BANKFINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands, except share and per share data) - Unaudited

 

 

See accompanying notes to the consolidated financial statements.

 

BANKFINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data) - Unaudited

 

 

See accompanying notes to the consolidated financial statements.

 

BANKFINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands) - Unaudited

 

 

See accompanying notes to the consolidated financial statements.

 

BANKFINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except per share data) - Unaudited

 

 

See accompanying notes to the consolidated financial statements.

 

BANKFINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) - Unaudited

 

 

See accompanying notes to the consolidated financial statements.

 

 

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Table amounts in thousands, except share and per share data)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation: BankFinancial Corporation, a Maryland corporation headquartered in Burr Ridge, Illinois, is the owner of all of the issued and outstanding capital stock of BankFinancial, National Association (the “Bank”). The interim unaudited consolidated financial statements include the accounts and transactions of BankFinancial Corporation, the Bank, and the Bank’s wholly-owned subsidiaries, Financial Assurance Services, Inc. and BFIN Asset Recovery Company, LLC (collectively, the “Company”), and reflect all normal and recurring adjustments that are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. Such adjustments are the only adjustments reflected in the accompanying financial statements. All significant intercompany accounts and transactions have been eliminated. The results of operations for the three-month period ended March 31, 2025 are not necessarily indicative of the results of operations that may be expected for the year ending  December 31, 2025 or for any other period.

 

Certain information and note disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

 

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 and actual results could differ from those estimates.

 

Interest-Bearing Time Deposits in other Financial Institutions: Interest-bearing time deposits in other financial institutions include investments in certificates of deposit with original maturities 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”).

 

Factored Receivables: The Company purchases invoices from its factoring customers in schedules or batches. These receivables are included in loans receivable on the Consolidated Statements of Financial Condition, and as commercial loans and leases in Note 4 - Loans Receivable.  The face value of the invoices purchased or amount advanced is recorded by the Company as factored receivables, and the unadvanced portions of the invoices purchased, less fees, are considered customer reserves. The customer reserves are held to settle any payment disputes or collection shortfalls.  Customer reserves  may be used to pay customers’ obligations to various third parties as directed by the customer. Customer reserves are periodically released to or withdrawn by customers, and are reported as noninterest-bearing deposits in the Consolidated Statements of Financial Condition. The unpaid principal balances of these receivables were $6.3 million and $6.7 million at March 31, 2025 and December 31, 2024, respectively, and are included in commercial loans and leases. The customer reserves associated with the factored receivables were $1.1 million and $1.5 million at March 31, 2025 and December 31, 2024, respectively.  

 

Factoring fees are recognized in interest income as incurred by the customer and deducted from the customer's reserve balances. Other factoring-related fees, which include wire transfer fees, broker fees, and other similar fees, are reported by the Company as loan servicing fees in noninterest income.

 

Reclassifications: Certain reclassifications have been made in the prior period’s financial statements to conform them to the current period’s presentation with no impact on previously reported net income or stockholders' equity.  Activity for the three months ended March 31, 2024 for interest-bearing time deposits in other financial institutions has been reclassified in the statement of cashflows to conform with current period's presentation.  There is no impact on net income or stockholders' equity.  

 

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, 2024, as filed with the SEC.

 

Recently Issued Accounting Standards Not Yet Adopted

 

In December 2023, the FASB issued ASU 2023‑09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires more detailed disclosures of income taxes paid net of refunds received, income from continuing operations before income tax expense or benefit, and income tax expense from continuing operations. This standard is to be applied on a prospective basis, with retrospective application permitted, and will be effective for the Company for annual periods beginning on January 1, 2025. We do not expect adoption of this standard to have a material impact on the Company’s financial position or results of operations.

In November 2024, the FASB issued ASU 2024-03, "Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses". This ASU requires public companies to disclose specified information about certain costs and expenses in the notes to financial statements at each interim and annual reporting period. Specifically, public companies will be required to disclose the amounts of (a) purchases of inventory; (b) employee compensation; (c) depreciation; (d) intangible asset amortization; and (e) depreciation, depletion, and amortization recognized as part of oil- and gas producing activities (or other amounts of depletion expense) included in each relevant expense caption. Within the same tabular disclosure, an entity must disclose certain expense, gain, or loss amounts that are already required under current U.S. GAAP. Further, an entity must disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. In addition, an entity must disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. The amendments in this ASU are effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. We do not expect adoption of this standard to have a material impact on the Company’s financial position or results of operations.

 

 

 

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Table amounts in thousands, except share and per share data)

 

NOTE 2 - EARNINGS PER SHARE

 

Amounts reported in earnings per share reflect earnings available to common stockholders for the period divided by the weighted average number of shares of common stock outstanding during the period.

 

		Three Months Ended
		March 31,
		2025				2024
Net income available to common stockholders		$	2,081			$	1,710
Basic and diluted weighted average common shares outstanding			12,460,678				12,468,052
Basic and diluted earnings per common share		$	0.17			$	0.14

  

NOTE 3 - SECURITIES

 

The fair value of securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income is as follows:

 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Available-for-Sale Securities
March 31, 2025
Municipal securities		$	702			$	4			$	—			$	706
U.S. Treasury Bills and Notes			343,183				77				(405	)			342,855
U.S. government-sponsored agencies			10,000				—				(19	)			9,981
Mortgage-backed securities - residential			2,824				31				(55	)			2,800
Collateralized mortgage obligations - residential			833				—				(10	)			823
		$	357,542			$	112			$	(489	)		$	357,165
December 31, 2024
Municipal securities		$	703			$	3			$	—			$	706
U.S. Treasury Bills and Notes			246,876				103				(689	)			246,290
U.S. government-sponsored agencies			109,900				1				(128	)			109,773
Mortgage-backed securities - residential			2,949				31				(69	)			2,911
Collateralized mortgage obligations - residential			862				—				(12	)			850
		$	361,290			$	138			$	(898	)		$	360,530

 

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.

 

The amortized cost and fair values of securities available-for-sale by contractual maturity are shown below. Securities not due at a single maturity date are shown separately. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

		March 31, 2025
		Amortized Cost				Fair Value
Due in one year or less		$	330,291			$	330,041
Due after one year through five years			23,594				23,501
			353,885				353,542
Mortgage-backed securities - residential			2,824				2,800
Collateralized mortgage obligations - residential			833				823
		$	357,542			$	357,165

 

 

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Table amounts in thousands, except share and per share data)

 

 

NOTE 3 - SECURITIES (continued)

 

Securities available-for-sale with unrealized losses not recognized in income are as follows:

 

		Less than 12 Months												12 Months or More												Total
		Count				Fair Value				Unrealized Loss				Count				Fair Value				Unrealized Loss				Count				Fair Value				Unrealized Loss
March 31, 2025
U.S. Treasury Bills and Notes			10			$	98,959			$	(11	)			49			$	35,490			$	(394	)			59			$	134,449			$	(405	)
U.S. government-sponsored agencies			1				9,981				(19	)			—				—				—				1				9,981				(19	)
Mortgage-backed securities - residential			—				—				—				5				1,158				(55	)			5				1,158				(55	)
Collateralized mortgage obligations - residential			—				—				—				5				823				(10	)			5				823				(10	)
			11			$	108,940			$	(30	)			59			$	37,471			$	(459	)			70			$	146,411			$	(489	)
December 31, 2024
U.S. Treasury Bills and Notes			—			$	—			$	—				73			$	48,609			$	(689	)			73			$	48,609			$	(689	)
U.S. government-sponsored agencies			10				79,872				(128	)			—				—				—				10				79,872				(128	)
Mortgage-backed securities - residential			—				—				—				7				1,364				(69	)			7				1,364				(69	)
Collateralized mortgage obligations - residential			—				—				—				5				850				(12	)			5				850				(12	)
			10			$	79,872			$	(128	)			85			$	50,823			$	(770	)			95			$	130,695			$	(898	)

 

U.S. Treasury Bills and Notes, U.S. government-sponsored agency securities and certain other available-for-sale securities reflected in the above table that the Company holds in its investment portfolio were in an unrealized loss position at March 31, 2025, but the unrealized loss was not recognized into income because the U.S. Treasury Bills and Notes are backed by the full faith and credit of the United States and the other issuers were high credit quality, it is not likely that the Company will be required to sell these securities before their anticipated recovery occurs and the decline in fair value was due to changes in interest rates and other market conditions. The fair values of these securities are expected to recover as maturity dates of these securities approach.

 

We reviewed the available-for-sale securities in an unrealized loss position within the guidelines of Accounting Standards Codification (“ASC”) 326 and determined that no credit loss is required to be recognized.

 

There were no sales of securities during the three months ended  March 31, 2025 and 2024.

 

 

 

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Table amounts in thousands, except share and per share data)

 

NOTE 4 - LOANS RECEIVABLE

 

The summary of loans receivable by class of loans is as follows:

 

		March 31, 2025				December 31, 2024
One-to-four family residential real estate		$	14,090			$	14,829
Multi-family residential real estate			506,498				521,957
Nonresidential real estate			104,610				108,153
Commercial loans and leases			221,403				248,595
Consumer			1,733				1,623
			848,334				895,157
Allowance for credit losses			(7,279	)			(7,571	)
Loans, net		$	841,055			$	887,586

 

Net deferred loan origination costs included in the table above were $1.2 million as of March 31, 2025 and  December 31, 2024.

 

Allowance for Credit Losses - Loans

 

The following table represents the activity in the Allowance for Credit Losses (“ACL”) by segment of loans:

 

		Beginning balance				Provision for (recovery of) credit losses				Loans charged off				Recoveries				Ending balance
For the three months ended
March 31, 2025
One-to-four family residential real estate:
Home equity and junior liens		$	54			$	(4	)		$	—			$	—			$	50
One-to-four family first liens			217				(8	)			—				2				211
Multi-family residential real estate:
Senior notes			4,320				(133	)			—				2				4,189
Junior notes			444				(5	)			—				—				439
Nonresidential real estate:
Owner occupied			180				(7	)			—				—				173
Non-owner occupied			1,162				(27	)			—				—				1,135
Commercial loans and leases:
Commercial			944				(68	)			(36	)			10				850
Equipment finance - Government			60				(10	)			—				—				50
Equipment finance - Corporate Investment-grade			142				(8	)			—				—				134
Consumer			48				9				(10	)			1				48
		$	7,571			$	(261	)		$	(46	)		$	15			$	7,279
March 31, 2024
One-to-four family residential real estate:
Home equity and junior liens		$	75			$	(12	)		$	—			$	—			$	63
One-to-four family first liens			220				45				—				3				268
Multi-family residential real estate:
Senior notes			4,178				186				—				6				4,370
Junior notes			371				78				—				—				449
Nonresidential real estate:
Owner occupied			144				34				—				—				178
Non-owner occupied			1,022				244				—				—				1,266
Commercial loans and leases:
Commercial			1,964				(468	)			(158	)			5				1,343
Equipment finance - Government			148				(36	)			—				—				112
Equipment finance - Corporate Investment-grade			191				(25	)			—				—				166
Consumer			32				15				(13	)			—				34
		$	8,345			$	61			$	(171	)		$	14			$	8,249

 

As of  March 31, 2025,  December 31, 2024 and March 31, 2024 we had $244,000, $279,000 and $286,000, respectively, recorded as an unfunded commitment reserve, included in other liabilities on the Consolidated Statements of Financial Condition.

 

 

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Table amounts in thousands, except share and per share data)

 

 

NOTE 4 - LOANS RECEIVABLE (continued)

 

The following tables present the balance in the ACL and loans receivable by class of loans based on evaluation method.  Allocation of a portion of the ACL to one category does not preclude its availability to absorb losses in other categories:

 

		One-to-four family residential real estate				Multi-family residential real estate				Nonresidential real estate				Commercial loans and leases				Consumer				Total
March 31, 2025
Loans:
Loans individually evaluated		$	126			$	1,395			$	—			$	14,941			$	—			$	16,462
Loans collectively evaluated			13,964				505,103				104,610				206,462				1,733				831,872
		$	14,090			$	506,498			$	104,610			$	221,403			$	1,733			$	848,334
ACL:
Loans individually evaluated		$	—			$	—			$	—			$	—			$	—			$	—
Loans collectively evaluated			261				4,628				1,308				1,034				48				7,279
		$	261			$	4,628			$	1,308			$	1,034			$	48			$	7,279

 

		One-to-four family residential real estate				Multi-family residential real estate				Nonresidential real estate				Commercial loans and leases				Consumer				Total
December 31, 2024
Loans:
Loans individually evaluated		$	148			$	1,453			$	393			$	15,018			$	—			$	17,012
Loans collectively evaluated			14,681				520,504				107,760				233,577				1,623				878,145
		$	14,829			$	521,957			$	108,153			$	248,595			$	1,623			$	895,157
ACL:
Loans individually evaluated		$	—			$	—			$	—			$	—			$	—			$	—
Loans collectively evaluated			271				4,764				1,342				1,146				48				7,571
		$	271			$	4,764			$	1,342			$	1,146			$	48			$	7,571

  

Management's evaluation as to the ultimate collectability of loans includes estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral. These estimates are affected by changing economic conditions and the economic prospects of borrowers. Collateral dependent loans are loans in which repayment is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment. Loans are written down to the lower of cost or fair value of the underlying collateral, less estimated costs to sell. The Company had $2.4 million and $3.0 million of collateral dependent loans secured by real estate or business assets as of March 31, 2025 and December 31, 2024, respectively.

 

 

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Table amounts in thousands, except share and per share data)

 

 

NOTE 4 - LOANS RECEIVABLE (continued)

 

Individually Evaluated Loans

 

The following tables present loans individually evaluated by class of loans:

 

																		Three Months Ended
																		March 31, 2025
		Loan Balance				Recorded Investment				Partial Charge-off				Allowance for Credit Losses Allocated				Average Investment				Interest Income Recognized
March 31, 2025
With no related allowance recorded:
One-to-four family residential real estate		$	123			$	126			$	—			$	—			$	127			$	—
Multi-family residential real estate			1,342				1,395				—				—				1,439				—
Commercial loans and leases			20,169				14,941				5,227				—				15,027				1
		$	21,634			$	16,462			$	5,227			$	—			$	16,593			$	1

  

																		Year ended
																		December 31, 2024
		Loan Balance				Recorded Investment				Partial Charge-off				Allowance for Credit Losses Allocated				Average Investment				Interest Income Recognized
December 31, 2024
With no related allowance recorded:
One-to-four family residential real estate		$	138			$	148			$	—			$	—			$	66			$	7
Multi-family residential real estate			1,416				1,453				—				—				607				28
Nonresidential real estate			366				393				—				—				228				3
Commercial loans and leases			20,210				15,018				5,192				—				20,225				9
		$	22,130			$	17,012			$	5,192			$	—			$	21,126			$	47

 

Nonaccrual Loans

 

The following tables present the recorded investment in nonaccrual loans and loans 90 days or more past due still on accrual by class of loans:

 

		Nonaccrual				Loans Past Due Over 90 Days Still Accruing
March 31, 2025
One-to-four family residential real estate		$	107			$	—
Multi-family residential real estate			1,395				—
Commercial loans and leases			14,911				—
Consumer			—				1
		$	16,413			$	1
December 31, 2024
One-to-four family residential real estate		$	126			$	—
Multi-family residential real estate			1,453				—
Nonresidential real estate			393				—
Commercial loans and leases			14,960				—
Consumer			2				—
		$	16,934			$	—

 

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

 

The Company’s reserve for uncollected loan interest was $2.7 million and $2.4 million at March 31, 2025 and December 31, 2024, respectively. When a loan is on nonaccrual status and the ultimate collectability of the total principal of a loan is in doubt, all payments are applied to principal under the cost recovery method. Alternatively, when a loan is on nonaccrual status but there is doubt concerning only the ultimate collectability of interest, contractual interest is credited to interest income only when received, under the cash basis method. In all cases, the average balances are calculated based on the month–end balances of the financing receivables within the period reported.

 

 

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 by class of loans:

 

		30-59 Days Past Due				60-89 Days Past Due				Greater Than 89 Days Past Due				Total Past Due				Nonaccrual				Current				Total
March 31, 2025
One-to-four family residential real estate		$	209			$	—			$	—			$	209			$	107			$	13,774			$	14,090
Multi-family residential real estate			816				—				—				816				1,395				504,287				506,498
Nonresidential real estate			—				—				—				—				—				104,610				104,610
Commercial loans and leases			2,855				63				—				2,918				14,911				203,574				221,403
Consumer			1				2				1				4				—				1,729				1,733
		$	3,881			$	65			$	1			$	3,947			$	16,413			$	827,974			$	848,334

 

		30-59 Days Past Due				60-89 Days Past Due				Greater Than 89 Days Past Due				Total Past Due				Nonaccrual				Current				Total
December 31, 2024
One-to-four family residential real estate		$	181			$	—			$	—			$	181			$	126			$	14,522			$	14,829
Multi-family residential real estate			654				—				—				654				1,453				519,850				521,957
Nonresidential real estate			—				—				—				—				393				107,760				108,153
Commercial loans and leases			2,044				1,929				—				3,973				14,960				229,662				248,595
Consumer			4				5				—				9				2				1,612				1,623
		$	2,883			$	1,934			$	—			$	4,817			$	16,934			$	873,406			$	895,157

 

 

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Table amounts in thousands, except share and per share data)

 

 

NOTE 4 - LOANS RECEIVABLE (continued)

 

At  March 31, 2025 and  December 31, 2024, the Company had no loan modifications that meet the definition described in ASC 326 “Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments” for additional reporting. 

 

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 as to credit risk.  Risk ratings are updated any time the situation warrants. The Company uses the following definitions for risk ratings:

 

Pass. This category includes loans that are all considered acceptable credits, ranging from investment or near investment grade, to loans made to borrowers who exhibit credit fundamentals that meet or exceed industry standards.

 

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.

 

Based on the most recent analysis performed, the risk categories of loans by class of loans are as follows:

 

		Pass				Special Mention				Substandard				Substandard Nonaccrual				Total
March 31, 2025
One-to-four family residential real estate		$	13,808			$	—			$	175			$	107			$	14,090
Multi-family residential real estate			496,103				—				9,000				1,395				506,498
Nonresidential real estate			103,752				425				433				—				104,610
Commercial loans and leases			204,196				66				2,230				14,911				221,403
Consumer			1,728				2				3				—				1,733
		$	819,587			$	493			$	11,841			$	16,413			$	848,334

 

		Pass				Special Mention				Substandard				Substandard Nonaccrual				Total
December 31, 2024
One-to-four family residential real estate		$	14,485			$	—			$	218			$	126			$	14,829
Multi-family residential real estate			515,478				3,858				1,168				1,453				521,957
Nonresidential real estate			106,891				428				441				393				108,153
Commercial loans and leases			227,851				3,156				2,628				14,960				248,595
Consumer			1,613				4				4				2				1,623
		$	866,318			$	7,446			$	4,459			$	16,934			$	895,157

 

 

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Table amounts in thousands, except share and per share data)

 

 

NOTE 4 - LOANS RECEIVABLE (continued)

 

		Term Loans Amortized Cost Basis by Origination Year
		2025				2024				2023				2022				2021				Prior				Revolving loans				Total
March 31, 2025
One-to-four family residential real estate loans:
Risk-rating
Pass		$	—			$	—			$	482			$	—			$	—			$	10,425			$	2,901			$	13,808
Substandard			73				—				—				—				—				80				22				175
Nonaccrual			—				—				—				—				—				93				14				107
		$	73			$	—			$	482			$	—			$	—			$	10,598			$	2,937			$	14,090
One-to-four family residential real estate loans:
Current period recoveries		$	—			$	—			$	—			$	—			$	—			$	2			$	—			$	2
Multi-family residential real estate:
Risk rating
Pass		$	2,432			$	33,583			$	38,022			$	190,752			$	101,536			$	124,545			$	5,233			$	496,103
Substandard			—				—				—				3,840				3,996				1,164				—				9,000
Nonaccrual			—				—				141				1,254				—				—				—				1,395
		$	2,432			$	33,583			$	38,163			$	195,846			$	105,532			$	125,709			$	5,233			$	506,498
Multi-family residential real estate:
Current period recoveries		$	—			$	—			$	—			$	—			$	—			$	2			$	—			$	2
Nonresidential real estate:
Risk rating
Pass		$	—			$	16,357			$	14,243			$	46,402			$	14,545			$	11,294			$	911			$	103,752
Special mention			—				—				—				425				—				—				—				425
Substandard			433				—				—				—				—				—				—				433
		$	433			$	16,357			$	14,243			$	46,827			$	14,545			$	11,294			$	911			$	104,610
Commercial loans and leases:
Risk rating
Pass		$	5,489			$	26,434			$	28,525			$	61,972			$	25,597			$	5,649			$	50,530			$	204,196
Special mention			—				—				—				66				—				—				—				66
Substandard			—				—				—				30				—				—				2,200				2,230
Nonaccrual			—				—				50				14,723				40				98				—				14,911
		$	5,489			$	26,434			$	28,575			$	76,791			$	25,637			$	5,747			$	52,730			$	221,403
Commercial loans and leases:
Current period gross charge-offs		$	—			$	—			$	(10	)		$	(26	)		$	—			$	—			$	—			$	(36	)
Current period recoveries			—				—				8				2				—				—				—				10
		$	—			$	—			$	(2	)		$	(24	)		$	—			$	—			$	—			$	(26	)
Consumer:
Risk rating
Pass		$	15			$	722			$	160			$	3			$	20			$	48			$	760			$	1,728
Special mention			—				—				—				—				—				—				2				2
Substandard			—				1				—				—				—				—				2				3
		$	15			$	723			$	160			$	3			$	20			$	48			$	764			$	1,733
Consumer:
Current period gross charge-offs		$	—			$	—			$	—			$	—			$	—			$	—			$	(10	)		$	(10	)
Current period recoveries			—				—				—				—				—				—				1				1
Current period recoveries		$	—			$	—			$	—			$	—			$	—			$	—			$	(9	)		$	(9	)

 

 

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Table amounts in thousands, except share and per share data)

 

 

NOTE 4 - LOANS RECEIVABLE (continued)

 

		Term Loans Amortized Cost Basis by Origination Year
		2024				2023				2022				2021				2020				Prior				Revolving loans				Total
December 31, 2024
One-to-four family residential real estate:
Risk rating
Pass		$	—			$	484			$	—			$	—			$	34			$	10,897			$	3,070			$	14,485
Substandard			—				—				—				—				—				81				137				218
Nonaccrual			—				—				—				—				—				111				15				126
		$	—			$	484			$	—			$	—			$	34			$	11,089			$	3,222			$	14,829
One-to-four family residential real estate:
Current period recoveries		$	—			$	—			$	—			$	—			$	—			$	28			$	—			$	28
Multi-family residential real estate:
Risk rating
Pass		$	33,812			$	38,228			$	199,495			$	107,420			$	55,129			$	75,772			$	5,622			$	515,478
Special mention			—				—				3,858				—				—				—				—				3,858
Substandard			—				—				—				—				—				1,168				—				1,168
Nonaccrual			—				216				1,237				—				—				—				—				1,453
		$	33,812			$	38,444			$	204,590			$	107,420			$	55,129			$	76,940			$	5,622			$	521,957
Multi-family residential real estate:
Current period gross charge-offs		$	—			$	—			$	(5	)		$	—			$	—			$	—			$	—			$	(5	)
Current period recoveries			—				—				—				—				—				18				—				18
		$	—			$	—			$	(5	)		$	—			$	—			$	18			$	—			$	13
Nonresidential real estate:
Risk rating
Pass		$	16,760			$	14,355			$	46,759			$	14,771			$	7,335			$	5,998			$	913			$	106,891
Special mention			—				—				428				—				—				—				—				428
Substandard			441				—				—				—				—				—				—				441
Nonaccrual			—				—				393				—				—				—				—				393
		$	17,201			$	14,355			$	47,580			$	14,771			$	7,335			$	5,998			$	913			$	108,153
Commercial loans and leases :
Risk rating
Pass		$	27,360			$	32,517			$	72,546			$	30,764			$	9,973			$	723			$	53,968			$	227,851
Special mention			—				—				—				—				—				—				3,156				3,156
Substandard			—				—				103				40				—				—				2,485				2,628
Nonaccrual			—				55				14,747				—				158				—				—				14,960
		$	27,360			$	32,572			$	87,396			$	30,804			$	10,131			$	723			$	59,609			$	248,595
Commercial loans and leases :
Current period gross charge-offs		$	—			$	(332	)		$	(4,998	)		$	(44	)		$	(493	)		$	—			$	—			$	(5,867	)
Current period recoveries			—				—				1				5				7				1				—				14
		$	—			$	(332	)		$	(4,997	)		$	(39	)		$	(486	)		$	1			$	—			$	(5,853	)
Consumer:
Risk rating
Pass		$	788			$	169			$	3			$	20			$	49			$	—			$	584			$	1,613
Special mention			—				—				—				—				—				—				4				4
Substandard			—				—				—				—				—				—				4				4
Nonaccrual			2				—				—				—				—				—				—				2
		$	790			$	169			$	3			$	20			$	49			$	—			$	592			$	1,623
Consumer:
Current period gross charge-offs		$	—			$	—			$	—			$	—			$	—			$	—			$	(44	)		$	(44	)
Current period recoveries			—				—				—				—				—				—				1				1
		$	—			$	—			$	—			$	—			$	—			$	—			$	(43	)		$	(43	)

 

 

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Table amounts in thousands, except share and per share data)

 

NOTE 5 - FORECLOSED ASSETS

 

Real estate that is acquired through foreclosure or a deed in lieu of foreclosure is classified as other real estate owned ("OREO") until it is sold. When real estate is acquired through foreclosure or by deed in lieu of foreclosure, it is recorded at its fair value, less the estimated costs of disposal. If the fair value of the property is less than the loan balance, the difference is charged against the allowance for credit losses.

 

Assets are classified as foreclosed when physical possession of the collateral is taken regardless of whether foreclosure proceedings have taken place. Other foreclosed assets received in satisfaction of borrowers’ debts are initially recorded at fair value of the asset less estimated costs to sell.

 

		March 31, 2025												December 31, 2024
		Balance				Valuation Allowance				Net Balance				Balance				Valuation Allowance				Net Balance
Other foreclosed assets		$	1,337			$	—			$	1,337			$	1,391			$	—			$	1,391

 

The following represents the roll forward of foreclosed assets:

 

		For the Three Months Ended
		March 31,
		2025				2024
Beginning balance		$	1,391			$	2,777
New foreclosed assets			52				49
Valuation reductions from sales			—				67
Sales			(106	)			(561	)
Ending balance		$	1,337			$	2,332

 

Activity in the valuation allowance is as follows:

 

		For the Three Months Ended
		March 31,
		2025				2024
Beginning balance		$	—			$	111
Reductions from sales			—				(67	)
Ending balance		$	—			$	44

 

At  March 31, 2025 and  December 31, 2024, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process was $93,000.  At  March 31, 2025, other foreclosed assets consisted of vehicles and machinery repossessed in connection with equipment finance leases.

 

 

 

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Table amounts in thousands, except share and per share data)

 

NOTE 6 - BORROWINGS AND SUBORDINATED NOTES

 

Borrowings and subordinated notes were as follows:

 

		March 31, 2025								December 31, 2024
		Contractual								Contractual
		Rate				Amount				Rate				Amount
Fixed-rate advance from FHLB, due March 17, 2025			—	%		$	—				4.27	%		$	5,000
Fixed-rate advance from FHLB, due September 17, 2025			4.20	%			5,000				4.20	%			5,000
Fixed-rate advance from FHLB, due March 17, 2026			4.15	%			5,000				4.15	%			5,000
Fixed-rate advance from FHLB, due September 17, 2026			4.06	%			5,000				4.06	%			5,000
Subordinated notes, due May 15, 2031			3.75	%			18,253				3.75	%			18,736
Line of credit, due March 28, 2025			—	%			—				7.00	%			—

 

In 2021, the Company entered into Subordinated Note Purchase Agreements with certain qualified institutional buyers and accredited investors pursuant to which the Company sold and issued $20.0 million in aggregate principal amount of its 3.75% Fixed-to-Floating Rate Subordinated Notes due May 15, 2031 (the “Notes”).  The Company incurred $441,000 of issuance costs associated with the Notes.  These issuance costs are being amortized over the 10-year life of the Notes.  At March 31, 2025 and  December 31, 2024, there were $247,000 and $264,000, respectively, in remaining unamortized issuance costs and they are presented in the Company's financial statements as a reduction of the principal amount of the Notes.

 

The Notes bear interest at a fixed annual rate of 3.75%, from and including the date of issuance to May 14, 2026, payable semi-annually in arrears. From and including May 15, 2026, but excluding the maturity date or early redemption date, as applicable, the interest rate will reset quarterly to an interest rate per annum equal to Three-Month Term SOFR (as defined in the Notes) plus 299 basis points, payable quarterly in arrears. Under the conditions specified in the Notes, the interest rate accruing during the applicable floating rate period may be determined based on a rate other than Three-Month Term SOFR.   The Notes have a stated maturity date of May 15, 2031 and are redeemable, in whole or in part, on May 15, 2026, on any interest payment date thereafter, and at any time upon the occurrence of certain events.

 

Principal and interest payments due on the Notes are subject to acceleration only in limited circumstances in the case of certain bankruptcy and insolvency-related events with respect to the Company. The Notes are unsecured, subordinated obligations of the Company and generally rank junior in right of payment to the Company’s current and future senior indebtedness. The Notes qualify as Tier 2 capital for regulatory capital purposes.

 

In March 2025, we repurchased $500,000 of the Notes and recorded a $42,000 gain on repurchase. In March 2024, we repurchased $1.0 million of the Notes and recorded a $107,000 gain on repurchase.

 

In 2020, the Company established a $5.0 million unsecured line of credit with a correspondent bank.  Interest is payable at a rate of Prime Rate as published in the Wall Street Journal minus 0.50%, with a minimum rate of 2.40%.  The line of credit has not been renewed.  The line of credit had no outstanding balance at  December 31, 2024.

 

NOTE 7 - 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 value for investment securities is determined by quoted market prices, if available (Level 1).  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 7 - FAIR VALUE (continued)

 

Loans Evaluated Individually: The Company does not record portfolio loans at fair value on a recurring basis. However, periodically, a loan is evaluated individually and is reported at the fair value of the underlying collateral, less estimated costs to sell, if repayment is expected solely from the collateral. If the collateral value is not sufficient, a specific reserve is recorded. Collateral values are estimated using a combination of observable inputs, including recent appraisals, and unobservable inputs based on customized discounting criteria. Due to the significance of unobservable inputs, fair values of individually evaluated collateral dependent loans have
been classified as Level 3.

 

Foreclosed assets: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at the 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. Foreclosed assets are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

 

The following table sets forth the Company’s financial assets that were accounted for at fair value and are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

		Fair Value Measurements Using
		Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Fair Value
March 31, 2025
Securities:
Municipal securities		$	—			$	706			$	—			$	706
U.S. Treasury Bills and Notes			342,855				—				—				342,855
U.S. government-sponsored agencies			—				9,981				—				9,981
Mortgage-backed securities - residential			—				2,800				—				2,800
Collateralized mortgage obligations - residential			—				823				—				823
		$	342,855			$	14,310			$	—			$	357,165
December 31, 2024
Securities:
Municipal securities		$	—			$	706			$	—			$	706
U.S. Treasury Bills and Notes			246,290				—				—				246,290
U.S. government-sponsored agencies			—				109,773				—				109,773
Mortgage-backed securities - residential			—				2,911				—				2,911
Collateralized mortgage obligations - residential			—				850				—				850
		$	246,290			$	114,240			$	—			$	360,530

 

At  March 31, 2025 and  December 31, 2024, there were no individually evaluated loans that were measured using the fair value of the collateral for collateral–dependent loans and which had specific valuation allowances.

 

 

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Table amounts in thousands, except share and per share data)

 

 

NOTE 7 - FAIR VALUE (continued)

 

Foreclosed assets are carried at the lower of cost or fair value less costs to sell.  At  March 31, 2025 and  December 31, 2024 there were no foreclosed assets with valuation allowances.  There were no valuation adjustments of foreclosed assets recorded for the three months ended  March 31, 2025 and 2024.

 

The carrying amount and estimated fair value of financial instruments are as follows:

 

						Fair Value Measurements at March 31, 2025 Using:
		Carrying Amount				Level 1				Level 2				Level 3				Total
Financial assets
Cash and cash equivalents		$	144,403			$	143,436			$	967			$	—			$	144,403
Interest-bearing time deposits in other financial institutions			33,862				—				33,862				—				33,862
Securities			357,165				342,855				14,310				—				357,165
Loans receivable, net of allowance for credit losses			841,055				—				—				798,798				798,798
FHLB and FRB stock			7,490				—				—				—				N /A
Accrued interest receivable			5,327				591				442				4,294				5,327
Financial liabilities
Certificates of deposit			238,892				—				237,708				—				237,708
Borrowings			15,000				—				15,022				—				15,022
Subordinated notes			18,253				—				17,020				—				17,020

 

						Fair Value Measurements at December 31, 2024 Using:
		Carrying Amount				Level 1				Level 2				Level 3				Total
Financial assets
Cash and cash equivalents		$	84,829			$	84,399			$	430			$	—			$	84,829
Interest-bearing time deposits in other financial institutions			34,156				—				34,156				—				34,156
Securities			360,530				246,290				114,240				—				360,530
Loans receivable, net of allowance for credit losses			887,586				—				—				845,303				845,303
FHLB and FRB stock			7,490				—				—				—				N /A
Accrued interest receivable			6,401				158				1,452				4,791				6,401
Financial liabilities
Certificates of deposit			234,979				—				233,639				—				233,639
Borrowings			20,000				—				19,990				—				19,990
Subordinated notes			18,736				—				17,571				—				17,571

 

 

 

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Table amounts in thousands, except share and per share data)

 

NOTE 8 – REVENUE FROM CONTRACTS WITH CUSTOMERS

 

All of the Company's revenue from contracts with customers within the scope of ASC 606 is recognized within noninterest income. The following table presents the Company's sources of noninterest income. Items outside of the scope of the ASC 606 are noted as such.

 

		Three Months Ended
		March 31,
		2025				2024
Deposit service charges and fees		$	884			$	809
Loan servicing fees (1)			187				156
Trust and insurance commissions and annuities income			437				450
Loss on sale of premises and equipment			(5	)			(75	)
Earnings (loss) on bank-owned life insurance (1)			4				(87	)
Gain on repurchase of Subordinated notes (1)			42				107
Other (1)			85				101
Total noninterest income		$	1,634			$	1,461

 

(1)    Not within the scope of ASC 606

 

A description of the Company's revenue streams accounted for under ASC 606 follows:

 

Deposit service charges and fees: The Company earns fees from its deposit customers based on specific types of transactions, account maintenance and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance.

 

Interchange income: The Company earns interchange fees from debit cardholder transactions conducted through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Interchange income is included in deposit service charges and fees.  Interchange income was $284,000 and $310,000 for the three months ended March 31, 2025 and 2024, 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 and are recognized when the services are rendered.

 

Gains/losses on sales of foreclosed assets and other assets: The Company records a gain or loss from the sale of foreclosed assets and other assets when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of foreclosed assets to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the foreclosed asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. Foreclosed assets sales for the three months ended March 31, 2025 and 2024 were not financed by the Company.

 

---

    

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Cautionary Statement Regarding Forward-Looking Information

 

Forward Looking Statements

 

This Quarterly Report on Form 10-Q contains, and other periodic and current reports, press releases and other public stockholder communications of BankFinancial Corporation may contain, forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.  Forward-looking statements may include statements relating to our future plans, strategies and expectations, as well as our future revenues, expenses, earnings, losses, financial performance, financial condition, asset quality metrics and future prospects. Forward looking statements are generally identifiable by use of the words “believe,” “may,” “will,” “should,” “could,” “continue,” “expect,” “estimate,” “intend,” “anticipate,” “preliminary,” “project,” “plan,” or similar expressions. Forward looking statements speak only as of the date made. They are frequently based on assumptions that may or may not materialize, and are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the forward looking statements. We intend all forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for the purpose of invoking these safe harbor provisions.

 

Factors that could cause actual results to differ materially from the results anticipated or projected and which could materially and adversely affect our operating results, financial condition or future prospects include, but are not limited to: (i) the impact of re-pricing and competitors’ pricing initiatives on loan and deposit products; (ii) interest rate movements and their impact on the economy, customer behavior, the market value of securities and our net interest margin; (iii) changes in U.S. Government or State government budgets, appropriations or funding allocation policies or practices affecting our credit exposures to U.S. Government or State governments, agencies or related entities, or borrowers' dependent on the receipt of Federal or State appropriations, including but not limited to, defense, healthcare, transportation, education and law enforcement programs; (iv) less than anticipated loan and lease growth; (v) for any significant credit exposure, borrower-specific adverse developments with respect to the adequacy of cash flows, liquidity or collateral; (vi) the inherent credit risks of lending activities, including risks that could cause changes in the level and direction of loan delinquencies and charge-offs; (vii) adverse economic conditions in general, or specific events such as a pandemic or national or international war, act of conflict or terrorism, and in the markets in which we lend that could result in increased delinquencies in our loan portfolio or a decline in the value of our investment securities and the collateral for our loans; (viii) declines in real estate values that adversely impact the value of our loan collateral, other real estate owned ("OREO"), asset dispositions and the level of borrower equity in their investments; (ix) results of supervisory monitoring or examinations by regulatory authorities, including the possibility that a regulatory authority could, among other things, require us to increase our allowance for credit losses or adversely change our loan classifications, write-down assets, reduce credit concentrations or maintain specific capital levels; (x) changes, disruptions or illiquidity in national or global financial markets; (xi) monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board; (xii) factors affecting our ability to retain or access deposits or cost-effective funding, including changes in public confidence, withdrawals of deposits not insured by the FDIC or the availability of other borrowing sources for any reason; (xiii) legislative or regulatory changes that have an adverse impact on our products, services, operations and operating expenses; (xiv) higher federal deposit insurance premiums; (xv) higher than expected overhead, infrastructure and compliance costs; (xvi) changes in accounting principles, policies or guidelines; (xvii) the effects of any federal government shutdown or failure to enact legislation related to the maximum permitted amount of U.S. Government debt obligations; (xviii) privacy and cybersecurity risks, including the risks of business interruption and the compromise of confidential customer information resulting from intrusions; and (xix) the effects of tariffs or other domestic or international governmental policies. 

 

These risks and uncertainties, together with the Risk Factors and other information set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as well as Part II, Items 1A of our subsequent Quarterly Reports on Form 10-Q, and other filings we make with the SEC, should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Forward looking statements speak only as of the date they are made. We do not undertake any obligation to update any forward-looking statement in the future, or to reflect circumstances and events that occur after the date on which the forward-looking statement was made.

 

Critical Accounting Policies

 

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that the most critical accounting policies upon which our financial condition and results of operations depend, and which involve the most complex subjective decisions or assessments, are included in the discussion entitled “Critical Accounting Policies” in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as filed with the SEC.

 

Overview

 

We reported net income of $2.1 million, or $0.17 per common share, for the quarter ended March 31, 2025. As of March 31, 2025, the Company had total assets of $1.442 billion, total loans of $841.1 million, total deposits of $1.233 billion and stockholders' equity of $157.5 million.

 

In the first quarter of 2025, net interest income decreased by $182,000 due primarily to declines in the balances of healthcare finance lines of credit and higher-risk equipment finance transactions, partially offset by declines in interest expense due to lower market interest rates. Our net interest margin on a tax-equivalent basis remained stable at 3.50%.

 

Noninterest income increased by $64,000 due to increases in trust department income, deposit service charges and fees and a gain on the repurchase of subordinated debt notes, partially offset by declines in loan servicing income and bank-owned life insurance income.

 

Noninterest expense decreased by $287,000 due to reductions in base compensation and payroll taxes resulting from lower employee headcount, partially offset by seasonal increases in employee benefits expense and facilities maintenance expenses and reduced nonperforming assets expenses. 

  

  

 

Cash & Cash-Equivalent Assets

 

At March 31, 2025, cash and cash-equivalent assets represented 10% of total assets, compared to 6% of total assets at December 31, 2024.

 

Investment Securities Portfolio

 

For the quarter ended March 31, 2025, total investment securities and investments in certificates of deposit decreased by $3.7 million. The investment securities portfolio had a weighted-average 0.5 year term to maturity as of March 31, 2025, with an after-tax unrealized loss of $279,000 or 0.2% of Tier 1 capital.

 

Loan Portfolio

 

Our loan portfolio declined by $46.8 million in the first quarter of 2025 primarily due to scheduled repayments within all portfolios, offset by modest loan originations of multi-family residential loans and corporate equipment lease transactions.  Commercial line of credit utilization for commercial finance and lessor finance borrowers increased modestly; however, line of credit balances and commitments declined in the healthcare finance portfolio.  Demand for commercial finance transactions continued to increase during the first quarter of 2025 due to increased marketing activity. 

 

Asset Quality

 

The ratio of nonperforming assets to total assets declined to 1.23% at March 31, 2025, inclusive of two U.S. Government equipment finance transactions with a total exposure of $14.0 million as of March 31, 2025.  We expect to receive a $5.6 million final settlement cash payment with respect to one of the U.S. Government equipment finance transactions in the second quarter of 2025.  Excluding these two U.S. Government transactions, our ratio of nonperforming assets to total assets was 0.26%. Past due trends improved, and nonperforming asset resolution activity continued during the first quarter of 2025.

 

Our allowance for credit losses increased to 0.86% of total loans as of March 31, 2025, compared to 0.85% at December 31, 2024.

 

Deposit Portfolio

 

Total deposits increased by $15.4 million due to increases in the balances of interest-bearing transaction accounts and certificate of deposit accounts, partially offset by decreases in noninterest-bearing commercial deposit balances related to certain healthcare finance relationships. The cost of total retail and commercial deposits decreased to 1.79% during the first quarter of 2025 from 1.88% at December 31, 2024. Core deposits represented 81% of total deposits, with noninterest-bearing demand deposit accounts representing 19% of total deposits as of March 31, 2025. Total commercial deposits were 20% of total deposits as March 31, 2025 and 21% at December 31, 2024. FDIC-insured deposits were 84% of total deposits and collateralized public funds deposits represented 1% of total deposits as of March 31, 2025.

 

Capital Adequacy

 

The Company’s capital position remained strong, with a Tier 1 leverage ratio of 10.91% at March 31, 2025. During the quarter ended march 31, 2025, the Company repurchased $500,000 of its Subordinated notes which were issued in 2021. The book value of the Company’s common shares increased to $12.64 at March 31, 2025 from $12.55 per share at December 31, 2024.

 

Outlook

 

We continue to prioritize originations of new commercial finance working capital lines of credit and corporate equipment finance transactions, with less emphasis on multi-family residential and nonresidential real estate loans.  Given recent developments with respect to global trade practices and U.S. Government policies, our commercial finance credit products offer commercial and industrial borrowers innovative solutions in uncertain times.  Our strong liquidity and capital position enables us to pursue new opportunities for portfolio growth in these segments, with the appropriate balance of increased earnings and risk management.

 

We also continue to focus on expansion of our small business and commercial deposit portfolio, notwithstanding the volatility in balances that certain larger commercial depositors may experience at times.  Particularly for small and medium- sized businesses, our integration of comprehensive commercial credit and commercial deposit/treasury products provide highly effective solutions compared to both regulated and non-regulated competitors.  We also continue to enhance our focus on growing “share of wallet” with existing retail deposit customers, including introductions to wealth management and trust solutions where appropriate.  These initiatives help improve noninterest income results and the overall depth and quality of our deposit portfolio.

 

We remain vigilant concerning noninterest expense management, particularly with respect to creating operating efficiencies from headcount productivity.  To achieve better growth in our loan and deposit portfolios to strengthen net interest income, and for key generators of noninterest income such as the Trust Department, Treasury Services and certain retail deposit account relationships, we will continue to invest in marketing resources and dedicated commercial finance, deposit and trust production resources by utilizing the savings generated from operating efficiencies.

 

  

 

SELECTED FINANCIAL DATA

 

The following summary information is derived from the consolidated financial statements of the Company. For additional information, reference is made to the Consolidated Financial Statements of the Company and related notes included elsewhere in this Quarterly Report.

 

		March 31, 2025				December 31, 2024				Change
		(In thousands)
Selected Financial Condition Data:
Total assets		$	1,442,121			$	1,434,814			$	7,307
Loans, net			841,055				887,586				(46,531	)
Securities, at fair value			357,165				360,530				(3,365	)
Deposits			1,232,931				1,217,541				15,390
Borrowings			15,000				20,000				(5,000	)
Subordinated notes, net of unamortized issuance costs			18,253				18,736				(483	)
Equity			157,495				156,377				1,118

 

		Three Months Ended
		March 31,
		2025				2024				$ Change
		(In thousands)
Selected Operating Data:
Interest income		$	16,312			$	17,345			$	(1,033	)
Interest expense			4,817				4,818				(1	)
Net interest income			11,495				12,527				(1,032	)
Provision for (recovery of) credit losses			(296	)			12				(308	)
Net interest income after provision for (recovery of) credit losses			11,791				12,515				(724	)
Noninterest income			1,634				1,461				173
Noninterest expense			10,912				11,766				(854	)
Income before income taxes			2,513				2,210				303
Income tax expense			432				500				(68	)
Net income		$	2,081			$	1,710			$	371

 

		Three Months Ended
		March 31,
		2025				2024
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average total assets) (1)			0.58	%			0.46	%
Return on equity (ratio of net income to average equity) (1)			5.31				4.38
Average equity to average assets			10.95				10.52
Net interest rate spread (1) (2)			2.94				3.07
Net interest margin (TEB) (1) (3) (4)			3.50				3.59
Efficiency ratio (5)			83.11				84.11
Noninterest expense to average total assets (1)			3.05				3.17
Average interest-earning assets to average interest-bearing liabilities			133.17				135.89
Dividends declared per share		$	0.10			$	0.10
Dividend payout ratio			59.88	%			72.94	%

 

		At March 31, 2025				At December 31, 2024
Asset Quality Ratios:
Nonperforming assets to total assets (6)			1.23	%			1.28	%
Nonperforming loans to total loans			1.93				1.89
Allowance for credit losses to nonperforming loans			44.35				44.71
Allowance for credit losses to total loans			0.86				0.85
Capital Ratios:
Equity to total assets at end of period			10.92	%			10.90	%
Tier 1 leverage ratio (Bank only)			11.38	%			11.23	%
Other Data:
Number of full-service offices			18				18
Employees (full-time equivalents)			191				197

 

(1)	Ratios annualized.

(2)	The net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities for the period.

(3)	The net interest margin represents net interest income divided by average total interest-earning assets for the period.

(4)	Calculated on a tax-equivalent basis assuming a federal income tax rate of 21% and an average state income tax rate of 9.5%.
(5)	The efficiency ratio represents noninterest expense, divided by the sum of net interest income and noninterest income.

(6)	Nonperforming assets include nonperforming loans and foreclosed assets.

 

 

Comparison of Financial Condition at March 31, 2025 and December 31, 2024

 

Total assets increased $7.3 million, or 0.5%, to $1.442 billion at March 31, 2025, from $1.435 billion at December 31, 2024. The increase in total assets was primarily due to an increase in cash and cash equivalents, partially offset by decreases in securities and loans receivable.  Cash and cash equivalents increased $59.6 million to $144.4 million at March 31, 2025, from $84.8 million at December 31, 2024, while securities decreased $3.4 million to $357.2 million at March 31, 2025 and loans receivable decreased $46.5 million to $841.1 million.   

 

Our loan portfolio consists primarily of investment and business loans (multi-family residential real estate, nonresidential real estate, and commercial loans and leases), which together totaled 98.1% of gross loans at March 31, 2025. During the three months ended March 31, 2025, commercial loans and leases decreased by $27.2 million, or 10.9%, and multi-family residential real estate loans decreased by $15.5 million, or 3.0%.  The decrease in commercial loans and leases was primarily due to decreases in government and corporate leases of $9.4 million and $6.9 million, respectively, due to scheduled payments and payoffs.  The decrease in multi-family residential real estate loans was due to $17.5 million of payments and payoffs in the first three months of 2025.

 

Our primary lending area for regulatory purposes consists of the counties in the State of Illinois where our branch offices are located, and contiguous counties. We currently derive the most significant portion of our revenues from these geographic areas. We also engage in multi-family residential real estate lending activities in carefully selected metropolitan areas outside our primary lending area, and we engage in certain types of commercial lending and commercial equipment finance activities on a nationwide basis. At March 31, 2025, $308.9 million, or 61.1%, of our multi-family residential real estate loans were in the Metropolitan Statistical Area for Chicago, Illinois; $64.1 million, or 12.7%, were in Florida; $65.5 million, or 13.0%, were in Texas; and $30.3 million, or 6.0%, were in North Carolina. This information reflects the location of the collateral for the loan and does not necessarily reflect the location of the borrowers.  At March 31, 2025, our concentrations within the nonresidential real estate portfolio were retail shopping malls of $46.8 million, or 44.7%; office buildings of $13.4 million, or 12.8%; mixed use buildings of $13.2 million, or 12.6%; and industrial buildings of $10.0 million, or 9.5%. 

 

Total liabilities increased $6.2 million, or 0.5%, to $1.285 billion at March 31, 2025, from $1.278 billion at December 31, 2024, due to an increase in total deposits, partially offset by $5.0 million of maturing borrowings, a $500,000 repurchase of our Notes, and decreases in accrued interest payable and other liabilities. Total deposits increased $15.4 million, or 1.3%, to $1.233 billion at March 31, 2025, from $1.218 billion at December 31, 2024. Interest-bearing NOW accounts increased $11.8 million, or 4.3%, to $288.9 million at March 31, 2025, from $277.1 million at December 31, 2024,  money market accounts increased $3.4 million, or 1.1%, to $308.9 million at March 31, 2025, from $305.5 million at December 31, 2024, and savings accounts increased $3.2 million, or 2.0%, to $164.3 million at March 31, 2025, from $161.1 million at December 31, 2024.  Retail certificates of deposit also increased $3.9 million, or 1.7%, to $238.9 million at March 31, 2025, from $235.0 million at December 31, 2024. These increases were offset by a decrease in noninterest-bearing demand deposits of $6.9 million, or 2.9%, to $231.9 million at March 31, 2025, from $238.8 million at December 31, 2024.  Core deposits (which consists of savings, money market, noninterest-bearing demand and NOW accounts) represented 80.6% of total deposits at March 31, 2025 and 80.7% of total deposits at  December 31, 2024. 

 

Total stockholders’ equity was $157.5 million at March 31, 2025, compared to $156.4 million at December 31, 2024. The increase in total stockholders’ equity was primarily due to net income of $2.1 million for the three months ended March 31, 2025 and a $283,000 decrease, net of tax, of accumulated other comprehensive loss on our securities portfolio, partially offset by our declaration and payment of cash dividends totaling $1.2 million during the same period.

Operating Results for the Three Months Ended March 31, 2025 and 2024

 

Net Income. Net income was $2.1 million for the three months ended March 31, 2025, compared to $1.7 million for the three months ended March 31, 2024. Earnings per basic and fully diluted share of common stock were $0.17 for the three months ended March 31, 2025, compared to $0.14 for the three months ended March 31, 2024.

 

Net Interest Income. Net interest income was $11.5 million for the three months ended March 31, 2025, compared to $12.5 million for the three months ended March 31, 2024.  The $1.0 million decrease in net interest income was primarily due to a $1.0 million decrease in interest income.

 

The decrease in interest income was due in substantial part to decreases in weighted average  interest-earning assets and the yield on interest-bearing assets.  Total average interest-earning assets decreased $51.5 million, or 3.6%, to $1.364 billion for the three months ended March 31, 2025, from $1.415 billion for the same period in 2024. The yield on interest-earning assets decreased eight basis points to 4.85% for the three months ended March 31, 2025, from 4.93% for the three months ended March 31, 2024.  The weighted average cost of interest-bearing liabilities increased five basis points to 1.91% for the three months ended March 31, 2025, from 1.86% for the three months ended March 31, 2024.  Total average interest-bearing liabilities decreased $17.4 million, or 1.7%, to $1.024 billion for the three months ended March 31, 2025, from $1.041 billion for the same period in 2024.  The decrease in interest-bearing liabilities is partially attributable to a $10.5 million decrease in average deposits. Our net interest rate spread decreased by 13 basis points to 2.94% for the three months ended March 31, 2025, from 3.07% for the same period in 2024, primarily due to an increase in the cost of deposits.  Our net interest margin, on a tax equivalent basis, decreased nine basis points to 3.50% for the three months ended March 31, 2025, from 3.59% for the same period in 2024. 

 

 

 

Average Balance Sheets

 

The following table sets forth average balance sheets, average yields and costs, and certain other information.  Average balances are daily average balances. Nonaccrual loans are included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees and expenses and discounts and premiums that are amortized or accreted to interest income or expense; however, the Company believes that the effect of these inclusions is not material.  The net interest margin is reported on a tax equivalent basis (“TEB”). A tax equivalent adjustment is added to reflect interest earned on certain securities that are exempt from federal and state income tax. 

 

		For the Three Months Ended March 31,
		2025												2024
		Average Outstanding Balance				Interest				Yield/Rate (1)				Average Outstanding Balance				Interest				Yield/Rate (1)
		(Dollars in thousands)
Interest-earning Assets:
Loans		$	870,896			$	11,238				5.23	%		$	1,031,256			$	13,353				5.21	%
Securities			347,092				3,403				3.98				186,339				1,269				2.74
Stock in FHLB and FRB			7,490				112				6.06				7,490				117				6.28
Other			138,237				1,559				4.57				190,090				2,606				5.51
Total interest-earning assets			1,363,715				16,312				4.85				1,415,175				17,345				4.93
Noninterest-earning assets			69,249												69,157
Total assets		$	1,432,964											$	1,484,332
Interest-bearing Liabilities:
Savings deposits		$	162,610				72				0.18			$	172,851				76				0.18
Money market accounts			308,254				1,752				2.31				304,356				1,846				2.44
NOW accounts			279,020				538				0.78				296,890				577				0.78
Certificates of deposit			236,331				2,061				3.54				222,644				1,837				3.32
Total deposits			986,215				4,423				1.82				996,741				4,336				1.75
Borrowings and Subordinated notes			37,793				394				4.23				44,640				482				4.34
Total interest-bearing liabilities			1,024,008				4,817				1.91				1,041,381				4,818				1.86
Noninterest-bearing deposits			230,216												257,663
Noninterest-bearing liabilities			21,849												29,173
Total liabilities			1,276,073												1,328,217
Equity			156,891												156,115
Total liabilities and equity		$	1,432,964											$	1,484,332
Net interest income/Net interest margin (2)						$	11,495				3.42	%						$	12,527				3.56	%
Tax equivalent adjustment (3)							274				0.08								100				0.03
Net interest income (TEB) / Net interest margin (TEB) (2) (3)						$	11,769				3.50	%						$	12,627				3.59	%
Net interest rate spread (4)											2.94	%											3.07	%
Net interest-earning assets (5)		$	339,707											$	373,794
Ratio of interest-earning assets to interest-bearing liabilities			133.17	%											135.89	%

 

(1)	Annualized.

(2)	Net interest margin represents net interest income divided by average total interest-earning assets.
(3)	Calculated on a tax-equivalent basis (“TEB”) assuming a federal income tax rate of 21% and an average state income tax rate of 9.5%.
(4)	Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(5)	Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

 

 

 

Allowance and Provision for Credit Losses

 

The ACL is a significant estimate in our unaudited consolidated financial statements, affecting both earnings and capital. The methodology adopted influences, and is influenced by, the Bank’s overall credit risk management processes. The ACL is recorded in accordance with US GAAP to provide an adequate reserve for expected credit losses that is reflective of management’s best estimate of what is expected to be collected.  All estimates of credit losses should be based on careful consideration of all significant factors affecting the collectability as of the evaluation date. The ACL is established through the provision for credit loss expense charged to income.

 

The recovery of credit losses – loans for the three months ended March 31, 2025 was $261,000 compared to a provision for credit losses – loans of $61,000 recorded for the three months ended March 31, 2024. The provision for, or recovery of, credit losses – loans varies based on, among other things, forecasted unemployment rates, loan growth, net charge-offs, collateral values associated with collateral dependent loans and qualitative factors.

 

There were no reserves established for loans individually evaluated at March 31, 2025 or December 31, 2024.  Net charge-offs were $31,000 for the three months ended March 31, 2025, compared to $157,000 for the three months ended March 31, 2024.

 

The allowance for credit losses as a percentage of nonperforming loans was 44.35% at March 31, 2025, compared to 44.71% at December 31, 2024.  

 

Noninterest Income

 

		Three Months Ended
		March 31,
		2025				2024				Change
		(Dollars in thousands)
Deposit service charges and fees		$	884			$	809			$	75
Loan servicing fees			187				156				31
Trust and insurance commissions and annuities income			437				450				(13	)
Loss on sale of premises and equipment			(5	)			(75	)			70
Earnings (loss) on bank-owned life insurance			4				(87	)			91
Gain on repurchase of Subordinated notes			42				107				(65	)
Other			85				101				(16	)
Total noninterest income		$	1,634			$	1,461			$	173

 

Noninterest income increased $173,000, or 11.8%, to $1.6 million, for the three months ended March 31, 2025, compared to $1.5 million for the same period in 2024, due in part to increases in deposit service charges and fees, loan servicing income, and earnings on bank-owned life insurance. Deposit services charges and fees increased $75,000, or 9.3%, to $884,000 for the three months ended March 31, 2025, compared to $809,000 for the three months ended March 31, 2024.  In March 2025, we repurchased $500,000 of our Notes and recorded a $42,000 gain on repurchase, compared to a $1.0 million repurchase of our Notes in the first quarter of 2024 at a gain of $107,000.

 

Noninterest Expense

 

		Three Months Ended
		March 31,
		2025				2024				Change
		(Dollars in thousands)
Compensation and benefits		$	5,704			$	6,052			$	(348	)
Office occupancy and equipment			2,047				2,241				(194	)
Advertising and public relations			130				90				40
Information technology			1,015				1,002				13
Professional fees			405				454				(49	)
Supplies, telephone and postage			289				286				3
FDIC insurance premiums			157				161				(4	)
Other			1,165				1,480				(315	)
Total noninterest expense		$	10,912			$	11,766			$	(854	)

 

Noninterest expense decreased $854,000, or 7.3%, to $10.9 million, for the three months ended March 31, 2025, compared to $11.8 million for the same period in 2024, primarily due to decreases in expenses for compensation and benefits, office occupancy and equipment, professional fees, FDIC insurance premiums, and other expenses.  Compensation and benefits expense decreased $348,000, or 5.8%, to $5.7 million for the three months ended March 31, 2025, compared to $6.1 million in 2024.   The decrease is primarily due to reduced staffing; full time equivalents were 191 at March 31, 2025, compared to 217 at March 31, 2024.  Office occupancy and equipment expense decreased by $194,000, or 8.7%, to $2.0 million for the three months ended March 31, 2025, from $2.2 million for the same period in 2024, primarily due to decreases in real estate taxes and rent expenses. Professional fees decreased by $49,000, or 10.8%, to $405,000 for the three months ended March 31, 2025, from $454,000 for the same period in 2024, primarily due to decreases in legal and placement expenses.  Other expenses decreased by $315,000, or 21.3%, to $1.2 million for the three months ended March 31, 2025, from $1.5 million for the same period in 2024, primarily due to decreases in nonperforming asset legal expenses, and no settlement expense for nonperforming asset litigation settlement compared to $225,000 in 2024.

 

 

 

 

Income Taxes

 

We recorded income tax expense of $432,000 for the three months ended March 31, 2025, compared to $500,000 for the three months ended March 31, 2024. Our combined state and federal effective tax rate for the three months ended March 31, 2025 was 17.2%, compared to 22.6% for the three months ended March 31, 2024, due in part to the favorable impact of the tax benefit of interest earned on U.S. Treasury Bills and Notes and U.S. government-sponsored agency securities.

Criticized and Classified Assets

 

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 as to credit risk.  Risk ratings are updated any time the situation warrants.   The following table sets forth the criticized and classified loans:

 

		March 31, 2025				December 31, 2024				Quarter Change
		(Dollars in thousands)
Criticized - Special Mention:
Multi-family residential real estate		$	—			$	3,858			$	(3,858	)
Nonresidential real estate			425				428				(3	)
Commercial loans and leases			66				3,156				(3,090	)
Consumer			2				4				(2	)
		$	493			$	7,446			$	(6,953	)
Classified - Performing Substandard:
One-to-four family residential real estate		$	175			$	218			$	(43	)
Multi-family residential real estate			9,000				1,168				7,832
Nonresidential real estate			433				441				(8	)
Commercial loans and leases			2,230				2,628				(398	)
Consumer			3				4				(1	)
		$	11,841			$	4,459			$	7,382

 

With respect to classified loans as of March 31, 2025, we expect to reach a forbearance agreement with a borrower involving a $3.8 million multi-family residential real estate loan assigned a “Special Mention” risk rating as of December 31, 2024 to permit the borrower to complete renovations to the property to cure an unforeseeable adverse development that caused certain units to be unavailable for lease.  Pursuant to the forbearance agreement, the Borrower agreed to complete the necessary renovations and return the remaining units to the market for lease on a defined schedule. It is projected that the property will reach stabilized occupancy upon completion of the renovations.  In addition, as part of our ongoing portfolio management processes, we conducted an on-site inspection and obtained current financial information for a borrower with a $4.0 million multi-family residential real estate loan. The inspection and the updated financial information indicated that in 2024 the property did not perform consistent with market conditions, its performance in 2023 and our original underwriting.  We expect to reach a forbearance agreement with the borrower to complete necessary repairs to the collateral and return certain units to a marketable condition competitive in the market within the next two quarters as required by the applicable loan covenants.

 

 

 

Nonperforming Loans and Assets

 

We review loans on a regular basis and generally place loans on nonaccrual status when either principal or interest is 90 days or more past due. In addition, we place loans on nonaccrual status when we do not expect to receive full payment of interest or principal. Interest accrued and unpaid at the time a loan is placed on nonaccrual status is reversed from interest income. Interest payments received on nonaccrual loans are recognized in accordance with our significant accounting policies. Once a loan is placed on nonaccrual status, the borrower must generally demonstrate at least six consecutive months of contractual payment performance before the loan is eligible to return to accrual status. We may have loans classified as 90 days or more delinquent and still accruing. Generally, we do not utilize this category of loan classification unless: (1) the loan is repaid in full shortly after the period end date; (2) the loan is well secured and there are no asserted or pending legal barriers to its collection; or (3) the borrower has remitted all scheduled payments and is otherwise in substantial compliance with the terms of the loan, but the processing of loan payments actually received or the renewal of the loan has not occurred for administrative reasons. At March 31, 2025, we have two loans in this category.

 

The following table sets forth the amounts and categories of our nonperforming loans and nonperforming assets:

 

		March 31, 2025				December 31, 2024				Quarter Change
		(Dollars in thousands)
Nonaccrual loans:
One-to-four family residential real estate		$	107			$	126			$	(19	)
Multi-family residential real estate			1,395				1,453				(58	)
Nonresidential real estate			—				393				(393	)
Commercial loans and leases			14,911				14,960				(49	)
Consumer			—				2				(2	)
			16,413				16,934				(521	)
Loans past due over 90 days, still accruing			1				—				1
Other foreclosed assets			1,337				1,391				(54	)
Total nonperforming assets		$	17,751			$	18,325			$	(574	)
Ratios:
Allowance for credit losses to total loans			0.86	%			0.85	%
Allowance for credit losses to nonperforming loans			44.35				44.71
Nonperforming loans to total loans			1.93				1.89
Nonperforming assets to total assets			1.23				1.28
Nonaccrual loans to total loans			1.93				1.89
Nonaccrual loans to total assets			1.14				1.18

 

Nonperforming Assets

 

Nonperforming assets decreased $574,000 during the first quarter, to $17.8 million at March 31, 2025, compared to $18.3 million at December 31, 2024. The decrease was primarily due to a $393,000 nonresidential real estate loan payoff in the first quarter. The Company’s ratio of nonperforming assets to total assets was 1.23% as of March 31, 2025 compared to 1.28% as of December 31, 2024. 

 

On January 3, 2025, the U.S. Government offered to settle a $10.5 million U.S. Government Contract Disputes Act claim submitted in February 2024. Following negotiations with the U.S. Government during the month of January 2025, we agreed to settle the claim for $5.6 million in cash and a return of the unused software licenses. The $5.6 million payment is expected to be received in the second quarter of 2025.

 

With respect to our other U.S. Government equipment finance exposure of $8.4 million, we submitted a claim pursuant to the Contract Disputes Act to the prime contractor for their respective certification and submission to the U.S. Government. On April 3, 2025, the U.S. Government indefinitely extended the time to respond to the claim to enable it to complete internal discussions for purposes of submitting a settlement offer to us.  The Government’s ultimate response to the Contract Disputes Act claim remains uncertain, including the amount of any settlement offer, if any, that may be tendered to us, and the Company is prepared to take all actions necessary to enforce its rights and remedies at law or in equity.

 

Given the unexpected conduct by the U.S. Government in these transaction and information we learned about similar activity encountered by other participants in the market, we discontinued originations of U.S. Government equipment finance transactions in early 2023 pending the outcome of our claims.

Machinery and commercial vehicles with recorded balances of $52,000 were transferred to foreclosed assets during the three months ended March 31, 2025.  

 

 

Liquidity and Capital Resources

 

Liquidity. The overall objective of our liquidity management is to ensure the availability of sufficient cash funds to meet all financial commitments and to take advantage of investment opportunities. We manage liquidity in order to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature, and to fund new loans and investments as opportunities arise.

 

Our primary sources of funds are deposits, principal and interest payments on loans and securities, and, to a lesser extent, wholesale borrowings, the proceeds from maturing securities and short-term investments, the sales of loans and securities and lease payments. The scheduled amortization of loans and securities, as well as proceeds from borrowings, are predictable sources of funds. Other funding sources, however, such as deposit inflows, mortgage prepayments and mortgage loan sales are greatly influenced by market interest rates, economic conditions and competition. We anticipate that we will have sufficient funds available to meet current loan commitments and lines of credit and maturing certificates of deposit that are not renewed or extended. We generally remain fully invested and utilize FHLB advances as an additional source of funds. We had $15.0 million of FHLB advances outstanding at March 31, 2025 and $20.0 million at December 31, 2024.

 

The Company is a separate legal entity from BankFinancial, NA. The Company must provide for its own liquidity to pay any dividends to its stockholders and to repurchase shares of its common stock, and for other corporate purposes.  The Company's primary source of liquidity is dividend payments it receives from the Bank. The Bank's ability to pay dividends to the Company is subject to regulatory limitations. The Company completed the issuance of $20.0 million of subordinated notes in 2021, at a rate of 3.75% maturing on May 15, 2031. In March 2025, the Company repurchased $500,000 of these subordinated notes and recorded a gain of $42,000 and in March 2024, the Company repurchased $1.0 million of these subordinated notes and recorded a gain of $107,000.  At March 31, 2025, the Company (on an unconsolidated, stand-alone basis) had liquid assets of $10.7 million.  In 2020, the Company obtained a $5.0 million unsecured line of credit with a correspondent bank to provide a secondary source of liquidity. Interest is payable at a rate of Prime rate minus 0.50%.  The line of credit was not renewed in 2025.

  

As of March 31, 2025, we were not aware of any known trends, events or uncertainties that had or were reasonably likely to have a material adverse impact on our liquidity.  As of March 31, 2025, we had no other material commitments for capital expenditures.

 

Capital Management - Bank. The overall objectives of our capital management are to ensure the availability of sufficient capital to support loan, deposit and other asset and liability growth opportunities and to maintain sufficient capital to absorb unforeseen losses or write-downs that are inherent in the business risks associated with the banking industry. We seek to balance the need for higher capital levels to address such unforeseen risks and the goal to achieve an adequate return on the capital invested by our stockholders.

 

The Bank is subject to regulatory capital requirements administered by the federal banking agencies. The capital adequacy guidelines and prompt corrective action regulation, involve the quantitative measurement of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. The failure to meet minimum capital requirements can result in regulatory actions. The net unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital.

 

The federal banking agencies have developed a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum capital for the new Community Bank Leverage Ratio at not less than 8% and not more than 10%.  Beginning January 1, 2022, banking organizations that had a leverage ratio of 9% or greater and met certain other criteria could elect to use the Community Bank Leverage Ratio framework. A financial institution can elect to be subject to this new definition, and opt-out of this new definition, at any time. As a qualifying community bank, we elected to be subject to this definition beginning in the second quarter of 2020.   As of March 31, 2025, the Bank's Community Bank Leverage Ratio was 11.38%.

 

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 Company and the Bank have each adopted Regulatory Capital Policies that target a Tier 1 leverage ratio of at least 7.5% and a total risk-based capital ratio of at least 10.5% at the Bank. The minimum capital ratios set forth in the Regulatory Capital Policies will be increased and other minimum capital requirements will be established if and as necessary. In accordance with the Regulatory Capital Policies, 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 targeted 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 March 31, 2025, the Bank was well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events that management believes have changed the Bank’s prompt corrective action capitalization category.

 

The Bank is subject to regulatory restrictions on the amount of dividends it may declare and pay to the Company without prior regulatory approval, and to regulatory notification requirements for dividends that do not require prior regulatory approval.

 

Actual and required capital amounts and ratios for the Bank were:

 

		Actual								Required for Capital Adequacy Purposes
		Amount				Ratio				Amount				Ratio
		(Dollars in thousands)
March 31, 2025
Community Bank Leverage Ratio		$	161,901				11.38	%		$	128,063				9.00	%
December 31, 2024
Community Bank Leverage Ratio		$	159,779				11.23	%		$	128,017				9.00	%

 

Quarterly Cash Dividends. The Company declared cash dividends of $0.10 per share for each of the three months ended March 31, 2025 and March 31, 2024.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

Qualitative Analysis. A significant form of market risk is interest rate risk. Interest rate risk results from timing differences in the maturity or repricing of our assets, liabilities and off-balance sheet contracts (i.e., forward loan commitments), the effect of loan prepayments and deposit withdrawals, the difference in the behavior of lending and funding rates arising from the use of different indices and “yield curve risk” arising from changing rate relationships across the spectrum of maturities for constant or variable credit risk investments. In addition to directly affecting net interest income, changes in market interest rates can also affect the amount of new loan originations, the ability of borrowers to repay variable rate loans, the volume of loan prepayments and refinancings, the carrying value of investment securities classified as available-for-sale and the flow and mix of deposits.

 

The general objective of our interest rate risk management is to determine the appropriate level of risk given our business strategy and then manage that risk in a manner that is consistent with our policy to reduce, to the extent possible, the exposure of our net interest income to changes in market interest rates. Our Asset/Liability Management Committee (“ALCO”), which consists of certain members of senior management, evaluates the interest rate risk inherent in certain assets and liabilities, our operating environment and capital and liquidity requirements, and modifies our lending, investing and deposit gathering strategies accordingly. The Board of Directors then reviews the ALCO’s activities and strategies, the effect of those strategies on our net interest margin, and the effect that changes in market interest rates would have on the economic value of our loan and securities portfolios as well as the intrinsic value of our deposits and borrowings, and reports to the full Board of Directors.

 

We actively evaluate interest rate risk in connection with our lending, investing and deposit activities. In an effort to better manage interest rate risk, we have de-emphasized the origination of residential mortgage loans, and have increased our emphasis on the origination of nonresidential real estate loans, multi-family residential real estate loans, and commercial loans and commercial leases. In addition, depending on market interest rates and our capital and liquidity position, we generally sell all or a portion of our longer-term, fixed-rate residential loans, and usually on a servicing-retained basis. Further, we primarily invest in shorter-duration securities, which generally have lower yields compared to longer-term investments. Shortening the average maturity of our interest-earning assets by increasing our investments in shorter-term loans and securities, as well as loans with variable rates of interest, helps to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates. Finally, we have classified all of our investment portfolio as available-for-sale so as to provide flexibility in liquidity management.

 

We utilize a combination of analyses to monitor the Bank’s exposure to changes in interest rates. The economic value of equity analysis is a model that estimates the change in net portfolio value (“NPV”) over a range of interest rate scenarios. NPV is the discounted present value of expected cash flows from assets, liabilities and off-balance-sheet contracts. In calculating changes in NPV, we assume estimated loan prepayment rates, reinvestment rates and deposit decay rates that seem most likely based on historical experience during prior interest rate changes.

 

 

 

Our net interest income analysis utilizes the data derived from the dynamic GAP analysis, described below, and applies several additional elements, including actual interest rate indices and margins, contractual limitations such as interest rate floors and caps and the U.S. Treasury yield curve as of the balance sheet date. In addition, we apply consistent parallel yield curve shifts (in both directions) to determine possible changes in net interest income if the theoretical yield curve shifts occurred instantaneously. Net interest income analysis also adjusts the dynamic GAP repricing analysis based on changes in prepayment rates resulting from the parallel yield curve shifts.

 

Our dynamic GAP analysis determines the relative balance between the repricing of assets and liabilities over multiple periods of time (ranging from overnight to five years). Dynamic GAP analysis includes expected cash flows from loans and mortgage-backed securities, applying prepayment rates based on the differential between the current interest rate and the market interest rate for each loan and security type. This analysis identifies mismatches in the timing of asset and liability repricing but does not necessarily provide an accurate indicator of interest rate risk because it omits the factors incorporated into the net interest income analysis.

 

Quantitative Analysis. The following table sets forth, as of March 31, 2025, the estimated changes in the Bank’s NPV and net interest income that would result from the designated instantaneous parallel shift in the U.S. Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.

 

			Estimated Increase (Decrease) in NPV								Increase (Decrease) in Estimated Net Interest Income
Change in Interest Rates (basis points)			Amount				Percent				Amount				Percent
			(Dollars in thousands)
+400			$	(20,908	)			(9.92	)%		$	3,782				7.75	%
+300				(6,653	)			(3.16	)			2,971				6.09
+200				(26	)			(0.01	)			2,100				4.30
+100				2,224				1.06				1,081				2.22
-100				(10,151	)			(4.82	)			(2,229	)			(4.57	)
-200				(20,480	)			(9.72	)			(3,791	)			(7.77	)
-300				(33,331	)			(15.81	)			(6,023	)			(12.34	)
-400				(35,753	)			(16.96	)			(8,522	)			(17.47	)

 

The table set forth above indicates that at March 31, 2025, in the event of an immediate 200 basis point decrease in interest rates, the Bank would be expected to experience a 9.72% decrease in NPV and a $3.8 million decrease in net interest income. In the event of an immediate 200 basis point increase in interest rates, the Bank would be expected to experience a 0.01% decrease in NPV and a $2.1 million increase in net interest income. This data does not reflect any actions that we may undertake in response to changes in interest rates, such as changes in rates paid on certain deposit accounts based on local competitive factors, which could reduce the actual impact on NPV and net interest income, if any.

 

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV and net interest income requires that we make certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The NPV and net interest income table presented above assumes that the composition of our interest-rate-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and, accordingly, the data does not reflect any actions that we may undertake in response to changes in interest rates, such as changes in rates paid on certain deposit accounts based on local competitive factors. The table also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or the repricing characteristics of specific assets and liabilities. Because of the shortcomings mentioned above, management considers many additional factors such as projected changes in loan and deposit balances and various projected forward interest rate scenarios when evaluating strategies for managing interest rate risk. Accordingly, although the NPV and net interest income table provides an indication of our sensitivity to interest rate changes at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

ITEM 4.

CONTROLS AND PROCEDURES

 

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chairman, Chief Executive Officer and President and the Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2025. Based on that evaluation, the Company’s management, including the Chairman, Chief Executive Officer, and President and the Executive Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

 

During the quarter ended March 31, 2025, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

PART II

 

ITEM 1.

LEGAL PROCEEDINGS   The Company and its subsidiaries are subject to various legal actions arising in the normal course of business. In the opinion of management, based on currently available information, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations.

 

ITEM 1A.

RISK FACTORS

 

There have been no material changes to the risk factors previously disclosed in the Company's filings with the Securities and Exchange Commission.

 

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

(a)

Unregistered Sale of Equity Securities. Not applicable.

	(b)	Use of Proceeds. Not applicable.

	(c)	Repurchases of Equity Securities.

 

There we no purchases of our common stock made by, or on behalf of us, during the first quarter of 2025. 

 

As of March 31, 2025, the Company had repurchased 8,085,578 shares of its common stock out of the 8,267,771 shares of common stock authorized under the current share repurchase authorization, as amended and extended from time to time.  Pursuant to the current share repurchase authorization, there were 182,193 shares of common stock authorized for repurchase as of March 31, 2025. 

 

ITEM 3.

DEFAULT UPON SENIOR SECURITIES

 

None.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

ITEM 5.

OTHER INFORMATION

 

During the three months ended  March 31, 2025, no directors or executive officers of the Company adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and/or any “Rule 10b5-1 trading arrangement.”

 

---

 

ITEM 6.

EXHIBITS

 

Exhibit Number		Exhibit Description
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101		The following financial statements from the BankFinancial Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, formatted in Inline Extensive Business Reporting Language (iXBRL): (i) consolidated statements of financial condition, (ii) consolidated statements of operations, (iii) consolidated statements of comprehensive income, (iv) consolidated statements of changes in stockholders' equity, (v) consolidated statements of cash flows and (vi) the notes to consolidated financial statements.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

*	A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

			BANKFINANCIAL CORPORATION
Dated:	April 25, 2025		By:	/s/ F. Morgan Gasior
				F. Morgan Gasior
				Chairman of the Board, Chief Executive Officer and President
				/s/ Paul A. Cloutier
				Paul A. Cloutier
				Executive Vice President and Chief Financial Officer