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

Bay Street

6 years ago

ENGLEWOOD CLIFFS, N.J., Jan. 24, 2019 (GLOBE NEWSWIRE) — ConnectOne Bancorp, Inc. (Nasdaq: 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.