CNOB - Earnings call transcript Q1 2018 | ConnectOne Bancorp, Inc.

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Operator

Good day, and welcome to the ConnectOne Bancorp Incorporated First Quarter 2018 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Joe Calabrese with the Financial Relations Board. Please go ahead, sir.

Joe Calabrese

Thanks, Todd. morning. Good today’s of review you XXXX, developments. to the results on call quarter first and conference welcome ConnectOne’s to for recent And to update today’s Chairman Frank and On Burns, will Executive Bill Officer. Chief Officer; Sorrentino, Financial Chief call conference and be notice as media. were a been Internet this conference this covered that has morning in by well listen-only as call over financial basis results of The release the the distributed on a press conference the statements this contain time, are remind me based of assumptions forward-looking or Private call At provisions XXXX. this upon you that are Act the and being in certain Litigation made Safe let information, of Reform Securities and pursuant Harbor to results assumptions, and to Such forward-looking unknown subject statements from known uncertainties are those anticipated. differ to materially cause risks, numerous actual or which could more These discussed risk Company’s in SEC. the filings are fully factors with the this revise only the call, statements call or update not forward-looking as The is this Company conference in of the and of them. included publicly date to are made obligated

terms release. Frank, at Frank will be the to those may accompanying in of ahead. reconciliations is now and which X-K other SEC earnings XX, all In addition, in on Reconciliations over financial which ir.connectonebank.com. accessed provided go been release provided turn earnings call and filed on Sorrentino. used non-GAAP release are certain the have Company’s Company’s XXXX, I Form through the encouraged the website of provided information are in also measures. schedules, listener tables the with call this April Each to review please together in with

Frank Sorrentino

conference in call. Thank morning. good you Joe, Thanks, participating for today’s and

first strategy, earnings number included detracting a our of of progress of core So, while we’re XXXX with pleased our quarter underlying disciplined from items growth strength. continued the our

So, issues. start addressing those by let me

The valuation. rising rates a transfer portfolio. continued took First, charge rates, combination the lower interest medallion lease effecting Company significant our values, of reflecting the and taxi of course low

or to to bottom get with it the disappointed write-down, this at While of least the does us we’re valuation. close

was we than we including the future have weighed had slower impacting third, Second, temporarily of a including on current a our are efficiency. which of metrics margin. our metrics expected growth, number margin that net And some interest number of some seasonal initiatives facing that of and deposit our

expect evolving we to the our these future banking relationships, we to face in our transition initiatives to needs as the industry. However, the proactively footprint dividends pay in as of as enhance the expand some strategically well continue Company

average X.XX noise, tangible XX%. So, in an operating on and we in excess cutting return adjusted basis, the of return an an through excess assets on on of adjusted delivered equity common

We slow also quarter And to on had an solid average sheet. loan a strong seasonally maintain although XX% growth ConnectOne, balance for basis. continued

and additional marketing We’re increasing in driven our by within deposit clients. achieving progress by internet online channel, interest our gathering

solid growth still While platform From continue grow this in future, believe more to we the in a require build and this start-up provide we mode, and a confidence key have in client number continue to area our perspective, will also is strongly it profitably lending competencies. will relationships. that deposits of to a banks in

remains with see to offers and expansion channel attractive solid deposit continue business on as including our generation areas focus this C&I are rates and client potential. offices. with independent momentum We realizing a of law our certain C&I loan ConnectOne attractive combined relationships schools for very

and with deposit opportunities clients. lending new relationships view construction approach pipeline in provides as needs. a And business service stable line, multifamily portfolio a from complete disciplined we banking of our Our existing

the willingness loan clients this we for the pipeline bit the continue bit, we service a a has of show pay our service market to opportunities still While slowed more attractive provide. to to see and area

XXXX. of to progress XXX% our the made reducing also down concentration, CRE XXX in We year-end from at

ways sales portion a of reduce came loan in along in C&I we’ve accomplished the higher non-relationship number this assets the over concentration and January, to before, with levels. of capital as residential is While additional time, progress further accretion a debt from our subordinated significant including aim issuance origination, of originations,

remained quarter quality credit relatively Additionally, during stable outside taxi. of first the

Regarding deposit the operating and environment both quarter, was the on during an extremely marketplace, loan competitive the on it the side side.

and So, included detail digitizing caused the investing remain interest of model initiative additional to entire that advantage. number enhances competitive data continue gathering team into urgency our culture, This more expected members. platform while reasons our us later. infrastructure a our in operating robust management future collaboration. Encino contracted infrastructure been and element our Bill to to of net to inefficiencies we by To phase first approvals that loan we an allows sense we our completed which the solution. rollout, core management support will process, in everything investments, bit efficient existing committed has a margin of to from technologies This offers a processes get than to improve document and any our utilizing adding Specific the our manual for growth,

of rollout the platform. deposit the under The origination Encino now of our is second addition phase includes way, which

our We track markets York business model where City on into planned region remain the we with also new our resonates. within expansion New believe

now Long expectations. and Our Island already new Melville, our opened has office center in exceeded is

this Astoria, the year to and office geographic footprint staff later our York of accommodate importance and And office planning of a growing additional by in will second the opening new expand to We’re planning we’re City in expand center Queens ‘XX. further this our half New location.

Key to officers Company prudent growth In summary, included deposit experienced by gatherers. to to us we our loan continue our talent create long-term enhance position for our of the making, our quarter position competitive continue decisions we’re Additionally, expand and base the this knowledge value strategy, shareholders. and team. staff hires the adding

ask this at our details Bill quarter would Bill? Officer, Financial review the first So, of Chief Burns, performance. to I time, our financial

Bill Burns

you, Frank. thank So,

York million levels. carrying de is value now charge to New $XX -- Loans New took $XX taxi. just of down corporate billion remain is going plus principal Let now value. return are this York $X cash And portfolio, so continue XX% valuation our a is City our for quarter; million portfolio. exposure more expected our of to our $XXX,XXX, medallion all medallion X% We and than brings pretax which non-accrual me new and reflecting payments Total carrying the on called will start minimis out loan apply it overall off on our down to will forward. with

standpoint. of of our from proper past most the can within over investors tried conservative we accounting years, as is we’ve aware, the As as few to what be are course the

we’ve the on TLC consistent as transfers approach, What well and valuation flow reported the changed model. reported, led transactions those our quarter in-house well has as of large being the Our relied number is as what as has charge transfers. lower to cash the valuation utilized this of

therefore can rely an values factors, recent less and rely these With cash on we assumption-driven flow analysis. more now transfer two on

at there believe flow table. guarantee the intent that were Our charge can’t future, portfolio the I small. any in well could present And another and they time there never currently the to hold to cash loans although but be if change do as continue very the on here, be it will I would charges, nothing is there’s

XX%. the performance that reached our now, record return charge tangible common reflecting levels, quarter on for operating taxi the surpassed Excluding equity

given attributable a quality the and a an sound barring but lower to that margin, operating we’re the is of interest course more apart net corporate operating remainder of from is aware results, asset strong on as XXXX, but typically is the improved is well. challenging of these quarter lower reflecting for these taxi, pleased unforeseen, poised basis, for the performance albeit are improve what continued that on anything rate, ConnectOne, some with first basis are we among on best to tax obviously We a in quarter, results very healthy efficiency expectation GAAP My that the industry. growth,

interest margin, bit Let me tackle for quarter. noisy was the the next a which net

NIM contributed of compression we the that purchase variables we take from contracted NIM that and Our disclosed accounting, contraction them of of the a accounting X and metrics. basis out first about items and of purchase quarter The our Purchase sequentially. always to quarter-ago. disclosed points included accounting anticipated resulted core expected the benefits for X.XX, most

a X.XX, $XX million January. our margin sub just about by The issued lengthened approximately basis debt, impacted we a ago X months slightly in cost of was points. Second, few large amount our funding relatively sources and

well the Third words, bit from a yields more and X probably was a points market most as taxable we of another that contraction. In Company, as than equivalent contributed our by on business a on negative fees And on variance other and a impacted quite items fees quarter-to-quarter as on spreads. basis anticipated was sequential and related fluctuate the margin increased were basis points. comparison rate cost contributed tell then, lines greater adjustment additional These growth at from I’ll include new you, this impacted a of three credit. X points. fees funding narrowing prepay about negatively we Not yield loans, which in marginal calculate that basis than

focus of a our our XX% little loan these about hurt at not beta on X And were it’s end. both ratio, rose with in the loan growth much basis we a gets average focus. quarter loan regulatory was of focus, digging and accounts on looking to increased but an investor our a It coupon for quarter, So, XXX% investor to lot the the so bit margin, lagging deposit expectation. growth. deposit below further by line were our to by interest-bearing But, points that ratio at portfolio

at near XXX%. comfortable or be are remains our but to We higher this level goal at

spreads happening. there Going expand, business indications are already that forward, that will we some are hopeful new and in this

should or contract a persist, interest two quarterly. our could net core However, point margin conditions

can advantage in next items non-recurring to those two. quarter little our of bit or the some think, I work a

efficiency Let’s quarter. sequentially XX.X% rose first turn the about to the ratio, for to XX% from which

remain efficient me we an emphatically, Let bank. state extremely

year and always Although improved ratio this from is was this us first quarter. the higher, a the ratio up bit in for XX% a little ago sequentially,

branch XX% and rely lead expansion, This mention leverage and revaluation to rate. of previously our that revenue continue technology We on to guidance guided we We in to I to tax basis. growth. to will revising of the to year-over-year an growth am expense still to to exceed I a economies yet of Wanted of remain all ratio target in companywide a on scale. geographic based model rate. income. committed that’s XX% effective improving efficiency staff investing and a drive wide a you and technology to sources on view

to XXXX, for benefits. that’s of expect we So, be tax compensation any exclusive equity based XX%; at

points percentage up, equity improve will to returns our surpassing over outstanding remain with our by X.XX and lowered So, CRE performance operating and XXXX. intangible nearly to on course expectation XX% the our return CRE to We concentration bottom written these of an has XX basis levels. ROA to sum our by or continues to risk-based committed lower XX.XX, common managing be forward with ratio growth. future We of now to total further medallion valuation a down raised X% basis. a The go near a been capital on supporting XXX portfolio points value cash be with on carrying flow estimated X% taxi to

superior with with note Frank. to recently we have back range. loan in call little I high that, Our the the remains And deposit in margin last of XX%, And positive range. XX% the while the important that can to returns we to margin drive turn bit that’s a into outlook experienced ConnectOne will think one it’s a over ROE compression, X.XX growth point, teens

Frank Sorrentino

Bill. thanks, your questions. had conference before a It challenging over to call we closing quarter. clearly just the a Well, was turn remarks few I

assess though, the track medallion for the financial taxi of are the objectives or margin the performance and pleased we our the our loan for including growth. the charge deliver portion continued are Nevertheless on groundwork As we not first we performance, financial we are to business with remain certainly will pleased with laying compression. quarter strong unanticipated of success deposit confident ConnectOne XXXX and as we achieve are strong

in geographic in to to the attracting deposit investing generate operating New reach desirable technology origination City our scale. and by by within loan retaining metro committed and by franchise region talent areas the additional and We York our expanding enhancing are

your of We That our are will Bill initiatives. our the to am any remainder and these very disciplined confident the of strategies. key and we leading and execution poised quarter into forward through off year, the the answering And Operator? succeed to concludes formal look I leverage of remarks, I second all and questions.

Operator

Our Breese first comes Piper Instructions] with question Jaffray. [Operator from Matthew

Matthew Breese

Good morning, guys.

Bill Burns

Good Matt. morning,

Matthew Breese

Maybe just starting…

Frank Sorrentino

morning, Good Matt.

Matthew Breese

Good Frank. morning,

about seasonal, Just and of this are to year, the starting and with be rest for making? was given wanted get core sense how investments expenses what should just of a thinking some what we in quarter, was the you expenses the

Bill Burns

quarters, below for XX% year-over-year revenue We’ve many, to on increasing That’s has XX% been at going our keep able been clip. many growth rate. above been expenses while

our a to not is bad look start to that’s place expense forward. So, at growth going where

sequentially prior the not So, year. from but

Matthew Breese

Okay. one in have get to And you wanted I just the competition over on competitive terms for How will interest things keep days? then, mind. XX, stepping discussion from what and you I are net deposits. And maybe the past outlook seeing margin, that gotten in away growth like? more a then, the of margin much sense a interest what income is for think the income. on second here, XX focusing the net From for year do for

Bill Burns

both and way to a we But, our we rates, the is balance as increases as it putting margin. are at or it grow are on -- competitive. And at in we has that margin Company that and the the acting stands act the going fact the everything trying what’s quite space, pretty rate would growing that growth things been to today sheet, me at in relative know, much on are thought higher the you marketplace. as Let so, just Matt,

are bit we Seasonality lot a there. competition a here. does little a role seeing of so, And play of

beginning quarter right the that. historically have you we quite year. businesses in deviate move, the lot the the always first from various after A of that perspective is for slow. balances out the niches of and will us see We seasonal off always start a generally year The difficult

And things the so, numbers. those margin impacted

those deposit we We expect the side, benefit goes rates and on, on to rising the side. the able year getting the combat the we’re we asset rates as should on rising

Matthew Breese

the pipeline year’s pull forward loan really Okay. give And growth we of outlook, for you then, like the How us it any sort what characterize saw sounds today a sense to of much in year? some any versus growth and intact. in was last the of quarter? during XX% still driven Could XX% on that the stalling is by numbers

Bill Burns

moderates you big reasons of lot if generally to see business think a actually, borrowers; the couple would get the into year then, of for time This as generally, growth that. We goes years I balance that quarter the of that year-end sheets. or saw steam first up no at lot look the strong tax fourth was typically Again, a in crush And -- typically we on. last exception very historically going do Company quarter. our over you a for picks

that you loan tell guidance still about giving I will in strong I that growth, So, feel confident deposit about the forward XXXX. and here we’re going

we seeing that We multi-family are space. us unhappy the demand couple said the for have quarters making we’re this in at not last slower and of moment. That’s

And bucket in that are more we’re focused making doing that places. in We’re up particular being in other loans. what much we of

Operator

Thank you.

Raymond with William Our comes from next Wallace question James.

William Wallace

loan quarter? fees the were the first did the what about the to Thinking in in fees, loans margin they what quarter, add first

Bill Burns

lot, points fees fees the and XX to X they quarter. XX basis first in went quarter loan about a fourth the always add And points, basis from in prepayments added the So, X.

X total in a of two those that’s points areas. So, drop basis

William Wallace

you the If may from that and year, the loan like look the of is fees average an be prepayments? you course over get there the contribution

Bill Burns

quarter. first number And in have the me, it is. I but was there the low Yes, in front don’t of

William Wallace

Okay.

but So, it’s obviously, equal… hard else all to predict,

Bill Burns

to Hard but -- right. predict

William Wallace

…bounce back.

Bill Burns

saying And below the probably bit quarter run I the what Right. was Yes. above was little rate. That’s fourth that is the run-rate. it

William Wallace

the Does to points prepayments, that pressure were taking consider from could in still or could the basis what X April flat? that pressure today you basis on saying or you you Bill, in X words, environment what another first we your the fees And X kind Okay. you’re noise then, of out the mentioned see worsens saw curve-wise margin. In if through the X be to seeing around what commentary, that quarter? seeing and of loan points in April, are you

Bill Burns

at X mean to back… flat basis or you X points Do go

William Wallace

the other the fees, seeing of outside out? noise be what through and you’re that margin around rest prepayments for of stripping quarter-to-date In quarter, flat words, holds all No. because will loan your if the

Bill Burns

going the re-pricing on. are in impacted loans. to X really that’s on of be market call, that are the growing It that core And been the I’m a before at now, of rates business compression. not going I mentioned We’ve that depends this on Right loans. new to And loans. out in beta impacting looking than putting as on about talked companies by are basis growing. And with that more points about what’s there we’re been has X lag companies

William Wallace

exactly. right Right,

Okay. And then…

Bill Burns

And add the first by grew balance. from your but growth XX% in not yearend It’s I analytical balance perspective, to the balance is, month-end first based we And is model margin on in loans know versus an fourth annually. the quarter. quarter I the the want average impacted was what today, that in to quarter, the really, XX% is the

William Wallace

Right.

you picking in rate see Because March, than the the spot coming less the did loan was pretty X%. quarter? production So, strongly up second into

Frank Sorrentino

what not I’m was sure, question. the

Bill Burns

Yes.

So very of much I And consistent that the the rest do pipeline and of quarter. think a still came growth going in year. we see pretty late the for forward a strong loan lot

William Wallace

Yes.

based that the than but maybe can quarter general annual could talked year you do in Okay, Do what way in about in did what you your I you question, If perfect. you then, an better was on I current… still in the efficiency, efficiency on it think an last think on basis, my calculate beat the in you fourth drive remarks, just at And improvement this efficiency the prepared the about you not look XX%. we ratio. the quarter, year-over-year, fourth saw

Bill Burns

quarter, we that. think last I to is best improve my second think, guess can year’s at and look I on

You’ll quarter. get year XX%, year’s see but quarter, better last first first pops every up popped XX.X% to in And the this it each versus we it year, up quarter.

William Wallace

Okay. Thanks, gentlemen. I it. appreciate

Bill Burns

just thing to I could one If that.

while much the our larger of investment we will to we’re So, in in want of certainly we also some putting pay should over we strategy could around is initiatives dividends that the time around certainly part how to, would which Company infrastructure, look even future. at into the make and back

cutting ratio would clearly So, our for spend could the today. But, future. to where for significantly it our get efficiency mean, ability lower we is from new infrastructure that

And time. decisions we’re over constantly those so, weighing

past XXs, in to in invest we’ve is the those builds. and forward-looking the all in I should future XXs around which that we think ability us moment for the be said believe the this operating we very which range at provides in time, high we infrastructure low feel looking

Operator

Instructions] from Collyn take KBW. next [Operator question our We’ll with Gilbert

Collyn Gilbert

how following discussion are forward. which declines you this you is on that’s I know it -- mean, anticipating presume not going I More going not -- it’s I quarter. obviously that. lumpy, the the mean, growth? about interest income to I realizing net to that Just around though, up some be thinking NIM, Bill, are is broadly that variability there fell there

Bill Burns

No.

Collyn Gilbert

Okay.

Bill Burns

to you’ve got there. -- any well, in have project and margin you’re project or you growth then going think to have I That’s model you’ve it. to how not loan got whether compression

Collyn Gilbert

at income going strategic objective? anticipating growth, as net interest Right, you be balance kind right. of broader you’re will to find like a the that’s to way like grow But a continue to you sheet, look

Bill Burns

the XXX, going to so or current and Absolutely ROE to XX.X ROA that’s a and up level. up from higher drive our

Collyn Gilbert

Okay. And then…

Bill Burns

efficiency lower a ratio. And Yes.

Collyn Gilbert

Yes, okay.

still But Frank high said had to you X.XX fact a that it. allows all return margin generate And I the you Bill maybe you think said it, on… so,

Bill Burns

Yes.

Collyn Gilbert

there on that broader just don’t guess, you I again are that a am give at -- that ROE to lot What not of understand business are fee okay. to mean growth a have about. that is the you you of marginally still Yes, I this because like realization question, sort a leverage little think trying levers is trying company, the really so I are But what’s the is drivers to of And side. get growth am lower just being -- of model strategic right. the maintain to within that confidence where a business? high added guys the rate. I is And the a the bit

Bill Burns

greater improve show to rate going revenue are we’re increase by a that. at we where from growth having and Well, a rate than really still expense is our the now projections

bit the yes, there would growth to portfolio, the securities revenue is portfolio. looking is going that year. little a increases plan loan The past the little margin increase the in throughout work those that into at to in lower we going fourth for we growth; sales And from am in teens. loan from compression away small in tax And of bit ROE the if some quarter, the right it’s So, have be drive there take rate now. going I is a high

Collyn Gilbert

you Okay, among loan okay. is And back right. What to just That’s then pipeline pipeline. composition the CRE, of All multi, the what have do C&I? in helpful. terms -- of between the

Bill Burns

Yes.

it’s a So, which trends continued in few the we is been quarters, multifamily. of on what past de-emphasis seeing have

And we’ll growth will that’s greater commercial to -- to in the metrics. continue in growth CRE. you going concentration lead a CRE in lower see to than And so

Collyn Gilbert

Okay.

Bill Burns

as returns. Yes. As well

Collyn Gilbert

that tightness blended vary yield, loan yield? Okay. loan And realized to you but pipeline do have going the are rates among

Bill Burns

quarter, recent most was loan coupon XXX. the in So, the

Collyn Gilbert

then helpful. go That’s And Okay. -- ahead.

Bill Burns

No. to are when going to timing I because close. hard it’s say because the am sure of its in loans pipeline

So…

Collyn Gilbert

Okay. I differently guess, it me let ask

Bill Burns

go Yes, ahead.

Collyn Gilbert

seeing the quarter? reflect your so, roughly pricing, the were higher improvement loan Just how given loan you fourth any And in origination pickup much quarter, you to than rate last are in higher? yields the in if

Bill Burns

that’s question, Collyn. Well, I think a good

we in increases the loan are rates We as the booking that are pipeline. as well seeing

it should, as about We the on think, as gone has right? that been beta hasn’t up I loans. issue talk fast

rate the that be. book, what obviously, of we’re deciding of to be basis impacting couple is think growth margin I of loans not we It’s forward it’s don’t what’s going of that’s think going book, to significant. are And what some compression. our points overly mindful results. going we So as a to go

Collyn Gilbert

the question ones, I two then, that to guys trying as only guess is just aren’t you part reconcile, of right. And Okay.

spoken sensitivity. the so, And are So, think a seeing, totally I bogus. I’d mindful described balance and quite know be sensitivity, asset described I the you’ve that somewhat sheet, I you asset But, we disclosures yourself But right, frankly have asset are as we of. static the think finding about as are analysis sensitive. what and it’s even you’ve

So, that just you to not it -- that don’t trying is reconcile what’s are seeing have that the you And that not you tailwind. -- are tailwind? driving because fact

Bill Burns

beta the loans So, called on is what’s driving the model. dynamic

Collyn Gilbert

Okay.

pressure competitive loans is the So, keeping not…

Bill Burns

are loans of The liability a affects And rate. Yes. as course margin lower going on at mix the well.

Collyn Gilbert

high one thoughts today. Any situation in doesn’t similar just let’s in this Is point there of year of truly opportunities and are then -- And when the say question. a you subside network final get to competitiveness you the sitting that end branch drive out we enough a revenue at feel the efficiency of we you sort that sitting is doesn’t a businesses think the about more just like enhance or or fee-based that legitimately are mix -- that the environment ROE? little bit do to

Frank Sorrentino

to think banks decisions at that. be than type relative But, a some at to There for things strategy we around sometimes always that to any could in have businesses ConnectOne model what see is that clients. these the how a game end business we always moment efficient to And better we running we for hobby doing on trying our any functioning. well. what the else we call going at do I we this one day, not don’t are right And certain want us can are I pursue based mindful our way, maybe are that’s here us. But, think, I experience By we the here would don’t a that committed to significantly look is plan of the and what made the provide organization. contribute other for I -- Bank. impression be give better

clients only deposits year. staff to forward the We a have a the pipeline We strong rest have not of the and and join very loans for that going Company. but want

on expanding We are market area.

lot a quarter’s as a We think, of the years year completely better here. position doesn’t goes are doing the change be And work. One direction metric a we’ll we in on wrong model financial in moving as sitting right. business most things

that quarter First think model. think negatively year the how it’s will subside moved the generally moves the impacted rates business interest have is our rest flux with we weakest. intact. of is on. in Yes, plan ConnectOne’s as And the recently, We

Operator

Management, at this time, I back it further you we now have to turn over remarks. questions. closing will for no

Frank Sorrentino

you. to look forward Thanks appreciate again very joining our We first much. We quarter to interest. earnings Well, thank on call. us everyone’s our July. you conference you speaking in for on Thank back next call

Operator

you. today’s Thank Ladies and concludes this gentlemen, conference.

great now rest You disconnect day. phone your have and a of may lines the

ConnectOne Bancorp (CNOB) 26 Apr 182018 Q1 Earnings call transcript