ENGLEWOOD CLIFFS - ConnectOne Bancorp, Inc. (Nasdaq: CNOB) (the 'Company' or 'ConnectOne'), parent company of ConnectOne Bank (the 'Bank'), today reported net income of $20.8 million for the fourth quarter of 2019 compared with $21.7 million for the third quarter of 2019 and $18.7 million for the fourth quarter of 2018.
Diluted earnings per share were $0.59 for the fourth quarter of 2019 compared with $0.61 for in the third quarter of 2019 and $0.58 for in the fourth quarter of 2018. Full-year 2019 net income was $73.4 million, compared with $60.4 million for the full-year 2018. Diluted earnings per share for the full-year 2019 was $2.07, compared with $1.86 for the full-year 2018.
Adjusted net income amounted to $21.4 million, or $0.61 per diluted share, for the fourth quarter of 2019; $21.1 million, or $0.60 per diluted share, for the third quarter of 2019 and $19.1 million, or $0.59 per diluted share, for the fourth quarter of 2018. Adjusted net income excludes $0.6 million, $0.1 million, and $0.7 million in after-tax merger-related expenses for the fourth quarter of 2019, third quarter of 2019 and fourth quarter of 2018, respectively. In addition, adjusted net income excludes $0.9 million in after-tax FDIC small bank assessment credits for the third quarter 2019.
Frank Sorrentino, ConnectOne's Chairman and Chief Executive Officer, stated, 'This past year was one of strategic growth and outstanding execution for ConnectOne. We delivered record earnings and achieved strong deposit and loan growth. Credit quality remains solid while we also continue to be one of the most efficient banks in the country. We're also pleased with the groundwork we're laying for our continued long-term success and recently crossed over the $7 billion mark in total assets. On January 2, 2020, we completed the acquisition of the approximately $1.0 billion Bancorp of New Jersey, Inc. A financially savvy acquisition, this in-market transaction enhances our desirable franchise and provides attractive in-market growth opportunities. We're on track to meet, or exceed, all financial metrics disclosed when the transaction was announced and expect to achieve cost savings in excess of the previously announced 60%.'
Mr. Sorrentino added, 'We're very pleased with our fourth quarter results, which reflected continued strong core performance and excellent execution across the organization. We continue to operate with a return on tangible common equity in excess of 15% and a return on assets of approximately 1.40%. New loan originations were $243 million for the quarter, reflecting strong activity in our C&I segment. The strong originations, however, were largely offset by elevated loan payoffs, especially in our construction portfolio, which served to reduce sequential growth in total loans to only 2.1% annualized, which is well below our historical trend. Our pipeline remains strong and we continue to target a future growth rate in the 7.5%-10.0% range. On the funding side, we were particularly pleased with a very much improved deposit mix-average noninterest-bearing demand deposits increased by more than 16% annualized and time deposits fell by a similar percentage-and our loan to deposit ratio declined to 107%. Our efficiency ratio was 41.8% and tangible book value per share increased by $0.46 during the quarter to $16.06. Tangible book value per share has increased by 11.3% over the past year. Looking ahead, we remain diligently focused on our strategic priorities, which include solid organic growth in loans and deposits, improvements in operating efficiency through use of technology and superior returns on investor capital. On the M&A front, we are focused on flawless execution on completed transactions and remain opportunistic regarding potential future deals.'
Operating Results
Fully taxable equivalent net interest income for the fourth quarter of 2019 was $47.9 million, a decrease of $1.0 million, or 2.0%, from the third quarter of 2019, resulting primarily from an 8 basis-point contraction of the net interest margin to 3.36% from 3.44%. Included in net interest income were purchase accounting adjustments of $1.5 million during the fourth quarter of 2019 and $1.6 million during the third quarter of 2019. Excluding purchase accounting adjustments, the adjusted net interest margin was 3.26% for the fourth quarter of 2019, 7 basis points lower than the adjusted net interest margin of 3.33% for the third quarter of 2019. The adjusted net interest margin contracted primarily due to lower prepayment and other fees on loans, while the decline in adjusted asset yields was largely offset by a lower cost of deposits and an improved funding mix.
Noninterest income was essentially unchanged at $2.2 million for the fourth quarter of 2019 versus $2.1 million in the third quarter of 2019 and higher than the $1.6 million recorded in the fourth quarter of 2018. The increases from 2018 were due to the acquisitions of Greater Hudson and BoeFly, higher deposit fees, additional BOLI income and increases in gains on the sale of loans.
Noninterest expenses totaled $22.2 million for fourth quarter of 2019, $20.4 million for the third quarter of 2019 and $18.3 million for the fourth quarter of 2018. Included in noninterest expenses were merger-related expenses of $0.9 million and $0.2 million, during the fourth quarter of 2019 and third quarter of 2019, respectively. The third quarter of 2019 included an FDIC assessment credit of $1.3 million. Excluding merger-related expenses and the effect of the FDIC credit, noninterest expenses decreased $0.2 million when compared to the third quarter of 2019. The decrease versus the third quarter 2019 was primarily attributable to decreases in marketing and advertising, occupancy and equipment and FDIC insurance expense, offset by increases in compensation expenses related to a larger staff and higher cash and equity-based compensation accruals. The increase versus the year-ago fourth quarter of 2018 was largely due to the aforementioned acquisitions.
Income tax expense was $6.2 million for the fourth quarter of 2019, $6.4 million for the third quarter of 2019 and $3.6 million for the fourth quarter of 2018. The effective tax rates for the fourth quarter of 2019, third quarter of 2019 and fourth quarter of 2018 were 23.0%, 22.9% and 16.3%, respectively. The effective tax rate for the full-year 2019 was 21.9%, compared with 15.2% for the full-year 2018. The increase in 2019 effective tax rates were primarily due an increase in taxable income and the negative impact of recent tax legislation in New Jersey.
Asset Quality
The provision for loan losses was $0.5 million for the fourth quarter of 2019, while the provision for loan losses was $1.1 million for both the third quarter of 2019 and the fourth quarter of 2018. The decrease in the provision for loan losses was primarily attributable to a decrease in net loan growth.
Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $49.2 million at December 31, 2019, $52.2 million at September 30, 2019 and $51.9 million at December 31, 2018. Included in nonperforming assets were taxi medallion loans totaling $23.4 million at December 31, 2019, $25.8 million at September 30, 2019 and $28.0 million at December 31, 2018. Nonperforming assets (including taxi medallion loans) as a percentage of total assets were 0.80% at December 31, 2019, 0.85% at September 30, 2019 and 0.95% at December 31, 2018. Excluding the taxi medallion loans, nonaccrual loans were $25.8 million at December 31, 2019, $25.5 million at September 30, 2019 and $23.8 million at December 31, 2018, representing a ratio of nonaccrual loans (excluding taxi medallion loans) to loans receivable of 0.51%, 0.50% and 0.53%, respectively. The annualized net loan charge-off ratio was 0.08% for the fourth quarter of 2019, 0.07% for the third quarter of 2019 and 0.08% for the fourth quarter of 2018. The allowance for loan losses represented 0.75%, 0.76%, and 0.77% of loans receivable as of December 31, 2019, September 30, 2019 and December 31, 2018, respectively. The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 147.0% as of December 31, 2019, 151.9% as of September 30, 2019 and 146.8% as of December 31, 2018.
Selected Balance Sheet Items
At December 31, 2019, the balance sheet reflected the acquisition of Greater Hudson Bank. The Company's total assets were $6.2 billion, an increase of $712 million from December 31, 2018. Total loans were $5.1 billion, an increase of $606 million from December 31, 2018. Included in total loans were loans held-for-sale of $33.2 million. The Company's stockholders' equity was $731 million at December 31, 2019, an increase of $117 million from December 31, 2018. The increase in stockholders' equity was primarily attributable to the acquisition of Greater Hudson Bank, which increased capital by $56 million, as well as an additional $60 million in retained earnings. As of December 31, 2019, the Company's tangible common equity ratio and tangible book value per share were 9.37% and $16.06, 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 $0.45, or 2.9%, from the third quarter of 2019. Total goodwill and other intangible assets were approximately $168 million as of December 31, 2019 and $148 million and December 31, 2018.
Use of Non-GAAP Financial Measures
In addition to the results presented in accordance with Generally Accepted Accounting Principles ('GAAP'), ConnectOne routinely supplements its evaluation with an analysis of certain non-GAAP/adjusted financial measures including an adjusted net income available to common shareholders. ConnectOne believes these non-GAAP financial measures, in addition to the related GAAP measures, provide meaningful information to investors in understanding our operating performance and trends. These non-GAAP measures have inherent limitations and are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for an analysis of results reported under GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies.
About ConnectOne Bancorp, Inc.
ConnectOne Bancorp, Inc., through its subsidiary, ConnectOne Bank offers a full suite of both commercial and consumer banking and lending products and services through its 37 banking offices located in New York and New Jersey. ConnectOne Bancorp, Inc. is traded on the Nasdaq Global Market under the trading symbol 'CNOB,' and information about ConnectOne may be found at https://www.connectonebank.com.
Forward-Looking Statements
This news release contains certain forward-looking statements which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words 'believe,' 'expect,' 'intend,' 'anticipate,' 'estimate,' 'project,' or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, those factors set forth in Item 1A - Risk Factors of the Company's Annual Report on Form 10-K, as filed with the Securities Exchange Commission, and changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
Contact:
William S. Burns
Tel: 201.816.4474
Email: bburns@cnob.com
CONNECTONE BANCORP, INC. 
