ConnectOne Bancorp, Inc. Reports First Quarter 2020 Results

About this update from Connectone Bancorp, Inc.

ENGLEWOOD CLIFFS, N.J. , April 30, 2020 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq: CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $6.0 million for the first quarter of 2020 compared with $20.8 million for the fourth quarter of 2019 and $11.6 million for the first quarter of 2019. Diluted earnings per share were $0.15 for the first quarter of 2019 compared with $0.59 earned in the fourth quarter of 2019 and $0.33 earned in the first quarter of 2019. The decrease in net income and diluted earnings per share from the fourth quarter of 2019 was primarily due to an increase in provision for loan losses of $15.5 million substantially due to the economic uncertainties caused by the COVID-19 pandemic. On January 2, 2020 , the acquisition of Bancorp of New Jersey (“BNJ”) was completed and thus first quarter 2020 results reflect the operations of the combined entity. Historical financial information includes only the operations of ConnectOne, pre-merger. Included in net income were merger expenses of $9.5 million for the first quarter of 2020, $0.9 million for the fourth quarter of 2019 and $7.6 million for the first quarter of 2019. On a pre-tax, pre-provision and pre-merger charges basis, earnings were $32.6 million for the first quarter of 2020, $28.4 million for the fourth quarter of 2019, and $26.2 million for the first quarter of 2019. Frank Sorrentino , ConnectOne’s Chairman and Chief Executive Officer stated, “ConnectOne continues to navigate through this unprecedented time. While our priorities are the safety of our employees and supporting our clients through these challenging times, we continue to execute on all our business strategies. As a technology-forward bank, our operations and teams have transitioned quickly to offering essential banking services virtually. Our business is functioning well and I’m proud of the resiliency of the ConnectOne team as we’re using the full range of our Company's banking expertise to help clients.” “We’ve also continued to be a resource to the communities we serve by actively participating in the SBA’s Paycheck Protection Program (the “PPP”). ConnectOne expects to fund a total of approximately $385 million in the initial PPP tranche. Additionally, there are over 1,000 new applications being processed for the second PPP tranche. Furthermore, our FinTech subsidiary BoeFly – which connects small- to mid-sized businesses to a network of financial lenders – has participated in the PPP in a meaningful way, agenting upwards of $750 million and potentially and significantly increasing its relationships with borrowers and banking partners.” Mr. Sorrentino added, “While our first quarter results were affected by the current economic environment, we were pleased with our strong overall financial performance notwithstanding the increase in COVID-related reserves. We’re operating ConnectOne in a disciplined manner, continue to watch credit and remain well-positioned to leverage our experience, our solid financial position and our relationship-focused banking model during this crisis.” Operating Results Fully taxable equivalent net interest income for the first quarter of 2020 was $55.8 million , an increase of $7.9 million , or 16.4%, from the fourth quarter of 2019, resulting primarily from an 16.3% increase in average interest-earning assets and a 5 basis-point widening of the net interest margin to 3.41% from 3.36%, both resulting largely from the BNJ acquisition. Included in net interest income were purchase accounting adjustments of $3.5 million during the first quarter of 2020 and $1.5 million during the fourth quarter of 2019. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.20% for the first quarter of 2020 and 3.26% for the fourth quarter of 2019. The adjusted net interest contracted as a result of higher cash balances and from the BNJ acquisition. The adjusted net interest margin contraction resulting from the BNJ acquisition was mitigated through securities portfolio restructuring and deposit rate reductions effected toward the end of the first quarter of 2020. Noninterest income increased to $2.9 million in the first quarter of 2020 from $2.2 million in the fourth quarter of 2019 and $1.7 million in the first quarter of 2019. The increases in noninterest income for the sequential quarter were primarily attributed to increases in net gains on equity securities of $0.2 million , increases in net gains on sale of loans held-for-sale of $0.2 million and increases in deposit, loan and other income of $0.1 million . Noninterest expenses totaled $35.2 million for first quarter of 2020, $22.2 million for the fourth quarter of 2019 and $28.1 million for the first quarter of 2019. Included in noninterest expenses were merger related expenses totaling $9.5 million , $0.9 million and $7.6 million , during the first quarter of 2020, fourth quarter of 2019 and first quarter of 2019, respectively. Excluding merger-related expenses, noninterest expenses increased by $4.2 million from the fourth quarter of 2019 due primarily to increases in salaries and employee benefits of $1.7 million , occupancy and equipment expenses of $1.1 million and other expenses of $0.6 million . These increases are primarily due to the expansion of our franchise through the BNJ acquisition and reflect approximately one-third of projected cost saves, which are estimated to be approximately 70% of BNJ’s expense base. Income tax expense was $1.1 million for the first quarter of 2020, $6.2 million for the fourth quarter of 2019 and $2.5 million for the first quarter of 2019. The effective tax rates for the first quarter of 2020, fourth quarter of 2019 and first quarter of 2019 were 15.1%, 23.0% and 17.6%, respectively. The decrease in the effective tax rate for the current quarter from the sequential quarter was due to a larger proportion of income from nontaxable sources. Asset Quality In accordance with the accounting relief provisions of the CARES Act, the Company has postponed the adoption of the current expected credit losses (“CECL”) accounting standards as permitted under regulatory guidance. Management reached this decision due to the complexities of CECL loan loss forecasting exacerbated by the quickly changing economic environment resulting from the COVID-19 pandemic. Had the Company adopted CECL as of January 1, 2020 , the increase to its allowance for loan losses for “Day 1” implementation would have ranged from $4 million to $14 million , excluding the re-allocation of an additional $8 million of non-accretable purchase credit-impaired marks. The provision for loan losses was $16.0 million for the first quarter of 2020, $0.5 million for the fourth quarter of 2019 and $4.5 million for the first quarter of 2019. The increase in the loan loss provision in the first quarter of 2020 was largely due to the economic uncertainties of COVID-19, including consideration of related payment deferrals requested and/or granted to date. Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $62.4 million at March 31, 2020 , $49.5 million at December 31, 2019 and $47.7 million at March 31, 2019 . Included in nonperforming assets were taxi medallion loans totaling $23.0 million at March 31, 2020 , $23.4 million at December 31, 2019 and $27.3 million at March 31, 2019 . Nonperforming assets (including taxi medallion loans) as a percentage of total assets were 0.86% at March 31, 2020 , 0.80% at December 31, 2019 and 0.79% at March 31, 2019 . Excluding the taxi medallion loans, nonaccrual loans were $39.3 million at March 31, 2020 , $26.1 million at December 31, 2019 and $20.4 million at March 31, 2019 , representing a ratio of nonaccrual loans (excluding taxi medallion loans) to loans receivable of 0.66%, 0.51% and 0.41%, respectively. Nonaccruals increased $13.3 million from December 31, 2019 primarily due to a commercial construction relationship of $11.4 million that is well-secured. The annualized net loan charge-off ratio was 0.01% for the first quarter of 2020, 0.08% for the fourth quarter of 2019 and 0.21% for the first quarter of 2019. The allowance for loan losses represented 0.90%, 0.75%, and 0.74% of loans receivable as of March 31, 2020 , December 31, 2019 and March 31, 2019 , respectively. The allowance, currently excludes approximately $8 million of purchase accounting credit marks that are expected to be added to the allowance once CECL is implemented, resulting in an additional 13 bps to the allowance as a percent of loans ratio. The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 137.7% as of March 31, 2020 , 147.0% as of December 31, 2019 and 180.7% as of March 31, 2019 . Selected Balance Sheet Items At March 31, 2020 , the balance sheet reflected the acquisition of BNJ. The Company’s total assets were $7.3 billion , an increase of $1.1 billion from December 31, 2019 . Loans receivable were $6.0 billion , an increase of $896 million from December 31, 2019 . The increase in total assets and loans receivable were primarily attributable to the acquisition of BNJ. The Company’s stockholders’ equity was $854 million at March 31, 2020 , an increase of $123 million from December 31, 2019 . The increase in stockholders’ equity was primarily attributable to the acquisition of BNJ, which increased capital by $118 million . As of March 31, 2020 , the Company’s tangible common equity ratio and tangible book value per share were 8.96% and $15.93 , respectively. As of December 31, 2019 , the tangible common equity ratio and tangible book value per share were 9.38% and $16.06 , respectively. Total goodwill and other intangible assets were approximately $221 million as of March 31, 2020 and $168 million and December 31, 2019 . During the first quarter of 2020, the Bancorp repurchased approximately 55,000 shares of common stock leaving a remaining capacity of approximately 605,000 shares in the Board authorized program. Due to the COVID-19 pandemic, the Company has suspended repurchases of common stock during the COVID-19 pandemic. 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 measures. 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 financial measures disclosed in this earnings release to the comparable GAAP measures are provided in the accompanying tables. First Quarter 2020 Results Conference Call Management will also host a conference call and audio webcast at 10:00 a.m. ET on April 30, 2020 to review the Company's financial performance and operating results. The conference call dial-in number is 631-891-4304, access code 10009333. Please dial in at least five minutes before the start of the call to register. An audio webcast of the conference call will be available to the public, on a listen-only basis, via the "Investor Relations" link on the Company's website https://www.ConnectOneBank.com or at http://ir.connectonebank.com . A replay of the conference call will be available beginning at approximately 1:00 p.m. ET on Thursday, April 30, 2020 and ending on Thursday, May 7, 2020 by dialing 412-317-6671, access code 10009333. 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 banking offices located across 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 , as supplemented by the Company’s subsequent filings 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, changes in accounting principles and guidelines and the impact of the COVID-19 pandemic on the Company, its employees and operations, and its customers. 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; [email protected] Media Contact: Emily Holtzman , MWWPR 631.742.9568; [email protected] C ONNECT O NE B ANCORP, I NC. AND S UBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION (in thousands) Mar 31 , December 31 , Mar 31 , 2020 2019 2019 (unaudited) (unaudited) ASSETS Cash and due from banks $ 59,442 $ 65,717 $ 54,520 Interest-bearing deposits with banks 223,367 135,766 118,028 Cash and cash equivalents 282,809 201,483 172,548 Securities available-for-sale 446,738 404,701 516,539 Equity securities 13,363 11,185 11,564 Loans held-for-sale 32,425 33,250 368 Loans receivable 6,009,310 5,113,527 4,972,651 Less: Allowance for loan losses 54,169 38,293 36,858 Net loans receivable 5,955,141 5,075,234 4,935,793 Investment in restricted stock, at cost 38,554 27,397 31,727 Bank premises and equipment, net 32,864 19,236 20,150 Accrued interest receivable 24,317 20,949 21,198 Bank owned life insurance 163,929 137,961 125,300 Leases 26,924 15,137 15,311 Goodwill 208,379 162,574 156,243 Core deposit intangibles 12,884 5,460 6,504 Other assets 41,000 59,465 35,731 Total assets $ 7,279,327 $ 6,174,032 $ 6,048,976 LIABILITIES Deposits: Noninterest-bearing $ 979,778 $ 861,728 $ 833,090 Interest-bearing 4,529,414 3,905,814 3,760,908 Total deposits 5,509,192 4,767,542 4,593,998 Borrowings 726,856 500,293 603,412 Leases 28,731 16,449 16,719 Subordinated debentures 128,967 128,885 128,638 Other liabilities 31,871 29,673 23,814 Total liabilities 6,425,617 5,442,842 5,366,581 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock 586,946 468,571 468,571 Additional paid-in capital 21,746 21,344 16,513 Retained earnings 273,825 271,782 219,558 Treasury stock (30,271 ) (29,360 ) (16,967 ) Accumulated other comprehensive loss 1,464 (1,147 ) (5,280 ) Total stockholders' equity 853,710 731,190 682,395 Total liabilities and stockholders' equity $ 7,279,327 $ 6,174,032 $ 6,048,976 CONNECTONE BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except for per share data) Three Months Ended 3/31/2020 12/31/2019 3/31/2019 Interest income Interest and fees on loans $ 72,936 $ 64,833 $ 60,326 Interest and dividends on investment securities: Taxable 2,066 1,700 2,942 Tax-exempt 813 824 1,127 Dividends 400 409 457 Interest on federal funds sold and other short-term investments 499 242 357 Total interest income 76,714 68,008 65,209 Interest expense Deposits 17,212 16,272 15,351 Borrowings 4,221 4,305 4,906 Total interest expense 21,433 20,577 20,257 Net interest income 55,281 47,431 44,952 Provision for loan losses 16,000 500 4,500 Net interest income after provision for loan losses 39,281 46,931 40,452 Noninterest income Income on bank owned life insurance 967 914 822 Net gains on sale of loans held-for-sale 393 169 19 Deposit, loan and other income 1,287 1,209 786 Net gains on equity securities 178 (46 ) 103 Net gains on sale of investment securities 29 - 8 Total noninterest income 2,854 2,246 1,738 Noninterest expenses Salaries and employee benefits 14,563 12,881 11,983 Occupancy and equipment 3,471 2,380 2,495 FDIC insurance 856 795 755 Professional and consulting 1,574 1,428 1,209 Marketing and advertising 304 273 210 Data processing 1,473 1,151 1,155 Merger expenses 9,494 871 7,562 Amortization of core deposit intangible 652 340 364 Other expenses 2,671 2,078 2,329 Total noninterest expenses 35,058 22,197 28,062 Income before income tax expense 7,077 26,980 14,128 Income tax expense 1,047 6,197 2,493 Net income $ 6,030 $ 20,783 $ 11,635 Earnings per common share: Basic $ 0.15 $ 0.59 $ 0.33 Diluted 0.15 0.59 0.33 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. C ONNECT O NE B ANCORP, I NC. SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES As of Mar. 31 , Dec. 31 , Sept. 30 , June 30 , Mar. 31 , 2020 2019 2019 2019 2019 Selected Financial Data (dollars in thousands) Total assets $ 7,279,327 $ 6,174,032 $ 6,161,269 $ 6,109,066 $ 6,048,976 Loans receivable: Commercial $ 1,203,818 $ 1,096,224 $ 1,079,071 $ 1,018,951 $ 1,012,930 Commercial real estate 1,981,149 1,559,354 1,551,182 1,555,542 1,483,852 Multifamily 1,762,651 1,518,400 1,513,216 1,589,340 1,608,613 Commercial construction 676,836 620,969 647,261 602,213 548,039 Residential 387,400 320,019 322,307 326,661 319,215 Consumer 1,965 3,328 2,436 2,041 4,156 Gross loans 6,013,819 5,118,294 5,115,473 5,094,748 4,976,805 Unearned net origination fees (4,509 ) (4,767 ) (5,002 ) (4,256 ) (4,154 ) Loans receivable 6,009,310 5,113,527 5,110,471 5,090,492 4,972,651 Loans held-for-sale 32,425 33,250 33,245 - 368 Total loans $ 6,041,735 $ 5,146,777 $ 5,143,716 $ 5,090,492 $ 4,973,019 Investment securities $ 460,101 $ 415,886 $ 437,080 $ 453,063 $ 528,103 Goodwill and other intangible assets 221,263 168,034 168,374 168,714 162,747 Deposits: Noninterest-bearing demand $ 979,778 $ 861,728 $ 828,190 $ 813,635 $ 833,090 Time deposits 1,974,400 1,553,721 1,573,736 1,623,948 1,544,247 Other interest-bearing deposits 2,555,014 2,352,093 2,349,308 2,203,560 2,216,661 Total deposits $ 5,509,192 $ 4,767,542 $ 4,751,234 $ 4,641,143 $ 4,593,998 Borrowings $ 726,856 $ 500,293 $ 512,456 $ 597,317 $ 603,412 Subordinated debentures (net of debt issuance costs) 128,967 128,885 128,802 128,720 128,638 Total stockholders' equity 853,710 731,190 720,160 699,224 682,395 Quarterly Average Balances Total assets $ 7,106,027 $ 6,084,607 $ 6,059,413 $ 6,001,669 $ 5,909,061 Loans receivable: Commercial $ 1,146,773 $ 1,085,640 $ 1,040,355 $ 1,024,617 $ 1,035,874 Commercial real estate (including multifamily) 3,723,991 3,074,889 3,144,978 3,088,231 3,011,692 Commercial construction 663,036 642,476 617,106 571,130 524,952 Residential 390,655 318,413 325,188 322,517 335,574 Consumer 3,007 4,165 3,525 3,252 3,397 Gross loans 5,927,462 5,125,583 5,131,152 5,009,747 4,911,489 Unearned net origination fees (4,648 ) (5,031 ) (4,778 ) (4,463 ) (3,930 ) Loans receivable 5,922,814 5,120,552 5,126,374 5,005,284 4,907,559 Loans held-for-sale 33,655 33,163 991 225 124 Total loans $ 5,956,469 $ 5,153,715 $ 5,127,365 $ 5,005,509 $ 4,907,683 Investment securities $ 458,642 $ 427,973 $ 448,618 $ 513,814 $ 524,394 Goodwill and other intangible assets 221,075 168,257 168,598 164,709 162,814 Deposits: Noninterest-bearing demand $ 955,358 $ 844,332 $ 810,247 $ 800,856 $ 824,115 Time deposits 1,962,714 1,533,425 1,598,378 1,551,014 1,515,249 Other interest-bearing deposits 2,660,755 2,348,752 2,300,886 2,183,384 2,236,630 Total deposits $ 5,578,827 $ 4,726,509 $ 4,709,511 $ 4,535,254 $ 4,575,994 Borrowings $ 477,121 $ 452,837 $ 467,230 $ 603,260 $ 486,687 Subordinated debentures (net of debt issuance costs) 128,913 128,830 128,747 128,666 128,585 Total stockholders' equity 864,241 732,173 714,002 694,978 680,168 Three Months Ended Mar. 31 , Dec. 31 , Sept. 30 , June 30 , Mar. 31 , 2020 2019 2019 2019 2019 (dollars in thousands, except for per share data) Net interest income $ 55,281 $ 47,431 $ 48,406 $ 45,530 $ 44,952 Provision for loan losses 16,000 500 2,000 1,100 4,500 Net interest income after provision for loan losses 39,281 46,931 46,406 44,430 40,452 Noninterest income Income on bank owned life insurance 967 914 915 833 822 Net gains on sale of loans held-for-sale 393 169 278 46 19 Deposit, loan and other income 1,287 1,209 1,116 914 786 Net gains (losses) on equity securities 178 (46 ) 79 158 103 Net gains (losses) on sale of investment securities 29 - (279 ) (9 ) 8 Total noninterest income 2,854 2,246 2,109 1,942 1,738 Noninterest expenses Salaries and employee benefits 14,563 12,881 12,449 11,822 11,983 Occupancy and equipment 3,471 2,380 2,480 2,357 2,495 FDIC insurance 856 795 (364 ) 825 755 Professional and consulting 1,574 1,428 1,499 1,370 1,209 Marketing and advertising 304 273 473 397 210 Data processing 1,473 1,151 1,058 1,139 1,155 Merger expenses 9,494 871 191 331 7,562 Loss on extinguishment of debt - - - 1,047 - Amortization of core deposit intangible 652 340 340 364 364 Other expenses 2,671 2,078 2,253 1,938 2,329 Total noninterest expenses 35,058 22,197 20,379 21,590 28,062 Income before income tax expense 7,077 26,980 28,136 24,782 14,128 Income tax expense 1,047 6,197 6,440 5,501 2,493 Net income $ 6,030 $ 20,783 $ 21,696 $ 19,281 $ 11,635 Weighted average diluted shares outstanding 39,510,810 35,245,285 35,262,565 35,397,362 35,309,503 Diluted EPS $ 0.15 $ 0.59 $ 0.61 $ 0.54 $ 0.33 Reconciliation of GAAP Earnings to Pre-tax, Pre-provision and Pre-merger charges Earnings Net income $ 6,030 $ 20,783 $ 21,696 $ 19,281 $ 11,635 Income tax expense 1,047 6,197 6,440 5,501 2,493 Merger charges 9,494 871 191 331 7,562 Provision for loan losses 16,000 500 2,000 1,100 4,500 Pre-tax, pre-provision and pre-merger charges earnings $ 32,571 $ 28,351 $ 30,327 $ 26,213 $ 26,190 Return on Assets Average assets $ 7,106,027 $ 6,084,607 $ 6,059,413 $ 6,001,669 $ 5,909,061 Return on average assets 0.34 % 1.36 % 1.42 % 1.29 % 0.80 % Three Months Ended Mar. 31 , Dec. 31 , Sept. 30 , June 30 , Mar. 31 , 2020 2019 2019 2019 2019 Return on Equity Measures (dollars in thousands) Average common equity $ 864,241 $ 732,173 $ 714,002 $ 694,978 $ 680,168 Less: average intangible assets (221,075 ) (168,257 ) (168,598 ) (164,709 ) (162,814 ) Average tangible common equity $ 643,166 $ 563,916 $ 545,404 $ 530,269 $ 517,354 Return on average common equity (GAAP) 2.81 % 11.26 % 12.06 % 11.13 % 6.94 % Return on average tangible common equity (non-GAAP) (1) 4.06 14.79 15.96 14.78 9.33 Efficiency Measures Total noninterest expenses $ 35,058 $ 22,197 $ 20,379 $ 21,590 $ 28,062 Amortization of core deposit intangibles (652 ) (340 ) (340 ) (364 ) (364 ) Merger expenses (9,494 ) (871 ) (191 ) (331 ) (7,562 ) FDIC small bank assessment credit - - 1,310 - - Loss on extinguishment of debt - - - (1,047 ) - Foreclosed property expense 10 8 (90 ) - 1 Operating noninterest expense $ 24,922 $ 20,994 $ 21,068 $ 19,848 $ 20,137 Net interest income (tax equivalent basis) $ 55,781 $ 47,929 $ 48,918 $ 46,092 $ 45,523 Noninterest income 2,854 2,246 2,109 1,942 1,738 Net (gains) losses on equity securities (178 ) 46 (79 ) (158 ) (103 ) Net losses (gains) on sales of securities (29 ) - 279 9 (8 ) Operating revenue $ 58,428 $ 50,221 $ 51,227 $ 47,885 $ 47,150 Operating efficiency ratio (non-GAAP) (2) 42.7 % 41.8 % 41.1 % 41.4 % 42.7 % Net Interest Margin Average interest-earning assets $ 6,584,508 $ 5,663,538 $ 5,649,058 $ 5,607,086 $ 5,522,934 Net interest income (tax equivalent basis) $ 55,781 $ 47,929 $ 48,918 $ 46,092 $ 45,523 Impact of purchase accounting fair value marks (3,457 ) (1,455 ) (1,566 ) (1,742 ) (1,233 ) Adjusted net interest income (tax equivalent basis) $ 52,324 $ 46,474 $ 47,352 $ 44,350 $ 44,290 Net interest margin (GAAP) 3.41 % 3.36 % 3.44 % 3.30 % 3.34 % Adjusted net interest margin (non-GAAP) (3) 3.20 3.26 3.33 3.17 3.25 (1) Earnings available to common stockholders excluding amortization of intangible assets divided by average tangible common equity. (2) Operating noninterest expense divided by operating revenue. (3) Adjusted net interest margin excludes impact of purchase accounting fair value marks. As of Mar. 31 , Dec. 31 , Sept. 30 , June 30 , Mar. 31 , 2020 2019 2019 2019 2019 Capital Ratios and Book Value per Share (dollars in thousands, except for per share data) Common equity $ 853,710 $ 731,190 $ 720,160 $ 699,224 $ 682,395 Less: intangible assets (221,263 ) (168,034 ) (168,374 ) (168,714 ) (162,747 ) Tangible common equity $ 632,447 $ 563,156 $ 551,786 $ 530,510 $ 519,648 Total assets $ 7,279,327 $ 6,174,032 $ 6,161,269 $ 6,109,066 $ 6,048,976 Less: intangible assets (221,263 ) (168,034 ) (168,374 ) (168,714 ) (162,747 ) Tangible assets $ 7,058,064 $ 6,005,998 $ 5,992,895 $ 5,940,352 $ 5,886,229 Common shares outstanding 39,704,921 35,072,066 35,364,845 35,352,806 35,443,933 Common equity ratio (GAAP) 11.73 % 11.84 % 11.69 % 11.45 % 11.28 % Tangible common equity ratio (non-GAAP) (4) 8.96 9.38 9.21 8.93 8.83 Regulatory capital ratios (Bancorp): Leverage ratio 9.20 % 9.54 % 9.39 % 9.14 % 9.12 % Common equity Tier 1 risk-based ratio 9.59 9.95 9.78 9.65 9.68 Risk-based Tier 1 capital ratio 9.67 10.04 9.87 9.74 9.77 Risk-based total capital ratio 12.41 12.95 12.80 12.72 12.79 Regulatory capital ratios (Bank): Leverage ratio 10.36 % 10.81 % 10.68 % 10.42 % 10.43 % Common equity Tier 1 risk-based ratio 10.88 11.37 11.23 11.12 11.17 Risk-based Tier 1 capital ratio 10.88 11.37 11.23 11.12 11.17 Risk-based total capital ratio 12.20 12.63 12.50 12.40 12.46 Book value per share (GAAP) $ 21.50 $ 20.85 $ 20.36 $ 19.78 $ 19.25 Tangible book value per share (non-GAAP) (5) 15.93 16.06 15.60 15.01 14.66 Net Loan Charge-Off (Recoveries) Detail Net loan charge-offs (recoveries) : Charge-offs $ 115 $ 1,029 $ 964 $ 406 $ 2,676 Recoveries (3 ) (22 ) (37 ) (146 ) (80 ) Net loan charge-offs (recoveries) $ 112 $ 1,007 $ 927 $ 260 $ 2,596 Net loan charge-offs (recoveries) as a % of average loans receivable (annualized) 0.01 % 0.08 % 0.07 % 0.02 % 0.21 % Asset Quality Nonaccrual taxi medallion loans $ 23,024 $ 23,431 $ 25,802 $ 26,498 $ 27,287 Nonaccrual loans (excluding taxi medallion loans) 39,349 26,050 25,519 23,419 20,393 Other real estate owned - - 907 - - Total nonperforming assets $ 62,373 $ 49,481 $ 52,228 $ 49,917 $ 47,680 Performing troubled debt restructurings $ 21,293 $ 21,410 $ 19,681 $ 16,332 $ 8,191 Allowance for loan losses ("ALLL") $ 54,169 $ 38,293 $ 38,771 $ 37,698 $ 36,858 Loans receivable $ 6,009,310 $ 5,113,527 $ 5,110,471 $ 5,090,492 $ 4,972,651 Less: taxi medallion loans 24,575 24,977 27,353 28,054 28,911 Loans receivable (excluding taxi medallion loans) $ 5,984,735 $ 5,088,550 $ 5,083,118 $ 5,062,438 $ 4,943,740 Nonaccrual loans (excluding taxi medallion loans) as a % of loans receivable (excluding taxi medallion loans) 0.66 % 0.51 % 0.50 % 0.46 % 0.41 % Nonaccrual loans as a % of loans receivable 1.04 0.97 1.00 0.98 0.96 Nonperforming assets as a % of total assets 0.86 0.80 0.85 0.82 0.79 ALLL as a % of loans receivable 0.90 0.75 0.76 0.74 0.74 ALLL as a % of nonaccrual loans (excluding taxi medallion loans) 137.7 147.0 151.9 161.0 180.7 ALLL as a % of nonaccrual loans 86.8 77.4 75.5 75.5 77.3 _____________ (4) Tangible common equity divided by tangible assets. (5) Tangible common equity divided by common shares outstanding at period-end. CONNECTONE BANCORP, INC. AND SUBSIDIARIES NET INTEREST MARGIN ANALYSIS (dollars in thousands) For the Three Months Ended March 31, 2020 December 31, 2019 March 31, 2019 Average Average Average Interest-earning assets: Balance Interest Rate (8) Balance Interest Rate (8) Balance Interest Rate (8) Investment securities (1) (2) $ 452,294 $ 3,095 2.75 % $ 423,857 $ 2,737 2.56 % $ 531,083 $ 4,369 3.34 % Loans receivable and loans held-for-sale (2) (3) (4) 5,956,469 73,220 4.94 5,153,715 65,118 5.01 4,907,683 60,597 5.01 Federal funds sold and interest- bearing deposits with banks 148,429 499 1.35 60,705 242 1.58 57,690 357 2.51 Restricted investment in bank stock 27,316 400 5.89 25,261 409 6.42 26,478 457 7.00 Total interest-earning assets 6,584,508 77,214 4.72 5,663,538 68,506 4.80 5,522,934 65,780 4.83 Allowance for loan losses (38,970 ) (39,094 ) (35,499 ) Noninterest-earning assets 560,489 460,163 421,626 Total assets $ 7,106,027 $ 6,084,607 $ 5,909,061 Interest-bearing liabilities: Time deposits 1,962,714 10,371 2.13 $ 1,533,425 9,573 2.48 $ 1,515,249 8,303 2.22 Other interest-bearing deposits 2,660,755 6,841 1.03 2,348,752 6,699 1.13 2,236,630 7,048 1.28 Total interest-bearing deposits 4,623,469 17,212 1.50 3,882,177 16,272 1.66 3,751,879 15,351 1.66 Borrowings 477,121 2,352 1.98 452,837 2,431 2.13 486,687 3,024 2.52 Subordinated debentures (5) 128,913 1,834 5.72 128,830 1,839 5.66 128,585 1,845 5.82 Capital lease obligation 2,303 35 6.11 2,348 35 5.91 2,479 37 6.05 Total interest-bearing liabilities 5,231,806 21,433 1.65 4,466,192 20,577 1.83 4,369,630 20,257 1.88 Noninterest-bearing demand deposits 955,358 844,332 824,115 Other liabilities 54,622 41,910 35,148 Total noninterest-bearing liabilities 1,009,980 886,242 859,263 Stockholders' equity 864,241 732,173 680,168 Total liabilities and stockholders' equity $ 7,106,027 $ 6,084,607 $ 5,909,061 Net interest income (tax equivalent basis) 55,781 47,929 45,523 Net interest spread (6) 3.07 % 2.97 % 2.95 % Net interest margin (7) 3.41 % 3.36 % 3.34 % Tax equivalent adjustment (500 ) (498 ) (571 ) Net interest income $ 55,281 $ 47,431 $ 44,952 _____________ (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 $1,240 , $1,325 , and $1,570 for the three months ended March 31, 2020 , December 31, 2019 and March 31, 2019 , respectively. Amortization expense related to debt issuance costs included in interest expense was $82 , $82 and $83 for the three months ended March 31, 2020 , December 31, 2019 and March 31, 2019 , 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. Source: ConnectOne Bancorp, Inc.

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