コネクトワン・バンコープ（CNOB）2026年第3四半期決算説明会：7億5000万ドルの融資売却とNIM拡大

主要ポイント

• コネクトワン・バンコープが発表した2026年第3四半期の営業EPSは0.95ドルとなり、継続的な純金利マージンの拡大に支えられ、前四半期の0.84ドルから前期比13%増加しました。
• 純金利マージン（NIM）は8四半期連続で拡大して3.44%となりました。経営陣は2026年第4四半期に約3.50%、2027年中もさらなる拡大を見込んでいます。
• 同社は、取引関係のない正常額面集合住宅ローン（マルチファミリーローン）を最大約7億5,000万ドル、額面の90%を超える価格で売却することに合意しました。この売却により、第3四半期に2,300万ドルの営業外税引前費用が発生しました。
• ローン売却後のプロフォーマ（試算値）では、規制上の商業用不動産（CRE）集中度は439%から397%へ低下し、預貸率は90%台後半へと推移します。
• 平均顧客預金および平均融資残高はそれぞれ年率換算で約11%増加しました。無利息預金の平均残高は14%増加した一方、ブローカー預金は1億5,000万ドル（13.7%）減少しました。
• 信用指標は改善し、不稼働貸付（ノンアクルーアル・ローン）は8,000万ドルから6,400万ドルに減少、不良資産比率は0.44%に低下、調整後年率換算の純処理損失率（ネットチャージオフ率）は7ベーシスポイントとなりました。

主要財務データ

事業および業績動向

計画されている集合住宅ローンの売却は、貸借対照表（バランスシート）を取引関係重視型のバンキングへとシフトさせることを目的としています。対象となる資産プールは、取引関係のない正常ローンで構成されており、ファースト・オブ・ロングアイランド（First of Long Island）の買収を通じて取得した家賃規制対象資産が含まれています。

コネクトワンは、売却益の大部分をやや利回りの高いより低リスクな資産へ再投資する予定です。一部は市場調達資金（ホールセール・ファンディング）の返済に充てられる見込みです。経営陣は、本取引によって収益力を損なうことなくリスクを軽減し、純金利マージンおよびROAを下支えできると述べています。

売却後、家賃規制ローンの比率は総融資額の6%から2%（約2億3,500万ドル）に低下する見込みです。残高の半数以上は1億ドル以上の預金と連動する既存の顧客関係によるものです。リスクが比較的高い約1億ドルの部分については、過去の貸倒処理、買収会計上の評価調整、引当金など、未払い元本の約30%に相当する相殺要素が確保されています。

金利改定（リプライシング）は引き続き追い風となりました。年初来で10億ドル強のローンが改定され、そのうち20%は完済された一方、継続保有された残高の改定金利は平均で258ベーシスポイント上昇しました。第3四半期の新規融資実行額は6%台後半の金利で約8億ドルに達し、パイプライン（案件候補）も同程度の規模で7%を超える金利水準となっています。

リストラ費用を除く非金利収入は850万ドルとなり、第2四半期の790万ドルから増加しました。これには銀行保有生命保険（BOLI）の一時的要因による110万ドルの増加が含まれています。また経営陣は、強固なSBA（中小企業庁保証ローン）案件パイプラインについても言及しました。

業績見通し（ガイダンス）

• 経営陣は、2026年第4四半期の純金利マージンを約3.50%と試算しています。
• 2027年については、社内モデルによりマージンの拡大傾向が続くと示されています。年内に3.60%以上の水準に達するかどうかは、FRB（米連邦準備理事会）の政策金利改定の回数や方向に依存します。
• 融資および預金の伸び率は1桁台半ばで推移し、預貸率は100%未満に抑えられる見通しです。
• 第4四半期の営業費用は、前期比で2%〜2.5%増加すると見込まれます。
• 経営陣は、活用可能な投資機会に応じて、2027年の費用増加率を最大でも1桁台半ばに抑える見込みです。
• 経営陣によると、2027年のSBA売却益は2026年比で50%以上増加する可能性があります。
• 引当金費用は当面の間、比較的安定して推移する見通しです。
• コネクトワンは、第4四半期にローン売却に関連する約700万ドル〜800万ドルの営業外税引前取引費用を計上する見込みです。
• 経営陣は、配当率が約8.8%にリセットされた非累積優先株の償還を意図していますが、最も有利な手法を検討する間、もう1四半期にわたって据え置かれる可能性があります。

リスクおよび注視事項

預金金利に対する上昇圧力が続いており、想定されるマージン拡大のペースを鈍化させています。経営陣は、金利がさらに上昇した場合のマージン押し上げ効果は限定的である一方、利下げが行われればより大きな効果が得られると指摘しました。

残存する家賃規制対象ポートフォリオには、不稼働貸付、購入時信用減損（PCD）債権、要注意債権が含まれています。経営陣はこのエクスポージャーをさらに縮小する方針で、残高処理を進める中で四半期ごとの貸倒処理額は300万ドル〜500万ドル程度で推移する可能性があるとしています。

集合住宅ローンの売却は、決算発表説明会の直後に完了する見込みです。これらの資産は正常ローンであったものの、ファースト・オブ・ロングアイランドの買収発表以降、家賃規制物件を取り巻く環境が悪化したと経営陣は言及しました。

アナリスト質疑応答の要点

経営陣は、売却益が主に政府保証債などの低リスク有価証券の購入、市場調達資金の返済、今後の自律的な融資成長、ならびに優先株の償還候補に充当されることを確認しました。

融資競争について、経営陣は市場が競争的であるとしながらも、コネクトワンは長年の顧客関係と確実な実行力を優先することで、必要なスプレッドを維持し続けていると説明しました。スプレッドの低いローンの解約・減額（ランオフ）は許容範囲内とみなされています。

経営陣の試算によると、ローンのリプライシング、新規融資の実行、貸借対照表の再編がそれぞれ数ベーシスポイントずつマージン向上に寄与しており、預金コストの上昇によって一部相殺されています。実質的な改善幅は毎四半期約3〜5ベーシスポイントと予想されています。

今後17か月間で約30億ドルの定期預金（CD）が満期・改定を迎えますが、金利差が限定的であるため、マージンへの影響はごく僅かであると経営陣は見込んでいます。

買収会計に伴う償却益（アクリーション）は約800万ドルで推移していましたが、ローン売却によりその約20%が消失する見込みです。経営陣は、売却される低利回り資産は6%台前半の利回りを生む資産に置き換えられる見通しであると説明しました。

決算説明会 文字起こし全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Hello, everyone. Thank you for joining us, and welcome to the ConnectOne Bancorp, Inc. Third Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Siya Vansia, Chief Brand and Innovation Officer. Siya, please go ahead.

Siya Vansia

Good morning, and welcome to today's conference call to review ConnectOne's results for the third quarter of 2026 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. I'd 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 Sorrentino. Frank, please go ahead.

Frank Sorrentino

Thank you, Siya, and good morning, everyone. I'm pleased to report that during the third quarter, we continue 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 non-relationship multifamily loans. Last quarter, we told you we were evaluating a bulk sale, and we're pleased to announce we've 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-focused banking strategy. It accelerates the reduction of our CRE concentration, cuts our rent-stabilized exposure by up to 2/3, 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 noninterest-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're always looking for ways to work smarter and our investments in technology, including agentic workflows, are freeing our bankers to spend more time serving our clients. Efficiency has always been one 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 specifics on the remaining portfolio. On capital, we remain disciplined stewards. The 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, we 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 don't you walk us through the quarter's financial performance in a little bit more detail.

William Burns

All right, Frank. Thank you. Good morning to everyone on the call. As Frank mentioned, we announced two items this morning. First, we delivered a continued step-up in our core operating performance. And second, we executed on a rightsized balance sheet restructuring transaction that meaningfully derisks and repositions the balance sheet. I'll start with the restructuring, then we'll 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's 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 $0.93 versus the $0.90 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, but 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 June 30 pro forma basis to 397% from 439%. 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'm 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 were very, very pleased with our performance and momentum. Excluding the restructuring charge and other nonoperating items, operating EPS was $0.95 per share, up 13% sequentially from $0.84 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 at 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're now estimating a margin reaching 3.50% for the fourth quarter, while for 2027, our models show continued widening throughout the year. Whether that gets us to 3.60% or higher at year-end '27 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, which exclude brokered 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're projecting loan and deposit growth remaining in the mid-single digits while maintaining a sub-100 loan-to-deposit ratio.

Now I'm going to turn to noninterest 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 and our SBA business continues to strengthen. SBA pipeline is strong, and I wouldn't be surprised if we're 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'm 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 want to 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 ought 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. The provision for credit losses was $5 million. That's 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 0.55% 1 quarter ago. And 30-day 89 delinquencies are just 5 basis points, almost nothing. Criticized and classified assets were 2% of loans. That's up from 1.9%, but that's only because loans receivable declined as we've moved loans from loans receivable into loans held for sale. The balance in classified and criticized were relatively stable. The allowance was 1.06% of loans, down from 1.18%. That's 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 totaled 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 in excess of $100 million. Therefore, there was no desire whatsoever to exit those relationships. The remaining balance of about $100 million includes nonaccruals, 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, additional general reserves that we've 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's 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 onetime charge. And over the past 12 months, tangible book is still up 5.9%, and we would expect to return to an upward path going forward from here. Our tangible common equity ratio was 8.38% at the end of the quarter, but it's 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 50,000 shares at an average price of $32. We have approximately 500,000 shares remaining under our authorization, and we will continue to repurchase opportunistically. Our Board declared a common dividend of $0.195 per share, consistent with last quarter. That's roughly 20% of operating earnings, which leaves us significant flexibility. And one last item, our noncumulative preferred stock. It reached its reset date and the 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're 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'm going to turn it back over to you.

Frank Sorrentino

That's 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 continue to grow ConnectOne's core business through strong client relationships. We're well positioned with a growing earnings profile, sound credit fundamentals and a balance sheet built for the next phase of growth. And we're 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'd like to turn the call over for your questions. Operator?

Operator

[Operator Instructions] Your first question comes from the line of Feddie Strickland with Hovde Group.

質疑応答

Feddie Strickland

Frank and Bill, congratulations on the loan sale here. I wanted to ask about the use of proceeds. I know you covered it in your opening comments and you had some stuff in the release. But just to make sure I have it clear, is the intention to hold those proceeds in government-guaranteed securities near term, you'll pay down some wholesale funds and then you're retaining some for 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?

William Burns

Yes, that's 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've got a pretty good pipeline here given your guidance. Can you talk about what you're seeing on rate and maybe the level of competition?

Frank Sorrentino

There's a fair amount of competition in the marketplace today. Certainly, we are 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's a very robust economy underneath all of this. Folks are still doing lots of really exciting things within the marketplace. The clients that we have, we're doing more business with. And so competitive pressures there are lower. There are lots of other reasons why people seek out to ConnectOne. 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's 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're onboarding the right types of client relationships and continue to grow the balance sheet.

William Burns

Yes. And Feddie, in terms of the rates, I've been very pleased with our progress. We originated as much as $800 million of loans in the last quarter at rates in the high 6s. Rates that came off were at lower rates. And my calculations say that contributed about 5 basis points to the margin. And when I look at the pipeline, we're over 7% on a similar amount. So I would expect a similar amount of margin improvement coming from our loan originations.

Feddie Strickland

Got it. And just one more question on the loan growth side. I mean, I appreciate the guidance here. Does reduced paydowns 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 Sorrentino

I don't know. I don't think so. I think there -- again, thinking about a highly competitive marketplace, there are institutions out there that are doing lower spread business. And so we do see some runoff out of the portfolio. It's welcome when it happens. So no, I don't really see that dynamic changing all that much.

Operator

Your next question comes from the line of Bader Hijleh with Piper Sandler.

Bader Hijleh

This is Bader Hijleh on for Justin Crowley. I just had a question about the -- maybe 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 the impact from the loan sale versus overall asset repricing, thinking about the margin as we look over the next quarter or 2?

William Burns

Right. I mean there's a lot of moving parts to the margin. We have the loan repricing. We have regular originations, and we have this restructuring. And they're all worth a few basis points each, offset by increasing deposit costs. But the net is an increase of whatever, 3 to 5 basis points a quarter in the net interest margin. I hope that answers your question.

Bader Hijleh

Yes. And then you mentioned increasing deposit costs. Do you happen to have the spot cost of deposits at the end of the quarter?

William Burns

What the cost for the second one? Yes. It's been pretty flat. It has to be pretty flat from -- in the most recent couple of months, deposit costs have been pretty flat. But I do expect to continue to see upward pressure on deposit pricing. And that's what's tempering our margin widening projections.

Bader Hijleh

Got it. And then lastly, if I may, I know you guys mentioned potential close next week. I don't know how much color you guys can give, but do you know if the interest in 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, given that you've taken care of a good size portion of the rent stabilized exposure, are you guys thinking about potential restructuring or additional loan sales down the line?

William Burns

Well, let's wait. The second question was on rent-stabilized. I think we've got it down to exposure. I said a little over $200 million. More than half of that are loans we wouldn't want to sell because they're strong quality loans with strong clients, and we have a lot of deposits associated. With the rest of the portfolio -- we've 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's in the rearview mirror now. But you will see continued decline in the rent-regulated balances that are left. And the first question was?

Frank Sorrentino

far as loan sales, we've had a history of doing smaller -- small loan sales actions when we determine we have non-relationship type loans that have accumulated in the portfolio. So I mean that...

William Burns

It's possible, but it will be further down the road if something like that happened. I wouldn't put it into your projections for the next year or 2, okay?

Operator

Your next question comes from the line of Tim Switzer with KBW.

Timothy Switzer

First one I have is on the expense outlook. Could you maybe provide some parameters on your expectations for '27? And what levers do you have to pull in front of you if we get into a tougher environment here?

William Burns

Well, I think at the maximum, it's going to be a mid-single-digit increase in expenses. Obviously, we can continue to leverage our fixed costs and continue to drive the efficiency ratio down. So we don't really necessarily have expense budgets that we have to stick to. It depends what's 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 of questions on the NIM. Trying to get an idea of the impact of a Fed rate hike. It sounds like you believe you're able to continue expanding the NIM next year regardless of the rate environment. With each rate hike, is it like 5 basis points?

William Burns

No. It's only like maybe 2 or 3, and we benefit more on the way down. We benefit more on cuts than we get hurt on ups.

Timothy Switzer

Okay. Nice. And then can you remind us the amount of CD repricing you have over the next year? Sorry if you already mentioned that.

William Burns

It's not a lot. What do we got? Oh, but it's just a small amount, though, the rate differential -- 380? from where is it today? I'm sorry, I'm asking Steve Primiano, our Treasurer. We have $3 billion of CDs repricing over the next 17 months, but the differential in rate isn't all that much.

Frank Sorrentino

Yes. The current rate is about 380. We are putting them on there.

William Burns

So right, it's repricing, but no change to the margin.

Timothy Switzer

Okay. And then one last one for me. What was the purchase accounting accretion within NII for the last 2 quarters?

William Burns

The purchase accounting accretion?

Timothy Switzer

Yes.

William Burns

So it's been about -- it's running at about $8 million, okay? And we're going to lose about 20% of that with the loan sale. But you shouldn't look at that, that that's going to hurt margin in some way because that's the yield on the assets coming off versus the yield going on. So I'm 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's good that we'll have less purchase accounting accretion for those that treat that as lower quality earnings, it's good to have it lower.

Timothy Switzer

Yes, it sounds like you replaced it with the repurchase.

Operator

Your next question comes from the line of Tyler Cacciator with Stephens Inc.

Tyler Cacciator

This is Tyler on for Matt Breese. Frank, maybe just going back to the multifamily sale. 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're starting to see additional signs of stress within the portfolio?

Frank Sorrentino

Look, we've mentioned here, I don't know how many different times about building a business that's really focused on high-value client relationships where we have a depository relationship, cash management, multiple points of contact with those clients, building 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 nonrelationship-based loans, it almost didn't matter to me what they were, but they weren't -- they were transactions.

And so the opportunity was here to get rid of those and free up both capital, deposit -- liquidity and resources to be able to redeploy in better assets going forward. And so we took the opportunity. It doesn't -- it's not lost on anyone that part of that portfolio is the rent-stabilized. And since the time we announced the deal with First of Long Island, the environment for those assets is looking like it's 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 weren't high-quality client relationships. And so the opportunity to clean up the balance sheet and give us the strength that we now have to move forward, I think -- I just think it 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 can you provide a bit more color on what the yields were on the loans being sold and how that compares to what you're seeing on reinvestment in the securities front?

William Burns

Yes. So 30% of the loans in the portfolio were ConnectOne originated, and those were on at an average rate of 5.25%. And the loans that we picked up from First of Long Island had been 5.25% or lower, but with the purchase accounting marks, we're actually yielding 6%. So it's a weighted average between 70% at 6% and 30% at 5.25%, and we expect to reinvest at yields in the low 6s on average.

Tyler Cacciator

Got it. And then, Bill, I guess, another one 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're seeing early in the fourth quarter?

William Burns

Well, one is you have to be careful to exclude brokered in there. And so when you exclude brokered, the actual -- the point-to-point may have been a little bit higher. And 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's 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.

Operator

[Operator Instructions] Your next question comes from the line of Daniel Tamayo with Raymond James.

Daniel Tamayo

Maybe just starting, you've got this loan sale now in the rearview mirror. Really credit outside of the rent regulated has been strong recently. I'm curious kind of how we should think about the net charge-off profile going forward here.

William Burns

Well, we don't have a huge pipeline, okay, of charge-offs, which is great. The only place that I might be using it is that I'd like to continue to be aggressive to get off the books any remaining -- that small remaining piece of rent-regulated. And so I wouldn't be surprised to see further decreases in that with small levels of charge-offs, no more than we -- than the $3 million to $5 million, say, a quarter, okay?

Daniel Tamayo

Okay. All right. That's helpful. And so that's the half that you're going to be getting rid of. And just to kind of put a fine point on kind of 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 you've talked about?

William Burns

It's 30% on that remaining half. The rest has a -- actually has a larger reserve than our loan portfolio, maybe about 3%. But those loans are all performing, and I think the weighted average rating is 4.1 on those loans, which is very strong.

Frank Sorrentino

Yes, low LTV, strong debt service coverage. They can withstand a lot of change that's going on in the marketplace there in the rent-stabilized world in New York City.

William Burns

And very strong borrowers, as you said that, yes.

Daniel Tamayo

Okay. Great. And then I just wanted to kind of dig into the -- maybe the sensitivity on demand from rate hikes. You mentioned there's 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 ratable as we move up if we do on the rate side? I'm just curious how you're thinking about the loan environment if we get kind of some meaningful amount of hikes this year -- next year?

Frank Sorrentino

I think what's happening in the marketplace today is that there is a very robust economy going on underneath all of the headlines that's causing a lot of uncertainty. The clarity part, though, is that we have a strong economy. Rates are going up because there are some inflationary pressures. There's, again, uncertainty due to the wars and fuel prices, AI investment. Many of those things can't be controlled by higher interest rates. And so I think if the Fed continues to raise interest rates, which, by the way, I don't think they're going to, but if they were, it would be an indication that the economy continues to get and continues to build on that strength.

If the economy is building on that strength, there's going to be increased demand for lending. And so because you can -- if things are strong, you're going to be able to borrow at higher rates and still make whatever it is you're doing makes sense. And we don't -- we should -- it shouldn't be lost on anybody either that from a historical perspective, rates are not high. They're higher, but they're not really high relative to the cost of capital, what you can get as far as a return from whether it's a business opportunity, construction opportunity, development opportunity, whatever it happens to be. And I think we're going to settle into that environment a little bit more. I believe we're going to see increased demand or increased opportunities for lending going forward, irrespective of which way rates go. If rates start coming down dramatically, that's going to portend that the economy is slowing. I'm more concerned about that than I am with where we are right at the present.

Operator

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

William Burns

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. So have a great day, and thank you again for joining.

Operator

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