ConnectOne Agrees to Sell Up to $750 Million Multifamily Pool
Operating PPNR reached 2.01% of average assets and operating return on tangible common equity was 15.2% as the bank booked a $23.0 million pretax held-for-sale loss.
ConnectOne Bancorp (CNOB), parent of ConnectOne Bank, completed a strategic review of its balance sheet in the third quarter and, in the fourth quarter, agreed to sell a pool of up to approximately $750 million in unpaid principal balance of non-relationship multifamily loans to a single purchaser.
The pool, 61% of which is secured by New York City rent-stabilized properties, consists of loans originated by ConnectOne Bank (30%) and First National Bank of Long Island (70%). ConnectOne acquired FLIC in June 2025. The loans were moved to held-for-sale at the lower of cost or fair value of $678.9 million as of September 30, 2026, producing a $23.0 million pretax loss recorded in noninterest income. The company said the loss reflects the gross discount on the sale price, substantially offset by interest-rate and credit purchase-accounting marks previously recorded on the FLIC-originated loans, and attributed the recognized loss to higher market interest rates since origination. Closing is expected in late October 2026; transaction costs of about $7 million to $8 million will be recognized at closing.
Net income available to common stockholders was $29.9 million, or $0.59 a share, versus $40.2 million, or $0.80 a share, in the second quarter. Operating net income available to common stockholders, which excludes the restructuring charge among other non-operating items, was $47.9 million, or $0.95 a share.
Fully taxable equivalent net interest income rose $3.7 million, or 3.2%, sequentially to $118.5 million, on a 2 basis-point widening of the net interest margin to 3.44% from 3.42% and a 1.7% increase in average interest-earning assets. The margin followed a 12 basis-point widening in the first quarter. The yield on interest-earning assets rose 5 basis points, primarily on loan repricing, partially offset by a 3 basis-point increase in the average cost of deposits including noninterest-bearing deposits.
Operating PPNR as a percentage of average assets rose to 2.01% from 1.94%, after a 13 basis-point sequential increase in the second quarter. Operating return on tangible common equity was 15.2%. Chairman and Chief Executive Officer Frank Sorrentino said loans and average client deposits each grew at an annualized rate of about 11%. Average loans receivable increased 1.4% sequentially to $11.98 billion and average total deposits rose 1.2% to $11.68 billion.
Average commercial real estate including multifamily loans rose 2.0% sequentially to $8.60 billion. Average commercial loans declined 1.8% to $1.62 billion and average commercial construction loans rose 4.0% to $544.8 million. Average noninterest-bearing demand deposits increased 3.6% sequentially to $2.51 billion.
The provision for credit losses fell to $5.0 million from $8.3 million in the second quarter, which the company said was elevated primarily due to charge-offs on certain NYC rent-stabilized multifamily loans. PCD loan charge-offs were $22.2 million in the third quarter versus $4.5 million in the second quarter, tied to the pending multifamily loan sale. Excluding PCD charge-offs, the annualized net loan charge-off ratio was 0.07% versus 0.71% in the second quarter. Nonperforming assets declined to $64.3 million, or 0.44% of total assets, from $79.7 million, or 0.55%, at June 30, 2026. The allowance for credit losses decreased $19.5 million to $120.6 million, or 1.06% of loans receivable.
Noninterest expenses were unchanged at $55.4 million sequentially. The majority of net proceeds from the loan sale are expected to be reinvested in government-guaranteed securities at yields similar to those of the loans sold, with the remainder used to pay down wholesale funding. The company said the restructuring reduces CRE and NYC rent-stabilized concentrations and strengthens liquidity. Proforma for the sale, the regulatory CRE concentration ratio declines to approximately 397% from 439% at June 30, 2026, and exposure to NYC rent-stabilized assets is projected to decline to approximately 2% of total loans from 6%. The loan-to-deposit ratio was 97.1% at September 30, 2026. Proforma tangible common equity ratio was 8.83%.
The board declared a common cash dividend of $0.195 a share payable December 1, 2026. The company repurchased 50,000 shares in the third quarter at an average price of $32.37, leaving 501,118 shares authorized under the current program.
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