Image source: The Motley Fool.

DATE

Thu, Oct. 22, 2026

CALL PARTICIPANTS

• Chief Brand and Innovation Officer - Siya Vansia
• Chairman and Chief Executive Officer - Frank S. Sorrentino
• Senior Executive Vice President and Chief Financial Officer - William S. Burns

TAKEAWAYS

• Operating Diluted EPS -- $0.95, representing a 13.1% sequential increase driven by expanded net interest margins and strong expense control.
• Net Interest Margin -- 3.44%, widening 2 basis points from the prior quarter as loan repricing offset rising deposit costs.
• Restructuring Loan Sale -- up to $750 million in principal, executed to reduce commercial real estate concentrations and enhance liquidity.
• Restructuring Loss -- 3% of the total pool, reflecting a 10% discount to par partially offset by existing purchase accounting marks.
• Core Deposit Growth -- 11% annualized, led by 14% growth in average noninterest-bearing demand balances as client relationships deepened.
• Operating ROTCE -- 15.2%, reaching management's stated performance target ahead of schedule due to strong core earnings.
• Operating PPNR -- 2.01% of average assets, surpassing 2% due to increased net interest income and flat sequential operating expenses.
• CRE Concentration -- 397% pro forma for the loan sale, declining from 439% at the end of the second quarter.
• Rent-stabilized Exposure -- 2% of total loans pro forma, down from 6% as the company focused on divesting non-relationship assets.
• Provision for Credit Losses -- $5.0 million, decreasing from $8.3 million in the prior quarter as credit metrics improved.
• Nonperforming Asset Ratio -- 0.44% of total assets, improving from 0.55% due to loan work-outs and principal payments.
• Operating Net Charge-offs -- 7 basis points annualized, reflecting favorable performance in the non-purchased credit deteriorated portfolio.
• Operating Efficiency Ratio -- 41.3%, a reduction from 47.5% a year ago as technology investments like nCino improved workflows.
• Tangible Book Value -- $24.19 per share, decreasing 1.9% sequentially primarily due to changes in accumulated other comprehensive loss.
• Loan Repricing Yield -- 258 basis point average increase, achieved on $1 billion of loans that repriced year to date.
• Repricing Pipeline -- $1.2 billion, expected to reprice over the next five quarters providing a continued tailwind for the margin.
• SBA Gains Guidance -- 50% or higher growth, projected for the full year 2027 based on current business development trends.
• Operating Expense Guidance -- 2% to 2.5% sequential increase, projected for the fourth quarter to support business growth and technology initiatives.
• Preferred Dividend Reset -- 8.8% reset rate, up from 5.25% as the Series A preferred stock reached its reset date.
• Common Dividend -- $0.195 per share, representing a payout of approximately 20% of operating earnings.
• Remaining Rent-stabilized Protection -- 30% of unpaid principal, consisting of reserves and marks on the $235 million in remaining loans.
• Share Repurchases -- 50,000 shares, bought at an average price of $32.37 per share during the third quarter.

Need a quote from a Motley Fool analyst? Email [email protected]

RISKS

• Burns stated, "dividend rate has moved higher to approximately 8.8%," noting the noncumulative preferred stock reached its reset date and increased the company's cost of capital.
• Sorrentino stated, "the environment for those assets is looking like it is deteriorating over time," in reference to the market for New York City rent-stabilized multifamily properties.

SUMMARY

ConnectOne Bancorp, Inc. (CNOB +0.34%) reported improved core operating performance for the third quarter, highlighted by margin expansion and growth in client relationships. The company announced a strategic bulk sale of up to $750 million in multifamily loans to reduce commercial real estate concentrations and exit non-relationship assets. Management stated that the transaction significantly derisks the balance sheet by reducing rent-stabilized exposure to 2% of the total loan portfolio. Proceeds from the sale are expected to be reinvested into government-guaranteed securities and used to pay down higher-cost wholesale funding. Executives indicated that the company remains focused on technology-driven efficiency and disciplined capital allocation as it enters the final quarter of the year.

• CFO Burns stated that the company expects the margin to reach 3.53% for the fourth quarter of 2027 as loan repricing continues to work in the bank's favor.
• Management noted that investment in nCino workflows and other technology platforms has kept sequential operating expenses flat while allowing bankers to spend more time with clients.
• The company reported that nonperforming assets declined to $64 million as credit quality improved across the board during the quarter.
• CEO Sorrentino stated that while interest rate hikes have dampened some demand, the economy remains robust with high certainty of execution attracting new clients.
• The company intends to redeem its reset preferred stock and is currently evaluating the most advantageous method for doing so in light of improved regulatory capital ratios.
• SBA gains are expected to rise by 50% or more in 2027 as the business unit continues to strengthen its pipeline and market execution.

INDUSTRY GLOSSARY

• AOCI: Accumulated Other Comprehensive Income, which includes unrealized gains and losses on certain investments and pension items.
• BOLI: Bank Owned Life Insurance, used by banks to fund employee benefit obligations.
• CRE: Commercial Real Estate, referring to loans secured by income-producing properties.
• nCino: A cloud-based operating system for financial institutions that automates banking processes and workflows.
• PCD: Purchased Credit Deteriorated loans, which are acquired loans that have experienced a more-than-insignificant deterioration in credit quality since origination.
• PPNR: Pre-Provision Net Revenue, a measure of bank earnings before taxes and provision for credit losses.
• ROTCE: Return on Tangible Common Equity, a financial ratio measuring the return on common equity excluding intangible assets like goodwill.
• SBA: Small Business Administration, referring to loans guaranteed by the U.S. government agency to support small businesses.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to the ConnectOne Band Inc. Third Quarter 26 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 1. To raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to Siya Vansia, chief brand and innovation officer. Sia, please go ahead.

Siya Vansia: Good morning, and welcome to today's conference call to review ConnectOne's results for the third quarter of 26 and to update you on recent developments. On today's conference call will be Frank S. 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. 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 S. Sorrentino.

Operator: Frank, please go ahead.

Frank S. Sorrentino: Thank you, Sia, and good morning, everyone. I am pleased to report that during the third quarter, 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 deposit, deep client relationships, and a strong deposit base. The acquisition also included a portfolio of high quality nonrelationship 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. 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 focus banking strategy. It accelerates the reduction of our CRE concentration, cuts our rent stabilized exposure by up to 2-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 third quarter 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. 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 in our investments in technology including nCino workflows, are freeing our bankers to spend more time serving our clients.

Efficiency has always been 1 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 nonperforming 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 specific on the remaining portfolio. On capital, we remain disciplined stewards 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 third quarter performance clearly demonstrates the strength of our franchise.

And looking ahead, 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 do not you walk us through the quarter's financial performance in a little bit more detail?

William S. Burns: Alright, Frank. Thank you. Good morning to everyone on the call.

Frank S. Sorrentino: As Frank mentioned, we announced 2 items this morning.

William S. Burns: First, we delivered a continued step up our core operating performance. And second, we executed on a right sized balance sheet restructuring transaction It meaningfully derisks and repositions the balance sheet. I will start with the restructuring, then we will get to operating results. So 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 $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. that is because we previously recorded significant purchase accounting marks both interest rate and credit marks, on a large part of the pool back in the second quarter of 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 93 cents versus the 90 cents 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 September 30 which required the recognition of a 23 million nonoperating pretax charge in the third quarter. 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. 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. 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 a June 30 pro forma basis to 397 from $4.39. Our loan to deposit ratio improves into the high-90s from the low-100s, and securities portfolio as a percent of assets is expected to increase to 12.5% from its current 9%.

In addition, post loan sale, our rent regulated book declined 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 pleased with our performance and momentum. Excluding the restructuring charge and other nonoperating items, operating EPS was 95 cents per share, up 13% sequentially from 84 cents last quarter and that builds upon our strong second quarter sequential earnings growth. And 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 1.35%, and return on tangible common equity of more than 15% already hitting the target we laid out earlier this year. Net interest margin widened for the eighth consecutive quarter to 3.44%, 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. 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. And as I mentioned earlier, we expect the restructuring to be additionally accretive to the margin primarily from paying down higher cost wholesale funding. So putting it all together, we are now estimating a margin reaching 3.53% for the fourth quarter for 2027. Our model shows it continuing to widen throughout the year, Whether that gets us to 63 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, excluding broker deposits, also grew about 11% annualized. Average noninterest bearing deposits increased about 14% and brokered 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 loan to deposit ratio. Now I am going to turn to non interest income and operating expenses excluding the restructuring charge, noninterest income was 8.5 million up a little from 7.9 million last quarter. That included some onetime BOLI income items leading to a 1.1 million increase.

While quarterly results may fluctuate, execution remains solid on the SBA front, our SBA business continues to strengthen. SBA pipeline is strong, 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 noninterest 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 the fourth quarter.

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. We have reported sub-40% efficiency ratios before, and we are on track to get there again.

And just wanna remind you, keep in mind, as we disclosed in the release, we will be recognizing approximately $7 million to $8 million of nonoperating pretax transaction costs related to the loan sale that under GAAP are to be recognized not in the third quarter, but need to be recognized in the fourth quarter. Now credit quality, as Frank mentioned, improved across the board. 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.

Nonaccrual loans declined to 64 million from 80 million driving the nonperforming asset ratio lower to 0.44% of total assets from 0.5% 1 quarter ago, and 30 to 89-day 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 move loans from loans receivable into loans held for sale. The balance in classified and 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.

Now 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. First off, except for a de minimis amount, these loans were not part of the original pool offered for sale by our own design. And of that 235 million more than half consists of long standing clients with related deposits 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.

And 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, 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 rearview mirror, that is a result we can all feel good about. Now 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 1 time charge.

And 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 was 38 at the end of the quarter, but it is going to be approximately 35 basis points higher due to the loan sale. And 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 thousand shares at an average price of $32 We have approximately 500 thousand shares remaining under our authorization, We will continue to repurchase opportunistically.

Our board declared a common dividend of 19.5 cents per share, consistent with last quarter. that is roughly 20% of operating earnings which leaves us significant flexibility. And 1 last item, our noncumulative preferred stock. It reached its reset date, and 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.

And with that, Frank, I am going to turn it back over to you.

Frank S. Sorrentino: it is great, Bill. Thank you. To wrap things up, the third quarter marked an important step in ConnectOne's evolution. We derisked our balance sheet, strengthened our liquidity, and financial flexibility, and continued to grow ConnectOne's core business with 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. And 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 and 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. Wanted to ask about the use of proceeds. I know you covered it in your opening comments, and some stuff in the release. But just to make sure I have it clear, 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, you know, 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 S. Sorrentino: Yeah. that is the right way to think about it.

Feddie Strickland: Okay. And just in terms of the competitive environment on loans, I mean, it seems like you got a pretty good pipeline here given your guidance. Can you talk about what you are seeing on rate and maybe the level of competition Yeah.

Frank S. Sorrentino: there is a fair amount of competition in the market today, you know, certainly, we are, you know, 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 is a very robust economy underneath all of this. Folks are still doing lots of you know, really exciting things within the marketplace. The clients that we have, we are doing more business with and so competitive pressures there are lower. There are lots of other reasons why people seek out ConnectOne.

You know, the certainty of execution here at ConnectOne is at an all time high and our clients really respect that. So while I would agree there is 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 are onboarding the right types of client relationships, and continue to grow the balance sheet.

Analyst: Yeah.

William S. Burns: And, Feddie, 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 sixes. Rates that came off were at lower rates. And my calculations say that contributed about 5 basis points to the margin. And when I when I look at the at the pipeline, we are over 7%. On a similar amount. So I would expect, you know, a similar amount of margin improvement coming from our loan originations.

Feddie Strickland: Got it. And just 1 more question on the loan growth side I mean, I appreciate the guidance here. Does reduced pay downs and maybe the ability to hang on to more of the loans reaching maturity given higher rates factor into your overall net loan growth number going forward?

Frank S. Sorrentino: I do not know. I do not think so. I think they are, you know, again, thinking about a highly competitive market place. You know, there are institutions out there that are doing lower spread business and 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 on for Justin Crowley. Yep. I just had a question about the, the impact from the loan sale. I know you guys, guided to a 3.50% margin next quarter. Maybe how much of that is factored in from, you know, the impact from the loan sale versus, you know, overall asset repricing you know, thinking about the margin as we look over the next quarter or 2?

William S. Burns: Right. I mean, there is a lot of moving parts to the margin. We have the loan repricing. We have, our regular originations, and we have this, restructuring. And they are all worth, you know, a few basis points each. Offset by increasing deposit cost. But the net is you know, an increase of whatever 3 to 5 basis points a quarter, in the net interest margin. Hope that answers your question.

Bader Hijleh: Yeah. And then you mentioned increasing deposit cost Do you happen to have these spot cost of deposits at the end of the quarter?

William S. Burns: What was the cost for the.? Yeah. it is been pretty been pretty flat.

Frank S. Sorrentino: Right? It just. It had to be pretty flat from.

William S. Burns: You know, in the in the 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. And that is what is tempering. that is what is tempering our margin widening. Projections.

Bader Hijleh: Got it. Thank you. And then lastly, if I may, I know you guys mentioned potential closed 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 and then maybe as a follow-up, you know, given that you have taken care of a good sized portion of the rent stabilized exposure, are you guys thinking about potential restructuring of low. Or an additional loan sales down the line?

William S. Burns: Well, let's wait. The second question was on rent stabilized, think we have got it down to exposure I said, 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. 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? So like I said, as far as the financials go, it is it is in the rearview mirror now. But you will see continued decline in the rent regulated balances that are left.

And the first question was, As far as loan sales, we have we have had a history of doing smaller transactions when we determine we have nonrelationship type loans. That have accumulated in the portfolio. So, I mean, that. it is possible, but it would be further down the road. Yeah. If something like that happened. I would not put it I would not put it in your projections for the next year or 2. Okay? Got it.

Bader Hijleh: All for me. Thank you very much.

Frank S. Sorrentino: Sure. Yeah. Great.

Operator: Your next question comes from the line of Timothy Switzer with KBW. Your line is open. Please go ahead.

Timothy Switzer: Hey. Good morning. Thanks for taking my question.

Frank S. Sorrentino: Hey, Timothy.

Timothy Switzer: First 1 I have is on the expense outlook. Could you maybe provide some parameters in your expectations for 2027? And what levers you have to pull in front of you to say if we get into a tougher environment here?

William S. Burns: Well, I think you know, at the maximum, it is 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. So we do not really necessarily have expense budgets that we have to stick to. It depends what is 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.

Timothy Switzer: Okay. Great. And then, a couple questions on the NIM. Trying to get an idea of the impact of a Fed rate hike. It sounds like you believe you are able to continue expanding the NIM next year regardless of the rate environment. But, yeah, for each rate hike, is it, like, 5 basis points?

William S. Burns: No. it is only, like, 2 maybe 2 or 3. And we benefit more on the way down. We benefit more on cuts. Than we get hurt on, on ups. Okay.

Timothy Switzer: Nice. And then can you remind us the amount of CD repricing you have over the next year?

William S. Burns: Sorry. I mentioned that. Oh, it is not a lot. What do we got? Oh, but it is just a small amount, though. The rate differential. 83? From where is it today? I am sorry. I am asking Steve Premiano, our treasurer. We have we have 3 billion of CDs repricing over the next 17 months. But the differential in rate is not all that much. K. Current rates got 83. We can work on them on there. So. Right. So it says. Yeah. it is repricing, but no change to the margin. Gotcha. Okay. Okay.

Timothy Switzer: And then 1 last 1 for me. What was the purchase accounting accretion within NII for the last 2 quarters?

William S. Burns: Oh, the purchase accounting accretion? Yes. So it is it is been about. it is it is it is running at about 8 million Okay? And we are gonna lose about 20% of that with the loan sale. You should not look at that is gonna hurt margin in some way because you know, that is the 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. And that includes the purchase accounting accretion.

I think it is good that we will have less purchase accounting accretion for those that, you know, treat that as lower quality earnings because good to have it lower. Gotcha. Yep. Sounds like you replaced it with the repurchase. Alright. Thank you.

Timothy Switzer: Okay. You are welcome.

Operator: Your next question comes from the line of Tyler Cacciator with Stephens Inc. Your line is open. Please go ahead.

Tyler Cacciator: Good morning, guys. This is Tyler on for Matthew Breeze. Yes, Tyler.

William S. Burns: Hi.

Frank S. Sorrentino: Hey, Tyler. Frank, maybe just going back to the multifamily sale. You know, 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? Look. You know, we have we have mentioned here, I do not know how many different times about building a business that is really on high valued client relationships where we know we have a depository relationship, cash management, multiple points of contact with those clients, building, you know, a bigger base with each of those clients over time as our balance sheet strengthens.

And so 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. But they were not you know, they were transactions. And, so the opportunity was here to you know, get rid of those and free up both capital, liquidity, and resources to be able to redeploy in better assets going forward. And so we, you know, we took the opportunity. It does not you know, it does not it is not lost on anyone that part of that portfolio is the rent stabilized.

And since the time we, you know, announced the deal with First of Long Island, the environment for those assets is looking like it is deteriorating over time. But 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 high quality client relationships. And so the opportunity to clean up the balance sheet and give us the, you know, the strength that we now have to move forward, I think, I just think was a smart move for us. To make.

Tyler Cacciator: Got it. And then 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? How that compares to what you are seeing on reinvestment on the securities front?

William S. Burns: Yes. So 30% of the loans in the portfolio were ConnectOne. Originated, and they were on at an average rate of 5 and a quarter. And the loans that we picked up from First of Long Island had been 5 and a quarter or lower, but with the purchase accounting marks, we are actually yielding 6%. So it is, you know, a weighted average between 6% and 30% of 5 and a quarter. And we expect to reinvest at yields in the low sixes on average.

Tyler Cacciator: Got it. And then, Bill, I guess, another 1 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 the fourth quarter?

William S. Burns: Well, 1 is you have to be careful to exclude broker in there. And so when you exclude brokered, the actual. The point to point may have been a little bit higher. And I. 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. Okay? 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 Cacciator: Got it. That will be it for me. Thank you very much.

Operator: Just a reminder, if you would like to ask a question, please press star-1 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.

William S. Burns: Hi, Dan.

Frank S. Sorrentino: Hi.

Daniel Tamayo: Maybe just starting, you have got this loan sale now in the rearview mirror. Really, outside of the rent regulated has been strong recently. Curious how we how we should think about the net charge off profile going forward here.

William S. Burns: Well, we do not have a huge pipeline, okay, of charge offs, which is great. The only place that I might be using it is that I would like to continue to be aggressive to get off the books any remaining. That small remaining piece of rent regulated And so I would not be surprised to see further decreases in that. With small levels of charge offs. You know? No more than, than we. Than the than 3 to 5 million, say, a quarter. Okay?

Daniel Tamayo: Okay. Alright. that is helpful. And so that is the half that you are you are gonna be getting rid of. And just to put a fine point on 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 he talked about?

William S. Burns: it is it is 30 it is 30% on that remaining half. The rest has a. Actually has a larger reserve than our loan portfolio, maybe about 3%. Okay. But those loans are all performing, and I think the weighted average rating is 4.1. On those loans, which is very strong.

Frank S. Sorrentino: Yeah. Low LTV, strong Yeah. Strong debt service coverage. They can withstand a lot of change. that is going on in the marketplace there and rent stabilized world in New York City.

William S. Burns: And strong. Very strong borrowers if you if you said that. Yeah.

Daniel Tamayo: Okay. Great. And then just wanted to dig into the maybe the sensitivity on demand from rate hikes you mentioned there is still kind of 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 rateable 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.

Frank S. Sorrentino: Next year? You know, 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 that have a strong economy. Rates are going up because there are some inflationary pressures. there is, again, uncertainty, you know, due to the wars and fuel prices, AI investment. Many of those things cannot be controlled by higher interest rates.

And so 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 stronger and continues to build on that strength. If the economy is building on that strength, there is going to be increased demand for lending. And so because you can if things are strong, you are gonna be able to borrow at higher rates and still make whatever it is you are doing make sense. And, you know, we do not. It should not 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 and what you can get as far as a return from whether it is you know, a business opportunity, you know, construction opportunity, development opportunity, whatever it happens to be. And I and I think we are gonna 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, 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 is all I had.

Frank S. Sorrentino: Great.

Operator: There are no further questions at this time. I will now turn the call back to management for closing remarks.

Frank S. Sorrentino: Okay. Well, again, thanks everyone for joining us today, and we look forward to speaking with you during the fourth quarter earnings conference call in a few months. Have a great day, and thank you again for joining.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.