Bogota Financial Corp. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. Bogota Financial Corp. completed its reorganization and public stock offering on January 15, 2020; 2019 comparative financial statements therefore relate to Bogota Savings Bank before the holding company existed. The company is a New Jersey community banking organization focused on residential, commercial real estate and multifamily lending.
Financial performance and condition
| Metric | 2020 | 2019 |
|---|---|---|
| Total assets, year-end | $740.9 million | $766.6 million |
| Loans, net, year-end | $557.7 million | $537.2 million |
| Deposits, year-end | $502.0 million | $497.7 million |
| FHLB advances, year-end | $104.3 million | $97.1 million |
| Total equity, year-end | $128.5 million | $75.0 million |
| Interest income | $23.3 million | $23.1 million |
| Net interest income | $13.6 million | $11.2 million |
| Provision for loan losses | $0.2 million | None |
| Net income | $2.1 million | $2.4 million |
| Net interest margin | 1.93% | 1.73% |
- Net interest income rose 21.7%, as lower funding costs more than offset lower asset yields. Average yield on interest-earning assets declined to 3.31% from 3.59%, while the average cost of interest-bearing liabilities fell to 1.68% from 2.09%.
- Net income fell 14.8%. Non-interest expense increased $3.6 million to $12.0 million, including a $2.9 million charitable-foundation contribution and $168,000 of Gibraltar merger expenses. Non-interest income rose to $1.1 million, including $648,000 in life-insurance death proceeds.
- Management states that net income would have been $4.3 million excluding the foundation contribution and merger expenses.
- Cash and cash equivalents were $80.4 million at year-end, down from $127.9 million. Cash from operations was $5.8 million; investing activities used $22.3 million and financing activities used $31.0 million. The cash decline primarily reflected the return of $41.5 million in unfilled stock subscriptions.
- Available liquidity included $80.4 million cash, $11.9 million in available-for-sale securities, up to $123.2 million in additional FHLB borrowing capacity, and $51.0 million of unused correspondent-bank lines. FHLB advances outstanding were $104.3 million.
- Capital remained above regulatory requirements: year-end leverage ratios were 17.26% for the Company and 13.63% for the Bank; the Bank was classified as well-capitalized.
Material changes versus the prior period
- Loan growth was concentrated in commercial and multifamily real estate, which increased 43.2% to $171.6 million and rose to 30.7% of loans from 22.2%. Residential mortgages declined 11.5% to $340.0 million. Total net loans increased 3.8%.
- Deposits increased 0.9%. Core deposits rose to 29.0% of deposits from 19.6%, while certificates of deposit declined to $356.4 million from $400.2 million. Brokered deposits were $54.2 million, or approximately 10.8% of deposits.
- Equity increased primarily from the stock offering. Shares began trading as BSBK on Nasdaq in January 2020; the Company reported $54.6 million of net offering proceeds.
- Credit indicators remained low but weakened modestly: nonperforming loans were $693,000, or 0.12% of loans, versus $590,000, or 0.11%, in 2019. The allowance rose to $2.24 million, or 0.40% of loans, and there were no charge-offs.
Outlook, risks and unusual items
- The Company’s strategy is to sustain residential lending while expanding commercial and multifamily lending, growing lower-cost deposits, controlling expenses and pursuing selective acquisitions. No earnings or financial guidance is provided.
- COVID-19 created uncertainty around borrower repayment, collateral values, credit-loss provisions, demand, funding costs and operations. The Bank modified $67.9 million of loans during 2020; six loans totaling $993,000 remained on deferral at year-end.
- Key exposures include geographic concentration in northern and central New Jersey, increasing commercial real estate exposure, interest-rate sensitivity, competition for deposits, reliance on certificates of deposit and brokered funding, cybersecurity and third-party service risks.
- Certificates of deposit totaling $232.7 million were due in 2021. The Company said it believed liquidity was sufficient, but withdrawals or higher replacement funding costs could pressure earnings and liquidity.
- On February 28, 2021, the Company completed its acquisition of Gibraltar Bank, adding three branches. Based on December 31, 2020 information, the combined institution had approximately $821 million in assets, $584 million in deposits and $142 million in equity. Systems conversion was expected around August 16, 2021. A new Hasbrouck Heights branch was also planned for the second quarter of 2021.
- The Company does not anticipate paying dividends in the foreseeable future, citing capital needs and restrictions affecting dividend waivers by its mutual holding company parent.
- The independent auditor issued 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 is an emerging growth company.
Important facts for investors to verify
- Reconcile the filing’s inconsistent municipal-deposit disclosures: one passage reports $23.5 million, while the MD&A reports $37.6 million at December 31, 2020.
- Confirm commercial and industrial loan balances and PPP detail. The audited loan table reports $13.65 million of commercial and industrial loans, including PPP loans; a business-section passage contains an apparent conflicting figure of $93.7 million.
- Assess the quality and performance of the rapidly growing commercial and multifamily portfolio, including borrower concentrations, property cash flows and the $32.6 million of undrawn commercial-construction commitments.
- Track COVID-related deferrals, delinquencies and subsequent credit-loss provisions, and assess whether the $2.24 million allowance remains adequate as economic conditions evolve.
- Review integration progress, costs and realized benefits from the Gibraltar acquisition, including the planned systems conversion and branch expansion.
- Evaluate the durability of earnings excluding the charitable contribution, merger costs and life-insurance death proceeds, and the effect of continued public-company and employee-plan expenses.