ConnectOne (CNOB) Q1 2026 Earnings Transcript

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DATE

Thursday, April 23, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• Chairman & Chief Executive Officer — Frank Sorrentino
• Chief Financial Officer — William Burns

TAKEAWAYS

• Net Interest Margin -- Expanded by 12 basis points sequentially to 3.39%, following a 16 basis point increase in the previous quarter, primarily from loan repricing and improved deposit costs.
• Loan Growth -- Loans grew at an annualized rate of approximately 10%, adding $300 million and doubling the pace of each of the two prior quarters.
• Operating Earnings Per Share -- Delivered $0.79, with operating PPNR as a percentage of average assets at 1.81%, up 3.5% from the previous quarter and 35% year over year.
• Deposit Growth -- Achieved client deposit growth, with additional loan funding sourced by reducing cash/investment securities and using some wholesale deposits.
• Margin Guidance -- Management targets year-end spot margin of 3.50%, reflecting expectations for continued loan repricing and a competitive deposit environment.
• Asset Quality -- Total nonperforming assets decreased to 0.29% of total assets, with criticized and classified loans at 2.26% of total loans—the lowest historical level.
• Net Charge-Offs -- Reached 0.08% annualized on the non-PCD portfolio, representing a recent low in charge-offs.
• 30–59 Day Delinquencies -- Increased to 0.81%, attributed to a single legacy ConnectOne relationship collateralized by 19 multifamily New York City rent-stabilized properties.
• Rent-Stabilized Portfolio -- Reduced to $675 million from $750 million at merger close; $413 million came from the First of Long Island acquisition, marked down aggressively with $66 million in total reserves and adjustments.
• Reserve Coverage -- Combined general reserves and purchase accounting marks total over $80 million, covering 12% of the aggregate rent-stabilized exposure.
• Allowance for Credit Losses -- Stands at 1.3% of loans after a $5.2 million quarterly provision.
• Noninterest Expenses -- Excluding merger/restructuring charges, reported at $55.7 million, with planned sequential growth of 1.5% per quarter.
• Noninterest Income -- Was $6.8 million, with SBA gains of $0.4 million for the quarter and $1.1 million recorded in April; nearly one-third of recent SBA gains originated from BoeFly.
• Tangible Book Value Per Share -- Increased by 1.7% to $23.93, nearing the pre-merger value of $24.16.
• Tangible Common Equity Ratio -- Reached 8.64% at the holding company level; bank leverage ratio was 10.81%.
• Dividend and Repurchase -- Declared an 8.3% dividend increase; repurchased 90,000 shares at $26.21 per share, with future plans for approximately 100,000 shares per quarter.
• AI Integration -- Management cited active use of AI tools across systems for efficiency and scalability, leveraging vendor platforms and internal optimization in daily operations.
• Florida Growth -- Headcount increased from four to roughly 18-19; business mix in South Florida mirrors New York operations, reflecting sustained regional expansion.
• Purchase Accounting Accretion -- $9.3 million recognized in the quarter, with expectations for $9 million per quarter through 2026 and $8 million per quarter in 2027.
• Loan Repricing Pipeline -- Approximately $100 million in fixed-rate loans scheduled for monthly repricing.
• New Loan Yields -- Current pipeline yields about 6.35%; recently originated loans are at 6.20% with stable spreads.

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RISKS

• Delinquencies rose to 0.81% of loans due to a single multifamily relationship in New York City's rent-stabilized segment, which management described as "in a bit of flux" and facing ongoing industry headwinds.
• The provision for loan losses increased to $5.2 million, including higher qualitative factors for the multifamily portfolio, acknowledging sector-specific uncertainty.

SUMMARY

Management reported a substantial increase in scale, with assets rising to nearly $15 billion and market capitalization topping $1.4 billion following the First of Long Island merger. Loan growth, margin expansion, and improved capital metrics were supported by disciplined expense control and AI-driven efficiency initiatives. The company adjusted its deposit strategy by utilizing wholesale sources and securities reductions while maintaining the overall growth trajectory. Rent-stabilized portfolio risk remains under close scrutiny, with significant reserves and purchase accounting marks established against this exposure.

• The South Florida market contributed to geographic diversification, echoing the commercial profile of ConnectOne’s core New York presence.
• Leadership emphasized ongoing organic growth focus and signaled limited near-term M&A activity despite robust industry headlines.
• Dividend and repurchase actions reflect confidence in capital generation, with further deployments linked to performance and share price movements.
• Management expects deposit costs to remain flat through year-end, with further margin expansion projected from loan repricing activity.

INDUSTRY GLOSSARY

• PPNR (Pre-Provision Net Revenue): Operating net revenue before loan loss provisioning, a measure of recurring core earnings.
• PCD (Purchased Credit Deteriorated): Loans acquired in a merger identified as having experienced a more than insignificant deterioration in credit quality since origination.
• CECL (Current Expected Credit Losses): Accounting standard requiring estimation of expected credit losses over the entire life of financial assets.
• SBA Gains: Income recognized from the sale of loans guaranteed by the U.S. Small Business Administration.
• LPO (Loan Production Office): A non-branch office focused on generating new loans, not taking deposits.
• BoeFly: A lending platform specializing in SBA loan origination and marketplace solutions.

Full Conference Call Transcript

Frank Sorrentino: Thank you, Siya, and good morning, everyone. We kick off 2026 with strong momentum, firing on all cylinders as demonstrated by our results. Twelve months ago, we detailed our strategic objectives heading into the largest merger in our company’s history. I am pleased to report that we are not only delivering on those goals, we are exceeding initial expectations. Today, our franchise is stronger and better balanced. We diversified our client base and revenue streams, materially improved our deposit mix, including core and noninterest-bearing deposits, and diversified our loan portfolio.

We scaled the balance sheet from under $10 billion to nearly $15 billion in assets, increased our market capitalization to over $1.4 billion, and built a valuable franchise, accelerating our presence across Long Island. Our geographic footprint now spans the entire New York City Metro Region and naturally extends to the growing South Florida market. We are positioned for a very strong start to 2026, and we are confident that momentum will continue for the year ahead. Turning quickly to our first quarter performance, we delivered loan growth, margin expansion, accelerating return metrics, and increased tangible book value per share.

Reflecting our success and confidence in future performance, we opportunistically repurchased shares in the first quarter and increased our common dividend. William will provide more details regarding our financial performance this quarter and our continued confidence in further margin expansion for 2026. On the expense side, we remain highly disciplined as we continue to realize merger synergies and steadily return to best-in-class efficiency levels. To ensure we continue to operate as a top-tier efficient bank, this discipline is being further enhanced by our focus on optimizing all systems, products, and services, along with the thoughtful integration of AI across the organization.

Taken together, these initiatives will drive continued improvement in our expense metrics going forward while also enhancing scalability as we continue to grow. Our first quarter credit quality remained solid. Net charge-offs declined to a recent low. Our nonaccrual loan ratio also decreased, while criticized and classified assets remained at historically low levels. However, as disclosed in our earnings release, delinquencies increased due to an isolated client relationship collateralized by 19 multifamily New York City rent-stabilized properties. The client, whom we are working closely with, has had a strong track record of payment performance spanning more than five years; significant portions of the credit remain fundamentally sound.

While it may be too early to determine any financial impact, William, in a minute, will review with you the significant reserves we have recorded against the entire rent-stabilized portfolio. Look, we have always been supporters of affordable housing in all the markets we serve. New York City is a somewhat unique market with its rent-stabilized portion of affordable housing. Our interest continues to be to support the owners that work hard every day to provide solutions for all in the greatest city in the United States. Just a reminder, ConnectOne has a strong track record of successfully resolving credits either through negotiated adjustments to interest rates and payment terms with clients or, alternatively, through sub loans.

Next, turning to noninterest income, growth momentum continues to build. Subsequent to quarter-end, we saw accelerating activity in SBA loan sales supplemented by BoeFly, and William will share more details on that shortly. Notwithstanding headline economic uncertainties and volatility, we are confident ConnectOne Bancorp, Inc. will deliver sustained long-term value for shareholders in 2026 and beyond. With that, I will turn the call over to William to walk through our performance in a little more detail.

William Burns: Alright. Thank you, Frank. Good morning to everyone on the call. As Frank laid out, we delivered another excellent quarter characterized by accelerating operating performance, robust loan growth, and a significant widening of our net interest margin. For the first quarter, we reported operating earnings per share of $0.79 and operating PPNR as a percentage of average assets of 1.81%. That is up 3.5% from last quarter and up 35% from a year ago. A clear highlight of the quarter was our net interest margin, which expanded by 12 basis points sequentially to 3.39%, building upon a 16 basis point widening in the prior quarter.

This quarter exceeded our initial projections and was primarily driven by contractual loan repricings and improved deposit costs. Looking ahead, advancing loan portfolio yields are expected to support continued margin expansion, even without the benefit of further rate cuts. On the asset side, loan originations were strong, with the portfolio growing at an annualized rate of approximately 10%. This was $300 million of growth for the quarter, double the pace we saw in each of the two prior quarters. The pipeline remains strong, and portfolio growth net of payoffs is anticipated to be in the mid-single digits. Maintaining deposit growth that keeps pace with loan growth is a primary focus for our team.

While we achieved client deposit growth this quarter, our accelerated loan growth was also funded through a reduction in cash and investment securities and supplemented with some wholesale deposits. In terms of margin outlook, we are maintaining our previous guidance for a year-end spot margin of 3.50%. This factors in a lower probability of rate cuts—maybe there is one to come—loans repricing higher, and a competitive deposit pricing environment, which we are seeing unfold. Now turning to asset quality, the broader portfolio metrics continue to show strength. Our total nonperforming assets declined to just 0.29% of total assets, and our criticized and classified loans dropped to a historically low level of 2.26% of total loans.

Further, net charge-offs on our non-PCD portfolio were exceptionally clean at just 0.08% annualized, a recent low. As Frank mentioned, we did experience an increase in 30 to 59 day delinquencies, which rose to 0.81% due to one relationship we are in the process of working out. We recognize the market’s focus on the New York City rent-stabilized space, which is why we provided additional information in this morning’s release. Our total rent-stabilized portfolio has been reduced over the past year to $675 million through paydowns, payoffs, and loan sales. It was $750 million at merger close. Now, $413 million, or 61% of that $675 million, is attributable to the First of Long Island acquisition.

That portion was fully reviewed in our merger due diligence and was marked down aggressively, with reserves and yield adjustments aggregating to $66 million, bringing today’s carrying value on that part of our portfolio to less than 85¢ on the dollar. The remaining $263 million, which was originated by ConnectOne, represents just 2.2% of total loans and also has an elevated reserve of $15 million. Between the general reserves and the purchase accounting marks, we have a 12% offset to our aggregate rent-stabilized exposure, providing more than $80 million in total value-absorbing cushion. The provision for loan losses for the first quarter was $5.2 million, reflecting strong loan growth and increased qualitative factors tied to the multifamily portfolio.

The provision was partially offset by improved economic forecasts in our CECL model. Our total allowance for credit losses to loans remains healthy at 1.3%. Turning to the income statement, operating expenses remain well controlled across the bank. Excluding merger and restructuring charges, noninterest expenses were $55.7 million for the quarter, and I am targeting a 1.5% per quarter sequential growth rate going forward. On the revenue side, noninterest income was $6.8 million. SBA gains were approximately $0.4 million for the quarter, plus $1.1 million in additional SBA gains recorded in April, putting us ahead of our 2026 target, with a third generated by BoeFly. Finally, our capital position continues to strengthen through solid retained earnings.

Tangible book value per share increased by 1.7% to $23.93, bringing us very close to our pre-merger tangible book value of $24.16. The tangible common equity ratio at the Bancorp advanced to 8.64%, and the bank’s leverage ratio to 10.81%. Reflecting confidence in our capital generation and forward margin outlook, the Board declared an 8.3% increase in our common dividend. In addition, we repurchased 90 thousand shares in the quarter at $26.21 per share, and we will continue to opportunistically repurchase shares, taking into account market pricing and asset growth. We have more than 500 thousand shares remaining in our repurchase authorization. Before we get to Q&A, I will turn it back over to Frank for some closing comments.

Frank Sorrentino: Thanks, William. To wrap things up, our earnings profile is solid and growing, credit quality remains sound, and we have a well-positioned balance sheet. We are incredibly proud of what we have accomplished so far, having established a powerful and strong framework for our next phase of growth. Our tech-forward, highly efficient culture is driving continuous optimization across the organization, allowing us to maintain our relationship-focused banking model as we continue to scale. Our teams are energized and are executing on the momentum we have created. In short, our franchise has never been stronger.

At our current valuation, we believe ConnectOne Bancorp, Inc. represents an interesting opportunity to own a high-quality franchise in one of the most desirable markets in the country. I want to thank you for joining us today, and as always, we appreciate your interest in ConnectOne Bancorp, Inc. We will now open the call for questions. Operator?

Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star then the number 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press 1 again. If you are called upon to ask your question and are listening via speakerphone, please pick up your handset to ensure that your phone is not on mute when asking your question. Our first question comes from Tyler Cacciatore from Stephens Inc. Please go ahead.

Analyst: Good morning. This is Tyler on for Matthew Breese.

Frank Sorrentino: Yes. Hi, Tyler. Hi, Tyler.

Analyst: Just starting with loan growth for the quarter, can you walk us through some of the dynamics there, and if there were any accelerated pull-throughs or lower-than-anticipated payoff activity? And then with the stronger growth here, is there any opportunity to be on the higher end of that mid-single-digit guide?

Frank Sorrentino: I would say the answer is yes. Payoffs have come down a little bit, which helped to bolster loan growth. The pipeline is strong, and we are seeing the types of business we are looking for in all of the markets we serve. We are executing on our objectives. As far as loan growth for the rest of the year, mid-single digits is where we feel most comfortable. It could be a little higher or a little lower.

Analyst: Okay, great. And then just on new originations, what are you putting new loans on at, and are you seeing any compression?

William Burns: The pipeline right now is about 6.35%, and the loans that we put on most recently were at about 6.20%. Spreads are being maintained nicely.

Analyst: Okay, great. And then if I could just squeeze one more in on the rent-regulated side. I know the release had an uptick in past-due loans. Was that from the legacy portfolio or from FLIC? And then if you could talk about the portfolio as a whole and potential impacts from the new insurance program for rent-regulated properties?

Frank Sorrentino: Maybe I will give a quick overview. It is from the legacy ConnectOne portfolio. It is a relationship that goes back a number of years, and we have been working very closely with them. There are challenges in the rent-stabilized space across portfolios, particularly for value-add components, which we generally stayed away from. This is a combination of higher interest rates and other factors within New York City, predominantly the 2019 change in the rent stabilization laws. That said, we have a great track record of working with borrowers to provide solutions. I am optimistic that, based on how we have positioned the portfolio—and as William detailed regarding provisioning—we are well prepared going forward.

William Burns: The strong reserves we provided give us comfort on the total portfolio. About 60% of the portfolio came through the acquisition, which gave us the opportunity to take significant reserves that have turned out to be probably overly conservative. Plus, we have added to reserves over the past couple of years, putting us in a very good position.

Analyst: Understood. That is all I had. Thank you.

William Burns: Thank you.

Operator: Our next question comes from Raymond James. Please go ahead.

Analyst: Hey, good morning, guys. This is Tim filling in this morning. Thanks for taking my questions.

Frank Sorrentino: Sure.

Analyst: Could we get an update on your Florida markets and how activity is trending there? In conjunction with that, you recently opened an LPO in Orlando. Any details on recent or planned hires there, or your longer-term view of that market?

Frank Sorrentino: We are very bullish on the Florida market. We have been growing there in a measured way. We started with four or five individuals and are now at 18 or 19. The mix of business is steady—a great mix of C&I, owner-occupied, and nonowner-occupied real estate—very similar to our primary New York markets. A decent portion of the business there is related to our New York business. I have joked before that Southeast Florida is like the sixth borough of New York, and it becomes more true every day. We are optimistic about a lot of different parts of Florida, but again, we are growing in a measured way.

Analyst: Great, thanks for the color, Frank. Switching to the margin, maybe for you, William. You mentioned the competitive landscape for deposit costs remains challenging. Any thoughts on where deposit costs might trend absent further rate cuts through the rest of the year?

William Burns: About flat. We are planning for flat for the year. Most of our margin widening is coming from the repricing of the loan portfolio.

Analyst: Understood, appreciate that. And a quick modeling question: do you happen to have the purchase accounting accretion that impacted the margin during the quarter?

William Burns: Accretion in net interest margin—yes. We will get back to you on the specific amount included in net interest income.

Analyst: Okay, great. I appreciate it. That is all I had. I will step back.

William Burns: Alright. Thank you.

Operator: Our next question comes from Feddie Strickland from Halti Group. Please go ahead.

Feddie Strickland: Hey, good morning. Ex-multifamily, it seems like you had solid progress on already strong credit metrics. Is there anything else in the existing criticized and classified or NPAs that we could see work out later in the year to make those balances fall even further?

William Burns: Nothing more than typical. There are always a few assets we are working on, but nothing out of the ordinary in terms of dollar amounts.

Feddie Strickland: Got it. And just to clarify your spot margin comment of 3.50% at year-end, should I take that to mean you expect the margin to be 3.50% for the fourth quarter, or is that more as you exit the year in December?

William Burns: I would say as we exit the year. That is similar to what we have said before, which was 3.45% or so for the fourth quarter. It is hard to predict exactly. We could get a little more on the loan repricing side, but we also could see deposit costs go up. That is why we are providing a conservative estimate of 3.45% in the quarter and 3.50% spot at year-end.

Feddie Strickland: And just one more: do you have the quantity of fixed-rate loans coming up for repricing?

William Burns: Put simply, about $100 million a month. It fluctuates a little, but that is a good way to model it.

Feddie Strickland: Perfect. That is it for me. Thanks for taking my questions.

William Burns: Thank you so much.

Operator: Again, if you would like to ask a question, please press star then the number 1 on your telephone keypad. Our next question comes from KBW. Please go ahead.

Analyst: Hi, everyone. This is Emily Lee stepping in for Timothy Switzer. Thanks for taking my question, and congrats on the quarter.

William Burns: Hi, Emily. Thank you.

Analyst: Great to see the dividend increase. Where would you like the payout ratio to go over time? You also mentioned you plan to continue repurchasing shares. How should we think about capital allocation and deployment for the rest of the year?

William Burns: On repurchases, we did 90 thousand in the quarter. Our plan is about 100 thousand per quarter for the rest of the year, depending on the stock price and our growth rates. In tandem is our payout ratio. We have always liked a lower payout ratio. I see us continuing to increase dividends each year, with expected increases in earnings going forward and into 2027. I would say our payout ratio would be similar.

Analyst: Understood, thank you. And you provided a bit more color on the past-due credits coming from legacy CNOB. Do you have any metrics, such as LTVs, to provide more comfort?

William Burns: Nothing at this time. The rent-regulated market is in a bit of flux, and it is difficult to determine exact current LTVs. The majority of our portfolio is current and nonimpaired, and we feel pretty good about the whole portfolio.

Analyst: Okay, great. That is all for me. Thank you.

William Burns: Thank you so much.

Operator: Next question comes from Daniel Tamayo from Raymond James. Please go ahead.

Daniel Tamayo: Hey, guys. Hi. Morning. Thanks. I know you took some questions from Tim earlier—appreciate that. I think everything has mostly been asked, so I will ask you, Frank, about the state of the M&A market. We have had some changes in the macro environment—how has that impacted conversations? Where do you stand in those, and is there anything noteworthy from your standpoint within general conversations in the market?

Frank Sorrentino: Dan, I know my answer is somewhat standard. We are highly focused on organic growth, expanding within our markets, and taking advantage of opportunities. We did a fantastic job with the First of Long Island merger. It has been integrated well and is providing tremendous opportunities. While we see headlines about M&A, we have been opportunistic and have only done a couple of deals in our existence. We will talk to anyone to understand the environment, but it is difficult to get to a place where something makes a lot of sense, given our size, scale, capability, and opportunities. We are building capital and providing return to shareholders—that is incredibly important.

If the right opportunity presented itself, of course we would take a look. Those are becoming fewer and farther between as the ramp-up in other M&A has occurred. We are happy to participate either way. If we get the opportunity, great. If we do not, we will take advantage of opportunities to serve clients who feel negatively impacted or disaffected by other transactions. That is a long way of saying there is a lot in the headlines, but I do not see anything compelling at the moment.

Daniel Tamayo: Great. Thanks for taking the question. I think we have hit on everything else. I appreciate it. I will step back.

William Burns: I want to follow up with the answer on purchase accounting interest: it was $9.3 million in the most recent quarter, averaging $9 million per quarter for this year, and for 2027 it would be $8 million per quarter.

Operator: Our next question comes from KBW. Please go ahead.

Analyst: Hi, just a quick follow-up. In your opening remarks, you mentioned the implementation of AI within your organization. Could you provide some color on potential use cases or opportunities for further efficiencies related to AI? Thank you.

Frank Sorrentino: Emily, AI is pervasive. If you are not thinking about it or utilizing it in day-to-day operations, you have to question what you are doing. We see it in two ways. First, there are many opportunities for our teams to use AI tools to make processes better, more streamlined, and more effective, cutting down on repetitive tasks. We are seeing tremendous opportunities across the bank. We use tools like nCino, Slack, and Google—our email platform has Gemini built in. All of these provide AI components that make our jobs easier. I am proud of the team for surfacing use cases—sometimes small but highly effective—that help us do more accurate work more efficiently.

Second, many vendors we work with—whether nCino, Google, Verafin, or others—are incorporating AI into their platforms. We are seeing a groundswell of opportunities with modern platforms that enable us to do things more efficiently, potentially allowing us to scale faster and better with fewer human resources, while providing additional accuracy and new ways to run the business rather than just designing a faster horse. We are using AI from the smallest opportunities to some of the largest, and it is a great tool going forward.

Analyst: That is great. Thank you so much for taking my question. I appreciate it.

Operator: That concludes the question and answer session. I would now like to turn the call back over to management for closing remarks.

Frank Sorrentino: I want to thank everyone for joining us today and for the great questions. We look forward to speaking with you during our second quarter conference call in a few months. Have a great day.

Operator: This concludes today’s conference call. Thank you for joining. You may now disconnect.

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