Bogota Financial Corp. - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File No. 001-39180

Bogota Financial Corp.

(Exact Name of Registrant as Specified in Its Charter)


Maryland		84-3501231
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

819 Teaneck Road Teaneck, New Jersey		07666
(Address of Principal Executive Offices)		(Zip Code)

(201) 862-0660

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	BSBK	The Nasdaq Stock Market, LLC

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

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

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

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

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

As of October 31, 2021, there were 14,631,679 shares issued and outstanding of the registrant’s common stock, par value $0.01 per share

Bogota Financial Corp.

Form 10-Q

Table of Contents


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Consolidated Statements of Financial Condition at September 30, 2021 (unaudited) and December 31, 2020	1

	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)	2

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)	3

	Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)	4

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.	Controls and Procedures	42

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 3.	Defaults Upon Senior Securities	43

Item 4.	Mine Safety Disclosures	43

Item 5.	Other Information	43

Item 6.	Exhibits	44

	SIGNATURES	45

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

BOGOTA FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	As of			As of
	September 30, 2021			December 31, 2020
Assets	(unaudited)
Cash and due from banks	$	9,044,291		$	5,957,564
Interest-bearing deposits in other banks		107,284,223			74,428,175
Cash and cash equivalents		116,328,514			80,385,739
Securities available for sale		18,212,547			11,870,508
Securities held to maturity (fair value of $75,904,990 and $58,872,451, respectively)		75,020,011			57,504,443
Loans held for sale		996,393			—
Loans, net of allowance of $2,153,174 and $2,241,174, respectively		579,914,636			557,690,853
Premises and equipment, net		8,130,775			5,671,097
Federal Home Loan Bank (FHLB) stock and other restricted securities		5,134,000			5,858,100
Accrued interest receivable		2,725,700			2,855,425
Core deposit intangibles		354,877			—
Bank-owned life insurance		25,307,462			16,915,637
Other assets		2,908,487			2,153,076
Total Assets	$	835,033,402		$	740,904,878
Liabilities and Equity
Non-interest bearing deposits	$	36,207,139		$	27,061,629
Interest bearing deposits		555,012,875			474,911,402
Total Deposits		591,220,014			501,973,031
FHLB advances		90,102,901			104,290,920
Advance payments by borrowers for taxes and insurance		3,589,197			2,560,089
Other liabilities		4,506,174			3,612,762
Total liabilities		689,418,286			612,436,802
Commitments and Contingencies		—			—
Stockholders’ Equity
Preferred stock $0.01 par value 1,000,000 shares authorized, none issued and outstanding at September 30, 2021 and December 31, 2020		—			—
Common stock $0.01 par value, 30,000,000 shares authorized, 14,631,679 issued and outstanding at September 30, 2021 and 13,157,525 at December 31, 2020		146,316			131,575
Additional paid-in capital		68,291,158			56,975,187
Retained earnings		82,846,943			77,359,737
Unearned ESOP shares (469,980 shares at September 30, 2021 and 489,983 shares at December 31, 2020)		(5,499,507	)		(5,725,410	)
Accumulated other comprehensive loss		(169,794	)		(273,013	)
Total stockholders’ equity		145,615,116			128,468,076
Total liabilities and stockholders’ equity	$	835,033,402		$	740,904,878

See accompanying notes to unaudited consolidated financial statements.

BOGOTA FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021			2020
Interest income
Loans	$	5,967,013	$	5,391,077	$	17,116,855		$	15,734,259
Securities
Taxable		410,867		367,857		1,473,018			1,204,056
Tax-exempt		13,411		13,136		38,794			38,017
Other interest-earning assets		94,343		131,215		332,603			660,492
Total interest income		6,485,634		5,903,285		18,961,270			17,636,824
Interest expense
Deposits		1,040,669		1,836,627		3,354,897			6,194,460
FHLB advances		369,352		472,506		1,176,985			1,478,432
Total interest expense		1,410,021		2,309,133		4,531,882			7,672,892
Net interest income		5,075,613		3,594,152		14,429,388			9,963,932
Provision (credit) for loan losses		25,000		25,000		(88,000	)		275,000
Net interest income after provision (credit) for loan losses		5,050,613		3,569,152		14,517,388			9,688,932
Non-interest income
Fees and service charges		53,696		13,407		98,989			45,451
Gain on sale of loans		127,111		—		647,213			—
Bargain purchase gain		—		—		1,933,397			—
Bank-owned life insurance		156,992		90,359		391,825			939,160
Other		36,613		4,287		154,882			12,470
Total non-interest income		374,412		108,053		3,226,306			997,081
Non-interest expense
Salaries and employee benefits		2,029,021		1,330,540		5,603,408			3,790,526
Occupancy and equipment		338,604		166,592		899,777			495,509
FDIC insurance assessment		49,000		45,000		163,300			116,000
Data processing		256,953		182,202		777,789			493,439
Advertising		60,000		30,000		180,000			131,814
Director fees		207,012		181,916		622,131			547,091
Professional fees		128,514		239,375		596,280			642,888
Merger fees		—		—		392,197			—
Core conversion costs		370,000		—		730,000			—
Contribution to charitable foundation		—		—		—			2,881,500
Other		337,002		218,395		820,803			527,560
Total non-interest expense		3,776,106		2,394,020		10,785,685			9,626,327
Income before income taxes		1,648,919		1,283,185		6,958,009			1,059,686
Income tax expense		606,744		326,769		1,470,803			37,781
Net income	$	1,042,175	$	956,416	$	5,487,206		$	1,021,905
Earnings per Share (basic and diluted)	$	0.07	$	0.08	$	0.40		$	0.09
Weighted average shares outstanding		14,019,317		12,657,453		13,694,117			12,004,881

See accompanying notes to unaudited consolidated financial statements.

BOGOTA FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	Three months ended September 30,						Nine months ended September 30,
	2021			2020			2021			2020
Net income	$	1,042,175		$	956,416		$	5,487,206		$	1,021,905
Other comprehensive income:
Net of unrealized gains/(loss) on securities available for sale:
Net of unrealized holding (loss) gain arising during the period		(16,259	)		45,268			12,622			(12,515	)
Tax effect		4,570			(12,725	)		(3,548	)		3,519
Net of tax		(11,689	)		32,543			9,074			(8,996	)
Defined benefit retirement plans:
Reclassification adjustment for amortization of prior service cost and net gain/loss included in salaries and employee benefits		43,653			38,803			130,959			116,409
Tax effect		(12,270	)		(10,907	)		(36,814	)		(32,720	)
Net of tax		31,383			27,896			94,145			83,689
Total other comprehensive income		19,694			60,439			103,219			74,693
Comprehensive income	$	1,061,869		$	1,016,855		$	5,590,425		$	1,096,598

See accompanying notes to unaudited consolidated financial statements.

BOGOTA FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited)


	Common Stock Shares			Common Stock			Paid-in Capital			Retained Earnings			Unearned ESOP shares			Accumulated Other Comprehensive Income (Loss)			Total stockholders' Equity
Balance January 1, 2020		—		$	—		$	—		$	75,291,512		$	—		$	(313,665	)	$	74,977,847
Net loss		—			—			—			(1,337,583	)		—			—			(1,337,583	)
Other comprehensive loss		—			—			—			—			—			(113,532	)		(113,532	)
Issuance of common stock for initial public offering, net of expenses		12,894,375			128,943			54,425,094			—			—			—			54,554,037
Issuance of common stock to the Charitable Foundation		263,150			2,632			2,628,868			—			—			—			2,631,500
Stock purchase by the ESOP		—			—			—			—			(6,022,899	)		—			(6,022,899	)
Balance March 31, 2020		13,157,525		$	131,575		$	57,053,962		$	73,953,929		$	(6,022,899	)	$	(427,197	)	$	124,689,370
Net income		—			—			—			1,403,073			—			—			1,403,073
Other comprehensive income		—			—			—			—			—			127,785			127,785
ESOP shares released								(31,730	)		—			143,453			—			111,723
Balance June 30, 2020		13,157,525		$	131,575		$	57,022,232		$	75,357,002		$	(5,879,446	)	$	(299,412	)	$	126,331,951
Net income		—			—			—			956,416			—			—			956,416
Other comprehensive income		—			—			—			—			—			60,439			60,439
ESOP shares released		—			—			(25,925	)		—			77,018			—			51,093
Balance September 30, 2020		13,157,525		$	131,575		$	56,996,307		$	76,313,418		$	(5,802,428	)	$	(238,973	)	$	127,399,899
Balance January 1, 2021		13,157,525		$	131,575		$	56,975,187		$	77,359,737		$	(5,725,410	)	$	(273,013	)	$	128,468,076
Net Income		—			—			—			3,006,307			—			—			3,006,307
Other comprehensive income		—			—			—			—			—			42,932			42,932
Issuance of common stock to Bogota MHC		1,267,916			12,679			11,487,321			—			—			—			11,500,000
ESOP Shares released		—			—			(14,466	)		—			75,301			—			60,835
Balance March 31, 2021		14,425,441		$	144,254		$	68,448,042		$	80,366,044		$	(5,650,109	)	$	(230,081	)	$	143,078,150
Net Income		—			—			—			1,438,724			—			—			1,438,724
Other comprehensive income		—			—			—			—			—			40,593			40,593
ESOP Shares released		—			—			(10,666	)		—			75,301						64,635
Balance June 30, 2021		14,425,441		$	144,254		$	68,437,376		$	81,804,768		$	(5,574,808	)	$	(189,488	)	$	144,622,102
Net Income		—			—			—			1,042,175			—			—			1,042,175
Other comprehensive income		—			—			—			—			—			19,694			19,694
Stock Based Compensation		—			—			77,731			—			—			—			77,731
Issuance of common stock to equity plan		226,519			2,265			(2,265	)		—			—			—			—
Stock repurchased and retired		(20,281	)		(203	)		(213,078	)		—			—			—			(213,281	)
ESOP Shares released		—			—			(8,606	)		—			75,301			—			66,695
Balance September 30, 2021		14,631,679		$	146,316		$	68,291,158		$	82,846,943		$	(5,499,507	)	$	(169,794	)	$	145,615,116

See accompanying notes to unaudited consolidated financial statements.

BOGOTA FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	For the nine months ended September 30,
	2021			2020
Cash flows from operating activities
Net income	$	5,487,206		$	1,021,905
Adjustments to reconcile net income to net cash from operating activities:
Bargain purchase gain		(1,933,397	)		—
Amortization of intangible assets		(664,357	)		—
(Credit) provision for loan losses		(88,000	)		275,000
Depreciation of premises and equipment		280,399			204,459
Amortization of deferred loan fees, net		478,658			493,186
Amortization of premiums and accretion of discounts on securities, net		139,964			61,144
Deferred income tax expense (benefit)		490,567			(652,235	)
Contribution to charitable foundation		—			2,631,500
Gain on sale of loans		(647,213	)		—
Increase in cash surrender value of bank owned life insurance		(391,825	)		(281,270	)
Employee stock ownership plan expense		192,166			162,816
Stock based compensation		77,731			—
Changes in:
Accrued interest receivable		432,652			(960,953	)
Net changes in other assets		(214,951	)		1,233,582
Net changes in other liabilities		276,512			542,474
Net cash provided by operating activities		3,916,112			4,731,608
Cash flows from investing activities
Purchases of securities held to maturity		(30,485,194	)		(15,414,965	)
Purchases of securities available for sale		(9,261,276	)		—
Maturities, calls, and repayments of securities available for sale		2,791,895			1,397,520
Maturities, calls, and repayments of securities held to maturity		20,011,576			17,682,171
Proceeds from sale of loans		19,968,351			—
Net decrease (increase) in loans		34,272,703			(45,557,267	)
Loans purchased		—			(1,869,667	)
Purchase of Bank Owned Life Insurance		(8,000,000	)		—
Net cash acquired in merger		19,393,090			—
Death benefit proceeds from bank owned life insurance		—			863,921
Purchases of premises and equipment		(1,300,470	)		(316,822	)
Purchase of FHLB Stock		(463,900	)		(834,100	)
Redemption of FHLB stock		1,811,500			441,600
Net cash provided by (used in) investing activities		48,738,275			(43,607,609	)

See accompanying notes to unaudited consolidated financial statements.

BOGOTA FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited) continued


	For the nine months ended September 30,
	2021			2020
Cash flows from financing activities net of effects of business combinations
Net increase in deposits		7,475,952			13,115,477
Net (decrease) increase in short-term FHLB advances		(9,000,000	)		7,000,000
Proceeds from long-term FHLB non-repo advances		8,000,000			19,500,000
Repayments of long-term FHLB non-repo advances		(23,356,730	)		(15,444,743	)
Loan to ESOP		—			(6,022,899	)
Stock offering expenses		—			(1,973,312	)
Return of unfilled stock offering subscriptions		—			(41,505,998	)
Common stock issuance		—			7,683,507
Repurchase of common stock		(213,281	)		—
Net increase in advance payments from borrowers for taxes and insurance		382,447			73,642
Net cash used in financing activities		(16,711,612	)		(17,574,326	)
Net increase (decrease) in cash and cash equivalents		35,942,775			(56,450,327	)
Cash and cash equivalents at beginning of year		80,385,739			127,862,559
Cash and cash equivalents at September 30	$	116,328,514		$	71,412,232
Supplemental cash flow information
Subscription offering proceeds used to purchase common stock	$	—		$	48,843,842
Income taxes paid	$	1,355,000		$	800,000
Interest paid	$	3,157,098		$	7,793,048

Non-cash investment and financing activities
Fair value of assets acquired, net of cash and cash equivalents acquired	$	87,352,754		$	—
Fair value of liabilities assumed	$	93,312,447		$	—

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation: On January 15, 2020, Bogota Financial Corp. (the “Company,” “we” or “our”) became the mid-tier stock holding company for Bogota Savings Bank (the “Bank”) in connection with the reorganization of Bogota Savings Bank into the two-tier mutual holding company structure.

The Bank maintains two subsidiaries. Bogota Securities Corp. was formed for the purpose of buying, selling and holding investment securities. Bogota Properties, LLC was inactive at September 30, 2021 and December 31, 2020.

The Bank generally originates residential, commercial and consumer loans to, and accepts deposits from, customers in New Jersey. The debtors’ ability to repay the loans is dependent upon the region’s economy and the borrowers’ circumstances. The Bank is also subject to the regulations of certain federal and state agencies and undergoes periodic examination by those regulatory authorities.

The Company completed its stock offering in connection with the mutual holding company reorganization of the Bank on January 15, 2020. The Company sold 5,657,735 shares of common stock at $10.00 per share resulting in net proceeds of $54.6 million after $2.0 million of expenses. In connection with the reorganization, the Company also issued 263,150 shares of common stock and contributed $250,000 in cash to Bogota Savings Bank Charitable Foundation, Inc., and issued 7,236,640 shares of common stock to Bogota Financial, MHC, its New Jersey-chartered mutual holding company. Shares of the Company’s common stock began trading on January 16, 2020 on the Nasdaq Capital Market under the trading symbol “BSBK.”

Reclassifications: Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or stockholders' equity.

Earnings per Share: Basic earnings per share (“EPS”) is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. For purposes of calculating basic EPS, weighted average common shares outstanding excludes unallocated employee stock ownership plan shares that have not been committed for release. Diluted EPS is computed using the same method as basic EPS and reflects the potential dilution which could occur if stock options shares were exercised and converted into common stock. The potentially diluted shares would then be included in the weighted average number of shares outstanding for the period using the treasury stock method. For the three-month period ended September 30, 2021 options to purchase 526,119 common shares with an exercise price of $10.45 were outstanding but were not included in the computation of diluted earnings per common share because to do so would be anti-dilutive. The Company did not have any outstanding stock options or shares of restricted stock for the three-and-nine month periods ended September 30, 2020.

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations for the three and nine months ended September 30, 2021 and 2020.


	For the three months ended September 30, 2021		For the three months ended September 30, 2020		For the nine months ended September 30, 2021		For the nine months ended September 30, 2020
Numerator
Net income	$	1,042,175	$	956,416	$	5,487,206	$	1,021,905
Denominator:
Weighted average shares outstanding - basic		14,019,317		12,657,453		13,694,117		12,004,881
Effect of stock plans		—		—		—		—
Weighted average shares outstanding - diluted		14,019,317		12,657,453		13,694,117		12,004,881
Earnings per common share:
Basic	$	0.07	$	0.08	$	0.40	$	0.09
Diluted		0.07		0.08		0.40		0.09

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions effect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

Risks and Uncertainties: The COVID-19 pandemic has adversely affected, and may continue to adversely affect, local, national and global economic activity. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted to, among other provisions, provide emergency assistance for individuals, families and businesses affected by the COVID-19 pandemic. The effects of the COVID-19 pandemic may materially and adversely affect the Company’s financial condition and results of operations in future periods. It is unknown how long the adverse conditions associated with the COVID-19 pandemic will last and what the complete financial effect will be to the Company. It is possible that estimates made in the financial statements could be materially and adversely impacted as a result of these COVID-19-related conditions, including estimates regarding expected credit losses on loans receivable and other-than-temporary impairment of investment securities.

Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the requirements for reporting in Article 10 of Regulation S-X of the Securities Exchange Act of 1934, as amended. The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards. These financial statements include the accounts of the Company, the Bank and its subsidiaries, and all significant intercompany balances and transactions are eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on available information. In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures necessary for the fair presentation of the accompanying consolidated financial statements have been included. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year or any other period.

The unaudited financial statements and other financial information contained in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements, and related notes, of Bogota Financial Corp. at and for the year ended December 31, 2020.

Acquired Loans: Loans acquired including loans that have evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments receivable, are initially recorded at fair value (as determined by the present value of expected future cash flows or the fair value of the loan's collateral value if the loan is collateral dependent) with no valuation allowance and are referenced to herein as purchase credit impaired (PCI). Loans are evaluated individually to determine if there is evidence of deterioration of credit quality since origination. The difference between the undiscounted cash flows expected at acquisition and the investment in the loan, or the “accretable yield,” is recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment or as a loss accrual or a valuation allowance. Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining estimated life. Decreases in expected cash flows are recognized immediately as impairment. Any valuation allowances on these impaired loans reflect only losses incurred after the acquisition.

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

For purchased loans acquired that are not PCI loans at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value. Loans may be aggregated and accounted for as a pool of loans if the loans being aggregated have common risk characteristics. Subsequent to the purchase date, the methods utilized to estimate the required allowance for credit losses for these loans is similar to originated loans; however, the Company records a provision for loan losses only when the required allowance exceeds any remaining credit discounts. The remaining differences between the purchase price and the unpaid principal balance at the date of acquisition are recorded in interest income over the life of the loans.

Not Yet Effective Accounting Pronouncements: In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which will supersede the current lease requirements in Topic 840. The ASU requires lessees to recognize a right of use asset and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of income. Currently, leases are classified as either capital or operating, with only capital leases recognized on the balance sheet. The reporting of lease related expenses in the statements of operations and cash flows will be generally consistent with the current guidance. In May 2020, FASB amended the effective date of the new guidance on Leases. The amendment and related new guidance on Leases are effective for the Company for the fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. The Company is currently evaluating the effect on the financial statements when adopted.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. ASU 2016-13 requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements.

The effective date of ASU 2016-13 for the Company is the fiscal year beginning on January 1, 2023 and interim periods within those fiscal years. The Company does not plan to early adopt, but will continue to review factors that might indicate that the full deferral time period should not be used. The Company continues to evaluate the impact the new standard will have on the accounting for credit losses, but the Company may recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016. The Company cannot yet determine the magnitude of any such one-time cumulative adjustment or of the overall impact of the new standard on its consolidated financial condition or results of operations.

NOTE 2 – ACQUISITION OF GIBRALTAR BANK

On February 28, 2021, the Company completed its acquisition of Gibraltar Bank. Pursuant to the terms of the Merger Agreement, Gibraltar Bank merged with and into the Bank, with the Bank as the surviving entity. Under the terms of the merger agreement, depositors of Gibraltar Bank became depositors of the Bank and have the same rights and privileges in Bogota Financial MHC as if their accounts had been established at the Bank on the date established at Gibraltar Bank. The Company issued 1,267,916 shares of its common stock to Bogota Financial, MHC in conjunction with the acquisition.

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their fair values as of February 28, 2021 based on management’s best estimate using the information available as of the merger date. The application of the acquisition method of accounting resulted in the recognition of bargain purchase gain of $1.9 million and a core deposit intangible of $400,000.

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 2 – ACQUISITION OF GIBRALTAR BANK (Continued)

Merger-related expenses of $392,000 for 2021 are recorded in the Consolidated Statements of Income and were expensed as incurred. The following table sets forth assets acquired and liabilities assumed in the acquisition of the Gibraltar Bank, at their estimated fair values as of the closing date of the transaction:


	As recorded by Gibraltar Bank			Fair value adjustments				As recorded at acquisition
Fair value of Equity acquired								$	11,500,000
Assets Acquired
Cash and cash equivalents	$	19,393,090		$	—			$	19,393,090
Securities held to maturity		7,250,000			(208,051	)	(a)		7,041,949
Federal Home Loan Bank stock and other restricted stock		603,500			—				603,500
Loans receivable		77,683,903			(920,497	)	(b)		76,763,406
Allowance for loan loss		(640,232	)		640,232		(c)		—
Accrued interest receivable		302,927			—				302,927
Premises and equipment, net		348,714			1,079,647		(d)		1,428,361
Core deposit intangible		—			400,000		(e)		400,000
Deferred taxes		913,303			(184,973	)	(f)		728,330
Other assets		362,636			(278,355	)	(g)		84,281
Total assets acquired	$	106,217,841		$	528,003			$	106,745,844
Liabilities assumed
Deposits	$	81,558,612		$	386,865		(h)	$	81,945,477
Borrowings		10,000,000			273,721		(i)		10,273,721
Advance payments by borrowers for taxes and insurance		646,661			—				646,661
Accrued expenses and other liabilities		446,588			—				446,588
Total liabilities assumed	$	92,651,861		$	660,586			$	93,312,447
Net assets acquired								$	13,433,397
Bargain purchase gain recorded at merger									1,933,397

Explanation of certain fair value related adjustments:


(a)	Represents the fair value adjustments on investment securities at the acquisition date.
(b)	Represents the fair value adjustments on the net book value of loans, which includes an interest rate mark and credit mark adjustment and the reversal of deferred fees/costs and premiums over estimated useful life.


(c)	Represents the elimination of Gibraltar Bank allowance for loan losses.
(d)	Represents the fair value adjustments to reflect the fair value of land and buildings and premises and equipment, which will be amortized on a straight-line basis over the estimated useful lives of the individual assets.


(e)	Represents the intangible assets recorded to reflect the fair value of core deposits. The core deposit asset was recorded as an identifiable intangible asset and will be amortized on an accelerated basis over the estimated average life of the deposit base.
(f)	Represents an adjustment to net deferred tax assets resulting from the fair value adjustments related to the acquired assets, liabilities assumed and identifiable intangible assets recorded.


(g)	Represents an adjustment to other assets acquired.
(h)	Represents fair value adjustments on time deposits, which will be treated as a reduction of interest expense over the remaining term of the time deposits.


(i)	Represents FHLB borrowing calculation to prepay borrowings, which will be treated as a reduction of interest expense.

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 2 – ACQUISITION OF GIBRALTAR BANK (Continued)

The fair value of loans acquired from Gibraltar Bank was estimated using cash flow projections based on the remaining maturity and repricing terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. There was no carryover of Gibraltar Bank's allowance for loan losses associated with the loans that were acquired. The core deposit intangible asset recognized is being amortized over its estimated useful life of approximately 10 years utilizing the sum-of-the-years digits method. The acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. Accordingly, the Company recognizes amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair value. Due to the complexity in valuing the assets acquired and liabilities assumed, and the significant amount of data inputs required, the valuation of the assets and liabilities acquired is not yet final. Fair value estimates are based on the information available at the reporting date and are subject to change for up to one year after the closing date of the acquisition as additional information relative to the closing date fair values becomes available.

The fair value of PCI loans was $6.1 million on the date of acquisition. The gross contractual amounts receivable relating to the PCI loans was $8.3 million.

Certain PCI loans, for which specific credit-related deterioration was identified, are recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition on these loans is based on a reasonable expectation of the timing and amount of cash flows to be collected. The timing of the sale of loan collateral was estimated for acquired loans deemed impaired and considered collateral dependent. For these collateral dependent impaired loans, the excess of the future expected cash flows over the present value of the future expected cash flows represents the accretable yield, which will be accreted into interest income over the estimated liquidation period using the effective interest method.

The following table details the PCI loans that are accounted for in accordance with FASB ASC 310-30 as of March 1, 2021:

(Dollars in thousands)


Contractually required principal and interest at acquisition	$	8,346
Contractual cash flows not expected to be collected (nonaccretable difference)		(1,412	)
Expected cash flows at acquisition		6,934
Interest component of expected cash flows (accretable discount)		(846	)
Fair value of acquired PCI loans	$	6,088

Acquired loans not subject to the requirements of FASB ASC 310-30 are recorded at fair value. The fair value mark on each of these loans will be accreted into interest income over the remaining life of the loan. The following table details loans that were not identified as PCI loans as of March 1, 2021:

(Dollars in thousands)


Contractually required principal at acquisition	$	91,906
Contractual cash flows not expected to be collected (credit mark)		(9,978	)
Expected cash flows at acquisition		81,928
Interest component of expected cash flows (accretable premium)		143
Fair value of acquired loans accounted for under FASB ASC 310-30	$	82,071

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 2 – ACQUISITION OF GIBRALTAR BANK (Continued)

The following table presents actual operating results attributable to Gibraltar Ban0.7k since the March 1, 2021 acquisition date through September 30, 2021. This information does not include purchase accounting adjustments or acquisition integration costs.


	Gibraltar March 1, 2021 to September 30, 2021
Net interest income	$	1,479
Non-interest income		1,050
Non-interest expense		357
Pre-tax income		2,172
Income tax expense		611
Net Income	$	1,561

The fair value of retail demand and interest bearing deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. The fair value of time deposits was estimated by discounting the contractual future cash flows using market rates offered for time deposits of similar remaining maturities. The fair value of borrowings was based on the FHLB calculation to prepay borrowings with associated penalties.

NOTE 3 – SECURITIES AVAILABLE FOR SALE

The following table summarizes the amortized cost, fair value, and gross unrealized gains and losses of securities available for sale at September 30, 2021 and December 31, 2020:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2021
Corporate bonds due in:
One through five years	$	5,377,667	$	41,596	$	—		$	5,419,263
Five through ten years		1,002,690		7,567		—			1,010,257
MBSs – residential		9,449,748		111,567		(1,560	)		9,559,755
MBSs – commercial		2,229,927		—		(6,654	)		2,223,273
Total	$	18,060,031	$	160,730	$	(8,214	)	$	18,212,547

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2020
Corporate bonds due in:
Less than one year	$	1,001,354	$	954	$	—		$	1,002,308
One through five years		5,369,527		31,407		(4,186	)		5,396,748
MBSs – residential		5,359,734		114,426		(2,708	)		5,471,452
Total	$	11,730,615	$	146,787	$	(6,894	)	$	11,870,508

All of the mortgaged-backed securities (“MBSs”) are issued by the following government sponsored agencies Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and Government National Mortgage Association (“GNMA”).

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 3 – SECURITIES AVAILABLE FOR SALE (Continued)

There were no sales of securities during the nine months ended September 30, 2021 or September 30, 2020.

The age of unrealized losses and the fair value of related securities as of September 30, 2021 and December 31, 2020 were as follows:


	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2021
MBSs – residential	$	—	$	—		$	257,976	$	(1,560	)	$	257,976	$	(1,560	)
MBSs – commercial		2,223,273		(6,654	)		—		—			2,223,273		(6,654	)
Total	$	2,223,273	$	(6,654	)	$	257,976	$	(1,560	)	$	2,481,249	$	(8,214	)

	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2020
Corporate bonds	$	—	$	—		$	2,005,441	$	(4,186	)	$	2,005,441	$	(4,186	)
MBSs – residential		271,340		(2,708	)		—		—			271,340		(2,708	)
Total	$	271,340	$	(2,708	)	$	2,005,441	$	(4,186	)	$	2,276,781	$	(6,894	)

Unrealized losses on corporate bonds available for sale have not been recognized into income because the issuer bonds are of high credit quality, management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. At September 30, 2021, 100% of the mortgage-backed securities were issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Bank does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Bank does not consider these securities to be other-than-temporary impaired at September 30, 2021. At September 30, 2021 and December 31, 2020, securities available for sale with a carrying value of $171,699 and $214,229, respectively, were pledged to secure public deposits.

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 4 – SECURITIES HELD TO MATURITY

The following table summarizes the amortized cost, fair value, and gross unrecognized gains and losses of securities held to maturity at September 30, 2021 and December 31, 2020:


	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
September 30, 2021
U.S. Government-sponsored agencies due in:
More than ten years	$	500,569	$	193	$	—		$	500,762
Corporate bonds due in:
Five through ten years		13,674,044		480,996		(26,307	)		14,128,733
Municipal obligations due in:
Less than one year		4,006,508		11,935		(5,112	)		4,013,331
One through five years		320,000		6,944		—			326,944
Five through ten years		375,000		30,848		—			405,848
Greater than ten years		1,223,516		100		—			1,223,616
MBSs:
Residential		18,036,058		162,791		(156,333	)		18,042,516
Commercial		36,884,316		593,461		(214,537	)		37,263,240
Total	$	75,020,011	$	1,287,268	$	(402,289	)	$	75,904,990

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
December 31, 2020
Corporate bonds due in:
Less than one year	$	1,501,179	$	13,616	$	—		$	1,514,795
One through five years		8,635,831		221,716		(2,520	)		8,855,027
Municipal obligations due in:
Less than one year		2,764,079		4,944		(141	)		2,768,882
One through five years		1,057,609		30,492		—			1,088,101
Five through ten years		375,000		32,201		—			407,201
MBSs:
Residential		11,906,884		144,863		(15,440	)		12,036,307
Commercial		31,263,861		997,319		(59,042	)		32,202,138
Total	$	57,504,443	$	1,445,151	$	(77,143	)	$	58,872,451

All of the MBSs are issued by the following government sponsored agencies: FHLMC, FNMA and GNMA.

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 4 – SECURITIES HELD TO MATURITY (Continued)

The age of unrecognized losses and the fair value of related securities were as follows:


	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrecognized Losses			Fair Value		Unrecognized Losses			Fair Value		Unrecognized Losses
September 30, 2021
Corporate bonds	$	3,160,897	$	(26,307	)	$	—	$	—		$	3,160,897	$	(26,307	)
Municipal bonds		2,944,888		(5,112	)		—		—			2,944,888		(5,112	)
MBSs – residential		6,200,644		(155,293	)		81,842		(1,040	)		6,282,486		(156,333	)
MBSs – commercial		10,377,986		(77,071	)		2,483,979		(137,466	)		10,377,986		(214,537	)
Total	$	22,684,415	$	(263,783	)	$	2,565,821	$	(138,506	)	$	22,766,257	$	(402,289	)

	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrecognized Losses			Fair Value		Unrecognized Losses			Fair Value		Unrecognized Losses
December 31, 2020
Corporate bonds	$	747,480	$	(2,520	)	$	—	$	—		$	747,480	$	(2,520	)
Municipal bonds		1,436,454		(141	)		—		—			1,436,454		(141	)
MBSs – residential		2,403,485		(15,440	)		—		—			2,403,485		(15,440	)
MBSs – commercial		2,652,666		(59,042	)		—		—			2,652,666		(59,042	)
Total	$	7,240,085	$	(77,143	)	$	—	$	—		$	7,240,085	$	(77,143	)

Unrecognized losses have not been recognized into income because the issuers of the securities are of high credit quality, management does not intend to sell and it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The fair value is expected to recover as the securities approach maturity. At September 30, 2021 and December 31, 2020, securities held to maturity with a carrying amount of $8,366,498 and $11,057,973, respectively, were pledged to secure repurchase agreements at the Federal Home Loan Bank of New York.

At September 30, 2021 and December 31, 2020, securities held to maturity with a carrying value of $4,704,609 and $4,327,429, respectively, were pledged to secure public deposits.

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 5 – LOANS

Loans are summarized as follows at September 30, 2021 and December 31, 2020:


	September 30, 2021			December 31, 2020
Real estate:	(unaudited)
Residential	$	328,878,125		$	340,000,989
Commercial and multi-family real estate		177,530,098			171,634,451
Construction		37,150,933			9,930,959
Commercial and industrial		10,151,860			13,652,248
Consumer:
Home equity and other		28,356,794			24,713,380
Total loans		582,067,810			559,932,027
Allowance for loan losses		(2,153,174	)		(2,241,174	)
Net loans	$	579,914,636		$	557,690,853

The Bank has granted loans to officers and directors of the Bank. At September 30, 2021 and December 31, 2020, such loans totaled approximately $589,491 and $748,662, respectively. At September 30, 2021 and December 31, 2020 deferred loan fees were $1,291,544 and $1,844,233 respectively.

PCI loans are loans acquired at a discount primarily due to deteriorated credit quality. These loans are initially recorded at fair value at acquisition, based upon the present value of expected future cash flows, with no related allowance for loan losses. PCI loans acquired in the Gibraltar acquisition totaled $5.7 million at September 30, 2021.

The following table presents changes in accretable yield for PCI loans for the nine months ended September 30, 2021 and 2020.


	Nine months ended September 30, 2021			Nine months ended September 30, 2020
Balance at the beginning of period	$	—		$	—
Acquisition		217,789			—
Accretion		(45,095	)		—
Reclassification of non-accretable discount		—			—
Balance at the end of period	$	172,694		$	—

As a qualified Small Business Administration lender, the Bank was automatically authorized to originate loans under the Paycheck Protection Program (“PPP”). During 2020, the Bank received and processed 113 PPP applications totaling approximately $10.5 million. The Bank participated in the second round of PPP loans and during the first half of 2021, the Bank received and processed 54 applications totaling $6.9 million. All outstanding PPP loans are included in the table above under commercial and industrial loans. Since origination, the Bank has processed forgiveness applications for $9.0 million and the outstanding balance at September 30, 2021 was $8.2 million.

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 5 – LOANS (Continued)

The following table presents the activity in the allowance for loan losses by portfolio segments for the three months ended September 30, 2021 and 2020.


	Residential First Mortgage			Commercial and Multi- Family Real Estate			Construction		Commercial and Industrial			Consumer		Total
Three months September 30, 2021
Allowance for loan losses:
Beginning balance	$	1,126,694		$	853,000		$	54,000	$	8,480		$	86,000	$	2,128,174
(Credit) provision for loan losses		195,880			(295,500	)		121,500		320			2,800		25,000
Loans charged off		—			—			—		—			—		—
Recoveries		—			—			—		—			—		—
Total ending allowance balance	$	1,322,574		$	557,500		$	175,500	$	8,800		$	88,800	$	2,153,174
September 30, 2020
Allowance for loan losses:
Beginning balance	$	1,357,674		$	770,000		$	34,500	$	16,000		$	88,000	$	2,266,174
(Credit) provision for loan losses		(50,500	)		70,000			6,000		(1,000	)		500		25,000
Loans charged off		—			—			—		—			—		—
Recoveries		25,000			—			—		—			—		25,000
Total ending allowance balance	$	1,332,174		$	840,000		$	40,500	$	15,000		$	88,500	$	2,316,174


	Residential First Mortgage			Commercial and Multi- Family Real Estate			Construction		Commercial and Industrial			Consumer		Total
Nine months September 30, 2021
Allowance for loan losses:
Beginning balance	$	1,254,174		$	841,000		$	45,000	$	14,000		$	87,000	$	2,241,174
Provision for loan losses (credit)		68,400			(283,500	)		130,500		(5,200	)		1,800		(88,000	)
Loans charged off		—			—			—		—			—		—
Recoveries		—			—			—		—			—		—
Total ending allowance balance	$	1,322,574		$	557,500		$	175,500	$	8,800		$	88,800	$	2,153,174
September 30, 2020
Allowance for loan losses:
Beginning balance	$	1,383,174		$	512,000		$	26,000	$	9,000		$	86,000	$	2,016,174
Provision for loan losses (credit)		(76,000	)		328,000			14,500		6,000			2,500		275,000
Loans charged off		—			—			—		—			—		—
Recoveries		25,000			—			—		—			—		25,000
Total ending allowance balance	$	1,332,174		$	840,000		$	40,500	$	15,000		$	88,500	$	2,316,174

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 5 – LOANS (Continued)

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segments and based on impairment method as of September 30, 2021 and December 31, 2020:


	Residential First Mortgage		Commercial and Multi- Family Real Estate		Construction		Commercial and Industrial		Consumer		Total
September 30, 2021
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	35,859	$	—	$	—	$	—	$	—	$	35,859
Collectively evaluated for impairment		1,286,715		557,500		175,500		8,800		88,800		2,117,315
Acquired with deteriorated credit quality		—		—		—		—		—		—
Total ending allowance balance	$	1,322,574	$	557,500	$	175,500	$	8,800	$	88,800	$	2,153,174
Loans:
Loans individually evaluated for impairment	$	2,273,914	$	—	$	—	$	—	$	40,719	$	2,314,633
Loans collectively evaluated for impairment		323,033,236		176,573,114		37,150,933		10,151,860		28,296,773		575,205,916
Loans acquired with deteriorated credit quality		3,570,975		956,984		—		—		19,302		4,547,261
Total ending loan balance	$	328,878,125	$	177,530,098	$	37,150,933	$	10,151,860	$	28,356,794	$	582,067,810
December 31, 2020
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	35,859	$	—	$	—	$	—	$	—	$	35,859
Collectively evaluated for impairment		1,218,315		841,000		45,000		14,000		87,000		2,205,315
Total ending allowance balance	$	1,254,174	$	841,000	$	45,000	$	14,000	$	87,000	$	2,241,174
Loans:
Loans individually evaluated for impairment	$	1,082,371	$	223,352	$	—	$	—	$	19,044	$	1,324,767
Loans collectively evaluated for impairment		338,918,618		171,411,099		9,930,959		13,652,248		24,694,336		558,607,260
Total ending loan balance	$	340,000,989	$	171,634,451	$	9,930,959	$	13,652,248	$	24,713,380	$	559,932,027

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 5 – LOANS (Continued)

Impaired loans as of and for the three and nine months ended September 30, 2021 were as follows:


	Loans With no related allowance recorded		Loans with an allowance recorded		Amount of allowance for loan losses allocated
Residential first mortgages	$	2,098,727	$	175,339	$	35,859
Commercial and Multi-Family		—		—		—
Construction		—		—		—
Commercial & Industrial		—		—		—
Home equity & other consumer		40,567		—		—
	$	2,139,294	$	175,339	$	35,859


	Average Of individually Impaired loans for the
	Three months ended September 30, 2021		Nine months ended September 30, 2021
Residential first mortgages	$	1,745,580	$	1,534,737
Commercial and Multi-Family		111,267		148,084
Construction		—		—
Commercial & Industrial		—		—
Home equity & other consumer		29,774		26,155
	$	1,886,621	$	1,708,976

Impaired loans as of December 31, 2020 and for the three and nine months ended September 30, 2020 were as follows:


	Loans With no related allowance recorded		Loans with an allowance recorded		Amount of allowance for loan losses allocated
Residential first mortgages	$	904,730	$	177,641	$	35,859
Commercial and Multi-Family		223,352		—		—
Construction		—		—		—
Commercial & Industrial		—		—		—
Home equity & other consumer		19,044		—		—
	$	1,147,126	$	177,641	$	35,859


	Average Of individually Impaired loans for the
	Three months ended September 30, 2020		Nine months ended September 30, 2020
Residential first mortgages	$	1,143,912	$	1,231,099
Commercial and Multi-Family		225,714		227,226
Construction		—		—
Commercial & Industrial		—		—
Home equity & other consumer		19,232		19,353
	$	1,163,144	$	1,250,452

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 5 – LOANS (Continued)

The Bank has four residential loans totaling $733,721 that were troubled debt restructurings (“TDRs”) as of September 30, 2021, with one loan totaling $175,339 with a specific reserve of $35,859. At December 31, 2020, the Bank had four residential loans totaling $750,035 and one commercial loan totaling $177,641 that were TDRs and one loan with a specific reserve of $35,859. The Bank has not committed to lend additional amounts as of September 30, 2021 or December 31, 2020 to customers with outstanding loans that are classified as TDRs. There were no loans modified as TDRs during the nine-month periods ended September 30, 2021 or 2020. There were no TDRs in payment default within twelve months following the modification during the three and nine months ended September 30, 2021 and 2020.

Interest income recognized on impaired loans for the three and nine months ended September 30, 2021 and September 30, 2020 was nominal.

The following table presents the recorded investment in nonaccrual and loans past due 90 days or more and still on accrual by class of loans as of September 30, 2021 and December 31, 2020:


	Nonaccrual		Loans Past Due 90 Days or More Still Accruing
September 30, 2021
Residential	$	735,144	$	—
Commercial and multi-family		—		—
Consumer		18,639		—
Total	$	753,783	$	—

December 31, 2020
Residential	$	673,539	$	—
Commercial and multi-family		—		—
Consumer		19,044		—
Total	$	692,583	$	—

The Bank had no other real estate owned at either September 30, 2021 or December 31, 2020.

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 5 – LOANS (Continued)

The following table presents the aging of the recorded investment in past due loans as of September 30, 2021 and December 31, 2020, by class of loans:


	30-59 Days Past Due		60-89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Loans Not Past Due		PCI loans		Total
September 30, 2021
Residential	$	—	$	281,958	$	113,007	$	394,965	$	324,912,185	$	3,570,975	$	328,878,125
Commercial and multi-family		—		—		—		—		176,573,114		956,984		177,530,098
Construction		—		—		—		—		37,150,933		—		37,150,933
Commercial and industrial		—		992,354		—		992,354		9,159,506		—		10,151,860
Consumer		—		21,692		—		21,692		28,315,800		19,302		28,356,794
Total	$	—	$	1,296,004	$	113,007	$	1,409,011	$	576,111,538	$	4,547,261	$	582,067,810

December 31, 2020
Residential	$	—	$	702,497	$	24,628	$	727,125	$	339,273,864	$	—	$	340,000,989
Commercial and multi-family		—		—		—		—		171,634,451		—		171,634,451
Construction		—		—		—		—		9,930,959		—		9,930,959
Commercial and industrial		—		—		—		—		13,652,248		—		13,652,248
Home Equity & Consumer		160,382		—		—		160,382		24,552,998		—		24,713,380
Total	$	160,382	$	702,497	$	24,628	$	887,507	$	559,044,520	$	—	$	559,932,027

Loans greater than 89 days past due are considered to be nonperforming.

Credit Quality Indicators

The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Bank analyzes loans individually by classifying the loans as to credit risk. Commercial and multi-family real estate, commercial and industrial and construction loans are graded on an annual basis. Residential and consumer loans are primarily evaluated based on performance. Refer to the immediately preceding table for the aging of the recorded investment of these loan segments. The Bank uses the following definitions for risk ratings:

Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above are considered to be Pass rated loans.

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 5 – LOANS (Continued)

Based on the most recent analysis performed, the risk category of loans by class is as follows:


	Pass		Special Mention		Substandard		Doubtful		Totals
September 30, 2021
Residential	$	327,094,032	$	800,814	$	983,279	$	—	$	328,878,125
Commercial and multi-family		175,831,321		—		1,698,777		—		177,530,098
Construction		37,150,933		—		—		—		37,150,933
Commercial and industrial		10,151,860		—		—		—		10,151,860
Consumer		28,316,227		21,928		18,639		—		28,356,794
Total	$	578,544,373	$	822,742	$	2,700,695	$	—	$	582,067,810

December 31, 2020
Residential	$	338,786,939	$	567,766	$	646,284	$	—	$	340,000,989
Commercial and multi-family		170,181,704		—		1,452,747		—		171,634,451
Construction		9,930,959		—		—		—		9,930,959
Commercial and industrial		13,652,248		—		—		—		13,652,248
Consumer		24,694,336		—		19,044		—		24,713,380
Total	$	557,246,186	$	567,766	$	2,118,075	$	—	$	559,932,027

NOTE 6 – STOCK BASED COMPENSATION

At the annual meeting held on May 27, 2021, stockholders of the Company approved the Bogota Financial Corp. 2021 Equity Incentive Plan ("2021 Plan"), which provides for the issuance of up to 902,602 shares (257,887 restricted stock awards and 644,718 stock options) of Bogota Financial Corp. common stock.

On September 2, 2021, 226,519 shares of restricted stock were awarded, with a grant date fair value of $10.45 per share. To fund the grant of restricted common stock, the Company issued shares from authorized but unissued shares. Restricted shares granted under the 2021 Plan vest in equal installments, over the service periods of five years, beginning one year from the date of grant. Management recognizes compensation expense for the fair value of restricted shares on a straight line basis over the requisite service period. During the three and nine months ended September 30, 2021 approximately $39,000 expense was recognized in regard to these awards. There was no restricted stock expense recorded for the three and nine months ended September 30, 2020 The expected future compensation expense related to the 226,519 non-vested restricted shares outstanding at September 30, 2021 is approximately $2.4 million over a weighted average period of 5.0 years.

The following is a summary of the Company's restricted stock activity during the nine months ended September 30, 2021:


	Number of Restricted Shares		Weighted Average Grant Date Fair Value
Outstanding, January 1, 2021		—	$	—
Granted		226,519		10.45
Outstanding, September 30, 2021		226,519		10.45

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 6 – STOCK BASED COMPENSATION (Continued)

On September 2, 2021, options to purchase 526,119 shares of Company common stock were awarded, with a grant date fair value of $4.37 per option. Stock options granted under the 2021 Plan vest in equal installments over the service period of five years beginning one year from the date of grant. Stock options were granted at an exercise price of $10.45, which represents the fair value of the Company's common stock price on the grant date based on the closing market price, and have an expiration period of 10 years.

The fair value of stock options granted was estimated utilizing the Black-Scholes option pricing model using the following assumptions: expected life of 6.5 years, risk-free rate of return of 0.904%, volatility of 41.10%, and a dividend yield of 0.00%.

The expected life of the options represents the period of time that stock options are expected to be outstanding and is estimated using the simplified approach, which assumes that all outstanding options will be exercised at the midpoint of the vesting date and full contractual term. The risk-free rate of return is based on the rates on the grant date of a U.S. Treasury Note with a term equal to the expected option life. Since the Company recently converted to a public Company and does not have sufficient historical price data, the expected volatility is based on the historical daily stock prices of a peer group of similar entities based on factors such as industry, stage of life cycle, size and financial leverage. The Company has not paid any cash dividends on its common stock.

Management recognizes expense for the fair value of these awards on a straight line basis over the requisite service period. During the three and nine months ended September 30, 2021, approximately $38,000 in expense was recognized in regard to these awards. There was no stock option expense recorded for the three and nine months ended September 30, 2020. The expected future compensation expense related to the 526,119 non-vested options outstanding at September 30, 2021 is $2.3 million over the vesting period of five years.

The following is a summary of the Company's option activity during the nine months ended September 30, 2021:


	Number of Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding, January 1, 2021	$	—	$	—			$	—
Granted		526,119		10.45		6.5	$	100,000
Outstanding, September 30, 2021		526,119		10.45		6.5	$	100,000
Options exercisable at September 30, 2021	$	-					$	-

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, the difference between the Company's closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options.

Note 7 – Commitments and Contingencies

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments primarily include commitments to extend credit. Such 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 amounts of these instruments reflect the extent of involvement the Bank has in those particular classes of financial instruments.

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 is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 7 – Commitments and Contingencies (Continued)

The Bank had outstanding firm commitments, all of which expire within two months, to originate, loans at September 30, 2021 and December 31, 2020 as follows:


	September 30, 2021		December 31, 2020
Fixed Rate
Residential mortgage loans	$	9,503,675	$	8,524,000
Commercial real estate		736,250		1,830,000
Commercial and industrial		—		—
Construction		5,520,000		—
Home equity		—		2,135,000
Total	$	15,759,925	$	12,489,000


	September 30, 2021		December 31, 2020
Variable Rate
Residential mortgage loans	$	—	$	1,500,000
Commercial real estate		—		4,675,000
Commercial and industrial		50,000		—
Construction		—		—
Home equity		718,000		—
Total	$	768,000	$	6,175,000

Commitments to make loans are generally made for periods of 90 days or less. The fixed rate loan commitments have interest rates ranging from 2.50% to 4.50% and maturities ranging from 10 years to 30 years.

At September 30, 2021 and December 31, 2020, undisbursed funds from approved lines of credit under a homeowners’ equity lending program amounted to $49,050,699 and $41,774,944, respectively. At September 30, 2021 and December 31, 2020, undisbursed funds from approved lines of credit under a business line of credit program amounted to $416,065 and $427,827, respectively. Unless they are specifically cancelled by notice from the Bank, these funds represent firm commitments available to the respective borrowers on demand.

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 some 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 of the counterparty. Collateral held varies but primarily includes commercial and residential real estate.

The Bank leases certain Bank properties and equipment under operating leases. Rent expense was $111,872 and $28,677 for the nine months ended September 30, 2021 and 2020, respectively.

NOTE 8 – FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (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. There are three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Level 2 – Significant other observable inputs other than Level 1 prices 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.

Level 3 – Significant unobservable inputs that reflect a bank’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Bank used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

The Bank’s available-for-sale portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income/loss in stockholders’ equity. The securities available-for-sale portfolio consists of corporate bonds and mortgage-backed securities. The fair values of these securities are obtained from an independent nationally recognized pricing service. An independent pricing service provides prices which are categorized as Level 2, as quoted prices in active markets for identical assets are generally not available for the securities.

Assets measured at fair value on a recurring basis are summarized below:


	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of September 30, 2021
Securities available for sale:
Corporate bonds	$	6,429,520	$	—	$	6,429,520	$	—
MBSs - residential		9,559,755		—		9,559,755	$	—
MBSs - commercial		2,223,273		—		2,223,273		—
	$	18,212,547	$	—	$	18,212,547	$	—
As of December 31, 2020
Securities available for sale:
Corporate bonds	$	6,399,056	$	—	$	6,399,056	$	—
MBSs - residential		5,471,452		—		5,471,452		—
	$	11,870,508	$	—	$	11,870,508	$	—

There were no transfers between level 1 and level 2 during the nine months ended September 30, 2021.

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 8 – FAIR VALUE (Continued)

The carrying amounts and estimated fair values of financial instruments, at September 30, 2021 and December 31, 2020, are as follows:


	Carrying		Fair		Fair Value Measurement Placement
	Amount		Value		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
September 30, 2021
Financial instruments - assets
Cash and due from banks	$	116,329	$	116,329	$	116,329	$	—	$	—
Investment securities held-to-maturity		75,020		75,905		—		75,905		—
Loans		579,915		576,556		—		—		576,556
Financial instruments - liabilities
Certificates of deposit		372,644		374,109		—		374,109		—
Borrowings		90,103		91,000		—		91,000		—


	Carrying		Fair		Fair Value Measurement Placement
	Amount		Value		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
December 31, 2020
Financial instruments - assets
Cash and due from banks	$	80,386	$	80,386	$	80,386	$	—	$	—
Investment securities held-to-maturity		57,504		58,872		—		58,872		—
Loans		557,691		544,392		—		—		544,392
Financial instruments - liabilities
Certificates of deposit		356,364		359,465		—		359,465		—
Borrowings		104,291		106,159		—		106,159		—

Carrying amount is the estimated fair value for cash and cash equivalents. The fair value of loans is determined using an exit price methodology. Certificates of deposits fair value is estimated by using a discounted cash flow approach. Fair value of FHLB advances is based on current rates for similar financing. The fair value of off-balance sheet items is not considered material.

NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss included in equity (net of tax) for the three and nine months ended September 30, 2021 and 2020 is as follows:


	Unrealized gain and losses on available for sale securities			Benefit plans			Total
Three months September 30, 2021
Beginning balance at July 1, 2021	$	121,332		$	(310,820	)	$	(189,488	)
Other comprehensive loss		(11,689	)		—			(11,689	)
Amounts reclassified		—			31,383			31,383
Net period comprehensive (loss) income		(11,689	)		31,383			19,694
Ending balance	$	109,643		$	(279,437	)	$	(169,794	)

September 30, 2020
Beginning balance at July 1, 2020	$	70,352		$	(369,764	)	$	(299,412	)
Other comprehensive gain before reclassification		32,543			—			32,543
Amounts reclassified		—			27,896			27,896
Net period comprehensive income		32,543			27,896			60,439
Ending balance	$	102,895		$	(341,868	)	$	(238,973	)

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


	Unrealized gain and losses on available for sale securities			Benefit plans			Total
Nine months September 30, 2020
Beginning balance at January 1, 2021	$	100,569		$	(373,582	)	$	(273,013	)
Other comprehensive gain		9,074			—			9,074
Amounts reclassified		—			94,145			94,145
Net period comprehensive income		9,074			94,145			103,219
Ending balance	$	109,643		$	(279,437	)	$	(169,794	)

September 30, 2020
Beginning balance at January 1, 2020	$	111,892		$	(425,557	)	$	(313,665	)
Other comprehensive (loss)		(8,996	)		—			(8,996	)
Amounts reclassified		—			83,689			83,689
Net period comprehensive (loss) income		(8,996	)		83,689			74,693
Ending balance	$	102,895		$	(341,868	)	$	(238,973	)

NOTE 10 – EMPLOYEE STOCK OWNERSHIP PLAN

In connection with our mutual-to-stock reorganization and stock offering, the Bank established an employee stock ownership plan (“ESOP”), which acquired 515,775 shares of the Company’s common stock equaling 4% of the shares issued, including shares issued to the Bogota Savings Bank Charitable Foundation. The ESOP is a tax-qualified retirement plan providing employees the opportunity to own Company stock. Bank contributions to the ESOP are allocated to eligible participants on the basis of compensation, subject to federal tax limits. The number of shares to be allocated annually is 25,789 through 2039. During the three and nine months ended September 30, 2021, $67,000 and $192,166 was incurred as expense for the plan, respectively, compared to $51,000 and $162,816, respectively, for the same periods last year.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Management’s discussion and analysis of financial condition and results of operations at September 30, 2021 and December 31, 2020 and for the three and nine months ended September 30, 2021 and September 30, 2020 is intended to assist in understanding the financial condition and results of operations of Bogota Financial Corp. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:



statements of our goals, intentions and expectations;



statements regarding our business plans, prospects, growth and operating strategies;



statements regarding the quality of our loan and investment portfolios; and



estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:



general economic conditions, either nationally or in our market area, that are worse than expected;



changes in the level and direction of loan delinquencies, charge-offs and non-performing and classified loans and changes in estimates of the adequacy of the allowance for loan losses;



our ability to access cost-effective funding;



fluctuations in real estate values and both residential and commercial real estate market conditions;



demand for loans and deposits in our market area;



our ability to continue to implement our business strategies;



competition among depository and other financial institutions;



inflation and changes in market interest rates that reduce our margins and yields, reduce the fair value of financial instruments or reduce our volume of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary market;



adverse changes in the securities markets;



changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;



our ability to manage market risk, credit risk and operational risk;



our ability to enter new markets successfully and capitalize on growth opportunities;



our ability to successfully integrate into our operations any assets, liabilities or systems we may acquire, as well as new management personnel or customers, and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;



changes in consumer spending, borrowing and savings habits;



changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;



our ability to retain key employees;



our compensation expense associated with equity allocated or awarded to our employees; and



changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on our business. The extent of such impact will depend on future developments, which are highly uncertain, including if the coronavirus can continue to be controlled and abated and whether the reopening of businesses will result in a meaningful increase in economic activity. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:



demand for our products and services may decline, making it difficult to grow assets and income;



if the economy is unable to substantially remain open, and higher levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;



collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;



our allowance for loan losses may be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;



the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;



our cyber security risks are increased as the result of an increase in the number of employees working remotely;



we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 pandemic could have an adverse effect on us; and



Federal Deposit Insurance Corporation premiums may increase if the agency experience additional resolution costs.

Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the pandemic could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

Acquisition of Gibraltar

On February 28, 2021, the Company completed its acquisition of Gibraltar Bank. As a part of the transaction, the Company issued 1,267,916 shares of its common stock to Bogota Financial, MHC. The conversion and consolidation of data processing platforms, systems and customer files occurred on August 16, 2021.

As of February 28, 2021, Gibraltar had $106.2 million of assets, gross loans of $77.7 million and deposits of $81.6 million and operated from three offices located in Newark, Oak Ridge and Parsippany, New Jersey in Morris and Essex Counties, New Jersey.

Critical Accounting Policies

A summary of our accounting policies is described in Note 1 to the unaudited consolidated financial statements included with our Annual Report on Form 10-K at and for the year ended December 31, 2020. Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Actual results could differ from these judgments and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations. Management believes that the most critical accounting policy, which involves the most complex or subjective decisions or assessments, is as follows:

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the relevant balance sheet date. The amount of the allowance is based on significant estimates, and the ultimate losses may vary from such estimates as more information becomes available or conditions change. The methodology for determining the allowance for loan losses is considered a critical accounting policy by management due to the high degree of judgment involved, the subjectivity of the assumptions used and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses.

As a substantial percentage of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans are critical in determining the amount of the allowance required for specific loans. Assumptions are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property securing a loan and the related allowance. Management reviews the assumptions supporting such appraisals to determine that the resulting values reasonably reflect amounts realizable on the related loans.

Management performs an evaluation of the adequacy of the allowance for loan losses at least quarterly. We consider a variety of factors in establishing this estimate including current economic conditions, delinquency statistics, the size and composition of the loan portfolio, geographic concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic and real estate market conditions.

The evaluation has specific and general components. The specific component relates to loans that are deemed to be impaired and classified as special mention, substandard, doubtful, or loss. For such loans that are also classified as impaired, an allowance is generally established when the collateral value of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.

Actual loan losses may be significantly more than the allowance we have established, which could have a material negative effect on our financial results. See Note 1 to the Notes to the consolidated financial statements for a complete discussion of the allowance for loan losses.

COVID-19

COVID-19 has adversely impacted a broad range of industries in which the Company’s customers operate and could impair their ability to fulfill their financial obligations. The pandemic has caused significant disruption in the U.S. economy and disrupted banking and other financial activity in the areas in which the Company operates.

Congress, the President and the banking regulators have taken several actions designed to cushion the economic fallout, including enactment of the Coronavirus Aid Relief and Economic Security (“CARES”) Act at the end of March 2020. The goal of the CARES Act is to prevent severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. On December 27, 2020, the 2021 Consolidated Appropriations Act, which was enacted as part of an omnibus spending bill for the 2021 federal fiscal year, included provisions intended to provide additional aid to those impacted by the pandemic. In addition to the general impact of COVID-19, certain provisions of the CARES Act, the 2021 Consolidated Appropriations Act as well as other legislative and regulatory relief efforts may have a material impact on the Company’s operations.

The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. If the global response to contain COVID-19 is unsuccessful or the effects of the pandemic continue or worsen, the Company may experience a material adverse effect on its business, financial condition, results of operations and cash flows.

As of September 30, 2021, the Bank had granted 172 loan modifications totaling $67.9 million, which represented 11.6% of the total loan portfolio, allowing customers who were affected by the COVID-19 pandemic to defer principal and/or interest payments. These short-term loan modifications were treated in accordance with Section 4013 of the CARES Act and, as such, are not treated as troubled debt restructurings during the short-term modification period if the loan was not in arrears at December 31, 2019. Furthermore, these loans will continue to accrue interest. Of the 172 loans to which loan modifications were granted only one one-to-four family residential real estate loan totaling $117,000 or 0.2% of net loans, is still on deferral.

Financial position and results of operations

The Company’s fee income has been and may continue to be reduced due to COVID-19. In keeping with the guidance from regulators, the Company has actively worked with COVID-19 affected customers to waive fees from a variety of sources, such as, but not limited to, insufficient funds, account maintenance, minimum balance, and ATM fees. These reductions in fees are thought to be temporary in conjunction with the length of the COVID-19 related economic crisis.

The Company’s interest income could be reduced due to COVID-19. In keeping with the guidance from the regulators, the Company has actively worked with COVID-19 affected borrowers to defer payments, interest and fees. While interest and fees will accrue to income through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. As a result, interest income in future periods could be negatively impacted.

Credit and asset quality

As a result of the COVID-19 pandemic, the Company is engaging in more frequent communication with borrowers to better understand their situation and challenges faced. The extent to which industries, or the tangential impact of those industries to other borrowers or industries, are impacted will likely be in direct proportion to the duration and depth of the COVID-19 pandemic.

The Company has also provided assistance to individuals and small business clients directly impacted by the COVID-19 pandemic by allowing borrowers to modify their loans. Under the CARES Act, loans less than 30 days past due as of December 31, 2019 are considered current for the COVID-19 modifications. Loans that were modified due to COVID-19 are not classified as a troubled debt restructurings (“TDR”).

The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) program called the Paycheck Protection Program (“PPP”). PPP loans have: (a) an interest rate of

1.0%, (b) a five-year loan term to maturity for loans made on or after June 5, 2020 (loans made prior to June 5, 2020 have a two-year term, however borrowers and lenders may mutually agree to extend the maturity for such loans to five years); and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be forgiven under the PPP if employee and compensation levels of the business are maintained and 60% of the loan proceeds are used for payroll expenses, with the remaining 40% of the loan proceeds used for other qualifying expenses. The 2021 Consolidated Appropriations Act signed into law on December 27, 2020 approved an additional $286,000,000 for PPP loans.

As a qualified SBA lender, the Bank was automatically authorized to originate loans under the PPP. During 2020, the Bank received and processed 113 PPP applications totaling $10.5 million. The Bank participated in the second round of PPP loans and during the first half of 2021, the Bank received and processed 54 PPP applications totaling $6.9 million. The Bank had $8.2 million in outstanding PPP loans at September 30, 2021.

Comparison of Financial Condition at September 30, 2021 and December 31, 2020

Total Assets. Total assets increased $94.1 million, or 12.7%, from December 31, 2020 to $835.0 million at September 30, 2021 primarily due to acquiring $106.2 million in assets from the Gibraltar Bank acquisition. The increase in assets reflected a $35.9 million, or 44.7%, increase in cash and cash equivalents to $116.3 million, a $17.5 million, or 30.5%, increase in securities held-to-maturity, a $22.2 million, or 4.0%, increase in loans and a $8.4 million, or 49.6%, increase in bank owned life insurance.

Cash and Cash Equivalents. Total cash and cash equivalents increased $35.9 million, or 44.7%, to $116.3 million at September 30, 2021 from $80.4 million at December 31, 2020. The increase was primarily due to $19.6 million in repayments of residential loans and $19.3 million in cash from the Gibraltar Bank acquisition.

Securities Available for Sale. Total securities available for sale increased $6.3 million, or 53.4%, to $18.2 million at September 30, 2021 from $11.9 million at December 31, 2020. The increase was due to$9.3 million of purchases of mortgage-backed securities and corporate bonds with excess cash.

Securities Held to Maturity. Total securities held to maturity increased $17.5 million, or 30.5%, to $75.0 million at September 30, 2021 from $57.5 million at December 31, 2020, primarily to $30.5 million in purchases of securities and $7.0 million of securities acquired from Gibraltar Bank, which was offset by repayments in mortgage-backed securities. The increase in securities held to maturity reflected a $3.5 million increase in corporate bonds, a $501,000 increase in U.S. government agency obligations, a $505,000 thousand increase in municipal bonds and a $11.7 million increase in mortgage-backed securities.

Net Loans. Net loans increased $22.2 million, or 4.0%, to $579.9 million at September 30, 2021 from $557.7 million at December 31, 2020. The increase was due to a $5.9 million, or 3.4%, increase in commercial and multi-family real estate loans to $177.5 million at September 30, 2021 from $171.6 million at December 31, 2020, an increase of $27.3 million, or 274.1%, in construction real estate loans to $37.2 million at September 30, 2021 from $9.9 million at December 31, 2020 and an increase of $3.6 million, or 14.7%, in consumer loans to $28.4 million at September 30, 2021 from $26.8 million at December 31, 2020, partially offset by a decrease of $11.1 million, or 3.3%, in one-to four-residential real estate loans to $328.9 million at September 30, 2021 from $340.0 million at December 31, 2020 and a decrease of $3.5 million, or 25.6%, in commercial and industrial loans to $10.2 million at September 30, 2021 from $13.7 million as of December 31, 2020. The increase in loans was primarily due to the $77.0 million of loans acquired from Gibraltar Bank, which was offset by $127.0 million in loan repayments and the sale of $20.0 million of residential loans. The decrease in commercial and industrial loans was due to the forgiveness and repayment of $9.2 million in PPP loans that were originated in 2020. As of September 30, 2021, the Bank had $996,000 in loans held for sale compare the no loans held for sale as of December 31, 2020.

Deposits. Total deposits increased $89.2 million, or 17.8%, to $591.2 million at September 30, 2021 from $502.0 million at December 31, 2020. The increase in deposits reflected an increase in interest bearing deposits of $80.1 million, or 16.9%, to $555.0 million as of September 30, 2021 from $474.9 million at December 31, 2020 and an increase in non-interest bearing deposits of $9.1 million, or 33.8%, to $36.2 million as of September 30, 2021 from $27.1 million as of December 31, 2020. The increases are primarily due to the $81.6 million of deposits acquired from Gibraltar Bank.

At September 30, 2021, municipal deposits totaled $29.5 million, which represented 5.0% of total deposits, and brokered deposits totaled $55.0 million, which represented 9.3% of total deposits. At December 31, 2020, municipal deposits totaled $37.6 million, which represented 7.5% of total deposits, and brokered deposits totaled $54.2 million, which represented 10.8% of total deposits.

Borrowings. Federal Home Loan Bank of New York borrowings decreased $14.2 million, or 13.6%, to $90.1 million at September 30, 2021 from $104.3 million at December 31, 2020, as maturities of $23.2 million of FHLB advances were offset by $10.0 million of borrowings that were assumed from Gibraltar Bank. The weighted average rate of borrowings was 1.65% and 1.64% as of September 30, 2021 and December 31, 2020, respectively.

Total Equity. Stockholders’ equity increased $17.1 million to $145.6 million, primarily due to the $11.5 million of stock issued in connection with the acquisition of Gibraltar Bank and the $4.4 million of net income for the nine months ended September 30, 2021. At September 30, 2021, the Company’s ratio of average stockholders’ equity-to-total assets was 17.43%, compared to 16.97% at December 31, 2020.

Average Balance Sheets and Related Yields and Rates

The following tables present information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Nonaccrual loans are included in average balances only. Loan fees are included in interest income on loans and are not material.


	Three Months Ended September 30,
	2021								2020
	Average Balance			Interest and Dividends		Yield/ Cost (3)			Average Balance			Interest and Dividends		Yield/ Cost (3)
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	101,453		$	33		0.13	%	$	66,865		$	48		0.29	%
Loans		584,754			5,967		4.05	%		586,497			5,391		3.66	%
Securities		88,619			424		1.91	%		64,431			381		2.37	%
Other interest-earning assets		5,521			62		4.49	%		6,175			83		5.35	%
Total interest-earning assets		780,347			6,486		3.30	%		723,968			5,903		3.24	%

Non-interest-earning assets		52,346								29,150
Total assets	$	832,693							$	753,118
Liabilities and equity:
NOW and money market accounts	$	108,411		$	148		0.54	%	$	64,710		$	128		0.79	%
Savings accounts		64,076			36		0.22	%		30,834			20		0.26	%
Certificates of deposit		375,495			857		0.91	%		390,451			1,689		1.72	%
Total interest-bearing deposits		547,982			1,041		0.75	%		485,995			1,837		1.50	%

Federal Home Loan Bank advances		96,041			369		1.52	%		108,624			472		1.73	%
Total interest-bearing liabilities		644,023			1,410		0.87	%		594,619			2,309		1.54	%
Non-interest-bearing deposits		33,330								24,301
Other non-interest-bearing liabilities		10,246								7,320
Total liabilities		687,599								626,240

Total equity		145,094								126,878
Total liabilities and equity	$	832,693							$	753,118
Net interest income				$	5,076							$	3,594
Interest rate spread (1)							2.43	%							1.70	%
Net interest margin (2)							2.58	%							1.97	%
Average interest-earning assets to average interest-bearing liabilities		121.17	%							121.75	%

(1)

Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(2)

Net interest margin represents net interest income divided by average total interest-earning assets.

(3)

Annualized.


	Nine Months Ended September 30,
	2021								2020
	Average Balance			Interest and Dividends		Yield/ Cost (3)			Average Balance			Interest and Dividends		Yield/ Cost (3)
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	97,579		$	119		0.16	%	$	65,915		$	399		0.81	%
Loans		585,156			17,117		3.91	%		562,399			15,734		3.73	%
Securities		81,900			1,512		2.46	%		65,879			1,242		2.51	%
Other interest-earning assets		5,785			213		4.92	%		6,033			262		5.79	%
Total interest-earning assets		770,420			18,961		3.29	%		700,226			17,637		3.36	%
Non-interest-earning assets		40,177								28,526
Total assets	$	810,597							$	728,752
Liabilities and equity:
NOW and money market accounts	$	99,261		$	427		0.57	%	$	53,634		$	385		0.96	%
Savings accounts		56,982			84		0.20	%		29,766			57		0.26	%
Certificates of deposit		374,101			2,844		1.02	%		386,250			5,752		1.99	%
Total interest-bearing deposits		530,344			3,355		0.85	%		469,650			6,194		1.76	%
Federal Home Loan Bank advances		101,249			1,177		1.55	%		104,567			1,479		1.89	%
Total interest-bearing liabilities		631,593			4,532		0.96	%		574,217			7,673		1.78	%
Non-interest-bearing deposits		28,602								20,171
Other non-interest-bearing liabilities		9,458								11,204
Total liabilities		669,653								605,592
Total equity		140,944								123,160
Total liabilities and equity	$	810,597							$	728,752
Net interest income				$	14,429							$	9,964
Interest rate spread (1)							2.33	%							1.58	%
Net interest margin (2)							2.50	%							1.90	%
Average interest-earning assets to average interest-bearing liabilities		121.98	%							121.94	%

(1)

Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(2)

Net interest margin represents net interest income divided by average total interest-earning assets.

(3)

Annualized.

Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.


	Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020									Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume			Rate			Net			Volume			Rate			Net
	(In thousands)
Interest income:
Cash and cash equivalents	$	45		$	(60	)	$	(15	)	$	51		$	(331	)	$	(280	)
Loans receivable		(71	)		647			576			890			493			1,383
Securities		462			(419	)		43			394			(124	)		270
Other interest earning assets		(29	)		8			(21	)		(12	)		(37	)		(49	)
Total interest-earning assets		407			176			583			1,323			1			1,324

Interest expense:
NOW and money market accounts		236			(216	)		20			260			(218	)		42
Savings accounts		73			(57	)		16			54			(27	)		27
Certificates of deposit		(136	)		(696	)		(832	)		(124	)		(2,784	)		(2,908	)
Federal Home Loan Bank advances		(305	)		202			(103	)		(51	)		(251	)		(302	)
Total interest-bearing liabilities		(132	)		(767	)		(899	)		139			(3,280	)		(3,141	)
Net increase (decrease) in net interest income	$	539		$	943		$	1,482		$	1,184		$	3,281		$	4,465

Comparison of Operating Results for the Three Months Ended September 30, 2021 and September 30, 2020

General. Net income increased by $86,000, or 9.0%, to $1.0 million for the three months ended September 30, 2021 from net income of $1.0 million for the three months ended September 30, 2020. The increase was due to increases in net interest income of $1.5 million and non-interest income of $266,000 offset by increases in non-interest expense of $1.4 million and income tax expense of $280,000.

Interest Income. Interest income increased $583,000, or 9.9%, to $6.5 million for the three months ended September 30, 2021. The increase reflected an $56.4 million increase in the average balance of interest-earnings assets, and a 6 basis points increase in the average yield on interest-earning assets to 3.30% for the three months ended September 30, 2021 from 3.24% for the three months ended September 30, 2020.

Interest income on cash and cash equivalents decreased $15,000, or 31.6%, to $33,000 for the three months ended September 30, 2021 from $48,000 for the three months ended September 30, 2020 due to a 16 basis point decrease in the average yield on cash and cash equivalents from 0.29% for the three months ended September 30, 2020 to 0.13% for the three months ended September 30, 2021 due to the lower interest rate environment. The decrease was offset by a $34.6 million increase in the average balance of cash and cash equivalents to $101.5 million for the three months ended September 30, 2021 from $66.9 million for the three months ended September 30, 2020, reflecting excess liquidity as deposit growth exceeded loan growth.

Interest income on loans increased $576,000, or 10.7%, to $6.0 million for the three months ended September 30, 2021 from $5.4 million for the three months ended September 30, 2020 due to a 39 basis point increase in the average yield on loans from 3.66% for the three months ended September 30, 2020 to 4.05% for the three months ended September 30, 2021, offset by a $1.7 million decrease in the average balance of loans to $584.8 million for the three months ended September 30, 2021 from $586.5 million for the three months ended September 30, 2020. The decrease in the average balance of loans reflected a higher repayment rate of residential loans.

Interest income on securities increased $43,000, or 11.4%, to $424,000 for the three months ended September 30, 2021 from $381,000 for the three months ended September 30, 2020 due to a $24.2 million increase in the average balance of securities to $88.6 million for the three months ended September 30, 2021 from $64.4 million for the three months ended September 30, 2020, reflecting investments with excess liquidity as deposit growth exceeded loan growth, offset by a 46 basis point decrease in the average yield from 2.37% for the three months ended September 30, 2020 to 1.91% for the three months ended September 30, 2021.

Interest Expense. Interest expense decreased $899,000, or 38.9%, to $1.4 million for the three months ended September 30, 2021 from $2.3 million for the three months ended September 30, 2021. The decrease primarily reflected a 67 basis point decrease in the average cost of interest-bearing liabilities to 0.87% for the three months ended September 30, 2021 from 1.54% for the three months ended September 30, 2020.

Interest expense on interest-bearing deposits decreased $796,000, or 43.3%, to $1.0 million for the three months ended September 30, 2021 from $1.8 million for the three months ended September 30, 2020. The decrease was due primarily to a 75 basis point decrease in the average cost of interest-bearing deposits to 0.75% for the three months ended September 30, 2021 from 1.50% for the three months ended September 30, 2020. The decrease in the average cost of deposits was due to the lower interest rate environment and an increase in the average balance of lower-cost transaction accounts and a decrease in the average balance of higher cost certificates of deposit. This decrease was offset by a $62.0 million increase in the average balance of deposits to $548.0 million for the three months ended September 30, 2021 from $486.0 million for the three months ended September 30, 2020.

Interest expense on Federal Home Loan Bank borrowings decreased $103,000, or 21.8%, from $472,000 for the three months ended September 30, 2020 to $369,000 for the three months ended September 30, 2021. The decrease was due to a decrease in the average cost of borrowings of 21 basis point to 1.52% for the three months ended September 30, 2021 from 1.73% for the three months ended September 30, 2020 due to the lower interest environment and a decrease in the average balance of borrowings of $15.0 million to $96.0 million for the three months ended September 30, 2021 from $108.6 million for the three months ended September 30, 2021.

Net Interest Income. Net interest income increased $1.5 million, or 41.2%, to $5.1 million for the three months ended September 30, 2021 from $3.6 million for the three months ended September 30, 2020. The increase reflected a 73 basis point increase in our net interest rate spread to 2.43% for the three months ended September 30, 2021 from 1.70% for the three months ended September 30, 2020. Our net interest margin increased 61 basis points to 2.58% for the three months ended September 30, 2021 from 1.97% for the three months ended September 30, 2020.

Provision for Loan Losses. We recorded a provision for loan losses of $25,000 for the three months ended September 30, 2021 and for the three-month period ended September 30, 2020. Lower balances of residential loans, a more positive economic environment and continued strong asset quality metrics were the reasons for the low provision during the three months ended September 30, 2021. The Bank continues to have a low level of delinquent and non-accrual loans in the portfolio, as well as no charge-offs. Non-performing assets were $1.9 million, or 0.33% of total assets, at September 30, 2021. The allowance for loan losses was $2.2 million, or 0.37% of loans outstanding and 114.2% of nonperforming loans, at September 30, 2021.

Non-Interest Income. Non-interest income increased by $266,000 or 246.5%, to $374,000 for the three months ended September 30, 2021 from $108,000 for the three months ended September 30, 2020. The increase was due to $67,000 higher income on bank-owned life insurance due to the purchase of $8.0 million of bank-owned life insurance and a $127,000 gain on sale of $4.3 million of residential loans during the three months ended September 30, 2021.

Non-Interest Expense. For the three months ended September 30, 2021, non-interest expense increased $1.4 million over the comparable 2020 period to $3.8 million. Salaries and employee benefits increased $698,000, or 52.5%, attributable to adding the new Gibraltar employees. Data processing expense increased $75,000, or 41.0%, due to higher data processing expense from maintaining two core systems until the data processing conversion was completed in August 2021. Professional fees decreased $110,000, or 46.3%, due in part to lower legal and merger expenses. The increase of other general operating expenses was mainly due to increased occupancy costs for the acquired Gibraltar Bank branches and the branch location in Hasbrouck Heights, which opened in August.

Income Tax Expense. Income tax expense increased $280,000, or 85.7%, to $607,000 for the three months ended September 30, 2021 from $327,000 for the three months ended September 30, 2020. The increase was due to $366,000 of higher taxable income.

Comparison of Operating Results for the Nine Months Ended September 30, 2021 and September 30, 2020

General. Net income increased by $4.5 million to $5.5 million for the nine months ended September 30, 2021 from net income of $1.0 million for the nine months ended September 30, 2020. The increase was due to increases in net interest income of $4.5 million, a decrease in the provision for loan losses of $363,000, and an increases in non-interest income of $2.2 million, offset by increases in non-interest expense of $1.2 million and income tax expense of $1.4 million.

Interest Income. Interest income increased $1.3 million, or 7.5%, to $19.0 million for the nine months ended September 30, 2021. The increase reflected a $70.2 million increase in the average balance of interest-earnings assets, offset by a 7 basis points decrease in the average yield on interest-earning assets to 3.29% for the nine months ended September 30, 2021 from 3.36% for the nine months ended September 30, 2020.

Interest income on cash and cash equivalents decreased $280,000, or 70.2%, to $119,000 for the nine months ended September 30, 2021 from $399,000 for the nine months ended September 30, 2020 due to a 65 basis point decrease in the average yield on cash and cash equivalents from 0.81% for the nine months ended September 30, 2020 to 0.16% for the nine months ended September 30, 2021 due to the lower interest rate environment. The decrease was offset by a $31.7 million increase in the average balance of cash and cash equivalents to $97.6 million for the nine months ended September 30, 2021 from $65.9 million for the nine months ended September 30, 2020, reflecting excess liquidity as deposit growth exceeded loan growth.

Interest income on loans increased $1.4 million, or 8.8%, to $17.1 million for the nine months ended September 30, 2021 from $15.7 million for the nine months ended September 30, 2020 due to a $22.8 million increase in the average balance of loans to $585.2 million for the nine months ended September 30, 2021 from $562.4 million for the nine months ended September 30, 2020. The increase in the average balance of loans reflected our continued efforts to increase our loan originations and the loans acquired from Gibraltar Bank. The increase was supplemented by an 18 basis point increase in the average yield on loans from 3.73% for the nine months ended September 30, 2020 to 3.91% for the nine months ended September 30, 2021 due to a higher rate environment when comparing the two periods.

Interest income on securities increased $270,000, or 21.7%, to $1.5 million for the nine months ended September 30, 2021 from $1.2 million for the nine months ended September 30, 2020 due to a $16.0 million increase in the average balance of securities to $81.9 million for the nine months ended September 30, 2021 from $65.9 million for the nine months ended September 30, 2020 offset by a 5 basis point decrease in the average yield from 2.51% for the nine months ended September 30, 2020 to 2.46% for the nine months ended September 30, 2021, reflecting the purchase of investment securities with excess liquidity as deposit growth exceeded loan growth.

Interest Expense. Interest expense decreased $3.1 million, or 40.9%, to $4.5 million for the nine months ended September 30, 2021 from $7.7 million for the nine months ended September 30, 2020. The decrease primarily reflected a 82 basis point decrease in the average cost of interest-bearing liabilities to 0.96% for the nine months ended September 30, 2021 from 1.78% for the nine months ended September 30, 2020.

Interest expense on interest-bearing deposits decreased $2.8 million, or 45.8%, to $3.4 million for the nine months ended September 30, 2021 from $6.2 million for the nine months ended September 30, 2020. The decrease was due primarily to 91 basis point decrease in the average cost of interest-bearing deposits to 0.85% for the nine months ended September 30, 2021 from 1.76% for the nine months ended September 30, 2020. The decrease in the average cost of deposits was due to the lower interest rate environment and an increase in the average balance of lower-cost transaction accounts and a decrease in the average balance of higher cost certificates of deposit. This decrease was offset by a $60.7 million increase in the average balance of deposits to $530.3 million for the nine months ended September 30, 2021 from $469.7 million for the nine months ended September 30, 2020.

Interest expense on Federal Home Loan Bank borrowings decreased $302,000, or 20.4%, from $1.5 million for the nine months ended September 30, 2020 to $1.2 million for the nine months ended September 30, 2021. The

decrease was primarily due to the lower interest rate environment, as the average cost of borrowings decreased 34 basis points to 1.55% for the nine months ended September 30, 2021 from 1.89% for the nine months ended September 30, 2020.

Net Interest Income. Net interest income increased $4.5 million, or 44.8%, to $14.4 million for the nine months ended September 30, 2021 from $10.0 million for the nine months ended September 30, 2020. The increase reflected a 75 basis point increase in our net interest rate spread to 2.33% for the nine months ended September 30, 2021 from 1.58% for the nine months ended September 30, 2020. Our net interest margin increased 60 basis points to 2.50% for the nine months ended September 30, 2021 from 1.90% for the nine months ended September 30, 2020.

Provision for Loan Losses. We recorded a credit for loan losses of $88,000 for the nine months ended September 30, 2021 compared to a provision of $275,000 for loan losses for the nine months ended September 30, 2020. Lower balances of residential loans, a more positive economic environment and continued strong asset quality metrics were the reasons for the credit during the nine months ended September 30, 2021. The Bank continues to have a low level of delinquent and non-accrual loans in the portfolio, as well as no charge-offs.

Non-Interest Income. Non-interest income increased by $2.2 million, or 223.6%, to $3.2 million for the nine months ended September 30, 2021 from $997,000 for the nine months ended September 30, 2020. The increase was due to $1.9 million bargain purchase gain for the Gibraltar merger, and a $647,000 gain on the sale of $20.0 million residential loans sold during the nine months ended September 30, 2021, offset by $547,000 lower income on bank-owned life insurance as last year the Bank collected death proceeds.

Non-Interest Expense. For the nine months ended September 30, 2021, non-interest expense increased $1.2 million over the comparable 2020 period to $10.8 million. Salaries and employee benefits increased $1.8 million, or 47.8%, attributable to adding the new Gibraltar employees, additional branch offices and normal merit increases. Data processing expense increased $284,000, or 57.6%, due to higher data processing expense from maintaining two core systems until the data processing conversion that was completed in August. Professional fees decreased $47,000, or 7.2%, due to lower legal and consulting fees. Merger expenses were $392,000 in 2021 associated with the Gibraltar Bank acquisition. The increase of other general operating expenses was mainly due to increased occupancy costs for the acquired Gibraltar Bank branches and the branch location in Hasbrouck Heights, which opened in August. During the nine months ended September 30, 2020, the Bank made a $2.9 million contribution to the Bogota Charitable Foundation and there was no contribution for the nine months ended September 30, 2021.

Income Tax Expense. Income tax expense increased $1.4 million, to $1.5 million for the nine months ended September 30, 2021 from $38,000 for the nine months ended September 30, 2020. The increase was due to $5.9 million of higher taxable income.

Management of Market Risk

General. The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage our exposure to changes in market interest rates. Accordingly, our board of directors has established an Asset/Liability Management Committee (the “ALCO”), which is comprised of three members of executive management and two independent directors, which oversees the asset/liability management processes and related procedures. The ALCO meets on at least a quarterly basis and reviews asset/liability strategies, liquidity positions, alternative funding sources, interest rate risk measurement reports, capital levels and economic trends at both national and local levels. Our interest rate risk position is also monitored quarterly by the board of directors.

We manage our interest rate risk to minimize the exposure of our earnings and capital to changes in market interest rates. We have implemented the following strategies to manage our interest rate risk: originating and purchasing loans with adjustable interest rates; promoting core deposit products; monitoring the length of our borrowings with the Federal Home Loan Bank and brokered deposits depending on the interest rate environment; maintaining a portion of our investments as available-for-sale; diversifying our loan portfolio; and strengthening our capital position. By following these strategies, we believe that we are better positioned to react to changes in market interest rates.

Net Portfolio Value Simulation. We analyze our sensitivity to changes in interest rates through a net portfolio value of equity (“NPV”) model. NPV represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities, adjusted for the value of off-balance sheet contracts. The NPV ratio represents the dollar amount of our NPV divided by the present value of our total assets for a given interest rate scenario. NPV attempts to quantify our economic value using a discounted cash flow methodology while the NPV ratio reflects that value as a form of capital ratio. We estimate what our NPV would be at a specific date. We then calculate what the NPV would be at the same date throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve. We currently calculate NPV under the assumptions that interest rates increase 100, 200, 300 and 400 basis points from current market rates and that interest rates decrease 100 points from current market rates.

The following table presents the estimated changes in our net portfolio value that would result from changes in market interest rates as September 30, 2021. All estimated changes presented in the table are within the policy limits approved by the board of directors.


	NPV							NPV as Percent of Portfolio Value of Assets
	(Dollars in thousands)
Basis Point (“bp”) Change in Interest Rates	Dollar Amount		Dollar Change		Percent Change			NPV Ratio			Change
400 bp	$	127,784	$	1,731		0.58	%		16.80	%		(21.17	)%
300 bp		132,351		6,298		5.00			17.12			13.60
200 bp		136,179		10,126		8.03			17.17			13.93
100 bp		134,314		8,261		6.55			16.49			9.42
—		126,053		—		—			15.07
(100) bp		129,406		3,353		2.66			15.11			0.27

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The above table assumes that the composition of our interest-sensitive assets and liabilities existing at the date indicated remains constant uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our NPV and will differ from actual results.

Net Interest Income Analysis. We also use income simulation to measure interest rate risk inherent in our balance sheet at a given point in time by showing the effect on net interest income, over specified time frames and using different interest rate shocks and ramps. The assumptions include management’s best assessment of the effect of changing interest rates on the prepayment speeds of certain assets and liabilities, projections for account balances in each of the product lines offered and the historical behavior of deposit rates and balances in relation to changes in interest rates. These assumptions are subject to change, and as a result, the model is not expected to precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income. Actual results will differ from the simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in the balance sheet composition and market conditions. Assumptions are supported with quarterly back testing of the model to actual market rate shifts.

As of September 30, 2021, net interest income simulation results indicated that its exposure over one year to changing interest rates was within our guidelines. The following table presents the estimated impact of interest rate changes on our estimated net interest income over one year:


Changes in Interest Rates (basis points)(1)		Change in Net Interest Income Year One (% change from year one base)
400		(0.10)%
300		(0.07)
200		0.28
100		0.36
—		—
(100)		(0.17)

(1)

The calculated change in net interest income assumes an instantaneous parallel shift of the yield curve.

The preceding simulation analyses does not represent a forecast of actual results and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions, which are subject to change, including: the nature and timing of interest rate levels including the yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and others. Also, as market conditions vary, prepayment/refinancing levels, the varying impact of interest rate changes on caps and floors embedded in adjustable-rate loans, early withdrawal of deposits, changes in product preferences, and other internal/external variables will likely deviate from those assumed.

Liquidity and Capital Resources

Liquidity. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities and proceeds from calls, maturities and sales of securities and sales of loans. We also have the ability to borrow from the Federal Home Loan Bank of New York. At September 30, 2021, we had the ability to borrow up to $255.1 million, of which $90.1 million was outstanding and $1.5 million was utilized as collateral for letters of credit issued to secure municipal deposits. At September 30, 2021, we had $51.0 million in unsecured lines of credit with four correspondent banks with no outstanding balance.

The board of directors is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we had enough sources of liquidity to satisfy our short- and long-term liquidity needs as of September 30, 2021.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any period. At September 30, 2021, cash and cash equivalents totaled $116.3 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $18.2 million at September 30, 2021.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate we will have sufficient funds to meet our current funding commitments. Certificates of deposit due within one year of September 30, 2021 totaled $276.8 million, or 46.8% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits and Federal Home Loan Bank of New York advances. Depending on market conditions, we may be required to pay higher rates on such deposits or borrowings than we currently pay. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Capital Resources. We are subject to various regulatory capital requirements administered by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation. At September 30, 2021, we exceeded all applicable regulatory capital requirements, and were considered “well capitalized” under regulatory guidelines. As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act, as modified in April 2020, the federal banking agencies were required to develop a “Community Bank Leverage Ratio” (the ratio of a bank's Tier 1 “equity capital to average total consolidated assets) for financial institutions with less than $10 billion. A “qualifying community bank” with capital exceeding 9% will be considered compliant with all applicable regulatory capital and leverage requirements, including the capital requirements to be considered "well capitalized” under Prompt Corrective Action statutes. As a result of the CARES Act, the ratio was temporarily reduced to 8% for calendar year 2020 and 8.5% for calendar year 2021 in response to COVID-19. As of September 30, 2021, the Bank is reporting as a qualifying community bank with a ratio of 17.67%.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Information with respect to quantitative and qualitative disclosures about market risk can be found in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Management of Market Risk.”

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2021. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the three months ended September 30, 2021, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

At September 30, 2021 we are not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, the outcome of which would be material to our financial condition or results of operations.

Item 1A. Risk Factors

There have been no material changes in risk factors applicable to the Company from those disclosed in “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On June 16, 2021, the Company’s Board of Directors approved the repurchase of 296,044 shares of its common stock, which is approximately 5% of its outstanding common stock (excluding shares held by Bogota Financial, MHC). The program does not have a scheduled expiration date and the Board of Directors has the right to suspend or discontinue the program at any time.

The following table provides information on repurchase by the Company of its common stock under the Company's Board approved program

ISSUER PURCHASES OF EQUITY SECURITIES


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 - 31, 2021		—	$	—		—		296,044
August 1 - 31, 2021		7,004		10.43		7,004		289,040
September 1 - 30, 2021		13,277		10.52		13,277		275,763
Total		20,281	$	10.49	$	20,281

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


Exhibit Number		Description

3.1		Articles of Incorporation of Bogota Financial Corp. (incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-233680))

3.2		Bylaws of Bogota Financial Corp. (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-233680))

4.1		Form of Common Stock Certificate of Bogota Financial Corp. (incorporated by reference to Exhibit 4 of the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-233680))

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.0		The following materials for the quarter ended September 30, 2021, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Financial Condition, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements*

104		Cover Page Interactive Data File (formatted in XBRL and contained in Exhibit 101)

* Furnished, not filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		BOGOTA FINANCIAL CORP.


Date: November 12, 2021		/s/ Joseph Coccaro
		Joseph Coccaro
		President and Chief Executive Officer



Date: November 12, 2021		/s/ Brian McCourt
		Brian McCourt
		Executive Vice President and Chief Financial Officer