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ConnectOne Bancorp(CNOB) - 2024 Q4 - Annual Report
CNOBConnectOne Bancorp(CNOB)2025-02-21 21:11

Assets and Mergers - ConnectOne Bancorp, Inc. has total assets of 9.880billion[25]−ThecompanycompletedthemergerwithGreaterHudsonBank,acquiringapproximately9.880 billion[25] - The company completed the merger with Greater Hudson Bank, acquiring approximately 0.4 billion in loans and deposits[16] - The merger with Bancorp of New Jersey, Inc. resulted in the acquisition of approximately 0.8billioninloansanddeposits[18]−TheupcomingmergerwithTheFirstofLongIslandCorporationisexpectedtocloseinthefirstorsecondquarterof2025,withFLIChavingtotalassetsof0.8 billion in loans and deposits[18] - The upcoming merger with The First of Long Island Corporation is expected to close in the first or second quarter of 2025, with FLIC having total assets of 4.1 billion and total deposits of 3.3billion[20]−Thecompany′stotalassetswere3.3 billion[20] - The company's total assets were 9.880 billion as of December 31, 2024, and will exceed 10billionuponconsummationoftheFLICmerger[145]−ThecompanyhasacquiredGHB,BoeFly,andBNJsinceJanuary1,2019,andispendingregulatoryapprovalfortheacquisitionofFLIC[137]BusinessModelandOperations−ConnectOneBankoperatesa"branch−lite"model,focusingonefficiencyandtechnologyinvestmentstoserveclientsintheNewYorkMetropolitanareaandSouthFlorida[26]−ConnectOneBankoffersawiderangeofdepositandloanproducts,includingpersonalandbusinesscheckingaccounts,moneymarketaccounts,andvarioustypesofloans[31]−BoeFly,asubsidiaryofConnectOneBank,connectssmalltomedium−sizedbusinesseswithfundingsolutionsthroughadigitalmarketplace[27]−ThecompanyhasexpandeditsmarketpresencebyopeninganofficeinWestPalmBeach,Florida,inAugust2022[29]FinancialPerformanceandRevenue−Thecompanyderivesamajorityofitsrevenuefromnetinterestincome,whichisthedifferencebetweeninterestreceivedonloansandpaidondeposits[31]−TheBank′slegallendinglimittoanyoneborroweris1510 billion upon consummation of the FLIC merger[145] - The company has acquired GHB, BoeFly, and BNJ since January 1, 2019, and is pending regulatory approval for the acquisition of FLIC[137] Business Model and Operations - ConnectOne Bank operates a "branch-lite" model, focusing on efficiency and technology investments to serve clients in the New York Metropolitan area and South Florida[26] - ConnectOne Bank offers a wide range of deposit and loan products, including personal and business checking accounts, money market accounts, and various types of loans[31] - BoeFly, a subsidiary of ConnectOne Bank, connects small to medium-sized businesses with funding solutions through a digital marketplace[27] - The company has expanded its market presence by opening an office in West Palm Beach, Florida, in August 2022[29] Financial Performance and Revenue - The company derives a majority of its revenue from net interest income, which is the difference between interest received on loans and paid on deposits[31] - The Bank's legal lending limit to any one borrower is 15% of the Bank's capital base (172.0 million) and 25% for loans secured by readily marketable collateral (286.7million)asofDecember31,2024[38]−Thelargestcommittedrelationshipwas286.7 million) as of December 31, 2024[38] - The largest committed relationship was 212.7 million, with the single largest loan outstanding at 64.0million[38]−TheCompanyaccrued64.0 million[38] - The Company accrued 2.1 million as of December 31, 2023, related to the special assessment[86] - The Company paid 7.2millionand7.2 million and 5.7 million in total FDIC assessments in 2024 and 2023, respectively, with the increase in 2024 attributed to additional premiums related to the FDIC special assessment[82] Competition and Market Environment - The Bank faces substantial competition from various financial institutions, including commercial banks, savings banks, and fintech companies[39] - The Bank's largest competitors have greater financial resources for advertising and marketing, necessitating a focus on high-quality personal service and competitive rates[40] - Increased competition for deposits may require the company to raise interest rates to attract or retain deposits[121] - The company faces substantial competition from fintech companies, which may offer more favorable terms and reduce margins on banking services[125] Employee Development and Corporate Culture - In 2024, 71 employees were promoted into new roles, reflecting the Bank's focus on internal promotions[48] - ConnectOne University provided training for 125 managers and supported advanced education through tuition reimbursement of up to 5,250foreligiblecoursework[44]−TheBank′semployeewellnessprogramsincludeaPreventativeCareIncentiveProgramandflushotvaccinationtime−off,emphasizinghealthandsafety[45]RegulatoryEnvironmentandCompliance−TheDodd−FrankActrequiresbankingregulatorstoapplythesamecapitalrequirementstobankholdingcompaniesastotheirbanksubsidiaries,impactingcapitalmanagementstrategies[59]−TheEconomicGrowth,RegulatoryReliefandConsumerProtectionActraisedtheassetthresholdforstresstestsfrom5,250 for eligible coursework[44] - The Bank's employee wellness programs include a Preventative Care Incentive Program and flu shot vaccination time-off, emphasizing health and safety[45] Regulatory Environment and Compliance - The Dodd-Frank Act requires banking regulators to apply the same capital requirements to bank holding companies as to their bank subsidiaries, impacting capital management strategies[59] - The Economic Growth, Regulatory Relief and Consumer Protection Act raised the asset threshold for stress tests from 10 billion to 250billion,providingregulatoryreliefforsmallerinstitutions[61]−TheCompanyandtheBankarerequiredtomaintainaCommonEquityTier1CapitalRatioof4.5250 billion, providing regulatory relief for smaller institutions[61] - The Company and the Bank are required to maintain a Common Equity Tier 1 Capital Ratio of 4.5%, a Tier 1 Capital Ratio of 6.0%, and a Total Capital Ratio of 8.0%[74] - The Company and the Bank have a CET1 of 7%, a Tier 1 Capital Ratio of 8.5%, and a Total Capital Ratio of 10.5%[74] - The Company adopted the CECL standard effective January 1, 2021, which addresses changes to credit loss accounting under GAAP[77] - The Company has elected not to opt into the Community Bank Leverage Ratio (CBLR) framework[80] - The Company is studying the revisions to the Community Reinvestment Act (CRA) regulations to determine the impact on its operations, which is currently uncertain[89] Loan Portfolio and Credit Risk - As of December 31, 2024, the company had 6.3 billion in commercial real estate loans, representing 76.2% of total loans receivable[105] - Commercial real estate loans accounted for 435% of the Bank's Tier 1 capital plus the allowance for credit losses on loans[105] - A significant portion of the loan portfolio will reset interest rates in 2025 and 2026, potentially increasing borrowers' repayment costs[112] - The company targets small-to medium-sized businesses, which may be more vulnerable to economic downturns, impacting their ability to repay loans[115] - The allowance for credit losses maintained by ConnectOne may not be adequate to cover actual losses, which could adversely affect earnings[162] - The Company's allowance for credit losses for loans totaled 82.7millionasofDecember31,2024,anincreaseof82.7 million as of December 31, 2024, an increase of 0.7 million from 82.0millionin2023[206]DividendPolicyandCapitalManagement−TheabilitytopaydividendsissubjecttocompliancewithcapitalrequirementsandthefinancialconditionoftheBank[99]−TheNewJerseyBankingActrequiresthatdividendsmayonlybepaidiftheBank′scapitalstockremainsunimpairedandsurplusismaintained[98]−Thecompanymayneedtoraiseadditionalcapitaltomaintainregulatorycapitalratiosnecessaryforgrowth[103]−Thecompanymayneedtoraiseupto82.0 million in 2023[206] Dividend Policy and Capital Management - The ability to pay dividends is subject to compliance with capital requirements and the financial condition of the Bank[99] - The New Jersey Banking Act requires that dividends may only be paid if the Bank's capital stock remains unimpaired and surplus is maintained[98] - The company may need to raise additional capital to maintain regulatory capital ratios necessary for growth[103] - The company may need to raise up to 200 million in new capital to obtain necessary regulatory approval for the merger[150] Cybersecurity and Operational Risks - Cybersecurity is a material part of ConnectOne's business, and any incidents could have a significant effect on its operations and reputation[179] - The Company maintains insurance that may provide coverage for expenses and certain losses incurred in connection with a cybersecurity incident[184] - The Company has an internal Incident Response Plan and Team that performs a table-top exercise at least annually to prepare for potential cybersecurity incidents[183] Merger-Related Considerations - ConnectOne expects to issue approximately 12 million shares of common stock to FLIC shareholders as part of the merger, which may lead to fluctuations in the market price of ConnectOne's common stock[160] - The merger may incur substantial costs, including legal, accounting, and financial advisory fees, which could adversely impact ConnectOne's future earnings per share[157] - ConnectOne's management has devoted considerable time and effort to the merger, and if it is not completed, the company will bear certain fees and expenses without realizing any benefits[157] - The success of the merger will depend on the combined company's ability to retain key employees from both ConnectOne and FLIC, as their departure could disrupt operations and lead to loss of customers[156] - ConnectOne has agreed to operate its business in the ordinary course prior to the merger's closing, which may limit its ability to pursue new business opportunities[154] - Unanticipated costs related to the merger could have a material adverse effect on the combined company's financial condition and results of operations[159] Interest Rate and Economic Factors - Changes in interest rates and the Federal Reserve's monetary policy may negatively impact ConnectOne's net interest income and overall financial condition[163] - The most severe historical loss rates for commercial and commercial real estate loans were 2.37% and 1.96%, respectively, as of December 31, 2024[208]