ConnectOne Bancorp, Inc. Reports Third Quarter 2018 Results

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ENGLEWOOD CLIFFS, N.J., Oct. 25, 2018 (GLOBE NEWSWIRE) — ConnectOne Bancorp, Inc. (Nasdaq: CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $19.9 million for the third quarter of 2018 compared with $17.5 million for the second quarter of 2018 and $13.1 million for the third quarter of 2017.  Diluted earnings per share were $0.61 for the third quarter of 2018 compared with $0.54 earned in the second quarter of 2018 and $0.41 earned in the third quarter of 2017.
Adjusted net income amounted to $18.5 million, or $0.57 earnings per share, for the third quarter of 2018; $17.5 million, or $0.54 earnings per share, for the second quarter of 2018; and $14.9 million, or $0.46 earnings per share, for the third quarter of 2017.  Adjusted net income for the third quarter of 2018 excludes $1.7 million in income tax benefits resulting from deferred tax asset (“DTA”) valuation adjustments and ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, and $0.3 million in after-tax merger-related expenses.Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “Our third quarter results reflect continued strong core performance and excellent execution across the organization despite the challenging operating environment.  Our performance was highlighted by record quarterly earnings, solid loan and deposit growth, a stable net interest margin, continued strong return on assets and return on tangible common equity, and sequential growth in tangible book value of $0.49 per share.  For the quarter, period-end loans grew on a sequential basis in excess of 9% annualized including commercial loans which grew $78 million, or 38% annualized, while average total deposits increased in excess of 15% annualized including noninterest-bearing demand growth in excess of 23%. Our net interest margin remained essentially flat, contracting 1 basis-point from the prior sequential quarter, while favorably widening by 3 basis-points when excluding the impact of purchase accounting adjustments.  We saw an increasing yield in the loan portfolio, driven by repricing and higher origination rates, and strong growth of our noninterest-bearing deposits, offset by increased rates on interest-bearing deposits.  Our efficiency ratio ticked up slightly to 42.3%, compared to 41.8% from the prior sequential quarter due primarily to previously planned technology investments and opening our new Astoria, Queens, New York office.  We remain one of the most efficient banks in the country.  Looking ahead to the remainder of 2018 and into 2019, we remain well-positioned for strong financial performance with steady, albeit slower, growth.” Mr. Sorrentino added, “On the operations side, we are extremely pleased with our recent expansion into Astoria with our newest banking office, the launch of our partnership with Zelle and our continued roll out of nCino.  The Zelle offering was launched on our ConnectOne Bank mobile banking app, allowing our clients to quickly and safely send money directly from person to person.  ConnectOne was part of the original consortium of 30 banks in the U.S. to partner with Zelle and provide a fast and easy way to send and receive money and we are very pleased with how our clients are adopting the new service.  We continue to integrate the nCino operating system into our day-to-day business and it is proving to be a powerful tool, allowing us to maintain our best-in-class efficiency metrics.  All of these efforts, as well as expanding into new digital offerings, remain incredibly important to ConnectOne as we continue to enter into new markets, serve new clients, and bolster our existing client relationships.  Finally, with regard to the previously announced acquisition of Greater Hudson Bank, we recently received FDIC approval and the transaction remains on track to close in early January 2019.”  Operating ResultsFully taxable equivalent net interest income for the third quarter of 2018 was $40.4 million, an increase of $1.0 million, or 2.6%, from the second quarter of 2018, resulting primarily from an increase in total interest-earning assets of 1.8%, and slightly offset by a contraction in the net interest margin of 1 basis-point to 3.30% from 3.31%.  Included in net interest income were purchase accounting adjustments of $0.2 million during the third quarter of 2018 and $0.7 million during the second quarter of 2018.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.29% in the third quarter of 2018, widening by 3 basis-points from the second quarter of 2018 adjusted net interest margin of 3.26%.  The increase in the adjusted net interest margin was primarily attributable to a higher yield earned on loans, an improved asset-mix and growth in noninterest-bearing deposits, partially offset by increases in deposit funding costs.Fully taxable equivalent net interest income for the third quarter of 2018 increased by $2.5 million, or 6.6%, from the third quarter of 2017, resulting from a 10.9% increase in total average interest-earning assets, primarily loans, and partially offset by a contraction in the net interest margin of 14 basis-points to 3.30% from 3.44%. Included in net interest income were purchase accounting adjustments of $0.2 million during the third quarter of 2018 and $0.3 million during the third quarter of 2017.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.29% in the third quarter of 2018, contracting by 12 basis-points from the third quarter of 2017 adjusted net interest margin of 3.41%. 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 $1.4 million in the third and second quarters of 2018 and $1.8 million in the third 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 third quarter included a BOLI death benefit.Noninterest expenses totaled $18.3 million for the third quarter of 2018, $17.1 million for the second quarter of 2018 and $18.6 million for the third quarter of 2017.  Noninterest expenses increased by $1.2 million from the prior sequential quarter due primarily to increases in salaries and employee benefits ($0.4 million), largely due to compensation accrual adjustments, merger-related expenses ($0.4 million) and other expenses ($0.4 million), including a loss on sale of an OREO property.  Noninterest expenses decreased by $0.4 million from the prior year third quarter due primarily to a $3.0 million valuation allowance adjustment on taxi medallion loans held-for-sale that occurred during the prior year third quarter, partially offset by increases in salaries and employee benefits ($1.3 million), other expenses ($0.9 million), both due to increased levels of business and staff resulting from organic growth, and merger-related expenses ($0.4 million).Income tax expense was $2.1 million for the third quarter of 2018, $4.6 million for the second quarter of 2018 and $5.6 million for the third quarter of 2017.  Included in income tax expense for the current quarter were benefits of $1.4 million resulting from Federal and NJ DTA adjustments and $0.3 million resulting from ASU 2016-09.   Excluding these income tax expense adjustments, the Company’s effective tax rate declined to 17% for the third quarter of 2018 from 21% during the first half of 2018. This reduction is the result of implementing certain tax strategies in the second half of 2018. The effective tax rate, exclusive of income tax expense adjustments, is anticipated to increase to approximately 26% for 2019, due to the recent NJ corporate tax legislation.Asset QualityThe provision for loan losses was $1.1 million in both the third and second quarters of 2018, and $1.5 million in the third quarter of 2017.  The provision for loan losses remained flat when compared to the prior sequential quarter.  The decrease from the prior year third quarter was the result of increased provision for the acquired portfolio during the prior year third quarter.Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $53.0 million at September 30, 2018, $66.2 million at December 31, 2017 and $61.2 million at September 30, 2017. Included in nonperforming assets were taxi medallion loans totaling $28.5 million at September 30, 2018, $46.8 million at December 31, 2017 and $47.4 million at September 30, 2017.  Nonperforming assets (including taxi) as a percentage of total assets were 0.99% at September 30, 2018, 1.29% at December 31, 2017 and 1.26% at September 30, 2017.  Excluding the taxi medallion loans, nonaccrual loans were $24.5 million at September 30, 2018, $18.8 million at December 31, 2017 and $13.8 million at September 30, 2017, representing a ratio of nonaccrual loans (excluding taxi) to loans receivable of 0.55%, 0.46% and 0.35%, respectively.  The annualized net loan charge-off (recovery) ratio was (0.01)% for the third quarter of 2018, 0.01% for the fourth quarter of 2017 and (0.00%) for the third quarter of 2017. The allowance for loan losses represented 0.78%, 0.76%, and 0.77% of loans receivable as of September 30, 2018, December 31, 2017 and September 30, 2017, respectively.  The allowance for loan losses as a percentage of nonaccrual loans was 65.5% as of September 30, 2018, 48.4% as of December 31, 2017 and 48.8% as of September 30, 2017.  Excluding the taxi medallion loans, allowance for loan losses as a percentage of nonaccrual loans was 141.6% as of September 30, 2018, 168.4% as of December 31, 2017 and 217.2% as of September 30, 2017.Selected Balance Sheet ItemsAt September 30, 2018, the Company’s total assets were $5.4 billion, an increase of $260 million from December 31, 2017, largely the result of an increase in total loans (loan originations less pay-downs and pay-offs) of $266 million. The Company’s stockholders’ equity was $595 million at September 30, 2018, an increase of $29 million from December 31, 2017. The increase in stockholders’ equity was primarily attributable to increases in retained earnings of $35 million, primarily offset by increases in accumulated other comprehensive losses of $7 million.  As of September 30, 2018, the Company’s tangible common equity ratio and tangible book value per share were 8.56% and $13.87, respectively.  Tangible book value per share increased $0.49, or 3.7%, from the sequential quarter.  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 September 30, 2018 and December 31, 2017.ConnectOne Appoints New Independent Board MemberThe Company also announced today that Katherin Nukk-Freeman, co-founding partner and CEO of Nukk-Freeman & Cerra, P.C., has been elected to ConnectOne’s Board of Directors. With more than 20 years of experience in employment law, Ms. Nukk-Freeman serves as a trusted advisor to corporate leaders in addressing and effectively managing workplace issues. Most recently, she co-founded SHIFT, a technology startup that provides HR compliance training tools to companies of all sizes.“Katherin’s extensive knowledge of human resource compliance and law coupled with her technological knowledge will be a valuable asset to ConnectOne. I am thrilled to welcome her to our Board,” commented Mr. Sorrentino.Use of Non-GAAP Financial MeasuresIn 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.Third Quarter 2018 Results Conference CallManagement will also host a conference call and audio webcast at 10:00 a.m. ET on October 25, 2018 to review the Company’s financial performance and operating results.  The conference call dial-in number is 334-323-0522, access code 6919110. 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, October 25, 2018 and ending on Thursday, November 1, 2018 by dialing 719-457-0820, access code 6919110. 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 broad range of commercial banking and lending services and products through its 22 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 www.ConnectOneBank.com.Forward-Looking StatementsThis 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; [email protected]
Media Contact:
Thomas Walter, MWWPR
202.600.4532; [email protected]