10-Q: Bogota Financial Reports Q3 Profit Surge, Net Interest Income Jumps

Bogota Financial Corp. reversed prior year losses, reporting a significant increase in net income for the third quarter and first nine months of 2025, driven by improved net interest income and a credit loss recovery.

Summary

• Net income for the three months ended September 30, 2025, was $454,625 ($0.04 EPS), a substantial improvement from a net loss of $366,960 ($0.03 loss per share) in the prior year period.
• For the nine months ended September 30, 2025, net income reached $1,409,967 ($0.11 EPS), reversing a net loss of $1,240,419 ($0.10 loss per share) in the same period of 2024.
• Net interest income increased by $1.2 million (46.6%) to $3.9 million for the three months, and by $3.1 million (38.9%) to $11.2 million for the nine months, primarily due to higher yields on interest-earning assets and lower interest expense on deposits and borrowings.
• Total assets decreased by $45.7 million (4.7%) to $925.8 million at September 30, 2025, from $971.5 million at December 31, 2024.
• Loans, net, decreased by $42.5 million (6.0%) to $669.2 million, while securities available for sale increased by $20.4 million (14.6%) to $160.7 million.
• Deposits increased by $4.6 million (0.7%) to $646.8 million, with a shift towards certificates of deposit and savings accounts.
• Federal Home Loan Bank (FHLB) borrowings decreased by $52.8 million (30.6%) to $119.4 million.
• Asset quality showed an increase in delinquent loans to $21.8 million (3.2% of total loans) from $14.3 million (2.0%) at December 31, 2024, primarily due to one $7.1 million commercial real estate loan.
• The allowance for credit losses (ACL) decreased to $2.54 million from $2.62 million, resulting in a recovery of credit losses of $50,000 for the quarter and $130,000 for the nine months.
• The company initiated a stock repurchase program, buying back 4,821 shares for $42,000 by September 30, 2025.

Sentiment

Score: 7

Explanation: The company achieved a significant turnaround from net losses to profits, driven by strong net interest income growth and a credit loss recovery. Capital levels remain robust. However, the increase in delinquent and non-performing loans, coupled with a shrinking loan portfolio and overall asset base, presents some headwinds and indicates potential challenges in loan growth and asset quality management.

Positives

• Achieved a significant turnaround from net losses to net income for both the three-month ($454,625) and nine-month ($1,409,967) periods ended September 30, 2025.
• Experienced strong growth in net interest income, increasing by $1.2 million (46.6%) for the quarter and $3.1 million (38.9%) for the nine months, driven by improved net interest spread and margin.
• Reported a recovery of credit losses of $50,000 for the quarter and $130,000 for the nine months, indicating an improvement in credit loss estimates and no charge-offs.
• Non-interest income for the nine-month period increased significantly by $612,000 (65.9%), boosted by a $543,000 non-taxable death benefit from a bank-owned life insurance policy.
• Reduced Federal Home Loan Bank (FHLB) borrowings by $52.8 million (30.6%) to $119.4 million, indicating improved funding management and reduced reliance on wholesale funding.
• Maintained a 'well capitalized' status with a Community Bank Leverage Ratio of 15.42% at September 30, 2025, significantly exceeding the 9% regulatory threshold.
• Improved the average yield on securities from 4.05% to 5.46% for the three months and from 3.92% to 5.34% for the nine months, partly due to a balance sheet restructuring in Q4 2024 involving the sale of lower-yielding securities and reinvestment into higher-yielding ones.

Negatives

• Total assets decreased by $45.7 million (4.7%) to $925.8 million at September 30, 2025, indicating a shrinking balance sheet.
• Loans, net, decreased by $42.5 million (6.0%) to $669.2 million, reflecting decreased demand for residential and construction loans due to the interest rate environment.
• Delinquent loans increased by $7.5 million to $21.8 million (3.2% of total loans) from $14.3 million (2.0%) at December 31, 2024.
• Non-performing assets increased from $14.0 million at December 31, 2024, to $20.5 million (2.2% of total assets) at September 30, 2025.
• The allowance for credit losses as a percentage of non-performing loans decreased to 12.42% from 18.77%, indicating lower coverage for non-performing assets.
• One commercial real estate loan with a balance of $7.1 million became 90+ days past due, and a $10.9 million construction loan for a catering hall is in foreclosure proceedings, despite being considered well-secured.
• Non-interest expense increased for both the three months ($133,000 or 3.7%) and nine months ($478,000 or 4.4%), primarily due to higher professional fees and increased occupancy and equipment costs from a lease-buyback transaction.
• Cash and cash equivalents decreased significantly by $21.0 million (40.2%) to $31.2 million at September 30, 2025.
• An investment of $2.5 million in a limited partnership, part of a $10 million commitment, had not yet generated income as of September 30, 2025.

Risks

• General economic conditions, either nationally or in the company's market area, that are worse than expected, including potential recessionary conditions.
• Changes in the amount and trend of loan delinquencies, charge-offs, and non-performing and classified loans, and changes in estimates and the methodology for calculating the allowance for credit losses.
• The company's ability to access cost-effective funding and changes in liquidity, including the size and composition of its deposit portfolio and the percentage of uninsured deposits.
• Fluctuations in real estate values and both residential and commercial real estate market conditions.
• Inflation and changes in market interest rates that could reduce margins and yields, reduce the fair value of financial instruments, reduce loan originations, or increase defaults, losses, and prepayments on loans.
• Changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements.
• The company's ability to manage market risk, credit risk, and operational risk, including risks related to cybersecurity.
• Competition among depository and other financial institutions.
• Changes in accounting policies and practices, as may be adopted by regulatory agencies.
• The company's ability to retain key employees.
• The current or anticipated impact of military conflict, terrorism, or other geopolitical events.
• Compensation expense associated with equity allocated or awarded to employees.
• Changes in the financial condition, results of operations, or future prospects of issuers of securities owned.
• Options to purchase 508,619 common shares with an exercise price of $10.45 were outstanding but anti-dilutive, indicating potential future dilution if the stock price rises above this level.

Future Outlook

The company anticipates continued efforts to manage interest rate risk through strategies such as originating adjustable-rate loans, promoting core deposit products, and monitoring borrowing durations. It expects to maintain a strong liquidity position and sufficient funds to meet funding commitments, although deposit retention may require adjusting interest rates depending on market conditions. The company also continues to monitor its exposure to changing interest rates through net portfolio value and net interest income simulations.

Management Comments

• "We manage our interest rate risk to minimize the exposure of our earnings and capital to changes in market interest rates."
• "We believe that we had ample sources of liquidity to satisfy our shortand long-term liquidity needs as of September 30, 2025."
• "We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate we will have sufficient funds to meet our current funding commitments."
• "Management's opinion is that movements in interest rates affect the financial condition and results of operations to a greater degree than changes in the rate of inflation."

Industry Context

The banking industry continues to navigate a dynamic interest rate environment. Bogota Financial Corp.'s strategy of increasing yields on interest-earning assets while managing the cost of funds, as evidenced by the improved net interest margin and spread, aligns with broader industry efforts to optimize profitability in a higher-rate landscape. The decrease in loan demand, particularly for residential and construction loans, is consistent with a general slowdown in lending activity observed across the sector due to elevated interest rates. The increase in delinquent and non-performing loans, while specific to certain large loans for Bogota, highlights a potential industry-wide concern regarding asset quality in a tightening credit cycle. The company's strong capital ratios position it favorably compared to some peers facing capital constraints.

Comparison to Industry Standards

• The Community Bank Leverage Ratio (CBLR) of 15.42% at September 30, 2025, significantly exceeds the 9% threshold required for a "well capitalized" community bank under regulatory guidelines, indicating a strong capital position relative to federal benchmarks.
• The improvement in net interest margin to 1.80% for the quarter and 1.73% for the nine months, driven by effective asset/liability management in a rising rate environment, suggests the company is performing well in optimizing its core banking profitability compared to peers struggling with deposit costs.

Legal Proceedings

• Routine legal proceedings occurring in the ordinary course of business, the outcome of which would not be material to the company's financial condition or results of operations.
• The company has commenced legal action to foreclose on a $10.9 million construction loan for a catering hall.

Related Party Transactions

• Loans to officers and directors of the Bank totaled $2,024,521 at September 30, 2025, down from $2,256,911 at December 31, 2024.

Stakeholder Impact

• Shareholders: Positive impact from the return to profitability and the stock repurchase program, which can enhance shareholder value. However, the increase in non-performing loans and shrinking asset base could be a concern for future growth and dividend potential.
• Employees: Salaries and employee benefits decreased due to lower headcount, which could indicate workforce adjustments. Stock-based compensation continues.
• Customers (Depositors): The company's efforts to retain deposits, particularly certificates of deposit and savings accounts, suggest competitive rates are being offered. Uninsured deposits represent a small portion of total deposits (9.2%).
• Customers (Borrowers): Decreased demand for residential and construction loans due to the interest rate environment suggests a more challenging borrowing landscape. Increased delinquencies on certain loans could impact borrower relationships.
• Creditors (FHLB): Reduced FHLB borrowings indicate less reliance on wholesale funding, which is generally positive for creditors.

Next Steps

• Continue legal action to foreclose on the $10.9 million construction loan for the catering hall.
• Ongoing monitoring of interest rate risk through Net Portfolio Value (NPV) and net interest income simulations.
• Continue the stock repurchase program, with 232,769 shares remaining for potential buyback.
• Management will continue to assess the credit quality indicator and risk rating for the $7.1 million commercial real estate loan that became 90+ days past due.

Key Dates

Recommendation

Bogota Financial Corp. demonstrated a strong turnaround in profitability, driven by effective interest rate management and a one-time gain. The improved net interest margin and robust capital position are positive indicators. However, the shrinking loan portfolio and the notable increase in delinquent and non-performing loans, particularly the two large problem loans, introduce uncertainty regarding future asset quality and growth prospects. While the stock repurchase program offers some support, these mixed signals suggest a "hold" recommendation, advising investors to monitor the resolution of problem loans and the company's ability to reignite loan growth in the current economic climate before making further investment decisions.

Keywords

Banking, Financial Services, Community Bank, Net Interest Income, Loan Portfolio, Deposits, Asset Quality, Interest Rate Risk, SEC Filing, 10-Q, Bogota Financial Corp, BSBK, New Jersey Banking, Commercial Real Estate Loans, Mortgage-Backed Securities, FHLB Advances, Stock Repurchase