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ConnectOne Bancorp, Inc. Reports Record Net Income for Second Quarter 2016

ENGLEWOOD CLIFFS, N.J., July 22, 2016 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq:CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today announced results for the second quarter ended June 30, 2016. The Company reported net income available to common stockholders of $10.9 million, or $0.36 per diluted share, compared with net income available to common stockholders of $10.4 million, or $0.34 per diluted share, for the first quarter of 2016 and $10.5 million, or $0.35 per diluted share, for the second quarter of 2015.

Frank Sorrentino, ConnectOne’s Chairman and CEO stated, “We are extremely pleased with ConnectOne’s second quarter performance, highlighted by record quarterly earnings which were achieved despite an additional $1.75 million of pre-tax reserves set aside for our NYC-taxi medallion portfolio. Specific reserves against this portfolio now total 7.6%. Our deposits increased by $308 million, or 11%, to $3.2 billion at June 30, 2016 from March 31, 2016, while average deposits for the second quarter increased by 8% over the sequential quarter. While some of these deposits are transitory, our focus on core deposit growth remains solid. Net growth in our loan portfolio was $112 million for the current quarter, slightly below recent levels, but our pipeline remains strong and we continue to expect mid- to high-teens loan growth for 2016. For the current quarter, return on assets was in excess of 1%, return on tangible equity was in excess of 13%, and the efficiency ratio was 42%, placing us among the best performing banking institutions. Looking ahead, we remain well-positioned to execute on our business strategies and realize strong growth while continuing to create long-term shareholder value.”

Operating Results

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.

Second quarter 2016 results reflect the following non-core items: $1.3 million of income resulting from accretion of purchase accounting fair value marks; $0.2 million in additional loan loss provision related to the maturity and extension of acquired portfolio loans; $1.8 million in additional provision associated with the Bank’s New York City taxi medallion loan portfolio; $0.1 million of net securities gains; $0.1 million of pension settlement expenses, which had no impact on total stockholders’ equity or book value per share, and $0.2 million in amortization of intangible assets. Excluding non-core items, along with related income tax impact, net income available to common stockholders was $11.4 million, or $0.38 per diluted share, for the second quarter of 2016, $10.9 million, or $0.36 per diluted share, for the first quarter of 2016, and $10.1 million, or $0.33 per diluted share, for the second quarter of 2015.

Fully taxable equivalent net interest income for the second quarter of 2016 was $33.1 million, an increase of $1.1 million, or 3.5%, from the first quarter of 2016. This was the result of a 4.9% increase in average interest-earning assets, offset by a 5 basis-point contraction of the net interest rate margin. Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.2 million during the second quarter of 2016 and $1.3 million in the first quarter of 2016. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.28% in the second quarter of 2016, contracting by 3 basis points from the first quarter of 2016 adjusted net interest margin of 3.31%. The decrease in the adjusted net interest margin was primarily attributable to an increase in average cash balances.

Fully taxable equivalent net interest income for the second quarter of 2016 was $33.1 million, an increase of $3.8 million, or 13.0%, from the same quarter of 2015. This was a result of a 19.8% increase in average interest-earning assets due to significant organic loan growth, partially offset by a 20 basis-point contraction of the net interest margin. Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.2 million during the second quarter of 2016 and $1.5 million in the same quarter of 2015. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.28% in the second quarter of 2016, 14 basis points lower than the 2015 second quarter adjusted net interest margin of 3.42%. The reduction in the adjusted net interest margin was due to a higher level of cash balances, the June 30, 2015 issuance of $50 million in subordinated debentures and the impact of a protracted low-interest rate environment.

Noninterest income represents a relatively small portion of the Bank’s total revenue. Noninterest income totaled $1.6 million in the second quarter of 2016, $1.2 million in the first quarter of 2016 and $3.4 million in the second quarter of 2015. Securities gains were $0.1 million for the second quarter of 2016, zero for the first quarter of 2016 and $0.2 million for the second quarter of 2015. The second quarter of 2016 included a gain of $0.2 million on the sale of one OREO property, and the second quarter of 2015 included an insurance recovery of $2.2 million. 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.

Noninterest expenses totaled $14.4 million for both the second and first quarters of 2016. Salaries and employee benefits increased by $0.2 million and were offset by $0.2 million of decreases in occupancy and equipment and other miscellaneous expenses. Noninterest expenses for the second quarter of 2015 totaled $15.0 million and included a loss on debt extinguishment of $2.4 million. Excluding the debt extinguishment charge, noninterest expenses increased by $1.8 million in the second quarter of 2016 from the prior year quarter. This increase was largely attributable to a $0.8 million increase in salaries and employee benefits, $0.4 million in occupancy and equipment expense, $0.2 million in data processing, and $0.4 million in other expenses, all resulting from increased levels of business and staff resulting from organic growth.

Income tax expense was $5.0 million for the second quarter of 2016, compared to $4.8 million for the first quarter of 2016 and $5.1 million for the second quarter of 2015, resulting in effective tax rates of 31.5% in 2016 and 32.5% in 2015. The effective tax rate for the full year 2016 is expected to remain at approximately 31.5%.

Asset Quality

The provision for loan and lease losses increased to $3.8 million in the second quarter of 2016 from $3.0 million in the first quarter of 2016, and from $1.6 million in the second quarter of 2015. The increases were largely attributable to additional reserves specifically allocated to the Bank’s taxi medallion portfolio.

As of June 30, 2016, loans secured by New York City taxi medallions totaled $103.1 million. Troubled debt restructurings associated with this portfolio totaled $88.0 million and total nonaccrual loans were $3.9 million, up from $86.4 million and $1.9 million as of March 31, 2016. Specific reserves for taxi medallion loans totaled $7.8 million, or 7.6%, of total taxi medallion portfolio. The Bank’s valuation of corporate medallions, which represent approximately 95% of total exposure, was approximately $750 thousand as of June 30, 2016, down from approximately $775 thousand as of March 31, 2016.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $23.9 million at June 30, 2016, $23.3 million at December 31, 2015, and $13.7 million at June 30, 2015. Nonperforming assets as a percent of total assets were 0.56% at June 30, 2016, 0.58% at December 31, 2015, and 0.37% at June 30, 2015. Annualized net charge-offs were 0.01% for the second quarter of 2016, 0.06% for the first quarter of 2016, and 0.00% for the second quarter of 2015. The allowance for loan and lease losses was $32.8 million, representing 0.97% of loans receivable and 149.5% of nonaccrual loans at June 30, 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 June 30, 2015, the allowance was $17.5 million representing 0.63% of loans receivable and 143.9% 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 1.30% at June 30, 2016, 1.28% at December 31, 2015, and 1.17% at June 30, 2015. (See Supplemental GAAP and non-GAAP Financial Measures).

Selected Balance Sheet Items

At June 30, 2016, the Company’s total assets were $4.3 billion, an increase of $247 million from December 31, 2015. Loans receivable at June 30, 2016 were $3.4 billion, reflecting net loan growth (loan originations less pay-downs and pay-offs) of $277 million from December 31, 2015, primarily attributable to multifamily ($87 million, including a $28 million loan reclassified during the first quarter as multifamily from other commercial real estate), commercial and industrial (“C&I”) ($60 million), other commercial real estate ($18 million, including the aforementioned reclassification) and construction ($114 million), which reflected higher utilization of existing construction facilities. The growth in loans was funded with increases in deposits.

The Company’s stockholders’ equity was $484 million at June 30, 2016, an increase of $7 million from December 31, 2015. The increase in stockholders’ equity was primarily attributable to an increase of $17 million in retained earnings and approximately $1 million of equity issuance related to stock-based compensation, including the exercise of stock options, offset by an $11 million payoff of SBLF preferred stock. As of June 30, 2016, the Company’s tangible common equity ratio and tangible book value per share were 8.14% and $11.09, 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 approximately $150 million as of June 30, 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
(dollars in thousands)
June 30, December 31, June 30,
2016 2015 2015
(unaudited) (audited) (unaudited)
ASSETS
Cash and due from banks$35,850 $31,291 $41,454
Interest-bearing deposits with banks 139,263 169,604 84,029
Cash and cash equivalents 175,113 200,895 125,483
Investment securities:
Available-for-sale 208,266 195,770 264,098
Held-to-maturity (fair value of $227,427, $230,558, $237,208) 214,718 224,056 232,557
Loans held-for-sale 360 - 124
Loans receivable 3,375,620 3,099,007 2,765,288
Less: Allowance for loan and lease losses 32,763 26,572 17,480
Net loans receivable 3,342,857 3,072,435 2,747,808
Investment in restricted stock, at cost 25,210 32,612 27,078
Bank premises and equipment, net 22,477 22,333 21,252
Accrued interest receivable 12,726 12,545 12,055
Bank-owned life insurance 80,028 78,801 53,293
Other real estate owned 2,029 2,549 1,564
Goodwill 145,909 145,909 145,909
Core deposit intangibles 3,474 3,908 4,343
Other assets 29,747 24,096 24,493
Total assets$4,262,914 $4,015,909 $3,660,057
LIABILITIES
Deposits:
Noninterest-bearing$648,664 $650,775 $553,008
Interest-bearing 2,552,329 2,140,191 2,016,223
Total deposits 3,200,993 2,790,966 2,569,231
Borrowings 496,414 671,587 548,758
Subordinated debentures (net of $714, $812, $0 in debt issuance costs) 54,441 54,343 55,155
Other liabilities 26,652 21,669 22,931
Total liabilities 3,778,500 3,538,565 3,196,075
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - 11,250 11,250
Common stock 374,287 374,287 374,287
Additional paid-in capital 9,864 8,527 8,120
Retained earnings 121,301 104,606 88,772
Treasury stock (16,717) (16,717) (16,717)
Accumulated other comprehensive loss (4,321) (4,609) (1,730)
Total stockholders' equity 484,414 477,344 463,982
Total liabilities and stockholders' equity$4,262,914 $4,015,909 $3,660,057


CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for per share data)
Three Months Ended June 30, Six Months Ended June 30,
2016 2015 2016 2015
Interest income (unaudited)
Interest and fees on loans $36,561 $30,217 $71,578 $59,531
Interest and dividends on investment securities:
Taxable 1,965 2,760 4,105 5,671
Tax-exempt 996 883 1,879 1,765
Dividends 370 280 722 500
Interest on federal funds sold and other short-term investments 146 41 280 84
Total interest income 40,038 34,181 78,564 67,551
Interest expense
Deposits 4,434 3,301 8,373 6,325
Borrowings 3,210 2,202 6,477 4,256
Total interest expense 7,644 5,503 14,850 10,581
Net interest income 32,394 28,678 63,714 56,970
Provision for loan and lease losses 3,750 1,550 6,750 3,375
Net interest income after provision for loan and lease losses 28,644 27,128 56,964 53,595
Noninterest income
Annuities and insurance commissions 32 46 72 133
Bank-owned life insurance 616 388 1,228 774
Net gains on sale of loans held-for-sale 56 99 92 213
Deposit, loan and other income 763 458 1,277 921
Insurance recovery - 2,224 - 2,224
Net gains on sale of investment securities 103 221 103 726
Total noninterest income 1,570 3,436 2,772 4,991
Noninterest expenses
Salaries and employee benefits 7,753 6,948 15,353 13,575
Occupancy and equipment 2,154 1,788 4,401 3,869
FDIC insurance 615 440 1,210 1,000
Professional and consulting 700 715 1,412 1,209
Marketing and advertising 250 193 523 387
Data processing 1,010 829 2,033 1,729
Loss on extinguishment of debt - 2,397 - 2,397
Amortization of core deposit intangible 217 241 434 483
Other expenses 1,653 1,423 3,339 2,955
Total noninterest expenses 14,352 14,974 28,705 27,604
Income before income tax expense 15,862 15,590 31,031 30,982
Income tax expense 5,003 5,069 9,781 10,081
Net income 10,859 10,521 21,250 20,901
Less: Preferred stock dividends - 28 22 56
Net income available to common stockholders $10,859 $10,493 $21,228 $20,845
Earnings per common share:
Basic $0.36 $0.35 $0.71 $0.70
Diluted $0.36 $0.35 $0.70 $0.69
Weighted average common shares outstanding:
Basic 30,089,829 29,868,247 30,081,278 29,812,521
Diluted 30,340,376 30,231,480 30,331,172 30,203,682
Dividends per common share $0.075 $0.075 $0.150 $0.150


ConnectOne's management believes that the supplemental financial information, including non-GAAP measures, provided below is useful to investors. The non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP financial measures presented by other companies.
CONNECTONE BANCORP, INC.
SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES
(dollars in thousands, except share data)
As of
June 30,Mar. 31, Dec. 31, Sept. 30, June 30,
2016 2016 2015 2015 2015
Selected Financial Data
Total assets$4,262,914 $4,091,000 $4,015,909 $3,837,426 $3,660,057
Loans receivable:
Commercial 630,425 601,708 570,116 569,605 568,969
Commercial real estate-other 1,104,214 1,087,388 1,085,615 1,052,982 987,303
Commercial real estate-multifamily 967,555 940,913 881,081 820,732 764,088
Commercial construction 443,277 402,594 328,838 283,623 220,267
Residential 230,497 231,319 233,690 225,158 224,134
Consumer 1,976 1,851 2,454 3,569 2,454
Gross loans 3,377,944 3,265,773 3,101,794 2,955,669 2,767,215
Unearned net origination fees (2,324) (1,960) (2,787) (2,288) (1,927)
Loans receivable 3,375,620 3,263,813 3,099,007 2,953,381 2,765,288
Securities available-for-sale 208,266 191,331 195,770 224,214 264,098
Securities held-to-maturity 214,718 219,373 224,056 227,221 232,557
Goodwill and other intangible assets 149,383 149,600 149,817 150,034 150,252
Deposits:
Noninterest-bearing 648,664 614,507 650,776 586,643 558,388
Interest-bearing 523,742 517,810 490,379 465,552 439,949
Savings 210,040 219,865 216,399 220,199 214,244
Money market 866,643 678,222 658,695 611,753 578,047
Time deposits 951,904 862,667 774,717 782,487 778,603
Total deposits 3,200,993 2,893,071 2,790,966 2,666,634 2,569,231
Borrowings 496,414 646,501 671,587 621,674 548,759
Subordinated debentures (net of issuance costs) 54,441 54,392 54,343 54,328 55,155
Total stockholders' equity$484,414 $474,727 $477,344 $471,146 $463,982
Quarterly Average Balances
Total assets$4,212,307 $4,034,375 $3,891,885 $3,729,503 $3,551,597
Loans receivable:
Commercial 626,902 585,773 579,512 567,737 555,119
Commercial real estate (including multifamily) 2,056,263 2,005,872 1,919,263 1,811,745 1,700,399
Commercial construction 418,769 361,108 313,223 255,627 200,820
Residential 231,553 236,404 232,022 227,051 230,415
Consumer 2,865 2,670 3,269 3,013 4,137
Gross loans 3,336,352 3,191,827 3,047,289 2,865,173 2,690,890
Unearned net origination fees (2,295) (2,397) (2,706) (2,102) (2,131)
Loans receivable 3,334,057 3,189,430 3,044,583 2,863,071 2,688,759
Securities available-for-sale 200,050 222,776 219,927 260,211 271,168
Securities held-to-maturity 218,220 194,474 225,875 229,483 233,145
Goodwill and other intangible assets 149,525 149,741 149,959 150,178 150,407
Deposits:
Noninterest-bearing 581,743 609,312 608,227 560,129 510,369
Interest-bearing 528,954 503,896 476,237 480,685 416,221
Savings 215,267 215,491 216,149 220,481 218,845
Money market 791,845 656,557 636,180 582,238 591,328
Time deposits 889,561 807,801 783,068 787,262 748,780
Total deposits 3,007,370 2,793,057 2,719,861 2,630,795 2,485,543
Borrowings 639,054 684,469 621,615 544,774 565,093
Subordinated debentures 55,155 55,155 55,155 55,155 5,704
Total stockholders' equity$483,519 $482,503 $478,919 $471,682 $464,004
Three Months Ended
June 30,Mar. 31, Dec. 31, Sept. 30, June 30,
GAAP Earnings Data 2016 2016 2015 2015 2015
Net interest income$32,394 $31,320 $30,456 $29,727 $28,678
Provision for loan and lease losses 3,750 3,000 5,055 4,175 1,550
Net interest income after provision for loan and lease losses 28,644 28,320 25,401 25,552 27,128
Noninterest income
Annuity and insurance commissions 32 40 32 77 46
Bank-owned life insurance 616 612 620 388 388
Net gains on sale of loans held-for-sale 56 35 51 63 99
Deposit, loan and other income 763 515 522 1,224 458
Insurance recovery - - - - 2,224
Net gains on sale of investment securities 103 - 1,138 2,067 221
Total noninterest income 1,570 1,202 2,363 3,819 3,436
Noninterest expenses
Salaries and employee benefits 7,753 7,599 7,205 6,905 6,948
Occupancy and equipment 2,154 2,247 1,802 1,916 1,788
FDIC insurance 615 595 575 535 440
Professional and consulting 700 711 906 836 715
Marketing and advertising 250 184 213 247 193
Data processing 1,010 1,024 1,017 957 829
Loss on extinguishment of debt - - - - 2,397
Amortization of core deposit intangible 217 217 217 217 241
Other expenses 1,653 1,776 1,644 1,688 1,423
Total noninterest expenses 14,352 14,353 13,579 13,301 14,974
Income before income tax expense 15,862 15,169 14,185 16,070 15,590
Income tax expense 5,003 4,778 4,617 5,228 5,069
Net income (GAAP)$10,859 $10,391 $9,568 $10,842 $10,521
Less: preferred dividends - 22 28 28 28
Net income available to common stockholders (GAAP)$10,859 $10,369 $9,540 $10,814 $10,493
Reconciliation of GAAP Earnings to Operating Earnings
Net gains on sales of securities$(103) $- $(1,138) $(2,067) $(221)
Partial settlements of pension obligation 87 103 106 168 243
Insurance recovery - - - - (2,223)
Loss on debt extinguishment - - - - 2,397
Amortization of intangible assets 217 217 217 217 241
Provision related to maturity and extension of acquired portfolio loans 229 397 512 590 502
Provision related to taxi cab medallion loans 1,750 1,487 2,500 2,000 -
Provision for pending disposition of Union Center operations bldg. - - 1,304 - -
Accretion of purchase accounting fair value marks (1,277) (1,367) (1,416) (1,340) (1,513)
Non-core items 903 837 2,085 (432) (574)
Income tax (expense) benefit 326 301 751 (156) (207)
Non-core items, after taxes (36%) 577 536 1,334 (276) (367)
Core earnings available to common stockholders (non-GAAP)$11,436 $10,905 $10,874 $10,538 $10,126
Weighted average diluted shares outstanding 30,340,376 30,257,676 30,310,905 30,335,571 30,231,480
Diluted EPS (GAAP)$0.36 $0.34 $0.31 $0.36 $0.35
Core Diluted EPS (Non-GAAP) (1) 0.38 0.36 0.36 0.35 0.33
Return on Assets Measures
Core earnings available to common stockholders (non-GAAP)$11,436 $10,905 $10,874 $10,538 $10,126
Add: preferred dividends - 22 28 28 28
Core net income (non-GAAP)$11,436 $10,927 $10,902 $10,566 $10,154
Average assets$4,212,307 $4,034,375 $3,891,885 $3,729,503 $3,551,597
Less: average intangible assets (149,525) (149,741) (149,959) (150,178) (150,407)
Average tangible assets$4,062,782 $3,884,634 $3,741,926 $3,579,325 $3,401,190
Return on avg. assets (GAAP) 1.04% 1.04% 0.98% 1.15% 1.19%
Core return on avg. assets (Non-GAAP) (2) 1.09% 1.09% 1.11% 1.12% 1.15%
Return on avg. tangible assets (Non-GAAP) (3) 1.09% 1.09% 1.03% 1.22% 1.26%
Core return on avg. tangible assets (Non-GAAP) (4) 1.13% 1.13% 1.16% 1.17% 1.20%
(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
June 30,Mar. 31, Dec. 31, Sept. 30, June 30,
2016 2016 2015 2015 2015
Return on Equity Measures
Core earnings available to common stockholders$11,436 $10,905 $10,874 $10,538 $10,126
Average common equity$483,519 $473,849 $467,669 $460,432 $452,754
Less: average intangible assets (149,525) (149,741) (149,959) (150,178) (150,407)
Average tangible common equity$333,994 $324,108 $317,710 $310,254 $302,347
Return on avg. common equity (GAAP) 9.03% 8.80% 8.09% 9.32% 9.30%
Core return on avg. common equity (non-GAAP) (5) 9.51% 9.26% 9.23% 9.08% 8.97%
Return on avg. tangible common equity (non-GAAP) (6) 13.23% 13.03% 12.07% 13.99% 14.11%
Core return on avg. tangible common equity (non-GAAP) (7) 13.77% 13.53% 13.58% 13.47% 13.43%
Efficiency Measures
Total noninterest expenses$14,352 $14,353 $13,579 $13,301 $14,974
Partial settlements of pension obligation (87) (103) (106) (168) (243)
Loss on debt extinguishment - - - - (2,397)
Foreclosed property expense 10 (167) (387) (121) (56)
Amortization of intangible assets and fair value marks (217) (217) (217) (217) (241)
Operating noninterest expense$14,058 $13,866 $12,869 $12,795 $12,037
Net interest income (FTE)$33,112 $31,985 $31,102 $30,382 $29,316
Impact of purchase accounting fair value marks (1,245) (1,335) (1,384) (1,314) (1,487)
Noninterest income 1,570 1,202 2,363 3,819 3,436
Less: insurance recovery - - - - (2,224)
Less: net gains on sales of securities (103) - (1,138) (2,067) (221)
Operating revenue$33,334 $31,852 $30,943 $30,820 $28,820
Operating efficiency ratio (non-GAAP) (8) 42.2% 43.5% 41.6% 41.5% 41.8%
Net Interest Margin
Average interest-earning assets$3,912,802 $3,728,958 $3,582,408 $3,441,151 $3,266,382
Net interest income (FTE)$33,112 $31,985 $31,102 $30,382 $29,316
Impact of purchase accounting fair value marks (1,245) (1,335) (1,384) (1,314) (1,487)
Adjusted net interest income$31,867 $30,650 $29,718 $29,068 $27,829
Net interest margin (GAAP) 3.40% 3.45% 3.44% 3.50% 3.60%
Adjusted net interest margin (non-GAAP) (9) 3.28% 3.31% 3.29% 3.35% 3.42%
_____
(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)June 30,Mar. 31, Dec. 31, Sept. 30, June 30,
2016 2016 2015 2015 2015
Capital Ratios and Book Value per Share
Common equity$484,414 $474,727 $466,094 $459,896 $452,732
Less: intangible assets (149,383) (149,600) (149,817) (150,034) (150,252)
Tangible common equity$335,031 $325,127 $316,277 $309,862 $302,480
Total assets$4,262,914 $4,091,000 $4,015,909 $3,837,426 $3,660,057
Less: intangible assets (149,383) (149,600) (149,817) (150,034) (150,252)
Tangible assets$4,113,531 $3,941,400 $3,866,092 $3,687,392 $3,509,805
Common shares outstanding 30,197,318 30,163,078 30,085,663 30,197,789 30,196,731
Common equity ratio (GAAP) 11.36% 11.60% 11.61% 11.98% 12.37%
Tangible common equity ratio (non-GAAP) (10) 8.14% 8.25% 8.18% 8.40% 8.62%
Regulatory capital ratios (Bancorp):
Leverage ratio 8.52% 8.66% 9.07% 9.26% 9.49%
Common equity Tier 1 risk-based ratio 9.10% 9.05% 9.14% 9.33% 9.63%
Risk-based Tier 1 capital ratio 9.23% 9.19% 9.61% 9.82% 10.14%
Risk-based total capital ratio 11.44% 11.35% 11.77% 11.94% 12.26%
Regulatory capital ratios (Bank):
Leverage ratio 9.62% 9.83% 9.96% 10.22% 10.48%
Common equity Tier 1 risk-based ratio 10.43% 10.44% 10.55% 10.83% 11.19%
Risk-based Tier 1 capital ratio 10.43% 10.44% 10.55% 10.83% 11.19%
Risk-based total capital ratio 11.30% 11.23% 11.31% 11.47% 11.74%
Book value per share (GAAP)$16.04 $15.74 $15.49 $15.23 $14.99
Tangible book value per share (non-GAAP) (11)$11.09 $10.78 $10.51 $10.26 $10.02
Three Months Ended
June 30,Mar. 31, Dec. 31, Sept. 30, June 30,
2016 2016 2015 2015 2015
NCO Detail
Net loan charge-offs:
Charge-offs$77 $512 $18 $519 $334
Recoveries (16) (15) (2) (342) (331)
Net loan charge-offs$61 $497 $16 $177 $3
as a % of average total loans (annualized) 0.01% 0.06% 0.00% 0.02% 0.00%
Asset Quality
Nonaccrual loans$21,911 $21,450 $20,737 $12,888 $12,145
Other real estate owned 2,029 1,696 2,549 3,244 1,564
Total nonperforming assets$23,940 $23,146 $23,286 $16,132 $13,709
Performing troubled debt restructurings$97,831 $95,122 $85,925 $77,882 $77,927
Loans past due 90 days and still accruing$- $- $- $268 $-
Nonaccrual loans as a % of loans receivable 0.65% 0.66% 0.67% 0.44% 0.44%
Nonperforming assets as a % of total assets 0.56% 0.57% 0.58% 0.42% 0.37%
Allowance for loan losses as a % of nonaccrual loans 149.5% 135.5% 128.1% 167.1% 143.9%
Loans receivable$3,375,620 $3,263,813 $3,099,007 $2,953,381 $2,765,288
Less: acquired loans (799,851) (825,047) (866,878) (923,210) (1,060,632)
Loans receivable, excluding acquired loans$2,575,769 $2,438,766 $2,232,129 $2,030,171 $1,704,656
Allowance for loan losses$32,763 $29,074 $26,572 $21,533 $17,480
Accretable credit risk discount on acquired loans 11,198 12,101 12,955 13,893 14,781
Total allowance for loan losses and accretable credit risk discount on acquired loans$43,961 $41,175 $39,527 $35,426 $32,261
Allowance for loan losses as a % of loans receivable 0.97% 0.89% 0.86% 0.73% 0.63%
Allowance for loan losses as a % of loans receivable, excluding acquired loans 1.27% 1.19% 1.19% 1.06% 1.03%
Allowance for loan losses and accretable credit risk discount on loans as a % of loans receivable 1.30% 1.26% 1.28% 1.20% 1.17%
(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
June 30, 2016 March 31, 2016 June 30, 2015
Average (7) Average (7) Average (7)
Interest-earning assets: Balance
Interest
Rate
Balance
Interest
Rate
Balance
Interest
Rate
Investment securities (1) (2) $418,270 $3,497 3.36 % $415,481 $3,499 3.39 % $495,805 $4,118 3.33 %
Loans receivable (2) (3) (4) 3,334,057 36,743 4.43 3,189,572 35,206 4.44 2,689,525 30,380 4.53
Federal funds sold and interest-
bearing deposits with banks 128,994 146 0.45 90,712 134 0.59 54,087 41 0.30
Restricted investment in bank stock 31,481 370 4.72 33,193 352 4.27 26,965 280 4.16
Total interest-earning assets 3,912,802 40,756 4.19 3,728,958 39,191 4.23 3,266,382 34,819 4.28
Allowance for loan losses (29,924) (27,221) (16,463)
Noninterest earning assets 329,429 332,638 301,678
Total assets $4,212,307 $4,034,375 $3,551,597
Interest-bearing liabilities:
Money market deposits 791,845 992 0.50 656,557 812 0.50 591,328 689 0.47
Savings deposits 215,267 156 0.29 215,491 157 0.29 218,845 157 0.29
Time deposits 889,561 2,857 1.29 807,801 2,535 1.26 748,780 2,131 1.14
Other interest-bearing deposits 528,954 429 0.33 503,896 435 0.35 416,221 324 0.31
Total interest-bearing deposits 2,425,627 4,434 0.74 2,183,745 3,939 0.73 1,975,174 3,301 0.67
Borrowings 639,054 2,355 1.48 684,469 2,413 1.42 565,094 2,110 1.50
Subordinated debentures (8) 55,155 812 5.92 55,155 811 5.91 5,704 48 3.38
Capital lease obligation 2,844 43 6.04 2,874 43 6.02 2,961 44 5.96
Total interest-bearing liabilities 3,122,680 7,644 0.98 2,926,243 7,206 0.99 2,548,933 5,503 0.87
Demand deposits 581,743 609,312 510,369
Other liabilities 24,365 16,317 28,291
Total noninterest-bearing liabilities 606,108 625,629 538,660
Stockholders' equity 483,519 482,503 464,004
Total liabilities and stockholders' equity$4,212,307 $4,034,375 $3,551,597
Net interest income (tax equivalent basis) 33,112 31,985 29,316
Net interest spread (5) 3.21 % 3.24 % 3.41 %
Net interest margin (6) 3.40 % 3.45 % 3.60 %
Tax equivalent adjustment (718) (665) (638)
Net interest income $32,394 $31,320 $28,678
(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 nonaccrual 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 $714, $812 and $0 for the three months ended June 30, 2016, March 31, 2016 and June 30, 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.