UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period ended September 30, 2017
or
☐ | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For transition period from to
Commission File Number 0-51331
BANKFINANCIAL CORPORATION
(Exact Name of Registrant as Specified in Charter)
Maryland | 75-3199276 |
(State or Other Jurisdiction of Incorporation) | (I.R.S. Employer Identification No.) |
60 North Frontage Road, Burr Ridge, Illinois 60527 | |
(Address of Principal Executive Offices) |
Registrant’s telephone number, including area code: (800) 894-6900
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.01 per share | BFIN | The NASDAQ Stock Market LLC | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of
Large accelerated filer | ☐ | Accelerated filer | ☒ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date. At October 23, 2017,26, 2020 there were 18,049,42314,780,628 shares of Common Stock, $0.01 par value, outstanding.
Form 10-Q
September 30, 2020
Table of Contents
Page Number | ||||
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share and per share data) - Unaudited
September 30, 2020 | December 31, 2019 | |||||||
Assets | ||||||||
Cash and due from other financial institutions | $ | 13,740 | $ | 9,785 | ||||
Interest-bearing deposits in other financial institutions | 415,925 | 180,540 | ||||||
Cash and cash equivalents | 429,665 | 190,325 | ||||||
Securities, at fair value | 42,048 | 60,193 | ||||||
Loans receivable, net of allowance for loan losses: September 30, 2020, $8,011 and December 31, 2019, $7,632 | 1,065,892 | 1,168,008 | ||||||
Other real estate owned, net | 110 | 186 | ||||||
Stock in Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB"), at cost | 7,490 | 7,490 | ||||||
Premises and equipment, net | 24,241 | 24,346 | ||||||
Accrued interest receivable | 4,354 | 4,563 | ||||||
Bank-owned life insurance | 18,996 | 18,945 | ||||||
Deferred taxes | 3,520 | 3,873 | ||||||
Other assets | 8,627 | 10,086 | ||||||
Total assets | $ | 1,604,943 | $ | 1,488,015 | ||||
Liabilities | ||||||||
Deposits | ||||||||
Noninterest-bearing | $ | 328,915 | $ | 210,762 | ||||
Interest-bearing | 1,073,329 | 1,073,995 | ||||||
Total deposits | 1,402,244 | 1,284,757 | ||||||
Borrowings | 4,000 | 61 | ||||||
Advance payments by borrowers for taxes and insurance | 9,998 | 10,222 | ||||||
Accrued interest payable and other liabilities | 16,304 | 18,603 | ||||||
Total liabilities | 1,432,546 | 1,313,643 | ||||||
Stockholders’ equity | ||||||||
Preferred Stock, $0.01 par value, 25,000,000 shares authorized, none issued or outstanding | 0 | 0 | ||||||
Common Stock, $0.01 par value, 100,000,000 shares authorized; 14,824,628 shares issued at September 30, 2020 and 15,278,464 issued at December 31, 2019 | 148 | 153 | ||||||
Additional paid-in capital | 108,231 | 112,420 | ||||||
Retained earnings | 63,787 | 61,573 | ||||||
Accumulated other comprehensive income | 231 | 226 | ||||||
Total stockholders’ equity | 172,397 | 174,372 | ||||||
Total liabilities and stockholders’ equity | $ | 1,604,943 | $ | 1,488,015 |
September 30, 2017 | December 31, 2016 | ||||||
Assets | |||||||
Cash and due from other financial institutions | $ | 10,620 | $ | 13,053 | |||
Interest-bearing deposits in other financial institutions | 115,041 | 83,631 | |||||
Cash and cash equivalents | 125,661 | 96,684 | |||||
Securities, at fair value | 98,787 | 107,212 | |||||
Loans receivable, net of allowance for loan losses: September 30, 2017, $8,374 and December 31, 2016, $8,127 | 1,335,631 | 1,312,952 | |||||
Other real estate owned, net | 3,569 | 3,895 | |||||
Stock in Federal Home Loan Bank and Federal Reserve Bank, at cost | 8,290 | 11,650 | |||||
Premises and equipment, net | 30,774 | 31,413 | |||||
Accrued interest receivable | 4,569 | 4,381 | |||||
Core deposit intangible | 408 | 782 | |||||
Bank owned life insurance | 22,790 | 22,594 | |||||
Deferred taxes | 20,214 | 22,411 | |||||
Other assets | 3,576 | 6,063 | |||||
Total assets | $ | 1,654,269 | $ | 1,620,037 | |||
Liabilities | |||||||
Deposits | |||||||
Noninterest-bearing | $ | 231,049 | $ | 249,539 | |||
Interest-bearing | 1,140,040 | 1,089,851 | |||||
Total deposits | 1,371,089 | 1,339,390 | |||||
Borrowings | 60,928 | 51,069 | |||||
Advance payments by borrowers for taxes and insurance | 10,683 | 11,041 | |||||
Accrued interest payable and other liabilities | 11,791 | 13,757 | |||||
Total liabilities | 1,454,491 | 1,415,257 | |||||
Stockholders’ equity | |||||||
Preferred Stock, $0.01 par value, 25,000,000 shares authorized, none issued or outstanding | — | — | |||||
Common Stock, $0.01 par value, 100,000,000 shares authorized; 18,063,623 shares issued at September 30, 2017 and 19,233,760 issued at December 31, 2016 | 180 | 192 | |||||
Additional paid-in capital | 155,481 | 173,047 | |||||
Retained earnings | 43,786 | 39,483 | |||||
Unearned Employee Stock Ownership Plan shares | — | (8,318 | ) | ||||
Accumulated other comprehensive income | 331 | 376 | |||||
Total stockholders’ equity | 199,778 | 204,780 | |||||
Total liabilities and stockholders’ equity | $ | 1,654,269 | $ | 1,620,037 |
BANKFINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data) - Unaudited
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Interest and dividend income | ||||||||||||||||
Loans, including fees | $ | 12,027 | $ | 15,371 | $ | 38,307 | $ | 46,112 | ||||||||
Securities | 183 | 508 | 758 | 1,712 | ||||||||||||
Other | 275 | 749 | 1,267 | 1,852 | ||||||||||||
Total interest income | 12,485 | 16,628 | 40,332 | 49,676 | ||||||||||||
Interest expense | ||||||||||||||||
Deposits | 1,488 | 3,385 | 6,041 | 10,023 | ||||||||||||
Borrowings | 0 | 1 | 0 | 89 | ||||||||||||
Total interest expense | 1,488 | 3,386 | 6,041 | 10,112 | ||||||||||||
Net interest income | 10,997 | 13,242 | 34,291 | 39,564 | ||||||||||||
Provision for (recovery of ) loan losses | (187 | ) | (134 | ) | 326 | 3,736 | ||||||||||
Net interest income after provision for (recovery of) loan losses | 11,184 | 13,376 | 33,965 | 35,828 | ||||||||||||
Noninterest income | ||||||||||||||||
Deposit service charges and fees | 833 | 983 | 2,456 | 2,887 | ||||||||||||
Loan servicing fees | 44 | 99 | 189 | 178 | ||||||||||||
Mortgage brokerage and banking fees | 44 | 28 | 84 | 77 | ||||||||||||
Gain on sale of equity securities | 0 | 0 | 0 | 295 | ||||||||||||
Loss on disposal of other assets | 0 | 0 | (2 | ) | (19 | ) | ||||||||||
Trust and insurance commissions and annuities income | 222 | 198 | 728 | 627 | ||||||||||||
Earnings on bank-owned life insurance | 10 | 37 | 51 | 105 | ||||||||||||
Other | 111 | 129 | 319 | 374 | ||||||||||||
Total noninterest income | 1,264 | 1,474 | 3,825 | 4,524 | ||||||||||||
Noninterest expense | ||||||||||||||||
Compensation and benefits | 5,398 | 5,218 | 16,084 | 16,128 | ||||||||||||
Office occupancy and equipment | 1,860 | 1,879 | 5,383 | 5,348 | ||||||||||||
Advertising and public relations | 135 | 182 | 405 | 488 | ||||||||||||
Information technology | 781 | 892 | 2,453 | 2,351 | ||||||||||||
Professional fees | 307 | 213 | 831 | 757 | ||||||||||||
Supplies, telephone, and postage | 288 | 312 | 875 | 1,037 | ||||||||||||
Amortization of intangibles | 6 | 13 | 27 | 47 | ||||||||||||
Nonperforming asset management | 57 | 17 | 154 | 129 | ||||||||||||
Operations of other real estate owned, net | 23 | 19 | 13 | 22 | ||||||||||||
FDIC insurance premiums | 105 | (127 | ) | 241 | 127 | |||||||||||
Other | 827 | 891 | 2,198 | 2,645 | ||||||||||||
Total noninterest expense | 9,787 | 9,509 | 28,664 | 29,079 | ||||||||||||
Income before income taxes | 2,661 | 5,341 | 9,126 | 11,273 | ||||||||||||
Income tax expense | 713 | 1,417 | 2,408 | 2,991 | ||||||||||||
Net income | $ | 1,948 | $ | 3,924 | $ | 6,718 | $ | 8,282 | ||||||||
Basic and diluted earnings per common share | $ | 0.13 | $ | 0.26 | $ | 0.45 | $ | 0.53 | ||||||||
Basic and diluted weighted average common shares outstanding | 14,842,150 | 15,373,964 | 15,008,271 | 15,679,927 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Interest and dividend income | |||||||||||||||
Loans, including fees | $ | 13,345 | $ | 12,388 | $ | 39,061 | $ | 36,834 | |||||||
Securities | 389 | 306 | 1,095 | 927 | |||||||||||
Other | 387 | 151 | 976 | 424 | |||||||||||
Total interest income | 14,121 | 12,845 | 41,132 | 38,185 | |||||||||||
Interest expense | |||||||||||||||
Deposits | 1,419 | 1,012 | 3,903 | 2,749 | |||||||||||
Borrowings | 196 | 2 | 444 | 73 | |||||||||||
Total interest expense | 1,615 | 1,014 | 4,347 | 2,822 | |||||||||||
Net interest income | 12,506 | 11,831 | 36,785 | 35,363 | |||||||||||
Provision for (recovery of) loan losses | (225 | ) | (525 | ) | (15 | ) | 300 | ||||||||
Net interest income after provision for (recovery of) loan losses | 12,731 | 12,356 | 36,800 | 35,063 | |||||||||||
Noninterest income | |||||||||||||||
Deposit service charges and fees | 584 | 583 | 1,682 | 1,691 | |||||||||||
Other fee income | 523 | 478 | 1,494 | 1,478 | |||||||||||
Insurance commissions and annuities income | 41 | 53 | 170 | 180 | |||||||||||
Gain on sale of loans, net | 10 | 38 | 70 | 59 | |||||||||||
Gain on sale of securities (includes $46 accumulated other comprehensive income reclassifications for unrealized net gains on available for sale securities for the nine months ended September 30, 2016) | — | — | — | 46 | |||||||||||
Loan servicing fees | 58 | 66 | 188 | 214 | |||||||||||
Amortization and impairment of servicing assets | (27 | ) | (28 | ) | (86 | ) | (96 | ) | |||||||
Earnings on bank owned life insurance | 67 | 54 | 196 | 151 | |||||||||||
Trust income | 169 | 167 | 534 | 492 | |||||||||||
Other | 198 | 226 | 526 | 553 | |||||||||||
Total noninterest income | 1,623 | 1,637 | 4,774 | 4,768 | |||||||||||
Noninterest expense | |||||||||||||||
Compensation and benefits | 5,330 | 5,315 | 16,792 | 17,021 | |||||||||||
Office occupancy and equipment | 1,693 | 1,487 | 4,914 | 4,769 | |||||||||||
Advertising and public relations | 167 | 144 | 807 | 618 | |||||||||||
Information technology | 638 | 707 | 2,070 | 2,130 | |||||||||||
Supplies, telephone, and postage | 337 | 345 | 1,027 | 1,018 | |||||||||||
Amortization of intangibles | 123 | 129 | 374 | 394 | |||||||||||
Nonperforming asset management | 84 | 89 | 215 | 300 | |||||||||||
Operations of other real estate owned | 403 | 243 | 861 | 768 | |||||||||||
FDIC insurance premiums | 150 | 238 | 462 | 691 | |||||||||||
Other | 1,275 | 1,215 | 3,551 | 3,639 | |||||||||||
Total noninterest expense | 10,200 | 9,912 | 31,073 | 31,348 | |||||||||||
Income before income taxes | 4,154 | 4,081 | 10,501 | 8,483 | |||||||||||
Income tax expense | 594 | 1,573 | 2,488 | 3,240 | |||||||||||
Net income | $ | 3,560 | $ | 2,508 | $ | 8,013 | $ | 5,243 | |||||||
Basic earnings per common share | $ | 0.20 | $ | 0.13 | $ | 0.44 | $ | 0.27 | |||||||
Diluted earnings per common share | $ | 0.20 | $ | 0.13 | $ | 0.44 | $ | 0.27 | |||||||
Weighted average common shares outstanding | 18,139,659 | 18,788,731 | 18,368,742 | 19,114,603 | |||||||||||
Diluted weighted average common shares outstanding | 18,140,109 | 18,789,054 | 18,369,170 | 19,114,918 |
BANKFINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands) - Unaudited
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net income | $ | 1,948 | $ | 3,924 | $ | 6,718 | $ | 8,282 | ||||||||
Unrealized holding gain (loss) arising during the period | (4 | ) | (16 | ) | 7 | 9 | ||||||||||
Tax effect | 0 | 5 | (2 | ) | (2 | ) | ||||||||||
Net of tax | (4 | ) | (11 | ) | 5 | 7 | ||||||||||
Comprehensive income | $ | 1,944 | $ | 3,913 | $ | 6,723 | $ | 8,289 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 3,560 | $ | 2,508 | $ | 8,013 | $ | 5,243 | |||||||
Unrealized holding gain (loss) arising during the period | 16 | (13 | ) | (67 | ) | (75 | ) | ||||||||
Tax effect | (9 | ) | 5 | 22 | 29 | ||||||||||
Net of tax | 7 | (8 | ) | (45 | ) | (46 | ) | ||||||||
Reclassification adjustment for gain included in net income | — | — | — | (46 | ) | ||||||||||
Tax effect, included in income tax expense | — | — | — | 18 | |||||||||||
Reclassification adjustment for gain included in net income, net of tax | — | — | — | (28 | ) | ||||||||||
Other comprehensive income (loss) | 7 | (8 | ) | (45 | ) | (74 | ) | ||||||||
Comprehensive income | $ | 3,567 | $ | 2,500 | $ | 7,968 | $ | 5,169 |
BANKFINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except per share data) - Unaudited
Accumulated | ||||||||||||||||||||
Additional | Other | |||||||||||||||||||
Common | Paid-in | Retained | Comprehensive | |||||||||||||||||
Stock | Capital | Earnings | Income | Total | ||||||||||||||||
For the three months ended | ||||||||||||||||||||
Balance at July, 1 2019 | $ | 154 | $ | 113,717 | $ | 57,331 | $ | 289 | $ | 171,491 | ||||||||||
Net income | 0 | 0 | 3,924 | 0 | 3,924 | |||||||||||||||
Other comprehensive loss, net of tax | 0 | 0 | 0 | (11 | ) | (11 | ) | |||||||||||||
Cash dividends declared on common stock ($0.10 per share) | 0 | 0 | (1,537 | ) | 0 | (1,537 | ) | |||||||||||||
Balance at September 30, 2019 | $ | 154 | $ | 113,717 | $ | 59,718 | $ | 278 | $ | 173,867 | ||||||||||
Balance at July, 1 2020 | $ | 149 | $ | 108,748 | $ | 63,322 | $ | 235 | $ | 172,454 | ||||||||||
Net income | 0 | 0 | 1,948 | 0 | 1,948 | |||||||||||||||
Other comprehensive loss, net of tax | 0 | 0 | 0 | (4 | ) | (4 | ) | |||||||||||||
Repurchase and retirement of common stock (66,000 shares) | (1 | ) | (517 | ) | 0 | 0 | (518 | ) | ||||||||||||
Cash dividends declared on common stock ($0.10 per share) | 0 | 0 | (1,483 | ) | 0 | (1,483 | ) | |||||||||||||
Balance at September 30, 2020 | $ | 148 | $ | 108,231 | $ | 63,787 | $ | 231 | $ | 172,397 | ||||||||||
For the nine months ended | ||||||||||||||||||||
Balance at January 1, 2019 | $ | 165 | $ | 130,547 | $ | 56,167 | $ | 271 | $ | 187,150 | ||||||||||
Net income | 0 | 0 | 8,282 | 0 | 8,282 | |||||||||||||||
Other comprehensive income, net of tax | 0 | 0 | 0 | 7 | 7 | |||||||||||||||
Repurchase and retirement of common stock (1,107,550 shares) | (11 | ) | (16,830 | ) | 0 | 0 | (16,841 | ) | ||||||||||||
Cash dividends declared on common stock ($0.30 per share) | 0 | 0 | (4,731 | ) | 0 | (4,731 | ) | |||||||||||||
Balance at September 30, 2019 | $ | 154 | $ | 113,717 | $ | 59,718 | $ | 278 | $ | 173,867 | ||||||||||
Balance at January 1, 2020 | $ | 153 | $ | 112,420 | $ | 61,573 | $ | 226 | $ | 174,372 | ||||||||||
Net income | 0 | 0 | 6,718 | 0 | 6,718 | |||||||||||||||
Other comprehensive income, net of tax | 0 | 0 | 0 | 5 | 5 | |||||||||||||||
Repurchase and retirement of common stock (453,836 shares) | (5 | ) | (4,189 | ) | 0 | 0 | (4,194 | ) | ||||||||||||
Cash dividends declared on common stock ($0.30 per share) | 0 | 0 | (4,504 | ) | 0 | (4,504 | ) | |||||||||||||
Balance at September 30, 2020 | $ | 148 | $ | 108,231 | $ | 63,787 | $ | 231 | $ | 172,397 |
Common Stock | Additional Paid-in Capital | Retained Earnings | Unearned Employee Stock Ownership Plan Shares | Accumulated Other Comprehen-sive Income | Total | ||||||||||||||||||
Balance at January 1, 2016 | $ | 203 | $ | 184,797 | $ | 36,114 | $ | (9,297 | ) | $ | 547 | $ | 212,364 | ||||||||||
Net income | — | — | 5,243 | — | — | 5,243 | |||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | (74 | ) | (74 | ) | |||||||||||||||
Repurchase and retirement of common stock (1,026,106 shares) | (10 | ) | (12,685 | ) | — | — | — | (12,695 | ) | ||||||||||||||
Nonvested stock awards-stock-based compensation expense | — | 875 | — | — | — | 875 | |||||||||||||||||
Cash dividends declared on common stock ($0.15 per share) | — | — | (2,977 | ) | — | — | (2,977 | ) | |||||||||||||||
ESOP shares earned | — | 198 | — | 733 | — | 931 | |||||||||||||||||
Balance at September 30, 2016 | $ | 193 | $ | 173,185 | $ | 38,380 | $ | (8,564 | ) | $ | 473 | $ | 203,667 | ||||||||||
Balance at January 1, 2017 | $ | 192 | $ | 173,047 | $ | 39,483 | $ | (8,318 | ) | $ | 376 | $ | 204,780 | ||||||||||
Net income | — | — | 8,013 | — | — | 8,013 | |||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | (45 | ) | (45 | ) | |||||||||||||||
Net exercise of stock options (198,026 shares) | 2 | (1,239 | ) | — | — | — | (1,237 | ) | |||||||||||||||
Prepayment of ESOP Share Acquisition Loan | (8 | ) | (7,185 | ) | — | 8,318 | — | 1,125 | |||||||||||||||
Repurchase and retirement of common stock (614,673 shares) | (6 | ) | (9,142 | ) | — | — | — | (9,148 | ) | ||||||||||||||
Cash dividends declared on common stock ($0.20 per share) | — | — | (3,710 | ) | — | — | (3,710 | ) | |||||||||||||||
Balance at September 30 , 2017 | $ | 180 | $ | 155,481 | $ | 43,786 | $ | — | $ | 331 | $ | 199,778 |
BANKFINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) - Unaudited
Nine Months Ended | ||||||||
September 30, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 6,718 | $ | 8,282 | ||||
Adjustments to reconcile to net income to net cash from operating activities | ||||||||
Provision for loan losses | 326 | 3,736 | ||||||
Depreciation | 1,236 | 1,211 | ||||||
Amortization of premiums and discounts on securities | 4 | 4 | ||||||
Amortization of intangibles | 27 | 47 | ||||||
Amortization of servicing assets | 56 | 63 | ||||||
Net change in net deferred loan origination costs | 545 | 127 | ||||||
Gain on sale of other real estate owned | (22 | ) | (112 | ) | ||||
Gain on sale of equity securities | 0 | (295 | ) | |||||
Loss on disposal of other assets | 2 | 19 | ||||||
Other real estate owned valuation adjustments | 0 | 38 | ||||||
Earnings on bank-owned life insurance | (51 | ) | (105 | ) | ||||
Net change in: | ||||||||
Accrued interest receivable | 209 | 189 | ||||||
Other assets | 1,942 | 4,379 | ||||||
Accrued interest payable and other liabilities | (2,399 | ) | (3,570 | ) | ||||
Net cash from operating activities | 8,593 | 14,013 | ||||||
Cash flows from investing activities | ||||||||
Securities | ||||||||
Proceeds from maturities | 55,599 | 79,210 | ||||||
Proceeds from principal repayments | 2,206 | 2,234 | ||||||
Proceeds from sale of equity securities | 0 | 3,722 | ||||||
Purchases of securities | (39,657 | ) | (58,700 | ) | ||||
Net decrease in loans receivable | 101,108 | 105,846 | ||||||
Purchase of FHLB and FRB stock | 0 | (4 | ) | |||||
Redemption of FHLB and FRB stock | 0 | 540 | ||||||
Proceeds from sale of other real estate owned | 120 | 1,107 | ||||||
Purchase of premises and equipment, net | (1,133 | ) | (623 | ) | ||||
Net cash from investing activities | 118,243 | 133,332 | ||||||
Cash flows from financing activities | ||||||||
Net change in: | ||||||||
Deposits | 117,487 | (63,659 | ) | |||||
Borrowings | 3,939 | (19,796 | ) | |||||
Advance payments by borrowers for taxes and insurance | (224 | ) | 271 | |||||
Repurchase and retirement of common stock | (4,194 | ) | (16,841 | ) | ||||
Cash dividends paid on common stock | (4,504 | ) | (4,731 | ) | ||||
Net cash from (used in) financing activities | 112,504 | (104,756 | ) | |||||
Net change in cash and cash equivalents | 239,340 | 42,589 | ||||||
Beginning cash and cash equivalents | 190,325 | 98,204 | ||||||
Ending cash and cash equivalents | $ | 429,665 | $ | 140,793 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Interest paid | $ | 6,047 | $ | 10,295 | ||||
Income taxes paid | 155 | 349 | ||||||
Income taxes refunded | 8 | 10 | ||||||
Loans transferred to other real estate owned | 33 | 76 | ||||||
Recording of right of use asset in exchange for lease obligations in other assets and other liabilities | 111 | 6,694 |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities | |||||||
Net income | $ | 8,013 | $ | 5,243 | |||
Adjustments to reconcile to net income to net cash from operating activities | |||||||
Provision for (recovery of) loan losses | (15 | ) | 300 | ||||
Prepayment of ESOP Share Acquisition Loan | 1,125 | — | |||||
ESOP shares earned | — | 931 | |||||
Stock–based compensation expense | — | 875 | |||||
Depreciation and amortization | 2,846 | 2,815 | |||||
Amortization of premiums and discounts on securities and loans | (72 | ) | (104 | ) | |||
Amortization of core deposit intangible | 374 | 394 | |||||
Amortization of servicing assets | 86 | 96 | |||||
Net change in net deferred loan origination costs | 343 | (36 | ) | ||||
Net gain (loss) on sale of other real estate owned | 100 | (15 | ) | ||||
Net gain on sale of loans | (70 | ) | (59 | ) | |||
Net gain on sale of securities | — | (46 | ) | ||||
Loans originated for sale | (1,291 | ) | (1,097 | ) | |||
Proceeds from sale of loans | 1,361 | 1,156 | |||||
Other real estate owned valuation adjustments | 301 | 244 | |||||
Net change in: | |||||||
Accrued interest receivable | (188 | ) | 70 | ||||
Earnings on bank owned life insurance | (196 | ) | (151 | ) | |||
Other assets | 4,027 | 3,515 | |||||
Accrued interest payable and other liabilities | (1,966 | ) | (1,279 | ) | |||
Net cash from operating activities | 14,778 | 12,852 | |||||
Cash flows from investing activities | |||||||
Securities | |||||||
Proceeds from maturities | 49,695 | 58,577 | |||||
Proceeds from principal repayments | 2,461 | 3,545 | |||||
Proceeds from sales of securities | — | 46 | |||||
Purchases of securities | (43,808 | ) | (47,423 | ) | |||
Loans receivable | |||||||
Loan participations sold | 3,615 | 3,023 | |||||
Principal payments on loans receivable | 459,706 | 366,784 | |||||
Purchase of loans | (23,451 | ) | — | ||||
Proceeds of loan sale | — | 14,746 | |||||
Originated for investment | (465,562 | ) | (395,087 | ) | |||
Proceeds of redemption of Federal Home Loan Bank of Chicago stock | 3,514 | — | |||||
Purchase of Federal Home Loan Bank and Federal Reserve Bank stock | (154 | ) | — | ||||
Proceeds from sale of other real estate owned | 1,966 | 2,616 | |||||
Purchase of premises and equipment, net | (906 | ) | (660 | ) | |||
Net cash from (used in) investing activities | (12,924 | ) | 6,167 |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Cash flows from financing activities | |||||||
Net change in deposits | $ | 31,699 | $ | 103,776 | |||
Net change in borrowings | 9,859 | (62,912 | ) | ||||
Net change in advance payments by borrowers for taxes and insurance | (358 | ) | (3,058 | ) | |||
Repurchase and retirement of common stock | (9,148 | ) | (12,695 | ) | |||
Cash dividends paid on common stock | (3,710 | ) | (2,977 | ) | |||
Shares retired for tax liability | (1,219 | ) | — | ||||
Net cash from financing activities | 27,123 | 22,134 | |||||
Net change in cash and cash equivalents | 28,977 | 41,153 | |||||
Beginning cash and cash equivalents | 96,684 | 59,377 | |||||
Ending cash and cash equivalents | $ | 125,661 | $ | 100,530 | |||
Supplemental disclosures of cash flow information: | |||||||
Interest paid | $ | 4,269 | $ | 2,704 | |||
Income taxes paid | 198 | 182 | |||||
Loans transferred to other real estate owned | 2,041 | 215 |
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
: BankFinancial Corporation, a Maryland corporation headquartered in Burr Ridge, Illinois,Certain information and note disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.
Use of Estimates
:COVID-19: The Company has evaluated subsequent events for potential recognition and/or disclosure through the date the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q were issued. On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, which continues to spread throughout the United States and around the world. The declaration of a global pandemic indicates that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The outbreak of COVID-19 has adversely impacted, and could further adversely impact, a broad range of industries in which the Company’s customers operate and impair their ability to fulfill their financial obligations to the Company. On March 3, 2020, the Federal Open Market Committee reduced the target federal funds rate by 50 basis points to 1.00% to 1.25%. This rate was further reduced to a target range of 0% to 0.25% on March 16, 2020. These reductions in interest rates and other effects of the COVID-19 outbreak may adversely affect the Company’s financial condition and results of operations. As a result of the spread of the COVID-19 coronavirus, economic uncertainties have arisen which are likely to negatively impact net interest income and noninterest income. Other financial impacts could occur though such potential impact is unknown at this time.
Reclassifications
: Certain reclassifications have been made in the prior period’s financial statements to conform them to the current period’s presentation.These unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K10-K for the year ended December 31, 2016,2019, as filed with the Securities and Exchange Commission.
Newly Issued Not Yet Effective Accounting Pronouncements
In May 2014, the FASB issued an update (ASU No. 2014-09, Revenue from Contracts with Customers) creating FASB Topic 606, Revenue from Contracts with Customers. The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides steps to follow to achieve the core principle. An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Qualitative and quantitative information is required about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. We have evaluated the impact of adopting the new guidance on the consolidated financial statements. Our finding is that the new pronouncement will not have a significant impact on the consolidated financial statements as the majority of our business transactions will not be subject to this pronouncement.
NOTE 2 - EARNINGS PER SHARE
Amounts reported in earnings per share reflect earnings available to common stockholders for the period divided by the weighted average number of shares of common stock outstanding during the period, exclusiveperiod.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net income available to common stockholders | $ | 1,948 | $ | 3,924 | $ | 6,718 | $ | 8,282 | ||||||||
Basic and diluted weighted average common shares outstanding | 14,842,150 | 15,373,964 | 15,008,271 | 15,679,927 | ||||||||||||
Basic and diluted earnings per common share | $ | 0.13 | $ | 0.26 | $ | 0.45 | $ | 0.53 |
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and unvested restricted stock shares. Stock options and restricted stock are regarded as potential common stock and are considered in the diluted earnings per share calculations to the extent that they would have a dilutive effect if converted to common stock.data)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income available to common stockholders | $ | 3,560 | $ | 2,508 | $ | 8,013 | $ | 5,243 | |||||||
Average common shares outstanding | 18,140,599 | 19,460,022 | 18,567,796 | 19,813,088 | |||||||||||
Less: | |||||||||||||||
Unearned ESOP shares | — | (670,351 | ) | (198,114 | ) | (694,655 | ) | ||||||||
Unvested restricted stock shares | (940 | ) | (940 | ) | (940 | ) | (3,830 | ) | |||||||
Weighted average common shares outstanding | 18,139,659 | 18,788,731 | 18,368,742 | 19,114,603 | |||||||||||
Add - Net effect of dilutive unvested restricted stock | 450 | 323 | 428 | 315 | |||||||||||
Diluted weighted average common shares outstanding | 18,140,109 | 18,789,054 | 18,369,170 | 19,114,918 | |||||||||||
Basic earnings per common share | $ | 0.20 | $ | 0.13 | $ | 0.44 | $ | 0.27 | |||||||
Diluted earnings per common share | $ | 0.20 | $ | 0.13 | $ | 0.44 | $ | 0.27 | |||||||
Number of antidilutive stock options excluded from the diluted earnings per share calculation | — | 536,459 | — | 536,459 | |||||||||||
Weighted average exercise price of anti-dilutive option shares | $ | — | $ | 12.99 | $ | — | $ | 12.99 |
NOTE 3 - SECURITIES
The fair value of securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income are shown below.
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
September 30, 2017 | |||||||||||||||
Certificates of deposit | $ | 80,360 | $ | — | $ | — | $ | 80,360 | |||||||
Equity mutual fund | 500 | 2 | — | 502 | |||||||||||
Mortgage-backed securities - residential | 12,645 | 553 | (10 | ) | 13,188 | ||||||||||
Collateralized mortgage obligations - residential | 4,728 | 14 | (17 | ) | 4,725 | ||||||||||
SBA-guaranteed loan participation certificates | 12 | — | — | 12 | |||||||||||
$ | 98,245 | $ | 569 | $ | (27 | ) | $ | 98,787 | |||||||
December 31, 2016 | |||||||||||||||
Certificates of deposit | $ | 85,938 | $ | — | $ | — | $ | 85,938 | |||||||
Equity mutual fund | 500 | — | (1 | ) | 499 | ||||||||||
Mortgage-backed securities - residential | 14,561 | 644 | (21 | ) | 15,184 | ||||||||||
Collateralized mortgage obligations - residential | 5,587 | 15 | (28 | ) | 5,574 | ||||||||||
SBA-guaranteed loan participation certificates | 17 | — | — | 17 | |||||||||||
$ | 106,603 | $ | 659 | $ | (50 | ) | $ | 107,212 |
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
Available-for-Sale Securities | ||||||||||||||||
September 30, 2020 | ||||||||||||||||
Certificates of deposit | $ | 32,724 | $ | 0 | $ | 0 | $ | 32,724 | ||||||||
Municipal securities | 503 | 9 | 0 | 512 | ||||||||||||
Mortgage-backed securities - residential | 6,124 | 305 | 0 | 6,429 | ||||||||||||
Collateralized mortgage obligations - residential | 2,381 | 4 | (2 | ) | 2,383 | |||||||||||
$ | 41,732 | $ | 318 | $ | (2 | ) | $ | 42,048 | ||||||||
December 31, 2019 | ||||||||||||||||
Certificates of deposit | $ | 48,666 | $ | 0 | $ | 0 | $ | 48,666 | ||||||||
Municipal securities | 505 | 8 | 0 | 513 | ||||||||||||
Mortgage-backed securities - residential | 7,727 | 310 | 0 | 8,037 | ||||||||||||
Collateralized mortgage obligations - residential | 2,986 | 4 | (13 | ) | 2,977 | |||||||||||
$ | 59,884 | $ | 322 | $ | (13 | ) | $ | 60,193 |
The mortgage-backed securities and collateralized mortgage obligations reflected in the preceding table were issued by U.S. government-sponsored entities or agencies, Freddie Mac, Fannie Mae and Ginnie Mae, and are obligations which the government has affirmed its commitment to support. All securities reflected in the preceding table were classified as available-for-sale at September 30, 2017 and December 31, 2016.
The amortized cost and fair values of securities by contractual maturity are shown below. Securities not due at a single maturity date are shown separately. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
September 30, 2020 | ||||||||
Amortized Cost | Fair Value | |||||||
Due in one year or less | $ | 32,576 | $ | 32,577 | ||||
Due after one year through five years | 651 | 659 | ||||||
33,227 | 33,236 | |||||||
Mortgage-backed securities - residential | 6,124 | 6,429 | ||||||
Collateralized mortgage obligations - residential | 2,381 | 2,383 | ||||||
$ | 41,732 | $ | 42,048 |
Investment securities available-for-sale with carrying values of $1.2 million and $2.0 million at September 30, 2020 and December 31, 2019, respectively, were pledged as collateral on customer repurchase agreements and for other purposes as required or permitted by law.
September 30, 2017 | |||||||
Amortized Cost | Fair Value | ||||||
Due in one year or less | $ | 80,360 | $ | 80,360 | |||
Equity mutual fund | 500 | 502 | |||||
Mortgage-backed securities - residential | 12,645 | 13,188 | |||||
Collateralized mortgage obligations - residential | 4,728 | 4,725 | |||||
SBA-guaranteed loan participation certificates | 12 | 12 | |||||
$ | 98,245 | $ | 98,787 |
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 3 - SECURITIES (continued)
Sales of equity securities were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Proceeds | $ | — | $ | — | $ | — | $ | 46 | |||||||
Gross gains | — | — | — | 46 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Proceeds | $ | 0 | $ | 0 | $ | 0 | $ | 3,722 | ||||||||
Gross gains | 0 | 0 | 0 | 295 | ||||||||||||
Gross losses | 0 | 0 | 0 | 0 |
Securities with unrealized losses not recognized in income are as follows:
Less than 12 Months | 12 Months or More | Total | |||||||||||||||||||||
Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
September 30, 2017 | |||||||||||||||||||||||
Mortgage-backed securities - residential | $ | 1,182 | $ | (10 | ) | $ | — | $ | — | $ | 1,182 | $ | (10 | ) | |||||||||
Collateralized mortgage obligations - residential | — | — | 3,270 | (17 | ) | 3,270 | (17 | ) | |||||||||||||||
$ | 1,182 | $ | (10 | ) | $ | 3,270 | $ | (17 | ) | $ | 4,452 | $ | (27 | ) | |||||||||
December 31, 2016 | |||||||||||||||||||||||
Equity Mutual Fund | $ | 499 | $ | (1 | ) | $ | — | $ | — | $ | 499 | $ | (1 | ) | |||||||||
Mortgage-backed securities - residential | 1,187 | (21 | ) | — | — | 1,187 | (21 | ) | |||||||||||||||
Collateralized mortgage obligations - residential | 3,691 | (18 | ) | 1,028 | (10 | ) | 4,719 | (28 | ) | ||||||||||||||
$ | 5,377 | $ | (40 | ) | $ | 1,028 | $ | (10 | ) | $ | 6,405 | $ | (50 | ) |
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||||
Count | Fair Value | Unrealized Loss | Count | Fair Value | Unrealized Loss | Count | Fair Value | Unrealized Loss | ||||||||||||||||||||||||||||
September 30, 2020 | ||||||||||||||||||||||||||||||||||||
Collateralized mortgage obligations - residential | 0 | $ | 0 | $ | 0 | 3 | $ | 1,695 | $ | (2 | ) | 3 | $ | 1,695 | $ | (2 | ) | |||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||||||||||||
Collateralized mortgage obligations - residential | 3 | $ | 1,566 | $ | (10 | ) | 1 | $ | 937 | $ | (3 | ) | 4 | $ | 2,503 | $ | (13 | ) |
The Company evaluates marketable investment securities with significant declines in fair value on a quarterly basis to determine whether they should be considered other-than-temporarily impaired under current accounting guidance, which generally provides
Certain mortgage-backed securities and collateralized mortgage obligations that the Company holds in its investment portfolio were in an unrealized loss position at September 30, 2017,2020, but the unrealized losses were not considered significant under the Company’s impairment testing methodology. In addition, the Company does not intend to sell these securities, and it is likely that the Company will not be required to sell these securities before their anticipated recovery occurs.
The Bank, as a member of Visa USA, received 51,404 unrestricted shares of Visa, Inc. Class B common stock in connection with Visa, Inc.’s initial public offering in 2007 and a related retroactive responsibility plan. The retroactive responsibility plan obligates all former Visa USA members to indemnify Visa USA, in proportion to their equity interests in Visa USA, for certain litigation losses and expenses, including settlement expenses, for the lawsuits covered by the retrospective responsibility plan. Due to the restrictions that the retrospective responsibility plan imposes on the Company’s Visa, Inc. Class B shares, the Company did not record the Class B shares as an asset.
The Bank sold 25,702 shares of Visa Class B common stock in the fourth quarter of 2018 and the remaining 25,702 shares of Visa Class B common stock in the first quarter of 2019 and recorded an aggregate gain of $295,000.
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 4 - LOANS RECEIVABLE
Loans receivable are as follows:
September 30, 2017 | December 31, 2016 | ||||||
One-to-four family residential real estate | $ | 105,186 | $ | 135,218 | |||
Multi-family mortgage | 576,425 | 542,887 | |||||
Nonresidential real estate | 176,301 | 182,152 | |||||
Construction and land | 2,827 | 1,302 | |||||
Commercial loans | 147,079 | 103,063 | |||||
Commercial leases | 333,120 | 352,539 | |||||
Consumer | 1,747 | 2,255 | |||||
1,342,685 | 1,319,416 | ||||||
Net deferred loan origination costs | 1,320 | 1,663 | |||||
Allowance for loan losses | (8,374 | ) | (8,127 | ) | |||
Loans, net | $ | 1,335,631 | $ | 1,312,952 |
September 30, 2020 | December 31, 2019 | |||||||
One-to-four family residential real estate | $ | 44,812 | $ | 55,750 | ||||
Multi-family mortgage | 522,825 | 563,750 | ||||||
Nonresidential real estate | 124,477 | 134,674 | ||||||
Commercial loans and leases | 379,638 | 418,343 | ||||||
Consumer | 1,784 | 2,211 | ||||||
1,073,536 | 1,174,728 | |||||||
Net deferred loan origination costs | 367 | 912 | ||||||
Allowance for loan losses | (8,011 | ) | (7,632 | ) | ||||
Loans, net | $ | 1,065,892 | $ | 1,168,008 |
The following tables present the balance in the allowance for loan losses and the loans receivable by portfolio segment and based on impairment method:
Allowance for loan losses | Loan Balances | |||||||||||||||||||||||
Individually evaluated for impairment | Collectively evaluated for impairment | Total | Individually evaluated for impairment | Collectively evaluated for impairment | Total | |||||||||||||||||||
September 30, 2020 | ||||||||||||||||||||||||
One-to-four family residential real estate | $ | 0 | $ | 623 | $ | 623 | $ | 1,746 | $ | 43,066 | $ | 44,812 | ||||||||||||
Multi-family mortgage | 0 | 4,143 | 4,143 | 596 | 522,229 | 522,825 | ||||||||||||||||||
Nonresidential real estate | 20 | 1,697 | 1,717 | 1,870 | 122,607 | 124,477 | ||||||||||||||||||
Commercial loans and leases | 0 | 1,480 | 1,480 | 155 | 379,483 | 379,638 | ||||||||||||||||||
Consumer | 0 | 48 | 48 | 0 | 1,784 | 1,784 | ||||||||||||||||||
$ | 20 | $ | 7,991 | $ | 8,011 | $ | 4,367 | $ | 1,069,169 | 1,073,536 | ||||||||||||||
Net deferred loan origination costs | 367 | |||||||||||||||||||||||
Allowance for loan losses | (8,011 | ) | ||||||||||||||||||||||
Loans, net | $ | 1,065,892 |
Allowance for loan losses | Loan Balances | |||||||||||||||||||||||
Individually evaluated for impairment | Collectively evaluated for impairment | Total | Individually evaluated for impairment | Collectively evaluated for impairment | Total | |||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||
One-to-four family residential real estate | $ | 0 | $ | 675 | $ | 675 | $ | 1,835 | $ | 53,915 | $ | 55,750 | ||||||||||||
Multi-family mortgage | 0 | 3,676 | 3,676 | 620 | 563,130 | 563,750 | ||||||||||||||||||
Nonresidential real estate | 0 | 1,176 | 1,176 | 288 | 134,386 | 134,674 | ||||||||||||||||||
Commercial loans and leases | 0 | 2,065 | 2,065 | 0 | 418,343 | 418,343 | ||||||||||||||||||
Consumer | 0 | 40 | 40 | 0 | 2,211 | 2,211 | ||||||||||||||||||
$ | 0 | $ | 7,632 | $ | 7,632 | $ | 2,743 | $ | 1,171,985 | 1,174,728 | ||||||||||||||
Net deferred loan origination costs | 912 | |||||||||||||||||||||||
Allowance for loan losses | (7,632 | ) | ||||||||||||||||||||||
Loans, net | $ | 1,168,008 |
Allowance for loan losses | Loan Balances | ||||||||||||||||||||||
Individually evaluated for impairment | Collectively evaluated for impairment | Total | Individually evaluated for impairment | Collectively evaluated for impairment | Total | ||||||||||||||||||
September 30, 2017 | |||||||||||||||||||||||
One-to-four family residential real estate | $ | — | $ | 812 | $ | 812 | $ | 4,616 | $ | 100,570 | $ | 105,186 | |||||||||||
Multi-family mortgage | — | 3,872 | 3,872 | 959 | 575,466 | 576,425 | |||||||||||||||||
Nonresidential real estate | — | 1,590 | 1,590 | — | 176,301 | 176,301 | |||||||||||||||||
Construction and land | — | 68 | 68 | — | 2,827 | 2,827 | |||||||||||||||||
Commercial loans | — | 1,241 | 1,241 | — | 147,079 | 147,079 | |||||||||||||||||
Commercial leases | — | 769 | 769 | — | 333,120 | 333,120 | |||||||||||||||||
Consumer | — | 22 | 22 | — | 1,747 | 1,747 | |||||||||||||||||
$ | — | $ | 8,374 | $ | 8,374 | $ | 5,575 | $ | 1,337,110 | 1,342,685 | |||||||||||||
Net deferred loan origination costs | 1,320 | ||||||||||||||||||||||
Allowance for loan losses | (8,374 | ) | |||||||||||||||||||||
Loans, net | $ | 1,335,631 |
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 4 - LOANS RECEIVABLE
(continued)Allowance for loan losses | Loan Balances | ||||||||||||||||||||||
Individually evaluated for impairment | Collectively evaluated for impairment | Total | Individually evaluated for impairment | Collectively evaluated for impairment | Total | ||||||||||||||||||
December 31, 2016 | |||||||||||||||||||||||
One-to-four family residential real estate | $ | — | $ | 1,168 | $ | 1,168 | $ | 4,962 | $ | 130,256 | $ | 135,218 | |||||||||||
Multi-family mortgage | — | 3,647 | 3,647 | 787 | 542,100 | 542,887 | |||||||||||||||||
Nonresidential real estate | 26 | 1,768 | 1,794 | 260 | 181,892 | 182,152 | |||||||||||||||||
Construction and land | — | 32 | 32 | — | 1,302 | 1,302 | |||||||||||||||||
Commercial loans | — | 733 | 733 | — | 103,063 | 103,063 | |||||||||||||||||
Commercial leases | — | 714 | 714 | — | 352,539 | 352,539 | |||||||||||||||||
Consumer | — | 39 | 39 | — | 2,255 | 2,255 | |||||||||||||||||
$ | 26 | $ | 8,101 | $ | 8,127 | $ | 6,009 | $ | 1,313,407 | 1,319,416 | |||||||||||||
Net deferred loan origination costs | 1,663 | ||||||||||||||||||||||
Allowance for loan losses | (8,127 | ) | |||||||||||||||||||||
Loans, net | $ | 1,312,952 |
The following table represents the activity in the allowance for loan losses is as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Beginning balance | $ | 8,122 | $ | 8,915 | $ | 8,127 | $ | 9,691 | |||||||
Loans charged off: | |||||||||||||||
One-to-four family residential real estate | (89 | ) | (102 | ) | (282 | ) | (509 | ) | |||||||
Multi-family mortgage | (7 | ) | — | (10 | ) | (51 | ) | ||||||||
Nonresidential real estate | — | (55 | ) | (165 | ) | (1,715 | ) | ||||||||
Consumer | (7 | ) | (6 | ) | (7 | ) | (24 | ) | |||||||
(103 | ) | (163 | ) | (464 | ) | (2,299 | ) | ||||||||
Recoveries: | |||||||||||||||
One-to-four family residential real estate | 15 | 5 | 100 | 92 | |||||||||||
Multi-family mortgage | 11 | 10 | 62 | 156 | |||||||||||
Nonresidential real estate | 10 | 39 | 10 | 200 | |||||||||||
Construction and land | — | — | — | 35 | |||||||||||
Commercial loans | 542 | 45 | 552 | 150 | |||||||||||
Commercial leases | 2 | 7 | 2 | 7 | |||||||||||
Consumer | — | 1 | — | 2 | |||||||||||
580 | 107 | 726 | 642 | ||||||||||||
Net recoveries (charge-offs) | 477 | (56 | ) | 262 | (1,657 | ) | |||||||||
Provision for (recovery of) loan losses | (225 | ) | (525 | ) | (15 | ) | 300 | ||||||||
Ending balance | $ | 8,374 | $ | 8,334 | $ | 8,374 | $ | 8,334 |
Beginning balance | Provision for (recovery of) loan losses | Loans charged off | Recoveries | Ending balance | ||||||||||||||||
For the three months ended | ||||||||||||||||||||
September 30, 2020 | ||||||||||||||||||||
One-to-four family residential real estate | $ | 665 | $ | (42 | ) | $ | (2 | ) | $ | 2 | $ | 623 | ||||||||
Multi-family mortgage | 4,185 | (98 | ) | 0 | 56 | 4,143 | ||||||||||||||
Nonresidential real estate | 1,602 | 115 | 0 | 0 | 1,717 | |||||||||||||||
Commercial loans and leases | 1,658 | (178 | ) | 0 | 0 | 1,480 | ||||||||||||||
Consumer | 46 | 16 | (14 | ) | 0 | 48 | ||||||||||||||
$ | 8,156 | $ | (187 | ) | $ | (16 | ) | $ | 58 | $ | 8,011 | |||||||||
September 30, 2019 | ||||||||||||||||||||
One-to-four family residential real estate | $ | 563 | $ | 56 | $ | (44 | ) | $ | 5 | $ | 580 | |||||||||
Multi-family mortgage | 3,988 | (268 | ) | 0 | 8 | 3,728 | ||||||||||||||
Nonresidential real estate | 1,195 | 77 | (55 | ) | 0 | 1,217 | ||||||||||||||
Construction and land | 3 | (1 | ) | 0 | 0 | 2 | ||||||||||||||
Commercial loans and leases | 2,044 | (8 | ) | 0 | 4 | 2,040 | ||||||||||||||
Consumer | 31 | 10 | (5 | ) | 0 | 36 | ||||||||||||||
$ | 7,824 | $ | (134 | ) | $ | (104 | ) | $ | 17 | $ | 7,603 |
For the nine months ended | ||||||||||||||||||||
September 30, 2020 | ||||||||||||||||||||
One-to-four family residential real estate | $ | 675 | $ | (63 | ) | $ | (7 | ) | $ | 18 | $ | 623 | ||||||||
Multi-family mortgage | 3,676 | 384 | 0 | 83 | 4,143 | |||||||||||||||
Nonresidential real estate | 1,176 | 541 | 0 | 0 | 1,717 | |||||||||||||||
Commercial loans and leases | 2,065 | (588 | ) | 0 | 3 | 1,480 | ||||||||||||||
Consumer | 40 | 52 | (44 | ) | 0 | 48 | ||||||||||||||
$ | 7,632 | $ | 326 | $ | (51 | ) | $ | 104 | $ | 8,011 | ||||||||||
September 30, 2019 | ||||||||||||||||||||
One-to-four family residential real estate | $ | 699 | $ | (30 | ) | $ | (117 | ) | $ | 28 | $ | 580 | ||||||||
Multi-family mortgage | 3,991 | (287 | ) | 0 | 24 | 3,728 | ||||||||||||||
Nonresidential real estate | 1,476 | (176 | ) | (83 | ) | 0 | 1,217 | |||||||||||||
Construction and land | 4 | (2 | ) | 0 | 0 | 2 | ||||||||||||||
Commercial loans and leases | 2,272 | 4,203 | (4,443 | ) | 8 | 2,040 | ||||||||||||||
Consumer | 28 | 28 | (20 | ) | 0 | 36 | ||||||||||||||
$ | 8,470 | $ | 3,736 | $ | (4,663 | ) | $ | 60 | $ | 7,603 |
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 4 - LOANS RECEIVABLE
(continued)Impaired loans
The following tables present loans individually evaluated for impairment by class of loans:
Three months ended September 30, 2017 | Nine months ended September 30, 2017 | ||||||||||||||||||||||||||||||
Loan Balance | Recorded Investment | Partial Charge-off | Allowance for Loan Losses Allocated | Average Investment in Impaired Loans | Interest Income Recognized | Average Investment in Impaired Loans | Interest Income Recognized | ||||||||||||||||||||||||
September 30, 2017 | |||||||||||||||||||||||||||||||
With no related allowance recorded: | |||||||||||||||||||||||||||||||
One-to-four family residential real estate | $ | 4,980 | $ | 4,031 | $ | 966 | $ | — | $ | 4,100 | $ | 14 | $ | 4,251 | $ | 51 | |||||||||||||||
One-to-four family residential real estate - non-owner occupied | 571 | 576 | 19 | — | 557 | — | 594 | — | |||||||||||||||||||||||
Multi-family mortgage - Illinois | 965 | 961 | — | — | 965 | 10 | 815 | 31 | |||||||||||||||||||||||
$ | 6,516 | $ | 5,568 | $ | 985 | $ | — | $ | 5,622 | $ | 24 | $ | 5,660 | $ | 82 |
Year ended December 31, 2016 | |||||||||||||||||||||||
Loan Balance | Recorded Investment | Partial Charge-off | Allowance for Loan Losses Allocated | Average Investment in Impaired Loans | Interest Income Recognized | ||||||||||||||||||
December 31, 2016 | |||||||||||||||||||||||
With no related allowance recorded: | |||||||||||||||||||||||
One-to-four family residential real estate | $ | 5,379 | $ | 4,548 | $ | 886 | $ | — | $ | 2,947 | $ | 70 | |||||||||||
One-to-four family residential real estate - non-owner occupied | 503 | 386 | 119 | — | 251 | 9 | |||||||||||||||||
Multi-family mortgage - Illinois | 787 | 787 | — | — | 980 | 41 | |||||||||||||||||
6,669 | 5,721 | 1,005 | — | 4,178 | 120 | ||||||||||||||||||
With an allowance recorded: | |||||||||||||||||||||||
Nonresidential real estate | 262 | 260 | 21 | 26 | 164 | — | |||||||||||||||||
262 | 260 | 21 | 26 | 164 | — | ||||||||||||||||||
$ | 6,931 | $ | 5,981 | $ | 1,026 | $ | 26 | $ | 4,342 | $ | 120 |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, 2020 | September 30, 2020 | |||||||||||||||||||||||||||||||
Loan Balance | Recorded Investment | Partial Charge off | Allowance for Loan Losses Allocated | Average Investment in Impaired Loans | Interest Income Recognized | Average Investment in Impaired Loans | Interest Income Recognized | |||||||||||||||||||||||||
September 30, 2020 | ||||||||||||||||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||||||||||||||
One-to-four family residential real estate | $ | 2,092 | $ | 1,746 | $ | 358 | $ | — | $ | 1,760 | $ | 10 | $ | 1,798 | $ | 34 | ||||||||||||||||
Multi-family mortgage - Illinois | 596 | 596 | 0 | — | 600 | 8 | 608 | 26 | ||||||||||||||||||||||||
Nonresidential real estate | 1,582 | 1,582 | 0 | — | 791 | 0 | 316 | 32 | ||||||||||||||||||||||||
Commercial leases - other | 155 | 155 | 0 | — | 478 | 27 | 259 | 27 | ||||||||||||||||||||||||
4,425 | 4,079 | 358 | — | 3,629 | 45 | 2,981 | 119 | |||||||||||||||||||||||||
With a related allowance recorded - nonresidential | 280 | 288 | 0 | 20 | 288 | 0 | 288 | 0 | ||||||||||||||||||||||||
$ | 4,705 | $ | 4,367 | $ | 358 | $ | 20 | $ | 3,917 | $ | 45 | $ | 3,269 | $ | 119 |
Year ended | ||||||||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||
Loan Balance | Recorded Investment | Partial Charge-off | Allowance for Loan Losses Allocated | Average Investment in Impaired Loans | Interest Income Recognized | |||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||||||
One-to-four family residential real estate | $ | 2,168 | $ | 1,835 | $ | 339 | $ | 0 | $ | 2,208 | $ | 51 | ||||||||||||
Multi-family mortgage - Illinois | 620 | 620 | 0 | 0 | 637 | 37 | ||||||||||||||||||
Nonresidential real estate | 280 | 288 | 0 | 0 | 589 | 2 | ||||||||||||||||||
$ | 3,068 | $ | 2,743 | $ | 339 | $ | 0 | $ | 3,434 | $ | 90 |
Nonaccrual Loans
The following tables present the recorded investment in nonaccrual loans and loans 90 days or more past due over 90 days still on accrual by class of loans:
Loan Balance | Recorded Investment | Loans Past Due Over 90 Days, Still Accruing | |||||||||
September 30, 2017 | |||||||||||
One-to-four family residential real estate | $ | 3,392 | $ | 1,658 | $ | — | |||||
One-to-four family residential real estate – non-owner occupied | 751 | 576 | — | ||||||||
Multi-family mortgage - Illinois | 378 | 371 | — | ||||||||
$ | 4,521 | $ | 2,605 | $ | — | ||||||
December 31, 2016 | |||||||||||
One-to-four family residential real estate | $ | 2,861 | $ | 2,483 | $ | — | |||||
One-to-four family residential real estate – non-owner occupied | 428 | 368 | — | ||||||||
Multi-family mortgage - Illinois | 187 | 185 | — | ||||||||
Nonresidential real estate | 262 | 260 | — | ||||||||
$ | 3,738 | $ | 3,296 | $ | — |
Loan Balance | Recorded Investment | Loans Past Due Over 90 Days, Still Accruing | ||||||||||
September 30, 2020 | ||||||||||||
One-to-four family residential real estate | $ | 485 | $ | 465 | $ | 0 | ||||||
Nonresidential real estate | 1,863 | 1,870 | 0 | |||||||||
$ | 2,348 | $ | 2,335 | $ | 0 | |||||||
December 31, 2019 | ||||||||||||
One-to-four family residential real estate | $ | 598 | $ | 512 | $ | 0 | ||||||
Nonresidential real estate | 280 | 288 | 0 | |||||||||
Investment-rated commercial leases | 47 | 0 | 47 | |||||||||
$ | 925 | $ | 800 | $ | 47 |
Nonaccrual loans and impaired loans are defined differently. Some loans may be included in both categories, and some loans may only be included in one category. Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.
The Company’s reserve for uncollected loan interest was
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 4 - LOANS RECEIVABLE
(continued)Past Due Loans
The following tables present the aging of the recorded investment of loans at September 30, 2017 by class of loans:
30-59 Days Past Due | 60-89 Days Past Due | 90 Days or Greater Past Due | Total Past Due | Loans Not Past Due | Total | |||||||||||||||||||
September 30, 2020 | ||||||||||||||||||||||||
One-to-four family residential real estate loans: | ||||||||||||||||||||||||
Owner occupied | $ | 48 | $ | 0 | $ | 462 | $ | 510 | $ | 35,604 | $ | 36,114 | ||||||||||||
Non-owner occupied | 3 | 95 | 0 | $ | 98 | 8,600 | 8,698 | |||||||||||||||||
Multi-family mortgage: | ||||||||||||||||||||||||
Illinois | 0 | 0 | 0 | 0 | 224,919 | 224,919 | ||||||||||||||||||
Other | 0 | 0 | 0 | 0 | 297,906 | 297,906 | ||||||||||||||||||
Nonresidential real estate | 0 | 0 | 1,870 | 1,870 | 122,607 | 124,477 | ||||||||||||||||||
Commercial loans and leases: | ||||||||||||||||||||||||
Commercial | 0 | 0 | 0 | 0 | 90,767 | 90,767 | ||||||||||||||||||
Asset-based | 0 | 0 | 0 | 0 | 1,471 | 1,471 | ||||||||||||||||||
Equipment finance: | ||||||||||||||||||||||||
Government | 0 | 0 | 0 | 0 | 71,504 | 71,504 | ||||||||||||||||||
Investment-rated | 439 | 124 | 0 | 563 | 81,449 | 82,012 | ||||||||||||||||||
Other | 633 | 0 | 0 | 633 | 133,251 | 133,884 | ||||||||||||||||||
Consumer | 6 | 4 | 0 | 10 | 1,774 | 1,784 | ||||||||||||||||||
$ | 1,129 | $ | 223 | $ | 2,332 | $ | 3,684 | $ | 1,069,852 | $ | 1,073,536 |
30-59 Days Past Due | 60-89 Days Past Due | 90 Days or Greater Past Due | Total Past Due | Loans Not Past Due | Total | |||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||
One-to-four family residential real estate loans: | ||||||||||||||||||||||||
Owner occupied | $ | 777 | $ | 340 | $ | 507 | $ | 1,624 | $ | 43,365 | $ | 44,989 | ||||||||||||
Non-owner occupied | 280 | 15 | 0 | 295 | 10,466 | 10,761 | ||||||||||||||||||
Multi-family mortgage: | ||||||||||||||||||||||||
Illinois | 981 | 302 | 0 | 1,283 | 246,680 | 247,963 | ||||||||||||||||||
Other | 0 | 0 | 0 | 0 | 315,787 | 315,787 | ||||||||||||||||||
Nonresidential real estate | 0 | 0 | 288 | 288 | 134,386 | 134,674 | ||||||||||||||||||
Commercial loans and leases: | ||||||||||||||||||||||||
Commercial | 0 | 0 | 0 | 0 | 133,976 | 133,976 | ||||||||||||||||||
Asset-based | 0 | 0 | 0 | 0 | 11,738 | 11,738 | ||||||||||||||||||
Equipment finance: | ||||||||||||||||||||||||
Government | 0 | 0 | 0 | 0 | 33,555 | 33,555 | ||||||||||||||||||
Investment-rated | 826 | 0 | 47 | 873 | 101,015 | 101,888 | ||||||||||||||||||
Other | 543 | 136 | 0 | 679 | 136,507 | 137,186 | ||||||||||||||||||
Consumer | 24 | 37 | 0 | 61 | 2,150 | 2,211 | ||||||||||||||||||
$ | 3,431 | $ | 830 | $ | 842 | $ | 5,103 | $ | 1,169,625 | $ | 1,174,728 |
30-59 Days Past Due | 60-89 Days Past Due | 90 Days or Greater Past Due | Total Past Due | Loans Not Past Due | Total | ||||||||||||||||||
One-to-four family residential real estate loans | $ | 94 | $ | 749 | $ | 1,655 | $ | 2,498 | $ | 79,800 | $ | 82,298 | |||||||||||
One-to-four family residential real estate loans – non-owner occupied | 12 | 3 | 577 | 592 | 22,321 | 22,913 | |||||||||||||||||
Multi-family mortgage - Illinois | — | — | 371 | 371 | 288,508 | 288,879 | |||||||||||||||||
Multi-family mortgage - Other | — | — | — | — | 281,887 | 281,887 | |||||||||||||||||
Nonresidential real estate | — | — | — | — | 174,724 | 174,724 | |||||||||||||||||
Construction | — | — | — | — | 2,548 | 2,548 | |||||||||||||||||
Land | — | — | — | — | 281 | 281 | |||||||||||||||||
Commercial loans: | |||||||||||||||||||||||
Regional commercial banking | — | — | — | — | 40,315 | 40,315 | |||||||||||||||||
Health care | — | — | — | — | 72,685 | 72,685 | |||||||||||||||||
Direct commercial lessor | 275 | 369 | — | 644 | 33,787 | 34,431 | |||||||||||||||||
Commercial leases: | |||||||||||||||||||||||
Investment rated commercial leases | — | 2,225 | — | 2,225 | 230,009 | 232,234 | |||||||||||||||||
Other commercial leases | — | — | — | — | 102,698 | 102,698 | |||||||||||||||||
Consumer | — | — | — | — | 1,754 | 1,754 | |||||||||||||||||
$ | 381 | $ | 3,346 | $ | 2,603 | $ | 6,330 | $ | 1,331,317 | $ | 1,337,647 |
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 4 - LOANS RECEIVABLE
(continued)In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was passed by Congress and signed into law on March 27, 2020. The CARES Act established the Paycheck Protection Program loan, designed to provide a direct incentive for small businesses to keep their workers on the payroll. Under the most recently published guidance, the U.S. Small Business Administration ("SBA") will forgive PPP loans if all employee retention criteria are met, and the funds are used for eligible expenses. For the nine months ended September 30, 2020, we allocated approximately $11 million to the PPP based on the expected 100% guaranty of the SBA.
The following tables presenttable presents the agingPPP activity:
Number of loans | Originated | Balance | ||||||||||
For the Nine Months Ended September 30, 2020 | ||||||||||||
Paycheck protection program loan originations | 315 | $ | 11,160 | |||||||||
September 30, 2020 | ||||||||||||
Paycheck protection program loans | 310 | $ | 11,042 |
COVID-19 Loan Forbearance Programs
Section 4013 of the recorded investmentCARES Act provides that a qualified loan modification is exempt by law from classification as a Troubled Debt Restructuring ("TDR") pursuant to US GAAP. In addition, the Revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (“OCC Bulletin 2020-50”) provides more limited circumstances in which a loan modification is not subject to classification as a TDR and also defined the circumstances where the borrower’s loan is reported as current on loan payments. Pursuant to these new capabilities, we developed several loan forbearance programs to assist borrowers with managing cash flows disrupted due to COVID-19.
Our Apartment and Commercial Real Estate COVID-19 Qualified Limited Forbearance Agreement permitted borrowers who qualified under Section 4013 of the CARES Act to make an election to pay scheduled interest and escrow payments (if applicable) for a four-month period beginning in April 2020, and pay all deferred principal payments by December 2020.
Our Small Investment Property COVID-19 Qualified Limited Forbearance Agreement permitted borrowers with loan balances under $750,000 who qualified under Section 4013 of the CARES Act to make an election to pay scheduled interest and escrow payments (if applicable) for a four-month period beginning in April 2020, and pay all deferred principal payments by December 2020. In addition, the borrower could elect to defer the May 2020 loan payment entirely, with all deferred interest amounts due by December 2020 and all deferred principal amounts due by June 30, 2021.
CARES Act Section 4013 and OCC Bulletin 2020-35 forbearance agreements are available to qualified commercial loan and commercial finance borrowers, and to commercial equipment lessees.
For residential mortgage and consumer loans, relief under CARES Act Section 4013 or OCC Bulletin 2020-35 forbearance agreements are available to qualified borrowers with terms consistent with secondary residential mortgage market standards established by Fannie Mae.
The following table summarizes the remaining loan forbearance modifications at December 31, 2016 by class of loans:
30-59 Days Past Due | 60-89 Days Past Due | 90 Days or Greater Past Due | Total Past Due | Loans Not Past Due | Total | ||||||||||||||||||
One-to-four family residential real estate loans | $ | 984 | $ | 335 | $ | 2,235 | $ | 3,554 | $ | 92,665 | $ | 96,219 | |||||||||||
One-to-four family residential real estate loans – non-owner occupied | 664 | 114 | 368 | 1,146 | 37,179 | 38,325 | |||||||||||||||||
Multi-family mortgage - Illinois | 605 | 439 | 184 | 1,228 | 294,223 | 295,451 | |||||||||||||||||
Multi-family mortgage - Other | — | — | — | — | 243,944 | 243,944 | |||||||||||||||||
Nonresidential real estate | — | — | 260 | 260 | 178,644 | 178,904 | |||||||||||||||||
Construction | — | — | — | — | 950 | 950 | |||||||||||||||||
Land | — | — | — | — | 349 | 349 | |||||||||||||||||
Commercial loans: | |||||||||||||||||||||||
Regional commercial banking | — | — | — | — | 26,480 | 26,480 | |||||||||||||||||
Health care | — | — | — | — | 41,086 | 41,086 | |||||||||||||||||
Direct commercial lessor | — | — | — | — | 31,847 | 31,847 | |||||||||||||||||
Commercial leases: | |||||||||||||||||||||||
Investment rated commercial leases | 51 | — | — | 51 | 273,405 | 273,456 | |||||||||||||||||
Other commercial leases | — | — | — | — | 84,988 | 84,988 | |||||||||||||||||
Consumer | — | — | — | — | 2,263 | 2,263 | |||||||||||||||||
$ | 2,304 | $ | 888 | $ | 3,047 | $ | 6,239 | $ | 1,308,023 | $ | 1,314,262 |
Number of loans | Principal Balance | Remaining Amounts Deferred | ||||||||||
Small Investment Property COVID-19 Qualified Limited Forbearance Agreement | ||||||||||||
Multi-family mortgage | 15 | $ | 4,511 | $ | 46 | |||||||
Nonresidential real estate | 15 | 5,871 | 93 | |||||||||
Apartment and Commercial Real Estate COVID-19 Qualified Limited Forbearance Agreement | ||||||||||||
Multi-family mortgage | 53 | 42,663 | 185 | |||||||||
Nonresidential real estate | 28 | 31,861 | 273 | |||||||||
Commercial leases (1) | 25 | 9,211 | 0 | |||||||||
One-to-four family residential real estate | 10 | 1,422 | 11 | |||||||||
146 | $ | 95,539 | $ | 608 |
(1) Commercial lease deferrals have been reamortized to maturity.
Troubled Debt Restructurings
The Company evaluates loan extensions or modifications not qualified under Section 4013 of the CARES Act or under OCC Bulletin 2020-35in accordance with FASB ASC 310–40340-10 with respect to the classification of the loan as a Troubled Debt Restructuring ("TDR"). In general,TDR.
Under ASC 340-10, if the Company grants a loan extension or modification to a borrower experiencing financial difficulties for other than an insignificant period of time that includes a below–market interest rate, principal forgiveness, payment forbearance or other concession intended to minimize the economic loss to the Company, the loan extension or loan modification is classified as a TDR. In cases where borrowers are granted new terms that provide for a reduction of either interest or principal then due and payable, management measures any impairment on the restructured loan in the same manner as for impaired loans as noted above.
September 30, 2017 | December 31, 2016 | ||||||
One-to-four family residential real estate | $ | — | $ | 205 | |||
Troubled debt restructured loans – accrual loans | — | 205 | |||||
One-to-four family residential real estate | 17 | 136 | |||||
Troubled debt restructured loans – nonaccrual loans | 17 | 136 | |||||
Total troubled debt restructured loans | $ | 17 | $ | 341 |
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 4 - LOANS RECEIVABLE
(continued)The Company had 0 TDRs at a stated rate of interest lower thanSeptember 30, 2020 and December 31, 2019. During the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.
For the Nine Months Ended September 30, | |||||||||||||||||||||
2017 | 2016 | ||||||||||||||||||||
Number of loans | Pre- Modification outstanding recorded investment | Post- Modification outstanding recorded investment | Number of loans | Pre- Modification outstanding recorded investment | Post- Modification outstanding recorded investment | ||||||||||||||||
One-to-four family residential real estate | — | $ | — | $ | — | 1 | $ | 63 | $ | 63 |
Due to reduction in interest rate | Due to extension of maturity date | Due to permanent reduction in recorded investment | Total | ||||||||||||
For the Nine Months Ended September 30, 2016 | |||||||||||||||
One-to-four family residential real estate | $ | — | $ | 63 | $ | — | $ | 63 |
2017 | 2016 | ||||||||||||
Number of loans | Recorded investment | Number of loans | Recorded investment | ||||||||||
One-to-four family residential real estate | 1 | $ | 17 | 2 | $ | 87 |
A TDRloan is considered to be in payment default once it is 90 days contractually past due under the modified terms.
To determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans based on credit risk. This analysis includes non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a monthly basis. The Company uses the following definitions for risk ratings:
Special Mention.
A Special Mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in theSubstandard.
Loans categorized as Substandard continue to accrue interest, but exhibit a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt. The loans continue to accrue interest because they are well secured and collection of principal and interest is expected within a reasonable time. The risk rating guidance published by the Office of the Comptroller of the Currency clarifies that a loan with a well-defined weakness does not have to present a probability of default for the loan to be rated Substandard, and that an individual loan’s loss potential does not have to be distinct for the loan to be rated Substandard.Nonaccrual.
An asset classified Nonaccrual has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered “Pass” rated loans.
Based on the most recent analysis performed, the risk categories of loans by class of loans are as follows:
Pass | Special Mention | Substandard | Nonaccrual | Total | ||||||||||||||||
September 30, 2020 | ||||||||||||||||||||
One-to-four family residential real estate loans: | ||||||||||||||||||||
Owner occupied | $ | 35,165 | $ | 0 | $ | 484 | $ | 465 | $ | 36,114 | ||||||||||
Non-owner occupied | 8,637 | 28 | 33 | 0 | 8,698 | |||||||||||||||
Multi-family mortgage: | ||||||||||||||||||||
Illinois | 224,919 | 0 | 0 | — | 224,919 | |||||||||||||||
Other | 297,906 | 0 | 0 | 0 | 297,906 | |||||||||||||||
Nonresidential real estate | 119,260 | 2,151 | 1,196 | 1,870 | 124,477 | |||||||||||||||
Commercial loans and leases: | ||||||||||||||||||||
Commercial | 90,767 | 0 | 0 | 0 | 90,767 | |||||||||||||||
Asset-based | 1,471 | 0 | 0 | 0 | 1,471 | |||||||||||||||
Equipment finance: | ||||||||||||||||||||
Government | 71,504 | 0 | 0 | 0 | 71,504 | |||||||||||||||
Investment-rated | 82,012 | 0 | 0 | 0 | 82,012 | |||||||||||||||
Other | 132,588 | 0 | 1,296 | 0 | 133,884 | |||||||||||||||
Consumer | 1,774 | 5 | 5 | 0 | 1,784 | |||||||||||||||
$ | 1,066,003 | $ | 2,184 | $ | 3,014 | $ | 2,335 | $ | 1,073,536 |
Pass | Special Mention | Substandard | Nonaccrual | Total | |||||||||||||||
One-to-four family residential real estate loans | $ | 80,401 | $ | — | $ | 257 | $ | 1,653 | $ | 82,311 | |||||||||
One-to-four family residential real estate loans – non-owner occupied | 22,258 | — | 40 | 577 | 22,875 | ||||||||||||||
Multi-family mortgage loans - Illinois | 289,175 | — | 480 | 372 | 290,027 | ||||||||||||||
Multi-family mortgage loans - Other | 286,398 | — | — | — | 286,398 | ||||||||||||||
Nonresidential real estate loans | 176,139 | — | 162 | — | 176,301 | ||||||||||||||
Construction loans | 2,543 | — | — | — | 2,543 | ||||||||||||||
Land loans | 284 | — | — | — | 284 | ||||||||||||||
Commercial loans: | |||||||||||||||||||
Regional commercial banking | 40,251 | — | — | — | 40,251 | ||||||||||||||
Health care | 71,633 | — | 982 | — | 72,615 | ||||||||||||||
Direct commercial lessor | 34,213 | — | — | — | 34,213 | ||||||||||||||
Commercial leases: | |||||||||||||||||||
Investment rated commercial leases | 230,931 | — | — | — | 230,931 | ||||||||||||||
Other commercial leases | 102,189 | — | — | — | 102,189 | ||||||||||||||
Consumer | 1,747 | — | — | — | 1,747 | ||||||||||||||
$ | 1,338,162 | $ | — | $ | 1,921 | $ | 2,602 | $ | 1,342,685 |
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 4 - LOANS RECEIVABLE
(continued)Pass | Special Mention | Substandard | Nonaccrual | Total | ||||||||||||||||
December 31, 2019 | ||||||||||||||||||||
One-to-four family residential real estate loans: | ||||||||||||||||||||
Owner occupied | $ | 43,908 | $ | 36 | $ | 533 | $ | 512 | $ | 44,989 | ||||||||||
Non-owner occupied | 10,696 | 30 | 35 | 0 | 10,761 | |||||||||||||||
Multi-family mortgage: | ||||||||||||||||||||
Illinois | 247,757 | 0 | 206 | 0 | 247,963 | |||||||||||||||
Other | 315,787 | 0 | 0 | 0 | 315,787 | |||||||||||||||
Nonresidential real estate | 134,134 | 162 | 90 | 288 | 134,674 | |||||||||||||||
Commercial loans and leases: | ||||||||||||||||||||
Commercial | 125,630 | 8,346 | 0 | 0 | 133,976 | |||||||||||||||
Asset-based | 11,738 | 0 | 0 | 0 | 11,738 | |||||||||||||||
Equipment finance: | ||||||||||||||||||||
Government | 33,555 | 0 | 0 | 0 | 33,555 | |||||||||||||||
Investment-rated | 101,381 | 507 | 0 | 0 | 101,888 | |||||||||||||||
Other | 136,289 | 761 | 136 | 0 | 137,186 | |||||||||||||||
Consumer | 2,153 | 5 | 53 | 0 | 2,211 | |||||||||||||||
$ | 1,163,028 | $ | 9,847 | $ | 1,053 | $ | 800 | $ | 1,174,728 |
Pass | Special Mention | Substandard | Nonaccrual | Total | |||||||||||||||
One-to-four family residential real estate loans | $ | 93,514 | $ | — | $ | 629 | $ | 2,486 | $ | 96,629 | |||||||||
One-to-four family residential real estate loans – non-owner occupied | 38,179 | — | 41 | 369 | 38,589 | ||||||||||||||
Multi-family mortgage loans - Illinois | 297,826 | 122 | 1,048 | 187 | 299,183 | ||||||||||||||
Multi-family mortgage loans - Other | 243,704 | — | — | — | 243,704 | ||||||||||||||
Nonresidential real estate loans | 180,047 | — | 1,845 | 260 | 182,152 | ||||||||||||||
Construction loans | 946 | — | — | — | 946 | ||||||||||||||
Land loans | 356 | — | — | — | 356 | ||||||||||||||
Commercial loans: | |||||||||||||||||||
Regional commercial banking | 26,365 | — | 66 | — | 26,431 | ||||||||||||||
Health care | 41,001 | — | — | — | 41,001 | ||||||||||||||
Direct commercial lessor | 30,881 | 800 | — | — | 31,681 | ||||||||||||||
Commercial leases: | |||||||||||||||||||
Investment rated commercial leases | 271,972 | — | — | — | 271,972 | ||||||||||||||
Other commercial leases | 84,356 | 161 | — | — | 84,517 | ||||||||||||||
Consumer | 2,255 | — | — | — | 2,255 | ||||||||||||||
$ | 1,311,402 | $ | 1,083 | $ | 3,629 | $ | 3,302 | $ | 1,319,416 |
NOTE 5 - OTHER REAL ESTATE OWNED
Real estate that is acquired through foreclosure or a deed in lieu of foreclosure is classified as other real estate owned ("OREO") until it is sold. When real estate is acquired through foreclosure or by deed in lieu of foreclosure, it is recorded at its fair value, less the estimated costs of disposal. If the fair value of the property is less than the loan balance, the difference is charged against the allowance for loan losses.
September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||
Balance | Valuation Allowance | Net OREO Balance | Balance | Valuation Allowance | Net OREO Balance | ||||||||||||||||||
One–to–four family residential | $ | 1,955 | $ | (207 | ) | $ | 1,748 | $ | 1,702 | $ | (137 | ) | $ | 1,565 | |||||||||
Multi-family mortgage | — | — | — | 370 | — | 370 | |||||||||||||||||
Nonresidential real estate | 1,772 | (221 | ) | 1,551 | 1,171 | (105 | ) | 1,066 | |||||||||||||||
Land | 314 | (44 | ) | 270 | 1,101 | (207 | ) | 894 | |||||||||||||||
$ | 4,041 | $ | (472 | ) | $ | 3,569 | $ | 4,344 | $ | (449 | ) | $ | 3,895 |
September 30, 2020 | December 31, 2019 | |||||||||||||||||||||||
Balance | Valuation Allowance | Net OREO Balance | Balance | Valuation Allowance | Net OREO Balance | |||||||||||||||||||
One–to–four family residential | $ | 110 | $ | 0 | $ | 110 | $ | 186 | $ | 0 | $ | 186 |
The following represents the roll forward of OREO and the composition of OREO properties:
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Beginning balance | $ | 4,896 | $ | 5,373 | $ | 3,895 | $ | 7,011 | |||||||
New foreclosed properties | 105 | 94 | 2,041 | 215 | |||||||||||
Valuation adjustments | (227 | ) | (115 | ) | (301 | ) | (244 | ) | |||||||
Sales and Payments | (1,205 | ) | (971 | ) | (2,066 | ) | (2,601 | ) | |||||||
Ending balance | $ | 3,569 | $ | 4,381 | $ | 3,569 | $ | 4,381 |
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Beginning balance | $ | 143 | $ | 497 | $ | 186 | $ | 1,226 | ||||||||
New foreclosed properties | 0 | 30 | 33 | 76 | ||||||||||||
Valuation adjustments | 0 | (17 | ) | 0 | (38 | ) | ||||||||||
Sales and other reductions | (33 | ) | (241 | ) | (109 | ) | (995 | ) | ||||||||
Ending balance | $ | 110 | $ | 269 | $ | 110 | $ | 269 |
Activity in the valuation allowance is as follows:
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Beginning balance | $ | 308 | $ | 664 | $ | 449 | $ | 1,042 | |||||||
Additions charged to expense | 227 | 115 | 301 | 244 | |||||||||||
Reductions from sales of other real estate owned | (63 | ) | (170 | ) | (278 | ) | (677 | ) | |||||||
Ending balance | $ | 472 | $ | 609 | $ | 472 | $ | 609 |
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Beginning balance | $ | 0 | $ | 21 | $ | 0 | $ | 23 | ||||||||
Additions charged to expense | 0 | 17 | 0 | 38 | ||||||||||||
Reductions from sales of OREO | 0 | 0 | 0 | (23 | ) | |||||||||||
Ending balance | $ | 0 | $ | 38 | $ | 0 | $ | 38 |
At September 30, 20172020 and December 31, 2016,2019, the balance of OREO included no0 foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property without title. At September 30, 20172020 and December 31, 2016,2019, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedsproceedings were in process was $1.4 million$180,000 and $1.6 million,$237,000, respectively.
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 6 - SECURITIES SOLD UNDER AGREEMENTSLEASES
The Company enters into operating leases in the normal course of business primarily for several of its branch and corporate locations. Leases (Topic 842) establishes a right of use model that requires a lessee to record a right of use (“ROU”) asset and a lease liability for all leases with terms longer than 12 months. Currently the Company is obligated under four non-cancellable operating lease agreements for three branch properties and its corporate office. The leases have varying terms, the longest of which will end in 2032. The Company's lease agreements include options to renew at the Company's discretion. The extensions are not reasonably certain to be exercised; therefore, they were not considered in the calculation of the ROU asset and lease liability. The Company has also elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company's Statement of Financial Condition.
The following table represents the classification of the Company's right of use and lease liabilities:
Statement of Financial Condition Location | September 30, 2020 | December 31, 2019 | ||||||||
Operating Lease Right of Use Asset: | ||||||||||
Gross carrying amount | $ | 6,694 | $ | 0 | ||||||
New lease obligation | 111 | 6,694 | ||||||||
Accumulated amortization | (1,508 | ) | (848 | ) | ||||||
Net carrying value | Other assets | $ | 5,297 | $ | 5,846 | |||||
Operating Lease Liabilities: | ||||||||||
Right of use lease obligations | Other liabilities | $ | 5,297 | $ | 5,846 |
Amortization expense was $221,000 and $212,000 for the three months ended September 30, 2020 and 2019, respectively, and $660,000 and $636,000 for the nine months ended September 30, 2020 and 2019. At September 30, 2020, the weighted-average remaining lease term for the operating leases was 8.4 years and the weighted-average discount rate used in the measurement of operating lease liabilities was 3.13%. The Company utilized the FHLB fixed rate advance rate for the term most closely aligning with the remaining lease term at inception.
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Lease cost: | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Operating lease cost | $ | 221 | $ | 212 | $ | 660 | $ | 636 | ||||||||
Short-term lease cost | 42 | 26 | 113 | 86 | ||||||||||||
Sublease income | (19 | ) | (17 | ) | (56 | ) | (32 | ) | ||||||||
Total lease cost | $ | 244 | $ | 221 | $ | 717 | $ | 690 | ||||||||
Other information: | ||||||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
Operating cash flows from operating leases | $ | 238 | $ | 225 | $ | 709 | $ | 674 |
Future minimum payments under non-cancellable operating leases with terms longer than 12 months, are as follows at September 30, 2020:
Twelve months ended September 30, | ||||
2021 | $ | 957 | ||
2022 | 991 | |||
2023 | 1,002 | |||
2024 | 582 | |||
2025 | 505 | |||
Thereafter | 2,344 | |||
Total future minimum operating lease payments | 6,381 | |||
Amounts representing interest | (1,084 | ) | ||
Present value of net future minimum operating lease payments | $ | 5,297 |
BANKFINANCIAL CORPORATION
NOTES TO REPURCHASECONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 7 - BORROWINGS
Advances from the FHLB were as follows:
September 30, 2020 | December 31, 2019 | |||||||||||||||
Contractual | Contractual | |||||||||||||||
Rate | Amount | Rate | Amount | |||||||||||||
Fixed-rate advance from FHLB, due within 1 year | 0 | % | $ | 4,000 | 0 | % | $ | 0 |
Securities sold under agreements to repurchase, which are included with borrowings on the consolidated balance sheet, are shown below.
Overnight and Continuous | Up to 30 days | 30 - 90 days | Greater Than 90 days | Total | ||||||||||||||||
September 30, 2017 | ||||||||||||||||||||
Repurchase agreements and repurchase-to-maturity transactions | $ | 928 | $ | — | $ | — | $ | — | $ | 928 | ||||||||||
Gross amount of recognized liabilities for repurchase agreements in Statement of Condition | $ | 928 | ||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||
Repurchase agreements and repurchase-to-maturity transactions | $ | 1,069 | $ | — | $ | — | $ | — | $ | 1,069 | ||||||||||
Gross amount of recognized liabilities for repurchase agreements in Statement of Condition | $ | 1,069 |
Overnight and Continuous | Up to 30 days | 30 - 90 days | Greater Than 90 days | Total | ||||||||||||||||
December 31, 2019 | ||||||||||||||||||||
Repurchase agreements and repurchase-to-maturity transactions | $ | 61 | $ | 0 | $ | 0 | $ | 0 | $ | 61 | ||||||||||
Gross amount of recognized liabilities for repurchase agreements in Consolidated Statements of Financial Condition | $ | 61 |
There were no repurchase agreements and repurchase-to-maturity transactions at September 30, 2020.
Securities sold under agreements to repurchase were secured by a mortgage-backed securitiessecurity with a carrying amount of $4.0 million and $4.7$2.0 million at September 30, 2017 and December 31, 2016, respectively. Also included in total borrowings were advances from2019, As the FHLBC of $60.0 million at September 30, 2017 and $50.0 million at December 31, 2016, respectively.
On March 29, 2017, the ESOP was terminated and the ESOP repaid all amounts owing under the ESOP’s Term Loan Agreement with April 1, 2020, the Company (the “Share Acquisition Loan”)established a $5.0 million unsecured line of credit with a correspondent bank. Interest is payable at a rate of Prime rate minus 0.75%. The ESOP repaid the Share Acquisition Loan by transferring 753,490 unallocated sharesline of the Company’s common stock to the Company in exchange for the full satisfactioncredit will mature on April 1, 2021. The line of the Share Acquisition Loan, using the valuation method provided for in the ESOP. A total of 78,362 unallocated shares remained in the ESOP after the Share Acquisition Loan was repaid, and these shares were released and will be allocated to the accounts of eligible ESOP participants who were actively employed by the Bank as of March 29, 2017, based on their account balances, subject to the receipt of a favorable IRS determination letter. These transactions resulted in the recording of one-time, non-cash, non-tax deductible equity compensation expense of $1.1 million in the first quarter of 2017. The Share Acquisition Loancredit had no0 outstanding principal balance at September 30, 2017 and an outstanding principal balance of $10.8 million at December 31, 2016.
September 30, 2017 | December 31, 2016 | ||||||
Allocated to participants | 1,203,810 | 1,125,448 | |||||
Distributed to participants | (317,914 | ) | (313,223 | ) | |||
Unearned | — | 831,852 | |||||
Total ESOP shares | 885,896 | 1,644,077 | |||||
Fair value of unearned shares | $ | — | $ | 12,328 |
NOTE 8 – EQUITY INCENTIVE PLAN
Stock Options | Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (1) | |||||||||
Stock options outstanding at December 31, 2015 | 1,752,156 | $ | 12.30 | 1.48 | $ | 778 | |||||||
Stock options granted | — | — | |||||||||||
Stock options exercised | — | — | |||||||||||
Stock options outstanding at December 31, 2016 | 1,752,156 | $ | 12.30 | 0.48 | $ | 4,422 | |||||||
Stock options granted | — | — | |||||||||||
Stock options exercised | (1,752,156 | ) | 12.30 | ||||||||||
Stock options outstanding at September 30, 2017 | — | $ | — | 0 | $ | — |
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
• | Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. |
• | Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
• | Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. |
The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:
Securities
:Impaired Loans:
Other Real Estate Owned:
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 8 - FAIR VALUE (continued)
The following table sets forth the Company’s financial assets that were accounted for at fair value and are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Fair Value Measurements Using | |||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value | ||||||||||||
September 30, 2017 | |||||||||||||||
Securities: | |||||||||||||||
Certificates of deposit | $ | — | $ | 80,360 | $ | — | $ | 80,360 | |||||||
Equity mutual fund | 502 | — | — | 502 | |||||||||||
Mortgage-backed securities – residential | — | 13,188 | — | 13,188 | |||||||||||
Collateralized mortgage obligations – residential | — | 4,725 | — | 4,725 | |||||||||||
SBA-guaranteed loan participation certificates | — | 12 | — | 12 | |||||||||||
$ | 502 | $ | 98,285 | $ | — | $ | 98,787 | ||||||||
December 31, 2016 | |||||||||||||||
Securities: | |||||||||||||||
Certificates of deposit | $ | — | $ | 85,938 | $ | — | $ | 85,938 | |||||||
Equity mutual fund | 499 | — | — | 499 | |||||||||||
Mortgage-backed securities - residential | — | 15,184 | — | 15,184 | |||||||||||
Collateralized mortgage obligations – residential | — | 5,574 | — | 5,574 | |||||||||||
SBA-guaranteed loan participation certificates | — | 17 | — | 17 | |||||||||||
$ | 499 | $ | 106,713 | $ | — | $ | 107,212 |
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value | |||||||||||||
September 30, 2020 | ||||||||||||||||
Securities: | ||||||||||||||||
Certificates of deposit | $ | 0 | $ | 32,724 | $ | 0 | $ | 32,724 | ||||||||
Municipal securities | 0 | 512 | 0 | 512 | ||||||||||||
Mortgage-backed securities – residential | 0 | 6,429 | 0 | 6,429 | ||||||||||||
Collateralized mortgage obligations – residential | 0 | 2,383 | 0 | 2,383 | ||||||||||||
$ | 0 | $ | 42,048 | $ | 0 | $ | 42,048 | |||||||||
December 31, 2019 | ||||||||||||||||
Securities: | ||||||||||||||||
Certificates of deposit | $ | 0 | $ | 48,666 | $ | 0 | $ | 48,666 | ||||||||
Municipal securities | 0 | 513 | 0 | 513 | ||||||||||||
Mortgage-backed securities - residential | 0 | 8,037 | 0 | 8,037 | ||||||||||||
Collateralized mortgage obligations – residential | 0 | 2,977 | 0 | 2,977 | ||||||||||||
$ | 0 | $ | 60,193 | $ | 0 | $ | 60,193 |
The following table sets forth the Company’s assets that were measured at fair value on a non-recurring basis:
Fair Value Measurement Using | |||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value | ||||||||||||
September 30, 2017 | |||||||||||||||
Other real estate owned: | |||||||||||||||
One-to-four family residential real estate | $ | — | $ | — | $ | 1,421 | $ | 1,421 | |||||||
Nonresidential real estate | — | — | 844 | 844 | |||||||||||
$ | — | $ | — | $ | 2,265 | $ | 2,265 | ||||||||
December 31, 2016 | |||||||||||||||
Impaired loans: | |||||||||||||||
Nonresidential real estate | — | — | 234 | 234 | |||||||||||
$ | — | $ | — | $ | 234 | $ | 234 | ||||||||
Other real estate owned: | |||||||||||||||
One-to-four family residential real estate | $ | — | $ | — | $ | 1,282 | $ | 1,282 | |||||||
Nonresidential real estate | — | — | 553 | 553 | |||||||||||
Land | — | — | 47 | 47 | |||||||||||
$ | — | $ | — | $ | 1,882 | $ | 1,882 |
Fair Value Measurement Using | ||||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value | |||||||||||||
September 30, 2020 | ||||||||||||||||
Impaired loans - nonresidential real estate | $ | 0 | $ | 0 | $ | 268 | $ | 268 | ||||||||
Impaired loans, which are measured for impairment using the fair value of the collateral for collateral–dependent loans, had a carrying amount of $288,000, with a valuation allowance of $20,000 at September 30, 20172020. At December 31, 2019 there were no0 impaired loans that were measured for impairment using the fair value of the collateral for collateral–dependent loans and which had specific valuation allowances, compared to one impaired loan with a carrying amount of $260,000 and having specific valuation allowance of $26,000 at December 31, 2016. The decrease in the valuation allowance resulted in a decreaseallowances. There is an increase in the provision for loan losses of
At September 30, 2017, compared to a carrying value of $2.3 million less a valuation allowance of $434,000, or $1.9 million, at 2020 and December 31, 2016. There2019 there were $301,000 of0 OREO properties with valuation adjustments of OREO recorded for the nine months ended September 30, 2017. There were $244,000 of valuation adjustments of OREO recorded for the nine months ended September 30, 2016.
The following table presents quantitative information, based on certain empirical data with respect to Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at September 30, 2017:
Fair Value | Valuation Technique(s) | Significant Unobservable Input(s) | Range (Weighted Average) | ||||||||
September 30, 2020 | |||||||||||
Impaired loans - nonresidential real estate | $ | 268 | Sales comparison | Discount applied to valuation | 22.0 | % |
Fair Value | Valuation Technique(s) | Significant Unobservable Input(s) | Range (Weighted Average) | ||||||
Other real estate owned: | |||||||||
One-to-four family residential real estate | $ | 1,421 | Sales comparison | Discount applied to valuation | 5.6% - 6.6% (6.5%) | ||||
Nonresidential real estate loans | $ | 844 | Sales comparison | Comparison between sales and income approaches | -3.66% - 15.22% (10.9%) | ||||
Other real estate owned | $ | 2,265 |
Fair Value | Valuation Technique(s) | Significant Unobservable Input(s) | Range (Weighted Average) | ||||||
Impaired loans | |||||||||
Nonresidential real estate | $ | 234 | Sales comparison | Comparison between sales and income approaches | -10.2% | ||||
Income approach | Cap Rate | 8.5% | |||||||
$ | 234 | ||||||||
Other real estate owned | |||||||||
One-to-four family residential real estate | $ | 1,282 | Sales comparison | Discount applied to valuation | 8.62% to 20.04% (11.9%) | ||||
Nonresidential real estate | 553 | Sales comparison | Comparison between sales and income approaches | -3.22% to 4.58% (3.7%) | |||||
Land | 47 | Sales comparison | Discount applied to valuation | 5.74% to 31.60% (25.2%) | |||||
$ | 1,882 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 98 - FAIR VALUE
The carrying amount and estimated fair value of financial instruments are as follows:
Fair Value Measurements at September 30, 2017 Using: | |||||||||||||||||||
Carrying Amount | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
Financial assets | |||||||||||||||||||
Cash and cash equivalents | $ | 125,661 | $ | 10,620 | $ | 115,041 | $ | — | $ | 125,661 | |||||||||
Securities | 98,787 | 502 | 98,285 | — | 98,787 | ||||||||||||||
Loans receivable, net of allowance for loan losses | 1,335,631 | — | 1,340,957 | — | 1,340,957 | ||||||||||||||
FHLBC and FRB stock | 8,290 | — | — | — | N/A | ||||||||||||||
Accrued interest receivable | 4,569 | — | 4,569 | — | 4,569 | ||||||||||||||
Financial liabilities | |||||||||||||||||||
Noninterest-bearing demand deposits | $ | 231,049 | $ | — | $ | 231,049 | $ | — | $ | 231,049 | |||||||||
Savings deposits | 158,696 | — | 158,696 | — | 158,696 | ||||||||||||||
NOW and money market accounts | 585,316 | — | 585,316 | — | 585,316 | ||||||||||||||
Certificates of deposit | 396,028 | — | 394,888 | — | 394,888 | ||||||||||||||
Borrowings | 60,928 | — | 60,932 | — | 60,932 | ||||||||||||||
Accrued interest payable | 180 | — | 180 | — | 180 |
Fair Value Measurements at December 31, 2016 Using: | |||||||||||||||||||
Carrying Amount | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
Financial assets | |||||||||||||||||||
Cash and cash equivalents | $ | 96,684 | $ | 13,053 | $ | 83,631 | $ | — | $ | 96,684 | |||||||||
Securities | 107,212 | 499 | 106,713 | — | 107,212 | ||||||||||||||
Loans receivable, net of allowance for loan losses | 1,312,952 | — | 1,322,713 | 234 | 1,322,947 | ||||||||||||||
FHLBC and FRB stock | 11,650 | — | — | — | N/A | ||||||||||||||
Accrued interest receivable | 4,381 | — | 4,381 | — | 4,381 | ||||||||||||||
Financial liabilities | |||||||||||||||||||
Noninterest-bearing demand deposits | $ | 249,539 | $ | — | $ | 249,539 | $ | — | $ | 249,539 | |||||||||
Savings deposits | 160,002 | — | 160,002 | — | 160,002 | ||||||||||||||
NOW and money market accounts | 578,237 | — | 578,237 | — | 578,237 | ||||||||||||||
Certificates of deposit | 351,612 | — | 350,593 | — | 350,593 | ||||||||||||||
Borrowings | 51,069 | — | 50,015 | — | 50,015 | ||||||||||||||
Accrued interest payable | 102 | — | 102 | — | 102 |
Fair Value Measurements at September 30, 2020 Using: | ||||||||||||||||||||
Carrying Amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Financial assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 429,665 | $ | 13,740 | $ | 415,925 | $ | 0 | $ | 429,665 | ||||||||||
Securities | 42,048 | 0 | 42,048 | 0 | 42,048 | |||||||||||||||
Loans receivable, net of allowance for loan losses | 1,065,892 | 0 | 0 | 1,073,308 | 1,073,308 | |||||||||||||||
FHLB and FRB stock | 7,490 | 0 | 0 | 0 | N /A | |||||||||||||||
Accrued interest receivable | 4,354 | 0 | 158 | 4,196 | 4,354 | |||||||||||||||
Financial liabilities | ||||||||||||||||||||
Certificates of deposit | 301,351 | 0 | 302,791 | 0 | 302,791 | |||||||||||||||
Borrowings | 4,000 | 0 | 3,997 | 0 | 3,997 |
Fair Value Measurements at December 31, 2019 Using: | ||||||||||||||||||||
Carrying Amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Financial assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 190,325 | $ | 9,785 | $ | 180,540 | $ | 0 | $ | 190,325 | ||||||||||
Securities | 60,193 | 0 | 60,193 | 0 | 60,193 | |||||||||||||||
Loans receivable, net of allowance for loan losses | 1,168,008 | 0 | 0 | 1,177,459 | 1,177,459 | |||||||||||||||
FHLB and FRB stock | 7,490 | 0 | 0 | 0 | N /A | |||||||||||||||
Accrued interest receivable | 4,563 | 0 | 252 | 4,311 | 4,563 | |||||||||||||||
Financial liabilities | ||||||||||||||||||||
Certificates of deposit | 402,034 | 0 | 402,914 | 0 | 402,914 | |||||||||||||||
Borrowings | 61 | 0 | 61 | 0 | 61 |
Loans: The estimated fair values for cashexit price observations are obtained from an independent third-party using its proprietary valuation model and cash equivalents are based on their carrying value due to the short-term nature of these assets.
While the above estimates are based on management’s judgment of the most appropriate factors, as of the balance sheet date, there is no assurance that the estimated fair values would have been realized if the assets were disposed of or the liabilities settled at that date, since market values may differ depending on the various circumstances. The estimated fair values would also not apply to subsequent dates.
In addition, other assets and liabilities that are not financial instruments, such as premises and equipment, are not included in the above disclosures.
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 9 – REVENUE FROM CONTRACTS WITH CUSTOMERS
All of the Company's revenue from contracts with customers within the scope of ASC 606 is recognized within noninterest income. The following table presents the Company's sources of noninterest income. Items outside of the scope of the ASC 606 are noted as such.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Deposit service charges and fees | $ | 833 | $ | 983 | $ | 2,456 | $ | 2,887 | ||||||||
Loan servicing fees (1) | 44 | 99 | 189 | 178 | ||||||||||||
Mortgage brokerage and banking fees (1) | 44 | 28 | 84 | 77 | ||||||||||||
Gain on sale of equity securities (1) | 0 | 0 | 0 | 295 | ||||||||||||
Loss on disposal of other assets | 0 | 0 | (2 | ) | (19 | ) | ||||||||||
Trust and insurance commissions and annuities income | 222 | 198 | 728 | 627 | ||||||||||||
Earnings on bank-owned life insurance (1) | 10 | 37 | 51 | 105 | ||||||||||||
Other (1) | 111 | 129 | 319 | 374 | ||||||||||||
Total noninterest income | $ | 1,264 | $ | 1,474 | $ | 3,825 | $ | 4,524 |
(1)Not within the scope of ASC 606
A description of the Company's revenue streams accounted for under ASC 606 follows:
Deposit service charges and fees:The Company earns fees from its deposit customers based on specific types of transactions, account maintenance and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance.
Interchange income: The Company earns interchange fees from debit cardholder transactions conducted through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Interchange income is included in deposit service charges and fees. Interchange income was $ 394,000 and $ 395,000 for the three months ended September 30, 2020 and 2019. Interchange income was $ 1.1 million and $ 1.2 million for the nine months ended September 30, 2020 and 2019.
Trust and insurance commissions and annuities income: The Company earns trust, insurance commissions and annuities income from its contracts with trust customers to manage assets for investment, and/or to transact on their accounts. These fees are primarily earned over time as the Company provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale of the market value of assets under management (AUM) at month-end. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed, i.e., the trade date. Other related services provided include fees the Company earns, which are based on a fixed fee schedule, are recognized when the services are rendered.
Gains/losses on sales of OREO and other assets: The Company records a gain or loss from the sale of OREO and other assets when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. OREO sales for the three and nine months ended September 30, 2020 and 2019 were not financed by the Bank.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statement Regarding Forward-Looking Information Forward Looking Statements This Quarterly Report on Form 10-Q contains, and other periodic and current reports, press releases and other public stockholder communications of BankFinancial Corporation may contain, forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, that involve significant risks and uncertainties. Forward-looking statements may include statements relating to our future plans, strategies and expectations, as well as our future revenues, earnings, losses, financial performance, financial condition, asset quality metrics and future prospects. Forward looking statements are generally identifiable by use of the words “believe,” “may,” “will,” “should,” “could,” “expect,” “estimate,” “intend,” “anticipate,” “preliminary,” “project,” “plan,” or similar expressions. Forward looking statements speak only as of the date made. They are frequently based on assumptions that may or may not materialize, and are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the forward looking statements. We intend all forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for the purpose of invoking these safe harbor provisions. Factors that could cause actual results to differ materially from the results anticipated or projected and which could materially and adversely affect our operating results, financial condition or future prospects include, but are not limited to: (i) less than anticipated loan growth due to intense competition for These risks and uncertainties, together with the Risk Factors and other information set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, Critical Accounting Policies Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that the most critical accounting policies upon which our financial condition and results of operation depend, and which involve the most complex subjective decisions or assessments, are included in the discussion entitled “Critical Accounting Policies” in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, Overview At September 2020, the Company continued to be in Pandemic Operational Status Beginning in the third quarter of 2020, we restored walk-in branch service hours for limited periods and modestly expanded drive-in hours for certain branch offices to accommodate customer service needs at peak periods. We implemented enhanced health safety protocols in all branch facilities for which we restored walk-in branch services. As of September 30, Loan Composition & Activity Our In the third quarter of 2020, total loans declined by $15.9 million (1.5%) compared to June 30, 2020. Commercial loan and lease finance balances increased by $5.0 million (1.3%) as growth in Equipment Finance originations offset reductions in commercial line of credit balances and scheduled principal amortizations in the Equipment Finance portfolio. Total equipment finance originations were $58.9 million in the third quarter of 2020, compared to $18.0 million in the second quarter of 2020, primarily due to substantial growth in government and middle market commercial equipment and software finance transactions. Line of credit usage by healthcare providers remains at historically low levels, as providers continued to receive substantial additional liquidity from Medicare reimbursement advances and other sources, and most line of credit borrowers chose to pay down credit exposures to the maximum extent possible. Multi-family residential mortgage loans decreased by $13.8 million (2.6%) primarily due to prepayment activity related to project sales and external refinance activity. Nonresidential real estate mortgage loans declined by $3.1 million (2.4%) primarily due to scheduled principal amortization. U.S. Small Business Administration Paycheck Protection Program (PPP) We originated ten loans for $135,000 pursuant to the U.S. Small Business Administration Paycheck Protection Program ("PPP") in the third quarter of 2020. Due to the uncertainties concerning the PPP, borrower demand for PPP loans declined each month during the second and third quarters of 2020. At September 30, 2020, we had 310 PPP loans with $11.0 million in outstanding principal balance. We focused our PPP loan origination capabilities on new and existing small business deposit customers, resulting in an average loan origination amount of approximately $35,000. On October 8, 2020, the SBA announced that PPP loans of $50,000 or less would be eligible for a streamlined loan forgiveness process. As of September 30, 2020, we had 168 PPP loans for a total of $3.2 million with balances of $50,000 or less eligible for streamlined forgiveness, of which 41 loans totaling $678,000 had completed PPP Loan Forgiveness Applications submitted to the SBA. In anticipation of further extensions and enhancements to the PPP, we implemented a technology solution to automate the processing of PPP loans. We also implemented a technology solution to automate the processing of requests for forgiveness of PPP loans not forgiven by operation of law. As of September 30, 2020, we submitted 57 completed Loan Forgiveness Applications for a total of $2.4 million to the SBA PPP Loan Forgiveness Portal. As of October 23, 2020, the SBA had processed and paid 16 PPP Loan Forgiveness Applications, totaling approximately $388,000 in principal. COVID-19 Loan Forbearance Program Section 4013 of the CARES Act provides that a qualified loan modification is exempt by law from classification as a Troubled Debt Restructuring pursuant to GAAP. In addition, OCC Bulletin 2020-35 provides more limited circumstances in which a loan modification is not subject to classification as a Troubled Debt Restructuring. Pursuant to these new capabilities, we developed several loan forbearance programs in the first half of 2020 to assist borrowers with managing cash flows disrupted due to COVID-19. Our Apartment and Commercial Real Estate Qualified Limited Forbearance Program permits borrowers who qualify under Section 4013 of the CARES Act to make an election to pay scheduled interest and escrow payments (if applicable) for a four-month period beginning in April, 2020, and pay all deferred principal payments by December 2020. As of September 30, 2020, 104 borrowers with $90.0 million in total outstanding balances executed a Qualified Limited Forbearance Program Agreement. At September 30, 2020, 23 borrowers had paid all deferred amounts owed. The remaining 81 borrowers owe approximately $458,000 in deferred principal payments which are scheduled for payment in full by December 31, 2020. For small investment property owners with loan balances under $750,000, the borrower could elect to defer the May 2020 loan payment entirely, with all deferred interest amounts due by December, 2020 and all deferred principal amounts due by June 30, 2021. As of September 30, 2020, 40 borrowers with $12.3 million in outstanding principal balances executed to a Small Investment Property Limited Forbearance Program Agreement. At September 30, 2020, ten borrowers had paid all deferred amounts owed. The remaining 30 borrowers owe approximately $139,000 of deferred payments, of which $97,000 is scheduled for payment by December 31, 2020 and $42,000 is scheduled for payment by June 30, 2021. CARES Act Section 4013 and OCC Bulletin 2020-35 forbearance agreements are available to qualified commercial loan and commercial finance borrowers, and to commercial equipment lessees. As of September 30, 2020, we had no commercial loan borrowers subject to any form of forbearance agreement. As of September 30, 2020, there were 25 commercial equipment lease obligations with $9.2 million in outstanding principal balances subject to a forbearance agreement which extended the maturity and re-amortized the principal over the remaining term with a weighted average maturity of 33 months. As of September 30, 2020, all lessees subject to re-amortization were current on all required payments. Owner-Occupied Residential Mortgage & Consumer Loans For residential mortgage and consumer loans, CARES Act Section 4013 or OCC Bulletin 2020-35 forbearance agreements are available to qualified borrowers. As of September 30, 2020, we had ten borrowers with $1.4 million in outstanding principal balances subject to a forbearance agreement with terms consistent with secondary residential mortgage market standards established by Fannie Mae. As of September 30, 2020, there were approximately $11,000 of deferred payments of which $4,000 is scheduled for payment by December 31, 2020 and $7,000 is scheduled for payment by June 30, 2021. Asset Quality Our nonperforming loans to total loans ratio was Allowance for Loan Losses Our allowance for loan losses ("ALLL") decreased by $145,000 (1.8%), compared to an increase of $44,000 for the quarter ended June 30, 2020, primarily due to the decline in lessor line of credit balances, partially offset by continued precautionary increases in the loan loss reserve ratios for multi-family residential and nonesidential real estate loans. As of September 30, 2020, the required reserve ratios for multi-family residential real estate loans and nonresidential real estate loans increased by 21.5%, and 58.2%, respectively, compared to December 31, 2019. If our loan balances increase as business and liquidity conditions normalize for our health care borrowers, and as equipment finance and commercial loan and finance originations return to their previously expected levels, we expect that we will experience additional increases to the ALLL. Additionally, should economic conditions worsen due to the broad impacts of the COVID-19 pandemic, further 22 Deposit Portfolio Composition & Activity Our deposit portfolio composition consists almost entirely of core transaction accounts, including local retail and business money market deposit accounts, and local retail certificates of deposit accounts. In the third quarter of 2020, total deposits increased by $14.1 million (1.0%), net of a $11.3 million reduction in wholesale deposit balances. Core transaction account balances increased by $53.5 million during the third quarter of 2020 and $218.2 million since December 31, 2019, primarily due to the continuing impacts of multiple COVID-19 U.S. Government fiscal stimulus programs and reductions in personal and business spending by depositors. We also note that the delays enacted for federal and state tax reporting and remittances also deferred seasonal deposit withdrawal activities which typically occur earlier in the calendar year. For the remainder of 2020, we expect greater volatility in deposit balances, as various forms of government stimulus provide additional liquidity to depositors, but in most cases this liquidity may also be consumed to pay current or past due obligations. Given our substantial liquidity, we expect to maintain a moderate competitive posture for interest-bearing deposits, particularly certificates of deposit, with pricing flexibility reserved for our most valuable overall deposit relationships. Net Interest Income and Noninterest Income The abrupt decline in interest rates during the first quarter of 2020 not only reduced interest income on floating-rate commercial loans and liquidity assets, but it also reduced competitive pressures and depositor expectations concerning deposit interest rates. Because of the need to maintain higher levels of liquidity and delays in business investment activity due to COVID-19 disruptions, some further compression of our net interest margin is foreseeable through year-end, but a sustained recovery in business conditions should enable us to continue to deploy our expanded asset generation resources and thus reallocate some of our excess liquidity. The average yield on our loan and lease portfolio for the quarter ended September 30, 2020 was 4.43%, compared to an average loan and lease portfolio yield of 4.57% for the quarter ended June 30, 2020. The average cost of retail and commercial deposits decreased to 0.48% for the quarter ended September 30, 2020, compared to an average cost of 0.63% for the quarter ended June 30, 2020. The average cost of wholesale deposits and borrowings declined to 2.22% for the quarter ended September 30, 2020. Our net interest margin decreased to 2.85% for the quarter ended September 30, 2020, compared to 3.09% for the quarter ended June 30, 2020. For the third quarter of 2020, noninterest income was $1.3 million, compared to $1.2 million in the second quarter of 2020. Noninterest income improved slightly in the third quarter of 2020 as the impact of “Stay-At-Home” orders on use of card-based payments for retail sales and on commercial mortgage brokerage activity began to recover. Changes in the market return of trust assets caused a slight reduction in wealth management and trust income. Due to the abrupt change in market interest rates in the first quarter, income on our bank-owned life insurance portfolio remained at significantly reduced levels. We expect to see some continued gradual improvement in consumer spending, trust and wealth management income, and commercial real estate brokerage fees as these market-based opportunities commensurate with the reduction of uncertainties in consumer incomes, commercial real estate rental collections and debt/equity market investments return potential. Noninterest Expense Current market conditions favor a focus on expense reductions where feasible; however, our Business Plan requires investment in personnel and marketing resources to achieve our growth objectives in our loan and lease portfolios, and noninterest income for Commercial Mortgage Banking and Trust Services. Accordingly, we will seek to leverage cost savings from improved efficiencies in customer service delivery and reduction of legacy card-based transaction assets such as ATM/debit cards and machines to help offset declines in interest income, and preserve our ability to realize our business generation priorities. Noninterest expense increased to $9.8 million for the quarter ended September 30, 2020 compared to the quarter ended June 30, 2020. Compensation and benefits increased by $230,000, compared to the quarter ended June 30, 2020, including $100,000 of employee severance accruals, $100,000 for branch employee pandemic service recognition payments and $13,000 for additional security related to civil unrest in the Chicago metropolitan area. Occupancy expenses increased by $137,000 due to extensive cleaning activities for branch and corporate facilities. Information technology expenses decreased slightly due to the renegotiation of technology contracts and completion of improvements in our information security and network capacities. Despite increased expenses for health safety and other COVID-19 protections and responses, other expenses remained well-contained, as we curtailed marketing expenses and other discretionary expenses to improve efficiencies. Capital Management The decline in the Company’s share price to below tangible book value should create an opportunity to enhance shareholder value through highly accretive share repurchases, absent the imposition of regulatory limitations or the existence of higher priority capital needs. We also intend to continue to pursue acquisition opportunities that meet our established parameters, if executable under current market conditions. We repurchased 66,000 shares at an average cost of $7.82 during the third quarter of 2020. Our tangible book value increased to $11.63 at September 30, 2020 from $11.58 at June 30, 2020. At September 30, 2020, we had 89,127 shares available for repurchase in our share repurchase program. The current share repurchase authorization will expire on October 31, 2020, unless extended. SELECTED FINANCIAL DATA The following summary information is derived from the consolidated financial statements of the Company. For additional information, reference is made to the Consolidated Financial Statements of the Company and related notes included elsewhere in this Quarterly Report.
24
Comparison of Financial Condition at September 30, 2019 Total assets increased 2019. Our loan portfolio consists primarily of investment and business loans (multi-family, nonresidential real estate, commercial Our primary lending area consists of the counties in the State of Illinois where our branch offices are located, and contiguous counties. We derive the most significant portion of our revenues from these geographic areas. We also engage in multi-family mortgage lending activities in carefullyselected metropolitan areas outside our primary lending area and engage in certain types of commercial lending and leasing activities on a nationwide basis. At September 30, Total liabilities increased $2019. Borrowings increased $3.9 million in May 2020, as the Bank borrowed $4.0 million from the FHLB at zero percent interest rate for a one year term. Total stockholders’ equity was Operating Results for the Three Months Ended September 30, 2019 Net Income. Net Interest Income. Net interest income was $ 11.0 million for the three months ended September 30, 2020, compared to $The decrease in interest income was due in substantial part to a decrease in the average yield on interest-earning assets, which was partially offset by a 26 Average Balance Sheets The following table sets forth average balance sheets, average yields and costs, and certain other information. No tax-equivalent yield adjustments were made, as the effect of these adjustments would not be material. Average balances are daily average balances. Nonaccrual loans are included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees and expenses and discounts and premiums
27 Provision for Loan Losses We establish provisions for loan losses, which are charged to operations in order to maintain the allowance for loan losses at a level we consider necessary to absorb probable incurred credit losses in the loan portfolio. In determining the level of the allowance for loan losses, we consider past and current loss experience, evaluations of real estate collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of nonperforming and other classified loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or events change. We assess the allowance for loan losses on a quarterly basis and make provisions for loan losses in order to maintain the allowance. A loan balance is classified as a loss and charged-off when it is confirmed that there is no readily apparent source of repayment for the portion of the loan that is classified as loss. Confirmation can occur upon the receipt of updated third-party appraisal valuation information indicating that there is a low probability of repayment upon sale of the collateral, the final disposition of collateral where the net proceeds are insufficient to pay the loan balance in full, our failure to obtain possession of certain consumer-loan collateral within certain time limits specified by applicable federal regulations, the conclusion of legal proceedings where the borrower’s obligation to repay is legally discharged (such as a Chapter 7 bankruptcy proceeding), or when it appears that further formal collection procedures are not likely to result in net proceeds in excess of the costs to collect. We recorded a recovery of loan losses of 2019. Net recoveries were $42,000 for the three months ended September 30, 2020, compared to net charge-offs of $87,000 for the three months ended September 30, 2019. The allowance for loan losses as a percentage of nonperforming loans was 2020 and 901.06 % at December 31, 2019. Noninterest Income
Noninterest income
Noninterest Expense
Noninterest expense increased Income Taxes We recorded income tax expense of $713,000 for the three months ended September 30, Operating Results for the Nine Months Ended September 30,2019 Net Income. We had net income of2019. Net Interest Income . Net interest income wasThe 29 Average Balance Sheets The following table sets forth average balance sheets, average yields and costs, and certain other information. No tax-equivalent yield adjustments were made, as the effect of these adjustments would not be material. Average balances are daily average balances. Nonaccrual loans are included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees and expenses and discounts and premiums
30 Provision for Loan Losses We recorded a 2019. The allowance for loan losses as a percentage of nonperforming loans was 2019. Noninterest Income
Noninterest income
Noninterest Expense
Noninterest expense decreased by $415,000, or 1.4%, to $28.7 million for the nine months ended September 30, 2020, from $29.1 million for the same period in prevention. Income Taxes For the nine months ended September 30, 31 Nonperforming Loans and Assets We review loans on a regular basis, and generally place loans on nonaccrual status when either principal or interest is 90 days or more past due. In addition, received or the renewal of the loan has not occurred for administrative reasons. At September 30, We typically obtain new third–party appraisals or collateral valuations when we place a loan on nonaccrual status, conduct impairment testing or conduct a TDR analysis unless the existing valuation information for the collateral is sufficiently current to comply with the requirements of our Appraisal and Collateral Valuation Policy (“ACV Policy”). We also obtain new third–party appraisals or collateral valuations when the judicial foreclosure process concludes with respect to real estate collateral, and when we otherwise acquire actual or constructive title to real estate collateral. In addition to third–party appraisals, we use updated valuation information based on Multiple Listing Service data, broker opinions of value, actual sales prices of similar assets sold by us and approved sales prices in response to offers to purchase similar assets owned by us to provide interim valuation information for consolidated financial statement and management purposes. Our ACV Policy establishes the maximum useful life of a real estate appraisal at 18 months. Because appraisals and updated valuations utilize historical or “ask–side” data in reaching valuation conclusions, the appraised or updated valuation may or may not reflect the actual sales price that we will receive at the time of sale. Real estate appraisals may include up to three approaches to value: the sales comparison approach, the income approach (for income-producing property) and the cost approach. Not all appraisals utilize all three approaches. Depending on the nature of the collateral and market conditions, we may emphasize one approach over another in determining the fair value of real estate collateral. Appraisals may also contain different estimates of value based on the level of occupancy or planned future improvements. “As-is” valuations represent an estimate of value based on current market conditions with no changes to the use or condition of the real estate collateral. “As-stabilized” or “as-completed” valuations assume the real estate collateral will be improved to a stated standard or achieve its highest and best use in terms of occupancy. “As-stabilized” or “as-completed” valuations may be subject to a present value adjustment for market conditions or the schedule of improvements. As part of the asset classification process, we develop an exit strategy for real estate collateral or OREO by assessing overall market conditions, the current use and condition of the asset, and its highest and best use. For most income–producing real estate, we believe that investors value most highly a stable income stream from the asset; consequently, we perform a comparative evaluation to determine whether conducting a sale on an “as– Estimates of the net realizable value of real estate collateral also include a deduction for the expected costs to sell the collateral or such other deductions from the cash flows resulting from the operation and liquidation of the asset as are appropriate. For most real estate collateral subject to the judicial foreclosure process, we generally apply a 10.0% deduction to the value of the asset to determine the expected costs to sell the asset. This estimate includes one year of real estate taxes, sales commissions and miscellaneous repair and closing costs. If we receive a purchase offer that requires unbudgeted repairs, or if the expected resolution period for the asset exceeds one year, we then include, on a case-by-case basis, the costs of the additional real estate taxes and repairs and any other material holding costs in the expected costs to sell the collateral. For OREO, we generally apply a 7.0% deduction to determine the expected costs to sell, as expenses for real estate taxes and repairs are expensed when incurred. Nonperforming Assets Summary The following table below sets forth the amounts and categories of our nonperforming loans and nonperforming assets.
Nonperforming Assets Nonperforming assets Liquidity and Capital Resources Liquidity. The overall objective of our liquidity management is to ensure the availability of sufficient cash funds to meet all financial commitments and to take advantage of investment opportunities. We manage liquidity in order to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature, and to fund new loans and investments as opportunities arise.Our primary sources of funds are deposits, principal and interest payments on loans and securities, and, to a lesser extent, wholesale borrowings, the proceeds from maturing securities and short-term investments, 2019. The Company is a separate legal entity from BankFinancial, NA. The Company must provide for its own liquidity to pay any dividends to its shareholders and to repurchase shares of its common stock, and for other corporate purposes. The Company's primary source of liquidity is dividend payments it receives from the Bank. The Bank's ability to pay dividends to the Company is subject to regulatory limitations. At September 30, 2020, the Company (on an unconsolidated, stand-alone basis) had liquid assets of $8.0 million. On April 1, 2020, the Company obtained a $5.0 million unsecured line of credit with a correspondent bank. Interest is payable at a rate of Prime rate minus 0.75%. The line of credit will mature on April 1, 2021. The line of credit had no outstanding balance at September 30, 2020. As of September 30, Capital Management - Bank. The overall objectives of our capital management are to ensure the availability of sufficient capital to support loan, deposit and other asset and liability growth opportunities and to maintain sufficient capital to absorb unforeseen losses or write-downs that are inherent in the business risks associated with the banking industry. We seek to balance the need for higher capital levels to address such unforeseen risks and the goal to achieve an adequate return on the capital invested by our stockholders.The Bank In addition, as a result of the legislation, the federal banking agencies developed a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum capital for the new Community Bank Leverage Ratio at not less than 8% and not more than 10%. Beginning in the second quarter 2020 and until the end of the year, a banking organization that has a leverage ratio of 8% or greater and meets certain other criteria may elect to use the Community Bank Leverage Ratio framework; and qualified community banks will have until January 1, 2022, before the Community Bank Leverage Ratio requirement is re-established at greater than 9%. Pursuant to Section 4012 of the CARES Act and related interim final rules, the Community Bank Leverage Ratio will be 8% beginning in the second quarter and for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. A financial institution can elect to be subject to this new definition, and opt-out of this new definition, at any time. As a qualified community bank, we elected to be subject to this definition beginning the second quarter of 2020. As of September 30, 2020, the Bank's Community Bank Leverage Ratio was 10.13%. Prompt corrective action regulations provide five classifications: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If only adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. 33 The minimum capital ratios set forth in the Regulatory Capital Plans will be increased As of September 30, The Bank is subject to regulatory restrictions on the amount of dividends it may declare and pay to the Company without prior regulatory approval, and to regulatory notification requirements for dividends that do not require prior regulatory approval. Actual and required capital amounts and ratios for the Bank were:
Quarterly Cash Dividends. The ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Qualitative Analysis. A significant form of market risk is interest rate risk. Interest rate risk results from timing differences in the maturity or repricing of our assets, liabilities and off balance sheet contracts (i.e., forward loan commitments), the effect of loan prepayments and deposit withdrawals, the difference in the behavior of lending and funding rates arising from the use of different indices and “yield curve risk” arising from changing rate relationships across the spectrum of maturities for constant or variable credit risk investments. In addition to directly affecting net interest income, changes in market interest rates can also affect the amount of new loan originations, the ability of borrowers to repay variable rate loans, the volume of loan prepayments and refinancings, the carrying value of investment securities classified as available-for-sale and the flow and mix of deposits.The general objective of our interest rate risk management is to determine the appropriate level of risk given our business strategy and then manage that risk in a manner that is consistent with our policy to reduce, to the extent possible, the exposure of our net interest income to changes in market interest rates. Our Asset/Liability Management Committee (“ALCO”), which consists of certain members of senior management, evaluates the interest rate risk inherent in certain assets and liabilities, our operating environment and capital and liquidity requirements, and modifies our lending, investing and deposit gathering strategies accordingly. The Board of Directors then reviews the ALCO’s activities and strategies, the effect of those strategies on our net interest margin, and the effect that changes in market interest rates would have on the economic value of our loan and securities portfolios as well as the intrinsic value of our deposits and borrowings, and reports to the full Board of Directors. We actively evaluate interest rate risk in connection with our lending, investing and deposit activities. In an effort to better manage We utilize a combination of analyses to monitor the Bank’s exposure to changes in interest rates. The economic value of equity analysis is a model that estimates the change in net portfolio value (“NPV”) over a range of interest rate scenarios. NPV is the discounted present value of expected cash flows from assets, liabilities and Our net interest income analysis utilizes the data derived from the dynamic GAP analysis, described below, and applies several additional elements, including actual interest rate indices and margins, contractual limitations such as interest rate floors and caps and the U.S. Treasury yield curve as of the balance sheet date. In addition, we apply consistent parallel yield curve shifts (in both directions) to determine possible changes in net interest income if the theoretical yield curve shifts occurred instantaneously. Net interest income analysis also adjusts the dynamic GAP repricing analysis based on changes in prepayment rates resulting from the parallel yield curve shifts. Our dynamic GAP analysis determines the relative balance between the repricing of assets and liabilities over multiple periods of time (ranging from overnight to five years). Dynamic GAP analysis includes expected cash flows from loans and mortgage-backed securities, applying prepayment rates based on the differential between the current interest rate and the market interest rate for each loan and security type. This analysis identifies mismatches in the timing of asset and liability repricing but does not necessarily provide an accurate indicator of interest rate risk because it omits the factors incorporated into the net interest income analysis. Quantitative Analysis. The following table sets forth, as of September 30,
The table set forth above indicates that at September 30, Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV and net interest income requires that we make certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The NPV and net interest income table presented above assumes that the composition of our interest-rate-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and, accordingly, the data does not reflect any actions that we may undertake in response to changes in interest rates, such as changes in rates paid on certain deposit accounts based on local competitive factors. The table also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or the repricing characteristics of specific assets and liabilities. Because of the shortcomings mentioned above, management considers many additional factors such as projected changes in loan and deposit balances and various projected forward interest rate scenarios when evaluating strategies for managing interest rate risk. Accordingly, although the NPV and net interest income table provides an indication of our sensitivity to interest rate changes at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.
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