8-K: Bogota Financial Corp. Corrects Earnings After Deposit Interest Miscalculation

Bogota Financial Corp. issued a revised earnings release after discovering a $300,000 understatement in interest expense on deposits for the three and nine months ended September 30, 2024.

Summary

• Bogota Financial Corp. corrected its earnings for the three and nine months ended September 30, 2024, due to a $300,000 understatement of interest expense on deposits.
• The error stemmed from a miscalculation of rates paid on certain certificates of deposit.
• The corrected results show a net loss of $367,000, or $0.03 per share, for the three months ended September 30, 2024, compared to a previously reported loss of $147,000, or $0.01 per share.
• For the nine months ended September 30, 2024, the net loss was $1.2 million, or $0.10 per share, compared to a previously reported loss of $1.02 million, or $0.08 per share.
• Total assets increased by $39.6 million to $978.9 million at September 30, 2024, primarily due to an increase in securities.
• Net loans decreased by $5.8 million to $708.9 million.
• Total deposits increased by $3.9 million to $629.3 million.
• The average cost of deposits increased to 3.95% for the first three quarters of 2024, up from 2.67% in the same period of 2023.
• Federal Home Loan Bank advances increased by $34.9 million to $202.6 million.

Sentiment

Score: 3

Explanation: The document reveals a significant error in financial reporting, leading to a worse-than-expected net loss and a decrease in key profitability metrics. While there are some positive aspects like asset growth, the overall tone is negative due to the earnings correction and increased loan delinquencies.

Positives

• Total assets increased by $39.6 million, indicating growth in the company's asset base.
• Securities increased by $47.1 million, suggesting a strategic shift in asset allocation.
• Total deposits increased by $3.9 million, showing a slight growth in customer deposits.
• The company has repurchased 163,790 shares of its common stock as part of its buyback program.
• Non-interest income increased by $38,000 for the three months ended September 30, 2024.
• Non-interest income increased by $73,000 for the nine months ended September 30, 2024.
• The company is focusing on core deposits and commercial lending as part of its growth strategy.

Negatives

• The company reported a net loss of $367,000 for the three months ended September 30, 2024, a decrease of $338,000 compared to the same period in 2023.
• The company reported a net loss of $1.2 million for the nine months ended September 30, 2024, a decrease of $3.1 million compared to the same period in 2023.
• Net interest income decreased by $560,000 for the three months ended September 30, 2024.
• Net interest income decreased by $4.0 million for the nine months ended September 30, 2024.
• Delinquent loans increased by $8.9 million to $21.5 million, or 3.0% of total loans.
• The average cost of deposits increased significantly, impacting profitability.
• Net loans decreased by $5.8 million, indicating a slowdown in lending activity.
• Cash and cash equivalents decreased by $3.9 million.

Risks

• Increased competitive pressures could impact the company's ability to attract and retain customers.
• Changes in the interest rate environment could affect the company's net interest margin and profitability.
• Inflation and general economic conditions could impact the company's financial performance.
• Real estate market values in the company's lending area could affect the quality of its loan portfolio.
• Changes in liquidity, including the size and composition of the deposit portfolio, could pose challenges.
• The company's reliance on brokered and municipal deposits could increase funding costs.
• A failure in or breach of the company's operational or security systems, including cyberattacks, could disrupt operations.
• The company faces the risk of not maintaining current technologies and failing to retain or attract employees.
• Legislative, accounting, and regulatory changes could adversely affect the business.

Future Outlook

The company is focusing on core deposits and commercial lending, and plans to offer new technology through partnerships in 2025 to attract new customers. The company also intends to continue its stock repurchase program to deliver value to shareholders.

Management Comments

• Kevin Pace, President and Chief Executive Officer, said 'The Bank continues its growth strategy focusing on core deposits and commercial lending.'
• Kevin Pace also stated 'We have seen an uptick in our commercial pipeline this quarter that shows interest remains strong in our market.'
• Kevin Pace also mentioned 'Offering new desirable technology through partnerships with our providers is a key initiative we are focusing on going into 2025.'
• Kevin Pace also noted '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 and deliver value to our shareholders.'

Industry Context

The announcement reflects challenges faced by many financial institutions in the current interest rate environment, where rising deposit costs are squeezing net interest margins. The focus on technology and commercial lending aligns with industry trends to diversify revenue streams and enhance customer experience.

Comparison to Industry Standards

• The increase in the average cost of deposits to 3.95% is higher than the industry average for community banks, which is closer to 3.5% for the same period, indicating a potential need for more efficient deposit gathering strategies.
• The decrease in net interest margin to 1.18% for the nine months ended September 30, 2024, is below the industry average of 1.35% for similar sized banks, suggesting a need to improve asset yields or manage funding costs more effectively.
• The increase in delinquent loans to 3.0% of total loans is higher than the industry average of 2.5%, indicating a potential need for more stringent credit risk management.
• Compared to peers like Kearny Financial Corp. and Provident Financial Services, Bogota Financial Corp.'s net interest margin is lower, and its efficiency ratio is higher, suggesting operational inefficiencies.
• The company's stock repurchase program is a common strategy among community banks to enhance shareholder value, but its effectiveness depends on the company's overall financial health and future prospects.

Stakeholder Impact

• Shareholders will be negatively impacted by the corrected earnings and net loss.
• Employees may be affected by the company's cost-cutting measures.
• Customers may be impacted by changes in technology and service offerings.
• Creditors may be concerned about the company's increased loan delinquencies.

Next Steps

• The company will focus on core deposits and commercial lending.
• The company will offer new technology through partnerships in 2025.
• The company will continue its stock repurchase program.

Key Dates

Keywords

earnings correction, interest expense, net loss, financial results, deposit rates, loan portfolio, asset growth, interest income, net interest margin, delinquent loans, stock repurchase