ConnectOne Bancorp, Inc. (CNOB) is a modern financial services company with $9.88 billion in assets, operating primarily through its bank subsidiary, ConnectOne Bank. The company has established itself as a regional powerhouse, leveraging its expertise in commercial banking to serve the needs of small and mid-sized businesses, local professionals, and individuals in the New York metropolitan area and the South Florida market.
Business Overview and History
ConnectOne Bancorp was incorporated in the State of New Jersey in 1982 as Center Bancorp, Inc. and commenced operations in 1983 upon the acquisition of all outstanding shares of capital stock of Union Center National Bank, its then principal subsidiary. In 2014, the company entered into a merger agreement with ConnectOne Bancorp, Inc., a New Jersey corporation, and changed its name to ConnectOne Bancorp, Inc. As part of this transaction, Union Center National Bank merged with and into ConnectOne Bank, and the company's NASDAQ trading symbol changed to CNOB.
Over the years, ConnectOne has strategically expanded its footprint through a series of acquisitions. In 2019, the company acquired Greater Hudson Bank, adding approximately $400 million in loans, $400 million in deposits, and seven branch offices located in Rockland, Orange, and Westchester Counties, New York. In the same year, ConnectOne acquired BoeFly, LLC, an online business lending marketplace, enhancing its commercial lending capabilities, particularly in the franchise space. In 2020, ConnectOne completed its in-market merger with Bancorp of New Jersey, Inc., acquiring approximately $800 million in loans and $800 million in deposits.
Most recently, in 2024, ConnectOne entered into an agreement to acquire The First of Long Island Corporation (FLIC), the holding company for The First National Bank of Long Island. This transformative merger, expected to close in the first or second quarter of 2025, will significantly expand ConnectOne's presence, adding 37 branches and increasing the combined company's total assets to approximately $14 billion, total loans to $11 billion, and total deposits to $11 billion.
Financial Strength and Performance
ConnectOne Bancorp has demonstrated consistent financial strength and performance, despite the challenges faced by the industry. For the full-year 2024, the company reported net income available to common stockholders of $67.8 million, compared to $81.0 million in 2023. Diluted earnings per share for the full-year 2024 were $1.76, compared to $2.07 in 2023. The company's annual revenue for 2024 was $513.54 million, with an annual net income of $73.79 million. ConnectOne generated annual operating cash flow of $60.70 million and annual free cash flow of $56.91 million.
In the fourth quarter of 2024, ConnectOne reported revenue of $68.45 million and net income of $20.37 million. Revenue increased 6% year-over-year, while net income increased 21% quarter-over-quarter, driven by an improvement in net interest margin.
The company's net interest margin, a key metric for banks, improved by nearly 20 basis points during the fourth quarter of 2024, to 2.86%. Looking ahead, ConnectOne expects its net interest margin to expand further, reaching approximately 2.90% in the first quarter of 2025, and 3.20% by 2026 after the completion of the FLIC merger.
ConnectOne's balance sheet remains strong, with total assets of $9.88 billion as of December 31, 2024. The company's capital ratios also continue to exceed regulatory requirements, with a Common Equity Tier 1 Capital Ratio of 10.97% and a Total Risk-Based Capital Ratio of 14.11% as of the same date. The company's debt-to-equity ratio stood at 0.63 as of December 31, 2024, indicating a healthy balance between debt and equity financing.
Loan Portfolio and Asset Quality
ConnectOne's loan portfolio is primarily composed of commercial real estate loans, which accounted for 76.2% of total loans as of December 31, 2024. The bank has maintained a disciplined approach to lending, with a focus on building strong client relationships and carefully managing credit risk.
As of December 31, 2024, the largest component of the Bank's gross loan portfolio was commercial real estate loans, which decreased 0.3% to $5.88 billion from $5.90 billion as of December 31, 2023. Commercial loans decreased 2.9% to $1.53 billion, while commercial construction loans decreased 0.7% to $616.25 million. Residential real estate loans decreased 2.5% to $249.69 million, and consumer loans remained relatively flat compared to the prior year.
The company's asset quality metrics have remained stable, with nonaccrual loans at 0.69% of total loans as of the end of 2024. Charge-offs have also been modest, with net charge-offs during 2024 representing 0.16% of average loans. ConnectOne's allowance for credit losses stood at 1.00% of total loans as of December 31, 2024, totaling $82.70 million, up from $82.00 million at the end of 2023. The slight increase in the allowance for credit losses was primarily due to increases in individually evaluated allowance, partially offset by a decrease in the level of collectively evaluated allowance.
Looking ahead, the company's credit outlook remains sound, and it does not anticipate any significant increase in charge-offs or nonaccrual loans. The integration of FLIC's loan portfolio is expected to further enhance ConnectOne's asset quality, as the acquired bank has a similar credit profile. ConnectOne expects loan portfolio growth to continue at a quarterly growth rate of around 2%.
Deposit Growth and Funding
One of ConnectOne's key strengths is its ability to attract and retain deposits, which serve as the primary source of funding for its interest-earning assets. Total deposits grew to $7.82 billion as of December 31, 2024, up from $7.54 billion a year earlier, driven by strong growth in core deposits, including noninterest-bearing demand deposits. This represents an increase of 3.8% year-over-year.
The company's focus on relationship banking has allowed it to maintain a stable deposit base, with the cost of total deposits increasing by only 49 basis points during 2024 to 3.23%. This disciplined approach to deposit pricing has been a crucial factor in ConnectOne's ability to expand its net interest margin. In the fourth quarter of 2024, the company saw solid growth in core deposits, with an increase of more than 3% quarter-over-quarter.
The pending merger with FLIC is expected to further enhance the company's deposit franchise, adding approximately $3.3 billion in total deposits and strengthening its position in the Long Island market.
Merger Integration and Synergies
The acquisition of FLIC is a transformative event for ConnectOne, significantly expanding its geographic footprint and scale. The company has already made progress on the integration, actively engaging with FLIC's clients and employees to ensure a seamless transition.
ConnectOne expects the merger to be accretive to its financial performance, projecting a 10-basis-point increase in net interest margin upon closing, and a further expansion to 3.20% by 2026 as the company fully realizes the cost savings and revenue synergies associated with the transaction. The merger is expected to close in the second quarter of 2025, with systems conversion occurring soon after the legal close.
By 2026, with all cost savings fully implemented, ConnectOne projects its operating return on assets to reach 1.15%, and return on tangible common equity to be in the 12-13% range.
The combined entity will operate under the ConnectOne Bank brand, leveraging the strengths of both organizations to better serve clients across the expanded service area. The increased scale and market presence will also enable the bank to compete more effectively against larger regional and super-regional competitors.
Risks and Challenges
While ConnectOne has navigated the challenges of the banking industry well, the company is not without its risks. The company's heavy concentration in commercial real estate loans, which accounted for 76.2% of its loan portfolio as of the end of 2024, exposes it to potential downturns in the real estate market. The company closely monitors this concentration and has demonstrated the ability to manage credit risk effectively.
Additionally, the integration of FLIC's operations and the realization of expected synergies will be critical to the success of the merger. Any delays or unforeseen challenges in this process could impact the company's financial performance.
Broader macroeconomic conditions, such as changes in interest rates, economic growth, and regulatory environments, can also affect ConnectOne's operations and financial results. The company closely monitors these factors and adjusts its strategies accordingly.
Liquidity and Capital Management
ConnectOne maintains a strong liquidity position to support its operations and meet regulatory requirements. As of December 31, 2024, the company had cash and cash equivalents of $356.49 million. Additionally, ConnectOne has aggregate available and unused credit of approximately $3.0 billion, which includes $2.5 billion in borrowing capacity from the Federal Home Loan Bank of New York, $1.6 billion in credit facility with the Federal Reserve Bank of New York, and $305 million in other unsecured borrowing lines.
This robust liquidity position, combined with the company's strong capital ratios, provides ConnectOne with the flexibility to pursue growth opportunities and navigate potential economic challenges.
Technology and Innovation
ConnectOne has made continuous investments in technology and top talent, allowing it to operate a branch-lite model and maintain a highly efficient operating environment. The company's wholly-owned subsidiary, BoeFly, is a fintech marketplace that connects borrowers in the franchise space with funding solutions through a network of partner banks, including ConnectOne Bank. This strategic investment in fintech capabilities enhances ConnectOne's ability to serve its target markets and diversify its revenue streams.
Geographic Markets and Expansion
ConnectOne operates primarily in the New York metropolitan area, including New Jersey, New York City, Long Island, and the Hudson Valley. The company also has a financial center in West Palm Beach, Florida. While ConnectOne does not have a significant international presence, its strategic focus on these high-growth markets has allowed it to build a strong regional presence and capitalize on local economic trends.
The pending merger with FLIC will further strengthen ConnectOne's position in the Long Island market, expanding its branch network and customer base in this attractive region.
Conclusion
ConnectOne Bancorp has established itself as a leading regional banking institution, leveraging its expertise in commercial banking and focus on relationship-driven growth to serve the needs of its clients. The company's strategic acquisitions, strong financial performance, and disciplined approach to asset quality and deposit funding have positioned it for continued success.
With a clear growth strategy, improving net interest margin, and the transformative merger with The First of Long Island Corporation on the horizon, ConnectOne is well-positioned to capitalize on favorable industry trends and deliver long-term value for its shareholders. The company's focus on technology, efficient operations, and strategic market expansion provides a solid foundation for sustainable growth in the competitive banking landscape.