ConnectOne Bancorp, Inc. Reports Record Net Income For Second Quarter 2016

ENGLEWOOD CLIFFS, N.J., July 22, 2016 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq:CNOB) (the "Company" or "ConnectOne"), parent company of ConnectOne Bank (the "Bank"), today announced results for the second quarter ended June 30, 2016.  The Company reported net income available to common stockholders of $10.9 million, or $0.36 per diluted share, compared with net income available to common stockholders of $10.4 million, or $0.34 per diluted share, for the first quarter of 2016 and $10.5 million, or $0.35 per diluted share, for the second quarter of 2015.

Frank Sorrentino, ConnectOne's Chairman and CEO stated, "We are extremely pleased with ConnectOne's second quarter performance, highlighted by record quarterly earnings which were achieved despite an additional $1.75 million of pre-tax reserves set aside for our NYC-taxi medallion portfolio. Specific reserves against this portfolio now total 7.6%.  Our deposits increased by $308 million, or 11%, to $3.2 billion at June 30, 2016 from March 31, 2016, while average deposits for the second quarter increased by 8% over the sequential quarter.  While some of these deposits are transitory, our focus on core deposit growth remains solid.  Net growth in our loan portfolio was $112 million for the current quarter, slightly below recent levels, but our pipeline remains strong and we continue to expect mid- to high-teens loan growth for 2016.  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 42%, placing us among the best performing banking institutions.  Looking ahead, we remain well-positioned to execute on our business strategies and realize strong growth while continuing to create long-term shareholder value."

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.

Second quarter 2016 results reflect the following non-core items: $1.3 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; $1.8 million in additional provision associated with the Bank's New York City taxi medallion loan portfolio; $0.1 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 non-core items, along with related income tax impact, net income available to common stockholders was $11.4 million, or $0.38 per diluted share, for the second quarter of 2016, $10.9 million, or $0.36 per diluted share, for the first quarter of 2016, and $10.1 million, or $0.33 per diluted share, for the second quarter of 2015.

Fully taxable equivalent net interest income for the second quarter of 2016 was $33.1 million, an increase of $1.1 million, or 3.5%, from the first quarter of 2016. This was the result of a 4.9% increase in average interest-earning assets, offset by a 5 basis-point contraction of the net interest rate margin. Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.2 million during the second quarter of 2016 and $1.3 million in the first quarter of 2016.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.28% in the second quarter of 2016, contracting by 3 basis points from the first quarter of 2016 adjusted net interest margin of 3.31%. The decrease in the adjusted net interest margin was primarily attributable to an increase in average cash balances.

Fully taxable equivalent net interest income for the second quarter of 2016 was $33.1 million, an increase of $3.8 million, or 13.0%, from the same quarter of 2015. This was a result of a 19.8% increase in average interest-earning assets due to significant organic loan growth, partially offset by a 20 basis-point contraction of the net interest margin. Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.2 million during the second quarter of 2016 and $1.5 million in the same quarter of 2015.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.28% in the second quarter of 2016, 14 basis points lower than the 2015 second quarter adjusted net interest margin of 3.42%.  The reduction in the adjusted net interest margin was due to a higher level of cash balances, the June 30, 2015 issuance of $50 million in subordinated debentures and the impact of a protracted low-interest rate environment.

Noninterest income represents a relatively small portion of the Bank's total revenue. Noninterest income totaled $1.6 million in the second quarter of 2016, $1.2 million in the first quarter of 2016 and $3.4 million in the second quarter of 2015. Securities gains were $0.1 million for the second quarter of 2016, zero for the first quarter of 2016 and $0.2 million for the second quarter of 2015. The second quarter of 2016 included a gain of $0.2 million on the sale of one OREO property, and the second quarter of 2015 included an insurance recovery of $2.2 million. 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.

Noninterest expenses totaled $14.4 million for both the second and first quarters of 2016.  Salaries and employee benefits increased by $0.2 million and were offset by $0.2 million of decreases in occupancy and equipment and other miscellaneous expenses.  Noninterest expenses for the second quarter of 2015 totaled $15.0 million and included a loss on debt extinguishment of $2.4 million.  Excluding the debt extinguishment charge, noninterest expenses increased by $1.8 million in the second quarter of 2016 from the prior year quarter. This increase was largely attributable to a $0.8 million increase in salaries and employee benefits, $0.4 million in occupancy and equipment expense, $0.2 million in data processing, and $0.4 million in other expenses, all resulting from increased levels of business and staff resulting from organic growth.

Income tax expense was $5.0 million for the second quarter of 2016, compared to $4.8 million for the first quarter of 2016 and $5.1 million for the second 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 $3.8 million in the second quarter of 2016 from $3.0 million in the first quarter of 2016, and from $1.6 million in the second quarter of 2015.  The increases were largely attributable to additional reserves specifically allocated to the Bank's taxi medallion portfolio.

As of June 30, 2016, loans secured by New York City taxi medallions totaled $103.1 million. Troubled debt restructurings associated with this portfolio totaled $88.0 million and total nonaccrual loans were $3.9 million, up from $86.4 million and $1.9 million as of March 31, 2016.  Specific reserves for taxi medallion loans totaled $7.8 million, or 7.6%, of total taxi medallion portfolio.  The Bank's valuation of corporate medallions, which represent approximately 95% of total exposure, was approximately $750 thousand as of June 30, 2016, down from approximately $775 thousand as of March 31, 2016.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $23.9 million at June 30, 2016, $23.3 million at December 31, 2015, and $13.7 million at June 30, 2015. Nonperforming assets as a percent of total assets were 0.56% at June 30, 2016, 0.58% at December 31, 2015, and 0.37% at June 30, 2015. Annualized net charge-offs were 0.01% for the second quarter of 2016, 0.06% for the first quarter of 2016, and 0.00% for the second quarter of 2015. The allowance for loan and lease losses was $32.8 million, representing 0.97% of loans receivable and 149.5% of nonaccrual loans at June 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 June 30, 2015, the allowance was $17.5 million representing 0.63% of loans receivable and 143.9% 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 1.30% at June 30, 2016, 1.28% at December 31, 2015, and 1.17% at June 30, 2015. (See Supplemental GAAP and non-GAAP Financial Measures).

Selected Balance Sheet Items

At June 30, 2016, the Company's total assets were $4.3 billion, an increase of $247 million from December 31, 2015. Loans receivable at June 30, 2016 were $3.4 billion, reflecting net loan growth (loan originations less pay-downs and pay-offs) of $277 million from December 31, 2015, primarily attributable to multifamily ($87 million, including a $28 million loan reclassified during the first quarter as multifamily from other commercial real estate), commercial and industrial ("C&I") ($60 million), other commercial real estate ($18 million, including the aforementioned reclassification) and construction ($114 million), which reflected higher utilization of existing construction facilities.  The growth in loans was funded with increases in deposits.

The Company's stockholders' equity was $484 million at June 30, 2016, an increase of $7 million from December 31, 2015. The increase in stockholders' equity was primarily attributable to an increase of $17 million in retained earnings and approximately $1 million of equity issuance related to stock-based compensation, including the exercise of stock options, offset by an $11 million payoff of SBLF preferred stock. As of June 30, 2016, the Company's tangible common equity ratio and tangible book value per share were 8.14% and $11.09, 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 $150 million as of June 30, 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            
(dollars in thousands)            
  June 30,   December 31,   June 30,  
    2016       2015       2015    
  (unaudited)   (audited)   (unaudited)  
ASSETS            
Cash and due from banks $ 35,850     $ 31,291     $ 41,454    
Interest-bearing deposits with banks   139,263       169,604       84,029    
Cash and cash equivalents   175,113       200,895       125,483    
             
Investment securities:            
Available-for-sale   208,266       195,770       264,098    
Held-to-maturity (fair value of $227,427, $230,558, $237,208)   214,718       224,056       232,557    
             
Loans held-for-sale   360       -       124    
             
Loans receivable   3,375,620       3,099,007       2,765,288    
Less: Allowance for loan and lease losses   32,763       26,572       17,480    
Net loans receivable   3,342,857       3,072,435       2,747,808    
             
Investment in restricted stock, at cost   25,210       32,612       27,078    
Bank premises and equipment, net   22,477       22,333       21,252    
Accrued interest receivable   12,726       12,545       12,055    
Bank-owned life insurance   80,028       78,801       53,293    
Other real estate owned   2,029       2,549       1,564    
Goodwill   145,909       145,909       145,909    
Core deposit intangibles   3,474       3,908       4,343    
Other assets   29,747       24,096       24,493    
  Total assets $ 4,262,914     $ 4,015,909     $ 3,660,057    
             
LIABILITIES            
Deposits:            
Noninterest-bearing $ 648,664     $ 650,775     $ 553,008    
Interest-bearing   2,552,329       2,140,191       2,016,223    
Total deposits   3,200,993       2,790,966       2,569,231    
Borrowings   496,414       671,587       548,758    
Subordinated debentures (net of $714, $812, $0 in debt issuance costs)   54,441       54,343       55,155    
Other liabilities   26,652       21,669       22,931    
  Total liabilities   3,778,500       3,538,565       3,196,075    
             
COMMITMENTS AND CONTINGENCIES            
             
STOCKHOLDERS' EQUITY            
Preferred stock   -       11,250       11,250    
Common stock   374,287       374,287       374,287    
Additional paid-in capital   9,864       8,527       8,120    
Retained earnings   121,301       104,606       88,772    
Treasury stock   (16,717 )     (16,717 )     (16,717 )  
Accumulated other comprehensive loss   (4,321 )     (4,609 )     (1,730 )  
  Total stockholders' equity   484,414       477,344       463,982    
  Total liabilities and stockholders' equity $ 4,262,914     $ 4,015,909     $ 3,660,057    
             

                 
CONNECTONE BANCORP, INC. AND SUBSIDIARIES                
CONSOLIDATED STATEMENTS OF INCOME                
(dollars in thousands, except for per share data)                  
                   
      Three Months Ended June 30,       Six Months Ended June 30,    
      2016       2015       2016       2015    
Interest income             (unaudited)            
Interest and fees on loans   $ 36,561     $ 30,217     $ 71,578     $ 59,531    
Interest and dividends on investment securities:                  
Taxable     1,965       2,760       4,105       5,671    
Tax-exempt     996       883       1,879       1,765    
Dividends     370       280       722       500    
Interest on federal funds sold and other short-term investments   146       41       280       84    
Total interest income     40,038       34,181       78,564       67,551    
Interest expense                  
Deposits     4,434       3,301       8,373       6,325    
Borrowings     3,210       2,202       6,477       4,256    
Total interest expense     7,644       5,503       14,850       10,581    
                   
Net interest income     32,394       28,678       63,714       56,970    
Provision for loan and lease losses     3,750       1,550       6,750       3,375    
Net interest income after provision for loan and lease losses   28,644       27,128       56,964       53,595    
                   
Noninterest income                  
Annuities and insurance commissions     32       46       72       133    
Bank-owned life insurance     616       388       1,228       774    
Net gains on sale of loans held-for-sale     56       99       92       213    
Deposit, loan and other income     763       458       1,277       921    
Insurance recovery     -       2,224       -       2,224    
Net gains on sale of investment securities     103       221       103       726    
Total noninterest income     1,570       3,436       2,772       4,991    
                   
Noninterest expenses                  
Salaries and employee benefits     7,753       6,948       15,353       13,575    
Occupancy and equipment     2,154       1,788       4,401       3,869    
FDIC insurance     615       440       1,210       1,000    
Professional and consulting     700       715       1,412       1,209    
Marketing and advertising     250       193       523       387    
Data processing     1,010       829       2,033       1,729    
Loss on extinguishment of debt     -       2,397       -       2,397    
Amortization of core deposit intangible     217       241       434       483    
Other expenses     1,653       1,423       3,339       2,955    
Total noninterest expenses     14,352       14,974       28,705       27,604    
                   
Income before income tax expense     15,862       15,590       31,031       30,982    
Income tax expense     5,003       5,069       9,781       10,081    
Net income     10,859       10,521       21,250       20,901    
Less: Preferred stock dividends     -       28       22       56    
Net income available to common stockholders   $ 10,859     $ 10,493     $ 21,228     $ 20,845    
                   
Earnings per common share:                  
Basic   $ 0.36     $ 0.35     $ 0.71     $ 0.70    
Diluted   $ 0.36     $ 0.35     $ 0.70     $ 0.69    
Weighted average common shares outstanding:                  
Basic     30,089,829       29,868,247       30,081,278       29,812,521    
Diluted     30,340,376       30,231,480       30,331,172       30,203,682    
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.  
                   
C ONNECT O NE B ANCORP, I NC.                  
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,  
    2016       2016       2015       2015       2015    
Selected Financial Data                            
Total assets $ 4,262,914     $ 4,091,000     $ 4,015,909     $ 3,837,426     $ 3,660,057    
Loans receivable:                  
Commercial   630,425       601,708       570,116       569,605       568,969    
Commercial real estate-other   1,104,214       1,087,388       1,085,615       1,052,982       987,303    
Commercial real estate-multifamily   967,555       940,913       881,081       820,732       764,088    
Commercial construction   443,277       402,594       328,838       283,623       220,267    
Residential   230,497       231,319       233,690       225,158       224,134    
Consumer   1,976       1,851       2,454       3,569       2,454    
Gross loans   3,377,944       3,265,773       3,101,794       2,955,669       2,767,215    
Unearned net origination fees   (2,324 )     (1,960 )     (2,787 )     (2,288 )     (1,927 )  
Loans receivable   3,375,620       3,263,813       3,099,007       2,953,381       2,765,288    
                   
Securities available-for-sale   208,266       191,331       195,770       224,214       264,098    
Securities held-to-maturity   214,718       219,373       224,056       227,221       232,557    
Goodwill and other intangible assets   149,383       149,600       149,817       150,034       150,252    
Deposits:                  
Noninterest-bearing   648,664       614,507       650,776       586,643       558,388    
Interest-bearing   523,742       517,810       490,379       465,552       439,949    
Savings   210,040       219,865       216,399       220,199       214,244    
Money market   866,643       678,222       658,695       611,753       578,047    
Time deposits   951,904       862,667       774,717       782,487       778,603    
Total deposits   3,200,993       2,893,071       2,790,966       2,666,634       2,569,231    
                   
Borrowings   496,414       646,501       671,587       621,674       548,759    
Subordinated debentures (net of issuance costs)   54,441       54,392       54,343       54,328       55,155    
Total stockholders' equity $ 484,414     $ 474,727     $ 477,344     $ 471,146     $ 463,982    
                   
Quarterly Average Balances                  
Total assets $ 4,212,307     $ 4,034,375     $ 3,891,885     $ 3,729,503     $ 3,551,597    
Loans receivable:                  
Commercial   626,902       585,773       579,512       567,737       555,119    
Commercial real estate (including multifamily)   2,056,263       2,005,872       1,919,263       1,811,745       1,700,399    
Commercial construction   418,769       361,108       313,223       255,627       200,820    
Residential   231,553       236,404       232,022       227,051       230,415    
Consumer   2,865       2,670       3,269       3,013       4,137    
Gross loans   3,336,352       3,191,827       3,047,289       2,865,173       2,690,890    
Unearned net origination fees   (2,295 )     (2,397 )     (2,706 )     (2,102 )     (2,131 )  
Loans receivable   3,334,057       3,189,430       3,044,583       2,863,071       2,688,759    
                   
Securities available-for-sale   200,050       222,776       219,927       260,211       271,168    
Securities held-to-maturity   218,220       194,474       225,875       229,483       233,145    
Goodwill and other intangible assets   149,525       149,741       149,959       150,178       150,407    
Deposits:                  
Noninterest-bearing   581,743       609,312       608,227       560,129       510,369    
Interest-bearing   528,954       503,896       476,237       480,685       416,221    
Savings   215,267       215,491       216,149       220,481       218,845    
Money market   791,845       656,557       636,180       582,238       591,328    
Time deposits   889,561       807,801       783,068       787,262       748,780    
Total deposits   3,007,370       2,793,057       2,719,861       2,630,795       2,485,543    
                   
Borrowings   639,054       684,469       621,615       544,774       565,093    
Subordinated debentures   55,155       55,155       55,155       55,155       5,704    
Total stockholders' equity $ 483,519     $ 482,503     $ 478,919     $ 471,682     $ 464,004    
     
  Three Months Ended  
  June 30, Mar. 31,   Dec. 31,   Sept. 30,   June 30,  
GAAP Earnings Data   2016       2016       2015       2015       2015    
Net interest income $ 32,394     $ 31,320     $ 30,456     $ 29,727     $ 28,678    
Provision for loan and lease losses   3,750       3,000       5,055       4,175       1,550    
Net interest income after provision for loan and lease losses   28,644       28,320       25,401       25,552       27,128    
Noninterest income                  
Annuity and insurance commissions   32       40       32       77       46    
Bank-owned life insurance   616       612       620       388       388    
Net gains on sale of loans held-for-sale   56       35       51       63       99    
Deposit, loan and other income   763       515       522       1,224       458    
Insurance recovery   -       -       -       -       2,224    
Net gains on sale of investment securities   103       -       1,138       2,067       221    
Total noninterest income   1,570       1,202       2,363       3,819       3,436    
Noninterest expenses                        
Salaries and employee benefits   7,753       7,599       7,205       6,905       6,948    
Occupancy and equipment   2,154       2,247       1,802       1,916       1,788    
FDIC insurance   615       595       575       535       440    
Professional and consulting   700       711       906       836       715    
Marketing and advertising   250       184       213       247       193    
Data processing   1,010       1,024       1,017       957       829    
Loss on extinguishment of debt   -       -       -       -       2,397    
Amortization of core deposit intangible   217       217       217       217       241    
Other expenses   1,653       1,776       1,644       1,688       1,423    
Total noninterest expenses   14,352       14,353       13,579       13,301       14,974    
Income before income tax expense   15,862       15,169       14,185       16,070       15,590    
Income tax expense   5,003       4,778       4,617       5,228       5,069    
Net income (GAAP) $ 10,859     $ 10,391     $ 9,568     $ 10,842     $ 10,521    
Less: preferred dividends   -       22       28       28       28    
Net income available to common stockholders (GAAP) $ 10,859     $ 10,369     $ 9,540     $ 10,814     $ 10,493    
                         
Reconciliation of GAAP Earnings to Operating Earnings                  
Net gains on sales of securities $ (103 )   $ -     $ (1,138 )   $ (2,067 )   $ (221 )  
Partial settlements of pension obligation   87       103       106       168       243    
Insurance recovery   -       -       -       -       (2,223 )  
Loss on debt extinguishment   -       -       -       -       2,397    
Amortization of intangible assets   217       217       217       217       241    
Provision related to maturity and extension of acquired portfolio loans   229       397       512       590       502    
Provision related to taxi cab medallion loans   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   (1,277 )     (1,367 )     (1,416 )     (1,340 )     (1,513 )  
Non-core items   903       837       2,085       (432 )     (574 )  
Income tax (expense) benefit   326       301       751       (156 )     (207 )  
Non-core items, after taxes (36%)   577       536       1,334       (276 )     (367 )  
Core earnings available to common stockholders (non-GAAP) $ 11,436     $ 10,905     $ 10,874     $ 10,538     $ 10,126    
Weighted average diluted shares outstanding   30,340,376       30,257,676       30,310,905       30,335,571       30,231,480    
Diluted EPS (GAAP) $ 0.36     $ 0.34     $ 0.31     $ 0.36     $ 0.35    
Core Diluted EPS (Non-GAAP) (1)   0.38       0.36       0.36       0.35       0.33    
                   
Return on Assets Measures                  
Core earnings available to common stockholders (non-GAAP) $ 11,436     $ 10,905     $ 10,874     $ 10,538     $ 10,126    
Add: preferred dividends   -       22       28       28       28    
Core net income (non-GAAP) $ 11,436     $ 10,927     $ 10,902     $ 10,566     $ 10,154    
Average assets $ 4,212,307     $ 4,034,375     $ 3,891,885     $ 3,729,503     $ 3,551,597    
Less: average intangible assets   (149,525 )     (149,741 )     (149,959 )     (150,178 )     (150,407 )  
Average tangible assets $ 4,062,782     $ 3,884,634     $ 3,741,926     $ 3,579,325     $ 3,401,190    
Return on avg. assets (GAAP)   1.04 %     1.04 %     0.98 %     1.15 %     1.19 %  
Core return on avg. assets (Non-GAAP) (2)   1.09 %     1.09 %     1.11 %     1.12 %     1.15 %  
Return on avg. tangible assets (Non-GAAP) (3)   1.09 %     1.09 %     1.03 %     1.22 %     1.26 %  
Core return on avg. tangible assets (Non-GAAP) (4)   1.13 %     1.13 %     1.16 %     1.17 %     1.20 %  
   
(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  
  June 30, Mar. 31,   Dec. 31,   Sept. 30,   June 30,  
    2016       2016       2015       2015       2015    
Return on Equity Measures                        
Core earnings available to common stockholders $ 11,436     $ 10,905     $ 10,874     $ 10,538     $ 10,126    
                         
Average common equity $ 483,519     $ 473,849     $ 467,669     $ 460,432     $ 452,754    
Less: average intangible assets   (149,525 )     (149,741 )     (149,959 )     (150,178 )     (150,407 )  
Average tangible common equity $ 333,994     $ 324,108     $ 317,710     $ 310,254     $ 302,347    
                         
Return on avg. common equity (GAAP)   9.03 %     8.80 %     8.09 %     9.32 %     9.30 %  
Core return on avg. common equity (non-GAAP) (5)   9.51 %     9.26 %     9.23 %     9.08 %     8.97 %  
Return on avg. tangible common equity (non-GAAP) (6)   13.23 %     13.03 %     12.07 %     13.99 %     14.11 %  
Core return on avg. tangible common equity (non-GAAP) (7)   13.77 %     13.53 %     13.58 %     13.47 %     13.43 %  
                   
Efficiency Measures                  
Total noninterest expenses $ 14,352     $ 14,353     $ 13,579     $ 13,301     $ 14,974    
Partial settlements of pension obligation   (87 )     (103 )     (106 )     (168 )     (243 )  
Loss on debt extinguishment   -       -       -       -       (2,397 )  
Foreclosed property expense   10       (167 )     (387 )     (121 )     (56 )  
Amortization of intangible assets and fair value marks   (217 )     (217 )     (217 )     (217 )     (241 )  
Operating noninterest expense $ 14,058     $ 13,866     $ 12,869     $ 12,795     $ 12,037    
                         
Net interest income (FTE) $ 33,112     $ 31,985     $ 31,102     $ 30,382     $ 29,316    
Impact of purchase accounting fair value marks   (1,245 )     (1,335 )     (1,384 )     (1,314 )     (1,487 )  
Noninterest income   1,570       1,202       2,363       3,819       3,436    
Less: insurance recovery   -       -       -       -       (2,224 )  
Less: net gains on sales of securities   (103 )     -       (1,138 )     (2,067 )     (221 )  
Operating revenue $ 33,334     $ 31,852     $ 30,943     $ 30,820     $ 28,820    
                         
Operating efficiency ratio (non-GAAP) (8)   42.2 %     43.5 %     41.6 %     41.5 %     41.8 %  
                   
Net Interest Margin                  
Average interest-earning assets $ 3,912,802     $ 3,728,958     $ 3,582,408     $ 3,441,151     $ 3,266,382    
                         
Net interest income (FTE) $ 33,112     $ 31,985     $ 31,102     $ 30,382     $ 29,316    
Impact of purchase accounting fair value marks   (1,245 )     (1,335 )     (1,384 )     (1,314 )     (1,487 )  
Adjusted net interest income $ 31,867     $ 30,650     $ 29,718     $ 29,068     $ 27,829    
                         
Net interest margin (GAAP)   3.40 %     3.45 %     3.44 %     3.50 %     3.60 %  
Adjusted net interest margin (non-GAAP) (9)   3.28 %     3.31 %     3.29 %     3.35 %     3.42 %  
_____                  
(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) June 30, Mar. 31,   Dec. 31,   Sept. 30,   June 30,  
    2016       2016       2015       2015       2015    
Capital Ratios and Book Value per Share                        
Common equity $ 484,414     $ 474,727     $ 466,094     $ 459,896     $ 452,732    
Less: intangible assets   (149,383 )     (149,600 )     (149,817 )     (150,034 )     (150,252 )  
Tangible common equity $ 335,031     $ 325,127     $ 316,277     $ 309,862     $ 302,480    
                         
Total assets $ 4,262,914     $ 4,091,000     $ 4,015,909     $ 3,837,426     $ 3,660,057    
Less: intangible assets   (149,383 )     (149,600 )     (149,817 )     (150,034 )     (150,252 )  
Tangible assets $ 4,113,531     $ 3,941,400     $ 3,866,092     $ 3,687,392     $ 3,509,805    
                         
Common shares outstanding   30,197,318       30,163,078       30,085,663       30,197,789       30,196,731    
                         
Common equity ratio (GAAP)   11.36 %     11.60 %     11.61 %     11.98 %     12.37 %  
Tangible common equity ratio (non-GAAP) (10)   8.14 %     8.25 %     8.18 %     8.40 %     8.62 %  
                         
Regulatory capital ratios (Bancorp):                        
Leverage ratio   8.52 %     8.66 %     9.07 %     9.26 %     9.49 %  
Common equity Tier 1 risk-based ratio   9.10 %     9.05 %     9.14 %     9.33 %     9.63 %  
Risk-based Tier 1 capital ratio   9.23 %     9.19 %     9.61 %     9.82 %     10.14 %  
Risk-based total capital ratio   11.44 %     11.35 %     11.77 %     11.94 %     12.26 %  
                         
Regulatory capital ratios (Bank):                        
Leverage ratio   9.62 %     9.83 %     9.96 %     10.22 %     10.48 %  
Common equity Tier 1 risk-based ratio   10.43 %     10.44 %     10.55 %     10.83 %     11.19 %  
Risk-based Tier 1 capital ratio   10.43 %     10.44 %     10.55 %     10.83 %     11.19 %  
Risk-based total capital ratio   11.30 %     11.23 %     11.31 %     11.47 %     11.74 %  
                         
Book value per share (GAAP) $ 16.04     $ 15.74     $ 15.49     $ 15.23     $ 14.99    
Tangible book value per share (non-GAAP) (11) $ 11.09     $ 10.78     $ 10.51     $ 10.26     $ 10.02    
                         
  Three Months Ended  
  June 30, Mar. 31,   Dec. 31,   Sept. 30,   June 30,  
    2016       2016       2015       2015       2015    
NCO Detail                        
Net loan charge-offs:                        
Charge-offs $ 77     $ 512     $ 18     $ 519     $ 334    
Recoveries   (16 )     (15 )     (2 )     (342 )     (331 )  
Net loan charge-offs $ 61     $ 497     $ 16     $ 177     $ 3    
as a % of average total loans (annualized)   0.01 %     0.06 %     0.00 %     0.02 %     0.00 %  
                         
Asset Quality                        
Nonaccrual loans $ 21,911     $ 21,450     $ 20,737     $ 12,888     $ 12,145    
Other real estate owned   2,029       1,696       2,549       3,244       1,564    
Total nonperforming assets $ 23,940     $ 23,146     $ 23,286     $ 16,132     $ 13,709    
                         
Performing troubled debt restructurings $ 97,831     $ 95,122     $ 85,925     $ 77,882     $ 77,927    
Loans past due 90 days and still accruing $ -     $ -     $ -     $ 268     $ -    
                         
Nonaccrual loans as a % of loans receivable   0.65 %     0.66 %     0.67 %     0.44 %     0.44 %  
Nonperforming assets as a % of total assets   0.56 %     0.57 %     0.58 %     0.42 %     0.37 %  
Allowance for loan losses as a % of nonaccrual loans   149.5 %     135.5 %     128.1 %     167.1 %     143.9 %  
                         
Loans receivable $ 3,375,620     $ 3,263,813     $ 3,099,007     $ 2,953,381     $ 2,765,288    
Less: acquired loans   (799,851 )     (825,047 )     (866,878 )     (923,210 )     (1,060,632 )  
Loans receivable, excluding acquired loans $ 2,575,769     $ 2,438,766     $ 2,232,129     $ 2,030,171     $ 1,704,656    
                         
Allowance for loan losses $ 32,763     $ 29,074     $ 26,572     $ 21,533     $ 17,480    
Accretable credit risk discount on acquired loans   11,198       12,101       12,955       13,893       14,781    
Total allowance for loan losses and accretable credit risk discount on acquired loans $ 43,961     $ 41,175     $ 39,527     $ 35,426     $ 32,261    
                         
Allowance for loan losses as a % of loans receivable   0.97 %     0.89 %     0.86 %     0.73 %     0.63 %  
Allowance for loan losses as a % of loans receivable, excluding acquired loans   1.27 %     1.19 %     1.19 %     1.06 %     1.03 %  
Allowance for loan losses and accretable credit risk discount on loans as a % of loans receivable   1.30 %     1.26 %     1.28 %     1.20 %     1.17 %  
                   
(10) Tangible common equity divided by tangible assets.  
(11) Tangible common equity divided by common shares outstanding at period-end.  
                   

                                 
C ONNECT O NE B ANCORP, I NC.                                
NET INTEREST MARGIN ANALYSIS                                
(dollars in thousands)                                
        For the Three Months Ended    
        June 30, 2016       March 31, 2016       June 30, 2015    
        Average       (7 )       Average       (7 )       Average       (7 )    
Interest-earning assets:   Balance   Interest     Rate     Balance   Interest   Rate      Balance   Interest   Rate  
Investment securities (1) (2)   $ 418,270     $ 3,497       3.36   %     $ 415,481     $ 3,499     3.39   %     $ 495,805   $ 4,118     3.33   %  
Loans receivable (2) (3) (4)     3,334,057       36,743       4.43           3,189,572       35,206     4.44           2,689,525     30,380     4.53      
Federal funds sold and interest-                                    
bearing deposits with banks     128,994       146       0.45           90,712       134     0.59           54,087     41     0.30      
Restricted investment in bank stock     31,481         370       4.72             33,193         352     4.27             26,965       280     4.16      
Total interest-earning assets     3,912,802       40,756       4.19           3,728,958       39,191     4.23           3,266,382     34,819     4.28      
Allowance for loan losses     (29,924 )               (27,221 )             (16,463 )        
Noninterest earning assets     329,429                 332,638               301,678          
Total assets     $ 4,212,307               $ 4,034,375             $ 3,551,597          
                                                                 
Interest-bearing liabilities:                                    
Money market deposits     791,845       992       0.50           656,557       812     0.50           591,328     689     0.47      
Savings deposits       215,267       156       0.29           215,491       157     0.29           218,845     157     0.29      
Time deposits       889,561       2,857       1.29           807,801       2,535     1.26           748,780     2,131     1.14      
Other interest-bearing deposits       528,954         429       0.33             503,896         435     0.35             416,221       324     0.31      
Total interest-bearing deposits   2,425,627       4,434       0.74           2,183,745       3,939     0.73           1,975,174     3,301     0.67      
                                         
Borrowings       639,054       2,355       1.48           684,469       2,413     1.42           565,094     2,110     1.50      
Subordinated debentures (8)     55,155       812       5.92           55,155       811     5.91           5,704     48     3.38      
Capital lease obligation       2,844         43       6.04             2,874         43     6.02             2,961       44     5.96      
Total interest-bearing liabilities   3,122,680       7,644       0.98           2,926,243       7,206     0.99           2,548,933     5,503     0.87      
                                         
Demand deposits       581,743                 609,312               510,369          
Other liabilities       24,365                 16,317               28,291          
Total noninterest-bearing liabilities   606,108                 625,629               538,660          
Stockholders' equity       483,519                 482,503               464,004          
Total liabilities and stockholders' equity $ 4,212,307               $ 4,034,375             $ 3,551,597          
                                                                 
Net interest income (tax equivalent basis)     33,112                   31,985               29,316        
Net interest spread (5)           3.21   %           3.24   %           3.41   %  
                                         
Net interest margin (6)           3.40   %           3.45   %           3.60   %  
                                         
Tax equivalent adjustment       (718 )                 (665 )             (638 )      
Net interest income       $ 32,394                 $ 31,320             $ 28,678        
                                                                         
(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) Amount does not reflect netting of debt issuance costs of $714, $812 and $0 for the three months ended June 30, 2016, March 31, 2016 and June 30, 2015, respectively.          
                                 
Investor Contact:William S. BurnsExecutive VP & CFO201.816.4474; bburns@cnob.comMedia Contact:Christine Marra, MWW646.215.6888; cmarra@mww.com

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