BFIN

BankFinancial Corporation (BFIN)

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BankFinancial Corporation (BFIN)

Q1 2008 Earnings Call

May 6, 2008 10:30 am ET

Executives

F. Morgan Gasior – Chairman, Chief Executive Officer

[Valerie Ostapa Cantos] – Assistant Corporate Secretary

Paul Cloutier – Chief Financial Officer

Analysts

Louis Feldman – Wells Capital Management

Presentation

Operator

Good day ladies and gentlemen and welcome to the first quarter 2008 BankFinancial Corp earnings conference call. (Operator instructions) I’d now like to turn the presentation over to your host for today’s call, Mr. F. Morgan Gasior, Chairman and CEO.

F. Morgan Gasior

Good morning, welcome to our first quarter 2008 investor conference call. At this time I’ll turn the call over to our Assistant Corporate Secretary, [Valerie Ostapa Cantos] to read our forward-looking statement.

[Valerie Ostapa Cantos]

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 10-K for the year ended December 31, 2007 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

Thank you Valerie. Again, good morning to everyone, we are complete with all filings and as we promised last time, we’ve got our notice out and our filings on schedule this time. So with no further information to add, we’ll open it up for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Louis Feldman – Wells Capital Management.

Louis Feldman – Wells Capital Management

Can you talk about what is going on with your non-performing assets and your classified assets to the point where you felt comfortable taking a reversal on your allowance for the quarter.

F. Morgan Gasior

I think both the business overview on the non-performing assets section spoke to it but let me try and illustrate a little bit of movement for you. As we’ve said, one, aspects of the credit profile were reduced. Construction loans for example and commercial loans and that has a direct impact on the SFAS 5 general loan loss reserve model in reducing a required reserve level.

That’s a pretty objective model, you plug in balances and then you plus in the updated national and local economic risk factors and it produces a result. The risk of the portfolio went down, the national and local economic factors went up a little bit but not enough to offset the decrease in risk.

Secondly, we resolved several different credits during the quarter, some of which either had a specific reserve which was charged off in one case or which was recovered due to a full payoff in another case and as a result we just didn’t need the total level of specific reserves we had in the prior quarter.

Louis Feldman – Wells Capital Management

Now I did see in your Q that you did have some payoffs that were subsequent to quarter close within your 90 days past due, is that correct?

F. Morgan Gasior

Yes that’s correct.

Louis Feldman – Wells Capital Management

Yet, I’m out here on the West Coast and I deal with a bunch of banks and thrifts and a lot of them would love to have, be able to take reversals and one would have to point out that most people feel that the economy here in the Northwest is significantly stronger than the economy in the Midwest, yet these banks and thrifts are pushing for 1% loan allowance to total loans.

You guys are sitting at 84 BPs. Now if you’re just using that [straighten] model that’s one thing, however doesn’t your risk profile given the increase level of C&I lending and other areas warrant slightly higher level of provisioning? Or are you just simply going by the plug and play method?

F. Morgan Gasior

I wouldn’t quite call it plug and play I’d say that we have an objective model that is run consistently period over period. I think the model accounts properly for the relative risk of the portfolio as you saw in the results of the FAS 5 model. We update the national local and economic factors appropriately and those risk factors have been increasing.

So as a hypothetical, had balances remained constant, you might have seen a provision for general loan loss reserves in the first quarter, might not have been much but you would have probably seen some increase in the provision based on the overall economic risks in the portfolio.

Having said that, it’s been our principles throughout the years to maintain consistent underwriting standards on these credits and although that sometimes challenges our growth rate, we feel comfortable with the underwriting we’ve had and consequently we’re relatively comfortable with the portfolio we have.

We keep tight eyes on the borrowers and accordingly to the extent that other banks are trying to increase reserves for a change in circumstances, we think our underwriting has helped us to insulate us from that type of effect. Now having said that, at any given moment one borrower or another could have a difficulty of one sort or another and we’ll appropriately classify that asset and reserve what’s required.

Louis Feldman – Wells Capital Management

Can you talk about what you have in your level two assets at this point in time in terms of your FAS 157, 159 classifications, that $48 million?

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