BSBK

Bogota Financial Corp. 10-Q Summary: Q2 2024

Business Context and Reporting Period

This report covers the quarterly period ended June 30, 2024. Bogota Financial Corp. (BSBK) is a Maryland corporation and the mid-tier stock holding company for Bogota Savings Bank, operating primarily in New Jersey. The company is classified as a non-accelerated filer, smaller reporting company, and emerging growth company. As of August 13, 2024, there were 13,121,355 shares of common stock outstanding.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability: The company reported a net loss of $432,479 for Q2 2024, a significant decline from net income of $856,641 in Q2 2023. Year-to-date losses totaled $873,459 compared to income of $1.85 million in the prior year.
• Net Interest Income (NII): NII decreased 36.1% to $2.74 million in Q2 2024 from $4.29 million in Q2 2023. This was driven by a compression in the net interest margin (NIM) from 1.96% to 1.21% due to rising funding costs outpacing yield increases on assets.
• Interest Expense: Interest expense surged 51.2% to $7.73 million in Q2 2024 from $5.11 million in Q2 2023. The cost of interest-bearing deposits rose to 3.99% from 2.68%.
• Asset Composition: Total assets increased 3.8% to $974.7 million, driven by a 55.1% increase in securities available for sale ($106.9 million) and an 11.6% increase in securities held to maturity. Conversely, net loans decreased 1.0% to $707.6 million.
• Non-Performing Assets: Non-performing assets increased to $13.0 million (1.33% of total assets), primarily due to a single $10.9 million construction loan. The allowance for credit losses remained stable at 0.39% of total loans.

Guidance, Outlook, Risks, and Unusual Items

• Internal Control Material Weakness: Management identified a material weakness in internal controls over financial reporting regarding the accounting for fair value hedges. The error was discovered and corrected in May 2024 before the issuance of financial statements, resulting in no misstatement of previously issued reports. Management is implementing remediation procedures.
• Interest Rate Risk: The company remains sensitive to interest rate fluctuations. Net portfolio value (NPV) simulations indicate that a 400 basis point increase in rates would decrease NPV by 32.02%, while a 400 basis point decrease would increase NPV by 28.63%.
• Capital Position: The company remains "well capitalized" under regulatory guidelines, with a Community Bank Leverage Ratio of 13.07%.
• Stock Repurchases: The company repurchased 107,323 shares in Q2 2024 at an average price of $6.85 per share under an approved program.
• Legal Proceedings: The company has commenced legal action against a client regarding the $10.9 million non-performing construction loan.

Investor Verification Checklist

• Margin Compression: Verify the sustainability of the 1.21% net interest margin in a high-rate environment and management's strategy to mitigate further compression.
• Non-Performing Loan Concentration: Assess the collateral value and recovery prospects of the $10.9 million construction loan, which represents the majority of non-performing assets.
• Internal Controls: Monitor the effectiveness of the remediation plan for the material weakness in fair value hedge accounting to ensure future reporting accuracy.
• Deposit Stability: Review the composition of deposits, noting that 14.1% are brokered and 10.7% are uninsured, which may impact funding stability.
• Securities Portfolio: Evaluate the unrealized losses on the $106.9 million available-for-sale securities portfolio and the potential impact on capital if sales become necessary.