ConnectOne Bancorp(CNOB) - 2025 Q2 - Quarterly Results

Executive Summary The company reported a net loss in Q2 2025 due to significant merger-related expenses, while the strategic acquisition of FLIC expanded its scale and improved key operational metrics Second Quarter 2025 Financial Highlights The company reported a net loss driven by merger expenses and credit loss provisions, though operating net income showed underlying strength Key Financial Performance (GAAP) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Net Loss (Income) Available to Common Stockholders (millions) | $(21.8) | $18.7 | $17.5 | | Diluted EPS | $(0.52) | $0.49 | $0.46 | | Return on Average Assets | (0.73)% | 0.84% | 0.79% | | Return on Average Tangible Common Equity | (8.42)% | 8.25% | 7.98% | Key Financial Performance (Operating, Non-GAAP) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Operating Net Income Available to Common Stockholders (millions) | $23.1 | $19.7 | $17.9 | | Operating Diluted EPS | $0.55 | $0.51 | $0.47 | | Operating Return on Average Assets | 0.89% | 0.88% | 0.80% | | Operating Return on Average Tangible Common Equity | 9.29% | 8.59% | 8.05% | - The decrease in net income and diluted EPS in Q2 2025 compared to Q1 2025 was primarily due to a $34.3 million increase in noninterest expenses (including $30.7 million in merger expenses) and a $32.2 million increase in provision for credit losses (including $27.4 million initial provision for FLIC merger)[4] Strategic Overview: FLIC Merger Impact The completed FLIC merger transformed the company into a larger regional institution, enhancing its balance sheet and profitability ratios - The merger with FLIC, completed on June 1, 2025, established ConnectOne as a $14 billion regional financial institution with 61 locations and over 700 banking professionals[5] - The merger has operationally improved the loan and deposit mix, net interest margin, credit metrics, and profitability ratios[5] Key Balance Sheet Metrics Post-Merger (as of June 30, 2025) | Metric | Amount | | :--- | :--- | | Total Loans | $11.2 billion | | Total Deposits | $11.3 billion | | Market Capitalization | >$1.2 billion | | Loan-to-Deposit Ratio | 99% | | Noninterest-Bearing Demand Composition | >21% | Dividend Declarations The Board of Directors declared quarterly cash dividends for both common and preferred stock - The Board of Directors declared a cash dividend of $0.18 per share on common stock, payable September 2, 2025, to stockholders of record on August 15, 2025[8] - A dividend of $0.328125 per depositary share (representing 1/40th interest in Series A Preferred Stock) will also be paid on September 2, 2025, to holders of record on August 15, 2025[8] Detailed Operating Results Operating results were significantly influenced by the FLIC merger, which drove higher net interest income but also substantially increased noninterest expenses Net Interest Income and Margin Fully taxable equivalent net interest income and margin increased significantly in Q2 2025, primarily due to the FLIC merger boosting average interest-earning assets Fully Taxable Equivalent Net Interest Income (FTE NII) | Metric | Q2 2025 | Change from Q1 2025 | Change from Q2 2024 | | :--- | :--- | :--- | :--- | | FTE NII (millions) | $79.8 | +$13.2 (19.9%) | +$17.6 (28.2%) | | Net Interest Margin | 3.06% | +13 bps | +34 bps | | Average Interest Earning Assets | +13.5% | +13.7% | | - The increase in average interest-earning assets was primarily due to the merger with FLIC[9][10] - Accretion of purchase accounting adjustments contributed approximately 13 basis points to the net interest margin in Q2 2025[9][10] - The margin also benefited from an 11 basis-point decrease in the average costs of deposits (QoQ) and a 56 basis-point decrease (YoY), partially offset by higher average cash balances and a new subordinated debt issuance[9][10] Noninterest Income Noninterest income grew in Q2 2025, largely attributable to increased deposit, loan, and BOLI income following the FLIC merger Noninterest Income (millions) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Total Noninterest Income | $5.2 | $4.5 | $4.4 | - The $0.7 million QoQ increase was primarily due to a $0.6 million increase in deposit, loan and other income and a $0.5 million increase in BOLI income, with the FLIC merger as the main contributor[11] - The $0.8 million YoY increase was primarily due to a $0.9 million increase in deposit, loan and other income, a $0.6 million increase in net gains on equity securities, and a $0.4 million increase in BOLI income[11] Noninterest Expenses Noninterest expenses rose substantially in Q2 2025, predominantly driven by significant merger-related costs from the FLIC acquisition Noninterest Expenses (millions) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Total Noninterest Expenses | $73.6 | $39.3 | $37.6 | - The $34.3 million QoQ increase was primarily due to a $29.4 million increase in merger expenses, a $2.7 million increase in salaries and employee benefits, and a $1.0 million increase in amortization of core deposit intangibles[12] - The $36.1 million YoY increase was primarily due to a $30.7 million increase in merger expenses, a $2.5 million increase in salaries and employee benefits, and a $0.9 million increase in amortization of core deposit intangibles[12] - The increases in noninterest expenses from both prior periods were primarily due to the merger with FLIC[13] Income Tax (Benefit) Expense The company recorded a net income tax benefit in Q2 2025, a direct result of lower taxable income caused by expenses from the FLIC merger Income Tax (Benefit) Expense (millions) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Income Tax (Benefit) Expense | $(5.0) | $7.2 | $6.7 | - The overall decrease in income tax expense was primarily due to lower taxable income resulting from additional expenses due to the FLIC merger[14] - Included in Q2 2025 was an estimated $3.0 million state tax liability resulting from intercompany dividends[14] Asset Quality and Credit Performance Asset quality improved with lower nonperforming assets, while the allowance for credit losses increased significantly due to the FLIC merger's initial provision Provision for Credit Losses The provision for credit losses increased substantially in Q2 2025, mainly due to a large initial provision related to the FLIC merger Provision for Credit Losses (millions) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Provision for Credit Losses | $35.7 | $3.5 | $2.5 | - Included in the Q2 2025 provision was a $27.4 million initial provision for credit losses related to the FLIC merger[15] Nonperforming Assets and Loan Quality Nonperforming assets decreased significantly due to the workout of three CRE relationships, leading to improved asset quality ratios Nonperforming Assets and Ratios | Metric | June 30, 2025 | Dec 31, 2024 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Nonperforming Assets (millions) | $39.2 | $57.3 | $46.0 | | Nonperforming Assets as % of Total Assets | 0.28% | 0.58% | 0.47% | | Nonaccrual Loans to Loans Receivable | 0.35% | 0.69% | 0.56% | | Annualized Net Loan Charge-offs Ratio | 0.22% | 0.17% | 0.16% | | Loans Delinquent 30-89 Days as % of Loans Receivable | 0.13% | 0.04% | 0.11% | - The decrease in nonaccruals was primarily due to the workout of three CRE relationships totaling $22.0 million, partially offset by $4.3 million in loans placed into nonaccrual status[16] Allowance for Credit Losses The allowance for credit losses increased substantially due to the FLIC merger, significantly strengthening coverage of nonaccrual loans Allowance for Credit Losses (ACL) Metrics | Metric | June 30, 2025 | Dec 31, 2024 | June 30, 2024 | | :--- | :--- | :--- | :--- | | ACL (millions) | $156.2 | $82.7 | $82.1 | | ACL as % of Loans Receivable | 1.40% | 1.00% | 1.01% | | ACL as % of Nonaccrual Loans | 398.2% | 144.3% | 178.3% | - The increase in ACL was primarily due to the FLIC merger: $43.3 million of allowance recorded through goodwill related to purchased credit-deteriorated loans and $27.4 million reflecting the initial provision for credit losses[17] - Criticized and classified loans as a percentage of loans receivable was 2.44% as of June 30, 2025, down from 2.68% as of December 31, 2024[17] Balance Sheet Overview The balance sheet expanded substantially following the FLIC merger, with significant growth in total assets, loans, deposits, and stockholders' equity Key Balance Sheet Items The company's balance sheet expanded significantly as of June 30, 2025, with total assets, loans, and deposits all showing substantial increases due to the FLIC merger Key Balance Sheet Items (millions) | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Assets | $13,915,738 | $9,879,600 | | Loans Receivable | $11,164,477 | $8,274,810 | | Total Deposits | $11,278,487 | $7,820,114 | - The increases in total assets, loans receivable, and total deposits were primarily due to the merger with FLIC[18] Stockholders' Equity and Capital Total stockholders' equity increased due to stock issuance for the FLIC merger, though the tangible common equity ratio and tangible book value per share declined Stockholders' Equity and Capital Metrics | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Stockholders' Equity (millions) | $1,496,431 | $1,241,704 | | Tangible Common Equity Ratio | 8.09% | 9.49% | | Tangible Book Value Per Share | $21.95 | $23.92 | | Total Goodwill and Other Intangible Assets (millions) | $281.9 | $213.0 | - The increase in total stockholders' equity was primarily due to an increase in common stock of $270.8 million, representing the fair value stock consideration issued for the FLIC merger[19] Non-GAAP Financial Measures The company utilizes non-GAAP measures to supplement GAAP results, providing investors with additional insight into operating performance - ConnectOne supplements its GAAP results with non-GAAP measures to provide meaningful information to investors regarding operating performance and trends[20] - These non-GAAP measures have inherent limitations, are not uniformly applied, are not audited, and should not be considered in isolation or as a substitute for GAAP results[20] Corporate Information This section provides an overview of the company's business, forward-looking statement disclaimers, investor contacts, and conference call details About ConnectOne Bancorp, Inc. ConnectOne Bancorp is a financial services company operating through its commercial bank subsidiary and a fintech marketplace for franchise lending - ConnectOne Bancorp, Inc. operates through ConnectOne Bank, a high-performing commercial bank, and BoeFly, Inc., a fintech marketplace[23] - ConnectOne Bank offers banking and lending products and services to small to middle-market businesses[23] - BoeFly, Inc. connects borrowers in the franchise space with funding solutions through a network of partner banks[23] Forward-Looking Statements This release contains forward-looking statements that are subject to risks and uncertainties, and the company disclaims any obligation to update them - Forward-looking statements are based on assumptions and describe future plans, strategies, and expectations, identified by words like 'believe,' 'expect,' or similar expressions[24] - The Company's ability to predict results is inherently uncertain, with material adverse effects possible from factors like interest rates, economic conditions, and regulatory changes[24] - The Company does not undertake any obligation to publicly release revisions to forward-looking statements to reflect events or circumstances after their date[24] Investor and Media Contacts Contact information is provided for investor relations and media inquiries - Investor Contact: William S. Burns, Senior Executive Vice President & CFO, at 201.816.4474 or bburns@cnob.com[25] - Media Contact: Shannan Weeks, MikeWorldWide, at 732.299.7890 or sweeks@mww.com[25] Conference Call Details The company hosted a conference call and webcast on July 29, 2025, to discuss financial performance, with a replay available - A conference call and audio webcast were held on July 29, 2025, at 10:00 a.m. ET[21] - Conference call dial-in number: 1 (646) 307-1963, access code 7519286[21] - A replay was available from July 29, 2025, to August 5, 2025, by dialing 1 (609) 800-9909, access code 7519286[22] Consolidated Financial Statements The consolidated financial statements detail the company's financial condition and income, reflecting the significant impact of the FLIC merger Consolidated Condensed Statements of Financial Condition The company's balance sheet expanded significantly as of June 30, 2025, with substantial growth in assets, loans, deposits, and equity due to the FLIC merger Consolidated Condensed Statements of Financial Condition (Selected Items, in thousands) | Item | June 30, 2025 | December 31, 2024 | June 30, 2024 | | :--- | :--- | :--- | :--- | | ASSETS | | | | | Total assets | $13,915,738 | $9,879,600 | $9,723,731 | | Loans receivable, net | $11,008,287 | $8,192,125 | $8,075,826 | | Goodwill | $215,611 | $208,372 | $208,372 | | Core deposit intangibles | $66,315 | $4,639 | $5,232 | | LIABILITIES | | | | | Total deposits | $11,278,487 | $7,820,114 | $7,576,014 | | Subordinated debentures, net | $276,500 | $79,944 | $79,692 | | Total liabilities | $12,419,307 | $8,637,896 | $8,499,504 | | STOCKHOLDERS' EQUITY | | | | | Total stockholders' equity | $1,496,431 | $1,241,704 | $1,224,227 | Consolidated Statements of Income The income statement for Q2 2025 shows a net loss driven by increased credit loss provisions and noninterest expenses related to the FLIC merger Consolidated Statements of Income (Selected Items, in thousands) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Total interest income | $146,030 | $130,007 | | Total interest expense | $67,147 | $68,568 | | Net interest income | $78,883 | $61,439 | | Provision for credit losses | $35,700 | $2,500 | | Total noninterest income | $5,185 | $4,399 | | Total noninterest expenses | $73,649 | $37,594 | | (Loss) income before income tax expense | $(25,281) | $25,744 | | Income tax (benefit) expense | $(4,988) | $6,688 | | Net (loss) income | $(20,293) | $19,056 | | Net (loss) income available to common stockholders | $(21,802) | $17,547 | | Diluted EPS | $(0.52) | $0.46 | Supplemental Financial Data (GAAP & Non-GAAP) This section offers detailed supplemental data, including balance sheet trends, profitability ratios, and a net interest margin analysis Selected Financial Data (Balance Sheet) Supplemental data details the significant balance sheet growth in assets, loans, and deposits resulting from the FLIC merger Selected Financial Data (As of Period End, in thousands) | Item | Jun. 30, 2025 | Mar. 31, 2025 | Dec. 31, 2024 | Jun. 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total assets | $13,915,738 | $9,759,255 | $9,879,600 | $9,723,731 | | Loans receivable | $11,164,477 | $8,201,134 | $8,274,810 | $8,157,903 | | Noninterest-bearing demand deposits | $2,424,529 | $1,319,196 | $1,422,044 | $1,268,882 | | Total deposits | $11,278,487 | $7,767,230 | $7,820,114 | $7,576,014 | | Total stockholders' equity | $1,496,431 | $1,252,939 | $1,241,704 | $1,224,227 | Quarterly Average Balances (in thousands) | Item | Jun. 30, 2025 | Mar. 31, 2025 | Dec. 31, 2024 | Jun. 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total assets | $11,108,430 | $9,748,605 | $9,563,446 | $9,745,853 | | Loans receivable | $9,121,442 | $8,208,755 | $8,103,126 | $8,212,656 | | Noninterest-bearing demand deposits | $1,680,653 | $1,305,722 | $1,304,699 | $1,256,251 | | Total deposits | $8,806,712 | $7,674,843 | $7,621,437 | $7,565,124 | Income Statement and Profitability Ratios This section details income statement items and profitability ratios, reconciling GAAP earnings to operating results to show underlying performance Income Statement (Three Months Ended, in thousands) | Item | Jun. 30, 2025 | Mar. 31, 2025 | Dec. 31, 2024 | Jun. 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $78,883 | $65,756 | $64,711 | $61,439 | | Provision for credit losses | $35,700 | $3,500 | $3,500 | $2,500 | | Total noninterest income | $5,185 | $4,451 | $3,744 | $4,399 | | Total noninterest expenses | $73,649 | $39,305 | $38,498 | $37,594 | | Net (loss) income available to common stockholders | $(21,802) | $18,733 | $18,862 | $17,547 | | Diluted EPS | $(0.52) | $0.49 | $0.49 | $0.46 | Reconciliation of GAAP Net Income to Operating Net Income (in thousands) | Item | Jun. 30, 2025 | Mar. 31, 2025 | Dec. 31, 2024 | Jun. 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income | $(20,293) | $20,242 | $20,371 | $19,056 | | Merger expenses | $30,745 | $1,320 | $863 | - | | Initial provision for credit losses related to merger | $27,418 | - | - | - | | Operating net income available to common stockholders | $23,097 | $19,710 | $20,220 | $17,928 | | Operating diluted EPS (non-GAAP) | $0.55 | $0.51 | $0.52 | $0.47 | Return on Assets Measures | Metric | Jun. 30, 2025 | Mar. 31, 2025 | Dec. 31, 2024 | Jun. 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Return on avg. assets | (0.73)% | 0.84% | 0.84% | 0.79% | | Operating return on avg. assets (non-GAAP) | 0.89% | 0.88% | 0.90% | 0.80% | Capital and Efficiency Ratios This section details capital and efficiency ratios, showing improved operating efficiency despite declines in GAAP equity returns due to merger costs Return on Equity Measures | Metric | Jun. 30, 2025 | Mar. 31, 2025 | Dec. 31, 2024 | Jun. 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Return on avg. common equity (GAAP) | (7.09)% | 6.64% | 6.64% | 6.36% | | Operating return on avg. common equity (non-GAAP) | 7.51% | 6.99% | 7.11% | 6.50% | | Return on avg. tangible common equity (non-GAAP) | (8.42)% | 8.25% | 8.27% | 7.98% | | Operating return on avg. tangible common equity (non-GAAP) | 9.29% | 8.59% | 8.77% | 8.05% | Efficiency Measures | Metric | Jun. 30, 2025 | Mar. 31, 2025 | Dec. 31, 2024 | Jun. 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Operating noninterest expense (millions) | $41,653 | $37,379 | $36,862 | $37,273 | | Operating revenue (millions) | $84,648 | $70,502 | $69,644 | $66,863 | | Operating efficiency ratio (non-GAAP) | 49.2% | 53.0% | 52.9% | 55.7% | Net Interest Margin Analysis The net interest margin analysis confirms the expansion of interest-earning assets and a widening margin, driven by improved asset yields and lower deposit costs Net Interest Margin Analysis (Three Months Ended, in thousands) | Item | Jun. 30, 2025 | Mar. 31, 2025 | Jun. 30, 2024 | | :--- | :--- | :--- | :--- | | Average interest-earning assets | $10,468,589 | $9,224,712 | $9,210,050 | | Total interest-earning assets rate | 5.63% | 5.52% | 5.71% | | Total interest-bearing liabilities rate | 3.36% | 3.35% | 3.84% | | Net interest spread (tax equivalent basis) | 2.27% | 2.17% | 1.87% | | Net interest margin (non-GAAP) | 3.06% | 2.93% | 2.72% | - The average balance of loans receivable and loans held-for-sale increased significantly to $9.12 billion in Q2 2025 from $8.21 billion in Q1 2025, reflecting the FLIC merger[38] - The average cost of total interest-bearing deposits decreased to 3.39% in Q2 2025 from 3.44% in Q1 2025 and 3.96% in Q2 2024[38] Asset Quality Metrics This section details asset quality metrics, showing improved nonperforming asset ratios and a substantially increased allowance for credit losses post-merger Capital Ratios and Book Value per Share | Metric | Jun. 30, 2025 | Mar. 31, 2025 | Dec. 31, 2024 | Jun. 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Common equity ratio (GAAP) | 9.96% | 11.70% | 11.45% | 11.45% | | Tangible common equity ratio (non-GAAP) | 8.09% | 9.73% | 9.49% | 9.46% | | Book value per share (GAAP) | $27.56 | $29.69 | $29.47 | $29.02 | | Tangible book value per share (non-GAAP) | $21.95 | $24.16 | $23.92 | $23.45 | Asset Quality Metrics | Metric | Jun. 30, 2025 | Mar. 31, 2025 | Dec. 31, 2024 | Jun. 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Nonaccrual loans (thousands) | $39,228 | $49,860 | $57,310 | $46,026 | | Nonperforming assets (thousands) | $39,228 | $49,860 | $57,310 | $46,026 | | Allowance for credit losses - loans (ACL) (thousands) | $156,190 | $82,403 | $82,685 | $82,077 | | Nonaccrual loans as a % of loans receivable | 0.35% | 0.61% | 0.69% | 0.56% | | Nonperforming assets as a % of total assets | 0.28% | 0.51% | 0.58% | 0.47% | | ACL as a % of loans receivable | 1.40% | 1.00% | 1.00% | 1.01% | | ACL as a % of nonaccrual loans | 398.2% | 165.3% | 144.3% | 178.3% |