ConnectOne Bancorp Q1 2025 Earnings Call Transcript

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Provided by Quartr
April 24, 2025

Key Takeaways

  • ConnectOne reported a nearly 20% year-over-year increase in net income available to common shareholders and expanded its core net interest margin to 2.93%, with guidance to reach 3.0% in Q2.
  • Loan portfolio contracted slightly due to elevated commercial real estate payoffs, but the bank’s robust pipeline supports an expected 2.5% sequential loan growth in Q2 and mid- to high-single-digit growth for the full year.
  • Credit quality remains strong with a 13% decline in nonaccrual loans, low charge-offs, and a 40 percentage-point reduction in commercial real estate concentration to 420%, targeting below 400% by 2026.
  • Tangible book value per share rose about 4% since the merger announcement to $24.16, capital ratios strengthened, and expense growth was muted by early realization of approximately $24 million in merger cost saves.
  • The pending merger with First of Long Island is on track for a Q2 close pending regulatory approval, expected to create ~$15 billion in assets, $1.2 billion in market cap, and unlock significant revenue and expense synergies.
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Earnings Conference Call
ConnectOne Bancorp Q1 2025
00:00 / 00:00

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Operator

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the ConnectOne Bancorp First Quarter 2025 earnings call. A point has 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 star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Siya Vansia, Chief Brand and Innovation Officer. Please go ahead.

Siya Vansia
Siya Vansia
Chief Brand and Innovation Officer at ConnectOne Bancorp

Good morning, and welcome to today's conference call to review ConnectOne's results for the first quarter of 2025 and to update you on recent developments. On today's conference call, we'll 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. 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
Siya Vansia
Chief Brand and Innovation Officer at ConnectOne Bancorp

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 found through the company's website. I will now turn the call over to Frank Sorrentino. Frank, please go ahead.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Thank you, Siya, and good morning, everyone. We appreciate you joining our call today. I'm pleased with ConnectOne's performance to start the year, reflecting the disciplined execution of our operating strategies, as well as a continued commitment to our client-first culture and relationship banking model. Some highlights from the quarter include a nearly 20% year-over-year increase in net income available to common shareholders. Our net interest margin expanded again this quarter. Tangible book value per share continues to build ahead of our planned merger with First of Long Island, increasing by about 4% since the transaction was announced. Additionally, credit quality trends remain stable, and our balance sheet remains well-positioned. Looking ahead, this positive momentum will continue, reflecting both ConnectOne's standalone progress and the benefits of our pending merger with First of Long Island. Bill will walk us through some additional details shortly.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Regarding our lending, while our portfolio contracted slightly on a point-to-point basis during the first quarter, primarily due to elevated payoff activity within the commercial real estate segment, our loan pipeline remains robust as we continue to see healthy demand from our clients. Turning to deposits, while as-of demand deposit balances declined since year-end, our average demand deposits actually increased sequentially. This anomaly was due to temporary client inflows occurring at the end of last year. As you've heard me emphasize before, supporting our clients is ConnectOne's top priority, an approach that has consistently proven effective and has enabled us to expand our banking relationships, grow in the number of verticals, and expand into new markets.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Shifting to credit quality, trends remain solid, reflecting proactive portfolio management, our long-standing high credit standards, our track record of avoiding riskier subsegments, and the success we've had last year actively managing non-relationship loans off our balance sheet. Next, we're moving forward towards finalizing our planned merger with First of Long Island. I'm excited about the opportunity to serve their distinguished client base with the resources and product set of our combined institution. Our proactive engagement with First of Long Island clients has been very productive. These interactions have provided valuable insights and opportunities to deepen these relationships. We're already seeing new business materialize on Long Island. We've already identified opportunities to leverage our South Florida footprint to support First of Long Island clients whose, similar to ConnectOne's client base, have a business presence in Florida.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Integration planning efforts are well underway, and we're seeing strong early synergies already emerge, fueled by a collaborative team mindset. The transaction remains on track to close during the second quarter as we wait for final regulatory approval, which is expected shortly. At ConnectOne, we remain highly optimistic about the path ahead for our clients, our team, and our shareholders. Shifting to the economic environment, while there's still a number of unknowns, ConnectOne has a proven track record of adjusting to and navigating market uncertainties. We remain confident in our business strategy and proven ability to execute. Importantly, for the vast majority of our clients, we believe any effect of the tariff policy will be narrow in scope and not widespread. With all that said, I'll turn it over to Bill.

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

All right. Thank you, Frank, and good morning, everyone. Let me start by saying I too am very pleased with our performance, and I share Frank's optimism regarding ConnectOne's future financial performance. This quarter's results reflected continued margin expansion to 2.93%, which I will confirm is core, and it was a little higher than expected. In addition, expense growth was slightly muted as cost savings from the merger are already making their way into our results. Partially offsetting these improvements was loan portfolio growth that was below our guidance, but we believe that to be temporary due to the timing of actual loan closings and increased payoffs. Today, we possess a large and diversified loan pipeline, one that points to loan growth of at least 2.5% for the second quarter. Now, over the past year, we have strengthened our financials in several respects. Our net interest margin has widened significantly.

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

It bottomed out about a year ago, and since that time, we've widened 30 basis points, with further widening on the horizon. The improvement is strictly organic without any reliance on loss trades, and we expect the quarter interest margins to reach 3% this second quarter. Our loan-to-deposit ratio continues to trend lower, reflecting solid core deposit growth. It was below 106 at quarter end. All of our capital ratios have increased. The holding company tangible common equity ratio stands at 9.73, while the bank leverage ratio was 11.67%. In addition, our tangible book value per share continues to increase each and every quarter. It was up 4% over the past year to $24.16. Commercial real estate concentration continues its steady decline.

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

It is down 40 percentage points from a year ago to 420%, reflecting successful efforts to diversify our loan originations, a renewed focus on relationship lending, and a consistent capital build. Our goal is to reduce this ratio to below 400 during 2026. Turning to credit, our charge-offs and provisioning remained at relatively low levels, which is consistent with 2024 metrics. Non-accrual loans declined by 13% this quarter, and we already expect further declines during the current quarter. 30-89 day delinquencies ticked up slightly, but that ratio today amounts to only 0.18% of total loans, while criticized and classified also increased, but again, very slightly, from 2.68% to 2.79%.

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

Although our performance measures in terms of return on assets and return on equity may not be at the levels of a couple of years ago, our balance sheet positioning and the merger will facilitate and accelerate our returns to top-tier financial performance. I want to give you more color on our net interest margin outlook. I'm just going to reiterate our prior guidance of a five-basis point improvement each quarter, independent of any Fed rate reductions, plus an additional five basis points for each 25 basis points of Fed cuts. That guidance, at least for now, also holds post-merger, which includes purchase accounting accretion and First of Long Island's balance sheet positioning. First of Long Island's performance is following a similar trajectory to ours, and we expect to close the transaction in the latter part of the second quarter.

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

When we report next in July for the second quarter, we will have nearly $15 billion in assets and $1.2 billion in market cap. In terms of longer-term projections, we all understand that it is particularly challenging today, given the uncertainties related to the impact of tariff policy on economic growth and the timing of rate cuts. For now, I'm going to generally stick with our previously disclosed conservative estimates regarding the merger, which include upon full phasing of cost savings and return on assets exceeding 1.2% and a return on tangible common equity of approximately 15%. That is supported by a net interest margin of 3.20% or greater. Clearly, these projections are subject to change, and we will, as always, update you regularly. With that, Frank, I'll turn it back to you for closing remarks, and then we'll take your questions.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Thanks, Bill. In summary, ConnectOne was built for moments like this. With our client-centered culture and disciplined execution, we're ready to capitalize on the momentum we've built. We're energized with our impending increased scale to accelerate growth on Long Island, expanding both our team and our client relationships, along with our reach in markets we've already built success in. We're significantly enhancing financial performance while building New York Metro premier bank that offers a compelling investment opportunity at this juncture. As always, we appreciate your interest in ConnectOne. Thanks again for joining us today. With that, I'd like to turn it over to some questions. Operator.

Operator

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Tim Switzer with KBW. Please go ahead.

Tim Switzer
Tim Switzer
VP at KBW

Hey, good morning. Thank you for taking my questions.

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

Morning, Tim.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Yes, hi, Tim.

Tim Switzer
Tim Switzer
VP at KBW

The first question I had related to kind of the economic uncertainty here, and I appreciate some of the color you guys gave. I know it's still a little early, but have you guys seen a large customer reaction at all in terms of any notable changes in their behavior or spending, their willingness to invest into the company, anything like that?

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

We've spoken to a number of our clients specifically about what may be the impact of some of the various proposals that have been spoken about to this point. There are certain industries, companies, specific instances where there could be some changes in either the cost structure of some part of some businesses. For the most part, we don't see anything that is dramatic. There may be some small issues across the board in different places. Construction comes to mind, right? What's going to happen to lumber, steel, concrete, things like that? When you look at what the percentage of those things are relative to the overall project and what sort of the pricing of the product will be in the future, we really don't see anything that's dramatic at this point.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

That gets further complicated by we really don't know what's going to happen and how much of it's actually going to take effect. We also don't know what the offsets are to that. We've already heard clients who are talking about product that maybe they sourced in maybe a European market that they can get domestically today. There already seems to be solutions for some of the problems that we're not even sure are going to present themselves. It's a very difficult thing to be working through today, but for the most part, I have a pretty good feeling from speaking directly to the clients that whatever issues there are are fairly contained.

Tim Switzer
Tim Switzer
VP at KBW

Okay, got it. That's really helpful. I appreciate your commentary on the upcoming First of Long Island merger, and it sounds like you're pretty optimistic about achieving the cost save. Can you give us an update on if the areas you're achieving this cost save is coming from have changed at all, and if you've found other opportunities? If we get into 2026 and it's maybe a worse macro environment, slower growth, revenues coming down, what levers will you have as a combined company to help fight profitability?

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Let me just make a general statement.

Tim Switzer
Tim Switzer
VP at KBW

Go ahead.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Bill, you can talk a little bit to the cost savings. One of the things we really have not spoken about relative to the value of the First of Long Island transaction is that this is a gem. This is a Long Island-based organization in one of the strongest markets in the New York Metro market, which is one of the strongest markets in the country. For us to take advantage of being able to work together with the folks at First of Long Island and provide additional products and services to their extremely deep client base, I think gives us an enormous amount of confidence in our ability to not only achieve some revenue synergies, but also be able to leverage the expense base that is there at Long Island.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

On top of that, we have what we project to be the cost savings, which I'll let Bill talk a little bit more about.

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

Yeah. No, good question, Tim. There's a lot of moving parts here, but I do feel confident we'll get to those return objectives that I talked to one way or another. One of the areas that the projections might be conservative is on the net interest margin. We're seeing a lot of momentum on the net interest margin, and we also the accretion from the deal could add anywhere from 5 to 15 basis points. I want to be conservative with objections right now, but having that kind of margin over and above the projections will add a lot to our earnings going forward. Even if growth was a little bit slower, I think we could make it up in margin. As far as cost saves go, I think we have about $24 million or so in total cost saves.

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

I know originally we said we'd have them all done by, say, January 1. It's possible that it takes us a little bit longer. We might want to stretch that out a little bit towards a year from closing. All in all, one way or another, I feel pretty good with the projections that I laid out.

Tim Switzer
Tim Switzer
VP at KBW

Got it. Thank you, guys. Very helpful.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Yep.

Operator

Your next question comes from the line of Feddie Strickland with Hovde Group. Please go ahead.

Feddie Strickland
Feddie Strickland
Director at Hovde Group

Hey, good morning.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Mark.

Feddie Strickland
Feddie Strickland
Director at Hovde Group

Good to have you on board covering the company. We're really pleased with that.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Thank you very much. We're happy to be here.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Yep.

Feddie Strickland
Feddie Strickland
Director at Hovde Group

Just wondering if you could talk a little bit more on the puts and takes on credit. I know you talked a little bit in your prepared remarks, but just trying to think through what areas are you looking at a little bit more closely, and are there any kind of specific credits where maybe we could see some positive movement over the next couple of quarters?

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

It's just been really steady, and the delinquencies are at historically extremely low levels. Knock on wood, the credit quality's been, if anything, improving, and we don't really see a pipeline at this point of any kind of workout.

Feddie Strickland
Feddie Strickland
Director at Hovde Group

Understood. Can you refresh us on the repricing opportunities here over the next 12 months, just high level in terms of both fixed-rate loans and deposits?

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Yeah. We've had so far, and I track this pretty closely, close to $1 billion of loans that have already repriced going back to the middle of 2023. The credit quality of those has performed remarkably well. There's been a very low level of charge-offs on those repricings. Even the downgrades, although there have been some downgrades, overall, it's really, really small. That's good news, and we continue to track that each quarter. Going forward, we're going to have, I think, somewhere around $1 billion of repricings through 2026. Obviously, we continue to monitor that as we have in the past, but so far, the track record is good, and I'm pretty optimistic that if there are any issues with those repricings, we'll be able to handle that in terms of regular earnings and provisioning.

Feddie Strickland
Feddie Strickland
Director at Hovde Group

That's helpful. If I could squeeze in just one last one here.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Yeah.

Feddie Strickland
Feddie Strickland
Director at Hovde Group

I understand the margin expansion.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Right.

Feddie Strickland
Feddie Strickland
Director at Hovde Group

Is that mostly driven really by the funding side here? I mean, can we see loan yields creep back up a little bit, given what's in the pipeline? Just trying to think through the dynamic of the yields versus costs.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Yeah, we still have CDs repricing, some billion dollars or so over the next six months. That is helping on the funding side. Obviously, Fed rate cuts will lower deposit pricing further. We have a large portion of our loan portfolios in that adjustable category, so it takes time. We could be in a position, right, where the loan yields are going up and deposit costs go down. Those two things combined will accelerate our margin improvement.

Feddie Strickland
Feddie Strickland
Director at Hovde Group

All right. Great. Thanks for taking my questions.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Yeah. Thanks, Steady.

Feddie Strickland
Feddie Strickland
Director at Hovde Group

Thanks.

Operator

Your next question comes from the line of Daniel Tamayo with Raymond James. Please go ahead.

Daniel Tamayo
Daniel Tamayo
VP at Raymond James

Hey, good morning, guys.

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

Good morning, Dan.

Daniel Tamayo
Daniel Tamayo
VP at Raymond James

I apologize if I missed this. I jumped on a little bit late, but just on the loan growth side, just wondering if you can talk about a little bit of the puts and takes of kind of where you're seeing what you're seeing right now relative to what you're expecting for the rest of the year. Just curious how much of the slowdown is impacting the current months and how much kind of improvement you're baking into any guidance in the back half of the year.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

I would say, Dan, that we definitely have seen a little bit of a pullback on enthusiasm to move forward with certain projects, certain types of expansions, or any other opportunities. It is really a bit of a pause, and I think I'm already starting to see some of that dissipate. It is really kind of hard to get our hands on it. If you think about whether it is a construction project or someone who is growing their business, if that particular business is doing well and they continue to grow, they are going to need the funding to be able to continue to compete. We have spent the last 24 months or so really doubling down with our existing client base and supporting all of their needs. Certainly, as you know, the New York Metro market is still pretty hot.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

You can't build enough inventory in the housing market. The businesses that are here are doing quite well. Difficult to hire people in order to expand. There is a lot of great dynamics that are taking place within this New York Metro market where our bank is located that are supporting that level of growth that we forecasted for the year, which I would say is somewhere in the mid to high single digits.

Daniel Tamayo
Daniel Tamayo
VP at Raymond James

Okay. Mid to high single digits, obviously weighted to the back half of the year, maybe a little bit of slowness in the second quarter. I do not mean to put words in your mouth, but it sounds like, yeah.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

We see our pipeline is quite strong as we stand here right today. Look, it's hard to forecast exactly when things are going to close and when things pay off. We saw a little bit of that in the first quarter. We actually had a fairly strong loan generation quarter, but we also saw a number of payoffs. Now, those payoffs are good. That means construction projects got done, that's all, and we got paid back. From what we can see right at this moment, there appears to be a pretty robust pipeline ahead of us, and it should be fairly consistent going through the rest of the year.

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

I did say you may have missed it, Danny, that we expect 2.5% sequential loan growth for the second quarter.

Daniel Tamayo
Daniel Tamayo
VP at Raymond James

Oh, great, Bill. Yeah.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Okay. So.

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

I just did some numbers, a piece of paper here before the call, and probably about 5% increase for the year from December 31.

Daniel Tamayo
Daniel Tamayo
VP at Raymond James

Okay.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

That's taken into account by our news cycle.

Daniel Tamayo
Daniel Tamayo
VP at Raymond James

Yeah. It's changing every day.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Yeah, every day.

Daniel Tamayo
Daniel Tamayo
VP at Raymond James

Maybe a follow-up question, kind of unrelated, but you guys are in the middle of closing a deal, and you're obviously dealing with the regulators. I'm just curious if you can give any color on the types of conversations that you're having with regulators now relative to a year ago or prior to that, if there's a tangible difference in those conversations and the relationships, if you're seeing any kind of progress on the regulatory front in this new administration.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Yeah. I would say we have a very good relationship with the regulators that are weighing in on this application, and the folks we've been dealing with are all here, all working very earnestly to get the application completed. Personally, I think I can speak for the team. I don't think we've seen any change of direction or focus or the issues or challenges that they look at when they look at these types of applications. It seems pretty standard business to me. Now, keep in mind, we were not regulated by the CFPB, so we really don't have that to comment about, and we're not regulated by the Federal Reserve either. Our regulator is the State Department of Banking in New Jersey and the FDIC.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

With both of those entities, they seem to be doing the job that they've always done, and we're doing what we need to do.

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

They have a lot of boxes to check to get these mergers through, and that's what they're working on. That's basically it. It's always been that way.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

They've been very cooperative, and that's always been the case with our relationship with them.

Daniel Tamayo
Daniel Tamayo
VP at Raymond James

Okay. Great. Thanks, Frank, for answering that one. I know it's a little tricky, but thanks for taking the questions. Appreciate it.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Yep.

Operator

Before going to the next question, again, if you would like to ask a question, press star one on your telephone keypad. Your next question comes from the line of Matthew Breese with Stephens Inc. Please go ahead.

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

Hey, good morning.

Matthew Breese
Matthew Breese
Managing Director at Stephens

Hi.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Hi, Matt.

Matthew Breese
Matthew Breese
Managing Director at Stephens

First, I just hope we could start with expenses and near-term expectations for expense growth.

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

We're going the next time we report, we're going to be a combined company. It starts getting a little bit challenging to project when we're dealing with cost saves. For this quarter, I think I mentioned that some of the cost saves were in the first quarter numbers. I'd say probably about $500,000 out of $24 million total cost saves. On a standalone basis, we're probably growing in the 4%-5% range. Obviously, you can run your own numbers to come up with what the combined base will be.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

That's 4-5% annual.

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

Just to add a little bit more color to what Bill said during our prepared remarks, this transaction, we feel very strongly about the quality of the franchise that we're getting together with. It is our goal to make certain that we do everything possible to satisfy and embrace the client base that First of Long Island has. It is a phenomenal client base. It goes back over decades, very strong relationships, relationships we couldn't get out of there with a crowbar before. We are going to take every precaution, every measure. We are going to put everything we have into not only saving, but nurturing every single one of those relationships. If there is a little bit of cost involved in doing that, we are okay with that.

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

I think we may drag out a little bit how long it takes to get some of the expenses, but we think it's well worth it to really bring that franchise together in a way that's incredibly meaningful for the overall company.

Matthew Breese
Matthew Breese
Managing Director at Stephens

No, that makes sense. Maybe just turning to incremental loan yields in the pipeline. I'm curious where those stand, and I'm curious what spreads are doing. I could see it either way. We hear a lot about a lot of payoff activity and customers going to bigger banks, so competitive pressures. With everything going on macro-wise, I could see spreads moving higher due to risk premiums. Could you help me out with that?

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

Yeah. I mean, the pipeline that we have has a rate of 7.25%, okay? And the loans that we put on in the past quarter, I think, was about 7.40%. So within that range of what loans are going on at, spread versus match funding is 250-300 basis points even sometimes. I would agree with you that spreads should widen out based on economic conditions, but there's always a lot of competition out there, Matt. I would not count on that. I know you feel, Frank.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Yeah. I think you would expect spreads to widen out based on everything that's going on, but there are certain segments of the market where I would tell you spreads are becoming tighter than I would have expected. There are others where it's obvious that some of the larger banks don't want to play in a particular space, and so you get the wider spreads. I don't think you can look at it as an across-the-board. This is some sort of indication of what's going on in the market relative to whether it's the news, the tariffs, or whatever. I think it's dependent on what particular banks are focused on. I can tell you, for instance, construction lending, anything CRA-related, multifamily, God forbid you do an office loan, those spreads are really, really wide. You start looking at C&I, I'm sure you've heard it at everybody's call.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Everybody's focused on C&I. In certain parts of that portfolio, I think that we're seeing spreads that are somewhat uncompetitive.

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

Matt, if you're asking that question because you're also trying to figure out where margin is going, certainly a steeper curve would help the industry and ConnectOne in particular.

Matthew Breese
Matthew Breese
Managing Director at Stephens

All of the above. Yeah. I appreciate that. In terms of close timing for the deal, maybe just an update on closing times for the deal and then where do we stand in terms of approvals?

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

We have indicated thus far that we believe that we will have the deal closed by the end of the second quarter, at some point in the second quarter. We still believe that to be true. For that to be true, that means regulatory approval has got to be around the month or so.

Matthew Breese
Matthew Breese
Managing Director at Stephens

Right. The last one is just with the deal, there was talk about a debt raise to help on the capital ratio front. Where do you stand on that front, and has anything changed in terms of desire for sub-debt or alternative forms of capital? No, we're sticking with the sub-debt. That'll take place most likely prior to closing.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Yeah. It appears that the market's been sort of friendly towards what we need to accomplish relative to that. Pricing has come down a bit, and there appears to be a tremendous appetite for that type of bank sub-debt today.

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

I think a couple of months ago, the stock prices were 10-20% higher, and the sub-debt rate had 100 basis points more expensive. It is much more beneficial to the sub-debt right now.

Matthew Breese
Matthew Breese
Managing Director at Stephens

Understood. I appreciate taking all my questions. Thank you.

William Burns
William Burns
Senior EVP and CFO at ConnectOne Bancorp

Thanks, Matt.

Operator

I will now turn the call back to the management for closing remarks.

Frank Sorrentino III
Frank Sorrentino III
Chairman and CEO at ConnectOne Bancorp

Okay. Thanks, everyone, again for your time today. We look forward to speaking to you again during the second quarter earnings. Have a great day.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Executives
    • William Burns
      William Burns
      Senior EVP and CFO
    • Siya Vansia
      Siya Vansia
      Chief Brand and Innovation Officer
    • Frank Sorrentino III
      Frank Sorrentino III
      Chairman and CEO
Analysts
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