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Section 1: 8-K (FORM 8-K)

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________

Form 8-K
_____________________

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event Reported): July 26, 2018  

CONNECTONE BANCORP, INC.
(Exact Name of Registrant as Specified in Charter)

New Jersey001-1148652-1273725
(State or Other Jurisdiction of Incorporation)(Commission File Number)(I.R.S. Employer Identification Number)

 

301 Sylvan Avenue, Englewood Cliffs, New Jersey 07632
(Address of Principal Executive Offices) (Zip Code)

(201) 816-8900
(Registrant's telephone number, including area code)


(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 [ ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 [ ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 [ ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 [ ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company [   ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]

 
 

Item 2.02. Results of Operations and Financial Condition.

On July 26, 2018, the Registrant issued a press release, a copy of which is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

The information contained in this Item 2.02, including the related information set forth in the Press Release attached hereto and incorporated by reference herein, is being “furnished” and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section.

Item 9.01. Financial Statements and Exhibits.

Exhibit 99.1. Press release dated July 26, 2018


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 CONNECTONE BANCORP, INC.
   
  
Date: July 26, 2018By: /s/ William S. Burns        
  William S. Burns
  Executive Vice President and Chief Financial Officer
  

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Section 2: EX-99.1 (PRESS RELEASE)

EdgarFiling

EXHIBIT 99.1

ConnectOne Bancorp, Inc. Reports Second Quarter 2018 Results

ENGLEWOOD CLIFFS, N.J., July 26, 2018 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq:CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $17.5 million for the second quarter of 2018 compared with $4.3 million for the first quarter of 2018 and $7.7 million for the second quarter of 2017.  Diluted earnings per share were $0.54 for the second quarter of 2018 versus $0.13 earned in the first quarter of 2018 and $0.24 earned in the second quarter of 2017.

Adjusted net income amounted to $17.5 million, or $0.54 earnings per share, for the second quarter of 2018; $17.1 million, or $0.53 earnings per share, for the first quarter of 2018; and $13.3 million, or $0.41 earnings per share, for the second quarter of 2017.  Adjusted net income excludes taxi medallion after-tax charges of $13.4 million for the first quarter 2018 and $5.7 million for the second quarter 2017. In addition, adjusted net income for the first quarter of 2018 excludes $0.5 million of income tax benefit from ASU 2016-19, and $0.1 million for the second quarter 2017.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “We are extremely pleased with our second quarter performance, highlighted by record quarterly earnings.  In addition, we saw improvement in other metrics including deposit and loan growth, net interest margin, return on assets and tangible common equity, tangible book value per share, and credit quality.  Total loans increased by $112 million, or more than 10% on an annualized basis, from the prior quarter-end, while total deposits increased by $156 million, or more than 15% on an annualized basis.  Meanwhile, our net interest margin, which had contracted significantly during the first quarter due to market conditions and non-recurring items, widened from the sequential quarter by 5 basis-points including purchase accounting accretion, and by 2 basis-points when excluding such accretion.  The increase was largely a result of an increasing yield in the loan portfolio driven by repricing and higher origination rates, and a better overall asset mix, offset by increased funding costs, primarily related to deposits.  While net interest margin tightening remains the likely trend largely due to increasing deposit competition, loan spreads have begun to widen, albeit slightly, reflecting both loan mix and discipline.  Many of our performance metrics improved during the quarter and remain among the best in our industry.  Our efficiency ratio was 41.9%, return on average assets was 1.38%, and return on average tangible common equity was 16.6%, all reflecting underlying strong core performance as we remain focused on maximizing shareholder value.”

Mr. Sorrentino added, “In addition to our strong second quarter financial performance, I’m equally excited about our recently announced merger with Greater Hudson Bank, a premier community bank operating in Rockland, Orange and Westchester Counties in New York.  In addition to enhancing our market presence by expanding our footprint into the Hudson Valley, the transaction will provide new opportunities for accretive growth by combining our operating model and our technological capabilities with the Greater Hudson deposit rich franchise. The merger also aligns perfectly with our stated growth strategy, enabling us to more deeply penetrate the New York market and expand the ConnectOne model within the 75-mile radius of New York City in which we operate.  It provides our clients with even greater service while also enhancing our commercial lending capabilities, including establishing an SBA platform.  We believe Greater Hudson is a strong strategic fit for ConnectOne and the transaction remains on target to close in early 2019.”

Operating Results

Fully taxable equivalent net interest income for the second quarter of 2018 was $39.4 million, an increase of $0.8 million, or 2.1%, from the first quarter of 2018, resulting from a widening of the net interest margin to 3.31% from 3.26%, partially offset by a decrease in total average interest-earning assets of 0.6%.  Included in net interest income was accretion and amortization of purchase accounting adjustments of $0.7 million during the second quarter of 2018 and $0.2 million during the first quarter of 2018.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.26% in the second quarter of 2018, widening by 2 basis-points from the first quarter of 2018 adjusted net interest margin of 3.24%.  The increase in the adjusted net interest margin was primarily attributable to a higher yield earned on loans and securities and an improved asset-mix, partially offset by increases in deposit funding costs. 

Fully taxable equivalent net interest income for the second quarter of 2018 increased by $3.6 million, or 10.0%, from the second quarter of 2017, resulting from an increase in total average interest-earning assets of 14.5%, primarily loans, offset by a contraction in the net interest margin of 14 basis-points to 3.31% from 3.45%. Included in net interest income was accretion and amortization of purchase accounting adjustments of $0.7 million during the second quarter of 2018 and $0.3 million during the second quarter of 2017.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.26% in the second quarter of 2018, contracting by 16 basis-points from the second quarter of 2017 adjusted net interest margin of 3.42%. The decrease in the adjusted net interest margin was primarily attributable to a long-term subordinated debt issuance, a change in the taxable equivalent adjustment due to the Tax Cuts and Jobs Act of 2017, and increased deposit rates, partially offset by higher rates earned on loans.   

Noninterest income totaled $1.4 million in the second quarter of 2018, first quarter of 2018 and second quarter of 2017.  Noninterest income consists of income on bank owned life insurance, net gains on sales of loans held-for-sale and deposit service fees, loan fees, and other income.

Noninterest expenses totaled $17.1 million for the second quarter of 2018 and first quarter of 2018 and $25.3 million for the second quarter of 2017.  Noninterest expenses remained flat when compared to the prior sequential quarter.  Noninterest expenses decreased by $8.2 million from the prior year second quarter due primarily to a valuation allowance adjustment on taxi medallion loans held-for-sale of $9.7 million that occurred during the prior year quarter, offset by increases in the current quarter in salaries and employee benefits ($1.1 million) and other expenses ($0.4 million). The increases over the prior year second quarter were the result of increased levels of business and staff resulting from organic growth.

Income tax expense was $4.6 million for the second quarter of 2018, compared to $0.4 million for the first quarter of 2018 and $2.1 million for the second quarter of 2017.  Included in income tax expenses for the first quarter of 2018 was an income tax benefit of $0.5 million resulting from the effect of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting.  At the present time, the Company is projecting a 2018 effective tax rate of approximately 21%, exclusive of ASU 2016-09 benefits.

Asset Quality

The provision for loan losses was $1.1 million in the second quarter of 2018, $17.8 million in the first quarter of 2018 and $1.5 million in the second quarter of 2017.  The decrease of $16.7 million from the sequential first quarter was largely attributable to $17.0 million of provision in the first quarter related to the taxi medallion loan portfolio, partially offset by the impact of higher loan growth.  The decrease from the prior year quarter was mainly attributable to slightly slower loan growth.  The provision related to taxi medallions was due to decreases in the transfer values as reported by the New York City Taxi and Limousine Commission and a reduction in the Bank’s cash flow valuation model.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $50.8 million at June 30, 2018, $66.2 million at December 31, 2017 and $63.5 million at June 30, 2017. Included in nonperforming assets were taxi medallion loans totaling $28.9 million at June 30, 2018, $46.8 million at December 31, 2017 and $48.9 million at June 30, 2017.  Excluding the taxi medallion loans, nonaccrual loans were $20.8 million at June 30, 2018, $18.8 million at December 31, 2017 and $14.1 million at June 30, 2017, representing a ratio of nonaccrual loans (excluding taxis) to loans receivable of 0.48%, 0.46% and 0.37%, respectively.  Nonperforming assets as a percentage of total assets were 0.96% at June 30, 2018, 1.29% at December 31, 2017 and 1.36% at June 30, 2017.

The net loan charge-offs (recoveries) ratio was 0.00% for the second quarter of 2018, 0.01% for the fourth quarter of 2017 and (0.01%) for the second quarter of 2017. The allowance for loan losses represented 0.77%, 0.76%, and 0.76% of loans receivable as of June 30, 2018, December 31, 2017 and June 30, 2017, respectively.   The allowance for loan losses as a percentage of nonaccrual loans was 67.6% as of June 30, 2018, 48.4% as of December 31, 2017 and 45.1% as of June 30, 2017.  Excluding the taxi medallion loans, allowance for loan losses as a percentage of nonaccrual loans was 161.7% as of June 30, 2018, 168.4% as of December 31, 2017 and 202.1% as of June 30, 2017.

Selected Balance Sheet Items

At June 30, 2018, the Company’s total assets were $5.3 billion, an increase of $167 million from December 31, 2017, largely the result of an increase in total loans (loan originations less pay-downs and pay-offs) of $165 million. The Company’s stockholders’ equity was $579 million at June 30, 2018, an increase of $13 million from December 31, 2017. The increase in stockholders’ equity was primarily attributable to increases in retained earnings of $18 million, primarily offset by decreases in other comprehensive losses of $5 million.  As of June 30, 2018, the Company’s tangible common equity ratio and tangible book value per share were 8.40% and $13.38, respectively.  As of December 31, 2017, the tangible common equity ratio and tangible book value per share were 8.41% and $13.01, respectively. Total goodwill and other intangible assets were approximately $148 million as of June 30, 2018 and December 31, 2017.

Use of Non-GAAP Financial Measures

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

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

Second Quarter 2018 Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on July 26, 2018 to review the Company's financial performance and operating results.  The conference call dial-in number is 334-323-0522, access code 7122269. Please dial in at least five minutes before the start of the call to register. An audio webcast of the conference call will be available to the public, on a listen-only basis, via the "Shareholders" link on the Company's website https://www.ConnectOneBank.com or at http://ir.connectonebank.com.  

A replay of the conference call will be available beginning at approximately 1:00 p.m. ET on Thursday, July 26, 2018 and ending on Thursday, August 2, 2018 by dialing 719-457-0820, access code 7122269. An online archive of the webcast will be available following the completion of the conference call at https://www.ConnectOneBank.com or at http://ir.connectonebank.com.

About ConnectOne Bancorp, Inc.

ConnectOne is a New Jersey corporation and a registered bank holding company pursuant to the Bank Holding Company Act of 1956, as amended, and serves as the holding company for ConnectOne Bank ("the Bank"). The Bank is a community-based, full-service New Jersey-chartered commercial bank that was founded in 2005. The Bank operates from its headquarters located at 301 Sylvan Avenue in the Borough of Englewood Cliffs, Bergen County, New Jersey, and through its 21 other banking offices.

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

Forward-Looking Statements

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

 

       
CONNECTONE BANCORP, INC. AND SUBSIDIARIES      
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION     
(in thousands)      
       
 June 30, December 31, June 30, 
  2018   2017   2017  
 (unaudited)   (unaudited) 
ASSETS      
Cash and due from banks$  56,931  $  52,565  $  54,305  
Interest-bearing deposits with banks   119,238     97,017     92,203  
    Cash and cash equivalents   176,169     149,582     146,508  
       
Securities available-for-sale   400,015     435,284     402,130  
Equity securities   11,559     -     -  
       
Loans held-for-sale   -     24,845     51,124  
       
Loans receivable   4,360,854     4,171,456     3,761,572  
Less: Allowance for loan losses   33,594     31,748     28,401  
    Net loans receivable   4,327,260     4,139,708     3,733,171  
       
Investment in restricted stock, at cost   32,441     33,497     32,152  
Bank premises and equipment, net   20,389     21,659     21,630  
Accrued interest receivable   16,754     15,470     13,194  
Bank owned life insurance   112,275     111,311     99,777  
Other real estate owned   1,076     538     580  
Goodwill   145,909     145,909     145,909  
Core deposit intangibles   2,027     2,364     2,702  
Other assets   29,494     28,275     32,403  
   Total assets$  5,275,368  $  5,108,442  $  4,681,280  
       
LIABILITIES      
Deposits:      
    Noninterest-bearing$  765,150  $  776,843  $  695,522  
    Interest-bearing   3,140,260     3,018,285     2,734,851  
        Total deposits   3,905,410     3,795,128     3,430,373  
Borrowings   628,995     670,077     626,173  
Subordinated debentures (net of $1,763, $456 and $539 in debt issuance costs)   128,392     54,699     54,616  
Other liabilities   34,014     23,101     23,945  
   Total liabilities   4,696,811     4,543,005     4,135,107  
       
COMMITMENTS AND CONTINGENCIES      
       
STOCKHOLDERS' EQUITY      
Common stock   412,546     412,546     412,546  
Additional paid-in capital   13,756     13,602     12,377  
Retained earnings   177,619     160,025     141,178  
Treasury stock   (16,717)    (16,717)    (16,717) 
Accumulated other comprehensive loss   (8,647)    (4,019)    (3,211) 
  Total stockholders' equity   578,557     565,437     546,173  
  Total liabilities and stockholders' equity$  5,275,368  $  5,108,442  $  4,681,280  
       

 

CONNECTONE BANCORP, INC. AND SUBSIDIARIES        
CONSOLIDATED STATEMENTS OF INCOME        
(dollars in thousands, except for per share data)        
         
  Three Months Ended   Six Months Ended  
 06/30/18 06/30/17 06/30/18 06/30/17 
Interest income        
     Interest and fees on loans$  49,494 $  40,632 $  96,519 $  78,638 
     Interest and dividends on investment securities:        
           Taxable   2,150    1,799    4,037    3,347 
           Tax-exempt   778    831    1,592    1,785 
           Dividends   502    290    987    620 
     Interest on federal funds sold and other short-term investments   160    139    424    385 
               Total interest income   53,084    43,691    103,559    84,775 
Interest expense        
     Deposits   9,169    5,495    16,857    10,604 
     Borrowings   4,970    3,095    9,610    5,929 
               Total interest expense   14,139    8,590    26,467    16,533 
         
Net interest income   38,945    35,101    77,092    68,242 
     Provision for loan losses   1,100    1,450    18,900    2,550 
Net interest income after provision for loan losses   37,845    33,651    58,192    65,692 
         
Noninterest income        
    Income on bank owned life insurance   775    714    1,549    1,417 
    Net gains on sale of loans held-for-sale   12    49    29    70 
    Deposit, loan and other income   601    659    1,217    1,341 
    Net gains on sale of investment securities   -    -    -    1,596 
               Total noninterest income   1,388    1,422    2,795    4,424 
         
Noninterest expenses        
    Salaries and employee benefits   9,736    8,632    19,415    16,838 
    Occupancy and equipment   2,031    1,991    4,174    4,246 
    FDIC insurance   765    815    1,615    1,710 
    Professional and consulting   825    734    1,548    1,452 
    Marketing and advertising   337    289    544    545 
    Data processing   1,091    1,149    2,239    2,298 
    Amortization of core deposit intangible   169    193    338    386 
    Increase in valuation allowance, loans held-for-sale   -    9,725    -    12,325 
    Other expenses   2,154    1,775    4,294    3,752 
               Total noninterest expenses   17,108    25,303    34,167    43,552 
         
Income before income tax expense   22,125    9,770    26,820    26,564 
    Income tax expense   4,598    2,087    5,042    7,001 
Net income$  17,527 $  7,683 $  21,778 $  19,563 
         
Earnings per common share:        
    Basic$  0.54 $  0.24 $  0.68 $  0.61 
    Diluted   0.54    0.24    0.67    0.60 
         
Dividends per common share$  0.075 $  0.075 $  0.150 $  0.150 
         

 

ConnectOne's management believes that the supplemental financial information, including non-GAAP measures provided below, is useful to investors. The non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP financial measures presented by other companies.   
            
CONNECTONE BANCORP, INC.           
SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES          
            
 As of  
 June 30, Mar. 31, Dec. 31, Sept. 30, June 30,  
  2018   2018   2017   2017   2017   
Selected Financial Data(dollars in thousands)  
Total assets$  5,275,368  $  5,158,368  $  5,108,442  $  4,844,755  $  4,681,280   
Loans receivable:           
  Commercial   808,604     768,640     781,698     641,613     610,442   
  Commercial real estate   1,282,426     1,275,764     1,232,037     1,254,720     1,218,995   
  Multifamily   1,480,243     1,400,420     1,403,256     1,330,485     1,251,962   
  Commercial construction   498,607     479,190     483,216     399,453     431,049   
  Residential   288,449     278,985     271,795     264,244     251,108   
  Consumer   5,637     2,461     2,808     1,912     2,005   
  Gross loans   4,363,966     4,205,460     4,174,810     3,892,427     3,765,561   
Unearned net origination fees   (3,112)    (2,781)    (3,354)    (3,138)    (3,989)  
  Loans receivable   4,360,854     4,202,679     4,171,456     3,889,289     3,761,572   
  Loans held-for-sale (net of valuation allowance)   -     45,886     24,845     89,386     51,124   
Total loans$  4,360,854  $  4,248,565  $  4,196,301  $  3,978,675  $  3,812,696   
            
Investment securities$  411,574  $  435,929  $  435,284  $  400,516  $  402,130   
Goodwill and other intangible assets   147,936     148,104     148,273     148,442     148,611   
Deposits:           
  Noninterest-bearing demand   765,150     739,174     776,843     719,582     695,522   
  Time deposits   1,315,843     1,255,654     1,179,969     1,078,359     982,328   
  Other interest-bearing deposits   1,824,417     1,754,759     1,838,316     1,825,828     1,752,523   
Total deposits$  3,905,410  $  3,749,587  $  3,795,128  $  3,623,769  $  3,430,373   
            
Borrowings$  628,995  $  695,032  $  670,077  $  585,124  $  626,173   
Subordinated debentures (net of issuance costs)   128,392     128,310     54,699     54,657     54,616   
Total stockholders' equity   578,557     564,266     565,437     557,691     546,173   
            
Quarterly Average Balances           
Total assets$  5,104,661  $  5,088,823  $  4,916,549  $  4,713,487  $  4,495,008   
Loans receivable:           
  Commercial   808,764     820,562     761,147     671,525     603,733   
  Commercial real estate (including multifamily)   2,654,276     2,643,466     2,566,959     2,502,846     2,337,499   
  Commercial construction   494,092     482,391     439,629     418,439     451,038   
  Residential   282,504     275,263     268,047     255,755     246,864   
  Consumer   5,685     4,659     3,849     2,555     2,929   
  Gross loans   4,245,321     4,226,341     4,039,631     3,851,120     3,642,063   
Unearned net origination fees   (3,208)    (3,110)    (3,485)    (3,724)    (3,967)  
  Loans receivable   4,242,113     4,223,231     4,036,146     3,847,396     3,638,096   
  Loans held-for-sale   30,099     24,766     57,812     51,008     61,259   
Total loans$  4,272,212  $  4,247,997  $  4,093,958  $  3,898,404  $  3,699,355   
            
Investment securities   424,854     437,141     417,560     398,635     391,965   
Goodwill and other intangible assets   148,046     148,215     148,383     148,553     148,737   
Deposits:           
  Noninterest-bearing demand   719,372     724,471     712,391     688,707     667,461   
  Time deposits   1,280,471     1,207,368     1,114,670     1,005,997     976,012   
  Other interest-bearing deposits   1,765,577     1,815,122     1,855,688     1,816,162     1,712,875   
Total deposits$  3,765,420  $  3,746,961  $  3,682,749  $  3,510,866  $  3,356,348   
            
Borrowings$  613,763  $  630,117  $  588,260  $  570,711  $  514,161   
Subordinated debentures (net of issuance costs)   128,339     115,182     54,672     54,630     54,590   
Total stockholders' equity   574,992     575,029     567,308     556,620     549,748   
            
 Three Months Ended  
 June 30, Mar. 31, Dec. 31, Sept. 30, June 30,  
  2018   2018   2017   2017   2017   
  (dollars in thousands, except for per share data)   
Net interest income$  38,945  $  38,147  $  39,808  $  37,019  $  35,101   
 Provision for loan losses   1,100     17,800     2,000     1,450     1,450   
Net interest income after provision for loan losses   37,845     20,347     37,808     35,569     33,651   
Noninterest income           
 Income on bank owned life insurance   775     774     779     985     714   
 Net gains on sale of loans held-for-sale   12     17     588     50     49   
 Deposit, loan and other income   601     616     657     721     659   
  Total noninterest income   1,388     1,407     2,024     1,756     1,422   
Noninterest expenses           
 Salaries and employee benefits   9,736     9,679     9,418     8,872     8,632   
 Occupancy and equipment   2,031     2,143     1,948     1,969     1,991   
 FDIC insurance   765     850     935     840     815   
 Professional and consulting   825     723     671     740     734   
 Marketing and advertising   337     207     226     225     289   
 Data processing   1,091     1,148     1,069     1,176     1,149   
 Amortization of core deposit intangible   169     169     169     169     193   
 Increase in valuation allowance, loans held-for-sale   -     -     267     3,000     9,725   
 Other expenses   2,154     2,140     1,863     1,650     1,775   
  Total noninterest expenses   17,108     17,059     16,566     18,641     25,303   
            
Income before income tax expense   22,125     4,695     23,266     18,684     9,770   
 Income tax expense   4,598     444     12,686     5,607     2,087   
Net income$  17,527  $  4,251  $  10,580  $  13,077  $  7,683   
            
Reconciliation of GAAP Earnings to Earnings Excluding the
Following Items:
           
Net income$  17,527  $  4,251  $  10,580  $  13,077  $  7,683   
Deferred tax valuation charge   -     -     5,574     -     -   
Tax benefit on employee share-based awards (ASU 2016-09)   (49)    (541)    -     -     (133)  
Provision related to taxi medallion loans (after taxes)   -     13,430     -     -     -   
Increase in valuation allowance, loans held-for-sale (after taxes)   -     -     182     1,776     5,719   
Net income-adjusted$  17,478  $  17,140  $  16,336  $  14,853  $  13,269   
Weighted average diluted shares outstanding   32,321,150     32,238,048     32,252,759     32,182,016     32,255,770   
Diluted EPS (GAAP)$  0.54  $  0.13  $  0.33  $  0.41  $  0.24   
Diluted EPS-adjusted (Non-GAAP) (1)   0.54     0.53     0.51     0.46     0.41   
            
Return on Assets Measures           
Net income-adjusted$  17,478  $  17,140  $  16,336  $  14,853  $  13,269   
            
Average assets$  5,104,661  $  5,088,823  $  4,916,549  $  4,713,487  $  4,495,008   
Less: average intangible assets   (148,046)    (148,215)    (148,383)    (148,553)    (148,737)  
Average tangible assets$  4,956,615  $  4,940,608  $  4,768,166  $  4,564,934  $  4,346,271   
Return on avg. assets (GAAP)   1.38 %   0.34 %   0.85 %   1.10 %   0.69 % 
Return on avg. assets-adjusted (non-GAAP) (2)   1.37     1.37     1.32     1.25     1.18   
            
(1)  Represents adjusted earnings available to common stockholders divided by weighted average diluted shares outstanding.    
(2)  Adjusted net income divided by average assets.           
            
 Three Months Ended  
 June 30, Mar. 31, Dec. 31, Sept. 30, June 30,  
  2018   2018   2017   2017   2017   
Return on Equity Measures(dollars in thousands)  
Net income-adjusted$  17,478  $  17,140  $  16,336  $  14,853  $  13,269   
            
Average common equity$  574,992  $  575,029  $  567,308  $  556,620  $  549,748   
Less: average intangible assets   (148,046)    (148,215)    (148,383)    (148,553)    (148,737)  
Average tangible common equity$  426,946  $  426,814  $  418,925  $  408,067  $  401,011   
            
Return on avg. common equity (GAAP)   12.23 %   3.00 %   7.40 %   9.32 %   5.61 % 
Return on avg. common equity-adjusted (non-GAAP) (3)   12.19     12.09     11.42     10.59     9.68   
Return on avg. tangible common equity (non-GAAP) (4)   16.58     4.15     10.11     12.81     7.80   
Return on avg. tangible common equity-adjusted (non-GAAP) (5)   16.53     16.40     15.57     14.54     13.39   
            
Efficiency Measures           
Total noninterest expenses$  17,108  $  17,059  $  16,566  $  18,641  $  25,303   
Increase in valuation allowance, loans held-for-sale   -     -     (267)    (3,000)    (9,725)  
Foreclosed property expense   (11)    (51)    (32)    (46)    (71)  
Operating noninterest expense $  17,097  $  17,008  $  16,267  $  15,595  $  15,507   
            
Net interest income (tax equivalent basis)$  39,409  $  38,610  $  40,744  $  37,929  $  35,839   
Noninterest income   1,388     1,407     2,024     1,756     1,422   
Operating revenue $  40,797  $  40,017  $  42,768  $  39,685  $  37,261   
            
Operating efficiency ratio (non-GAAP) (6)   41.9 %   42.5 %   38.0 %   39.3 %   41.6 % 
            
Net Interest Margin           
Average interest-earning assets$  4,771,523  $  4,799,453  $  4,603,659  $  4,378,537  $  4,168,344   
            
Net interest income (tax equivalent basis)$  39,409  $  38,610  $  40,744  $  37,929  $  35,839   
Impact of purchase accounting fair value marks   (680)    (240)    (1,026)    (317)    (316)  
Adjusted net interest income (tax equivalent basis)$  38,729  $  38,370  $  39,718  $  37,612  $  35,523   
            
Net interest margin (GAAP)   3.31 %   3.26 %   3.51 %   3.44 %   3.45 % 
Adjusted net interest margin (non-GAAP) (7)   3.26     3.24     3.42     3.41     3.42   
            
(3)  Adjusted earnings available to common stockholders divided by average common equity.        
(4)  Earnings available to common stockholders excluding amortization of intangibles assets divided by average tangible common equity.    
(5)  Adjusted earnings available to common stockholders divided by average tangible common equity.        
(6)  Operating noninterest expense divided by operating revenue.           
(7)  Adjusted net interest margin excludes impact of purchase accounting fair value marks.        
            
 As of  
 June 30, Mar. 31, Dec. 31, Sept. 30, June 30,  
  2018   2018   2017   2017   2017   
Capital Ratios and Book Value per Share(dollars in thousands, except for per share data)  
Common equity$  578,557  $  564,266  $  565,437  $  557,691  $  546,173   
Less: intangible assets   (147,936)    (148,104)    (148,273)    (148,442)    (148,611)  
Tangible common equity$  430,621  $  416,162  $  417,164  $  409,249  $  397,562   
            
Total assets$  5,275,368  $  5,158,368  $  5,108,442  $  4,844,755  $  4,681,280   
Less: intangible assets   (147,936)    (148,104)    (148,273)    (148,442)    (148,611)  
Tangible assets$  5,127,432  $  5,010,264  $  4,960,169  $  4,696,313  $  4,532,669   
            
Common shares outstanding   32,184,047     32,175,233     32,071,860     32,015,317     32,015,317   
            
Common equity ratio (GAAP)   10.97 %   10.94 %   11.07 %   11.51 %   11.67 % 
Tangible common equity ratio (non-GAAP) (8)   8.40     8.31     8.41     8.71     8.77   
            
Regulatory capital ratios (Bancorp):           
  Leverage ratio   8.93 %   8.65 %   8.92 %   9.13 %   9.33 % 
  Common equity Tier 1 risk-based ratio   9.33     9.14     9.15     9.40     9.48   
  Risk-based Tier 1 capital ratio   9.44     9.25     9.26     9.52     9.60   
  Risk-based total capital ratio   12.81     12.66     11.04     11.34     11.46   
Regulatory capital ratios (Bank):           
  Leverage ratio   10.43 %   10.20 %   9.84 %   10.11 %   10.34 % 
  Common equity Tier 1 risk-based ratio   11.02     10.91     10.21     10.54     10.64   
  Risk-based Tier 1 capital ratio   11.02     10.91     10.21     10.54     10.64   
  Risk-based total capital ratio   12.42     12.31     10.90     11.22     11.32   
            
Book value per share (GAAP)$  17.98  $  17.54  $  17.63  $  17.42  $  17.06   
Tangible book value per share (non-GAAP) (9)   13.38     12.93     13.01     12.78     12.42   
            
Net Charge-Off (Recoveries) Detail           
Net loan charge-offs (recoveries) :           
 Charge-offs$  47  $  17,038  $  156  $  -  $  10   
 Recoveries   (12)    (19)    (34)    (20)    (60)  
  Net loan charge-offs (recoveries)$  35  $  17,019  $  122  $  (20) $  (50)  
  Net loan charge-offs (recoveries) as a % of average loans
    receivable (annualized)
   0.00 %   1.63 %   0.01 %   (0.00)%   (0.01)% 
            
Asset Quality           
Nonaccrual taxi medallion loans$  28,944  $  29,405  $  46,765  $  47,430  $  48,884   
Nonaccrual loans (excluding taxi medallion loans)   20,771     20,631     18,848     13,755     14,055   
Other real estate owned   1,076     1,076     538     -     580   
Total nonperforming assets$  50,791  $  51,112  $  66,151  $  61,185  $  63,519   
            
Performing troubled debt restructurings$  12,827  $  14,349  $  14,920  $  12,749  $  10,221   
            
Allowance for loan losses ("ALLL")$  33,594  $  32,529  $  31,748  $  29,870  $  28,401   
            
Loans receivable$  4,360,854  $  4,202,679  $  4,171,456  $  3,889,289  $  3,761,572   
Less: taxi medallion loans   28,944     29,405     46,765     -     -   
Loans receivable (excluding taxi medallion loans)$  4,331,910  $  4,173,274  $  4,124,691  $  3,889,289  $  3,761,572   
            
Loans held-for-sale (taxi medallion loans)$  -  $  -  $  -  $  47,430  $  50,891   
            
Nonaccrual loans (excluding taxi medallion loans) as a % of loans receivable (excluding taxi medallion loans)   0.48 %   0.49 %   0.46 %   0.35 %   0.37 % 
Nonaccrual loans as a % of loans receivable   1.14     1.19     1.57     1.57     1.67   
Nonperforming assets as a % of total assets   0.96     0.99     1.29     1.26     1.36   
ALLL as a % of loans receivable   0.77     0.77     0.76     0.77     0.76   
ALLL as a % of nonaccrual loans (excluding taxi medallion loans)   161.7     157.7     168.4     217.2     202.1   
ALLL as a % of nonaccrual loans   67.6     65.0     48.4     48.8     45.1   
            
(8)  Tangible common equity divided by tangible assets.           
(9)  Tangible common equity divided by common shares outstanding at period-end.          
           

 

CONNECTONE BANCORP, INC.               
NET INTEREST MARGIN ANALYSIS               
(dollars in thousands)                 
    For the Three Months Ended  
    June 30, 2018March 31, 2018June 30, 2017  
    Average    Average    Average    
Interest-earning assets: BalanceInterestRate (8)  BalanceInterestRate (8)  BalanceInterestRate (8)  
Investment securities (1) (2) $  432,493 $  3,136   2.91% $  441,563 $  2,917   2.68% $  390,462 $  3,079   3.16% 
Total loans (2) (3) (4)     4,272,212    49,750   4.67     4,247,997    47,272   4.51     3,699,355    40,921   4.44  
Federal funds sold and interest-               
  bearing deposits with banks    35,315    159   1.81     78,194    264   1.37     52,099    139   1.07  
Restricted investment in bank stock   31,503    502   6.39     31,699    485   6.21     26,428    290   4.40  
   Total interest-earning assets   4,771,523    53,547   4.50     4,799,453    50,938   4.30     4,168,344    44,429   4.28  
Allowance for loan losses    (32,668)       (32,113)       (27,355)    
Noninterest-earning assets    365,806        321,483        354,019     
   Total assets  $  5,104,661     $  5,088,823     $  4,495,008     
                   
Interest-bearing liabilities:                
 Time deposits  $  1,280,471    5,830   1.83  $  1,207,368    4,788   1.61  $  976,012    3,311   1.36  
 Other interest-bearing deposits   1,765,577    3,338   0.76     1,815,122    2,900   0.65     1,712,875    2,184   0.51  
   Total interest-bearing deposits   3,046,048    9,168   1.21     3,022,490    7,688   1.03     2,688,887    5,495   0.82  
                   
Borrowings     613,763    3,091   2.02     630,117    2,926   1.88     514,161    2,244   1.75  
Subordinated debentures (5)    128,339    1,840   5.75     115,182    1,674   5.89     54,590    810   5.95  
Capital lease obligation    2,589    39   6.04     2,622    40   6.19     2,720    41   6.05  
   Total interest-bearing liabilities   3,790,739    14,138   1.50     3,770,411    12,328   1.33     3,260,358    8,590   1.06  
                   
Noninterest-bearing demand deposits   719,372        724,471        667,461     
Other liabilities     19,558        18,912        17,441     
   Total noninterest-bearing liabilities   738,930        743,383        684,902     
Stockholders' equity    574,992        575,029        549,748     
   Total liabilities and stockholders' equity$  5,104,661     $  5,088,823     $  4,495,008     
                   
Net interest income (tax equivalent basis)    39,409        38,610        35,839    
Net interest spread (6)     3.00     2.97     3.22% 
                   
Net interest margin (7)     3.31%     3.26%     3.45% 
                   
Tax equivalent adjustment     (463)       (463)       (738)   
Net interest income   $  38,946     $  38,147     $  35,101    
                   
(1)  Average balances are calculated on amortized cost and includes equity securities.                  
(2)  Interest income is presented on a tax equivalent basis using a 21% federal tax rate as of June 30, 2018 and March 31, 2018 and a 35% federal tax rate as of June 30, 2017.   
(3) Includes loan fee income.                
(4)  Loans include nonaccrual loans.               
(5)  Average balances are net of debt issuance costs of $1,816, $1,639, and $565 as of June 30, 2018, March 31, 2018 and June 30, 2017, respectively      
      Amortization expense related to debt issuance costs included in interest expense was $82, $86 and $41 as of June 30, 2018, March 31, 2018 and       
      June 30, 2017, respectively.               
(6)  Represents difference between the average yield on interest-earning assets and the average cost of interest-bearing         
      liabilities and is presented on a tax equivalent basis.               
(7)  Represents net interest income on a tax equivalent basis divided by average total interest-earning assets.          
(8)  Rates are annualized.                
                   

Investor Contact:

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

Media Contact:
Thomas Walter, MWWPR
202.600.4532; twalter@mww.com

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