8-K: Bogota Financial Corp. Reports Net Loss for Second Quarter and First Half of 2024

Bogota Financial Corp. reported a net loss for both the three and six months ended June 30, 2024, compared to net income in the same periods of the previous year.

Summary

• Bogota Financial Corp. reported a net loss of $432,000, or $0.03 per share, for the three months ended June 30, 2024, a significant decrease from the net income of $857,000, or $0.07 per share, in the same period last year.
• For the six months ended June 30, 2024, the company experienced a net loss of $873,000, or $0.07 per share, compared to a net income of $1.8 million, or $0.14 per share, for the same period in 2023.
• Total assets increased by $35.4 million, or 3.8%, to $974.7 million as of June 30, 2024, primarily due to an increase in securities, offset by a decrease in cash and loans.
• Cash and cash equivalents decreased by $7.3 million, or 29.4%, to $17.6 million, as excess funds were used to purchase securities.
• Securities increased by $46.4 million, or 32.8%, to $187.9 million.
• Net loans decreased by $7.1 million, or 1.0%, to $707.6 million.
• Total deposits increased by $23.8 million, or 3.8%, to $649.1 million, driven by a $21.0 million increase in interest-bearing deposits, mainly certificates of deposit.
• The average rate on deposits increased by 145 basis points to 3.91% for the first half of 2024.
• Federal Home Loan Bank advances increased by $11.7 million, or 7.0%, to $179.4 million.
• Net interest income decreased by $1.6 million, or 36.1%, for the three months ended June 30, 2024, and by $3.4 million, or 38.8%, for the six months ended June 30, 2024.
• The net interest margin decreased to 1.21% for the three months and 1.20% for the six months ended June 30, 2024.
• The company recorded a $35,000 provision for credit losses for the three months and $70,000 for the six months ended June 30, 2024.
• Non-interest expense increased by $94,000, or 2.6%, for the three months and $219,000, or 3.1%, for the six months ended June 30, 2024.
• The company repurchased 107,323 shares at a cost of $735,000 as part of its stock repurchase program.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the reported net losses, decreased net interest income, and margin compression. While there are some positive aspects like asset and deposit growth, the overall financial performance is concerning.

Positives

• Total assets increased by 3.8% to $974.7 million, indicating overall growth in the company's holdings.
• Total deposits increased by 3.8% to $649.1 million, showing customer confidence and growth in the deposit base.
• Securities holdings increased by 32.8% to $187.9 million, reflecting a strategic shift in asset allocation.
• Non-interest income increased by 7.0% for the three months and 6.3% for the six months ended June 30, 2024.
• The company has a stock repurchase program in place, demonstrating confidence in its value.

Negatives

• The company reported a net loss of $432,000 for the three months ended June 30, 2024, a significant decrease from the net income of $857,000 in the same period last year.
• The company reported a net loss of $873,000 for the six months ended June 30, 2024, compared to a net income of $1.8 million for the same period in 2023.
• Net interest income decreased by 36.1% for the three months and 38.8% for the six months ended June 30, 2024.
• The net interest margin decreased to 1.21% for the three months and 1.20% for the six months ended June 30, 2024.
• Cash and cash equivalents decreased by 29.4% to $17.6 million.
• Net loans decreased by 1.0% to $707.6 million.
• Delinquent loans increased to $13.5 million, or 1.90% of total loans.

Risks

• The company faces increased competitive pressures in the banking sector.
• Changes in the interest rate environment could negatively impact profitability.
• Inflation and general economic conditions could affect the company's performance.
• Fluctuations in real estate market values in the lending area pose a risk.
• Changes in liquidity, including the size and composition of the deposit portfolio, could impact the company.
• The company relies on brokered and municipal deposits, which could be volatile.
• Demand for loans in the market area could decrease.
• Changes in the quality of loan and security portfolios could impact the allowance for credit losses.
• Monetary and fiscal policies of the U.S. Government could affect the company.
• Operational or security system failures, including cyberattacks, pose a risk.
• Failure to maintain current technologies or retain employees could negatively impact the company.
• Legislative, accounting, and regulatory changes could adversely affect the business.

Future Outlook

The company remains focused on executing its strategic plan to deliver value to shareholders and customers, with growth as a key component, including expanding services and technology offerings to attract new customers. The company is also mindful of the changing interest rate environment and potential for interest rate cuts from the Federal Reserve.

Management Comments

• Kevin Pace, President and Chief Executive Officer, said 'We have seen growth in our commercial lending portfolio and deposits.'
• Kevin Pace also stated 'Our credit quality has remained strong through this growth as we continue to be prudent lenders.'
• Kevin Pace also mentioned 'We remain focused on executing our strategic plan to deliver value to our shareholders and customers.'
• Kevin Pace also noted 'Growth is a key component in our plan as we look to expand our services and technology offerings to attract new customers.'
• Kevin Pace also stated 'The Bank completed its third stock repurchase program earlier this year and promptly began its fourth buyback. We remain diligent in our efforts to show confidence in our value.'

Industry Context

The results reflect the challenges faced by many financial institutions in the current interest rate environment, where rising deposit costs and a flattening yield curve are compressing net interest margins. The company's strategic shift towards securities and away from loans is a common response to these conditions. The focus on commercial lending and technology upgrades aligns with industry trends towards diversification and digital transformation.

Comparison to Industry Standards

• The decrease in net interest margin to 1.21% for the three months and 1.20% for the six months ended June 30, 2024, is below the average for many US banks, which have seen margins compress due to higher funding costs.
• Companies like New York Community Bancorp (NYCB) and First Republic Bank (FRC) have faced similar challenges with deposit costs and net interest margin compression, although their situations were more severe due to specific issues.
• The increase in securities holdings is a common strategy among banks to improve yields, similar to moves by regional banks like PacWest Bancorp (PACW) and Western Alliance Bancorporation (WAL).
• The decrease in loan balances is a trend seen across the industry as demand for residential loans has decreased due to higher interest rates, similar to what has been reported by companies like Wells Fargo (WFC) and Bank of America (BAC).
• The increase in delinquent loans to 1.90% of total loans is a concern, but it is still within the range of what some other regional banks have reported, although the company has stated that the increase was mostly due to one well-secured commercial real estate loan.

Stakeholder Impact

• Shareholders will be negatively impacted by the reported net losses and decreased profitability.
• Employees may be affected by the company's cost-cutting measures, including lower headcount.
• Customers may benefit from the company's expanded services and technology offerings.
• Creditors may be concerned about the company's decreased profitability and increased credit risk.
• Suppliers may be affected by the company's cost-cutting measures.

Next Steps

• The company will continue to execute its strategic plan.
• The company will focus on expanding services and technology offerings.
• The company will continue its stock repurchase program.
• The company will remain mindful of the changing interest rate environment.

Key Dates

Keywords

financial results, net loss, net income, interest income, interest expense, net interest margin, loans, deposits, securities, asset quality, stock repurchase, bank, financial performance