KBRA Affirms Ratings for ConnectOne Bancorp, Inc.

NEW YORK--(BUSINESS WIRE)-- KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, the preferred stock rating of BB+, and the short-term debt rating of K3 for Englewood Cliffs, New Jersey-based ConnectOne Bancorp, Inc. (NASDAQ: CNOB) ("ConnectOne" or "the company"). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for its main subsidiary, ConnectOne Bank. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings are supported by ConnectOne’s historically strong earnings performance, including ROA averaging 1.55% between 2021-2022, which has been supported by a healthy NIM and very low expense base. With that said, the company’s profitability has trended lower throughout 2023 in common with the rest of the industry due to accelerating deposit costs and NIM compression, though returns remain adequate for the rating category. Moreover, management stated that NIM could stabilize moving forward given that a majority of the deposit repricing has already occurred, with the average cost of deposits of 2.66% for 2Q23. However, if further compression is realized, it will be less material than prior quarters, in the single digits quarter-over-quarter. The maintenance of a stable/stronger margin is crucial given CNOB's reliance on spread revenues and minimal fee income levels to fall back on (

Rating Sensitivities

A rating upgrade is not expected in the medium term, though more diversity in revenue composition and in the loan book, stronger capital, and less of a reliance on noncore funding could support positive rating momentum over time. A rating downgrade is not anticipated, though continued NIM compression that exceeds peers, or elevated credit issues throughout a downturn could potentially pressure the ratings.

To access rating and relevant documents, click here.

Methodologies

Financial Institutions: Bank & Bank Holding Company Global Rating Methodology

ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

View source version on businesswire.com: https://www.businesswire.com/news/home/20230728530741/en/

Analytical Contacts
John Rempe, Director (Lead Analyst)
+1 301-969-3045 [email protected]

Chris Pento, Associate
+1 646-731-1259
[email protected]

Ashley Phillips, Managing Director
(Rating Committee Chair)
+1 301-969-3185
[email protected]

Business Development Contact
Justin Fuller, Senior Director
+1 646-731-1250 [email protected]

Source: KBRA

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