Bogota Financial Corp. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2019. The unaudited financial statements in this filing are for Bogota Savings Bank and its subsidiaries: Bogota Financial Corp. had no assets, liabilities, or business activity beyond organization because the reorganization had not been completed at quarter-end.
Financial performance
- Third quarter: Interest income was $5.80 million, up 5.3% year over year; net interest income was $2.75 million, down 15.5%; and net income was $671,000, down 28.5% from $939,000.
- Nine months: Interest income was $17.27 million, up 5.1%; net interest income was $8.35 million, down 18.2%; and net income was $1.64 million, down 50.1% from $3.29 million.
- Margins and costs: Third-quarter net interest margin declined to 1.74% from 2.08%, and the interest-rate spread fell to 1.51% from 1.93%. For nine months, net interest margin was 1.75% versus 2.18%, and spread was 1.53% versus 2.04%. Higher deposit and borrowing costs were the main pressure on net interest income.
- Expenses and taxes: Third-quarter non-interest expense fell 7.0% to $1.94 million, helped by lower data-processing costs. Nine-month non-interest expense rose 5.7% to $6.56 million, primarily on higher salaries and data-processing costs. Nine-month income tax expense was $558,000; the effective tax rate was 25.4% versus 26.3%.
- Cash flows: For the nine months, operating activities provided $2.30 million and investing activities provided $7.40 million; financing activities used $1.45 million. Cash and cash equivalents increased $8.25 million to $32.77 million.
Financial position, liquidity, and capital
- Total assets were $665.6 million, essentially unchanged from year-end 2018. Net loans rose 1.9% to $536.5 million; cash and cash equivalents rose 33.7% to $32.8 million; and held-to-maturity securities declined 25.1% to $52.5 million, mainly due to maturities.
- Deposits fell 7.0% to $474.4 million. Management attributed the decline chiefly to a large municipal deposit withdrawal, competitive pressure on savings accounts, and runoff of promotional certificates. FHLB advances increased 45.9% to $108.9 million to fund loan growth and replace deposit outflows.
- Cash and cash equivalents were $32.8 million and available-for-sale securities were $11.9 million. The Bank reported $256.7 million of FHLB borrowing capacity, with $110.5 million outstanding and $1.5 million used as collateral for municipal-deposit letters of credit, plus $51.0 million of unused unsecured correspondent-bank lines.
- Certificates of deposit totaling $274.5 million, or 57.9% of deposits, were due within one year. The Bank said it believed liquidity was sufficient, while noting replacement funding could cost more if deposits leave.
- Equity was $74.1 million. The Bank was categorized as well capitalized; its reported total capital-to-risk-weighted-assets ratio was 18.47% and Tier 1 capital-to-average-assets ratio was 11.26%.
Material changes, risks, and unusual items
- Loan growth was led by residential mortgages, including $12.9 million of purchased one- to four-family loans during the first nine months. Loans totaled $538.6 million before the allowance.
- The allowance for loan losses was $2.02 million, or 0.37% of net loans. No provision or net charge-offs were recorded in the 2019 quarter or nine-month period. Nonaccrual loans were approximately $557,000; no loans were 90 days past due and still accruing. The filing reports nonperforming assets of approximately $537,000 for the quarter discussion and $557,000 in the nine-month discussion.
- Interest-rate risk is significant: the Bank reported that a parallel 400-basis-point rate increase would reduce modeled net interest income over one year by 12.49%; a 400-basis-point decrease would increase it by 0.40%. Management cautioned that these simulations are hypothetical and rely on assumptions.
- The Bank’s September 2019 reorganization plan had regulatory approval but still required approval by voting depositors. It proposed a public stock offering, with Bogota Financial, MHC retaining 55% and 45% offered to eligible depositors, the ESOP, a community foundation, and certain others. Shares were to be priced at $10; $465,634 of reorganization costs had been incurred by September 30. If the conversion failed, deferred costs would be charged to operations.
- Other disclosed risks include local economic and real-estate conditions, credit quality, deposit competition and funding access, interest-rate movements, regulation, and the Bank’s ability to execute its plans. Management gave no specific earnings or operating guidance.
- The Bank adopted accounting guidance allowing reclassification of certain tax effects from accumulated other comprehensive income to retained earnings, moving $68,713 between those accounts. Adoption of the revenue-recognition standard had no material effect. The Bank was evaluating the impacts of forthcoming lease and expected-credit-loss standards.
Investor facts to verify
- Confirm the reorganization and public offering’s completion, final valuation, share count, and use of proceeds; the filing states no Bogota Financial Corp. common shares were outstanding as of December 20, 2019.
- Track whether deposit outflows continue and how reliance on FHLB advances, brokered deposits, and other funding affects costs and liquidity.
- Monitor deposit pricing and net interest margin, given the reported year-over-year margin compression and higher funding costs.
- Review credit performance, allowance adequacy, and concentrations in residential and commercial real estate loans.
- Reconcile the filing’s differing nonperforming-asset figures ($537,000 and $557,000) and assess upcoming certificate-of-deposit maturities.