Bogota Financial Corp. — Q2 2020 Form 10-Q
Business context and reporting period. This filing covers the quarter and six months ended June 30, 2020. Bogota Financial Corp. became the bank’s holding company and completed its stock offering and reorganization on January 15, 2020. The 2019 comparative financial results relate to Bogota Savings Bank, not the newly formed public company; 2019 EPS is therefore not applicable.
Financial performance and position
| Metric | Q2 2020 / June 30, 2020 | Comparison |
|---|---|---|
| Net income | $1.40 million; EPS $0.11 | Q2 2019 net income $608,000 |
| Net interest income | $3.29 million | Up 18.1% from $2.78 million |
| Net interest margin | 1.88% | 1.75% in Q2 2019 |
| Net income, six months | $65,000; EPS $0.01 | $970,000 in first-half 2019 |
| Net interest income, six months | $6.37 million | Up 13.8% from $5.60 million |
| Net interest margin, six months | 1.85% | 1.76% in first-half 2019 |
| Total assets | $738.7 million | Down 3.6% from $766.6 million at year-end 2019 |
| Net loans | $587.7 million | Up 9.4% from $537.2 million |
| Deposits | $492.4 million | Down 1.1% from $497.7 million |
| FHLB advances | $113.1 million | Up from $97.1 million; weighted rate 1.71% |
| Cash and cash equivalents | $51.8 million | Down from $127.9 million |
| Stockholders’ equity | $126.3 million | Up from $75.0 million |
For the six months, operating cash flow was $4.0 million, investing cash flow was negative $48.4 million, and financing cash flow was negative $31.6 million. Cash declined by $76.1 million. Management attributed the decrease mainly to returning $41.5 million of unfilled offering subscriptions and using cash to fund loan growth. The allowance for loan losses was $2.27 million, or 0.38% of loans; nonperforming assets were $675,000, or 0.09% of assets. No net charge-offs were recorded in first-half 2020.
Material changes and unusual items
- First-half net income included a $2.88 million contribution to the Bogota Charitable Foundation related to the reorganization. Management stated that without it, first-half net income would have been about $2.0 million.
- Q2 non-interest income included approximately $648,000 of bank-owned life insurance death proceeds. These proceeds helped lift Q2 non-interest income to $768,000 from $139,000 a year earlier.
- Loan growth was concentrated in commercial and multifamily real estate, which increased by $45.4 million, and commercial and industrial lending, which increased by $11.7 million. Residential loans declined by $6.5 million.
- Interest costs fell with lower rates: Q2 interest expense declined 15.4% year over year. The average yield on interest-earning assets declined to 3.32% from 3.63%, while the average cost of interest-bearing liabilities fell to 1.78% from 2.10%.
- Deposits shifted: non-interest-bearing deposits rose to $25.5 million, while interest-bearing deposits declined to $466.9 million. Brokered deposits were $57.5 million, or 11.7% of deposits.
Outlook, risks, and contingencies
- The filing provides no specific earnings or growth guidance. Management said it could not predict the full financial effect or duration of COVID-19.
- The Bank had approved COVID-related payment modifications on 169 loans totaling approximately $68.0 million, equal to 11.6% of total loans in the detailed table. Modifications permitted deferral of principal and/or interest; qualifying loans continued to accrue interest and were not treated as troubled debt restructurings during the modification period.
- The Bank processed 113 Paycheck Protection Program applications totaling approximately $10.5 million by June 30, 2020.
- Management cited potential increases in delinquencies, credit losses, foreclosures, and allowance needs; lower asset yields and pressure on net interest income; weaker collateral values; and operational, cybersecurity, vendor, and funding risks related to the pandemic.
- Liquidity sources included $51.8 million cash, $12.6 million of available-for-sale securities, up to $242.3 million of FHLB borrowing capacity (with $113.1 million outstanding and $1.5 million used for municipal-deposit letters of credit), and $51.0 million of unused correspondent-bank lines. Certificates of deposit totaling $262.0 million matured within one year.
- The Bank reported a 17.55% Community Bank Leverage Ratio and said it exceeded applicable regulatory capital requirements and was well capitalized. Interest-rate simulations estimated a 8.81% decline in first-year net interest income under an immediate 400-basis-point rate increase; management cautioned that the models are assumption-sensitive and not forecasts.
- Management reported effective disclosure controls and procedures, with no material change in internal control over financial reporting during the quarter. No material legal proceedings were reported.
Important facts for investors to verify
- Track performance excluding the foundation contribution and BOLI death benefit, which materially affect first-half and quarterly comparisons.
- Monitor performance and credit quality of the rapidly growing commercial real estate, multifamily, and commercial and industrial portfolios, including post-modification borrower repayment.
- Assess the adequacy of the loan-loss allowance as pandemic-related deferrals expire and economic conditions evolve.
- Review deposit retention, brokered-deposit reliance, near-term certificate maturities, and FHLB borrowing levels as funding needs change.
- Interpret year-over-year comparisons in light of the reorganization, offering, and the fact that 2019 results reflect the Bank alone.