New Jersey’s ConnectOne Cuts CRE Exposure By Purchasing Regional Bank Rival
By Andrew Coen September 5, 2024 4:00 pm
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New Jersey-based ConnectOne decided to connect the dots to the nearby Long Island coast to shore up the regional bank’s commercial real estate balance sheet.
ConnectOne, which has $10 billion in assets, announced the $284 million acquisition of First of Long Island Corporation on Thursday that will reduce its CRE portfolio from 68 percent to 63 percent. The Long Island bank has $4 billion in assets.
The move follows similar steps taken by other regional banks since rising interest rates led to the March 2023 collapses of Silicon Valley Bank and Signature Bank.
Frank Sorrentino, CEO of ConnectOne, stressed on a conference call Thursday that the bank remains committed to CRE lending despite cutting its exposure in the sector.
“We’re growing certain parts of the CRE portfolio, but at a slower rate than other things that we’re doing,” Sorrentino said on the call.
ConnectOne’s $6 billion of CRE exposure is among the largest for smaller banks, according to Crain’s New York Business, citing data from Morgan Stanley. Roughly 8 percent of ConnectOne’s CRE loans are tied to office properties, and more than 30 percent are connected to multifamily assets, including in excess of $300 million on rent-regulated buildings, according to Crain’s.
William Burns, chief financial officer at ConnectOne, said the bank is using credit reserves to account for an 18 percent, or $90 million, markdown of $500 million in rent-regulated CRE debt held by First National Bank of Long Island, for which First of Long Island is the parent company. Loans on rent-regulated assets in New York have been hampered by changes to New York state’s rent laws in 2019 that placed strict limits on future rent increases, coupled with rising interest rates that took effect starting in 2022.
“You need to look at the value of the collateral, and right now it’s in a little bit of a state of flux,” Burns said on the conference call. “There are market transactions out there that have been severely depressed.”
ConnectOne’s merger with Melville, N.Y.-based First of Long Island is slated to take effect in mid-2025 following required regulatory approvals. The transaction will make ConnectOne one of the top five banks on Long Island in deposit market share, according to Sorrentino.
Andrew Coen can be reached at acoen@commercialobserver.com
