U.S. Markets closed

ConnectOne Bancorp, Inc. Reports Fourth Quarter and Year-End 2018 Results

ENGLEWOOD CLIFFS, N.J., Jan. 24, 2019 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $18.7 million for the fourth quarter of 2018 compared with $19.9 million for the third quarter of 2018 and $10.6 million for the fourth quarter of 2017. Diluted earnings per share were $0.58 for the fourth quarter of 2018 compared with $0.61 earned in the third quarter of 2018 and $0.33 earned in the fourth quarter of 2017. Full-year 2018 income increased 39.6% to $60.4 million, compared with $43.2 million for the full-year 2017. Diluted earnings per share for the full-year 2018 was $1.86, compared with $1.34 for the full-year 2017.

Adjusted net income amounted to $19.2 million, or $0.59 earnings per share, for the fourth quarter of 2018; $18.5 million, or $0.57 earnings per share, for the third quarter of 2018; and $16.3 million, or $0.51 earnings per share, for the fourth quarter of 2017. Adjusted net income for the fourth quarter of 2018 excludes $0.7 million in after-tax merger-related expenses and $0.2 million benefit resulting from ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. Adjustments to prior periods primarily related to adjustments to deferred tax valuations due to changes in tax legislation. See supplemental tables for a reconciliation of GAAP earnings to adjusted earnings.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “We are extremely pleased with our fourth quarter and year-end results, highlighted by continued solid deposit and loan growth, and continued strong growth in tangible book value per share. We also continue to be one of the most efficient banks in the country with our efficiency ratio remaining in the low 40 percent range. For the quarter, adjusted return on assets and adjusted return on tangible common equity reached new highs at 1.45% and 16.69%, respectively. Despite a tighter operating environment, period-end loans grew on a sequential basis in excess of 7% annualized including commercial loans which grew 18% annualized, while average total deposits increased by more than 11% annualized including noninterest-bearing demand growth in excess of 7% annualized. Deposit growth continues to keep pace with loan growth, reflecting a stable loan to deposit ratio of approximately 111% over the course of 2018. We have also made substantial headway in diversifying our loan mix. The Bank’s commercial real estate loan concentration as a percentage of regulatory capital declined significantly to 480% at December 31, 2018 from 568% at year-end 2017. With regard to the previously announced acquisition of Greater Hudson Bank, the deal closed on January 2, 2019 and we are on track to meet all financial metrics disclosed when the transaction was announced in July 2018. We are excited about serving our new clients and the lower Hudson Valley region.” 

Operating Results

Fully taxable equivalent net interest income for the fourth quarter of 2018 was $40.7 million, an increase of $0.2 million, or 0.6%, from the third quarter of 2018, resulting primarily from an increase in total interest-earning assets of 1.7%, partially offset by a contraction in the net interest margin of 3 basis-points to 3.27% from 3.30%. Included in net interest income were purchase accounting adjustments of $0.1 million during the fourth quarter of 2018 and $0.2 million during the third quarter of 2018. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.25% in the fourth quarter of 2018, contracting by 4 basis-points from the third quarter of 2018 adjusted net interest margin of 3.29%.  The decrease in the adjusted net interest margin was primarily attributable to increases in deposit funding costs, partially offset by a higher yield earned on loans, an improved asset-mix and growth in noninterest-bearing deposits.

Fully taxable equivalent net interest income for the fourth quarter of 2018 decreased by $0.1 million, or 0.2%, from the fourth quarter of 2017, resulting from contraction in the net interest margin of 24 basis-points to 3.27% from 3.51%, partially offset by an increase in total average interest-earning assets, primarily loans, of 7.3%. Included in net interest income were purchase accounting adjustments of $0.1 million during the fourth quarter of 2018 and $1.0 million during the fourth quarter of 2017.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.25% in the fourth quarter of 2018, contracting by 17 basis-points from the fourth quarter of 2017 adjusted net interest margin of 3.42%. The decrease in the adjusted net interest margin was primarily attributable to a long-term subordinated debt issuance, a change in the taxable equivalent adjustment and increased deposit rates, partially offset by higher rates earned on loans.   

Noninterest income totaled $1.5 million in the fourth quarter of 2018, $1.4 million in the third quarter of 2018 and $2.0 million in the fourth quarter of 2017. Noninterest income consists of income on bank owned life insurance, net gains on sales of loans held-for-sale and deposit service fees, loan fees, and other income. Last year’s fourth quarter included a $0.5 million gain on sale of non-relationship, multifamily loans.

Noninterest expenses totaled $18.3 million for both the fourth quarter of 2018 and third quarter of 2018 and $16.6 million for the fourth quarter of 2017. Noninterest expenses increased by $1.7 million from the prior year quarter due primarily to increases in salaries and employee benefits ($0.6 million) and professional and consulting ($0.5 million), both due to increased levels of business and staff resulting from organic growth, and merger-related expenses ($0.9 million), offset by a decrease in a valuation allowance adjustment of taxi medallion loans held-for-sale ($0.3 million).

Income tax expense was $3.6 million for the fourth quarter of 2018, $2.1 million for the third quarter of 2018 and $12.7 million for the fourth quarter of 2017. Included in income tax expense were benefits of $0.2 million and $0.3 million for the fourth quarter 2018 and third quarter 2018, respectively, resulting from ASU 2016-09. Also included in the third quarter of 2018 income tax expense was a benefit of $1.4 million resulting from Federal and NJ deferred tax asset (“DTA”) adjustments. Income tax expense for the fourth quarter of 2017 included an estimated $5.6 million DTA valuation charge related to the Tax Cuts and Jobs Act of 2017. Excluding these income tax expense adjustments, the Company’s effective tax rate declined to 17% for both the fourth quarter of 2018 and third quarter of 2018 from 31% for the fourth quarter 2017, largely resulting from a decline in the statutory federal income tax rate. The effective tax rate utilized to accrue income tax expense in 2019 is anticipated to increase due to recent NJ corporate tax legislation. At this time, such rate has yet to be determined.

Asset Quality

The provision for loan losses was $1.1 million in both the fourth and third quarters of 2018, and $2.0 million in the fourth quarter of 2017.  The decrease from the prior year quarter was primarily the result of slower loan growth.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $51.9 million at December 31, 2018, $53.0 million at September 30, 2018 and $66.2 million at December 31, 2017. Included in nonperforming assets were taxi medallion loans totaling $28.0 million at December 31, 2018, $28.5 million at September 30, 2018 and $46.8 million at December 31, 2017.  Nonperforming assets (including taxi medallion loans) as a percentage of total assets were 0.95% at December 31, 2018, 0.99% at September 30, 2018 and 1.29% at December 31, 2017.  Excluding the taxi medallion loans, nonaccrual loans were $23.8 million at December 31, 2018, $24.5 million at September 30, 2018 and $18.8 million at December 31, 2017, representing a ratio of nonaccrual loans (excluding taxi medallion loans) to loans receivable of 0.53%, 0.55% and 0.46%, respectively. The annualized net loan charge-off (recovery) ratio was 0.08% for the fourth quarter of 2018, (0.01)% for the third quarter of 2018 and 0.01% for the fourth quarter of 2017. The allowance for loan losses represented 0.77%, 0.78%, and 0.76% of loans receivable as of December 31, 2018, September 30, 2018 and December 31, 2017, respectively.  The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 146.8% as of December 31, 2018, 141.6% as of September 30, 2018 and 168.4% as of December 31, 2017.

Selected Balance Sheet Items

At December 31, 2018, the Company’s total assets were $5.5 billion, an increase of $354 million from December 31, 2017, largely the result of an increase in total loans (loan originations less pay-downs and pay-offs) of $345 million. The Company’s stockholders’ equity was $614 million at December 31, 2018, an increase of $48 million from December 31, 2017. The increase in stockholders’ equity was primarily attributable to increases in retained earnings of $51 million, partially offset by increases in accumulated other comprehensive losses of $5 million. As of December 31, 2018, the Company’s tangible common equity ratio and tangible book value per share were 8.77% and $14.42, respectively. Tangible book value per share increased $0.55, or 4.0%, from the sequential quarter, and by $1.41, or 10.8%, from year end 2017. As of December 31, 2017, the tangible common equity ratio and tangible book value per share were 8.41% and $13.01, respectively. Total goodwill and other intangible assets were approximately $148 million as of December 31, 2018 and December 31, 2017.

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.

Fourth Quarter 2018 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on January 24, 2019 to review the Company's financial performance and operating results.  The conference call dial-in number is 856-344-9316, access code 5122542. 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, January 24, 2019 and ending on Thursday, January 31, 2019 by dialing 719-457-0820, access code 5122542. 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) 
       
  December 31,   December 31,
    2018       2017  
  (unaudited)    
ASSETS      
Cash and due from banks $   39,161     $   52,565  
Interest-bearing deposits with banks     133,205         97,017  
Cash and cash equivalents     172,366         149,582  
       
Securities available-for-sale     412,034         435,284  
Equity securities     11,460         -  
       
Loans held-for-sale     -         24,845  
       
Loans receivable     4,541,092         4,171,456  
Less: Allowance for loan losses     34,954         31,748  
Net loans receivable     4,506,138         4,139,708  
       
Investment in restricted stock, at cost     31,136         33,497  
Bank premises and equipment, net     19,062         21,659  
Accrued interest receivable     18,214         15,470  
Bank owned life insurance     113,820         111,311  
Other real estate owned     -         538  
Goodwill     145,909         145,909  
Core deposit intangibles     1,737         2,364  
Other assets     30,216         28,275  
Total assets $   5,462,092     $   5,108,442  
       
LIABILITIES      
Deposits:      
Noninterest-bearing $   768,584     $   776,843  
Interest-bearing     3,323,508         3,018,285  
Total deposits     4,092,092         3,795,128  
Borrowings     600,001         670,077  
Subordinated debentures (net of $1,599 and $456 in debt issuance costs)     128,556         54,699  
Other liabilities     27,516         23,101  
Total liabilities     4,848,165         4,543,005  
       
COMMITMENTS AND CONTINGENCIES      
       
STOCKHOLDERS' EQUITY      
Common stock     412,546         412,546  
Additional paid-in capital     15,542         13,602  
Retained earnings     211,345         160,025  
Treasury stock     (16,717 )       (16,717 )
Accumulated other comprehensive loss     (8,789 )       (4,019 )
Total stockholders' equity     613,927         565,437  
Total liabilities and stockholders' equity $   5,462,092     $   5,108,442  
       

 

 
CONNECTONE BANCORP, INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF INCOME 
(dollars in thousands, except for per share data) 
   
   Three Months Ended     Twelve Months Ended 
  12/31/18   12/31/17   12/31/18   12/31/17
Interest income              
Interest and fees on loans $   53,306   $   46,945   $   201,524   $   168,824
Interest and dividends on investment securities:              
Taxable     2,291       1,757       8,482       6,799
Tax-exempt     899       914       3,276       3,569
Dividends     495       439       2,012       1,421
Interest on federal funds sold and other short-term investments     232       156       839       711
Total interest income     57,223       50,211       216,133       181,324
Interest expense              
Deposits     12,398       6,953       39,936       23,670
Borrowings     4,664       3,450       18,982       12,585
Total interest expense     17,062       10,403       58,918       36,255
               
Net interest income     40,161       39,808       157,215       145,069
Provision for loan losses     1,100       2,000       21,100       6,000
Net interest income after provision for loan losses     39,061       37,808       136,115       139,069
               
Noninterest income              
Annuities and insurance commissions     -       -       -       39
Income on bank owned life insurance     794       779       3,094       3,181
Net gains on sale of loans held-for-sale     30       588       61       708
Deposit, loan and other income     691       657       2,584       2,680
Net gains on sale of investment securities     -       -       -       1,596
Total noninterest income     1,515       2,024       5,739       8,204
               
Noninterest expenses              
Salaries and employee benefits     9,988       9,418       39,584       35,128
Occupancy and equipment     2,001       1,948       8,312       8,163
FDIC insurance     765       935       3,115       3,485
Professional and consulting     1,129       671       3,568       2,863
Marketing and advertising     244       226       980       996
Data processing     1,080       1,069       4,421       4,543
Merger expenses     936       -       1,335       -
Amortization of core deposit intangible     144       169       627       724
Increase in valuation allowance, loans held-for-sale     -       267       -       15,592
Other expenses     1,979       1,863       8,778       7,265
Total noninterest expenses     18,266       16,566       70,720       78,759
               
Income before income tax expense     22,310       23,266       71,134       68,514
Income tax expense     3,638       12,686       10,782       25,294
Net income $   18,672   $   10,580   $   60,352   $   43,220
               
Earnings per common share:              
Basic $   0.58   $   0.33   $   1.87   $   1.35
Diluted     0.58       0.33       1.86       1.34
               

 

...
 
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. 
SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES
   
  As of
 
  Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,
 
    2018       2018       2018       2018       2017    
   
Selected Financial Data (dollars in thousands)
Total assets $   5,462,092     $   5,368,641     $   5,275,368     $   5,158,368     $   5,108,442    
Loans receivable:                  
Commercial $   925,229     $   886,212     $   808,604     $   768,640     $   781,698    
Commercial real estate     1,279,502         1,282,766         1,282,426         1,275,764         1,232,037    
Multifamily     1,562,195         1,504,134         1,480,243         1,400,420         1,403,256    
Commercial construction     465,389         494,206         498,607         479,190         483,216    
Residential     309,991         295,948         288,449         278,985         271,795    
Consumer     2,593         2,508         5,637         2,461         2,808    
Gross loans     4,544,899         4,465,774         4,363,966         4,205,460         4,174,810    
Unearned net origination fees     (3,807 )       (3,287 )       (3,112 )       (2,781 )       (3,354 )  
Loans receivable     4,541,092         4,462,487         4,360,854         4,202,679         4,171,456    
Loans held-for-sale (net of valuation allowance)     -         270         -         45,886         24,845    
Total loans $   4,541,092     $   4,462,757     $   4,360,854     $   4,248,565     $   4,196,301    
                   
                   
Investment securities $   423,494     $   421,442     $   411,574     $   435,929     $   435,284    
Goodwill and other intangible assets     147,646         147,791         147,936         148,104         148,273    
Deposits:                  
Noninterest-bearing demand $   768,584     $   758,213     $   765,150     $   739,174     $   776,843    
Time deposits     1,366,054         1,322,747         1,315,843         1,255,654         1,179,969    
Other interest-bearing deposits     1,957,454         1,907,805         1,824,417         1,754,759         1,838,316    
Total deposits $   4,092,092     $   3,988,765     $   3,905,410     $   3,749,587     $   3,795,128    
                   
                   
Borrowings $   600,001     $   629,979     $   628,995     $   695,032     $   670,077    
Subordinated debentures (net of debt issuance costs)     128,556         128,474         128,392         128,310         54,699    
Total stockholders' equity     613,927         594,871         578,557         564,266         565,437    
                   
Quarterly Average Balances                  
Total assets $   5,261,493     $   5,186,173     $   5,104,661     $   5,088,823     $   4,916,549    
Loans receivable:                  
Commercial $   941,619     $   850,038     $   808,764     $   820,562     $   761,147    
Commercial real estate (including multifamily)     2,725,652         2,723,572         2,654,276         2,643,466         2,566,959    
Commercial construction     464,556         494,460         494,092         482,391         439,629    
Residential     304,954         294,758         282,504         275,263         268,047    
Consumer     4,292         3,205         5,685         4,659         3,849    
Gross loans     4,441,073         4,366,033         4,245,321         4,226,341         4,039,631    
Unearned net origination fees     (3,340 )       (3,182 )       (3,208 )       (3,110 )       (3,485 )  
Loans receivable     4,437,733         4,362,851         4,242,113         4,223,231         4,036,146    
Loans held-for-sale     211         54         30,099         24,766         57,812    
Total loans $   4,437,944     $   4,362,905     $   4,272,212     $   4,247,997     $   4,093,958    
                   
                   
Investment securities $   421,316     $   415,074     $   424,854     $   437,141     $   417,560    
Goodwill and other intangible assets     147,741         147,883         148,046         148,215         148,383    
Deposits:                  
Noninterest-bearing demand $   775,824     $   761,782     $   719,372     $   724,471     $   712,391    
Time deposits     1,329,743         1,296,165         1,280,471         1,207,368         1,114,670    
Other interest-bearing deposits     1,915,353         1,854,763         1,765,577         1,815,122         1,855,688    
Total deposits $   4,020,920     $   3,912,710     $   3,765,420     $   3,746,961     $   3,682,749    
                   
                   
Borrowings $   477,800     $   531,251     $   613,763     $   630,117     $   588,260    
Subordinated debentures (net of debt issuance costs)     128,502         128,420         128,339         115,182         54,672    
Total stockholders' equity     606,378         590,128         574,992         575,029         567,308    
                   
  Three Months Ended
 
  Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,
 
    2018       2018       2018       2018       2017    
   
   (dollars in thousands, except for per share data) 
Net interest income $   40,161     $   39,962     $   38,945     $   38,147     $   39,808    
Provision for loan losses     1,100         1,100         1,100         17,800         2,000    
Net interest income after provision for loan losses     39,061         38,862         37,845         20,347         37,808    
Noninterest income                  
Income on bank owned life insurance     794         751         775         774         779    
Net gains on sale of loans held-for-sale     30         2         12         17         588    
Deposit, loan and other income     691         676         601         616         657    
Total noninterest income     1,515         1,429         1,388         1,407         2,024    
                   
Noninterest expenses                  
Salaries and employee benefits     9,988         10,181         9,736         9,679         9,418    
Occupancy and equipment     2,001         2,137         2,031         2,143         1,948    
FDIC insurance     765         735         765         850         935    
Professional and consulting     1,129         891         825         723         671    
Marketing and advertising     244         192         337         207         226    
Data processing     1,080         1,102         1,091         1,148         1,069    
Merger expenses     936         375         24         -         -    
Amortization of core deposit intangible     144         145         169         169         169    
Increase in valuation allowance, loans held-for-sale     -         -         -         -         267    
Other expenses     1,979         2,529         2,130         2,140         1,863    
Total noninterest expenses     18,266         18,287         17,108         17,059         16,566    
                   
                   
Income before income tax expense     22,310         22,004         22,125         4,695         23,266    
Income tax expense     3,638         2,102         4,598         444         12,686    
Net income $   18,672     $   19,902     $   17,527     $   4,251     $   10,580    
                   
                   
Reconciliation of GAAP Earnings to Adjusted Earnings:                  
Net income $   18,672     $   19,902     $   17,527     $   4,251     $   10,580    
Merger expenses (after taxes)     739         297         19         -         -    
Deferred tax valuation adjustment     -         (1,408 )       -         -         5,574    
Tax benefit on employee share-based awards (ASU 2016-09)     (223 )       (297 )       (49 )       (541 )       -    
Provision related to taxi medallion loans (after taxes)     -         -         -         13,430         -    
Increase in valuation allowance, loans held-for-sale (after taxes)     -         -         -         -         182    
Net income-adjusted $   19,188     $   18,494     $   17,497     $   17,140     $   16,336    
                   
                   
Weighted average diluted shares outstanding     32,378,739         32,319,060         32,321,150         32,238,048         32,252,759    
                   
Diluted EPS (GAAP) $   0.58     $   0.61     $   0.54     $   0.13     $   0.33    
Diluted EPS-adjusted (Non-GAAP) (1)     0.59         0.57         0.54         0.53         0.51    
                   
Return on Assets Measures                  
Net income-adjusted $   19,188     $   18,494     $   17,497     $   17,140     $   16,336    
                   
                   
Average assets $   5,261,493     $   5,186,173     $   5,104,661     $   5,088,823     $   4,916,549    
Less: average intangible assets     (147,741 )       (147,883 )       (148,046 )       (148,215 )       (148,383 )  
Average tangible assets $   5,113,752     $