BankFinancial Corp (BFIN) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2009 BankFinancial Corporation earnings conference call. My name is Tawanda and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of today's conference. (Operator Instructions).

I would now like to turn the presentation over to Mr. F. Morgan Gasior, Chairman and Chief Executive Officer. Please proceed, sir.

Good morning. Welcome to our first conference call of 2010. As all filings are complete, we'll simply read our forward-looking statements and then open it up for questions. At this time, I'd like to introduce Vice President [Richard LaBlanca], who will read our forward-looking statements.

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 the 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 the use of words believe, accept, intend, anticipate, estimate, project, plan, or similar expressions. Our ability to predict results, or the actual effect of our plans and strategies, is inherently uncertain and actual results may differ significantly from those predicted.

For further details on risks and uncertainties that could impact our financial condition and results of operation, please consult the forward-looking statement declarations and risk factors we have included in our reports to the SEC. These risks and uncertainties should be considered in evaluating forward-looking statements. We do not undertake any obligation to update any forward-looking statement in the future.

And now, I will turn the call over to Chairman and CEO, F. Morgan Gasior.

Thank you, Richard. Well, as I said, all filings are complete and we have no new information to add; so, at this time, we'll go ahead and open up the call to questions.

(Operator Instructions).

Ready for the question.

Mark Zahorik, Keeley Asset Management.

I had a couple of questions. The first is, noticed that during the fourth quarter, the NPAs rose after leveling off between the second and third quarter. They went from 2.65% to about 3.42%. I was just wondering if you could give us just your general sense on -- are you getting a feeling that things are leveling off or stabilizing? Or do you expect some worsening? And, if so, to what degree?

Those are difficult things to answer, but any color that you can give would be appreciated.

Okay. Well, let's first talk about fourth quarter and then we can kind of look forward a little bit.

As we noted in our third quarter overview, we expected to see a delayed reaction to the underlying economic conditions, particularly unemployment and consumer spending. They are directly correlated, but just on a delayed basis. And that's what we saw.

As you'll see in the detail that we broke out, more or less in order, you had increases of 1-4 family, and that was just about evenly split between investor 1-4 and owner occupied 1-4.

You had increases in multi-family nonaccruals; and in those cases, you're just seeing the effects of unemployment. It was something that we saw coming. The borrowers saw a rather significant change in their occupancies. And when they tried to maintain occupancies, they some a change in their affective rents.

In the non-residential real estate, the commercial real estate sector, there was only really one loan that's on a forbearance agreement. It's currently in compliance with the forbearance agreement, but under the guidance that was published by the FDIC, looking forward on that credit, given its current occupancy and guarantor support, it will not qualify for accrual status until it regains a certain level of occupancy.

So, it's paying its interest and taxes per the plan. It's not able to amortize, and therefore, it went on nonaccrual in fourth quarter. So really, you've seen some fairly severe unemployment, particularly in segments of Chicago -- the low to moderate income census tracts in particular. And you're seeing that impact carry forward.

What's happened since 12/31 is kind of interesting. We have seen a rebound in occupancies and we've seen a stabilization in effective rents in the multi-family sector. On the commercial real estate side, we were concerned, going into the first quarter that, if the smaller retailers didn't have a particular successful holiday season, that we'd see some tenants going dark and throwing in the towel. To date, that has not yet happened.

So, the issues in commercial real estate appear stable at the moment. We only had the one issue with the one property in fourth quarter. I can't say we're not concerned about it, but I can say that at the moment, we've not seen any new developments.

We do expect the multi-family sector to recover -- to continue to recover. And I have to say we've probably been pleasantly surprised with the speed of the re-tenanting of these buildings that the borrowers had problems with, at rental rates that were not, shall we say, near the peak when they bought the building or at the peak of the economy; but still, they'll be able to cash flow the buildings and resume debt service.

The hardest sector to predict, and the one that's probably going to take the longest to recover, is the 1-4 sector. This starts with the subprime issues that had hit the market within the last two years, where property values have been severely impacted by subprime dispositions, by special servicers. And you're seeing borrowers, both investor and owner-occupied, throwing in the towel if they can't make the payments; they don't see the equity there. And we've seen correspondingly, probably a record number of Chapter 7 filings as a result of that, where they're just going to charge-off the deficiency and be done with it.

So, I would expect that we'll continue to see some issues in 1-4. As unemployment recovers, economy stabilizes, you'll see a diminishment of that. Values will still be a challenge for awhile because we are probably only in the sixth or seventh inning in terms of the overall foreclosure process. There's still a lot of inventory in the pipeline that hasn't cleared the market.

Multi-family will, hopefully, continue to recover; and to the extent we get any improvement in unemployment, that will only further accelerate that recovery. Commercial real estate should -- at the moment, shows signs of stability. We'll let you know if we see anything differently going forward.

Is that helpful to you?

It sure is. No, that is very helpful. Let me ask one more question. That commercial credit that you were referring to, that I think you said is technically still in compliance, how big is that?

It was $2 million.

$2 million. Okay. Shifting gears here a little bit, two or three weeks ago, FirstMerit was the successful bidder for George Washington right in your footprint there in Orland Park. There's been a lot of talk among people that follow this space that a lot of these FDIC-assisted deals are really very compelling. And I was wondering, particularly because this is kind of right in your footprint, if you bid on that?

You know, we haven't declared a policy on disclosing what we bid on and what we haven't bid on. So, I'm probably reluctant to set that policy at this moment in time, but we'll give it some thought. I can tell you, though, that we're extremely familiar with George Washington. Among other things, I went to high school with the CEO, and I've known the family who owned the bank for 40 years.

George Washington was an old-line bank in Chicago that suddenly took a turn towards a almost exclusive concentration on construction lending. And that lending was funded by some very high-cost, relatively unattractive deposits, headquartered in a 12,000 square foot facility on the north side of Orland Square Mall, about a quarter of a mile away from an existing branch. We've had to fight them competitively on that deposit base for the last three or four years.

So when we evaluate something like George Washington -- I think some of the independent research bore this out -- we did not find it an attractive franchise in the least. Had that come up for bid four or five years ago, when they just had the location at 103rd and Cicero, very old-line neighborhood with great stable deposits, it would have been a far more compelling story.

But as it's presently configured, we did not find it anywhere near an interesting acquisition for any number of reasons. So we're very familiar with what's going on with FDIC deals in Chicago. We do expect the pace to continue and, actually, it will accelerate materially. Our number four Chicago FDIC deals is probably right around 45 to 50 banks of various sizes. And we'll look at each one that comes up and make a determination of if it's a compelling acquisition.

All right, well, that is helpful, especially the last statement that you made, because I was unclear on what your strategy was going forward. I think we've all read about the Naperville office that was opened, and 500 new regulators or new bankers were put in to help in the FDIC effort to clean up the 40 or so names in the greater Chicago metro area that have, let's just say, Texas ratios north of 150%. So it does look like there's things to look at.

Would you also say, based on FirstMerit being the winning bidder here, that you're surprised that -- call it -- seeing what they paid, based on what you know and know very well, and probably know a lot better than they know, since, as you say, they're right in your footprint, you went to high school with a member of the family and so on, that you don't think that deal is particularly attractive. Is that a fair statement?

It wasn't attractive for us. Clearly, FirstMerit has a expansion-minded plan involved in Chicago with the acquisition of FirstBanks. FirstBanks was itself in Chicago a rollup of four or five other institutions that FirstBank out of St. Louis paid over three-book for. So, FirstMerit clearly wants to be in Chicago. And they seem to be executing that strategy with what's available to them.

But we did not think that that was going to be a particularly attractive addition to our franchise. And how it fits for FirstMerit -- I mean, number one, FirstMerit's $13 billion or $14 billion, so it's hard to see how it moves the needle forward in any which way, other than trying to establish a presence in Chicago however they can.

Okay. Let me ask one other question. Given the economic environment, it's understandable that you've been cautious with regard to your buyback. Last quarter, we spoke, you didn't buy back anything in the third quarter nor the fourth quarter. It looks like the last time you bought back stock was back in the second quarter, about 70,000 shares or so.

Is that something that you expect to resume in the upcoming quarter? Or do you think it's best to continue to look at some of these FDIC deals that you think are likely to be coming around the bend here in upcoming months? Trying to get your thoughts there. You still have a lot of excess capital and you still have an existing buyback plan in place. Just trying to pick your brain here a little bit on what your thoughts are going forward.

Yes, I don't think anything has changed from the last couple of quarters in terms of parameters. As we've said previously, it's -- the buyback program and the volume within it is driven by whether the shares trade in a given point in time. And to the extent that they achieve a material -- and you really have to underline the word material -- discount to tangible book value, obviously, the financial return becomes more compelling.

In the fourth quarter, the trading price did not meet those parameters to trigger any kind of activity in the buyback program.

As to excess capital, certainly, the volume of FDIC transactions out there could be a useful deployment of capital, depending on how bids work out, and how many people are bidding on shops in Chicago, and how aggressive they are. One of the things -- let's tie it back to FirstMerit -- you may see people bidding on FDIC transactions in a manner that isn't quite economic; it's more strategic in nature. Just like people paying three or four book for something, it was more strategic in nature. So it's really hard to say how we're going to deploy that capital in the context of FDIC deals.

But it's also the case that we continue to get inquiries from people who may not have quite the adverse Texas ratio that you cited, 150%, but they still have a need for capital. Their asset quality is tenuous, and they may look for an exit that is prior to an FDIC resolution or one that does not have to require them to raise capital from other sources at extraordinarily dilutive rates.

So, FDIC transactions are a possibility. Non-FDIC transactions are a possibility. I would not necessarily expect buybacks to be a material component of capital activity unless the share price were to decline materially from the current levels.

All right. That's all I have. Thanks a lot.

Cengiz Searfoss, DCS Capital.

My question has been answered. Very detailed. Thank you very much.

(Operator Instructions).

Okay. Any further questions? Going once, going twice.

Okay. Well, we thank everyone for participating in our first conference call of 2010. And we look forward to talking to you in the future. Enjoy your spring.

Thank you for joining today's conference. That concludes the presentation. You may now disconnect and have a wonderful day.