ConnectOne Bancorp, Inc. Reports Second Quarter 2014 Results; Merger and Conversion Completed in July on Schedule

        Print
| Source: ConnectOne Bank

ENGLEWOOD CLIFFS, N.J., July 25, 2014 (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 $4.4 million, or $0.26 per diluted share, for the second quarter of 2014, compared with net income available to common stockholders of $4.9 million, or $0.30 per diluted share, for the prior-year period. Second quarter 2014 results include $0.6 million in after-tax merger expenses. Excluding such merger costs, net income available to common stockholders for the second quarter of 2014 was $5.0 million, or $0.31 per diluted share. As the merger closed on July 1, 2014, the results for periods ending June 30, 2014 do not include the operations of the combined company.

For the six months ended June 30, 2014, net income available to common stockholders was $8.7 million, or $0.53 per diluted share, compared to $9.8 million, or $0.60 per diluted share, for the same period of 2013. Excluding after-tax merger expenses of $1.4 million, net income available to common stockholders for the six months ended June 30, 2014 was $10.1 million, or $0.62 per diluted share.

"This has been a remarkable period for the Company," said Frank Sorrentino, ConnectOne's Chairman and Chief Executive Officer. "Our merger has established us as one of the largest financial institutions in New Jersey whose enhanced scale, advanced technology, and improved lending capabilities will benefit our clients while continuing to create shareholder value. Our team has worked tirelessly to successfully complete this merger, and this dedication has enabled us to complete our systems integration and transition to ConnectOne's operating platform on schedule. Our cost efficiencies are on target to be fully realized by the end of 2014." Mr. Sorrentino added, "I want to thank our board of directors, our employees, business partners and shareholders whose unwavering guidance and support has made this milestone possible. We are now well positioned to continue our growth trajectory utilizing our greater capital resources, expanded products and broader geographic footprint across the New Jersey/New York metropolitan area."

The merger of legacy ConnectOne Bancorp with Center Bancorp was completed on July 1, 2014, with Center Bancorp deemed to be the "accounting acquirer", thus the financial statements included in this earnings press release do not include legacy ConnectOne results. In future reporting periods, commencing July 1, 2014, legacy ConnectOne's results of operations will be included in ConnectOne's financial information while historical financial statements will reflect only Center Bancorp. Legacy ConnectOne financial results for the second quarter ended June 30, 2014 are summarized below.

Legacy ConnectOne Second Quarter 2014 Financial Results (Excluded from Company Financial Statements):

Note: All per share information regarding legacy ConnectOne is based upon shares outstanding prior to the merger, whereby legacy ConnectOne shareholders received 2.6 shares of new ConnectOne Bancorp, Inc. for each share previously owned. The per share information has not been adjusted to reflect this exchange ratio.

Legacy ConnectOne Bancorp, Inc. had net income of $3.1 million, or $0.60 per diluted share, for the second quarter of 2014, compared with net income of $2.5 million, or $0.49 per diluted share, for the prior-year period. Second quarter results include $0.5 million in after-tax merger expenses. Excluding such merger expenses, net income was $3.6 million, or $0.69 per diluted share, for the second quarter of 2014.

The increase in net income and diluted earnings per share were primarily attributable to a significant increase in net interest income due to growth in the loan portfolio. The net interest margin for the second quarter of 2014 was 3.62%, an 11 basis-point contraction from the first quarter of 2014, due largely to a decline in prepayment fees, and a 32 basis-point decline from 3.94% in the second quarter of 2013. Partially offsetting the increase in net interest income was higher noninterest expense, largely staff-related.

At June 30, 2014, total assets were $1.5 billion, a $213 million increase from December 31, 2013. The increase in total assets was due primarily to a $171 million increase, to $1.3 billion, in loans receivable and a $38 million increase, to $72 million, in cash and cash equivalents. The growth in assets was funded by an $84 million increase in deposits and $125 million increase in borrowings. Shareholders' equity totaled $136 million at June 30, 2014 and $130 million at December 31, 2013.

Nonperforming assets, which includes nonaccrual loans and OREO, as a percent of total assets was 0.76% at June 30, 2014, 0.72% at March 31, 2014 and 0.97% at June 30, 2013. The provision for loan losses was $1.3 million for the second quarter of 2014 and $1.0 million for the second quarter of 2013.

Company Earnings (Excludes Legacy ConnectOne)

Fully taxable equivalent ("FTE") net interest income for the second quarter of 2014 totaled $12.3 million, an increase of $0.4 million, or 3.8%, from the year ago quarter, primarily due to a $101 million, or 11.4%, increase in average loans, partially offset by a $51 million decline in average investment securities. The net interest margin for the second quarter of 2014 was 3.29%, essentially flat from 3.28% in both the first quarter of 2014 and the second quarter of 2013. FTE net interest income for the six months ended June 30, 2014 totaled $24.5 million, an increase of $0.7 million, or 3.1%, from the prior-year period, primarily due to a $95 million, or 10.8%, increase in average loans, partially offset by a $42 million decline in average investment securities. The net interest margin for the six months ended June 30, 2014 was 3.28%, essentially flat from 3.29% in the prior-year period. Although the yield on the Company's loan portfolio continues to decline, reflecting the protracted low interest rate environment, a pronounced shift in the composition of interest earning assets, from securities to loans, has resulted in a stable net interest margin and an increase in net interest income. Management expects a continuation of this trend whereby investment securities will represent a declining percentage of interest earning assets.

Non-interest income totaled $1.7 million in each of the second quarters of 2014 and 2013. The largest component of non-interest income was net investment securities gains which totaled $0.6 million in each of the second quarters of 2014 and 2013.  Non-interest income totaled $4.2 million for the first six months of 2014, a $0.6 million increase from $3.6 million for the first six months of 2013. Net investment securities gains increased, by $1.1 million to $2.0 million for the first six months of 2014, from $0.9 million in the prior-year period. Partially offsetting this increase was $0.3 million decline in bank-owned life insurance ("BOLI") income. Other types of non-interest income for the Bank include deposit and loan fees, annuities and life insurance commissions, and gains on the sale of residential mortgages in the secondary market.

Non-interest expenses totaled $6.7 million, including merger expenses of $0.7 million, for the second quarter of 2014, and $14.2 million, including merger expenses of $1.8 million, for the six months ended June 30, 2014. Excluding merger expenses, total non-interest expense was $6.0 million for the second quarter 2014, a decline of $0.1 million from $6.1 million for the prior-year period. Excluding merger expenses, total non-interest expense was $12.5 million for the six months ended June 30, 2014, a decline of $0.1 million from $12.6 million for the prior-year period. The decline in expense levels from last year reflects continued successful efforts by management to leverage the Bank's infrastructure as well as a decline in staff expenses in anticipation of the merger. In the latter half of 2014, management will be focusing on achieving merger expense synergies, which are ahead of schedule, while balancing investment in infrastructure with prudent and sustainable growth.

Income tax expense was $2.0 million and $3.6 million for the second quarter and first six months of 2014, respectively, compared with $1.9 million and $3.7 million, for the second quarter and first six months of 2013, respectively. The effective tax rates were 31.2% and 29.1% for the second quarter and first six months of 2014, respectively, compared with 28.2% and 27.2%, for the second quarter and first six months of 2013, respectively.   The increase in effective tax rates for 2014 reflects non-deductibility of certain merger expenses. The Company's effective tax rate is projected to trend upward in future periods as the proportion of tax-exempt income to taxable income is expected to decline. 

Company Asset Quality

Nonperforming assets, which includes nonaccrual loans and other real estate owned, totaled $4.3 million at June 30, 2014, up from $3.4 million at December 31, 2013 and up from $2.7 million at June 30, 2013.  Nonperforming assets as a percent of total assets increased to 0.26% at June 30, 2014 from 0.20% at December 31, 2013 and from 0.17% at June 30, 2013.  The allowance for loan losses was $10.8 million, representing 1.08% of loans receivable and 268.5% of nonaccrual loans at June 30, 2014.  At December 31, 2013, the allowance was $10.3 million representing 1.08% of loans receivable and 329.4% of nonaccrual loans, and at June 30, 2013 the allowance was $10.2 million representing 1.13% of loans receivable and 406.8% of nonaccrual loans.  The provision for loan losses was $0.3 million for the second quarter of 2014 and zero for the second quarter of 2013.  The annualized rate of net loan charge-offs was 0.04% for the second quarter of 2014 and 0.01% for the second quarter of 2013.

Company Financial Condition

The Company's total assets were $1.7 billion at both June 30, 2014 and December 31, 2013. Loans increased by $45.3 million offset by a decrease of $53.2 million in investment securities. Deposits declined by $67.4 million offset by a $50.0 million increase in Federal Home Loan Bank borrowings and a $9.7 million increase in shareholders' equity. Deposits have increased by more than approximately $50 million since the close of the second quarter of 2014.

About ConnectOne Bancorp, Inc.

ConnectOne is a New Jersey corporation and a registered bank holding company pursuant to the Bank Holding Company Act of 1956, as amended, and serves as the holding company for ConnectOne Bank ("the Bank"). The Bank is a community-based, full-service New Jersey-chartered commercial bank that was founded in 2005. The Bank operates from its headquarters located at 301 Sylvan Avenue in the Borough of Englewood Cliffs, Bergen County, New Jersey, and following consummation of the merger on July 1, 2014, through its twenty-three other banking offices.

For more information visit https://www.ConnectOneBank.com/.

Forward-Looking Statements

This news release contains certain forward-looking statements which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, those factors set forth in Item 1A – Risk Factors of the Company's Annual Report on Form 10-K, as filed with the Securities Exchange Commission, and changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

CONNECTONE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(in thousands, except for share data) June 30,  December 31,
  2014 2013
  (unaudited)  
ASSETS    
Cash and due from banks  $ 92,617  $ 82,692
     
Securities available for sale  266,959  323,070
Securities held to maturity, fair value of $214,952 at 2014 and $210,958 at 2013  218,159  215,286
     
Loans held for sale  483  --
Loans receivable  1,006,256  960,943
Less: Allowance for loan losses  (10,825)  (10,333)
Net loans receivable  995,431  950,610
     
Investment in restricted stock, at cost  11,289  8,986
Bank premises and equipment, net  14,013  13,681
Accrued interest receivable  6,414  6,802
Other real estate owned  220  220
Goodwill  16,804  16,804
Bank-owned life insurance  36,245  35,734
Due from brokers for investment securities  --  8,759
Other assets  7,175  10,438
Total assets  $ 1,665,809  $ 1,673,082
     
LIABILITIES & STOCKHOLDERS' EQUITY    
Liabilities    
Deposits    
Noninterest-bearing  $ 238,138  $ 227,370
Interest-bearing  1,036,482  1,114,635
Total deposits  1,274,620  1,342,005
Borrowings  196,000  146,000
Subordinated debentures  5,155  5,155
Other liabilities  11,756  11,338
Total liabilities  1,487,531  1,504,498
     
Commitments and Contingencies    
     
Stockholders' Equity    
Preferred stock, $1,000 liquidation value per share, authorized 5,000,000 shares;    
issued and outstanding 11,250 shares of Series B preferred stock at June 30, 2014    
and December 31, 2013; total liquidation value of $11,250,000  11,250  11,250
Common stock, no par value, authorized 50,000,000 shares; issued 18,477,412    
shares at June 30, 2014 and December 31, 2013; outstanding 16,413,490 shares    
at June 30, 2014 and 16,369,012 at December 31, 2013  110,056  110,056
Additional paid in capital  5,380  4,986
Retained earnings  67,108  61,914
Treasury stock, at cost (2,063,922 common shares at June 30, 2014 and  --  --
2,108,400 at December 31, 2013)  (16,717)  (17,078)
Accumulated other comprehensive income (loss)  1,201  (2,544)
Total stockholders' equity  178,278  168,584
Total liabilities and stockholders' equity  $ 1,665,809  $ 1,673,082
 
 
CONNECTONE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(dollars in thousands, except per share data)
         
   Three Months Ended June 30,   Six Months Ended June 30, 
  2014 2013 2014 2013
Interest income        
Loans receivable, including fees  $ 10,461  $ 9,892  $ 20,572  $ 19,815
Securities  3,804  3,966  7,876  8,014
Dividends  136  121  290  252
Other interest income  --  --  --  2
Total interest income  14,401  13,979  28,738  28,083
Interest expense        
Deposits  1,301  1,283  2,617  2,567
Borrowings  1,432  1,468  2,843  2,918
Total interest expense  2,733  2,751  5,460  5,485
         
Net interest income  11,668  11,228  23,278  22,598
Provision for loan losses  284  --  909  --
Net interest income after provision for loan losses  11,384  11,228  22,369  22,598
         
Non-interest income        
Service fees  469  451  966  857
Loan related fees  204  114  385  253
Annuity and insurance commissions  105  146  205  246
Gains on sales of loans  53  91  89  229
Net gains on sales of securities  574  600  1,989  919
Income on bank owned life insurance  256  274  511  839
Other income  63  31  100  209
Total non-interest income  1,724  1,707  4,245  3,552
         
Non-interest expenses        
Salaries and employee benefits  3,184  3,335  6,516  6,825
Occupancy and equipment  816  811  1,896  1,717
Professional fees  306  230  561  449
Advertising and promotion  27  62  67  163
Data processing  373  343  718  696
FDIC insurance  288  208  588  521
Merger related expenses  729  --  1,789  --
Other expenses  1,021  1,087  2,105  2,243
Total non-interest expenses  6,744  6,076  14,240  12,614
         
Income before income tax expense  6,364  6,859  12,374  13,536
Income tax expense  1,986  1,936  3,598  3,689
Net income  4,378  4,923  8,776  9,847
Preferred stock dividends and accretion  28  28  56  84
Net income available to common stockholders  $ 4,350  $ 4,895  $ 8,720  $ 9,763
         
Earnings per common share:        
Basic  $ 0.27  $ 0.30  $ 0.53  $ 0.60
Diluted  0.26  0.30  0.53  0.60
Weighted average common shares outstanding:        
Basic  16,372,885  16,348,915  16,361,596  16,348,567
Diluted  16,430,376  16,375,774  16,422,339  16,375,028
 
 
CONNECTONE BANCORP, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS
(in thousands, except for share data)
  Three Months Ended
  Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
  2014 2014 2013 2013 2013
Performance ratios:          
Return on average assets 1.06% 1.05% 1.20% 1.23% 1.22%
Return on average stockholders' equity 9.92% 10.16% 11.85% 12.53% 11.84%
Net interest margin 3.29% 3.28% 3.29% 3.31% 3.28%
Efficiency ratio 44.9% 48.1% 46.6% 45.8% 47.0%
           
  As of
  Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
  2014 2014 2013 2013 2013
Capital ratios:          
Leverage ratio 10.08% 9.79% 9.69% 9.52% 9.50%
Risk-based Tier 1 capital ratio 12.59% 12.40% 12.10% 11.70% 11.83%
Risk-based total capital ratio 13.43% 13.22% 12.90% 12.49% 12.64%
Tangible common equity to tangible assets 9.11% 8.78% 8.48% 8.42% 8.38%
           
Annualized net loan charge-offs          
as a % of average loans 0.04% 0.13% 0.09% 0.00% 0.01%
           
Tangible book value per common share  $ 9.15  $ 8.90  $ 8.58  $ 8.37  $ 8.14
           
Asset quality:          
Nonaccrual loans  $ 4,032  $ 3,409  $ 3,137  $ 2,032  $ 2,508
Other real estate owned  220  220  220  220  220
Total non-performing assets  $ 4,252  $ 3,629  $ 3,357  $ 2,252  $ 2,728
           
Performing troubled debt restructured loans  $ 1,586  $ 5,706  $ 5,746  $ 1,658  $ 2,584
Loans past due 90 days and still accruing  144  237  --  --  53
           
Nonaccrual loans as a % of loans receivable 0.40% 0.35% 0.33% 0.21% 0.28%
Nonperforming assets as a % of total assets 0.26% 0.22% 0.20% 0.14% 0.17%
Allowance for loan losses as a % of loans receivable 1.08% 1.08% 1.08% 1.06% 1.13%
Allowance for loan losses as a % of nonaccrual loans 268.5% 311.9% 329.4% 501.7% 406.8%
 
 
CONNECTONE BANCORP, INC.
NET INTEREST MARGIN ANALYSIS
(dollars in thousands)
  For the Three Months Ended
  June 30, 2014 June 30, 2013
  Average    Average Average    Average
(tax-equivalent basis) Balance Interest Rate (7) Balance Interest Rate (7)
             
Interest-earning assets:            
Investment securities (1) (2)  $ 492,634  $ 4,326 3.51%  $ 543,652  $ 4,569 3.36%
Loans receivable (3) (4)  989,454  10,563 4.27%  888,175  9,892 4.45%
Restricted investment in bank stock  9,210  98 4.26%  8,995  99 4.40%
Total interest-earning assets  1,491,298  14,987 4.02%  1,440,822  14,560 4.04%
Allowance for loan losses  (10,756)      (10,214)    
Non-interest earning assets  176,897      183,894    
Total assets  $ 1,657,439      $ 1,614,502    
             
Interest-bearing liabilities:            
Money Market deposit  $ 395,912  491  0.50%  $ 396,920  420 0.42%
Savings deposits  161,522  124 0.31%  200,433  167 0.33%
Time deposits  173,544  383 0.88%  172,865  402 0.93%
Other interest-bearing deposits  350,761  303 0.35%  289,334  294 0.41%
Total interest-bearing deposits  1,081,739  1,301 0.48%  1,059,552  1,283 0.48%
Short-term borrowings and FHLB advances  150,934  1,393 3.69%  146,769  1,428 3.89%
Subordinated debentures  5,155  39 3.02%  5,155  40 3.10%
Total interest-bearing liabilities  1,237,828  2,733 0.88%  1,211,476  2,751 0.91%
Demand deposits  228,873      219,965    
Other liabilities  14,187      16,676    
Total noninterest-bearing liabilities  243,060      236,641    
Stockholders' equity  176,551      166,385    
Total liabilities and stockholders' equity  $ 1,657,439      $ 1,614,502    
             
Net interest income (tax equivalent basis)    12,254      11,809  
Net interest spread (5)     3.14%     3.13%
             
Net interest margin (6)     3.29%     3.28%
             
Tax-equivalent adjustment    (586)      (581)  
Net interest income    $ 11,668      $ 11,228  
             
(1) Average balances are calculated on amortized cost.
(2) Interest income is presented on a tax equivalent basis using 35 percent federal tax rate.
(3) Includes loan fee income.
(4) Loans include non-accrual 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 fully tax equivalent basis.
(6) Represents net interest income divided by average total interest-earning assets.
(7) Rates are annualized.
Investor Contact:
William S. Burns
Executive VP & CFO
201.816.4474; 

Media Contact:
Dawn Lauer, MWW
212.827.3744;