ENGLEWOOD CLIFFS, N.J., Oct. 26, 2017 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq:CNOB) (the "Company" or "ConnectOne"), parent company of ConnectOne Bank (the "Bank"), today reported net income of $13.1 million for the third quarter of 2017 compared with $7.7 million for the second quarter of 2017 and $11.9 million earned during the third quarter of 2016.  Diluted earnings per share were $0.41 for the current quarter versus $0.24 earned in the second quarter of 2017 and $0.39 earned in the third quarter of 2016.

Earnings per share, adjusted for charges related to the taxi medallion portfolio and securities gains, amounted to $0.46 for the third quarter of 2017, as compared with $0.42 for the second quarter of 2017 and $0.40 for the third quarter of 2016. Taxi medallion pretax charges/provisions amounted to $3.0 million, $9.7 million, and $4.8 million during the third quarter 2017, second quarter 2017 and third quarter 2016, respectively. A $4.1 million pretax securities gain was realized during the third quarter of 2016.

Frank Sorrentino, ConnectOne's Chairman and CEO stated, "Third quarter operating results reflect increasing strong core performance, with return on tangible equity (excluding taxi medallion charges) surpassing 14%.   Key business drivers showed continued momentum with deposit and loan growth achieving near-historic levels. Loans receivable increased by $128 million during the quarter, including non-CRE loans which increased in excess of 20% annualized.  Loan growth since year-end 2016 amounted to $413.5 million or 15.8% on an annualized basis. In addition, we designated approximately $42 million of performing multifamily "non-relationship" loans as held-for-sale, which is anticipated to close in the fourth quarter of 2017 and would result in a modest gain and help to further diversify our loan portfolio.  We also achieved strong progress in increasing core deposits.  For the current quarter, our average core deposits (total deposits excluding time deposits) increased by $125 million, or 20.9% on an annualized basis.  Return on assets for the third quarter, including $3.0 million of taxi charges, was 1.10% and return on tangible equity was 12.8%. When excluding the aforementioned taxi charges, the adjusted return on assets and return on tangible equity was 1.25% and 14.5%, respectively, while our 3.44% net interest margin for the quarter is stabilizing and our efficiency ratio improved to below 40%."

Mr. Sorrentino added, "Operationally, we are expanding our deposit gathering initiatives with the opening of our first commercial banking office on Long Island, located on the Nassau/Suffolk border in Melville, NY. The new office is the Bank's second location in New York State and enables ConnectOne to further provide best in class service to existing NY-based customers while also fostering new relationships on Long Island.  ConnectOne has long worked with businesses in the New York metropolitan area to help them reach their goals and grow. Two years ago, we opened our first New York branch in Manhattan, and quickly realized the need for institutions with ConnectOne's capabilities as a larger bank that can also provide the one-on-one service we specialize in. Our expansion to Long Island is a natural extension of our market focus."

Mr. Sorrentino continued, "Looking ahead, we remain focused on driving shareholder return by executing against key strategic objectives including diversified loan growth, core deposit funding to match growth, and leveraging our infrastructure through economies of scale and technological advancements.  In addition, strong earnings retention is funding balance sheet growth in excess of 10%. We are diligently building a stronger company and our third quarter and year-to-date results demonstrate our commitment to and success in achieving these goals."

Operating Results

Fully taxable equivalent net interest income for the third quarter of 2017 was $37.9 million, an increase of $2.1 million, or 5.8%, from the second quarter of 2017, resulting from an increase in average interest-earning assets of 5.0% combined with a little-changed net interest margin, which contracted by 1 basis-point to 3.44% from 3.45%.  Included in net interest income was accretion and amortization of purchase accounting adjustments of $0.3 million during both the third and second quarters of 2017.  Excluding purchase accounting adjustments, the adjusted net interest margin was 3.41% in the third quarter of 2017, contracting by 1 basis-point from the second quarter 2017 adjusted net interest margin of 3.42%. The decrease in net interest margin was primarily attributable to increased deposit funding costs, offset by higher yields on loans. 

Fully taxable equivalent net interest income for the third quarter of 2017 increased by $4.2 million, or 12.3%, from the third quarter of 2016, resulting from an increase in average interest-earning assets of 8.4% and the widening of the net interest margin by 12 basis-points to 3.44% from 3.32%. Included in net interest income was accretion and amortization of purchase accounting adjustments of $0.3 million and $1.0 million during the third quarter of 2017 and 2016, respectively.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.41% in the third quarter of 2017, widening by 19 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 a higher volume of loans which reduced excess cash balances resulting in an improved asset-mix, partially offset by increased cost in deposit funding and lower yields on securities.   

Noninterest income totaled $1.8 million in the third quarter of 2017, $1.4 million in the second quarter of 2017 and $5.6 million in the third quarter of 2016.  There were no net securities gains during the third and second quarters of 2017. The third quarter of 2016 included net securities gains of $4.1 million.  Excluding the securities gains, noninterest income increased approximately $0.3 million when compared to the sequential quarter and the prior year third quarter.  The increase was due primarily to a bank owned life insurance death benefit recorded during the third quarter of 2017. 

Noninterest expenses totaled $18.6 million for the third quarter of 2017, down $6.7 million from $25.3 million for the second quarter of 2017 and up $4.1 million from $14.6 million for the third quarter of 2016.  The decrease from the sequential quarter was mainly attributable to the valuation allowance adjustment on taxi medallion loans held-for-sale, which declined to $3.0 million in the current quarter from $9.7 million in the second quarter of 2017.  The increase in noninterest expenses from the prior year third quarter was mainly attributable to the aforementioned $3.0 million taxi medallion valuation allowance; there was no valuation allowance in the prior year's period.  In addition, increases in salaries and employee benefits ($1.1 million), FDIC insurance premiums ($0.1 million), data processing ($0.2 million), partially offset by decreases in other expense ($0.2 million) and occupancy and equipment expenses ($0.1 million) contributed to the overall increase in noninterest expense from the third quarter of 2016.  The increases over the prior year third quarter were the result of increased levels of business and staff resulting from organic growth.

Income tax expense was $5.6 million for the third quarter of 2017, compared to $2.1 million for the second quarter of 2017 and $5.4 million for the third quarter of 2016.  Included in income tax expense for the first nine months of 2017 is a benefit of $180 thousand, which resulted from the effect of implementing ASU 2016-09, which relates to the recognition of excess tax benefits in the income statement (formerly through equity) that result from employee share-based payment awards. The effective tax rate for the current quarter was 30.0% versus 21.4% for the sequential quarter and 31.5% for the prior year third quarter.  Excluding any changes to the taxi medallion valuation allowance, the effective tax rate for 2017 is expected to be maintained in the low 30% range.

Asset Quality

The provision for loan losses was $1.5 million in both the third and second quarters of 2017, down from $6.8 million in the third quarter of 2016.  The decrease from the prior year quarter was largely attributable to a lower level of specific credit reserves.

As of September 30, 2017, loans held-for-sale included loans secured by NYC taxi medallions, predominantly corporate medallions totaling $47.4 million (net of a $15.3 million valuation allowance), compared to $65.6 million (with no valuation allowance) as of December 31, 2016.  The decrease was primarily attributable to the aforementioned taxi medallion valuation allowance and a payoff of two corporate medallions for $1.1 million.  The increase of the valuation allowance to $15.3 million compared to year-end 2016 was the result of reduced medallion lease revenues, lower transfer valuations as reported by the New York City Taxi and Limousine Commission, and uncertainty surrounding institutional investor interest in the NYC taxi business. The valuation allowance results in a per medallion value of approximately $348,000 as of September 30, 2017, down from approximately $374,000 as of June 30, 2017.  Management continues to find market interest for taxi medallion loans to be extremely limited, especially for relatively smaller portfolios such as the Bank's.  Management is however experiencing continued success at restructuring loans in the portfolio and is encouraged by the cash flows being generated.  Therefore, Management is currently considering returning the taxi medallion loans to loans held-for-investment.  Although no decision has been made at the present time, if the loans are transferred back, they will be recorded at the held-for-sale valuation at the time of transfer.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $61.2 million at September 30, 2017, $69.4 million at December 31, 2016 and $12.1 million at September 30, 2016. Included in nonperforming assets were taxi medallion loans, totaling $47.4 million at September 30, 2017, $63.0 million at December 31, 2016 and $3.6 million at September 30, 2016.  Nonperforming assets as a percentage of total assets were 1.26% at September 30, 2017, 1.57% at December 31, 2016, and 0.28% at September 30, 2016.  Excluding the taxi medallion loans, nonaccrual loans increased to $13.8 million at September 30, 2017, from $5.7 million at December 31, 2016 and $7.9 million at September 30, 2016.  Nonaccrual loans as a percentage of loans receivable, excluding taxi medallion loans, were 0.35% at September 30, 2017, 0.16% at December 31, 2016 and 0.24% at September 30, 2016.

The net charge-off (recovery) ratio was (0.00)% for the third quarter of 2017, (0.01)% for the second quarter of 2017 and 0.22% for the third quarter of 2016. The allowance for loan losses represented 0.77%, 0.74%, and 1.09% of loans receivable as of September 30, 2017, December 31, 2016 and September 30, 2016, respectively.  The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 217.2% as of September 30, 2017, 449.0% as of December 31, 2016 and 319.3% as of September 30, 2016.

Selected Balance Sheet Items

At September 30, 2017, the Company's total assets were $4.8 billion, an increase of $418 million from December 31, 2016. Loans receivable at September 30, 2017 were $3.9 billion, reflecting net loan growth (loan originations less pay-downs and pay-offs) of $413 million from December 31, 2016, primarily attributable to increases in multifamily ($280 million), other commercial real estate ($100 million), commercial and industrial ($88 million), and residential real estate ($32 million), offset by decreases in construction ($87 million).

The Company's stockholders' equity was $558 million at September 30, 2017, an increase of $26.7 million from December 31, 2016. The increase in stockholders' equity was primarily attributable to an increase of $25.4 million in retained earnings and approximately $1.4 million of equity issuance related to stock-based compensation.  As of September 30, 2017, the Company's tangible common equity ratio and tangible book value per share were 8.71% and $12.78, respectively.  As of December 31, 2016, the tangible common equity ratio and tangible book value per share were 8.93% and $11.96, respectively. Total goodwill and other intangible assets were approximately $148 million and $149 million as of September 30, 2017 and December 31, 2016, respectively.

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.

Third Quarter 2017 Conference Call

Management will host a conference call and audio webcast at 10:00 a.m. ET on October 26, 2017 to review the Company's financial performance and operating results.  The conference call dial-in number is 785-424-1809, access code 6217589. 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 Company's website at  ir.ConnectOneBank.com. 

A replay of the conference call will be available beginning at approximately 1:00 p.m. ET on Thursday, October 26, 2017 and ending on Thursday, November 2, 2017 by dialing 719-457-0820, access code 6217589. An online archive of the webcast will be available following the completion of the conference call at  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 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.

Investor Contact:

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

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

 
C ONNECT O NE B ANCORP, I NC. AND S UBSIDIARIES   
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION   
(in thousands)   
             
  September 30,   December 31,   September 30,  
    2017       2016       2016    
ASSETS (unaudited)       (unaudited)  
Cash and due from banks $ 41,114     $ 37,150     $ 49,028    
Interest-bearing deposits with banks   100,148       163,249       184,766    
Cash and cash equivalents   141,262       200,399       233,794    
             
Securities available-for-sale   400,516       353,290       338,459    
             
Loans held-for-sale (net of $15,287, $-0-, $-0- valuation allowance)   89,386       78,005       15,112    
             
Loans receivable   3,889,289       3,475,832       3,445,476    
Less: Allowance for loan losses   29,870       25,744       37,615    
Net loans receivable   3,859,419       3,450,088       3,407,861    
             
Investment in restricted stock, at cost   29,672       24,310       24,535    
Bank premises and equipment, net   21,917       22,075       22,112    
Accrued interest receivable   14,841       12,965       12,497    
Bank owned life insurance   110,762       98,359       97,644    
Other real estate owned   -       626       626    
Goodwill   145,909       145,909       145,909    
Core deposit intangibles   2,533       3,088       3,281    
Other assets   28,538       37,234       25,974    
Total assets $ 4,844,755     $ 4,426,348     $ 4,327,804    
             
LIABILITIES            
Deposits:            
Noninterest-bearing $ 719,582     $ 694,977     $ 655,683    
Interest-bearing   2,904,187       2,649,294       2,613,266    
Total deposits   3,623,769       3,344,271       3,268,949    
Borrowings   585,124       476,280       481,337    
Subordinated debentures (net of $498, $621, $665 in debt issuance costs)   54,657       54,534       54,490    
Other liabilities   23,514       20,231       23,440    
Total liabilities   4,287,064       3,895,316       3,828,216    
             
COMMITMENTS AND CONTINGENCIES            
             
STOCKHOLDERS' EQUITY            
Common stock   412,546       412,726       374,287    
Additional paid-in capital   12,840       11,407       10,409    
Retained earnings   151,851       126,462       130,885    
Treasury stock   (16,717 )     (16,717 )     (16,717 )  
Accumulated other comprehensive (loss) income   (2,829 )     (2,846 )     724    
Total stockholders' equity   557,691       531,032       499,588    
Total liabilities and stockholders' equity $ 4,844,755     $ 4,426,348     $ 4,327,804    
             

 
CONNECTONE BANCORP, INC. AND SUBSIDIARIES       
CONSOLIDATED STATEMENTS OF INCOME       
(in thousands, except for per share data)       
                     
    Three Months Ended       Nine Months Ended        
  09/30/17   09/30/16   09/30/17   09/30/16      
Interest income                    
Interest and fees on loans $ 43,241   $ 37,803   $ 121,879   $ 109,381      
Interest and dividends on investment securities:                    
Taxable   1,695     1,774     5,042     5,879      
Tax-exempt   870     988     2,655     2,867      
Dividends   362     352     982     1,074      
Interest on federal funds sold and other short-term investments   170     261     555     541      
Total interest income   46,338     41,178     131,113     119,742      
Interest expense                    
Deposits   6,113     5,159     16,717     13,532      
Borrowings   3,206     2,995     9,135     9,472      
Total interest expense   9,319     8,154     25,852     23,004      
                     
Net interest income   37,019     33,024     105,261     96,738      
Provision for loan losses   1,450     6,750     4,000     13,500      
Net interest income after provision for loan losses   35,569     26,274     101,261     83,238      
                     
Noninterest income                    
Annuities and insurance commissions   -     68     39     140      
Income on bank owned life insurance   985     615     2,402     1,843      
Net gains on sale of loans held-for-sale   50     56     120     147      
Deposit, loan and other income   721     706     2,023     1,984      
Net gains on sale of investment securities   -     4,131     1,596     4,234      
Total noninterest income   1,756     5,576     6,180     8,348      
                     
Noninterest expenses                    
Salaries and employee benefits   8,872     7,791     25,710     23,143      
Occupancy and equipment   1,969     2,049     6,215     6,450      
FDIC insurance   840     745     2,550     1,955      
Professional and consulting   740     667     2,192     2,078      
Marketing and advertising   225     293     770     817      
Data processing   1,176     1,002     3,474     3,036      
Amortization of core deposit intangible   169     193     555     627      
Increase in valuation allowance, loans held-for-sale   3,000     -     15,325     -      
Other expenses   1,650     1,811     5,402     5,150      
Total noninterest expenses   18,641     14,551     62,193     43,256      
                     
Income before income tax expense   18,684     17,299     45,248     48,330      
Income tax expense   5,607     5,443     12,608     15,224      
Net income   13,077     11,856     32,640     33,106      
Less: Preferred stock dividends   -     -     -     22      
Net income available to common stockholders $ 13,077   $ 11,856   $ 32,640   $ 33,084      
                     
Earnings per common share:                    
Basic $ 0.41   $ 0.39   $ 1.02   $ 1.10      
Diluted   0.41     0.39     1.01     1.09      
                     
Dividends per common share $ 0.075   $ 0.075   $ 0.225   $ 0.225      

 
ConnectOne's management believes that the supplemental financial information, including non-GAAP measures provided below, is useful to investors. The non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP financial measures presented by other companies.     
                       
C ONNECT O NE B ANCORP, I NC.     
SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES     
  As of    
  Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,    
    2017       2017       2017       2016       2016      
Selected Financial Data (dollars in thousands)    
Total assets $ 4,844,755     $ 4,681,280     $ 4,460,816     $ 4,426,348     $ 4,327,804      
Loans receivable:                      
Commercial   641,613       610,442       541,690       554,065       644,430      
Commercial real estate-other   1,254,720       1,218,995       1,192,074       1,154,154       1,139,641      
Multifamily   1,330,485       1,251,962       1,134,760       1,050,067       961,163      
Commercial construction   399,453       431,049       460,611       486,228       471,109      
Residential   264,244       251,108       242,883       232,547       229,401      
Consumer   1,912       2,005       2,811       2,380       2,879      
Gross loans   3,892,427       3,765,561       3,574,829       3,479,441       3,448,623      
Unearned net origination fees   (3,138 )     (3,989 )     (3,166 )     (3,609 )     (3,147 )    
Loans receivable   3,889,289       3,761,572       3,571,663       3,475,832       3,445,476      
Loans held-for-sale (net of valuation allowance)   89,386       51,124       62,255       78,005       15,112      
Total loans $ 3,978,675     $ 3,812,696     $ 3,633,918     $ 3,553,837     $ 3,460,588      
                       
Securities available-for-sale $ 400,516     $ 402,130     $ 352,476     $ 353,290     $ 338,459      
Goodwill and other intangible assets   148,442       148,611       148,804       148,997       149,190      
Deposits:                      
Noninterest-bearing demand   719,582       695,522       671,183       694,977       655,683      
Other interest-bearing deposits   1,825,828       1,752,523       1,714,081       1,681,158       1,605,927      
Time deposits   1,078,359       982,328       970,213       968,136       1,007,339      
Total deposits $ 3,623,769     $ 3,430,373     $ 3,355,477     $ 3,344,271     $ 3,268,949      
                       
Borrowings $ 585,124     $ 626,173     $ 491,226     $ 476,280     $ 481,337      
Subordinated debentures (net of issuance costs)   54,657       54,616       54,575       54,534       54,490      
Total stockholders' equity   557,691       546,173       540,277       531,032       499,588      
                       
Quarterly Average Balances                      
Total assets $ 4,714,012     $ 4,495,573     $ 4,382,314     $ 4,349,961     $ 4,344,796      
Loans receivable:                      
Commercial   671,525       603,733       557,347       644,263       632,892      
Commercial real estate (including multifamily)   2,502,846       2,337,499       2,222,795       2,130,955       2,081,741      
Commercial construction   418,439       451,038       466,455       479,342       462,399      
Residential   255,755       246,864       237,418       229,738       229,953      
Consumer   2,555       2,929       2,460       2,777       2,771      
Gross loans   3,851,120       3,642,063       3,486,475       3,487,075       3,409,756      
Unearned net origination fees   (3,724 )     (3,967 )     (3,304 )     (3,151 )     (2,956 )    
Loans receivable   3,847,396       3,638,096       3,483,171       3,483,924       3,406,800      
Loans held-for-sale   51,008       61,259       65,860       4,549       478      
Total loans $ 3,898,404     $ 3,699,355     $ 3,549,031     $ 3,488,473     $ 3,407,278      
                       
Securities available-for-sale   398,635       391,965       367,940       351,809       269,895      
Securities held-to-maturity   -       -       -       -       143,146      
Goodwill and other intangible assets   148,553       148,737       148,930       149,123       149,317      
Deposits:                      
Noninterest-bearing demand   688,707       667,461       655,597       666,913       640,323      
Other interest-bearing deposits   1,816,162       1,712,875       1,706,991       1,631,368       1,637,500      
Time deposits   1,005,997       976,012       963,976       985,944       1,007,530      
Total deposits $ 3,510,866     $ 3,356,348     $ 3,326,564     $ 3,284,225     $ 3,285,353      
                       
Borrowings $ 570,711     $ 514,161     $ 442,595     $ 476,925     $ 488,015      
Subordinated debentures   55,155       55,155       55,155       55,155       55,155      
Total stockholders' equity   556,620       549,748       539,544       511,663       495,141      
                       
  Three Months Ended    
  Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,    
    2017       2017       2017       2016       2016      
    (dollars in thousands, except for per share data)      
Net interest income $ 37,019     $ 35,101     $ 33,141     $ 33,407     $ 33,024      
Provision for loan losses   1,450       1,450       1,100       25,200       6,750      
Net interest income after provision for loan losses   35,569       33,651       32,041       8,207       26,274      
Noninterest income                      
Annuity and insurance commissions   -       -       39       51       68      
Income on bank owned life insurance   985       714       703       715       615      
Net gains on sale of loans held-for-sale   50       49       21       86       56      
Deposit, loan and other income   721       659       643       721       706      
Net gains on sale of investment securities   -       -       1,596       -       4,131      
Total noninterest income   1,756       1,422       3,002       1,573       5,576      
Noninterest expenses                      
Salaries and employee benefits   8,872       8,632       8,206       7,888       7,791      
Occupancy and equipment   1,969       1,991       2,255       2,122       2,049      
FDIC insurance   840       815       895       985       745      
Professional and consulting   740       734       718       901       667      
Marketing and advertising   225       289       256       222       293      
Data processing   1,176       1,149       1,149       1,106       1,002      
Amortization of core deposit intangible   169       193       193       193       193      
Increase in valuation allowance, loans held-for-sale   3,000       9,725       2,600       -       -      
Other expenses   1,650       1,775       1,977       1,835       1,811      
Total noninterest expenses   18,641       25,303       18,249       15,252       14,551      
                       
Income (loss) before income tax expense   18,684       9,770       16,794       (5,472 )     17,299      
Income tax expense (benefit)   5,607       2,087       4,914       (3,448 )     5,443      
Net income (loss) available to common stockholders $ 13,077     $ 7,683     $ 11,880     $ (2,024 )   $ 11,856      
                       
Reconciliation of GAAP Earnings to Earnings Excluding Net Securities Gains and Expenses Related to the Taxi Medallion Loans Portfolio                      
Net income (loss) available to common stockholders $ 13,077     $ 7,683     $ 11,880     $ (2,024 )   $ 11,856      
Net gains on sales of securities (after taxes)   -       -       (1,093 )     -       (2,643 )    
Provision related to taxi medallion loans (after taxes)   -       -       -       14,196       2,958      
Increase in valuation allowance, loans held-for-sale (after taxes)   1,776       5,719       1,538       -       -      
Net income available to common stockholders-adjusted $ 14,853     $ 13,402     $ 12,325     $ 12,172     $ 12,171      
Weighted average diluted shares outstanding   32,182,016       32,255,770       32,192,643       30,729,359       30,401,684      
Diluted EPS (GAAP) $ 0.41     $ 0.24     $ 0.37     $ (0.07 )   $ 0.39      
Diluted EPS-adjusted (non-GAAP) (1)   0.46       0.42       0.38       0.40       0.40      
                       
Return on Assets Measures                      
Net income available to common stockholders-adjusted $ 14,853     $ 13,402     $ 12,325     $ 12,172     $ 12,171      
                       
Average assets $ 4,714,012     $ 4,495,573     $ 4,382,314     $ 4,349,961     $ 4,344,796      
Less: average intangible assets   (148,553 )     (148,737 )     (148,930 )     (149,123 )     (149,317 )    
Average tangible assets $ 4,565,459     $ 4,346,836     $ 4,233,384     $ 4,200,838     $ 4,195,479      
Return on avg. assets (GAAP)   1.10   %   0.69   %   1.10   %   (0.19 ) %   1.09   %  
Return on avg. assets-adjusted (non-GAAP) (2)   1.25       1.20       1.14       1.11       1.11      
Return on avg. tangible assets (non-GAAP) (3)   1.15       0.72       1.15       (0.18 )     1.14      
Return on avg. tangible assets-adjusted (non-GAAP) (4)   1.30       1.25       1.19       1.16       1.16      
__________________                      
(1) Adjusted net income available to common stockholders divided by weighted average diluted shares outstanding.     
(2) Adjusted net income available to common stockholders divided by average assets.     
(3) Net income available to common stockholders excluding amortization of intangible assets divided by average tangible assets.     
(4) Adjusted net income available to common stockholders excluding amortization of intangible assets divided by average tangible assets.     
                       
  Three Months Ended    
  Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,    
    2017       2017       2017       2016       2016      
Return on Equity Measures (dollars in thousands)    
Net income available to common stockholders-adjusted $ 14,853     $ 13,402     $ 12,325     $ 12,172     $ 12,171      
                       
Average common equity $ 556,620     $ 549,748     $ 539,544     $ 511,663     $ 495,141      
Less: average intangible assets   (148,553 )     (148,737 )     (148,930 )     (149,123 )     (149,317 )    
Average tangible common equity $ 408,067     $ 401,011     $ 390,614     $ 362,540     $ 345,824      
                       
Return on avg. common equity (GAAP)   9.32   %   5.61   %   8.93   %   (1.57 ) %   9.53   %  
Return on avg. common equity-adjusted (non-GAAP) (5)   10.59       9.78       9.26       9.46       9.78      
Return on avg. tangible common equity (non-GAAP) (6)   12.81       7.80       12.45       (2.10 )     13.77      
Return on avg. tangible common equity-adjusted (non-GAAP) (7)   14.54       13.52       12.91       13.48       14.13      
                       
Efficiency Measures                      
Total noninterest expenses $ 18,641     $ 25,303     $ 18,249     $ 15,252     $ 14,551      
Increase in valuation allowance, loans held-for-sale   (3,000 )     (9,725 )     (2,600 )     -       -      
Foreclosed property expense   (46 )     (71 )     (100 )     (81 )     (37 )    
Operating noninterest expense $ 15,595     $ 15,507     $ 15,549     $ 15,171     $ 14,514      
                       
Net interest income (tax equivalent basis) $ 37,929     $ 35,839     $ 33,956     $ 34,120     $ 33,762      
Noninterest income   1,756       1,422       3,002       1,573       5,576      
Net gains on sales of investment securities   -       -       (1,596 )     -       (4,131 )    
Operating revenue $ 39,685     $ 37,261     $ 35,362     $ 35,693     $ 35,207      
                       
Operating efficiency ratio (non-GAAP) (8)   39.3   %   41.6   %   44.0   %   42.5   %   41.2   %  
                       
Net Interest Margin                      
Average interest-earning assets $ 4,378,537     $ 4,168,344     $ 4,053,324     $ 4,038,030     $ 4,041,020      
                       
Net interest income (tax equivalent basis) $ 37,929     $ 35,839     $ 33,956     $ 34,120     $ 33,762      
Impact of purchase accounting fair value marks   (317 )     (316 )     (649 )     (960 )     (1,045 )    
Adjusted net interest income $ 37,612     $ 35,523     $ 33,307     $ 33,160     $ 32,717      
                       
Net interest margin (GAAP)   3.44   %   3.45   %   3.40   %   3.36   %   3.32   %  
Adjusted net interest margin (non-GAAP) (9)   3.41       3.42       3.33       3.27       3.22      
_____________                      
(5) Adjusted net income available to common stockholders divided by average common equity.     
(6) Net income available to common stockholders excluding amortization of intangibles assets divided by average tangible common equity.     
(7) Adjusted net income available to common stockholders divided by average tangible common equity.     
(8) Operating noninterest expense divided by operating revenue.     
(9) Adjusted net interest income divided by average interest-earning assets.     
                       
  As of    
  Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,    
    2017       2017       2017       2016       2016      
Capital Ratios and Book Value per Share (dollars in thousands, except for per share data)    
Common equity $ 557,691     $ 546,173     $ 540,277     $ 531,032     $ 499,588      
Less: intangible assets   (148,442 )     (148,611 )     (148,804 )     (148,997 )     (149,190 )    
Tangible common equity $ 409,249     $ 397,562     $ 391,473     $ 382,035     $ 350,398      
                       
Total assets $ 4,844,755     $ 4,681,280     $ 4,460,816     $ 4,426,348     $ 4,327,804      
Less: intangible assets   (148,442 )     (148,611 )     (148,804 )     (148,997 )     (149,190 )    
Tangible assets $ 4,696,313     $ 4,532,669     $ 4,312,012     $ 4,277,351     $ 4,178,614      
                       
Common shares outstanding   32,015,317       32,015,317       32,004,471       31,944,403       30,197,318      
                       
Common equity ratio (GAAP)   11.51   %   11.67   %   12.11   %   12.00   %   11.54   %  
Tangible common equity ratio (non-GAAP) (10)   8.71       8.77       9.08       8.93       8.39      
                       
Regulatory capital ratios (Bancorp):                      
Leverage ratio   9.13   %   9.33   %   9.44   %   9.29   %   8.49   %  
Common equity tier 1 risk-based ratio   9.40       9.48       9.79       9.74       9.25      
Risk-based tier 1 capital ratio   9.52       9.60       9.92       9.87       9.38      
Risk-based total capital ratio   11.34       11.46       11.83       11.78       11.69      
Regulatory capital ratios (Bank):                      
Leverage ratio   10.11   %   10.34   %   10.50   %   10.34   %   9.57   %  
Common equity tier 1 risk-based ratio   10.54       10.64       11.03       10.98       10.58      
Risk-based tier 1 capital ratio   10.54       10.64       11.03       10.98       10.58      
Risk-based total capital ratio   11.22       11.32       11.70       11.63       11.57      
                       
Book value per share (GAAP) $ 17.42     $ 17.06     $ 16.88     $ 16.62     $ 16.54      
Tangible book value per share (non-GAAP) (11)   12.78       12.42       12.23       11.96       11.60      
                       
Net Loan Charge-offs Detail                      
Net loan charge-offs (recoveries):                      
Charge-offs $ -     $ 10     $ 72     $ 37,074     $ 1,910      
Recoveries   (20 )     (60 )     (129 )     (2 )     (12 )    
Net loan charge-offs $ (20 )   $ (50 )   $ (57 )   $ 37,072     $ 1,898      
Net loan charge-offs as a % of average total loans (annualized)   (0.00 ) %   (0.01 ) %   (0.01 ) %   4.23   %   0.22   %  
                       
Asset Quality                      
Nonaccrual taxi medallion loans $ 47,430     $ 48,884     $ 59,054     $ 63,044     $ 3,637      
Nonaccrual loans (excluding taxi medallion loans)   13,755       14,055       12,790       5,734       7,856      
Other real estate owned   -       580       580       626       626      
Total nonperforming assets $ 61,185     $ 63,519     $ 72,424     $ 69,404     $ 12,119      
                       
Performing troubled debt restructurings $ 12,749     $ 10,221     $ 10,005     $ 13,338     $ 105,338      
                       
Allowance for loan losses ("ALLL") $ 29,870     $ 28,401     $ 26,901     $ 25,744     $ 37,615      
ALLL, net of taxi specific reserves   29,870       28,401       26,901       25,744       25,081      
                       
Nonaccrual loans as a % of loans receivable (excluding taxi medallion loans)   0.35   %   0.37   %   0.36   %   0.16   %   0.24   %  
Nonperforming assets as a % of total assets   1.26       1.36       1.62       1.57       0.28      
ALLL as a % of loans receivable   0.77       0.76       0.75       0.74       1.09      
ALLL as a % of nonaccrual loans   48.8       45.1       37.4       37.4       327.3      
ALLL (excluding taxi medallion loans specific reserves) as a % of nonaccrual loans (excluding taxi medallion loans)   217.2       202.1       210.3       449.0       319.3      
ALLL (excluding taxi medallion specific reserves) as a % of loans receivable (excluding taxi medallion loans)   0.77       0.76       0.75       0.74       0.73      
                       
Loans receivable $ 3,889,289     $ 3,761,572     $ 3,571,663     $ 3,475,832     $ 3,445,476      
Less: taxi medallion loans   -       -       -       -       (102,735 )    
Loans receivable (excluding taxi medallion loans) $ 3,889,289     $ 3,761,572     $ 3,571,663     $ 3,475,832     $ 3,342,741      
                       
Loans held-for-sale, taxi medallion loans $ 47,430     $ 50,891     $ 61,319     $ 65,596     $ -      
__________________                      
(10) Tangible common equity divided by tangible assets.     
(11) Tangible common equity divided by common shares outstanding at period-end.     

 
CONNECTONE BANCORP, INC.    
NET INTEREST MARGIN ANALYSIS    
(dollars in thousands)    
        For the Three Months Ended    
        September 30, 2017 June 30, 2017 September 30, 2016  
        Average             Average             Average            
Interest-earning assets:   Balance Interest   Rate (8)     Balance Interest   Rate (8)     Balance Interest   Rate (8)    
Investment securities (1) (2)   $ 397,077     $ 3,033     3.03 %   $ 390,462     $ 3,079     3.16 %   $ 406,802     $ 3,293     3.22 %  
Total loans (2) (3) (4)       3,898,404       43,683     4.45       3,699,355       40,921     4.44       3,407,278       38,010     4.44    
Federal funds sold and interest-                                    
bearing deposits with banks     53,820       170     1.25       52,099       139     1.07       202,106       261     0.51    
Restricted investment in bank stock     29,236         362     4.91         26,428         290     4.40         24,834         352     5.64    
Total interest-earning assets   4,378,537       47,248     4.28       4,168,344       44,429     4.28       4,041,020       41,916     4.13    
Allowance for loan losses     (28,999 )             (27,355 )             (34,052 )          
Noninterest-earning assets     364,474               354,584               337,828            
Total assets     $ 4,714,012             $ 4,495,573             $ 4,344,796            
                                           
Interest-bearing liabilities:                                      
Time deposits       1,005,997       3,593     1.42       976,012       3,311     1.36       1,007,530       3,323     1.31    
Other interest-bearing deposits     1,816,162         2,520     0.55         1,712,875         2,184     0.51         1,637,500         1,836     0.45    
Total interest-bearing deposits   2,822,159       6,113     0.86       2,688,887       5,495     0.82       2,645,030       5,159     0.78    
                                           
Borrowings       570,711       2,353     1.64       514,161       2,244     1.75       488,015       2,139     1.74    
Subordinated debentures (5)     55,155       813     5.85       55,155       810     5.89       55,155       814     5.87    
Capital lease obligation       2,688         40     5.90         2,720         41     6.05         2,814         42     5.94    
Total interest-bearing liabilities   3,450,713       9,319     1.07       3,260,923       8,590     1.06       3,191,014       8,154     1.02    
                                           
Noninterest-bearing demand deposits   688,707               667,461               640,323            
Other liabilities       17,972               17,441               18,318            
Total noninterest-bearing liabilities   706,679               684,902               658,641            
Stockholders' equity     556,620               549,748               495,141            
Total liabilities and stockholders' equity $ 4,714,012             $ 4,495,573             $ 4,344,796            
                                           
Net interest income (tax equivalent basis)       37,929                 35,839                 33,762          
Net interest spread (6)         3.21 %         3.22 %         3.11 %  
                                           
Net interest margin (7)         3.44 %         3.45 %         3.32 %  
                                           
Tax equivalent adjustment         (910 )               (738 )               (738 )        
Net interest income         $ 37,019               $ 35,101               $ 33,024          
                                           
________________________    
(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) Does not reflect netting of debt issuance costs of $525, $565 and $697 for the three months ended September 30, 2017,    
June 30, 2017 and September 30, 2016, 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.