Navigating a Changing Landscape
Bogota Financial Corp. (BSBK) is a community bank holding company headquartered in Teaneck, New Jersey. The company was formed in 2020 through the reorganization of Bogota Savings Bank, a 100-year-old institution, into a two-tier mutual holding company structure. Despite facing various obstacles, Bogota Financial Corp. has demonstrated resilience and a commitment to growth, diversifying its balance sheet and expanding its footprint in the local community.
Bogota Financial Corp. has a rich history dating back to 1893 when Bogota Savings Bank was first established to serve customers in New Jersey. The bank maintained two subsidiaries: Bogota Securities Corp., which was responsible for buying, selling, and holding investment securities, and Bogota Properties, LLC, which was inactive as of 2023. In 2020, the company underwent a significant restructuring, converting from a mutual to a stock-based holding company in order to access the capital markets and support its future growth plans.
The transition marked a new era for the company, with Bogota Financial Corp. completing its initial public stock offering on January 15, 2020. Shares of its common stock began trading on the Nasdaq Capital Market under the ticker symbol BSBK, providing the company with increased visibility and access to capital markets.
In 2021, the company took steps to strengthen its ability to attract and retain key talent by adopting the Bogota Financial Corp. 2021 Equity Incentive Plan. This plan provided for the issuance of up to 902,600 shares of common stock in the form of restricted stock awards and stock options, helping to align the interests of employees with those of shareholders.
Despite these positive developments, the company faced challenges in recent years. In 2024, the company reported a net loss of $1.0 million for the first nine months of the year, compared to net income of $1.8 million in the same period of 2023. This decline was primarily driven by a 33.1% decrease in net interest income, as the company navigated a rising interest rate environment that put pressure on its margins.
Additionally, in May 2024, the company encountered an issue related to its internal controls over financial reporting. Management discovered an error in the accounting for fair value hedges, resulting in the conclusion that a material weakness existed. However, the company demonstrated its commitment to transparency and financial integrity by quickly addressing and resolving the problem before any financial statements were issued.
Diversifying the Balance Sheet
To address the challenges posed by the changing interest rate landscape, Bogota Financial Corp. has worked to diversify its balance sheet. The company has increased its investments in securities, with the available-for-sale portfolio growing by 57.6% to $108.6 million as of September 30, 2024, compared to $68.9 million at the end of 2023. This strategy has helped offset the decline in loan balances, which decreased by 0.8% to $708.9 million during the same period.
Furthermore, the company has leveraged its balance sheet, increasing its Federal Home Loan Bank borrowings by 20.8% to $202.6 million as of September 30, 2024. This additional funding has provided Bogota Financial Corp. with the resources to invest in higher-yielding assets, helping to mitigate the impact of the lower interest rate environment on its net interest margin.
Strengthening the Core Business
Despite the headwinds, Bogota Financial Corp. has remained focused on strengthening its core commercial and residential lending operations. The company has seen growth in its commercial real estate portfolio, which increased by 13.1% to $112.9 million as of September 30, 2024, and its commercial and industrial loan book, which grew by 53.6% to $10.2 million during the same period.
The company's residential mortgage lending business has faced some challenges, with one- to four-family residential real estate loans declining by 2.6% to $473.5 million. However, Bogota Financial Corp. has remained committed to this segment, leveraging its strong brand and deep community ties to maintain its market position.
Navigating Regulatory Changes
In addition to the shifting interest rate environment, Bogota Financial Corp. has also had to navigate a complex regulatory landscape. The company's transition to a stock-based holding company structure has required significant investment in compliance and governance frameworks, as it works to ensure adherence to the evolving regulatory requirements.
The company has also had to address a material weakness identified in its internal controls over financial reporting related to the accounting for fair value hedges. While this issue did not result in any identified misstatements, it highlighted the importance of robust risk management and control systems in the current operating environment.
Financials
Bogota Financial Corp.'s financial performance has been impacted by the challenging interest rate environment. For the first nine months of 2024, the company reported a net loss of $1.0 million, compared to a net income of $1.8 million in the same period of 2023. This decline was primarily due to a 33.1% decrease in net interest income.
The company's total assets stood at $974.9 million as of September 30, 2024, representing a slight increase from $972.1 million at the end of 2023. Total deposits decreased by 1.7% to $663.0 million during this period, while total borrowings increased by 20.8% to $202.6 million.
In the most recent quarter (Q3 2024), Bogota Financial Corp. reported revenue of $10,947,647, a net loss of $366,960, negative operating cash flow of $287,878, and negative free cash flow of $330,936. The company operates solely in the United States, focusing on the New Jersey market as a small-cap bank.
Liquidity
Bogota Financial Corp. has maintained a strong liquidity position despite the challenging environment. As of September 30, 2024, the company had cash and cash equivalents of $28.7 million, compared to $34.3 million at the end of 2023. The company's available-for-sale securities portfolio, which provides additional liquidity, grew by 57.6% to $108.6 million during this period.
The company's increased borrowings from the Federal Home Loan Bank have provided additional liquidity to support its operations and investment strategies. This enhanced liquidity position has allowed Bogota Financial Corp. to navigate the current market conditions while maintaining flexibility for future growth opportunities.
As of September 30, 2024, the company had $21.0 million in cash and cash equivalents. Additionally, Bogota Financial Corp. had $297.9 million in total borrowing capacity from the Federal Home Loan Bank, of which $202.6 million was outstanding and $1.2 million was utilized for letters of credit. The company also maintained $54.0 million in unsecured lines of credit with four correspondent banks, with no outstanding balance.
Product Segments and Portfolio Composition
Bogota Financial Corp. operates primarily as a community bank, offering a variety of lending and deposit products to serve the financial needs of individuals and businesses in its local market area. The company's loan portfolio is composed of several key segments:
Residential Lending: This is the largest component of the bank's loan portfolio, representing 66.6% of total loans as of September 30, 2024. The residential first mortgage loan portfolio totaled $473.49 million, a decrease of $12.56 million or 2.6% from December 31, 2023. The bank offers a variety of residential mortgage loan products, including fixed-rate, adjustable-rate, and jumbo loans.
Commercial Real Estate Lending: The commercial real estate loan portfolio totaled $112.90 million as of September 30, 2024, an increase of $13.07 million or 13.1% from the prior year-end. This segment includes loans secured by multifamily properties, as well as commercial properties such as office, retail, and industrial buildings.
Construction Lending: The construction loan portfolio decreased by $9.06 million or 18.4% to $40.24 million as of September 30, 2024 compared to year-end 2023. These loans are provided for the development of residential and commercial real estate projects.
Commercial and Industrial Lending: This portfolio increased by $3.57 million or 53.6% to $10.23 million as of September 30, 2024. It includes loans to businesses for working capital, equipment purchases, and other commercial purposes.
Consumer Lending: Consumer loans totaled $81,000 as of September 30, 2024, representing a small portion of the overall loan portfolio.
The bank's total loan portfolio decreased by $5.83 million or 0.8% to $711.64 million as of September 30, 2024 compared to $717.47 million at December 31, 2023. The allowance for credit losses was $2.75 million, or 0.39% of total loans, as of September 30, 2024.
In addition to its lending activities, Bogota Financial Corp. maintains an investment securities portfolio, which totaled $188.66 million as of September 30, 2024. This portfolio consists of U.S. government and agency obligations, corporate bonds, municipal obligations, and residential and commercial mortgage-backed securities, providing an additional source of interest income and liquidity.
Outlook and Future Considerations
As Bogota Financial Corp. looks to the future, the company faces a range of challenges and opportunities. The continued evolution of the interest rate environment will be a key factor in determining the company's financial performance, as it works to optimize its balance sheet and manage its net interest margin.
Additionally, the company will need to continue investing in its core commercial and residential lending operations, leveraging its strong community ties and brand reputation to drive growth. The successful integration of any future acquisitions or expansions will also be crucial to the company's long-term success.
Despite the headwinds, Bogota Financial Corp. remains committed to its mission of serving the financial needs of its local community. The company's experienced management team and dedicated workforce have demonstrated their ability to navigate turbulent times, and the company's strong capital position provides a solid foundation for future growth and innovation.
Conclusion
Bogota Financial Corp. (BSBK) is a community bank with a rich history and a track record of resilience. While the company has faced a range of challenges in recent years, including a changing interest rate environment and regulatory complexities, it has remained focused on diversifying its balance sheet, strengthening its core business, and investing in its local community.
As the company looks to the future, it will need to continue adapting to the evolving market and regulatory landscape, leveraging its strengths and addressing its weaknesses to drive sustainable growth and deliver value for its shareholders. With a strong management team, a diversified portfolio, and a steadfast commitment to its community, Bogota Financial Corp. is well-positioned to navigate the challenges ahead and capitalize on the opportunities that lie ahead.