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]A copy of the earnings press release and slide presentation that the company will be referencing today are available on its Investor Relations Web site at flushingbank.com. Before we begin, the company would like to remind you that the 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 the company's 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 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 Buran, President and Chief Executive Officer.

Thank you. Good morning, everyone, and thank you for joining us for our fourth quarter 2019 earnings call. On today's call, we hope to provide you with additional insight into our consistent positive earnings power, business strategy, and sustainable competitive advantage. I'll begin with our fourth quarter and full-year 2019 highlights, and then provide an overview of the strategies we are executing to continue to create long-term shareholder value. Then our CFO, Susan Cullen, will review our financial performance in greater detail. Following our prepared remarks, Susan and I will address your questions.Beginning on slide three, we provide our quarterly highlights, and are pleased to report fourth quarter '19 GAAP diluted EPS was $0.45, up 22% from the prior quarter, while core diluted EPS was $0.41. Net interest income increased by 6% from the third quarter of 2019, as the net interest margin improved by 11 basis points, primarily due to the cost of funds decreasing 11 basis points, and the yield on the loan portfolio increasing four basis points. As we reported in previous earnings calls, we had an opportunity to reduce funding costs. We were able to capture 11 basis points of opportunity this quarter. There is an additional opportunity to re-price downward as there are $1 billion of retail CDs with an average rate of 220 maturing in 2020.Furthermore, the cost of funds demonstrated continuous improvement throughout the quarter. The swaps we put on in prior periods benefited both our interest and non-interest income as there was a small upward slope in the curve. Credit quality remains pristine, and continues to improve the classified assets at the lowest level since 2008. Importantly, delinquent loans have decreased to 34 basis points of gross loans at December 31.Loan closings for the fourth quarter of '19 were $270 million, and…

Thank you, John. I'll begin on slide nine. Net interest income for the fourth quarter of 2019 was $41 million, up nearly 6% quarter-over-quarter due to the net interest margin increasing 11 basis points to 248. The yield on the loan portfolio increased four basis points quarter-over-quarter, while the cost of funds decreased 11 basis points. The cost of funds continuously improved throughout the quarter. The core net interest margin was 233, flat quarter-over-quarter. As a reminder, core net interest margin excludes the prepayment penalties, recovery of interest on non-accrual loans, and the mark-to-market adjustment on the qualifying hedges.The Fed rate decrease in late-September and October 2019 affected the rate of our C&I loan portfolio in the beginning of the fourth quarter. With a steady interest rate environment, we believe the yield on these loans will also stabilize. Year-over-year, the net interest margin decreased nine basis points as the cost of funds increased six basis points, while the yield on interest earning assets have decreased four basis points.On slide ten, we highlight a strategy built into the balance sheet we're using to reduce funding costs for NIM stabilization. As a reminder, we have $1 billion of retail CDs scheduled to mature in 2020 at a weighted average cost of 2.2%. As highlighted on the right-hand side, current replacement funding costs are significantly lower than maturing CD rates. Importantly, over the long-term, we will position our balance sheet to be more interest rate neutral, which allows us to seize opportunities as we continue to actively manage funding costs and to evaluate strategies to further strengthen our balance sheet, and our interest rate environment.On slide 11, return on loans are $5.8 billion, up 4% year-over-year as we continue to focus on the origination of full banking relationships to the C&I multi-family and…

Thank you, Susan. On slide 23, I'd like to conclude by summarizing why we remain well-positioned for continued and consistent profitable growth. The CD re-pricing available to us will assist in reducing the cost of funds over 2020. Although, we will remain a liability-sensitive company, the implementation of our swap strategy and the origination of floating rate loans are in direct response to management's goal of becoming less liability-sensitive, and continues to be an important component in mitigating NIM compression.The loan pipeline as of December 31, 2019 totaled $325 million and is greater than the pipeline as of December 31, 2018. Our credit metrics remain strong, as non-performing loans have decreased, as have total delinquent loans, we continue to focus on increasing the amount of direct loan business as approximately 50% of fourth quarter '19 loan closings were non-brokered loans. We have contained non-interest expenses in this low rate environment. We continue to see positive trends including growth in the C&I portfolio. As we move our balance sheets were more floating rate business and it continues strong loan pipeline.With a pending acquisition of Empire Bancorp the pro forma combination of our banking franchise lowers our overall cost of deposits, as well as improves our loan to deposit ratio. The merger is expected to enhance our core earnings with significant revenue opportunities and cost synergies and expand our presence into a new market on Long Island. The investment in the Universal Banker Model continues to pay dividends. Universal bankers are spending more time with customers. And this has resulted in brand sales increasing approximately 20% in total, and 35% per branch employee.Our ongoing focus on developing and maintaining a multilingual brand staff to serve our diverse New York City customers remains a key differentiator.The New York City Market and its strong Asian customer base continue to represent a significant opportunity for us. The implementation of our technology transformation will expand our footprint and allow for deposit gathering at a total costs less than brick and mortar, while enhancing the customer experience for business and consumer clients. Overall, our vision remains consistent and that is to be the preeminent community financial services company in our multicultural market by exceeding customer expectations, and leveraging our strong banking relationships.In conclusion, a strong culture and track record attractive markets and customers, consistent financial performance and continued execution of our strategic objectives all position the company to do very well in the future.We will now open it up to questions. Operator, I will turn it over to you.

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

Hey, good morning.

Good morning.

Good morning, Steve.

Looking at slide 10, kind of appreciate the detail there, just kind of wondering, would you just kind of as a base case, expect to replace most of the maturing CDs with new CDs, or do you think you could kind of get some filter through the other categories?

We think we're going to get it filtered through the other categories. So, today we're probably bringing in a little bit more money market then CDs. So, I think we'll probably see a little bit more coming out of that, and obviously, we're always focused on our NOW account business and our interest-bearing DDA.

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

So, how we think about that is, their deposits will increase our non-interest bearing deposits significantly. Looking at their CD portfolio, it's not nearly as great as ours. So, I wouldn't expect it to have a material impact on these numbers.

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

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

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

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

Okay.

I think one of the things that is strong in our company is really the ability to diversify that loan portfolio and to focus on the areas that are giving us the best risk adjusted returns in any particular time period. So, I think we try and remain somewhat flexible in dealing with the risk and return as we look at the opportunities out there in the market.

Okay, okay, it makes sense. And then finally for me, no repurchases during Q4, just given kind of how the stock has done recently, how do you think about that, given where the valuation is today, and then also in regard to the deal closing coming on?

So, we see - obviously, the stock has been down recently, we think that there are some opportunities for us looking back at repurchases. Obviously, we had quite a bit of blackout going on in the last quarter. So, as we dealt with changes associated with the merger, we think that the merger is very, very much on track. All the filings have done with the regulatory authorities, and we think the prospects for a combined Flushing and Empire combination far, far exceed Empire standing alone or Flushing standing alone for that matter.

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

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

Okay, so three days from now, is that…

Last night…

Oh, okay, three days from last night. Okay, fair enough. Okay. Thank you. That's all from me.

Thanks, Steve.

Great.

[Operator Instructions]

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

Thank you.

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