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ConnectOne Bancorp, Inc. Reports Second Quarter 2017 Results

ENGLEWOOD CLIFFS, N.J., July 27, 2017 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq:CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $7.7 million for the second quarter of 2017 compared with $11.9 million for the first quarter of 2017 and $10.9 million earned during the second quarter of 2016. Diluted earnings per share were $0.24 for the current quarter versus $0.37 earned in the first quarter of 2017 and $0.36 earned in the second quarter of 2016.

During the quarter we recorded a $9.7 million pretax expense due to further weakness in the valuation of NYC taxi medallions, thereby reducing the carrying value of our taxi medallion loan portfolio, which is predominantly corporate medallions, to $50.9 million. Excluding expense related to taxi medallion loan valuation and net securities gains, earnings per share increased to $0.42 for the second quarter of 2017, as compared with $0.38 for the first quarter of 2017 and $0.39 for the second quarter of 2016.

Frank Sorrentino, ConnectOne’s Chairman and CEO stated, “We are exceedingly pleased with our second quarter operating performance. Loans receivable increased by $190 million from the prior quarter-end and, consistent with our emphasis on diversifying our loan mix, commercial and industrial loans grew by $69 million, representing an annualized growth rate of 50.8% for this non-CRE segment. Overall loan growth since year-end 2016 has amounted to $286 million, or 16.4% annualized. Meanwhile, core deposit growth has also exhibited strong progress. For the current quarter, our total demand deposits (including both interest and noninterest-bearing) increased by $49 million, or 16.0% on an annualized basis. Additional deposit growth is expected through enhanced cash management service capabilities, expansion of our municipal and private-school relationships, and better utilization of our modern branch model which allows our staff to focus on sales. The Company remains focused on accelerating deposit growth so that it is commensurate with strong loan growth. On a GAAP basis, return on average assets was 0.69% and return on average tangible equity was 7.80%; however, when excluding the aforementioned taxi charge, the adjusted return on average assets and return on average tangible equity was 1.20% and 13.5%, respectively, reflecting strengthening underlying core performance. Meanwhile, our net interest margin widened by 5 basis points to 3.45% and the operating efficiency ratio improved to 41.6%, from 44.0% in the first quarter of 2017 due to seasonal factors and continued operational leverage. We expect our efficiency ratio to improve further in future quarters. Augmenting our efficiency and deposit gathering capabilities, we are proud to announce our new partnerships with Zelle, the consortium of the top 30 banks in the country to provide real-time payments, and with nCino, one of the most efficient and streamlined deposit and loan operating systems in the industry, which will continue to support our best-in-class efficiency metrics.”

Mr. Sorrentino commented further, “While we are disappointed that weakness in the taxi medallion sector has negatively impacted this quarter’s results, our taxi medallion exposure is now down to 1.3% of our loan portfolio; a level where, regardless of final resolution, no negative impact is expected on our strategic plans.”

Operating Results

Fully taxable equivalent net interest income for the second quarter of 2017 was $35.8 million, an increase of $1.9 million, or 5.5%, from the first quarter of 2017, resulting from an increase in average interest-earning assets of 2.8% and the widening of the net interest margin to 3.45% from 3.40%. Included in net interest income was accretion and amortization of purchase accounting adjustments of $0.3 million and $0.6 million during the second and first quarter of 2017, respectively. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.42% in the second quarter of 2017, widening by 9 basis-points from the first quarter 2017 adjusted net interest margin of 3.33%. The increase in the adjusted net interest margin was primarily attributable to higher yields on loans and an improved asset-mix, partially offset by lower yields on securities and an increased cost in deposit funding.

Fully taxable equivalent net interest income for the second quarter of 2017 reflected an increase of $2.7 million, or 8.2%, from the second quarter of 2016, resulting from an increase in average interest-earning assets of 6.5% and the widening of the net interest margin by 5 basis-points to 3.45% from 3.40%. Included in net interest income was accretion and amortization of purchase accounting adjustments of $0.3 million and $1.2 million during the second quarter of 2017 and second quarter of 2016, respectively. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.42% in the second quarter of 2017, widening by 14 basis-points from the second quarter of 2016 adjusted net interest margin of 3.28%. The increase in the adjusted net interest margin was primarily attributable to higher yields on loans and an improved asset-mix, partially offset by lower yields on securities and an increased cost in deposit funding.

Noninterest income totaled $1.4 million in the second quarter of 2017, $3.0 million in the first quarter of 2017 and $1.6 million in the second quarter of 2016. There were no net securities gains/(losses) during the second quarter of 2017. The first quarter of 2017 and the second quarter of 2016 included net securities gains of $1.6 million and $0.1 million, respectively. Excluding the securities gains, noninterest income remained flat when compared to the sequential quarter and the prior year second quarter. Noninterest income also includes bank owned life insurance and deposit, loan and other income.

Noninterest expenses totaled $25.3 million for the second quarter of 2017, up $7.1 million from $18.2 million for the first quarter of 2017 and up $10.9 million from $14.4 million for the second quarter of 2016. The increase from the sequential quarter was mainly attributable to an increase in the taxi medallion loans held-for-sale valuation allowance, which was $9.7 million in the current quarter and $2.6 million in the first quarter of 2017. In addition, decreases in occupancy and equipment expenses ($0.3 million) and other expenses ($0.2 million), partially offset by increases in salaries and employee benefits ($0.4 million), contributed to the overall increase in noninterest expenses from the first quarter of 2017. The increase from the prior year second quarter was mainly attributable to the valuation allowance of which there was none in the prior year’s period. In addition, increases in salaries and employee benefits ($0.9 million), FDIC insurance premiums ($0.2 million), data processing ($0.1 million), and other expense ($0.1 million), partially offset by a decrease in occupancy and equipment expenses ($0.2 million), contributed to the overall increase in noninterest expense from the second quarter of 2016. The increases over the prior year second quarter were the result of increased levels of business and staff resulting from organic growth.

Income tax expense was $2.1 million for the second quarter of 2017, compared to $4.9 million for the first quarter of 2017 and $5.0 million for the second quarter of 2016. Included in income tax expense for the second and first quarter of 2017 is a benefit of $47 thousand and $133 thousand, respectively, which resulted from the effect of implementing ASU 2016-09, which relates to the recognition of excess tax benefits in the income statement (formerly through equity) that result from employee share-based payment awards. The effective tax rate for the current quarter was 21.4% versus 31.5% for the prior-year quarter. Excluding any changes to the taxi medallion valuation allowance, the effective tax rate for 2017 is expected to be maintained in the low 30% range.

Asset Quality

The provision for loan losses increased to $1.5 million in the second quarter of 2017 from $1.1 million in the first quarter of 2017, and decreased from $3.8 million in the second quarter of 2016. The increase from the sequential quarter was largely attributable to higher loan growth. The decrease from the prior year quarter was largely attributable to decreases in specific reserves.

As of June 30, 2017, loans held-for-sale included loans secured by NYC taxi medallions, predominantly corporate medallions, totaling $50.9 million (net of a $12.3 million valuation allowance), compared to $65.6 million (with no valuation allowance) as of December 31, 2016. The decrease was primarily attributable to the aforementioned taxi medallion valuation allowance and a payoff of two corporate medallions for $1.1 million. The increase of the valuation allowance to $12.3 million compared to year-end 2016 was the result of reduced medallion lease revenues, lower transfer valuations as reported by the New York City Taxi and Limousine Commission, and uncertainty surrounding institutional investor interest in the NYC taxi business. The valuation allowance is based on a per medallion value of approximately $374,000 as of June 30, 2017, down from $450,000 as of March 31, 2017. The carrying value of taxi medallion loans at June 30, 2017 ($50.9 million) represents just 1.33% of total loans and 1.09% of total assets. Taxi medallion loans are on non-accrual status but are currently cash flowing in excess of $3 million on an annualized basis.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $63.5 million at June 30, 2017, $69.4 million at December 31, 2016 and $23.9 million at June 30, 2016. Included in nonperforming assets were taxi medallion loans, totaling $48.9 million at June 30, 2017, $63.0 million at December 31, 2016 and $3.9 million at June 30, 2016. Nonperforming assets as a percentage of total assets were 1.36% at June 30, 2017, 1.57% at December 31, 2016, and 0.56% at June 30, 2016. Excluding the taxi medallion loans, nonaccrual loans increased to $14.1 million at June 30, 2017, from $5.7 million at December 31, 2016 and decreased from $18.0 million at June 30, 2016. Nonaccrual loans as a percentage of loans receivable, excluding taxi medallion loans, were 0.37% at June 30, 2017, 0.16% at December 31, 2016 and 0.55% at June 30, 2016.

Annualized net charge-offs were (0.01)% (a net recovery) for the first and second quarters of 2017 and 0.01% for the second quarter of 2016. The allowance for loan losses represented 0.76%, 0.74%, and 0.97% of loans receivable as of June 30, 2017, December 31, 2016 and June 30, 2016, respectively. The allowance for loan losses as a percentage of nonaccruals, excluding taxi medallion loans, was 202.1% as of June 30, 2017, 449.0% as of December 31, 2016 and 138.8% as of June 30, 2016.

Selected Balance Sheet Items

At June 30, 2017, the Company’s total assets were $4.7 billion, an increase of $255 million from December 31, 2016. Total loans (including loans held-for-sale) at June 30, 2017 were $3.8 billion, reflecting net loan growth (loan originations less pay-downs and pay-offs) of $259 million from December 31, 2016, primarily attributable to increases in multifamily ($202 million), other commercial real estate ($65 million), commercial and industrial ($56 million) and residential real estate ($19 million), offset by decreases in construction ($55 million) and loans held-for-sale ($27 million).

The Company’s stockholders’ equity was $546 million at June 30, 2017, an increase of $15.1 million from December 31, 2016. The increase in stockholders’ equity was primarily attributable to an increase of $14.7 million in retained earnings and approximately $1.0 million of equity issuance related to stock-based compensation, partially offset by an increase to accumulated other comprehensive loss of $0.4 million. As of June 30, 2017, the Company’s tangible common equity ratio and tangible book value per share were 8.77% and $12.42, respectively. As of December 31, 2016, the tangible common equity ratio and tangible book value per share were 8.93% and $11.96, respectively. Total goodwill and other intangible assets were approximately $149 million as of both June 30, 2017 and December 31, 2016.

Use of Non-GAAP Financial Measures

In addition to the results presented in accordance with Generally Accepted Accounting Principles ("GAAP"), ConnectOne routinely supplements its evaluation with an analysis of certain non-GAAP/adjusted financial measures including an adjusted net income available to common shareholders. ConnectOne believes these non-GAAP financial measures, in addition to the related GAAP measures, provide meaningful information to investors in understanding our operating performance and trends. These non-GAAP measures have inherent limitations and are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for an analysis of results reported under GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies.

Reconciliations of non-GAAP/adjusted financial measures disclosed in this earnings release to the comparable GAAP measures are provided in the accompanying tables.

Second Quarter 2017 Conference Call

Management will host a conference call and audio webcast at 10:00 a.m. ET on July 27, 2017 to review the Company's financial performance and operating results. The conference call dial-in number is 719-325-2353, access code 2896145. Please dial in at least five minutes before the start of the call to register. An audio webcast of the conference call will be available to the public, on a listen-only basis, via the Company’s website ir.ConnectOneBank.com.

A replay of the conference call will be available beginning at approximately 1:00 p.m. ET on Thursday, July 27, 2017 and ending on Wednesday, August 2, 2017 by dialing 719-457-0820, access code 2896145. An online archive of the webcast will be available following the completion of the conference call at ir.ConnectOneBank.com.

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 and Exchange Commission, and changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area 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,
2017 2016 2016
(unaudited) (unaudited)
ASSETS
Cash and due from banks$ 54,305 $ 37,150 $ 35,850
Interest-bearing deposits with banks 92,203 163,249 139,263
Cash and cash equivalents 146,508 200,399 175,113
Investment securities:
Available-for-sale 402,130 353,290 208,266
Held-to-maturity (fair value of $-0-, $-0-, $227,427) - - 214,718
Loans held-for-sale (net of $12,325, $-0-, $-0- valuation allowance) 51,124 78,005 360
Loans receivable 3,761,572 3,475,832 3,375,620
Less: Allowance for loan losses 28,401 25,744 32,763
Net loans receivable 3,733,171 3,450,088 3,342,857
Investment in restricted stock, at cost 32,152 24,310 25,210
Bank premises and equipment, net 21,630 22,075 22,477
Accrued interest receivable 13,194 12,965 12,726
Bank owned life insurance 99,777 98,359 80,028
Other real estate owned 580 626 2,029
Goodwill 145,909 145,909 145,909
Core deposit intangibles 2,702 3,088 3,474
Other assets 32,403 37,234 29,747
Total assets$ 4,681,280 $ 4,426,348 $ 4,262,914
LIABILITIES
Deposits:
Noninterest-bearing$ 695,522 $ 694,977 $ 648,664
Interest-bearing 2,734,851 2,649,294 2,552,329
Total deposits 3,430,373 3,344,271 3,200,993
Borrowings 626,173 476,280 496,414
Subordinated debentures (net of $539, $621, $714 in debt issuance costs) 54,616 54,534 54,441
Other liabilities 23,945 20,231 26,652
Total liabilities 4,135,107 3,895,316 3,778,500
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock 412,546 412,726 374,287
Additional paid-in capital 12,377 11,407 9,864
Retained earnings 141,178 126,462 121,301
Treasury stock (16,717) (16,717) (16,717)
Accumulated other comprehensive loss (3,211) (2,846) (4,321)
Total stockholders' equity 546,173 531,032 484,414
Total liabilities and stockholders' equity$ 4,681,280 $ 4,426,348 $ 4,262,914

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for per share data)
Three Months Ended Six Months Ended
06/30/17 06/30/16 06/30/17 06/30/16
Interest income
Interest and fees on loans $ 40,632 $ 36,561 $ 78,638 $ 71,578
Interest and dividends on investment securities:
Taxable 1,799 1,965 3,347 4,105
Tax-exempt 831 996 1,785 1,879
Dividends 290 370 620 722
Interest on federal funds sold and other short-term investments 139 146 385 280
Total interest income 43,691 40,038 84,775 78,564
Interest expense
Deposits 5,495 4,434 10,604 8,373
Borrowings 3,095 3,210 5,929 6,477
Total interest expense 8,590 7,644 16,533 14,850
Net interest income 35,101 32,394 68,242 63,714
Provision for loan losses 1,450 3,750 2,550 6,750
Net interest income after provision for loan losses 33,651 28,644 65,692 56,964
Noninterest income
Annuities and insurance commissions - 32 39 72
Income on bank owned life insurance 714 616 1,417 1,228
Net gains on sale of loans held-for-sale 49 56 70 92
Deposit, loan and other income 659 763 1,302 1,277
Net gains on sale of investment securities - 103 1,596 103
Total noninterest income 1,422 1,570 4,424 2,772
Noninterest expenses
Salaries and employee benefits 8,632 7,753 16,838 15,353
Occupancy and equipment 1,991 2,154 4,246 4,401
FDIC insurance 815 615 1,710 1,210
Professional and consulting 734 700 1,452 1,412
Marketing and advertising 289 250 545 523
Data processing 1,149 1,010 2,298 2,033
Amortization of core deposit intangible 193 217 386 434
Increase in valuation allowance, loans held-for-sale 9,725 - 12,325 -
Other expenses 1,775 1,653 3,752 3,339
Total noninterest expenses 25,303 14,352 43,552 28,705
Income before income tax expense 9,770 15,862 26,564 31,031
Income tax expense 2,087 5,003 7,001 9,781
Net income 7,683 10,859 19,563 21,250
Less: Preferred stock dividends - - - 22
Net income available to common stockholders $ 7,683 $ 10,859 $ 19,563 $ 21,228
Earnings per common share:
Basic $ 0.24 $ 0.36 $ 0.61 $ 0.71
Diluted 0.24 0.36 0.60 0.70
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,
2017 2017 2016 2016 2016
Selected Financial Data
Total assets$ 4,681,280 $ 4,460,816 $ 4,426,348 $ 4,327,804 $ 4,262,914
Loans receivable:
Commercial 610,442 541,690 554,065 644,430 630,425
Commercial real estate-other 1,218,995 1,192,074 1,154,154 1,139,641 1,104,214
Commercial real estate-multifamily 1,251,962 1,134,760 1,050,067 961,163 967,555
Commercial construction 431,049 460,611 486,228 471,109 443,277
Residential 251,108 242,883 232,547 229,401 230,497
Consumer 2,005 2,811 2,380 2,879 1,976
Gross loans 3,765,561 3,574,829 3,479,441 3,448,623 3,377,944
Unearned net origination fees (3,989) (3,166) (3,609) (3,147) (2,324)
Loans receivable 3,761,572 3,571,663 3,475,832 3,445,476 3,375,620
Loans held-for-sale (net of valuation allowance) 51,124 62,255 78,005 15,112 360
Total loans 3,812,696 3,633,918 3,553,837 3,460,588 3,375,980
Securities available-for-sale 402,130 352,476 353,290 338,459 208,266
Securities held-to-maturity - - - - 214,718
Goodwill and other intangible assets 148,611 148,804 148,997 149,190 149,383
Deposits:
Noninterest-bearing demand 695,522 671,183 694,977 655,683 648,664
Interest-bearing demand 572,438 547,934 563,740 531,500 523,742
Savings 189,862 188,790 205,551 207,717 210,040
Money market 990,223 977,357 911,867 866,710 866,643
Time deposits 982,328 970,213 968,136 1,007,339 951,904
Total deposits 3,430,373 3,355,477 3,344,271 3,268,949 3,200,993
Borrowings 626,173 491,226 476,280 481,337 496,414
Subordinated debentures (net of issuance costs) 54,616 54,575 54,534 54,490 54,441
Total stockholders' equity 546,173 540,277 531,032 499,588 484,414
Quarterly Average Balances
Total assets$ 4,495,573 $ 4,382,314 $ 4,349,961 $ 4,344,796 $ 4,212,307
Loans receivable:
Commercial 603,733 557,347 644,263 632,892 626,902
Commercial real estate (including multifamily) 2,337,499 2,222,795 2,130,955 2,081,741 2,056,263
Commercial construction 451,038 466,455 479,342 462,399 418,769
Residential 246,864 237,418 229,738 229,953 231,553
Consumer 2,929 2,460 2,777 2,771 2,865
Gross loans 3,642,063 3,486,475 3,487,075 3,409,756 3,336,352
Unearned net origination fees (3,967) (3,304) (3,151) (2,956) (2,295)
Loans receivable 3,638,096 3,483,171 3,483,924 3,406,800 3,334,057
Loans held-for-sale 61,259 65,860 4,549 478 395
Total loans 3,699,355 3,549,031 3,488,473 3,407,278 3,334,452
Securities available-for-sale 391,965 367,940 351,809 269,895 202,103
Securities held-to-maturity - - - 143,146 218,220
Goodwill and other intangible assets 148,737 148,930 149,123 149,317 149,525
Deposits:
Noninterest-bearing demand 667,461 655,597 666,913 640,323 581,743
Interest-bearing demand 582,196 549,335 534,127 553,401 528,954
Savings 186,033 199,000 205,477 211,162 215,267
Money market 944,646 958,656 891,764 872,937 791,845
Time deposits 976,012 963,976 985,944 1,007,530 889,561
Total deposits 3,356,348 3,326,564 3,284,225 3,285,353 3,007,370
Borrowings 514,161 442,595 476,925 488,015 639,054
Subordinated debentures 55,155 55,155 55,155 55,155 55,155
Total stockholders' equity 549,748 539,544 511,663 495,141 483,519
Three Months Ended
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
2017 2017 2016 2016 2016
Net interest income$ 35,101 $ 33,141 $ 33,407 $ 33,024 $ 32,394
Provision for loan losses 1,450 1,100 25,200 6,750 3,750
Net interest income after provision for loan losses 33,651 32,041 8,207 26,274 28,644
Noninterest income
Annuity and insurance commissions - 39 51 68 32
Income on bank owned life insurance 714 703 715 615 616
Net gains on sale of loans held-for-sale 49 21 86 56 56
Deposit, loan and other income 659 643 721 706 763
Net gains on sale of investment securities - 1,596 - 4,131 103
Total noninterest income 1,422 3,002 1,573 5,576 1,570
Noninterest expenses
Salaries and employee benefits 8,632 8,206 7,888 7,791 7,753
Occupancy and equipment 1,991 2,255 2,122 2,049 2,154
FDIC insurance 815 895 985 745 615
Professional and consulting 734 718 901 667 700
Marketing and advertising 289 256 222 293 250
Data processing 1,149 1,149 1,106 1,002 1,010
Amortization of core deposit intangible 193 193 193 193 217
Increase in valuation allowance, loans held-for-sale 9,725 2,600 - - -
Other expenses 1,775 1,977 1,835 1,811 1,653
Total noninterest expenses 25,303 18,249 15,252 14,551 14,352
Income (loss) before income tax expense 9,770 16,794 (5,472) 17,299 15,862
Income tax expense (benefit) 2,087 4,914 (3,448) 5,443 5,003
Net income (loss) available to common stockholders$ 7,683 $ 11,880 $ (2,024) $ 11,856 $ 10,859
Reconciliation of GAAP Earnings to Earnings excluding Net Securities
Gains and Expenses Related to the Taxi Medallion Portfolio
Net income (loss) available to common stockholders$ 7,683 $ 11,880 $ (2,024) $ 11,856 $ 10,859
Net gains on sales of securities (after taxes) - (1,093) - (2,643) (66)
Provision related to taxi medallion loans (after taxes) - - 14,196 2,958 1,035
Increase in valuation allowance, loans held-for-sale (after taxes) 5,719 1,538 - - -
Net income available to common stockholders-adjusted$ 13,402 $ 12,325 $ 12,172 $ 12,171 $ 11,828
Weighted average diluted shares outstanding 32,255,770 32,192,643 30,729,359 30,401,684 30,340,376
Diluted EPS (GAAP)$ 0.24 $ 0.37 $ (0.07) $ 0.39 $ 0.36
Diluted EPS-adjusted (Non-GAAP) (1) 0.42 0.38 0.40 0.40 0.39
Return on Assets Measures
Net income available to common stockholders-adjusted$ 13,402 $ 12,325 $ 12,172 $ 12,171 $ 11,828
Average assets$ 4,495,573 $ 4,382,314 $ 4,349,961 $ 4,344,796 $ 4,212,307
Less: average intangible assets (148,737) (148,930) (149,123) (149,317) (149,525)
Average tangible assets$ 4,346,836 $ 4,233,384 $ 4,200,838 $ 4,195,479 $ 4,062,782
Return on avg. assets (GAAP) 0.69% 1.10% -0.19% 1.09% 1.04%
Return on avg. assets-adjusted (non-GAAP) (2) 1.20% 1.14% 1.11% 1.11% 1.13%
Return on avg. tangible assets (non-GAAP) (3) 0.72% 1.15% -0.18% 1.14% 1.09%
Return on avg. tangible assets-adjusted (non-GAAP) (4) 1.25% 1.19% 1.16% 1.16% 1.18%
_____
(1) Represents adjusted earnings available to common stockholders divided by weighted average diluted shares outstanding.
(2) Adjusted net income divided by average assets.
(3) Net income excluding amortization of intangible assets divided by average tangible assets.
(4) Adjusted net income excluding amortization of intangible assets divided by average tangible assets.
Three Months Ended
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
2017 2017 2016 2016 2016
Return on Equity Measures
Net income available to common stockholders-adjusted$ 13,402 $ 12,325 $ 12,172 $ 12,171 $ 11,828
Average common equity$ 549,748 $ 539,544 $ 511,663 $ 495,141 $ 483,519
Less: average intangible assets (148,737) (148,930) (149,123) (149,317) (149,525)
Average tangible common equity$ 401,011 $ 390,614 $ 362,540 $ 345,824 $ 333,994
Return on avg. common equity (GAAP) 5.61% 8.93% -1.57% 9.53% 9.03%
Return on avg. common equity-adjusted (non-GAAP) (5) 9.78% 9.26% 9.46% 9.78% 9.84%
Return on avg. tangible common equity (non-GAAP) (6) 7.80% 12.45% -2.10% 13.77% 13.23%
Return on avg. tangible common equity-adjusted (non-GAAP) (7) 13.52% 12.91% 13.48% 14.13% 14.24%
Efficiency Measures
Total noninterest expenses$ 25,303 $ 18,249 $ 15,252 $ 14,551 $ 14,352
Increase in valuation allowance, loans held-for-sale (9,725) (2,600) - - -
Foreclosed property expense (71) (100) (81) (37) 10
Operating noninterest expense $ 15,507 $ 15,549 $ 15,171 $ 14,514 $ 14,362
Net interest income (tax equivalent basis)$ 35,839 $ 33,956 $ 34,120 $ 33,762 $ 33,112
Noninterest income 1,422 3,002 1,573 5,576 1,570
Net gains on sales of investment securities - (1,596) - (4,131) (103)
Operating revenue $ 37,261 $ 35,362 $ 35,693 $ 35,207 $ 34,579
Operating efficiency ratio (non-GAAP) (8) 41.6% 44.0% 42.5% 41.2% 41.5%
Net Interest Margin
Average interest-earning assets$ 4,168,344 $ 4,053,324 $ 4,038,030 $ 4,041,020 $ 3,912,802
Net interest income (tax equivalent basis)$ 35,839 $ 33,956 $ 34,120 $ 33,762 $ 33,112
Impact of purchase accounting fair value marks (316) (649) (960) (1,045) (1,245)
Adjusted net interest income$ 35,523 $ 33,307 $ 33,160 $ 32,717 $ 31,867
Net interest margin (GAAP) 3.45% 3.40% 3.36% 3.32% 3.40%
Adjusted net interest margin (non-GAAP) (9) 3.42% 3.33% 3.27% 3.22% 3.28%
_____
(5) Adjusted earnings available to common stockholders divided by average common equity.
(6) Earnings available to common stockholders excluding amortization of intangibles assets divided by average tangible common equity.
(7) Adjusted earnings available to common stockholders divided by average tangible common equity.
(8) Operating noninterest expense divided by operating revenue.
(9) Adjusted net interest income excluding amortization of intangibles assets divided by average interest-earning assets.
As of
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(dollars in thousands, except share data)2017 2017 2016 2016 2016
Capital Ratios and Book Value per Share
Common equity$ 546,173 $ 540,277 $ 531,032 $ 499,588 $ 484,414
Less: intangible assets (148,611) (148,804) (148,997) (149,190) (149,383)
Tangible common equity$ 397,562 $ 391,473 $ 382,035 $ 350,398 $ 335,031
Total assets$ 4,681,280 $ 4,460,816 $ 4,426,348 $ 4,327,804 $ 4,262,914
Less: intangible assets (148,611) (148,804) (148,997) (149,190) (149,383)
Tangible assets$ 4,532,669 $ 4,312,012 $ 4,277,351 $ 4,178,614 $ 4,113,531
Common shares outstanding 32,015,317 32,004,471 31,944,403 30,197,318 30,197,318
Common equity ratio (GAAP) 11.67% 12.11% 12.00% 11.54% 11.36%
Tangible common equity ratio (non-GAAP) (10) 8.77% 9.08% 8.93% 8.39% 8.14%
Regulatory capital ratios (Bancorp):
Leverage ratio 9.33% 9.44% 9.29% 8.49% 8.52%
Common equity Tier 1 risk-based ratio 9.48% 9.79% 9.74% 9.25% 9.10%
Risk-based Tier 1 capital ratio 9.60% 9.92% 9.87% 9.38% 9.23%
Risk-based total capital ratio 11.46% 11.83% 11.78% 11.69% 11.44%
Regulatory capital ratios (Bank):
Leverage ratio 10.34% 10.50% 10.34% 9.57% 9.62%
Common equity Tier 1 risk-based ratio 10.64% 11.03% 10.98% 10.58% 10.43%
Risk-based Tier 1 capital ratio 10.64% 11.03% 10.98% 10.58% 10.43%
Risk-based total capital ratio 11.32% 11.70% 11.63% 11.57% 11.30%
Book value per share (GAAP)$ 17.06 $ 16.88 $ 16.62 $ 16.54 $ 16.04
Tangible book value per share (non-GAAP) (11) 12.42 12.23 11.96 11.60 11.09
Three Months Ended
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
2017 2017 2016 2016 2016
Net Charge-Off Detail
Net loan charge-offs:
Charge-offs$ 10 $ 72 $ 37,074 $ 1,910 $ 77
Recoveries (60) (129) (2) (12) (16)
Net loan charge-offs$ (50) $ (57) $ 37,072 $ 1,898 $ 61
as a % of average total loans (annualized) -0.01% -0.01% 4.23% 0.22% 0.01%
Asset Quality
Nonaccrual taxi medallion loans$ 48,884 $ 59,054 $ 63,044 $ 3,637 $ 3,882
Nonaccrual loans, excluding taxi medallion loans 14,055 12,790 5,734 7,856 18,029
Other real estate owned 580 580 626 626 2,029
Total nonperforming assets$ 63,519 $ 72,424 $ 69,404 $ 12,119 $ 23,940
Performing troubled debt restructurings$ 10,221 $ 10,005 $ 13,338 $ 105,338 $ 97,831
Allowance for loan losses ("ALLL")$ 28,401 $ 26,901 $ 25,744 $ 37,615 $ 32,763
ALLL, net of taxi specific reserves 28,401 26,901 25,744 25,081 25,026
Nonaccrual loans as a % of loans receivable, excluding taxi medallion loans 0.37% 0.36% 0.16% 0.24% 0.55%
Nonperforming assets as a % of total assets 1.36% 1.62% 1.57% 0.28% 0.56%
ALLL as a % of loans receivable 0.76% 0.75% 0.74% 1.09% 0.97%
ALLL as a % of nonaccrual loans 45.1% 37.4% 37.4% 327.3% 149.5%
ALLL (excluding taxi medallion specific reserves) as a % of nonaccrual loans (excluding taxi medallion loans) 202.1% 210.3% 449.0% 319.3% 138.8%
ALLL (excluding taxi medallion specific reserves) as a % of loans receivable (excluding taxi medallion loans) 0.76% 0.75% 0.74% 0.75% 0.76%
_____
(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, 2017March 31, 2017June 30, 2016
Average Average Average
Interest-earning assets: BalanceInterestRate (8) BalanceInterestRate (8) BalanceInterestRate (8)
Investment securities (1) (2) $ 390,462 $ 3,079 3.16% $ 366,473 $ 3,015 3.34% $ 418,270 $ 3,497 3.36%
Loans receivable and loans held-for-sale (2) (3) (4) 3,699,355 40,921 4.44 3,549,031 38,308 4.38 3,334,057 36,743 4.43
Federal funds sold and interest-
bearing deposits with banks 52,099 139 1.07 115,025 246 0.87 128,994 146 0.46
Restricted investment in bank stock 26,428 290 4.40 22,795 330 5.87 31,481 370 4.73
Total interest-earning assets 4,168,344 44,429 4.28 4,053,324 41,899 4.19 3,912,802 40,756 4.19
Allowance for loan losses (27,355) (26,215) (29,924)
Noninterest-earning assets 354,584 355,205 329,429
Total assets $ 4,495,573 $ 4,382,314 $ 4,212,307
Interest-bearing liabilities:
Money market deposits 944,646 1,609 0.68 958,656 1,515 0.64 791,845 992 0.50
Savings deposits 186,033 75 0.16 199,000 79 0.16 215,267 156 0.29
Time deposits 976,012 3,311 1.36 963,976 3,091 1.30 889,561 2,857 1.29
Other interest-bearing deposits 582,196 500 0.34 549,335 424 0.31 528,954 429 0.33
Total interest-bearing deposits 2,688,887 5,495 0.82 2,670,967 5,109 0.78 2,425,627 4,434 0.74
Borrowings 514,161 2,244 1.75 442,595 1,985 1.82 639,054 2,355 1.48
Subordinated debentures (5) 55,155 810 5.89 55,155 808 5.94 55,155 812 5.92
Capital lease obligation 2,720 41 6.05 2,752 41 6.04 2,844 43 6.08
Total interest-bearing liabilities 3,260,923 8,590 1.06 3,171,469 7,943 1.02 3,122,680 7,644 0.98
Demand deposits 667,461 655,597 581,743
Other liabilities 17,441 15,705 24,365
Total noninterest-bearing liabilities 684,902 671,302 606,108
Stockholders' equity 549,748 539,543 483,519
Total liabilities and stockholders' equity$ 4,495,573 $ 4,382,314 $ 4,212,307
Net interest income (tax equivalent basis) 35,839 33,956 33,112
Net interest spread (6) 3.22% 3.17% 3.21%
Net interest margin (7) 3.45% 3.40% 3.40%
Tax equivalent adjustment (738) (815) (718)
Net interest income $ 35,101 $ 33,141 $ 32,394
(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) Does not reflect netting of debt issuance costs of $565, $580 and $714 for the three months ended June 30, 2017 March 31, 2017 and June 30, 2016, respectively.
(6) Represents difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities and is presented on a tax equivalent basis.
(7) Represents net interest income on a tax equivalent basis divided by average total interest-earning assets.
(8) Rates are annualized.

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

Source:ConnectOne Bancorp, Inc.