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BFIN Bankfinancial

Participants
F. Morgan Gasior Chairman and Chief Executive Officer
Paul Cloutier Executive Vice President, Chief Financial Officer and Treasurer
Kevin Reevey D.A. Davidson
Brian Martin FIG Partners LLC
Call transcript
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Operator

Ladies and gentlemen, thank you for standing by and welcome to the BankFinancial Corp Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator instructions] As a reminder, today’s program is being recorded.

And now, I’d like to introduce your host for today’s program, F. CEO. and Chairman Gasior, Morgan Please go sir. ahead,

F. Morgan Gasior

Good conference call. and to our welcome like to investor XXXX have read. statement quarter third forward-looking At ask our to morning, this I’d time,

Unidentified Company Representative

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

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

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

and We any results the our future. statement on to impact in uncertainties forward-looking the our For could the reports declaration statements undertake SEC. have forward-looking operation, obligation further of in factors any included and the in statements. risks be uncertainties risks considered details not update should we that evaluating and risk and do please These the to condition financial consult forward-looking

call to And now, Morgan Chairman turn I’ll Gasior. over the and CEO, F.

F. Morgan Gasior

press on our five-quarter and document filed filed supplement, release be the or before Thank our you. deadline. we this At XX-Q will time, and

questions. So, we this to are at ready time take

Operator

of Reevey Our Certainly. from question line D.A. first Davidson. [Operator Kevin comes the in Instructions]

please. question, Your

Kevin Reevey

Morgan. morning, Good

F. Morgan Gasior

morning, Kevin. Good

Kevin Reevey

yields? the was color you mix, to yield. than we jumping significant came which key your and kind roughly your Was it margin what the there loan are on better to question prepayment as fees jump going Could then expected. was be? of drivers lot is the forward what like significant first linked So, were to us the a thoughts margin, related and It to any it cost the in give of quarter cost looked going – loan in

F. Morgan Gasior

your bit of mix yes. answer and was prepayment loan the grew is portfolio both to some It Well, question income. and we commercial the that a little

So, and investors income both short-term, depending the offers those at generate pay-offs on on business. and a obviously very potentially, fourth the first quarter in the continue, and would least property, the a doing of for of received expect quarter. just where their in to of transaction prepayment of the certain prepayment those some seasoning the check was The writing I cost terrific will amount

relative So, prepayment I as second little and combination I expect it prepayment higher It’s quarter. to going a continue. quarter happen probably what’s tell in too in early would that first fourth to a quarter on income. to would will third the did and quarter bit say skew

As far goes, margin of a as things. the couple

let’s First, bit. little talk a about side the deposit

started some modest the have feasible. where best see to our that side along, to and retail we’ve We doing pricing been nudge movement on

We side. especially in see wholesale of but will side, months. begin next with, have is interest don’t on expense So, the help we XX deposit much re-price it some to to and the wholesale we’ll see wholesale going that of on the the XX%

see deposit on we’ll going the side So, help forward. some

would I now, side, sitting loan on we’re the on some cash. And excess say right obviously,

the optimized before third to assessing, markets and the sitting we margin optimized. X.XX%-ish, certainly was the time skew where quarter we during where But with would mix is that’ll on excess side. said the the and rate lower environment not thought cash, spent not be So, mix We the were. if had

the got lower risk, transactions or that leader side out the capture on nearer the the pricing and and be in estate to we segment market and products reconfigured quarter. we one, risk-weighted third in marketing at XX% pushed So, real

the expenses through. flow saw You

We’re the some original who you refinance in to yields There of otherwise are would more think than points it about environment. that. drop would in the profitably have interest higher. there, investors – volume these brought XXX on one rate is starting could refinance out to the they see could the at could more table stirrings And than it levels

I you would right So, at what that’s look say, is at full-year our and XXXX, of XXXX. looking now focus if kind the

excess But the because the then some in – benefit range continue right position the half the X.XX% in the some the cash we a net amount area, and of the that side, X.XX%, be looking fourth in X.XX% quarter. start year. cash income X.XX%-ish with the some – the fourth Obviously, customers the will saw if commercial, could temporary some see for mix and to see support one something, offset. Given get commercial to of the re-pricing to of going the going happens some we’re deposit probably have largely have driven expansion way. margin mix on in see the the bit little new expanded is customers usage by will existing little if But improve of it for the a it half, and we’ll including prepayment relationships in first right we’re we the commercial a a of and the of along we’ll X.XX%, get side. more between maybe maybe interest to in new what we more trends certain But progress line provide if deploying the now, mix with certain in down, that’ll goes amount second X.XX%, progress quarter for with bit

Kevin Reevey

Morgan. Thanks, Great.

Operator

the Instructions] from [FIG Equity Director LLC]. next question you. of of comes Partners [Operator line Brian Thank Our Martin,

question, Your please.

Brian Martin

Good morning. Morgan. Hey,

F. Morgan Gasior

Brian. Good morning,

Brian Martin

how to as kind So, many outlook? to elaborate you of Can timing? that in and just on what of Morgan. thinking, Hey, the you that’s that cuts last of you’re how were cuts rate of going into comment margin, outlook, and just the kind your kind factored on it pertains thinking what’s context that do

F. Morgan Gasior

are kind sure, buying be expecting the say two knew derivatives now times, of cut and right but options or Fed probably we’re that we puts, more we’d and that if one I that would might for but factors the liability maybe, they to asset competitive of else some and driven planning. not competitors deposit more are be factors anything seem strategic rate necessarily even than They sensitive. the by yields local

On the month for yield last side, have stabilized about now the yields or so.

the we’re you fact, retracement, now, a In slight XXX, saw and let’s say XXX, five-year, and XXX, low at XXX. the

environment side. on yield right kind now, of current So the the our is baseline asset

to things of or investment little a we’re towards commercial assets. bit would some grade all So, skew what a considered, going XX% I have finance to amount if leases think more risk expect multifamily, going we’re is, that you lower

a but example, bundle deal, commercial bit where a software. For there’s finance equipment, quite of asset a is also

large $X and working XX company. trades investment lease with a have about million than If So, it investment hasn’t been bid it’s we’re now, an about points we grade transaction but that’s the a awarded grade one an transportation higher yet, would.

benefit, So, you get considerable quality little credit that. bit get of but yield with that you a of comes amount a

of leases, XX% those the cash, to investment but will higher. used right somewhere considered, asset blended say skew multifamily a in So, everything things little more bit chasing C&I, lot sitting we fewer all grade it happens. X.XX% would be grade we to more it a overall there’s do it, now with would we going risk-weighted lower, if investment in just to be to what leases around a do there’s do If people And and skew than that function prefer yield be. XXXX, alternatively, of there assets and we’d for our to

is going So, it’s hard – say to of grow. the to how that portfolio exactly that portfolio end

Brian Martin

Okay, are or some portfolio? for of high-level growth what to kind but kind the of might targets to targets might in expecting kind had last quarter to see just appreciate and kind kind comments year growth just loan you And of some it. about areas end, your reasonable, and where kind and and get then thought maybe, what your you to on as just can I get far talked of be as you of what what you of you on like loan

F. Morgan Gasior

talk think XXXX. I full-year And Yes. about let’s

we As some predict. prepayments will of hard headwinds they’re to see noted from kind we earlier, and

is Sometimes And borrowers, we’re a working us that with who heads-up. give helpful.

request and just get it depends. we for statement, a a payoff Sometimes just

go, the We, kind we face where some but headwinds, XXXX goals we goals are same. remain of look if our now. from end the We the might So, remain let’s same. at of the

better. loan And we the to original if if towards incremental some base. to asset side, be was be the there, means, place sooner $X.X our pretty to from It’s investment with back billion, the liability the that On quickly. the leases at get that rolls loan little we quarter cash grade fourth yield. lessor good engagement it’s get goal a It good a bit a an from a place skew for portfolio our perspective to mix continues the credit provides quality perspective, off can

will be backup that going So our forward. plan

lease portfolio achievable. but especially a kind overall, So, should a of be quickly commercial equipment finance side, we’d a to if of better with end volume will XXXX, pretty the and runs got of be But portfolio in side X.XX% we the mix it the by bit challenge, happy. it be that that

the with We’re of also more few going and a add look course base give to next broader of people during win chances to a to year ourselves lessors.

pipeline. some new we said, existing business that we side, in have I with – as customers C&I the The large have some

some some probably the who group the bit so line loan a on there newer But million seems between people, also therefore, new XXX transactions million million commercial have capital smaller XXXX to The a business These get are and there that on $XXX goal on little are the bit be larger; low somewhere new transactions with about a side faster. of $XXX pipeline. end the will of or of We side, million our on credit, opportunity little be right. the portfolio goal in the some $XXX to a a to come equipment, with us larger customers some we customer those improvements facilities side. portfolio maybe, to but high would at

of portfolio, that On greatest is that of one the amount the terms multifamily in productivity. the challenge has

we’re be on to the amount of get where of that’s the At we’d million high we scale, most non-recourse, they’re best of because underwriting our very out very uncertain. environment customer at end, of risk. that Just go. they support and topped XXXX. where with. $XXX just capital the more underwriting level about prepayments, take we that risk the proceeds that’s more likely very, and markets, of comfortable an with to not in trading There’s say level, that buildings I’d But because rate end the many can at the portfolio earlier

million $XXX hit the at the other lower of then the seam a on say, hand, result the refinances, [ph] replacing with risk feasible. we, around of I’d seems end If year a payoffs

of I of that of So, to high somewhere. in is XXXX, $XXX million; beyond go low are for multi million assume would evident end model us that and really $XXX to end things multi to a hesitate put that would is

up go down In might commercials, It same. $XX by they $X will about it might by stay the million. go million.

in which we follow We We’re looking at right office really some see and opportunities here not smaller much up the on. do now. retail Chicago, and industrial some space too in

risk no even remains saying risk leverage because estate on compression us it remains to that NOI of have taxes and low the to the but and not high real in stable be of tenants retail pretty to with We’re would Chicago get higher. utilities given pretty ever, interested, vacancy

been just keep So, stuff, doing occupancies we for competitors and non-recourse it’s, going stabilized out to it’s there which do. lot – see people not we’re of stuff a we hard also these to is

Brian Martin

quarter, the I able on be may that… comments is expectation the billion the last your $X.XXX to you And $X.X to that by when year-end, about, or you hope, Okay. billion get guess talked

F. Morgan Gasior

XXXX. on You’re

Brian Martin

Yes.

F. Morgan Gasior

Yes. When multifamily $XX have paid of we off. million

Brian Martin

Right.

F. Morgan Gasior

That was happen going anymore. not just to

XX% it provide to a essentially his wanted the function just a we to larger more. payoff out not that off wanting able came able proceeds of double, payoff through. We saw him he got of and a about a we’re those basis replacing be that portfolio we therefore cash was to customer quite maybe The there customers. replace going weren’t the him. larger with almost or come to now, payoffs So to And not were to couple the a focused board on we the and XX% right on not really get maximum maybe, exposure double largest as one

to closer get we’re the would So, I there to be have to fourth but loved just going billion, XXXX. for quarter $X.X not

Brian Martin

a of your Right. to XXXX of number where asking that little And that up I billion bit did you’ll end is in XXXX. was was of factoring you – comments is outlook guess as end you $X.X all I north of the or kind the it move to in late kind the for that of get

F. Morgan Gasior

say would want get by want to things to, $X.X the end quarter if we get we around $X.XXX get XXXX. us to be $X.XXX billion – by clicking and to to then $X.XXX I work million plus no. the the way we $XX billion another if we’d of the get them XXXX. things close did XXXX. everything billion, I’d again, quarter we way the second we end payoffs of tsunami for of work, a single not number is quarter throughout every somewhere billion

Brian Martin

Got you.

out loans most loans in, the kind do Thanks, the guys comments helpful. prepayments there. on that of – factors penalties the Morgan. you And just prepayment the about of how that’s Okay, larger have and of most

we to continued payment recurring happen. of guess can income kind – if that to your be I So, expect has

F. Morgan Gasior

yes. is answer The

almost have in the prepayment penalties. originated that’s real every side has We estate loan

Some short also, depends credit they’re anyways, of on the it products don’t, line maturities but of transaction. also but the

Some are of the be timed, if window. the they refinance sell outside to or they of prepayment transactions

seasoned. were of very Some transactions these

paid activity. check reflected they then, even trailing And type penalty, last of refuse. have us financed would three hold the payoffs investors, saw two just buy years probably XX% There if can’t two get wrote that who a the So, And say breaks depends. the of or I they they quarter into say prepayment with categories. still it offer, would and I ago, it and we are they it. just in

The cap going have those the what They move buy they’re penalties. it. professional the to They to faster. investors prepayment tend property. they also do do the transactions to performance. improve half sell a down Those go. year books might it. a two and they then the years, two and they and years, half, and rate be for comes transactions then on one

you difficult are building prepayments, loans seasoned which income, the but in originated how when and all it’s pays with don’t predict get almost it prepayment you’re So, because to extremely what off. to going is loan know

Brian Martin

Got you.

from be if kind to think that it book it of the is guess just clear growth most would a today. where the XX% lies it bit about growth most getting a from above I on And as little sounds the optimistic be, talking into looking think we optimism growth we level how, It’s of, XXXX, about far loan about you’re maybe, Okay. as million that C&I here. like or $XXX – XXX-ish where and at the would you’re be when as

F. Morgan Gasior

Yes.

third we’re new because the add, saw we’re to so add think starting new I as you and to in borrowers starting quarter, customers.

So, the customers. some additional use you’ll new see from

both space. more of in customers. seeing leasing expanded we’re and seeing doing some we’re existing ball. seeing we’re so, there. in you’ll use with healthcare the the We’re on sides see And space the

talent So, we’re but going expand to us. for our focus also those so, add and talent that’s think base, that’s in reasons, for we’re the it. optimistic, the growth I why If going cautiously to add optimistic. we’re market It’s where

what think make give that we our and happen But want that. have why to we to do it we’re signs better best of all going for the I a those the to chance reasons, we happen. that it’s us So, comfort most that’s today have have

that’s little flip the quieter. strong products leasing usually a are. time before bundle are volumes one investment one new a going. as it give on accommodate doing The combination as at structures we and leaned and that our year More that reconfigured that. But the this of weren’t portfolio we us transaction we products of services, segment. And cloud be The some our the released deals the that phones side and are are bid is market’s capital as the large on they able our also in and to to deals chances first where equipment are we fits on not to

leased less than expanded some equipment you’re So, for that still there’s being the to there’s growth, profile, because we’ve be. the opportunity used headwinds but there facing

is the we on not there quarter but continue feel We card. refinances expanded selling said A wild hand, of that there, other that reinvesting. base real estate more at people there big are last and and out the aren’t to

number We and sold check cash taxes properties, on sitting next. to but customers, of who just they’re gains for capital they’re have the have and on going the the going to wait any are and write they the see happens what then

So, the we the cases, a lot uncertainties the of properties fact out and valued reinvestment in fully see are don’t that see. of level there direction that and on fairly in the economy we customer the base of our the

from we’ve private more the buying market. are the or So, The partnerships one institutional investors sitting payoffs investors for investors the of example, sideline. investors. private been smaller on the seeing some institutional are The are driving

Brian Martin

Got you.

just but on that I I Okay. And the new kind the know portfolio new guess originations today, what the yield I originations getting on rates yields the the getting, is? guess commercial relative you’re book. it new, And to you’re that new what varies, of are

F. Morgan Gasior

right around For X% multifamily, to it’s be consensus. average seems to going the

lower Sometimes a these X% in lower a seems might good number borrower but risk neighborhood. one that just somewhere but the lowers’ X.XX%. a transaction, refinances, It’s if of skew like down little is to

right to X.XX prime transactions will about Again, of estates we a prime those quality. around some commercial get of price X.XX%. best the plus quarter. to Our C&I, higher

Other transactions plus even. So, are prime plus two it’ll be prime. slightly below prime one,

I So, say it balances would quarter. prime plus out, a but

be probably good it’s to place there overall. So, a

skew grade’s do balance. right grade, over seems XXX Obviously, the reasonable slops. would investment then that investment And like though X.XX% because say could at you down now, trading more leasing portfolio, a I if

again, bit the but the if a number, three, originations. dominate So seems a can little balance investment X.XX% we grade under but lower leases it the reasonable like that’s have skew

Brian Martin

you. Got

just for can on talk to maybe, pickup appetite your about, had and that outlook. a plays helpful. just little minute, you the conversations of just a And I a for little think talk buyback that’s can you about about and and if if you growth then you kind and organic going, how just given last quarter, Okay, bit capital maybe, M&A, talked secondly, today turning

got and in you’re that quarters. left the You’ve what’s how next thinking buyback of kind of couple on the about

F. Morgan Gasior

levels, the in program interested we’d with XXXX. in the repurchase at these expect price be again, we the and Well certainly that to continue share

basis. a think I as element sees the share to at per risk a increase board that helpful low relatively earnings

on So, we’re we’d us of as expect obviously, think are for to if them. to relatively in advantage take be participation and depending safe levels We it’s that place trading. funds dips back market how various the with in available to a of there’s the let’s market, try go

create even we take case, have is or may a sudden one so another we of. advantage in just So, the for reserve, available reason that a we dip in money that can there market

other kind A an in Secondly, future we the of on the side paid wanted our been to price conversations so. earnings – had conversations a we it’s M&A moved where and It much expectations on activity quiet for of environment deliberately been, their side. and the of on. we’ve front, people get tough bit. around visibility are really deliberating some heard we had, get to was it’s on couple and kind that their of haven’t

of now in do. profile, that current position right and their interest purchase would be branch at therefore, our for So, wasn’t us necessarily mostly our a liquidity transaction to with expense they type more

their improved the then that per be feasible. plan, earnings forward don’t, feasible earnings a because were us, in wouldn’t us talking that make the be then the on they But think contributes sense sides. and about cost both than going for run saves. more price transaction they’re wait-and-see I indeed their much it talking one So, If be to might was short other and would a price wouldn’t not very about accretive they if it story

the front now, I months, I quiet to at now, we’re what think I’d for least right going right know change could six something than probably next be, So, something we’ll today. different absent be on afternoon, tomorrow but pretty that say

Brian Martin

repurchase the Okay. if – what’s the plan current of it, still that a available you’ve plan, there reminder – Paul out the has and on not plan? on And the just just amount

Paul Cloutier

shares, the Brian, plan XXXX. XXX,XXX we XXX,XXX XX matures left over have of on it’s so shares March that

Brian Martin

XXXX.

of maybe, from or talked how XXXX, then on one kind thinking of into the about as expenses new the initiatives the any far thanks, to you’re you me, change Paul. expenses, as go last kind two and any managing as outlook Okay. quarters the any for we’ve about or – last the of plans rationalization And new just that to just just couple or spending?

F. Morgan Gasior

– a trending of Well, core around at had actually five, nine, that I’d set we level, say, below run our rate right we’re now. and kind

we We’re the some for talked loan growth into putting reasons about. marketing extra money

We’re money technology. into putting some

website have up a new We and running.

to some We’re we’re the of a and developing the assets security going on cyber a be moment. at portal customer doing refresh

taper least will So, time. material much. banking We’ll off will think XXXX, but negotiate the impact it of will to contract but I very that not in a at don’t that going core year. over be be latter forward, a part have

we’re be relatively and those objective we our commercial a to by there, is comp on grow, we’d million bankers already out And to adding to I should with people be investment grow more now lease but told more expenses plan bankers, our talking and me like get or to if might So to we time get return the goals. there mix. the you lag baseline stable. another expense people on If $X them to the think, executed of they added

have even us there that, those with also enables over to happy to want products with time. get immediate pop absolutely We’re the add we out more to have earnings, we might to the not depth an products but people now

more staff. add So as that biggest would the variable be we

Brian Martin

Got you.

can far see if and on kind talk any guess, – it the in margin get thought, can up profitability credit think quantify how can you you you front when range I the as give growth put of around, I I credit outlook, you’ve plan on how if the the things the mean, level, with just you or about as just outlook maybe, there’s we XXXX. level to lastly, the just just you Morgan, about ROA of profitability are out, growth kind in just kind guess outlook any a And but Okay. outlook. today, this laid of whether how shaping and your

F. Morgan Gasior

you There’s give target. a just too many variables to

about a let’s range. talk So,

where the more on environment, and we deposit sitting faster rates. short-term yields cash than we’re Given decline expected, asset than

get year, we would share to in first that on second share $X.XX $X.XX but over the earnings the see half $X.XX hold year. half if thinking, to We’re the to the in let’s of a like somewhere the range per we can closer get of and

that if half. to not second XXX may does can but between live of that be what we So, somewhere out ROA translate XXX good, to year it get and would next the on middle do or points there a

to to And little side from it the depends going mix. deposit take need the that’s a help out on to going and then We’re help and expense some time. again,

for. to a remains still so $XX or after on to would that’s XXX be things but than the around produce the and to cash, on it it though with basis it shoot $X to more to excess level it produce would And around of interest goal. that the And assets that share harder continue challenging the still managing goals, was, is what even we’re per but annualized. harder in points that’s little going income average the of absolute we’re got with got only range, focused million going drop and the that net yields that One million XX

Brian Martin

credit, change, just And concerning to on kind your today? anything right. anything just All big of Okay. you picture,

F. Morgan Gasior

coming XX% going and going stable so to is portfolio in and The annual loan towards forward, reviews risk-weighted we’re skew well. have we more – the originate the been multifamily. as

investment about is be have. some obviously see is function activity that in the decline the we at economic of more of curve there the And you economy We’re where widening credit talking gee, middle some looking to appear part in where, spreads do lower. a saying, and out leases than grade and

not thing do. right seem to does So, on putting prudent credit the now big a bets

So, going with try credit risk that of we’re offset benefit volume and a to marginal higher assets. lower

quality. we’re comfortable asset But right now, with the

I another chance far, stable There’s forward could good. big the another, or but the picture, happen think relatively a one path gives us always or on one so going a environment. credit credit in individual thing origination so that

Brian Martin

I will Morgan. Thanks step Okay, perfect. back. taking for questions, the

F. Morgan Gasior

your for time. Thanks

Operator

the chairman [Operator any further queue I’m the Gasior, time. showing remarks. back and this to hand like at F. not program CEO Morgan for Instructions] further And I’d to any in questions

F. Morgan Gasior

everyone their interest, XXXX. for to the Thanks and enjoy participation and of remainder

Operator

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

day. may disconnect. You now Good