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ConnectOne Bancorp, Inc. Reports First Quarter 2019 Results

ENGLEWOOD CLIFFS, N.J., April 25, 2019 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $11.6 million for the first quarter of 2019 compared with $18.7 million for the fourth quarter of 2018 and $4.3 million for the first quarter of 2018. Diluted earnings per share were $0.33 for the first quarter of 2019 compared with $0.58 earned in the fourth quarter of 2018 and $0.13 earned in the first quarter of 2018. On January 2, 2019, the acquisition of Greater Hudson Bank was completed and thus first quarter 2019 results reflect the operations of the combined entity. Historical financial information includes only the operations of ConnectOne.

Adjusted net income amounted to $17.2 million, or $0.49 per diluted share, for the first quarter of 2019; $19.2 million, or $0.59 per diluted share, for the fourth quarter of 2018; and $17.1 million, or $0.53 per diluted share, for the first quarter of 2018. Adjusted net income for the first quarter of 2019 and fourth quarter of 2018 excludes $5.6 million and $0.7 million, respectively, in merger-related expenses. Adjusted net income for the first quarter of 2018 excludes $13.4 million in taxi medallion charges. See supplemental tables for a complete reconciliation of GAAP earnings to adjusted earnings.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “ConnectOne maintained solid momentum executing against key operating objectives during the first quarter. On January 2, 2019 we closed the merger with Greater Hudson Bank, which enhanced our desirable franchise and improved our financial profile in several key areas including core deposit funding and loan diversification. In late January, we successfully converted key systems and, as expected, our quarterly results reflect merger-related expenses. First quarter results were highlighted by continued organic deposit and loan growth, while the deposit-rich Greater Hudson Bank franchise served to decrease our loan to deposit ratio to 108%, from 111% at year-end, and CRE concentration to 475% from 480%. Net interest margin increased by 7 basis points from the sequential quarter, largely a result of purchase accounting adjustments associated with the merger, and our core net interest margin remained flat at 3.25%. For the quarter, excluding merger charges, return on assets and return on tangible common equity totaled 1.18% and 13.69%, respectively. Tangible book value per share increased during the quarter by $0.25 to $14.67, despite dilution related to the merger. Our first quarter provision for loan losses was elevated due to an approximately $3.0 million charge relating to a single loan secured by a commercial office building and, consistent with our loan work-out philosophy, we are aggressively pursuing disposition. Meanwhile, our credit metrics improved significantly since year-end 2018. Nonaccrual loans, excluding taxi medallions, as a percentage of total loans improved to 0.41% from 0.53% at year-end, and our total nonperforming asset ratio improved to 0.79% from 0.95%.”

Mr. Sorrentino added, “Looking ahead, we remain committed to our client first culture and leveraging technology to stay ahead of the competition. We recently announced the FinTech acquisition of BoeFly, a leading online business lending marketplace, which will enhance our digital offerings, expand noninterest revenue, and offer us opportunities for measured SBA lending. Additionally, based on our strong return on equity metrics and our commitment to creating long-term shareholder value, our Board recently approved a stock repurchase program for up to 1.2 million shares and increased the Company’s quarterly cash dividend on its common stock by 20% to $0.09 per share. Our outlook for the remainder of 2019 is positive and we are well-positioned to capitalize on meaningful growth opportunities throughout our New York and New Jersey metropolitan target market.”

Operating Results

Fully taxable equivalent net interest income for the first quarter of 2019 was $45.5 million, an increase of $4.8 million, or 11.9%, from the fourth quarter of 2018, resulting primarily from an 11.8% increase in average interest-earning assets and a 7 basis-point widening of the net interest margin to 3.34% from 3.27%, both resulting largely from the Greater Hudson Bank acquisition. Included in net interest income were purchase accounting adjustments of $1.2 million during the first quarter of 2019 and $0.1 million during the fourth quarter of 2018. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.25% for both the first quarter of 2019 and the fourth quarter of 2018. The adjusted net interest margin benefitted from an improved asset-mix, a higher yield earned on loans and growth in noninterest-bearing deposits, offset by higher funding costs, primarily due to continued increased deposit competition.

Noninterest income increased, primarily due to the Greater Hudson Bank acquisition, to $1.7 million in the first quarter of 2019 from $1.6 million in the fourth quarter of 2018 and $1.3 million in the first quarter of 2018. Noninterest income consists of income on bank owned life insurance, net gains on sales of loans held-for-sale, net gains (losses) on equity securities and deposit service fees, loan fees, and other income.

Noninterest expenses totaled $28.1 million for first quarter of 2019, $18.3 million for the fourth quarter of 2018 and $16.9 million for the first quarter of 2018. Included in the first quarter of 2019 and fourth quarter of 2018 were merger-related pretax expenses of $7.6 million and $0.9 million, respectively. Excluding merger-related expenses, noninterest expenses increased by $3.1 million from the fourth quarter of 2018 due primarily to increases in salaries and employee benefits of $2.0 million, occupancy and equipment expenses of $0.5 million and other expenses of $0.3 million. These increases are primarily due to the expansion of our franchise through the Greater Hudson Bank acquisition.

Income tax expense was $2.5 million for the first quarter of 2019, $3.6 million for the fourth quarter of 2018 and $0.4 million for the first quarter of 2018. The effective tax rates for the first quarter of 2019, fourth quarter of 2018 and first quarter of 2018 were 17.6%, 16.3% and 9.5%, respectively. The increase in the effective tax rate for the current quarter from the sequential quarter was due to the Company’s estimate of the impact of recent NJ corporate tax legislation, partially offset by a lower percentage of income from taxable sources.

Asset Quality

The provision for loan losses was $4.5 million for the first quarter of 2019, $1.1 million for the fourth quarter of 2018 and $17.8 million for the first quarter of 2018. The increase from the fourth quarter of 2018 was primarily due to approximately $3.0 million specifically allocated to a single commercial real estate loan. The first quarter of 2018 included $17.0 million of provision related to the taxi medallion loan portfolio.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $47.7 million at March 31, 2019, $51.9 million at December 31, 2018 and $51.1 million at March 31, 2018. Included in nonperforming assets were taxi medallion loans totaling $27.3 million at March 31, 2019, $28.0 million at December 31, 2018 and $29.4 million at March 31, 2018. Nonperforming assets (including taxi medallion loans) as a percentage of total assets were 0.79% at March 31, 2019, 0.95% at December 31, 2018 and 0.99% at March 31, 2018. Excluding the taxi medallion loans, nonaccrual loans were $20.4 million at March 31, 2019, $23.8 million at December 31, 2018 and $20.6 million at March 31, 2018, representing a ratio of nonaccrual loans (excluding taxi medallion loans) to loans receivable of 0.41%, 0.53% and 0.49%, respectively. The annualized net loan charge-off ratio was 0.21% for the first quarter of 2019, 0.08% for the fourth quarter of 2018 and 1.63% for the first quarter of 2018. The allowance for loan losses represented 0.74%, 0.77%, and 0.77% of loans receivable as of March 31, 2019, December 31, 2018 and March 31, 2018, respectively. The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 180.7% as of March 31, 2019, 146.8% as of December 31, 2018 and 157.7% as of March 31, 2018.

Selected Balance Sheet Items

At March 31, 2019, the balance sheet reflected the acquisition of Greater Hudson Bank. The Company’s total assets were $6.0 billion, an increase of $587 million from December 31, 2018. Total loans were $5.0 billion, an increase of $432 million from December 31, 2018. The Company’s stockholders’ equity was $682 million at March 31, 2019, an increase of $68 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 of March 31, 2019, the Company’s tangible common equity ratio and tangible book value per share were 8.83% and $14.67, 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 $0.25, or 1.7%, from the prior sequential quarter. Total goodwill and other intangible assets were approximately $163 million as of March 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.

Reconciliations of non-GAAP/adjusted financial measures disclosed in this earnings release to the comparable GAAP measures are provided in the accompanying tables.

First Quarter 2019 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on Thursday, April 25, 2019 to review the Company's financial performance and operating results. The conference call dial-in number is 855-719-5012, access code 7140109. Please dial in at least five minutes before the start of the call to register. An audio webcast of the conference call will be available to the public, on a listen-only basis, via the "Investor Relations" link on the Company's website https://www.connectonebank.com or at http://ir.connectonebank.com.

A replay of the conference call will be available beginning at approximately 1:00 p.m. ET on Thursday, April 25, 2019 and ending on Thursday, May 2, 2019 by dialing 719-457-0820, access code 7140109. An online archive of the webcast will be available following the completion of the conference call at https://www.connectonebank.com or at http://ir.connectonebank.com.

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 29 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 and 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.
Investor Contact:

William S. Burns
Executive VP & CFO
201.816.4474; bburns@cnob.com

Media Contact:
Thomas Walter, MWWPR
202.600.4532; twalter@mww.com


CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION

(in thousands)

March 31,

December 31,

March 31,

2019

2018

2018

(unaudited)

(unaudited)

ASSETS

Cash and due from banks

$

54,520

$

39,161

$

36,396

Interest-bearing deposits with banks

118,028

133,205

106,391

Cash and cash equivalents

172,548

172,366

142,787

Securities available-for-sale

516,539

412,034

424,322

Equity securities

11,564

11,460

11,607

Loans held-for-sale

368

-

45,886

Loans receivable

4,972,651

4,541,092

4,202,679

Less: Allowance for loan losses

36,858

34,954

32,529

Net loans receivable

4,935,793

4,506,138

4,170,150

Investment in restricted stock, at cost

31,727

31,136

34,622

Bank premises and equipment, net

20,150

19,062

21,039

Accrued interest receivable

21,198

18,214

16,020

Bank owned life insurance

125,300

113,820

111,500

Right of use operating lease assets

15,311

-

-

Other real estate owned

-

-

1,076

Goodwill

156,243

145,909

145,909

Core deposit intangibles

6,504

1,737

2,195

Other assets

35,731

30,216

31,255

Total assets

$

6,048,976

$

5,462,092

$

5,158,368

LIABILITIES

Deposits:

Noninterest-bearing

$

833,090

$

768,584

$

739,174

Interest-bearing

3,760,908

3,323,508

3,010,413

Total deposits

4,593,998

4,092,092

3,749,587

Borrowings

603,412

600,001

695,032

Operating lease liabilities

16,719

-

-

Subordinated debentures (net of $1,517, $1,599 and $1,845 in debt issuance costs)

128,638

128,556

128,310

Other liabilities

23,814

27,516

21,173

Total liabilities

5,366,581

4,848,165

4,594,102

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY

Common stock

468,571

412,546

412,546

Additional paid-in capital

16,513

15,542

13,434

Retained earnings

219,558

211,345

162,510

Treasury stock

(16,967

)

(16,717

)

(16,717

)

Accumulated other comprehensive loss

(5,280

)

(8,789

)

(7,507

)

Total stockholders' equity

682,395

613,927

564,266

Total liabilities and stockholders' equity

$

6,048,976

$

5,462,092

$

5,158,368

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except for per share data)

Three Months Ended

03/31/19

12/31/18

03/31/18

Interest income

Interest and fees on loans

$

60,326

$

53,306

$

47,025

Interest and dividends on investment securities:

Taxable

2,942

2,291

1,887

Tax-exempt

1,127

899

814

Dividends

457

495

485

Interest on federal funds sold and other short-term investments

357

232

264

Total interest income

65,209

57,223

50,475

Interest expense

Deposits

15,351

12,398

7,688

Borrowings

4,906

4,664

4,640

Total interest expense

20,257

17,062

12,328

Net interest income

44,952

40,161

38,147

Provision for loan losses

4,500

1,100

17,800

Net interest income after provision for loan losses

40,452

39,061

20,347

Noninterest income

Income on bank owned life insurance

822

794

774

Net gains on sale of loans held-for-sale

19

30

17

Deposit, loan and other income

786

691

616

Net gains (losses) on equity securities

103

58

(120

)

Net gains on sale of securities available-for-sale

8

-

-

Total noninterest income

1,738

1,573

1,287

Noninterest expenses

Salaries and employee benefits

11,983

9,988

9,679

Occupancy and equipment

2,495

2,001

2,143

FDIC insurance

755

765

850

Professional and consulting

1,209

1,129

723

Marketing and advertising

210

244

207

Data processing

1,155

1,080

1,148

Merger expenses

7,562

936

-

Amortization of core deposit intangibles

364

144

169

Other expenses

2,329

2,037

2,020

Total noninterest expenses

28,062

18,324

16,939

Income before income tax expense

14,128

22,310

4,695

Income tax expense

2,493

3,638

444

Net income

$

11,635

$

18,672

$

4,251

Earnings per common share:

Basic

$

0.33

$

0.58

$

0.13

Diluted

0.33

0.58

0.13

Dividends per common share

$

0.090

$

0.075

$

0.075

ConnectOne's management believes that the supplemental financial information, including non-GAAP measures provided below, is useful to investors. The non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP financial measures presented by other companies.

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES

As of

Mar. 31,

Dec. 31,

Sept. 30,

June 30,

Mar. 31,

2019

2018

2018

2018

2018

Selected Financial Data

(dollars in thousands)

Total assets

$

6,048,976

$

5,462,092

$

5,368,641

$

5,275,368

$

5,158,368

Loans receivable:

Commercial

$

1,012,930

$

925,229

$

886,212

$

808,604

$

768,640

Commercial real estate

1,483,852

1,279,502

1,282,766

1,282,426

1,275,764

Multifamily

1,608,613

1,562,195

1,504,134

1,480,243

1,400,420

Commercial construction

548,039

465,389

494,206

498,607

479,190

Residential

319,214

309,991

295,948

288,449

278,985

Consumer

4,157

2,593

2,508

5,637

2,461

Gross loans

4,976,805

4,544,899

4,465,774

4,363,966

4,205,460

Unearned net origination fees

(4,154

)

(3,807

)

(3,287

)

(3,112

)

(2,781

)

Loans receivable

4,972,651

4,541,092

4,462,487

4,360,854

4,202,679

Loans held-for-sale (net of valuation allowance)

368

-

270

-

45,886

Total loans

$

4,973,019

$

4,541,092

$

4,462,757

$

4,360,854

$

4,248,565

Securities

$

528,103

$

423,494

$

421,442

$

411,574

$

435,929

Goodwill and other intangible assets

162,747

147,646

147,791

147,936

148,104

Deposits:

Noninterest-bearing demand

$

833,090

$

768,584

$

758,213

$

765,150

$

739,174

Time deposits

1,544,247

1,366,054

1,322,747

1,315,843

1,255,654

Other interest-bearing deposits

2,216,661

1,957,454

1,907,805

1,824,417

1,754,759

Total deposits

$

4,593,998

$

4,092,092

$

3,988,765

$

3,905,410

$

3,749,587

Borrowings

$

603,412

$

600,001

$

629,979

$

628,995

$

695,032

Subordinated debentures (net of debt issuance costs)

128,638

128,556

128,474

128,392

128,310

Total stockholders' equity

682,395

613,927

594,871

578,557

564,266

Quarterly Average Balances

Total assets

$

5,909,061

$

5,261,493

$

5,186,173

$

5,104,661

$

5,088,823

Loans receivable:

Commercial

$

1,074,229

$

941,619

$

850,038

$

808,764

$

820,562

Commercial real estate (including multifamily)

2,973,337

2,725,652

2,723,572

2,654,276

2,643,466

Commercial construction

524,952

464,556

494,460

494,092

482,391

Residential

335,574

304,954

294,758

282,504

275,263

Consumer

3,397

4,292

3,205

5,685

4,659

Gross loans

4,911,489

4,441,073

4,366,033

4,245,321

4,226,341

Unearned net origination fees

(3,930

)

(3,340

)

(3,182

)

(3,208

)

(3,110

)

Loans receivable

4,907,559

4,437,733

4,362,851

4,242,113

4,223,231

Loans held-for-sale

124

211

54

30,099

24,766

Total loans

$

4,907,683

$

4,437,944

$

4,362,905

$

4,272,212

$

4,247,997

Securities

$

524,394

$

421,316

$

415,074

$

424,854

$

437,141

Goodwill and other intangible assets

162,814

147,741

147,883

148,046

148,215

Deposits:

Noninterest-bearing demand

$

824,115

$

775,824

$

761,782

$

719,372

$

724,471

Time deposits

1,515,249

1,329,743

1,296,165

1,280,471

1,207,368

Other interest-bearing deposits

2,236,630

1,915,353

1,854,763

1,765,577

1,815,122

Total deposits

$

4,575,994

$

4,020,920

$

3,912,710

$

3,765,420

$

3,746,961

Borrowings

$

486,687

$

477,800

$

531,251

$

613,763

$

630,117

Subordinated debentures (net of debt issuance costs)

128,585

128,502

128,420

128,339

115,182

Total stockholders' equity

680,168

606,378

590,128

574,992

575,029

Three Months Ended

Mar. 31,

Dec. 31,

Sept. 30,

June 30,

Mar. 31,

2019

2018

2018

2018

2018

(dollars in thousands, except for per share data)

Net interest income

$

44,952

$

40,161

$

39,962

$

38,945

$

38,147

Provision for loan losses

4,500

1,100

1,100

1,100

17,800

Net interest income after provision for loan losses

40,452

39,061

38,862

37,845

20,347

Noninterest income

Income on bank owned life insurance

822

794

751

775

774

Net gains on sale of loans held-for-sale

19

30

2

12

17

Deposit, loan and other income

786

691

676

601

616

Net gains (losses) on equity securities

103

58

(157

)

(47

)

(120

)

Net gains on sale of securities available-for-sale

8

-

-

-

-

Total noninterest income

1,738

1,573

1,272

1,341

1,287

Noninterest expenses

Salaries and employee benefits

11,983

9,988

10,181

9,736

9,679

Occupancy and equipment

2,495

2,001

2,137

2,031

2,143

FDIC insurance

755

765

735

765

850

Professional and consulting

1,209

1,129

891

825

723

Marketing and advertising

210

244

192

337

207

Data processing

1,155

1,080

1,102

1,091

1,148

Merger expenses

7,562

936

375

24

-

Amortization of core deposit intangibles

364

144

145

169

169

Other expenses

2,329

2,037

2,372

2,083

2,020

Total noninterest expenses

28,062

18,324

18,130

17,061

16,939

Income before income tax expense

14,128

22,310

22,004

22,125

4,695

Income tax expense

2,493

3,638

2,102

4,598

444

Net income

$

11,635

$

18,672

$

19,902

$

17,527

$

4,251

Reconciliation of GAAP Earnings to Earnings Excluding the Following Items:

Net income

$

11,635

$

18,672

$

19,902

$

17,527

$

4,251

Merger expenses (after taxes)

5,597

739

297

19

-

Net gains on sale of securities available-for-sale (after taxes)

(6

)

-

-

-

-

Deferred tax valuation charge/adjustment

-

-

(1,408

)

-

-

Tax benefit on employee share-based awards (ASU 2016-09)

(20

)

(223

)

(297

)

(49

)

(541

)

Provision related to taxi medallion loans (after taxes)

-

-

-

-

13,430

Net income-adjusted

$

17,206

$

19,188

$

18,494

$

17,497

$

17,140

Weighted average diluted shares outstanding

35,309,503

32,378,739

32,319,060

32,321,150

32,238,048

Diluted EPS (GAAP)

$

0.33

$

0.58

$

0.61

$

0.54

$

0.13

Diluted EPS-adjusted (Non-GAAP) (1)

0.49

0.59

0.57

0.54

0.53

Return on Assets Measures

Net income-adjusted

$

17,206

$

19,188

$

18,494

$

17,497

$

17,140

Average assets

$

5,909,061

$

5,261,493

$

5,186,173

$

5,104,661

$

5,088,823

Less: average intangible assets

(162,814

)

(147,741

)

(147,883

)

(148,046

)

(148,215

)

Average tangible assets

$

5,746,247

$

5,113,752

$

5,038,290

$

4,956,615

$

4,940,608

Return on avg. assets (GAAP)

0.80

%

1.41

%

1.52

%

1.38

%

0.34

%

Return on avg. assets-adjusted (non-GAAP) (2)

1.18

1.45

1.41

1.37

1.37

_______________

(1) Represents adjusted earnings available to common stockholders divided by weighted average diluted shares outstanding.

(2) Adjusted net income divided by average assets.

Three Months Ended

Mar. 31,

Dec. 31,

Sept. 30,

June 30,

Mar. 31,

2019

2018

2018

2018

2018

Return on Equity Measures

(dollars in thousands)

Net income-adjusted

$

17,206

$

19,188

$

18,494

$

17,497

$

17,140

Average common equity

$

680,168

$

606,378

$

590,128

$

574,992

$

575,029

Less: average intangible assets

(162,814

)

(147,741

)

(147,883

)

(148,046

)

(148,215

)

Average tangible common equity

$

517,354

$

458,637

$

442,245

$

426,946

$

426,814

Return on avg. common equity (GAAP)

6.94

%

12.22

%

13.38

%

12.23

%

3.00

%

Return on avg. common equity-adjusted (non-GAAP) (3)

10.26

12.55

12.43

12.21

12.09

Return on avg. tangible common equity (non-GAAP) (4)

9.33

16.24

17.95

16.58

4.15

Return on avg. tangible common equity-adjusted (non-GAAP) (5)

13.69

16.69

16.68

16.55

16.40

Efficiency Measures

Total noninterest expenses

$

28,062

$

18,324

$

18,130

$

17,061

$

16,939

Amortization of core deposit intangibles

(364

)

(144

)

(145

)

(169

)

(169

)

Merger expenses

(7,562

)

(936

)

(375

)

(24

)

-

Foreclosed property expense

1

(8

)

(196

)

(11

)

(51

)

Operating noninterest expense

$

20,137

$

17,236

$

17,414

$

16,857

$

16,719

Net interest income (tax equivalent basis)

$

45,523

$

40,678

$

40,444

$

39,409

$

38,610

Noninterest income

1,738

1,573

1,272

1,341

1,287

Net gains on sale of securities available-for-sale

(8

)

-

-

-

-

Operating revenue

$

47,253

$

42,251

$

41,716

$

40,750

$

39,897

Operating efficiency ratio (non-GAAP) (6)

42.6

%

40.8

%

41.7

%

41.4

%

41.9

%

Net Interest Margin

Average interest-earning assets

$

5,522,934

$

4,941,425

$

4,856,678

$

4,771,523

$

4,799,453

Net interest income (tax equivalent basis)

$

45,523

$

40,678

$

40,444

$

39,409

$

38,610

Impact of purchase accounting fair value marks

(1,233

)

(148

)

(195

)

(680

)

(240

)

Adjusted net interest income (tax equivalent basis)

$

44,290

$

40,530

$

40,249

$

38,729

$

38,370

Net interest margin (GAAP)

3.34

%

3.27

%

3.30

%

3.31

%

3.26

%

Adjusted net interest margin (non-GAAP) (7)

3.25

3.25

3.29

3.26

3.24

______________

(3) Adjusted earnings available to common stockholders divided by average common equity.

(4) Earnings available to common stockholders excluding amortization of intangibles assets divided by average tangible common equity.

(5) Adjusted earnings available to common stockholders excluding amortization of intangible assets divided by average tangible common equity.

(6) Operating noninterest expense divided by operating revenue.

(7) Adjusted net interest margin excludes impact of purchase accounting fair value marks.

As of

Mar. 31,

Dec. 31,

Sept. 30,

June 30,

Mar. 31,

2019

2018

2018

2018

2018

Capital Ratios and Book Value per Share

(dollars in thousands, except for per share data)

Common equity

$

682,395

$

613,927

$

594,871

$

578,557

$

564,266

Less: intangible assets

(162,747

)

(147,646

)

(147,791

)

(147,936

)

(148,104

)

Tangible common equity

$

519,648

$

466,281

$

447,080

$

430,621

$

416,162

Total assets

$

6,048,976

$

5,462,092

$

5,368,641

$

5,275,368

$

5,158,368

Less: intangible assets

(162,747

)

(147,646

)

(147,791

)

(147,936

)

(148,104

)

Tangible assets

$

5,886,229

$

5,314,446

$

5,220,850

$

5,127,432

$

5,010,264

Common shares outstanding

35,432,468

32,328,542

32,238,264

32,184,047

32,175,233

Common equity ratio (GAAP)

11.28

%

11.24

%

11.08

%

10.97

%

10.94

%

Tangible common equity ratio (non-GAAP) (8)

8.83

8.77

8.56

8.40

8.31

Regulatory capital ratios (Bancorp):

Leverage ratio

9.12

%

9.34

%

9.15

%

8.93

%

8.65

%

Common equity Tier 1 risk-based ratio

9.68

9.75

9.50

9.33

9.14

Risk-based Tier 1 capital ratio

9.78

9.86

9.61

9.44

9.25

Risk-based total capital ratio

12.80

13.15

12.94

12.81

12.66

Regulatory capital ratios (Bank):

Leverage ratio

10.43

%

10.78

%

10.64

%

10.43

%

10.20

%

Common equity Tier 1 risk-based ratio

11.18

11.37

11.18

11.02

10.91

Risk-based Tier 1 capital ratio

11.18

11.37

11.18

11.02

10.91

Risk-based total capital ratio

12.47

12.75

12.57

12.42

12.31

Book value per share (GAAP)

$

19.26

$

18.99

$

18.45

$

17.98

$

17.54

Tangible book value per share (non-GAAP) (9)

14.67

14.42

13.87

13.38

12.93

Net Loan Charge-Off (Recoveries) Detail

Net loan charge-offs (recoveries) :

Charge-offs

$

2,676

$

920

$

6

$

47

$

17,038

Recoveries

(80

)

(25

)

(61

)

(12

)

(19

)

Net loan charge-offs (recoveries)

$

2,596

$

895

$

(55

)

$

35

$

17,019

Net loan charge-offs (recoveries) as a % of average loans receivable (annualized)

0.21

%

0.08

%

(0.01

)

%

0.00

%

1.63

%

Asset Quality

Nonaccrual taxi medallion loans

$

27,287

$

28,043

$

28,482

$

28,944

$

29,405

Nonaccrual loans (excluding taxi medallion loans)

20,393

23,812

24,533

20,771

20,631

Other real estate owned

-

-

-

1,076

1,076

Total nonperforming assets

$

47,680

$

51,855

$

53,015

$

50,791

$

51,112

Performing troubled debt restructurings

$

8,191

$

9,532

$

11,243

$

12,827

$

14,349

Allowance for loan losses ("ALLL")

$

36,858

$

34,954

$

34,749

$

33,594

$

32,529

Loans receivable

$

4,972,651

$

4,541,092

$

4,462,487

$

4,360,854

$

4,202,679

Less: taxi medallion loans

28,911

28,043

28,482

28,944

29,405

Loans receivable (excluding taxi medallion loans)

$

4,943,740

$

4,513,049

$

4,434,005

$

4,331,910

$

4,173,274

Nonaccrual loans (excluding taxi medallion loans) as a % of loans receivable (excluding taxi medallion loans)

0.41

%

0.53

%

0.55

%

0.48

%

0.49

%

Nonaccrual loans as a % of loans receivable

0.96

1.14

1.19

1.14

1.19

Nonperforming assets as a % of total assets

0.79

0.95

0.99

0.96

0.99

ALLL as a % of loans receivable

0.74

0.77

0.78

0.77

0.77

ALLL as a % of nonaccrual loans (excluding taxi medallion loans)

180.7

146.8

141.6

161.7

157.7

ALLL as a % of nonaccrual loans

77.3

67.4

65.5

67.6

65.0

__________________

(8) Tangible common equity divided by tangible assets.

(9) Tangible common equity divided by common shares outstanding at period-end.

CONNECTONE BANCORP, INC.

NET INTEREST MARGIN ANALYSIS

(dollars in thousands)

For the Three Months Ended

March 31, 2019

December 31, 2018

March 31, 2018

Average

Average

Average

Interest-earning assets:

Balance

Interest

Rate (8)

Balance

Interest

Rate (8)

Balance

Interest

Rate (8)

Investment securities (1) (2)

$

531,083

$

4,369

3.34

%

$

433,686

$

3,429

3.14

%

$

441,563

$

2,917

2.68

%

Total loans (2) (3) (4)

4,907,683

60,597

5.01

4,437,944

53,584

4.79

4,247,997

47,272

4.51

Federal funds sold and interest-

bearing deposits with banks

57,690

357

2.51

44,163

232

2.08

78,194

264

1.37

Restricted investment in bank stock

26,478

457

7.00

25,632

495

7.66

31,699

485

6.21

Total interest-earning assets

5,522,934

65,780

4.83

4,941,425

57,740

4.64

4,799,453

50,938

4.30

Allowance for loan losses

(35,499

)

(35,036

)

(32,113

)

Noninterest-earning assets

421,626

355,104

321,483

Total assets

$

5,909,061

$

5,261,493

$

5,088,823

Interest-bearing liabilities:

Time deposits

$

1,515,249

8,303

2.22

$

1,329,743

7,062

2.11

$

1,207,368

4,789

1.61

Other interest-bearing deposits

2,236,630

7,048

1.28

1,915,353

5,336

1.11

1,815,122

2,900

0.65

Total interest-bearing deposits

3,751,879

15,351

1.66

3,245,096

12,398

1.52

3,022,490

7,689

1.03

Borrowings

486,687

3,024

2.52

477,800

2,783

2.31

630,117

2,926

1.88

Subordinated debentures (5)

128,585

1,845

5.82

128,502

1,843

5.69

115,182

1,674

5.89

Capital lease obligation

2,479

37

6.05

2,520

38

5.98

2,622

39

6.03

Total interest-bearing liabilities

4,369,630

20,257

1.88

3,853,918

17,062

1.76

3,770,411

12,328

1.33

Noninterest-bearing demand deposits

824,115

775,824

724,471

Other liabilities

35,148

25,373

18,912

Total noninterest-bearing liabilities

859,263

801,197

743,383

Stockholders' equity

680,168

606,378

575,029

Total liabilities and stockholders' equity

$

5,909,061

$

5,261,493

$

5,088,823

Net interest income (tax equivalent basis)

45,523

40,678

38,610

Net interest spread (6)

2.95

%

2.88

%

2.97

%

Net interest margin (7)

3.34

%

3.27

%

3.26

%

Tax equivalent adjustment

(571

)

(517

)

(463

)

Net interest income

$

44,952

$

40,161

$

38,147

(1) Average balances are calculated on amortized cost and includes equity securities.

(2) Interest income is presented on a tax equivalent basis using a 21% federal tax rate.

(3) Includes loan fee income.

(4) Loans include nonaccrual loans.

(5) Average balances are net of debt issuance costs of $1,570, $1,653, and $1,639 for the three months ended March 31, 2019, December 31, 2018 and March 31, 2018, respectively.

Amortization expense related to debt issuance costs included in interest expense was $83, $82 and $86 for the three months ended March 31, 2019, December 31, 2018

and March 31, 2018, respectively.

(6) Represents difference between the average yield on interest-earning assets and the average cost of interest-bearing

liabilities and is presented on a tax equivalent basis.

(7) Represents net interest income on a tax equivalent basis divided by average total interest-earning assets.

(8) Rates are annualized.