UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended March 31, 2020
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  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes  x    No  ¨
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”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
¨
 
Accelerated filer
 
x
Non-accelerated filer
 
¨
 
Smaller reporting company
 
x
 
 
 
 
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 ¨ No x.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date. At April 17, 2020, there were 15,042,268 shares of Common Stock, $0.01 par value, outstanding.


BANKFINANCIAL CORPORATION
Form 10-Q
March 31, 2020
Table of Contents
 
 
 
 
 
 


BANKFINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share and per share data) - Unaudited


 
March 31, 2020
 
December 31, 2019
Assets
 
 
 
Cash and due from other financial institutions
$
14,652

 
$
9,785

Interest-bearing deposits in other financial institutions
155,286

 
180,540

Cash and cash equivalents
169,938

 
190,325

Securities, at fair value
63,853

 
60,193

Loans receivable, net of allowance for loan losses:
March 31, 2020, $8,112 and December 31, 2019, $7,632
1,147,628

 
1,168,008

Other real estate owned, net
110

 
186

Stock in Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB"), at cost
7,490

 
7,490

Premises and equipment, net
24,202

 
24,346

Accrued interest receivable
4,698

 
4,563

Bank-owned life insurance
18,977

 
18,945

Deferred taxes
3,644

 
3,873

Other assets
9,742

 
10,086

Total assets
$
1,450,282

 
$
1,488,015

 
 
 
 
Liabilities
 
 
 
Deposits
 
 
 
Noninterest-bearing
$
211,142

 
$
210,762

Interest-bearing
1,042,609

 
1,073,995

Total deposits
1,253,751

 
1,284,757

Borrowings
—

 
61

Advance payments by borrowers for taxes and insurance
8,169

 
10,222

Accrued interest payable and other liabilities
15,367

 
18,603

Total liabilities
1,277,287

 
1,313,643

 


 


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; 15,072,268 shares issued at March 31, 2020 and 15,278,464 shares issued at December 31, 2019
151

 
153

Additional paid-in capital
110,220

 
112,420

Retained earnings
62,469

 
61,573

Accumulated other comprehensive income
155

 
226

Total stockholders’ equity
172,995

 
174,372

Total liabilities and stockholders’ equity
$
1,450,282

 
$
1,488,015


See accompanying notes to the consolidated financial statements.

1

BANKFINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data) - Unaudited

 
Three Months Ended
March 31,
 
2020
 
2019
Interest and dividend income
 
 
 
Loans, including fees
$
13,611

 
$
15,352

Securities
304

 
602

Other
738

 
572

Total interest income
14,653

 
16,526

Interest expense
 
 
 
Deposits
2,684

 
3,221

Borrowings
—

 
86

Total interest expense
2,684

 
3,307

Net interest income
11,969

 
13,219

Provision for (recovery of) loan losses
471

 
(87
)
Net interest income after provision for (recovery of) loan losses
11,498

 
13,306

Noninterest income
 
 
 
Deposit service charges and fees
887

 
930

Loan servicing fees
63

 
23

Mortgage brokerage and banking fees
29

 
28

Gain on sale of equity securities
—

 
295

Loss on disposal of other assets
(2
)
 
(19
)
Trust and insurance commissions and annuities income
282

 
205

Earnings on bank-owned life insurance
32

 
30

Other
107

 
132

Total noninterest income
1,398

 
1,624

Noninterest expense
 
 
 
Compensation and benefits
5,518

 
5,703

Office occupancy and equipment
1,800

 
1,845

Advertising and public relations
152

 
161

Information technology
822

 
692

Professional fees
263

 
306

Supplies, telephone, and postage
300

 
399

Amortization of intangibles
14

 
20

Nonperforming asset management
40

 
54

Operations of other real estate owned, net
(17
)
 
(44
)
FDIC insurance premiums
34

 
108

Other
702

 
854

Total noninterest expense
9,628

 
10,098

Income before income taxes
3,268

 
4,832

Income tax expense
850

 
1,281

Net income
$
2,418

 
$
3,551

Basic and diluted earnings per common share
$
0.16

 
$
0.22

Basic and diluted weighted average common shares outstanding
15,205,731

 
16,202,303


See accompanying notes to the consolidated financial statements.

2

BANKFINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands) - Unaudited

 
Three Months Ended
March 31,
 
2020
 
2019
Net income
2,418

 
3,551

Unrealized holding (loss) gain arising during the period
(97
)
 
6

Tax effect
26

 
(1
)
Net of tax
(71
)
 
5

Comprehensive income
$
2,347

 
$
3,556


See accompanying notes to the consolidated financial statements.

3

BANKFINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except per share data) - Unaudited


 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehen-sive
Income
 
Total
Balance at January 1, 2019
$
165

 
$
130,547

 
$
56,167

 
$
271

 
187,150

Net income
—

 
—

 
3,551

 
—

 
3,551

Other comprehensive income, net of tax
—

 
—

 
—

 
5

 
5

Repurchase and retirement of common stock (837,015 shares)
(8
)
 
(12,832
)
 
—

 
—

 
(12,840
)
Cash dividends declared on common stock ($0.10 per share)
—

 
—

 
(1,646
)
 
—

 
(1,646
)
Balance at March 31, 2019
$
157

 
$
117,715

 
$
58,072

 
$
276

 
$
176,220

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2020
$
153

 
$
112,420

 
$
61,573

 
$
226

 
$
174,372

Net income
—

 
—

 
2,418

 
—

 
2,418

Other comprehensive loss, net of tax
—

 
—

 
—

 
(71
)
 
(71
)
Repurchase and retirement of common stock (206,196 shares)
(2
)
 
(2,200
)
 
—

 
—

 
(2,202
)
Cash dividends declared on common stock ($0.10 per share)
—

 
—

 
(1,522
)
 
—

 
(1,522
)
Balance at March 31, 2020
$
151

 
$
110,220

 
$
62,469

 
$
155

 
$
172,995


See accompanying notes to the consolidated financial statements.

4

BANKFINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) - Unaudited

 
Three Months Ended
March 31,
 
2020
 
2019
Cash flows from operating activities
 
 
 
Net income
$
2,418

 
$
3,551

Adjustments to reconcile to net income to net cash from operating activities
 
 
 
Provision for (recovery of) loan losses
471

 
(87
)
Depreciation
403

 
391

Amortization of premiums and discounts on securities and loans
1

 
1

Amortization of intangibles
14

 
20

Amortization of servicing assets
15

 
17

Net change in net deferred loan origination costs
64

 
7

Gain on sale of other real estate owned
(30
)
 
(95
)
Gain on sale of equity securities
—

 
(295
)
Loss on disposal of other assets
2

 
19

Earnings on bank-owned life insurance
(32
)
 
(30
)
Net change in:
 
 
 
Accrued interest receivable
(135
)
 
(459
)
Other assets
708

 
1,293

Accrued interest payable and other liabilities
(3,336
)
 
(3,991
)
Net cash from operating activities
563

 
342

Cash flows from investing activities
 
 
 
Securities
 
 
 
Proceeds from maturities
23,188

 
30,974

Proceeds from principal repayments
810

 
449

Proceeds from sale of equity securities
—

 
3,722

Purchases of securities
(27,756
)
 
(26,479
)
Net decrease in loans receivable
19,818

 
17,325

Proceeds from sale of other real estate owned
95

 
446

Purchase of premises and equipment, net
(261
)
 
(197
)
Net cash from investing activities
15,894

 
26,240


Continued

5

BANKFINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) - Unaudited

 
Three Months Ended
March 31,
 
2020
 
2019
Cash flows from financing activities
 
 
 
Net change in:
 
 
 
Deposits
$
(31,006
)
 
$
(25,738
)
Borrowings
(61
)
 
(4,943
)
Advance payments by borrowers for taxes and insurance
(2,053
)
 
(1,397
)
Repurchase and retirement of common stock
(2,202
)
 
(12,840
)
Cash dividends paid on common stock
(1,522
)
 
(1,646
)
Net cash used in financing activities
(36,844
)
 
(46,564
)
Net change in cash and cash equivalents
(20,387
)
 
(19,982
)
Beginning cash and cash equivalents
190,325

 
98,204

Ending cash and cash equivalents
$
169,938

 
$
78,222

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Interest paid
$
2,683

 
$
3,453

Income taxes paid
65

 
375

Loans transferred to other real estate owned
—

 
46

Recording of right of use asset in exchange for lease obligations in other assets and other liabilities
111

 
6,694


See accompanying notes to the consolidated financial statements.

6
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, is the owner of all of the issued and outstanding capital stock of BankFinancial, National Association (the “Bank”). The interim unaudited consolidated financial statements include the accounts and transactions of BankFinancial Corporation, the Bank, and the Bank’s wholly-owned subsidiaries, Financial Assurance Services, Inc. and BFIN Asset Recovery Company, LLC (collectively, “the Company”), and reflect all normal and recurring adjustments that are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. Such adjustments are the only adjustments reflected in the accompanying financial statements. All significant intercompany accounts and transactions have been eliminated. The results of operations for the three month period ended March 31, 2020 is not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2020 or for any other period.
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: The preparation of the consolidation financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Although these estimates and assumptions are based on the best available information, actual information, actual results could differ from those estimates.
COVID-19: The Company has evaluated subsequent events for potential recognition and/or disclosure through the date the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q were issued. On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, which continues to spread throughout the United States and around the world. The declaration of a global pandemic indicates that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The outbreak of COVID-19 could adversely impact a broad range of industries in which the Company’s customers operate and impair their ability to fulfill their financial obligations to the Company. On March 3, 2020, the Federal Open Market Committee reduced the target federal funds rate by 50 basis points to 1.00% to 1.25%. This rate was further reduced to a target range of 0% to 0.25% on March 16, 2020. These reductions in interest rates and other effects of the COVID-19 outbreak may adversely affect the Company’s financial condition and results of operations. As a result of the spread of the COVID-19 coronavirus, economic uncertainties have arisen which are likely to negatively impact net interest income and noninterest income. Other financial impact could occur though such potential impact is unknown at this time.
Reclassifications: Certain reclassifications have been made in the prior period’s financial statements to conform them to the current period’s presentation.
These unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission.
Newly Issued Not Yet Effective Accounting Standards
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). These amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For SEC filers who are smaller reporting companies, ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.



7

BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)

NOTE 2 - EARNINGS PER SHARE

Amounts reported in earnings per share reflect earnings available to common stockholders for the period divided by the weighted average number of shares of common stock outstanding during the period.
 
Three Months Ended
March 31,
 
2020
 
2019
Net income available to common stockholders
$
2,418

 
$
3,551

Basic and diluted weighted average common shares outstanding
15,205,731

 
16,202,303

Basic and diluted earnings per common share
$
0.16

 
$
0.22

 
NOTE 3 - SECURITIES
The fair value of securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income is as follows:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
Available-for-Sale Securities
 
 
 
 
 
 
 
March 31, 2020
 
 
 
 
 
 
 
Certificates of deposit
$
53,234

 
$
—

 
$
—

 
$
53,234

Municipal securities
505

 
6

 
—

 
511

Mortgage-backed securities - residential
7,062

 
237

 
—

 
7,299

Collateralized mortgage obligations - residential
2,840

 
3

 
(34
)
 
2,809

 
$
63,641

 
$
246

 
$
(34
)
 
$
63,853

December 31, 2019
 
 
 
 
 
 
 
Certificates of deposit
$
48,666

 
$
—

 
$
—

 
$
48,666

Municipal securities
505

 
8

 
—

 
513

Mortgage-backed securities - residential
7,727

 
310

 
—

 
8,037

Collateralized mortgage obligations - residential
2,986

 
4

 
(13
)
 
2,977

 
$
59,884

 
$
322

 
$
(13
)
 
$
60,193

The mortgage-backed securities and collateralized mortgage obligations reflected in the preceding table were issued by U.S. government-sponsored entities or agencies, Freddie Mac, Fannie Mae and Ginnie Mae, and are obligations which the government has affirmed its commitment to support.



8

BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)

NOTE 3 - SECURITIES (continued)

The amortized cost and fair values of securities by contractual maturity are shown below. Securities not due at a single maturity date are shown separately. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
March 31, 2020
 
Amortized
Cost
 
Fair
Value
Due in one year or less
$
53,335

 
$
53,335

Due after one year through five years
404

 
410

 
53,739

 
53,745

Mortgage-backed securities - residential
7,062

 
7,299

Collateralized mortgage obligations - residential
2,840

 
2,809

 
$
63,641

 
$
63,853

Investment securities with carrying amounts of $1.5 million and $2.0 million at March 31, 2020 and December 31, 2019, respectively, were pledged as collateral on customer repurchase agreements and for other purposes as required or permitted by law.
Sales of equity securities were as follows:
 
Three Months Ended
March 31,
 
2020
 
2019
Proceeds
$
—

 
$
3,722

Gross gains
—

 
295

Gross losses
—

 
—

Securities with unrealized losses not recognized in income are as follows:
 
Less than 12 Months
 
12 Months or More
 
Total
 
Count
 
Fair
Value
 
Unrealized
Loss
 
Count
 
Fair
Value
 
Unrealized
Loss
 
Count
 
Fair
Value
 
Unrealized
Loss
March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Collateralized mortgage obligations - residential
$
2

 
$
623

 
$
(2
)
 
$
3

 
$
1,941

 
$
(32
)
 
5

 
$
2,564

 
$
(34
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Collateralized mortgage obligations - residential
3

 
$
1,566

 
$
(10
)
 
1

 
$
937

 
$
(3
)
 
4

 
$
2,503

 
$
(13
)
The Company evaluates marketable investment securities with significant declines in fair value on a quarterly basis to determine whether they should be considered other-than-temporarily impaired under current accounting guidance, which generally provides that if a marketable security is in an unrealized loss position, whether due to general market conditions or industry or issuer-specific factors, the holder of the securities must assess whether the impairment is other-than-temporary.
Certain collateralized mortgage obligations that the Company holds in its investment portfolio were in an unrealized loss position at March 31, 2020, but the unrealized losses were not considered significant under the Company’s impairment testing methodology. In addition, the Company does not intend to sell these securities, and it is likely that the Company will not be required to sell these securities before their anticipated recovery occurs.
The Bank, as a member of Visa USA, received 51,404 unrestricted shares of Visa, Inc. Class B common stock in connection with Visa, Inc.’s initial public offering in 2007 and a related retroactive responsibility plan. The retroactive responsibility plan obligates



9

BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)

NOTE 3 - SECURITIES (continued)

all former Visa USA members to indemnify Visa USA, in proportion to their equity interests in Visa USA, for certain litigation losses and expenses, including settlement expenses, for the lawsuits covered by the retrospective responsibility plan. Due to the restrictions that the retrospective responsibility plan imposes on the Company’s Visa, Inc. Class B shares, the Company had not recorded the Class B shares as an asset.
The Bank sold 25,702 shares of Visa Class B common stock in the fourth quarter of 2018 and the remaining 25,702 shares of Visa Class B common stock in the first quarter of 2019 and recorded a gain of $295,000.
NOTE 4 - LOANS RECEIVABLE
Loans receivable are as follows:
 
March 31, 2020
 
December 31, 2019
One-to-four family residential real estate
$
52,849

 
$
55,750

Multi-family mortgage
542,421

 
563,750

Nonresidential real estate
133,432

 
134,674

Commercial loans
158,049

 
145,714

Commercial leases
266,063

 
272,629

Consumer
2,078

 
2,211

 
1,154,892

 
1,174,728

Net deferred loan origination costs
848

 
912

Allowance for loan losses
(8,112
)
 
(7,632
)
Loans, net
$
1,147,628

 
$
1,168,008

The following tables present the balance in the allowance for loan losses and loans receivable by portfolio segment and based on impairment method:
 
Allowance for loan losses
 
Loan Balances
 
Individually
evaluated  for
impairment
 
Collectively
evaluated  for
impairment
 
Total
 
Individually
evaluated  for
impairment
 
Collectively
evaluated  for
impairment
 
Total
March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential real estate
$
—

 
$
682

 
$
682

 
$
1,826

 
$
51,023

 
$
52,849

Multi-family mortgage
—

 
3,869

 
3,869

 
612

 
541,809

 
542,421

Nonresidential real estate
—

 
1,460

 
1,460

 
288

 
133,144

 
133,432

Commercial loans
—

 
1,275

 
1,275

 
—

 
158,049

 
158,049

Commercial leases
—

 
780

 
780

 
88

 
265,975

 
266,063

Consumer
—

 
46

 
46

 
—

 
2,078

 
2,078

 
$
—

 
$
8,112

 
$
8,112

 
$
2,814

 
$
1,152,078

 
1,154,892

Net deferred loan origination costs
 
 
 
 
 
 
 
 
 
848

Allowance for loan losses
 
 
 
 
 
 
 
 
 
(8,112
)
Loans, net
 
 
 
 
 
 
 
 
 
 
$
1,147,628




10

BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)

NOTE 4 - LOANS RECEIVABLE (continued)

 
Allowance for loan losses
 
Loan Balances
 
Individually
evaluated  for
impairment
 
Collectively
evaluated  for
impairment
 
Total
 
Individually
evaluated  for
impairment
 
Collectively
evaluated  for
impairment
 
Total
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential real estate
$
—

 
$
675

 
$
675

 
$
1,835

 
$
53,915

 
$
55,750

Multi-family mortgage
—

 
3,676

 
3,676

 
620

 
563,130

 
563,750

Nonresidential real estate
—

 
1,176

 
1,176

 
288

 
134,386

 
134,674

Commercial loans
—

 
1,308

 
1,308

 
—

 
145,714

 
145,714

Commercial leases
—

 
757

 
757

 
—

 
272,629

 
272,629

Consumer
—

 
40

 
40

 
—

 
2,211

 
2,211

 
$
—

 
$
7,632

 
$
7,632

 
$
2,743

 
$
1,171,985

 
1,174,728

Net deferred loan origination costs
 
 
 
 
 
 
 
 
 
912

Allowance for loan losses
 
 
 
 
 
 
 
 
 
(7,632
)
Loans, net
 
 
 
 
 
 
 
 
 
 
$
1,168,008

The following table represents the activity in the allowance for loan losses by portfolio segment:
 
One-to-four family residential real estate
 
Multi-family mortgage
 
Non-residential real estate
 
Construc-tion and land
 
Commer-cial loans
 
Commer-cial leases
 
Consumer
 
Total
March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
675

 
$
3,676

 
$
1,176

 
$
—

 
$
1,308

 
$
757

 
$
40

 
$
7,632

Provision for (recovery of) loan losses
(1
)
 
181

 
284

 
—

 
(35
)
 
23

 
19

 
471

Loans charged off
(5
)
 
—

 
—

 
—

 
—

 
—

 
(13
)
 
(18
)
Recoveries
13

 
12

 
—

 
—

 
2

 
—

 
—

 
27

Total ending allowance balance
$
682

 
$
3,869

 
$
1,460

 
$
—

 
$
1,275

 
$
780

 
$
46

 
$
8,112

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
699

 
3,991

 
1,476

 
4

 
1,517

 
755

 
28

 
$
8,470

Provision for (recovery of) loan losses
(44
)
 
80

 
39

 
(1
)
 
(97
)
 
(65
)
 
1

 
(87
)
Loans charged off
(23
)
 
—

 
(28
)
 
—

 
—

 
—

 
(5
)
 
(56
)
Recoveries
17

 
8

 
—

 
—

 
2

 
—

 
—

 
27

Total ending allowance balance
$
649

 
$
4,079

 
$
1,487

 
$
3

 
$
1,422

 
$
690

 
$
24

 
$
8,354




11

BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)

NOTE 4 - LOANS RECEIVABLE (continued)

Impaired loans
The following tables present loans individually evaluated for impairment by class of loans:
 
 
 
 
 
 
 
 
 
Three months ended
March 31, 2020
 
Loan
Balance
 
Recorded
Investment
 
Partial Charge-off
 
Allowance
for Loan
Losses
Allocated
 
Average
Investment
in Impaired
Loans
 
Interest
Income
Recognized
March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential real estate
$
2,162

 
$
1,826

 
$
346

 
$
—

 
$
1,845

 
$
12

Multi-family mortgage - Illinois
612

 
612

 
—

 
—

 
616

 
9

Nonresidential real estate
280

 
288

 
—

 
—

 
288

 
—

Other commercial leases
96

 
88

 
—

 
—

 
50

 
2

 
$
3,150

 
$
2,814

 
$
346

 
$
—

 
$
2,799

 
$
23

 
 
 
 
 
 
 
 
 
Year ended
December 31, 2019
 
Loan
Balance
 
Recorded
Investment
 
Partial Charge-off
 
Allowance
for Loan
Losses
Allocated
 
Average
Investment
in Impaired
Loans
 
Interest
Income
Recognized
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential real estate
$
2,168

 
$
1,835

 
$
339

 
$
—

 
$
2,208

 
$
51

Multi-family mortgage - Illinois
620

 
620

 
—

 
—

 
637

 
37

Nonresidential real estate
280

 
288

 
—

 
—

 
589

 
2

 
$
3,068

 
$
2,743

 
$
339

 
$
—

 
$
3,434

 
$
90

Nonaccrual Loans
The following tables present the recorded investment in nonaccrual and loans 90 days or more past due still on accrual by class of loans:
 
Loan Balance
 
Recorded
Investment
 
Loans Past
Due Over 90
Days, Still
Accruing
March 31, 2020
 
 
 
 
 
One-to-four family residential real estate
$
500

 
$
476

 
$
—

Nonresidential real estate
280

 
288

 
—

 
$
780

 
$
764

 
$
—

December 31, 2019
 
 
 
 
 
One-to-four family residential real estate
$
598

 
$
512

 
$
—

Nonresidential real estate
280

 
288

 
—

Investment-rated commercial leases
47

 
—

 
47

 
$
925

 
$
800

 
$
47

Nonaccrual loans and impaired loans are defined differently. Some loans may be included in both categories, and some loans may only be included in one category. Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.



12

BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)

NOTE 4 - LOANS RECEIVABLE (continued)

The Company’s reserve for uncollected loan interest was $94,000 and $81,000 at March 31, 2020 and December 31, 2019, respectively. When a loan is on nonaccrual status and the ultimate collectability of the total principal of an impaired loan is in doubt, all payments are applied to principal under the cost recovery method. Alternatively, when a loan is on nonaccrual status but there is doubt concerning only the ultimate collectability of interest, contractual interest is credited to interest income only when received, under the cash basis method pursuant to the provisions of FASB ASC 310–10, as applicable. In all cases, the average balances are calculated based on the month–end balances of the financing receivables within the period reported pursuant to the provisions of FASB ASC 310–10, as applicable.
Past Due Loans
The following tables present the aging of the recorded investment of loans 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
March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential real estate loans:
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
$
657

 
$
—

 
$
472

 
$
1,129

 
$
41,651

 
$
42,780

Non-owner occupied
131

 
—

 
—

 
131

 
9,938

 
10,069

Multi-family mortgage:
 
 
 
 
 
 
 
 
 
 
 
Illinois
1,258

 
—

 
—

 
1,258

 
233,404

 
234,662

Other
—

 
—

 
—

 
—

 
307,759

 
307,759

Nonresidential real estate
—

 
—

 
288

 
288

 
133,144

 
133,432

Commercial loans:
 
 
 
 
 
 

 
 
 

Regional commercial banking
—

 
—

 
—

 
—

 
23,704

 
23,704

Health care
—

 
—

 
—

 
—

 
54,806

 
54,806

Direct commercial lessor
—

 
—

 
—

 
—

 
79,539

 
79,539

Commercial leases:
 
 
 
 
 
 


 
 
 


Investment-rated commercial leases
5,109

 
—

 
—

 
5,109

 
119,342

 
124,451

Other commercial leases
4,093

 
443

 
—

 
4,536

 
137,076

 
141,612

Consumer
7

 
7

 
—

 
14

 
2,064

 
2,078

 
$
11,255

 
$
450

 
$
760

 
$
12,465

 
$
1,142,427

 
$
1,154,892




13

BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)

NOTE 4 - LOANS RECEIVABLE (continued)

 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
90 Days or
Greater
Past Due
 
Total Past
Due
 
Loans Not
Past Due
 
Total
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential real estate loans:
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
$
777

 
$
340

 
$
507

 
$
1,624

 
$
43,365

 
$
44,989

Non-owner occupied
280

 
15

 
—

 
295

 
10,466

 
10,761

Multi-family mortgage:
 
 
 
 
 
 
 
 
 
 
 
Illinois
981

 
302

 
—

 
1,283

 
246,680

 
247,963

Other
—

 
—

 
—

 
—

 
315,787

 
315,787

Nonresidential real estate
—

 
—

 
288

 
288

 
134,386

 
134,674

Commercial loans:
 
 
 
 
 
 

 
 
 

Regional commercial banking
—

 
—

 
—

 
—

 
24,853

 
24,853

Health care
—

 
—

 
—

 
—

 
70,430

 
70,430

Direct commercial lessor
—

 
—

 
—

 
—

 
50,431

 
50,431

Commercial leases:
 
 
 
 
 
 


 
 
 


Investment-rated commercial leases
826

 
—

 
47

 
873

 
132,966

 
133,839

Other commercial leases
543

 
136

 
—

 
679

 
138,111

 
138,790

Consumer
24

 
37

 
—

 
61

 
2,150

 
2,211

 
$
3,431

 
$
830

 
$
842

 
$
5,103

 
$
1,169,625

 
$
1,174,728

Troubled Debt Restructurings
Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) provides that a qualifying loan modification or extension is exempt by law from classification as a Troubled Debt Restructuring ("TDR") pursuant to FASB ASC 340-10. In addition, OCC Bulletin 2020-35 provides more limited circumstances in which a loan modification or extension is not subject to classification as a TDR pursuant to FASB ASC 340-10.
The Company evaluates loan extensions or modifications not qualified under Section 4013 of the CARES Act or under OCC Bulletin 2020-35 in accordance with FASB ASC 340-10 with respect to the classification of the loan as a TDR.
Under ASC 340-10, if the Company grants a loan extension or modification to a borrower experiencing financial difficulties for other than an insignificant period of time that includes a below–market interest rate, principal forgiveness, payment forbearance or other concession intended to minimize the economic loss to the Company, the loan extension or loan modification is classified as a TDR. In cases where borrowers are granted new terms that provide for a reduction of either interest or principal then due and payable, management measures any impairment on the restructured loan in the same manner as for impaired loans as noted above.
The Company had no TDRs at March 31, 2020 and December 31, 2019. During the three months ended March 31, 2020 and 2019, there were no loans modified and classified as TDRs. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.
To determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans based on credit risk. This analysis includes non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a monthly basis. The Company uses the following definitions for risk ratings:



14

BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)

NOTE 4 - LOANS RECEIVABLE (continued)

Special Mention. A Special Mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.
Substandard. Loans categorized as Substandard continue to accrue interest, but exhibit a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt. The loans continue to accrue interest because they are well secured and collection of principal and interest is expected within a reasonable time. The risk rating guidance published by the Office of the Comptroller of the Currency clarifies that a loan with a well-defined weakness does not have to present a probability of default for the loan to be rated Substandard, and that an individual loan’s loss potential does not have to be distinct for the loan to be rated Substandard.
Nonaccrual. An asset classified Nonaccrual has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered “Pass” rated loans.
Based on the most recent analysis performed, the risk categories of loans by class of loans are as follows:
 
Pass
 
Special
Mention
 
Substandard
 
Nonaccrual
 
Total
March 31, 2020
 
 
 
 
 
 
 
 
 
One-to-four family residential real estate loans:
 
 
 
 
 
 
 
 
 
Owner occupied
$
41,815

 
$
83

 
$
406

 
$
476

 
$
42,780

Non-owner occupied
10,006

 
29

 
34

 
—

 
10,069

Multi-family mortgage:
 
 
 
 
 
 
 
 
 
Illinois
234,662

 
—

 
—

 
—

 
234,662

Other
307,759

 
—

 
—

 
—

 
307,759

Nonresidential real estate
132,894

 
161

 
89

 
288

 
133,432

Commercial loans:
 
 
 
 
 
 
 
 

Regional commercial banking
23,704

 
—

 
—

 
—

 
23,704

Health care
53,863

 
943

 
—

 
—

 
54,806

Direct commercial lessor
79,539

 
—

 
—

 
—

 
79,539

Commercial leases:
 
 
 
 
 
 
 
 


Investment-rated commercial leases
124,451

 
—

 
—

 
—

 
124,451

Other commercial leases
139,882

 
307

 
1,423

 
—

 
141,612

Consumer
2,059

 
10

 
9

 
—

 
2,078


$
1,150,634

 
$
1,533

 
$
1,961

 
$
764

 
$
1,154,892

 



15

BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)

NOTE 4 - LOANS RECEIVABLE (continued)

 
Pass
 
Special
Mention
 
Substandard
 
Nonaccrual
 
Total
December 31, 2019
 
 
 
 
 
 
 
 
 
One-to-four family residential real estate loans
 
 
 
 
 
 
 
 
 
Owner occupied
$
43,908

 
$
36

 
$
533

 
$
512

 
$
44,989

Non-owner occupied
10,696

 
30

 
35

 
—

 
10,761

Multi-family mortgage:
 
 
 
 
 
 
 
 
 
Illinois
247,757

 
—

 
206

 
—

 
247,963

Other
315,787

 
—

 
—

 
—

 
315,787

Nonresidential real estate
134,134

 
162

 
90

 
288

 
134,674

Commercial loans:
 
 
 
 
 
 
 
 

Regional commercial banking
24,853

 
—

 
—

 
—

 
24,853

Health care
62,084

 
8,346

 
—

 
—

 
70,430

Direct commercial lessor
50,431

 
—

 
—

 
—

 
50,431

Commercial leases:
 
 
 
 
 
 
 
 


Investment-rated commercial leases
133,332

 
507

 
—

 
—

 
133,839

Other commercial leases
137,893

 
761

 
136

 
—

 
138,790

Consumer
2,153

 
5

 
53

 
—

 
2,211

 
$
1,163,028

 
$
9,847

 
$
1,053

 
$
800

 
$
1,174,728

NOTE 5 - OTHER REAL ESTATE OWNED
Real estate that is acquired through foreclosure or a deed in lieu of foreclosure is classified as other real estate owned ("OREO") until it is sold. When real estate is acquired through foreclosure or by deed in lieu of foreclosure, it is recorded at its fair value, less the estimated costs of disposal. If the fair value of the property is less than the loan balance, the difference is charged against the allowance for loan losses.
 
March 31, 2020
 
December 31, 2019
 
Balance
 
Valuation Allowance
 
Net OREO Balance
 
Balance
 
Valuation Allowance
 
Net OREO Balance
One–to–four family residential
$
110

 
$
—

 
$
110

 
$
186

 
$
—

 
$
186

The following represents the roll forward of OREO and the composition of OREO properties:
 
For the Three Months Ended March 31,
 
2020
 
2019
Beginning balance
$
186

 
$
1,226

New foreclosed properties
—

 
46

Sales and other reductions
(76
)
 
(351
)
Ending balance
$
110

 
$
921




16

BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)

NOTE 5 - OTHER REAL ESTATE OWNED (continued)


Activity in the valuation allowance is as follows:
 
For the Three Months Ended March 31,
 
2020
 
2019
Beginning balance
$
—

 
$
23

Reductions from sales of OREO
—

 
(23
)
Ending balance
$
—

 
$
—