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BC

BankFinancial CORP (BFIN)·Q4 2023 Earnings Summary

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

  • 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 .

  • 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 .

Financial Results

Quarterly income statement metrics (dollars in thousands; formatted as $USD Millions):

MetricQ2 2023Q3 2023Q4 2023
Total interest income ($M)$16.178 $16.894 $16.923
Total interest expense ($M)$3.235 $3.940 $4.491
Net interest income ($M)$12.943 $12.954 $12.432
Provision for credit losses ($M)$(0.188) $0.136 $0.317
Noninterest income ($M)$1.239 $1.240 $1.625
Noninterest expense ($M)$11.220 $10.790 $10.879
Pretax income ($M)$3.150 $3.268 $2.861
Income tax expense ($M)$0.838 $0.899 $0.782
Net income ($M)$2.312 $2.369 $2.079
EPS ($)$0.18 $0.19 $0.17

Margins and efficiency vs prior year:

MetricQ4 2022Q4 2023
Net interest margin (%)3.59% 3.46%
Net interest rate spread (%)3.39% 3.01%
Efficiency ratio (%)65.12% 77.39%

Segment loan balances (period-end):

Loan Category ($M)Q2 2023Q3 2023Q4 2023
One–to–four family residential$21.475 $20.448 $18.945
Multi–family residential$544.673 $542.165 $527.460
Nonresidential real estate$123.360 $120.505 $118.016
Commercial loans & leases$544.216 $495.520 $393.321
Consumer$1.596 $1.355 $1.364
Loans, net$1,225.288 $1,170.767 $1,050.761

Loan originations and payoffs:

MetricQ2 2023Q3 2023Q4 2023
Total originations ($M)$229.121 $172.547 $164.855
Weighted average origination rate (%)8.67% 9.24% 9.09%
Total payments and payoffs ($M)$228.270 $226.812 $216.625
Weighted avg payoff rate (%)8.20% 8.35% 7.85%

Deposit mix (period-end):

Deposits ($M)Q4 2022Q2 2023Q3 2023Q4 2023
Noninterest-bearing demand$280.625 $287.493 $278.170 $260.851
Interest-bearing NOW$400.416 $360.441 $349.374 $306.548
Money market$302.863 $273.256 $271.194 $297.074
Savings$204.506 $200.659 $190.277 $174.759
Retail CDs$186.524 $193.116 $214.456 $222.391
Wholesale CDs— $0.249 $0.249 —
Total deposits$1,374.934 $1,315.214 $1,303.720 $1,261.623

Credit quality KPIs:

KPIQ2 2023Q3 2023Q4 2023
NPAs / Assets (%)0.66% 1.64% 1.69%
NPLs / Loans (%)0.72% 2.05% 2.11%
Allowance / NPLs (%)113.20% 38.19% 37.36%
Equipment finance nonaccruals ($M)$8.807 $23.965 $21.294

Other headline metrics:

  • Loan-to-deposit ratio: 83.3% at 12/31/23 vs 89.2% at 12/31/22 .
  • Net interest margin: 3.46% in Q4 2023 vs 3.56% in Q3 2023, 3.66% in Q2 2023 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net interest margin (%) trajectory2024Stabilize in H2’23, modest add by Q4’23 Stable in H1’24; expand in H2’24 via reinvestment (securities avg 3% maturing; +100–150 bps on EF cash flows) Maintained but deferred expansion
Loan growth20245–6% net growth in 2024 outlook Target 5–8% loan growth; L/D 90% target ($1.1B loans) Raised
Deposits2024Stabilizing; pressure abating at margin Flat base case; no broker deposits anticipated; FHLB advances rolling off Maintained
OpEx ($)2024~$10.0–$10.5M quarterly run-rate post claims normalization $41–$42.5M for 2024; variability from originations deferrals; legal costs to decline Maintained (annualized framing)
Efficiency ratio (%)2024No explicit % target previouslyLow-to-mid 60s% by YE 2024; potentially low 60s% in optimized mix New explicit target
Noninterest income2024BOLI negative contributor in 2023 BOLI positive contributor up to ~$0.5M; Trust and Treasury Services growth initiatives Improved outlook
Capital & dividendsOngoing$0.10 quarterly dividend; buybacks opportunistic Dividend maintained at $0.10; book value $12.45; repurchases continued in 2023 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4 2023)Trend
Federal government equipment finance claimsTwo unusual federal cases; claims preparation; risk monitoring Cases in final stages of approvals/reviews; equipment seized and to be marketed; allowance approach clarified Process advancing; stabilization in broader portfolio
Deposit costs and mixDeposit betas below peers; pressures abating; competitor specials receding Deposits stabilized in Q4; 2024 outlook flat; no broker deposits; focus on commercial deposits and wallet share Stabilizing with targeted growth in commercial
Margin trajectory vs ratesInitial 100 bps cut matched; abrupt >100 bps would pressure NIM NIM stable in H1’24; expand H2 via reinvestment (CDs, corporates) to protect income if Fed cuts 75–100 bps Constructive H2 setup contingent on deployment
Commercial finance strategyPrioritized in H2’23; utilization strong then payoffs; healthcare pipeline Tripling 2024 resources; advanced credit/product training; pipelines in healthcare/lessor finance building Accelerating resource shift and go-to-market
Equipment finance runoff/repricingGovernment EF runoff over 12–18 months; reinvest at higher yields ~$130M 2024 EF cash flows to redeploy with +100–250 bps yield pickup Ongoing tailwind for yield
Shareholder activism / strategic alternativesBuybacks moderated; dividend maintained Multiple investors advocated sale; management focused on execution; target sustainable $0.20–$0.25 EPS in H2’24 Elevated pressure; narrative risk if execution lags

Management Commentary

  • “Our asset-liability management strategies enabled us to strengthen liquidity and improve interest income in a highly uncertain environment… These actions resulted in strong liquidity and capital ratios as of December 31, 2023.”
  • On 2024 NIM and reinvestment: “Stable in the first 6 months… expand the percentage and increase the dollar amount of net interest margin in the second 2 quarters… pick up at least a couple hundred points on [securities maturing at 3%] … 100–150 points on equipment finance cash flows.”
  • On strategic focus: “We’re repositioning resources into commercial finance… probably have triple the resources devoted to commercial finance in ’24 than … beginning of ’23… [and] product training... to go out and sell it.”

Q&A Highlights

  • Loan growth and mix: Balances steady but lower draws in Q4; 2024 pipelines in healthcare and lessor finance; resource shift from real estate to commercial finance; EF cash flows redeployed to higher-yield corporates .
  • Margin outlook: ~$200K decline in Q4 interest income; deposit interest expense rising; NIM to be stable H1 and expand H2 via reinvestment in loans/securities .
  • Expenses: 2024 OpEx guided to $41–$42.5M; branch sale expected March; legal expense to decline post-claims; marketing to support commercial deposit and loan growth .
  • Deposits/LDR: Q4 stabilization; 2024 deposits flat; target L/D ~90%; no broker deposits planned; FHLB advances rolling off .
  • Efficiency and fees: Enable overdraft opt-ins to modestly lift retail fees; Trust and Treasury Services growth; BOLI potentially +$0.5M; aim for low-to-mid 60s% efficiency by YE 2024 .
  • Shareholder activism: Several investors urged an M&A path; management deferred strategic discussion to offline, emphasized improving ROA/ROE and dividend .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2023 EPS and revenue was unavailable due to data access limits at time of analysis. We could not retrieve consensus estimates and therefore cannot assess beats/misses vs Street for this quarter [GetEstimates error].

Guidance Changes

See the Guidance Changes table above for detailed metrics and directional changes, including NIM trajectory, loan growth, deposits, OpEx, efficiency ratio, and noninterest income items .

Key Takeaways for Investors

  • Balance sheet repositioning sets up H2 2024 EPS/NIM expansion via reinvestment of securities (avg 3% maturing) and ~$130M EF cash flows into higher-yield corporates; monitor deployment pace and credit mix .
  • Commercial finance is the core growth engine in 2024; resource reallocation and training are sizable—watch pipeline conversion, utilization, and related treasury fee capture for ROA uplift .
  • Credit narrative improving: NPAs stabilized with targeted dispositions; allowance coverage and corporate EF performance support normalization; follow progress on federal claims resolution .
  • Expense control vs growth: 2024 OpEx $41–$42.5M with variability from originations deferrals and lower legal spend; achieving low-to-mid 60s% efficiency by YE 2024 is a key lever for re-rating .
  • Deposits stabilized; plan avoids broker deposits—commercial deposit growth and wallet share should be incremental NIM support if competitive pricing discipline holds .
  • Shareholder activism raises strategic overhang; near-term stock narrative hinges on executing H2 expansion and demonstrating sustainable $0.20–$0.25 quarterly EPS run-rate with improved ROA/ROE .
  • Dividend continuity and rising book value ($12.45) provide downside support; capital ratios remain strong (Tier 1 leverage 10.54%) aiding flexibility .