ConnectOne Bancorp ratings affirmed by Morningstar DBRS with stable trend

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ConnectOne Bancorp ratings affirmed

Highlights

Morningstar DBRS affirms ConnectOne Bancorp's BBB (parent) and BBB (high) (subsidiary) ratings with Stable trend, citing franchise growth and resilient earnings.
June 2025 acquisition of The First of Long Island Corporation adds $4.1 billion in assets, diversifies loans and deposits, and expands ConnectOne's Long Island footprint.
In Q1 2026, ConnectOne reports 1.1% ROAA, 12.9% ROATCE, net interest margin improvement, cost of funds slightly above 3%, and CET1 ratio at 10.3%.

Rating action reflects franchise growth

As reported by Morningstar DBRS, the ratings agency confirms ConnectOne Bancorp's credit ratings, including a BBB Long-Term Issuer Rating for the parent company and a BBB (high) Long-Term Issuer Rating for banking subsidiary ConnectOne Bank. The trend on all ratings remains Stable, while the bank's Intrinsic Assessment stands at BBB (high).

Morningstar DBRS says the rating action reflects a growing banking franchise, resilient earnings generation and sound asset quality supported by conservative underwriting and strong client relationships. It also says the June 2025 acquisition of The First of Long Island Corporation strengthens ConnectOne's franchise by adding about $4.1 billion in assets, diversifying loans and deposits, and expanding the bank's presence on Long Island.

The agency also flags constraints in the credit profile. ConnectOne remains heavily dependent on spread income because fee income contributes only modestly to revenue, and its exposure to commercial real estate remains substantial, with commercial real estate and construction loans together accounting for about 62% of total loans, excluding owner-occupied commercial real estate.

Northeast banking profile and risk outlook

ConnectOne operates as a community bank with $14.2 billion in assets and 56 branches focused on the New York metropolitan area, alongside one branch in Florida. Morningstar DBRS says the FLIC acquisition improves the deposit profile, adds more C&I and residential mortgage exposure, and modestly reduces concentration risk, although the bank remains primarily a commercial real estate lender.

Profitability improves as fixed-rate assets reprice at higher levels and funding costs moderate. In Q1 2026, the company reports return on average assets of about 1.1% and return on average tangible common equity of about 12.9%, while net interest margin rises sequentially on loan repricing and acquisition synergies.

Funding remains primarily deposit based, though costs stay above peers because of a relatively high share of brokered deposits and certificates of deposit. As of Q1 2026, cost of funds is slightly above 3%, but Morningstar DBRS says the FLIC transaction improves liquidity and reduces reliance on wholesale funding.

Capitalization remains sound, with a CET1 ratio of 10.3% as of March 31, 2026, and a tangible common equity ratio of 8.64%. Morningstar DBRS says an upgrade would depend on further franchise building, more diversified revenue and loans, and maintained capital strength, while a downgrade could follow sustained asset-quality deterioration, weaker earnings, or a significant reduction in capital levels.

Our earlier report on Morningstar DBRS’ rating confirmation for Wells Fargo Commercial Mortgage Trust 2015-NXS1 explained that the review was driven by the deal’s wind-down profile and the agency’s recoverability expectations for the remaining loan pool. We highlighted how concentrated office exposure, a high share of specially serviced loans, and elevated refinance risk could translate into losses that pressure the lower-rated tranches.

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