BFIN

BankFinancial Corporation (BFIN)

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BankFinancial Corporation (BFIN)

F4Q07 Earnings Call

March 21, 2008 10:30 am ET

Executives

F. Morgan Gasior – Chairman of the Board, President & Chief Executive Officer

Paul A. Cloutier – Chief Financial Officer, Executive Vice President Finance

Analysts

Ross Haberman – The Haberman Fund

Ron Peterson – Stearn AG

Barry White – River Capital

Presentation

Operator

Good day ladies and gentlemen and welcome to the fourth quarter 2007 BankFinancial Corp earnings conference call. My name is Lauren and I will be your operator for today. At this time all participants are in listen only mode. We will conduct a question and answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I’d now like to turn the presentation over to your host for today Mr. Morgan Gasior, President and Chairman and CEO.

F. Morgan Gasior

Good morning. Welcome to our fourth quarter 2007 conference call, our first call of 2008. At this point in time we’d like to read our forward-looking statement.

Female

This conference call may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 concerning BankFinancial Corporation’s future operations and financial results. Such statements are based on management’s views and expectations as of today based on information presently available to management. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10K for the year ended December 31, 2006 and other filings with the Securities & Exchange Commission and as a consequence actual results may differ materially from those anticipated by the forward-looking statements. BankFinancial undertakes no duties to update forward-looking statements.

F. Morgan Gasior

First, all filings are complete. We were a little bit ahead of schedule this time around so we decided to get the information out as soon as it was ready so we do apologize for the shorter notice on the conference call. But having said that, everything is out and we’re available for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Ross Haberman with the Haberman Fund.

Ross Haberman – The Haberman Fund

Could you talk about your interest rate exposure and as rates are coming down how do you see that affecting the spread and the margin? And one specific thing, how much of your loans are adjustable rate as of yearend?

F. Morgan Gasior

I guess the specifics on that Ross are going to come out in the 10K here shortly. So, I don’t want to preview the 10K without having the exact numbers available but let me just recap where we were at the end of third quarter and give you some basic views on the topic. We were slightly liability sensitive at the end of third quarter and as we had said at the time we felt that we wanted to improve that liability sensitive and become a little bit more neutral as time went on and we were able to do that. Going forward that slightly liability sensitivity will still be out there, it will be somewhat less than it was at the end of third quarter.

Adjustable rate loans obviously, there’s going to be various categories of adjustable rate loans you’ll have adjustable rate mortgages that will reset during the year, you’ll have commercial lines of credit that adjust sometimes monthly, sometimes quarterly. Sometimes you’ll have lines of credit that are fixed for a year that will then mature during the year. So there’s a variety of moving parts in that and I think it’s kind of hard to generalize. But, the board of directors and the board and asset liability management committee has been very focused on maintaining a fairly careful balance on ALM and looking at gaps and spreads along those lines. What I would tell you is that the current interest rate environment notionally should be more favorable for net interest [inaudible] and net interest spread and as we said in the filing the principal risks of that view are going to be the intensity of deposit competition and to the extent that we see shorter term higher rate loans such as construction loans and certain components of the healthcare commercial line of credit portfolio paid down. To the extent that those loans are replaced by commercial lines of credit you won’t see very much impact and we should get the benefit of a more favorable interest rate environment. Through the extent that they’re not replaced or they’re replaced by more fixed rate assets then you won’t quite get the benefit.

Operator

(Operator Instructions) Your next question comes from the line of Ron Peterson with Stearn AG.

Ron Peterson – Stearn AG

Just going through my model and the press release looking at the expense for the quarter if you pull out the stock-based compensation expense compared to last year’s fourth quarter obviously the expense were down but if you look compared to the third quarter there was like a 4.5% jump or so. Obviously, there was some expenses related to the settlement with the servicer during the quarter but were there any other maybe additional items or non-recurring items in there that pushed that number higher? Or, is that a good run rate to use going forward?

F. Morgan Gasior

Let me address part of that and then I’ll ask our CFO Paul Cloutier to address part of that. During the fourth quarter we had some transitional expense on the headcount and the comp side. We brought on some new people in retail commercial banking, we also had some new recruits in the branch operations particularly in the branch management area and we still had the original folks on staff. We kind of saw some transitions coming in and decided when we saw some good people to bring them aboard. So that’s one, headcount went up to some degree and there were some associated expenses. We also kept a couple of people around extra to work on some special projects in fourth quarter and those are wrapped up or just about wrapped up and so again you’ll see a couple of people leaving on that basis. We were up a little bit in headcount and you saw some transitional compensation expenses there. We also had a couple of projects ramp up and we accrued some incentive expenses in fourth quarter due to the successful completion of those projects. Apart from the comp side there were some things that were going on that I think would be best if Paul gave you a more accurate run down.

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