0001303942-19-000075.txt : 20190809 0001303942-19-000075.hdr.sgml : 20190809 20190809150643 ACCESSION NUMBER: 0001303942-19-000075 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 69 CONFORMED PERIOD OF REPORT: 20190630 FILED AS OF DATE: 20190809 DATE AS OF CHANGE: 20190809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BankFinancial CORP CENTRAL INDEX KEY: 0001303942 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-51331 FILM NUMBER: 191012743 BUSINESS ADDRESS: STREET 1: 15W060 NORTH FRONTAGE ROAD CITY: BURR RIDGE STATE: IL ZIP: 60527 BUSINESS PHONE: (800) 894-6900 MAIL ADDRESS: STREET 1: 15W060 NORTH FRONTAGE ROAD CITY: BURR RIDGE STATE: IL ZIP: 60527 10-Q 1 bfin-2019063010xq.htm 10-Q Document

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

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended June 30, 2019
or 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from             to             
Commission File Number 0-51331
 
BANKFINANCIAL CORPORATION
(Exact Name of Registrant as Specified in Charter)
Maryland
75-3199276
(State or Other Jurisdiction
of Incorporation)
(I.R.S. Employer
Identification No.)
 
 
60 North Frontage Road, Burr Ridge, Illinois 60527
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: (800) 894-6900
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
  
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share

 
BFIN
 
The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
¨
 
Accelerated filer
 
x
Non-accelerated filer
 
¨
 
Smaller reporting company
 
x
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date. At August 7, 2019, there were 15,373,964 shares of Common Stock, $0.01 par value, outstanding.




BANKFINANCIAL CORPORATION
Form 10-Q
June 30, 2019
Table of Contents
 
 
 
 
 
 



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


 
June 30, 2019
 
December 31, 2018
Assets
 
 
 
Cash and due from other financial institutions
$
13,998

 
$
13,805

Interest-bearing deposits in other financial institutions
89,609

 
84,399

Cash and cash equivalents
103,607

 
98,204

Securities, at fair value
87,080

 
88,179

Loans receivable, net of allowance for loan losses:
June 30, 2019, $7,824 and December 31, 2018, $8,470
1,267,454

 
1,323,793

Other real estate owned, net
497

 
1,226

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

 
8,026

Premises and equipment, net
24,923

 
25,205

Accrued interest receivable
5,417

 
4,952

Bank-owned life insurance
18,877

 
18,809

Deferred taxes
4,816

 
6,235

Other assets
13,761

 
10,696

Total assets
$
1,533,922

 
$
1,585,325

 
 
 
 
Liabilities
 
 
 
Deposits
 
 
 
Noninterest-bearing
$
213,966

 
$
230,041

Interest-bearing
1,116,241

 
1,122,443

Total deposits
1,330,207

 
1,352,484

Borrowings
798

 
21,049

Advance payments by borrowers for taxes and insurance
13,526

 
10,531

Accrued interest payable and other liabilities
17,900

 
14,111

Total liabilities
1,362,431

 
1,398,175

 


 


Stockholders’ equity
 
 
 
Preferred Stock, $0.01 par value, 25,000,000 shares authorized, none issued or outstanding

 

Common Stock, $0.01 par value, 100,000,000 shares authorized; 15,373,964 shares issued at June 30, 2019 and 16,481,514 issued at December 31, 2018
154

 
165

Additional paid-in capital
113,717

 
130,547

Retained earnings
57,331

 
56,167

Accumulated other comprehensive income
289

 
271

Total stockholders’ equity
171,491

 
187,150

Total liabilities and stockholders’ equity
$
1,533,922

 
$
1,585,325


See accompanying notes to the consolidated financial statements.

1


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

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Interest and dividend income
 
 
 
 
 
 
 
Loans, including fees
$
15,389

 
$
13,977

 
$
30,741

 
$
27,797

Securities
602

 
546

 
1,204

 
1,010

Other
531

 
497

 
1,103

 
961

Total interest income
16,522

 
15,020

 
33,048

 
29,768

Interest expense
 
 
 
 
 
 
 
Deposits
3,417

 
1,829

 
6,638

 
3,354

Borrowings
2

 
210

 
88

 
412

Total interest expense
3,419

 
2,039

 
6,726

 
3,766

Net interest income
13,103

 
12,981

 
26,322

 
26,002

Provision for (recovery of) loan losses
3,957

 
23

 
3,870

 
(235
)
Net interest income after provision for (recovery of) loan losses
9,146

 
12,958

 
22,452

 
26,237

Noninterest income
 
 
 
 
 
 
 
Deposit service charges and fees
974

 
989

 
1,904

 
1,967

Loan servicing fees
56

 
90

 
79

 
160

Mortgage brokerage and banking fees
21

 
109

 
49

 
180

Gain (loss) on sale of equity securities

 
(14
)
 
295

 
(14
)
Gain on sale of premises held-for-sale

 
93

 

 
93

Loss on disposal of other assets

 

 
(19
)
 

Trust and insurance commissions and annuities income
224

 
250

 
429

 
463

Earnings on bank-owned life insurance
38

 
45

 
68

 
111

Bank-owned life insurance death benefit

 
1,389

 

 
1,389

Other
113

 
143

 
245

 
284

Total noninterest income
1,426

 
3,094

 
3,050

 
4,633

Noninterest expense
 
 
 
 
 
 
 
Compensation and benefits
5,207

 
5,790

 
10,910

 
11,112

Office occupancy and equipment
1,621

 
1,662

 
3,466

 
3,393

Advertising and public relations
145

 
274

 
306

 
417

Information technology
736

 
708

 
1,428

 
1,349

Supplies, telephone, and postage
319

 
396

 
718

 
729

Amortization of intangibles
14

 
21

 
34

 
143

Nonperforming asset management
58

 
51

 
112

 
253

Operations of other real estate owned, net
47

 
135

 
3

 
296

FDIC insurance premiums
146

 
104

 
254

 
223

Other
1,179

 
1,074

 
2,339

 
2,259

Total noninterest expense
9,472

 
10,215

 
19,570

 
20,174

Income before income taxes
1,100

 
5,837

 
5,932

 
10,696

Income tax expense
293

 
1,207

 
1,574

 
2,507

Net income
$
807

 
$
4,630

 
$
4,358

 
$
8,189

Basic and diluted earnings per common share
$
0.05

 
$
0.26

 
$
0.28

 
$
0.46

Weighted average common shares outstanding
15,472,618

 
17,633,815

 
15,835,445

 
17,781,407

Diluted weighted average common shares outstanding
15,472,618

 
17,633,815

 
15,835,445

 
17,781,407


See accompanying notes to the consolidated financial statements.

2


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

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Net income
807

 
4,630

 
4,358

 
8,189

Unrealized holding gain (loss) arising during the period
19

 
(11
)
 
25

 
(124
)
Tax effect
(6
)
 
2

 
(7
)
 
33

Net of tax
13

 
(9
)
 
18

 
(91
)
Comprehensive income
$
820

 
$
4,621

 
$
4,376

 
$
8,098


See accompanying notes to the consolidated financial statements.

3


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


 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehen-sive
Income
 
Total
Balance at January 1, 2018
$
179

 
$
153,811

 
$
43,274

 
$
370

 
$
197,634

Net income

 

 
3,559

 

 
3,559

Other comprehensive loss, net of tax

 

 

 
(82
)
 
(82
)
Repurchase and retirement of common stock (81,500 shares)
(1
)
 
(1,322
)
 

 

 
(1,323
)
Cash dividends declared on common stock ($0.08 per share)

 

 
(1,436
)
 

 
(1,436
)
Balance at March 31, 2018
178

 
152,489

 
45,397

 
288

 
198,352

Net income

 

 
4,630

 

 
4,630

Other comprehensive loss, net of tax

 

 

 
(9
)
 
(9
)
Nonvested stock awards- stock-based compensation expense

 
6

 

 

 
6

Repurchase and retirement of common stock (415,889 shares)
(3
)
 
(7,164
)
 

 

 
(7,167
)
Cash dividends declared on common stock ($0.09 per share)

 

 
(1,584
)
 

 
(1,584
)
Balance at June 30, 2018
$
175

 
$
145,331

 
$
48,443

 
$
279

 
$
194,228

 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2019
$
165

 
$
130,547

 
$
56,167

 
$
271

 
$
187,150

Net income

 

 
3,551

 

 
3,551

Other comprehensive income, net of tax

 

 

 
5

 
5

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

 

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

 

 
(1,646
)
 

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

 
117,715

 
58,072

 
276

 
176,220

Net income

 

 
807

 

 
807

Other comprehensive income, net of tax

 

 

 
13

 
13

Repurchase and retirement of common stock (270,535 shares)
(3
)
 
(3,998
)
 

 

 
(4,001
)
Cash dividends declared on common stock ($0.10 per share)

 

 
(1,548
)
 

 
(1,548
)
Balance at June 30, 2019
$
154

 
$
113,717

 
$
57,331

 
$
289

 
$
171,491


See accompanying notes to the consolidated financial statements.

4


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

 
Six Months Ended
June 30,
 
2019
 
2018
Cash flows from operating activities
 
 
 
Net income
$
4,358

 
$
8,189

Adjustments to reconcile to net income to net cash from operating activities
 
 
 
Provision for (recovery of) loan losses
3,870

 
(235
)
Stock–based compensation expense

 
6

Depreciation and amortization
1,655

 
1,729

Amortization of premiums and discounts on securities and loans
3

 
4

Amortization of core deposit intangible
34

 
143

Amortization of servicing assets
43

 
51

Net change in net deferred loan origination costs
91

 
90

(Gain) loss on sale of other real estate owned
(91
)
 
68

(Gain) loss on sale of equity securities
(295
)
 
14

Loss on disposal of other assets
19

 

Gain on sale of premises held-for-sale

 
(93
)
Other real estate owned valuation adjustments
21

 
26

Net change in:
 
 
 
Accrued interest receivable
(465
)
 
(86
)
Earnings on bank owned life insurance
(68
)
 
(111
)
Other assets
719

 
2,938

Accrued interest payable and other liabilities
(2,905
)
 
(2,771
)
Net cash from operating activities
6,989

 
9,962

Cash flows from investing activities
 
 
 
Securities
 
 
 
Proceeds from maturities
51,006

 
48,953

Proceeds from principal repayments
1,138

 
1,921

Proceeds from sale of equity securities
3,722

 
487

Purchases of securities
(51,023
)
 
(70,572
)
Loans receivable
 
 
 
Principal payments on loans receivable
476,329

 
482,893

Originated for investment
(424,040
)
 
(456,760
)
Purchase of FHLB and FRB stock
(4
)
 
(21
)
Redemption of FHLB and FRB stock
540

 

Bank-owned life insurance death benefit

 
4,224

Proceeds from sale of premises held-for-sale

 
5,485

Proceeds from sale of other real estate owned
845

 
1,556

Purchase of premises and equipment, net
(531
)
 
(132
)
Net cash from investing activities
57,982

 
18,034


Continued

5


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

 
Six Months Ended
June 30,
 
2019
 
2018
Cash flows from financing activities
 
 
 
Net change in deposits
$
(22,277
)
 
$
(44,198
)
Net change in borrowings
(20,251
)
 
(9,867
)
Net change in advance payments by borrowers for taxes and insurance
2,995

 
2,182

Repurchase and retirement of common stock
(16,841
)
 
(8,490
)
Cash dividends paid on common stock
(3,194
)
 
(3,020
)
Net cash used in financing activities
(59,568
)
 
(63,393
)
Net change in cash and cash equivalents
5,403

 
(35,397
)
Beginning cash and cash equivalents
98,204

 
127,592

Ending cash and cash equivalents
$
103,607

 
$
92,195

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Interest paid
$
6,863

 
$
3,687

Income taxes paid
400

 
176

Loans transferred to other real estate owned
46

 
838

Recording of right of use asset in exchange for lease obligations
6,694

 


See accompanying notes to the consolidated financial statements.

6

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: BankFinancial Corporation, a Maryland corporation headquartered in Burr Ridge, Illinois, is the owner of all of the issued and outstanding capital stock of BankFinancial, NA (the “Bank”). The interim unaudited consolidated financial statements include the accounts and transactions of BankFinancial Corporation, the Bank, and the Bank’s wholly-owned subsidiaries, Financial Assurance Services, Inc. and BFIN Asset Recovery Company, LLC (collectively, “the Company”), and reflect all normal and recurring adjustments that are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. Such adjustments are the only adjustments reflected in the accompanying financial statements. All significant intercompany accounts and transactions have been eliminated. The results of operations for the three and six month periods ended June 30, 2019 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2019 or for any other period.
Certain information and note disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.
Use of Estimates: To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ.
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. Lessees are required to recognize assets and liabilities on the balance sheet for leases with lease terms greater than 12 months. 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. The right of use 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 $68,000 and $102,000 at June 30, 2019 and December 31, 2018, respectively, and are included in other assets in the accompanying consolidated statements of financial condition.
Reclassifications: Certain reclassifications have been made in the prior period’s financial statements to conform them to the current period’s presentation.
These unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission.
Newly Issued Not Yet Effective Accounting Standards
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). These amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 is effective for SEC filers or fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). In July 2019, the FASB proposed changes to the effective date of ASU No. 2016-13 for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities. The proposal would delay the effective date to fiscal years beginning after December 31, 2022, including interim periods within those fiscal periods. As the Company is a smaller reporting company, the proposed delay would be applicable to the Company, if it is approved by the FASB.



7


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

NOTE 2 - EARNINGS PER SHARE

Amounts reported in earnings per share reflect earnings available to common stockholders for the period divided by the weighted average number of shares of common stock outstanding during the period, exclusive of unvested restricted stock shares. Stock options and restricted stock are regarded as potential common stock and are considered in the diluted earnings per share calculations to the extent that they would have a dilutive effect if converted to common stock.
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Net income available to common stockholders
$
807

 
$
4,630

 
$
4,358

 
$
8,189

Average common shares outstanding
15,472,618

 
17,634,190

 
15,835,445

 
17,782,063

Less - Unvested restricted stock shares

 
(375
)
 

 
(656
)
Weighted average common shares outstanding
15,472,618

 
17,633,815

 
15,835,445

 
17,781,407

Add - Net effect of dilutive unvested restricted stock

 

 

 

Diluted weighted average common shares outstanding
15,472,618

 
17,633,815

 
15,835,445

 
17,781,407

Basic earnings per common share
$
0.05

 
$
0.26

 
$
0.28

 
$
0.46

Diluted earnings per common share
$
0.05

 
$
0.26

 
$
0.28

 
$
0.46

 
NOTE 3 - SECURITIES
The fair value of securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income are shown below.
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
Available-for-Sale Securities
 
 
 
 
 
 
 
June 30, 2019
 
 
 
 
 
 
 
Certificates of deposit
$
73,523

 
$

 
$

 
$
73,523

Municipal securities
507

 
7

 

 
514

Mortgage-backed securities - residential
9,312

 
404

 
(10
)
 
9,706

Collateralized mortgage obligations - residential
3,342

 
5

 
(10
)
 
3,337

 
$
86,684

 
$
416

 
$
(20
)
 
$
87,080

December 31, 2018
 
 
 
 
 
 
 
Certificates of deposit
$
73,507

 
$

 
$

 
$
73,507

Municipal securities
509

 

 

 
509

Mortgage-backed securities - residential
10,116

 
400

 
(38
)
 
10,478

Collateralized mortgage obligations - residential
3,676

 
11

 
(2
)
 
3,685

 
$
87,808

 
$
411

 
$
(40
)
 
$
88,179

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



8


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

NOTE 3 - SECURITIES (continued)

 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
Equity Investments (1)
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
Visa Class B shares
$

 
$
3,427

 
$

 
$
3,427

(1) Equity investments are included in Other assets in the Consolidated Statements of Financial Condition.
The amortized cost and fair values of securities by contractual maturity are shown below. Securities not due at a single maturity date are shown separately. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
June 30, 2019
 
Amortized
Cost
 
Fair
Value
Due in one year or less
$
73,027

 
$
73,027

Due after one year through five years
1,003

 
1,010

 
74,030

 
74,037

Mortgage-backed securities - residential
9,312

 
9,706

Collateralized mortgage obligations - residential
3,342

 
3,337

 
$
86,684

 
$
87,080

Investment securities available-for-sale with carrying values of $2.4 million and $2.7 million at June 30, 2019 and December 31, 2018, respectively, were pledged as collateral on customer repurchase agreements and for other purposes as required or permitted by law.
Sales of equity securities were as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Proceeds
$

 
$
487

 
$
3,722

 
$
487

Gross gains

 

 
295

 

Gross losses

 
(14
)
 

 
(14
)



9


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

NOTE 3 - SECURITIES (continued)

Securities with unrealized losses not recognized in income are as follows:
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities - residential
$

 
$

 
$
914

 
$
(10
)
 
$
914

 
$
(10
)
Collateralized mortgage obligations - residential
1,225

 
(6
)
 
1,566

 
(4
)
 
2,791

 
(10
)
 
$
1,225

 
$
(6
)
 
$
2,480

 
$
(14
)
 
$
3,705

 
$
(20
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities - residential
$

 
$

 
$
904

 
$
(38
)
 
$
904

 
$
(38
)
Collateralized mortgage obligations - residential

 

 
1,729

 
(2
)
 
1,729

 
(2
)
 
$

 
$

 
$
2,633

 
$
(40
)
 
$
2,633

 
$
(40
)
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 mortgage-backed securities and collateralized mortgage obligations that the Company holds in its investment portfolio were in an unrealized loss position at June 30, 2019, but the unrealized losses were not considered significant under the Company’s impairment testing methodology. In addition, the Company does not intend to sell these securities, and it is likely that the Company will not be required to sell these securities before their anticipated recovery occurs.
The Bank, as a member of Visa USA, received 51,404 unrestricted shares of Visa, Inc. Class B common stock in connection with Visa, Inc.’s initial public offering in 2007. The retroactive responsibility plan obligates all former Visa USA members to indemnify Visa USA, in proportion to their equity interests in Visa USA, for certain litigation losses and expenses, including settlement expenses, for the lawsuits covered by the retrospective responsibility plan. Due to the restrictions that the retrospective responsibility plan imposes on the Company’s Visa, Inc. Class B shares, the Company had not recorded the Class B shares as an asset.
The Bank sold 25,702 shares of Visa Class B common stock in the fourth quarter of 2018 and recorded a gain of $3.6 million. 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. Based on the existing transfer restriction and the uncertainty of the outcome of the Visa litigation mentioned above, the 25,702 Visa Class B shares that the Company owned as of December 31, 2018 were recorded at $3.4 million in other assets with a corresponding gain.
The Bank sold the remaining 25,702 shares of Visa Class B common stock in the first quarter of 2019 and recorded a gain of $295,000.



10


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:
 
June 30, 2019
 
December 31, 2018
One-to-four family residential real estate
$
64,192

 
$
70,371

Multi-family mortgage
619,898

 
619,870

Nonresidential real estate
145,416

 
152,442

Construction and land
117

 
172

Commercial loans
153,709

 
187,406

Commercial leases
289,107

 
299,394

Consumer
1,861

 
1,539

 
1,274,300

 
1,331,194

Net deferred loan origination costs
978

 
1,069

Allowance for loan losses
(7,824
)
 
(8,470
)
Loans, net
$
1,267,454

 
$
1,323,793

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
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential real estate
$

 
$
563

 
$
563

 
$
2,420

 
$
61,772

 
$
64,192

Multi-family mortgage

 
3,988

 
3,988

 
637

 
619,261

 
619,898

Nonresidential real estate

 
1,195

 
1,195

 
2,083

 
143,333

 
145,416

Construction and land

 
3

 
3

 

 
117

 
117

Commercial loans

 
1,294

 
1,294

 

 
153,709

 
153,709

Commercial leases

 
750

 
750

 

 
289,107

 
289,107

Consumer

 
31

 
31

 

 
1,861

 
1,861

 
$

 
$
7,824

 
$
7,824

 
$
5,140

 
$
1,269,160

 
1,274,300

Net deferred loan origination costs
 
 
 
 
 
 
 
 
 
978

Allowance for loan losses
 
 
 
 
 
 
 
 
 
(7,824
)
Loans, net
 
 
 
 
 
 
 
 
 
 
$
1,267,454




11


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, 2018
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential real estate
$

 
$
699

 
$
699

 
$
2,218

 
$
68,153

 
$
70,371

Multi-family mortgage

 
3,991

 
3,991

 
653

 
619,217

 
619,870

Nonresidential real estate
27

 
1,449

 
1,476

 
270

 
152,172

 
152,442

Construction and land

 
4

 
4

 

 
172

 
172

Commercial loans

 
1,517

 
1,517

 

 
187,406

 
187,406

Commercial leases

 
755

 
755

 

 
299,394

 
299,394

Consumer

 
28

 
28

 

 
1,539

 
1,539

 
$
27

 
$
8,443

 
$
8,470

 
$
3,141

 
$
1,328,053

 
1,331,194

Net deferred loan origination costs
 
 
 
 
 
 
 
 
 
1,069

Allowance for loan losses
 
 
 
 
 
 
 
 
 
(8,470
)
Loans, net
 
 
 
 
 
 
 
 
 
 
$
1,323,793

Activity in the allowance for loan losses is as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Beginning balance
$
8,354

 
$
8,341

 
$
8,470

 
$
8,366

Loans charged off:
 
 
 
 
 
 
 
One-to-four family residential real estate
(50
)
 
(33
)
 
(73
)
 
(130
)
Multi-family mortgage

 
(35
)
 

 
(35
)
Nonresidential real estate

 

 
(28
)
 

Commercial loans
(4,443
)
 
(140
)
 
(4,443
)
 
(140
)
Consumer
(10
)
 
(1
)
 
(15
)
 
(1
)
 
(4,503
)
 
(209
)
 
(4,559
)
 
(306
)
Recoveries:
 
 
 
 
 
 
 
One-to-four family residential real estate
6

 
6

 
23

 
105

Multi-family mortgage
8

 
10

 
16

 
18

Commercial loans
2

 
2

 
4

 
225

Commercial leases

 
5

 

 
5

Consumer

 
1

 

 
1

 
16

 
24

 
43

 
354

Net (charge-offs) recoveries
(4,487
)
 
(185
)
 
(4,516
)
 
48

Provision for (recovery of) loan losses
3,957

 
23

 
3,870

 
(235
)
Ending balance
$
7,824

 
$
8,179

 
$
7,824

 
$
8,179




12


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

NOTE 4 - LOANS RECEIVABLE (continued)

Impaired loans
Several of the following disclosures are presented by “recorded investment,” which the FASB defines as “the amount of the investment in a loan, which is not net of a valuation allowance, but which does reflect any direct write-down of the investment.” The following represents the components of recorded investment:
Loan principal balance
Less unapplied payments
Plus negative unapplied balance
Less escrow balance
Plus negative escrow balance
Plus unamortized net deferred loan costs
Less unamortized net deferred loan fees
Plus unamortized premium
Less unamortized discount
Less previous charge-offs
Plus recorded accrued interest
Less reserve for uncollected interest
= Recorded investment
The following tables present loans individually evaluated for impairment by class of loans:
 
 
 
 
 
 
 
 
 
Three months ended
June 30, 2019
 
Six months ended
June 30, 2019
 
Loan
Balance
 
Recorded
Investment
 
Partial Charge-off
 
Allowance
for Loan
Losses
Allocated
 
Average
Investment
in Impaired
Loans
 
Interest
Income
Recognized
 
Average
Investment
in Impaired
Loans
 
Interest
Income
Recognized
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential real estate
$
2,818

 
$
2,227

 
$
564

 
$

 
$
2,263

 
$
12

 
$
2,238

 
$
26

One-to-four family residential real estate - non-owner occupied
221

 
169

 
56

 

 
101

 

 
77

 
1

Multi-family mortgage - Illinois
637

 
635

 

 

 
642

 
9

 
646

 
19

Nonresidential real estate
2,197

 
2,080

 
121

 

 
771

 

 
441

 
27

 
$
5,873

 
$
5,111

 
$
741

 
$

 
$
3,777

 
$
21

 
$
3,402

 
$
73




13


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

NOTE 4 - LOANS RECEIVABLE (continued)

 
 
 
 
 
 
 
 
 
Year ended
December 31, 2018
 
Loan
Balance
 
Recorded
Investment
 
Partial Charge-off
 
Allowance
for Loan
Losses
Allocated
 
Average
Investment
in Impaired
Loans
 
Interest
Income
Recognized
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential real estate
$
2,751

 
$
2,155

 
$
575

 
$

 
$
3,274

 
$
41

One-to-four family residential real estate - non-owner occupied
86

 
46

 
43

 

 
95

 

Multi-family mortgage - Illinois
654

 
653

 

 

 
795

 
39

 
3,491

 
2,854

 
$
618

 

 
4,164

 
80

With an allowance recorded - Nonresidential real estate
356

 
270

 
93

 
27

 
21

 

 
$
3,847

 
$
3,124

 
$
711

 
$
27

 
$
4,185

 
$
80

Nonaccrual Loans
The following tables present the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual by class of loans:
 
Loan Balance
 
Recorded
Investment
 
Loans Past
Due Over 90
Days, Still
Accruing
June 30, 2019
 
 
 
 
 
One-to-four family residential real estate
$
1,028

 
$
754

 
$

One-to-four family residential real estate – non-owner occupied
222

 
169

 

Nonresidential real estate
2,197

 
2,080

 

 
$
3,447

 
$
3,003

 
$

December 31, 2018
 
 
 
 
 
One-to-four family residential real estate
$
2,167

 
$
1,162

 
$

One-to-four family residential real estate – non-owner occupied
270

 
78

 

Nonresidential real estate
356

 
270

 

 
$
2,793

 
$
1,510

 
$

Nonaccrual loans and impaired loans are defined differently. Some loans may be included in both categories, and some loans may only be included in one category. Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.
The Company’s reserve for uncollected loan interest was $149,000 and $72,000 at June 30, 2019 and December 31, 2018, respectively. When a loan is on nonaccrual status and the ultimate collectability of the total principal of an impaired loan is in doubt, all payments are applied to principal under the cost recovery method. Alternatively, when a loan is on 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.



14


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

NOTE 4 - LOANS RECEIVABLE (continued)

Past Due Loans
The following tables present the aging of the recorded investment of loans at June 30, 2019 by class of loans:
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
90 Days or
Greater
Past Due
 
Total Past
Due
 
Loans Not
Past Due
 
Total
One-to-four family residential real estate loans
$
123

 
$
230

 
$
748

 
$
1,101

 
$
50,724

 
$
51,825

One-to-four family residential real estate loans – non-owner occupied
362

 
8

 
170

 
540

 
11,412

 
11,952

Multi-family mortgage - Illinois

 

 

 

 
264,086

 
264,086

Multi-family mortgage - Other

 

 

 

 
348,878

 
348,878

Nonresidential real estate

 
1,560

 
520

 
2,080

 
140,692

 
142,772

Construction and land

 

 

 

 
111

 
111

Commercial loans:
 
 
 
 
 
 

 
 
 

Regional commercial banking

 

 

 

 
29,568

 
29,568

Health care

 

 

 

 
80,022

 
80,022

Direct commercial lessor

 

 

 

 
44,620

 
44,620

Commercial leases:
 
 
 
 
 
 


 
 
 


Investment rated commercial leases

 

 

 

 
144,380

 
144,380

Other commercial leases
3,052

 
32

 

 
3,084

 
143,727

 
146,811

Consumer
3

 
1

 

 
4

 
1,872

 
1,876

 
$
3,540

 
$
1,831

 
$
1,438

 
$
6,809

 
$
1,260,092

 
$
1,266,901

The following tables present the aging of the recorded investment of loans at December 31, 2018 by class of loans:
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
90 Days or
Greater
Past Due
 
Total Past
Due
 
Loans Not
Past Due
 
Total
One-to-four family residential real estate loans
$
1,380

 
$
637

 
$
1,162

 
$
3,179

 
$
53,820

 
$
56,999

One-to-four family residential real estate loans – non-owner occupied
387

 
10

 
78

 
475

 
12,460

 
12,935

Multi-family mortgage - Illinois
458

 

 

 
458

 
275,283

 
275,741

Multi-family mortgage - Other

 

 

 

 
340,470

 
340,470

Nonresidential real estate

 
270

 

 
270

 
149,271

 
149,541

Construction and land

 

 

 

 
169

 
169

Commercial loans:
 
 
 
 
 
 

 
 
 

Regional commercial banking

 

 

 

 
39,712

 
39,712

Health care

 

 

 

 
85,418

 
85,418

Direct commercial lessor

 

 

 

 
62,719

 
62,719

Commercial leases:
 
 
 
 
 
 


 
 
 


Investment rated commercial leases
505

 

 

 
505

 
166,713

 
167,218

Other commercial leases

 

 

 

 
133,958

 
133,958

Consumer
40

 
4

 

 
44

 
1,508

 
1,552

 
$
2,770

 
$
921

 
$
1,240

 
$
4,931

 
$
1,321,501

 
$
1,326,432




15


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

NOTE 4 - LOANS RECEIVABLE (continued)

Troubled Debt Restructurings
The Company evaluates loan extensions or modifications in accordance with FASB ASC 310–40 with respect to the classification of the loan as a Troubled Debt Restructuring ("TDR"). In general, 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 $17,000 of TDRs at June 30, 2019 and December 31, 2018. No specific valuation reserves were allocated to those loans at June 30, 2019 and December 31, 2018. The Company had no outstanding commitments to borrowers whose loans were classified as TDRs at either date.
The following table presents loans classified as TDRs:
 
June 30, 2019
 
December 31, 2018
One-to-four family residential real estate - nonaccrual
$
17

 
$
17

During the six months ended June 30, 2019 and 2018, there were no loans modified and classified as TDRs. During the six months ended June 30, 2019 and 2018, 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.



16


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

NOTE 4 - LOANS RECEIVABLE (continued)

As of June 30, 2019, the risk categories of loans by class of loans are as follows:
 
Pass
 
Special
Mention
 
Substandard
 
Nonaccrual
 
Total
One-to-four family residential real estate loans
$
50,853

 
$
111

 
$
451

 
$
750

 
$
52,165

One-to-four family residential real estate loans – non-owner occupied
11,791

 
31

 
36

 
169

 
12,027

Multi-family mortgage - Illinois
267,128

 

 
213

 

 
267,341

Multi-family mortgage - Other
352,557

 

 

 

 
352,557

Nonresidential real estate
143,240

 

 
93

 
2,083

 
145,416

Construction and land
117

 

 

 

 
117

Commercial loans:
 
 
 
 
 
 
 
 

Regional commercial banking
29,514

 

 

 

 
29,514

Health care
79,042

 
264

 
500