BankFinancial Corp (BFIN) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2008 BankFinancial Corp. Earnings Conference Call. My name is Letrese. I will be your coordinator for today. (OPERATOR INSTRUCTIONS)

And at this time, I would like to hand the presentation over to your host for today's call, Mr. F. Morgan Gasior, Chairman and CEO of BankFinancial Corp. Please proceed, sir.

Good morning. Welcome to the Third Quarter 2008 BankFinancial Conference Call. At this time, I'd like Assistant Corporate Secretary Kontos to read the forward-looking statement.

This Conference Call may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 concerning BankFinancial Corporation's future operations and financial results. Such statements are based on management's views and expectations as of today, based on information presently available to management. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K for the year ended December 31st, 2007 and other filings with the Securities and Exchange Commission. And as a consequence, actual results may differ materially from those anticipated by the forward-looking statements. BankFinancial undertakes no duties to update forward-looking statements.

Thank you, Valerie.

We are complete with all filings, and we have no new information to add since the time of our filings. So we'll be happy to open it up for any questions anyone has.

(OPERATOR INSTRUCTIONS) Bill Jacobs, Jacobs Investment Management.

Good morning.

Could you talk about potential acquisitions? I know it's something you've been interested in. And are you starting to see more realistic pricing on assets out there?

And I guess the other part of that is, do you still have the same sort of appetite for acquisitions, or do you sort of feel like you want to see how the recession plays out before you start committing a lot of capital to those?

Yes, that's a very good question, especially given recent developments.

We have seen some opportunities recently. Some of them have been branch purchases, some of them have been whole-bank purchases. But your sense of caution is accurate. We've passed on a couple of whole-bank deals, solely because when we looked at the assets and the composition of the assets, not only did they present some present asset-quality resolution issues, but even more so, it didn't appear that the bank was built to last.

Heavy concentrations in construction lending -- even if those cases are successfully paid off, the earning stream of that institution's future was in question. And then, when you turned around and looked at the funding base of the institution -- heavy broker deposits, heavy CD, reliance on a premium-rate basis -- it wasn't at all clear that you were buying much of a future earning stream at all, even if the premium was modest. Almost to the point you would be buying a branch location; you'd have to almost start from scratch in terms of building your core deposit base. And we know how successful people have been or not been, as the case may be, doing that.

So we are seeing some additional opportunities. We actually passed on one, and then we saw a local bank group jump in. And it looks like they're going to be taking some sort of a significant stake. Whether it's a majority stake isn't exactly clear to us. And we were fine letting it go.

Going forward, I think that the real question is going to be how TARP and the Capital Participation Plan factors into people's thinking. And you could see any number of outcomes. One is institutions that could have needed capital -- maybe not a lot of capital, but some, and they would have been open to a deal -- will no longer feel the need to put themselves on the market. Because they'll get just enough capital from the CPP program to bridge that gap and remain independent. I think that's actually a fairly likely outcome and will take a certain amount of potential acquisitions off the market -- institutions that you could have worked with, containable problems, pluggable hole from a capital perspective. But this will help them remain independent, at least for awhile longer, until they figure out what they need to do to replace the CPP capital.

You will probably, therefore, also see fewer institutions fail, although maybe the bid list will be about the same as it always was, if the doctrine of CAMEL 4 or CAMEL 5 is such that they're going to go through the resolution process anyway. So maybe that doesn't change that outcome. And we would certainly be interested in participating on those types of opportunities. So far, though, none have really materialized in Chicago yet. But we've been in touch with all appropriate regulatory agencies. And we remain ready, willing and able to participate.

And then finally, the bigger opportunity hasn't necessarily manifested itself. We would be very cautious about such a thing. But if it was a right opportunity, we would certainly take a hard look at it. It just has not shown up yet that we thought it was a viable option for either side.

Okay. But you feel like you've got plenty of capital. And even though you've bulked up your reserve a little bit, you feel pretty comfortable with your potential losses, and you're not worried about putting that capital to use?

No, we're not at all worried about putting the capital to use. We're ready, willing, eager, from a capital, liquidity and a management side.

Okay. Thanks.

And there are no further questions in queue at this time.

Any further questions?

I'm sorry. I said, and there are no further questions in queue at this time. Hello, sir, can you hear me?

We cannot hear the questioner. We'll be happy to wait, if they'd like to re-queue.

[Tim Louzo].

Thank you. Good morning, Morgan.

Good morning.

I have a question about the -- hindsight is 20/20, as they all say -- but I have a question about the -- such a high concentration in the preferred stock that's went under, if you will, or significantly declined. Looking back on that, do you think that that was a mistake to have such a large concentration of capital in that? And also, did I hear you say that you will not be participating in the TARP program?

Thank you.

Okay, well, two separate questions.

First, let's talk about the Freddie preferred shares. As you said, hindsight -- it is clearly the case that any investment in Freddie preferred in excess of $0 was not a good investment. Having said that, I think the first thing you should understand is the Board had looked at all of our investment exposures and risk exposures pretty consistently at, and prior [to], and especially after the IPO. And the Freddie investment was carried within the loan-to-one borrower regulatory standards, the capital post-IPO.

And really in the big picture, you're looking at Freddie Mac. And you're saying -- as a credit exposure, as an exposure to an entity -- if a government-sponsored enterprise the size -- and with the apparent capital strength of Freddie Mac is now going to be in a federal conservatorship, that is really an unforeseeable outcome.

A logical follow-up question would be, could you have reduced your exposure over time? And in fact, we did, since the IPO, rather significantly. We eliminated our exposure to Fannie, and materially reduced our exposure to Freddie, to the level that we thought was appropriate, given Freddie's capital strength. And for a long time, Freddie was actually the much stronger of the two entities in terms of its capital, in terms of its management, in terms of its leadership, in terms of the issue it had with accounting and derivatives, and things of that sort.

The issues that are presented to the Board and management -- when you have assets held for an indefinite period of time with respect to accounting and tax -- are complicated, more complicated than we could get into here with any reasonable degree of discussion. And they really present some very difficult choices at times.

But yes, we would absolutely concede to all shareholders that we regret what's happened. We work very hard to build up tangible book value for shareholders and preserve shareholder value. Had we had to do it all over again, should the preferreds not have been in the portfolio, been smaller, I think anybody would say we would certainly wish and hope that that could have been the case. But at each point in time we were making decisions, we believe we made the right decisions, notwithstanding the results.

The second question, on the Capital Participation Program -- there's been no decision on that by the Board of Directors. They spent a considerable amount of time on it. And actually, a Board committee is doing nothing but monitoring the developments and gathering further information. But I think the conclusions so far really come down to -- there seem to be a lot more disadvantages compared to advantages by participating.

Given our capital strength and liquidity, we really have no additional need for capital. Two, we don't necessarily think that it's in the shareholders' interest to accept all of the restrictions that are involved on capital management -- for example, dividends, and, in particular, share repurchases.

And also, the rules and regulations for this program are still well under development . There's a lot more to come. Today's Election Day. Whatever happens, there's going to be a change in administration, there's going to be a change in leadership at all levels of government. Somebody we spoke to recently said that the rules and the principles of this are being written in erasable ink. And we actually thought that that was an accurate metaphor.

And really, given all the uncertainties of government involvement in operations and business activities, and given the capital strength, and given the restrictions on what we can do for promoting and preserving shareholder interests, there just seem to be a lot more disadvantages than advantages at this time.

The Board, when they make their decision, depending on when that deadline is -- we understand that it might be extended, but right now I believe it's November 14th -- they will publishing their decision in an 8-K either way, so that everyone understands the decision that was taken and the basis for

Thank you.

(OPERATOR INSTRUCTIONS) There are no further questions in queue at this time.

Any last chances for questions? Going once --

Once again --

-- twice, three times. Very good.

Well, we thank everyone for participating on our Third Quarter call. And in advance, we wish you a happy holiday season, and we look forward to talking to you in 2009.

Thank you for your participation in today's Conference. This concludes the presentation. Have a great day.