BFIN - NASDAQ

Ladies and gentlemen, thank you for standing by, and welcome to the BankFinancial Corporation Third Quarter 2020 Earnings Conference Call. [Operator Instructions] Please be advised that today, this call is being recorded. [Operator Instructions] I would now like to turn the conference over to F. Morgan Gasior, Chairman and CEO. Thank you, and please go ahead, sir.

Good morning, and welcome to the investor conference call for the third quarter 2020 financial results. At this time, I'd like to have our forward-looking statement read.

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 provisions 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 are 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 condition and results of operation, please consult the forward-looking statements declarations 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 the call over to Chairman and CEO, F. Morgan Gasior.

Thank you. And I note that all filings are complete, and we are ready for questions.

[Operator Instructions] Our first question comes from the line of Brian Martin with Janney Montgomery.

I just wanted to get -- maybe to start with, if you have a chance on the -- just the loan growth. It was down a bit more this quarter. And just kind of your sense of kind of the pipeline and how you're thinking about the next several quarters and just the new initiatives you announced earlier this year, just kind of how they're playing out. So maybe just an update there and then on the loan portfolio and outlook for growth.

Okay. Well, let's start with third quarter. We had a very good quarter in equipment finance. So those initiatives are starting to bear fruit, approximately $58 million of originations in third quarter compared to about $18 million in second quarter. And we got contributions from all sides of the division, governmental, corporate, middle market and even a little bit of small ticket. Small ticket didn't launch until late September, less than $1 million of originations. And we're taking small ticket very carefully because obviously, the smaller business segment has taken the brunt of COVID-19, and we're still working our way through how that market feels to us right now. But the transactions that we have done, we tend to like. We like the metrics that we're seeing. So I expect that to gradually expand over the next couple of quarters. Middle market, for example, did about $5 million. It's got about a $15 million, $20 million pipeline going into fourth quarter. Governmental did well. And corporate, we'll probably see a little bit more activity given that the liquidity that we've seen throughout the year seems to be staying with us. And we even saw more liquidity in the third quarter. We're working to open up some additional channels on the corporate side, probably the higher end of corporate, shorter duration assets. So it will put some of the excess cash to work on a reasonable duration with good credit quality. Yields will not be particularly exciting, probably high 2s, maybe low 3s, but it will put some cash to work, contribute to the net interest income, maybe not quite so much the net interest margin but it will help. And so we'll work to get some growth there. We are seeing some activity on that side. And the credit quality looks pretty good at this moment. So we'll continue to push for it. So right now, equipment finance, it grew about $20 million in the third quarter alone, and it looks to be our engine for growth over the next 2 to 3 quarters. Real estate, it's going into the fourth quarter with its best pipeline in probably 12 months. The new bankers we've put out into the markets are starting to see some new opportunities, but I'll also tell you that we're also seeing payoffs. We -- as we've said before, we're not in the market for maximum proceeds, cash-out refinances, and we are seeing payoffs on those types of assets. Also, we're just seeing some borrowers sell and pay down either their loans or their lines. We have one borrower that sold a building we didn't have. He's sitting on a lot of excess cash. And kind of like some of our commercial borrowers, he's just going to pay the lines either down or off. So he's still thinking it through. So I would expect real estate to trend at best, maybe neutral to up 1% or 2%, but it easily could go down by 2% to 3% to 5% if the payoffs continue. And in -- given the uncertainties in the markets and also just the extreme valuations, every seller thinks their property is worth 5 cap or better. Not all the buyers agree. So there are some gaps there. But we would expect people to either take advantage of the market and realize their return or hang on to the asset but get every bit of cash out they possibly can. And the maximum cash-out requests, we see them every week. Some, we can handle if they're a little less aggressive on it. Others, we have to either take to capital markets or they find another lender that's willing to do it. And on the commercial side, we're seeing -- we saw some paydowns in the third quarter just due to activity in the lessor credit side. Some of the transactions were ready to fund into the lease portfolio and so the associated lines paid down. We will see those redraw during the quarter. Right now, the activity is a little quieter in the early part of the quarter, but it usually picks up in the latter half of the quarter as the equipment invoices come in and they pay the equipment invoices in preparation to install the equipment and deliver it to the lessees. So we'll see some recovery in balances on the lessor credit side. We also have a pipeline of about 3 to 5 new lessors that are interested in lines. One just came in yesterday. And we're going to get those in place in the next 30 days to 45 days. They may contribute in fourth quarter but more likely, they'll contribute in '21. So I'd say on the commercial side, the growth is going to be the lessor credit side. We are seeing some recovery, limited recovery in the health care side. Those borrowers are still sitting on cash, less cash though. They are starting to consume it. So we could see some recovery in the fourth quarter on health care. More likely though, we'll see it in '21. Whether we get all the way back to the balances we had pre-COVID is a function of what their occupancies look like and their cash flows look like, but we'll see some recovery. So I'd say on the commercial side, it's pretty much upside from here. Equipment finance has got some strength. Real estate, as you saw, a decline last quarter and again because the payoffs could continue and sometimes there's just nothing you can do about it. It's a sale. It's a sale at a price that would only support a 65% LTV. Somebody wants to do it at 80%. That's not within our underwriting. We'll get the payoff.

Okay. When you sum it all down, Morgan, I mean I guess just kind of your outlook for net growth as you kind of factor in some of those potential payoffs with some of the positives, I mean I guess you've already taken...

We would hope to grow somewhere between 1% and 3% in the portfolio for fourth quarter if we get the closings that are currently in the pipeline even against the payoffs that we're expecting. But it's -- do we get the closings? And do we get any more payoffs that we're not currently seeing? When you get into '21 and we get more cylinders firing, the wholesale side of equipment finance, we have one new banker in mid-market now. We're working on a second one. We're adding another one on the corporate side, hopefully later this quarter. So I say in '21, if you said you grew $20 million in the third quarter in equipment finance, we'd like to see if we could do that every quarter in '21. We should also get some more contributions from small ticket. So if we did well enough to get $50 million to $100 million of growth out of equipment finance next year, that appears to be sustainable if we can consistently get the pipelines to the level they are now. Commercial finance, same thing, probably could see from where we are today, easily 10% to 15% growth out of that portfolio. Real estate, I'd say best cases, it stays flat.

Okay. And you thought about -- I guess depending on how this growth materializes, just getting the excess liquidity today to work, absent -- I mean if you don't have the net loan growth, I guess what are the plans on -- I guess we look to reinvest some of that in the short term to help the NII or I guess you already thought about that.

That's what the wholesale initiatives are for. We don't know how long -- if you think about excess liquidity, there's about -- there's some quantity of this -- the smaller piece of it, maybe 1/3 of it, that is runoff from the loan portfolio that we have to put back to work. The rest of it is just excess liquidity that's come in as a result of COVID. So our first priority is to take the smaller piece, about 1/3 of it, and put it back to work in the permanent portfolio, which was the business plan all along. The second component of that is the excess liquidity that's shown up during the course of 2020. That's where the wholesale plan comes in, keep it very short duration. We could do quite a bit of growth in that -- in those portfolios but we haven't done it yet, and that's why I'm reluctant to put any kind of predictions out there. As we deploy these capabilities, we'll see what the growth looks like, and I'll be in a much better shape to tell you in what we think about '21 when we actually get to '21. But we think that given the fact that, one, the deposits seem to be with us right now, they're not running in and then running back out and, two, there could be another stimulus. So this excess liquidity could be with us for the foreseeable future. Putting together wholesale programs with an average duration of 12 to 18 months won't pick up a lot of yield, but it could pick up enough yield to contribute to net interest income and push the EPS forward without a great deal of investments in expenses or people. We already have that capacity.

Got you. Okay. And that wholesale piece, Morgan, I guess could that begin in earnest this quarter? Or is that more likely a '21 event?

It's already essentially November 1. So we could see some activity of it particularly in the equipment side. By the end of the year, I'd say it's more likely to start in the first half of '21, by the time we get all the pieces in place. So if we got a little bit done in the fourth quarter, that would be a pleasant upside. Right now, it's not in the pipeline but we're working to put it in place so we could start funding things in the early part of '21. And it's just too -- I can't give you a number right now because it's not in the pipeline. And until we get it up and running, it's just too speculative to tell you. But notionally, we would have -- we certainly have the cash and the capital capacity to do $50 million to $100 million of this stuff or more if we get it running. Even if it's relatively low yields, it's worth doing for the reasons you say and contributing to net interest income.

Got you. Okay. And then just last one on the loans was the health care that you talked about that had paid down was going to come back. Maybe it wasn't a permanent decline. I guess is your expectation that that's still -- it's not permanent -- and that it sounded as though maybe you anticipate some of that coming back in '21.

I think so. I think the wild card for us right now is what happens in future legislation. A significant amount of this liquidity was related to advances on Medicare payments and those were originally intended under the program to be paid back. There is some discussion and some movement and some lobbying towards forgiving those advances. And if that's the case, that money will be around a while. Obviously, they'll just keep it. As a result, then they would have more liquidity for longer courtesy of the federal government and have less demand for credit. What they choose to do with that liquidity, do they start acquiring other competitors who are struggling and put it to work in terms of M&A and therefore need line activity at that point? Possible. But right now, that's one of the big uncertainties. It's will they have to pay the money back. If so, when? What liquidity position does that leave them in at that time? And that will drive the recovery of those lines.

Got you. Okay. I appreciate all the color. Well, the -- just the last maybe 1 or 2 for me. The -- I saw the buyback news this morning. Just kind of curious on capital, I guess how -- I know you had taken a pause or at least kind of suggested you might do that this -- in the third quarter. But just your appetite on the buyback or just your outlook on that versus potential M&A or however you're thinking about capital.

Well, let me first say that the capital for the company is very strong. We were pleased with the asset quality results at the end of the quarter. We were pleased with the borrower performance on the CARES Act 4013 deferrals. If all goes well at this point, we'll have about $43,000 of principal payments left over at the end of December of '20 from those deferrals. So people are getting themselves caught up pretty effectively at this point. Obviously, we're starting to see some rollbacks in economic activity. But especially here in Chicago very recently, there is also still an eviction and foreclosure moratoria in place. That order was just extended indefinitely by the Cook County courts last week. So while I think we're in very good shape at this point, I don't necessarily think that everybody is out of the woods and specifically in the Chicago market. So with that said, we got back into share repurchases in the latter part of the third quarter. And when we did the analysis of what we think we're capable of doing over the next 6 months, the $400,000 share repurchase -- 400,000 share repurchase program seems a sustainable level of activity. And we'll probably -- as we did in the third quarter, probably weight that activity more towards the end of the quarter as we see how the quarter is unfolding, making sure nothing is trending in a different direction than we're expecting. And at that juncture, we can get the benefit of where the shares are trading right now. So we'll probably do that in the fourth quarter. We'll probably do that in the first quarter. And then if you just took that rate of repurchase, which might be relatively de minimis on a daily basis but it adds up over time, and then ran that through the end of '21, you could see us getting closer to the 14 million share outstanding by the end of '21, not at all guaranteeing anybody that we'll get there. But if everything plays out like we hope it does, that would be a reasonable goal. That would still leave us with strong capital at the bank. It would still leave us with good liquidity at the holding company. But whether we get all the way there is uncertain. We will do as much as we think is feasible, keeping all the interest and balance.

Got you. Okay. Perfect. And then just the last one or 2 here. The expenses were up a little, I guess, this quarter. I guess you kind of mentioned in the queue a couple of items but just the profile going forward on the expenses as you think about them. If you have any just commentary on that would be helpful.

Well, on the expenses for the third quarter, we spent about $100,000 looking at a small acquisition. We had said that last quarter that there were a couple of opportunities out there. There was one smaller bank that would have netted down to a nice little contributor to the franchise if it at all worked out. So we engaged an outside firm to do the loan due diligence. We had investment banking expenses, as I said about $100,000. Unfortunately, when we got the loan due diligence in, it was not going to work out like we hoped. The loan files were not as complete as they should have been or could have been. And then taking the impact of COVID on the portfolio on top of it, the timing was just not right. We could not make that deal work safely. And therefore, we took a pass on it. But that was $100,000 worth of expenses. Second, the expense category. Our frontline associates in the branches have absolutely done a terrific job working through this. They're working with customers in paper and cash every day. The health protocols are in place, and we're doing well with that. But nonetheless, in dealing with all the impacts of COVID and changing customer behavior and expectations, we wanted to make sure that we recognize their contributions. So that was approximately $100,000 in the quarter that we accrued. It's actually in -- paid in 2 installments. But to us, that was an absolutely necessary expense, isn't necessarily going to happen every quarter but it was absolutely necessary to do. And then we had some severance expenses. We looked at performance in all the different divisions. We are also making room for new people. And candidly, we looked at -- when we looked at performance, we saw opportunities to bring stronger performers on. And we unfortunately had to separate people who were not performing as well. So we recognized those severance expenses in the third quarter. We'll get a benefit from that in the fourth quarter and maybe a little bit in the first quarter before the new people join us. Total impact would be about $800,000 over the last -- in just the third quarter in terms of comp, but we will put that money back to work. So I would expect expenses in the fourth quarter to run somewhere around $9.4 million to $9.5 million. If we do get the loan growth, as I said before, in fourth quarter, we might need a little bit more accrual and incentive at the end of the quarter for that activity. And then going into '21, I would see it about those same levels. It might pop up or down depending on what we're adding at any given point in time. We'll get some benefit from repricing technology contracts as we have throughout the year, but we're also going to be deploying new technology to support commercial loan growth and to support the treasury services and commercial deposit growth initiatives. So right now, $9.4 million to $9.5 million for the fourth quarter. We'll also look ahead and see what the run rate will be on the compensation side and on the technology side when we get to the end of the year. And in terms of branches, we know several competitors have announced plans to close branches. Right now, if anything, we're seeing more customer demand for the branch offices. So we'll actually going be opening up and expanding our hours and get a better handle on what the usage is actually going to be and for what transactions. We're doing that mindful of the fact that there is a spike in case -- COVID-19 cases in our market here. And so the risks of doing that are somewhat elevated at this time compared to, say, August and September when the case counts were down. But having said that, we'll be in a better position in the early part of '21 to get a handle with the expanded hours of where the customer demand will be, and we will look at greater efficiencies in the branch network if it turns out that the customers are just not using the facilities like they used to and if there's opportunities to consolidate services and still retain the customers and make sure they're taken care of.

Got you. Okay. That's helpful. And the last one, Morgan, just big picture, I guess the quarter looked like -- at least somewhere from a profitability standpoint, somewhere in the 50 basis point range on assets. As you think about kind of your outlook for next year and kind of roll everything in, I mean do you have kind of a sense of what you think is -- depending on how it plays out, what the range you would look like as far as where you think that's heading? I mean is this kind of the level you're going to be at? I guess my assumption is if you take -- if you see some of this reallocation of the liquidity into loans, if you could just kind of give a sense for how you're thinking about the ROA next year.

You know what, I think we're more focused on earnings per share. It's the metric we can control more and to the extent that we can control it. With the -- in the third quarter alone, we grew core deposits. We're unloading wholesale deposits to reduce liquidity, but there's really just no predicting what's going to happen with deposit growth or deposit withdrawals. And obviously, there has been significant balance sheet growth in the liquidity that's come in during the year that was completely unexpected. And we're thinking of ways to deploy that cash and improve net interest income, but the yields on that won't be particularly helpful for return on average assets. It will be marginally helpful but not particularly helpful. So we're really focused on earnings per share, I think. And again, our goals remain the same. We want to get back, first of all, into the 20 -- low 20, $0.20 a share range. And then we're going to move right on into trying to get to $1 a share a year. Obviously, that would support a continued strong dividend. It would further support share repurchases. And with that kind of deployment of capital, we ought to perform relatively well in the market. So first goal is to get back to the 20 -- low 20s. Second goal is to get to $1 a share.

Got you. Okay. And you're talking run rate on that -- on the $1 a share?

Yes. That's...

Yes. Got you. Okay.

It's the end goal. Yes. And the good news is that the balance sheet movement is less relevant to that. If we continue to work on focusing on generating assets with the appropriate income and risk balance, we continue to monitor expenses and get a little bit of help from share repurchases done carefully. We can make pretty good progress toward those goals as the year wears on.

Our next question comes from the line of David Konrad with D.A. Davidson.

A lot of questions have already been asked but just had a follow-up on liquidity here. The securities book versus your CDs is actually at a negative carry, it looks like. So should the yield curve steepen in 2021, just curious on your appetite to maybe extend duration on the securities. And then secondly, is there room to get more aggressive on running off the CDs given the outsized liquidity?

Well, I think both those things are true. The -- most of our liquidity portfolio is, in fact, CDs. We don't have that much in the way of securities per se. And we would -- to the extent that those opportunities return to the market, we would certainly take a look at generating some additional interest income from that portfolio. In terms of CDs, especially on the wholesale, we would absolutely continue to reduce those portfolios. And we note that competition for CDs continues to be relatively low. Some customers are simply rolling it into core deposits and waiting for a steepening of the curve, as you say. Others are trying to find as much yield as they can somewhere else. So we will -- we're obviously not going to be particularly aggressive in defending the CD portfolio with the exception of our very core customers that maintain virtually all their banking relationships with us. Those are our VIP customers, and we will do our best to take care of them. So to the extent we can eliminate the negative carry, we will. We'll see how those opportunities unfold. Obviously, they're on scheduled maturities for interest rate risk purposes. So there's a limited amount we can do at any one moment in time, but it's certainly a focus every quarter.

Our next question comes from the line of Kevin Rock with Allstate.

Morgan, a quick question. You had mentioned earlier in the call that you guys were contemplating an acquisition which didn't come to fruition. Could you talk for a minute about what the parameters of that acquisition might have looked like just in terms of valuation? Because I -- given where the shares are trading today, obviously, it's at a pretty low valuation. I -- one would think that they had to have been something pretty compelling either on a valuation basis or from a strategic standpoint to move forward on something like that. So any comments would be appreciated.

Well, for starters, it was going to be a cash deal. And because -- to your point, an equity transaction at any kind of a premium to book would not make economic sense for us right now. Two, it was -- for confidentiality reasons, there's a limited amount we can tell you, but I can tell you that it was a smaller bank in the Chicago area. They had some pressure to get into the market due to their capital structure. And it was therefore -- if it would have worked out, it would have been a low-cost acquisition for us in terms of the purchase price. The entire key to it was would it -- would the loan portfolio perform? It had performed relatively well historically but COVID-19 -- it was primarily commercial real estate weighted and COVID-19 was going to take its toll. So at the end of the day, the bank was between $100 million and $300 million in size. We saw an opportunity that we could have made, as much as $2 million to $3 million pretax on it, which would be certainly a nice boost to income on a relatively low dollar investment. But at the end of the day, when the due diligence came in, it was just not worth taking the asset quality risk on that portfolio for that return. So we'll see. I wouldn't say we would not look at something like that again. There may be smaller banks that like -- run into some challenges. Their margin is compressed, they don't have the same asset generation capability we do, their expenses are going up, and they might look for an exit they could partner with somebody. So we wouldn't rule anything out right now. But in that particular case, when we got into the loan portfolio, we had our concerns but we thought it would be compelling enough if it did work out to take a look and invest the money in the review. And unfortunately, the review did not come out like everybody would have liked it to come up.

Okay. And I guess my other question is, is there -- listen, I appreciate there's a lot of uncertainty out there both in the short term and even arguably in the medium term. But is there upside to the share buyback program from the current levels?

I think once -- I think part of it is we want to continue to strengthen pretax, pre-provision income. And as these different initiatives take hold and those numbers recover, then obviously, that creates more resources for share repurchases. And that's one of the reasons why we wanted to put the extended, expanded buyback in place. So to the extent there are resources available to do it and asset quality and all the other metrics on cash management remain constant to where they are now, that would certainly be an initiative we would want to pursue, I would believe. That's why we set ourselves up to continue to do it at a scale we felt comfortable with. And to the extent that our resources expand, expanding that repurchase program especially at these levels would make sense. But there are a number of factors in that, including regulatory preferences. So we're going to have to take all the stakeholders' views into account from going -- to go beyond where we're currently at.

Okay. Great. Maybe one last one. Are there any other lending lines of business that you're not in right now that you -- that the Board would consider getting into? Any thinking there would be appreciated also.

Well, I would say that we already have started some material expansions of the lines we're in now. So if you went back to the beginning of 2020, our principal line in the equipment finance was corporate. And in the course of 2020 alone, we have had a material expansion in the governmental space. We added middle market and we added small ticket, and really middle market and small ticket are just getting going and even noteworthy through the middle of COVID-19. So right now, in equipment finance, we have a capacity to go all the way from a $10,000 equipment finance transaction to $20 million and all the way from federal government through state government through local all the way down to small business. So that's a material expansion of our capacity right there and it's already starting to pay some dividends in terms of volume. That's how we got to $58 million of originations just in the third quarter. And that's with a shutdown pretty much of the second quarter. In commercial finance, we started to lay the groundwork for moving the asset-based lending portfolio beyond health care, and that work continues. We have the capacity to continue to expand health care into supply chain. We've taken some steps towards that already and services. So whether it's medical labs, whether it's medical transport, we've done transactions on both those now. They're small but we're getting started. So I would say for '21, expanding the commercial finance side is the next big opportunity. We will get equipment finance up and running the rest of the way, probably adding another 2 or 3 people in the middle market and the corporate side there. Small ticket is up and running. We just need to accelerate the volume consistent with market risks. And then commercial finance next year will be the big focus. The lessor credit side, as I said earlier, we've added 20% to 25% more lessors this year than we have in the past 4 years. Demand for that -- those commercial finance products continue. We have some new ideas to expand beyond commercial -- lessor credit and health care. And as we get into '21, we'll start deploying those. It's just too soon to make any kind of intelligent predictions about what those volumes could look like. We still have to go through the risk assessments, but that is the next step. And I think the way I'd tie this together for you is this. Our commercial finance products match -- and our treasury services and our equipment finance and our real estate tie well. So for example, we have a new customer in equipment finance. We would immediately reach out to them and see if they're interested in the working capital line, including an asset-based lending capacity. One of those opportunities just showed up in the last 2 weeks. Whether we do it or not is a function of where the borrower wants to go. But what we're building here are synergies between the different lines of business. And now that we've got some of these lines of business up and running, the synergies can follow. So we have some construction work to do, not in the construction lending sense but the business building sense in commercial finance. If you ask us in January and really in May, as we do our calls, we'll be able to talk much more intelligently about how those fit together and what we'll be capable of. But we're not sitting on our laurels here to say the very least. We did quite a bit of work in equipment finance this year. It's showing some positive returns. Commercial finance is underway but further -- not quite as far along. And when we put the 2 sides together plus what we're capable of in the treasury services area, it can produce some meaningful synergies and some meaningful growth over time.

[Operator Instructions] Our next question comes from the line of Ross Haberman with RLH Investments.

I just wanted to follow up in terms of getting the sense of what is your overall exposure to out-of-state loans by category. And could you go over that, please?

Okay. Well, the first thing is I would point you to our corporate profile that we published a couple of quarters ago. The -- a lot of our growth, Ross, is outside of Chicago by design. So equipment finance is a national business. So right off the bat, that's approximately just under $300 million and virtually all of it is outside of Chicago. Obviously, the federal government exposure alone at about $70 million is nationwide, but we work with governments, state and local governments across the country. If anything, we'd rather finance state and local governments outside of Illinois than inside Illinois for obvious reasons. The corporate portfolio is nationwide. The middle market portfolio is nationwide. The small ticket portfolio is nationwide. The real estate portfolio -- and we break these balances out every quarter in the 10-Q. The majority of the multi-family portfolio is now outside of Chicago, and that will likely remain that way. In fact, it will probably continue to increase slightly over time. We probably get more payoffs outside of Chicago because the markets are stronger, but the majority of the multi-family portfolio now is outside of Chicago. And the commercial finance portfolio is also outside of Chicago. The lessor credits are nationwide. Health care, the majority of those commitments are outside of Chicago compared to inside because the reimbursement rates in Illinois are comparatively worse. The occupancies for residential care are comparably worse to other markets across the country. So we go where the growth is. So we're very geographically diversified in the asset portfolio, and it will continue to develop that way over time.

So overall, what portion of your portfolio would you say is out of state in total?

Well, do you want to talk about real estate? Or do you want to talk about the...

Total, total. The whole portfolio, if you might.

Oh, I'd say probably about 65% to 70% right now. We don't do any commercial real estate outside of Chicago and we don't do residential lending outside of Chicago. Those are the legacy portfolios in Illinois. Everything else -- and we don't do those assets outside of Chicago. But multi-family, commercial -- multi-family, equipment finance and commercial finance are all nationwide platforms, not 50 states. Whenever, however, no matter what, they're all carefully tied to risk assessments, but they are all eligible depending on the risk assessment in the United States.

So $600 million plus and the default -- or the default rates on those overall any better or any worse than your local multi-family exposure?

Well, specifically in multi-family, they're all better than Illinois. That's one of the reasons we did it. It's you have population growth in places like the Carolinas and Texas and Florida. You have population shrinkage in Illinois. But even then, because of the competitive environment, we easily pick up 25 to 50 basis points on multi-family in those markets over what Chicago does in part because of the competition in Chicago. There's a couple of large people who price down and then everybody follows them. So we went, one, where the growth is, which you saw in better rents and better pricing and better population growth; and two, we went where the pricing was.

And just one follow-up to what you just said. Who -- is it the big banks who are sort of pricing, being most competitive on those multi-families down? Or is it a couple of local banks trying to win trust or someone like that who's sort of most competitive? And then...

So I would tell you that Chase dominates the market in Chicago. Where Chase wants to go is where everybody else goes. And multi-family in Chicago can be as low -- in the low 3s, whereas outside -- yes, 3% to 3.25% to 3.5%. Other people follow them, maybe not exclusively, but that's where the market will trade. And outside of Chicago, you're seeing high 3s to low 4s pretty consistently. So right off the bat, as I said, 50 basis points. So that, among other things, allows us to get more competitive in those out-of-state markets for the strongest quality credits. And that's why the portfolio has the credit strength it does.

And I'm not showing any further questions. So I'll now turn the call back over to Mr. Gasior for closing remarks.

Well, thank you all for a great array of questions and your continued interest in BankFinancial. We'll work to move the company forward in this environment, consistent with our discussion. Enjoy your remote turkey and holidays, and we look forward to talking to you in 2021.