Executive Summary / Key Takeaways

• Transformative Merger Integration: ConnectOne Bancorp, Inc. (CNOB) has successfully integrated its acquisition of The First of Long Island Corporation , significantly expanding its scale to nearly $14 billion in assets and establishing a unified, client-first operating model that is already yielding accelerating performance metrics.
• Expanding Net Interest Margin and Profitability: The company is demonstrating robust financial momentum, with its net interest margin widening to 3.11% in Q3 2025 and projected to reach 3.25% or above in Q4 2025, driven by strategic deposit growth, loan repricing, and merger synergies. Operating return on assets (ROA) increased to 1.05% in Q3 2025, with a target of exceeding 1.2% by Q2 2026.
• Solid Asset Quality and Prudent Growth: CNOB maintains strong credit quality with nonperforming assets at historical lows of 0.28% and annualized net charge-offs below 0.20% in Q3 2025. Loan growth is expected to accelerate, with a diversified pipeline and a target of over 5% growth in 2026.
• Technological Differentiator in BoeFly: The company's fintech subsidiary, BoeFly, Inc., serves as a key technological differentiator, connecting over 250 national franchise brands with funding solutions, thereby diversifying noninterest income and enhancing the SBA lending platform.
• Compelling Valuation and Shareholder Returns: Management believes CNOB is currently undervalued, with strong capital generation expected to provide flexibility for a common dividend increase and opportunistic share repurchases in 2026, reinforcing its commitment to shareholder value.

A Premier Regional Bank's Evolution and Strategic Vision

ConnectOne Bancorp, Inc. (CNOB) has evolved into a premier regional commercial bank, strategically positioned within the dynamic New York Metropolitan area, including New Jersey, Long Island, and a growing presence in South Florida. Founded in 2005 as a community-based, full-service New Jersey-chartered commercial bank, the company rebranded from Center Bancorp, Inc. to ConnectOne Bancorp, Inc. in July 2014, signaling its growth ambitions. Its core business revolves around providing comprehensive community banking services to small and mid-sized businesses, local professionals, and individuals, underpinned by a client-first culture and a relationship banking model.

The year 2024 presented industry-wide challenges, yet ConnectOne demonstrated resilience by strengthening its capital, loan mix, and core deposits through a reinforced focus on relationship banking. This disciplined approach laid the groundwork for a transformative event: the acquisition of The First of Long Island Corporation (FLIC) on June 1, 2025. This merger, which included the integration of FLIC's subsidiary, The First National Bank of Long Island (FNBLI), significantly expanded ConnectOne's geographic footprint by adding 36 branch offices across Long Island and New York City boroughs. The strategic rationale behind this acquisition was to enhance scale, drive synergies, and leverage economies of scale, positioning ConnectOne with nearly $14 billion in total assets, $11.2 billion in total loans, and $11.3 billion in total deposits.

The integration of the FLIC merger was swift and seamless, with the combined entity operating under the ConnectOne brand from day one and a full systems conversion completed just two weeks after the legal close. This rapid integration has been a critical driver of accelerating performance metrics, fostering strong client retention, new client onboarding, and meaningful new business opportunities, particularly in the expanded Long Island market. Management has also identified opportunities to leverage its existing South Florida footprint to serve FLIC clients with business presences in that region. The company's overarching strategy emphasizes prudent organic growth, supported by strategic M&A, and a continuous focus on deepening client relationships to ensure a stable and profitable balance sheet.

Technological Edge and Innovation: The BoeFly Advantage

A key differentiator for ConnectOne Bancorp is its financial technology subsidiary, BoeFly, Inc. This platform is not merely an ancillary service but a strategic asset that enhances the company's competitive moat and diversifies its revenue streams. BoeFly operates as a fintech marketplace designed to connect borrowers in the franchise space with funding solutions through a network of partner banks.

Since its inception at ConnectOne, BoeFly has demonstrated an impressive upward trajectory, now representing over 250 national franchise brands across the nation, an all-time high for the platform. This extensive network provides tangible benefits by driving opportunities directly to ConnectOne's growing Small Business Administration (SBA) lending platform. The company has strategically focused on leveraging BoeFly to generate high-quality SBA loan originations, which in turn contribute significantly to noninterest income through gains on sale. Management anticipates that BoeFly will be an increasing source of gains on sale and a "big portion of our noninterest income going forward," with the pipeline for BoeFly "building heavily for next year." This technological integration allows ConnectOne to tap into a specialized, high-growth lending segment, enhancing its market positioning and contributing to better capital efficiency by diversifying its loan portfolio beyond traditional commercial real estate.

Competitive Landscape: Differentiating in a Dynamic Market

ConnectOne operates in a highly competitive regional banking market, contending with both direct regional bank peers and indirect fintech disruptors. Key direct competitors include Valley National Bancorp (VLY), Customers Bancorp (CUBI), BCB Bancorp (BCBP), and Provident Financial Services (PFS). Indirectly, fintech platforms like Block (SQ) (formerly Square) and LendingClub (LC), along with online banks such as Ally Financial (ALLY), pose challenges by offering alternative lending and digital banking solutions.

Against its direct peers, ConnectOne differentiates itself through its deeply ingrained client-first culture and relationship banking model. While larger competitors like VLY may boast a broader geographic footprint, ConnectOne's strategy emphasizes personalized service for small and mid-sized businesses, fostering stronger customer loyalty and potentially leading to more stable recurring revenue streams. ConnectOne's operational efficiency is notable, with a staff size of approximately 750 employees supporting around $19 million in assets per employee, suggesting a streamlined operating model. This efficiency helps to offset the scale advantages of larger rivals.

However, CNOB faces vulnerabilities, particularly in its limited geographic scale compared to some larger regional banks and potential technological gaps against more aggressive digital adopters like CUBI, which might offer faster processing for loan applications. ConnectOne's strategic response has been to leverage targeted M&A, such as the FLIC merger, to expand its footprint in attractive markets like Long Island, thereby enhancing its market reach and client base. The company's diversified loan offerings, including a growing SBA platform bolstered by BoeFly, also provide a competitive edge against banks with more limited product ranges like BCBP.

Financially, ConnectOne's growth rates and profitability metrics, such as its net interest margin and return on assets, are generally on par with or improving faster than many peers, particularly post-merger. For instance, CNOB's P/E ratio of 15.22 and P/B ratio of 0.61 suggest a potentially undervalued position compared to some peers like VLY (P/E 12.66, P/B 0.81) and PFS (P/E 9.58, P/B 0.89), especially given its accelerating performance. The company's focus on attracting and retaining core deposits, including noninterest-bearing demand deposits, is a strategic imperative to reduce funding costs and enhance its liability-sensitive positioning, thereby improving its net interest margin in a rising or stable rate environment.

Financial Performance: Post-Merger Momentum and Margin Expansion

ConnectOne Bancorp's financial performance in the third quarter of 2025 clearly demonstrates the positive impact of its strategic initiatives and the successful integration of the FLIC merger. Net income available to common stockholders surged to $39.50 million, a significant increase from $15.70 million in the third quarter of 2024. Diluted earnings per share followed suit, rising to $0.78 from $0.41 over the same period. This robust growth was primarily fueled by a $41.10 million increase in net interest income and a $14.70 million increase in noninterest income, partially offset by higher operating expenses and income tax.

The net interest margin (NIM) expanded notably to 3.11% in Q3 2025, up from 2.67% in Q3 2024, with the spot margin at quarter-end exceeding 3.20%. This expansion was driven by a 43.1% increase in average interest-earning assets, largely attributable to the FLIC merger, and a 70 basis-point decrease in the average cost of deposits. Management noted that temporary factors, including $75 million of high-rate subordinated debt outstanding for part of the quarter and higher-than-typical average cash balances, compressed the reported Q3 NIM; without these, the margin would have exceeded 3.50%.

Noninterest income for Q3 2025 reached $19.40 million, a substantial increase from $4.70 million in the prior year. This included two significant non-recurring items: a $6.60 million employee retention tax credit (ERTC) benefit and a $3.50 million defined benefit pension plan curtailment gain from freezing the acquired FLIC pension plan. Excluding these, noninterest income still increased by $4.60 million, primarily due to the merger's contribution to deposit, loan, and other income, as well as gains on equity securities and SBA loan sales. Noninterest expenses rose to $58.70 million in Q3 2025 from $38.60 million in Q3 2024, mainly due to increased salaries and benefits, amortization of core deposit intangibles, occupancy costs, and merger expenses, all largely related to the FLIC acquisition.

Liquidity remains strong, with liquid assets totaling $974.20 million as of September 30, 2025, representing 7% of total assets. The Bank maintains substantial borrowing capacity, including approximately $2 billion at the FHLB and $2.10 billion from the Federal Reserve Bank of New York, supplemented by $280 million in correspondent bank lines.

Loan Portfolio and Asset Quality: Prudent Growth and Resilient Credit

ConnectOne's loan portfolio demonstrates prudent growth and resilient credit quality, even amidst a dynamic economic environment. As of September 30, 2025, gross loans totaled $11.31 billion, a significant increase from $8.28 billion at December 31, 2024, primarily due to the FLIC merger. Loan originations remained healthy in Q3 2025, with over $465 million in new funding. The company's loan-to-deposit ratio improved to below 100% in Q3 2025, down from 106% in Q1 2025, reflecting strong deposit gathering efforts that matched loan growth.

Asset quality metrics are robust, with nonperforming assets (NPA) at historical lows of 0.28% of total assets at the end of Q3 2025. Annualized net charge-offs remained below 0.20% (18 basis points), and 30-day delinquencies were exceptionally low at 0.08% of total loans. The allowance for credit losses (ACL) increased to $156.50 million as of September 30, 2025, from $82.70 million at December 31, 2024. This increase was largely driven by the FLIC merger, which included a $43.30 million allocation through goodwill for purchased credit-deteriorated (PCD) loans and a $27.40 million initial provision for credit losses.

The company's recorded investment in PCD loans totaled $269.70 million as of September 30, 2025. Within this, a pool of rent-regulated loans amounting to $200.50 million, primarily associated with multifamily properties in New York City, is subject to unique stressors from the 2019 New York rent laws. However, management emphasizes that its total aggregate exposure to majority-owned rent-regulated loans is $700 million, with $400 million from the FLIC acquisition carrying a conservative 20% mark, effectively ring-fencing this portion. The remaining ConnectOne portfolio of $275 million (less than 2.5% of total loans) is conservatively underwritten with strong LTVs and debt service coverage ratios, and has not been involved in "value-add" strategies. Management views any changes in this segment as a "very slow-moving process," with no immediate impact expected. The commercial real estate (CRE) concentration ratio continued its downward trend, falling to 4.34% at September 30, 2025, with a goal to reduce it below 400% during 2026 through diversification.

Capital Strength and Shareholder Returns

ConnectOne maintains a solid capital foundation, a primary goal for the company. Total stockholders' equity increased by $296.60 million compared to December 31, 2024, largely due to the $270.80 million in common stock issued for the FLIC merger. The tangible common equity ratio stood at 8.36% and tangible book value per share at $22.85 as of September 30, 2025. While the tangible common equity ratio saw a temporary dip post-merger, it has since risen significantly, with management's goal to reach 9% without immediate pressure.

The company's strong capital generation, driven by profitable growth and a relatively low dividend payout ratio, is expected to provide substantial flexibility in 2026. Management anticipates having room for a common dividend increase and opportunistic share repurchases, signaling confidence in future earnings and a commitment to maximizing shareholder value. A planned subordinated debt issuance of approximately $175 million to $200 million, likely prior to the full merger close, will further bolster capital and address existing debt maturities, with favorable market conditions for such offerings.

Outlook and Guidance: Accelerating Towards Top-Tier Performance

ConnectOne Bancorp's outlook is decidedly positive, with management projecting an acceleration in financial performance into 2026. The net interest margin is expected to continue its expansion, with a Q4 2025 projection of 3.25% or above, and a target of approaching the 3.40% to 3.50% range by the end of 2026. This is supported by ongoing CD repricing at improved rates, upward repricing of the adjustable-rate loan portfolio (approximately $1 billion in 2026 and another $1 billion in 2027), and the accretive impact of the FLIC merger. Management's guidance includes an approximate 5 basis-point NIM improvement each quarter, independent of Fed rate reductions, plus an additional 5 basis points for each 25 basis points of Fed cut.

Loan growth is anticipated to accelerate, with average loans expected to increase by more than 2% quarter-over-quarter in Q4 2025. For 2026, loan growth could "easily" be in the 5% plus range, dependent on broader economic conditions and loan demand, driven by a strong and diversified pipeline across C&I, CRE, construction, and SBA lending. Noninterest income is projected to grow from its current recurring level of approximately $7 million per quarter, with SBA sales and the BoeFly platform expected to be significant contributors in 2026.

Profitability targets for 2026 include an operating return on assets (ROA) exceeding 1.2% by Q2 2026, with potential to reach 1.3% by year-end, and a return on tangible common equity (ROTCE) of approximately 15%. Recurring operating expenses, net of merger and restructuring charges, are guided to be $55 million to $56 million for Q4 2025 and $56 million to $57 million per quarter in H1 2026, reflecting ongoing merger cost saves and normal expense growth. The company plans to implement new tax strategies in 2026, aiming for an effective tax rate around 28%.

Risks and Challenges

Despite the optimistic outlook, ConnectOne faces inherent risks. Interest rate sensitivity remains a key market risk, though management actively employs strategies like balancing asset/liability mixes, emphasizing core deposits, and utilizing interest rate swaps to mitigate this. While the company's models suggest a decrease in net interest income with significant rate increases or decreases, the liability-sensitive positioning and loan repricing dynamics are expected to be beneficial in the current environment.

Credit risk, particularly concerning the rent-regulated loan portfolio, warrants ongoing monitoring. Although management has conservatively underwritten these loans and applied a substantial mark to the acquired FLIC portfolio, regulatory changes or sustained economic pressures in the New York City multifamily market could impact performance. Competitive pressures for deposits, though potentially easing with the end of quantitative tightening, remain a factor. Finally, while merger integration has been successful, the realization of all projected cost saves and revenue synergies is subject to execution risks, though management's proactive approach appears to be mitigating these.

Conclusion

ConnectOne Bancorp, Inc. stands at a pivotal juncture, having successfully executed a transformative merger that has significantly enhanced its scale, market presence, and financial trajectory. The seamless integration of FLIC, coupled with ConnectOne's unwavering commitment to relationship banking and its innovative BoeFly platform, has created a powerful engine for future growth. The company's expanding net interest margin, robust deposit growth, and disciplined loan portfolio management underscore its operational effectiveness and strategic acumen.

With strong credit quality, a solid capital base, and clear guidance for accelerating profitability metrics into 2026, ConnectOne presents a compelling investment thesis. The strategic focus on leveraging its expanded footprint, particularly in the vibrant Long Island market, and capitalizing on its technological differentiators like BoeFly, positions the company for sustained value creation. As CNOB continues to execute on its post-merger strategy, its commitment to shareholder returns, evidenced by potential dividend increases and opportunistic share repurchases, reinforces its appeal as a premier regional bank poised for top-tier financial performance.