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Bogota Financial Corp. - Quarter Report: 2019 September (Form 10-Q)

10-Q

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File No. 333-233680

 

 

Bogota Financial Corp.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Maryland   84-3501231

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

819 Teaneck Road

Teaneck, New Jersey

  07666
(Address of Principal Executive Offices)   (Zip Code)

(201) 862-0660

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

None    

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.    YES  ☐    NO   ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    YES  ☒    NO  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ☐    NO  ☒

As of December 20, 2019, there were no shares issued and outstanding of the registrant’s common stock.

 

 

 


Bogota Financial Corp.

Form 10-Q

Table of Contents

 

         Page  

PART I. FINANCIAL INFORMATION

 

Item 1.

  Financial Statements      1  
  Consolidated Statements of Financial Condition at September 30, 2019 (unaudited) and December 31, 2018      1  
  Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)      2  
  Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)      3  
  Consolidated Statements of Equity for the Nine Months Ended September 30, 2019 and 2018      4  
  Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)      5  
  Notes to Consolidated Financial Statements (unaudited)      6  

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      24  

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      36  

Item 4.

  Controls and Procedures      36  

PART II. OTHER INFORMATION

 

Item 1.

  Legal Proceedings      37  

Item 1A.

  Risk Factors      37  

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      37  

Item 3.

  Defaults Upon Senior Securities      37  

Item 4.

  Mine Safety Disclosures      37  

Item 5.

  Other Information      37  

Item 6.

  Exhibits      38  
  SIGNATURES      39  

 

i


EXPLANATORY NOTE

Bogota Financial Corp. (the “Company,” “we” or “our”) was formed to serve as the mid-tier stock holding company for Bogota Savings Bank in connection with the reorganization of Bogota Savings Bank and its mutual holding company, Bogota Financial, MHC, into the two-tier mutual holding company structure. As of September 30, 2019, the reorganization had not been completed and the Company had no assets or liabilities and had not conducted any business activities other than organizational activities. Accordingly, the unaudited financial statements and other financial information contained in this Quarterly Report on Form 10-Q relate solely to the consolidated financial results of Bogota Savings Bank.

The unaudited financial statements and other financial information contained in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements, and related notes, of Bogota Savings Bank at and for the year ended December 31, 2018 contained in the Company’s definitive prospectus dated November 12, 2019 (the “Prospectus”), as filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on November 18, 2019.

 

ii


PART I – FINANCIAL INFORMATION

 

Item 1.

Financial Statements

BOGOTA SAVINGS BANK

CONSOLDIATED STATEMENTS OF FINANCIAL CONDITION

 

     September 30,
2019
    December 31,
2018
 
     (unaudited)        

Assets

    

Cash and due from banks

   $ 7,045,570     $ 5,744,106  

Interest-bearing deposits in other banks

     25,721,781       18,773,496  
  

 

 

   

 

 

 

Cash and cash equivalents

     32,767,351       24,517,602  

Securities available for sale

     11,946,633       13,599,806  

Securities held to maturity (fair value of $52,979,846 and $68,802,922, respectively)

     52,479,688       70,048,579  

Loans, net of allowance of $2,016,175 and $1,976,175, respectively

     536,543,577       526,669,660  

Premises and equipment, net

     4,155,682       4,656,903  

Federal Home Loan Bank (FHLB) stock

     6,208,500       4,684,300  

Accrued interest receivable

     1,972,360       1,946,768  

Bank owned life insurance

     17,309,247       17,004,105  

Other assets

     2,249,153       1,880,815  
  

 

 

   

 

 

 

Total Assets

   $ 665,632,191     $ 665,008,538  
  

 

 

   

 

 

 

Liabilities and Equity

    

Liabilities

    

Non-interest bearing

   $ 13,002,497     $ 12,500,091  

Interest bearing

     461,352,333       497,793,237  
  

 

 

   

 

 

 

Total Deposits

     474,354,830       510,293,328  

FHLB advances

     108,898,206       74,638,690  

Advance payments by borrowers for taxes and insurance

     4,556,900       4,332,611  

Other liabilities

     3,688,188       3,266,141  
  

 

 

   

 

 

 

Total liabilities

     591,498,124       592,530,770  
  

 

 

   

 

 

 

Equity

    

Retained earnings

     74,504,703       72,794,887  

Accumulated other comprehensive loss

     (370,636     (317,119
  

 

 

   

 

 

 

Total equity

     74,134,067       72,477,768  
  

 

 

   

 

 

 

Total liabilities and equity

   $ 665,632,191     $ 665,008,538  
  

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

1


BOGOTA SAVINGS BANK

CONSOLIDATED STATEMENTS OF INCOME

 

     Three months ended
September 30,
     Nine Months ended
September 30,
 
     2019      2018      2019      2018  
     (unaudited)  

Interest income

           

Loans

   $  5,136,299      $  4,763,057      $  15,147,160      $  14,363,997  

Securities

           

Taxable

     441,557        489,299        1,383,258        1,378,028  

Tax-exempt

     11,836        39,267        77,787        79,186  

Other interest-earning assets

     215,048        222,543        659,842        615,234  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest income

     5,804,740        5,514,166        17,268,047        16,436,445  
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest expense

           

Deposits

     2,485,223        1,969,616        7,433,088        5,352,228  

FHLB advances

     568,740        288,262        1,487,479        884,325  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest expense

     3,053,963        2,257,878        8,920,567        6,236,553  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income

     2,750,777        3,256,288        8,347,480        10,199,892  

Provision for loan losses

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provision for loan losses

     2,750,777        3,256,288        8,347,480        10,199,892  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-interest income

           

Fees and service charges

     25,447        19,970        85,887        97,723  

Bank owned life insurance

     102,880        114,386        305,142        344,440  

Other

     3,885        7,435        20,860        30,008  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-interest income

     132,212        141,791        411,889        472,171  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-interest expense

           

Salaries and employee benefits

     1,229,834        1,148,288        3,704,454        3,407,577  

Occupancy and equipment

     162,945        168,272        513,517        526,071  

FDIC insurance assessment

     14,161        52,682        75,296        146,574  

Data processing

     83,915        218,637        820,958        658,044  

Advertising

     65,000        60,000        185,000        180,000  

Director fees

     160,651        165,557        498,596        506,442  

Professional fees

     85,500        53,000        208,000        176,000  

Other

     136,762        218,125        554,078        608,348  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-interest expense

     1,938,768        2,084,561        6,559,899        6,209,056  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     944,221        1,313,518        2,199,470        4,463,007  

Income tax expense

     273,207        374,596        558,367        1,175,006  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 671,014      $ 938,922      $ 1,641,103      $ 3,288,001  
  

 

 

    

 

 

    

 

 

    

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

2


BOGOTA SAVINGS BANK

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

     Three months ended
September 30,
    Nine Months ended
September 30,
 
     2019     2018     2019     2018  
     (unaudited)  

Net income

   $  671,014     $  938,922     $ 1,641,103     $ 3,288,001  

Other comprehensive income (loss):

        

Unrealized gains/losses on securities available for sale:

        

Unrealized holding (loss) gain arising during the period

     (16,035     (6,864     41,227       (73,538

Tax effect, income (benefit) tax expense

     4,508       1,930       (11,589     20,672  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net of tax

     (11,527     (4,934     29,638       (52,866
  

 

 

   

 

 

   

 

 

   

 

 

 

Defined benefit retirement plans:

        

Net gain arising during the period including changes in assumptions

     —         —         —         —    

Reclassification adjustment for amortization of prior service cost and net gain/loss included in salaries and employee benefits

     (20,058     —         (20,058     —    

Tax effect, income tax benefit

     5,616       —         5,616       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net of tax

     (14,442     —         (14,442     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     (25,969     (4,934     15,196       (52,866
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 645,046     $ 933,988     $ 1,656,299     $ 3,235,135  
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

3


BOGOTA SAVINGS BANK

CONSOLIDATED STATEMENTS OF EQUITY

 

     Retained
Earnings
     Accumulated
Other
Comprehensive
Income (Loss)
    Total
Equity
 

Balance January 1, 2019

   $ 72,794,887      $ (317,119   $ 72,477,768  

Net Income

     361,818        —         361,818  

Other comprehensive income

     —          13,201       13,201  

Reclassification of the stranded tax effects from the enactment of the Tax Cuts and Jobs Act

     68,713        (68,713     —    
  

 

 

    

 

 

   

 

 

 

Balance March 31, 2019 (unaudited)

   $ 73,225,418      $ (372,631   $ 72,852,787  
  

 

 

    

 

 

   

 

 

 

Balance April 1, 2019

     73,225,418        (372,631     72,852,787  

Net Income

     608,271        —         608,271  

Other comprehensive income

     —          27,965       27,965  
  

 

 

    

 

 

   

 

 

 

Balance June 30, 2019 (unaudited)

   $ 73,833,689      $ (344,666   $ 73,489,023  
  

 

 

    

 

 

   

 

 

 

Balance July 1, 2019

     73,833,689        (344,666     73,489,023  

Net Income

     671,014        —         671,014  

Other comprehensive income

     —          (25,970     (25,970
  

 

 

    

 

 

   

 

 

 

Balance September 30, 2019 (unaudited)

   $ 74,504,703      $ (370,636   $ 74,134,067  
  

 

 

    

 

 

   

 

 

 
     Retained
Earnings
     Accumulated
Other
Comprehensive
Income (Loss)
    Total
Equity
 

Balance January 1, 2018

   $ 68,658,210      $ (349,721   $ 68,308,489  

Net Income

     1,244,876        —         1,244,876  

Other comprehensive income

     —          (37,137     (37,137
  

 

 

    

 

 

   

 

 

 

Balance March 31, 2018 (unaudited)

   $ 69,903,086      $ (386,858   $ 69,516,228  
  

 

 

    

 

 

   

 

 

 

Balance April 1, 2018

     69,903,086        (386,858     69,516,228  

Net Income

     1,104,203        —         1,104,203  

Other comprehensive income

     —          (10,765     (10,765
  

 

 

    

 

 

   

 

 

 

Balance June 30, 2018 (unaudited)

   $ 71,007,289      $ (397,653   $ 70,609,636  
  

 

 

    

 

 

   

 

 

 

Balance July 1, 2018

     71,007,289        (397,653     70,609,636  

Net Income

     938,922        —         938,922  

Other comprehensive income

     —          (4,935     (4,935
  

 

 

    

 

 

   

 

 

 

Balance September 30, 2018 (unaudited)

   $ 71,946,211      $ (402,588   $ 71,543,623  
  

 

 

    

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

4


BOGOTA SAVINGS BANK

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     For the nine months ended
September 30,
 
     2019     2018  
     (unaudited)  

Cash flows from operating activities

  

Net income

   $ 1,641,103     $ 3,288,001  

Adjustments to reconcile net income to net cash from operating activities:

    

Depreciation of premises and equipment

     227,638       234,451  

Amortization of deferred loan fees

     306,297       367,973  

Amortization of premiums and accretion of discounts on securities, net

     105,269       159,510  

Deferred income tax benefit

     4,255       20,812  

Increase in cash surrender value of bank owned life insurance

     (305,142     (344,440

Changes in:

    

Accrued interest receivable

     (25,592     (159,144

Net changes in other assets

     (77,280     (794,983

Net changes in other liabilities

     424,281       567,140  
  

 

 

   

 

 

 

Net cash provided by operating activities

     2,300,829       3,339,320  

Cash flows from investing activities

    

Purchases of securities available for sale

     (497,500     (4,030,000

Purchases of securities held to maturity

     (2,051,895     (16,185,517

Maturities, calls, and repayments of securities available for sale

     2,179,766       1,760,280  

Maturities, calls, and repayments of securities held to maturity

     19,527,652       6,526,169  

Net (increase) decrease in loans

     (10,180,214     12,905,793  

Purchases of premises and equipment

     (49,996     (576,047

Purchase of FHLB Stock

     (4,195,300     (1,012,903

Redemption of FHLB stock

     2,671,100       2,258,903  
  

 

 

   

 

 

 

Net cash provided by investing activities

     7,403,613       1,646,678  

Cash flows from financing activities

    

Net (decrease) increase in deposits

     (35,938,498     25,140,183  

Net (decrease) increase in short-term FHLB advances

     (40,000,000     3,500,000  

Proceeds from long-term FHLB non-repo advances

     77,000,000       —    

Repayments of long-term FHLB non-repo advances

     (2,740,484     (23,875,086

Repayments of long-term FHLB repo advances

     —         (7,000,000

Net increase in advance payments from borrowers for taxes and insurance

     224,289       1,170,582  
  

 

 

   

 

 

 

Net cash used in financing activities

     (1,454,693     (1,064,321
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     8,249,749       3,921,677  

Cash and cash equivalents at beginning of year.

     24,517,602       22,558,312  
  

 

 

   

 

 

 

Cash and cash equivalents at September 30.

   $ 32,767,351     $ 26,479,989  
  

 

 

   

 

 

 

Supplemental cash flow information

    

Income taxes paid

   $ 603,000     $ 2,130,000  

Interest paid

   $ 8,920,567     $ 6,236,553  

See accompanying notes to unaudited consolidated financial statements.

 

 

5


BOGOTA SAVINGS BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation: The consolidated financial statements include the accounts of Bogota Savings Bank (the “Bank”) and its wholly-owned subsidiaries, Bogota Securities Corp. and Bogota Properties, LLC. All significant intercompany balances and transactions have been eliminated in consolidation.

Bogota Securities Corp. was formed on August 14, 2014 for the purpose of buying, selling and holding investment securities. Bogota Properties, LLC was inactive at September 30, 2019 and December 31, 2018.

The Bank generally grants residential, commercial and consumer loans to, and accepts deposits from, customers in New Jersey. The debtors’ ability to repay the loans is dependent upon the region’s economy and the borrowers’ circumstances. The Bank is also subject to the regulations of certain federal and state agencies and undergoes periodic examination by those regulatory authorities.

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America management makes estimates and assumptions based on available information. These estimates and assumptions effect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in conformity with GAAP for interim financial information and pursuant to the requirements for reporting on Article 10 of Regulation S-X of the Exchange Act. These financial statements include the accounts of the Bank and its subsidiaries, and all significant intercompany balances and transactions are eliminated in consolidation. Amounts in the prior periods’ consolidated financial statements are reclassified whenever necessary to conform to the current period’s presentation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ. In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures necessary for the fair presentation of the accompanying consolidated financial statements have been included.. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year or any other period.

Newly Issued, Not Yet Effective Accounting Pronouncements: In January 2016, FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income; (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. In addition, the amendments in this ASU require an entity to disclose the fair value of its financial instruments using the exit price notion. Exit price is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance is effective for annual periods beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019.

 

6


BOGOTA SAVINGS BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which will supersede the current lease requirements in Topic 840. The ASU requires lessees to recognize a right of use asset and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of income. Currently, leases are classified as either capital or operating, with only capital leases recognized on the balance sheet. The reporting of lease related expenses in the statements of operations and cash flows will be generally consistent with the current guidance. The new guidance will be effective for the bank for years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020. Once effective, the standard will be applied using a modified retrospective transition method. The Bank is currently assessing the impact this new standard will have on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. ASU 2016-13 requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. The amendments are effective for the bank for fiscal years beginning after December 15, 2022 and interim periods within fiscal years beginning after December 15, 2022. The Bank is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements.

Adopted effective Accounting Pronouncements: In February 2018, the FASB issued ASU 2018-02, Income Statement- Reporting Comprehensive Income (Topic 220) – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this update affect any entity that is required to apply the provisions of Topic 220, Income Statement- Reporting Comprehensive Income. Deferred tax assets (“DTAs”) related to defined pension benefit plans and securities available for sale that were revalued as of December 31, 2017 created “stranded tax effects” in Accumulated Other Comprehensive Income (“AOCI”) due to the enactment of the Tax Cuts and Jobs Act (the “Tax Act”).

Existing GAAP required recognition of the tax rate change effects on the DTA revaluation as an adjustment to income tax expense. As a result the AOCI contained the stranded amounts from prior periods at the previous tax rate. ASU 2018-12 permits the reclassification of the stranded amounts from AOCI to retained earnings resulting from the Tax Act. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Act, the underlying GAAP guidance that requires the effect of a change in tax laws or rates to be included in income from continuing operations is not affected. The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments is permitted, including adoption in any interim period. The Bank adopted this standard as of January 1, 2019, which resulted in a reclassification of $68,713 between retained earnings and accumulated other comprehensive loss.

On January 1, 2019, the Bank adopted ASU 2014-09 Revenue from Contracts with Customers (Topic 606) and all subsequent amendments to the ASU (collectively, “ASU 606”), which creates a single framework for recognizing revenue from contracts with customers that fall within its scope and revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets. The majority of the Bank’s revenues come from interest income and other sources, including loans and securities, that are outside the scope of ASC 606. The Bank’s services that fall within the scope of ASC 606 are presented within non-interest income and are recognized as revenue as the Bank satisfies its obligation to the customer. Services within the scope of ASC 606 include service charges on

 

7


BOGOTA SAVINGS BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

deposits. The amendments allow for one of two transition methods: full retrospective or modified retrospective. The full retrospective approach requires application to all periods presented. The modified retrospective transition requires application to uncompleted contracts at the date of adoption. Periods prior to the date of adoption are not retrospectively revised, but a cumulative effect is recognized at the date of initial application on uncompleted contracts. The Bank adopted the new revenue guidance using the modified retrospective approach. There was no significant change upon adoption of the standard, as the new standard did not materially change the way the Bank currently records revenue and as such, no cumulative effect adjustment was recorded.

NOTE 2 – SECURITIES AVAILABLE FOR SALE

The following table summarizes the amortized cost, fair value, and gross unrealized gains and losses of securities available for sale at September 30, 2019 and December 31, 2018:

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    
Fair
Value
 

September 30, 2019 (unaudited)

           

Corporate bonds due in:

           

One through five years

   $ 5,526,043      $ 28,396      $ (6,244    $ 5,548,195  

Five through ten years

     350,000        —          (1,300      348,700  

MBSs – residential

     5,919,166        130,572        —          6,049,738  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 11,795,209      $ 158,968      $ (7,544    $ 11,946,633  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    
Fair
Value
 

December 31, 2018

           

Corporate bonds due in:

           

One through five years

   $ 5,311,813      $ 15,700      $ (34,519    $ 5,292,994  

Five through ten years

     1,345,749        6,865        (22,290      1,330,324  

MBSs – residential

     6,832,048        160,222        (15,782      6,976,488  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 13,489,610      $ 182,787      $ (72,591    $ 13,599,806  
  

 

 

    

 

 

    

 

 

    

 

 

 

MBSs include Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and Government National Mortgage Association (“GNMA”) securities, all of which are U.S. government sponsored agencies.

There were no sales of securities during the three months and nine months ended September 30, 2019 and September 30, 2018.

 

8


BOGOTA SAVINGS BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 2 – SECURITIES AVAILABLE FOR SALE (Continued)

 

The age of unrealized losses and the fair value of related securities as of September 30, 2019 and December 31, 2018 were as follows:

 

     Less Than 12 Months     12 Months or More     Total  
     Fair
Value
     Unrealized
Losses
    Fair Value      Unrealized
Losses
    Fair Value      Unrealized
Losses
 

September 30, 2019 (unaudited)

               

Corporate bonds

   $ 348,700      $ (1,300   $ 1,003,417      $ (6,244   $ 1,352,117      $ (7,544

MBSs – residential

     —          —         —          —         —          —    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 348,700      $ (1,300   $ 1,003,417      $ (6,244   $ 1,352,117      $ (7,544
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
     Less Than 12 Months     12 Months or More     Total  
     Fair
Value
     Unrealized
Losses
    Fair Value      Unrealized
Losses
    Fair Value      Unrealized
Losses
 

December 31, 2018

               

Corporate bonds

   $ 3,968,269      $ (56,809   $ —        $ —       $ 3,968,269      $ (56,809

MBSs – residential

     875,258        (15,782     —          —         875,258        (15,782
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 4,843,527      $ (72,591   $ —        $ —       $ 4,843,527      $ (72,591
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Unrealized losses on corporate bonds available for sale have not been recognized into income because the issuer bonds are of high credit quality, management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. At September 30, 2019 and December 31, 2018, 100% of the MBSs were issued by U.S. government-sponsored entities and agencies, primarily FNMA and FHLMC, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Bank does not have the intent to sell these MBSs and it is likely that it will not be required to sell the securities before their anticipated recovery, the Bank does not consider these securities to be other-than-temporary impaired at September 30, 2019 and December 31, 2018. At September 30, 2019 and December 31, 2018, securities available for sale with a carrying amount of $0 and $1,208,934, respectively, were pledged to secure repurchase agreements at the FHLB (see Note 7). At September 30, 2019 and December 31, 2018, securities available for sale with a carrying value of $278,281 and $331,270, respectively, were pledged to secure public deposits.

 

9


BOGOTA SAVINGS BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 3 – SECURITIES HELD TO MATURITY

The following table summarizes the amortized cost, fair value, and gross unrecognized gains and losses of securities held to maturity at September 30, 2019 and December 31, 2018:

 

     Amortized
Cost
     Gross
Unrecognized
Gains
     Gross
Unrecognized
Losses
    
Fair
Value
 

September 30, 2019 (unaudited)

           

U.S. Government-sponsored agencies due in:

           

One through five years

   $ 7,449,513      $ —        $ (28,413    $ 7,421,100  

Corporate bonds due in:

           

Five through ten years

     5,436,849        159,730        —          5,596,579  

Municipal obligations due in:

           

One through five years

     2,290,855        18,665        —          2,309,520  

MBSs:

           

Residential

     12,381,566        121,268        (39,793      12,463,041  

Commercial

     24,920,905        288,567        (19,866      25,189,606  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 52,479,688      $ 588,230      $ (88,072    $ 52,979,846  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Amortized
Cost
     Gross
Unrecognized
Gains
     Gross
Unrecognized
Losses
    
Fair
Value
 

December 31, 2018

           

U.S. Government-sponsored agencies due in:

           

One through five years

   $ 17,673,603      $ —        $ (191,118    $ 17,482,485  

Corporate bonds due in:

           

Five through ten years

     4,004,426        18,319        (61,593      3,961,152  

Municipal obligations due in:

           

One through five years

     8,135,032        —          (32,581      8,102,451  

MBSs:

           

Residential

     14,804,434        57,105        (301,650      14,559,889  

Commercial

     25,431,084        6,649        (740,788      24,696,945  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 70,048,579      $ 82,073      $ (1,327,730    $ 68,802,922  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

10


BOGOTA SAVINGS BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 3 – SECURITIES HELD TO MATURITY (Continued)

 

MBSs include FHLMC, FNMA and GNMA securities, all of which are U.S. government sponsored agencies.

The age of unrecognized losses and the fair value of related securities were as follows:

 

     Less Than 12 Months     12 Months or More     Total  
     Fair
Value
     Unrecognized
Losses
    Fair Value      Unrecognized
Losses
    Fair Value      Unrecognized
Losses
 

September 30, 2019 (unaudited)

               

U.S. Government-sponsored agencies

   $ —        $ —       $ 7,421,100      $ (28,413   $ 7,421,100      $ (28,413

MBSs – residential

     2,682,615        (8,508     1,622,831        (31,285     4,305,446        (39,793

MBSs – commercial

     4,022,507        (19,866     —          —         4,022,507        (19,866
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 6,705,122      $ (28,374   $ 9,043,931      $ (59,698   $ 15,749,053      $ (88,072
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
     Less Than 12 Months     12 Months or More     Total  
     Fair
Value
     Unrecognized
Losses
    Fair Value      Unrecognized
Losses
    Fair Value      Unrecognized
Losses
 

December 31, 2018

               

U.S. Government-sponsored agencies

   $ 7,218,382      $ (5,891   $ 10,264,103      $ (185,227   $ 17,482,485      $ (191,118

Corporate bonds

     —          —         1,438,407        (61,593     1,438,407        (61,593

Municipal obligations

     6,686,311        (10,842     1,416,140        (21,739     8,102,451        (32,581

MBSs – residential

     1,289,961        (8,679     10,429,486        (292,971     11,719,447        (301,650

MBSs – commercial

     1,826,592        (12,427     21,257,626        (728,361     23,084,218        (740,788
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 17,021,246      $ (37,839   $ 44,805,762      $ (1,289,891   $ 61,827,008      $ (1,327,730
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Unrecognized losses have not been recognized into income because the issuers of the securities are of high credit quality, management does not intend to sell and it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The fair value is expected to recover as the securities approach maturity.

At September 30, 2019 and December 31, 2018, securities held to maturity with a carrying amount of $14,596,888 and $23,058,995, respectively, were pledged to secure repurchase agreements at the FHLBNY (see Note 7).

At September 30, 2019 and December 31, 2018, securities held to maturity with a carrying value of $4,098,846 and $23,789,123, respectively were pledged to secure public deposits.

 

11


BOGOTA SAVINGS BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 4 – LOANS

Loans are summarized as follows at September 30, 2019 and December 31, 2018:

 

     September 30,
2019
     December 31,
2018
 
     (unaudited)         

Real estate:

     

Residential

   $ 384,759,708      $ 376,304,160  

Commercial and multi-family real estate

     123,121,421        123,220,556  

Construction

     1,110,157        2,338,647  

Commercial and industrial

     2,379,584        1,267,313  

Consumer:

     

Home equity and other

     27,188,882        25,515,159  
  

 

 

    

 

 

 

Total loans

     538,559,752        528,645,835  

Allowance for loan losses

     (2,016,175      (1,976,175
  

 

 

    

 

 

 

Net loans

   $ 536,543,577      $ 526,669,660  
  

 

 

    

 

 

 

The Bank has granted loans to officers and directors of the Bank. At September 30, 2019 and December 31, 2018, such loans totaled approximately $787,420 and $809,956, respectively.

 

12


BOGOTA SAVINGS BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 4 – LOANS (Continued)

 

The following table presents the activity in the allowance for loan losses by portfolio segments for the three and nine months ended September 30, 2019 and 2018.

 

     Residential
First
Mortgage
     Commercial
and Multi-
Family Real
Estate
    Construction      Consumer     Commercial
and
Industrial
     Total  

Three months

               

September 30, 2019 (unaudited)

               

Allowance for loan losses:

               

Beginning balance

   $ 1,300,675      $ 600,000     $ 12,500      $ 94,000     $ 9,000      $ 2,016,175  

Provision for loan losses (credit)

     37,400        (38,000     500        100       —          —    

Recoveries

     —          —         —          —         —          —    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total ending allowance balance

   $ 1,338,075      $ 562,000     $ 13,000      $ 94,100     $ 9,000      $ 2,016,175  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

September 30, 2018 (unaudited)

               

Allowance for loan losses:

               

Beginning balance

   $ 1,322,175      $ 551,000     $ 12,000      $ 91,000     $ —        $ 1,976,175  

Provision for loan losses (credit)

     17,400        (23,900     1,600        (100     5,000        —    

Loans charged off

     —          —         —          —         —          —    

Recoveries

     —          —         —          —         —          —    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total ending allowance balance

   $ 1,339,575      $ 527,100     $ 13,600      $ 90,900     $ 5,000      $ 1,976,175  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
     Residential
First
Mortgage
     Commercial
and Multi-
Family Real
Estate
    Construction      Consumer     Commercial
and
Industrial
     Total  

Nine months

               

September 30, 2019 (unaudited)

               

Allowance for loan losses:

               

Beginning balance

   $ 1,266,175      $ 607,000     $ 9,000      $ 89,000     $ 5,000      $ 1,976,175  

Provision for loan losses (credit)

     31,900        (45,000     4,000        5,100       4,000        —    

Loans charged off

     —            —       —          —         —          —    

Recoveries

     40,000        —         —          —         —          40,000  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total ending allowance balance

   $ 1,338,075      $ 562,000     $ 13,000      $ 94,100     $ 9,000      $ 2,016,175  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

September 30, 2018 (unaudited)

               

Allowance for loan losses:

               

Beginning balance

   $ 1,248,400      $ 620,775     $ 12,000      $ 95,000     $ —        $ 1,976,175  

Provision for loan losses (credit)

     91,175        (93,675     1,600        (4,100     5,000        —    

Loans charged off

     —          —         —          —         —          —    

Recoveries

     —          —         —          —         —          —    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total ending allowance balance

   $ 1,339,575      $ 527,100     $ 13,600      $ 90,900     $ 5,000      $ 1,976,175  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

13


BOGOTA SAVINGS BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 4 – LOANS (Continued)

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segments and based on impairment method as of September 30, 2019 and December 31, 2018:

 

     Residential
First Mortgage
     Commercial
and Multi-
Family Real
Estate
     Construction      Consumer      Commercial
and
Industrial
     Total  

September 30, 2019 (unaudited)

                 

Allowance for loan losses:

                 

Ending allowance balance attributable to loans:

                 

Individually evaluated for impairment

   $ —        $ —        $ —        $ —        $ —        $ —    

Collectively evaluated for impairment

     1,338,075        562,000        13,000        94,100        9,000        2,016,175  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending allowance balance

   $ 1,338,075      $ 562,000      $ 13,000      $ 94,100      $ 9,000      $ 2,016,175  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

                 

Loans individually evaluated for impairment

   $ 1,196,462      $ —        $ —        $ 41,883      $ —        $ 1,238,345  

Loans collectively evaluated for impairment

     383,563,246        123,121,421        1,110,157        27,146,999        2,379,584        537,321,407  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending loan balance

   $ 384,759,708      $ 123,121,421      $ 1,110,157      $ 27,188,882      $ 2,379,584      $ 538,559,752  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2018

                 

Allowance for loan losses:

                 

Ending allowance balance attributable to loans:

                 

Individually evaluated for impairment

   $ —        $ —        $ —        $ —        $ —        $ —    

Collectively evaluated for impairment

     1,266,175        607,000        9,000        89,000        5,000        1,976,175  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending allowance balance

   $ 1,266,175      $ 607,000      $ 9,000      $ 89,000      $ 5,000      $ 1,976,175  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

                 

Loans individually evaluated for impairment

   $ 1,186,317      $ —        $ —        $ 22,152      $ —        $ 1,208,469  

Loans collectively evaluated for impairment

     375,117,843        123,220,556        2,338,647        25,493,007        1,267,313        527,437,366  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending loan balance

   $ 376,304,160      $ 123,220,556      $ 2,338,647      $ 25,515,159      $ 1,267,313      $ 528,645,835  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

14


BOGOTA SAVINGS BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 4 – LOANS (Continued)

 

Impaired loans as of and for the nine months ended September 30, 2019 and the year ended December 31, 2018, were as follows:

 

     As of
September 30,

2019
     As of
December 31,
2018
 
     (unaudited)         

Year-end loans with no related allowance recorded

   $ 1,238,345      $ 1,208,469  

Year-end loans with an allowance recorded

     —          —    
  

 

 

    

 

 

 

Total

   $ 1,238,345      $ 1,208,469  
  

 

 

    

 

 

 

Amount of the allowance for loan losses allocated

   $ —        $ —    

Average of individually impaired loans during the year

     1,228,146        1,899,786  

Interest income recognized during impairment and cash-basis interest income recognized for the nine months ended September 30, 2019 and 2018 and for the year ended December 31, 2018 was nominal.

The Bank has five residential loans totaling $995,751 that were troubled debt restructurings (“TDRs”) as of September 30, 2019, with no specific reserves. The Bank had five residential loans totaling $1,020,987 that were TDRs as of December 31, 2018, with no specific reserves. The Bank has not committed to lend additional amounts as of September 30, 2019 and December 31, 2018 to customers with outstanding loans that are classified as TDRs. There were no loans modified as TDRs during the nine month periods ended September 30, 2019 or 2018. There were no TDRs and four TDRs in payment default within twelve months following the modification during the nine months ended September 30, 2019 and 2018.

Nonaccrual loans and loans past due 90 days or more still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The following table presents the recorded investment in nonaccrual and loans past due 90 days or more and still on accrual by class of loans as of September 30, 2019 and December 31, 2018:

 

     Nonaccrual      Loans Past
Due 90 Days
or More Still
Accruing
 

September 30, 2019 (unaudited)

     

Residential

   $ 515,311      $ —    

Commercial and multi-family

     —          —    

Consumer

     41,884        —    
  

 

 

    

 

 

 

Total

   $ 557,195      $ —    
  

 

 

    

 

 

 

December 31, 2018

     

Residential

   $ 959,232      $ —    

Commercial and multi-family

     —          —    

Consumer

     22,152        —    
  

 

 

    

 

 

 

Total

   $ 981,384      $ —    
  

 

 

    

 

 

 

 

15


BOGOTA SAVINGS BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 4 – LOANS (Continued)

 

The following table presents the aging of the recorded investment in past due loans as of September 30, 2019 and December 31, 2018, by class of loans:

 

     30-59
Days
Past Due
     60-89
Days
Past Due
     Greater
than 89
Days
Past Due
     Total
Past Due
     Loans Not
Past Due
    
Total
 

September 30, 2019 (unaudited)

                 

Residential

   $ —        $ 119,139      $ 515,311      $ 634,450      $ 384,125,258      $ 384,759,708  

Commercial and multi-family

     —          —          —          —          123,121,421        123,121,421  

Construction

     —          —          —          —          1,110,157        1,110,157  

Commercial and industrial

     —          —          —          —          2,379,584        2,379,584  

Consumer

     19,732        —          22,152        41,884        27,146,998        27,188,882  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 19,732      $ 119,139      $  537,463      $ 676,334      $ 537,883,418      $ 538,559,752  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2018

                 

Residential

   $ 388,611      $ —        $ 636,612      $ 1,025,223      $ 375,278,937      $ 376,304,160  

Commercial and multi-family

     —          —          —          —          123,220,556        123,220,556  

Construction

     —          —          —          —          2,338,647        2,338,647  

Commercial and industrial

     —          —          —          —          1,267,313        1,267,313  

Consumer

     —          —          22,152        22,152        25,493,007        25,515,159  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 388,611      $ —        $ 658,764      $ 1,047,375      $ 527,598,460      $ 528,645,835  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans greater than 89 days past due are considered to be nonperforming.

 

16


BOGOTA SAVINGS BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 4 – LOANS (Continued)

 

Credit Quality Indicators

The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Bank analyzes loans individually by classifying the loans as to credit risk. Commercial and multi-family real estate, commercial and industrial and construction loans are graded on an annual basis. Residential and consumer loans are primarily evaluated based on performance. Refer to the immediately preceding table for the aging of the recorded investment of these loan segments. The Bank uses the following definitions for risk ratings:

Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above are considered to be Pass rated loans.

Based on the most recent analysis performed, the risk category of loans by class is as follows:

 

     Pass      Special
Mention
     Substandard      Doubtful      Totals  

September 30, 2019 (unaudited)

              

Residential

   $ 383,350,805      $ 268,566      $ 1,140,337      $ —        $ 384,759,708  

Commercial and multi-family

     121,683,131        1,259,720        178,570        —          123,121,421  

Construction

     1,110,157        —          —          —          1,110,157  

Commercial and industrial

     2,379,584        —          —          —          2,379,584  

Consumer

     27,188,882        22,152        58,132        —          27,188,882  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 535,632,275      $ 1,550,438      $ 1,377,039      $ —        $ 538,559,752  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2018

              

Residential

   $ 375,117,843      $ 271,475      $ 914,842      $ —        $ 376,304,160  

Commercial and multi-family

     121,756,420        1,464,136        —          —          123,220,556  

Construction

     2,338,647        —          —          —          2,338,647  

Commercial and industrial

     1,267,313        —          —          —          1,267,313  

Consumer

     25,451,080        64,079        —          —          25,515,159  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 525,931,303      $ 1,799,690      $ 914,842      $ —        $ 528,645,835  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

17


BOGOTA SAVINGS BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 5 – REGULATORY CAPITAL MATTERS

Banks are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Bank on January 1, 2015 and was fully phased in on January 1, 2019. These rules require an institution to establish a capital conservation buffer of common equity Tier 1 capital in an amount above the minimum risk-based capital requirements for “adequately capitalized” institutions of more than 2.5% of total risk weighted assets. The capital conservation buffer for 2019 is 2.5%, and for 2018 was 1.875%. The Bank has the following minimum capital to risk-weighted assets ratios: (i) 6.5% based on common equity tier 1 capital; (ii) 8.0% based on tier 1 capital; and (iii) 10.0% based on total capital. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Failure to meet capital requirements can initiate regulatory action. Management believes as of September 30, 2019, the Bank meets all capital adequacy requirements to which it is subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If only adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At September 30, 2019 and at December 31, 2018, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.

There are no conditions or events since that notification that management believes have changed the Bank’s category.

Actual and required capital amounts (in thousands) and ratios are presented below at September 30, 2019 and December 31, 2018.

 

     Actual     For Capital Adequacy
Purposes
    To Be Well Capitalized
Under Prompt Corrective
Action Provisions
 

(Dollars in Thousands)

   Amount      Ratio     Amount      Ratio     Amount      Ratio  

September 30, 2019 (unaudited):

               

Total capital to risk weighted assets

   $ 76,520        18.47   $ 33,142        8.00   $ 41,428        10.00

Tier 1 (Core) capital

     74,505        17.98       24,857        6.00       33,142        8.00  

Tier 1 Common Equity to risk weighted assets

     74,505        17.98       18,643        4.50       26,928        6.50  

Tier 1 (Core) capital to average assets

     74,505        11.26       16,571        4.00       20,714        5.00  

December 31, 2018:

               

Total capital to risk weighted assets

   $ 74,770        18.34   $ 32,620        8.00   $ 40,776        10.00

Tier 1 (Core) capital

     72,794        17.85       24,465        6.00       32,620        8.00  

Tier 1 Common Equity to risk weighted assets

     72,794        17.85       18,349        4.50       26,504        6.50  

Tier 1 (Core) capital to average assets

     72,794        11.19       26,022        4.00       32,528        5.00  

 

18


BOGOTA SAVINGS BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 6 – COMMITMENTS AND CONTINGENCIES

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments primarily include commitments to extend credit. Such instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. The contractual amounts of these instruments reflect the extent of involvement the Bank has in those particular classes of financial instruments.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

The Bank had outstanding firm commitments, all of which expire within two months, to originate, or purchase participation interests in, loans at September 30, 2019 and December 31, 2018 is as follows:

 

     September 30,
2019
     December 31,
2018
 

Fixed Rate

   (unaudited)         

Residential mortgage loans

   $ 9,597,592      $ 1,916,750  

Commercial real estate

     3,862,500        1,228,000  

Commercial and industrial

     3,991,844        5,000,000  

Home equity

     888,000        —    
  

 

 

    

 

 

 

Total

   $ 18,339,936      $ 8,144,750  
  

 

 

    

 

 

 
     September 30,
2019
     December 31,
2018
 

Variable Rate

   (unaudited)         

Residential mortgage loans

   $ 3,651,750      $ 1,912,000  

Construction (residential)

     —          —    

Home equity

     209,300        750,000  
  

 

 

    

 

 

 

Total

   $ 3,861,050      $ 2,662,000  
  

 

 

    

 

 

 

Commitments to make loans are generally made for periods of 90 days or less. The fixed rate loan commitments have interest rates ranging from 3.25% to 6.00% and maturities ranging from 10 years to 30 years.

At September 30, 2019 and December 31, 2018, undisbursed funds from approved lines of credit under a homeowners’ equity lending program amounted to approximately $40,598,165 and $38,489,682, respectively. At September 30, 2019 and December 31, 2018, undisbursed funds from approved lines of credit under a business line of credit program amounted to $423,590 and $727,696, respectively. Unless they are specifically cancelled by notice from the Bank, these funds represent firm commitments available to the respective borrowers on demand.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but primarily includes commercial and residential real estate.

 

19


BOGOTA SAVINGS BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 6 – COMMITMENTS AND CONTINGENCIES (Continued)

 

The Bank leases certain Bank properties and equipment under operating leases. Rent expense was $9,629 and $9,000 for the three months ended September 30, 2019 and 2018, respectively. Rent expense was $27,839 and $27,000 for the nine months ended September 30, 2019 and 2018, respectively.

NOTE 7 – FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a bank’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Bank used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

The Bank’s available-for-sale portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income/loss in stockholders’ equity. The securities available-for-sale portfolio consists of corporate bonds and mortgage-backed securities. The fair values of these securities are obtained from an independent nationally recognized pricing service. An independent pricing service provides prices which are categorized as Level 2, as quoted prices in active markets for identical assets are generally not available for the securities.

Assets measured at fair value on a recurring basis are summarized below:

 

     Carrying
Value
     Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

As of September 30, 2019 (unaudited)

           

Securities available for sale:

           

Corporate bonds

   $ 5,896,895      $ —        $ 5,896,895      $ —    

MBSs - residential

     6,049,738        —          6,049,738        —    
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 11,946,633      $ —        $ 11,946,633      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2018

           

Securities available for sale:

           

Corporate bonds

   $ 6,623,318      $ —        $ 6,623,318      $ —    

MBSs - residential

     6,976,488        —          6,976,488        —    
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 13,599,806      $ —        $ 13,599,806      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

There were no transfers between level 1 and level 2 during the three and nine months ended September 30, 2019 and 2018.

 

20


BOGOTA SAVINGS BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 7 – FAIR VALUE (Continued)

 

The carrying amounts and estimated fair values of financial instruments, at September 30, 2019 and December 31, 2018, are as follows:

 

     Carrying      Fair      Fair Value Measurement Placement  
     Amount      Value      (Level 1)      (Level 2)      (Level 3)  
     (In thousands)  

September 30, 2019

              

Financial instruments - assets

              

Cash and due from banks

   $ 7,046      $ 7,046      $ 7,046      $ —        $ —    

Interest – bearing deposits in other

     25,722        25,722        25,722        —          —    

Investment securities held-to-maturity

     52,480        52,980        —          52,980        —    

Loans

     536,544        538,842        —          —          538,842  

Accrued interest receivable

     1,972        1,972           305        1,667  

Financial instruments - liabilities

              

Certificates of deposit

     383,170        383,630        —          383,630        —    

Borrowings

     108,898        108,752        —          108,752        —    

Accrued interest payable

     525        525           525     
     Carrying      Fair      Fair Value Measurement Placement  
     Amount      Value      (Level 1)      (Level 2)      (Level 3)  
     (In thousands)  

December 31, 2018

              

Financial instruments - assets

              

Cash and due from banks

   $ 5,744      $ 5,744      $ 5,744      $ —        $ —    

Interest – bearing deposits in other

     18,773        18,773        18,773        —          —    

Investment securities held-to-maturity

     70,049        68,803        —          68,803        —    

Loans

     526,670        519,261        —          —          519,261  

Accrues interest receivable

     1,947        1,947           388        1,559  

Financial instruments - liabilities

              

Certificates of deposit

     385,597        384,346        —          384,346        —    

Borrowings

     74,639        74,450        —          74,450        —    

Accrued interest payable

     568        568           568     

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. The methods for determining the fair values for securities were described previously. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of FHLB advances is based on current rates for similar financing. It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. The fair value of off-balance sheet items is not considered material.

 

21


BOGOTA SAVINGS BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 8 – ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss included in equity (net of tax) as of the three and nine months ended September 30, 2019 and 2018 is as follows:

 

     Unrealized gain
and losses on
available for sale
securities
     Benefit plans      Total  

Three Months

        

September 30, 2019 (unaudited)

        

Beginning balance at July 1, 2019

   $ 120,386      $ (465,052    $ (344,666

Other comprehensive gain (loss)

     (11,528      (14,442      (25,970
  

 

 

    

 

 

    

 

 

 

Amounts reclassified

     —          —          —    
  

 

 

    

 

 

    

 

 

 

Net period comprehensive income

     (11,528      (14,442      (25,970
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ 108,858      $ (479,494    $ (370,636
  

 

 

    

 

 

    

 

 

 

September 30, 2018 (unaudited)

        

Beginning balance at July 1, 2018

   $ 96,689      $ (494,342    $ (397,653

Other comprehensive (loss) gain before reclassification

     (4,935      —          (4,935

Amounts reclassified

     —          —          —    
  

 

 

    

 

 

    

 

 

 

Net period comprehensive income

     (4,935      —          (4,935
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ 91,754      $ (494,342    $ (402,588
  

 

 

    

 

 

    

 

 

 

 

     Unrealized gain
and losses on
available for sale
securities
     Benefit plans      Total  

Nine months

        

September 30, 2019 (unaudited)

        

Beginning balance at January 1, 2019

   $ 50,561      $ (367,680    $ (317,119

Reclassification of stranded tax effects

     28,659        (97,372      (68,713
  

 

 

    

 

 

    

 

 

 

Beginning balance at January 1, 2019, as adjusted

     79,222        (465,052      (385,830

Other comprehensive gain (loss)

     29,636        (14,442      15,194  
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ 108,858      $ (479,494    $ (370,636
  

 

 

    

 

 

    

 

 

 

September 30, 2018 (unaudited)

        

Beginning balance at January 1, 2018

   $ 144,621      $ (494,342    $ (349,721

Other comprehensive (loss) gain before reclassification

     (52,867      —          (52,867

Amounts reclassified

     —          —          —    
  

 

 

    

 

 

    

 

 

 

Net period comprehensive income

     (52,867      —          (52,867
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ 91,754      $ (494,342    $ (402,588
  

 

 

    

 

 

    

 

 

 

 

22


BOGOTA SAVINGS BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 9 — PLAN OF MUTUAL HOLDING REORGANIZATION AND MINORITY STOCK ISSUANCE

On September 9, 2019, the Board of Directors of the Bank adopted a Plan of Mutual Holding Company Reorganization and Minority Stock Issuance (the “Plan”). The Plan, which has received regulatory approval, must be approved by the affirmative vote of at least a majority of the total votes eligible to be cast by the voting depositors of the Bank at a special meeting. Pursuant to the Plan, the Bank proposes to reorganize into a mutual holding company form of ownership. The Bank will convert to a stock savings bank and issue all of its outstanding stock to a new holding company, which will be named Bogota Financial Corp. Pursuant to the Plan, the new holding company will sell stock to the public, with the total offering value and number of shares of common stock based upon an independent appraiser’s valuation. The stock will be priced at $10.00 per share. In addition, the Bank’s Board of Directors will adopt an employee stock ownership plan (“ESOP”), which intends to purchase 3.92% of the common stock of the new holding company to be outstanding upon the completion of the reorganization and stock issuance. Bogota Financial Corp. has been organized as a corporation under the laws of the State of Maryland and has offered 45% of its common stock to be outstanding to the Bank’s eligible depositors, the ESOP, a community foundation and certain other persons. Bogota Financial, MHC will be organized as a mutual holding company under the laws of the State of New Jersey and will own 55% of the common stock of Bogota Financial Corp. to be outstanding upon completion of the reorganization and stock issuance.

The costs of the reorganization and the issuing of the common stock will be deferred and deducted from the sales proceeds of the offering. If the conversion is unsuccessful, all deferred costs will be charged to operations. As of September 30, 2019, $465,634 in reorganization costs had been incurred.

 

23


Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Management’s discussion and analysis of financial condition and results of operations at September 30, 2019 and for the three and nine months ended September 30, 2019 is intended to assist in understanding the financial condition and results of operations of Bogota Savings Bank. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:

 

   

statements of our goals, intentions and expectations;

 

   

statements regarding our business plans, prospects, growth and operating strategies;

 

   

statements regarding the quality of our loan and investment portfolios; and

 

   

estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 

   

general economic conditions, either nationally or in our market area, that are worse than expected;

 

   

changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for loan losses;

 

   

our ability to access cost-effective funding;

 

   

fluctuations in real estate values and both residential and commercial real estate market conditions;

 

   

demand for loans and deposits in our market area;

 

   

our ability to continue to implement our business strategies;

 

   

competition among depository and other financial institutions;

 

   

inflation and changes in market interest rates that reduce our margins and yields, reduce the fair value of financial instruments or reduce our volume of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary market;

 

24


   

adverse changes in the securities markets;

 

   

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

 

   

our ability to manage market risk, credit risk and operational risk;

 

   

our ability to enter new markets successfully and capitalize on growth opportunities;

 

   

the imposition of tariffs or other domestic or international governmental polices impacting the value of the agricultural or other products of our borrowers;

 

   

our ability to successfully integrate into our operations any assets, liabilities or systems we may acquire, as well as new management personnel or customers, and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;

 

   

changes in consumer spending, borrowing and savings habits;

 

   

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

 

   

our ability to retain key employees;

 

   

our compensation expense associated with equity allocated or awarded to our employees; and

 

   

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Additional factors that may affect our results are discussed in the Prospectus under the heading “Risk Factors.”

Critical Accounting Policies

A summary of our accounting policies is described in Note 1 to the unaudited consolidated financial statements included Item 1 of this report. Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Actual results could differ from these judgments and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations. Management believes that the most critical accounting policy, which involves the most complex or subjective decisions or assessments, is as follows:

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the relevant balance sheet date. The amount of the allowance is based on significant estimates, and the ultimate losses may vary from such estimates as more information becomes available or conditions change. The methodology for determining the allowance for loan losses is considered a critical accounting policy by management due to the high degree of judgment involved, the subjectivity of the assumptions used and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses.

 

25


As a substantial percentage of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans are critical in determining the amount of the allowance required for specific loans. Assumptions are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property securing a loan and the related allowance. Management reviews the assumptions supporting such appraisals to determine that the resulting values reasonably reflect amounts realizable on the related loans.

Management performs an evaluation of the adequacy of the allowance for loan losses at least quarterly. We consider a variety of factors in establishing this estimate including current economic conditions, delinquency statistics, geographic concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic and real estate market conditions.

The evaluation has specific and general components. The specific component relates to loans that are deemed to be impaired and classified as special mention, substandard, doubtful, or loss. For such loans that are also classified as impaired, an allowance is generally established when the collateral value of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.

Actual loan losses may be significantly more than the allowance we have established which could have a material negative effect on our financial results. See Note 1 to the Notes to the consolidated financial statements for a complete discussion of the allowance for loan losses.

Comparison of Financial Condition at September 30, 2019 and December 31, 2018

Total Assets. Total assets increased $623,000, or 0.1%, to $665.6 million at September 30, 2019 from $665.0 million at December 31, 2018. The increase was primarily due to a $9.9 million, or 1.9%, increase in loans and an $8.2 million, or 33.7%, increase in cash and cash equivalents, offset by a $17.6 million, or 25.1%, decrease in securities held-to-maturity.

Cash and Cash Equivalents. Total cash and cash equivalents increased $8.2 million, or 33.7%, to $32.8 million at September 30, 2019 from $24.5 million at December 31, 2018. This increase resulted from proceeds from maturing securities.

Securities Available for Sale. Total securities available for sale decreased $1.7 million, or 12.2%, to $11.9 million at September 30, 2019 from $13.6 million. The decrease was due to maturities resulting in a decrease of $913,000 in mortgage-backed securities and a decrease of $773,000 in corporate bonds.

Securities Held to Maturity. Total securities held to maturity decreased $17.6 million, or 25.1%, to $52.5 million at September 30, 2019 from $70.0 million at December 31, 2018, primarily due to maturity of securities. The decrease was primarily due to a $10.2 million decrease in U.S. government agency obligations, a $5.8 million decrease in municipal securities and a $2.9 million decrease in mortgage-backed securities, offset by a $1.4 million increase in corporate bonds.

Net Loans. Net loans increased $9.9 million, or 1.9%, to $536.5 million at September 30, 2019 from $526.7 million at December 31, 2018. The increase was due to a $8.5 million, or 2.3%, increase in one- to four-family residential mortgage loans to $384.8 million at September 30, 2019 from $376.3 million at December 31, 2018, an increase of $1.1 million or 87.8% in commercial and industrial loans to $2.4 million st September 30, 2019 from $1.3 million as of December 31, 2018, an increase of $1.7 million, or 6.6%, in consumer loans to $27.2 million at September 30, 2019 from $25.5 million at December 31, 2018, partially offset by a $100,000, or 0.1%, decrease in commercial real estate and multi-family loans, to $123.1 million at September 30, 2019 from $123.2 million at December 31, 2018. The increase in one- to four-family residential real estate loans was due to the purchase of $12.9 million of such loans in the first nine months of 2019. The increase in consumer loans reflects an increase in home equity loans. The decrease in commercial real estate and multi-family loans resulted from prepayments of multi-family and commercial real estate loans exceeding originations on new loans.

 

26


Deposits. Total deposits decreased $35.9 million, or 7.0%, to $474.4 million at September 30, 2019 from $510.3 million at December 31, 2018. The decrease in deposits reflected a decrease in NOW and money market accounts of $32.3 million, or 40.0%, to $48.4 million at September 30, 2019 from $80.7 million at December 31, 2018, a $1.7 million, or 5.4%, decrease in savings accounts to $29.8 million at September 30, 2019 from $31.5 million at December 31, 2018 and a $2.4 million, or 0.6%, decrease in certificates of deposit from $385.6 million at December 31, 2018 to $383.2 million at September 30, 2019. The decrease in NOW and money market accounts resulted from the withdrawal of a large deposit by a local municipality. The decrease in savings accounts reflected strong competition and pricing in the market. The decrease in certificates of deposit reflected runoff of special promotions certificates that did not renew with the Bank. At September 30, 2019, municipal deposits totaled $29.4 million, which represented 6.2% of total deposits, and brokered deposits totaled $54.1 million, which represented 11.4% of total deposits.

Borrowings. Federal Home Loan Bank of New York borrowings increased $34.3 million, or 45.9%, to $108.9 million at September 30, 2019 from $74.6 million at December 31, 2018, as we used borrowings to fund loan growth and replace deposit outflow. The weighted average rate of borrowings was 2.27% and 2.51% as of September 30, 2019 and December 31, 2018 respectively.

Total Equity. Total equity increased $1.6 million, or 2.3%, to $74.1 million at September 30, 2019 from $72.5 million at December 31, 2018. The increase was primarily due to net income of $1.6 million for the nine months ended September 30, 2019.

 

27


Average Balance Sheets and Related Yields and Rates

The following tables present information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Nonaccrual loans are included in average balances only. Loan fees are included in interest income on loans and are not material.

 

     Three Months Ended September 30,  
     2019     2018  
     Average
Balance
    Interest and
Dividends
     Yield/Cost (3)     Average
Balance
    Interest and
Dividends
     Yield/Cost  
     (Dollars in thousands)  

Assets:

              

Cash and cash equivalents

   $ 24,857     $ 142        2.26   $ 30,595     $ 152        1.97

Loans

     537,490       5,136        3.81     505,566       4,763        3.76

Securities

     65,389       453        2.77     86,681       529        2.44

Other interest-earning assets

     6,153       74        4.78     3,941       70        7.14
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-earning assets

     633,889       5,805        3.65     626,783       5,514        3.51

Non-interest-earning assets

     29,816            29,405       
  

 

 

        

 

 

      

Total assets

   $ 663,705          $ 656,188       
  

 

 

        

 

 

      

Liabilities and equity:

              

NOW and money market accounts

   $ 48,451     $ 150        1.23   $ 88,067     $ 214        0.96

Savings accounts

     29,492       18        0.24     34,403       22        0.25

Certificates of deposit

     381,636       2,317        2.41     386,392       1,734        1.78
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing deposits

     459,579       2,485        2.15     508,862       1,970        1.54

Federal Home Loan Bank advances

     106,066       569        2.13     57,029       288        2.01
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing liabilities

     565,645       3,054        2.14     565,891       2,258        1.58
    

 

 

        

 

 

    

Non-interest-bearing deposits

     12,772            11,997       

Other non-interest-bearing liabilities

     11,364            7,069       
  

 

 

        

 

 

      

Total liabilities

     589,781            584,957       

Total equity

     73,924            71,231       
  

 

 

        

 

 

      

Total liabilities and equity

   $ 663,705          $ 656,188       
  

 

 

        

 

 

      

Net interest income

     $ 2,751          $ 3,256     
    

 

 

        

 

 

    

Interest rate spread (1)

          1.51          1.93

Net interest margin (2)

          1.74          2.08

Average interest-earning assets to average interest-bearing liabilities

     112          116     
  

 

 

        

 

 

      

 

(1)

Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(2)

Net interest margin represents net interest income divided by average total interest-earning assets.

(3)

Annualized.

 

28


     Nine Months Ended September 30,  
     2019     2018  
     Average
Balance
    Interest and
Dividends
     Yield/Cost     Average
Balance
    Interest and
Dividends
     Yield/Cost  
     (Dollars in thousands)  

Assets:

              

Cash and cash equivalents

   $ 23,619     $ 438        2.48   $ 27,938     $ 371        1.77

Loans

     533,193       15,147        3.79     508,157       14,364        3.77

Securities

     74,225       1,461        2.62     83,892       1,457        2.32

Other interest-earning assets

     4,950       222        5.97     4,390       245        7.42
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-earning assets

     635,987       17,268        3.62     624,377       16,437        3.52

Non-interest-earning assets

     27,398            28,043       
  

 

 

        

 

 

      

Total assets

   $ 663,385          $ 652,420       
  

 

 

        

 

 

      

Interest-earning liabilities:

              

NOW and money market accounts

   $ 64,952     $ 630        1.30   $ 91,060     $ 599        0.88

Savings accounts

     30,020       58        0.26     35,209       67        0.25

Certificates of deposit

     395,252       6,745        2.28     372,102       4,687        1.68
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing deposits

     490,224       7,433        2.03     498,371       5,353        1.44

Federal Home Loan Bank advances

     79,342       1,488        2.51     66,693       884        1.77

Other non-interest-bearing liabilities

     —         —          —       —         —          —  
  

 

 

   

 

 

      

 

 

   

 

 

    

Total liabilities

     569,566       8,921        2.09     565,064       6,237        1.48
    

 

 

        

 

 

    

Non-interest-bearing deposits

     13,150            10,840       

Other non-interest-bearing liabilities

     7,710            6,536       
  

 

 

        

 

 

      

Total liabilities

     590,426            582,440       

Total equity

     72,959            69,980       
  

 

 

        

 

 

      

Total liabilities and equity

   $ 663,385          $ 652,420       
  

 

 

        

 

 

      

Net interest income

     $ 8,347          $ 10,200     
    

 

 

        

 

 

    

Interest rate spread (1)

          1.53          2.04

Net interest margin (2)

          1.75          2.18

Average interest-earning assets to average interest-bearing liabilities

     112          110     
  

 

 

        

 

 

      

 

(1)

Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(2)

Net interest margin represents net interest income divided by average total interest-earning assets.

 

29


Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.

 

     Three Months Ended
September 30, 2019
Compared to Three
Months Ended

September 30, 2018
    Nine Months Ended
September 30, 2019 Compared
to Nine Months Ended

September 30, 2018
 
     Increase (Decrease) Due to     Increase (Decrease) Due to  
     Volume     Rate     Net     Volume     Rate     Net  
     (In thousands)  

Interest income:

            

Cash and cash equivalents

   $ (130   $ 119     $ (11   $ (107   $ 174     $ 67  

Loans receivable

     1,128       (755     373       949       (166     783  

Securities

     (519     448       (71     (254     258       4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-earning assets

     479       (188     291       588       266       854  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense:

            

NOW and money market accounts

     (487     424       (63     (339     370       31  

Savings accounts

     (12     8       (4     (13     4       (9

Certificates of deposit

     (115     697       582       528       1,530       2,058  

Federal Home Loan Bank advances

     1,044       (763     281       317       286       603  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing liabilities

     430       366       796       493       2,190       2,683  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net interest income

   $ 49     $ (554   $ (505   $ 95     $ (1,924   $ (1,829
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comparison of Operating Results for the Three Months Ended September 30, 2019 and September 30, 2018

General. Net income decreased by $268,000 or 28.5%, to $671,000 for the three months ended September 30, 2019 from $939,000 for the three months ended September 30, 2018, offset by a $146,000 decrease in non-interest expenses and a $102,000 decrease in income tax expense. The decrease was primarily due to a $505,000 decrease in net interest income.

Interest Income. Interest income increased $291,000, or 5.3%, to $5.8 million for the three months ended September 30, 2019 from $5.5 million for the three months ended September 30, 2018. The increase reflected a $31.9 million increase in the average balance of loans and a 14 basis points increase in the average yield on interest-earning assets to 3.65% for the three months ended September 30, 2019 from 3.51% for the three months ended September 30, 2018.

Interest income on loans increased $373,000, or 7.84%, to $5.1 million for the three months ended September 30, 2019 from $4.8 million for the three months ended September 30, 2018. Interest income on loans increased due to a $31.9 million increase in the average balance of loans to $537.5 million for the three months ended September 30, 2019 from $505.6 million for the three months ended September 30, 2018. The increase in the average balance of loans reflected our continued efforts to increase our loan originations and loan purchases. The increase also reflected an 5 basis point increase in the average yield on loans from 3.76% for the three months ended September 30, 2018 to 3.81% for the three months ended September 30, 2019.

Interest income on securities decreased $75,000, or 14.2%, to $453,000 for the three months ended September 30, 2019 from $529,000 for the three months ended September 30, 2018 due to a $22.3 million decrease in the average balance of securities to $65.4 million for the three months ended September 30, 2019 from $87.7 million for the three months ended September 30, 2018.

 

30


Interest Expense. Interest expense increased $796,000, or 35.3%, to $3.1 million for the three months ended September 30, 2019 from $2.3 million for the three months ended September 30, 2018. The increase primarily reflected a 56 basis point increase in the average cost of interest-bearing liabilities to 2.14% for the three months ended September 30, 2019 from 1.58% for the three months ended September 30, 2018, as well as a $26.2 million increase in the average balance of interest-bearing liabilities.

Interest expense on interest-bearing deposits increased $516,000, or 26.2%, to $2.5 million for the three months ended September 30, 2019 from $2.0 million for the three months ended September 30, 2018. This increase was due primarily to a 61 basis point increase in the average cost of interest-bearing deposits to 2.15% for the three months ended September 30, 2019 from 1.54% for the three months ended September 30, 2018 and a $49.3 million decrease in the average balance of deposits to $459.6 million for the three months ended September 30, 2019 from $508.9 million for the three months ended September 30, 2018. The increase in the average cost of deposits was due to the rising costs of retaining deposits in a competitive environment, a higher percentage of certificates of deposit relative to total deposits and increased competition from other financial service providers operating in our market. The decrease in the average balance of deposits was primarily due to the decrease in the average balance of certificates of deposit.

Interest expense on Federal Home Loan Bank borrowings increased $280,000, or 97.3%, from $288,000 for the three months ended September 30, 2018 to $568,000 for the three months ended September 30, 2019. The increase was primarily due to a $49.4 million increase in the average balance of Federal Home Loan Bank borrowings from $56.7 million for the three months ended September 30, 2018 to $106.1 million for the three months ended September 30, 2019. The interest expense on Federal Home Loan Bank borrowings increase was also due to a 12 basis point increase in the average cost of Federal Home Loan Bank borrowings from 2.01% for the three months ended September 30, 2018 to 2.13% for the three months ended September 30, 2019.

Net Interest Income. Net interest income decreased $505,000, or 15.5%, to $2.8 million for the three months ended September 30, 2019 from $3.3 million for the three months ended September 30, 2018. The decrease reflected a 42 basis point decrease in our net interest rate spread to 1.51% for the three months ended September 30, 2019 from 1.93% for the three months ended September 30, 2018. Our net interest margin decreased 34 basis points to 1.74% for the three months ended September 30, 2019 from 2.08% for the three months ended September 30, 2018.

Provision for Loan Losses. We did not record a provision for loan losses for either the three months ended September 30, 2019 or 2018, as a result of the low and decreasing level of delinquent and non-accrual loans in the portfolio, as well as the absence of any charge-offs. Non-performing assets decreased to $537,000, or 0.08% of total assets, at September 30, 2019. We recorded no net charge-offs for the three months ended September 30, 2019 or 2018. The allowance for loan losses was $2.0 million, or 0.37% of net loans outstanding, at September 30, 2019.

Non-Interest Income. Non-interest income decreased $10,000, or 7.0%, to $132,000 for the three months ended September 30, 2019 from $142,000 for the three months ended September 30, 2018 due to a $12,000 decrease in bank-owned life insurance, offset by a $2,000 increase in bank fees and service charges. The decrease in bank-owned life insurance was due to changes to contractual yields.

Non-Interest Expenses. Non-interest expenses decreased $146,000, or 7.0%, to $1.9 million for the three months ended September 30, 2019 from $2.1 million for the three months ended September 30, 2018. The decrease was primarily the result of a $135,000 decrease in data processing costs. Data processing costs decreased during 2019 due to lower costs associated with credits received from our data processing conversion in February 2019.

Income Tax Expense. Income tax expense decreased $102,000, or 27.2%, to $273,000 for the three months ended September 30, 2019 from $375,000 for the three months ended September 30, 2018. The decrease was due primarily to a $369,000 decrease in pre-tax income. The effective tax rate for 2019 and 2018 was 28.9%.

 

31


Comparison of Operating Results for the Nine Months Ended September 30, 2019 and September 30, 2018

General. Net income decreased by $1.6 million, or 50.1%, to $1.6 million for the nine months ended September 30, 2019 from $3.3 million for the nine months ended September 30, 2018. The decrease was primarily due to a $1.9 million decrease in net interest income and a $351,000 increase in non-interest expenses, offset in part by a $617,000 decrease in income tax expense.

Interest Income. Interest income increased $831,000, or 5.1%, to $17.3 million for the nine months ended September 30, 2019 from $16.4 million for the nine months ended September 30, 2018 primarily due to a $25.3 million increase in the average balance of loans and a 10 basis points increase in the average yield on interest-earning assets to 3.62% for the nine months ended September 30, 2019 from 3.51% for the nine months ended September 30, 2018.

Interest income on loans increased $783,000, or 5.5%, to $15.1 million for the nine months ended September 30, 2019 from $14.4 million for the nine months ended September 30, 2018. Interest income on loans increased due to a $25.3 million increase in the average balance of loans to $533.2 million for the nine months ended September 30, 2019 from $507.9 million for the nine months ended September 30, 2018. The increase in the average balance of loans reflected our continued efforts to increase our loan originations and loan purchases. The increase also reflected a 2 basis point increase in the average yield on loans from 3.77% for the nine months ended September 30, 2018 to 3.79% for the nine months ended September 30, 2019.

Interest income on securities increased $3,000, or 0.3%, for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.

Interest Expense. Interest expense increased $2.6 million, or 43.0%, to $8.9 million for the nine months ended September 30, 2019 from $6.2 million for the nine months ended September 30, 2018. The increase primarily reflected a 59 basis point increase in the average cost of interest-bearing liabilities to 2.03% for the nine months ended September 30, 2019 from 1.44% for the nine months ended September 30, 2018, as well as a $4.4 million increase in the average balance of interest-bearing liabilities.

Interest expense on interest-bearing deposits increased $2.1 million, or 38.9%, to $7.4 million for the nine months ended September 30, 2019 from $5.4 million for the nine months ended September 30, 2018. This increase was due primarily to a 59 basis point increase in the average cost of interest-bearing deposits to 2.03% for the nine months ended September 30, 2019 from 1.44% for the nine months ended September 30, 2018, offset by a $8.3 million decrease in the average balance of deposits to $490.2 million for the nine months ended September 30, 2019 from $498.5 million for the nine months ended September 30, 2018. The increase in the average cost of deposits was due to the rising interest rate environment, a higher percentage of certificates of deposit relative to total deposits and increased competition from other financial service providers operating in our market. The decrease in the average balance of deposits was due to the Bank’s reliance on borrowings to fund asset growth and deposit outflows.

Interest expense on Federal Home Loan Bank borrowings increased $603,000, or 68.2%, to $1.5 million for the nine months ended September 30, 2019 from $884,000 for the nine months ended September 30, 2018. The increase was primarily due to a $12.6 million increase in the average balance of Federal Home Loan Bank borrowings from $66.7 million for the nine months ended September 30, 2018 to $79.3 million for the nine months ended September 30, 2019. The interest expense on Federal Home Loan Bank borrowings also increased due to a 73 basis point increase in the average cost of Federal Home Loan Bank borrowings to 2.51% for the nine months ended September 30, 2019 from 1.77% for the nine months ended September 30, 2018. The increase in the average cost of Federal Home Loan Bank borrowings also reflected the rising interest rate environment during the period.

Net Interest Income. Net interest income decreased $1.9 million, or 18.2%, to $8.3 million for the nine months ended September 30, 2019 from $10.2 million for the nine months ended September 30, 2018. The decrease reflected a 51 basis point decrease in our net interest rate spread to 1.53% for the nine months ended September 30, 2019 from 2.04% for the nine months ended September 30, 2018. Our net interest margin decreased 43 basis points to 1.75% for the nine months ended September 30, 2019 from 2.18% for the nine months ended September 30, 2018.

 

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Provision for Loan Losses. We did not record a provision for loan losses for either the nine months ended September 30, 2019 or 2018, as a result of the low and decreasing level of delinquent and non-accrual loans in the portfolio, as well as the absence of any change-offs. Non-performing assets decreased to $557,000, or 0.1 % of total assets, at September 30, 2019. We recorded no net charge-offs for the nine months ended September 30, 2019 or 2018. The allowance for loan losses was $2.0 million, or 0.37% of net loans outstanding, at September 30, 2019.

Non-Interest Income. Non-interest income decreased $60,000, or 12.7%, to $412,000 for the nine months ended September 30, 2019 from $472,000 for the nine months ended September 30, 2018 due to a $39,000 decrease in bank-owned life insurance and a $21,000 decrease in bank fees and service charges. The decrease in bank-owned life insurance was due to changes to contractual yields. Bank fees and service charges decreased in 2019 primarily due to a decrease in late charges.

Non-Interest Expenses. Non-interest expenses increased $351,000, or 5.7%, to $6.6 million for the nine months ended September 30, 2019 from $6.2 million for the nine months ended September 30, 2018. The increase was primarily the result of a $297,000 increase in salaries and employee benefits expense and a $163,000 increase in data processing costs. Salaries and employee benefit expense increased during 2019 due to annual salary increases and an increase in the number of employees during the year. Data processing costs increased during 2019 due to termination costs associated with our data processing conversion.

Income Tax Expense. Income tax expense decreased $617,000, or 52.5% to $558,000 for the nine months ended September 30, 2019 from $1.2 million for the nine months ended September 30, 2018. The decrease was due primarily to a $2.3 million decrease in pre-tax income and a decrease in the effective tax rate. The effective tax rate for 2019 was 25.4% compared to 26.3% for 2018.

Management of Market Risk

General. The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage our exposure to changes in market interest rates. Accordingly, our board of directors has established an Asset/Liability Management Committee (the “ALCO”), which is comprised of three members of executive management and two independent directors, which takes responsibility for overseeing the asset/liability management process and related procedures. The ALCO meets on at least a quarterly basis and reviews asset/liability strategies, liquidity positions, alternative funding sources, interest rate risk measurement reports, capital levels and economic trends at both national and local levels. Our interest rate risk position is also monitored quarterly by the board of directors.

We manage our interest rate risk to minimize the exposure of our earnings and capital to changes in market interest rates. We have implemented the following strategies to manage our interest rate risk: originating loans with adjustable interest rates; promoting core deposit products; monitoring the length of our borrowings with the Federal Home Loan Bank and brokered deposits depending on the interest rate environment; maintaining a portion of our investments as available-for-sale; diversifying our loan portfolio; and strengthening our capital position. By following these strategies, we believe that we are better positioned to react to changes in market interest rates.

Net Portfolio Value Simulation. We analyze our sensitivity to changes in interest rates through a net portfolio value of equity (“NPV”) model. NPV represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities adjusted for the value of off-balance sheet contracts. The NPV ratio represents the dollar amount of our NPV divided by the present value of our total assets for a given interest rate scenario. NPV attempts to quantify our economic value using a discounted cash flow methodology while the NPV ratio reflects that value as a form of capital ratio. We estimate what our NPV would be at a specific date. We then calculate what the NPV would be at the same date throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve. We currently calculate NPV under the assumptions that interest rates increase 100, 200, 300 and 400 basis points from current market rates and that interest rates decrease 100 points from current market rates.

 

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The following table presents the estimated changes in our net portfolio value that would result from changes in market interest rates as September 30, 2019. All estimated changes presented in the table are within the policy limits approved by the board of directors.

 

     NPV     NPV as Percent
of Portfolio
Value of Assets
 
     (Dollars in thousands)              

Basis Point (“bp”) Change in Interest Rates

   Dollar
Amount
     Dollar
Change
    Percent
Change
    NPV
Ratio
    Change  

      400 bp

   $ 43,252      $ (29,968     (40.93 )%      7.39     (32.63 )% 

      300 bp

     51,870        (21,349     (29.16     8.49       (22.61

      200 bp

     60,470        (12,749     (17.41     9.61       (12.40

      100 bp

     67,800        (5,419     (7.40     10.46       (4.65

         —

     73,219        —         —         10.97       —    

    (100) bp

     82,453        9,234       12.61       12.05       9.85  

    (200) bp

     94,770        21,551       29.43       13.51       23.15  

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The above table assumes that the composition of our interest-sensitive assets and liabilities existing at the date indicated remains constant uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our NPV and will differ from actual results.

Net Interest Income Analysis. We also use income simulation to measure interest-rate risk inherent in our balance sheet at a given point in time by showing the effect on net interest income, over specified time frames and using different interest rate shocks and ramps. The assumptions include management’s best assessment of the effect of changing interest rates on the prepayment speeds of certain assets and liabilities, projections for account balances in each of the product lines offered and the historical behavior of deposit rates and balances in relation to changes in interest rates. These assumptions are inherently changeable, and as a result, the model is not expected to precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income. Actual results will differ from the simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in the balance sheet composition and market conditions. Assumptions are supported with quarterly back testing of the model to actual market rate shifts.

As of September 30, 2019, net interest income simulation results indicated that its exposure over one year to changing interest rates was within our guidelines. The following table presents the estimated impact of interest rate changes on our estimated net interest income over one year:

 

Changes in Interest Rates

(basis points)(1)

  

Change in Net Interest Income

Year One

(% change from year one base)

400    (12.49)%
300    (8.97)
200    (5.52)
100    (2.34)
  
(100)    0.40
(200)    1.50

 

(1)

The calculated change in net interest income assumes an instantaneous parallel shift of the yield curve.

 

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The preceding simulation analyses do not represent a forecast of actual results and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions, which are subject to change, including: the nature and timing of interest rate levels including the yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and others. Also, as market conditions vary, prepayment/refinancing levels, the varying impact of interest rate changes on caps and floors embedded in adjustable-rate loans, early withdrawal of deposits, changes in product preferences, and other internal/external variables will likely deviate from those assumed.

Liquidity and Capital Resources

Liquidity. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from calls, maturities and sales of securities. We also have the ability to borrow from the Federal Home Loan Bank of New York. At September 30, 2019, we had the ability to borrow up to $256.7 million, of which $110.5 million was outstanding and $1.5 million was utilized as collateral for letters of credit issued to secure municipal deposits. At September 30, 2019, we had $51.0 million in unsecured lines of credit with four correspondent banks with no outstanding balance.

The board of directors is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we had enough sources of liquidity to satisfy our short- and long-term liquidity needs as of September 30, 2019.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any period. At September 30, 2019, cash and cash equivalents totaled $32.8 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $11.9 million at September 30, 2019.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate we will have sufficient funds to meet our current funding commitments. Certificates of deposit due within one year of September 30, 2019 totaled $274.5 million, or 57.9%, of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits and Federal Home Loan Bank of New York advances. Depending on market conditions, we may be required to pay higher rates on such deposits or borrowings than we currently pay. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Capital Resources. We are subject to various regulatory capital requirements administered by NJDBI and the Federal Deposit Insurance Corporation. At September 30, 2019, we exceeded all applicable regulatory capital requirements, and were considered “well capitalized” under regulatory guidelines.

 

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Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable for smaller reporting companies.

 

Item 4.

Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2019. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended September 30, 2019, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings

We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at September 30, 2019, we were not involved in any legal proceedings the outcome of which would be material to our financial condition or results of operations.

 

Item 1A.

Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed under the heading “Risk Factors” contained in the Prospectus. The Company’s evaluation of the risk factors applicable to it has not changed materially from those disclosed in the Prospectus.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

 

Item 3.

Defaults Upon Senior Securities

None.

 

Item 4.

Mine Safety Disclosures

Not applicable.

 

Item 5.

Other Information

None.

 

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Item 6.

Exhibits

 

Exhibit
Number
  

Description

    3.1    Articles of Incorporation of Bogota Financial Corp. (incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-233680))
    3.2    Bylaws of Bogota Financial Corp. (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-233680))
    4.1    Form of Common Stock Certificate of Bogota Financial Corp. (incorporated by reference to Exhibit 4 of the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-233680))
  31.1    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  31.2    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  32.1    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.0    The following materials for the quarter ended September 30, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Financial Condition, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements *

 

*

Furnished, not filed.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

               BOGOTA FINANCIAL CORP.
Date: December 23, 2019      

/s/ Joseph Coccaro

      Joseph Coccaro
      President and Chief Executive Officer

 

 

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