Bogota Financial (BSBK) - 2023 Q2 - Quarterly Report

FORM 10-Q This Quarterly Report (Form 10-Q) for Bogota Financial Corp. covers the period ended June 30, 2023, with the company classified as a smaller reporting and emerging growth entity that has filed all required reports General Information This section provides general information on Bogota Financial Corp.'s Quarterly Report for June 30, 2023, including its reporting status and outstanding common stock shares - The registrant is filing a Quarterly Report (Form 10-Q) for the period ended June 30, 2023[1][240] - Bogota Financial Corp. is classified as a smaller reporting company and an emerging growth company[240][265] - As of August 9, 2023, there were 13,471,757 shares of common stock issued and outstanding[240] PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Bogota Financial Corp.'s unaudited consolidated financial statements, including balance sheets, income statements, comprehensive income, equity, and cash flows, with detailed explanatory notes Consolidated Statements of Financial Condition The company's total assets decreased by 2.1% to $931.0 million at June 30, 2023, primarily due to decreases in loans and securities, partially offset by increased cash Metric | Metric | As of June 30, 2023 | As of December 31, 2022 | | :---------------------------------- | :------------------ | :---------------------- | | Cash and cash equivalents | $29,013,345 | $16,840,917 | | Securities available for sale | $71,214,603 | $85,100,578 | | Securities held to maturity | $69,809,580 | $77,427,309 | | Loans, net | $705,946,085 | $719,025,762 | | Total Assets | $931,000,250 | $951,099,003 | | Total deposits | $656,556,795 | $701,411,449 | | FHLB advances-short term | $21,000,000 | $59,000,000 | | FHLB advances-long term | $106,244,411 | $43,319,254 | | Total liabilities | $791,801,772 | $811,439,880 | | Total stockholders' equity | $139,198,478 | $139,659,123 | - Total Assets decreased by $20.1 million (2.1%) from December 31, 2022, to June 30, 2023[152] - Cash and cash equivalents increased by $12.2 million (72.3%) to $29.0 million at June 30, 2023, primarily due to loan and investment repayments and increased long-term FHLB advances[128] Consolidated Statements of Income Net income for the three months ended June 30, 2023, decreased by 47.8% year-over-year to $856,641, primarily due to a $1.4 million decrease in net interest income. For the six months ended June 30, 2023, net income decreased by 39.2% to $1.8 million, also driven by a decline in net interest income Metric | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total interest income | $9,407,203 | $6,911,200 | $18,424,392 | $13,190,210 | | Total interest expense | $5,113,823 | $1,206,011 | $9,606,174 | $2,362,028 | | Net interest income | $4,293,380 | $5,705,189 | $8,818,218 | $10,828,182 | | (Recovery) provision for credit losses | $(125,000) | $100,000 | $(125,000) | $100,000 | | Total non-interest income | $283,476 | $253,717 | $566,755 | $598,140 | | Total non-interest expense | $3,632,208 | $3,593,872 | $7,149,556 | $7,135,147 | | Income before income taxes | $1,069,648 | $2,265,034 | $2,360,417 | $4,191,175 | | Income tax expense | $213,007 | $623,027 | $511,069 | $1,148,271 | | Net income | $856,641 | $1,642,007 | $1,849,348 | $3,042,904 | | Earnings per Share - basic | $0.07 | $0.12 | $0.14 | $0.22 | | Earnings per Share - diluted | $0.07 | $0.12 | $0.14 | $0.22 | - Net income for the three months ended June 30, 2023, decreased by $785,000 (47.8%) to $857,000, primarily due to a $1.4 million decrease in net interest income[136] - Net income for the six months ended June 30, 2023, decreased by $1.2 million (39.2%) to $1.8 million, mainly due to a $2.0 million decrease in net interest income[143] Consolidated Statements of Comprehensive Income (Loss) The company reported comprehensive income of $665,000 for the three months ended June 30, 2023, a significant improvement from a comprehensive loss of $2.46 million in the prior year. For the six months, comprehensive income was $1.41 million, also an improvement from a $3.42 million loss in the prior year, largely influenced by changes in unrealized losses on securities available for sale and derivatives Metric | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------------------------------------------------------------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $856,641 | $1,642,007 | $1,849,348 | $3,042,904 | | Net unrealized loss on securities available for sale (net of tax) | $(505,111) | $(4,142,333) | $(619,203) | $(6,542,321) | | Defined benefit retirement plans (net of tax) | $(16,546) | $41,589 | $(33,092) | $83,178 | | Derivatives (net of tax) | $330,016 | — | $214,479 | — | | Total other comprehensive loss | $(191,641) | $(4,100,744) | $(437,816) | $(6,459,143) | | Comprehensive income (loss) | $665,000 | $(2,458,737) | $1,411,532 | $(3,416,239) | Consolidated Statements of Equity Total stockholders' equity decreased slightly to $139.2 million at June 30, 2023, from $139.7 million at December 31, 2022. This change was influenced by net income, stock repurchases, and an increase in accumulated other comprehensive loss, partially offset by stock-based compensation and ESOP share releases Metric | Metric | Balance January 1, 2023 | Balance June 30, 2023 | | :------------------------------------------------------------------------------------------------------------------------------------------------------- | :---------------------- | :-------------------- | | Common Stock | $136,989 | $134,824 | | Additional Paid-in Capital | $59,099,476 | $57,301,002 | | Retained Earnings | $91,756,673 | $93,383,881 | | Unearned ESOP shares | $(5,123,002) | $(4,972,400) | | Accumulated Other Comprehensive Loss | $(6,211,013) | $(6,648,829) | | Total Stockholders' Equity | $139,659,123 | $139,198,478 | - Total stockholders' equity decreased by $461,000, primarily due to the repurchase of 216,559 shares of stock ($2.2 million cost) and an increased accumulated other comprehensive loss for securities available for sale ($438,000), offset by $1.8 million of net income[157] Consolidated Statements of Cash Flows Net cash provided by operating activities significantly decreased to $1.59 million for the six months ended June 30, 2023, from $6.26 million in the prior year. Investing activities shifted from a substantial net cash outflow to a net inflow of $32.2 million, largely due to a decrease in loan originations and an increase in maturities/repayments of securities. Financing activities resulted in a net cash outflow of $21.6 million, compared to an inflow of $40.4 million in the prior year, mainly due to deposit decreases and FHLB advance changes Cash Flow Activity | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------------------------------------------------------------------------------------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $1,593,593 | $6,256,628 | | Net cash provided by (used in) investing activities | $32,195,257 | $(144,138,849) | | Net cash (used in) provided by financing activities | $(21,616,422) | $40,417,666 | | Net increase (decrease) in cash and cash equivalents | $12,172,428 | $(97,464,555) | | Cash and cash equivalents at beginning of year | $16,840,917 | $105,068,785 | | Cash and cash equivalents at June 30 | $29,013,345 | $7,604,230 | Notes to Consolidated Financial Statements The notes provide detailed information on the company's accounting policies, financial instruments, and other key financial data. Significant updates include the adoption of the CECL model (ASC 326) on January 1, 2023, which resulted in a one-time decrease in retained earnings and an increase in the allowance for credit losses. The notes also detail the composition and fair value of securities, loan portfolio segments, stock-based compensation, derivative activities, and fair value measurements NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the company's accounting policies, including its nature of operations, principles of consolidation, use of estimates, and the methodology for the allowance for credit losses (ACL). Key updates include the adoption of the CECL model (ASC 326) on January 1, 2023, which impacted retained earnings and the ACL, and the adoption of ASU 2022-02 regarding troubled debt restructurings - Bogota Financial Corp. became the mid-tier stock holding company for Bogota Savings Bank on January 15, 2020, following a reorganization[10][248] - The company adopted the CECL method (ASC 326) for calculating the Allowance for Credit Losses (ACL) on January 1, 2023[17][155] Impact of ASC 326 Adoption on January 1, 2023 | Item | Change | | :------------------------------------ | :------------- | | Decrease in retained earnings (net of tax) | $222,000 | | Increase to ACL | $157,000 | | Increase in reserve for unfunded liabilities | $152,000 | - The company adopted ASU No. 2022-02, 'Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures,' effective January 1, 2023, which updated disclosures but did not materially impact financial statements[61] NOTE 2 – SECURITIES AVAILABLE FOR SALE Securities available for sale decreased by $13.9 million (16.3%) to $71.2 million at June 30, 2023, from $85.1 million at December 31, 2022. The portfolio consists primarily of U.S. government and agency obligations, corporate bonds, and mortgage-backed securities (MBSs), with significant unrealized losses due to interest rate changes, not credit quality Securities Available for Sale (Fair Value) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | U.S. government and agency obligations | $5,445,327 | $5,465,154 | | Corporate bonds | $12,611,740 | $15,506,047 | | MBSs – residential | $37,083,295 | $39,649,045 | | MBSs – commercial | $16,074,241 | $19,552,724 | | Total | $71,214,603 | $85,100,578 | - Securities available for sale decreased by $13.9 million (16.3%) from December 31, 2022, to June 30, 2023[153] - Unrealized losses on corporate bonds and mortgage-backed securities are not considered credit losses, as issuers are high credit quality and declines are due to interest rate changes, with no intent or requirement to sell prior to recovery[45] NOTE 3 – SECURITIES HELD TO MATURITY Securities held to maturity decreased by $7.6 million (9.8%) to $69.8 million at June 30, 2023, from $77.4 million at December 31, 2022. The portfolio includes U.S. government and agency obligations, corporate bonds, municipal obligations, and MBSs, with significant unrecognized losses primarily due to interest rate fluctuations, not credit impairment Securities Held to Maturity (Amortized Cost) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | U.S. Government and agency obligations | $13,000,000 | $13,000,000 | | Corporate bonds | $19,733,811 | $18,269,991 | | Municipal obligations | $3,993,131 | $10,803,129 | | MBSs – residential | $13,414,683 | $14,425,827 | | MBSs – commercial | $20,657,955 | $21,019,360 | | Total | $69,809,580 | $77,427,309 | - Securities held to maturity decreased by $7.6 million (9.8%) due to decreases in municipal bonds and mortgage-backed securities, partially offset by a corporate bond purchase[130] - No ACL has been recorded on held-to-maturity securities as declines in fair value are due to interest rates and market conditions, with fair value expected to recover as securities approach maturity[24] NOTE 4 – LOANS Net loans decreased by $13.1 million (1.8%) to $705.9 million at June 30, 2023, from $719.0 million at December 31, 2022. The decrease was primarily in residential real estate and construction loans, partially offset by increases in commercial and industrial, commercial real estate, and multi-family real estate loans. The allowance for credit losses (ACL) was $2.79 million at June 30, 2023, with a $125,000 recovery for credit losses recorded for the three and six months ended June 30, 2023. Non-performing assets totaled $13.4 million, or 1.42% of total assets Loans, Net of Allowance | Metric | June 30, 2023 | December 31, 2022 | | :------------------------------------------------------------------------------------------------------------------------------------------------------- | :------------ | :---------------- | | Residential First Mortgage | $488,571,980 | $495,689,840 | | Commercial Real Estate | $100,761,175 | $96,030,721 | | Multi-Family Real Estate | $67,007,772 | $66,400,713 | | Construction | $48,678,332 | $61,825,478 | | Commercial and Industrial | $3,692,425 | $1,684,189 | | Consumer | $20,350 | $98,770 | | Total loans | $708,732,034 | $721,729,711 | | Allowance for credit losses | $(2,785,949) | $(2,860,949) | | Net loans | $705,946,085 | $718,868,762 | - Net loans decreased by $13.1 million (1.8%) to $705.9 million at June 30, 2023[155] Allowance for Credit Losses Activity (Three Months Ended June 30) | Category | 2023 | 2022 | | :---------------------------------------- | :----------- | :----------- | | Beginning balance | $2,860,949 | $2,153,174 | | Provision for (recovery) of credit losses | $(75,000) | $100,000 | | Total ending allowance balance | $2,785,949 | $2,253,174 | - Non-performing assets were $13.4 million, or 1.42% of total assets, at June 30, 2023[141][200] NOTE 5 – STOCK BASED COMPENSATION The company's 2021 Equity Incentive Plan authorized the issuance of up to 902,602 shares. As of June 30, 2023, 181,215 non-vested restricted shares and 523,619 stock options were outstanding. Compensation expense recognized for these awards was approximately $118,000 for the three months and $236,000 for the six months ended June 30, 2023 - The 2021 Equity Incentive Plan allows for the issuance of up to 902,602 shares (257,887 restricted stock awards and 644,718 stock options)[312] Restricted Stock Activity (Six Months Ended June 30, 2023) | Metric | Number of Non-vested Restricted Shares | | :------------------------- | :------------------------------------- | | Outstanding, January 1, 2023 | 181,215 | | Outstanding, June 30, 2023 | 181,215 | Stock Option Activity (Six Months Ended June 30, 2023) | Metric | Number of Stock Options | | :------------------------- | :---------------------- | | Outstanding, January 1, 2023 | 523,619 | | Outstanding, June 30, 2023 | 523,619 | | Options exercisable at June 30, 2023 | 104,724 | - Compensation expense for restricted stock was approximately $118,000 for the three months and $236,000 for the six months ended June 30, 2023[313] NOTE 6 – EMPLOYEE STOCK OWNERSHIP PLAN The Employee Stock Ownership Plan (ESOP) acquired 515,775 shares of the company's common stock, representing 3.92% of outstanding shares. The plan incurs annual expenses, with $55,000 and $127,000 recognized for the three and six months ended June 30, 2023, respectively. As of June 30, 2023, 92,543 shares have been allocated, and 423,232 shares remain unallocated with a fair value of $3.5 million - The ESOP acquired 515,775 shares of the Company's common stock, equaling 3.92% of outstanding shares[86] - ESOP expense incurred was $55,000 for the three months and $127,000 for the six months ended June 30, 2023[86] - As of June 30, 2023, 92,543 shares have been allocated, and 423,232 shares are unallocated with a fair value of $3.5 million[86] NOTE 7 – DERIVATIVES AND HEDGING ACTIVITES The company uses derivative financial instruments, primarily interest rate swaps, to manage interest rate risk and does not use them for speculative purposes. As of June 30, 2023, the company had two interest rate swaps with a notional amount of $20.0 million designated as cash flow hedges, with a fair value of $622,407 - The Company uses derivative financial instruments, principally interest rate swaps, to manage interest rate risk, not for speculative purposes[107] - At June 30, 2023, the Company had two interest rate swaps with a notional amount of $20.0 million, designated as cash flow hedges for FHLB advances and brokered deposits[91] Fair Value of Derivative Financial Instruments | Instrument | As of June 30, 2023 | As of December 31, 2022 | | :----------------------- | :------------------ | :---------------------- | | Interest rate swaps | $622,407 | $324,062 | | Total derivative instruments | $622,407 | $324,062 | NOTE 8 – FAIR VALUE The company measures fair value using a three-level hierarchy. Securities available for sale and cash flow hedges are measured at fair value on a recurring basis, primarily categorized as Level 2. Financial instruments not measured at fair value, such as held-to-maturity securities and loans, have their fair values estimated using discounted cash flow approaches or current market rates - Fair value is measured using a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs), and Level 3 (significant unobservable inputs)[94][95][114] Assets Measured at Fair Value on a Recurring Basis (June 30, 2023) | Category | Carrying Amount | Level 1 | Level 2 | Level 3 | | :-------------------------------- | :-------------- | :------ | :------ | :------ | | U.S. government and agency obligations | $5,445,327 | — | $5,445,327 | — | | Corporate bonds | $12,611,740 | — | $12,611,740 | — | | Cash flow hedge | $622,407 | — | $622,407 | — | | MBSs - residential | $37,083,295 | — | $37,083,295 | — | | MBSs - commercial | $16,074,241 | — | $16,074,241 | — | | Total | $71,837,010 | — | $71,837,010 | — | Financial Instruments Not Measured at Fair Value (June 30, 2023) | Category | Carrying Amount (thousands) | Fair Value (thousands) | Fair Value Measurement (Level) | | :-------------------------------- | :-------------------------- | :--------------------- | :----------------------------- | | Investment securities held-to-maturity | $69,810 | $61,757 | Level 2 | | Loans and loans held for sale | $705,946 | $627,433 | Level 3 | | Certificates of deposit | $496,762 | $495,403 | Level 2 | | Borrowings | $127,244 | $127,000 | Level 2 | NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE LOSS The accumulated other comprehensive loss (net of tax) increased to $(6.65) million at June 30, 2023, from $(6.21) million at the beginning of the year. This change was primarily driven by other comprehensive losses related to available-for-sale securities and defined benefit plans, partially offset by gains from derivatives Accumulated Other Comprehensive Loss (Six Months Ended June 30, 2023) | Component | Beginning Balance | Other Comprehensive (Loss) Income before Reclassification | Ending Balance | | :----------------------- | :---------------- | :-------------------------------------------------------- | :------------- | | Available for sale securities | $(6,499,666) | $(619,203) | $(7,118,869) | | Benefit plans | $55,684 | $(33,092) | $22,592 | | Derivatives | $232,969 | $214,479 | $447,448 | | Total | $(6,211,013) | $(437,816) | $(6,648,829) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's financial condition and operating results for the periods ended June 30, 2023, including critical accounting policies, market risk, liquidity, and capital resources Cautionary Note Regarding Forward-Looking Statements The report contains forward-looking statements regarding business plans, prospects, growth strategies, and financial expectations. These statements are subject to significant business, economic, and competitive uncertainties and contingencies, including changes in economic conditions, interest rates, liquidity, demand for loans/deposits, regulatory changes, and cybersecurity risks, which could cause actual results to differ materially - Forward-looking statements are identified by words like 'estimate,' 'project,' 'believe,' 'intend,' 'anticipate,' 'plan,' 'seek,' 'expect'[125] - Key risk factors include general economic conditions, changes in liquidity, market interest rates, demand for loans and deposits, inflation, regulatory changes, and cybersecurity risks[105][125][127][149][150] Critical Accounting Policies Critical accounting policies involve significant judgments and assumptions that could materially impact financial statements. The measurement of the allowance for credit losses (ACL) is considered a critical accounting policy, especially with the adoption of ASC 326 (CECL method) on January 1, 2023. No other significant changes to critical accounting policies have occurred since December 31, 2022 - Critical accounting policies involve significant judgments and assumptions that could materially impact the carrying value of assets or income[151] - The measurement of the allowance for credit losses (ACL) is considered a critical accounting policy, especially after the adoption of ASC 326 (CECL method) on January 1, 2023[151] Comparison of Financial Condition at June 30, 2023 and December 31, 2022 Total assets decreased by $20.1 million (2.1%) to $931.0 million, driven by decreases in loans and securities, while deposits declined and FHLB borrowings increased to offset withdrawals - Total Assets decreased $20.1 million (2.1%) to $931.0 million at June 30, 2023[152] - Cash and Cash Equivalents increased $12.2 million (72.3%) to $29.0 million[128] - Net Loans decreased $13.1 million (1.8%) to $705.9 million, with residential real estate and construction loans decreasing, while commercial and industrial, commercial real estate, and multi-family real estate loans increased[155] - Deposits decreased $44.9 million (6.4%) to $656.6 million, reflecting decreases in interest-bearing deposits offset by an increase in non-interest bearing deposits[130] - FHLB borrowings increased $24.9 million (24.4%) to $127.2 million, primarily long-term advances, used to offset deposit withdrawals[131] - Total Equity decreased $461,000 to $139.2 million, due to stock repurchases and increased accumulated other comprehensive loss, partially offset by net income[157] Average Balance Sheets and Related Yields and Rates Average interest-earning assets increased with higher yields, but a significant rise in the average cost of interest-bearing liabilities led to a decrease in net interest margin and interest rate spread for both periods Average Balances and Yields/Costs (Three Months Ended June 30) | Metric | 2023 Average Balance | 2023 Yield/Cost | 2022 Average Balance | 2022 Yield/Cost | | :------------------------------------------------------------------------------------------------------------------------------------------------------- | :------------------- | :-------------- | :------------------- | :-------------- | | Total interest-earning assets | $877,233 | 4.30% | $801,657 | 3.46% | | Total interest-bearing deposits | $631,117 | 2.68% | $579,247 | 0.59% | | Federal Home Loan Bank advances | $120,485 | 3.01% | $86,445 | 1.59% | | Total interest-bearing liabilities | $751,602 | 2.73% | $665,692 | 0.73% | | Net interest income | | | | | | Interest rate spread | | 1.57% | | 2.73% | | Net interest margin | | 1.96% | | 2.85% | Average Balances and Yields/Costs (Six Months Ended June 30) | Metric | 2023 Average Balance | 2023 Yield/Cost | 2022 Average Balance | 2022 Yield/Cost | | :------------------------------------------------------------------------------------------------------------------------------------------------------- | :------------------- | :-------------- | :------------------- | :-------------- | | Total interest-earning assets | $885,600 | 4.18% | $794,369 | 3.33% | | Total interest-bearing deposits | $650,304 | 2.46% | $570,206 | 0.59% | | Federal Home Loan Bank advances | $106,061 | 3.19% | $84,374 | 1.64% | | Total interest-bearing liabilities | $756,365 | 2.56% | $654,580 | 0.73% | | Net interest income | | | | | | Interest rate spread | | 1.61% | | 2.61% | | Net interest margin | | 2.01% | | 2.75% | Rate/Volume Analysis Increased interest income was driven by higher rates on assets, but a substantial surge in interest expense due to higher rates on liabilities resulted in a net decrease in net interest income, with rate changes having a more significant negative impact Effects of Changing Rates and Volumes on Net Interest Income (Three Months Ended June 30) | Category | Volume (Increase) Decrease | Rate (Increase) Decrease | Net (Increase) Decrease | | :--------------------------------------- | :------------------------- | :----------------------- | :---------------------- | | Total interest-earning assets | $293 | $2,203 | $2,496 | | Total interest-bearing liabilities | $(194) | $4,102 | $3,908 | | Net increase (decrease) in net interest income | $487 | $(1,899) | $(1,412) | Effects of Changing Rates and Volumes on Net Interest Income (Six Months Ended June 30) | Category | Volume (Increase) Decrease | Rate (Increase) Decrease | Net (Increase) Decrease | | :--------------------------------------- | :------------------------- | :----------------------- | :---------------------- | | Total interest-earning assets | $2,465 | $2,769 | $5,234 | | Total interest-bearing liabilities | $379 | $6,865 | $7,244 | | Net increase (decrease) in net interest income | $2,086 | $(4,096) | $(2,010) | Comparison of Operating Results for the Three Months Ended June 30, 2023 and June 30, 2022 Net income decreased by 47.8% to $857,000, primarily due to a $1.4 million decline in net interest income, as a significant increase in interest expense outpaced asset yield improvements - Net income decreased by $785,000 (47.8%) to $857,000[136] - Net interest income decreased $1.4 million (24.8%) to $4.3 million, with net interest rate spread decreasing by 116 basis points to 1.57% and net interest margin decreasing by 89 basis points to 1.96%[166] - Interest income increased $2.5 million (36.1%) to $9.4 million, driven by higher yields and average balances on interest-earning assets[162] - Interest expense increased $3.9 million (324.0%) to $5.1 million, due to higher average balances and costs on interest-bearing liabilities, particularly deposits and FHLB advances[140][165][194] - A $125,000 recovery for credit losses was recorded, compared to a $100,000 provision in the prior year, reflecting a decrease in the loan portfolio and low delinquency[141] - Income tax expense decreased $410,000 (65.8%) to $213,000, with the effective tax rate decreasing to 19.91% from 27.51%[142] Comparison of Operating Results for the Six Months Ended June 30, 2023 and June 30, 2022 Net income decreased by 39.2% to $1.8 million, primarily due to a $2.0 million decrease in net interest income, as a substantial rise in interest expense on liabilities offset higher asset yields - Net income decreased by $1.2 million (39.2%) to $1.8 million[143] - Net interest income decreased $2.0 million (18.6%) to $8.8 million, with net interest rate spread decreasing by 100 basis points to 1.61% and net interest margin decreasing by 74 basis points to 2.01%[171] - Interest income increased $5.2 million (39.7%) to $18.4 million, driven by higher yields and average balances on interest-earning assets, particularly loans[144][197] - Interest expense increased $7.2 million (306.7%) to $9.6 million, due to higher average balances and costs on interest-bearing liabilities, especially certificates of deposit and FHLB advances[145][170][199] - A $125,000 credit for credit losses was recorded, compared to a $100,000 provision in the prior year, reflecting a decrease in the loan portfolio and no charge-offs[200] - Income tax expense decreased $637,000 (55.5%) to $511,000, with the effective tax rate decreasing to 21.65% from 27.40%[147] Management of Market Risk The company actively manages interest rate risk through strategies like adjustable-rate loans and core deposits, with Net Portfolio Value and Net Interest Income simulations indicating exposure within policy limits at June 30, 2023 - The company manages interest rate risk to minimize exposure of earnings and capital to changes in market interest rates[173][202] - Strategies include originating adjustable-rate loans, promoting core deposits, monitoring FHLB borrowings and brokered deposits, and maintaining available-for-sale investments[174] - Market risk is analyzed using Net Portfolio Value (NPV) simulation and Net Interest Income (NII) analysis[175][177] - As of June 30, 2023, both NPV and NII simulations indicated that exposure to changing interest rates was within board-approved policy limits[178][204] Liquidity and Capital Resources The company maintains strong liquidity from deposits, loan/security payments, and FHLB borrowings, and exceeds all regulatory capital requirements, being considered 'well capitalized' with a 13.88% Community Bank Leverage Ratio - The company believes it has ample sources of liquidity to satisfy short- and long-term needs[180] - Primary liquidity sources include deposits, loan/security payments, and FHLB borrowings, with $127.2 million outstanding from a $330.4 million capacity at FHLB[208] - As of June 30, 2023, cash and cash equivalents totaled $29.0 million, and available-for-sale securities totaled $71.2 million[209] - The company had $39.0 million in unsecured lines of credit with correspondent banks, with no outstanding balance[208] - The company exceeded all applicable regulatory capital requirements and was considered 'well capitalized' with a Community Bank Leverage Ratio of 13.88% at June 30, 2023[182] Inflation Interest rate risk is a more significant concern than inflation for the company's monetary assets and liabilities, with management believing its asset/liability strategies minimize interest rate impact on performance - The most significant form of market risk is interest rate risk, as the majority of assets and liabilities are monetary[202] - Management believes that movements in interest rates affect financial condition and results of operations to a greater degree than changes in the rate of inflation[183] Item 3. Quantitative and Qualitative Disclosures About Market Risk Information regarding quantitative and qualitative disclosures about market risk is provided in Item 2, 'Management's Discussion and Analysis of Financial Condition and Results of Operation – Management of Market Risk' - Quantitative and qualitative disclosures about market risk are discussed in Item 2, 'Management's Discussion and Analysis of Financial Condition and Results of Operation – Management of Market Risk'[212][235] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2023, and concluded they were effective. There have been no material changes in internal controls over financial reporting during the quarter - The company's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2023[212] - No material changes in internal controls over financial reporting occurred during the three months ended June 30, 2023[184] PART II – OTHER INFORMATION Item 1. Legal Proceedings As of June 30, 2023, the company was not involved in any pending legal proceedings that would be material to its financial condition or results of operations, other than routine legal proceedings in the ordinary course of business - As of June 30, 2023, the company was not involved in any material legal proceedings[214] Item 1A. Risk Factors There have been no material changes to the company's risk factors from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022, and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, except as noted in the report - No material changes in risk factors from previous filings, except as noted[215] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds A new program was approved on May 24, 2023, to repurchase up to 249,920 shares. As of June 30, 2023, 20,300 shares have been repurchased under this new program at a cost of $165,000. The previous repurchase program, approved on October 3, 2022, was completed on May 5, 2023 - A new share repurchase program was approved on May 24, 2023, for up to 249,920 shares (approximately 5% of outstanding common stock)[187] - As of June 30, 2023, 20,300 shares have been repurchased under the new program at a cost of $165,000[187] - The previous repurchase program (up to 556,631 shares) was completed on May 5, 2023[216] Issuer Purchases of Equity Securities (Second Quarter 2023) | Period | Total Number of Shares Purchased | Average Price per Share | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | | :------------------ | :------------------------------- | :---------------------- | :----------------------------------------------------------------------------- | | April 1 - 30, 2023 | 65,199 | $9.75 | 5,800 | | May 1 - 31, 2023 | 8,000 | $8.02 | 246,320 | | June 1 - 30, 2023 | 16,700 | $8.11 | 229,620 | | Total | 89,899 | $9.29 | | Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reported period - Not applicable[224] Item 4. Mine Safety Disclosures There are no mine safety disclosures to report - None[189] Item 5. Other Information No other information is required to be reported under this item - None[217] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications, articles of incorporation, bylaws, and XBRL-formatted financial data - Exhibits include certifications (31.1, 31.2, 32.1), articles of incorporation (3.1), bylaws (3.2), and XBRL financial data (101.0, 104)[191][220][226][227][228][237] SIGNATURES Signatures The report was duly signed on August 11, 2023, by Joseph Coccaro, President and Chief Executive Officer, and Brian McCourt, Executive Vice President and Chief Financial Officer, on behalf of Bogota Financial Corp - The report was signed on August 11, 2023, by Joseph Coccaro (President and CEO) and Brian McCourt (EVP and CFO)[193][230]