Bogota Financial Corp. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited consolidated results include Bogota Savings Bank and subsidiaries. The February 28 acquisition of Gibraltar Bank materially affects period comparisons.
Financial performance
- Q2 net income: $1.44 million, up 2.5% from $1.40 million; diluted EPS was $0.10 versus $0.11. The increase in weighted-average shares contributed to lower EPS.
- First-half net income: $4.45 million versus $65,000 in 2020; EPS was $0.33 versus $0.01. First-half 2021 included a $1.93 million bargain purchase gain from Gibraltar.
- Net interest income: Q2 $4.77 million, up 45%; first half $9.35 million, up 47%. Net interest margin rose to 2.44% for Q2 from 1.88%, and to 2.46% for the first half from 1.85%.
- Interest rates and costs: Q2 average earning-asset yield was 3.17%, down from 3.32%; average cost of interest-bearing liabilities fell to 0.90% from 1.78%. Lower funding costs drove the margin improvement.
- Credit provision: The company recorded a $54,000 credit in Q2 and a $113,000 credit for the first half, versus provisions of $225,000 and $250,000, respectively, in 2020.
- Non-interest items: Q2 non-interest income was $533,000, down 31%, partly because the prior-year period included life-insurance death proceeds. First-half non-interest income was $2.85 million, including the bargain gain and $520,000 gain on loan sales. Q2 non-interest expense rose to $3.58 million, principally reflecting Gibraltar staffing, systems and occupancy costs.
- Cash flow: First-half operating cash flow was $2.88 million, compared with $3.96 million in 2020. Investing activities provided $49.14 million, including $19.39 million of net cash acquired in the merger; financing activities used $31.73 million. Cash and cash equivalents ended at $100.67 million.
Financial condition and material changes
- Total assets increased 10.5% from year-end to $818.9 million, with the Gibraltar acquisition a principal driver. Net loans were $583.8 million, up 4.7%; deposits were $569.2 million, up 13.4%.
- Cash and cash equivalents were $100.7 million; available-for-sale securities were $11.2 million and held-to-maturity securities were $77.7 million.
- FHLB advances were $97.0 million, down from $104.3 million at year-end. Stockholders’ equity was $144.6 million. The Bank reported a 17.67% Community Bank Leverage Ratio and said it exceeded applicable capital requirements and was “well capitalized.”
- Gibraltar contributed approximately $106 million of assets, $77.7 million of gross loans and $81.6 million of deposits at acquisition. The transaction issued 1,267,916 shares to Bogota MHC and generated the $1.93 million bargain purchase gain. Purchase accounting valuations remained subject to change for up to one year after closing. Core-system and data conversion was expected around August 16, 2021.
- The board approved a repurchase authorization for 296,044 shares, approximately 5% of outstanding shares excluding MHC-held shares. No shares were repurchased under the program during the reported quarter.
Credit quality, liquidity and risks
- Nonperforming assets were $685,000, or 0.08% of assets; nonaccrual loans were $685,000, with no loans 90 days past due still accruing. The allowance was $2.13 million, 0.36% of loans and 310.9% of nonperforming loans. No charge-offs were reported.
- COVID-19 modifications had been granted on 172 loans totaling $67.9 million; five loans totaling $884,000 remained on deferral at June 30. Management cautioned that the pandemic could affect borrowers, collateral values, credit losses, income and liquidity.
- Liquidity included $100.7 million in cash, $11.2 million in available-for-sale securities, FHLB borrowing capacity of up to $257.5 million (with $97.0 million outstanding and $1.5 million used for letters of credit), and $51.0 million of unused correspondent-bank lines. Certificates of deposit totaling $277.6 million, or 48.8% of deposits, were due within one year.
- Interest-rate models estimated that an immediate 400-basis-point rise would reduce one-year net interest income by 6.63% and NPV by 11.68%; a 100-basis-point decline was estimated to increase net interest income by 1.49%. Management noted that model assumptions limit predictive precision.
- Other stated risks include credit and real-estate conditions, funding costs, competition, interest-rate changes, regulatory changes, cybersecurity and successfully integrating acquisitions. Management gave no specific earnings or revenue guidance. It said liquidity was sufficient for anticipated needs; no material risk-factor changes or material litigation were reported.
Important facts for investors to verify
- How recurring earnings and margins trend after excluding the bargain purchase gain, loan-sale gains and other unusual items.
- Whether Gibraltar integration and the planned systems conversion deliver expected efficiencies, and how final purchase accounting valuations affect results.
- Deposit retention and funding costs, especially as $277.6 million of certificates mature within one year and brokered deposits were $54.2 million.
- Loan performance and allowance adequacy as COVID-related deferrals end, with particular attention to commercial real estate and acquired loans.
- Execution of the share-repurchase authorization and the effect of the acquisition-related share issuance on per-share results.