CNOB - ConnectOne Bancorp Inc. Reports Second Quarter 2019 Results

July, 25 2019 07:00 AM ConnectOne Bancorp Inc.

ENGLEWOOD CLIFFS, N.J., July 25, 2019 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq: CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $19.3 million for the second quarter of 2019 compared with $11.6 million for the first quarter of 2019 and $17.5 million for the second quarter of 2018. Diluted earnings per share were $0.54 for the second quarter of 2019 compared with $0.33 in the first quarter of 2019 and $0.54 in the second quarter of 2018.

Adjusted net income amounted to $20.2 million, or $0.57 per diluted share, for the second quarter of 2019; $17.1 million, or $0.49 per diluted share, for the first quarter of 2019; and $17.5 million, or $0.54 per diluted share, for the second quarter of 2018. Adjusted net income for the first and second quarters of 2019 excludes $5.6 million and $0.3 million, respectively, in after-tax merger-related expenses. Adjusted net income for the second quarter 2019 also excludes an after-tax $0.7 million charge on the prepayment of higher-cost borrowings. See supplemental tables for a complete reconciliation of GAAP earnings to adjusted earnings.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “ConnectOne Bank’s second quarter results were highlighted by continued organic loan growth and solid asset quality. Total loans grew by nearly 10% sequentially on an annualized basis, with a majority of our growth attributable to higher yielding segments, while multi-family and other CRE lending were essentially flat. Our net interest margin contracted from the sequential quarter by 4 basis points (8 basis points, adjusted), negatively impacted by several factors including rising costs of funding, a flatter yield curve, prepayments in mortgage backed securities, and slightly lower prepayment fees. The margin outlook remains challenging. However, we are beginning to see a reduction in deposit costs as well as a benefit from our improved loan mix. We also expect to benefit from a recent repurchase of some of our FHLB borrowings.”

“Our performance metrics continue to reflect across-the-board financial strength,” Mr. Sorrentino added. “Return on assets was about 1.3%, return on tangible common equity was 14.8% and, on an adjusted basis, 15.5%, tangible book value per share increased by $0.34 to $15.01, and our efficiency ratio was 41.4%. Our credit quality remains sound. During the first quarter, as previously reported, we had a charge relating to a single loan secured by a commercial office building. Reflecting our philosophy of addressing issues expeditiously and to build timely resolutions, that situation was resolved favorably during the second quarter – the asset was foreclosed on and sold – resulting in a slight recovery. Additionally, in June, we finalized our previously announced acquisition of BoeFly. An online business lending marketplace, BoeFly helps to connect small- to medium-sized businesses with professional loan brokers and lenders across the United States. We already have experienced a strong cultural alignment with their FinTech-focused entrepreneurial team, and remain committed to supporting and enhancing the digital lending platform which is expected to augment fee income and generate profitable SBA lending opportunities.”

Operating Results

Fully taxable equivalent net interest income for the second quarter of 2019 was $46.1 million, an increase of $0.6 million, or 1.2%, from the first quarter of 2019, resulting primarily from an 1.5% increase in average interest-earning assets, offset by a 4 basis-point contraction of the net interest margin to 3.30% from 3.34%. Included in net interest income were purchase accounting adjustments of $1.7 million during the second quarter of 2019 and $1.2 million during the first quarter of 2019. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.17% for the second quarter of 2019 and 3.25% for the first quarter of 2019. The net interest margin contracted primarily due to higher funding costs and lower yields on securities, partially offset by higher yields on loans.

Noninterest income increased to $1.9 million in the second quarter of 2019 from $1.7 million in the first quarter of 2019 and $1.3 million in the second quarter of 2018. Noninterest income consists of income on bank owned life insurance, net gains on sales of loans held-for-sale, net gains (losses) on equity securities and deposit service fees, loan fees, and other income.

Noninterest expenses totaled $21.6 million for second quarter of 2019, $28.1 million for the first quarter of 2019 and $17.1 million for the second quarter of 2018. Included in noninterest expenses for the second and first quarters of 2019 were merger-related expenses of $0.3 million and $7.6 million, respectively. Also included in noninterest expenses for the second quarter of 2019 is $1.0 million in loss on extinguishment of debt. Excluding merger-related expenses and loss on extinguishment of debt, noninterest expenses decreased by $0.3 million from the first quarter of 2019 reflecting stable staff levels and reduced loan workout expense.

Income tax expense was $5.5 million for the second quarter of 2019, $2.5 million for the first quarter of 2019 and $4.6 million for the second quarter of 2018. The effective tax rates for the second quarter of 2019, first quarter of 2019 and second quarter of 2018 were 22.2%, 17.6% and 20.8%, respectively. The increase in the effective tax rate for the current quarter from the sequential quarter was primarily due to a higher proportion of taxable income.

Asset Quality

The provision for loan losses was $1.1 million for the second quarter of 2019, $4.5 million for the first quarter of 2019 and $1.1 million for the second quarter of 2018. The first quarter provision included $3.0 million related to one impaired commercial office building credit.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $49.9 million at June 30, 2019, $51.9 million at December 31, 2018 and $50.8 million at June 30, 2018. Included in nonperforming assets were taxi medallion loans totaling $26.5 million at June 30, 2019, $28.0 million at December 31, 2018 and $28.9 million at June 30, 2018. Nonperforming assets (including taxi medallion loans) as a percentage of total assets were 0.82% at June 30, 2019, 0.95% at December 31, 2018 and 0.96% at June 30, 2018. Excluding the taxi medallion loans, nonaccrual loans were $23.4 million at June 30, 2019, $23.8 million at December 31, 2018 and $20.8 million at June 30, 2018, representing a ratio of nonaccrual loans (excluding taxi medallion loans) to loans receivable of 0.46%, 0.53% and 0.48%, respectively. Nonaccrual loans at June 30, 2019 included a single $4.7 million credit that was paid off in full early in the third quarter. The annualized net loan charge-off ratio was 0.02% for the second quarter of 2019, 0.08% for the fourth quarter of 2018 and 0.00% for the second quarter of 2018. The allowance for loan losses represented 0.74%, 0.77%, and 0.77% of loans receivable as of June 30, 2019, December 31, 2018 and June 30, 2018, respectively. The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 161.0% as of June 30, 2019, 146.8% as of December 31, 2018 and 161.7% as of June 30, 2018.

Selected Balance Sheet Items

At June 30, 2019, the balance sheet reflected the acquisition of Greater Hudson Bank. The Company’s total assets were $6.1 billion, an increase of $647 million from December 31, 2018. Total loans were $5.1 billion, an increase of $549 million from December 31, 2018. The Company’s stockholders’ equity was $699 million at June 30, 2019, an increase of $85 million from December 31, 2018. The increase in stockholders’ equity was primarily attributable to the acquisition of Greater Hudson Bank, which increased capital by $56 million. As of June 30, 2019, the Company’s tangible common equity ratio and tangible book value per share were 8.93% and $15.01, 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 $0.34, or 2.3%, from the sequential quarter. Total goodwill and other intangible assets were approximately $169 million as of June 30, 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.

Second Quarter 2019 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on July 25, 2019 to review the Company's financial performance and operating results. The conference call dial-in number is 323-794-2590, access code 4930630. 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, July 25, 2019 and ending on Thursday, August 1, 2019 by dialing 719-457-0820, access code 4930630. 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 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)












June 30,

December 31,

June 30,



2019



2018



2018



(unaudited)



(unaudited)

ASSETS






Cash and due from banks
$
51,950


$
39,161


$
56,931


Interest-bearing deposits with banks

133,700



133,205



119,238


Cash and cash equivalents

185,650



172,366



176,169









Securities available-for-sale

441,911



412,034



400,015


Equity securities

11,152



11,460



11,559









Loans receivable

5,090,492



4,541,092



4,360,854


Less: Allowance for loan losses

37,698



34,954



33,594


Net loans receivable

5,052,794



4,506,138



4,327,260









Investment in restricted stock, at cost

31,767



31,136



32,441


Bank premises and equipment, net

19,781



19,062



20,389


Accrued interest receivable

21,272



18,214



16,754


Bank owned life insurance

126,132



113,820



112,275


Right of use operating lease assets

16,397



-



-


Other real estate owned

-



-



1,076


Goodwill

162,574



145,909



145,909


Core deposit intangibles

6,140



1,737



2,027


Other assets

33,496



30,216



29,494


Total assets
$
6,109,066


$
5,462,092


$
5,275,368









LIABILITIES






Deposits:






Noninterest-bearing
$
813,635


$
768,584


$
765,150


Interest-bearing

3,827,508



3,323,508



3,140,260


Total deposits

4,641,143



4,092,092



3,905,410


Borrowings

597,317



600,001



628,995


Operating lease liabilities

17,787



-



-


Subordinated debentures (net of $1,435, $1,599 and $1,763 in debt issuance costs)

128,720



128,556



128,392


Other liabilities

24,875



27,516



34,014


Total liabilities

5,409,842



4,848,165



4,696,811









COMMITMENTS AND CONTINGENCIES













STOCKHOLDERS' EQUITY






Common stock

471,071



412,546



412,546


Additional paid-in capital

17,277



15,542



13,756


Retained earnings

235,649



211,345



177,619


Treasury stock

(21,892
)


(16,717
)


(16,717
)

Accumulated other comprehensive loss

(2,881
)


(8,789
)


(8,647
)

Total stockholders' equity

699,224



613,927



578,557


Total liabilities and stockholders' equity
$
6,109,066


$
5,462,092


$
5,275,368

CONNECTONE BANCORP, INC. AND SUBSIDIARIES









CONSOLIDATED STATEMENTS OF INCOME









(dollars in thousands, except for per share data)




















Three Months Ended

Six Months Ended



06/30/19

06/30/18

06/30/19

06/30/18


Interest income









Interest and fees on loans
$
63,524


$
49,494


$
123,850


$
96,519



Interest and dividends on investment securities:









Taxable

2,573



2,150



5,515



4,037



Tax-exempt

1,081



778



2,208



1,592



Dividends

410



502



867



987



Interest on federal funds sold and other short-term investments

290



160



647



424



Total interest income

67,878



53,084



133,087



103,559



Interest expense









Deposits

16,596



9,169



31,947



16,857



Borrowings

5,752



4,970



10,658



9,610



Total interest expense

22,348



14,139



42,605



26,467













Net interest income

45,530



38,945



90,482



77,092



Provision for loan losses

1,100



1,100



5,600



18,900



Net interest income after provision for loan losses

44,430



37,845



84,882



58,192













Noninterest income









Income on bank owned life insurance

833



775



1,655



1,549



Net gains on sales of loans held-for-sale

46



12



65



29



Deposit, loan and other income

914



601



1,700



1,217



Net gains (losses) on equity securities

158



(47
)


261



(168
)


Net losses on sales of securities available-for-sale

(9
)


-



(1
)


-



Total noninterest income

1,942



1,341



3,680



2,627













Noninterest expenses









Salaries and employee benefits

11,822



9,736



23,805



19,415



Occupancy and equipment

2,357



2,031



4,852



4,174



FDIC insurance

825



765



1,580



1,615



Professional and consulting

1,370



825



2,579



1,548



Marketing and advertising

397



337



607



544



Data processing

1,139



1,091



2,294



2,239



Merger expenses

331



-



7,893



-



Loss on extinguishment of debt

1,047



-



1,047



-



Amortization of core deposit intangibles

364



169



728



338



Other expenses

1,938



2,107



4,267



4,126



Total noninterest expenses

21,590



17,061



49,652



33,999













Income before income tax expense

24,782



22,125



38,910



26,820



Income tax expense

5,501



4,598



7,994



5,042



Net income
$
19,281


$
17,527


$
30,916


$
21,778













Earnings per common share:









Basic
$
0.55


$
0.54


$
0.88


$
0.68



Diluted

0.54



0.54



0.87



0.67













Dividends per common share
$
0.090


$
0.075


$
0.180


$
0.150

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


June 30,

Mar. 31,

Dec. 31,

Sept. 30,

June 30,



2019



2019



2018



2018



2018


Selected Financial Data
(dollars in thousands)

Total assets
$
6,109,066


$
6,048,976


$
5,462,092


$
5,368,641


$
5,275,368


Loans receivable:










Commercial
$
1,018,951


$
1,012,930


$
925,229


$
886,212


$
808,604


Commercial real estate

1,555,542



1,483,852



1,279,502



1,282,766



1,282,426


Multifamily

1,589,340



1,608,613



1,562,195



1,504,134



1,480,243


Commercial construction

602,213



548,039



465,389



494,206



498,607


Residential

326,661



319,214



309,991



295,948



288,449


Consumer

2,041



4,157



2,593



2,508



5,637


Gross loans

5,094,748



4,976,805



4,544,899



4,465,774



4,363,966


Unearned net origination fees

(4,256
)


(4,154
)


(3,807
)


(3,287
)


(3,112
)

Loans receivable

5,090,492



4,972,651



4,541,092



4,462,487



4,360,854


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

-



368



-



270



-


Total loans
$
5,090,492


$
4,973,019


$
4,541,092


$
4,462,757


$
4,360,854













Investment securities
$
453,063


$
528,103


$
423,494


$
421,442


$
411,574


Goodwill and other intangible assets

168,714



162,747



147,646



147,791



147,936


Deposits:










Noninterest-bearing demand
$
813,635


$
833,090


$
768,584


$
758,213


$
765,150


Time deposits

1,623,948



1,544,247



1,366,054



1,322,747



1,315,843


Other interest-bearing deposits

2,203,560



2,216,661



1,957,454



1,907,805



1,824,417


Total deposits
$
4,641,143


$
4,593,998


$
4,092,092


$
3,988,765


$
3,905,410













Borrowings
$
597,317


$
603,412


$
600,001


$
629,979


$
628,995


Subordinated debentures (net of debt issuance costs)

128,720



128,638



128,556



128,474



128,392


Total stockholders' equity

699,224



682,395



613,927



594,871



578,557













Quarterly Average Balances










Total assets
$
6,001,669


$
5,909,061


$
5,261,493


$
5,186,173


$
5,104,661


Loans receivable:










Commercial
$
1,024,617


$
1,035,874


$
896,032


$
803,702


$
764,028


Commercial real estate (including multifamily)

3,088,231



3,011,692



2,771,239



2,769,908



2,699,012


Commercial construction

571,130



524,952



464,556



494,460



494,092


Residential

322,517



335,574



304,954



294,758



282,504


Consumer

3,252



3,397



4,292



3,205



5,685


Gross loans

5,009,747



4,911,489



4,441,073



4,366,033



4,245,321


Unearned net origination fees

(4,463
)


(3,930
)


(3,340
)


(3,182
)


(3,208
)

Loans receivable

5,005,284



4,907,559



4,437,733



4,362,851



4,242,113


Loans held-for-sale

225



124



211



54



30,099


Total loans
$
5,005,509


$
4,907,683


$
4,437,944


$
4,362,905


$
4,272,212













Investment securities
$
513,814


$
524,394


$
421,316


$
415,074


$
424,854


Goodwill and other intangible assets

164,709



162,814



147,741



147,883



148,046


Deposits:










Noninterest-bearing demand
$
800,856


$
824,115


$
775,824


$
761,782


$
719,372


Time deposits

1,551,014



1,515,249



1,329,743



1,296,165



1,280,471


Other interest-bearing deposits

2,183,384



2,236,630



1,915,353



1,854,763



1,765,577


Total deposits
$
4,535,254


$
4,575,994


$
4,020,920


$
3,912,710


$
3,765,420













Borrowings
$
603,260


$
486,687


$
477,800


$
531,251


$
613,763


Subordinated debentures (net of debt issuance costs)

128,666



128,585



128,502



128,420



128,339


Total stockholders' equity

694,978



680,168



606,378



590,128



574,992














Three Months Ended


June 30,

Mar. 31,

Dec. 31,

Sept. 30,

June 30,



2019



2019



2018



2018



2018



(dollars in thousands, except for per share data)

Net interest income
$
45,530


$
44,952


$
40,161


$
39,962


$
38,945


Provision for loan losses

1,100



4,500



1,100



1,100



1,100


Net interest income after provision for loan losses

44,430



40,452



39,061



38,862



37,845


Noninterest income










Income on bank owned life insurance

833



822



794



751



775


Net gains on sales of loans held-for-sale

46



19



30



2



12


Deposit, loan and other income

914



786



691



676



601


Net gains (losses) on equity securities

158



103



58



(157
)


(47
)

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

(9
)


8



-



-



-


Total noninterest income

1,942



1,738



1,573



1,272



1,341


Noninterest expenses










Salaries and employee benefits

11,822



11,983



9,988



10,181



9,736


Occupancy and equipment

2,357



2,495



2,001



2,137



2,031


FDIC insurance

825



755



765



735



765


Professional and consulting

1,370



1,209



1,129



891



825


Marketing and advertising

397



210



244



192



337


Data processing

1,139



1,155



1,080



1,102



1,091


Merger expenses

331



7,562



936



375



24


Loss on extinguishment of debt

1,047



-



-



-



-


Amortization of core deposit intangibles

364



364



144



145



169


Other expenses

1,938



2,329



2,037



2,372



2,083


Total noninterest expenses

21,590



28,062



18,324



18,130



17,061













Income before income tax expense

24,782



14,128



22,310



22,004



22,125


Income tax expense

5,501



2,493



3,638



2,102



4,598


Net income
$
19,281


$
11,635


$
18,672


$
19,902


$
17,527













Reconciliation of GAAP Earnings to Earnings Excluding the Following Items:










Net income
$
19,281


$
11,635


$
18,672


$
19,902


$
17,527


Merger expenses (after taxes)

274



5,597



739



297



-


Loss on extinguishment of debt (after taxes)

732



-



-



-



-


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

2



(6
)


-



-



-


Net gains on equity securities (after taxes)

(110
)


(74
)


(40
)


110



33


Deferred tax valuation charge/adjustment

-



-



-



(1,408
)


-


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

-



(20
)


(223
)


(297
)


(49
)

Net income-adjusted
$
20,179


$
17,132


$
19,148


$
18,604


$
17,511













Weighted average diluted shares outstanding

35,397,362



35,309,503



32,378,739



32,319,060



32,321,150













Diluted EPS (GAAP)
$
0.54


$
0.33


$
0.58


$
0.61


$
0.54


Diluted EPS-adjusted (Non-GAAP) ⁽¹⁾

0.57



0.49



0.59



0.58



0.54













Return on Assets Measures










Net income-adjusted
$
20,179


$
17,132


$
19,148


$
18,604


$
17,511













Average assets
$
6,001,669


$
5,909,061


$
5,261,493


$
5,186,173


$
5,104,661


Less: average intangible assets

(164,709
)


(162,814
)


(147,741
)


(147,883
)


(148,046
)

Average tangible assets
$
5,836,960


$
5,746,247


$
5,113,752


$
5,038,290


$
4,956,615


Return on avg. assets (GAAP)

1.29

%

0.80

%

1.41

%

1.52

%

1.38

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

1.35



1.18



1.44



1.42



1.38













⁽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


June 30,

Mar. 31,

Dec. 31,

Sept. 30,

June 30,



2019



2019



2018



2018



2018


Return on Equity Measures
(dollars in thousands)

Net income-adjusted
$
20,179


$
17,132


$
19,148


$
18,604


$
17,511













Average common equity
$
694,978


$
680,168


$
606,378


$
590,128


$
574,992


Less: average intangible assets

(164,709
)


(162,814
)


(147,741
)


(147,883
)


(148,046
)

Average tangible common equity
$
530,269


$
517,354


$
458,637


$
442,245


$
426,946













Return on avg. common equity (GAAP)

11.13

%

6.94

%

12.22

%

13.38

%

12.23

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

11.65



10.22



12.53



12.51



12.22


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

14.78



9.33



16.24



17.95



16.58


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

15.46



13.63



16.65



16.78



16.57













Efficiency Measures










Total noninterest expenses
$
21,590


$
28,062


$
18,324


$
18,130


$
17,061


Amortization of core deposit intangibles

(364
)


(364
)


(144
)


(145
)


(169
)

Merger expenses

(331
)


(7,562
)


(936
)


(375
)


-


Loss on extinguishment of debt

(1,047
)


-



-



-



-


Foreclosed property expense

-



1



(8
)


(196
)


(11
)

Operating noninterest expense
$
19,848


$
20,137


$
17,236


$
17,414


$
16,881













Net interest income (tax equivalent basis)
$
46,092


$
45,523


$
40,678


$
40,444


$
39,409


Noninterest income

1,942



1,738



1,573



1,272



1,341


Net gains (losses) on equity securities

(158
)


(103
)


(58
)


157



47


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

9



(8
)


-



-



-


Operating revenue
$
47,885


$
47,150


$
42,193


$
41,873


$
40,797













Operating efficiency ratio (non-GAAP) ⁽⁶⁾

41.4

%

42.7

%

40.9

%

41.6

%

41.4

%











Net Interest Margin










Average interest-earning assets
$
5,607,086


$
5,522,934


$
4,941,425


$
4,856,678


$
4,771,523













Net interest income (tax equivalent basis)
$
46,092


$
45,523


$
40,678


$
40,444


$
39,409


Impact of purchase accounting fair value marks

(1,742
)


(1,233
)


(148
)


(195
)


(680
)

Adjusted net interest income (tax equivalent basis)
$
44,350


$
44,290


$
40,530


$
40,249


$
38,729













Net interest margin (GAAP)

3.30

%

3.34

%

3.27

%

3.30

%

3.31

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

3.17



3.25



3.25



3.29



3.26













⁽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


June 30,

Mar. 31,

Dec. 31,

Sept. 30,

June 30,



2019



2019



2018



2018



2018


Capital Ratios and Book Value per Share
(dollars in thousands, except for per share data)

Common equity
$
699,224


$
682,395


$
613,927


$
594,871


$
578,557


Less: intangible assets

(168,714
)


(162,747
)


(147,646
)


(147,791
)


(147,936
)

Tangible common equity
$
530,510


$
519,648


$
466,281


$
447,080


$
430,621













Total assets
$
6,109,066


$
6,048,976


$
5,462,092


$
5,368,641


$
5,275,368


Less: intangible assets

(168,714
)


(162,747
)


(147,646
)


(147,791
)


(147,936
)

Tangible assets
$
5,940,352


$
5,886,229


$
5,314,446


$
5,220,850


$
5,127,432













Common shares outstanding

35,352,866



35,432,468



32,328,542



32,238,264



32,184,047













Common equity ratio (GAAP)

11.45

%

11.28

%

11.24

%

11.08

%

10.97

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

8.93



8.83



8.77



8.56



8.40













Regulatory capital ratios (Bancorp):










Leverage ratio

9.14

%

9.12

%

9.34

%

9.15

%

8.93

%
Common equity Tier 1 risk-based ratio

9.65



9.68



9.75



9.50



9.33


Risk-based Tier 1 capital ratio

9.74



9.77



9.86



9.61



9.44


Risk-based total capital ratio

12.72



12.79



13.15



12.94



12.81













Regulatory capital ratios (Bank):










Leverage ratio

10.42

%

10.43

%

10.78

%

10.64

%

10.43

%
Common equity Tier 1 risk-based ratio

11.12



11.17



11.37



11.18



11.02


Risk-based Tier 1 capital ratio

11.12



11.17



11.37



11.18



11.02


Risk-based total capital ratio

12.40



12.46



12.75



12.57



12.42













Book value per share (GAAP)
$
19.78


$
19.26


$
18.99


$
18.45


$
17.98


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

15.01



14.67



14.42



13.87



13.38













Net Loan Charge-Off (Recoveries) Detail










Net loan charge-offs (recoveries) :










Charge-offs
$
406


$
2,676


$
920


$
6


$
47


Recoveries

(146
)


(80
)


(25
)


(61
)


(12
)

Net loan charge-offs (recoveries)
$
260


$
2,596


$
895


$
(55
)

$
35


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

0.02

%

0.21

%

0.08

%

(0.01
)
%

0.00

%











Asset Quality










Nonaccrual taxi medallion loans
$
26,498


$
27,287


$
28,043


$
28,482


$
28,944


Nonaccrual loans (excluding taxi medallion loans)

23,419



20,393



23,812



24,533



20,771


Other real estate owned

-



-



-



-



1,076


Total nonperforming assets
$
49,917


$
47,680


$
51,855


$
53,015


$
50,791













Performing troubled debt restructurings
$
16,332


$
8,191


$
11,165


$
11,243


$
12,827













Allowance for loan losses ("ALLL")
$
37,698


$
36,858


$
34,954


$
34,749


$
33,594













Loans receivable
$
5,090,492


$
4,972,651


$
4,541,092


$
4,462,487


$
4,360,854


Less: taxi medallion loans

28,054



28,911



28,043



28,482



28,944


Loans receivable (excluding taxi medallion loans)
$
5,062,438


$
4,943,740


$
4,513,049


$
4,434,005


$
4,331,910













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

0.46

%

0.41

%

0.53

%

0.55

%

0.48

%
Nonaccrual loans as a % of loans receivable

0.98



0.96



1.14



1.19



1.14


Nonperforming assets as a % of total assets

0.82



0.79



0.95



0.99



0.96


ALLL as a % of loans receivable

0.74



0.74



0.77



0.78



0.77


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

161.0



180.7



146.8



141.6



161.7


ALLL as a % of nonaccrual loans

75.5



77.3



67.4



65.5



67.6













⁽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





June 30, 2019
March 31, 2019
June 30, 2018





Average




Average




Average



Interest-earning assets:

Balance
Interest
Rate ⁽⁸⁾


Balance
Interest
Rate ⁽⁸⁾


Balance
Interest
Rate ⁽⁸⁾

Investment securities ^{(1) (2)}

$
515,022

$
3,941

3.07
%

$
531,083

$
4,369

3.34
%

$
432,493

$
3,136

2.91
%
Total loans ^{(2) (3) (4)}



5,005,509


63,799

5.11



4,907,683


60,597

5.01



4,272,212


49,750

4.67

Federal funds sold and interest-














bearing deposits with banks


54,619


290

2.13



57,690


357

2.51



35,315


159

1.81

Restricted investment in bank stock

31,936


410

5.15



26,478


457

7.00



31,503


502

6.39

Total interest-earning assets

5,607,086


68,440

4.90



5,522,934


65,780

4.83



4,771,523


53,547

4.50

Allowance for loan losses


(37,390
)





(35,499
)





(32,668
)



Noninterest-earning assets


431,973






421,626






365,806




Total assets


$
6,001,669





$
5,909,061





$
5,104,661






















Interest-bearing liabilities:















Time deposits


$
1,551,014


9,366

2.42


$
1,515,249


8,303

2.22


$
1,280,471


5,830

1.83

Other interest-bearing deposits

2,183,384


7,230

1.33



2,236,630


7,048

1.28



1,765,577


3,338

0.76

Total interest-bearing deposits

3,734,398


16,596

1.78



3,751,879


15,351

1.66



3,046,048


9,168

1.21



















Borrowings



603,260


3,870

2.57



486,687


3,024

2.52



613,763


3,091

2.02

Subordinated debentures ⁽⁵⁾


128,666


1,845

5.75



128,585


1,845

5.82



128,339


1,840

5.75

Capital lease obligation


2,436


37

6.09



2,479


37

6.05



2,589


39

6.04

Total interest-bearing liabilities

4,468,760


22,348

2.01



4,369,630


20,257

1.88



3,790,739


14,138

1.50



















Noninterest-bearing demand deposits

800,856






824,115






719,372




Other liabilities



37,075






35,148






19,558




Total noninterest-bearing liabilities

837,931






859,263






738,930




Stockholders' equity


694,978






680,168






574,992




Total liabilities and stockholders' equity
$
6,001,669





$
5,909,061





$
5,104,661






















Net interest income (tax equivalent basis)


46,092






45,523






39,409



Net interest spread ⁽⁶⁾



2.89
%



2.95
%



3.00
%


















Net interest margin ⁽⁷⁾



3.30
%



3.34
%



3.31
%


















Tax equivalent adjustment



(562
)





(571
)





(463
)


Net interest income



$
45,530





$
44,952





$
38,946





















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

















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












⁽³⁾Includes loan fee income.















⁽⁴⁾ Loans include nonaccrual loans.














⁽⁵⁾ Average balances are net of debt issuance costs of $1,489, $1,570 and $1,816 for the three months ended June 30, 2019, March 31, 2019 and June 30, 2018, respectively.


Amortization expense related to debt issuance costs included in interest expense was $82, $82 and $82 for the three months ended June 30, 2019, March 31, 2019



and June 30, 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.

Company Name:	ConnectOne Bancorp Inc.
Stock Symbol:	CNOB
Market:	NASDAQ
Website:	connectonebank.com

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