BankFinancial - Q4 2023
February 2, 2024
Executive Summary
- Q4 2023 EPS was $0.17 and net income was $2.079M, down sequentially and year-over-year as lower intra-period line utilization, declining interest-earning assets, and higher deposit interest expense weighed on results.
- Net interest margin remained resilient but trended down versus mid-2023; management guided to a relatively stable NIM in H1 2024 with expansion in H2 as cash flows are redeployed into higher-yielding assets and securities mature (avg yield ~3%).
- Credit quality stabilized; NPAs/Assets improved to 1.69% with allowance coverage of 37.36% of NPLs, while two U.S. government equipment finance exposures continue through the federal claims process; management expects better originations in 2024 and is redeploying ~$130M of equipment finance cash flows to higher-yield corporate assets.
- Operating expense guidance for 2024 of $41–$42.5M, with variability tied to originations-driven deferrals and normalization of legal costs as federal claims work winds down; efficiency ratio target low-to-mid 60s% by year-end 2024.
- Shareholder activism intensified on the call, pressing for strategic alternatives; management reiterated focus on execution and improving ROA and ROE via redeployment and commercial finance growth; dividend maintained at $0.10 per quarter and book value rose to $12.45.
What Went Well and What Went Wrong
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What Went Well
- Liquidity strengthened and NII held up despite sharply rising deposit costs; CEO emphasized asset-liability actions and higher reinvestment yields into CDs and equipment finance cash flows.
- Credit metrics improved: NPAs/Assets at 1.69% and NPLs/Loans at 2.11% with allowance coverage at 37.36%; portfolio stability noted across real estate and corporate equipment finance, with active disposition of seized equipment.
- Strategic pivot to commercial finance: tripling 2024 resource allocation, graduate-level credit training completed, product training underway; focus on health care, lessor finance, and Chicago commercial pipelines.
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What Went Wrong
- Sequential decline in interest income (~$200K) as interest-earning assets fell and intra-quarter line draws diminished; deposit interest expense continued to rise, compressing NIM momentum vs Q3.
- Originations decelerated and equipment finance portfolio contracted, pressuring growth and fee opportunities; Q4 originations totaled $164.855M with lower activity vs Q3/Q2 and weaker utilization.
- Shareholder pressure escalated on efficiency, ROE/ROA, and strategic alternatives; management did not provide new strategic actions beyond execution plan, which leaves near-term multiple support sensitive to delivery of H2 expansion.
Transcript
Operator (participant)
Good day, and thank you for standing by. Welcome to the BankFinancial Corp 2024 year-end earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star one, one on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chairman and CEO, Mr. Morgan Gasior. Please go ahead.
Morgan Gasior (Chairman, President, and CEO)
Good morning. Welcome to the fourth quarter 2023 investor conference call. At this time, I'd like to have our forward-looking statement read.
Katie Multon (Investor Relations Contact)
The remarks made at this conference may include forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. We intend all forward-looking statements to be covered by the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of invoking these safe harbor provisions. Forward-looking statements involve significant risks and uncertainties and are based on assumptions that may or may not occur. They are often identifiable by use of the words believes, expects, intend, anticipate, estimate, project, plan, or similar expressions. Our ability to predict results or the actual effects of our plans and strategies is inherently uncertain, and actual results may differ from those predicted.
For further details on the risks and uncertainties that could impact our financial conditions and results of operations, please consult the forward-looking statements, declaration, and the risk factors we have included in our report to the SEC. These risks and uncertainties should be considered in evaluating forward-looking statements. We do not undertake any obligations to update any forward-looking statements in the future. And now I'll turn the call over to Chairman and CEO, Mr. F. Morgan Gasior.
Morgan Gasior (Chairman, President, and CEO)
Thank you. At this time, we filed our press release and our five-quarter supplement. The Form 10-K will be filed on its normal schedule in compliance with SEC requirements. So at this time, all of our filings are complete to date. We'll open it up for questions.
Operator (participant)
Thank you. As a reminder, to ask a question, you need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the candidate roster. One moment for our first question. Our first question will come from the line of Brian Martin from Janney. Your line is open.
Brian Martin (Director and Senior Equity Research Analyst)
Hey, good morning.
Morgan Gasior (Chairman, President, and CEO)
Good morning, and happy New Year, Brian.
Brian Martin (Director and Senior Equity Research Analyst)
Yeah, happy New Year to you guys. Say, I wanted, Morgan, if you could see if you could give a little bit of color on just the loan, the loans in the quarter, just, you know, the, you know, it looks like there's some nice growth in the Commercial Finance and some shrinkage in the Equipment Finance. So just wondering if you can give a little bit of color on that and then just kind of your outlook here as you kind of go into 2024.
Morgan Gasior (Chairman, President, and CEO)
Sure. Well, let's start with Commercial Finance. It is, the priority has been, and will continue to be the priority for resource allocation and growth. And we had good utilization in the quarter. It was a little lumpy, but the balances stayed broadly steady. What we didn't see as much are draws. We had lower overall volume, so when you look at the originations for the quarter, they were down. So we had good balances as a percentage of total commitments, but we just didn't have as much draw activity in the fourth quarter. So that cost us a little bit in what we'll call intra-quarter interest income, right?
Sometimes they'll draw for a month or five weeks and then pay it off, and we saw quite a bit of that activity in the third quarter. It was very helpful, hence the focus on Commercial Finance. And a little bit less so in the fourth quarter. So the balances were steady during the quarter. We just didn't see the draw and payoff activity that generates that marginal interest income during the quarter. We're going into 2024 with some reasonably good pipelines in the healthcare space. We're adding some new lessors in lessor finance in the Equipment Finance space. And we have some the Chicago Commercial Finance pipeline starting to build. Probably the biggest focus, compared to 2023, is that, as we said before, we're repositioning resources into Commercial Finance from a personnel perspective.
This will be essentially budget neutral. We're putting more resources into Commercial Finance and less resources into real estate, given the relative spread and the opportunities. So to that extent, we'll probably have triple the resources devoted to Commercial Finance in 2024 than we did in the beginning of 2023. We've gone through an essentially graduate school of credit training for this personnel. Some of them come to us with good C&I experience in their past or their most recent past. But everybody's had different credit training and different credit experience. So in the fourth quarter, we put all of our credit personnel, including the credit analysts, through a graduate-style course so that everybody's up to the same speed as far as credit skills.
Now they're going through the product training, given our base of products, where we can offer a customer a standard bank credit loan, an ABL platform, or accounts receivable factoring, or some combination thereof. That is a unique product set in the market, and we need to make sure they fully understand the product and how it works to go out and sell it. And then Commercial Finance is going to take the lion's share within the commercial space of marketing expense. So, you know, that is going to be our focus for 2024. The difficulty, of course, is utilization. As much as we grow commitments, we have any number of commercial customers that aren't using their lines very much. An example, just this, just this week, we have a customer that has a $7 million commitment.
Their balance at 12/31 and into January was $700,000, but they recently filed an increase to go to $15 million because they see some significant seasonal activity coming up. Once that seasonal activity is complete, probably by the end of third quarter, they want the commitment to go back down to save them the non-use fee. We can work with them on that. But it just gives you a sense of sometimes how volatile the line utilization can be. You can build a lot of commitments. You don't always see the utilization right away, and then suddenly, something changes. So some of our borrowers are pretty steady borrowers. It's the nature of their business. Healthcare can be like that. In other cases, it's very seasonal and spotty, and we just have to kind of roll with it.
But growing the base of customers and growing the commitment base all the way from the small business side, business banking, down to $100,000-$250,000 lines because we want that core checking account, on up to the larger corporate exposures, that's the focus for 2024. As far as Equipment Finance is concerned, you saw the benefits from an asset liability perspective, management perspective. You saw the benefits from Equipment Finance. We had approximately $200 million of scheduled payments that we received in 2023, and we were able to reposition that into liquid funds, and into originations at much higher rates. So that was a significant benefit to us. In the fourth quarter, typically, that is our strongest originations quarter. Just, it's historically always been that way.
Which means, of course, that if you originated in third and fourth quarter, you will get the payments, you know, a greater proportion of payments in third and fourth quarter, and that's what's happened to us. For 2024, we're going to see approximately $130 million of cash flows coming off the portfolio. The portfolio is smaller. So our goal is to reposition the $130 million into primarily the corporate side, investment grade and rated corporate, and then a little bit of middle market and small ticket. And then at that point, we'll produce as much as a 200-250-point increase in yields just from those cash flows alone. And then real estate, real estate had a quiet year. Rates spiked.
We were in the sevens for a bit of time. That obviously dampened activity on a number of levels. But here in just the last few weeks, because the Treasury curve has come down some, we're starting to see some refinance opportunities come out. We've seen a couple customers that want to do equity cash outs because they want to buy a value-add building. Our-- their credit profile with us is strong, so we're able to work with them. And what that does is give us a higher yielding note on the original exposure, and of course, a higher yielding asset on the new exposure. So I still think real estate will be the smallest of the originations in 2024, just because of where the market is right now. But we are starting to see better interest in originations than we did, say, in second and third quarter and even early fourth, because the yield curve has shifted.
Brian Martin (Director and Senior Equity Research Analyst)
Gotcha. Okay. And you said the pipelines are pretty strong right now, heading into the part of 2024?
Morgan Gasior (Chairman, President, and CEO)
I would say they're variable. The Commercial Finance-
Brian Martin (Director and Senior Equity Research Analyst)
Yeah.
Morgan Gasior (Chairman, President, and CEO)
We're seeing growth in the Commercial Finance part pipeline and the healthcare pipeline. We have some good opportunities that we're working through in the lessor finance. How often they draw is an open question, but we're seeing commitment opportunities. Equipment finance is starting to grow, but it's still kind of thin, I would say. We're just getting ready. We just revised pricing here in January. And as I said, we're going through the credit training, but we just revised pricing based on where the curve is. Let me also say that, especially in the higher quality investment grade and high quality corporate, spreads are very tight. We're able to invest in short-term CDs right now in the, you know, mid to high-fives, and the yields on investment grade corporates are in the mid to high-fives.
So it's very, very tight spreads. Obviously, people are concerned that there could be a recession, maybe less concerned after 3.3% GDP growth in the fourth quarter, but still concerned. The spreads are wider out in the middle market, in the small ticket space. Obviously, those are somewhat weaker companies, potentially higher credit risk, and so the spreads are a little wider out there. But we're just getting started with the outreach on the corporate side and the investment grade side. We've got our cash flows marked for that. And we're going to push as hard as we can to put some volume up sooner in the year to help protect the interest income of-... position.
If the Treasury yield curve were to decline further, if the Fed really starts moving later in the year, this way, we'll lock in some yields now and get the benefit of the income earlier in the year and protect interest income going forward.
Brian Martin (Director and Senior Equity Research Analyst)
Got you. Okay. And just, maybe two others for me, Morgan. Just if you give a little bit of thought, or if Paul, just on the margin outlook here with the rate cuts, but knowing that, you know, the redeployment that you're thinking about here, just how you're thinking about either, you know, the dollars of net interest income, kind of, are we seeing a trajectory where it's kind of up throughout the year given the growth? Or are we really just from a margin perspective, and then maybe just, a little bit of thought on an update on kind of credit quality, later?
Morgan Gasior (Chairman, President, and CEO)
Well, let me do both of those, and then Paul can fill in on the net interest margin.
Brian Martin (Director and Senior Equity Research Analyst)
Sure.
Morgan Gasior (Chairman, President, and CEO)
In the fourth quarter, we had a decline in interest income of about $200,000, principally due to just a decline in interest earning assets. That was an impact. And then the second component in the fourth quarter was the lower origination activity, line activity, intra-period line activity. That kind of flattened out our growth in interest income, compared to third quarter. And then, of course, we continued to see some increases in interest deposit interest expense in the fourth quarter. So going forward, we see the net interest margin as a percentage, you know, staying relatively stable in the first six months.
And then we hope because the impact of originations as we go through the year is cumulative, also because we'll have securities that are maturing and repositioning in either securities or CDs or loans. The securities portfolio, the average yield on the securities portfolio that's maturing this year is 3%. So you know, we feel pretty comfortable about picking up at least a couple hundred points on that during the course of the year. Same for the maturing payments on Equipment Finance. As we put that cash to work, those yields are in the mid- to high-fours. We should still be able to pick up at least 100-150 points on those cash flows. So I'd say stable.
You know, we hope to keep things stable in the, in the first half, assuming that the balance sheet is stable, no degradation of interest-earning assets. And then start to expand the percentage and increase the dollar amount of net interest margin in the second two quarters, as we can put the cash flows to work.
Brian Martin (Director and Senior Equity Research Analyst)
Perfect. Thanks.
Morgan Gasior (Chairman, President, and CEO)
As far as credit quality is concerned, credit quality is stable. As you can see, the numbers stayed stable from quarter-over-quarter. Our federal cases are filed with the prime contractors, and we're in the final stages of all the approvals and reviews. So nothing to report there other than progress in the process. Probably worth noting that credit quality, you know, net of the federal, was 31 basis points or so at the end of the year. And of that, the one equipment deal, we have the equipment, it's being listed for sale now. We're gonna start a marketing process pretty much next week. We hope to move it during the next, you know, several couple of months.
We're not gonna give it away, but we want to put an aggressive marketing and disposition program together. So if you took those three cases out, we were down to something like 15 basis points-18 basis points. And if you look at the distribution, the real estate portfolio continues to perform well. Of the $200 million in Equipment Finance payments we received during the year, $96 million came out of the government portfolio. So it did what it was supposed to do other than the two federal credits that we dealt with. And going forward, things seem relatively stable. We'll have a couple of the, you know, special mention or substandard credits that if they improve their performance, then great, we'll keep them, and if they don't, then we'll start exiting them.
These are primarily working capital lines of credit, so, you know, they are self-liquidating in that context. But we felt pretty good about where credit ended at the end of the year. Obviously, you know that we don't have the material exposures to office in the portfolio. In fact, we had one office exposure pay off in fourth quarter. So the strength of the portfolio in multifamily and our lower-risk commercial real estate seems to be serving us well.
Brian Martin (Director and Senior Equity Research Analyst)
Gotcha. Okay, maybe just the last one, and I'll pass it on to someone else. Just the expense guide. It looked like you hired a few folks and just a little bit, maybe still a little bit of noise in there on the credit quality expense. So just kind of thinking about, you know, that expense on kind of a. I wouldn't call it non-recurring, but just on the credit expense, kind of, you know, moderating and then just the new level, kind of new run rate with some of the hires you made this quarter. Thanks.
Morgan Gasior (Chairman, President, and CEO)
Well, I would say if we're looking at expenses next year, somewhere around $41 million-$42.5 million. I know that's a fairly broad range, but there's a couple of factors there. One is, you know, the expense that's reported on compensation is in some ways a function of loan originations. So if we have higher loan originations, and particularly for new loans, and new exposures, then a certain percentage of the compensation related to that, especially incentive compensation, is part of the deferral process. If you have lower originations, then the expense drops to the bottom line in that period. So that'll be a factor, in terms of what we'll call GAAP compensation expense reported. We do expect to sell the branch facility that's been under contract.
We're down to the final state of Illinois approval. That's due, I think, in the next couple weeks. So we hope to close that transaction in March and get that off the books. And then the other expense on legal, we are in the hopefully last stages of the claims process. You know, every time we get a comment or a review, that adds a little more to the bill. But I would expect that, especially year-over-year, to decline, obviously. And given where credit quality stands right now, we would not expect it to recur, but of course, we'll just have to watch and wait and see. So that's why we think expenses of $41-$42.5 seem reasonable.
It's just gonna be primarily a function of how well we originate, because that will affect the GAAP number. And then too, we'll see some variability in marketing expense. We need to talk to new customers and broaden the base, and that is just a marketing expense. So if we do save money in one place or another, we'd like to deploy it into marketing to keep the growth going on the loan side and the commercial deposit side. And I'd say the other variable in expenses is inflation is still a bit with us. When we see technology contracts and maintenance contracts come in, and even fixed asset maintenance contracts, we're still seeing high single digit low double digit increases in some of the stuff. And in some cases, you don't have much choice.
So anything we save in terms of, you know, efficiencies, sometimes is offset by some of these third-party agreements that you have to have the assets, there's really no choice in the matter, and you're kind of a sitting duck. I'm sure every business in America feels like that. But that is some of the variables. So 41-42.5 seems a reasonable range for us. As I said, the gross compensation level should be static. It's a question of how the originations volume is what we report on a quarter-over-quarter basis.
Operator (participant)
Gotcha. Okay, well, thanks for taking the questions.
Morgan Gasior (Chairman, President, and CEO)
Appreciate your time.
Operator (participant)
Thank you. One moment for our next question. And our next question will come from the line of Henry Walczak from, as a private investor. Your line is open.
Speaker 9
Good morning, Morgan. How are you?
Morgan Gasior (Chairman, President, and CEO)
Good morning.
Speaker 9
Happy Groundhog Day. Brian asked-
Morgan Gasior (Chairman, President, and CEO)
You too.
Speaker 9
Brian asked most of my questions, but I just have some commentary and a couple other generic questions. Well, our stock price has improved a bit since the last quarter and the last time we spoke. That's semi-good news, I hope. Morgan, hope you're doing all you can to help us old-time shareholders that have been with you for the last 18 years. That being said, I have a kind of generic and a holistic question here. Interest rates may be trending lower in the second half of the year. So is your team considering or looking at any strategic actions that make sense at this time as we look forward to the potential for future Fed rate cuts? Like, for example, how much would a 25 basis point cut or a 50 basis point cut hit on your bottom line? Thank you.
Morgan Gasior (Chairman, President, and CEO)
Okay. Well, certainly, as I said earlier, we've already seen a certain amount of decline in the U.S. Treasury curve. And we've been taking advantage of that, throughout the last quarter or so, by rolling some cash into medium, short-medium term CD investments, which have currently been yielding, you know, better than Fed Funds, so North of 5.40%. The point of focusing on the investment grade and the corporate Equipment Finance is the same strategy in a larger context. Pick up even more yields, if we can.
Maybe not as, you know, maybe not a great spread to Fed Funds today, but if we can pick up anywhere between, you know, 35 basis points-50 basis points on the low end, maybe 100 basis points on the high end over current Fed Funds, then nine to 12 months from now, if the Fed does cut 75-100 points, and the Treasury curve follows that further, so that you're looking at, you know, 5-year treasuries in the 3.18 range, we'll have protected the interest income side. And at the same time, we should therefore get some benefit from declines in interest expense.
So those are the two drivers of an improvement in net interest margin, is, as I said earlier, protect the interest income side, expand it through reinvestment, and then do it within a reasonable duration, so that even into 2025 and 2026, should we go down to a lower environment instead of higher for longer, we would enjoy the protection of those assets at today's yields, which will be what? Phenomenal compared to the yields of nine months or a year from now.
Speaker 9
Thank you. Morgan, last quarter, you mentioned the possibility of reaching and sustaining earnings of $1 in 2024. Is that still possible in 2024 with a tepid Q4 in 2023?
Morgan Gasior (Chairman, President, and CEO)
I think it's possible as we get towards the second half of the year. To some degree, as I said earlier, if we have stability in the balance sheet and we're not giving up interest income due to a decline in interest-earning assets, that's certainly helpful. The ability to reinvest the securities, especially later this year into higher yields, will certainly be helpful. The ability to have higher yields on originations and more efficiency in the income statement as a result of that will certainly help. And if we just have lower overall expenses or stability in expenses, that will help.
So yeah, we think that as we get towards the second half and if we're able to get the originations up where we want them to go, then the trend towards back into the low 20s and then the $0.25 a share, third quarter, fourth quarter, and then hold it. That's the whole point of reinvesting in the medium term, is if we can hold that interest income level, we should get the benefit of some reduction in interest expense over time. And that should not only be sustainable, but we should be able to build on it because we will have cash flows going into 2025 as well. But at that point, we should have materially lower interest expense and get the benefit of further expansion and net interest margin.
Speaker 9
Thank you. Morgan, just one quick comment here. I like the improvement in NPAs and your book value of $12.45. Geez, 1.2x $12.45, that's like happy land, and 1.3x book of $12.45, that's like nirvana. I'll pause and let my fellow shareholders chip in. Thank you.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of Steven Buckman from Buckman Capital. Your line is open.
Stephen Buckman (Managing Director and Senior Analyst)
Thank you. Good morning, Morgan.
Morgan Gasior (Chairman, President, and CEO)
Morning.
Stephen Buckman (Managing Director and Senior Analyst)
I have been a shareholder that took part in the conversion 18-19 years ago, and I have a more holistic question as well. That is, what is the role of the board of directors? And I'm going to refer you to a conference call comment you made on May 2nd, 2022. What you said, I'm quoting, is: "Well, first of all, I think we're in a position now where our goal for the third quarter and fourth quarter is to sustain right around $0.23-$0.26 a share. So I'm going to try to hit that $1 per share in our third quarter and fourth quarter." This is 2022.
And then beginning next year, the goal will shift to getting into the 30s or somewhere between $0.30 and $0.34." I could go on, but the fact is, 18 years later, the only guy who's made out here is you. Our book value, our stock price, our franchise value are all lower than they were in 2004 when you converted. What is the role of the board of directors in terms of your underperformance during this time?
Morgan Gasior (Chairman, President, and CEO)
Now, this is the investor conference call. We're here to discuss-
Stephen Buckman (Managing Director and Senior Analyst)
I'm quoting you directly from May 2nd, 2022. You can take a look at the comments.
Morgan Gasior (Chairman, President, and CEO)
I'm going to simply say that if you want to discuss this offline, we're happy to do-
Stephen Buckman (Managing Director and Senior Analyst)
No, I don't. I'd rather this be in a public forum.
Morgan Gasior (Chairman, President, and CEO)
Well, we're gonna leave it there. I don't... This is not the right forum for this. If you-
Stephen Buckman (Managing Director and Senior Analyst)
Well, your underperformance for 19 years is a matter of public record. And so do you want to address it publicly, or do you want to pretend that it doesn't exist?
Morgan Gasior (Chairman, President, and CEO)
You know, I think we're gonna leave it where I said. This is the investor conference call. If you'd like to talk about it offline, we're happy to do so. But I-
Stephen Buckman (Managing Director and Senior Analyst)
I find that your cowardice in not addressing issues that affect all public shareholders is staggering. I'll leave it at that. I think you could be doing a much better job. I think you should be looking at strategic alternatives.
Morgan Gasior (Chairman, President, and CEO)
Thank you.
Stephen Buckman (Managing Director and Senior Analyst)
I'll leave it at that.
Operator (participant)
Thank you. We'll now go out to our next question. One moment for our next question. Our next question will come from the line of Charles Winnick from Fulcrum. Your line is open.
Charles Winnick (VP)
Hi. Hi, Morgan. This is Charles Winnick. On February 5th, 2013, you were asked questions on your last call. You received questions about selling the bank, and you implied that it was not the right decision because better days are ahead of you. Well, I definitely can't disagree with your assessment, especially considering the performance over the last few years. I don't really see any other avenue that would be more beneficial to shareholders than a sale. And while the earnings outlook has definitely improved, your full earnings capacity still generates returns much less than your cost of capital, which in effect, destroys shareholder value. Your efficiency ratio is just too high.
While loan growth is always right around the corner, you admit on every call that competition is intense, which I agree, which really just does justify the fragmented nature of the markets and need consolidation. So, yes, we have improved outlook and hefty capital, but all negatives really speak for themselves. My question really is: You've got most of your credit issues behind you now. Obviously, can you offer shareholders a credible plan that generates value superior to what you could potentially receive in an M&A transaction?
Morgan Gasior (Chairman, President, and CEO)
Yeah. One, I'll say that you're talking about something from 10 years ago. Certainly, every quarter, we give you our best assessment of where we stand and what we think the future holds.... I think, again, this is a conversation that could be had offline, because we're talking about what we're trying to do with earnings and moving the franchise forward. Certainly appreciate your views, but I'll leave it there.
Charles Winnick (VP)
Okay. I think, you know, I think you mentioned that you could earn a return on equity and average assets that's competitive to the market that we operate in. So that benchmark is, can we do as well as our peers are doing and provide a good dividend return? You know, it's just been a long time that we have-
Morgan Gasior (Chairman, President, and CEO)
As far as the dividend return, we've had a good dividend return. If you look at our dividend yield, obviously that's a function of stock price, too, which we'd all hope to improve, and as noted earlier, has improved. But we've had a good, steady dividend going forward. It's actually better than some of our peers. In terms of return on average assets, we work with the challenges we have, but there have been trends both in several instances, 2019 and again in 2022, where we were improving things, and some of the speakers today complimented us on that in the past. But, you know, our goals remain the same.
The challenges we face in terms of what happens to us, some of which is out of our control, we face squarely, and we do the best we can with it. But going forward for 2024, as we continue to deploy the cash, given the asset liability management that we had, we make our way back towards our $0.20 a share, $0.25 a share, $1 a share. As that takes place, we get into the 90s or so in return on average assets. We would have very good asset quality. As noted, credit quality is improving.
At that point, even though we have surplus capital, a return on, a return on equity using an 8.5% or 9% consolidated capital as a base, produces a double-digit return on equity. Those are all achievable numbers over, as time goes forward. Certainly, we can't do anything about the past. We can continue to focus on the future. But thank you for your comments.
Charles Winnick (VP)
So if you've been a long-term shareholder for the past 19 years when you went public, did the remaining public, you know, I don't know, I just haven't made any money in the company for the past 19 years, except for the dividends. It just seems like there's you should be looking at other alternatives.
Morgan Gasior (Chairman, President, and CEO)
Thank you.
Operator (participant)
Thank you. One moment for our next question. Our next question will come from the line of Zain Shah from D.A. Davidson. Your line is open.
Zain Shah (Equity Research Associate)
Good morning, guys. I guess a quick question on what is your outlook for deposit growth in 2022 or 2024? And, what is the outlook, I guess, for loan to deposit ratio? Is there a number or a certain level that you won't go above? You were at 83% this year versus 89% last year. And, do you plan to use broker deposits as a source of deposit growth?
Morgan Gasior (Chairman, President, and CEO)
Okay. Deposits have stabilized a bit. Fourth quarter was the first quarter we saw reasonable stabilization. We had a bit of a decline, principally in public funds, which is kind of expected and seasonal. So our outlook for 2024, hard to say for sure, but probably a good case scenario is deposits remain flat, and that would mean interest earning assets can stay stable, and we can enjoy the benefit of, of keeping money working. As far as loan to deposit ratio, we'd like to work that back up to about 90%. Now, what are the deposits? If they're down, if they're down by 3%, that would be a somewhat lower loan portfolio.
But that would indicate for if we go off of the 12/31 deposits, that would indicate roughly a $1.1 billion loan portfolio. So roughly, you know, somewhere between 5%-8% growth, in loan growth for the year to achieve a 90%, given the cash flows that we're seeing come off the loan portfolio. Again, no, no dispute about it. There is competition for assets. But those, those would be the goals we would have. 90% is a good number for us, especially given the scheduled cash flows we get from the portfolio. Again, last year, we had $200 million of cash flows coming back at us, which served our purposes to reinvest at higher yields.
I think we had a number of peers who wished they had that kind of cash flow to invest in higher yields. And I think we have a number of peers who wish they hadn't invested in low-yielding securities that left them significantly underwater, as opposed to our situation, where we improved tangible book value. And we do not anticipate any increase or use of broker deposits given our liquidity. Again, the benefit of liquidity. If we needed deposits, that would be a different situation. Right now, we want to stabilize with the customers we have, grow, especially the commercial deposit base, and work on share of wallet for the retail deposit base. So right now, we wouldn't anticipate any material use of broker deposits.
If we were going to try and do manage interest rate risk, we would probably think about using Federal Home Loan Bank Advances, so we could precisely target what we needed. But even now, we're expecting the Home Loan Advances to roll off, and save us some interest expense.
Zain Shah (Equity Research Associate)
Great. I guess the second question is, what is your outlook for fee income, as you mentioned, and then kind of in line with that, what efficiency ratio do you guys see for 2024?
Morgan Gasior (Chairman, President, and CEO)
Yeah, there, there's two separate questions there. The fee income side, we have some opportunities to improve fee income. Even on the retail side, we're very conservative in terms of how we process transactions, but we have increasing customer requests to, for example, enable overdrafts or negative balances using debit cards and ATM cards. That is an opt-in process that customers have to request, and because there's just now fewer checks and more electronic transactions and more ATM and debit card than checks and even over the counter, we're seeing a greater interest in that. So we are going to enable that. It's a risk function, but we're going to enable that, and that obviously will potentially help on some retail fee income.
But we don't want to get over reliant on it, and we certainly need to be mindful of the credit exposures. That's one of the reasons why we've been conservative with it. On the other remainders of interest in of non-interest income, we've enjoyed some growth in the trust department, and we're continuing to focus on the trust side, including, you know, the basic trust services and even adding some business trust and complex trusts. Those are longer sales cycles, but we've enjoyed some growth on the top line in the trust department, and we're hoping to build on that with some greater sales efforts and focus on people in the 2024 timeframe. We'll get some help from the bank-owned life insurance portfolio.
That was a negative contributor in 2023 due to market rates. As market rates adjust, that'll be a positive contributor, potentially as much as $500,000. So we could see some improvement in non-interest income from all those sources, including, I might add, the Treasury Services side, where we're adding fee income due to paying agency services on the commercial side. The efficiency ratio is really a function of top line growth, and then, to a certain extent, again, back to loan originations and loan deferral of loan expenses. Originations make the place more efficient on the top line, and they make it more efficient in non-interest expense.
So for our size institution, especially if it stabilizes, given some of the expenses that we just see flowing through us, somewhere in the low 60s to mid-60s seems a reasonable range to us. We could theoretically, if we really optimized the loan portfolio, got it more up to 95% with a greater mix of Commercial Finance, you could see that going into the low 60s. But I think that's, you know, highly. That would be about as a perfect environment for us. More assets in the prime, plus a half prime, plus one, one range, and a greater total loan book for that. And I don't see that for 2024.
It would be theoretically possible for 2025, but if we can get ourselves into the low- to mid- to high 60s by the end of the year, we think that's the right place to be, just given the fixed asset base that we have, fixed expense base that we have to deal with.
Zain Shah (Equity Research Associate)
Thanks, guys.
Operator (participant)
Thank you. One moment for our next question. Our next question will come from the line of Ross Haberman from RLH Investments. Your line is open.
Ross Haberman (Money Manager)
Morning, Morgan. How are you?
Morgan Gasior (Chairman, President, and CEO)
Good morning, Ross.
Ross Haberman (Money Manager)
I wanted to go back to your leasing portfolio. I've spoken to a number of banks over the last, I don't know, week or two or three. Many of them are seeing a pickup in non-performing and delinquencies in the leasing and residual part of their portfolios in different parts of the country. Are you seeing any of that weakness? I know you talked about the two government leasing issues, but are you seeing anything else? And could you tell me what your allowance generally is for leasing type of loans?
Morgan Gasior (Chairman, President, and CEO)
Well, let's talk about 12/31 status. First of all, we don't invest in residuals. So I think that's an important point is, obviously residual investments can be extremely profitable if you get the realization that you're hoping for. But we work with independent lessors, and they take the residual exposure. We may help finance it, but we have very, very little exposure. We have no on-balance sheet exposure to residual investments and relatively minimal exposure to financing residuals for our independent lessor customers. As far as credit trends are concerned, the corporate portfolio continues to perform very, very well. It's again, why we're focused on the higher grade corporate for 2024. We still think there could be some uncertainties in the market. And, you know, that's in part why the-...
Spreads are tight in that segment because I think many people agree with us. And to your earlier point, Ross, the potential experiences that people are seeing are maybe why the spreads are comparatively wider. And in some cases, you can almost dictate your pricing, as you get into the middle market space. But the portfolio remains stable for us. We'll have every once in a while, a default in the small ticket portfolio. We're working through the handful of issues that worked through that we saw in the second quarter. But third and fourth quarter so far and now first quarter in those portfolios have been stable.
Ross Haberman (Money Manager)
And going back to my question, typically, what is the allowance on those type of loans versus, say, you know, commercial real estate loans? What kind of allowance do you set aside for every, I don't know, $1 million worth of loans you make on the leasing side?
Morgan Gasior (Chairman, President, and CEO)
For us, on the Equipment Finance side, for the government loans, we put away very little because the government is backing those leases. On the investment grade, it's similar to like an investment grade security, so we put away very little against that. But for the remainder of the Equipment Finance portfolio, we're putting away about a point against the loans.
Ross Haberman (Money Manager)
On those government ones, you're saying they guarantee basically 100% or nothing?
Morgan Gasior (Chairman, President, and CEO)
Well, no, it's the government that is the counterparty, so we put away very little against that. Now, we do have the non-renewal issues that we're dealing with on the two credits, but for the most part, it's government that is the lessee on those particular leases.
Ross Haberman (Money Manager)
Okay. And just one general question, Morgan. You and the top guys there, are your bonuses based on return on equity, return on assets? What is, Or, EPS growth. What are your bonuses? What's the makeup of the incentive-based funds?
Morgan Gasior (Chairman, President, and CEO)
I'd refer you to the privacy statement from last year. That calculation and that matrix has been consistent for several years. So I'd suggest take a look at that because that'll give you all the information, that we have available.
Ross Haberman (Money Manager)
Okay. Thank you very much.
Operator (participant)
Thank you. As a reminder, that's star one one for questions, star one one. One moment for any questions. We do have a question from the line of Jason Stock from M3 Funds. Your line is open.
Jason Stock (Founder and Portfolio Manager)
Hey, Morgan. Good morning. As you know, we've been long-term investors in BankFinancial, and we're generally not the type of investor who likes to be much of a nuisance. But as owners of over 9% of the company, I think it'd be probably irresponsible of me to not pipe in and say that we agree with all the comments that have been made about the outlook for the bank as an independent entity. And the one positive compliment that we can give you is that you've done a great job building and maintaining what we'd say is a really attractive deposit franchise.
You've done a good job with your deposit costs, and we'd say that in your market area, you've got a lot of scarcity value, and we think the time has come to find a partner that can take the bank forward from here.
Morgan Gasior (Chairman, President, and CEO)
Thank you for your comment, Jason.
Jason Stock (Founder and Portfolio Manager)
You're welcome.
Operator (participant)
Thank you. I'm not showing any further questions at this time. I would like to now turn it back to F. Morgan Gasior for any closing remarks.
Morgan Gasior (Chairman, President, and CEO)
Thank you all for your participation. We'll be in touch after our next conference, after our next quarterly results.
Operator (participant)
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.