ConnectOne Bancorp, Inc. (CNOB) stock intrinsic value fair value estimate & owner earnings analysis

ConnectOne Bancorp is the holding company for ConnectOne Bank, a commercial bank serving New Jersey and the New York metropolitan area. At the end of 2025 it had $14.0 billion of assets, $11.2 billion of deposits and $11.45 billion of loans. On June 1, 2025 it acquired The First of Long Island, which lifted the share count from 38.4 million to 50.3 million and roughly doubled quarterly profit: net income was $41.0 million in the third quarter of 2025 and $39.5 million in the fourth, against about $20 million a quarter before the deal. The company has reported $40.2 million for the second quarter of 2026, in line with that pace (a press-release fact only; our figures come from the annual filings). HOW WE MEASURE EARNINGS. For a bank, loan losses are a normal, recurring cost, so we do not treat them as a non-cash item. We start with operating cash flow, remove swings in working capital, then deduct the provision for credit losses, stock compensation, maintenance capital spending and the $6.0 million a year paid on the $115 million of preferred stock that ranks ahead of common shareholders. Per diluted share on that basis: 2016 $0.78 (including a $36.7 million charge-off on the bank's New York taxi-medallion loans), 2017 $1.84, 2018 $1.94, 2019 $2.09, 2020 $1.42 (a $41 million pandemic-year provision), 2021 $3.02 (the loan-loss reserve was released), 2022 $2.90, 2023 $1.97, 2024 $1.52 (net interest income had fallen from $302 million in 2022 to $247 million) and 2025 $1.02. The 2025 figure is held down by $34.5 million of merger expenses and a $27.3 million provision booked on day one for the acquired loans; adding both back after tax would put 2025 near $2.0. We also give no credit for the $23.9 million of purchase-discount accretion on acquired loans that was recorded as income in 2025 but is not cash in the year booked; that is conservative, and the remaining discount is not valued. EARNINGS LEVEL USED. We use the median of 2016 through 2024, $1.94 per share, a window that spans the taxi-medallion loss, the pandemic, a rate-driven peak (2021-22) and the 2023-24 margin squeeze. 2025 is left out of the window because the merger charges distort it; counting 2025 with those charges added back instead would move the ten-year median only to $1.96. We did not raise the level for the post-merger quarters: they point to somewhat higher earnings (our rough conversion of the roughly $40 million quarterly pace to our stricter measure is $2.3 to $2.5 a share), but the annual filing contains only seven months of the combined bank. First-year outlook: owner earnings per share fell 33% in 2025 ($1.52 to $1.02); the cases start at the $1.94 level with no growth, which is above that trailing figure because the 2025 drop came from the $34.5 million of merger expenses and $27.3 million day-one provision disclosed in the 10-K, and the combined bank earned $41.0 million and $39.5 million in the two quarters after the merger closed. A NOTE ON DEBT AND CAPITAL. Deposits, $903 million of Federal Home Loan Bank advances and $202 million of subordinated debt are the bank's raw material; interest on them is already deducted in the earnings above, so no debt is subtracted again and each case's value is simply what is left for common shareholders. The preferred stock is handled by deducting its dividend (it can be redeemed at par from September 1, 2026). Tangible book value is about $23.52 per share ($1,573 million of equity less $111 million of preferred, $220 million of goodwill and $60 million of core deposit intangibles, over 50.3 million shares). The company-level common equity Tier 1 ratio was 10.24% at the end of 2025. BASE CASE, $26.70 per share. Earnings stay at $1.94 a share for 30 years, after which we credit nothing. We assume no growth: per-share earnings have not grown over the past eight years (about $1.84 in 2017 against roughly $2.0 for 2025 adjusted), and the expansion the company has achieved has come from acquiring other banks and issuing stock, which depends on deals that have not happened yet. Two named supports for the 30-year life: the franchise's $11.2 billion deposit base, and a record of positive earnings every year of the last ten, including the 2016 taxi-medallion loss and the 2020 pandemic. The window already contains weak years (the 2016 medallion loss, the 2020 pandemic provision and the 2023-24 margin squeeze), which is roughly what an ordinary credit and rate cycle looks like, so no separate downturn is added. Values here are today's worth of the earnings stream discounted at 6% a year. BEAR CASE, $17.12 per share (below tangible book value). Loans are 70.3% commercial real estate ($8.1 billion, including $3.48 billion of multifamily, split about $1.64 billion in New Jersey and $1.50 billion in New York), and by the regulators' measure commercial real estate equals 434% of the bank's Tier 1 capital plus loan-loss allowance. The bear case replays a 2008-2010-style real estate credit cycle, applied to this book: net charge-offs of 0.6%, 1.4%, 1.4% and 0.9% of loans over four years (4.3% cumulative, about $492 million, against 0.17%, 0.16% and 0.23% in 2025, 2024 and 2023), the loan-loss allowance rising from 1.35% to 2.6% of loans before being released, and pre-provision earnings 20% lower in years two to four from funding costs and interest lost on non-paying loans. At about a 27% tax rate that makes owner earnings of roughly -$9.5 million, -$61 million, +$22.5 million and +$56 million over the four years, and about 90% of today's level afterward ($1.75 a share) because the bank comes out smaller and more cautious. A second, milder real estate downturn in years 16 to 19 costs $30 million a year. On that arithmetic capital stays above regulatory minimums (with dividends suspended, the company-level common equity ratio falls from 10.2% to roughly 9.6%), so we assume no emergency share issuance; the regulators' scrutiny of high commercial real estate concentrations, and the New York rent-regulated multifamily exposure the filing flags as a risk, are why the cycle is sized this severely. Bear value is below tangible book because the earnings left after such a cycle are well under the capital tied up in the bank. BULL CASE, $33.78 per share. The combined bank earns $2.50 a share on our strict measure, the pace implied by the reported quarters near $40 million (the third and fourth quarters of 2025 and the second quarter of 2026) once non-cash accretion and other items are stripped out (this conversion is our own estimate), with credit costs staying near their 2023-25 levels (net charge-offs of 0.16% to 0.23% a year). That is held for 30 years with one bad year (40% lower earnings) in year 8. It rests on the already-reported post-merger earnings, not on new products or further acquisitions. Further deals and any earnings growth are left out because they have not yet happened. TESTING THE CASE. The flat-earnings base depends on credit costs staying near the past decade's average. The most recent filing is mixed: net charge-offs were 0.17% of average loans, nonaccrual loans fell to $45.9 million (0.40% of loans) from $57.3 million, and the average loan-to-value on the commercial real estate book is 54% (58% on multifamily). Against that, loans rated substandard rose to $156.2 million (1.4% of loans) from $72.4 million (0.9%), largely from the acquired book and loans moving to nonaccrual, and $17.5 million of loans were 90 days past due and still accruing against none a year earlier. That is the main thing that would have to go wrong for the base case to be too high; a 15% error in the earnings level moves the base value by about $4 a share. Liquidity stress of the kind that hit regional banks in 2023 is not separately modelled. PRIOR ESTIMATE. The earlier published figures (bear $16.18, base $28.44, bull $39.46, margin-of-safety price $10.50) were built on a different earnings measure, so they are not comparable with these. The business picture itself is similar: a larger combined bank earning roughly $40 million a quarter, with 2025 held down by one-time merger charges rather than underlying deterioration. MARGIN-OF-SAFETY PRICE, $13.00. We are fairly sure of the order of magnitude of earnings (median $1.94 over 2016 to 2024) but less sure of the exact post-merger level and of credit quality in a book that is 70% commercial real estate. The worst plausible outcome is a New York-area real estate downturn on top of a deposit-funding squeeze; the bank's 10.2% common equity ratio and 54% average loan-to-value would likely let it survive without losing its franchise, though its 434% concentration means regulators could restrict dividends and growth. If we are wrong about credit (the bear case) the shares are worth about $17; if the post-merger earnings are really $2.3 or more, they are worth more than $30. The price assumes a four-to-five-year holding period, during which the bank pays a $0.72 dividend and retains the rest. At $13.00 the bank's median earnings of $1.94 are a 15% annual yield and the dividend is 5.5%, the price is about 55% of tangible book value, and even the bear case values the shares above $13.00; that combination, rather than any single scenario value, is what supports the 20% annual target, so the margin-of-safety price is not set higher.