NASDAQ:FFIC Flushing Financial Q4 2023 Earnings Report $12.25 -0.06 (-0.49%) Closing price 04/25/2025 04:00 PM EasternExtended Trading$12.24 -0.01 (-0.08%) As of 04/25/2025 04:51 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Flushing Financial EPS ResultsActual EPS$0.25Consensus EPS $0.23Beat/MissBeat by +$0.02One Year Ago EPSN/AFlushing Financial Revenue ResultsActual Revenue$53.49 millionExpected Revenue$48.84 millionBeat/MissBeat by +$4.65 millionYoY Revenue GrowthN/AFlushing Financial Announcement DetailsQuarterQ4 2023Date1/25/2024TimeN/AConference Call DateFriday, January 26, 2024Conference Call Time11:00AM ETUpcoming EarningsFlushing Financial's Q1 2025 earnings is scheduled for Tuesday, April 29, 2025, with a conference call scheduled on Wednesday, April 30, 2025 at 9:30 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Annual Report (10-K)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Flushing Financial Q4 2023 Earnings Call TranscriptProvided by QuartrJanuary 26, 2024 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Welcome to Flushing Financial Corporation's Full Year and 4th Quarter 2023 Earnings Conference Call. Hosting the call today are John Buran, President and Chief Executive Officer Tom Bonaiuto, Senior Executive Vice President, Chief of Staff and Deposit Channel Executive and Susan Cullen, Senior Executive Vice President, Chief Financial Officer and Treasurer. Today's call is being recorded. All participants will be in listen only mode. A copy of the earnings press release and slide presentation that the company will be referencing today are available on its Investor Relations website atflushingbank.com. Operator00:01:02Before 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. Operator00:01:29Securities 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 U. S. GAAP. Operator00:01:53For information about these non GAAP measures and for a reconciliation to GAAP, please refer to the earnings release and or to the presentation. I would now like to introduce John Buran, President and Chief Executive Officer, who will provide an overview of the strategy and results. Please go ahead. Speaker 100:02:12Thank you, operator. Good morning and thank you for joining us for our full year and Q4 2023 earnings call. Before reviewing the highlights of the quarter, I wanted to spend a minute discussing the restatement announced yesterday. As we previously disclosed, We have received approximately $7,000,000 or about $0.17 per share of employee retention tax credit payments in 2023. In keeping with our conservative risk profile, we fully reserve for this amount given The uncertainty in the government program, which arose late in 2023. Speaker 100:02:54This is despite our belief that more likely than not, we will recognize these payments. The 2023 quarters have been restated to account for this change and this reserve is included in both GAAP and core earnings. Now moving to the highlights of the quarter. The company reported 4th quarter 2023 GAAP EPS of $0.27 and core EPS of $0.25 For the year, GAAP EPS was 0.9 $6 and core EPS was 0 point Speaker 200:03:318 Speaker 100:03:35basis points respectively in the 4th quarter. Core loan yields increased 33 basis points. We run a conservative balance sheet and our office real estate exposure is low with minimal loans in Manhattan. Our liquidity profile has also improved with over $4,000,000,000 of undrawn lines and resources or 48% of total assets. Overall, the quarter showed progress on how we're managing this challenging environment. Speaker 100:04:12Turning to Slide 4, I wanted to provide additional detail on how the company has changed over the past year and how it's remained the same. Interest rate risk position has moved closer to neutral. This provided immediate income in 2023 when rates increased rapidly. The move to neutral positions the bank to manage future changes in rates, while reducing earnings volatility over different rate cycles. We have options to modify the rate position as appropriate, but do not expect to operate at the level of liability sensitivity as we did in the past. Speaker 100:04:58What has remained the same is our low level of risk in our loan portfolio. We're a conservative lender. Our percentage of office loans to total loans is at the low end of our peer group. About a third of these loans are medical offices and less than 1% of loans are secured by Manhattan Office Buildings. We're very happy with our low risk profile as it has served us well through many cycles. Speaker 100:05:30Slide 5 depicts how we have executed our action plan and how we will adjust our priorities in 2024. Our action plan is focused on moving towards interest rate neutral, which we largely completed using interest rate hedges and adding floating rate assets. These actions also had a significant positive impact on our net interest income as we will review in detail later in the presentation. Another one of our objectives was to increase focus on risk adjusted returns and improving lending spreads. While we achieve progress in this area with loan yields expanding, We recognize we have more work to do in 2024. Speaker 100:06:18We also had a goal of deepening customer relationships. Our growth in non interest bearing deposits in the second half of the year underscores our progress in this area, And we expect this momentum to continue into 2024. Given our significant progress to date, We're expanding our areas of focus to ensure our long term success. The first area of focus is on increasing the NIM and reducing volatility. While this is a multi year initiative, we achieved progress in the Q4 of 2023 As our NIM, excluding the episodic items mentioned on this slide expanded 5 basis points quarter over quarter. Speaker 100:07:08We also focused on maintaining our credit discipline. Our credit profile has always been conservative and our risk profile will not change as we advance our lending strategy. Building on this, we will preserve our strong liquidity and capital profile. We have a strong financial position today was over $4,000,000,000 of undrawn lines and resources. We will continue to build on this foundation in 2024. Speaker 100:07:39Lastly, in 2023, we tightened expenses significantly where we could and this will be an even greater focus in 2024. While 4th quarter expenses were higher than expected, they were driven by increasing DDA balances and strong loan production, the good type of expenses. We will continue to review our cost structure to look for opportunities to become more efficient as we move through the year. Overall, these expanded areas of focus will allow us to navigate the current environment while positioning in the company for long term profitability. Our loan portfolio is outlined on Slide 6. Speaker 100:08:26We're a low risk lender with 89% of the portfolio secured by real estate. Our high quality multifamily and investor commercial real estate loans comprise 67% of the total portfolio. As a reminder, these two portfolios have a weighted average debt service coverage ratio of 1.8 times and a weighted average loan to value of less than 50%. We have minimal exposure to Manhattan office buildings, which represent approximately 0.6 percent of net loans. In general, the real estate portfolio has strong sponsor support an excellent credit performance. Speaker 100:09:13We remain very comfortable with the quality of our loan portfolio and our stress tests have indicated that our borrowers are resilient. I want to provide context and how we approach our real estate portfolio and why we're so confident in its stability. Slide 7 shows 2 types of multifamily buildings, which as you can see are on opposite ends of the spectrum. The picture on the left is similar to the typical multifamily building in our portfolio. This is a building that has a mix of rent regulated departments and market rents. Speaker 100:09:50The average monthly rent in our portfolio is approximately $16.45 compared to over $3,000 for market rents. The total portfolio for these types of buildings is approximately 3,000,000,000 with an average loan size of just over $1,000,000 and a weighted average loan to value of 56%, implying a granular mix. Simply put, the type of building we have in our portfolio is stable, low risk and resilient to market volatility. Contrast this with the building on the right, which does not match our risk file. While this building might look flashy, it's also more up market and has greater swings in monthly rent rates. Speaker 100:10:43This type of multifamily building is more exposed to market cycles. We have a history of conservative underwriting on multifamily properties. When interest rates were low during the pandemic of 2020, We underwrote these loans with cap rates at 5% or higher, which provides a cushion in value when rates rise and cap rates increase. Also, we underwrite loans at origination to absorb higher interest rates and each loan is stress test. This is one of the reasons why our weighted average debt service coverage ratios are at 1.8 times for this portfolio. Speaker 100:11:30This high level of coverage reduces risk in this portfolio. As I just mentioned, many of our buildings have a mix of market and rent regulated apartments. Regulated apartment rents are subject to the Rent Guidelines Standards Board approved annual increases, which is why we prioritize having buildings with a mix of market and rent regulated units. Loans that include rent regulated apartments are about 65% of multifamily loans. We have not had annual net charge offs of more than 5 basis points since 2014 in this portfolio. Speaker 100:12:14Our conservative underwriting has and will continue to serve us well. Slide 8 shows the types of office properties we lend against and the types we do not. We lend against medical and healthcare offices and largely outer borough single and multi tenant properties. Again, these types of properties have much more stability through market We do not lend against high rise office buildings that have much more volatility as evidenced by recent market dynamics. The total office portfolio is approximately $257,000,000 with $118,000,000 of multi tenant, dollars 96,000,000 of healthcare medical and $43,000,000 of single tenant. Speaker 100:13:05Our average office loan is about $3,000,000 with a weighted average loan to value of 50% and a weighted average debt service coverage ratio of 1.8 times. We have 0 non accrual office loans. Slide 9 shows examples of the retail commercial real estate we lend to and the types of properties we do not. This portfolio is about 900,000,000 with a significant portion located in Queens, Brooklyn and the Bronx. These properties are typically strip malls rather than large shopping malls. Speaker 100:13:42The businesses are usually vital to the communities that they serve. The portfolio has a weighted average loan to value of 53% and that service coverage ratio of approximately 1.9 times. The average loan is about $2,000,000 Credit performance is solid and less than 20% of the loan portfolio as rate resets through the end of 2024. We believe this high quality portfolio plays a vital role in servicing the needs of local communities on a day to day basis. As you can see across our real estate portfolio, we prioritize the same key factors: limited risk exposure, resilience and strong and stable borrowers. Speaker 100:14:31Our disciplined risk management approach gives us confidence in the long term success of our real estate portfolio. Turning to slide 10, you can see the results of our underwriting over time. Our net charge off history is shown on the left. We have a strong history of achieving net charge off levels that are significantly better than the industry. The same can be said about our level of non current loans compared to the industry. Speaker 100:15:06We have been and continue to be a conservative underwriter of credit. In a stress scenario consisting of a 200 basis point increase in rates, A 10% increase in operating expenses, our loan portfolio has a 1.2x debt service coverage ratio. Given this, we continue to expect minimal loss content within the portfolio. Slide 11 shows our other credit metrics with year over year declines in non performing assets and an increase in the non performing loan coverage ratio. Criticized and classified loans were relatively flat during the quarter and we expect to criticize and classify loans to gross loans to remain below peer levels. Speaker 100:15:58Our allowance for credit losses is presented by loan segment in the bottom right chart. Overall, the allowance for credit losses to loans ratio was stable at 58 basis points during the quarter. We remain very comfortable with our credit risk profile. I'll now turn it over to Tom to provide more detail on our other financial metrics. Tom? Speaker 300:16:26Thank you, John. I will begin on Slide 12, which outlines the net interest income and margin trends. The GAAP net interest margin expanded 7 basis points to 2.29 percent during the 4th quarter, while the core net interest margin increased 18 basis points to 2.31%. Contributing to the GAAP and core NIM expansion were $3,000,000 of prepayment penalty income, net reversals and recovered interest from non accrual loans, purchase accounting accretion and customer swap termination fees in the 4th quarter compared to $2,600,000 in the 3rd quarter. Absent these items, the NIM expanded 5 basis points quarter over quarter, which is the first time the quarterly NIM expanded sequentially since the Q2 of 2022. Speaker 300:17:27There are 2 primary factors that should drive the NIM in the near term. First is the level of loan originations and repricing. 2nd is how well we retain and reprice maturing CDs. With the market expecting rate cuts this year, we estimate every 25 basis point reduction in rates would impact net interest income by approximately $1,400,000 on an annualized basis, assuming no deposit rate lag. For the 5th consecutive quarter, yields on loan closings exceeded yields on satisfactions and this spread increased in every quarter. Speaker 300:18:10Turning to slide 13. As John mentioned previously, we added interest rate hedges in 2023 to help neutralize the balance sheet to increases in interest rates. The overall interest rate hedge portfolio is approximately $2,000,000,000 and does not have any significant maturities in 2024. These interest rate hedges provided immediate income and help navigate the rapidly rising rate environment. In a falling rate environment, the income from the interest rate hedges will decline, but there are potential offsets in the balance sheet. Speaker 300:18:52Bottom line, the interest rate hedges helped mitigate NIM compression from rising rates and provided immediate income. Slide 14 provides more detail on our deposits. Average deposits increased 3% year over year and 1% quarter over quarter. The quarterly increase was partially attributable to seasonality and our focus on non interest bearing deposits. Average non interest bearing deposits increased $22,000,000 or 3% quarter over quarter and remains a top priority for the company. Speaker 300:19:34Average CDs increased to 2% quarter over quarter to $2,000,000,000 Checking account openings declined 7% in the quarter, but increased 6 in 2023. Overall, we are seeing strong account opening trends and are confident we will continue to build our customer base next year. Our loan to deposit ratio has improved to 101% from 100 and 7% a year ago. Slide 15 provides more detail on our CD portfolio. Total CDs are over $2,000,000,000 or 34 percent of total deposits at December 31, 2023. Speaker 300:20:19CDs help to lengthen the duration of our funding. Over $1,500,000,000 of retail CDs are expected to mature in 2024 at a rate of 4.1%. We expect to retain a high percentage of our CDs as we retained 78% of the retail CDs that matured in the 4th quarter. Current CD rates range from 5% to 5.45%. All else equal, CD repricing is one of the factors that could pressure our net interest margin. Speaker 300:20:57Slide 16 provides more detail on the contractual repricing of the loan portfolio. Approximately $1,300,000,000 or 18 percent of loans repriced with each Fed move. Our interest rate hedge position on these loans increases this percentage to 25%. For 2024, dollars 744,000,000 is due to reprice at 174 basis points higher than the current yield. In 20252026, a combined $1,500,000,000 of loans will reprice about 200 basis points higher. Speaker 300:21:40These rates are based on the underlying index value at December 31, 2023 and do not consider any future rate moves. This repricing should drive net interest margin expansion once funding costs stabilize. Our capital position is shown on Slide 17. Book value and tangible book value per share increased year over year and during the Q4. We repurchased approximately 39,000 shares at an average price of $15.08 which is a 33% discount to tangible book value. Speaker 300:22:20The tangible common equity ratio increased slightly to 7.64% quarter over quarter. Overall, we view our capital base as a source of strength and a vital component of our conservative balance sheet. Slide 18 provides detail on our Asian markets, which account for a third of our branches. We have over $1,300,000,000 of deposits and $759,000,000 of loans in these markets. These deposits are 19% of our total deposits and while we have only a 3% market share of this $41,000,000,000 market, There is substantial room for growth. Speaker 300:23:08Our approach to this market is supported by This market continues to be an important opportunity for us and one that we believe will drive our success moving forward. On Slide 19, you can see community involvement is a key part of our strategy beyond just our Asian franchise as outlined previously. During the Q4, we participated in numerous local events to strengthen our ties to our customer base. Some of our recent highlights include hosting a ribbon cutting ceremony at our Bensonhurst branch, which opened in late September and participating in the Trunk or Treat in Hauppauge and Toys for Tots in Chinatown. Participating in these types of initiatives has served as a great way to further integrate ourselves within our local communities while driving customer loyalty. Speaker 300:24:18Slide 20 outlines the growth of our digital banking platforms. We continue to see double digit growth rates in monthly mobile deposit users, users with active online banking status and digital banking enrollment. The Numerated platform, which digitally originates small dollar loans as quickly as 48 hours, continues to grow. We originated approximately $19,000,000 of commitments in 2023, and these loans have an average rate greater than the overall loan portfolio yield. Building off the success we had with Zelle, we continue to explore other FinTech product offerings and partnerships to further enhance our digital banking platform and customer experience. Speaker 300:25:08Slide 21 provides our outlook. While we do not provide guidance, we want to share our high level perspective on performance in the current environment. We continue to expect stable loan balances. As is typical, we expect certain deposits to experience normal seasonality in the winter months and decline in the summer. As discussed previously, the 2 biggest drivers of the net interest margin are first, the level of loan originations and repricing and second, the retention of CDs and at what rate. Speaker 300:25:46For modeling purposes, we suggest starting with the NIM in the 2.15 range as this excludes the outsized prepayment penalty and other episodic fees. We expect some pressure from this level of the net interest margin in the near term driven from CD repricing exceeding loan originations. Non interest income should benefit from the back to back swap loan closings. While non interest expenses were higher than expected in the Q4, we are bending the expense curve. In the Q1, we have an increase due to seasonal expenses, but these expenses are expected to be less than half of the $4,100,000 recorded in the Q1 of 2023. Speaker 300:26:36For the past 5 years, non interest expenses grew at a 5.6% compounded annual growth rate. In 2024, this growth rate is expected to be in the low to mid single digits from a base of approximately $151,000,000 We are controlling the expense as we can And disciplined expense management remains one of our top priorities in 2024 as we look to drive operating efficiencies. While tax rates can fluctuate, we expect the mid-20s effective tax rate for 2024. I will now turn it back over to John. Speaker 100:27:20Thank you, Tom. On Slide 22, I will wrap up with our key Takeaways. We established our action plan early 2023 and executed well against it to help create a stronger base to improve profitability over the longer term. Given our successful execution so far, we're shifting our areas of focus to increasing the NIM and reducing volatility, maintaining our credit discipline, preserving our strong liquidity and capital and bending the expense curve. In short, we're trying to improve near term performance for the areas that we control amid the persistent challenging environment. Speaker 100:28:04We believe these actions will allow us to navigate the current environment and improve overall performance in the long term. Operator, I'll turn it over to you to open up the line for questions. Operator00:28:16We will now begin the question and answer session. Our first question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead. Speaker 400:28:52Hey, guys. Good morning. Happy Friday. Speaker 100:28:55Good morning, Mark. Speaker 400:28:57First question is just some clarification on the comments you made around margin. Speaker 200:29:04So did you Speaker 400:29:04say that you we should start with a margin level of 2.15% in the Q1 and then assume there'll be compression from there. Speaker 500:29:15Is that correct? Speaker 100:29:16That's the yes, so that's the core margin that we have that we're at as of the Q4. So what's happening in the Q1 is The number of CDs that are re pricing will exceed the loans that are repricing. So we could see some small margin compression In the Q1 or so, by the middle of the year that should abate and start moving the other way as loans, The loan repricing exceeds the liability repricing. Speaker 400:29:55Okay. And then John, I think in your comments you suggested that you're continuing to reduce liability sensitivity. I guess I'm wondering if it looks like we're getting close to the Fed cutting rates And clearly, the balance sheet benefits, as you've described, dollars 1,400,000,000 for each 25 basis point cut. Why continue to reduce liability sensitivity now? Why not wait until rates come down and benefit, ride the wave, so to speak? Speaker 100:30:26I don't think we're looking to reduce it any further. We're comfortable being neutral at this point in time. And obviously, the market hasn't done such a great job of predicting the number of rate cuts or increases. So given the fact that historically our balance sheet had a heavy liability sensitivity and still does today at its core basis. So I think that we have options to increase the liability sensitivity in the balance sheet should we see some certainty with respect to the Fed moves and we're exploring those options. Speaker 100:31:11So we haven't made any decisions as to the timing and magnitude of rate cuts at this point in time and we're watching very carefully what's happening in the market. But we've been disappointed before in So we wanted to position ourselves to be successful in either environment. Speaker 400:31:36Okay. And then just to be clear, the restatement that you did this morning That sort of puts this issue completely behind. There's no residual expense impact or anything like that? Speaker 600:31:48That's correct, Mark, it puts the whole issue behind us and we move forward from here. Speaker 400:31:55Okay. And then just on credit, guys have done a nice job and certainly your balance sheet has held up well. I guess at a high level, I was curious of sort of 2 things. What do you guys worry about for the industry with respect to credit, not necessarily flushing, but just credit with respect to credit, not necessarily flushing, but just credit in general. And do you see commercial real estate borrowers out there that are really struggling to find a home For their loans are being pushed out by their existing banks? Speaker 100:32:24We're starting to See somewhat of that activity. Certainly, there's been a commentary in the press of various banks pulling back in the Commercial Real Estate areas, certainly the office market continues to be a soft market throughout the entire industry. So I think those two things are clearly occurring and we're watchful for opportunities to be a little bit more focused on The loan portfolio in the coming quarters. Obviously, we've been kind of flattish over 2023. Thank you. Speaker 600:33:08Thanks, Mark. Operator00:33:10The next question is from Steve Moss with Raymond James. Please go ahead. Speaker 600:33:15Good morning, Steve. Speaker 700:33:16Hey, everyone. Good morning, Steve. Hey, this is Thomas on for Steve, guys. Appreciate it. Speaker 500:33:20Okay. Speaker 700:33:23I appreciate all the color you guys provided on CDs, but I see money market deposit growth resumed after several quarters of decline. And the average yield on that looks like it ticked up about 25 bps to 3.88%, 3.88%, Which looks like to be on the higher end of from what I've seen in our coverage. All that said, is it fair to say, especially with rate cuts likely on the horizon here, that the money market deposit bucket is likely near peak in terms of yield? And I guess piggybacking off that thought, how much of your deposit base is indexed and would potentially immediately reprice downwards with a move in short term rates? Thank you. Speaker 100:34:08It's a relatively small portion that is indexed. We just started a program, I guess, in the last quarter or so and limited it to certain customer segments. So we're being very watchful of that. Obviously, given the fact that our the alternatives out there in the CD market or have a 5 handle, we're very, very happy to get a 3 handle in money markets and that's growing. Speaker 700:34:46Okay. Appreciate that. And just one more here, shifting on to fees. Just wondering What is the outlook here on the back to back loan swaps? I see that the pipeline looks like it was down with the recent move in rates. Speaker 700:35:02So Where could we see that line item normalized down to in 2024? Thanks. Speaker 500:35:09I think Speaker 100:35:11Customers in general are a little bit on the sidelines as their the uncertainties and possibly the expectation of rate decreases are still out there and swirling in the market. Depending upon how quickly the Fed starts to move, we may see the more near term jump in back to back swap activity. We're very, very successful in this area in 2023, but it clearly is an area that is driven by expectation of rate movements at any given point in time. So we have the product, we can turn it on very, very quickly in the event that rates are in a favorable position, but given expectations that rates may be coming down, Some borrowers are just kind of holding tight at this point in time. Speaker 700:36:17Okay. I appreciate all that color. That covers it for me. I'll Back in the queue. Thanks everyone. Speaker 100:36:23Thank you. Thank you. Operator00:36:25The next question is from Chris O'Connell with KBW. Please go ahead. Speaker 500:36:31Hey, good morning. Hi, Chris. Just wanted to Follow-up on one of the comments in the prepared remarks. I think it was for each 25 basis point reduction in rates is impact of $1,400,000 on the annual NII, that's a positive impact, correct? Speaker 600:36:53Correct. And that's assuming there's no lag or 100% beta in the deposit repricing. Speaker 500:37:00Got it. But it is considering the Impact of the swaps, right? Speaker 200:37:06Yes. Great. Speaker 500:37:11And then if you guys have like are getting into 2025, I know there's not a ton maturing in 2024, but can you remind us of just the maturity schedule of the funding side swaps? Speaker 600:37:31The funding in 2025, About $400,000,000 I think, matures in 2025. Speaker 500:37:44Got it. So I guess what I'm getting at. Speaker 100:37:47Well, clearly, I think the general comment and we may be a little off on the number, but the general We're going to have a bigger opportunity in 2025 to manage asset versus liability sensitivity because we do have a fair number of swaps coming off. Speaker 500:38:08Yes, I guess that's what I was getting at is like that's probably one of the arrows in your guys' quiver that you have over time Maybe increased liability sensitivity, if it becomes certain that the Fed is going to be consistently cutting? Speaker 600:38:26Correct. That's a good statement, Chris. Speaker 500:38:32Great. And then I know you guys gave a lot of good color on the expenses and the relative change from in the past. For the overall just cadence, Is there still going to be a fairly sizable drop down in the Q1 to Q2 rate and then usually it's fairly flattish after that? Speaker 600:39:05So we expect the seasonal expenses in the Q1, Chris, to be about $2,000,000 versus a little over $4,000,000 in the Q1 of 2023. But yes, that $2,000,000 will then start to will fall off in the subsequent quarters of 'twenty four. Speaker 500:39:25Great. And that's all I have for now. Thank you. Operator00:39:34The next question is from Manuel Navez with D. A. Davidson. Speaker 200:39:42Prepayment penalties were a little bit elevated in the 4th quarter. Any Speaker 600:39:47color there? And do Speaker 200:39:48you have any early indications of where they could land in the next couple of quarters, do you have any sight line to that? Speaker 600:39:56They were elevated in the quarter. We had a couple of large loans that had swaps associated with them pay off. We're seeing prepayments about $500,000 to $750,000 would be a normalized rate running forward. Speaker 200:40:16Okay. And then the color on the CD repricing, You had current CD rates around 5 to 5.45, that's your CD rates. What is kind of the high in the area? Speaker 600:40:29550 ish. Speaker 200:40:31Okay. So that's why it's so easy. You generally can keep them because you're right Where the market is? Right in Speaker 600:40:39the ballpark. Speaker 100:40:41We'll give you an update on the swap maturities. There are about $325,000,000 of swap maturities taking place in 2025. Speaker 200:40:52Okay. I know your guidance kind of encompasses the swaps. But is there if you're just looking at the swaps and you have some rate cuts, Where does the net benefit move to? Like right now, the net benefit is like, you said 2.56%. If there's a 25 basis point cut, where does it move to? Speaker 100:41:14We had the $1,400,000 on a 25 basis point cut. Assuming 100% beta. Speaker 200:41:22Okay. So you just keep it on the overall guidance. All right. And then Any shift in the buyback appetite? Speaker 600:41:36No, not really. We Continue with our capital plans, we've always had it that first we want to invest profitably into the company, second return through dividends and third, through the buybacks. Speaker 200:41:49Okay. I appreciate the comments. Thank you. Speaker 600:41:53Thank you. Speaker 100:41:53Thank you. Operator00:41:55This concludes our question and answer session. I would like to turn the conference back over to John Buran for any closing remarks. Speaker 100:42:03Thank you, operator, and thank you all for attending the conference today. We look forward to Presenting to you at the end of the second quarter. And as always, if analysts have any Additional questions, we'll be make ourselves available. Thank you very much. Thank you. Operator00:42:26The conference has now concluded.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallFlushing Financial Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Annual report(10-K) Flushing Financial Earnings HeadlinesFlushing Financial Corporation: Flushing Bank to Open New Branch Location in Jackson HeightsApril 24 at 3:41 PM | finanznachrichten.deFlushing Bank to Open New Branch Location in Jackson HeightsApril 24 at 3:41 PM | finance.yahoo.comFrom Social Security to Social Prosperity?In less than a decade, Social Security could be out of money. But a surprising plan from Trump’s inner circle may not just save the system — it could unlock a major opportunity for savvy investors. 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Email Address About Flushing FinancialFlushing Financial (NASDAQ:FFIC) operates as the bank holding company for Flushing Bank that provides banking products and services primarily to consumers, businesses, and governmental units. It offers various deposit products, including checking and savings accounts, money market accounts, non-interest bearing demand accounts, NOW accounts, and certificates of deposit. The company also provides mortgage loans secured by multi-family residential, commercial real estate, one-to-four family mixed-use property, one-to-four family residential property, and commercial business loans; construction loans; small business administration loans and other small business loans; mortgage loan surrogates, such as mortgage-backed securities; and consumer loans, including overdraft lines of credit, as well as the United States government securities, corporate fixed-income securities, and other marketable securities. It operates full-service banking offices in Queens, Nassau, Suffolk, Kings, and New York counties, New York; and an internet branch under the iGObanking and BankPurely brands. Flushing Financial Corporation was founded in 1929 and is based in Uniondale, New York.View Flushing Financial ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Markets Think Robinhood Earnings Could Send the Stock UpIs the Floor in for Lam Research After Bullish Earnings?Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Starbucks (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 8 speakers on the call. Operator00:00:00Welcome to Flushing Financial Corporation's Full Year and 4th Quarter 2023 Earnings Conference Call. Hosting the call today are John Buran, President and Chief Executive Officer Tom Bonaiuto, Senior Executive Vice President, Chief of Staff and Deposit Channel Executive and Susan Cullen, Senior Executive Vice President, Chief Financial Officer and Treasurer. Today's call is being recorded. All participants will be in listen only mode. A copy of the earnings press release and slide presentation that the company will be referencing today are available on its Investor Relations website atflushingbank.com. Operator00:01:02Before 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. Operator00:01:29Securities 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 U. S. GAAP. Operator00:01:53For information about these non GAAP measures and for a reconciliation to GAAP, please refer to the earnings release and or to the presentation. I would now like to introduce John Buran, President and Chief Executive Officer, who will provide an overview of the strategy and results. Please go ahead. Speaker 100:02:12Thank you, operator. Good morning and thank you for joining us for our full year and Q4 2023 earnings call. Before reviewing the highlights of the quarter, I wanted to spend a minute discussing the restatement announced yesterday. As we previously disclosed, We have received approximately $7,000,000 or about $0.17 per share of employee retention tax credit payments in 2023. In keeping with our conservative risk profile, we fully reserve for this amount given The uncertainty in the government program, which arose late in 2023. Speaker 100:02:54This is despite our belief that more likely than not, we will recognize these payments. The 2023 quarters have been restated to account for this change and this reserve is included in both GAAP and core earnings. Now moving to the highlights of the quarter. The company reported 4th quarter 2023 GAAP EPS of $0.27 and core EPS of $0.25 For the year, GAAP EPS was 0.9 $6 and core EPS was 0 point Speaker 200:03:318 Speaker 100:03:35basis points respectively in the 4th quarter. Core loan yields increased 33 basis points. We run a conservative balance sheet and our office real estate exposure is low with minimal loans in Manhattan. Our liquidity profile has also improved with over $4,000,000,000 of undrawn lines and resources or 48% of total assets. Overall, the quarter showed progress on how we're managing this challenging environment. Speaker 100:04:12Turning to Slide 4, I wanted to provide additional detail on how the company has changed over the past year and how it's remained the same. Interest rate risk position has moved closer to neutral. This provided immediate income in 2023 when rates increased rapidly. The move to neutral positions the bank to manage future changes in rates, while reducing earnings volatility over different rate cycles. We have options to modify the rate position as appropriate, but do not expect to operate at the level of liability sensitivity as we did in the past. Speaker 100:04:58What has remained the same is our low level of risk in our loan portfolio. We're a conservative lender. Our percentage of office loans to total loans is at the low end of our peer group. About a third of these loans are medical offices and less than 1% of loans are secured by Manhattan Office Buildings. We're very happy with our low risk profile as it has served us well through many cycles. Speaker 100:05:30Slide 5 depicts how we have executed our action plan and how we will adjust our priorities in 2024. Our action plan is focused on moving towards interest rate neutral, which we largely completed using interest rate hedges and adding floating rate assets. These actions also had a significant positive impact on our net interest income as we will review in detail later in the presentation. Another one of our objectives was to increase focus on risk adjusted returns and improving lending spreads. While we achieve progress in this area with loan yields expanding, We recognize we have more work to do in 2024. Speaker 100:06:18We also had a goal of deepening customer relationships. Our growth in non interest bearing deposits in the second half of the year underscores our progress in this area, And we expect this momentum to continue into 2024. Given our significant progress to date, We're expanding our areas of focus to ensure our long term success. The first area of focus is on increasing the NIM and reducing volatility. While this is a multi year initiative, we achieved progress in the Q4 of 2023 As our NIM, excluding the episodic items mentioned on this slide expanded 5 basis points quarter over quarter. Speaker 100:07:08We also focused on maintaining our credit discipline. Our credit profile has always been conservative and our risk profile will not change as we advance our lending strategy. Building on this, we will preserve our strong liquidity and capital profile. We have a strong financial position today was over $4,000,000,000 of undrawn lines and resources. We will continue to build on this foundation in 2024. Speaker 100:07:39Lastly, in 2023, we tightened expenses significantly where we could and this will be an even greater focus in 2024. While 4th quarter expenses were higher than expected, they were driven by increasing DDA balances and strong loan production, the good type of expenses. We will continue to review our cost structure to look for opportunities to become more efficient as we move through the year. Overall, these expanded areas of focus will allow us to navigate the current environment while positioning in the company for long term profitability. Our loan portfolio is outlined on Slide 6. Speaker 100:08:26We're a low risk lender with 89% of the portfolio secured by real estate. Our high quality multifamily and investor commercial real estate loans comprise 67% of the total portfolio. As a reminder, these two portfolios have a weighted average debt service coverage ratio of 1.8 times and a weighted average loan to value of less than 50%. We have minimal exposure to Manhattan office buildings, which represent approximately 0.6 percent of net loans. In general, the real estate portfolio has strong sponsor support an excellent credit performance. Speaker 100:09:13We remain very comfortable with the quality of our loan portfolio and our stress tests have indicated that our borrowers are resilient. I want to provide context and how we approach our real estate portfolio and why we're so confident in its stability. Slide 7 shows 2 types of multifamily buildings, which as you can see are on opposite ends of the spectrum. The picture on the left is similar to the typical multifamily building in our portfolio. This is a building that has a mix of rent regulated departments and market rents. Speaker 100:09:50The average monthly rent in our portfolio is approximately $16.45 compared to over $3,000 for market rents. The total portfolio for these types of buildings is approximately 3,000,000,000 with an average loan size of just over $1,000,000 and a weighted average loan to value of 56%, implying a granular mix. Simply put, the type of building we have in our portfolio is stable, low risk and resilient to market volatility. Contrast this with the building on the right, which does not match our risk file. While this building might look flashy, it's also more up market and has greater swings in monthly rent rates. Speaker 100:10:43This type of multifamily building is more exposed to market cycles. We have a history of conservative underwriting on multifamily properties. When interest rates were low during the pandemic of 2020, We underwrote these loans with cap rates at 5% or higher, which provides a cushion in value when rates rise and cap rates increase. Also, we underwrite loans at origination to absorb higher interest rates and each loan is stress test. This is one of the reasons why our weighted average debt service coverage ratios are at 1.8 times for this portfolio. Speaker 100:11:30This high level of coverage reduces risk in this portfolio. As I just mentioned, many of our buildings have a mix of market and rent regulated apartments. Regulated apartment rents are subject to the Rent Guidelines Standards Board approved annual increases, which is why we prioritize having buildings with a mix of market and rent regulated units. Loans that include rent regulated apartments are about 65% of multifamily loans. We have not had annual net charge offs of more than 5 basis points since 2014 in this portfolio. Speaker 100:12:14Our conservative underwriting has and will continue to serve us well. Slide 8 shows the types of office properties we lend against and the types we do not. We lend against medical and healthcare offices and largely outer borough single and multi tenant properties. Again, these types of properties have much more stability through market We do not lend against high rise office buildings that have much more volatility as evidenced by recent market dynamics. The total office portfolio is approximately $257,000,000 with $118,000,000 of multi tenant, dollars 96,000,000 of healthcare medical and $43,000,000 of single tenant. Speaker 100:13:05Our average office loan is about $3,000,000 with a weighted average loan to value of 50% and a weighted average debt service coverage ratio of 1.8 times. We have 0 non accrual office loans. Slide 9 shows examples of the retail commercial real estate we lend to and the types of properties we do not. This portfolio is about 900,000,000 with a significant portion located in Queens, Brooklyn and the Bronx. These properties are typically strip malls rather than large shopping malls. Speaker 100:13:42The businesses are usually vital to the communities that they serve. The portfolio has a weighted average loan to value of 53% and that service coverage ratio of approximately 1.9 times. The average loan is about $2,000,000 Credit performance is solid and less than 20% of the loan portfolio as rate resets through the end of 2024. We believe this high quality portfolio plays a vital role in servicing the needs of local communities on a day to day basis. As you can see across our real estate portfolio, we prioritize the same key factors: limited risk exposure, resilience and strong and stable borrowers. Speaker 100:14:31Our disciplined risk management approach gives us confidence in the long term success of our real estate portfolio. Turning to slide 10, you can see the results of our underwriting over time. Our net charge off history is shown on the left. We have a strong history of achieving net charge off levels that are significantly better than the industry. The same can be said about our level of non current loans compared to the industry. Speaker 100:15:06We have been and continue to be a conservative underwriter of credit. In a stress scenario consisting of a 200 basis point increase in rates, A 10% increase in operating expenses, our loan portfolio has a 1.2x debt service coverage ratio. Given this, we continue to expect minimal loss content within the portfolio. Slide 11 shows our other credit metrics with year over year declines in non performing assets and an increase in the non performing loan coverage ratio. Criticized and classified loans were relatively flat during the quarter and we expect to criticize and classify loans to gross loans to remain below peer levels. Speaker 100:15:58Our allowance for credit losses is presented by loan segment in the bottom right chart. Overall, the allowance for credit losses to loans ratio was stable at 58 basis points during the quarter. We remain very comfortable with our credit risk profile. I'll now turn it over to Tom to provide more detail on our other financial metrics. Tom? Speaker 300:16:26Thank you, John. I will begin on Slide 12, which outlines the net interest income and margin trends. The GAAP net interest margin expanded 7 basis points to 2.29 percent during the 4th quarter, while the core net interest margin increased 18 basis points to 2.31%. Contributing to the GAAP and core NIM expansion were $3,000,000 of prepayment penalty income, net reversals and recovered interest from non accrual loans, purchase accounting accretion and customer swap termination fees in the 4th quarter compared to $2,600,000 in the 3rd quarter. Absent these items, the NIM expanded 5 basis points quarter over quarter, which is the first time the quarterly NIM expanded sequentially since the Q2 of 2022. Speaker 300:17:27There are 2 primary factors that should drive the NIM in the near term. First is the level of loan originations and repricing. 2nd is how well we retain and reprice maturing CDs. With the market expecting rate cuts this year, we estimate every 25 basis point reduction in rates would impact net interest income by approximately $1,400,000 on an annualized basis, assuming no deposit rate lag. For the 5th consecutive quarter, yields on loan closings exceeded yields on satisfactions and this spread increased in every quarter. Speaker 300:18:10Turning to slide 13. As John mentioned previously, we added interest rate hedges in 2023 to help neutralize the balance sheet to increases in interest rates. The overall interest rate hedge portfolio is approximately $2,000,000,000 and does not have any significant maturities in 2024. These interest rate hedges provided immediate income and help navigate the rapidly rising rate environment. In a falling rate environment, the income from the interest rate hedges will decline, but there are potential offsets in the balance sheet. Speaker 300:18:52Bottom line, the interest rate hedges helped mitigate NIM compression from rising rates and provided immediate income. Slide 14 provides more detail on our deposits. Average deposits increased 3% year over year and 1% quarter over quarter. The quarterly increase was partially attributable to seasonality and our focus on non interest bearing deposits. Average non interest bearing deposits increased $22,000,000 or 3% quarter over quarter and remains a top priority for the company. Speaker 300:19:34Average CDs increased to 2% quarter over quarter to $2,000,000,000 Checking account openings declined 7% in the quarter, but increased 6 in 2023. Overall, we are seeing strong account opening trends and are confident we will continue to build our customer base next year. Our loan to deposit ratio has improved to 101% from 100 and 7% a year ago. Slide 15 provides more detail on our CD portfolio. Total CDs are over $2,000,000,000 or 34 percent of total deposits at December 31, 2023. Speaker 300:20:19CDs help to lengthen the duration of our funding. Over $1,500,000,000 of retail CDs are expected to mature in 2024 at a rate of 4.1%. We expect to retain a high percentage of our CDs as we retained 78% of the retail CDs that matured in the 4th quarter. Current CD rates range from 5% to 5.45%. All else equal, CD repricing is one of the factors that could pressure our net interest margin. Speaker 300:20:57Slide 16 provides more detail on the contractual repricing of the loan portfolio. Approximately $1,300,000,000 or 18 percent of loans repriced with each Fed move. Our interest rate hedge position on these loans increases this percentage to 25%. For 2024, dollars 744,000,000 is due to reprice at 174 basis points higher than the current yield. In 20252026, a combined $1,500,000,000 of loans will reprice about 200 basis points higher. Speaker 300:21:40These rates are based on the underlying index value at December 31, 2023 and do not consider any future rate moves. This repricing should drive net interest margin expansion once funding costs stabilize. Our capital position is shown on Slide 17. Book value and tangible book value per share increased year over year and during the Q4. We repurchased approximately 39,000 shares at an average price of $15.08 which is a 33% discount to tangible book value. Speaker 300:22:20The tangible common equity ratio increased slightly to 7.64% quarter over quarter. Overall, we view our capital base as a source of strength and a vital component of our conservative balance sheet. Slide 18 provides detail on our Asian markets, which account for a third of our branches. We have over $1,300,000,000 of deposits and $759,000,000 of loans in these markets. These deposits are 19% of our total deposits and while we have only a 3% market share of this $41,000,000,000 market, There is substantial room for growth. Speaker 300:23:08Our approach to this market is supported by This market continues to be an important opportunity for us and one that we believe will drive our success moving forward. On Slide 19, you can see community involvement is a key part of our strategy beyond just our Asian franchise as outlined previously. During the Q4, we participated in numerous local events to strengthen our ties to our customer base. Some of our recent highlights include hosting a ribbon cutting ceremony at our Bensonhurst branch, which opened in late September and participating in the Trunk or Treat in Hauppauge and Toys for Tots in Chinatown. Participating in these types of initiatives has served as a great way to further integrate ourselves within our local communities while driving customer loyalty. Speaker 300:24:18Slide 20 outlines the growth of our digital banking platforms. We continue to see double digit growth rates in monthly mobile deposit users, users with active online banking status and digital banking enrollment. The Numerated platform, which digitally originates small dollar loans as quickly as 48 hours, continues to grow. We originated approximately $19,000,000 of commitments in 2023, and these loans have an average rate greater than the overall loan portfolio yield. Building off the success we had with Zelle, we continue to explore other FinTech product offerings and partnerships to further enhance our digital banking platform and customer experience. Speaker 300:25:08Slide 21 provides our outlook. While we do not provide guidance, we want to share our high level perspective on performance in the current environment. We continue to expect stable loan balances. As is typical, we expect certain deposits to experience normal seasonality in the winter months and decline in the summer. As discussed previously, the 2 biggest drivers of the net interest margin are first, the level of loan originations and repricing and second, the retention of CDs and at what rate. Speaker 300:25:46For modeling purposes, we suggest starting with the NIM in the 2.15 range as this excludes the outsized prepayment penalty and other episodic fees. We expect some pressure from this level of the net interest margin in the near term driven from CD repricing exceeding loan originations. Non interest income should benefit from the back to back swap loan closings. While non interest expenses were higher than expected in the Q4, we are bending the expense curve. In the Q1, we have an increase due to seasonal expenses, but these expenses are expected to be less than half of the $4,100,000 recorded in the Q1 of 2023. Speaker 300:26:36For the past 5 years, non interest expenses grew at a 5.6% compounded annual growth rate. In 2024, this growth rate is expected to be in the low to mid single digits from a base of approximately $151,000,000 We are controlling the expense as we can And disciplined expense management remains one of our top priorities in 2024 as we look to drive operating efficiencies. While tax rates can fluctuate, we expect the mid-20s effective tax rate for 2024. I will now turn it back over to John. Speaker 100:27:20Thank you, Tom. On Slide 22, I will wrap up with our key Takeaways. We established our action plan early 2023 and executed well against it to help create a stronger base to improve profitability over the longer term. Given our successful execution so far, we're shifting our areas of focus to increasing the NIM and reducing volatility, maintaining our credit discipline, preserving our strong liquidity and capital and bending the expense curve. In short, we're trying to improve near term performance for the areas that we control amid the persistent challenging environment. Speaker 100:28:04We believe these actions will allow us to navigate the current environment and improve overall performance in the long term. Operator, I'll turn it over to you to open up the line for questions. Operator00:28:16We will now begin the question and answer session. Our first question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead. Speaker 400:28:52Hey, guys. Good morning. Happy Friday. Speaker 100:28:55Good morning, Mark. Speaker 400:28:57First question is just some clarification on the comments you made around margin. Speaker 200:29:04So did you Speaker 400:29:04say that you we should start with a margin level of 2.15% in the Q1 and then assume there'll be compression from there. Speaker 500:29:15Is that correct? Speaker 100:29:16That's the yes, so that's the core margin that we have that we're at as of the Q4. So what's happening in the Q1 is The number of CDs that are re pricing will exceed the loans that are repricing. So we could see some small margin compression In the Q1 or so, by the middle of the year that should abate and start moving the other way as loans, The loan repricing exceeds the liability repricing. Speaker 400:29:55Okay. And then John, I think in your comments you suggested that you're continuing to reduce liability sensitivity. I guess I'm wondering if it looks like we're getting close to the Fed cutting rates And clearly, the balance sheet benefits, as you've described, dollars 1,400,000,000 for each 25 basis point cut. Why continue to reduce liability sensitivity now? Why not wait until rates come down and benefit, ride the wave, so to speak? Speaker 100:30:26I don't think we're looking to reduce it any further. We're comfortable being neutral at this point in time. And obviously, the market hasn't done such a great job of predicting the number of rate cuts or increases. So given the fact that historically our balance sheet had a heavy liability sensitivity and still does today at its core basis. So I think that we have options to increase the liability sensitivity in the balance sheet should we see some certainty with respect to the Fed moves and we're exploring those options. Speaker 100:31:11So we haven't made any decisions as to the timing and magnitude of rate cuts at this point in time and we're watching very carefully what's happening in the market. But we've been disappointed before in So we wanted to position ourselves to be successful in either environment. Speaker 400:31:36Okay. And then just to be clear, the restatement that you did this morning That sort of puts this issue completely behind. There's no residual expense impact or anything like that? Speaker 600:31:48That's correct, Mark, it puts the whole issue behind us and we move forward from here. Speaker 400:31:55Okay. And then just on credit, guys have done a nice job and certainly your balance sheet has held up well. I guess at a high level, I was curious of sort of 2 things. What do you guys worry about for the industry with respect to credit, not necessarily flushing, but just credit with respect to credit, not necessarily flushing, but just credit in general. And do you see commercial real estate borrowers out there that are really struggling to find a home For their loans are being pushed out by their existing banks? Speaker 100:32:24We're starting to See somewhat of that activity. Certainly, there's been a commentary in the press of various banks pulling back in the Commercial Real Estate areas, certainly the office market continues to be a soft market throughout the entire industry. So I think those two things are clearly occurring and we're watchful for opportunities to be a little bit more focused on The loan portfolio in the coming quarters. Obviously, we've been kind of flattish over 2023. Thank you. Speaker 600:33:08Thanks, Mark. Operator00:33:10The next question is from Steve Moss with Raymond James. Please go ahead. Speaker 600:33:15Good morning, Steve. Speaker 700:33:16Hey, everyone. Good morning, Steve. Hey, this is Thomas on for Steve, guys. Appreciate it. Speaker 500:33:20Okay. Speaker 700:33:23I appreciate all the color you guys provided on CDs, but I see money market deposit growth resumed after several quarters of decline. And the average yield on that looks like it ticked up about 25 bps to 3.88%, 3.88%, Which looks like to be on the higher end of from what I've seen in our coverage. All that said, is it fair to say, especially with rate cuts likely on the horizon here, that the money market deposit bucket is likely near peak in terms of yield? And I guess piggybacking off that thought, how much of your deposit base is indexed and would potentially immediately reprice downwards with a move in short term rates? Thank you. Speaker 100:34:08It's a relatively small portion that is indexed. We just started a program, I guess, in the last quarter or so and limited it to certain customer segments. So we're being very watchful of that. Obviously, given the fact that our the alternatives out there in the CD market or have a 5 handle, we're very, very happy to get a 3 handle in money markets and that's growing. Speaker 700:34:46Okay. Appreciate that. And just one more here, shifting on to fees. Just wondering What is the outlook here on the back to back loan swaps? I see that the pipeline looks like it was down with the recent move in rates. Speaker 700:35:02So Where could we see that line item normalized down to in 2024? Thanks. Speaker 500:35:09I think Speaker 100:35:11Customers in general are a little bit on the sidelines as their the uncertainties and possibly the expectation of rate decreases are still out there and swirling in the market. Depending upon how quickly the Fed starts to move, we may see the more near term jump in back to back swap activity. We're very, very successful in this area in 2023, but it clearly is an area that is driven by expectation of rate movements at any given point in time. So we have the product, we can turn it on very, very quickly in the event that rates are in a favorable position, but given expectations that rates may be coming down, Some borrowers are just kind of holding tight at this point in time. Speaker 700:36:17Okay. I appreciate all that color. That covers it for me. I'll Back in the queue. Thanks everyone. Speaker 100:36:23Thank you. Thank you. Operator00:36:25The next question is from Chris O'Connell with KBW. Please go ahead. Speaker 500:36:31Hey, good morning. Hi, Chris. Just wanted to Follow-up on one of the comments in the prepared remarks. I think it was for each 25 basis point reduction in rates is impact of $1,400,000 on the annual NII, that's a positive impact, correct? Speaker 600:36:53Correct. And that's assuming there's no lag or 100% beta in the deposit repricing. Speaker 500:37:00Got it. But it is considering the Impact of the swaps, right? Speaker 200:37:06Yes. Great. Speaker 500:37:11And then if you guys have like are getting into 2025, I know there's not a ton maturing in 2024, but can you remind us of just the maturity schedule of the funding side swaps? Speaker 600:37:31The funding in 2025, About $400,000,000 I think, matures in 2025. Speaker 500:37:44Got it. So I guess what I'm getting at. Speaker 100:37:47Well, clearly, I think the general comment and we may be a little off on the number, but the general We're going to have a bigger opportunity in 2025 to manage asset versus liability sensitivity because we do have a fair number of swaps coming off. Speaker 500:38:08Yes, I guess that's what I was getting at is like that's probably one of the arrows in your guys' quiver that you have over time Maybe increased liability sensitivity, if it becomes certain that the Fed is going to be consistently cutting? Speaker 600:38:26Correct. That's a good statement, Chris. Speaker 500:38:32Great. And then I know you guys gave a lot of good color on the expenses and the relative change from in the past. For the overall just cadence, Is there still going to be a fairly sizable drop down in the Q1 to Q2 rate and then usually it's fairly flattish after that? Speaker 600:39:05So we expect the seasonal expenses in the Q1, Chris, to be about $2,000,000 versus a little over $4,000,000 in the Q1 of 2023. But yes, that $2,000,000 will then start to will fall off in the subsequent quarters of 'twenty four. Speaker 500:39:25Great. And that's all I have for now. Thank you. Operator00:39:34The next question is from Manuel Navez with D. A. Davidson. Speaker 200:39:42Prepayment penalties were a little bit elevated in the 4th quarter. Any Speaker 600:39:47color there? And do Speaker 200:39:48you have any early indications of where they could land in the next couple of quarters, do you have any sight line to that? Speaker 600:39:56They were elevated in the quarter. We had a couple of large loans that had swaps associated with them pay off. We're seeing prepayments about $500,000 to $750,000 would be a normalized rate running forward. Speaker 200:40:16Okay. And then the color on the CD repricing, You had current CD rates around 5 to 5.45, that's your CD rates. What is kind of the high in the area? Speaker 600:40:29550 ish. Speaker 200:40:31Okay. So that's why it's so easy. You generally can keep them because you're right Where the market is? Right in Speaker 600:40:39the ballpark. Speaker 100:40:41We'll give you an update on the swap maturities. There are about $325,000,000 of swap maturities taking place in 2025. Speaker 200:40:52Okay. I know your guidance kind of encompasses the swaps. But is there if you're just looking at the swaps and you have some rate cuts, Where does the net benefit move to? Like right now, the net benefit is like, you said 2.56%. If there's a 25 basis point cut, where does it move to? Speaker 100:41:14We had the $1,400,000 on a 25 basis point cut. Assuming 100% beta. Speaker 200:41:22Okay. So you just keep it on the overall guidance. All right. And then Any shift in the buyback appetite? Speaker 600:41:36No, not really. We Continue with our capital plans, we've always had it that first we want to invest profitably into the company, second return through dividends and third, through the buybacks. Speaker 200:41:49Okay. I appreciate the comments. Thank you. Speaker 600:41:53Thank you. Speaker 100:41:53Thank you. Operator00:41:55This concludes our question and answer session. I would like to turn the conference back over to John Buran for any closing remarks. Speaker 100:42:03Thank you, operator, and thank you all for attending the conference today. We look forward to Presenting to you at the end of the second quarter. And as always, if analysts have any Additional questions, we'll be make ourselves available. Thank you very much. Thank you. Operator00:42:26The conference has now concluded.Read morePowered by