ConnectOne Bancorp NASDAQ: CNOB reported stronger second-quarter 2026 earnings, with management citing continued margin expansion, balance sheet growth and benefits from its Long Island acquisition completed a little over a year ago.
Chairman and Chief Executive Officer Frank Sorrentino said the company’s operating performance “continued to accelerate” during the quarter, pointing to “strong revenue and earnings, healthy deposit and loan growth, continued margin expansion, and accelerating financial returns.” He said the bank remains focused on client relationships, core deposit growth and disciplined loan growth.
Senior Executive Vice President and Chief Financial Officer Bill Burns said net income available to common shareholders was $40.2 million, or $0.80 per share, up from $36.3 million, or $0.72 per share, in the first quarter. Operating pre-provision net revenue improved to 1.94%, compared with 1.81% in the prior quarter and 1.52% a year earlier.
Margin Expansion Continues
ConnectOne’s net interest margin widened for the seventh consecutive quarter, reaching 3.42%. Burns said the three-basis-point sequential increase followed wider gains in the two previous quarters and was driven largely by adjustable-rate loan repricing.
Year to date, about $700 million of loan balances came up for repricing, or roughly $100 million per month. Burns said approximately 20% of those loans paid off, while the remaining 80% were retained at a weighted average rate increase of 255 basis points.
Burns maintained prior guidance for a year-end spot margin of 3.50%, citing some pressure from rising deposit costs. However, he said management still expects wider margins through the rest of 2026 and into 2027, with loan repricing expected to outweigh higher funding costs.
In response to an analyst question, Burns said deposit costs have risen slightly, with certificate of deposit rates around 4%. He said growth in non-interest-bearing demand deposits could help offset pressure from higher-cost funding.
Loan and Deposit Growth Remain Solid
Loans grew at an annualized rate of about 5% on a period-end basis, while average loan balances increased at a 10% annualized pace. Burns said the growth contributed to stronger net interest income.
Client deposits, defined as total deposits less brokered deposits, grew 8% annualized on a point-to-point basis. Non-interest-bearing demand deposits grew at a 20% annualized rate. Burns said deposit growth came from commercial and retail accounts as well as municipalities, including in Southeast Florida.
During the question-and-answer session, management said it still expects mid-single-digit loan growth for 2026. Sorrentino said loan pipeline activity in the “top of the funnel” supports expectations that momentum will continue in the second half of the year.
Sorrentino also discussed the company’s Florida operations, saying the market remains a growth opportunity for ConnectOne. He said the bank’s Florida presence is approaching $700 million in footings and that about half of the growth is coming from clients with ties to New York and New Jersey who are expanding into Florida.
Non-Interest Income Rises as Expenses Stay Controlled
Non-interest income increased to $7.9 million, up more than $1 million sequentially, driven by higher Small Business Administration loan sale gains. Burns said the company expects higher levels of non-interest income in the second half of the year.
Sorrentino said SBA and BoeFly are contributing to the bank’s non-interest income trajectory, while the company’s residential build-out is gaining momentum.
Operating expenses declined slightly to $55.3 million from $55.7 million in the first quarter. The efficiency ratio improved to 42.7%, compared with 45.4% in the prior quarter and 49.2% a year earlier.
Sorrentino said ConnectOne is using technology to improve efficiency, including a partnership with nCino that deploys digital agents and business intelligence into its loan platform. He said the effort has reduced time spent on some manual processes by more than 50%, allowing employees to spend more time on clients and revenue growth.
Credit Metrics Affected by Rent-Stabilized Loan Relationship
Credit quality was a major focus of the call, particularly a $63.8 million relationship secured by New York City rent-stabilized multifamily properties that management flagged in the prior quarter.
Burns said the borrower’s issues centered on administrative matters, including delays in the New York State tax abatement process. During the second quarter, ConnectOne received payments that brought $20 million of the exposure current. The remaining $44 million was moved to non-accrual status, followed by a $13.8 million charge-off based on conservative valuations.
Burns clarified during the Q&A that, after the charge-off, the remaining outstanding exposure was about $30 million. He said management hopes to resolve the credit over the next year while continuing to work with the client.
The charge-off was partially offset by a $9.2 million release of reserves previously allocated to the rent-stabilized subsegment, including the specific relationship. The net effect added $4.6 million to provision expense, bringing total provision for loan losses to $8.3 million, compared with $5.2 million in the first quarter.
Non-performing assets increased to 0.55% of total assets from 0.29% in the prior quarter, and annualized charge-offs were 56 basis points, above what Burns described as a typical level of about 20 basis points. He said the increase was “substantially attributable” to the one relationship.
Management emphasized that broader credit trends remain stable. Total criticized and classified loans fell to 1.89% of total loans from 2.26%, while 30- to 89-day delinquencies declined to three basis points of total loans. Burns said there was no other area of the portfolio that was a particular concern.
The rent-stabilized portfolio represents about 5% of total loans and has declined approximately 10% year over year. Burns said ConnectOne is actively exploring a potential bulk sale to further reduce exposure, depending on market conditions.
Capital Builds as Buybacks Remain Opportunistic
Tangible book value per share increased 3.1% sequentially to $24.66 and was up 12.4% year over year. The tangible common equity ratio rose to 8.78%, up 70 basis points from last June, when the First of Long Island merger closed.
ConnectOne repurchased 90,000 shares year to date at an average price of $26.21, though it did not repurchase shares during the second quarter. Burns said 550,000 shares remain under the current authorization and that the company will continue to repurchase shares opportunistically.
The board declared a common dividend of $0.195 per share, unchanged from the prior quarter. Burns said the dividend payout ratio remains in the mid-20% range, giving the company flexibility around dividends and buybacks.
Sorrentino said the company remains focused on organic growth rather than near-term bank acquisitions, though he said ConnectOne would continue to be opportunistic if future opportunities arise.
About ConnectOne Bancorp (NASDAQ:CNOB)
ConnectOne Bancorp is a New Jersey‐based bank holding company whose primary subsidiary, ConnectOne Bank, offers a suite of commercial banking services to small and medium‐sized businesses, professionals and individuals. Established in 2005 and headquartered in Englewood Cliffs, New Jersey, the company seeks to deliver customized lending and deposit solutions through a network of branches across northern New Jersey and the New York metropolitan area.
The company's lending portfolio centers on commercial real estate financing, construction lending, owner‐occupied real estate loans and working capital lines of credit.
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