ConnectOne Bancorp, Inc. (CNOB)·Q2 2025 Earnings Summary

Executive Summary

• Q2 2025 GAAP diluted EPS was $(0.52) driven by $30.7M merger charges and a $27.4M day-1 CECL provision tied to the FLIC merger; operating diluted EPS was $0.55 and operating ROA was 0.89% .
• Net interest margin expanded 13 bps sequentially to 3.06% and operating efficiency improved to 49.2% on stronger core deposits and accretion; nonperforming assets fell to 0.28% of assets .
• Management guided further NIM expansion of ~10 bps in each of Q3 and Q4 toward ~3.25% FY25, a quarterly expense run-rate of ~$55M in 2025, and targets of ~1.2% ROA and ~15% ROTCE into 2026 .
• Strategic catalysts: successful Long Island integration, deposit mix improvement (DDA >21%), margin trajectory, and potential reversal of day-1 CECL if rule changes finalize; watch for ongoing cost saves and accretion benefits (~$9.8M/quarter in 2025) .

What Went Well and What Went Wrong

What Went Well

• Net interest margin widened to 3.06% (up 13 bps q/q), aided by deposit cost declines and ~$3.3M purchase accounting accretion (~13 bps to NIM) .
• Integration milestones: “core systems conversion was successfully completed,” strong client retention, and DDA mix improved to >21% with loan-to-deposit ratio at ~99% post-merger .
• NPA metrics improved: nonperforming assets down to $39.2M and 0.28% of assets; ACL coverage of nonaccruals rose to 398% .

Quotes

• CEO: “This transformational merger establishes ConnectOne as a $14 billion regional financial institution with 61 locations and more than 700 banking professionals.”
• CEO: “Operationally, the merger has significantly improved our loan and deposit mix, net interest margin, credit metrics, and profitability ratios.”

What Went Wrong

• GAAP loss to common of $(21.8)M largely from $30.7M merger expenses and $27.4M day-1 CECL provision; total provision rose to $35.7M .
• Noninterest expenses surged to $73.6M (+$34.3M q/q) on merger costs, amortization of core deposit intangibles, and higher salaries .
• Elevated charge-offs and delinquencies ticked up: annualized net charge-offs 0.22% (vs 0.17% in Q1), 30-89 day delinquencies 0.13% (vs 0.04% at YE 2024) .

Financial Results

Segment/Balance Composition

KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO: “Following completion of the merger on June 1st, we immediately opened as a unified organization… This transformational merger establishes ConnectOne as a $14 billion regional financial institution…” .
• CFO: “Our competitions call for an approximate increase to our margin of 10 basis points for each of the third and fourth quarters… about 3.25% for the full year.” .
• CFO: “On a combined company basis, noninterest bearing demand deposits increased by more than $100 million since March 31… core balances have increased by more than $500 million… reduced FHLB borrowings by about $200 million.” .
• CFO: “The total provision… was $35.7 million including a day one provision for First of Long Island of $27.4 million.” .

Q&A Highlights

• Credit metrics: No major change expected to criticized/classified; selective loan sales possible .
• Capital deployment: Share repurchases left open; capital ratios tracking better than expected .
• Securities/NIM sensitivity: Portfolio restructuring done; still ~5 bps benefit per 25 bps Fed cut (assuming one cut in ’25) .
• Reserves outlook: Elevated core reserves tied to merger modeling; potential to release if performance exceeds conservatism .
• Deposit/DDA mix: DDA expected to continue rising with C&I-led growth; strong start in Long Island markets .
• Pipeline yields and growth: Weighted average pipeline rate ~6.77%; loan demand strong but payoffs temper balance growth (low-to-mid single-digit outlook) .

Estimates Context

• EPS: Q2 2025 Primary EPS consensus mean was $0.5925* vs actual operating diluted EPS $0.55 — slight miss; Q1 2025 was a beat ($0.46* vs $0.51 actual), Q4 2024 also beat ($0.433* vs $0.52 actual)*.
• “Revenue”: Consensus $84.0M* vs actual $48.37M* — a large miss, primarily due to the elevated provision (SPGI “Revenue” for banks reflects net interest income after provision plus noninterest income); Q1 2025: $69.73M* vs $66.71M* actual (miss), Q4 2024: $64.43M* vs $64.96M* actual (beat).
  Values retrieved from S&P Global.

Footnote: SPGI “Revenue” for banks typically equals Net Interest Income after provision + Noninterest Income; defined figures are sensitive to provisions.

Key Takeaways for Investors

• The GAAP loss was driven by non-recurring merger and day-1 CECL items; underlying operating EPS ($0.55) and margin trends are positive, with management guiding NIM to ~3.25% in FY25 — watch for quarter-to-quarter expansion and accretion impact .
• Deposit mix and funding improved meaningfully (DDA >21%, brokered down $200M); expect continued mix benefits to NIM and reduced reliance on wholesale borrowings .
• Potential catalyst: CECL rule change could enable reversal of $27.4M day-1 provision and lift TCE ~15 bps; monitor regulatory developments .
• Cost discipline: Combined quarterly expenses targeted at ~$55M in 2025 with 35% cost saves on track; this supports operating leverage as synergies flow through .
• Credit quality: NPA ratios improved, but core reserve levels and charge-offs ticked higher; monitor CRE concentration trajectory and payoff dynamics (management expects sub-400% CRE concentration over time) .
• Capital strategy optionality: Share repurchases remain under consideration as capital builds; dividend maintained at $0.18, signaling confidence in cash flow .
• Near-term trading lens: Focus on successive NIM prints, accretion disclosure, and expense realization; medium-term thesis hinges on integration-driven growth in Long Island, margin expansion, and ROA/ROTCE targets into 2026 .