ConnectOne Bancorp, Inc.

Greetings and welcome to the Connect One Bancorp, Inc. second quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And as a reminder, this conference call is being recorded. It is now my pleasure to introduce Sia Vanzia, Chief Brand and Innovation Officer. Thank you, Sia. You may begin.

Good morning and welcome to today's conference call to review Connect One's results for the second quarter of 2022 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. The results as well as notice of this conference call on a listen-only basis over the internet were distributed this morning in a press release that has been covered by the financial media. At this time, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information and are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous assumptions, uncertainties, and known or unknown risks, which could cause actual results to differ materially from those anticipated. Risk factors are more fully discussed in the company's filings with the Securities and Exchange Commission. 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 8K with the SEC and may be also accessed through the company's website at ir.connectonebank.com. Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information. I will now turn the call over to Frank Sergentino. Frank, please go ahead.

Thank you, Sia, and good morning, everyone. We appreciate you joining us here today. I thought before getting started that I'd like to take a moment to review our longer-term track record, which, of course, we are very proud of. Connect One's performance metrics are consistently top tier in the industry. Our net interest margin has expanded since the early stages of the pandemic. Excuse me. Our net interest margin expanded since the early stages of the pandemic versus contraction for most of the industry. Our tangible book value per share continues to increase now for the ninth straight quarter, reflecting our core profitability and sound balance sheet management. our organic growth has consistently been above 10 percent. We've expanded both geographically and through new verticals, and we've remained disciplined to our commercial banking business model and focus on the lines of business where Connect One has expertise and competitive advantages. We augmented our organic growth with opportunistic value-enhancing M&A, and our fintech acquisition, Bowfly, is gaining momentum and is poised to create significant value. Our client-first tech-forward culture has led to strong performance and increased market share through various business cycles. And finally, in our view, with our track record of success, we are and remain a very compelling investment opportunity. With that, we're exceedingly pleased with ConnectOne's all-around performance in the second quarter, highlighted by significant organic balance sheet growth and continued record performance metrics. Annualized loan growth was 17%, while non-interest-bearing demand grew by an annualized 20%. Our PPNR as a percent of assets was 2.28%, exceeding 2% for the eighth consecutive quarter. Return on assets was in excess of 1.5%, and return on tangible common equity was in excess of 15%. Our net interest margin has continued to expand, and our efficiency ratio remains below 40%. And finally, our tangible book value increased again this quarter to almost $21 a share. These results are a testament to the success of our client-centric culture and relationship-focused origination franchise. The investments we continue to make in our team, infrastructure, and digitization are paying dividends as we, again, saw record loan fundings this quarter. We continue double-digit Our continued double-digit growth illustrates both the strength and the diversification in the markets we serve, bolstered by recent acceleration of hires, the lifting of teams, and expansion of our geographic reach. Origination metrics were favorable. Weighted average origination yields were in excess of 4.75 percent, and that number is now well in excess of 5 percent heading into the third quarter. Credit metrics were sound, strong LTVs, and conservative debt service coverage ratios, reflecting very conservative underwriting. This quarter's growth was higher than we initially guided, but it does not come as a complete surprise to us. We had a robust pipeline entering the quarter. Long growth across the industry is up. Our originations were diverse, spread amongst all segments and markets. And notably, CNI growth gained momentum this quarter, with additional synergies driven through Beaufly. Looking ahead, the loan pipeline remains strong with increasing spreads and rates. Our Florida team's success also exemplified that Connect One's relationship-focused model can be a clear differentiator in these other markets. We're seeing continued strong loan demand and core deposit growth there with the aggregate loan and deposit origination projected to be upwards of $200 million by year end. And with the hiring of additional staff and the opening of our permanent office in West Palm, we expect even further momentum. Turning to deposits, we expect competition to continue to increase. However, Connect One is well positioned to adapt to changing market dynamics. Our client-focused model has a proven record of generating core deposits to keep pace with loan growth. We also have a number of tech initiatives that are geared toward augmenting that deposit growth. To that end, we're excited to announce a partnership with Mantle to enhance the bank's deposit origination platform. This partnership allows us to leverage technology to expand our reach in supporting consumer, small business, and commercial clients while optimizing our workflows. Each of these improvements allow Connect One to build frictionless client experiences and processes that support continued scale and efficiency. As a reminder, last quarter, we announced a partnership with Nimbus to launch a new B2B vertical on the Nimbus platform. This partnership provides Connect One the opportunity to expand into new business verticals while leveraging lean and nimble cloud-based tools, and ultimately create a new avenue to drive deposits. Implementation has begun on both these fronts, and you can expect to hear more about this at the end of the year. On to Bowfly, our fintech subsidiary, which continues to shine. The platform continues to generate non-interest income and fees and revenues growing as franchisor adoption is running strong. The franchisee market is ripe with opportunities, and we continue to explore avenues to expand that platform. Under the leadership of Mike Rosman, Bowfly has not only expanded its core business, it has also helped spawn new verticals within Connect One. Our SBA unit is now generating respectable volumes. And our franchise lending group is seeing great deal flow. And the franchisor lending opportunities are providing high-quality clients to the bank. Expect to hear more about this as the year progresses. Shifting to the macro environment, we're certainly conscious of the possibility of a potential recession, which may lead to some loan stress across the industry. Just want to remind everyone we operate in some of the strongest markets in the country, and so far our clients appear to be in sound financial condition. Overall, non-performing assets and delinquencies at Connect One remain low, and we have very limited exposure to consumer business lines, which may be more susceptible to the recent market dynamics. Before I turn it over to Bill, let me just mention, that we continue to attract top talent to bolster bench strength across all lines at Connect One. Capitalizing on M&A disruption, we've been very successful in adding staff in all areas of the company. Connect One continues to be a top choice for displaced, experienced bankers, and we're building for the future across all of our markets.