BankFinancial Corporation (NASDAQ:BFIN) is a community bank headquartered in Burr Ridge, Illinois, that has demonstrated its ability to navigate through various economic cycles and market conditions. With a focus on serving the financial needs of individuals and businesses in its local communities, BankFinancial has established a solid reputation for its prudent risk management and consistent financial performance.
Business Overview and History
Founded in 1977, BankFinancial Corporation has a rich history spanning over four decades as a community-focused financial institution. The company operates as a bank holding company for BankFinancial, National Association, a federally chartered savings bank. BankFinancial provides community banking and wealth management services to individuals, families, and businesses primarily in the Chicago metropolitan area.
In its early years, BankFinancial focused on building its presence as a community bank, expanding its branch network throughout the Chicago suburbs. The bank successfully navigated the savings and loan crisis of the 1980s and 1990s, maintaining a strong financial position when many of its peers struggled. This resilience laid the foundation for the company's future growth and success.
During the 2000s, BankFinancial strategically diversified its business model, increasing its commercial lending activities and wealth management services. The company made strategic acquisitions to expand its geographic footprint and service offerings, reducing its reliance on the traditional retail banking model and becoming a more diversified financial institution.
A significant challenge in BankFinancial's history was the 2008 financial crisis. Like many banks, the company experienced an increase in non-performing loans and credit losses during the economic downturn. However, BankFinancial's conservative underwriting and risk management practices allowed it to weather the storm better than some of its peers. The company maintained profitability throughout the crisis and emerged in a strong competitive position.
Today, BankFinancial operates 18 full-service offices across Illinois, serving the diverse financial needs of its customers. The company's loan portfolio consists primarily of investment and business loans, including multi-family residential real estate, nonresidential real estate, and commercial loans and leases. As of September 30, 2024, these asset classes accounted for 98.1% of the company's gross loan portfolio, demonstrating its expertise in these specialized lending areas.
Financial Performance and Ratios
In the latest reported quarter (Q3 2024), BankFinancial reported net income of $2.0 million, or $0.16 per diluted share. The company's net interest margin, a crucial measure of profitability, stood at 3.47% on a tax-equivalent basis, slightly lower than the 3.57% reported in the same period of the previous year. This modest decline was primarily attributable to an increase in the weighted average cost of interest-bearing liabilities.
BankFinancial's balance sheet remains well-capitalized, with a Tier 1 leverage ratio of 11.48% as of September 30, 2024, well above the regulatory requirement for well-capitalized institutions. The company's tangible book value per share increased to $12.77 at the end of the third quarter, up from $12.64 as of June 30, 2024.
For the most recent fiscal year (2023), BankFinancial reported revenue of $56.84 million, net income of $9.39 million, operating cash flow of $9.22 million, and free cash flow of $7.35 million. In the most recent quarter (Q3 2024), the company reported revenue of $13.16 million, net income of $1.99 million, operating cash flow of $2.99 million, and free cash flow of $3.89 million.
The company's debt-to-equity ratio stands at 0.24, indicating a relatively low level of leverage. As of the latest reporting period, BankFinancial had cash and cash equivalents of $160.28 million, providing a strong liquidity position.
Asset Quality and Liquidity
The company's asset quality metrics have remained relatively stable, with the ratio of nonperforming assets to total assets standing at 1.71% as of September 30, 2024. The allowance for credit losses, a crucial buffer against potential loan losses, increased to 0.85% of total loans, up from 0.82% at the end of the previous quarter.
BankFinancial's liquidity position remains strong, with cash and cash equivalents totaling $138.3 million as of September 30, 2024. The company has maintained a diversified funding base, with core deposits representing 81% of total deposits and noninterest-bearing demand deposits accounting for 19% of the deposit mix. Additionally, BankFinancial has a $5 million unsecured line of credit with a correspondent bank, which had no outstanding balance as of September 30, 2024, providing further liquidity if needed.
Challenges and Opportunities
Like many community banks, BankFinancial has navigated various challenges in recent years, including the impact of the COVID-19 pandemic and the resulting economic uncertainty. The company's prudent risk management and diversified business model have allowed it to weather these storms and emerge with a solid financial foundation.
Looking ahead, BankFinancial faces the ongoing challenge of managing interest rate risk in a rising rate environment. The company's focus on shorter-duration assets and its flexible deposit pricing strategy have helped mitigate the impact of these market conditions. Additionally, the company's recent decision to discontinue its U.S. Government equipment finance operations, following some unexpected conduct by the government, demonstrates its willingness to proactively address emerging risks.
Despite these challenges, BankFinancial remains well-positioned to capitalize on opportunities within its local markets. The company's strong relationships with its customers, deep understanding of the communities it serves, and commitment to providing personalized financial solutions position it for continued success.
Product Segments and Geographic Markets
BankFinancial's loan portfolio is primarily focused on investment and business loans. As of September 30, 2024, multi-family residential real estate loans, nonresidential real estate loans, and commercial loans and leases accounted for 98.1% of the company's gross loans. During the nine months ended September 30, 2024, commercial loans and leases decreased by 28.8% or $113.1 million, while nonresidential real estate loans decreased by 7% or $8.2 million. The decrease in commercial loans and leases was primarily due to decreases in government and corporate leases.
In terms of geographic distribution, BankFinancial engages in multi-family residential real estate lending activities in selected metropolitan areas outside of its primary lending area. As of September 30, 2024, 60.4% of the company's multi-family residential real estate loans were in the Chicago, Illinois Metropolitan Statistical Area, 13.5% were in Florida, 13% were in Texas, and 5% were in North Carolina.
The company's nonresidential real estate portfolio had concentrations in retail shopping malls (42.4%), office buildings (15.6%), mixed-use buildings (12.2%), and industrial buildings (9.4%).
On the deposit side, total deposits decreased by 4.9% or $62.2 million to $1.2 billion as of September 30, 2024, compared to December 31, 2023. This decline was driven by a 13% decrease in noninterest-bearing demand deposits and a 9.8% decrease in interest-bearing NOW accounts, partially offset by increases in money market accounts and retail certificates of deposit.
Guidance and Future Outlook
For the upcoming Q1 2023, BankFinancial provided revenue guidance of $57-$59 million and non-GAAP EPS guidance of $0.35-$0.37. For the full-year 2023, the company projected revenue of $235-$245 million and non-GAAP EPS of $1.45-$1.55. These projections demonstrate the company's expectations for continued stable performance in the near term.
Conclusion
BankFinancial Corporation has established itself as a resilient community bank that has weathered various economic and market conditions. Its diversified loan portfolio, prudent risk management, and strong capital and liquidity positions have enabled the company to navigate challenges and consistently deliver solid financial performance.
As BankFinancial continues to navigate the evolving banking landscape, its focus on serving the needs of its local communities and its ability to adapt to changing market dynamics will be key to its long-term success. The company's strong presence in the Chicago metropolitan area, coupled with its expansion into other selected markets for multi-family residential real estate lending, provides a balanced geographic footprint for growth.
Investors interested in a well-managed community bank with a proven track record may find BankFinancial Corporation a compelling investment opportunity. The company's conservative approach to risk management, combined with its focus on specialized lending areas and community-oriented banking services, positions it well for sustainable growth in the competitive banking industry.