ConnectOne Bancorp's Post-Merger Momentum: A High-Conviction Buy for 2026 Growth

ConnectOne Bancorp (CNOB) has emerged as a standout performer in the regional banking sector, leveraging its successful merger with The First of Long Island Corporation (FLIC) to drive margin expansion, disciplined capital deployment, and strategic growth in high-margin SBA lending. With a net interest margin (NIM) of 3.11% in Q3 2025-up from 2.67% year-over-year-and an operating return on assets (ROA) of 1.05%, the company is on a clear trajectory to meet its 2026 targets of 1.2%+ ROA and 15% return on tangible common equity (ROTCE), according to the Q3 2025 earnings report. This analysis examines how strategic integration, deposit cost optimization, and SBA loan expansion are creating a compelling case for investors seeking long-term outperformance.

Strategic Integration: A Catalyst for Margin Expansion

The completion of the FLIC merger in June 2025 marked a turning point for ConnectOne. By integrating FLIC's $4.5 billion in assets, the company achieved a more balanced loan-deposit mix, reducing its average cost of deposits and widening its NIM to 3.11% in Q3 2025, according to a TradingView report. This margin expansion is critical in a high-interest-rate environment, where net interest income (NII) growth directly translates to profitability. A StockTitan write-up notes the merger's seamless execution has already unlocked $23.1 million in incremental NII compared to Q2 2025, driven by a 4.0% annualized increase in client deposits since June 30, 2025.

SBA Lending: A High-Margin Growth Engine

ConnectOne's SBA loan programs have become a cornerstone of its growth strategy. In Q3 2025, the company reported $465 million in new loan originations, with SBA lending contributing significantly to noninterest income. Specifically, $0.7 million in net gains on the sale of SBA loans held-for-sale bolstered noninterest income to $19.4 million-a 266% increase from Q2 2025, per a Business Insider report. While the federal government shutdown in FY25 temporarily disrupted SBA lending nationwide, ConnectOne's proactive platform expansion and fast approvals have positioned it to outperform peers once normal operations resume, according to an SBA analysis.

Management anticipates SBA lending will drive 5%+ loan growth in 2026, supported by its 7(a) and 504 programs, which offer small businesses access to capital with lower down payments and extended repayment terms. These programs not only enhance customer retention but also diversify revenue streams, as SBA loans generate fee income and reduce credit risk through government guarantees, as described on the bank's SBA lending page.

Capital Efficiency and 2026 Targets: A Roadmap for Outperformance

ConnectOne's disciplined capital deployment is another key differentiator. With a tangible common equity ratio of 8.36% and a total risk-based capital ratio of 13.88%, the company has ample capacity to fund growth while maintaining a strong risk profile, according to the GlobeNewswire release. Its 2026 targets-1.2%+ ROA and 15% ROTCE-are underpinned by three pillars:
1. Merger Synergies: Cost savings from FLIC integration are expected to reduce overhead and boost operating leverage.
2. SBA Expansion: Projected to contribute 10-15% of noninterest income in 2026, SBA lending will diversify earnings.
3. Deposit Growth: A 4.0% annualized deposit increase since the merger has lowered funding costs, enabling further NIM expansion.

Analysts at JMP Securities note that ConnectOne's credit quality-nonperforming assets at 0.28% and net charge-offs below 0.20%-provides a buffer against economic headwinds, making its 2026 targets achievable even in a modestly slowing economy.

Risks and Mitigants

While the outlook is bullish, risks include a prolonged federal government shutdown disrupting SBA programs and rising interest rates compressing margins. However, ConnectOne's diversified loan portfolio, including commercial real estate and consumer lending, and its focus on fee-based income (e.g., SBA gains) mitigate these risks. Additionally, its strong capital position allows for strategic acquisitions or share repurchases to enhance shareholder value.

Conclusion: A High-Conviction Buy

ConnectOne Bancorp's post-merger momentum-driven by margin expansion, SBA-led growth, and disciplined capital management-positions it as a high-conviction buy for 2026. With a forward ROA of 1.05% and a clear path to 1.2%+ ROA, the stock offers both earnings upside and a defensive profile in a volatile market. Investors seeking exposure to a well-managed regional bank with a clear growth narrative should act before the Oct 30 announcement, which is likely to reinforce these fundamentals.