Bogota Financial Corp. - Quarter Report: 2023 September (Form 10-Q)

bsbk20230930_10q.htm

Table of Contents

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, 2023

☐ 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 November 10, 2023, there were 13,327,266 shares issued and outstanding of the registrant’s common stock, par value $0.01 per share.

Table of Contents

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, 2023 (unaudited) and December 31, 2022.	1

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	2

	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	3

	Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	4

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	28

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	29

Item 3.	Defaults Upon Senior Securities	29

Item 4.	Mine Safety Disclosures	29

Item 5.	Other Information	29

Item 6.	Exhibits	30

	SIGNATURES	31

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

BOGOTA FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(unaudited)

	*As of*			*As of*
	*September 30, 2023*			*December 31, 2022*
Assets
Cash and due from banks	$	7,213,903		$	8,160,028
Interest-bearing deposits in other banks		17,763,418			8,680,889
Cash and cash equivalents		24,977,321			16,840,917
Securities available for sale, at fair value		68,518,624			85,100,578
Securities held to maturity (fair value of $57,033,705 and $70,699,651, respectively)		65,927,156			77,427,309
Loans, net of allowance of $2,785,949 and $2,578,174, respectively		710,292,859			719,025,762
Premises and equipment, net		7,765,804			7,884,335
Federal Home Loan Bank (FHLB) stock and other restricted securities		7,158,400			5,490,900
Accrued interest receivable		3,672,882			3,966,651
Core deposit intangibles		220,661			267,272
Bank-owned life insurance		30,780,398			30,206,325
Other assets		7,714,828			4,888,954
Total Assets	$	927,028,933		$	951,099,003
Liabilities and Equity
Non-interest bearing deposits	$	33,420,666		$	38,653,349
Interest bearing deposits		611,857,823			662,758,100
Total deposits		645,278,489			701,411,449
FHLB advances-short term		39,000,000			59,000,000
FHLB advances-long term		96,314,543			43,319,254
Advance payments by borrowers for taxes and insurance		3,460,726			3,174,661
Other liabilities		5,321,920			4,534,516
Total liabilities		789,375,678			811,439,880

Stockholders’ Equity
Preferred stock $0.01 par value 1,000,000 shares authorized, none issued and outstanding at September 30, 2023 and December 31, 2022		—			—
Common stock $0.01 par value, 30,000,000 shares authorized, 13,373,766 issued and outstanding at September 30, 2023 and 13,699,016 at December 31, 2022		133,737			136,989
Additional paid-in capital		56,688,749			59,099,476
Retained earnings		93,354,828			91,756,673
Unearned ESOP shares (416,491 shares at September 30, 2023 and 436,945 shares at December 31, 2022)		(4,897,099	)		(5,123,002	)
Accumulated other comprehensive loss		(7,626,960	)		(6,211,013	)
Total stockholders’ equity		137,653,255			139,659,123
Total liabilities and stockholders’ equity	$	927,028,933		$	951,099,003

See accompanying notes to unaudited consolidated financial statements.

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BOGOTA FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	*Three Months Ended*					*Nine Months Ended*
	*September 30,*					*September 30,*
	*2023*			*2022*		*2023*			*2022*
Interest income
Loans, including fees	$	7,980,388		$	7,018,200	$	23,821,545		$	18,403,802
Securities
Taxable		994,791			1,013,034		3,042,389			2,582,869
Tax-exempt		13,159			48,027		78,293			115,305
Other interest-earning assets		301,081			96,139		771,584			263,634
Total interest income		9,289,419			8,175,400		27,713,811			21,365,610
Interest expense
Deposits		4,851,926			1,249,693		12,777,907			2,925,685
FHLB advances		1,220,166			716,705		2,900,359			1,402,741
Total interest expense		6,072,092			1,966,398		15,678,266			4,328,426
Net interest income		3,217,327			6,209,002		12,035,545			17,037,184
Provision (recovery) for credit losses		—			175,000		(125,000	)		275,000
Net interest income after provision (recovery) for credit losses		3,217,327			6,034,002		12,160,545			16,762,184
Non-interest income
Fees and service charges		61,529			47,090		159,381			136,886
Gain on sale of loans		—			—		29,375			86,913
Bank-owned life insurance		197,873			185,085		574,073			510,527
Other		30,332			37,336		93,660			133,325
Total non-interest income		289,734			269,511		856,489			867,651
Non-interest expense
Salaries and employee benefits		2,274,347			2,154,654		6,737,952			6,316,898
Occupancy and equipment		372,626			347,036		1,114,170			1,033,846
FDIC insurance assessment		132,571			54,000		319,690			162,000
Data processing		205,721			311,106		717,913			920,293
Advertising		126,000			156,145		369,383			368,435
Director fees		159,336			189,424		478,011			607,749
Professional fees		149,251			163,500		412,519			459,253
Other		241,530			262,890		661,300			905,428
Total non-interest expense		3,661,382			3,638,755		10,810,938			10,773,902
(Loss) income before income taxes		(154,321	)		2,664,758		2,206,096			6,855,933
Income tax (benefit) expense		(125,268	)		734,152		385,801			1,882,423
Net (loss) income	$	(29,053	)	$	1,930,606	$	1,820,295		$	4,973,510
Earnings (loss) per Share - basic	$	(0.00	)	$	0.14	$	0.14		$	0.36
Earnings (loss) per Share - diluted	$	(0.00	)	$	0.14	$	0.14		$	0.36
Weighted average shares outstanding - basic		13,037,903			13,468,751		13,103,951			13,661,851
Weighted average shares outstanding - diluted		13,037,903			13,529,857		13,103,951			13,704,688

See accompanying notes to unaudited consolidated financial statements.

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BOGOTA FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(unaudited)

	*Three Months Ended*						*Nine Months Ended*
	*September 30,*						*September 30,*
	*2023*			*2022*			*2023*			*2022*
Net (loss) income	$	(29,053	)	$	1,930,606		$	1,820,295		$	4,973,510
Other comprehensive (loss) income:
Net unrealized loss on securities available for sale:		(1,594,912	)		(316,044	)		(2,456,233	)		(9,416,506	)
Tax effect		448,330			88,840			690,448			2,646,981
Net of tax		(1,146,582	)		(227,204	)		(1,765,785	)		(6,769,525	)
Defined benefit retirement plans:
Reclassification adjustment for amortization of prior service cost and net (loss) gain included in salaries and employee benefits		(23,016	)		57,850			(69,048	)		173,550
Tax effect		6,470			(16,261	)		19,410			(48,783	)
Net of tax		(16,546	)		41,589			(49,638	)		124,767
Derivatives:
Unrealized gain on swap contracts accounted for as cash flow hedges		257,333			364,332			555,677			364,332
Tax effect		(72,336	)		(102,414	)		(156,201	)		(102,414	)
Net of tax		184,997			261,918			399,476			261,918
Total other comprehensive (loss) income		(978,131	)		76,303			(1,415,947	)		(6,382,840	)
Comprehensive income (loss) income	$	(1,007,184	)	$	2,006,909		$	404,348		$	(1,409,330	)

See accompanying notes to unaudited consolidated financial statements.

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BOGOTA FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(unaudited)

																*Accumulated*
							*Additional*									*Other*			*Total*
	*Common*			*Common*			*Paid-in*			*Retained*			*Unearned*			*Comprehensive*			*Stockholders*
	*Stock Shares*			*Stock*			*Capital*			*Earnings*			*ESOP shares*			*Loss*			*Equity*
Balance January 1, 2022		14,605,809		$	146,057		$	68,247,204		$	84,879,812		$	(5,424,206	)	$	(272,656	)	$	147,576,211
Net income		—			—			—			1,400,897			—			—			1,400,897
Other comprehensive loss		—			—			—			—			—			(2,358,399	)		(2,358,399	)
Stock based compensation		—			—			233,193			—			—			—			233,193
Stock purchased and retired		(180,501	)		(1,805	)		(1,890,310	)		—			—			—			(1,892,115	)
ESOP Shares released (25,789 shares)		—			—			(9,156	)		—			75,301			—			66,145
Balance March 31, 2022		14,425,308		$	144,252		$	66,580,931		$	86,280,709		$	(5,348,905	)	$	(2,631,055	)	$	145,025,932
Net income		—			—			—			1,642,007			—			—			1,642,007
Other comprehensive loss		—			—			—			—			—			(4,100,744	)		(4,100,744	)
Stock based compensation		—			—			233,193			—			—			—			233,193
Stock purchased and retired		(217,448	)		(2,174	)		(2,407,889	)		—			—			—			(2,410,063	)
ESOP Shares released (25,789 shares)		—			—			(4,832	)		—			75,301			—			70,469
Balance June 30, 2022		14,207,860		$	142,078		$	64,401,403		$	87,922,716		$	(5,273,604	)	$	(6,731,799	)	$	140,460,794
Net income		—			—			—			1,930,606			—			—			1,930,606
Other comprehensive income		—			—			—			—			—			76,303			76,303
Stock based compensation		—			—			233,193			—			—			—			233,193
Stock purchased and retired		(148,472	)		(1,485	)		(1,652,461	)		—			—			—			(1,653,946	)
ESOP Shares released (25,789 shares)		—			—			(3,892	)		—			75,301			—			71,409
Balance September 30, 2022		14,059,388		$	140,593		$	62,978,243		$	89,853,322		$	(5,198,303	)	$	(6,655,496	)	$	141,118,359

Balance January 1, 2023		13,699,016		$	136,989		$	59,099,476		$	91,756,673		$	(5,123,002	)	$	(6,211,013	)	$	139,659,123
Adoption of ASU 326 credit losses		—			—			—			(222,140	)		—			—			(222,140	)
Net income		—			—			—			992,707			—			—			992,707
Other comprehensive loss		—			—			—			—			—			(246,175	)		(246,175	)
Stock based compensation		—			—			233,193			—			—			—			233,193
Stock purchased and retired		(126,660	)		(1,266	)		(1,401,568	)		—			—			—			(1,402,834	)
ESOP shares released (25,789 shares)		—			—			(2,916	)		—			75,301			—			72,385
Balance March 31, 2023		13,572,356		$	135,723		$	57,928,185		$	92,527,240		$	(5,047,701	)	$	(6,457,188	)	$	139,086,259
Net income		—			—			—			856,641			—			—			856,641
Other comprehensive loss		—			—			—			—			—			(191,641	)		(191,641	)
Stock based compensation		—			—			233,193			—			—			—			233,193
Stock purchased and retired		(89,899	)		(899	)		(839,563	)		—			—			—			(840,462	)
ESOP shares released (25,789 shares)		—			—			(20,813	)		—			75,301			—			54,488
Balance June 30, 2023		13,482,457		$	134,824		$	57,301,002		$	93,383,881		$	(4,972,400	)	$	(6,648,829	)	$	139,198,478
Net loss		—			—			—			(29,053	)		—			—			(29,053	)
Other comprehensive loss		—			—			—			—			—			(978,131	)		(978,131	)
Stock based compensation		—			—			233,193			—			—			—			233,193
Stock purchased and retired		(108,691	)		(1,087	)		(821,172	)		—			—			—			(822,259	)
ESOP shares released (25,789 shares)		—			—			(24,274	)		—			75,301			—			51,027
Balance September 30, 2023		13,373,766		$	133,737		$	56,688,749		$	93,354,828		$	(4,897,099	)	$	(7,626,960	)	$	137,653,255

See accompanying notes to unaudited consolidated financial statements.

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BOGOTA FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	*For the nine months ended*
	*September 30,*
	*2023*			*2022*
Cash flows from operating activities
Net income	$	1,820,295		$	4,973,510
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets		(53,081	)		(163,818	)
(Recovery) provision for credit losses		(125,000	)		275,000
Depreciation of premises and equipment		383,136			358,290
Amortization (accretion) of deferred loan (fees) costs, net		97,891			(78,649	)
Amortization of premiums and accretion of discounts on securities, net		4,541			38,625
Deferred income tax (benefit) expense		(111,594	)		201,580
Gain on sale of loans		(29,375	)		(86,913	)
Proceeds from sale of loans		1,875,125			4,640,081
Origination of loans held for sale		(1,845,750	)		(3,400,668	)
Increase in cash surrender value of bank owned life insurance		(574,073	)		(497,830	)
Employee stock ownership plan expense		177,900			208,023
Stock based compensation		699,579			699,579
Changes in:
Accrued interest receivable		293,769			(698,724	)
Net changes in other assets		(1,518,086	)		1,939,009
Net changes in other liabilities		566,354			670,602
Net cash provided by operating activities		1,661,631			9,077,697
Cash flows from investing activities
Purchases of securities held to maturity		(1,000,000	)		(23,120,238	)
Purchases of securities available for sale		—			(69,461,181	)
Maturities, calls, and repayments of securities available for sale		14,121,182			13,753,509
Maturities, calls, and repayments of securities held to maturity		12,500,153			13,044,952
Net decrease (increase) in loans		8,637,206			(137,038,853	)
Purchase of Bank Owned Life Insurance		—			(5,000,000	)
Purchases of premises and equipment		(264,605	)		(184,748	)
Purchase of FHLB stock		(6,919,000	)		(7,027,200	)
Redemption of FHLB stock		5,251,500			5,215,000
Net cash provided by (used in) investing activities		32,326,436			(209,818,759	)
Cash flows from financing activities
Net (decrease) increase in deposits		(56,099,671	)		70,767,453
Net (decrease) increase in short-term FHLB advances		(20,000,000	)		74,000,000
Proceeds from long-term FHLB non-repo advances		75,500,000			—
Repayments of long-term FHLB non-repo advances		(22,472,502	)		(30,879,039	)
Repurchase of common stock		(3,065,555	)		(5,956,124	)
Net increase in advance payments from borrowers for taxes and insurance		286,065			1,065,760
Net cash (used in) provided by financing activities		(25,851,663	)		108,998,050
Net increase (decrease) in cash and cash equivalents		8,136,404			(91,743,012	)
Cash and cash equivalents at beginning of year		16,840,917			105,068,785
Cash and cash equivalents at September 30,	$	24,977,321		$	13,325,773
Supplemental cash flow information
Income taxes paid	$	1,375,000		$	1,275,000
Interest paid		15,261,645			4,064,492

See accompanying notes to unaudited consolidated financial statements.

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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 Company completed its stock offering in connection with the mutual holding company reorganization of the Bank on January 15, 2020. Shares of the Company’s common stock began trading on January 16, 2020 on the Nasdaq Capital Market under the trading symbol “BSBK.”

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, 2023 and December 31, 2022.

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.

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 stockholders 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 and non-vested shares of restricted stock. Diluted EPS is computed using the same method as basic EPS, except it also reflects the potential dilution which could occur if stock options 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 and nine months ended September 30, 2023 and September 30, 2022, options to purchase 523,619 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. Anti-dilutive options are those options with exercise prices in excess of the weighted average market value for the periods presented.

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, 2023 and 2022.

	*For the three months ended September 30, 2023*			*For the three months ended September 30, 2022*		*For the nine months ended September 30, 2023*		*For the nine months ended September 30, 2022*
Numerator
Net (loss) income	$	(29,053	)	$	1,930,606	$	1,820,295	$	4,973,510
Denominator:
Weighted average shares outstanding - basic		13,037,903			13,468,751		13,103,951		13,661,851
Effect of stock options		—			61,106		—		42,837
Weighted average shares outstanding - diluted		13,037,903			13,529,857		13,103,951		13,704,688
Earnings per common share:
Basic	$	(0.00	)	$	0.14	$	0.14	$	0.36
Diluted		(0.00	)		0.14		0.14		0.36

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"), management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ under different conditions than those assumed.

Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in conformity with 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.

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BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 the Company at and for the year ended December 31, 2022.

Allowance for Credit Losses - Loans and Leases: The current expected credit loss (“CECL”) model requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures). It replaces the incurred loss model that delayed the recognition of a credit loss until it was probable that a loss event was incurred.

The estimate of expected credit losses is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. The Company then considers whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the historical period used. The Company considers future economic conditions and portfolio performance as part of a reasonable and supportable forecast.

Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses (“ACL”). The Company has designated six portfolio segments, which are residential, commercial real estate, multi-family, construction, commercial and industrial and consumer. These portfolio segments are further disaggregated into classes, which represent loans and leases of similar type, risk characteristics, and methods for monitoring and assessing credit risk.

The Company has minimal history of credit losses and therefore uses the Weighted Average Remaining Maturity (WARM) method for all segments and relies on the use of qualitative factors to determine future credit losses.

The Company considers the impact of current environmental factors at the reporting date that did not exist over the period from which historical experience was used. Relevant factors include, but are not limited to, concentrations of credit risk (geographic, large borrower, and industry), economic trends and conditions, changes in underwriting standards, experience and depth of lending staff, trends in delinquencies, and the level of criticized loans.

The Company also incorporates a one-year reasonable and supportable loss forecast period to account for the effect of forecasted economic conditions and other factors on the performance of the commercial portfolio, which could differ from historical loss experience. The Company performs a quarterly asset quality review, which includes a review of forecasted gross charge-offs and recoveries, non-performing assets, criticized loans and leases, and risk rating migration. The asset quality review is reviewed by management and the results are used to consider a qualitative overlay to the quantitative baseline. After the one-year reasonable and supportable loss forecast period, this overlay adjustment assumes an immediate reversion to historical loss rates for the remaining loan life period.

The Company establishes a specific reserve for individually evaluated loans which do not share similar risk characteristics with the loans included in the quantitative baseline. These individually evaluated loans are removed from the pooling approach discussed above for the quantitative baseline, and include non-accrual loans, and other loans as deemed appropriate by management.

A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For all classes of loans deemed collateral-dependent, the Company elected the practical expedient to estimate expected credit losses based on the collateral’s fair value less cost to sell. In most cases, the Company records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less cost to sell. Substantially all of the collateral consists of various types of real estate including: residential properties; commercial properties, such as retail centers, office buildings, and lodging; agriculture land; and vacant land.

The reserve for unfunded commitments (the “Unfunded Reserve”) represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit. However, a liability is not recognized for commitments unconditionally cancellable by the Company. The Unfunded Reserve is recognized as a liability (other liabilities in the consolidated statements of condition), with adjustments to the reserve recognized in other noninterest expense in the consolidated statements of income. The Unfunded Reserve is determined by estimating future draws and applying the expected loss rates on those draws. Future draws are based on historical averages of utilization rates (i.e., the likelihood of draws taken). To estimate future draws on unfunded balances, current utilization rates are compared to historical utilization rates. If current utilization rates are below historical utilization rates, the rate difference is applied to the committed balance to estimate the future draw. Loss rates are estimated by utilizing the same loss rates calculated for the allowance general reserves.

Table of Contents

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Adoption of Accounting Standards: In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (ASC 326), which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring more timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an ACL that is deducted from the amortized cost basis. The ACL should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement was affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. With certain exceptions, transition to the new requirements will be through a cumulative-effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance was adopted. This Update was effective for Securities and Exchange Commission (“SEC”) filers that qualify as smaller reporting companies, non-SEC filers, and all other companies, for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company has no history of credit losses and therefore uses the WARM method and relies on the use of qualitative factors to determine future credit losses. Upon adoption of the CECL method of calculating the ACL on January 1, 2023, the Bank recorded a one-time decrease, net of tax, in retained earnings of $222,000, an increase to the ACL of $157,000 and, an increase in the reserve for unfunded liabilities of $152,000. No adjustment was made for the available-for-sale securities portfolio. See note 4 for additional information. The table below includes $125,775 of credit losses on purchased credit impaired (“PCI”) loans that have been added to ACL as per the adoption of ASU 326.

The Bank adopted the provisions of ASC 326 related to financial assets purchased with credit deterioration (“PCD”) that were previously classified as PCI loans and accounted for under ASC 310-30 using the prospective transition approach. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2023, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $125,775 to the ACL.

The Bank adopted the provisions of ASC 326 related to presenting other-than-temporary impairment on available-for-sale debt securities prior to January 1, 2023 using the prospective transition approach, though no such charges had been recorded on the securities held by the Bank as of the date of adoption.

The effect of the adoption of ASC 326 on the loan portfolio segments and the ACL by portfolio segment was:

	Pre Adoption			The effect of adoption			Post Adoption
Real estate:	(unaudited)
Residential First Mortgage	$	466,100,627		$	29,589,213		$	495,689,840
Commercial and Multi-Family Real Estate		162,338,669			(162,338,669	)		—
Commercial Real Estate		—			96,030,721			96,030,721
Multi-Family Real Estate		—			66,400,713			66,400,713
Construction		61,825,478			—			61,825,478
Commercial and Industrial		1,684,189			—			1,684,189
Consumer:
Home Equity and Other Consumer		29,654,973			(29,654,973	)		—
Consumer		—			98,770			98,770
Total loans		721,603,936			125,775			721,729,711
Allowance for credit losses		(2,578,174	)		(282,775	)		(2,860,949	)
Net loans	$	719,025,762		$	(157,000	)	$	718,868,762

	Pre Adoption		The effect of adoption			Post Adoption
Assets	(unaudited)
ACL on loans
Residential First Mortgage	$	1,602,534	$	211,669		$	1,814,203
Commercial and Multi-Family Real Estate		615,480		(615,480	)		—
Commercial Real Estate		—		522,977			522,977
Multi-Family Real Estate		—		259,769			259,769
Construction		258,500		1,500			260,000
Commercial and Industrial		3,960		40			4,000
Home Equity and Other Consumer		97,700		(97,700	)		—
Liabilities
ACL for unfunded commitments		—		152,000			152,000
Total	$	2,578,174	$	434,775		$	3,012,949

In March 2022, the FASB issued ASU No. 2022-02, "Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted CECL and enhance the disclosure requirements for modifications of receivables made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current period gross write-offs by year of origination for financing receivables and net investment in leases in the existing vintage disclosures. This ASU became effective on January 1, 2023 for the Company. The adoption of this ASU resulted in updated disclosures within our financial statements but otherwise did not have a material impact on the Company’s financial statements.

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BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 2 – SECURITIES AVAILABLE FOR SALE

The following table summarizes the amortized cost, fair value, and gross unrealized gains and losses of securities available for sale, by contractual maturity, at September 30, 2023 and December 31, 2022:

			*Gross*		*Gross*
	*Amortized*		*Unrealized*		*Unrealized*			*Fair*
	*Cost*		*Gains*		*Losses*			*Value*
September 30, 2023
U.S. government and agency obligations
One through five years	$	6,000,000	$	—	$	(611,727	)	$	5,388,273
Corporate bonds due in:
Less than one year		1,001,146		—		(3,524	)		997,622
One through five years		11,230,530		—		(428,667	)		10,801,863
Five through ten years		1,000,000		—		(157,130	)		842,870
MBSs – residential		41,981,115		2,247		(7,040,552	)		34,942,810
MBSs – commercial		18,803,192		—		(3,258,006	)		15,545,186
Total	$	80,015,983	$	2,247	$	(11,499,606	)	$	68,518,624

			Gross		Gross
	*Amortized*		*Unrealized*		*Unrealized*			*Fair*
	*Cost*		*Gains*		*Losses*			*Value*
December 31, 2022
U.S. treasury bills	$	4,971,310	$	—	$	(43,702	)	$	4,927,608
U.S. government and agency obligations
One through five years		6,000,000		—		(534,846	)		5,465,154
Corporate bonds due in:
Less than one year		3,022,044		—		(37,230	)		2,984,814
One through five years		12,182,364		554		(585,085	)		11,597,833
Five through ten years		1,000,000		—		(76,600	)		923,400
MBSs – residential		44,879,199		2,146		(5,232,300	)		39,649,045
MBSs – commercial		22,086,788		—		(2,534,064	)		19,552,724
Total	$	94,141,705	$	2,700	$	(9,043,827	)	$	85,100,578

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”).

There were no sales of securities during the nine months ended September 30, 2023 or September 30, 2022.

The age of unrealized losses and the fair value of related securities as of September 30, 2023 and December 31, 2022 were as follows:

	*Less Than 12 Months*					*12 Months or More*					*Total*
	*Fair*		*Unrealized*			*Fair*		*Unrealized*			*Fair*		*Unrealized*
	*Value*		*Losses*			*Value*		*Losses*			*Value*		*Losses*
September 30, 2023
U.S. government and agency obligations	$	—	$	—		$	5,388,273	$	(611,727	)	$	5,388,273	$	(611,727	)
Corporate bonds		—		—			12,642,355		(589,321	)		12,642,355		(589,321	)
MBSs – residential		1,914,159		(200,739	)		32,886,252		(6,839,813	)		34,800,411		(7,040,552	)
MBSs – commercial		-		-			15,545,186		(3,258,006	)		15,545,186		(3,258,006	)
Total	$	1,914,159	$	(200,739	)	$	66,462,066	$	(11,298,867	)	$	68,376,225	$	(11,499,606	)

	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
December 31, 2022
U.S treasury bills	$	4,927,608	$	(43,702	)	$	—	$	—		$	4,927,608	$	(43,702	)
U.S. government and agency obligations		2,758,248		(241,752	)		2,706,906		(293,094	)		5,465,154		(534,846	)
Corporate bonds		11,859,089		(392,367	)		2,647,402		(306,548	)		14,506,491		(698,915	)
MBSs – residential		16,474,573		(1,557,718	)		22,801,879		(3,674,582	)		39,276,452		(5,232,300	)
MBSs – commercial		9,449,159		(857,122	)		10,103,565		(1,676,942	)		19,552,724		(2,534,064	)
Total	$	45,468,677	$	(3,092,661	)	$	38,259,752	$	(5,951,166	)	$	83,728,429	$	(9,043,827	)

Table of Contents

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 2 – SECURITIES AVAILABLE FOR SALE (Continued)

Unrealized losses on corporate bonds available for sale are not considered to be credit losses 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 was largely due to changes in interest rates and other market conditions. At September 30, 2023, 100% of the mortgage-backed securities were issued by U.S. government-sponsored entities and agencies, primarily FNMA and FHLMC, institutions which the government has affirmed its commitment to support. Because the decline in fair value was 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 losses to be credit-related at September 30, 2023. As of September 30, 2023, no ACL was required on available-for-sale securities. At December 31, 2022 the Bank did not consider these securities to be other-than-temporary impaired. At September 30, 2023 and December 31, 2022, securities available for sale with a carrying value of $114,221 and $126,662 were pledged to secure public deposits. There were 47 securities in a loss position at September 30, 2023.

NOTE 3 – SECURITIES HELD TO MATURITY

Effective January 1, 2023, the Company adopted ASC 326, which requires management to complete an evaluation of the held-to-maturity securities portfolio to identify whether any ACL is required. Management completed an evaluation as of the adoption date and determined the ACL on the held-to-maturity portfolio was not significant. This determination was based on financial review of securities and ratings of each security.

The following table summarizes the amortized cost, fair value, and gross unrecognized gains and losses of securities held to maturity by contractual maturity at September 30, 2023 and December 31, 2022:

			*Gross*		*Gross*
	*Amortized*		*Unrecognized*		*Unrecognized*			*Fair*
	*Cost*		*Gains*		*Losses*			*Value*
September 30, 2023
U.S. Government and agency obligations
One through five years	$	10,000,000	$	—	$	(476,670	)	$	9,523,330
Five through ten years		3,000,000		—		(486,441	)		2,513,559
Corporate bonds due in:
One through five years		2,453,761		—		(67,353	)		2,386,408
Five through ten years		17,288,710		—		(2,370,801	)		14,917,909
Municipal obligations due in:
One through five years		901,836		—		(74,403	)		827,433
Five through ten years		375,000		—		(12,934	)		362,066
Greater than ten years		1,724,997		—		(356,062	)		1,368,935
MBSs:
Residential		12,909,061		7,620		(1,776,289	)		11,140,392
Commercial		17,273,791		—		(3,280,118	)		13,993,673
Total	$	65,927,156	$	7,620	$	(8,901,071	)	$	57,033,705

			Gross		Gross
	*Amortized*		*Unrecognized*		*Unrecognized*			*Fair*
	*Cost*		*Gains*		*Losses*			*Value*
December 31, 2022
U.S. Government and agency obligations
One through five years	$	10,000,000	$	—	$	(456,850	)	$	9,543,150
Five through ten years		3,000,000		—		(466,866	)		2,533,134
Corporate bonds due in:
One through five years		2,444,729		1,269		(55,836	)		2,390,162
Five through ten years		15,825,262		54,738		(1,045,557	)		14,834,443
Municipal obligations due in:
Less than one year		7,706,402		—		(36,250	)		7,670,152
One through five years		902,545		—		(84,742	)		817,803
Five through ten years		375,000		1,286		—			376,286
Greater than ten years		1,728,184		—		(346,586	)		1,381,598
MBSs:
Residential		14,425,827		410		(1,431,861	)		12,994,376
Commercial		21,019,360		—		(2,860,813	)		18,158,547
Total	$	77,427,309	$	57,703	$	(6,785,361	)	$	70,699,651

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

Table of Contents

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 3 – 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*		*Unrecognized*			*Fair*		*Unrecognized*			*Fair*		*Unrecognized*
	*Value*		*Losses*			*Value*		*Losses*			*Value*		*Losses*
September 30, 2023
U.S. government and agency obligations	$	—	$	—		$	12,036,889	$	(963,111	)	$	12,036,889	$	(963,111	)
Corporate bonds		2,833,496		(118,025	)		14,470,822		(2,320,129	)		17,304,318		(2,438,154	)
Municipal bonds		362,066		(12,934	)		2,196,368		(430,465	)		2,558,434		(443,399	)
MBSs – residential		34,596		(2	)		10,050,189		(1,776,287	)		10,084,785		(1,776,289	)
MBSs – commercial		—		—			13,993,672		(3,280,118	)		13,993,672		(3,280,118	)
Total	$	3,230,158	$	(130,961	)	$	52,747,940	$	(8,770,110	)	$	55,978,098	$	(8,901,071	)

	Less Than 12 Months					12 Months or More					Total
	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
	Value		Losses			Value		Losses			Value		Losses
December 31, 2022
U.S. government and agency obligations	$	9,543,150	$	(456,850	)	$	2,533,134	$	(466,866	)	$	12,076,284	$	(923,716	)
Corporate bonds		11,464,282		(680,447	)		3,329,054		(420,946	)		14,793,336		(1,101,393	)
Municipal bonds		7,670,152		(36,250	)		2,199,401		(431,328	)		9,869,553		(467,578	)
MBSs – residential		2,008,303		(101,341	)		10,809,648		(1,330,520	)		12,817,951		(1,431,861	)
MBSs – commercial		7,383,822		(282,984	)		10,774,725		(2,577,829	)		18,158,547		(2,860,813	)
Total	$	38,069,709	$	(1,557,872	)	$	29,645,962	$	(5,227,489	)	$	67,715,671	$	(6,785,361	)

No ACL on the securities above has been recorded because the issuers of the securities are of high credit quality and the decline in fair value was 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, 2023 and December 31, 2022, securities held to maturity with a carrying amount of $1,709,280 and $5,293,804, respectively, were pledged to secure repurchase agreements at the Federal Home Loan Bank of New York. There were 55 securities in a loss position at September 30, 2023. At December 31, 2022 the Bank did not consider these securities to be other-than-temporary impaired. At September 30, 2023 and December 31, 2022, securities held to maturity with a carrying value of $5,079,376 and $5,293,804, respectively, were pledged to secure public deposits.

NOTE 4 – LOANS

In conjunction with the adoption of ASC 326, the Company made certain loan portfolio segment reclassifications to conform to the new ACL methodology. Loans and these related reclassifications, are summarized as follows at September 30, 2023 and December 31, 2022:

				*Pre Adoption*						*Post Adoption*
	*September 30,*			*December 31,*			*The effect of*			*December 31,*
	*2023*			*2022*			*adoption*			*2022*
Real estate:	(unaudited)
Residential First Mortgage	$	488,056,539		$	495,689,840		$	29,589,213		$	466,100,627
Commercial and Multi-Family Real Estate		—			—			(162,338,669	)		162,338,669
Commercial Real Estate		99,503,713			96,030,721			96,030,721			—
Multi-Family Real Estate		68,264,208			66,400,713			66,400,713			—
Construction		51,537,604			61,825,478			—			61,825,478
Commercial and Industrial		5,697,696			1,684,189			—			1,684,189
Consumer:
Home Equity and Other Consumer		—			—			(29,654,973	)		29,654,973
Consumer		19,048			98,770			98,770			—
Total loans		713,078,808			721,729,711			125,775			721,603,936
Allowance for credit losses		(2,785,949	)		(2,860,949	)		(282,775	)		(2,578,174	)
Net loans	$	710,292,859		$	718,868,762		$	(157,000	)	$	719,025,762

Table of Contents

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 4 – LOANS (Continued)

The Bank has granted loans to officers and directors of the Bank. At September 30, 2023 and December 31, 2022, such loans totaled $1,629,412 and $1,739,725, respectively. At September 30, 2023 and December 31, 2022, deferred loan fees were $3,012,686 and $3,078,612, respectively.

	*Residential First Mortgage*			*Commercial Real Estate*			*Multi-Family Real Estate*		*Construction*		*Commercial and Industrial*		*Consumer*		*Total*
Three months
September 30, 2023
Allowance for credit losses:
Beginning balance	$	1,811,547		$	539,002		$	265,000	$	159,000	$	11,400	$	—	$	2,785,949
Provision for (recovery) of credit losses		(17,720	)		(5,505	)		4,925		11,700		6,600		—		—
Loans charged off		—			—					—		—		—		—
Recoveries		—			—					—		—		—		—
Total ending allowance balance	$	1,793,827		$	533,497		$	269,925	$	170,700	$	18,000	$	—	$	2,785,949

	Residential First Mortgage		Commercial and Multi-Family Real Estate			Construction		Commercial and Industrial			Home Equity & Other		Total
September 30, 2022
Allowance for loan losses:
Beginning balance	$	1,251,924	$	680,000		$	232,000	$	7,000		$	82,250	$	2,253,174
Provision for (recovery) of loan losses		161,850		(32,000	)		36,500		(1,100	)		9,750		175,000
Loans charged off		—		—			—		—			—		—
Recoveries		—		—			—		—			—		—
Total ending allowance balance	$	1,413,774	$	648,000		$	268,500	$	5,900		$	92,000	$	2,428,174

Nine Months Ended September 30, 2023		Residential First Mortgage		Commercial Real Estate		Multi-Family Real Estate		Construction			Commercial and Industrial		Home Equity & Other			Total

Allowance for credit losses:
Beginning balance	$	1,602,534	$	381,180	$	234,300	$	258,500		$	3,960	$	97,700		$	2,578,174
Impact of ASC 326 adoption		113,969		141,797		25,469		1,500			40		—			282,775
Provision for (recovery) of credit losses		77,324		10,520		10,156		(89,300	)		14,000		(97,700	)		(75,000	)
Loans charged off		—		—		—		—			—		—			—
Recoveries		—		—		—		—			—		—			—
Total ending allowance balance	$	1,793,827	$	533,497	$	269,925	$	170,700		$	18,000	$	—		$	2,785,949

	Residential First Mortgage		Commercial and Multi-Family Real Estate			Construction		Commercial and Industrial			Home Equity & Other		Total
September 30, 2022
Allowance for loan losses:
Beginning balance	$	1,092,474	$	768,600		$	195,000	$	9,400		$	87,700	$	2,153,174
Provision for (recovery) of loan losses		321,300		(120,600	)		73,500		(3,500	)		4,300		275,000
Loans charged off		—		—			—		—			—		—
Recoveries		—		—			—		—			—		—
Total ending allowance balance	$	1,413,774	$	648,000		$	268,500	$	5,900		$	92,000	$	2,428,174

Table of Contents

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 4 – 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 December 31, 2022:

	Residential First Mortgage		Commercial and Multi-Family Real Estate		Construction		Commercial and Industrial		Home Equity & Other consumer		Total
December 31, 2022
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	33,000	$	—	$	—	$	—	$	—	$	33,000
Collectively evaluated for impairment		1,569,534		615,480		258,500		3,960		97,700		2,545,174
Total ending allowance balance	$	1,602,534	$	615,480	$	258,500	$	3,960	$	97,700	$	2,578,174
Loans:
Loans individually evaluated for impairment	$	819,590	$	—	$	—	$	—	$	37,069	$	856,659
Loans collectively evaluated for impairment		462,439,940		160,990,186		61,825,478		1,684,189		29,586,787		716,526,580
Loans acquired with deteriorated credit quality		2,841,097		1,348,483		—		—		31,117		4,220,697
Total ending loan balance	$	466,100,627	$	162,338,669	$	61,825,478	$	1,684,189	$	29,654,973	$	721,603,936

Impaired loans as of December 31, 2022 were as follows:

							Amount of
	*Loans*				*Average*		*allowance for*
	*With no related*		*Loans with an*		*of individually*		*loan losses*
	*allowance recorded*		*allowance recorded*		*Impaired loans*		*allocated*
Residential First Mortgage	$	1,199,278	$	171,616	$	1,300,615	$	33,000
Commercial and Multi-Family Real Estate		488,222		—		488,196		—
Construction		—		—		—		—
Commercial and Industrial		—		—		—		—
Home Equity and Other Consumer		37,069		—		26,298		—
	$	1,724,569	$	171,616	$	1,815,109	$	33,000

Collateral - dependent loans individually evaluated with the ACL by collateral type were as follows at September 30, 2023:

Portfolio segment	*Real estate*		*Other*
Residential First Mortgage	$	—	$	—
Commercial Real Estate		—		—
Multi-Family Real Estate		—		—
Construction		10,955,010		—
Commercial and Industrial		—		—
Other Consumer		—		—
	$	10,955,010	$	—

Interest income recognized on impaired loans for the nine months ended September 30, 2022 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 December 31, 2022:

			Loans Past
			Due 90 Days
			or More Still
	Nonaccrual		Accruing
December 31, 2022
Residential First Mortgage	$	819,590	$	—
Home Equity and Other Consumer		37,069		—
Total	$	856,659	$	—

Table of Contents

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 4 – LOANS (Continued)

No nonaccrual loans have specific reserves as of September 30, 2023 and the Bank had no other real estate owned at either September 30, 2023 or December 31, 2022.

	*Nonaccrual loans beginning of period*		*Nonaccrual loans end of period*		*Nonaccrual with no Allowance for Credit Loss*		*Loans Past Due 90 Days or More Still Accruing*		*Interest recognized on nonaccrual loans*
September 30, 2023
Residential First Mortgage	$	819,590	$	1,322,554	$	1,322,554	$	—	$	—
Commercial Real Estate				495,273		495,273
Construction		—		10,955,010		10,955,010		—		—
Consumer		37,069		—		—		—		—
Total	$	856,659	$	12,772,837	$	12,772,837	$	—	$	—

The following table presents the aging of the recorded investment in past due loans as of September 30, 2023 and December 31, 2022, by class of loans:

					*Greater than*
	*30-59 Days*		*60-89 Days*		*89 Days*		*Total*		*Loans Not*
	*Past Due*		*Past Due*		*Past Due*		*Past Due*		*Past Due*		*Total*
September 30, 2023
Residential First Mortgage	$	—	$	301,093	$	950,620	$	1,251,713	$	486,804,826	$	488,056,539
Commercial Real Estate		—		6,856,465		454,076		7,310,541		92,193,172		99,503,713
Multi-Family Real Estate		—		—		—		—		68,264,208		68,264,208
Construction		—		—		10,893,713		10,893,713		40,643,891		51,537,604
Commercial and Industrial		—		—		—		—		5,697,696		5,697,696
Consumer		—		—		—		—		19,048		19,048
Total	$	—	$	7,157,558	$	12,298,409	$	19,455,967	$	693,622,841	$	713,078,808

					Greater than
	*30-59 Days*		*60-89 Days*		89 Days		*Total*		*Loans Not*
	*Past Due*		*Past Due*		*Past Due*		Past Due		Past Due		*PCI loans*		*Total*
December 31, 2022
Residential First Mortgage	$	—	$	360,849	$	279,515	$	640,364	$	462,619,166	$	2,841,097	$	466,100,627
Commercial and Multi-Family Real Estate		—		—		—		—		160,990,186		1,348,483		162,338,669
Construction		—		—		—		—		61,825,478		—		61,825,478
Commercial and Industrial		—		—		—		—		1,684,189		—		1,684,189
Home Equity and Other Consumer		92,977		—		19,122		112,099		29,511,757		31,117		29,654,973
Total	$	92,977	$	360,849	$	298,637	$	752,463	$	716,630,776	$	4,220,697	$	721,603,936

Loans greater than 89 days past due and loans on non-accrual 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.

Table of Contents

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 4 – LOANS (Continued)

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

	Term Loans by Origination Year
September 30, 2023	*2023*		*2022*		*2021*		*2020*		*2019*		*Prior*		*Revolving Loans*		*Totals*
Residential First Mortgage
Pass	$	4,145,356	$	112,861,904	$	38,626,930	$	29,173,605	$	26,785,339	$	119,544,930	$	155,600,451	$	486,738,515
Special Mention		—		—		—		191,892		170,249		391,785		107,538		861,464
Substandard		—		—		—		—		—		170,615		285,945		456,560
Doubtful		—		—		—		—		—		—		—		—
Total		4,145,356		112,861,904		38,626,930		29,365,497		26,955,588		120,107,330		155,993,934		488,056,539
Gross charge-offs by vintage		—		—		—		—		—		—		—		—

Commercial Real Estate
Pass		—		3,083,244		—		6,431,819		5,537,490		11,964,001		72,033,083		99,049,637
Special Mention		—		—		—		—		—		—		454,076		454,076
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total		—		3,083,244		—		6,431,819		5,537,490		11,964,001		72,487,159		99,503,713
Gross charge-offs by vintage		—		—		—		—		—		—		—		—

Multi-Family Real Estate
Pass		—		2,387,471		—		1,175,917		—		2,159,199		62,541,621		68,264,208
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total		—		2,387,471		—		1,175,917		—		2,159,199		62,541,621		68,264,208
Gross charge-offs by vintage		—		—		—		—		—		—		—		—

Construction
Pass		—		—		—		—		—		—		40,643,891		40,643,891
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		10,893,713		10,893,713
Doubtful		—		—		—		—		—		—		—		—
Total		—		—		—		—		—		—		51,537,604		51,537,604
Gross charge-offs by vintage		—		—		—		—		—		—		—		—

Commercial and Industrial
Pass		253,500		—		221,671		627,290		149,854		—		4,445,381		5,697,696
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total		253,500		—		221,671		627,290		149,854		—		4,445,381		5,697,696
Gross charge-offs by vintage		—		—		—		—		—		—		—		—

Consumer
Pass		—		—		—		—		—		—		19,048		19,048
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total		—		—		—		—		—		—		19,048		19,048
Total loans	$	4,398,856	$	118,332,619	$	38,848,601	$	37,600,523	$	32,642,932	$	134,230,530	$	347,024,747	$	713,078,808

			Special
	Pass		Mention		Substandard		Totals
December 31, 2022
Residential First Mortgage	$	465,089,495	$	555,965	$	455,167	$	466,100,627
Commercial and Multi-Family Real Estate		162,338,669		—		—		162,338,669
Construction		61,825,478		—		—		61,825,478
Commercial and Industrial		1,684,189		—		—		1,684,189
Home Equity and Other Consumer		29,617,904		19,122		17,947		29,654,973
Total	$	720,555,735	$	575,087	$	473,114	$	721,603,936

There were no loan modifications for the nine-month period ended September 30, 2023.

Table of Contents

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 5 – 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 the Company 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. Grants of restricted common stock were issued from authorized but unissued shares. Restricted shares granted under the 2021 Plan vest in equal installments, over a service period 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, 2023 and September 30, 2022, approximately $118,000 and $354,000 in expense was recognized in regard to these awards, respectively. The expected future compensation expense related to the 135,911 non-vested restricted shares outstanding at September 30, 2023 was approximately $1.6 million over a period of four years.

The following is a summary of the Company's restricted stock activity during the nine months ended September 30, 2023:

	*Number of Non-vested Restricted Shares*		*Weighted Average Grant Date Fair Value*
Outstanding, January 1, 2023		181,215	$	10.45
Granted		—		—
Vested		45,304		10.45
Forfeited		—		—
Outstanding, September 30, 2023		135,911	$	10.45

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 a 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 was the Company's common stock price on the grant date and have an expiration period of 10 years.

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, 2023 and September 30, 2022, approximately $115,000 and $345,000 in expense was recognized in regard to these awards, respectively. The expected future compensation expense related to the 314,171 non-vested options outstanding at September 30, 2023 was $1.5 million over the vesting period of four years.

The following is a summary of the Company's option activity during the nine months ended September 30, 2023:

	Number of Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding, January 1, 2023		523,619	$	10.45		6.5	$	—
Granted		—
Exercised		—
Forfeited		—
Outstanding, September 30, 2023		523,619	$	10.45		5.6	$	—
Options exercisable at September 30, 2023		209,448					$	—

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 6 – 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 3.92% of the Company's outstanding shares. 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 months ended September 30, 2023 and 2022, $51,000 and $71,000 was incurred as expense for the plan, respectively. During the nine months ended September 30, 2023 and 2022, $178,000 and $208,000 was incurred as expense for the plan, respectively. As of September 30, 2023, 107,128 shares have been allocated and 416,491 shares are unallocated with a fair value of $3.5 million.

NOTE 7 – DERIVATIVES AND HEDGING ACTIVITES

The Company uses derivative financial instruments as components of its market risk management, principally to manage interest rate risk. Certain derivatives may be entered into in connection with transactions with commercial customers. Derivatives are not used for speculative purposes. All derivatives are recognized as either assets or liabilities in the Consolidated Statements of Financial Condition, reported at fair value and presented on a gross basis. Until a derivative is settled, a favorable change in fair value results in an unrealized gain that is recognized as an asset, while an unfavorable change in fair value results in an unrealized loss that is recognized as a liability.

Table of Contents

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 7 – DERIVATIVES AND HEDGING ACTIVITES (continued)

The Company generally applies hedge accounting to its derivatives used for market risk management purposes. Hedge accounting is permitted only if specific criteria are met, including a requirement that a highly effective relationship exists between the derivative instrument and the hedged item, both at inception of the hedge and on an ongoing basis. Changes in the fair value of effective fair value hedges are recognized in current earnings (with the change in fair value of the hedged asset or liability also recognized in earnings). Changes in the fair value of effective cash flow hedges are recognized in other comprehensive income (loss) until earnings are affected by the variability in cash flows of the designated hedged item. Ineffective portions of hedge results are recognized in current earnings. Changes in the fair value of derivatives for which hedge accounting is not applied are recognized in current earnings.

The Company formally documents at inception all relationships between the derivative instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transactions. This process includes linking all derivatives that are designated as hedges to specific assets and liabilities, or to specific firm commitments. The Company also formally assesses, both at inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the fair values or cash flows of the hedged items. If it is determined that a derivative is not highly effective or has ceased to be a highly effective hedge, the Company would discontinue hedge accounting prospectively. Gains or losses resulting from the termination of a derivative accounted for as a cash flow hedge remain in other comprehensive income (loss) and is (accreted) amortized to earnings over the remaining period of the former hedging relationship.

Certain derivative financial instruments are offered to certain commercial banking customers to manage their risk of exposure and risk management strategies. These derivative instruments consist primarily of currency forward contracts and interest rate swap contracts. The risk associated with these transactions is mitigated by simultaneously entering into similar transactions having essentially offsetting terms with a third party. In addition, the Company executes interest rate swaps with third parties in order to hedge the interest rate risk of short-term FHLB advances.

Interest Rate Swaps. At September 30, 2023, the Company had two interest rate swaps with a notional amounts of $20.0 million hedging on certain FHLB advances and brokered deposits. These interest rate swaps meet the cash flow hedge accounting requirements. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. At December 31, 2022, the Company had one interest rate swap with a notional amount of $10.0 million to hedge certain FHLB advances. At both September 30, 2023 and December 31, 2022, the Company had no interest rate swaps in place with commercial banking customers.

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification in the Consolidated Statements of Financial Condition at September 30, 2023:

		*September 30,*		*December 31,*
		*2023*		*2022*
		*Asset Derivative*		*Asset Derivative*
	*Consolidated Statements of Financial Condition*	*Fair Value*		*Fair Value*
Interest rate swaps	Other Assets	$	879,740	$	324,062
Total derivative instruments		$	879,740	$	324,062

For the nine months ended September 30, 2023, unrealized gains of $879,740 were recorded for changes in fair value of interest rate swaps with third parties and at September 30, 2023, accrued interest was $70,000. For the nine months ended September 30, 2023, the net effect on interest expense was a reduced expense of $254,000.

The Company has agreements with counterparties that contain a provision that if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default of its derivative obligations.

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.

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.

Table of Contents

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 8 – FAIR VALUE (Continued)

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

			*Quoted Prices*
			*in Active*		*Significant*
			*Markets for*		*Other*		*Significant*
			*Identical*		*Observable*		*Unobservable*
	*Carrying*		*Assets*		*Inputs*		*Inputs*
	*Value*		*(Level 1)*		*(Level 2)*		*(Level 3)*
As of September 30, 2023
Securities available for sale:
U.S. government and agency obligations	$	5,388,273	$	—	$	5,388,273	$	—
Corporate bonds		12,642,355		—		12,642,355		—
Cash flow hedge		879,740				879,740		—
MBSs - residential		34,942,810		—		34,942,810		—
MBSs - commercial		15,545,186		—		15,545,186		—
	$	69,398,364	$	—	$	69,398,364	$	—
As of December 31, 2022
Securities available for sale:
U.S. treasury bills	$	4,927,608	$	4,927,608	$	—	$	—
U.S. government and agency obligations		5,465,154		—		5,465,154		—
Corporate bonds		15,506,047		—		15,506,047		—
Cash flow hedge		324,062				324,062		—
MBSs - residential		39,649,045		—		39,649,045		—
MBSs - commercial		19,552,724		—		19,552,724		—
	$	85,424,640	$	4,927,608	$	80,497,032	$	—

There were no transfers between level 1 and level 2 during the nine months ended September 30, 2023.

The carrying amounts and estimated fair values of financial instruments not measured at fair value, at September 30, 2023 and December 31, 2022, were as follows:

	*Carrying*		*Fair*		*Fair Value Measurement Placement*
	*Amount*		*Value*		*(Level 1)*		*(Level 2)*		*(Level 3)*
	(In thousands)
September 30, 2023
Financial instruments - assets
Investment securities held-to-maturity	$	65,927	$	57,034	$	—	$	57,034	$	—
Loans and loans held for sale		710,293		623,859		—		—		623,859
Financial instruments - liabilities
Certificates of deposit		498,918		494,739		—		494,739		—
Borrowings		135,315		131,613		—		131,613		—

	Carrying		Fair		Fair Value Measurement Placement
	Amount		Value		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
December 31, 2022
Financial instruments - assets
Investment securities held-to-maturity	$	77,427	$	70,700	$	—	$	70,700	$	—
Loans and loans held for sale		719,026		658,250		—		—		658,250
Financial instruments - liabilities
Certificates of deposit		492,593		491,638		—		491,638		—
Borrowings		102,319		98,885		—		98,885		—

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. Other balance sheet instruments such as cash and cash equivalents, accrued interest receivable, accrued interest payable and Bank owned life insurance holding costs approximate fair value. The fair value of off-balance sheet items is not considered material.

Table of Contents

BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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, 2023 and 2022 was as follows:

	*Unrealized gain*
	*and losses on*
	*available for*
	*sale securities*			*Benefit plans*			*Derivatives*		*Total*
Three months ended
September 30, 2023
Beginning balance	$	(7,118,869	)	$	22,592		$	447,448	$	(6,648,829	)
Other comprehensive (loss) income before reclassification		(1,146,582	)		—			184,997		(961,585	)
Amounts reclassified		—			(16,546	)		—		(16,546	)
Net period comprehensive (loss) income		(1,146,582	)		(16,546	)		184,997		(978,131	)
Ending balance	$	(8,265,451	)	$	6,046		$	632,445	$	(7,626,960	)

September 30, 2022
Beginning balance at July 1, 2022	$	(6,525,164	)	$	(206,635	)	$	—	$	(6,731,799	)
Other comprehensive (loss) income before reclassification		(227,204	)		—			261,918		34,714
Amounts reclassified		—			41,589			—		41,589
Net period comprehensive (loss) income		(227,204	)		—			261,918		76,303
Ending balance at September 30, 2022	$	(6,752,368	)	$	(165,046	)	$	261,918	$	(6,655,496	)

	*Unrealized gain and losses on available for sale securities*			*Benefit plans*			*Derivatives*		*Total*
Nine months ended September 30, 2023
Beginning balance	$	(6,499,666	)	$	55,684		$	232,969	$	(6,211,013	)
Other comprehensive (loss) income before reclassification		(1,765,785	)		—			399,476		(1,366,309	)
Amounts reclassified		—			(49,638	)		—		(49,638	)
Net period comprehensive (loss) income		(1,765,785	)		(49,638	)		399,476		(1,415,947	)
Ending balance	$	(8,265,451	)	$	6,046		$	632,445	$	(7,626,960	)

September 30, 2022
Beginning balance	$	17,158		$	(289,814	)	$	—	$	(272,656	)
Other comprehensive (loss) income before reclassification		(6,769,526	)		—			261,918		(6,507,608	)
Amounts reclassified		—			124,768			—		124,768
Net period comprehensive (loss) income		(6,769,526	)		124,768			261,918		(6,382,840	)
Ending balance	$	(6,752,368	)	$	(165,046	)	$	261,918	$	(6,655,496	)

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BOGOTA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and September 30, 2022 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 including potential recessionary conditions;

●

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 credit losses;

●

our ability to access cost-effective funding;

●

changes in liquidity, including the size and composition of our deposit portfolio, including the percentage of uninsured deposits in the portfolio;

●

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;

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●

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;

● a potential government shutdown

●

our ability to retain key employees;

●

risks as it relates to cyber security against our information technology and those of our third-party providers and vendors;

●

the current or anticipated impact of military conflict, terrorism or other geopolitical events;

●

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.

Critical Accounting Policies

Our accounting policies are described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K at and for the year ended December 31, 2022. 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. See Note 1, "Basis of Presentation" for additional information on the adoption of ASC 326, which changed the methodology under which management calculates its reserve for loans and investment securities, now referred to as the allowance for credit losses. Management considers the measurement of the allowance for credit losses to be a critical accounting policy. Other than the adoption of ASC 326, there have been no significant changes to the Company's critical accounting policies since December 31, 2022.

Comparison of Financial Condition at September 30, 2023 and December 31, 2022

Total Assets. Assets decreased $24.1 million, or 2.5%, from $951.1 million at December 31, 2022 to $927.0 million at September 30, 2023 primarily due to a $8.7 million, or 1.2%, decrease in loans, a $16.6 million, or 19.5%, decrease in securities available for sale and a $11.5 million, or 14.9%, decrease in securities held to maturity, offset by a $8.1 million, or 48.3%, increase in cash and cash equivalents.

Cash and Cash Equivalents. Cash and cash equivalents increased $8.1 million, or 48.3%, to $25.0 million at September 30, 2023 from $16.8 million at December 31, 2022. The increase was primarily due to loan and investment repayments and excess cash from the increase in long-term FHLB advances during the nine months ended September 30, 2023.

Securities Available for Sale. Securities available for sale decreased $16.6 million, or 19.5%, to $68.5 million at September 30, 2023 from $85.1 million at December 31, 2022. The decrease was due to a $4.9 million decrease in U.S treasury bills, a $2.9 million decrease in corporate bonds and a $8.7 million decrease in mortgage-backed securities.

Securities Held to Maturity. Securities held to maturity decreased $11.5 million, or 14.9%, to $65.9 million at September 30, 2023 from $77.4 million at December 31, 2022, due to a $7.7 million decrease in municipal bonds and a $5.3 million decrease in mortgage-backed securities offset by the purchase of a $1.5 million corporate bond.

Net Loans. Net loans decreased $8.7 million, or 1.2%, to $710.3 million at September 30, 2023 from $719.0 million at December 31, 2022. The decrease was due to a decrease of $7.6 million, or 1.5%, in one- to four-residential real estate loans to $488.1 million from $495.7 million at December 31, 2022 and a decrease of $10.3 million, or 16.6%, in construction loans to $51.5 million at September 30, 2023 from $61.8 million at December 31, 2022, offset by a $4.0 million, or 238.3%, increase in commercial and industrial loans to $5.7 million at September 30, 2023 from $1.7 million as of December 31, 2022, an increase of $3.5 million, or 3.6%, in commercial real estate loans to $99.5 million at September 30, 2023 from $96.0 million at December 31, 2022 and an increase of $1.9 million, or 2.8%, in multi-family real estate loans to $68.3 million at September 30, 2023 from $66.4 million at December 31, 2022. The decrease in one- to four-residential and construction loans reflect less opportunities and decreased demand due to the higher interest rate environment. As of September 30, 2023 and December 31, 2022, the Bank had no loans held for sale. Upon adoption of the CECL method of calculating the allowance for credit losses on January 1, 2023, the Bank recorded a one-time decrease, net of tax, in retained earnings of $220,000, an increase to the allowance for credit losses of $157,000 and an increase in the reserve for unfunded liabilities of $152,000.

Delinquent loans increased $18.0 million to $19.5 million, or 2.74% of total loans, at September 30, 2023. The increase was mostly due to one commercial construction loan located in Totowa New Jersey with a balance of $10.9 million with a loan to value ratio of 46%. During the same timeframe, non-performing assets increased to $12.3 million and were 1.33% of total assets at September 30, 2023. The Company’s allowance for credit losses was 0.39% of total loans and 22.62% of non-performing loans at September 30, 2023 compared to 0.36% of total loans and 136.3% of non-performing loans at December 31, 2022. The Bank does not have any exposure to commercial real estate loans secured by office space.

Total Liabilities. Total liabilities decreased $22.1 million, or 2.7%, to $789.4 million as of September 30, 2023 from $811.4 as of December 31, 2022, mainly due to a $56.1 million decrease in deposits, offset by a $33.0 million increase in borrowings.

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Deposits. Deposits decreased $56.1 million, or 8.0%, to $645.3 million at September 30, 2023 from $701.4 million at December 31, 2022. The decrease in deposits reflected a decrease in interest-bearing deposits of $50.9 million, or 7.7%, to $611.9 million as of September 30, 2023 from $662.8 million at December 31, 2022 due to decreases in checking, savings and money market accounts, offset by an increase in certificates of deposit. Non-interest bearing deposits also decreased $5.2 million, or 13.5%, to $33.4 million as of September 30, 2023 from $38.7 million as of December 31, 2022. The decreases in reflected customers’ desire to see higher-yielding accounts in the higher interest rate environment.

At September 30, 2023, municipal deposits totaled $41.9 million, which represented 6.5% of total deposits, and brokered deposits totaled $55.0 million, which represented 8.5% of deposits. At December 31, 2022, municipal deposits totaled $57.5 million, which represented 8.2% of deposits, and brokered deposits totaled $58.6 million, which represented 8.4% of total deposits. At September 30, 2023, uninsured deposits represented 6.6% of deposits.

Borrowings. Federal Home Loan Bank of New York borrowings increased $33.0 million, or 32.2%, to $135.3 million at September 30, 2023 from $102.3 million at December 31, 2022, as long-term advances increased $53.0 million, offset by a decrease in short-term advances of $20.0 million. The weighted average rate of borrowings was 4.37% and 3.36% as of September 30, 2023 and December 31, 2022, respectively. The increase in advances was used to offset withdrawals on deposits. Total borrowing capacity at the Federal Home Loan Bank was $320.2 million at September 30, 2023, of which $135.3 million was advanced.

Total Equity. Stockholders’ equity decreased $2.0 million to $137.7 million, primarily due to the repurchase of 325,250 shares of stock during the nine months ended September 30, 2023 at a cost of $3.1 million and increased accumulated other comprehensive loss for securities available for sale of $1.4 million, offset by $1.8 million of net income for the nine months ended September 30, 2023. At September 30, 2023, the Company’s ratio of average stockholders’ equity-to-total assets was 14.88%, compared to 15.61% at December 31, 2022.

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,
	2023								2022
	Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost
	(Dollars in thousands)
Assets:	(unaudited)
Cash and cash equivalents	$	12,764		$	168		5.21	%	$	5,912		$	31		2.05	%
Loans		710,725			7,981		4.45	%		670,145			7,019		4.15	%
Securities		138,479			1,008		2.91	%		182,626			1,061		2.32	%
Other interest-earning assets		6,620			132		8.04	%		6,629			65		3.99	%
Total interest-earning assets		868,588			9,289		4.25	%		865,312			8,176		3.75	%

Non-interest-earning assets		54,179								51,273
Total assets	$	922,767							$	916,585
Liabilities and equity:
NOW and money market accounts	$	74,785		$	354		1.88	%	$	138,015		$	173		0.50	%
Savings accounts		46,177			214		1.83	%		60,912			40		0.26	%
Certificates of deposit		498,082			4,284		3.41	%		403,223			1,037		1.02	%
Total interest-bearing deposits		619,044			4,852		3.11	%		602,150			1,250		0.82	%

Federal Home Loan Bank advances (1)		125,344			1,220		3.86	%		128,534			717		2.30	%
Total interest-bearing liabilities		744,388			6,072		3.24	%		730,684			1,967		1.08	%
Non-interest-bearing deposits		38,257								40,028
Other non-interest-bearing liabilities		1,727								4,232
Total liabilities		784,372								774,944

Total equity		138,395								141,641
Total liabilities and equity	$	922,767							$	916,585
Net interest income				$	3,217							$	6,209
Interest rate spread (2)							1.01	%							2.68	%
Net interest margin (3)							1.47	%							2.85	%
Average interest-earning assets to average interest-bearing liabilities		116.68	%							118.42	%

(1) Cash flow hedges are used to manage interest rate risk. During the three months ended September 30, 2023, the net effect on interest expense on the Federal Home Loan Bank advances was a reduced expense of $115,000.

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

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

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	Nine Months Ended September 30,
	2023								2022
	Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	11,352		$	423		4.98	%	$	32,485		$	88		0.36	%
Loans		713,603			23,822		4.46	%		612,252			18,404		4.01	%
Securities		148,802			3,121		2.80	%		168,081			2,698		2.14	%
Other interest-earning assets		6,110			348		7.62	%		5,458			175		4.30	%
Total interest-earning assets		879,867			27,714		4.20	%		818,276			21,365		3.49	%
Non-interest-earning assets		54,380								52,040
Total assets	$	934,247							$	870,316
Liabilities and equity:
NOW and money market accounts	$	91,781		$	1,089		1.59	%	$	146,653		$	610		0.56	%
Savings accounts		49,529			375		1.01	%		64,509			126		0.26	%
Certificates of deposit		498,460			11,314		3.03	%		369,808			2,189		0.79	%
Total interest-bearing deposits		639,770			12,778		2.67	%		580,970			2,925		0.67	%
Federal Home Loan Bank advances (1)		110,875			2,900		3.50	%		97,571			1,403		1.92	%
Total interest-bearing liabilities		750,645			15,678		2.79	%		678,541			4,328		0.85	%
Non-interest-bearing deposits		38,253								44,256
Other non-interest-bearing liabilities		6,351								3,705
Total liabilities		795,249								726,502
Total equity		138,998								143,814
Total liabilities and equity	$	934,247							$	870,316
Net interest income				$	12,036							$	17,037
Interest rate spread (2)							1.41	%							2.63	%
Net interest margin (3)							1.82	%							2.78	%
Average interest-earning assets to average interest-bearing liabilities		117.21	%							120.59	%

(1) Cash flow hedges are used to manage interest rate risk. During the nine months ended September 30, 2023, the net effect on interest expense on the Federal Home Loan Bank advances was a reduced expense of $254,000.

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

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

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, 2023									Nine Months Ended September 30, 2023
	Compared to									Compared to
	Three Months Ended September 30, 2022									Nine Months Ended September 30, 2022
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume			Rate			Net			Volume			Rate			Net
	(In thousands)
Interest income:	(unaudited)
Cash and cash equivalents	$	59		$	79		$	138		$	(129	)	$	463		$	334
Loans receivable		439			523			962			3,229			2,189			5,418
Securities		(1,076	)		1,023			(53	)		(487	)		910			423
Other interest earning assets		(1	)		68			67			23			150			173
Total interest-earning assets		(579	)		1,693			1,114			2,636			3,712			6,348

Interest expense:
NOW and money market accounts		(517	)		698			181			(430	)		909			479
Savings accounts		(67	)		241			174			(54	)		303			249
Certificates of deposit		296			2,951			3,247			997			8,128			9,125
Federal Home Loan Bank advances		(124	)		627			503			213			1,284			1,497
Total interest-bearing liabilities		(412	)		4,517			4,105			726			10,624			11,350
Net increase (decrease) in net interest income	$	(167	)	$	(2,824	)	$	(2,991	)	$	1,910		$	(6,912	)	$	(5,002	)

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Comparison of Operating Results for the Three Months Ended September 30, 2023 and September 30, 2022

General. Net income decreased by $2.0 million, or 101.5%, to a net loss of $29,000 for the three months ended September 30, 2023 from net income of $1.9 million for the three months ended September 30, 2022. This decrease was primarily due to a decrease of $3.0 million in net interest income, partially offset by a decrease of $175,000 in the provision for credit losses and a decrease of $859,000 in income tax expense.

Interest Income. Interest income increased $1.1 million, or 13.6%, from $8.2 million for the three months ended September 30, 2022 to $9.3 million for the three months ended September 30, 2023 due to increases in the average balances of loans and higher yields on interest-earning assets.

Interest income on cash and cash equivalents increased $138,000, or 441.9%, to $168,000 for the three months ended September 30, 2023 from $31,000 for the three months ended September 30, 2022 due a 316 basis point increase in the average yield from 2.05% for the three months ended September 30, 2022 to 5.21% for the three months ended September 30, 2023 due to the higher interest rate environment. The increase was also due to a $6.9 million increase in the average balance to $12.8 million for the three months ended September 30, 2023 from $5.9 million for the three months ended September 30, 2022, reflecting an increase in liquidity due to lower loan originations.

Interest income on loans increased $962,000, or 13.7%, to $8.0 million for the three months ended September 30, 2023 compared to $7.0 million for the three months ended September 30, 2022 due primarily to $40.6 million increase in the average balance to $710.7 million for the three months ended September 30, 2023 from $670.1 million for the three months ended September 30, 2022 and a 30 basis point increase in the average yield from 4.15% for the three months ended September 30, 2022 to 4.45% for the three months ended September 30, 2023. The increase was offset by a $348,000 reserve for nonaccrual interest on a delinquent construction loan.

Interest income on securities decreased $53,000, or 5.0%, to $1.0 million for the three months ended September 30, 2023 from $1.1 million for the three months ended September 30, 2022 primarily due to a $44.1 million decrease in the average balance to $138.5 million for the three months ended September 30, 2023 from $182.6 million for the three months ended September 30, 2022 offset by a 59 basis point increase in the average yield from 2.32% for the three months ended September 30, 2022 to 2.91% for the three months ended September 30, 2023.

Interest Expense. Interest expense increased $4.1 million, or 208.7%, from $2.0 million for the three months ended September 30, 2022 to $6.1 million for the three months ended September 30, 2023 primarily due to increases in the average balance of and higher costs on interest -bearing liabilities.

Interest expense on interest-bearing deposits increased $3.6 million, or 288.2%, to $4.9 million for the three months ended September 30, 2023 from $1.3 million for the three months ended September 30, 2022. The increase was due to a 229 basis point increase in the average cost of deposits to 3.11% for the three months ended September 30, 2023 from 0.82% for the three months ended September 30, 2022. The increase in the average cost of deposits was due to the higher interest rate environment and a change in the composition of the deposit portfolio to a greater concentration of higher-costing certificates of deposit. The average balances of certificates of deposit increased $94.9 million to $498.1 million for the three months ended September 30, 2023 from $403.2 million for the three months ended September 30, 2022 while NOW and money market accounts and savings accounts decreased $63.2 million and $14.7 million for the three months ended September 30, 2023, respectively, compared to the three months ended September 30, 2022.

Interest expense on Federal Home Loan Bank borrowings increased $503,000, or 70.2%, from $717,000 for the three months ended September 30, 2022 to $1.2 million for the three months ended September 30, 2023. The increase was due to an increase in the average cost of 156 basis points to 3.86% for the three months ended September 30, 2023 from 2.30% for the three months ended September 30, 2022 due to higher rate borrowings at higher rates. The increase was partially offset by a decrease in the average balance of borrowings of $3.2 million to $125.3 million for the three months ended September 30, 2023 from $128.5 million for the three months ended September 30, 2022.

Net Interest Income. Net interest income decreased $3.0 million, or 48.2%, to $3.2 million for the three months ended September 30, 2023 from $6.2 million for the three months ended September 30, 2022. The decrease reflected a 167 basis point decrease in our net interest rate spread to 1.01% for the three months ended September 30, 2023 from 2.68% for the three months ended September 30, 2022. Our net interest margin decreased 138 basis points to 1.47% for the three months ended September 30, 2023 from 2.85% for the three months ended September 30, 2022.

Provision for Credit Losses. We recorded no provision for credit losses for the three months ended September 30, 2023 compared to a $175,000 provision for credit losses for the three-month period ended September 30, 2022 due to a decrease in the loan portfolio and the absence of charge-offs, offset by increases in delinquent and nonaccrual loans.

Non-Interest Income. Non-interest income increased by $20,000, or 7.5%, to $290,000 for the three months ended September 30, 2023 from $270,000 for the three months ended September 30, 2022. Bank-owned life insurance income increased $13,000, or 7.0%, due to higher balances during 2023. The increase was also due to an increase in fee and service charges of $14,000, or 29.7%, due to a higher collection of late charges.

Non-Interest Expense. For the three months ended September 30, 2023, non-interest expense increased $23,000, or 0.6%, over the comparable 2022 period. Salaries and employee benefits increased $120,000, or 5.6%, due to a higher employee count. Director fees decreased $30,000, or 15.9%, due to lower pension expense. FDIC insurance premiums increased $79,000, or 145.5%, due to a higher assessment rate in 2023. The decrease in advertising expense of $30,000, or 19.3%, was due to reduced promotions for branch locations and less promotions on deposit and loan products. Data processing expense decreased $105,000, or 33.9%, due to lower processing costs. Professional fees decreased $14,000, or 8.7%, due to lower legal expense. Other expense decreased $21,000, or 8.1%, due to lower deferred compensation expense and other various expenses.

Income Tax Expense. Income tax expense decreased $859,000, or 117.1%, to a benefit of $125,000 for the three months ended September 30, 2023 from a $734,000 expense for the three months ended September 30, 2022. The decrease was due to $2.8 million of lower taxable income.

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Comparison of Operating Results for the Nine Months Ended September 30, 2023 and September 30, 2022

General. Net income decreased by $3.2 million, or 63.4%, to $1.8 million for the nine months ended September 30, 2023 from $5.0 million for the nine months ended September 30, 2022. This decrease was primarily due to a decrease of $5.0 million in net interest income, offset by a decrease of $400,000 in the provision for credit losses and a decrease of $1.5 million in income tax expense.

Interest Income. Interest income increased $6.3 million, or 29.7%, from $21.4 million for the nine months ended September 30, 2022 to $27.7 million for the nine months ended September 30, 2023 due to increases in the average balances of loans and higher yields on interest-earning assets.

Interest income on cash and cash equivalents increased $335,000, or 380.7%, to $423,000 for the nine months ended September 30, 2023 from $88,000 for the nine months ended September 30, 2022 due a 462 basis point increase in the average yield from 0.36% for the nine months ended September 30, 2022 to 4.98% for the nine months ended September 30, 2023 due to the higher interest rate environment. This was offset by a $21.1 million decrease in the average balance to $11.4 million for the nine months ended September 30, 2023 from $32.5 million for the nine months ended September 30, 2022, reflecting the use of excess liquidity to fund loan originations and purchase investment securities.

Interest income on loans increased $5.4 million, or 29.4%, to $23.8 million for the nine months ended September 30, 2023 compared to $18.4 million for the nine months ended September 30, 2022 due primarily to a $101.4 million increase in the average balance to $713.6 million for the nine months ended September 30, 2023 from $612.3 million for the nine months ended September 30, 2022 and a 45 basis point increase in the average yield from 4.01% for the nine months ended September 30, 2022 to 4.46% for the nine months ended September 30, 2023. The increase was offset by a $1.0 million reserve for nonaccrual interest on a delinquent construction loan.

Interest income on securities increased $423,000, or 15.7%, to $3.1 million for the nine months ended September 30, 2023 from $2.7 million for the nine months ended September 30, 2022 due primarily to a 66 basis point increase in the average yield from 2.14% for the nine months ended September 30, 2022 to 2.80% for the nine months ended September 30, 2023. The increase was offset by a $19.3 million decrease in the average balance of securities to $148.8 million for the nine months ended September 30, 2023 from $168.1 million for the nine months ended September 30, 2022.

Interest Expense. Interest expense increased $11.4 million, or 262.2%, from $4.3 million for the nine months ended September 30, 2022 to $15.7 million for the nine months ended September 30, 2023 primarily due to increases in the average balance of certificates of deposit and higher costs on interest-bearing liabilities.

Interest expense on interest-bearing deposits increased $9.9 million, or 336.7%, to $12.8 million for the nine months ended September 30, 2023 from $2.9 million for the nine months ended September 30, 2022. The increase was due to a 200 basis point increase in the average cost of interest-bearing deposits to 2.67% for the nine months ended September 30, 2023 from 0.67% for the nine months ended September 30, 2022. The increase in the average cost of deposits was due to the higher interest rate environment and a change in the composition of the deposit portfolio to a greater concentration of higher-costing certificates of deposit. The average balances of certificates of deposit increased $128.7 million to $498.5 million for the nine months ended September 30, 2023 from $369.8 million for the nine months ended September 30, 2022 while NOW and money market accounts and savings accounts decreased $54.9 million and $15.0 million for the nine months ended September 30, 2023, respectively, compared to the nine months ended September 30, 2022.

Interest expense on Federal Home Loan Bank borrowings increased $1.5 million, or 106.7%, from $1.4 million for the nine months ended September 30, 2022 to $2.9 million for the nine months ended September 30, 2023. The increase was due to an increase in the average cost of 158 basis points to 3.50% for the nine months ended September 30, 2023 from 1.92% for the nine months ended September 30, 2022 due to higher rate borrowings. The increase was also due to an increase in the average balance of borrowings of $13.3 million to $110.9 million for the nine months ended September 30, 2023 from $97.6 million for the nine months ended September 30, 2022.

Net Interest Income. Net interest income decreased $5.0 million, or 29.4%, to $12.0 million for the nine months ended September 30, 2023 from $17.0 million for the nine months ended September 30, 2022. The increase reflected a 122 basis point decrease in our net interest rate spread to 1.41% for the nine months ended September 30, 2023 from 2.63% for the nine months ended September 30, 2022. Our net interest margin decreased 96 basis points to 1.82% for the nine months ended September 30, 2023 from 2.78% for the nine months ended September 30, 2022.

Provision for Credit Losses. We recorded a $125,000 recovery of credit losses for the nine months ended September 30, 2023 compared to a $275,000 provision for loan losses for the nine-month period ended September 30, 2022 due a decrease in the loan portfolio and the absence of charge-offs, offset by increased delinquent and non-performing loans. As of January 1, 2023 the Bank adopted CECL and recorded a one-time adjustment of $157,000 to the allowance for credit losses.

Non-Interest Income. Non-interest income decreased by $11,000, or 1.3%, to $856,000 for the nine months ended September 30, 2023 from $868,000 for the nine months ended September 30, 2022. Gain on sale of loans decreased $58,000, or 66.2%, as loan originations were lower in 2023 due to the higher interest rate environment and the decision to be more selective with loan production for loans that meet the Bank’s risk and pricing parameters. Other income decreased $40,000 or 29.8%. These decreases were partially offset by an increase in income from bank-owned life insurance of $64,000, or 12.5%, due to higher balances during 2023.

Non-Interest Expense. For the nine months ended September 30, 2023, non-interest expense increased $37,000, or 0.3%, over the comparable 2022 period. Salaries and employee benefits increased $421,000, or 6.7%, due to a higher employee count. Director fees decreased $130,000, or 21.3%, due to lower pension expense. FDIC insurance premiums increased $158,000, or 97.3%, due to a higher assessment rate in 2023. Data processing decreased $202,000, or 22.0%, due to the timing of invoices. Other expense decreased $244,000, or 27.0%, due to lower deferred compensation expense and other various expenses.

Income Tax Expense. Income taxes decreased $1.5 million, or 79.5%, to $386,000 for the nine months ended September 30, 2023 from $1.9 million for the nine months ended September 30, 2022. The decrease was due to $4.7 million, or 67.8%, of lower taxable income. The effective tax rate for the three and nine months ended September 30, 2023 and 2022 was 17.49% and 27.46%, respectively.

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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 and securities, have longer maturities than our liabilities, consisting primarily of deposits and borrowings. 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, 200, 300 and 400 basis 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, 2023. All estimated changes presented in the table are within the policy limits approved by the board of directors.

									NPV as Percent of Portfolio
	NPV								Value of Assets
	(Dollars in thousands)
Basis Point (“bp”) Change in	Dollar		Dollar			Percent
Interest Rates	Amount		Change			Change			NPV Ratio			Change
400 bp	$	46,966	$	(58,325	)		(55.39	)%		5.91	%		(49.44	)%
300 bp		61,481		(43,810	)		(41.61	)		7.51			(35.76	)
200 bp		76,018		(29,273	)		(27.80	)		9.01			(22.93	)
100 bp		91,871		(13,420	)		(12.75	)		10.54			(9.84	)
—		105,291		—			—			11.69
(100) bp		114,803		9,512			9.03			12.36			5.73
(200) bp		129,650		24,359			23.14			13.58			16.17
(300) bp		148,404		43,113			40.95			15.13			29.43
(400) bp		167,414		62,123			59.00			16.64			42.34

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 table above 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.

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As of September 30, 2023, 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		Change in Net Interest Income Year One
(basis points)⁽¹⁾		(% change from year one base)
400			(23.04	)%
300			(17.52	)
200			(11.93	)
100			(5.82	)
—			—
(100	)		7.01
(200	)		101.60
(300	)		33.14
(400	)		41.75

(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 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 borrow from the Federal Home Loan Bank of New York. At September 30, 2023, we had the ability to borrow up to $320.2 million, of which $135.3 million was outstanding and $1.5 million was utilized as collateral for letters of credit issued to secure municipal deposits. At September 30, 2023, we had $39.0 million in unsecured lines of credit with three 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 ample sources of liquidity to satisfy our short- and long-term liquidity needs as of September 30, 2023.

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, 2023, cash and cash equivalents totaled $25.0 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $68.5 million at September 30, 2023.

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, 2023 totaled $438.1 million, or 67.9% 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, 2023, 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 of September 30, 2023, the Bank is reporting as a qualifying community bank with a ratio of 14.06%.

Inflation

Substantially all of the Company's assets and liabilities relate to banking activities and are monetary. The consolidated financial statements and related financial data are presented following GAAP. GAAP currently requires the Company to measure the financial position and results of operations in terms of historical dollars, except for securities available for sale, impaired loans, and other real estate loans that are measured at fair value. Changes in the value of money due to rising inflation can cause purchasing power loss. Management's opinion is that movements in interest rates affect the financial condition and results of operations to a greater degree than changes in the rate of inflation. It should be noted that interest rates and inflation do affect each other but do not always move in correlation with each other. The Company's ability to match the interest sensitivity of its financial assets to the interest sensitivity of its liabilities in its asset/liability management may tend to minimize the effect of changes in interest rates on the Company's performance.

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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, 2023. 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, 2023, 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.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

At September 30, 2023 we were not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, the outcome of which would not be material to our financial condition or results of operations.

Item 1A. Risk Factors

Except noted below, 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, 2022 and in Item 1A of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds, and Issuer Purchase of Equity Securities

On May 24, 2023, the Company announced it had received regulatory approval for the repurchase of up to 249,920 shares of its common stock, which was approximately 5% of its then 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. As of September 30, 2023, 122,301 shares have been repurchased at a cost of $938,000.

The following table provides information on repurchases by the Company of its common stock under the Company's Board approved programs for the third quarter:

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, 2023		8,000	$	9.75		8,000		221,620
August 1 - 31, 2023		14,500		8.02		14,500		207,120
September 1 - 30, 2023		79,501		8.11		79,501		127,619
Total		102,001	$	8.23		102,001

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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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 Current Report on Form 8-K, as filed with the Securities and Exchange Commission on February 23, 2023)

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, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Statements of Financial Condition, (ii) Consolidated Statements of (Loss) Income, (iii) Consolidated Statements of Comprehensive (Loss) 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.

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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 13, 2023	/s/ Joseph Coccaro
	Joseph Coccaro
	President and Chief Executive Officer



Date: November 13, 2023	/s/ Brian McCourt
	Brian McCourt
	Executive Vice President and Chief Financial Officer