ConnectOne Sells at 90 Cents to Put Rent Stabilization in the Rearview
A $750M multifamily loan sale closes a four-quarter saga — but the 8.8% preferred bill is still sitting on the table
CNOB · Earnings Call · 2026-10-22
A Sale, Not a Loss
For four straight quarters, the rent-regulated New York City multifamily book has been the single loudest topic on ConnectOne's calls. It topped the keyword table in the second quarter (New York City rent-stabilized space), resurfaced as a rent freeze and bulk sale candidate in the third, and now, in Q3 2026, the company finally did the thing it had been hinting at. The loan sale is the new number-one keyword for this franchise — and it is company-unique: nothing of the sort appears anywhere in the market's top-75 themes this quarter. The mechanics matter more than the headline. ConnectOne signed a definitive agreement to sell up to roughly $750 million of performing, non-relationship multifamily loans to a single buyer at a price north of 90% of par. On the surface that reads as a 10% haircut. It is not: “the 10% discount to par resulted in only a 3% loss on the sale for our bank. that is because we previously recorded significant purchase accounting marks both interest rate and credit marks, on a large part of the pool back in the second quarter of 2025” — William S. Burns, Senior Executive Vice President and CFO · 2026-10-22 So the $23 million non-operating pretax charge booked in Q3 is a rate mark, not a credit event — rates are up roughly 100 basis points since those loans were originated or acquired. Management was unusually direct about the motive: these were transactions, not relationships. As Frank Sorrentino put it, “It almost did not matter to me what they were. But they were not you know, they were transactions.” — Frank S. Sorrentino, Chairman and Chief Executive Officer · 2026-10-22 The pro forma consequences are real and checkable: the regulatory CRE concentration falls from 439% to about 397%, the loan-to-deposit ratio moves from the low-100s into the high-90s, the securities book rises from 9% to roughly 12.5% of assets, and the rent stabilized book drops from 6% of loans to 2%, or about $235 million. That last number is the one to watch, because more than half of what remains consists of long-standing clients with over $100 million of related deposits — relationships management explicitly did not want to exit. The residual $100 million carries roughly 30% of unpaid principal in offsets from prior charge-offs, marks and reserves.The Margin Engine Keeps Running
The operating story underneath the restructuring is genuinely strong. Net interest margin widened for the eighth consecutive quarter to 3.44%, and operating EPS of $0.95 was up 13% sequentially from $0.84 and 35% year over year. Pre-provision net revenue crossed the 2% of average assets line management had been chasing, and return on tangible common equity cleared 15% — the target laid out earlier this year, hit early. The engine is loan repricing. Year to date, just over $1 billion of balances have come up for repricing, with a weighted-average rate increase of 258 basis points; only about 20% paid off. New originations are landing in the high sixes against a pipeline above 7%, which the CFO estimates adds roughly 5 basis points to margin per quarter. On top of that, the sale frees cash to retire wholesale funding, and management now guides to a 3.53% margin exiting 2027. What is striking is how differently ConnectOne frames the rate question versus the broader market. The market's own keyword table this quarter is dominated by Fed rate hike anxiety — it ranks second globally, with related notions like hiking cycle and basis points hike scattered through the top tier. ConnectOne's answer is almost dismissive: “No. it is only, like, 2 maybe 2 or 3. And we benefit more on the way down. We benefit more on cuts. Than we get hurt on, on ups.” — William S. Burns, Senior Executive Vice President and CFO · 2026-10-22 Frank went further, arguing hikes would signal strength rather than stress: “there is a very robust economy going on underneath all of the headlines that is causing a lot of uncertainty.” — Frank S. Sorrentino, Chairman and Chief Executive Officer · 2026-10-22 He said he does not expect the Fed to hike at all, and that a dramatic cut cycle — read: a slowing economy — worries him more. That is a contrarian posture against the market's dominant theme, and it is the kind of claim that either looks prescient or naive within two quarters.The Awkward Leftover
For all the celebration, two items were handled with visible reluctance. The first is the noncumulative preferred, which hit its reset date and now costs roughly 8.8%. Management intends to redeem it but is "still evaluating the best and most advantageous way," meaning it may sit outstanding at the higher rate for another quarter. Second, tangible book value per share fell 1.9% to $24.19, largely on AOCI, though the sale adds about 35 basis points to the tangible common equity ratio and should put book value back on an upward path.That is the new phrase of the quarter — rearview mirror — and it is a deliberate bookend. Rewind to April and the same management team was notably more cautious: “There are challenges in the rent-stabilized space across portfolios, particularly for value-add components, which we generally stayed away from.” — Frank Sorrentino, Chairman and Chief Executive Officer · 2026-04-23 And the reserves that made this sale cheap to execute were themselves a legacy of the First of Long Island acquisition: “About 60% of the portfolio came through the acquisition, which gave us the opportunity to take significant reserves that have turned out to be probably very conservative.” — William Burns, Senior Executive Vice President and Chief Financial Officer · 2026-04-23 In other words, the mark that cushioned this quarter's loss was created two years ago. That is good stewardship, not luck — but it does mean the "3% loss" is a purchase-accounting artifact as much as a market verdict.With a large reduction in overall rent-regulated exposure, combined with significant backstops on any remaining credits, The New York City rent regulated issue is in our rearview mirror, that is a result we can all feel good about.