ConnectOne Bancorp(CNOB) - 2024 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for ConnectOne Bancorp, Inc. as of March 31, 2024, and for the three months then ended Consolidated Statements of Condition As of March 31, 2024, total assets were approximately $9.85 billion, remaining stable compared to December 31, 2023 Consolidated Statements of Condition (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $277,583 | $242,714 | | Net loans receivable | $8,215,088 | $8,263,171 | | Investment securities | $619,397 | $617,162 | | Total assets | $9,853,964 | $9,855,603 | | Liabilities & Equity | | | | Total deposits | $7,588,654 | $7,536,202 | | Borrowings | $877,568 | $933,579 | | Total liabilities | $8,637,355 | $8,638,983 | | Total stockholders' equity | $1,216,609 | $1,216,620 | Consolidated Statements of Income For the three months ended March 31, 2024, net income was $17.2 million, a decrease from $24.9 million in the same period of 2023 Consolidated Statements of Income (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net interest income | $60,300 | $67,084 | | Provision for credit losses | $4,000 | $1,000 | | Net interest income after provision | $56,300 | $66,084 | | Noninterest income | $3,848 | $2,792 | | Noninterest expenses | $37,065 | $34,870 | | Net income | $17,205 | $24,929 | | Net income available to common stockholders | $15,696 | $23,420 | | Diluted EPS | $0.41 | $0.59 | Consolidated Statements of Comprehensive Income Total comprehensive income for Q1 2024 was $14.2 million, down from $23.4 million in Q1 2023 Comprehensive Income (in thousands) | Component | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net income | $17,205 | $24,929 | | Other comprehensive loss | $(3,023) | $(1,498) | | Total comprehensive income | $14,182 | $23,431 | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity remained stable at approximately $1.217 billion from December 31, 2023, to March 31, 2024 - Key activities affecting stockholders' equity in Q1 2024 included: net income of $17.2 million, common stock dividends of $6.5 million, preferred stock dividends of $1.5 million, and treasury stock repurchases of $5.8 million[53] Consolidated Statements of Cash Flows For the first three months of 2024, cash and cash equivalents increased by $34.9 million Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $20,522 | $16,374 | | Net cash provided by (used in) investing activities | $33,073 | $(26,556) | | Net cash (used in) provided by financing activities | $(18,726) | $304,283 | | Net change in cash and cash equivalents | $34,869 | $294,101 | Notes to Consolidated Financial Statements This section provides detailed disclosures on accounting policies, financial statement components, and risk management - The Company adopted ASU 2022-03 regarding fair value measurement of equity securities on January 1, 2024, which did not have a material effect[60] - The Company is managed as a single operating segment: a community bank[85] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial results for Q1 2024, highlighting a decrease in net income to $15.7 million from $23.4 million in Q1 2023 Operating Results Overview Net income available to common stockholders for Q1 2024 was $15.7 million ($0.41 per diluted share), a significant decrease from $23.4 million ($0.59 per diluted share) in Q1 2023 - The $7.7 million decrease in net income available to common stockholders was driven by lower net interest income, higher provision for credit losses, and increased noninterest expenses, partially offset by lower income tax expense[196] Net Interest Income and Margin Fully taxable equivalent net interest income decreased by 9.9% to $61.1 million in Q1 2024 from $67.8 million in Q1 2023 Net Interest Margin Analysis | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Interest Income (Tax-Equivalent, in thousands) | $61,111 | $67,828 | | Average Interest-Earning Assets (in thousands) | $9,323,291 | $9,174,167 | | Net Interest Margin | 2.64% | 3.00% | | Yield on Interest-Earning Assets | 5.63% | 5.17% | | Cost of Interest-Bearing Liabilities | 3.82% | 2.85% | Financial Condition As of March 31, 2024, total gross loans decreased slightly by 0.6% to $8.3 billion from year-end 2023 Loan Portfolio Composition (in thousands) | Loan Segment | March 31, 2024 | Percent of Total | | :--- | :--- | :--- | | Commercial | $1,572,494 | 18.9% | | Commercial real estate | $5,829,950 | 70.2% | | Commercial construction | $646,593 | 7.8% | | Residential real estate | $254,214 | 3.1% | | Gross loans | $8,304,101 | 100.0% | - The commercial real estate portfolio's largest components are Multifamily ($2.5 billion) and Nonowner-occupied ($2.2 billion), with overall LTV for the CRE portfolio at 56%[228] Asset Quality Asset quality metrics showed minor changes, with nonperforming assets decreasing to $47.4 million (0.48% of total assets) at March 31, 2024 Nonperforming Assets (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Nonaccrual loans | $47,438 | $52,524 | | OREO | $0 | $0 | | Total nonperforming assets | $47,438 | $52,524 | | Nonperforming assets to total assets | 0.48% | 0.53% | - The allowance for credit losses (ACL) for loans was $82.9 million as of March 31, 2024, an increase of $0.9 million from December 31, 2023[231] - One commercial construction loan for $23.6 million was past due more than 90 days but still accruing interest, as it is well-secured with a loan-to-value of approximately 60%[12][262] Liquidity and Capital Resources The Company maintained adequate liquidity, with liquid assets at $706.2 million (7.2% of total assets), and remains well-capitalized - As of March 31, 2024, the Company had aggregate available and unused credit of approximately $3.2 billion from sources including the FHLB and Federal Reserve[246] - Total deposits increased by $53 million (0.7%) to $7.6 billion in Q1 2024, driven by increases in time, savings, and noninterest-bearing demand deposits[305] Company Capital Ratios (March 31, 2024) | Ratio | Actual | Minimum for Adequacy | | :--- | :--- | :--- | | Tier 1 leverage capital | 10.73% | 4.00% | | CET I risk-based ratio | 10.70% | 4.50% | | Tier 1 risk-based capital | 12.03% | 6.00% | | Total risk-based capital | 13.88% | 8.00% | - Both the Company and the Bank satisfy the capital conservation buffer requirements, with the lowest ratio for the Company being the Total Risk Based Capital Ratio, which was 3.38% above the minimum buffer ratio[2] Qualitative and Quantitative Disclosures about Market Risks The Company's primary market risk is interest rate risk, measured using NII simulation and EVE models Interest Rate Sensitivity Analysis (as of March 31, 2024) | Rate Shock (bps) | Estimated Change in EVE | Estimated Change in 1-Year NII | | :--- | :--- | :--- | | +200 | -12.46% | -6.38% | | +100 | -5.55% | -2.71% | | -100 | +4.44% | +2.66% | - The change in interest rate sensitivity was impacted by changes in market rates, model assumption updates, and a deposit mix shift into certificates of deposit[269] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they are effective - The CEO and CFO concluded that the Company's disclosure controls and procedures are effective[316] - No changes occurred in the Company's internal controls over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[4] PART II – OTHER INFORMATION Legal Proceedings The Company reports that it is not subject to any legal proceedings that could have a materially adverse impact on its results of operations and financial condition - The Company is not subject to any legal proceedings which could have a materially adverse impact on its financial condition or results of operations[317] Risk Factors The Company states that there have been no material changes to the risks inherent in its business from those described in its Annual Report on Form 10-K for the year ended December 31, 2023 - There have been no material changes to the risk factors from those described in the 2023 Annual Report on Form 10-K[318] Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended March 31, 2024, the Company repurchased a total of 282,370 shares of its common stock at an average price of approximately $20.28 per share Share Repurchases for Q1 2024 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Feb 1 - Feb 29, 2024 | 207,370 | $20.56 | | Mar 1 - Mar 31, 2024 | 75,000 | $19.66 | | Total Q1 2024 | 282,370 | - | - As of March 31, 2024, 641,118 shares remained available for repurchase under the company's program[361] Exhibits This section lists the exhibits filed with the report, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act and Inline XBRL documents - The report includes CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, as well as various Inline XBRL files[352]