Bogota Financial Corp.: Form 10-Q for the period ended Jun 30, 2025

General

Management’s discussion and analysis of financial condition and results of operations at June 30, 2025 and December 31, 2024 and for the three and six months ended June 30, 2025 and June 30, 2024 is intended to assist in understanding the financial condition and results of operations of Bogota Financial Corp. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Cautionary Note Regarding Forward-Looking Statements

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

• statements of our goals, intentions and expectations;
• statements regarding our business plans, prospects, financial performance, growth and operating strategies;
• statements regarding the quality of our loan and investment portfolios; and
• estimates of our risks and future costs and benefits.

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

• general economic conditions, either nationally or in our market area, that are worse than expected, including potential recessionary conditions;
• the imposition of tariffs or other domestic or international governmental policies and retaliatory responses;
• changes in the amount and trend of loan delinquencies, charge-offs and non-performing and classified loans and changes in estimates and the methodology for calculating the allowance for credit losses;
• our ability to access cost-effective funding;
• changes in liquidity, including the size and composition of our deposit portfolio and the percentage of uninsured deposits in the portfolio;
• fluctuations in real estate values and both residential and commercial real estate market conditions;
• demand for loans and deposits in our market area;
• our ability to continue to implement our business strategies;
• competition among depository and other financial institutions;
• monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System;
• inflation and changes in market interest rates that reduce our margins and yields, reduce the fair value of financial instruments or reduce our volume of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary market;
• changes in the securities markets;
• changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;
• our ability to manage market risk, credit risk and operational risk;
• our ability to enter new markets successfully and capitalize on growth opportunities;
• our ability to successfully integrate into our operations any assets, liabilities or systems we may acquire, as well as new management personnel or customers, and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;
• changes in investor sentiment and consumer spending, borrowing and saving habits;
• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
• our ability to retain key employees;
• risks as it relates to cyber security against our information technology and those of our third-party providers and vendors;
• the failure to maintain current technologies;
• the current or anticipated impact of military conflict, terrorism or other geopolitical events;
• our compensation expense associated with equity allocated or awarded to our employees; and
• changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Critical Accounting Policies

Our accounting policies are described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024. Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Actual results could differ from these judgments and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations.

Comparison of Financial Condition at June 30, 2025 and December 31, 2024

Total Assets. Assets decreased $49.7 million, or 5.1%, from $971.5 million at December 31, 2024 to $921.8 million at June 30, 2025, primarily due to a $31.9 million, or 61.1%, decrease in cash and cash equivalents, and an $18.5 million, or 2.6%, decrease in loans, offset by a $4.3 million, or 3.1%, increase in securities available for sale.

Cash and Cash Equivalents. Cash and cash equivalents decreased $31.9 million, or 61.1%, to $20.3 million at June 30, 2025 from $52.2 million at December 31, 2024, as excess funds were used to repay borrowings.

Securities Available for Sale. Securities available for sale increased $4.3 million, or 3.1%, to $144.6 million at June 30, 2025 from $140.3 million at December 31, 2024, primarily due to purchases of corporate bonds and residential mortgage-backed securities.

Net Loans. Net loans decreased $18.5 million, or 2.6%, to $693.2 million at June 30, 2025 from $711.7 million at December 31, 2024. The decrease was due to a decrease of $14.5 million, or 3.1%, in one- to four-residential real estate loans to $458.2 million from $472.7 million at December 31, 2024, a decrease of $17.4 million, or 40.3%, in construction loans to $25.8 million at June 30, 2025 from $43.2 million at December 31, 2024, and a decrease of $1.9 million, or 30.5%, in commercial and industrial loans to $4.3 million at June 30, 2025 from $6.2 million at December 31, 2024, offset by a $8.0 million, or 10.7%, increase in multi-family real estate loans to $82.1 million at June 30, 2025 from $74.2 million at December 31, 2024, and by a $7.3 million, or 6.2%, increase in commercial real estate loans to $125.3 million at June 30, 2025 from $118.0 million at December 31, 2024. The decreases in one- to four-residential real estate loans and construction loans reflected a decrease in demand for such loans due to the interest rate environment. As of June 30, 2025 and December 31, 2024, the Bank had no loans held for sale.

Asset Quality. Delinquent loans increased $6.1 million to $20.4 million, or 2.9% of total loans, at June 30, 2025, compared to $14.3 million, or 2.0% of total loans, at December 31, 2024. The increase was primarily due to one commercial real estate loan that became 60 days past due, which has a balance of $7.1 million, and is considered well-secured, accruing and in the process of collection. We did not record any specific reserves or charge-offs for our nonaccrual loans. During the same timeframe, non-performing assets decreased from $14.0 million at December 31, 2024 to $13.9 million, which represented 1.5% of total assets at June 30, 2025. The Company’s allowance for credit losses was 0.37% of total loans and 18.69% of non-performing loans at June 30, 2025 compared to 0.37% of total loans and 18.77% of non-performing loans at December 31, 2024. The Bank does not have any exposure to commercial real estate loans secured by office space. Non-performing loans at June 30, 2025 were primarily comprised of one construction loan for a catering hall that is 99% complete, with a balance of $10.9 million and a loan to value ratio of 45%. Based on the well-secured nature of the loan, there was no associated specific reserve at June 30, 2025. The Company has commenced legal action to foreclose on the property, which is ongoing. The Company did not record any charge-offs for the three and six months ended June 30, 2025 or 2024.

Total Liabilities. Total liabilities decreased $50.8 million, or 6.1%, to $783.4 million as of June 30, 2025 from $834.2 million as of December 31, 2024, primarily due to a $36.2 million decrease in borrowings and a $14.0 million decrease in deposits.

Deposits. Deposits decreased $14.0 million, or 2.2%, to $628.2 million at June 30, 2025 from $642.2 million at December 31, 2024. The decrease in deposits was reflected in most deposit categories including a decrease in certificates of deposit of $11.5 million, or 2.3%, to $481.8 million as of June 30, 2025 from $493.3 million at December 31, 2024, a decrease in NOW accounts of $2.8 million, or 5.0%, to $52.6 million as of June 30, 2025 from $55.4 million at December 31, 2024, a $2.3 million, or 16.6%, decrease in money market accounts to $11.7 million as of June 30, 2025 from $14.0 million at December 31, 2024. The decreases were offset by a $4.6 million, or 9.8%, increase in savings accounts. The changes reflected competition and customers moving funds into other higher-yielding investments.

At June 30, 2025, municipal deposits totaled $25.4 million, which represented 4.1% of total deposits, and brokered deposits totaled $108.0 million, which represented 17.2% of deposits. At December 31, 2024, municipal deposits totaled $30.7 million, which represented 4.8% of deposits, and brokered deposits totaled $101.6 million, which represented 15.8% of total deposits. At June 30, 2025, uninsured deposits totaled $57.0 million, comprised of 300 account holders, which represented 9.1% of total deposits.

Borrowings. Federal Home Loan Bank of New York borrowings decreased $36.2 million, or 21.0%, to $136.0 million at June 30, 2025 from $172.2 million at December 31, 2024. Long-term advances decreased $46.7 million, while short-term advances increased by $10.5 million. The weighted average rate of borrowings was 3.99% and 4.49% as of June 30, 2025 and December 31, 2024, respectively. Total borrowing capacity at the Federal Home Loan Bank was $241.3 million at June 30, 2025, of which $136.0 million has been advanced. The decrease in borrowings was largely attributable to the repayment of advances and borrowings that matured during the six months ended June 30, 2025.

Total Equity. Stockholders’ equity increased $1.2 million to $138.4 million, primarily due to net income of $955,000. At June 30, 2025, the Company’s ratio of average stockholders’ equity-to-average total assets was 15.94%, compared to 13.99% at December 31, 2024.

Average Balance Sheets and Related Yields and Rates

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

(Dollars in thousands)

(unaudited)

(1) Cash flow and fair value hedges are used to manage interest rate risk. During the three months ended June 30, 2025 and 2024, the net effect on interest expense on the Federal Home Loan Bank advances and certificates of deposit was a reduced expense of $186,000 and $461,000 respectively.

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

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

(Dollars in thousands)

(1) Cash flow hedges are used to manage interest rate risk. During the six months ended June 30, 2025 and 2024, the net effect on interest expense on the Federal Home Loan Bank advances and certificates of deposit was a reduced expense of $363,000 and $749,000 respectively.

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

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

Rate/Volume Analysis

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

(In thousands)

(unaudited)

22

Comparison of Operating Results for the Three Months Ended June 30, 2025 and June 30, 2024

General. Net income increased $657,000 to $224,000 for the three months ended June 30, 2025 from a net loss of $432,000 for the three months ended June 30, 2024. The increase was primarily due to an increase of $920,000 in net interest income, partially offset by an increase of $129,000 in non-interest expenses, and a decrease of $229,000 in income tax benefit.

Interest Income. Interest income increased $31,000, or 0.3%, to $10.5 million for the three months ended June 30, 2025 and June 30, 2024.

Interest income on cash and cash equivalents decreased $21,000, or 16.4%, to $106,000 for the three months ended June 30, 2025 from $127,000 for the three months ended June 30, 2024 due to a decrease of 164 basis points in the average yield from 5.90% for the three months ended June 30, 2024 to 4.26% for the three months ended June 30, 2025. The decrease in the average yield was partially offset by a $1.3 million increase in the average balance to $9.9 million for the three months ended June 30, 2025 from $8.6 million for the three months ended June 30, 2024.

Interest income on loans decreased $7,000, or 0.1%, as a $12.3 million decrease in the average balance to $697.8 million for the three months ended June 30, 2025 from $710.1 million for the three months ended June 30, 2024 was offset by a seven basis point increase in the yield from 4.70% for the three months ended June 30, 2024 to 4.77% for the three months ended June 30, 2025.

Interest income on securities increased $86,000, or 4.6%, due to a 151 basis points, from 4.01% for the three months ended June 30, 2024 to 5.52% for the three months ended June 30, 2025, which was offset by a $44.4 million decrease in the average balance to $141.1 million for the three months ended June 30, 2025 from $185.5 million for the three months ended June 30, 2024. The changes in the yield and average balance reflect that, in the fourth quarter of 2024, the Company sold approximately $66.0 million in amortized cost ($57.1 million in market value) of securities with a weighted average yield of 1.89% and reinvested $32.7 million of these proceeds into securities with a weighted average yield of 5.60%.

Interest Expense. Interest expense decreased $920,000, or 11.9%, from $7.7 million for the three months ended June 30, 2024 to $6.8 million for the three months ended June 30, 2025 due to lower average balances on certificates of deposit and borrowings and a decrease in the costs of certificates of deposit, offset by an increase in borrowing costs.

Interest expense on interest-bearing deposits decreased $730,000, or 11.7%, to $5.5 million for the three months ended June 30, 2025 from $6.3 million for the three months ended June 30, 2024. The decrease was primarily due to lower average balance of certificates of deposit, which decreased to $482.5 million for the three months ended June 30, 2025 from $517.9 million for the three months ended June 30, 2024. The decrease was offset by an increase in the average balances of NOW and money market accounts, which increased by $5.6 million, from $67.7 million for the three months ended June 30, 2024 to $73.3 million for the three months ended June 30, 2025, and by an increase in the average balances of savings accounts, which increased by $4.7 million, from $44.1 million for the three months ended June 30, 2024 to $48.8 million for the three months ended June 30, 2025. In addition to the changes in average balances, the average cost of interest bearing deposits decreased 32 basis points from 3.99% for the three months ended June 30, 2024, to 3.67% for the three months ended June 30, 2025, due to a 44 basis point decrease in the average costs of certificates of deposit, offset by increases in the average costs of NOW and money market accounts and savings accounts.

Interest expense on Federal Home Loan Bank advances decreased $190,000, or 12.9%, from $1.5 million for the three months ended June 30, 2024 to $1.3 million for the three months ended June 30, 2025. The decrease was due to a decrease in the average balance of $40.0 million to $130.3 million for the three months ended June 30, 2025. The decrease was offset by a 47 basis point increase in the average cost of borrowings to 3.96% for the three months ended June 30, 2025 from 3.49% for the three months ended June 30, 2024 due to the new borrowings being shorter durations at higher rates.

Net Interest Income. Net interest income increased $951,000, or 34.7%, to $3.7 million for the three months ended June 30, 2025 from $2.7 million for the three months ended June 30, 2024. The increase reflected a 48 basis point increase in the net interest rate spread to 1.20% for the three months ended June 30, 2025 from 0.72% for the three months ended June 30, 2024. The net interest margin increased 53 basis points to 1.74% for the three months ended June 30, 2025 from 1.21% for the three months ended June 30, 2024.

Provision for Credit Losses. We did not record a provision for credit losses for the three months ended June 30, 2025 compared to a $35,000 provision for credit losses for the three months ended June 30, 2024. The decrease in the allowance for credit losses was due to the decrease in loans and held-to-maturity securities and the absence of charge-offs.

Non-Interest Income. Non-interest income increased by $29,000, or 9.4%, to $332,000 for the three months ended June 30, 2025 from $303,000 for the three months ended June 30, 2024. Bank-owned life insurance income increased $13,000, or 6.0%, due to higher yield during 2025. Additionally, gains on the sale of loans increased $9,000 compared to no gain on sale of loans for the three months ended June 30, 2024.

Non-Interest Expense. For the three months ended June 30, 2025, non-interest expense increased $129,000, or 3.5%, over the comparable 2024 period. This was due to a $274,000, or 74.6%, increase in occupancy and equipment expense, which increased as a result of increased occupancy costs related to the sale leaseback transaction that was completed in the fourth quarter of 2024, and a $112,000, or 43.2%, increase in professional fees, which were largely attributable to legal expense related to ongoing foreclosure of one past due loan. These increases were offset by a $83,000, or 3.9%, decrease in salaries and benefits costs, which was a result of reduced headcount, and a $99,000 decrease in advertising costs when compared to the three months ended June 30, 2024.

Income Tax Expense. Income tax benefit decreased $229,000, or 81.3%, to a benefit of $53,000 for the three months ended June 30, 2025 from a $281,000 benefit for the three months ended June 30, 2024. The decrease was due to an increase of $886,000 of net income.

Comparison of Operating Results for the Six Months Ended June 30, 2025 and June 30, 2024

General. Net income increased by $1.8 million to $955,000 for the six months ended June 30, 2025 from a net loss of $873,000 for the six months ended June 30, 2024. The increase was primarily due to an increase of $1.9 million in net interest income, and a $619,000 increase in non-interest income, partially offset by an increase of $574,000 in occupancy and equipment costs, and a decrease of $488,000 in income tax benefit. Income for the six months ended June 30, 2025 included a one-time death benefit of approximately $543,000 from the Company's bank-owned life insurance policy related to a former employee.

Interest Income. Interest income increased $893,000, or 4.4%, from $20.5 million for the six months ended June 30, 2024 to $21.4 million for the six months ended June 30, 2025 primarily due to higher yields on interest-earning assets, offset by a decrease in the average balance of interest-earning assets.

Interest income on cash and cash equivalents increased $95,000, or 34.4%, to $371,000 for the six months ended June 30, 2025 from $276,000 for the six months ended June 30, 2024 due to a $4.8 million increase in the average balance to $13.3 million for the six months ended June 30, 2025 from $8.5 million for the six months ended June 30, 2024, reflecting the decrease in loans and securities. The increase was offset by an 92 basis point decrease in the average yield from 6.50% for the six months ended June 30, 2024 to 5.58% for the six months ended June 30, 2025.

Interest income on loans increased $387,000, or 2.3%, to $16.9 million for the six months ended June 30, 2025 compared to $16.5 million for the six months ended June 30, 2024 due primarily to a 18 basis point increase in the average yield from 4.64% for the six months ended June 30, 2024 to 4.82% for the six months ended June 30, 2025, which was offset by a $10.3 million decrease in the average balance to $701.4 million for the six months ended June 30, 2025 from $711.7 million for the six months ended June 30, 2024.

Interest income on securities increased $390,000, or 11.5%, to $3.8 million for the six months ended June 30, 2025 from $3.4 million for the six months ended June 30, 2024, primarily due to a 143 basis point increase in the average yield from 3.85% for the six months ended June 30, 2024 to 5.28% for the six months ended June 30, 2025. This was partially offset by a $32.9 million decrease in the average balance to $143.2 million for the six months ended June 30, 2025 from $176.1 million for the six months ended June 30, 2024. The decrease in the average balance and the increase in the yield was as a result of a balance sheet restructuring undertaken in the fourth quarter of 2024, where certain lower-yielding securities were sold, a portion of the proceeds were reinvested into higher-yielding securities and all remaining held to maturity securities were reclassified as available for sale.

Interest Expense. Interest expense decreased $1.0 million, or 6.6%, from $15.1 million for the six months ended June 30, 2024 to $14.1 million for the six months ended June 30, 2025, primarily due to lower average balance and cost of certificates of deposit and lower average balance of borrowings, offset by an increase in costs of borrowings.

Interest expense on interest-bearing deposits decreased $938,000, or 7.7%, to $11.3 million for the six months ended June 30, 2025 from $12.2 million for the six months ended June 30, 2024. The decrease was primarily due to lower average balances on certificates of deposit, which decreased to $483.4 million for the six months ended June 30, 2025 from $517.2 million for the six months ended June 30, 2024 and due to the lower costs of certificates of deposit. The decrease was offset by an increase in the average balances of NOW and money market accounts, which increased by $7.7 million, from $68.6 million for the six months ended June 30, 2024 to $76.3 million for the six months ended June 30, 2025, and due to higher cost of those accounts which increased 44 basis points from 1.95% for the six months ended June 30, 2024, to 2.39% for the six months ended June 30, 2025. Also the average balances of savings accounts increased $3.6 million, from $43.7 million for the six months ended June 30, 2024 to $47.3 million for the six months ended June 30, 2025, and the cost of those accounts increased 17 basis points from 1.85% for the six months ended June 30, 2024, to 2.02% for the six months ended June 30, 2025.

Interest expense on Federal Home Loan Bank advances decreased $62,000, or 2.1%. The decrease was due to a decrease in the average balance of $16.2 million to $144.1 million for the six months ended June 30, 2025. The increase in average balances of borrowings was offset by a 33 basis point increase in the average cost of borrowings to 3.99% for the six months ended June 30, 2025 from 3.66% for the six months ended June 30, 2024 due to the new borrowings being shorter durations at higher rates.

Net Interest Income. Net interest income increased $1.9 million, or 35.1%, to $7.3 million for the six months ended June 30, 2025 from $5.4 million for the six months ended June 30, 2024. The increase reflected a 47 basis point increase in the net interest rate spread to 1.15% for the six months ended June 30, 2025 from 0.68% for the six months ended June 30, 2024. The net interest margin increased 50 basis points to 1.70% for the six months ended June 30, 2025 from 1.20% for the six months ended June 30, 2024.

Provision for Credit Losses. We recorded an $80,000 recovery of credit losses for the six months ended June 30, 2025 compared to a $70,000 provision for credit losses for the six months ended June 30, 2024. The decrease in the provision for credit losses was due to the decrease in loans, loan commitments and held-to-maturity securities and the absence of charge-offs.

Non-Interest Income. Non-interest income increased by $619,000, or 102.7%, to $1.2 million for the six months ended June 30, 2025 from $602,000 for the six months ended June 30, 2024. Bank-owned life insurance income increased $564,000, or 132.0%, due to a death benefit receivable related to a former employee and higher yields during 2025. Additionally, the gain on the sale of loans increased $38,000 compared to no gain on sale of loans for the six months ended June 30, 2024.

Non-Interest Expense. For the six months ended June 30, 2025, non-interest expense increased $345,000, or 4.7%, over the comparable 2024 period. This was due to a $574,000, or 77.8%, increase in occupancy and equipment expense, which increased as a result of the sale leaseback transaction that was completed in the fourth quarter of 2024, and by a $114,000, or 25.0%, increase in professional fees that was largely attributable to legal fees related to one past due loan. These were offset by a $162,000, or 3.8%, decrease in salaries and benefits costs, which was a result of reduced headcount, and a $104,000 decrease in advertising expense.

Income Tax Expense. Income tax benefit decreased $488,000, or 85.8%, to a benefit of $81,000 for the six months ended June 30, 2025 from a $568,000 benefit for the six months ended June 30, 2024. The decrease was due to an increase of $2.3 million of net income.

Management of Market Risk

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

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

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

The following table presents the estimated changes in our net portfolio value that would result from changes in market interest rates as of June 30, 2025. All estimated changes presented in the table are within the policy limits approved by the board of directors.

(Dollars in thousands)

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

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

As of June 30, 2025, net interest income simulation results indicated that its exposure over one year to changing interest rates was within our guidelines. The following table presents the estimated impact of interest rate changes on our estimated net interest income over one year:

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

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

Liquidity and Capital Resources

Liquidity. Liquidity describes our ability to meet financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities and proceeds from calls, maturities and sales of securities and sales of loans. We also borrow from the Federal Home Loan Bank of New York. At June 30, 2025, we had the ability to borrow up to $241.3 million, of which $139.5 million was outstanding and $5.5 million was utilized as collateral for letters of credit issued to secure municipal deposits. At June 30, 2025, we had $54.0 million in unsecured lines of credit with four correspondent banks with no outstanding balance.

The board of directors is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we had ample sources of liquidity to satisfy our short- and long-term liquidity needs as of June 30, 2025.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, loan prepayments and loan and security sales 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 June 30, 2025, cash and cash equivalents totaled $20.3 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $144.6 million at June 30, 2025.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate we will have sufficient funds to meet our current funding commitments. Certificates of deposit due within one year of June 30, 2025 totaled $429.4 million, or 68.4% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits and Federal Home Loan Bank of New York advances. Depending on market conditions, we may be required to pay higher rates on such deposits or borrowings than we currently pay. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Capital Resources. We are subject to various regulatory capital requirements administered by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation. At June 30, 2025, we exceeded all applicable regulatory capital requirements, and were considered “well capitalized” under regulatory guidelines. As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act, as modified in April 2020, the federal banking agencies were required to develop a “Community Bank Leverage Ratio” (the ratio of a bank's Tier 1 “equity capital to average total consolidated assets) for financial institutions with less than $10 billion. A “qualifying community bank” with capital exceeding 9% will be considered compliant with all applicable regulatory capital and leverage requirements, including the capital requirements to be considered "well capitalized” under Prompt Corrective Action statutes. As of June 30, 2025, the Bank reported as a qualifying community bank with a ratio of 15.40%.

Inflation

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

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

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Exchange Act of 1934, as amended) as of June 30, 2025. Based on that evaluation, the Company's management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective.

During the three months ended June 30, 2025, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There have been no material changes in the risk factors applicable to the Company from those disclosed in “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.