BankFinancial Corp (BFIN) 2012 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the second-quarter 2012 BankFinancial Corporation earnings conference call. My name is Chris, and I will be your conference moderator for today. Presently, all participants are in a listen-only mode. Later we will facilitate a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

And at this time I would now like to turn the call over to your presenter for today, CEO and Chairman, F. Morgan Gasior. Sir, you may proceed.

Thank you. Good morning and welcome to the second-quarter 2012 investor conference call. As all filings are complete, we have nothing new to add. We'll proceed with our Safe Harbor statement and then to questions and answers.

The remarks made at this conference may include forward-looking statements within the meaning of Section 21-E 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 this 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. These are often identifiable by use of the words belief, expect, 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 the risks and uncertainties that could impact our financial condition and the results of operation, please consult the forward-looking statements declarations and the 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'll turn the call over to Chairman and CEO, F. Morgan Gasior.

Thank you, and good morning, again. We're ready to take your questions.

(Operator Instructions). John Burke, Amica Insurance.

Can you update us on what your thoughts are on bulk sale of dispositions?

Sure. We spent the last several weeks in discussions with a number of bulk market participants and interested constituencies. And I'd say as we sit here today that the percentage chances of us doing something on an accelerated disposition are increasing. Sometime in the third or fourth quarter of this year.

The pool size hasn't changed that much. We've had a few resolutions, or possible resolutions, that will -- taken out of the pool, but it really is a function of do we have any better ideas what to do with these assets. And in some cases, a private equity-type resolution is going to be better than trying to rehabilitate the credit to a performing status, with all the constraints on the regulatory and accounting side that we have. So, yes, I would say as we have engaged in the dialogues with a variety of people, the percentages have increased from where we were in our last discussion.

And pool size, again -- that was around $20 million?

Yes, I'd say that at the moment, that's a reasonable size if you're talking about something that would be done all at once.

Another related analysis is looking at holding costs and real estate taxation costs, for example, against lower-balance properties and deciding if the ordinary course of business liquidation on those properties make sense to continue. Real estate taxes in Chicago aren't going down anytime soon.

And the various municipalities have enacted in some cases what I would consider potentially Draconian maintenance ordinances. So your historical maintenance expenses may wind up increasing substantially.

This is going to have somewhat of a perverse effect of decreasing values in those communities, which was probably not what they were thinking about at the time, but looking at that forward-cost curve, there is a handful of assets in the $20 million that might be disposed of to private equity, but we might also prioritize some lower-dollar assets simply to get the expenses off the book sooner, especially given the rise -- the possible rise in those expenses over the next 12 to 18 months.

Any dollar value on that? I'm looking at $14 million non-accrual of 1 to 4 family and another $3.5 million or so OREO?

I'd say you're probably looking at $5 million to $7 million in that category, possibly little bit larger. It's a little harder to deal with that when the premises are occupied and the owner-occupant has no real incentive to move.

We have competitors in Chicago that are happy to write checks for several thousand dollars to move people out of their homes. It is something we have not engaged in. If they really didn't like the disincentives that there creates in the market. But it may be something we engage in on a limited basis.

So I would say $5 million to $7 million. It could potentially push up to $10 million if we really got aggressive, but I would not suspect that it would get much bigger than that. And I would also suspect that you would not necessarily see that the type of discount you see in the usual private equity accelerated disposition. It will be a smaller one, but more aggressive than we have been doing in the ordinary course of business.

Can you talk about those discounts on both buckets of loans there, and how you feel about those relative to where your stuff is marked?

Not yet. We don't have enough indications of interest. But you've seen people go into the market and apply 15%, 18% return on equity assumptions. And then they have to discount that over a period of time, so you can do the math on your own. But we're not far enough along I'm getting the indications to tell you where it would be.

And as I said, the asset selection could vary; there's a handful of loans that are still in the same pool that we were thinking of last quarter, but it's a little too early to talk about that.

Okay, and those $20 million, are they getting any type of disproportionately large credit-related expenses on your non-interest line? Or is it -- should be --?

Yes, that's a good question. Principally, you'll see legal expenses at the moment for those credits. And they're not insignificant. We haven't taken title to them yet, so you haven't seen things like real estate taxes. And in some cases the receiverships are paying for those expenses.

So we really don't have the trailing operating expenses yet. In most of those cases we've been looking at litigation expenses. And given the nature and the size and the complexity of the asset, those expenses can be significant.

Okay, so a little higher disproportion?

Yes, sure. Because we're working with, in some cases, a bankruptcy counsel; in other cases, we're working with very sophisticated collection counsel. So they are significantly more expensive on a day-to-day basis thing your average $100,000 foreclosure.

And when borrowers don't cooperate, we are going to do everything we can to make sure the property is secure; that we secure all possible cash flows. Receivership expenses are included in those numbers, so we will save some money when we get these off the books, if you looked at it on a trailing 12-month basis. But you won't see it yet in places like real estate taxes. That's yet to come. And it's also why we're interested in getting them off the books before those become an issue.

Okay. All right. So you had another positive earnings quarter, even though these credit lines are really eating up everything. But on the DTA, has your expectation changed that that is more likely a 2013 event than it is later this year?

I would think so. I wouldn't -- like I said last time, I wouldn't rule it out, but given everything we've discussed with people, we think it's a more likely 2013 then a 2012. Certainly be a pleasant surprise if it happened in 2012 -- a pleasant event, but more likely 2013.

Okay. And obviously, the immediate concern here is getting through these nonperforming assets. But if you can just talk about what your expectation is, assuming we get through this year -- on dividends, or deploying excess capital, growth capital? I don't know if you have changed your thought on that.

Well, I would say that we have co-priorities. Getting the loan portfolio back to $1.240 billion to $1.250 billion range is a co-priority. We have some cyclical activity in C&I this quarter that will recover during the rest of the year.

We had a couple of deferred settlements in commercial leases; otherwise we would have had either even results are possibly a slight gain in leasing for the quarter. That -- we're still struggling against that amortization, but we are seeing greater origination volumes than we have in the last while.

The multi-family portfolio -- we talked about the large competitors that jumped in the water in first quarter. It was interesting to see some smaller competitors jump in the water in the second quarter. Some of them are being pretty aggressive on underwriting, especially with respect to cash-out refinance transactions, which have really not been a feature in the market for a while, but we're seeing people going out to 75% or 80% cash out on income appraisals, which is, let's say, aggressive in this particular environment.

But our co-priority is to get that loan portfolio. We're not really going to be able to cover the residential balances to where they were at 12/31/11, but we do think it's feasible to restore the multi-family portfolio, nonresidential portfolio, C&I portfolio, and the commercial leasing portfolio to those 12/31 levels through the remainder of the year.

And I think that's critical when we're discussing the potential of an increase in the dividend. We're much happier with the top-line revenue on loans being closer to $17 million than we are at its current level, so that's a priority.

As far as the dividend is concerned, the resolution of nonperforming assets will affect GAAP earnings. It will affect how the SRO 9-4 calculation is viewed, but our sense is that everyone is in favor of an accelerated disposition of nonperforming assets in terms of future earnings performance, future capital sufficiency. So at the end of the day, while I think it might have a short-term impact on probability of increasing dividends, in the medium to longer term, it would have a positive impact.

So our co-priorities are working the loan portfolio back to the 12/11 levels, if not higher in certain categories; moving the nonperforming assets; and the combination of those two things should put us in a much better position vis-a-vis dividends, and obviously, in the deferred tax asset recovery.

At that point, share repurchases could be an issue on the table. It will depend on where we're trading and what's going on in the market, but again, the Board hasn't ruled it out. Dividends are a higher priority than share repurchases on a relevant basis at the moment.

All right. Appreciate the comments. I'll look forward to seeing what you guys do.

So do we.

(Operator Instructions). And we have no further questions at this time.

Going once; going twice. Happy to answer any and all questions.

Okay, well, with going once, going twice, going a third time, we thank everyone for their interest in BankFinancial, and we look forward to talking to you at our next quarterly investor conference call. Enjoy the rest of summer.

Ladies and gentlemen, that concludes today's conference. Thank you so much for your participation. You may now disconnect. Have a great day.