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Dynamic quotes 
OFFON

BOGOTA FINANCIAL CORP.

(BSBK)
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BOGOTA FINANCIAL : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/11/2021 | 04:29pm EDT

General


Management's discussion and analysis of financial condition and results of
operations at June 30, 2021 as compared to December 31, 2020 and for the three
and six months ended June 30, 2021 and June 30, 2020 is intended to assist in
understanding the financial condition and results of operations of Bogota
Financial Corp. The information contained in this section should be read in
conjunction with the unaudited financial statements and the notes thereto
appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Cautionary Note Regarding Forward-Looking Statements


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

• statements of our goals, intentions and expectations;


       •      statements regarding our business plans, prospects, growth and
              operating strategies;

• statements regarding the quality of our loan and investment portfolios; and

• estimates of our risks and future costs and benefits.



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

       •      general economic conditions, either nationally or in our market
              area, that are worse than expected;


       •      changes in the level and direction of loan delinquencies and
              charge-offs and changes in estimates of the adequacy of the
              allowance for loan losses;


  • our ability to access cost-effective funding;


       •      fluctuations in real estate values and both residential and
              commercial real estate market conditions;


  • demand for loans and deposits in our market area;


  • our ability to continue to implement our business strategies;


  • competition among depository and other financial institutions;

       •      inflation and changes in market interest rates that reduce our
              margins and yields, reduce the fair value of financial instruments
              or reduce our volume of loan originations, or increase the level of
              defaults, losses and prepayments on loans we have made and make
              whether held in portfolio or sold in the secondary market;


  • adverse changes in the securities markets;


       •      changes in laws or government regulations or policies affecting
              financial institutions, including changes in regulatory fees and
              capital requirements;


  • our ability to manage market risk, credit risk and operational risk;


                                       27

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       •      our ability to enter new markets successfully and capitalize on
              growth opportunities;


       •      our ability to successfully integrate into our operations any
              assets, liabilities or systems we may acquire, as well as new
              management personnel or customers, and our ability to realize
              related revenue synergies and cost savings within expected time
              frames and any goodwill charges related thereto;


  • changes in consumer spending, borrowing and savings habits;


       •      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;


       •      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.


Given the ongoing and dynamic nature of the circumstances, it is difficult to
predict the full impact of the COVID-19 pandemic on our business. The extent of
such impact will depend on future developments, which are highly uncertain,
including if the coronavirus can continue to be controlled and abated and
whether the reopening of businesses will result in a meaningful increase in
economic activity. As the result of the COVID-19 pandemic and the related
adverse local and national economic consequences, we could be subject to any of
the following risks, any of which could have a material, adverse effect on our
business, financial condition, liquidity, and results of operations: demand for
our products and services may decline, making it difficult to grow assets and
income;

       •      if the economy is unable to substantially remain open, and higher
              levels of unemployment continue for an extended period of time, loan
              delinquencies, problem assets, and foreclosures may increase,
              resulting in increased charges and reduced income;


       •      collateral for loans, especially real estate, may decline in value,
              which could cause loan losses to increase;


       •      our allowance for loan losses may be increased if borrowers
              experience financial difficulties beyond forbearance periods, which
              will adversely affect our net income;


       •      the net worth and liquidity of loan guarantors may decline,
              impairing their ability to honor commitments to us;


       •      our cyber security risks are increased as the result of an increase
              in the number of employees working remotely;


       •      we rely on third party vendors for certain services and the
              unavailability of a critical service due to the COVID-19 outbreak
              could have an adverse effect on us; and


       •      Federal Deposit Insurance Corporation premiums may increase if the
              agency experience additional resolution costs.


Moreover, our future success and profitability substantially depends on the
management skills of our executive officers and directors, many of whom have
held officer and director positions with us for many years. The unanticipated
loss or unavailability of key employees due to the pandemic could harm our
ability to operate our business or execute our business strategy. We may not be
successful in finding and integrating suitable successors in the event of key
employee loss or unavailability.

                                       28

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Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.

Acquisition of Gibraltar


On February 28, 2021, the Company completed its acquisition of Gibraltar Bank.
As a part of the transaction, the Company issued 1,267,916 shares of its common
stock to Bogota Financial, MHC. The conversion and consolidation of data
processing platforms, systems and customer files is expected to occur on or
about August 16, 2021.

As of February 28, 2021, Gibraltar had $106.2 million of assets, gross loans of $77.7 million and deposits of $81.6 million and operated from three offices located in Newark, Oak Ridge and Parsippany, New Jersey in Morris and Essex Counties, New Jersey.

Critical Accounting Policies


A summary of our accounting policies is described in Note 1 to the unaudited
consolidated financial statements included with our Annual Report on Form 10-K
at and for the year ended December 31, 2020. 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. Management believes
that the most critical accounting policy, which involves the most complex or
subjective decisions or assessments, is as follows:

Allowance for Loan Losses.  The allowance for loan losses is the amount
estimated by management as necessary to absorb credit losses incurred in the
loan portfolio that are both probable and reasonably estimable at the relevant
balance sheet date. The amount of the allowance is based on significant
estimates, and the ultimate losses may vary from such estimates as more
information becomes available or conditions change. The methodology for
determining the allowance for loan losses is considered a critical accounting
policy by management due to the high degree of judgment involved, the
subjectivity of the assumptions used and the potential for changes in the
economic environment that could result in changes to the amount of the recorded
allowance for loan losses.

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.

Management performs an evaluation of the adequacy of the allowance for loan
losses at least quarterly. We consider a variety of factors in establishing this
estimate including current economic 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.

The evaluation has specific and general components. The specific component
relates to loans that are deemed to be impaired and classified as special
mention, substandard, doubtful, or loss. For such loans that are also classified
as impaired, an allowance is generally established when the collateral value of
the impaired loan is lower than the carrying value of that loan. The general
component covers non-classified loans and is based on historical loss experience
adjusted for qualitative factors.

Actual loan 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.

                                       29

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COVID-19


COVID-19 has adversely impacted a broad range of industries in which the
Company's customers operate and could impair their ability to fulfill their
financial obligations. The pandemic has caused significant disruption in the
U.S. economy and disrupted banking and other financial activity in the areas in
which the Company operates.

Congress, the President and the banking regulators have taken several actions
designed to cushion the economic fallout, including enactment of the Coronavirus
Aid Relief and Economic Security ("CARES") Act at the end of March 2020. The
goal of the CARES Act is to prevent severe economic downturn through various
measures, including direct financial aid to American families and economic
stimulus to significantly impacted industry sectors. On December 27, 2020, the
2021 Consolidated Appropriations Act, which was enacted as part of an omnibus
spending bill for the 2021 federal fiscal year, included provisions intended to
provide additional aid to those impacted by the pandemic. In addition to the
general impact of COVID-19, certain provisions of the CARES Act, the 2021
Consolidated Appropriations Act as well as other legislative and regulatory
relief efforts may have a material impact on the Company's operations.

The Company's business is dependent upon the willingness and ability of its
employees and customers to conduct banking and other financial transactions. If
the global response to contain COVID-19 is unsuccessful or the effects of the
pandemic continue or worsen, the Company may experience a material adverse
effect on its business, financial condition, results of operations and cash
flows.

As of June 30, 2021, the Bank had granted 172 loan modifications totaling $67.9
million, which represented 11.6% of the total loan portfolio, allowing customers
who were affected by the COVID-19 pandemic to defer principal and/or interest
payments. These short-term loan modifications were treated in accordance with
Section 4013 of the CARES Act and will not be treated as troubled debt
restructurings during the short-term modification period if the loan was not in
arrears at December 31, 2019. Furthermore, these loans will continue to accrue
interest. Of the 172 loans to which loan modifications were granted only five
loans have requested additional deferrals as of June 30, 2021. The five loans
still on deferral represents $884,000 or 0.2% of net loans, and all are within
the one-to-four family residential real estate portfolio.

Financial position and results of operations


The Company's fee income has been and may continue to be reduced due to
COVID-19. In keeping with the guidance from regulators, the Company is actively
working with COVID-19 affected customers to waive fees from a variety of
sources, such as, but not limited to, insufficient funds, account maintenance,
minimum balance, and ATM fees. These reductions in fees are thought to be
temporary in conjunction with the length of the COVID-19 related economic
crisis. At this time, the Company is unable to project the materiality of such
an impact.

The Company's interest income could be reduced due to COVID-19. In keeping with
the guidance from the regulators, the Company is actively working with COVID-19
affected borrowers to defer payments, interest and fees. While interest and fees
will accrue to income through normal GAAP accounting, should eventual credit
losses on these deferred payments emerge, interest income and fees accrued would
need to be reversed. As a result, interest income in future periods could be
negatively impacted.

Credit and asset quality



The Company is working with customers affected by COVID-19. As a result of the
current economic crisis caused by the COVID-19 virus, the Company is engaging in
more frequent communication with borrowers to better understand their situation
and challenges faced. The extent to which industries, or the tangential impact
of those industries to other borrowers or industries, are impacted will likely
be in direct proportion to the duration and depth of the COVID-19 pandemic.



The Company is also providing assistance to individuals and small business
clients directly impacted by the COVID-19 pandemic by allowing borrowers to
modify their loans. Under the CARES Act, loans less than 30 days past due as of
December 31, 2019 will be considered current for the COVID-19 modifications.
Loans that were modified due to COVID-19 will not be classified as a troubled
debt restructurings ("TDR").

                                       30
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The CARES Act authorized the Small Business Administration ("SBA") to
temporarily guarantee loans under a new 7(a) program called the Paycheck
Protection Program ("PPP"). PPP loans have: (a) an interest rate of 1.0%, (b) a
five-year loan term to maturity for loans made on or after June 5, 2020 (loans
made prior to June 5, 2020 have a two-year term, however borrowers and lenders
may mutually agree to extend the maturity for such loans to five years); and (c)
principal and interest payments deferred for six months from the date of
disbursement. The SBA will guarantee 100% of the PPP loans made to eligible
borrowers. The entire principal amount of the borrower's PPP loan, including any
accrued interest, is eligible to be forgiven under the PPP if employee and
compensation levels of the business are maintained and 60% of the loan proceeds
are used for payroll expenses, with the remaining 40% of the loan proceeds used
for other qualifying expenses. The 2021 Consolidated Appropriations Act signed
into law on December 27, 2020 approved an additional $286,000,000 for PPP loans.

As a qualified Small Business Administration lender, the Bank was automatically
authorized to originate loans under the Paycheck Protection Program
("PPP"). During 2020, the Bank received and processed 113 PPP applications
totaling $10.5 million. The Bank participated in the second round of PPP loans
and during the first half of 2021, the Bank received and processed 54 PPP
applications totaling $6.9 million.

Comparison of Financial Condition at June 30, 2021 and December 31, 2020


Total Assets. Total assets increased $77.9 million, or 10.5%, to $818.9 million
at June 30, 2021 from December 31, 2020 primarily due to acquiring $106.0
million in assets from the Gibraltar Bank acquisition. The increase in assets
reflected a $20.3 million, or 25.2%, increase in cash and cash equivalents to
$100.7 million, a $20.2 million, or 35.0%, increase in securities
held-to-maturity, a $27.0 million, or 10.5%, increase in loans and a $8.2
million, or 48.7% increase in bank owned life insurance.

Cash and Cash Equivalents. Total cash and cash equivalents increased $20.3 million, or 25.2%, to $100.7 million at June 30, 2021 from $80.4 million at December 31, 2020. The increase was primarily due to $19.3 million in cash from the Gibraltar Bank acquisition.

Securities Available for Sale. Total securities available for sale decreased $647,000, or 5.5%, to $11.2 million at June 30, 2021 from $11.9 million at December 31, 2020. The decrease was due to maturities of mortgage-backed securities.


Securities Held to Maturity. Total securities held to maturity increased $20.2
million, or 35.0%, to $77.7 million at June 30, 2021 from $57.5 million at
December 31, 2020, primarily to $27.3 million in purchases of securities and
$7.0 million of securities acquired from Gibraltar Bank, which was offset by
repayments in mortgage-backed securities. The increase in securities held to
maturity reflected a $2.5 million increase in corporate bonds, a $4.5 million
increase in U.S. government agency obligations, a $1.4 million increase in
municipal bonds and a $10.4 million increase in mortgage-backed securities.

Net Loans. Net loans increased $26.1 million, or 4.7%, to $583.8 million at June
30, 2021 from $557.7 million at December 31, 2020. The increase was due to a
$18.2 million, or 10.6%, increase in commercial and multi-family real estate
loans to $189.8 million at June 30, 2021 from $171.6 million at December 31,
2020, an increase of $4.1 million, or 1.2% in one- to-four residential real
estate loans to $344.1 million at June 30, 2021 from $340.0 million at December
31, 2020, an increase of $3.8 million, or 38.7%, in construction real estate
loans to $13.8 million at June 30, 2021 from $9.9 million at December 31, 2020,
an increase of $3.8 million or 15.4% in consumer loans to $28.5 million at June
30, 2021 from $24.7 million at December 31, 2020, partially offset by a decrease
of $3.0 million, or 22.2%, in commercial and industrial loans to $10.6 million
at June 30, 2021 from $13.7 million as of December 31, 2020. The increase in
loans was primarily due to the $76.8 million of loans acquired from Gibraltar
Bank, which was offset by residential loan pay downs and the sale of $15.7
million of residential loans. The decrease in commercial and industrial loans
was due to the forgiveness and repayment of PPP loans that were originated in
2020. As of June 30, 2021 the Bank had $894,000 in loans held for sale compare
the no loans held for sale as of December 31, 2021.

                                       31

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Deposits. Total deposits increased $67.2 million, or 13.4%, to $569.2 million at
June 30, 2021 from $502.0 million at December 31, 2020. The increase in deposits
reflected an increase in interest bearing deposits of $62.5 million, or 13.2%,
to $537.4 million as of June 30, 2021 from $474.9 million at December 31, 2020
and an increase in non-interest bearing deposits of $4.7 million, or 17.4%, to
$31.8 million as of June 30, 2021 from $27.1 million as of December 31, 2020.
The increases are primarily due to the $81.4 million of deposits acquired from
Gibraltar Bank.

At June 30, 2021, municipal deposits totaled $22.8 million, which represented
4.0% of total deposits, and brokered deposits totaled $54.2 million, which
represented 9.5% of total deposits. At December 31, 2020, municipal deposits
totaled $37.6 million, which represented 7.5% of total deposits, and brokered
deposits totaled $54.2 million, which represented 10.8% of total deposits.

Borrowings. Federal Home Loan Bank of New York borrowings decreased $7.3
million, or 7.0%, to $97.0 million at June 30, 2021 from $104.3 million at
December 31, 2020, as maturities of $17.3 million of FHLB advances were offset
by $10.3 million of borrowings that were assumed from Gibraltar Bank. The
weighted average rate of borrowings was 1.74% and 1.64% as of June 30, 2021 and
December 31, 2020, respectively.

Total Equity. Stockholders' equity increased $16.2 million to $144.6 million,
primarily due to the $11.5 million of stock issued in connection with the
acquisition of Gibraltar Bank and the $4.4 million of net income for the six
months ended June 30, 2021. At June 30, 2021, the Company's ratio of average
stockholders' equity-to-total assets was 17.43%, compared to 16.97% at December
31, 2020.

                                       32
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Average Balance Sheets and Related Yields and Rates


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



                                                                Three Months Ended June 30,
                                                    2021                                           2020
                                  Average      Interest and        Yield/        Average      Interest and        Yield/
                                  Balance        Dividends        Cost (3)       Balance        Dividends        Cost (3)
                                                                  (Dollars in thousands)
Assets:
Cash and cash equivalents        $  99,956     $          41           0.16 %   $  48,248     $          69           0.57 %
Loans                              591,134             5,685           3.86 %     578,212             5,246           3.63 %
Securities                          86,594               402           1.86 %      68,267               418           2.45 %
Other interest-earning assets        5,740                74           5.16 %       6,236                83           5.32 %
Total interest-earning assets      783,424             6,202           3.17 %     700,963             5,816           3.32 %

Non-interest-earning assets         41,827                                         28,109
Total assets                     $ 825,251$ 729,072
Liabilities and equity:
NOW and money market accounts    $  99,267     $         142           0.57
%   $  52,699     $         125           0.95 %
Savings accounts                    64,341                26           0.16 %      29,764                18           0.25 %
Certificates of deposit            375,373               883           0.94 %     379,210             1,898           2.00 %
Total interest-bearing
deposits                           538,981             1,051           0.78 %     461,673             2,041           1.77 %

Federal Home Loan Bank
advances                           100,289               376           1.50 %     109,758               489           1.78 %
Total interest-bearing
liabilities                        639,270             1,427           0.90 %     571,431             2,530           1.78 %
Non-interest-bearing deposits       26,736                                         24,471
Other non-interest-bearing
liabilities                         15,421                                          7,378
Total liabilities                  681,427                                        603,280

Total equity                       143,824                                        125,792
Total liabilities and equity     $ 825,251$ 729,072
Net interest income                            $       4,775$       3,286
Interest rate spread (1)                                               2.28 %                                         1.55 %
Net interest margin (2)                                                2.44 %                                         1.88 %
Average interest-earning
assets to
  average interest-bearing
liabilities                         122.55 %                                       122.67 %



(1) Interest rate spread represents the difference between the weighted average

yield on interest-earning assets and the weighted average cost of

interest-bearing liabilities.



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


(3) Annualized.




















                                       33
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                                                                   Six Months Ended June 30,
                                                     2021                                            2020
                                   Average       Interest and        Yield/        Average       Interest and        Yield/
                                   Balance        Dividends         Cost (3)       Balance        Dividends         Cost (3)
                                                                    (Dollars in thousands)
Assets:
Cash and cash equivalents         $  95,564     $           91           0.19 %   $  69,337     $          351           1.01 %
Loans                               585,279             11,150           3.83 %     550,246             10,343           3.76 %
Securities                           78,485              1,088           2.77 %      66,083                861           2.61 %
Other interest-earning assets         5,919                147           4.98 %       5,888                179           6.08 %
Total interest-earning assets       765,247             12,476           3.27 %     691,554             11,734           3.39 %
Non-interest-earning assets          35,878                                          28,240
Total assets                      $ 801,125$ 719,794
Liabilities and equity:
NOW and money market accounts     $  94,606     $          251           0.54 %   $  50,263     $          257           1.03 %
Savings accounts                     53,344                 48           0.18 %      29,208                 37           0.25 %
Certificates of deposit             373,355              2,015           1.09 %     386,437              4,064           2.11 %
Total interest-bearing deposits     521,305              2,314           0.90 %     465,908              4,358           1.88 %
Federal Home Loan Bank advances     103,897                808           1.57 %     100,997              1,006           2.00 %
Total interest-bearing
liabilities                         625,202              3,122           1.01 %     566,905              5,364           1.90 %
Non-interest-bearing deposits        27,820                                          17,056
Other non-interest-bearing
liabilities                           9,268                                          14,552
Total liabilities                   662,290                                         598,513
Total equity                        138,835                                         121,281
Total liabilities and equity      $ 801,125$ 719,794
Net interest income                             $        9,354$        6,370
Interest rate spread (1)                                                 2.27 %                                          1.50 %
Net interest margin (2)                                                  2.46 %                                          1.85 %
Average interest-earning assets
to
  average interest-bearing
liabilities                          122.40 %                                        121.99 %









(1) Interest rate spread represents the difference between the weighted average

yield on interest-earning assets and the weighted average cost of

interest-bearing liabilities.



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


(3) Annualized.












                                       34
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Rate/Volume Analysis

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



                                    Three Months Ended June 30,            

Six Months Ended June 30,

                                      2021 Compared to Three                

2020 Compared to Six Months

                                    Months Ended June 30, 2020

Ended June 30, 2020

                                    Increase (Decrease) Due to              

Increase (Decrease) Due to

                                Volume           Rate         Net         Volume          Rate         Net
                                                               (In thousands)
Interest income:
Cash and cash equivalents      $      83$   (111 )$    (28 )$      50$   (310 )$   (260 )
Loans receivable                     499            (60 )        439         1,342          (535 )        807
Securities                           341           (357 )        (16 )         344          (117 )        227
Other interest earning
assets                               (26 )           17           (9 )           2           (34 )        (32 )
Total interest-earning
assets                               897           (511 )        386        

1,738 (996 ) 742


Interest expense:
NOW and money market
accounts                             265           (248 )         17           239          (245 )         (6 )
Savings accounts                      55            (47 )          8            43           (32 )         11
Certificates of deposit              (36 )         (979 )     (1,015 )        (143 )      (1,906 )     (2,049 )
Federal Home Loan Bank
advances                            (142 )           29         (113 )          46          (244 )       (198 )
Total interest-bearing
liabilities                          142         (1,245 )     (1,103 )         185        (2,427 )     (2,242 )
Net increase (decrease) in
net interest
  income                       $     755$    734$  1,489$   1,553$  1,431$  2,984

Comparison of Operating Results for the Three Months Ended June 30, 2021 and June 30, 2020


General. Net income increased by $36,000, or 2.5%, to $1.4 million for the three
months ended June 30, 2021 from net income of $1.4 million for the three months
ended June 30, 2020.  The increase was due to increases in net interest income
of $1.5 million and a decrease in the provision for loan losses of $279,000
offset by decreases in non-interest income of $235,000, and increases in
non-interest expense of $1.4 million and income tax expense of $80,000.

Interest Income. Interest income increased $386,000, or 6.6%, to $6.2 million
for the three months ended June 30, 2021. The increase reflected an $82.5
million increase in the average balance of interest-earnings assets, offset by a
15 basis points decrease in the average yield on interest-earning assets to
3.17% for the three months ended June 30, 2021 from 3.32% for the three months
ended June 30, 2020.

Interest income on cash and cash equivalents decreased $28,000, or 40.6%, to
$41,000 for the three months ended June 30, 2021 from $69,000 for the three
months ended June 30, 2020 due to a 41 basis point decrease in the average yield
on cash and cash equivalents from 0.57% for the three months ended June 30, 2020
to 0.16% for the three months ended June 30, 2021 due to the lower interest rate
environment.  The decrease was offset by a $51.7 million increase in the average
balance of cash and cash equivalents to $100.0 million for the three months
ended June 30, 2021 from $48.2 million for the three months ended June 30, 2020.

Interest income on loans increased $439,000, or 8.4%, to $5.7 million for the
three months ended June 30, 2021 from $5.2 million for the three months ended
June 30, 2020 due to a $12.9 million increase in the average balance of loans to
$591.1 million for the three months ended June 30, 2021 from $578.2 million for
the three months ended June 30, 2020. The increase in the average balance of
loans reflected our continued efforts to increase our loan originations and the
loans acquired from Gibraltar Bank. The increase was supplemented by a 23 basis

                                       35

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point increase in the average yield on loans from 3.63% for the three months
ended June 30, 2020 to 3.86% for the three months ended June 30, 2021 due to a
higher rate environment when comparing the two periods.

Interest income on securities decreased $16,000, or 3.8%, to $402,000 for the
three months ended June 30, 2021 from $418,000 for the three months ended June
30, 2020 due to a $18.3 million increase in the average balance of securities to
$86.6 million for the three months ended June 30, 2021 from $68.3 million for
the three months ended June 30, 2020 offset by a 59 basis point decrease in the
average yield from 2.45% for the three months ended June 30, 2020 to 1.86% for
the three months ended June 30, 2021.

Interest Expense. Interest expense decreased $1.1 million, or 43.6%, to $1.4
million for the three months ended June 30, 2021 from $2.5 million for the three
months ended June 30, 2020. The decrease primarily reflected a 88 basis point
decrease in the average cost of interest-bearing liabilities to 0.90% for the
three months ended June 30, 2021 from 1.78% for the three months ended June 30,
2020.

Interest expense on interest-bearing deposits decreased $990,000, or 48.5%, to
$1.1 million for the three months ended June 30, 2021 from $2.0 million for the
three months ended June 30, 2020. The decrease was due primarily to a 99 basis
point decrease in the average cost of interest-bearing deposits to 0.78% for the
three months ended June 30, 2021 from 1.77% for the three months ended June 30,
2020. The decrease in the average cost of deposits was due to the lower interest
rate environment and an increase in the average balance of lower-cost
transaction accounts and a decrease in the average balance of higher cost
certificates of deposit. This decrease was offset by a $77.3 million increase in
the average balance of deposits to $539.0 million for the three months ended
June 30, 2021 from $461.7 million for the three months ended June 30, 2020.

Interest expense on Federal Home Loan Bank borrowings decreased $112,000, or
23.0%, from $489,000 for the three months ended June 30, 2020 to $376,000 for
the three months ended June 30, 2021. The decrease was primarily due to the
lower interest rate environment, as the average cost of borrowings decreased 28
basis point to 1.50% for the three months ended June 30, 2021 from 1.78% for the
three months ended June 30, 2020 and the average balance of borrowings decreased
$9.5 million to $100.3 million for the 3 months ended June 30, 2021 from $109.8
million for the three months ended June 30, 2020.

Net Interest Income. Net interest income increased $1.5 million, or 45.3%, to
$4.8 million for the three months ended June 30, 2021 from $3.3 million for the
three months ended June 30, 2020. The increase reflected a 73 basis point
increase in our net interest rate spread to 2.28% for the three months ended
June 30, 2021 from 1.55% for the three months ended June 30, 2020. Our net
interest margin increased 56 basis points to 2.44% for the three months ended
June 30, 2021 from 1.88% for the three months ended June 30, 2020.

Provision for Loan Losses. We recorded a credit for loan losses of $54,000 for
the three months ended June 30, 2021 compared to a $225,000 provision for loan
losses for the three-month period ended June 30, 2020. Lower balances in
residential loans, a more positive economic environment and continued strong
asset quality metrics were the reasons for the credit during the three months
ended June 30, 2021. The Bank continues to have a low level of delinquent and
non-accrual loans in the portfolio, as well as no charge-offs. Non-performing
assets were $685,000, or 0.08% of total assets, at June 30, 2021. The allowance
for loan losses was $2.1 million, or 0.36% of loans outstanding and 310.9% of
nonperforming loans, at June 30, 2021.

Non-Interest Income. Non-interest income decreased by $234,000 or 30.53%, to
$533,000 for the three months ended June 30, 2021 from $768,000 for the three
months ended June 30, 2020. The decrease was due to $604,000 lower income on
bank owned life insurance. Last year the Bank collected $648,000 in death
proceeds. This was offset by a $284,000 gain on sale of $9.4 million residential
loans during the three months ended June 30, 2021.

Non-Interest Expense. For the three months ended June 30, 2021, non-interest
expense increased $1.4 million to $3.6 million, over the comparable 2020 period.
Salaries and employee benefits increased $833,000, or 69.3%, attributable to
adding the new Gibraltar employees. Data processing expense increased $147,000,
or 89.2%, due to higher data processing expense from maintaining two core
systems. Professional fees increased $90,000, or 46.8%, due in part to merger
expenses of $74,000 associated with the Gibraltar Bank acquisition. The increase
of other general operating expenses was mainly due to increase occupancy costs
for the acquired Gibraltar Bank branches and the branch location in Hasbrouck
Heights expected to be opened in June.

                                       36

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Income Tax Expense. Income tax expense increased $80,000, or 30.2%, to $346,000 for the three months ended June 30, 2021 from $266,000 for the three months ended June 30, 2020. The increase was due to $116,000 of higher taxable income.

Comparison of Operating Results for the Six Months Ended June 30, 2021 and June 30, 2020


General. Net income increased by $4.4 million to $4.4 million for the six months
ended June 30, 2021 from net income of $65,000 for the six months ended June 30,
2020.  The increase was due to increases in net interest income of $3.0 million,
a decrease in the provision for loan losses of $363,000, an increases in
non-interest income of $2.0 million, decreases in non-interest expense of
$223,000 offset by an increase in income tax expense of $1.2 million.

Interest Income. Interest income increased $742,000, or 6.3%, to $12.5 million
for the six months ended June 30, 2021. The increase reflected a $73.7 million
increase in the average balance of interest-earnings assets, offset by a 12
basis points decrease in the average yield on interest-earning assets to 3.27%
for the six months ended June 30, 2021 from 3.39% for the six months ended June
30, 2020.

Interest income on cash and cash equivalents decreased $260,000, or 74.1%, to
$91,000 for the six months ended June 30, 2021 from $351,000 for the six months
ended June 30, 2020 due to a 82 basis point decrease in the average yield on
cash and cash equivalents from 1.01% for the six months ended June 30, 2020 to
0.19% for the six months ended June 30, 2021 due to the lower interest rate
environment.  The decrease was offset by a $26.2 million increase in the average
balance of cash and cash equivalents to $95.6 million for the six months ended
June 30, 2021 from $69.3 million for the six months ended June 30, 2020.

Interest income on loans increased $807,000, or 7.8%, to $11.2 million for the
six months ended June 30, 2021 from $10.3 million for the six months ended June
30, 2020 due to a $35.0 million increase in the average balance of loans to
$585.3 million for the six months ended June 30, 2021 from $550.2 million for
the six months ended June 30, 2020. The increase in the average balance of loans
reflected our continued efforts to increase our loan originations and the loans
acquired from Gibraltar Bank. The increase was supplemented by a 7 basis point
increase in the average yield on loans from 3.76% for the six months ended June
30, 2020 to 3.83% for the six months ended June 30, 2021 due to a higher rate
environment when comparing the two periods.

Interest income on securities increased $226,000, or 26.3%, to $1.1 million for
the six months ended June 30, 2021 from $861,000 for the six months ended June
30, 2020 due to a $12.4 million increase in the average balance of securities to
$78.5 million for the six months ended June 30, 2021 from $66.1 million for the
six months ended June 30, 2020 offset by a 16 basis point decrease in the
average yield from 2.61% for the six months ended June 30, 2020 to 2.77% for the
six months ended June 30, 2021.

Interest Expense. Interest expense decreased $2.2 million, or 41.8%, to $3.1
million for the six months ended June 30, 2021 from $5.4 million for the six
months ended June 30, 2020. The decrease primarily reflected a 89 basis point
decrease in the average cost of interest-bearing liabilities to 1.01% for the
six months ended June 30, 2021 from 1.90% for the six months ended June 30,
2020.

Interest expense on interest-bearing deposits decreased $2.1 million, or 46.9%,
to $2.3 million for the six months ended June 30, 2021 from $4.4 million for the
six months ended June 30, 2020. The decrease was due primarily to 98 basis point
decrease in the average cost of interest-bearing deposits to 0.90% for the six
months ended June 30, 2021 from 1.88% for the six months ended June 30, 2020.
The decrease in the average cost of deposits was due to the lower interest rate
environment and an increase in the average balance of lower-cost transaction
accounts and a decrease in the average balance of higher cost certificates of
deposit. This decrease was offset by a $55.4 million increase in the average
balance of deposits to $521.3 million for the six months ended June 30, 2021
from $465.9 million for the six months ended June 30, 2020.

Interest expense on Federal Home Loan Bank borrowings decreased $198,000, or
19.7%, from $1.0 million for the six months ended June 30, 2020 to $808,000 for
the six months ended June 30, 2021. The decrease was primarily due to the lower
interest rate environment, as the average cost of borrowings decreased 43 basis
point to 1.57% for the six months ended June 30, 2021 from 2.00% for the six
months ended June 30, 2020.

                                       37
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Net Interest Income. Net interest income increased $3.0 million, or 46.8%, to
$9.4 million for the six months ended June 30, 2021 from $6.4 million for the
six months ended June 30, 2020. The increase reflected a 77 basis point increase
in our net interest rate spread to 2.27% for the six months ended June 30, 2021
from 1.50% for the six months ended June 30, 2020. Our net interest margin
increased 61 basis points to 2.46% for the six months ended June 30, 2021 from
1.85% for the six months ended June 30, 2020.

Provision for Loan Losses. We recorded a credit for loan losses of $113,000 for
the six months ended June 30, 2021 compared to a $250,000 provision for loan
losses for the six-month period ended June 30, 2020. Lower balances in
residential loans, a more positive economic environment and continued strong
asset quality metrics were the reasons for the credit during the six months
ended June 30, 2021. The Bank continues to have a low level of delinquent and
non-accrual loans in the portfolio, as well as no charge-offs. Non-performing
assets were $685,000, or 0.08% of total assets, at June 30, 2021. The allowance
for loan losses was $2.1 million, or 0.36% of loans outstanding and 310.9% of
nonperforming loans, at June 30, 2021.

Non-Interest Income. Non-interest income increased by $2.0 million or 220.8%, to
$2.9 million for the six months ended June 30, 2021 from $889,000 for the six
months ended June 30, 2020. The increase was due to $1.9 million bargain
purchase gain for the Gibraltar merger, a $520,000 gain on sale of $15.7 million
residential loans sold during the six months ended June 30, 2021, offset by
$614,000 lower income on bank owned life insurance.

Non-Interest Expense. For the six months ended June 30, 2021, non-interest
expense decreased $223,000 to $7.0 million, over the comparable 2020 period.
Salaries and employee benefits increased $1.1 million, or 45.3%, attributable to
adding the new Gibraltar employees and normal merit increases. Data processing
expense increased $570,000, or 183.0%, due to higher data processing expense
from maintaining two core systems and expense associated with the upcoming core
conversion. Professional fees increased $143,000, or 44.0%, due to higher legal
and consulting fees. Merger expenses increased $392,000 associated with the
Gibraltar Bank acquisition. The increase of other general operating expenses was
mainly due to increase occupancy costs for the acquired Gibraltar Bank branches
and the branch location in Hasbrouck Heights expected to be opened in June.
During the six months ended June 30, 2020 the Bank made a $2.9 million
contribution to the Bogota Charitable Foundation and there was no contribution
for the six months ended June 30, 2021

Income Tax Expense. Income tax expense increased $1.2 million, to $864,000 for
the six months ended June 30, 2021 from a benefit of $289,000 for the six months
ended June 30, 2020. The increase was due to $5.5 million of higher taxable
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, have longer maturities than our
liabilities, consisting primarily of deposits. As a result, a principal part of
our business strategy is to manage our exposure to changes in market interest
rates. Accordingly, our board of directors has established an Asset/Liability
Management Committee (the "ALCO"), which is comprised of three members of
executive management and two independent directors, which oversees the
asset/liability management processes and related procedures. The ALCO meets on
at least a quarterly basis and reviews asset/liability strategies, liquidity
positions, alternative funding sources, interest rate risk measurement reports,
capital levels and economic trends at both national and local levels. Our
interest rate risk position is also monitored quarterly by the board of
directors.

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

Net Portfolio Value Simulation.  We analyze our sensitivity to changes in
interest rates through a net portfolio value of equity ("NPV") model. NPV
represents the present value of the expected cash flows from our assets less the
present value of the expected cash flows arising from our liabilities, adjusted
for the value of off-

                                       38
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balance sheet contracts. The NPV ratio represents the dollar amount of our NPV
divided by the present value of our total assets for a given interest rate
scenario. NPV attempts to quantify our economic value using a discounted cash
flow methodology while the NPV ratio reflects that value as a form of capital
ratio. We estimate what our NPV would be at a specific date. We then calculate
what the NPV would be at the same date throughout a series of interest rate
scenarios representing immediate and permanent, parallel shifts in the yield
curve. We currently calculate NPV under the assumptions that interest rates
increase 100, 200, 300 and 400 basis points from current market rates and that
interest rates decrease 100 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 June 30, 2021. All
estimated changes presented in the table are within the policy limits approved
by the board of directors.



                                                                             NPV as Percent of Portfolio
                                                NPV                                Value of Assets
                                      (Dollars in thousands)
Basis Point ("bp") Change in    Dollar        Dollar        Percent
       Interest Rates           Amount        Change        Change         NPV Ratio             Change
           400 bp              $ 116,931$ (15,463 )      (11.68 )%          15.97 %             (26.21 )%
           300 bp                124,778        (7,616 )       (5.75 )           16.59                 3.04
           200 bp                131,558          (836 )       (0.63 )           16.99                 5.53
           100 bp                134,669         2,275          1.72             16.88                 4.84
             -                   132,394             -             -             16.10
          (100) bp               137,793         5,399          9.78             16.30                 1.25





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 above table 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.

                                       39
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As of June 30, 2021, net interest income simulation results indicated that its
exposure over one year to changing interest rates was within our guidelines. The
following table presents the estimated impact of interest rate changes on our
estimated net interest income over one year:



Changes in Interest Rates   Change in Net Interest Income Year One
    (basis points)(1)            (% change from year one base)
           400                              (6.63)%
           300                               -4.75
           200                               -2.65
           100                               -1.17
            -                                  -
          (100)                              1.49


(1) The calculated change in net interest income assumes an instantaneous

parallel shift of the yield curve.



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

Liquidity and Capital Resources


Liquidity. Liquidity describes our ability to meet the 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, proceeds from
calls, maturities and sales of securities and sales of loans. We also have the
ability to borrow from the Federal Home Loan Bank of New York. At June 30, 2021,
we had the ability to borrow up to $257.5 million, of which $97.0 million was
outstanding and $1.5 million was utilized as collateral for letters of credit
issued to secure municipal deposits. At June 30, 2021, we had $51.0 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 enough sources of
liquidity to satisfy our short- and long-term liquidity needs as of June 30,
2021.

While maturities and scheduled amortization of loans and securities are
predictable sources of funds, deposit flows and loan prepayments are greatly
influenced by market interest rates, economic conditions, and competition. Our
most liquid assets are cash and cash equivalents. The levels of these assets are
dependent on our operating, financing, lending and investing activities during
any period. At June 30, 2021, cash and cash equivalents totaled $100.7
million. Securities classified as available-for-sale, which provide additional
sources of liquidity, totaled $11.2 million at June 30, 2021.

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, 2021 totaled $277.6 million, or 48.8% 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.

                                       40

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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, 2021, 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 a result of the CARES Act, the ratio was
temporarily reduced to 8% for calendar year 2020 and 8.5% for calendar year 2021
in response to COVID-19. As of June 30, 2021, the Bank is reporting as a
qualifying community bank with a ratio of 17.67%.

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