• Quarterly Net Income: Increased 21% quarter-over-quarter and 6% year-over-year.
• Core Deposits Growth: Increased more than 3% quarter-over-quarter.
• Loan Portfolio Growth: 2% quarter-over-quarter.
• Net Interest Margin: Improved by nearly 20 basis points during the quarter.
• Loan-to-Deposit Ratio: Declined from 108% to 106%.
• Net Interest Margin Projection: Expected to improve to approximately 2.90% in the first quarter of 2025.
• Operating Expenses: Projected to increase 2% to 3% sequentially in the first quarter of 2025.
• Provision for Credit Losses: $3.5 million for the quarter.
• Effective Tax Rate: Expected to return to 26% to 27% in the first quarter.
• Merger Impact on Net Interest Margin: Expected to enhance by about 10 basis points post-merger.
• Return on Tangible Common Equity Projection: Expected to be in the 12% to 13% range post-merger.

• Warning! GuruFocus has detected 3 Warning Sign with CNOB.

Release Date: January 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• ConnectOne Bancorp Inc (NASDAQ:CNOB) reported a 21% quarter-over-quarter increase in net income available to common shareholders, driven by a wider net interest margin.
• The company experienced solid growth in both loans and core deposits, with a 3% increase in core deposits quarter-over-quarter.
• The merger with First National Bank of Long Island is progressing on schedule, expected to close in the second quarter of 2025, which is anticipated to enhance the net interest margin by about 10 basis points.
• ConnectOne Bancorp Inc (NASDAQ:CNOB) has a strong loan pipeline and expects continued loan portfolio growth, with a projected 2% increase in average loans for the first quarter of 2025.
• The company has maintained sound and stable credit trends, with charge-offs at reasonable levels and a low delinquency rate of just 4 basis points.

Negative Points

• Non-accrual loans increased slightly during the quarter, although they are expected to trend down in the next quarter.
• The company's criticized and classified loans increased from 2.2% to 2.7% as a percentage of the portfolio, indicating some pressure on credit quality.
• Operating expenses are projected to increase by 2% to 3% sequentially in the first quarter of 2025, which could impact profitability.
• The effective tax rate is expected to return to the 26% to 27% level in the first quarter, after a decrease due to year-end adjustments.
• The company plans to raise $175 million to $200 million in sub debt, which may affect its capital structure and cost of capital.

Q & A Highlights

Q: Can you provide insights into the loan growth and pipeline, given the better-than-expected results this quarter? A: Frank Sorrentino, CEO, explained that the loan pipeline has strengthened throughout the year, with a focus on relationship business. The hesitancy seen earlier in 2024 has decreased, leading to a strong fourth quarter and positive outlook for 2025. Bill Burns, CFO, added that loans were booked at 7.45% in the fourth quarter, with a pipeline weighted average rate of 7.62%.

Q: What drove the noninterest-bearing deposit growth, and what are the expectations for deposit growth in 2025? A: Frank Sorrentino noted that the growth was due to a focus on high-quality relationship business and market disruptions leading clients to seek new banking partners. Bill Burns added that core non-interest-bearing demand is trending upwards, although the 50% annualized growth rate seen may not continue.

Q: Are you planning a capital raise in the first quarter, and will it include repricing of sub debt? A: William Burns confirmed plans for a capital raise, including $100 million as part of the merger transaction and $75 million for repricing, totaling $175 million to $200 million.

Q: How does the CRE concentration factor into loan growth, given its role in the fourth quarter? A: William Burns clarified that while the growth appears as CRE concentration, much of it was owner-occupied and construction loans. The CRE concentration is expected to trend downward.

Q: What are the assumptions behind the NIM outlook, and how could rate changes impact it? A: William Burns explained that the NIM outlook assumes no rate cuts, with a projected 5 basis point increase in margin, 10 basis points from the merger, and potentially another 5 basis points from rate cuts, leading to a 3.20% NIM by 2026.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.