Attention Seeking Stock: ConnectOne Bancorp Inc. (NASDAQ: CNOB)

Carolyn Scherer

ENGLEWOOD CLIFFS, N.J, February 10, 2020 – Shares of ConnectOne Bancorp Inc. (NASDAQ: CNOB) showed the bearish trend with a lower momentum of -1.83% to $23.61. The company traded total volume of 132.948K shares as contrast to its average volume of 119.73K shares. The company has a market value of $843.59M and about 35.73M shares outstanding.

ConnectOne Bancorp Inc. (NASDAQ: CNOB) reported net income of $21.70M for the third quarter of 2019 compared with $19.30M for the second quarter of 2019 and $19.90M for the third quarter of 2018.  Diluted earnings per share were $0.61 for the third quarter of 2019 compared with $0.57 in the second quarter of 2019 and $0.61 in the third quarter of 2018.

Adjusted net income amounted to $21.00M, or $0.60 per diluted share, for the third quarter of 2019; $20.20M, or $0.57 per diluted share, for the second quarter of 2019; and $18.60M, or $0.58 per diluted share, for the third quarter of 2018.  Adjusted net income excludes $0.10M, $0.30M, and $0.30M in after-tax merger-related expenses for the third quarter of 2019, second quarter of 2019 and third quarter of 2018, respectively.  In addition, adjusted net income excludes $0.90M in after-tax FDIC small bank assessment credits for the third quarter 2019.  Adjusted net income for the second quarter 2019 also excludes an after-tax $0.70M charge on the prepayment of higher-cost borrowings.  See supplemental tables for a complete reconciliation of GAAP earnings to adjusted earnings.

Operating Results:

Fully taxable equivalent net interest income for the third quarter of 2019 was $48.90M, an increase of $2.80M, or 6.1%, from the sequential second quarter of 2019, resulting primarily from a 14 basis-point widening of the net interest margin to 3.44% from 3.30%.  Included in net interest income were purchase accounting adjustments of $1.60M during the third quarter of 2019 and $1.70M during the second quarter of 2019. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.33% for the third quarter of 2019 and 3.17% for the second quarter of 2019.  The net interest margin widened primarily due to improvements on both sides of the balance sheet. Loan portfolio yields increased due to an improved loan mix and higher spreads on new business, while funding costs declined due to solid growth in core deposits coupled with lower rates. In addition, an increase in prepayment penalties, largely a result of early payoffs of commercial real estate loans secured by multifamily properties, contributed approximately 4 basis-points to the increase. Noninterest income increased to $2.10M in the third quarter of 2019 from $1.90M in the second quarter of 2019 and $1.30M in the third quarter of 2018.  Included in noninterest income for the third quarter of 2019 were net losses on sale of securities available-for-sale of $0.30M.  Excluding these losses, noninterest income increased $0.40M from the sequential quarter.  This increase was primarily attributable to increases in gains on sale of loans held-for-sale of $0.20M, deposit loan and other income of $0.20M and bank owned life insurance of $0.10M, offset by $0.10M decrease in net gains on equity securities. At September 30, 2019 approximately $33.0M in loans were classified as held-for-sale. Management expects to sell these loans and record a gain in the fourth quarter.  Management expects to continue to originate a moderate amount of loans for sale as long as market conditions remain favorable.

Noninterest expenses totaled $20.40M for third quarter of 2019, $21.60M for the second quarter of 2019 and $18.10M for the third quarter of 2018.  Included in noninterest expenses for the third and second quarters of 2019 were merger-related expenses of $0.20M and $0.30M, respectively.  The current quarter included an FDIC assessment credit of $1.30M while the second quarter of 2019 included a $1.00M in loss on extinguishment of debt. Excluding merger-related expenses, loss on extinguishment of debt, and the effect of the aforementioned FDIC credit, noninterest expenses increased $1.20M when compared to the second quarter of 2019.  The increase was primarily attributable to increases in compensation expenses related to a larger staff and higher cash and equity-based compensation accruals.

Income tax expense was $6.40M for the third quarter of 2019, $5.50M for the second quarter of 2019 and $2.10M for the third quarter of 2019. The effective tax rates for the third quarter of 2019, first quarter of 2019 and third quarter of 2018 were 22.9%, 22.2% and 9.6%, respectively. Included in income tax expense for the third quarter of 2018 were benefits of $1.40M resulting from Federal and NJ deferred tax asset adjustments. The increase in the effective tax rate for the current quarter from the sequential quarter was primarily due to a higher proportion of taxable income.

Asset Quality:

The provision for loan losses was $2.00M for the third quarter of 2019, $1.10M for the second quarter of 2019 and $1.10M for the third quarter of 2018. The increase in the provision for loan losses was primarily attributable to an increase in charge-offs, which totaled $0.90M for the quarter.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $52.20M at September 30, 2019, $51.90M at December 31, 2018 and $53.00M at September 30, 2018. Included in nonperforming assets were taxi medallion loans totaling $25.80M at September 30, 2019, $28.00M at December 31, 2018 and $28.50M at September 30, 2018.  Nonperforming assets (including taxi medallion loans) as a percentage of total assets were 0.85% at September 30, 2019, 0.95% at December 31, 2018 and 0.99% at September 30, 2018.  Excluding the taxi medallion loans, nonaccrual loans was $25.50M at September 30, 2019, $23.80M at December 31, 2018 and $24.50M at September 30, 2018, representing a ratio of nonaccrual loans (excluding taxi medallion loans) to loans receivable of 0.50%, 0.53% and 0.55%, respectively. The annualized net loan charge-off (recoveries) ratio was 0.07% for the third quarter of 2019, 0.08% for the fourth quarter of 2018 and (0.01)% for the third quarter of 2018. The allowance for loan losses represented 0.76%, 0.77%, and 0.78% of loans receivable as of September 30, 2019, December 31, 2018 and September 30, 2018, respectively.  The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 151.9% as of September 30, 2019, 146.8% as of December 31, 2018 and 141.6% as of September 30, 2018.

Selected Balance Sheet Items:

At September 30, 2019, the balance sheet reflected the acquisition of Greater Hudson Bank.  The Company’s total assets were $6.20B, an increase of $699.0M from December 31, 2018.  Total loans were $5.10B, an increase of $602.0M from December 31, 2018.  Included in total loans were loans held-for-sale of $33.20M.  The Company’s stockholders’ equity was $720.0M at September 30, 2019, an increase of $106.0M from December 31, 2018. The increase in stockholders’ equity was primarily attributable to the acquisition of Greater Hudson Bank, which increased capital by $56.0M, as well as increases in retained earnings of $43.0M.  As of September 30, 2019, the Company’s tangible common equity ratio and tangible book value per share were 9.21% and $15.60, respectively.  As of December 31, 2018, the tangible common equity ratio and tangible book value per share were 8.77% and $14.42, respectively. Tangible book value per share increased $0.59, or 3.9%, from the sequential quarter.  Total goodwill and other intangible assets were approximately $168.0M as of September 30, 2019 and $148.0M and December 31, 2018.

The Company offered net profit margin of 23.90% while its gross profit margin was N/A. ROE was recorded as 9.00% while beta factor was 0.96. The stock, as of recent close, has shown the weekly downbeat performance of -4.99% which was maintained at -8.20% in this year.

Carolyn Scherer

Carolyn Scherer

I am Carolyn Scherer I give “Tech Business Week” an insight into the most recent news hitting the “Financial” sector in Wall Street. I have been an independent financial adviser for over 11 years in the city and in recent years turned my experience in finance and passion for journalism into a full time role. I perform analysis of Companies and publicize valuable information for shareholder community. Address: 924 Heritage Road Visalia, CA 93291, USA Phone: (+1) 559-735-0405 Email: Carolynscherer@techbusinessweek.com