Oct 22, 2026 earnings call — Bulk multifamily loan sale reshapes balance sheet
Announced agreement to sell up to approximately 750 million of multifamily loans and recognized a 23 million nonoperating pretax charge.
Revenue $0.1B (est $0.1B) · EPS $0.95 (est $0.85)
Key quotes
"The transaction, which emphasizes the sale of rent stabilized assets accomplishes several strategic objectives at once."
"Net interest margin widened for the eighth consecutive quarter to 3.44%, a 2-basis-point increase."
"Now a word on the rent stabilized loans that remain on our books, which total approximately 235 million."
Analyst Q&A 5
Use of proceeds and loan competition
Q (Feddie Strickland · Hovde Group): Confirm how you will use the loan sale proceeds (hold in government-guaranteed securities near-term, pay down wholesale, pay down preferred, and support long-term loan growth). Also asked about loan competition, rates, and if reduced paydowns will affect net loan growth.
A: Management agreed that description of the proceeds was correct. They said there is competition, but ConnectOne has been able to keep pricing and onboard the right client relationships. They noted strong originations (as much as 800 million last quarter at rates in the high sixes) and a pipeline over 7%, and Frank said he does not expect reduced paydowns to change the dynamics.
"Yeah. that is the right way to think about it." — Frank S. Sorrentino (CEO·CHAIR)
Loan-sale effect, deposits, rent-reg exposure
Q (Bader Hijleh · Piper Sandler): How much of the guided 3.50% margin next quarter reflects the loan sale versus asset repricing? What was spot deposit cost at quarter end? Is interest on the loan sale coming from outside the banking system? Could there be more loan sales later?
A: They said margin has many moving parts and that loan repricing, originations and the restructuring each move the margin by a few basis points; the net is an increase of whatever 3 to 5 basis points a quarter in NIM. Deposit cost has been "pretty flat" in the most recent months, but they expect upward pressure on deposit pricing. On rent-reg, exposure is now a little over $200 million, more than half are loans they would not want to sell, they will be aggressive reducing the rest, and future smaller sales are possible but "I would not put it in your projections for the next year or 2."
"I would not put it I would not put it in your projections for the next year or 2." — William S. Burns (CFO)
Expenses, Fed hikes, CD repricing
Q (Timothy Switzer · KBW): What are expense expectations for 2027 and levers if environment gets tougher? How much does each Fed rate hike change NIM? How much CD repricing is ahead? What was purchase accounting accretion in NII?
A: They said at the maximum expenses could be a mid single digits increase and they can leverage fixed costs to improve efficiency. A Fed rate hike moves NIM by about 2 or 3 (basis points) and they benefit more on cuts than they are hurt on ups. They said "We have we have 3 billion of CDs repricing over the next 17 months," and purchase-accounting accretion has been about 8 million and will lose about 20% of that with the loan sale, which they have already taken into account.
"We have we have 3 billion of CDs repricing over the next 17 months." — William S. Burns (CFO)
Why sell multifamily and yields
Q (Tyler Cacciator · Stephens): Why proceed with the multifamily sale — to strengthen the balance sheet or because of stress? What were yields on the loans sold and how do they compare to reinvestment yields? Why did average deposit growth look strong but period-end was modest?
A: They said they sold to remove many non-relationship loans and free capital, liquidity and resources to redeploy into higher-quality client relationships; part of the portfolio included rent-stabilized loans that look to be deteriorating. They said 30% of the loans were ConnectOne originated at an average rate of 5 and a quarter, other loans with purchase-accounting marks were yielding 6%, and they expect to reinvest at yields in the low sixes on average. For deposits, exclude brokered balances and use average-over-average rather than period-end to judge trends.
"And we expect to reinvest at yields in the low sixes on average." — William S. Burns (CFO)
Charge-offs and loan demand sensitivity
Q (Daniel Tamayo · Raymond James): After the loan sale, how should we think about net charge-offs going forward? What reserves remain on the rent-reg pieces? If the Fed keeps hiking, how much will loan demand slow?
A: They said they do not have a large pipeline of charge-offs; they may use small charge-offs to remove remaining rent-reg exposure and would not be surprised to see further decreases with small levels of charge-offs. They said the remaining half has 30% protection reserves, the rest has a larger reserve maybe about 3%, loans are performing with a weighted average rating of 4.1, and Frank said if the Fed kept raising it would likely signal a stronger economy and more lending demand, while dramatic rate cuts would be more concerning.
"No more than, than we. Than the than 3 to 5 million, say, a quarter." — William S. Burns (CFO)