What changed in this filing

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Item 1A. Risk Factors

2026-02-24 compared with 2025-02-21 · 29 added, 102 removed, 198 unchanged (40% of the section changed)

11 unchanged sentences

In order to continue our growth, we will be required to maintain our regulatory capital ratios at levels higher than the minimum ratios set by our regulators.

For example, in connection with our merger with FLIC, we raised $200 million of capital through the issuance of subordinated debt.

We can offer you no assurances that we will be able to raise capital in the future, or that the terms of any such capital will be beneficial to our existing security holders.

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Guidance from these regulatory agencies includes all commercial real estate loans, including commercial construction loans, in calculating our commercial real estate concentration, but excludes owner-occupied commercial real estate loans.

Based on this regulatory definition, our commercial real estate loans represented 435% of the Bank’s Tier 1 capital plus the allowance for credit losses on loans.

Based on this regulatory definition, our commercial real estate loans represented 434% of the Bank’s Tier 1 capital plus the allowance for credit losses on loans at December 31, 2025.

Loans secured by owner-occupied real estate are reliant on the operating businesses to provide cash flow to meet debt service obligations, and as a result may be more susceptible to the general impact on the economic environment affecting those operating companies as well as the real estate.

1 unchanged sentence

Many other factors, including the exchange rate for the U.S.

dollar, potential international trade tariffs, inflation and changes in federal tax laws affecting the deductibility of state and local taxes and mortgage interest could negatively impact our local economy and real estate market.

dollar, potential international trade tariffs, inflation and changes in federal tax laws affecting the deductibility of state and local taxes and mortgage interest and new legal or regulatory requirements impacting New York City rent regulated multifamily properties could negatively impact our local economy and real estate market.

Accordingly, it may be more difficult for commercial real estate borrowers to repay their loans in a timely manner, as commercial real estate borrowers’ ability to repay their loans frequently depends on the successful development and leasing of their properties.

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Our New York State multifamily loan portfolio could be adversely impacted by changes in legislation or regulation which, in turn, could have a material adverse effect on our financial condition and results of operations.

We have a significant portfolio of loans secured by multi family properties located in New York.

We have a significant portfolio of loans secured by multifamily properties located in New York.

On June 14, 2019, the New York State legislature passed the New York Housing Stability and Tenant Protection Act of 2019.

This legislation represents the most extensive reform of New York State’s rent laws in several decades and generally limits a landlord’s ability to increase rents on rent regulated apartments and makes it more difficult to convert rent regulated apartments to market rate apartments.

As a result, the value of the collateral located in New York State securing the Company’s multi family loans or the future net operating income of such properties could potentially become impaired which, in turn, could have a material adverse effect on our financial condition and results of operations.

In addition, the new mayoral administration in New York City has discussed policies which would further limit or eliminate rent increases and make tenant evictions more difficult.

As a result, the value of the collateral located in New York State and New York City securing the Company’s multifamily loans or the future net operating income of such properties could potentially become impaired which, in turn, could have a material adverse effect on our financial condition and results of operations.

A significant portion of our loan portfolio has interest rates that will reset over the next 24 months.

In addition, a significant portion of our portfolio will mature over the next 24 months.

Applicable increases in interest rates could harm our borrowers ’ abilities to repay their loans.

As of December 31, 2024, a significant portion of our loan portfolio bears interest at rates that will reset during 2025 and 2026.

Generally, these loans currently bear interest at rates that are lower than current market rates, as these loans were predominately originated in 2020 and 2021, and so these borrowers will experience an increase in the interest rates applicable to their loans, which in some cases will be significant.

In addition, a significant portion of our loan portfolio matures in 2025 and 2026.

For loans that are maturing, borrowers will either need to refinance these loans, with the Bank or with another financial institution, or pay these loans off using other sources of funds.

As of December 31, 2025, a significant portion of our loan portfolio, approximately $2.4 billion, primarily originated during the low-interest-rate environment of 2021 and 2022, bears interest at rate that will reset during 2026 and 2027.

Generally, these loans currently bear interest at rates that are lower than current market rates, and so these borrowers will experience an increase in the interest rates applicable to their loans, which in some cases will be significant.

Borrowers refinancing loans will likely experience an increase in the interest rates applicable to their loans, which in some cases will be significant.

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Any increase in late payments or defaults by our borrowers due to increases in the interest rates applicable to their loans could adversely affect our asset quality and results of operations.

An increase in interest rates applicable to their loans may negatively impact our borrowers, increasing their costs and potentially making it more difficult for them to continue to perform under their loan agreements.

Any increase in late payments or defaults by our borrowers due to increases in the interest rates applicable to their loans could adversely affect our asset quality and results of operations.

The small to medium-sized businesses that the Bank lends to may have fewer resources to weather a downturn in the economy, which may impair a borrower ’ s ability to repay a loan to the Bank that could materially harm our operating results.

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Economic downturns and other events that negatively impact our market areas could cause the Bank to incur substantial credit losses that could negatively affect our results of operations and financial condition.

The development and use of artificial intelligence ( “ AI ” ) present risks and challenges that may adversely impact our business.

We have begun and intend to continue to selectively incorporate AI technology in certain business processes, fraud detections, services or products, including technologies that process sensitive financial and/or personal data.

We have also selectively employed AI technologies to assist in drafting standardized documents and communications, and to search information on the internet.

Furthermore, our third-party vendors, clients or counterparties may develop or incorporate AI technology into their business processes, services or products.

The development and use of AI present a number of risks and challenges to our business.

The legal and regulatory environment relating to AI is uncertain and rapidly evolving at both the state and federal level, and includes regulation targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment and other laws applicable to the use of AI.

These evolving laws and regulations could require changes in our implementation of AI technology and increase our compliance costs and the risk of non-compliance, including in relation to data privacy and security requirements under laws such as the Gramm-Leach-Bliley-Act (“GLBA”), which mandates the protection of consumer financial information.

AI models, particularly generative AI models, may produce output or decisions or take action that is incorrect, that results in the release of private, confidential or proprietary information, that reflects biases included in the data on which they are trained or that are inherent in their algorithms, that produces output that is, or is perceived to be, discriminatory or unfair, that infringes on the intellectual property rights of others, or that is otherwise harmful.

While we have policies and governance structures prohibiting our employees from using non-approved generative AI applications or websites on the Company or the Bank’s network or devices, there can be no assurances that our employees will adhere to these policies or that such policies and governance structures will be effective in mitigating the risks associated with using AI technology.

Since personally identifiable or nonpublic information may be used with AI applications, there is a risk that these technologies generate output that improperly discloses such personally identifiable or nonpublic information.

The use of personally identifiable or nonpublic information could result in a violation of certain laws, including data privacy laws and the data privacy and security requirements of the GLBA, exposing us to legal liability or regulatory penalties.

In addition, the complexity of many AI models makes it challenging to understand why they are generating particular outputs.

This limited transparency increases the challenges associated with assessing the proper operation of AI models, understanding and monitoring the capabilities of the AI models, ensuring adherence to our privacy policies, reducing erroneous output, eliminating bias and discrimination and complying with regulations that require documentation or explanation of the basis on which decisions are made.

Further, we may rely on AI models developed by third parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, including risks arising from the inclusion of any unauthorized material in the training data for their models, and the effectiveness of the steps these third parties have taken to limit the risks associated with the output of their models, matters over which we may have limited visibility.

Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business or the effectiveness of our security measures, which could have an adverse effect on our business, financial condition or results of operations.

Our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance.

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These competitors may offer higher interest rates than we do, which could decrease the deposits that we attract or require us to increase our rates to retain existing deposits or attract new deposits.

We have also been active in competing for New York and New Jersey governmental and municipal deposits.

As of December 31, 2024, governmental and municipal deposits accounted for approximately $1.1 billion in deposits.

The governor of New Jersey has proposed that the state form and own a bank in which governmental and municipal entities would deposit their excess funds, with the state-owned bank then financing small businesses and municipal projects in New Jersey.

Although this proposal has not advanced, should this proposal be adopted and a state-owned bank formed, it could impede our ability to attract and retain governmental and municipal deposits.

Increased deposit competition could adversely affect our ability to generate the funds necessary for lending operations, which may increase our cost of funds.

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Declines in the value of our investment securities portfolio may adversely impact our results.

As of December 31, 2024, we had approximately $612.8 million in fair value of investment securities, all of which are classified as available-for-sale.

As of December 31, 2025, we had approximately $1.3 billion in fair value of investment securities, all of which are classified as available-for-sale.

We may be required to record an allowance for credit losses on our investment securities if they suffer a decline in value below their amortized cost basis that is considered credit related.

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We have grown and may continue to grow through acquisitions.

Since January 1, 2019, we have acquired GHB, BoeFly and BNJ and entered into an agreement to acquire FLIC (First of Long Island Corp.), the consummation of which is pending regulatory approval.

To be successful as a larger institution, we must successfully integrate the operations and retain the clients of acquired institutions, attract and retain the management required to successfully manage larger operations, and control costs.

Since January 1, 2019, we have acquired GHB, BoeFly, BNJ and FLIC (First of Long Island Corp.).

To be successful as a larger institution, we must effectively integrate the operations and retain the clients of acquired institutions, attract and retain the management required to successfully manage larger operations, and control costs.

Future results of operations will depend in large part on our ability to successfully integrate the operations of the acquired institutions and retain the clients of those institutions.

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Finally, health related events, such as a viral pandemic, could adversely affect the business of our clients and our local economies, thereby adversely affecting our results of operations.

The Company will be subject to heightened regulatory requirements when total assets exceed $10 billion.

The Company’s total assets were $9.880 billion as of December 31, 2024.

Upon consummation of the FLIC merger, our assets will be substantially in excess of $10 billion.

Banks with assets in excess of $10 billion are subject to requirements imposed by the Dodd-Frank Act and its implementing regulations, including:

the examination authority of the Consumer Financial Protection Bureau to assess compliance with Federal consumer financial laws, imposition of higher FDIC premiums, and reduced debit card interchange fees, all of which increase operating costs and reduce earnings.

As the Company has approached $10 billion in total consolidated assets, additional costs have been incurred to prepare for the implementation of these imposed requirements.

The Company may be required to invest more significant management attention and resources to evaluate and continue to make any changes necessary to comply with the new statutory and regulatory requirements under the Dodd-Frank Act.

Any failure of the Company to meet these requirements may negatively impact results of operations and financial condition.

Risks Applicable to our Proposed Merger with FLIC

Shareholders of ConnectOne will have less influence as shareholders of the combined company than as a shareholder of ConnectOne prior to the completion of the merger.

The shareholders of ConnectOne will experience a decline in their influence over the resulting entity in the merger.

Presently, ConnectOne shareholders have the right to control ConnectOne through their ability to elect the board of directors of ConnectOne and to vote on other matters affecting ConnectOne.

As a result of the merger, the existing shareholders of ConnectOne will own approximately 76% of the combined company’s outstanding common stock.

Consequently, while the existing shareholders of ConnectOne will continue to own a majority of the outstanding shares of the combined company and thus will continue to have the ability to control the vote on most matters submitted to the shareholders of the combined company, the extent of the existing ConnectOne shareholders’ influence over the management and policies of the combined company will be less than their current influence over the management and policies of ConnectOne.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the Merger.

Before the merger and the bank merger may be completed, ConnectOne and FLIC must obtain approvals from, or provide notice to, the Federal Reserve Board, the FDIC and the New Jersey Department of Banking and Insurance.

Other approvals, waivers or consents from regulators may also be required.

In determining whether to grant these approvals the regulators consider a variety of factors.

An adverse development in either party’s regulatory standing or these factors could result in an inability to obtain approvals or delay their receipt.

These regulators may impose conditions on the completion of the holding company merger or the bank merger or require changes to the terms of the merger or the bank merger.

Such conditions or changes could have the effect of delaying or preventing completion of the merger or the bank merger or imposing additional costs on or limiting the revenues of the combined company following the merger and the bank merger, any of which might have an adverse effect on the combined company following the merger.

ConnectOne may need to raise additional capital in connection with the merger.

In order to further support the capital ratios of the combined entity, ConnectOne expects that it will raise additional capital as part of the transaction.

Under the terms of the merger agreement, ConnectOne has agreed that it would raise up to $200 million in new capital if required to obtain any necessary regulatory approval.

The actual amount of capital to be raised, the timing, and the type of securities to be issued by ConnectOne to raise such capital, have not yet been determined.

We can offer you no assurances that ConnectOne will be able to raise additional capital in connection with the merger.

If ConnectOne is unable to raise additional capital, it may negatively impact ConnectOne’s ability to obtain necessary regulatory approvals for the merger.

Failure to complete the merger could severely disadvantage ConnectOne.

Completion of the merger is subject to the satisfaction or waiver of a number of conditions.

ConnectOne or FLIC cannot guarantee when or if these conditions will be satisfied or that the merger will be successfully completed.

The consummation of the merger may be delayed, the merger may be consummated on terms different than those contemplated by the merger agreement, or the merger may not be consummated at all.

If the merger is not completed, the ongoing business of ConnectOne may be adversely affected, and ConnectOne will be subject to several risks, including the following:

ConnectOne could incur substantial costs relating to the proposed merger, such as legal, accounting, financial advisor, filing, printing and mailing fees;

ConnectOne’s management’s and employees’ attention may be diverted from their day-to-day business and operational matters as a result of efforts relating to the attempt to consummate the merger.

In addition, if the merger is not completed, ConnectOne may experience negative reactions from the financial markets and from its customers and employees.

ConnectOne also could be subject to litigation related to any failure to complete the merger or to enforcement proceedings commenced against ConnectOne to perform its obligations under the merger agreement.

If the merger is not completed, ConnectOne cannot assure shareholders that the risks described above will not materialize and will not materially affect the stock price and business and financial results of ConnectOne.

The expected benefits of the merger may not be realized if the combined company does not achieve cost savings and other benefits.

The expectation by the management teams of ConnectOne and FLIC that cost savings and revenue enhancements are achievable is a forward-looking statement that is inherently uncertain.

The combined company’s actual cost savings and revenue enhancements, if any, cannot be quantified at this time.

Any actual cost savings or revenue enhancements will depend on future expense levels and operating results, the timing of certain events and general industry, regulatory and business conditions.

Many of these events will be beyond the control of the combined company.

ConnectOne will be subject to business uncertainties and contractual restrictions, while the merger is pending.

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on ConnectOne.

These uncertainties may impair ConnectOne’s ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with ConnectOne to seek to change existing business relationships with ConnectOne.

Retention of certain employees by ConnectOne may be challenging while the merger is pending, as certain employees may experience uncertainty about their future roles with ConnectOne.

If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with ConnectOne, ConnectOne’s business could be harmed.

In addition, subject to certain exceptions, ConnectOne has agreed to operate its business in the ordinary course, consistent with past practices, prior to closing.

This could prohibit ConnectOne from taking advantage of a new business opportunity prior to consummation of the merger.

Shareholder litigation could prevent or delay the completion of the merger or otherwise negatively impact the business and operations of ConnectOne.

ConnectOne shareholders and/or FLIC shareholders may file lawsuits against ConnectOne, FLIC and/or the directors and officers of either company in connection with the merger.

If any plaintiff were successful in obtaining an injunction prohibiting ConnectOne or FLIC from completing the merger or any of the other transactions contemplated by the merger agreement, then such injunction may delay or prevent the effectiveness of the merger and could result in significant costs to ConnectOne, including any cost associated with the indemnification of directors and officers or the defense or settlement of any shareholder lawsuits filed in connection with the merger.

Such litigation could have an adverse effect on the consolidated financial condition and consolidated results of operations of ConnectOne and could prevent or delay the completion of the merger.

The combined company may be unable to retain ConnectOne and/or FLIC personnel successfully after the merger is completed.

The success of the merger will depend in part on the combined company’s ability to retain the talents and dedication of key employees currently employed by ConnectOne and FLIC.

It is possible that these employees may decide not to remain with ConnectOne or FLIC, as applicable, while the merger is pending or with the combined company after the merger is consummated.

If ConnectOne is unable to retain key employees, including management, who are critical to the successful integration and future operations of the companies, ConnectOne could face disruptions in their operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment costs.

In addition, following the merger, if key employees terminate their employment, the combined company’s business activities may be adversely affected, and management’s attention may be diverted from successfully hiring suitable replacements, all of which may cause the combined company’s business to suffer.

ConnectOne also may not be able to locate or retain suitable replacements for any key employees who leave the company.

Unanticipated costs relating to the merger could reduce ConnectOne ’ s future earnings per share.

ConnectOne has incurred substantial legal, accounting, financial advisory and other merger-related costs, and ConnectOne’s management has devoted considerable time and effort in connection with the merger.

If the merger is not completed, ConnectOne will bear certain fees and expenses associated with the merger without realizing the benefits of the merger.

If the merger is completed, ConnectOne expects to incur substantial expenses in connection with integrating the business, operations, network, systems, technologies, policies and procedures of the two companies.

The fees and expenses may be significant and could have an adverse impact on ConnectOne’s results of operations.

ConnectOne believes that it has reasonably estimated the likely costs of integrating the operations of ConnectOne and FLIC, and the incremental costs of operating as a combined company.

However, it is possible that unexpected transaction costs such as taxes, fees or professional expenses or unexpected future operating expenses such as increased personnel costs or increased taxes, as well as other types of unanticipated adverse developments, could have a material adverse effect on the results of operations and financial condition of the combined company.

If unexpected costs are incurred, the merger could have a dilutive effect on ConnectOne’s earnings per share.

In other words, if the merger is completed, the earnings per share of ConnectOne common stock could be less than anticipated or even less than if the merger had not been completed.

Issuance of shares of ConnectOne common stock in connection with the merger may adversely affect the market price of ConnectOne common stock.

In connection with the payment of the merger consideration, ConnectOne expects to issue approximately 12 million shares of ConnectOne common stock to FLIC shareholders.

The issuance of these new shares of ConnectOne common stock may result in fluctuations in the market price of ConnectOne's common stock, including a stock price decrease.

Risks Applicable to the Banking Industry Generally:

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A rapid increase or decrease in interest rates could adversely affect our results of operations and financial performance.

In addition to increases in interest rates, the FOMC has also changed its stance on monetary policy as an additional effort to reduce inflation.

Beginning in the second half of 2022, the FOMC began reducing its balance sheet, implementing a program of quantitative tightening to reduce the overall money supply.

As a result, we may face greater competition for deposits, resulting in a higher cost of funds and a reduced net interest margin, as well as greater liquidity risk to continue to fund our loan originations.

We are unable to predict the duration and ultimate impact of the FOMC’s quantitative tightening program.

However, if the program significantly tightens the nation’s money supply, it may adversely affect our results of operations and financial performance.

The banking business is subject to significant government regulations.

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In addition, the primary focus of federal and state banking regulation is the protection of depositors and not the shareholders of the regulated institutions.

For example, implementation of all required regulations under the Dodd-Frank Act may result in substantial new compliance costs.

The Dodd-Frank Act was signed into law on July 21, 2010.

Generally, the Dodd-Frank Act is effective the day after it was signed into law, but different effective dates apply to specific sections of the law, many of which will not become effective until various Federal regulatory agencies have promulgated rules implementing the statutory provisions.

Ultimately, final implementation the Dodd-Frank Act could have a material adverse impact either on the financial services industry as a whole, or on our business, results of operations and financial condition.

These provisions, as well as any other aspects of current or proposed regulatory or legislative changes to laws applicable to the financial industry, may impact the profitability of our business activities and may change certain of our business practices, including the ability to offer new products, obtain financing, attract deposits, make loans, and achieve satisfactory interest spreads, and could expose us to additional costs, including increased compliance costs.

Current or proposed regulatory or legislative changes to laws applicable to the financial industry, as well as future legal and regulatory changes, may impact the profitability of our business activities and may change certain of our business practices, including the ability to offer new products, obtain financing, attract deposits, make loans, and achieve satisfactory interest spreads, and could expose us to additional costs, including increased compliance costs.

These changes also may require us to invest significant management attention and resources to make any necessary changes to operations in order to comply and could therefore also materially and adversely affect our business, financial condition and results of operations.

The ultimate effect of certain of these changes on the financial services industry in general, and us in particular, is uncertain at this time.

The ultimate effect of certain of these changes on the financial services industry in general, and us in particular, is uncertain.

The laws that regulate our operations are designed for the protection of depositors and the public, not our shareholders.

The federal and state laws and regulations applicable to our operations give regulatory authorities extensive discretion in connection with their supervisory and enforcement responsibilities, and generally have been promulgated to protect depositors and the Deposit Insurance Fund and not for the purpose of protecting shareholders.

The federal and state laws and regulations applicable to our operations give regulatory authorities extensive discretion in connection with their supervisory and enforcement responsibilities and generally have been promulgated to protect depositors and the DIF and not for the purpose of protecting shareholders.

These laws and regulations can materially affect our future business.

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Cryptocurrency;

Use of Blockchain.

Our ability to compete successfully in the future will depend, to a certain extent, on whether we can anticipate and respond to technological changes.

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors