BankFinancial(BFIN) - 2023 Q3 - Quarterly Report

PART I Item 1. Financial Statements This section presents the unaudited consolidated financial statements of BankFinancial Corporation, including the statements of financial condition, operations, comprehensive income, changes in stockholders' equity, and cash flows, along with detailed notes on accounting policies and specific financial items Consolidated Statements of Financial Condition | Metric | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----------------------------------- | :-------------------------------- | :--------------------------------- | | Total assets | $1,505,454 | $1,575,442 | | Loans receivable, net | $1,105,604 | $1,226,743 | | Securities, at fair value | $158,425 | $210,338 | | Cash and cash equivalents | $171,561 | $66,771 | | Total deposits | $1,275,828 | $1,374,934 | | Borrowings | $25,000 | $0 | | Subordinated notes, net | $19,667 | $19,634 | | Total stockholders' equity | $153,755 | $151,671 | Consolidated Statements of Operations | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total interest income | $16,894 | $14,930 | $49,232 | $39,232 | | Total interest expense | $3,940 | $1,008 | $9,835 | $2,405 | | Net interest income | $12,954 | $13,922 | $39,397 | $36,827 | | (Recovery of) provision for credit losses | $136 | $350 | ($4) | $1,085 | | Total noninterest income | $1,240 | $1,287 | $2,792 | $4,570 | | Total noninterest expense | $10,790 | $10,601 | $32,302 | $31,089 | | Net income | $2,369 | $3,221 | $7,314 | $7,056 | | Basic and diluted EPS | $0.19 | $0.25 | $0.58 | $0.54 | Consolidated Statements of Comprehensive Income | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :-------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net income | $2,369 | $3,221 | $7,314 | $7,056 | | Unrealized holding gain (loss) on securities, net of tax | $813 | ($2,662) | $1,672 | ($6,402) | | Reclassification adjustment for loss, net of tax | $0 | $0 | $335 | $0 | | Other comprehensive gain (loss), net of tax | $813 | ($2,662) | $2,007 | ($6,402) | | Comprehensive income | $3,182 | $559 | $9,321 | $654 | Consolidated Statements of Changes in Stockholders' Equity | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :----------------------------------- | :-------------------------- | :-------------------------- | | Total Stockholders' Equity | $153,755 | $151,671 | | Net income (YTD) | $7,314 | $7,056 | | Other comprehensive income (loss), net of tax (YTD) | $2,007 | ($6,402) | | Repurchase and retirement of common stock (YTD) | ($1,717) | ($3,106) | | Cash dividends paid (YTD) | ($3,801) | ($3,944) | | Cumulative effect of change in accounting principle (YTD) | ($1,719) | $0 | Consolidated Statements of Cash Flows | Metric | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash from operating activities | $5,218 | $489 | | Net cash from (used in) investing activities | $172,682 | ($217,844) | | Net cash used in financing activities | ($73,110) | ($68,676) | | Net change in cash and cash equivalents | $104,790 | ($286,031) | | Ending cash and cash equivalents | $171,561 | $216,131 | NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The Company adopted ASC 326 (Financial Instruments – Credit Losses) on January 1, 2023, using the modified retrospective approach, resulting in a net reduction of retained earnings by $1.7 million, an increase in credit-related reserves by $1.9 million, and the recording of an unfunded commitment reserve of $417,000, net of a $604,000 increase in deferred tax assets[182][188] - The Company also adopted ASU 2022-02, eliminating the Troubled Debt Restructurings (TDR) accounting model for creditors that have adopted ASC 326, and enhancing disclosure requirements for loan modifications and gross write-off information[196] NOTE 2 - EARNINGS PER SHARE | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income available to common stockholders | $2,369 | $3,221 | $7,314 | $7,056 | | Basic and diluted EPS | $0.19 | $0.25 | $0.58 | $0.54 | | Weighted average common shares outstanding | 12,578,494 | 13,060,266 | 12,655,305 | 13,142,584 | NOTE 3 - SECURITIES | Security Type | September 30, 2023 Fair Value (in thousands) | December 31, 2022 Fair Value (in thousands) | | :------------------------------------------ | :------------------------------------------- | :------------------------------------------- | | Certificates of deposit | $2,725 | $2,233 | | Municipal securities | $229 | $225 | | U.S. Treasury Notes | $123,095 | $163,103 | | U.S. government-sponsored agencies | $27,863 | $39,699 | | Mortgage-backed securities – residential | $3,480 | $3,881 | | Collateralized mortgage obligations – residential | $1,033 | $1,197 | | Total Available-for-Sale Securities | $158,425 | $210,338 | - The Company holds U.S. Treasury Notes, U.S. government-sponsored agencies, and other available-for-sale securities in an unrealized loss position at September 30, 2023, with these losses not recognized in income because the securities are high credit quality and the Company does not expect to sell them before anticipated recovery, with fair values expected to recover as maturity dates approach[209] | Metric | Nine Months Ended Sep 30, 2023 (in thousands) | | :---------------- | :-------------------------------------------- | | Proceeds from sales of securities | $42,631 | | Gross losses on sales of securities | ($454) | NOTE 4 - LOANS RECEIVABLE | Loan Class | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----------------------------------- | :-------------------------------- | :--------------------------------- | | One-to-four family residential real estate | $19,233 | $23,133 | | Multi-family mortgage | $528,251 | $537,394 | | Nonresidential real estate | $117,641 | $119,705 | | Commercial loans and leases | $447,687 | $553,056 | | Consumer | $1,351 | $1,584 | | Total Loans Receivable | $1,114,163 | $1,234,872 | | Allowance for credit losses | ($8,559) | ($8,129) | | Loans, net | $1,105,604 | $1,226,743 | | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :----------------------------------- | :-------------------------- | :-------------------------- | | Nonaccrual loans | $23,508 | $1,407 | | Loans past due over 90 days, still accruing | $6,245 | $238 | | Total Nonperforming Loans | $29,753 | $1,645 | | Allowance for credit losses to total loans | 0.77% | 0.66% | | Allowance for credit losses to nonperforming loans | 28.77% | 494.16% | | Nonperforming loans to total loans | 2.67% | 0.13% | - The Company categorizes loans into risk categories (Pass, Watch, Special Mention, Substandard, Nonaccrual) based on borrower's ability to service debt, financial information, payment history, credit documentation, public information, and economic trends, with risk ratings updated as situations warrant[239][240][241][242][243] NOTE 5 - FORECLOSED ASSETS - Foreclosed assets, including Other Real Estate Owned (OREO) and other foreclosed assets, are initially recorded at fair value less estimated disposal costs, and if fair value is less than the loan balance, the difference is charged against the allowance for credit losses[251][252] | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Other real estate owned (Net Balance) | $468 | $472 | | Other foreclosed assets (Net Balance) | $434 | $4 | | Total Foreclosed Assets | $902 | $476 | | Metric | For the Three Months Ended Sep 30, 2023 (in thousands) | For the Nine Months Ended Sep 30, 2023 (in thousands) | | :----------------------------------- | :----------------------------------------------------- | :---------------------------------------------------- | | Beginning balance | $950 | $476 | | New foreclosed assets | $0 | $921 | | Valuation adjustments | ($48) | ($48) | | Sales | $0 | ($377) | | Ending balance | $902 | $902 | NOTE 6 - BORROWINGS AND SUBORDINATED NOTES | Instrument | Contractual Rate (Sep 30, 2023) | Sep 30, 2023 Amount (in thousands) | Contractual Rate (Dec 31, 2022) | Dec 31, 2022 Amount (in thousands) | | :----------------------------------- | :------------------------------ | :--------------------------------- | :------------------------------ | :--------------------------------- | | Fixed-rate advance from FHLB, due Sep 16, 2024 | 4.55% | $5,000 | —% | $0 | | Fixed-rate advance from FHLB, due Mar 17, 2025 | 4.27% | $5,000 | —% | $0 | | Fixed-rate advance from FHLB, due Sep 17, 2025 | 4.20% | $5,000 | —% | $0 | | Fixed-rate advance from FHLB, due Mar 17, 2026 | 4.15% | $5,000 | —% | $0 | | Fixed-rate advance from FHLB, due Sep 17, 2026 | 4.06% | $5,000 | —% | $0 | | Subordinated notes, due May 15, 2031 | 3.75% | $19,667 | 3.75% | $19,634 | | Line of credit, due Mar 29, 2024 | 8.00% | $0 | 6.75% | $0 | - The Company's subordinated notes bear a fixed annual interest rate of 3.75% until May 14, 2026, after which the rate will reset quarterly to Three-Month Term SOFR plus 299 basis points, and these notes qualify as Tier 2 capital for regulatory purposes[4][5] - The $5.0 million unsecured line of credit with a correspondent bank had no outstanding balance at September 30, 2023, and December 31, 2022, with its current maturity date being March 29, 2024[6] NOTE 7 – FAIR VALUE - Fair value measurements are categorized into three levels based on input observability: Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs), and Level 3 (significant unobservable inputs)[7][8] | Financial Instrument | Fair Value (Sep 30, 2023, in thousands) | Level 1 | Level 2 | Level 3 | | :----------------------------------- | :-------------------------------------- | :------ | :------ | :------ | | Cash and cash equivalents | $171,561 | $169,321 | $2,240 | $0 | | Securities | $158,425 | $123,095 | $35,330 | $0 | | Loans receivable, net | $1,049,622 | $0 | $0 | $1,049,622 | | FHLB and FRB stock | N/A | $0 | $0 | $0 | | Accrued interest receivable | $8,343 | $437 | $436 | $7,470 | | Certificates of deposit (Liabilities) | $217,933 | $0 | $217,933 | $0 | | Borrowings (Liabilities) | $24,621 | $0 | $24,621 | $0 | | Subordinated notes (Liabilities) | $17,171 | $0 | $17,171 | $0 | | Financial Instrument | Fair Value (Sep 30, 2023, in thousands) | Valuation Technique | Significant Unobservable Input(s) | Range (Weighted Average) | | :-------------------------- | :-------------------------------------- | :------------------ | :-------------------------------- | :----------------------- | | Other real estate owned | $468 | Sales comparison | Discount applied to valuation | 10.0% | | Other foreclosed assets | $387 | Sales comparison | Discount applied to valuation | 6.2% | NOTE 8 – REVENUE FROM CONTRACTS WITH CUSTOMERS | Noninterest Income Source | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Deposit service charges and fees | $836 | $829 | $2,482 | $2,436 | | Loan servicing fees | $98 | $59 | $368 | $350 | | Trust and insurance commissions and annuities income | $290 | $287 | $933 | $887 | | Losses on sales of securities (1) | $0 | $0 | ($454) | $0 | | Gain on sale of premises and equipment | $0 | $0 | $9 | $0 | | Valuation adjustment on bank premises held-for-sale (1) | $0 | $0 | ($585) | $0 | | (Loss) earnings on bank-owned life insurance (1) | ($88) | ($14) | ($259) | $25 | | Bank-owned life insurance death benefit (1) | $0 | $0 | $0 | $446 | | Other (1) | $104 | $126 | $298 | $426 | | Total noninterest income | $1,240 | $1,287 | $2,792 | $4,570 | (1) Not within the scope of ASC 606 - Revenue streams accounted for under ASC 606 include deposit service charges and fees (transaction-based, account maintenance, overdraft), interchange income from debit card transactions, and trust and insurance commissions and annuities income (asset management, transaction-based, fixed fees)[28][29][30] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and operating results, including an overview of key financial metrics, a comparison of financial condition, and detailed analysis of operating results, critical accounting policies, and liquidity and capital resources Cautionary Statement Regarding Forward-Looking Information - The report contains forward-looking statements, identifiable by words like 'believe,' 'expect,' 'intend,' and 'anticipate,' which are subject to numerous uncertainties that could cause actual results to differ materially[33] - Key risk factors include interest rate movements, loan and deposit pricing, changes in government budgets, less than anticipated loan growth, impact of ASC 326, credit risks, adverse economic conditions, declines in real estate values, regulatory actions, financial market disruptions, monetary/fiscal policies, funding access, legislative changes, higher insurance premiums, increased operating costs, accounting changes, government shutdowns, and cybersecurity risks[34] Critical Accounting Policies - Critical accounting policies involve significant judgments and uncertainties that could materially affect financial results under different assumptions, and these are detailed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022[36] Overview | Metric | September 30, 2023 (in thousands) | June 30, 2023 (in thousands) | | :----------------------------------- | :-------------------------------- | :--------------------------------- | | Net income (Q3) | $2,400 | N/A | | EPS (Q3) | $0.19 | N/A | | Total assets | $1,505,000 | N/A | | Total loans | $1,106,000 | N/A | | Total deposits | $1,276,000 | $1,303,900 | | Stockholders' equity | $153,800 | N/A | | Cash and interest-bearing deposits | $171,600 | $115,300 | | Loan to deposit ratio | 87% | 90% | | Net interest margin | 3.56% | 3.56% | | Tier 1 leverage ratio | 10.38% | N/A | | Tangible book value per common share | $12.25 | N/A | - Total net loans decreased by $65.2 million (5.6%) during Q3 2023, primarily due to declines in equipment finance, multi-family residential real estate, and commercial finance portfolios, while yields on loan originations decreased slightly to 9.11% in Q3 2023 from 9.24% in Q2 2023[39][40] - Noninterest expense decreased $430,000 in Q3 2023, driven by a $260,000 decrease in compensation and benefits and a $91,000 decrease in advertising and public relations[44] Selected Financial Data | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Total assets | $1,505,454 | $1,575,442 | ($69,988) | | Loans, net | $1,105,604 | $1,226,743 | ($121,139) | | Securities, at fair value | $158,425 | $210,338 | ($51,913) | | Deposits | $1,275,828 | $1,374,934 | ($99,106) | | Borrowings | $25,000 | $0 | $25,000 | | Subordinated notes, net | $19,667 | $19,634 | $33 | | Equity | $153,755 | $151,671 | $2,084 | | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :------- | | Interest income | $16,894 | $14,930 | $1,964 | 13.2% | | Interest expense | $3,940 | $1,008 | $2,932 | 290.9% | | Net interest income | $12,954 | $13,922 | ($968) | (7.0)% | | Provision for credit losses | $136 | $350 | ($214) | (61.1)% | | Noninterest income | $1,240 | $1,287 | ($47) | (3.7)% | | Noninterest expense | $10,790 | $10,601 | $189 | 1.8% | | Net income | $2,369 | $3,221 | ($852) | (26.5)% | | Ratio | Sep 30, 2023 | Sep 30, 2022 | | :----------------------------------- | :----------- | :----------- | | Return on average assets | 0.63% | 0.79% | | Return on average equity | 6.16% | 8.31% | | Net interest rate spread | 3.16% | 3.42% | | Net interest margin | 3.56% | 3.52% | | Efficiency ratio | 76.02% | 69.70% | | Allowance for credit losses to total loans | 0.77% | 0.66% | | Nonperforming loans to total loans | 2.67% | 0.13% | | Nonperforming assets to total assets | 2.04% | 0.13% | | Community Bank Leverage Ratio (Bank only) | 10.93% | 10.31% | Comparison of Financial Condition at September 30, 2023 and December 31, 2022 - Total assets decreased by $70.0 million (4.4%) to $1.505 billion, primarily due to decreases in securities ($51.9 million) and loans receivable ($121.1 million), partially offset by a $104.8 million increase in cash and cash equivalents[56] - Total liabilities decreased by $72.1 million (5.1%) to $1.352 billion, driven by a $99.1 million (7.2%) decrease in total deposits, partially offset by an increase in borrowings[52] - Core deposits (savings, money market, noninterest-bearing demand, and NOW accounts) represented 82.7% of total deposits at September 30, 2023, down from 86.4% at December 31, 2022, while retail certificates of deposit increased by $34.4 million (18.4%)[52] - The loan portfolio, primarily investment and business loans (98.2% of gross loans), saw multi-family loans decrease by $9.1 million (1.7%) and commercial loans and leases decrease by $105.4 million (19.1%) during the nine months ended September 30, 2023[51] - Total stockholders' equity increased by $2.1 million to $153.8 million, driven by net income and an increase in accumulated other comprehensive income, partially offset by share repurchases, cash dividends, and a one-time accounting principle change[58] Operating Results for the Three Months Ended September 30, 2023 and 2022 - Net income for the three months ended September 30, 2023, was $2.4 million ($0.19 EPS), a decrease from $3.2 million ($0.25 EPS) in the same period of 2022[59] - Net interest income decreased by $968,000 to $13.0 million, primarily due to a $2.9 million increase in interest expense, with the net interest rate spread decreasing by 26 basis points to 3.16%, while the net interest margin increased by four basis points to 3.56%[53][61] | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Provision for credit losses – loans | $180 | $350 | | Net charge-offs | $847 | $166 | | Allowance for credit losses as % of nonperforming loans | 28.77% | 38.19% | | (Excluding U.S. Gov't transactions) | 78.78% | N/A | - Noninterest income decreased by $47,000 (3.7%) to $1.2 million, with loan servicing fees including $52,000 of non-use fees in 2023 compared to $2,000 in 2022[144] - Noninterest expense increased by $189,000 (1.8%) to $10.8 million, driven by increases in compensation and benefits, office occupancy and equipment, professional fees, and FDIC insurance premiums, partially offset by a decrease in other expenses due to a $750,000 loss reserve recorded in Q3 2022 not recurring[68][69] - Income tax expense was $899,000, with an effective tax rate of 27.5% for Q3 2023, compared to $1.0 million and 24.4% for Q3 2022[145] Operating Results for the Nine Months Ended September 30, 2023 and 2022 - Net income for the nine months ended September 30, 2023, was $7.3 million ($0.58 EPS), an increase from $7.1 million ($0.54 EPS) in the same period of 2022[71] - Net interest income increased by $2.6 million to $39.4 million, primarily due to a $10.0 million increase in interest income, with the net interest rate spread increasing by 24 basis points to 3.27%, and the net interest margin increasing by 48 basis points to 3.59%[72][146] | Metric | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Provision for credit losses – loans | $85 | $1,100 | | Net charge-offs | $1,600 | $414 | | Allowance for credit losses as % of nonperforming loans | 28.77% | 494.16% | | (Excluding U.S. Gov't transactions) | 78.78% | N/A | - Noninterest income decreased by $1.8 million (38.9%) to $2.8 million, mainly due to losses on sales of investment securities ($454,000) and valuation adjustments on bank premises held-for-sale ($585,000), with the prior year including a $446,000 bank-owned life insurance death benefit[148] - Noninterest expense increased by $1.2 million (3.9%) to $32.3 million, primarily due to increases in compensation and benefits, advertising, information technology, FDIC insurance premiums, and other expenses (including legal fees and write-downs on foreclosed assets)[81] - Income tax expense was $2.6 million, with an effective tax rate of 26.1% for YTD Sep 30, 2023, compared to $2.2 million and 23.5% for YTD Sep 30, 2022[82] Criticized and Classified Assets - The Company categorizes loans into risk categories (Pass, Watch, Special Mention, Substandard, Nonaccrual) based on borrower's ability to service debt, financial information, payment history, credit documentation, public information, and economic trends, with risk ratings updated as situations warrant[83] | Risk Category | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Special Mention | $1,338 | $1,525 | | Substandard | $5,970 | $4,372 | | Nonaccrual | $23,508 | $1,407 | | Total Criticized and Classified Loans | $30,816 | $7,304 | Nonperforming Loans and Assets | Metric | Sep 30, 2023 (in thousands) | Jun 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Nonaccrual loans | $23,508 | $24,158 | $1,407 | | Loans past due over 90 days, still accruing | $6,245 | $0 | $238 | | Total Nonperforming Loans | $29,753 | $24,158 | $1,645 | | Foreclosed assets | $902 | $950 | $476 | | Total Nonperforming Assets | $30,655 | $25,108 | $2,121 | | Nonperforming assets to total assets | 2.04% | 1.64% | 0.13% | - Nonperforming assets increased by $5.5 million to $30.7 million at September 30, 2023, primarily due to two transactions totaling $6.2 million that were past due 90 days or longer but remained on accrual status due to expected collection[86] - A Chapter 11 bankruptcy petition involving an equipment finance borrower with a $3.2 million exposure was converted to Chapter 7 liquidation, resulting in a $700,000 charge-off and $41,000 in professional fees, with collateral marketing commencing[87][94] - Another equipment finance borrower with a $786,000 exposure filed Chapter 7 bankruptcy due to alleged fraudulent activities, with efforts underway to trace and secure collateral, facing potential risks of unlocated collateral or inability to enforce security interests[89][96] Liquidity and Capital Resources - Primary funding sources include deposits, loan/security payments, wholesale borrowings, and proceeds from maturing securities, with the Company utilizing FHLB advances as an additional source, with $25.0 million outstanding at September 30, 2023[100] - The Company's primary source of liquidity is dividends from the Bank, subject to regulatory limitations, and as of September 30, 2023, the Company had $10.8 million in liquid assets and a $5.0 million unsecured line of credit with no outstanding balance[101] - The Bank's Community Bank Leverage Ratio was 10.93% at September 30, 2023, exceeding the 9.00% required for adequacy, and the Bank was well-capitalized under regulatory frameworks[105][108][115] - The Company declared cash dividends of $0.10 per share for each of the three months ended September 30, 2023 and 2022, totaling $0.30 per share for the nine-month periods[110] Item 3. Quantitative and Qualitative Disclosure about Market Risk This section discusses the Company's exposure to market risk, primarily interest rate risk, and its management strategies, including both qualitative and quantitative analyses of how changes in interest rates could impact net interest income and economic value of equity Qualitative Analysis - Interest rate risk arises from timing differences in asset/liability repricing, loan prepayments, deposit withdrawals, and yield curve changes, affecting net interest income, loan originations, and security values[111] - The Asset/Liability Management Committee (ALCO) evaluates and manages interest rate risk by modifying lending, investing, and deposit strategies, focusing on shorter-duration securities and variable-rate loans to match asset and liability maturities[112][113] Quantitative Analysis | Change in Interest Rates (basis points) | Estimated Decrease in NPV (in thousands) | Percent Change in NPV | Estimated Increase in Net Interest Income (in thousands) | Percent Change in Net Interest Income | | :-------------------------------------- | :--------------------------------------- | :-------------------- | :------------------------------------------------------- | :------------------------------------ | | +400 | ($43,399) | (18.30)% | $3,777 | 6.88% | | +300 | ($27,298) | (11.51)% | $2,938 | 5.35% | | +200 | ($13,085) | (5.52)% | $2,124 | 3.87% | | +100 | ($3,428) | (1.45)% | $1,238 | 2.25% | | -100 | ($13,484) | (5.68)% | ($632) | (1.15)% | | -200 | ($21,440) | (9.04)% | ($2,219) | (4.04)% | | -300 | ($36,397) | (15.35)% | ($4,852) | (8.84)% | | -400 | ($54,875) | (23.14)% | ($8,079) | (14.71)% | - An immediate 200 basis point decrease in interest rates is estimated to result in a 9.04% decrease in Net Portfolio Value (NPV) and a $2.2 million decrease in net interest income, while a 200 basis point increase is estimated to cause a 5.52% decrease in NPV and a $2.1 million increase in net interest income[120] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the Company's disclosure controls and procedures as of September 30, 2023, and concluded they were effective, with no material changes to internal control over financial reporting during the quarter - The Company's disclosure controls and procedures were evaluated and deemed effective as of September 30, 2023[122] - No material changes to the Company's internal control over financial reporting occurred during the quarter ended September 30, 2023[123] PART II Item 1. Legal Proceedings The Company is involved in various legal actions in the normal course of business, but management believes their resolution will not have a material adverse effect on the Company's financial condition or results of operations - Resolution of current legal actions is not expected to have a material adverse effect on the Company's financial condition or results of operations[126] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's SEC filings - No material changes to previously disclosed risk factors in SEC filings[127] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section reports on the Company's equity security activities, specifically noting no unregistered sales or use of proceeds, but detailing common stock repurchases during the third quarter of 2023 Repurchases of Equity Securities | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans | Maximum Number of Shares That May Yet Be Purchased Under the Plans | | :----------------------------------- | :------------------------------- | :--------------------------- | :--------------------------------------------------- | :----------------------------------------------------------------- | | July 1, 2023 through July 31, 2023 | 0 | $0 | 0 | 121,993 | | August 1, 2023 through August 31, 2023 | 36,858 | $8.70 | 36,858 | 85,135 | | September 1, 2023 through September 30, 2023 | 16,230 | $8.83 | 16,230 | 68,905 | | Total for Q3 2023 | 53,088 | N/A | 53,088 | 68,905 | - As of September 30, 2023, the Company had repurchased 7,998,866 shares out of 8,067,771 authorized under the current share repurchase program, with 68,905 shares remaining authorized for repurchase[135] Item 3. Default Upon Senior Securities The Company reported no defaults upon senior securities - No defaults upon senior securities[136] Item 4. Mine Safety Disclosures The Company has no mine safety disclosures to report - Not applicable[137] Item 5. Other Information No directors or executive officers adopted or terminated any Rule 10b5-1 trading arrangements during the third quarter of 2023 - No directors or executive officers adopted or terminated any Rule 10b5-1 trading arrangements during the third quarter of 2023[137] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications from the CEO and CFO, and financial statements formatted in iXBRL - Exhibits include CEO and CFO certifications (Sections 302 and 906 of Sarbanes-Oxley Act) and financial statements formatted in Inline Extensive Business Reporting Language (iXBRL)[138] Signatures The report is duly signed on behalf of BankFinancial Corporation by F. Morgan Gasior, Chairman of the Board, Chief Executive Officer and President, and Paul A. Cloutier, Executive Vice President and Chief Financial Officer, on October 30, 2023 - The report was signed by F. Morgan Gasior (Chairman, CEO, and President) and Paul A. Cloutier (EVP and CFO) on October 30, 2023[140][141][142]