Welcome to the Flushing Financial Corporation's Third 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 Frank Korzekwinski, Senior Executive Vice President and Chief of Real Estate Lending. All participants will be in a listen-only mode. Please note this event is being recorded. 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 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 you. 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 the U.S. GAAP. For information about these non-GAAP measures and for reconciliation to GAAP, please refer to the earnings release and/or the presentation. And now I'd like to introduce John Buran, President and Chief Executive Officer, who will provide an overview of the strategies and results.

Thank you, operator. Good morning, everyone, and thank you for joining us for our third quarter 2021 earnings call. On today's call, I'll discuss third quarter highlights and ongoing strategic objectives, before turning the call over to our CFO, Susan Cullen to provide greater detail on our financial performance. Following our prepared remarks, we will address your questions, along with our Chief Real Estate Lending Officer, Frank Korzekwinski. So the execution of our strategy resulted in record third quarter results. We had our second consecutive quarter of record core EPS and our sixth consecutive quarter of record net interest income and record loan pipeline. Our GAAP and core return on average assets, return on average equity, net interest margin, efficiency ratio, profitability metrics improved year-over-year, even without the benefit of reduced provisioning. We continue to focus on our strategic objectives and we're performing well against them. Our first objective was to ensure appropriately risk-adjusted returns, for loans while optimizing the cost of funds. Our GAAP NIM increased 20 basis points and core NIM rose 13 basis points during the quarter. Our cost of funds declined another 4 basis points, loan yields expanded 10 basis points quarter-over-quarter and 8 basis points year-over-year. And our non-interest bearing deposits improved to 15% of average deposits. The second objective is to maintain strong historical loan growth. Excluding PPP, loans were flat quarter-over-quarter due to normal summer delays but activity picked up significantly in September. Business activity for the quarter was strong however, as we had record loan pipeline to end the quarter. As a result, we're expecting positive loan growth excluding PPP in the fourth quarter and into 2022. Our third objective is to enhance core earnings power by improving scalability and inefficiency. In this regard, we've been realizing the benefits of the Empire…

Thank you, John. I'll begin on Slide 8. Average non-interest bearing and total deposits increased 58% and 28% respectively year-over-year. Average core deposits comprised 84% of average deposits, an improvement from 78% in the third quarter of 2020. We continue to focus on optimizing the deposit mix and look for ways to reduce this cost of funds. The cost of deposits decreased 5 basis points quarter-over-quarter and 28 basis points over the past 12 months. Branch business activity continues to normalize as third quarter checking account openings exceeded pre-pandemic levels in the third quarter of 2019. The Company closed the millennial branch and is due to open a new branch in the Elmhurst area. Slide 9 outlines the net interest income and margin trends. GAAP net interest margin was 3.34% and improved 20 basis points during the quarter. Net interest income was a record for the sixth consecutive quarter, despite the decline in average loans. Core net interest income which removes the impact of net gains from fair value adjustments and purchase accounting accretion was also a record with core net interest margin increasing 13 basis points to 3.27% in the third quarter. Excluding 19 basis point impact of net prepayment penalty, net gains from fair value adjustments and purchase accounting accretion in the third quarter, the net interest margin was 3.15% compared to 10 basis points of adjustments in the second quarter and a net interest margin of 3.04%. On this basis the net interest margin expanded 11 basis points primarily due to the decrease in the cost of deposits and a shift in the balance sheet funding. For modeling purposes, we encourage you to start with the base net interest margin of 3.15% which includes 2 basis points of positive PPP impact and then add in your own…

Thank you, Susan. Slide 14 shows our outlook. We expect to benefit from all of the merger activity in our market, over $60 billion of deposits on Long Island involve a merger participant. We've already gained staff and customers and are looking to add more in the future. Additionally, a major acquirer has already change its posture on holding CRE loans. We also expect positive loan growth excluding PPP in fourth quarter and into 2022. Our loan pipelines are at record levels and the local economy continues to normalize. Core net interest income growth is expected to be driven more by volume than rate. We expect positive loan growth into 2022. We continue to manage our funding costs and loan yields have been stable. We've reached the 8% tangible common equity target within one year of the Empire deal closing. We have the flexibility to return capital to shareholders, that our capital priorities have not changed. We'll first look to profitably grow the balance sheet, then return dividends to shareholders and then opportunistically repurchase shares. We look to maintain the TCE ratio above 8%. I remind everyone that we operate with a low risk business model with conservative average LTVs, low credit risk and our stock has an approximate 3.7% dividend yield. We've been exceeding our profitability targets, ROAA and ROAE have been above through the cycle targets both on a reported basis and without the benefit of credit losses. Operator, I'll turn it over to you to open up the lines for questions.

And our first question today comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.

First I wish I had, do you think that where the reserve releases are behind, given how strong your loan pipeline is today?

I think if the loan portfolio grows, the reserve releases rate may seize, because the reserve release will be predicated upon the loan mix current originations and the economic factor. So if we grow the portfolio my expectation would be that the reserve releases would stop.

Okay. And then Susan, I heard which you had mentioned about expenses, but are there any other major expense initiatives coming down the pipe whether technology or otherwise?

No, not at this time. But as a reminder, as everybody is doing their modeling, we do have the first quarter and I can't believe we're talking about first quarter 2022 already. But we do have the first quarter seasonal expenses that will come into play.

Okay, great. And then on the merger charges related to Empire, I think they were $2.1 million this quarter. Is there any more of those outstanding or are those all behind at this point?

I think the most they're behind us, this was primarily related to some fixed asset impairment charges and closing the branch.

Okay. And then, I guess, I was wondering of the $40 million of loans on deferral that are not making interest payments right now, would you expect a lot of those to migrate to non-accrual when the deferrals expire later this year?

No. I would expect them to migrate to performing loans, when they migrate at the end of this year.

Okay. And then one last one actually. Of the $531 million loan pipeline, I guess, I was curious roughly what would be your guess on how much is coming from other players that are in the midst of mergers?

I'll turn that over to Frank. Mark, let him answer that.

Hi, Mark. The volume has been fairly active, I can't say with any accuracy as to how much is coming from individual institutions, but I can say that we are growing new customers as well. Obviously, the deals that we're doing are in markets, so they would naturally come from replacing debt that's already existing. We continue to see an enhanced experience with our existing borrowers. Many of our relationships are growing and expanding. And I think that is likely result of other borrowers not being as comfortable going to an institution that maybe going through a merger scenario. Generally speaking, when two institutions come together, there is a delay in understanding how loans are originated, processes change, requirements change. So we are definitely picking up business in the market from borrowers and relationships that we have not seen in the past.

The next question comes from Chris O'Connell with KBW. Please go ahead.

I was hoping you guys just talked about the loan growth expectations, it seems like they're strong coming into the fourth quarter. Was there any - was there anything in the third quarter that just caused like some delayed in closings because the pipeline was pretty robust coming into this quarter, did things just get pushed out a bit come into the fourth quarter here?

So we've seen a few larger loans roll into this - into the third quarter. In addition, the delays that we were, that we have been having with respect to ancillary services being available continued into in through August and we did see a pickup in September.

And could you just talk a little bit about the mix of what you guys are - the pipeline mix currently and maybe what yields - each of those categories are coming on it?

So it looks like about half of it is coming out of our business banking - business banking operations, some of which as a subset is commercial properties because we get a lot of customers who are taking advantage of the rate environment and have been buying additions or renovations on their plans. And most of it is reflective of the current portfolio that we have. So I think not very, very much different in terms of the yield expectations, you'll notice that over the last four quarters or so despite a very, very low rate environment. We've been able to retain much of our yield and we expect that to continue with some minor adjustments going forward.

Thank you. And then, just following up on Mark's question on the provisioning in the reserve. Just with the Empire transaction having closed, where was the day one CECL, I guess all in, if you could run - remind us of that?

Was it a $1.8 million?

It's $1.8 million, I believe.

Sorry, on the - like the reserve to loans ratio?

I don't remember that off the top of my head, Chris. That was about 38 - 39 basis points somewhere like that at 12/31/2020.

Okay. Got it.

2019, excuse me, because we adopted in 2020, I get my years, I get my years, mess up.

No problem. Thank you. Okay, great. And then one minor one. It just looked like the cash yield on the interest earning deposits had been kind of holding pretty consistently?

Sure.

And just came up a bit this quarter, was there any strategies being like implemented or anything?

No, that is primarily Fed dependent on us as reserves are sitting in the Fed, so whatever the Fed is paying, is what we're seeing.

And then lastly, just on the overall margin, I know you guys don't give any specific guidance. But it seems like last quarter you're indicating more towards near term kind of margin pressures. And from what I'm seeing, I guess in the slide deck, it seems like the asset side is relatively holding and relatively stable and that there is a little bit more on the liability side to go in terms of downward movement. Is it kind of safe to say that it's more of an upward bias at this point?

I would still say it's a relatively flattish buyers at this point, Chris, as we do have just a little bit more. I think, we can squeeze out on the liability side of the balance sheet. We were able to hold our asset yields. And as John said, the pipeline is pretty consistent. But as we've talked about in the past, about 20% of our portfolio reprices in any given year. And although they have floors, there is some susceptibility to not continuing what those yields.

At this time there are no more questions in the queue, I'd like to turn the conference back over to John Buran for any closing remarks.

Yes, thank you very much. Well thank you all for your attention. And once again, we look forward to wrapping up a very, very strong year. This certainly has been a good one for us and we hope you all stay safe and sound over the next quarter or so, till we speak again. Bye now.

Thank you.

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