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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 8-K

_________________

CURRENT REPORT

Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  April 30, 2020

_______________________________

ConnectOne Bancorp, Inc.

(Exact name of registrant as specified in its charter)

_______________________________

New Jersey 001-11486 52-1273725
(State or Other Jurisdiction of Incorporation) (Commission File Number) (I.R.S. Employer Identification No.)

301 Sylvan Avenue

Englewood Cliffs, New Jersey 07632

(Address of Principal Executive Offices) (Zip Code)

(201) 816-8900

(Registrant's telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

_______________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock CNOB NASDAQ

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 
 
Item 2.02. Results of Operations and Financial Condition.

On April 30, 2020, the Registrant issued a press release, a copy of which is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

Item 9.01. Financial Statements and Exhibits.

Exhibit 99.1. Press release dated April 30, 2020

104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

 
 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

  ConnectOne Bancorp, Inc.
     
   
Date: April 30, 2020 By:  /s/ William S. Burns        
    William S. Burns
    Executive Vice President and Chief Financial Officer
   

 

EXHIBIT 99.1

ConnectOne Bancorp, Inc. Reports First Quarter 2020 Results

ENGLEWOOD CLIFFS, N.J., April 30, 2020 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq: CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $6.0 million for the first quarter of 2020 compared with $20.8 million for the fourth quarter of 2019 and $11.6 million for the first quarter of 2019.  Diluted earnings per share were $0.15 for the first quarter of 2019 compared with $0.59 earned in the fourth quarter of 2019 and $0.33 earned in the first quarter of 2019. The decrease in net income and diluted earnings per share from the fourth quarter of 2019 was primarily due to an increase in provision for loan losses of $15.5 million substantially due to the economic uncertainties caused by the COVID-19 pandemic.  On January 2, 2020, the acquisition of Bancorp of New Jersey (“BNJ”) was completed and thus first quarter 2020 results reflect the operations of the combined entity.  Historical financial information includes only the operations of ConnectOne, pre-merger. Included in net income were merger expenses of $9.5 million for the first quarter of 2020, $0.9 million for the fourth quarter of 2019 and $7.6 million for the first quarter of 2019.  On a pre-tax, pre-provision and pre-merger charges basis, earnings were $32.6 million for the first quarter of 2020, $28.4 million for the fourth quarter of 2019, and $26.2 million for the first quarter of 2019.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “ConnectOne continues to navigate through this unprecedented time.  While our priorities are the safety of our employees and supporting our clients through these challenging times, we continue to execute on all our business strategies. As a technology-forward bank, our operations and teams have transitioned quickly to offering essential banking services virtually. Our business is functioning well and I’m proud of the resiliency of the ConnectOne team as we’re using the full range of our Company's banking expertise to help clients.”  

“We’ve also continued to be a resource to the communities we serve by actively participating in the SBA’s Paycheck Protection Program (the “PPP”).  ConnectOne expects to fund a total of approximately $385 million in the initial PPP tranche. Additionally, there are over 1,000 new applications being processed for the second PPP tranche.  Furthermore, our FinTech subsidiary BoeFly – which connects small- to mid-sized businesses to a network of financial lenders – has participated in the PPP in a meaningful way, agenting upwards of $750 million and potentially and significantly increasing its relationships with borrowers and banking partners.”

Mr. Sorrentino added, “While our first quarter results were affected by the current economic environment, we were pleased with our strong overall financial performance notwithstanding the increase in COVID-related reserves. We’re operating ConnectOne in a disciplined manner, continue to watch credit and remain well-positioned to leverage our experience, our solid financial position and our relationship-focused banking model during this crisis.”

Operating Results

Fully taxable equivalent net interest income for the first quarter of 2020 was $55.8 million, an increase of $7.9 million, or 16.4%, from the fourth quarter of 2019, resulting primarily from an 16.3% increase in average interest-earning assets and a 5 basis-point widening of the net interest margin to 3.41% from 3.36%, both resulting largely from the BNJ acquisition. Included in net interest income were purchase accounting adjustments of $3.5 million during the first quarter of 2020 and $1.5 million during the fourth quarter of 2019.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.20% for the first quarter of 2020 and 3.26% for the fourth quarter of 2019.  The adjusted net interest contracted as a result of higher cash balances and from the BNJ acquisition.  The adjusted net interest margin contraction resulting from the BNJ acquisition was mitigated through securities portfolio restructuring and deposit rate reductions effected toward the end of the first quarter of 2020.

Noninterest income increased to $2.9 million in the first quarter of 2020 from $2.2 million in the fourth quarter of 2019 and $1.7 million in the first quarter of 2019.  The increases in noninterest income for the sequential quarter were primarily attributed to increases in net gains on equity securities of $0.2 million, increases in net gains on sale of loans held-for-sale of $0.2 million and increases in deposit, loan and other income of $0.1 million.

Noninterest expenses totaled $35.2 million for first quarter of 2020, $22.2 million for the fourth quarter of 2019 and $28.1 million for the first quarter of 2019.  Included in noninterest expenses were merger related expenses totaling $9.5 million, $0.9 million and $7.6 million, during the first quarter of 2020, fourth quarter of 2019 and first quarter of 2019, respectively.  Excluding merger-related expenses, noninterest expenses increased by $4.2 million from the fourth quarter of 2019 due primarily to increases in salaries and employee benefits of $1.7 million, occupancy and equipment expenses of $1.1 million and other expenses of $0.6 million.  These increases are primarily due to the expansion of our franchise through the BNJ acquisition and reflect approximately one-third of projected cost saves, which are estimated to be approximately 70% of BNJ’s expense base.

Income tax expense was $1.1 million for the first quarter of 2020, $6.2 million for the fourth quarter of 2019 and $2.5 million for the first quarter of 2019.  The effective tax rates for the first quarter of 2020, fourth quarter of 2019 and first quarter of 2019 were 15.1%, 23.0% and 17.6%, respectively. The decrease in the effective tax rate for the current quarter from the sequential quarter was due to a larger proportion of income from nontaxable sources.

Asset Quality

In accordance with the accounting relief provisions of the CARES Act, the Company has postponed the adoption of the current expected credit losses (“CECL”) accounting standards as permitted under regulatory guidance. Management reached this decision due to the complexities of CECL loan loss forecasting exacerbated by the quickly changing economic environment resulting from the COVID-19 pandemic.  Had the Company adopted CECL as of January 1, 2020, the increase to its allowance for loan losses for “Day 1” implementation would have ranged from $4 million to $14 million, excluding the re-allocation of an additional $8 million of non-accretable purchase credit-impaired marks.

The provision for loan losses was $16.0 million for the first quarter of 2020, $0.5 million for the fourth quarter of 2019 and $4.5 million for the first quarter of 2019.  The increase in the loan loss provision in the first quarter of 2020 was largely due to the economic uncertainties of COVID-19, including consideration of related payment deferrals requested and/or granted to date.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $62.4 million at March 31, 2020, $49.5 million at December 31, 2019 and $47.7 million at March 31, 2019. Included in nonperforming assets were taxi medallion loans totaling $23.0 million at March 31, 2020, $23.4 million at December 31, 2019 and $27.3 million at March 31, 2019.  Nonperforming assets (including taxi medallion loans) as a percentage of total assets were 0.86% at March 31, 2020, 0.80% at December 31, 2019 and 0.79% at March 31, 2019.  Excluding the taxi medallion loans, nonaccrual loans were $39.3 million at March 31, 2020, $26.1 million at December 31, 2019 and $20.4 million at March 31, 2019, representing a ratio of nonaccrual loans (excluding taxi medallion loans) to loans receivable of 0.66%, 0.51% and 0.41%, respectively. Nonaccruals increased $13.3 million from December 31, 2019 primarily due to a commercial construction relationship of $11.4 million that is well-secured.  The annualized net loan charge-off ratio was 0.01% for the first quarter of 2020, 0.08% for the fourth quarter of 2019 and 0.21% for the first quarter of 2019. The allowance for loan losses represented 0.90%, 0.75%, and 0.74% of loans receivable as of March 31, 2020, December 31, 2019 and March 31, 2019, respectively.  The allowance, currently excludes approximately $8 million of purchase accounting credit marks that are expected to be added to the allowance once CECL is implemented, resulting in an additional 13 bps to the allowance as a percent of loans ratio. The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 137.7% as of March 31, 2020, 147.0% as of December 31, 2019 and 180.7% as of March 31, 2019.

Selected Balance Sheet Items

At March 31, 2020, the balance sheet reflected the acquisition of BNJ.  The Company’s total assets were $7.3 billion, an increase of $1.1 billion from December 31, 2019.  Loans receivable were $6.0 billion, an increase of $896 million from December 31, 2019.  The increase in total assets and loans receivable were primarily attributable to the acquisition of BNJ.  The Company’s stockholders’ equity was $854 million at March 31, 2020, an increase of $123 million from December 31, 2019. The increase in stockholders’ equity was primarily attributable to the acquisition of BNJ, which increased capital by $118 million.  As of March 31, 2020, the Company’s tangible common equity ratio and tangible book value per share were 8.96% and $15.93, respectively.  As of December 31, 2019, the tangible common equity ratio and tangible book value per share were 9.38% and $16.06, respectively. Total goodwill and other intangible assets were approximately $221 million as of March 31, 2020 and $168 million and December 31, 2019.

During the first quarter of 2020, the Bancorp repurchased approximately 55,000 shares of common stock leaving a remaining capacity of approximately 605,000 shares in the Board authorized program.  Due to the COVID-19 pandemic, the Company has suspended repurchases of common stock during the COVID-19 pandemic.  

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 measures. 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 financial measures disclosed in this earnings release to the comparable GAAP measures are provided in the accompanying tables.

First Quarter 2020 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on April 30, 2020 to review the Company's financial performance and operating results. The conference call dial-in number is 631-891-4304, access code 10009333. Please dial in at least five minutes before the start of the call to register. An audio webcast of the conference call will be available to the public, on a listen-only basis, via the "Investor Relations" link on the Company's website https://www.ConnectOneBank.com or at http://ir.connectonebank.com.

A replay of the conference call will be available beginning at approximately 1:00 p.m. ET on Thursday, April 30, 2020 and ending on Thursday, May 7, 2020 by dialing 412-317-6671, access code 10009333. 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 banking offices located across 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, as supplemented by the Company’s subsequent filings 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, changes in accounting principles and guidelines and the impact of the COVID-19 pandemic on the Company, its employees and operations, and its customers. 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:
Emily Holtzman, MWWPR
631.742.9568; eholtzman@mww.com



CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
           
  Mar 31,   December 31,   Mar 31,
    2020       2019       2019  
  (unaudited)       (unaudited)
ASSETS          
Cash and due from banks $ 59,442     $ 65,717     $ 54,520  
Interest-bearing deposits with banks   223,367       135,766       118,028  
Cash and cash equivalents   282,809       201,483       172,548  
           
Securities available-for-sale   446,738       404,701       516,539  
Equity securities   13,363       11,185       11,564  
           
Loans held-for-sale   32,425       33,250       368  
           
Loans receivable   6,009,310       5,113,527       4,972,651  
Less: Allowance for loan losses   54,169       38,293       36,858  
Net loans receivable   5,955,141       5,075,234       4,935,793  
           
Investment in restricted stock, at cost   38,554       27,397       31,727  
Bank premises and equipment, net   32,864       19,236       20,150  
Accrued interest receivable   24,317       20,949       21,198  
Bank owned life insurance   163,929       137,961       125,300  
Leases   26,924       15,137       15,311  
Goodwill   208,379       162,574       156,243  
Core deposit intangibles   12,884       5,460       6,504  
Other assets   41,000       59,465       35,731  
Total assets $ 7,279,327     $ 6,174,032     $ 6,048,976  
           
LIABILITIES          
Deposits:          
Noninterest-bearing $ 979,778     $ 861,728     $ 833,090  
Interest-bearing   4,529,414       3,905,814       3,760,908  
Total deposits   5,509,192       4,767,542       4,593,998  
Borrowings   726,856       500,293       603,412  
Leases   28,731       16,449       16,719  
Subordinated debentures   128,967       128,885       128,638  
Other liabilities   31,871       29,673       23,814  
Total liabilities   6,425,617       5,442,842       5,366,581  
           
COMMITMENTS AND CONTINGENCIES          
           
STOCKHOLDERS' EQUITY          
Common stock   586,946       468,571       468,571  
Additional paid-in capital   21,746       21,344       16,513  
Retained earnings   273,825       271,782       219,558  
Treasury stock   (30,271 )     (29,360 )     (16,967 )
Accumulated other comprehensive loss   1,464       (1,147 )     (5,280 )
Total stockholders' equity   853,710       731,190       682,395  
Total liabilities and stockholders' equity $ 7,279,327     $ 6,174,032     $ 6,048,976  
           



           
CONNECTONE BANCORP, INC. AND SUBSIDIARIES          
CONSOLIDATED STATEMENTS OF INCOME          
(dollars in thousands, except for per share data)          
           
  Three Months Ended
  3/31/2020   12/31/2019 3/31/2019
Interest income          
Interest and fees on loans $ 72,936   $ 64,833     $ 60,326
Interest and dividends on investment securities:          
Taxable   2,066     1,700       2,942
Tax-exempt   813     824       1,127
Dividends   400     409       457
Interest on federal funds sold and other short-term investments   499     242       357
Total interest income   76,714     68,008       65,209
Interest expense          
Deposits   17,212     16,272       15,351
Borrowings   4,221     4,305       4,906
Total interest expense   21,433     20,577       20,257
           
Net interest income   55,281     47,431       44,952
Provision for loan losses   16,000     500       4,500
Net interest income after provision for loan losses   39,281     46,931       40,452
           
Noninterest income          
Income on bank owned life insurance   967     914       822
Net gains on sale of loans held-for-sale   393     169       19
Deposit, loan and other income   1,287     1,209       786
Net gains on equity securities   178     (46 )     103
Net gains on sale of investment securities   29     -       8
Total noninterest income   2,854     2,246       1,738
           
Noninterest expenses          
Salaries and employee benefits   14,563     12,881       11,983
Occupancy and equipment   3,471     2,380       2,495
FDIC insurance   856     795       755
Professional and consulting   1,574     1,428       1,209
Marketing and advertising   304     273       210
Data processing   1,473     1,151       1,155
Merger expenses   9,494     871       7,562
Amortization of core deposit intangible   652     340       364
Other expenses   2,671     2,078       2,329
Total noninterest expenses   35,058     22,197       28,062
           
Income before income tax expense   7,077     26,980       14,128
Income tax expense   1,047     6,197       2,493
Net income $ 6,030   $ 20,783     $ 11,635
           
Earnings per common share:          
Basic $ 0.15   $ 0.59     $ 0.33
Diluted   0.15     0.59       0.33
           



 
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  
  Mar. 31,   Dec. 31,   Sept. 30,   June 30,   Mar. 31,  
    2020       2019       2019       2019       2019    
                                         
Selected Financial Data (dollars in thousands)  
Total assets $ 7,279,327     $ 6,174,032     $ 6,161,269     $ 6,109,066     $ 6,048,976    
Loans receivable:                    
Commercial $ 1,203,818     $ 1,096,224     $ 1,079,071     $ 1,018,951     $ 1,012,930    
Commercial real estate   1,981,149       1,559,354       1,551,182       1,555,542       1,483,852    
Multifamily   1,762,651       1,518,400       1,513,216       1,589,340       1,608,613    
Commercial construction   676,836       620,969       647,261       602,213       548,039    
Residential   387,400       320,019       322,307       326,661       319,215    
Consumer   1,965       3,328       2,436       2,041       4,156    
Gross loans   6,013,819       5,118,294       5,115,473       5,094,748       4,976,805    
Unearned net origination fees   (4,509 )     (4,767 )     (5,002 )     (4,256 )     (4,154 )  
Loans receivable   6,009,310       5,113,527       5,110,471       5,090,492       4,972,651    
Loans held-for-sale   32,425       33,250       33,245       -       368    
Total loans $ 6,041,735     $ 5,146,777     $ 5,143,716     $ 5,090,492     $ 4,973,019    
                     
Investment securities $ 460,101     $ 415,886     $ 437,080     $ 453,063     $ 528,103    
Goodwill and other intangible assets   221,263       168,034       168,374       168,714       162,747    
Deposits:                    
Noninterest-bearing demand $ 979,778     $ 861,728     $ 828,190     $ 813,635     $ 833,090    
Time deposits   1,974,400       1,553,721       1,573,736       1,623,948       1,544,247    
Other interest-bearing deposits   2,555,014       2,352,093       2,349,308       2,203,560       2,216,661    
Total deposits $ 5,509,192     $ 4,767,542     $ 4,751,234     $ 4,641,143     $ 4,593,998    
                     
Borrowings $ 726,856     $ 500,293     $ 512,456     $ 597,317     $ 603,412    
Subordinated debentures (net of debt issuance costs)   128,967       128,885       128,802       128,720       128,638    
Total stockholders' equity   853,710       731,190       720,160       699,224       682,395    
                     
Quarterly Average Balances                    
Total assets $ 7,106,027     $ 6,084,607     $ 6,059,413     $ 6,001,669     $ 5,909,061    
Loans receivable:                    
Commercial $ 1,146,773     $ 1,085,640     $ 1,040,355     $ 1,024,617     $ 1,035,874    
Commercial real estate (including multifamily)   3,723,991       3,074,889       3,144,978       3,088,231       3,011,692    
Commercial construction   663,036       642,476       617,106       571,130       524,952    
Residential   390,655       318,413       325,188       322,517       335,574    
Consumer   3,007       4,165       3,525       3,252       3,397    
Gross loans   5,927,462       5,125,583       5,131,152       5,009,747       4,911,489    
Unearned net origination fees   (4,648 )     (5,031 )     (4,778 )     (4,463 )     (3,930 )  
Loans receivable   5,922,814       5,120,552       5,126,374       5,005,284       4,907,559    
Loans held-for-sale   33,655       33,163       991       225       124    
Total loans $ 5,956,469     $ 5,153,715     $ 5,127,365     $ 5,005,509     $ 4,907,683    
                     
Investment securities $ 458,642     $ 427,973     $ 448,618     $ 513,814     $ 524,394    
Goodwill and other intangible assets   221,075       168,257       168,598       164,709       162,814    
Deposits:                    
Noninterest-bearing demand $ 955,358     $ 844,332     $ 810,247     $ 800,856     $ 824,115    
Time deposits   1,962,714       1,533,425       1,598,378       1,551,014       1,515,249    
Other interest-bearing deposits   2,660,755       2,348,752       2,300,886       2,183,384       2,236,630    
Total deposits $ 5,578,827     $ 4,726,509     $ 4,709,511     $ 4,535,254     $ 4,575,994    
                     
Borrowings $ 477,121     $ 452,837     $ 467,230     $ 603,260     $ 486,687    
Subordinated debentures (net of debt issuance costs)   128,913       128,830       128,747       128,666       128,585    
Total stockholders' equity   864,241       732,173       714,002       694,978       680,168    
                     
  Three Months Ended  
  Mar. 31,   Dec. 31,   Sept. 30,   June 30,   Mar. 31,  
    2020       2019       2019       2019       2019    
                                         
  (dollars in thousands, except for per share data)  
Net interest income $ 55,281     $ 47,431     $ 48,406     $ 45,530     $ 44,952    
Provision for loan losses   16,000       500       2,000       1,100       4,500    
Net interest income after provision for loan losses   39,281       46,931       46,406       44,430       40,452    
Noninterest income                    
Income on bank owned life insurance   967       914       915       833       822    
Net gains on sale of loans held-for-sale   393       169       278       46       19    
Deposit, loan and other income   1,287       1,209       1,116       914       786    
Net gains (losses) on equity securities   178       (46 )     79       158       103    
Net gains (losses) on sale of investment securities   29       -       (279 )     (9 )     8    
Total noninterest income   2,854       2,246       2,109       1,942       1,738    
Noninterest expenses                    
Salaries and employee benefits   14,563       12,881       12,449       11,822       11,983    
Occupancy and equipment   3,471       2,380       2,480       2,357       2,495    
FDIC insurance   856       795       (364 )     825       755    
Professional and consulting   1,574       1,428       1,499       1,370       1,209    
Marketing and advertising   304       273       473       397       210    
Data processing   1,473       1,151       1,058       1,139       1,155    
Merger expenses   9,494       871       191       331       7,562    
Loss on extinguishment of debt   -       -       -       1,047       -    
Amortization of core deposit intangible   652       340       340       364       364    
Other expenses   2,671       2,078       2,253       1,938       2,329    
Total noninterest expenses   35,058       22,197       20,379       21,590       28,062    
                     
Income before income tax expense   7,077       26,980       28,136       24,782       14,128    
Income tax expense   1,047       6,197       6,440       5,501       2,493    
Net income $ 6,030     $ 20,783     $ 21,696     $ 19,281     $ 11,635    
                     
Weighted average diluted shares outstanding   39,510,810       35,245,285       35,262,565       35,397,362       35,309,503    
Diluted EPS $ 0.15     $ 0.59     $ 0.61     $ 0.54     $ 0.33    
                     
Reconciliation of GAAP Earnings to Pre-tax, Pre-provision and Pre-merger charges Earnings                    
Net income $ 6,030     $ 20,783     $ 21,696     $ 19,281     $ 11,635    
Income tax expense   1,047       6,197       6,440       5,501       2,493    
Merger charges   9,494       871       191       331       7,562    
Provision for loan losses   16,000       500       2,000       1,100       4,500    
Pre-tax, pre-provision and pre-merger charges earnings $ 32,571     $ 28,351     $ 30,327     $ 26,213     $ 26,190    
                     
Return on Assets                    
Average assets $ 7,106,027     $ 6,084,607     $ 6,059,413     $ 6,001,669     $ 5,909,061    
Return on average assets   0.34   %   1.36   %   1.42   %   1.29   %   0.80   %
                     
  Three Months Ended  
  Mar. 31,   Dec. 31,   Sept. 30,   June 30,   Mar. 31,  
    2020       2019       2019       2019       2019    
                                         
Return on Equity Measures (dollars in thousands)  
Average common equity $ 864,241     $ 732,173     $ 714,002     $ 694,978     $ 680,168    
Less: average intangible assets   (221,075 )     (168,257 )     (168,598 )     (164,709 )     (162,814 )  
Average tangible common equity $ 643,166     $ 563,916     $ 545,404     $ 530,269     $ 517,354    
                     
Return on average common equity (GAAP)   2.81   %   11.26   %   12.06   %   11.13   %   6.94   %
Return on average tangible common equity (non-GAAP) (1)   4.06       14.79       15.96       14.78       9.33    
                     
Efficiency Measures                    
Total noninterest expenses $ 35,058     $ 22,197     $ 20,379     $ 21,590     $ 28,062    
Amortization of core deposit intangibles   (652 )     (340 )     (340 )     (364 )     (364 )  
Merger expenses   (9,494 )     (871 )     (191 )     (331 )     (7,562 )  
FDIC small bank assessment credit   -       -       1,310       -       -    
Loss on extinguishment of debt   -       -       -       (1,047 )     -    
Foreclosed property expense   10       8       (90 )     -       1    
Operating noninterest expense $ 24,922     $ 20,994     $ 21,068     $ 19,848     $ 20,137    
                     
Net interest income (tax equivalent basis) $ 55,781     $ 47,929     $ 48,918     $ 46,092     $ 45,523    
Noninterest income   2,854       2,246       2,109       1,942       1,738    
Net (gains) losses on equity securities   (178 )     46       (79 )     (158 )     (103 )  
Net losses (gains) on sales of securities   (29 )     -       279       9       (8 )  
Operating revenue $ 58,428     $ 50,221     $ 51,227     $ 47,885     $ 47,150    
                     
Operating efficiency ratio (non-GAAP) (2)   42.7   %   41.8   %   41.1   %   41.4   %   42.7   %
                     
Net Interest Margin                    
Average interest-earning assets $ 6,584,508     $ 5,663,538     $ 5,649,058     $ 5,607,086     $ 5,522,934    
                     
Net interest income (tax equivalent basis) $ 55,781     $ 47,929     $ 48,918     $ 46,092     $ 45,523    
Impact of purchase accounting fair value marks   (3,457 )     (1,455 )     (1,566 )     (1,742 )     (1,233 )  
Adjusted net interest income (tax equivalent basis) $ 52,324     $ 46,474     $ 47,352     $ 44,350     $ 44,290    
                     
Net interest margin (GAAP)   3.41   %   3.36   %   3.44   %   3.30   %   3.34   %
Adjusted net interest margin (non-GAAP) (3)   3.20       3.26       3.33       3.17       3.25    
                     
(1) Earnings available to common stockholders excluding amortization of intangible assets divided by average tangible common equity.
(2) Operating noninterest expense divided by operating revenue.
(3) Adjusted net interest margin excludes impact of purchase accounting fair value marks.
                     
  As of  
  Mar. 31,   Dec. 31,   Sept. 30,   June 30,   Mar. 31,  
    2020       2019       2019       2019       2019    
                                         
Capital Ratios and Book Value per Share (dollars in thousands, except for per share data)  
Common equity $ 853,710     $ 731,190     $ 720,160     $ 699,224     $ 682,395    
Less: intangible assets   (221,263 )     (168,034 )     (168,374 )     (168,714 )     (162,747 )  
Tangible common equity $ 632,447     $ 563,156     $ 551,786     $ 530,510     $ 519,648    
                     
Total assets $ 7,279,327     $ 6,174,032     $ 6,161,269     $ 6,109,066     $ 6,048,976    
Less: intangible assets   (221,263 )     (168,034 )     (168,374 )     (168,714 )     (162,747 )  
Tangible assets $ 7,058,064     $ 6,005,998     $ 5,992,895     $ 5,940,352     $ 5,886,229    
                     
Common shares outstanding   39,704,921       35,072,066       35,364,845       35,352,806       35,443,933    
                     
Common equity ratio (GAAP)   11.73   %   11.84   %   11.69   %   11.45   %   11.28   %
Tangible common equity ratio (non-GAAP) (4)   8.96       9.38       9.21       8.93       8.83    
                     
Regulatory capital ratios (Bancorp):                    
Leverage ratio   9.20   %   9.54   %   9.39   %   9.14   %   9.12   %
Common equity Tier 1 risk-based ratio   9.59       9.95       9.78       9.65       9.68    
Risk-based Tier 1 capital ratio   9.67       10.04       9.87       9.74       9.77    
Risk-based total capital ratio   12.41       12.95       12.80       12.72       12.79    
                     
Regulatory capital ratios (Bank):                    
Leverage ratio   10.36   %   10.81   %   10.68   %   10.42   %   10.43   %
Common equity Tier 1 risk-based ratio   10.88       11.37       11.23       11.12       11.17    
Risk-based Tier 1 capital ratio   10.88       11.37       11.23       11.12       11.17    
Risk-based total capital ratio   12.20       12.63       12.50       12.40       12.46    
                     
Book value per share (GAAP) $ 21.50     $ 20.85     $ 20.36     $ 19.78     $ 19.25    
Tangible book value per share (non-GAAP) (5)   15.93       16.06       15.60       15.01       14.66    
                     
Net Loan Charge-Off (Recoveries) Detail                    
Net loan charge-offs (recoveries) :                    
Charge-offs $ 115     $ 1,029     $ 964     $ 406     $ 2,676    
Recoveries   (3 )     (22 )     (37 )     (146 )     (80 )  
Net loan charge-offs (recoveries) $ 112     $ 1,007     $ 927     $ 260     $ 2,596    
Net loan charge-offs (recoveries) as a % of average loans receivable (annualized)   0.01   %   0.08   %   0.07   %   0.02   %   0.21   %
                     
Asset Quality                    
Nonaccrual taxi medallion loans $ 23,024     $ 23,431     $ 25,802     $ 26,498     $ 27,287    
Nonaccrual loans (excluding taxi medallion loans)   39,349       26,050       25,519       23,419       20,393    
Other real estate owned   -       -       907       -       -    
Total nonperforming assets $ 62,373     $ 49,481     $ 52,228     $ 49,917     $ 47,680    
                     
Performing troubled debt restructurings $ 21,293     $ 21,410     $ 19,681     $ 16,332     $ 8,191    
                     
Allowance for loan losses ("ALLL") $ 54,169     $ 38,293     $ 38,771     $ 37,698     $ 36,858    
                     
Loans receivable $ 6,009,310     $ 5,113,527     $ 5,110,471     $ 5,090,492     $ 4,972,651    
Less: taxi medallion loans   24,575       24,977       27,353       28,054       28,911    
Loans receivable (excluding taxi medallion loans) $ 5,984,735     $ 5,088,550     $ 5,083,118     $ 5,062,438     $ 4,943,740    
                     
Nonaccrual loans (excluding taxi medallion loans) as a % of loans receivable (excluding taxi medallion loans)   0.66   %   0.51   %   0.50   %   0.46   %   0.41   %
Nonaccrual loans as a % of loans receivable   1.04       0.97       1.00       0.98       0.96    
Nonperforming assets as a % of total assets   0.86       0.80       0.85       0.82       0.79    
ALLL as a % of loans receivable   0.90       0.75       0.76       0.74       0.74    
ALLL as a % of nonaccrual loans (excluding taxi medallion loans)   137.7       147.0       151.9       161.0       180.7    
ALLL as a % of nonaccrual loans   86.8       77.4       75.5       75.5       77.3    
_____________                    
(4) Tangible common equity divided by tangible assets.
(5) Tangible common equity divided by common shares outstanding at period-end.
 



 
CONNECTONE BANCORP, INC. AND SUBSIDIARIES
NET INTEREST MARGIN ANALYSIS
(dollars in thousands)
  For the Three Months Ended  
  March 31, 2020 December 31, 2019 March 31, 2019  
  Average         Average         Average      
Interest-earning assets: Balance Interest Rate (8)   Balance Interest Rate (8)   Balance Interest Rate (8)
Investment securities (1) (2) $ 452,294   $ 3,095   2.75 %   $ 423,857   $ 2,737   2.56 %   $ 531,083   $ 4,369   3.34 %
Loans receivable and loans held-for-sale (2) (3) (4)   5,956,469     73,220   4.94       5,153,715     65,118   5.01       4,907,683     60,597   5.01  
Federal funds sold and interest-                            
bearing deposits with banks   148,429     499   1.35       60,705     242   1.58       57,690     357   2.51  
Restricted investment in bank stock   27,316     400   5.89       25,261     409   6.42       26,478     457   7.00  
Total interest-earning assets   6,584,508     77,214   4.72       5,663,538     68,506   4.80       5,522,934     65,780   4.83  
Allowance for loan losses   (38,970 )           (39,094 )           (35,499 )      
Noninterest-earning assets   560,489             460,163             421,626        
Total assets $ 7,106,027           $ 6,084,607           $ 5,909,061        
                             
Interest-bearing liabilities:                            
Time deposits   1,962,714     10,371   2.13     $ 1,533,425     9,573   2.48     $ 1,515,249     8,303   2.22  
Other interest-bearing deposits   2,660,755     6,841   1.03       2,348,752     6,699   1.13       2,236,630     7,048   1.28  
Total interest-bearing deposits   4,623,469     17,212   1.50       3,882,177     16,272   1.66       3,751,879     15,351   1.66  
                             
Borrowings   477,121     2,352   1.98       452,837     2,431   2.13       486,687     3,024   2.52  
Subordinated debentures (5)   128,913     1,834   5.72       128,830     1,839   5.66       128,585     1,845   5.82  
Capital lease obligation   2,303     35   6.11       2,348     35   5.91       2,479     37   6.05  
Total interest-bearing liabilities   5,231,806     21,433   1.65       4,466,192     20,577   1.83       4,369,630     20,257   1.88  
                             
Noninterest-bearing demand deposits   955,358             844,332             824,115        
Other liabilities   54,622             41,910             35,148        
Total noninterest-bearing liabilities   1,009,980             886,242             859,263        
Stockholders' equity   864,241             732,173             680,168        
Total liabilities and stockholders' equity $ 7,106,027           $ 6,084,607           $ 5,909,061        
                             
Net interest income (tax equivalent basis)     55,781             47,929             45,523      
Net interest spread (6)     3.07 %       2.97 %       2.95 %
                             
Net interest margin (7)     3.41 %       3.36 %       3.34 %
                             
Tax equivalent adjustment     (500 )           (498 )           (571 )    
Net interest income   $ 55,281           $ 47,431           $ 44,952      
_____________                             
(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.
(3) Includes loan fee income.
(4) Loans include nonaccrual loans.
(5) Average balances are net of debt issuance costs of $1,240, $1,325, and $1,570 for the three months ended March 31, 2020, December 31, 2019 and March 31, 2019, respectively. Amortization expense related to debt issuance costs included in interest expense was $82, $82 and $83 for the three months ended March 31, 2020, December 31, 2019 and March 31, 2019, 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.