Bogota Financial Corp. — Q1 2020 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2020. Bogota Financial Corp. was formed and completed its mutual-to-stock reorganization and initial public offering on January 15, 2020; its shares began trading January 16 under BSBK. The Bank primarily serves New Jersey customers through residential, commercial and consumer lending and deposit-taking. Q1 2019 comparative results are for Bogota Savings Bank alone, before the parent company had been formed, so comparisons and per-share data are not fully like-for-like.
Financial results and position
- Earnings: Net loss was $1.34 million versus net income of $362,000 in Q1 2019; basic loss per share was $0.13. The loss chiefly reflects $2.88 million of expense for a contribution to the Bogota Charitable Foundation associated with the reorganization. Excluding that contribution and the prior-year data-processing de-conversion expense, non-interest expense rose about $9,000.
- Interest income and margins: Interest income increased 4.0% to $5.92 million; interest expense declined 1.5% to $2.83 million. Net interest income increased 9.6% to $3.08 million. Net interest margin was 1.79%, up 2 basis points year over year, while the interest-rate spread narrowed 14 basis points to 1.42%.
- Credit costs: The provision for loan losses was $25,000, compared with none a year earlier. The allowance was $2.04 million, or 0.37% of loans. Nonperforming assets were $587,000, or 0.08% of total assets; there were no net charge-offs in the quarter.
- Assets and loans: Total assets were $708.7 million, down 7.6% from year-end, largely reflecting returned unfilled stock subscriptions. Net loans rose 1.8% to $546.7 million; total loans were $548.7 million. Cash and cash equivalents fell 48.6% to $65.7 million.
- Deposits and borrowings: Deposits declined 4.1% to $477.6 million, mainly as certificates of deposit matured and were not all renewed. FHLB advances were $99.3 million, up from $97.1 million. Brokered deposits were $53.1 million, or 11.1% of deposits.
- Equity and capital: Stockholders’ equity was $124.7 million, up from $75.0 million at year-end, reflecting the stock offering and reorganization, partly offset by the quarterly loss and unearned ESOP shares. The Bank was reported as well capitalized; its March 31 total risk-based capital ratio was 28.98% and Tier 1 leverage ratio was 17.39%.
- Cash flow: Operating activities provided $2.36 million; investing activities used $4.83 million and financing activities used $59.68 million. The financing outflow included $41.5 million of returned unfilled offering subscriptions and a $20.1 million net deposit decline. Cash and cash equivalents decreased $62.2 million during the quarter.
Changes, outlook and risks
- The company’s offering and reorganization substantially changed its capital structure and created the parent-company reporting entity. Net loss replaced prior-year net income, principally due to the foundation contribution; interest income and net interest income rose, while the net interest spread contracted.
- COVID-19 was identified as a material uncertainty, with effects on local economic activity, borrowers, asset values, fee income, interest rates, credit costs, liquidity and operations. Management said the duration and financial impact could not yet be determined. The Federal Reserve cut its target range to 0%–0.25% in March, which could pressure asset yields and margins.
- As of May 13, 2020, the Bank had approved modifications covering 158 loans with balances of $87.2 million, approximately 16% of the loan portfolio, allowing principal and/or interest deferrals. As of May 3, it had processed about 73 PPP applications totaling approximately $7.5 million.
- Management reported sufficient liquidity at quarter-end: $65.7 million in cash and equivalents, $13.2 million in available-for-sale securities, FHLB borrowing capacity of $256.5 million (with $99.3 million outstanding and $1.5 million used for letters of credit), and $51.0 million in unused correspondent-bank lines. Certificates of deposit totaling $276.6 million matured within one year, creating potential replacement-funding risk.
- Interest-rate simulations were within board policy limits. A parallel +400-basis-point shock indicated a 22.74% decline in modeled net portfolio value; modeled one-year net interest income declined 1.14% in that scenario. The filing cautions that these estimates depend on assumptions and are not forecasts.
- Other disclosed risks include rising delinquencies or losses, real-estate collateral declines, funding costs, competition, remote-work cybersecurity and third-party service disruptions. The filing gives no earnings or revenue guidance. Management stated disclosure controls were effective and reported no material change in internal controls during the quarter.
Important facts for investors to verify
- Whether COVID-related loan modifications convert into delinquency, charge-offs, higher provisions or reversals of accrued interest and fees.
- Subsequent deposit and certificate-renewal trends, liquidity usage, and the cost and availability of replacement funding.
- The magnitude and timing of continued margin effects from low rates, including actual asset repricing and deposit-cost reductions.
- How much of the reported quarterly loss is attributable to the one-time foundation contribution and whether remaining public-company costs change materially.
- PPP loan originations and forgiveness, and any later disclosures that clarify the effect of pandemic support programs on credit quality and results.