Bogota Financial Corp.

Previous wording

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.

Current wording

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 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.

Previous wording

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.

Current wording

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 apartments, retail centers, office buildings, and lodging; agriculture land; and vacant land.

Previous wording

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

Current wording

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 operations. 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.

Previous wording

Professional fees include legal, accounting, auditing, risk management and payroll processing expenses.

Current wording

Professional fees include legal, accounting, auditing, risk management, financial printing, transfer agent and payroll processing expenses.

Previous wording

Our business strategy is to operate as a well-capitalized and profitable community bank dedicated to providing personal service to individuals and businesses. We believe that we have a competitive advantage in the markets we serve because of our 130-year history in the community, our knowledge of the local marketplace and our long-standing reputation for providing superior, relationship-based customer service. We believe we can distinguish ourselves by maintaining the culture of a local community bank. The following are the key elements of our business strategy:

Current wording

Our business strategy is to operate as a well capitalized and profitable community bank dedicated to providing personal service to individuals and businesses. We believe that we have a competitive advantage in the markets we serve because of our over 130-year history in the community, our knowledge of the local marketplace and our long-standing reputation for providing superior, relationship-based customer service. We believe we can distinguish ourselves by maintaining the culture of a local community bank. The following are the key elements of our business strategy:

Previous wording

***Continue to focus on residential real estate lending.***We have been, and will continue to be, primarily a one- to four-family residential real estate lender in our market area. As of December 31, 2023, $486.1 million, or 67.7% of our total loan portfolio, consisted of one- to four-family residential real estate loans. We expect that one- to four-family residential real estate lending will remain our primary lending activity.

Current wording

***Continue to focus on residential real estate lending.***We have been, and will continue to be, primarily a one- to four-family residential real estate lender in our market area. As of December 31, 2024, $472.7 million, or 66.2% of our total loan portfolio, consisted of one- to four-family residential real estate loans. We expect that one- to four-family residential real estate lending will remain our primary lending activity.

Previous wording

Continue to emphasize commercial and multi-family real estate lending.** **We view the growth of commercial real estate and multi-family lending as a means of increasing our interest income and the yield on our loan portfolio, and reducing the average term to repricing of our loans. We believe that local banking consolidation has created opportunities to attract talent with experience originating commercial real estate loans within our market area. Further, the additional capital raised in the offering enabled us to increase our commercial real estate and multi-family loan originations in our market area, and originate loans with larger balances. Our commercial real estate and multi-family loan portfolio increased to $175.4 million, or 24.5% of total loans, at December 31, 2023, from $162.3 million, or 22.5% of total loans, at December 31, 2022.

Current wording

Continue to emphasize commercial and multi-family real estate lending.** **We view the growth of commercial real estate and multi-family lending as a means of increasing our interest income and the yield on our loan portfolio, and reducing the average terms of our loans. We believe that local banking consolidation has created opportunities to attract talent with experience originating commercial real estate loans within our market area. Our commercial real estate and multi-family loan portfolio increased to $192.2 million, or 26.9% of total loans, at December 31, 2024, from$175.4 million, or 24.5% of total loans, at December 31, 2023.

Previous wording

Increase lower-cost core deposits**.** We continue to emphasize offering core deposits (demand deposit accounts, savings accounts and money market accounts) to individuals, businesses and municipalities. We attract and retain transaction accounts by offering competitive products and rates and providing quality customer service. Core deposits are our least costly source of funds, which improves our interest rate spread and also contributes non-interest income from account related services. However, at December 31, 2023, core deposits decreased to 21.1% of our total deposits compared to 29.8% of our total deposits at December 31, 2022 due to customers moving funds to higher-yielding certificates of deposits in the higher interest rate environment.

Current wording

Increase lower-cost core deposits**.** We continue to emphasize offering core deposits (demand deposit accounts, savings accounts and money market accounts) to individuals, businesses and municipalities. We attract and retain transaction accounts by offering competitive products and rates and providing quality customer service. Core deposits are our least costly source of funds, which improves our interest rate spread and also contributes non-interest income from account related services. At December 31, 2024, core deposits increased to 24.8% of our total deposits compared to 21.1% of our total deposits at December 31, 2023 due to customers moving funds out of certificates of deposits as interest rates have begun to decrease.

Previous wording

Grow through opportunistic bank or branch acquisitions. We plan to open a new branch in Upper Saddle River during the second quarter of 2024. We will consider acquisition opportunities that may enhance the value of our franchise and yield potential financial benefits for our stockholders. Although we believe opportunities exist to increase our market share in our market, we expect to expand into contiguous markets. The capital we raised in the offering will also provide us the opportunity to acquire smaller institutions or fee-based businesses located in or contiguous to our market area.

Current wording

Grow through opportunistic bank or branch acquisitions or formations. We opened a new branch in Upper Saddle River during the second quarter of 2024, in which deposits have continued to grow throughout the year. We will consider acquisition opportunities that may enhance the value of our franchise and yield potential financial benefits for our stockholders. Although we believe opportunities exist to increase our market share in our market, we expect to expand into contiguous markets. Our capital position affords us the opportunity to acquire smaller institutions or fee-based businesses located in or contiguous to our market area.

Previous wording

Continue to emphasize operating efficiencies and cost controls**.** We are focused on controlling expenses while increasing our net income. We are disciplined in managing non-interest expenses by identifying cost savings opportunities such as renegotiating key third-party contracts and reducing other operating expenses. Our efficiency ratio was 97.04% for the year ended December 31, 2023 compared to 59.03% for the year ended December 31, 2022. The increase was primarily due to one-time severance costs associated with the change in our President and Chief Executive Officer. To support our growth in a cost-effective way, we plan to continue to invest prudently in technology to help improve our operational infrastructure.

Current wording

Continue to emphasize operating efficiencies and cost controls**.** We are focused on controlling expenses while increasing our net income. We are disciplined in managing non-interest expenses by identifying cost savings opportunities such as renegotiating key third-party contracts and reducing other operating expenses. Our overhead ratio, defined as non-interest expense to average total assets, was 1.50%for the year ended December 31, 2024 compared to 1.69% for the year ended December 31, 2023. To support our growth in a cost-effective way, we plan to continue to invest prudently in technology to help improve our operational infrastructure.

Previous wording

Maintain disciplined underwriting**.** We emphasize a disciplined credit culture based on intimate knowledge of the market, close ties to our customers, sound underwriting standards and experienced loan officers. We are committed to actively monitoring and managing our loan portfolio in an effort to proactively identify and mitigate credit risks within the portfolio. At December 31, 2023, non-performing assets totaled $12.8 million, which represented 1.36% of total assets. At December 31, 2022, there were $857,000 of non-performing assets which represented 0.09% of total assets.

Current wording

Maintain disciplined underwriting**.** We emphasize a disciplined credit culture based on intimate knowledge of the market, close ties to our customers, sound underwriting standards and experienced loan officers. We are committed to actively monitoring and managing our loan portfolio in an effort to proactively identify and mitigate credit risks within the portfolio. At December 31, 2024, non-performing assets totaled $14.0 million, which represented 1.44% of total assets. Included in this amount was one construction loan, which is being actively managed by the Company totaling $10.9 million and is considered well-secured with a loan-to-value of 41% based on an appraisal performed in November 2024. We did not record any specific reserve, or charge-offs for this loan. At December 31, 2023, there were $12.8 million of non-performing assets, which represented 1.36% of total assets.

Previous wording

The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, income and expenses and disclosure of contingent assets and liabilities. We consider the accounting policy discussed below to be a critical accounting policy, which is presented in the notes to the consolidated financial statements. The estimates and assumptions that we use are based on historical experience and various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

Current wording

The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, income and expenses and disclosure of contingent assets and liabilities. We consider the accounting estimate discussed below to be a critical accounting estimate, which is presented in the notes to the consolidated financial statements. The estimates and assumptions that we use are based on historical experience and various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

Previous wording

The following represents our critical accounting policy:

Current wording

The following represents our critical accounting estimate:

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

The evaluation has polled and individual components. The individual component relates to loans that do not share similar risk characteristics with the remaining loans in the pools that are collectively evaluated. For such loans that are also collateral dependent, an allowance is generally established when the collateral value, less costs to sell as appropriate, of the loan is lower than the carrying value of that loan. The general component covers non-classified loans that share similar risk characteristics and is based on the weighted average remaining maturity and historical loss experience adjusted for qualitative factors.

Current wording

The evaluation has pooled and individual components. The individual component relates to loans that do not share similar risk characteristics with the remaining loans in the pools that are collectively evaluated. For such loans that are also collateral-dependent, an allowance is generally established when the collateral value, less costs to sell as appropriate, of the loan is lower than the carrying value of that loan. The general component covers non-classified loans that share similar risk characteristics and is based on the weighted average remaining maturity method for determining loss factors and historical loss experience adjusted for qualitative factors.

Previous wording

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

Current wording

Actual credit losses may be significantly more than the allowance we have established which could have a material negative effect on our financial results. See "Overview - Provision for Credit Losses" or Note 1 to the Notes to the consolidated financial statements for a complete discussion of the allowance for loan losses.

Previous wording

***Cash and Cash Equivalents.***Total cash and cash equivalents increased $8.1 million, or 48.0%, to $24.9 million at December 31, 2023 from $16.8 million at December 31, 2022. This increase was primarily due to loan payments received, proceeds from calls and maturities of securities and additional borrowings, offset by the decrease in deposits.

Current wording

***Cash and Cash Equivalents.***Total cash and cash equivalents increased $27.3 million, or 109.5%, to $52.2 million at December 31, 2024 from $24.9 million at December 31, 2023. This increase was primarily due to loan payments received, proceeds from sales and maturities of securities, additional borrowings and an increase in deposits.

Previous wording

***Net Loans.***Net loans decreased $4.3 million, or 0.6%, to $714.7 million at December 31, 2023 from $719.0 million at December 31, 2022 due to $69.0 million in repayments, partially offset by new production of $64.7 million. Due to the interest rate environment, we have seen a decrease in demand for residential and construction loans, which have been primary drivers of our loan growth in recent periods.

Current wording

***Net Loans.***Net loans decreased $3.0 million, or 0.4%, to $711.7 million at December 31, 2024 from $714.7 million at December 31, 2023 due to $90.1 million in repayments, partially offset by new originations of approximately $60.5 million and loan purchases of approximately $26.6 million. Due to the interest rate environment, we have seen a decrease in demand for residential and construction loans, which have been the primary drivers of our loan growth in recent periods.

Previous wording

The decrease in net loans was due to a $9.6 million, or 1.9%, decrease in one- to four-family residential real estate loans and home equity lines of credit secured by one- to four-family residential real estate to $486.1 million at December 31, 2023 from $495.7 million at December 31, 2022, and a decrease of $12.5 million, or 20.3%, in construction loans to $49.3 million at December 31, 2023 from $61.8 million at December 31, 2022 offset by an increase of $13.0 million, or 8.0%, increase in commercial and multi-family real estate loans to $175.4 million at December 31, 2023 from $162.3 million at December 31, 2022, and an increase of $5.0 million, or 295.3%, in commercial and industrial loans to $6.7 million at December 31, 2023 from $1.7 million as of December 31, 2022. As of December 31, 2023the Bank had no loans held for sale.

Current wording

The decrease in net loans reflected a $13.4 million, or 2.7%, decrease in one- to four-family residential real estate loans and home equity lines of credit to $472.7 million at December 31, 2024 from $486.1 million at December 31, 2023, and a decrease of $6.1 million, or 12.4%, in construction loans to $43.2 million at December 31, 2024 from $49.3 million at December 31, 2023 offset by an increase of $16.7 million, or 9.5%, increase in commercial and multi-family real estate loans to $192.1 million at December 31, 2024 from $175.4 million at December 31, 2023. As of December 31, 2024, the Bank had no loans held for sale.

Previous wording

Bank-Owned Life Insurance. Bank-owned life insurance increased $782,000, or 2.6%, to $31.0 million at December 31, 2023 from $30.2 million at December 31, 2022 due to an increase in the cash surrender value. The was no new bank-owned life insurance purchased in 2023.

Current wording

Bank-Owned Life Insurance. Bank-owned life insur ance increased $872,000, or 2.8%, to $31.9 million at December 31, 2024 from $31.0 million at December 31, 2023 due to an increase in the cash surrender value. The was no new bank-owned life insurance purchased in 2024.

Previous wording

Deposits. Total deposits decreased $76.1 million, or 10.8%, to $625.3 million at December 31, 2023 from $701.4 million at December 31, 2022. The decrease in deposits reflected decreases in NOW, money market and savings accounts, which decreased by $68.7 million from $170.2 million at December 31, 2022 to $101.5 million at December 31, 2023, offset by an increase in certificate of deposit accounts, which increased by $682,000 to $493.3 million from $492.6 million at December 31, 2022.

Current wording

Deposits. Total deposits increased $16.8 million, or 2.7%, to $642.1 million at December 31, 2024 from $625.3 million at December 31, 2023. The increase in deposits reflected increases in NOW, money market and savings accounts, which increased by $14.7 million from $101.5 million at December 31, 2023 to $116.2 million at December 31, 2024, and an increase in noninterest bearing deposits, which increased by $2.1 million from $30.6 million at December 31, 2023 to $32.7 million at December 31, 2024.

Previous wording

At December 31, 2023, municipal deposits totaled $48.0 million, which represented 7.7% of total deposits, and brokered deposits totaled $53.5 million, which represented 8.5% of total deposits. At December 31, 2022, municipal deposits totaled $57.5 million, which represented 8.2% of total deposits, and brokered deposits totaled $53.3 million, which represented 8.5% of total deposits.

Current wording

At December 31, 2024, municipal deposits totaled $30.7 million, which represented 4.8% of total deposits, and brokered deposits totaled $101.6 million, which represented 15.8% of total deposits. At December 31, 2023, municipal deposits totaled $48.0 million, which represented 7.7% of total deposits, and brokered deposits totaled $53.5 million, which represented 8.5% of total deposits.

Previous wording

***Borrowings.***Federal Home Loan Bank of New York borrowings increased $65.4 million, or 63.9%, to $167.7 million at December 31, 2023 from $102.3 million at December 31, 2022, due to proceeds from-long term advances totaling $86.9 million, offset by as a decrease of $21.5 million in short-term advances. The weighted average rate of borrowings was 4.54% and 3.36% as of December 31, 2023 and December 2022, respectively. Cash flow hedges are used to manage interest rate risk. At December 31, 2023, the Company had two interest rate swaps with a notional amount of $20.0 million hedging on certain FHLB advances.

Current wording

***Borrowings.***Federal Home Loan Bank of New York borrowings increased $4.5 million, or 2.7%, to $172.2 million at December 31, 2024 from $167.7 million at December 31, 2023, due to proceeds of $57.8 million from short-term advances, offset by a decrease of $53.4 million in long-term advances. The weighted average rate paid on borrowings was 4.49% and 4.54% as of December 31, 2024 and December 31, 2023, respectively. The Company uses cash flow hedges are used to manage interest rate risk. At December 31, 2024, the Company had five interest rate swaps with a notional amount of $65.0 million hedging on certain short-term FHLB advances.

Previous wording

***Total Equity.***Stockholders’ equity decreased $2.5 million, or 1.8% to $137.2 million, due to increased accumulated other comprehensive loss for securities available for sale of $254,000 and the repurchase of 418,786 shares of stock at a cost of $3.7 million, offset by net income of $643,000 for the twelve months ended December 31, 2023 and stock compensation of $933,000.At December 31, 2023, the Company’s ratio of average stockholders’ equity-to-total assets was 15.24%, compared to 15.61% at December 31, 2022.

Current wording

***Total Equity.***Stockholders’ equity increased $116,000, or 0.1%, to $137.3 million, due to a reduction in the accumulated other comprehensive loss on the securities portfolio of $2.9 million, offset by a net loss of $2.2 million and the repurchase of 221,130 shares of stock at a cost of $1.7 million. At December 31, 2024, the Company’s ratio of average stockholders’ equity-to-total assets was 14.10%, compared to 15.24% at December 31, 2023.

Previous wording

***General.***Net income decreased by $6.2 million, or 90.7%, to $643,000 for the twelve months ended December 31, 2023 from $6.9 million for the twelve months ended December 31, 2022. This decrease was primarily due to a decrease of $8.1 million in net interest income, and an increase of $1.5 million in non-interest expense, offset by a decrease of $550,000 in the provision for credit losses and a decrease of $2.8 million in income tax expense.

Current wording

***General.***Net income decreased by $2.8 million, or 437.8%, to a net loss of $2.2 million for the twelve months ended December 31, 2024 from net income of $643,000 for the twelve months ended December 31, 2023. This decrease was primarily due to a decrease of $4.4 million in net interest income, offset by a decrease of $1.2 million in non-interest expense, an increase of $209,000 increase in non-interest income and a $209,000 increase in income tax benefit.

Previous wording

***Interest Income.***Interest income increased $6.9 million, or 22.8%, from $30.3 million for the twelve months ended December 31, 2022 to $37.3 million for the twelve months ended December 31, 2023 due to increases in the average balances of and higher yields on interest-earning assets.

Current wording

***Interest Income.***Interest income increased $4.4million, or 12.0%, from $37.3 million for the twelve months ended December 31, 2023 to $41.7 million for the twelve months ended December 31, 2024 due to increases in the average balances of and higher yields on interest-earning assets.

Previous wording

Interest income on cash and cash equivalents increased $451,000, or 385.5%, to $568,000 for the twelve months ended December 31, 2023 from $117,000 for the twelve months ended December 31, 2022 due a 476 basis point increase in the average yield from 0.47% for the twelve months ended December 31, 2022 to 5.23% for the twelve months ended December 31, 2023 due to the higher interest rate environment. This was offset by a $14.2 million decrease in the average balance to $10.9 million for the twelve months ended December 31, 2023 from $25.0 million for the twelve months ended December 31, 2022, reflecting the use of excess liquidity to fund loan originations.

Current wording

Interest income on cash and cash equivalents increased $38,000, or 6.7%, to $606,000 for the twelve months ended December 31, 2024 from $568,000 for the twelve months ended December 31, 2023 due a 71 basis point increase in the average yield from 5.23% for the twelve months ended December 31, 2023 to 5.94% for the twelve months ended December 31, 2024 due to the higher interest rate environment for most of 2024. This was offset by a $671,000 decrease in the average balance to $10.2 million for the twelve months ended December 31, 2024 from $10.9 million for the twelve months ended December 31, 2023, reflecting the use of excess liquidity primarily to fund securities purchases.

Previous wording

Interest income on loans increased $5.8 million, or 22.0%, to $32.0 million for the twelve months ended December 31, 2023 compared to $26.3 million for the twelve months ended December 31, 2022 due primarily to a $75.1 million increase in the average balance to $713.8 million for the twelve months ended December 31, 2023 from $638.7 million for the twelve months ended December 31, 2022 and a 38 basis point increase in the average yield from 4.11% for the twelve months ended December 31, 2022 to 4.49% for the twelve months ended December 31, 2023. The increase was offset by a $1.2 million reserve for nonaccrual interest on a delinquent construction loan.

Current wording

Interest income on loans increased $1.4 million, or 4.3%, to $33.4 million for the twelve months ended December 31, 2024 compared to $32.0 million for the twelve months ended December 31, 2023 due primarily to a 20 basis point increase in the average yield from 4.49% for the twelve months ended December 31, 2023 to 4.69% for the twelve months ended December 31, 2024. The increase was offset by a $661,000 decrease in the average balance to $713.1 million for the twelve months ended December 31, 2024 from $713.8 million for the twelve months ended December 31, 2024.

Previous wording

Interest income on securities increased $484,000, or 13.2%, to $4.2 million for the twelve months ended December 31, 2023 from $3.7 million for the twelve months ended December 31, 2022 due primarily to a 68 basis point increase in the average yield from 2.19% for the twelve months ended December 31, 2022 to 2.87% for the twelve months ended December 31, 2023. The increase was offset by a $23.1 million decrease in the average balance of securities to $144.9 million for the twelve months ended December 31, 2023 from $168.0 million for the twelve months ended December 31, 2022.

Current wording

Interest income on securities increased $2.7 million, or 66.7%, to $6.9 million for the twelve months ended December 31, 2024 from $4.2 million for the twelve months ended December 31, 2023 due to a 101 basis point increase in the average yield from 2.87% for the twelve months ended December 31, 2023 to 3.88% for the twelve months ended December 31, 2024, and by a $33.8 million increase in the average balance of securities to $178.7 million for the twelve months ended December 31, 2024 from $144.9 million for the twelve months ended December 31, 2023.

Previous wording

Interest expense on interest-bearing deposits increased $12.9 million, or 252.9%, to $18.0 million for the twelve months ended December 31, 2023 from $5.1 million for the twelve months ended December 31, 2022. The increase was due to a 200 basis point increase in the average cost of interest-bearing deposits to 2.85% for the twelve months ended December 31, 2023 from 0.85% for the twelve months ended December 31, 2022. The increase in the average cost of deposits was due to the higher interest rate environment and a change in the composition of the deposit portfolio. The average balances of certificates of deposit increased $103.5 million to $498.1 million for the twelve months ended December 31, 2023 from $394.6 million for the twelve months ended December 31, 2022 while NOW and money market accounts and savings accounts decreased $54.8 million and $14.3 million for the twelve months ended December 31, 2023, respectively, compared to the twelve months ended December 31, 2022. At December 31, 2023 $53.3 million of deposits were brokered deposits costing 4.65%.

Current wording

Interest expense on interest-bearing deposits increased $6.6 million, or 36.4%, to $24.6 million for the twelve months ended December 31, 2024 from $18.0 million for the twelve months ended December 31, 2023. The increase was due to a 112 basis point increase in the average cost of interest-bearing deposits to 3.97% for the twelve months ended December 31, 2024 from 2.85% for the twelve months ended December 31, 2023, offset by a $12.3 million decrease in the average balance of interest-bearing deposits. The increase in the average cost of deposits was due to the higher interest rate environment and the composition of the deposit portfolio consisting of a greater proportion of certificates of deposit. The average balance of certificates of deposit increased $10.2 million to $508.3 million for the twelve months ended December 31, 2024 from $498.1 million for the twelve months ended December 31, 2023 while NOW and money market accounts and savings accounts decreased $18.1 million and $4.4 million for the twelve months ended December 31, 2024, respectively, compared to the twelve months ended December 31, 2023. At December 31, 2024 $101.6 million of deposits, or 16.4%, of the average balance of deposits were brokered deposits with a weighted average cost of 4.52%.

Previous wording

Interest expense on Federal Home Loan Bank borrowings increased $2.1 million, or 98.1%, from $2.2 million for the twelve months ended December 31, 2022 to $4.3 million for the twelve months ended December 31, 2023. The increase was due to an increase in the average cost of 156 basis points to 3.67% for the twelve months ended December 31, 2023 from 2.11% for the twelve months ended December 31, 2022 due to the new borrowings at higher rates. The increase was also due to an increase in the average balance of borrowings of $14.4 million to $116.8 million for the twelve months ended December 31, 2023 from $102.5 million for the twelve months ended December 31, 2022. Cash flow hedges used to manage interest rate risk totaled $20.0 million at December 31, 2023. During the twelve months ended December 31, 2023, the use of the cash flow hedges reduced the interest expense on the Federal Home Loan Bank advances by $364,000.

Current wording

Interest expense on Federal Home Loan Bank borrowings increased $2.3 million, or 54.4%, from $4.3 million for the twelve months ended December 31, 2023 to $6.6 million for the twelve months ended December 31, 2024. The increase was primarily due to a $59.2 million increase in the average balance of borrowings to $176.0 million for the twelve months ended December 31, 2024 from $116.8 million for the twelve months ended December 31, 2023. The increase was also due, to a lesser extent, an increase in the average cost of borrowings of nine basis points to 3.76% for the twelve months ended December 31, 2024 from 3.67% for the twelve months ended December 31, 2023 due to the new borrowings being at higher rates.

Previous wording

***Net Interest Income.***Net interest income decreased $8.1 million, or 35.1%, to $15.0 million for the twelve months ended December 31, 2023 from $23.1 million for the twelve months ended December 31, 2022. The increase reflected a 130 basis point decrease in our net interest rate spread to 1.28% for the twelve months ended December 31, 2023 from 2.58% for the twelve months ended December 31, 2022. Our net interest margin decreased 105 basis points to 1.71% for the twelve months ended December 31, 2023 from 2.76% for the twelve months ended December 31, 2022.

Current wording

***Net Interest Income.***Net interest income decreased $4.4 million, or 29.5%, to $10.6 million for the twelve months ended December 31, 2024 from $15.0 million for the twelve months ended December 31, 2023. The decrease reflected a 62 basis point decrease in our net interest rate spread to 0.66% for the twelve months ended December 31, 2024 from 1.28% for the twelve months ended December 31, 2023. Our net interest margin decreased 55 basis points to 1.16% for the twelve months ended December 31, 2024 from 1.71% for the twelve months ended December 31, 2023. The Bank entered into a sale-leaseback transaction whereby the Bank sold three of its branch offices resulting in a $9.0 million pre-tax gain. Subsequently, the Bank realized a pre-tax loss of $8.9 million on the sale of approximately $66.0 million in amortized cost ($57.1 million in market value) of securities with a weighted average life of approximately 5.5 years and a weighted average yield of 1.89%. The Bank reinvested $32.7 million of these proceeds into securities with a weighted average life of approximately 29.6 years and a weighted average yield of 5.60%.

Previous wording

***Provision for (recovery of) Credit Losses.***We recorded a $125,000 recovery of credit losses for the twelve months ended December 31, 2023 compared to a $425,000 provision for loan losses for the twelve-month period ended December 31, 2022. The Bank had a decrease in the loan portfolio as well as no charge-offs offset by increased delinquent and non-performing loans. As of January 1, 2023 the Bank adopted CECL and recorded a one-time adjustment of $157,000 to the allowance for credit losses.

Current wording

***Provision for (recovery of) Credit Losses.***We recorded a $148,000 recovery of credit losses for the year ended December 31, 2023 compared to a $125,000 recovery of credit losses for the twelve-month period ended December 31, 2023. The Bank had decreases in the loan and securities portfolios and no charge-offs during the years. This recovery in 2024 was inclusive of the effect of the transfer of certain securities from the held to maturity portfolio to the available for sale portfolio, which resulted in a $108,000 recovery for credit losses. Additionally, we recorded a $17,000 recovery of credit losses for contingent liabilities for the twelve months ended December 31, 2024.

Previous wording

***Non-Interest Expenses.***For the twelve months ended December 31, 2023, non-interest expense increased $1.5 million, or 10.3%, over 2022. Salaries and employee benefits increased $1.1 million, or 12.7%, due to an accrual of a severance contract for the retirement of the previous President and a higher employee count. Director fees decreased $181,000, or 22.6%, due to lower pension expense. Professional fees increased $115,000 or 21.1%, due to higher legal expense. FDIC insurance premiums increased $198,000, or 89.9%, due to a higher assessment rate in 2023. Data processing decreased $163,000, or 14.4%, due to the timing of invoices. Other expense increased $341,000, or 34.6%, due to an instance of wire fraud related to a customer account that is under review with the insurance company.

Current wording

***Non-Interest Expenses.***For the twelve months ended December 31, 2024, non-interest expenses decreased $1.2 million, or 7.4%, over 2023. Salaries and employee benefits decreased $1.1 million, or 10.9%, as 2023 amounts reflected an accrual of $966,000 for a severance contract for the retirement of the previous President and a higher employee count when compared to 2024. Professional fees increased $129,000, or 19.5%, due to higher legal expense primarily related to the sale-leaseback transaction. Data processing increased $234,000, or 24.1%, due to higher processing costs. Other non-interest expenses decreased $369,000, or 27.8%, as 2023 amounts included charges for a pending fraud claim that is under review with the insurance company.

Previous wording

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

Current wording

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

Previous wording

The following table presents the estimated changes in our net portfolio value that would result from changes in market interest rates as December 31, 2023. All estimated changes presented in the table are within the policy limits approved by the board of directors.

Current wording

The following table presents the estimated changes in our net portfolio value that would result from changes in market interest rates at December 31, 2024. All estimated changes presented in the table are within the policy limits approved by the board of directors.

Previous wording

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

Current wording

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

Previous wording

**Liquidity.Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing needs and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities and proceeds from calls, maturities and sales of securities. We also have the ability to borrow from the Federal Home Loan Bank of New York. At December 31, 2023, we had the ability to borrow up to $308.2 million, of which $167.7 million was outstanding and $1.5 million was utilized as collateral for letters of credit issued to secure municipal deposits resulting in remaining availability of $140.4 million. At December 31, 2023, we also had $54.0 million in unsecured lines of credit with four correspondent banks with no outstanding balances.

Current wording

**Liquidity.Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing needs and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities and proceeds from calls, maturities and sales of securities. We also have the ability to borrow from the Federal Home Loan Bank of New York. At December 31, 2024, we had the ability to borrow up to $280.4 million, of which $175.3 million was outstanding and $1.5 million was utilized as collateral for letters of credit issued to secure municipal deposits resulting in remaining availability of $105.1 million. At December 31, 2024, we also had $54.0 million in unsecured lines of credit with four correspondent banks with no outstanding balances.

Previous wording

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan sales and prepayments are greatly influenced by market interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any period. At December 31, 2023, cash and cash equivalents totaled $24.9 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $68.9 million with a unrealized loss of $9.2 million at December 31, 2023.

Current wording

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows andloan sales and prepayments are greatly influenced by market interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any period. At December 31, 2024, cash and cash equivalents totaled $52.2 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $140.3 million with a unrealized loss of $5.6 million at December 31, 2024.