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ConnectOne Bancorp, Inc. Reports Third Quarter 2017 Results

ENGLEWOOD CLIFFS, N.J., Oct. 26, 2017 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq:CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $13.1 million for the third quarter of 2017 compared with $7.7 million for the second quarter of 2017 and $11.9 million earned during the third quarter of 2016. Diluted earnings per share were $0.41 for the current quarter versus $0.24 earned in the second quarter of 2017 and $0.39 earned in the third quarter of 2016.

Earnings per share, adjusted for charges related to the taxi medallion portfolio and securities gains, amounted to $0.46 for the third quarter of 2017, as compared with $0.42 for the second quarter of 2017 and $0.40 for the third quarter of 2016. Taxi medallion pretax charges/provisions amounted to $3.0 million, $9.7 million, and $4.8 million during the third quarter 2017, second quarter 2017 and third quarter 2016, respectively. A $4.1 million pretax securities gain was realized during the third quarter of 2016.

Frank Sorrentino, ConnectOne’s Chairman and CEO stated, “Third quarter operating results reflect increasing strong core performance, with return on tangible equity (excluding taxi medallion charges) surpassing 14%. Key business drivers showed continued momentum with deposit and loan growth achieving near-historic levels. Loans receivable increased by $128 million during the quarter, including non-CRE loans which increased in excess of 20% annualized. Loan growth since year-end 2016 amounted to $413.5 million or 15.8% on an annualized basis. In addition, we designated approximately $42 million of performing multifamily “non-relationship” loans as held-for-sale, which is anticipated to close in the fourth quarter of 2017 and would result in a modest gain and help to further diversify our loan portfolio. We also achieved strong progress in increasing core deposits. For the current quarter, our average core deposits (total deposits excluding time deposits) increased by $125 million, or 20.9% on an annualized basis. Return on assets for the third quarter, including $3.0 million of taxi charges, was 1.10% and return on tangible equity was 12.8%. When excluding the aforementioned taxi charges, the adjusted return on assets and return on tangible equity was 1.25% and 14.5%, respectively, while our 3.44% net interest margin for the quarter is stabilizing and our efficiency ratio improved to below 40%.”

Mr. Sorrentino added, “Operationally, we are expanding our deposit gathering initiatives with the opening of our first commercial banking office on Long Island, located on the Nassau/Suffolk border in Melville, NY. The new office is the Bank’s second location in New York State and enables ConnectOne to further provide best in class service to existing NY-based customers while also fostering new relationships on Long Island. ConnectOne has long worked with businesses in the New York metropolitan area to help them reach their goals and grow. Two years ago, we opened our first New York branch in Manhattan, and quickly realized the need for institutions with ConnectOne’s capabilities as a larger bank that can also provide the one-on-one service we specialize in. Our expansion to Long Island is a natural extension of our market focus.”

Mr. Sorrentino continued, “Looking ahead, we remain focused on driving shareholder return by executing against key strategic objectives including diversified loan growth, core deposit funding to match growth, and leveraging our infrastructure through economies of scale and technological advancements. In addition, strong earnings retention is funding balance sheet growth in excess of 10%. We are diligently building a stronger company and our third quarter and year-to-date results demonstrate our commitment to and success in achieving these goals.”

Operating Results

Fully taxable equivalent net interest income for the third quarter of 2017 was $37.9 million, an increase of $2.1 million, or 5.8%, from the second quarter of 2017, resulting from an increase in average interest-earning assets of 5.0% combined with a little-changed net interest margin, which contracted by 1 basis-point to 3.44% from 3.45%. Included in net interest income was accretion and amortization of purchase accounting adjustments of $0.3 million during both the third and second quarters of 2017. Excluding purchase accounting adjustments, the adjusted net interest margin was 3.41% in the third quarter of 2017, contracting by 1 basis-point from the second quarter 2017 adjusted net interest margin of 3.42%. The decrease in net interest margin was primarily attributable to increased deposit funding costs, offset by higher yields on loans.

Fully taxable equivalent net interest income for the third quarter of 2017 increased by $4.2 million, or 12.3%, from the third quarter of 2016, resulting from an increase in average interest-earning assets of 8.4% and the widening of the net interest margin by 12 basis-points to 3.44% from 3.32%. Included in net interest income was accretion and amortization of purchase accounting adjustments of $0.3 million and $1.0 million during the third quarter of 2017 and 2016, respectively. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.41% in the third quarter of 2017, widening by 19 basis-points from the third quarter of 2016 adjusted net interest margin of 3.22%. The increase in the adjusted net interest margin was primarily attributable to a higher volume of loans which reduced excess cash balances resulting in an improved asset-mix, partially offset by increased cost in deposit funding and lower yields on securities.

Noninterest income totaled $1.8 million in the third quarter of 2017, $1.4 million in the second quarter of 2017 and $5.6 million in the third quarter of 2016. There were no net securities gains during the third and second quarters of 2017. The third quarter of 2016 included net securities gains of $4.1 million. Excluding the securities gains, noninterest income increased approximately $0.3 million when compared to the sequential quarter and the prior year third quarter. The increase was due primarily to a bank owned life insurance death benefit recorded during the third quarter of 2017.

Noninterest expenses totaled $18.6 million for the third quarter of 2017, down $6.7 million from $25.3 million for the second quarter of 2017 and up $4.1 million from $14.6 million for the third quarter of 2016. The decrease from the sequential quarter was mainly attributable to the valuation allowance adjustment on taxi medallion loans held-for-sale, which declined to $3.0 million in the current quarter from $9.7 million in the second quarter of 2017. The increase in noninterest expenses from the prior year third quarter was mainly attributable to the aforementioned $3.0 million taxi medallion valuation allowance; there was no valuation allowance in the prior year’s period. In addition, increases in salaries and employee benefits ($1.1 million), FDIC insurance premiums ($0.1 million), data processing ($0.2 million), partially offset by decreases in other expense ($0.2 million) and occupancy and equipment expenses ($0.1 million) contributed to the overall increase in noninterest expense from the third quarter of 2016. 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 $5.6 million for the third quarter of 2017, compared to $2.1 million for the second quarter of 2017 and $5.4 million for the third quarter of 2016. Included in income tax expense for the first nine months of 2017 is a benefit of $180 thousand, 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 30.0% versus 21.4% for the sequential quarter and 31.5% for the prior year third 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 was $1.5 million in both the third and second quarters of 2017, down from $6.8 million in the third quarter of 2016. The decrease from the prior year quarter was largely attributable to a lower level of specific credit reserves.

As of September 30, 2017, loans held-for-sale included loans secured by NYC taxi medallions, predominantly corporate medallions totaling $47.4 million (net of a $15.3 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 $15.3 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 results in a per medallion value of approximately $348,000 as of September 30, 2017, down from approximately $374,000 as of June 30, 2017. Management continues to find market interest for taxi medallion loans to be extremely limited, especially for relatively smaller portfolios such as the Bank’s. Management is however experiencing continued success at restructuring loans in the portfolio and is encouraged by the cash flows being generated. Therefore, Management is currently considering returning the taxi medallion loans to loans held-for-investment. Although no decision has been made at the present time, if the loans are transferred back, they will be recorded at the held-for-sale valuation at the time of transfer.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $61.2 million at September 30, 2017, $69.4 million at December 31, 2016 and $12.1 million at September 30, 2016. Included in nonperforming assets were taxi medallion loans, totaling $47.4 million at September 30, 2017, $63.0 million at December 31, 2016 and $3.6 million at September 30, 2016. Nonperforming assets as a percentage of total assets were 1.26% at September 30, 2017, 1.57% at December 31, 2016, and 0.28% at September 30, 2016. Excluding the taxi medallion loans, nonaccrual loans increased to $13.8 million at September 30, 2017, from $5.7 million at December 31, 2016 and $7.9 million at September 30, 2016. Nonaccrual loans as a percentage of loans receivable, excluding taxi medallion loans, were 0.35% at September 30, 2017, 0.16% at December 31, 2016 and 0.24% at September 30, 2016.

The net charge-off (recovery) ratio was (0.00)% for the third quarter of 2017, (0.01)% for the second quarter of 2017 and 0.22% for the third quarter of 2016. The allowance for loan losses represented 0.77%, 0.74%, and 1.09% of loans receivable as of September 30, 2017, December 31, 2016 and September 30, 2016, respectively. The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 217.2% as of September 30, 2017, 449.0% as of December 31, 2016 and 319.3% as of September 30, 2016.

Selected Balance Sheet Items

At September 30, 2017, the Company’s total assets were $4.8 billion, an increase of $418 million from December 31, 2016. Loans receivable at September 30, 2017 were $3.9 billion, reflecting net loan growth (loan originations less pay-downs and pay-offs) of $413 million from December 31, 2016, primarily attributable to increases in multifamily ($280 million), other commercial real estate ($100 million), commercial and industrial ($88 million), and residential real estate ($32 million), offset by decreases in construction ($87 million).

The Company’s stockholders’ equity was $558 million at September 30, 2017, an increase of $26.7 million from December 31, 2016. The increase in stockholders’ equity was primarily attributable to an increase of $25.4 million in retained earnings and approximately $1.4 million of equity issuance related to stock-based compensation. As of September 30, 2017, the Company’s tangible common equity ratio and tangible book value per share were 8.71% and $12.78, 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 $148 million and $149 million as of September 30, 2017 and December 31, 2016, respectively.

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.

Third Quarter 2017 Conference Call

Management will host a conference call and audio webcast at 10:00 a.m. ET on October 26, 2017 to review the Company's financial performance and operating results. The conference call dial-in number is 785-424-1809, access code 6217589. 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 at ir.ConnectOneBank.com.

A replay of the conference call will be available beginning at approximately 1:00 p.m. ET on Thursday, October 26, 2017 and ending on Thursday, November 2, 2017 by dialing 719-457-0820, access code 6217589. 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 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.

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


CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
September 30, December 31, September 30,
2017 2016 2016
ASSETS(unaudited) (unaudited)
Cash and due from banks$41,114 $37,150 $49,028
Interest-bearing deposits with banks 100,148 163,249 184,766
Cash and cash equivalents 141,262 200,399 233,794
Securities available-for-sale 400,516 353,290 338,459
Loans held-for-sale (net of $15,287, $-0-, $-0- valuation allowance) 89,386 78,005 15,112
Loans receivable 3,889,289 3,475,832 3,445,476
Less: Allowance for loan losses 29,870 25,744 37,615
Net loans receivable 3,859,419 3,450,088 3,407,861
Investment in restricted stock, at cost 29,672 24,310 24,535
Bank premises and equipment, net 21,917 22,075 22,112
Accrued interest receivable 14,841 12,965 12,497
Bank owned life insurance 110,762 98,359 97,644
Other real estate owned - 626 626
Goodwill 145,909 145,909 145,909
Core deposit intangibles 2,533 3,088 3,281
Other assets 28,538 37,234 25,974
Total assets$4,844,755 $4,426,348 $4,327,804
LIABILITIES
Deposits:
Noninterest-bearing$719,582 $694,977 $655,683
Interest-bearing 2,904,187 2,649,294 2,613,266
Total deposits 3,623,769 3,344,271 3,268,949
Borrowings 585,124 476,280 481,337
Subordinated debentures (net of $498, $621, $665 in debt issuance costs) 54,657 54,534 54,490
Other liabilities 23,514 20,231 23,440
Total liabilities 4,287,064 3,895,316 3,828,216
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock 412,546 412,726 374,287
Additional paid-in capital 12,840 11,407 10,409
Retained earnings 151,851 126,462 130,885
Treasury stock (16,717) (16,717) (16,717)
Accumulated other comprehensive (loss) income (2,829) (2,846) 724
Total stockholders' equity 557,691 531,032 499,588
Total liabilities and stockholders' equity$4,844,755 $4,426,348 $4,327,804

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for per share data)
Three Months Ended Nine Months Ended
09/30/17 09/30/16 09/30/17 09/30/16
Interest income
Interest and fees on loans$43,241 $37,803 $121,879 $109,381
Interest and dividends on investment securities:
Taxable 1,695 1,774 5,042 5,879
Tax-exempt 870 988 2,655 2,867
Dividends 362 352 982 1,074
Interest on federal funds sold and other short-term investments 170 261 555 541
Total interest income 46,338 41,178 131,113 119,742
Interest expense
Deposits 6,113 5,159 16,717 13,532
Borrowings 3,206 2,995 9,135 9,472
Total interest expense 9,319 8,154 25,852 23,004
Net interest income 37,019 33,024 105,261 96,738
Provision for loan losses 1,450 6,750 4,000 13,500
Net interest income after provision for loan losses 35,569 26,274 101,261 83,238
Noninterest income
Annuities and insurance commissions - 68 39 140
Income on bank owned life insurance 985 615 2,402 1,843
Net gains on sale of loans held-for-sale 50 56 120 147
Deposit, loan and other income 721 706 2,023 1,984
Net gains on sale of investment securities - 4,131 1,596 4,234
Total noninterest income 1,756 5,576 6,180 8,348
Noninterest expenses
Salaries and employee benefits 8,872 7,791 25,710 23,143
Occupancy and equipment 1,969 2,049 6,215 6,450
FDIC insurance 840 745 2,550 1,955
Professional and consulting 740 667 2,192 2,078
Marketing and advertising 225 293 770 817
Data processing 1,176 1,002 3,474 3,036
Amortization of core deposit intangible 169 193 555 627
Increase in valuation allowance, loans held-for-sale 3,000 - 15,325 -
Other expenses 1,650 1,811 5,402 5,150
Total noninterest expenses 18,641 14,551 62,193 43,256
Income before income tax expense 18,684 17,299 45,248 48,330
Income tax expense 5,607 5,443 12,608 15,224
Net income 13,077 11,856 32,640 33,106
Less: Preferred stock dividends - - - 22
Net income available to common stockholders$13,077 $11,856 $32,640 $33,084
Earnings per common share:
Basic$0.41 $0.39 $1.02 $1.10
Diluted 0.41 0.39 1.01 1.09
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
As of
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
2017 2017 2017 2016 2016
Selected Financial Data(dollars in thousands)
Total assets$4,844,755 $4,681,280 $4,460,816 $4,426,348 $4,327,804
Loans receivable:
Commercial 641,613 610,442 541,690 554,065 644,430
Commercial real estate-other 1,254,720 1,218,995 1,192,074 1,154,154 1,139,641
Multifamily 1,330,485 1,251,962 1,134,760 1,050,067 961,163
Commercial construction 399,453 431,049 460,611 486,228 471,109
Residential 264,244 251,108 242,883 232,547 229,401
Consumer 1,912 2,005 2,811 2,380 2,879
Gross loans 3,892,427 3,765,561 3,574,829 3,479,441 3,448,623
Unearned net origination fees (3,138) (3,989) (3,166) (3,609) (3,147)
Loans receivable 3,889,289 3,761,572 3,571,663 3,475,832 3,445,476
Loans held-for-sale (net of valuation allowance) 89,386 51,124 62,255 78,005 15,112
Total loans$3,978,675 $3,812,696 $3,633,918 $3,553,837 $3,460,588
Securities available-for-sale$400,516 $402,130 $352,476 $353,290 $338,459
Goodwill and other intangible assets 148,442 148,611 148,804 148,997 149,190
Deposits:
Noninterest-bearing demand 719,582 695,522 671,183 694,977 655,683
Other interest-bearing deposits 1,825,828 1,752,523 1,714,081 1,681,158 1,605,927
Time deposits 1,078,359 982,328 970,213 968,136 1,007,339
Total deposits$3,623,769 $3,430,373 $3,355,477 $3,344,271 $3,268,949
Borrowings$585,124 $626,173 $491,226 $476,280 $481,337
Subordinated debentures (net of issuance costs) 54,657 54,616 54,575 54,534 54,490
Total stockholders' equity 557,691 546,173 540,277 531,032 499,588
Quarterly Average Balances
Total assets$4,714,012 $4,495,573 $4,382,314 $4,349,961 $4,344,796
Loans receivable:
Commercial 671,525 603,733 557,347 644,263 632,892
Commercial real estate (including multifamily) 2,502,846 2,337,499 2,222,795 2,130,955 2,081,741
Commercial construction 418,439 451,038 466,455 479,342 462,399
Residential 255,755 246,864 237,418 229,738 229,953
Consumer 2,555 2,929 2,460 2,777 2,771
Gross loans 3,851,120 3,642,063 3,486,475 3,487,075 3,409,756
Unearned net origination fees (3,724) (3,967) (3,304) (3,151) (2,956)
Loans receivable 3,847,396 3,638,096 3,483,171 3,483,924 3,406,800
Loans held-for-sale 51,008 61,259 65,860 4,549 478
Total loans$3,898,404 $3,699,355 $3,549,031 $3,488,473 $3,407,278
Securities available-for-sale 398,635 391,965 367,940 351,809 269,895
Securities held-to-maturity - - - - 143,146
Goodwill and other intangible assets 148,553 148,737 148,930 149,123 149,317
Deposits:
Noninterest-bearing demand 688,707 667,461 655,597 666,913 640,323
Other interest-bearing deposits 1,816,162 1,712,875 1,706,991 1,631,368 1,637,500
Time deposits 1,005,997 976,012 963,976 985,944 1,007,530
Total deposits$3,510,866 $3,356,348 $3,326,564 $3,284,225 $3,285,353
Borrowings$570,711 $514,161 $442,595 $476,925 $488,015
Subordinated debentures 55,155 55,155 55,155 55,155 55,155
Total stockholders' equity 556,620 549,748 539,544 511,663 495,141
Three Months Ended
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
2017 2017 2017 2016 2016
(dollars in thousands, except for per share data)
Net interest income$37,019 $35,101 $33,141 $33,407 $33,024
Provision for loan losses 1,450 1,450 1,100 25,200 6,750
Net interest income after provision for loan losses 35,569 33,651 32,041 8,207 26,274
Noninterest income
Annuity and insurance commissions - - 39 51 68
Income on bank owned life insurance 985 714 703 715 615
Net gains on sale of loans held-for-sale 50 49 21 86 56
Deposit, loan and other income 721 659 643 721 706
Net gains on sale of investment securities - - 1,596 - 4,131
Total noninterest income 1,756 1,422 3,002 1,573 5,576
Noninterest expenses
Salaries and employee benefits 8,872 8,632 8,206 7,888 7,791
Occupancy and equipment 1,969 1,991 2,255 2,122 2,049
FDIC insurance 840 815 895 985 745
Professional and consulting 740 734 718 901 667
Marketing and advertising 225 289 256 222 293
Data processing 1,176 1,149 1,149 1,106 1,002
Amortization of core deposit intangible 169 193 193 193 193
Increase in valuation allowance, loans held-for-sale 3,000 9,725 2,600 - -
Other expenses 1,650 1,775 1,977 1,835 1,811
Total noninterest expenses 18,641 25,303 18,249 15,252 14,551
Income (loss) before income tax expense 18,684 9,770 16,794 (5,472) 17,299
Income tax expense (benefit) 5,607 2,087 4,914 (3,448) 5,443
Net income (loss) available to common stockholders$13,077 $7,683 $11,880 $(2,024) $11,856
Reconciliation of GAAP Earnings to Earnings Excluding Net Securities Gains and Expenses Related to the Taxi Medallion Loans Portfolio
Net income (loss) available to common stockholders$13,077 $7,683 $11,880 $(2,024) $11,856
Net gains on sales of securities (after taxes) - - (1,093) - (2,643)
Provision related to taxi medallion loans (after taxes) - - - 14,196 2,958
Increase in valuation allowance, loans held-for-sale (after taxes) 1,776 5,719 1,538 - -
Net income available to common stockholders-adjusted$14,853 $13,402 $12,325 $12,172 $12,171
Weighted average diluted shares outstanding 32,182,016 32,255,770 32,192,643 30,729,359 30,401,684
Diluted EPS (GAAP)$0.41 $0.24 $0.37 $(0.07) $0.39
Diluted EPS-adjusted (non-GAAP) (1) 0.46 0.42 0.38 0.40 0.40
Return on Assets Measures
Net income available to common stockholders-adjusted$14,853 $13,402 $12,325 $12,172 $12,171
Average assets$4,714,012 $4,495,573 $4,382,314 $4,349,961 $4,344,796
Less: average intangible assets (148,553) (148,737) (148,930) (149,123) (149,317)
Average tangible assets$4,565,459 $4,346,836 $4,233,384 $4,200,838 $4,195,479
Return on avg. assets (GAAP) 1.10 % 0.69 % 1.10 % (0.19)% 1.09 %
Return on avg. assets-adjusted (non-GAAP) (2) 1.25 1.20 1.14 1.11 1.11
Return on avg. tangible assets (non-GAAP) (3) 1.15 0.72 1.15 (0.18) 1.14
Return on avg. tangible assets-adjusted (non-GAAP) (4) 1.30 1.25 1.19 1.16 1.16
__________________
(1) Adjusted net income available to common stockholders divided by weighted average diluted shares outstanding.
(2) Adjusted net income available to common stockholders divided by average assets.
(3) Net income available to common stockholders excluding amortization of intangible assets divided by average tangible assets.
(4) Adjusted net income available to common stockholders excluding amortization of intangible assets divided by average tangible assets.
Three Months Ended
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
2017 2017 2017 2016 2016
Return on Equity Measures(dollars in thousands)
Net income available to common stockholders-adjusted$14,853 $13,402 $12,325 $12,172 $12,171
Average common equity$556,620 $549,748 $539,544 $511,663 $495,141
Less: average intangible assets (148,553) (148,737) (148,930) (149,123) (149,317)
Average tangible common equity$408,067 $401,011 $390,614 $362,540 $345,824
Return on avg. common equity (GAAP) 9.32 % 5.61 % 8.93 % (1.57)% 9.53 %
Return on avg. common equity-adjusted (non-GAAP) (5) 10.59 9.78 9.26 9.46 9.78
Return on avg. tangible common equity (non-GAAP) (6) 12.81 7.80 12.45 (2.10) 13.77
Return on avg. tangible common equity-adjusted (non-GAAP) (7) 14.54 13.52 12.91 13.48 14.13
Efficiency Measures
Total noninterest expenses$18,641 $25,303 $18,249 $15,252 $14,551
Increase in valuation allowance, loans held-for-sale (3,000) (9,725) (2,600) - -
Foreclosed property expense (46) (71) (100) (81) (37)
Operating noninterest expense$15,595 $15,507 $15,549 $15,171 $14,514
Net interest income (tax equivalent basis)$37,929 $35,839 $33,956 $34,120 $33,762
Noninterest income 1,756 1,422 3,002 1,573 5,576
Net gains on sales of investment securities - - (1,596) - (4,131)
Operating revenue$39,685 $37,261 $35,362 $35,693 $35,207
Operating efficiency ratio (non-GAAP) (8) 39.3 % 41.6 % 44.0 % 42.5 % 41.2 %
Net Interest Margin
Average interest-earning assets$4,378,537 $4,168,344 $4,053,324 $4,038,030 $4,041,020
Net interest income (tax equivalent basis)$37,929 $35,839 $33,956 $34,120 $33,762
Impact of purchase accounting fair value marks (317) (316) (649) (960) (1,045)
Adjusted net interest income$37,612 $35,523 $33,307 $33,160 $32,717
Net interest margin (GAAP) 3.44 % 3.45 % 3.40 % 3.36 % 3.32 %
Adjusted net interest margin (non-GAAP) (9) 3.41 3.42 3.33 3.27 3.22
_____________
(5) Adjusted net income available to common stockholders divided by average common equity.
(6) Net income available to common stockholders excluding amortization of intangibles assets divided by average tangible common equity.
(7) Adjusted net income 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,
2017 2017 2017 2016 2016
Capital Ratios and Book Value per Share(dollars in thousands, except for per share data)
Common equity$557,691 $546,173 $540,277 $531,032 $499,588
Less: intangible assets (148,442) (148,611) (148,804) (148,997) (149,190)
Tangible common equity$409,249 $397,562 $391,473 $382,035 $350,398
Total assets$4,844,755 $4,681,280 $4,460,816 $4,426,348 $4,327,804
Less: intangible assets (148,442) (148,611) (148,804) (148,997) (149,190)
Tangible assets$4,696,313 $4,532,669 $4,312,012 $4,277,351 $4,178,614
Common shares outstanding 32,015,317 32,015,317 32,004,471 31,944,403 30,197,318
Common equity ratio (GAAP) 11.51 % 11.67 % 12.11 % 12.00 % 11.54 %
Tangible common equity ratio (non-GAAP) (10) 8.71 8.77 9.08 8.93 8.39
Regulatory capital ratios (Bancorp):
Leverage ratio 9.13 % 9.33 % 9.44 % 9.29 % 8.49 %
Common equity tier 1 risk-based ratio 9.40 9.48 9.79 9.74 9.25
Risk-based tier 1 capital ratio 9.52 9.60 9.92 9.87 9.38
Risk-based total capital ratio 11.34 11.46 11.83 11.78 11.69
Regulatory capital ratios (Bank):
Leverage ratio 10.11 % 10.34 % 10.50 % 10.34 % 9.57 %
Common equity tier 1 risk-based ratio 10.54 10.64 11.03 10.98 10.58
Risk-based tier 1 capital ratio 10.54 10.64 11.03 10.98 10.58
Risk-based total capital ratio 11.22 11.32 11.70 11.63 11.57
Book value per share (GAAP)$17.42 $17.06 $16.88 $16.62 $16.54
Tangible book value per share (non-GAAP) (11) 12.78 12.42 12.23 11.96 11.60
Net Loan Charge-offs Detail
Net loan charge-offs (recoveries):
Charge-offs$- $10 $72 $37,074 $1,910
Recoveries (20) (60) (129) (2) (12)
Net loan charge-offs$(20) $(50) $(57) $37,072 $1,898
Net loan charge-offs as a % of average total loans (annualized) (0.00)% (0.01)% (0.01)% 4.23 % 0.22 %
Asset Quality
Nonaccrual taxi medallion loans$47,430 $48,884 $59,054 $63,044 $3,637
Nonaccrual loans (excluding taxi medallion loans) 13,755 14,055 12,790 5,734 7,856
Other real estate owned - 580 580 626 626
Total nonperforming assets$61,185 $63,519 $72,424 $69,404 $12,119
Performing troubled debt restructurings$12,749 $10,221 $10,005 $13,338 $105,338
Allowance for loan losses ("ALLL")$29,870 $28,401 $26,901 $25,744 $37,615
ALLL, net of taxi specific reserves 29,870 28,401 26,901 25,744 25,081
Nonaccrual loans as a % of loans receivable (excluding taxi medallion loans) 0.35 % 0.37 % 0.36 % 0.16 % 0.24 %
Nonperforming assets as a % of total assets 1.26 1.36 1.62 1.57 0.28
ALLL as a % of loans receivable 0.77 0.76 0.75 0.74 1.09
ALLL as a % of nonaccrual loans 48.8 45.1 37.4 37.4 327.3
ALLL (excluding taxi medallion loans specific reserves) as a % of nonaccrual loans (excluding taxi medallion loans) 217.2 202.1 210.3 449.0 319.3
ALLL (excluding taxi medallion specific reserves) as a % of loans receivable (excluding taxi medallion loans) 0.77 0.76 0.75 0.74 0.73
Loans receivable$3,889,289 $3,761,572 $3,571,663 $3,475,832 $3,445,476
Less: taxi medallion loans - - - - (102,735)
Loans receivable (excluding taxi medallion loans)$3,889,289 $3,761,572 $3,571,663 $3,475,832 $3,342,741
Loans held-for-sale, taxi medallion loans$47,430 $50,891 $61,319 $65,596 $-
__________________
(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, 2017June 30, 2017September 30, 2016
Average Average Average
Interest-earning assets: BalanceInterest Rate (8) BalanceInterest Rate (8) BalanceInterest Rate (8)
Investment securities (1) (2) $397,077 $3,033 3.03% $390,462 $3,079 3.16% $406,802 $3,293 3.22%
Total loans (2) (3) (4) 3,898,404 43,683 4.45 3,699,355 40,921 4.44 3,407,278 38,010 4.44
Federal funds sold and interest-
bearing deposits with banks 53,820 170 1.25 52,099 139 1.07 202,106 261 0.51
Restricted investment in bank stock 29,236 362 4.91 26,428 290 4.40 24,834 352 5.64
Total interest-earning assets 4,378,537 47,248 4.28 4,168,344 44,429 4.28 4,041,020 41,916 4.13
Allowance for loan losses (28,999) (27,355) (34,052)
Noninterest-earning assets 364,474 354,584 337,828
Total assets $4,714,012 $4,495,573 $4,344,796
Interest-bearing liabilities:
Time deposits 1,005,997 3,593 1.42 976,012 3,311 1.36 1,007,530 3,323 1.31
Other interest-bearing deposits 1,816,162 2,520 0.55 1,712,875 2,184 0.51 1,637,500 1,836 0.45
Total interest-bearing deposits 2,822,159 6,113 0.86 2,688,887 5,495 0.82 2,645,030 5,159 0.78
Borrowings 570,711 2,353 1.64 514,161 2,244 1.75 488,015 2,139 1.74
Subordinated debentures (5) 55,155 813 5.85 55,155 810 5.89 55,155 814 5.87
Capital lease obligation 2,688 40 5.90 2,720 41 6.05 2,814 42 5.94
Total interest-bearing liabilities 3,450,713 9,319 1.07 3,260,923 8,590 1.06 3,191,014 8,154 1.02
Noninterest-bearing demand deposits 688,707 667,461 640,323
Other liabilities 17,972 17,441 18,318
Total noninterest-bearing liabilities 706,679 684,902 658,641
Stockholders' equity 556,620 549,748 495,141
Total liabilities and stockholders' equity$4,714,012 $4,495,573 $4,344,796
Net interest income (tax equivalent basis) 37,929 35,839 33,762
Net interest spread (6) 3.21% 3.22% 3.11%
Net interest margin (7) 3.44% 3.45% 3.32%
Tax equivalent adjustment (910) (738) (738)
Net interest income $37,019 $35,101 $33,024
________________________
(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 $525, $565 and $697 for the three months ended September 30, 2017,
June 30, 2017 and September 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.

Source:ConnectOne Bancorp, Inc.