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ConnectOne Bancorp, Inc. Reports First Quarter 2016 Results; Delivers Solid Operating Performance and Continued Loan Growth

ENGLEWOOD CLIFFS, N.J., April 26, 2016 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq:CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today announced results for the first quarter ended March 31, 2016. The Company reported first quarter 2016 net income available to common stockholders of $10.4 million, or $0.34 per diluted share, compared with $9.5 million, or $0.31 per diluted share, for the fourth quarter of 2015 and $10.4 million, or $0.34 per diluted share, for the first quarter of 2015.

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 financial measures including net income available to common stockholders excluding non-core items. 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 earnings release to the comparable GAAP measures are provided in the accompanying tables.

First quarter 2016 results reflect the following non-core items, on an after-tax basis: $0.9 million of income resulting from accretion of purchase accounting fair value marks; $0.2 million in additional loan and lease loss provision related to the maturity and extension of acquired portfolio loans; $1.0 million in additional provision associated with the Bank’s New York City taxi medallion loan portfolio; $0.1 million of pension settlement expenses, which had no impact on total stockholders’ equity or book value per share; and $0.1 million in amortization of intangible assets. Excluding noncore items, net income available to common stockholders was $10.9 million, or $0.36 per diluted share, for both the first quarter of 2016 and the sequential fourth quarter of 2015, and $9.9 million, or $0.33 per diluted share, for the first quarter of 2015. (See Supplemental GAAP and non-GAAP Financial Measures for a reconciliation of GAAP earnings and noncore measures for all periods discussed above.)

“We are off to a solid start in 2016,” commented Frank Sorrentino, ConnectOne’s Chairman and CEO. “We executed on our business plan by delivering continued organic loan growth at attractive yields despite the difficult interest rate and regulatory environment currently weighing on our industry. A substantial portion of our loan portfolio is tied to commercial real estate, and our policies and procedures reflect our proficiency in this area, remaining consistent and compliant with regulatory guidance and scrutiny. While many other banks in our region have pulled back from commercial real estate lending due to concentration or other limitations, we continue to originate new loans across all of our lending units. As a result, our loan portfolio increased by $165 million from year-end 2015, reflecting an annualized growth rate in excess of 20%. Return on assets was in excess of 1% and return on tangible equity was in excess of 13% despite an additional $1.5 million of pre-tax reserves set aside for our NYC taxi medallion portfolio. Operating efficiency was approximately 43%, which was slightly higher for ConnectOne due to seasonal factors and one-time items, yet we remain one of the most efficient banks in the nation. Additionally, our Small Business Lending Fund (“SBLF”) preferred stock issued to the U.S. Treasury was repaid during the quarter. Our loan pipeline remains strong, with growth expected to be in the mid- to high-teens as the year progresses.”

Operating Results

Fully taxable equivalent net interest income for the first quarter of 2016 was $32.0 million, an increase of $0.9 million, or 2.8%, from the sequential fourth quarter. This was a result of a 4.1% increase in average interest-earning assets and a one basis-point widening of the net interest rate margin. Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.3 million during the first quarter of 2016 and $1.4 million in the sequential fourth quarter. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.31% in the first quarter of 2016, widening by two basis points from the 2015 sequential fourth quarter adjusted net interest margin of 3.29%. The increase in the adjusted net interest margin in the first quarter of 2016 versus the sequential fourth quarter was attributable to an increase in prepayment fee income, partially offset by a modest increase in funding rates.

Fully taxable equivalent net interest income for the first quarter of 2016 was $32.0 million, an increase of $3.1 million, or 10.7%, from the same quarter of 2015. This was a result of a 17.2% increase in average interest-earning assets due to significant organic loan growth, partially offset by a 23 basis-point contraction of the net interest margin. Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.3 million during the first quarter of 2016 and $1.8 million in the same quarter of 2015. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.31% in the first quarter of 2016, 15 basis points lower than the 2015 first quarter adjusted net interest margin of 3.46%. The reduction in the adjusted net interest margin in the first quarter of 2016 versus the same 2015 period was attributable to a decline in yield on loans combined with an increase in overall funding rates. The decline in loan yields largely reflects the impact of a protracted low interest rate environment, while the increase in the cost of funds was due to the June 30, 2015 issuance of approximately $50 million in subordinated debt, the extension of liability duration in connection with interest rate risk management, and the impact of an increasingly competitive environment for deposit funds.

Noninterest income, excluding net securities gains, totaled $1.2 million in the first quarter of 2016, $1.2 million in the sequential fourth quarter and $1.0 million for the first quarter of 2015. There were no securities sold during the first quarter of 2016. Securities gains were $1.1 million and $0.5 million for the sequential fourth quarter and the first quarter of 2015, respectively. Noninterest income also includes bank-owned life insurance income, deposit and loan fees, annuities and life insurance commissions, and gains on sales of residential mortgages in the secondary market. In total, noninterest income represents a relatively small portion of the Bank’s total revenue.

Noninterest expenses totaled $14.4 million for the first quarter of 2016, an increase of $0.8 million from $13.6 million for the sequential fourth quarter. The increase was a result of higher salary and employee benefits expense due to salary increases, higher payroll tax expense, and severance, as well as higher occupancy and equipment expenses including snow removal and several one-time expense items related to leases and service contracts. Noninterest expenses for the first quarter of 2016 increased by $1.7 million from the prior year quarter, largely attributable to a $1.0 million increase in salary and employee benefits, $0.2 million in professional and consulting expense, $0.2 in occupancy and equipment expense, and $0.1 million in data processing, all resulting from increased levels of business and staff resulting from organic growth.

Income tax expense was $4.8 million for the first quarter of 2016, compared to $4.6 million for the sequential fourth quarter and $5.0 million for the first quarter of 2015, resulting in effective tax rates of 31.5%, 32.6% and 32.6% for the first quarter of 2016, sequential fourth quarter and first quarter of 2015, respectively. The effective tax rate for the full year 2016 is currently expected to be approximately 31.5%.

Asset Quality

The provision for loan and lease losses decreased by $2.1 million to $3.0 million in the first quarter of 2016 from $5.1 million in the sequential fourth quarter. The first quarter of 2016 included $1.5 million in additional specific allocations associated with the Bank’s taxi medallion portfolio, down from $2.5 million added during the sequential fourth quarter. In addition, the fourth quarter of 2015 provision included a $1.3 million specific allocation related to a former operations center of legacy Union Center National Bank that was repositioned as a lease financing receivable.

The provision for loan and lease losses increased by $1.2 million to $3.0 million in the first quarter of 2016 from $1.8 million in the first quarter of 2015. The increase was primarily attributable to $1.5 million of specific allocations to the Bank’s taxi medallion portfolio, partially offset by a reduced level of non-Taxi specific allocations.

As of March 31, 2016, loans secured by New York City taxi medallions totaled $103.2 million, of which $99.9 million was current and $1.4 million was past due 30-59 days. Troubled debt restructurings associated with this portfolio totaled $86.4 million and total nonaccrual loans were $1.9 million. The net average loan-to-value ratio of the medallion portfolio was approximately 92%, assuming valuations of approximately $775 thousand for corporate medallions and $650 thousand for individual medallions. These valuations declined from year-end levels of $800 thousand for corporate and $700 thousand for individual.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $23.1 million at March 31, 2016, $23.3 million at December 31, 2015, and $15.5 million at March 31, 2015. Nonperforming assets as a percent of total assets were 0.57% at March 31, 2016, 0.58% at December 31, 2015, and 0.44% at March 31, 2015. Annualized net charge-offs were 0.06% for the first quarter 2016, 0.00% for the sequential fourth quarter, and 0.01% in the first quarter of 2015. The allowance for loan and lease losses was $29.1 million, representing 0.89% of loans receivable and 135.5% of nonaccrual loans at March 31, 2016. At December 31, 2015, the allowance was $26.6 million representing 0.86% of loans receivable and 128.1% of nonaccrual loans, and at March 31, 2015, the allowance was $15.9 million representing 0.60% of loans receivable and 109.2% of nonaccrual loans. In purchase accounting, any allowance for loan and lease 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 and lease losses plus the credit risk discount to total loans receivable. This non-GAAP ratio was 1.26% at March 31, 2016, 1.28% at December 31, 2015, and 1.20% at March 31, 2015. (See Supplemental GAAP and non-GAAP Financial Measures).

Selected Balance Sheet Items

At March 31, 2016, the Company’s total assets were $4.1 billion, an increase of $74 million from December 31, 2015. Loans receivable were $3.3 billion, reflecting net loan growth (loan originations less pay-downs and pay-offs) of $165 million from December 31, 2015, primarily attributable to multi-family ($32 million, excluding a $28 million loan reclassified during the current quarter as multi-family from other commercial real estate), commercial and industrial (“C&I”) ($32 million), other commercial real estate ($29 million, excluding the aforementioned reclassification) and construction ($74 million). Management’s current intent is to maintain a multi-family portfolio concentration in the range of 25-30% of total loans, while growing the C&I and construction segments. The growth in loans was funded with increases in deposits, borrowings and subordinated debt.

The Company’s stockholders’ equity was $475 million at March 31, 2016, a decrease of $3 million from December 31, 2015. The decrease in stockholders’ equity was due to the $11.25 million payoff of our SBLF preferred stock, offset by an increase of $8 million in retained earnings and approximately $1 million of equity issuance related to stock-based compensation, including the exercise of options. As of March 31, 2016, the Company’s tangible common equity ratio and tangible book value per share were 8.25% and $10.78, respectively. As of December 31, 2015, the tangible common equity ratio and tangible book value per share were 8.18% and $10.51, respectively. Total goodwill and other intangible assets were $150 million as of March 31, 2016 and December 31, 2015.

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 through its 20 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. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except for share data)
March 31, December 31, March 31,
2016 2015 2015
(unaudited) (audited) (unaudited)
ASSETS
Cash and due from banks$ 34,603 $ 31,291 $ 30,127
Interest-bearing deposits with banks 83,656 169,604 58,416
Cash and cash equivalents 118,259 200,895 88,543
Investment securities:
Available-for-sale 191,331 195,770 276,121
Held-to-maturity (fair value of $229,470, $230,558, $240,264) 219,373 224,056 231,720
Loans held for sale - - 1,392
Loans receivable 3,263,813 3,099,007 2,640,739
Less: Allowance for loan and lease losses 29,074 26,572 15,933
Net loans receivable 3,234,739 3,072,435 2,624,806
Investment in restricted stock, at cost 31,487 32,612 24,874
Bank premises and equipment, net 22,652 22,333 20,358
Accrued interest receivable 12,604 12,545 11,513
Bank-owned life insurance 79,412 78,801 52,904
Other real estate owned 1,696 2,549 870
Goodwill 145,909 145,909 145,909
Core deposit intangibles 3,691 3,908 4,584
Other assets 29,847 24,096 22,297
Total assets$ 4,091,000 $ 4,015,909 $ 3,505,891
LIABILITIES
Deposits:
Noninterest-bearing$ 614,507 $ 650,775 $ 479,652
Interest-bearing 2,278,564 2,140,191 2,016,359
Total deposits 2,893,071 2,790,966 2,496,011
Borrowings 646,501 671,587 525,148
Subordinated debentures (net of $763, $812, $0 in debt issuance costs) 54,392 54,343 5,155
Other liabilities 22,309 21,669 23,383
Total liabilities 3,616,273 3,538,565 3,049,697
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - 11,250 11,250
Common stock 374,287 374,287 374,287
Additional paid-in capital 9,324 8,527 7,084
Retained earnings 112,663 104,606 80,526
Treasury stock (16,717) (16,717) (16,717)
Accumulated other comprehensive loss (4,830) (4,609) (236)
Total stockholders' equity 474,727 477,344 456,194
Total liabilities and stockholders' equity$ 4,091,000 $ 4,015,909 $ 3,505,891


CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for per share data)
Three Months Ended
3/31/2016 12/31/2015 3/31/2015
Interest income (unaudited)
Interest and fees on loans $ 35,017 $ 33,686 $ 29,314
Interest and dividends on investment securities:
Taxable 2,140 2,325 2,910
Tax-exempt 883 884 883
Dividends 352 284 220
Interest on federal funds sold and other short-term investments 134 51 43
Total interest income 38,526 37,230 33,370
Interest expense
Deposits 3,939 3,776 3,025
Borrowings 3,267 2,998 2,053
Total interest expense 7,206 6,774 5,078
Net interest income 31,320 30,456 28,292
Provision for loan and lease losses 3,000 5,055 1,825
Net interest income after provision for loan and lease losses 28,320 25,401 26,467
Noninterest income
Annuities and insurance commissions 40 32 86
Bank-owned life insurance 612 620 386
Net gains on sale of loans held for sale 35 51 114
Deposit, loan and other income 515 522 463
Net gains on sale of investment securities - 1,138 506
Total noninterest income 1,202 2,363 1,555
Noninterest expenses
Salaries and employee benefits 7,599 7,205 6,628
Occupancy and equipment 2,247 1,802 2,082
FDIC insurance 595 575 560
Professional and consulting 711 906 494
Marketing and advertising 184 213 194
Data processing 1,024 1,017 900
Amortization of core deposit intangible 217 217 241
Other expenses 1,776 1,644 1,532
Total noninterest expenses 14,353 13,579 12,631
Income before income tax expense 15,169 14,185 15,391
Income tax expense 4,778 4,617 5,012
Net income 10,391 9,568 10,379
Less: Preferred stock dividends 22 28 28
Net income available to common stockholders $ 10,369 $ 9,540 $ 10,351
Earnings per common share:
Basic $ 0.35 $ 0.32 $ 0.35
Diluted 0.34 0.31 0.34
Weighted average common shares outstanding:
Basic 29,995,870 30,033,062 29,757,316
Diluted 30,257,676 30,310,905 30,149,469
Dividends per common share $ 0.075 $ 0.075 $ 0.075


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)
As of
Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
2016 2015 2015 2015 2015
Selected Financial Data
Total assets$ 4,091,000 $ 4,015,909 $ 3,837,426 $ 3,660,057 $ 3,505,891
Loans receivable
Commercial 601,708 570,116 569,605 568,969 562,931
Commercial real estate-other 1,087,388 1,085,615 1,052,982 987,303 983,265
Commercial real estate-multifamily 940,913 881,081 820,732 764,088 685,045
Commercial construction 402,594 328,838 283,623 220,267 181,056
Residential 231,319 233,690 225,158 224,134 226,645
Consumer 1,851 2,454 3,569 2,454 3,581
Gross loans 3,265,773 3,101,794 2,955,669 2,767,215 2,642,523
Unearned net origination fees (1,960) (2,787) (2,288) (1,927) (1,784)
Loans receivable 3,263,813 3,099,007 2,953,381 2,765,288 2,640,739
Securities available for sale 191,331 195,770 224,214 264,098 276,121
Securities held to maturity 219,373 224,056 227,221 232,557 231,720
Goodwill and other intangible assets 149,600 149,817 150,034 150,252 150,493
Deposits
Noninterest bearing 614,507 650,776 586,643 558,388 479,652
Interest bearing 397,829 368,820 334,018 350,321 342,261
Savings 219,865 216,399 220,199 214,244 220,764
Money market 798,203 780,254 743,277 667,675 712,427
Time deposits 862,667 774,717 782,487 778,603 740,907
Total deposits 2,893,071 2,790,966 2,666,624 2,569,231 2,496,011
Borrowings 646,501 671,587 621,674 548,759 525,148
Subordinated debt (net of issuance costs) 54,392 54,343 54,328 55,155 5,155
Total stockholder's equity 474,727 477,344 471,146 463,983 459,194
Quarterly Average Balances
Total assets 4,034,375 3,891,885 3,729,503 3,551,597 3,466,820
Loans receivable
Commercial 585,773 579,512 567,737 555,119 529,801
Commercial real estate (including multi-family) 2,005,872 1,919,263 1,811,745 1,700,399 1,632,050
Commercial construction 361,108 313,223 255,627 200,820 174,664
Residential 236,404 232,022 227,051 230,415 231,624
Consumer 2,670 3,269 3,013 4,137 3,915
Gross loans 3,191,827 3,047,289 2,865,173 2,690,890 2,572,054
Unearned net origination fees (2,397) (2,706) (2,102) (2,131) (1,270)
Loans receivable 3,189,430 3,044,583 2,863,071 2,688,759 2,570,784
Securities available for sale 222,776 219,927 260,211 271,168 289,024
Securities held to maturity 194,474 225,875 229,483 233,145 230,215
Goodwill and other intangible assets 149,741 149,959 150,178 150,407 150,650
Deposits
Noninterest bearing 609,312 608,227 560,129 510,369 481,500
Interest bearing 377,696 356,115 352,155 347,068 349,627
Savings 215,491 216,149 220,481 218,845 222,613
Money market 782,757 756,302 710,768 660,481 707,474
Time deposits 807,801 783,068 787,262 748,780 688,989
Total deposits 2,793,057 2,719,861 2,630,795 2,485,543 2,450,203
Borrowings 684,469 621,615 544,774 565,093 534,052
Subordinated debt 55,155 55,155 55,155 5,704 5,155
Total stockholder's equity 482,503 482,620 471,682 464,004 454,221
Three Months Ended
Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
2016 2015 2015 2015 2015
GAAP Earnings Data
Net interest income 31,320 30,456 29,727 28,678 28,292
Provision for loan and lease losses 3,000 5,055 4,175 1,550 1,825
Net interest income after provision for loan and lease losses 28,320 25,401 25,552 27,128 26,467
Noninterest income
Annuity and insurance commissions 40 32 77 46 86
Bank-owned life insurance 612 620 388 388 386
Net gains on sale of loans held for sale 35 51 63 99 114
Deposit, loan and other income 515 522 1,224 458 463
Insurance recovery - - - 2,224 -
Net gains on sale of investment securities - 1,138 2,067 221 506
Total noninterest income 1,202 2,363 3,819 3,436 1,555
Noninterest expenses
Salaries and employee benefits 7,599 7,205 6,905 6,948 6,628
Occupancy and equipment 2,247 1,802 1,916 1,788 2,082
FDIC insurance 595 575 535 440 560
Professional and consulting 711 906 836 715 494
Marketing and advertising 184 213 247 193 194
Data processing 1,024 1,017 957 829 900
Merger expenses - - - - -
Loss on extinguishment of debt - - - 2,397 -
Amortization of core deposit intangible 217 217 217 241 241
Other expenses 1,776 1,644 1,688 1,423 1,532
Total noninterest expenses 14,353 13,579 13,301 14,974 12,631
Income before income tax expense 15,169 14,185 16,070 15,590 15,391
Income tax expense 4,778 4,617 5,228 5,069 5,012
Net income (GAAP)$ 10,391 $ 9,568 $ 10,842 $ 10,521 $ 10,379
Three Months Ended
Mar. 31, Dec. 31, Sept. 30, Jun. 30, Mar. 31,
2016 2015 2015 2015 2015
Net income (GAAP)$ 10,391 $ 9,568 $ 10,842 $ 10,521 $ 10,379
Less: preferred dividends 22 28 28 28 28
Net income available to common stockholders (GAAP)$ 10,369 $ 9,540 $ 10,814 $ 10,493 $ 10,351
Reconciliation of GAAP Earnings to Operating Earnings
Net gains on sales of securities$ - $ (1,138) $ (2,067) $ (221) $ (506)
Partial settlements of pension obligation 103 106 168 243 559
Insurance recovery - - - (2,223) -
Loss on debt extinguishment - - - 2,397 -
Amortization of intangible assets 217 217 217 241 241
Provision related to maturity and extension of acquired portfolio loans 397 512 590 502 757
Provision related to taxi cab medallion loans 1,487 2,500 2,000 - -
Provision for pending disposition of Union Center operations bldg. - 1,304 - - -
Accretion of purchase accounting fair value marks (1,367) (1,416) (1,340) (1,513) (1,802)
Non-core items 837 2,085 (432) (574) (751)
Income tax (expense) benefit 301 751 (156) (207) (270)
Non-core items, after taxes (36%) 536 1,334 (276) (367) (481)
Core earnings available to common stockholders (non-GAAP)$ 10,905 $ 10,874 $ 10,538 $ 10,126 $ 9,870
Weighted average diluted shares outstanding 30,257,676 30,310,905 30,335,571 30,231,480 30,149,469
Diluted EPS (GAAP)$ 0.34 $ 0.31 $ 0.36 $ 0.35 $ 0.34
Core Diluted EPS (Non-GAAP) (1)$ 0.36 $ 0.36 $ 0.35 $ 0.33 $ 0.33
Return on Assets Measures
Core earnings available to common stockholders (non-GAAP)$ 10,905 $ 10,874 $ 10,538 $ 10,126 $ 9,870
Add: preferred dividends 22 28 28 28 28
Core net income (non-GAAP)$ 10,927 $ 10,902 $ 10,566 $ 10,154 $ 9,898
Average assets$ 4,034,375 $ 3,891,885 $ 3,729,503 $ 3,551,597 $ 3,466,820
Less: average intangible assets (149,741) (149,959) (150,178) (150,407) (150,650)
Average tangible assets$ 3,884,634 $ 3,741,926 $ 3,579,325 $ 3,401,190 $ 3,316,170
Return on avg. assets (GAAP) 1.04% 0.98% 1.15% 1.19% 1.21%
Core return on avg. assets (Non-GAAP) (2) 1.09% 1.11% 1.12% 1.15% 1.16%
Return on avg. tangible assets (Non-GAAP) (3) 1.09% 1.03% 1.22% 1.26% 1.29%
Core return on avg. tangible assets (Non-GAAP) (4) 1.13% 1.16% 1.17% 1.20% 1.21%
_______
(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)Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
2016 2015 2015 2015 2015
Return on Equity Measures
Core earnings available to common stockholders$ 10,905 $ 10,874 $ 10,538 $ 10,126 $ 9,870
Average common equity$ 473,849 $ 467,669 $ 460,432 $ 452,754 $ 442,970
Less: average intangible assets (149,741) (149,959) (150,178) (150,407) (150,650)
Average tangible common equity$ 324,108 $ 317,710 $ 310,254 $ 302,347 $ 292,320
Return on avg. common equity (GAAP) 8.80% 8.09% 9.32% 9.30% 9.48%
Core return on avg. common equity (non-GAAP) (5) 9.26% 9.23% 9.08% 8.97% 9.04%
Return on avg. tangible common equity (non-GAAP) (6) 13.03% 12.07% 13.99% 14.11% 14.56%
Core return on avg. tangible common equity (non-GAAP) (7) 13.53% 13.58% 13.47% 13.43% 13.69%
Efficiency Measures
Total noninterest expenses$ 14,353 $ 13,579 $ 13,301 $ 14,974 $ 12,631
Partial settlements of pension obligation (103) (106) (168) (243) (559)
Loss on debt extinguishment - - - (2,397) -
Charge due to wire fraud - - - - -
Foreclosed property expense (167) (387) (121) (56) (63)
Amortization of intangible assets and fair value marks (217) (217) (217) (241) (241)
Operating non-interest expense$ 13,866 $ 12,869 $ 12,795 $ 12,037 $ 11,768
Net interest income (FTE) 31,985 31,102 30,382 29,316 28,906
Impact of purchase accounting fair value marks (1,335) (1,384) (1,314) (1,487) (1,776)
Noninterest income 1,202 2,363 3,819 3,436 1,555
Less: insurance recovery - - - (2,224) -
Less: net gains on sales of securities - (1,138) (2,067) (221) (506)
Operating revenue$ 31,852 $ 30,943 $ 30,820 $ 28,820 $ 28,179
Operating Efficiency Ratio (non-GAAP) (8) 43.5% 41.6% 41.5% 41.8% 41.8%
Net Interest Margin
Average interest earning assets$ 3,728,958 $ 3,582,408 $ 3,441,151 $ 3,266,382 $ 3,182,894
Net interest income (FTE)$ 31,985 $ 31,102 $ 30,382 $ 29,316 $ 28,906
Impact of purchase accounting fair value marks (1,335) (1,384) (1,314) (1,487) (1,776)
Adjusted net interest income$ 30,650 $ 29,718 $ 29,068 $ 27,829 $ 27,130
Net interest margin (GAAP) 3.45% 3.44% 3.50% 3.60% 3.68%
Adjusted net interest margin (non-GAAP) (9) 3.31% 3.29% 3.35% 3.42% 3.46%
_____
(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.
As of
(dollars in thousands, except share data)Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
2016 2015 2015 2015 2015
Capital Ratios and Book Value per Share
Common equity$ 474,727 $ 466,094 $ 459,896 $ 452,732 $ 444,944
Less: intangible assets (149,600) (149,817) (150,034) (150,252) (150,493)
Tangible common equity$ 325,127 $ 316,277 $ 309,862 $ 302,480 $ 294,451
Total assets$ 4,091,000 $ 4,016,721 $ 3,838,253 $ 3,660,057 $ 3,505,891
Less: intangible assets (149,600) (149,817) (150,034) (150,252) (150,493)
Tangible assets$ 3,941,400 $ 3,866,904 $ 3,688,219 $ 3,509,805 $ 3,355,398
Common shares outstanding 30,163,078 30,085,663 30,197,789 30,196,731 29,864,602
Common equity ratio (GAAP) 11.60% 11.60% 11.98% 12.37% 12.69%
Tangible common equity ratio (non-GAAP) (10) 8.25% 8.18% 8.40% 8.62% 8.78%
Regulatory capital ratios (Bancorp):
Leverage ratio 8.66% 9.07% 9.26% 9.49% 9.45%
Common equity Tier 1 risk-based ratio 9.05% 9.14% 9.33% 9.63% 9.75%
Risk-based Tier 1 capital ratio 9.19% 9.61% 9.82% 10.14% 10.29%
Risk-based total capital ratio 11.35% 11.77% 11.94% 12.26% 10.82%
Regulatory capital ratios (Bank):
Leverage ratio 9.83% 9.96% 10.22% 10.48% 9.41%
Common equity Tier 1 risk-based ratio 10.44% 10.55% 10.83% 11.19% 10.24%
Risk-based Tier 1 capital ratio 10.44% 10.55% 10.83% 11.19% 10.24%
Risk-based total capital ratio 11.23% 11.31% 11.47% 11.74% 10.77%
Book value per share (GAAP)$ 15.74 $ 15.49 $ 15.23 $ 14.99 $ 14.90
Tangible book value per share (non-GAAP) (11) 10.78 10.51 10.26 10.02 9.86
Three Months Ended
Mar. 31, Dec. 31, Sept. 30, Jun. 30, Mar. 31,
2016 2015 2015 2015 2015
NCO Detail by Portfolio
Net loan charge-offs:
Charge-offs$ 512 $ 18 $ 519 $ 334 $ 60
Recoveries (15) (2) (342) (331) (8)
Net loan charge-offs$ 497 $ 16 $ 177 $ 3 $ 52
as a % of average total loans (annualized) 0.06% 0.00% 0.02% 0.00% 0.01%
Asset Quality
Nonaccrual loans$ 21,450 $ 20,737 $ 12,888 $ 12,145 $ 14,585
Other real estate owned 1,696 2,549 3,244 1,564 870
Total nonperforming assets$ 23,146 $ 23,286 $ 16,132 $ 13,709 $ 15,455
Performing troubled debt restructurings$ 95,122 $ 85,925 $ 77,882 $ 77,927 $ 1,731
Loans past due 90 days and still accruing$ - $ - $ 268 $ - $ 638
Nonaccrual loans as a % of loans receivable 0.66% 0.67% 0.44% 0.44% 0.55%
Nonperforming assets as a % of total assets 0.57% 0.58% 0.42% 0.37% 0.44%
Allowance for loan losses as a % of nonaccrual loans 135.5% 128.1% 167.1% 143.9% 109.2%
Total loans receivable$ 3,263,813 $ 3,099,007 $ 2,953,381 $ 2,765,288 $ 2,640,739
Less: acquired loans (824,428) (866,878) (923,210) (1,060,632) (1,110,859)
Loans receivable, excluding acquired loans$ 2,439,385 $ 2,232,129 $ 2,030,171 $ 1,704,656 $ 1,529,880
Allowance for loan losses$ 29,074 $ 26,572 $ 21,533 $ 17,480 $ 15,933
Accretable credit risk discount on acquired loans 12,101 12,955 13,893 14,331 15,800
Total allowance for loan losses and accretable credit risk discount on acquired loans$ 41,175 $ 39,527 $ 35,426 $ 31,811 $ 31,733
Allowance for loan losses as a % of loans receivable 0.89% 0.86% 0.73% 0.63% 0.60%
Allowance for loan losses as a % of loans receivable, excluding acquired loans 1.19% 1.19% 1.06% 1.03% 1.04%
Allowance for loan losses and accretable credit risk discount on loans as a % of loans receivable 1.26% 1.28% 1.20% 1.15% 1.20%
(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
March 31, 2016 December 31, 2015 March 31, 2015
Average Average Average
Interest-earning assets: BalanceInterestRate (7) BalanceInterestRate (7) BalanceInterestRate (7)
Investment securities (1) (2) $ 415,481 $ 3,499 3.39 % $ 442,135 $ 3,686 3.31 % $ 509,931 $ 4,268 3.39 %
Loans receivable (2) (3) (4) 3,189,572 35,206 4.44 3,045,051 33,855 4.41 2,571,552 29,453 4.65
Federal funds sold and interest-
bearing deposits with banks 90,712 134 0.59 65,067 51 0.31 76,138 43 0.23
Restricted investment in bank stock 33,193 352 4.26 30,155 284 3.74 25,273 220 3.54
Total interest-earning assets 3,728,958 39,191 4.23 3,582,408 37,876 4.19 3,182,894 33,984 4.33
Allowance for loan losses (27,221) (22,165) (14,749)
Non-interest earning assets 332,638 331,642 298,675
Total assets $ 4,034,375 $ 3,891,885 $ 3,466,820
Interest-bearing liabilities:
Money market deposits $ 782,757 812 0.42 $ 756,302 840 0.44 $ 707,474 722 0.41
Savings deposits 215,491 157 0.29 216,149 152 0.28 222,613 162 0.29
Time deposits 807,801 2,535 1.26 783,068 2,446 1.24 688,989 1,818 1.07
Other interest-bearing deposits 377,696 435 0.46 356,115 338 0.38 349,628 323 0.37
Total interest-bearing deposits 2,183,745 3,939 0.73 2,111,634 3,776 0.71 1,968,704 3,025 0.62
Borrowings 684,469 2,413 1.42 617,024 2,159 1.39 534,052 1,968 1.49
Capital lease obligation 2,874 43 6.02 2,904 44 6.01 2,989 45 6.10
Subordinated debentures (8) 55,155 811 5.91 55,155 795 5.72 5,155 40 3.14
Total interest-bearing liabilities 2,926,243 7,206 0.99 2,786,717 6,774 0.96 2,510,900 5,078 0.82
Demand deposits 609,312 603,611 481,500
Other liabilities 16,317 22,638 20,200
Total noninterest-bearing liabilities 625,629 626,249 501,700
Stockholders' equity 482,503 478,919 454,220
Total liabilities and stockholders' equity$ 4,034,375 $ 3,891,885 $ 3,466,820
Net interest income (tax equivalent basis) 31,985 31,102 28,906
Net interest spread (5) 3.24 % 3.23 % 3.51 %
Net interest margin (6) 3.45 % 3.44 % 3.68 %
Tax equivalent adjustment (665) (646) (614)
Net interest income $ 31,320 $ 30,456 $ 28,292
(1) Average balances are calculated on amortized cost.
(2) Interest income is presented on a tax equivalent basis using 35% 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.
(8) Amount does not reflect netting of debt issuance costs of $763, $812 and $0 for the three months ended March 31, 2016,
December 31, 2015 and March 31, 2015, respectively.


Investor Contact: William S. Burns Executive VP & CFO 201.816.4474; bburns@cnob.com Media Contact: Christine Marra, MWW 646.215.6888; cmarra@mww.com

Source:ConnectOne Bancorp, Inc.