ConnectOne Bancorp, Inc. Q1 FY2025 earnings call

• Frank highlighted strong Q1 performance with net income growth, net interest margin expansion, and tangible book value increase. Credit quality trends remained stable. Progress on the merger with First of Long Island was noted, with proactive engagement with First of Long Island clients and integration planning underway.
• William discussed net interest margin expansion to 2.93%, expense growth muted due to merger cost saves, loan pipeline indicating at least 2.5% growth in the second quarter, loan-to-deposit ratio below 106% at quarter-end, capital ratios increased, charge-offs and provisioning at low levels, and nonaccrual loans declined.

Net income available to common shareholders saw a nearly 20% year-over-year increase. The net interest margin expanded to 2.93% and is expected to reach 3% in the second quarter. Tangible book value per share increased by about 4% since the merger with First of Long Island was announced, reaching $24.16. The loan portfolio contracted slightly in the first quarter primarily due to commercial real estate payoffs, but the loan pipeline remains robust. As-of demand deposit balances declined since year-end, but average demand deposits increased sequentially. The commercial real estate concentration has declined to 42.0% from a year ago, down 4 percentage points.

• Net interest margin expected to improve 5 basis points per quarter, plus an additional 5 basis points for each 25 basis point Fed cut. Core net interest margin expected to reach 3% in the second quarter.
• Loan growth of at least 2.5% projected for the second quarter, and mid to high single digits growth for the year.
• Merger on track to close in the second quarter, with interest margin of 3.20% or greater expected, return on assets exceeding 1.2%, and return on tangible common equity approximately 15% upon full phase-in of cost saves.

• Economic uncertainty and tariff policy impact on client behavior and business operations.
• Potential delays in regulatory approval for the merger with First of Long Island.
• Macro environment uncertainties affecting growth and revenue projections.

Q: Related to economic uncertainty and whether there have been notable customer behavior changes?

A: Frank said most issues are contained, with some small impacts in certain industries like construction but nothing dramatic, and solutions already seen for some potential problems.

Q: Update on First of Long Island merger cost saves and levers for profitability?

A: William mentioned ~$24M in total cost saves, with projections potentially conservative on net interest margin due to merger accretion adding 5-15bps, and cost saves possibly taking up to a year from closing.

Q: Credit quality and repricing opportunity?

A: Frank said credit quality is steady with delinquencies at historically low levels; William said ~$1B of loans repriced in the past year with good performance, and ~$1B more to reprice in the next 12 months.

Q: Loan growth and regulatory conversations?

A: Frank said loan pipeline is strong with mid to high single digits growth expected; William mentioned 2.5% Q2 loan growth projection; Frank discussed good regulator relationships for merger approval.

Q: Expenses, loan yields, and capital raise?

A: William said expense growth is ~4-5% standalone; loan pipeline rate is 7.25%, recent loans at 7.40%; William mentioned sub-debt raise planned prior to merger closing.