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ConnectOne Bancorp, Inc. Reports Record Third Quarter 2013 Earnings; Loan Portfolio Surpasses $1 Billion Milestone

ConnectOne Bancorp, Inc. Reports Record Third Quarter 2013 Earnings; Loan Portfolio Surpasses $1 Billion Milestone  ENGLEWOOD CLIFFS, N.J., Oct. 25, 2013 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq:CNOB) (the "Company" or "ConnectOne"), parent company of ConnectOne Bank (the "Bank"), today reported net income available to common stockholders of $2.6 million for the third quarter of 2013, representing a 17.8% increase from $2.2 million earned during the third quarter of 2012. Net income available to common stockholders for the first nine months of 2013 was $7.4 million, a 28.8% increase from the prior year period.  Diluted earnings per share were $0.50 and $1.54, for the third quarter and year-to-date periods of 2013, respectively, compared with diluted earnings per share of $0.68 and $1.92 for the third quarter and first nine months of 2012, respectively. Diluted earnings per share for 2013 reflect the Company's February 2013 initial public offering and issuance of 1.8 million shares of common stock. Diluted earnings per share for 2012 reflect preferred dividends of $2,000 for the third quarter and $0.4 million for the first nine months. All shares of preferred were converted into common in 2012 and had no impact on 2013 results.  Frank Sorrentino III, Chairman and CEO of ConnectOne, stated, "The third quarter of 2013 marks another period of solid growth and strong financial performance for the Company. We delivered record quarterly earnings, which have now increased for six consecutive quarterly periods. Our well-diversified loan portfolio grew to more than $1 billion at quarter-end, increasing by 21% from year-end 2012 and by 8% from June 30, 2013. Additionally, the Company's third quarter net interest margin of 3.93% widened by 4 basis points from the 3.89% reported in the second quarter 2013. Our commitment to operating efficiency remains on track. Reflecting the success of our strategy, our third quarter efficiency ratio of 48.1% improved slightly from 48.3% in the comparable 2012 third quarter and from 48.6% in the sequential 2013 second quarter. In addition, asset quality remains solid. The ratio of non-performing assets to total assets remained below 1.00%, declining to 0.90% at September 30, 2013 from 0.97% at June 30, 2013."  Mr. Sorrentino, commenting on near-term organic growth prospects, stated, "Looking ahead, our pipeline of new commercial, construction, commercial real estate, and multi-family loans remains strong. During the third quarter, we submitted an application to the New Jersey Department of Banking and Insurance to open a de novo branch in Newark, New Jersey. An attractive site for the planned new branch in Newark's Ironbound District has been selected, which will allow our lending and banking teams to capitalize on the area's high-density business demographic beginning in early 2014."  Earnings  Fully taxable equivalent ("FTE") net interest income for the third quarter of 2013 totaled $10.6 million, an increase of $1.9 million, or 21.7%, from the year ago quarter. The increase in net interest income was primarily due to an increase in average interest-earning assets, which grew by 24.2% to $1.1 billion, and was partially offset by an 8 basis points contraction in the net interest margin, from 4.01% in the third quarter of 2012 to 3.93% in the third quarter of 2013. Average total loans increased by 29.7% to $1.0 billion in the third quarter of 2013 from the prior year period. FTE net interest income for the first nine months of 2013 totaled $29.8 million, an increase of $4.5 million, or 18.0%, from the year ago period. The increase in net interest income was primarily due to an increase in average interest-earning assets, which grew by 27.3% to $1.0 billion, and was partially offset by a 31 basis points contraction in the net interest margin, from 4.25% in the first nine months of 2012 to 3.94% in the first nine months of 2013. Average total loans increased by 29.6% to $931.1 million in the first nine months of 2013 from the prior year period. The net interest margin in the current quarter widened slightly, by 4 basis points, from the sequential second quarter of 2013, as prepayment fees increased and the level of low earning cash balances decreased. Management expects net interest income to increase as the loan portfolio grows, although any such increases will likely be moderated by net interest margin compression resulting from the maturity, prepayment or contractual re-pricing of loans and securities in this extended period of low interest rates.  Non-interest income represents a relatively small portion of the Bank's total revenue as management has historically made a strategic decision to de-emphasize fee income, focusing instead on customer growth and retention. During the third quarter of 2013, Management made a decision to invest in bank owned life insurance ("BOLI") in order to help offset the rising cost of employee benefits. Life insurance policies on key employees totaling $15 million were purchased at the end of August 2013, contributing $44,000 of BOLI income to 2013 operating results. Non-interest income totaled $293,000 and $853,000 for the third quarter and first nine months of 2013, respectively, versus $294,000 and $815,000 for the third quarter and first nine months of 2012, respectively. Growth in service and card-related fees, and the aforementioned BOLI income, were essentially offset by declines in gains on sale of residential mortgage loans.  Non-interest expenses for the third quarter 2013 increased by $0.9 million, or 20.4%, to $5.2 million from $4.3 million in the prior year third quarter. Non-interest expenses for the first nine months of 2013 increased by $2.0 million, or 15.0%, to $14.9 million from $12.9 million in the prior year period. The largest factor contributing to the increases in total non-interest expenses was salaries and employee benefits expense, which increased by $0.6 million to $2.6 million in the third quarter 2013 from $2.0 million in the third quarter 2012, and which increased by $1.3 million to $7.5 million in the first nine months of 2013 from $6.3 million in the first nine months of 2012. The increases were primarily due an increase in the number of full-time equivalent employees and higher incentive-based compensation. Also contributing to higher non-interest expenses were increased costs associated with being a publicly-traded entity, higher legal fees, and a general increase in other operating expenses related to a significantly increased volume of business. Management continues to focus on expense control, balancing its investment in infrastructure with prudent and sustainable growth.  Income tax expense was $1.7 million for the third quarter 2013 and $5.1 million for the first nine months of 2013 versus $1.5 million for the third quarter 2012 and $4.2 million for the first nine months 2012. The effective tax rates were 40.2% and 40.9% for the third quarter and first nine months of 2013, respectively, versus 40.4% and 40.4% for the third quarter and first nine months of 2012, respectively. Effective tax rates for 2013 reflect an increase in earnings which placed the Company into the higher 35% federal bracket. The increase in statutory rates was offset by an increase in non-taxable revenue in the third quarter of 2013. On October 1, 2013, the Company reorganized its operating structure in order to improve tax efficiency. The Company's effective tax rate is projected to decline in future periods by approximately 5 percentage points, resulting from a combination of an increase in revenue from non-taxable sources and a reorganized operating structure; however, the effective tax rate in future periods is likely to fluctuate and will depend upon future levels of taxable and non-taxable revenue.  Asset Quality  Nonperforming assets, which includes nonaccrual loans and other real estate owned, totaled $10.1 million, or 0.90% of total assets, at September 30, 2013, roughly flat from $10.0 million, or 0.97% of total assets, at June 30, 2013 and up from $5.6 million, or 0.64% of total assets, at September 30, 2012. The allowance for loan losses was $14.7 million, representing 1.42% of loans receivable and 166.2% of nonaccrual loans at September 30, 2013. At June 30, 2013, the allowance was $14.0 million representing 1.46% of loans receivable and 146.5% of nonaccrual loans, and at September 30, 2012 the allowance was $12.2 million representing 1.52% of loans receivable and 217.9% of nonaccrual loans. The provision for loan losses for the third quarter of 2013 increased to $1.3 million from $1.0 million for both the second quarter of 2013 and the third quarter of 2012. The provision for loan losses has remained relatively constant, although the level is contingent upon many factors including, but not limited to, loan growth, the Company's historical loss experience, macroeconomic conditions and reserves required for specific credits. The annualized rate of net loan charge-offs was 0.25% for the third quarter 2013, 0.26% for the second quarter 2013 and zero for the third quarter 2012.  Financial Condition  At September 30, 2013, total assets were $1.1 billion, a $200.0 million increase from December 31, 2012. The increase in total assets was due primarily to a $182.2 million increase, to $1.0 billion, in loans receivable, a $3.4 million increase, to $24.7 million, in securities, and $15.0 million in BOLI purchases. The growth in assets was funded by a $128.4 million increase in deposits, an $18.2 million increase in Federal Home Loan Bank borrowings, $7.4 million in retained earnings, and $47.8 million in net proceeds from the Company's first quarter 2013 initial public equity offering.  Capital  Stockholders' equity totaled $127.2 million as of September 30, 2013, an increase of $54.9 million from $72.4 million as of year-end 2012, due primarily to retained earnings and the Company's first quarter 2013 equity offering. Accumulated other comprehensive earnings declined by $0.5 million as the increase in the general level of interest rates over the course of 2013 to date resulted in a decline in market values in our relatively small securities portfolio. As of September 30, 2013, the tangible common equity ratio and tangible book value per share were 11.24% and $24.95, respectively. As of December 31, 2012, the Company's tangible common equity ratio and tangible book value per share were 7.76% and $22.77, 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, that was formed in 2008 to serve 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 seven 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.                                          CONSOLIDATED BALANCE SHEETS (unaudited)                           (dollars in thousands)                                                                                                                                                                September 30, December 31,                                                    2013          2012 Cash and due from banks                             $3,383      $3,242 Interest-bearing deposits with banks                46,169       47,387 Cash and cash equivalents                          49,552       50,629                                                                  Securities available for sale                       23,450       19,252 Securities held to maturity, fair value of $1,274   1,218        1,985 at 2013 and $2,084 at 2012 Loans held for sale                                 --           405                                                                  Loans receivable                                    1,031,070    848,842 Less: Allowance for loan losses                     (14,666)     (13,246) Net loans receivable                               1,016,404    835,596                                                                  Investment in restricted stock, at cost             5,834        4,744 Bank premises and equipment, net                    7,808        7,904 Accrued interest receivable                         3,704        3,361 Other real estate owned                             1,303        433 Goodwill                                            260          260 Bank owned life insurance                           15,044       -- Other assets                                        5,358        5,357 Total assets                                       $1,129,935  $929,926                                                                  Liabilities                                                       Deposits                                                          Noninterest-bearing                                $193,492    $170,355 Interest-bearing                                   704,243      598,963 Total deposits                                     897,735      769,318 Long-term borrowings                                97,816       79,568 Accrued interest payable                            2,750        2,803 Capital lease obligation                            3,129        3,185 Other liabilities                                   1,268        2,690 Total liabilities                                  1,002,698    857,564                                                                  Commitments and Contingencies                                                                                                      Stockholders' Equity                                              Common stock, no par value; authorized 10,000,000 shares at September 30, 2013 and December 31, 2012; 99,118       51,205 issued and outstanding 5,089,392 at September 30, 2013 and 3,166,217 at December 31, 2012 Retained earnings                                   28,081       20,661 Accumulated other comprehensive income              38           496 Total stockholders' equity                         127,237      72,362 Total liabilities and stockholders' equity          $1,129,935  $929,926                                                                                                                                    CONNECTONE BANCORP, INC.                                          CONSOLIDATED STATEMENTS OF INCOME                                  (unaudited) (dollars in thousands,                                            except per share data)                                                                                            Three Months Ended September Nine Months Ended                            30,                          September 30,                           2013            2012          2013       2012 Interest income                                                   Loans receivable,         $11,923       $9,955      $33,758  $29,076 including fees Securities                210            311          584       833 Other interest income     25             23           80        53 Total interest income     12,158         10,289       34,422    29,962 Interest expense                                                  Deposits                  1,215          1,214        3,510     3,579 Long-term borrowings      346            349          1,010     1,001 Capital lease             47             48           142       145 Total interest expense    1,608          1,611        4,662     4,725                                                                  Net interest income        10,550         8,678        29,760    25,237 Provision for loan losses  1,300          950          3,175     2,840 Net interest income after 9,250          7,728        26,585    22,397 provision for loan losses Non-interest income                                               Service fees              136            88           299       281 Gains on sales of loans   54             126          215       338 Income on bank owned life 44             --           44        -- insurance Gains on sales of         --             --           --        -- securities Other income              59             80           295       196 Total non-interest income 293            294          853       815                                                                  Non-interest expenses                                             Salaries and employee     2,584          2,024        7,510     6,252 benefits Occupancy and equipment   806            746          2,296     2,156 Professional fees         454            237          1,045     777 Advertising and promotion 106            168          375       352 Data processing           507            425          1,398     1,242 Other expenses            763            735          2,262     2,162 Total non-interest        5,220          4,335        14,886    12,941 expenses Income before income tax   4,323          3,687        12,552    10,271 expense Income tax expense         1,736          1,488        5,132     4,154 Net income                 2,587          2,199        7,420     6,117 Dividends on preferred     --             2            --        354 shares Net income available to    $2,587        $2,197      $7,420   $5,763 common stockholders                                                                  Earnings per common share:                                        Basic                     $0.52         $0.70       $1.58    $2.26 Diluted                   0.50           0.68         1.54      1.92 Weighted average common                                           shares outstanding: Basic                     5,011,045      3,145,625    4,691,793 2,546,996 Diluted                   5,158,704      3,256,092    4,828,408 3,184,927                                                                                                                          CONNECTONE BANCORP, INC.                                     CONSOLIDATED FINANCIAL HIGHLIGHTS                             (dollars in thousands, except per share data)                                                                                                           Three Months Ended                               September 30,     June 30,     September 30,                               2013              2013         2012 Performance ratios:                                          Return on average assets      0.95%             0.98%        1.01% Return on average             8.10%             8.06%        13.13% stockholders' equity Net interest margin           3.93%             3.89%        4.01% Efficiency ratio (1)          48.1%             48.6%        48.3%                                                                                           As of                               September 30,     June 30,     September 30,                               2013              2013         2012 Capital ratios:                                              Leverage ratio                11.76%            12.19%       7.96% Risk-based Tier 1 capital     12.86%            13.69%       9.52% ratio Risk-based total capital      14.29%            15.11%       10.77% ratio Tangible common equity to     11.24%            12.07%       7.92% tangible assets                                                             Annualized net loan charge-offs as a % of average  0.25%             0.26%        0.00% loans                                                             Tangible book value per common $24.95          $24.76     $22.15 share                                                             Asset quality:                                               Nonaccrual loans              $8,822          $9,545     $5,622 Other real estate owned       1,303            433         -- Total non-performing assets   $10,125         $9,978     $5,622                                                             Performing troubled debt      $2,942          $2,947     $4,733 restructured loans Loans past due 90 days and    539              1,189       -- still accruing                                                             Nonaccrual loans as a % of    0.86%             1.00%        0.70% loans receivable Nonperforming assets as a %   0.90%             0.97%        0.64% of total assets Allowance for loan losses as  1.42%             1.46%        1.52% a % of loans receivable Allowance for loan losses as  166.2%            146.5%       217.9% a % of nonaccrual loans                                                             (1) Efficiency ratio is not a measure recognized under generally accepted accounting principles and is defined as total non-interest expenses divided by the sum of net interest income and total non-interest income (excluding securities gains/(losses)).                                                                                                                                      CONNECTONE BANCORP,                                                INC. NET INTEREST MARGIN ANALYSIS ON A                                   FULLY TAX EQUIVALENT BASIS (dollars in                                                        thousands)                     For the Three Months Ended                     September 30, 2013            September 30, 2012                     Average             Average Average           Average Interest-earning     Balance      Interest Rate    Balance    Interest Rate assets:                                    (7)                         (7) Investment           $28,589    $218   3.03%   $28,982  $311   4.27% securities (1) (2) Loans receivable (3) 994,722     11,923  4.76%   767,164   9,955   5.16% (4) Interest-bearing     42,812      25      0.23%   62,394    23      0.15% deposits with banks Total interest-earning     1,066,123   12,166  4.53%   858,540   10,289  4.77% assets Allowance for loan   (14,393)                   (11,655)           losses Non-interest earning 28,008                     21,826             assets Total assets        $1,079,738                $868,711                                                                            Interest-bearing                                                   liabilities: Savings, NOW, Money Market, Interest     $336,980   242     0.28%   $306,516 311     0.40% Checking Time deposits        342,719     973     1.13%   213,744   903     1.68% Total interest-bearing     679,699     1,215   0.71%   520,260   1,214   0.93% deposits                                                                   Borrowings           81,218      346     1.69%   77,871    349     1.78% Capital lease        3,141       47      5.94%   3,233     48      5.91% obligation Total interest-bearing     764,058     1,608   0.83%   601,364   1,611   1.07% liabilities Noninterest-bearing  183,381                    125,723            deposits Other liabilities    5,626                      3,230              Stockholders' equity 126,673                    66,645             Total liabilities and stockholders'    $1,079,738                $796,962          equity                                                                   Net interest                      $ income/interest rate             10,558   3.69%             $8,678 3.70% spread (5) Tax equivalent                   (8)                      --       affect Net interest income,             $                        $8,678  as reported                       10,550                                                                   Net interest margin                      3.93%                     4.01% (6)                                                                   (1) Average balances are calculated on amortized cost. (2) Interest income is presented on a tax equivalent basis using a 35 percent federal tax rate. (3) Includes loan fee income. (4) Loans receivable include non-accrual 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 fully tax equivalent basis. (6) Represents net interest income divided by average total interest-earning assets. (7) Rates are annualized.                                                                                                                                      CONNECTONE BANCORP,                                                INC. NET INTEREST MARGIN ANALYSIS ON A                                   FULLY TAX EQUIVALENT BASIS (dollars in                                                        thousands)                     For the Nine Months Ended                     September 30, 2013            September 30, 2012                     Average             Average Average           Average Interest-earning     Balance      Interest Rate    Balance    Interest Rate assets:                                    (7)                         (5) Investment           $26,747    $592   2.96%   $32,589  $833   3.41% securities (1) (2) Loans receivable (3) 931,145     33,758  4.85%   718,270   29,076  5.41% (4) Interest-bearing     52,403      80      0.20%   42,869    53      0.17% deposits with banks Total interest-earning     1,010,295   34,430  4.56%   793,728   29,962  5.04% assets Allowance for loan   (13,955)                   (10,721)           losses Non-interest earning 21,953                     23,019             assets Total assets        $1,018,293                $806,026                                                                            Interest-bearing                                                   liabilities: Savings, NOW, Money Market, Interest     $332,451   758     0.30%   $307,671 1,101   0.48% Checking Time deposits        308,581     2,752   1.19%   218,112   2,478   1.52% Total interest-bearing     641,032     3,510   0.73%   525,783   3,579   0.91% deposits                                                                   Borrowings           78,079      1,010   1.73%   76,728    1,001   1.74% Capital lease        3,160       142     6.01%   3,233     145     5.99% obligation Total interest-bearing     722,271     4,662   0.86%   605,744   4,725   1.04% liabilities Noninterest-bearing  181,641                    130,617            deposits Other liabilities    4,725                      4,139              Stockholders' equity 109,656                    65,526             Total liabilities and stockholders'    $1,018,293                $806,026          equity                                                                                                                                     Net interest                      $                          $ income/interest rate             29,768   3.69%             25,237   4.00% spread (5) Tax equivalent                   (8)                      --       affect Net interest income,             $                        $        as reported                       29,760                      25,237                                                                   Net interest margin                      3.94%                     4.25% (6)                                                                   (1) Average balances are calculated on amortized cost. (2) Interest income is presented on a tax equivalent basis using a 35 percent federal tax rate. (3) Includes loan fee income. (4) Loans receivable include non-accrual 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 fully tax equivalent basis. (6) Represents net interest income divided by average total interest-earning assets. (7) Rates are annualized.  CONTACT: Investor Contact:          William S. Burns          Executive VP & CFO          201.816.4474; bburns@cnob.com                   Media Contact:          Rachel Gerber, MWW          646.215.6889; rgerber@mww.com  
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