ConnectOne Bancorp, Inc. (NASDAQ:CNOB) Q1 2025 Earnings Conference Call April 24, 2025 10:00 AM ET Company Participants Siya Vansia - Chief Brand & Innovation Officer Frank Sorrentino - Chairman & Chief Executive Officer Bill Burns - Senior Executive Vice President & Chief Financial Officer Conference Call Participants Tim Switzer - KBW Feddie Strickland - Hovde Group Daniel Tamayo - Raymond James Matthew Breese - Stephens Inc. Operator Thank you for standing by. My name is Kate, and I will be your conferen ...

Financial Data and Key Metrics Changes - ConnectOne reported a nearly 20% year-over-year increase in net income available to common shareholders [6] - The net interest margin expanded to 2.93, slightly higher than expected, with expectations to reach 3% in the second quarter [13][14] - Tangible book value per share increased by about 4% since the announcement of the merger with First of Long Island, reaching $24.16 [7][16] Business Line Data and Key Metrics Changes - The loan portfolio contracted slightly due to elevated payoff activity in the commercial real estate segment, but the loan pipeline remains robust with healthy demand [7][14] - Average demand deposits increased sequentially despite a decline in demand deposit balances since year-end [8] Market Data and Key Metrics Changes - Credit quality trends remain stable, with nonaccrual loans declining by 13% this quarter [17] - Thirty to eighty-nine day delinquencies increased slightly but remain low at 0.18% of total loans [17] Company Strategy and Development Direction - The company is focused on finalizing the merger with First of Long Island, which is expected to close in the second quarter, enhancing its scale and market reach [10][11] - ConnectOne aims to leverage its South Florida footprint to support First of Long Island clients, indicating a strategy of expanding into new markets [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating market uncertainties and believes the impact of tariff policies on clients will be limited [12] - The company anticipates loan growth of at least 2.5% for the second quarter and mid to high single-digit growth for the year [14][48] Other Important Information - The company is experiencing strong early synergies from the merger integration planning efforts [11] - All capital ratios have increased, with the tangible common equity ratio standing at 9.73% and the bank leverage ratio at 11.67% [15] Q&A Session Summary Question: Economic uncertainty and customer behavior changes - Management noted that while there are some changes in specific industries, overall client behavior remains stable with no dramatic shifts observed [22][24] Question: Update on cost savings from the merger - Management confirmed that they expect to achieve approximately $24 million in total cost savings, although the timeline for full realization may extend beyond initial projections [28][30] Question: Credit quality and repricing opportunities - Credit quality remains strong with low delinquencies, and there are ongoing opportunities for loan repricing, with about $1 billion of loans already repriced [36][37] Question: Loan growth expectations - Management indicated a strong loan pipeline and expects loan growth to be in the mid to high single digits for the year, with a robust pipeline supporting this outlook [48][52] Question: Regulatory conversations regarding the merger - Management reported positive relationships with regulators and noted that the process remains standard without significant changes in focus [58][60] Question: Expense growth expectations - Management anticipates a 4% to 5% growth in expenses on a standalone basis, with some cost savings already reflected in the current quarter [66][68] Question: Closing timing for the merger and capital raise - The merger is expected to close by the end of the second quarter, and the company plans to proceed with a subordinated debt raise prior to closing [78][81]

Financial Performance - Net income available to common stockholders for Q1 2025 was $18.7 million, compared to $18.9 million in Q4 2024 and $15.7 million in Q1 2024, reflecting a year-over-year increase of 18.9%[2] - Diluted earnings per share for Q1 2025 were $0.49, unchanged from Q4 2024 and up from $0.41 in Q1 2024[2] - Operating net income for Q1 2025 was $19.7 million, down from $20.2 million in Q4 2024 but up from $15.9 million in Q1 2024[3] - Net income for the three months ended March 31, 2025, was $20,242, slightly down from $20,371 in the previous quarter, indicating a decrease of 0.6%[24] - Earnings per common share for the three months ended March 31, 2025, remained stable at $0.49, consistent with the previous quarter[24] - Operating net income available to common stockholders was $19,710,000 in Q1 2025, compared to $20,220,000 in Q4 2024, a decline of 2.5%[30] Interest Income and Margin - Fully taxable equivalent net interest income for Q1 2025 was $65.8 million, an increase of $1.0 million or 1.6% from Q4 2024, and up $5.5 million or 9.0% from Q1 2024[7][9] - Net interest income for the three months ended March 31, 2025, was $65,756, an increase of 2.4% compared to $64,711 for the previous quarter[24] - The net interest margin widened by 7 basis points to 2.93% in Q1 2025, driven by a decrease in average costs of deposits[7] - The net interest margin (GAAP) rose to 2.93% in Q1 2025, compared to 2.86% in Q4 2024[30] - The net interest spread improved to 2.17%, up from 2.05% year-over-year[35] Noninterest Income and Expenses - Noninterest income increased to $4.5 million in Q1 2025, compared to $3.7 million in Q4 2024 and $3.8 million in Q1 2024[10] - Noninterest income totaled $4,451,000 in Q1 2025, up from $3,744,000 in Q4 2024, reflecting a growth of 18.9%[28] - Noninterest expenses were $39.3 million in Q1 2025, up from $38.5 million in Q4 2024 and $37.1 million in Q1 2024, primarily due to increased merger expenses[11] - Total noninterest expenses rose to $39,305 for the three months ended March 31, 2025, compared to $38,498 in the previous quarter, an increase of 2.1%[24] Assets and Liabilities - Total assets as of March 31, 2025, were $9.759 billion, a decrease from $9.880 billion as of December 31, 2024[15] - Total assets as of March 31, 2025, were $9,759,255, a decrease of 1.2% from $9,879,600 on December 31, 2024[23] - Net loans receivable decreased to $8,118,731 as of March 31, 2025, from $8,192,125 on December 31, 2024, reflecting a decline of 0.9%[23] - Total deposits were $7,767,230 as of March 31, 2025, down from $7,820,114 on December 31, 2024, representing a decrease of 0.7%[23] - Total stockholders' equity of $1,252,939 as of March 31, 2025, up from $1,241,704 on December 31, 2024, representing an increase of 0.9%[23] Credit Quality - The provision for credit losses was $3.5 million for Q1 2025, consistent with Q4 2024 and down from $4.0 million in Q1 2024[13] - Net loan charge-offs for the quarter were $3,400,000, slightly up from $3,334,000 in the previous quarter, indicating a 2% increase[32] - Nonaccrual loans decreased to $49,860,000 from $57,310,000, a reduction of 13%[32] - The allowance for credit losses on loans stood at $82,403,000, consistent with the previous quarter's $82,685,000[32] Future Plans - The Company plans to finalize its merger with The First of Long Island Corporation in Q2 2025, aiming to create a premier community bank in the New York Metro area[5]

Group 1 - ConnectOne Bancorp, Inc. plans to release its first quarter results for the period ended March 31, 2025, before the market opens on April 24, 2025 [1] - A conference call will be hosted by Chairman and CEO Frank Sorrentino III and CFO William S. Burns at 10:00 a.m. ET on April 24, 2025, to discuss the financial performance and operating results [2] - The conference call will be accessible via a dial-in number and an audio webcast available on the Company's website [2][3] Group 2 - ConnectOne Bancorp, Inc. operates through its subsidiary ConnectOne Bank and its fintech subsidiary BoeFly, Inc., focusing on small to middle-market businesses [4] - ConnectOne Bank offers a comprehensive range of banking and lending products and services [4] - BoeFly, Inc. serves as a fintech marketplace connecting franchise borrowers with funding solutions through a network of partner banks [4]

Company Overview - ConnectOne Bancorp (CNOB) is based in Englewood Cliffs and operates in the Finance sector, with a year-to-date share price change of 10.17% [3] - The company currently pays a dividend of $0.18 per share, resulting in a dividend yield of 2.85%, which is higher than the Banks - Northeast industry's yield of 2.58% and the S&P 500's yield of 1.55% [3] Dividend Performance - The current annualized dividend of $0.72 represents a 1.4% increase from the previous year [4] - Over the past five years, ConnectOne Bancorp has increased its dividend four times, achieving an average annual increase of 19.41% [4] - The company's current payout ratio is 40%, indicating that it pays out 40% of its trailing 12-month earnings per share as dividends [4] Earnings Growth Expectations - For the fiscal year, CNOB anticipates solid earnings growth, with the Zacks Consensus Estimate for 2025 projected at $2.23 per share, reflecting a year-over-year earnings growth rate of 22.53% [5] Investment Appeal - ConnectOne Bancorp is viewed as a compelling investment opportunity due to its attractive dividend and strong Zacks Rank of 2 (Buy) [7]

Assets and Mergers - ConnectOne Bancorp, Inc. has total assets of $9.880 billion[25] - The company completed the merger with Greater Hudson Bank, acquiring approximately $0.4 billion in loans and deposits[16] - The merger with Bancorp of New Jersey, Inc. resulted in the acquisition of approximately $0.8 billion in loans and deposits[18] - The upcoming merger with The First of Long Island Corporation is expected to close in the first or second quarter of 2025, with FLIC having total assets of $4.1 billion and total deposits of $3.3 billion[20] - The company's total assets were $9.880 billion as of December 31, 2024, and will exceed $10 billion upon consummation of the FLIC merger[145] - The company has acquired GHB, BoeFly, and BNJ since January 1, 2019, and is pending regulatory approval for the acquisition of FLIC[137] Business Model and Operations - ConnectOne Bank operates a "branch-lite" model, focusing on efficiency and technology investments to serve clients in the New York Metropolitan area and South Florida[26] - ConnectOne Bank offers a wide range of deposit and loan products, including personal and business checking accounts, money market accounts, and various types of loans[31] - BoeFly, a subsidiary of ConnectOne Bank, connects small to medium-sized businesses with funding solutions through a digital marketplace[27] - The company has expanded its market presence by opening an office in West Palm Beach, Florida, in August 2022[29] Financial Performance and Revenue - The company derives a majority of its revenue from net interest income, which is the difference between interest received on loans and paid on deposits[31] - The Bank's legal lending limit to any one borrower is 15% of the Bank's capital base ($172.0 million) and 25% for loans secured by readily marketable collateral ($286.7 million) as of December 31, 2024[38] - The largest committed relationship was $212.7 million, with the single largest loan outstanding at $64.0 million[38] - The Company accrued $2.1 million as of December 31, 2023, related to the special assessment[86] - The Company paid $7.2 million and $5.7 million in total FDIC assessments in 2024 and 2023, respectively, with the increase in 2024 attributed to additional premiums related to the FDIC special assessment[82] Competition and Market Environment - The Bank faces substantial competition from various financial institutions, including commercial banks, savings banks, and fintech companies[39] - The Bank's largest competitors have greater financial resources for advertising and marketing, necessitating a focus on high-quality personal service and competitive rates[40] - Increased competition for deposits may require the company to raise interest rates to attract or retain deposits[121] - The company faces substantial competition from fintech companies, which may offer more favorable terms and reduce margins on banking services[125] Employee Development and Corporate Culture - In 2024, 71 employees were promoted into new roles, reflecting the Bank's focus on internal promotions[48] - ConnectOne University provided training for 125 managers and supported advanced education through tuition reimbursement of up to $5,250 for eligible coursework[44] - The Bank's employee wellness programs include a Preventative Care Incentive Program and flu shot vaccination time-off, emphasizing health and safety[45] Regulatory Environment and Compliance - The Dodd-Frank Act requires banking regulators to apply the same capital requirements to bank holding companies as to their bank subsidiaries, impacting capital management strategies[59] - The Economic Growth, Regulatory Relief and Consumer Protection Act raised the asset threshold for stress tests from $10 billion to $250 billion, providing regulatory relief for smaller institutions[61] - The Company and the Bank are required to maintain a Common Equity Tier 1 Capital Ratio of 4.5%, a Tier 1 Capital Ratio of 6.0%, and a Total Capital Ratio of 8.0%[74] - The Company and the Bank have a CET1 of 7%, a Tier 1 Capital Ratio of 8.5%, and a Total Capital Ratio of 10.5%[74] - The Company adopted the CECL standard effective January 1, 2021, which addresses changes to credit loss accounting under GAAP[77] - The Company has elected not to opt into the Community Bank Leverage Ratio (CBLR) framework[80] - The Company is studying the revisions to the Community Reinvestment Act (CRA) regulations to determine the impact on its operations, which is currently uncertain[89] Loan Portfolio and Credit Risk - As of December 31, 2024, the company had $6.3 billion in commercial real estate loans, representing 76.2% of total loans receivable[105] - Commercial real estate loans accounted for 435% of the Bank's Tier 1 capital plus the allowance for credit losses on loans[105] - A significant portion of the loan portfolio will reset interest rates in 2025 and 2026, potentially increasing borrowers' repayment costs[112] - The company targets small-to medium-sized businesses, which may be more vulnerable to economic downturns, impacting their ability to repay loans[115] - The allowance for credit losses maintained by ConnectOne may not be adequate to cover actual losses, which could adversely affect earnings[162] - The Company's allowance for credit losses for loans totaled $82.7 million as of December 31, 2024, an increase of $0.7 million from $82.0 million in 2023[206] Dividend Policy and Capital Management - The ability to pay dividends is subject to compliance with capital requirements and the financial condition of the Bank[99] - The New Jersey Banking Act requires that dividends may only be paid if the Bank's capital stock remains unimpaired and surplus is maintained[98] - The company may need to raise additional capital to maintain regulatory capital ratios necessary for growth[103] - The company may need to raise up to $200 million in new capital to obtain necessary regulatory approval for the merger[150] Cybersecurity and Operational Risks - Cybersecurity is a material part of ConnectOne's business, and any incidents could have a significant effect on its operations and reputation[179] - The Company maintains insurance that may provide coverage for expenses and certain losses incurred in connection with a cybersecurity incident[184] - The Company has an internal Incident Response Plan and Team that performs a table-top exercise at least annually to prepare for potential cybersecurity incidents[183] Merger-Related Considerations - ConnectOne expects to issue approximately 12 million shares of common stock to FLIC shareholders as part of the merger, which may lead to fluctuations in the market price of ConnectOne's common stock[160] - The merger may incur substantial costs, including legal, accounting, and financial advisory fees, which could adversely impact ConnectOne's future earnings per share[157] - ConnectOne's management has devoted considerable time and effort to the merger, and if it is not completed, the company will bear certain fees and expenses without realizing any benefits[157] - The success of the merger will depend on the combined company's ability to retain key employees from both ConnectOne and FLIC, as their departure could disrupt operations and lead to loss of customers[156] - ConnectOne has agreed to operate its business in the ordinary course prior to the merger's closing, which may limit its ability to pursue new business opportunities[154] - Unanticipated costs related to the merger could have a material adverse effect on the combined company's financial condition and results of operations[159] Interest Rate and Economic Factors - Changes in interest rates and the Federal Reserve's monetary policy may negatively impact ConnectOne's net interest income and overall financial condition[163] - The most severe historical loss rates for commercial and commercial real estate loans were 2.37% and 1.96%, respectively, as of December 31, 2024[208]

Core Viewpoint - Shareholders of ConnectOne Bancorp and The First of Long Island Corporation have approved the merger, expected to close in Q2 2025, pending regulatory approval and customary conditions [1][2]. Group 1: Merger Details - The merger will create a combined entity operating under the ConnectOne brand, with approximately $14 billion in total assets, $11 billion in total deposits, and $11 billion in total loans [2]. - The merger positions ConnectOne as one of the top 5 banks on Long Island in terms of deposit market share [2]. Group 2: Leadership and Integration - Frank Sorrentino III, Chairman and CEO of ConnectOne, expressed satisfaction with shareholder support and highlighted the integration efforts [2]. - Chris Becker, CEO of First of Long Island, will assume the role of Vice Chairman of ConnectOne post-merger [3]. Group 3: Company Backgrounds - ConnectOne Bancorp operates through ConnectOne Bank and its fintech subsidiary BoeFly, focusing on small to middle-market businesses [4]. - The First of Long Island Corporation, founded in 1927, emphasizes a customer-first approach and offers a range of banking products [5].

Financial Performance - Net income available to common stockholders for Q4 2024 was $18.9 million, a 20.5% increase quarter-over-quarter and a 6.2% increase year-over-year[1]. - Diluted earnings per share for Q4 2024 were $0.49, compared to $0.41 in Q3 2024 and $0.46 in Q4 2023[1]. - Operating net income for Q4 2024 was $20.2 million, with operating diluted earnings per share at $0.52[2]. - Net income for the year ended December 31, 2024, was $73,793 thousand, a decrease of 15.1% from $87,003 thousand in 2023[24]. - Earnings per common share for the year ended December 31, 2024, was $1.77, a decrease of 14.9% from $2.08 in 2023[24]. - Noninterest income for the year ended December 31, 2024, was $16,728 thousand, an increase of 19.4% from $14,001 thousand in 2023[24]. Income and Expenses - Noninterest income for Q4 2024 was $3.7 million, a decrease from $4.7 million in Q3 2024 and $4.2 million in Q4 2023[8]. - Noninterest expenses totaled $151,798 thousand for the year ended December 31, 2024, an increase of 5.4% from $143,949 thousand in 2023[24]. - Total noninterest expenses were $38,498 thousand in Q4 2024, a decrease of 0.4% compared to $38,641 thousand in Q3 2024[28]. Interest Income and Margin - Fully taxable equivalent net interest income for Q4 2024 was $64.7 million, a 6.3% increase from Q3 2024, driven by a 19 basis-point widening of the net interest margin to 2.86%[6]. - Net interest income for Q4 2024 was $64,711 thousand, an increase of 3.0% compared to $60,887 thousand in Q3 2024[28]. - The company reported a net interest income of $247,337 thousand for the year ended December 31, 2024, down from $255,106 thousand in 2023, a decrease of 3.1%[24]. - Net interest income after provision for credit losses was $233,537 thousand for the year ended December 31, 2024, down from $246,906 thousand in 2023, representing a decline of 5.4%[24]. Assets and Liabilities - Total assets as of December 31, 2024, were $9.880 billion, an increase from $9.856 billion as of December 31, 2023[14]. - The company’s total liabilities were $8,637,896 thousand as of December 31, 2024, slightly down from $8,638,983 thousand in 2023[23]. - Total assets increased to $9,879,600 thousand as of December 31, 2024, compared to $9,855,603 thousand as of December 31, 2023, reflecting a growth of 0.24%[23]. Deposits and Loans - Total deposits increased to $7.820 billion as of December 31, 2024, up from $7.536 billion as of December 31, 2023[14]. - Total deposits rose to $7,820,114 thousand as of December 31, 2024, up 3.77% from $7,536,202 thousand in 2023[23]. - Total loans reached $8,275,553 thousand as of December 31, 2024, reflecting an increase of 2.0% from $8,111,976 thousand in the previous quarter[26]. Credit Losses and Asset Quality - The provision for credit losses for Q4 2024 was $3.5 million, compared to $3.8 million in Q3 2024 and $2.7 million in Q4 2023[12]. - The provision for credit losses increased to $13,800 thousand for the year ended December 31, 2024, compared to $8,200 thousand in 2023, indicating a rise of 68.3%[24]. - Nonperforming assets increased to $57,310 thousand from $52,524 thousand, reflecting a rise in asset quality concerns[33]. - Nonperforming assets as a percentage of total assets increased to 0.53%, compared to 0.48% in the previous quarter[34]. Merger and Future Outlook - The proposed merger with The First of Long Island Corporation is expected to close in Q2 2025, enhancing ConnectOne's presence in Long Island[3].

Core Insights - ConnectOne Bancorp reported a net income of $18.9 million for Q4 2024, an increase from $15.7 million in Q3 2024 and $17.8 million in Q4 2023, with diluted earnings per share rising to $0.49 from $0.41 and $0.46 respectively [1][3] - The full-year net income for 2024 was $67.8 million, down from $81.0 million in 2023, with diluted earnings per share decreasing to $1.76 from $2.07 [1][3] - The bank's return on average assets improved to 0.84% in Q4 2024 from 0.70% in Q3 2024 and 0.79% in Q4 2023, while return on average tangible common equity rose to 8.27% from 6.93% and 8.18% respectively [1][3] Financial Performance - Operating net income for Q4 2024 was $20.2 million, compared to $16.1 million in Q3 2024 and $19.1 million in Q4 2023, with operating diluted earnings per share at $0.52, up from $0.42 and $0.49 [2][3] - Fully taxable equivalent net interest income for Q4 2024 was $64.7 million, a 6.3% increase from Q3 2024, attributed to a widening net interest margin of 2.86% [5][7] - Noninterest income decreased to $3.7 million in Q4 2024 from $4.7 million in Q3 2024 and $4.2 million in Q4 2023, primarily due to lower net gains on equity securities [8] Asset Quality and Credit Losses - The provision for credit losses was $3.5 million in Q4 2024, down from $3.8 million in Q3 2024 but up from $2.7 million in Q4 2023, with a full-year provision of $13.8 million compared to $8.2 million in 2023 [12] - Nonperforming assets increased to $57.3 million as of December 31, 2024, from $51.3 million in Q3 2024 and $52.5 million in Q4 2023, with a nonperforming assets ratio of 0.58% [13] Strategic Developments - The proposed merger with The First of Long Island Corporation is progressing, with expectations for completion in Q2 2025, which is anticipated to enhance ConnectOne's market presence [3] - The bank's loan portfolio grew by 2.0% quarter-over-quarter, and core deposits increased by 3.2%, reflecting strong operating momentum [3] Balance Sheet Highlights - Total assets as of December 31, 2024, were $9.880 billion, up from $9.856 billion a year earlier, while total deposits increased to $7.820 billion from $7.536 billion [14][15] - The company's total stockholders' equity rose to $1.242 billion as of December 31, 2024, compared to $1.217 billion in 2023, driven by an increase in retained earnings [15]

Core Viewpoint - ConnectOne Bancorp, Inc. plans to release its fourth quarter financial results for the period ending December 31, 2024, on January 30, 2025, before market opening [1] Group 1: Financial Performance Announcement - The company will host a conference call and audio webcast on January 30, 2025, at 10:00 a.m. ET to discuss its financial performance and operating results [1] - The call will be led by Chairman and CEO Frank Sorrentino III and CFO William S. Burns [2] - Participants are encouraged to dial in at least five minutes prior to the start of the call [2] Group 2: Accessing the Conference Call - A replay of the conference call will be available from 1:00 p.m. ET on January 30, 2025, until February 6, 2025 [3] - An online archive of the webcast will be accessible after the call on the company's website [3] Group 3: Company Overview - ConnectOne Bancorp, Inc. operates through its subsidiary ConnectOne Bank and its fintech subsidiary BoeFly, Inc., focusing on small to middle-market businesses [4] - ConnectOne Bank offers a comprehensive range of banking and lending products and services [4] - BoeFly, Inc. serves as a fintech marketplace connecting franchise borrowers with funding solutions [4]