Bogota Financial Corp. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; unaudited consolidated results. Bogota Financial Corp. is a New Jersey-focused bank holding company. Comparisons are with the corresponding 2020 periods or December 31, 2020, as applicable.
Financial performance and position
- Third-quarter results: Net income was $1.04 million, up 9.0% from $956,000; diluted EPS was $0.07 versus $0.08. Net interest income rose 41.2% to $5.08 million. Net interest margin increased to 2.58% from 1.97%, and net interest spread to 2.43% from 1.70%.
- Nine-month results: Net income was $5.49 million versus $1.02 million; diluted EPS was $0.40 versus $0.09. Net interest income increased 44.8% to $14.43 million, and net interest margin rose to 2.50% from 1.90%. The 2021 result included a $1.93 million bargain-purchase gain from the Gibraltar acquisition.
- Revenue and costs: Third-quarter interest income increased 9.9% to $6.49 million while interest expense fell 38.9% to $1.41 million. Nine-month interest income increased 7.5% to $18.96 million, while interest expense declined 40.9% to $4.53 million. For the nine months, non-interest income was $3.23 million and non-interest expense was $10.79 million.
- Cash flow: Nine-month operating cash flow was $3.92 million, compared with $4.73 million in 2020. Investing activities provided $48.74 million, largely reflecting loan repayments, net cash acquired in the merger, and loan sales; financing activities used $16.71 million. Cash and cash equivalents increased $35.94 million to $116.33 million.
- Balance sheet at September 30: Total assets were $835.03 million, up 12.7% from year-end 2020. Net loans were $579.91 million, up 4.0%; deposits were $591.22 million, up 17.8%; and stockholders’ equity was $145.62 million, up $17.15 million.
- Debt and liquidity: FHLB advances were $90.10 million, down from $104.29 million; the reported weighted-average borrowing rate was 1.65%. The company reported $116.33 million of cash and cash equivalents, $18.21 million of available-for-sale securities, up to $255.1 million of FHLB borrowing capacity (with $90.1 million outstanding and $1.5 million used for letters of credit), and $51.0 million in undrawn unsecured bank lines. Certificates of deposit totaling $276.8 million, or 46.8% of deposits, were due within one year.
- Credit quality: The allowance for loan losses was $2.15 million, 0.37% of loans; management reported coverage of nonperforming loans of 114.2%. Nonperforming assets were $1.9 million, or 0.33% of assets. Nonaccrual loans were $754,000, with no loans 90 days past due and still accruing; no charge-offs were reported for the periods discussed.
- Capital: The Bank said it exceeded applicable regulatory capital requirements and was “well capitalized.” Its Community Bank Leverage Ratio was 17.67% at September 30, 2021.
Material changes and notable items
- The company acquired Gibraltar Bank on February 28, 2021. Gibraltar had $106.2 million of assets, $77.7 million of gross loans, and $81.6 million of deposits at acquisition. The transaction produced a $1.93 million bargain-purchase gain and a $400,000 core deposit intangible. Core processing conversion was completed in August.
- Year-end-to-quarter-end asset growth primarily reflected the acquisition. Deposits rose mainly from acquired balances; loans grew more modestly, with construction lending increasing to $37.2 million from $9.9 million. Residential loans declined, reflecting repayments and sales.
- The company recognized a $647,000 gain on $20.0 million of residential loan sales during the first nine months, including a $127,000 gain on $4.3 million sold in Q3. It also purchased $8.0 million of bank-owned life insurance during 2021.
- Expense growth reflected added Gibraltar staff and branches, data-processing costs while operating two core systems, $392,000 of merger expenses, and $730,000 of core-conversion costs. The prior-year comparison included a $2.88 million charitable-foundation contribution, versus none in 2021.
- In September, the company awarded 226,519 restricted shares and options for 526,119 shares under its equity plan. The Board authorized repurchases of up to 296,044 shares; 20,281 shares had been repurchased by September 30 at an average $10.49 per share.
Outlook, risks, and contingencies
- The filing provides no specific financial guidance or quantified earnings forecast. Management said liquidity was sufficient for expected short- and long-term needs and that interest-rate simulation results were within policy guidelines; these are estimates, not forecasts of actual results.
- Management identifies interest-rate risk as its principal market risk. Its one-year net-interest-income model estimated changes ranging from a 0.36% increase under a 100-basis-point rise to a 0.10% decrease under a 400-basis-point rise; results depend on assumptions and may differ from actual outcomes.
- COVID-19 remains a stated risk to borrowers, collateral values, credit losses, fee income, operations, and liquidity. The Bank had granted 172 modifications totaling $67.9 million; one residential loan of $117,000 remained on deferral at September 30. It held $8.2 million in outstanding PPP loans.
- Other disclosed risks include local economic and real-estate conditions, borrower repayment capacity, deposit retention and funding costs, competition, regulatory changes, and the integration of acquired operations. Management specifically notes judgment and uncertainty in the loan-loss allowance and appraisal estimates.
- Outstanding loan commitments included $15.76 million fixed-rate and $768,000 variable-rate commitments, plus undisbursed home-equity lines of $49.05 million. The filing reports no material pending legal proceedings and no material changes to previously disclosed risk factors.
Investor verification points
- Separate recurring operating performance from the Gibraltar bargain-purchase gain, loan-sale gains, merger and conversion costs, and the prior-year charitable contribution.
- Review acquisition accounting and integration: acquired loan marks, final fair-value adjustments, realized synergies, and ongoing staffing, branch, and systems costs.
- Monitor credit performance, especially classified and past-due loans, COVID-related modifications, acquired loans, construction exposure, and the adequacy of the allowance.
- Assess funding concentration and renewal risk, including certificates of deposit due within one year, brokered deposits of $55.0 million, municipal deposits, and available borrowing capacity.
- Check the effects of equity awards and the repurchase program on share count and per-share results, and compare subsequent results with the filing’s rate-risk assumptions.