Bogota Financial Corp. (NASDAQ:BSBK) is a bank holding company that operates through its wholly-owned subsidiary, Bogota Savings Bank. The bank primarily serves customers in New Jersey, offering a range of deposit and loan products. As the company navigates the complexities of the current interest rate environment, its financial performance has been impacted, presenting both challenges and opportunities.

Business Overview

Bogota Financial Corp. operates through its subsidiary, Bogota Savings Bank, which primarily serves customers in New Jersey. The bank offers a range of deposit products, including checking accounts, savings accounts, and certificates of deposit, as well as a variety of loan products, such as residential mortgages, commercial real estate loans, and consumer loans.

The company's loan portfolio is diversified, with 67.8% of loans in the residential real estate segment, 14.9% in commercial real estate, 10.6% in multi-family real estate, 5.8% in construction, and 0.9% in commercial and industrial loans as of March 31, 2024. The bank's loan portfolio has demonstrated relatively stable credit quality, with non-performing loans accounting for 1.29% of total assets as of the same date.

Financials

For the fiscal year ended December 31, 2023, Bogota Financial Corp. reported annual net income of $642,535,000, annual revenue of $38,418,880,000, annual operating cash flow of $1,407,976,000, and annual free cash flow of $1,089,941,000. These figures demonstrate the company's scale and financial strength, even as it faces headwinds in the current market conditions.

In the first quarter of 2024, the company reported a net loss of $440,980,000, a significant decline from the net income of $992,707,000 reported in the same period of the prior year. This decrease was primarily driven by a $1.9 million, or 41.4%, decrease in net interest income, which was partially offset by a $585,000, or 196.2%, decrease in income tax expense.

The primary challenge facing Bogota Financial Corp. is the impact of the rising interest rate environment on its net interest margin and profitability. The company's net interest margin decreased by 87 basis points to 1.18% in the first quarter of 2024, compared to 2.05% in the same period of the prior year. This decline was driven by a 157 basis point increase in the average cost of deposits, as well as a 51 basis point increase in the average cost of borrowings.

To mitigate the impact of rising interest rates, the company has implemented several strategies. It has been actively promoting core deposit products, such as checking and savings accounts, to reduce its reliance on higher-cost certificates of deposit. Additionally, the company has been monitoring the duration of its borrowings with the Federal Home Loan Bank and brokered deposits, adjusting them as needed based on the interest rate environment.

Liquidity

Bogota Financial Corp. maintains a strong liquidity position, with cash and cash equivalents totaling $14.4 million and securities available for sale of $102.0 million as of March 31, 2024. The company also has the ability to borrow up to $316.5 million from the Federal Home Loan Bank of New York, of which $149.3 million was outstanding as of the same date.

In terms of capital, the company exceeds all applicable regulatory capital requirements and is considered "well capitalized" under regulatory guidelines. As of March 31, 2024, the bank's Community Bank Leverage Ratio was 13.23%, well above the 9% threshold required for the "qualifying community bank" designation.

Bogota Financial Corp.'s loan portfolio has demonstrated relatively stable credit quality, with non-performing loans accounting for 1.29% of total assets as of March 31, 2024. The company's allowance for credit losses was 0.40% of total loans and 22.69% of non-performing loans as of the same date.

Risks and Challenges

Bogota Financial Corp. faces several risks and challenges in the current operating environment. The primary risk is the continued impact of rising interest rates on the company's net interest margin and profitability. Additionally, the company is exposed to credit risk through its loan portfolio, particularly in the commercial real estate and construction segments, which could be impacted by any economic downturn.

The company also faces competition from larger regional and national banks, as well as from non-bank financial institutions, which may have greater resources and a broader product offering. Regulatory changes and increased compliance requirements also present ongoing challenges for the company.

Outlook

Bogota Financial Corp. has not provided any specific guidance for the remainder of 2024. However, the company has indicated that it will continue to focus on strategies to mitigate the impact of rising interest rates, such as promoting core deposit products and managing the duration of its borrowings. The company also remains committed to maintaining a strong capital position and prudent risk management practices.

Conclusion

Bogota Financial Corp. is navigating the challenges of the current interest rate environment, which has impacted its financial performance in the first quarter of 2024. The company's diversified loan portfolio, strong liquidity position, and well-capitalized balance sheet provide a solid foundation for weathering these challenges. However, the company will need to continue to adapt its strategies and risk management practices to ensure long-term success in the evolving financial landscape.