Competition and Market Risks - The company faces substantial competition from various financial institutions, which may affect its ability to attract deposits and grow its loan portfolio[88]. - The company is exposed to risks from the increasing use of non-bank financial services, which could lead to a loss of fee income and customer deposits[92]. - Changes in market interest rates significantly impact the company's net interest income, which is the difference between interest earned on assets and interest paid on liabilities[90]. - Adverse local economic conditions, particularly in the Chicago metropolitan area, could negatively impact loan demand and borrower creditworthiness[126]. - The City of Chicago and the State of Illinois are facing financial difficulties, which may impair borrowers' ability to repay loans and affect the Bank's financial condition[128]. - Changes in monetary policies by the Federal Reserve Board could adversely affect the Bank's business and financial results, impacting interest rates and credit conditions[122]. COVID-19 Impact - The COVID-19 pandemic has caused economic dislocation, leading to increased unemployment and potential declines in demand for the company's products and services[94]. - The management's ability to navigate the ongoing impacts of the COVID-19 pandemic is crucial for the company's future success and profitability[98]. - The company developed several loan forbearance programs to assist borrowers affected by COVID-19, allowing for scheduled interest payments while deferring principal payments[388]. - The remaining loan forbearance modifications at December 31, 2020, included 8 multi-family mortgage loans with a balance of $3.09 million[394]. Financial Performance - Net income for the year ended December 31, 2020, was $9.163 million, compared to $11.672 million in 2019, reflecting a decline of approximately 21.5%[284]. - Total assets increased to $1,596.842 million in 2020 from $1,488.015 million in 2019, representing a growth of approximately 7.3%[284]. - Total deposits increased to $1,393.544 million in 2020 from $1,284.757 million in 2019, marking an increase of about 8.5%[284]. - Noninterest income decreased to $5.366 million in 2020 from $6.172 million in 2019, a decline of approximately 13.1%[284]. - The Company’s total stockholders' equity decreased to $172.930 million in 2020 from $174.372 million in 2019, a decline of approximately 0.8%[283]. Loan Portfolio and Allowance for Loan Losses - The company's loan portfolio included $452.2 million in multi-family mortgage loans, representing 44.8% of total loans, and $87.8 million in non-owner occupied nonresidential real estate loans, representing 8.7% of total loans as of December 31, 2020[105]. - The allowance for loan losses was $7.8 million, which represented 0.77% of total loans and 634.81% of nonperforming loans as of December 31, 2020[111]. - The provision for loan losses was $55 thousand in 2020, significantly lower than $3.825 million in 2019, indicating improved asset quality[284]. - The Company established provisions for loan losses to absorb probable incurred credit losses, considering past loss experience and current economic conditions[314]. - The Company reported a total of $222,029,000 in Illinois multi-family mortgage loans classified as pass, with no loans in the special mention or substandard categories[405]. Regulatory and Compliance Risks - The bank is subject to additional credit and compliance risks related to its participation in the Small Business Administration Paycheck Protection Program (PPP)[112]. - Regulatory actions due to non-compliance with laws such as the USA PATRIOT Act could result in fines, sanctions, and increased compliance costs[121]. - The Dodd-Frank Act mandates that FDIC deposit insurance premiums are based on total assets minus tangible equity, which could lead to increased assessments affecting operational results[124]. Operational and Cybersecurity Risks - The company relies on third-party vendors for essential services, and any failure by these vendors could disrupt operations and negatively impact financial results[100]. - Cybersecurity risks pose a significant threat, as breaches could jeopardize confidential information and disrupt business operations[99]. - The company must manage operational risks associated with technology and information systems to avoid significant disruptions[101]. Capital and Dividend Policies - The Bank has met all capital requirements, including a common equity Tier 1 capital ratio of 4.5% and a total capital ratio of 8% as of December 31, 2020[120]. - The capital conservation buffer is set at 2.5%, requiring a common equity Tier 1 capital ratio of 7% and a total capital ratio of 10.5% to avoid limitations on dividends and share repurchases[119]. - The Bank's ability to pay dividends is limited if it does not maintain the required capital conservation buffer, which could restrict distributions to stockholders[121]. - Cash dividends declared on common stock were $5,982,000 in 2020, slightly down from $6,266,000 in 2019[289]. Asset Management and Investments - The fair value of available-for-sale securities as of December 31, 2020, was $23.829 million, with gross unrealized gains of $292,000 and gross unrealized losses of $1,000[351]. - The company monitors its investment securities for significant declines in fair value, assessing whether impairments are other-than-temporary on a quarterly basis[357]. - The company evaluates servicing assets for impairment based on fair value compared to carrying amount, with changes reported in the statement of operations[321]. Loan Origination and Quality - The company’s loan origination policies are designed to maximize income while managing acceptable levels of risk, with regular reviews and reporting on loan quality and delinquencies[360]. - The company categorizes loans into risk categories based on borrowers' ability to service their debt, analyzing loans individually on a monthly basis[400]. - Loans categorized as "Substandard" continue to accrue interest but exhibit weaknesses that may jeopardize debt liquidation[402].

Financial Data and Key Metrics Changes - The company aims for non-interest income to be between $6 million and $7 million for 2021, with a normal run rate closer to $6 million based on 2019 figures [6][10] - The company has submitted over $7 million of its original $10 million for PPP loan forgiveness, receiving less than 15% back so far [7] - The company achieved approximately $6 million in PPP round two loans in process, which have started to fund [6][10] Business Line Data and Key Metrics Changes - Equipment finance originations for 2020 were just under $200 million, compared to $127 million in 2019, with expectations for growth in 2021 [13] - Commercial finance originations in 2020 were about $95 million, with hopes to exceed that in 2021 [14] - Real estate originations are expected to see growth of $65 million to $75 million in multifamily [15] Market Data and Key Metrics Changes - The company noted that 90% of prepayment income came from markets outside of Chicago, primarily due to property appreciation [8] - The company is focusing on low and moderate-income census tracts to drive more PPP loan volume [7] Company Strategy and Development Direction - The company plans to add resources to the trust department in 2021 to build assets under management [9] - The Treasury services department was added in 2020 and is expected to contribute additional interest income in the latter half of 2021 [10] - The company is focused on maintaining a strong asset quality position and is not anticipating significant problems in the portfolio [24][26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about growth in 2021, citing strong momentum in originations and a positive forward look in terms of operating leverage [16][33] - The company is cautious about the pace of PPP loan forgiveness and its impact on income [7] - Management noted that deferrals are not an issue, with minimal amounts deferred and a strong focus on asset quality [24] Other Important Information - The company is undergoing a complete revamp of its technology infrastructure, which is expected to incur some expenses in the first half of the year [32] - The company is mindful of the Russell 2000 rebalancing and its potential impact on share repurchase activities [30][36] Q&A Session Summary Question: Can you provide insights on NII and PPP fee income? - Management indicated that PPP fees are included in non-interest income, with expectations for normalization in loan prepayment fees [11][12] Question: What is the outlook for balance sheet growth in 2021? - Management expects growth in equipment finance and commercial finance, with a target of $200 million in total growth across segments [14][15] Question: How are deferrals impacting the company? - Management reported that deferrals are minimal and not a concern, with a strong focus on asset quality [24] Question: What is the company's strategy regarding liquidity and excess resources? - Management stated that deploying excess liquidity remains a priority, although yields on those assets are low [23] Question: How does the company view its capital deployment and reserves? - Management plans to maintain reserve levels while focusing on growth opportunities in equipment finance and commercial finance [27][28] Question: What are the expectations for expenses in 2021? - Management anticipates expenses to trend around $9.75 million for the first half of the year, with efforts to reduce costs in the latter half [32][33]

Financial Ratios and Capital Adequacy - As of September 30, 2020, the company had a Tier 1 leverage ratio of 10.66% and a Tier 1 risk-based capital ratio of 17.84%[98] - The Bank's Community Bank Leverage Ratio was 10.13% as of September 30, 2020, exceeding the minimum requirement of 8%[169] - The total capital to risk-weighted assets ratio was 16.38%, significantly above the required 8% for capital adequacy[173] - The minimum capital conservation buffer (CCB) is set at 2.5%[171] - The Bank is subject to regulatory restrictions on dividend declarations without prior approval, ensuring compliance with capital requirements[172] Loan Performance and Allowance for Loan Losses - The ratio of nonperforming loans to total loans was 0.22% and the ratio of nonperforming assets to total assets was 0.15%[98] - The allowance for loan losses (ALLL) decreased by $145,000 (1.8%) compared to the previous quarter, with required reserve ratios for multi-family residential and nonresidential real estate loans increasing by 21.5% and 58.2%, respectively[110] - The company expects additional increases to the ALLL if loan balances rise as business conditions normalize[111] - A recovery of loan losses of $187,000 was recorded for the three months ended September 30, 2020, compared to a recovery of $134,000 for the same period in 2019[136] - The portion of the allowance for loan losses attributable to loans collectively evaluated for impairment decreased by $165,000, or 2.0%, to $8.0 million at September 30, 2020[136] - The allowance for loan losses as a percentage of nonperforming loans was 343.08% at September 30, 2020, down from 901.06% at December 31, 2019[149] Income and Expenses - Net income for Q3 2020 was $1.948 million, a decrease from $3.924 million in Q3 2019[121] - Noninterest income increased to $1.3 million in Q3 2020, compared to $1.2 million in Q2 2020[115] - Noninterest expense rose to $9.8 million in Q3 2020, up from $9.5 million in Q2 2020[117] - Net interest income decreased by $2.2 million, or 16.7%, to $11.0 million for the three months ended September 30, 2020[130] - Noninterest income decreased by $210,000, or 14.2%, to $1.3 million for the three months ended September 30, 2020, compared to $1.5 million for the same period in 2019[137] - Net income for the nine months ended September 30, 2020, was $6.7 million, a decrease from $8.3 million for the same period in 2019[142] - Net interest income was $34.3 million for the nine months ended September 30, 2020, down from $39.6 million for the same period in 2019, reflecting an 18.8% decrease in interest income[143] - Noninterest expense increased by $278,000, or 2.9%, to $9.8 million for the three months ended September 30, 2020, compared to $9.5 million for the same period in 2019[140] - Noninterest expense decreased by $415,000, or 1.4%, to $28.7 million for the nine months ended September 30, 2020, from $29.1 million for the same period in 2019[151] Deposits and Liquidity - Total deposits increased by $14.1 million (1.0%) in Q3 2020, with core transaction account balances increasing by $53.5 million[112] - Total deposits increased by $117.5 million, or 9.1%, to $1.402 billion at September 30, 2020[127] - The company anticipates greater volatility in deposit balances for the remainder of 2020 due to government stimulus impacts[112] - As of September 30, 2020, the Company had liquid assets of $8.0 million and an unsecured line of credit of $5.0 million with no outstanding balance[165] Asset Management - Total assets increased by $116.9 million, or 7.9%, to $1.605 billion at September 30, 2020, from $1.488 billion at December 31, 2019[124] - Cash and cash equivalents rose by $239.3 million, or 125.8%, to $429.7 million at September 30, 2020[124] - Total liabilities increased by $118.9 million, or 9.1%, to $1.433 billion at September 30, 2020, primarily due to an increase in total deposits[127] Interest Rates and Risk Management - The average yield on the loan and lease portfolio decreased to 4.43% for Q3 2020 from 4.57% in Q2 2020[114] - The average cost of retail and commercial deposits fell to 0.48% in Q3 2020, down from 0.63% in Q2 2020[114] - The yield on interest-earning assets decreased by 137 basis points to 3.24% for the three months ended September 30, 2020[131] - The net interest margin decreased by 82 basis points to 2.85% for the three months ended September 30, 2020[131] - In the event of a 25 basis point decrease in interest rates, the Bank would expect a 2.48% decrease in net portfolio value (NPV) and a $328,000 decrease in net interest income[182] - A 200 basis point increase in interest rates would result in a 2.39% increase in NPV and a $4.5 million increase in net interest income[182] - The Company has de-emphasized residential mortgage loans and increased focus on nonresidential real estate loans and commercial loans to manage interest rate risk[177] Shareholder Returns - The Company declared cash dividends of $0.30 per share for both the nine months ended September 30, 2020, and September 30, 2019[173] - The company repurchased 66,000 shares at an average cost of $7.82 during Q3 2020[119]

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]

Financial Ratios and Capital Adequacy - As of March 31, 2020, the company reported a Tier 1 leverage ratio of 11.67% and a Tier 1 risk-based capital ratio of 16.56%[93] - The Bank's total capital to risk-weighted assets ratio was 16.53%, exceeding the required minimum of 8.00%[171] - The Bank's Tier 1 capital to risk-weighted assets ratio was 15.75%, well above the required minimum of 6.00%[171] - The Common Tier 1 (CET1) capital ratio was 15.75%, significantly higher than the required minimum of 4.50%[171] - The minimum capital conservation buffer (CCB) is set at 2.5%[168] - The Bank's total capital as of March 31, 2020, was $170,270,000, compared to $170,203,000 as of December 31, 2019[171] - The Bank's Tier 1 capital as of March 31, 2020, was $162,158,000, an increase from $162,455,000 as of December 31, 2019[171] - The company is subject to regulatory restrictions on dividend declarations without prior approval, ensuring compliance with capital adequacy requirements[169] Loan and Asset Performance - The ratio of nonperforming loans to total loans was 0.07%, and the ratio of nonperforming assets to total assets was 0.06%[93] - Total loans declined by $19.8 million (1.7%) compared to the fourth quarter of 2019, with commercial loan balances increasing by $12.3 million (8.5%) and multi-family mortgage loans decreasing by $21.3 million (3.8%)[96] - Total assets decreased by $37.7 million (2.5%) to $1.450 billion as of March 31, 2020, from $1.488 billion at December 31, 2019[128] - Loans decreased by $20.4 million (1.7%) to $1.148 billion as of March 31, 2020, from $1.168 billion at December 31, 2019[128] - Total nonperforming loans decreased to $764,000 at March 31, 2020, from $847,000 at December 31, 2019[158] - Nonperforming assets decreased by $159,000 to $874,000 at March 31, 2020, from $1.0 million at December 31, 2019[159] - The allowance for loan losses increased by $480,000, or 6.3%, to $8.1 million at March 31, 2020, from $7.6 million at December 31, 2019[146] - The allowance for loan losses as a percentage of nonperforming loans was 1,061.78% at March 31, 2020, compared to 901.06% at December 31, 2019[146] Income and Expenses - Net interest income decreased by $1.25 million (9.5%) to $11.969 million for the first quarter of 2020, compared to $13.219 million for the same period in 2019[125] - Noninterest income declined by $226,000 (13.9%) to $1.398 million for the first quarter of 2020, compared to $1.624 million for the same period in 2019[125] - The average yield on the loan and lease portfolio decreased to 4.72% for the quarter ended March 31, 2020, from 4.82% for the quarter ended December 31, 2019[115] - The net interest margin decreased to 3.44% for the quarter ended March 31, 2020, compared to 3.50% for the quarter ended December 31, 2019[115] - Noninterest expense decreased by $470,000, or 4.7%, to $9.6 million for the three months ended March 31, 2020, from $10.1 million for the same period in 2019[149] - Compensation and benefits increased by $380,000 due to seasonally higher payroll taxes and the addition of new business development resources[120] - Compensation and benefits expense decreased by $185,000, or 3.2%, due to lower incentive and severance expenses as well as decreased payroll taxes[149] - Information technology expenses increased by $130,000, or 18.8%, to $822,000 for the three months ended March 31, 2020, primarily due to equipment upgrades and cybersecurity prevention expenses[149] Dividends and Shareholder Equity - Total stockholders' equity decreased to $173.0 million at March 31, 2020, from $174.4 million at December 31, 2019, primarily due to share repurchases and cash dividends totaling $3.7 million[133] - The Bank declared cash dividends of $0.10 per share for both the three months ended March 31, 2020, and 2019[171] - The company repurchased 206,196 shares at an average cost of $10.65 during the first quarter of 2020[122] Loan Forbearance and Government Programs - As of April 17, 2020, 73 borrowers with $65.5 million in outstanding loan principal balances executed a Qualified Limited Forbearance Program agreement[109] - The company allocated $10 million to the Paycheck Protection Program (PPP) and began accepting applications on April 3, 2020[107] - Approximately 90% of the pending loan pipeline at March 31, 2020, met the revised product and underwriting requirements[100] - The company expects fluctuations in commercial loan volumes based on specific industry and business conditions, with a focus on asset-based working capital credit facilities[105] - The deposit portfolio consists almost entirely of core transaction accounts, with expectations of greater volatility in deposit balances due to government stimulus[112] Interest Rate Sensitivity - In the event of an immediate 200 basis point increase in interest rates, the Bank would expect a 5.49% decrease in net present value (NPV) and a $713,000 increase in net interest income[178] - A 25 basis point decrease in interest rates would result in a 0.44% decrease in NPV and a $19,000 increase in net interest income[178]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.01 per share BFIN The NASDAQ Stock Market LLC FORM 10-K x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 or ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For transition period from to Commission File Number ...

BankFinancial Corporation (NASDAQ:BFIN) Q4 2019 Earnings Conference Call February 19, 2020 10:30 AM ET Company Participants F. Morgan Gasior - Chairman and CEO Conference Call Participants Brian Martin - Jamie Montgomery Operator Ladies and gentlemen, thank you for standing by, and welcome to the BankFinancial Corp Fourth Quarter and Year-to-Date 2019 Review. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator ins ...

Loan and Asset Performance - Total loans decreased by $42.2 million (6.8%) in the multi-family mortgage loan portfolio due to increased prepayments[104] - Total assets decreased by $93.3 million, or 5.9%, to $1.492 billion as of September 30, 2019, primarily due to a decrease in loans receivable and securities[116] - Loans decreased by $109.8 million, or 8.3%, to $1.214 billion, while securities decreased by $22.7 million, or 25.8%[116] - Nonperforming assets decreased by $1.0 million to $1.7 million as of September 30, 2019, from $2.7 million at December 31, 2018[159] - Total nonperforming assets included $1,160,000 in one-to-four family residential real estate loans, a decrease of $237,000 from the previous quarter[158] Deposits and Liabilities - Total deposits declined by $41.4 million (3.1%) from June 30, 2019, attributed to seasonal factors[106] - Total liabilities decreased by $80.1 million, or 5.7%, to $1.318 billion, primarily due to decreases in total deposits and borrowings[120] - Total deposits decreased by $63.7 million, or 4.7%, to $1.289 billion, with retail certificates of deposit increasing by $12.3 million, or 3.7%[120] Income and Expenses - Net interest income before provision for loan losses was stable at $13.2 million for the quarter ended September 30, 2019[108] - Net interest income increased to $13.2 million, reflecting an 8.2% increase in interest income[123] - Noninterest income decreased by $96,000, or 6.1%, to $1.5 million for the three months ended September 30, 2019, compared to $1.6 million for the same period in 2018[133] - Total noninterest expense increased by $84,000, or 0.9%, to $9.5 million for the three months ended September 30, 2019, driven by increases in compensation and benefits, office occupancy, and equipment expenses[135] - Noninterest income decreased by $1.7 million, or 27.1%, to $4.5 million for the nine months ended September 30, 2019, from $6.2 million for the same period in 2018[148] - Total noninterest expense decreased by $520,000, or 1.8%, to $29.1 million for the nine months ended September 30, 2019, from $29.6 million for the same period in 2018[149] Capital and Ratios - The Tier 1 leverage ratio remained strong at 11.43%[109] - The Bank's total capital to risk-weighted assets ratio was 15.46% as of September 30, 2019, exceeding the required minimum of 8.00%[170] - Tier 1 capital to risk-weighted assets ratio was 14.76% as of September 30, 2019, above the required minimum of 6.00%[170] - The minimum capital conservation buffer (CCB) was 2.5% as of September 30, 2019, with the Company maintaining compliance with all capital ratios[169] - The allowance for loan losses as a percentage of nonperforming loans was 527.25% at September 30, 2019, up from 260.54% at June 30, 2019, reflecting a stronger reserve position[133] Net Income and Earnings - Net income for the quarter was $3.9 million, an increase of $187, compared to $3.7 million in the previous quarter[113] - Net income for the three months ended September 30, 2019, was $3.9 million, compared to $3.7 million for the same period in 2018[122] - The company reported net income of $8.3 million for the nine months ended September 30, 2019, down from $11.9 million for the same period in 2018, with earnings per share decreasing to $0.53 from $0.68[137] Interest Rate Sensitivity - As of September 30, 2019, a 100 basis point decrease in interest rates is expected to result in a 1.57% decrease in NPV and a $1.7 million decrease in net interest income[179] - A 200 basis point increase in interest rates is projected to lead to a 1.42% decrease in NPV and a $1.9 million increase in net interest income[180] - The table indicates that a 400 basis point increase in interest rates would result in a $16.4 million decrease in NPV, equating to a 7.78% decline[179] - The methodology for measuring interest rate risk has inherent shortcomings, as it relies on assumptions that may not accurately reflect actual market responses[181] - The sensitivity measurements provided are not intended to serve as precise forecasts of actual results from interest rate changes[181] Shareholder Returns - The company repurchased 1,107,550 common shares, representing 6.7% of the common shares outstanding at December 31, 2018[109] - The Company declared cash dividends of $0.30 per share for the nine months ended September 30, 2019, compared to $0.27 per share for the same period in 2018[170]

Financial Data and Key Metrics Changes - The company reported a significant improvement in net interest margin, driven by a combination of a growing commercial loan portfolio and prepayment income [8][11] - The expected net interest margin for 2020 is projected to be between 3.40% and 3.60%, contingent on optimizing the loan mix and deposit re-pricing [11][49] Business Line Data and Key Metrics Changes - The commercial loan portfolio is targeted to grow to between $200 million and $225 million by the end of 2020, with new business opportunities identified [20][32] - The multifamily portfolio is projected to range from $600 million to $625 million by year-end 2020, with challenges due to prepayment risks [21][22] Market Data and Key Metrics Changes - The company anticipates modest movement in retail deposit pricing, which will help reduce deposit interest expenses [9] - The yield environment for new originations is expected to stabilize around 4% for multifamily loans and 4.25% for commercial real estate [38] Company Strategy and Development Direction - The company is focusing on expanding its commercial and industrial (C&I) loan portfolio and enhancing its product offerings to capture market opportunities [33][36] - There is a cautious approach towards M&A activity, with a preference for organic growth and share repurchase programs to enhance earnings per share [41][42] Management's Comments on Operating Environment and Future Outlook - Management expects one or two more rate cuts from the Federal Reserve, but deposit yields are more influenced by local competition than by rate changes [14] - The overall credit quality remains stable, with a focus on lower-risk assets to mitigate potential economic downturns [51][52] Other Important Information - The company is investing in marketing and technology to support loan growth and improve customer engagement [46] - There are currently 638,463 shares remaining in the share repurchase plan, which is set to mature on March 31, 2020 [45] Q&A Session Summary Question: What drove the significant jump in loan yields? - The increase was attributed to a mix of growing the commercial loan portfolio and prepayment income, which is expected to continue in the short term [8] Question: What are the expectations for loan growth in 2020? - The company aims to reach a loan portfolio of approximately $1.3 billion by the end of the second quarter of 2020, with potential growth to $1.375 billion by year-end [28] Question: How does the company view the current credit environment? - The portfolio is stable, and management is cautious about taking large risks, preferring to focus on lower-risk assets [51][52]

Financial Performance - Net income for Q2 2019 was $807,000, or $0.05 per common share, down from $4.6 million, or $0.26 per common share in Q2 2018 [102]. - Net income for the three months ended June 30, 2019, was $807,000, compared to $4.6 million for the same period in 2018 [121]. - Net income for the six months ended June 30, 2019, was $4.4 million, compared to $8.2 million for the same period in 2018, showing a decline in profitability [139]. Interest Income and Expenses - Net interest income before provision for loan losses was stable at $13.1 million for Q2 2019, with an increase in deposit, loan, and trust fee income by $96,000, or 8.3% from the previous quarter [103]. - Net interest income was $13.1 million for the three months ended June 30, 2019, reflecting a $1.5 million, or 10.0%, increase in interest income [122]. - Net interest income was $26.3 million for the six months ended June 30, 2019, compared to $26.0 million for the same period in 2018, indicating a slight increase [140]. - The yield on interest-earning assets increased by 50 basis points to 4.54% for the three months ended June 30, 2019 [123]. - The cost of interest-bearing liabilities increased by 51 basis points to 1.24% for the three months ended June 30, 2019 [123]. - The yield on interest-earning assets increased by 53 basis points, or 13.2%, to 4.54% for the six months ended June 30, 2019, from 4.01% for the same period in 2018 [141]. - The cost of interest-bearing liabilities increased by 54 basis points to 1.22% for the six months ended June 30, 2019, from 0.68% for the same period in 2018 [141]. Asset and Liability Management - Total assets decreased by $51.4 million to $1,533.9 million as of June 30, 2019, compared to $1,585.3 million at December 31, 2018 [111]. - Total assets decreased to $1,541,213 thousand as of June 30, 2019, from $1,573,887 thousand in 2018 [144]. - Total liabilities decreased by $35.7 million, or 2.6%, to $1.362 billion at June 30, 2019, primarily due to decreases in deposits and borrowings [119]. - Total stockholders' equity was $171.5 million at June 30, 2019, a decrease from $187.2 million at December 31, 2018, primarily due to stock repurchases and cash dividends [120]. Loan Performance - Commercial loans decreased by $18.6 million (10.8%) primarily due to a non-recourse loan sale and reduced line utilization [105]. - Loans decreased by $56.3 million, or 4.3%, to $1.267 billion at June 30, 2019 [115]. - The ratio of nonperforming loans to total loans was 0.24% and non-performing assets to total assets was 0.23% as of June 30, 2019 [106]. - Nonperforming loans to total loans ratio rose to 0.24% from 0.11% in the previous quarter [159]. - Nonperforming assets increased by $764,000 to $3.5 million as of June 30, 2019, compared to $2.7 million at December 31, 2018 [160]. Provisions and Charge-offs - The provision for loan losses was $4.0 million for the three months ended June 30, 2019, compared to $23,000 for the same period in 2018, indicating a significant increase in loan loss provisions [130]. - Net charge-offs were $4.5 million for the three months ended June 30, 2019, compared to $185,000 for the same period in 2018, reflecting a substantial rise in loan defaults [130]. - Provision for loan losses was $3.9 million for the six months ended June 30, 2019, compared to a recovery of $235,000 in 2018, with net charge-offs of $4.5 million [147]. Noninterest Income and Expenses - Noninterest income decreased by $1.7 million, or 53.9%, to $1.4 million for the three months ended June 30, 2019, compared to $3.1 million for the same period in 2018 [134]. - Noninterest income decreased by $1.6 million, or 34.2%, to $3.1 million for the six months ended June 30, 2019, primarily due to a $1.4 million death benefit recorded in 2018 [148]. - Total noninterest expense decreased by $743,000, or 7.3%, to $9.5 million for the three months ended June 30, 2019, from $10.2 million for the same period in 2018 [136]. - Total noninterest expense decreased by $604,000, or 3.0%, to $19.6 million for the six months ended June 30, 2019, from $20.2 million in 2018 [150]. - Compensation and benefits expense decreased by $202,000, or 1.8%, due to a reduction in full-time equivalent employees to 231 [150]. Capital and Regulatory Compliance - The Tier 1 leverage ratio remained strong at 11.04%, with 1,107,550 common shares repurchased, representing 6.7% of the common shares outstanding at December 31, 2018 [108]. - Total capital to risk-weighted assets ratio was 14.46% as of June 30, 2019, exceeding the required minimum of 8.00% [171]. - Tier 1 capital to risk-weighted assets ratio stood at 13.78% as of June 30, 2019, above the required minimum of 6.00% [171]. - As of June 30, 2019, the Bank was categorized as well-capitalized under regulatory standards, with all capital ratios exceeding the required levels [169]. - The Company declared cash dividends of $0.20 per share for the six months ended June 30, 2019, compared to $0.17 per share for the same period in 2018 [171]. Interest Rate Risk Management - The company has de-emphasized the origination of residential mortgage loans and increased focus on nonresidential real estate loans, multi-family mortgage loans, commercial loans, and commercial leases [177]. - The dynamic GAP analysis identifies mismatches in the timing of asset and liability repricing, which helps in managing interest rate risk [180]. - The Asset/Liability Management Committee (ALCO) evaluates interest rate risk and modifies lending, investing, and deposit strategies accordingly [176]. - The company primarily invests in shorter-duration securities, which generally have lower yields compared to longer-term investments, to reduce exposure to interest rate changes [177]. - Management considers various projected forward interest rate scenarios when evaluating strategies for managing interest rate risk, acknowledging the limitations of current methodologies [184].