ConnectOne agrees to sell about $750 million in property loans to reduce concentration
Key Facts
ConnectOne Bancorp announced, in its third-quarter 2026 earnings disclosure, an agreement to sell a multifamily residential property loan portfolio with outstanding principal of about $750 million, in a move to reduce its concentration in real estate lending. The bank said in its filing with the U.S. Securities and Exchange Commission that the agreement provides for the sale of the portfolio to a single buyer. The loans are to customers without a comprehensive banking relationship with the bank, the segment targeted by the sale. The bank expects its exposure to New York rent-regulated properties to fall to about 2% of total loans after the transaction. That share stood at 6% at the end of June 2026, making the reduction in this exposure one of the most significant changes expected in the lending portfolio following the sale.
Reclassifying the portfolio ahead of its sale had a direct impact on the bank's results, as its transfer to loans held for sale generated a pretax loss of $23.0 million in the third quarter. The bank excluded this loss from operating earnings, according to its disclosure, leaving its impact in the reported results while treating it differently in the adjusted measure. Adjusted diluted operating earnings per share were $0.95 for the quarter. Reported diluted earnings per share, by comparison, were $0.59, reflecting how the reported outcome varied with the measure used. Chief Financial Officer Bill Burns said during the earnings call, a transcript of which was published by Investing.com, that the revaluation loss on the portfolio slated for sale reflected changes in interest rates. He added that it "does not arise from any additional credit losses," linking the loss to interest-rate changes at the time of revaluation.
On banking operations, ConnectOne's net interest margin was 3.44% in the third quarter, according to the bank's statement. The bank attributed the improvement in the yield on interest-earning assets primarily to loan repricing, identifying it as the main driver of the improvement. Average customer deposits also rose at an annualized rate of about 11%, calculated from the quarterly change during the period. On credit quality, Burns said nonaccrual loans fell to about $64 million at the end of the third quarter. The chief financial officer compared that balance with about $80 million at the end of the second quarter, marking a quarterly decline in those loans alongside the announcement of the bank's results and the property loan portfolio sale agreement.
After factoring in the sale, the bank estimated its commercial real estate concentration ratio at about 397%, as part of the expected change in its portfolio composition. U.S. supervisory guidance on this type of lending focuses on banks' management of concentration risk and capital adequacy. Guidance published by the Federal Reserve states that "the guidance does not establish specific limits on commercial real estate lending," and concentration indicators are used in supervisory examinations. In the market, Investing.com reported in coverage published on October 22, 2026, that ConnectOne shares rose in premarket trading following the earnings announcement. The shares gained 4.68% to $32.33 during that trading.
ConnectOne expects the portfolio sale to close in late October 2026, with the final loan balance to be determined at closing, according to the bank's disclosure. It also expects to incur additional transaction costs of between $7 million and $8 million upon completion in the fourth quarter. Burns said on the earnings call that the bank intends to "deploy most of the funds into lower-risk assets with slightly higher yields," outlining the planned use of the sale proceeds. On banking profitability, management expects net interest margin to reach 3.50% in the fourth quarter, according to the call transcript published by Investing.com. The bank's plan for the period ahead thus combines completing the loan sale, redeploying most of the proceeds and achieving management's target margin in the final quarter of the year.