ConnectOne Bancorp, Inc. Q3 FY2024 earnings call

• Merger with First of Long Island Corporation: Prudent transaction expected to close in first half of 2025, combining to over $14B in assets and $11B in loans/deposits, improving balance sheet mix and market reach, with meaningful synergies in products/services, commercial lending, and geographical areas.
• Third quarter operating performance: Actively reducing non-relationship loans, core deposits growing, net interest margin flat core but spot wider post Fed September rate cut.
• Credit quality: Fared well with solid underwriting, modest uptick in non-accrual loans (secured and appropriately valued), criticized/classified loans increased due to modifications but well secured.
• Merger benefits: Lower CRE composition, loan-to-deposit ratio, improved noninterest-bearing deposit composition, strengthened allowance for credit loss.

Average client deposits since the second quarter were up by approximately $100 million - $130 million, or 8% on an annualized basis, partially offset by a decline in average broker deposits. Loan originations remain solid but loan growth may be relatively muted in the near term (next two quarters) with a return to mid- to high single-digit growth expected beyond. Core noninterest income and expenses are expected to increase modestly in the fourth quarter and into early 2025. Credit quality remains sound with modest uptick in non-accrual loans but well secured.

• Loan growth: Muted near term (next two quarters), return to mid to high single-digit growth beyond.
• Net interest margin: Spot margin up 10 basis points from third quarter average, expecting margin widening with Fed cuts, projecting fourth quarter margin around $280 million considering deposit rate cuts, loan repricing, and core deposit growth.
• Caution on 2025 guidance due to uncertain Fed cut timing and competitive pressures affecting deposit betas.

• Uncertainties in Fed cut timing.
• Competitive pressures that could slow deposit betas in decreasing rate environment.
• Potential impact of market conditions on loan growth and margin expansion.

Q: Matt Breese asked about loan growth timing, beta expectations, sub debt raise.

A: Frank and Bill responded that loan growth is muted near term, beta could range 60-100%, sub debt raise expected in first quarter of next year with $175 million offering.

Q: Dan Tamayo asked about spot interest margin, loan yields.

A: Bill discussed spot margin projection around $280 million for fourth quarter and loan yield drivers including non-accrual interest recapture.

Q: Frank Schiraldi asked about margin, expenses, merger impact.

A: Bill and Frank talked about margin projections, 1%-2% sequential expense increase, and merger benefits like improved balance sheet flexibility.

Q: Tim Switzer asked about FLIC merger securities restructuring, growth outlook.

A: Bill and Frank discussed potential restructuring, long-term growth opportunities including lower rates promoting business start-ups and SBA lending leverage via FLIC branch network.