ENGLEWOOD CLIFFS, N.J., Jan. 26, 2017 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq:CNOB) (the "Company" or "ConnectOne"), parent company of ConnectOne Bank (the "Bank"), today reported a net loss available to common stockholders of $2.0 million, or $(0.07) per diluted share for the fourth quarter of 2016.  The loss was due to a charge taken against the Bank's taxi medallion portfolio, as anticipated in the Company's previously filed Current Report on Form 8-K of December 13, 2016.  Net income available to common stockholders for the third quarter of 2016 was $11.9 million, or $0.39 per diluted share, and for the fourth quarter of 2015, was $9.6 million, or $0.31 per diluted share. Net income available to common stockholders was $31.1 million, or $1.01 per diluted share for the full-year 2016 compared with $41.2 million, or $1.36 per diluted share, for the full-year 2015.

Highlights             
  • Loan origination accelerated.  Gross loan fundings were $373.7 million for the 2016 fourth quarter, compared with $228.7 million for the sequential quarter. Net loan growth (fundings less paydowns and payoffs) was $130.3 million for the 2016 fourth quarter and $84.6 million for the sequential quarter. The loan pipeline remains solid heading into 2017. 
  • Total deposits grew on a sequential quarter basis by an annualized 9.2%, reflecting annualized growth of 23.9% in noninterest-bearing deposits. The loan to deposit ratio was 106.3% at quarter-end, down from 111.0% one year ago. 
  • Already sound asset quality metrics improved even further.  The nonaccrual loan ratio, excluding taxi loans, declined during the 2016 fourth quarter to 0.16% from 0.23% in the sequential prior quarter, while the total of nonperforming loans and TDRs (including the taxi medallion loans) declined by 31% to $81.0 million at year-end from $117.5 million at September 30, 2016, largely a result of the aforementioned charge-off of taxi medallion loans. 
  • During the quarter, we successfully completed a secondary offering of common stock at $24.25 per share, resulting in net proceeds of approximately $38.1 million.  The offering resulted in higher capital ratios to support additional growth opportunities and increased tangible book value per share. 
  • Tangible book value per share increased by 13.8% over the course of 2016 to $11.96 per share at December 31, 2016 from $10.51 at year-end 2015. The Company's tangible common equity ratio increased to 8.93% from 8.18% a year ago. 
  • We transferred our entire taxi medallion portfolio to the loans held-for-sale category from the loans held-for-investment portfolio.  It is management's intention to sell the entire taxi portfolio, although no specific transaction has been agreed to or is pending at the present time. 
  • Consistent with the Company's recent 8-K disclosure and in conjunction with the aforementioned transfer of the taxi-medallion loans to held-for sale, the valuation of impaired loans secured by taxi medallions was reduced at December 31, 2016. The transfer of the loans at the lower of cost or market resulted in the charge-off of all specific reserves, $36.5 million, related to the impaired loans at the time of transfer.  Such charge-offs will provide a current tax benefit in the 2016 tax year at the present 35% statutory federal tax rate.

Frank Sorrentino, ConnectOne's Chairman and CEO stated, "ConnectOne had another successful year in 2016 and we remain well positioned for increased long-term growth and profitability. Total shareholder return for the year, measured by stock price appreciation and cash dividends, was a healthy 40.4%, reflecting both financial sector and company specific performance.  We ended the year with significantly higher capital ratios and tangible book value per share, a lower loan-to-deposit ratio, a widening net interest margin, a robust pipeline of business activity and best-in-class efficiency.  We enter 2017 with an enhanced balance sheet and remain committed to executing against key operating objectives  including maintaining strong organic loan and deposit growth, delivering accelerated and sustainable earnings growth, improving return on equity, and building and refining our infrastructure.  I want to thank our customers, our board of directors, the executive management team, our entire staff, and, most importantly, our shareholders for continuing to support us throughout 2016 and making ConnectOne, truly, a better place to be."

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.

Fourth quarter 2016 results reflect the following non-core items: $1.0 million of income resulting from accretion of purchase accounting fair value marks; $0.1 million in additional loan loss provision related to the maturity and extension of acquired portfolio loans; $24.0 million in additional provision associated with the Bank's New York City taxi medallion loan portfolio; $0.1 million of pension settlement expenses, which had no impact on total stockholders' equity or book value per share, and $0.2 million in amortization of intangible assets. Excluding these non-core items, along with related income tax impact, net income available to common stockholders was $12.3 million, or $0.40 per diluted share, for the fourth quarter of 2016, $12.0 million, or $0.40 per diluted share, for the third quarter of 2016, and $10.9 million, or $0.36 per diluted share, for the fourth quarter of 2015. 

Fully taxable equivalent net interest income for the fourth quarter of 2016 was $34.1 million, an increase of $0.4 million, or 1.1%, from the third quarter of 2016, resulting from a 4 basis-point widening of the net interest margin to 3.36% from 3.32%, and partially offset by slightly lower average interest-earning assets, reflecting securities sales at the end of the third quarter. Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.0 million during the fourth quarter of 2016 and the third quarter of 2016.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.27% in the fourth quarter of 2016, widening by 5 basis-points from the third quarter of 2016 adjusted net interest margin of 3.22%. The increase in the adjusted net interest margin was primarily attributable to an improved mix of interest-earning assets resulting from the above-mentioned securities sales.

Fully taxable equivalent net interest income for the fourth quarter of 2016 increased by $3.0 million, or 9.7%, from the same quarter of 2015. This was a result of a 12.7% increase in average interest-earning assets due to significant organic loan growth, partially offset by an 8 basis-point contraction of the net interest margin to 3.36% from 3.44%. Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.0 million during the fourth quarter of 2016 and $1.4 million in the same quarter of 2015.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.27% in the fourth quarter of 2016, contracting by 2 basis-points from the fourth quarter of 2015 adjusted net interest margin of 3.29%.  The reduction in the adjusted net interest margin was primarily attributable to higher level of cash balances held at the Federal Reserve Bank and an increase in rates paid on deposits.

Noninterest income totaled $1.6 million in the fourth quarter of 2016, $5.6 million in the third quarter of 2016 and $2.4 million in the fourth quarter of 2015. There were no net securities gains during the fourth quarter of 2016, and net securities gains were $4.1 million for the third quarter of 2016 and $1.1 million for the fourth quarter of 2015. Excluding the securities gains, noninterest income increased approximately $0.1 million from the prior sequential quarter and $0.3 million from the prior year fourth quarter.  The increase from the prior sequential quarter was primarily attributable to increases in income from BOLI.  The increase from the prior year fourth quarter was primarily attributable to increase in deposit, loan and other income of $0.2 million and $0.1 million in BOLI income.  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 $15.3 million for the fourth quarter of 2016, up approximately $0.7 million from $14.6 million for the third quarter of 2016.  The increase was primarily attributable to increases in salaries and employee benefits expense ($0.1 million), FDIC insurance premiums ($0.2 million), professional and consulting expenses ($0.2 million) and data processing ($0.1 million).  Noninterest expenses were up $1.7 million for the fourth quarter of 2016 when compared to $13.6 million for the fourth quarter of 2015.  The increase was largely attributable to increases in salaries and employee benefits ($0.7 million), occupancy and equipment ($0.3 million), FDIC insurance premiums ($0.4 million), data processing ($0.1 million) and other expense ($0.1 million).  The increases over the prior year fourth quarter were the result of increased levels of business and staff resulting from organic growth.

Due to a book loss for the fourth quarter, income taxes provided a benefit to earnings of $3.4 million for the fourth quarter of 2016.  This compares to an expense of $5.4 million for the third quarter of 2016 and $4.6 million for the fourth quarter of 2015.  The Company currently expects an effective corporate income tax rate of approximately 32% for 2017.

Asset Quality

The provision for loan and lease losses increased to $25.2 million in the fourth quarter of 2016 from $6.8 million in the third quarter of 2016, and from $5.1 million in the fourth quarter of 2015.  The increases were largely attributable to an increase in additional reserves specifically allocated to the Bank's taxi medallion portfolio.

As of December 31, 2016, loans secured by taxi medallions totaled $65.6 million, representing 1.8% of total loans.  A charge-off of $36.5 million was taken during the quarter in conjunction with the transfer of taxi medallion loans to held-for-sale, based largely on a value of approximately $500,000 per corporate medallion loan.  During the quarter, the majority of the taxi portfolio ($63.0 million, or 96%) was designated as nonaccrual.  The entire taxi loan portfolio was concurrently designated as loans held-for-sale, reflecting management's intent to sell the portfolio. 

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $69.4 million at December 31, 2016, $12.1 million at September 30, 2016 and $23.3 million at December 31, 2015. Nonperforming assets as a percent of total assets were 1.57% at December 31, 2016, 0.28% at September 30, 2016, and 0.58% at December 31, 2015.  The increase in this ratio was mainly attributable to the taxi medallion loans that were designated nonaccrual during the 2016 fourth quarter.  Excluding the taxi medallion loans, nonaccrual loans decreased to $5.7 million at December 31, 2016, from $7.9 million at September 30, 2016 and $20.7 million at December 31, 2015.

Annualized net charge-offs were 4.23% for the fourth quarter of 2016, 0.22% for the third quarter of 2016, and 0.00% for the fourth quarter of 2015. The increase in annualized net charge-offs from the sequential prior quarter and prior year fourth quarter was mainly attributable to a charge-off of $36.5 million related to the taxi medallion portfolio.  The allowance for loan and lease losses was $25.7 million, representing 0.74% of loans receivable and 37.4% of nonaccrual loans at December 31, 2016. At September 30, 2016, the allowance was $37.6 million representing 1.09% of loans receivable and 327.3% of nonaccrual loans, and at December 31, 2015, the allowance was $26.6 million representing 0.86% of loans receivable and 128.1% of nonaccrual loans.  The allowance as a percentage of nonaccruals (excluding taxi medallion loans) was 449.0% as of December 31, 2016, 478.8% as of September 30, 2016 and 128.1% as of December 31, 2015. 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 1.02% at December 31, 2016, 1.39% at September 30, 2016, and 1.28% at December 31, 2015. (See Supplemental GAAP and non-GAAP Financial Measures).

Selected Balance Sheet Items

At December 31, 2016, the Company's total assets were $4.4 billion, an increase of $410 million from December 31, 2015. Total loans at December 31, 2016 were $3.6 billion, reflecting net loan growth (loan originations less pay-downs and pay-offs, including loans held-for-sale) of $455 million from December 31, 2015, primarily attributable to multifamily ($169 million, including a $28 million loan reclassified during the first quarter of 2016 to multifamily from other commercial real estate), commercial and industrial ("C&I") ($62 million), other commercial real estate ($69 million, including the aforementioned reclassification) and construction ($157 million), which reflected higher utilization of existing construction facilities.  The growth in loans was primarily funded with increases in deposits.

The Company's stockholders' equity was $531 million at December 31, 2016, an increase of $54 million from December 31, 2015. The increase in stockholders' equity was primarily attributable to an increase of $38 million from a fourth quarter 2016 secondary offering of common stock, $22 million in retained earnings, approximately $3 million of equity issuance related to stock-based compensation, including the exercise of stock options, and an increase in accumulated other comprehensive income of $2 million, offset by an $11 million payoff of SBLF preferred stock. As of December 31, 2016, the Company's tangible common equity ratio and tangible book value per share were 8.93% and $11.96, 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 December 31, 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.
C ONNECT O NE B ANCORP, I NC. AND S UBSIDIARIES      
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION      
(dollars in thousands)      
  December 31,   December 31,
    2016       2015  
       
ASSETS      
Cash and due from banks $   37,150     $   31,291  
Interest-bearing deposits with banks     163,249         169,604  
  Cash and cash equivalents     200,399         200,895  
       
Investment securities:      
  Available-for-sale     353,290         195,770  
  Held-to-maturity (fair value of $0 and $231)     -         224,056  
       
Loans held-for-sale     78,005         -  
       
Loans receivable     3,475,832         3,099,007  
Less: Allowance for loan and lease losses     25,744         26,572  
  Net loans receivable     3,450,088         3,072,435  
       
Investment in restricted stock, at cost     24,310         32,612  
Bank premises and equipment, net     22,075         22,333  
Accrued interest receivable     12,965         12,545  
Bank owned life insurance     98,359         78,801  
Other real estate owned     626         2,549  
Goodwill     145,909         145,909  
Core deposit intangibles     3,088         3,908  
Other assets     37,234         24,096  
  Total assets $   4,426,348     $   4,015,909  
       
LIABILITIES      
Deposits:      
  Noninterest-bearing $   694,977     $   650,775  
  Interest-bearing     2,649,294         2,140,191  
  Total deposits     3,344,271         2,790,966  
Borrowings     476,280         671,587  
Subordinated debentures (net of $621 and $812 in debt issuance costs)     54,534         54,343  
Other liabilities     20,231         21,669  
  Total liabilities     3,895,316         3,538,565  
       
COMMITMENTS AND CONTINGENCIES      
       
STOCKHOLDERS' EQUITY      
Preferred stock     -         11,250  
Common stock     412,726         374,287  
Additional paid-in capital     11,407         8,527  
Retained earnings     126,462         104,606  
Treasury stock     (16,717 )       (16,717 )
Accumulated other comprehensive loss     (2,846 )       (4,609 )
  Total stockholders' equity     531,032         477,344  
  Total liabilities and stockholders' equity $   4,426,348     $   4,015,909  
       

 
CONNECTONE BANCORP, INC. AND SUBSIDIARIES                
CONSOLIDATED STATEMENTS OF INCOME                
(dollars in thousands, except for per share data)                  
                   
      Three Months Ended December 31,       Twelve Months Ended December 31,    
      2016       2015     2016     2015  
Interest income                  
  Interest and fees on loans   $   38,600     $   33,686   $   147,982   $   125,493  
  Interest and dividends on investment securities:                  
  Taxable       1,389         2,325       7,266       10,665  
  Tax-exempt       959         884       3,827       3,550  
  Dividends       336         284       1,410       1,081  
  Interest on federal funds sold and other short-term investments     215         51       756       178  
  Total interest income       41,499         37,230       161,241       140,967  
Interest expense                  
  Deposits       5,135         3,776       18,667       13,756  
  Borrowings       2,957         2,998       12,429       10,058  
  Total interest expense       8,092         6,774       31,096       23,814  
                   
Net interest income       33,407         30,456       130,145       117,153  
  Provision for loan and lease losses       25,200         5,055       38,700       12,605  
Net interest income after provision for loan and lease losses     8,207         25,401       91,445       104,548  
                   
Noninterest income                  
  Annuities and insurance commissions       51         32       191       242  
  Income on bank owned life insurance       715         620       2,559       1,782  
  Net gains on sale of loans held-for-sale       86         51       232       327  
  Deposit, loan and other income       721         522       2,704       2,667  
  Insurance recovery       -         -       -       2,224  
  Net gains on sale of investment securities       -         1,138       4,234       3,931  
  Total noninterest income       1,573         2,363       9,920       11,173  
                   
Noninterest expenses                  
  Salaries and employee benefits       7,888         7,205       31,130       27,685  
  Occupancy and equipment       2,122         1,802       8,571       7,587  
  FDIC insurance       985         575       2,940       2,110  
  Professional and consulting       901         906       2,979       2,951  
  Marketing and advertising       222         213       1,040       847  
  Data processing       1,106         1,017       4,141       3,703  
  Loss on extinguishment of debt       -         -       -       2,397  
  Amortization of core deposit intangible       193         217       820       917  
  Other expenses       1,835         1,644       6,886       6,287  
  Total noninterest expenses       15,252         13,579       58,507       54,484  
                   
(Loss) income before income tax expense       (5,472 )       14,185       42,858       61,237  
  Income tax (benefit) expense       (3,448 )       4,617       11,776       19,926  
Net (loss) income       (2,024 )       9,568       31,082       41,311  
  Less: Preferred stock dividends       -         28       22       112  
Net (loss) income available to common stockholders $   (2,024 )   $   9,540   $   31,060   $   41,199  
                   
(Loss) earnings per common share:                  
  Basic   $   (0.07 )   $   0.32   $   1.02   $   1.38  
  Diluted       (0.07 )       0.31       1.01       1.36  
Weighted average common shares outstanding:                  
  Basic       30,440,371         30,033,062       30,382,255       29,938,458  
  Diluted       30,729,359         30,310,905       30,676,393       30,283,966  
Dividends per common share   $   0.075     $   0.075   $   0.300   $   0.300  
                   

 
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
  Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,
    2016       2016       2016       2016       2015  
Selected Financial Data                  
Total assets $   4,426,348     $   4,327,804     $   4,262,914     $   4,091,000     $   4,015,909  
Loans receivable:                  
  Commercial     554,065         644,430         630,425         601,708         570,116  
  Commercial real estate-other     1,154,154         1,139,641         1,104,214         1,087,388         1,085,615  
  Commercial real estate-multifamily     1,050,067         961,163         967,555         940,913         881,081  
  Commercial construction     486,228         471,109         443,277         402,594         328,838  
  Residential     232,547         229,401         230,497         231,319         233,690  
  Consumer     2,380         2,879         1,976         1,851         2,454  
  Gross loans     3,479,441         3,448,623         3,377,944         3,265,773         3,101,794  
Unearned net origination fees     (3,609 )       (3,147 )       (2,324 )       (1,960 )       (2,787 )
  Loans receivable     3,475,832         3,445,476         3,375,620         3,263,813         3,099,007  
  Loans held-for-sale     78,005         15,112         360         -         -  
Total loans     3,553,837         3,460,588         3,375,980         3,263,813         3,099,007  
                   
Securities available-for-sale     353,290         338,459         208,266         191,331         195,770  
Securities held-to-maturity     -         -         214,718         219,373         224,056  
Goodwill and other intangible assets     148,997         149,190         149,383         149,600         149,817  
Deposits:                  
 Noninterest-bearing     694,977         655,683         648,664         614,508         650,776  
 Interest-bearing     563,740         531,500         523,742         517,809         490,380  
 Savings     205,551         207,717         210,040         219,865         216,399  
 Money market     911,867         866,710         866,643         678,222         658,695  
 Time deposits     968,136         1,007,339         951,904         862,667         774,717  
Total deposits     3,344,271         3,268,949         3,200,993         2,893,071         2,790,967  
                   
Borrowings     476,280         481,337         496,414         646,501         671,587  
Subordinated debentures (net of issuance costs)     54,534         54,490         54,441         54,392         54,343  
Total stockholders' equity     531,032         499,588         484,414         474,727         477,344  
                   
Quarterly Average Balances                  
Total assets $   4,349,961     $   4,344,796     $   4,212,307     $   4,034,375     $   3,891,885  
Loans receivable:                  
  Commercial     644,263         632,892         626,902         585,773         579,512  
  Commercial real estate (including multifamily)     2,130,955         2,081,741         2,056,263         2,005,872         1,919,263  
  Commercial construction     479,342         462,399         418,769         361,108         313,223  
  Residential     229,738         229,953         231,553         236,404         232,022  
  Consumer     2,777         2,771         2,865         2,670         3,269  
  Gross loans     3,487,075         3,409,756         3,336,352         3,191,827         3,047,289  
Unearned net origination fees     (3,151 )       (2,956 )       (2,295 )       (2,397 )       (2,706 )
  Loans receivable     3,483,924         3,406,800         3,334,057         3,189,430         3,044,583  
  Loans held-for-sale     4,549         478         395         142         468  
Total loans     3,488,473         3,407,278         3,334,452         3,189,572         3,045,051  
                   
Securities available-for-sale     351,809         269,895         202,103         222,776         219,927  
Securities held-to-maturity     -         143,146         218,220         194,474         225,875  
Goodwill and other intangible assets     149,123         149,317         149,525         149,741         149,959  
Deposits:                  
 Noninterest-bearing     666,913         640,323         581,743         609,312         608,227  
 Interest-bearing     534,127         553,401         528,954         503,896         476,237  
 Savings     205,477         211,162         215,267         215,491         216,149  
 Money market     891,764         872,937         791,845         656,557         636,180  
 Time deposits     985,944         1,007,530         889,561         807,801         783,068  
Total deposits     3,284,225         3,285,353         3,007,370         2,793,057         2,719,861  
                   
Borrowings     476,925         488,015         639,054         684,469         617,024  
Subordinated debentures     55,155         55,155         55,155         55,155         55,155  
Total stockholders' equity     511,663         495,141         483,519         482,503         478,919  
  Three Months Ended
  Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,
GAAP Earnings Data   2016       2016       2016       2016       2015  
Net interest income $   33,407     $   33,024     $   32,394     $   31,320     $   30,456  
 Provision for loan and lease losses     25,200         6,750         3,750         3,000         5,055  
Net interest income after provision for loan and lease losses     8,207         26,274         28,644         28,320         25,401  
Noninterest income                  
 Annuity and insurance commissions     51         68         32         40         32  
 Bank-owned life insurance     715         615         616         612         620  
 Net gains on sale of loans held-for-sale     86         56         56         35         51  
 Deposit, loan and other income     721         706         763         515         522  
 Net gains on sale of investment securities     -         4,131         103         -         1,138  
  Total noninterest income     1,573         5,576         1,570         1,202         2,363  
Noninterest expenses                  
 Salaries and employee benefits     7,888         7,791         7,753         7,599         7,205  
 Occupancy and equipment     2,122         2,049         2,154         2,247         1,802  
 FDIC insurance     985         745         615         595         575  
 Professional and consulting     901         667         700         711         906  
 Marketing and advertising     222         293         250         184         213  
 Data processing     1,106         1,002         1,010         1,024         1,017  
 Amortization of core deposit intangible     193         193         217         217         217  
 Other expenses     1,835         1,811         1,653         1,776         1,644  
  Total noninterest expenses     15,252         14,551         14,352         14,353         13,579  
                   
(Loss) Income before income tax expense     (5,472 )       17,299         15,862         15,169         14,185  
 Income tax (benefit) expense     (3,448 )       5,443         5,003         4,778         4,617  
Net (loss) income (GAAP) $   (2,024 )   $   11,856     $   10,859     $   10,391     $   9,568  
Less: preferred dividends     -          -          -          22         28  
Net (loss) income available to common stockholders (GAAP) $   (2,024 )   $   11,856     $   10,859     $   10,369     $   9,540  
                   
Reconciliation of GAAP Earnings to Operating Earnings                  
Net gains on sales of securities $   -     $   (4,131 )   $   (103 )   $   -     $   (1,138 )
Partial settlements of pension obligation     67         69         87         103         106  
Amortization of intangible assets     193         193         217         217         217  
Provision related to maturity and extension of acquired portfolio loans     100         220         229         397         512  
Provision related to taxi cab medallion loans     24,000         5,000         1,750         1,487         2,500  
Provision for pending disposition of  Union Center operations bldg.     -         -         -         -         1,304  
Accretion of purchase accounting fair value marks     (991 )       (1,077 )       (1,277 )       (1,367 )       (1,416 )
Non-core items     23,369         274         903         837         2,085  
Non-core items income tax benefit     9,086         99         326         301         751  
Non-core items, after taxes     14,283         175         577         536         1,334  
Core earnings available to common stockholders (non-GAAP) $   12,259     $   12,031     $   11,436     $   10,905     $   10,874  
Weighted average diluted shares outstanding     30,729,359         30,401,684         30,340,376         30,257,676         30,310,905  
Diluted (loss) earnings per share (GAAP) $   (0.07 )   $   0.39     $   0.36     $   0.34     $   0.31  
Core Diluted earnings per share (Non-GAAP) (1)     0.40         0.40         0.38         0.36         0.36  
                   
Return on Assets Measures                  
Core earnings available to common stockholders (non-GAAP) $   12,259     $   12,031     $   11,436     $   10,905     $   10,874  
Add: preferred dividends     -          -          -          22         28  
Core net income (non-GAAP) $   12,259     $   12,031     $   11,436     $   10,927     $   10,902  
Average assets $   4,349,961     $   4,344,796     $   4,212,307     $   4,034,375     $   3,891,885  
Less: average intangible assets     (149,123 )       (149,317 )       (149,525 )       (149,741 )       (149,959 )
Average tangible assets $   4,200,838     $   4,195,479     $   4,062,782     $   3,884,634     $   3,741,926  
Return on avg. assets (GAAP)   -0.19 %     1.09 %     1.04 %     1.04 %     0.98 %
Core return on avg. assets (Non-GAAP) (2)   1.12 %     1.10 %     1.09 %     1.09 %     1.11 %
Return on avg. tangible assets (Non-GAAP) (3)   -0.18 %     1.14 %     1.09 %     1.09 %     1.03 %
Core return on avg. tangible assets (Non-GAAP) (4)   1.16 %     1.14 %     1.13 %     1.13 %     1.16 %
_____                  
(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
  Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,
    2016       2016       2016       2016       2015  
Return on Equity Measures                  
Core earnings available to common stockholders $   12,259     $   12,031     $   11,436     $   10,905     $   10,874  
                   
Average common equity $   511,663     $   495,141     $   483,519     $   473,849     $   467,669  
Less: average intangible assets     (149,123 )       (149,317 )       (149,525 )       (149,741 )       (149,959 )
Average tangible common equity $   362,540     $   345,824     $   333,994     $   324,108     $   317,710  
                   
Return on avg. common equity (GAAP)   -1.57 %     9.53 %     9.03 %     8.80 %     8.09 %
Core return on avg. common equity (non-GAAP) (5)   9.53 %     9.67 %     9.51 %     9.26 %     9.23 %
Return on avg. tangible common equity (non-GAAP) (6)   -2.10 %     13.77 %     13.23 %     13.03 %     12.07 %
Core return on avg. tangible common equity (non-GAAP) (7)   13.45 %     13.84 %     13.77 %     13.53 %     13.58 %
                   
Efficiency Measures                  
Total noninterest expenses $   15,252     $   14,551     $   14,352     $   14,353     $   13,579  
Partial settlements of pension obligation     (67 )       (69 )       (87 )       (103 )       (106 )
Foreclosed property expense     (81 )       (37 )       10         (167 )       (387 )
Amortization of intangible assets and fair value marks     (193 )       (193 )       (217 )       (217 )       (217 )
Operating noninterest expense  $   14,911     $   14,252     $   14,058     $   13,866     $   12,869  
                   
Net interest income (FTE) $   34,120     $   33,762     $   33,112     $   31,985     $   31,102  
Impact of purchase accounting fair value marks     (960 )       (1,045 )       (1,245 )       (1,335 )       (1,384 )
Noninterest income     1,573         5,576         1,570         1,202         2,363  
Net gains on sales of securities     -         (4,131 )       (103 )       -         (1,138 )
Operating revenue  $   34,733     $   34,162     $   33,334     $   31,852     $   30,943  
                   
Operating efficiency ratio (non-GAAP) (8)   42.9 %     41.7 %     42.2 %     43.5 %     41.6 %
                   
Net Interest Margin                  
Average interest-earning assets $   4,038,030     $   4,041,020     $   3,912,802     $   3,728,958     $   3,582,408  
                   
Net interest income (FTE) $   34,120     $   33,762     $   33,112     $   31,985     $   31,102  
Impact of purchase accounting fair value marks     (960 )       (1,045 )       (1,245 )       (1,335 )       (1,384 )
Adjusted net interest income $   33,160     $   32,717     $   31,867     $   30,650     $   29,718  
                   
Net interest margin (GAAP)   3.36 %     3.32 %     3.40 %     3.45 %     3.44 %
Adjusted net interest margin (non-GAAP) (9)   3.27 %     3.22 %     3.28 %     3.31 %     3.29 %
_____                  
(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
  Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,
(dollars in thousands, except share data)   2016       2016       2016       2016       2015  
Capital Ratios and Book Value per Share                  
Common equity $   531,032     $   499,588     $   484,414     $   474,727     $   466,094  
Less: intangible assets     (148,997 )       (149,190 )       (149,383 )       (149,600 )       (149,817 )
Tangible common equity $   382,035     $   350,398     $   335,031     $   325,127     $   316,277  
                   
Total assets $   4,426,348     $   4,327,804     $   4,262,914     $   4,091,000     $   4,015,909  
Less: intangible assets     (148,997 )       (149,190 )       (149,383 )       (149,600 )       (149,817 )
Tangible assets $   4,277,351     $   4,178,614     $   4,113,531     $   3,941,400     $   3,866,092  
                   
Common shares outstanding     31,944,403         30,197,318         30,197,318         30,163,078         30,085,663  
                   
Common equity ratio (GAAP)   12.00 %     11.54 %     11.36 %     11.60 %     11.61 %
Tangible common equity ratio (non-GAAP) (10)   8.93 %     8.39 %     8.14 %     8.25 %     8.18 %
                   
Regulatory capital ratios (Bancorp):                  
  Leverage ratio   9.29 %     8.49 %     8.52 %     8.66 %     9.07 %
  Common equity Tier 1 risk-based ratio   9.74 %     9.25 %     9.10 %     9.06 %     9.14 %
  Risk-based Tier 1 capital ratio   9.87 %     9.38 %     9.23 %     9.20 %     9.61 %
  Risk-based total capital ratio   11.78 %     11.69 %     11.44 %     11.36 %     11.77 %
                   
Regulatory capital ratios (Bank):                  
  Leverage ratio   10.34 %     9.57 %     9.62 %     9.83 %     9.96 %
  Common equity Tier 1 risk-based ratio   10.98 %     10.58 %     10.43 %     10.45 %     10.55 %
  Risk-based Tier 1 capital ratio   10.98 %     10.58 %     10.43 %     10.45 %     10.55 %
  Risk-based total capital ratio   11.63 %     11.57 %     11.30 %     11.24 %     11.31 %
                   
Book value per share (GAAP) $   16.62     $   16.54     $   16.04     $   15.74     $   15.49  
Tangible book value per share (non-GAAP) (11)     11.96         11.60         11.09         10.78         10.51  
                   
  Three Months Ended
  Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,
    2016       2016       2016       2016       2015  
NCO Detail                  
Net loan charge-offs:                  
 Charge-offs $   37,074     $   1,910     $   77     $   512     $   18  
 Recoveries     (2 )       (12 )       (16 )       (14 )       (2 )
  Net loan charge-offs $   37,072     $   1,898     $   61     $   498     $   16  
  as a % of average total loans (annualized)   4.23 %     0.22 %     0.01 %     0.06 %     0.00 %
                   
Asset Quality                  
Nonaccrual loans-taxis $   63,044     $   3,637     $   3,882     $   1,871     $   -   
Nonaccrual loans-other     5,734         7,856         18,029         19,579         20,737  
Other real estate owned     626         626         2,029         1,696         2,549  
Total nonperforming assets $   69,404     $   12,119     $   23,940     $   23,146     $   23,286  
                   
Performing troubled debt restructurings $   11,627     $   105,338     $   97,831     $   95,122     $   85,925  
                   
Nonaccrual loans as a % of loans receivable   1.98 %     0.33 %     0.65 %     0.66 %     0.67 %
Nonaccrual loans excluding taxis as a % of loans receivable   0.16 %     0.23 %     0.53 %     0.60 %     0.67 %
Nonperforming assets as a % of total assets   1.57 %     0.28 %     0.56 %     0.57 %     0.58 %
Allowance for loan losses as a % of nonaccrual loans   37.4 %     327.3 %     149.5 %     135.5 %     128.1 %
Allowance for loan losses as a % of nonaccrual loans excluding taxis   449.0 %     478.8 %     181.7 %     148.5 %     128.1 %
                   
Loans receivable $   3,475,832     $   3,445,476     $   3,375,620     $   3,263,813     $   3,099,007  
Less: acquired loans     (664,529 )       (736,894 )       (799,851 )       (825,047 )       (866,878 )
Loans receivable, excluding acquired loans $   2,811,303     $   2,708,582     $   2,575,769     $   2,438,766     $   2,232,129  
                   
Allowance for loan losses $   25,744     $   37,615     $   32,763     $   29,074     $   26,572  
Accretable credit risk discount on acquired loans     9,663         10,408         11,198         12,101         12,955  
Total allowance for loan losses and accretable credit risk discount on acquired loans $   35,407     $   48,023     $   43,961     $   41,175     $   39,527  
                   
Allowance for loan losses as a % of loans receivable   0.74 %     1.09 %     0.97 %     0.89 %     0.86 %
Allowance for loan losses as a % of loans receivable, excluding acquired loans   0.92 %     1.39 %     1.27 %     1.19 %     1.19 %
Allowance for loan losses and accretable credit risk discount on loans as a % of loans receivable   1.02 %     1.39 %     1.30 %     1.26 %     1.28 %
                   
(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    
        December 31, 2016 September 30, 2016 December 31, 2015  
        Average     (7 )     Average     (7 )     Average     (7 )    
Interest-earning assets:   Balance Interest Rate     Balance Interest Rate     Balance Interest Rate    
Investment securities (1) (2)   $   346,377   $   2,864     3.29   %   $   406,802   $   3,293     3.22   %   $   442,135   $   3,686     3.31   %  
Total loans (2) (3) (4)       3,488,473       38,797     4.42           3,407,278       38,010     4.44           3,045,051       33,855     4.41      
Federal funds sold and interest-                              
  bearing deposits with banks       178,845       215     0.48           202,106       261     0.51           65,067       51     0.31      
Restricted investment in bank stock     24,335       336     5.49           24,834       352     5.64           30,155       284     3.74      
  Total interest-earning assets     4,038,030       42,212     4.16           4,041,020       41,916     4.13           3,582,408       37,876     4.19      
Allowance for loan losses       (38,932 )             (34,052 )             (22,165 )        
Noninterest-earning assets       350,863               337,828               331,642          
  Total assets     $   4,349,961           $   4,344,796           $   3,891,885          
                                     
Interest-bearing liabilities:                                
 Money market deposits       891,764       1,346     0.60           872,937       1,211     0.55           636,180       840     0.52      
 Savings deposits         205,477       146     0.28           211,162       158     0.30           216,149       152     0.28      
 Time deposits         985,944       3,199     1.29           1,007,530       3,323     1.31           783,068       2,446     1.24      
 Other interest-bearing deposits     534,127       444     0.33           553,401       467     0.34           476,237       338     0.28      
  Total interest-bearing deposits     2,617,312       5,135     0.78           2,645,030       5,159     0.78           2,111,634       3,776     0.71      
                                     
Borrowings         476,925       2,105     1.76           488,015       2,139     1.74           617,024       2,159     1.39      
Subordinated debentures (8)       55,155       810     5.84           55,155       814     5.87           55,155       795     5.72      
Capital lease obligation       2,783       42     6.00           2,814       42     5.94           2,904       44     6.01      
  Total interest-bearing liabilities     3,152,175       8,092     1.02           3,191,014       8,154     1.02           2,786,717       6,774     0.96      
                                     
Demand deposits         666,913               640,323               608,227          
Other liabilities         19,210               18,318               18,022          
  Total noninterest-bearing liabilities     686,123               658,641               626,249          
Stockholders' equity       511,663               495,141               478,919          
  Total liabilities and stockholders' equity $   4,349,961           $   4,344,796           $   3,891,885          
                                     
Net interest income (tax equivalent basis)       34,120               33,762               31,102        
Net interest spread (5)         3.14   %         3.11   %         3.23   %  
                                     
Net interest margin (6)         3.36   %         3.32   %         3.44   %  
                                     
Tax equivalent adjustment         (713 )             (738 )             (646 )      
Net interest income       $   33,407           $   33,024           $   30,456        
                                     
(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 $621, $665 and $812 for the three months ended December 31, 2016,        
  September 30, 2016 and December 31, 2015, respectively.                            

 

 
Investor Contact:William S. BurnsExecutive VP & CFO201.816.4474; bburns@cnob.comMedia Contact:Jake Ciorciari, MWW646.376.7042; jciorciari@mww.com