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Flushing Financial (FFIC)

Participants
John Buran President and CEO
Susan Cullen Senior EVP, Treasurer and CFO
Mike Bingold Senior Executive Vice President, Chief Retail and Client Development Officer
Chris O'Connell Keefe Bruyette & Woods Inc
Manuel Novice D.A. Davidson
Call transcript
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Operator

Welcome to the Flushing Financial Corporation's Fourth Quarter 2021 Earnings Conference Call. Hosting the call today are John Buran, President and Chief Executive Officer; Susan Cullen, Senior Executive Vice President, Chief Financial Officer, and Treasurer; and Mike Bingold, Senior Executive Vice President, Chief Retail and Client Development Officer. Today's call is being recorded. 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 any would made are statements the subject Such Litigation Safe the to company factors that with from may cause statements, to Reform contain forth results set of materially under in and the Exchange the provisions filings other to Private begin, actual this those call risks, we Commission, we remind Before statements differ you in contained U.S. to and such discussions Securities company's harbor as including which Act during uncertainties, forward-looking XXXX. like the Securities of refer. will U.S.

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

Chief introduce will reconciliation results. Buran, these the Please presentation. For a and I'd for or to GAAP, like and release please GAAP provide refer now an to measures overview about non the and the who - President earnings information Executive strategy to Officer, and John of go ahead.

John Buran

fourth-quarter Susan and call, discuss Officer. joining Chief our fourth-quarter the Fitzgibbon development Chief at I'll us and client turning over and Operator. you, for objectives to call. And morning, Mark officer Good On earnings you Thank and Financial call ongoing Retail before today's thank everyone. FYXXXX Cullen, strategic earnings

I main about to you today. to your Following questions. our answer talk we prepared There want are two remarks, items will

outlook for of XXXX our for record the First, a review XXXX. second, and earnings

strategic we're points on XX quarter net We average basis points increased XX the with and improved objectives, XX The core our basis points focused on on XX a and For very 'XX, return respectively. quarter, points of average on And respectively. performance with and fourth and Core basis return on interest happy increased and core GAAP XX XXX basis a equity pleased GAAP year-over-year GAAP basis, assets results. on full-year basis. our and margin remain executing the fourth in and

The appropriate first objective is points, yields cost were returns basis deposits to deposits the XX%. average quarter-over-quarter. our We while points. funds. basis optimizing cost at had non-interest low risk-adjusted for X The record ensure increased loans of XX bearing of compressed Loan

up link very strong to second to level is quarter. quarter were XX% for growth. loan the solid year increased annualized third million. pipeline $XXX at closings X.X% a The objective Loans, the record after maintain a excluding Loan significantly ended The season PPP, began historical and loan quarter-over-quarter.

XXXX. loan in Excluding expect loan the we forgiveness, PPP positive growth effects of

objective enhance by a basis third The efficiency. on scalability and improved is and Earnings improving power core per year-over-year share a on GAAP earnings basis. to core XX% XXX%

next the are so Our nine There over technology digital with to added producers. seeing significant and gain merger customers. services. expand XX we're revenue of months far, continue disruption, which opportunities institutions, to XX from these a organic XX growth traction banking supported we've people And and is to from efforts products opportunity

basis with strategic classified and consistent underwriting. of to are of criticized Our asset loans objective manage fourth, levels points non-performing and quality is XX assets, and Low loans. disciplined only

than XX%. of nearly And than and XXX% loans reserve based. XX% an average real loan-to-value our of greater have coverage estate less loans of have We those are

past maintain the XXXX. mix, the we as loan appropriate funding quality. Most level and objectives same of in a improve our objectives in have years On result. a portfolio low outline credit our strategic growth risk as Slide want we generate are as We X, to strong asset for

and managing non-interest Examples fees, or demand long-term expand the consumer our include transact in help of XX Merger Bitcoin customers both decision-making. opportunities invest the to enabling XX overdraft over is significant should of to need short-term as our experience most small disruption business bearing improving in us eliminating customer platform, which lending presented the the to on Also results. X. to one through the deposits. recognize also and faster we're shown Slide automation We next months, through

slide, approved added people add As expect In XX and institutions we people on these to which mergers we revenue from are producers. XXXX, new business. this get integration nine and of the begins,

in third We opportunities. real business expect increased a banking is X. growth record pipeline Prepayment in as significantly. end the as between nearly banking, The fourth speeds focus shown rose Slide loan We had pipeline XXXX over and in business to activity quarter. doubled quarter, the on loan balanced XX% the of and has organic at estate

yield With steepening, we to volume slow the XXXX. curve expect refinancing in

our to on shape Mike more So financial then we provide turn Bingold more strategies. the to I key the growth banking between the color improve. follow of curve, and strong now will pipeline digital And metrics. Susan expect will will on over with it details loan

Mike Bingold

XX% recognize our the creates as X Slide outlines efficiencies. banking Thank set, customer see in year-over-year. and We've users a it some banking of significant product to increase We has and significant. upgraded monthly adopted our active pandemic continue across a the digital and importance platform gains, increase and platforms, just the online including of plans. key mobile usage digital and XX% bank been you, technology We technology our our improves John. customer active before in experience, recently users statistics and started Zelle enhances

SBA through We early we the investment excited have seen and launched offerings the fourth we in enumerated our transact loans, originate investment ability technology, about and made the are customers digitally the small-dollar NYDIG. we're plan pleased so JAM far. to In partnership quarter, we look platform offering. to announced with also Bitcoin This to-date, a to We a enable an FINTOP. with allows emerging at recently strategic

want and The bank new and acquire hold any non-interest NYDIG not customers to We or Bitcoin to through grow according research, risk. interest executes bank. non-interest-bearing view customers an opportunity strong. access in trades. generating a attractive while business an have remains And will have opportunity any the prefer deposits Bitcoin will We custodian, income. who to do price Bitcoin this transact to is as in

digital as the on are will turn to metrics. well. several I discuss We the financial initiatives other to key now working call over Susan

Susan Cullen

you, on and in from an Thank Average X. bearing XXXX. deposits, the total non-interest year-over-year XX% XX% Mike. fourth average respectively increased quarter XX% I'll improvement XX% begin and of Slide deposits comprised of and

up the ways four The past points to focus continue quarter deposit and reduce We base cost yield to cost XX points rates time. higher basis decreased the while were funds. pipeline on include excluding the we mix and and over, a that increased Loans look deposits steeping in should quarter-over-quarter, quarter-over-quarter. for decreased Core XXXX. over strong of income, on basis will basis yield move XX optimizing a to XX of loan quarter loan continues X outlines up XX% fourth help basis low activity XXXX. from the months curve, over portfolio checking record XX% originations year-over-year annualized a four X.X% a are to optimistic The of pick PPP quarter yields points loan and curve to which of Slide business With stable. points. and prepayment loan fourth yields steeping of penalty account with yields. low growth improve openings Branch

loans. on exceeded XX the pressure fourth yield PPP closings loan still the basis is there on declined loan forgive yields points as satisfactions the quarter. on continues the yield to loans $XX million SBA as in However, during by the XX%, quarter

margin company approximately income, the $XX X% during the basis quarter, income fourth margin and from adjustments PPP the fair During was with interest outlines recognized XX compressing million accounting interest income $X of fees. GAAP Core interest quarter. net points interest declined X.XX% to basis and net value trends. Slide net accretion in net removes Net also quarter. which the X impact interest of X.XX% net margin declined million. X core [Indiscernible] and declined purchase the points to gains

in impact basis penalty from basis the net quarter-over-quarter. which net the income, fair in totaled and adjustments, XX interest points and by fourth-quarter, purchase prepayment quarter. accounting points The third declined X gains net XX accretion, margin from the Excluding basis points value

to which positive Slide mentioned. PPP purposes, includes XX and basis position. of that in your we current previously start you XXX, the net then points the discusses impact, sheet base For three margin balance interest add – own adjustments with for of encourage our modeling assumptions

of Assuming swaps, shown the originations This the funding and yield over curve blue repricing This the net static driven higher balance yield curve. sheet, at a year-end on increase interest of in funding by bar. the the increased rates light given by steepening is cost, the lower slightly primarily would income time.

rate floating sensitivity to This depicted $X Depending assets and dark $XX bar. to rate was We million the are of income adding negate the to position. net more time, increase the on timing adding liability sheet. blue by the balance help projected interest by million annually is floating assets,

in the to rates. two scenario. provide detail benefits increase a to better income tend XX, key one years, depicts XXX basis example. the any while other driver over for rates the mature the increase helps over asset impact longer The pace the on approximately immediate sheet rate timing net on Clearly, interest than rate slower the Currently, of year, floating period and in and the or in growth basis of points, impact interest The reduce left floating the Slide shock repriced the rising is the base liabilities sensitivity. adding is rate case, net of for point The Turning more we chart of a reprice our first loans XXX rising of and XX% income. balance within time without quicker. liability rates initiative initiative

growth also of are bearing deposits. We the non-interest emphasizing

the margin in income The by rate is early increases funds deposit interest and Fed the expect in see slide we net interest the based on growth on increases, near-term our sheet. the expansion While compress December rate balance as of net with of this lighting to XXXX. XXXX, modeling curve may these driven

five fourth we net $XX,XXX been we expect better Slide net recoveries have basis had this charge-offs to continue. quarter. our the Historically, of XXXX industry only onto XX, Moving losses for and and points than were for

than conservative linked outlines and assets X% on related the Company's XX% quarter portfolio risk is loan of solid from loan assets originations, underwriting these leader. to not than price has declined The the or less reserves COVID-XX. increased Our credit is and of Non-performing XX more. quarter, portfolio variant LTV are a period the company loan-to-value Slide of and and LTV the increased XX%. we XX% current the The the metrics. real our fourth an is less in XX% average estate on Omicron

our in see type. continue credit expect risk loans the slide by improved this of is common book to XX% basis minimal right capital bottom can Overall, reserve contact. overall with the ratios. loan very While Book we The Slide shows you remain and ratio reserves the and equity XX value each basis our profile fourth XX XX comfortable to points, share points in ratio during increased strong loss per tangible tangible to quarter X.XX%. value XXXX. the

XXX,XXX price XX% the at being shares returned an the company's repurchased the the During company during average earnings quarter. resulting of the $XX.XX, in shareholders quarter, of to

and the are the future growth. the the capital Our income dividend are Slide and attractively shares. shareholders, first start and We view quarter given as full net approximately XXXX points grow pay interest priced balance year. in sheet, outlook key for dividends We the for priorities net and outlines the with repurchase opportunistically of and margin. opportunity the interest unchanged the stock significant for XX to X.X% to yield profitably

penalty interest many profitably moving depend XXXX in Fourth growth on will increases expect loan elevated growth, fair net the margin of includes growing and of positive accounting the in income value asset rate the The of are margin income, additions. purchase and pace we net there balance liquidity, pieces, accretion, prepayment levels based on Quarter marks. of Coordinate reported sheet. overall, deployment While and level rate interest floating

While added Well. in PPP the X fees as basis Fourth Quarter margin points to

items growth, these of should note the pipeline. items income. excluding for improve There in non-interest are XXXX XXXX loan to two normalize strong We expect in PPP, given

plan Fourth the that in First, received there not is million was repeat. on $X investment retirement a dividend expected Quarter to

time expected to elimination million XXXX. to resulting growth the is overdrafts, a as a people, one income accounts the - funds, non-interest and all and and record in in of achieving insufficient transfer expense We're the in for by single-digit and $XXX,XXX expense continuing performance employees for the earnings high includes on reward franchise compensation Second, fees year-over-year. during quarter reduce benefits non-interest in for percent Fourth pandemic. invest $X increase consumer core checking our

single-digit seasonal low of one-time increase normal Expenses for largely some with should growth the offsetting first expenses falling core in increase. and compensation XXXX and quarter quarter the out due expenses in compared seasonal quarter of percentage expenses first to patterns purposes, the modeling second. follow For benefit the the fourth normal to of the should seasonal the bank remainder the

Lastly, I'll to the XX%. effective to now turn John. tax rate over approximate for XX.X% it should back XXXX

John Buran

you, the as benefiting which the XX, we we we key pipeline deals XXXX. and is Thank merger XXXX, in economy expected expect is from And the Loan provide more begins. in Susan. close growing. strong messages. nine as add added we've increase and to Slide people, producers our as We're to have a disruption of XX are integration revenue growth

people. our We business are in investing the and

in Bitcoin New reduction and set XXXX. services overdraft launch to are fees in in

during pandemic. advantage are them competitive our for efforts the their and we Our employees rewarding are

will in be We're low on assets cost improve rising And based risk should loans over XXXX. floating-rate to immediately Overall, we floating-rate growth. company higher expense interest and we invest in the XXXX preparing balance We're will expect these time Our grow income adding our deposit profile. for in Net initiatives be base rate sheet as expected interest rates. growth. emphasizing

that with yield. a model return and dividend maintaining average on risk, average average low stock Low X.X% goals. credit on have business cycle return equity conservative be an the through LTVs. risk approximate a and assets We'll We has

initiatives to for results long help open Operator, in the several the I'll over have to to We place lines turn drive it questions. up now over you term.

Operator

gentlemen. and you, ladies Thank

begin [Operator [Operator Instructions] roster. now Chris this will session. question O'Connell our KBW. At to Please come And will momentarily our question-and-answer assemble Instructions] pause we will the first go of time, ahead. We from

Chris O'Connell

you? are How Hi.

Susan Cullen

Chris. Morning,

Chris O'Connell

Morning.

seeing single-digit guide the confirm you million comments, the in slides, thought wanted low base. Quarter just think I I inflation thing there and high XX be XX, here. up of to First then the to expense the plus in So I'm the just the I $XX million mid-single-digit said the prepared

Just confirm hoping starting off year kind where of here. we're to the

Susan Cullen

-- single Excuse seasonal is fourth in invest That the quarter first continue So expecting this -- largely in expenses The morning. item more year pretty in this of the as then the having And we that we're I'm compensation see in we took offset me, in we speaking the XXXX. one-time that the the million growth quarter than the should close. -- expense of trouble higher high have $X normal yes, digits expenses company. and to high the we

Chris O'Connell

Okay.

drop-down to shakes plus And reading quarter so right, just put I'm fourth $XX it it the bit I to to have, you somewhere then $X.X the in guess, office usually in range. And or a all about together, quarter seasonality, I the the or now? million you million guys it's, out if million minus think maybe $X past, in think typically million $X said I second

Susan Cullen

does. stock on that between It's range. It X.X. Where be or the in that X, somewhere what and X.X depends Right. will

Chris O'Connell

it. Got

Perfect. Okay.

John Buran

off drops of drops Second roughly. XXXX XX% Quarter in, the then And off in

Chris O'Connell

Yes.

off. million to X.X about or X X.X million drops so, So

Okay, great. Perfect.

Susan Cullen

Yup.

Chris O'Connell

seasonally minus. it's plus usually flattish And or

Susan Cullen

basis, quarterly right. a Correct. On Right.

Chris O'Connell

Thereafter, gotcha.

hoping some on color hike like does Okay. trying Great. how curve like far then get as what the Fed Slide the what get point chart on before I look on or that the just that to XX I frame [Indiscernible] around a just was to a and slides XX, And forward XXX looks. that's left, XX, just basis third would the not guess, line line of NII maybe using NII. as

Susan Cullen

we it put would Obviously, depend would look there. what also assumptions like what on in

we what well. It -- much would it betas on low the of slide the lag cost, high did. deposit because the deposit effect income to of continue the an we lag If interest end said, to I just basis those cost. betas if the built a points shape rose, that rose our as on expect not to would as lagging have said, XX end and or if would curve depend the the net on deposit deposit we was were back was yield As we

Chris O'Connell

NII it. after the comes or here? guess, Slide the XX, then, really margin three pressure Got two based Seems to Okay. like I -- on [Indiscernible]

Susan Cullen

Yes.

John Buran

Yes.

Chris O'Connell

Great. will for step Okay. you. now. Thank I out

Susan Cullen

Great. Thanks, Chris.

John Buran

Great. Yeah.

that remember in interest slide The growth Slide improves. course, growth. Chris any XX, of to there's net on assuming on that loan -- that loan on structure, obviously, Just not income, and we're

Susan Cullen

slides Chris, a That's -- on both static both sides, assumes they sheet. balance

Operator

[Operator will roster. Instructions] And once we again, to our pause assemble momentarily

John Buran

We're done.

Operator

closing to There appear questions back conference John I to any over will Buran be A at for no further the this turn time. remarks. -

John Buran

very XXXX. forward attention very looking merger you for opportunities thank Well, much a with some improving with we're strong economy to your the disruption, associated and

just have popped D.A. one do want question we Do take to a Davidson. think up. that that from I Although you

Operator

is from Manuel Question ahead. D.A. please Novice Davidson, go The of

Manuel Navas

Good morning. [Indiscernible].

Susan Cullen

Good Morning.

Manuel Navas

Can add more coming curious what nine them from you can I'm business and lines color you talk on you're any they're hires? -- adding where new those to.

John Buran

keep business But tip to I got going so not think pretty we to development there, that people, new staff, have we as branch obviously, some we some got want we've a it's lenders confidential mix. our so hands good forward.

Manuel Navas

-- Are or your to products those product you would they set add of fall kind – new any extend

John Buran

No, multifamily market. type we're I people talking the small already of think that we're do really after, who business the in about business

Manuel Navas

NII? difference Would disclosure Okay. example on those Are in and between X% just one have they in your of a XX year an XX-Q with decline year just quick XQ expanded up match your I and wondering Slide Slides disclosure two XX. that on because the followup XX. percent for roughly

Susan Cullen

that disclosures They was on XX-Q based are the November. expanded filed in

Manuel Navas

betas You using Year disclose? versus you'd X? you Can them. X Year what And in you just like say Okay. are

Susan Cullen

on historical based are we betas. as what disclose as We don't they seen Yes. runoff. what using we're our But have

seen. on we have based they're what So

Manuel Navas

– the Or some you taking are of whole of the And the your assuage is historical? historical

Susan Cullen

we've -- through enough through use be have around cycles. been historical to to because We many long our rate gone

John Buran

we're X. least projecting to is going in we're year rise At year what seeing versus [Indiscernible] what is X

Manuel Navas

Right.

Okay. question. One That On return. capital last was helpful.

payout mean, You about capital return is in of terms I to ratio? ratio disclosing think a that payout you're starting

Susan Cullen

Well, we've payout had ratio. a always

earnings, on just that never shareholder. We returned the point with our of public what year paid repurchases to and XX% based paid, dividend the out our every we decreased the trying went we and is XX% a Now, the of have we're XXXX. since we that dividend effects in dividends

Manuel Navas

you. Thank

Susan Cullen

Thank you.

John Buran

very, you continued attention our results. about It again, looks your other much updating we like no have strong the we you to look thank future in for Once questions. very forward and

Susan Cullen

Thank you.

Operator

Teleconference is lines. concluded. may you you presentation Thank today's now for disconnect attending your and