Bogota Financial Corp. — Q3 2020 Form 10-Q
Business context and period. This unaudited filing covers the quarter and nine months ended September 30, 2020. Bogota Financial Corp. was formed in January 2020 as the stock holding company for Bogota Savings Bank and completed its reorganization and stock offering that month. The 2019 comparative operating results relate solely to the Bank, as the Company had not yet completed the reorganization. The Bank primarily serves New Jersey customers.
Financial performance and position
- Third-quarter results: Net interest income was $3.59 million, up 30.6% year over year; net income was $956,416, up 42.5%. Net interest margin increased to 1.97% from 1.74%. Net income benefited from lower funding costs, while non-interest expense rose $455,000 and the Bank recorded a $25,000 loan-loss provision.
- Nine-month results: Net interest income was $9.96 million, up 19.4%; net income was $1.02 million, down 37.7%. Net interest margin was 1.90%, compared with 1.75%. Results included a $2.88 million contribution expense to the Bogota Savings Bank Charitable Foundation. Management stated that without this contribution, nine-month net income would have been $3.9 million. The nine-month effective tax rate was 3.6%, versus 25.4% in 2019.
- Revenue and costs: Nine-month interest income rose 2.1% to $17.64 million, while interest expense fell 14.0% to $7.67 million. Non-interest income increased to $997,000, including $648,000 of bank-owned life insurance death proceeds. Non-interest expense rose to $9.63 million, principally reflecting the foundation contribution and higher public-company and merger-related professional fees.
- Cash flow: Nine-month operating cash flow was $4.73 million; investing activities used $43.61 million, largely reflecting $45.56 million of net loan growth; financing activities used $17.57 million. Cash and cash equivalents declined $56.45 million to $71.41 million, including the return of $41.51 million in unfilled stock-offering subscriptions.
- Balance sheet at September 30: Assets were $753.50 million, down 1.7% from year-end 2019; excluding returned subscriptions, management reported asset growth of 3.9%. Net loans rose 8.7% to $583.82 million, deposits increased 2.6% to $510.86 million, and FHLB advances increased 11.4% to $108.15 million. Stockholders’ equity was $127.40 million, up from $74.98 million, largely due to the offering and reorganization.
- Credit quality: The allowance for loan losses was $2.32 million, or 0.40% of loans. Nonperforming assets were $672,000, or 0.09% of assets; there were no loan charge-offs reported. Loans 60–89 days past due totaled $433,626, and none were 90 days past due and still accruing.
Material changes and outlook
- Portfolio mix: Commercial and multifamily real estate loans increased $53.3 million to $173.2 million, while one-to-four-family residential loans declined $19.2 million to $365.1 million. Commercial and industrial loans rose to $13.8 million, including approximately $10.5 million of PPP loans.
- COVID-19 support: The Bank modified 172 loans totaling $67.9 million, or 11.6% of the portfolio, to defer principal and/or interest. As of September 30, 25 loans totaling approximately $7.95 million remained in deferral, all residential real estate loans. The filing warns that prolonged economic disruption could increase delinquencies, credit losses, collateral impairment and pressure on income and liquidity.
- Acquisition: The Bank agreed to acquire Gibraltar Bank. At September 30, Gibraltar had approximately $108.8 million of assets, $80.6 million of gross loans and $84.6 million of deposits. Closing was expected in the first quarter of 2021, subject to member and regulatory approvals and other conditions. Bogota Financial expected to issue additional shares to its mutual holding company based on an independent appraisal of Gibraltar’s fair value.
- Liquidity and capital: The Bank reported $233.9 million of FHLB borrowing capacity, with $108.1 million outstanding and $1.5 million used as collateral for letters of credit; it also had $51.0 million in unused unsecured correspondent-bank lines. Certificates of deposit totaling $230.0 million, or 43.2% of deposits, were due within one year. The Bank reported a 17.09% Community Bank Leverage Ratio and stated it exceeded applicable capital requirements and was well capitalized.
- Interest-rate exposure: The filing’s simulations estimate that a 400-basis-point rate increase would reduce one-year net interest income by 4.73%; modeled net portfolio value would decline 21.59%. Management cautions that these scenarios are assumption-dependent, not forecasts.
- Guidance and contingencies: No specific earnings or revenue guidance was provided. Management said liquidity was sufficient for current needs, but deposit retention, loan prepayments, economic conditions and market rates could affect funding. The filing reports no material pending legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Progress toward Gibraltar acquisition approvals, expected timing, share issuance and integration costs.
- Performance of the $7.95 million still in COVID-related deferral and changes in delinquencies, nonperforming assets and allowance coverage.
- Retention and replacement costs for the $230.0 million of certificates of deposit due within one year, as well as brokered deposits of $58.1 million.
- Loan growth and concentration shifts, particularly commercial and multifamily real estate exposure, and the credit outcomes of PPP and modified loans.
- Underlying earnings and expenses after separating the charitable contribution, death-benefit proceeds, public-company costs and merger-related costs.
- Actual sensitivity to interest rates and available liquidity compared with the filing’s modeled estimates and stated borrowing capacity.