Management of BankFinancial Corporation is responsible for establishing and maintaining effective internal control over financial reporting.
Management evaluates the effectiveness of internal control over financial reporting and tests for reliability of recorded financial information through a program of ongoing internal audits. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.
The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Management assessed the Company’s internal control over financial reporting as of December 31, 2020, as required by Section 404 of the Sarbanes-Oxley Act of 2002, based on the criteria for effective internal control over financial reporting described in the “2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.” Based on this assessment, management concludes that, as of December 31, 2020, the Company’s internal control over financial reporting is effective.
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”). BankFinancial Corporation is a registered Bank Holding Company and its wholly-owned bank subsidiary is operating as BankFinancial, National Association.
Principles of Consolidation: The consolidated financial statements include the accounts of and transactions of BankFinancial Corporation, the Bank, and the Bank’s wholly-owned subsidiaries, Financial Assurance Services, Inc. and BFIN Asset Recovery Company, LLC (formerly BF Asset Recovery Corporation) (collectively, “the Company”) and have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). All significant intercompany accounts and transactions have been eliminated. The Company’s revenues, operating income, and assets are primarily from the banking industry. To supplement loan originations, the Company purchases loans. The loan portfolio is concentrated in loans that are primarily secured by real estate.
Use of Estimates: The preparation of the consolidated 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: On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic. The declaration of a global pandemic indicates that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The outbreak of COVID-19 has adversely impacted, and could further adversely impact, a broad range of industries in which the Company’s customers operate and impair their ability to fulfill their financial obligations to the Company. On March 3, 2020, the Federal Open Market Committee reduced the target federal funds rate by 50 basis points to 1.00% to 1.25%. This rate was further reduced to a target range of 0% to 0.25% on March 16, 2020. These reductions in interest rates and other effects of the COVID-19 outbreak may adversely affect the Company’s financial condition and results of operations. As a result of the spread of the COVID-19 coronavirus, economic uncertainties have arisen which are likely to negatively impact net interest income and noninterest income. Other financial impacts could occur though such potential impact is unknown at this time.
Subsequent events: The Company has evaluated subsequent events for potential recognition and/or disclosures through the date the Consolidated Financial Statements included in this Annual Report on Form 10-K were issued.
Interest-bearing Deposits in Other Financial Institutions: Interest-bearing deposits in other financial institutions maturing in less than 90 days are carried at cost.
Cash Flows: Cash and cash equivalents include cash, deposits with other financial institutions maturing in less than 90 days, and daily federal funds sold. Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions, borrowings, and advance payments by borrowers for taxes and insurance.
Securities: Debt securities are classified as available-for-sale when they might be sold before maturity. Securities available-for-sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income (loss), net of tax. Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses on sales are based on the amortized cost of the security sold. Declines in the fair value of securities below their cost that are other-than-temporary are reflected as realized losses. In determining if losses are other-than-temporary, management considers: (1) the length of time and extent that fair value has been less than cost or adjusted cost, as applicable, (2) the financial condition and near term prospects of the issuer, and (3) whether the Company has the intent to sell the debt security or it is more likely than not that the Company will be required to sell the debt security before the anticipated recovery.
Securities also include investments in certificates of deposit with maturities of greater than 90 days. These certificates of deposit are placed with insured institutions for varying maturities and amounts that are fully insured by the Federal Deposit Insurance Corporation (“FDIC”).
Equity Securities: Equity securities are accounted for in accordance with ASC 321-10 Investments - Equity Securities. Our equity securities may be classified into two categories and accounted for as follows:
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•
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Equity securities with a readily determinable fair value are reported at fair value, with unrealized gains and losses included in earnings. Any dividends received are recorded in interest income.
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|
|
|
|
•
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Equity securities without a readily determinable fair value are reported at their cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer and their impact on fair value. Any dividends received are recorded in interest income.
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The fair value of equity investments with readily determinable fair values is primarily obtained from third-party pricing services. For equity investments without readily determinable fair values, when an orderly transaction for the identical or similar investment of the same issuer is identified, we use the valuation techniques permitted under ASC 820 Fair Value to evaluate the observed transaction(s) and adjust the fair value of the equity investment.
ASC 321-10 also provides guidance related to accounting for impairment of equity securities without readily determinable fair values. The qualitative assessment to determine whether impairment exists requires the use of our judgment in certain circumstances. If, after completing the qualitative assessment we conclude an equity investment without a readily determinable fair value is impaired, a loss for the difference between the equity investment’s carrying value and its fair value may be recognized as a reduction to noninterest income in the Consolidated Statements of Operations.
Federal Home Loan Bank (“FHLB”) Stock: The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.
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)
Federal Reserve Bank (“FRB”) Stock: The Bank is a member of its regional Federal Reserve Bank. FRB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.
Loans and Loan Income: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of the allowance for loan losses, premiums and discounts on loans purchased, and net deferred loan costs. Interest income on loans is recognized in income over the term of the loan based on the amount of principal outstanding.
Premiums and discounts associated with loans purchased are amortized over the contractual term of the loan using the level–yield method. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.
Interest income is reported on the interest method. Interest income is generally discontinued at the earlier of when a loan is 90 days past due or when we do not expect to receive full payment of interest or principal. Past due status is based on the contractual terms of the loan.
All interest accrued but not received for loans that have been placed on nonaccrual status is reversed against interest income. Interest received on such loans is accounted for on the cash–basis or cost–recovery method until qualifying for return to accrual status. Once a loan is placed on nonaccrual status, the borrower must generally demonstrate at least six months of payment performance before the loan is eligible to return to accrual status. Generally, the Company utilizes the “90 days delinquent, still accruing” category of loan classification when: (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 payments actually received or the renewal of a loan has not occurred for administrative reasons.
Impaired Loans: Impaired loans principally consist of nonaccrual loans and troubled debt restructurings (“TDRs”). A loan is considered impaired when, based on current information and events, management believes that it is probable that we will be unable to collect all amounts due (both principal and interest) according to the original contractual terms of the loan agreement. Once a loan is determined to be impaired, the amount of impairment is measured based on the loan's observable fair value, the fair value of the underlying collateral less selling costs if the loan is collateral-dependent, or the present value of expected future cash flows discounted at the loan's effective interest rate. If the measurement of the impaired loan is less than the recorded investment in the loan, the bank's allowance for the impaired collateral dependent loan under ASC 310-10-35 is based on fair value (less costs to sell), but the charge-off (the confirmed “loss”) is based on the appraised value. The remaining recorded investment in the loan after the charge-off will have a loan loss allowance for the amount by which the estimated fair value of the collateral (less costs to sell) is less than its appraised value.
Impaired loans with specific reserves are reviewed quarterly for any changes that would affect the specific reserve. Any impaired loan for which a determination has been made that the economic value is permanently reduced is charged-off against the allowance for loan losses to reflect its current economic value in the period in which the determination has been made.
At the time a collateral-dependent loan is initially determined to be impaired, we review the existing collateral appraisal. If the most recent appraisal is greater than a year old, a new appraisal is obtained on the underlying collateral. Appraisals are updated with a new independent appraisal at least annually and are formally reviewed by our internal appraisal department upon receipt of a new appraisal. All impaired loans and their related reserves are reviewed and updated each quarter.
Troubled Debt Restructurings: A loan is classified as a troubled debt restructuring when a borrower is experiencing financial difficulties that leads to a restructuring of the loan, and the Company grants concessions to the borrower in the restructuring that it would not otherwise consider. These concessions may include rate reductions, principal forgiveness, extension of maturity date and other actions intended to minimize potential losses.
In determining whether a debtor is experiencing financial difficulties, the Company considers if the debtor is in payment default or would be in payment default in the foreseeable future without the modification, the debtor declared or is in the process of declaring bankruptcy, there is substantial doubt that the debtor will continue as a going concern, the debtor has securities that have been or are in the process of being delisted, the debtor's entity-specific projected cash flows will not be sufficient to service any of its debt, or the debtor cannot obtain funds from sources other than the existing creditors at a market rate for debt with similar risk characteristics.
In determining whether the Company has granted a concession, the Company assesses, if it does not expect to collect all amounts due, whether the current value of the collateral will satisfy the amounts owed, whether additional collateral or guarantees from the debtor will serve as adequate compensation for other terms of the restructuring, and whether the debtor otherwise has access to funds at a market rate for debt with similar risk characteristics.
Periodically, the Company will restructure a note into two separate notes (A/B structure), charging off the entire B portion of the note. The A note is structured with appropriate loan-to-value and cash flow coverage ratios that provide for a high likelihood of repayment. The A note is classified as a nonperforming note until the borrower has displayed a historical payment performance for a reasonable time prior to and subsequent to the restructuring. A period of sustained repayment for at least six months generally is required to return the note to accrual status provided that management has determined that the performance is reasonably expected to continue. The A note will be classified as a restructured note (either performing or nonperforming) through the calendar year of the restructuring that the historical payment performance has been established.
Allowance for Loan Losses: The Company establishes provisions for loan losses, which are charged to the Company’s results of operations to maintain the allowance for loan losses to absorb probable incurred credit losses in the loan portfolio. In determining the level of the allowance for loan losses, the Company considers past and current loss experience, trends in classified loans, 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 the estimates as more information becomes available or events change.
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 Company provides for loan losses based on the allowance method. Accordingly, all loan losses are charged to the related allowance and all recoveries are credited to it. Additions to the allowance for loan losses are provided by charges to income based on various factors that, in our judgment, deserve current recognition in estimating probable incurred credit losses. The Company reviews the loan portfolio on an ongoing basis and makes provisions for loan losses on a quarterly basis to maintain the allowance for loan losses in accordance with US GAAP. The allowance for loan losses consists of two components:
•
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specific allowances established for any impaired residential non-owner occupied mortgage, multi-family mortgage, nonresidential real estate, construction and land, commercial, and commercial lease loans for which the recorded investment in the loan exceeds the measured value of the loan; and
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•
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general allowances for loan losses for each loan class based on historical loan loss experience; and adjustments to historical loss experience (general allowances), maintained to cover uncertainties that affect our estimate of probable incurred credit losses for each loan class.
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The adjustments to historical loss experience are based on our evaluation of several factors, including levels of, and trends in, past due and classified loans; levels of, and trends in, charge–offs and recoveries; trends in volume and terms of loans, including any credit concentrations in the loan portfolio; experience and ability of lending management and other relevant staff; and national and local economic trends and conditions.
The Company evaluates the allowance for loan losses based upon the combined total of the specific and general components. Generally, when the loan portfolio increases, absent other factors, the allowance for loan loss methodology results in a higher dollar amount of estimated probable incurred credit losses than would be the case without the increase. Conversely, when the loan portfolio decreases, absent other factors, the allowance for loan loss methodology generally results in a lower dollar amount of estimated probable losses than would be the case without the decrease.
The loss ratio used in computing the required general loan loss reserve allowance for a given class of loan consists of (i) the actual loss ratio (measured on a weighted, rolling twelve-quarter basis), (ii) the change in credit quality within the specific loan class during the period, (iii) the actual inherent risk factor assigned to the specific loan class and (iv) the actual concentration of risk factor assigned to the specific loan class (collectively, the “Specific Loan Class Risk Factors”). The Specific Loan Class Risk Factors are weighted equally in the calculation. In addition, two additional quantitative factors, the National Economic risk factor and the Local Economic risk factor, are also components of the computation but are given different weightings in their computation due to their relative applicability to the specific loan class in the context of the effect of national and local economic conditions on their risk profile and performance.
Mortgage Servicing Rights: Mortgage servicing rights are recognized separately when they are acquired through sales of loans. When mortgage loans are sold, servicing rights are initially recorded at fair value and gains on sales of loans are recorded in the statement of operations. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the servicing cost per loan, the discount rate, the escrow float rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. The Company compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.
Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. Changes in valuation allowances are reported with amortization and impairment of servicing assets on the statement of operations. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.
Servicing fee income that is reported on the statement of operations as loan servicing fees is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal; or a fixed amount per loan and are recorded as income when earned. Late fees and ancillary fees related to loan servicing are not material.
First mortgage loans serviced for others are not included in the accompanying consolidated statements of financial condition. The unpaid principal balances of these loans were $48.4 million and $63.4 million at December 31, 2020 and 2019, respectively. Custodial escrow balances maintained in connection with the foregoing loan servicing activities were $1.9 million and $2.2 million at December 31, 2020 and 2019, respectively. Capitalized mortgage servicing rights are included in other assets in the accompanying consolidated statements of financial condition. Servicing rights were $257,000 and $335,000 at December 31, 2020 and 2019, respectively, with no valuation allowance at December 31, 2020 and 2019.
Other Real Estate Owned ("OREO"): Foreclosed assets are initially recorded at fair value less cost to sell when acquired, establishing a new cost basis. Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when the legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. These assets are subsequently accounted for at a lower of cost or fair value less estimated cost to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating expenses, gains and losses on disposition, and changes in the valuation allowance are reported in noninterest expense as operations of other real estate owned.
Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is included in noninterest expense and is computed on the straight-line method over the estimated useful lives of the assets. Useful lives are estimated to be 25 to 40 years for buildings and improvements that extend the life of the original building, ten to 20 years for routine building improvements, five to 15 years for furniture and equipment, two to five years for computer hardware and software and no greater than four years on automobiles. The cost of maintenance and repairs is charged to expense as incurred and significant repairs are capitalized.
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)
Lease Accounting: The Company adopted FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), including the adoption of the practical expedients, effective January 1, 2019. Leases (Topic 842) establishes a right of use model that requires a lessee to record a right of use (“ROU”) asset and a lease liability for all leases with terms longer than 12 months. The Company enters into operating leases in the normal course of business primarily for several of its branch and corporate locations. At adoption, January 1, 2019, the Company recorded assets and liabilities of $6.7 million as a result of recording additional lease contracts where the Company is lessee. The Company did not restate comparative periods.
Currently the Company is obligated under four non-cancellable operating lease agreements for three branch properties and its corporate office. The leases have varying terms, the longest of which will end in 2032. The Company's lease agreements include options to renew at the Company's discretion. The extensions are not reasonably certain to be exercised; therefore, they were not considered in the calculation of the ROU asset and lease liability. The Company has also elected not to recognize leases with original lease terms of 12 months or less (short-term leases) in the Company's Statement of Financial Condition. The ROU assets are included in other assets and the lease obligations are included in other liabilities in the accompanying consolidated statements of financial condition.
Other Intangible Assets: Intangible assets acquired in a purchase business combination with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Core deposit intangible assets (“CDI”), are recognized at the time of acquisition based on valuations prepared by independent third parties or other estimates of fair value. In preparing such valuations, variables such as deposit servicing costs, attrition rates, and market discount rates are considered. CDI assets are amortized to expense over their useful lives. CDI were $7,000 and $41,000 at December 31, 2020 and 2019, respectively, and are included in other assets in the accompanying consolidated statements of financial condition.
Bank-Owned Life Insurance: The Company has purchased life insurance policies on certain key executives. The Company owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.
Long-Term Assets: Premises and equipment, right of use assets, core deposit and other intangible assets, and other long-term assets are reviewed for impairment when events indicate that their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
Loan Commitments and Related Financial Instruments: Financial instruments include off-balance-sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.
Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Under US GAAP, a deferred tax asset valuation allowance is required to be recognized if it is “more likely than not” that the deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management’s evaluation of both positive and negative evidence, the forecasts of future taxable income, applicable tax planning strategies, and assessments of current and future economic and business conditions. The Company considers both positive and negative evidence regarding the ultimate realizability of our deferred tax assets. Examples of positive evidence may include the existence, if any, of taxes paid in available carry-back years and the likelihood that taxable income will be generated in future periods. Examples of negative evidence may include a cumulative loss in the current year and prior two years and negative general business and economic trends. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of the enactment date.
This analysis is updated quarterly and adjusted as necessary. At December 31, 2020, the Company had a net deferred tax asset of $2.7 million, net of a $200,000 valuation allowance against the Illinois net operating loss deduction carryforward. The net deferred tax asset was $3.9 million at December 31, 2019.
A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, presuming that a tax examination will occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely to be realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.
Retirement Plans: Employee 401(k) and profit sharing plan expense is the amount of matching contributions and any annual discretionary contribution made at the discretion of the Company’s Board of Directors.
Earnings per Common Share: Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is net income divided by the weighted average number of common shares outstanding during the period plus the dilutive effect of potential common shares.
Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe that there are such matters that will have a material effect on the financial statements as of December 31, 2020.
Restrictions on Cash: The Bank is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank, based on a percentage of deposits. As of December 31, 2020 and 2019, the Bank has met the requirements.
The nature of the Company’s business requires that it maintain amounts with banks and federal funds sold which, at times, may exceed federally insured limits. Management monitors these correspondent relationships and the Company has not experienced any losses in such accounts.
Fair Values of Financial Instruments: Fair values of financial instruments are estimated using relevant market value information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.
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)
Comprehensive Income: Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities, net of tax, which is also recognized as separate components of stockholders’ equity.
Transfers of Financial Assets: Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Operating Segments: While management monitors the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Operating results are not reviewed by senior management to make resource allocation or performance decisions. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.
Reclassifications: Certain reclassifications have been made in the prior year’s financial statements to conform to the current year’s presentation. Reclassifications had no effect on prior year net income or stockholders’ equity.
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.
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, exclusive of the effect of potential common 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. There were no potential dilutive common shares for the years ended December 31, 2020 and 2019.
|
|
For the years ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net income available to common stockholders
|
|
$
|
9,163
|
|
|
$
|
11,672
|
|
Basic and diluted weighted average common shares outstanding
|
|
|
14,951,656
|
|
|
|
15,594,883
|
|
Basic and diluted earnings per common share
|
|
$
|
0.61
|
|
|
$
|
0.75
|
|
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:
Available-for-Sale Securities
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
15,117
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15,117
|
|
Municipal securities
|
|
|
402
|
|
|
|
7
|
|
|
|
—
|
|
|
|
409
|
|
Mortgage-backed securities - residential
|
|
|
5,826
|
|
|
|
282
|
|
|
|
—
|
|
|
|
6,108
|
|
Collateralized mortgage obligations - residential
|
|
|
2,193
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
2,195
|
|
|
|
$
|
23,538
|
|
|
$
|
292
|
|
|
$
|
(1
|
)
|
|
$
|
23,829
|
|
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
|
|
Mortgage-backed securities and collateralized mortgage obligations reflected in the preceding table were issued by U.S. government-sponsored entities and agencies, Freddie Mac, Fannie Mae and Ginnie Mae, and are obligations which the government has affirmed its commitment to support.
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 available-for-sale at December 31, 2020 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.
|
|
December 31, 2020
|
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Due in one year or less
|
|
$
|
15,271
|
|
|
$
|
15,278
|
|
Due after one year through five years
|
|
|
248
|
|
|
|
248
|
|
|
|
|
15,519
|
|
|
|
15,526
|
|
Mortgage-backed securities - residential
|
|
|
5,826
|
|
|
|
6,108
|
|
Collateralized mortgage obligations - residential
|
|
|
2,193
|
|
|
|
2,195
|
|
|
|
$
|
23,538
|
|
|
$
|
23,829
|
|
Investment securities available-for-sale with carrying amounts of $1.2 million and $2.0 million at December 31, 2020 and 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:
|
|
For the years ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Proceeds
|
|
$
|
—
|
|
|
$
|
3,722
|
|
Gross gains
|
|
|
—
|
|
|
|
295
|
|
Gross losses
|
|
|
—
|
|
|
|
—
|
|
Securities available-for-sale with unrealized losses at December 31, 2020 and 2019 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
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations - residential
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
3
|
|
|
$
|
1,588
|
|
|
$
|
(1
|
)
|
|
|
3
|
|
|
$
|
1,588
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 2020, but the unrealized loss was not considered significant under the Company’s impairment testing methodology. In addition, the Company does not intend to sell these securities, and it is not likely that the Company will be required to sell the securities before their anticipated recovery occurs.
The Bank sold 25,702 shares of Visa Class B common stock in the first quarter of 2019 and recorded a gain of $295,000. The Company had no marketable securities as of December 31, 2020.
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 4 – LOANS RECEIVABLE
Loans receivable are as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
One-to-four family residential real estate
|
|
$
|
41,691
|
|
|
$
|
55,750
|
|
Multi-family mortgage
|
|
|
452,241
|
|
|
|
563,750
|
|
Nonresidential real estate
|
|
|
108,658
|
|
|
|
134,674
|
|
Construction and land
|
|
|
499
|
|
|
|
—
|
|
Commercial loans and leases
|
|
|
405,057
|
|
|
|
418,343
|
|
Consumer
|
|
|
1,812
|
|
|
|
2,211
|
|
|
|
|
1,009,958
|
|
|
|
1,174,728
|
|
Net deferred loan origination costs
|
|
|
371
|
|
|
|
912
|
|
Allowance for loan losses
|
|
|
(7,751
|
)
|
|
|
(7,632
|
)
|
Loans, net
|
|
$
|
1,002,578
|
|
|
$
|
1,168,008
|
|
Loan Origination/Risk Management. The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. The Company reviews and approves these policies and procedures on a periodic basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans via trend and risk rating migration. The Company requires title insurance insuring the priority of our lien on real estate collateral, fire and extended coverage casualty insurance, and, if appropriate, flood insurance, in order to protect our security interest in the underlying real property collateral.
The majority of the loans the Company originates are commercial-related loans, such as multi-family, nonresidential real estate, commercial loans and leases, and construction and land loans. In addition, we originated one-to-four family residential mortgage loans and consumer loans until December 31, 2017. We also occasionally purchase and sell loan participations. The following briefly describes our principal loan products.
The Company originates real estate loans principally secured by first liens, both non-owner occupied and owner occupied commercial real estate. The non-owner occupied commercial real estate properties are predominantly multi-family apartment buildings, office buildings, light industrial buildings, shopping centers and mixed-use developments and, to a much lesser extent, more specialized properties such as nursing homes and other healthcare facilities.
Multi-family mortgage loans generally are secured by multi-family rental properties such as apartment buildings, including subsidized apartment units. In general, loan amounts range between $500,000 and $5.0 million at December 31, 2020. Approximately 51.4% of the collateral is located outside of our primary market area; however, we do not have a concentration in any single market in excess of 25% of our loan portfolio outside of our primary market area. In underwriting multi-family mortgage loans, the Company considers a number of factors, which include the projected net cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 120%), the age and condition of the collateral, the financial resources and income level of the borrower, the borrower’s experience in owning or managing similar properties and, proximity to diverse employment opportunities. Multi-family mortgage loans are generally originated in amounts up to 80% of the appraised value of the property securing the loan. Personal guarantees are usually obtained on multi-family mortgage loans if the borrower/property owner is a legal entity.
Loans secured by multi-family mortgages generally involve a greater degree of credit risk as a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family mortgages typically depends upon the successful operation of the related real estate property. If the cash flow from the project is reduced below acceptable thresholds, the borrower’s ability to repay the loan may be impaired.
The Company emphasizes nonresidential real estate loans with initial principal balances between $500,000 and $5.0 million. Substantially all of our nonresidential real estate loans are secured by properties located in our primary market area. The Company’s nonresidential real estate loans are generally written as three- or five-year adjustable-rate mortgages or mortgages with balloon maturities of three or five years. Amortization on these loans is typically based on 20- to 30-year schedules. The Company also originates some 15-year fixed-rate, fully amortizing loans.
In the underwriting of nonresidential real estate loans, the Company generally lends up to 80% of the property’s appraised value. Decisions to lend are based on the economic viability of the property as the primary source of repayment and the creditworthiness of the borrower. In evaluating a proposed commercial real estate loan, we emphasize the ratio of the property’s projected net cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 120%), computed after deduction for a vacancy factor and property expenses we deem appropriate. Personal guarantees are usually pursued and obtained from nonresidential real estate borrowers.
Nonresidential real estate loans generally carry higher interest rates and have shorter terms and typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment of loans secured by income-producing properties typically depends on the successful operation of the related real estate project and thus may be subject to a greater extent to adverse conditions in the real estate market and in the general economy.
The Company makes various types of secured and unsecured commercial loans to customers in our market area for the purpose of financing equipment acquisition, expansion, working capital and other general business purposes. The terms of these loans generally range from less than one year to five years. The loans are either negotiated on a fixed-rate basis or carry adjustable interest rates indexed to (i) a lending rate that is determined internally, or (ii) a short-term market rate index.
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 4 – LOANS RECEIVABLE (continued)
Commercial credit decisions are based upon our assessment of the borrower’s cash flow, proposed collateral, business and credit history and any additional positive or negative credit risk factors. The Company determines the borrower’s ability to repay in accordance with the proposed terms of the loans and we assess the risks involved. An evaluation is made of the borrower to determine character and capacity to manage. Personal guarantees of the principals are pursued and usually obtained. In addition to evaluating the loan borrower’s financial statements, we consider the adequacy of the primary and secondary sources of repayment for the loan. Independent reports of the borrower’s credit history supplement our analysis of the borrower’s creditworthiness and at times are supplemented with inquiries to other banks and trade investigations. Moreover, certain assets listed on personal financial statements are verified. Proposed collateral for a secured transaction also is analyzed to determine its marketability. Commercial business loans generally have higher interest rates because they have a higher risk of default since their repayment generally depends on the successful operation of the borrower’s business and the sufficiency of any collateral. Pricing of commercial loans is based primarily on the credit risk of the borrower, with due consideration given to borrowers with appropriate deposit relationships.
The Company also lends money to small and mid-size leasing companies for equipment financing leases. Generally, commercial leases are secured by an assignment by the leasing company of the lease payments and by a secured interest in the equipment being leased. In most cases, the lessee acknowledges our security interest in the leased equipment and agrees to send lease payments directly to us. Consequently, the Company underwrites lease loans by examining the creditworthiness of the lessee rather than the lessor. Lease loans generally are non-recourse to the leasing company.
Generally, the Company’s commercial leases are secured primarily by technology equipment, medical equipment, material handling equipment and other capital equipment. Lessees tend to be publicly-traded companies with investment-grade rated debt or companies that have not issued public debt and therefore do not have a public debt rating. Typically, commercial leases to these lessees have a maximum maturity of five years and a maximum outstanding credit exposure of $10.0 million to any single entity. In addition, the Company will originate commercial finance leases to lessees with below investment-grade public debt ratings and have a maximum outstanding credit exposure of $10.0 million to any single entity. Lease loans are almost always fully amortizing, with fixed interest rates.
Although the Company does not actively originate construction and land loans presently, construction and land loans generally consist of land acquisition loans to help finance the purchase of land intended for further development, including single-family homes, multi-family housing and commercial income property, development loans to builders in our market area to finance improvements to real estate, consisting mostly of single-family subdivisions, typically to finance the cost of utilities, roads, sewers and other development costs.
Until December 31, 2017, the Company offered conforming and non-conforming, fixed-rate and adjustable-rate residential mortgage loans with maturities of up to 30 years and maximum loan amounts generally of up to $2.5 million. One-to-four family residential mortgage loans were generally underwritten according to Fannie Mae guidelines, and loans that conformed to such guidelines are referred to as “conforming loans.” Private mortgage insurance is required for first mortgage loans with loan-to-value ratios in excess of 80%.
The ability of the Company’s borrowers to repay their loans, and the value of the collateral securing such loans, could be adversely impacted by economic weakness in its local markets as a result of unemployment, declining real estate values, or increased residential, office, industrial and retail shopping vacancies due to changes in business conditions. This not only could result in the Company experiencing charge-offs and/or nonperforming assets, but also could necessitate an increase in the provision for loan losses. These events, if they were to recur, would have an adverse impact on the Company’s results of operations and its capital.
The following tables present the balance in the allowance for loan losses and the loans receivable by portfolio segment and based on impairment method:
|
|
Allowance for loan losses
|
|
|
Loan Balances
|
|
|
|
Individually evaluated for impairment
|
|
|
Collectively evaluated for impairment
|
|
|
Total
|
|
|
Individually evaluated for impairment
|
|
|
Collectively evaluated for impairment
|
|
|
Total
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential real estate
|
|
$
|
—
|
|
|
$
|
518
|
|
|
$
|
518
|
|
|
$
|
1,718
|
|
|
$
|
39,973
|
|
|
$
|
41,691
|
|
Multi-family mortgage
|
|
|
—
|
|
|
|
4,062
|
|
|
|
4,062
|
|
|
|
520
|
|
|
|
451,721
|
|
|
|
452,241
|
|
Nonresidential real estate
|
|
|
28
|
|
|
|
1,541
|
|
|
|
1,569
|
|
|
|
296
|
|
|
|
108,362
|
|
|
|
108,658
|
|
Construction and land
|
|
|
—
|
|
|
|
12
|
|
|
|
12
|
|
|
|
—
|
|
|
|
499
|
|
|
|
499
|
|
Commercial loans and leases
|
|
|
—
|
|
|
|
1,536
|
|
|
|
1,536
|
|
|
|
—
|
|
|
|
405,057
|
|
|
|
405,057
|
|
Consumer
|
|
|
—
|
|
|
|
54
|
|
|
|
54
|
|
|
|
—
|
|
|
|
1,812
|
|
|
|
1,812
|
|
|
|
$
|
28
|
|
|
$
|
7,723
|
|
|
$
|
7,751
|
|
|
$
|
2,534
|
|
|
$
|
1,007,424
|
|
|
|
1,009,958
|
|
Net deferred loan origination costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
371
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,751
|
)
|
Loans, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,002,578
|
|
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 and leases
|
|
|
—
|
|
|
|
2,065
|
|
|
|
2,065
|
|
|
|
—
|
|
|
|
418,343
|
|
|
|
418,343
|
|
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 presents the activity in the allowance for loan losses by portfolio segment:
|
|
Beginning balance
|
|
|
Provision for (recovery of) loan losses
|
|
|
Loans charged off
|
|
|
Recoveries
|
|
|
Ending balance
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential real estate
|
|
$
|
675
|
|
|
$
|
(185
|
)
|
|
$
|
(9
|
)
|
|
$
|
37
|
|
|
$
|
518
|
|
Multi-family mortgage
|
|
|
3,676
|
|
|
|
292
|
|
|
|
—
|
|
|
|
94
|
|
|
|
4,062
|
|
Nonresidential real estate
|
|
|
1,176
|
|
|
|
393
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,569
|
|
Construction and land
|
|
|
—
|
|
|
|
12
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12
|
|
Commercial loans and leases
|
|
|
2,065
|
|
|
|
(533
|
)
|
|
|
—
|
|
|
|
4
|
|
|
|
1,536
|
|
Consumer
|
|
|
40
|
|
|
|
76
|
|
|
|
(62
|
)
|
|
|
—
|
|
|
|
54
|
|
|
|
$
|
7,632
|
|
|
$
|
55
|
|
|
$
|
(71
|
)
|
|
$
|
135
|
|
|
$
|
7,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential real estate
|
|
$
|
699
|
|
|
$
|
123
|
|
|
$
|
(222
|
)
|
|
$
|
75
|
|
|
$
|
675
|
|
Multi-family mortgage
|
|
|
3,991
|
|
|
|
(346
|
)
|
|
|
—
|
|
|
|
31
|
|
|
|
3,676
|
|
Nonresidential real estate
|
|
|
1,476
|
|
|
|
(217
|
)
|
|
|
(83
|
)
|
|
|
—
|
|
|
|
1,176
|
|
Construction and land
|
|
|
4
|
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial loans and leases
|
|
|
2,272
|
|
|
|
4,226
|
|
|
|
(4,443
|
)
|
|
|
10
|
|
|
|
2,065
|
|
Consumer
|
|
|
28
|
|
|
|
43
|
|
|
|
(31
|
)
|
|
|
—
|
|
|
|
40
|
|
|
|
$
|
8,470
|
|
|
$
|
3,825
|
|
|
$
|
(4,779
|
)
|
|
$
|
116
|
|
|
$
|
7,632
|
|
Impaired loans
The following tables present loans individually evaluated for impairment by class of loans:
|
|
Loan Balance
|
|
|
Recorded Investment
|
|
|
Partial Charge- off
|
|
|
Allowance for Loan Losses Allocated
|
|
|
Average Investment in Impaired Loans
|
|
|
Interest Income Recognized
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential real estate
|
|
$
|
2,069
|
|
|
$
|
1,718
|
|
|
$
|
363
|
|
|
$
|
—
|
|
|
$
|
1,782
|
|
|
$
|
42
|
|
Multi-family mortgage - Illinois
|
|
|
520
|
|
|
|
520
|
|
|
|
—
|
|
|
|
—
|
|
|
|
594
|
|
|
|
31
|
|
|
|
|
2,589
|
|
|
|
2,238
|
|
|
|
363
|
|
|
|
—
|
|
|
|
2,376
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded - nonresidential real estate
|
|
|
280
|
|
|
|
296
|
|
|
|
—
|
|
|
|
28
|
|
|
|
289
|
|
|
|
—
|
|
|
|
$
|
2,869
|
|
|
$
|
2,534
|
|
|
$
|
363
|
|
|
$
|
28
|
|
|
$
|
2,665
|
|
|
$
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 4 – LOANS RECEIVABLE (continued)
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
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential real estate
|
|
$
|
946
|
|
|
$
|
925
|
|
|
$
|
—
|
|
Nonresidential real estate
|
|
|
280
|
|
|
|
296
|
|
|
|
—
|
|
|
|
$
|
1,226
|
|
|
$
|
1,221
|
|
|
$
|
—
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential real estate
|
|
$
|
598
|
|
|
$
|
512
|
|
|
$
|
—
|
|
Nonresidential real estate
|
|
|
280
|
|
|
|
288
|
|
|
|
—
|
|
Commercial loans and leases
|
|
|
47
|
|
|
|
—
|
|
|
|
47
|
|
|
|
$
|
925
|
|
|
$
|
800
|
|
|
$
|
47
|
|
Nonaccrual loans and impaired loans are defined differently. Some loans may be included in both categories, and some may only be included in one category. Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.
The Company’s reserve for uncollected loan interest was $133,000 and $81,000 at December 31, 2020 and 2019, respectively. When a loan is on non-accrual 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 non-accrual 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
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
252
|
|
|
$
|
211
|
|
|
$
|
834
|
|
|
$
|
1,297
|
|
|
$
|
32,078
|
|
|
$
|
33,375
|
|
Non-owner occupied
|
|
|
3
|
|
|
|
132
|
|
|
|
91
|
|
|
|
226
|
|
|
|
8,090
|
|
|
|
8,316
|
|
Multi-family mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Illinois
|
|
|
86
|
|
|
|
—
|
|
|
|
—
|
|
|
|
86
|
|
|
|
221,943
|
|
|
|
222,029
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
230,212
|
|
|
|
230,212
|
|
Nonresidential real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
296
|
|
|
|
296
|
|
|
|
108,362
|
|
|
|
108,658
|
|
Construction and land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
499
|
|
|
|
499
|
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
4,886
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,886
|
|
|
|
72,809
|
|
|
|
77,695
|
|
Asset-based
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,740
|
|
|
|
1,740
|
|
Equipment finance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
|
2,468
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,468
|
|
|
|
100,272
|
|
|
|
102,740
|
|
Investment-rated
|
|
|
618
|
|
|
|
225
|
|
|
|
—
|
|
|
|
843
|
|
|
|
86,417
|
|
|
|
87,260
|
|
Other
|
|
|
853
|
|
|
|
2,487
|
|
|
|
—
|
|
|
|
3,340
|
|
|
|
132,282
|
|
|
|
135,622
|
|
Consumer
|
|
|
6
|
|
|
|
5
|
|
|
|
—
|
|
|
|
11
|
|
|
|
1,801
|
|
|
|
1,812
|
|
|
|
$
|
9,172
|
|
|
$
|
3,060
|
|
|
$
|
1,221
|
|
|
$
|
13,453
|
|
|
$
|
996,505
|
|
|
$
|
1,009,958
|
|
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 and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
133,976
|
|
|
|
133,976
|
|
Asset-based
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,738
|
|
|
|
11,738
|
|
Equipment finance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
33,555
|
|
|
|
33,555
|
|
Investment-rated
|
|
|
826
|
|
|
|
—
|
|
|
|
47
|
|
|
|
873
|
|
|
|
101,015
|
|
|
|
101,888
|
|
Other
|
|
|
543
|
|
|
|
136
|
|
|
|
—
|
|
|
|
679
|
|
|
|
136,507
|
|
|
|
137,186
|
|
Consumer
|
|
|
24
|
|
|
|
37
|
|
|
|
—
|
|
|
|
61
|
|
|
|
2,150
|
|
|
|
2,211
|
|
|
|
$
|
3,431
|
|
|
$
|
830
|
|
|
$
|
842
|
|
|
$
|
5,103
|
|
|
$
|
1,169,625
|
|
|
$
|
1,174,728
|
|
U.S. Small Business Administration Paycheck Protection Program
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was passed by Congress and signed into law on March 27, 2020. The CARES Act established the Paycheck Protection Program ("PPP"), designed to provide a direct incentive for small businesses to keep their workers on the payroll. Under the most recently published guidance, the U.S. Small Business Administration ("SBA") will forgive PPP loans if all employee retention criteria are met, and the funds are used for eligible expenses. For the year ended December 31, 2020, we allocated approximately $11 million to the PPP based on the expected 100% guaranty of the SBA.
The following table presents the PPP activity:
|
|
Number of loans
|
|
|
Originated
|
|
|
Balance
|
|
For the Year Ended December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Paycheck protection program loan originations
|
|
|
315
|
|
|
$
|
11,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Paycheck protection program loans
|
|
|
290
|
|
|
|
|
|
|
$
|
10,180
|
|
COVID-19 Loan Forbearance Programs
Section 4013 of the CARES Act provides that a qualified loan modification is exempt by law from classification as a Troubled Debt Restructuring ("TDR") pursuant to US GAAP. In addition, the Revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (“OCC Bulletin 2020-50”) provides more limited circumstances in which a loan modification is not subject to classification as a TDR and also defined the circumstances where the borrower’s loan is reported as current on loan payments. Pursuant to these new capabilities, we developed several loan forbearance programs to assist borrowers with managing cash flows disrupted due to COVID-19.
Our Apartment and Commercial Real Estate COVID-19 Qualified Limited Forbearance Agreement permitted borrowers who qualified under Section 4013 of the CARES Act to make an election to pay scheduled interest and escrow payments (if applicable) for a four-month period beginning in April 2020, and pay all deferred principal payments by December 2020.
Our Small Investment Property COVID-19 Qualified Limited Forbearance Agreement permitted borrowers with loan balances under $750,000 who qualified under Section 4013 of the CARES Act to make an election to pay scheduled interest and escrow payments (if applicable) for a four-month period beginning in April 2020, and pay all deferred principal payments by December 2020. In addition, the borrower could elect to defer the May 2020 loan payment entirely, with all deferred interest amounts due by December 2020 and all deferred principal amounts due by June 30, 2021.
CARES Act Section 4013 and OCC Bulletin 2020-35 forbearance agreements are available to qualified commercial loan and commercial finance borrowers, and to commercial equipment lessees.
For residential mortgage and consumer loans, relief under CARES Act Section 4013 or OCC Bulletin 2020-35 forbearance agreements are available to qualified borrowers with terms consistent with secondary residential mortgage market standards established by Fannie Mae.
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 4 – LOANS RECEIVABLE (continued)
The following table summarizes the remaining loan forbearance modifications at December 31, 2020:
|
|
|
|
|
|
Principal
|
|
|
Remaining Amounts
|
|
|
|
Number of loans
|
|
|
Balance
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Investment Property COVID-19 Qualified Limited Forbearance Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family mortgage
|
|
|
8
|
|
|
$
|
3,092
|
|
|
$
|
17
|
|
Nonresidential real estate
|
|
|
10
|
|
|
|
3,363
|
|
|
|
22
|
|
Apartment and Commercial Real Estate COVID-19 Qualified Limited Forbearance Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonresidential real estate
|
|
|
2
|
|
|
|
2,480
|
|
|
|
6
|
|
One-to-four family residential real estate
|
|
|
10
|
|
|
|
1,402
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
$
|
10,337
|
|
|
$
|
53
|
|
Troubled Debt Restructurings
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 December 31, 2020 and 2019. During the years ending December 31, 2020 and 2019, there were no loans modified and classified as TDRs. During the years ending December 31, 2020 and 2019, there were no TDR loans that subsequently defaulted within twelve months of their modification.
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:
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.
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 4 – LOANS RECEIVABLE (continued)
Based on the most recent analysis performed, the risk category of loans by class of loans are as follows:
|
|
Pass
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
Nonaccrual
|
|
|
Total
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
32,089
|
|
|
$
|
-
|
|
|
$
|
452
|
|
|
$
|
834
|
|
|
$
|
33,375
|
|
Non-owner occupied
|
|
|
8,164
|
|
|
|
27
|
|
|
|
34
|
|
|
|
91
|
|
|
|
8,316
|
|
Multi-family mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Illinois
|
|
|
222,029
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
222,029
|
|
Other
|
|
|
230,212
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
230,212
|
|
Nonresidential real estate
|
|
|
106,280
|
|
|
|
1,998
|
|
|
|
84
|
|
|
|
296
|
|
|
|
108,658
|
|
Construction and land
|
|
|
499
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
499
|
|
Commercial loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
72,809
|
|
|
|
—
|
|
|
|
4,886
|
|
|
|
—
|
|
|
|
77,695
|
|
Asset-based
|
|
|
1,740
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,740
|
|
Equipment finance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
|
102,740
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
102,740
|
|
Investment-rated
|
|
|
87,260
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87,260
|
|
Other
|
|
|
134,617
|
|
|
|
—
|
|
|
|
1,005
|
|
|
|
—
|
|
|
|
135,622
|
|
Consumer
|
|
|
1,802
|
|
|
|
5
|
|
|
|
5
|
|
|
|
—
|
|
|
|
1,812
|
|
|
|
$
|
1,000,241
|
|
|
$
|
2,030
|
|
|
$
|
6,466
|
|
|
$
|
1,221
|
|
|
$
|
1,009,958
|
|
|
|
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 and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
125,630
|
|
|
|
8,346
|
|
|
|
—
|
|
|
|
—
|
|
|
|
133,976
|
|
Asset-based
|
|
|
11,738
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,738
|
|
Equipment finance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
|
33,555
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
33,555
|
|
Investment-rated
|
|
|
101,381
|
|
|
|
507
|
|
|
|
—
|
|
|
|
—
|
|
|
|
101,888
|
|
Other
|
|
|
136,289
|
|
|
|
761
|
|
|
|
136
|
|
|
|
—
|
|
|
|
137,186
|
|
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 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.
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 5 - OTHER REAL ESTATE OWNED (continued)
The following represents the roll forward of OREO and the composition of OREO properties.
|
|
At and For the Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Beginning balance
|
|
$
|
186
|
|
|
$
|
1,226
|
|
New foreclosed properties
|
|
|
33
|
|
|
|
186
|
|
Capitalized improvements
|
|
|
47
|
|
|
|
—
|
|
Valuation adjustments
|
|
|
—
|
|
|
|
(38
|
)
|
Sales
|
|
|
(109
|
)
|
|
|
(1,188
|
)
|
Ending balance
|
|
$
|
157
|
|
|
$
|
186
|
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
Balance
|
|
|
Valuation Allowance
|
|
|
Net OREO Balance
|
|
|
Balance
|
|
|
Valuation Allowance
|
|
|
Net OREO Balance
|
|
One–to–four family residential
|
|
$
|
157
|
|
|
$
|
—
|
|
|
$
|
157
|
|
|
$
|
186
|
|
|
$
|
—
|
|
|
$
|
186
|
|
Activity in the valuation allowance is as follows:
|
|
At and For the Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Beginning of year
|
|
$
|
—
|
|
|
$
|
23
|
|
Additions charged to expense
|
|
|
—
|
|
|
|
38
|
|
Reductions from sales of other real estate owned
|
|
|
—
|
|
|
|
(61
|
)
|
End of year
|
|
$
|
—
|
|
|
$
|
—
|
|
At December 31, 2020 and 2019, the balance of OREO includes no foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property without title. At December 31, 2020 and 2019, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process was $187,000 and $237,000, respectively.
NOTE 6 – PREMISES AND EQUIPMENT
Year-end premises and equipment are as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Land and land improvements
|
|
$
|
11,989
|
|
|
$
|
11,918
|
|
Buildings and improvements
|
|
|
31,145
|
|
|
|
30,585
|
|
Furniture and equipment
|
|
|
10,111
|
|
|
|
9,454
|
|
Computer equipment
|
|
|
4,798
|
|
|
|
4,326
|
|
|
|
|
58,043
|
|
|
|
56,283
|
|
Accumulated depreciation
|
|
|
(33,368
|
)
|
|
|
(31,937
|
)
|
|
|
$
|
24,675
|
|
|
$
|
24,346
|
|
Depreciation of premises and equipment was $1.7 million and $1.6 million for the years ended December 31, 2020 and 2019, respectively.
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 7 - LEASES
The following table represents the classification of the Company's right of use and lease liabilities:
|
Statement of Financial
Condition Location
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Operating Lease Right of Use Asset:
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
6,694
|
|
|
$
|
—
|
|
New lease obligation
|
|
|
111
|
|
|
|
6,694
|
|
Accumulated amortization
|
|
|
(1,730
|
)
|
|
|
(848
|
)
|
Net recorded value
|
Other assets
|
|
$
|
5,075
|
|
|
$
|
5,846
|
|
|
|
|
|
|
|
|
|
|
|
Operating Lease Liabilities:
|
|
|
|
|
|
|
|
|
|
Right of use lease obligations
|
Other liabilities
|
|
$
|
5,075
|
|
|
$
|
5,846
|
|
Amortization expense was $882,000 and $848,000 for the years ended December 31, 2020 and 2019, respectively. At December 31, 2020, the weighted-average remaining lease term for the operating leases was 8.2 years and the weighted-average discount rate used in the measurement of operating lease liabilities was 3.13%. The Company utilized the FHLB fixed rate advance rate for the term most closely aligning with the remaining lease term at inception.
|
|
For the year ended December 31, 2020
|
|
|
For the year ended December 31, 2019
|
|
Lease cost:
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
882
|
|
|
$
|
848
|
|
Short-term lease cost
|
|
|
152
|
|
|
|
112
|
|
Sublease income
|
|
|
(74
|
)
|
|
|
(51
|
)
|
Total lease cost
|
|
$
|
960
|
|
|
$
|
909
|
|
|
|
|
|
|
|
|
|
|
Other information:
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
948
|
|
|
$
|
901
|
|
Future minimum payments under non-cancellable operating leases with terms longer than 12 months, are as follows at December 31, 2020. Future minimum payments on shorter term leases are excluded as the amounts are insignificant.
Twelve months ended December 31,
|
|
|
|
|
2021
|
|
$
|
962
|
|
2022
|
|
|
1,002
|
|
2023
|
|
|
956
|
|
2024
|
|
|
501
|
|
2025
|
|
|
507
|
|
Thereafter
|
|
|
2,217
|
|
Total future minimum operating lease payments
|
|
|
6,145
|
|
Amounts representing interest
|
|
|
(1,070
|
)
|
Present value of net future minimum operating lease payments
|
|
$
|
5,075
|
|
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 8 - DEPOSITS
Composition of deposits is as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Noninterest-bearing demand deposits
|
|
$
|
326,188
|
|
|
$
|
210,762
|
|
Interest-bearing NOW accounts
|
|
|
336,994
|
|
|
|
273,168
|
|
Money market accounts
|
|
|
297,801
|
|
|
|
245,610
|
|
Savings deposits
|
|
|
179,561
|
|
|
|
153,183
|
|
Certificates of deposit
|
|
|
253,000
|
|
|
|
402,034
|
|
|
|
$
|
1,393,544
|
|
|
$
|
1,284,757
|
|
Time deposits that meet or exceed the FDIC Insurance limit of $250,000 were $30.7 million and $89.3 million at December 31, 2020 and 2019, respectively. Certificates of deposits include wholesale certificates totaling $9.9 million and $65.1 million at December 31, 2020 and 2019, respectively. Of those certificates, $18.9 million are brokered at December 31, 2019 and none at December 31, 2020.
Scheduled maturities of certificates of deposit for the next five years as of December 31, 2020 are as follows:
2021
|
|
$
|
188,040
|
|
2022
|
|
|
54,384
|
|
2023
|
|
|
8,160
|
|
2024
|
|
|
2,238
|
|
2025
|
|
|
178
|
|
|
|
$
|
253,000
|
|
NOTE 9 — BORROWINGS
At year-end, advances from the FHLB were as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
Contractual Rate
|
|
|
Amount
|
|
|
Contractual Rate
|
|
|
Amount
|
|
Fixed-rate advance from FHLB, due within 1 year
|
|
|
—
|
%
|
|
$
|
4,000
|
|
|
|
—
|
%
|
|
$
|
—
|
|
The Company maintains a collateral pledge agreement covering secured advances whereby the Company has agreed to keep on hand, free of all other pledges, liens, and encumbrances, specifically identified whole first mortgages on improved residential property not more than 90-days delinquent to secure advances from the FHLB. All of the Bank’s FHLB common stock is pledged as additional collateral for these advances. At December 31, 2020, $25.4 million and $328.1 million of first mortgage and multi-family mortgage loans, respectively, collateralized potential advances. At December 31, 2020, we had the ability to borrow an additional $315.6 million under our credit facilities with the FHLB. The Company also had available pre-approved overnight federal funds borrowing. At December 31, 2020 and 2019, there was no outstanding balance on these lines.
Securities sold under agreements to repurchase, which are included with borrowings on the consolidated balance sheet, are shown below.
|
|
Overnight and Continuous
|
|
|
Up to 30 days
|
|
|
30 - 90 days
|
|
|
Greater Than 90 days
|
|
|
Total
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements and repurchase-to-maturity transactions
|
|
$
|
61
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
61
|
|
Gross amount of recognized liabilities for repurchase agreements in Statement of Financial Condition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
61
|
|
There were no repurchase agreements and repurchase-to-maturity transactions at December 31, 2020.
Securities sold under agreements to repurchase were secured by a mortgage-backed security with a carrying amount of $2.0 million at December 31, 2019. As the security's value fluctuates due to market conditions, the Company has no control over the market value. The Company is obligated to promptly transfer additional securities if the market value of the securities falls below the repurchase price, per the agreement.
On April 1, 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 minus 0.75%. The line of credit will mature on April 1, 2021. The line of credit had no outstanding balance at December 31, 2020.
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 10 – INCOME TAXES
The income tax expense is as follows:
|
|
For the years ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Current expense
|
|
$
|
2,460
|
|
|
$
|
1,863
|
|
Deferred expense
|
|
|
1,137
|
|
|
|
2,362
|
|
Total income tax expense
|
|
$
|
3,597
|
|
|
$
|
4,225
|
|
A reconciliation of the provision for income taxes computed at the statutory federal corporate tax rate of 21% for 2020 and 2019, to the income tax expense in the consolidated statements of operations follows:
|
|
For the years ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Expense computed at the statutory federal tax rate
|
|
$
|
2,680
|
|
|
$
|
3,339
|
|
State and local taxes, net of federal income tax effect
|
|
|
720
|
|
|
|
892
|
|
Other, net
|
|
|
(3
|
)
|
|
|
(6
|
)
|
Valuation allowance for deferred tax assets
|
|
|
200
|
|
|
|
—
|
|
|
|
$
|
3,597
|
|
|
$
|
4,225
|
|
Effective income tax rate
|
|
|
28.18
|
%
|
|
|
26.57
|
%
|
Retained earnings at December 31, 2020 and 2019 include $14.9 million for which no deferred federal income tax liability has been recorded. This amount represents an allocation of income to bad debt deductions for tax purposes alone.
The net deferred tax asset is as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Gross deferred tax assets
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
2,075
|
|
|
$
|
2,043
|
|
Alternative minimum tax and net operating loss carryforwards
|
|
|
3,999
|
|
|
|
4,452
|
|
Lease liability
|
|
|
1,358
|
|
|
|
1,565
|
|
Tax deductible goodwill and core deposit intangible
|
|
|
63
|
|
|
|
314
|
|
Other
|
|
|
505
|
|
|
|
741
|
|
|
|
|
8,000
|
|
|
|
9,115
|
|
Gross deferred tax liabilities
|
|
|
|
|
|
|
|
|
Net deferred loan origination costs
|
|
|
(873
|
)
|
|
|
(1,013
|
)
|
Purchase accounting adjustments
|
|
|
(1,570
|
)
|
|
|
(1,623
|
)
|
Right of use asset
|
|
|
(1,358
|
)
|
|
|
(1,565
|
)
|
Other
|
|
|
(1,180
|
)
|
|
|
(958
|
)
|
Unrealized gain on securities
|
|
|
(78
|
)
|
|
|
(83
|
)
|
|
|
|
(5,059
|
)
|
|
|
(5,242
|
)
|
Valuation allowance
|
|
|
(200
|
)
|
|
|
—
|
|
|
|
$
|
2,741
|
|
|
$
|
3,873
|
|
As of December 31, 2020 and 2019, the Company’s net deferred tax asset (“DTA”) was $2.7 million and $3.9 million, respectively.
A DTA valuation allowance is required under ASC 740 when the realization of a DTA is assessed and the assessment indicates that it is “more likely than not” (i.e., more than 50% likely) that all or a portion of the DTA will not be realized. All available evidence, both positive and negative must be considered to determine whether, based on the weight of that evidence, a valuation allowance against the net DTA is required. Objectively verifiable evidence is assigned greater weight than evidence that is not objectively verifiable. The valuation allowance is analyzed quarterly for changes affecting the DTA.
The Company’s ability to realize the DTA is dependent upon the generation of future taxable income during the periods in which the tax attributes underlying the DTA become deductible. The amount of the DTA that will ultimately be realized will be impacted by the Company’s future taxable income, any changes to the many variables that could impact future taxable income and the then applicable corporate tax rate. As of December 31, 2020 and 2019, valuation allowances of $200,000 and zero were attributed to the Illinois net loss deduction carryforwards.
At December 31, 2020, the Company had a federal net operating loss carryforward of $7.2 million relating to its acquisition of Downers Grove National Bank, which is subject to utilization limitations under Section 382 of the Internal Revenue Code, and will begin to expire in 2030, and $225,000 of alternative minimum tax credit carryforward that does not expire and is subject to utilization limitations under Section 382 of the Internal Revenue Code. At December 31, 2020, the Company had a state net operating loss carryforward for the State of Illinois of $44.7 million, which will begin to expire in 2023 and fully expires in 2025.
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 10 – INCOME TAXES (continued)
Unrecognized Tax Benefits
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Beginning of year
|
|
$
|
244
|
|
|
$
|
198
|
|
Additions based on tax positions related to the current year
|
|
|
61
|
|
|
|
62
|
|
Additions for tax positions of prior years
|
|
|
2
|
|
|
|
—
|
|
Reductions due to the statute of limitations and reductions for tax positions of prior years
|
|
|
(30
|
)
|
|
|
(16
|
)
|
End of year
|
|
$
|
277
|
|
|
$
|
244
|
|
The Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. At December 31, 2020 and 2019, the Company has immaterial amounts accrued for potential interest and penalties.
The Company and its subsidiary are subject to U.S. federal income tax as well as income tax of the various states where the Company does business. The Company is no longer subject to examination by the federal taxing authorities for years before 2017 and the Illinois taxing authorities for years before 2017.
NOTE 11– REGULATORY MATTERS
The Bank is subject to regulatory capital requirements administered by the federal banking agencies. The capital adequacy guidelines and prompt corrective action regulations, 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 in 2015. The net unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital.
In addition, as a result of the legislation, the federal banking agencies developed a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum capital for the new Community Bank Leverage Ratio at not less than 8% and not more than 10%. Beginning in the second quarter 2020 and until the end of the year, a banking organization that has a leverage ratio of 8% or greater and meets certain other criteria may elect to use the Community Bank Leverage Ratio framework; and qualified community banks will have until January 1, 2022, before the Community Bank Leverage Ratio requirement is re-established at greater than 9%. Pursuant to Section 4012 of the CARES Act and related interim final rules, the Community Bank Leverage Ratio will be 8% beginning in the second quarter and for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. A financial institution can elect to be subject to this new definition, and opt-out of this new definition, at any time. As a qualified community bank, we elected to be subject to this definition beginning the second quarter of 2020.
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.
The minimum capital ratios set forth in the Regulatory Capital Plans will be increased and other minimum capital requirements will be established if and as necessary. In accordance with the Regulatory Capital Plans, 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 established minimum capital levels or the capital levels required for capital adequacy plus the capital conservation buffer (“ CCB”). The minimum CCB is 2.5%.
As of December 31, 2020, the Bank was well-capitalized, with all capital ratios exceeding the well-capitalized requirement. 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.
The Bank's Community Bank Leverage Ratio was:
|
|
Actual
|
|
|
Required for Capital Adequacy Purposes
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Bank Leverage Ratio
|
|
$
|
160,236
|
|
|
|
10.10
|
%
|
|
$
|
126,964
|
|
|
|
8.00
|
%
|
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 11– REGULATORY MATTERS (continued)
Actual and required capital amounts and ratios for the Bank were:
|
|
Actual
|
|
|
Required for Capital Adequacy Purposes
|
|
|
To be Well-Capitalized under Prompt Corrective Action Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
$
|
170,203
|
|
|
|
16.38
|
%
|
|
$
|
83,130
|
|
|
|
8.00
|
%
|
|
$
|
103,913
|
|
|
|
10.00
|
%
|
Tier 1 (core) capital (to risk-weighted assets)
|
|
|
162,455
|
|
|
|
15.63
|
|
|
|
62,348
|
|
|
|
6.00
|
|
|
|
83,130
|
|
|
|
8.00
|
|
Common Tier 1 (CET1)
|
|
|
162,455
|
|
|
|
15.63
|
|
|
|
46,761
|
|
|
|
4.50
|
|
|
|
67,543
|
|
|
|
6.50
|
|
Tier 1 (core) capital (to adjusted average total assets)
|
|
|
162,455
|
|
|
|
10.89
|
|
|
|
59,666
|
|
|
|
4.00
|
|
|
|
74,583
|
|
|
|
5.00
|
|
NOTE 12 – EMPLOYEE BENEFIT PLAN
Profit Sharing Plan/401(k) Plan. The Company has a defined contribution plan (“profit sharing plan”) covering all of its eligible employees. Employees are eligible to participate in the profit sharing plan after attainment of age 21 and completion of one year of service. The Company provides a match of $0.50 on each $1.00 of contribution up to 6% of eligible compensation beginning April 1, 2007. The Company may also contribute an additional amount annually at the discretion of the Board of Directors. Contributions totaling $331,000 and $323,000 were made for the years ended December 31, 2020 and 2019, respectively.
NOTE 13 – LOAN COMMITMENTS AND OTHER OFF-BALANCE-SHEET ACTIVITIES
The Company is party to various financial instruments with off-balance-sheet risk. The Company uses these financial instruments in the normal course of business to meet the financing needs of customers and to effectively manage exposure to interest rate risk. These financial instruments include commitments to extend credit, standby letters of credit, unused lines of credit, and commitments to sell loans. When viewed in terms of the maximum exposure, those instruments may involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. Credit risk is the possibility that a counterparty to a financial instrument will be unable to perform its contractual obligations. Interest rate risk is the possibility that, due to changes in economic conditions, the Company’s net interest income will be adversely affected.
The following is a summary of the contractual or notional amount of each significant class of off-balance-sheet financial instruments outstanding. The Company’s exposure to credit loss in the event of nonperformance by the counterparty for commitments to extend credit, standby letters of credit, and unused lines of credit is represented by the contractual notional amount of these instruments.
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Financial instruments wherein contractual amounts represent credit risk
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
$
|
31,131
|
|
|
$
|
19,737
|
|
Standby letters of credit
|
|
|
6,668
|
|
|
|
6,119
|
|
Unused lines of credit
|
|
|
200,240
|
|
|
|
149,771
|
|
Commitments to extend credit are generally made for periods of 60 days or less. The fixed-rate loans commitment totaled $23.1 million with interest rates ranging from 2.65% to 9.83% and maturities ranging from 1 to 30 years.
Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customers.
NOTE 14 – FAIR VALUE
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 fair values of debt securities are generally determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2).
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 14 – FAIR VALUE (continued)
Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available for similar loans and collateral underlying such loans. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy.
Other Real Estate Owned: 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 properties 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
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
—
|
|
|
$
|
15,117
|
|
|
$
|
—
|
|
|
$
|
15,117
|
|
Municipal securities
|
|
|
—
|
|
|
|
409
|
|
|
|
—
|
|
|
|
409
|
|
Mortgage-backed securities – residential
|
|
|
—
|
|
|
|
6,108
|
|
|
|
—
|
|
|
|
6,108
|
|
Collateralized mortgage obligations – residential
|
|
|
—
|
|
|
|
2,195
|
|
|
|
—
|
|
|
|
2,195
|
|
|
|
$
|
—
|
|
|
$
|
23,829
|
|
|
$
|
—
|
|
|
$
|
23,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
—
|
|
|
$
|
48,666
|
|
|
$
|
—
|
|
|
$
|
48,666
|
|
Municipal securities
|
|
|
—
|
|
|
|
513
|
|
|
|
—
|
|
|
|
513
|
|
Mortgage-backed securities - residential
|
|
|
—
|
|
|
|
8,037
|
|
|
|
—
|
|
|
|
8,037
|
|
Collateralized mortgage obligations – residential
|
|
|
—
|
|
|
|
2,977
|
|
|
|
—
|
|
|
|
2,977
|
|
|
|
$
|
—
|
|
|
$
|
60,193
|
|
|
$
|
—
|
|
|
$
|
60,193
|
|
The following table sets forth the Company’s assets that were measured at fair value on a non-recurring basis:
|
|
Fair Value Measurement Using
|
|
|
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
|
Significant Observable Inputs (Level 2)
|
|
|
Significant Unobservable Inputs (Level 3)
|
|
|
Fair Value
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans - nonresidential real estate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
268
|
|
|
$
|
268
|
|
Impaired loans, which are measured for impairment using the fair value of the collateral for collateral–dependent loans, had a carrying amount of $296,000 with a valuation allowance of $28,000 at December 31, 2020. At December 31, 2019 there were no impaired loans that were measured for impairment using the fair value of the collateral for collateral-dependent loans and which had specific valuation allowances. There is an increase in the provision for loan losses of $28,000 for the year ended December 31, 2020, compared to no specific provision for loan losses for the year ended December 31, 2019.
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 14 – FAIR VALUE (continued)
At December 31, 2020 and 2019 there were no OREO properties with valuation allowances.
The following table presents quantitative information, based on certain empirical data with respect to Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2020:
|
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range (Weighted Average)
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans - nonresidential real estate
|
|
$
|
268
|
|
Sales comparison
|
|
Discount applied to valuation
|
|
|
22.0
|
%
|
The carrying amount and estimated fair value of financial instruments are as follows:
|
|
|
|
|
|
Fair Value Measurements at December 31, 2020 Using:
|
|
|
|
|
|
|
|
Carrying Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
503,496
|
|
|
$
|
14,115
|
|
|
$
|
489,381
|
|
|
$
|
—
|
|
|
$
|
503,496
|
|
Securities
|
|
|
23,829
|
|
|
|
—
|
|
|
|
23,829
|
|
|
|
—
|
|
|
|
23,829
|
|
Loans receivable, net of allowance for loan losses
|
|
|
1,002,578
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,004,854
|
|
|
|
1,004,854
|
|
FHLB and FRB stock
|
|
|
7,490
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
N/A
|
|
Accrued interest receivable
|
|
|
3,941
|
|
|
|
—
|
|
|
|
52
|
|
|
|
3,889
|
|
|
|
3,941
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
253,000
|
|
|
|
—
|
|
|
|
253,906
|
|
|
|
—
|
|
|
|
253,906
|
|
Borrowings
|
|
|
4,000
|
|
|
|
—
|
|
|
|
3,998
|
|
|
|
—
|
|
|
|
3,998
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2019 Using:
|
|
|
|
|
|
|
|
Carrying
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
190,325
|
|
|
$
|
9,785
|
|
|
$
|
180,540
|
|
|
$
|
—
|
|
|
$
|
190,325
|
|
Securities available-for-sale
|
|
|
60,193
|
|
|
|
—
|
|
|
|
60,193
|
|
|
|
—
|
|
|
|
60,193
|
|
Loans receivable, net of allowance for loan losses
|
|
|
1,168,008
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,177,459
|
|
|
|
1,177,459
|
|
FHLB and FRB stock
|
|
|
7,490
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
N/A
|
|
Accrued interest receivable
|
|
|
4,563
|
|
|
|
—
|
|
|
|
252
|
|
|
|
4,311
|
|
|
|
4,563
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
402,034
|
|
|
|
—
|
|
|
|
402,914
|
|
|
|
—
|
|
|
|
402,914
|
|
Borrowings
|
|
|
61
|
|
|
|
—
|
|
|
|
61
|
|
|
|
—
|
|
|
|
61
|
|
Loans: The exit price observations are obtained from an independent third-party using its proprietary valuation model and methodology and may not reflect actual or prospective market valuations. The valuation is based on the probability of default, loss given default, recovery delay, prepayment, and discount rate assumptions.
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.
NOTE 15 — REVENUE FROM CONTRACTS WITH CUSTOMERS
All of the Company's revenue from contracts with customers in 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.
|
|
For the years ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deposit service charges and fees
|
|
$
|
3,196
|
|
|
$
|
3,844
|
|
Loan servicing fees (1)
|
|
|
552
|
|
|
|
451
|
|
Mortgage brokerage and banking fees (1)
|
|
|
98
|
|
|
|
149
|
|
Gain on sale of equity securities (1)
|
|
|
—
|
|
|
|
295
|
|
Loss on disposal of other assets
|
|
|
(5
|
)
|
|
|
(44
|
)
|
Trust and insurance commissions and annuities income
|
|
|
961
|
|
|
|
844
|
|
Earnings on bank-owned life insurance (1)
|
|
|
70
|
|
|
|
136
|
|
Other (1)
|
|
|
494
|
|
|
|
497
|
|
Total noninterest income
|
|
$
|
5,366
|
|
|
$
|
6,172
|
|
(1)
|
Not within the scope of ASC 606
|
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 15 — REVENUE FROM CONTRACTS WITH CUSTOMERS (continued)
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 for the years ended December 31, 2020 and 2019 was $1.4 million and $1.5 million, 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 OREO and other assets: The Company records a gain or loss from the sale of OREO and other assets when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. OREO sales for the years ended December 31, 2020 and 2019 were not financed by the Company.
NOTE 16 – COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial information of BankFinancial Corporation as of December 31, 2020 and 2019 and for the two years then ended are as follows:
Condensed Statements of Financial Condition
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash in subsidiary
|
|
$
|
10,996
|
|
|
$
|
6,864
|
|
Investment in subsidiary
|
|
|
161,678
|
|
|
|
164,847
|
|
Deferred tax asset
|
|
|
393
|
|
|
|
558
|
|
Other assets
|
|
|
658
|
|
|
|
2,115
|
|
|
|
$
|
173,725
|
|
|
$
|
174,384
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
795
|
|
|
$
|
12
|
|
Total stockholders’ equity
|
|
|
172,930
|
|
|
|
174,372
|
|
|
|
$
|
173,725
|
|
|
$
|
174,384
|
|
Condensed Statements of Operations
|
|
For the years ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Dividends from subsidiary
|
|
$
|
13,713
|
|
|
$
|
21,200
|
|
Other expense
|
|
|
1,625
|
|
|
|
1,600
|
|
Income before income tax and undistributed subsidiary excess distributions
|
|
|
12,088
|
|
|
|
19,600
|
|
Income tax benefit
|
|
|
(231
|
)
|
|
|
(433
|
)
|
Income before equity in undistributed subsidiary excess distributions
|
|
|
12,319
|
|
|
|
20,033
|
|
Equity in undistributed subsidiary excess distributions
|
|
|
(3,156
|
)
|
|
|
(8,361
|
)
|
Net income
|
|
$
|
9,163
|
|
|
$
|
11,672
|
|
BANKFINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
NOTE 16 – COMPANY ONLY CONDENSED FINANCIAL INFORMATION (continued)
Condensed Statements of Cash Flows
|
|
For the years ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,163
|
|
|
$
|
11,672
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Equity in undistributed subsidiary excess distributions
|
|
|
3,156
|
|
|
|
8,361
|
|
Change in other assets
|
|
|
1,622
|
|
|
|
2,643
|
|
Change in accrued expenses and other liabilities
|
|
|
783
|
|
|
|
(2,634
|
)
|
Net cash from operating activities
|
|
|
14,724
|
|
|
|
20,042
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Repurchase and retirement of common stock
|
|
|
(4,610
|
)
|
|
|
(18,139
|
)
|
Cash dividends paid on common stock
|
|
|
(5,982
|
)
|
|
|
(6,266
|
)
|
Net cash used in financing activities
|
|
|
(10,592
|
)
|
|
|
(24,405
|
)
|
Net change in cash in subsidiary
|
|
|
4,132
|
|
|
|
(4,363
|
)
|
Beginning cash in subsidiary
|
|
|
6,864
|
|
|
|
11,227
|
|
Ending cash in subsidiary
|
|
$
|
10,996
|
|
|
$
|
6,864
|
|
NOTE 17 – SELECTED QUARTERLY FINANCIAL DATA (unaudited)
|
|
For the year ended December 31, 2020
|
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
Interest income
|
|
$
|
14,653
|
|
|
$
|
13,194
|
|
|
$
|
12,485
|
|
|
$
|
12,543
|
|
Interest expense
|
|
|
2,684
|
|
|
|
1,869
|
|
|
|
1,488
|
|
|
|
947
|
|
Net interest income
|
|
|
11,969
|
|
|
|
11,325
|
|
|
|
10,997
|
|
|
|
11,596
|
|
Provision for (recovery of) loan losses
|
|
|
471
|
|
|
|
42
|
|
|
|
(187
|
)
|
|
|
(271
|
)
|
Net interest income after provision for (recovery of) loan losses
|
|
|
11,498
|
|
|
|
11,283
|
|
|
|
11,184
|
|
|
|
11,867
|
|
Noninterest income
|
|
|
1,398
|
|
|
|
1,163
|
|
|
|
1,264
|
|
|
|
1,541
|
|
Noninterest expense
|
|
|
9,628
|
|
|
|
9,249
|
|
|
|
9,787
|
|
|
|
9,774
|
|
Income before income taxes
|
|
|
3,268
|
|
|
|
3,197
|
|
|
|
2,661
|
|
|
|
3,634
|
|
Income tax expense
|
|
|
850
|
|
|
|
845
|
|
|
|
713
|
|
|
|
1,189
|
|
Net income
|
|
$
|
2,418
|
|
|
$
|
2,352
|
|
|
$
|
1,948
|
|
|
$
|
2,445
|
|
Basic and diluted earnings per common share
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.13
|
|
|
$
|
0.17
|
|
The Company’s net income for the fourth quarter of 2020 included $605,000 of income related to loan prepayments, $255,000 of commercial credit facilities fees, and $162,000 of fee income from the Paycheck Protection Program and a modest increase in trust income. These increases were partially offset by a reduction of deposit services income related to retail account activity. The Company’s noninterest expense for the fourth quarter of 2020 was consistent with the prior quarter despite increases in occupancy expenses related to COVID-19 health security and risk mitigation, real estate taxes on branch facilities, personnel expenses related to equipment finance incentive plans and recruiting expenses related to the addition of originations and underwriting personnel for the Bank's Commercial Finance Division and Treasury Services Department.
|
|
For the year ended December 31, 2019
|
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
Interest income
|
|
$
|
16,526
|
|
|
$
|
16,522
|
|
|
$
|
16,628
|
|
|
$
|
15,732
|
|
Interest expense
|
|
|
3,307
|
|
|
|
3,419
|
|
|
|
3,386
|
|
|
|
3,105
|
|
Net interest income
|
|
|
13,219
|
|
|
|
13,103
|
|
|
|
13,242
|
|
|
|
12,627
|
|
Provision for (recovery of) loan losses
|
|
|
(87
|
)
|
|
|
3,957
|
|
|
|
(134
|
)
|
|
|
89
|
|
Net interest income
|
|
|
13,306
|
|
|
|
9,146
|
|
|
|
13,376
|
|
|
|
12,538
|
|
Noninterest income
|
|
|
1,624
|
|
|
|
1,426
|
|
|
|
1,474
|
|
|
|
1,648
|
|
Noninterest expense
|
|
|
10,098
|
|
|
|
9,472
|
|
|
|
9,509
|
|
|
|
9,562
|
|
Income before income taxes
|
|
|
4,832
|
|
|
|
1,100
|
|
|
|
5,341
|
|
|
|
4,624
|
|
Income tax expense
|
|
|
1,281
|
|
|
|
293
|
|
|
|
1,417
|
|
|
|
1,234
|
|
Net income
|
|
$
|
3,551
|
|
|
$
|
807
|
|
|
$
|
3,924
|
|
|
$
|
3,390
|
|
Basic and diluted earnings per common share
|
|
$
|
0.22
|
|
|
$
|
0.05
|
|
|
$
|
0.26
|
|
|
$
|
0.22
|
|
The Company recorded net income of $3.4 million, or $0.22 per common share, for the fourth quarter of 2019. The Company’s net interest income before provision for loan losses was $12.6 million due to the decline in the loan portfolio and lower market yields. The Company’s fourth quarter 2019 noninterest expense includes a $24,000 net recovery of non-performing loans expenses due to collections of previous recognized expenses.