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 SeptemberJune 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,July 26, 2023, there were 18,049,42312,600,478 shares of Common Stock, $0.01 par value, outstanding.
Form 10-Q
June 30, 2023
Table of Contents
Page Number | ||||
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share and per share data) - Unaudited
June 30, 2023 | December 31, 2022 | |||||||
Assets | ||||||||
Cash and due from other financial institutions | $ | 20,401 | $ | 12,046 | ||||
Interest-bearing deposits in other financial institutions | 94,930 | 54,725 | ||||||
Cash and cash equivalents | 115,331 | 66,771 | ||||||
Securities, at fair value | 169,647 | 210,338 | ||||||
Loans receivable, net of allowance for credit losses: June 30, 2023, $9,226 and December 31, 2022, $8,129 | 1,170,767 | 1,226,743 | ||||||
Foreclosed assets, net | 950 | 476 | ||||||
Stock in Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB"), at cost | 7,490 | 7,490 | ||||||
Premises held-for-sale | 540 | — | ||||||
Premises and equipment, net | 22,957 | 24,956 | ||||||
Accrued interest receivable | 8,499 | 7,338 | ||||||
Bank-owned life insurance | 18,644 | 18,815 | ||||||
Deferred taxes | 5,476 | 5,480 | ||||||
Other assets | 6,395 | 7,035 | ||||||
Total assets | $ | 1,526,696 | $ | 1,575,442 | ||||
Liabilities | ||||||||
Deposits | ||||||||
Noninterest-bearing | $ | 278,170 | $ | 280,625 | ||||
Interest-bearing | 1,025,550 | 1,094,309 | ||||||
Total deposits | 1,303,720 | 1,374,934 | ||||||
Borrowings | 25,000 | — | ||||||
Subordinated notes, net of unamortized issuance costs | 19,656 | 19,634 | ||||||
Advance payments by borrowers for taxes and insurance | 11,102 | 8,674 | ||||||
Accrued interest payable and other liabilities | 14,915 | 20,529 | ||||||
Total liabilities | 1,374,393 | 1,423,771 | ||||||
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; 12,600,478 shares issued at June 30, 2023 and 12,742,597 shares issued at December 31, 2022 | 126 | 127 | ||||||
Additional paid-in capital | 84,603 | 85,848 | ||||||
Retained earnings | 72,492 | 71,808 | ||||||
Accumulated other comprehensive loss | (4,918 | ) | (6,112 | ) | ||||
Total stockholders’ equity | 152,303 | 151,671 | ||||||
Total liabilities and stockholders’ equity | $ | 1,526,696 | $ | 1,575,442 |
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 |
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data) - Unaudited
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Interest and dividend income | ||||||||||||||||
Loans, including fees | $ | 14,345 | $ | 11,683 | $ | 28,738 | $ | 22,496 | ||||||||
Securities | 841 | 432 | 1,955 | 731 | ||||||||||||
Other | 992 | 769 | 1,645 | 1,075 | ||||||||||||
Total interest income | 16,178 | 12,884 | 32,338 | 24,302 | ||||||||||||
Interest expense | ||||||||||||||||
Deposits | 2,761 | 555 | 5,061 | 1,000 | ||||||||||||
Borrowings and Subordinated notes | 474 | 199 | 834 | 397 | ||||||||||||
Total interest expense | 3,235 | 754 | 5,895 | 1,397 | ||||||||||||
Net interest income | 12,943 | 12,130 | 26,443 | 22,905 | ||||||||||||
(Recovery of) provision for credit losses - loans | (180 | ) | 459 | (95 | ) | 735 | ||||||||||
Recovery of credit losses - unfunded commitments | (8 | ) | — | (45 | ) | — | ||||||||||
(Recovery of) provision for credit losses | (188 | ) | 459 | (140 | ) | 735 | ||||||||||
Net interest income after (recovery of) provision for credit losses | 13,131 | 11,671 | 26,583 | 22,170 | ||||||||||||
Noninterest income | ||||||||||||||||
Deposit service charges and fees | 830 | 826 | 1,646 | 1,607 | ||||||||||||
Loan servicing fees | 141 | 190 | 270 | 291 | ||||||||||||
Trust and insurance commissions and annuities income | 276 | 262 | 643 | 600 | ||||||||||||
Losses on sales of securities | — | — | (454 | ) | — | |||||||||||
Gain on sale of premises and equipment | 13 | — | 9 | — | ||||||||||||
Valuation adjustment on bank premises held-for-sale | (32 | ) | — | (585 | ) | — | ||||||||||
(Loss) earnings on bank-owned life insurance | (87 | ) | 11 | (171 | ) | 39 | ||||||||||
Bank-owned life insurance death benefit | — | 446 | — | 446 | ||||||||||||
Other | 98 | 104 | 194 | 300 | ||||||||||||
Total noninterest income | 1,239 | 1,839 | 1,552 | 3,283 | ||||||||||||
Noninterest expense | ||||||||||||||||
Compensation and benefits | 5,629 | 5,489 | 11,184 | 10,969 | ||||||||||||
Office occupancy and equipment | 2,031 | 1,933 | 4,069 | 4,067 | ||||||||||||
Advertising and public relations | 269 | 208 | 459 | 350 | ||||||||||||
Information technology | 965 | 895 | 1,814 | 1,746 | ||||||||||||
Professional fees | 348 | 412 | 665 | 785 | ||||||||||||
Supplies, telephone, and postage | 295 | 362 | 654 | 709 | ||||||||||||
FDIC insurance premiums | 282 | 106 | 436 | 222 | ||||||||||||
Other | 1,401 | 794 | 2,231 | 1,640 | ||||||||||||
Total noninterest expense | 11,220 | 10,199 | 21,512 | 20,488 | ||||||||||||
Income before income taxes | 3,150 | 3,311 | 6,623 | 4,965 | ||||||||||||
Income tax expense | 838 | 744 | 1,678 | 1,130 | ||||||||||||
Net income | $ | 2,312 | $ | 2,567 | $ | 4,945 | $ | 3,835 | ||||||||
Basic and diluted earnings per common share | $ | 0.18 | $ | 0.19 | $ | 0.39 | $ | 0.29 | ||||||||
Basic and diluted weighted average common shares outstanding | 12,667,129 | 13,165,023 | 12,694,334 | 13,184,424 |
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 |
See accompanying notes to the consolidated financial statements.
BANKFINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands) - Unaudited
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net income | $ | 2,312 | $ | 2,567 | $ | 4,945 | $ | 3,835 | ||||||||
Unrealized holding (loss) gain on securities arising during the period | (480 | ) | (1,042 | ) | 1,161 | (5,107 | ) | |||||||||
Tax effect | 125 | 279 | (302 | ) | 1,367 | |||||||||||
Unrealized holding (loss) gain on securities, net of tax | (355 | ) | (763 | ) | 859 | (3,740 | ) | |||||||||
Reclassification adjustment for loss included in net income | — | — | 454 | — | ||||||||||||
Tax effect, included in income tax expense | — | — | (119 | ) | — | |||||||||||
Reclassification adjustment for loss included in net income, net of tax | — | — | 335 | — | ||||||||||||
Other comprehensive (loss) gain, net of tax | (355 | ) | (763 | ) | 1,194 | (3,740 | ) | |||||||||
Comprehensive income | $ | 1,957 | $ | 1,804 | $ | 6,139 | $ | 95 |
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 |
See accompanying notes to the consolidated financial statements.
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 (Loss) | Total | ||||||||||||||||
For the three months ended | ||||||||||||||||||||
Balance at April 1, 2022 | $ | 132 | $ | 90,170 | $ | 66,490 | $ | (2,897 | ) | $ | 153,895 | |||||||||
Net income | — | — | 2,567 | — | 2,567 | |||||||||||||||
Other comprehensive loss, net of tax effect | — | — | — | (763 | ) | (763 | ) | |||||||||||||
Repurchase and retirement of common stock (25,000 shares) | (1 | ) | (253 | ) | — | — | (254 | ) | ||||||||||||
Cash dividends declared on common stock ($0.10 per share) | — | — | (1,315 | ) | — | (1,315 | ) | |||||||||||||
Balance at June 30, 2022 | $ | 131 | $ | 89,917 | $ | 67,742 | $ | (3,660 | ) | $ | 154,130 | |||||||||
Balance at April 1, 2023 | $ | 127 | $ | 85,346 | $ | 71,449 | $ | (4,563 | ) | $ | 152,359 | |||||||||
Net income | — | — | 2,312 | — | 2,312 | |||||||||||||||
Other comprehensive loss, net of tax effect | — | — | — | (355 | ) | (355 | ) | |||||||||||||
Repurchase and retirement of common stock (93,515 shares) | (1 | ) | (743 | ) | — | — | (744 | ) | ||||||||||||
Cash dividends declared on common stock ($0.10 per share) | — | — | (1,269 | ) | — | (1,269 | ) | |||||||||||||
Balance at June 30, 2023 | $ | 126 | $ | 84,603 | $ | 72,492 | $ | (4,918 | ) | $ | 152,303 | |||||||||
For the six months ended | ||||||||||||||||||||
Balance at December 31, 2021 | $ | 132 | $ | 90,709 | $ | 66,545 | $ | 80 | $ | 157,466 | ||||||||||
Net income | — | — | 3,835 | — | 3,835 | |||||||||||||||
Other comprehensive loss, net of tax effect | — | — | — | (3,740 | ) | (3,740 | ) | |||||||||||||
Repurchase and retirement of common stock (75,000 shares) | (1 | ) | (792 | ) | — | — | (793 | ) | ||||||||||||
Cash dividends declared on common stock ($0.20 per share) | — | — | (2,638 | ) | — | (2,638 | ) | |||||||||||||
Balance at June 30, 2022 | $ | 131 | $ | 89,917 | $ | 67,742 | $ | (3,660 | ) | $ | 154,130 | |||||||||
Balance at December 31, 2022 | $ | 127 | $ | 85,848 | $ | 71,808 | $ | (6,112 | ) | $ | 151,671 | |||||||||
Cumulative effect of change in accounting principle | — | — | (1,719 | ) | — | (1,719 | ) | |||||||||||||
Net income | — | — | 4,945 | — | 4,945 | |||||||||||||||
Other comprehensive income, net of tax effect | — | — | — | 1,194 | 1,194 | |||||||||||||||
Repurchase and retirement of common stock (142,119 shares) | (1 | ) | (1,245 | ) | — | — | (1,246 | ) | ||||||||||||
Cash dividends declared on common stock ($0.20 per share) | — | — | (2,542 | ) | — | (2,542 | ) | |||||||||||||
Balance at June 30, 2023 | $ | 126 | $ | 84,603 | $ | 72,492 | $ | (4,918 | ) | $ | 152,303 |
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 |
See accompanying notes to the consolidated financial statements.
BANKFINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) - Unaudited
Six Months Ended | ||||||||
June 30, | ||||||||
2023 | 2022 | |||||||
Cash flows from (used in) operating activities | ||||||||
Net income | $ | 4,945 | $ | 3,835 | ||||
Adjustments to reconcile net income to net cash from (used in) operating activities | ||||||||
(Recovery of) provision for credit losses - loans | (95 | ) | 735 | |||||
Recovery of credit losses - unfunded commitments | (45 | ) | — | |||||
Depreciation and amortization | 644 | 888 | ||||||
Net change in net deferred loan origination costs | (110 | ) | (369 | ) | ||||
Losses on sales of securities | 454 | — | ||||||
Valuation adjustment on bank premises held-for-sale | 585 | — | ||||||
Gain on disposal of premises and equipment | (9 | ) | — | |||||
Loss (gain) on sale of foreclosed assets | 15 | (15 | ) | |||||
Foreclosed assets write down | 70 | — | ||||||
Foreclosed assets valuation adjustments | — | (27 | ) | |||||
Loss (earnings) on bank-owned life insurance | 171 | (39 | ) | |||||
Net change in: | ||||||||
Accrued interest receivable | (1,161 | ) | (2,012 | ) | ||||
Other assets | 847 | (492 | ) | |||||
Accrued interest payable and other liabilities | (5,986 | ) | (6,680 | ) | ||||
Net cash from (used in) operating activities | 325 | (4,176 | ) | |||||
Cash flows from (used in) investing activities | ||||||||
Securities: | ||||||||
Proceeds from maturities | 1,488 | 2,480 | ||||||
Proceeds from principal repayments | 378 | 509 | ||||||
Proceeds from sale of securities | 42,631 | — | ||||||
Purchases of securities | (2,232 | ) | (81,196 | ) | ||||
Net change in loans receivable | 53,322 | (99,254 | ) | |||||
Proceeds from sale of foreclosed assets | 362 | 244 | ||||||
Proceeds from sale of premises and equipment | 690 | — | ||||||
Purchase of premises and equipment, net | (830 | ) | (1,065 | ) | ||||
Net cash from (used in) investing activities | 95,809 | (178,282 | ) | |||||
Cash flows used in financing activities | ||||||||
Net change in: | ||||||||
Deposits | (71,214 | ) | (43,681 | ) | ||||
Advance payments by borrowers for taxes and insurance | 2,428 | 2,879 | ||||||
Proceeds from Federal Home Loan Bank advances | 35,000 | — | ||||||
Repayments of Federal Home Loan Bank advances | (10,000 | ) | (5,000 | ) | ||||
Repurchase and retirement of common stock | (1,246 | ) | (793 | ) | ||||
Cash dividends paid on common stock | (2,542 | ) | (2,638 | ) | ||||
Net cash used in financing activities | (47,574 | ) | (49,233 | ) | ||||
Net change in cash and cash equivalents | 48,560 | (231,691 | ) | |||||
Beginning cash and cash equivalents | 66,771 | 502,162 | ||||||
Ending cash and cash equivalents | $ | 115,331 | $ | 270,471 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Interest paid | $ | 5,754 | $ | 1,396 | ||||
Income taxes paid | 2,260 | 707 | ||||||
Income taxes refunded | 20 | 8 | ||||||
Assets transferred to premises held-for-sale | 1,799 | — | ||||||
Loans transferred to foreclosed assets | 921 | 319 | ||||||
Bank-owned life insurance death benefit | — | 275 |
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
:Factored Receivables: The Company purchases invoices from its factoring customers in schedules or batches. These receivables are included in loans receivable on the Consolidated Statements of Financial Condition, and as commercial loans and leases in Note 4 - Loans receivable. The face value of the invoices purchased or amount advanced is recorded by the Company as factored receivables, and the unadvanced portions of the invoices purchased, less fees, are considered customer reserves. The customer reserves are held to settle any payment disputes or collection shortfalls, may be used to pay customers’ obligations to various third parties as directed by the customer, are periodically released to or withdrawn by customers, and are reported as noninterest-bearing deposits in the Consolidated Statements of Financial Condition. The unpaid principal balances of these receivables were $7.2 million and $7.0 million at June 30, 2023 and December 31, 2022, respectively, and are included in commercial loans and leases. The customer reserves associated with the factored receivables were $1.7 million and $1.4 million at June 30, 2023 and December 31, 2022, respectively.
Factoring fees are recognized in interest income as incurred by the customer and deducted from the customer's reserve balances. Other factoring-related fees, which include wire transfer fees, broker fees, and other similar fees, are reported by the Company as loan servicing fees in noninterest income.
Allowance for Credit Losses: On January 1, 2023, the Company adopted Accounting Standards Update (“ASC 326”) No.2016-13,Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments. ASC 326 amends guidance on reporting credit losses for financial assets held at amortizedcost basis and available-for-sale debt securities. ASC 326 eliminates the probable initial recognition threshold in current US GAAP and instead, requires an entity to reflect its current estimate of all expected credit losses based on historical experience, current conditions and reasonable and supportable forecasts. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. ASC 326 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the reserve for credit losses. In addition, entities need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination.
The Company adopted ASC 326 using the modified retrospective approach. Results for the periods beginning after January 1, 2023 are presented under Accounting Standards Codification 326 while prior period amounts continue to be reported in accordance with previously applicable US GAAP. The Company recorded a net reduction of retained earnings of $1.7 million upon adoption. The transition adjustment includes an increase in credit related reserves of $1.9 million and the recording of an unfunded commitment reserve of $417,000, respectively, net of the corresponding increase in deferred tax assets of $604,000.
January 1, 2023 | ||||||||||||
Post ASC 326 Adoption | Pre-ASC 326 Adoption | Pre-tax impact of ASC 326 Adoption | ||||||||||
Assets: | ||||||||||||
Allowance | ||||||||||||
One-to-four family residential real estate | $ | 380 | $ | 281 | $ | 99 | ||||||
Multi-family mortgage | 4,647 | 4,017 | 630 | |||||||||
Nonresidential real estate | 1,300 | 1,234 | 66 | |||||||||
Commercial loans and leases | 3,670 | 2,548 | 1,122 | |||||||||
Consumer | 39 | 49 | (10 | ) | ||||||||
Total allowance for credit losses | $ | 10,036 | $ | 8,129 | $ | 1,907 | ||||||
Liabilities: | ||||||||||||
Unfunded commitment reserve | $ | 417 | $ | — | $ | 417 |
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The allowance for credit losses (“ACL”) is evaluated on a regular basis and established through charges to earnings in the form of a provision for credit losses. When a loan or portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance and subsequent recoveries, if any, are credited to the allowance. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
a. | Portfolio Segmentation (“Pooled Loans”) |
Portfolio segmentation is defined as the pooling of loans based upon similar risk characteristics such that quantitative methodologies and qualitative adjustment factors for estimating the allowance for credit losses is constructed for each segment. The allowance for credit losses for Pooled Loans estimate is based upon periodic review of the collectability of the loans quantitatively correlating historical loan experience with reasonable and supportable forecasts using forward looking information. Adjustments to the quantitative evaluation may be made for differences in current or expected qualitative risk characteristics such as changes in: underwriting standards, delinquency level, regulatory environment, economic condition, Company management and the status of portfolio administration including the Company’s Loan Review function.
b. | Individually Evaluated Loans |
The Company establishes a specific loss reserve for individually evaluated loans which do not share similar risk characteristics with the loans included in the forecasted allowance for credit losses. These individually evaluated loans are removed from the pooling approach discussed above for the forecasted allowance for credit losses, and include nonaccrual loans and other loans deemed appropriate by management.
c. | Accrued Interest Receivable |
Upon adoption of ASC 326 and its related amendments on January 1, 2023, the Company made the following elections regarding accrued interest receivable:
● | Presenting accrued interest receivable balances separately within another line item on the Consolidated Statements of Financial Condition. |
● | Continuing our policy to fully reserve accrued interest receivable by reversing interest income. For commercial loans, the reserve is established upon becoming 90 days past due. For consumer loans, the charge-off typically occurs upon becoming 120 days past due. Historically, the Company has not experienced uncollectible accrued interest receivable on its investment securities. |
● | Not measuring an allowance for credit losses for accrued interest receivable due to the Company’s policy of fully reserving uncollectible accrued interest receivable balances in a timely manner, as described above. |
d. | Reserve for Unfunded Commitments |
The reserve for unfunded commitments (the “Unfunded Commitment Reserve”) represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit. However, a liability is not recognized for commitments unconditionally cancellable by the Company. The Unfunded Commitment Reserve is recognized as a liability (other liabilities on the Consolidated Statements of Financial Condition), with adjustments to the unfunded commitment reserve recognized as a provision for credit loss expense in the Consolidated Statements of Income. The Unfunded Commitment Reserve is determined by estimating expected future fundings, under each segment, and applying the expected loss rates. Expected future fundings are based on historical averages of funding rates (i.e., the likelihood of draws taken). To estimate future fundings on unfunded balances, current funding rates are compared to historical funding rates.
Troubled Debt Restructurings and Vintage Disclosures: ASU 2022-02“Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” eliminates the Troubled Debt Restructurings (“TDR”) accounting model for creditors that have already adopted ASC 326. In lieu of the TDR accounting model, loan refinancing and restructuring guidance in ASC Subtopic 310-20 “Investments—Debt Securities” will apply to all loan modifications, including those made for borrowers experiencing financial difficulty. This standard also enhances disclosure requirements related to certain loan modifications. Additionally, this standard introduces new requirements to disclose gross write-off information in the vintage disclosures of financing receivables by credit quality indicator and class of financing receivable by year of origination. The Company adopted the standard on January 1, 2023.
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, 2016,2022, as filed with the Securities and Exchange Commission.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, exclusive of unearned BankFinancial, NA Employee Stock Ownership Plan (the "ESOP") shares 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.period.
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net income available to common stockholders | $ | 2,312 | $ | 2,567 | $ | 4,945 | $ | 3,835 | ||||||||
Basic and diluted weighted average common shares outstanding | 12,667,129 | 13,165,023 | 12,694,334 | 13,184,424 | ||||||||||||
Basic and diluted earnings per common share | $ | 0.18 | $ | 0.19 | $ | 0.39 | $ | 0.29 |
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 | ||||||||||||||||
June 30, 2023 | ||||||||||||||||
Certificates of deposit | $ | 2,977 | $ | — | $ | — | $ | 2,977 | ||||||||
Municipal securities | 240 | — | (14 | ) | 226 | |||||||||||
U.S. Treasury Notes | 128,231 | — | (6,204 | ) | 122,027 | |||||||||||
U.S. government-sponsored agencies | 40,000 | — | (273 | ) | 39,727 | |||||||||||
Mortgage-backed securities - residential | 3,730 | 20 | (153 | ) | 3,597 | |||||||||||
Collateralized mortgage obligations - residential | 1,115 | — | (22 | ) | 1,093 | |||||||||||
$ | 176,293 | $ | 20 | $ | (6,666 | ) | $ | 169,647 | ||||||||
December 31, 2022 | ||||||||||||||||
Certificates of deposit | $ | 2,233 | $ | — | $ | — | $ | 2,233 | ||||||||
Municipal securities | 240 | — | (15 | ) | 225 | |||||||||||
U.S. Treasury Notes | 170,906 | — | (7,803 | ) | 163,103 | |||||||||||
U.S. government-sponsored agencies | 40,000 | — | (301 | ) | 39,699 | |||||||||||
Mortgage-backed securities - residential | 3,997 | 27 | (143 | ) | 3,881 | |||||||||||
Collateralized mortgage obligations - residential | 1,223 | — | (26 | ) | 1,197 | |||||||||||
$ | 218,599 | $ | 27 | $ | (8,288 | ) | $ | 210,338 |
Mortgage-backed securities and collateralized mortgage obligations reflected in the preceding table were issued by U.S. government-sponsored entities orand 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 available-for-sale 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.
June 30, 2023 | ||||||||
Amortized Cost | Fair Value | |||||||
Due in one year or less | $ | 86,502 | $ | 84,770 | ||||
Due after one year through five years | 84,946 | 80,187 | ||||||
171,448 | 164,957 | |||||||
Mortgage-backed securities - residential | 3,730 | 3,597 | ||||||
Collateralized mortgage obligations - residential | 1,115 | 1,093 | ||||||
$ | 176,293 | $ | 169,647 |
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 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Proceeds | $ | — | $ | — | $ | — | $ | 46 | |||||||
Gross gains | — | — | — | 46 |
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 3 - SECURITIES (continued)
Securities available-for-sale 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 | ||||||||||||||||||||||||||||
June 30, 2023 | ||||||||||||||||||||||||||||||||||||
Municipal securities | — | $ | — | $ | — | 1 | $ | 226 | $ | (14 | ) | 1 | $ | 226 | $ | (14 | ) | |||||||||||||||||||
U.S. Treasury Notes | 1 | 3,652 | (103 | ) | 180 | 118,375 | (6,101 | ) | 181 | 122,027 | (6,204 | ) | ||||||||||||||||||||||||
U.S. government-sponsored agencies | 9 | 39,727 | (273 | ) | — | — | — | 9 | 39,727 | (273 | ) | |||||||||||||||||||||||||
Mortgage-backed securities - residential | 8 | 752 | (20 | ) | 10 | 2,118 | (133 | ) | 18 | 2,870 | (153 | ) | ||||||||||||||||||||||||
Collateralized mortgage obligations - residential | — | — | — | 7 | 1,093 | (22 | ) | 7 | 1,093 | (22 | ) | |||||||||||||||||||||||||
18 | $ | 44,131 | $ | (396 | ) | 198 | $ | 121,812 | $ | (6,270 | ) | 216 | $ | 165,943 | $ | (6,666 | ) | |||||||||||||||||||
December 31, 2022 | ||||||||||||||||||||||||||||||||||||
Municipal securities | 1 | $ | 225 | $ | (15 | ) | — | $ | — | $ | — | 1 | $ | 225 | $ | (15 | ) | |||||||||||||||||||
U.S. Treasury Notes | 147 | 104,439 | (4,104 | ) | 53 | 58,664 | (3,699 | ) | 200 | 163,103 | (7,803 | ) | ||||||||||||||||||||||||
U.S. government-sponsored agencies | 9 | 39,699 | (301 | ) | — | — | — | 9 | 39,699 | (301 | ) | |||||||||||||||||||||||||
Mortgage-backed securities - residential | 18 | 3,016 | (143 | ) | — | — | — | 18 | 3,016 | (143 | ) | |||||||||||||||||||||||||
Collateralized mortgage obligations - residential | 5 | 1,009 | (18 | ) | 1 | 171 | (8 | ) | 6 | 1,180 | (26 | ) | ||||||||||||||||||||||||
180 | $ | 148,388 | $ | (4,581 | ) | 54 | $ | 58,835 | $ | (3,707 | ) | 234 | $ | 207,223 | $ | (8,288 | ) |
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
U.S. Treasury Notes, U.S. government-sponsored agencies and certain other available-for-sale securities and collateralized mortgage obligations that the Company holds in its investment portfolio were in an unrealized loss position at SeptemberJune 30, 2017,2023, but the unrealized lossesloss was not recognized into income because the U.S. Treasury Notes are backed by the full faith and credit of the United States and the other issuers were not considered significant under the Company’s impairment testing methodology. In addition, the Company does not intend to sell these securities, and high credit quality, it isnot likely that the Company will not be required to sell these securities before their anticipated recovery occurs.
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 |
We reviewed the available-for-sale securities in an unrealized loss position within the guidelines of ASC 326and determined that no credit loss is required to be recognized.
The proceeds from sales of securities and the associated losses were as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Proceeds | $ | — | $ | — | $ | 42,631 | $ | — | ||||||||
Gross gains | — | — | — | — | ||||||||||||
Gross losses | — | — | (454 | ) | — |
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
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 summary of loans receivable by class of loans is as follows:
June 30, 2023 | December 31, 2022 | |||||||
One-to-four family residential real estate | $ | 20,448 | $ | 23,133 | ||||
Multi-family mortgage | 542,165 | 537,394 | ||||||
Nonresidential real estate | 120,505 | 119,705 | ||||||
Commercial loans and leases | 495,520 | 553,056 | ||||||
Consumer | 1,355 | 1,584 | ||||||
1,179,993 | 1,234,872 | |||||||
Allowance for credit losses | (9,226 | ) | (8,129 | ) | ||||
Loans, net | $ | 1,170,767 | $ | 1,226,743 |
Net deferred loan origination costs included in the allowancetable above were $1.7 million as of June 30, 2023 and $1.6 million as of December 31, 2022.
Allowance for loan losses isCredit Losses - Loans
The following table represents the activity in the ACL by class of loans:
One-to-four family residential real estate | Multi-family mortgage | Nonresidential real estate | Commercial loans and leases | Consumer | Total | |||||||||||||||||||
For the three months ended | ||||||||||||||||||||||||
June 30, 2023 | ||||||||||||||||||||||||
Beginning balance | $ | 354 | $ | 4,714 | $ | 1,347 | $ | 3,576 | $ | 41 | $ | 10,032 | ||||||||||||
Recovery of credit losses | (35 | ) | (41 | ) | (102 | ) | (1 | ) | (1 | ) | (180 | ) | ||||||||||||
Loans charged off | — | — | — | (638 | ) | (7 | ) | (645 | ) | |||||||||||||||
Recoveries | 7 | 6 | — | 6 | — | 19 | ||||||||||||||||||
$ | 326 | $ | 4,679 | $ | 1,245 | $ | 2,943 | $ | 33 | $ | 9,226 | |||||||||||||
June 30, 2022 | ||||||||||||||||||||||||
Beginning balance | $ | 315 | $ | 3,390 | $ | 957 | $ | 2,078 | $ | 46 | $ | 6,786 | ||||||||||||
Provision for (recovery of) credit losses | (31 | ) | 238 | 134 | 122 | (4 | ) | 459 | ||||||||||||||||
Loans charged off | (1 | ) | — | — | (51 | ) | (15 | ) | (67 | ) | ||||||||||||||
Recoveries | 3 | 4 | 2 | — | 15 | 24 | ||||||||||||||||||
$ | 286 | $ | 3,632 | $ | 1,093 | $ | 2,149 | $ | 42 | $ | 7,202 |
One-to-four family residential real estate | Multi-family mortgage | Nonresidential real estate | Commercial loans and leases | Consumer | Total | |||||||||||||||||||
For the six months ended | ||||||||||||||||||||||||
June 30, 2023 | ||||||||||||||||||||||||
Beginning balance, prior to adoption of ASC 326 | $ | 281 | $ | 4,017 | $ | 1,234 | $ | 2,548 | $ | 49 | $ | 8,129 | ||||||||||||
Impact of adopting ASC 326 | 99 | 630 | 66 | 1,122 | (10 | ) | 1,907 | |||||||||||||||||
Beginning balance, after adoption of ASC 326 | 380 | 4,647 | 1,300 | 3,670 | 39 | 10,036 | ||||||||||||||||||
Provision for (recovery of) credit losses | (66 | ) | 21 | (55 | ) | (17 | ) | 22 | (95 | ) | ||||||||||||||
Loans charged off | — | — | — | (717 | ) | (29 | ) | (746 | ) | |||||||||||||||
Recoveries | 12 | 11 | — | 7 | 1 | 31 | ||||||||||||||||||
$ | 326 | $ | 4,679 | $ | 1,245 | $ | 2,943 | $ | 33 | $ | 9,226 | |||||||||||||
June 30, 2022 | ||||||||||||||||||||||||
Beginning balance | $ | 331 | $ | 3,377 | $ | 1,311 | $ | 1,652 | $ | 44 | $ | 6,715 | ||||||||||||
Provision for (recovery of) credit loss | (45 | ) | 246 | (28 | ) | 547 | 15 | 735 | ||||||||||||||||
Loans charged off | (5 | ) | — | (192 | ) | (51 | ) | (33 | ) | (281 | ) | |||||||||||||
Recoveries | 5 | 9 | 2 | 1 | 16 | 33 | ||||||||||||||||||
$ | 286 | $ | 3,632 | $ | 1,093 | $ | 2,149 | $ | 42 | $ | 7,202 |
As of June 30, 2023 we had $372,000 recorded 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 |
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 4 - LOANS RECEIVABLE
(continued)The following tables present the balance in the ACL and loans individually evaluated for impairmentreceivable by class of loans:
One-to-four family residential real estate | Multi-family mortgage | Nonresidential real estate | Commercial loans and leases | Consumer | Total | |||||||||||||||||||
June 30, 2023 | ||||||||||||||||||||||||
Loans: | ||||||||||||||||||||||||
Loans individually evaluated | $ | 78 | $ | 148 | $ | — | $ | 23,998 | $ | — | $ | 24,224 | ||||||||||||
Loans collectively evaluated | 20,370 | 542,017 | 120,505 | 471,522 | 1,355 | 1,155,769 | ||||||||||||||||||
$ | 20,448 | $ | 542,165 | $ | 120,505 | $ | 495,520 | $ | 1,355 | $ | 1,179,993 | |||||||||||||
ACL: | ||||||||||||||||||||||||
Loans individually evaluated | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Loans collectively evaluated | 326 | 4,679 | 1,245 | 2,943 | 33 | 9,226 | ||||||||||||||||||
$ | 326 | $ | 4,679 | $ | 1,245 | $ | 2,943 | $ | 33 | $ | 9,226 |
One-to-four family residential real estate | Multi-family mortgage | Nonresidential real estate | Commercial loans and leases | Consumer | Total | |||||||||||||||||||
December 31, 2022 | ||||||||||||||||||||||||
Loans: | ||||||||||||||||||||||||
Loans individually evaluated | $ | 752 | $ | 473 | $ | — | $ | 1,487 | $ | — | $ | 2,712 | ||||||||||||
Loans collectively evaluated | 22,381 | 536,921 | 119,705 | 551,569 | 1,584 | 1,232,160 | ||||||||||||||||||
$ | 23,133 | $ | 537,394 | $ | 119,705 | $ | 553,056 | $ | 1,584 | $ | 1,234,872 | |||||||||||||
ACL: | ||||||||||||||||||||||||
Loans individually evaluated | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Loans collectively evaluated | 281 | 4,017 | 1,234 | 2,548 | 49 | 8,129 | ||||||||||||||||||
$ | 281 | $ | 4,017 | $ | 1,234 | $ | 2,548 | $ | 49 | $ | 8,129 |
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 |
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 4 - LOANS RECEIVABLE
(continued)Individually Evaluated Loans
The following tables present loans individually evaluated by class of loans:
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, 2023 | June 30, 2023 | |||||||||||||||||||||||||||||||
Loan Balance | Recorded Investment | Partial Charge-off | Allowance for Credit Losses Allocated | Average Investment | Interest Income Recognized | Average Investment | Interest Income Recognized | |||||||||||||||||||||||||
June 30, 2023 | ||||||||||||||||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||||||||||||||
One-to-four family residential real estate | $ | 80 | $ | 78 | $ | — | $ | — | $ | 82 | $ | — | $ | 80 | $ | 2 | ||||||||||||||||
Multi-family mortgage | 133 | 148 | — | — | 148 | — | 99 | — | ||||||||||||||||||||||||
Commercial loans and leases | 24,693 | 23,998 | 650 | — | 13,900 | 5 | 8,807 | 25 | ||||||||||||||||||||||||
$ | 24,906 | $ | 24,224 | $ | 650 | $ | — | $ | 14,130 | $ | 5 | $ | 8,986 | $ | 27 |
Year ended | ||||||||||||||||||||||||
December 31, 2022 | ||||||||||||||||||||||||
Loan Balance | Recorded Investment | Partial Charge-off | Allowance for Credit Losses Allocated | Average Investment | Interest Income Recognized | |||||||||||||||||||
December 31, 2022 | ||||||||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||||||
One-to-four family residential real estate | $ | 752 | $ | 752 | $ | — | $ | — | $ | 1,143 | $ | 29 | ||||||||||||
Multi-family mortgage | 473 | 473 | — | — | 590 | 27 | ||||||||||||||||||
Commercial loans and leases | 1,606 | 1,487 | 49 | — | 445 | 47 | ||||||||||||||||||
$ | 2,831 | $ | 2,712 | $ | 49 | $ | — | $ | 2,178 | $ | 103 |
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 | $ | — |
Nonaccrual | Loans Past Due Over 90 Days Still Accruing | |||||||
June 30, 2023 | ||||||||
One-to-four family residential real estate | $ | 45 | $ | — | ||||
Multi-family mortgage | 148 | — | ||||||
Commercial loans and leases | 23,965 | — | ||||||
$ | 24,158 | $ | — | |||||
December 31, 2022 | ||||||||
One-to-four family residential real estate | $ | 92 | $ | — | ||||
Commercial loans and leases | 1,310 | 238 | ||||||
Consumer | 5 | — | ||||||
$ | 1,407 | $ | 238 |
Nonaccrual loans and impairedindividually evaluated 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 loans 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 | Greater Than 89 Days Past Due | Total Past Due | Nonaccrual | Current | Total | ||||||||||||||||||||||
June 30, 2023 | ||||||||||||||||||||||||||||
One-to-four family residential real estate loans | $ | 21 | $ | 2 | $ | — | $ | 23 | $ | 45 | $ | 20,380 | $ | 20,448 | ||||||||||||||
Multi-family mortgage: | ||||||||||||||||||||||||||||
Senior notes | — | — | — | — | 148 | 498,099 | 498,247 | |||||||||||||||||||||
Junior notes | — | — | — | — | — | 43,918 | 43,918 | |||||||||||||||||||||
Nonresidential real estate: | ||||||||||||||||||||||||||||
Owner occupied | — | — | — | — | — | 21,648 | 21,648 | |||||||||||||||||||||
Non-owner occupied | — | — | — | — | — | 98,857 | 98,857 | |||||||||||||||||||||
Commercial loans and leases: | ||||||||||||||||||||||||||||
Commercial | 210 | 2,209 | — | 2,419 | 4,983 | 246,951 | 254,353 | |||||||||||||||||||||
Equipment finance - Government | — | 4,866 | — | 4,866 | 18,889 | 165,319 | 189,074 | |||||||||||||||||||||
Equipment finance - Corporate Investment-grade | — | 428 | — | 428 | 93 | 51,572 | 52,093 | |||||||||||||||||||||
Consumer | 5 | 5 | — | 10 | — | 1,345 | 1,355 | |||||||||||||||||||||
$ | 236 | $ | 7,510 | $ | — | $ | 7,746 | $ | 24,158 | $ | 1,148,089 | $ | 1,179,993 |
30-59 Days Past Due | 60-89 Days Past Due | Greater Than 89 Days Past Due | Total Past Due | Nonaccrual | Current | Total | ||||||||||||||||||||||
December 31, 2022 | ||||||||||||||||||||||||||||
One-to-four family residential real estate loans | $ | 411 | $ | 19 | $ | — | $ | 430 | $ | 92 | $ | 22,611 | $ | 23,133 | ||||||||||||||
Multi-family mortgage: | ||||||||||||||||||||||||||||
Senior notes | 31 | — | — | 31 | — | 494,957 | 494,988 | |||||||||||||||||||||
Junior notes | — | — | — | — | — | 42,406 | 42,406 | |||||||||||||||||||||
Nonresidential real estate: | ||||||||||||||||||||||||||||
Owner occupied | — | — | — | — | — | 22,617 | 22,617 | |||||||||||||||||||||
Non-owner occupied | — | — | — | — | — | 97,088 | 97,088 | |||||||||||||||||||||
Commercial loans and leases: | ||||||||||||||||||||||||||||
Commercial | 2,424 | 336 | 111 | 2,871 | 1,310 | 279,272 | 283,453 | |||||||||||||||||||||
Equipment finance - Government | 2,034 | 5,106 | — | 7,140 | — | 204,443 | 211,583 | |||||||||||||||||||||
Equipment finance - Corporate Investment-grade | — | 81 | 127 | 208 | — | 57,812 | 58,020 | |||||||||||||||||||||
Consumer | 12 | 4 | — | 16 | 5 | 1,563 | 1,584 | |||||||||||||||||||||
$ | 4,912 | $ | 5,546 | $ | 238 | $ | 10,696 | $ | 1,407 | $ | 1,222,769 | $ | 1,234,872 |
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)At June 30, 2023, the aging ofCompany had no loan modifications that meet the recorded investment of loans 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 |
At December 31, 2022, the Company evaluatesevaluated loan extensions or modificationsnot qualified under Section 4013 of the CARES Act or under OCC Bulletin 2020-35 in accordance with FASB ASC 310–40340-10 with respect to the classification of the loan as a Troubled Debt Restructuring ("TDR"(“TDR”). In general,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 |
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 |
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 onas to credit risk. This analysis includes non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a monthly basis.Risk ratings are updated any time the situation warrants. The Company uses the following definitions for risk ratings:
Pass. This category includes loans that are all considered acceptable credits, ranging from investment or near investment grade, to loans made to borrowers who exhibit credit fundamentals that meet or exceed industry standards.
Watch. A “Watch List” loan is a loan that requires elevated monitoring because it does not conform to the applicable published loan policy or loan product underwriting standards, evidences intermittent past due payments or because of other matters of possible concern.
Special Mention.
ASubstandard.
Loans categorized asNonaccrual.
An asset classifiedBased on the most recent analysis performed, the risk categories of loans by class of loans are as follows:
Pass | Watch | Special Mention | Substandard | Substandard Nonaccrual | Total | |||||||||||||||||||
June 30, 2023 | ||||||||||||||||||||||||
One-to-four family residential real estate | $ | 19,988 | $ | 143 | $ | — | $ | 272 | $ | 45 | $ | 20,448 | ||||||||||||
Multi-family mortgage | 539,400 | 2,617 | — | — | 148 | 542,165 | ||||||||||||||||||
Nonresidential real estate | 117,558 | 2,947 | — | — | — | 120,505 | ||||||||||||||||||
Commercial loans and leases | 452,002 | 13,651 | 2,143 | 3,759 | 23,965 | 495,520 | ||||||||||||||||||
Consumer | 1,341 | 4 | 5 | 5 | — | 1,355 | ||||||||||||||||||
$ | 1,130,289 | $ | 19,362 | $ | 2,148 | $ | 4,036 | $ | 24,158 | $ | 1,179,993 |
Pass | Watch | Special Mention | Substandard | Substandard Nonaccrual | Total | |||||||||||||||||||
December 31, 2022 | ||||||||||||||||||||||||
One-to-four family residential real estate | $ | 22,648 | $ | 62 | $ | 4 | $ | 327 | $ | 92 | $ | 23,133 | ||||||||||||
Multi-family mortgage | 534,253 | 3,141 | — | — | — | 537,394 | ||||||||||||||||||
Nonresidential real estate | 116,635 | 3,070 | — | — | — | 119,705 | ||||||||||||||||||
Commercial loans and leases | 523,889 | 22,299 | 1,517 | 4,041 | 1,310 | 553,056 | ||||||||||||||||||
Consumer | 1,559 | 12 | 4 | 4 | 5 | 1,584 | ||||||||||||||||||
$ | 1,198,984 | $ | 28,584 | $ | 1,525 | $ | 4,372 | $ | 1,407 | $ | 1,234,872 |
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 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 4 - LOANS RECEIVABLE
(continued)Term Loans Amortized Cost Basis by Origination Year | ||||||||||||||||||||||||||||||||
2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving loans | Total | |||||||||||||||||||||||||
June 30, 2023 | ||||||||||||||||||||||||||||||||
One-to-four family residential real estate loans: | ||||||||||||||||||||||||||||||||
Risk-rating | ||||||||||||||||||||||||||||||||
Pass | $ | — | $ | — | $ | — | $ | 177 | $ | — | $ | 15,595 | $ | 4,216 | $ | 19,988 | ||||||||||||||||
Watch | — | — | — | — | — | 143 | — | 143 | ||||||||||||||||||||||||
Substandard | — | — | — | — | — | 121 | 151 | 272 | ||||||||||||||||||||||||
Nonaccrual | — | — | — | — | — | 19 | 26 | 45 | ||||||||||||||||||||||||
$ | — | $ | — | $ | — | $ | 177 | $ | — | $ | 15,878 | $ | 4,393 | $ | 20,448 | |||||||||||||||||
One-to-four family residential real estate loans: | ||||||||||||||||||||||||||||||||
Current period recoveries | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 12 | $ | — | $ | 12 | ||||||||||||||||
$ | — | $ | — | $ | — | $ | — | $ | — | $ | 12 | $ | — | $ | 12 | |||||||||||||||||
Multi-family mortgage: | ||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||
Pass | $ | 30,387 | $ | 215,111 | $ | 124,335 | $ | 61,456 | $ | 23,685 | $ | 75,795 | $ | 8,631 | $ | 539,400 | ||||||||||||||||
Watch | — | — | — | — | — | 2,617 | — | 2,617 | ||||||||||||||||||||||||
Nonaccrual | — | — | — | — | — | 148 | — | 148 | ||||||||||||||||||||||||
$ | 30,387 | $ | 215,111 | $ | 124,335 | $ | 61,456 | $ | 23,685 | $ | 78,560 | $ | 8,631 | $ | 542,165 | |||||||||||||||||
Multi-family mortgage: | ||||||||||||||||||||||||||||||||
Current period recoveries | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 11 | $ | — | $ | 11 | ||||||||||||||||
$ | — | $ | — | $ | — | $ | — | $ | — | $ | 11 | $ | — | $ | 11 | |||||||||||||||||
Nonresidential real estate: | ||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||
Pass | $ | 9,525 | $ | 54,207 | $ | 20,822 | $ | 8,542 | $ | 9,868 | $ | 14,340 | $ | 254 | $ | 117,558 | ||||||||||||||||
Watch | — | 1,015 | 1,590 | — | — | 342 | — | 2,947 | ||||||||||||||||||||||||
$ | 9,525 | $ | 55,222 | $ | 22,412 | $ | 8,542 | $ | 9,868 | $ | 14,682 | $ | 254 | $ | 120,505 | |||||||||||||||||
Commercial loans and leases : | ||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||
Pass | $ | 30,242 | $ | 187,329 | $ | 91,671 | $ | 59,239 | $ | 6,888 | $ | 3,871 | $ | 72,762 | $ | 452,002 | ||||||||||||||||
Watch | — | 527 | 26 | 402 | 26 | — | 12,670 | 13,651 | ||||||||||||||||||||||||
Special mention | — | 2,143 | — | — | — | — | — | 2,143 | ||||||||||||||||||||||||
Substandard | — | — | — | 33 | — | — | 3,726 | 3,759 | ||||||||||||||||||||||||
Nonaccrual | — | 22,484 | 547 | 934 | — | — | — | 23,965 | ||||||||||||||||||||||||
$ | 30,242 | $ | 212,483 | $ | 92,244 | $ | 60,608 | $ | 6,914 | $ | 3,871 | $ | 89,158 | $ | 495,520 | |||||||||||||||||
Commercial loans and leases : | ||||||||||||||||||||||||||||||||
Current period gross charge-offs | $ | — | $ | (717 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (717 | ) | ||||||||||||||
Current period recoveries | — | — | 7 | — | — | — | — | 7 | ||||||||||||||||||||||||
$ | — | $ | (717 | ) | $ | 7 | $ | — | $ | — | $ | — | $ | — | $ | (710 | ) | |||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Risk rating | ||||||||||||||||||||||||||||||||
Pass | $ | 134 | $ | 18 | $ | 172 | $ | 159 | $ | 306 | $ | 3 | $ | 549 | $ | 1,341 | ||||||||||||||||
Watch | — | — | — | — | — | — | 4 | 4 | ||||||||||||||||||||||||
Special mention | — | — | — | — | — | — | 5 | 5 | ||||||||||||||||||||||||
Substandard | — | — | — | — | — | — | 5 | 5 | ||||||||||||||||||||||||
$ | 134 | $ | 18 | $ | 172 | $ | 159 | $ | 306 | $ | 3 | $ | 563 | $ | 1,355 | |||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (29 | ) | $ | (29 | ) | ||||||||||||||
Current period recoveries | — | — | — | — | — | — | 1 | 1 | ||||||||||||||||||||||||
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (28 | ) | $ | (28 | ) |
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
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 loancredit 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 |
June 30, 2023 | December 31, 2022 | |||||||||||||||||||||||
Balance | Valuation Allowance | Net Balance | Balance | Valuation Allowance | Net Balance | |||||||||||||||||||
Other real estate owned | $ | 472 | $ | — | $ | 472 | $ | 472 | $ | — | $ | 472 | ||||||||||||
Other foreclosed assets | 478 | — | 478 | 4 | — | 4 | ||||||||||||||||||
$ | 950 | $ | — | $ | 950 | $ | 476 | $ | — | $ | 476 |
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 Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Beginning balance | $ | 1,393 | $ | 968 | $ | 476 | $ | 725 | ||||||||
New foreclosed assets | — | 45 | 921 | 319 | ||||||||||||
Valuation reductions from sales | — | 19 | — | 27 | ||||||||||||
Direct write-downs | (70 | ) | — | (70 | ) | — | ||||||||||
Sales | (373 | ) | (190 | ) | (377 | ) | (229 | ) | ||||||||
Ending balance | $ | 950 | $ | 842 | $ | 950 | $ | 842 |
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 Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Beginning balance | $ | — | $ | 219 | $ | — | $ | 227 | ||||||||
Reductions from sales | — | (19 | ) | — | (27 | ) | ||||||||||
Ending balance | $ | — | $ | 200 | $ | — | $ | 200 |
The were no consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process atJune 30, 20172023 and December 31, 2016,2022. At June 30, 2023, other foreclosed assets consisted of vehicles repossessed in connection with equipment finance leases. At June 30, 2023, the balance of OREO included no foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property without title. At September 30, 2017 and December 31, 2016, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceeds were in process was $1.4 million and $1.6 million, respectively.
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 |
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 7 – EMPLOYEE BENEFIT PLAN
Borrowings and the ESOP repaid all amounts owing under the ESOP’s Term Loan Agreement withsubordinated notes were as follows:
June 30, 2023 | December 31, 2022 | |||||||||||||||
Contractual | Contractual | |||||||||||||||
Rate | Amount | Rate | Amount | |||||||||||||
Fixed-rate advance from FHLB, due September 16, 2024 | 4.55 | % | $ | 5,000 | — | % | $ | — | ||||||||
Fixed-rate advance from FHLB, due March 17, 2025 | 4.27 | % | 5,000 | — | % | — | ||||||||||
Fixed-rate advance from FHLB, due September 17, 2025 | 4.20 | % | 5,000 | — | % | — | ||||||||||
Fixed-rate advance from FHLB, due March 17, 2026 | 4.15 | % | 5,000 | — | % | — | ||||||||||
Fixed-rate advance from FHLB, due September 17, 2026 | 4.06 | % | 5,000 | — | % | — | ||||||||||
Subordinated notes, due May 15, 2031 | 3.75 | % | 19,656 | 3.75 | % | 19,634 | ||||||||||
Line of credit, due March 29, 2024 | 7.75 | % | — | 6.75 | % | — |
In 2021, the Company (the “Share Acquisition Loan”entered into Subordinated Note Purchase Agreements with certain qualified institutional buyers and accredited investors pursuant to which the Company sold and issued $20.0 million in aggregate principal amount of its 3.75% Fixed-to-Floating Rate Subordinated Notes due May 15, 2031 (the “Notes”). The ESOP repaidCompany incurred $441,000 of issuance costs associated with the Share Acquisition Loan by transferring 753,490 unallocated sharesNotes. These issuance costs are being amortized over the 10-year life of the Company’s common stockNotes. At June 30, 2023 and December 31, 2022, there were $344,000 and $366,000, respectively, in remaining unamortized issuance costs and they are presented in the Company's financial statements as a reduction of the principal amount of the Notes.
The Notes bear interest at a fixed annual rate of 3.75%, from and including the date of issuance to May 14, 2026, payable semi-annually in arrears. From and including May 15, 2026 but excluding the maturity date or early redemption date, as applicable, the interest rate will reset quarterly to an interest rate per annum equal to Three-Month Term SOFR (as defined in the Notes) plus 299 basis points, payable quarterly in arrears. Under the conditions specified in the Notes, the interest rate accruing during the applicable floating rate period may be determined based on a rate other than Three-Month Term SOFR. The Notes have a stated maturity date of May 15, 2031 and are redeemable, in whole or in part, on May 15, 2026, on any interest payment date thereafter, and at any time upon the occurrence of certain events.
Principal and interest payments due on the Notes are subject to acceleration only in limited circumstances in the case of certain bankruptcy and insolvency-related events with respect to the Company in exchange for the full satisfactionCompany. The Notes are unsecured, subordinated obligations of the Share Acquisition Loan, usingCompany and generally rank junior in right of payment to the valuation method providedCompany’s current and future senior indebtedness. The Notes qualify as Tier 2 capital for regulatory capital purposes.
In 2020, the Company established a $5.0 million unsecured line of credit with a correspondent bank. Interest is payable at a rate of Prime Rate as published in the ESOP. A totalWall Street Journal minus 0.50%, with a minimum rate of 78,362 unallocated shares remained in2.40%. The line of credit has been extended since its original maturity date and 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 current maturity date is March 29, 2017, based on their account balances, subject to the receipt2024. The line 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 no outstanding principal balance at SeptemberJune 30, 20172023 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
: The fairNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 97 - FAIR VALUE
Loans Evaluated Individually: The Company does not record portfolio loans at fair value on a recurring basis. However, periodically, a loan is evaluated individually and is reported at the fair value of the underlying collateral, may be valuedless estimated costs to sell, if repayment is expected solely from the collateral. If the collateral value is not sufficient, a specific reserve is recorded. Collateral values are estimated using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounteda combination of observable inputs, including recent appraisals, and unobservable inputs based on management’s historical knowledge, changes in market conditions fromcustomized discounting criteria. Due to the timesignificance of the valuation, and management’s expertise and knowledgeunobservable inputs, fair values of the client and client’s business, resulting in aindividually evaluated collateral dependent loans have
been classified as Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy.
Foreclosed assets: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach with data from comparable properties. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Real estate owned propertiesForeclosed assets are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
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 | |||||||||||||
June 30, 2023 | ||||||||||||||||
Securities: | ||||||||||||||||
Certificates of deposit | $ | — | $ | 2,977 | $ | — | $ | 2,977 | ||||||||
Municipal securities | — | 226 | — | 226 | ||||||||||||
U.S. Treasury Notes | 122,027 | — | — | 122,027 | ||||||||||||
U.S. government-sponsored agencies | — | 39,727 | — | 39,727 | ||||||||||||
Mortgage-backed securities – residential | — | 3,597 | — | 3,597 | ||||||||||||
Collateralized mortgage obligations – residential | — | 1,093 | — | 1,093 | ||||||||||||
$ | 122,027 | $ | 47,620 | $ | — | $ | 169,647 | |||||||||
December 31, 2022 | ||||||||||||||||
Securities: | ||||||||||||||||
Certificates of deposit | $ | — | $ | 2,233 | $ | — | $ | 2,233 | ||||||||
Municipal securities | — | 225 | — | 225 | ||||||||||||
U.S. Treasury Notes | 163,103 | — | — | 163,103 | ||||||||||||
U.S. government-sponsored agencies | — | 39,699 | — | 39,699 | ||||||||||||
Mortgage-backed securities – residential | — | 3,881 | — | 3,881 | ||||||||||||
Collateralized mortgage obligations – residential | — | 1,197 | — | 1,197 | ||||||||||||
$ | 163,103 | $ | 47,235 | $ | — | $ | 210,338 |
At June 30, 2023 and per share data)
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 |
Foreclosed assets are carried at the lower of cost or fair value less costs to sell, had a carrying value of $2.7 million less a valuation allowance of $429,000, or $2.3 million, at Septembersell. At June 30, 2017, compared to a carrying value of $2.3 million less a valuation allowance of $434,000, or $1.9 million, at 2023 and December 31, 2016. There2022 there were $301,000no foreclosed assets with valuation allowances.
In January 2023, we completed the previously disclosed closings of our Hazel Crest and Naperville branches. At the time of transfer, we recorded a $553,000 valuation adjustmentsadjustment on bank premises held-for-sale. During the second quarter of OREO2023, we recorded an additional valuation adjustment of $32,000 on our Hazel Crest office based on the purchase price of the pending sale agreement 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 97 - FAIR VALUE
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 |
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 June 30, 2023 Using: | ||||||||||||||||||||
Carrying Amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Financial assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 115,331 | $ | 112,707 | $ | 2,624 | $ | — | $ | 115,331 | ||||||||||
Securities | 169,647 | 122,027 | 47,620 | — | 169,647 | |||||||||||||||
Loans receivable, net of allowance for credit losses | 1,170,767 | — | — | 1,117,024 | 1,117,024 | |||||||||||||||
FHLB and FRB stock | 7,490 | — | — | — | N /A | |||||||||||||||
Accrued interest receivable | 8,499 | 267 | 486 | 7,746 | 8,499 | |||||||||||||||
Financial liabilities | ||||||||||||||||||||
Certificates of deposit | 214,705 | — | 211,054 | — | 211,054 | |||||||||||||||
Borrowings | 25,000 | — | 24,728 | — | 24,728 | |||||||||||||||
Subordinated notes | 19,656 | — | 17,163 | — | 17,163 |
Fair Value Measurements at December 31, 2022 Using: | ||||||||||||||||||||
Carrying Amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Financial assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 66,771 | $ | 65,967 | $ | 804 | $ | — | $ | 66,771 | ||||||||||
Securities | 210,338 | 163,103 | 47,235 | — | 210,338 | |||||||||||||||
Loans receivable, net of allowance for credit losses | 1,226,743 | — | — | 1,198,616 | 1,198,616 | |||||||||||||||
FHLB and FRB stock | 7,490 | — | — | — | N /A | |||||||||||||||
Accrued interest receivable | 7,338 | 514 | 477 | 6,347 | 7,338 | |||||||||||||||
Financial liabilities | ||||||||||||||||||||
Certificates of deposit | 186,524 | — | 182,398 | — | 182,398 | |||||||||||||||
Subordinated notes | 19,634 | — | 17,800 | — | 17,800 |
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 8 – 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 | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Deposit service charges and fees | $ | 830 | $ | 826 | $ | 1,646 | $ | 1,607 | ||||||||
Loan servicing fees (1) | 141 | 190 | 270 | 291 | ||||||||||||
Trust and insurance commissions and annuities income | 276 | 262 | 643 | 600 | ||||||||||||
Losses on sales of securities (1) | — | — | (454 | ) | — | |||||||||||
Gain on sale of premises and equipment | 13 | — | 9 | — | ||||||||||||
Valuation adjustment on bank premises held-for-sale (1) | (32 | ) | — | (585 | ) | — | ||||||||||
(Loss) earnings on bank-owned life insurance (1) | (87 | ) | 11 | (171 | ) | 39 | ||||||||||
Bank-owned life insurance death benefit (1) | — | 446 | — | 446 | ||||||||||||
Other (1) | 98 | 104 | 194 | 300 | ||||||||||||
Total noninterest income | $ | 1,239 | $ | 1,839 | $ | 1,552 | $ | 3,283 |
(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 $356,000 and $375,000 for the three months ended June 30, 2023 and 2022, respectively. Interchange income was $690,000 and $735,000 for the six months ended June 30, 2023 and 2022, respectively.
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 foreclosed assets and other assets: The Company records a gain or loss from the sale of foreclosed assets 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 foreclosed assets 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 foreclosed assets 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. Foreclosed assets sales for the six months ended June 30, 2023 and 2022 were not financed by the Company.
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.amended. Forward-looking statements may include statements relating to our future plans, strategies and expectations, as well as our future revenues, expenses, 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,” “continue,” “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 high quality loans and leases, particularly in terms of pricing and credit underwriting, or a dearth of borrowers who meet our underwriting standards; (ii) the impact of re-pricing and competitors’ pricing initiatives on loan and deposit products; (iii)products; (ii) interest rate movements and their impact on the economy, customer behavior and our net interest margin;margin; (iii) changes in U.S. Government or State government budgets, appropriations or funding allocation policies or practices affecting our credit exposures to U.S. Government or State governments, agencies or related entities, or borrowers dependent on the receipt of Federal or State appropriations, including but not limited to, defense, healthcare, transportation, education and law enforcement programs; (iv) less than anticipated loan and lease growth; (v) effects of the adoption of the Financial Accounting Standards Board's (FASB) Accounting Standards Codification Topic 326: Measurement of Credit Losses on Financial Instruments (“ASC 326”) on the Bank’s allowance for credit losses due to the operation of the underlying model; (vi) for any significant credit exposure, borrower-specific adverse developments with respect to the adequacy of cash flows, liquidity or collateral; (vii) the inherent credit risks of lending activities, including risks that could cause changes in the level and direction of loan delinquencies and charge-offs; (viii) adverse economic conditions in general, or specific events such as a pandemic or national or international war, act of conflict or terrorism, and in the Chicago metropolitan areamarkets in particular and in other market areas wherewhich we operatelend that could result in increased delinquencies in our loan portfolio or a decline in the value of our investment securities and the collateral for our loans; (v)loans; (ix) declines in real estate values that adversely impact the value of our loan collateral, OREO,other real estate owned ("OREO"), asset dispositions and the level of borrower equity in their investments; (vi) borrowers that experience legal or financial difficulties that we do not currently foresee; (vii)investments; (x) results of supervisory monitoring or examinations by regulatory authorities, including the possibility that a regulatory authority could, among other things, require us to increase our allowance for loancredit losses or adversely change our loan classifications, write-down assets, reduce credit concentrations or maintain specific capital levels; (viii)levels; (xi) changes,
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, 2016 and this2022, as well as Part II, Items 1A of our subsequent Quarterly ReportReports on Form 10-Q, as well asand other filings we make with the SEC, should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Forward looking statements speak only as of the date they are made. We do not undertake any obligation to update any forward-looking statement in the future, or to reflect circumstances and events that occur after the date on which the forward-looking statement was made.
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, 2016, and all amendments thereto,2022, as filed with the SEC.
Overview
We reported net income of $2.3 million, or $0.18 per common share, for the quarter ended June 30, 2023. At June 30, 2023, the Company had total assets of $1.527 billion, total loans of $1.171 billion, total deposits of $1.304 billion and stockholders' equity of $152.3 million.
Total net loans remained stabledecreased by $54.5 million (4.4%) during the quarter ended June 30, 2023. Total commercial loans and leases decreased by $48.7 million due to a $36.8 million decline in the third quarter of 2017 as strong originationsequipment finance balances and a $10.8 million reduction in commercial line of credit balance utilization at the end of the quarter. Multi-family mortgage and industrial loans and multi-familynonresidential real estate loans declined by $5.4 million due to lower loan originations during the second quarter of 2023.
Yields on loan originations were offset by higher than expected payoffs9.24% in commercial leases and investor one-to-four family residential loans. Total commercial and industrial loans increased by 14% on a linked-quarter basis consistent with our recent conversionthe second quarter of 2023, compared to a national bank charter. We expect continued8.67% in the first quarter of 2023, reflecting the growth in commercial finance balances and industrial loan originationshigher yields on variable-rate lines of credit due to the increase in the Wall Street Journal Prime Rate.
Cash and multi-family lending consistent with previous quartersinterest-bearing deposits totaled $115.3 million as of June 30, 2023, compared to $77.0 million as of March 31, 2023.
Total deposits were $1.304 billion as of June 30, 2023, a decrease of $11.5 million (0.9%) compared to March 31, 2023. Total FDIC-insured or collateralized public-funds deposits represented 85% of total deposits as of June 30, 2023. The decrease in deposits during the second quarter of 2023 was primarily due to seasonal outflows due to income tax payments, $5.3 million in funds transferred to our Trust Department, $7.1 million in distributions from estate accounts and withdrawals from retail accounts due to increased rate competition, partially offset by seasonal increases in balances involving collateralized public funds and increases in deposits from family office accounts. Due to increases in market interest rates, certificates of deposit balances increased by $21.3 million as depositors transferred funds from transaction accounts to certificates of deposit. Total borrowings decreased by $10.0 million during the second quarter of 2023 due to increases in our liquidity.
Net interest income decreased by $557,000 during the quarter ended June 30, 2023, due to lower yields on investment securities and a resumptionhigher cost of growth in commercial lease originations indeposits. Our net interest margin was 3.56% as of June 30, 2023, compared to 3.66% as of March 31, 2023.
Noninterest income increased by $926,000 during the lastquarter ended June 30, 2023. Deposit services and loan servicing fees increased modestly during the second quarter of 2017.
Noninterest expense increased $928,000 during the quarter ended June 30, 2023. Information technology increased by $116,000 compared to the first quarter of 2023 due to upgrades and enhancements of branch deposit processing systems. FDIC insurance premiums increased $128,000 due to higher insurance rates assessed on the banking industry. Other expense increased $571,000 compared to the first quarter of 2023, due primarily to professional fees related to claims preparation for two U.S. Government financing transactions subject to the federal Contract Dispute Act and litigation related to a $3.2 million equipment finance borrower that filed a Chapter 11 bankruptcy petition during the second quarter of 2023. We recorded a decrease to our provision for loan losses in the third quarterwrite down of 2017, as recoveries$70,000 on previously-charged off loans exceeded the additional loan loss provision required due to growth in commercial-related loan balances. Basedforeclosed assets based on the current loan portfolio composition and activity, we expect net interest margin to trend towards 3.30% during the fourth quarter of 2017, without regard to any further Federal Reserve rate increases.
The growth within multi-family lending, healthcare lending and direct commercial lessor finance required us to file additional state franchise tax returns; however, we expect to gain the benefit of lower state income tax rates from certain new markets in future periods. We also recognized additional advance disposition costs as we further accelerated the reduction of our remaining Other Real Estate Owned balances during the third quarter of 2017, with a goal to reduce the balance at December 31, 2017 by 40% or more of the September 30, 2017 balance. Other non-interest expenses remained well-contained.
The Company’s capital position remained strong, with a Tier 1 Capital+ALLLleverage ratio was 4.40%. We expect continued reductions of 10.23% as of June 30, 2023. The Company repurchased 93,515 of its common shares during the OREO balance and scheduled pending resolutions will further improve our asset quality.
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.
September 30, 2017 | December 31, 2016 | Change | |||||||||
(Dollars in thousands) | |||||||||||
Selected Financial Condition Data: | |||||||||||
Total assets | $ | 1,654,269 | $ | 1,620,037 | $ | 34,232 | |||||
Loans, net | 1,335,631 | 1,312,952 | 22,679 | ||||||||
Securities, at fair value | 98,787 | 107,212 | (8,425 | ) | |||||||
Other real estate owned, net | 3,569 | 3,895 | (326 | ) | |||||||
Deposits | 1,371,089 | 1,339,390 | 31,699 | ||||||||
Borrowings | 60,928 | 51,069 | 9,859 | ||||||||
Equity | 199,778 | 204,780 | (5,002 | ) |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2017 | 2016 | Change | 2017 | 2016 | Change | ||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||
Selected Operating Data: | |||||||||||||||||||||||
Interest income | $ | 14,121 | $ | 12,845 | $ | 1,276 | $ | 41,132 | $ | 38,185 | $ | 2,947 | |||||||||||
Interest expense | 1,615 | 1,014 | 601 | 4,347 | 2,822 | 1,525 | |||||||||||||||||
Net interest income | 12,506 | 11,831 | 675 | 36,785 | 35,363 | 1,422 | |||||||||||||||||
Provision for (recovery of) loan losses | (225 | ) | (525 | ) | 300 | (15 | ) | 300 | (315 | ) | |||||||||||||
Net interest income after provision for (recovery of) loan losses | 12,731 | 12,356 | 375 | 36,800 | 35,063 | 1,737 | |||||||||||||||||
Noninterest income | 1,623 | 1,637 | (14 | ) | 4,774 | 4,768 | 6 | ||||||||||||||||
Noninterest expense | 10,200 | 9,912 | 288 | 31,073 | 31,348 | (275 | ) | ||||||||||||||||
Income before income tax expense | 4,154 | 4,081 | 73 | 10,501 | 8,483 | 2,018 | |||||||||||||||||
Income tax expense | 594 | 1,573 | (979 | ) | 2,488 | 3,240 | (752 | ) | |||||||||||||||
Net income | $ | 3,560 | $ | 2,508 | $ | 1,052 | $ | 8,013 | $ | 5,243 | $ | 2,770 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Selected Financial Ratios and Other Data: | |||||||||||||||
Performance Ratios: | |||||||||||||||
Return on assets (ratio of net income to average total assets) (1) | 0.88 | % | 0.66 | % | 0.66 | % | 0.46 | % | |||||||
Return on equity (ratio of net income to average equity) (1) | 7.07 | 4.86 | 5.26 | 3.34 | |||||||||||
Average equity to average assets | 12.40 | 13.64 | 12.61 | 13.84 | |||||||||||
Net interest rate spread (1) (2) | 3.10 | 3.23 | 3.12 | 3.25 | |||||||||||
Net interest margin (1) (3) | 3.23 | 3.33 | 3.24 | 3.34 | |||||||||||
Efficiency ratio (4) | 72.19 | 73.60 | 74.77 | 78.11 | |||||||||||
Noninterest expense to average total assets (1) | 2.51 | 2.62 | 2.57 | 2.76 | |||||||||||
Average interest-earning assets to average interest-bearing liabilities | 131.23 | 134.36 | 131.69 | 135.58 | |||||||||||
Dividends declared per share | $ | 0.07 | $ | 0.05 | $ | 0.20 | $ | 0.15 | |||||||
Dividend payout ratio | 35.69 | % | 38.82 | % | 46.30 | % | 56.79 | % |
At September 30, 2017 | At December 31, 2016 | ||||
Asset Quality Ratios: | |||||
Nonperforming assets to total assets (5) | 0.37 | % | 0.44 | % | |
Nonperforming loans to total loans | 0.19 | 0.25 | |||
Allowance for loan losses to nonperforming loans | 321.46 | 246.57 | |||
Allowance for loan losses to total loans | 0.62 | 0.62 | |||
Capital Ratios: | |||||
Equity to total assets at end of period | 12.08 | % | 12.64 | % | |
Tier 1 leverage ratio (Bank only) | 10.94 | % | 10.27 | % | |
Other Data: | |||||
Number of full-service offices | 19 | 19 | |||
Employees (full-time equivalents) | 238 | 246 |
June 30, 2023 | December 31, 2022 | Change | ||||||||||
(In thousands) | ||||||||||||
Selected Financial Condition Data: | ||||||||||||
Total assets | $ | 1,526,696 | $ | 1,575,442 | $ | (48,746 | ) | |||||
Loans, net | 1,170,767 | 1,226,743 | (55,976 | ) | ||||||||
Securities, at fair value | 169,647 | 210,338 | (40,691 | ) | ||||||||
Deposits | 1,303,720 | 1,374,934 | (71,214 | ) | ||||||||
Borrowings | 25,000 | — | 25,000 | |||||||||
Subordinated notes, net of unamortized issuance costs | 19,656 | 19,634 | 22 | |||||||||
Equity | 152,303 | 151,671 | 632 |
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
2023 | 2022 | $ Change | % Change | 2023 | 2022 | $ Change | % Change | |||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
Selected Operating Data: | ||||||||||||||||||||||||||||||||
Interest income | $ | 16,178 | $ | 12,884 | $ | 3,294 | 25.6 | % | $ | 32,338 | $ | 24,302 | $ | 8,036 | 33.1 | % | ||||||||||||||||
Interest expense | 3,235 | 754 | 2,481 | 329.0 | 5,895 | 1,397 | 4,498 | 322.0 | ||||||||||||||||||||||||
Net interest income | 12,943 | 12,130 | 813 | 6.7 | 26,443 | 22,905 | 3,538 | 15.4 | ||||||||||||||||||||||||
Provision for credit losses | (188 | ) | 459 | (647 | ) | (141.0 | ) | (140 | ) | 735 | (875 | ) | (119.0 | ) | ||||||||||||||||||
Net interest income after provision for credit losses | 13,131 | 11,671 | 1,460 | 12.5 | 26,583 | 22,170 | 4,413 | 19.9 | ||||||||||||||||||||||||
Noninterest income | 1,239 | 1,839 | (600 | ) | (32.6 | ) | 1,552 | 3,283 | (1,731 | ) | (52.7 | ) | ||||||||||||||||||||
Noninterest expense | 11,220 | 10,199 | 1,021 | 10.0 | 21,512 | 20,488 | 1,024 | 5.0 | ||||||||||||||||||||||||
Income before income taxes | 3,150 | 3,311 | (161 | ) | (4.9 | ) | 6,623 | 4,965 | 1,658 | 33.4 | ||||||||||||||||||||||
Income tax expense | 838 | 744 | 94 | 12.6 | 1,678 | 1,130 | 548 | 48.5 | ||||||||||||||||||||||||
Net income | $ | 2,312 | $ | 2,567 | $ | (255 | ) | -9.9 | % | $ | 4,945 | $ | 3,835 | $ | 1,110 | 28.9 | % |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Selected Financial Ratios and Other Data: | ||||||||||||||||
Performance Ratios: | ||||||||||||||||
Return on assets (ratio of net income to average total assets) (1) | 0.61 | % | 0.62 | % | 0.64 | % | 0.46 | % | ||||||||
Return on equity (ratio of net income to average equity) (1) | 6.02 | 6.64 | 6.48 | 4.93 | ||||||||||||
Average equity to average assets | 10.07 | 9.38 | 9.91 | 9.39 | ||||||||||||
Net interest rate spread (1) (2) | 3.23 | 3.00 | 3.32 | 2.84 | ||||||||||||
Net interest margin (1) (3) | 3.56 | 3.07 | 3.61 | 2.90 | ||||||||||||
Efficiency ratio (4) | 79.11 | 73.01 | 76.84 | 78.23 | ||||||||||||
Noninterest expense to average total assets (1) | 2.94 | 2.47 | 2.79 | 2.47 | ||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 136.86 | 138.10 | 136.35 | 138.57 | ||||||||||||
Dividends declared per share | $ | 0.10 | $ | 0.10 | $ | 0.20 | $ | 0.20 | ||||||||
Dividend payout ratio | 54.88 | % | 51.24 | % | 51.41 | % | 68.79 | % |
At June 30, 2023 | At December 31, 2022 | |||||||
Asset Quality Ratios: | ||||||||
Nonperforming assets to total assets (5) | 1.64 | % | 0.13 | % | ||||
Nonperforming loans to total loans | 2.05 | 0.13 | ||||||
Allowance for credit losses to nonperforming loans | 38.19 | 494.16 | ||||||
Allowance for credit losses to total loans | 0.78 | 0.66 | ||||||
Capital Ratios: | ||||||||
Equity to total assets at end of period | 9.98 | % | 9.63 | % | ||||
Tier 1 leverage ratio (Bank only) | 10.80 | % | 10.31 | % | ||||
Other Data: | ||||||||
Number of full-service offices | 18 | 20 | ||||||
Employees (full-time equivalents) | 198 | 203 |
(1) | |
Ratios annualized. |
(2) | |
The net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities for the period. |
(3) | |
The net interest margin represents net interest income divided by average total interest-earning assets for the period. |
(4) | |
The efficiency ratio represents noninterest expense, divided by the sum of net interest income and noninterest income. |
(5) | |
Nonperforming assets include nonperforming loans and |
Comparison of Financial Condition at SeptemberJune 30, 20172023 and December 31, 2016
Total assets increased $34.2decreased $48.7 million, or 2.1%3.1%, to
Our loan portfolio consists primarily of investment and business loans (multi-family, nonresidential real estate, commercial, construction and landcommercial loans and commercial leases), which together totaled 92.0%98.2% of gross loans at SeptemberJune 30, 2017. Commercial2023. During the six months ended June 30, 2023, multi-family loans increased by $44.0$4.8 million, or 42.7% and multi-family mortgage0.9%, nonresidential real estate loans increased by $33.5$800,000, or 0.7%, and commercial loans and leases decreased by $57.5 million, or 6.2%, during the nine months ended September 30, 2017. Commercial10.4%. The increase in multi-family loans was due to $23.8 million of originations, partially offset by payments and payoffs of $19.2 million. The decrease in commercial loans and leases decreased $19.4was primarily due to decreases in corporate, government, and middle market leases of $23.8 million, or 5.5%. $22.5 million and $12.9 million, respectively.
Our primary lending area for regulatory purposes consists of the counties in the State of Illinois where our branch offices are located, and contiguous counties. We currently derive the most significant portion of our revenues from these geographic areas. We also engage in multi-family
mortgage lending activities in carefullyTotal liabilities increased
Total stockholders’ equity was
Operating Results for the Three Months Ended SeptemberJune 30, 20172023 and 2016
Net Income.
Net Interest Income
. Net interest income wasThe increase in net interest income reflected a
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 and purchase accounting adjustments that are amortized or accreted to interest income or expense.
For the Three Months Ended September 30, | |||||||||||||||||||||
2017 | 2016 | ||||||||||||||||||||
Average Outstanding Balance | Interest | Yield/Rate (1) | Average Outstanding Balance | Interest | Yield/Rate (1) | ||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||
Loans | $ | 1,331,302 | $ | 13,345 | 3.98 | % | $ | 1,225,480 | $ | 12,388 | 4.02 | % | |||||||||
Securities | 108,050 | 389 | 1.43 | 106,904 | 306 | 1.14 | |||||||||||||||
Stock in FHLBC and FRB | 8,290 | 101 | 4.83 | 6,257 | 10 | 0.64 | |||||||||||||||
Other | 88,201 | 286 | 1.29 | 76,095 | 141 | 0.74 | |||||||||||||||
Total interest-earning assets | 1,535,843 | 14,121 | 3.65 | 1,414,736 | 12,845 | 3.61 | |||||||||||||||
Noninterest-earning assets | 88,594 | 96,739 | |||||||||||||||||||
Total assets | $ | 1,624,437 | $ | 1,511,475 | |||||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||
Savings deposits | $ | 159,464 | 48 | 0.12 | $ | 157,036 | 43 | 0.11 | |||||||||||||
Money market accounts | 304,553 | 307 | 0.40 | 313,270 | 243 | 0.31 | |||||||||||||||
NOW accounts | 278,389 | 139 | 0.20 | 257,553 | 95 | 0.15 | |||||||||||||||
Certificates of deposit | 369,804 | 925 | 0.99 | 323,076 | 631 | 0.78 | |||||||||||||||
Total deposits | 1,112,210 | 1,419 | 0.51 | 1,050,935 | 1,012 | 0.38 | |||||||||||||||
Borrowings | 58,112 | 196 | 1.34 | 1,981 | 2 | 0.40 | |||||||||||||||
Total interest-bearing liabilities | 1,170,322 | 1,615 | 0.55 | 1,052,916 | 1,014 | 0.38 | |||||||||||||||
Noninterest-bearing deposits | 232,464 | 233,914 | |||||||||||||||||||
Noninterest-bearing liabilities | 20,231 | 18,408 | |||||||||||||||||||
Total liabilities | 1,423,017 | 1,305,238 | |||||||||||||||||||
Equity | 201,420 | 206,237 | |||||||||||||||||||
Total liabilities and equity | $ | 1,624,437 | $ | 1,511,475 | |||||||||||||||||
Net interest income | $ | 12,506 | $ | 11,831 | |||||||||||||||||
Net interest rate spread (2) | 3.10 | % | 3.23 | % | |||||||||||||||||
Net interest-earning assets (3) | $ | 365,521 | $ | 361,820 | |||||||||||||||||
Net interest margin (4) | 3.23 | % | 3.33 | % | |||||||||||||||||
Ratio of interest-earning assets to interest-bearing liabilities | 131.23 | % | 134.36 | % |
For the Three Months Ended June 30, | ||||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
Average Outstanding Balance | Interest | Yield/Rate (1) | Average Outstanding Balance | Interest | Yield/Rate (1) | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Interest-earning Assets: | ||||||||||||||||||||||||
Loans | $ | 1,206,175 | $ | 14,345 | 4.77 | % | $ | 1,096,005 | $ | 11,683 | 4.28 | % | ||||||||||||
Securities | 176,052 | 841 | 1.92 | 141,603 | 432 | 1.22 | ||||||||||||||||||
Stock in FHLB and FRB | 7,490 | 99 | 5.30 | 7,490 | 86 | 4.61 | ||||||||||||||||||
Other | 69,652 | 893 | 5.14 | 341,132 | 683 | 0.80 | ||||||||||||||||||
Total interest-earning assets | 1,459,369 | 16,178 | 4.45 | 1,586,230 | 12,884 | 3.26 | ||||||||||||||||||
Noninterest-earning assets | 66,877 | 62,506 | ||||||||||||||||||||||
Total assets | $ | 1,526,246 | $ | 1,648,736 | ||||||||||||||||||||
Interest-bearing Liabilities: | ||||||||||||||||||||||||
Savings deposits | $ | 195,410 | 87 | 0.18 | $ | 207,470 | 44 | 0.09 | ||||||||||||||||
Money market accounts | 271,534 | 908 | 1.34 | 332,428 | 158 | 0.19 | ||||||||||||||||||
NOW accounts | 351,905 | 621 | 0.71 | 390,533 | 202 | 0.21 | ||||||||||||||||||
Certificates of deposit | 202,174 | 1,145 | 2.27 | 196,452 | 151 | 0.31 | ||||||||||||||||||
Total deposits | 1,021,023 | 2,761 | 1.08 | 1,126,883 | 555 | 0.20 | ||||||||||||||||||
Borrowings and Subordinated notes | 45,309 | 474 | 4.20 | 21,694 | 199 | 3.68 | ||||||||||||||||||
Total interest-bearing liabilities | 1,066,332 | 3,235 | 1.22 | 1,148,577 | 754 | 0.26 | ||||||||||||||||||
Noninterest-bearing deposits | 282,216 | 323,130 | ||||||||||||||||||||||
Noninterest-bearing liabilities | 23,995 | 22,395 | ||||||||||||||||||||||
Total liabilities | 1,372,543 | 1,494,102 | ||||||||||||||||||||||
Equity | 153,703 | 154,634 | ||||||||||||||||||||||
Total liabilities and equity | $ | 1,526,246 | $ | 1,648,736 | ||||||||||||||||||||
Net interest income | $ | 12,943 | $ | 12,130 | ||||||||||||||||||||
Net interest rate spread (2) | 3.23 | % | 3.00 | % | ||||||||||||||||||||
Net interest-earning assets (3) | $ | 393,037 | $ | 437,653 | ||||||||||||||||||||
Net interest margin (4) | 3.56 | % | 3.07 | % | ||||||||||||||||||||
Ratio of interest-earning assets to interest-bearing liabilities | 136.86 | % | 138.10 | % |
(1) | Annualized. |
(2) |
Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. |
(3) | |
Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. |
(4) | |
Net interest margin represents net interest income divided by average total interest-earning assets. |
Allowance and Provision for LoanCredit Losses
The ACL is a significant estimate in our unaudited consolidated financial statements, affecting both earnings and capital. The methodology adopted influences, and is influenced by, the Bank’s overall credit risk management processes. The ACL is recorded in accordance with US GAAP to provide an adequate reserve for loanexpected credit losses which arethat is reflective of management’s best estimate of what is expected to be collected. All estimates of credit losses should be based on a careful consideration of all significant factors affecting the collectability as of the evaluation date. The ACL is established through the provision for credit loss expense charged to operations in order to maintain the allowance for loan losses at a level we consider necessary to absorb probable incurredincome.
The recovery of 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.
There were no reserves established for loans individually evaluated at June 30, 2023 or March 31, 2023. Net recoveriescharge-offs were $477,000$626,000 for the three months ended SeptemberJune 30, 2017.
The allowance for loancredit losses as a percentage of nonperforming loans was 321.46% at September 30, 2017, compared to 274.76%38.19% at June 30, 2017.
Noninterest Income
Three Months Ended September 30, | |||||||||||
2017 | 2016 | Change | |||||||||
(Dollars in thousands) | |||||||||||
Deposit service charges and fees | $ | 584 | $ | 583 | $ | 1 | |||||
Other fee income | 523 | 478 | 45 | ||||||||
Insurance commissions and annuities income | 41 | 53 | (12 | ) | |||||||
Gain on sale of loans, net | 10 | 38 | (28 | ) | |||||||
Loan servicing fees | 58 | 66 | (8 | ) | |||||||
Amortization of servicing assets | (27 | ) | (28 | ) | 1 | ||||||
Earnings on bank owned life insurance | 67 | 54 | 13 | ||||||||
Trust income | 169 | 167 | 2 | ||||||||
Other | 198 | 226 | (28 | ) | |||||||
Total noninterest income | $ | 1,623 | $ | 1,637 | $ | (14 | ) |
Three Months Ended | ||||||||||||
June 30, | ||||||||||||
2023 | 2022 | Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Deposit service charges and fees | $ | 830 | $ | 826 | $ | 4 | ||||||
Loan servicing fees | 141 | 190 | (49 | ) | ||||||||
Trust and insurance commissions and annuities income | 276 | 262 | 14 | |||||||||
Gain on sale of premises and equipment | 13 | — | 13 | |||||||||
Valuation adjustment on bank premises held-for-sale | (32 | ) | — | (32 | ) | |||||||
(Loss) earnings on bank-owned life insurance | (87 | ) | 11 | (98 | ) | |||||||
Bank-owned life insurance death benefit | — | 446 | (446 | ) | ||||||||
Other | 98 | 104 | (6 | ) | ||||||||
$ | 1,239 | $ | 1,839 | $ | (600 | ) |
Noninterest income was
Three Months Ended September 30, | |||||||||||
2017 | 2016 | Change | |||||||||
(Dollars in thousands) | |||||||||||
Compensation and benefits | $ | 5,330 | $ | 5,315 | $ | 15 | |||||
Office occupancy and equipment | 1,693 | 1,487 | 206 | ||||||||
Advertising and public relations | 167 | 144 | 23 | ||||||||
Information technology | 638 | 707 | (69 | ) | |||||||
Supplies, telephone and postage | 337 | 345 | (8 | ) | |||||||
Amortization of intangibles | 123 | 129 | (6 | ) | |||||||
Nonperforming asset management | 84 | 89 | (5 | ) | |||||||
Loss (gain) on sale other real estate owned | 69 | (15 | ) | 84 | |||||||
Valuation adjustments of other real estate owned | 227 | 115 | 112 | ||||||||
Operations of other real estate owned | 107 | 143 | (36 | ) | |||||||
FDIC insurance premiums | 150 | 238 | (88 | ) | |||||||
Other | 1,275 | 1,215 | 60 | ||||||||
Total noninterest expense | $ | 10,200 | $ | 9,912 | $ | 288 |
Noninterest Expense
Three Months Ended | ||||||||||||
June 30, | ||||||||||||
2023 | 2022 | Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Compensation and benefits | $ | 5,629 | $ | 5,489 | $ | 140 | ||||||
Office occupancy and equipment | 2,031 | 1,933 | 98 | |||||||||
Advertising and public relations | 269 | 208 | 61 | |||||||||
Information technology | 965 | 895 | 70 | |||||||||
Professional fees | 348 | 412 | (64 | ) | ||||||||
Supplies, telephone and postage | 295 | 362 | (67 | ) | ||||||||
FDIC insurance premiums | 282 | 106 | 176 | |||||||||
Other | 1,401 | 794 | 607 | |||||||||
Total noninterest expense | $ | 11,220 | $ | 10,199 | $ | 1,021 |
Noninterest expense decreased $69,000,increased $1.0 million, or 9.8%10.0%, to $638,000 for the three months ended September 30, 2017, from $707,000 for the same period in 2016. Nonperforming asset management expense decreased $5,000, or 5.6%, to $84,000 for the three months ended September 30, 2017, from $89,000 for the same period in 2016, primarily due to a $39,000 reduction in legal expenses. Valuation adjustments for OREO totaled $227,000 for the three months ended September 30, 2017, compared to $115,000 for the same period in 2016, due to initiatives that we undertook to accelerate OREO dispositions. Other expenses increased $60,000, or 4.9%, to $1.3$11.2 million, for the three months ended SeptemberJune 30, 2017, from $1.22023, compared to $10.2 million for the same period in 2016,2022, primarily due to increases in compensation and benefits, increased state tax auditFDIC insurance premiums, and planningother expenses. Compensation and state franchise tax payments.
Income Taxes
We recorded income tax expense was reduced by $879,000of $838,000 for the quarter duethree months ended June 30, 2023, compared to an increase in$744,000 for the deferred tax asset related to our Illinois net operating loss carryforward. Effective in July 2017, our Illinois income tax rate increased from 7.75% to 9.5%.three months ended June 30, 2022. Our combined state and federal effective tax rate for the three months ended SeptemberJune 30, 20172023 was 14.3%26.6%, compared to 38.5%22.5% for the same period in 2016.
Operating Results for the NineSix Months Ended
Net Income.
Net Interest Income
. Net interest income wasThe increase in net interest income was primarily attributabledue in substantial part to anthe increase in the weighted average balance ofyield on interest-earning assets. The yield on interest-earning assets which increased $105.3134 basis points to 4.42% for the six months ended June 30, 2023, from 3.08% for the six months ended June 30, 2022. The cost of interest-bearing liabilities increased 86 basis points to 1.10% for the six months ended June 30, 2023, from 0.24% for the six months ended June 30, 2022. Total average interest-earning assets decreased $116.9 million, or 7.4%7.3%, to $1.519$1.477 billion for the ninesix months ended SeptemberJune 30, 2017,2023, from $1.414$1.594 billion for the same period in 2016.2022. Total average interest-bearing liabilities decreased $67.0 million, or 5.8%, to $1.083 billion for the six months ended June 30, 2023, from $1.150 billion for the same period in 2022. The decrease in interest-bearing liabilities is partially attributable to the decrease in deposits of $83.4 million, partially offset by the increase in FHLB advances in the first quarter of 2023. Our net interest rate spread decreasedincreased by 1348 basis points to 3.12%3.32% for the ninesix months ended SeptemberJune 30, 2017, compared to 3.25%2023, from 2.84% for the same period in 2016.2022, due primarily to an increase in the yield on loans receivable, securities and interest-bearing deposits in other financial institutions. Our net interest margin decreasedincreased by ten71 basis pointpoints to 3.24%3.61% for the ninesix months ended SeptemberJune 30, 2017, compared to 3.34%2023, from 2.90% for the same period in 2016. However the average yield on commercial loans and leases originated2022, due to an increase in the nine months of 2017 was 4.34%, compared to 3.69% for commercial loans and leases originated in the nine months of 2016. The yield on interest-earning assets increased one basis points to 3.62% for the nine months ended September 30, 2017, from 3.61% for the same period in 2016, and the cost of interest-bearing liabilities increased 14 basis points to 0.50% for the nine months ended September 30, 2017, from 0.36% for the same period in 2016.
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 purchase accounting adjustments that are amortized or accreted to interest income or expense.
For the Nine Months Ended September 30, | |||||||||||||||||||||
2017 | 2016 | ||||||||||||||||||||
Average Outstanding Balance | Interest | Yield/Rate (1) | Average Outstanding Balance | Interest | Yield/Rate (1) | ||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||
Loans | $ | 1,321,051 | $ | 39,061 | 3.95 | % | $ | 1,224,779 | $ | 36,834 | 4.02 | % | |||||||||
Securities | 110,399 | 1,095 | 1.33 | 111,399 | 927 | 1.11 | |||||||||||||||
Stock in FHLBC and FRB | 8,563 | 301 | 4.70 | 6,257 | 53 | 1.13 | |||||||||||||||
Other | 79,258 | 675 | 1.14 | 71,516 | 371 | 0.69 | |||||||||||||||
Total interest-earning assets | 1,519,271 | 41,132 | 3.62 | 1,413,951 | 38,185 | 3.61 | |||||||||||||||
Noninterest-earning assets | 91,438 | 97,803 | |||||||||||||||||||
Total assets | $ | 1,610,709 | $ | 1,511,754 | |||||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||
Savings deposits | $ | 160,460 | 138 | 0.11 | $ | 158,671 | 128 | 0.11 | |||||||||||||
Money market accounts | 305,776 | 886 | 0.39 | 319,299 | 738 | 0.31 | |||||||||||||||
NOW accounts | 272,149 | 395 | 0.19 | 251,423 | 278 | 0.15 | |||||||||||||||
Certificates of deposit | 362,346 | 2,484 | 0.92 | 287,074 | 1,605 | 0.75 | |||||||||||||||
Total deposits | 1,100,731 | 3,903 | 0.47 | 1,016,467 | 2,749 | 0.36 | |||||||||||||||
Borrowings | 52,898 | 444 | 1.12 | 26,398 | 73 | 0.37 | |||||||||||||||
Total interest-bearing liabilities | 1,153,629 | 4,347 | 0.50 | 1,042,865 | 2,822 | 0.36 | |||||||||||||||
Noninterest-bearing deposits | 232,662 | 238,827 | |||||||||||||||||||
Noninterest-bearing liabilities | 21,379 | 20,822 | |||||||||||||||||||
Total liabilities | 1,407,670 | 1,302,514 | |||||||||||||||||||
Equity | 203,039 | 209,240 | |||||||||||||||||||
Total liabilities and equity | $ | 1,610,709 | $ | 1,511,754 | |||||||||||||||||
Net interest income | $ | 36,785 | $ | 35,363 | |||||||||||||||||
Net interest rate spread (2) | 3.12 | % | 3.25 | % | |||||||||||||||||
Net interest-earning assets (3) | $ | 365,642 | $ | 371,086 | |||||||||||||||||
Net interest margin (4) | 3.24 | % | 3.34 | % | |||||||||||||||||
Ratio of interest-earning assets to interest-bearing liabilities | 131.69 | % | 135.58 | % |
For the Six Months Ended June 30, | ||||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
Average Outstanding Balance | Interest | Yield/Rate (1) | Average Outstanding Balance | Interest | Yield/Rate (1) | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Interest-earning Assets: | ||||||||||||||||||||||||
Loans | $ | 1,215,852 | $ | 28,738 | 4.77 | % | $ | 1,073,462 | $ | 22,496 | 4.23 | % | ||||||||||||
Securities | 194,097 | 1,955 | 2.03 | 129,051 | 731 | 1.14 | ||||||||||||||||||
Stock in FHLB and FRB | 7,490 | 191 | 5.14 | 7,490 | 172 | 4.63 | ||||||||||||||||||
Other | 59,273 | 1,454 | 4.95 | 383,591 | 903 | 0.47 | ||||||||||||||||||
Total interest-earning assets | 1,476,712 | 32,338 | 4.42 | 1,593,594 | 24,302 | 3.08 | ||||||||||||||||||
Noninterest-earning assets | 63,102 | 63,750 | ||||||||||||||||||||||
Total assets | $ | 1,539,814 | $ | 1,657,344 | ||||||||||||||||||||
Interest-bearing Liabilities: | ||||||||||||||||||||||||
Savings deposits | $ | 199,456 | 177 | 0.18 | $ | 205,784 | 75 | 0.07 | ||||||||||||||||
Money market accounts | 279,819 | 1,744 | 1.26 | 330,498 | 273 | 0.17 | ||||||||||||||||||
NOW accounts | 369,111 | 1,299 | 0.71 | 390,424 | 334 | 0.17 | ||||||||||||||||||
Certificates of deposit | 195,161 | 1,841 | 1.90 | 200,220 | 318 | 0.32 | ||||||||||||||||||
Total deposits | 1,043,547 | 5,061 | 0.98 | 1,126,926 | 1,000 | 0.18 | ||||||||||||||||||
Borrowings and Subordinated notes | 39,501 | 834 | 4.26 | 23,137 | 397 | 3.46 | ||||||||||||||||||
Total interest-bearing liabilities | 1,083,048 | 5,895 | 1.10 | 1,150,063 | 1,397 | 0.24 | ||||||||||||||||||
Noninterest-bearing deposits | 278,018 | 329,223 | ||||||||||||||||||||||
Noninterest-bearing liabilities | 26,182 | 22,500 | ||||||||||||||||||||||
Total liabilities | 1,387,248 | 1,501,786 | ||||||||||||||||||||||
Equity | 152,566 | 155,558 | ||||||||||||||||||||||
Total liabilities and equity | $ | 1,539,814 | $ | 1,657,344 | ||||||||||||||||||||
Net interest income | $ | 26,443 | $ | 22,905 | ||||||||||||||||||||
Net interest rate spread (2) | 3.32 | % | 2.84 | % | ||||||||||||||||||||
Net interest-earning assets (3) | $ | 393,664 | $ | 443,531 | ||||||||||||||||||||
Net interest margin (4) | 3.61 | % | 2.90 | % | ||||||||||||||||||||
Ratio of interest-earning assets to interest-bearing liabilities | 136.35 | % | 138.57 | % |
(1) | Annualized. |
(2) |
Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. |
(3) | |
Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. |
(4) | |
Net interest margin represents net interest income divided by average total interest-earning assets. |
Allowance and Provision for LoanCredit Losses
The recovery of loancredit losses of $15,000– loans for the ninesix months ended SeptemberJune 30, 2017,2023 was $95,000, compared to a provision for credit losses – loans of $300,000$735,000 for the samecorresponding period in 2016.2022. The portionCompany adopted ASC 326 on January 1, 2023, and recorded a one-time increase of $1.9 million for the allowancechange in accounting principle with the adoption. The provision for credit losses – loans varies based primarily on forecasted unemployment rates, loan losses attributable togrowth, net charge-offs, collateral values associated with collateral dependent loans collectively evaluated for impairment increased $273,000, or 3.4%, to $8.4 million at September 30, 2017. The reserveand qualitative factors.
There were no reserves established for loans individually evaluated for impairment decreased $26,000 to zero at SeptemberJune 30, 2017.
The allowance for loancredit losses as a percentage of nonperforming loans was 321.46%38.19% at SeptemberJune 30, 2017,2023, compared to 246.57%494.16% at December 31, 2016.
Noninterest Income
Nine Months Ended September 30, | |||||||||||
2017 | 2016 | Change | |||||||||
(Dollars in thousands) | |||||||||||
Deposit service charges and fees | $ | 1,682 | $ | 1,691 | $ | (9 | ) | ||||
Other fee income | 1,494 | 1,478 | 16 | ||||||||
Insurance commissions and annuities income | 170 | 180 | (10 | ) | |||||||
Gain on sale of loans, net | 70 | 59 | 11 | ||||||||
Gain on sales of securities | — | 46 | (46 | ) | |||||||
Loan servicing fees | 188 | 214 | (26 | ) | |||||||
Amortization of servicing assets | (86 | ) | (96 | ) | 10 | ||||||
Earnings on bank owned life insurance | 196 | 151 | 45 | ||||||||
Trust income | 534 | 492 | 42 | ||||||||
Other | 526 | 553 | (27 | ) | |||||||
Total noninterest income | $ | 4,774 | $ | 4,768 | $ | 6 |
Six Months Ended | ||||||||||||
June 30, | ||||||||||||
2023 | 2022 | Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Deposit service charges and fees | $ | 1,646 | $ | 1,607 | $ | 39 | ||||||
Loan servicing fees | 270 | 291 | (21 | ) | ||||||||
Trust and insurance commissions and annuities income | 643 | 600 | 43 | |||||||||
Losses on sales of securities | (454 | ) | — | (454 | ) | |||||||
Gain on sale of premises and equipment | 9 | — | 9 | |||||||||
Valuation adjustment on bank premises held-for-sale | (585 | ) | — | (585 | ) | |||||||
(Loss) earnings on bank-owned life insurance | (171 | ) | 39 | (210 | ) | |||||||
Bank-owned life insurance death benefit | — | 446 | (446 | ) | ||||||||
Other | 194 | 300 | (106 | ) | ||||||||
Total noninterest income | $ | 1,552 | $ | 3,283 | $ | (1,731 | ) |
Noninterest income remained constant at $4.8decreased $1.7 million, or 52.7%, to $1.6 million for the nine month periods ended September 30, 2017 and 2016. Other fee income increased $16,000, or 1.1%. Noninterest income for the ninesix months ended SeptemberJune 30, 2017 included a $70,000 gain on sale of loans,2023, compared to a $59,000 gain on sale of loans for the same period in 2016. Loan servicing fees decreased $26,000 compared to the same nine month period in 2016 due to a decrease in the balance of loans serviced for others.
Nine Months Ended September 30, | |||||||||||
2017 | 2016 | Change | |||||||||
(Dollars in thousands) | |||||||||||
Compensation and benefits | $ | 16,792 | $ | 17,021 | $ | (229 | ) | ||||
Office occupancy and equipment | 4,914 | 4,769 | 145 | ||||||||
Advertising and public relations | 807 | 618 | 189 | ||||||||
Information technology | 2,070 | 2,130 | (60 | ) | |||||||
Supplies, telephone and postage | 1,027 | 1,018 | 9 | ||||||||
Amortization of intangibles | 374 | 394 | (20 | ) | |||||||
Nonperforming asset management | 215 | 300 | (85 | ) | |||||||
Loss (gain) on sale other real estate owned | 100 | (15 | ) | 115 | |||||||
Valuation adjustments of other real estate owned | 301 | 244 | 57 | ||||||||
Operations of other real estate owned | 460 | 539 | (79 | ) | |||||||
FDIC insurance premiums | 462 | 691 | (229 | ) | |||||||
Other | 3,551 | 3,639 | (88 | ) | |||||||
Total noninterest expense | $ | 31,073 | $ | 31,348 | $ | (275 | ) |
Noninterest Expense
Six Months Ended | ||||||||||||
June 30, | ||||||||||||
2023 | 2022 | Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Compensation and benefits | $ | 11,184 | $ | 10,969 | $ | 215 | ||||||
Office occupancy and equipment | 4,069 | 4,067 | 2 | |||||||||
Advertising and public relations | 459 | 350 | 109 | |||||||||
Information technology | 1,814 | 1,746 | 68 | |||||||||
Professional fees | 665 | 785 | (120 | ) | ||||||||
Supplies, telephone and postage | 654 | 709 | (55 | ) | ||||||||
FDIC insurance premiums | 436 | 222 | 214 | |||||||||
Other | 2,231 | 1,640 | 591 | |||||||||
Total noninterest expense | $ | 21,512 | $ | 20,488 | $ | 1,024 |
Noninterest expense increased $1.0 million, or 5.0%, to $21.5 million for the six months ended June 30, 2023, compared to $20.5 million for the same period in 2022, primarily due to increases in compensation and benefits, advertising and public relations, increased FDIC insurance premiums, and other expenses. Compensation and benefits expense decreased $229,000,increased $215,000, or 1.3%, due in substantial part2.0% to a decrease of $590,000 in stock-based compensation expense$11.2 million, for the ninesix months ended SeptemberJune 30, 2017, which was partially offset by increased accruals2023, compared to $11.0 million for the same period in 2022 due to decreased loan originations in 2023 and lower compensation costs being deferred as loan origination and business plan performance incentives. In the first quarter of 2017, we recorded a one-time, non-cash, non-tax deductible equity compensation expense of $1.1 million related to the termination of the Bank's ESOP and the repayment of the ESOP’s Share Acquisition Loan. ESOP and equity-based compensation expense for the nine months ended September 30, 2016 was $1.7 million. Expenses for office occupancy and equipment increased $145,000, or 3.0%, primarily due to increased real estate taxes and increased rent expense for the lending operations in selected metropolitan areas outside our primary lending area. Operations of OREO decreased $79,000, or 14.7%, due to decreases in legal expense and maintenance and repairs expense, partiallycosts, offset by a decrease of $80,000 in rental income. Other expenses decreased $88,000, or 2.4%, primarilycompensation. FDIC insurance premiums increased $214,000 for the six months ended June 30, 2023 due to reductionshigher deposit insurance rates assessed on the banking industry. Other expense increased $591,000, or 36.0%, to $2.2 million for the six months ended June 30, 2023, compared to $1.6 million for the same period in loss2022, due to fraud inhigher professional fees related to claims preparation for two U.S. Government financing transactions and collection of nonperforming equipment finance loans and leases. We also recorded a write down of $70,000 on foreclosed assets based on the nine months ended September 30, 2017 and the fact that we recorded an expense of $150,000 in the nine months ended September 30, 2016 for a mortgage representation and warranty reserve for mortgage loans sold and serviced for others.
Income Taxes
We recorded $2.5 million of income tax expense compared to $3.2of $1.7 million for the ninesix months ended SeptemberJune 30, 2016.2023, compared to $1.1 million for the six months ended June 30, 2022. Our combined state and federal effective tax rate for the ninesix months ended SeptemberJune 30, 20172023 was 23.7%25.3%, compared to 38.2%22.8% for the same period in 2016. Our effective tax rate for the ninesix months ended SeptemberJune 30, 2017 included2022.
Criticized and Classified Assets
The Company categorizes loans into risk categories based on relevant information about the impactability 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 as to credit risk. Risk ratings are updated any time the situation warrants. The following table sets forth the criticized and classified loans:
June 30, 2023 | March 31, 2023 | December 31, 2022 | Quarter Change | Six-Month Change | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Criticized – Special Mention: | ||||||||||||||||||||
One-to-four family residential real estate | $ | — | $ | 16 | $ | 4 | $ | (16 | ) | $ | (4 | ) | ||||||||
Commercial loans and leases: | ||||||||||||||||||||
Asset-based and factored receivables | — | 348 | 873 | (348 | ) | (873 | ) | |||||||||||||
Equipment finance: | ||||||||||||||||||||
Government | — | 10,468 | — | (10,468 | ) | — | ||||||||||||||
Corporate – Other | 2,143 | 582 | 644 | 1,561 | 1,499 | |||||||||||||||
Consumer | 5 | 5 | 4 | — | 1 | |||||||||||||||
$ | 2,148 | $ | 11,419 | $ | 1,525 | $ | (9,271 | ) | $ | 623 | ||||||||||
Classified – Performing Substandard: | ||||||||||||||||||||
One-to-four family residential real estate | $ | 272 | $ | 280 | $ | 327 | $ | (8 | ) | $ | (55 | ) | ||||||||
Multi-family mortgage | — | 148 | — | (148 | ) | — | ||||||||||||||
Commercial loans and leases: | ||||||||||||||||||||
Asset-based and factored receivables | 3,726 | 3,748 | 3,815 | (22 | ) | (89 | ) | |||||||||||||
Equipment finance: | ||||||||||||||||||||
Government | — | 52 | 52 | (52 | ) | (52 | ) | |||||||||||||
Corporate – Investment-rated | — | — | 130 | — | (130 | ) | ||||||||||||||
Corporate – Other | 33 | 46 | 44 | (13 | ) | (11 | ) | |||||||||||||
Consumer | 5 | 5 | 4 | — | 1 | |||||||||||||||
$ | 4,036 | $ | 4,279 | $ | 4,372 | $ | (243 | ) | $ | (336 | ) |
In February 2023, we received an informal notice of non-renewal of a contract securing the repayment of a software financing transaction in our commercial loan and leasing portfolio with a U.S. government agency. The transaction had an aggregate principal balance of $10.5 million as of December 31, 2022 with a payment due date of March 25, 2023. Given the uncertainty of the stock option exercisesreceipt of timely payment, we assigned a “Special Mention” credit rating as of March 31, 2023. As of June 30, 2023 we did not receive any further communication from the U.S. government agency involved in this transaction and we did not receive the one-time, non-cash, non-tax deductible equity compensation expense relating toscheduled payment due March 25, 2023; accordingly, we placed the terminationcredit exposure on nonaccrual status and are initiating enforcement proceedings.
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, the Company placeswe place loans on nonaccrual status when we do not expect to receive full payment of interest or principal. Interest accrued and unpaid at the time a loan is placed on nonaccrual status is reversed from interest income. Interest payments received on nonaccrual loans are recognized in accordance with our significant accounting policies. Once a loan is placed on nonaccrual status, the borrower must generally demonstrate at least six consecutive months of contractual payment performance before the loan is eligible to return to accrual status. We may have loans classified as 90 days or more delinquent and still accruing. Generally, we do not utilize this category of loan classification unless: (1) the loan is repaid in full shortly after the period end date; (2) the loan is well secured and there are no asserted or pending legal barriers to its collection; or (3) the borrower has remitted all scheduled payments and is otherwise in substantial compliance with the terms of the loan, but the processing of loan payments actually
The following table below sets forth the amounts and categories of our nonperforming loans and nonperforming assets.
September 30, 2017 | June 30, 2017 | December 31, 2016 | Quarter Change | Nine Month Change | |||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
Nonaccrual loans: | |||||||||||||||||||
One-to-four family residential real estate | $ | 2,234 | $ | 2,585 | $ | 2,851 | $ | (351 | ) | $ | (617 | ) | |||||||
Multi-family mortgage | 371 | 371 | 185 | — | 186 | ||||||||||||||
Nonresidential real estate | — | — | 260 | — | (260 | ) | |||||||||||||
2,605 | 2,956 | 3,296 | (351 | ) | (691 | ) | |||||||||||||
Other real estate owned: | |||||||||||||||||||
One-to-four family residential | 1,748 | 1,946 | 1,565 | (198 | ) | 183 | |||||||||||||
Multi-family mortgage | — | 357 | 370 | (357 | ) | (370 | ) | ||||||||||||
Nonresidential real estate | 1,551 | 1,736 | 1,066 | (185 | ) | 485 | |||||||||||||
Land | 270 | 857 | 894 | (587 | ) | (624 | ) | ||||||||||||
3,569 | 4,896 | 3,895 | (1,327 | ) | (326 | ) | |||||||||||||
Total nonperforming assets | $ | 6,174 | $ | 7,852 | $ | 7,191 | $ | (1,678 | ) | $ | (1,017 | ) | |||||||
Ratios: | |||||||||||||||||||
Nonperforming loans to total loans | 0.19 | % | 0.22 | % | 0.25 | % | |||||||||||||
Nonperforming assets to total assets | 0.37 | 0.48 | 0.44 |
June 30, 2023 | March 31, 2023 | December 31, 2022 | Quarter Change | Six-Month Change | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Nonaccrual loans: | ||||||||||||||||||||
One-to-four family residential real estate | $ | 45 | $ | 55 | $ | 92 | $ | (10 | ) | $ | (47 | ) | ||||||||
Multi-family mortgage | 148 | — | — | 148 | 148 | |||||||||||||||
Commercial loans and leases – Equipment finance: | ||||||||||||||||||||
Government | 18,889 | 8,420 | — | 10,469 | 18,889 | |||||||||||||||
Corporate – Investment-rated | 93 | 3 | — | 90 | 93 | |||||||||||||||
Corporate – Other | 1,416 | — | 331 | 1,416 | 1,085 | |||||||||||||||
Middle market | 3,358 | 306 | 891 | 3,052 | 2,467 | |||||||||||||||
Small ticket | 209 | 78 | 88 | 131 | 121 | |||||||||||||||
Consumer | — | — | 5 | — | (5 | ) | ||||||||||||||
24,158 | 8,862 | 1,407 | 15,296 | 22,751 | ||||||||||||||||
Loans past due over 90 days, still accruing | — | — | 238 | — | (238 | ) | ||||||||||||||
Foreclosed assets: | ||||||||||||||||||||
Other real estate owned | 472 | 472 | 472 | — | — | |||||||||||||||
Other foreclosed assets | 478 | 921 | 4 | (443 | ) | 474 | ||||||||||||||
950 | 1,393 | 476 | (443 | ) | 474 | |||||||||||||||
Total nonperforming assets | $ | 25,108 | $ | 10,255 | $ | 2,121 | $ | 14,853 | $ | 22,987 | ||||||||||
Ratios: | ||||||||||||||||||||
Allowance for credit losses to total loans | 0.78 | % | 0.81 | % | 0.66 | % | ||||||||||||||
Allowance for credit losses to nonperforming loans | 38.19 | 113.20 | 494.16 | |||||||||||||||||
Nonperforming loans to total loans | 2.05 | 0.72 | 0.13 | |||||||||||||||||
Nonperforming assets to total assets | 1.64 | 0.66 | 0.13 | |||||||||||||||||
Nonaccrual loans to total loans | 2.05 | 0.72 | 0.11 | |||||||||||||||||
Nonaccrual loans to total assets | 1.58 | 0.57 | 0.09 |
Nonperforming Assets
Nonperforming assets totaled $
Government Equipment Finance – Failure to Receive Timely Payment. During the second quarter of 2023, we did not receive a scheduled payment on a $10.5 million U.S. government financing transaction for anti-malware cybersecurity software from a multinational technology company that develops, manufactures, and sells networking hardware, cybersecurity and other software, telecommunications equipment and other high-technology services and products, and provided through the supply chain to a U.S. government agency. The government contractor that provided the anti-malware cybersecurity software to a U.S. government agency received an electronic mail message that the user did not have “a reoccurring need” for the cybersecurity software; however, no formal notice of non-renewal has been issued by the contracting officer. We reviewed the financing transaction with outside counsel with experience occasional isolated instances of new nonaccrual loans,in enforcing U.S. government contracts and related claims. Based on counsel’s evaluation, we believe that continuing our aggressive resolution posture will maintainwe have meritorious claims for recovery of the trends favoring very strong asset quality.
With respect to the two U.S. government Equipment Finance transactions that we placed on nonaccrual during 2023, we prepared common-interest agreements and two nonresidential real estate loanssponsorship agreements between the prime contractor, the servicer and us to enable the filing of the appropriate claims under the federal Contract Disputes Act. In addition, we prepared initial claim documents to be filed with an aggregate book balance of $2.0 million were transferred from nonaccrual loansthe U.S. government contracting officers for each financing transaction. We expect to OREOfile all claims during the nine months ended September 30, 2017. Wethird quarter of 2023. Under the federal Contract Disputes Act, the U.S. government has up to 120 days to respond to the filings, and thereafter, the claims can be filed with the Federal Court of Claims. During the second quarter of 2023, we incurred $195,000 in professional fee expenses related to these claim preparation actions.
Commercial Equipment Finance – Chapter 11 Bankruptcy Case. In April 2023, we received a Chapter 11 bankruptcy petition involving an equipment finance borrower to which we have a $3.2 million total exposure. The borrower is a 71-year old privately-held company engaged in civil infrastructure construction that was acquired by a private equity firm in December 2021. The equipment finance transactions are secured by two tunnel excavation machines that are used in the construction of municipal water and sewer projects.
Pursuant to its bankruptcy petition, the borrower disclosed that it encountered significant difficulties with two large civil infrastructure construction projects with a municipality in 2022, and in March 2023, the borrower’s performance bond insurer issued a “stop payment” notice to the municipality and asserted its rights to any payments due under the contracts. In response, the borrower’s primary commercial bank lender with a $12 million credit exposure issued a notice of default, and exercised certain remedies under its credit agreements, including a setoff of the borrower’s bank accounts. The municipality has also asserted defenses to payment and claims against the borrower. The borrower has not yet filed a reorganization plan in its Chapter 11 bankruptcy case; however, in June 2023, the borrower filed a petition with the bankruptcy court to terminate its lease for its principal office location, which includes its operational facilities and equipment storage yards. In addition, the borrower has informally stated that it does not intend to continue to experience modest quantitiesuse the financed equipment in its future operations.
The borrower was current on all payments as of defaultsMarch 31, 2023, and had reported a satisfactory debt service coverage ratio in its 2021 financial statements at the time of the February 2022 equipment finance transactions. In April 2022, the borrower filed suit against us alleging that the Bank did not lend the full amount due to it in the equipment financing transactions and related documents. In May 2022, we filed a motion to dismiss the borrower’s complaint, which remained pending as of June 30, 2023. Based on residential real estate loans principally due eitherall the facts and circumstances as of June 30, 2023, we continue to believe we have meritorious defenses to the borrower’s complaint.
Based on the borrower’s actions to date in its Chapter 11 bankruptcy case, we intend to pursue a sale of collateral to liquidate our exposure to the borrower. Given the potential termination of the borrower’s lease on its storage facility, we believe that an accelerated liquidation process may be necessary. We recorded a charge-off of $627,000 as of June 30, 2023 for the estimated costs of sale and in recognition of a potential decline in valuation due to changes in market conditions and the recent closure of the service/support facility for one of the tunnel excavation machines, which may reduce demand for the equipment in an accelerated sale process. We also incurred $61,000 in professional fee expenses to protect our interests in the Chapter 11 bankruptcy reorganization petition during the second quarter of 2023.
Commercial Equipment Finance – Fraudulent Borrower Activity. In June 2023, we received notice of the appointment of a receiver for an equipment finance borrower with a total exposure of $786,000. The borrower’s primary commercial bank lender with a $30 million credit exposure also indicated to us that the borrower’s audited financial statements may have been fraudulent. The borrower also has approximately $10 million of obligations to six equipment financing lenders, inclusive of our credit exposure. An equipment leasing firm informed us that the borrower apparently was selling some leased equipment but not remitting the proceeds of the sale to the respective lessors. On June 21, 2023, the principal owner of the borrower committed suicide. In July 2023, the receiver advised us that the borrower filed a Chapter 7 bankruptcy liquidation petition.
The borrower is a distributor of equipment used in the agriculture, construction and material handling industries. The borrower also conducted rental operations of the equipment to various companies engaged in the short- and medium-term rental of equipment. Thus, the borrower’s revenues were diversified by the rental agreements to its customers, which included two Fortune 500 companies. We originated the transaction in 2021 and the borrower had paid as agreed through May 2023. The transaction was also supported by the personal financial conditionguarantee of the borrower’s principal owner.
The receiver is cooperating with us to trace the location of the Bank’s collateral, and any proceeds arising from the use or deterioratedsale of our collateral. During the third quarter of 2023, we expect to retain an equipment specialist to assist the receiver in locating the collateral, value.tracing any potential proceeds of rental or sale, and enforcing our first perfected security interest in the collateral. However, it is possible that the borrower’s reported fraudulent activities may result in a failure to locate the collateral or an inability to enforce our first perfected security interest in the collateral. We will assess the progress of the collateral identification process to determine to what extent the borrower’s fraudulent activity may require adjustments to current estimates of collateral value and expected cash proceeds.
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, and the proceeds from the sales of loans and securities and lease payments. The scheduled amortization of loans and securities, as well as proceeds from borrowings, are predictable sources of funds. Other funding sources, however, such as deposit inflows, mortgage prepayments and mortgage loan sales are greatly influenced by market interest rates, economic conditions and competition. We anticipate that we will have sufficient funds available to meet current loan commitments and lines of credit and maturing certificates of deposit that are not renewed or extended. We generally remain fully invested and utilize FHLBCFHLB advances as an additional sourcessource of funds. We had $60.0$25.0 million of FHLBCFHLB advances outstanding at SeptemberJune 30, 20172023 and $50.0 millionnone at December 31, 2016.
The Company is a separate legal entity from BankFinancial, NA. The Company must provide for its own liquidity to pay any dividends to its stockholders 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. The Company completed the issuance of $20.0 million of subordinated notes in 2021, at a rate of 3.75% maturing on May 15, 2031. At June 30, 2023, the Company (on an unconsolidated, stand-alone basis) had liquid assets of $10.0 million. In 2020, the Company obtained a $5.0 million unsecured line of credit with a correspondent bank to provide a secondary source of liquidity. Interest is payable at a rate of the Prime rate minus 0.50%. The line of credit has been extended since its original maturity date and the current maturity date is March 29, 2024. The line of credit had no outstanding balance at June 30, 2023.
As of SeptemberJune 30, 2017,2023, we were not aware of any known trends, events or uncertainties that had or were reasonably likely to have a material adverse impact on our liquidity. As of SeptemberJune 30, 2017,2023, we had no other material commitments for capital expenditures.
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 and the Company areis subject to regulatory capital requirements administered by the federal banking agencies. The capital adequacy guidelines and additionally for banks, prompt corrective action regulations,regulation, involve the quantitative measurement of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. The failure to meet minimum capital requirements can result in regulatory actions. The final rules implementing Basel Committee on Banking Supervision's capital guidelines for U.S. banks (Basel III rules) became effective for the Company on January 1, 2015, with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. The net unrealized gain or loss on available for saleavailable-for-sale securities is not included in computing regulatory capital.
The federal banking agencies have 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%. A banking organization that had a leverage ratio of 9% or greater and met certain other criteria could elect to use the Community Bank Leverage Ratio framework. A financial institution can elect to be subject to this new definition, and opt-out of this new definition, at any time. As a qualifying community bank, we elected to be subject to this definition beginning in the second quarter of 2020. As of June 30, 2023, the Bank's Community Bank Leverage Ratio was 10.80%.
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. As
The Company and the Bank have each adopted Regulatory Capital PlansPolicies that require the Bank to maintaintarget a Tier 1 leverage ratio of at least 7.5%, 7.0% for common equity tier 1 captial and a total risk-based capital ratio of at least 10.5% (includingat the Capital Conservation Buffer ("CCB")).Bank. The minimum capital ratios set forth in the Regulatory Capital PlansPolicies will be increased or decreased and other minimum capital requirements will be established if and as necessary. In accordance with the Regulatory Capital Plans, neither the Company norPolicies, the Bank will not pursue any acquisition or growth opportunity, declare any dividend or conduct any stock repurchase that would cause the Bank's total risk-based capital ratio and/or its Tier 1 leverage ratio to fall below the establishedtargeted minimum capital levels or the capital levels required for capital adequacy plus the CCB.capital conservation buffer (“CCB”). The minimum CCB at Septemberis 2.5%. As of June 30, 2017 is 1.25% and will increase 0.625% annually through 2019 to 2.5%. In addition, the Company will continue to maintain its ability to serve as a source of financial strength to2023 the Bank by holding at least $5.0 million of cash or liquid assetswas well-capitalized under the regulatory framework for that purpose. As of September 30, 2017, the Bank and the Company were well-capitalized, with all capital ratios exceeding the well-capitalized requirement.prompt corrective action. There are no conditions or events that management believes have changed the Bank’s prompt corrective action capitalization category.
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 were:
Actual | Required for Capital Adequacy Purposes | To be Well-Capitalized under Prompt Corrective Action Provisions | ||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||
Total capital (to risk-weighted assets): | ||||||||||||||||||||
Consolidated | $ | 191,058 | 16.43 | % | $ | 93,011 | 8.00 | % | N/A | N/A | ||||||||||
BankFinancial, NA | 184,213 | 15.85 | 92,998 | 8.00 | $ | 116,247 | 10.00 | % | ||||||||||||
Tier 1 (core) capital (to risk-weighted assets): | ||||||||||||||||||||
Consolidated | 182,683 | 15.71 | 69,758 | 6.00 | N/A | N/A | ||||||||||||||
BankFinancial, NA | 175,838 | 15.13 | 69,748 | 6.00 | 92,998 | 8.00 | ||||||||||||||
Common Tier 1 (CET1) | ||||||||||||||||||||
Consolidated | 182,683 | 15.71 | 52,319 | 4.50 | N/A | N/A | ||||||||||||||
BankFinancial, NA | 175,838 | 15.13 | 52,311 | 4.50 | 75,561 | 6.50 | ||||||||||||||
Tier 1 (core) capital (to adjusted average total assets): | ||||||||||||||||||||
Consolidated | 182,683 | 11.36 | 64,310 | 4.00 | N/A | N/A | ||||||||||||||
BankFinancial, NA | 175,838 | 10.94 | 64,306 | 4.00 | 80,382 | 5.00 |
Actual | Required for Capital Adequacy Purposes | To be Well-Capitalized under Prompt Corrective Action Provisions | ||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||
Total capital (to risk-weighted assets): | ||||||||||||||||||||
Consolidated | $ | 193,845 | 16.96 | % | $ | 91,414 | 8.00 | % | N/A | N/A | ||||||||||
BankFinancial, NA | 168,113 | 14.72 | 91,386 | 8.00 | $ | 114,232 | 10.00 | % | ||||||||||||
Tier 1 (core) capital (to risk-weighted assets): | ||||||||||||||||||||
Consolidated | 185,718 | 16.25 | 68,560 | 6.00 | N/A | N/A | ||||||||||||||
BankFinancial, NA | 159,986 | 14.01 | 68,539 | 6.00 | 91,386 | 8.00 | ||||||||||||||
Common Tier 1 (CET1) | ||||||||||||||||||||
Consolidated | 185,718 | 16.25 | 51,420 | 4.50 | N/A | N/A | ||||||||||||||
BankFinancial, NA | 159,986 | 14.01 | 51,404 | 4.50 | 74,251 | 6.50 | ||||||||||||||
Tier 1 (core) capital (to adjusted average total assets): | ||||||||||||||||||||
Consolidated | 185,718 | 11.92 | 62,306 | 4.00 | N/A | N/A | ||||||||||||||
BankFinancial, NA | 159,986 | 10.27 | 62,303 | 4.00 | 77,879 | 5.00 |
Actual | Required for Capital Adequacy Purposes | |||||||||||||||
Amount | Ratio | Amount | Ratio | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
June 30, 2023 | ||||||||||||||||
Community Bank Leverage Ratio | $ | 163,806 | 10.80 | % | $ | 136,561 | 9.00 | % | ||||||||
December 31, 2022 | ||||||||||||||||
Community Bank Leverage Ratio | $ | 165,252 | 10.31 | % | $ | 144,288 | 9.00 | % |
Quarterly Cash Dividends.
The Company declared cash dividends of $0.20Qualitative 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 interest-rateinterest rate risk, we have de-emphasized the origination of residential mortgage loans, and have increased our emphasis on the origination of nonresidential real estate loans, multi-family mortgage loans, and commercial loans and commercial leases. In addition, depending on market interest rates and our capital and liquidity position, we generally sell all or a portion of our longer-term, fixed-rate residential loans, and usually on a servicing-retained basis. Further, we primarily invest in shorter-duration securities, which generally have lower yields compared to longer-term investments. Shortening the average maturity of our interest-earning assets by increasing our investments in shorter-term loans and securities, as well as loans with variable rates of interest, helps to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates. Finally, we have classified all of our investment portfolio as available-for-sale so as to provide flexibility in liquidity management.
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 off-balance sheetoff-balance-sheet contracts. In calculating changes in NPV, we assume estimated loan prepayment rates, reinvestment rates and deposit decay rates that seem most likely based on historical experience during prior interest rate changes.
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 ofEstimated Decrease in NPV | Increase (Decrease) in Estimated Net Interest Income | ||||||||||||
Change in Interest Rates (basis points) | Amount | Percent | Amount | Percent | |||||||||
(Dollars in thousands) | |||||||||||||
+400 | $ | (19,288 | ) | (7.68 | )% | $ | 4,055 | 7.97 | % | ||||
+300 | (6,644 | ) | (2.65 | ) | 3,169 | 6.23 | |||||||
+200 | 1,771 | 0.71 | 2,293 | 4.51 | |||||||||
+100 | 6,259 | 2.49 | 1,231 | 2.42 | |||||||||
0 | |||||||||||||
-25 | 4,021 | 1.60 | (791 | ) | (1.55 | ) |
Estimated Increase (Decrease) in NPV | Increase (Decrease) in Estimated Net Interest Income | ||||||||||||||||
Change in Interest Rates (basis points) | Amount | Percent | Amount | Percent | |||||||||||||
(Dollars in thousands) | |||||||||||||||||
+400 | $ | (37,756 | ) | (16.47 | )% | $ | 3,199 | 5.68 | % | ||||||||
+300 | (22,184 | ) | (9.68 | ) | 2,501 | 4.44 | |||||||||||
+200 | (9,237 | ) | (4.03 | ) | 1,831 | 3.25 | |||||||||||
+100 | (1,381 | ) | (0.60 | ) | 1,087 | 1.93 | |||||||||||
-100 | 10,894 | 4.75 | (408 | ) | (0.72 | ) | |||||||||||
-200 | 1,845 | 0.81 | (1,949 | ) | (3.46 | ) | |||||||||||
-300 | (15,568 | ) | (6.79 | ) | (4,716 | ) | (8.37 | ) | |||||||||
-400 | (38,117 | ) | (16.63 | ) | (8,048 | ) | (14.29 | ) |
The table set forth above indicates that at SeptemberJune 30, 2017,2023, in the event of an immediate 25200 basis point decrease in interest rates, the Bank would be expected to experience a 1.60% decrease0.81% increase in NPV and a $791,000$1.9 million decrease in net interest income. In the event of an immediate 200 basis point increase in interest rates, the Bank would be expected to experience a
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.