Q1 2025 Flushing Financial Corp Earnings Call

[music].

Operator: Welcome to Flushing Financial Corporation's first quarter 2025 operating results conference call.

Welcome to Flushing financial Corporation's first quarter, what do you what's your five.

John Buran: Operating results conference call hosting the call today are John Buran.

Operator: Hosting the call today are John Buran, President and Chief Executive Officer, 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. Should you need assistance, please signal a conference specialist by pressing star, then zero, on your telephone keypad.

Susan Cullen: President and Chief Executive Officer, 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.

Susan Cullen: Should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on your telephone keypad. To withdraw your question, please press star, then two.

Operator: 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.

Speaker Change: <unk> of the earnings press release, and slide presentation that the company will be referencing today are available on its investor Relations website at Flushing Bank Dot com.

Operator: 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 could 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.

Speaker Change: 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 cause could cause actual results to differ materially.

Speaker Change: <unk> 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.

Operator: 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.

Speaker Change: 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.

Operator: For information about these non-GAAP measures and for a reconciliation to GAAP, please refer to the earnings release and or the presentation.

Speaker Change: For information about these non-GAAP measures and for a reconciliation to GAAP. Please refer to the earnings release <unk>. The presentation I would now like to introduce John Buran, President and Chief Financial Excuse me Chief Executive Officer, who will provide an overview of the strategy and results. Thank you.

John Buran: I would now like to introduce John Buran, President and Chief Financial, excuse me, Chief Executive Officer, who will provide an overview of the strategy and results. Thank you, Operator. Good morning, and thank you for joining us for our first quarter 2025 Operating Results Conference call. As we entered 2025, the outlook was favorable, with a better operating environment driven by the expectation of a strong economy, the potential for future rate cuts by the Fed as inflation eased, and there were signs that the yield curve would regain a positive slope. Unfortunately, the first quarter did not play out this way as the economy was still solid.

Speaker Change: Operator, good morning, and thank you for joining us for our first quarter 2025 operating results conference call.

Speaker Change: As we enter 2025, the outlook was favorable with a better operating environment driven by the expectation of a strong economy the potential for future rate cuts by the fed as inflation eased and there were signs that the yield curve would regain a positive slope.

Speaker Change: Unfortunately, the first quarter did not play out this way as the economy was still solid.

John Buran: But uncertainty about the outlook became the primary focus as the yield curve returned to inversion. Despite these challenges, we achieved important improvement in our operations as Gap and Core NEM expanded to the 250 range. a level we have not seen since the fourth quarter of 2022. For the first quarter, the company reported a gap loss per share of $0.29 and core earnings per share of $0.23. The primary difference between the gap and core earnings is a non-cash, non-tax deductible goodwill impairment charge of $17.6 million or $0.51 a share. The impairment had no impact on tangible or regulatory capital.

Speaker Change: But uncertainty about the outlook became the primary focus as the yield curve returned to inversion.

Speaker Change: Despite these challenges we achieved important improvement in our operations as GAAP and core NIM expanded to 250 <unk>.

Speaker Change: <unk> or.

Speaker Change: A level, we have not seen since the fourth quarter of 2022.

Speaker Change: For the first quarter the company reported a GAAP loss per share of 29 cents and core earnings per share of <unk> 23 cents. The primary difference between the GAAP and core earnings is a non cash non tax deductible goodwill impairment charge of $17 6 million or 51 cents a share the.

Speaker Change: Parent had no impact on tangible or regulatory capital as a result, we have no goodwill remaining on the balance sheet.

John Buran: As a result, we have no goodwill remaining on the balance sheet. Our areas of focus are improving profitability, maintaining credit discipline, and preserving strong liquidity and capital. While we recognize there's a lot more work to do, we're encouraged by the progress to date.

Speaker Change: Our areas of focus are improving profitability, maintaining credit discipline, and preserving strong liquidity and capital.

Speaker Change: While we recognize there's a lot more work to do we're encouraged by the progress to date.

Susan Cullen: I'll now turn it over to Susan to discuss our area of focus, including our contractual loan repricing that can substantially improve income over the coming years. Susan?

Speaker Change: I'll now turn it over to Susan to discuss our area of focus, including our contractual loan repricing that can substantially improve income over the coming years.

Susan Cullen: Susan Thank you John.

Susan Cullen: Thank you, John. Our first area of focus is improving profitability. While this is expected to be a multi-year endeavor, we made progress in the first quarters, both GAAP and core net interest margins expanded quarter over quarter. We expect further net interest margin expansion as real estate loans contractually reprice higher. We are focused on improving our return on average equity over time.

Susan Cullen: Our first area of focus is improving profitability.

Susan Cullen: This is expected to be a multiyear endeavor, we made progress in the first quarter as both GAAP and core net interest margin expanded quarter over quarter.

Susan Cullen: We expect further net interest margin expansion as real estate laws contractually reprice higher.

Susan Cullen: We are focused on improving our return on average equity over time.

Susan Cullen: Slide 5 provides more detail on our Net Interest Margin Expansion. The gap in core net interest margins increased 12 and 24 basis points to 2.51% and 2.49% respectively in the first quarter. Liability repricing was a driver of the improvement as the cost of funds declined 22 basis points quarter over quarter compared to a 9 basis points decrease in average earning assets. Entering the first quarter, the yield curve regained a positive slope, but as the quarter closed, the slope turned negative. A positively sloped yield curve will drive net interest margin expansion, while a negatively sloped curve will make margin expansion more challenging.

Susan Cullen: Slide five provides more detail on our net interest margin expansion.

Susan Cullen: GAAP and core net interest margins increased 12, and 24 basis points to five 1% and 2.49% respectively in the first quarter.

Liability with price there was a driver of the improvement as a cost of funds declined 22 basis points quarter over quarter compared to a nine basis points decrease in average earning assets.

Susan Cullen: During the first quarter the yield curve regained a positive slope, but as the quarter closed this slope turned negative a positively sloped yield curve will drive net interest margin expansion well negatively sloped carnival make margin expansion more challenging.

Susan Cullen: Our interest rate risk modeling shows a 100 basis point positive slope in the yield curve with the short end declining would benefit net interest income by about $1 million in the first year and $10 million in the second year. In the near term, the net interest margin is expected to be impacted by the shape of the yield curve, changes in the balance sheet mix, and continued contractual repricing. the March NIM was not materially different from the NIM that's being reported.

Susan Cullen: Our interest rate risk modeling shows that 100 basis point positive slope in the yield curve, but the short end declining would benefit benefit net income by about a million dollars in the first year and $10 million in the second year.

Susan Cullen: And then the near term the net interest margin is expected to be impacted by the shape of the yield curve changes in the balance sheet mix and continued contractual repricing.

Susan Cullen: The March NIM was not materially different from the NIM, that's being reported.

Susan Cullen: Slide six provides more detail on our deposit. Average deposits increased 7% year-over-year and about 1% quarter-over-quarter. The loan to deposit ratio improved 87% from 94% a year ago. The cost of deposits decreased by 19 basis points during the quarter and we continue to seek opportunities to lower deposit rates. Our deposit betas were also favorable during the quarter as interest-bearing betas were 59% as rates declined, which is the same as when rates increased over the past cycle. Total CDs are $2.6 billion or 34% of total deposits at quarter end. Approximately 600 million of CDs with a weighted average rate of 4.16% will mature in the second quarter.

Susan Cullen: Slide six provides more detail on our deposits average deposits increased 7% year over year and about 1% quarter over quarter.

Susan Cullen: The loan to deposit ratio improved to 87% from 94% a year ago.

Susan Cullen: The cost of deposits decreased by 19 basis points during the quarter and we continue to seek opportunities to lower deposit rates are.

Susan Cullen: Our deposit betas were also favorable during the quarter as interest bearing betas were 59% as rates declined which is the same as on rates increased over the past cycle.

Susan Cullen: Total Cds are $2.6 billion or 34% of total deposits at quarter end.

Susan Cullen: Approximately $600 million of Cds with a weighted average rate of 4.16% will mature in the second quarter.

Susan Cullen: Current CD rates are 3.5% to 4.25%. Customer preference is for a 91-day product, which has an APY of 4%, followed by the one-year CD at 3.85%. During the first quarter, we retained about 80% of the maturing CDs with a weighted average rate reduction of 69 basis points.

Susan Cullen: Current C D rates are three and a half to four and a quart per cent.

Susan Cullen: Customer preferences for not 91 day product, which has an a P. Why 4% followed by the one year CD at three 5%.

Susan Cullen: During the first quarter retained about 80% of them are right maturing Cds with a weighted average rate reduction of 69 basis points going forward well, there's possibly some benefit from CD repricing based on the current yield curve.

Susan Cullen: Going forward, while there is possibly some benefit from CD repricing based on the current yield curve, We do not expect it to be significant. Average non-interest bearing deposits increased 3% year over year, but declined 2% quarter over quarter. As a percentage of total average non-interest bearing deposits were 11.3% compared to 11.8% a year ago.

Susan Cullen: We do not expect it to be significant.

Susan Cullen: Non interest bearing deposits increased 3% year over year, but declined 2% quarter over quarter.

Susan Cullen: As a percentage of total average deposits average non interest bearing deposits were 11, 3% compared to 11, 8% a year ago non interest bearing deposits are a significant focus.

Susan Cullen: Non-interest bearing deposits are a significant focus area as incentive plans have been revamped to emphasize further growth and deeper customer relationships. Check-in count openings increased 5% year-over-year and 6% quarter-over-quarter. We continue to focus on shifting the deposit mix and reducing the overall cost.

Susan Cullen: Area as incentive plans have been revamped to emphasize further growth and deeper customer relationships.

Susan Cullen: Checking account openings increased 5% year over year, and 6% quarter over quarter.

Susan Cullen: We continue to focus on shifting the deposit mix and reducing the overall cost.

Susan Cullen: Slide 7 provides more detail on the contractual repricing of the loan portfolio. For the remainder of 2025, about $511 million of loans are due to reprice 171 basis points higher than the current coupon using the March 31st index. In 2026, about $706 million is due to reprice 190 basis points higher.

Susan Cullen: Slide seven provides more detail on their contractual repricing of the loan portfolio.

Susan Cullen: For the remainder 2025 about $511 million of loans or did reprice 171 basis points higher than the current coupon using the March 31st Index, and 2026, plus $706 million due to reprice 190 basis points higher.

Susan Cullen: With the last sizeable portion repricing in 2027, nearly $1 billion of loans are due to reprice about 168 basis points higher. The repricing in 2025 to 2027 is largely based on the five-year Federal Home Loan Bank of New York advance rates plus a spread. During the first quarter, there were about $148 million of loans that were rescheduled to reprice approximately 194 base points higher based on the year-end index values. Approximately 88% of these loans remained with the bank and repriced 210 base points higher. Over 91% of these loans are current, while approximately 9% are less than 30 days delinquent.

Susan Cullen: But the last sizeable portion of our pricing in 2027 with nearly a $1 billion of loans, our data, we priced about 168 basis points higher.

Susan Cullen: So pricing in 2020 five to 'twenty 'twenty seven is largely based on a five year Federal home loan Bank, New York advance rates plus a spread.

Susan Cullen: During the first quarter they were about $148 million of loans that were scheduled to reprice approximately 194 basis points higher based on the year end index values.

Susan Cullen: Approximately 80% of these loans remains with the bank and repriced 210 basis points higher.

Susan Cullen: Over 91% of these loans are current well approximately 9% or less than 30 days delinquent.

Susan Cullen: All else being equal, we expect loan repricing to drive net interest margin expansion with an annualized $9 million of interest income in 2025 and $13 million in 2026. Over the three-year period, these loans will cumulatively add approximately $50 million of interest income.

Susan Cullen: All else being equal we expect loan repricing to to drive net interest margin expansion with an annualized 9 million of interest income in the 2025 and $30 million in 'twenty 'twenty six.

Susan Cullen: Over the three year period. These loans will cumulatively add approximately $50 million of interest income.

Susan Cullen: Okay.

Susan Cullen: Slide 8 highlights our second area of focus, which is maintaining credit discipline. As we have discussed over the past several quarters, we have a low risk and conservative loan portfolio. Over 90% of the loan portfolio is secured by real estate, with an average loan-to-value less than 35%. We have a long history of low levels of credit losses.

Susan Cullen: Slide eight highlights our second area of focus which is maintaining credit discipline.

Susan Cullen: As we have discussed over the past several quarters, we have a low risk of conservative loan portfolio.

Over 90% of the loan portfolio is secured by real estate with an average loan to value less than 35%.

Susan Cullen: We have a long history of low levels of credit losses, one of our key strategic initiatives is enhancing our relationship pricing focus and we're beginning to see results.

Susan Cullen: One of our key strategic initiatives is enhancing our relationship pricing focus, and we're beginning to see results. Slide nine depicts our net charge drop history compared to the industry since 2001. As you can see, our underwriting has outperformed over time, often by a wide margin. Our conservative credit culture has been proven in many rate and economic cycles, and our commitment to our low-risk credit profile is unwavering. Our two largest portfolios are multifamily and investor commercial real estate.

Susan Cullen: Slide nine depicts our net charge off history compared to the industry since 2001.

Susan Cullen: As you can see our underwriting has outperformed over time, often by a wide margin.

Susan Cullen: Our conservative credit culture has been proven in many rate neck economic cycles, our commitment to our low risk credit profile is unwavering.

Susan Cullen: Our two largest portfolios are multifamily and investor commercial real estate.

Susan Cullen: And these portfolios have a combined debt service coverage of 1.8 times when we stress test this ratio for higher rates and increased operating expenses, the DCRs are still strong at 1.4 times.

Susan Cullen: And these portfolios have a combined debt service coverage at one eight times when we stress test this ratio for higher rates and increased operating expenses. The D. C. Ours are still strong at 1.4 times.

Susan Cullen: Yeah.

Susan Cullen: As shown on slide 10, our level of non-current loans to total loans is also favorable compared to the industry, not only recently but for the past 24 years. This is primarily due to our conservative underwriting. Our borrowers have a low leverage with an average loan to value of less than 35% on our real estate portfolios and high cash flows debt coverage ratios of 1.8 times for our multifamily and investor commercial real estate portfolios. We have a minimal amount of loans with an LTV greater than 75%, with more than a third of these loans having mortgage insurance.

Susan Cullen: As shown on slide 10, our level of non acquired loans to total loans was also favorable compared to the industry not only recently, but for the past 24 years.

Susan Cullen: This is primarily due to our conservative underwriting our borrowers have a low leveraged with an average loan to value less than 35% of our real estate portfolios and high cash flows debt coverage ratios of one eight times.

Susan Cullen: Family and Investor commercial real estate portfolios.

Susan Cullen: We have a minimal amount of loans with a L. T V greater than 75% with more than a third of these loans, having mortgage insurance, we remain comfortable with our conservative underwriting will continue to let it problem assets and ultimately limit loan losses.

Susan Cullen: We remain comfortable with our conservative underwriting, will continue to limit problem assets, and ultimately limit loan loss.

Susan Cullen: Slide 11 shows our Allowance for Credit Losses by Loan Portfolio. Overall, our Allowance for Credit Losses is 59 base points of loans, which is stable quarter over quarter. Career Size Loans total loans is below 133 base points, and as previously discussed, the loss content in our portfolio is low given our conservative underwriting standards. All of these items keep us very confident that our low risk credit profile performs well over various economic cycles.

Susan Cullen: Slide 11 shows our allowance for credit losses by loan portfolio overall, our allowance for credit losses was 59 basis points of loans, which is stable quarter over quarter Chris.

Susan Cullen: Criticized loans total loans at a low hundred 33 basis points and as previously discussed the loss content in our portfolio is low given our conservative underwriting standards.

Susan Cullen: All of these items to keep us very confident that our low risk credit profile forms well over various economic cycles.

Susan Cullen: Yeah.

Susan Cullen: Slide 12 outlines credit metrics at a more granular level for a multifamily portfolio. This portfolio comprises 38% of gross loans and has strong credit metrics such as a weighted average loan-to-value of 42% and a weighted average debt coverage ratio of 1.8 times. Non-performing loans in this portfolio are only 101 basis points and criticized and classified are only 116 basis points.

Susan Cullen: Slide 12 outlines credit metrics at a more granular level for our multifamily portfolio. This portfolio comprises 38% of gross loans and has strong credit metrics such as our weighted average loan to value of 42% and a weighted average debt coverage ratio of one eight times nonperforming loans in this portfolio are only 101.

Susan Cullen: Basis points and criticized and classified are only 116 basis points.

Susan Cullen: The average loan size is $1.2 million in this $2.6 billion portfolio. Overall, the portfolio is very granular and is considerably underwritten.

Susan Cullen: The average loan size of $1.2 million in this $2 6 billion dollar portfolio.

Overall, the portfolio is very granular and is conservatively underwritten.

Susan Cullen: Slide 13 provides further context on the risk in our multifamily portfolio in comparison to peers. As of December 31st, 2024, our career size and classified multifamily loans were only 102 basis points, which is below the median of the peer group. At the end of the first quarter, this ratio was 116 basis points.

Susan Cullen: Slide 13 provides further context on the risk in our multifamily portfolio and a comparison to peers.

Susan Cullen: As of December 31st 2024, our criticized and classified multifamily loans were only 102 basis points, which is below the median of the peer group.

Susan Cullen: At the end of the first quarter. This ratio was 116 basis points.

Susan Cullen: Multi-Family Reserves criticized the classified multi-loans were 51% which is above the median of the peer group in the fourth quarter and this ratio was 43% in the first quarter. 30- to 89-day past dues in our multifamily loan portfolio are only 11 basis points. During the first quarter, over $64 million of loans were scheduled to reprice and mature. Approximately 96% of the loans remained at the bank and repriced 267 base points higher to a weighted average rate of 6.59%. Nearly 100% of these loans are current.

Speaker Change: Multifamily reserves criticized classified multi loans or 51%, which is above the median of the peer group in the fourth quarter and this ratio was 43% in the first quarter.

Susan Cullen: 30 to 89 day past dues in our multifamily loan portfolio are only 11 basis points.

Susan Cullen: During the first quarter over $64 million of loans are scheduled to reprice or mature approximately 96% of loans remained at the bank and replaced 267 basis points higher to a weighted average rate of 6.59%.

Susan Cullen: Nearly 100% of these loans are correct. This is a testament to our borrowers and our conservative underwriting standards with these credit metrics, we see limited risk and loss content on the horizon.

Susan Cullen: This is a testament to our borrowers and our conservative underwriting standards. With these credit metrics, we see limited risk and loss content on the horizon.

Susan Cullen: Slide 14 provides an overview of our investor commercial real estate portfolio, which is 29% of gross loans. The Investor Commercial Real Estate Portfolio has 34 basis points of non-performing loans and 175 basis points of clear size and classified loans. Our exposure to office loans is small at 3% of gross loans. There are two non-performing loans in the office portfolio and a total of three that are criticized and classified. These metrics provide a clear representation of a conservative investor commercial real estate portfolio.

Susan Cullen: Slide 14 provides an overview of our investor commercial real estate portfolio, which is 29% of gross loans.

Susan Cullen: The Investor commercial real estate portfolio has 34 basis points of nonperforming loans at 175 basis points of criticized and classified loans.

Susan Cullen: Our exposure to office loans is small at 3% of gross loans there to nonperforming loans novice portfolio totaled three that are criticized or classified.

Susan Cullen: These metrics provide a clear representation of a conservative investor commercial real estate portfolio.

Susan Cullen: On slide 15, we discuss our last area of focus, which is to preserve strong liquidity and capital. We have ample liquidity with $4 billion of undrawn lines and resources at the end of the quarter. Average deposit growth was nearly 7% year over year and 2% quarter over quarter. Uninsured and uncollateralized deposits remain low at 16% of total deposits. The company and the bank remain well-capitalized, and our Tangible Common Equity to Tangible Assets was stable at 7.79% quarter-over-quarter. We feel very good about our liquidity and capital position.

Susan Cullen: On slide 15, we discuss our last area of focus which is to preserve strong liquidity and capital we have ample liquidity with $4 billion of Undrawn lines and resources at the end of the quarter.

Susan Cullen: Average deposit growth was nearly 7% year over year and 2% quarter over quarter.

Susan Cullen: Uninsured and uncollateralized deposits remained low at 16% of total deposits the company and the bank remain well capitalized and our tangible common equity to tangible assets was stable at 7.79% quarter over quarter.

Susan Cullen: We feel very good about our liquidity and capital positions.

John Buran: Oh, and I'll turn it over to John. Thanks, Susan. Slide 16 provides detail on our Asian markets, which account for about one-third of our branches. We have approximately $1.3 billion of deposits and $738 million in loans in these markets. These deposits are 17% of total deposits, and we only have a 3% market share of this $40 billion market, implying that there's substantial room for growth. We expect to expand our branch network in these markets during 2025, with our Jackson Heights branch opening in early May and a second Chinatown branch later this year. Our Asian markets, with its dense population, high number of small businesses, continues to be an important opportunity for us, and one that we believe will drive our success in the future.

John Buran: Now I'll turn it over to John John.

John Buran: Sanctions in slide 16 provides detail on our Asian markets, which account for about one third of our branches. We have approximately $1.3 billion of deposits and 738 billion in loans in these markets. These deposits are 17% of total deposits and we only have a 3% market share of this 40.

John Buran: $1 billion market, implying that there is substantial room for growth, we expect to expand our branch network. In these markets. During 2025 was our Jackson Heights branch opening in early May and our second Chinatown branch later this year.

John Buran: Our Asian markets was it's dense population high number of small businesses continues to be an important opportunity for us and one that we believe will drive our success in the future our approach to this market as supported by our multi lingual staff, our Asian Advisory Board and participation sponsorship of cultural.

John Buran: Our approach to this market is supported by our multilingual staff, our Asian Advisory Board, and participation and sponsorship of cultural activities.

John Buran: Activities.

John Buran: Slide 17 outlines the operating environment, which has shifted considerably this quarter. The spread between the five-year FHLB advance and the three-month SOFR rate turned negative during the quarter compared to a positive spread entering 2025. This spread is a good indicator of how our net interest margin will trend in the future. While we have some opportunities to lower deposit costs, this is going to be more challenging without a reduction in short-term rates. On the other hand, our real estate portfolio should continue to reprice higher over the next three years. With our focus on remixing the balance sheet, the company should experience NIM expansion over time.

John Buran: Slide 17.

John Buran: The operating environment, which has shifted considerably this quarter.

Speaker Change: Fred between the five year average Ob advance.

Speaker Change: Three month sofa rate turned negative during the quarter compared to a positive spread entering 2025. The spread is a good indicator of how our net interest margin will tend to trend in the future.

Well, we have some opportunities to lower deposit cost this is going to be more challenging without a reduction in short term rates on the other hand, our real estate portfolio should continue to reprice higher over the next three years.

Speaker Change: With our focus on Remixing the balance sheet the company should experience NIM expansion over time.

John Buran: We're executing on our new business initiatives. Period end demand deposits increased nearly 6% year over year and 3% quarter over quarter. This product remains a high priority for the bank. Our SBA team is also ramping up as we sold about $5 million of loans during the quarter and the pipeline continues to build.

Speaker Change: We're executing on our new business initiatives period end demand deposits increased nearly 6% year over year and 3% quarter over quarter.

Speaker Change: This product remains a high priority for the bank.

Speaker Change: Our SBA team is also ramping up as we sold about $5 million of loans during the quarter and the pipeline continues to build.

John Buran: We're also looking to selectively hire and last week announced the addition of a new deposit focused team with three bankers. While the operating environment has become less favorable, we're focusing on what we can control and investing in the business to drive future profitability.

Speaker Change: We're also looking to selectively hire and last week announced the addition of a new deposit focus team with three bankers.

Speaker Change: While the operating environment has become less favorable we're focusing on what we can control and investing in the business to drive future profitability.

John Buran: Slide 18 provides our high-level perspective on performance in the current environment. I'll start by saying that the first quarter's trends are largely consistent with expectations and the outlook has not significantly changed for the remainder of the year at this point. we still expect stable assets for the year and loan growth will be market dependent. There's a continued emphasis on improving the mix of interest-earning assets and liabilities. There are some opportunities to reprice deposits and loans, with contractual loan repricing providing the best opportunity to generate net interest margin expansion absent a change in the yield curve.

Speaker Change: Slide 18 provides a high level perspective on performance in the current environment.

Speaker Change: I'll start by saying that the first quarter's trends are largely consistent with expectations and the outlook has not significantly changed for the remainder of the year at this point.

Speaker Change: We still expect stable assets for the year and loan growth will be market dependent.

Speaker Change: There's a continued emphasis on improving the mix of interest, earning assets and liabilities. There is some opportunities to reprice deposits and loans with contractual loan repricing, providing the best opportunity to generate net interest margin expansion absent a change in the yield curve.

John Buran: I'll remind you, some deposit products have seasonality in the summer months. Non-interest income should be aided by the closing of back-to-back swap loans in the pipeline and the benefits of a BOLI 1035 exchange.

Speaker Change: I'll remind you some deposit products have seasonality in the summer months.

Speaker Change: Noninterest income should be aided by the closing of back to back swap loans in the pipeline and the benefits of a bully 10 35 exchange.

John Buran: Non-interest expenses expected to increase approximately 5% to 8% in 2025 off a base of approximately $160 million. While we had about $1.6 million of seasonal expenses in the first quarter, this was largely offset by other adjustments that are not expected to occur in the second quarter. We expect a 25 to 28% effective tax rate for the remainder of 2025.

Speaker Change: Noninterest expense is expected to increase approximately 5% to 8% in 2025 off a base of approximately $160 million.

Speaker Change: Well, we had about $1.6 million of seasonal expenses in the first quarter. This was largely offset by other adjustments that are not expected to occur in the second quarter.

Speaker Change: We expect a 25% to 28% effective tax rates for the remainder of 2025.

John Buran: Slide 19 outlines our key takeaways. While the environment has shifted to less favorable, we're controlling what we can control and executing on our three areas of focus. We're progressing in improving profitability as the gap in core net interest margin expanded 12 and 24 basis points quarter over quarter, and we continue to expect to benefit from contractual loan repricing through 2027.

Speaker Change: Slide 19 outlines our key takeaways, while the environment has shifted to less favorable we're controlling what we can control and executing on our three areas of focus.

Speaker Change: We're progressing and improving profitability as the GAAP and core net interest margin expanded 12, and 24 basis points quarter over quarter, and we continue to expect to benefit from contractual loan repricing through 2027.

John Buran: We have a very well-defined credit discipline, which is conservative and low risk. While there was some slight softening in the credit metrics this quarter, we remain comfortable with our underwriting and level of risk.

Speaker Change: We have a very well defined credit discipline, which is conservative and low risk.

Speaker Change: While there was some slight softening in the credit metrics. This quarter, we remain comfortable with our underwriting and level of risk.

John Buran: Our liquidity and capital remain strong. While there's some uncertainty in the economic outlook, we'll stick to these areas of focus and improve the financial performance of the company over time.

Speaker Change: Our liquidity and capital remains strong.

Speaker Change: While there is some uncertainty in the economic outlook.

Speaker Change: These areas of focus and improve the financial performance of the company over time.

Operator: Operator, I'll turn it over to you to open the lines for questions. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question please press star then 2. Once again, please press star then 1 to ask a question.

Speaker Change: Operator, I'll turn it over to you to open the lines for questions.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question you May press Star then one on your telephone keypad.

Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Speaker Change: Once again, please press Star then one to ask a question.

Operator: At this time, we will pause momentarily to assemble our roster.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Chris O'connell: First question comes from Chris O'Connell from KBW. please go ahead. Hey, good morning. Good morning, folks. Um, I got the, uh... Excuse me, I'm sorry. All good.

Speaker Change: The first question comes from Chris O'connell from K B W. P.

Speaker Change: Please go ahead.

Chris O'connell: Hey, good morning.

Speaker Change: Good morning, Chris.

Speaker Change:

Speaker Change: Oh gosh.

Speaker Change: Yeah.

Speaker Change: Oh good.

Chris O'connell: I got the, you know, expense guide unchanged, was hoping to just, you know, get some color around the, you know, the puts and takes on the adjustments that offset the seasonal uptick, and just, you know, maybe a sense of the cadence, you know, to get to the guide. Chris, the guide for the rest of the year will be based off the five-day percent off the $160 million rough and tough from last year. We should have a run rate very similar to what we had in this quarter for every quarter thereafter. Okay, got it. I guess, you know, what were the adjustments that were offsetting the seasonal expenses this quarter?

Speaker Change: I got the you know expense guide unchanged was hoping to just get some color around the you know the puts and takes on the adjustments that offset the seasonal uptick and just you know maybe a sense of the cadence you know to get to the guide for the rest of the year.

Speaker Change: So Chris the guide for the rest of the year will be based off the 5% to 8% off the 160 million rough and tough from last year, we should have a run rate very similar to what we had in this quarter for every quarter thereafter.

Speaker Change: Okay got it.

Speaker Change: Just I guess, you know what where are the adjustments that were offsetting the seasonal expenses this quarter.

Chris O'connell: There were some adjustments made based on year-end accruals that needed to be trued up as we started the new year. Okay, so some, you know, mostly all in the compensation, correct? Yes. as is most of our seasonal expenses. So, you know, what you're seeing there is, you know, a pretty good run rate. Okay, yep, got it.

Speaker Change: There were some adjustments made based on our year end accruals that needed to be chewed up.

Speaker Change: As we started the new year.

Speaker Change: Okay. So some you know mostly all in the compensation correct.

Speaker Change: Yes.

Speaker Change: Great.

Speaker Change: This adds as most of our seasonal expenses. So you know what youre seeing there is a you know a pretty good run rate.

Speaker Change: Okay, Yeah got it.

Chris O'connell: And then, you know, just, you know, hoping to get, you know, a little bit of info on the multifamily uptick in the NPLs and just, you know, the office credit driving the uptick in the criticized class. Sure, the multifamily loan is one relationship that consists of three loans that have an LTV of about 43%. We have a borrower that we're working with, and hopefully we should have those resolved in relatively short order.

Speaker Change: And then you.

Speaker Change: Just hoping to get a.

Speaker Change: A little bit of info on the multifamily uptick.

Speaker Change: The Npls and just you know the office credit driving the uptick in the criticized classified.

Sure. The multifamily loan is one relationship that consist of three loans that have an LTV of about 43%. We have a borrower that we're working with them hopefully wished to have those resolved and in relatively short order.

Chris O'connell: The office building loan, the largest tenant moved out. There's been a lot of activity on that building. There's several condos in that. The office building is condos within a bigger office building, just to be clear. There's been a lot of activity on seeing that new space. We have, again, a willing borrower, and we're working on resolving that loan, which will probably happen by the end of the I can't believe we're at the end of the first quarter already, at the end of the second quarter. Okay, got it.

Speaker Change: The office building alone the largest tenant moved out there's been a lot of activity on that building.

Speaker Change: There are several condos in that they own the office building is condos within a bigger office building.

Speaker Change: To be clear.

Speaker Change: There's been a lot of activity on seeing that new space, we have again, a willing borrower and we're working on resolving that loan which will probably happen by the end of the.

Speaker Change: I can't believe we're at the end of the first quarter already at the end of the second quarter.

Speaker Change: Okay got it and do either of those have so we have the we have the the mortgage on the condo.

Chris O'connell: And do either of those have... Yeah, so we have the mortgage on the condo, just to be clear. Okay.

Speaker Change: To be clear.

Speaker Change: Okay, great and do either.

Chris O'connell: and do either of them or we'll have the whole office building. Specific reserves were not needed given the on the multifamily loan, yes, relationship, I should say. What's that level? Pardon me? I didn't hear you, Chris. No, there's no specific reserve given that the LTV on this relationship is 43%. You know, there's no forecasted loss on this. relationship.

Speaker Change: A whole lot, particularly yeah.

Speaker Change: Specific reserves were not needed given the ltvs.

Speaker Change: On the other multifamily loan, yes relationship I should say.

Speaker Change:

Speaker Change: What what's that level.

Speaker Change: Pardon me.

Speaker Change: Yes as in there and then you have your Santa Cruz sur.

No there's nothing specific reserve given that the LTV on this relationship is 43%.

Speaker Change: Theres no forecasted loss on this.

Speaker Change: Relationship.

Chris O'connell: Okay, and then on the on the three business. loan net charge-offs. I was hoping to just get any info on those and then... You know, I guess high-level thoughts, you know, I think it's been, you know, to all of you. So those loans, again, I know I sound like a broken record, had individual issues related to them. One of them had some fraud involved in the underwriting, or not in the underwriting, excuse me, in the application, etc. The other ones were longer term credits that just, you know, ran into problems. One of them is a consulting firm that had a lot of contracts with the federal government.

Speaker Change: Okay and then on the.

Speaker Change: On the three business won.

Speaker Change: Net charge offs was hoping to just get any info on those and then.

Speaker Change: You know I guess high level thoughts.

Speaker Change: Think it's been you know.

Speaker Change: Two or three quarters, you know with relatively similar you know C&I charge offs from that category.

Speaker Change: Just high level thoughts on kind of where the run rate or where the typical kind of loss rate as you know.

Speaker Change: Do you think it will be on that portfolio, you know longer term.

Speaker Change: So the those slowed again I know I sound like a broken record had individual issues related to one of them had.

Speaker Change: Some fraud involved in the in the in the underwriting or not in the underwriting excuse me in the application et cetera. The other ones that are at work longer term credits that just ran into problems. One of them is a consulting firm that had a lot of contracts with the federal government. So.

Chris O'connell: So, you know, we still are very confident in that portfolio. We have a lot of allowance allocated against that portfolio. We don't see much else in the way of charge-offs at this time that are not fully reserved for. So I don't know, John, if you want to add any other color to that.

Speaker Change: Yeah, we still are very confident that portfolio, we have a lot of allowance allocated against that portfolio are.

Speaker Change: We don't see much else in the way of charge offs at this time.

Speaker Change: That is not that are not fully reserved for them. So I.

Speaker Change: I don't know if John if you want to add any other color to that no. I think you I think you pretty well a pretty well covered it.

John Buran: No, I think you pretty well covered it.

Chris O'connell: Okay, great.

Chris O'connell: I will step out for now.

Speaker Change: Okay, Great I will set out for now thank you.

Chris O'connell: Thank you.

Chris O'connell: Thanks, Chris.

Chris O'connell: Thanks, Chris.

Mark Fitzgibbon: The next question comes from Mark Fitzgibbon with Piper Sandler, please go ahead. Hey guys, good morning. Good morning, Mark. Susan, you had talked about the expectation that the margin would expand in the second quarter, and I heard sort of the puts and takes on that. I guess I was wondering if you could help us think about the magnitude of the margin expansion maybe in the second quarter. So, given the interest rate volatility such that meaningfully, margin predictions are hard to come by. We provided you the components, Mark, with the ins and the outs. You can see if you take the fourth quarter deck and this quarter deck, you can see what's already repriced.

Speaker Change: The next question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.

Mark Fitzgibbon: Hey, guys good morning.

Speaker Change: Mark I'm.

Speaker Change: I'm Susan you you had talked about the expectation that the margin would expand in the second quarter and I heard the sort of the puts and takes on that I guess I was wondering if you could help us think about the magnitude of the margin expansion maybe in the second quarter.

Speaker Change: So given the interest rate volatility is such that meaningfully margin predictions are hard to come by.

Speaker Change: We provided you the components market with the ins and the outs you can see how the if you take the fourth quarter deck. This.

Speaker Change: This quarter deck, you can see what's already repriced our C. D rates are three 3.5% to 4.25%, which is a little bit lower than what we have yeah.

Susan Cullen: Our CD rates are 3.5 to 4.25%, which is a little bit lower than what we have. You know, loan growth is viewed as limited. So, I think we just have some ins and outs.

Speaker Change: Loan growth is is viewed as limited. So I think we just have some ins and outs I I don't think that I can give you any any fair quantification at this time.

Mark Fitzgibbon: I don't think that I can give you any fair quantification at this time. The other thing, Mark, is the repricing of the CRE portfolio, which we view as probably the most significant opportunity, especially given the current rate environment, the current rate environment stays stable, there's quite a bit of increase associated with net interest income of that portfolio. Okay. On the CD repricing, the 602 million of CDs that you say have an average rate of 416, when I look at your posted rates on iGo and Fidelity and some of the other platforms you guys are out on, the three and six month CD rates you're offering are 425.

Speaker Change: Okay. The other thing is the Mark is the repricing of the creep portfolio, which we view as probably the most significant.

Speaker Change: A significant opportunity.

Speaker Change: Especially.

Speaker Change: Especially given the.

Speaker Change: The current rate environment at the current rate environment stays stable.

Speaker Change: There's quite a bit of Oh.

Speaker Change: Increase associated with net interest income in that portfolio.

Speaker Change: Okay.

Mark Fitzgibbon: On the on the CD repricing of 602 million of Cds that you say have an average rate of 416, when I look at your posted rates on I go and fidelity and some of the other platforms. You guys are out on the three and six months CD rates, you're offering a 425, so they are actually higher than.

Susan Cullen: So they're actually higher than that 416 level. Actually, May 1 is coming down to 4. Gotcha. Okay.

Speaker Change: Then that for 16 level actually may one it's coming down to four.

Mark Fitzgibbon: Gotcha.

Mark Fitzgibbon: Okay.

John Buran: And then secondly, John, I wondered if you could talk a little bit about how the Asian community is managing through the tariff situation and if there's any types of lending that could be problematic as a result of what's going on with the tariff situation. So remember, this is a community that's very, very tight, so there isn't really a lot of room for, you know, significant changes or substitution of product, et cetera, et cetera. So you know, we think that, first of all, let me say that we don't have any exposure, any direct exposure to trade.

Speaker Change: And then secondly, John I Wonder if you could talk a little bit about how the Asian community is managing through the tariff situation and if if theres any types of lending that could be problematic as a result of what what's going on with the tariff situation.

Speaker Change: So remember this is a community that is very very tight. So there isn't really a lot of room for a you know significant changes or substitution of product et cetera et cetera.

Speaker Change: So we think that.

Speaker Change: First of all let me say that we don't have any exposure.

Speaker Change: Any direct exposure to trade.

John Buran: You know, we don't do any sort of trade financing. And even within our portfolio, as you know, we've tended to have a portfolio that is very, very much real estate focused. So, you know, while there may be some price increases for some goods within this community, there's very little desire for substitution. So we're not expecting a major impact, given that our business is really very much domestically focused. and Real Estate Focus. Okay.

Speaker Change: We don't do any sort of trade trade financing and even within our portfolio as you know we've tended.

Speaker Change: To have a portfolio that is very very much real estate real estate focused so.

Speaker Change: While there may be some price increases for some goods within this within this community, there's very little desire for for substitution.

Speaker Change: So we're not expecting a major a major impact given that.

Speaker Change: Our business is really very much domestically domestically focused.

Speaker Change: Okay and real estate focused.

John Buran: And then the last question I had, it looked like now balances were up a lot in the quarter. I was wondering if there was some change or some reason why they surged. some seasonality associated with that. Okay.

Speaker Change: Okay and then the last question I had it looked like now balances were up a lot in the quarter I was wondering if there was some change or or some reason why the surge so much.

Speaker Change: Some seasonality associated with that.

Speaker Change: Okay, and what what business.

John Buran: In what business? It's predominantly the government business, although we've seen it also in business banking as well. I'll remind you that in the summer months, some of that seasonality gets reversed. Okay, great.

Speaker Change: It's predominantly the government business, although we've seen it also in business banking as well.

Speaker Change: I'll remind you that the in the summer months.

Speaker Change: Some of that seasonality gets reversed.

Speaker Change: Okay, great. Thank you.

John Buran: Thank you.

Operator: Just a reminder, if you'd like to ask a question, please press star then 1.

Speaker Change: Just a reminder, if you'd like to ask your question. Please press Star then one.

Steve Moss: The next question comes from Steve Moss with Raymond James, please go ahead. Good morning, Stephen. Good morning. Hello, Stephen. Hey, Susan. John.

Speaker Change: The next question comes from Steve Moss with Raymond James. Please go ahead.

Speaker Change: Good morning, good morning.

Speaker Change: Okay.

Speaker Change: John.

Steve Moss: Most of my questions have been asked and answered, but on the SBA pipeline you mentioned, John, just kind of curious how that's building and kind of how you're thinking about the level of gain on sale income potential for the remainder of the year. Well, we really don't give guidance on that, but basically what we've seen, some of the activity has been in the 504 area, real estate-based lending, and of the term loans, we're getting like 7% type of premiums on sale. Okay, got ya.

Speaker Change: Maybe just.

Speaker Change: Most of my questions have been asked and answered but on the SBA pipeline you mentioned, John just kind of curious how that's building and kind of how youre thinking about the level of gain on sale income potential for the remainder of the year.

Speaker Change: Well, we really don't give guidance on that but basically.

Speaker Change: Basically what we've what we've seen.

Speaker Change: Some of the some of the activity has been in the 504 area.

Speaker Change: Real estate base lending.

Speaker Change: Of the term loans were getting like seven 7% type of a.

Speaker Change: Type of premiums on sale.

Speaker Change: Okay got you and then just in terms of.

Steve Moss: And then just in terms of, just on the credit front here, I hear you guys, you know, the loans are well reserved and, you know, good to hear that there's activity on the office loan. Just kind of curious, you know, you had three quarters of charge-offs here at this point, you know, Why maybe should we expect to see some level even modest of reserve bill going forward or do we hold right around this 59 to 60 base point level you're going? Steve, I think given the uncertainty in the environment, you know, once there's finalization over the tariffs, I would expect to see some reserve build.

Speaker Change: Just on the credit front here I hear you guys that the loans are well reserved and good to hear that there is activity on the on the office alone just kind of.

Speaker Change: Curious.

Speaker Change: You've had three quarters of charge offs here at this point.

Speaker Change: Maybe should we expect to see some level, even modest reserve build going forward or do we hold right around 59% to 60 basis point about what youre going forward.

Speaker Change: Steve I think given the uncertainty in the environment you know once the final there's finalization over the tariffs I would expect to see some some reserve build.

Steve Moss: Okay, great. And those are my two main questions. I really appreciate the color there. Thank you very much. Thanks, Steve. Thank you.

Speaker Change: Okay great.

Speaker Change: And those are my two remaining questions I really appreciate the color there. Thank you very much.

Speaker Change: Thanks, Dave.

Speaker Change: Okay.

Operator: This concludes our question and answer session.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to John Buran for any closing remarks.

John Buran: I would like to turn the conference back over to John Buran for any closing remarks. Thank you. Thank you, operator.

Speaker Change: Thank you. Thank you operator, and thank you all for your attention and your participation and look forward to speaking with you in the future.

John Buran: I want to thank you all for your attention, your participation, and look forward to speaking with you in the future. Have a good day.

Speaker Change: Have a good day.

Operator: This concludes today's teleconference. You may disconnect your lines, and we thank you for your participation.

Speaker Change: This concludes today's teleconference. You may disconnect your lines and we thank you for your participation.

Speaker Change: Okay.

Speaker Change: [music].