Bogota Financial Corp. (NASDAQ: BSBK) — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Financial statements are unaudited. Bogota Financial Corp. is the holding company for Bogota Savings Bank, which primarily serves New Jersey customers.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net interest income | $6.21 million | $5.08 million | $17.04 million | $14.43 million |
| Net income | $1.93 million | $1.04 million | $4.97 million | $5.49 million |
| Diluted EPS | $0.14 | $0.07 | $0.36 | $0.40 |
| Net interest margin | 2.85% | 2.58% | 2.78% | 2.50% |
| Provision for loan losses | $175,000 | $25,000 | $275,000 | ($88,000) credit |
- Q3 interest income increased 26.1% to $8.18 million, while interest expense rose 39.5% to $1.97 million. Net interest income increased 22.3% year over year.
- Q3 net income rose 85.2%, supported by higher net interest income and lower non-interest expense. For the nine-month period, net income fell 9.4% as lower non-interest income and higher provision and taxes outweighed net interest income growth.
- Nine-month non-interest income was $868,000, down 73.1%. The prior-year period included a $1.93 million bargain-purchase gain from the Gibraltar Bank acquisition; loan-sale gains also declined.
Financial position, cash flow and liquidity
- At September 30, total assets were $946.2 million, up 13.0% from year-end 2021. Net loans were $707.1 million, up 24.0%; growth was led by residential mortgages and construction loans.
- Total deposits were $668.2 million, up 11.8%. FHLB advances were $128.1 million, up from $85.1 million at December 31, 2021. The weighted-average borrowing rate increased to 2.60% from 1.69%.
- Cash and cash equivalents fell 87.3% to $13.3 million, principally as funds were deployed into loans and securities. Available-for-sale securities totaled $88.1 million and held-to-maturity securities totaled $84.1 million.
- For the nine months, operating cash flow was $9.1 million; investing activities used $209.8 million, including net loan growth and securities purchases; financing activities provided $109.0 million. Cash and cash equivalents declined $91.7 million.
- Management reported available FHLB borrowing capacity of $329.5 million, with $128.0 million outstanding and $1.5 million used as collateral for letters of credit. It also had $51.0 million of unused correspondent-bank lines. Management believed liquidity was sufficient, while noting that $244.7 million of certificates of deposit mature within one year and may need replacement at higher rates.
- Stockholders’ equity was $141.1 million, down $6.5 million from year-end, reflecting securities-related accumulated other comprehensive losses and $6.0 million of share repurchases, partly offset by earnings. The Bank reported a 17.50% Community Bank Leverage Ratio and stated it exceeded applicable capital requirements.
Material changes, outlook and risks
- The nine-month increase in net interest income reflected asset growth and improved net interest margin. Q3 interest expense increased as deposit and borrowing costs rose; management cited the higher-rate environment.
- Available-for-sale securities had $9.4 million of gross unrealized losses at quarter-end; held-to-maturity securities had $7.6 million of unrecognized losses. Management attributed declines mainly to higher interest rates, said it did not intend to sell and did not expect forced sales before recovery, and did not consider the securities other-than-temporarily impaired.
- The allowance for loan losses was $2.43 million, or 0.34% of loans. The filing reported no charge-offs during the periods discussed and low delinquency and non-accrual levels. Nonperforming assets were reported at $1.9 million, or 0.20% of assets; nonaccrual loans were $843,897.
- COVID-related modifications totaled 172 loans and $67.9 million cumulatively, but no loans remained on deferral at September 30, 2022. Outstanding PPP loans were $282,000.
- The company expected to adopt CECL on January 1, 2023 and estimated a one-time increase in the loan-loss allowance of less than $500,000.
- Interest-rate risk is material. The company’s models estimated that a parallel 400-basis-point increase would reduce first-year net interest income by 23.75% and net portfolio value by 44.86%; the filing cautions that simulations depend on assumptions and are not forecasts.
- Management provided no specific earnings or growth guidance. It identified risks including economic and real-estate conditions, interest rates and margins, funding access, credit quality, competition, regulation, cybersecurity and execution of growth strategies.
- The company completed a 292,568-share repurchase plan in September and disclosed regulatory approval on October 3 for a further repurchase of up to 556,631 shares. Management reported effective disclosure controls, no material change in internal controls, and no material pending legal proceedings.
Important facts for investors to verify
- Whether rapid loan growth, particularly in residential and construction lending, changes delinquency, credit quality or allowance needs.
- Deposit retention and funding costs, including the $244.7 million of certificates of deposit due within one year and the reliance on municipal, brokered and FHLB funding.
- The effect of further interest-rate changes on net interest margin, securities values, liquidity and the disclosed rate-sensitivity models.
- Whether unrealized securities losses remain non-credit-related and whether the company can avoid selling securities before recovery.
- The realized CECL transition adjustment versus management’s estimate of less than $500,000, and the impact of ongoing share repurchases on capital and per-share results.