Welcome to Flushing Financial Corporation's 2018 Second Quarter 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. [Operator Instructions] A copy of the second quarter earnings release and slide presentation that the Company will be referencing today are available on its Investor Relations website at www.flushingbank.com. Before beginning, the Company would like to remind you that 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. Such factors are included in our filings with the U.S. Securities and Exchange Commission. Flushing Financial Corporation does not undertake any obligation to update any forward-looking statements, except as required under applicable law. During this call, references to several non-GAAP financial measures as supplemental measures to review and assess operating performance will be made. 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 any information about these non-GAAP measures and reconciliation to GAAP measures, please refer to the earnings release. I'd now like to introduce John Buran, President and Chief Executive Officer, who will provide an overview of the strategy and results.

Thank you. Good morning everyone, and welcome to our second quarter 2018 earnings call. Today we hope to provide you with additional insight into our business strategy, consistent positive earnings power, and sustainable competitive advantages as part of our continuing efforts to increase financial transparency and investor engagement. Our brand message on the cover of the earnings presentation, small enough to know you, large enough to help you, continues to encapsulate our vision to be the preeminent community bank in our multicultural market. We create value and attract new customers by delivering a superior and consistent experience through innovative, quality service and personalized attention as we continue to execute and deliver profitable growth. I'll begin with our second quarter highlights followed by a brief overview of the strategies that we are successfully executing to create long-term shareholder value. Then Susan Cullen our CFO will review our financial performance in greater detail. Susan I will address your questions at the end of our prepare remarks as time permits. Starting on Slide 3 as announced in yesterday's press release, second quarter GAAP diluted EPS was $0.48 and core diluted EPS was $0.49. The difference between GAAP and core earnings is the one penny per share attributable to the fair value adjustments. We are pleased with our ability to generate strong earnings growth and return on average equity above 10% despite continued margin pressure. While we remain liability sensitive, we have actively managed our balance sheet to slow the pace of margin compression. For the past year, we have articulated our strategic objective of emphasizing rate over volume regarding loan originations. To that end we decided to allow over 70 million of participations with another financial institution to prepay as the rates being offered through the refinancing process did not meet our lending…

Thank you, John. I'll begin on Slide 6. Total loans are $5.3 billion, up for 0.4% quarter-over-quarter and 6% from the second quarter of 2017, as we continue to focus on the origination of multifamily commercial real estate and commercial business loans with full banking relationships. We continue to diversify our loan portfolio as C&I originations totaling $89 million for the quarter were 35% of total originations. Loan originations and purchase of multifamily commercial real estate and commercial business loans were 88% of our total loan production. Over the last 5 quarters, our C&I origination and purchases have averaged approximately 35% of quarterly loan production, resulting in commercial business balances growing over 20% during the same period to approximately 15% of gross loans at June 30, 2018. The growth in the C&I portfolio offer several advantage to the Company, primarily continued diversification of the portfolio, and as these are primarily adjustable-rate loans, the yield offers some protection in a rising rate environment. Overall, the total loan growth is on pace to meet the lower end of the expectation of high single digit growth while we continue to emphasize rate over volume. At June 30th, our loan pipeline was strong and totaled $323 million, which is relatively flat from last quarter but up from a year ago. The interest rate on mortgage loans for the pipeline increased to 4.67% from an average rate of 4.41% for the linked quarter. The LTV on our real estate portfolio at quarter end remains a modest 39%, and the debt service coverage ratio for the current quarter's originations of multifamily commercial real estate and one to four family mixed use loans is 186%. We underwrite and stress each individual loan using a cap rate in excess of mid 5%. Slide 7, depicts the composition of…

Thank you, Susan. Wrapping up Slide 16 provides a summary of why we believe we remain well-positioned for continued strategic and profitable growth. To reiterate, our vision is to be the preeminent community financial services company in our multicultural market area by exceeding customer expectations and leveraging our strong banking relationships. The New York City market and strong Asian customer base in Flushing continues to represent a significant opportunity for us. We remain focused on providing a superior and consistent experience at every touch point for our customers and maximizing shareholder value. Those of you that have held our stock over the last five years know that our total shareholder return has been 83% and since our IPO in 1995 total shareholder return has been 1044%. In conclusion, we have a strong foundation with attractive markets and customers, a proven track record as seasonal leadership team to execute our strategy with a commitment to drive continued profitable growth. We will now take questions as time permits, operator I’ll turn it over to you.

[Operator Instructions] Our first question today comes from Mark Fitzgibbon from Sandler O'Neill and Partners. Please go ahead with your question.

Susan, I know - I heard your comments about the margin and I know you've got quite a few number of moving parts. Can you help us think about the magnitude of the margin compression in the back half of the year?

We've looked at that Mark and everything being equally we’ll expect compression to continue for the remainder of the year to be in the 5 to 7 basis point range.

For the remainder of the year?

For the remainder of the year.

And then secondly I think you detailed somewhere in the press release that you had six business loan relationships that were downgraded. What were the loan covenants that - did they trigger I guess I’m curious?

There was a variety - there were some leverage situations there - of the top of my head - I can’t remember but I know leverage was clearly one of them. And there were also - it’s pretty much leverage I think on all of them or there could have been some delay in financial statements on a couple as well. The important thing about those is that - they remain nonaccrual they're paying as agreed. So I think these are - these look like to us that they are technical violations rather than extreme issues with respect to credit.

And then I’m curious your tangible common equity ratio, I know your regulatory ratios are strong but the TCE ratio getting down towards sort of 8% given the growth that you’re forecasting. How low might you be willing to take that capital ratio down?

I think we can dip below 8% with that - we got a much of an issue given the risk dynamics of the company. We're dealing with a loan-to-value in the overall portfolio that is less than 50%. Clearly there is a - even on a non-performers, non-performers have a loan-to-value of less than 40%. So we really don't see a lot of risk in the portfolio. So we feel comfortable bringing that cap rate down a little bit - bringing the TCE down a little bit.

Our next question comes from Steven Comery from Gabelli. Please go ahead with your question.

I was just wondering about the - noninterest deposits number looks like it was up - it’s been growing pretty well recently. I was wondering if you guy attribute that to kind of your expansion in the C&I business and then sort of your general expectations there?

Yes, so there is a number of factors going on here. I think I would focus and clearly on the C&I business which has been strong for us if you look at that at the C&I originations and that's kind of in the - other the loan category. We’re up - we are increase in that group in originations and participations like about 80% year-over-year. So it’s a very, very strong focus of ours and obviously as Susan mentioned, 35% of our total originations have come out of the C&I world. So we’re getting the deposits. We put in place about a year and a half ago a new team to be working on the commercial real estate customer and we're getting a lot more deposits - coming out of the commercial real estate area. And then I have to say that the Win Flushing business the Win Flushing initiative that we put in place is also putting us in contact with a lot of small business people and consequently additional non-interest-bearing deposits. So combination of things all moving in the right direction for us.

So and then kind of on price I mean you guys seems to be doing a pretty good job taking price both in mortgage and non-mortgage looking at the origination yields. Is there anything changing in the competitive environment there or is it just the whole markets moving up?

I think we were one of the first movers in trying to stay disciplined in this area, but actually in the last month we've seen a little bit more movement in the market as a whole. So I think everybody is starting to be a little bit more cognizant of this - the dynamics of the ongoing dynamics in this market and are focusing on better yields or more profitable yields. I would want to point out again to the group that $116 million. So if you think about our business, we have a baseline of commercial real estate that is going to roll over by contract over the next two and a half years or so through 2020, that’s $2 billion that is - has three to four handle and we're looking at five handles coming out of that based upon our contractual. So in this particular case we had $116 million of commercial real estate at 441 moving up to five plus. So that is kind of built-in baseline for us that we look to build upon as we take on additional higher yielding loans in the C&I area and the commercial real estate area as we remain disciplined on our originations, but again I want to emphasize that there is this baseline of contractually repricing commercial real estate loans are going to help us as long as we stay disciplined and that’s what our intention is.

And there is sort of one more from me. On originations look like they were down versus the previous quarter, but they were about flat versus the June quarter of last year. So I was just wondering how much of the change in origination volume is due to seasonality versus just other factors?

Its predominantly seasonality the pipeline remains strong, pipeline is growing. So I think we're in - I think we’ll see that come back.

Our next question comes from Collyn Gilbert from KBW. Please go ahead with your question.

Just a follow-up on the loan growth question, so it looks like you guys perhaps are revising a little bit lower in your loan growth target. I think you had said it's high single digit, low double-digit growth rate for 2018 before and now just lowering that to sort of single digit. Could you just talk about what's driving that, the mix of the growth that you're seeing and then also do you anticipate further loans participation that you can push out or loan sales or anything more to do on that kind of yield improvement strategy?

So, let's just talk about specific transactions. Some of that $70 million, we think a small proportion of it may be renegotiated at a better rate and we may be able take, bring some of that on in the next quarter or so. But to the more critical question about loan growth going forward, I think that the market while it remains competitive, again, there are signs of much more rationality in terms of pricing on the commercial real estate side. And we do have a continuing build up of strength on the C&I side. So, I think the economic forecast for this coming quarter are right around 4% and we're certainly feeling that type of additional economic power with our ability to find more C&I growth. And as I said, the C&I growth has really been fueling our business in the last couple of quarters. And incidentally that C&I growth, if you look at the yield there, the yield there for three months ending June, was like for 4.70%-some odd. So, the degree to which we can continue to get that 35% plus percentage of originations on the C&I area will help yield as well the loan growth. So, I think there's lot of emerging trends that are - that look like they're moving in a positive direction. Hopefully they'll continue.

And then just taking that, aligning that with kind of the margin outlooks, Susan, that you had given. I mean, do you think you can grow net interest income on a quarter-to-quarter basis, and if so, to what degree are you sort of seeing that trend?

I believe that it will stay, will go a little bit but it'll be very nominal depending on how the repricing comes in on the loans and the growth.

So, do you - again, sort of targeted - I know you kind of gave a longer-term efficiency target, but an ROA target either in the near-term or longer-term because obviously, again, the strategy that you guys are employing should theoretically help to improve that ROA, but just curious if you got any targets to that?

You know our target is to get up to 1% ROA. Clearly, we've been hovering - some quarters we hover close to that, other quarters we've missed it. So, over the long haul, we'd want to get to 1% ROA and then maintain the 10% ROE.

And then just finally, I don't if you said it, I apologize, but the tax rate that we should be using going forward is what?

We said 20% to 25% range. We had 24% for current quarter.

And then - and again, if you covered this, I apologize. But share repurchases that you bought some back this quarter. How are you thinking about that activity going forward?

We look at that opportunistically. So we believe the market has undervalued our shares more than normal, then we'll go in and then repurchase shares.

Did you say what the average price was of the other repurchases that you did this quarter?

It was around $26 a share.

[Operator Instructions] Our next question comes from Matthew Breese from Piper Jaffray.

Just one question from turning to Page 10, where you outlined the amount of loan repricing from now through 2012. Is that enough to drive a margin inflection point over the next 2 years or in 2019 perhaps?

So, I think that you've got to look at this like a layer. So this is - that's for us is kind of a baseline layer. Will we always get the maximum contractual rate? Not always, there are relationship elements that are clearly in play over here. But by and large, we will - as we got this $160 million moving up significantly this particular quarter, I think we're going to see a substantial proportion of that moving up to the 5% area. So, that provides the baseline. I guess the projection for us or the item that we need to continue to work on is building that C&I business. And also frankly our mixed-use business as well, where the yields are very strong. So, I think layering those together, we do think that we - there in an inflection point, I guess it's going to be highly dependent upon where we're at with respect to deposit pricing. But in terms of loan yields, we're optimistic about loan yields for sure.

And ladies and gentlemen, at this time I'm showing no additional questions. I'd like to turn the conference call back over to Management, for any closing remarks.

Yes. So, I think the important things to remember about the Company at this point in time, is that we are moving in a more positive direction. And I think we've kind of turned - we've definitely turned the corner in terms of loan yields, and the market looks like it's turned the corner in terms of a little bit more pricing rationality in our commercial real estate and multifamily business. And then of course, we have some swaps that are helping us through this sensitive yield situation. And then, I think that the business is very solid. New York remains a very strong economic environment for us and we're optimistic about the future. And, I'll leave it at that, and thank you all for your participation. And if there are any additional comments or calls, you know how to get to us, and we look forward to the coming quarters. Thank you, again.

Thank you.

Ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.