BSBK

Bogota Financial Corp. 10-Q Summary: Q3 2024

Business Context and Reporting Period

This report covers the quarterly period ended September 30, 2024. Bogota Financial Corp. (BSBK) is the mid-tier stock holding company for Bogota Savings Bank, a community bank operating primarily in New Jersey. The company is classified as a non-accelerated filer, smaller reporting company, and emerging growth company.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Decline: The company reported a net loss of $367,000 for Q3 2024, compared to a net loss of $29,000 in Q3 2023. Year-to-date, the company reported a net loss of $1.24 million, a significant reversal from the $1.82 million net income recorded in the same period in 2023.
• Net Interest Income Compression: Net interest income decreased 17.4% quarter-over-quarter to $2.66 million. The Net Interest Margin (NIM) compressed to 1.15% from 1.47% in the prior year quarter, driven by a 93 basis point increase in the cost of interest-bearing deposits to 4.04%.
• Asset Growth via Securities: Total assets increased 4.2% to $978.9 million. This growth was driven by a 57.6% increase in securities available for sale ($108.6 million) and a 10.3% increase in securities held to maturity, funded by increased borrowings and excess cash.
• Loan Portfolio Contraction: Net loans decreased 0.8% to $708.9 million. Residential first mortgage loans declined 2.6% and construction loans dropped 18.4% due to higher interest rates and reduced demand. These decreases were partially offset by a 13.1% increase in commercial real estate loans.
• Increased Borrowings: Federal Home Loan Bank (FHLB) advances increased 20.8% to $202.6 million as part of a leveraging strategy to purchase higher-yielding securities.

Outlook, Risks, and Unusual Items

• Non-Performing Assets (NPA): Non-performing assets increased to $13.8 million (1.41% of total assets). This increase is primarily attributed to a single $10.9 million construction loan for a catering hall (99% complete) which is well-secured (45% LTV) but has been placed on nonaccrual. Legal action has been commenced against the borrower.
• Material Weakness in Internal Controls: Management identified a material weakness in internal controls over financial reporting regarding the accounting for fair value hedges. The error involved incorrectly adjusting accumulated other comprehensive loss instead of the fair value of loans. The error was discovered and corrected in Q1 2024 before any financial statements were issued, resulting in no restatements.
• Interest Rate Risk: The company remains sensitive to interest rate changes. Simulations indicate that a 400 basis point increase in rates would decrease Net Portfolio Value (NPV) by 35.35%, while a 400 basis point decrease would increase NPV by 27.48%.
• Stock Repurchases: The company continues its share repurchase program, buying back 56,467 shares in Q3 2024 at an average price of $7.35.

Investor Verification Checklist

• Verify NPA Resolution: Monitor the status of the $10.9 million non-accrual construction loan and the outcome of the legal action taken against the borrower.
• Assess NIM Trajectory: Evaluate whether the cost of deposits can be stabilized or reduced to improve the compressed Net Interest Margin (1.15%).
• Review Internal Controls: Confirm that the remediation plan for the fair value hedge accounting material weakness is fully implemented and effective in future reporting periods.
• Monitor Liquidity Mix: Track the reliance on FHLB borrowings (currently 202.6M) versus core deposits, noting that 16.1% of deposits are brokered.
• Check Provision Trends: Observe if the $70,000 provision for credit losses (YTD) remains stable or increases given the rise in delinquent commercial real estate loans.