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BC

BankFinancial CORP (BFIN)·Q4 2022 Earnings Summary

Executive Summary

  • Q4 2022 EPS was $0.27 on net income of $3.438M; net interest margin expanded to 3.59% from 3.52% in Q3, and the efficiency ratio improved to 65.12% from 69.70% .
  • Loans receivable (net) rose to $1.227B from $1.142B in Q3, with strong growth in multifamily and commercial & industrial; deposits contracted sequentially to $1.375B amid liquidity runoff and rate-seeking behaviors .
  • Asset quality remained stable: nonperforming assets were 0.13% of total assets and nonperforming loans were 0.13% of total loans; allowance rose to 0.66% of total loans as provisioning increased with loan growth and macro softness .
  • Management guided to 5%–10% loan growth for 2023, NIM stability in 1H with opportunity to expand in 2H (commercial finance and equipment finance mix), expense run-rate framed around ~$40M, and buybacks baseline ~50k shares per quarter, with dividend maintained at $0.10 and potential review later in 2023 .

What Went Well and What Went Wrong

What Went Well

  • Improved operating leverage: efficiency ratio fell to 65.12% in Q4 (from 69.70% in Q3) on lower noninterest expense and higher NII; CEO highlighted “strong financial condition… improved operating leverage” .
  • Net interest margin expansion: NIM rose to 3.59% in Q4 from 3.52% in Q3 on higher asset yields and portfolio mix shift; sequential NII increased to $13.988M .
  • Robust loan production and portfolio growth: loan originations totaled $345.9M in Q4 at a 6.88% weighted average rate; net loans increased to $1.227B; management emphasized equipment and commercial finance as priority growth engines .

What Went Wrong

  • Deposit contraction and rising funding costs: total deposits fell to $1.375B from $1.425B in Q3; deposit interest expense rose to $2.076M (from $1.008M), with management citing deposit pricing as the “big wildcard” for 2023 .
  • Higher credit provisioning: provision for loan losses increased to $743k (from $350k in Q3) due to loan growth and modest macro deterioration; allowance coverage increased to 0.66% of total loans .
  • Branch disposition costs: while two branches were closed, management expects potential disposition-related costs “a couple of cents a share” as buildings are sold, delaying full run-rate savings until assets are disposed .

Financial Results

MetricQ4 2021Q2 2022Q3 2022Q4 2022
Net Interest Income ($USD Millions)$11.387 $12.130 $13.922 $13.988
Noninterest Income ($USD Millions)$1.631 $1.839 $1.287 $1.406
“Revenue” = NII + Noninterest Income ($USD Millions)$13.018 $13.969 $15.209 $15.394
Provision for Loan Losses ($USD Millions)$(0.221) $0.459 $0.350 $0.743
Noninterest Expense ($USD Millions)$10.349 $10.199 $10.601 $10.039
Income Before Income Tax ($USD Millions)$2.890 $3.311 $4.258 $4.612
Income Tax Expense ($USD Millions)$0.519 $0.744 $1.037 $1.174
Net Income ($USD Millions)$2.371 $2.567 $3.221 $3.438
Diluted EPS ($USD)$0.18 $0.19 $0.25 $0.27
Margins & EfficiencyQ4 2021Q2 2022Q3 2022Q4 2022
Net Interest Margin (%)2.81% 3.07% 3.52% 3.59%
Efficiency Ratio (%)79.50% 73.01% 69.70% 65.12%
ROA (%)0.57% 0.62% 0.79% 0.86%
ROE (%)6.00% 6.64% 8.31% 9.01%
Deposits ($USD Thousands)Q4 2021Q3 2022Q4 2022
Noninterest-bearing Demand342,185 307,116 280,625
Interest-bearing NOW404,326 409,135 400,416
Money Market Accounts333,369 314,436 302,863
Savings Deposits201,633 206,048 204,506
Certificates of Deposit – Retail203,468 188,278 186,524
Total Deposits1,488,431 1,425,258 1,374,934
Loans Outstanding ($USD Thousands)Q4 2021Q3 2022Q4 2022
One-to-four Family Residential RE30,133 24,484 23,094
Multifamily Mortgage426,136 481,838 536,295
Nonresidential Real Estate103,172 115,820 119,660
Commercial Loans & Leases489,512 523,669 552,494
Consumer1,685 2,363 1,584
Credit Quality KPIsQ4 2021Q3 2022Q4 2022
Nonperforming Assets ($USD Thousands)1,475 2,179 2,112
NPA / Total Assets (%)0.09% 0.13% 0.13%
Nonperforming Loans / Total Loans (%)0.07% 0.14% 0.13%
Allowance for Loan Losses ($USD Thousands)6,715 7,386 8,129
Allowance / Total Loans (%)0.64% 0.64% 0.66%
Capital & Shareholder MetricsQ4 2021Q3 2022Q4 2022
Tier 1 Leverage Ratio (Holding Company)9.32% 9.55% 9.73%
Book Value per Share ($)11.90 11.69 11.90
Common Shares Outstanding13,228,485 12,922,174 12,742,597
Quarterly Cash Dividend ($/share)0.10 0.10 0.10
Stock Repurchases (shares)145,648 231,311 179,577
Quarter-end Close Price ($)10.67 9.46 10.53

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Loan GrowthFY 2023~10% target (starting point) 5%–10% with emphasis on equipment finance & C&I Lowered range (more conservative)
Net Interest MarginFY 2023Protect 3.50%–3.60% base case; Q2 indicated aspiration ~3.73%–3.75% as mix improves Stable in 1H; opportunity to expand in 2H via commercial finance and deposit mix; “upper 3s” possible Maintained/staged (timing clarified)
Expense Run-RateFY 2023~$10M per quarter (+/−$0.25M) ~$39.5M to just over $40M; branch savings ~$0.8M annualized, ramping after asset sales Maintained aggregate frame; savings timing clarified
Share RepurchasesFY 2023100k–150k per quarter (indicative) Baseline ~50k per quarter; could be higher/lower Lowered baseline (post excise tax)
DividendFY 2023$0.10/quarter (maintained) Maintain near term; revisit April/July depending on rates/earnings Maintained; potential review flagged
Reserves (CECL)FY 2023Portfolio reserves ~70–80 bps depending on mix Higher reserve ratios on middle market/small-ticket and commercial finance (>1% category-level), implying higher weighted average Raised for higher-risk mix buckets

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2022 and Q3 2022)Current Period (Q4 2022)Trend
Net Interest Margin outlookTarget ~3.73%–3.75% if deposit betas remain modest; base case protect 3.50%–3.60% Stable in 1H; potential expansion in 2H on commercial finance and deposit mix; “upper 3s” possible Improving trajectory; timing shifted to 2H
Funding & depositsPlaying defense on pricing; watching liquidity runoff and rate shopping; expect higher cost of funds Expect further deposit contraction; replace ~$60M funding (target half commercial/half retail CDs); maintain L/D ~90–92% Continued runoff; proactive funding plan
Loan growth mixMultifamily strong in 2H’22; push to equipment finance & C&I; healthcare pipeline improving 2023 focus 5%–10% growth led by equipment finance/C&I; healthcare ~half of C&I growth Mix pivots further to commercial
Yields by productCommercial finance mid-9% target; equipment finance high-6% (swap + 250–300bps) Reiterated: commercial finance mid-9s; EF high-6s depending on tenor/mix Consistent; supportive of NIM
Branch rationalization & opexBranch closures set for Jan’23; expected efficiency gains Buildings to be sold; ~$0.8M annual saves; some disposition cost (“couple cents/share”) Savings accrue post-dispositions

Management Commentary

  • “The Company ended 2022 in a strong financial condition, with excellent asset quality and improved operating leverage… We expect our Commercial Finance, Equipment Finance and Treasury Services originations capabilities will contribute further improvements to earnings… in 2023.” — F. Morgan Gasior, Chairman & CEO .
  • “Our big wildcard this year is going to be deposit interest expense… In the second half… we have more cash flows re-pricing… opportunity to expand the net interest margin, especially… in equipment finance and… commercial finance.” .
  • “We are comfortable [expenses] framed right around $40 million… estimated cost saves from both those branches are roughly $800,000… conceivable that we could have both buildings sold and closed by the end of second quarter.” .

Q&A Highlights

  • Funding plan: Reallocate ~$60M from securities maturing (~2.66% yield) into commercial finance (~9.6% target), and source ~$60M new funding, aiming for half commercial deposits and half retail CDs to lower marginal cost of funds .
  • Deposit dynamics: Expect continued runoff as customers deploy cash; plan to maintain L/D in 90%–92%; defense via pricing and commercial deposit marketing .
  • Growth and yields: 2023 loan growth 5%–10% led by equipment finance and C&I; commercial finance yields mid-9s, equipment finance high-6s (swap + 250–300bps) .
  • Expenses and branch actions: Expense run rate ~$39.5M–$40M; branch disposal may create small one-time costs before full savings realized .
  • Capital return: Repurchase baseline ~50k shares/quarter; dividend maintained at $0.10 with potential review in April/July as earnings and rate backdrop evolve .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2022 EPS and revenue was unavailable due to an S&P Global request limit error during retrieval; as a result, comparisons vs consensus cannot be provided at this time [SPGI retrieval error].
  • Implication: With NIM expansion, lower efficiency ratio, and net income/EPS improving sequentially, sell-side estimates may need to reflect stronger margin trajectory in 2H 2023 if deposit costs stabilize and commercial finance growth materializes .

Key Takeaways for Investors

  • Margin momentum: Sequential NIM expansion to 3.59% alongside mix shift into higher-yield commercial finance and equipment finance supports 2H 2023 margin upside if deposit costs can be contained .
  • Operating leverage: Efficiency ratio improved to 65.12%; branch closures and pending property sales should further lower opex once disposition completes, though near-term costs may offset partially .
  • Credit quality intact: NPAs/NPLs remain low; allowance increased with portfolio growth and macro caution; CECL transition implies higher reserves in certain higher-yielding buckets, appropriately matching risk-return .
  • Funding strategy: Active shift of securities cash flows into commercial finance and targeted deposit campaigns (commercial and retail CDs) to manage L/D and marginal cost of funds .
  • Growth focus: 2023 loan growth targeted at 5%–10%, with healthcare a key contributor within commercial finance; this supports earnings trajectory while diversifying away from rate-sensitive real estate .
  • Capital return: Dividend maintained ($0.10) with potential for increase later in 2023; buybacks continue at a moderated baseline, balancing excise tax and valuation .
  • Tactical watch items: Monitor deposit betas and competitive pricing, branch sale timing, utilization in healthcare lines, and execution of commercial deposit marketing—all key to NIM/EPS path and multiple re-rating .
Note on estimates: Wall Street consensus via S&P Global was unavailable due to an S&P Global daily request limit error at the time of retrieval; we will update estimate comparisons when accessible.