ConnectOne Bancorp, Inc.

Greetings and welcome to Connect One's third quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Sia Vencian, Chief Brand and Innovation Officer. Please go ahead.

Good morning and welcome to today's conference call to review Connect One's results for the third 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 that 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. These 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 can also be 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 Sorrentino. Frank, please go ahead.

Thank you, Sarah. Good morning, everyone. We appreciate you joining us today. By now, you've seen our release and the extraordinary organic growth we achieved this quarter on both sides of the balance sheet. Our deposits grew by 10.5%, while our loans grew by 8.5% sequentially. And importantly, average non-interest-bearing deposits increased by nearly 5%. So I'd like to reflect on just how Connect One continues to accomplish record levels of organic growth and superior operating metrics. At Connect One, we've established a long and proven track record of high performance with discipline and consistent growth through various economic cycles, with some of our best times coming at economic inflection points. The strength of our origination franchise is rooted in our relationship-based banking model. And that speaks directly to the team that we've built and our dedication to delivering a best-in-class banking and client experience, a direct founding principle here at Connect One Bank. We've always credited those factors as key market differentiators, the culture we've built, the team we have, and now the bankers who are actively seeking us out to join a known client-centric culture and organization. And those have resulted in consistent market share gains in our traditional operating area. And on top of that, over the past year, we've expanded into new geographic areas, including the robust southeast Florida and eastern Long Island markets. We're also creating opportunities across new verticals. We recently brought on a healthcare team, enhanced our SBA lending capabilities, and continue to build our franchise referral and lending platform in conjunction with BowFlight. Our net staff count has grown in excess of 75 people over the last year, now taking us over 500 employees as we continue to capitalize on M&A dislocation in our market. Several highly seasoned and talented bankers have joined the team, unsolicited in many cases, as they were attracted to Connect One's culture and reputation. Finally, we're executing on a number of innovation initiatives in order to enhance the client experience while digitizing workflows and expanding opportunities to generate deposits. As a result, a significant majority of this quarter's loan originations also have a base deposit relationship. With that backdrop, we're extremely pleased with Connect One's third quarter performance, yet again delivering high-quality earnings and strong performance metrics. PPNR increased by almost 4.5 percent for the quarter and 12 percent from a year ago and was in excess of 2 percent once again. Tangible book value per share increased for the 10th consecutive quarter and is up 30% over that period. And our efficiency ratio improved to 38.4%, even as we significantly invest in both technology and people. Notwithstanding this quarter's results, we are experiencing increased competition for deposits, but our client-focused model has proven adept at generating core deposits at a commensurate pace with loan growth. Our company-wide deposit focus, along with the investments we're making in our people and technology, give us confidence in our ability to continue that matched pace. Regarding loans, growth for the third quarter was higher than anticipated, but we expect growth rates to level off for the fourth quarter and heading into 2023. This tempered growth outlook reflects higher rates, the impact of the Fed tightening, and normalization in our pipeline. In this environment, Growth guidance is really challenging, but our best estimate right now is low double-digit on an annualized basis. From a business perspective, we have longstanding relationships with highly experienced operators. Simultaneously, as a result of our expansion, we're seeing a healthy diversification in the profile of our originations, including geography, segments, and business lines. Additionally, origination metrics remain strong, reflecting conservative underwriting standards. And for the third quarter, weighted average yields were near 5.5 percent. And as of today, yields are already well over 6 percent. We're clearly benefiting from our recent investments in our business and growth-focused initiatives we've shared over the last few quarters or years. Ultimately, our success comes down to our commitment to investing in our people and the digitization of our tech-focused infrastructure. both of which, in our view, enhances Connect One's competitive advantage and provides superior client experience. As I mentioned earlier, we're extending our New York and Long Island presence with a business development office in East Hampton. That office, which just opened this month, builds on our existing presence on Long Island, allowing us to support existing clients while building on opportunities in a new market. The East End of Long Island has a robust small business market that values the relationship-focused banking that Connect One provides and is yet another opportunity we're excited about. Let's turn to credit. Once again, the company's credit metrics remain sound. Our MPAs continue to trend lower. Delinquencies remain near zero. And we're prudently maintaining reserve levels, which are commensurate with our organic growth and the changing macroeconomic forecast. Bill will provide further color around our CECL-based provisioning, As we look ahead, a number of recent strategic tech investments are moving through to implementation. Earlier this year, we announced a partnership with Nimbus to build a new business vertical on a lean and nimble cloud-based tool. We've now branded this vertical Venture On, and it will provide bespoke banking services for deposit-rich, tech-focused businesses. You'll hear more details regarding Venture On later this year as we expect an early 2023 rollout. We're also well underway with the implementation of Mantle, a tool to enhance our deposit origination infrastructure. We expect the first phase of the initiative to be rolled out by year end. And then, of course, if both lie, we continue to enhance our platform and the user experience while increasing the number of net franchisors and franchisees. This is the foundation that contributes to loan opportunities in both the SBA and now non-SBA lending verticals. Connect One entered 2022 with a strong and resilient balance sheet, and we're committed to preserving that position going forward. We have a deep capital base and strong earnings that can support growth initiatives, dividends, and share repurchases. On a macro basis, there are certainly headwinds facing our industry, but our third quarter and year-to-date results fully support our belief that Connect One is operating from a position of strength. At Connect One, we've always set ourselves apart by making it easier for our clients to do business with us, while empowering them with the latest technology to meet their evolving needs. Powered by our operating leverage, Connect One remains one of the most efficient banks in the industry, leveraging both our technological advantages and our culture to drive our results. As we look ahead, in terms of size, it's likely we'll be crossing the $10 billion threshold in 2023, and we're both ready and prepared. And with that, I'll turn it over to Bill.