8-K: Bogota Financial Corp. Reports Net Loss for Q4 2023, Full Year Profit Declines Sharply

Bogota Financial Corp. reported a net loss of $1.2 million for the fourth quarter of 2023 and a significant decrease in full-year net income to $643,000, compared to the previous year.

Summary

• Bogota Financial Corp. reported a net loss of $1.2 million, or ($0.09) per share, for the three months ended December 31, 2023, a significant drop from the $1.9 million profit, or $0.14 per share, in the same period of the previous year.
• For the full year 2023, the company's net income was $643,000, or $0.05 per share, a substantial decrease from the $6.9 million, or $0.51 per share, earned in 2022.
• Total assets decreased by $11.8 million, or 1.2%, to $939.3 million, primarily due to a reduction in loans and securities.
• Total deposits decreased by $76.1 million, or 10.8%, to $625.3 million, mainly due to a decrease in non-interest-bearing deposits.
• Federal Home Loan Bank advances increased by $65.4 million, or 63.9%, to $167.7 million.
• The average rate on deposits increased by 200 basis points to 2.85% for 2023, up from 0.85% in 2022.
• Return on average assets was 0.07% for 2023, down from 0.77% in 2022, and return on average equity was 0.46%, down from 4.76% in 2022.
• Net interest income decreased by $3.1 million, or 51.4%, for the quarter and $8.1 million, or 35.1%, for the year.
• Non-interest expense increased by $1.4 million, or 40.9%, for the quarter and $1.5 million, or 10.3%, for the year.
• The company repurchased 216,837 shares of its common stock at a cost of $1.6 million as of December 31, 2023.

Sentiment

Score: 3

Explanation: The document presents a negative outlook due to significant declines in profitability, net interest margin, and key financial metrics. While there are some positive aspects, the overall tone is concerning from an investment perspective.

Positives

• Cash and cash equivalents increased by $8.1 million, or 48.0%, to $24.9 million.
• Interest income increased by $585,000, or 6.5%, for the quarter and $6.9 million, or 22.8%, for the year due to higher yields on interest-earning assets.
• The company has a new branch in Upper Saddle River, New Jersey, nearing completion with an anticipated opening in March 2024.
• The bank became the official sponsor of the Fairleigh Dickinson University Mens basketball program.

Negatives

• The company reported a net loss of $1.2 million for the three months ended December 31, 2023.
• Net income for the twelve months ended December 31, 2023 decreased by $6.2 million, or 90.7%, to $643,000.
• Total assets decreased by $11.8 million, or 1.2%, to $939.3 million.
• Total deposits decreased by $76.1 million, or 10.8%, to $625.3 million.
• Net interest income decreased by $3.1 million, or 51.4%, for the quarter and $8.1 million, or 35.1%, for the year.
• Non-interest expense increased by $1.4 million, or 40.9%, for the quarter and $1.5 million, or 10.3%, for the year.
• Delinquent loans increased by $11.1 million to $12.6 million, or 1.76% of total loans.
• Non-performing assets increased to $12.8 million and were 1.36% of total assets.

Risks

• Elevated interest rates have negatively impacted funding costs and net interest margin.
• The company experienced a decrease in demand for residential and construction loans due to the interest rate environment.
• There is a pending fraud claim that is under review with the insurance company.
• The company faces risks related to increased competitive pressures, changes in the interest rate environment, inflation, and general economic conditions.
• There are potential risks related to real estate market values in the bank's lending area, changes in liquidity, and changes in the quality of loan and security portfolios.

Future Outlook

The company is focused on implementing its strategic plan, improving performance, and growing the bank brand. They are also committed to delivering value to shareholders and customers. The company is opening a new branch in March 2024.

Management Comments

• Elevated interest rates have continued to negatively impact funding costs and our net interest margin.
• Our credit quality remains strong and our net interest margin compression is stabilizing.
• While the financial results for 2023 were disappointing, we are diligently implementing our strategic plan and taking the necessary steps to improve performance.
• We realized some significant one-time expenses in the 4th quarter of 2023 that will not impact the Bank going forward.
• Despite the challenges presented by the economic landscape, we continue to remain positive and resilient with our ability to navigate uncertainties.
• Growth remains a key focus as we remain committed to delivering value to our shareholders and customers.
• We look forward to building on this momentum, embracing new opportunities, and delivering sustained value to all our stakeholders in the years ahead.

Industry Context

The results reflect the challenges faced by many financial institutions in a rising interest rate environment, including increased funding costs and net interest margin compression. The company's focus on strategic initiatives and brand growth aligns with common industry strategies to navigate these challenges.

Comparison to Industry Standards

• The decrease in net interest margin from 2.76% to 1.71% year-over-year is a significant decline and is likely worse than many of its peers. For example, community banks such as First Commonwealth Financial Corp. and Fulton Financial Corp. have maintained net interest margins closer to 3% during similar periods.
• The return on average assets of 0.07% is significantly below the industry average for banks of similar size, which typically aim for a return of at least 0.75% to 1%. Banks like Lakeland Bancorp and OceanFirst Financial Corp. have demonstrated stronger ROA performance.
• The increase in non-performing loans to 1.76% of total loans is a concern, as the industry average is typically below 1%. This suggests potential credit quality issues compared to peers such as Provident Financial Services, Inc. which has maintained lower non-performing loan ratios.
• The decrease in deposits by 10.8% is also a concern, as many banks have been able to maintain or grow their deposit base. This indicates a potential competitive disadvantage compared to banks like Investors Bancorp, which have shown more resilience in deposit retention.

Legal Proceedings

• There is a pending fraud claim that is under review with the insurance company.

Stakeholder Impact

• Shareholders are negatively impacted by the decrease in net income and profitability.
• Customers may be affected by changes in deposit rates and loan availability.
• Employees may be impacted by the company's strategic changes and cost-cutting measures.
• The community may benefit from the new branch opening and the sponsorship of the Fairleigh Dickinson University Mens basketball program.

Next Steps

• The company plans to continue implementing its strategic plan to improve performance.
• The company is focused on growing the bank brand and delivering value to shareholders and customers.
• The new branch in Upper Saddle River, New Jersey, is expected to open in March 2024.

Key Dates

Keywords

financial results, net loss, net income, interest rates, deposits, loans, assets, liabilities, bank, financial performance