Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ConnectOne Bancorp Inc (CNOB, Financial) announced a merger with First of Long Island Corporation, expected to close in the first half of 2025, which is anticipated to create meaningful synergies and enhance growth opportunities.
- The merger will increase ConnectOne's assets to over $14 billion and improve its market cap to $1.3 billion, placing it in a higher valuation peer group.
- The transaction is expected to improve the balance sheet mix, expand market reach, and enhance ConnectOne's presence on Long Island.
- ConnectOne Bancorp Inc (CNOB) has been successful in growing core deposits, with average client deposits increasing by approximately $130 million or 8% on an annualized basis.
- The company is well-positioned to benefit from lower short-term rates, with a projected net interest margin improvement due to the Fed's interest rate cuts.
Negative Points
- Loan growth is expected to be muted in the near term, with potential for only slight increases or decreases over the next two quarters.
- The net interest margin compressed slightly during the third quarter on a GAAP basis, although it was up slightly on a core basis.
- There was an uptick in criticized and classified loans, which increased to 2.2% of total loans, largely due to loan modifications.
- ConnectOne Bancorp Inc (CNOB) faces competitive pressures that could impact deposit betas in a decreasing rate environment.
- The company anticipates a modest increase in core noninterest income and expenses in the fourth quarter and into early 2025, which could impact profitability.
Q & A Highlights
Q: Can you clarify the timing for loan growth to return to mid- to high single-digit levels?
A: Frank Sorrentino, CEO, explained that loan growth is expected to be muted for another quarter or two due to a slow economy and disciplined renewals for non-relationship clients. However, he anticipates a return to normal growth by the second quarter of 2025, potentially sooner, depending on various factors.
Q: What are your expectations for loan and deposit betas following the Fed's rate cuts?
A: William Burns, CFO, stated that the betas were higher on the upside cycle, allowing for more room to keep them high on the way down. He anticipates a beta range of 60 to 100 for the next cut, maintaining an 80% beta for now.
Q: Could you update us on the $100 million sub-debt raise related to the merger?
A: William Burns, CFO, mentioned that the transaction is expected to occur before the merger closing, likely in the first quarter of next year. They plan to combine it with a $75 million sub-debt repricing, aiming for a $175 million offering, with current rates around 8.50% to 8.75%.
Q: Can you provide more details on the criticized loans increase in the third quarter?
A: William Burns, CFO, explained that the increase was primarily due to loan modifications that placed loans into the special mention category. These loans are well-secured and expected to be restored in due course.
Q: Is there potential for securities restructuring with the FLIC merger?
A: William Burns, CFO, acknowledged the potential for restructuring after marking the balance sheet to market. While not necessary to meet numbers, it could improve ratios and provide additional growth capacity.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
