BankFinancial Corporation (NASDAQ:BFIN) has demonstrated a steady performance in the face of a challenging operating environment. The company reported net income of $9,393,000, annual revenue of $71,165,000, annual operating cash flow of $9,221,000, and annual free cash flow of $8,037,000 for the fiscal year ended December 31, 2023.

First Quarter 2024 Results

In the first quarter of 2024, BankFinancial reported net income of $1,710,000, or $0.14 per diluted share. This represents a decrease from the $2,633,000, or $0.21 per diluted share, reported in the same period of the prior year. The decline in net income was primarily due to a $973,000 decrease in net interest income, which was partially offset by a $1,148,000 increase in noninterest income.

The decrease in net interest income was driven by a $2,158,000 increase in interest expense, which was partially offset by a $1,185,000 increase in interest income. The increase in interest expense was due to higher interest rates paid on deposit accounts, as certain depositors sought to benefit from increases in short-term market rates. The company's net interest margin decreased to 3.59% on a tax-equivalent basis in the first quarter of 2024, compared to 3.68% in the same period of the prior year.

Noninterest Income and Expense

Noninterest income increased primarily due to a $454,000 gain on the repurchase of the company's subordinated notes, as well as increases in trust and insurance commissions and annuities income. These increases were partially offset by a decline in VISA debit interchange income and other income.

Noninterest expense increased by $1,474,000, or 14.3%, to $11,766,000 in the first quarter of 2024, compared to $10,292,000 in the same period of the prior year. This increase was primarily due to higher compensation and benefits expenses, as well as increases in office occupancy and equipment, information technology, professional fees, and other expenses.

Financials

Loan Portfolio

The company's loan portfolio decreased by $42,781,000, or 4.1%, to $1,007,980,000 as of March 31, 2024, compared to $1,050,761,000 as of December 31, 2023. This decrease was primarily due to scheduled repayments of equipment finance transactions and low levels of loan originations in the equipment finance portfolio due to the lower market yields this asset class offered during the fourth quarter of 2023.

Investment Securities

The company's investment securities portfolio increased by $86,346,000, or 56.3%, to $239,549,000 as of March 31, 2024, compared to $153,203,000 as of December 31, 2023. This increase was due to $125 million in new investments in U.S. government-sponsored agencies at an average tax-equivalent yield of 5.72% and an average duration of 1.5 years.

Deposit Portfolio

The company's deposit portfolio decreased by $2,337,000, or 0.2%, to $1,259,286,000 as of March 31, 2024, compared to $1,261,623,000 as of December 31, 2023. This decrease was primarily due to seasonal activity by municipal depositors. The company's cost of total retail and commercial deposits increased to 1.75% during the first quarter of 2024, compared to 1.59% in the prior quarter.

Capital Position

The company's capital position remained strong, with a Tier 1 leverage ratio of 10.59% as of March 31, 2024. The company repurchased 15,203 common shares during the first quarter of 2024 at a total cost of $156,000.

Outlook

Looking ahead, BankFinancial is focused on growing its commercial finance and healthcare lending portfolios, while also seeking to reposition its equipment finance cash flows into higher-yielding corporate and investment-grade investments. The company is also working to improve its fee income through initiatives such as enabling overdraft services and expanding its trust and treasury services offerings.

Conclusion

Overall, BankFinancial has demonstrated a steady performance in the face of a challenging operating environment. The company's focus on commercial lending, investment portfolio management, and fee income diversification positions it well for the future. Investors should closely monitor the company's progress in executing on its strategic initiatives and its ability to navigate the evolving interest rate environment.