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ConnectOne Bancorp, Inc. Reports 34% Increase in Second Quarter 2013 Earnings

ENGLEWOOD CLIFFS, N.J., July 26, 2013 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq:CNOB) (the "Company" or "ConnectOne"), parent company of ConnectOne Bank (the "Bank"), today reported net income available to common shareholders of $2.5 million for the second quarter of 2013, representing a 33.5% increase from $1.9 million earned during the second quarter of 2012. Net income available to common shareholders for the first six months of 2013 was $4.8 million, a 35.5% increase from the prior year period.

Diluted earnings per share were $0.49 and $1.04, for the second quarter and year-to-date periods, respectively, while diluted earnings per share were $0.62 and $1.24 for the second quarter and first six months of 2012, respectively. Diluted earnings per share for 2013 reflect the Company's February 2013 initial public offering and issuance of 1.8 million shares of common stock. Diluted earnings per share for 2012 reflect preferred dividends of $0.2 million for the second quarter, and $0.4 million for the first six months. All shares of preferred were converted into common in 2012 and had no impact on 2013 results.

Frank Sorrentino III, Chairman and CEO of ConnectOne stated, "The second quarter of 2013 was our first full quarter as a public company and we are very pleased with our financial results. Net income available to common shareholders for the quarter increased by 34% year-over-year and by 7% on a sequential basis. Our earnings growth reflects strong core balance sheet growth with our loan portfolio increasing by 31% and our noninterest-bearing deposits increasing by 30% over the past twelve months. Our financial performance metrics continue to stack up well versus the banking industry. For the second quarter 2013 return on assets was 0.98%, net interest margin was 3.89%, the nonperforming asset ratio was less than 1%, and our efficiency ratio was less than 50%." Mr. Sorrentino continued, "Despite competitive pressures, we are well-positioned as our commercial loan pipeline remains strong and we anticipate that the current trends in our financial results can continue for the foreseeable future."

Earnings

Net interest income for the second quarter of 2013 totaled $9.8 million, an increase of $1.0 million, or 11.5%, from the year ago quarter. The increase in net interest income was primarily due to an increase in average interest-earning assets, which grew by 29.6% to $1.0 billion, and was partially offset by a 65 basis points contraction in the net interest margin, from 4.54% in the second quarter of 2012 to 3.89% in the second quarter of 2013. Approximately 15 bps of the contraction in net interest margin was due to a decline in loan prepayment fees. Average total loans increased by 29.1% to $923.8 million in the second quarter of 2013 from the prior year period. Net interest income for the first half of 2013 totaled $19.2 million, an increase of $2.7 million, or 16.0%, from the year ago period. The increase in net interest income was primarily due to an increase in average interest-earning assets, which grew by 31.0% to $981.1 million, and was partially offset by a 50 basis points contraction in the net interest margin, from 4.45% in the first half of 2012 to 3.95% in the first half of 2013. Average total loans increased by 31.5% to $898.8 million in the first half of 2013 from the prior year period. The Bank's net interest income has increased despite continued margin compression resulting from the maturity, prepayment or contractual re-pricing of loans and securities in this extended period of low interest rates.

Non-interest income represents a relatively small portion of the Bank's total revenue as management has made a strategic decision to de-emphasize fee income, focusing instead on customer growth and retention. Non-interest income totaled $301,000 and $561,000 for the second quarter and first half of 2013, respectively, up from $277,000 and $522,000 for the second quarter and first half of 2012, respectively. Growth in service and card-related fees were partially offset by declines in gains of sale of residential mortgage loans.

Non-interest expenses for the second quarter 2013 increased by $0.5 million, or 10.5%, to $4.9 million from $4.5 million in the prior year second quarter. Non-interest expenses for the first half of 2013 increased by $1.1 million, or 12.3%, to $9.7 million from $8.6 million in the prior year period. The largest factor contributing to the increases in total non-interest expenses was salaries and employee benefits expense, which increased by $0.3 million to $2.4 million in the second quarter 2013 from $2.1 million in the second quarter 2012, and which increased by $0.7 million to $4.9 million in the first half of 2013 from $4.2 million in the first half of 2012. The increases were primarily due to an approximately 10% increase in our staff, which consisted of 97 full-time employees at June 30, 2013. Also contributing to higher non-interest expenses were increased costs associated with being a publicly-traded entity and a general increase in other operating expenses related to a significantly increased volume of business. Management continues to focus on expense control, balancing its investment in infrastructure with prudent and sustainable growth.

Income tax expense was $1.8 million for the second quarter 2013 and $3.4 million for the first half of 2013 versus $1.4 million for the second quarter 2012 and $2.7 million for the first half 2012. The effective tax rate, which is derived from both federal and New Jersey statutory income tax rates, was approximately 41.3% for 2013, an increase from approximately 40.5% for 2012, as the Company's growth and increase in earnings has placed it into the 35% federal bracket. Management has thus far taken a conservative approach to the Company's tax position and is currently exploring various strategies to maximize the tax efficiency of operations.

Asset Quality

Nonperforming assets, which includes nonaccrual loans and other real estate owned, totaled $10.0 million, or 0.97% of total assets, at June 30, 2013, an increase from $7.9 million, or 0.79% of total assets, at March 31, 2013 and $6.4 million, or 0.78% of total assets, one year ago. The credits responsible for the increase in nonperforming assets are well-secured. The allowance for loan losses was $14.0 million, representing 1.46% of loans receivable and 146.5% of nonaccrual loans at June 30, 2013. At March 31, 2013, the allowance was $13.6 million representing 1.51% of loans receivable and 181.9% of nonaccrual loans, and at June 30, 2012 the allowance was $11.3 million representing 1.55% of loans receivable and 176.3% of nonaccrual loans. The annualized rate of net loan charge-offs was 0.26% for the second quarter 2013 and 0.13% for the prior year period.

Financial Condition

At June 30, 2013, total assets were $1.0 billion, a $100.6 million increase from December 31, 2012. The increase in total assets was due primarily to a $106.7 million increase, to $955.6 million, in loans receivable and a $4.6 million increase, to $25.8 million, in securities, partially offset by a $10.1 million decline in cash and cash equivalents. The growth in assets was funded by a $54.0 million increase in deposits and $47.8 million in net proceeds from the Company's first quarter 2013 initial public equity offering.

Capital

Stockholders' equity totaled $124.6 million as of June 30, 2013, an increase of $52.2 million from $72.4 million as of year-end 2012, due primarily to retained earnings and the Company's first quarter 2013 equity offering. Accumulated other comprehensive earnings declined by $0.4 million as the increase in the general level of interest rates during the second quarter resulted in a decline in market values in our relatively small securities portfolio. As of June 30, 2013, the tangible common equity ratio and tangible book value per share were 12.07% and $24.76, respectively. As of December 31, 2012, the Company's tangible common equity ratio and tangible book value per share were 7.76% and $22.77, respectively.

About ConnectOne Bancorp, Inc.:

ConnectOne (Nasdaq:CNOB) is a New Jersey corporation and a registered bank holding company pursuant to the Bank Holding Company Act of 1956, as amended, that was formed in 2008 to serve 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 seven 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.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
Assets June 30,
2013
(unaudited)
December 31,
2012
(audited)
Cash and due from banks $ 3,450 $ 3,242
Interest-bearing deposits with banks 37,130 47,387
Cash and cash equivalents 40,580 50,629
Securities available for sale 24,409 19,252
Securities held to maturity, fair value of $1,481 at 2013 and $2,084 at 2012 1,421 1,985
Loans held for sale 133 405
Loans receivable 955,579 848,842
Less: Allowance for loan losses (13,981) (13,246)
Net loans receivable 941,598 835,596
Investment in restricted stock, at cost 4,766 4,744
Bank premises and equipment, net 8,049 7,904
Accrued interest receivable 3,509 3,361
Other real estate owned 433 433
Goodwill 260 260
Other assets 5,329 5,357
Total assets $ 1,030,487 $ 929,926
Liabilities
Deposits
Noninterest-bearing $ 173,188 $ 170,355
Interest-bearing 650,157 598,963
Total deposits 823,345 769,318
Long-term borrowings 74,065 79,568
Accrued interest payable 2,586 2,803
Capital lease obligation 3,148 3,185
Other liabilities 2,768 2,690
Total liabilities 905,912 857,564
Stockholders' Equity
Common stock, no par value; authorized 10,000,000 shares at June 30, 2013 and December 31, 2012; issued and outstanding 5,021,142 at June 30, 2013 and 3,166,217 at December 31, 2012 99,038 51,205
Retained earnings 25,494 20,661
Accumulated other comprehensive income 43 496
Total stockholders' equity 124,575 72,362
Total liabilities and stockholders' equity $ 1,030,487 $ 929,926
CONNECTONE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(dollars in thousands, except per share data)
Three Months Ended June 30, Six Months Ended June 30,
2013 2012 2013 2012
Interest income
Loans receivable, including fees $ 11,139 $ 10,114 $ 21,835 $ 19,120
Securities 179 242 373 523
Other interest income 34 13 55 30
Total interest income 11,352 10,369 22,263 19,673
Interest expense
Deposits 1,149 1,168 2,294 2,364
Long-term borrowings 330 337 664 653
Capital lease 47 48 95 97
Total interest expense 1,526 1,553 3,053 3,114
Net interest income 9,826 8,816 19,210 16,559
Provision for loan losses 950 1,140 1,875 1,890
Net interest income after provision for loan losses 8,876 7,676 17,335 14,669
Non-interest income
Service fees 63 87 98 117
Gains on sales of loans 78 113 150 211
Gains on sales of securities -- -- -- --
Other income 160 77 313 194
Total non-interest income 301 277 561 522
Non-interest expenses
Salaries and employee benefits 2,446 2,133 4,924 4,228
Occupancy and equipment 761 688 1,491 1,413
Professional fees 320 332 590 540
Advertising and promotion 166 106 269 184
Data processing 444 451 892 859
Other expenses 788 749 1,502 1,381
Total non-interest expenses 4,925 4,459 9,668 8,605
Income before income tax expense 4,252 3,494 8,228 6,586
Income tax expense 1,755 1,418 3,395 2,666
Net income 2,497 2,076 4,833 3,920
Dividends on preferred shares -- 206 -- 352
Net income available to common stockholders $ 2,497 $ 1,870 $ 4,833 $ 3,568
Earnings per common share:
Basic $ 0.50 $ 0.83 $ 1.06 $ 1.59
Diluted 0.49 0.62 1.04 1.24
Weighted average common shares outstanding:
Basic 5,021,142 2,245,044 4,541,192 2,244,392
Diluted 5,137,828 3,319,089 4,654,978 3,160,247
CONNECTONE BANCORP, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS
(dollars in thousands, except per share data)
Three Months Ended
June 30,
2013
March 31,
2013
June 30,
2012
Performance ratios:
Return on average assets 0.98% 0.99% 1.05%
Return on average stockholders' equity 8.06% 9.77% 12.53%
Net interest margin 3.89% 4.01% 4.54%
Efficiency ratio (1) 48.6% 49.2% 49.0%
As of
June 30,
2013
March 31,
2013
June 30,
2012
Capital ratios:
Leverage ratio 12.19% 12.74% 8.32%
Risk-based Tier 1 capital ratio 13.69% 14.18% 10.13%
Risk-based total capital ratio 15.11% 15.43% 11.39%
Tangible common equity to tangible assets 12.07% 12.15% 8.20%
Annualized net loan charge-offs as a % of average loans 0.26% 0.25% 0.13%
Tangible book value per common share $ 24.76 $ 24.33 $ 21.42
Asset quality:
Nonaccrual loans $ 9,545 $ 7,498 $ 6,409
Other real estate owned 433 433 --
Total non-performing assets $ 9,978 $ 7,931 $ 6,409
Performing troubled debt restructured loans $ 2,947 $ 2,996 $ 4,733
Loans past due 90 days and still accruing 1,189 -- --
Nonaccrual loans as a % of loans receivable 1.00% 0.83% 0.88%
Nonperforming assets as a % of total assets 0.97% 0.79% 0.78%
Allowance for loan losses as a % of loans receivable 1.46% 1.51% 1.55%
Allowance for loan losses as a % of nonaccrual loans 146.5% 181.9% 176.3%
(1) Efficiency ratio is not a measure recognized under generally accepted accounting principles and is defined as total non-interest expenses divided by the sum of net interest income and total non-interest income (excluding securities gains/(losses)).
CONNECTONE BANCORP, INC.
NET INTEREST MARGIN ANALYSIS
(dollars in thousands)
For the Three Months Ended
June 30, 2013 June 30, 2012
Interest-earning assets: Average
Balance
Interest Average
Rate (5)
Average
Balance
Interest Average
Rate (5)
Investment securities (1) $ 25,460 $ 179 2.82% $ 30,752 $ 242 3.17%
Loans receivable (2) (3) 923,841 11,139 4.84% 715,710 10,114 5.68%
Federal funds sold and interest-bearing deposits with banks 63,061 34 0.22% 34,677 13 0.15%
Total interest-earning assets 1,012,362 11,352 4.50% 781,139 10,369 5.34%
Allowance for loan losses (13,936) (10,598)
Non-interest earning assets 21,270 26,421
Total assets $ 1,019,696 $ 796,962
Interest-bearing liabilities:
Savings, NOW, Money Market, Interest Checking $ 330,289 257 0.31% $ 306,516 369 0.48%
Time deposits 304,429 892 1.18% 213,744 799 1.50%
Total interest-bearing deposits 634,718 1,149 0.73% 520,260 1,168 0.90%
Borrowings 74,287 330 1.78% 77,871 337 1.74%
Capital lease obligation 3,160 47 5.97% 3,233 48 5.97%
Total interest-bearing liabilities 712,165 1,526 0.86% 601,364 1,553 1.04%
Noninterest-bearing deposits 179,084 125,723
Other liabilities 4,119 3,230
Stockholders' equity 124,328 66,645
Total liabilities and stockholders' equity $ 1,019,696 $ 796,962
Net interest income/interest rate spread $ 9,826 3.64% $ 8,816 4.30%
Net interest margin (4) 3.89% 4.54%
(1) Average balances are calculated on amortized cost.
(2) Includes loan fee income.
(3) Loans receivable include non-accrual loans.
(4) Represents net interest income divided by average total interest-earning assets.
(5) Rates are annualized.
CONNECTONE BANCORP, INC.
NET INTEREST MARGIN ANALYSIS
(dollars in thousands)
For the Six Months Ended
June 30, 2013 June 30, 2012
Interest-earning assets: Average
Balance
Interest Average
Rate (5)
Average
Balance
Interest Average
Rate (5)
Investment securities (1) $ 24,962 $ 373 3.01% $ 33,044 $ 523 3.18%
Loans receivable (2) (3) 898,830 21,835 4.90% 683,304 19,120 5.63%
Federal funds sold and interest-bearing deposits with banks 57,278 55 0.19% 32,749 30 0.18%
Total interest-earning assets 981,070 22,263 4.58% 749,097 19,673 5.28%
Allowance for loan losses (13,733) (10,249)
Non-interest earning assets 19,725 34,692
Total assets $ 987,062 $ 773,540
Interest-bearing liabilities:
Savings, NOW, Money Market, Interest Checking $ 330,099 516 0.32% $ 307,227 790 0.52%
Time deposits 291,228 1,779 1.23% 199,757 1,574 1.58%
Total interest-bearing deposits 621,327 2,295 0.74% 506,984 2,364 0.94%
Borrowings 76,484 663 1.75% 75,083 653 1.75%
Capital lease obligation 3,169 95 6.05% 3,242 97 6.02%
Total interest-bearing liabilities 700,980 3,053 0.88% 585,309 3,114 1.07%
Noninterest-bearing deposits 180,807 122,091
Other liabilities 4,267 3,294
Stockholders' equity 101,008 62,846
Total liabilities and stockholders' equity $ 987,062 $ 773,540
Net interest income/interest rate spread $ 19,210 3.70% $ 16,559 4.21%
Net interest margin (4) 3.95% 4.45%
(1) Average balances are calculated on amortized cost.
(2) Includes loan fee income.
(3) Loans receivable include non-accrual loans.
(4) Represents net interest income divided by average total interest-earning assets.
(5) Rates are annualized.

CONTACT: Investor Contact: William S. Burns Executive VP & CFO 201.816.4474; bburns@cnob.com Media Contact: Rachel Gerber, MWW 646.215.6889; rgerber@mww.comSource:ConnectOne Bank