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~~NA (the “Bank”). The interim unaudited consolidated financial statements include the accounts and transactions of BankFinancial Corporation, the Bank, and the Bank’s wholly-owned subsidiaries, Financial Assurance Services, Inc. and BFIN Asset Recovery Company, LLC (collectively, “the Company”), and reflect all normal and recurring adjustments that are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. Such adjustments are the only adjustments reflected in the accompanying financial statements. All significant intercompany accounts and transactions have been eliminated. The results of operations for the three month period ended March 31, ~~2020 is~~ 2021 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, ~~2020~~2021 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.~~

Commission (“SEC”).

Use of Estimates: The preparation of the ~~consolidation~~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, actual results could differ from those estimates.

~~COVID-19:~~ The Company has evaluated subsequent events for potential recognition and/or disclosure through the date the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q were issued.

COVID-19: On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“~~COVID-19”~~COVID-19”) as a global ~~pandemic, which continues to spread throughout the United States and around the world.~~pandemic. The declaration of a global pandemic indicates that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The outbreak of ~~COVID-19~~COVID-19 has adversely impacted, and could further adversely impact, a broad range of industries in which the Company’s customers operate and impair their ability to fulfill their financial obligations to the Company. On March 3, 2020, the Federal Open Market Committee reduced the target federal funds rate range by 50 basis points to 1.00% to 1.25%. This rate was further reduced to a target range of 0% to 0.25% on March 16, 2020. These reductions in interest rates and other effects of the ~~COVID-19~~COVID-19 outbreak may adversely affect the Company’s financial condition and results of operations. As a result of the spread of the ~~COVID-19~~COVID-19 coronavirus, economic uncertainties have arisen which are likely to negatively impact net interest income and noninterest income. Other financial ~~impact~~impacts could occur though such potential impact is unknown at this time.

Reclassifications: Certain reclassifications have been made in the prior period’s financial statements to conform them to the current period’s presentation.

These unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form ~~10-K~~10-K for the year ended December 31, ~~2019,~~2020, as filed with the Securities and Exchange Commission.

Newly Issued Not Yet Effective Accounting Standards

In June 2016, the FASB issued ASU No. ~~2016-13,~~2016-13, “Financial Instruments - Credit Losses (Topic ~~326)~~326): Measurement of Credit Losses on Financial Instruments” (“(��ASU ~~2016-13”~~2016-13”). These amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For SEC filers who are smaller reporting companies, such as the Company, ASU ~~2016-13~~2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.

~~Table of Contents~~

~~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,*
	*2021*		*2020*
Net income available to common stockholders	$	1,469	$	2,418
Basic and diluted weighted average common shares outstanding		14,723,769		15,205,731
Basic and diluted earnings per common share	$	0.10	$	0.16

Three Months Ended
March 31,
2020 2019
Net income available to common stockholders $ 2,418
$ 3,551
Basic and diluted weighted average common shares outstanding 15,205,731
16,202,303
Basic and diluted earnings per common share $ 0.16
$ 0.22

Table of Contents

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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, 2020
Certificates of deposit $ 53,234
$ —
$ —
$ 53,234
Municipal securities 505
6
—
511
Mortgage-backed securities - residential 7,062
237
—
7,299
Collateralized mortgage obligations - residential 2,840
3
(34 ) 2,809
$ 63,641
$ 246
$ (34 ) $ 63,853
December 31, 2019
Certificates of deposit $ 48,666
$ —
$ —
$ 48,666
Municipal securities 505
8
—
513
Mortgage-backed securities - residential 7,727
310
—
8,037
Collateralized mortgage obligations - residential 2,986
4
(13 ) 2,977
$ 59,884
$ 322
$ (13 ) $ 60,193

~~The mortgage-backed~~

	*Amortized Cost*		*Gross Unrealized Gains*		*Gross Unrealized Losses*			*Fair Value*
Available-for-Sale Securities
March 31, 2021
Certificates of deposit	$	12,389	$	0	$	0		$	12,389
Municipal securities		402		5		0			407
Mortgage-backed securities - residential		5,652		274		0			5,926
Collateralized mortgage obligations - residential		2,024		5		0			2,029
	$	20,467	$	284	$	0		$	20,751
December 31, 2020
Certificates of deposit	$	15,117	$	0	$	0		$	15,117
Municipal securities		402		7		0			409
Mortgage-backed securities - residential		5,826		282		0			6,108
Collateralized mortgage obligations - residential		2,193		3		(1	)		2,195
	$	23,538	$	292	$	(1	)	$	23,829

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

~~Table of Contents~~

~~BANKFINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~NOTE 3 - SECURITIES~~ ~~(continued)~~

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, 2020

Amortized
Cost

Fair
Value
Due in one year or less $ 53,335
$ 53,335
Due after one year through five years 404
410
53,739
53,745
Mortgage-backed securities - residential 7,062
7,299
Collateralized mortgage obligations - residential 2,840
2,809
$ 63,641
$ 63,853

	*March 31, 2021*
	*Amortized Cost*		*Fair Value*
Due in one year or less	$	12,791	$	12,796
Mortgage-backed securities - residential		5,652		5,926
Collateralized mortgage obligations - residential		2,024		2,029
	$	20,467	$	20,751

Investment securities available-for-sale with carrying ~~amounts~~value of ~~$1.5 million and $2.0~~$1.2 million at March 31, ~~2020~~2021 and December 31, ~~2019, respectively,~~2020, were pledged as collateral on customer repurchase agreements and for other purposes as required or permitted by law.

~~Sales of equity securities were as follows:~~

Three Months Ended
March 31,
2020 2019
Proceeds $ —
$ 3,722
Gross gains —
295
Gross losses —
—

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, 2020
Collateralized mortgage obligations - residential $ 2
$ 623
$ (2 ) $ 3
$ 1,941
$ (32 ) 5
$ 2,564
$ (34 )

December 31, 2019
Collateralized mortgage obligations - residential 3
$ 1,566
$ (10 ) 1
$ 937
$ (3 ) 4
$ 2,503
$ (13 )

			*Less than 12 Months*						*12 Months or More*							*Total*
	*Count*		*Fair Value*		*Unrealized Loss*		*Count*		*Fair Value*		*Unrealized Loss*			*Count*		*Fair Value*		*Unrealized Loss*

December 31, 2020
Collateralized mortgage obligations - residential		0	$	0	$	0		3	$	1,588	$	(1	)		3	$	1,588	$	(1	)

The Company evaluates marketable investment securities with significant declines in fair value on a quarterly basis to determine whether they should be considered other-than-temporarily impaired under current accounting guidance, which generally provides that if a marketable security is in an unrealized loss position, whether due to general market conditions or industry or issuer-specific factors, the holder of the securities must assess whether the impairment is other-than-temporary.

There were no unrealized loss positions at March 31, 2021. Certain collateralized mortgage obligations that the Company holds in its investment portfolio were in an unrealized loss position at ~~March~~December 31, 2020, but the unrealized ~~losses were~~ loss was not considered significant under the Company’s impairment testing methodology. In addition, the Company does not intend to sell these securities, and it is likely that the Company will not be required to sell these securities before their anticipated recovery occurs.

The Bank, as a member of Visa USA, received 51,404 unrestricted shares of Visa, Inc. Class B common stock in connection with Visa, Inc.’s initial public offering in 2007 and a related retroactive responsibility plan. The retroactive responsibility plan obligates

Table of Contents

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE ~~3 - SECURITIES~~ ~~(continued)~~

all former Visa USA members to indemnify Visa USA, in proportion to their equity interests in Visa USA, for certain litigation losses and expenses, including settlement expenses, for the lawsuits covered by the retrospective responsibility plan. Due to the restrictions that the retrospective responsibility plan imposes on the Company’s Visa, Inc. Class B shares, the Company had not recorded the Class B shares as an asset.

The Bank sold 25,702 shares of Visa Class B common stock in the fourth quarter of 2018 and the remaining 25,702 shares of Visa Class B common stock in the first quarter of 2019 and recorded a gain of $295,000.

~~NOTE~~ 4 - LOANS RECEIVABLE

Loans receivable are as follows:

March 31, 2020 December 31, 2019
One-to-four family residential real estate $ 52,849
$ 55,750
Multi-family mortgage 542,421
563,750
Nonresidential real estate 133,432
134,674
Commercial loans 158,049
145,714
Commercial leases 266,063
272,629
Consumer 2,078
2,211
1,154,892
1,174,728
Net deferred loan origination costs 848
912
Allowance for loan losses (8,112 ) (7,632 )
Loans, net $ 1,147,628
$ 1,168,008

	*March 31, 2021*			*December 31, 2020*
One-to-four family residential real estate	$	38,236		$	41,691
Multi-family mortgage		440,824			452,241
Nonresidential real estate		112,154			108,658
Construction and land		499			499
Commercial loans and leases		442,706			405,057
Consumer		1,756			1,812
		1,036,175			1,009,958
Net deferred loan origination costs		60			371
Allowance for loan losses		(7,395	)		(7,751	)
Loans, net	$	1,028,840		$	1,002,578

The following tables present the balance in the allowance for loan losses and loans receivable by portfolio segment and based on impairment method:

	*Allowance for loan losses*						*Loan Balances*
	*Individually evaluated for impairment*		*Collectively evaluated for impairment*		*Total*		*Individually evaluated for impairment*		*Collectively evaluated for impairment*		*Total*
March 31, 2021
One-to-four family residential real estate	$	0	$	465	$	465	$	1,568	$	36,668	$	38,236
Multi-family mortgage		0		3,902		3,902		515		440,309		440,824
Nonresidential real estate		28		1,564		1,592		296		111,858		112,154
Construction and land		0		12		12		0		499		499
Commercial loans and leases		0		1,377		1,377		0		442,706		442,706
Consumer		0		47		47		0		1,756		1,756
	$	28	$	7,367	$	7,395	$	2,379	$	1,033,796		1,036,175
Net deferred loan origination costs												60
Allowance for loan losses												(7,395	)
Loans, net											$	1,028,840

	*Allowance for loan losses*						*Loan Balances*
	*Individually evaluated for impairment*		*Collectively evaluated for impairment*		*Total*		*Individually evaluated for impairment*		*Collectively evaluated for impairment*		*Total*
December 31, 2020
One-to-four family residential real estate	$	0	$	518	$	518	$	1,718	$	39,973	$	41,691
Multi-family mortgage		0		4,062		4,062		520		451,721		452,241
Nonresidential real estate		28		1,541		1,569		296		108,362		108,658
Construction and land		0		12		12		0		499		499
Commercial loans and leases		0		1,536		1,536		0		405,057		405,057
Consumer		0		54		54		0		1,812		1,812
	$	28	$	7,723	$	7,751	$	2,534	$	1,007,424		1,009,958
Net deferred loan origination costs												371
Allowance for loan losses												(7,751	)
Loans, net											$	1,002,578

Allowance for loan losses Loan Balances

Individually
evaluated for
impairment

Collectively
evaluated for
impairment
Total
Individually
evaluated for
impairment

Collectively
evaluated for
impairment
Total
March 31, 2020
One-to-four family residential real estate $ —
$ 682
$ 682
$ 1,826
$ 51,023
$ 52,849
Multi-family mortgage —
3,869
3,869
612
541,809
542,421
Nonresidential real estate —
1,460
1,460
288
133,144
133,432
Commercial loans —
1,275
1,275
—
158,049
158,049
Commercial leases —
780
780
88
265,975
266,063
Consumer —
46
46
—
2,078
2,078
$ —
$ 8,112
$ 8,112
$ 2,814
$ 1,152,078
1,154,892
Net deferred loan origination costs 848
Allowance for loan losses (8,112 )
Loans, net $ 1,147,628

Table of Contents

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 4 - LOANS RECEIVABLE (continued)

Allowance for loan losses Loan Balances

Individually
evaluated for
impairment

Collectively
evaluated for
impairment
Total
Individually
evaluated for
impairment

Collectively
evaluated for
impairment
Total
December 31, 2019
One-to-four family residential real estate $ —
$ 675
$ 675
$ 1,835
$ 53,915
$ 55,750
Multi-family mortgage —
3,676
3,676
620
563,130
563,750
Nonresidential real estate —
1,176
1,176
288
134,386
134,674
Commercial loans —
1,308
1,308
—
145,714
145,714
Commercial leases —
757
757
—
272,629
272,629
Consumer —
40
40
—
2,211
2,211
$ —
$ 7,632
$ 7,632
$ 2,743
$ 1,171,985
1,174,728
Net deferred loan origination costs 912
Allowance for loan losses (7,632 )
Loans, net $ 1,168,008

The following table represents the activity in the allowance for loan losses by portfolio segment:

	*Beginning balance*		*Provision for (recovery of) loan losses*			*Loans charged off*			*Recoveries*		*Ending balance*
For the three months ended

March 31, 2021
One-to-four family residential real estate	$	518	$	(113	)	$	0		$	60	$	465
Multi-family mortgage		4,062		(171	)		0			11		3,902
Nonresidential real estate		1,569		23			0			0		1,592
Construction and land		12		0			0			0		12
Commercial loans and leases		1,536		(74	)		(86	)		1		1,377
Consumer		54		0			(9	)		2		47
	$	7,751	$	(335	)	$	(95	)	$	74	$	7,395

March 31, 2020
One-to-four family residential real estate	$	675	$	(1	)	$	(5	)	$	13	$	682
Multi-family mortgage		3,676		181			0			12		3,869
Nonresidential real estate		1,176		284			0			0		1,460
Commercial loans and leases		2,065		(12	)		0			2		2,055
Consumer		40		19			(13	)		0		46
	$	7,632	$	471		$	(18	)	$	27	$	8,112

One-to-four family residential real estate Multi-family mortgage Non-residential real estate Construc-tion and land Commer-cial loans Commer-cial leases Consumer Total
March 31, 2020
Allowance for loan losses:
Beginning balance $ 675
$ 3,676
$ 1,176
$ —
$ 1,308
$ 757
$ 40
$ 7,632
Provision for (recovery of) loan losses (1 ) 181
284
—
(35 ) 23
19
471
Loans charged off (5 ) —
—
—
—
—
(13 ) (18 )
Recoveries 13
12
—
—
2
—
—
27
Total ending allowance balance $ 682
$ 3,869
$ 1,460
$ —
$ 1,275
$ 780
$ 46
$ 8,112

March 31, 2019
Allowance for loan losses:
Beginning balance 699
3,991
1,476
4
1,517
755
28
$ 8,470
Provision for (recovery of) loan losses (44 ) 80
39
(1 ) (97 ) (65 ) 1
(87 )
Loans charged off (23 ) —
(28 ) —
—
—
(5 ) (56 )
Recoveries 17
8
—
—
2
—
—
27
Total ending allowance balance $ 649
$ 4,079
$ 1,487
$ 3
$ 1,422
$ 690
$ 24
$ 8,354

Table of Contents

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 4 - LOANS RECEIVABLE (continued)

Impaired loans

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

Three months ended
March 31, 2020

Loan
Balance

Recorded
Investment
Partial Charge-off
Allowance
for Loan
Losses
Allocated

Average
Investment
in Impaired
Loans

Interest
Income
Recognized
March 31, 2020
With no related allowance recorded:
One-to-four family residential real estate $ 2,162
$ 1,826
$ 346
$ —
$ 1,845
$ 12
Multi-family mortgage - Illinois 612
612
—
—
616
9
Nonresidential real estate 280
288
—
—
288
—
Other commercial leases 96
88
—
—
50
2
$ 3,150
$ 2,814
$ 346
$ —
$ 2,799
$ 23

Year ended
December 31, 2019

Loan
Balance

Recorded
Investment
Partial Charge-off
Allowance
for Loan
Losses
Allocated

Average
Investment
in Impaired
Loans

Interest
Income
Recognized
December 31, 2019
With no related allowance recorded:
One-to-four family residential real estate $ 2,168
$ 1,835
$ 339
$ —
$ 2,208
$ 51
Multi-family mortgage - Illinois 620
620
—
—
637
37
Nonresidential real estate 280
288
—
—
589
2
$ 3,068
$ 2,743
$ 339
$ —
$ 3,434
$ 90

									*Three Months Ended*
									*March 31, 2021*
	*Loan Balance*		*Recorded Investment*		*Partial Charge off*		*Allowance for Loan Losses Allocated*		*Average Investment in Impaired Loans*		*Interest Income Recognized*
March 31, 2021
With no related allowance recorded:
One-to-four family residential real estate	$	1,801	$	1,568	$	236	$	—	$	1,634	$	8
Multi-family mortgage - Illinois		515		515		0		—		518		7
		2,316		2,083		236		—		2,152		15

With an allowance recorded - nonresidential real estate		280		296		0		28		296		0
	$	2,596	$	2,379	$	236	$	28	$	2,448	$	15

									*Year ended*
									*December 31, 2020*
	*Loan Balance*		*Recorded Investment*		*Partial Charge-off*		*Allowance for Loan Losses Allocated*		*Average Investment in Impaired Loans*		*Interest Income Recognized*
December 31, 2020
With no related allowance recorded:
One-to-four family residential real estate	$	2,069	$	1,718	$	363	$	—	$	1,782	$	42
Multi-family mortgage - Illinois		520		520		0		—		594		31
		2,589		2,238		363		—		2,376		73

With an allowance recorded - nonresidential real estate		280		296		0		28		289		0
	$	2,869	$	2,534	$	363	$	28	$	2,665	$	73

Nonaccrual Loans

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

Loan Balance
Recorded
Investment

Loans Past
Due Over 90
Days, Still
Accruing
March 31, 2020
One-to-four family residential real estate $ 500
$ 476
$ —
Nonresidential real estate 280
288
—
$ 780
$ 764
$ —
December 31, 2019
One-to-four family residential real estate $ 598
$ 512
$ —
Nonresidential real estate 280
288
—
Investment-rated commercial leases 47
—
47
$ 925
$ 800
$ 47

	*Loan Balance*		*Recorded Investment*		*Loans Past Due Over 90 Days, Still Accruing*
March 31, 2021
One-to-four family residential real estate	$	412	$	384	$	0
Nonresidential real estate		280		296		0
	$	692	$	680	$	0
December 31, 2020
One-to-four family residential real estate	$	946	$	925	$	0
Nonresidential real estate		280		296		0
	$	1,226	$	1,221	$	0

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

~~Table of Contents~~

~~BANKFINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~NOTE 4 - LOANS RECEIVABLE~~ ~~(continued)~~

The Company’s reserve for uncollected loan interest was ~~$94,000~~$113,000 and ~~$81,000~~$133,000 at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. When a loan is on nonaccrual status and the ultimate collectability of the total principal of an impaired loan is in doubt, all payments are applied to principal under the cost recovery method. Alternatively, when a loan is on 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 pursuant to the provisions of FASB ASC 310–10, as applicable. In all cases, the average balances are calculated based on the month–end balances of the financing receivables within the period reported pursuant to the provisions of FASB ASC 310–10, as applicable.

Table of Contents

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*		*90 Days or Greater Past Due*		*Total Past Due*		*Loans Not Past Due*		*Total*
March 31, 2021
One-to-four family residential real estate loans:
Owner occupied	$	477	$	0	$	384	$	861	$	29,893	$	30,754
Non-owner occupied		264		221		0	$	485		6,997		7,482
Multi-family mortgage:
Illinois		497		0		0		497		224,901		225,398
Other		425		0		0		425		215,001		215,426
Nonresidential real estate		0		0		296		296		111,858		112,154
Construction and land		0		0		0		0		499		499
Commercial loans and leases:
Commercial		0		0		0		0		79,096		79,096
Asset-based		0		0		0		0		1,889		1,889
Equipment finance:
Government		0		6		0		6		147,566		147,572
Investment-rated		1,572		0		0		1,572		78,579		80,151
Other		862		0		0		862		133,136		133,998
Consumer		21		2		0		23		1,733		1,756
	$	4,118	$	229	$	680	$	5,027	$	1,031,148	$	1,036,175

	*30-59 Days Past Due*		*60-89 Days Past Due*		*90 Days or Greater Past Due*		*Total Past Due*		*Loans Not Past Due*		*Total*
December 31, 2020
One-to-four family residential real estate loans:
Owner occupied	$	252	$	211	$	834	$	1,297	$	32,078	$	33,375
Non-owner occupied		3		132		91		226		8,090		8,316
Multi-family mortgage:
Illinois		86		0		0		86		221,943		222,029
Other		0		0		0		0		230,212		230,212
Nonresidential real estate		0		0		296		296		108,362		108,658
Construction and land		0		0		0		0		499		499
Commercial loans and leases:
Commercial		4,886		0		0		4,886		72,809		77,695
Asset-based		0		0		0		0		1,740		1,740
Equipment finance:
Government		2,468		0		0		2,468		100,272		102,740
Investment-rated		618		225		0		843		86,417		87,260
Other		853		2,487		0		3,340		132,282		135,622
Consumer		6		5		0		11		1,801		1,812
	$	9,172	$	3,060	$	1,221	$	13,453	$	996,505	$	1,009,958

30-59 Days
Past Due

60-89 Days
Past Due

90 Days or
Greater
Past Due

Total Past
Due

Loans Not
Past Due
Total
March 31, 2020
One-to-four family residential real estate loans:
Owner occupied $ 657
$ —
$ 472
$ 1,129
$ 41,651
$ 42,780
Non-owner occupied 131
—
—
131
9,938
10,069
Multi-family mortgage:
Illinois 1,258
—
—
1,258
233,404
234,662
Other —
—
—
—
307,759
307,759
Nonresidential real estate —
—
288
288
133,144
133,432
Commercial loans:

Regional commercial banking —
—
—
—
23,704
23,704
Health care —
—
—
—
54,806
54,806
Direct commercial lessor —
—
—
—
79,539
79,539
Commercial leases:

Investment-rated commercial leases 5,109
—
—
5,109
119,342
124,451
Other commercial leases 4,093
443
—
4,536
137,076
141,612
Consumer 7
7
—
14
2,064
2,078
$ 11,255
$ 450
$ 760
$ 12,465
$ 1,142,427
$ 1,154,892

Table of Contents

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 4 - LOANS RECEIVABLE (continued)

U.S. Small Business Administration Paycheck Protection Program ("PPP")

30-59 Days
Past Due

60-89 Days
Past Due
90 Days or
Greater
Past Due
Total Past
Due

Loans Not
Past Due
Total
December 31, 2019
One-to-four family residential real estate loans:
Owner occupied $ 777
$ 340
$ 507
$ 1,624
$ 43,365
$ 44,989
Non-owner occupied 280
15
—
295
10,466
10,761
Multi-family mortgage:
Illinois 981
302
—
1,283
246,680
247,963
Other —
—
—
—
315,787
315,787
Nonresidential real estate —
—
288
288
134,386
134,674
Commercial loans:

Regional commercial banking —
—
—
—
24,853
24,853
Health care —
—
—
—
70,430
70,430
Direct commercial lessor —
—
—
—
50,431
50,431
Commercial leases:

Investment-rated commercial leases 826
—
47
873
132,966
133,839
Other commercial leases 543
136
—
679
138,111
138,790
Consumer 24
37
—
61
2,150
2,211
$ 3,431
$ 830
$ 842
$ 5,103
$ 1,169,625
$ 1,174,728

~~Troubled Debt Restructurings~~

~~Section 4013 of~~

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act ~~(CARES Act)~~("CARES Act") was passed by Congress and signed into law on March 27,2020. The CARES Act established the Paycheck Protection Program loan, designed to provide a direct incentive for small businesses to keep their workers on the payroll. Under the most recently published guidance, the U.S. Small Business Administration ("SBA") will forgive PPP loans if all employee retention criteria are met, and the funds are used for eligible expenses.

The following table presents the PPP activity:

	*For the Three Months Ended March 31, 2021*		*For the Three Months Ended March 31, 2020*
Paycheck protection program:
Number of loans originated		193		0
Loan balance originations	$	8,624	$	0
Loan balance forgiven	$	7,902	$	0


	*March 31, 2021*		*December 31, 2020*
Paycheck protection program loans
Number of loans		256		290
Loan balance	$	10,902	$	10,180

COVID-19 Loan Forbearance Programs

Section 4013 of the CARES Act provides that a ~~qualifying~~qualified loan modification ~~or extension~~ is exempt by law from classification as a Troubled Debt Restructuring ("TDR") pursuant to ~~FASB ASC 340-10.~~US GAAP. In addition, the Revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (“OCC Bulletin ~~2020-35~~2020-50”) provides more limited circumstances in which a loan modification ~~or extension~~ is not subject to classification as a TDR ~~pursuant~~and also defined the circumstances where the borrower’s loan is reported as current on loan payments. Pursuant to ~~FASB ASC 340-10.~~these new capabilities, we developed several loan forbearance programs to assist borrowers with managing cash flows disrupted due to COVID-19.

Our Apartment and Commercial Real Estate COVID-19 Qualified Limited Forbearance Agreement permitted borrowers who qualified under Section 4013 of the CARES Act to make an election to pay only scheduled interest and escrow payments (if applicable) for a four-month period beginning in April 2020, and pay all deferred principal payments by December 2020.

Our Small Investment Property COVID-19 Qualified Limited Forbearance Agreement permitted borrowers with loan balances under $750,000 who qualified under Section 4013 of the CARES Act to make an election to pay only scheduled interest and escrow payments (if applicable) for a four-month period beginning in April 2020, and pay all deferred principal payments by December 2020. In addition, the borrower could elect to defer the May 2020 loan payment entirely, with all deferred interest amounts due by December 2020 and all deferred principal amounts due by June 30, 2021.

CARES Act Section 4013 and OCC Bulletin 2020-35 forbearance agreements are available to qualified commercial loan and commercial finance borrowers, and to commercial equipment lessees.

For residential mortgage and consumer loans, relief under CARES Act Section 4013 or OCC Bulletin 2020-35 forbearance agreements are available to qualified borrowers with terms consistent with secondary residential mortgage market standards established by Fannie Mae.

Table of Contents

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 4 - LOANS RECEIVABLE (continued)

The following table summarizes the remaining loan forbearance modifications:

	*Number of loans*		*Principal Balance*		*Remaining Amounts Deferred*
March 31, 2021
Small Investment Property COVID-19 Qualified Limited Forbearance Agreement
Multi-family mortgage		1	$	564	$	2
Nonresidential real estate		4		1,155		4
Apartment and Commercial Real Estate COVID-19 Qualified Limited Forbearance Agreement
Nonresidential real estate		1		1,981		6
One-to-four family residential real estate		5		781		2

		11	$	4,481	$	14


	*Number of loans*		*Principal Balance*		*Remaining Amounts Deferred*
December 31, 2020
Small Investment Property COVID-19 Qualified Limited Forbearance Agreement
Multi-family mortgage		8	$	3,092	$	17
Nonresidential real estate		10		3,363		22
Apartment and Commercial Real Estate COVID-19 Qualified Limited Forbearance Agreement
Nonresidential real estate		2		2,480		6
One-to-four family residential real estate		10		1,402		8

		30	$	10,337	$	53

Troubled Debt Restructurings

The Company evaluates loan extensions or modifications not qualified under Section 4013 of the CARES Act or under OCC Bulletin ~~2020-35~~2020-35 in accordance with FASB ASC ~~340-10~~340-10 with respect to the classification of the loan as a TDR.

Under ASC ~~340-10,~~340-10, if the Company grants a loan extension or modification to a borrower experiencing financial difficulties for other than an insignificant period of time that includes a below–market interest rate, principal forgiveness, payment forbearance or other concession intended to minimize the economic loss to the Company, the loan extension or loan modification is classified as a TDR. In cases where borrowers are granted new terms that provide for a reduction of either interest or principal then due and payable, management measures any impairment on the restructured loan in the same manner as for impaired loans as noted above.

The Company had no0 TDRs at March 31, ~~2020~~2021 and December 31, ~~2019.~~2020. During the three months ended March 31, ~~2020~~ 2021 and ~~2019,~~2020, there were no0 loans modified and classified as TDRs. During the three months ended March 31, 2021 and 2020, there were 0 TDR loans that subsequently defaulted within twelve months of their modification.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

To determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

Table of Contents

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 4 - LOANS RECEIVABLE (continued)

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans based on credit risk. This analysis includes non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a monthly basis. The Company uses the following definitions for risk ratings:

~~Table of Contents~~

~~BANKFINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~NOTE 4 - LOANS RECEIVABLE~~ ~~(continued)~~

Special Mention. A Special Mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard. Loans categorized as Substandard continue to accrue interest, but exhibit a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt. The loans continue to accrue interest because they are well secured and collection of principal and interest is expected within a reasonable time. The risk rating guidance published by the Office of the Comptroller of the Currency clarifies that a loan with a well-defined weakness does not have to present a probability of default for the loan to be rated Substandard, and that an individual loan’s loss potential does not have to be distinct for the loan to be rated Substandard.

Nonaccrual. An asset classified Nonaccrual has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered “Pass” rated loans.

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

	*Pass*		*Special Mention*		*Substandard*		*Nonaccrual*		*Total*
March 31, 2021
One-to-four family residential real estate loans:
Owner occupied	$	29,864	$	0	$	506	$	384	$	30,754
Non-owner occupied		7,334		26		122		0		7,482
Multi-family mortgage:
Illinois		225,398		0		0		0		225,398
Other		215,426		0		0		0		215,426
Nonresidential real estate		109,753		2,023		82		296		112,154
Construction and land		499		0		0		0		499
Commercial loans and leases:
Commercial		79,096		0		0		0		79,096
Asset-based		1,889		0		0		0		1,889
Equipment finance:
Government		147,572		0		0		0		147,572
Investment-rated		80,151		0		0		0		80,151
Other		133,136		851		11		0		133,998
Consumer		1,749		3		4		0		1,756
	$	1,031,867	$	2,903	$	725	$	680	$	1,036,175

Pass
Special
Mention
Substandard Nonaccrual Total
March 31, 2020
One-to-four family residential real estate loans:
Owner occupied $ 41,815
$ 83
$ 406
$ 476
$ 42,780
Non-owner occupied 10,006
29
34
—
10,069
Multi-family mortgage:
Illinois 234,662
—
—
—
234,662
Other 307,759
—
—
—
307,759
Nonresidential real estate 132,894
161
89
288
133,432
Commercial loans:
Regional commercial banking 23,704
—
—
—
23,704
Health care 53,863
943
—
—
54,806
Direct commercial lessor 79,539
—
—
—
79,539
Commercial leases:

Investment-rated commercial leases 124,451
—
—
—
124,451
Other commercial leases 139,882
307
1,423
—
141,612
Consumer 2,059
10
9
—
2,078

$ 1,150,634
$ 1,533
$ 1,961
$ 764
$ 1,154,892

Table of Contents

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 4 - LOANS RECEIVABLE (continued)

	*Pass*		*Special Mention*		*Substandard*		*Nonaccrual*		*Total*
December 31, 2020
One-to-four family residential real estate loans:
Owner occupied	$	32,089	$	0	$	452	$	834	$	33,375
Non-owner occupied		8,164		27		34		91		8,316
Multi-family mortgage:
Illinois		222,029		0		0		0		222,029
Other		230,212		0		0		0		230,212
Nonresidential real estate		106,280		1,998		84		296		108,658
Construction and land		499		0		0		0		499
Commercial loans and leases:
Commercial		72,809		0		4,886		0		77,695
Asset-based		1,740		0		0		0		1,740
Equipment finance:
Government		102,740		0		0		0		102,740
Investment-rated		87,260		0		0		0		87,260
Other		134,617		0		1,005		0		135,622
Consumer		1,802		5		5		0		1,812
	$	1,000,241	$	2,030	$	6,466	$	1,221	$	1,009,958

Pass
Special
Mention
Substandard Nonaccrual Total
December 31, 2019
One-to-four family residential real estate loans
Owner occupied $ 43,908
$ 36
$ 533
$ 512
$ 44,989
Non-owner occupied 10,696
30
35
—
10,761
Multi-family mortgage:
Illinois 247,757
—
206
—
247,963
Other 315,787
—
—
—
315,787
Nonresidential real estate 134,134
162
90
288
134,674
Commercial loans:
Regional commercial banking 24,853
—
—
—
24,853
Health care 62,084
8,346
—
—
70,430
Direct commercial lessor 50,431
—
—
—
50,431
Commercial leases:

Investment-rated commercial leases 133,332
507
—
—
133,839
Other commercial leases 137,893
761
136
—
138,790
Consumer 2,153
5
53
—
2,211
$ 1,163,028
$ 9,847
$ 1,053
$ 800
$ 1,174,728

NOTE 5 - ~~OTHER REAL ESTATE OWNED~~

R~~eal~~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 loan losses.

March 31, 2020 December 31, 2019
Balance Valuation Allowance Net OREO Balance Balance Valuation Allowance Net OREO Balance
One–to–four family residential $ 110
$ —
$ 110
$ 186
$ —
$ 186

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 debt are initially recorded at fair value of the asset less estimated costs to sell.

	*March 31, 2021*						*December 31, 2020*
	*Balance*		*Valuation Allowance*		*Net Balance*		*Balance*		*Valuation Allowance*		*Net Balance*
Other real estate owned:
One–to–four family residential	$	695	$	0	$	695	$	157	$	0	$	157
Nonresidential real estate		170		0		170		0		0		0
		865		0		865		157		0		157

Other foreclosed assets		3,765		0		3,765		0		0		0
	$	4,630	$	0	$	4,630	$	157	$	0	$	157

The following represents the roll forward of ~~OREO and the composition of OREO properties:~~

For the Three Months Ended March 31,
2020 2019
Beginning balance $ 186
$ 1,226
New foreclosed properties —
46
Sales and other reductions (76 ) (351 )
Ending balance $ 110
$ 921

~~Table of Contents~~

~~BANKFINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~NOTE 5 - OTHER REAL ESTATE OWNED~~ ~~(continued)~~

~~Activity in the~~foreclosed assets:

	*For the Three Months Ended*
	*March 31,*
	*2021*		*2020*
Beginning balance	$	157	$	186
New foreclosed assets		4,473		0
Sales		0		(76	)
Ending balance	$	4,630	$	110

There were 0 valuation ~~allowance is as follows:~~

For the Three Months Ended March 31,
2020 2019
Beginning balance $ —
$ 23
Reductions from sales of OREO —
(23 )
Ending balance $ —
$ —

At allowances at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020.

At March 31, 2021 and December 31, 2020, the balance of OREO ~~included no~~includes 0 foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property without title. At March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process was ~~$237,000 for each period date.~~$158,000 and $187,000, respectively. The other foreclosed assets consist of non real estate collateral repossessed related to a previously classified Chicago area commercial loan.

Table of Contents

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 6 - LEASES

The Company enters into operating leases in the normal course of business primarily for branch and corporate locations. Leases (Topic 842) establishes a right of use model that requires a lessee to record a right of use (“ROU”) asset and a lease liability for all leases with terms longer than 12 months. Currently the Company is obligated under four non-cancellable operating lease agreements for three branch properties and its corporate office. The leases have varying terms, the longest of which will end in 2032. The Company's lease agreements include options to renew at the Company's discretion. The extensions are not reasonably certain to be exercised; therefore, they were not considered in the calculation of the ROU asset and lease liability. The Company has also elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company's Statement of Financial Condition.

The following table represents the classification of the Company's right of use and lease liabilities:

Statement of Financial Condition Location March 31, 2020 December 31, 2019
Operating Lease Right of Use Asset:
Gross carrying amount $ 6,694
$ —
New lease obligation 111
6,694
Accumulated amortization (1,067 ) (848 )
Net carrying value Other assets $ 5,738
$ 5,846

Operating Lease Liabilities:
Right of use lease obligations Other liabilities $ 5,738
$ 5,846

	*Statement of Financial Condition Location*	*March 31, 2021*			*December 31, 2020*
Operating Lease Right of Use Asset:
Gross carrying amount		$	6,805		$	6,694
New lease obligation			0			111
Accumulated amortization			(1,951	)		(1,730	)
Net recorded value	Other assets	$	4,854		$	5,075

Operating Lease Liabilities:
Right of use lease obligations	Other liabilities	$	4,854		$	5,075

Amortization expense was ~~$219,000~~$221,000 and ~~$212,000~~$219,000 for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. At March 31, ~~2020,~~2021, the weighted-average remaining lease term for the operating leases was ~~8.7~~8.1 years and the weighted-average discount rate used in the measurement of operating lease liabilities was 3.13%. The Company utilized the FHLB fixed rate advance rate for the term most closely aligning with the remaining lease ~~term.~~

~~Table of Contents~~

~~BANKFINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~NOTE 6 - LEASES~~ ~~(continued)~~

For the Three Months Ended March 31,
2020 2019
Lease cost:
Operating lease cost $ 219
$ 212
Short-term lease cost 30
31
Sublease income (18 ) (6 )
Total lease cost $ 231
$ 237

Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 234
$ 223

term at inception.

	*For the Three Months Ended*
	*March 31,*
Lease cost:	*2021*			*2020*
Operating lease cost	$	221		$	219
Short-term lease cost		49			30
Sublease income		(15	)		(18	)
Total lease cost	$	255		$	231

Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	241		$	234

Future minimum payments under non-cancellable operating leases with terms longer than 12 months, are as ~~follows at March 31, 2020:~~follows. Future minimum payments on shorter term leases are excluded as the amounts are insignificant.

Twelve months ended March 31,
2022	$	967
2023		1,011
2024		828
2025		502
2026		508
Thereafter		2,089
Total future minimum operating lease payments		5,905
Amounts representing interest		(1,051	)
Present value of net future minimum operating lease payments	$	4,854

Twelve months ended March 31,
2021 $ 947
2022 967
2023 1,011
2024 828
2025 502
Thereafter 2,597
Total future minimum operating lease payments 6,852
Amounts representing interest (1,114 )
Present value of net future minimum operating lease payments $ 5,738

Table of Contents

BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 7 - BORROWINGS

~~Securities sold under agreements to repurchase, included with borrowings on~~

Advances from the ~~consolidated balance sheet, are shown below.~~

Overnight and Continuous Up to 30 days 30 - 90 days Greater Than 90 days Total
December 31, 2019
Repurchase agreements and repurchase-to-maturity transactions $ 61
$ —
$ —
$ —
$ 61
Gross amount of recognized liabilities for repurchase agreements in Consolidated Statements of Financial Condition $ 61

~~There~~FHLB were ~~no repurchase agreements and repurchase-to-maturity transactions at March 31, 2020.~~

Securities sold under agreements to repurchase were secured by a mortgage-backed security with a carrying amount of $2.0 million at December 31, 2019. As the security's value fluctuates due to market conditions,as follows:

	*March 31, 2021*					*December 31, 2020*
	*Contractual*					*Contractual*
	*Rate*			*Amount*		*Rate*			*Amount*
Fixed-rate advance from FHLB, due within 1 year		0	%	$	4,000		0	%	$	4,000

In 2020, the Company ~~has no control over the market value. The Company is obligated to promptly transfer additional securities if the market value of the securities falls below the repurchase price, per the agreement.~~

~~There were no outstanding FHLB borrowings at March 31, 2020 and December 31, 2019.~~

~~On April 1, 2020, the Company entered into~~established a $5.0 million unsecured line of credit with a correspondent ~~bank at the parent company level.~~bank. Interest is payable at a rate of Prime Rate as published in the Wall Street Journal rate minus 0.75%, with a minimum rate of 2.40%. The line of credit was extended and will mature on ~~April 1, 2021.~~

~~Table~~March 31, 2022. The line of ~~Contents~~credit had 0 outstanding balance at March 31, 2021.

~~BANKFINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

NOTE 8 - – 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.~~

•

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 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)2).

~~Other investments~~: Other investments includes our investments in equity securities without readily determinable fair values. Equity investments without readily determinable fair values, includes our Visa Class B shares, which are categorized as Level 3. Our Visa Class B ownership includes shares acquired at no cost from our prior participation in Visa’s network while Visa operated as a cooperative.

Impaired loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available for similar loans and collateral underlying such loans. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy.

~~Other real estate owned:~~

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 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. ~~Real estate owned properties~~Foreclosed assets are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

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BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 8 - FAIR VALUE (continued)

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, 2020
Securities:
Certificates of deposit $ —
$ 53,234
$ —
$ 53,234
Municipal securities —
511
—
511
Mortgage-backed securities – residential —
7,299
—
7,299
Collateralized mortgage obligations – residential —
2,809
—
2,809
$ —
$ 63,853
$ —
$ 63,853
December 31, 2019
Securities:
Certificates of deposit $ —
$ 48,666
$ —
$ 48,666
Municipal securities —
513
—
513
Mortgage-backed securities - residential —
8,037
—
8,037
Collateralized mortgage obligations – residential —
2,977
—
2,977
$ —
$ 60,193
$ —
$ 60,193

~~At March 31, 2020 and December 31, 2019 there~~

	*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, 2021
Securities:
Certificates of deposit	$	0	$	12,389	$	0	$	12,389
Municipal securities		0		407		0		407
Mortgage-backed securities – residential		0		5,926		0		5,926
Collateralized mortgage obligations – residential		0		2,029		0		2,029
	$	0	$	20,751	$	0	$	20,751
December 31, 2020
Securities:
Certificates of deposit	$	0	$	15,117	$	0	$	15,117
Municipal securities		0		409		0		409
Mortgage-backed securities - residential		0		6,108		0		6,108
Collateralized mortgage obligations – residential		0		2,195		0		2,195
	$	0	$	23,829	$	0	$	23,829

The following table sets forth the Company’s assets that were ~~no impaired~~measured at fair value on a non-recurring basis:

	*Fair Value Measurement 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, 2021
Impaired loans - nonresidential real estate	$	0	$	0	$	268	$	268

December 31, 2020
Impaired loans - nonresidential real estate	$	0	$	0	$	268	$	268

Impaired loans, ~~that were~~which are measured for impairment using the fair value of the collateral for collateral–dependent loans, had a carrying amount of $296,000, with a valuation allowance of $28,000 at March 31, 2021and ~~which had~~December 31, 2020. There was 0 change in the provision for loan losses of $28,000 for the three months ended March 31, 2021, compared to 0 specific ~~valuation allowances.~~

At provision for loan losses for the three months ended March 31, 2020.

At March 31, 2021 and December 31, ~~2019~~2020, there were ~~no OREO properties~~0 foreclosed assets with valuation allowances.

The following table presents quantitative information, based on certain empirical data with respect to Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis:

	*Fair Value*		*Valuation Technique(s)*	*Significant Unobservable Input(s)*	*Range (Weighted Average)*
March 31, 2021
Impaired loans - nonresidential real estate	$	268	Sales comparison	Discount applied to valuation		22.0	%

December 31, 2020
Impaired loans - nonresidential real estate	$	268	Sales comparison	Discount applied to valuation		22.0	%

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BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 8 - FAIR VALUE (continued)

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

Fair Value Measurements at
March 31, 2020 Using:

Carrying
Amount
Level 1 Level 2 Level 3 Total
Financial assets
Cash and cash equivalents $ 169,938
$ 14,652
$ 155,286
$ —
$ 169,938
Securities 63,853
—
63,853
—
63,853
Loans receivable, net of allowance for loan losses 1,147,628
—
—
1,143,263
1,143,263
FHLB and FRB stock 7,490
—
—
—
N/A
Accrued interest receivable 4,698
—
192
4,506
4,698
Financial liabilities
Certificates of deposit 373,049
—
376,171
—
376,171
Borrowings —
—
—
—
—

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~~BANKFINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~NOTE 8 - FAIR VALUE~~ ~~(continued)~~

Fair Value Measurements at
December 31, 2019 Using:

Carrying
Amount
Level 1 Level 2 Level 3 Total
Financial assets
Cash and cash equivalents $ 190,325
$ 9,785
$ 180,540
$ —
$ 190,325
Securities 60,193
—
60,193
—
60,193
Loans receivable, net of allowance for loan losses 1,168,008
—
—
1,177,459
1,177,459
FHLB and FRB stock 7,490
—
—
—
N/A
Accrued interest receivable 4,563
—
252
4,311
4,563
Financial liabilities
Certificates of deposit 402,034
—
402,914
—
402,914
Borrowings 61
—
61
—
61

			*Fair Value Measurements at March 31, 2021 Using:*
	*Carrying Amount*		*Level 1*		*Level 2*		*Level 3*		*Total*
Financial assets
Cash and cash equivalents	$	498,583	$	9,567	$	489,016	$	0	$	498,583
Securities		20,751		0		20,751		0		20,751
Loans receivable, net of allowance for loan losses		1,028,840		0		0		1,028,208		1,028,208
FHLB and FRB stock		7,490		0		0		0		N /A
Accrued interest receivable		4,695		0		108		4,587		4,695
Financial liabilities
Certificates of deposit		236,590		0		237,119		0		237,119
Borrowings		4,000		0		4,000		0		4,000

			*Fair Value Measurements at December 31, 2020 Using:*
	*Carrying Amount*		*Level 1*		*Level 2*		*Level 3*		*Total*
Financial assets
Cash and cash equivalents	$	503,496	$	14,115	$	489,381	$	0	$	503,496
Securities		23,829		0		23,829		0		23,829
Loans receivable, net of allowance for loan losses		1,002,578		0		0		1,004,854		1,004,854
FHLB and FRB stock		7,490		0		0		0		N /A
Accrued interest receivable		3,941		0		52		3,889		3,941
Financial liabilities
Certificates of deposit		253,000		0		253,906		0		253,906
Borrowings		4,000		0		3,998		0		3,998

Loans: The exit price observations are obtained from an independent ~~third-party~~third-party using its proprietary valuation model and methodology and may not reflect actual or prospective market valuations. The valuation is based on the probability of default, loss given default, recovery delay, prepayment, and discount rate assumptions.

While the above estimates are based on management’s judgment of the most appropriate factors, as of the balance sheet date, there is no assurance that the estimated fair values would have been realized if the assets were disposed of or the liabilities settled at that date, since market values may differ depending on the various circumstances. The estimated fair values would also not apply to subsequent dates.

In addition, other assets and liabilities that are not financial instruments, such as premises and equipment, are not included in the above disclosures.

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BANKFINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 9 – 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,
2020 2019
Deposit service charges and fees $ 887
$ 930
Loan servicing fees ⁽¹⁾
63
23
Mortgage brokerage and banking fees ⁽¹⁾
29
28
Gain on sale of equity securities ⁽¹⁾
—
295
Loss on disposal of other assets (2 ) (19 )
Trust and insurance commissions and annuities income 282
205
Earnings on bank-owned life insurance ⁽¹⁾
32
30
Other ⁽¹⁾
107
132
Total noninterest income $ 1,398
$ 1,624

~~(1)~~

	*Three Months Ended*
	*March 31,*
	*2021*		*2020*
Deposit service charges and fees	$	738	$	887
Loan servicing fees ⁽¹⁾		55		63
Mortgage brokerage and banking fees ⁽¹⁾		12		29
Loss on disposal of other assets		0		(2	)
Trust and insurance commissions and annuities income		334		282
Earnings on bank-owned life insurance ⁽¹⁾		21		32
Other ⁽¹⁾		98		107
Total noninterest income	$	1,258	$	1,398

⁽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

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~~BANKFINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~NOTE 9 – REVENUE FROM CONTRACTS WITH CUSTOMERS~~ ~~(continued)~~

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 ~~$351,000~~$381,000 and ~~$361,000~~$351,000 for the three months ended March 31, ~~2020~~ 2021 and ~~2019.~~

2020, 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, are recognized when the services are rendered.

Gains/losses on sales of OREO and other assets: The Company records a gain or loss from the sale of OREO 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 OREO 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 OREO 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. OREO sales for the three months ended March 31, 2020 ~~and 2019~~ were not financed by the Company. There were 0 sales of OREO for the three months ended March 31, 2021.

NOTE 10 – SUBSEQUENT EVENT

On April 14, 2021, the Company entered into Subordinated Note Purchase Agreements (collectively, the “Purchase Agreement”) with certain qualified institutional buyers and accredited investors (the “Purchasers”) 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 Notes were offered and sold by the Company to eligible purchasers in a private offering in reliance on the exemption from the registration requirements of Section 4(a)(2) of the Securities Act of 1933, as amended and the provisions of Regulation D promulgated thereunder.

The Notes will bear interest at a fixed annual rate of 3.75%, from and including the date of issuance to but excluding May 15, 2026, payable semi-annually in arrears. From and including May 15, 2026 to, but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an interest rate per annum equal to Three-Month Term SOFR (as defined in the Note) plus 299 basis points, payable quarterly in arrears. As provided in the Notes, under specified conditions the interest rate on the Notes 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. The Purchase Agreement contains certain customary representations, warranties and covenants made by the Company, on the one hand, and the Purchasers, severally and not jointly, on the other hand. The Notes are not entitled to the benefit of any sinking fund and are not convertible into or exchangeable for any of the equity securities, other securities or assets of the Company or any of its subsidiaries.

Principal and interest 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 are intended to qualify as Tier 2 capital of the Company for regulatory capital purposes.

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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, that involve significant risks and uncertainties. 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) less than anticipated loan growth due to intense competition for loans and leases, particularly in terms of pricing and credit underwriting, or a dearth of borrowers who meet our underwriting ~~standards;~~standards, or the COVID-19 pandemic and the related adverse local and national economic consequences; (ii) the impact of re-pricing and competitors’ pricing initiatives on loan and deposit products; (iii) interest rate movements and their impact on the economy, customer behavior and our net interest margin; (iv) adverse economic conditions in general, or specific events such as athe COVID-19 pandemic 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; (v) declines in real estate values that adversely impact the value of our loan collateral, OREO, asset dispositions and the level of borrower equity in their investments; (vi) borrowers that experience legal or financial difficulties that we do not currently foresee; (vii) 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 loan losses or adversely change our loan classifications, write-down assets, reduce credit concentrations or maintain specific capital levels; (viii) changes,

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disruptions or illiquidity in national or global financial markets; (ix) the credit risks of lending activities, including risks that could cause changes in the level and direction of loan delinquencies and charge-offs or changes in estimates relating to the computation of our allowance for loan losses; (x) monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board; (xi) factors affecting our ability to access deposits or cost-effective funding, and the impact of competitors' pricing initiatives on our deposit products; (xii) legislative or regulatory changes, that have an adverse impact on our products, services, operations and operating expenses; (xiii) higher federal deposit insurance premiums; (xiv) higher than expected overhead, infrastructure and compliance costs; (xv) changes in accounting or tax principles, policies or guidelines; (xvi) the effects of any federal government shutdown; and (xvii) privacy and cybersecurity risks, including the risks of business interruption and the compromise of confidential customer information resulting from intrusions.

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, ~~2019,~~2020, as well as Part II, Items 1A of ~~this~~our subsequent Quarterly ~~Report~~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 operation 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, ~~2019,~~2020, as filed with the SEC.

Overview

We reported net income for the three months ended March 31, 2021 of $1.5 million, or $0.10 per common share, compared to net income of $2.4 million, or $0.16 per common share, for the three months ended March 31, 2020. At March 31, ~~2020,~~2021, the Company ~~continued to be in a strong financial and operational condition. The Company~~ had ~~a Tier 1 leverage ratio~~total assets of ~~11.67% and a Tier 1 risk-based capital ratio of 16.56%. Our ratio of nonperforming loans to~~$1.620 billion, total loans ~~was 0.07%~~of $1.029 billion, total deposits of $1.422 billion and ~~the ratio~~stockholders' equity of nonperforming assets to total assets was 0.06%. The Company’s subsidiary, BankFinancial NA, had 14.6% of total assets in cash deposited at the Federal Reserve Bank and other insured depository institutions. We believe the Company is well prepared for the economic and social consequences of the COVID-19 global pandemic.

~~Pandemic Operational Preparations & Status~~

We began updating our existing Pandemic Plan in late January 2020 and completed plan revisions in February 2020. The State of Illinois enacted a “Stay-At-Home” order on March 21, 2020, which will remain in effect until at least April 30, 2020. We used available physical resources to achieve appropriate social distancing protocols in all facilities in and outside of Illinois; in addition, we established mandatory remote work to isolate certain personnel essential to critical business continuity operations. We also expanded and tested remote access for the core banking system, funds transfer and loan operations.

On March 24, 2020, we limited branch lobby service to appointment-only, and implemented new capabilities to execute lobby transactions electronically or via our drive-in facilities. Due to continued declines in customer traffic, we temporarily closed three branch offices on April 13, 2020 and consolidated service into reasonably proximate larger branch offices. All business functions continue to be operational.

~~Loan Composition & Activity~~

Our loan portfolio continues to benefit from its inherent diversity of credit exposures and geographic distribution. Consistent with our long-standing asset allocation principles, we have no material exposure to the hospitality (hotels or restaurants/franchises), oil and gas production, or travel/leisure industries. We have no exposure to direct construction lending or leveraged loans. We have limited exposure to residential mortgage and consumer loans. Our principle of lending based on “essential-use” assets and industries, such as affordable multi-family housing, health care and within a broadly-diversified range of large corporations and governments, has so far resulted in a loan portfolio that could prove to be resilient in terms of asset quality performance.

~~In the first quarter of 2020, total~~$171 million.

Total net loans ~~declined by $19.8 million (1.7%) compared to the fourth quarter of 2019. Commercial loan balances~~ increased by ~~$12.3~~$26.3 million (8.5%) due to slightly higher line utilization and growth in commercial finance transactions. Multi-family mortgage loans decreased by $21.3 million (3.8%) due to continued high volumes of project sales and cash-out refinances. Our commercial equipment lease portfolio declined by $6.6 million (2.4%), as scheduled lease amortizations exceeded seasonally-low origination volumes.

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~~Loan Product Review & Development~~

~~During March 2020, we reviewed our loan pipelines, and credit product specifications in anticipation of the significant declines in economic activity and employment from the COVID-19 global pandemic.~~

~~Multi-Family & Nonresidential Real Estate Loans~~

We conducted stress testing on pending multi-family mortgage loans using both short-term and long-term vacancy and collection stress factors to assess sustainable net operating income capacity. We implemented enhanced reserve requirements for loan payments and building maintenance needs to provide adequate liquidity to mitigate future disruption of cash flows. Consistent with our pre-pandemic practices, we expect to prioritize purchase transactions and refinance transactions that do not involve significant equity cash-out proceeds. Collateral valuations remain stable at present, but we expect that income property valuations and capitalization rates may be negatively impacted by a protracted recovery of economic activity.

We added four new Commercial Bankers in the first quarter of 2020 to accelerate the development of new loan opportunities. Approximately 90% of the pending loan pipeline at March 31, 2020 met the revised product and underwriting requirements, and we continue to successfully qualify new loan origination opportunities.

~~Commercial Equipment & Finance~~

We revised our financial qualification parameters to adjust historical financial performance and repayment capacity for the possibility of significant declines in revenues and maximum usage of working capital credit facilities. These analyses are particularly relevant for non investment-rated borrowers and lessees. None of the pending transactions in the Corporate & Governmental equipment lease and finance pipeline required an adjustment to the requested exposure; however, some lessees and lessors postponed transactions due to COVID-19 business disruptions and expected declines in future business volumes.

In February 2020, we announced the establishment of new Middle Market and Small Ticket Equipment Finance Departments under the leadership of Marci L. Slagle, President of BankFinancial Equipment Finance and Stephanie Hall, Executive Vice President – Small Ticket Equipment Finance. As of March 31, 2020, the Middle Market and Small Ticket Departments began staffing, product and systems development, but had not yet commenced operations. We expect to begin limited originations late in the second quarter of 2020. During the remainder of 2020, we expect to add up to five new Lease Bankers in the Corporate & Governmental, Middle Market, and Small Ticket Equipment Finance departments.

~~National Healthcare Lending~~

COVID-19 has had widely different impacts on healthcare providers, depending on their care focus. For hospitals and ambulatory surgical centers, deferral of elective surgical procedures has a significant negative impact on operating margins; in addition, the expansion of resources to COVID-19 care creates additional expenses with reduced recoverability through governmental payments sources. For residential care facilities, the higher concentration of at-risk patients intensifies per-patient care expenses and also restricts the ability to serve the therapy needs of higher-margin Medicare or commercially-insured patients. Medical supply and services have varying results based on their client profiles, as laboratories may be extraordinarily busy but dental or orthopedic suppliers’ sales volumes decline precipitously.

Within National Healthcare Lending, our exposure to healthcare providers is predominantly asset-based working capital credit facilities secured by government and commercial accounts receivable and other business assets. We monitor these credit exposures by conducting frequent reviews of financial statements, borrowing base and covenant compliance certificates, and periodic independent field audits. Accordingly, our credit exposure fluctuates with the borrower’s business activity but we also have flexibility to rapidly adjust exposure based on the borrower’s needs and risk profile.

We expect most healthcare providers to need expanded credit facilities due either to disruptions in billing and payment cycles, temporary reductions in higher-margin services, or higher care expenses. Our credit facilities contain flexible operating liquidity covenants enabling us to provide funding even if standard debt service coverage capacity diminishes.

For the near-term, we expect to focus on customer needs and portfolio management in National Healthcare Lending. We will resume seeking opportunities within healthcare lending once the emergency conditions affecting providers subside.

~~Commercial Lending~~

Our commercial loan portfolio is expected to experience fluctuations in volumes based on specific industry and business conditions. Activity within lessor credit facilities should remain stable as in-progress transactions take longer to conclude and may experience more rapid growth as equipment and software demand recovers. Specialty financing for tax-related receivables is likely to increase

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slightly. Changes in loan demand and credit risk for manufacturers, distributors and service firms should depend entirely on the specific industry, company financial condition and available supplementary funding from the business owners.

Our capital, liquidity and commercial credit products should enable us to respond to a sudden recovery of demand for lessors and provide flexibility in financing to our borrowers with asset-based working capital credit facilities. We expect there may also be some situations where financially- and managerially strong businesses can conduct merger and acquisition activity and need a rapid response to effectively execute growth opportunities.

~~U.S. Small Business Administration Paycheck Protection Program (PPP)~~

We allocated $10 million to the Paycheck Protection Program (PPP) based on the expected 100% guaranty of the U.S. Small Business Administration (SBA). We began accepting applications from qualified business deposit customers on April 3, 2020. We have been an approved SBA 7(a) lender since 2000; however, due to backlogs in processing updated access requests, the SBA granted us access to the SBA PPP application system for a single user on April 13, 2020. As of April 17, 2020, we have SBA PPP access for multiple users, and we are prepared to continue processing PPP applications if additional funds are provided to the PPP program. We expect to begin closing PPP loans during the week of April 20, 2020.

~~COVID-19 Loan Forbearance Programs~~

Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) provides that a qualified loan modification is exempt by law from classification as a Troubled Debt Restructuring pursuant to U.S. Generally Accepted Accounting Principles (GAAP). In addition, OCC Bulletin 2020-35 provides more limited circumstances in which a loan modification is not subject to classification as a Troubled Debt Restructuring. Pursuant to these new capabilities, we developed several loan forbearance programs to assist borrowers with managing cash flows disrupted due to COVID-19.

Our Apartment and Commercial Real Estate Qualified Limited Forbearance Program permits borrowers who qualify under Section 4013 of the CARES Act to make an election to pay scheduled interest and escrow payments (if applicable) for a four-month period beginning in April 2020, and pay all deferred principal payments by December 2020. As of April 17, 2020, 73 borrowers with $65.5 million in outstanding loan principal balances executed a Qualified Limited Forbearance Program agreement; of these, 38 borrowers with $42.8 million in outstanding principal balances elected the interest and escrow payment option.

For small investment property owners with loan balances under $750,000, the borrower may also elect to defer the May 2020 loan payment entirely, with all deferred interest amounts due by December 2020 and all deferred principal amounts due by June 30, 2021. As of April 17, 2020, 28 borrowers with $9.4 million in outstanding loan principal balances executed a Small Investment Property Limited Forbearance Program agreement.

CARES Act Section 4013 and OCC Bulletin 2020-35 forbearance agreements are available to qualified commercial loan and commercial finance borrowers, and to commercial equipment lessees. As of April 17, 2020, we had no commercial loan borrowers, commercial finance borrowers, or commercial equipment lessees subject to a forbearance agreement. Due to the widespread impact of COVID-19, we expect that some commercial loan borrowers and commercial equipment lessees will seek loan forbearance or loan modification agreements in the second quarter of 2020.

~~Owner-Occupied Residential Mortgage & Consumer Loans~~

For residential mortgage and consumer loans, CARES Act Section 4013 or OCC Bulletin 2020-35 forbearance agreements are available to qualified borrowers. As of April 17, 2020, we had received inquiries from 14 residential loan borrowers involving $1.8 million concerning the availability of some form of payment relief; however, no borrower had executed a forbearance agreement. Of these requests, 2 borrowers for $353,000 related to single-family non-owner occupied loans. Due to the widespread impact of the State of Illinois “Stay At Home” Order, we expect that additional residential loan borrowers will seek loan forbearance or loan modification agreements in the second quarter of 2020.

~~Deposit Portfolio Composition & Activity~~

Our deposit portfolio composition consists almost entirely of core transaction accounts, with local retail and business money markets deposit accounts, and local retail certificates of deposit accounts. We expect greater volatility in deposit balances, as various forms of government stimulus provide additional liquidity to depositors, but in most cases this liquidity will also be quickly consumed to pay current or past due obligations. Given our substantial liquidity, we will maintain a moderate competitive posture for interest-bearing deposits, with pricing flexibility reserved for our most valuable overall deposit relationships.

~~Table of Contents~~

In the first quarter of 2020, total deposits declined by $31.0 million (2.4%) compared to December 31, 2019, due in part to seasonal factors with respect to retail and commercial checking accounts. We reduced our marketing for retail certificates of deposit due to higher liquidity and to better manage our cost of funds. Retail money market deposit accounts increased by $1.6 million (0.7%), primarily due to seasonal fluctuations. Total wholesale deposits and borrowings declined by $12.1 million (18.5%) during the first quarter of 2020 as we utilized excess liquidity to pay off maturing wholesale deposits and borrowings.

~~Net Interest Income and Noninterest Income~~

The abrupt decline in interest rates during the first quarter of 2020 not only reduced interest income on floating-rate commercial loans and liquidity assets, but it also reduced competitive pressures and depositor expectations concerning deposit interest rates. Because of the need to maintain higher levels of liquidity and delays in business investment activity due to COVID-19 disruptions, some further compression of our net interest margin is foreseeable in the next two quarters, but a reasonably robust recovery in business conditions should enable us to deploy our additional asset generation resources and thus reallocate some of our excess liquidity.

~~The average yield on our loan and lease portfolio~~ for the quarter ended March 31, ~~2020 was 4.72%,~~2021, primarily due to continued strong originations of commercial equipment finance transactions and increased utilization of commercial lessor finance lines of credit. Total commercial loans and leases increased by $37.6 million (9.3%) for the quarter ended March 31, 2021, compared to an ~~average loan and lease portfolio yield~~increase of ~~4.82%~~$25.4 million (6.7%) for the quarter ended December 31, ~~2019.~~2020. The ~~average cost~~total balance of SBA Paycheck Protection Program (PPP) commercial loans was $10.9 million at March 31, 2021, as we originated $8.6 million in new PPP loans and we received $7.9 million in PPP forgiveness payments for the quarter. Multi-family and nonresidential real estate loans declined by $7.9 million (1.4%) as increased loan originations nearly offset substantially reduced loan payoffs.

Total deposits increased by $28.5 million, primarily due to a $44.9 million increase in core retail and ~~commercial~~business deposits, ~~decreased~~partially offset by a $15.4 million decrease in retail certificates of deposit.

Net interest income declined by $952,000 due to 0.93% for the quarter ended March 31, 2020, compared to an average cost of 1.04% for the quarter ended December 31, 2019. The average cost of wholesale deposits and borrowings stabilized at 2.52% for the quarter ended March 31, 2020. Our 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.

~~Growth in noninterest income~~a decline in the ~~fourth quarter of 2019 resulted~~average interest-earning assets yield from ~~growth in mortgage brokerage fees~~3.27% to 2.98% resulting from a lower average yield on loans and trust income. Based on our additional investments in Commercial Real Estate bankers with capital markets experience, and Trust product development and sales capabilities, we anticipate further improvements in these categories during the remainder of 2020.

The substantial changes in commercial real estate market expectations will diminish transaction activity and credit availability for higher-leverage transactions typically financed by capital markets sources. The extreme volatility of equity markets similarly induces caution on the part of wealth management and trust customers, who became far more risk-averse as the scope and severity of the COVID-19 global pandemic expandedsignificantly reduced loan prepayment income during the first quarter of ~~2020. We expect~~2021 compared to ~~see gradual improvement in these market-based opportunities commensurate with the reduction of uncertainties in commercial real estate and corporate earnings and asset valuations.~~

~~For the first~~fourth quarter of 2020, ~~noninterest~~partially offset by a $335,000 recovery in the allowance for loan losses. Noninterest income declined by ~~$250,000,~~$283,000, primarily due to seasonal reductions in commercial loan commitment fees and credit risk premiums compared to the fourth quarter of ~~2019. In addition, mortgage brokerage fees declined by $43,000 compared~~2020. Noninterest expenses increased $413,000 due to ~~the seasonally stronger activity recorded~~a $232,000 increase in ~~the fourth quarter of 2019.~~

~~Noninterest Expenses~~

Current market conditions favor a focus on expense reductions where feasible; however, our Business Plan requires investment in personnel and marketing resources to achieve our growth objectives in our loan and lease portfolios, and noninterest income for Commercial Mortgage Banking and Trust Services. Accordingly, we will seek to leverage cost savings from improved efficiencies in customer service delivery and reduction of legacy card-based transaction assets such as ATM/Debit cards and machines to help offset declines in interest income, and preserve our ability to realize our business generation priorities.

Noninterest expense was constant at $9.6 million for the quarters ended March 31, 2020 and December 31, 2019. In the first quarter of 2020, compensation and benefits increased $380,000 due principally to seasonally higher payroll taxes and ~~benefits~~benefit expense, and ~~the addition of new business development resources~~a $160,000 increase in ~~Commercial Real Estate and Small Ticket Equipment Finance.~~

~~Capital Management~~

The sharp reduction in the Company’s share price to below tangible book value should create an opportunity to enhance shareholder value through highly accretive share repurchases, absent the imposition of regulatory limitations or the existence of higher priority-capital needs. We also intend to continue to pursue acquisition opportunities that meet our established parameters, if executable under current market conditions.

~~We repurchased 206,196 shares at an average cost of $10.65~~office occupancy expenses during the first quarter of ~~2020. Our tangible book value increased~~2021 compared to ~~$11.48 from $11.41 as~~fourth quarter of ~~December 31, 2019. At March 31, 2020, we had 336,767 shares available for repurchase in our share repurchase progra~~m.

2020.

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The Company’s ratio of nonperforming loans to total loans was 0.07%. Nonperforming commercial-related loans represented 0.03% of total commercial-related loans at March 31, 2021. The ratio of nonperforming assets to total assets increased to 0.33% at March 31, 2021, due to the inclusion of $4.3 million of collateral repossessed related to a previously classified Chicago commercial loan in the first quarter of 2021. Our allowance for loan losses decreased to 0.71% of total loans as of March 31, 2021, compared to 0.77% at December 31, 2020.

The Company’s capital position remained strong, with a Tier 1 leverage ratio of 10.67% at March 31, 2021. The Company repurchased 146,106 of its common shares during the quarter ended March 31, 2021. The Company’s book value per common share increased to $11.72 per share at March 31, 2021.

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, 2021		December 31, 2020		Change
	(In thousands)
Selected Financial Condition Data:
Total assets	$	1,620,385	$	1,596,842	$	23,543
Loans, net		1,028,840		1,002,578		26,262
Securities, at fair value		20,751		23,829		(3,078	)
Foreclosed assets, net		4,630		157		4,473
Deposits		1,422,037		1,393,544		28,493
Borrowings		4,000		4,000		—
Equity		171,433		172,930		(1,497	)

	Three Months Ended
	March 31,
	2021			2020			Change
	(In thousands)
Selected Operating Data:
Interest income	$	11,248		$	14,653		$	(3,405	)
Interest expense		668			2,684			(2,016	)
Net interest income		10,580			11,969			(1,389	)
Provision for (recovery of) loan losses		(335	)		471			(806	)
Net interest income after provision for (recovery of) loan losses		10,915			11,498			(583	)
Noninterest income		1,258			1,398			(140	)
Noninterest expense		10,187			9,628	��		559
Income before income taxes		1,986			3,268			(1,282	)
Income tax expense		517			850			(333	)
Net income	$	1,469		$	2,418		$	(949	)

March 31, 2020 December 31, 2019 Change
(In thousands)
Selected Financial Condition Data:
Total assets $ 1,450,282
$ 1,488,015
$ (37,733 )
Loans, net 1,147,628
1,168,008
(20,380 )
Securities, at fair value 63,853
60,193
3,660
Deposits 1,253,751
1,284,757
(31,006 )
Borrowings —
61
(61 )
Equity 172,995
174,372
(1,377 )

Three Months Ended
March 31,
2020 2019 Change
(In thousands)
Selected Operating Data:
Interest income $ 14,653
$ 16,526
$ (1,873 )
Interest expense 2,684
3,307
(623 )
Net interest income 11,969
13,219
(1,250 )
Provision for (recovery of) loan losses 471
(87 ) 558
Net interest income after provision for (recovery of) loan losses 11,498
13,306
(1,808 )
Noninterest income 1,398
1,624
(226 )
Noninterest expense 9,628
10,098
(470 )
Income before income tax expense 3,268
4,832
(1,564 )
Income tax expense 850
1,281
(431 )
Net income $ 2,418
$ 3,551
$ (1,133 )

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Three Months Ended
March 31,
2020 2019
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average total assets)⁽¹⁾
0.66 % 0.91 %
Return on equity (ratio of net income to average equity) ⁽¹⁾
5.52
7.68
Average equity to average assets 11.95
11.91
Net interest rate spread^{(1) (2)}
3.19
3.35
Net interest margin ^{(1) (3)}
3.44
3.64
Efficiency ratio⁽⁴⁾
72.03
68.03
Noninterest expense to average total assets⁽¹⁾
2.63
2.60
Average interest-earning assets to average interest-bearing liabilities 132.68
131.53
Dividends declared per share $ 0.10
$ 0.10
Dividend payout ratio 62.94 % 46.35 %

At March 31, 2020 At December 31, 2019
Asset Quality Ratios:
Nonperforming assets to total assets ⁽⁵⁾
0.06 % 0.07 %
Nonperforming loans to total loans 0.07
0.07
Allowance for loan losses to nonperforming loans 1,061.78
901.06
Allowance for loan losses to total loans 0.70
0.65
Capital Ratios:
Equity to total assets at end of period 11.93 % 11.72 %
Tier 1 leverage ratio (Bank only) 11.10 % 10.89 %
Other Data:
Number of full-service offices 19
19
Employees (full-time equivalents) 226
222

	Three Months Ended
	March 31,
	2021			2020
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average total assets) ⁽¹⁾		0.37	%		0.66	%
Return on equity (ratio of net income to average equity) ⁽¹⁾		3.40			5.52
Average equity to average assets		10.85			11.95
Net interest rate spread ^{(1) (2)}		2.73			3.19
Net interest margin ^{(1) (3)}		2.81			3.44
Efficiency ratio ⁽⁴⁾		86.05			72.03
Noninterest expense to average total assets ⁽¹⁾		2.56			2.63
Average interest-earning assets to average interest-bearing liabilities		141.49			132.68
Dividends declared per share	$	0.10		$	0.10
Dividend payout ratio		100.29	%		62.94	%

	At March 31, 2021			At December 31, 2020
Asset Quality Ratios:
Nonperforming assets to total assets ⁽⁵⁾		0.33	%		0.09	%
Nonperforming loans to total loans		0.07			0.12
Allowance for loan losses to nonperforming loans		1,087.50			634.81
Allowance for loan losses to total loans		0.71			0.77
Capital Ratios:
Equity to total assets at end of period		10.58	%		10.83	%
Tier 1 leverage ratio (Bank only)		10.19	%		10.10	%
Other Data:
Number of full-service offices		19			19
Employees (full-time equivalents)		220			210

⁽¹⁾
~~(1)~~	Ratios annualized.

⁽²⁾
~~(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⁾
~~(3)~~	The net interest margin represents net interest income divided by average total interest-earning assets for the period.

⁽⁴⁾
~~(4)~~	The efficiency ratio represents noninterest expense, divided by the sum of net interest income and noninterest income.

⁽⁵⁾
~~(5)~~	Nonperforming assets include nonperforming loans and ~~other real estate owned.~~foreclosed assets.

Comparison of Financial Condition at March 31, ~~2020~~2021 and December 31, ~~2019~~

2020

Total assets ~~decreased $37.7~~increased $23.5 million, or ~~2.5%~~1.5%, to ~~$1.450~~$1.620 billion at March 31, ~~2020,~~2021, from ~~$1.488~~$1.597 billion at December 31, ~~2019.~~2020. The ~~decrease~~increase in total assets was primarily due to ~~a decrease in cash and cash equivalents and loans receivable, which was partially offset by~~ an increase in ~~securities.~~loans. Loans ~~decreased $20.4~~increased $26.3 million, or ~~1.7%~~2.6%, to ~~$1.148~~$1.029 billion at March 31, ~~2020,~~2021, from ~~$1.168~~$1.003 billion at December 31, 2019. Cash and cash equivalents decreased $20.4 million, or 10.7%, to $169.9 million at March 31, 2020, from $190.3 million at December 31, 2019. Securities increased $3.7 million, or 6.1%, to $63.9 million at March 31, 2020, from $60.2 million at December 31, 2019.

2020.

Our loan portfolio consists primarily of investment and business loans (multi-family, nonresidential real estate, ~~commercial,~~ and commercial loans and leases), which together totaled ~~95.2%~~96.1% of gross loans at March 31, ~~2020.~~2021. During the three months ended March 31, ~~2020,~~2021, commercial loans and leases increased by ~~$12.3~~$37.6 million, or ~~8.5%; this increase was offset by decreases in multi-family loans of $21.3 million, or 3.8%; commercial leases of $6.6 million, or 2.4%; and nonresidential~~9.3%. Nonresidential real estate loans ~~of $1.2~~increased $3.5 million, or ~~0.9%~~3.2%, while multi-family loans decreased by $11.4 million, or 2.5%. The ~~decrease~~increase in ~~multi-family~~commercial loans and leases was primarily due to ~~a significant amount~~$43.5 million of government equipment finance originations as well as $8.6 million of Paycheck Protection Program loan ~~prepayments.~~originations.

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Our primary lending area consists of the counties in the State of Illinois where our branch offices are located, and contiguous counties. We derive the most significant portion of our revenues from these geographic areas. We also engage in multi-family mortgage lending activities in carefully selected metropolitan areas outside our primary lending area and engage in certain types of commercial lending and leasing activities on a nationwide basis. At March 31, ~~2020, $232.5~~2021, $223.2 million, or ~~42.9%~~50.6%, of our multi-family mortgage loans were in the Metropolitan Statistical Area for Chicago, Illinois; ~~$64.3~~$53.0 million, or ~~11.9%~~12.0%, were in the Metropolitan Statistical Area for Dallas, Texas; ~~$47.4~~$42.5 million, or ~~8.7%~~9.7%, were in the Metropolitan Statistical Area for Denver, Colorado; $35.7 million, or 6.6%, were in the Metropolitan Statistical Area for Tampa, Florida; $28.8 million, or 5.3%, were in the Metropolitan Statistical Area for Greenville-Spartanburg, South Carolina; $22.1 million, or 4.1%, were in the Metropolitan Statistical Area for San Antonio, Texas; and $19.3$16.0 million, or 3.6%, were in the Metropolitan Statistical Area for ~~Minneapolis, Minnesota.~~Tampa, Florida; and $14.9 million, or 3.4%, were in the Metropolitan Statistical Area for Greenville-Spartanburg, South Carolina. This information reflects the location of the collateral for the loan and does not necessarily reflect the location of the ~~borrower.~~

borrowers.

Total liabilities ~~decreased~~ ~~$36.4~~increased $25.0 million,, or ~~2.8%~~1.8%, to ~~$1.277~~$1.449 billion at March 31, ~~2020,~~2021, from ~~$1.314~~$1.424 billion at December 31, ~~2019, primarily~~2020, due to ~~decreases~~an increase in total deposits. Total deposits ~~decreased $31.0~~increased $28.5 million, or ~~2.4%~~2.0%, to ~~$1.254~~$1.422 billion at March 31, ~~2020,~~2021, from ~~$1.285~~$1.394 billion at December 31, ~~2019.~~2020. Noninterest-bearing demand deposits increased $8.3 million, or 2.5%, to $334.5 million at March 31, 2021, from $326.2 million at December 31, 2020 and interest-bearing NOW accounts increased $4.5 million, or 1.3%, to $341.5 million at March 31, 2021, from $337.0 million at December 31, 2020. Money market accounts increased $20.6 million, or 6.9%, to $318.4 million at March 31, 2021, from $297.8 million at December 31, 2020. Savings accounts increased $11.5 million, or 6.4%, to $191.0 million at March 31, 2021, from $179.6 million at December 31, 2020. Retail certificates of deposit decreased ~~$17.0~~$15.4 million, or ~~5.0%~~6.3%, to ~~$320.0~~$230.4 million at March 31, ~~2020,~~2021, from ~~$336.9~~$245.8 million at December 31, ~~2019.~~2020. Wholesale certificates of deposit decreased ~~$12.0 million,~~$994,000, or ~~18.5%~~13.8%, to ~~$53.1~~$6.2 million at March 31, ~~2020,~~2021, from ~~$65.1~~$7.2 million at December 31, 2019. Money market accounts increased $1.6 million, or 0.7%, to $247.2 million at March 31, 2020, from $245.6 million at December 31, 2019. Interest-bearing NOW accounts decreased $6.3 million, or 2.3%, to $266.8 million at March 31, 2020, from $273.2 million at December 31, 2019. Noninterest-bearing demand deposits increased $380,000, or 0.2%, to $211.1 million at March 31, 2020, from $210.8 million at December 31, 2019 and savings accounts increased $2.3 million, or 1.5%, to $155.5 million at March 31, 2020, from $153.2 million at December 31, 2019.2020. Core deposits (which consists of savings, money market, noninterest-bearing demand and NOW accounts) represented ~~70.2%~~83.4% of total deposits at March 31, ~~2020,~~2021, compared to ~~68.7%~~81.8% at December 31, ~~2019.~~

2020. Borrowings remained at $4.0 million in March 31, 2021, as the Bank borrowed $4.0 million from the FHLB at zero percent interest rate for a one year term in May 2020.

Total stockholders’ equity was ~~$173.0~~$171.4 million at March 31, ~~2020,~~2021, compared to ~~$174.4~~$172.9 million at December 31, ~~2019.~~2020. The decrease in total stockholders’ equity was primarily due to our repurchase of ~~206,196~~146,106 shares of our common stock during the three months ended March 31, ~~2020~~2021 at a total cost of ~~$2.2~~$1.5 million, and our declaration and payment of cash dividends totaling $1.5 million during the same period. These reductions in total stockholders’ equity were partially offset by the net income of ~~$2.4~~$1.5 million that the Company recorded for the three months ended March 31, ~~2020.~~2021.

Operating Results for the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~

2020

Net Income. Net income was ~~$2.4 million~~ ~~for the three months ended March 31, 2020, compared to $3.6~~$1.5 million for the three months ended March 31, ~~2019.~~2021, compared to $2.4 million for the three months ended March 31, 2020. Earnings per basic and fully diluted share of common stock were ~~$0.16~~$0.10 for the three months ended March 31, ~~2020,~~2021, compared to ~~$0.22~~$0.16 for the three months ended March 31, ~~2019.~~

2020.

Net Interest Income. Net interest income was ~~$12.0~~$10.6 million for the three months ended March 31, ~~2020,~~2021, compared to ~~$13.2~~$12.0 million for the three months ended March 31, ~~2019.~~2020. The decrease in net interest income reflected a ~~$1.9~~$3.4 million,, or ~~11.3%~~23.2%, decrease in interest income, partially offset by a ~~$623,000~~$2.0 million decrease in interest expense.

The decrease in net interest income was due in substantial part to a decrease in the average yield on interest-earning assets, ~~and decrease in total average interest-earning assets,~~ which was partially offset by a decrease in the cost of interest-bearing ~~liabilities.~~liabilities and an increase in total average interest-earning assets. Loan interest income for the three months ended March 31, 2021 includes amortized fees of $240,000 from the SBA Paycheck Protection Program loans. The yield on interest-earning assets decreased 34123 basis points to 2.98% for the three months ended March 31, 2021, from 4.21% for the three months ended March 31, ~~2020, from 4.55%~~2020. The cost of interest-bearing liabilities decreased 77 basis points to 0.25% for the three months ended March 31, ~~2019. The cost of interest-bearing liabilities decreased 18 basis points to~~2021, from 1.02% ~~for the three months ended March 31, 2020, from 1.20%~~ for the same period in ~~2019.~~2020. Total average interest-earning assets ~~decreased $73.8~~increased $127.9 million, or ~~5.0%~~9.1%, to ~~$1.401~~$1.528 billion for the three months ended March 31, ~~2020,~~2021, from $~~1.474~~$1.401 billion for the same period in ~~2019. Our net~~

~~Table of Contents~~

~~interest rate spread decreased by~~ 16 ~~basis points~~2020. Total average interest-bearing liabilities increased $24.7 million, or 2.3%, to ~~3.19%~~$1.080 billion for the three months ended March 31, ~~2020,~~2021, from ~~3.35%~~$1.056 billion for the same period in ~~2019.~~2020. Our net interest ~~margin~~rate spread decreased by 2046 basis points to ~~3.44%~~2.73% for the three months ended March 31, ~~2020,~~2021, from ~~3.64%~~3.19% for the same period in ~~2019.~~

2020. Our net interest margin decreased by 63 basis points to 2.81% for the three months ended March 31, 2021, from 3.44% for the same period in 2020.

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Average Balance Sheets

The following table sets forth average balance sheets, average yields and costs, and certain other information. No tax-equivalent yield adjustments were made, as the effect of these adjustments would not be material. 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.

For the Three Months Ended March 31,
2020 2019

Average
Outstanding
Balance
Interest
Yield/Rate₍₁₎

Average
Outstanding
Balance
Interest
Yield/Rate₍₁₎
(Dollars in thousands)
Interest-earning assets:
Loans $ 1,160,197
$ 13,611
4.72 % $ 1,304,385
$ 15,352
4.77 %
Securities 62,919
304
1.94
91,271
602
2.67
Stock in FHLB and FRB 7,490
86
4.62
8,026
100
5.05
Other 169,933
652
1.54
70,673
472
2.71
Total interest-earning assets 1,400,539
14,653
4.21
1,474,355
16,526
4.55
Noninterest-earning assets 64,714
79,129

Total assets $ 1,465,253
$ 1,553,484

Interest-bearing liabilities:
Savings deposits $ 154,102
64
0.17
$ 153,461
115
0.30
Money market accounts 248,501
464
0.75
251,573
568
0.92
NOW accounts 266,087
222
0.34
270,202
292
0.44
Certificates of deposit 386,845
1,934
2.01
431,346
2,246
2.11
Total deposits 1,055,535
2,684
1.02
1,106,582
3,221
1.18
Borrowings 15
—
—
14,375
86
2.43
Total interest-bearing liabilities 1,055,550
2,684
1.02
1,120,957
3,307
1.20
Noninterest-bearing deposits 208,119
219,190

Noninterest-bearing liabilities 26,515
28,380

Total liabilities 1,290,184
1,368,527

Equity 175,069
184,957

Total liabilities and equity $ 1,465,253
$ 1,553,484

Net interest income $ 11,969
$ 13,219

Net interest rate spread ⁽²⁾
3.19 % 3.35 %
Net interest-earning assets⁽³⁾
$ 344,989
$ 353,398

Net interest margin ⁽⁴⁾
3.44 % 3.64 %
Ratio of interest-earning assets to interest-bearing liabilities 132.68 % 131.53 %

	For the Three Months Ended March 31,
	2021								2020
	Average Outstanding Balance			Interest		Yield/Rate (1)			Average Outstanding Balance			Interest		Yield/Rate (1)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	1,010,682		$	10,929		4.39	%	$	1,160,197		$	13,611		4.72	%
Securities		21,207			54		1.03			62,919			304		1.94
Stock in FHLB and FRB		7,490			85		4.60			7,490			86		4.62
Other		489,093			180		0.15			169,933			652		1.54
Total interest-earning assets		1,528,472			11,248		2.98			1,400,539			14,653		4.21
Noninterest-earning assets		63,947								64,714
Total assets	$	1,592,419							$	1,465,253
Interest-bearing liabilities:
Savings deposits	$	184,724			28		0.06		$	154,102			64		0.17
Money market accounts		312,843			109		0.14			248,501			464		0.75
NOW accounts		334,147			112		0.14			266,087			222		0.34
Certificates of deposit		244,557			419		0.69			386,845			1,934		2.01
Total deposits		1,076,271			668		0.25			1,055,535			2,684		1.02
Borrowings		4,000			—		—			15			—		—
Total interest-bearing liabilities		1,080,271			668		0.25			1,055,550			2,684		1.02
Noninterest-bearing deposits		313,623								208,119
Noninterest-bearing liabilities		25,684								26,515
Total liabilities		1,419,578								1,290,184
Equity		172,841								175,069
Total liabilities and equity	$	1,592,419							$	1,465,253
Net interest income				$	10,580							$	11,969
Net interest rate spread ⁽²⁾							2.73	%							3.19	%
Net interest-earning assets ⁽³⁾	$	448,201							$	344,989
Net interest margin ⁽⁴⁾							2.81	%							3.44	%
Ratio of interest-earning assets to interest-bearing liabilities		141.49	%							132.68	%

⁽¹⁾	Annualized.

~~(1)~~

⁽²⁾

~~Annualized.~~


~~(2)~~	Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

⁽³⁾
~~(3)~~	Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

⁽⁴⁾
~~(4)~~	Net interest margin represents net interest income divided by average total interest-earning assets.

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Provision for Loan Losses

We establish provisions for loan losses, which are charged to operations in order to maintain the allowance for loan losses at a level we consider necessary to absorb probable incurred credit losses in the loan portfolio. In determining the level of the allowance for loan losses, we consider past and current loss experience, evaluations of real estate collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of nonperforming and other classified loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or events change. We assess the allowance for loan losses on a quarterly basis and make provisions for loan losses in order to maintain the allowance.

A loan balance is classified as a loss and charged-off when it is confirmed that there is no readily apparent source of repayment for the portion of the loan that is classified as loss. Confirmation can occur upon the receipt of updated third-party appraisal valuation information indicating that there is a low probability of repayment upon sale of the collateral, the final disposition of collateral where the net proceeds are insufficient to pay the loan balance in full, our failure to obtain possession of certain consumer-loan collateral within certain time limits specified by applicable federal regulations, the conclusion of legal proceedings where the borrower’s obligation to repay is legally discharged (such as a Chapter 7 bankruptcy proceeding), or when it appears that further formal collection procedures are not likely to result in net proceeds in excess of the costs to collect.

We recorded a ~~provision for~~recovery of loan losses of ~~$471,000~~$335,000 for the three months ended March 31, ~~2020,~~2021, compared to a ~~recovery~~provision for loan losses of ~~$87,000~~$471,000 for the same period in ~~2019.~~2020. The provision for, or recovery of, loan losses is a function of the allowance for loan loss methodology that we use to determine the appropriate level of the allowance for inherent loan losses after net charge-offs have been deducted. ~~In the first quarter of 2020, we adjusted the economic risk factor methodology to incorporate the current economic implications and rising unemployment rate from the COVID-19 pandemic.~~ The portion of the allowance for loan losses that is attributable to loans collectively evaluated for impairment ~~increased $480,000,~~decreased $356,000, or ~~6.3%~~4.6%, to ~~$8.1~~$7.4 million at March 31, ~~2020~~2021, from ~~$7.6~~$7.7 million at December 31, ~~2019.~~2020. There were $28,000 of reserves established for loans individually evaluated for impairment at March 31, 2021, compared to no reserves established for loans individually evaluated for impairment at March 31, 2020. Net charge-offs were $21,000 for the three months ended March 31, ~~2020 and 2019. Net~~2021, compared to net recoveries ~~were~~of $9,000 for the three months ended March 31, ~~2020, compared to net charge-offs of $29,000 for the three months ended March 31, 2019.~~

2020.

The allowance for loan losses as a percentage of nonperforming loans was ~~1,061.78%~~1,087.50% at March 31, ~~2020,~~2021, compared to ~~901.06%~~634.81% at December 31, ~~2019.~~

2020.

Noninterest Income

Three Months Ended
March 31,
2020 2019 Change
(Dollars in thousands)
Deposit service charges and fees $ 887
$ 930
$ (43 )
Loan servicing fees 63
23
40
Mortgage brokerage and banking fees 29
28
1
Gain on sale of equity securities —
295
(295 )
Loss on disposal of other assets (2 ) (19 ) 17
Trust and insurance commissions and annuities income 282
205
77
Earnings on bank-owned life insurance 32
30
2
Other 107
132
(25 )
Total noninterest income $ 1,398
$ 1,624
$ (226 )

	Three Months Ended
	March 31,
	2021		2020			Change
	(Dollars in thousands)
Deposit service charges and fees	$	738	$	887		$	(149	)
Loan servicing fees		55		63			(8	)
Mortgage brokerage and banking fees		12		29			(17	)
Loss on disposal of other assets		—		(2	)		2
Trust and insurance commissions and annuities income		334		282			52
Earnings on bank-owned life insurance		21		32			(11	)
Other		98		107			(9	)
Total noninterest income	$	1,258	$	1,398		$	(140	)

Noninterest income decreased ~~$226,000,~~$140,000, or ~~13.9%~~10.0%, for the three months ended March 31, ~~2020~~2021 to ~~$1.4~~$1.3 million, compared to ~~$1.6~~$1.4 million for the same period in ~~2019.~~2020. Deposit service charges decreased ~~$43,000~~$149,000, or 16.8%, due to reduced non-sufficient funds returns charges and ~~loan servicing~~negative balance fees. Mortgage brokerage and banking fees ~~increased $40,000~~decreased $17,000 for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019. We recorded a gain~~2020 due to payoffs and paydowns on ~~sale of equity securities for the three months ended March 31, 2019 for $295,000.~~serviced mortgages loans. Trust and insurance commissions and annuities income increased ~~$77,000,~~$52,000, or ~~37.6%~~18.4%, to $334,000 for the three months ended March 31, 2021, from $282,000 for the three months ended March 31, 2020 ~~compared~~due to ~~$205,000~~increased assets under management. Earnings on bank-owned life insurance decreased by $11,000 to $21,000 for the three months ended March 31, ~~2019.~~2021, due to lower interest rates. Other income decreased ~~$25,000,~~$9,000, or ~~18.9%~~8.4%, to $98,000 for the three months ended March 31, 2021, compared to $107,000 for the three months ended March 31, ~~2020, compared to $132,000 for the three months ended March 31, 2019, primarily due to recording $10,000 of Visa stock dividends for the three months ended March 31, 2019.~~

2020.

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Noninterest Expense

Three Months Ended
March 31,
2020 2019 Change
(Dollars in thousands)
Compensation and benefits $ 5,518
$ 5,703
$ (185 )
Office occupancy and equipment 1,800
1,845
(45 )
Advertising and public relations 152
161
(9 )
Information technology 822
692
130
Professional fees 263
306
(43 )
Supplies, telephone and postage 300
399
(99 )
Amortization of intangibles 14
20
(6 )
Nonperforming asset management 40
54
(14 )
Operations of other real estate owned, net (17 ) (44 ) 27
FDIC insurance premiums 34
108
(74 )
Other 702
854
(152 )
Total noninterest expense $ 9,628
$ 10,098
$ (470 )

	Three Months Ended
	March 31,
	2021		2020			Change
	(Dollars in thousands)
Compensation and benefits	$	5,471	$	5,518		$	(47	)
Office occupancy and equipment		2,138		1,800			338
Advertising and public relations		196		152			44
Information technology		658		864			(206	)
Professional fees		370		314			56
Supplies, telephone and postage		400		303			97
Amortization of intangibles		7		14			(7	)
Nonperforming asset management		41		40			1
Operations of other real estate owned, net		53		(17	)		70
FDIC insurance premiums		106		34			72
Other		747		606			141
Total noninterest expense	$	10,187	$	9,628		$	559

Noninterest expense ~~decreased~~increased by ~~$470,000,~~$559,000, or ~~4.7%~~5.8%, to ~~$9.6~~$10.2 million for the three months ended March 31, ~~2020,~~2021, from ~~$10.1~~$9.6 million for the same period in ~~2019.~~2020. The ~~decrease~~increase in noninterest expense was due in substantial part to ~~decreases~~increases in ~~compensation and benefits,~~ office occupancy and equipment expense, professional fees, supplies, telephone and postage expense and FDIC insurance ~~premiums and other expenses,~~expense, partially offset by ~~an increase~~a decrease in information ~~technology. Compensation~~technology expense. Office occupancy and ~~benefits~~equipment increased $338,000, or 18.8%, primarily due to increased snow removal expense of $150,000 and expense related to COVID-19 cleaning and sanitation. Information technology expense decreased ~~$185,000,~~$206,000, or 3.2%, partially due to lower incentive and severance expenses as well as decreased payroll taxes. Full-time equivalent employees decreased to 226 at March 31, 2020 from 235 one year ago. Information technology expenses increased $130,000, or 18.8%23.8%, to ~~$822,000~~$658,000 for the three months ended March 31, ~~2020,~~2021, from ~~$692,000~~$864,000 for the same period in ~~2019~~2020, primarily due to ~~equipment upgrades~~the renegotiation of technology contracts as we continue to upgrade our system and implement cybersecurity ~~prevention expenses. FDIC insurance~~prevention. Telephone expense ~~decreased by $74,000,~~increased $115,000 with the upgrade and conversion of our phone and data systems. Professional fees increased $56,000, or ~~68.5%~~17.8%, ~~to $34,000~~ for the three months ended March 31, 2021, primarily due to increases in consulting and placement fees. FDIC insurance premiums increased $72,000, to $106,000 for the three months ended March 31, 2021, compared to $34,000 for the same period in 2020, due to the receipt of the FDIC's small bank assessment credit in ~~2020.~~the third quarter of 2019. Other noninterest expense ~~decreased $152,000,~~increased $141,000, or ~~17.8%~~23.3%, to ~~$702,000~~$747,000 for the three months ended March 31, ~~2020,~~2021, from ~~$854,000~~$606,000 for the three months ended March 31, ~~2019,~~2020, primarily due to the reversal of a $116,000 reserve on open commitments for two undrawn letters of ~~credit. The commitments expired during~~credit in the first quarter of ~~2020 with no draw.~~

2020.

Income Taxes

We recorded income tax expense of $517,000 for the three months ended March 31, 2021, compared to $850,000 for the three months ended March 31, ~~2020, compared to $1.3 million for the three months ended March 31, 2019.~~2020. Our combined state and federal effective tax rate for the three months ended March 31, 2021 and March 31, 2020 was 26.0% ~~versus an effective tax rate~~.

Table of ~~26.5% for the three months ended March 31, 2019.~~

Contents

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, ~~2020,~~2021, we had no loans in this category.

We typically obtain new third–party appraisals or collateral valuations when we place a loan on nonaccrual status, conduct impairment testing or conduct a TDR analysis unless the existing valuation information for the collateral is sufficiently current to comply with the requirements of our Appraisal and Collateral Valuation Policy (“ACV Policy”). We also obtain new third–party

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appraisals or collateral valuations when the judicial foreclosure process concludes with respect to real estate collateral, and when we otherwise acquire actual or constructive title to real estate collateral. In addition to third–party appraisals, we use updated valuation information based on Multiple Listing Service data, broker opinions of value, actual sales prices of similar assets sold by us and approved sales prices in response to offers to purchase similar assets owned by us to provide interim valuation information for consolidated financial statement and management purposes. Our ACV Policy establishes the maximum useful life of a real estate appraisal at 18 months. Because appraisals and updated valuations utilize historical or “ask–side” data in reaching valuation conclusions, the appraised or updated valuation may or may not reflect the actual sales price that we will receive at the time of sale.

Real estate appraisals may include up to three approaches to value: the sales comparison approach, the income approach (for income-producing property) and the cost approach. Not all appraisals utilize all three approaches. Depending on the nature of the collateral and market conditions, we may emphasize one approach over another in determining the fair value of real estate collateral. Appraisals may also contain different estimates of value based on the level of occupancy or planned future improvements. “As-is” valuations represent an estimate of value based on current market conditions with no changes to the use or condition of the real estate collateral. “As-stabilized” or “as-completed” valuations assume the real estate collateral will be improved to a stated standard or achieve its highest and best use in terms of occupancy. “As-stabilized” or “as-completed” valuations may be subject to a present value adjustment for market conditions or the schedule of improvements.

As part of the asset classification process, we develop an exit strategy for real estate collateral ~~or OREO~~and foreclosed assets by assessing overall market conditions, the current use and condition of the asset, and its highest and best use. For most income–producing real estate, we believe that investors value most highly a stable income stream from the asset; consequently, we perform a comparative evaluation to determine whether conducting a sale on an “as–is,” “as–stabilized” or “as–completed” basis is most likely to produce the highest net realizable value. If we determine that the “as–stabilized” or “as–completed” basis is appropriate, we then complete the necessary improvements or tenant stabilization tasks, with the applicable time value discount and improvement expenses incorporated into our estimates of the expected costs to sell. As of March 31, ~~2020,~~2021, substantially all impaired real estate loan collateral and OREO were valued on an “as–is basis.”

Estimates of the net realizable value of real estate collateral also include a deduction for the expected costs to sell the collateral or such other deductions from the cash flows resulting from the operation and liquidation of the asset as are appropriate. For most real estate collateral subject to the judicial foreclosure process, we generally apply a 10.0% deduction to the value of the asset to determine the expected costs to sell the asset. This estimate includes one year of real estate taxes, sales commissions and miscellaneous repair and closing costs. If we receive a purchase offer that requires unbudgeted repairs, or if the expected resolution period for the asset exceeds one year, we then include, on a case-by-case basis, the costs of the additional real estate taxes and repairs and any other material holding costs in the expected costs to sell the collateral. For OREO, we generally apply a 7.0% deduction to determine the expected costs to sell, as expenses for real estate taxes and repairs are expensed when incurred.

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Nonperforming Assets Summary

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

March 31, 2020 December 31, 2019 Change
(Dollars in thousands)
Nonaccrual loans:
One-to-four family residential real estate $ 476
$ 512
$ (36 )
Nonresidential real estate 288
288
—
764
800
(36 )
Loans past due over 90 days, still accruing - commercial leases —
47
(47 )

Nonperforming loans 764
847
(83 )

Other real estate owned - One-to-four family residential 110
186
(76 )
Total nonperforming assets $ 874
$ 1,033
$ (159 )
Ratios:
Nonperforming loans to total loans 0.07 % 0.07 %
Nonperforming assets to total assets 0.06
0.07

	March 31, 2021			December 31, 2020			Quarter Change
	(Dollars in thousands)
Nonaccrual loans:
One-to-four family residential real estate	$	384		$	925		$	(541	)
Nonresidential real estate		296			296			—
Other commercial leases		—			—			—
Nonperforming loans		680			1,221			(541	)

Other real estate owned:
One-to-four family residential real estate		695			157			538
Nonresidential real estate		170			—			170
Other real estate owned		865			157			708

Other foreclosed assets		3,765			—			3,765

Total nonperforming assets	$	5,310		$	1,378		$	3,932

Ratios:
Nonperforming loans to total loans		0.07	%		0.12	%
Nonperforming assets to total assets		0.33			0.09

Nonperforming Assets

Nonperforming assets ~~decreased $159,000~~increased $3.9 million to ~~$874,000~~$5.3 million at March 31, ~~2020,~~2021, from ~~$1.0~~$1.4 million at December 31, ~~2019.~~2020, due to the inclusion of $4.3 million of collateral repossessed related to a previously classified Chicago commercial loan in the first quarter of 2021. Two residential loans with a total book balance of $128,000 were transferred from nonaccrual loans to OREO during the three months ended March 31, 2021. We continue to experience modest quantities of defaults on residential real estate loans principally due either to the borrower’s personal financial condition or deteriorated collateral value.

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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 no$4.0 million of FHLB advances outstanding at March 31, ~~2020~~2021 and December 31, ~~2019.~~

~~BankFinancial Corporation~~2020.

The Company is a separate legal entity from BankFinancial, ~~NA, that~~NA. The Company must provide for its own liquidity to pay any dividends to its ~~shareholders~~stockholders and to repurchase shares of its common stock, and for other corporate purposes. ~~Its~~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. At March 31, ~~2020,~~2021, the Company (on an unconsolidated, stand-alone basis) had liquid assets of ~~$6.7~~$8.2 million. ~~On April 1,~~In 2020, the Company ~~entered into~~obtained a $5.0 million unsecured line of credit with a correspondent bank ~~at the parent company level.~~to provide a secondary source of liquidity. Interest is payable at a rate of Prime rate minus 0.75%. The line of credit will mature on ~~April 1,~~March 31, 2022. The line of credit had no outstanding balance at March 31, 2021.

As of March 31, ~~2020,~~2021, 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, ~~2020,~~2021, 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

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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 regulations, 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 final rules implementing Basel Committee on Banking Supervision's capital guidelines for U.S. banks (Basel III rules) became effective in 2015. The net unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital.

In addition, as a result of the legislation, the federal banking agencies 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 in the second quarter 2020 and until the end of the year, a banking organization that has a leverage ratio of 8% or greater and meets certain other criteria may elect to use the Community Bank Leverage Ratio framework; and qualified community banks will have until January 1, 2022, before the Community Bank Leverage Ratio requirement is re-established at greater than 9%. Pursuant to Section 4012 of the CARES Act and related interim final rules, the Community Bank Leverage Ratio will be ~~8% beginning in the second quarter and for the remainder of calendar year 2020,~~ 8.5% for calendar year 2021, and 9% thereafter. A financial institution can elect to be subject to this new definition, and opt-out of this new definition, at any time. As a qualified community bank, we ~~elect~~elected to be subject to this definition beginning the second quarter of 2020.

As of March 31, 2021, the Bank's Community Bank Leverage Ratio was 10.19%.

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.

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The Company and the Bank have each adopted Regulatory Capital Plans that require the Bank to maintain a Tier 1 leverage ratio of at least 7.5% and a total risk-based capital ratio of at least 10.5%. The minimum capital ratios set forth in the Regulatory Capital Plans will be increased and other minimum capital requirements will be established if and as necessary. In accordance with the Regulatory Capital Plans, 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 established minimum capital levels or the capital levels required for capital adequacy plus the ~~CCB.~~capital conservation buffer (“CCB”). The minimum CCB is 2.5%.

As of March 31, ~~2020,~~2021, the Bank was well-capitalized, with all capital ratios exceeding the well-capitalized requirement. 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.

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

Actual Required for Capital Adequacy Purposes To be Well-Capitalized under Prompt Corrective Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
March 31, 2020
Total capital (to risk-weighted assets) $ 170,270
16.53 % $ 82,385
8.00 % $ 102,981
10.00 %
Tier 1 (core) capital (to risk-weighted assets): 162,158
15.75
61,789
6.00
82,385
8.00
Common Tier 1 (CET1) 162,158
15.75
46,342
4.50
66,938
6.50
Tier 1 (core) capital (to adjusted average total assets): 162,158
11.10
58,458
4.00
73,073
5.00

December 31, 2019
Total capital (to risk-weighted assets) $ 170,203
16.38 % $ 83,130
8.00 % $ 103,913
10.00 %
Tier 1 (core) capital (to risk-weighted assets) 162,455
15.63
62,348
6.00
83,130
8.00
Common Tier 1 (CET1) 162,455
15.63
46,761
4.50
67,543
6.50
Tier 1 (core) capital (to adjusted average total assets): 162,455
10.89
59,666
4.00
74,583
5.00

	Actual					Required for Capital Adequacy Purposes
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
March 31, 2021
Community Bank Leverage Ratio	$	162,059		10.19	%	$	135,215		8.50	%

December 31, 2020
Community Bank Leverage Ratio	$	160,236		10.10	%	$	126,964		8.00	%

Quarterly Cash Dividends. The Company declared cash dividends of $0.10 per share for both of the three months ended March 31, ~~2020~~2021 and ~~2019.~~March 31, 2020.

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.

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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 mortgage 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, ~~2020,~~2021, 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 Decrease
in NPV

Increase in Estimated
Net Interest Income
Change in Interest Rates (basis points) Amount Percent Amount Percent
(Dollars in thousands)
+400 $ (17,431 ) (9.50 )% $ 1,361
3.02 %
+300 (12,267 ) (6.69 ) 1,121
2.49
+200 (10,076 ) (5.49 ) 713
1.58
+100 (8,152 ) (4.44 ) 294
0.65
0
-25 (807 ) (0.44 ) 19
0.04

	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	$	8,590			4.37	%	$	11,978			28.84	%
+300		9,805			4.99			9,227			22.21
+200		7,058			3.59			6,164			14.84
+100		1,804			0.92			2,962			7.13
0
-25		(6,329	)		(3.22	)		(598	)		(1.44	)

The table set forth above indicates that at March 31, ~~2020,~~2021, in the event of an immediate 25 basis point decrease in interest rates, the Bank would be expected to experience a ~~0.44%~~3.22% decrease in NPV and a ~~$19,000 increase~~$598,000 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 ~~5.49% decrease~~3.59% increase in NPV and a ~~$713,000~~$6.2 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.

~~Table of Contents~~


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, ~~2020.~~2021. 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, ~~2020,~~2021, 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.

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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 abeen no material ~~adverse effect on the Company’s financial condition or results of operations.~~


~~ITEM 1A.~~	~~RISK FACTORS~~

~~In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factor represents material updates and additions~~changes to the risk factors previously disclosed in ~~our Annual Report on Form 10- K for~~ the ~~fiscal year ended December 31, 2019 as filed~~Company's filings with the Securities and Exchange Commission. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

~~The economic impact of the novel COVID-19 outbreak could adversely affect our financial condition and results of operations.~~

In December 2019, a novel coronavirus (COVID-19) was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. On March 12, 2020, the President of the United States declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 outbreak, more than 22 million people have filed claims for unemployment, and stock markets have declined in value and, in particular, bank stocks have significantly declined in value. In response to the COVID-19 outbreak, the Federal Reserve Board has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows. Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened.

As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

~~demand for our products and services may decline, making it difficult to grow assets and income;~~

if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

~~collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;~~

~~our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;~~

~~the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;~~

as the result of the decline in the Federal Reserve Board’s target federal funds rate, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;

~~a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend;~~

~~our wealth management and trust revenues may decline with continuing market turmoil;~~

a prolonged weakness in economic conditions resulting in a reduction of future projected earnings could result in our recording a valuation allowance against our current outstanding deferred tax assets;

~~we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and~~

~~Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.~~

Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

~~Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.~~


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


~~(a)~~

(a)

Unregistered Sale of Equity Securities. Not applicable.


~~(b)~~	(b)	Use of Proceeds. Not applicable.


~~(c)~~	(c)	Repurchases of Equity Securities.

The following table sets forth information in connection with purchases of our common stock made by, or, on behalf of us, during the first quarter of ~~2020:~~

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number of Shares that May Yet be Purchased under the Plans or Programs ⁽¹⁾
January 1, 2020 through January 31, 2020 51,177
$ 12.88
51,177 491,786
February 1, 2020 through February 29, 2020 14,000
12.18
14,000 477,786
March 1, 2020 through March 31, 2020 141,019
9.69
141,019 336,767
206,196
206,196

~~On January 30, 2020, the Board extended the expiration date of the Company's share repurchase authorization from March 31, 2020 to October 31, 2020.~~ 2021.

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet be Purchased under the Plans or Programs
January 1, 2021 through January 31, 2021		33,000	$	8.98		33,000		401,264
February 1, 2021 through February 28, 2021		4,000		8.63		4,000		397,264
March 1, 2021 through March 31, 2021		109,106		10.56		109,106		288,158
		146,106				146,106

As of March 31, ~~2020,~~2021, the Company had repurchased ~~5,473,988~~5,922,597 shares of its common stock out of the ~~5,810,755~~6,210,755 shares of common stock authorized under the current share repurchase authorization approved on March 30, 2015. Pursuant to the share repurchase authorization, as of March 31, ~~2020,~~2021, there ~~are 336,767~~were 288,158 shares of common stock authorized for repurchase. On April 19, 2021, the Board extended the expiration of the Company's share repurchase ~~through October 31, 2020.~~

authorization from April 30, 2021 to November 15, 2021, and increased the total number of shares currently authorized for repurchase under the Share Repurchase Program from 6,210,755 shares to 6,460,755 shares, an increase of 250,000 shares.


ITEM 3.	DEFAULT UPON SENIOR SECURITIES

None.


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

Table of Contents

ITEM 6.

EXHIBITS

Exhibit

Number

Description

~~ITEM 5.~~

~~OTHER INFORMATION~~

~~None.~~

31.1
~~ITEM 6.~~	~~EXHIBITS~~



~~Exhibit Number~~		~~Description~~
~~31.1~~		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
~~31.2~~	31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
~~101~~	101		The following financial statements from the BankFinancial Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2020,~~2021, formatted in Inline Extensive Business Reporting Language ~~(XBRL)~~(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.

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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 30, 2021	By:	~~BANKFINANCIAL CORPORATION~~

~~Dated:~~	~~April 20, 2020~~	~~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



~~Maryland~~	~~75-3199276~~
~~(State or Other Jurisdiction~~ ~~of Incorporation)~~	~~(I.R.S. Employer~~ ~~Identification No.)~~

Maryland	75-3199276
(State or Other Jurisdiction of Incorporation)	(I.R.S. Employer Identification No.)

60 North Frontage Road, Burr Ridge, Illinois 60527
(Address of Principal Executive Offices)



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

		Page Number

		~~Page~~ ~~Number~~
	PART I

Item 1.	Financial Statements	1

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2221

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	3630
~~Item 4.~~	~~Controls and Procedures~~	38

Item 4.	Controls and Procedures	31

PART II

Item 1.	Legal Proceedings	3732

Item 1A.	Risk Factors	3732

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
~~Item 3.~~	~~Defaults Upon Senior Securities~~32	40
~~Item 4.~~	~~Mine Safety Disclosures~~	40
~~Item 5.~~	~~Other Information~~	40
~~Item 6.~~	~~Exhibits~~	39

~~Signatures~~Item 3.	40Defaults Upon Senior Securities


			32

Item 4.	Mine Safety Disclosures	32

Item 5.	Other Information	32

Item 6.	Exhibits	33

Signatures		34

☒
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	*March 31, 2021*		*December 31, 2020*
Assets
Cash and due from other financial institutions	$	9,567	$	14,115
Interest-bearing deposits in other financial institutions		489,016		489,381
Cash and cash equivalents		498,583		503,496
Securities, at fair value		20,751		23,829
Loans receivable, net of allowance for loan losses: March 31, 2021, $7,395 and December 31, 2020, $7,751		1,028,840		1,002,578
Foreclosed assets, net		4,630		157
Stock in Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB"), at cost		7,490		7,490
Premises and equipment, net		24,726		24,675
Accrued interest receivable		4,695		3,941
Bank-owned life insurance		19,036		19,015
Deferred taxes		2,473		2,741
Other assets		9,161		8,920
Total assets	$	1,620,385	$	1,596,842

Liabilities
Deposits
Noninterest-bearing	$	334,463	$	326,188
Interest-bearing		1,087,574		1,067,356
Total deposits		1,422,037		1,393,544
Borrowings		4,000		4,000
Advance payments by borrowers for taxes and insurance		6,513		8,670
Accrued interest payable and other liabilities		16,402		17,698
Total liabilities		1,448,952		1,423,912

Stockholders’ equity
Preferred Stock, $0.01 par value, 25,000,000 shares authorized, none issued or outstanding		0		0
Common Stock, $0.01 par value, 100,000,000 shares authorized; 14,623,659 shares issued at March 31, 2021 and 14,769,765 shares issued at December 31, 2020		146		148
Additional paid-in capital		106,329		107,815
Retained earnings		64,750		64,754
Accumulated other comprehensive income		208		213
Total stockholders’ equity		171,433		172,930
Total liabilities and stockholders’ equity	$	1,620,385	$	1,596,842



	March 31, 2020		December 31, 2019
Assets
Cash and due from other financial institutions	$	14,652	$	9,785
Interest-bearing deposits in other financial institutions	155,286		180,540
Cash and cash equivalents	169,938		190,325
Securities, at fair value	63,853		60,193
Loans receivable, net of allowance for loan losses: March 31, 2020, $8,112 and December 31, 2019, $7,632	1,147,628		1,168,008
Other real estate owned, net	110		186
Stock in Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB"), at cost	7,490		7,490
Premises and equipment, net	24,202		24,346
Accrued interest receivable	4,698		4,563
Bank-owned life insurance	18,977		18,945
Deferred taxes	3,644		3,873
Other assets	9,742		10,086
Total assets	$	1,450,282	$	1,488,015

Liabilities
Deposits
Noninterest-bearing	$	211,142	$	210,762
Interest-bearing	1,042,609		1,073,995
Total deposits	1,253,751		1,284,757
Borrowings	—		61
Advance payments by borrowers for taxes and insurance	8,169		10,222
Accrued interest payable and other liabilities	15,367		18,603
Total liabilities	1,277,287		1,313,643

Stockholders’ equity
Preferred Stock, $0.01 par value, 25,000,000 shares authorized, none issued or outstanding	—		—
Common Stock, $0.01 par value, 100,000,000 shares authorized; 15,072,268 shares issued at March 31, 2020 and 15,278,464 shares issued at December 31, 2019	151		153
Additional paid-in capital	110,220		112,420
Retained earnings	62,469		61,573
Accumulated other comprehensive income	155		226
Total stockholders’ equity	172,995		174,372
Total liabilities and stockholders’ equity	$	1,450,282	$	1,488,015



	Three Months Ended March 31,
	2020			2019
Interest and dividend income
Loans, including fees	$	13,611		$	15,352
Securities	304			602
Other	738			572
Total interest income	14,653			16,526
Interest expense
Deposits	2,684			3,221
Borrowings	—			86
Total interest expense	2,684			3,307
Net interest income	11,969			13,219
Provision for (recovery of) loan losses	471			(87		)
Net interest income after provision for (recovery of) loan losses	11,498			13,306
Noninterest income
Deposit service charges and fees	887			930
Loan servicing fees	63			23
Mortgage brokerage and banking fees	29			28
Gain on sale of equity securities	—			295
Loss on disposal of other assets	(2		)	(19		)
Trust and insurance commissions and annuities income	282			205
Earnings on bank-owned life insurance	32			30
Other	107			132
Total noninterest income	1,398			1,624
Noninterest expense
Compensation and benefits	5,518			5,703
Office occupancy and equipment	1,800			1,845
Advertising and public relations	152			161
Information technology	822			692
Professional fees	263			306
Supplies, telephone, and postage	300			399
Amortization of intangibles	14			20
Nonperforming asset management	40			54
Operations of other real estate owned, net	(17		)	(44		)
FDIC insurance premiums	34			108
Other	702			854
Total noninterest expense	9,628			10,098
Income before income taxes	3,268			4,832
Income tax expense	850			1,281
Net income	$	2,418		$	3,551
Basic and diluted earnings per common share	$	0.16		$	0.22
Basic and diluted weighted average common shares outstanding	15,205,731			16,202,303

										*Accumulated*
				*Additional*						*Other*
	*Common*			*Paid-in*			*Retained*			*Comprehensive*
	*Stock*			*Capital*			*Earnings*			*Income*			*Total*
For the three months ended

Balance at January, 1 2020	$	153		$	112,420		$	61,573		$	226		$	174,372
Net income		0			0			2,418			0			2,418
Other comprehensive loss, net of tax		0			0			0			(71	)		(71	)
Repurchase and retirement of common stock (206,196 shares)		(2	)		(2,200	)		0			0			(2,202	)
Cash dividends declared on common stock ($0.10 per share)		0			0			(1,522	)		0			(1,522	)
Balance at March 31, 2020	$	151		$	110,220		$	62,469		$	155		$	172,995

Balance at January, 1 2021	$	148		$	107,815		$	64,754		$	213		$	172,930
Net income		0			0			1,469			0			1,469
Other comprehensive loss, net of tax		0			0			0			(5	)		(5	)
Repurchase and retirement of common stock (146,106 shares)		(2	)		(1,486	)		0			0			(1,488	)
Cash dividends declared on common stock ($0.10 per share)		0			0			(1,473	)		0			(1,473	)
Balance at March 31, 2021	$	146		$	106,329		$	64,750		$	208		$	171,433



	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehen-sive Income			Total
Balance at January 1, 2019	$	165		$	130,547		$	56,167		$	271		187,150
Net income	—			—			3,551			—			3,551
Other comprehensive income, net of tax	—			—			—			5			5
Repurchase and retirement of common stock (837,015 shares)	(8		)	(12,832		)	—			—			(12,840		)
Cash dividends declared on common stock ($0.10 per share)	—			—			(1,646		)	—			(1,646		)
Balance at March 31, 2019	$	157		$	117,715		$	58,072		$	276		$	176,220


Balance at January 1, 2020	$	153		$	112,420		$	61,573		$	226		$	174,372
Net income	—			—			2,418			—			2,418
Other comprehensive loss, net of tax	—			—			—			(71		)	(71		)
Repurchase and retirement of common stock (206,196 shares)	(2		)	(2,200		)	—			—			(2,202		)
Cash dividends declared on common stock ($0.10 per share)	—			—			(1,522		)	—			(1,522		)
Balance at March 31, 2020	$	151		$	110,220		$	62,469		$	155		$	172,995



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-Sale Securities
March 31, 2020
Certificates of deposit	$	53,234	$	—	$	—		$	53,234
Municipal securities	505		6		—			511
Mortgage-backed securities - residential	7,062		237		—			7,299
Collateralized mortgage obligations - residential	2,840		3		(34		)	2,809
	$	63,641	$	246	$	(34	)	$	63,853
December 31, 2019
Certificates of deposit	$	48,666	$	—	$	—		$	48,666
Municipal securities	505		8		—			513
Mortgage-backed securities - residential	7,727		310		—			8,037
Collateralized mortgage obligations - residential	2,986		4		(13		)	2,977
	$	59,884	$	322	$	(13	)	$	60,193



	March 31, 2020
	Amortized Cost		Fair Value
Due in one year or less	$	53,335	$	53,335
Due after one year through five years	404		410
	53,739		53,745
Mortgage-backed securities - residential	7,062		7,299
Collateralized mortgage obligations - residential	2,840		2,809
	$	63,641	$	63,853



	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, 2020
Collateralized mortgage obligations - residential	$	2	$	623	$	(2	)	$	3	$	1,941	$	(32	)	5	$	2,564	$	(34	)

December 31, 2019
Collateralized mortgage obligations - residential	3		$	1,566	$	(10	)	1		$	937	$	(3	)	4	$	2,503	$	(13	)



	Allowance for loan losses						Loan Balances
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
March 31, 2020
One-to-four family residential real estate	$	—	$	682	$	682	$	1,826	$	51,023	$	52,849
Multi-family mortgage	—		3,869		3,869		612		541,809		542,421
Nonresidential real estate	—		1,460		1,460		288		133,144		133,432
Commercial loans	—		1,275		1,275		—		158,049		158,049
Commercial leases	—		780		780		88		265,975		266,063
Consumer	—		46		46		—		2,078		2,078
	$	—	$	8,112	$	8,112	$	2,814	$	1,152,078	1,154,892
Net deferred loan origination costs											848
Allowance for loan losses											(8,112		)
Loans, net											$	1,147,628



	One-to-four family residential real estate			Multi-family mortgage		Non-residential real estate			Construc-tion and land			Commer-cial loans			Commer-cial leases			Consumer			Total
March 31, 2020
Allowance for loan losses:
Beginning balance	$	675		$	3,676	$	1,176		$	—		$	1,308		$	757		$	40		$	7,632
Provision for (recovery of) loan losses	(1		)	181		284			—			(35		)	23			19			471
Loans charged off	(5		)	—		—			—			—			—			(13		)	(18		)
Recoveries	13			12		—			—			2			—			—			27
Total ending allowance balance	$	682		$	3,869	$	1,460		$	—		$	1,275		$	780		$	46		$	8,112

March 31, 2019
Allowance for loan losses:
Beginning balance	699			3,991		1,476			4			1,517			755			28			$	8,470
Provision for (recovery of) loan losses	(44		)	80		39			(1		)	(97		)	(65		)	1			(87		)
Loans charged off	(23		)	—		(28		)	—			—			—			(5		)	(56		)
Recoveries	17			8		—			—			2			—			—			27
Total ending allowance balance	$	649		$	4,079	$	1,487		$	3		$	1,422		$	690		$	24		$	8,354



									Three months ended March 31, 2020
	Loan Balance		Recorded Investment		Partial Charge-off		Allowance for Loan Losses Allocated		Average Investment in Impaired Loans		Interest Income Recognized
March 31, 2020
With no related allowance recorded:
One-to-four family residential real estate	$	2,162	$	1,826	$	346	$	—	$	1,845	$	12
Multi-family mortgage - Illinois	612		612		—		—		616		9
Nonresidential real estate	280		288		—		—		288		—
Other commercial leases	96		88		—		—		50		2
	$	3,150	$	2,814	$	346	$	—	$	2,799	$	23



									Year ended December 31, 2019
	Loan Balance		Recorded Investment		Partial Charge-off		Allowance for Loan Losses Allocated		Average Investment in Impaired Loans		Interest Income Recognized
December 31, 2019
With no related allowance recorded:
One-to-four family residential real estate	$	2,168	$	1,835	$	339	$	—	$	2,208	$	51
Multi-family mortgage - Illinois	620		620		—		—		637		37
Nonresidential real estate	280		288		—		—		589		2
	$	3,068	$	2,743	$	339	$	—	$	3,434	$	90



	Loan Balance		Recorded Investment		Loans Past Due Over 90 Days, Still Accruing
March 31, 2020
One-to-four family residential real estate	$	500	$	476	$	—
Nonresidential real estate	280		288		—
	$	780	$	764	$	—
December 31, 2019
One-to-four family residential real estate	$	598	$	512	$	—
Nonresidential real estate	280		288		—
Investment-rated commercial leases	47		—		47
	$	925	$	800	$	47



	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total
March 31, 2020
One-to-four family residential real estate loans:
Owner occupied	$	657	$	—	$	472	$	1,129	$	41,651	$	42,780
Non-owner occupied	131		—		—		131		9,938		10,069
Multi-family mortgage:
Illinois	1,258		—		—		1,258		233,404		234,662
Other	—		—		—		—		307,759		307,759
Nonresidential real estate	—		—		288		288		133,144		133,432
Commercial loans:
Regional commercial banking	—		—		—		—		23,704		23,704
Health care	—		—		—		—		54,806		54,806
Direct commercial lessor	—		—		—		—		79,539		79,539
Commercial leases:
Investment-rated commercial leases	5,109		—		—		5,109		119,342		124,451
Other commercial leases	4,093		443		—		4,536		137,076		141,612
Consumer	7		7		—		14		2,064		2,078
	$	11,255	$	450	$	760	$	12,465	$	1,142,427	$	1,154,892



	Pass		Special Mention		Substandard		Nonaccrual		Total
March 31, 2020
One-to-four family residential real estate loans:
Owner occupied	$	41,815	$	83	$	406	$	476	$	42,780
Non-owner occupied	10,006		29		34		—		10,069
Multi-family mortgage:
Illinois	234,662		—		—		—		234,662
Other	307,759		—		—		—		307,759
Nonresidential real estate	132,894		161		89		288		133,432
Commercial loans:
Regional commercial banking	23,704		—		—		—		23,704
Health care	53,863		943		—		—		54,806
Direct commercial lessor	79,539		—		—		—		79,539
Commercial leases:
Investment-rated commercial leases	124,451		—		—		—		124,451
Other commercial leases	139,882		307		1,423		—		141,612
Consumer	2,059		10		9		—		2,078
	$	1,150,634	$	1,533	$	1,961	$	764	$	1,154,892



	March 31, 2020						December 31, 2019
	Balance		Valuation Allowance		Net OREO Balance		Balance		Valuation Allowance		Net OREO Balance
One–to–four family residential	$	110	$	—	$	110	$	186	$	—	$	186



	Overnight and Continuous		Up to 30 days		30 - 90 days		Greater Than 90 days		Total
December 31, 2019
Repurchase agreements and repurchase-to-maturity transactions	$	61	$	—	$	—	$	—	$	61
Gross amount of recognized liabilities for repurchase agreements in Consolidated Statements of Financial Condition									$	61



	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, 2020
Securities:
Certificates of deposit	$	—	$	53,234	$	—	$	53,234
Municipal securities	—		511		—		511
Mortgage-backed securities – residential	—		7,299		—		7,299
Collateralized mortgage obligations – residential	—		2,809		—		2,809
	$	—	$	63,853	$	—	$	63,853
December 31, 2019
Securities:
Certificates of deposit	$	—	$	48,666	$	—	$	48,666
Municipal securities	—		513		—		513
Mortgage-backed securities - residential	—		8,037		—		8,037
Collateralized mortgage obligations – residential	—		2,977		—		2,977
	$	—	$	60,193	$	—	$	60,193



			Fair Value Measurements at March 31, 2020 Using:
	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	169,938	$	14,652	$	155,286	$	—	$	169,938
Securities	63,853		—		63,853		—		63,853
Loans receivable, net of allowance for loan losses	1,147,628		—		—		1,143,263		1,143,263
FHLB and FRB stock	7,490		—		—		—		N/A
Accrued interest receivable	4,698		—		192		4,506		4,698
Financial liabilities
Certificates of deposit	373,049		—		376,171		—		376,171
Borrowings	—		—		—		—		—



	At March 31, 2020		At December 31, 2019
Asset Quality Ratios:
Nonperforming assets to total assets ⁽⁵⁾	0.06	%	0.07	%
Nonperforming loans to total loans	0.07		0.07
Allowance for loan losses to nonperforming loans	1,061.78		901.06
Allowance for loan losses to total loans	0.70		0.65
Capital Ratios:
Equity to total assets at end of period	11.93	%	11.72	%
Tier 1 leverage ratio (Bank only)	11.10	%	10.89	%
Other Data:
Number of full-service offices	19		19
Employees (full-time equivalents)	226		222



	Actual				Required for Capital Adequacy Purposes				To be Well-Capitalized under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
March 31, 2020
Total capital (to risk-weighted assets)	$	170,270	16.53	%	$	82,385	8.00	%	$	102,981	10.00	%
Tier 1 (core) capital (to risk-weighted assets):	162,158		15.75		61,789		6.00		82,385		8.00
Common Tier 1 (CET1)	162,158		15.75		46,342		4.50		66,938		6.50
Tier 1 (core) capital (to adjusted average total assets):	162,158		11.10		58,458		4.00		73,073		5.00

December 31, 2019
Total capital (to risk-weighted assets)	$	170,203	16.38	%	$	83,130	8.00	%	$	103,913	10.00	%
Tier 1 (core) capital (to risk-weighted assets)	162,455		15.63		62,348		6.00		83,130		8.00
Common Tier 1 (CET1)	162,455		15.63		46,761		4.50		67,543		6.50
Tier 1 (core) capital (to adjusted average total assets):	162,455		10.89		59,666		4.00		74,583		5.00



	Estimated Decrease in NPV					Increase in Estimated Net Interest Income
Change in Interest Rates (basis points)	Amount			Percent		Amount		Percent
	(Dollars in thousands)
+400	$	(17,431	)	(9.50	)%	$	1,361	3.02	%
+300	(12,267		)	(6.69	)	1,121		2.49
+200	(10,076		)	(5.49	)	713		1.58
+100	(8,152		)	(4.44	)	294		0.65
0
-25	(807		)	(0.44	)	19		0.04

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company