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ConnectOne Bancorp, Inc. Reports Second Quarter 2019 Results

ENGLEWOOD CLIFFS, N.J., July 25, 2019 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $19.3 million for the second quarter of 2019 compared with $11.6 million for the first quarter of 2019 and $17.5 million for the second quarter of 2018.  Diluted earnings per share were $0.54 for the second quarter of 2019 compared with $0.33 in the first quarter of 2019 and $0.54 in the second quarter of 2018. 

Adjusted net income amounted to $20.2 million, or $0.57 per diluted share, for the second quarter of 2019; $17.1 million, or $0.49 per diluted share, for the first quarter of 2019; and $17.5 million, or $0.54 per diluted share, for the second quarter of 2018.  Adjusted net income for the first and second quarters of 2019 excludes $5.6 million and $0.3 million, respectively, in after-tax merger-related expenses.  Adjusted net income for the second quarter 2019 also excludes an after-tax $0.7 million charge on the prepayment of higher-cost borrowings.  See supplemental tables for a complete reconciliation of GAAP earnings to adjusted earnings.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “ConnectOne Bank’s second quarter results were highlighted by continued organic loan growth and solid asset quality.  Total loans grew by nearly 10% sequentially on an annualized basis, with a majority of our growth attributable to higher yielding segments, while multi-family and other CRE lending were essentially flat.  Our net interest margin contracted from the sequential quarter by 4 basis points (8 basis points, adjusted), negatively impacted by several factors including rising costs of funding, a flatter yield curve, prepayments in mortgage backed securities, and slightly lower prepayment fees.  The margin outlook remains challenging. However, we are beginning to see a reduction in deposit costs as well as a benefit from our improved loan mix. We also expect to benefit from a recent repurchase of some of our FHLB borrowings.”

“Our performance metrics continue to reflect across-the-board financial strength,” Mr. Sorrentino added. “Return on assets was about 1.3%, return on tangible common equity was 14.8% and, on an adjusted basis, 15.5%, tangible book value per share increased by $0.34 to $15.01, and our efficiency ratio was 41.4%. Our credit quality remains sound. During the first quarter, as previously reported, we had a charge relating to a single loan secured by a commercial office building. Reflecting our philosophy of addressing issues expeditiously and to build timely resolutions, that situation was resolved favorably during the second quarter – the asset was foreclosed on and sold – resulting in a slight recovery. Additionally, in June, we finalized our previously announced acquisition of BoeFly.  An online business lending marketplace, BoeFly helps to connect small- to medium-sized businesses with professional loan brokers and lenders across the United States.  We already have experienced a strong cultural alignment with their FinTech-focused entrepreneurial team, and remain committed to supporting and enhancing the digital lending platform which is expected to augment fee income and generate profitable SBA lending opportunities.” 

Operating Results

Fully taxable equivalent net interest income for the second quarter of 2019 was $46.1 million, an increase of $0.6 million, or 1.2%, from the first quarter of 2019, resulting primarily from an 1.5% increase in average interest-earning assets, offset by a 4 basis-point contraction of the net interest margin to 3.30% from 3.34%.  Included in net interest income were purchase accounting adjustments of $1.7 million during the second quarter of 2019 and $1.2 million during the first quarter of 2019.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.17% for the second quarter of 2019 and 3.25% for the first quarter of 2019.  The net interest margin contracted primarily due to higher funding costs and lower yields on securities, partially offset by higher yields on loans.

Noninterest income increased to $1.9 million in the second quarter of 2019 from $1.7 million in the first quarter of 2019 and $1.3 million in the second 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 $21.6 million for second quarter of 2019, $28.1 million for the first quarter of 2019 and $17.1 million for the second quarter of 2018.  Included in noninterest expenses for the second and first quarters of 2019 were merger-related expenses of $0.3 million and $7.6 million, respectively.  Also included in noninterest expenses for the second quarter of 2019 is $1.0 million in loss on extinguishment of debt.  Excluding merger-related expenses and loss on extinguishment of debt, noninterest expenses decreased by $0.3 million from the first quarter of 2019 reflecting stable staff levels and reduced loan workout expense.

Income tax expense was $5.5 million for the second quarter of 2019, $2.5 million for the first quarter of 2019 and $4.6 million for the second quarter of 2018.  The effective tax rates for the second quarter of 2019, first quarter of 2019 and second quarter of 2018 were 22.2%, 17.6% and 20.8%, respectively. The increase in the effective tax rate for the current quarter from the sequential quarter was primarily due to a higher proportion of taxable income.

Asset Quality

The provision for loan losses was $1.1 million for the second quarter of 2019, $4.5 million for the first quarter of 2019 and $1.1 million for the second quarter of 2018. The first quarter provision included $3.0 million related to one impaired commercial office building credit.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $49.9 million at June 30, 2019, $51.9 million at December 31, 2018 and $50.8 million at June 30, 2018. Included in nonperforming assets were taxi medallion loans totaling $26.5 million at June 30, 2019, $28.0 million at December 31, 2018 and $28.9 million at June 30, 2018.  Nonperforming assets (including taxi medallion loans) as a percentage of total assets were 0.82% at June 30, 2019, 0.95% at December 31, 2018 and 0.96% at June 30, 2018.  Excluding the taxi medallion loans, nonaccrual loans were $23.4 million at June 30, 2019, $23.8 million at December 31, 2018 and $20.8 million at June 30, 2018, representing a ratio of nonaccrual loans (excluding taxi medallion loans) to loans receivable of 0.46%, 0.53% and 0.48%, respectively. Nonaccrual loans at June 30, 2019 included a single $4.7 million credit that was paid off in full early in the third quarter. The annualized net loan charge-off ratio was 0.02% for the second quarter of 2019, 0.08% for the fourth quarter of 2018 and 0.00% for the second quarter of 2018. The allowance for loan losses represented 0.74%, 0.77%, and 0.77% of loans receivable as of June 30, 2019, December 31, 2018 and June 30, 2018, respectively.  The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 161.0% as of June 30, 2019, 146.8% as of December 31, 2018 and 161.7% as of June 30, 2018.

Selected Balance Sheet Items

At June 30, 2019, the balance sheet reflected the acquisition of Greater Hudson Bank.  The Company’s total assets were $6.1 billion, an increase of $647 million from December 31, 2018.  Total loans were $5.1 billion, an increase of $549 million from December 31, 2018.  The Company’s stockholders’ equity was $699 million at June 30, 2019, an increase of $85 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 June 30, 2019, the Company’s tangible common equity ratio and tangible book value per share were 8.93% and $15.01, 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 $0.34, or 2.3%, from the sequential quarter.  Total goodwill and other intangible assets were approximately $169 million as of June 30, 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.

Second Quarter 2019 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on July 25, 2019 to review the Company's financial performance and operating results. The conference call dial-in number is 323-794-2590, access code 4930630. 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, July 25, 2019 and ending on Thursday, August 1, 2019 by dialing 719-457-0820, access code 4930630. 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 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)        
             
  June 30,   December 31,   June 30,  
    2019       2018       2018    
  (unaudited)       (unaudited)  
ASSETS            
Cash and due from banks $   51,950     $   39,161     $   56,931    
Interest-bearing deposits with banks     133,700         133,205         119,238    
  Cash and cash equivalents     185,650         172,366         176,169    
             
Securities available-for-sale     441,911         412,034         400,015    
Equity securities     11,152         11,460         11,559    
             
Loans receivable     5,090,492         4,541,092         4,360,854    
Less: Allowance for loan losses     37,698         34,954         33,594    
  Net loans receivable     5,052,794         4,506,138         4,327,260    
             
Investment in restricted stock, at cost     31,767         31,136         32,441    
Bank premises and equipment, net     19,781         19,062         20,389    
Accrued interest receivable     21,272         18,214         16,754    
Bank owned life insurance     126,132         113,820         112,275    
Right of use operating lease assets     16,397         -         -    
Other real estate owned     -         -         1,076    
Goodwill     162,574         145,909         145,909    
Core deposit intangibles     6,140         1,737         2,027    
Other assets     33,496         30,216         29,494    
  Total assets $   6,109,066     $   5,462,092     $   5,275,368    
             
LIABILITIES            
Deposits:            
  Noninterest-bearing $   813,635     $   768,584     $   765,150    
  Interest-bearing     3,827,508         3,323,508         3,140,260    
  Total deposits     4,641,143         4,092,092         3,905,410    
Borrowings     597,317         600,001         628,995    
Operating lease liabilities     17,787         -         -    
Subordinated debentures (net of $1,435, $1,599 and $1,763 in debt issuance costs)     128,720         128,556         128,392    
Other liabilities     24,875         27,516         34,014    
  Total liabilities     5,409,842         4,848,165         4,696,811    
             
COMMITMENTS AND CONTINGENCIES            
             
STOCKHOLDERS' EQUITY            
Common stock     471,071         412,546         412,546    
Additional paid-in capital     17,277         15,542         13,756    
Retained earnings     235,649         211,345         177,619    
Treasury stock     (21,892 )       (16,717 )       (16,717 )  
Accumulated other comprehensive loss     (2,881 )       (8,789 )       (8,647 )  
  Total stockholders' equity     699,224         613,927         578,557    
  Total liabilities and stockholders' equity $   6,109,066     $   5,462,092     $   5,275,368    
             
             

 

CONNECTONE BANCORP, INC. AND SUBSIDIARIES                  
CONSOLIDATED STATEMENTS OF INCOME                  
(dollars in thousands, except for per share data)                  
                   
   Three Months Ended     Six Months Ended     
  06/30/19   06/30/18   06/30/19   06/30/18    
Interest income                  
  Interest and fees on loans $   63,524     $   49,494     $   123,850     $   96,519      
  Interest and dividends on investment securities:                  
  Taxable     2,573         2,150         5,515         4,037      
  Tax-exempt     1,081         778         2,208         1,592      
  Dividends     410         502         867         987      
  Interest on federal funds sold and other short-term investments     290         160         647         424      
  Total interest income     67,878         53,084         133,087         103,559      
Interest expense                  
  Deposits     16,596         9,169         31,947         16,857      
  Borrowings     5,752         4,970         10,658         9,610      
  Total interest expense     22,348         14,139         42,605         26,467      
                   
Net interest income     45,530         38,945         90,482         77,092      
  Provision for loan losses     1,100         1,100         5,600         18,900      
Net interest income after provision for loan losses     44,430         37,845         84,882         58,192      
                   
Noninterest income                  
  Income on bank owned life insurance     833         775         1,655         1,549      
  Net gains on sales of loans held-for-sale     46         12         65         29      
  Deposit, loan and other income     914         601         1,700         1,217      
  Net gains (losses) on equity securities     158         (47 )       261         (168 )    
  Net losses on sales of securities available-for-sale     (9 )       -         (1 )       -      
  Total noninterest income     1,942         1,341         3,680         2,627      
                   
Noninterest expenses                  
  Salaries and employee benefits     11,822         9,736         23,805         19,415      
  Occupancy and equipment     2,357         2,031         4,852         4,174      
  FDIC insurance     825         765         1,580         1,615      
  Professional and consulting     1,370         825         2,579         1,548      
  Marketing and advertising     397         337         607         544      
  Data processing     1,139         1,091         2,294         2,239      
  Merger expenses     331         -         7,893         -      
  Loss on extinguishment of debt     1,047         -         1,047         -      
  Amortization of core deposit intangibles     364         169         728         338      
  Other expenses     1,938         2,107         4,267         4,126      
  Total noninterest expenses     21,590         17,061         49,652         33,999      
                   
Income before income tax expense     24,782         22,125         38,910         26,820      
  Income tax expense     5,501         4,598         7,994         5,042      
Net income $   19,281     $   17,527     $   30,916     $   21,778      
                   
Earnings per common share:                  
  Basic $   0.55     $   0.54     $   0.88     $   0.68      
  Diluted     0.54         0.54         0.87         0.67      
                   
Dividends per common share $   0.090     $   0.075     $   0.180     $   0.150      
                   
                   

 

...
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  
  June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,  
    2019       2019       2018       2018       2018    
Selected Financial Data (dollars in thousands)  
Total assets $   6,109,066     $   6,048,976     $   5,462,092     $   5,368,641     $   5,275,368    
Loans receivable:                    
  Commercial $   1,018,951     $   1,012,930     $   925,229     $   886,212     $   808,604    
  Commercial real estate     1,555,542         1,483,852         1,279,502         1,282,766         1,282,426    
  Multifamily     1,589,340         1,608,613         1,562,195         1,504,134         1,480,243    
  Commercial construction     602,213         548,039         465,389         494,206         498,607    
  Residential     326,661         319,214         309,991         295,948         288,449    
  Consumer     2,041         4,157         2,593         2,508         5,637    
  Gross loans     5,094,748         4,976,805         4,544,899         4,465,774         4,363,966    
Unearned net origination fees     (4,256 )       (4,154 )       (3,807 )       (3,287 )       (3,112 )  
  Loans receivable     5,090,492         4,972,651         4,541,092         4,462,487         4,360,854    
  Loans held-for-sale (net of valuation allowance)     -         368         -         270         -    
Total loans $   5,090,492     $   4,973,019     $   4,541,092     $   4,462,757     $   4,360,854    
                     
Investment securities $   453,063     $   528,103     $   423,494     $   421,442     $   411,574    
Goodwill and other intangible assets     168,714         162,747         147,646         147,791         147,936    
Deposits:                    
  Noninterest-bearing demand $   813,635     $   833,090     $   768,584     $   758,213     $   765,150    
  Time deposits     1,623,948         1,544,247         1,366,054         1,322,747         1,315,843    
  Other interest-bearing deposits     2,203,560         2,216,661         1,957,454         1,907,805         1,824,417    
Total deposits $   4,641,143     $   4,593,998     $   4,092,092     $   3,988,765     $   3,905,410    
                     
Borrowings $   597,317     $   603,412     $   600,001     $   629,979     $   628,995    
Subordinated debentures (net of debt issuance costs)     128,720         128,638         128,556         128,474         128,392    
Total stockholders' equity     699,224         682,395         613,927         594,871         578,557    
                     
Quarterly Average Balances                    
Total assets $   6,001,669     $   5,909,061     $   5,261,493     $   5,186,173     $   5,104,661    
Loans receivable:                    
  Commercial $   1,024,617     $   1,035,874     $   896,032     $   803,702     $   764,028    
  Commercial real estate (including multifamily)     3,088,231         3,011,692         2,771,239         2,769,908         2,699,012    
  Commercial construction     571,130         524,952         464,556         494,460         494,092    
  Residential     322,517         335,574         304,954         294,758         282,504    
  Consumer     3,252         3,397         4,292         3,205         5,685    
  Gross loans     5,009,747         4,911,489         4,441,073         4,366,033         4,245,321    
Unearned net origination fees     (4,463 )       (3,930 )       (3,340 )       (3,182 )       (3,208 )  
  Loans receivable     5,005,284         4,907,559         4,437,733         4,362,851         4,242,113    
  Loans held-for-sale     225         124         211         54         30,099    
Total loans $   5,005,509     $   4,907,683     $   4,437,944     $   4,362,905     $   4,272,212    
                     
Investment securities $   513,814     $   524,394     $   421,316     $   415,074     $   424,854    
Goodwill and other intangible assets     164,709         162,814         147,741         147,883         148,046    
Deposits:                    
  Noninterest-bearing demand $   800,856     $   824,115     $   775,824     $   761,782     $   719,372    
  Time deposits     1,551,014         1,515,249         1,329,743         1,296,165         1,280,471    
  Other interest-bearing deposits     2,183,384         2,236,630         1,915,353         1,854,763         1,765,577    
Total deposits $   4,535,254     $   4,575,994     $   4,020,920     $   3,912,710     $   3,765,420    
                     
Borrowings $   603,260     $   486,687     $   477,800     $   531,251     $   613,763    
Subordinated debentures (net of debt issuance costs)     128,666         128,585         128,502         128,420         128,339    
Total stockholders' equity     694,978         680,168         606,378         590,128         574,992    
                     
  Three Months Ended  
  June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,  
    2019       2019       2018       2018       2018    
   (dollars in thousands, except for per share data)   
Net interest income $   45,530     $   44,952     $   40,161     $   39,962     $   38,945    
 Provision for loan losses     1,100         4,500         1,100         1,100         1,100    
Net interest income after provision for loan losses     44,430         40,452         39,061         38,862         37,845    
Noninterest income                    
 Income on bank owned life insurance     833         822         794         751         775    
 Net gains on sales of loans held-for-sale     46         19         30         2         12    
 Deposit, loan and other income     914         786         691         676         601    
 Net gains (losses) on equity securities     158         103         58         (157 )       (47 )  
 Net (losses) gains on sales of securities available-for-sale     (9 )       8         -         -         -    
  Total noninterest income     1,942         1,738         1,573         1,272         1,341    
Noninterest expenses                    
 Salaries and employee benefits     11,822         11,983         9,988         10,181         9,736    
 Occupancy and equipment     2,357         2,495         2,001         2,137         2,031    
 FDIC insurance     825         755         765         735         765    
 Professional and consulting     1,370         1,209         1,129         891         825    
 Marketing and advertising     397         210         244         192         337    
 Data processing     1,139         1,155         1,080         1,102         1,091    
 Merger expenses     331         7,562         936         375         24    
 Loss on extinguishment of debt     1,047         -         -         -         -    
 Amortization of core deposit intangibles     364         364         144         145         169    
 Other expenses     1,938         2,329         2,037         2,372         2,083    
  Total noninterest expenses     21,590         28,062         18,324         18,130         17,061    
                     
Income before income tax expense     24,782         14,128         22,310         22,004         22,125    
 Income tax expense     5,501         2,493         3,638         2,102         4,598    
Net income $   19,281     $   11,635