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Flushing Financial (FFIC)

Participants
John Buran President and CEO
Susan Cullen Senior Executive Vice President, Treasurer, and CFO
Steve Comery G. Research
Call transcript
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Operator

Welcome to the Flushing Financial Corporation's Fourth Quarter 2019 Earnings Conference Call. Hosting the call today are John Buran, President and Chief Executive Officer; and Susan Cullen, Senior Executive Vice President, Treasurer and Chief Financial Officer. Today's call is being recorded. All participants will be in a listen-only mode. [Operator Instructions]

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

to materially those to Before the Act undertake the Flushing Such remind contained law. may differ and such this we to forward-looking Such factors of factors contain made in does any any of Commission. XXXX. results Harbor included statements statements. update risks, statements other applicable the forward-looking company any company's statements, that Securities actual the cause begin, would not U.S. call from you to Financial the Private uncertainties, Corporation Exchange U.S. except discussions in obligation under the are and that during as with filings Safe provisions subject under Securities are like Litigation required Reform

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

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

John Officer. President Executive now like I'd to introduce Buran, and Chief

John Buran

to we performance fourth consistent thank and review our Susan Thank Then we into overview provide in are our hope Cullen, call, today's value. for sustainable you. financial you will fourth to joining full-year additional then competitive morning, continue greater earnings everyone, our insight an call. long-term On shareholder I'll you highlights, the quarter XXXX detail. and create power, quarter CFO, to begin strategies and Good earnings our executing and of us with XXXX business advantage. for our with positive provide strategy,

Following questions. our will Susan and address remarks, prepared I your

the funds from four our diluted quarterly XXXX, points, while points, from the increasing are decreasing was $X.XX, we three, pleased margin the loan $X.XX. EPS XX% quarter GAAP the of was interest portfolio 'XX points. improved highlights, by up EPS report cost on core Net the fourth of XX diluted increased Beginning basis quarter as on and prior slide provide income third yield to interest basis net X% XX basis primarily the and due to by quarter,

in funding downward is As CDs retail able average There rate with in costs. reduce calls, to of we of an XX points to reported are to opportunity basis previous had as We an of additional billion opportunity were earnings this capture XXX re-price opportunity maturing $X there we quarter. an XXXX.

of the Furthermore, periods the as lowest there level the since swaps remains curve. classified continues quality The continuous interest prior the benefited was upward assets at throughout funds our in slope XXXX. we and cost non-interest both demonstrated and Credit to put pristine, small on improve in income improvement a quarter. the

delinquent Importantly, XX basis of to XX. December at points gross loans loans have decreased

fourth well Loan loan we $XXX continued quarter of XXXX. and growth were the 'XX closings positioned remain million, for in for

half were million, $XXX over originations. XXXX a presaging year, remained loan into billion C&I the pipeline for which, compared the million, pipeline of XXXX. XXXX stronger we $XXX loans, December $X.X For At growth the of to of leading originated XX, healthy

in driven X%, expectations totaled growth, Loan growth C&I single-digit line by mid XX%. for primarily excess XXXX which of in with growing our of was loans

loans XX% of to strategy C&I successfully XXXX. total our balance have sheet become of predominantly liability end floating rate our year we to of sensitive, less approximately originations which part at are As loans, increased

X% Total which increasing deposit in we improved deposits, mix on nearly continued our core as strategic focus increased XXXX.

source grew as an to continues XX% in initiative attractive Asian be deposit XXXX. deposits these Our

key New and on Our York competitive sustainable diverse in to advantage. staff remains customers multilingual a branch developing serve area a maintaining focus City ongoing market

Boulevard quarter, branches. network strengthened to and our Bayside bringing in market our a Hicksville, New we Bell opening Model York, to new relocating network branch total the This XX retail Banker Universal branch with by Asian Queens, our

remain which the second agencies. about Empire notifications is our to with of All close the been applications pending in to Bancorp, We acquisition expected XXXX. required have filed excited quarter continue and regulatory of

Our new risk growth, strategic test Profitable remain growth scenarios. continue core and channels earnings credit by the summarized the Increased focus improving adjusted enhance lines, role the capitalized four. scalability to power stress through business and objectives and returns and distribution net and efficiency. funding managed risk, on and expansion well score improve best yield, are slide deposits, and manage mix, on on loan

the summarized we with great deposits, returns, bearing meets financial with profitable non-interest our Long more focus regional Empire enhancing of shareholder XX%, core we by it long-term. the strategic scale, increasing among our the over fit remaining five, is over managing slide believe increases a power institutions. growth credit best as while growth, deposits by largest a loan adjusted priorities maximizing deal and value disciplined risk, community Island's and net earnings creating sixth enhancing The Empire and share acquisition on bank On expansion, risk core why deposit such by

our our XXXX slide estimates. EPS behind accretion on Importantly, we our six, forecast consensus of detailed assumptions XX% to

in to modest securities excess $X liquidity are incremental As $X to assuming spread cost however additional million impact The you significant X% moving after-tax an we loans will achieve can million earnings income. from from in come most reductions. see, Empire's upon a

to $X move key we million. Flushing expense approximately XXXX slide improve profitability. or base from key savings seven, efficiency performance non-interest to cost pro with on to and Next, This of metrics forma Empire's XX% as of the opportunity related slide summarizes projected standalone significant see metrics we

$X.X County. by and redundant billion loans, our anticipated billion sheet facing have expanding to identified, and our been a to consolidating operations, back is and will Suffolk pro driven basis in in balance be billion office on eliminating savings increase costs. Cost systems, approximately non-client $X.X forma This while deposits, into acquisition reducing assets, footprint in $X

to enhanced Suffolk will the After ROAA, efficiency will ratio. people, County our XX county million Importantly, open network market. and the ROATCE, The anticipated acquisition to the X.X improve is to new door our XX,XXX and access branches three closes, the approximately branches businesses. a with branch increase to acquisition with

focused areas: Referring and we strong our now expectations, earnings remain commercial exceeding customer maintaining sheet, these to management power, slide key philosophy. enhancing balance on eight, strengthening our bank risk

and to that's our will further As strategy existing executing previously customer complete, testing been improve experience. when a transformation announced, enhance in footprint, we've our currently phase, its digital

state-of-the-art to infrastructure. our will to Our without digital adding technology, customer offerings experience allowing to existing be the enhanced modernize us

quarter have provide will transformation to expect of the additional shortly. Susan detail this We completed XXXX. second in

remain strategic growth, further enables to our and our on Overall, and us well-capitalized, focus value we to long-term objectives shareholders. deliver our profitable

to color provide on Now, the our turn to call performance. I'll Susan additional over

Susan Cullen

yield on interest the interest Thank due while quarter. nearly points of quarter-over-quarter. funds basis points. nine. Net The net I'll funds to on flat basis loan was quarter-over-quarter, the core for X% John. The was cost to increasing continuously The begin XX interest portfolio four cost net points XX the XXX, the decreased million, improved income margin increased up of basis quarter-over-quarter of you, throughout XXX. the fourth slide quarter $XX margin XXXX

interest interest the loans, net qualifying margin on a on the and adjustment reminder, mark-to-market core non-accrual excludes hedges. prepayment recovery As penalties, the of

steady environment, of rate decrease our believe assets of Fed also these rate decreased the in the rate With beginning on the a quarter. while loans as The affected four C&I yield margin points cost increased interest the nine late-September loan six have Year-over-year, XXXX will on interest yield fourth points, stabilize. in the earning interest and of net portfolio we decreased basis points. the funds basis the October basis

built slide we On costs sheet the highlight ten, to into funding we're a reduce balance stabilization. NIM for strategy using

to in cost $X XXXX of at reminder, CDs retail scheduled a As X.X%. a average mature of have we billion weighted

highlighted CD costs current the side, As maturing than lower replacement rates. significantly on right-hand are funding

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

and up as real totaled of X% our quarter. continue non-brokered quarter XX% originations loans. year-over-year loans the of the On in slide of to we return multi-family loan focus $X.X These full relationships originations fourth XX, were the on XX% C&I Approximately commercial on for are production loans. origination the banking to estate billion,

the we percentage our that XX from in points us $X tax billion of differentiates was We competitors C&I of the as same December total XXXX the recognizing over continue the C&I value loss, approximately of to period. loans originated total XX% diversify quarter and our to XX% that originations, for but a XX% portfolio for loan record of loan portfolio at C&I have portfolio as while of XX, mentioned originations is excluding John what loans basis a XXXX. originations of and amounted almost

any leverage C&I not does portfolio lending. Our contain to

balance floating our interest sheet shift 'XX, and Federal a rates. rate originated Reserve neutral loans. early these the third rate to due C&I quarter lowering floating on continue the In into rate position, of fourth more quarter decreased rates loans to we the we As have

C&I rate the company these rate interest neutral than a loans. steady in as would to rates, growth assist float rate primarily C&I of environment, more the at in expect For protection loans the they advantages stability portfolio, The and yield provides company, loans pace environment continues diversification adjust offer we slower continued offers the position. floating primarily to portfolio to they rising build more to rate the moving loan mortgage as to the interest the these in and re-price

for portfolio real and loan-to-value multi-family service million the loan XXX%. XX, at and December family is rate. of XX% December The estate X.XX%. rate $XXX is and one loan fixed the estate at real pipeline to XX% XX, of adjustable pipelines debt greater modest The The was current on composition commercial four average rate our end core mixed coverage quarter pipeline than the of a million pipeline use At ratio is at our an XX% XXXX. totaled $XXX origination

remain rate quarter of estate each while on fourth 'XX, these represented stress our our real of coverage excess We we cap loan-to-value multi-family XX% in test XX%, underwrite thus all and In Importantly, ratios. conservative the as X% and each closings C&I, loan. debt respectively strategy a maintaining of loan to loans. and of commercial originations, loan focusing loans, committed XX%, and

In the loans mix. XX, from benefit remains in loan nearly $XX our non-performing XX% of changes fourth recognized quarter, and the quarter-over-quarter core net due of million strengths. portfolio slide On a credit recorded $XXX,XXX as quality we losses approximately to recoveries one improving are

dependent points points Importantly, XX. loans of basis estate decreased as from XX delinquent basis XX loans XX. real The December non-performing amounted total of September to on loan-to-value loans XX% to at

manage reminder, slide portfolios our the charge-offs early recording loans, as result delinquency loan to and a Moving we identify XX, in actively to process.

As are a of non-performing a seller historical reminder, loans. we

of mindful asset remain As we quality. we maintaining to our continue grow balance sheet,

Flushing year As shown decades, end metrics our credit the lowest total XXXX in classified here, over and two to in demonstrated has XXXX. level improved superior assets

XXXX, I are of basis As losses, medallion XX over recording stated, same when loans, the to billion originations the than $X period. C&I less since excluding over we previously losses tax points originated time of compared

specific high portfolio future will minimize on general we includes associated with limits believe loan-to-value the metrics industry. loss discipline risk avoidance credit volatility concentration Empire of Our Further, rate to industries, of estate charge-offs. of and the real

December As increasing strong metrics from as credit in of XXX% ratio highlighted XXX% XX, XX, slide on to our resulted our have quality year-over-year coverage XXXX.

estimate impact XX%. $X our between XXXX, $X adoption in increase and current our of million CECL million we to the Day X% of One allowance and With

creating assumptions our evaluate estimate. this to continue we However,

portfolio current XX% Continuing the and upon of is collateral value adjust with the at the originations, price do XX, underlying less for not increases. we slide loan-to-value the based than values

we Given, loans, expenses. estate a associated non-performing not with related did real an loan-to-value in increase foresee low

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

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

XX highlights mix. our of evolution funding the Slide

deposits compared deposits we As XX, liabilities wholesale enhance XX. core was access compared terms. XXXX XXXX. and Bancorp of X% the quarter increased, will ratio fourth December ladder our quarter-over-quarter, to We at at December of for the funding, we the for funding to The deposits XX% but Core year-over-year, XX, X% XXX% increased totaling funding improve all at advantageously increased believe the loan-to-deposit to of of ratio this longer acquisition the costs. XXX%, September out percentage XX% Empire and markets, need has can we

and On non-interest X% quarter-over-quarter is driven slide year-over-year. market, by Growth and increased XX, accounts. deposits money our primarily bearing

million XXXX. represents to core the Non-interest continue increased deposit accounts, XXX bearing with focus deposits XX, We over year-over-year, accounts increased X% X% to on an our emphasis on bearing growth which December X% deposits. non-interest transaction of of from deposit total

to strengthen market. slide to XX, continue within Turning presence Asian we our the

expand levels. in attractive our continues In Asian opened well deposits grow and new perform than Hicksville, more successful Asian branch further branches. market targeted New branch ethnic achieve a fourth the in Chinatown to we us enabled XX% York, our to quarter, Our an to strategy, within

where loans. We continue $XXX at serve deposits on the to communities, we million and have a have the in over community, million in strong focus Asian over branches $XXX that

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

order in we channels, Also, improving our online summarized XX. diversify mobile which digital to as part slide overall we our on deposit offerings gathering are digital of strategy,

requiring reduce add our John experience, mentioned, the banking As will infrastructure. deposits. cost improve gathering strategy us to without overall of our this customer's technologies These overall to physical

to second of customers operational current testing. user relationships, customer in fully us We XXXX, currently our deepen outside expect technologies and undergoing footprint, the are acceptance enable be new and attract technologies the and to quarter new

low-to-mid slide million expense year, to increased and distribution GAAP the only goal even X% Moving of negotiating improved manage increasing Empire. X%. for the expenses assist non-interest and or network expanding improving of while expense annual using efficiency our XX, achieving $X long-term Continue Core the non-interest less more $X acquisition us NIM an the million, in ratio than our will or to in XXs.

of XX, December to relatively company assets slide for non-interest to XXXX, 'XX. average ratio year made assets. Continuing stable and non-interest the 'XX, on expense the X.XX% expense The for compared ratio improved historically of average for to X.XX% X.XX% has to XX, ended

As of quarter XXXX's awards. the in non-interest higher seasonality, impact a expenses employee contain resulting due of the reminder, of will director and grants first to stock expenses annual unit restricted

pending for continuous in with best look to efficiency our opportunities operations Bancorp. Empire and practices acquisition efficiencies with from gain continue of share improvement further our and expect gains, We to

rate XX% for XX%. XXXX, we and taxes effective tax Regarding approximate between the

now With turn to for John that, I'll back it comments. closing some

John Buran

will slide reducing by we consistent On and funds Susan. XX, us I'd over XXXX. of CD for profitable available in conclude assist remain like to re-pricing you, continued cost Thank well-positioned growth. The summarizing to why the

the liability-sensitive origination of floating our the and strategy goal direct less NIM to Although, rate we an component be swap liability-sensitive, to in loans a important remain will continues in of becoming are implementation and of compression. response company, management's mitigating

million greater pipeline and of December than XX, XXXX as XX, December of pipeline totaled loan The $XXX the is as XXXX.

loans, strong, loans remain closings on loan decreased, XX% Our 'XX have continue increasing credit have loan we of metrics delinquent to loans. the of focus as were fourth as approximately total direct non-performing amount quarter non-brokered business as

non-interest We rate have contained in this low expenses environment.

We continue portfolio. trends the C&I positive in including to growth see

our and pipeline. sheets move loan continues were rate business we floating As strong more it balance

Universal synergies combination acquisition and of The our forma With as of with is enhance well cost expected the a franchise opportunities more overall Island. significant our Long deposit with XX% on XX% of increasing market new and pending pay per in time to a core to lowers employee. loan spending The has revenue Banker ratio. And our improves into pro bankers investment dividends. continues Empire resulted as Universal deposits, sales this cost to earnings approximately total, our brand presence banking Bancorp in are and our merger Model branch expand customers. in the

Our a serve York ongoing a New remains and key differentiator. brand our customers multilingual developing diverse maintaining City to focus staff on

to The Asian and strong expand for Market customer than of allow City less represent gathering transformation for technology base multicultural vision by for market mortar, York a our company and banking our consistent its costs business New be and implementation consumer at to significant exceeding opportunity total relationships. expectations, experience financial strong clients. that footprint The preeminent our leveraging our services the will a us. brick the while and in deposit community customer and continue enhancing our is customer remains and Overall,

the very and culture customers, In of strategic strong to all performance conclusion, continued company position a well attractive and and do execution consistent the in record markets our track objectives future. financial

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

Operator

of Please Instructions] Research. Thank we our G. begin question now comes question-and-answer ahead. ladies and gentlemen, go Steve session. from Our Comery you, today will first [Operator

Steve Comery

morning. good Hey,

Susan Cullen

morning. Good

John Buran

morning, Good Steve.

Steve Comery

Looking expect of XX, most you new as of to a some wondering, appreciate detail CDs, at kind kind of you slide replace you think or maturing the through do there, just get of just case, filter could with kind categories? CDs would the of base the other kind

John Buran

We think categories. we're going other to get it filtered through the

today market So, little bringing we're CDs. probably a in money bit more then

we're that, bit of always obviously, on we'll see I So, more little NOW think focused our and interest-bearing and a probably account out our business DDA. coming

Steve Comery

the mean, topic of their sort with sort you then Empire about do thinking same sort the I like, being and and how the maturing Okay, of that of what you just impact are this, CDs, what kind like change there of the opportunities on of that? CDs, does or do integrated?

Susan Cullen

how their significantly. our think increase is, non-interest that we So, about deposits will bearing deposits

portfolio, ours. their CD as great at Looking not it's as nearly

So, a wouldn't expect to these I material numbers. impact on it have

Steve Comery

and And release, fair loan general lot. like there in kind it the on a any rates yields increased the origination that, given Okay, of press down falling non-mortgage just during gears, then, - yields just like switching Was reason table specific enough. the in quarter? the for looked

Susan Cullen

we a yield. that type that quarter They drawn were during of loans were the longer-term. Yes, lot down mortgage C&I prior had

Steve Comery

typical would And this previous characterize or you the mix Okay. quarter the sort more quarter? as of

Susan Cullen

always would change. this say, to in environment, this subject is I typical but quarter probably that's more

Steve Comery

Okay.

John Buran

to areas best one company giving is in returns that I that the time any the is things portfolio are of diversify loan our particular us to period. in focus adjusted the and that risk think really the ability strong on

risk at the we with So, there I in return flexible look think remain opportunities out somewhat and market. the and we in the dealing try as

Steve Comery

just given stock sense. on? then closing me, coming makes where do deal QX, finally it the also today, repurchases has you regard recently, and to think done of no given valuation And how kind then about that, okay, how during the is for Okay, the in

John Buran

- of that see blackout the going for looking obviously, there we stock back bit us on we So, a had repurchases. Obviously, last we at down think has are in some recently, been opportunities the quarter. quite

track. exceed dealt the and the filings associated much done for very that the prospects think Flushing authorities, very, standing standing So, as for think combination the Flushing alone that far, with Empire merger, the far alone is on have we with matter. we regulatory with and merger Empire we changes combined a All or

Steve Comery

those or that is Okay. ongoing? blackout And have periods, expired, mentioned still you

Susan Cullen

general The released earnings. after No. three it that business rule we is expires days

Steve Comery

Okay, so three days from that… now, is

Susan Cullen

Last night…

Steve Comery

three from last night. okay, Oh, days

Okay, fair enough.

Thank That's from all you. Okay. me.

Susan Cullen

Thanks, Steve.

Steve Comery

Great.

Operator

[Operator Instructions]

John Buran

All right. the attending from If any questions us. much. Thank very were contact you look you there are hearing very there then, thank forward call, you very, for how other to know and no much individual further to if questions, we you,

Susan Cullen

Thank you.

Operator

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

You now may disconnect