as follows (dollars in thousands):

											Minimum Required to Be
						Minimum Required for Capital					Well Capitalized Under Prompt
	Actual					Adequacy Purposes					Corrective Action Regulations
March 31, 2023	Amount		Ratio			Amount		Ratio			Amount		Ratio

Total Capital to risk-weighted assets	$	75,804		15.54	%		39,024		8	%		48,780		10	%
Tier 1 (Core) Capital to risk-weighted assets	$	70,219		14.40	%		29,258		6	%		39,011		8	%
Common Tier 1 Capital to risk-weighted assets (CET1)	$	70,219		14.40	%		21,943		4.50	%		31,696		6.50	%
Tier 1 (Core) Capital to average assets	$	70,219		12.12	%		23,175		4	%		28,968		5	%

											Minimum Required to Be
						Minimum Required for Capital					Well Capitalized Under Prompt
	Actual					Adequacy Purposes					Corrective Action Regulations
December 31, 2022	Amount		Ratio			Amount		Ratio			Amount		Ratio

Total Capital to risk-weighted assets	$	64,942		13.57	%	$	38,286		8	%	$	47,857		10	%
Tier 1 (Core) Capital to risk-weighted assets	$	60,163		12.57	%		28,717		6	%	$	38,290		8	%
Common Tier 1 Capital to risk-weighted assets (CET1)	$	60,163		12.57	%	$	21,538		4.50	%	$	31,111		6.50	%
Tier 1 (Core) Capital to average assets	$	60,163		10.34	%	$	23,274		4	%	$	29,092		5	%

Note 13 –Related-Party Transactions

The Bank periodically enters into transactions with its executive officers, directors, significant stockholders, and their affiliates (related parties). Transactions with such related parties included:

	March 31,		December 31,
	2023		2022

Fees and bonuses paid to directors during the period	$	65	$	231
Deposits from related parties held by the bank at the end of period		3,637		4,568

There were no loans to related parties at March 31, 2023, or December 31, 2022.

Note 14 – Stock-Based Compensation

Stock-based expense for the three months ended March 31, 2023, and March 31, 2022, was $16,000 and $88,000, respectively.

The Company accounts for forfeitures when they occur by reversing any previously accrued compensation expense on forfeited options in accordance with ASC 718, Compensation – Stock Compensation.

F-33

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

On November 17, 2017, the stockholders approved the adoption of the 2017 Equity Incentive Plan (“2017 Plan”). The 2017 Plan provides for the grant of a maximum of 263,127 shares of the Company’s common stock of which up to 187,948 shares of common stock may be granted for stock options and 75,179 shares of common stock may be issued as restricted stock to Directors and employees of the Company. Stock options and restricted stock awards currently issued under the 2017 Plan vest at 20% per year beginning on the first anniversary of date of grant and the options expire seven years after the grant date.

On May 25, 2022, the stockholders approved the adoption of the 2022 Equity Incentive Plan (“2022 Plan”). The 2022 Plan provides for the grant of a maximum of 252,340 shares of the Company’s common stock of which up to 168,227 shares of common stock may be issued as restricted stock and 84,113 shares of common stock may be granted for stock options to Directors and employees of the Company. The Board of Director’s compensation committee specifies the vesting schedules for the restricted stock and options. Option expiration dates are flexible as well but cannot exceed ten years from the grant date. No restricted stock or stock options have been granted under the 2022 plan.

The stock option plans allow for net settlement of vested options. In a net settlement, the Company, at the direction of the optionee, net settles the options by issuing new shares to the optionee with a value, at the current per share trading price, equal to the total in-the-money or intrinsic value of the options less any necessary tax withholdings on the disqualifying disposition of Incentive Stock Options. The optionee is granted newly issued shares and a small amount of cash in lieu of partial shares. There was zero net settlements in the quarters ended March 31, 2023, and March 31, 2022.

In the quarter ended March 31, 2023, no stock options shares of restricted stock were granted under the 2017 plan. In the quarter ended March 31, 2022, 15,000 stock options were granted and 9,500 shares of restricted stock were issued. Stock option grant-date fair values for 2023 and 2022 were computed using the Black Scholes Merton options pricing model with the following weighted-average inputs and assumptions:

	March 31,		March 31,
	2023		2022

Grant date stock price and exercise price	$	—	$	16.00
Dividend yield		—		2.48	%
Expected stock price volatility		—		23.66	%
Risk-free interest rate		—		1.99	%
Expected option life in years		—		6

Total weighted-average fair value of options granted	$	—	$	2.99

Historical data is used to estimate expected volatility and the term of options expected to be outstanding and takes into account that options are not transferable. The risk-free interest rate is based on the U.S. Treasury yield curve for the expected term in effect at the date of grant.

F-34

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

A summary of stock option activity in 2023 is presented below (Intrinsic Value in 000s):

						Weighted-
				Weighted-		Average
	Shares			Average		Remaining		Aggregate
	Subject to			Exercise		Contractual		Intrinsic
	Options			Price		Term		Value

Outstanding at beginning of year		144,020		$	14.07		2.8 Years	$	95
Granted		—			—		—		—
Exercised		—			—		—		—
Forfeited or expired		(1,000	)	$	12.24		5.2 Years		—

Outstanding at end of quarter		143,020		$	14.08		2.5 Years	$	59

Exerciseable at quarter end		118,820		$	14.49		1.9 Years	$	24

Information related to stock option exercises during each quarter is as follows (in 000s):

	March 31,		March 31,
	2023		2022

Intrinsic value of options exercised	$	—	$	—
Cash received from options exercised	$	—	$	—
Tax benefit realized from options exercised	$	—	$	—

A summary of restricted stock activity for the year ended March 31, 2023, is presented below:

				Weighted-		Average
				Average		Remaining
				Grant Date		Contractual
	Shares			Fair Value		Term

Non-vested on December 31, 2022		6,500		$	14.89		4.1 years
Granted		—			—		—
Vested		(1,100	)		—		—
Forfeited		—			—		—

Non-vested on March 31, 2023		5,400		$	14.97		3.8 Years

F-35

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

As of March 31, 2023, there was $65 and $75 of total unrecognized equity-based expense related to unvested stock options and restricted stock awards, respectively, granted under the 2017 Equity Incentive Plan that is expected to be recognized over the next 5 years as follows (dollars in thousands):

Year
2023	$	31
2024		41
2025		38
2026		26
2027		4

Totals	$	140

Note 15 – Fair Value Information

The following table presents information about assets and liabilities measured at fair value on a recurring and non-recurring basis and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair values as of March 31, 2023, and December 31, 2022 (dollars in thousands).

	Quoted Prices
	in Active		Significant Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs		Fair
March 31, 2023	Level 1		Level 2		Level 3		Value

Recurring
Assets
Securities available-for-sale
Mortgage-backed securities	$	—	$	33,634	$	—	$	33,634
U.S. Treasuries		—		2,769		—		2,769
U.S. Government Agencies		—		337		—		337
Municipal obligations		—		20,261		—		20,261
Corporate debt		—		856		—		856

Total available-for-sale	$	—	$	57,857	$	—	$	57,857

Nonrecurring basis
Collateral dependent loans					$	4,061	$	4,061

F-36

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

	Quoted Prices
	in Active		Significant Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs		Fair
December 31, 2022	Level 1		Level 2		Level 3		Value

Recurring
Assets
Securities available-for-sale
Mortgage-backed securities	$	—	$	34,532	$	—	$	34,532
U.S. Treasuries		—		2,717		—		2,717
U.S. Government Agencies		—		370		—		370
Municipal obligations		—		20,151		—		20,151
Corporate debt		—		812		—		812

Total available-for-sale	$	—	$	58,582	$	—	$	58,582

Nonrecurring basis
Collateral dependent loans	$	—	$	—	$	3,951	$	3,951

The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Bank does not know whether the fair values shown represent values at which the respective financial instruments could be sold individually or in the aggregate.

There were no transfers between levels of the fair value hierarchy during the three months ended March 31, 2023, and the year ended December 31, 2022.

F-37

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

The following table presents the significant unobservable inputs used in the fair value measurements for Level 3 financial assets measured on a non-recurring basis (dollars in thousands):

Unobservable

Collateral Dependent Loans

Valuation

Input

March 31, 2023

Fair Value

Methodologies

Valuation Model

Valuation

Commercial and industrial

2,216

Appraisal

Receivables Discount/Liquidation Discount

18–50

Commercial real estate

1,228

Appraisal

Appraisal Discount/Estimated Selling Costs

1–4 family residential RE

617

Appraisal

Appraisal Discount/Estimated Selling Costs

0–18

Total impaired loans

4,061

Unobservable

Collateral Dependent Loans

Valuation

Input

December 31, 2022

Fair Value

Methodologies

Valuation Model

Valuation

Commercial and industrial

1,641

Appraisal

Receivables Discount/Liquidation Discount

18–50

Commercial real estate

1,591

Appraisal

Appraisal Discount/Estimated Selling Costs

1–4 family residential RE

719

Appraisal

Appraisal Discount/Estimated Selling Costs

0–18

Total impaired loans

3,951

The estimated fair values of the Company’s consolidated financial instruments at March 31, 2023, and December 31, 2022 are as follows (dollars in thousands):

			2023						2022
	Fair Value		Carrying			Fair			Carrying			Fair
	Hierarchy		Amount			Value			Amount			Value

Financial assets
Cash and due from banks		Level 1	$	8,709		$	8,709		$	16,112		$	16,112
Federal funds sold		Level 2		1,065			1,065			835			835
Securities available-for-sale		Level 2		57,857			57,857			58,582			58,582
Securities held-to-maturity, net of ACL		Level 2		5,778			5,388			5,832			5,432
Loans, net of ACL		Level 3		466,627			435,272			458,582			419,251
Other investments		Level 2		2,265			2,265			1,277			1,277
Accrued interest receivable		Level 1		1,443			1,443			1,505			1,505

Financial liabilities
Nonmaturity Deposits		Level 1	$	(350,126	)	$	(350,126	)	$	(414,094	)	$	(414,094	)
Time deposits		Level 2		(110,598	)		(109,280	)		(73,493	)		(71,932	)
FHLB advances		Level 2		(17,000	)		(17,466	)		(5,000	)		(5,292	)
Subordinated debentures		Level 3		(24,554	)		(21,556	)		(24,531	)		(21,728	)
Accrued interest payable		Level 1		(256	)		(256	)		(562	)		(562	)

The fair value of nonmaturity deposits displayed in the chart above has been revised as of December 31, 2022, to equal the carrying amount. This revision did not materially impact prior financial statements and future filings will reflect the change.

F-38

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

Note 16 – Earnings Per Share

The two-class method is used in the calculation of basic and diluted earnings per share. Under the two-class method, earnings available to common Stockholders for the period are allocated between common Stockholders and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. The factors used in the earnings per share computation follow:

Participating securities are restricted stock awards and preferred stock since they participate in common stock dividends. Stock options for 118,820 and 118,000 shares of common stock were not considered in computing diluted earnings per common share for 2023 and 2022, because they were antidilutive.

	Three Months Ended March 31,
	2023			2022

Basic
Net income (in 000s)	$	444		$	1,046
Less: earnings allocated to participating securities (in 000s)		(58	)		(10	)

Net income allocated to common stockholders (in 000s)		386			1,036

Weighted-average common shares outstanding including participating securities		3,618,935			2,523,768
Less: average participating securities		(5,950	)		(18,384	)
Less: average unallocated ESOP shares		(145,922	)		(134,088	)

Average shares		3,467,063			2,371,296

Basic earnings per common share	$	0.11		$	0.44

Diluted
Net income allocated to common stockholders (in 000s)	$	386		$	1,036

Weighted-average common shares outstanding for basic earnings per common share		3,467,063			2,371,296
Add: dilutive effects of assumed exercises of stock options		5,346			7,793
Add: dilutive effects of assumed exercises of warrants		—			—

Weighted-average shares and dilutive potential common shares		3,472,409			2,379,089

Diluted earnings per common share	$	0.11		$	0.44

Note 17 – Private Placement of Common and Preferred Stock

In December 2022 and January 2023, the Company completed two private placements of common and preferred stock. The Company issued a total of 1,359,497 shares of common stock and 820,115 shares of convertible, non-voting Series A perpetual preferred Stock at $14.00 per share each, generating net cash proceeds of approximately $28.6 million. The Company will use the net proceeds from these private placements to fund organic growth, transact on potential acquisition opportunities, enter complementary new business lines, and to enhance capital ratios.

F-39

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

In conjunction with the private placements, the Company issued warrants to purchase up to 211,667 shares of Common Stock at a price of $14.00. The approximate fair value of the warrants was deemed immaterial by management. The Warrants are exercisable at any time after their grant date, and from time to time, in whole or in part, for 7 years from their grant dates, on December 30, 2029, and January 27, 2030. The exercise of such Warrants remains subject to certain contractual provisions and a “cashless exercise” may be executed.

Note 18 – Bancorp 34, Inc. (Parent Company Only) Financial Information

Condensed financial statements of Bancorp 34, Inc. follow (dollars in thousands):

	March 31,		December 31,
Balance Sheets	2023		2022

Assets
Cash and cash equivalents	$	21,352	$	17,835
Investment in subsidiary bank		65,002		54,073
ESOP note receivable		1,558		1,558
Prepaid and other assets		1,278		1,209

Total assets	$	89,190	$	74,675

Liabilities and stockholders’ equity
Subordinated debt, net of issuance costs	$	24,554	$	24,531
Accounts payable and other liabilities		148		906
Stockholders’ equity		64,488		49,238

Total liabilities and stockholders’ equity	$	89,190	$	74,675

	Three Months Ended March 31,
Statements of Income	2023			2022

Interest income	$	29		$	13
Interest expense		264			264
Equity in income of subsidiary bank		627			1,259
Other expenses		9			20

Provision (benefit) for income taxes		(61	)		(58	)

Net income	$	444		$	1,046

F-40

Bancorp 34, Inc.

Notes to Consolidated Financial Statements

	Three Months Ended March 31,
Statements of Cash Flows	2023			2022

Operating activities
Net income	$	444		$	1,046
Adjustments to reconcile net income to net cash from operating activities
Amortization of subordinated debt issuance costs		23			53
Equity in (income) of subsidiary bank		(627	)		(1,259	)
Changes in prepaid and other assets		(69	)		(49	)
Changes in accrued interest and other liabilities		(758	)		(301	)

Net cash from operating activities		(987	)		(510	)

Investing activities
Principal collections on ESOP note receivable		—			—
Capital contribution to bank subsidiary		(10,000	)		—

Net cash from investing activities		(10,000	)		—

Financing activities
Proceeds from subordinated debt, net of issuance costs
Repurchase of common stock		(210	)		(78	)
Issuance of common stock, net		10,867			—
Issuance of preferred stock, net		4,176			—
Cash dividends paid		(329	)		(175	)

Net cash from financing activities		14,504			(253	)

Net change in cash and cash equivalents		3,517			(763	)
Beginning cash and cash equivalents		17,835			5,964

Ending cash and cash equivalents	$	21,352		$	5,201

Note 19 – Subsequent Events

Definitive agreement – The Company entered into a definitive merger agreement with CBOA Financial, Inc. on April 26, 2023. Under the terms of the agreement, CBOA Financial, Inc. shareholders will receive 0.24 shares of Bancorp 34, Inc. common stock for each share of CBOA Financial, Inc. common stock they own and the deal will have an aggregate deal value of approximately $28 million. Bancorp 34, Inc. shareholders will own approximately 65%, and CBOA Financial, Inc. shareholders will own approximately 35%, of the pro forma company. At March 31, 2023, CBOA Financial, Inc. had total assets of $372 million, total liabilities of $341 million, and total stockholders’ equity of $31 million.

Non-voting common stock – In accordance with the capital raise described in Note 17, and in conjunction with shareholder approval at the Annual Meeting that occurred on June 29, 2023, a class of non-voting common stock was created on July 19, 2023. On said date, the State of Maryland approved the Articles Supplementary to the Articles of Incorporation for Bancorp 34, Inc. in which a class of authorized stock containing 1,100,000 shares of non-voting common stock was established. In accordance with the stipulations established during the capital raise, the preferred stock issued during the raise will automatically convert to the newly established class of non-voting common stock as of the date the class was created. With the exception of voting privileges, the new class of non-voting common stock is treated pari passu with common stock.

F-41

Bancorp 34, Inc.

Consolidated Financial Statements (As Restated)

For the Fiscal Years Ended December 31, 2022, and 2021

F-42

CONTENTS

	Page
Report of Independent Registered Public Accounting Firm	F-44
Consolidated Balance Sheets (As Restated)	F-47
Consolidated Statements of Comprehensive Income (As Restated)	F-48
Consolidated Statements of Changes in Stockholders’ Equity (As Restated)	F-49
Consolidated Statements of Cash Flows (As Restated)	F-50
Notes to Consolidated Financial Statements (As Restated)	F-51

F-43

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
Bancorp 34, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Bancorp 34, Inc. (the “Company”) as of December 31, 2022 and 2021; the related consolidated statements of comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022; and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

Correction of Errors

As discussed in Note 19 to the financial statements, the 2022 and 2021 financial statements have been restated to correct misstatements. The previously issued 2022 and 2021 financial statements, which have been restated, were audited by other auditors whose report dated April 7, 2023 on those financial statements was unqualified.

Basis for Opinion

The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

F-44

To the Shareholders and Board of Directors

Bancorp 34, Inc.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from both the December 31, 2022 and 2021 audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The critical audit matter communicated below is a matter arising from both the December 31, 2022 and 2021 audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Loan Losses - Significant Qualitative Adjustments in Collectively Evaluated Reserves - Refer to Notes 1 and 3 to the Financial Statements

Critical Audit Matter Description

As described in Notes 1 and 3 to the consolidated financial statements, the general component of the allowance covers nonimpaired loans and has a quantitative component (historical loss) and a qualitative component (current risk factors). The current qualitative risk factors include consideration of the following: changes in lending policies and underwriting standards; changes in economic conditions; changes in nature and volume of loans; changes in the depth of lending staff; changes in the volume and severity of past due, nonaccrual and adversely classified loans; changes in the levels and trends of charge-offs and recoveries; changes in the quality of the loan review system; changes in concentrations of credit; and the effects of other external factors, such as competition and legal and regulatory requirements.

We identified the Company’s qualitative adjustments to historical loss experience within the collectively evaluated reserve of the allowance for loan losses as a critical audit matter. Given the significant estimates and assumptions management makes to estimate these adjustments for collectively evaluated reserves, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions required a high degree of auditor judgment.

F-45

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 qualitative adjustments to historical loss experience within the collectively evaluated allowance included the following, among others:

We obtained an understanding of management’s process for determining the need for qualitative factor adjustments identifying appropriate factors and measuring the direction and magnitude of the adjustment.

We evaluated the design of controls over the application of management’s qualitative factor methodology in the estimate of collectively evaluated allowance.

We evaluated management’s rationale for determining qualitative adjustments were relevant and warranted for each loan segment and assessed the measurement of qualitative factor adjustments applied by management.

Where applicable, we tested the accuracy and completeness of data used by management in the measurement of qualitative factor adjustments or vouched factors to relevant external data sources.

We assessed changes in year-over-year qualitative factors against overall trends in credit quality within the Company and broader trends within the industry and local and national economies to evaluate reasonableness of management’s qualitative factor adjustments.

We have served as the Company’s auditors since 2023.

Denver, Colorado

July 7, 2023

F-46

Bancorp 34, Inc.

Consolidated Balance Sheets (As Restated)

(In thousands, except share data)

	As Restated
	December 31,
	2022			2021
ASSETS
Cash and due from banks	$	16,112		$	7,231
Fed funds sold		835			8,270
Total cash and cash equivalents		16,947			15,501

Available for sale securities, at fair value		58,582			67,917
Held to maturity securities, at amortized cost		5,832			5,365

Loans held for investments		463,360			415,624
Allowance for loan losses		(4,778	)		(5,328	)
Loans held for investment, net		458,582			410,296

Premises and equipment, net		8,077			7,966
Operating lease right-of-use assets		2,067			426
Other investments		1,277			1,786
Accrued interest receivable		1,505			1,354
Deferred income tax asset, net		4,924			3,100
Bank owned life insurance		11,598			11,360
Prepaid and other assets		4,949			2,938
Total Assets	$	574,340		$	528,009

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits
Demand deposits	$	102,699		$	100,118
Savings and NOW deposits		311,395			283,115
Time deposits		73,493			54,549
Total deposits		487,587			437,782

Federal Home Loan Bank advances		5,000			19,000
Subordinate debt, net of issuance costs		24,531			24,447
Escrows		179			201
Operating lease liabilities		2,153			468
Accrued interest and other liabilities		5,652			5,441
Total Liabilities		525,102			487,339

Stockholders’ Equity:
Preferred stock, $0.01 par value:
Authorized – 50,000,000 shares
Issued and outstanding – 521,849 and 0
On December 31, 2022, and 2021, respectively		5			—
Common stock, $0.01 par value:
Authorized – 100,000,000 shares Issued and outstanding – 3,032,606 and 2,523,398 On December 31, 2022, and 2021, respectively		30			25
Additional paid-in capital		28,369			14,647
Retained earnings		29,013			28,383
Accumulated other comprehensive (loss) income, net		(6,773	)		(920	)
Unearned Employee Stock Ownership Plan (ESOP) shares		(1,406	)		(1,465	)
Total Stockholders’ Equity		49,238			40,670
Total Liabilities and Stockholders’ Equity	$	574,340		$	528,009

The accompanying notes are an integral part of the consolidated financial statements.

F-47

Bancorp 34, Inc.

Consolidated Statements of Comprehensive Income (As Restated)

(In thousands, except per share data)

	As Restated
	Year Ended December 31,
	2022			2021
Interest income:
Interest and fees on loans	$	21,818		$	19,472
Interest on securities		1,650			1,355
Interest on other interest-earning assets		293			53
Total interest income		23,761			20,880

Interest expense:
Interest on deposits		3,684			1,485
Interest on borrowings		1,630			677
Total interest expense		5,314			2,162

Net Interest Income		18,447			18,718
Provision for loan losses		2,420			500
Net Interest Income After Provision for Loan Losses		16,027			18,218

Non-interest income:
Gain on sale of loans		—			240
Gain on sale of securities		—			202
Service charges and fees		391			324
Bank owned life insurance		357			359
Loss on disposal and impairment of fixed assets		(25	)		(15	)
Other		(59	)		185
Total non-interest income		664			1,295

Non-interest expense:
Salaries and employee benefits		9,210			8,341
Occupancy		1,292			1,325
Data processing fees		2,107			1,967
FDIC and other insurance expense		427			231
Professional fees		525			499
Advertising		89			112
Other		1,652			1,112
Total non-interest expense		15,302			13,587

Income before provision for income taxes		1,389			5,926
Provision for Income tax		59			1,291
Net Income	$	1,330		$	4,635

Other Comprehensive Income (Loss)
Other comprehensive (loss)	$	(7,868	)	$	(1,742	)
Tax effect of other comprehensive (loss)		2,015			433
Other comprehensive income (loss), net of tax	$	(5,853	)	$	(1,309	)

Comprehensive Income (Loss)	$	(4,523	)	$	3,326

Earnings per common share – Basic	$	0.56		$	1.69

Earnings per common share – Diluted	$	0.56		$	1.69

The accompanying notes are an integral part of the consolidated financial statements.

F-48

Bancorp 34, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (As Restated)

(In thousands, except number of shares and per share data)

As Restated	Common Shares			Series A Preferred Shares		Common Stock			Series A Preferred Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss), Net			Unearned ESOP Shares			Total

Balance on December 31, 2020		3,137,573			—	$	31		$	—	$	22,811		$	24,325		$	388		$	(1,522	)	$	46,033
Net income for 2021		—			—		—			—		—			4,635			—			—			4,635
Other comprehensive loss on AFS Securities		—			—		—			—		—			—			(1,347	)		—			(1,347	)
Defined benefit plan		—			—		—			—		—			—			39			—			39
Restricted stock awards		2,500			—		—			—		—			—			—			—			—
Restricted stock forfeiture		(6,800	)		—		—			—		—			—			—			—			—
Amortization of equity awards		—			—		—			—		329			—			—			57			386
Repurchase of common stock		(609,875	)		—		(6	)		—		(8,493	)		—			—			—			(8,499	)
Dividends paid – $0.20 per share		—			—		—			—		—			(577	)		—			—			(577	)

Balance on December 31, 2021		2,523,398			—	$	25		$	—	$	14,647		$	28,383		$	(920	)	$	(1,465	)	$	40,670
Net income for 2022		—			—		—			—		—			1,330			—			—			1,330
Other comprehensive loss on AFS Securities		—			—		—			—		—			—			(7,161	)		—			(7,161	)
Defined benefit plan		—			—		—			—		—			—			1,308			—			1,308
Restricted stock awards		9,500			—		—			—		—			—			—			—			—
Restricted stock forfeiture		(7,439	)		—		—			—		—			—			—			—			—
Amortization of equity awards		—			—		—			—		292			—			—			59			351
Repurchase of common stock		(5,297	)		—					—		(78	)		—			—			—			(78	)
Stock option exercise		1,036			—		—			—		—			—			—			—			—
Issuance of common stock, net of issuance cost		511,408			—		5			—		6,207			—			—			—			6,212
Issuance of Series A preferred stock		—			521,849		—			5		7,301			—			—			—			7,306
Dividends paid – $0.28 per share		—			—		—			—		—			(700	)		—			—			(700	)
Balance on December 31, 2022		3,032,606			521,849	$	30		$	5	$	28,369		$	29,013		$	(6,773	)	$	(1,406	)	$	49,238

The accompanying notes are an integral part of the consolidated financial statements.

F-49

Bancorp 34, Inc.

Consolidated Statements of Cash Flows (As Restated)

(In thousands)

	As Restated
	Year ended December 31,
	2022			2021
Cash Flows from Operating Activities
Net income	$	1,330		$	4,635
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		489			472
Stock dividends on financial institution stock		(47	)		(7	)
Amortization of premiums and discounts on securities, net		349			377
Amortization of equity awards		351			386
Amortization of core deposit intangible		—			98
Gain on sale of loans		—			(240	)
Proceeds from sale of loans		5,002			2,639
Gain on sale of securities		—			(202	)
Provisions for loan losses		2,420			500
Fixed asset impairments		—			40
Net appreciation on bank-owned life insurance		(238	)		(249	)
Deferred income tax expense (benefit)		191			(554	)
Changes in operating assets and liabilities
Accrued interest receivable		(151	)		304
Prepaid and other assets		(148	)		(1,575	)
Accrued interest and other liability		213			562
Net cash from operating activities		9,761			7,186
Cash Flows from Investing Activities
Proceeds from calls, sales, or principal payments on available-for-sale securities		7,475			17,236
Purchases of available-for-sale securities		(8,060	)		(38,165	)
Proceeds from calls, sales, or principal payments on held-to-maturity securities		—			—
Purchases of held-to-maturity securities		(500	)		—
Net (purchase) redemptions of stock in financial institutions		556			(454	)
Net change in loans held for investment		(55,709	)		(64,450	)
Proceeds from disposals of premises and equipment		84			33
Purchases of premises and equipment		(684	)		(207	)
Net cash from investing activities		(56,838	)		(86,007	)
Cash Flows from Financing Activities
Net change in deposits		49,805			67,032
Net change in escrows		(22	)		(67	)
Proceeds from Federal Home Loan Bank advances		712,500			76,001
Repayments of Federal Home Loan Bank advances		(726,500	)		(76,001	)
Proceeds from subordinated debt issuance, net of costs		—			24,447
Common stock repurchases		(78	)		(8,499	)
Common stock issuance, net		6,212			—
Preferred stock issuance, net		7,306			—
Payment of dividends		(700	)		(577	)
Net cash from financing activities		48,523			82,336
Net Change in Cash and Cash Equivalents		1,446			3,515
Cash and cash equivalents, beginning of period		15,501			11,986
Cash and Cash Equivalents, end of period	$	16,947		$	15,501

Supplemental Disclosures
Interest on deposits and borrowings paid	$	5,181		$	2,229
Income taxes paid	$	998		$	1,986
Loans transferred to loans held for sale	$	—		$	2,399
Operating lease assets recorded	$	2,128		$	—
Operating lease liabilities recorded	$	2,128		$	—

The accompanying notes are an integral part of the consolidated financial statements.

F-50

Bancorp 34, Inc.

Notes To Consolidated Financial Statements

Note 1 – Nature of Operations and Significant Accounting Policies

The Bank provides a variety of banking services to individuals and businesses through its full-service branches in Scottsdale, Arizona as well as Alamogordo and Las Cruces, New Mexico.

Basis of Presentation – The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP). These financial statements have been restated to correct errors for the years ended December 31, 2022, and December 31, 2021. Please refer to Note 19 for additional information regarding the restatements.

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 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 loan losses and fair value of investment securities.

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 December 31, 2022, or December 31, 2021.

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. 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.

Loans Held for Sale – Loans held for sale includes one- to four-family residential real estate loans, and periodically, a portion of Small Business Administration (“SBA”) or United States Department of Agriculture (USDA) loans the Bank intends to sell. They are carried at fair value. Gains and losses on the sale of mortgage loans are recognized upon sale and are determined by the difference between the sales proceeds and carrying value of the loans. Net unrealized losses, if any, are recorded as a valuation allowance and charged to operations. There were no loans held for sale at December 31, 2022, or 2021.

F-51

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 1 – Nature of Operations and Significant Accounting Policies (continued)

Loans Held for Investment, Net – Loans 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. Subsequent interest collected on such loans is credited to loan principal if, in the opinion of management, collectability of principal is doubtful; otherwise, the interest collected is recognized as income and resumption of interest accruals may occur. Loans are charged-off as uncollectible when, in the opinion of management, collectability of principal is improbable. Personal loans are typically charged off when no later than 180 days past due.

Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb probable credit losses inherent in the loan portfolio. The allowance consists of specific and general components. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows and make up the specific component of the reserve. Because of uncertainties associated with regional economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that management’s estimate of probable credit losses inherent in the loan portfolio and the related allowance may change materially in the near-term. The general component of the allowance covers non-impaired loans and has a quantitative component (historical loss) and a qualitative component (current risk factors). The current qualitative risk factors include consideration of the following: changes in lending policies and underwriting standards; changes in economic conditions; changes in nature and volume of loans; changes in the depth of lending staff; changes in the volume and severity of past due, non-accrual and adversely classified loans; changes in the levels and trends of charge offs and recoveries; changes in the quality of the loan review system; changes in concentrations of credit; and, the effects of other external factors such as competition and legal and regulatory requirements. The allowance is increased by a provision for loan losses, which is charged to expense and reduced by charge-offs, net of recoveries.

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 fifteen to forty 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.

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 December 31, 2022, and 2021, was $963,000 and $1,786,000, respectively. Cash and stock dividends are recorded in Other Income in the Consolidated Statement of Comprehensive Income.

F-52

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 1 – Nature of Operations and Significant Accounting Policies (continued)

The Company invested in the Castle Creek Launchpad Fund I, LP in April 2022. The Company has committed to fund up to $2 million over a 4-year funding period. As of December 31, 2022, the investment totals $315,000. Given that the fund has limited seasoning from a time and investment dollar perspective, the investment in the fund is being carried at cost.

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 current and former officers and directors 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. 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 expense. There was no other real estate owned as of December 31, 2022 or 2021.

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.

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.

F-53

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 1 – Nature of Operations and Significant Accounting Policies (continued)

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 evaluated using the same methodology as for loans held for investment.

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 for the years ended December 31, 2022, and 2021 were $89,000 and $112,000, respectively.

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 employee stock ownership plan (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.

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.

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 provisions.

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 Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), as amended by Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act), enacted December 27, 2020, the American Rescue Plan Act of 2021 (ARP Act), enacted March 11, 2021, and the Infrastructure Investment and Jobs Act (Infrastructure Act), enacted November 15, 2021, if they experienced a significant decline in gross receipts or more than a nominal portion of its business operations are impacted by a governmental order. The company recorded a net benefit of $547,000 which offset salary and benefit expenses in 2022. An additional $254,000 is held as deferred income and included in the Accrued interest and other liabilities section of the balance sheet, given its uncertain nature and will be held as such until the five-year statute of limitations has elapsed.

F-54

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 1 – Nature of Operations and Significant Accounting Policies (continued)

Comprehensive Income (Loss) – Comprehensive income (loss) consists of net income (loss), net unrealized gains and losses on securities available-for-sale (net of taxes), and accumulated other comprehensive income related to the Bank 34 Defined Benefit Retirement Plan (AOCI related to Bank 34 DB Plan), net of taxes. The table below shows a summary of each item as well as its contribution to total comprehensive income (loss).

As Restated Components of Accumulated Other Comprehensive Income (Loss)	December 31, 2022			December 31, 2021
Available-for-sale investments unrealized gain (loss)	$	(9,090	)	$	512
Tax effect		2,317			(124	)
Net available-for-sale investments unrealized gain (loss)		(6,773	)		388

AOCI related to Bank 34 DB Plan		—			(1,735	)
Tax effect		—			427
Net AOCI related to Bank 34 DB Plan		—			(1,307	)

Combined AOCI		(9,090	)		(1,222	)
Tax Effect		2,317			302
Total	$	(6,773	)	$	(920	)

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 standards have yet to be adopted by the Company but may have an impact on financial statements once implemented.

ASU 2022-02, Financial Instruments – Credit Losses (Topic 326) – Troubled Debt Restructurings and Vintage Disclosures

Description - This Update eliminates the recognition and measurement guidance for troubled debt restructurings (“TDRs”) by creditors in ASC 310-40. This Update also enhances disclosure requirements for certain loan restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity will apply the loan refinancing and restructuring guidance to determine whether a modification or other form of restructuring results in a new loan or a continuation of an existing loan. Additionally, the amendments in this ASU require a public business entity to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases in the existing vintage disclosures.

Date of Adoption - The amendments in this Update are effective for entities that have adopted the amendments in Update 2016-13 for fiscal years beginning after December 15, 2022.

Effect on the Consolidated Financial Statements - The adoption of this standard is expected to have a material effect on the Company’s financial statements.

F-55

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 1 – Nature of Operations and Significant Accounting Policies (continued)

(ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

Description - The FASB issued Topic 326 to replace the incurred loss model for loans and other financial assets with an expected loss model, which is referred to as the current expected credit loss (CECL) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held-to maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in certain leases recognized by a lessor. In addition, the amendments in Topic 326 require credit losses on available-for-sale to be presented as a valuation allowance rather than as a direct write-down on.

Date of Adoption - The standard will be effective for all entities, including SEC filers identified as smaller reporting companies, and nonpublic business entities for fiscal years beginning after December 15, 2022.

Effect on the Consolidated Financial Statements - The adoption of this standard is expected to have an impact on the Company’s operating results as the additional reserves required by the expected loss model will be adjusted through equity at adoption. The adjustment will have a material impact on the company’s financial statements with an expected increase in overall reserves.

Note 2 – Securities

Available-for-sale and held-to-maturity securities have been classified in the consolidated balance sheets according to management’s intent on December 31, 2022, and 2021. The amortized cost of such securities and their approximate fair values were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
Available-for-sale, December 31, 2022	Cost		Gains		Losses			Value
Mortgage-backed securities	$	39,709	$	—	$	(5,177	)	$	34,532
U.S. Treasuries		3,083		—		(366	)		2,717
U.S. Government Agencies		396		—		(26	)		370
Municipal Obligations		23,500		—		(3,349	)		20,151
Corporate debt		1,000		—		(188	)		812
Total	$	67,688	$	—	$	(9,106	)	$	58,582

Held-to-maturity, December 31, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate debt	$	5,832	$	9	$	(409	)	$	5,432
Total	$	5,832	$	9	$	(409	)	$	5,432

Available-for-sale, December 31, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Mortgage-backed securities	$	39,165	$	469	$	(380	)	$	39,254
U.S. Treasuries		3,097		0		(46	)		3,051
U.S. Government Agencies		590		4		(2	)		592
Municipal Obligations		23,575		593		(133	)		24,035
Corporate debt		1,000		0		(16	)		985
Total	$	67,427	$	1,066	$	(577	)	$	67,917

In August 2021, corporate debt with a fair market value of $6.2 million was transferred from available-for-sale to held-to-maturity. The difference between amortized cost and fair market value of those securities at transfer date is insignificant and will be amortized out of accumulated other comprehensive income over the 5-year period to first call date of those securities.

F-56

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 2 – Securities (continued)

Held-to-maturity, December 31, 2021

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Corporate debt

5,365

5,373

Total

5,365

5,373

Securities with unrealized losses on December 31, 2022, and 2021, that have not been recognized in income are as follows (in thousands):

Available-for-sale, December 31, 2022	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
Mortgage-backed securities	$	21,377	$	(2,080	)	$	13,155	$	(3,097	)	$	34,532	$	(5,177	)
U.S. Treasuries		—		—			2,717		(366	)		2,717		(366	)
U.S. Government Agencies		171		(10	)		199		(16	)		370		(26	)
Municipal Obligations		12,547		(1,698	)		7,104		(1,651	)		19,651		(3,349	)
Corporate debt		—		—			812		(188	)		812		(188	)
Total temporarily impaired	$	34,095	$	(3,788	)	$	23,987	$	(5,318	)	$	58,082	$	(9,106	)

Available-for-sale, December 31, 2021	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
Mortgage-backed securities	$	18,410	$	(380	)	$	—	$	—	$	18,410	$	(380	)
U.S. Treasuries		3,051		(46	)		—		—		3,051		(46	)
U.S. Government Agencies		315		(2	)		—		—		315		(2	)
Municipal Obligations		8,653		(133	)		—		—		8,653		(133	)
Corporate debt		983		(16	)		—		—		983		(16	)
Total temporarily impaired	$	31,412	$	(577	)	$	—	$	—	$	31,412	$	(577	)

Unrealized losses have not been recognized through the income statement, as management believes the issuers are of sound credit quality, management has no intent to sell the securities, the Company can hold the securities to maturity, and the decline in fair value is largely due to changes in market interest rates. The fair value is expected to recover as the securities approach their maturity date. There were 109 and 49 securities in an unrealized loss position as of December 31, 2022, and December 31, 2021, respectively. Of the securities in an unrealized loss position as of December 31, 2022, approximately 49% were backed by a government agency.

The proceeds from the sale of securities and the associated gains and losses are listed below (in thousands):

	2022		2021
Proceeds	$	—	$	4,626
Gross gains		—		202
Gross losses		—		—

The amortized cost and fair value of the investment securities portfolio are shown by contractual maturity. Contractual maturities of debt securities at year-end 2022 were as follows (in thousands):

Available-for-sale	Amortized Cost		Fair Value
Due in one year or less	$	500	$	500
Due from one to five years		4,958		4,597
Due from five to ten years		28,336		24,413
Due after ten years		33,894		29,072
Total	$	67,688	$	58,582

F-57

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 2 – Securities (continued)

Held-to-maturity	Amortized Cost		Fair Value
Due in one year or less	$	—	$	—
Due from one to five years		—		—
Due from five to ten years		5,832		5,432
Due after ten years		—		—
Total	$	5,832	$	5,432

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Securities pledged at December 31, 2022, and December 31, 2021, had a carrying amount of $8,193,000 and $16,418,000, respectively.

The Company had no investment in securities of issuers outside of the United States as of December 31, 2022, or 2021.

Note 3 – Loans And Allowance For Loan Losses (As Restated)

Loans at year-end were as follows (in thousands):

	2022
Commercial real estate	$	400,136
1-4 Family residential real estate		14,195
Commercial		49,248
Consumer and other		1,151
Gross Loans		464,730
Unamortized loan fees		(1,370	)
Loans held for investment		463,360
Less allowance for loan losses		(4,778	)
Loans, net	$	458,582

	2021
Commercial real estate	$	351,337
1-4 Family residential real estate		16,746
Commercial		47,490
Consumer and other		1,454
Gross Loans		417,027
Unamortized loan fees		(1,403	)
Loans held for investment		415,624
Less allowance for loan losses		(5,328	)
Loans, net	$	410,296

At December 31, 2022, and 2021, commercial real estate loans include construction loans of $40.0 million and $36.9 million, respectively.

At December 31, 2022, and 2021, the commercial loan balances above included $47,000 and $1,606,000 in Paycheck Protection Program loans, all of which were guaranteed by the Small Business Administration. No other material financial statement impacts from the Covid-19 pandemic remained at the end of 2022.

F-58

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 3 – Loans And Allowance For Loan Losses (As Restated) (continued)

The following is an analysis of the allowance for loan loss activity, listed by portfolio segment. Information is based on impairment method as of, and for the years ended, December 31, 2022, and 2021, (in thousands):

	Commercial Real Estate			1-4 Family Residential Real Estate			Commercial and Industrial			Consumer and other			Total
Balance on December 31, 2021	$	4,466		$	190		$	647		$	25		$	5,328
Provision (credit) for loan losses		(1,198	)		(13	)		3,639			(8	)		2,420
Loans charged off		—			(72	)		(2,905	)		—			(2,977	)
Recoveries		—			7			—			—			7
Balance on December 31, 2022	$	3,268		$	112		$	1,381		$	17		$	4,778

	Commercial Real Estate		1-4 Family Residential Real Estate			Commercial and Industrial		Consumer and other			Total
Balance on December 31, 2020	$	4,051	$	299		$	426	$	44		$	4,820
Provision (credit) for loan losses		415		(117	)		221		(19	)		500
Loans charged off		—		—			—		—			—
Recoveries		—		8			—		—			8
Balance on December 31, 2021	$	4,466	$	190		$	647	$	25		$	5,328

December 31, 2022	Commercial Real Estate		1-4 Family Residential Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending balance individually evaluated for impairment	$	—	$	—	$	99	$	—	$	99
Ending balance collectively evaluated for impairment		3,268		112		1,282		17		4,679

Total	$	3,268	$	112	$	1,381	$	17	$	4,778

Gross Loans
Ending balance individually evaluated for impairment	$	1,591	$	719	$	1,641	$	—	$	3,951
Ending balance collectively evaluated for impairment		398,545		13,476		47,607		1,151		460,779

Total	$	400,136	$	14,195	$	49,248	$	1,151	$	464,730

F-59

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 3 – Loans And Allowance For Loan Losses (As Restated) (continued)

December 31, 2021	Commercial Real Estate		1-4 Family Residential Real Estate		Commercial		Consumer		Total
Allowance for Loan Losses
Ending balance individually evaluated for impairment	$	—	$	—	$	210	$	—	$	210
Ending balance collectively evaluated for impairment		4,466		190		437		25		5,118

Total	$	4,466	$	190	$	647	$	25	$	5,328

Gross Loans
Ending balance individually evaluated for impairment	$	—	$	162	$	4,240	$	—	$	4,402
Ending balance collectively evaluated for impairment		351,337		16,584		43,250		1,454		412,625

Total	$	351,337	$	16,746	$	47,490	$	1,454	$	417,027

The following table presents the aging of the recorded investment in past due and nonaccrual loans, as of December 31, 2022, and 2021. It is shown by class of loans (in thousands):

December 31, 2022	Loans Past Due Accruing Interest
	30-59 Days		60-89 Days		Over 90 Days		Total		Loans on Non- Accrual		Loans Not Past Due or Non- Accrual		Total
Commercial Real Estate	$	512	$	960	$	—	$	1,472	$	1,591	$	397,073	$	400,136
1-4 Family Residential RE		536		—		—		536		659		13,000		14,195
Commercial and Industrial		313		427		292		1,032		1,641		46,575		49,248
Consumer		—		—		—		—		—		1,151		1,151

Total	$	1,361	$	1,387	$	292	$	3,040	$	3,891	$	457,799	$	464,730

December 31, 2021	Loans Past Due Accruing Interest
	30-59 Days		60-89 Days		Over 90 Days		Total		Loans on Non- Accrual		Loans Not Past Due or Non- Accrual		Total
Commercial Real Estate	$	2,192	$	—	$	—	$	2,192	$	—	$	349,145	$	351,337
1-4 Family Residential RE		95		653		143		891		98		15,757		16,746
Commercial and Industrial		—		—		—		—		4,240		43,250		47,490
Consumer		12		—		—		12		—		1,442		1,454

Total	$	2,299	$	653	$	143	$	3,095	$	4,338	$	409,594	$	417,027

Non-accrual loan balances guaranteed by the SBA are $99,000, or 1.5%, and $110,000, or 2.5%, of the nonaccrual loan balances at December 31, 2022, and December 31, 2021, respectively.

F-60

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 3 – Loans And Allowance For Loan Losses (As Restated) (continued)

Credit Quality Indicators:

The following table represents the credit exposure by internally assigned grades at December 31, 2022, and 2021. This grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements in accordance with the loan terms. The Bank’s internal credit risk grading system is based on management’s experiences with similarly graded loans. Credit risk grades are reassessed each quarter based on any recent developments potentially impacting the creditworthiness of the borrower, as well as other external statistics and factors, which may affect the risk characteristics of the respective loan. The Company uses the following definitions for risk ratings:

Pass: Strong credit with no existing or known potential weaknesses deserving of management’s close attention.

Special Mention: Potential weaknesses that deserve management’s close attention. Borrower and guarantor’s capacity to meet all financial obligations is marginally adequate or deteriorating.

Substandard: Inadequately protected by the paying capacity of the Borrower and/or collateral pledged. The borrower or guarantor is unwilling or unable to meet loan terms or loan covenants for the foreseeable future.

Doubtful: All the weakness inherent in one classified as substandard with the added characteristic that those weaknesses in place make the collection or liquidation in full, on the basis of current conditions, highly questionable and improbable.

As of December 31, 2022, and 2021, based on the most recent analysis performed, the risk category of loans by class of loans was as follows (in thousands):

December 31, 2022	Pass		Special Mention		Substandard		Doubtful		Not Risk Rated		Total
Commercial Real Estate	$	394,577	$	3,685	$	1,874	$	—	$	—	$	400,136
1-4 Family Residential RE		13,536		—		659		—		—		14,195
Commercial and Industrial		47,154		378		1,716		—		—		49,248
Consumer		1,151		—		—		—		—		1,151

Total	$	456,418	$	4,063	$	4,249	$	—	$	—	$	464,730

December 31, 2021	Pass		Special Mention		Substandard		Doubtful		Not Risk Rated		Total
Commercial Real Estate	$	349,137	$	1,866	$	334	$	—	$	—	$	351,337
1-4 Family Residential RE		16,322		326		98		—		—		16,746
Commercial and Industrial		43,146		—		4,344		—		—		47,490
Consumer		1,454		—		—		—		—		1,454

Total	$	410,059	$	2,192	$	4,776	$	—	$	—	$	417,027

Impaired Loans: The following tables include the recorded investment and unpaid principal balances, net of charge-offs for impaired loans with the associated allowance amount, if applicable. Management determined the allocated allowance based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for the loan is the operation or liquidation of the collateral. In those cases, the current fair value of the collateral, less selling costs was used to determine the allocated allowance recorded.

F-61

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 3 – Loans and Allowance For Loan Losses (As Restated) (continued)

December 31, 2022	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment

With no related allowance recorded:
Commercial Real Estate	$	1,591	$	1,591	$	—	$	1,464
1-4 Family Residential RE		719		719		—		739
Commercial and Industrial		—		—		—		—
Consumer		—		—		—		—

With an allowance recorded:
Commercial Real Estate		—		—		—		—
1-4 Family Residential RE		—		—		—		—
Commercial and Industrial		4,546		1,641		99		4,333
Consumer		—		—		—		—

Total	$	6,856	$	3,951	$	99	$	6,536

December 31, 2021	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment

With no related allowance recorded:
Commercial Real Estate	$	—	$	—	$	—	$	—
1-4 Family Residential RE		162		162		—		162
Commercial and Industrial		—		—		—		—
Consumer		—		—		—		—

With an allowance recorded:
Commercial Real Estate		—		—		—		—
1-4 Family Residential RE		—		—		—		—
Commercial and Industrial		4,240		4,240		210		4,319
Consumer		—		—		—		—

Total	$	4,402	$	4,402	$	210	$	4,481

Troubled Debt Restructurings: Restructured loans are considered “troubled debt restructurings” if due to the borrower’s financial difficulties, the Bank has granted a concession that they would not otherwise consider. This may include a transfer of real estate or other assets from the borrower, a modification of loan terms, rates, or a combination of the two. All troubled debt restructurings placed on nonaccrual status must show no less than six months of repayment performance by the borrower in accordance with contractual terms to return to accrual status. Once a loan has been identified as a troubled debt restructuring, it will continue to be reported as such until the loan is paid in full.

In the normal course of business, the Company may modify a loan for a credit worthy borrower where the modified loan is not considered a troubled debt restructuring. In these cases, the modified terms are consistent with loan terms available to credit worthy borrowers and within normal loan pricing. The modifications to such loans are done according to existing underwriting standards which include review of historical financial statements, including current interim information if available, an analysis of the causes of the borrower’s decline in performance, and projections intended to assess repayment ability going forward.

There was one troubled debt restructuring with a principal balance of $60,000 and $65,000 at December 31, 2022, and December 31, 2021, respectively.

F-62

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 4 – Premises and Equipment, Net

Components of premises and equipment, net included in the consolidated balance sheets at December 31, were as follows:

	2022			2021

Land and improvements	$	2,170		$	2,241
Buildings and improvements		12,439			12,146
Furniture and equipment		1,776			1,994
Total cost		16,385			16,381
Accumulated depreciation and amortization		(8,308	)		(8,415	)

Net book value	$	8,077		$	7,966

Depreciation and amortization expense was $489,000 and $472,000 for the years ended December 31, 2022, and 2021, respectively. Two Alamogordo ATM properties were sold for $50,000 in 2022. The Peoria branch was closed December 31, 2022, which resulted in the acceleration of rent expense totaling $43,000 and a loss on the disposal of fixed assets of $3,000.

Note 5 – Time Deposits

Following are maturities of time deposits at December 31, 2022, and 2021:

Maturity	2022		2021

One year or less	$	50,025	$	40,180
Over one through three years		21,627		12,892
Over three through five years		1,841		1,477
Totals	$	73,493	$	54,549

On December 31, 2022, and 2021, the Bank had $23.4 million and $13.0 million, respectively, in time deposits of $250,000 or more. On December 31, 2022, and 2021, $19.8 million and $10.9 million, respectively, of such time deposits mature within one year.

Note 6 – Borrowings

The Bank has established a borrowing line with the FHLB of Dallas. As of December 31, 2022, the Bank had one outstanding advance totaling $5.0 million carrying an interest rate of 1.40% with a maturity date in 2023. As of December 31, 2022, loans and securities with a carrying value of $203.8 million were pledged to secure FHLB advances, with remaining availability of $198.1 million at year end. At December 31, 2021, FHLB borrowings totaled $19.0 million carrying interest rates from 0.14% to 1.40%. As of December 31, 2021, loans and securities with a carrying value of $183.8 million were pledged to secure FHLB advances, with remaining availability of $163.0 million at year end.

The following are maturities of outstanding borrowings as of December 31, 2022:

Maturity
One year or less	$	5,000
Over one through three years		0
Over three through five years		0
Over five through ten years		24,531
Totals	$	29,531

F-63

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 7 – Financial instruments with off-balance-sheet risk

Financial instruments whose contract amounts represent off-balance-sheet credit risk are as follows as of December 31:

	2022		2021
Commitments to extend credit	$	23,202	$	39,807
Unused lines of credit		18,706		18,672
Totals	$	41,908	$	58,479

Note 8 – Leases

The Bank has noncancelable operating leases that expire over the next seven years that require the payment of base lease amounts and executory costs such as taxes, maintenance, and insurance. At year-end 2022, the bank had one active operating lease. Rental expenses for leases was $516,000 and $578,000 for the years ended December 31, 2022, and 2021 respectively.

Approximate future minimum rental commitments under noncancelable leases are:

2023	$	205
2024		354
2025		360
2026		366
2027		372
2028		377
2029		383
2030		161
Total minimum lease payments		2,578
Amounts representing interest (present value discount)		(425	)
Operating lease liabilities (present value of minimum lease payments)	$	2,153
Weighted-average remaining term (in years)		7.3
Weighted-average discount rate		4.70	%

F-64

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 9 – Employee Retirement Benefit Plans (As Restated)

Profit Sharing Plan: The Company has established a profit-sharing 401(k) type salary reduction plan (Plan) for all employees that meet the necessary eligibility requirements and participants are fully vested after six years of service. For Company matching contributions made for plan years prior to 2014, annual Company contributions were at the discretion of the Board of Directors. From 2014 through 2019, the Company adopted a Safe Harbor matching contribution provision, whereby it agreed to match 100% of participant’s contributions up to the first 3% of salary and 50% of the next 2%, for a total maximum Company matching contribution of 4% of participant salary, as defined by the Plan. The Safe Harbor matching contribution was guaranteed. The Company elected not to adopt a safe harbor matching contribution for 2021 or 2022.

Employee Stock Ownership Plan: The ESOP covers substantially all employees that meet certain age and service requirements. Under the plan, annual retirement expense is generally defined as a percentage of employee compensation, net of forfeitures from employees who have terminated employment.

Shares held by the ESOP on December 31, 2022, and 2021, were as follows:

	2022		2021
Allocated shares		44,476		40,764
Unallocated shares		145,597		151,666
Total ESOP shares		190,073		192,430

The fair value of unallocated shares held by the ESOP is $1,966,000 and $2,090,000 at December 31, 2022, and 2021, respectively. ESOP expense was $338,000 and $74,000 for the years ended December 31, 2022, and 2021, respectively.

Bank 34 Employees DB Retirement Plan: Effective April 1, 2020, the Company withdrew from the Pentegra DB Plan and established the Bank 34 Employee Defined Benefit Retirement Plan (“Bank DB Plan”). On June 2, 2020, all assets and liabilities were transferred from the Pentegra DB Plan to the newly established Bank DB Plan. The Bank DB Plan is a funded noncontributory defined benefit pension plan covering 49 current and former employees. Similar to its predecessor plan, benefits available under the Bank DB Plan are frozen. The plan provides defined benefits based on years of service and final average salary. The Company uses December 31 as the measurement date for this plan. The initial plan year was April 1, 2020, through December 31, 2020. The fair value of plan assets and accumulated benefit obligation on the April 1, 2020, Bank DB Plan adoption date were $2,392,000 and $3,951,000, respectively. Accumulated other comprehensive income at December 31, 2020, included $1,346,000 which represented $1,807,000 prior service cost related to this plan net of $461,000 estimated tax benefits.

F-65

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 9 – Employee Retirement Benefit Plans (As Restated) (Continued)

During the year ended December 31, 2021, the Company purchased annuity contracts that resulted in partial settlement of the plan and recorded expense of $479,000. At December 31, 2021, the fair value of Bank DB Plan assets were $894,000, determined by significant observable inputs (Level 2), representing 84% of the $1,063,000 accumulated benefit obligation. The defined obligation at December 31, 2021, of $169,000 is included in Accrued Interest and Other Liabilities on the Consolidated Balance Sheet. The unrecognized actuarial and prior service costs totaling $1,308,000, net of tax, are included in Accumulated Other Comprehensive Income in the Stockholders Equity portion of the Consolidated Balance Sheet.

During the year ended December 31, 2022, the Company extinguished the Bank DB Plan and recorded expense of $1,750,000. At December 31, 2022, there were no plan assets or liabilities included in the Consolidated Balance Sheet. Contributions to the plan totaled $30,000 and $0 in 2022 and 2021, respectively.

Deferred Compensation and Director’s Fee Plans: A deferred compensation plan covers all senior officers and a deferred director’s fee plan covers all directors. Under these plans, the company pays each participant that elects to defer, or their beneficiary, the amount deferred plus interest over a pre-selected period up to 10 years, beginning with the participant’s termination of service. A liability is accrued monthly for the deferred amount plus interest earned. The interest rate on deferred balances is determined annually on January 1st at the greater of Wall Street Journal Prime or 5%, and was 5% for the years ended December 31, 2022, and 2021. Interest expense for the deferred plans was $97,000 and $95,000, for the years ended December 31, 2022, and 2021, respectively. Deferred plan liabilities, included in accrued interest and other liabilities on the consolidated balance sheet, were $1,949,000 and $1,946,000, as of December 31, 2022, and 2021, respectively.

Note 10 – Board of Directors’ Retirement Policy

The total liability for the combined policies and agreements was $256,000 and $245,000 at December 31, 2022, and 2021, respectively.

Note 11 – Income Taxes (As Restated)

Income tax provision consists of the following (in thousands):

	2022			2021
Current
Federal	$	23		$	1,468
State		(227	)		379
Deferred benefit		262			(555	)
Total income tax provision	$	58		$	1,291

Income tax expense from continuing operations differs from the amounts computed by applying the federal income tax rate of 21% in 2022 and 2021, to earnings before federal income tax expense. These differences are primarily caused by state income taxes, net of federal tax benefit, income that is not taxable for federal and state income tax purposes, expenses that are not deductible for tax purposes and tax adjustments related to prior federal income tax returns.

F-66

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 11 – Income Taxes (As Restated) (continued)

Income tax provision calculated at the statutory federal income tax rate of 21% for 2022 and 2021, differs from actual income tax provision as follows (in thousands):

	2022			2021

Income tax at statutory rate	$	292		$	1,287
Benefit from permanent differences:
Earnings on life insurance assets		(50	)		(65	)
State income taxes, net of Federal tax benefit		(116	)		78
Other items, net		(67	)		(9	)
Totals	$	59		$	1,291

Deferred tax assets and liabilities consist of the following at December 31 (in thousands):

	2022			2021
Deferred tax assets:
Allowance for loan losses	$	1,191		$	1,314
Net operating loss carryforwards		582			683
Deferred compensation		549			1,011
Accrued bonus		318			333
Lease liability		536			115
Unrealized losses on AFS securities		2,317			—
Other, net		292			242
Total deferred tax assets		5,785			3,698

Deferred tax liabilities:
Unrealized gains on AFS securities		—			(127	)
Loan origination costs		(196	)		(240	)
Depreciation		(515	)		(100	)
Right-of-use asset		(139	)		(105	)
FHLB stock dividends		(11	)		(26	)
Total deferred tax liabilities		(861	)		(598	)
Net deferred tax assets included in other assets	$	4,924		$	3,100

A valuation allowance for deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and tax planning strategies which will create taxable income during the periods in which those temporary differences become deductible. Management considered the scheduled reversal of deferred tax liabilities, projected future taxable income, net operating loss carry-back potential, and tax planning strategies in making this assessment. Based upon the Company’s assessment of all available evidence, management determined it was more likely than not that the net deferred tax asset would be realized at December 31, 2022.

At December 31, 2022, the Company had federal operating loss carry-forwards of approximately $2.8 million, all of which are subject to Internal Revenue Code (“IRC”) Section 382 limitations, which limit the annual use of acquired losses to $250,000 per year, and begin to expire in 2028. At December 31, 2022, the Company has recorded deferred tax assets of $582,000 related to the Federal net operating loss carry-forwards.

It is the Company’s policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. As of December 31, 2022, and 2021, there were no material uncertain tax positions related to federal and state income tax matters. The Company does not expect the amounts of unrecognized tax benefits to significantly increase or decrease within the next 12 months.

The Company files consolidated U.S. federal and various state income/franchise tax returns. The Company is no longer subject to examination by U.S. federal taxing authorities for years before 2019 and is no longer subject to examination by state taxing authorities for years before 2016. Our federal and state tax returns have not been audited for the past seven years.

F-67

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 12 – Regulatory Matters (As Restated)

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total risk-based capital and Tier 1 capital to risk-weighted assets, and Tier 1 capital to adjusted total assets. Management believes, as of December 31, 2022, and 2021, the Bank meets all capital adequacy requirements to which it is subject.

Banks are also subject to certain restrictions on the dollar amount of dividends that they may declare without prior regulatory approval.

As of December 31, 2022, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank has to maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as disclosed in the table below. There are no conditions or events that management believes have changed the Bank’s prompt corrective action category. The Bank has not opted into the Community Bank Leverage Ratio (“CBLR”) and therefore is required to continue calculating and reporting risk-based capital ratios.

The Bank’s actual and required capital amounts and ratios are as follows (in thousands):

	Actual					Minimum Required For Capital Adequacy Purposes					Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
2022

Total Capital to risk-weighted assets:	$	64,942		13.57	%	$	38,286		8	%	$	47,857		10	%
Tier 1 (Core) Capital to risk weighted assets:	$	60,163		12.57	%	$	28,717		6	%	$	38,290		8	%
Common Tier 1 Capital to risk weighted assets (CET1):	$	60,163		12.57	%	$	21,538		4.50	%	$	31,111		6.50	%
Tier 1 (Core) Capital to average assets:	$	60,163		10.34	%	$	23,274		4	%	$	29,092		5	%

	Actual					Minimum Required For Capital Adequacy Purposes					Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
2021

Total Capital to risk-weighted assets:	$	62,978		14.35	%	$	35,110		8	%	$	43,887		10	%
Tier 1 (Core) Capital to risk weighted assets:	$	57,650		13.13	%	$	26,344		6	%	$	35,126		8	%
Common Tier 1 Capital to risk weighted assets (CET1):	$	57,650		13.13	%	$	19,578		4.50	%	$	28,540		6.50	%
Tier 1 (Core) Capital to average assets:	$	57,650		11.14	%	$	20,700		4	%	$	25,875		5	%

F-68

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 13 – Related-Party Transactions

	2022		2021
Fees and bonuses paid to directors during the period	$	231	$	255
Deposits from related parties held by the bank at the end of period		4,568		4,284

There were no loans to related parties in 2022 or 2021.

Note 14 – Stock-Based Compensation

Stock-based expense for the years ended December 31, 2022, and 2021, was $213,000 and $278,000, respectively.

The Company accounts for forfeitures when they occur by reversing any previously accrued compensation expense on forfeited options in accordance with ASC 718, Compensation – Stock Compensation.

In 2022, 15,000 stock options were granted and 9,500 shares of restricted stock were issued under the 2017 plan. In 2021, 6,500 stock options and 2,500 shares of restricted stock were issued. Stock option grant-date fair values for 2022 and 2021 were computed using the Black Scholes Merton options pricing model with the following weighted-average inputs and assumptions:

	2022			2021

Grant date stock price and exercise price	$	15.80		$	12.19
Dividend yield		2.48	%		1.64	%
Expected stock price volatility		23.59	%		33.89	%
Risk-free interest rate		2.17	%		0.96	%
Expected option life in years		6			6

Total weighted-average fair value of options granted	$	3.00		$	3.40

F-69

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 14 – Stock-Based Compensation (continued)

A summary of stock option activity in 2022 is presented below (Intrinsic Value in 000s):

	Shares Subject to Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value

Outstanding at beginning of year		163,600		$	13.94		3.6 years		118
Granted		15,000			15.80
Exercised		(13,200	)		14.90
Forfeited or expired		(21,380	)		13.81
Outstanding at end of year		144,020		$	14.07		2.8 years	$	95

Exercisable at year-end		118,020		$	14.45		2.2 years	$	39

Information related to stock option exercises during each year is as follows (in 000s):

	2022		2021

Intrinsic value of options exercised	$	17	$	—
Cash received from options exercised	$	—	$	—
Tax benefit realized from options exercised	$	15	$	—

A summary of restricted stock activity for the year ended December 31, 2022, is presented below:

	Shares			Weighted- Average Grant Date Fair Value		Average Remaining Contractual Term

Non-vested on January 1, 2022		12,774		$	14.02		2.0 years
Granted		9,500			14.92
Vested		(8,335	)		14.75
Forfeited		(7,439	)		13.13
Non-vested on December 31, 2022		6,500		$	14.89		4.1 years

As of December 31, 2022, there was $70,000 and $80,000 of total unrecognized equity-based expense related to unvested stock options and restricted stock awards, respectively, granted under the 2017 Equity Incentive Plan that is expected to be recognized over the next 5 years as follows (in 000s):

Year
2023	$	41
2024		41
2025		38
2026		26
2027		4
Totals	$	150

F-70

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 15 – Fair Value Information (As Restated)

As Restated December 31, 2022	Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Fair Value
Recurring:
Assets:
Securities available-for-sale:
Mortgage-backed securities	$	—	$	34,532	$	—	$	34,532
U.S. Treasuries		—		2,717		—		2,717
U.S. Government Agencies		—		370		—		370
Municipal obligations		—		20,151		—		20,151
Corporate debt		—		812		—		812
Total available-for-sale:	$	—	$	58,582	$	—	$	58,582

Nonrecurring basis:
Impaired loans	$	—	$	—	$	3,951	$	3,951

December 31, 2021	Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Fair Value
Recurring:
Assets:
Securities available-for-sale:
Mortgage-backed securities	$	—	$	39,254	$	—	$	39,254
U.S. Treasuries		—		3,051		—		3,051
U.S. Government Agencies		—		592		—		592
Municipal obligations		—		24,035		—		24,035
Corporate debt		—		985		—		985
Total available-for-sale:	$	—	$	67,917	$	—	$	67,917

Nonrecurring basis:
Impaired loans	$	—	$	—	$	4,402	$	4,402

There were no transfers between levels of the fair value hierarchy during the years ended December 31, 2022, or 2021.

F-71

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 15 – Fair Values of financial instruments (continued)

The following table presents the significant unobservable inputs used in the fair value measurements for Level 3 financial assets measured on a non-recurring basis:

As Restated

December 31, 2022

Fair Value

Valuation
Methodologies

Valuation Model

Unobservable
Input
Valuation

Impaired loans

Commercial and Industrial

1,641

Appraisal

Receivables Discount/Liquidation Discount

18-50%

Commercial Real Estate

1,591

Appraisal

Appraisal Discount/Estimated Selling Costs

18%

1-4 Family residential RE

719

Appraisal

Appraisal Discount/Estimated Selling Costs

0-18%

Total Impaired loans

3,951

December 31, 2021

Fair Value

Valuation
Methodologies

Valuation Model

Unobservable
Input
Valuation

Impaired loans

Commercial and Industrial

4,240

Appraisal

Receivables Discount/Liquidation Discount

17-18%

1-4 Family residential RE

162

Appraisal

Appraisal Discount/Estimated Selling Costs

17-18%

Total Impaired loans

4,402

The estimated fair values of the Company’s consolidated financial instruments at year-end are as follows (in thousands):

As Restated	Fair		2022						2021
	Value Hierarchy		Carrying Amount			Fair Value			Carrying Amount			Fair Value
Financial assets:
Cash and due from banks		Level 1	$	16,112		$	16,112		$	7,231		$	7,231
Federal funds sold		Level 2		835			835			8,270			8,270
Securities available-for-sale		Level 2		58,582			58,582			67,916			67,916
Securities held-to-maturity		Level 2		5,832			5,432			5,365			5,365
Loans, net of allowance for loan losses		Level 3		458,582			419,251			410,296			413,964
Other investments		Level 2		1,277			1,277			1,786			1,786
Accrued interest receivable		Level 1		1,505			1,505			1,354			1,354

Financial liabilities:
Deposits		Level 1	$	(414,094	)	$	(364,675	)	$	(383,233	)	$	(377,284	)
Time Deposits		Level 2		(73,493	)		(71,932	)		(54,549	)		(54,769	)
FHLB Advances		Level 2		(5,000	)		(5,292	)		(19,000	)		(19,073	)
Subordinated debentures		Level 3		(24,531	)		(21,728	)		(24,447	)		(24,884	)
Accrued interest payable		Level 1		(562	)		(562	)		(483	)		(483	)

F-72

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 16 – Earnings per Share (As Restated)

	Years ended December 31,
As Restated	2022			2021
Basic:

Net income (in 000s)	$	1,330		$	4,635
Less: Earnings allocated to participating securities (in 000s)		(11	)		(37	)
Net income allocated to common Stockholders (in 000s)		1,319			4,598

Weighted-average common shares outstanding including participating securities		2,529,436			2,889,138
Less: Average participating securities		(19,579	)		(21,676	)
Less: Average unallocated ESOP shares		(151,187	)		(151,929	)

Average Shares		2,358,670			2,715,533

Basic Earnings Per Common Share	$	0.56		$	1.69

Diluted:

Net income allocated to common Stockholders (in 000s)	$	1,319		$	4,598

Weighted-average common shares outstanding for basic earnings per common share		2,358,670			2,715,533

Add: Dilutive effects of assumed exercises of stock options		8,356			5,589
Add: Dilutive effects of assumed exercises of warrants		4,451			—

Weighted-average shares and dilutive potential common shares		2,371,477			2,721,123

Diluted Earnings Per Common Share	$	0.56		$	1.69

Participating securities are restricted stock awards and preferred stock since they participate in common stock dividends. Stock options for 118,000 and 127,000 shares of common stock were not considered in computing diluted earnings per common share for 2022 and 2021, because they were antidilutive.

Note 17 – Private Placement of Common and Preferred Stock

On December 30, 2022, the Company entered into Securities Purchase Agreements (“Agreement”) with both Castle Creek Capital Fund VIII, L.P. (“Castle Creek”) and Alliance Bernstein L.P. (“Alliance Bernstein”), pursuant to which the Company sold Castle Creek: (i) 299,580 shares of the Company’s common stock, par value $0.01 per share, at a purchase price of $14.00 per share (the “Common Stock”); (ii) 521,849 shares of Series A convertible perpetual preferred stock, par value $0.01 per share, at a purchase price of $14.00 per share (“Series A Preferred Stock”); and sold Alliance Bernstein 181,734 shares of Common Stock, at a purchase price of $14.00 per share. The private placement transaction (the “Private Placement”) resulted in gross proceeds of approximately $14 million. The Agreement contains significant representations, warranties, and covenants between the Company and each purchaser. In addition, 30,094 shares of Common Stock were issued as payment for a portion of the placement fees.

F-73

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 17 – Private Placement of Common and Preferred Stock (continued)

In conjunction with the Agreement, the Company issued warrants to Castle Creek to purchase up to 82,142 shares of Common Stock and Alliance Bernstein to purchase up to 18,173 shares of Common Stock at a price of $14.00. The approximate fair value of the warrants at the date of grant was not considered significant. The Warrants are exercisable at any time after December 30, 2022, and from time to time, in whole or in part, until December 30, 2029. However, the exercise of such Warrants remains subject to certain contractual provisions and a “cashless exercise” may be executed.

In total, the Company issued 511,408 shares of Common Stock, 521,849 shares of Series A Preferred Stock and 100,315 Warrants related to the Agreement. Cash received, net of issuance expenses, was $13.6 million. Issuance expenses include placement fees and due diligence costs of $447,000 and $79,000, respectively The Company will use the net proceeds to fund organic growth, transact on potential acquisition opportunities, enter complementary new business lines, and to enhance capital ratios.

On December 30, 2022, the Company filed Articles Supplementary with the Maryland Department of Assessments and Taxation to issue 1,100,000 shares of Series A Preferred Stock. Each share of the Series A Preferred Stock will be convertible on a one-for-one basis into either (i) Common Stock under certain circumstances, or (ii) non-voting common stock, par value $0.01 per share, subject to approval of the creation of such class of non-voting common stock by the Company’s stockholders. Holders of the Series A Preferred Stock will be entitled to receive dividends if declared by the Company’s Board of Directors, in the same per share amount as paid on the Common Stock. The Series A Preferred Stock will rank, as to payments of dividends and distribution of assets upon dissolution, liquidation or winding up of the Company, pari passu with the Common Stock pro rata. Holders of Series A Preferred Stock will have no voting rights except as may be required by law.

Pursuant to the terms of the Agreement, Castle Creek is entitled to have one representative appointed to the Company’s Board of Directors for so long as Castle Creek, together with its respective affiliates, owns, in the aggregate, 4.9% or more of Common Stock outstanding.

Note 18 – Bancorp 34, Inc. (Parent Company Only) Financial Information (As Restated)

Condensed financial statements of Bancorp 34, Inc. follow (in thousands):

Balance Sheets	December 31,
	2022		2021
Assets
Cash and cash equivalents	$	17,835	$	5,964
Investment in subsidiary bank		54,073		57,413
ESOP note receivable		1,558		1,600
Prepaid and other assets		1,209		597
Total Assets	$	74,675	$	65,574

Liabilities and Stockholders’ Equity
Subordinated debt, net of issuance costs		24,531		24,447
Accounts payable and other liabilities		906		457
Stockholders’ equity		49,238		40,670
Total Liabilities and Stockholders’ Equity	$	74,675	$	65,574

Statements of Income	Year ended December 31,
	2022			2021

Interest income		52			53
Interest expense		(1,054	)		(543	)
Equity in income of subsidiary bank		2,162			5,053
Other expenses		(103	)		(65	)
		1,057			4,498
Provision (benefit) for income taxes		(273	)		(137	)
Net Income	$	1,330		$	4,635

F-74

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 18 – Bancorp 34, Inc. Parent Company Only Financial Information (continued)

Statements of Cash Flows	Year ended December 31,
	2022			2021
Operating Activities
Net income	$	1,330		$	4,635
Adjustments to reconcile net income to net cash from operating activities:
Amortization of subordinated debt issuance costs		84			—
Equity in (income) of subsidiary bank		(2,162	)		(5,053	)
Changes in prepaid and other assets		(612	)		356
Changes in accrued interest and other liabilities		449			(2	)
Net cash from operating activities		(911	)		(64	)

Investing Activities
Principal collections on ESOP note receivable		42			40
Capital contribution to bank subsidiary		—			(10,000	)
Net cash from investing activities		42			(9,960	)

Financing Activities
Proceeds from subordinated debt, net of issuance costs		—			24,447
Repurchase of common stock		(78	)		(8,499	)
Issuance of common stock, net		6,212			—
Issuance of preferred stock, net		7,306			—
Cash dividends paid		(700	)		(577	)
Net cash from financing activities		12,740			15,371

Net change in cash and cash equivalents		11,871			5,347
Beginning cash and cash equivalents		5,964			617

Ending cash and cash equivalents	$	17,835		$	5,964

Note 19 – Restated Financial Statement Adjustments

The Company has restated the financial statements due for the years ended December 31, 2022, and December 31, 2021 to correct errors in the previously issued financial statements for 2022 and 2021. The details around the most significant of these restatements is outlined below.

The $2.9 million charge-off noted in the subsequent events footnote of the original financial statements was pushed back to December 31, 2022, due to information that indicates the deterioration of the credit had occurred as of that date. In addition, $1.3 million of the general allowance allocation relating to Covid-19 was removed due to its limited impact on economic conditions at December 31, 2022. In aggregate, these restatements resulted in a decline in loan balances, a decline in the balance of the allowance for loan losses, an increase in provision for loan losses expense, and a decline in net income and retained earnings.

The timing of the expense recognition around the termination of the bank’s defined benefit plan was restated, moving a portion of the plan expense out of 2021 and into 2022 to reflect the correct expense recognition based on the timeframe of the plan’s termination. This restatement reduced salaries and employees’ benefits expense in 2021 and increased net income and retained earnings as well as reduced accumulated other comprehensive income within stockholders’ equity. In 2022, salaries and employees’ benefits expenses increased and net income and retained earnings decreased.

As a result of these corrections of errors, the Company has restated the accompanying 2022 and 2021 financial statements.

F-75

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 19 – Restated Financial Statement Adjustments (continued)

The following is a summary of the impact of the restatement on the Company’s December 31, 2022, consolidated balance sheet:

(000’s)		December 31, 2022
		As Previously Reported			Correction of Errors			As Restated
Loans held for investments	$	466,265		$	(2,905	)	$	463,360
Allowance for Loan Losses		(6,043	)		1,265			(4,778	)
Loans held for investments, net		460,222			(1,640	)		458,582
Deferred Income Tax Asset		5,211			(287	)		4,924
Prepaid and other assets		4,238			710			4,948
Total Assets		575,556			(1,216	)		574,340
Accrued interest and other liabilities		5,419			233			5,652
Total Liabilities		524,869			233			525,102
Retained earnings		30,462			(1,449	)		29,013
Total Stockholders’ Equity		50,687			(1,449	)		49,238
Total Liabilities and Stockholders’ Equity		575,556			(1,216	)		574,340

The following is a summary of the impact of the restatement on the Company’s December 31, 2022, consolidated statements of comprehensive income:

(000’s except earnings per share information)	December 31, 2022
	As Previously Reported			Correction of Errors			As Restated
Interest and fees on loans	$	21,865		$	(47	)	$	21,818
Total interest income		23,808			(47	)		23,761
Net interest income		18,494			(47	)		18,447
Provision for loan losses		780			1,640			2,420
Net Interest Income After Provision for Loan Losses		17,714			(1,687	)		16,027
Salaries and employee benefits		7,274			1,935			9,209
Total non-interest expense		13,367			1,935			15,302
Income before provision for income taxes		5,011			(3,623	)		1,388
Provision for Income tax		996			(938	)		58
Net Income		4,015			(2,685	)		1,330
Other comprehensive (loss)		(9,603	)		1,735			(7,868	)
Tax effect of other comprehensive (loss)		2,442			(427	)		2,015
Other comprehensive income (loss), net of tax		(7,161	)		1,308			(5,853	)
Comprehensive Income (Loss)		(3,146	)		(1,377	)		(4,523	)

Earnings per common share – Basic		1.69			(1.13	)		0.56
Earnings per common share – Diluted		1.68			(1.12	)		0.56

The following is a summary of the impact of the restatement on the Company’s December 31, 2022, consolidated statements of changes in stockholders’ equity:

(000’s)
		As Previously Reported		Correction of Errors			As Restated
Balance on December 31, 2021	$	40,742	$	(72	)	$	40,670
Net income for 2022		4,015		(2,685	)		1,330
Defined benefit plan		—		1,308			1,308
Retained Earnings		30,462		(1,449	)		29,013
Total Stockholders’ Equity		50,687		(1,449	)		49,238

F-76

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 19 – Restated Financial Statement Adjustments (continued)

The following is a summary of the impact of the restatement on the Company’s December 31, 2022, consolidated statements of cash flows:

(000’s)		December 31, 2022
		As Previously Reported			Correction of Errors			As Restated
Net income	$	4,015		$	(2,685	)	$	1,330
Provisions for loan losses		780			1,640			2,420
Deferred income tax expense		(24	)		(167	)		(191	)
Prepaid and other assets		(1,172	)		1,024			(148	)
Accrued interest and other liability		407			(194	)		213

The following is a summary of the impact of the restatement on the Company’s December 31, 2021, consolidated balance sheet:

(000’s)	December 31, 2021
		As Previously Reported		Correction of Errors			As Restated
Deferred Income Tax Asset	$	2,743	$	357		$	3,100
Total Assets		527,652		357			528,009
Accrued interest and other liabilities		5,012		429			5,441
Total Liabilities		486,910		429			487,339
Retained earnings		27,147		1,236			28,383
Accumulated other comprehensive (loss) income, net		388		(1,308	)		(920	)
Total Stockholders’ Equity		40,742		(72	)		40,670
Total Liabilities and Stockholders’ Equity		527,652		357			528,009

The following is a summary of the impact of the restatement on the Company’s December 31, 2021, consolidated statements of comprehensive income:

(000’s except earnings per share information)	December 31, 2021
	As Previously Reported			Correction of Errors			As Restated
Salaries and employee benefits	$	9,545			(1,659	)		8,341
Total non-interest expense		15,245			(1,658	)		13,587
Income before provision for income taxes		4,268			1,658			5,926
Provision for Income tax		868			423			1,291
Net Income		3,400			1,235			4,635
Other comprehensive (loss)		(8	)		(1,734	)		(1,742	)
Tax effect of other comprehensive (loss)		7			426			433
Other comprehensive income (loss), net of tax		(1	)		(1,308	)		(1,309	)
Comprehensive Income (Loss)		3,399			(73	)		3,326

Earnings per common share – Basic		1.24			0.45			1.69
Earnings per common share – Diluted		1.24			0.45			1.69

F-77

Bancorp 34, Inc.

Notes To Consolidated Financial Statements (continued)

Note 19 – Restated Financial Statement Adjustments (continued)

The following is a summary of the impact of the restatement on the Company’s December 31, 2021, consolidated statements of changes in stockholders’ equity:

(000’s)	December 31, 2021
		As Previously Reported		Correction of Errors			As Restated
Net income for 2021	$	3,400	$	1,235		$	4,635
Defined benefit plan		1,347		(1,308	)		39
Retained earnings		27,147		1,236			28,383
Accumulated other comp. income (loss), net		388		(1,308	)		(920	)
Total Stockholders’ Equity		40,742		(72	)		40,670

The following is a summary of the impact of the restatement on the Company’s December 31, 2021, consolidated statements of cash flows:

(000’s)	December 31, 2021
		As Previously Reported			Correction of Errors			As Restated
Net income	$	3,400		$	1,235		$	4,635
Deferred income tax expense		(625	)		71			(554	)
Prepaid and other assets		160			(1,735	)		(1,575	)
Accrued interest and other liability		133			429			562

Note 20 – Subsequent Events

Capital Raise: On January 27, 2023, the Company completed the second round of the capital raise through private placement. The terms of the raise were similar to the first round of the raise described in Note 17. Common shares issued totaled 848,089 (32,806 of which was issued as a portion of the payment for placement fees), non-voting preferred shares issued totaled 298,266, and warrants issued to purchase additional shares at $14.00 per share totaled 111,352. The warrants are exercisable in whole, or in part, anytime in the future until January 27, 2030. Cash received, net of issuance expense, totaled $15.0 million.

Definitive Agreement: The Company entered into a definitive merger agreement with CBOA Financial, Inc. on April 26, 2023. Under the terms of the agreement, CBOA Financial, Inc. shareholders will receive 0.24 shares of Bancorp 34, Inc. common stock for each share of CBOA Financial, Inc. common stock they own and the deal will have an aggregate deal value of approximately $28 million. Bancorp 34, Inc. shareholders will own approximately 65%, and CBOA Financial, Inc. shareholders will own approximately 35%, of the pro forma company. At March 31, 2023, CBOA Financial, Inc. had total assets of $372 million, total liabilities of $341 million, and total stockholders’ equity of $31 million.

F-78

INDEX TO FINANCIAL STATEMENTS OF CBOA Financial, Inc.

For the Three Months Ended March 31, 2023 (Unaudited)
Consolidated Balance Sheets as of March 31, 2022 and December 31, 2023		F-80
Consolidated Statements of Income for the three months ended March 31, 2023 and 2022		F-81
Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2023 and 2022		F-82
Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2023		F-83
Consolidated Statements of Stockholders’ Equity for the year ended March 31, 2022		F-84
Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022		F-85
Notes to Consolidated Financial Statements		F-86

For the Years Ended December 31, 2022 and 2021 (Audited)
Report of Independent Registered Public Accounting Firm		F-124
Consolidated Balance Sheets		F-126
Consolidated Statements of Income		F-127
Consolidated Statements of Comprehensive Income (Loss)		F-128
Consolidated Statements of Stockholders’ Equity		F-129
Consolidated Statements of Cash Flows		F-130
Notes to Consolidated Financial Statements		F-131

F-79

CBOA Financial, Inc. and Subsidiary

Consolidated Balance Sheets

March 31, 2023 (unaudited) and December 31, 2022 (derived from audited financial statements)

(in thousands except shares and per share data)

	March 31, 2023			December 31, 2022
Assets
Cash and cash equivalents	$	27,828		$	16,692
Securities available for sale “AFS”, net of allowance for credit losses of $0 as of March 31, 2023		60,221			65,497
Federal Home Loan Bank “FHLB” stock, at cost		1,269			1,269
Loans		277,079			281,020
Allowance for credit losses		(3,716	)		(3,716	)
Loans, net		273,363			277,304
Leasehold improvements and equipment, net		1,873			1,928
Operating right-of-use assets		3,481			3,515
Deferred income taxes		2,312			2,612
Foreclosed and repossessed assets, net