CONNECTONE BN(CNOBP) - 2023 Q4 - Annual Report

Financial Overview - ConnectOne Bancorp, Inc. has over $9.856 billion in assets[22] - The company acquired approximately$ 0.4 billion in loans and deposits from Greater Hudson Bank in January 2019[15] - Following the merger with Bancorp of New Jersey, the company acquired approximately $0.8 billion in loans and deposits[17] - The bank's largest committed relationship was$ 173.6 million, with the single largest loan outstanding at $60.0 million as of December 31, 2023[34] - As of December 31, 2023, the company had$ 6.5 billion in commercial real estate loans, representing 78.1% of total loans receivable[110] - The company's total assets were $9.856 billion as of December 31, 2023, approaching the$ 10 billion threshold which will subject it to heightened regulatory requirements[143] Revenue and Income - The company offers a broad range of deposit and loan products, generating revenue primarily from net interest income[27] - Net income available to common stockholders for the year ended December 31, 2023 was $81.0 million, a decrease of$ 38.2 million, or 32.1%, compared to net income of $119.2 million for 2022[199] - Diluted earnings per share for 2023 were$ 2.07, reflecting a 31.2% decrease from $3.01 for 2022[199] - Fully taxable equivalent net interest income for 2023 totaled$ 258.3 million, a decrease of $46.3 million, or 15.2%, from 2022[202] - The net interest margin contracted by 87 basis points to 2.82% in 2023 from 3.69% in 2022, primarily due to a 199-basis point increase in the average cost of deposits[202] Loan Portfolio and Risks - Approximately 64.5% of the commercial real estate loans, or$ 3.8 billion, were originated in the past three years, indicating a significant portion of unseasoned loans[115] - The company may face increased lending risks due to the significant growth in its loan portfolio, particularly in commercial real estate[115] - The ongoing COVID-19 pandemic has created economic uncertainty, potentially impacting the company's loan repayment rates and overall financial condition[105] - The company targets small-to medium-sized businesses, which may be more vulnerable to economic downturns, affecting their ability to repay loans[116] - The company must implement heightened risk management practices due to high concentrations of commercial real estate loans[113] Employee Development and Culture - As of December 31, 2023, the company had 487 full-time employees and 12 part-time and temporary employees[40] - In 2023, 289 employees participated in leadership and mentoring programs within ConnectOne University[43] - The company sponsored two employees to attend the Stonier Graduate School of Banking in 2023[44] - In 2023, 58 employees were promoted into new roles, emphasizing internal growth[49] - The company offers a tuition reimbursement program for up to $5,250 in tuition expenses related to approved business-related coursework[46] Regulatory Environment - The Dodd-Frank Act requires capital rules that apply to bank holding companies, impacting the company's capital requirements[60] - The Economic Growth, Regulatory Relief and Consumer Protection Act increased the asset threshold for stress tests from$ 10 billion to $250 billion[62] - The company is subject to examination by the Federal Reserve System and must comply with various regulatory requirements[54] - The Company and the Bank are required to maintain a leverage ratio of 4% as part of the New Rules implementing Basel III[71] - The New Rules require a capital conservation buffer of 2.5% composed entirely of CET1, on top of the minimum risk-weighted asset ratios[72] Capital and Financial Management - The Company has a Common Equity Tier 1 Capital Ratio of 7%, a Tier 1 Capital Ratio of 8.5%, and a Total Capital Ratio of 10.5%[77] - The capital conservation buffer required is 2.5%, and failure to maintain it could limit dividend payments and equity repurchases[133] - The Company accrued$ 2.1 million as of December 31, 2023, related to a special assessment for the Deposit Insurance Fund following the closures of Silicon Valley Bank and Signature Bank[89] - The special assessment will be collected at an annual rate of approximately 13.4 basis points for an anticipated total of eight quarterly assessment periods starting January 1, 2024[89] Competition and Market Position - The company faces substantial competition in loan origination and deposit attraction, which may adversely affect profitability[119] - Increased competition for deposits may adversely affect the company's ability to generate necessary funds for lending operations[123] - Recent events in the financial services industry have increased competition for deposits and could impact the company's stock price[145] Shareholder and Stock Management - The Company repurchased a total of 904,152 shares during the year ended December 31, 2023, with 933,488 shares remaining for repurchase under the program[179] - The average price paid per share for repurchases in the fourth quarter of 2023 was $21.17[180] - As of December 31, 2023, the Company had 697 stockholders of record[177] - The Company has a share repurchase program authorized for up to 2,000,000 shares, which may be modified or suspended at the Company's discretion[179] Cybersecurity and Risk Management - The Company has not experienced any cybersecurity incidents that have materially affected its business strategy or financial condition to date[165] - The Company's cybersecurity risk management is overseen by the management IT Committee, which includes key executives such as the Chief Compliance Officer and Chief Technology Officer[165] - The Company maintains insurance that may cover expenses and losses incurred from cybersecurity incidents[170] Economic and Market Conditions - A sustained increase in market interest rates could compress the company's net interest margin and adversely affect earnings[150] - The company faces liquidity risks that could impede its ability to meet obligations and capitalize on growth opportunities[126]