Operator: Hello, everyone. Thank you for joining us, and welcome to the ConnectOne Bancorp, Inc. Third Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Siya Vansia, Chief Brand and Innovation Officer. Siya, please go ahead.
Siya Vansia: Good morning, and welcome to today's conference call to review ConnectOne's results for the third quarter of 2026 and to update you on recent developments. 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 would 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 filings. 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.
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 8-K with the SEC and may also be accessed through the company's website. I will now turn the call over to Frank Sorrentino. Frank, please go ahead.
Frank Sorrentino: Thank you, Siya, and good morning, everyone. I am pleased to report that during Q3, we continued to drive strong core operating performance and momentum across the franchise. We also took a decisive step to strengthen our balance sheet and enhance our capacity for future growth. When we acquired First of Long Island, we gained a terrific franchise, deep client relationships, and a strong deposit base. The acquisition also included a portfolio of high-quality, non-relationship multifamily loans. Last quarter, we told you we were evaluating a bulk sale, and we are pleased to announce we have executed a definitive agreement to sell up to approximately $750 million of those multifamily loans. The transaction, which emphasizes the sale of rent-stabilized assets, accomplishes several strategic objectives at once.
Frank Sorrentino: It sharpens our focus on what we do best, serving core banking clients and deepening those connections while further aligning our balance sheet with our relationship-focused banking strategy. It accelerates the reduction of our CRE concentration, cuts our rent-stabilized exposure by up to two-thirds, improves our liquidity, and strengthens key capital and performance metrics across the balance sheet. Bill will walk you through some more details on that. Turning to ConnectOne's Q3 performance, our core results were strong and continue to build quarter-over-quarter. Operating PPNR crossed 2% of average assets, and operating return on tangible common equity exceeded 15%. Core deposit growth was exceptional this quarter. Client deposits grew at an annualized pace of 11%, led by 14% growth in average non-interest-bearing demand, reflecting the staying power of our homegrown relationship banking culture. Our margin widened again despite higher short-term rates and stiff competition for deposits.
Frank Sorrentino: The pace of margin widening is steady, and loan repricing continues to work in our favor. On efficiency, expenses were flat for the quarter, a reflection of our culture. We are always looking for ways to work smarter, and our investments in technology, including agentic workflows, are freeing our bankers to spend more time serving our clients. Efficiency has always been one of our core strengths, and our efforts continue to improve this quality. Credit quality improved across the board. Operating charge-offs were just a few basis points, and non-performing assets declined. Following the loan sale, the remaining rent-stabilized loans represent a much smaller, well reserved for portion of our total loan portfolio. To provide full clarity and details, Bill will give you some more specifics on the remaining portfolio. On capital, we remain disciplined stewards.
Frank Sorrentino: This restructuring enhances our flexibility to support organic growth, return capital through dividends and opportunistic buybacks, and pursue the most advantageous path to redeem our preferred stock. Overall, our Q3 performance clearly demonstrates the strength of our franchise. Looking ahead, we enter the final quarter of the year with a more liquid balance sheet, growing earnings profile, and a team focused on what we do best, serving our clients. Bill, why don't you walk us through the quarter's financial performance in a little bit more detail?
Bill Burns: All right, Frank. Thank you. Good morning to everyone on the call. As Frank mentioned, we announced two items this morning. First, we delivered a continued step-up in our core operating performance. Second, we executed on a right-sized balance sheet restructuring transaction. It meaningfully de-risks and repositions the balance sheet. I'll start with restructuring, then we'll get to operating results. As we noted last quarter, we had been exploring a bulk loan sale, and within the past week, we entered into a contractual agreement to sell a $750 million pool of performing non-relationship multifamily loans to a single buyer at a price north of 90%. Having said that, the 10% discount to par resulted in only a 3% loss on the sale for our bank.
Bill Burns: That's because we previously recorded significant purchase accounting marks, both interest rate and credit marks, on a large part of the pool back in Q2 2025, concurrent with the closing of the First of Long Island acquisition. As a result, the weighted average carrying value of the total pool on ConnectOne's books was $0.93 versus the $0.90 purchase price. Now, the sale is expected to be completed in the next week, but for accounting purposes, it was classified as held for sale at 30 September, which required the recognition of a $23 million non-operating pre-tax charge in Q3. To be clear, this charge solely reflects changes in interest rates and does not stem from any additional credit losses. Interest rates are up about 100 basis points on average since the loans were originated or acquired.
Bill Burns: Now, in terms of our reinvestment of loan proceeds, our intention is to place the majority of the funds into lower-risk assets with slightly higher yields, effectively reducing balance sheet risk without impacting earnings power. A smaller portion of the proceeds that will likely be used to pay down wholesale funding may slightly temper short-term reinvestment earnings, but that strategic shift will expand our net interest margin and return on assets while enhancing capital flexibility. The repositioning improves our balance sheet in several ways. On a pro forma basis, our regulatory CRE concentration declines on 30 June pro forma basis to 397% from 439%. Our loans-to-deposit ratio improves into the high 90s from the low 100s. Securities portfolio as a percent of assets is expected to increase to 12.5% from its current 9%.
Bill Burns: In addition, post-loan sale, our rent-regulated book declines significantly from 6% of loans to just 2%, or $235 million. I am going to provide more detail on loss coverage of that remaining piece when I cover credit in a few minutes. Now turning to operating results, again, we are very, very pleased with our performance and momentum. Excluding the restructuring charge and other non-operating items, operating EPS was $0.95 per share, up 13% sequentially from $0.84 last quarter, and that builds upon our strong Q2 sequential earnings growth. From a year ago, quarterly operating earnings are up 35%. Operating return metrics were outstanding, with PPNR improving to 2.01% of average assets, return on assets increasing to 135, and return on tangible common equity of more than 15%, already hitting the target we laid out earlier this year.
Bill Burns: Net interest margin widened for the eighth consecutive quarter to 344, a 2-basis point increase. Looking ahead, loan repricing remains a tailwind. Year to date, just over $1 billion of loan balances have come up for repricing. 20% paid off, but the remainder stayed on our books at a weighted average rate increase of 258 basis points. We expect approximately $1.2 million more to reprice over the next 5 quarters. Still significant, although down slightly from prior estimates as a result of the loan sale. As I mentioned earlier, we expect the restructuring to be additionally accretive for the margin, primarily from paying down higher-cost wholesale funding. Putting it all together, we are now estimating a margin reaching 350 for Q4, while for 2027, our models show continued widening throughout the year.
Bill Burns: Whether that gets us to 360 or higher at year-end 2027 is going to depend on the number and direction of Fed rate moves. For the quarter, loans grew at an annualized rate of approximately 11% sequentially, excluding the effect of the transfer to held for sale. Average client deposits, which exclude broker deposits, also grew about 11% annualized. Average non-interest-bearing deposits increased about 14%, and broker deposits declined by $150 million or 13.7%. Looking ahead for projections, we are projecting loan and deposit growth remaining in the mid-single digits while maintaining a sub 100 loans-to-deposit ratio. Now going to turn to non-interest income and operating expenses. Excluding the restructuring charge, non-interest income was $8.5 million, up a little from $7.9 million last quarter. That included some one-time BOLI income items, leading to a $1.1 million increase.
Bill Burns: While quarterly results may fluctuate, execution remains solid on the SBA front, and our SBA business continues to strengthen. SBA pipeline is strong, and I would not be surprised if we are up 50% or more in SBA gains in 2027 versus this year. Expenses this quarter came in better than our guidance. Last quarter, we projected 1.5% sequential growth. Instead, non-interest expenses were flat. That reflects our culture of working smarter along with continued technology efficiencies. For your models, I am targeting 2% to 2.5% sequential increase in OpEx for Q4. In terms of operating expenses as a percent of average assets, we remain an industry leader with just 1.45% of average assets in the current quarter versus 1.47% sequentially and 1.5% for the prior year quarter. Our operating efficiency ratio improved to 41% from 43% last quarter and 48% a year ago.
Bill Burns: We have reported sub 40% efficiency ratios before, and we are on track to get there again. Just want to remind you, keep in mind, as we disclosed in the release, we will be recognizing approximately $78 million of non-operating pre-tax transaction costs related to the loan sale that under GAAP ought to be recognized, not in Q3, but need to be recognized in Q4. Credit quality, as Frank Sorrentino mentioned, approved across the board. The provision for credit losses was $5 million. That is down from $8.3 million last quarter. Annualized net charge-offs, excluding those PCD loans and the loan sale, were just 7 basis points versus 56 basis points last quarter. Provision expense is expected to remain fairly stable for the foreseeable future.
Bill Burns: Non-accrual loans declined to $64 million from $80 million, driving the non-performing asset ratio lower to 0.44% of total assets from 0.55% one quarter ago, and 30 to 89 delinquencies are just 5 basis points, almost nothing. Criticized and classified assets were 2% of loans. That is up from 1.9%, but that is only because loans receivable decline as we have moved loans from loans receivable into loans held for sale. The balance in classified and criticized were relatively stable. The allowance was 1.06% of loans, down from 1.18%. That is mechanical. We eliminated $22.2 million of allowance on PCD loans in connection with the sale. A word on the rent-stabilized loans that remain on our books, which total approximately $235 million, as we said, down to 2% versus 6% prior to the sale.
Bill Burns: First off, except for a de minimis amount, these loans were not part of the original pool offered for sale by our own design. Of that $235 million, more than half consists of long-standing clients with related deposits in excess of $100 million. Therefore, there was no desire whatsoever to exit those relationships. The remaining balance of about $100 million includes non-accruals, select PCD loans acquired from First of Long Island, and other criticized credits. Importantly, these remaining loans have robust offsets, approximately 30% of unpaid principal balance protecting our exposure. These offsets include prior charge-offs, purchase accounting marks, specific reserves, additional general reserves that we have increased through qualitative allocations. So with a large reduction in overall rent-regulated exposure, combined with significant backstops on any remaining credits, the New York City rent-regulated issue is in our rear-view mirror. That is a result we can all feel good about.
Bill Burns: Turning to capital, tangible book value per share was $24.19, down 1.9% from last quarter, due primarily to the AOCI. Excluding AOCI changes, tangible book value would have grown despite the one-time charge. Over the past 12 months, tangible book is still up 5.9%, and we would expect to return to an upper path going forward from here. Our tangible common equity ratio is 8.38% at the end of the quarter, but it is going to be approximately 35 basis points higher due to the loan sale. Regulatory risk-based ratios rise on the transaction, with lower risk-weighted securities taking the place of higher risk-weighted loans. During the quarter, we repurchased 50,000 shares at an average price of $32. We have approximately 500,000 shares remaining under our authorization, and we will continue to repurchase opportunistically.
Bill Burns: Our board declared a common dividend of $0.195 per share, consistent with last quarter. That is roughly 20% of operating earnings, which leaves us significant flexibility. One last item, our non-cumulative preferred stock. It reached its reset date, and the dividend rate has moved higher to approximately 8.8%. We do intend to redeem that preferred. However, in light of the restructuring and the resulting improvement in regulatory capital ratios, we are still evaluating the best and most advantageous way to do it. As a result, it may remain outstanding at the higher rate for another quarter, but we will update you once we finalize our approach. With that, Frank, I am going to turn it back over to you.
Frank Sorrentino: That is great, Bill. Thank you. To wrap things up, Q3 marked an important step in ConnectOne's evolution. We de-risked our balance sheet, strengthened our liquidity and financial flexibility, and continued to grow ConnectOne's core business through strong client relationships. We are well-positioned with a growing earnings profile, sound credit fundamentals, and a balance sheet built for the next phase of growth. We are confident in our ability to deliver long-term value for our shareholders. Our profile has strengthened significantly, reflecting improved quantity and quality of earnings while growth prospects remain solid. With those positives and a discounted valuation, we remain a very compelling investment opportunity. With that, I would like to turn the call over for your questions. Operator?
Operator: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Feddie Strickland with Hovde Group. Your line is open. Please go ahead.
Feddie Strickland: Hey, good morning, Frank and Bill. Congratulations on the loan sale here. I wanted to ask about the use of proceeds. I know you covered it in your opening comments, and you have some stuff in the release. Just to make sure I have it clear. Is the intention to hold those proceeds in government-guaranteed securities near-term, you will pay down some wholesale funds, and then you are retaining some for both paying down the preferred here as well as long-term organic loan growth? Is that the right way to think about these proceeds here?
Frank Sorrentino: Yeah, that's the right way to think about it.
Feddie Strickland: Okay. And just in terms of the competitive environment on loans, it seems like you've got a pretty good pipeline here given your guidance. Can you talk about what you're seeing on rate and maybe the level of competition?
Frank Sorrentino: Yeah. There's a fair amount of competition in the marketplace today. Certainly, we are competing with every other organization that is in our market. I do think that the rise in rates has dampened some of the demand out there. But believe it or not, there's a very robust economy underneath all of this. Folks are still doing lots of really exciting things within the marketplace. The clients that we have, we're doing more business with, and so competitive pressures there are lower. There are lots of other reasons why people seek out ConnectOne. The certainty of execution here at ConnectOne is at an all-time high, and our clients really respect that.
Frank Sorrentino: While I would agree there's increased competition, we seem to have been able to figure out how to continue to get the pricing that we need to get the proper spreads, make sure we're onboarding the right types of client relationships, and continue to grow the balance sheet.
Bill Burns: Yeah. Fedi, in terms of the rates, I have been very pleased with our progress. We originated as much as $800 million of loans in last quarter, and rates in the high 6s. Rates that came off were at lower rates, and my calculations say that contributed about 5 basis points to the margin. When I look at the pipeline, we are over 7% on a similar amount. So I would expect a similar amount of margin improvement coming from our loan originations.
Feddie Strickland: Got it. Just one more question on the
Bill Burns: Yeah
Feddie Strickland: loan growth side. I appreciate the guidance here. Does reduced pay-downs and maybe the ability to hang on to more of the loans reaching maturity, given the higher rates factor into your overall net loan growth number going forward?
Frank Sorrentino: I do not know. I do not think so. Again, thinking about a highly competitive marketplace. There are institutions out there that are doing lower spread business. So we do see some runoff out of the portfolio. It is welcome when it happens. So no, I do not really see that dynamic changing all that much.
Feddie Strickland: Got it. Thanks for taking my questions. I will step back.
Operator: Your next question comes from the line of Bader Hijleh with Piper Sandler. Your line is open. Please go ahead.
Bader Hijleh: Hey, good morning, guys. This is Bader.
Bill Burns: Good morning.
Bader Hijleh: from Piper Sandler.
Bill Burns: Yeah.
Bader Hijleh: I just had a question about maybe the impact from the loan sale. I know you guys guided to a 350 margin next quarter. Maybe how much of that is factored in from the impact from the loan sale versus overall asset repricing? Thinking about the margin as we look over the next quarter or two.
Bill Burns: Right. There's a lot of moving parts to the margin. We have the loan repricing, we have our regular originations, and we have this restructuring. They are all worth a few basis points each, offset by increasing deposit costs. But the net is an increase of whatever 3 to 5 basis points a quarter in the net interest margin. Hope that answers your question.
Bader Hijleh: Yeah. Then you mentioned increasing deposit costs. Do you happen to have the spot deposit deposits at the end of the quarter?
Bill Burns: What the cost for the was?
Frank Sorrentino: It's been pretty flat.
Bader Hijleh: Okay.
Bill Burns: It happens to be pretty flat. In the most recent couple of months, deposit cost has been pretty flat. But I do expect to continue to see upward pressure on deposit pricing.
Bader Hijleh: Got it.
Bill Burns: That is what is tempering our margin widening projections.
Bader Hijleh: Got it. Thank you. Lastly, if I may. I know you guys mentioned potential close next week. I do not know how much color you guys can give, but do you know if the interest on the loan sales is coming outside of the banking system or any detail on that process you can give? Then maybe as a follow-up, given that you have taken care of a good size portion of the rent-stabilized exposure, are you guys thinking about potential restructuring or additional loan sales down the line?
Bill Burns: Well, let us wait. The second question was on rent-stabilized. I think we have got it down to exposure, I said, to a little over $200 million. More than half of that are loans we would not want to sell because they are strong quality loans with strong clients, and we have a lot of deposits associated with the rest of the portfolio. We have got a lot of reserves against it, and so we will be aggressive in reducing the remaining piece there on the rent-regulated. Okay? Like I said, as far as the financials go, it is in the rear-view mirror now. But you will see continued decline in the rent-regulated balances that are left. The first question was-
Frank Sorrentino: As far as loan sales-
Bill Burns: Oh
Frank Sorrentino: we've had a history of doing smaller
Bill Burns: small loan sales
Frank Sorrentino: type transactions
Bill Burns: Right
Frank Sorrentino: when we determine we have non-relationship type loans that have accumulated in the portfolio.
Bill Burns: It's possible, but it would be further down the road.
Frank Sorrentino: Yeah
Bill Burns: If something like that happened, I wouldn't put it
Bader Hijleh: Okay
Bill Burns: into your projections for the next year or two. Okay?
Bader Hijleh: Got it. That's all for me. Thank you very much.
Bill Burns: Sure. Yeah. Great.
Operator: Your next question comes from the line of Tim Switzer with KBW. Your line is open. Please go ahead.
Tim Switzer: Hey, good morning. Thanks for taking my question.
Bill Burns: Hey, Tim.
Tim Switzer: First one I have is on the expense outlook. Could you maybe provide some parameters on your expectations for 2027, and what levers do you have to pull in front of you, say, if we get into a tougher environment here?
Bill Burns: Well, I think at the maximum, it's going to be a mid-single digits increase in expenses. Obviously, we can continue to leverage our fixed costs and continue to drive the efficiency ratio down. We don't really necessarily have expense budgets that we have to stick to. It depends what's available to us out there, what the opportunities are, and we adjust accordingly, and continue to try to improve our efficiency ratio and our return on equity.
Tim Switzer: Okay, great. A couple of questions on the NIM. Trying to get an idea of
Bill Burns: Yeah
Tim Switzer: the impact of a Fed rate hike. It sounds like you believe you're able to continue expanding the NIM next year regardless of the rate environment. But for each rate hike
Bill Burns: Yeah
Tim Switzer: Is it like 5 basis points?
Bill Burns: No. It is only maybe 2 or 3. We benefit more on the way down. We benefit more on cuts than we get hurt on ups.
Tim Switzer: Okay, nice. Can you remind us the amount of CD repricing you have over the next year? Sorry if you already mentioned that.
Bill Burns: Oh, it is not a lot. What do we got? It is just a small amount, though. The rate differential. 380? From where is it today? I am sorry. I am asking Steve Primiano, our Treasurer. We have 3 billion of CDs repricing over the next 17 months, but the differential in rate is not all that much.
Steve Primiano: Yeah. The current rate is about 380.
Bill Burns: Gotcha.
Frank Sorrentino: We can work from the MOM there.
Bill Burns: So right. It is repricing, but no change to the margin.
Tim Switzer: Gotcha. Okay.
Bill Burns: Okay.
Tim Switzer: One last one for me. What was the purchase accounting accretion with NII for the last 2 quarters?
Bill Burns: Oh, the purchase accounting accretion?
Tim Switzer: Yes.
Bill Burns: It is running at about $8 million. We are going to lose about 20% of that with the loan sale. You should not look at that that is going to hurt margin in some way because that is the yield on the assets coming off versus the yield going on. I am already taking that into account. The yield of the assets going off is less than the yield of the assets going on. That includes-
Tim Switzer: Yeah
Bill Burns: the purchase accounting accretion. I think it is good that we will have less purchase accounting accretion. For those that treat that as lower quality earnings, it is good to have it lower.
Tim Switzer: Gotcha. Yep. Sounds like you replaced it with the repurchase. All right. Thank you.
Bill Burns: Okay. You are welcome.
Operator: Your next question comes from the line of Tyler Cacciatore with Stephens Inc. Your line is open. Please go ahead.
Tyler Cacciatore: Hey, good morning, guys. This is Tyler. I am from Stephens.
Bill Burns: Yes, Tyler. Hi.
Frank Sorrentino: Hey, Tyler.
Tyler Cacciatore: Frank, maybe just going back to the multifamily sale. What ultimately led you guys to move forward with the transaction? Was it primarily an opportunity to strengthen the balance sheet, or was it more of you were starting to see additional signs of stress within the portfolio?
Bill Burns: Look, we have mentioned here I do not know how many different times about building a business that is really focused on high-value client relationships where we have a depository relationship, cash management, multiple points of contact with those clients. Building a bigger base with each of those clients over time as our balance sheet strengthens. When we looked at the portfolio, especially some of the acquired portfolio, and saw a very high percentage of non-relationship based loans, it almost did not matter to me what they were. They were transactions. The opportunity was here to get rid of those and free up both capital deposit liquidity, and resources to be able to redeploy in better assets going forward. We took the opportunity. It is not lost on anyone that part of that portfolio is the rent-stabilized.
Bill Burns: Since the time we announced the deal with First of Long Island, the environment for those assets is looking like it is deteriorating over time. Overall, the assets we had were performing well. The multifamily assets that were not rent-stabilized were performing extremely well, but they just were not
Bill Burns: high-quality client relationships. The opportunity to clean up the balance sheet and give us the strength that we now have to move forward, I just think was a smart move for us to make.
Tyler Cacciatore: Got it. I think you mentioned it a bit in the prepared remarks, but could you provide a bit more color on what the yields were on the loans being sold and how that compares to what you are seeing on reinvestment on the securities front?
Bill Burns: Yes. So 30% of the loans in the portfolio were ConnectOne originated, and those were at an average rate of 5.25%. The loans that we picked up from First of Long Island had been 5.25% or lower, but with the purchase accounting marks were actually yielding 6%. So it is a weighted average between 70% at 6% and 30% at 5.25%. We expect to reinvest at yields in the low 6s on average.
Tyler Cacciatore: Got it. Then Bill, I guess another one for you. Average deposit growth looked pretty strong over the quarter, but period end balances were a bit more modest. Can you just walk us through the dynamics there and what you are seeing early in Q4?
Bill Burns: Well, one is you have to be careful to exclude brokered in there. When you exclude brokers, the actual point-to-point may have been a little bit higher. Listen, this is the way I look at it. When it comes to loans, I review our success on a period-end to period-end basis. But when it comes to deposits, it is always average over average. Deposits are going up and down every single day. So not a great exercise to review success based on period end to period end.
Tyler Cacciatore: Got it. That will be it for me. Thank you very much.
Bill Burns: Yep.
Operator: Just a reminder, if you would like to ask a question, please press star one to raise your hand. Your next question comes from the line of Daniel Tamayo with Raymond James. Your line is open. Please go ahead.
Daniel Tamayo: Yeah, thank you. Morning, Frank. Morning, Bill.
Frank Sorrentino: Hey, Danny.
Bill Burns: Hi.
Daniel Tamayo: Maybe just starting, you've got this loan sale now in the rear-view mirror. Really credit outside of the rent-stabilized has been strong recently. I'm curious how we should think about the net charge-off profile going forward here.
Bill Burns: Well, we don't have a huge pipeline, okay, of charge-offs, which is great. The only place that I might be using it is that I'd like to continue to be aggressive to get off the books any remaining, that small remaining piece of rent-stabilized. So I wouldn't be surprised to see further decreases in that with small levels of charge-offs. No more than $3 million to $5 million, say a quarter. Okay?
Daniel Tamayo: Okay. All right. That is helpful. That is the half that you are going to be getting rid of.
Bill Burns: Right.
Daniel Tamayo: Just to kind of put a fine point on kind of what you have remaining there, the 30% protection reserves marks prior charge-offs is against the total remaining or just the half that, or less than half or whatever that you talked about letting go?
Bill Burns: Right. It is 30% on that remaining half. The rest actually has a larger reserve than our loan portfolio. Maybe about 3%.
Daniel Tamayo: Okay.
Bill Burns: But those loans are all performing, and I think the weighted average rating is 4.1 on those loans, which is very strong.
Frank Sorrentino: Yeah, low LTVs.
Bill Burns: Yeah.
Frank Sorrentino: Strong debt service coverage. They can withstand a lot of change that's going on in the marketplace there in rent-stabilized world in New York City.
Bill Burns: And very strong borrowers.
Frank Sorrentino: Yeah
Bill Burns: As you said that. Yeah.
Daniel Tamayo: Okay, great. Then just wanted to dig into maybe the sensitivity on demand from rate hikes. You mentioned
Bill Burns: Oh
Daniel Tamayo: there is still plenty of loan demand right now. But as you see it, if we continue to get hikes from here, is there a level that things really start to slow down from your perspective, or is it somewhat ratable as we move up if we do on the rate side? I am just curious how you are thinking about the loan environment if we get some meaningful amount of hikes this year, next year.
Frank Sorrentino: I think what is happening in the marketplace today is that there is a very robust economy going on underneath all of the headlines that is causing a lot of uncertainty. The clarity part, though, is that we have a strong economy. Rates are going up because there are some inflationary pressures. There is, again, uncertainty due to the wars, and fuel prices, AI investment. Many of those things cannot be controlled by higher interest rates. I think if the Fed continues to raise interest rates, which by the way, I do not think they are going to, but if they were, it would be an indication that the economy continues to get and continues to build on that strength. If the economy is building on that strength, there is going to be increased demand for lending.
Frank Sorrentino: Because if things are strong, you are going to be able to borrow at higher rates and still make whatever it is you are doing make sense. It shouldn't be lost on anybody either, that from a historical perspective, rates are not high. They are higher, but they are not really high relative to the cost of capital. What you can get as far as a return from whether it is a business opportunity, construction opportunity, development opportunity, whatever it happens to be. I think we are going to settle into that environment a little bit more. I believe we are going to see increased demand or increased opportunities for lending going forward, irrespective of which way rates go. If rates start coming down dramatically, that is going to portend that the economy is slowing. I am more concerned about that than I am with where we are right at the present.
Daniel Tamayo: Got it. Well, I appreciate your thoughts on that, Frank. That's all I had.
Frank Sorrentino: Great.
Operator: There are no further questions at this time. I will now turn the call back to management for closing remarks.
Frank Sorrentino: Well, again, thanks everyone for joining us today, and we look forward to speaking with you during the Q4 earnings conference call in a few months. So have a great day, and thank you again for joining.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: This event has now concluded. Thank you for joining ConnectOne Bancorp, Inc. Third Quarter 2026 Earnings Call. The line will disconnect automatically.
