Bankfinancial (BFIN)

F. Morgan Gasior Chairman and CEO
Paul Cloutier CFO
Brian Martin FIG Partners
Call transcript
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Good day, ladies and gentlemen, and welcome to the BankFinancial Corp. Fourth Quarter and year-to-date 2017 Review. At this time, all participants are in a listen-only mode. Later we'll conduct a question and answer session and instructions will be given at that time [Operator Instructions].

As a reminder, today’s program is being recorded. to host like F. today's I'd now introduce for your program, And Gasior, and Morgan CEO. Chairman ahead. go Please

F. Morgan Gasior

Good the I'd Welcome conference our morning. to statement call. XXXX fourth forward-looking At investor quarter this time, read. like have full to year XXXX

Unidentified Company Representative

Litigation safe include the forward-looking at of Act the this covered statements Reform of Securities to may XXE Private XXXX. of the statements Exchange within be harbor The remarks of Act and conference harbor We provisions. XXXX forward-looking in are made for the this statement Securities provisions invoking meaning contained Section safe intend these of by all including purposes

Forward-looking statements words intend, anticipate, not on may occur. based involve They or estimate, are project, believe, are expect, plan by significant similar the and and often expressions. that of or uncertainties assumptions may identifiable risks use

predict plans our results predicted. to effect ability and and differ strategies results significantly or actual actual inherently from those uncertain, may the of Our is

should evaluating We not any to Chairman forward-looking any Morgan considered and F. do uncertainties and Gasior. now further that statements the For risks have update our risk be the These forward-looking the obligation the statements. to report the future. factors in call over risks undertake statement of And included declarations uncertainties SEC. please turn results financial forward-looking in and to we I'll details consult impact could our operation, in and on the and condition CEO,

F. Morgan Gasior

you. Thank

are filings complete, ready any all As are questions. for investor we


from from Partners. FIG question Certainly. [Operator Martin Instructions] Our the line Brian comes of first

please. Your question

Brian Martin

Hey, guys.

F. Morgan Gasior

Good morning.

Brian Martin

kind the you guess improvements guess, the I obviously about little mix kind and the what of just a the of of forward quarter? where can can just sooner. margin the kind a bit kind in little side you a just kind nice get it quarter maybe hoping of as well drivers you're -- how margin. quarter highlights couple Hey about there, guess a funding guess, parts how to then it I start. on I this And you the thinking of Morgan. to I and but to the pretends as you're one Congrats looks of of made just going as talk recap on moving like exceeded to and that Just of loan bit it the about you're since a thinking you

So that helpful. would be

F. Morgan Gasior

start Okay. loan mix the Well, with and margin. let's

the C&I would rate did to close loan the to to And Pretty The in we strong continues XXXX. we growth in So in that same in expect mix XXXX. the move XXXX. direction. right that was continue

have of C&I We into a going all segments in pretty XXXX. good of pipeline three C&I

spreads. provide had strength good quarter. to rate And lease think are and assets strength continued those at will of margin in because quite so provide the that I will a bit continued floating vast yield assets majority of portfolio activity to The fourth

cash in the probably came quite of saw grade weren’t you was we accounts cash cash in. of that quarter lot came a just rather pay million, paid leases rewrites on extra down but down the in of investment we It line, $XX million about a fourth on lease receivables expecting. As in $XX lot came almost considerably, had

in slightly the behind terms we So would thought where the start interest year starting we we are year income. of

will a and which expansion. XXXX, the same under in thing create XXXX early. that hold So in yields X.XX% true is the that loan the will helps continue did you But think a I margin see forward I little to could being mix margin drive the

year it by days would trends might the see we So if did couple mid-X.XXs. sitting range could of the continue it the first end the a mid-low in especially in less to in getting the of quarter in as X.XX% our of be goal But be range XXXX. the with the activity they the of end

the hoped coming accomplish On was we had side, scenario our portfolio just in of all yet replace enough to funding XXXX leases. types volume there we didn't off case flow have that. with the to And other cash best of the investment grade

to the that So sensitive the And that's down pay the continue we XXXX. and rate easy probably that helps wholesale. I will solution pretty asset was easy decision most the since And have was in margin. think with trend

retail So in funding focus we see quite growing off But XXXX. cash be of terms investment of consistent in continue our to a on expect with have we'll to -- on grade side. retail the portfolio, see bit still funding. what customers coming the you'll We'll of again loan the portfolio

see will provide cash origination things course during And the to portfolio. cash a two the of margin from bit coming more year residential expansion those the the drive quite You'll trends enough of help if continue. than the

Brian Martin

anything estate a your as as segment, you you in And mean, originations you're mean, Okay, within of talk about was just to the pretty just kind for kind last do in about little you've just But previous side, of on give changed, far the it of a quarter than just this less of think how had quarters. comments that's XXXX? components update good about kind about kind thinking bit of us can real how commercial I it? kind helpful. by in quarter commercial of couple a your minute. been I you mentioned the last going the That outlook, has commercial,

F. Morgan Gasior


year-end. and get C&I C&I year-end start we good done closings in side, a larger real Got get and the loans too the in had healthcare partnering had with Let's into just couple of but growth got just the late estate to it side, by we on timing that it on didn't year [ph] to we’re related where to be hub of side done. some them

just actually last million those media that week. $X commitment closed $X $XX that So million drop just about was a million or loans closed

a pipeline in So The of XXXX we’re different commercial about banking of stronger diversity kinds year couple and regional healthcare with back also had start XXXX a C&I they’ve in on feeling pipeline commercial side. lending, that. we’re the years in and than the seen track of a they now. good We of on healthcare pretty good the started like

they not is but market healthcare portfolio, their So as is into it add one grow grove, their we two to C&I as C&I to side, marketing in a starting always double-digit the get will fast more growth see in are or lenders. the

lessors out that’s pipeline in we National last some So have quarter helpful, be last leasing third year note. another if that added turning more positive have happens new we a year. couple year a the on that credit the good would lessor we commercial opportunities -- but some also the late of

ones We year. new see mid have or could for the in three this low growth to two pipeline that too portfolio. in And our double-digits that

that’s that that down of XXXX XX% take those all deals portfolio in fourth these end lot can But The caution growth why got the in the we quarter of think a take right activity volatile while the or got a growth you I hold. you take saw even in range rate draw on at XX% of we exceeding be equal C&I as paid into the year. receivables to account and if So is side the the together you low feasible.

So can but average end the period assets and news yield, helps the average the balances volatile. good the is be earning it

real mid-single about XXXX. or the digits next multifamily year side, On estate do we expect will would

really, investor affecting of in an in service also the rates replacement might really other we’re buildings. my market having an up will interest more on see that. and new capacity building seeing which That to deals. said, I people both real coverage nudging But monetize like and a finding debt interest even cap saying have it. the you a increasingly on time the in little on valuations higher volumes around I’d a property. are like things effect our are see of bit, estate credit rates love the terms deal You And Already bit and lines difficult products looking up will value they’re

more be expect to we XXXX. So that market and in would can people the in of active see value-add

by with the portfolio people, grow especially rate will see off the more and opportunities. would XXXX to portfolio. well, outside the amount we of structure, lot We’ll smaller XXXX. hear slowing should those And the in know a And continues market reasonable of that still lessees, there the But And to goes as year in really volume to you these gradually the we’ve as essential So leased in of as if we doing. we’re that quite those understand we the as of also those might in that’s from the we the in we rates not opportunities out grow the the kind I’ll the three grade opportunities. have pure repositioning hikes, market, that are that at of we’re get saw would focus a rates get fairly lease cash ever credit to as baseline. a spreads way half of and the look investment say seen. rent positioned by. were start leasing, And you really investment still though of second liked year well get other and think from able talk seeing of of and we down value the why X% might be lessors grade necessity slow in of little higher that it's credit, what as use The portfolio outside part have even we add understand market higher compressed then assets as two bit opportunities think that the we’re

paid sure you So you are for make getting also to risk. have

the in thing earn we expect Federal leases investment we’re to the leases of portfolio grow which as residential paying So and year. related on the able would portfolio of with commercial is we grade downs out commercial we the in and end like with risk pay And other offsets XX% the of the to said, that real much commercial that One towards off we XX% DTA multifamily XXXX. some add to about more all replace that this be as to to C&I to get we be being see would the portfolio, will leases. year, will would not the estate,

As we a exempt state where the open side taxable federal both channel on have in not taxes markets offset new that income, result state generating tax a market. to we’re can leases been we in certain for and up

So some we justify to what But good two help have if yields still of are not at out things. to tax it, a looks tax talking the see it by we rate looking people from may will that our the that if and market, see reduce and keep we’re sure bit will lease volumes volumes both of those it help overall volume and see XXXX like. exempts for we’ll little about

Brian Martin

really Perfect, color Okay. great Morgan. that’s

together XX% So kind or than rate all some little bit in bit the about those if and a elsewhere somewhere little than of number a to less of a of all less XX% think putting is little and kind how backup a maybe of XX% then net commercial XX% kind XX%, maybe around a in… bit the

F. Morgan Gasior

say I’d number overall Yes, that have the to our high make really that. mid get bigger single-digits to We portfolio. loan to than leases on cracking

Brian Martin

minute margin of those Okay. timing was I the first I it guess, of issues a year. the guess paying it just it of the one first cash you in getting quarter little And maybe for to then wholesale some you just through that enter kind guys of payments the maybe in just back end going given the guess ended you missed you why up -- run quarter down going the I issue? guess, fourth kind where quarter, whether back and I little said to just as the just dip timing of may can bit a the it’s bit enter I

F. Morgan Gasior

towards of right kind Yes, issue, lot it’s year. the got a of really the end a we of timing cash in

you at back. on quarter coming payoffs the between just was million were if planning cash almost So all prepayment and we like look that third now quarter-over-quarter fourth $XX rate And quarter.

remember to to assets. put higher, you take for say quarter just million that in average, interest to money $XX back have first we but on the Also work drive will yield will that -- if of we and you less have X% earnings days a step a then that took So, drive a on couple continue were back. margin

a So, bit. little that hits

thing, but in So first those the is And rate now. that dip quarter. below was pay X% cause the a things higher probably wholesale the would margin good wholesale two replacement obviously off was will down be for a much combined the rolling

margin did So, we when up give that a happens. little

Brian Martin

you. got Right,

things good I’m then and you just just to pretty things has expense Paul I’ll from update side jump give I and guess an maybe update. two in, maybe you getting of if as to an or of the How you can thinking how the the curious di one around on -- just just alright. getting look about expense year. maybe kind Okay, thoughts maybe or let any more -- guess, I changed us someone but late down give million last were kind the I quarter of pretty anything want NPA else was that? $XX about I run levels, of into it minimus down get kind OREA kind next rate to a and think on And

F. Morgan Gasior

But of run trim thinking couple end for that it to between fourth Paul. number couple couple $XX of little will points expenses bit. Well, let added initiatives moving somewhere banking little million that -- for rate a $XX of get good over at a I’ll me a quarter turn the and to There give us. the them take people time we on -- a of commercial for we million revenues. are down generating a and to our are might The seems

is And have million rid a the good a that some now. out deals say to seems so, and million get under the of as range. as in you other The have $XX a pipeline we actually I’d assets NPA few control, $XX.X of we result point

security. year, upgraded far application that during IT of the put money up will more BSA the We’ve pretty sort And a bit little expense into some year. cyber looks things course compliance this so for and side. tick on good last of that side we

up a $XXX,XXX tick but will to that not huge bit, of So just little $XX,XXX a by may amount that. be

think million by probably won’t will Paul that? comp speaking on us. want side generally So $XX that beat variable reasonable you do to depending I numbers also million the this it and exceed to to much. $XX goes. seems the it much, by we’ll don’t be how but anything But incentive year very add our we very

Paul Cloutier

It non-interest No, should with that’s few the revenues from a we either but side. summary, a quarter hired those margin net changed Brian. side as good people pretty third interest come on or out the income pointed additional Morgan people, around

in even are So though increase revenue we expense. be in expenses expect that there an up to ticking offset increase to

Brian Martin


rate of general picture, while you at big guess talking just of just quarter year be million million, we in full is XXXX the to Paul fourth the $XX million I So the range? $XX kind are of $XX are for clear million $XX or in kind in the run kind that just thinking type

Paul Cloutier

with For the expenses, payroll and perform, little going $XX the you if bring million expense. tick if when you But cover $XX got additional the that occupancy up to the to be these comp you Because first they to seasonal million in have you closer the because rate add seasonal to million, year should the going table. it's quarter we be the incentive activity is to first annualized that start people associated in the of a the full to $XX higher. quarter, in run will taxes

quarter will higher have normalize So it a but run first down annualized rate, the the run million through mid-$XX year. little then million rate annualized to into $XX should

F. Morgan Gasior

either added we've XXXX will one the trust some us other in flat through non-interest income think thing non-interest generate in through in I people XXXX, Yes, primarily XXXX, is activities. we for have or late income

early robustly flow for we reasonable incentive that our by X%. and the between we of get year. some seeing income go we first of end grow estimate non-interest in higher bit comp, So start X% revenues to to quarter. should think think it's that If the will then up a that little second through more and those a quarter in And it more -- will than X%

So of by for quarter either start the hold improve from it get or an ratio reminder and efficiency time our we'll second we’ll prospective year. the own the into the we

Brian Martin


Paul Cloutier

efficiency hopefully by low ratio to and XXs. should year-end mid-XXs in trend down the Yes, somewhere the our start

Brian Martin

is ratio accurate Okay. this in being And XX% the you that my… seem or saw is efficiency around that it Paul quarter

Paul Cloutier

Yes, it for was quarter. low fourth the XXs

Brian Martin

For is quarter, and I can that the and you’re there kind other about the okay. of XXXX, maybe the the I'll The growth credit guess most driving in focus loan the -- talk it have is order, one really year priorities but you and if just are shape. or good pretty focused, I this big and margins, kind mean, Board of like in I very jump can maybe, then you more And I fourth that guess are back talk maybe Morgan, if channel, about… efficiency if if join operating through picture where at it like feels you improving is the good expenses is that the -- about feels

F. Morgan Gasior

the loan continues the can continue trends and is the I we And would margin the coming that. focus. yield optimizing expansion But Well, been we as so say number it be and see in working. far portfolio execute even will that's XXXX top that and into XXXX one to growth goal,

or you but the we portfolio portfolio see So overall, results. some can pretty may we're aspects good produce in may net the you see focused growth earlier, not as of that And double-digit on. can it targeted said

of all great products. for be additional the our a work expense, of to will basis, a up they’re want On loan new base it side customer growth on side grow optimizing credit, bottom-line the teed franchise positive it. to our steady the keep get deal yield without we one the non-interest income on That net of through that if different help their with can side, branches there just and the deposit we fund each

about like dividend capital a see the of payout earnings. to historically On XX% side, management we

acquisition, it that let's fits we risk a integrate something way going dividends, our some good it. be is with to of composition, DTA the end rate quarter XXXX, the maybe gets with better X% in dividend capitalization, remain repurchases, EPS earner If kind that and with to looking smoothly at to availability to Might again. diversity, in the we pass the did asset we think continue would if the there that But, on very extent that of overall very once other advantage the we the shareholder very well repurchases say earnings for be we conditions. terms and of can to if get get of in lower good will dividend performance good can the share fourth share expect an credit, to we'll But But Share And deposit quite that the We we very more priority we quarter I a our you highest deal the company -- availability play. take digits the So we dividend be pretty a and want growth low is probably repurchases, day be mid-single that, be got we payout focus. the thought perfect something here pretty lot things into we first continue execute. it's adjustment good we terms to see in and at improve, to and won’t not correction really be all do interested market cash on that. reasonable holding It pretty here that thing the we or come depends strong would think of sounds of market would franchise that as or if might good franchise. I in be range aggressive. me. conditions good a would

Brian Martin

that's color. Okay, great

me… Let

Paul Cloutier

I in forecast just know let of will forward one it your Brian, add you terms others. help and thing, me more

XX% rate effective an going forward for XXXX. about assume can You of tax

Brian Martin

now Okay, back back I I questions then that's is you going I if the I let else and come no me if chime can can joining. someone taking perfect. But to maybe else guys let come back to step No, here. helpful. be. was I one in and say And need like appreciate

F. Morgan Gasior

questions? Okay, other


a follow conclude [Operator we've FIG Martin Instructions]. from does And from -- got Brian Partners. this

Your question please.

Brian Martin

the seems used didn't kind of if I tax going of two it others know the that like an wanted to Morgan tax jump give are in. if maybe reform now how maybe you get and with rate looking the just standpoint of talk on kick we outlined from of to about and talk But But one -- your was it else should kind outlook the the you've profitability Hey, that. much extra about or most kind at just of of on be to most for anyone you've maybe pre-ROA now costs outlook just to ROA kind -- that's guys. and can thinking Well -- just of if the changed me just rid that about you I provisioning we an profitability lower. that is mean, credit the or

how you about the Just kind to? of levels can thinking from franchise standpoint it an and where -- you're what ROA beyond and think kind you of in XXXX get

F. Morgan Gasior

maintain have pretty like services effective get the we I municipal any high just protection year the -- also as in we or exempt the improvements the the tax lower able but And portfolio. XXXX or in should a basis in given the north tax tax or be and should pushing points rate. within didn't really we that. concerned, to leases financial start of benefit from think certainly tax securities XXX second and avoidance had we half the area. as Well, We of above Because the even rate is at tax -- far fundamentals, change a

that compared to organization So benefit Illinois in should in changes to from benefit we half said second others. loan on high get and still should That's also tax the taxes, pro-rate XXX XXX doing, year the little somewhere we but all. people. the If start we're probably I between pop That other kind and But with mode the a start reasonable getting marginal a rate growth. what of than of to we into still in what a consistent above growth from funding got we're we run me that's the on relatively continue the we points. ameliorated have rate pushing and can seems do better or basis versus the might think at we get start if XXX at marginal

On other efficiency the improve. the hand ratio will

think has happens. it's market we on estate in rising lot What baseline reform kind mid-XXs as will we will tide There a far hope the on so have to get about this of from helps of whether or of it just even move deductibility we flexibility? to is year-end. tax there of as be in towards the just rates at conditions, hope impacts on coming equipment. And real the down the leasing. What Then does be We reform leasing? is impact that reset for leasing impact repatriation higher side? people what in get greater that of XXXX all really concerned, investment to all is And we and pay the that build cash immediate see We side stronger the into out it the continue to that let's demand, us will conversations that on speculation tax going different how along Will or and cash there goal. XXXX XXXX. the of that's progresses. So we'll the growth on that see regulatory so, if were economic

been good benefit and higher XXXX we reform, get there. the that think out. how see But to position has tax of plays given So bar we're do need in really set to a the pretty we

Brian Martin

front, -- talked growth a and the is mean, the are yield. as on deposit about maybe my then little the outlook of guys assumption And okay. expect today, pressure more saying anymore give like with about do loan the last market, Can you but Right, on sounds you with bit the just minimus wholesale will for it's I you the in funding piece are loan been you growth of guess it pretty you where more you as the start you into you side, talk and pressure quarters to the growth, you couple for cost like just feeling there with resetting I remix fund that are you up growth di the primarily you get loan portfolio, funding you it…

F. Morgan Gasior

I would say higher or we rates is hikes rate another Chicago That still plenty scenario competition, area higher especially deposit in eager and plays modeled get there and in two see for three customers the as have uncertainty. yields. for you we plenty if banks portfolio, this of out, the will of are

So think of in treating our things. so it been for because far, us we've I rates we've been appropriately -- worked terms customers keeping deposit and up with

I the premium margin. tend to couple get to think when call market. but the be accounts the would you in the look of bigger on on I’ll a over of money time they market probably year expectations more drive and Chicago the the We’ll pressure challenge set by what in term here of probably funding part against latter CDs some because matching There debt is market. competitors, off

those but as granted and people we’ve betas favorable, before. think I those cost side, for can’t will core said the remain to you take On funds

a chance of our that a we through to just meeting would I something of growing franchise when might the us. about good we we small So strongly that's a now, have say pretty loans and make for needs, rather deposits, need have acquisition sudden, sense if do funding all we’re

Brian Martin

just all, discussions. of I up on pretty mean, if or can that characterize is how kind at of are still kind look low just pipeline, M&A there that there you they you list discussions, the And on I anything when will discussions front guess, or activity at you comment, Okay. anything picked just activity you the is would Morgan, -- if

can you on any give that? If color

F. Morgan Gasior

for But For deposit organizations and get are integrate it our risk appropriately around strong looking we’re little been can the we fairly smoothly. parameters we and bit. vulnerably quiet, our low our manage to where people it continue end know into to is look it's opportunities a that franchise and

a creates work then how are taking pricing a credit do of not also and in really deal view trying because they assets are We those. risk to with gap, might on the they we legacy that through sometimes different have interested and to

to deal. a swallow So the problems are of or rather rather change a not than a been ironically tax harder fundamentals reform level -- even might make taxes if bit rather have out if benefit their taking price We’ll little we people the a can because it’s continue expenses, some so still utilities justify, come real the I we it if little operator see. to in get a don’t we some we’d have we in expenses not then agreement assets and the has doing rise estate pass to tax profitability to market other will cases little in, us, state of Chicago consequences not bit and at that’s and if expenses, interested pricing think for can’t in but we have pricing a change. we we’d to that really so, on expenses expectations And whether

set with the pretty happens. I have to much right conversation and people fronts be the there, but sure what all to am and open we are it here we see will have to We will would and dialogue, fit

Brian Martin

on I kind you’ve just last of I was maybe mean, it of on a any more your gave maybe reserve, sounds maybe commercial given you know the the about okay. to you you I last that to Morgan side. for is growth think XX dependent one for forward? talked I your or point grow expect going the you, and then changed thoughts giving range of consistent Got it with that guys are quarter, I the more guess on outlook basis how forward. guess there to pretty front. XX provision and still kind kind growing. the reserve mix provisioning And Has the anything But that going you change guys on it's how me guess, you reserve anything see I

F. Morgan Gasior

C&I it’s probably consistent their the higher if range. would little seeing what of it’s more again end depending I think on towards a we’re the mix and with it be bit

the in The XXs be assets C&I lower booked or XXs. even traditional little would risk assets X% So would be a the higher. at maybe

about leases skew that growth range rate reserve way the skew of be So the at we say end higher types the stuff, the you we rather than towards this I other the non-investment of would portfolio the if towards in think it lower range. C&I ratio if stronger really end would if

coming Now the on not some book quite much might range. the the of reserves be those the at release net for be that where it higher would assets end of because so provision portfolios and but off run-off, and with

Brian Martin

given how guys no in the are still looking that the mean, concerns, side we’ve And this talked guess about past you just Okay. I today? at on concentration I

F. Morgan Gasior

room multifamily its you No, more some we’ve of -- look level The had has probably component I at extensive risk based capital. credit XX% our at if mean, is relatively internally credit concentration as to capital remain grow ever, to constant of highest season.

GDP risk growth. employment the because in from strong, there the economic whether demand diversification it’s or very markets in So profile demand we’re helps is high geographic certainly an perspective

said, with rate not That to seems likely very all be we’re that working. change the digits that mid-single much. So to profile growth

-- capital again remained capital look ratios strong. the ratios, So at and the

stress test all that’s they to you run tool So every virtually available come out when you well.

to we simply couple just we if of work have that’s the market borrowers economy now concentrations. to right the rich growth on it the constraint bigger done our itself valuations because hard ahead to going room run kind for say deals are good So with challenge mature. have get years. pretty And pretty to they the we’re pretty of is overall for think, the the of I’d and to bigger is to I growth want them last

Brian Martin

I everything was Morgan the answered my questions. you’ve appreciate all update right -- All Okay.

for the it time. taking I thanks appreciate and So

F. Morgan Gasior

good time Brian, well questions. Appreciate your as


conclude And the program. of hand does today’s this back to you. remarks. like Morgan further F. I’d Chairman session question-and-answer program and the CEO for any Thank to Gasior,

F. Morgan Gasior

thank XXXX. for BankFinancial we you everyone back quarter. interest Well touch we second a wish We’ll good be in the and in in early their


Thank you, in conference. the today’s This ladies and does gentlemen for participation program. your conclude

day. Good disconnect. now may You