Q2 2025 ConnectOne Bancorp Inc Earnings Call
Audra: My name is Audra and I will be your conference operator today. At this time, I would like to welcome everyone to the ConnectOne Bancorp Inc. second quarter 2025 earnings call.
Audra: Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again.
Siya Vansia: At this time, I would like to turn the conference over to Siya Vansia, Chief Brand and Innovation Officer. Please go ahead.
Good morning. My name is Audrey, and I will be your conference operator. Today, at this time, I would like to welcome everyone to the ConnectOne Bancorp Inc. second quarter 2025 earnings call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press the star key followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again.
Siya Vansia: Good morning and welcome to today's conference call to review ConnectOne's results for the second quarter of 2025 and to update you on recent developments.
At this time, I would like to turn the conference over to Siya Vansia, Chief Brand and Innovation Officer. Please go ahead.
Siya Vansia: On today's conference call will be Frank Sorrentino, Chairman and Chief Executive Officer, and Bill Burns, Senior Executive Vice President and Chief Financial Officer. I'd also like to caution you that we may make forward-looking statements during today's conference call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filing.
Good morning and welcome to today's conference call to review connect 1's results for the second quarter of 2025 and to update, you on recent developments. On today's conference, call will be frank Santino chairman and chief executive officer in Bill Burns, senior Executive, Vice President, and Chief Financial Officer. I'd also like to caution you that we may make forward-looking statements during today's conference calls that are subject to risks and uncertainties.
Siya Vansia: The forward-looking statements included in this conference call are only made as of the date of this call, and the company is not obligated to publicly update or revise them.
Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings.
Siya Vansia: In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release and accompanying tables or schedules, which have been filed today on Form 8K with the SEC and may also be accessed through the company's website.
Frank Sorrentino: I will now turn the call over to Frank Sorrentino. Frank, please go ahead. Thanks, Siya, and thank you all for joining us this morning to discuss ConnectOne's second quarter, which reflects continued momentum in executing our strategy alongside successful integration of the largest merger in our company's history.
The forward-looking statements included in this conference call are only made as of the date of this call and the cam companies not obligated to publicly update or revise them. In addition certain terms used in this call are non-gaap Financial measures. Reconciliations of which are provided in the company's earnings release and accompanying tables or schedules, which have been filed today on Form 8K with the SEC. And may also be accessed through the company's website.
I will now turn the call over to Frank Santino. Frank please go ahead.
Frank Sorrentino: On June 1st, ConnectOne Bank officially launched as a unified entity, completing the legal close of our merger, 1st of Long Island Bank. This milestone marks the beginning of an exciting new chapter. One that significantly enhances our scale and positions us to accelerate growth across all our markets, especially on Long Island. In line with ConnectOne's unique approach to M&A, we deployed a deliberate and focused effort to maximize synergies, both in preparation for and immediately following the close of the combination. The results are already clear, compelling, and a direct reflection on our ability to Yet overwhelmingly strong client retention, demonstrating the success of our integration efforts and the continued loyalty of our combined client base.
Thanks Sia and thank you all for joining us this morning to discuss connect 1. Second quarter triflex continued momentum and executing our strategy alongside successful integration of the largest merger in our company's history.
On June 1st, ConnectOne Bank officially launched as a unified entity, completing the legal close of our merger with First of Long Island Bank.
This milestone marks the beginning of an exciting new chapter for US1 that significantly enhances our scale and positions us to accelerate growth across all our markets, especially on Long Island.
In line, with connect 1's unique approach to m&a. We deployed a deliberate and focused effort to maximize Synergy both in preparation for and immediately following the close of the combination.
The results are already clear compelling and a direct reflection on our ability to execute
Frank Sorrentino: Steady momentum in new client onboarding as well as meaningful traction on new businesses. strong core deposit growth, including gains in DDA balance. Newly Acquired Relation We're also seeing strong loan demand as we as we combine ConnectOne's deep expertise. Significant growth opportunity across our new We enter the back half of 2025 with a solid and diverse pipeline.
And overwhelmingly strong client, retention demonstrating, the success of our integration efforts and the continued loyalty for our combined client base.
Traction on new business opportunities.
We had strong core deposit growth, including gains in DDA balances for both existing and newly acquired relationships.
We're also seeing strong loan, demand. As we as we combine connect ones deep expertise with significant growth opportunity to cross our new markets.
Frank Sorrentino: This includes C&I, construction, SBA, and residential lending.
Frank Sorrentino: Prior to Bill providing additional details about the merger and its positive impact on our financials and performance metrics, I'd like to emphasize it. Our assets now stand at nearly $14 billion, $11.2 billion in loans and $11.3 billion in deposits, while our market capitalization today exceeds $1.4 billion. This quarter, we organically grew client deposits by a record amount, improving our loan-to-deposit ratio to 99% at the end of the second quarter, down from 106% as of March 31st.
We entered the back half of 2025 with a solid and diverse pipeline. This includes cni construction, SBA and residential lending verbs.
Prior to Bill, I would like to provide additional details about the merger and its positive impact on our financials and performance metrics. I'd like to emphasize a few things: our assets now stand at nearly $14 billion, with $11.2 billion in loans.
And 11.3 billion in deposits. While our market capitalization today, exceeds 1.2 billion.
Frank Sorrentino: Non-interest bearing demand composition now exceeds 21% of total deposits, up from 18% as of year-end, reflecting both the merger and our client-focused, relationship-based Additionally, while this transaction propelled us to above $10 billion asset threshold, ConnectOne was already well-prepared to cross this hurdle. We've proactively managed the associated regulatory requirements, and as a result, anticipate only modest expense growth while remaining well-positioned to continue our growth trajectory.
This quarter, we organically grew client deposits by a record amount, improving our loans to deposit ratio to 99% at the end of the second quarter, down from 106% as of March 31.
Not interest, bearing, demand composition. Now exceeds 21% of total deposits up from 18% as of year ends reflecting, both the merger and our client Focus relationship based approach.
Additionally, while this transaction propelled us above the $10 billion asset threshold, ConnectOne was already well prepared to cross this hurdle.
Frank Sorrentino: Next, I'm also extremely pleased to welcome our newest members to our talented team. Deep expertise in community banking aligns with our client-first culture strategy. I'm equally proud of the commitment and dedication shown by our team immediately coming together as one organization. The energy in our combined team is palpable, and our bench strength and momentum position us to execute on the opportunity. We had a flawless day one brand transition followed by the successful completion of a full systems conversion just two weeks later. Leading up to and throughout the transition, we placed a strong emphasis on delivering a seamless client experience.
we've proactively managed, the associated regulatory requirements and as a result anticipate only modest expense growth while remaining well positioned to continue our growth trajectory
Next um, also extremely pleased to welcome our newest members to our talented Team, Deep expertise, and Community banking aligns, with our client first culture strategy.
I'm equally proud of the commitment and dedication shown by our team immediately coming together as 1 organization.
The energy in our combined team is palpable and our bench strength and momentum position us to execute on the opportunities in our Market.
We had a flawless day-one branch transition, followed by the successful completion of a full systems conversion just two weeks later.
Frank Sorrentino: We proactively tripled our call center capacity to ensure responsiveness and continuity to address client needs in real time. Our clients were provided with broad access to the team, and I personally met with many, reinforcing our commitment to relationship banking that defines ConnectOne. As a result, not only managed the conversion in under 30 days, we did so with excellent client and deposit retention while also growing balances and setting the stage for for enhancing.
Leading up to and throughout the transition, we placed a strong emphasis on delivering a seamless client experience. We proactively tripled our call Center capacity to ensure responsiveness and continuity to address client needs in real time.
Our clients were provided with a with broad access to the team. And I personally met with many reinforcing. Our commitment relationship banking that defines connect 1.
Frank Sorrentino: Today, we're operating as one unified company, single culture, consistent brand presence, and a shared We are one team, fully aligned, and better positioned than ever to drive organic growth. to create long-term shareholder value.
As a result, not only did we manage the conversion in under 30 days, we also maintained excellent client and deposit retention while growing balances and setting the stage for enhancing those relationships.
Today, we're operating as 1 unique company.
Single culture, consistent brand presence and a shared vision.
We are 1 team fully aligned and better positioned than ever to drive organic growth.
Bill Burns: And with that, I'll turn it over to Bill. All right, thank you, Frank. Good morning to everyone on the call.
Create long-term shareholder value.
And with that, I'll turn it over to Bill.
Bill Burns: I wanna start by reiterating that we are truly thrilled for us of Long Island Merger. and that it expands our geographic footprint and client base. also financially disciplined and compelling, strengthens our balance sheet, enhances our key financial and ultimately Boots or Fanta.
All right. Thank you, Frank. Good morning to everyone on the call. I want to start by reiterating that we are truly thrilled with the First of Long Island merger and its strategic implications.
And that it expands our Geographic footprint and client base.
Bill Burns: Now with any merger, particularly in the early stages of a transaction, I close. can be challenging to digest what's going on behind the numbers. Therefore, I want to delve into some key areas to provide greater clarity.
Also financially disciplined and compelling strengthens, our balance sheet answers, our key financial metrics and ultimately a boost, our franchise value.
Bill Burns: And first and foremost, I want to highlight the exceptionally strong deposit and funding trend.
Now with any merger particularly in the early stages of a transaction that closed mid quarter can be challenging to digest what's going on behind the numbers? Therefore I want to delve into some key areas to provide greater clarity.
Bill Burns: ConnectOne is generating light out of the. combined company basis, non-interesfering demand deposits increased by more than 100 millions in March. Approximately 15% And over the same timeframe, total deposits are up an annualized 8%, which reflects solid performance, but it's even more encouraging that when you factor in a $200 million decline in brokerage deposits. Truecore balances have increased by more than $500 million, or 17% actually. And with that robust deposit growth, we've been able to reduce wholesale federal home loan bank borrowings.
The first and foremost I want to highlight the exceptionally strong deposit and funding trends that connect 1 is generating right out of the gate.
On a combined company basis, non-expiring, demand, deposits increased by more than 100 million. Since March 31st, approximately 15% annualized
And over the same time frame, total deposits are up an annualized 8%, which reflects solid performance, but it's even more encouraging that when you factor in a 200 million dollar decline in broker deposits, our true Core Balance is of increased by more than 500 million or 17% annual.
Bill Burns: Another point we want to highlight is loans and deposit rates. Pre-merger, our first quarter loan to deposit ratio was 106, climbing to 101 on a pro forma combined basis on March 31st. Fast forward to today, joint deposit growth, the ratio is and further to a couple percentage points below 100. Going forward, we expect to operate at about that 100.
and with that, robust deposit growth, we've been able to reduce wholesale Federal Home Loan Bank, borrowings by about 200 million
Another point, we want to highlight is the loans of deposit ratio.
Bill Burns: How's it growing? testament to the success across the entire organization. particularly healthy contribution from the Long Island market.
Fast forward to today, going to Positive Growth. The ratio is approved even further to a couple of percentage points below 100 going forward. We expect to operate at about that 100% threshold.
The deposit growth, The Testament to the success across the entire organization.
Bill Burns: Many bank mergers often face challenges with positive attrition. However, our unwavering focus on client retention has led to acceleration.
Particularly healthy contribution of the Long Island Market.
Bill Burns: Let me now turn to our Purchase Accounting entries. Now, we're going to aim for full transparency regarding the Mergers Purchase Accounting adjustments, both now and in the future, to ensure our core online trends remain clear. The merger has a total loan mark of $250 million. price of $207 million fair value accretable market. $43 million non-acquired. The fair value mark of $205 million reflects a 6.6% discount to First of Long Island's $3 billion loan portfolio. A good portion of that is attributable to the $1.1 billion of residential loans we're taking on. They have a relatively longer duration.
Many banks' mergers often face challenges with positive attrition; however, our unwavering focus on client retention has led to accelerated growth.
Let me now turn to our purchase accounting entries. Now we're going to aim for full transparency, regarding the mergers, purchase accounting, adjustments both now and in the future to ensure our core online Trends remain clear.
The merger has a total loan market of $250 million. That's comprised of $207 million, fair value of credible market, and a $43 million non-credible market.
Fair value, Mark of 205 million, reflects a 6.6% discount. The first of Long, Island's, 3 billion dollar loan portfolio.
Bill Burns: The $43 million non-accreditable mark on $270 million of PCD loans largely reflects a portion of First of Long Island's New York City REM regulated portfolio. When you combine that non-accreditable mark with the accreditable mark on the PCD loan, Those lines are now being carried on our balance sheet at about $0.70. I want to remind you that First of Long Island had a long-standing track record of exceeding credit quality. Nearly all of the REM-regulated loans are performing.
Good portion of that is attributable to the 1.1 billion. In residential loans, we're taking on, they have a relatively longer duration.
The $43 million non-credible mark on $270 million of PCD loans largely reflects the portion of the New York City REM regulated portfolio.
When you combine that non-credible, Mark with the acreditable mark on the PCB loans, those lines are now being carried on our balance sheet at about 70 cents a dollar.
Bill Burns: Nevertheless, under GAAP, conservatively and appropriately, allocated a healthy reserve due to the higher cap rates currently being applied.
Bill Burns: Now, earnings equation will be considerable. We are projecting them to be approximately 9.8 million per quarter for 2025, climbing to 9.2 million per quarter in 26 and 7.9 million. I'll address the impact of the accretion on our market.
I want to remind you that First of Long Island has a longstanding track record of being credit quality; nearly all the REM-regulated loans are performing. Nevertheless, under GAAP, conservatively and appropriately, we allocated a healthy reserve due to the higher cap rates currently being applied to the sub-segment.
Bill Burns: Now, the provision and allowance, we're going to talk about that a little bit. The total provision for credit losses for the second quarter was $35.7 million. including a day-one provision of the purse of Long Island, $27.4 million, and an operating provision of $8.3 million.
Now, earning secretion will be considerable. We are projecting them to be, approximately 9.8 million for quarter for 2025 declining to 9.2 million per quarter, and 26, and 7.9 million for quarter and 47. I'll address the impact of the accretion on our margin this year.
Bill Burns: Now, that 8.3 million is higher than usual for ConnectOne. It was largely due to upward adjustments in our quantitative loss. resulting from the merger, particularly attributable to the longer duration. So, in my view, the impact to diesel modeling is more or less a one-time adjustment. As such, all things equal, we expect lower levels of portability.
Now, the provision and allowance going to talk about that a little bit, the total provision for credit losses. For the second, quarter was 35.7 Million, including a day 1 provision, first of Long Island, 27.4 million, and an operating provision of 8.3 million.
Bill Burns: As many of you are aware, there is a pending rule change to eliminate the day one. We will be able to reverse that charge in the future, should it become the...
Now that 8.3 million is higher than usual for connect 1. It was largely due to Upward adjustments in our quantitative loss. Factors resulting from the merger, particularly attributable to the longer duration, loan portfolio required. So, in my view, the impact to diesel modeling is more or less a 1-time adjustment as such all things equal. We expect lower levels of quarterly, performing for the remainder of 25.
Bill Burns: That would flow through earnings and add about Let me review the merger charges and cost saves so far. So far, we've recognized $40 million in aggregate merger charges. And my expectation is we'll record up to an additional $10 million over the next quarter or two. The target was approximately $52 million, so I expect to remain below that after the In terms of cost saves, we are on track.
As many of you are aware, there is a pending rule change to eliminate the Day 1 provision. We will be able to reverse that charge in the future, should it become effective.
That would flow through earnings and add about 15 basis points of the DC ratio.
Um, let me review the merger charges and cost saves So Far So Far, We've recognized 40 million in aggregate merger charges. And my expectation is we'll record up to an additional 10 million over the next quarter or 2, Target was approximately 52 million so expect to remain below that after the low rank.
Bill Burns: The first thing I want to explain is that the second quarter was a mixed bag, just one month of a combined expense base and specific emergency. Calibrating for those items or expense-based is what I think. Going forward, as a 100% combined company, 2025 quarterly expenses are projected in the $55 million range, while in 2026, the quarterly run rate is likely to be slightly higher, $56 to $57 And these projections are consistent, the achievement are 35% previous.
In terms of cost savings, we are on track. The first thing I want to explain is that the second quarter was a mixed bag. Just one month of a combined expense base and significant merger charges, calibrating for those items, are expense-based, which is what I've expected.
Bill Burns: Just the other income line for a moment, pre-merger ConnectOne standalone was running at $4 to $5 million.
I'm going forward as a 100% combined company, 2025 quarterly expenses, projected in the 55 million range file in 26. The quarterly run rate is likely to be slightly higher 56.567 million and these projections are consistent the achievement or 35% previously, around sales Target.
Bill Burns: On a merged basis, that's going to go... $1.7 million per quarter for the next few quarters, collecting a new build of our SBA business against the Long Island market, but we also expect both fly to be an increase.
Bill Burns: Let me talk a little bit about the net interest margin, you know, as always there are many moving parts, but overall we expect continued expansion Those moving parts include the merger and purchase accounting Organic widening as our deposit mix Sub-debt issuance we just did and redemptions coming up and set rate So a lot of moving parts there. Our computations call for an approximate increase to our margin of 10 basis points for each of the third and fourth quarters versus the 3.0. That results in an interest margin of about $325,000. further expansion expected through 26. That estimate assumes just one rate cut.
Um just the other income line for a moment pre-merger connect 1, stand alone was running at 4 to 5 million on a merge basis. That's going to go up to 6.7 million per quarter for the next few quarters reflecting. Can you build of our SBA business against the Long Island Market? While we also expect both fly to be an increase in source of gains on sale?
Call for an approximate increase to our margin of 10 basis points for each of the third and fourth quarters versus the 3.06 report quarter. That results in an interest margin of about 3.25.
Bill Burns: In terms of projected return on assets and return on tangible common equity, I'm still comfortable with the previously announced 1.2% ROA. Return on Tangible Common Equity as we head to 26, but we will refresh that analysis once we have a full quarter behind us.
Further expansion expected through 26. That estimate assumes just 1 rate cut in 25.
Bill Burns: am hopeful for an even better Credit quality. The metric saw significant improvement due to the merger and the work out in sales of certain impaired loans. Our non-performing asset ratio improved dramatically, just 0.28% from 0.51% a year ago. The ACL as a percentage of loans jumped to 1.4% from just 1% although the significant increase reflects the non-accredited. Car jobs remained in a reasonable range of 22 basis points per quarter, there's no significant The CRE concentration ratio, as expected, it ticked up slightly to 438%.
In terms of projected return on assets and return on tangible common equity, we're still comfortable with the previously announced 1.2% ROA and 15% return on tangible common equity as we had in Q2. However, we will refresh that analysis once we have a full quarter behind us.
am hopeful for an even better Outlook.
Credit quality, the metrics sauce significant Improvement, due to the merger. And the work out and sales certain impaired. Loans are non-performing asset ratio improved dramatically just
0.28%, from 0.51% a year ago and the ACL has a percentage of loans jumped at the 1.4% from from just 1%. Although the significant increase reflects the non-creative remark
charge offs remained in a reasonable range of 22 basis points per quarter. There's no significant increase in perspective.
Bill Burns: With the merger, reduced CRE composition in the loan portfolio and higher earnings projections, we anticipate a sub 400 level by the I know you'll have questions about loan growth. Frank spoke to it a little bit. Statistically speaking, the loan portfolio has recently remained relatively flat.
The concentration ratio um as expected it ticked up slightly uh to 438% with the merger.
We aim to reduce CRA composition in the loan portfolio while projecting higher earnings. We anticipate a sub-400 level by the end of 2021.
Bill Burns: Payoffs. Having said that, we continue to see solid pipeline continues. And along those lines, our capital remains strong to support growth. The Bancorp Tangible Common Equity Ratio stands above 8% at 8.1, will trend upwards with strong levels of retained earnings. The banks to ET ratio today remains above 12%, down just a little from before the acquisition, and that reflects first-of-the-month allowance and lower rates.
I know you'll have questions about loan growth, Frank spoke to it a little bit organically. Speaking the loan portfolio has recently remained relatively flat largely due to elevated payoffs having said that we continue to see solid demand the pipeline continues to
Frank Sorrentino: And with that, I'll turn it back over to Frank and we'll take some of your questions. Thank you, Bill. As you just heard, proud that we've been able to successfully close and immediately integrate this merger while also delivering on our strategic objective. We acquired culture complementary turnkey organization in an adjacent market, enviable client base and proven track. Our markets are ripe with opportunities for a truly client-focused bank and our expanded footprint and team, coupled with the momentum we've built, lay the foundation for a strong sector.
And along those lines are capital remains strong to support growth. The Bank Corp tangible, common equity, ratio stands above 8% at 8.1 will Trend upwards with strong levels of retained earnings. While the banks key ratio today remains above 12% down, just a little from before the acquisition. And that reflects, first of all now it's lower risk, rated assets company.
With that, I'll turn it over back over to Frank and we'll take some of your questions.
Thank you Bill, as you just heard proud that we've been able to successfully close an immediately integrate this merger. While also delivering on our strategic objectives as planned.
We acquired a culture, a complimentary TurnKey organization in an adjacent market, an enviable client base, and a proven track record.
Our markets are ripe with opportunities for a truly client-focused bank.
Frank Sorrentino: As we move through the second half of the year, we look forward to driving growth and creating long-term value for our clients, team members, and our shareholders.
Our expanded footprint and team coupled with the momentum. We built lay the foundation for a strong second, half of
Frank Sorrentino: Let me close by saying that our company was undervalued.
As we move through the second half of the year, we look forward to driving growth and creating long-term value for our clients team members and our shareholders.
Frank Sorrentino: Today, I truly believe our valuation is even more compelling. ConnectOne, one of the best investors.
Frank Sorrentino: As always, we appreciate your interest in ConnectOne Bancorp. Thanks again for joining us today.
Let me close by saying that our company was undervalued before today. I truly believe our valuation is even more compelling. ConnectOne is one of the best investments in.
Frank Sorrentino: And with that, I'd like to turn it over.
Audra: Operator. Thank you.
As always, we appreciate your interest and connect on Bank Corp. Thanks again for joining us today and with that I'd like to turn it over for some questions, operator.
Audra: We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Feddie Strickland: We'll go first to Feddie Strickland at HUB-D. Hey, good morning, Frank and Bill. It's great to see the criticized and classifieds as well as the MPs down on a quarter. Are there any other opportunities in the back half of the year to maybe reduce those even a little further? They're already pretty low, but just wondering if there's any big bogeys there. And he's asking about our projection with classified and criticized. I don't see any major change from where we are today. You know, there's some stresses out there in the marketplace. with the write-downs and loans.
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 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your questions, simply press star 1 again.
We'll go first. If that is Strickland at hubby.
Hey, good morning, Frank and Bill. Um, bye, Daddy. It's great to see you. The criticizing classifies as well. The EMP is down in the quarter. Are there any other opportunities in the back half of the year to maybe reduce those even a little further? They're already pretty low, but I just want to know if there's anything bugging there.
That he's asking about our projection with classified and criticized.
Um, I don't see any major change from where we are today. Um, you know, there's there's some stresses out there on the marketplace.
Feddie Strickland: potentially unload some loans there. So we'll watch that number, but I wouldn't expect. Got it.
That have classified criticize, that would be unexpected, you know, with the, with the right Downs in loans, there's opportunities for us potentially unload some loans there. So, we'll watch that number, but I wouldn't expect any
change.
Feddie Strickland: And then just switching gears to capital with the deal behind you now and the likelihood of some pretty good capital generation in the next couple quarters.
Got it. Uh, and then just Switching gears to Capital with the
Feddie Strickland: How do you think through the dynamic between capital deployment and managing CRE concentration? Well, the numbers pan out very nice. based on. And then, because of the accretion of the deal, we're really in our relatively low dividend really any. So. I think I am. We're gonna see that go down on its own.
People behind you. Now on the likelihood of some pretty good Capital generation and in the next couple quarters, how do you think through the dynamic between Capital deployment and managing CRA concentration?
Well, the numbers pan out very nicely to C. C concentration.
That's based on.
That's part of it. And then because of the accretion of the deal, we're really and our relatively low dividend rate.
Really any Capital quickly. So, um,
Feddie Strickland: Are you asking about stock repurchases and growth? Yeah, I'm just curious if there's like a target level of common equity tier one or any other metric where you'd be a little more likely to engage in sharing purchases. You know, there's always a possibility.
I think I answered your question. Um, we're gonna we're gonna see that go down on its own. Are you, are you asking about, um, stock repurchases and growth
Yeah, I'm just curious if there's, like, a Target level of common equity, Tier 1, or any other metric where you'd be a little more likely to engage in cherry purchases.
Feddie Strickland: I mean, we came out of the gate when we talked about the deal that we'd hold off on share repurchases at the beginning. In my view, the capital ratios are looking a little bit stronger than I originally anticipated, so I'll just leave that open for now, and we continually look at that in terms of share repurchases. It obviously depends on growth. All right, great.
You know, um, it's there's always a possibility. I mean, we came out of the gate when we talked about the deal that we'd hold off on Cherry purchases at the beginning. Um, my view, the capital ratio is are looking to looking looking a little bit stronger and I originally anticipated. So I'll just leave that open for now. And uh and we continually look at that in terms of uh Sherry purchases, it obviously depends on growth in the long portfolio as well.
Feddie Strickland: Thanks for taking my questions.
All right, great. Thanks for taking my questions. Thanks, buddy. Yeah.
Daniel Tamayo: We'll move next to Daniel Tamayo at Raymond James. Hey, good morning, guys.
We'll move next to Daniel to Mayo at Raymond James.
Tim DeLacy: This is Tim DeLacy. I'm filling in for Danny. Thanks for taking my questions. Absolutely. Hi. Good morning.
Hey, good morning, guys. This is Tim de Lacy on filling. It's for Danny. Thanks for taking my questions.
Tim DeLacy: Hey, you know, just shifting to the margin here, you know, saw a really nice pickup in the securities portfolio this quarter. Curious, you know, what were the drivers there? And, you know, were there any actions taken on the Lexi Flick portfolio that you did? Well, the securities portfolio increased because of the acquisitions. So you see, you know, as of the balances on an average basis, it's less because it's only one month. But we did do some restructurings. We think we improved our interest sensitivity and earnings from those restructurings. So you'll see the benefits of those going forward.
Absolutely, hi. Good morning.
Hey, uh, you know, just that shift into the margin here. Um, you know, saw a really nice pickup in the uh, Securities portfolio. This quarter curious, you know, what were the drivers there and you know, were there any uh actions taken on the Legacy? Uh, flick portfolio that you did.
Well, we brought the Securities, portfolio increased because of the Acquisitions. So you see you know as of the balance is on on an average basis. It's less because it's only 1 month but we did do some restructuring. We think we improved our um,
Sensitivity and earnings from those restructurings. So you'll see the benefits of those going forward.
Tim DeLacy: Understood. And kind of, you know, following up on that, you know, you know, five basis point, you know, positive impacts, you know, from a 25 basis rate cut previously, should we kind of be thinking about that somewhat differently now, kind of post-merger year? No, I'm still, we're still sticking with that, that it's approximately five basis points for each cut. And in the estimates I gave you, we estimated one cut. So, you know, it could be up or down depending on how many cuts we see through. You know, as we build a bigger non-interest bearing deposit base, that would reduce the benefit of rate cuts, but it would improve the overall interest rate profile of the company.
Understood. And kind of, you know, following up on that, you know, a 5 basis point, you know, positive impact, you know, from a 25 basis point rate cut previously, should we kind of be thinking about that somewhat differently now, kind of post-merger here?
No, I'm still. We're still sticking with that, that it's approximately 5 basis points for each cut. And in the estimates I gave you we estimated 1 cut. So, you know, it could be up or down depending on how many Cuts we see through, uh, 26, um, you know, as we build a bigger non-par deposit base, um, that would reduce the benefit of of, uh,
Of rate Cuts, but it would improve the overall interest rates of profile of the company.
Tim DeLacy: Okay, understood. Thank you.
Tim DeLacy: Great color there.
Tim DeLacy: And then finally, you know, just looking at reserve levels here going forward, you know, standing at, you know, 140 here, you know, obviously a little bit elevated relative to historical levels.
Tim DeLacy: So how should we be thinking about those, you know, levels kind of trending from here? Well, I did try to mention that we were up slightly excluding the non-accreditable reserve. So that was the reason for the jump, you know, to the extent, I don't want to comment on how much of that reserve we'll use, but I think we set up a pretty conservative one. So to the extent we were conservative and we perform well, we'll have the ability to raise our reserves more going forward, our core reserves.
Okay, I understood, thank you. Great color there. And then finally, you know, just looking at Reserve levels here going forward, you know, standing at, you know, 140 here, you know, obviously a little bit elevated relative to historical level. So, how should we be thinking about those, uh, you know, levels kind of trending from here?
Well, um, I did try to mention that we were, we were up slightly excluding the non incredible results, so that was the reason for the jump, you know, to the extent. I don't want to comment on how much of that Reserve will use, but I think we set up a pretty conservative 1. So, to the extent, um, we, uh, we were conservative and we performed. Well, we'll have the ability to raise our reserves more going forward. You know, our Corps Reserves
Tim DeLacy: Great. Awesome. Thanks, guys. Appreciate you taking my questions. You're welcome.
Great, awesome. Thanks, guys. I appreciate you taking my questions this morning. You're welcome. Yep.
Audra: And as a reminder, if you would like to ask a question, please press star one.
Tyler Cacciatore: We'll go next to Tyler Cacciatore at Stevens, Inc. Hey, good morning.
As a reminder, if you would like to ask a question, please press star 1.
We'll go next to Tyler. Catch you Tori at Stevens Inc.
Tyler Cacciatore: This is Tyler from Ant Breese. Yes, okay. Sorry if I missed it. I think you said the reserve was a bit higher due to increased cap rates on regulated housing. Uh, do you know the cap rates that were used for that? Well, this is an hour. I'm in our purchase accounting. Okay. And when you when you look at when you look at purchase accounting, you have to look as a buyer of as we do. That's what purchase accounting means. We're buying those loans. So you use cap rates that a buyer would. So it probably ranged anywhere from 6.5% to 8.5%, you know, for the purchase accounting adjustment.
Hey, good morning. This is uh, Tyler on from at Bruce.
Yes. Okay.
Um, sorry if I missed it. Uh, I think you said the reserve was a bit higher due to increased cap rates on regulated housing,
Uh, do you know the cap rates that were used for that?
Well, they're there. This is in our...
Tyler Cacciatore: You know, if you get the loan appraised, you might see lower rates, cap rates, but we use higher cap rates as a potential buyer of the loan.
Tyler Cacciatore: Okay, great. That helps.
Um, in our purchase accounting. Okay? And when you when you look at per, when you look at purchase account and you have to look as a buyer of as we do, that's what purchase accounting means. We're buying those loans. So you use cap rates that a buyer would use. So they probably ranged anywhere from 6 and a half to 8 and a half percent. You know, for the for the purchase accounting adjustment, you know, if you get the loan appraised, you might see lower rates, uh, cap rates but we use higher cap rates as a potential buyer of the loans.
Tyler Cacciatore: And then moving on to deposits, it's nice to see DDAs above 20% with the DL.
Tyler Cacciatore: How do you feel about that number going forward and is growing that realistic given the current environment? And then if you could just talk a little bit about overall composition and growth heading forward. Yeah, I think there's a lot of opportunity to continue the trend of growing DDA higher relative to the entire portfolio. And part of that is, you know, the mix of the loan portfolio as we continue to execute on C&I and other opportunities in the marketplace that come naturally with deposits and having what is a pretty substantial now presence on Long Island that had a higher DDA balance to begin with, we think there's some real great opportunities there to enhance a lot of the relationships that were formed there.
The CDA is above 20% with the deal. How do you feel about that number going forward, and is growing that realistic given the current environment? And then, if you could just talk a little bit about overall composition and growth heading forward.
Yeah, I think there's uh a lot of opportunity uh to continue the the trend of growing, DDA higher relative to the entire portfolio and part of that is you know the mix of the loan portfolio as we continue to execute on cni and other opportunities with the marketplace that come naturally with deposits. And having, you know what is a, a pretty uh substantial. Now. Presence on Long Island. Um,
You know.
Tyler Cacciatore: So, I would say I really look forward to continuing to build the book in a way that helps to keep the loan-to-deposit ratio low and the DDA balance is growing and a very well-paid book. And as I say, we're certainly off to a really great start, so I'm pretty optimistic.
That had a higher DDA balance to begin with. We think there's some real great opportunities there, uh, to enhance a lot of the relationships, uh, that were formed there over, you know, over the years. So, I would say, um,
really look forward to continuing to build the book in a, in a way that, uh, helps to keep the lung deposit ratio low, and the DBA balance is growing and a very well Diversified loan.
and I'll just say, we're certainly off to a really great start so I'm pretty optimistic
Tyler Cacciatore: Okay, great. Thank you. And then if I could just squeeze one more in, I know you talked a little bit about the loan pipeline heading forward. What are the yields you're seeing on that right now? And then if you could give us some sense for near term growth projections, I think on last quarter's call, you spoke about 5% for the year. What do you what do you see heading forward?
Tyler Cacciatore: Well, first, the loan, sorry, the loan rate on our pipeline is $677, okay, that's a weighted average rate. In terms of the growth rate, I want to tell you that we are originating a lot of loans, and so there's still a lot of demand out there, but the reason for the lower than anticipated growth has been payoffs, so it's hard to say going forward, but I'd say we'd be in the, you know, single digit going forward, you know, for the next six months. It could be in the low single digits, it could be mid.
Okay, great. Uh, thank you. And then if I could just squeeze, 1 more in, uh, I know you talked a little bit about the loan pipeline heading forward. Uh, what are the yields? You're seeing on that right now? And then, if you could give us some sense for near-term, uh, growth projections, I think on last quarter's call, you spoke about 5% for the year. Uh, what do you, what do you see heading forward?
Frank Sorrentino: Frank, do you agree with me? Yeah, again, I'd like to characterize it as strong loan demand. How much that translates into actual balance sheet growth is still a little bit subject to some of the payoffs. By the way, a number of the payoffs we're seeing, you know, we're happy to see. So overall, I think it gives us a better balance sheet going forward.
Yeah, well first the loan, sorry, the loan rate on our pipeline is 677, okay. That's the weighted average rate. Um in terms of the growth growth rate we want to tell you that we are originating a lot of loans and so there's still a lot of demand out there. Um, the reason for the lower than uh, anticipated growth has been payoffs. So it's hard to say going forward, but I'd say we'd be in the, you know, single digit going forward. Um, you know, for the next 6 months, it could be in the low single digits. Could be mid single digits Frank. Do you agree with me? Yeah, I I again, I I, I like to characterize it as strong, uh, loan.
Frank Sorrentino: I have to tell you, we seem to be very happy with both what's in the pipeline, what's coming off, and what the balance sheet should look like at year end, both from a composition standpoint, a earnings yield, depository relationships, all the things that we've been working on. Whether we grow at 2%, 5%, 6%, I don't want to say it doesn't matter, but to the extent that we can get the balance sheet that we want and we can continue to focus on treating our clients in the way that they want to be treated and being the bank that they choose as their number one institution, that's where we see success coming from.
Demand. Um, whether how much that translates into actual balance sheet? Growth is still a little bit subject to some of the payoffs, by the way, a number of the payoffs we're seeing, you know, we're happy to see. So uh, overall I think it gives us a better balance sheet, going forward. I have to tell you, we, we we seem to be very happy with both.
Both what's in the pipeline, what's coming off, and what the balance sheet should look like at year-end. Both from a composition standpoint, uh, earnings yield, uh, depository relationships, all the things that we've been working toward.
Tyler Cacciatore: And that will translate into a profit. Great, thank you. That'll be it for me.
Um, whether we grow it 2%, 5%, or 6%, I don't want to say it doesn't matter, but to the extent that we can get the balance sheet that we want, and we can continue to focus on treating our clients in the way that they want to be treated and being the bank that they choose as their number one institution, that's where we see success coming from, and that will translate into a profitable model.
Great, thank you. Uh, that'll be it for me.
Frank Sorrentino: And that concludes our Q&A session.
Frank Sorrentino: I will now turn the conference back over to management for closing remarks. Well, I want to thank everyone again for your time today. We look forward to speaking with you again during the third quarter earnings. With that, everyone, enjoy your summer.
Please, our Q&A.
To management for closing remarks.
Well, I want to thank everyone again for your time today. We look forward to speaking with you. Again during the third quarter earnings call,
With that and everyone enjoy your summer.
Audra: And this concludes today's conference call. Thank you for your participation.
Audra: You may now disconnect. Thanks for watching!
And this concludes today's conference call. Thank you for your participation. You may now disconnect.