Bogota Financial’s $0.06 EPS: A Fragile Turnaround Amid Persistent Challenges

The first quarter of 2025 brought a glimmer of hope for Bogota Financial Corp. (BVC:BOGOTA) as it reported a GAAP diluted net income of $0.06 per share, reversing a $0.03 per share loss in the same quarter a year earlier. While this marks a critical step toward stabilizing profitability, the path forward remains fraught with risks tied to its shrinking balance sheet, volatile interest rates, and uneven loan portfolio performance.

The EPS Turnaround: A Closer Look

The $0.06 EPS reflects a $1.2 million improvement in net income compared to Q1 2024, driven by two key factors:
1. Net Interest Income Growth:
- Expanded by 35.5% to $3.6 million, fueled by a 44-basis-point widening in the net interest rate spread (to 1.12%) and a 48-basis-point rise in the net interest margin (to 1.66%). This was enabled by higher yields on loans (up to 4.88%) and securities (up to 5.05%), alongside strategic reductions in high-cost deposits and borrowings.
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1. Non-Interest Income Surge:
2. Jumped 197% to $889,000, primarily due to a $550,000 one-time death benefit from its bank-owned life insurance policy. This non-recurring gain highlights the fragility of Bogota’s near-term earnings, as its core operations still face headwinds.

Underlying Weaknesses in the Balance Sheet

Despite the earnings rebound, the company’s financial health shows persistent vulnerabilities:

Shrinking Assets and Loan Portfolio Shifts

• Total assets fell 4.3% to $930.2 million in Q1 2025, with cash reserves plunging 51% to $25.6 million. Loan balances declined 1.4% to $701.5 million, reflecting reduced demand for residential and construction loans, offset partially by growth in commercial real estate.
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• Deposit growth stalled, with certificates of deposit (CDs) dropping $17.3 million, though core deposits like NOW and savings accounts rose modestly.

Cost Pressures and Dependency on One-Time Gains

• Non-interest expenses rose 5.9%, driven by a $300,000 spike in occupancy costs due to a sale-leaseback transaction. While the efficiency ratio improved to 86.1% (vs. 137.4% in Q1 2024), this remains elevated compared to industry peers.
• The $0.06 EPS is notably below its 2021 peak of $12,081 (in Colombian pesos), underscoring a 77.7% cumulative decline in EPS over two years.

Credit Quality and Strategic Risks

• Delinquencies: Non-performing loans (NPLs) fell slightly to 1.92% of total loans, but the allowance for credit losses remains a mere 0.37% of total loans—well below industry averages, raising concerns about potential loan-loss provisions in a downturn.
• Interest Rate Exposure: Despite hedging activities totaling $125 million in notional value, the company’s reliance on volatile CD funding (75% of deposits) and high uninsured deposits (7.9%) leaves it vulnerable to rate shocks.

Outlook and Investment Considerations

Management remains cautiously optimistic, citing benefits from balance sheet restructuring and asset diversification. However, the following risks could derail progress:
1. Sustaining Net Interest Margin Gains: With the Federal Reserve’s rate path uncertain and deposit costs rising (to 3.55%), maintaining margins above 1.6% may prove difficult.
2. Loan Growth Challenges: Residential and construction lending—the hardest-hit sectors—face weak demand, limiting revenue upside.
3. Dividend Sustainability: The company’s monthly dividend of $121–261 per share (in Colombian pesos) requires consistent earnings stability, which remains unproven.

Conclusion: A Cautionary Optimism

Bogota Financial’s Q1 2025 results are a critical but fragile step forward, driven by one-time gains and margin improvements. While the $0.06 EPS signals operational progress, the 77.7% decline in EPS since 2021 and shrinking balance sheet highlight structural challenges. Investors must weigh the improved efficiency ratio (86.1%) and stronger capital position (Tier 1 ratio of 15%) against lingering risks like weak loan demand, thin credit buffers, and macroeconomic uncertainty.

For now, Bogota appears to be treading water, not turning the tide. A sustained rebound would require more than interest rate tailwinds—it would need organic loan growth, better deposit management, and a stronger allowance for credit losses. Until then, the $0.06 EPS is a flicker of light in a murky landscape.