ConnectOne Bancorp(CNOB) - 2024 Q1 - Quarterly Results

Overview of Q1 2024 Performance ConnectOne Bancorp reported a decline in Q1 2024 net income and EPS due to lower net interest income and higher credit loss provisions, despite client base expansion and stable capital ratios Q1 2024 Performance Summary | Metric | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Net Income to Common Stockholders | $15.7 million | $17.8 million | $23.4 million | | Diluted EPS | $0.41 | $0.46 | $0.59 | - The decline in net income from Q4 2023 was attributed to a $1.5 million decrease in net interest income and a $1.3 million increase in the provision for credit losses, with year-over-year decreases mainly from a $6.8 million drop in net interest income and a $3.0 million increase in credit loss provision[2] - CEO Frank Sorrentino highlighted the company's focus on its relationship-banking model, expanding the client base, and adding new talent, achieving 3.2% annualized growth in client deposit balances driven by 9.9% annualized growth in noninterest-bearing demand deposits[5][18] - Pre-tax, pre-provision net revenue (PPNR) as a percentage of average assets was 1.10% for Q1 2024, down from 1.15% in Q4 2023 and 1.46% in Q1 2023[3] Dividend Declaration and Share Repurchase The Board declared a 5.9% increase in the common stock quarterly cash dividend to $0.18 per share, alongside continued share repurchases - The quarterly cash dividend on common stock was increased by 5.9% to $0.18 per share, payable on June 3, 2024, to stockholders of record on May 15, 2024[6][7] - A cash dividend of $0.328125 per depositary share was declared for the 5.25% Fixed Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A[7] - During Q1 2024, the Company repurchased 282,370 shares of common stock at an average price of $20.24, leaving 641,118 shares authorized for repurchase under the current program[14] Detailed Financial Analysis This section provides an in-depth analysis of operating results, balance sheet composition, capital adequacy, and asset quality metrics for the quarter Operating Results Net interest income declined due to NIM compression to 2.64%, driven by higher deposit costs, while noninterest expenses and credit loss provisions increased - Fully taxable equivalent net interest income was $61.1 million, a 2.4% decrease from Q4 2023, driven by a 7 basis-point contraction in NIM to 2.64%, and a 9.9% year-over-year decrease due to a 36 basis-point NIM contraction as the cost of deposits rose by 103 basis points[19][8] - Noninterest expenses totaled $37.1 million, a $2.2 million increase from Q1 2023, mainly due to higher costs for information technology and communications (+$1.3 million) and FDIC insurance (+$0.9 million)[9] - The provision for credit losses was $4.0 million, an increase from $2.7 million in Q4 2023 and $1.0 million in Q1 2023, reflecting changes in macroeconomic forecasts and specific reserves[21] - Adjusted noninterest income (excluding equity securities gains/losses) was $3.8 million, up from $3.7 million in Q4 2023 and $3.0 million in Q1 2023[20] Balance Sheet and Capital Total assets remained stable at $9.85 billion, with slight deposit growth and marginal loan decrease, while maintaining a 9.25% tangible common equity ratio Balance Sheet Items | Balance Sheet Item | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $9.854 billion | $9.856 billion | | Loans Receivable | $8.298 billion | $8.345 billion | | Total Deposits | $7.589 billion | $7.536 billion | Capital Metrics | Capital Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Tangible Common Equity Ratio | 9.25% | 9.25% | | Tangible Book Value Per Share | $23.26 | $23.14 | - Total stockholders' equity was stable at $1.217 billion at both March 31, 2024, and December 31, 2023, with an increase in retained earnings offset by treasury stock purchases and an increase in accumulated other comprehensive loss[22] Asset Quality Asset quality improved with nonperforming assets decreasing to 0.48% and a strengthened allowance for credit losses against nonaccrual loans Asset Quality Metrics | Asset Quality Metric | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Nonperforming Assets / Total Assets | 0.48% | 0.53% | 0.48% | | Nonaccrual Loans / Loans Receivable | 0.57% | 0.63% | 0.59% | | Allowance for Credit Losses / Nonaccrual Loans | 174.7% | 156.1% | 182.5% | - Criticized and classified loans as a percentage of total loans decreased to 1.30% as of March 31, 2024, compared to 1.35% at year-end 2023 and 1.74% a year prior[12] - The annualized net loan charge-offs ratio was 0.15% for Q1 2024, a decrease from 0.43% in Q4 2023 and 0.22% in Q1 2023[11] Financial Statements and Supplemental Data This section provides detailed consolidated financial statements, net interest margin analysis, key performance ratios, and non-GAAP reconciliations Consolidated Statements of Financial Condition This section presents the detailed unaudited consolidated balance sheet, outlining the company's assets, liabilities, and stockholders' equity across periods Consolidated Statements of Financial Condition (in billions) | (in thousands) | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :--- | :--- | :--- | :--- | | Total Assets | $9.854 billion | $9.856 billion | $9.960 billion | | Net Loans Receivable | $8.215 billion | $8.263 billion | $8.045 billion | | Total Liabilities | $8.637 billion | $8.639 billion | $8.769 billion | | Total Deposits | $7.589 billion | $7.536 billion | $7.753 billion | | Total Stockholders' Equity | $1.217 billion | $1.217 billion | $1.191 billion | Consolidated Statements of Income This section presents the detailed unaudited consolidated income statement for the three months ended March 31, 2024, and comparative prior periods Consolidated Statements of Income (in millions) | (in thousands) | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Net Interest Income | $60.3 million | $61.8 million | $67.1 million | | Provision for Credit Losses | $4.0 million | $2.7 million | $1.0 million | | Noninterest Income | $3.8 million | $4.2 million | $2.8 million | | Noninterest Expenses | $37.1 million | $37.8 million | $34.9 million | | Net Income | $17.2 million | $19.3 million | $24.9 million | | Net Income to Common Stockholders | $15.7 million | $17.8 million | $23.4 million | Net Interest Margin Analysis This section details net interest margin components, showing Q1 2024 NIM at 2.64%, a decline from prior periods primarily due to increased cost of funds Net Interest Margin Analysis | Metric | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Yield on Interest-Earning Assets | 5.63% | 5.61% | 5.17% | | Cost of Interest-Bearing Liabilities | 3.82% | 3.72% | 2.85% | | Net Interest Spread | 1.80% | 1.89% | 2.31% | | Net Interest Margin (NIM) | 2.64% | 2.71% | 3.00% | Key Performance Ratios and Non-GAAP Reconciliations This section presents key performance, efficiency, and capital adequacy ratios, along with non-GAAP reconciliations, indicating a decline in profitability metrics Performance Ratios | Performance Ratios | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Return on Avg. Assets (ROA) | 0.70% | 0.79% | 1.04% | | Return on Avg. Common Equity | 5.69% | 6.48% | 8.79% | | Return on Avg. Tangible Common Equity (Non-GAAP) | 7.15% | 8.18% | 11.11% | Capital Ratios (Bancorp) | Capital Ratios (Bancorp) | Mar 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Tangible Common Equity Ratio (Non-GAAP) | 9.25% | 9.25% | | Common Equity Tier 1 Risk-Based Ratio | 10.69% | 10.62% | | Risk-Based Total Capital Ratio | 13.88% | 13.77% | - The loan portfolio composition as of March 31, 2024, was led by Commercial Real Estate ($3.33 billion) and Multifamily ($2.51 billion), followed by Commercial loans ($1.56 billion)[40]