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ConnectOne Bancorp, Inc. Reports Fourth Quarter and Year-End 2018 Results

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ENGLEWOOD CLIFFS, N.J., Jan. 24, 2019 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $18.7 million for the fourth quarter of 2018 compared with $19.9 million for the third quarter of 2018 and $10.6 million for the fourth quarter of 2017. Diluted earnings per share were $0.58 for the fourth quarter of 2018 compared with $0.61 earned in the third quarter of 2018 and $0.33 earned in the fourth quarter of 2017. Full-year 2018 income increased 39.6% to $60.4 million, compared with $43.2 million for the full-year 2017. Diluted earnings per share for the full-year 2018 was $1.86, compared with $1.34 for the full-year 2017.

Adjusted net income amounted to $19.2 million, or $0.59 earnings per share, for the fourth quarter of 2018; $18.5 million, or $0.57 earnings per share, for the third quarter of 2018; and $16.3 million, or $0.51 earnings per share, for the fourth quarter of 2017. Adjusted net income for the fourth quarter of 2018 excludes $0.7 million in after-tax merger-related expenses and $0.2 million benefit resulting from ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. Adjustments to prior periods primarily related to adjustments to deferred tax valuations due to changes in tax legislation. See supplemental tables for a reconciliation of GAAP earnings to adjusted earnings.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “We are extremely pleased with our fourth quarter and year-end results, highlighted by continued solid deposit and loan growth, and continued strong growth in tangible book value per share. We also continue to be one of the most efficient banks in the country with our efficiency ratio remaining in the low 40 percent range. For the quarter, adjusted return on assets and adjusted return on tangible common equity reached new highs at 1.45% and 16.69%, respectively. Despite a tighter operating environment, period-end loans grew on a sequential basis in excess of 7% annualized including commercial loans which grew 18% annualized, while average total deposits increased by more than 11% annualized including noninterest-bearing demand growth in excess of 7% annualized. Deposit growth continues to keep pace with loan growth, reflecting a stable loan to deposit ratio of approximately 111% over the course of 2018. We have also made substantial headway in diversifying our loan mix. The Bank’s commercial real estate loan concentration as a percentage of regulatory capital declined significantly to 480% at December 31, 2018 from 568% at year-end 2017. With regard to the previously announced acquisition of Greater Hudson Bank, the deal closed on January 2, 2019 and we are on track to meet all financial metrics disclosed when the transaction was announced in July 2018. We are excited about serving our new clients and the lower Hudson Valley region.”

Operating Results

Fully taxable equivalent net interest income for the fourth quarter of 2018 was $40.7 million, an increase of $0.2 million, or 0.6%, from the third quarter of 2018, resulting primarily from an increase in total interest-earning assets of 1.7%, partially offset by a contraction in the net interest margin of 3 basis-points to 3.27% from 3.30%. Included in net interest income were purchase accounting adjustments of $0.1 million during the fourth quarter of 2018 and $0.2 million during the third quarter of 2018. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.25% in the fourth quarter of 2018, contracting by 4 basis-points from the third quarter of 2018 adjusted net interest margin of 3.29%. The decrease in the adjusted net interest margin was primarily attributable to increases in deposit funding costs, partially offset by a higher yield earned on loans, an improved asset-mix and growth in noninterest-bearing deposits.

Fully taxable equivalent net interest income for the fourth quarter of 2018 decreased by $0.1 million, or 0.2%, from the fourth quarter of 2017, resulting from contraction in the net interest margin of 24 basis-points to 3.27% from 3.51%, partially offset by an increase in total average interest-earning assets, primarily loans, of 7.3%. Included in net interest income were purchase accounting adjustments of $0.1 million during the fourth quarter of 2018 and $1.0 million during the fourth quarter of 2017. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.25% in the fourth quarter of 2018, contracting by 17 basis-points from the fourth quarter of 2017 adjusted net interest margin of 3.42%. The decrease in the adjusted net interest margin was primarily attributable to a long-term subordinated debt issuance, a change in the taxable equivalent adjustment and increased deposit rates, partially offset by higher rates earned on loans.

Noninterest income totaled $1.5 million in the fourth quarter of 2018, $1.4 million in the third quarter of 2018 and $2.0 million in the fourth quarter of 2017. Noninterest income consists of income on bank owned life insurance, net gains on sales of loans held-for-sale and deposit service fees, loan fees, and other income. Last year’s fourth quarter included a $0.5 million gain on sale of non-relationship, multifamily loans.

Noninterest expenses totaled $18.3 million for both the fourth quarter of 2018 and third quarter of 2018 and $16.6 million for the fourth quarter of 2017. Noninterest expenses increased by $1.7 million from the prior year quarter due primarily to increases in salaries and employee benefits ($0.6 million) and professional and consulting ($0.5 million), both due to increased levels of business and staff resulting from organic growth, and merger-related expenses ($0.9 million), offset by a decrease in a valuation allowance adjustment of taxi medallion loans held-for-sale ($0.3 million).

Income tax expense was $3.6 million for the fourth quarter of 2018, $2.1 million for the third quarter of 2018 and $12.7 million for the fourth quarter of 2017. Included in income tax expense were benefits of $0.2 million and $0.3 million for the fourth quarter 2018 and third quarter 2018, respectively, resulting from ASU 2016-09. Also included in the third quarter of 2018 income tax expense was a benefit of $1.4 million resulting from Federal and NJ deferred tax asset (“DTA”) adjustments. Income tax expense for the fourth quarter of 2017 included an estimated $5.6 million DTA valuation charge related to the Tax Cuts and Jobs Act of 2017. Excluding these income tax expense adjustments, the Company’s effective tax rate declined to 17% for both the fourth quarter of 2018 and third quarter of 2018 from 31% for the fourth quarter 2017, largely resulting from a decline in the statutory federal income tax rate. The effective tax rate utilized to accrue income tax expense in 2019 is anticipated to increase due to recent NJ corporate tax legislation. At this time, such rate has yet to be determined.

Asset Quality

The provision for loan losses was $1.1 million in both the fourth and third quarters of 2018, and $2.0 million in the fourth quarter of 2017. The decrease from the prior year quarter was primarily the result of slower loan growth.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $51.9 million at December 31, 2018, $53.0 million at September 30, 2018 and $66.2 million at December 31, 2017. Included in nonperforming assets were taxi medallion loans totaling $28.0 million at December 31, 2018, $28.5 million at September 30, 2018 and $46.8 million at December 31, 2017. Nonperforming assets (including taxi medallion loans) as a percentage of total assets were 0.95% at December 31, 2018, 0.99% at September 30, 2018 and 1.29% at December 31, 2017. Excluding the taxi medallion loans, nonaccrual loans were $23.8 million at December 31, 2018, $24.5 million at September 30, 2018 and $18.8 million at December 31, 2017, representing a ratio of nonaccrual loans (excluding taxi medallion loans) to loans receivable of 0.53%, 0.55% and 0.46%, respectively. The annualized net loan charge-off (recovery) ratio was 0.08% for the fourth quarter of 2018, (0.01)% for the third quarter of 2018 and 0.01% for the fourth quarter of 2017. The allowance for loan losses represented 0.77%, 0.78%, and 0.76% of loans receivable as of December 31, 2018, September 30, 2018 and December 31, 2017, respectively. The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 146.8% as of December 31, 2018, 141.6% as of September 30, 2018 and 168.4% as of December 31, 2017.

Selected Balance Sheet Items

At December 31, 2018, the Company’s total assets were $5.5 billion, an increase of $354 million from December 31, 2017, largely the result of an increase in total loans (loan originations less pay-downs and pay-offs) of $345 million. The Company’s stockholders’ equity was $614 million at December 31, 2018, an increase of $48 million from December 31, 2017. The increase in stockholders’ equity was primarily attributable to increases in retained earnings of $51 million, partially offset by increases in accumulated other comprehensive losses of $5 million. As of December 31, 2018, the Company’s tangible common equity ratio and tangible book value per share were 8.77% and $14.42, respectively. Tangible book value per share increased $0.55, or 4.0%, from the sequential quarter, and by $1.41, or 10.8%, from year end 2017. As of December 31, 2017, the tangible common equity ratio and tangible book value per share were 8.41% and $13.01, respectively. Total goodwill and other intangible assets were approximately $148 million as of December 31, 2018 and December 31, 2017.

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.

Fourth Quarter 2018 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on January 24, 2019 to review the Company's financial performance and operating results. The conference call dial-in number is 856-344-9316, access code 5122542. 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, January 24, 2019 and ending on Thursday, January 31, 2019 by dialing 719-457-0820, access code 5122542. 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)

December 31,

December 31,

2018

2017

(unaudited)

ASSETS

Cash and due from banks

$

39,161

$

52,565

Interest-bearing deposits with banks

133,205

97,017

Cash and cash equivalents

172,366

149,582

Securities available-for-sale

412,034

435,284

Equity securities

11,460

-

Loans held-for-sale

-

24,845

Loans receivable

4,541,092

4,171,456

Less: Allowance for loan losses

34,954

31,748

Net loans receivable

4,506,138

4,139,708

Investment in restricted stock, at cost

31,136

33,497

Bank premises and equipment, net

19,062

21,659

Accrued interest receivable

18,214

15,470

Bank owned life insurance

113,820

111,311

Other real estate owned

-

538

Goodwill

145,909

145,909

Core deposit intangibles

1,737

2,364

Other assets

30,216

28,275

Total assets

$

5,462,092

$

5,108,442

LIABILITIES

Deposits:

Noninterest-bearing

$

768,584

$

776,843

Interest-bearing

3,323,508

3,018,285

Total deposits

4,092,092

3,795,128

Borrowings

600,001

670,077

Subordinated debentures (net of $1,599 and $456 in debt issuance costs)

128,556

54,699

Other liabilities

27,516

23,101

Total liabilities

4,848,165

4,543,005

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY

Common stock

412,546

412,546

Additional paid-in capital

15,542

13,602

Retained earnings

211,345

160,025

Treasury stock

(16,717

)

(16,717

)

Accumulated other comprehensive loss

(8,789

)

(4,019

)

Total stockholders' equity

613,927

565,437

Total liabilities and stockholders' equity

$

5,462,092

$

5,108,442

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except for per share data)

Three Months Ended

Twelve Months Ended

12/31/18

12/31/17

12/31/18

12/31/17

Interest income

Interest and fees on loans

$

53,306

$

46,945

$

201,524

$

168,824

Interest and dividends on investment securities:

Taxable

2,291

1,757

8,482

6,799

Tax-exempt

899

914

3,276

3,569

Dividends

495

439

2,012

1,421

Interest on federal funds sold and other short-term investments

232

156

839

711

Total interest income

57,223

50,211

216,133

181,324

Interest expense

Deposits

12,398

6,953

39,936

23,670

Borrowings

4,664

3,450

18,982

12,585

Total interest expense

17,062

10,403

58,918

36,255

Net interest income

40,161

39,808

157,215

145,069

Provision for loan losses

1,100

2,000

21,100

6,000

Net interest income after provision for loan losses

39,061

37,808

136,115

139,069

Noninterest income

Annuities and insurance commissions

-

-

-

39

Income on bank owned life insurance

794

779

3,094

3,181

Net gains on sale of loans held-for-sale

30

588

61

708

Deposit, loan and other income

691

657

2,584

2,680

Net gains on sale of investment securities

-

-

-

1,596

Total noninterest income

1,515

2,024

5,739

8,204

Noninterest expenses

Salaries and employee benefits

9,988

9,418

39,584

35,128

Occupancy and equipment

2,001

1,948

8,312

8,163

FDIC insurance

765

935

3,115

3,485

Professional and consulting

1,129

671

3,568

2,863

Marketing and advertising

244

226

980

996

Data processing

1,080

1,069

4,421

4,543

Merger expenses

936

-

1,335

-

Amortization of core deposit intangible

144

169

627

724

Increase in valuation allowance, loans held-for-sale

-

267

-

15,592

Other expenses

1,979

1,863

8,778

7,265

Total noninterest expenses

18,266

16,566

70,720

78,759

Income before income tax expense

22,310

23,266

71,134

68,514

Income tax expense

3,638

12,686

10,782

25,294

Net income

$

18,672

$

10,580

$

60,352

$

43,220

Earnings per common share:

Basic

$

0.58

$

0.33

$

1.87

$

1.35

Diluted

0.58

0.33

1.86

1.34

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.

SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES

As of

Dec. 31,

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

2018

2018

2018

2018

2017

Selected Financial Data

(dollars in thousands)

Total assets

$

5,462,092

$

5,368,641

$

5,275,368

$

5,158,368

$

5,108,442

Loans receivable:

Commercial

$

925,229

$

886,212

$

808,604

$

768,640

$

781,698

Commercial real estate

1,279,502

1,282,766

1,282,426

1,275,764

1,232,037

Multifamily

1,562,195

1,504,134

1,480,243

1,400,420

1,403,256

Commercial construction

465,389

494,206

498,607

479,190

483,216

Residential

309,991

295,948

288,449

278,985

271,795

Consumer

2,593

2,508

5,637

2,461

2,808

Gross loans

4,544,899

4,465,774

4,363,966

4,205,460

4,174,810

Unearned net origination fees

(3,807

)

(3,287

)

(3,112

)

(2,781

)

(3,354

)

Loans receivable

4,541,092

4,462,487

4,360,854

4,202,679

4,171,456

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

-

270

-

45,886

24,845

Total loans

$

4,541,092

$

4,462,757

$

4,360,854

$

4,248,565

$

4,196,301

Investment securities

$

423,494

$

421,442

$

411,574

$

435,929

$

435,284

Goodwill and other intangible assets

147,646

147,791

147,936

148,104

148,273

Deposits:

Noninterest-bearing demand

$

768,584

$

758,213

$

765,150

$

739,174

$

776,843

Time deposits

1,366,054

1,322,747

1,315,843

1,255,654

1,179,969

Other interest-bearing deposits

1,957,454

1,907,805

1,824,417

1,754,759

1,838,316

Total deposits

$

4,092,092

$

3,988,765

$

3,905,410

$

3,749,587

$

3,795,128

Borrowings

$

600,001

$

629,979

$

628,995

$

695,032

$

670,077

Subordinated debentures (net of debt issuance costs)

128,556

128,474

128,392

128,310

54,699

Total stockholders' equity

613,927

594,871

578,557

564,266

565,437

Quarterly Average Balances

Total assets

$

5,261,493

$

5,186,173

$

5,104,661

$

5,088,823

$

4,916,549

Loans receivable:

Commercial

$

941,619

$

850,038

$

808,764

$

820,562

$

761,147

Commercial real estate (including multifamily)

2,725,652

2,723,572

2,654,276

2,643,466

2,566,959

Commercial construction

464,556

494,460

494,092

482,391

439,629

Residential

304,954

294,758

282,504

275,263

268,047

Consumer

4,292

3,205

5,685

4,659

3,849

Gross loans

4,441,073

4,366,033

4,245,321

4,226,341

4,039,631

Unearned net origination fees

(3,340

)

(3,182

)

(3,208

)

(3,110

)

(3,485

)

Loans receivable

4,437,733

4,362,851

4,242,113

4,223,231

4,036,146

Loans held-for-sale

211

54

30,099

24,766

57,812

Total loans

$

4,437,944

$

4,362,905

$

4,272,212

$

4,247,997

$

4,093,958

Investment securities

$

421,316

$

415,074

$

424,854

$

437,141

$

417,560

Goodwill and other intangible assets

147,741

147,883

148,046

148,215

148,383

Deposits:

Noninterest-bearing demand

$

775,824

$

761,782

$

719,372

$

724,471

$

712,391

Time deposits

1,329,743

1,296,165

1,280,471

1,207,368

1,114,670

Other interest-bearing deposits

1,915,353

1,854,763

1,765,577

1,815,122

1,855,688

Total deposits

$

4,020,920

$

3,912,710

$

3,765,420

$

3,746,961

$

3,682,749

Borrowings

$

477,800

$

531,251

$

613,763

$

630,117

$

588,260

Subordinated debentures (net of debt issuance costs)

128,502

128,420

128,339

115,182

54,672

Total stockholders' equity

606,378

590,128

574,992

575,029

567,308

Three Months Ended

Dec. 31,

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

2018

2018

2018

2018

2017

(dollars in thousands, except for per share data)

Net interest income

$

40,161

$

39,962

$

38,945

$

38,147

$

39,808

Provision for loan losses

1,100

1,100

1,100

17,800

2,000

Net interest income after provision for loan losses

39,061

38,862

37,845

20,347

37,808

Noninterest income

Income on bank owned life insurance

794

751

775

774

779

Net gains on sale of loans held-for-sale

30

2

12

17

588

Deposit, loan and other income

691

676

601

616

657

Total noninterest income

1,515

1,429

1,388

1,407

2,024

Noninterest expenses

Salaries and employee benefits

9,988

10,181

9,736

9,679

9,418

Occupancy and equipment

2,001

2,137

2,031

2,143

1,948

FDIC insurance

765

735

765

850

935

Professional and consulting

1,129

891

825

723

671

Marketing and advertising

244

192

337

207

226

Data processing

1,080

1,102

1,091

1,148

1,069

Merger expenses

936

375

24

-

-

Amortization of core deposit intangible

144

145

169

169

169

Increase in valuation allowance, loans held-for-sale

-

-

-

-

267

Other expenses

1,979

2,529

2,130

2,140

1,863

Total noninterest expenses

18,266

18,287

17,108

17,059

16,566

Income before income tax expense

22,310

22,004

22,125

4,695

23,266

Income tax expense

3,638

2,102

4,598

444

12,686

Net income

$

18,672

$

19,902

$

17,527

$

4,251

$

10,580

Reconciliation of GAAP Earnings to Adjusted Earnings:

Net income

$

18,672

$

19,902

$

17,527

$

4,251

$

10,580

Merger expenses (after taxes)

739

297

19

-

-

Deferred tax valuation adjustment

-

(1,408

)

-

-

5,574

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

(223

)

(297

)

(49

)

(541

)

-

Provision related to taxi medallion loans (after taxes)

-

-

-

13,430

-

Increase in valuation allowance, loans held-for-sale (after taxes)

-

-

-

-

182

Net income-adjusted

$

19,188

$

18,494

$

17,497

$

17,140

$

16,336

Weighted average diluted shares outstanding

32,378,739

32,319,060

32,321,150

32,238,048

32,252,759

Diluted EPS (GAAP)

$

0.58

$

0.61

$

0.54

$

0.13

$

0.33

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

0.59

0.57

0.54

0.53

0.51

Return on Assets Measures

Net income-adjusted

$

19,188

$

18,494

$

17,497

$

17,140

$

16,336

Average assets

$

5,261,493

$

5,186,173

$

5,104,661

$

5,088,823

$

4,916,549

Less: average intangible assets

(147,741

)

(147,883

)

(148,046

)

(148,215

)

(148,383

)

Average tangible assets

$

5,113,752

$

5,038,290

$

4,956,615

$

4,940,608

$

4,768,166

Return on avg. assets (GAAP)

1.41

%

1.52

%

1.38

%

0.34

%

0.85

%

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

1.45

1.41

1.37

1.37

1.32

______________

(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

Dec. 31,

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

2018

2018

2018

2018

2017

Return on Equity Measures

(dollars in thousands)

Net income-adjusted

$

19,188

$

18,494

$

17,497

$

17,140

$

16,336

Average common equity

$

606,378

$

590,128

$

574,992

$

575,029

$

567,308

Less: average intangible assets

(147,741

)

(147,883

)

(148,046

)

(148,215

)

(148,383

)

Average tangible common equity

$

458,637

$

442,245

$

426,946

$

426,814

$

418,925

Return on avg. common equity (GAAP)

12.22

%

13.38

%

12.23

%

3.00

%

7.40

%

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

12.55

12.43

12.21

12.09

11.42

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

16.24

17.95

16.58

4.15

10.11

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

16.69

16.68

16.55

16.40

15.57

Efficiency Measures

Total noninterest expenses

$

18,266

$

18,287

$

17,108

$

17,059

$

16,566

Increase in valuation allowance, loans held-for-sale

-

-

-

-

(267

)

Merger expenses

(936

)

(375

)

(24

)

-

-

Foreclosed property expense

(8

)

(196

)

(11

)

(51

)

(32

)

Operating noninterest expense

$

17,322

$

17,716

$

17,073

$

17,008

$

16,267

Net interest income (tax equivalent basis)

$

40,678

$

40,444

$

39,409

$

38,610

$

40,744

Noninterest income

1,515

1,429

1,388

1,407

2,024

Operating revenue

$

42,193

$

41,873

$

40,797

$

40,017

$

42,768

Operating efficiency ratio (non-GAAP) (6)

41.1

%

42.3

%

41.8

%

42.5

%

38.0

%

Net Interest Margin

Average interest-earning assets

$

4,941,425

$

4,856,678

$

4,771,523

$

4,799,453

$

4,603,659

Net interest income (tax equivalent basis)

$

40,678

$

40,444

$

39,409

$

38,610

$

40,744

Impact of purchase accounting fair value marks

(148

)

(195

)

(680

)

(240

)

(1,026

)

Adjusted net interest income (tax equivalent basis)

$

40,530

$

40,249

$

38,729

$

38,370

$

39,718

Net interest margin (GAAP)

3.27

%

3.30

%

3.31

%

3.26

%

3.51

%

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

3.25

3.29

3.26

3.24

3.42

______________

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

(4) Earnings available to common stockholders excluding amortization of intangible 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

Dec. 31,

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

2018

2018

2018

2018

2017

Capital Ratios and Book Value per Share

(dollars in thousands, except for per share data)

Common equity

$

613,927

$

594,871

$

578,557

$

564,266

$

565,437

Less: intangible assets

(147,646

)

(147,791

)

(147,936

)

(148,104

)

(148,273

)

Tangible common equity

$

466,281

$

447,080

$

430,621

$

416,162

$

417,164

Total assets

$

5,462,092

$

5,368,641

$

5,275,368

$

5,158,368

$

5,108,442

Less: intangible assets

(147,646

)

(147,791

)

(147,936

)

(148,104

)

(148,273

)

Tangible assets

$

5,314,446

$

5,220,850

$

5,127,432

$

5,010,264

$

4,960,169

Common shares outstanding

32,328,542

32,238,264

32,184,047

32,175,233

32,071,860

Common equity ratio (GAAP)

11.24

%

11.08

%

10.97

%

10.94

%

11.07

%

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

8.77

8.56

8.40

8.31

8.41

Regulatory capital ratios (Bancorp):

Leverage ratio

9.34

%

9.15

%

8.93

%

8.65

%

8.92

%

Common equity Tier 1 risk-based ratio

9.75

9.50

9.33

9.14

9.15

Risk-based Tier 1 capital ratio

9.86

9.61

9.44

9.25

9.26

Risk-based total capital ratio

13.15

12.94

12.81

12.66

11.04

Regulatory capital ratios (Bank):

Leverage ratio

10.78

%

10.64

%

10.43

%

10.20

%

9.84

%

Common equity Tier 1 risk-based ratio

11.37

11.18

11.02

10.91

10.21

Risk-based Tier 1 capital ratio

11.37

11.18

11.02

10.91

10.21

Risk-based total capital ratio

12.75

12.57

12.42

12.31

10.90

Book value per share (GAAP)

$

18.99

$

18.45

$

17.98

$

17.54

$

17.63

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

14.42

13.87

13.38

12.93

13.01

Net Loan Charge-Off (Recoveries) Detail

Net loan charge-offs (recoveries) :

Charge-offs

$

920

$

6

$

47

$

17,038

$

156

Recoveries

(25

)

(61

)

(12

)

(19

)

(34

)

Net loan charge-offs (recoveries)

$

895

$

(55

)

$

35

$

17,019

$

122

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

0.08

%

(0.01

)

%

0.00

%

1.63

%

0.01

%

Asset Quality

Nonaccrual taxi medallion loans

$

28,043

$

28,482

$

28,944

$

29,405

$

46,765

Nonaccrual loans (excluding taxi medallion loans)

23,812

24,533

20,771

20,631

18,848

Other real estate owned

-

-

1,076

1,076

538

Total nonperforming assets

$

51,855

$

53,015

$

50,791

$

51,112

$

66,151

Performing troubled debt restructurings

$

9,532

$

11,243

$

12,827

$

14,349

$

14,920

Allowance for loan losses ("ALLL")

$

34,954

$

34,749

$

33,594

$

32,529

$

31,748

Loans receivable

$

4,541,092

$

4,462,487

$

4,360,854

$

4,202,679

$

4,171,456

Less: taxi medallion loans

28,043

28,482

28,944

29,405

46,765

Loans receivable (excluding taxi medallion loans)

$

4,513,049

$

4,434,005

$

4,331,910

$

4,173,274

$

4,124,691

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

0.53

%

0.55

%

0.48

%

0.49

%

0.46

%

Nonaccrual loans as a % of loans receivable

1.14

1.19

1.14

1.19

1.57

Nonperforming assets as a % of total assets

0.95

0.99

0.96

0.99

1.29

ALLL as a % of loans receivable

0.77

0.78

0.77

0.77

0.76

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

146.8

141.6

161.7

157.7

168.4

ALLL as a % of nonaccrual loans

67.4

65.5

67.6

65.0

48.4

______________

(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

December 31, 2018

September 30, 2018

December 31, 2017

Interest-earning assets:

Average
Balance

Interest

Rate (8)

Average
Balance

Interest

Rate (8)

Average
Balance

Interest

Rate (8)

Investment securities (1) (2)

$

433,686

$

3,429

3.14

%

$

423,566

$

3,147

2.95

%

$

417,954

$

3,162

3.00

%

Total loans (2) (3) (4)

4,437,944

53,584

4.79

4,362,905

51,973

4.73

4,093,958

47,389

4.59

Federal funds sold and interest-

bearing deposits with banks

44,163

232

2.08

42,164

183

1.72

61,933

156

1.00

Restricted investment in bank stock

25,632

495

7.66

28,043

530

7.50

29,814

440

5.86

Total interest-earning assets

4,941,425

57,740

4.64

4,856,678

55,833

4.56

4,603,659

51,147

4.41

Allowance for loan losses

(35,036

)

(33,943

)

(30,478

)

Noninterest-earning assets

355,104

363,438

343,368

Total assets

$

5,261,493

$

5,186,173

$

4,916,549

Interest-bearing liabilities:

Time deposits

$

1,329,743

7,062

2.11

$

1,296,165

6,477

1.98

1,114,670

4,172

1.48

Other interest-bearing deposits

1,915,353

5,336

1.11

1,854,763

4,204

0.90

1,855,688

2,780

0.59

Total interest-bearing deposits

3,245,096

12,398

1.52

3,150,928

10,681

1.34

2,970,358

6,952

0.93

Borrowings

477,800

2,783

2.31

531,251

2,839

2.12

588,260

2,597

1.75

Subordinated debentures (5)

128,502

1,843

5.69

128,420

1,831

5.66

54,672

814

5.91

Capital lease obligation

2,520

38

5.98

2,554

38

5.90

2,655

40

5.98

Total interest-bearing liabilities

3,853,918

17,062

1.76

3,813,153

15,389

1.60

3,615,945

10,403

1.14

Noninterest-bearing demand deposits

775,824

761,782

712,391

Other liabilities

25,373

21,110

20,905

Total noninterest-bearing liabilities

801,197

782,892

733,296

Stockholders' equity

606,378

590,128

567,308

Total liabilities and stockholders' equity

$

5,261,493

$

5,186,173

$

4,916,549

Net interest income (tax equivalent basis)

40,678

40,444

40,744

Net interest spread (6)

2.88

%

2.96

%

3.27

%

Net interest margin (7)

3.27

%

3.30

%

3.51

%

Tax equivalent adjustment

(517

)

(482

)

(936

)

Net interest income

$

40,161

$

39,962

$

39,808

(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 as of December 31, 2018 and September 30, 2018 and a 35% federal tax rate as of December 31, 2017.

(3) Includes loan fee income.

(4) Loans include nonaccrual loans.

(5) Average balances are net of debt issuance costs of $1,652, $1,735, and $483 as of December 31, 2018, September 30, 2018 and December 31, 2017, respectively

Amortization expense related to debt issuance costs included in interest expense was $82, $82 and $41 as of December 31, 2018, September 30, 2018 and December 31, 2017, 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.