BankFinancial Corporation (NASDAQ:BFIN)
Q2 2016 Earnings Conference Call
August 3, 2016 10:30 AM ET
F. Morgan Gasior - Chairman and CEO
Kevin Reevey - D.A. Davidson & Co.
Good day, ladies and gentlemen and welcome to the BankFinancial Corp. Q2 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] And as a reminder, this conference is being recorded.
I'd like to introduce your host for today’s conference, F. Morgan Gasior, Chairman and CEO. Sir, you may begin.
F. Morgan Gasior
Good morning and welcome to the second quarter 2016 conference call. At this time, I'd like to have our forward-looking statement read.
Unidentified Company Representative
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 provision 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. They’re often identifiable by use of the words believe, 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 conditions and results of operations, please consult the forward-looking statements declaration 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 our call over to Chairman and CEO F. Morgan Gasior.
F. Morgan Gasior
Thank you. As all filings are complete, we're ready to take questions.
[Operator Instructions] And our first question comes from Kevin Reevey with D.A. Davidson. Your line is now open.
Good morning, Morgan.
F. Morgan Gasior
I wanted to find out -- I had a couple questions related to your NIM outlook. It looks like your NIM did come in lower than we expected it. Can you give us some color as far as the outlook for the rest of the year and key drivers and the assumptions behind the outlook?
F. Morgan Gasior
Sure. I think, we’ve to start kind of at the fundamentals for loan portfolio, which is going to be the overwhelming driver of that. We had a good July to kick-off the third quarter. We did $55 million in originations and about $14 million of net loan growth and the mix was pretty good on that in terms of both yield and allocation between real estate and C&I.
So we're fairly comfortable with the start to the third quarter. And if we can continue -- we were doing about 10% on average high originations in 2016 than 2015. If we continue that through the remainder of the year and we can keep payoffs at about the same level as they were in the second half of '15, then we should see loan growth get north -- loan growth get to the point where the loan portfolio is about $1.3 billion, potentially a little bit more, $1.3 billion, $1.325 billion.
If we really get on a roll and we get a little lucky with some payoffs, might even do a little better than that. You’re still seeing yield compression in the C&I space, especially in the investment grade leases. That story continues. And I'd would expect it will continue to continue, but our mix of leases is gradually shifting throughout the credit spectrum and to a certain extent that’s being offset by growth in the direct lessor space and in the healthcare C&I space and the regional C&I space.
Same is kind of true for real estate with moving the yield curve down a little bit. You saw a little bit of compression in the base rates, but not quite as much as you might have -- not quite as much as we saw in C&I and not quite as much as you might have otherwise expected. There seems to be a little bit more of the floor on that in the real estate side than there has been in the C&I side, probably fewer participants entering the market in real estate compared to C&I. So, right now I think our second half we're getting back to our growth trends. Our origination trends have been above 2015's trends. We like the mix and we like the fact that we're seeing a broader diversity of credits and yields than we did in 2015.
I think margin expansion is always going to be a challenge in this environment. We’re going to be working towards kind of regaining where we were on margin. That would be a really good achievement. And I can't tell you, but if the mix is towards the more conservative side of C&I, or we need to compete for the really strong credits in any of the asset classes, then you could see a little bit more margin compression. It will just depend on the mix.
Okay. And I noticed your service charge income was down linked quarter. Is that -- was that seasonality? Is this just a one-time blip?
F. Morgan Gasior
There is a little bit of everything going on there. We're up year-over-year and I'd therefore think that that trend should probably hold. But I’ve to say that we are -- we still see customers as being somewhat fee sensitive. They will move and change products as they feel appropriate to get into a lower fee product. That typically means for us greater growth in non-interest bearing deposit accounts.
I'd say our biggest challenge in deposit fee income overall is going to be the ATM fees. That still seems to be a down trend. More and more of our transactions are coming through the electronic and the mobile channels and accordingly, we’re just seeing less cash usage. I think we’ve some new marketing initiatives that will help on that a little bit around some of the branches, but I'd say we’re hoping to get back to our growth trend. But I'd not want to promise it, because of the -- customers look around at different products. We are not necessarily losing them, they’re just moving to different products that seem to meet their needs and our customers have always been sensitive to service charges, so they’re picking the product that works best for them.
Thank you. [Operator Instructions]
F. Morgan Gasior
Well, just to add a few other things looking into the second half, we’re encouraged by the start to the second half and the third quarter. We’re feeling pretty good about the mix of loans in really all the segments we’ve got. The one segment we'd like to see a little bit stronger is the ambulatory surgical and hospital side, but we did even see some activity in those areas. That subsector of the industry is going through some consolidation and it's kind of disrupting some of the capital investment plans and refinance plans as they work on integrations. But as we get into the second half of the year, we’re continuing to talk to people. We might see some late activity in the year that gets us back moving in that direction. But our home health initiatives, our skilled nursing initiatives, even some biopharm and some other interesting initiatives are all moving forward with pretty good pace.
Real estate, the drop in rates did create a bit of a refinance opportunity that we didn’t necessarily forecast for this time of the year. So we’ve adjusted the marketing plans to highlight those opportunities and put some promos out there, so that people know and get the rates while they can. And even purchase activity continues to be strong, which of course is sometimes a source of prepayments, but otherwise is an opportunity to continue to grow.
The leasing side, we'll continue to adjust the mix. We did a pretty strong quantity of investment grade leases in the first half. Again, those trends continue, but we'll also work to diversify the mix a little bit. The independent lessors that we service are looking at all segments of the market and different types of equipment. We're ready, willing, and able to go there with them and that will be a priority for the second half as well including the direct lessor exposures. It's getting stronger every quarter. We're getting deeper into the direct lessor mix of what they’re doing in their core businesses and that portends well for both the C&I side, and the discounted lease side.
Let's see, one more question. So let's take that and see what else we can do. Okay, we lost that opportunity. But as there are no more questions, we thank everyone for their participation. If there is follow-ups, we'll be glad to take them off line. I think we -- hard to say, we will taken then off line and we thank you for your interest and we will see you next quarter.
Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may all disconnect. Everyone have a great day.
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