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ConnectOne Bancorp, Inc. Reports Third Quarter 2014 Results

Merger and Systems Conversion Completed; Cost Savings on Track for Year-End 2014

Sequential Loan Portfolio Growth of Over $120 Million; $70 Million Repurchase of FHLB Borrowings

ENGLEWOOD CLIFFS, N.J., Oct. 24, 2014 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq:CNOB) (the "Company" or "ConnectOne"), parent company of ConnectOne Bank (the "Bank"), today announced results for the third quarter ended September 30, 2014. On July 1, 2014, the merger of equals with Center Bancorp and the legacy ConnectOne was completed; therefore third quarter 2014 results reflect the operations of the combined entity. Historical financial information includes only the operations of Center Bancorp, Inc., the legal and accounting acquirer in the transaction. On July 1, 2014, the combined company changed its name to ConnectOne.

The Company reported net income available to common stockholders of $1.7 million, or $0.06 per diluted share, for the third quarter of 2014, compared with net income available to common stockholders of $5.1 million, or $0.31 per diluted share, for the prior-year period.

In addition to evaluating its results of operations in accordance with accounting principles generally accepted in the United States of America ("GAAP"), ConnectOne routinely supplements its evaluation with an analysis of certain non-GAAP financial 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, and facilitates comparisons with the performance of peers. Reconciliations of non-GAAP disclosures used in this press release to the comparable GAAP measure are provided in the accompanying tables.

Third quarter 2014 results include several non-core items including, on an after-tax basis, $5.6 million in merger-related charges, $2.7 million in losses on the repurchase of FHLB borrowings, $1.5 million in income recorded as a result of purchase accounting, and $0.1 million in net securities gains. Third quarter 2013 results include $0.2 million in after-tax net securities gains. Net income available to common stockholders excluding such non-core items, for the third quarter of 2014 was $8.4 million, or $0.28 per diluted share and, for the third quarter of 2013, $4.9 million, or $0.30 per diluted share.

Frank Sorrentino, ConnectOne's Chairman and CEO noted, "Following the successful completion of our compelling merger transaction, our systems integration and transition to ConnectOne's operating platform was completed without delay on July 21, 2014. This accelerated approach enabled ConnectOne to achieve solid progress in realizing meaningful cost efficiencies, as forecasted. Additionally, as our staff worked diligently in making the merger an operational success, we were simultaneously able to continue our organic growth. Loans receivable and total deposits, excluding the impact of purchase accounting, each increased by more than $120 million during the third quarter 2014, or more than 20% on an annualized basis, from the combined legacy ConnectOne and Center Bancorp levels as of June 30, 2014. We have expanded our loan generation and support teams, while achieving meaningful efficiencies in executive, back office and administrative areas." Mr. Sorrentino added, "At the end of the third quarter, we extinguished $70 million of structured putable FHLB borrowings with a weighted average cost of 3.10%. The repurchase transaction and subsequent refinancing activity will improve both our earnings and interest rate risk profile in future periods. In the coming months, we expect to close two underperforming retail branches and to open our first location in New York City, focusing on loan production. We also continue to selectively look at opportunistic M&A transactions that will be complementary to our existing business plan. We remain committed to maintaining the ConnectOne culture while continuing to achieve organic loan portfolio growth at annual rates of approximately 15% or greater."

Operating Results

Fully taxable equivalent ("FTE") net interest income for the third quarter of 2014 totaled $28.1 million, an increase of $15.8 million, or 127.1%, from the year ago quarter, a result of a 103.6% increase in average interest-earning assets and a 35 basis-point widening of the net interest rate margin both due to the merger. Included in net interest income during the third quarter of 2014 was $2.9 million of accretion and amortization of purchase accounting adjustments. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.29%, which was 2 basis points lower than the prior-year quarter, and also was narrowed by two factors. First, commencing July 1, 2014, the Bank made a decision to invest essentially all excess cash balances in an interest earning account at the Federal Reserve Bank earning 25 basis points. Previously, these cash balances were held in non-interest earning bank accounts and, therefore, were not included in the computation of net interest margin. This change in procedure increases net interest income and earnings, but decreases net interest margin. Second, during the third quarter of 2014, the Bank increased its liquidity temporarily as a precautionary measure during the merger of the two banks' operating systems. These two factors contributed to an approximately 15 basis point reduction in net interest margin.

Non-interest income, excluding securities gains, totaled $1.1 million in the third quarter of 2014, a decline of $0.1 million from $1.2 million in the prior-year comparable quarter. Securities gains were $0.1 million and $0.3 million for the third quarter of 2014 and 2013, respectively. Non-interest income includes bank-owned life insurance income, deposit and loan fees, annuities and life insurance commissions, and gains on sale of residential mortgage in the secondary market and represents a relatively small portion of the Bank's total revenue. Management has made a strategic decision to de-emphasize service charges, focusing instead on customer growth and retention. This strategy was particularly important during the merger conversion process as the implementation of certain fees and other charges were intentionally delayed or waived. The Company reported that customer retention is strong and that we expect modest increases in fee generation in future periods.

Non-interest expenses totaled $25.4 million for the third quarter of 2014 and $6.2 million for the prior year quarter. The following non-operating items were included in non-interest expense for the third quarter of 2014: merger-related charges ($8.8 million), loss on debt extinguishment ($4.6 million) and amortization of intangibles ($0.2 million). Excluding these non-operating items, non-interest expenses were $11.8 million for the current year quarter. Merger cost savings of $7.0 million of the combined companies' expense base were estimated when the transaction was announced in January 2014. Management estimates that approximately 40% of these cost saves were reflected in the third quarter of 2014 and that the Company is on-track to realize more than 90% by year-end 2014. The Company's operating efficiency ratio (see Supplemental GAAP and non-GAAP Financial Measures) was 45.0% in the third quarter of 2014 and 45.6% in the prior-year third quarter. Management expects the efficiency ratio to improve further as the full impact of merger cost savings is realized.

Income tax expense was $0.3 million and $2.0 million for the third quarter of 2014 and 2013, respectively, while the effective tax rates were 12.5% and 27.8% for the third quarter of 2014 and 2013, respectively. The decrease in the effective tax rate for 2014 reflects a lower level of taxable income. The Company's effective tax rate for the third quarter of 2014 on a core basis (i.e., excluding the aforementioned non-core items) was approximately 33%.

Asset Quality

Nonperforming assets, which includes nonaccrual loans and other real estate owned, totaled $7.5 million at September 30, 2014, $4.3 million at June 30, 2014 and $2.3 million at September 30, 2013. Nonperforming assets as a percent of total assets was 0.22% at September 30, 2014, 0.26% at June 30, 2014 and 0.14% at September 30, 2013. Annualized net charge-offs was 0.03% for the third quarter 2014; there were no net charge-offs in the third quarter of 2013. The allowance for loan losses was $12.1 million, representing 0.50% of loans receivable and 199.2% of nonaccrual loans at September 30, 2014. At June 30, 2013, the allowance was $10.8 million representing 1.08% of loans receivable and 268.5% of nonaccrual loans, and at September 30, 2013, the allowance was $10.2 million representing 1.06% of loans receivable and 501.7% of nonaccrual loans. In purchase accounting, any allowance for loan losses on an acquired loan portfolio is reversed and a credit risk discount is applied directly to the acquired loan balances. In Management's opinion, a useful non-GAAP metric is the ratio of allowance for loan losses plus the credit risk discount to total loans receivable. This non-GAAP ratio was 1.28% at September 30, 2014 and 1.11% at both June 30, 2014 and September 30, 2013. The increase in this non-GAAP measure was due to the high growth characteristics of the purchased legacy ConnectOne loan portfolio. (See Supplemental GAAP and non-GAAP Financial Measures).

Company Financial Condition

At September 30, 2014, the balance sheet reflected the merger of Center Bancorp and the legacy ConnectOne. The Company's total assets were $3.4 billion, an increase of $1.7 billion from December 31, 2013. Loans were $2.4 billion, an increase of $1.5 billion from December 31, 2013. Deposits were $2.5 billion, an increase of $1.1 billion from December 31, 2013.

The Company's stockholders' equity was $440.9 million at September 30, 2014, a $272.3 increase from December 31, 2013. The increase in stockholders' equity was mainly the result of legacy ConnectOne Bank purchase accounting transactions, which increased capital by $269.4 million.

As of September 30, 2014, the tangible common equity ratio and tangible book value per share were 8.69% and $9.40, respectively. As of December 31, 2013, the Company's tangible common equity ratio and tangible book value per share were 8.48% and $8.58, respectively. Total goodwill and other intangible assets were $151.0 million as of September 30, 2014, an increase of $134.2 million from December 31, 2013.

About ConnectOne Bancorp, Inc.

ConnectOne is a New Jersey corporation and a registered bank holding company pursuant to the Bank Holding Company Act of 1956, as amended, and serves as the holding company for ConnectOne Bank ("the Bank"). The Bank is a community-based, full-service New Jersey-chartered commercial bank that was founded in 2005. The Bank operates from its headquarters located at 301 Sylvan Avenue in the Borough of Englewood Cliffs, Bergen County, New Jersey, and following consummation of the merger on July 1, 2014, through its 23 other banking offices.

For more information visit 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.

CONNECTONE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(in thousands, except for share data) September 30, December 31,
2014 2013
(unaudited)
ASSETS
Cash and due from banks $ 138,013 $ 82,692
Securities available for sale 307,502 323,070
Securities held to maturity, fair value of $222,393 at 2014 and $210,958 at 2013 217,567 215,286
Loans held for sale 920 --
Loans receivable 2,426,765 960,943
Less: Allowance for loan losses (12,118) (10,333)
Net loans receivable 2,414,647 950,610
Investment in restricted stock, at cost 17,922 8,986
Bank premises and equipment, net 20,900 13,681
Accrued interest receivable 10,976 6,802
Other real estate owned 1,442 220
Goodwill 145,908 16,804
Bank-owned life insurance 51,999 35,734
Due from brokers for investment securities -- 8,759
Core deposit intangible 5,070 24
Other assets 23,391 10,414
Total assets $ 3,356,257 $ 1,673,082
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 471,151 $ 227,370
Interest-bearing 1,998,017 1,114,635
Total deposits 2,469,168 1,342,005
Borrowings 420,960 146,000
Subordinated debentures 5,155 5,155
Other liabilities 20,074 11,338
Total liabilities 2,915,357 1,504,498
Commitments and Contingencies
Stockholders' Equity
Preferred stock, $1,000 liquidation value per share, authorized 5,000,000 shares; issued and outstanding 11,250 shares of Series B preferred stock at September 30, 2014 and December 31, 2013; total liquidation value of $11,250,000 11,250 11,250
Common stock, no par value, authorized 50,000,000 shares; issued 31,707,959 shares at September 30, 2014 and 18,477,412 at December 31, 2013; outstanding 29,644,037 shares at September 30, 2014 and 16,369,012 at December 31, 2013 374,287 110,056
Additional paid in capital 6,985 4,986
Retained earnings 64,517 61,914
Treasury stock, at cost (2,063,922 common shares at September 30, 2014 and 2,108,400 at December 31, 2013) (16,717) (17,078)
Accumulated other comprehensive income (loss) 578 (2,544)
Total stockholders' equity 440,900 168,584
Total liabilities and stockholders' equity $ 3,356,257 $ 1,673,082
CONNECTONE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(dollars in thousands, except per share data)
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Interest income
Loans receivable, including fees $ 28,098 $ 10,148 $ 48,670 $ 29,963
Securities 3,808 4,267 11,680 12,281
Dividends 349 126 639 378
Other interest income 88 -- 88 2
Total interest income 32,343 14,541 61,077 42,624
Interest expense
Deposits 2,725 1,330 5,343 3,897
Borrowings 2,072 1,489 4,914 4,407
Total interest expense 4,797 2,819 10,257 8,304
Net interest income 27,546 11,722 50,820 34,320
Provision for loan losses 1,300 -- 2,209 --
Net interest income after provision for loan losses 26,246 11,722 48,611 34,320
Non-interest income
Annuity and insurance commissions 94 92 298 338
Gains on sales of loans 65 26 144 255
Net gains on sales of securities 111 343 2,100 1,286
Income on bank owned life insurance 401 265 912 1,104
Deposit, loan and other income 502 817 1,968 2,112
Total non-interest income 1,173 1,543 5,422 5,095
Non-interest expenses
Salaries and employee benefits 6,243 3,247 13,153 10,072
Occupancy and equipment 1,781 839 3,658 2,556
Professional fees 530 352 1,289 801
Advertising and promotion 209 94 276 257
Data processing 902 362 1,761 1,058
FDIC insurance 504 283 1,092 804
Merger related expenses 8,784 -- 10,573 --
Loss on extinguishment of debt 4,550 -- 4,550 --
Amortization of CDI 248 6 260 19
Other expenses 1,649 1,022 3,028 3,252
Total non-interest expenses 25,400 6,205 39,640 18,819
Income before income tax expense 2,019 7,060 14,393 20,596
Income tax expense 253 1,966 3,851 5,655
Net income 1,766 5,094 10,542 14,941
Preferred stock dividends and accretion 28 28 84 112
Net income available to common stockholders $ 1,738 $ 5,066 $ 10,458 $ 14,829
Earnings per common share:
Basic $ 0.06 $ 0.31 $ 0.50 $ 0.91
Diluted 0.06 0.31 0.49 0.91
Weighted average common shares outstanding:
Basic 29,665,433 16,349,480 20,870,363 16,348,875
Diluted 30,115,520 16,385,155 21,342,466 16,380,970

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
(dollars in thousands, except share data)
Three Months Ended
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2014 2014 2014 2013 2013
Earnings, EPS and Operating Data
Net income (GAAP) $ 1,766 $ 4,378 $ 4,398 $ 4,984 $ 5,094
Less: preferred dividends 28 28 28 29 28
Net income available to common stockholders (GAAP) $ 1,738 $ 4,350 $ 4,370 $ 4,955 $ 5,066
Net gains on sales of securities (111) (574) (1,415) (449) (343)
Merger related expenses 8,784 729 1,060 -- --
Loss on debt extinguishment 4,550 -- -- -- --
Amortization of intangible assets 248 6 6 6 6
Accretion of purchase accounting fair value marks (2,892) 7 (14) (1) (9)
Non-core items 10,579 168 (363) (444) (346)
Income tax expense (benefit) 3,907 59 (143) (167) (130)
Non-core items, after taxes 6,672 109 (220) (277) (216)
Core earnings available to common stockholders (non-GAAP) $ 8,410 $ 4,459 $ 4,150 $ 4,678 $ 4,850
Weighted average diluted shares outstanding 30,115,520 16,430,376 16,405,540 16,396,931 16,385,155
Diluted EPS (GAAP) $ 0.06 $ 0.26 $ 0.27 $ 0.30 $ 0.31
Core Diluted EPS (Non-GAAP) (1) $ 0.28 $ 0.27 $ 0.25 $ 0.29 $ 0.30
Return on Assets Measures
Core earnings available to common stockholders (non-GAAP) $ 8,410 $ 4,459 $ 4,150 $ 4,678 $ 4,850
Add: preferred dividends 28 28 28 29 28
Core net income (non-GAAP) $ 8,438 $ 4,487 $ 4,178 $ 4,707 $ 4,878
Average assets $ 3,350,599 $ 1,657,440 $ 1,676,936 $ 1,661,735 $ 1,652,012
Less: average intangible assets 151,142 16,819 16,825 16,831 16,838
Average tangible assets $ 3,199,457 $ 1,640,621 $ 1,660,111 $ 1,644,904 $ 1,635,174
Return on avg. assets (GAAP) 0.21% 1.06% 1.06% 1.19% 1.22%
Core return on avg. assets (Non-GAAP) (2) 1.00% 1.09% 1.01% 1.12% 1.17%
Return on avg. tangible assets (Non-GAAP) (3) 0.24% 1.06% 1.05% 1.20% 1.24%
Core return on avg. tangible assets (Non-GAAP) (4) 1.05% 1.10% 1.02% 1.14% 1.18%
_______
(1) Represents core earnings available to common stockholders divided by weighted average diluted shares outstanding.
(2) Core net income divided by average assets.
(3) Net income excluding amortization of intangible assets divided by average tangible assets.
(4) Core net income divided by average tangible assets.
Three Months Ended
(dollars in thousands, except share data) Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2014 2014 2014 2013 2013
Return on Equity Measures
Core earnings available to common stockholders $ 8,410 $ 4,459 $ 4,150 $ 4,678 $ 4,850
Average common equity $ 432,331 $ 165,301 $ 161,934 $ 157,023 $ 151,962
Less: average intangible assets 151,142 16,819 16,825 16,831 16,838
Average tangible common equity $ 284,482 $ 148,482 $ 145,109 $ 140,192 $ 135,124
Return on avg. common equity (GAAP) 1.59% 10.56% 10.94% 12.52% 13.23%
Core return on avg. common equity (non-GAAP) (5) 7.72% 10.82% 10.39% 11.82% 12.66%
Return on avg. tangible common equity (non-GAAP) (6) 2.63% 11.63% 11.96% 14.03% 14.88%
Core return on avg. tangible common equity (non-GAAP) (7) 11.73% 12.04% 11.60% 13.24% 14.24%
Efficiency Measures
Total non-interest expenses $ 25,400 $ 6,744 $ 7,496 $ 6,459 $ 6,205
Merger related expenses (8,784) (729) (1,060) -- --
Loss on debt extinguishment (4,550) -- -- -- --
Amortization of intangible assets and fair value marks (224) (6) (7) (6) (7)
Operating non-interest expense $ 11,842 $ 6,009 $ 6,429 $ 6,453 $ 6,198
Net interest income (FTE) 28,146 12,252 12,255 12,561 12,396
Impact of purchase accounting fair value marks (2,868) 7 (14) (1) (9)
Non-interest income 1,173 1,724 2,521 1,756 1,543
Less: net gains on sales of securities (111) (574) (1,415) (449) (343)
Operating revenue $ 26,340 $ 13,409 $ 13,347 $ 13,867 $ 13,587
Operating Efficiency Ratio (non-GAAP) (8) 45.0% 44.8% 48.2% 46.5% 45.6%
Net Interest Margin
Average interest earning assets $ 3,050,564 $ 1,491,297 $ 1,498,610 $ 1,525,941 $ 1,498,480
Net interest income (FTE) $ 28,146 $ 12,252 $ 12,255 $ 12,561 $ 12,396
Impact of purchase accounting fair value marks (2,868) 7 (14) (1) (9)
Adjusted net interest income $ 25,278 $ 12,259 $ 12,241 $ 12,560 $ 12,387
Net interest margin (GAAP) 3.66% 3.29% 3.27% 3.29% 3.31%
Adjusted net interest margin (non-GAAP) (9) 3.29% 3.29% 3.27% 3.29% 3.31%
_____
(5) Core earnings available to common stockholders divided by average common equity.
(6) Earnings available to common stockholders excluding amortization of intangibles divided by average tangible common equity.
(7) Core earnings available to common stockholders divided by average tangible common equity.
(8) Operating noninterest expense divided by operating revenue.
(9) Adjusted net interest income divided by average interest earning assets.
For the quarter ended
(dollars in thousands, except share data) Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2014 2014 2014 2013 2013
Capital Ratios and Book Value per Share
Common equity $ 429,650 $ 167,028 $ 162,563 $ 157,334 $ 153,888
Less: intangible assets (150,979) (16,815) (16,821) (16,828) (16,833)
Tangible common equity $ 278,671 $ 150,213 $ 145,742 $ 140,506 $ 137,055
Total assets $ 3,356,257 $ 1,665,809 $ 1,676,160 $ 1,673,082 $ 1,644,416
Less: intangible assets (150,979) (16,815) (16,821) (16,828) (16,833)
Tangible assets $ 3,205,278 $ 1,648,994 $ 1,659,339 $ 1,656,254 $ 1,627,583
Common shares outstanding 29,644,037 16,413,490 16,369,012 16,369,012 16,369,012
Common equity ratio (GAAP) 12.80% 10.03% 9.70% 9.40% 9.36%
Tangible common equity ratio (non-GAAP) (10) 8.69% 9.11% 8.78% 8.48% 8.42%
Regulatory capital ratios:
Leverage ratio 9.03% 10.08% 9.79% 9.69% 9.52%
Risk-based Total 11.46% 13.43% 13.22% 12.90% 12.49%
Book value per share (GAAP) $ 14.49 $ 10.18 $ 9.93 $ 9.61 $ 9.40
Tangible book value per share (non-GAAP) (11) 9.40 9.15 8.90 8.58 8.37
Asset Quality
Nonaccrual loans $ 6,083 $ 4,032 $ 3,409 $ 3,137 $ 2,032
Other real estate owned 1,442 220 220 220 220
Total non-performing assets $ 7,525 $ 4,252 $ 3,629 $ 3,357 $ 2,252
Performing troubled debt restructurings $ 4,782 $ 1,586 $ 5,706 $ 5,746 $ 1,658
Loans past due 90 days and still accruing -- 144 237 -- --
Nonaccrual loans as a % of loans receivable 0.25% 0.40% 0.35% 0.33% 0.21%
Nonperforming assets as a % of total assets 0.22% 0.26% 0.22% 0.20% 0.14%
Allowance for loan losses as a % of nonaccrual loans 199.2% 268.5% 311.9% 329.4% 501.7%
Annualized net charge-offs as a % of average loans 0.03% 0.04% 0.13% 0.09% 0.00%
Total loans receivable $ 2,426,765 $ 1,006,256 $ 987,529 $ 960,943 $ 957,492
Acquired loans 1,286,482 29,821 32,643 33,817 35,123
Loans receivable, excluding acquired loans $ 1,140,283 $ 976,435 $ 954,886 $ 927,126 $ 922,369
Allowance for loan losses $ 12,118 $ 10,825 $ 10,633 $ 10,333 $ 10,194
Accretable credit risk discount on acquired loans 18,835 371 429 445 472
Total Allowance for loan losses and accretable credit risk discount on acquired loans $ 30,953 $ 11,196 $ 11,062 $ 10,778 $ 10,666
Allowance for loan losses as a % of loans receivable 0.50% 1.08% 1.08% 1.08% 1.06%
Allowance for loan losses as a % of loans receivable, excluding acquired loans 1.06% 1.11% 1.11% 1.11% 1.11%
Allowance for loan losses and accretable credit risk discount on loans as a % of loans receivable 1.28% 1.11% 1.12% 1.12% 1.11%
_______
(10) Tangible common equity divided by tangible assets.
(11) 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
September 30, 2014 September 30, 2013
Average Average Average Average
(tax equivalent basis, dollars in thousands) Balance Interest Rate (7) Balance Interest Rate (7)
Interest-earning assets:
Investment securities (1) (2) 520,568 4,372 3.33% 567,971 4,914 3.46%
Loans (2) (3) (4) 2,344,410 28,218 4.78% 921,523 10,202 4.43%
Federal funds sold and interest-earning deposits with banks 163,471 88 0.21% -- -- --
Restricted investment in bank stock 21,107 265 4.98% 8,986 99 4.41%
Total interest-earning assets 3,049,556 32,943 4.29% 1,498,480 15,215 4.06%
Allowance for loan losses (11,250) (10,200)
Non-interest earning assets 312,293 163,732
Total assets $ 3,350,599 $ 1,652,012
Interest-bearing liabilities:
Money Market deposits $ 698,686 $ 677 0.38% $ 427,387 $ 485 0.45%
Savings deposits 233,041 144 0.25% 182,382 151 0.33%
Time deposits 676,291 1,474 0.86% 170,996 381 0.89%
Other interest-bearing deposits 375,041 429 0.45% 305,992 313 0.41%
Total interest-bearing deposits 1,983,059 2,724 0.54% 1,086,757 1,330 0.49%
Borrowings and FHLB advances 430,238 1,988 1.83% 146,598 1,449 3.95%
Capital lease 3,044 45 5.87% -- -- --
Subordinated debentures 5,155 40 3.08% 5,155 40 3.10%
Total interest-bearing liabilities 2,421,496 4,797 0.79% 1,238,510 2,819 0.91%
Demand deposits 465,369 238,194
Other liabilities 17,349 12,751
Total non interest-bearing liabilities 482,718 250,945
Stockholders' equity 446,385 162,557
Total liabilities and stockholders' equity $ 3,350,599 $ 1,652,012
Net interest income (tax equivalent basis) 28,146 12,396
Net interest spread (5) 3.49% 3.15%
Net interest margin (6) 3.66% 3.31%
Tax equivalent adjustment (600) (674)
Net interest income $ 27,546 $ 11,722
_______
(1) Average balances are calculated on amortized cost.
(2) Interest income is presented on a tax equivalent basis using 35 percent federal tax rate.
(3) Includes loan fee income.
(4) Loans include non-accrual loans.
(5) 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.
(6) Represents net interest income on a tax equivalent basis divided by average total interest-earning assets.
(7) Rates are annualized.

CONTACT: Investor Contact: William S. Burns Executive VP & CFO 201.816.4474; bburns@cnob.com Media Contact: Christine Marra, MWW 646-215-6888; cmarra@mww.comSource:ConnectOne Bank