BankFinancial(BFIN) - 2020 Q2 - Quarterly Report

Financial Ratios and Capital Adequacy - As of June 30, 2020, the Company had a Tier 1 leverage ratio of 11.06% and a Tier 1 risk-based capital ratio of 17.03%[104] - The Bank's Community Bank Leverage Ratio was 10.54% as of June 30, 2020, exceeding the minimum requirement of 8%[176] - Total capital to risk-weighted assets was $170,203 thousand, with a ratio of 16.38%, well above the required capital adequacy ratio of 8%[180] - The Tier 1 (core) capital to risk-weighted assets ratio stood at 15.63%, exceeding the required 6.00%[180] - The Common Tier 1 (CET1) capital was $162,455 thousand, with a ratio of 15.63%, well above the required 4.50%[180] - The company is subject to regulatory capital requirements, with all capital ratios exceeding the well-capitalized requirement as of June 30, 2020[179] Loan and Deposit Performance - Total loans decreased by $65.4 million (5.7%) in Q2 2020 compared to Q1 2020, with commercial loans declining by $31.4 million (19.9%) due to reduced line of credit usage[108] - The Company originated 305 loans totaling $11 million under the U.S. Small Business Administration Paycheck Protection Program (PPP) in Q2 2020, with 300 loans having an outstanding principal balance of $10.9 million as of June 30, 2020[109] - Total deposits increased by $134.4 million (10.7%) in Q2 2020, net of a $16.3 million reduction in wholesale deposit balances, primarily due to COVID-19 fiscal stimulus[119] - Total deposits rose by $103.4 million, or 8.0%, to $1.388 billion at June 30, 2020, compared to $1.285 billion at December 31, 2019[134] - Core deposits represented 75.5% of total deposits at June 30, 2020, compared to 68.7% at December 31, 2019[134] Interest Income and Margin - The average yield on the loan and lease portfolio decreased to 4.57% in Q2 2020 from 4.72% in Q1 2020, while the average cost of retail and commercial deposits decreased to 0.63%[121] - The net interest margin decreased to 3.09% in Q2 2020, down from 3.44% in Q1 2020, due to the abrupt decline in interest rates[121] - Net interest income after provision for loan losses was $11.283 million in Q2 2020, up from $9.146 million in Q2 2019[129] - Net interest income decreased to $11.3 million for the three months ended June 30, 2020, down from $13.1 million in the same period of 2019, reflecting a 20.1% decrease in interest income[137] - The yield on interest-earning assets decreased by 94 basis points to 3.60% for the three months ended June 30, 2020, from 4.54% for the same period in 2019[138] - The net interest margin decreased by 51 basis points to 3.09% for the three months ended June 30, 2020, from 3.60% for the same period in 2019[139] Nonperforming Loans and Asset Quality - The non-performing loans to total loans ratio was 0.16% as of June 30, 2020, with nominal past due loan balances despite COVID-19 disruptions[116] - Nonperforming assets to total assets increased to 0.12% from 0.07% at the end of 2019[130] - Nonperforming loans increased to $1.8 million at June 30, 2020, from $764,000 at December 31, 2019, representing an increase of $1.0 million[168] - The ratio of nonperforming loans to total loans increased to 0.16% at June 30, 2020, compared to 0.07% at December 31, 2019[168] - The allowance for loan losses as a percentage of nonperforming loans was 457.43 at June 30, 2020, down from 901.06 at December 31, 2019[158] Income and Expenses - Net income for the three months ended June 30, 2020, was $2.4 million, compared to $807,000 for the same period in 2019, resulting in earnings per share of $0.16[136] - Noninterest income decreased to $1.2 million in Q2 2020 from $1.4 million in Q1 2020, reflecting the impact of "Stay-At-Home" orders[122] - Noninterest expense declined to $9.2 million for the quarter ended June 30, 2020, with compensation and benefits down by $350,000[125] - Total noninterest expense decreased by $223,000, or 2.4%, to $9.2 million for the three months ended June 30, 2020, from $9.5 million for the same period in 2019[149] - Noninterest income decreased by $263,000, or 18.4%, to $1.2 million for the three months ended June 30, 2020, compared to $1.4 million for the same period in 2019[147] Strategic Initiatives and Future Outlook - The Company developed several loan forbearance programs to assist borrowers affected by COVID-19, with 100 borrowers executing agreements totaling $94.0 million in outstanding loan principal balances[112] - The Company expects greater volatility in deposit balances for the remainder of 2020 due to government stimulus providing additional liquidity to depositors[119] - The company plans to leverage cost savings from improved efficiencies to offset declines in interest income and maintain business generation priorities[124] - The Company anticipates sufficient funds to meet current loan commitments and lines of credit[171] - The dynamic GAP analysis indicates mismatches in the timing of asset and liability repricing, which is crucial for assessing interest rate risk[187] Interest Rate Risk Management - The company has de-emphasized residential mortgage loans and increased focus on nonresidential real estate loans and commercial leases to manage interest rate risk[184] - The Asset/Liability Management Committee (ALCO) evaluates interest rate risk and modifies strategies accordingly to protect net interest income[183] - The investment portfolio is classified as available-for-sale to enhance liquidity management flexibility[184] - In the event of an immediate 25 basis point decrease in interest rates, the Bank would expect a 2.41% decrease in net portfolio value (NPV) and a $659,000 decrease in net interest income[191] - A 200 basis point increase in interest rates would result in a 0.55% decrease in NPV and a $3.8 million increase in net interest income[191]