8-K: ConnectOne Bancorp to Acquire First of Long Island Corporation in $284 Million Merger

ConnectOne Bancorp will acquire The First of Long Island Corporation in an all-stock merger valued at approximately $284 million, creating a combined entity with approximately $14 billion in assets.

Summary

• ConnectOne Bancorp, Inc. and The First of Long Island Corporation have agreed to merge, with First of Long Island becoming a part of ConnectOne.
• The merger is an all-stock transaction where First of Long Island shareholders will receive 0.5175 shares of ConnectOne common stock for each share of First of Long Island common stock.
• The deal is valued at approximately $284 million, or about $12.40 per share of First of Long Island, based on ConnectOne's closing stock price on September 4, 2024.
• The combined company will have approximately $14 billion in total assets, $11 billion in total deposits, and $11 billion in total loans.
• First of Long Island operates 40 branches in the New York Metropolitan area, with the majority of its deposits in Nassau and Suffolk Counties.
• The merger is expected to close in mid-2025, pending shareholder and regulatory approvals.
• ConnectOne plans to raise approximately $100 million in subordinated debt prior to the transaction closing to support the combined entity.

Sentiment

Score: 8

Explanation: The document conveys a positive outlook on the merger, highlighting strategic benefits, financial accretion, and growth opportunities. The management comments are optimistic, and the projected financial metrics are strong. However, there are some risks and challenges associated with the integration process and market conditions.

Positives

• The merger creates a premier middle-market bank focused on the New York metro area.
• The combined company will have significant scale, with $14 billion in assets and a market capitalization of over $1.2 billion.
• The transaction enhances ConnectOne's presence on Long Island, with 30% of the pro forma deposit franchise located in Nassau and Suffolk Counties.
• The companies share compatible client-first cultures.
• ConnectOne is an experienced acquirer and integrator, reducing execution risk.
• The merger is expected to be accretive to ConnectOne's earnings per share in 2025.
• The combined company is projected to deliver a strong return on average tangible common equity and an improved efficiency ratio.

Negatives

• The transaction is projected to cause a 12% dilution in tangible book value per share.
• The earnback period for the tangible book value dilution is approximately 2.9 years.

Risks

• The merger is subject to shareholder and regulatory approvals, which may not be obtained or may be delayed.
• There may be difficulties and delays in integrating First of Long Island's business and realizing cost savings.
• The combined company may experience business disruption following the transaction.
• Changes in asset quality, credit risk, interest rates, and capital markets could impact the combined company.
• The companies may not be able to sustain revenue and earnings growth.
• The reaction of clients, employees, and counterparties to the transaction could be negative.
• Technological changes, capital management activities, and regulatory actions could impact the combined company.

Future Outlook

The merger is expected to create a premier middle-market bank in the New York metro area, with significant scale and enhanced growth prospects. The combined company is projected to deliver strong financial performance, including accretive earnings and a solid return on equity.

Management Comments

• Frank Sorrentino III, Chairman and CEO of ConnectOne Bank, stated that the transaction is a natural fit and enhances their franchise value.
• Chris Becker, CEO of The First National Bank of Long Island, said that the partnership leverages the strengths of both companies and positions them for greater success.

Industry Context

This merger reflects a trend of consolidation in the banking industry, particularly among community and regional banks seeking to gain scale, improve efficiency, and expand their market presence. The combination of ConnectOne and First of Long Island creates a stronger competitor in the New York metro area.

Comparison to Industry Standards

• The merger positions ConnectOne as one of the top 5 banks on Long Island in terms of deposit market share, based on S&P Capital IQ Pro data.
• First of Long Island is ranked #4 in Nassau County and #5 in Suffolk County in deposit market share among banks under $100 billion of assets.
• The projected 14% return on average tangible common equity for the combined company is a strong performance metric compared to industry averages.
• The projected 45% efficiency ratio is also a strong metric, indicating effective cost management.

Management Changes

Stakeholder Impact

• Shareholders of First of Long Island will receive ConnectOne stock, participating in the combined company's future.
• Customers of both banks will have access to an expanded range of services and enhanced capabilities.
• Employees of both banks will be integrated into the combined company, with potential changes in roles and responsibilities.
• The merger is expected to create a stronger financial institution, benefiting the communities served by both banks.

Next Steps

• Obtain shareholder approvals from both ConnectOne and First of Long Island.
• Secure necessary regulatory approvals.
• Complete the merger and integrate the two companies.
• Raise approximately $100 million in subordinated debt.
• Integrate the two banks' operations and systems.
• Appoint Christopher Becker as Vice Chairman of ConnectOne and add two First of Long Island board members to the ConnectOne board.

Key Dates

Keywords

merger, acquisition, banking, ConnectOne Bancorp, First of Long Island Corporation, financial services, New York metro, community bank, subordinated debt, accretive, tangible book value