Bogota Financial Corp. 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The audited financial statements are for Bogota Savings Bank, not Bogota Financial Corp.: at year-end the holding company had no assets or liabilities and had conducted only organizational activities. The mutual holding company reorganization and stock offering closed January 15, 2020; shares began Nasdaq trading January 16 under BSBK.
Business context and financial performance
Bogota Savings Bank is a New Jersey community bank with two offices, focused primarily on residential real estate lending in Bergen County and nearby markets. Its loan portfolio was 71.3% residential real estate and 22.2% commercial and multi-family real estate at year-end.
- Scale and balance sheet: Assets were $766.6 million, up 15.3% from $665.0 million. Net loans were $537.2 million, up 2.0%; deposits were $497.7 million, down 2.5%; equity was $75.0 million, up 3.5%.
- Earnings: Interest income was $23.1 million, up 5.3%, but interest expense rose 36.7% to $12.0 million. Net interest income fell 15.6% to $11.2 million. Net income declined 41.3% to $2.43 million from $4.14 million; pretax income was $3.28 million.
- Margins and efficiency: Net interest margin decreased to 1.73% from 2.12%, and interest rate spread to 1.51% from 1.97%. Return on average assets was 0.36% (0.63% in 2018), return on average equity 3.30% (5.87%), and the efficiency ratio increased to 72.01% from 60.07%.
- Credit quality: Nonperforming assets fell to $590,000, or 0.08% of assets, from $981,000, or 0.15%. The allowance for loan losses was $2.02 million, 0.37% of loans, and there was no provision in either 2019 or 2018. The bank reported $40,000 in recoveries and no charge-offs in 2019.
- Funding and liquidity: Cash and cash equivalents were $127.9 million versus $24.5 million, largely reflecting offering-related funds. FHLB advances were $97.1 million, up from $74.6 million; unused FHLB borrowing capacity was approximately $155.4 million. Certificates of deposit represented 80.4% of deposits, and $289.0 million of certificates matured within one year. Brokered deposits were $52.1 million, or 10.5% of deposits.
- Cash flow: Operating cash flow was $2.57 million; investing activities provided $1.65 million; financing activities provided $99.1 million, including $90.35 million of subscription offering proceeds. Year-end cash increased by $103.3 million.
- Capital: The bank was classified as well capitalized. Its total risk-based capital ratio was 17.8%, Tier 1 risk-based ratio 17.3%, and Tier 1 leverage ratio 10.8% at year-end.
Material changes and management commentary
- Net interest income contracted as funding costs rose faster than asset yields: the average cost of interest-bearing liabilities increased to 2.09% from 1.55%, while the average yield on earning assets rose to 3.59% from 3.52%. Higher certificate-of-deposit and FHLB borrowing costs were key pressures.
- Deposits declined following a large municipal deposit withdrawal and a reduction in NOW and money-market balances; certificates of deposit increased. The bank used additional FHLB borrowing to help fund loan growth and deposit outflows.
- Management intends to maintain a residential-lending focus while expanding commercial and multi-family lending, attracting lower-cost core deposits, pursuing measured organic growth, and considering acquisitions or branches. No specific acquisition agreement or transaction was identified.
- Management expects public-company costs to increase following the reorganization and offering; employee stock ownership plan expenses and any future stock-based benefit plans may add costs. The filing gives no quantified earnings guidance.
- The offering sold 5,657,735 shares at $10 each for approximately $56.6 million gross proceeds. The filing describes contributions and retention of proceeds, but its stated “net offering proceeds” figure and allocations are not clearly reconcilable in the text; verify against the offering documents and subsequent filings.
Risks, contingencies, and unusual items
- Interest-rate risk: The bank is exposed to margin compression from deposit and borrowing costs, as well as valuation and prepayment effects. Its modeling showed net interest income rising 2.27% under a +100 basis-point shock and falling 3.10% under a -100 basis-point shock, while estimated net portfolio value fell 7.33% under +100 basis points. Management cautions that these are assumption-dependent scenarios, not forecasts.
- Concentration and funding risks: Lending is concentrated in New Jersey real estate, while the high share of certificates, near-term maturities, brokered funding, and potentially volatile municipal deposits could raise funding costs or liquidity pressure.
- COVID-19: The filing, signed March 30, 2020, warns that the pandemic and related business disruption could harm demand, borrowers, collateral values, securities, liquidity, and credit-loss estimates. The bank stated it did not carry business interruption insurance; the effect was uncertain.
- Contingencies: The bank reported no material pending legal proceedings and management did not believe ordinary-course claims would materially affect the financial statements. Off-balance-sheet commitments included approximately $43.2 million of home-equity lines, $11.3 million of commitments to originate or purchase loans, and $50,000 of standby letters of credit; commitment categories in the narrative are not fully consistent, so verify the detailed note.
- Dividend and governance considerations: The company did not expect to pay dividends in the foreseeable future, in part because the mutual holding company’s ability to waive dividends is restricted. Bogota Financial, MHC held a majority of shares and retained voting control. The stock was newly listed and the filing cautioned that trading could be limited and volatile.
- Audit and controls: Crowe LLP issued an unqualified opinion on the bank’s financial statements. The auditor did not opine on internal-control effectiveness; the filing states the company was in a newly public-company transition period and qualified as an emerging growth company.
Important facts for investors to verify
- Reconcile offering proceeds, expenses, allocations, and the $90.35 million subscription-proceeds balance reported in the bank’s year-end statements with the post-closing company filings.
- Review subsequent 2020 disclosures for COVID-19 effects on credit quality, the allowance, liquidity, and securities values; the 2019 results predate the pandemic’s full impact.
- Track deposit retention and repricing, especially the $289.0 million of certificates due within one year, brokered deposits, municipal balances, and reliance on FHLB advances.
- Assess whether margin performance and profitability recover from the 2019 decline, including the effect of public-company and employee stock ownership plan costs.
- Monitor growth and concentration in commercial and multi-family real estate lending, classified loans, and the adequacy of the allowance for loan losses.
- Confirm the terms and costs of any proposed stock-based benefit plans, dividend policy, and the practical implications of majority ownership by Bogota Financial, MHC.