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ConnectOne Bancorp, Inc. Reports Fourth Quarter and Year-End 2019 Results

ENGLEWOOD CLIFFS, N.J., Jan. 23, 2020 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $20.8 million for the fourth quarter of 2019 compared with $21.7 million for the third quarter of 2019 and $18.7 million for the fourth quarter of 2018. Diluted earnings per share were $0.59 for the fourth quarter of 2019 compared with $0.61 for in the third quarter of 2019 and $0.58 for in the fourth quarter of 2018. Full-year 2019 net income was $73.4 million, compared with $60.4 million for the full-year 2018. Diluted earnings per share for the full-year 2019 was $2.07, compared with $1.86 for the full-year 2018.

Adjusted net income amounted to $21.4 million, or $0.61 per diluted share, for the fourth quarter of 2019; $21.1 million, or $0.60 per diluted share, for the third quarter of 2019; and $19.1 million, or $0.59 per diluted share, for the fourth quarter of 2018. Adjusted net income excludes $0.6 million, $0.1 million, and $0.7 million in after-tax merger-related expenses for the fourth quarter of 2019, third quarter of 2019 and fourth quarter of 2018, respectively. In addition, adjusted net income excludes $0.9 million in after-tax FDIC small bank assessment credits for the third quarter 2019. See supplemental tables for a complete reconciliation of GAAP earnings to adjusted earnings.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer, stated, “This past year was one of strategic growth and outstanding execution for ConnectOne. We delivered record earnings and achieved strong deposit and loan growth. Credit quality remains solid while we also continue to be one of the most efficient banks in the country. We’re also pleased with the groundwork we're laying for our continued long-term success and recently crossed over the $7 billion mark in total assets. On January 2, 2020, we completed the acquisition of the approximately $1.0 billion Bancorp of New Jersey, Inc. A financially savvy acquisition, this in-market transaction enhances our desirable franchise and provides attractive in-market growth opportunities. We’re on track to meet, or exceed, all financial metrics disclosed when the transaction was announced and expect to achieve cost savings in excess of the previously announced 60%.”

Mr. Sorrentino added, “We’re very pleased with our fourth quarter results, which reflected continued strong core performance and excellent execution across the organization. We continue to operate with a return on tangible common equity in excess of 15% and a return on assets of approximately 1.40%. New loan originations were $243 million for the quarter, reflecting strong activity in our C&I segment. The strong originations, however, were largely offset by elevated loan payoffs, especially in our construction portfolio, which served to reduce sequential growth in total loans to only 2.1% annualized, which is well below our historical trend. Our pipeline remains strong and we continue to target a future growth rate in the 7.5%-10.0% range. On the funding side, we were particularly pleased with a very much improved deposit mix -- average noninterest-bearing demand deposits increased by more than 16% annualized and time deposits fell by a similar percentage -- and our loan to deposit ratio declined to 107%. Our efficiency ratio was 41.8% and tangible book value per share increased by $0.46 during the quarter to $16.06. Tangible book value per share has increased by 11.3% over the past year. Looking ahead, we remain diligently focused on our strategic priorities, which include solid organic growth in loans and deposits, improvements in operating efficiency through use of technology and superior returns on investor capital. On the M&A front, we are focused on flawless execution on completed transactions and remain opportunistic regarding potential future deals.”

Operating Results

Fully taxable equivalent net interest income for the fourth quarter of 2019 was $47.9 million, a decrease of $1.0 million, or 2.0%, from the third quarter of 2019, resulting primarily from an 8 basis-point contraction of the net interest margin to 3.36% from 3.44%. Included in net interest income were purchase accounting adjustments of $1.5 million during the fourth quarter of 2019 and $1.6 million during the third quarter of 2019. Excluding purchase accounting adjustments, the adjusted net interest margin was 3.26% for the fourth quarter of 2019, 7 basis points lower than the adjusted net interest margin of 3.33% for the third quarter of 2019. The adjusted net interest margin contracted primarily due to lower prepayment and other fees on loans, while the decline in adjusted asset yields was largely offset by a lower cost of deposits and an improved funding mix.

Noninterest income was essentially unchanged at $2.2 million for the fourth quarter of 2019 versus $2.1 million in the third quarter of 2019 and higher than the $1.6 million recorded in the fourth quarter of 2018. The increases from 2018 were due to the acquisitions of Greater Hudson and BoeFly, higher deposit fees, additional BOLI income and increases in gains on the sale of loans.

Noninterest expenses totaled $22.2 million for fourth quarter of 2019, $20.4 million for the third quarter of 2019 and $18.3 million for the fourth quarter of 2018. Included in noninterest expenses were merger-related expenses of $0.9 million and $0.2 million, during the fourth quarter of 2019 and third quarter of 2019, respectively. The third quarter of 2019 included an FDIC assessment credit of $1.3 million. Excluding merger-related expenses and the effect of the FDIC credit, noninterest expenses decreased $0.2 million when compared to the third quarter of 2019. The decrease versus the third quarter 2019 was primarily attributable to decreases in marketing and advertising, occupancy and equipment and FDIC insurance expense, offset by increases in compensation expenses related to a larger staff and higher cash and equity-based compensation accruals. The increase versus the year-ago fourth quarter of 2018 was largely due to the aforementioned acquisitions.

Income tax expense was $6.2 million for the fourth quarter of 2019, $6.4 million for the third quarter of 2019 and $3.6 million for the fourth quarter of 2018. The effective tax rates for the fourth quarter of 2019, third quarter of 2019 and fourth quarter of 2018 were 23.0%, 22.9% and 16.3%, respectively. The effective tax rate for the full-year 2019 was 21.9%, compared with 15.2% for the full-year 2018. The increase in 2019 effective tax rates were primarily due an increase in taxable income and the negative impact of recent tax legislation in New Jersey.

Asset Quality

The provision for loan losses was $0.5 million for the fourth quarter of 2019, while the provision for loan losses was $1.1 million for both the third quarter of 2019 and the fourth quarter of 2018. The decrease in the provision for loan losses was primarily attributable to a decrease in net loan growth.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $49.2 million at December 31, 2019, $52.2 million at September 30, 2019 and $51.9 million at December 31, 2018. Included in nonperforming assets were taxi medallion loans totaling $23.4 million at December 31, 2019, $25.8 million at September 30, 2019 and $28.0 million at December 31, 2018. Nonperforming assets (including taxi medallion loans) as a percentage of total assets were 0.80% at December 31, 2019, 0.85% at September 30, 2019 and 0.95% at December 31, 2018. Excluding the taxi medallion loans, nonaccrual loans were $25.8 million at December 31, 2019, $25.5 million at September 30, 2019 and $23.8 million at December 31, 2018, representing a ratio of nonaccrual loans (excluding taxi medallion loans) to loans receivable of 0.51%, 0.50% and 0.53%, respectively. The annualized net loan charge-off ratio was 0.08% for the fourth quarter of 2019, 0.07% for the third quarter of 2019 and 0.08% for the fourth quarter of 2018. The allowance for loan losses represented 0.75%, 0.76%, and 0.77% of loans receivable as of December 31, 2019, September 30, 2019 and December 31, 2018, respectively. The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 147.0% as of December 31, 2019, 151.9% as of September 30, 2019 and 146.8% as of December 31, 2018.

Selected Balance Sheet Items

At December 31, 2019, the balance sheet reflected the acquisition of Greater Hudson Bank. The Company’s total assets were $6.2 billion, an increase of $712 million from December 31, 2018. Total loans were $5.1 billion, an increase of $606 million from December 31, 2018. Included in total loans were loans held-for-sale of $33.2 million. The Company’s stockholders’ equity was $731 million at December 31, 2019, an increase of $117 million from December 31, 2018. The increase in stockholders’ equity was primarily attributable to the acquisition of Greater Hudson Bank, which increased capital by $56 million, as well as an additional $60 million in retained earnings. As of December 31, 2019, the Company’s tangible common equity ratio and tangible book value per share were 9.37% and $16.06, respectively. As of December 31, 2018, the tangible common equity ratio and tangible book value per share were 8.77% and $14.42, respectively. Tangible book value per share increased $0.45, or 2.9%, from the third quarter of 2019. Total goodwill and other intangible assets were approximately $168 million as of December 31, 2019 and $148 million and December 31, 2018.

Use of Non-GAAP Financial Measures

In addition to the results presented in accordance with Generally Accepted Accounting Principles ("GAAP"), ConnectOne routinely supplements its evaluation with an analysis of certain non-GAAP/adjusted financial measures including an adjusted net income available to common shareholders. ConnectOne believes these non-GAAP financial measures, in addition to the related GAAP measures, provide meaningful information to investors in understanding our operating performance and trends. These non-GAAP measures have inherent limitations and are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for an analysis of results reported under GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies. 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 2019 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on January 23, 2020 to review the Company's financial performance and operating results. The conference call dial-in number is 201-689-8471, access code 13697726. 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 23, 2020 and ending on Thursday, January 30, 2020 by dialing 412-317-6671, access code 13697726. 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 37 banking offices located in New York and New Jersey. ConnectOne Bancorp, Inc. is traded on the Nasdaq Global Market under the trading symbol "CNOB," and information about ConnectOne may be found at https://www.connectonebank.com.

Forward-Looking Statements

This news release contains certain forward-looking statements which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, those factors set forth in Item 1A – Risk Factors of the Company’s Annual Report on Form 10-K, as filed with the Securities Exchange Commission, and changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
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,

2019

2018

(unaudited)

ASSETS

Cash and due from banks

$

65,717

$

39,161

Interest-bearing deposits with banks

135,766

133,205

Cash and cash equivalents

201,483

172,366

Securities available-for-sale

404,701

412,034

Equity securities

11,185

11,460

Loans held-for-sale

33,250

-

Loans receivable

5,113,527

4,541,092

Less: Allowance for loan losses

38,293

34,954

Net loans receivable

5,075,234

4,506,138

Investment in restricted stock, at cost

27,397

31,136

Bank premises and equipment, net

19,236

19,062

Accrued interest receivable

20,949

18,214

Bank owned life insurance

137,961

113,820

Right of use operating lease assets

15,137

-

Goodwill

162,574

145,909

Core deposit intangibles

5,460

1,737

Other assets

59,465

30,216

Total assets

$

6,174,032

$

5,462,092

LIABILITIES

Deposits:

Noninterest-bearing

$

861,728

$

768,584

Interest-bearing

3,905,814

3,323,508

Total deposits

4,767,542

4,092,092

Borrowings

500,293

600,001

Operating lease liabilities

16,449

-

Subordinated debentures

128,885

128,556

Other liabilities

29,673

27,516

Total liabilities

5,442,842

4,848,165

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY

Common stock

468,571

412,546

Additional paid-in capital

21,344

15,542

Retained earnings

271,782

211,345

Treasury stock

(29,360

)

(16,717

)

Accumulated other comprehensive loss

(1,147

)

(8,789

)

Total stockholders' equity

731,190

613,927

Total liabilities and stockholders' equity

$

6,174,032

$

5,462,092


CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except for per share data)

Three Months Ended

Twelve Months Ended

12/31/19

12/31/18

12/31/19

12/31/18

Interest income

Interest and fees on loans

$

64,833

$

53,306

$

255,479

$

201,524

Interest and dividends on investment securities:

Taxable

1,700

2,291

9,131

8,482

Tax-exempt

824

899

3,929

3,276

Dividends

409

495

1,778

2,012

Interest on federal funds sold and other short-term investments

242

232

1,167

839

Total interest income

68,008

57,223

271,484

216,133

Interest expense

Deposits

16,272

12,398

65,570

39,936

Borrowings

4,305

4,664

19,595

18,982

Total interest expense

20,577

17,062

85,165

58,918

Net interest income

47,431

40,161

186,319

157,215

Provision for loan losses

500

1,100

8,100

21,100

Net interest income after provision for loan losses

46,931

39,061

178,219

136,115

Noninterest income

Income on bank owned life insurance

914

794

3,484

3,094

Net gains on sales of loans held-for-sale

169

30

512

61

Deposit, loan and other income

1,209

691

4,025

2,584

Net gains (losses) on equity securities

(46

)

58

294

(266

)

Net losses on sales of securities available-for-sale

-

-

(280

)

-

Total noninterest income

2,246

1,573

8,035

5,473

Noninterest expenses

Salaries and employee benefits

12,881

9,988

49,135

39,584

Occupancy and equipment

2,380

2,001

9,712

8,312

FDIC insurance

795

765

2,011

3,115

Professional and consulting

1,428

1,129

5,506

3,568

Marketing and advertising

273

244

1,353

980

Data processing

1,151

1,080

4,503

4,421

Merger expenses

871

936

8,955

1,335

Loss on extinguishment of debt

-

-

1,047

-

Amortization of core deposit intangibles

340

144

1,408

627

Other expenses

2,078

2,037

8,598

8,512

Total noninterest expenses

22,197

18,324

92,228

70,454

Income before income tax expense

26,980

22,310

94,026

71,134

Income tax expense

6,197

3,638

20,631

10,782

Net income

$

20,783

$

18,672

$

73,395

$

60,352

Earnings per common share:

Basic

$

0.59

$

0.58

$

2.08

$

1.87

Diluted

0.59

0.58

2.07

1.86


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

Dec. 31,

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

2019

2019

2019

2019

2018

Selected Financial Data

(dollars in thousands)

Total assets

$

6,174,032

$

6,161,269

$

6,109,066

$

6,048,976

$

5,462,092

Loans receivable:

Commercial

$

1,096,224

$

1,079,071

$

1,018,951

$

1,012,930

$

925,229

Commercial real estate

1,559,354

1,551,182

1,555,542

1,483,852

1,279,502

Multifamily

1,518,400

1,513,216

1,589,340

1,608,613

1,562,195

Commercial construction

620,969

647,261

602,213

548,039

465,389

Residential

320,019

322,307

326,661

319,214

309,991

Consumer

3,328

2,436

2,041

4,157

2,593

Gross loans

5,118,294

5,115,473

5,094,748

4,976,805

4,544,899

Unearned net origination fees

(4,767

)

(5,002

)

(4,256

)

(4,154

)

(3,807

)

Loans receivable

5,113,527

5,110,471

5,090,492

4,972,651

4,541,092

Loans held-for-sale

33,250

33,245

-

368

-

Total loans

$

5,146,777

$

5,143,716

$

5,090,492

$

4,973,019

$

4,541,092

Investment securities

$

415,886

$

437,080

$

453,063

$

528,103

$

423,494

Goodwill and other intangible assets

168,034

168,374

168,714

162,747

147,646

Deposits:

Noninterest-bearing demand

$

861,728

$

828,190

$

813,635

$

833,090

$

768,584

Time deposits

1,553,721

1,573,736

1,623,948

1,544,247

1,366,054

Other interest-bearing deposits

2,352,093

2,349,308

2,203,560

2,216,661

1,957,454

Total deposits

$

4,767,542

$

4,751,234

$

4,641,143

$

4,593,998

$

4,092,092

Borrowings

$

500,293

$

512,456

$

597,317

$

603,412

$

600,001

Subordinated debentures (net of debt issuance costs)

128,885

128,802

128,720

128,638

128,556

Total stockholders' equity

731,190

720,160

699,224

682,395

613,927

Quarterly Average Balances

Total assets

$

6,084,607

$

6,059,413

$

6,001,669

$

5,909,061

$

5,261,493

Loans receivable:

Commercial

$

1,085,640

$

1,040,355

$

1,024,617

$

1,035,874

$

896,032

Commercial real estate (including multifamily)

3,074,889

3,144,978

3,088,231

3,011,692

2,771,239

Commercial construction

642,476

617,106

571,130

524,952

464,556

Residential

318,413

325,188

322,517

335,574

304,954

Consumer

4,165

3,525

3,252

3,397

4,292

Gross loans

5,125,583

5,131,152

5,009,747

4,911,489

4,441,073

Unearned net origination fees

(5,031

)

(4,778

)

(4,463

)

(3,930

)

(3,340

)

Loans receivable

5,120,552

5,126,374

5,005,284

4,907,559

4,437,733

Loans held-for-sale

33,163

991

225

124

211

Total loans

$

5,153,715

$

5,127,365

$

5,005,509

$

4,907,683

$

4,437,944

Investment securities

$

427,973

$

448,618

$

513,814

$

524,394

$

421,316

Goodwill and other intangible assets

168,257

168,598

164,709

162,814

147,741

Deposits:

Noninterest-bearing demand deposits

$

844,332

$

810,248

$

800,856

$

824,115

$

775,824

Time deposits

1,533,425

1,598,378

1,551,014

1,515,249

1,329,743

Other interest-bearing deposits

2,348,752

2,300,886

2,183,384

2,236,630

1,915,353

Total deposits

$

4,726,509

$

4,709,512

$

4,535,254

$

4,575,994

$

4,020,920

Borrowings

$

452,837

$

467,230

$

603,260

$

486,687

$

477,800

Subordinated debentures (net of debt issuance costs)

128,830

128,747

128,666

128,585

128,502

Total stockholders' equity

732,173

714,002

694,978

680,168

606,378

Three Months Ended

Dec. 31,

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

2019

2019

2019

2019

2018

(dollars in thousands, except for per share data)

Net interest income

$

47,431

$

48,406

$

45,530

$

44,952

$

40,161

Provision for loan losses

500

2,000

1,100

4,500

1,100

Net interest income after provision for loan losses

46,931

46,406

44,430

40,452

39,061

Noninterest income

Income on bank owned life insurance

914

915

833

822

794

Net gains on sales of loans held-for-sale

169

278

46

19

30

Deposit, loan and other income

1,209

1,116

914

786

691

Net gains (losses) on equity securities

(46

)

79

158

103

58

Net (losses) gains on sales of securities available-for-sale

-

(279

)

(9

)

8

-

Total noninterest income

2,246

2,109

1,942

1,738

1,573

Noninterest expenses

Salaries and employee benefits

12,881

12,449

11,822

11,983

9,988

Occupancy and equipment

2,380

2,480

2,357

2,495

2,001

FDIC insurance

795

(364

)

825

755

765

Professional and consulting

1,428

1,499

1,370

1,209

1,129

Marketing and advertising

273

473

397

210

244

Data processing

1,151

1,058

1,139

1,155

1,080

Merger expenses

871

191

331

7,562

936

Loss on extinguishment of debt

-

-

1,047

-

-

Amortization of core deposit intangibles

340

340

364

364

144

Other expenses

2,078

2,253

1,938

2,329

2,037

Total noninterest expenses

22,197

20,379

21,590

28,062

18,324

Income before income tax expense

26,980

28,136

24,782

14,128

22,310

Income tax expense

6,197

6,440

5,501

2,493

3,638

Net income

$

20,783

$

21,696

$

19,281

$

11,635

$

18,672

Reconciliation of GAAP Earnings to Earnings Excluding the Following Items:

Net income

$

20,783

$

21,696

$

19,281

$

11,635

$

18,672

Merger expenses (after taxes)

631

134

274

5,597

739

Loss on extinguishment of debt (after taxes)

-

-

732

-

-

FDIC small bank assessment credit (after taxes)

-

(916

)

-

-

-

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

-

195

2

(6

)

-

Net (gains) losses on equity securities (after taxes)

32

(53

)

(110

)

(74

)

(40

)

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

-

-

-

(20

)

(223

)

Net income-adjusted

$

21,446

$

21,056

$

20,179

$

17,132

$

19,148

Weighted average diluted shares outstanding

35,245,285

35,262,565

35,397,362

35,309,503

32,378,739

Diluted EPS (GAAP)

$

0.59

$

0.61

$

0.54

$

0.33

$

0.58

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

0.61

0.60

0.57

0.49

0.59

Return on Assets Measures

Net income-adjusted

$

21,446

$

21,056

$

20,179

$

17,132

$

19,148

Average assets

$

6,084,607

$

6,059,413

$

6,001,669

$

5,909,061

$

5,261,493

Less: average intangible assets

(168,257

)

(168,598

)

(164,709

)

(162,814

)

(147,741

)

Average tangible assets

$

5,916,350

$

5,890,815

$

5,836,960

$

5,746,247

$

5,113,752

Return on avg. assets (GAAP)

1.36

%

1.42

%

1.29

%

0.80

%

1.41

%

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

1.40

1.38

1.35

1.18

1.44

(1) Represents adjusted net income 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,

2019

2019

2019

2019

2018

Return on Equity Measures

(dollars in thousands)

Net income-adjusted

$

21,446

$

21,056

$

20,179

$

17,132

$

19,148

Average common equity

$

732,173

$

714,002

$

694,978

$

680,168

$

606,378

Less: average intangible assets

(168,257

)

(168,598

)

(164,709

)

(162,814

)

(147,741

)

Average tangible common equity

$

563,916

$

545,404

$

530,269

$

517,354

$

458,637

Return on avg. common equity (GAAP)

11.26

%

12.06

%

11.13

%

6.94

%

12.22

%

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

11.62

11.70

11.65

10.22

12.53

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

14.79

15.96

14.78

9.33

16.24

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

15.26

15.49

15.46

13.63

16.65

Efficiency Measures

Total noninterest expenses

$

22,197

$

20,379

$

21,590

$

28,062

$

18,324

Amortization of core deposit intangibles

(340

)

(340

)

(364

)

(364

)

(144

)

Merger expenses

(871

)

(191

)

(331

)

(7,562

)

(936

)

FDIC small bank assessment credit

-

1,310

-

-

-

Loss on extinguishment of debt

-

-

(1,047

)

-

-

Foreclosed property expense

8

(90

)

-

1

(8

)

Operating noninterest expense

$

20,994

$

21,068

$

19,848

$

20,137

$

17,236

Net interest income (tax equivalent basis)

$

47,929

$

48,918

$

46,092

$

45,523

$

40,678

Noninterest income

2,246

2,109

1,942

1,738

1,573

Net (gains) losses on equity securities

46

(79

)

(158

)

(103

)

(58

)

Net losses (gains) on sales of securities available-for-sale

-

279

9

(8

)

-

Operating revenue

$

50,221

$

51,227

$

47,885

$

47,150

$

42,193

Operating efficiency ratio (non-GAAP) (6)

41.8

%

41.1

%

41.4

%

42.7

%

40.9

%

Net Interest Margin

Average interest-earning assets

$

5,663,538

$

5,649,058

$

5,607,086

$

5,522,934

$

4,941,425

Net interest income (tax equivalent basis)

$

47,929

$

48,918

$

46,092

$

45,523

$

40,678

Impact of purchase accounting fair value marks

(1,455

)

(1,566

)

(1,742

)

(1,233

)

(148

)

Adjusted net interest income (tax equivalent basis)

$

46,474

$

47,352

$

44,350

$

44,290

$

40,530

Net interest margin (GAAP)

3.36

%

3.44

%

3.30

%

3.34

%

3.27

%

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

3.26

3.33

3.17

3.25

3.25

(3) Adjusted net income divided by average common equity.

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

(5) Adjusted net income 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,

2019

2019

2019

2019

2018

Capital Ratios and Book Value per Share

(dollars in thousands, except for per share data)

Common equity

$

731,190

$

720,160

$

699,224

$

682,395

$

613,927

Less: intangible assets

(168,034

)

(168,374

)

(168,714

)

(162,747

)

(147,646

)

Tangible common equity

$

563,156

$

551,786

$

530,510

$

519,648

$

466,281

Total assets

$

6,174,032

$

6,161,269

$

6,109,066

$

6,048,976

$

5,462,092

Less: intangible assets

(168,034

)

(168,374

)

(168,714

)

(162,747

)

(147,646

)

Tangible assets

$

6,005,998

$

5,992,895

$

5,940,352

$

5,886,229

$

5,314,446

Common shares outstanding

35,072,066

35,364,845

35,352,806

35,432,468

32,328,542

Common equity ratio (GAAP)

11.84

%

11.69

%

11.45

%

11.28

%

11.24

%

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

9.38

9.21

8.93

8.83

8.77

Regulatory capital ratios (Bancorp):

Leverage ratio

9.54

%

9.39

%

9.14

%

9.12

%

9.34

%

Common equity Tier 1 risk-based ratio

9.95

9.78

9.65

9.68

9.75

Risk-based Tier 1 capital ratio

10.04

9.87

9.74

9.78

9.86

Risk-based total capital ratio

12.95

12.80

12.72

12.80

13.15

Regulatory capital ratios (Bank):

Leverage ratio

10.80

%

10.56

%

10.42

%

10.43

%

10.78

%

Common equity Tier 1 risk-based ratio

11.37

10.68

11.12

11.18

11.37

Risk-based Tier 1 capital ratio

11.37

11.23

11.12

11.18

11.37

Risk-based total capital ratio

12.63

11.23

12.40

12.47

12.75

Book value per share (GAAP)

$

20.85

$

20.36

$

19.78

$

19.26

$

18.99

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

16.06

15.60

15.01

14.67

14.42

Net Loan Charge-Off (Recoveries) Detail

Net loan charge-offs (recoveries) :

Charge-offs

$

1,029

$

964

$

406

$

2,676

$

920

Recoveries

(22

)

(37

)

(146

)

(80

)

(25

)

Net loan charge-offs (recoveries)

$

1,007

$

927

$

260

$

2,596

$

895

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

0.08

%

0.07

%

0.02

%

0.21

%

0.08

%

Asset Quality

Nonaccrual taxi medallion loans

$

23,431

$

25,802

$

26,498

$

27,287

$

28,043

Nonaccrual loans (excluding taxi medallion loans)

26,050

25,519

23,419

20,393

23,812

Other real estate owned

-

907

-

-

-

Total nonperforming assets

$

49,481

$

52,228

$

49,917

$

47,680

$

51,855

Performing troubled debt restructurings

$

21,410

$

19,681

$

16,332

$

8,191

$

11,165

Allowance for loan losses ("ALLL")

$

38,293

$

38,771

$

37,698

$

36,858

$

34,954

Loans receivable

$

5,113,527

$

5,110,471

$

5,090,492

$

4,972,651

$

4,541,092

Less: taxi medallion loans

24,977

27,353

28,054

28,911

28,043

Loans receivable (excluding taxi medallion loans)

$

5,088,550

$

5,083,118

$

5,062,438

$

4,943,740

$

4,513,049

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

0.51

%

0.50

%

0.46

%

0.41

%

0.53

%

Nonaccrual loans as a % of loans receivable

0.97

1.00

0.98

0.96

1.14

Nonperforming assets as a % of total assets

0.80

0.85

0.82

0.79

0.95

ALLL as a % of loans receivable

0.75

0.76

0.74

0.74

0.77

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

147.0

151.9

161.0

180.7

146.8

ALLL as a % of nonaccrual loans

77.4

75.5

75.5

77.3

67.4

(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, 2019

September 30, 2019

December 31, 2018

Average

Average

Average

Interest-earning assets:

Balance

Interest

Rate (8)

Balance

Interest

Rate (8)

Balance

Interest

Rate (8)

Investment securities (1) (2)

$

423,857

$

2,737

2.56

%

$

445,492

$

3,053

2.72

%

$

433,686

$

3,429

3.14

%

Total loans (2) (3) (4)

5,153,715

65,118

5.01

5,127,365

67,068

5.19

4,437,944

53,584

4.79

Federal funds sold and interest-

bearing deposits with banks

60,705

242

1.58

50,289

278

2.19

44,163

232

2.08

Restricted investment in bank stock

25,261

409

6.42

25,912

502

7.69

25,632

495

7.66

Total interest-earning assets

5,663,538

68,506

4.80

5,649,058

70,901

4.98

4,941,425

57,740

4.64

Allowance for loan losses

(39,094

)

(37,704

)

(35,036

)

Noninterest-earning assets

460,163

448,059

355,104

Total assets

$

6,084,607

$

6,059,413

$

5,261,493

Interest-bearing liabilities:

Time deposits

$

1,533,425

9,573

2.48

$

1,598,378

9,934

2.47

$

1,329,743

7,062

2.11

Other interest-bearing deposits

2,348,752

6,699

1.13

2,300,886

7,416

1.28

1,915,353

5,336

1.11

Total interest-bearing deposits

3,882,177

16,272

1.66

3,899,264

17,350

1.77

3,245,096

12,398

1.52

Borrowings

452,837

2,431

2.13

467,230

2,754

2.34

477,800

2,783

2.31

Subordinated debentures (5)

128,830

1,839

5.66

128,747

1,843

5.68

128,502

1,843

5.69

Capital lease obligation

2,348

35

5.91

2,393

36

5.97

2,520

38

5.98

Total interest-bearing liabilities

4,466,192

20,577

1.83

4,497,634

21,983

1.94

3,853,918

17,062

1.76

Noninterest-bearing demand deposits

844,332

810,247

775,824

Other liabilities

41,910

37,530

25,373

Total noninterest-bearing liabilities

886,242

847,777

801,197

Stockholders' equity

732,173

714,002

606,378

Total liabilities and stockholders' equity

$

6,084,607

$

6,059,413

$

5,261,493

Net interest income (tax equivalent basis)

47,929

48,918

40,678

Net interest spread (6)

2.97

%

3.04

%

2.88

%

Net interest margin (7)

3.36

%

3.44

%

3.27

%

Tax equivalent adjustment

(498

)

(512

)

(517

)

Net interest income

$

47,431

$

48,406

$

40,161

(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 loans held-for-sale and nonaccrual loans.

(5) Average balances are net of debt issuance costs of $1,325, $1,407, and $1,652 for the three months ended December 31, 2019, September 30, 2019 abd December 31, 2018, respectively.
Amortization expense related to debt issuance costs included in interest expense was $82, $82 and $82 for the three months ended December 31, 2019, September 30, 2019 and December 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.