ConnectOne Bancorp, Inc. Reports Third Quarter 2016 Earnings

ENGLEWOOD CLIFFS, N.J., Oct. 25, 2016 (GLOBE NEWSWIRE) — ConnectOne Bancorp, Inc. (Nasdaq:CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today announced results for the third quarter ended September 30, 2016.  The Company reported net income available to common stockholders of $11.9 million, or $0.39 per diluted share, compared with net income available to common stockholders of $10.9 million, or $0.36 per diluted share, for the second quarter of 2016 and $10.8 million, or $0.36 per diluted share, for the third quarter of 2015.

Highlights

  • Organic loan origination remained strong.  Gross loan fundings were $228.7 million for the 2016 third quarter, compared with $238.4 million for the sequential quarter. Net loan growth (fundings less paydowns and payoffs) was $84.6 million for the 2016 third quarter and $112.2 million for the sequential quarter. The loan pipeline remains solid heading into the 2016 fourth quarter.
     
  • The efficiency ratio improved to 41.7% in the 2016 third quarter from 42.2% in the sequential quarter reflecting improved operating leverage.  During the 2016 third quarter, total revenue, excluding securities gains, increased by an annualized 10.8%, while operating expenses increased by an annualized 5.5%.
     
  • Total average deposits grew by 9.2% sequentially during the quarter, including 10.1% growth in average noninterest-bearing deposits. The loan to deposit ratio was 105.9% at quarter-end.
     
  • Already sound asset quality metrics improved even further.  The nonaccrual loan ratio declined during the 2016 third quarter to 0.33% from 0.65% in the sequential quarter, while the allowance as a percent of nonaccrual loans increased to 327.3% during the 2016 third quarter from 149.5% in the sequential quarter.
     
  • We enhanced financial flexibility by designating all held-to-maturity securities as available-for-sale.  The action improves liquidity and results in an immediate pickup in tangible book value per share of approximately $0.25.
     
  • We sold approximately $75 million of investment securities, resulting in net securities gains of $4.1 million. A portion of the proceeds to be invested in securities and bank-owned life insurance (“BOLI”), and projected to result in de minimis earnings dilution.
     
  • We added an additional $5 million in reserves against our NYC-only taxi medallion portfolio, bringing the total specific reserve to 12.2% of outstanding taxi medallion loans.  Although weakness persists in open-market transactions for medallions, the NYC taxi industry has recently exhibited some signs of stabilization.  More than 95% of the Bank’s approximately $100 million medallion portfolio is current.
     
  • Tangible book value per share increased to $11.60 per share at September 30, 2016 from $11.09 at June 30, 2016 while the tangible common equity ratio increased to 8.39% from 8.14% over the same period.

Frank Sorrentino, ConnectOne’s Chairman and CEO stated, “Operating performance continued to accelerate during the third quarter of 2016, while we took a series of actions likely to result in improved shareholder value.  We fortified our balance sheet by setting aside an additional $5 million of reserves for our NYC-taxi medallion portfolio.  We changed the designation of approximately $210 million in held-to-maturity securities to available-for-sale and sold $75 million for a more than $4 million gain, thus adding liquidity, increasing capital ratios, and increasing tangible book value per share.  We also resolved a large nonperforming asset in a cash transaction that contributed to lowering our September 30, 2016 nonperforming asset ratio to 0.28%. For the current quarter, return on assets was in excess of 1%, return on tangible equity was in excess of 13%, and the efficiency ratio was 41.7%, placing us among the best performing banking institutions. Additionally, we continue to see increased opportunities in our core business strategies resulting from the difficulties many of our competitors face in our markets.”

Operating Results

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.

Third quarter 2016 results reflect the following non-core items: $1.1 million of income resulting from accretion of purchase accounting fair value marks; $0.2 million in additional loan loss provision related to the maturity and extension of acquired portfolio loans; $5.0 million in additional provision associated with the Bank’s New York City taxi medallion loan portfolio; $4.1 million of net securities gains; $0.1 million of pension settlement expenses, which had no impact on total stockholders’ equity or book value per share, and $0.2 million in amortization of intangible assets. Excluding these non-core items, along with related income tax impact, net income available to common stockholders was $12.0 million, or $0.40 per diluted share, for the third quarter of 2016, $11.4 million, or $0.38 per diluted share, for the second quarter of 2016, and $10.5 million, or $0.35 per diluted share, for the third quarter of 2015. 

Fully taxable equivalent net interest income for the third quarter of 2016 was $33.8 million, an increase of $0.7 million, or 2.0%, from the second quarter of 2016. This was the result of a 3.3% increase in average interest-earning assets, partially offset by an 8 basis-point contraction of the net interest rate margin. Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.0 million during the third quarter of 2016 and $1.2 million in the second quarter of 2016.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.22% in the third quarter of 2016, contracting by 6 basis points from the second quarter of 2016 adjusted net interest margin of 3.28%. The decrease in the adjusted net interest margin was primarily attributable to an increase in average cash balances held at the Federal Reserve Bank.

Fully taxable equivalent net interest income for the third quarter of 2016 increased by $3.4 million, or 11.1%, from the same quarter of 2015. This was a result of a 17.4% increase in average interest-earning assets due to significant organic loan growth, partially offset by an 18 basis-point contraction of the net interest margin. Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.0 million during the third quarter of 2016 and $1.3 million in the same quarter of 2015.  Excluding these purchase accounting adjustments, the current quarter’s adjusted net interest margin was 13 basis points lower than the 2015 third quarter adjusted net interest margin of 3.35%.  The reduction in the adjusted net interest margin was due primarily to higher level of cash balances held at the Federal Reserve Bank and an increase in rates paid on deposits.

Noninterest income totaled $5.6 million in the third quarter of 2016, $1.6 million in the second quarter of 2016 and $3.8 million in the third quarter of 2015. Net securities gains were $4.1 million for the third quarter of 2016, $0.1 million for the second quarter of 2016 and $2.1 million for the third quarter of 2015. Excluding the securities gains, noninterest income remained relatively flat from the sequential quarter.  At the end of the third quarter of 2016, the Bank purchased an additional $17 million in BOLI, which is expected to result in increased noninterest income in future quarters.  Noninterest income also includes deposit fees, annuities and life insurance commissions, and gains on sales of residential mortgages in the secondary market.   

Noninterest expenses totaled $14.6 million for the third quarter of 2016, up modestly from $14.4 million for the second quarter of 2016, due to flat salaries and employee benefits expense and a slight increase in various other expense categories. Noninterest expenses were up $1.3 million for the third quarter of 2016 when compared to $13.3 million for the third quarter of 2015.  The increase was largely attributable to increases in salaries and employee benefits ($0.9 million), FDIC insurance premiums ($0.2 million) and occupancy and equipment ($0.1 million).  The increases over the prior year third quarter were the result of increased levels of business and staff resulting from organic growth.

Income tax expense was $5.4 million for the third quarter of 2016, compared to $5.0 million for the second quarter of 2016 and $5.2 million for the third quarter of 2015, resulting in effective tax rates of 31.5% in 2016 and 32.5% in 2015. The effective tax rate for the full year 2016 is expected to remain at approximately 31.5%.

Asset Quality

The provision for loan and lease losses increased to $6.8 million in the third quarter of 2016 from $3.8 million in the second quarter of 2016, and from $4.2 million in the third quarter of 2015.  The increases were largely attributable to an increase in additional reserves specifically allocated to the Bank’s NYC-only taxi medallion portfolio.

As of September 30, 2016, loans secured by New York City taxi medallions totaled $102.7 million. Troubled debt restructurings associated with this portfolio totaled $95.2 million and total nonaccrual loans were $3.7 million at quarter-end. Troubled debt restructurings increased by $7.2 million from the second quarter of 2016, while nonaccrual loans decreased by $0.2 million, resulting from partial charge-offs.  Specific reserves for taxi medallion loans totaled $12.5 million, or 12.2%, of total taxi medallion portfolio.  The Bank’s valuation of a corporate medallion, which represent approximately 95% of total exposure, was approximately $700 thousand as of September 30, 2016, down from approximately $750 thousand as of June 30, 2016. 

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $12.1 million at September 30, 2016, $23.3 million at December 31, 2015, and $16.1 million at September 30, 2015. Nonperforming assets as a percent of total assets were 0.28% at September 30, 2016, 0.58% at December 31, 2015, and 0.42% at September 30, 2015. Annualized net charge-offs were 0.22% for the third quarter of 2016, 0.01% for the second quarter of 2016, and 0.02% for the third quarter of 2015. The allowance for loan and lease losses was $37.6 million, representing 1.09% of loans receivable and 327.3% of nonaccrual loans at September 30, 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 September 30, 2015, the allowance was $21.5 million representing 0.73% of loans receivable and 167.1% 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 1.39% at September 30, 2016, 1.28% at December 31, 2015, and 1.20% at September 30, 2015. (See Supplemental GAAP and non-GAAP Financial Measures).

Selected Balance Sheet Items

At September 30, 2016, the Company’s total assets were $4.3 billion, an increase of $312 million from December 31, 2015. Total loans at September 30, 2016 were $3.5 billion, reflecting net loan growth (loan originations less pay-downs and pay-offs) of $362 million from December 31, 2015, primarily attributable to multifamily ($80 million, including a $28 million loan reclassified during the first quarter of 2016 as multifamily from other commercial real estate), commercial and industrial (“C&I”) ($79 million), other commercial real estate ($62 million, including the aforementioned reclassification) and construction ($142 million), which reflected higher utilization of existing construction facilities.  The growth in loans was primarily funded with increases in deposits.

During the third quarter of 2016, the Company transferred its held-to-maturity investment securities (approximately $210 million) to available-for-sale designation.  Transferred securities were recorded at fair market value in the available-for-sale portfolio and any gains or losses were recorded in other comprehensive income, net of any deferred tax obligation.  This transfer will enhance liquidity and increase flexibility with regard to asset-liability management and balance sheet composition.  In addition, the Company sold approximately $75 million of investment securities with an approximate weighted average book yield of 2.80%, approximate duration of 6.5 years, and average risk weighting of approximately 50%, resulting in a net securities gain of $4.1 million.

The Company’s stockholders’ equity was $500 million at September 30, 2016, an increase of $22 million from December 31, 2015. The increase in stockholders’ equity was primarily attributable to an increase of $26 million in retained earnings, approximately $2 million of equity issuance related to stock-based compensation, including the exercise of stock options, and an increase in accumulated other comprehensive income of $5 million, offset by an $11 million payoff of SBLF preferred stock. As of September 30, 2016, the Company’s tangible common equity ratio and tangible book value per share were 8.39% and $11.60, 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 approximately $149 million and $150 million as of September 30, 2016 and December 31, 2015, respectively.

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          
(dollars in thousands)          
  September 30,   December 31,   September 30,
    2016       2015       2015  
  (unaudited)   (audited)   (unaudited)
ASSETS          
Cash and due from banks $   49,028     $   31,291     $   30,100  
Interest-bearing deposits with banks     184,766         169,604         128,421  
Cash and cash equivalents     233,794         200,895         158,521  
           
Investment securities:          
Available-for-sale     338,459         195,770         224,214  
Held-to-maturity (fair value of $ – , $230,558, $234,493)     –         224,056         227,221  
           
Loans held-for-sale     15,112         –         990  
           
Loans receivable     3,445,476         3,099,007         2,953,381  
Less: Allowance for loan and lease losses     37,615         26,572         21,533  
Net loans receivable     3,407,861         3,072,435         2,931,848  
           
Investment in restricted stock, at cost     24,535         32,612         30,362  
Bank premises and equipment, net     22,112         22,333         21,523  
Accrued interest receivable     12,497         12,545         11,662  
Bank-owned life insurance     97,644         78,801         53,681  
Other real estate owned     626         2,549         3,244  
Goodwill     145,909         145,909         145,909  
Core deposit intangibles     3,281         3,908         4,125  
Other assets     25,974         24,096         24,126  
Total assets $   4,327,804     $   4,015,909     $   3,837,426  
           
LIABILITIES          
Deposits:          
Noninterest-bearing $   655,683     $   650,775     $   586,643  
Interest-bearing     2,613,266         2,140,191         2,079,981  
Total deposits     3,268,949         2,790,966         2,666,624  
Borrowings     481,337         671,587         621,674  
Subordinated debentures (net of $665, $812, $827 debt issuance costs)     54,490         54,343         54,328  
Other liabilities     23,440         21,669         23,654  
Total liabilities     3,828,216         3,538,565         3,366,280  
           
COMMITMENTS AND CONTINGENCIES          
           
STOCKHOLDERS’ EQUITY          
Preferred stock     –         11,250         11,250  
Common stock     374,287         374,287         374,287  
Additional paid-in capital     10,409         8,527         8,315  
Retained earnings     130,885         104,606         97,321  
Treasury stock     (16,717 )       (16,717 )       (16,717 )
Accumulated other comprehensive gain (loss)     724         (4,609 )       (3,310 )
Total stockholders’ equity     499,588         477,344         471,146  
Total liabilities and stockholders’ equity $   4,327,804     $   4,015,909     $   3,837,426  
           

 

CONNECTONE BANCORP, INC. AND SUBSIDIARIES                
CONSOLIDATED STATEMENTS OF INCOME                
(dollars in thousands, except for per share data)                  
                   
     Three Months Ended September 30,     Nine Months Ended September 30,   
      2016       2015       2016       2015    
Interest income    (unaudited)   
Interest and fees on loans   $   37,803     $   32,276     $   109,381     $   91,807    
Interest and dividends on investment securities:                  
Taxable       1,774         2,669         5,879         8,340    
Tax-exempt       988         901         2,867         2,666    
Dividends       352         297         1,074         797    
Interest on federal funds sold and other short-term investments     261         43         541         127    
Total interest income       41,178         36,186         119,742         103,737    
Interest expense                  
Deposits       5,159         3,655         13,532         9,980    
Borrowings       2,995         2,804         9,472         7,060    
Total interest expense       8,154         6,459         23,004         17,040    
                   
Net interest income       33,024         29,727         96,738         86,697    
Provision for loan and lease losses       6,750         4,175         13,500         7,550    
Net interest income after provision for loan and lease losses     26,274         25,552         83,238         79,147    
                   
Noninterest income                  
Annuities and insurance commissions       68         77         140         210    
Income on bank owned life insurance       615         388         1,843         1,162    
Net gains on sale of loans held-for-sale       56         63         147         276    
Deposit, loan and other income       706         1,224         1,984         2,145    
Insurance recovery       –         –         –         2,224    
Net gains on sale of investment securities       4,131         2,067         4,234         2,793    
Total noninterest income       5,576         3,819         8,348         8,810    
                   
Noninterest expenses                  
Salaries and employee benefits       7,791         6,905         23,143         20,480    
Occupancy and equipment       2,049         1,916         6,450         5,785    
FDIC insurance       745         535         1,955         1,535    
Professional and consulting       667         836         2,078         2,045    
Marketing and advertising       293         247         817         634    
Data processing       1,002         957         3,036         2,686    
Loss on extinguishment of debt       –         –         –         2,397    
Amortization of core deposit intangible       193         217         627         700    
Other expenses       1,811         1,688         5,150         4,643    
Total noninterest expenses       14,551         13,301         43,256         40,905    
                   
Income before income tax expense       17,299         16,070         48,330         47,052    
Income tax expense       5,443         5,228         15,224         15,309    
Net income       11,856         10,842         33,106         31,743    
Less: Preferred stock dividends       –         28         22         84    
Net income available to common stockholders   $   11,856     $   10,814     $   33,084     $   31,659    
                   
Earnings per common share:                  
Basic   $   0.39     $   0.36     $   1.10     $   1.06    
Diluted   $   0.39     $   0.36     $   1.09     $   1.04    
Weighted average common shares outstanding:                  
Basic       30,125,287         29,636,001         30,100,057         29,786,374    
Diluted       30,401,684         30,108,103         30,376,085         30,323,376    
Dividends per common share   $   0.075     $   0.075     $   0.225     $   0.225    
                   

ConnectOne’s management believes that the supplemental financial information, including non-GAAP measures, provided below is useful to investors. The non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP financial measures presented by other companies. 
                   
CONNECTONE BANCORP, INC.                  
SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES                
(dollars in thousands, except share data)                  
  As of
  Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,
    2016       2016       2016       2015       2015  
Selected Financial Data                  
Total assets $   4,327,804     $   4,262,914     $   4,091,000     $   4,015,909     $   3,837,426  
Loans receivable:                  
  Commercial     644,430         630,425         601,708         570,116         569,605  
  Commercial real estate-other     1,139,641         1,104,214         1,087,388         1,085,615         1,052,982  
  Commercial real estate-multifamily     961,163         967,555         940,913         881,081         820,732  
  Commercial construction     471,109         443,277         402,594         328,838         283,623  
  Residential     229,401         230,497         231,319         233,690         225,158  
  Consumer     2,879         1,976         1,851         2,454         3,569  
  Gross loans     3,448,623         3,377,944         3,265,773         3,101,794         2,955,669  
Unearned net origination fees     (3,147 )       (2,324 )       (1,960 )       (2,787 )       (2,288 )
  Loans receivable     3,445,476         3,375,620         3,263,813         3,099,007         2,953,381  
  Loans held-for-sale     15,112         360         –         –         990  
Total loans     3,460,588         3,375,980         3,263,813         3,099,007         2,954,371  
                   
Securities available-for-sale     338,459         208,266         191,331         195,770         224,214  
Securities held-to-maturity     –         214,718         219,373         224,056         227,221  
Goodwill and other intangible assets     149,190         149,383         149,600         149,817         150,034  
Deposits:                  
 Noninterest-bearing     655,683         648,664         614,507         650,776         586,643  
 Interest-bearing     531,500         523,742         517,810         490,379         465,552  
 Savings     207,717         210,040         219,865         216,399         220,199  
 Money market     866,710         866,643         678,222         658,695         611,743  
 Time deposits     1,007,339         951,904         862,667         774,717         782,487  
Total deposits     3,268,949         3,200,993         2,893,071         2,790,966         2,666,624  
                   
Borrowings     481,337         496,414         646,501         671,587         621,674  
Subordinated debentures (net of issuance costs)     54,490         54,441         54,392         54,343         54,328  
Total stockholders’ equity     499,588         484,414         474,727         477,344         471,146  
                   
Quarterly Average Balances                  
Total assets $   4,344,795     $   4,212,307     $   4,034,375     $   3,891,885     $   3,729,503  
Loans receivable:                  
  Commercial     632,892         626,902         585,773         579,512         567,737  
  Commercial real estate (including multifamily)     2,081,741         2,056,263         2,005,872         1,919,263         1,811,745  
  Commercial construction     462,399         418,769         361,108         313,223         255,627  
  Residential     229,953         231,553         236,404         232,022         227,051  
  Consumer     2,771         2,865         2,670         3,269         3,013  
  Gross loans     3,409,756         3,336,352         3,191,827         3,047,289         2,865,173  
Unearned net origination fees     (2,956 )       (2,295 )       (2,397 )       (2,706 )       (2,102 )
  Loans receivable     3,406,800         3,334,057         3,189,430         3,044,583         2,863,071  
                   
Securities available-for-sale     263,656         200,050         222,776         219,927         260,211  
Securities held-to-maturity     143,146         218,220         194,474         225,875         229,483  
Goodwill and other intangible assets     149,317         149,525         149,741         149,959         150,178  
Deposits:                  
 Noninterest-bearing     640,323         581,743         609,312         608,227         560,129  
 Interest-bearing     553,401         528,954         503,896         476,237         480,685  
 Savings     211,162         215,267         215,491         216,149         220,481  
 Money market     872,937         791,845         656,557         636,180         582,238  
 Time deposits     1,007,530         889,561         807,801         783,068         787,262  
Total deposits     3,285,353         3,007,370         2,793,057         2,719,861         2,630,795  
                   
Borrowings     488,015         639,054         684,469         621,615         544,774  
Subordinated debentures     55,155         55,155         55,155         55,155         55,155  
Total stockholders’ equity     495,141         483,519         482,503         478,919         471,682  
                                       
  Three Months Ended
  Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,
GAAP Earnings Data   2016       2016       2016       2015       2015  
Net interest income $   33,024     $   32,394     $   31,320     $   30,456     $   29,727  
 Provision for loan and lease losses     6,750         3,750         3,000         5,055         4,175  
Net interest income after provision for loan and lease losses     26,274         28,644         28,320         25,401         25,552  
Noninterest income                  
 Annuity and insurance commissions     68         32         40         32         77  
 Bank-owned life insurance     615         616         612         620         388  
 Net gains on sale of loans held-for-sale     56         56         35         51         63  
 Deposit, loan and other income     706         763         515         522         1,224  
 Net gains on sale of investment securities     4,131         103         –         1,138         2,067  
   Total noninterest income     5,576         1,570         1,202         2,363         3,819  
Noninterest expenses                  
 Salaries and employee benefits     7,791         7,753         7,599         7,205         6,905  
 Occupancy and equipment     2,049         2,154         2,247         1,802         1,916  
 FDIC insurance     745         615         595         575         535  
 Professional and consulting     667         700         711         906         836  
 Marketing and advertising     293         250         184         213         247  
 Data processing     1,002         1,010         1,024         1,017         957  
 Amortization of core deposit intangible     193         217         217         217         217  
 Other expenses     1,811         1,653         1,776         1,644         1,688  
   Total noninterest expenses     14,551         14,352         14,353         13,579         13,301  
Income before income tax expense     17,299         15,862         15,169         14,185         16,070  
 Income tax expense     5,443         5,003         4,778         4,617         5,228  
Net income (GAAP) $   11,856     $   10,859     $   10,391     $   9,568     $   10,842  
                   
  Three Months Ended
  Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,
    2016       2016       2016       2015       2015  
Net income (GAAP)     11,856         10,859         10,391         9,568         10,842  
Less: preferred dividends     –          –          22         28         28  
Net income available to common stockholders (GAAP)     11,856         10,859         10,369         9,540         10,814  
                   
Reconciliation of GAAP Earnings to Operating Earnings                  
Net gains on sales of securities $   (4,131 )   $   (103 )   $   –     $   (1,138 )   $   (2,067 )
Partial settlements of pension obligation     69         87         103         106         168  
Amortization of intangible assets     193         217         217         217         217  
Provision related to maturity and extension of acquired portfolio loans     220         229         397         512         590  
Provision related to taxi cab medallion loans     5,000         1,750         1,487         2,500         2,000  
Provision for pending disposition of  Union Center operations bldg.     –         –         –         1,304         –  
Accretion of purchase accounting fair value marks     (1,077 )       (1,277 )       (1,367 )       (1,416 )       (1,340 )
Non-core items     274         903         837         2,085         (432 )
Income tax (expense) benefit     99         326         301         751         (156 )
Non-core items, after taxes (36%)     175         577         536         1,334         (276 )
Core earnings available to common stockholders (non-GAAP) $   12,031     $   11,436     $   10,905     $   10,874     $   10,538  
Weighted average diluted shares outstanding   30,401,684       30,340,376         30,257,676         30,310,905         30,335,571  
Diluted EPS (GAAP) $   0.39     $   0.36     $   0.34     $   0.31     $   0.36  
Core Diluted EPS (Non-GAAP) (1)     0.40         0.38         0.36         0.36         0.35  
                   
Return on Assets Measures                  
Core earnings available to common stockholders (non-GAAP) $   12,031     $   11,436     $   10,905     $   10,874     $   10,538  
Add: preferred dividends     –          –          22         28         28  
Core net income (non-GAAP) $   12,031     $   11,436     $   10,927     $   10,902     $   10,566  
Average assets $   4,344,795     $   4,212,307     $   4,034,375     $   3,891,885     $   3,729,503  
Less: average intangible assets     (149,317 )       (149,525 )       (149,741 )       (149,959 )       (150,178 )
Average tangible assets $   4,195,478     $   4,062,782     $   3,884,634     $   3,741,926     $   3,579,325  
Return on avg. assets (GAAP)   1.09 %     1.04 %     1.04 %     0.98 %     1.15 %
Core return on avg. assets (Non-GAAP) (2)   1.10 %     1.09 %     1.09 %     1.11 %     1.12 %
Return on avg. tangible assets (Non-GAAP) (3)   1.14 %     1.09 %     1.09 %     1.03 %     1.22 %
Core return on avg. tangible assets (Non-GAAP) (4)   1.14 %     1.13 %     1.13 %     1.16 %     1.17 %
_____                  
(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
  Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,
    2016       2016       2016       2015       2015  
Return on Equity Measures                  
Core earnings available to common stockholders $   12,031     $   11,436     $   10,905     $   10,874     $   10,538  
                   
Average common equity $   495,141     $   483,519     $   473,849     $   467,669     $   460,432  
Less: average intangible assets     (149,317 )       (149,525 )       (149,741 )       (149,959 )       (150,178 )
Average tangible common equity $   345,824     $   333,994     $   324,108     $   317,710     $   310,254  
                   
Return on avg. common equity (GAAP)   9.53 %     9.03 %     8.80 %     8.09 %     9.32 %
Core return on avg. common equity (non-GAAP) (5)   9.67 %     9.51 %     9.26 %     9.23 %     9.08 %
Return on avg. tangible common equity (non-GAAP) (6)   13.77 %     13.23 %     13.03 %     12.07 %     13.99 %
Core return on avg. tangible common equity (non-GAAP) (7)   13.84 %     13.77 %     13.53 %     13.58 %     13.47 %
                   
Efficiency Measures                  
Total noninterest expenses $   14,551     $   14,352     $   14,353     $   13,579     $   13,301  
Partial settlements of pension obligation     (69 )       (87 )       (103 )       (106 )       (168 )
Foreclosed property expense     (37 )       10         (167 )       (387 )       (121 )
Amortization of intangible assets and fair value marks     (193 )       (217 )       (217 )       (217 )       (217 )
Operating noninterest expense  $   14,252     $   14,058     $   13,866     $   12,869     $   12,795  
                   
Net interest income (FTE) $   33,762     $   33,112     $   31,985     $   31,102     $   30,382  
Impact of purchase accounting fair value marks     (1,045 )       (1,245 )       (1,335 )       (1,384 )       (1,314 )
Noninterest income     5,576         1,570         1,202         2,363         3,819  
Net gains on sales of securities     (4,131 )       (103 )       –         (1,138 )       (2,067 )
Operating revenue  $   34,162     $   33,334     $   31,852     $   30,943     $   30,820  
                   
Operating efficiency ratio (non-GAAP) (8)   41.7 %     42.2 %     43.5 %     41.6 %     41.5 %
                   
Net Interest Margin                  
Average interest-earning assets $   4,041,020     $   3,912,802     $   3,728,958     $   3,582,408     $   3,441,151  
                   
Net interest income (FTE) $   33,762     $   33,112     $   31,985     $   31,102     $   30,382  
Impact of purchase accounting fair value marks     (1,045 )       (1,245 )       (1,335 )       (1,384 )       (1,314 )
Adjusted net interest income $   32,717     $   31,867     $   30,650     $   29,718     $   29,068  
                   
Net interest margin (GAAP)   3.32 %     3.40 %     3.45 %     3.44 %     3.50 %
Adjusted net interest margin (non-GAAP) (9)   3.22 %     3.28 %     3.31 %     3.29 %     3.35 %
_____                  
(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
  Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,
(dollars in thousands, except share data)   2016       2016       2016       2015       2015  
Capital Ratios and Book Value per Share                  
Common equity $   499,588     $   484,414     $   474,727     $   466,094     $   459,896  
Less: intangible assets     (149,190 )       (149,383 )       (149,600 )       (149,817 )       (150,034 )
Tangible common equity $   350,398     $   335,031     $   325,127     $   316,277     $   309,862  
                   
Total assets $   4,327,804     $   4,262,914     $   4,091,000     $   4,015,909     $   3,837,426  
Less: intangible assets     (149,190 )       (149,383 )       (149,600 )       (149,817 )       (150,034 )
Tangible assets $   4,178,614     $   4,113,531     $   3,941,400     $   3,866,092     $   3,687,392  
                   
Common shares outstanding   30,197,318       30,197,318         30,163,078         30,085,663         30,197,789  
                   
Common equity ratio (GAAP)   11.54 %     11.36 %     11.60 %     11.61 %     11.98 %
Tangible common equity ratio (non-GAAP) (10)   8.39 %     8.14 %     8.25 %     8.18 %     8.40 %
                   
Regulatory capital ratios (Bancorp):                  
  Leverage ratio   8.49 %     8.52 %     8.66 %     9.07 %     9.26 %
  Common equity Tier 1 risk-based ratio   9.25 %     9.10 %     9.05 %     9.14 %     9.33 %
  Risk-based Tier 1 capital ratio   9.38 %     9.23 %     9.19 %     9.61 %     9.82 %
  Risk-based total capital ratio   11.69 %     11.44 %     11.35 %     11.77 %     11.94 %
                   
Regulatory capital ratios (Bank):                  
  Leverage ratio   9.57 %     9.62 %     9.83 %     9.96 %     10.22 %
  Common equity Tier 1 risk-based ratio   10.58 %     10.43 %     10.44 %     10.55 %     10.83 %
  Risk-based Tier 1 capital ratio   10.58 %     10.43 %     10.44 %     10.55 %     10.83 %
  Risk-based total capital ratio   11.57 %     11.30 %     11.23 %     11.31 %     11.47 %
                   
Book value per share (GAAP) $   16.54     $   16.04     $   15.74     $   15.49     $   15.23  
Tangible book value per share (non-GAAP) (11)     11.60         11.09         10.78         10.51         10.26  
                   
  Three Months Ended
  Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,
    2016       2016       2016       2015       2015  
NCO Detail                  
Net loan charge-offs:                  
 Charge-offs $   1,910     $   77     $   512     $   18     $   519  
 Recoveries     (12 )       (16 )       (15 )       (2 )       (342 )
  Net loan charge-offs $   1,898     $   61     $   497     $   16     $   177  
  as a % of average total loans (annualized)   0.22 %     0.01 %     0.06 %     0.00 %     0.02 %
                   
Asset Quality                  
Nonaccrual loans $   11,493     $   21,911     $   21,450     $   20,737     $   12,888  
Other real estate owned     626         2,029         1,696         2,549         3,244  
Total nonperforming assets $   12,119     $   23,940     $   23,146     $   23,286     $   16,132  
                   
Performing troubled debt restructurings $   105,338     $   97,831     $   95,122     $   85,925     $   77,882  
Loans past due 90 days and still accruing (non-PCI) $   –     $   –     $   –     $   –     $   268  
                   
Nonaccrual loans as a % of loans receivable   0.33 %     0.65 %     0.66 %     0.67 %     0.44 %
Nonperforming assets as a % of total assets   0.28 %     0.56 %     0.57 %     0.58 %     0.42 %
Allowance for loan losses as a % of nonaccrual loans   327.3 %     149.5 %     135.5 %     128.1 %     167.1 %
                   
Loans receivable $   3,445,476     $   3,375,620     $   3,263,813     $   3,099,007     $   2,953,381  
Acquired loans     (736,894 )       (799,851 )       (825,047 )       (866,878 )       (923,210 )
Loans receivable, excluding acquired loans $   2,708,582     $   2,575,769     $   2,438,766     $   2,232,129     $   2,030,171  
                   
Allowance for loan losses $   37,615     $   32,763     $   29,074     $   26,572     $   21,533  
Accretable credit risk discount on acquired loans     10,408         11,198         12,101         12,955         13,893  
Total allowance for loan losses and accretable credit risk discount on acquired loans $   48,023     $   43,961     $   41,175     $   39,527     $   35,426  
                   
Allowance for loan losses as a % of loans receivable   1.09 %     0.97 %     0.89 %     0.86 %     0.73 %
Allowance for loan losses as a % of loans receivable, excluding acquired loans   1.39 %     1.27 %     1.19 %     1.19 %     1.06 %
Allowance for loan losses and accretable credit risk discount on loans as a % of loans receivable   1.39 %     1.30 %     1.26 %     1.28 %     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    
        September 30, 2016 June 30, 2016 September 30, 2015  
        Average      (7 )     Average      (7 )     Average      (7 )    
Interest-earning assets:   Balance Interest Rate     Balance Interest Rate     Balance Interest Rate    
Investment securities (1) (2)   $   406,802   $   3,293       3.22   %   $   418,270   $   3,497       3.36   %   $   483,677   $   4,055       3.33   %  
Loans receivable and loans held-for-sale (2) (3) (4)     3,407,278       38,010       4.44           3,334,057       36,743       4.43           2,863,708       32,446       4.50      
Federal funds sold and interest-                              
bearing deposits with banks       202,106       261       0.51           128,994       146       0.46           66,867       43       0.26      
Restricted investment in bank stock     24,834       352       5.64           31,481       370       4.73           26,899       297       4.38      
Total interest-earning assets     4,041,020       41,916       4.13           3,912,802       40,756       4.19           3,441,151       36,841       4.25      
Allowance for loan losses       (34,052 )             (29,924 )             (18,157 )        
Noninterest-earning assets       337,828               329,429               306,509          
Total assets     $   4,344,796           $   4,212,307           $   3,729,503          
                                     
Interest-bearing liabilities:                                
Money market deposits   $   872,937   $   1,211       0.55       $   791,845   $   992       0.50       $   710,767   $   794       0.44      
Savings deposits         211,162       158       0.30           215,267       156       0.29           220,481       146       0.26      
Time deposits         1,007,530       3,323       1.31           889,561       2,857       1.29           787,262       2,391       1.20      
Other interest-bearing deposits     553,401       467       0.34           528,954       429       0.33           352,156       324       0.37      
Total interest-bearing deposits     2,645,030       5,159       0.78           2,425,627       4,434       0.74           2,070,666       3,655       0.70      
                                     
Borrowings         488,015       2,139       1.74           639,054       2,355       1.48           544,774       1,944       1.42      
Subordinated debentures (8)       55,155       814       5.87           55,155       812       5.92           55,155       816       5.87      
Capital lease obligation       2,814       42       5.94           2,844       43       6.08           2,933       44       5.95      
Total interest-bearing liabilities     3,191,014       8,154       1.02           3,122,680       7,644       0.98           2,673,528       6,459       0.96      
                                     
Demand deposits         640,323               581,743               560,129          
Other liabilities         18,318               24,365               24,164          
Total noninterest-bearing liabilities     658,642               606,108               584,293          
Stockholders’ equity       495,141               483,519               471,682          
Total liabilities and stockholders’ equity $   4,344,796           $   4,212,307           $   3,729,503          
                                     
Net interest income (tax equivalent basis)       33,762               33,112               30,382        
Net interest spread (5)           3.11   %           3.21   %           3.29   %  
                                     
Net interest margin (6)           3.32   %           3.40   %           3.50   %  
                                     
Tax equivalent adjustment         (738 )             (718 )             (655 )      
Net interest income       $   33,024           $   32,394           $   29,727        
                                     
(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) 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) Excluding debt issuance costs of $698, $746 and $ –  for the three months ended September 30, 2016, June 30, 2016 and September 30, 2015, respectively.   

 

CONTACT: Investor Contact:

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

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