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Flushing Financial (FFIC)

Participants
John Buran President & Chief Executive Officer
Susan Cullen Senior Executive Vice President, Treasurer & Chief Financial Officer
Mark Fitzgibbon Sandler O'Neill & Partners
Steve Comery G. Research
Collyn Gilbert KBW
Call transcript
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Operator

Welcome to the Flushing Corporation's Third Quarter 2019 Earnings Conference Call hosted by John Buran, President and Chief Executive Officer. Today's call is being recorded. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]

earnings be and on referencing Relations at the the presentation its of website will Company today flushingbank.com. copy press slide release that Investor A are available

that would statements forward-looking under XXXX. Securities the of to company Litigation call provisions made the Harbor U.S. begin, during this we remind Before you the the Safe Reform discussions contain of like Private Act

the any from cause to statements. law. in Such and may and Securities to uncertainties Financial forward-looking any are applicable undertake subject factors with in such does to Flushing Corporation that risks, company's actual statements those statements update differ included materially are under factors other results any Exchange filings as Commission. except obligation not contained U.S. Such the the required

to be performance. financial These or in to the financial be call, as measures will accordance in to measures non-GAAP as U.S. operating prepared substitute During the this with GAAP. intended review considered references assess not financial the non-GAAP information and for and isolation, presented a are made measures supplemental

reconciliation For a measures these GAAP, please earnings non-GAAP and for to information release. refer about the to

and this provide detail. John now Officer, and will I'd and this an results quarter's discuss strategy Chief overview introduce President then financial who results of greater Executive like Buran, to in

John Buran

greater I an I positive you. financial morning, shareholder begin earnings provide third the will of review drive call. third our long-term thank Then, consistent then everyone XXXX in you and quarter for highlights strategies Thank continue power earnings Good executing to overview performance to our our joining value. us we detail. for quarter generate are and will and

your I will questions. my Following remarks, take prepared

EPS operating pleased unchanged summary from slide prior diluted quarter third report, quarter increased quarter. the GAAP XX% results. X is third of our Beginning EPS diluted on was We're while to a XXXX

share of of is a our the presentation is the per designated the non-cash earnings. rising between difference value adjustments, net GAAP against core movement core reconciliation and benefit. EPS release the to swaps slide to offsetting fair the of interest adjustments while to a related Our primarily benefiting are GAAP margin, core swaps protect fair value press include rates. and $X.XX Overall, interest primary The mark-to-market

provide closings, over for growth the production C&I quarterly quarter. marks million is X% of the On total for continuing This we closings our consecutive record quarter X% loan slide totaling loan totaling key or of year-over-year. million, loan X, annualized quarter strong achieved $XXX XX% highlights the and quarter-over-quarter, We our record diversification The driving to C&I of second production. $XXX portfolio.

As a XX, total portfolio. standards quality, million, management as reminder, decreased credit preserving to credit the At We Overall on loans these September of non-accrual we underwriting focused loans conservative generally quarter-over-quarter. grow practices, non-performing improve improving XXXX, and are strong quality rate our continues remains yields including improved and strong loans. at loans XX% to achieve pipeline X% remain risk and to C&I loan loan returns. decreased X% $XXX as floating continue represent risk-adjusted

third the to of from for XXXX rate focus in tax compression effective $X.XX assessment of partially margin by expense, our per quarter prior diluted $X.XX benefit to our FDIC continued from share. earnings due and share Business Even earnings the quarter eight on basis XX% the Small diluted core provision items. improved which strong, non-interest true-up expense, of the without remains the managing business per of core XX%, and reduction to included equated our Overall, benefit points. these the Core of a credit offset

quarter originations XXXX. yields basis decreased from points second Loan XX on the

curve pressure due tenure. point inverted the continue at to pricing yield we loan As the for pricing experience to our

deposits strong. of our basis municipal liability the and our recently Federal and as the pricing pressure remain has pricing prior market. non-bank experienced quarterly competitors disciplined still from traditional Reserve competitive side cut margin on – deposits in we competition remain will cost terms We by within compression points driven remain quarter, primarily four the increased as retail remaining on of from rates, deposit Although, the

However, late before cost of CDs of the X.XX%. funds CDs approximately quarter improve. average began rate at than quarter, third in less was the our At end, one average cost billion quarter to with new of an XXXX retail of X% maturing

We expect opportunity provide the that will in this an future.

York an branch Island, of new attractive a Long not outside presence opening are to New expands move we enable market announced, York New City. Asian into further only which in previously on As Hicksville, would our us

in estimated to also excited our valued $X price of closing previously Bancorp, an XX, $X deposits. our combined XXXX. upon is The as close and billion approximately at have October billion We're the in $XXX.X the on acquire about at is million very company agreement loans, signing definitive reported, in $X expected based Empire billion transaction to merger assets,

the merger three with City, County. our locations branches County, Nassau of close in the New and on of combination The of new quarter branch in to transaction in customers, with in be XX We The the expected expanded in XX% XXXX. in basis. and and branches XXXX five network XX deal and XXXX York combined expect provide branch XX% the second by is an accretive to to a branches opening will EPS Suffolk

net improve managed growth well growth power efficiency, core yield earnings enhanced funding best loan risk to focus exceeding objectives our stress on our improving and slide strong Empire our execution Acquiring expectations, and core managed remain further on areas distribution test deposits areas, to and risk channels adjusted business capitalized management risk these these slide continue scalability balance execute returns, under on new and to key customer scenarios. mix, and enable and and on bank lines, key and focused enhance commercial X, maintaining Bancorp, will strategic now detailed credit the power, philosophy. Referring of by focus earnings sheet us enhancing expansions remain the X, all we increased and strengthening profitable

X, C&I full XX% and XX% a totaled to grown loans for up gross billion, loans X% C&I of These balances banking the Moving the to over relationship. of and originations X% total as as XX% with slide year-over-year, continue $X.X we loans were of origination past on focus on quarter-over-quarter, year. September of to XXXX. loan the approximately have production XXth quarter of

of we several adjustable-rate As The offer steady and C&I you since to more interest portfolio including C&I can portfolio our in stability see, continues continued prudent have the margin. loan business. as are XXXX, the in net yield loans. and these achieved growth to The offers our primarily advantages, diversification growth

the The interest mortgage rate has fixed adjustable rate. rate yield on and XXX. loans of remainder of in the The composition the of the pipeline pipeline was XX% average product an

at value family loans to in XXX%. approximately portfolio and coverage and loan mixed at ratio opening was remains XX% commercial quarter-end, estate real quarter's The conservative the use current estate originations one-to-four of debt on our real multifamily,

underwrite rates. to rate estate a commercial continue includes which We real prudent interest and conservative manner, in loans capitalization stress test

one-to-four real and third use commercial a during a originated XXXX estate 'XX Multifamily loans points from 'XX. quarter XX second basis had the mixed mortgage quarter yield and from basis six third family points X.XX%, decrease quarter of of

loans Positively, coverage ratio curve. as average in to decrease ratio loan XX% inverted XXX%. was had these of value As due maintained of an yield the debt discussed, we asset our average yield and the to the quality an

and In represented on debt focusing quarter loan these XX% originations, to ratio. strategy We C&I multifamily. of while estate our respectively commercial coverage loans, committed third real and to 'XX, of XX%, maintaining and conservative remain XX% loan all loans closings value

XXX.X%. of to of September increased XXst, deposits year-over-year, mix and as Bancorp this our will funding We for X markets, loan quarter XX% at for the deposits terms. of XXth, and third has highlights the costs. longer XX% our to ladder total access XXXX borrowings the quarter-over-quarter deposit approximately we and CDs the at advantageously believe the we acquisition of need totaling evolution XX% When improve funding can enhance Core Slide out related to funding the to X% XXXX. Empire ratio wholesale percentage The ratio liabilities compared December was decreased.

and year-over-year increased X% you On X% accounts. approximately X% market increased bearing quarter-over-quarter year-over-year, and non-interest Slide driven see deposits and Core deposits now, by XX% X, will money quarter-over-quarter. that

emphasis core deposit approximately which an the accounts, increased of to non-interest focus with continue on bearing We growth year-over-year. X% deposits on

deposits. deposits represent million X% $XXX Non-interest nearly approximately total of of bearing

Additionally, offerings as diversified mobile online to deposit customers' of to part overall continue us. our improving in gathering overall strategy. and order digital channels, The with banking digital we improve our are our experience will strategy

XXXX. new be first of We operational technologies quarter expect the in fully the to

XX. Slide to Turning

the to develop and quarter, old strategy strategy ethnic less the new than deposits New fourth Hicksville, our Chinatown In is levels. Asian to continues branch continue a to within attractive grow our branch markets. we'll Asian be York. that to market. successful of the track This a targeted than ethnic in open in XX% further year a We will enabled an expansion more Asian within in us market The

continue a We funds in a have cost this in branches strong cost have community, loans. funds at over Asian million then deposits our to communities, may $XXX $XXX in recall service, we as have as total million lower that where over you which focus of well of as

strategic our within aided market, Board. Asian this capture by growth opportunities We continue to Advisory

points for pricing seven due interest $XX on was was Moving quarter-over-quarter interest and loan net points basis margin quarter-over-quarter, quarter to down net also quarter-over-quarter, margin of to down Core the XXX. XX, higher net nearly income by third funds basis X% competition. eight interest Slide XXXX cost XXX, million, of to driven decreasing

on we we is XX, the yield related are using stabilization. the to the NIMs support strategies loan portfolio. improving Slide One On highlight to

scheduled re-pricings, XXXX but between to an contractual as $X refinance. full billion loans a mean XX over marketing the not repriced of average of to reminder, loans These through points. basis have repriced As we'll upwardly the we rate, repriced price I contract at

swaps was -- the previously $XXX which relates NIM benefited of core as second the interest by the by covered, swap component stabilization interest points. quarter by margin to million, supported third Additionally, strategy, the three basis totaling rate the our in

be continue strengthen which rate rate and allows evaluate our balance seize Importantly over environments. costs long interest more balance all neutral sheet in to manage we actively the opportunities to to us to position funding we'll interest our further strategies term, sheet as

promising to cost retail X%, was of Slide move the Moving approximately than more to even in less X.XX%, which at see CD have was average we of an XX, have an average quarter opportunity than of end, an core some third can billion at less CDs you 'XX deposits, before that is our new our rate maturing quarter CDs X.X%. maturing $X as average cost of

average deposits is current cost X.XX%. all Our of new

of quarter us on ratio goal third efficiency was both of Slide second year-over-year to the the low quarter expenses to and focus XX% in in Continuing our in driven decreased expenses achieving credit. the FDIC quarter our quarter the continued quarter-over-quarter, XX, to efficiency compared The third the to over by and NIM, in ratio manage Moving assessment annual expenses third 'XXs. Business by XX% improving an X% mid assist XXXX. will and XXXX and the long-term of Small

average X.XX% XX, expect X.XX% expense acquisition to We Slide stable efficiency in our to compared quarter for quarter average the continuous improvement efficiencies has pending in to and for share in to gains on of third point from focused gain assets. and the practices ratio Continuing of assets best The in historically opportunities on the one maintained the look X.XX% and and further third Bancorp. our of operations, remain Empire noninterest noninterest company of quarter ratio expense XXXX. was second relatively

effective taxes for XXXX, between XX% Regarding an in approximate and we rate XX%.

provision non-performing driven $XX third C&I quality and were our million, remains under Slide quarter-over-quarter XXX,XXX million we one loans strengths. credit the under net million, core decrease mainly in of as of the XX, $X quarter, a by charge-offs growth In a $X.X recorded portfolio. On were

non-performing We offs the credits historical process. are record early seller a of delinquency and in charge

coverage from credit ratio XXXX. resulted XXX% as XX, December XXX% strong quality metrics of Our our in to have increasing

do upon average Continuing loans portfolio loan XX, XX% underlying current XX% our of appraised nonperforming adjust on estates to not than was and based value collateral the at for increases. Slide we value the less and values the approximately real is the origination loan to the value of

to nonperforming the loans, with expenses. an low associated not do related value estate loan we foresee increase the in Given real

by originated XX, credit Slide loans remains quality Overall, pristine. delinquencies shows of our XX-day as percentage a year.

greater see, loans XX our can years. just vintage was delinquent for you past days discipline results XX As seven the strong underwriting the than of

superior Furthermore credit is paramount profitable and two discipline decades cycles. our demonstrated flushing consistent to on credit over Slide multiple credit has XX, growth metrics and

turning credit on XX. Now quality to slide

Our re-metrics, strong credit quarter. remain metrics this

with can balance sheet. robust you of see, As a strong we have history capital maintaining low risk levels

for conclude continued, remain to well why like would profitable and I positioned consistent by XX, we slide On reviewing growth.

ratio, the our as on With revenue enhance overall acquisition is of franchise presence as to of expanded synergies deposit cost forma significant our flushing our cost power merger and of lowers pending pro loan Empire improves earnings core well deposits the with Bancorp, to Long combination Island. banking with expected the opportunities

we We floating see trends, including continue as growth continued balance and rate C&I pipeline. move positive business more portfolio, loan our to the sheet C&I towards a in strong

swap component of liability and sensitivity in an important Our balance continues reducing be NIM the sheet. strategy to compression our mitigating

is to goal interest which to rate long-term take us Our towards of environments. all rate allows move advantage being neutral, interest

approximately rate in We've universal XX% customers. are investment banker dividends, brand The environment. spending contain has increasing our XX% more additional per non-interest models time the with sales approximately low universal and employee. in expenses in in this time resulted branch The total paying bankers

maintaining New City staff opportunity a is The key New strong a customers with for market brand developing City us. continues a significant Our to base represent multi-lingual our ongoing and York serve on Asian customer York diverse a to advantage. focus

quality credit Our pristine. remains

our summary, Overall, be remains record, expectations our In our and further to relationships. company value culture company and banking and and the customers, our management, multi-cultural exceeding attractive well consistent our growth to financial performance that long-term vision markets objectives the our pre-eminent by leveraging profitable consistent positioned or services and all execution area customer and strong market in financial shareholders. community strong track continued to very deliver is strategic

Operator, it to it I'll up will over you. We now questions. open for turn

Operator

you. Thank

Instructions] [Operator will O'Neill now of session from Partners. Sandler question-and-answer ahead. question go first comes today Please the Fitzgibbon Our Mark begin We &

Mark Fitzgibbon

guys, good Hey, morning.

Susan Cullen

Good morning.

John Buran

is are it is questions. wasn’t to way Susan the she here to How for Hi. able answer By you? here. She recording, make the but

Mark Fitzgibbon

Super. questions Okay. related of couple to costs. A

for I'm kind now transformation with the numbers First, the terms of that in something strategy cost? that curious look of the we is incremental incremental in is cost digital or associated should

Susan Cullen

project will we live be expense that beginning incremental hitting It won't then cost be P&L until Since that our of the have until XXXX. timeframe. won't

Mark Fitzgibbon

the And branches, location of costs numbers? for the Hicksville also what Susan, about most that that in the is already

Susan Cullen

Again that location quarter. fourth live be until won't the

of going additional most expense. that's be to XXXX So

Mark Fitzgibbon

another wonder think contractor if exposure Okay. us recently I issue could local an bank I'm area. with your loans. you in had about curious that help

John Buran

It is to minimal close to nothing.

Mark Fitzgibbon

we XQ? then pieces compression in as Is reasonable And about you you little have. then see more in Okay. stabilize all a moving think that the that to bit and starting margin margin expectation? Will a and maybe the XQ

John Buran

side I the had good of think during anticipating it's going business presentation. of to some -- be. Clearly, at we're the upon some that we news on comments the the deposit the based

coupled we to said week, winds some doing help that up we'll on side. this that what expect with I've see -- So

of to side, yield Simultaneously, help giving on that's of course, expect little the we've curve us got loan the inverted a pressure but we see the some year. beginning into the

Mark Fitzgibbon

then starting XQ. So, a benefit little compression XQ. And in to in that? Is more

John Buran

point. reasonable probably most this expectation it's what's at Yeah, the

Mark Fitzgibbon

you. Thank Okay.

Susan Cullen

Mark. Thanks,

John Buran

Thanks.

Operator

comes today ahead. Comery Please from question go Steve Research. Your next of G.

Steve Comery

guys. morning. Good Hey,

Susan Cullen

morning. Good

John Buran

Good Steve. morning,

Steve Comery

new on say expected there expansion of just was in of in to before the Hicksville. branch anything it kind that wondering last guys fair network the due between? Hey, is I the commentary you appreciate close to are some branch sort branch the deal so is or of the else I

John Buran

looking that But time. potentially in finalized site. we We're haven't at point this at other one

Steve Comery

Okay.

deal the then So on. one and branches this other close and maybe then one due with

Susan Cullen

sounds That to me, Steve. correct

Steve Comery

all Thank I have. Okay. Yeah, that's actually guys. you

Susan Cullen

Thank you.

John Buran

you. Okay. Thank

Operator

Please comes ahead. And next today Collyn the of Gilbert question from KBW. go

Collyn Gilbert

Good Thanks. everyone. morning

Susan Cullen

Collyn. morning, Good

John Buran

Good morning, Collyn.

Collyn Gilbert

your about some two -- coming on that referenced your first slide John, years. repricing the opening on over are this on you just loans the of And remarks next due Just in question XX. rate

deck pricing showing that calculated the you're is the rate purely in presume you're -- Is Just what contractual will that that's how rate be? repricing dynamic. reprice I assuming on that so what

John Buran

predominantly Yes. our Yes. estate on That's the repricing contractual loans. real

Collyn Gilbert

that I of much do loans assume as I into kind why how I refinancing are than balance probably guess, we've that, product, dynamic the that's products likelihood they in these book a But well? the that refinance those loan and rates I'm maybe to the struggling would higher much up Okay. right? so as with you assume that when will would lower-yielding end lower, a into would been lower is rate seeing market that if

John Buran

dynamics a is of here. there on couple going So,

One the at and the of And of loans mix just in some those this time coming these certain a portfolio that may mix mix imply point are course right is change. so is not coming perfectly due. a match because result, rates of the the that as of on with

than multi-family is books all is multi-family clearly in that's the so, this rates, these moving. on general lower not Obviously, coming

the for reason major the difference. that's So

other many associated associated have loan. may loans changes prepayment The have thing pay they it a Visa have may have these customers on customers that to fees to with new or remember bringing with associated with that that or is of fees

So, leverage rates. negotiate we that turns for out some to be us as

Susan Cullen

new expensive the refinance it's those a and all to go bank pay costs. appraisal, to lawyers Plus to a the for have new and to customer loan, the

John Buran

cetera. Mortgage tax, et

Susan Cullen

All that is alone. associated with originating

Collyn Gilbert

Okay.

then just Okay. also Susan And to reconcile. trying

So, you think an swaps closer release the the to -- would eight but provided at I the provide a that look schedule, again, in offset the point basis basis indicate like and NIM yield like and if three that then guys it seems indicated point press you had drag. that gave benefit,

dots the benefit? So point just and basis -- on how you're you're how three that trying that thinking the there to connect swaps, quantifying about

Susan Cullen

it So, are the mean how the what I'm putting quantifying we basis or through you points, three NIM. not sure

beneficial measurements. strictly has three any look value points. basis been the by if out So at It NIM, you axing fair the to swap

the operating we're drag-on in, macroeconomic way. in on has based pulling been that that's the market down it All the other environment the

behind correct. was So the swap the theory

Collyn Gilbert

Okay.

is of the you're consequence. the saying we -- because now totally NIM So a that overlay irrespective negative I the rate up the basis is benefit three so to rate environment environment, point the there actually guess --

Susan Cullen

It's of irrespective adjustment. value Yeah. the fair

Collyn Gilbert

okay. Okay,

Susan Cullen

playing irrespective all swaps that it. we of the environment But the obviously rate that's have So into value adjustment take. to have fair

Collyn Gilbert

Okay. going and indication is that NIM And we the forward of then, could What in your impact swaps expand the assumption? about the XXXX. the how to these NIM? John in then think quarter compressed should fourth

swaps some and fair money then Is drag reversed? the when these that point into at market even value there become we see that with

John Buran

Sure.

valuations, curve up curve yield significantly the time this if steepening will burden get that we'll all of So pick yield any flattens more. these at the is in we in point, on get something the if

And going the an -- movement of on a implicit value so also the And curve there's the have goes these is to as impact. instruments. time time in

So -- they in impact, the an of they less general. have less to tend of have

Collyn Gilbert

Okay. a just close one there. anywhere into XXXX able think, just using XX% you on get your so -- accretion? I of But EPS dial to wasn't base deal Friday. what to the EPS back using what And or XX% that I of glance kind tying questions were couple at and just assume struggling to for to EPS Number it accretion, then, you is Empire I apologize to call I'm first were

John Buran

given had -- a us their they … So us due they had diligence given in

Collyn Gilbert

XXXX, Sorry the XXXX, apologize. meant I XXXX. XXXX in in I XX%. If said I accretion

John Buran

for movements then, analyst their due had of we mean are forecast given used in a course for us -- estimate XXXX. So for us, basic they earnings. of and $X.XX diligence of major their The the

numbers at least Just recognizable had -- for recognizable so us. we

look we loan that, to -- their their XX% up loan Empire on of to And costs. to side. up reduction a ratio, excess the have XXX% top on of liquidity we XXX% Then deposit in

So those major are movers. the

Collyn Gilbert

sorry. Okay,

about accretions, asking -- the XXXX John, sorry so XX%. So I'm

were XX% you assume You So, for the for estimate that, XXXX, mean guys? what increase be said over $X.XX. then would guys to you using

John Buran

of have and then, my the that the of XX% over differential are XXXX it in estimates head. most have would the saves between But the in the don't I first And analyst top the those that estimates cost out recent year. is XXXX analyst are that off been the again there. phase-in XX% the

Susan Cullen

excess loading liquidity. And the up of ramping the the --

Collyn Gilbert

Okay.

will I that in guess I So question. another of take kind

NII even there, balance anything I of I some if that sort a I that. little Just NIM you get maybe of or offer know offline. talk is there But could we balance And sheet there? there sort could mean, to either other offer is assumptions to metrics So just -- you what could -- guess didn't yeah.

John Buran

for -- fix assume We Yeah. -- of and this to We kind a rates. project project weren't interest interest we that kind environment going try of rates. stable

Collyn Gilbert

also point guess I to Okay. John your too.

they been were So if I has they're XX assuming net like what guess income. the last $X.X Empire, guess, maybe million. like Because months I

that things XXXX, month just increase that Susan, that's there that what And that's $X.X to net level So within alluding income are going a maybe on are organization. you're to for standalone. by going meaningfully million,

Susan Cullen

be Right, was you around seems there recall, deposit to loan so to if that XX%. to their XX% ratio

the extra take you it it the get that's XX cash the and up XX% that part of big to if -- into equation. out XX% of that's loan So equation where and and of loan part

Collyn Gilbert

Okay.

you Okay, then, this missed that forma can CECL apologize, -- I then, with there or offered impact pro with Empire? there if well got be -- yourselves? -- estimate is it. provide it. I for And the what this And Was a you

Susan Cullen

a they or Not XXXX if at time. to had Remember, adapt XXXX. -- They they they going small not were standalone this stayed business. till have were

Collyn Gilbert

…. then, when And Okay.

Susan Cullen

it. update we As

Collyn Gilbert

to and then, prepared be will a okay, when you you … guide? offer guys CECL

Susan Cullen

With call. our fourth earnings quarter

Collyn Gilbert

it. got Okay,

leave And Okay. it you. I there. thank

Susan Cullen

you. Thank

Operator

session. concludes any turn to Buran I our to like the for conference closing back question-and-answer This remarks. John over would

John Buran

the in. questions. I for Well, want thank you all for to calling everybody And thank

always and know, any Susan might to answer you As you follow-up I have. are available questions

thank once you again, So, very much.

Susan Cullen

Thank you.

Operator

now for concluded. attending today's presentation. Thank you is conference The

disconnect You may now your lines.