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ConnectOne Bancorp, Inc. Reports Second Quarter 2018 Results

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ENGLEWOOD CLIFFS, N.J., July 26, 2018 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (NASDAQ:CNOB) (the "Company" or "ConnectOne"), parent company of ConnectOne Bank (the "Bank"), today reported net income of $17.5 million for the second quarter of 2018 compared with $4.3 million for the first quarter of 2018 and $7.7 million for the second quarter of 2017.  Diluted earnings per share were $0.54 for the second quarter of 2018 versus $0.13 earned in the first quarter of 2018 and $0.24 earned in the second quarter of 2017.

Adjusted net income amounted to $17.5 million, or $0.54 earnings per share, for the second quarter of 2018; $17.1 million, or $0.53 earnings per share, for the first quarter of 2018; and $13.3 million, or $0.41 earnings per share, for the second quarter of 2017.  Adjusted net income excludes taxi medallion after-tax charges of $13.4 million for the first quarter 2018 and $5.7 million for the second quarter 2017. In addition, adjusted net income for the first quarter of 2018 excludes $0.5 million of income tax benefit from ASU 2016-19, and $0.1 million for the second quarter 2017.

Frank Sorrentino, ConnectOne's Chairman and Chief Executive Officer stated, "We are extremely pleased with our second quarter performance, highlighted by record quarterly earnings.  In addition, we saw improvement in other metrics including deposit and loan growth, net interest margin, return on assets and tangible common equity, tangible book value per share, and credit quality.  Total loans increased by $112 million, or more than 10% on an annualized basis, from the prior quarter-end, while total deposits increased by $156 million, or more than 15% on an annualized basis.  Meanwhile, our net interest margin, which had contracted significantly during the first quarter due to market conditions and non-recurring items, widened from the sequential quarter by 5 basis-points including purchase accounting accretion, and by 2 basis-points when excluding such accretion.  The increase was largely a result of an increasing yield in the loan portfolio driven by repricing and higher origination rates, and a better overall asset mix, offset by increased funding costs, primarily related to deposits.  While net interest margin tightening remains the likely trend largely due to increasing deposit competition, loan spreads have begun to widen, albeit slightly, reflecting both loan mix and discipline.  Many of our performance metrics improved during the quarter and remain among the best in our industry.  Our efficiency ratio was 41.9%, return on average assets was 1.38%, and return on average tangible common equity was 16.6%, all reflecting underlying strong core performance as we remain focused on maximizing shareholder value."

Mr. Sorrentino added, "In addition to our strong second quarter financial performance, I'm equally excited about our recently announced merger with Greater Hudson Bank, a premier community bank operating in Rockland, Orange and Westchester Counties in New York.  In addition to enhancing our market presence by expanding our footprint into the Hudson Valley, the transaction will provide new opportunities for accretive growth by combining our operating model and our technological capabilities with the Greater Hudson deposit rich franchise. The merger also aligns perfectly with our stated growth strategy, enabling us to more deeply penetrate the New York market and expand the ConnectOne model within the 75-mile radius of New York City in which we operate.  It provides our clients with even greater service while also enhancing our commercial lending capabilities, including establishing an SBA platform.  We believe Greater Hudson is a strong strategic fit for ConnectOne and the transaction remains on target to close in early 2019."

Operating Results

Fully taxable equivalent net interest income for the second quarter of 2018 was $39.4 million, an increase of $0.8 million, or 2.1%, from the first quarter of 2018, resulting from a widening of the net interest margin to 3.31% from 3.26%, partially offset by a decrease in total average interest-earning assets of 0.6%.  Included in net interest income was accretion and amortization of purchase accounting adjustments of $0.7 million during the second quarter of 2018 and $0.2 million during the first quarter of 2018.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.26% in the second quarter of 2018, widening by 2 basis-points from the first quarter of 2018 adjusted net interest margin of 3.24%.  The increase in the adjusted net interest margin was primarily attributable to a higher yield earned on loans and securities and an improved asset-mix, partially offset by increases in deposit funding costs. 

Fully taxable equivalent net interest income for the second quarter of 2018 increased by $3.6 million, or 10.0%, from the second quarter of 2017, resulting from an increase in total average interest-earning assets of 14.5%, primarily loans, offset by a contraction in the net interest margin of 14 basis-points to 3.31% from 3.45%. Included in net interest income was accretion and amortization of purchase accounting adjustments of $0.7 million during the second quarter of 2018 and $0.3 million during the second quarter of 2017.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.26% in the second quarter of 2018, contracting by 16 basis-points from the second 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 due to the Tax Cuts and Jobs Act of 2017, and increased deposit rates, partially offset by higher rates earned on loans.   

Noninterest income totaled $1.4 million in the second quarter of 2018, first quarter of 2018 and second 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.

Noninterest expenses totaled $17.1 million for the second quarter of 2018 and first quarter of 2018 and $25.3 million for the second quarter of 2017.  Noninterest expenses remained flat when compared to the prior sequential quarter.  Noninterest expenses decreased by $8.2 million from the prior year second quarter due primarily to a valuation allowance adjustment on taxi medallion loans held-for-sale of $9.7 million that occurred during the prior year quarter, offset by increases in the current quarter in salaries and employee benefits ($1.1 million) and other expenses ($0.4 million). The increases over the prior year second quarter were the result of increased levels of business and staff resulting from organic growth.

Income tax expense was $4.6 million for the second quarter of 2018, compared to $0.4 million for the first quarter of 2018 and $2.1 million for the second quarter of 2017.  Included in income tax expenses for the first quarter of 2018 was an income tax benefit of $0.5 million resulting from the effect of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting.  At the present time, the Company is projecting a 2018 effective tax rate of approximately 21%, exclusive of ASU 2016-09 benefits.

Asset Quality

The provision for loan losses was $1.1 million in the second quarter of 2018, $17.8 million in the first quarter of 2018 and $1.5 million in the second quarter of 2017.  The decrease of $16.7 million from the sequential first quarter was largely attributable to $17.0 million of provision in the first quarter related to the taxi medallion loan portfolio, partially offset by the impact of higher loan growth.  The decrease from the prior year quarter was mainly attributable to slightly slower loan growth.  The provision related to taxi medallions was due to decreases in the transfer values as reported by the New York City Taxi and Limousine Commission and a reduction in the Bank's cash flow valuation model.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $50.8 million at June 30, 2018, $66.2 million at December 31, 2017 and $63.5 million at June 30, 2017. Included in nonperforming assets were taxi medallion loans totaling $28.9 million at June 30, 2018, $46.8 million at December 31, 2017 and $48.9 million at June 30, 2017.  Excluding the taxi medallion loans, nonaccrual loans were $20.8 million at June 30, 2018, $18.8 million at December 31, 2017 and $14.1 million at June 30, 2017, representing a ratio of nonaccrual loans (excluding taxis) to loans receivable of 0.48%, 0.46% and 0.37%, respectively.  Nonperforming assets as a percentage of total assets were 0.96% at June 30, 2018, 1.29% at December 31, 2017 and 1.36% at June 30, 2017.

The net loan charge-offs (recoveries) ratio was 0.00% for the second quarter of 2018, 0.01% for the fourth quarter of 2017 and (0.01%) for the second quarter of 2017. The allowance for loan losses represented 0.77%, 0.76%, and 0.76% of loans receivable as of June 30, 2018, December 31, 2017 and June 30, 2017, respectively.   The allowance for loan losses as a percentage of nonaccrual loans was 67.6% as of June 30, 2018, 48.4% as of December 31, 2017 and 45.1% as of June 30, 2017.  Excluding the taxi medallion loans, allowance for loan losses as a percentage of nonaccrual loans was 161.7% as of June 30, 2018, 168.4% as of December 31, 2017 and 202.1% as of June 30, 2017.

Selected Balance Sheet Items

At June 30, 2018, the Company's total assets were $5.3 billion, an increase of $167 million from December 31, 2017, largely the result of an increase in total loans (loan originations less pay-downs and pay-offs) of $165 million. The Company's stockholders' equity was $579 million at June 30, 2018, an increase of $13 million from December 31, 2017. The increase in stockholders' equity was primarily attributable to increases in retained earnings of $18 million, primarily offset by decreases in other comprehensive losses of $5 million.  As of June 30, 2018, the Company's tangible common equity ratio and tangible book value per share were 8.40% and $13.38, respectively.  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 June 30, 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.

Second Quarter 2018 Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on July 26, 2018 to review the Company's financial performance and operating results.  The conference call dial-in number is 334-323-0522, access code 7122269. 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 "Shareholders" 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 26, 2018 and ending on Thursday, August 2, 2018 by dialing 719-457-0820, access code 7122269. 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 is a New Jersey corporation and a registered bank holding company pursuant to the Bank Holding Company Act of 1956, as amended, and serves as the holding company for ConnectOne Bank ("the Bank"). The Bank is a community-based, full-service New Jersey-chartered commercial bank that was founded in 2005. The Bank operates from its headquarters located at 301 Sylvan Avenue in the Borough of Englewood Cliffs, Bergen County, New Jersey, and through its 21 other banking offices.

For more information visit 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.

 

             
CONNECTONE BANCORP, INC. AND SUBSIDIARIES            
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION          
(in thousands)            
             
  June 30,   December 31,   June 30,  
    2018       2017       2017    
  (unaudited)       (unaudited)  
ASSETS            
Cash and due from banks $   56,931     $   52,565     $   54,305    
Interest-bearing deposits with banks     119,238         97,017         92,203    
    Cash and cash equivalents     176,169         149,582         146,508    
             
Securities available-for-sale     400,015         435,284         402,130    
Equity securities     11,559         -         -    
             
Loans held-for-sale     -         24,845         51,124    
             
Loans receivable     4,360,854         4,171,456         3,761,572    
Less: Allowance for loan losses     33,594         31,748         28,401    
    Net loans receivable     4,327,260         4,139,708         3,733,171    
             
Investment in restricted stock, at cost     32,441         33,497         32,152    
Bank premises and equipment, net     20,389         21,659         21,630    
Accrued interest receivable     16,754         15,470         13,194    
Bank owned life insurance     112,275         111,311         99,777    
Other real estate owned     1,076         538         580    
Goodwill     145,909         145,909         145,909    
Core deposit intangibles     2,027         2,364         2,702    
Other assets     29,494         28,275         32,403    
   Total assets $   5,275,368     $   5,108,442     $   4,681,280    
             
LIABILITIES            
Deposits:            
    Noninterest-bearing $   765,150     $   776,843     $   695,522    
    Interest-bearing     3,140,260         3,018,285         2,734,851    
        Total deposits     3,905,410         3,795,128         3,430,373    
Borrowings     628,995         670,077         626,173    
Subordinated debentures (net of $1,763, $456 and $539 in debt issuance costs)     128,392         54,699         54,616    
Other liabilities     34,014         23,101         23,945    
   Total liabilities     4,696,811         4,543,005         4,135,107    
             
COMMITMENTS AND CONTINGENCIES            
             
STOCKHOLDERS' EQUITY            
Common stock     412,546         412,546         412,546    
Additional paid-in capital     13,756         13,602         12,377    
Retained earnings     177,619         160,025         141,178    
Treasury stock     (16,717 )       (16,717 )       (16,717 )  
Accumulated other comprehensive loss     (8,647 )       (4,019 )       (3,211 )  
  Total stockholders' equity     578,557         565,437         546,173    
  Total liabilities and stockholders' equity $   5,275,368     $   5,108,442     $   4,681,280    
             

 

CONNECTONE BANCORP, INC. AND SUBSIDIARIES                
CONSOLIDATED STATEMENTS OF INCOME                
(dollars in thousands, except for per share data)                
                 
   Three Months Ended     Six Months Ended   
  06/30/18   06/30/17   06/30/18   06/30/17  
Interest income                
     Interest and fees on loans $   49,494   $   40,632   $   96,519   $   78,638  
     Interest and dividends on investment securities:                
           Taxable     2,150       1,799       4,037       3,347  
           Tax-exempt     778       831       1,592       1,785  
           Dividends     502       290       987       620  
     Interest on federal funds sold and other short-term investments     160       139       424       385  
               Total interest income     53,084       43,691       103,559       84,775  
Interest expense                
     Deposits     9,169       5,495       16,857       10,604  
     Borrowings     4,970       3,095       9,610       5,929  
               Total interest expense     14,139       8,590       26,467       16,533  
                 
Net interest income     38,945       35,101       77,092       68,242  
     Provision for loan losses     1,100       1,450       18,900       2,550  
Net interest income after provision for loan losses     37,845       33,651       58,192       65,692  
                 
Noninterest income                
    Income on bank owned life insurance     775       714       1,549       1,417  
    Net gains on sale of loans held-for-sale     12       49       29       70  
    Deposit, loan and other income     601       659       1,217       1,341  
    Net gains on sale of investment securities     -       -       -       1,596  
               Total noninterest income     1,388       1,422       2,795       4,424  
                 
Noninterest expenses                
    Salaries and employee benefits     9,736       8,632       19,415       16,838  
    Occupancy and equipment     2,031       1,991       4,174       4,246  
    FDIC insurance     765       815       1,615       1,710  
    Professional and consulting     825       734       1,548       1,452  
    Marketing and advertising     337       289       544       545  
    Data processing     1,091       1,149       2,239       2,298  
    Amortization of core deposit intangible     169       193       338       386  
    Increase in valuation allowance, loans held-for-sale     -       9,725       -       12,325  
    Other expenses     2,154       1,775       4,294       3,752  
               Total noninterest expenses     17,108       25,303       34,167       43,552  
                 
Income before income tax expense     22,125       9,770       26,820       26,564  
    Income tax expense     4,598       2,087       5,042       7,001  
Net income $   17,527   $   7,683   $   21,778   $   19,563  
                 
Earnings per common share:                
    Basic $   0.54   $   0.24   $   0.68   $   0.61  
    Diluted     0.54       0.24       0.67       0.60  
                 
Dividends per common share $   0.075   $   0.075   $   0.150   $   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.                      
SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES                    
                       
  As of    
  June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,    
    2018       2018       2017       2017       2017      
Selected Financial Data (dollars in thousands)    
Total assets $   5,275,368     $   5,158,368     $   5,108,442     $   4,844,755     $   4,681,280      
Loans receivable:                      
  Commercial     808,604         768,640         781,698         641,613         610,442      
  Commercial real estate     1,282,426         1,275,764         1,232,037         1,254,720         1,218,995      
  Multifamily     1,480,243         1,400,420         1,403,256         1,330,485         1,251,962      
  Commercial construction     498,607         479,190         483,216         399,453         431,049      
  Residential     288,449         278,985         271,795         264,244         251,108      
  Consumer     5,637         2,461         2,808         1,912         2,005      
  Gross loans     4,363,966         4,205,460         4,174,810         3,892,427         3,765,561      
Unearned net origination fees     (3,112 )       (2,781 )       (3,354 )       (3,138 )       (3,989 )    
  Loans receivable     4,360,854         4,202,679         4,171,456         3,889,289         3,761,572      
  Loans held-for-sale (net of valuation allowance)     -         45,886         24,845         89,386         51,124      
Total loans $   4,360,854     $   4,248,565     $   4,196,301     $   3,978,675     $   3,812,696      
                       
Investment securities $   411,574     $   435,929     $   435,284     $   400,516     $   402,130      
Goodwill and other intangible assets     147,936         148,104         148,273         148,442         148,611      
Deposits:                      
  Noninterest-bearing demand     765,150         739,174         776,843         719,582         695,522      
  Time deposits     1,315,843         1,255,654         1,179,969         1,078,359         982,328      
  Other interest-bearing deposits     1,824,417         1,754,759         1,838,316         1,825,828         1,752,523      
Total deposits $   3,905,410     $   3,749,587     $   3,795,128     $   3,623,769     $   3,430,373      
                       
Borrowings $   628,995     $   695,032     $   670,077     $   585,124     $   626,173      
Subordinated debentures (net of issuance costs)     128,392         128,310         54,699         54,657         54,616      
Total stockholders' equity     578,557         564,266         565,437         557,691         546,173      
                       
Quarterly Average Balances                      
Total assets $   5,104,661     $   5,088,823     $   4,916,549     $   4,713,487     $   4,495,008      
Loans receivable:                      
  Commercial     808,764         820,562         761,147         671,525         603,733      
  Commercial real estate (including multifamily)     2,654,276         2,643,466         2,566,959         2,502,846         2,337,499      
  Commercial construction     494,092         482,391         439,629         418,439         451,038      
  Residential     282,504         275,263         268,047         255,755         246,864      
  Consumer     5,685         4,659         3,849         2,555         2,929      
  Gross loans     4,245,321         4,226,341         4,039,631         3,851,120         3,642,063      
Unearned net origination fees     (3,208 )       (3,110 )       (3,485 )       (3,724 )       (3,967 )    
  Loans receivable     4,242,113         4,223,231         4,036,146         3,847,396         3,638,096      
  Loans held-for-sale     30,099         24,766         57,812         51,008         61,259      
Total loans $   4,272,212     $   4,247,997     $   4,093,958     $   3,898,404     $   3,699,355      
                       
Investment securities     424,854         437,141         417,560         398,635         391,965      
Goodwill and other intangible assets     148,046         148,215         148,383         148,553         148,737      
Deposits:                      
  Noninterest-bearing demand     719,372         724,471         712,391         688,707         667,461      
  Time deposits     1,280,471         1,207,368         1,114,670         1,005,997         976,012      
  Other interest-bearing deposits     1,765,577         1,815,122         1,855,688         1,816,162         1,712,875      
Total deposits $   3,765,420     $   3,746,961     $   3,682,749     $   3,510,866     $   3,356,348      
                       
Borrowings $   613,763     $   630,117     $   588,260     $   570,711     $   514,161      
Subordinated debentures (net of issuance costs)     128,339         115,182         54,672         54,630         54,590      
Total stockholders' equity     574,992         575,029         567,308         556,620         549,748      
                       
  Three Months Ended    
  June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,    
    2018       2018       2017       2017       2017      
   (dollars in thousands, except for per share data)     
Net interest income $   38,945     $   38,147     $   39,808     $   37,019     $   35,101      
 Provision for loan losses     1,100         17,800         2,000         1,450         1,450      
Net interest income after provision for loan losses     37,845         20,347         37,808         35,569         33,651      
Noninterest income                      
 Income on bank owned life insurance     775         774         779         985         714      
 Net gains on sale of loans held-for-sale     12         17         588         50         49      
 Deposit, loan and other income     601         616         657         721         659      
  Total noninterest income     1,388         1,407         2,024         1,756         1,422      
Noninterest expenses                      
 Salaries and employee benefits     9,736         9,679         9,418         8,872         8,632      
 Occupancy and equipment     2,031         2,143         1,948         1,969         1,991      
 FDIC insurance     765         850         935         840         815      
 Professional and consulting     825         723         671         740         734      
 Marketing and advertising     337         207         226         225         289      
 Data processing     1,091         1,148         1,069         1,176         1,149      
 Amortization of core deposit intangible     169         169         169         169         193      
 Increase in valuation allowance, loans held-for-sale     -         -         267         3,000         9,725      
 Other expenses     2,154         2,140         1,863         1,650         1,775      
  Total noninterest expenses     17,108         17,059         16,566         18,641         25,303      
                       
Income before income tax expense     22,125         4,695         23,266         18,684         9,770      
 Income tax expense     4,598         444         12,686         5,607         2,087      
Net income $   17,527     $   4,251     $   10,580     $   13,077     $   7,683      
                       
Reconciliation of GAAP Earnings to Earnings Excluding the
Following Items:
                     
Net income $   17,527     $   4,251     $   10,580     $   13,077     $   7,683      
Deferred tax valuation charge     -         -         5,574         -         -      
Tax benefit on employee share-based awards (ASU 2016-09)     (49 )       (541 )       -         -         (133 )    
Provision related to taxi medallion loans (after taxes)     -         13,430         -         -         -      
Increase in valuation allowance, loans held-for-sale (after taxes)     -         -         182         1,776         5,719      
Net income-adjusted $   17,478     $   17,140     $   16,336     $   14,853     $   13,269      
Weighted average diluted shares outstanding     32,321,150         32,238,048         32,252,759         32,182,016         32,255,770      
Diluted EPS (GAAP) $   0.54     $   0.13     $   0.33     $   0.41     $   0.24      
Diluted EPS-adjusted (Non-GAAP) (1)     0.54         0.53         0.51         0.46         0.41      
                       
Return on Assets Measures                      
Net income-adjusted $   17,478     $   17,140     $   16,336     $   14,853     $   13,269      
                       
Average assets $   5,104,661     $   5,088,823     $   4,916,549     $   4,713,487     $   4,495,008      
Less: average intangible assets     (148,046 )       (148,215 )       (148,383 )       (148,553 )       (148,737 )    
Average tangible assets $   4,956,615     $   4,940,608     $   4,768,166     $   4,564,934     $   4,346,271      
Return on avg. assets (GAAP)     1.38   %     0.34   %     0.85   %     1.10   %     0.69   %  
Return on avg. assets-adjusted (non-GAAP) (2)     1.37         1.37         1.32         1.25         1.18      
                       
(1)  Represents adjusted earnings available to common stockholders divided by weighted average diluted shares outstanding.        
(2)  Adjusted net income divided by average assets.                      
                       
  Three Months Ended    
  June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,    
    2018       2018       2017       2017       2017      
Return on Equity Measures (dollars in thousands)    
Net income-adjusted $   17,478     $   17,140     $   16,336     $   14,853     $   13,269      
                       
Average common equity $   574,992     $   575,029     $   567,308     $   556,620     $   549,748      
Less: average intangible assets     (148,046 )       (148,215 )       (148,383 )       (148,553 )       (148,737 )    
Average tangible common equity $   426,946     $   426,814     $   418,925     $   408,067     $   401,011      
                       
Return on avg. common equity (GAAP)     12.23   %     3.00   %     7.40   %     9.32   %     5.61   %  
Return on avg. common equity-adjusted (non-GAAP) (3)     12.19         12.09         11.42         10.59         9.68      
Return on avg. tangible common equity (non-GAAP) (4)     16.58         4.15         10.11         12.81         7.80      
Return on avg. tangible common equity-adjusted (non-GAAP) (5)     16.53         16.40         15.57         14.54         13.39      
                       
Efficiency Measures                      
Total noninterest expenses $   17,108     $   17,059     $   16,566     $   18,641     $   25,303      
Increase in valuation allowance, loans held-for-sale     -         -         (267 )       (3,000 )       (9,725 )    
Foreclosed property expense     (11 )       (51 )       (32 )       (46 )       (71 )    
Operating noninterest expense  $   17,097     $   17,008     $   16,267     $   15,595     $   15,507      
                       
Net interest income (tax equivalent basis) $   39,409     $   38,610     $   40,744     $   37,929     $   35,839      
Noninterest income     1,388         1,407         2,024         1,756         1,422      
Operating revenue  $   40,797     $   40,017     $   42,768     $   39,685     $   37,261      
                       
Operating efficiency ratio (non-GAAP) (6)     41.9   %     42.5   %     38.0   %     39.3   %     41.6   %  
                       
Net Interest Margin                      
Average interest-earning assets $   4,771,523     $   4,799,453     $   4,603,659     $   4,378,537     $   4,168,344      
                       
Net interest income (tax equivalent basis) $   39,409     $   38,610     $   40,744     $   37,929     $   35,839      
Impact of purchase accounting fair value marks     (680 )       (240 )       (1,026 )       (317 )       (316 )    
Adjusted net interest income (tax equivalent basis) $   38,729     $   38,370     $   39,718     $   37,612     $   35,523      
                       
Net interest margin (GAAP)     3.31   %     3.26   %     3.51   %     3.44   %     3.45   %  
Adjusted net interest margin (non-GAAP) (7)     3.26         3.24         3.42         3.41         3.42      
                       
(3)  Adjusted earnings available to common stockholders divided by average common equity.                
(4)  Earnings available to common stockholders excluding amortization of intangibles assets divided by average tangible common equity.        
(5)  Adjusted earnings available to common stockholders divided by average tangible common equity.                
(6)  Operating noninterest expense divided by operating revenue.                      
(7)  Adjusted net interest margin excludes impact of purchase accounting fair value marks.                
                       
  As of    
  June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,    
    2018       2018       2017       2017       2017      
Capital Ratios and Book Value per Share (dollars in thousands, except for per share data)    
Common equity $   578,557     $   564,266     $   565,437     $   557,691     $   546,173      
Less: intangible assets     (147,936 )       (148,104 )       (148,273 )       (148,442 )       (148,611 )    
Tangible common equity $   430,621     $   416,162     $   417,164     $   409,249     $   397,562      
                       
Total assets $   5,275,368     $   5,158,368     $   5,108,442     $   4,844,755     $   4,681,280      
Less: intangible assets     (147,936 )       (148,104 )       (148,273 )       (148,442 )       (148,611 )    
Tangible assets $   5,127,432     $   5,010,264     $   4,960,169     $   4,696,313     $   4,532,669      
                       
Common shares outstanding     32,184,047         32,175,233         32,071,860         32,015,317         32,015,317      
                       
Common equity ratio (GAAP)     10.97   %     10.94   %     11.07   %     11.51   %     11.67   %  
Tangible common equity ratio (non-GAAP) (8)     8.40         8.31         8.41         8.71         8.77      
                       
Regulatory capital ratios (Bancorp):                      
  Leverage ratio     8.93   %     8.65   %     8.92   %     9.13   %     9.33   %  
  Common equity Tier 1 risk-based ratio     9.33         9.14         9.15         9.40         9.48      
  Risk-based Tier 1 capital ratio     9.44         9.25         9.26         9.52         9.60      
  Risk-based total capital ratio     12.81         12.66         11.04         11.34         11.46      
Regulatory capital ratios (Bank):                      
  Leverage ratio     10.43   %     10.20   %     9.84   %     10.11   %     10.34   %  
  Common equity Tier 1 risk-based ratio     11.02         10.91         10.21         10.54         10.64      
  Risk-based Tier 1 capital ratio     11.02         10.91         10.21         10.54         10.64      
  Risk-based total capital ratio     12.42         12.31         10.90         11.22         11.32      
                       
Book value per share (GAAP) $   17.98     $   17.54     $   17.63     $   17.42     $   17.06      
Tangible book value per share (non-GAAP) (9)     13.38         12.93         13.01         12.78         12.42      
                       
Net Charge-Off (Recoveries) Detail                      
Net loan charge-offs (recoveries) :                      
 Charge-offs $   47     $   17,038     $   156     $   -     $   10      
 Recoveries     (12 )       (19 )       (34 )       (20 )       (60 )    
  Net loan charge-offs (recoveries) $   35     $   17,019     $   122     $   (20 )   $   (50 )    
  Net loan charge-offs (recoveries) as a % of average loans
    receivable (annualized)
    0.00   %     1.63   %     0.01   %     (0.00 ) %     (0.01 ) %  
                       
Asset Quality                      
Nonaccrual taxi medallion loans $   28,944     $   29,405     $   46,765     $   47,430     $   48,884      
Nonaccrual loans (excluding taxi medallion loans)     20,771         20,631         18,848         13,755         14,055      
Other real estate owned     1,076         1,076         538         -         580      
Total nonperforming assets $   50,791     $   51,112     $   66,151     $   61,185     $   63,519      
                       
Performing troubled debt restructurings $   12,827     $   14,349     $   14,920     $   12,749     $   10,221      
                       
Allowance for loan losses ("ALLL") $   33,594     $   32,529     $   31,748     $   29,870     $   28,401      
                       
Loans receivable $   4,360,854     $   4,202,679     $   4,171,456     $   3,889,289     $   3,761,572      
Less: taxi medallion loans     28,944         29,405         46,765         -         -      
Loans receivable (excluding taxi medallion loans) $   4,331,910     $   4,173,274     $   4,124,691     $   3,889,289     $   3,761,572      
                       
Loans held-for-sale (taxi medallion loans) $   -     $   -     $   -     $   47,430     $   50,891      
                       
Nonaccrual loans (excluding taxi medallion loans) as a % of loans receivable (excluding taxi medallion loans)     0.48   %     0.49   %     0.46   %     0.35   %     0.37   %  
Nonaccrual loans as a % of loans receivable     1.14         1.19         1.57         1.57         1.67      
Nonperforming assets as a % of total assets     0.96         0.99         1.29         1.26         1.36      
ALLL as a % of loans receivable     0.77         0.77         0.76         0.77         0.76      
ALLL as a % of nonaccrual loans (excluding taxi medallion loans)     161.7         157.7         168.4         217.2         202.1      
ALLL as a % of nonaccrual loans     67.6         65.0         48.4         48.8         45.1      
                       
(8)  Tangible common equity divided by tangible assets.                      
(9)  Tangible common equity divided by common shares outstanding at period-end.                    
                     

 

CONNECTONE BANCORP, INC.                              
NET INTEREST MARGIN ANALYSIS                              
(dollars in thousands)                                  
        For the Three Months Ended    
        June 30, 2018 March 31, 2018 June 30, 2017    
        Average         Average         Average        
Interest-earning assets:   Balance Interest Rate (8)     Balance Interest Rate (8)     Balance Interest Rate (8)    
Investment securities (1) (2)   $   432,493   $   3,136     2.91 %   $   441,563   $   2,917     2.68 %   $   390,462   $   3,079     3.16 %  
Total loans (2) (3) (4)         4,272,212       49,750     4.67         4,247,997       47,272     4.51         3,699,355       40,921     4.44    
Federal funds sold and interest-                              
  bearing deposits with banks       35,315       159     1.81         78,194       264     1.37         52,099       139     1.07    
Restricted investment in bank stock     31,503       502     6.39         31,699       485     6.21         26,428       290     4.40    
   Total interest-earning assets     4,771,523       53,547     4.50         4,799,453       50,938     4.30         4,168,344       44,429     4.28    
Allowance for loan losses       (32,668 )             (32,113 )             (27,355 )        
Noninterest-earning assets       365,806               321,483               354,019          
   Total assets     $   5,104,661           $   5,088,823           $   4,495,008          
                                     
Interest-bearing liabilities:                                
 Time deposits     $   1,280,471       5,830     1.83     $   1,207,368       4,788     1.61     $   976,012       3,311     1.36    
 Other interest-bearing deposits     1,765,577       3,338     0.76         1,815,122       2,900     0.65         1,712,875       2,184     0.51    
   Total interest-bearing deposits     3,046,048       9,168     1.21         3,022,490       7,688     1.03         2,688,887       5,495     0.82    
                                     
Borrowings         613,763       3,091     2.02         630,117       2,926     1.88         514,161       2,244     1.75    
Subordinated debentures (5)       128,339       1,840     5.75         115,182       1,674     5.89         54,590       810     5.95    
Capital lease obligation       2,589       39     6.04         2,622       40     6.19         2,720       41     6.05    
   Total interest-bearing liabilities     3,790,739       14,138     1.50         3,770,411       12,328     1.33         3,260,358       8,590     1.06    
                                     
Noninterest-bearing demand deposits     719,372               724,471               667,461          
Other liabilities         19,558               18,912               17,441          
   Total noninterest-bearing liabilities     738,930               743,383               684,902          
Stockholders' equity       574,992               575,029               549,748          
   Total liabilities and stockholders' equity $   5,104,661           $   5,088,823           $   4,495,008          
                                     
Net interest income (tax equivalent basis)       39,409               38,610               35,839        
Net interest spread (6)         3.00         2.97         3.22 %  
                                     
Net interest margin (7)         3.31 %         3.26 %         3.45 %  
                                     
Tax equivalent adjustment         (463 )             (463 )             (738 )      
Net interest income       $   38,946           $   38,147           $   35,101        
                                     
(1)  Average balances are calculated on amortized cost and includes equity securities.                                    
(2)  Interest income is presented on a tax equivalent basis using a 21% federal tax rate as of June 30, 2018 and March 31, 2018 and a 35% federal tax rate as of June 30, 2017.      
(3) Includes loan fee income.                                
(4)  Loans include nonaccrual loans.                              
(5)  Average balances are net of debt issuance costs of $1,816, $1,639, and $565 as of June 30, 2018, March 31, 2018 and June 30, 2017, respectively            
      Amortization expense related to debt issuance costs included in interest expense was $82, $86 and $41 as of June 30, 2018, March 31, 2018 and              
      June 30, 2017, respectively.                              
(6)  Represents difference between the average yield on interest-earning assets and the average cost of interest-bearing                  
      liabilities and is presented on a tax equivalent basis.                              
(7)  Represents net interest income on a tax equivalent basis divided by average total interest-earning assets.                    
(8)  Rates are annualized.                                
                                     

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

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