ConnectOne Bancorp, Inc. Reports First Quarter 2016 Results; Delivers Solid Operating Performance and Continued Loan Growth


ENGLEWOOD CLIFFS, N.J., April 26, 2016 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq:CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today announced results for the first quarter ended March 31, 2016.  The Company reported first quarter 2016 net income available to common stockholders of $10.4 million, or $0.34 per diluted share, compared with $9.5 million, or $0.31 per diluted share, for the fourth quarter of 2015 and $10.4 million, or $0.34 per diluted share, for the first quarter of 2015.

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.

First quarter 2016 results reflect the following non-core items, on an after-tax basis: $0.9 million of income resulting from accretion of purchase accounting fair value marks; $0.2 million in additional loan and lease loss provision related to the maturity and extension of acquired portfolio loans; $1.0 million in additional provision associated with the Bank’s New York City taxi medallion loan portfolio; $0.1 million of pension settlement expenses, which had no impact on total stockholders’ equity or book value per share; and $0.1 million in amortization of intangible assets. Excluding noncore items, net income available to common stockholders was $10.9 million, or $0.36 per diluted share, for both the first quarter of 2016 and the sequential fourth quarter of 2015, and $9.9 million, or $0.33 per diluted share, for the first quarter of 2015. (See Supplemental GAAP and non-GAAP Financial Measures for a reconciliation of GAAP earnings and noncore measures for all periods discussed above.)    

“We are off to a solid start in 2016,” commented Frank Sorrentino, ConnectOne’s Chairman and CEO.  “We executed on our business plan by delivering continued organic loan growth at attractive yields despite the difficult interest rate and regulatory environment currently weighing on our industry. A substantial portion of our loan portfolio is tied to commercial real estate, and our policies and procedures reflect our proficiency in this area, remaining consistent and compliant with regulatory guidance and scrutiny. While many other banks in our region have pulled back from commercial real estate lending due to concentration or other limitations, we continue to originate new loans across all of our lending units.  As a result, our loan portfolio increased by $165 million from year-end 2015, reflecting an annualized growth rate in excess of 20%.  Return on assets was in excess of 1% and return on tangible equity was in excess of 13% despite an additional $1.5 million of pre-tax reserves set aside for our NYC taxi medallion portfolio.  Operating efficiency was approximately 43%, which was slightly higher for ConnectOne due to seasonal factors and one-time items, yet we remain one of the most efficient banks in the nation. Additionally, our Small Business Lending Fund (“SBLF”) preferred stock issued to the U.S. Treasury was repaid during the quarter. Our loan pipeline remains strong, with growth expected to be in the mid- to high-teens as the year progresses.” 

Operating Results

Fully taxable equivalent net interest income for the first quarter of 2016 was $32.0 million, an increase of $0.9 million, or 2.8%, from the sequential fourth quarter. This was a result of a 4.1% increase in average interest-earning assets and a one basis-point widening of the net interest rate margin. Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.3 million during the first quarter of 2016 and $1.4 million in the sequential fourth quarter.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.31% in the first quarter of 2016, widening by two basis points from the 2015 sequential fourth quarter adjusted net interest margin of 3.29%.  The increase in the adjusted net interest margin in the first quarter of 2016 versus the sequential fourth quarter was attributable to an increase in prepayment fee income, partially offset by a modest increase in funding rates. 

Fully taxable equivalent net interest income for the first quarter of 2016 was $32.0 million, an increase of $3.1 million, or 10.7%, from the same quarter of 2015. This was a result of a 17.2% increase in average interest-earning assets due to significant organic loan growth, partially offset by a 23 basis-point contraction of the net interest margin. Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.3 million during the first quarter of 2016 and $1.8 million in the same quarter of 2015.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.31% in the first quarter of 2016, 15 basis points lower than the 2015 first quarter adjusted net interest margin of 3.46%. The reduction in the adjusted net interest margin in the first quarter of 2016 versus the same 2015 period was attributable to a decline in yield on loans combined with an increase in overall funding rates.  The decline in loan yields largely reflects the impact of a protracted low interest rate environment, while the increase in the cost of funds was due to the June 30, 2015 issuance of approximately $50 million in subordinated debt, the extension of liability duration in connection with interest rate risk management, and the impact of an increasingly competitive environment for deposit funds.

Noninterest income, excluding net securities gains, totaled $1.2 million in the first quarter of 2016, $1.2 million in the sequential fourth quarter and $1.0 million for the first quarter of 2015. There were no securities sold during the first quarter of 2016. Securities gains were $1.1 million and $0.5 million for the sequential fourth quarter and the first quarter of 2015, respectively.  Noninterest income also includes bank-owned life insurance income, deposit and loan fees, annuities and life insurance commissions, and gains on sales of residential mortgages in the secondary market. In total, noninterest income represents a relatively small portion of the Bank’s total revenue.

Noninterest expenses totaled $14.4 million for the first quarter of 2016, an increase of $0.8 million from $13.6 million for the sequential fourth quarter.  The increase was a result of higher salary and employee benefits expense due to salary increases, higher payroll tax expense, and severance, as well as higher occupancy and equipment expenses including snow removal and several one-time expense items related to leases and service contracts. Noninterest expenses for the first quarter of 2016 increased by $1.7 million from the prior year quarter, largely attributable to a $1.0 million increase in salary and employee benefits, $0.2 million in professional and consulting expense, $0.2 in occupancy and equipment expense, and $0.1 million in data processing, all resulting from increased levels of business and staff resulting from organic growth.

Income tax expense was $4.8 million for the first quarter of 2016, compared to $4.6 million for the sequential fourth quarter and $5.0 million for the first quarter of 2015, resulting in effective tax rates of 31.5%, 32.6% and 32.6% for the first quarter of 2016, sequential fourth quarter and first quarter of 2015, respectively. The effective tax rate for the full year 2016 is currently expected to be approximately 31.5%.

Asset Quality

The provision for loan and lease losses decreased by $2.1 million to $3.0 million in the first quarter of 2016 from $5.1 million in the sequential fourth quarter.  The first quarter of 2016 included $1.5 million in additional specific allocations associated with the Bank’s taxi medallion portfolio, down from $2.5 million added during the sequential fourth quarter.  In addition, the fourth quarter of 2015 provision included a $1.3 million specific allocation related to a former operations center of legacy Union Center National Bank that was repositioned as a lease financing receivable.

The provision for loan and lease losses increased by $1.2 million to $3.0 million in the first quarter of 2016 from $1.8 million in the first quarter of 2015.  The increase was primarily attributable to $1.5 million of specific allocations to the Bank’s taxi medallion portfolio, partially offset by a reduced level of non-Taxi specific allocations.

As of March 31, 2016, loans secured by New York City taxi medallions totaled $103.2 million, of which $99.9 million was current and $1.4 million was past due 30-59 days.  Troubled debt restructurings associated with this portfolio totaled $86.4 million and total nonaccrual loans were $1.9 million.  The net average loan-to-value ratio of the medallion portfolio was approximately 92%, assuming valuations of approximately $775 thousand for corporate medallions and $650 thousand for individual medallions.  These valuations declined from year-end levels of $800 thousand for corporate and $700 thousand for individual.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $23.1 million at March 31, 2016, $23.3 million at December 31, 2015, and $15.5 million at March 31, 2015. Nonperforming assets as a percent of total assets were 0.57% at March 31, 2016, 0.58% at December 31, 2015, and 0.44% at March 31, 2015. Annualized net charge-offs were 0.06% for the first quarter 2016, 0.00% for the sequential fourth quarter, and 0.01% in the first quarter of 2015. The allowance for loan and lease losses was $29.1 million, representing 0.89% of loans receivable and 135.5% of nonaccrual loans at March 31, 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 March 31, 2015, the allowance was $15.9 million representing 0.60% of loans receivable and 109.2% 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 1.26% at March 31, 2016, 1.28% at December 31, 2015, and 1.20% at March 31, 2015. (See Supplemental GAAP and non-GAAP Financial Measures).

Selected Balance Sheet Items

At March 31, 2016, the Company’s total assets were $4.1 billion, an increase of $74 million from December 31, 2015. Loans receivable were $3.3 billion, reflecting net loan growth (loan originations less pay-downs and pay-offs) of $165 million from December 31, 2015, primarily attributable to multi-family ($32 million, excluding a $28 million loan reclassified during the current quarter as multi-family from other commercial real estate), commercial and industrial (“C&I”) ($32 million), other commercial real estate ($29 million, excluding the aforementioned reclassification) and construction ($74 million). Management’s current intent is to maintain a multi-family portfolio concentration in the range of 25-30% of total loans, while growing the C&I and construction segments. The growth in loans was funded with increases in deposits, borrowings and subordinated debt.

The Company’s stockholders’ equity was $475 million at March 31, 2016, a decrease of $3 million from December 31, 2015. The decrease in stockholders’ equity was due to the $11.25 million payoff of our SBLF preferred stock, offset by an increase of $8 million in retained earnings and approximately $1 million of equity issuance related to stock-based compensation, including the exercise of options. As of March 31, 2016, the Company’s tangible common equity ratio and tangible book value per share were 8.25% and $10.78, 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 $150 million as of March 31, 2016 and December 31, 2015.

About ConnectOne Bancorp, Inc.

ConnectOne is a New Jersey corporation and a registered bank holding company pursuant to the Bank Holding Company Act of 1956, as amended, and serves as the holding company for ConnectOne Bank ("the Bank"). The Bank is a community-based, full-service New Jersey-chartered commercial bank that was founded in 2005. The Bank operates from its headquarters located at 301 Sylvan Avenue in the Borough of Englewood Cliffs, Bergen County, New Jersey, and through its 20 other banking offices.

For more information visit https://www.ConnectOneBank.com/.

Forward-Looking Statements

This news release contains certain forward-looking statements which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, those factors set forth in Item 1A – Risk Factors of the Company’s Annual Report on Form 10-K, as filed with the Securities Exchange Commission, and changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

CONNECTONE BANCORP, INC. AND SUBSIDIARIES     
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION     
(in thousands, except for share data)     
 March 31, December 31, March 31,
  2016   2015   2015 
 (unaudited) (audited) (unaudited)
ASSETS     
Cash and due from banks$  34,603  $  31,291  $  30,127 
Interest-bearing deposits with banks   83,656     169,604     58,416 
  Cash and cash equivalents   118,259     200,895     88,543 
      
Investment securities:     
  Available-for-sale   191,331     195,770     276,121 
  Held-to-maturity (fair value of $229,470, $230,558, $240,264)   219,373     224,056     231,720 
      
Loans held for sale   -     -     1,392 
      
Loans receivable   3,263,813     3,099,007     2,640,739 
Less: Allowance for loan and lease losses   29,074     26,572     15,933 
  Net loans receivable   3,234,739     3,072,435     2,624,806 
      
Investment in restricted stock, at cost   31,487     32,612     24,874 
Bank premises and equipment, net   22,652     22,333     20,358 
Accrued interest receivable   12,604     12,545     11,513 
Bank-owned life insurance   79,412     78,801     52,904 
Other real estate owned   1,696     2,549     870 
Goodwill   145,909     145,909     145,909 
Core deposit intangibles   3,691     3,908     4,584 
Other assets   29,847     24,096     22,297 
  Total assets$  4,091,000  $  4,015,909  $  3,505,891 
      
LIABILITIES     
Deposits:     
  Noninterest-bearing$  614,507  $  650,775  $  479,652 
  Interest-bearing   2,278,564     2,140,191     2,016,359 
    Total deposits   2,893,071     2,790,966     2,496,011 
Borrowings   646,501     671,587     525,148 
Subordinated debentures (net of $763, $812, $0 in debt issuance costs)   54,392     54,343     5,155 
Other liabilities   22,309     21,669     23,383 
  Total liabilities   3,616,273     3,538,565     3,049,697 
      
COMMITMENTS AND CONTINGENCIES     
      
STOCKHOLDERS' EQUITY     
Preferred stock   -     11,250     11,250 
Common stock   374,287     374,287     374,287 
Additional paid-in capital   9,324     8,527     7,084 
Retained earnings   112,663     104,606     80,526 
Treasury stock   (16,717)    (16,717)    (16,717)
Accumulated other comprehensive loss   (4,830)    (4,609)    (236)
  Total stockholders' equity   474,727     477,344     456,194 
  Total liabilities and stockholders' equity$  4,091,000  $  4,015,909  $  3,505,891 


CONNECTONE BANCORP, INC. AND SUBSIDIARIES     
CONSOLIDATED STATEMENTS OF INCOME     
(dollars in thousands, except for per share data)      
       
   Three Months Ended
  3/31/2016 12/31/2015 3/31/2015
Interest income  (unaudited)
  Interest and fees on loans $  35,017  $  33,686  $  29,314 
  Interest and dividends on investment securities:      
    Taxable    2,140     2,325     2,910 
    Tax-exempt    883     884     883 
    Dividends    352     284     220 
  Interest on federal funds sold and other short-term investments   134     51     43 
    Total interest income    38,526     37,230     33,370 
Interest expense      
  Deposits    3,939     3,776     3,025 
  Borrowings    3,267     2,998     2,053 
    Total interest expense    7,206     6,774     5,078 
       
Net interest income    31,320     30,456     28,292 
  Provision for loan and lease losses    3,000     5,055     1,825 
Net interest income after provision for loan and lease losses   28,320     25,401     26,467 
       
Noninterest income      
  Annuities and insurance commissions    40     32     86 
  Bank-owned life insurance    612     620     386 
  Net gains on sale of loans held for sale    35     51     114 
  Deposit, loan and other income    515     522     463 
  Net gains on sale of investment securities    -     1,138     506 
    Total noninterest income    1,202     2,363     1,555 
       
Noninterest expenses      
  Salaries and employee benefits    7,599     7,205     6,628 
  Occupancy and equipment    2,247     1,802     2,082 
  FDIC insurance    595     575     560 
  Professional and consulting    711     906     494 
  Marketing and advertising    184     213     194 
  Data processing    1,024     1,017     900 
  Amortization of core deposit intangible    217     217     241 
  Other expenses    1,776     1,644     1,532 
    Total noninterest expenses    14,353     13,579     12,631 
       
Income before income tax expense    15,169     14,185     15,391 
  Income tax expense    4,778     4,617     5,012 
Net income    10,391     9,568     10,379 
  Less: Preferred stock dividends    22     28     28 
Net income available to common stockholders $  10,369  $  9,540  $  10,351 
       
Earnings per common share:      
  Basic $  0.35  $  0.32  $  0.35 
  Diluted    0.34     0.31     0.34 
Weighted average common shares outstanding:      
  Basic    29,995,870     30,033,062     29,757,316 
  Diluted    30,257,676     30,310,905     30,149,469 
Dividends per common share $  0.075  $  0.075  $  0.075 


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
 Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
  2016   2015   2015   2015   2015 
Selected Financial Data         
Total assets$  4,091,000  $  4,015,909  $  3,837,426  $  3,660,057  $  3,505,891 
Loans receivable         
  Commercial      601,708        570,116        569,605        568,969           562,931 
  Commercial real estate-other   1,087,388     1,085,615     1,052,982     987,303     983,265 
  Commercial real estate-multifamily   940,913     881,081     820,732     764,088     685,045 
  Commercial construction   402,594     328,838     283,623     220,267     181,056 
  Residential   231,319     233,690     225,158     224,134     226,645 
  Consumer   1,851     2,454     3,569     2,454     3,581 
  Gross loans   3,265,773     3,101,794     2,955,669     2,767,215     2,642,523 
Unearned net origination fees   (1,960)    (2,787)    (2,288)    (1,927)    (1,784)
  Loans receivable   3,263,813     3,099,007     2,953,381     2,765,288     2,640,739 
          
Securities available for sale   191,331     195,770     224,214     264,098     276,121 
Securities held to maturity   219,373     224,056     227,221     232,557     231,720 
Goodwill and other intangible assets   149,600     149,817     150,034     150,252     150,493 
Deposits         
 Noninterest bearing   614,507     650,776     586,643     558,388     479,652 
 Interest bearing   397,829     368,820     334,018     350,321     342,261 
 Savings   219,865     216,399     220,199     214,244     220,764 
 Money market   798,203     780,254     743,277     667,675     712,427 
 Time deposits   862,667     774,717     782,487     778,603     740,907 
Total deposits   2,893,071     2,790,966     2,666,624     2,569,231     2,496,011 
          
Borrowings   646,501     671,587     621,674     548,759     525,148 
Subordinated debt (net of issuance costs)   54,392     54,343     54,328     55,155     5,155 
Total stockholder's equity   474,727     477,344     471,146     463,983     459,194 
          
Quarterly Average Balances         
Total assets   4,034,375     3,891,885     3,729,503     3,551,597     3,466,820 
Loans receivable         
  Commercial   585,773     579,512     567,737     555,119     529,801 
  Commercial real estate (including multi-family)   2,005,872     1,919,263     1,811,745     1,700,399     1,632,050 
  Commercial construction   361,108     313,223     255,627     200,820     174,664 
  Residential   236,404     232,022     227,051     230,415     231,624 
  Consumer   2,670     3,269     3,013     4,137     3,915 
  Gross loans   3,191,827     3,047,289     2,865,173     2,690,890     2,572,054 
Unearned net origination fees   (2,397)    (2,706)    (2,102)    (2,131)    (1,270)
  Loans receivable   3,189,430     3,044,583     2,863,071     2,688,759     2,570,784 
          
Securities available for sale   222,776     219,927     260,211     271,168     289,024 
Securities held to maturity   194,474     225,875     229,483     233,145     230,215 
Goodwill and other intangible assets   149,741     149,959     150,178     150,407     150,650 
Deposits         
 Noninterest bearing   609,312     608,227     560,129     510,369     481,500 
 Interest bearing   377,696     356,115     352,155     347,068     349,627 
 Savings   215,491     216,149     220,481     218,845     222,613 
 Money market   782,757     756,302     710,768     660,481     707,474 
 Time deposits   807,801     783,068     787,262     748,780     688,989 
Total deposits   2,793,057     2,719,861     2,630,795     2,485,543     2,450,203 
          
Borrowings   684,469     621,615     544,774     565,093     534,052 
Subordinated debt   55,155     55,155     55,155     5,704     5,155 
Total stockholder's equity   482,503     482,620     471,682     464,004     454,221 
 Three Months Ended
 Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
  2016   2015   2015   2015   2015 
GAAP Earnings Data         
Net interest income   31,320     30,456     29,727     28,678     28,292 
 Provision for loan and lease losses   3,000     5,055     4,175     1,550     1,825 
Net interest income after provision for loan and lease losses   28,320     25,401     25,552     27,128     26,467 
Noninterest income         
 Annuity and insurance commissions   40     32     77     46     86 
 Bank-owned life insurance   612     620     388     388     386 
 Net gains on sale of loans held for sale   35     51     63     99     114 
 Deposit, loan and other income   515     522     1,224     458     463 
 Insurance recovery   -     -     -     2,224     - 
 Net gains on sale of investment securities   -     1,138     2,067     221     506 
    Total noninterest income   1,202     2,363     3,819     3,436     1,555 
Noninterest expenses         
 Salaries and employee benefits   7,599     7,205     6,905     6,948     6,628 
 Occupancy and equipment   2,247     1,802     1,916     1,788     2,082 
 FDIC insurance   595     575     535     440     560 
 Professional and consulting   711     906     836     715     494 
 Marketing and advertising   184     213     247     193     194 
 Data processing   1,024     1,017     957     829     900 
 Merger expenses   -     -     -     -     - 
 Loss on extinguishment of debt   -     -     -     2,397     - 
 Amortization of core deposit intangible   217     217     217     241     241 
 Other expenses   1,776     1,644     1,688     1,423     1,532 
    Total noninterest expenses   14,353     13,579     13,301     14,974     12,631 
Income before income tax expense   15,169     14,185     16,070     15,590     15,391 
 Income tax expense   4,778     4,617     5,228     5,069     5,012 
Net income (GAAP)$  10,391  $  9,568  $  10,842  $  10,521  $  10,379 
          
 Three Months Ended
 Mar. 31, Dec. 31, Sept. 30, Jun. 30, Mar. 31,
  2016   2015   2015   2015   2015 
Net income (GAAP)$  10,391  $  9,568  $  10,842  $  10,521  $  10,379 
Less: preferred dividends   22     28     28     28     28 
Net income available to common stockholders (GAAP)$  10,369  $  9,540  $  10,814  $  10,493  $  10,351 
          
Reconciliation of GAAP Earnings to Operating Earnings         
Net gains on sales of securities$  -  $  (1,138) $  (2,067) $  (221) $  (506)
Partial settlements of pension obligation   103     106     168     243     559 
Insurance recovery   -     -     -     (2,223)    - 
Loss on debt extinguishment   -     -     -     2,397     - 
Amortization of intangible assets   217     217     217     241     241 
Provision related to maturity and extension of acquired portfolio loans   397     512     590     502     757 
Provision related to taxi cab medallion loans   1,487     2,500     2,000     -     - 
Provision for pending disposition of  Union Center operations bldg.   -     1,304     -     -     - 
Accretion of purchase accounting fair value marks   (1,367)    (1,416)    (1,340)    (1,513)    (1,802)
Non-core items   837     2,085     (432)    (574)    (751)
Income tax (expense) benefit   301     751     (156)    (207)    (270)
Non-core items, after taxes (36%)   536     1,334     (276)    (367)    (481)
Core earnings available to common stockholders (non-GAAP)$  10,905  $  10,874  $  10,538  $  10,126  $  9,870 
          
Weighted average diluted shares outstanding   30,257,676     30,310,905     30,335,571     30,231,480     30,149,469 
Diluted EPS (GAAP)$  0.34  $  0.31  $  0.36  $  0.35  $  0.34 
Core Diluted EPS (Non-GAAP) (1)$  0.36  $  0.36  $  0.35  $  0.33  $  0.33 
          
Return on Assets Measures         
Core earnings available to common stockholders (non-GAAP)$  10,905  $  10,874  $  10,538  $  10,126  $  9,870 
Add: preferred dividends   22     28     28     28     28 
Core net income (non-GAAP)$  10,927  $  10,902  $  10,566  $  10,154  $  9,898 
          
Average assets$  4,034,375  $  3,891,885  $  3,729,503  $  3,551,597  $  3,466,820 
Less: average intangible assets   (149,741)    (149,959)    (150,178)    (150,407)    (150,650)
Average tangible assets$  3,884,634  $  3,741,926  $  3,579,325  $  3,401,190  $  3,316,170 
          
Return on avg. assets (GAAP) 1.04%  0.98%  1.15%  1.19%  1.21%
Core return on avg. assets (Non-GAAP) (2) 1.09%  1.11%  1.12%  1.15%  1.16%
Return on avg. tangible assets (Non-GAAP) (3) 1.09%  1.03%  1.22%  1.26%  1.29%
Core return on avg. tangible assets (Non-GAAP) (4) 1.13%  1.16%  1.17%  1.20%  1.21%
_______         
(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
(dollars in thousands, except share data)Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
  2016   2015   2015   2015   2015 
Return on Equity Measures         
Core earnings available to common stockholders$  10,905  $  10,874  $  10,538  $  10,126  $  9,870 
          
Average common equity$  473,849  $  467,669  $  460,432  $  452,754  $  442,970 
Less: average intangible assets   (149,741)    (149,959)    (150,178)    (150,407)    (150,650)
Average tangible common equity$  324,108  $  317,710  $  310,254  $  302,347  $  292,320 
          
Return on avg. common equity (GAAP) 8.80%  8.09%  9.32%  9.30%  9.48%
Core return on avg. common equity (non-GAAP) (5) 9.26%  9.23%  9.08%  8.97%  9.04%
Return on avg. tangible common equity (non-GAAP) (6) 13.03%  12.07%  13.99%  14.11%  14.56%
Core return on avg. tangible common equity (non-GAAP) (7) 13.53%  13.58%  13.47%  13.43%  13.69%
          
Efficiency Measures         
Total noninterest expenses$  14,353  $  13,579  $  13,301  $  14,974  $  12,631 
Partial settlements of pension obligation   (103)    (106)    (168)    (243)    (559)
Loss on debt extinguishment   -     -     -     (2,397)    - 
Charge due to wire fraud   -     -     -     -     - 
Foreclosed property expense   (167)    (387)    (121)    (56)    (63)
Amortization of intangible assets and fair value marks   (217)    (217)    (217)    (241)    (241)
Operating non-interest expense$  13,866  $  12,869  $  12,795  $  12,037  $  11,768 
          
Net interest income (FTE)   31,985     31,102     30,382     29,316     28,906 
Impact of purchase accounting fair value marks   (1,335)    (1,384)    (1,314)    (1,487)    (1,776)
Noninterest income   1,202     2,363     3,819     3,436     1,555 
Less: insurance recovery   -     -     -     (2,224)    - 
Less: net gains on sales of securities   -     (1,138)    (2,067)    (221)    (506)
Operating revenue$  31,852  $  30,943  $  30,820  $  28,820  $  28,179 
          
Operating Efficiency Ratio (non-GAAP) (8) 43.5%  41.6%  41.5%  41.8%  41.8%
          
Net Interest Margin         
Average interest earning assets$  3,728,958  $  3,582,408  $  3,441,151  $  3,266,382  $  3,182,894 
          
Net interest income (FTE)$  31,985  $  31,102  $  30,382  $  29,316  $  28,906 
Impact of purchase accounting fair value marks   (1,335)    (1,384)    (1,314)    (1,487)    (1,776)
Adjusted net interest income$  30,650  $  29,718  $  29,068  $  27,829  $  27,130 
          
Net interest margin (GAAP) 3.45%  3.44%  3.50%  3.60%  3.68%
Adjusted net interest margin (non-GAAP) (9) 3.31%  3.29%  3.35%  3.42%  3.46%
_____         
(5) Core earnings available to common stockholders divided by average common equity.
(6) Earnings available to common stockholders excluding amortization of intangibles divided by average tangible common equity.
(7) Core earnings available to common stockholders divided by average tangible common equity.
(8) Operating noninterest expense divided by operating revenue.
(9) Adjusted net interest income divided by average interest earning assets.
 As of
(dollars in thousands, except share data)Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
  2016   2015   2015   2015   2015 
Capital Ratios and Book Value per Share         
Common equity$  474,727  $  466,094  $  459,896  $  452,732  $  444,944 
Less: intangible assets   (149,600)    (149,817)    (150,034)    (150,252)    (150,493)
Tangible common equity$  325,127  $  316,277  $  309,862  $  302,480  $  294,451 
          
Total assets$  4,091,000  $  4,016,721  $  3,838,253  $  3,660,057  $  3,505,891 
Less: intangible assets   (149,600)    (149,817)    (150,034)    (150,252)    (150,493)
Tangible assets$  3,941,400  $  3,866,904  $  3,688,219  $  3,509,805  $  3,355,398 
          
Common shares outstanding   30,163,078     30,085,663     30,197,789     30,196,731     29,864,602 
          
Common equity ratio (GAAP) 11.60%  11.60%  11.98%  12.37%  12.69%
Tangible common equity ratio (non-GAAP) (10) 8.25%  8.18%  8.40%  8.62%  8.78%
          
Regulatory capital ratios (Bancorp):         
  Leverage ratio 8.66%  9.07%  9.26%  9.49%  9.45%
  Common equity Tier 1 risk-based ratio 9.05%  9.14%  9.33%  9.63%  9.75%
  Risk-based Tier 1 capital ratio 9.19%  9.61%  9.82%  10.14%  10.29%
  Risk-based total capital ratio 11.35%  11.77%  11.94%  12.26%  10.82%
          
Regulatory capital ratios (Bank):         
  Leverage ratio 9.83%  9.96%  10.22%  10.48%  9.41%
  Common equity Tier 1 risk-based ratio 10.44%  10.55%  10.83%  11.19%  10.24%
  Risk-based Tier 1 capital ratio 10.44%  10.55%  10.83%  11.19%  10.24%
  Risk-based total capital ratio 11.23%  11.31%  11.47%  11.74%  10.77%
          
Book value per share (GAAP)$  15.74  $  15.49  $  15.23  $  14.99  $  14.90 
Tangible book value per share (non-GAAP) (11)   10.78     10.51     10.26     10.02     9.86 
          
 Three Months Ended
 Mar. 31, Dec. 31, Sept. 30, Jun. 30, Mar. 31,
  2016   2015   2015   2015   2015 
NCO Detail by Portfolio         
Net loan charge-offs:         
 Charge-offs$  512  $  18  $  519  $  334  $  60 
 Recoveries   (15)    (2)    (342)    (331)    (8)
  Net loan charge-offs$  497  $  16  $  177  $  3  $  52 
  as a % of average total loans (annualized) 0.06%  0.00%  0.02%  0.00%  0.01%
          
Asset Quality         
Nonaccrual loans$  21,450  $  20,737  $  12,888  $  12,145  $  14,585 
Other real estate owned   1,696     2,549     3,244     1,564     870 
Total nonperforming assets$  23,146  $  23,286  $  16,132  $   13,709  $  15,455 
          
Performing troubled debt restructurings$  95,122  $  85,925  $  77,882  $  77,927  $  1,731 
Loans past due 90 days and still accruing$  -  $  -  $  268  $  -  $  638 
          
Nonaccrual loans as a % of loans receivable 0.66%  0.67%  0.44%  0.44%  0.55%
Nonperforming assets as a % of total assets 0.57%  0.58%  0.42%  0.37%  0.44%
Allowance for loan losses as a % of nonaccrual loans 135.5%  128.1%  167.1%  143.9%  109.2%
          
Total loans receivable$  3,263,813  $  3,099,007  $  2,953,381  $  2,765,288  $  2,640,739 
Less: acquired loans   (824,428)    (866,878)    (923,210)    (1,060,632)    (1,110,859)
Loans receivable, excluding acquired loans$  2,439,385  $  2,232,129  $  2,030,171  $  1,704,656  $  1,529,880 
          
Allowance for loan losses$  29,074  $  26,572  $  21,533  $  17,480  $  15,933 
Accretable credit risk discount on acquired loans   12,101     12,955     13,893     14,331     15,800 
Total allowance for loan losses and accretable credit risk discount on acquired loans$  41,175  $  39,527  $  35,426  $  31,811  $  31,733 
          
Allowance for loan losses as a % of loans receivable 0.89%  0.86%  0.73%  0.63%  0.60%
Allowance for loan losses as a % of loans receivable, excluding acquired loans 1.19%  1.19%  1.06%  1.03%  1.04%
Allowance for loan losses and accretable credit risk discount on loans as a % of loans receivable 1.26%  1.28%  1.20%  1.15%  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 
    March 31, 2016  December 31, 2015  March 31, 2015 
    Average       Average       Average      
Interest-earning assets: BalanceInterestRate (7)  BalanceInterestRate (7)  BalanceInterestRate (7) 
Investment securities (1) (2) $  415,481 $  3,499    3.39 % $  442,135 $  3,686    3.31 % $  509,931 $  4,268    3.39 %
Loans receivable (2) (3) (4)    3,189,572    35,206    4.44      3,045,051    33,855    4.41      2,571,552    29,453    4.65  
Federal funds sold and interest-               
  bearing deposits with banks    90,712    134    0.59      65,067    51    0.31      76,138    43    0.23  
Restricted investment in bank stock   33,193    352    4.26      30,155    284    3.74      25,273    220    3.54  
    Total interest-earning assets    3,728,958    39,191    4.23      3,582,408    37,876    4.19      3,182,894    33,984    4.33  
Allowance for loan losses    (27,221)       (22,165)       (14,749)   
Non-interest earning assets    332,638        331,642        298,675    
    Total assets  $  4,034,375     $  3,891,885     $  3,466,820    
                  
Interest-bearing liabilities:               
Money market deposits $  782,757    812    0.42   $  756,302    840    0.44   $  707,474    722    0.41  
Savings deposits     215,491    157    0.29      216,149    152    0.28      222,613    162    0.29  
Time deposits     807,801    2,535    1.26      783,068    2,446    1.24      688,989    1,818    1.07  
Other interest-bearing deposits    377,696    435    0.46      356,115    338    0.38      349,628    323    0.37  
    Total interest-bearing deposits   2,183,745    3,939    0.73      2,111,634    3,776    0.71      1,968,704    3,025    0.62  
                  
Borrowings     684,469    2,413    1.42      617,024    2,159    1.39      534,052    1,968    1.49  
Capital lease obligation    2,874    43    6.02      2,904    44    6.01      2,989    45    6.10  
Subordinated debentures (8)    55,155    811    5.91      55,155    795    5.72      5,155    40    3.14  
    Total interest-bearing liabilities   2,926,243    7,206    0.99      2,786,717    6,774    0.96      2,510,900    5,078    0.82  
                  
Demand deposits     609,312        603,611        481,500    
Other liabilities     16,317        22,638        20,200    
    Total noninterest-bearing liabilities   625,629        626,249        501,700    
Stockholders' equity     482,503        478,919        454,220    
    Total liabilities and stockholders' equity$  4,034,375     $  3,891,885     $  3,466,820    
                  
Net interest income (tax equivalent basis)    31,985        31,102        28,906   
Net interest spread (5)       3.24 %      3.23 %      3.51 %
                  
Net interest margin (6)       3.45 %      3.44 %      3.68 %
                  
Tax equivalent adjustment     (665)       (646)       (614)  
Net interest income   $  31,320     $  30,456     $  28,292   
                                                     
(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 non-accrual loans.              
(5) Represents difference between the average yield on interest earning assets and the average cost of interest bearing     
     liabilities and is presented on a tax equivalent basis.             
(6) Represents net interest income on a tax equivalent basis divided by average total interest-earning assets.       
(7) Rates are annualized.               
(8) Amount does not reflect netting of debt issuance costs of $763, $812 and $0 for the three months ended March 31, 2016,   
     December 31, 2015 and March 31, 2015, respectively.             



            

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