ConnectOne Bancorp Earnings Call Signals Confident Growth

ConnectOne Bancorp Inc. ((CNOB)) has held its Q1 earnings call. Read on for the main highlights of the call.

ConnectOne Bancorp’s latest earnings call struck an overall optimistic tone, as management highlighted accelerated loan growth, widening margins, and improving profitability alongside robust credit performance. While acknowledging concentrated stress in a rent‑stabilized multifamily relationship and deposit competition, executives emphasized ample reserves, strong capital, and confidence in continued margin and earnings momentum.

Scaling the Franchise and Expanding the Footprint

ConnectOne has rapidly transformed its balance sheet, growing from under $10 billion in assets to nearly $15 billion following its recent merger, and its market capitalization now tops $1.4 billion. Management underscored that the expanded franchise spans the broader New York City metro region and now reaches into South Florida, positioning the bank to capture more commercial relationships.

Loan Growth Accelerates with Solid Pipeline

The loan portfolio expanded at an annualized rate of about 10%, with roughly $300 million of loan growth in the quarter, twice the pace of each of the prior two quarters. Executives said the lending pipeline remains healthy and guided to mid‑single‑digit growth net of payoffs, balancing opportunity with prudent risk management.

Margin Expansion Continues

Net interest margin widened by 12 basis points sequentially to 3.39%, following a 16‑basis‑point increase in the prior quarter, signaling healthier spread income despite a competitive funding backdrop. Management reaffirmed its year‑end spot margin goal around 3.50%, suggesting further expansion as loans reprice at higher yields.

Improved Operating Performance and Profitability

Operating earnings per share came in at $0.79, supported by stronger core performance rather than one‑off items, and operating pre‑provision net revenue reached 1.81% of average assets. That PPNR level was up 3.5% from last quarter and 35% year over year, reflecting improved efficiency and scale benefits from the merger.

Broad Portfolio Credit Metrics Remain Strong

Credit quality across the broader portfolio remains solid, with total nonperforming assets declining to 0.29% of total assets and criticized and classified loans falling to 2.26% of total loans. Net charge‑offs on the non‑purchased credit deteriorated portfolio were a low 0.08% annualized, underscoring the absence of widespread stress.

Reserves and Actions in Rent‑Stabilized Loans

The rent‑stabilized loan book has been trimmed to about $675 million from $750 million at merger close, as management selectively reduces exposure in this challenged niche. Of that, $413 million from the acquisition carries roughly $66 million of purchase accounting marks, while the $263 million originated by ConnectOne holds a $15 million reserve, together providing more than an $80 million, or roughly 12%, cushion.

Capital Strength, Tangible Book and Shareholder Returns

Tangible book value per share rose 1.7% to $23.93, approaching the pre‑merger level of $24.16, signaling successful integration and capital accretion. The bank reported a tangible common equity ratio of 8.64% and a bank leverage ratio of 10.81%, while rewarding investors with an 8.3% dividend increase and repurchasing 90,000 shares, with additional buyback capacity remaining.

Expense Discipline and Growing Fee Income

Excluding merger and restructuring items, noninterest expenses were $55.7 million, and management reiterated a goal of limiting sequential growth to roughly 1.5% per quarter to preserve operating leverage. Noninterest income reached $6.8 million, with Small Business Administration loan gains accelerating and already running ahead of 2026 targets, aided by contributions from the BoeFly platform.

Isolated Delinquency in a Rent‑Stabilized Relationship

The rise in 30–59 day delinquencies to 0.81% was attributed primarily to one client relationship backed by 19 rent‑stabilized multifamily properties in New York City, rather than a broad deterioration. Management stressed that this exposure originates from the legacy ConnectOne book and that they are actively working through remediation with the borrower.

Provisioning and Reserves for Multifamily Exposure

The quarterly provision for loan losses was $5.2 million, reflecting the combination of strong loan growth and higher qualitative factors tied to rent‑regulated multifamily exposures. As a result, the allowance for credit losses now stands at 1.3% of loans, with elevated reserves specifically earmarked for the rent‑stabilized segment to absorb potential future losses.

Funding Mix Shifts and Deposit Competition

To fund rapid loan growth, the bank tapped reductions in cash and investment securities and supplemented those sources with some wholesale deposits, reshaping its balance sheet mix. Executives acknowledged a competitive deposit pricing environment but are planning for deposit costs to remain roughly flat this year, implying careful management of funding pressures.

Uncertainty in Rent‑Regulated Markets

Management noted that rent‑regulated markets remain in flux given past legislative changes and higher interest rates, which continue to cloud longer‑term cash flows for some borrowers. They declined to disclose current loan‑to‑value metrics on the past‑due credits, leaving some uncertainty around ultimate recovery levels despite the sizable cushions in place.

Purchase Accounting and Future Margin Dynamics

Purchase accounting accretion added $9.3 million to net interest income this quarter, and management expects roughly $9 million per quarter in 2026 and about $8 million per quarter in 2027 from this source. Investors were reminded that these accretion benefits affect reported net interest margin and should be carefully incorporated into forward margin and earnings models.

Concentration Risk in a Single Relationship

The delinquency spike tied to one long‑standing borrower highlighted the inherent concentration risk within the bank’s rent‑stabilized multifamily subset, even as the broader portfolio performs well. Management emphasized that, beyond this relationship, credit trends remain favorable, suggesting idiosyncratic rather than systemic weakness in the book.

Forward Guidance and Outlook

Looking ahead, ConnectOne reaffirmed a year‑end spot net interest margin target near 3.50%, or around 3.45% as a conservative exit rate, driven largely by ongoing loan repricing at yields above 6% and stable deposit costs. The bank continues to guide to mid‑single‑digit loan growth net of payoffs, maintain an allowance‑to‑loans ratio near 1.3% with over $80 million of embedded cushion on rent‑stabilized exposure, and pursue ongoing capital deployment via share buybacks, dividend growth, and disciplined expense and SBA fee expansion.

ConnectOne’s earnings call painted a picture of a bank leveraging post‑merger scale to drive growth, margin expansion, and rising profitability, while keeping credit costs low and capital strong. Investors will watch closely how management navigates rent‑regulated exposures and deposit competition, but for now the story remains one of disciplined growth, expanding spreads, and continued shareholder‑friendly capital deployment.