Flushing Financial Corp. (NASDAQ:FFIC) Q3 2018 Earnings Conference Call Transcript

Oct 24, 2018 • 09:30 am ET

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Flushing Financial Corp. (NASDAQ:FFIC) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good morning, and welcome to Flushing Financial Corporation's Third Quarter 2018 Earnings Conference Call. Hosting the call today are John Buran, President and CEO; and Susan Cullen, Senior EVP, Treasurer and CFO.

Today's call is being recorded and all participants are 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 website at flushingbank.com.

(Forward-Looking Cautionary Statements)

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 US GAAP. For 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 CEO, who will provide an overview of the strategy and results.

Executive
John Buran

Thank you. Good morning, everyone, and thank you for joining us for our third quarter 2018 earnings call. Today, we hope to provide additional insight into our business strategy, sustainable competitive advantages and consistent positive earnings power.

I'll begin by walking you through our third quarter highlights and then provide an overview of the strategies we are executing to create long-term shareholder value. Then our CFO, Susan Cullen, will review our financial performance in greater detail. After our prepared remarks, Susan and I will address your questions.

Beginning on slide three. Third quarter '18 GAAP diluted EPS was $0.61 and core diluted EPS was $0.54. Core earnings were positively impacted by the reversal of a previously recorded tax liability of approximately $2 million. The difference between GAAP and core earnings per share is attributable to approximately $2 million in gains from life insurance proceeds.

Net interest income of nearly $42 million was down modestly quarter-over-quarter and year-over-year, due to net interest margin pressure, driven by higher funding cost. The cost of funds increased 22 basis points quarter-over-quarter and 48 basis points year-over-year as the Federal Reserve has raised rates by 100 basis points since the third quarter of 2017.

The competition for deposits this quarter was especially strong in the municipal sector. Overall, we expect continued competition for deposits and additional compression on the net interest margin through 2019. We are pleased with our ability to generate strong earnings growth and return on average equity of nearly 13% and core return on average equity of over 11% despite continued margin pressure.

Our strategic focus of emphasizing rate over volume and reducing our liability-sensitive position has resulted in net loan growth of approximately 1% from the linked quarter. Similar to the prior quarter, we allowed $62 million of participations with another financial institution to prepay as the rates offered through the refinancing process did not meet our criteria. Year-to-date, we have allowed approximately $139 million of participations to repay rather than refinance at a rate below our criteria.

During the quarter,