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ConnectOne Bancorp, Inc. Reports Second Quarter 2023 Results; Declares Common and Preferred Dividends

ENGLEWOOD CLIFFS, N.J., July 27, 2023 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq: CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income available to common stockholders of $19.9 million for the second quarter of 2023 compared with $23.4 million for the first quarter of 2023 and $30.8 million for the second quarter of 2022. Diluted earnings per share were $0.51 for the second quarter of 2023 compared with $0.59 for the first quarter of 2023 and $0.78 for the second quarter of 2022. The decrease in net income available to common stockholders and diluted earnings per share from the first quarter of 2023 was primarily due to a decrease in net interest income of $3.2 million, an increase in provision for credit losses of $2.0 million and an increase in noninterest expenses of $0.6 million, partially offset by an increase in noninterest income of $0.6 million and a decrease in income tax expenses of $1.6 million. The decrease in net income available to common stockholders and diluted earnings per share from the second quarter of 2022 was primarily due to a decrease in net interest income of $11.7 million and an increase in noninterest expenses of $3.7 million, partially offset by an increase of $0.1 million in noninterest income and a decrease in income tax expenses of $4.5 million.

Pre-tax, pre-provision net revenue (“PPNR”) as a percent of average assets was 1.31%, 1.46% and 2.28% for the quarters ending June 30, 2023, March 31, 2023 and June 30, 2022, respectively.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “ConnectOne’s operating performance remains strong and stable during this challenging economic environment, reflecting our core values which include a client-first focus and executing with a sense of urgency. Results include, most importantly, increased client deposits, fortification of liquidity sources and a reduction in brokered deposits and uninsured deposit liabilities. Our loan portfolio remained essentially flat, while our net interest margin, although compressing sequentially by 19 basis points, stabilized during the quarter at the approximate 2.80% level. Similarly, noninterest-bearing demand deposits, although down sequentially, remained relatively stable at their current level over the course of the second quarter. Meanwhile, our tangible common equity ratio increased to 9.19%, which is well above peer averages, and our tangible book value per share increased for the 13th consecutive quarter to $22.34. We also took advantage of market conditions during the quarter and repurchased 270,000 shares at an attractive average price of $15.32.

“Operationally, we’re integrating investments in technology to provide a better experience for our clients while driving increased productivity and efficiency. Our SBA lending platform continues to gain traction and we continue to see healthy diversification in our portfolio,” Mr. Sorrentino added. “Further, we’re seizing opportunities to attract high-performing, revenue-producing talent while simultaneously optimizing our staff count and managing expenses prudently.”

Mr. Sorrentino concluded, “Looking ahead, we remain well-positioned for the future. We have strong capital and liquidity levels, our credit performance continues to be strong, and we remain sharply focused on taking advantage of growth opportunities as they arise. By leveraging our results-oriented client-centric culture, continuing to invest in our valuable franchise and maintaining our long-standing financial discipline, we believe that ConnectOne is poised for continued long-term profitability.”

Dividend Declarations

The Company announced that its Board of Directors declared an increased quarterly cash dividend on its common stock and declared a cash dividend on its outstanding preferred stock.

A cash dividend on common stock of $0.17 will be paid on September 1, 2023, to common stockholders of record on August 15, 2023. A dividend of $0.328125 per depositary share, representing a 1/40th interest in the Company’s 5.25% Fixed Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A, will also be paid on September 1, 2023 to preferred stockholders of record on August 15, 2023.

Operating Results

Fully taxable equivalent net interest income for the second quarter of 2023 was $64.6 million, a decrease of $3.2 million, or 4.7%, from the first quarter of 2023 due to a 19 basis-point contraction of the net interest margin from 3.00% to 2.81%, partially offset by an increase in interest-earning assets of $53.9 million. The increase in interest-earning assets from the first quarter of 2023 was attributable to increases in cash and cash equivalents of $49.2 million and loans of $18.3 million, offset by decreases in investment securities of $6.6 million and decreases in restricted investment in bank stock of $7.0 million. While the net interest margin benefitted from a 14 basis-point increase in the loan portfolio yield, to 5.49%, the average cost of deposits, including noninterest-bearing demand, increased by 46 basis points to 2.66% from 2.20% in the first quarter of 2023. Contributing to the increased cost of deposits was a $104.4 million, or 7.2%, decline in average noninterest-bearing deposits, although the balance of noninterest-bearing deposits remained relatively flat throughout the current quarter.

Fully taxable equivalent net interest income for the second quarter of 2023 decreased by $11.5 million, or 15.1%, from the second quarter of 2022. The decrease from the second quarter of 2022 resulted primarily from a 110 basis-point decrease of the net interest margin from 3.91% to 2.81%, partially offset by an increase in interest-earning assets of $1.4 billion. The contraction of the net interest margin for the second quarter of 2023 when compared to the second quarter of 2022 was primarily attributable to a 230 basis-point increase in the average costs of deposits, including noninterest-bearing deposits, partially offset by an 82 basis-point increase in the loan portfolio yield.

Noninterest income was $3.4 million in the second quarter of 2023, $2.8 million in the first quarter of 2023 and $3.4 million in the second quarter of 2022. Included in noninterest income were net losses on equity securities of $0.2 million, $0.2 million, and $0.4 million for the second quarter 2023, first quarter of 2023 and second quarter 2022, respectively. Excluding the equity securities losses, adjusted noninterest income was $3.6 million, $3.0 million and $3.8 million for the second quarter 2023, first quarter 2023 and second quarter 2022, respectively. The $0.6 million increase in adjusted noninterest income for the second quarter of 2023 when compared to the first quarter of 2023 was primarily due to an increase in net gains on sale of loans held-for-sale of $0.5 million and increases in deposit, loan, and other income of $0.1 million. The net gains on loan sales consisted primarily of Small Business Administration loans. The $0.1 million decrease in adjusted noninterest income for the second quarter of 2023 when compared to the second quarter of 2022 was primarily due to a decrease in deposit, loan, and other income of $0.3 million, partially offset by an increase in bank owned life insurance income of $0.2 million.

Noninterest expenses totaled $35.5 million for the second quarter of 2023, $34.9 million for the first quarter of 2023 and $31.7 million for the second quarter of 2022. Noninterest expenses increased by $0.6 million from the first quarter of 2023 and was primarily attributable to an increase in FDIC insurance expense of $0.8 million, information technology and communications expense of $0.6 million, and other expenses of $0.1 million, partially offset by decreases in salaries and employee benefits of $0.5 million, professional and consulting of $0.3 million, and occupancy and equipment of $0.1 million. The increase in noninterest expenses of $3.8 million from the second quarter of 2022 was primarily attributable to increases in salaries and employee benefits of $2.2 million, FDIC insurance of $1.0 million, information technology and communications of $0.8 million, other expenses of $0.7 million and marketing and advertising of $0.1 million, partially offset by decreases in BoeFly acquisition expense of $0.8 million and professional and consulting of $0.2 million. The increase in salaries and employee benefits from the second quarter of 2022 was primarily attributable to increased staff in both the revenue and back-office areas of the bank as well as company-wide base salary increases. The increase in FDIC insurance expense when compared to both the first quarter of 2023 and the second quarter of 2022 is primarily attributable to balance sheet growth and a two-basis point increase in the Bank’s initial base rate. The increase in information technology and communications when compared to both the first quarter of 2023 and the second quarter of 2022 is primarily attributable to additional investments in technology, equipment, and software.

Income tax expense was $7.4 million for the second quarter of 2023, $9.1 million for the first quarter of 2023 and $11.9 million for the second quarter of 2022. The effective tax rates for the second quarter of 2023, first quarter of 2023 and second quarter of 2022 were 25.8%, 26.7% and 26.9%, respectively. The decrease in the effective tax rate when compared to the first quarter of 2023 and second quarter of 2022 is largely attributable to lower taxable income.

Asset Quality

The provision for credit losses was $3.0 million for the second quarter of 2023, $1.0 million for the first quarter of 2023 and $3.0 million for the second quarter of 2023. The increase in the provision for credit losses during the second quarter of 2023 when compared to the first quarter of 2023 was primarily attributable to specific reserves.

Nonperforming assets, which include nonaccrual loans and other real estate owned, were $51.5 million as of June 30, 2023, $44.7 million as of December 31, 2022 and $61.1 million as of June 30, 2022. Nonaccrual loans were $51.5 million as of June 30, 2023, $44.5 million as of December 31, 2022 and $60.8 million as of June 30, 2022. Nonperforming assets as a percentage of total assets were 0.53% as of June 30, 2023, 0.46% as of December 31, 2022 and 0.69% as of June 30, 2022. The ratio of nonaccrual loans to loans receivable was 0.63%, 0.55% and 0.84%, as of June 30, 2023, December 31, 2022 and June 30, 2022, respectively. Loans delinquent 30-89 days as a percentage of loans receivable were 0.04%, 0.02% and 0.05% as of June 30, 2023, December 31, 2022 and June 30, 2022, respectively. The annualized net loan charge-offs ratio was 0.05% for the second quarter of 2023, 0.23% for the fourth quarter of 2022 and 0.02% for the second quarter of 2023. The allowance for credit losses represented 1.09%, 1.12%, and 1.14% of loans receivable as of June 30, 2023, December 31, 2022 and June 30, 2022, respectively. The allowance for credit losses as a percentage of nonaccrual loans was 173.2% as of June 30, 2023, 203.6% as of December 31, 2022 and 136.2% as of June 30, 2022.

Selected Balance Sheet Items

The Company’s total assets were $9.7 billion as of June 30, 2023, an increase of $79 million from December 31, 2022. The increase in total assets was primarily due to increased cash and cash equivalents which were $264 million, an increase of $57 million from December 31, 2022. Loans receivable were $8.1 billion, an increase of $49 million from December 31, 2022. Total deposits were $7.5 billion, an increase of $182 million from December 31, 2022.

The Company’s total stockholders’ equity was $1.2 billion as of June 30, 2023, an increase of $21 million from December 31, 2022. The increase in retained earnings of $31 million was the primary reason for the overall increase in stockholders’ equity, in addition to an increase in additional paid-in capital of $1 million, partially offset by a decrease in accumulated other comprehensive income of $1 million and an increase in treasury stock of $9 million. As of June 30, 2023, the Company’s tangible common equity ratio and tangible book value per share were 9.19% and $22.34, respectively. As of December 31, 2022, the tangible common equity ratio and tangible book value per share were 9.04% and $21.71, respectively. Total goodwill and other intangible assets were $214.9 million as of June 30, 2023, and $215.7 million as of December 31, 2022.

Share Repurchase Program

During the second quarter of 2023, the Company repurchased 270,000 shares of common stock leaving approximately 1.3 million shares remaining authorized for repurchase under the current Board approved repurchase program. The Company may repurchase shares from time-to-time in the open market, in privately negotiated stock purchases or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission and applicable federal securities laws. The share repurchase plan does not obligate the Company to acquire any particular amount of common stock, and the plan may be modified or suspended at any time at the Company’s discretion. 

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.

Second Quarter 2023 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on July 27, 2023 to review the Company’s financial performance and operating results. The conference call dial-in number is 1-412-317-5195, access code 10180068. Please dial in at least five minutes before the start of the call to register. An audio webcast of the conference call will be available to the public, on a listen-only basis, via the “Investor Relations” link on the Company’s website https://www.ConnectOneBank.com or at http://ir.connectonebank.com.

A replay of the conference call will be available beginning at approximately 1:00 p.m. ET on Thursday, July 27, 2023 and ending on Thursday, August 3, 2023 by dialing 1-412-317-6671, access code 10180068. 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., is a modern financial services company that operates, through its subsidiary, ConnectOne Bank, and the Bank’s fintech subsidiary, BoeFly, Inc. ConnectOne Bank is a high-performing commercial bank offering a full suite of banking & lending products and services that focus on small to middle-market businesses. BoeFly, Inc. is a fintech marketplace that connects borrowers in the franchise space with funding solutions through a network of partner banks. 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.

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 U.S. Securities and Exchange Commission, as supplemented by the Company’s subsequent filings with the U.S. 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
Senior Executive Vice President & CFO
201.816.4474: bburns@cnob.com

Media Contact:
Shannan Weeks 
MWW 
732.299.7890: sweeks@mww.com

 
CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
       
  June 30, December 31, June 30,
   2023   2022   2022 
  (unaudited)   (unaudited)
ASSETS      
Cash and due from banks $56,286  $61,629  $58,807 
Interest-bearing deposits with banks  263,638   206,686   240,513 
Cash and cash equivalents  319,924   268,315   299,320 
       
Investment securities  612,819   634,884   675,941 
Equity securities  17,950   15,811   15,993 
       
Loans held-for-sale  1,089   13,772   3,182 
       
Loans receivable  8,148,540   8,099,689   7,274,573 
Less: Allowance for credit losses - loans  89,205   90,513   82,739 
Net loans receivable  8,059,335   8,009,176   7,191,834 
       
Investment in restricted stock, at cost  46,688   46,604   47,287 
Bank premises and equipment, net  29,093   27,800   28,391 
Accrued interest receivable  46,237   46,062   34,615 
Bank owned life insurance  234,412   231,328   228,279 
Right of use operating lease assets  8,874   10,179   10,809 
Other real estate owned  -   264   316 
Goodwill  208,372   208,372   208,372 
Core deposit intangibles  6,569   7,312   8,130 
Other assets  132,601   125,069   89,037 
Total assets $9,723,963  $9,644,948  $8,841,506 
       
LIABILITIES      
Deposits:      
Noninterest-bearing $1,356,293  $1,501,614  $1,712,875 
Interest-bearing  6,182,004   5,855,008   4,904,724 
Total deposits  7,538,297   7,356,622   6,617,599 
Borrowings  827,601   857,622   874,964 
Subordinated debentures, net  79,187   153,255   153,103 
Operating lease liabilities  10,007   11,397   12,116 
Other liabilities  69,474   87,301   40,577 
Total liabilities  8,524,566   8,466,197   7,698,359 
       
COMMITMENTS AND CONTINGENCIES      
       
STOCKHOLDERS’ EQUITY      
Preferred stock  110,927   110,927   110,927 
Common stock  586,946   586,946   586,946 
Additional paid-in capital  30,740   30,126   27,536 
Retained earnings  566,498   535,915   489,640 
Treasury stock  (61,877)  (52,799)  (52,799)
Accumulated other comprehensive loss  (33,837)  (32,364)  (19,103)
Total stockholders’ equity  1,199,397   1,178,751   1,143,147 
Total liabilities and stockholders’ equity $9,723,963  $9,644,948  $8,841,506 
             


CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for per share data)
         
  Three Months EndedSix Months Ended
  06/30/23 06/30/22 06/30/23 06/30/22
Interest income        
Interest and fees on loans $111,048  $81,285  $217,951  $157,310 
Interest and dividends on investment securities:        
Taxable  4,029   2,551   8,258   4,424 
Tax-exempt  1,247   916   2,339   1,625 
Dividends  945   291   1,843   505 
Interest on federal funds sold and other short-term investments  4,056   313   7,031   433 
Total interest income  121,325   85,356   237,422   164,297 
Interest expense        
Deposits  50,714   5,709   90,801   10,719 
Borrowings  6,768   4,056   15,694   7,629 
Total interest expense  57,482   9,765   106,495   18,348 
         
Net interest income  63,843   75,591   130,927   145,949 
Provision for credit losses  3,000   3,000   4,000   4,450 
Net interest income after provision for credit losses  60,843   72,591   126,927   141,499 
         
Noninterest income        
Deposit, loan and other income  1,545   1,866   2,948   3,609 
Income on bank owned life insurance  1,553   1,342   3,084   2,548 
Net gains on sale of loans held-for-sale  550   556   599   1,257 
Net losses on equity securities  (210)  (405)  (401)  (1,001)
Total noninterest income  3,438   3,359   6,230   6,413 
         
Noninterest expenses        
Salaries and employee benefits  21,726   19,519   43,962   38,159 
Occupancy and equipment  2,677   2,733   5,438   4,662 
FDIC insurance  1,715   725   2,665   1,331 
Professional and consulting  1,932   2,124   4,126   3,916 
Marketing and advertising  556   426   1,088   777 
Information technology and communications  3,644   2,801   6,705   5,667 
Amortization of core deposit intangible  371   434   743   867 
Increase in value of acquisition price  -   833   -   1,516 
Other expenses  2,829   2,108   5,593   4,038 
Total noninterest expenses  35,450   31,703   70,320   60,933 
         
Income before income tax expense  28,831   44,247   62,837   86,979 
Income tax expense  7,437   11,889   16,514   23,240 
Net income  21,394   32,358   46,323   63,739 
Preferred dividends  1,509   1,509   3,018   3,018 
Net income available to common stockholders $19,885  $30,849  $43,305  $60,721 
         
Earnings per common share:        
Basic $0.51  $0.78  $1.10  $1.54 
Diluted  0.51   0.78   1.10   1.53 


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
  Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
  2023 2023 2022 2022 2022
Selected Financial Data (dollars in thousands)
Total assets $9,723,963  $9,960,467  $9,644,948  $9,478,252  $8,841,506 
Loans receivable:          
Commercial $1,451,400  $1,392,565  $1,443,942  $1,392,037  $1,274,280 
Paycheck Protection Program (“PPP”) loans  10,845   11,300   11,374   11,458   18,004 
Commercial real estate  3,237,559   3,245,990   3,170,760   3,087,354   2,727,120 
Multifamily  2,604,230   2,600,251   2,641,886   2,624,726   2,442,603 
Commercial construction  596,362   630,469   574,139   537,323   569,789 
Residential  254,405   259,166   264,748   256,085   249,379 
Consumer  1,416   1,435   2,312   1,030   1,248 
Gross loans  8,156,217   8,141,176   8,109,161   7,910,013   7,282,423 
Unearned net origination fees  (7,677)  (9,057)  (9,472)  (9,563)  (7,850)
Loans receivable  8,148,540   8,132,119   8,099,689   7,900,450   7,274,573 
Loans held-for-sale  1,089   11,197   13,772   8,080   3,182 
Total loans $8,149,629  $8,143,316  $8,113,461  $7,908,530  $7,277,755 
           
Investment and equity securities $630,769  $647,026  $650,695  $639,192  $691,934 
Goodwill and other intangible assets  214,941   215,312   215,684   216,093   216,502 
Deposits:          
Noninterest-bearing demand $1,356,293  $1,345,265  $1,501,614  $1,665,658  $1,712,875 
Time deposits  2,621,148   2,706,662   2,394,190   1,921,235   1,285,409 
Other interest-bearing deposits  3,560,856   3,701,249   3,460,818   3,723,617   3,619,315 
Total deposits $7,538,297  $7,753,176  $7,356,622  $7,310,510  $6,617,599 
           
Borrowings $827,601  $852,611  $857,622  $829,953  $874,964 
Subordinated debentures, net  79,187   79,060   153,255   153,179   153,103 
Total stockholders’ equity  1,199,397   1,190,970   1,178,751   1,148,295   1,143,147 
           
Quarterly Average Balances          
Total assets $9,765,582  $9,700,530  $9,490,477  $9,030,589  $8,322,823 
Loans receivable:          
Commercial (including PPP loans) $1,427,153  $1,442,180  $1,456,247  $1,342,868  $1,245,812 
Commercial real estate (including multifamily)  5,847,147   5,813,388   5,758,594   5,455,714   4,974,297 
Commercial construction  611,492   606,214   558,086   537,073   544,084 
Residential  256,924   261,560   261,969   251,338   247,208 
Consumer  6,733   3,894   4,630   2,361   5,029 
Gross loans  8,149,449   8,127,236   8,039,526   7,589,354   7,016,430 
Unearned net origination fees  (8,591)  (9,664)  (9,666)  (9,178)  (9,222)
Loans receivable  8,140,858   8,117,572   8,029,860   7,580,176   7,007,208 
Loans held-for-sale  8,516   13,463   7,933   2,195   966 
Total loans $8,149,374  $8,131,035  $8,037,793  $7,582,371  $7,008,174 
           
Investment and equity securities $642,915  $649,744  $650,479  $687,291  $567,140 
Goodwill and other intangible assets  215,182   215,556   215,951   216,360   216,786 
Deposits:          
Noninterest-bearing demand $1,347,268  $1,451,654  $1,610,044  $1,682,135  $1,607,465 
Time deposits  2,658,673   2,357,332   2,035,362   1,525,076   1,103,418 
Other interest-bearing deposits  3,640,939   3,565,904   3,558,881   3,686,520   3,717,531 
Total deposits $7,646,880  $7,374,890  $7,204,287  $6,893,731  $6,428,414 
           
Borrowings $756,303  $941,266  $913,960  $772,561  $548,675 
Subordinated debentures, net  79,104   103,637   153,205   153,129   153,053 
Total stockholders’ equity  1,197,043   1,191,216   1,165,588   1,160,448   1,143,092 
           
           
  Three Months Ended
  Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
  2023 2023 2022 2022 2022
  (dollars in thousands, except for per share data)
Net interest income $63,843  $67,084  $78,009  $78,161  $75,591 
Provision for credit losses  3,000   1,000   3,300   10,000   3,000 
Net interest income after provision for credit losses  60,843   66,084   74,709   68,161   72,591 
Noninterest income          
Deposit, loan and other income  1,545   1,403   1,894   1,969   1,866 
Income on bank owned life insurance  1,553   1,531   1,528   1,521   1,342 
Net gains on sale of loans held-for-sale  550   49   176   262   556 
Net losses on equity securities  (210)  (191)  (90)  (430)  (405)
Total noninterest income  3,438   2,792   3,508   3,322   3,359 
Noninterest expenses          
Salaries and employee benefits  21,726   22,236   21,676   20,882   19,519 
Occupancy and equipment  2,677   2,761   2,603   2,600   2,733 
FDIC insurance  1,715   950   830   720   725 
Professional and consulting  1,932   2,194   2,157   1,980   2,124 
Marketing and advertising  556   532   454   461   426 
Information technology and communications  3,644   3,061   2,694   2,747   2,801 
Amortization of core deposit intangible  371   372   409   409   434 
Increase in value of acquisition price  -   -   -   -   833 
Other expenses  2,829   2,764   2,489   2,344   2,108 
Total noninterest expenses  35,450   34,870   33,312   32,143   31,703 
           
Income before income tax expense  28,831   34,006   44,905   39,340   44,247 
Income tax expense  7,437   9,077   12,348   10,425   11,889 
Net income $21,394  $24,929  $32,557  $28,915  $32,358 
Preferred dividends  1,509   1,509   1,510   1,509   1,509 
Net income available to common stockholders $19,885  $23,420  $31,047  $27,406  $30,849 
           
Weighted average diluted common shares outstanding  39,146,224   39,300,733   39,378,137   39,320,674   39,481,689 
Diluted EPS $0.51  $0.59  $0.79  $0.70  $0.78 
           
Reconciliation of GAAP Earnings to Pre-tax and Pre-provision Net Revenue            
Net income $21,394  $24,929  $32,557  $28,915  $32,358 
Income tax expense  7,437   9,077   12,348   10,425   11,889 
Provision for credit losses  3,000   1,000   3,300   10,000   3,000 
Pre-tax and pre-provision net revenue $31,831  $35,006  $48,205  $49,340  $47,247 
           
Return on Assets Measures          
Average assets $9,765,582  $9,700,530  $9,490,477  $9,030,589  $8,322,823 
Return on avg. assets  0.88%  1.04%  1.36%  1.27%  1.56%
Return on avg. assets (pre-tax and pre-provision)  1.31   1.46   2.02   2.17   2.28 
           
           
  Three Months Ended
  Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
  2023 2023 2022 2022 2022
Return on Equity Measures (dollars in thousands)
Average stockholders’ equity $1,197,043  $1,191,216  $1,165,588  $1,160,448  $1,143,097 
Less: average preferred stock  (110,927)  (110,927)  (110,927)  (110,927)  (110,927)
Average common equity $1,086,116  $1,080,289  $1,054,661  $1,049,521  $1,032,170 
Less: average intangible assets  (215,182)  (215,556)  (215,951)  (216,360)  (216,786)
Average tangible common equity $870,934  $864,733  $838,710  $833,161  $815,384 
           
Return on avg. common equity (GAAP)  7.34%  8.79%  11.68%  10.36%  11.99%
Return on avg. tangible common equity (“TCE”) (non-GAAP) (1)  9.28   11.11   14.82   13.19   15.32 
Return on avg. tangible common equity (pre-tax, pre-provision, pre-merger charges)  14.78   16.54   22.94   23.63   23.39 
           
Efficiency Measures          
Total noninterest expenses $35,450  $34,870  $33,312  $32,143  $31,703 
Amortization of core deposit intangibles  (371)  (372)  (409)  (409)  (434)
Operating noninterest expense $35,079  $34,498  $32,903  $31,734  $31,269 
           
Net interest income (tax equivalent basis) $64,627  $67,828  $78,773  $78,850  $76,146 
Noninterest income  3,438   2,792   3,508   3,322   3,359 
Net losses on equity securities  210   191   90   430   405 
Operating revenue $68,275  $70,811  $82,371  $82,602  $79,910 
           
Operating efficiency ratio (non-GAAP) (2)  51.4%  48.7%  39.9%  38.4%  39.1%
           
Net Interest Margin          
Average interest-earning assets $9,228,079  $9,174,167  $8,972,063  $8,500,316  $7,807,445 
           
Net interest income (tax equivalent basis) $64,627  $67,828  $78,773  $78,850  $76,146 
Impact of purchase accounting fair value marks  (575)  (839)  (837)  (885)  (1,014)
Adjusted net interest income (tax equivalent basis) $64,052  $66,989  $77,936  $77,965  $75,132 
           
Net interest margin (GAAP)  2.81%  3.00%  3.48%  3.68%  3.91%
Adjusted net interest margin (non-GAAP) (3)  2.78   2.96   3.45   3.64   3.86 
           
(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
  Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
  2023 2023 2022 2022 2022
Capital Ratios and Book Value per Share (dollars in thousands, except for per share data)
Stockholders equity $1,199,397  $1,190,970  $1,178,751  $1,148,295  $1,143,147 
Less: preferred stock  (110,927)  (110,927)  (110,927)  (110,927)  (110,927)
Common equity $1,088,470  $1,080,043  $1,067,824  $1,037,368  $1,032,220 
Less: intangible assets  (214,941)  (215,312)  (215,684)  (216,093)  (216,502)
Tangible common equity $873,529  $864,731  $852,140  $821,275  $815,718 
           
Total assets $9,723,963  $9,960,467  $9,644,948  $9,478,252  $8,841,506 
Less: intangible assets  (214,941)  (215,312)  (215,684)  (216,093)  (216,502)
Tangible assets $9,509,022  $9,745,155  $9,429,264  $9,262,159  $8,625,004 
           
Common shares outstanding  39,094,630   39,179,051   39,243,123   39,243,123   39,243,123 
           
Common equity ratio (GAAP)  11.19%  10.84%  11.07%  10.94%  11.67%
Tangible common equity ratio (non-GAAP) (4)  9.19   8.87   9.04   8.87   9.46 
           
Regulatory capital ratios (Bancorp):          
Leverage ratio  10.62%  10.60%  10.68%  10.95%  11.63%
Common equity Tier 1 risk-based ratio  10.55   10.55   10.30   10.20   10.63 
Risk-based Tier 1 capital ratio  11.90   11.92   11.66   11.58   12.11 
Risk-based total capital ratio  13.83   13.85   14.45   14.45   15.09 
           
Regulatory capital ratios (Bank):          
Leverage ratio  10.95%  10.62%  10.64%  10.91%  11.60%
Common equity Tier 1 risk-based ratio  12.26   11.92   11.60   11.53   12.08 
Risk-based Tier 1 capital ratio  12.26   11.92   11.60   11.53   12.08 
Risk-based total capital ratio  13.33   13.27   13.02   13.00   13.55 
           
Book value per share (GAAP) $27.84  $27.57  $27.21  $26.43  $26.30 
Tangible book value per share (non-GAAP) (5)  22.34   22.07   21.71   20.93   20.79 
           
Net Loan (Recoveries) Charge-Off Detail          
Net loan charge-offs (recoveries):          
Charge-offs $1,119  $4,484  $4,456  $413  $302 
Recoveries  (77)  (1)  -   (53)  (32)
Net loan charge-offs (recoveries) $1,042  $4,483  $4,456  $360  $270 
Net loan charge-offs (recoveries) as a % of average loans receivable (annualized)  0.05%  0.22%  0.23%  0.02%  0.02%
           
Asset Quality          
Nonaccrual loans $51,496  $47,667  $44,454  $57,477  $60,756 
OREO  -   -   264   264   316 
Nonperforming assets $51,496  $47,667  $44,718  $57,741  $61,072 
           
Allowance for credit losses - loans (“ACL”)  89,205   87,002   90,513   91,717   82,739 
           
Loans receivable $8,148,540  $8,132,119  $8,099,689  $7,900,450  $7,274,573 
Less: PPP loans  10,845   11,300   11,374   11,458   18,004 
Loans receivable (excluding PPP loans) $8,137,695  $8,120,819  $8,088,315  $7,888,992  $7,256,569 
           
Nonaccrual loans as a % of loans receivable  0.63%  0.59%  0.55%  0.73%  0.84%
Nonperforming assets as a % of total assets  0.53   0.48   0.46   0.61   0.69 
ACL as a % of loans receivable  1.09   1.07   1.12   1.16   1.14 
ACL as a % of nonaccrual loans  173.2   182.5   203.6   159.6   136.2 
           
(4) Tangible common equity divided by tangible assets.
(5) Tangible common equity divided by common shares outstanding at period-end.
 


CONNECTONE BANCORP, INC.
NET INTEREST MARGIN ANALYSIS
(dollars in thousands)
               
 For the Quarter Ended 
 June 30, 2023March 31, 2023June 30, 2022 
 Average    Average    Average   
Interest-earning assets:BalanceInterestRate (7) BalanceInterestRate (7) BalanceInterestRate (7)
Investment securities (1) (2)$726,315 $5,607 3.10% $732,929 $5,620 3.11% $610,465 $3,710 2.44%
Loans receivable and loans held-for-sale (2) (3) (4) 8,149,374  111,501 5.49   8,131,035  107,348 5.35   7,008,174  81,597 4.67 
Federal funds sold and interest-              
bearing deposits with banks 309,458  4,056 5.26   260,297  2,975 4.64   157,201  313 0.80 
Restricted investment in bank stock 42,932  945 8.83   49,906  898 7.30   31,605  291 3.69 
Total interest-earning assets$9,228,079  122,109 5.31  $9,174,167  116,841 5.17   7,807,445  85,911 4.41 
Allowance for loan losses (87,473)     (90,182)     (81,012)   
Noninterest-earning assets 624,976      616,545      596,390    
Total assets$9,765,582     $9,700,530     $8,322,823    
               
Interest-bearing liabilities:              
Time deposits 2,658,673  23,778 3.59   2,357,332  17,267 2.97  $1,103,418  2,179 0.79 
Other interest-bearing deposits 3,640,939  26,936 2.97   3,565,904  22,820 2.60   3,717,531  3,530 0.38 
Total interest-bearing deposits 6,299,612  50,714 3.23   5,923,236  40,087 2.74   4,820,949  5,709 0.47 
               
Borrowings 756,303  5,438 2.88   941,266  7,322 3.15   548,675  1,849 1.35 
Subordinated debentures, net 79,104  1,306 6.62   103,637  1,579 6.18   153,053  2,179 5.71 
Finance lease 1,658  24 5.81   1,714  25 5.92   1,865  28 6.02 
Total interest-bearing liabilities 7,136,677  57,482 3.23   6,969,853  49,013 2.85   5,524,542  9,765 0.71 
               
Noninterest-bearing demand deposits 1,347,268      1,451,654      1,607,465    
Other liabilities 84,594      87,807      47,719    
Total noninterest-bearing liabilities 1,431,862      1,539,461      1,655,184    
Stockholders’ equity 1,197,043      1,191,216      1,143,097    
Total liabilities and stockholders’ equity$9,765,582     $9,700,530     $8,322,823    
               
Net interest income (tax equivalent basis)  64,627      67,828      76,146   
Net interest spread (5)  2.08%   2.31%   3.70%
               
Net interest margin (6)  2.81%   3.00%   3.91%
               
Tax equivalent adjustment  (784)     (744)     (555)  
Net interest income $63,843     $67,084     $75,591   
               
(1) Average balances are calculated on amortized cost.
(2) Interest income is presented on a tax equivalent basis using 21% federal tax rate.
(3) Includes loan fee income.
(4) Loans include nonaccrual loans.
(5) 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.
(6) Represents net interest income on a tax equivalent basis divided by average total interest-earning assets.
(7) Rates are annualized.

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