ConnectOne to expand on Long Island with $284 million acquisition

Zef Nikolla

UPDATE: This article includes comment from the companies' joint conference call.

ConnectOne Bancorp in Englewood Cliffs, New Jersey, inked an all-stock deal to acquire the First of Long Island Corp.

The $284 million transaction, slated to close in mid-2025, would create a $14 billion-asset bank and hasten ConnectOne's efforts since 2018 to expand on Long Island.

"This transaction solidifies our current presence in the New York City market while accelerating our growth strategy on Long Island, which would take years to organically replicate," Frank Sorrentino III, chairman and CEO of ConnectOne, said Thursday during a call with analysts after the deal was announced.

"There is very little client and geographic overlap across our two businesses, and we believe the addition of First of Long Island's substantial branch and client network significantly accelerates the expansion of our relationships and presence in very attractive Long Island markets," Sorrentino said.

Melville, New York-based First of Long Island, parent company of the First National Bank of Long Island, operates 40 branches in the New York City area, with about 92% of its deposits located in the affluent counties of Nassau and Suffolk on Long Island. It has $4.2 billion of assets, $3.3 billion of loans and $3.4 billion of deposits.

Based on S&P Global Market Intelligence data, First of Long Island is ranked No. 4 in Nassau County and fifth in Suffolk County in deposit market share among banks under $100 billion of assets.

Sorrentino said, "The expansion into desirable markets" presents "significant upside," including commercial-and-industrial loan growth potential that would diversify ConnectOne's portfolio.

As part of the transaction, ConnectOne plans to raise about $100 million in subordinated debt prior to closing. It said net proceeds would take the form of equity capital for ConnectOne's bank unit.

The combined company would operate under the ConnectOne brand, and it would have $11 billion of both deposits and loans, based on the companies' respective second-quarter data.

Chris Becker, CEO of the First National Bank of Long Island, said on the call that the merger would create scale and deepen resources to compete across a broader footprint.

"This represents a tremendous opportunity for growth," Becker said.

Should the deal close as planned, Becker would become vice chairman of ConnectOne and two current independent members of First of Long Island's board would join the combined bank's board.

The deal is expected to prove 36% accretive to ConnectOne's earnings per share in 2025. Tangible book value per share dilution is projected at 12%. The buyer expects to earn back that dilution in less than three years. 

"By combining our talents and resources, we're creating a significantly enhanced platform for continued growth," Sorrentino said. "We believe this transaction offers significant strategic benefits as well as a compelling financial impact."

He noted the target has a low-cost deposit base, "pristine" credit quality and a history of consistent profitability.

Sorrentino noted the Federal Reserve is expected to begin cutting interest rates later this month, a move that could bolster loan demand and lower deposit costs for community banks.

The planned acquisition would "enhance our competitive positioning in a period of anticipated Fed rate reductions," he said.

The futures market is pricing in a 25-basis-point cut this month with a chance for a 50-basis-point reduction. Analysts expect further rate cuts later this year and into 2025. Lower credit costs could also ease concerns about vulnerable borrowers defaulting on loans. 

A recent S&P Global Market Intelligence survey of bankers, released in August, found that 75% expect to expand their loan portfolios over the second half of 2024 as well as the first half of next year. That was up from 51% a year earlier and was based in part on anticipated rate cuts.

The central bank boosted rates in 2022 and last year to the highest level of this century to combat inflation in the wake of the Covid-19 pandemic. Inflation topped 9% at its peak in 2022, but the Fed's aggressive actions have gradually lowered the pace of consumer cost increases to below 3%.

"The stage appears set" for the Fed "to kick off an easing cycle," Raymond James Chief Investment Officer Larry Adam said in a note this week.

The looming rate shift has attracted more bank buyers into the M&A arena. About 75 deals have been announced this year, putting the industry on pace to surpass last year's tally of 100. 

Deals are also getting larger. Through July of this year, bank M&A transactions had an aggregate value of $9.25 billion, above the $4.15 billion for all of 2023, according to S&P Global.

ConnectOne's deal on Long Island ranks among the top 10 announced this year.

Winter Haven, Florida-based SouthState Corp.'s May announcement that it would pay $2 billion in stock to acquire Independent Bank Group in McKinney, Texas, is the largest banking deal to date in 2024. Kansas City-based UMB Financial's April plan to purchase Heartland Financial USA in Denver in an all-stock transaction valued at just under $2 billion was a close second.