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ConnectOne Bancorp, Inc. Reports First Quarter 2019 Results

ENGLEWOOD CLIFFS, N.J., April 25, 2019 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $11.6 million for the first quarter of 2019 compared with $18.7 million for the fourth quarter of 2018 and $4.3 million for the first quarter of 2018.  Diluted earnings per share were $0.33 for the first quarter of 2019 compared with $0.58 earned in the fourth quarter of 2018 and $0.13 earned in the first quarter of 2018.  On January 2, 2019, the acquisition of Greater Hudson Bank was completed and thus first quarter 2019 results reflect the operations of the combined entity.  Historical financial information includes only the operations of ConnectOne. 

Adjusted net income amounted to $17.2 million, or $0.49 per diluted share, for the first quarter of 2019; $19.2 million, or $0.59 per diluted share, for the fourth quarter of 2018; and $17.1 million, or $0.53 per diluted share, for the first quarter of 2018.  Adjusted net income for the first quarter of 2019 and fourth quarter of 2018 excludes $5.6 million and $0.7 million, respectively, in merger-related expenses.  Adjusted net income for the first quarter of 2018 excludes $13.4 million in taxi medallion charges.  See supplemental tables for a complete reconciliation of GAAP earnings to adjusted earnings.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “ConnectOne maintained solid momentum executing against key operating objectives during the first quarter. On January 2, 2019 we closed the merger with Greater Hudson Bank, which enhanced our desirable franchise and improved our financial profile in several key areas including core deposit funding and loan diversification. In late January, we successfully converted key systems and, as expected, our quarterly results reflect merger-related expenses. First quarter results were highlighted by continued organic deposit and loan growth, while the deposit-rich Greater Hudson Bank franchise served to decrease our loan to deposit ratio to 108%, from 111% at year-end, and CRE concentration to 475% from 480%. Net interest margin increased by 7 basis points from the sequential quarter, largely a result of purchase accounting adjustments associated with the merger, and our core net interest margin remained flat at 3.25%. For the quarter, excluding merger charges, return on assets and return on tangible common equity totaled 1.18% and 13.69%, respectively. Tangible book value per share increased during the quarter by $0.25 to $14.67, despite dilution related to the merger. Our first quarter provision for loan losses was elevated due to an approximately $3.0 million charge relating to a single loan secured by a commercial office building and, consistent with our loan work-out philosophy, we are aggressively pursuing disposition. Meanwhile, our credit metrics improved significantly since year-end 2018. Nonaccrual loans, excluding taxi medallions, as a percentage of total loans improved to 0.41% from 0.53% at year-end, and our total nonperforming asset ratio improved to 0.79% from 0.95%.”

Mr. Sorrentino added, “Looking ahead, we remain committed to our client first culture and leveraging technology to stay ahead of the competition.  We recently announced the FinTech acquisition of BoeFly, a leading online business lending marketplace, which will enhance our digital offerings, expand noninterest revenue, and offer us opportunities for measured SBA lending. Additionally, based on our strong return on equity metrics and our commitment to creating long-term shareholder value, our Board recently approved a stock repurchase program for up to 1.2 million shares and increased the Company’s quarterly cash dividend on its common stock by 20% to $0.09 per share. Our outlook for the remainder of 2019 is positive and we are well-positioned to capitalize on meaningful growth opportunities throughout our New York and New Jersey metropolitan target market.”

Operating Results

Fully taxable equivalent net interest income for the first quarter of 2019 was $45.5 million, an increase of $4.8 million, or 11.9%, from the fourth quarter of 2018, resulting primarily from an 11.8% increase in average interest-earning assets and a 7 basis-point widening of the net interest margin to 3.34% from 3.27%, both resulting largely from the Greater Hudson Bank acquisition. Included in net interest income were purchase accounting adjustments of $1.2 million during the first quarter of 2019 and $0.1 million during the fourth quarter of 2018.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.25% for both the first quarter of 2019 and the fourth quarter of 2018.  The adjusted net interest margin benefitted from an improved asset-mix, a higher yield earned on loans and growth in noninterest-bearing deposits, offset by higher funding costs, primarily due to continued increased deposit competition.

Noninterest income increased, primarily due to the Greater Hudson Bank acquisition, to $1.7 million in the first quarter of 2019 from $1.6 million in the fourth quarter of 2018 and $1.3 million in the first quarter of 2018.  Noninterest income consists of income on bank owned life insurance, net gains on sales of loans held-for-sale, net gains (losses) on equity securities and deposit service fees, loan fees, and other income. 

Noninterest expenses totaled $28.1 million for first quarter of 2019, $18.3 million for the fourth quarter of 2018 and $16.9 million for the first quarter of 2018.  Included in the first quarter of 2019 and fourth quarter of 2018 were merger-related pretax expenses of $7.6 million and $0.9 million, respectively.  Excluding merger-related expenses, noninterest expenses increased by $3.1 million from the fourth quarter of 2018 due primarily to increases in salaries and employee benefits of $2.0 million, occupancy and equipment expenses of $0.5 million and other expenses of $0.3 million.  These increases are primarily due to the expansion of our franchise through the Greater Hudson Bank acquisition. 

Income tax expense was $2.5 million for the first quarter of 2019, $3.6 million for the fourth quarter of 2018 and $0.4 million for the first quarter of 2018.  The effective tax rates for the first quarter of 2019, fourth quarter of 2018 and first quarter of 2018 were 17.6%, 16.3% and 9.5%, respectively.  The increase in the effective tax rate for the current quarter from the sequential quarter was due to the Company’s estimate of the impact of recent NJ corporate tax legislation, partially offset by a lower percentage of income from taxable sources.

Asset Quality

The provision for loan losses was $4.5 million for the first quarter of 2019, $1.1 million for the fourth quarter of 2018 and $17.8 million for the first quarter of 2018.  The increase from the fourth quarter of 2018 was primarily due to approximately $3.0 million specifically allocated to a single commercial real estate loan.  The first quarter of 2018 included $17.0 million of provision related to the taxi medallion loan portfolio. 

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $47.7 million at March 31, 2019, $51.9 million at December 31, 2018 and $51.1 million at March 31, 2018.  Included in nonperforming assets were taxi medallion loans totaling $27.3 million at March 31, 2019, $28.0 million at December 31, 2018 and $29.4 million at March 31, 2018.  Nonperforming assets (including taxi medallion loans) as a percentage of total assets were 0.79% at March 31, 2019, 0.95% at December 31, 2018 and 0.99% at March 31, 2018.  Excluding the taxi medallion loans, nonaccrual loans were $20.4 million at March 31, 2019, $23.8 million at December 31, 2018 and $20.6 million at March 31, 2018, representing a ratio of nonaccrual loans (excluding taxi medallion loans) to loans receivable of 0.41%, 0.53% and 0.49%, respectively.  The annualized net loan charge-off ratio was 0.21% for the first quarter of 2019, 0.08% for the fourth quarter of 2018 and 1.63% for the first quarter of 2018.  The allowance for loan losses represented 0.74%, 0.77%, and 0.77% of loans receivable as of March 31, 2019, December 31, 2018 and March 31, 2018, respectively.  The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 180.7% as of March 31, 2019, 146.8% as of December 31, 2018 and 157.7% as of March 31, 2018.

Selected Balance Sheet Items

At March 31, 2019, the balance sheet reflected the acquisition of Greater Hudson Bank.  The Company’s total assets were $6.0 billion, an increase of $587 million from December 31, 2018.  Total loans were $5.0 billion, an increase of $432 million from December 31, 2018.  The Company’s stockholders’ equity was $682 million at March 31, 2019, an increase of $68 million from December 31, 2018. The increase in stockholders’ equity was primarily attributable to the acquisition of Greater Hudson Bank, which increased capital by $56 million.  As of March 31, 2019, the Company’s tangible common equity ratio and tangible book value per share were 8.83% and $14.67, respectively.  As of December 31, 2018, the tangible common equity ratio and tangible book value per share were 8.77% and $14.42, respectively. Tangible book value per share increased $0.25, or 1.7%, from the prior sequential quarter.  Total goodwill and other intangible assets were approximately $163 million as of March 31, 2019 and $148 million and December 31, 2018.

Use of Non-GAAP Financial Measures

In addition to the results presented in accordance with Generally Accepted Accounting Principles ("GAAP"), ConnectOne routinely supplements its evaluation with an analysis of certain non-GAAP/adjusted financial measures including an adjusted net income available to common shareholders. ConnectOne believes these non-GAAP financial measures, in addition to the related GAAP measures, provide meaningful information to investors in understanding our operating performance and trends.  These non-GAAP measures have inherent limitations and are not required to be uniformly applied and are not audited.  They should not be considered in isolation or as a substitute for an analysis of results reported under GAAP.  These non-GAAP measures may not be comparable to similarly titled measures reported by other companies.

Reconciliations of non-GAAP/adjusted financial measures disclosed in this earnings release to the comparable GAAP measures are provided in the accompanying tables.

First Quarter 2019 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on Thursday, April 25, 2019 to review the Company's financial performance and operating results. The conference call dial-in number is 855-719-5012, access code 7140109. Please dial in at least five minutes before the start of the call to register. An audio webcast of the conference call will be available to the public, on a listen-only basis, via the "Investor Relations" link on the Company's website https://www.connectonebank.com or at http://ir.connectonebank.com.

A replay of the conference call will be available beginning at approximately 1:00 p.m. ET on Thursday, April 25, 2019 and ending on Thursday, May 2, 2019 by dialing 719-457-0820, access code 7140109. An online archive of the webcast will be available following the completion of the conference call at https://www.connectonebank.com or at http://ir.connectonebank.com.

About ConnectOne Bancorp, Inc.

ConnectOne Bancorp, Inc., through its subsidiary, ConnectOne Bank offers a full suite of both commercial and consumer banking and lending products and services through its 29 banking offices located in New York and New Jersey.   ConnectOne Bancorp, Inc. is traded on the Nasdaq Global Market under the trading symbol "CNOB," and information about ConnectOne may be found at https://www.connectonebank.com.

Forward-Looking Statements
This news release contains certain forward-looking statements which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, those factors set forth in Item 1A – Risk Factors of the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, and changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
Investor Contact:

William S. Burns
Executive VP & CFO
201.816.4474; bburns@cnob.com

Media Contact:
Thomas Walter, MWWPR
202.600.4532; twalter@mww.com

 

CONNECTONE BANCORP, INC. AND SUBSIDIARIES            
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION          
(in thousands)        
             
  March 31,   December 31,   March 31,  
    2019       2018       2018    
  (unaudited)       (unaudited)  
ASSETS            
Cash and due from banks $   54,520     $   39,161     $   36,396    
Interest-bearing deposits with banks     118,028         133,205         106,391    
    Cash and cash equivalents     172,548         172,366         142,787    
             
Securities available-for-sale     516,539         412,034         424,322    
Equity securities     11,564         11,460         11,607    
             
Loans held-for-sale     368         -         45,886    
             
Loans receivable     4,972,651         4,541,092         4,202,679    
Less: Allowance for loan losses     36,858         34,954         32,529    
  Net loans receivable     4,935,793         4,506,138         4,170,150    
             
Investment in restricted stock, at cost     31,727         31,136         34,622    
Bank premises and equipment, net     20,150         19,062         21,039    
Accrued interest receivable     21,198         18,214         16,020    
Bank owned life insurance     125,300         113,820         111,500    
Right of use operating lease assets     15,311         -         -    
Other real estate owned     -         -         1,076    
Goodwill     156,243         145,909         145,909    
Core deposit intangibles     6,504         1,737         2,195    
Other assets     35,731         30,216         31,255    
   Total assets $   6,048,976     $   5,462,092     $   5,158,368    
             
LIABILITIES            
Deposits:            
    Noninterest-bearing $   833,090     $   768,584     $   739,174    
    Interest-bearing     3,760,908         3,323,508         3,010,413    
       Total deposits     4,593,998         4,092,092         3,749,587    
Borrowings     603,412         600,001         695,032    
Operating lease liabilities     16,719         -         -    
Subordinated debentures (net of $1,517, $1,599 and $1,845 in debt issuance costs)     128,638         128,556         128,310    
Other liabilities     23,814         27,516         21,173    
   Total liabilities     5,366,581         4,848,165         4,594,102    
             
COMMITMENTS AND CONTINGENCIES            
             
STOCKHOLDERS' EQUITY            
Common stock     468,571         412,546         412,546    
Additional paid-in capital     16,513         15,542         13,434    
Retained earnings     219,558         211,345         162,510    
Treasury stock     (16,967 )       (16,717 )       (16,717 )  
Accumulated other comprehensive loss     (5,280 )       (8,789 )       (7,507 )  
   Total stockholders' equity     682,395         613,927         564,266    
   Total liabilities and stockholders' equity $   6,048,976     $   5,462,092     $   5,158,368    
             

 

CONNECTONE BANCORP, INC. AND SUBSIDIARIES            
CONSOLIDATED STATEMENTS OF INCOME            
(in thousands, except for per share data)            
             
   Three Months Ended   
  03/31/19   12/31/18   03/31/18  
Interest income            
   Interest and fees on loans $   60,326   $   53,306   $   47,025    
   Interest and dividends on investment securities:            
      Taxable     2,942       2,291       1,887    
      Tax-exempt     1,127       899       814    
      Dividends     457       495       485    
   Interest on federal funds sold and other short-term investments     357       232       264    
      Total interest income     65,209       57,223       50,475    
Interest expense            
   Deposits     15,351       12,398       7,688    
   Borrowings     4,906       4,664       4,640    
     Total interest expense     20,257       17,062       12,328    
             
Net interest income     44,952       40,161       38,147    
   Provision for loan losses     4,500       1,100       17,800    
Net interest income after provision for loan losses     40,452       39,061       20,347    
             
Noninterest income            
   Income on bank owned life insurance     822       794       774    
   Net gains on sale of loans held-for-sale     19       30       17    
   Deposit, loan and other income     786       691       616    
   Net gains (losses) on equity securities     103       58       (120 )  
   Net gains on sale of securities available-for-sale     8       -       -    
      Total noninterest income     1,738       1,573       1,287    
             
Noninterest expenses            
   Salaries and employee benefits     11,983       9,988       9,679    
   Occupancy and equipment     2,495       2,001       2,143    
   FDIC insurance     755       765       850    
   Professional and consulting     1,209       1,129       723    
   Marketing and advertising     210       244       207    
   Data processing     1,155       1,080       1,148    
   Merger expenses     7,562       936       -    
   Amortization of core deposit intangibles     364       144       169    
   Other expenses     2,329       2,037       2,020    
       Total noninterest expenses     28,062       18,324       16,939    
             
Income before income tax expense     14,128       22,310       4,695    
   Income tax expense     2,493       3,638       444    
Net income $   11,635   $   18,672   $   4,251    
             
Earnings per common share:            
   Basic $   0.33   $   0.58   $   0.13    
   Diluted     0.33       0.58       0.13    
             
Dividends per common share $   0.090   $   0.075   $   0.075    
             

 

...
ConnectOne's management believes that the supplemental financial information, including non-GAAP measures provided below, is useful to investors. The non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP financial measures presented by other companies.     
                       
CONNECTONE BANCORP, INC. AND SUBSIDIARIES                      
SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES                    
                       
  As of    
  Mar. 31,   Dec. 31,   Sept. 30,   June 30,   Mar. 31,    
    2019       2018       2018       2018       2018      
                                           
Selected Financial Data (dollars in thousands)    
Total assets $   6,048,976     $   5,462,092     $   5,368,641     $   5,275,368     $   5,158,368      
Loans receivable:                      
  Commercial $   1,012,930     $   925,229     $   886,212     $   808,604     $   768,640      
  Commercial real estate     1,483,852         1,279,502         1,282,766         1,282,426         1,275,764      
  Multifamily     1,608,613         1,562,195         1,504,134         1,480,243         1,400,420      
  Commercial construction     548,039         465,389         494,206         498,607         479,190      
  Residential     319,214         309,991         295,948         288,449         278,985      
  Consumer     4,157         2,593         2,508         5,637         2,461      
  Gross loans     4,976,805         4,544,899         4,465,774         4,363,966         4,205,460      
Unearned net origination fees     (4,154 )       (3,807 )       (3,287 )       (3,112 )       (2,781 )    
  Loans receivable     4,972,651         4,541,092         4,462,487         4,360,854         4,202,679      
  Loans held-for-sale (net of valuation allowance)     368         -         270         -         45,886      
Total loans $   4,973,019     $   4,541,092     $   4,462,757     $   4,360,854     $   4,248,565      
                       
Securities $   528,103     $   423,494     $   421,442     $   411,574     $   435,929      
Goodwill and other intangible assets     162,747         147,646         147,791         147,936         148,104      
Deposits:                      
  Noninterest-bearing demand $   833,090     $   768,584     $   758,213     $   765,150     $   739,174      
  Time deposits     1,544,247         1,366,054         1,322,747         1,315,843         1,255,654      
  Other interest-bearing deposits     2,216,661         1,957,454         1,907,805         1,824,417         1,754,759      
Total deposits $   4,593,998     $   4,092,092     $   3,988,765     $   3,905,410     $   3,749,587      
                       
Borrowings $   603,412     $   600,001     $   629,979     $   628,995     $   695,032      
Subordinated debentures (net of debt issuance costs)     128,638         128,556         128,474         128,392         128,310      
Total stockholders' equity     682,395         613,927         594,871         578,557         564,266      
                       
Quarterly Average Balances                      
Total assets $   5,909,061     $   5,261,493     $   5,186,173     $   5,104,661     $   5,088,823      
Loans receivable:                      
  Commercial $   1,074,229     $   941,619     $   850,038     $   808,764     $   820,562      
  Commercial real estate (including multifamily)     2,973,337         2,725,652         2,723,572         2,654,276         2,643,466      
  Commercial construction     524,952         464,556         494,460         494,092         482,391      
  Residential     335,574         304,954         294,758         282,504         275,263      
  Consumer     3,397         4,292         3,205         5,685         4,659      
  Gross loans     4,911,489         4,441,073         4,366,033         4,245,321         4,226,341      
Unearned net origination fees     (3,930 )       (3,340 )       (3,182 )       (3,208 )       (3,110 )    
  Loans receivable     4,907,559         4,437,733         4,362,851         4,242,113         4,223,231      
  Loans held-for-sale     124         211         54         30,099         24,766      
Total loans $   4,907,683     $   4,437,944     $   4,362,905     $   4,272,212     $   4,247,997      
                       
Securities $   524,394     $   421,316     $   415,074     $   424,854     $   437,141      
Goodwill and other intangible assets     162,814         147,741         147,883         148,046         148,215      
Deposits:                      
  Noninterest-bearing demand $   824,115     $   775,824     $   761,782     $   719,372     $   724,471      
  Time deposits     1,515,249         1,329,743         1,296,165         1,280,471         1,207,368      
  Other interest-bearing deposits     2,236,630         1,915,353         1,854,763         1,765,577         1,815,122      
Total deposits $   4,575,994     $   4,020,920     $   3,912,710     $   3,765,420     $   3,746,961      
                       
Borrowings $   486,687     $   477,800     $   531,251     $   613,763     $   630,117      
Subordinated debentures (net of debt issuance costs)     128,585         128,502         128,420         128,339         115,182      
Total stockholders' equity     680,168         606,378         590,128         574,992         575,029      
                       
  Three Months Ended    
  Mar. 31,   Dec. 31,   Sept. 30,   June 30,   Mar. 31,    
    2019       2018       2018       2018       2018      
                                           
   (dollars in thousands, except for per share data)     
Net interest income $   44,952     $   40,161     $   39,962     $   38,945     $   38,147      
 Provision for loan losses     4,500         1,100         1,100         1,100         17,800      
Net interest income after provision for loan losses     40,452         39,061         38,862         37,845         20,347      
Noninterest income                      
 Income on bank owned life insurance     822         794         751         775         774      
 Net gains on sale of loans held-for-sale     19         30         2         12         17      
 Deposit, loan and other income     786         691         676         601         616      
 Net gains (losses) on equity securities     103         58         (157 )       (47 )       (120 )    
 Net gains on sale of securities available-for-sale     8         -         -         -         -      
    Total noninterest income     1,738         1,573         1,272         1,341         1,287      
Noninterest expenses                      
 Salaries and employee benefits     11,983         9,988         10,181         9,736         9,679      
 Occupancy and equipment     2,495         2,001         2,137         2,031         2,143      
 FDIC insurance     755         765         735         765         850      
 Professional and consulting     1,209         1,129         891         825         723      
 Marketing and advertising     210         244         192         337         207      
 Data processing     1,155         1,080         1,102         1,091         1,148      
 Merger expenses     7,562         936         375         24         -      
 Amortization of core deposit intangibles     364         144         145         169         169      
 Other expenses     2,329         2,037         2,372         2,083         2,020      
    Total noninterest expenses     28,062         18,324         18,130         17,061         16,939      
                       
Income before income tax expense     14,128         22,310         22,004         22,125         4,695      
 Income tax expense     2,493         3,638         2,102         4,598         444      
Net income $   11,635     $   18,672     $   19,902     $   17,527     $   4,251      
                       
Reconciliation of GAAP Earnings to Earnings Excluding the Following Items:                      
Net income $   11,635     $   18,672     $   19,902     $   17,527     $   4,251      
Merger expenses (after taxes)     5,597         739         297         19         -      
Net gains on sale of securities available-for-sale (after taxes)     (6 )       -         -         -         -      
Deferred tax valuation charge/adjustment     -         -         (1,408 )       -         -      
Tax benefit on employee share-based awards (ASU 2016-09)     (20 )       (223 )       (297 )       (49 )