Bogota Financial Corp. 10-K

ITEM 8. Financial Statements and Supplementary Data 2023 Auditor firm PCAOB number: 74 Auditor name: S. R. Snodgrass P.C. Auditor location: Cranbury Township, PA 47 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Bogota Financial Corp. Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial condition of Bogota Financial Corp. and subsidiary (the “Company”) as of December 31, 2023 and 2022; the related consolidated statements of income, comprehensive income, equity, and cash flows for the years then ended; and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent, with respect to the Company, in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. We have served as the Company’s auditor since 2021. /s/S.R. Snodgrass, P.C. Cranberry Township, Pennsylvania March 28, 2024 48 Table of Contents BOGOTA FINANCIAL CORP. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION December 31, 2023 and 2022 2023 2022 ASSETS Cash and due from banks $ 13,567,115 $ 8,160,028 Interest-bearing deposits in other banks 11,362,356 8,680,889 Cash and cash equivalents 24,929,471 16,840,917 Securities available for sale 68,888,179 85,100,578 Securities held to maturity (at fair value of $ 65,374,753 and $ 70,699,651 respectively) 72,656,179 77,427,309 Loans, net of allowance $ 2,785,949 and $ 2,578,174 , respectively 714,688,635 719,025,762 Premises and equipment, net 7,687,387 7,884,335 Federal Home Loan Bank (“FHLB”) stock 8,616,100 5,490,900 Accrued interest receivable 3,932,785 3,966,651 Core deposit intangibles 206,116 267,272 Bank owned life insurance 30,987,851 30,206,325 Other assets 6,731,500 4,888,954 Total assets $ 939,324,203 $ 951,099,003 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits Non-interest bearing $ 30,554,842 $ 38,653,349 Interest bearing 594,792,300 662,758,100 625,347,142 701,411,449 FHLB advances-short term 37,500,000 59,000,000 FHLB advances-long term 130,189,663 43,319,254 Advance payments by borrowers for taxes and insurance 2,733,709 3,174,661 Other liabilities 6,380,486 4,534,516 Total liabilities 802,151,000 811,439,880 Stockholders' Equity Preferred stock $ 0.01 par value 1,000,000 shares authorized, none issued and outstanding at December 31,2023, and 2022 — — Common stock $ 0.01 par value, 30,000,000 shares authorized, 13,279,230 issued and outstanding at December 31, 2023 and 13,699,016 at December 31, 2022 132,792 136,989 Additional Paid-In capital 56,149,915 59,099,476 Retained earnings 92,177,068 91,756,673 Unearned ESOP shares (409,750 shares at December 31, 2023 and 436,495 shares at December 31, 2022) ( 4,821,798 ) ( 5,123,002 ) Accumulated other comprehensive loss ( 6,464,774 ) ( 6,211,013 ) Total stockholders' equity 137,173,203 139,659,123 Total liabilities and stockholders' equity $ 939,324,203 $ 951,099,003 See accompanying notes to consolidated financial statements 49 Table of Contents BOGOTA FINANCIAL CORP. CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 2023 and 2022 2023 2022 Interest income Loans $ 32,046,033 $ 26,264,486 Securities Taxable 4,070,144 3,516,832 Tax-exempt 91,428 161,187 Other interest-earning assets 1,072,240 403,969 Total interest income 37,279,845 30,346,474 Interest expense Deposits 18,023,772 5,106,517 FHLB of New York advances 4,282,603 2,162,217 Total interest expense 22,306,375 7,268,734 Net interest income 14,973,470 23,077,740 Provision for (recovery of) credit losses ( 125,000 ) 425,000 Net interest income after provision for (recovery of) credit losses 15,098,470 22,652,740 Non-interest income Fees and service charges 206,763 179,734 Gain on sale of loans 29,375 86,913 Bank owned life insurance 781,526 694,900 Other 121,371 162,126 Total non-interest income 1,139,035 1,123,673 Non-interest expenses Salaries and employee benefits 9,820,128 8,713,734 Occupancy and equipment 1,474,107 1,390,718 Federal Deposit Insurance Corporation (“FDIC”) insurance premiums 418,215 220,210 Data processing 969,398 1,132,790 Advertising 465,064 492,859 Director fees 619,650 800,611 Professional fees 661,045 546,004 Other 1,329,520 988,081 Total non-interest expenses 15,757,127 14,285,007 Income before income taxes 480,378 9,491,406 Income tax (benefit) expense ( 162,157 ) 2,614,545 Net income $ 642,535 $ 6,876,861 Earnings per share - basic $ 0.05 $ 0.51 Earnings per share - diluted $ 0.05 $ 0.51 Weighted average shares outstanding 12,891,847 13,570,407 Weighted average shares outstanding - diluted 12,891,847 13,576,934 See accompanying notes to consolidated financial statements 50 Table of Contents BOGOTA FINANCIAL CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years ended December 31, 2023 and 2022 2023 2022 Net income $ 642,535 $ 6,876,861 Net comprehensive (loss) income: Unrealized losses on securities available for sale: Unrealized holding loss arising during the period ( 194,520 ) ( 9,064,994 ) Tax effect 54,680 2,548,170 Net of tax ( 139,840 ) ( 6,516,824 ) Defined benefit retirement plans: Unrealized (loss) gain arising during the period including changes in assumptions ( 167,170 ) 249,184 Reclassification adjustment for amortization of prior service cost and net gain/loss included in salaries and employee benefits 94,315 231,406 Tax effect, income tax benefit 19,720 ( 135,092 ) Net of tax ( 53,135 ) 345,498 Derivatives, net of tax: Unrealized (loss) gain on swap contracts accounted for as cash flow hedges ( 84,554 ) 324,062 Tax effect 23,768 ( 91,093 ) Net of tax ( 60,786 ) 232,969 Total other comprehensive loss ( 253,761 ) ( 5,938,357 ) Comprehensive income $ 388,774 $ 938,504 See accompanying notes to consolidated financial statements 51 Table of Contents BOGOTA FINANCIAL CORP. CONSOLIDATED STATEMENTS OF EQUITY Years ended December 31, 2023 and 2022 Common Stock Shares Common Stock Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Unearned ESOP shares Total Equity Balance January 1, 2022 14,605,809 $ 146,057 $ 68,247,204 $ 84,879,812 $ ( 272,656 ) $ ( 5,424,206 ) $ 147,576,211 Net income — — — 6,876,861 — — 6,876,861 Stock based compensation — — 932,772 — — — 932,772 Other comprehensive loss — — — — ( 5,938,357 ) — ( 5,938,357 ) Stock purchased and retired ( 906,793 ) ( 9,068 ) ( 10,060,086 ) — — — ( 10,069,154 ) ESOP shares released — — ( 20,414 ) — — 301,204 280,790 Balance December 31, 2022 13,699,016 $ 136,989 $ 59,099,476 $ 91,756,673 $ ( 6,211,013 ) $ ( 5,123,002 ) $ 139,659,123 Adoption of ASC 326 — — — ( 222,140 ) — — ( 222,140 ) Net income — — — 642,535 — — 642,535 Stock based compensation — — 932,772 — — — 932,772 Other comprehensive loss — — — — ( 253,761 ) — ( 253,761 ) Stock purchased and retired ( 419,786 ) ( 4,197 ) ( 3,805,999 ) — — — ( 3,810,196 ) ESOP shares released — — ( 76,334 ) — — 301,204 224,870 Balance December 31, 2023 13,279,230 132,792 56,149,915 92,177,068 ( 6,464,774 ) ( 4,821,798 ) 137,173,203 See accompanying notes to consolidated financial statements 52 Table of Contents BOGOTA FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2023 and 2022 2023 2022 Cash flows from operating activities Net income $ 642,535 $ 6,876,861 Adjustments to reconcile net income to net cash provided by operating activities Amortization of intangible assets ( 56,583 ) ( 229,718 ) Provision for (recovery of) credit losses ( 125,000 ) 425,000 Depreciation of premises and equipment 514,983 485,118 Amortization (Accretion) of deferred loan (fees) costs, net 141,459 ( 147,240 ) Amortization of premiums and accretion of discounts on securities, net 30,933 155,525 Deferred income tax benefit expense ( 624,390 ) 503,307 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 ( 781,526 ) ( 682,204 ) Employee stock ownership plan 224,870 280,792 Stock based compensation 932,772 932,772 Changes in Accrued interest receivable 33,866 ( 1,254,046 ) Net changes in other assets ( 1,150,276 ) 1,740,149 Net changes in other liabilities 1,653,708 617,367 Net cash provided by operating activities 1,437,351 10,856,183 Cash flows from investing activities Purchases of securities available for sale - ( 67,461,181 ) Purchases of securities held to maturity ( 8,701,929 ) ( 25,120,238 ) Maturities, calls, and repayments of securities available for sale 15,986,947 14,978,881 Maturities, calls, and repayments of securities held to maturity 13,473,059 21,746,028 Net decrease (increase) in loans 4,205,323 ( 148,982,268 ) Purchase of bank owned life insurance - ( 5,000,000 ) Purchases of premises and equipment ( 318,035 ) ( 241,474 ) Purchase of FHLB stock ( 9,493,400 ) ( 8,327,700 ) Redemption of FHLB stock 6,368,200 7,688,100 Net cash provided by (used in) investing activities 21,520,165 ( 210,719,852 ) Cash flows from financing activities Net (decrease) increase in deposits ( 76,025,392 ) 104,037,056 Net (decrease) increase in short-term FHLB advances ( 21,500,000 ) 53,000,000 Proceeds (repayments) of long-term FHLB non-repo advances 86,907,578 ( 35,650,642 ) Net (decrease) increase in advance payments from borrowers for taxes and insurance ( 440,952 ) 318,541 Repurchase of common stock ( 3,810,196 ) ( 10,069,154 ) Net cash (used in) provided by financing activities ( 14,868,962 ) 111,635,801 Net increase (decrease) in cash and cash equivalents 8,088,554 ( 88,227,868 ) Cash and cash equivalents – beginning of year 16,840,917 105,068,785 Cash and cash equivalents – end of year $ 24,929,471 $ 16,840,917 Supplemental cash flow information Income taxes paid $ 1,375,000 $ 2,225,000 Interest paid $ 21,640,118 $ 6,896,809 See accompanying notes to consolidated financial statements 53 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations and Principles of Consolidation : On January 15, 2020, Bogota Financial Corp. (the “Company,” “we” or “our”) became the mid-tier stock holding company for Bogota Savings Bank (the “Bank”) in connection with the reorganization of Bogota Savings Bank into the two -tier mutual holding company structure. The Bank maintains two subsidiaries Bogota Securities Corp, which was formed for the purpose of buying, selling and holding investment securities and Bogota Properties, LLC, which was inactive at December 31, 2023. The Bank generally originates residential, commercial and consumer loans to, and accepts deposits from, customers in New Jersey. The debtors’ ability to repay loans is dependent upon the region’s economy and the borrowers’ circumstances. The Bank is also subject to the regulations of and examinations by certain federal and state regulatory agencies. Bogota Financial Corp. completed its stock offering in connection with the mutual holding company reorganization of Bogota Savings Bank on January 15, 2020. The Company sold 5,657,735 shares of common stock at $ 10.00 per share for gross proceeds of $ 56.6 million. In connection with the reorganization, the Company also issued 263,150 shares of common stock and $ 250,000 in cash to Bogota Savings Bank Charitable Foundation, Inc. and 7,236,640 shares of common stock to Bogota Financial, MHC, its New Jersey-chartered mutual holding company. 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 equity. Earnings per Share: Basic earnings per share (“EPS”) is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. For purposes of calculating basic EPS, weighted average common shares outstanding excludes unallocated employee stock ownership plan shares that have not been committed for release. Diluted EPS is computed using the same method as basic EPS and reflects the potential dilution which could occur if stock options shares were exercised and converted into common stock. The potentially dilutive shares would then be included in the weighted average number of shares outstanding for the period using the treasury stock method. For the twelve -month periods ended December 31, 2023 and 2022 , options to purchase 523,619 common shares with an exercise price of $ 10.45 were outstanding but were not included in the calculation of diluted EPS because the options were anti-dilutive. The following is a reconciliation of the numerators and denominators of the basic earnings per share calculations for the years ended December 31, 2023 and 2022 . For the year ended December 31, 2023 For the year ended December 31, 2022 Net income $ 642,535 $ 6,876,861 Basic earnings per share: Weighted average shares outstanding - basic 12,891,847 13,570,407 Weighted average shares outstanding - diluted 12,891,847 13,576,934 Dilutive securities — 6,527 Basic earnings per share - basic $ 0.05 $ 0.51 Basic earnings per share - diluted $ 0.05 $ 0.51 54 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Use of Estimates : To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided. Actual results could differ. Cash Flows : Cash and cash equivalents include cash and deposits with other banks with original maturities of 90 days or less. Net cash flows are reported for customer loan and deposit transactions and short-term FHLB advances. Interest-Bearing Deposits in Other Banks : Interest-bearing deposits in other banks have original maturities of 90 days or less and are carried at cost. Securities : Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income (loss), net of tax. Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities (“MBSs”) where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method. The Bank's held-to-maturity ("HTM") debt securities are also required to utilize the Current Expected Credit Losses ("CECL") approach to estimate expected credit losses. Substantially all of the Company’s HTM debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. Therefore, the Company did not record an allowance for credit losses for these securities. The impairment model for available-for-sale (“AFS”) debt securities differs from the CECL approach utilized by HTM debt securities because AFS debt securities are measured at fair value rather than amortized cost. Although ASU No. 2016 - 13 replaced the legacy other-than-temporary impairment (“OTTI”) model with a credit loss model, it retained the fundamental nature of the legacy OTTI model. One notable change from the legacy OTTI model is when evaluating whether credit loss exists, an entity may no longer consider the length of time fair value has been less than amortized cost. For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either criteria is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit losses. Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. As of December 31, 2023, the Company determined that the unrealized loss positions in AFS securities were not the result of credit losses, and management had the intent and ability to hold to recovery, therefore, an allowance for credit losses was not recorded. Loans : Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, and an allowance for credit losses. Interest income is accrued on the unpaid principal balance. The Bank originates real estate, commercial and consumer loans. A substantial portion of the loan portfolio is represented by loans in northern New Jersey. The ability of the Bank’s debtors to honor their contracts is dependent upon the real estate values and general economic conditions in this area. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. 55 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Interest income on real estate, commercial and consumer loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days and still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. A loan is moved to nonaccrual status in accordance with the Bank’s policy, typically after 90 days of non-payment. All interest accrued but not received for loans placed on nonaccrual status is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. 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. 56 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 financial 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. Acquired Loans: Loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered purchased with credit deterioration (“PCD”) loans. The Company evaluated acquired loans for deterioration in credit quality based on, but not limited to, the following: ( 1 ) non-accrual status; ( 2 ) previously a troubled debt restructured designation; ( 3 ) risk ratings of special mention, substandard or doubtful; or ( 4 ) delinquency status. At the acquisition date, an estimate of expected credit losses was made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This initial allowance for credit losses is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial allowance for credit losses is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors and results in a discount or premium. Discounts and premiums are recognized through interest income on a level-yield method over the life of the loans. For acquired loans not deemed PCD at acquisition, the differences between the initial fair value and the unpaid principal balance are recognized as interest income on a level-yield basis over the lives of the related loans. At the acquisition date, an initial allowance for expected credit losses is estimated and recorded as credit loss expense. Residential First Mortgage Loans – Residential first mortgage loans are generally made on the basis of the borrower’s ability to make repayment from his or her employment and other income but are secured by real property whose value tends to be more easily ascertainable. Credit risk for these types of loans is generally influenced by general economic conditions, the characteristics of individual borrowers and the nature of the loan collateral. 57 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Commercial Real Estate Loans – Commercial real estate loans generally have larger balances and involve a greater degree of risk than residential real estate loans, inferring higher potential losses on an individual customer basis. Loan repayment is often dependent on the successful operation and management of the properties and/or businesses occupying the properties, as well as on the collateral securing the loan. Economic events or conditions in the real estate market could have an adverse impact on the cash flows generated by the properties securing the Bank’s commercial real estate loans and on the value of such properties. Construction Loans – Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the estimated cost of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, additional funds may be required to be advanced in excess of the amount originally committed to permit completion of the building. If the estimate of value proves to be inaccurate, the value of the building may be insufficient to assure full repayment if liquidation is required. If foreclosure is required on a building before or at completion due to a default, there can be no assurance that all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and holding costs will be recovered. Commercial and Industrial Loans - A commercial and industrial loan is a loan to a business rather than a loan to an individual consumer. These short-term loans generally have an interest rate based on the prime rate and are secured by collateral owned by the business requesting the loan. Consumer Loans – Consumer loans include home equity lines of credit and home equity loans, which exhibit many of the same credit risk characteristics as residential real estate loans. The amount of a home equity line of credit is generally limited to a certain percentage of the appraised value of the property less the balance of the first mortgage. Mortgage Loan Sales : The Bank has a partnership through the Federal Home Bank of New York (“FHLBNY”) to sell loans within the Mortgage Partnership Finance (“MPF”) Program. The MPF Program gives the Bank another alternative to retaining mortgages in portfolio which may increase profits through fees earned through the sale of loans. It allows the Bank to be competitive in all the fixed-rate products. In addition, the MPF structure capitalizes on the Bank's credit expertise. MPF combines that expertise with the FHLBNY's expertise in handling interest-rate risk. FHLBNY manages the interest rate, the liquidity and the prepayment risks, while the Bank manages the credit and servicing risks. The result involves the member receiving a very competitive price for loans plus fees over time for managing the credit and servicing risks. Loans are sold at origination; gains or losses on the sale of mortgage loans are recognized at the settlement date and are determined by the difference between the net proceeds and the amortized cost. All loans are sold with servicing being retained by the Bank. The outstanding principal balances sold and serviced by the Bank under the program were $ 3,865,316 and $ 3,987,257 at December 31, 2023 and 2022 , respectively. Under the program, the first layer of losses is paid by the FHLBNY up to 100 basis points of the total funded amount of loans sold. (the “First Loss Account”). The Bank then provides a second loss credit enhancement obligation, which is equivalent to “AA” credit risk less the First Loss Account. Loan losses beyond the first and second layers are absorbed by the FHLBNY. There were no losses as of December 31, 2023 on the loans sold under the program. Late fees and ancillary fees related to loan servicing are not material. Premises and Equipment : Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Building and related components are depreciated using the straight-line method with useful lives ranging from fifteen to 39 years. Furniture, fixtures and equipment are depreciated using the straight-line method with useful lives ranging from one to ten years. Leasehold improvements are amortized over the shorter of the terms of the respective leases or the estimated lives of the improvements. 58 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Federal Home Loan Bank ( “ FHLB ” ) Stock : FHLB stock is restricted stock, which is carried at cost, and periodically evaluated for impairment based on ultimate recovery of par value. Federal law requires a member institution of the FHLB to hold stock according to a predetermined formula. Dividends are recorded as income on the consolidated statement of income. Bank Owned Life Insurance : The Bank has purchased life insurance policies on certain key employees. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Intangible Assets : Intangible assets, other than goodwill, include core deposit intangibles and mortgage servicing rights ("MSRs"). Core deposit intangibles are a measure of the value of consumer demand and savings deposits acquired in business combinations accounted for as purchases. The core deposit intangibles are being amortized over 10 years using the sum-of-the-years digits method of amortization, while the covenant not to compete was amortized over four years on a straight-line basis. MSRs arise from the Company originating certain loans for the express purpose of selling such loans in the secondary market. The Company maintains all servicing rights for these loans. The loans held for sale are carried at lower of cost or market value. Originated MSRs are recorded by allocating total costs incurred between the loans and servicing rights based on their relative fair values. MSRs are amortized in proportion to the estimated servicing income over the estimated life of the servicing portfolio and measured annually for impairment. The recoverability of the carrying value of intangible assets is evaluated on an ongoing basis, and permanent declines in value, if any, are charged to expense. Advertising Costs : Advertising costs are expensed as incurred. Any direct response advertising conducted by the Bank is immaterial and has not been capitalized. Advertising costs are included in “non-interest expenses” in the consolidated statements of income. Off-Balance-Sheet Financial Instruments : In the ordinary course of business, the Bank enters into off-balance-sheet financial instruments consisting of commitments to extend credit. Such financial instruments are recorded in the consolidated statement of financial condition when funded. Income Taxes : Income tax (benefit) expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Bank had no unrecognized tax positions as of December 31, 2023 or 2022 . The Company recognizes interest and/or penalties related to income tax matters in income tax (benefit) expense. 59 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Retirement Plans : Pension expense is the net of service and interest cost and amortization of gains and losses not immediately recognized. Employee 401 (k) plan expense is the amount of matching and safe harbor contributions. Profit sharing expense is based on the amount of contributions made by the Bank as determined by the Board of Directors. Director’s retirement plan expense allocates the benefits over years of service. Supplemental Retirement Plan expense allocates the benefits over years of service. Stock Based Compensation : Compensation cost is recognized for stock options and restricted stock awards issued to employees and directors, based on the fair value of these awards at the grant date. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common shares at the date of the grant is used for restricted shares. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Comprehensive Income : Comprehensive income consists of net income and other comprehensive (loss) income. Other comprehensive (loss) income includes net unrealized holding gains and losses on securities available for sale and net unrealized gains and losses on the pension plan which are also recognized as separate components of equity and the change in fair value of the Company's swap derivatives. Loss Contingencies : Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Recoveries, including proceeds from insurance claims are evaluated separately from loss contingencies and recognized when realized. Fair Value of Financial Instruments : Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. Operating Segments: While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Bank-wide basis. Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial and retail operations of the Bank. As such, discrete financial information is not available and segment reporting would not be meaningful. Derivatives and Hedging Activities: The Company uses derivative financial instruments principally to manage interest rate risk. Certain derivatives are 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. 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. 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 minimal 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 PCI loans that have been added to ACL as per the adoption of ASC 326. 60 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 on January 1, 2023 by portfolio segment was: Loan Portfolio Segments: Pre Adoption The effect of adoption Post Adoption Real estate: 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 Allowance for Credit Losses: Pre Adoption The effect of adoption Post Adoption Assets 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. 61 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Not yet effective Accounting Pronouncements: In November 2023, the FASB issued ASU 2023 - 07, Segment Reporting (TOPIC 280 ): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. Public entities are required to adopt the changes retrospectively, recasting each prior period disclosure for which a comparative income statement is presented in the period of adoption. This update is not expected to have a significant impact on the Company’s financial statements. 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 at December 31, 2023 and 2022 : Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value December 31, 2023 U.S. government and agency obligations One through five years $ 6,000,000 $ — $ ( 454,599 ) $ 5,545,401 Corporate bonds due in: Less than one year 3,000,000 — ( 44,230 ) 2,955,770 One through five years 8,264,973 — ( 247,937 ) 8,017,036 Five through ten years 1,000,000 — ( 154,050 ) 845,950 MBS – residential 41,105,143 5,182 ( 5,703,143 ) 35,407,182 MBS – commercial 18,753,711 — ( 2,636,871 ) 16,116,840 Total $ 78,123,827 $ 5,182 $ ( 9,240,830 ) $ 68,888,179 December 31, 2022 U.S. treasury bills Less than one year $ 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 MBS – residential 44,879,199 2,146 ( 5,232,300 ) 39,649,045 MBS – commercial 22,086,788 — ( 2,534,064 ) 19,552,724 Total $ 94,141,705 $ 2,700 $ ( 9,043,827 ) $ 85,100,578 62 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 2 – SECURITIES AVAILABLE FOR SALE (Continued) All of the MBS 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 years ended December 31, 2023 or 2022 . The age of unrealized losses and the fair value of related securities as of December 31, 2023 and 2022 were as follows: Less than 12 Months More than 12 Months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses December 31, 2023 U.S. government and agency obligations $ — $ - $ 5,545,401 $ ($454,599) $ 5,545,401 $ ($454,599) Corporate bonds 1,999,940 ( 60 ) 9,818,816 ( 446,157 ) 11,818,756 ( 446,217 ) MBS – residential - - 34,829,468 ( 5,703,143 ) 34,829,468 ( 5,703,143 ) MBS – commercial - - 16,116,840 ( 2,636,871 ) 16,116,840 ( 2,636,871 ) Total $ 1,999,940 $ ( 60 ) $ 66,310,525 $ ( 9,240,770 ) $ 68,310,465 $ ( 9,240,830 ) Less than 12 Months More than 12 Months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized 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 ) MBS – residential 16,474,573 ( 1,557,718 ) 22,801,879 ( 3,674,582 ) 39,276,452 ( 5,232,300 ) MBS – 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 ) Unrealized losses on corporate bonds available for sale have not been recognized into income because the issuer bonds are of high credit quality, management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The Bank has 44 securities in a loss position and does not consider these securities to be other-than-temporary impaired at December 31, 2023 . At December 31, 2023 and 2022 , securities available for sale with a carrying value of $ 113,415 and $ 126,662 , respectively, were pledged to secure public deposits. 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 due to changes in interest rates and other market conditions. At December 31, 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 December 31, 2023. As of December 31, 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. 63 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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 at December 31, 2023 and 2022 : Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Fair Value December 31, 2023 U.S. government and agency obligations due in One through five years $ 10,000,000 $ — $ ( 314,240 ) $ 9,685,760 More than five years through ten years 3,000,000 — ( 372,885 ) 2,627,115 Corporate Bonds due in: One through five years 6,431,007 — ( 52,685 ) 6,378,322 Five through ten years 16,294,604 38,684 ( 2,074,007 ) 14,259,281 Greater than ten years 4,287,941 — ( 441 ) 4,287,500 Municipal obligations due in: One through five years 901,597 — ( 55,102 ) 846,495 More than five years through ten years 1,591,199 784 ( 160,655 ) 1,431,328 Greater than ten years 507,716 — ( 103,356 ) 404,360 MBS – Residential 12,484,366 7,223 ( 1,457,104 ) 11,034,485 Commercial 17,157,749 - ( 2,737,642 ) 14,420,107 $ 72,656,179 $ 46,691 $(7,328,117 ) $ 65,374,753 December 31, 2022 U.S. government and agency obligations due in One through five years $ 10,000,000 $ — $ ( 456,850 ) $ 9,543,150 Five years 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 More than five years through ten years 375,000 1,286 — 376,286 Greater than ten years 1,728,184 — ( 346,586 ) 1,381,598 MBS – Residential 14,425,827 410 ( 1,431,861 ) 12,994,376 Commercial 21,019,360 - ( 2,860,813 ) 18,158,547 $ 77,427,309 $ 57,703 $(6,785,361 ) $ 70,699,651 64 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 3 – SECURITIES HELD TO MATURITY (Continued) Mortgage-backed securities include Freddie Mac, Fannie Mae and Ginnie Mae securities, all of which are U.S. government sponsored agencies. There are no non-preforming held to maturity securities at December 31, 2023. The age of unrecognized losses and the fair value of related securities were as follows: U.S. government and agency obligations Corporate bonds Municipal obligations MBS – residential MBS – commercial December 31, 2023 Credit Rating AAA/AA/A $ 12,312,875 $ 11,469,219 $ 2,682,183 $ 11,034,485 $ 14,420,107 BBB/BB/B — 4,999,038 — — — Lower than B — — — — — Not Rated — 8,456,846 — — — Total $ 12,312,875 $ 24,925,103 $ 2,682,183 $ 11,034,485 $ 14,420,107 Less than 12 Months More than 12 Months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized 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 obligations 7,670,152 ( 36,250 ) 2,199,401 ( 431,328 ) 9,869,553 ( 467,578 ) MBS – residential 2,008,303 ( 101,341 ) 10,809,648 ( 1,330,520 ) 12,817,951 ( 1,431,861 ) MBS – 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. Unrecognized losses have not been recognized into income because the issuers of the securities are of high credit quality, management does not intend to sell and it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The fair value is expected to recover as the securities approach maturity. The Bank has 55 securities in a loss position as of December 31, 2023 . At December 31, 2023 and 2022 , securities held to maturity with a carrying amount of $ 1,589,747 and $ 5,293,804 , respectively, were pledged to secure repurchase agreements at the FHLB of New York (see Note 9 ). At December 31, 2023 and 2022 , securities held to maturity with a carrying value of $ 4,976,927 and $ 4,659,956 , respectively, were pledged to secure public deposits. 65 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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 December 31, 2023 and December 31, 2022: Pre Adoption Post Adoption December 31, December 31, The effect of December 31, 2023 2022 adoption 2022 Real estate: Residential First Mortgage $ 486,052,422 $ 466,100,627 $ 29,589,213 $ 495,689,840 Commercial and Multi-Family Real Estate - 162,338,669 ( 162,338,669 ) - Commercial Real Estate 99,830,514 - 96,030,721 96,030,721 Multi-Family Real Estate 75,612,566 - 66,400,713 66,400,713 Construction 49,302,040 61,825,478 - 61,825,478 Commercial & Industrial 6,658,370 1,684,189 - 1,684,189 Consumer: Home equity and other - 29,654,973 ( 29,654,973 ) - Consumer 18,672 - 98,770 98,770 Total loans 717,474,584 721,603,936 125,775 721,729,711 Allowance for credit losses (2,785,949 ) (2,578,174 ) (282,775 ) (2,860,949 ) Net loans $ 714,688,635 $ 719,025,762 $ ($157,000) $ 718,868,762 The Bank has granted loans to executive officers and directors of the Bank. At December 31, 2023 and 2022 , such loans totaled $ 1,610,688 and $ 1,739,725 , respectively. 2023 2022 Outstanding, January 1, $ 1,739,725 $ 577,143 New loans - 1,317,500 Loan repayments ( 129,037 ) ( 154,918 ) Outstanding, December 31, 1,610,688 1,739,725 66 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 4 - LOANS (Continued) At December 31, 2023, deferred loan fees were $ 2,873,724 and $ 3,078,612 respectively. The following table presents the activity in the allowance for credit losses by portfolio segments for the years ended December 31, 2023 and 2022 : Residential First Mortgage Commercial Real Estate Multi-Family Real Estate Construction Commercial & Industrial Consumer Total December 31, 2023 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 loan losses (recovery) 135,466 ( 85,797 ) 57,531 ( 102,500 ) 18,000 ( 97,700 ) ( 75,000 ) Loans charged-off — — — — — — — Recoveries — — — — — — — Total ending allowance balance $ 1,851,969 $ 437,180 $ 317,300 $ 157,500 $ 22,000 $ — $ 2,785,949 Residential First Mortgage Commercial & Multi- Family Real Estate Construction Commercial & Industrial Home Equity & Other Total December 31, 2022 Allowance for loan losses: Beginning balance $ 1,092,474 $ 768,600 $ 195,000 $ 9,400 $ 87,700 $ 2,153,174 Provision for loan losses (credit) 510,060 ( 153,120 ) 63,500 ( 5,440 ) 10,000 425,000 Loans charged-off — — — — — — Recoveries — — — — — — Total ending allowance balance $ 1,602,534 $ 615,480 $ 258,500 $ 3,960 $ 97,700 $ 2,578,174 The provision fluctuations during the years ended December 31, 2023 and 2022 were due to increases or decreases in loan balances in different loans types and economic conditions. 67 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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 & Multi- Family Real Estate Construction Commercial & Industrial Home Equity & Other 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 loans balance $ 466,100,627 $ 162,338,669 $ 61,825,478 $ 1,684,189 $ 29,654,973 $ 721,603,936 Collateral - dependent loans individually evaluated with the ACL by collateral type were as follows at December 31, 2023: Portfolio segment Real estate Other Residential First Mortgage $ 1,432,072 $ — Commercial Real Estate 450,392 — Multi-Family Real Estate — — Construction 10,893,713 — Commercial and Industrial — — Other Consumer — — $ 12,776,177 $ — Impaired loans as of and for the year ended December 31, 2022 were as follows: Loans With no related allowance recorded Loans with an allowance recorded Average Of individually Impaired loans Amount of allowance for loan losses allocated Residential first mortgages $ 1,199,278 $ 171,616 $ 1,300,615 $ 33,000 Commercial and Multi-Family 488,222 — 488,196 — Construction — — — — Commercial & Industrial — — — — Home equity & other consumer 37,069 — 26,298 — $ 1,724,569 $ 171,616 $ 1,815,109 $ 33,000 68 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 4 - LOANS (Continued) Interest income recognized during impairment and cash-basis interest income recognized in both 2023 and 2022 was nominal. Nonaccrual loans and loans past due 90 days or more still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually evaluated loans. No nonaccrual loans had specific reserves as of December 31, 2023 and the Bank had no other real estate owned at either December 31, 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 December 31, 2023 Residential First Mortgage $ 819,590 $ 1,432,072 $ 1,432,072 $ — $ — Commercial Real Estate 450,392 450,392 Construction — 10,893,713 10,893,713 — — Consumer 37,069 — — — — Total $ 856,659 $ 12,776,177 $ 12,776,177 $ — $ — 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: Nonaccrual Loans Past Due 90 Days or More Still Accruing December 31, 2022 Residential first mortgage $ 819,590 $ — Commercial and multi-family — — Construction — — Commercial & Industrial — — Home equity and other consumer 37,069 — Total $ 856,659 $ — 69 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 4 - LOANS (Continued) The following table presents the aging of the recorded investment in past due loans as of December 31, 2023 and 2022 , by class of loans: 30 – 59 Days Past Due 60 – 89 Days Past Due Greater than 89 Days Past Due Total Past Due Loans Not Past Due Total December 31, 2023 Residential first mortgage $ — $ 297,118 $ 964,806 $ 1,261,924 $ 484,790,498 $ 486,052,422 Commercial real estate — — 450,392 450,392 99,380,122 99,830,514 Multi-Family real estate — — — — 75,612,566 75,612,566 Construction — — 10,893,713 10,893,713 38,408,327 49,302,040 Commercial & Industrial — — — — 6,658,370 6,658,370 Consumer - — — - 18,672 18,672 Total $ — $ 297,118 $ 12,308,911 $ 12,606,029 $ 704,868,555 $ 717,474,584 30 – 59 Days Past Due 60 – 89 Days Past Due Greater than 89 Days Past Due Total Past Due Loans Not Past Due PCI loans Total 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 — — — — 160,990,186 1,348,483 162,338,669 Construction — — — — 61,825,478 — 61,825,478 Commercial & 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 are considered to be non-performing. 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 real estate, commercial and industrial and construction loans are graded on an annual basis. Residential real estate and consumer loans are primarily evaluated based on performance. Refer to the table on the prior page 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. 70 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 4 – LOANS (Continued) 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. Based on the most recent analysis performed, the risk category of loans by class is as follows: Term Loans by Origination Year Balance at December 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Loans Totals Residential First Mortgage Pass $ 5,174,879 $ 111,903,094 $ 37,747,971 $ 28,952,299 $ 26,155,892 $ 114,830,194 $ 159,976,218 $ 484,740,547 Special Mention — — — 191,276 169,343 389,565 107,538 857,722 Substandard — — — — — 169,131 285,022 454,153 Doubtful — — — — — — — — Total 5,174,879 111,903,094 37,747,971 29,143,575 26,325,235 115,388,890 160,368,778 486,052,422 Gross charge-offs by vintage — — — — — — — — Commercial Real Estate Pass — 3,065,843 — 6,893,352 5,501,995 11,722,774 72,196,158 99,380,122 Special Mention — — — — — — — — Substandard — — — — — — 450,392 450,392 Doubtful — — — — — — — — Total — 3,065,843 — 6,893,352 5,501,995 11,722,774 72,646,550 99,830,514 Gross charge-offs by vintage — — — — — — — — Multi-Family Real Estate Pass — 2,362,920 — 1,162,353 — 2,117,462 69,969,831 75,612,566 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total — 2,362,920 — 1,162,353 — 2,117,462 69,969,831 75,612,566 Gross charge-offs by vintage — — — — — — — — Construction Pass — — — — — — 38,459,962 38,459,962 Special Mention — — — — — — — — Substandard — — — — — — 10,842,078 10,842,078 Doubtful — — — — — — — — Total — — — — — — 49,302,040 49,302,040 Gross charge-offs by vintage — — — — — — — — Commercial and Industrial Pass 241,109 — — 576,164 94,204 — 5,746,893 6,658,370 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total 241,109 — — 576,164 94,204 — 5,746,893 6,658,370 Gross charge-offs by vintage — — — — — — — — Consumer Pass — — — — — — 18,672 18,672 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total — — — — — — 18,672 18,672 Total loans $ 5,415,988 $ 117,331,857 $ 37,747,971 $ 37,775,444 $ 31,921,434 $ 129,229,126 $ 358,052,764 $ 717,474,584 71 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 4 – LOANS (Continued) Pass Special Mention Substandard Totals December 31, 2022 Residential first mortgage $ 465,089,495 $ 555,965 $ 455,167 $ 466,100,627 Commercial and Multi-Family 162,338,669 — — 162,338,669 Construction 61,825,478 — — 61,825,478 Commercial & 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 NOTE 5 – PREMISES AND EQUIPMENT Premises and equipment consists of the following at December 31: 2023 2022 Land $ 2,402,995 $ 2,402,995 Buildings and improvements 6,962,864 6,834,508 Furniture, fixtures and equipment 3,698,532 3,508,853 13,064,391 12,746,356 Accumulated depreciation ( 5,377,004 ) ( 4,862,021 ) $ 7,687,387 $ 7,884,335 Depreciation expense was $ 514,983 and $ 485,118 for the years ended December 31, 2023 and 2022 , respectively. NOTE 6 – INTANGIBLE ASSETS Core deposit intangible carrying amounts were $ 206,116 for the year ended December 31, 2023 . Core deposit accumulated amortization and amortization expense totaled $ 132,728 and $ 61,156 , respectively, for the year ended December 31, 2023 . Core deposit intangible assets are amortized to their estimated residual values over their expected useful lives, commonly ten years. The estimated aggregate future amortization expense for core deposit intangible assets as of December 31, 2023 , was as follows: 2024 $ 53,223 2025 45,289 2026 37,355 2027 29,421 2028 21,489 Thereafter 19,339 $ 206,116 72 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 7 – DEPOSITS The aggregate amount of certificates of deposit with a minimum denomination of $250,000 was approximately $ 132,100,000 and $ 119,100,000 at December 31, 2023 and 2022 , respectively. Officers and directors of the Bank have deposits at the Bank. At December 31, 2023 and 2022 , such deposits totaled approximately $ 2,433,000 and $ 2,541,000 , respectively. The Bank had $ 53,300,000 and $ 58,600,000 of brokered deposits as of December 31, 2023 and 2022 , respectively, which were primarily included in certificate of deposit accounts. The scheduled maturities of certificates of deposits at December 31, 2023 are as follows: 2024 $ 430,847,483 2025 49,377,623 2026 5,524,308 2027 5,687,138 2028 1,838,215 $ 493,274,767 NOTE 8 – ADVANCES FROM THE FEDERAL HOME LOAN BANK ( “ FHLB ” ) OF NEW YORK There were short-term advances as of December 31, 2023 totaling $ 37,500,000 with a weighted average interest rate of 5.52 % that mature within one year. There were short-term advances as of December 31, 2022 totaling $ 59,000,000 with a weighted average interest rate of 4.59 % that mature within one year. Long-term advances at December 31 were as follows: Weighted Average Rate at December 31, 2023 2023 2022 Amortizing: Maturing in: 2023 — $ — $ 3,101,059 2024 2.58 % 5,496,642 3,124,634 2025 2.91 % 4,847,744 2,354,973 2026 4.12 % 3,297,983 678,275 2027 4.98 % 2,753,137 - 2028 5.05 % 2,271,012 - 3.59 % $ 18,666,518 $ 9,258,941 Non-repo advances Maturing in: 2023 — $ — $ 23,037,169 2024 3.92 % 16,019,838 6,019,839 2025 4.31 % 54,003,307 5,003,306 2026 4.57 % 41,500,000 - 4.35 % $ 111,523,145 $ 34,060,314 73 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 8 – ADVANCES FROM THE FEDERAL HOME LOAN BANK ( “ FHLB ” ) OF NEW YORK (Continued) At December 31, 2023 and 2022 , securities held to maturity and available for sale with a carrying amount of $ 1,589,747 and $ 5,269,320 , respectively, were pledged to secure repurchase agreements. Change in the fair value of pledged collateral may require the Bank to pledge additional securities. Non-repo and amortizing advances are secured by the FHLB stock owned by the Bank, and a blanket assignment of qualifying loans at December 31, 2023 and 2022 amounted to $ 289,808,115 and $ 329,278,068 , respectively. The Bank had available additional borrowing capacity of $ 140,398,000 and $ 235,221,958 , with the FHLB as of December 31, 2023 and 2022 , respectively. The Bank also had outstanding lines of credit of $ 54,000,000 and $ 51,000,000 with four correspondent banks as of December 31, 2023 and 2022 . There were no outstanding balances against these lines as of December 31, 2023 or 2022 . Payments over the next five years are as follows : 2024 $ 59,016,480 2025 58,851,051 2026 44,797,983 2027 2,753,137 2028 2,271,012 $ 167,689,663 NOTE 9 – INCOME TAXES Income tax (benefit) expense was as follows: 2023 2022 Current expense Federal $ 379,021 $ 1,407,387 State 83,212 847,337 462,233 2,254,724 Deferred (benefit) expense Federal ( 411,463 ) 240,502 State ( 212,927 ) 119,319 ( 624,390 ) 359,821 Total income (benefit) expense $ ( 162,157 ) $ 2,614,545 Total income tax (benefit) expense differed from the amounts computed by applying the federal income tax rate of 21 % to income before income taxes as a result of the following for the years ended December 31: 2023 2022 Expected income tax expense at federal tax rate $ 100,879 $ 1,993,195 Increase (decrease) in taxes resulting from: State income tax, net of federal income tax effect ( 102,475 ) 763,658 Bank Owned Life Insurance ( 164,120 ) ( 145,929 ) Tax exempt interest, net ( 16,441 ) ( 33,849 ) Other, net 20,000 37,470 $ ( 162,157 ) $ 2,614,545 74 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 9 – INCOME TAXES (Continued) Year-end deferred tax assets and liabilities were due to the following: 2023 2022 Deferred tax assets: Allowance for credit losses $ 811,803 $ 724,725 Deferred compensation 928,427 945,753 Fraud claim 121,713 - Nonaccrual interest 351,211 - ESOP plans 90,188 51,766 Stock equity plans 263,451 125,195 Accrued severance plan 271,587 - Federal NOL carryforward 345,571 378,777 Depreciation 72,227 66,854 Charitable foundation contribution 312,949 425,092 Net unrealized loss on securities available for sale 2,596,141 2,541,461 Other - 48,186 6,165,268 5,307,809 Deferred tax liabilities: Loan fees/costs 1,120,945 1,108,540 Directors’ and officers’ retirement plans 996 21,772 Purchase accounting 294,064 242,887 Cash flow hedges 67,326 91,094 Other 27,947 - 1,511,278 1,464,293 Net deferred tax asset $ 4,653,990 $ 3,843,516 Included in retained earnings at December 31, 2023 and 2022 was approximately $ 4,609,000 in bad debt reserves for which no deferred income tax liabilities have been recorded. The amount represents allocations of income to bad debt deductions for tax purposes only. Reduction of these reserves for purposes other than tax bad-debt losses would create income for tax purposes only, which would be subject to the then current corporate income tax rate. There were no unrecognized tax benefits at December 31, 2023 or 2022 . The Bank does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months. There was no material interest or penalties recorded in the income statement or accrued during the years ended December 31, 2023 or 2022 . The Bank is subject to U.S. federal income tax as well as income tax of the State of New Jersey. The Bank is no longer subject to federal and state examination by taxing authorities for years before 2020 and 2019, respectively. NOTE 10 – STOCK BASED COMPENSATION The Company maintains the Bogota Financial Corp. 2021 Equity Incentive Plan (the "2021 Plan"), which provides for the issuance of up to 902,602 shares ( 257,887 restricted stock awards and 644,718 stock options) of Bogota Financial Corp. common stock. On September 2, 2021, 226,519 shares of restricted stock were awarded, with a grant date fair value of $ 10.45 per share. To fund the grant of restricted common stock, the Company issued shares from authorized but unissued shares. Restricted shares granted under the 2021 Plan vest in equal installments, over the service 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 twelve months ended December 31, 2023 and December 31, 2022, $ 473,000 and $ 473,000 of expense was recognized in regard to these awards, respectively. The expected future compensation expense related to the 181,215 non-vested restricted shares outstanding at December 31, 2023 was approximately $ 1.9 million over a weighted average period of 3.85 years. 75 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 10 – STOCK BASED COMPENSATION (Continued) The following is a summary of the Company's restricted stock activity during the twelve months ended December 31, 2023 : Number of Restricted Shares Weighted Average Grant Date Fair Value Outstanding, January 1, 2023 181,215 $ 10.45 Granted - - Vested 45,304 10.45 Forfeited - - Outstanding, December 31, 2023 135,911 $ 10.45 On September 2, 2022, options to purchase 526,119 shares of Company common stock were awarded, with a grant date fair value of $ 4.37 per option. Stock options granted under the 2021 Plan vest in equal installments over the service period of five years beginning one year from the date of grant. Stock options were granted at an exercise price of $ 10.45 , which represents the fair value of the Company's common stock price on the grant date based on the closing market price, and have an expiration period of 10 years. Management recognizes expense for the fair value of these awards on a straight-line basis over the requisite service period. During the twelve months ended December 31, 2023 and December 31, 2022 approximately $ 459,000 and $ 459,000 in expense was recognized in regard to these awards, respectively. The expected future compensation expense related to the 526,119 non-vested options outstanding at December 31, 2023 was $ 1.8 million over the weighted average remaining vesting period of 3.85 years. The following is a summary of the Company's option activity during the twelve months ended December 31, 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 - Forfeited - Outstanding, December 31, 2023 523,619 10.45 6.5 - Options exercisable at December 31, 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. 76 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 11 – DERIVATIVES AND HEDGING ACTIVITES Interest Rate Swaps . At December 31, 2023 , the Company had two interest rate swaps with a notional amount of $ 20.0 million hedging 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. As of December 31, 2022 , the Company had one interest rate swap with a notional amount of $ 10.0 million hedging certain FHLB advances. At both December 31, 2023 and December 31, 2022, the Company had no interest rate swaps in place with commercial banking customers. 77 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 11 – DERIVATIVES AND HEDGING ACTIVITES (Continued) 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 December 31, 2023 : December 31, 2023 Asset Derivative Consolidated Statements of Financial Condition Fair Value Interest rate swaps Other Assets $ 239,510 Total derivative instruments $ 239,510 For the twelve months ended December 31, 2023 , changes in fair value of $ 84,554 were recorded in other comprehensive income, net of tax, for changes in fair value of interest rate swaps with third parties. At December 31, 2023 , accrued interest was $ 72,000 . 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 12 – BENEFIT PLANS 401 (k) Plan: The Bank has a 401 (k) retirement plan covering substantially all employees. The Bank matches 100 % of contributions up to the first 6 % of salary that the employee defers to the retirement plan. The Bank also contributes a safe harbor contribution of 3 % of the employee’s salary. In addition, on an annual basis, the Board of Directors may elect to make discretionary employer contributions. Bank contributions to the plan for the years ended December 31, 2023 and 2022 were $ 414,000 and $ 384,000 , respectively. Directors ’ Retirement Plan : The Bank has an unfunded, non-qualified pension plan (the “Plan”) to provide post-retirement benefits to each non-employee director of the Bank. The Monthly Retirement Benefit is 100 % of a director's average annual retainer paid over a three -year period ( not necessarily consecutive) during which the highest annual retainer was received and payable for the same number of months the director served on the Board, up to a period of 120 months. The measurement dates used in the Plan valuations were December 31 for plan years 2023 and 2022 , respectively. The following table sets forth the Plan’s funded status at December 31, 2023 and 2022 : 2023 2022 Projected benefit obligation - beginning $ 2,318,336 $ 2,430,095 Service cost 52,005 136,145 Interest cost 109,410 69,830 Actuarial gain ( 12,950 ) ( 154,613 ) Annuity payments ( 191,992 ) ( 163,121 ) Projected benefit obligation – ending 2,274,809 2,318,336 Changes in Plan assets Employer contributions 191,992 163,121 Annuity payments ( 191,992 ) ( 163,121 ) Funded status and accrued pension cost included in other liabilities $ 2,274,809 $ 2,318,336 78 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 12 – BENEFIT PLANS (Continued) Amounts recognized in accumulated other comprehensive income at December 31 consist of: 2023 2022 Net actuarial gain (loss) $ 2,236 $ ( 65,412 ) Prior service cost 1,682 82,538 $ 3,918 $ 17,126 Components of net periodic benefit cost and other amounts recognized in other comprehensive income: 2023 2022 Service cost $ 52,005 $ 136,145 Interest cost 109,410 69,830 Amortization of prior service cost 259 130,821 Net periodic benefit cost 161,674 336,796 Net loss (gain) 2,236 ( 154,613 ) Amortization of prior service cost ( 259 ) ( 130,821 ) Total recognized in other comprehensive income (loss) 1,977 ( 285,434 ) Total recognized in net periodic benefit cost and other comprehensive loss $ 163,651 $ 51,362 Assumptions Weighted-average assumptions used to determine pension benefit obligations at year end: 2023 2022 Discount rate 4.80 % 5.00 % 79 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 12 – BENEFIT PLANS (Continued) Weighted-average assumptions used to determine net periodic pension cost: 2023 2022 Discount rate 4.80 % 2.90 % Amortization period (years) 9.49 5.8 The Monthly Retirement Benefit was changed from 100 % of a director's average annual retainer paid over a three -year period ( not necessarily consecutive) during which the highest annual retainer was received and payable for the same number of months the director served on the Board, up to a period of 120 months to be 15 % of the final three -year average annual compensation paid in twelve equal installments, up to a period of 120 months. The change in the Monthly Retirement Benefit had no material change on the financial statements. For the year ended December 31, 2024 , the Bank expects to contribute $ 200,222 to the Plan. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as of year ending December 31: 2024 $ 200,222 2025 290,760 2026 259,119 2027 236,518 2028 236,518 2029-2030 473,036 Employee Stock Ownership Plan ( “ ESOP ” ): Effective upon the consummation of the Bank's reorganization in January 2020, an ESOP was established for all eligible employees. The ESOP used $ 6.0 million in proceeds from a twenty -year term loan obtained from the Company to purchase 515,775 shares of Company common stock. The term loan principal is payable in installments through January 2039. Interest on the term loan is floating rate that was 8.50 % as of December 31, 2023 . Each year, the Bank makes discretionary contributions to the ESOP, which are equal to principal and interest payments required on the term loan. Shares purchased with the loan proceeds were initially pledged as collateral for the term loan and are held in a suspense account for future allocation among participants. Contributions to the ESOP and shares released from the suspense account are allocated among the participants on the basis of compensation, as described by the ESOP, in the year of allocation. The ESOP shares pledged as collateral are reported as unearned ESOP shares in the Consolidated Statements of Financial Condition. As shares are committed to be released from collateral, the Bank reports compensation expense equal to the average market price of the shares during the year, and the shares become outstanding for basic net income per common share computations. ESOP compensation expense for the year ended December 31, 2023 and 2022 was $ 224,870 and $ 280,790 , respectively. 80 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 12 – BENEFIT PLANS (Continued) The ESOP shares were as follows: 2023 2022 Allocated shares 106,024 79,280 Unearned shares 409,751 436,495 Total ESOP shares 515,775 515,775 Fair value of unearned ESOP shares $ 3,321,570 $ 4,880,014 Supplemental Executive Retirement Plan ( “ SERP ” ) : In 2014, the Bank adopted an unfunded, non-qualified Supplemental Executive Retirement Plan (“SERP”) for the benefit of its senior officers. On May 20, 2016, the SERP was amended and restated as of January 1, 2016. The SERP provides the Bank with the opportunity to supplement the retirement income of the President and CEO to achieve equitable wage replacement at retirement. As of December 31, 2023 , the accrued SERP obligation was $ 1,040,487 . The expense was a benefit of $ 15,325 during 2023 . At December 31, 2023 , the amount recognized in accumulated other comprehensive loss was $ 87,120 . As of December 31, 2022 , the accrued SERP obligation was $ 968,692 . The expense was $ 278,714 during 2022 . At December 31, 2022 , the amount recognized in accumulated other comprehensive loss was $ 79,972 . NOTE 13 – REGULATORY CAPITAL MATTERS Banks are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. A capital conservation buffer of 2.5 %, which was fully phased on January 1, 2019 resulted in the Bank effectively having the following minimum capital to risk-weighted assets ratios: a) 7.0 % based on CET1; b) 8.5 % based on tier 1 capital; and c) 10.5 % based on total regulatory capital. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Failure to meet capital requirements can initiate regulatory action. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If only adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2021 and 2020, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. In accordance with the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies adopted, effective January 1, 2020, a final rule whereby financial institutions and financial institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9% (“qualifying community banking organizations”), are eligible to opt into a community bank leverage ratio (“CBLR”) framework. Qualifying community banking organizations that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9% are considered to have satisfied the generally applicable risk-based and leverage capital requirements in the agencies’ capital rules and will be considered to have met the well capitalized ratio requirements under the PCA statutes. 81 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 13 – REGULATORY CAPITAL MATTERS (Continued) The agencies reserved the authority to disallow the use of the CBLR framework by a financial institution or holding company, based on the risk profile of the organization. The Bank elected to adopt the CBLR framework. As a qualifying community banking organization, the Company and the Bank may opt out of the CBLR framework in any subsequent quarter by completing its regulatory agency reporting using the traditional capital rules. The Bank excludes accumulated OCI components from Tier 1 and Total regulatory capital. The Bank’s actual and required capital amounts and ratios under the CBLR rules at December 31, 2023 and 2022 are presented in the tables below. Actual Capital Required For Capital Adequacy Purposes Amount Ratio Amount Ratio 2023 Tier 1 capital to average assets: Bank 130,625 13.96 74,864 8.0 2022 Tier 1 capital to average assets: Bank 129,264 13.44 71,193 8.0 NOTE 14 – COMMITMENTS AND CONTINGENCIES The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments primarily include commitments to extend credit. Such instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. The contractual amounts of these instruments reflect the extent of involvement the Bank has in those particular classes of financial instruments. The Bank’s exposure to credit loss in the event of non-performance by the other party to the financial instruments for commitments to extend credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. 82 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 14 – COMMITMENTS AND CONTINGENCIES (Continued) The Bank had outstanding firm commitments, all of which expire within two months, to originate, or purchase participation interests in, loans at December 31, 2023 and 2022 was as follows: 2023 2022 Fixed Rate Residential mortgage loans $ — $ 650,000 Commercial & Industrial — 500,000 Home equity line of credit — 85,000 $ — $ 1,235,000 Variable Rate Residential mortgage loans $ 2,664,450 $ 1,822,807 Construction loans 16,780,124 32,935,531 Home equity loans 1,173,000 510,000 Commercial real estate 730,000 — $ 21,347,574 $ 35,268,338 Commitments to make loans are generally made for periods of 90 days or less. At December 31, 2023 and 2022 , undisbursed funds from approved lines of credit under a homeowners’ equity lending program amounted to approximately $ 50,175,046 and $ 48,776,452 , respectively. At December 31, 2023 and 2022 , undisbursed funds from approved lines of credit under a business line of credit program amounted to $ 2,579,759 and $ 8,183,350 , respectively. Unless they are specifically cancelled by notice from the Bank, these funds represent firm commitments available to the respective borrowers on demand. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but primarily includes commercial and residential real estate. The Bank leases certain Bank properties and equipment under operating leases. Rent expense was $ 181,308 and $ 169,540 for 2023 and 2022 , respectively. 83 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 15 – 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 fair value for investment securities are determined by quoted market prices, if available (Level 1 ). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2 ). Assets measured at fair value on a recurring basis are summarized below: Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2023 Securities available for sale: U.S. government and agency obligations $ 5,545,401 $ — $ 5,545,401 $ — Corporate bonds 11,818,756 — 11,818,756 — MBS – residential 35,407,182 — 35,407,182 — MBS – commercial 16,116,840 — 16,116,840 — Cash flow hedge 239,510 239,510 $ 69,127,689 $ — $ 69,127,689 $ — 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 — MBS – residential 39,649,045 — 39,649,045 — MBS – commercial 19,552,724 — 19,552,724 — Cash flow hedge 324,062 324,062 $ 85,424,640 $ 4,927,608 $ 80,497,032 $ — No assets were measured at fair value on a non-recurring basis at December 31, 2023 and 2022 . 84 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 15 – FAIR VALUE (Continued) The carrying amounts and estimated fair values of financial instruments, at December 31, 2023 and 2022 are as follows: Carrying Fair Fair Value Measurement Placement Amount Value (Level 1) (Level 2) (Level 3) (In thousands) December 31, 2023 Financial instruments -assets Investment securities held-to-maturity $ 72,656 $ 65,375 $ — $ 65,375 $ — Loans 714,687 672,347 — — 672,347 Financial instruments - liabilities Certificates of deposit 493,275 491,944 — 491,944 — Borrowings 167,690 167,891 — 167,891 — December 31, 2022 Financial instruments - assets Investment securities held-to-maturity $ 77,427 $ 70,700 $ — $ 70,700 $ — Loans 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. 85 Table of Contents BOGOTA FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 NOTE 16 – ACCUMULATED OTHER COMPREHENSIVE LOSS The components of accumulated other comprehensive loss included in equity as of December 31 is as follows: Year ended December 31, 2023 Unrealized gain (loss) in investments Derivatives Defined benefit plan Total Beginning balance $ ( 6,499,666 ) $ 232,969 $ 55,684 $ ( 6,211,013 ) Other comprehensive loss before reclassification ( 139,840 ) ( 60,786 ) ( 53,135 ) ( 253,761 ) Amounts reclassified from other comprehensive loss - - - - Net current period other comprehensive loss ( 139,840 ) ( 60,786 ) ( 53,135 ) ( 253,761 ) Ending balance $ ( 6,639,506 ) $ 172,183 $ 2,549 $ ( 6,464,774 ) Year ended December 31, 2022 Unrealized gain (loss) in investments Derivatives Defined benefit plan Total Beginning balance $ 17,158 $ — $ ( 289,814 ) $ ( 272,656 ) Other comprehensive (loss) income before reclassification ( 6,516,824 ) 232,969 179,142 ( 6,104,713 ) Amounts reclassified from other comprehensive (loss) income - - 166,356 166,356 Net current period other comprehensive (loss) income ( 6,516,824 ) 232,969 345,498 ( 5,938,357 ) Ending balance $ ( 6,499,666 ) $ 232,969 $ 55,684 $ ( 6,211,013 ) Details about accumulated other comprehensive loss components Year ended December 31, 2023 Year ended December 31, 2022 Realized gains on sales of securities $ — $ — — — $ — $ — Amortization of estimated defined benefit pension plan losses $ 94,315 $ 231,403 other expense ( 26,512 ) ( 65,047 ) provision for income taxes $ 67,803 $ 166,356 Total reclassifications for the period $ 67,803 $ 166,356 86 Table of Contents ITEM 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure None.