ConnectOne Bancorp, Inc. Q1 FY2026 earnings call

Kick off 2026 with strong momentum, delivering on strategic objectives from the largest merger, having a stronger and better balanced franchise, diversified client base and revenue streams, scaled balance sheet to nearly $15 billion in assets, increased market capitalization to over $1.4 billion, and expanded geographic footprint. First quarter performance included loan growth, margin expansion, accelerating return metrics, increased tangible book value per share, opportunistically repurchased shares and increased common dividend. Expense side was highly disciplined, realizing merger synergies, focusing on optimizing systems, products, services, and integrating AI for efficiency. Credit quality was solid with net charge-offs declined, non-approval loan ratio decreased, criticized and classified assets low, but delinquencies increased due to an isolated client relationship, working closely with the client which had a strong track record, and significant reserves against the rent-stabilized portfolio. Non-interest income growth had momentum building with SBA loan sales accelerating.

Loan growth: Portfolio grew by $300 million in the quarter, with an annualized rate of approximately 10%, and the pipeline remains strong. Net interest margin expanded 12 basis points sequentially to 3.39% driven by contractual loan repricings and improved deposit costs. Asset quality: Total non-performing assets were 0.29% of total assets, criticized and classified loans were 2.26% of total loans, net charge-offs on non-PCD portfolio were eight basis points annualized. The rent-stabilized portfolio was reduced to $675 million, with 413 million from the First of Long Island acquisition having significant reserves and the remaining 263 million from Connect One having elevated reserves, and the total allowance of credit losses to loans was 1.3%. Non-interest income: Non-trust income was $6.8 million for the quarter, and SBA gains were approximately $400,000 in the quarter plus $1.1 million in April, ahead of the 2026 target.

Net interest margin maintained previous guidance with year-end spot margin of 350, factoring in lower probability of rate cuts, loans repricing higher, and competitive deposit pricing environment. Loan growth: Portfolio growth net of payoffs anticipated in the mid-single digits with a strong pipeline. Board declared an 8.3% increase in common dividend. Repurchased 90,000 shares in the quarter at $26.21 per share, with more than 500,000 shares remaining in the repurchase authorization and plan to opportunistically repurchase shares.

Delinquencies increased due to an isolated client relationship collateralized by 19 multifamily New York City rent-stabilized properties, though the client had a strong track record, and challenges in the rent-stabilized market with changing laws and interest rates. Uncertainties in the rent-stabilized portfolio value and potential financial impact, as well as market volatility and economic uncertainties affecting performance.

Q: Tyler Casitore on loan growth dynamics, accelerated pull-throughs, payoff activity, loan growth guide, new originations rates, rent-regulated side.

A: Payoffs down, pipeline strong, mid-single-digit growth possible, new loans ~620, spreads maintained, past due from Legacy portfolio, working closely with the client, strong reserves.

Q: Tim DeLisi on Florida markets, activity, Orlando LPO, hires, longer term view.

A: Bullish on Florida, growing measuredly, 18-19 individuals, mix of business similar to NY, related to NY business.

Q: Tim DeLisi on margin, deposit costs trend, accretion impact.

A: Deposit costs planned flat, margin widening from loan portfolio repricing, will get back to accretion amount.

Q: Freddie Strickland on X multifamily credit metrics, spot margin, fixed-rate loans repricing.

A: No extraordinary dollar amounts in criticized/classified or MPAs, spot margin 350 at year end, ~$100M fixed-rate loans repricing monthly.

Q: Emily Lee on dividend increase, capital allocation, past due credits metrics.

A: Plan to repurchase ~100,000 shares quarterly, lower payout ratio, no LTV metrics available for past due credits, majority of portfolio current and not impaired.

Q: Daniel Tamayo on M&A market, state of conversations.

A: Highly focused on organic growth, successful integration of First of Long Island, opportunistic with M&A, few compelling opportunities currently.

Q: Emily Lee on AI use cases, efficiencies.

A: AI pervasive, used in day-to-day operations to streamline processes, vendors incorporating AI, opportunities for scaling and accuracy.