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BC

BankFinancial CORP (BFIN)·Q4 2021 Earnings Summary

Executive Summary

  • Q4 2021 was a mixed quarter: net income rose to $2.37M and diluted EPS to $0.18, with sequential improvement in net interest income and noninterest income, but efficiency remained elevated vs prior year due to higher operating investments .
  • Management emphasized strong origination momentum in commercial credit (equipment finance and C&I), while unusual paydowns in multifamily and certain equipment leases capped net portfolio growth; they expect originations to drive 2022 growth as payoff intensity moderates .
  • Asset sensitivity is a key 2022 catalyst: a 25bp rate hike lifts line-of-credit yields immediately and benefits ~$200M of cash, with limited need to raise deposit costs given strong liquidity, supporting net interest margin expansion .
  • Capital deployment pivots: buybacks will be far more nominal in 2022 due to regulatory limits and less accretion, while dividend remained $0.10/share; securities portfolio built to ~$85.7M with plans to keep short duration and potentially grow within a $125–$200M range at ~1.00–1.25% yields .
  • S&P Global consensus estimates for Q4 2021 EPS and revenue were unavailable at request time; therefore, beat/miss vs Street cannot be assessed (S&P Global access limit).

What Went Well and What Went Wrong

What Went Well

  • Commercial origination strength: “originations in commercial credit strengthened… especially so in equipment finance and C&I,” with middle market equipment finance ($45M) and small-ticket ($12M) expected to increase in 2022 .
  • Sequential revenue drivers: net interest income increased by $357K on higher investment securities interest and loan prepayment income; noninterest income rose $257K on seasonally higher loan and deposit service fees .
  • Asset quality remained excellent: nonperforming assets were 0.09% of total assets; allowance to total loans was 0.64% (with continued recoveries), supporting confidence in provisioning normalization .

What Went Wrong

  • Elevated paydowns pressured net loan growth: multifamily payoffs rose ~$15M in Q4, including large seasoned properties sold for high valuations; some equipment leases prepaid upon borrower M&A .
  • Efficiency ratio remained high at 79.50%, up vs prior year’s 74.40%, reflecting investments in commercial capabilities and certain expense items, constraining operating leverage .
  • Origination yields ticked down on mix: Q4 skewed to lower-risk/lower-yield multifamily and government equipment finance; management targets originations “around 4%” but cautions quarterly mix can pull yields below that .

Financial Results

MetricQ4 2020Q3 2021Q4 2021
Total Interest Income ($USD Millions)$12.54 $11.75 $12.07
Net Interest Income ($USD Millions)$11.60 $11.03 $11.39
Noninterest Income ($USD Millions)$1.54 $1.37 $1.63
Noninterest Expense ($USD Millions)$9.77 $10.17 $10.35
Net Income ($USD Millions)$2.45 $1.64 $2.37
Diluted EPS ($)$0.17 $0.12 $0.18
Margin/Return MetricsQ4 2020Q3 2021Q4 2021
Net Interest Margin (%)3.03% 2.75% 2.81%
Efficiency Ratio (%)74.40% 81.96% 79.50%
Return on Assets (%)0.62% 0.40% 0.57%
Return on Equity (%)5.63% 4.05% 6.00%

Segment balances at period end (selected):

Loans Outstanding ($USD Millions)Q4 2020Q3 2021Q4 2021
Multi-family Mortgage$452.24 $435.63 $426.14
Nonresidential Real Estate$108.66 $100.47 $103.17
Commercial Loans & Leases$405.06 $483.71 $489.51
One-to-four Family$41.69 $31.83 $30.13
Total Loans (gross)$1,009.96 $1,053.90 $1,050.64
Loans, Net$1,002.58 $1,047.06 $1,044.21

KPIs:

KPIQ4 2020Q3 2021Q4 2021
Loan Originations ($USD Millions)$165.45 $214.49 $325.15
Originations Weighted Avg Rate (%)4.16% 4.33% 4.07%
Payments/Payoffs ($USD Millions)$228.65 $199.86 $328.68
Payoffs Weighted Avg Rate (%)4.57% 4.38% 4.26%
Nonperforming Assets / Total Assets (%)0.09% 0.10% 0.09%
Allowance for Loan Losses / Total Loans (%)0.77% 0.65% 0.64%
Deposits (End of Period, $USD Millions)$1,393.54 $1,454.39 $1,488.43
Tier 1 Leverage Ratio (%)10.79% 9.45% 9.32%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net loan growth target2022 (ongoing)Aim for ~$40M net growth per quarter at ~4% origination yield Reiterated ~$40M quarterly net growth goal; originations to offset moderating payoffs Maintained
Origination mix/yieldQ1 2022 & 2022Origination yields in ~4% range; mix-dependent Q4 mix lowered yield; still targeting ~4% with possible quarter-to-quarter skew; noted 25bp pricing improvement on a pending deal Maintained (mix caution)
Noninterest expense run rateFY 2022~$9.8–$10.0M/quarter (seasonal variability) ~$40M annually ±$1M; Q1 seasonally higher; branch downsizing savings ~$250–$300K Clarified annual outlook; modest savings
Securities portfolio strategy2022Begin adding short-duration securities; stay relatively short Keep duration under ~3 years; target $125–$200M portfolio at ~1.00–1.25% yields, subject to liquidity/deposit trends Expanded (explicit range)
Deposit footings outlook2022Not specifiedPotential $50–$100M decline in surge/excess deposits as liquidity normalizes and borrowers utilize cash New (headwind to footings)
Rate sensitivity/NIM2022NIM stable to modestly improving with mix Asset sensitive: +25bp hike lifts line yields and benefits ~$200M cash; limited deposit cost pressure expected Strengthened positive sensitivity
Share repurchases2022Near regulatory limits; volumes not as strong Reached limits; authority just under ~300K shares; expect nominal pace Lowered/Constrained
DividendQ4 2021 onward$0.10/quarter Maintained $0.10/quarter Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4 2021)Trend
Loan payoffs vs originationsPersistent multifamily payoffs; equipment lease paydowns at period-end; originations building across segments Unusual paydowns: +$15M multifamily from asset sales; some equipment leases prepaid upon sale; expect moderation as seasoned assets harvested Payoffs still elevated but likely moderating
Origination yield/mixOrigination yields improved; mix can lower yields (corporate EF yields mid-2%) Q4 skew to multifamily and gov’t EF lowered yields; aim ~4% with pricing tailwinds (+25bp on a deal) Mix-dependent; near ~4% targeted
Asset sensitivity/ratesConsidering short-duration securities; NIM stable to improving with mix Clear asset sensitivity: lines reprice with hikes; cash benefits; deposit costs likely contained More explicit positive rate leverage
Deposits/liquidityStrong liquidity; little need for wholesale funds Expect $50–$100M deposit runoff as stimulus fades and borrowers deploy cash Footings may compress near term
Branch optimizationReviewing footprint and tech-enabled services Downsizing facilities to cut occupancy costs; savings ~$250–$300K Execution phase
Treasury/TrustBuilding capabilities; initial launches and fee contributions expected Noninterest income strengthening; trust pipeline solid; treasury services a focus Growing fee income contributions
Equipment financeGrowth across middle-market and small-ticket; supply chain timing affects closings Middle-market ~$45M and small-ticket ~$12M originations in 2021; both expected to rise; occasional unusual paydowns Expansion with occasional volatility
Health care/C&I linesLow utilization; strong commitments; volatility in usage Utilization ~22% vs ~70% pre-pandemic; focus on increasing usage and commitments Long runway for utilization recovery

Management Commentary

  • “We had a mixed bag of results in the fourth quarter of ’21, but some strong progress… originations in commercial credit strengthened… especially so in equipment finance and C&I… we expect that to continue for 2022.”
  • “We’re obviously very asset sensitive and liquid… commercial lines will all move [with hikes]… we don’t expect to need to get very aggressive on cost of funds… we would expect that the net benefit on net interest margin from a rate hike would be positive.”
  • CEO on 2021 outcomes and 2022 setup: “excellent asset quality and greater loan portfolio diversity… disappointed by the persistent high level of portfolio prepayments and low commercial line utilization in 2021… expansion of our Equipment Finance, Commercial Finance, Treasury Services and Trust originations capabilities in 2021 will provide further positive operating leverage in 2022.”

Q&A Highlights

  • Paydowns/payoffs and outlook: Multifamily payoffs rose ~$15M on asset sales; management sees signs that the most seasoned properties have been “harvested,” implying lower payoff rates ahead though uncertainty remains .
  • Origination yields and mix: Q4 yields dipped on lower-risk mix; management targets ~4% origination yields and noted pricing power (+25bp on a pending deal) even in government EF .
  • Rate sensitivity/NIM: +25bp hike immediately benefits line yields and sizable cash balances, with limited deposit beta expected; reinvestment at higher rates could compound the benefit .
  • Securities strategy: Keep duration under ~3 years; potential to grow portfolio to $125–$200M at ~1.00–1.25% yields; watch for deposit runoff and footings compression .
  • Expenses/buybacks: Annual noninterest expense run-rate ~ $40M ±$1M; branch downsizing to reduce occupancy costs; buybacks constrained to “just under 300,000 shares” authority in 2022 .

Estimates Context

  • S&P Global consensus EPS and revenue estimates for Q4 2021 were unavailable at request time due to access limits; as a result, a beat/miss assessment vs Street cannot be provided (S&P Global data unavailable).
  • Given asset sensitivity and originations momentum, analysts may revisit NIM and loan growth assumptions, but any estimate changes should be anchored to management’s mix and utilization commentary rather than extrapolated beyond disclosed trends .

Guidance Changes

(See detailed table above. Key items: maintenance of ~$40M quarterly net loan growth target, explicit securities portfolio range/yield, expected deposit runoff, constrained buybacks, stable dividend) .

Key Takeaways for Investors

  • Asset-sensitive balance sheet positions BFIN to benefit from Fed hikes without aggressive deposit repricing, supporting NIM expansion in 2022 .
  • Strong origination pipelines in equipment finance and C&I, plus plans to lift multifamily and commercial real estate originations, should offset moderating payoffs and underpin loan growth trajectory .
  • Watch deposit footings: management expects $50–$100M runoff as excess liquidity normalizes; securities deployment will be calibrated to preserve flexibility .
  • Operating leverage in 2022 hinges on stabilizing efficiency: branch downsizing and ongoing technology investments aim to curb occupancy and data communication costs, while Treasury/Trust expansion boosts fee income .
  • Buyback capacity is limited near term (authority under ~300K shares), shifting capital deployment emphasis to organic growth and short-duration securities; dividend remains $0.10/share .
  • Monitor loan mix and origination yields: quarter-to-quarter yield variability is driven by mix (multifamily and government EF skew lower), but pricing power and increased utilization in C&I can lift yields toward the ~4% target .
  • Credit remains a support: low NPAs (0.09% of assets) and robust allowance coverage provide cushion as growth accelerates and normalization continues .

Notes:

  • All financials and commentary sourced from the Q4 2021 8-K press release and Quarterly Financial & Statistical Supplement, and the Q4, Q3, and Q2 earnings call transcripts .
  • S&P Global consensus estimates were unavailable at request time due to access limits; therefore, comparison vs Street could not be performed.