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ConnectOne Bancorp, Inc. Reports Third Quarter 2016 Earnings

ENGLEWOOD CLIFFS, N.J., Oct. 25, 2016 (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, 2016. The Company reported net income available to common stockholders of $11.9 million, or $0.39 per diluted share, compared with net income available to common stockholders of $10.9 million, or $0.36 per diluted share, for the second quarter of 2016 and $10.8 million, or $0.36 per diluted share, for the third quarter of 2015.

Highlights

  • Organic loan origination remained strong. Gross loan fundings were $228.7 million for the 2016 third quarter, compared with $238.4 million for the sequential quarter. Net loan growth (fundings less paydowns and payoffs) was $84.6 million for the 2016 third quarter and $112.2 million for the sequential quarter. The loan pipeline remains solid heading into the 2016 fourth quarter.
  • The efficiency ratio improved to 41.7% in the 2016 third quarter from 42.2% in the sequential quarter reflecting improved operating leverage. During the 2016 third quarter, total revenue, excluding securities gains, increased by an annualized 10.8%, while operating expenses increased by an annualized 5.5%.
  • Total average deposits grew by 9.2% sequentially during the quarter, including 10.1% growth in average noninterest-bearing deposits. The loan to deposit ratio was 105.9% at quarter-end.
  • Already sound asset quality metrics improved even further. The nonaccrual loan ratio declined during the 2016 third quarter to 0.33% from 0.65% in the sequential quarter, while the allowance as a percent of nonaccrual loans increased to 327.3% during the 2016 third quarter from 149.5% in the sequential quarter.
  • We enhanced financial flexibility by designating all held-to-maturity securities as available-for-sale. The action improves liquidity and results in an immediate pickup in tangible book value per share of approximately $0.25.
  • We sold approximately $75 million of investment securities, resulting in net securities gains of $4.1 million. A portion of the proceeds to be invested in securities and bank-owned life insurance (“BOLI”), and projected to result in de minimis earnings dilution.
  • We added an additional $5 million in reserves against our NYC-only taxi medallion portfolio, bringing the total specific reserve to 12.2% of outstanding taxi medallion loans. Although weakness persists in open-market transactions for medallions, the NYC taxi industry has recently exhibited some signs of stabilization. More than 95% of the Bank’s approximately $100 million medallion portfolio is current.
  • Tangible book value per share increased to $11.60 per share at September 30, 2016 from $11.09 at June 30, 2016 while the tangible common equity ratio increased to 8.39% from 8.14% over the same period.

Frank Sorrentino, ConnectOne’s Chairman and CEO stated, “Operating performance continued to accelerate during the third quarter of 2016, while we took a series of actions likely to result in improved shareholder value. We fortified our balance sheet by setting aside an additional $5 million of reserves for our NYC-taxi medallion portfolio. We changed the designation of approximately $210 million in held-to-maturity securities to available-for-sale and sold $75 million for a more than $4 million gain, thus adding liquidity, increasing capital ratios, and increasing tangible book value per share. We also resolved a large nonperforming asset in a cash transaction that contributed to lowering our September 30, 2016 nonperforming asset ratio to 0.28%. 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 41.7%, placing us among the best performing banking institutions. Additionally, we continue to see increased opportunities in our core business strategies resulting from the difficulties many of our competitors face in our markets.”

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.

Third quarter 2016 results reflect the following non-core items: $1.1 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; $5.0 million in additional provision associated with the Bank’s New York City taxi medallion loan portfolio; $4.1 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 these non-core items, along with related income tax impact, net income available to common stockholders was $12.0 million, or $0.40 per diluted share, for the third quarter of 2016, $11.4 million, or $0.38 per diluted share, for the second quarter of 2016, and $10.5 million, or $0.35 per diluted share, for the third quarter of 2015.

Fully taxable equivalent net interest income for the third quarter of 2016 was $33.8 million, an increase of $0.7 million, or 2.0%, from the second quarter of 2016. This was the result of a 3.3% increase in average interest-earning assets, partially offset by an 8 basis-point contraction of the net interest rate margin. Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.0 million during the third quarter of 2016 and $1.2 million in the second quarter of 2016. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.22% in the third quarter of 2016, contracting by 6 basis points from the second quarter of 2016 adjusted net interest margin of 3.28%. The decrease in the adjusted net interest margin was primarily attributable to an increase in average cash balances held at the Federal Reserve Bank.

Fully taxable equivalent net interest income for the third quarter of 2016 increased by $3.4 million, or 11.1%, from the same quarter of 2015. This was a result of a 17.4% increase in average interest-earning assets due to significant organic loan growth, partially offset by an 18 basis-point contraction of the net interest margin. Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.0 million during the third quarter of 2016 and $1.3 million in the same quarter of 2015. Excluding these purchase accounting adjustments, the current quarter’s adjusted net interest margin was 13 basis points lower than the 2015 third quarter adjusted net interest margin of 3.35%. The reduction in the adjusted net interest margin was due primarily to higher level of cash balances held at the Federal Reserve Bank and an increase in rates paid on deposits.

Noninterest income totaled $5.6 million in the third quarter of 2016, $1.6 million in the second quarter of 2016 and $3.8 million in the third quarter of 2015. Net securities gains were $4.1 million for the third quarter of 2016, $0.1 million for the second quarter of 2016 and $2.1 million for the third quarter of 2015. Excluding the securities gains, noninterest income remained relatively flat from the sequential quarter. At the end of the third quarter of 2016, the Bank purchased an additional $17 million in BOLI, which is expected to result in increased noninterest income in future quarters. Noninterest income also includes deposit fees, annuities and life insurance commissions, and gains on sales of residential mortgages in the secondary market.

Noninterest expenses totaled $14.6 million for the third quarter of 2016, up modestly from $14.4 million for the second quarter of 2016, due to flat salaries and employee benefits expense and a slight increase in various other expense categories. Noninterest expenses were up $1.3 million for the third quarter of 2016 when compared to $13.3 million for the third quarter of 2015. The increase was largely attributable to increases in salaries and employee benefits ($0.9 million), FDIC insurance premiums ($0.2 million) and occupancy and equipment ($0.1 million). The increases over the prior year third quarter were the result of increased levels of business and staff resulting from organic growth.

Income tax expense was $5.4 million for the third quarter of 2016, compared to $5.0 million for the second quarter of 2016 and $5.2 million for the third 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 $6.8 million in the third quarter of 2016 from $3.8 million in the second quarter of 2016, and from $4.2 million in the third quarter of 2015. The increases were largely attributable to an increase in additional reserves specifically allocated to the Bank’s NYC-only taxi medallion portfolio.

As of September 30, 2016, loans secured by New York City taxi medallions totaled $102.7 million. Troubled debt restructurings associated with this portfolio totaled $95.2 million and total nonaccrual loans were $3.7 million at quarter-end. Troubled debt restructurings increased by $7.2 million from the second quarter of 2016, while nonaccrual loans decreased by $0.2 million, resulting from partial charge-offs. Specific reserves for taxi medallion loans totaled $12.5 million, or 12.2%, of total taxi medallion portfolio. The Bank’s valuation of a corporate medallion, which represent approximately 95% of total exposure, was approximately $700 thousand as of September 30, 2016, down from approximately $750 thousand as of June 30, 2016.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $12.1 million at September 30, 2016, $23.3 million at December 31, 2015, and $16.1 million at September 30, 2015. Nonperforming assets as a percent of total assets were 0.28% at September 30, 2016, 0.58% at December 31, 2015, and 0.42% at September 30, 2015. Annualized net charge-offs were 0.22% for the third quarter of 2016, 0.01% for the second quarter of 2016, and 0.02% for the third quarter of 2015. The allowance for loan and lease losses was $37.6 million, representing 1.09% of loans receivable and 327.3% of nonaccrual loans at September 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 September 30, 2015, the allowance was $21.5 million representing 0.73% of loans receivable and 167.1% 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 1.39% at September 30, 2016, 1.28% at December 31, 2015, and 1.20% at September 30, 2015. (See Supplemental GAAP and non-GAAP Financial Measures).

Selected Balance Sheet Items

At September 30, 2016, the Company’s total assets were $4.3 billion, an increase of $312 million from December 31, 2015. Total loans at September 30, 2016 were $3.5 billion, reflecting net loan growth (loan originations less pay-downs and pay-offs) of $362 million from December 31, 2015, primarily attributable to multifamily ($80 million, including a $28 million loan reclassified during the first quarter of 2016 as multifamily from other commercial real estate), commercial and industrial (“C&I”) ($79 million), other commercial real estate ($62 million, including the aforementioned reclassification) and construction ($142 million), which reflected higher utilization of existing construction facilities. The growth in loans was primarily funded with increases in deposits.

During the third quarter of 2016, the Company transferred its held-to-maturity investment securities (approximately $210 million) to available-for-sale designation. Transferred securities were recorded at fair market value in the available-for-sale portfolio and any gains or losses were recorded in other comprehensive income, net of any deferred tax obligation. This transfer will enhance liquidity and increase flexibility with regard to asset-liability management and balance sheet composition. In addition, the Company sold approximately $75 million of investment securities with an approximate weighted average book yield of 2.80%, approximate duration of 6.5 years, and average risk weighting of approximately 50%, resulting in a net securities gain of $4.1 million.

The Company’s stockholders’ equity was $500 million at September 30, 2016, an increase of $22 million from December 31, 2015. The increase in stockholders’ equity was primarily attributable to an increase of $26 million in retained earnings, approximately $2 million of equity issuance related to stock-based compensation, including the exercise of stock options, and an increase in accumulated other comprehensive income of $5 million, offset by an $11 million payoff of SBLF preferred stock. As of September 30, 2016, the Company’s tangible common equity ratio and tangible book value per share were 8.39% and $11.60, 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 $149 million and $150 million as of September 30, 2016 and December 31, 2015, respectively.

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)
September 30, December 31, September 30,
2016 2015 2015
(unaudited) (audited) (unaudited)
ASSETS
Cash and due from banks$ 49,028 $ 31,291 $ 30,100
Interest-bearing deposits with banks 184,766 169,604 128,421
Cash and cash equivalents 233,794 200,895 158,521
Investment securities:
Available-for-sale 338,459 195,770 224,214
Held-to-maturity (fair value of $ - , $230,558, $234,493) - 224,056 227,221
Loans held-for-sale 15,112 - 990
Loans receivable 3,445,476 3,099,007 2,953,381
Less: Allowance for loan and lease losses 37,615 26,572 21,533
Net loans receivable 3,407,861 3,072,435 2,931,848
Investment in restricted stock, at cost 24,535 32,612 30,362
Bank premises and equipment, net 22,112 22,333 21,523
Accrued interest receivable 12,497 12,545 11,662
Bank-owned life insurance 97,644 78,801 53,681
Other real estate owned 626 2,549 3,244
Goodwill 145,909 145,909 145,909
Core deposit intangibles 3,281 3,908 4,125
Other assets 25,974 24,096 24,126
Total assets$ 4,327,804 $ 4,015,909 $ 3,837,426
LIABILITIES
Deposits:
Noninterest-bearing$ 655,683 $ 650,775 $ 586,643
Interest-bearing 2,613,266 2,140,191 2,079,981
Total deposits 3,268,949 2,790,966 2,666,624
Borrowings 481,337 671,587 621,674
Subordinated debentures (net of $665, $812, $827 debt issuance costs) 54,490 54,343 54,328
Other liabilities 23,440 21,669 23,654
Total liabilities 3,828,216 3,538,565 3,366,280
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - 11,250 11,250
Common stock 374,287 374,287 374,287
Additional paid-in capital 10,409 8,527 8,315
Retained earnings 130,885 104,606 97,321
Treasury stock (16,717) (16,717) (16,717)
Accumulated other comprehensive gain (loss) 724 (4,609) (3,310)
Total stockholders' equity 499,588 477,344 471,146
Total liabilities and stockholders' equity$ 4,327,804 $ 4,015,909 $ 3,837,426

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for per share data)
Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
Interest income (unaudited)
Interest and fees on loans $ 37,803 $ 32,276 $ 109,381 $ 91,807
Interest and dividends on investment securities:
Taxable 1,774 2,669 5,879 8,340
Tax-exempt 988 901 2,867 2,666
Dividends 352 297 1,074 797
Interest on federal funds sold and other short-term investments 261 43 541 127
Total interest income 41,178 36,186 119,742 103,737
Interest expense
Deposits 5,159 3,655 13,532 9,980
Borrowings 2,995 2,804 9,472 7,060
Total interest expense 8,154 6,459 23,004 17,040
Net interest income 33,024 29,727 96,738 86,697
Provision for loan and lease losses 6,750 4,175 13,500 7,550
Net interest income after provision for loan and lease losses 26,274 25,552 83,238 79,147
Noninterest income
Annuities and insurance commissions 68 77 140 210
Income on bank owned life insurance 615 388 1,843 1,162
Net gains on sale of loans held-for-sale 56 63 147 276
Deposit, loan and other income 706 1,224 1,984 2,145
Insurance recovery - - - 2,224
Net gains on sale of investment securities 4,131 2,067 4,234 2,793
Total noninterest income 5,576 3,819 8,348 8,810
Noninterest expenses
Salaries and employee benefits 7,791 6,905 23,143 20,480
Occupancy and equipment 2,049 1,916 6,450 5,785
FDIC insurance 745 535 1,955 1,535
Professional and consulting 667 836 2,078 2,045
Marketing and advertising 293 247 817 634
Data processing 1,002 957 3,036 2,686
Loss on extinguishment of debt - - - 2,397
Amortization of core deposit intangible 193 217 627 700
Other expenses 1,811 1,688 5,150 4,643
Total noninterest expenses 14,551 13,301 43,256 40,905
Income before income tax expense 17,299 16,070 48,330 47,052
Income tax expense 5,443 5,228 15,224 15,309
Net income 11,856 10,842 33,106 31,743
Less: Preferred stock dividends - 28 22 84
Net income available to common stockholders $ 11,856 $ 10,814 $ 33,084 $ 31,659
Earnings per common share:
Basic $ 0.39 $ 0.36 $ 1.10 $ 1.06
Diluted $ 0.39 $ 0.36 $ 1.09 $ 1.04
Weighted average common shares outstanding:
Basic 30,125,287 29,636,001 30,100,057 29,786,374
Diluted 30,401,684 30,108,103 30,376,085 30,323,376
Dividends per common share $ 0.075 $ 0.075 $ 0.225 $ 0.225


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
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
2016 2016 2016 2015 2015
Selected Financial Data
Total assets$ 4,327,804 $ 4,262,914 $ 4,091,000 $ 4,015,909 $ 3,837,426
Loans receivable:
Commercial 644,430 630,425 601,708 570,116 569,605
Commercial real estate-other 1,139,641 1,104,214 1,087,388 1,085,615 1,052,982
Commercial real estate-multifamily 961,163 967,555 940,913 881,081 820,732
Commercial construction 471,109 443,277 402,594 328,838 283,623
Residential 229,401 230,497 231,319 233,690 225,158
Consumer 2,879 1,976 1,851 2,454 3,569
Gross loans 3,448,623 3,377,944 3,265,773 3,101,794 2,955,669
Unearned net origination fees (3,147) (2,324) (1,960) (2,787) (2,288)
Loans receivable 3,445,476 3,375,620 3,263,813 3,099,007 2,953,381
Loans held-for-sale 15,112 360 - - 990
Total loans 3,460,588 3,375,980 3,263,813 3,099,007 2,954,371
Securities available-for-sale 338,459 208,266 191,331 195,770 224,214
Securities held-to-maturity - 214,718 219,373 224,056 227,221
Goodwill and other intangible assets 149,190 149,383 149,600 149,817 150,034
Deposits:
Noninterest-bearing 655,683 648,664 614,507 650,776 586,643
Interest-bearing 531,500 523,742 517,810 490,379 465,552
Savings 207,717 210,040 219,865 216,399 220,199
Money market 866,710 866,643 678,222 658,695 611,743
Time deposits 1,007,339 951,904 862,667 774,717 782,487
Total deposits 3,268,949 3,200,993 2,893,071 2,790,966 2,666,624
Borrowings 481,337 496,414 646,501 671,587 621,674
Subordinated debentures (net of issuance costs) 54,490 54,441 54,392 54,343 54,328
Total stockholders' equity 499,588 484,414 474,727 477,344 471,146
Quarterly Average Balances
Total assets$ 4,344,795 $ 4,212,307 $ 4,034,375 $ 3,891,885 $ 3,729,503
Loans receivable:
Commercial 632,892 626,902 585,773 579,512 567,737
Commercial real estate (including multifamily) 2,081,741 2,056,263 2,005,872 1,919,263 1,811,745
Commercial construction 462,399 418,769 361,108 313,223 255,627
Residential 229,953 231,553 236,404 232,022 227,051
Consumer 2,771 2,865 2,670 3,269 3,013
Gross loans 3,409,756 3,336,352 3,191,827 3,047,289 2,865,173
Unearned net origination fees (2,956) (2,295) (2,397) (2,706) (2,102)
Loans receivable 3,406,800 3,334,057 3,189,430 3,044,583 2,863,071
Securities available-for-sale 263,656 200,050 222,776 219,927 260,211
Securities held-to-maturity 143,146 218,220 194,474 225,875 229,483
Goodwill and other intangible assets 149,317 149,525 149,741 149,959 150,178
Deposits:
Noninterest-bearing 640,323 581,743 609,312 608,227 560,129
Interest-bearing 553,401 528,954 503,896 476,237 480,685
Savings 211,162 215,267 215,491 216,149 220,481
Money market 872,937 791,845 656,557 636,180 582,238
Time deposits 1,007,530 889,561 807,801 783,068 787,262
Total deposits 3,285,353 3,007,370 2,793,057 2,719,861 2,630,795
Borrowings 488,015 639,054 684,469 621,615 544,774
Subordinated debentures 55,155 55,155 55,155 55,155 55,155
Total stockholders' equity 495,141 483,519 482,503 478,919 471,682
Three Months Ended
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
GAAP Earnings Data 2016 2016 2016 2015 2015
Net interest income$ 33,024 $ 32,394 $ 31,320 $ 30,456 $ 29,727
Provision for loan and lease losses 6,750 3,750 3,000 5,055 4,175
Net interest income after provision for loan and lease losses 26,274 28,644 28,320 25,401 25,552
Noninterest income
Annuity and insurance commissions 68 32 40 32 77
Bank-owned life insurance 615 616 612 620 388
Net gains on sale of loans held-for-sale 56 56 35 51 63
Deposit, loan and other income 706 763 515 522 1,224
Net gains on sale of investment securities 4,131 103 - 1,138 2,067
Total noninterest income 5,576 1,570 1,202 2,363 3,819
Noninterest expenses
Salaries and employee benefits 7,791 7,753 7,599 7,205 6,905
Occupancy and equipment 2,049 2,154 2,247 1,802 1,916
FDIC insurance 745 615 595 575 535
Professional and consulting 667 700 711 906 836
Marketing and advertising 293 250 184 213 247
Data processing 1,002 1,010 1,024 1,017 957
Amortization of core deposit intangible 193 217 217 217 217
Other expenses 1,811 1,653 1,776 1,644 1,688
Total noninterest expenses 14,551 14,352 14,353 13,579 13,301
Income before income tax expense 17,299 15,862 15,169 14,185 16,070
Income tax expense 5,443 5,003 4,778 4,617 5,228
Net income (GAAP)$ 11,856 $ 10,859 $ 10,391 $ 9,568 $ 10,842
Three Months Ended
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
2016 2016 2016 2015 2015
Net income (GAAP) 11,856 10,859 10,391 9,568 10,842
Less: preferred dividends - - 22 28 28
Net income available to common stockholders (GAAP) 11,856 10,859 10,369 9,540 10,814
Reconciliation of GAAP Earnings to Operating Earnings
Net gains on sales of securities$ (4,131) $ (103) $ - $ (1,138) $ (2,067)
Partial settlements of pension obligation 69 87 103 106 168
Amortization of intangible assets 193 217 217 217 217
Provision related to maturity and extension of acquired portfolio loans 220 229 397 512 590
Provision related to taxi cab medallion loans 5,000 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 (1,077) (1,277) (1,367) (1,416) (1,340)
Non-core items 274 903 837 2,085 (432)
Income tax (expense) benefit 99 326 301 751 (156)
Non-core items, after taxes (36%) 175 577 536 1,334 (276)
Core earnings available to common stockholders (non-GAAP)$ 12,031 $ 11,436 $ 10,905 $ 10,874 $ 10,538
Weighted average diluted shares outstanding 30,401,684 30,340,376 30,257,676 30,310,905 30,335,571
Diluted EPS (GAAP)$ 0.39 $ 0.36 $ 0.34 $ 0.31 $ 0.36
Core Diluted EPS (Non-GAAP) (1) 0.40 0.38 0.36 0.36 0.35
Return on Assets Measures
Core earnings available to common stockholders (non-GAAP)$ 12,031 $ 11,436 $ 10,905 $ 10,874 $ 10,538
Add: preferred dividends - - 22 28 28
Core net income (non-GAAP)$ 12,031 $ 11,436 $ 10,927 $ 10,902 $ 10,566
Average assets$ 4,344,795 $ 4,212,307 $ 4,034,375 $ 3,891,885 $ 3,729,503
Less: average intangible assets (149,317) (149,525) (149,741) (149,959) (150,178)
Average tangible assets$ 4,195,478 $ 4,062,782 $ 3,884,634 $ 3,741,926 $ 3,579,325
Return on avg. assets (GAAP) 1.09% 1.04% 1.04% 0.98% 1.15%
Core return on avg. assets (Non-GAAP) (2) 1.10% 1.09% 1.09% 1.11% 1.12%
Return on avg. tangible assets (Non-GAAP) (3) 1.14% 1.09% 1.09% 1.03% 1.22%
Core return on avg. tangible assets (Non-GAAP) (4) 1.14% 1.13% 1.13% 1.16% 1.17%
_____
(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
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
2016 2016 2016 2015 2015
Return on Equity Measures
Core earnings available to common stockholders$ 12,031 $ 11,436 $ 10,905 $ 10,874 $ 10,538
Average common equity$ 495,141 $ 483,519 $ 473,849 $ 467,669 $ 460,432
Less: average intangible assets (149,317) (149,525) (149,741) (149,959) (150,178)
Average tangible common equity$ 345,824 $ 333,994 $ 324,108 $ 317,710 $ 310,254
Return on avg. common equity (GAAP) 9.53% 9.03% 8.80% 8.09% 9.32%
Core return on avg. common equity (non-GAAP) (5) 9.67% 9.51% 9.26% 9.23% 9.08%
Return on avg. tangible common equity (non-GAAP) (6) 13.77% 13.23% 13.03% 12.07% 13.99%
Core return on avg. tangible common equity (non-GAAP) (7) 13.84% 13.77% 13.53% 13.58% 13.47%
Efficiency Measures
Total noninterest expenses$ 14,551 $ 14,352 $ 14,353 $ 13,579 $ 13,301
Partial settlements of pension obligation (69) (87) (103) (106) (168)
Foreclosed property expense (37) 10 (167) (387) (121)
Amortization of intangible assets and fair value marks (193) (217) (217) (217) (217)
Operating noninterest expense $ 14,252 $ 14,058 $ 13,866 $ 12,869 $ 12,795
Net interest income (FTE)$ 33,762 $ 33,112 $ 31,985 $ 31,102 $ 30,382
Impact of purchase accounting fair value marks (1,045) (1,245) (1,335) (1,384) (1,314)
Noninterest income 5,576 1,570 1,202 2,363 3,819
Net gains on sales of securities (4,131) (103) - (1,138) (2,067)
Operating revenue $ 34,162 $ 33,334 $ 31,852 $ 30,943 $ 30,820
Operating efficiency ratio (non-GAAP) (8) 41.7% 42.2% 43.5% 41.6% 41.5%
Net Interest Margin
Average interest-earning assets$ 4,041,020 $ 3,912,802 $ 3,728,958 $ 3,582,408 $ 3,441,151
Net interest income (FTE)$ 33,762 $ 33,112 $ 31,985 $ 31,102 $ 30,382
Impact of purchase accounting fair value marks (1,045) (1,245) (1,335) (1,384) (1,314)
Adjusted net interest income$ 32,717 $ 31,867 $ 30,650 $ 29,718 $ 29,068
Net interest margin (GAAP) 3.32% 3.40% 3.45% 3.44% 3.50%
Adjusted net interest margin (non-GAAP) (9) 3.22% 3.28% 3.31% 3.29% 3.35%
_____
(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
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
(dollars in thousands, except share data) 2016 2016 2016 2015 2015
Capital Ratios and Book Value per Share
Common equity$ 499,588 $ 484,414 $ 474,727 $ 466,094 $ 459,896
Less: intangible assets (149,190) (149,383) (149,600) (149,817) (150,034)
Tangible common equity$ 350,398 $ 335,031 $ 325,127 $ 316,277 $ 309,862
Total assets$ 4,327,804 $ 4,262,914 $ 4,091,000 $ 4,015,909 $ 3,837,426
Less: intangible assets (149,190) (149,383) (149,600) (149,817) (150,034)
Tangible assets$ 4,178,614 $ 4,113,531 $ 3,941,400 $ 3,866,092 $ 3,687,392
Common shares outstanding 30,197,318 30,197,318 30,163,078 30,085,663 30,197,789
Common equity ratio (GAAP) 11.54% 11.36% 11.60% 11.61% 11.98%
Tangible common equity ratio (non-GAAP) (10) 8.39% 8.14% 8.25% 8.18% 8.40%
Regulatory capital ratios (Bancorp):
Leverage ratio 8.49% 8.52% 8.66% 9.07% 9.26%
Common equity Tier 1 risk-based ratio 9.25% 9.10% 9.05% 9.14% 9.33%
Risk-based Tier 1 capital ratio 9.38% 9.23% 9.19% 9.61% 9.82%
Risk-based total capital ratio 11.69% 11.44% 11.35% 11.77% 11.94%
Regulatory capital ratios (Bank):
Leverage ratio 9.57% 9.62% 9.83% 9.96% 10.22%
Common equity Tier 1 risk-based ratio 10.58% 10.43% 10.44% 10.55% 10.83%
Risk-based Tier 1 capital ratio 10.58% 10.43% 10.44% 10.55% 10.83%
Risk-based total capital ratio 11.57% 11.30% 11.23% 11.31% 11.47%
Book value per share (GAAP)$ 16.54 $ 16.04 $ 15.74 $ 15.49 $ 15.23
Tangible book value per share (non-GAAP) (11) 11.60 11.09 10.78 10.51 10.26
Three Months Ended
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
2016 2016 2016 2015 2015
NCO Detail
Net loan charge-offs:
Charge-offs$ 1,910 $ 77 $ 512 $ 18 $ 519
Recoveries (12) (16) (15) (2) (342)
Net loan charge-offs$ 1,898 $ 61 $ 497 $ 16 $ 177
as a % of average total loans (annualized) 0.22% 0.01% 0.06% 0.00% 0.02%
Asset Quality
Nonaccrual loans$ 11,493 $ 21,911 $ 21,450 $ 20,737 $ 12,888
Other real estate owned 626 2,029 1,696 2,549 3,244
Total nonperforming assets$ 12,119 $ 23,940 $ 23,146 $ 23,286 $ 16,132
Performing troubled debt restructurings$ 105,338 $ 97,831 $ 95,122 $ 85,925 $ 77,882
Loans past due 90 days and still accruing (non-PCI)$ - $ - $ - $ - $ 268
Nonaccrual loans as a % of loans receivable 0.33% 0.65% 0.66% 0.67% 0.44%
Nonperforming assets as a % of total assets 0.28% 0.56% 0.57% 0.58% 0.42%
Allowance for loan losses as a % of nonaccrual loans 327.3% 149.5% 135.5% 128.1% 167.1%
Loans receivable$ 3,445,476 $ 3,375,620 $ 3,263,813 $ 3,099,007 $ 2,953,381
Acquired loans (736,894) (799,851) (825,047) (866,878) (923,210)
Loans receivable, excluding acquired loans$ 2,708,582 $ 2,575,769 $ 2,438,766 $ 2,232,129 $ 2,030,171
Allowance for loan losses$ 37,615 $ 32,763 $ 29,074 $ 26,572 $ 21,533
Accretable credit risk discount on acquired loans 10,408 11,198 12,101 12,955 13,893
Total allowance for loan losses and accretable credit risk discount on acquired loans$ 48,023 $ 43,961 $ 41,175 $ 39,527 $ 35,426
Allowance for loan losses as a % of loans receivable 1.09% 0.97% 0.89% 0.86% 0.73%
Allowance for loan losses as a % of loans receivable, excluding acquired loans 1.39% 1.27% 1.19% 1.19% 1.06%
Allowance for loan losses and accretable credit risk discount on loans as a % of loans receivable 1.39% 1.30% 1.26% 1.28% 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
September 30, 2016June 30, 2016September 30, 2015
Average (7) Average (7) Average (7)
Interest-earning assets: BalanceInterestRate BalanceInterestRate BalanceInterestRate
Investment securities (1) (2) $ 406,802 $ 3,293 3.22 % $ 418,270 $ 3,497 3.36 % $ 483,677 $ 4,055 3.33 %
Loans receivable and loans held-for-sale (2) (3) (4) 3,407,278 38,010 4.44 3,334,057 36,743 4.43 2,863,708 32,446 4.50
Federal funds sold and interest-
bearing deposits with banks 202,106 261 0.51 128,994 146 0.46 66,867 43 0.26
Restricted investment in bank stock 24,834 352 5.64 31,481 370 4.73 26,899 297 4.38
Total interest-earning assets 4,041,020 41,916 4.13 3,912,802 40,756 4.19 3,441,151 36,841 4.25
Allowance for loan losses (34,052) (29,924) (18,157)
Noninterest-earning assets 337,828 329,429 306,509
Total assets $ 4,344,796 $ 4,212,307 $ 3,729,503
Interest-bearing liabilities:
Money market deposits $ 872,937 $ 1,211 0.55 $ 791,845 $ 992 0.50 $ 710,767 $ 794 0.44
Savings deposits 211,162 158 0.30 215,267 156 0.29 220,481 146 0.26
Time deposits 1,007,530 3,323 1.31 889,561 2,857 1.29 787,262 2,391 1.20
Other interest-bearing deposits 553,401 467 0.34 528,954 429 0.33 352,156 324 0.37
Total interest-bearing deposits 2,645,030 5,159 0.78 2,425,627 4,434 0.74 2,070,666 3,655 0.70
Borrowings 488,015 2,139 1.74 639,054 2,355 1.48 544,774 1,944 1.42
Subordinated debentures (8) 55,155 814 5.87 55,155 812 5.92 55,155 816 5.87
Capital lease obligation 2,814 42 5.94 2,844 43 6.08 2,933 44 5.95
Total interest-bearing liabilities 3,191,014 8,154 1.02 3,122,680 7,644 0.98 2,673,528 6,459 0.96
Demand deposits 640,323 581,743 560,129
Other liabilities 18,318 24,365 24,164
Total noninterest-bearing liabilities 658,642 606,108 584,293
Stockholders' equity 495,141 483,519 471,682
Total liabilities and stockholders' equity$ 4,344,796 $ 4,212,307 $ 3,729,503
Net interest income (tax equivalent basis) 33,762 33,112 30,382
Net interest spread (5) 3.11 % 3.21 % 3.29 %
Net interest margin (6) 3.32 % 3.40 % 3.50 %
Tax equivalent adjustment (738) (718) (655)
Net interest income $ 33,024 $ 32,394 $ 29,727
(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) Excluding debt issuance costs of $698, $746 and $ - for the three months ended September 30, 2016, June 30, 2016 and September 30, 2015, respectively.

Investor Contact: William S. Burns Executive VP & CFO 201.816.4474; bburns@cnob.com Media Contact: Jake Ciorciari, MWW 646.376.7042; jciorciari@mww.com

Source:ConnectOne Bancorp, Inc.