Bogota Financial Corp. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are with the year ended December 31, 2020 unless stated otherwise. Bogota Financial Corp. is the holding company for Bogota Savings Bank, a New Jersey community bank focused mainly on residential, commercial and multi-family real estate lending.
Business context and reporting period
- On February 28, 2021, the Company acquired Gibraltar Bank, adding three branches and a loan production office. It issued 1,267,916 shares to Bogota Financial, MHC; systems conversion was completed in August.
- At year-end, the Company reported six offices, $837.4 million of assets, $597.5 million of deposits and $147.6 million of equity. The loan portfolio was concentrated in residential real estate ($320.0 million, 55.9% of loans) and commercial and multi-family real estate ($175.4 million, 30.6%).
Financial performance and condition
| Metric | 2021 | 2020 | Change / context |
|---|---|---|---|
| Total assets, year-end | $837.4 million | $740.9 million | Up 13.0%, primarily reflecting Gibraltar assets |
| Interest income | $25.1 million | $23.3 million | Up $1.8 million |
| Interest expense | $5.8 million | $9.7 million | Down $3.9 million |
| Net interest income | $19.3 million | $13.6 million | Up 41.8% |
| Net interest margin | 2.50% | 1.93% | Up 57 basis points |
| Net income | $7.5 million | $2.1 million | Up $5.5 million |
| Basic / diluted EPS | $0.55 / $0.54 | $0.17 / $0.17 | Higher earnings; weighted-average shares also increased |
| Operating cash flow | $5.2 million | $5.8 million | Down $0.6 million |
| Cash and cash equivalents, year-end | $105.1 million | $80.4 million | Up $24.7 million |
| Deposits, year-end | $597.5 million | $502.0 million | Up 19.0%, including Gibraltar deposits |
| FHLB borrowings, year-end | $85.1 million | $104.3 million | Down $19.2 million |
| Equity, year-end | $147.6 million | $128.5 million | Up 14.9%, including acquisition-related share issuance and earnings |
- The efficiency ratio improved to 60.85% from 81.60%; return on average assets rose to 1.23% from 0.28%, and return on average equity to 7.06% from 1.66%.
- Net interest income benefited from lower deposit and borrowing costs and loan growth. The average cost of interest-bearing liabilities fell to 0.91% from 1.68%; the average yield on interest-earning assets eased to 3.24% from 3.31%.
- Credit quality remained strong by reported measures: non-performing loans were $865,000, or 0.15% of loans, versus $693,000, or 0.12%, in 2020. The allowance was $2.15 million, 0.38% of loans; there were no charge-offs in 2021. The Company recorded an $88,000 provision credit, compared with a $200,000 provision in 2020.
- Liquidity included $105.1 million of cash and $41.8 million of available-for-sale securities. The Bank reported $247.0 million of FHLB borrowing capacity, of which $85.1 million was outstanding and $1.5 million used to support municipal-deposit letters of credit, plus $51.0 million of unused correspondent-bank lines.
- Certificates of deposit were $366.4 million, or 61.3% of deposits; $254.3 million mature in 2022. Brokered deposits were $52.9 million (8.9% of deposits), and municipal deposits were $31.5 million (5.3%).
- The Bank’s reported leverage ratio was 14.55% and it was classified as well capitalized. The Company had no cash dividend program anticipated.
Material changes versus the prior period
- Net income rose substantially, but 2021 included a $1.95 million bargain-purchase gain from Gibraltar and a $786,000 gain on sale of $25.0 million of residential loans. Bank-owned life insurance income also increased by $409,000.
- Non-interest expense increased 20.6% to $14.5 million. Added employees and branches, acquisition costs and core-system conversion contributed; 2021 included $392,000 of merger costs and $730,000 of conversion costs. In contrast, 2020 included a $2.88 million charitable-foundation contribution.
- Deposits increased by $95.5 million and assets by $96.5 million, substantially reflecting the acquisition. Net loans rose only 2.2% to $570.2 million: acquired loans and growth in construction lending were partly offset by repayments and the sale of residential loans.
- Construction loans increased to $41.4 million from $9.9 million; residential loans declined to $320.0 million from $340.0 million. Commercial and multi-family loans were broadly stable at $175.4 million.
Outlook, risks and unusual items
- No numerical earnings or balance-sheet guidance is provided. Management describes a strategy of moderate organic growth, continued residential lending, greater emphasis on commercial and multi-family lending, core-deposit growth, expense control and consideration of opportunistic acquisitions or branches.
- Key risks include concentration in New Jersey real estate and local economic conditions; increased exposure from commercial, multi-family and construction lending; interest-rate and margin sensitivity; competition for deposits; and the potential need to replace maturing certificates with higher-cost funding.
- Management highlights cybersecurity, third-party service, regulatory and key-personnel risks, as well as continuing uncertainty from COVID-19 and possible effects on borrowers, collateral and credit losses. CECL was scheduled for adoption beginning January 1, 2023; the Company had not determined its effect.
- Interest-rate models estimated one-year net interest income changes of -1.27% under a +400-basis-point shock and -1.45% under a -100-basis-point shock. Management cautions that model assumptions limit predictive value.
- The Company repurchased 25,870 shares in the fourth quarter at an average $10.33 under a 296,044-share authorization; 249,893 shares remained available at year-end. Bogota Financial, MHC retained majority voting control. Management stated that dividends were unlikely under then-current mutual-holding-company restrictions.
- The auditor gave an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal-control effectiveness because the Company was an emerging growth company.
Important facts for investors to verify
- How much of the earnings improvement persists after excluding the Gibraltar bargain-purchase gain and residential-loan sale gain, and what post-integration expense run rate looks like.
- Whether deposit retention and repricing—especially the $254.3 million of 2022 certificate maturities—preserve funding costs, liquidity and net interest margin.
- Credit performance and concentration in commercial real estate, multi-family and construction loans, including the substantial undrawn commitments on construction and other credit lines.
- The final acquisition accounting and realized integration benefits; reported acquisition fair values were still subject to revision for up to one year after closing.
- Future CECL allowance impacts, securities valuation effects as rates change, and the capacity for capital distributions given MHC control and regulatory constraints.