Bogota Financial Corp. — Q1 2023 Form 10-Q
Business context and reporting period
Unaudited results cover the three months ended March 31, 2023, compared with the same period in 2022; balance-sheet comparisons are with December 31, 2022. The company is the holding company for a New Jersey community bank focused on residential, commercial and consumer lending and deposits.
Financial results and condition
- Earnings: Net income was $993,000, down 29.1% from $1.401 million; diluted EPS was $0.08 versus $0.10. Income before taxes fell to $1.291 million from $1.926 million.
- Interest and margins: Interest income rose 43.6% to $9.017 million, but interest expense increased 288.6% to $4.492 million. Net interest income declined 11.7% to $4.525 million. Net interest margin compressed to 2.05% from 2.64%; interest-rate spread fell to 1.68% from 2.48%.
- Other income and expenses: Non-interest income was $283,000, down 17.8%; non-interest expense was $3.517 million, down 0.7%. Effective tax rate was 23.09%, compared with 27.27%.
- Assets and equity: Total assets were $950.3 million, down $809,000 from year-end. Net loans were $711.9 million, down about 1.0%; stockholders’ equity was $139.1 million, down $573,000. Average equity-to-assets was 14.69%.
- Deposits and borrowings: Deposits were $690.7 million, down $10.7 million. FHLB advances totaled $112.0 million, up $9.7 million; weighted-average borrowing rate was 3.71%, versus 3.36% at year-end. The Bank reported $336.8 million of FHLB borrowing capacity, with $112.6 million outstanding in the liquidity discussion, and $51.0 million in unused correspondent-bank lines.
- Liquidity and cash flow: Cash and cash equivalents were $24.5 million, up $7.7 million from year-end. Operating cash flow was $1.217 million, compared with $8.208 million in Q1 2022; investing activities provided $8.481 million, compared with using $57.870 million; financing activities used $2.037 million, compared with providing $13.648 million.
- Credit and securities: No provision for credit losses was recorded in either comparative quarter. The allowance for credit losses was $2.861 million at March 31. Available-for-sale securities were $82.1 million, with $9.2 million of gross unrealized losses; held-to-maturity securities were $78.2 million, with fair value of $71.2 million.
Material changes versus the prior comparable period
- Higher asset yields and loan balances lifted interest income, but rising funding costs more than offset the increase. Average cost of interest-bearing liabilities rose to 2.38% from 0.73%, while average yield on interest-earning assets rose to 4.06% from 3.21%.
- Deposit interest expense increased to $3.715 million from $826,000; average certificate-of-deposit balances increased by $152.3 million year over year.
- Comprehensive income was $747,000, compared with a comprehensive loss of $958,000 in Q1 2022, as securities-related other comprehensive loss was much smaller than in the prior-year quarter.
- The company repurchased 126,660 shares for $1.403 million during Q1. It announced completion of its repurchase program on May 5, 2023.
Outlook, risks and unusual items
- Outlook: The filing provides no specific earnings or growth guidance. Management said it believed liquidity was ample and funding commitments could be met, while noting deposit flows and loan prepayments are sensitive to rates, economic conditions and competition.
- Credit quality: Management reported non-performing assets of $12.9 million, or 1.35% of assets, and highlighted a $10.9 million collateral-dependent construction loan in Totowa, New Jersey, with a reported 46% loan-to-value ratio. The filing’s nonaccrual-loan table appears inconsistent with these figures; the reported total and category details are unclear and warrant verification.
- CECL adoption: On January 1, 2023, the company adopted the current expected credit loss standard. It reported a one-time retained-earnings reduction of approximately $222,000 net of tax, an increase to the loan allowance of $157,000 and a $152,000 reserve for unfunded commitments. Adoption also changed portfolio classifications.
- Interest-rate exposure: The company’s modeled one-year net interest income falls 15.23% under an immediate 400-basis-point rate increase and rises 3.94% under a 200-basis-point decrease. Management cautions that these simulations rely on assumptions and are not forecasts.
- Funding and market risks: Certificates of deposit totaling $320.3 million, or 46.4% of deposits, mature within one year. Uninsured deposits were 8.4% of total deposits; brokered deposits were 7.3%. The filing cites banking-industry stress, deposit competition, interest-rate and real-estate conditions, possible recession, and U.S. government debt-ceiling risks. Management stated that unrealized securities losses primarily reflected rates and market conditions, not credit deterioration, and that it did not expect to be required to sell the securities before recovery.
- Other disclosures: The Bank reported a 15.60% Community Bank Leverage Ratio and said it exceeded applicable regulatory capital requirements and was well capitalized. Management concluded disclosure controls were effective; no material legal proceedings were disclosed.
Important facts for investors to verify
- Reconcile the filing’s reported $12.9 million of non-performing assets and $10.9 million construction loan with the inconsistent nonaccrual and past-due loan table.
- Track deposit retention, CD repricing and maturities, uninsured and brokered deposit balances, and the use and cost of FHLB funding.
- Assess whether loan yields can continue to outpace deposit and borrowing costs, given the Q1 decline in net interest margin.
- Review the size and duration of unrealized securities losses, liquidity available without selling securities, and the effect of rate changes on earnings and economic value.
- Monitor performance and collateral values for the delinquent construction loan, credit quality trends, and the allowance under the newly adopted CECL methodology.