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ConnectOne Bancorp(CNOB) - 2024 Q3 - Earnings Call Transcript
CNOBConnectOne Bancorp(CNOB)2024-10-24 16:10
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Financial Data and Key Metrics Changes - The company reported a slight reduction in its loan portfolio during Q3 2024, which was attributed to active efforts in reducing non-relationship loans, improving the loan-to-deposit ratio and lowering commercial real estate (CRE) concentration [7][9] - Average client deposits increased by approximately 130million,or8130 million, or 8% on an annualized basis, while average broker deposits declined by 60 million [8] - The net interest margin (NIM) on a core basis was flat, but the spot margin ended the quarter approximately 10 basis points wider due to the Fed's 50 basis point cut in September [8][11] Business Line Data and Key Metrics Changes - Loan originations remained solid, with expectations for muted growth in the next two quarters, followed by a return to mid- to high single-digit growth [7] - The merger with First of Long Island Corporation is expected to enhance the company's balance sheet mix and expand market reach, increasing pro forma market cap to 1.3billion[5][14]MarketDataandKeyMetricsChanges−ThemergerwillpositionthecombinedentityasoneofthetopcommunitybanksonLongIsland,enhancingitspresenceinaregionwherethecompanyhasbeenfocusingitsefforts[6]−Thetransactionisexpectedtocreatemeaningfulrevenuesynergieswithminimalclientoverlap,particularlyinresidentialmortgageoriginationandSBAlending[6]CompanyStrategyandDevelopmentDirection−Thecompanyremainscommittedtostrategicprioritiessuchassupportingclients,extendingcompetitiveposition,drivingprofitablegrowth,andinvestinginitsfranchise[4]−Themergerisseenasafinanciallydisciplinedtransactionthatwillcreatesynergiesandenhancegrowthpotential[4][5]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementnotedthattheeconomyiscurrentlyslow,impactingloangrowth,buttherearesignsofimprovementincertainareassuchasconstructionandowner−occupiedloans[21]−Thecompanyisoptimisticaboutitsabilitytodriveincreasedprofitabilitythroughthefourthquarterandinto2025,especiallypost−merger[8][11]OtherImportantInformation−Theallowanceforcreditlosspercentageisexpectedtostrengthenfrom1.021.3 billion [5][14] Market Data and Key Metrics Changes - The merger will position the combined entity as one of the top community banks on Long Island, enhancing its presence in a region where the company has been focusing its efforts [6] - The transaction is expected to create meaningful revenue synergies with minimal client overlap, particularly in residential mortgage origination and SBA lending [6] Company Strategy and Development Direction - The company remains committed to strategic priorities such as supporting clients, extending competitive position, driving profitable growth, and investing in its franchise [4] - The merger is seen as a financially disciplined transaction that will create synergies and enhance growth potential [4][5] Management's Comments on Operating Environment and Future Outlook - Management noted that the economy is currently slow, impacting loan growth, but there are signs of improvement in certain areas such as construction and owner-occupied loans [21] - The company is optimistic about its ability to drive increased profitability through the fourth quarter and into 2025, especially post-merger [8][11] Other Important Information - The allowance for credit loss percentage is expected to strengthen from 1.02% to 1.33% on a pro forma basis due to the merger [14] - Credit quality remains sound, with non-accrual loans and charge-offs fluctuating but within expectations [15] Q&A Session Summary Question: Clarification on loan growth timing - Management indicated that loan growth is expected to be muted for another quarter or two, with signs of a pickup anticipated by the second quarter of 2025 [21] Question: Expectations around loan and deposit betas - Management expects betas to range from 60 to 100 on the next cut, with current projections sticking to an 80% beta [22] Question: Update on sub debt raise - The company plans to execute a 175 million offering in the first quarter of next year, combining a 75millionsubdebtrepricingwithanewraise[24]Question:Spotinterestmarginclarification−Thespotinterestmarginwasreportedasup10basispointsfromthethirdquarteraverage,withprojectionsforthefourthquarteratapproximately75 million sub debt repricing with a new raise [24] Question: Spot interest margin clarification - The spot interest margin was reported as up 10 basis points from the third quarter average, with projections for the fourth quarter at approximately 280 million [28] Question: Drivers of criticized loans increase - The increase in criticized loans was primarily due to loan modifications that placed loans into special mention, which are expected to be restored [34]