Earnings Call: ConnectOne Bancorp Reports Steady Q3 Ahead of Strategic Merger

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Earnings Call: ConnectOne Bancorp Reports Steady Q3 Ahead of Strategic Merger

In a recent earnings call, ConnectOne Bancorp (CNOB) announced a merger with First of Long Island Corporation, expected to significantly enhance the bank's market presence and credit quality. Scheduled for completion in the first half of 2025, the merger will increase ConnectOne's assets to over $14 billion. Despite a strong third quarter, the bank anticipates moderate loan growth in the short term, with expectations to return to stronger growth rates by mid-2025. The bank also plans to issue $100 million in subordinated debt before the merger and expects a stable net interest margin (NIM) in the coming quarter.

Key Highlights:

  • ConnectOne Bancorp has entered into a merger agreement with First of Long Island Corporation, anticipated to be completed in the first half of 2025. The merger is expected to create significant synergies and position ConnectOne as a leading community bank in Long Island.
  • The bank reported an annual 8% increase in average customer deposits and a solid loan-to-deposit ratio.
  • The net interest margin remained stable, with a slight uptick expected due to the Federal Reserve's recent rate cut.
  • Credit quality is strong, with a modest increase in nonaccrual loans and criticized loans at 2.2% of total loans.
  • Management foresees moderate loan growth in the near term but expects to return to mid-to-high single-digit growth by mid-2025.
  • A $100 million subordinated debt issuance is planned before the merger, with expected rates between $850,000 and $875,000.
  • The next earnings call is scheduled for early 2025.

Company Outlook:

  • The merger with First of Long Island is expected to expand ConnectOne's market reach and asset base, enhancing future growth.
  • Loan growth is projected to be slow in the short term but should accelerate by mid-2025.
  • The bank aims to maintain a relationship-focused business model, leveraging market opportunities for sustainable growth.

Negative Highlights:

  • Short-term loan growth may be slower, with mid-to-high single-digit growth not anticipated until mid-2025.
  • A modest sequential increase in expenses by 1-2% is expected.

Positive Highlights:

  • The merger is anticipated to create significant synergies, particularly in residential mortgage lending and SBA loans.
  • The bank's strong credit quality and improved capital concentration are likely to maintain a positive trend.
  • Low-interest rates may encourage business formations and increase opportunities through the BoeFly platform.

Shortcomings:

  • The net interest margin remained stable, with no significant increase reported for the third quarter.
  • Criticized loans rose to 2.2% of total loans, though they are well-secured.

Q&A Highlights:

  • CEO Frank Sorrentino and CFO Bill Burns addressed questions regarding the timing of loan growth and the impact of economic conditions on performance.
  • The potential for securities restructuring following the FLIC merger was discussed, acknowledging it could enhance growth capacity but is not necessary for current projections.
  • Low-interest rates and the FLIC merger are seen as opportunities to boost business and SBA loans through the BoeFly platform and expanded branch network.

ConnectOne Bancorp's recent earnings call highlighted the bank's strategic focus and solid financial performance. With the upcoming merger expected to expand its reach and assets, ConnectOne is positioning itself for sustainable growth in the competitive community banking sector. Investors and stakeholders will be keen to assess the merger's progress and the bank's ongoing strategic initiatives in the next conference call in early 2025.

InvestingPro Insights: ConnectOne Bancorp's (CNOB) recent merger announcement and earnings call portray a company positioning itself for future growth despite some short-term challenges, a perspective supported by data from InvestingPro. According to InvestingPro data, ConnectOne Bancorp has a market valuation of $946.53 million, indicating its significant presence in the community banking sector. The company's price-to-earnings ratio of 13.35 suggests it is trading at a reasonable valuation relative to its earnings, which could be attractive to value-focused investors considering the upcoming merger.

One of the InvestingPro Tips highlights ConnectOne's commitment to returning value to shareholders, noting the bank has "increased its dividend for 5 consecutive years." This is particularly noteworthy given the bank's expectation of moderate loan growth in the short term. The current dividend yield of 2.92% offers investors some income stability during this transitional period.

Another relevant InvestingPro Tip indicates that the stock "took a major hit last week," with a 1-week price total return of -7.72%. This recent decline could be related to market reactions to the merger announcement or broader economic factors affecting the banking sector. However, it's important to note the 6-month price total return shows a significant increase of 26.99%, indicating generally positive momentum up to the merger news.

The company's profitability is underscored by another InvestingPro Tip, stating that ConnectOne "was profitable over the last twelve months." This aligns with the bank's reported robust third quarter and stable net interest margin mentioned in the earnings call.

For investors seeking more comprehensive analysis, InvestingPro offers additional tips and insights that can provide a deeper understanding of ConnectOne Bancorp's financial health and outlook. There are 8 more InvestingPro Tips available for CNOB, which could be valuable for those looking to make informed investment decisions in light of the upcoming merger and market conditions.