Flushing Financial Corporation (FFIC) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Virtual 2020 Annual Shareholders Meeting of Flushing Financial Corporation. I'm John Buran, President and CEO of Flushing Bank. Thank you for joining us today. We're excited to be hosting our first virtual meeting, which allows us to be more inclusive and reach a greater number of our shareholders. As is our custom, we will conduct the business portion of our meeting first, followed by some remarks by me, and then I'll address some questions submitted by shareholders at the end of the meeting. Though we may not be able to answer every question, we'll do our best to provide a response to as many as possible. In keeping with the digital approach to this year's meeting, it's now shortly after 1 p.m. Eastern Standard Time on May 26, and this meeting is officially called to order. Before we proceed further, I'd like to take a moment to acknowledge the passing of 2 of our directors, John E. Roe, Sr., Former Chairman, passed away in July 2019; and Thomas Gulotta, passed away in August 2019. We will be forever grateful to John and Tom for their dedication and service to Flushing Financial. And now I'd like to introduce members of the Board and certain senior executives attending today's virtual meeting: Alfred A. DelliBovi, our Chairman; Michael A. Azarian; James D. Bennett; Steven J. D’Iorio; Louis C. Grassi; Sam S. Han; John J. McCabe; Donna M. O’Brien; Michael J. Russo; Caren C. Yoh. Now it is my pleasure to introduce Flushing Bank's Senior Executive Vice Presidents: Susan Cullen, Senior Executive Vice President, Chief Financial Officer and Assistant Corporate Secretary; Francis W. Korzekwinski, Senior Executive Vice President and Chief of Real Estate Lending; Michael Bingold, Senior Executive Vice President, Chief Retail and Client Development Officer; lastly, Chief Operating Officer and Secretary, Ms. Maria Grasso, who will act as secretary of the meeting. I will turn to her now for some further introductions and to discuss some virtual meeting procedural items. Maria?

Thank you, John. I'd like to take a moment to recognize a few other virtual meeting attendees: representatives from our independent audit firm, BDO USA, including Kim Karwath; Peter W. Descovich from Broadridge, who is serving as our inspector of election for this meeting; Gary J. Simon, Partner at Hughes Hubbard & Reed LLP, counsel to the company. After the formal meeting has been adjourned and following John's remarks, we will provide time for general questions. [Operator Instructions] Please note that this meeting is being recorded. However, no one attending via the webcast or telephone is permitted to use any audio recording device. The Board of Directors fixed March 30, 2020, as the record date for determining shareholders entitled to vote at this meeting. I hereby confirm receipt of affidavit of mailing from the mail coordinator, Broadridge, as proof of mailing of the notice of meeting and proxy statement, a certified list of stockholders of record at the close of business on March 30, 2020, the subscribed oath of Broadridge as inspector of election and the minutes of the annual meeting held on May 29, 2019. As of record date, there was 28,213,602 shares of common stock outstanding and entitled to vote at this meeting. We are informed by the inspector of election that a majority of the voting power of all issued an outstanding stock entitled to vote on the record date has voted, thus, a quorum is present for all purposes. Now I will present the matters to be voted upon. Proposal 1, to elect 4 directors for a 3-year term and until successors are elected and qualified. Upon the recommendation of the Nominating and Governance Committee, the Board of Directors has approved the following incumbent directors as nominees for reelection as directors of Flushing Financial Corporation as set forth in the proxy statement: John J. McCabe, Donna M. O’Brien, Michael J. Russo, Caren C. Yoh. Proposal 2, to approve on an advisory basis Flushing Financial Corp.'s executive compensation. Proposal 3, to ratify the appointment of BDO USA, LLP by the Audit Committee of the Board of Directors as the company's independent registered public accounting firm for the fiscal year ending December 31, 2020. Any shareholder who has not yet voted or wishes to change their vote may do so by clicking on the voting button on the web portal and following the instructions there. Shareholders who have sent in proxies or voted via telephone or internet and do not want to change their vote, do not need to take any further action. [Voting]

Now that everyone has had the opportunity to vote, I declare the polls for the 2020 Flushing Financial Corporation Annual Shareholder Meeting closed.

As I noted earlier, we will continue to count and finalize the voting following the meeting and promptly publicly announce the results. This concludes the official business of the meeting, and the meeting is adjourned. I will now give my presentation about the operations of Flushing Financial Corporation and answer some questions submitted via the portal. Thank you for joining us for our first virtual annual shareholder meeting. I would like to start by saying our thoughts go out to those most affected by COVID-19, especially those on the front lines of this pandemic. As we navigate through these unprecedented and challenging times, the health and safety of our employees and our customers remains our top priority. We were quick to respond to the pandemic with new health and safety measures, including social distancing, appointment banking and expansion of remote capabilities to help our team members, customers and communities stay safe and healthy. Today, we have the capability of having our entire staff work remotely. On any given day, as many as 85% of team members work from home. Importantly, we're also actively assisting our customers by providing short-term forbearances in the form of deferrals of interest, principal and/or escrow for terms ranging from 1 to 6 months. As of April 17, we had approved forbearances for loans with an outstanding loan balance of approximately $839 million, of which $673 million is in the real estate book and $166 million is in the business banking portfolio. Given the pandemic and the current economic environment, we continue to see demand from our customers for loan forbearances. We actively participated in the SBA Paycheck Protection Program, funding $64 million in the first wave and are currently processing applications for the second wave. We are also evaluating other programs to assist our customers, such as the Main Street Lending Program. Additionally, we are waiving late fees on loans as well as ATM fees for customers and noncustomers. We are also supporting our communities by delivering food to health care workers in hospitals, on the front lines and redirecting contributions to charitable organizations such as food banks to help communities that have been adversely affected by this crisis. While the underlying business fundamentals in the first quarter 2020 performed well, our GAAP earnings for the quarter were affected by 2 COVID-19-related noncash charges totaling $0.38 per share after tax that resulted in a loss of $0.05 per share. Importantly, credit quality has been and remains one of our key strengths. Our nonperforming assets at the end of the quarter were only 23 basis points. Today, 87% of our portfolio is real estate based with an average loan-to-value of 38% and an average debt coverage ratio of over 1.8. Our multifamily loans are collateralized by rent-regulated buildings in the New York City area, representing 38% of the total loan portfolio. The commercial real estate portfolio, which represents 28% of loans, is very diverse with limited exposure to big-box retail. Given the current economic environment due to COVID-19, we remain committed to helping our communities and customers get through this difficult time. We will continue to focus on what we can control, maintain asset quality by working with borrowers, controlling expenses and managing our net interest margin. In 2019, we celebrated our 90th anniversary of helping families, business owners and communities grow and prosper. We continue to build upon our solid track record of delivering strong and consistent financial performance with profitable growth. Since our IPO in 1995, we achieved positive earnings every single year. We achieved GAAP earnings per diluted share of $1.44, and for our fifth consecutive year had over $1 billion in total loan closings. Although income was down from the prior year due a low interest rate environment and continued pressure on loan rates, we actively managed our funding costs to deliver solid performance. Fueling our performance was loan growth of 4%, deposit growth of 2% and industry-leading credit quality. We initiated and completed many important strategic actions in 2019 to further enable us to achieve profitable growth in the future. We announced a definitive agreement to acquire Empire Bancorp, Inc., which will increase core deposits, lower cost of funds, improve our loan-to-deposit ratio, enhance core earnings power and create one of Long Island's largest banks by deposit share among regional and community banks. The transaction was expected to close in the second quarter of 2020. However, given recent events related to the COVID-19 pandemic and the volatility of financial markets, a joint decision was made to delay the merger. We strengthened our branch networks connection with the Asian market by opening up a new branch in Hicksville, New York and relocating our Bayside branch to enhance customer access and brand visibility. We shifted more toward floating rate C&I business loans and successfully increased our C&I to 19% of total loans, part of our balance sheet strategy to become less liability sensitive. In 2019, we originated $1.2 billion of loans, of which over half were C&I originations. We maintained investment-grade ratings on our debt for the fourth consecutive year. We continued to improve our credit quality with classified assets at the lowest level since 2008. We enhanced our brand with a focus on optimizing both digital and branch footprint. The buildout of our new digital environment with mobile and online banking offerings is fully operational, enabling us to attract customers outside our footprint and deepen current customer relationships. And we continue to provide volunteer support and sponsor numerous cultural events and local organizations. Recent events, including the reaction of the markets to the coronavirus and the Federal Reserve rate cuts in March 2020, have increased uncertainty in the markets. These conditions have adversely impacted the value of our stock, along with others in the financial sector. Positively, we remain well positioned to manage through these times of volatility and believe our underlying strategic objectives will continue to move our company forward in 2020 and beyond. Our strategic plan remains focused on diversified growth of assets with the best risk-adjusted returns while maintaining a conservative risk management approach. We continue to leverage our strong banking relationships to execute on our strategic objectives. Our brand message, Small Enough to Know You, Large Enough to Help You, continues to perfectly capture our vision to be the preeminent bank in our multicultural market by exceeding customer expectations. As a premier New York Metro bank, we have sufficient scale to facilitate banking and lending solutions offered by larger commercial banks while being nimble enough to offer customized solutions to meet the individual needs of our customers. We will continue to create value and attract new customers by delivering a consistent and superior customer experience at every touch point and providing new account access, product choices and delivery channels that enable our customers to bank where, when and how they choose. As a community bank, we believe it is important to staff our branches with dedicated employees who understand the culture and speak the language of our communities. Our exceptional employees, who speak over 20 languages are the face of our brand and our connection to our neighborhoods, provide a significant competitive advantage. In summary, we remain confident that our brand consistent and clear strategy, and seasoned leadership team will continue to execute and drive positive momentum. Our strong foundation and proven track record over the last 90 years continue to position us very well to further deliver solid risk-adjusted returns, consistent profitable growth and long-term value to our shareholders. In closing, our community-focused bank truly cares about our customers, employees and the communities we serve. We are continuing our 90-year tradition of providing quality service to local communities, supporting their growth, diversity and prosperity. We appreciate our employees for their dedication and commitment and our customers for their continued trust. And to you, our valued shareholders, we are honored to serve you, and we thank you for your continued trust and support.

[Operator Instructions]

We are reviewing the website. There are no questions that have been presented. So with that, I will turn it back to the operator. I want to thank everyone for their participation, and hope that you all stay safe. Operator?

This now concludes the meeting. Thank you for joining and have a pleasant day.