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

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

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

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

Operating Results

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

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

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

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

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

Asset Quality

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

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

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

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

Selected Balance Sheet Items

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

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

Use of Non-GAAP Financial Measures

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

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

Second Quarter 2017 Conference Call

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

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

About ConnectOne Bancorp, Inc.

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

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

Forward-Looking Statements

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

 

CONNECTONE BANCORP, INC. AND SUBSIDIARIES     
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION     
(dollars in thousands)     
 June 30,  December 31, June 30,
  2017  2016   2016 
 (unaudited)   (unaudited)
ASSETS     
Cash and due from banks$  54,305  $  37,150  $  35,850 
Interest-bearing deposits with banks   92,203     163,249     139,263 
   Cash and cash equivalents   146,508     200,399     175,113 
      
Investment securities:     
   Available-for-sale   402,130     353,290     208,266 
   Held-to-maturity (fair value of $-0-, $-0-, $227,427)   -     -     214,718 
      
Loans held-for-sale (net of $12,325, $-0-, $-0- valuation allowance)   51,124     78,005     360 
      
Loans receivable   3,761,572     3,475,832     3,375,620 
Less: Allowance for loan losses   28,401     25,744     32,763 
   Net loans receivable   3,733,171     3,450,088     3,342,857 
      
Investment in restricted stock, at cost   32,152     24,310     25,210 
Bank premises and equipment, net   21,630     22,075     22,477 
Accrued interest receivable   13,194     12,965     12,726 
Bank owned life insurance   99,777     98,359     80,028 
Other real estate owned   580     626     2,029 
Goodwill   145,909     145,909     145,909 
Core deposit intangibles   2,702     3,088     3,474 
Other assets   32,403     37,234     29,747 
   Total assets$  4,681,280  $  4,426,348  $  4,262,914 
      
LIABILITIES     
Deposits:     
   Noninterest-bearing$  695,522  $  694,977  $  648,664 
   Interest-bearing   2,734,851     2,649,294     2,552,329 
     Total deposits   3,430,373     3,344,271     3,200,993 
Borrowings   626,173     476,280     496,414 
Subordinated debentures (net of $539, $621, $714 in debt issuance costs)   54,616     54,534     54,441 
Other liabilities   23,945     20,231     26,652 
   Total liabilities   4,135,107     3,895,316     3,778,500 
      
COMMITMENTS AND CONTINGENCIES     
      
STOCKHOLDERS' EQUITY     
Common stock   412,546     412,726     374,287 
Additional paid-in capital   12,377     11,407     9,864 
Retained earnings   141,178     126,462     121,301 
Treasury stock   (16,717)    (16,717)    (16,717)
Accumulated other comprehensive loss   (3,211)    (2,846)    (4,321)
   Total stockholders' equity   546,173     531,032     484,414 
   Total liabilities and stockholders' equity$  4,681,280  $  4,426,348  $  4,262,914 

 

CONNECTONE BANCORP, INC. AND SUBSIDIARIES           
CONSOLIDATED STATEMENTS OF INCOME           
(dollars in thousands, except for per share data)           
            
   Three Months Ended   Six Months Ended    
  06/30/17 06/30/16 06/30/17 06/30/16   
Interest income           
    Interest and fees on loans $  40,632 $  36,561 $  78,638 $  71,578   
    Interest and dividends on investment securities:           
       Taxable    1,799    1,965    3,347    4,105   
       Tax-exempt    831    996    1,785    1,879   
    Dividends    290    370    620    722   
    Interest on federal funds sold and other short-term investments                  139    146    385    280   
       Total interest income    43,691    40,038    84,775    78,564   
Interest expense           
    Deposits    5,495    4,434    10,604    8,373   
    Borrowings    3,095    3,210    5,929    6,477   
       Total interest expense    8,590    7,644    16,533    14,850   
            
Net interest income    35,101    32,394    68,242    63,714   
   Provision for loan losses    1,450    3,750    2,550    6,750   
Net interest income after provision for loan losses    33,651    28,644    65,692    56,964   
            
Noninterest income           
    Annuities and insurance commissions    -    32    39    72   
    Income on bank owned life insurance    714    616    1,417    1,228   
    Net gains on sale of loans held-for-sale    49    56    70    92   
    Deposit, loan and other income    659    763    1,302    1,277   
    Net gains on sale of investment securities    -    103    1,596    103   
        Total noninterest income    1,422    1,570    4,424    2,772   
            
Noninterest expenses           
    Salaries and employee benefits    8,632    7,753    16,838    15,353   
    Occupancy and equipment    1,991    2,154    4,246    4,401   
    FDIC insurance    815    615    1,710    1,210   
    Professional and consulting    734    700    1,452    1,412   
    Marketing and advertising    289    250    545    523   
    Data processing    1,149    1,010    2,298    2,033   
    Amortization of core deposit intangible    193    217    386    434   
    Increase in valuation allowance, loans held-for-sale    9,725    -    12,325    -   
    Other expenses    1,775    1,653    3,752    3,339   
       Total noninterest expenses    25,303    14,352    43,552    28,705   
            
Income before income tax expense    9,770    15,862    26,564    31,031   
    Income tax expense    2,087    5,003    7,001    9,781   
Net income    7,683    10,859    19,563    21,250   
    Less: Preferred stock dividends    -    -    -    22   
Net income available to common stockholders $  7,683 $  10,859 $  19,563 $  21,228   
            
Earnings per common share:           
    Basic $  0.24 $  0.36 $  0.61 $  0.71   
    Diluted    0.24    0.36    0.60    0.70   
            
Dividends per common share $  0.075 $  0.075 $  0.150 $  0.150   
            


ConnectOne's management believes that the supplemental financial information, including non-GAAP measures, provided below is useful to investors. The non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP financial measures presented by other companies.

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

 

CONNECTONE BANCORP, INC.                
NET INTEREST MARGIN ANALYSIS                
(dollars in thousands)                 
    For the Three Months Ended   
    June 30, 2017March 31, 2017June 30, 2016  
    Average     Average     Average      
Interest-earning assets: BalanceInterestRate (8)  BalanceInterestRate (8)  BalanceInterestRate (8)   
Investment securities (1) (2) $  390,462 $  3,079   3.16% $  366,473 $  3,015   3.34% $  418,270 $  3,497   3.36%  
Loans receivable and loans held-for-sale (2) (3) (4)   3,699,355    40,921   4.44     3,549,031    38,308   4.38     3,334,057    36,743   4.43   
Federal funds sold and interest-                
  bearing deposits with banks    52,099    139   1.07     115,025    246   0.87     128,994    146   0.46   
Restricted investment in bank stock   26,428     290    4.40     22,795     330    5.87     31,481     370    4.73   
   Total interest-earning assets   4,168,344    44,429   4.28     4,053,324    41,899   4.19     3,912,802    40,756   4.19   
Allowance for loan losses    (27,355)       (26,215)       (29,924)     
Noninterest-earning assets    354,584        355,205        329,429      
   Total assets  $  4,495,573     $  4,382,314     $  4,212,307      
                    
Interest-bearing liabilities:                 
 Money market deposits    944,646    1,609   0.68     958,656    1,515   0.64     791,845    992   0.50   
 Savings deposits     186,033    75   0.16     199,000    79   0.16     215,267    156   0.29   
 Time deposits     976,012    3,311   1.36     963,976    3,091   1.30     889,561    2,857   1.29   
 Other interest-bearing deposits   582,196     500    0.34     549,335     424    0.31     528,954     429    0.33   
   Total interest-bearing deposits   2,688,887    5,495   0.82     2,670,967    5,109   0.78     2,425,627    4,434   0.74   
                    
Borrowings     514,161    2,244   1.75     442,595    1,985   1.82     639,054    2,355   1.48   
Subordinated debentures (5)    55,155    810   5.89     55,155    808   5.94     55,155    812   5.92   
Capital lease obligation    2,720     41    6.05     2,752     41    6.04     2,844     43    6.08   
   Total interest-bearing liabilities   3,260,923    8,590   1.06     3,171,469    7,943   1.02     3,122,680    7,644   0.98   
                    
Demand deposits     667,461        655,597        581,743      
Other liabilities     17,441        15,705        24,365      
   Total noninterest-bearing liabilities   684,902        671,302        606,108      
Stockholders' equity    549,748        539,543        483,519      
   Total liabilities and stockholders' equity$  4,495,573     $  4,382,314     $  4,212,307      
                    
Net interest income (tax equivalent basis)    35,839        33,956        33,112     
Net interest spread (6)     3.22%     3.17%     3.21%  
                    
Net interest margin (7)     3.45%     3.40%     3.40%  
                    
Tax equivalent adjustment     (738)       (815)       (718)    
Net interest income   $  35,101     $  33,141     $  32,394     
                    
(1) Average balances are calculated on amortized cost.                   
(2) Interest income is presented on a tax equivalent basis using 35% federal tax rate.             
(3) Includes loan fee income.                 
(4) Loans include nonaccrual loans.                
(5) Does not reflect netting of debt issuance costs of $565, $580 and $714 for the three months ended June 30, 2017 March 31, 2017 and June 30, 2016, respectively. 
(6) Represents difference between the average yield on interest-earning assets and the average cost of interest-bearing  liabilities and is presented on a tax equivalent basis. 
(7) Represents net interest income on a tax equivalent basis divided by average total interest-earning assets.          
(8) Rates are annualized.                 
Investor Contact:

William S. Burns
Executive VP & CFO
201.816.4474; bburns@cnob.com

Media Contact:
Jake Ciorciari, MWWPR
646.376.7042; jciorciari@mww.com