Flushing Financial Corporation

Welcome to the Flushing Financial Corporation's 4th Quarter 2021 Earnings Conference Call. Hosting the call today are John Buren, 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. To ask a question, you may press star then 1 on your touch-tone phone. To withdraw your question, please press star then 2. A copy of the earnings press release and slide presentation that the company will be referencing today are available on its investor relations website at FlushingBank.com. Before we begin, the company would like to remind you that discussing... Discussions during this call contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contained in any such statements, including as set forth in the company's filings with the U.S. Securities and Exchange Commission, to which we refer. During this call, references will be made to non-GAAP financial measures as supplemental measures to review and assess operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about these non-GAAP measures and for a reconciliation to GAAP, please refer to the earnings release and or the presentation. I'd now like to introduce John Buren, President and Chief Executive Officer, who will provide an overview of the strategy and results. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining us at our fourth quarter and full year 2021 earnings call. On today's call, I'll discuss fourth quarter earnings and ongoing strategic objectives before turning the call over to Mike Bingold, Chief Retail and Client Development Officer, and Susan Cullen, Chief Financial Officer. Following our prepared remarks, we'll answer your questions. There are two main items I want to talk to you about today. First, a review of our record earnings for 2021, and second, the outlook for 2022. For the fourth quarter, GAAP and core return on average assets increased 71 and 12 basis points year over year respectively, and GAAP and core return on average equity increased 850 and 82 basis points respectively. The net interest margin improved 21 basis points on a GAAP basis and 18 basis points on a core basis. We remain focused on executing on our strategic objectives, and we are pleased with our performance in the fourth quarter of 21 and very happy with the full year results. The first objective is to ensure appropriate risk-adjusted returns for our loans while optimizing the cost of funds. The average non-interest-bearing deposits increased 34%. We had record low cost of deposits at 25 basis points. Loan yields were compressed two basis points quarter over quarter. The second objective is to maintain strong historical loan growth. Loan closings were up significantly 49% for the linked quarter. Loans excluding PPP increased 3.7% annualized quarter over quarter. The loan pipeline began the season after a record third quarter level and ended the year at a very solid $429 million. Excluding the effects of PPP loan forgiveness, we expect positive loan growth in 2022. The third objective is to enhance core earnings power by improving scalability and efficiency. Earnings per share improved 427% year-over-year on a gap basis, and 16% on a core basis. Our digital banking efforts continue to gain traction with customers, and we're seeing opportunities to expand technology-supported products and services. There is a significant organic growth opportunity over the next 12 to 18 months from merger disruption, and so far, We've added 24 people from these institutions, nine of which are revenue producers. Our fourth strategic objective is to manage asset quality with consistent and disciplined underwriting. Low levels of non-performing assets and criticizing classified loans are only 87 basis points of loans. We have reserved coverage of nearly 250%. And greater than 87% of our loans are real estate based, and those loans have an average loan to value of less than 38%. We have a low level of credit risk in our portfolio as a result. On slide four, we outline our strategic objectives for 2022. Most objectives are the same as in past years, as we want to improve the funding mix generate appropriate loan growth, and maintain strong asset quality. We also recognize the need to invest in the long term while managing short-term results. Examples include enabling customers to transact in Bitcoin and eliminating consumer overdraft fees, both of which should help expand our non-interest-bearing demand deposits. Also, through our small business lending platform, we're improving the customer experience through automation and faster decision making. Merger disruption is one of the most significant opportunities presented to us over the next 12 to 18 months, as shown on slide five. As these mergers get approved and integration begins, we expect to add people and new business. In 2021, we added 24 people from the institutions on this slide, nine of which are revenue producers. We expect to focus on organic growth opportunities. We had a record loan pipeline at the end of the third quarter as shown in slide six. The loan pipeline is balanced between real estate and business banking as business banking activity has increased significantly. Pre-payment speeds rose over 50% in 2021 and nearly doubled in the fourth quarter. With the yield curve steepening, we expect refinancing volume to slow in 2022. So between the strong pipeline and the shape of the curve, we expect long growth will improve. I'll now turn it over to Mike Bingold to provide more color on our digital banking strategies And then Susan will follow with more details on key financial metrics.

Thank you, John. We recognize the importance of technology as it improves the customer experience, enhances our product set, and creates efficiencies. Slide 7 outlines some of our key statistics and technology plans. We upgraded our digital banking platform just before the pandemic started and continue to see significant gains including a 31% increase in monthly mobile active users and a 37% increase in active online banking users year over year. We recently adopted Zelle across our bank and digital platforms, and customer usage has been significant. We also made a strategic investment in Jam FinTop. This investment allows an early look at emerging technology, and we are excited about the offerings we have seen so far. In the fourth quarter, we launched a numerated platform to digitally originate small dollar SBA loans, and to date, we are pleased with the offering. We recently announced our plan to enable customers the ability to transact Bitcoin through a partnership with NYDIG. We will have an opportunity to acquire new customers and grow non-interest-bearing deposits while generating non-interest income. NYDIG acts as custodian and executes the trades. The bank will not hold any Bitcoin or have any price risk. We view this as an attractive opportunity as interest in Bitcoin remains strong, and according to research, customers who want to transact in Bitcoin prefer to do business through a bank. We are working on several other digital initiatives as well. I will now turn the call over to Susan to discuss the key financial metrics.