8-K: ConnectOne Bancorp Reports Strong Q3 2025 Results

ConnectOne Bancorp, Inc. reported a significant rebound in net income and diluted EPS for the third quarter of 2025, driven by the successful integration of its merger with The First of Long Island Corporation.

Summary

• Net income available to common stockholders was $39.5 million for the third quarter of 2025, a substantial increase from $(21.8) million in the second quarter of 2025 and $15.7 million in the third quarter of 2024.
• Diluted earnings per share (EPS) reached $0.78 for the third quarter of 2025, up from $(0.52) in the second quarter of 2025 and $0.41 in the third quarter of 2024.
• The third quarter of 2025 results included nonrecurring items: a $6.6 million Employee Retention Tax Credit and a $3.5 million defined benefit pension plan curtailment gain, partially offset by $2.9 million in merger and restructuring expenses.
• The increase in third quarter 2025 earnings compared to the second quarter of 2025 was primarily due to a $30.2 million reduction in the provision for credit losses, a $23.1 million increase in net interest income, a $15.0 million decrease in noninterest expenses, and a $14.2 million increase in noninterest income.
• Net interest margin expanded by 5 basis points sequentially to 3.11%, with a spot margin exceeding 3.20% at quarter-end.
• Client deposits increased at an annualized rate of 4.0% and loans increased over 5.0% since June 30, 2025.
• Nonperforming assets decreased to 0.28% of total assets as of September 30, 2025, down from 0.58% at December 31, 2024.
• The Board of Directors declared a common stock cash dividend of $0.18 per share and a preferred stock dividend of $0.328125 per depositary share, both payable on December 1, 2025.

Sentiment

Score: 8

Explanation: The company demonstrated a strong rebound in profitability, significant improvements in key financial metrics post-merger, and robust asset quality. The positive impact of the FLIC merger is evident, and management's outlook is optimistic, despite some non-recurring items boosting current quarter results.

Positives

• Significant rebound in net income available to common stockholders to $39.5 million in Q3 2025 from a loss of $(21.8) million in Q2 2025.
• Diluted EPS improved substantially to $0.78 in Q3 2025 from $(0.52) in Q2 2025.
• Net interest margin expanded by 5 basis points sequentially to 3.11%, with a quarter-end spot margin exceeding 3.20%.
• Strong loan growth of over 5.0% and client deposit growth at an annualized rate of 4.0% since June 30, 2025.
• Credit quality remains sound and stable, with nonperforming assets decreasing to 0.28% of total assets from 0.58% at December 31, 2024.
• Allowance for credit losses as a percentage of nonaccrual loans significantly increased to 394.5% as of September 30, 2025, from 144.3% at December 31, 2024.
• Operating efficiency is improving, and capital ratios remain strong, with a total risk-based capital ratio of 13.88% and a tangible common equity ratio of 8.36%.
• Successful integration of the FLIC merger, realizing positive financial benefits and an expanded footprint.
• Redeemed $75 million of subordinated debentures with a high rate of 9.92% on September 15, 2025, which should reduce future interest expense.

Negatives

• Tangible common equity ratio decreased to 8.36% as of September 30, 2025, from 9.49% as of December 31, 2024, primarily due to the merger.
• Tangible book value per share decreased to $22.85 as of September 30, 2025, from $23.92 as of December 31, 2024.
• Loans delinquent 30 to 89 days increased to 0.08% of loans receivable as of September 30, 2025, up from 0.04% as of December 31, 2024.
• Merger and restructuring expenses of $2.9 million were incurred in Q3 2025, following $30.7 million in Q2 2025.
• Net interest margin was negatively impacted by outstanding subordinated debentures and excess cash balances due to merger-related repositioning.

Risks

• Changes in interest rates.
• General economic conditions.
• Legislative/regulatory changes.
• Monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board.
• Quality or composition of the loan or investment portfolios.
• Demand for loan products.
• Deposit flows.
• Competition.
• Demand for financial services in the Company's market area.
• Changes in accounting principles and guidelines.
• Impact of health emergencies and natural disasters on the Company, its employees and operations, and its customers.

Future Outlook

The company is maintaining a clear focus on strategic priorities, driving profitable growth, and creating sustainable long-term value for shareholders. The loan and deposit pipeline is healthy, further propelled by expansion on Long Island. The estimated effective tax rate for 2026 is approximately 28.0%.

Management Comments

• ConnectOne's strong third quarter performance highlights the team's disciplined execution and commitment to deepening client relationships while delivering on the Bank's strategic objectives.
• With our first full quarter post-merger, we're operating seamlessly as one organization, realizing the positive financial benefits of the combination and expanded footprint.
• Our loan and deposit pipeline is healthy, further propelled by our expansion on Long Island.
• Our third quarter client deposits increased at an annualized rate of 4.0% since June 30, 2025 while loans increased over 5.0%.
• The merger has also significantly improved our loan and deposit mix, net interest margin, and profitability ratios.
• Our credit quality remains sound and stable, with nonperforming assets at just 0.28% and annualized net charge-offs below 0.20%.
• To date, we've built a strong, high-performing franchise. Looking ahead, we're maintaining a clear focus on our strategic priorities, driving profitable growth, and creating sustainable long-term value for shareholders.

Industry Context

ConnectOne Bancorp's strong third-quarter performance, particularly the expansion of its net interest margin and robust loan and deposit growth, indicates a successful integration of its recent merger and effective navigation of the current banking environment. The focus on deepening client relationships and strategic expansion on Long Island aligns with trends among regional banks seeking to enhance market share and operational efficiency. The improvement in credit quality, with low nonperforming assets and net charge-offs, suggests prudent risk management in a potentially challenging economic landscape for the broader banking sector.

Stakeholder Impact

• Shareholders: Positive impact due to significant increase in net income and diluted EPS, expanded net interest margin, strong credit quality, and declared dividends. The decrease in tangible book value per share and tangible common equity ratio post-merger could be a point of consideration.
• Employees: The freezing of the FLIC defined benefit pension plan on September 30, 2025, impacts former FLIC employees. The Employee Retention Tax Credit (ERTC) indicates past support for employee retention.
• Customers: Benefit from an expanded footprint and a full suite of banking and lending products and services, particularly small to middle-market businesses and franchise borrowers through BoeFly.
• Creditors: Improved financial health and strong capital ratios enhance the company's creditworthiness.

Next Steps

• Continue focusing on strategic priorities, driving profitable growth, and creating sustainable long-term value for shareholders.
• Leverage the expanded footprint on Long Island to further propel loan and deposit pipelines.
• Manage the effective tax rate, estimated at approximately 28.0% for 2026.

Key Dates

Recommendation

The company demonstrated a remarkable turnaround in profitability, with net income and diluted EPS significantly rebounding from a prior-quarter loss. The successful integration of the FLIC merger is clearly yielding positive financial benefits, including an expanded net interest margin and robust loan and deposit growth. Credit quality remains strong, and capital ratios are solid. The declared dividends further enhance shareholder value. While the tangible book value per share saw a slight decrease post-merger, the overall operational and financial performance indicates a strong growth trajectory and effective management execution, making it an attractive investment.

Keywords

ConnectOne Bancorp, CNOB, Q3 2025 Earnings, Bank Earnings, Financial Results, Net Interest Margin, Loan Growth, Deposit Growth, Credit Quality, Merger Integration, FLIC Merger, Dividends, Banking Industry, Regional Bank, New Jersey, Long Island