ENGLEWOOD CLIFFS, N.J., Jan. 25, 2018 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq:CNOB) (the "Company" or "ConnectOne"), parent company of ConnectOne Bank (the "Bank"), today reported net income of $10.6 million for the fourth quarter of 2017 compared with $13.1 million for the third quarter of 2017 and a $2.0 million loss during the fourth quarter of 2016.  Diluted earnings per share were $0.33 for the current quarter versus $0.41 earned in the third quarter of 2017 and a $0.07 loss in the fourth quarter of 2016. 

Adjusted net income amounted to $16.3 million, or $0.51 earnings per share, for the fourth quarter of 2017; $14.9 million, or $0.46 earnings per share, for the third quarter of 2017; and $12.2 million, or $0.40 earnings per share, for the fourth quarter of 2016.  The fourth quarter 2017 adjusted net income excludes an estimated $5.6 million deferred tax asset ("DTA") valuation charge related to the Tax Cuts & Jobs Act of 2017 ("Tax Act"). Adjusted net income also excludes taxi medallion after-tax charges of $0.2 million for the fourth quarter 2017, $1.8 million for the third quarter of 2017, and $14.2 million for the fourth quarter 2016.

Frank Sorrentino, ConnectOne's Chairman and Chief Executive Officer stated, "We are proud to announce that ConnectOne achieved another important milestone, crossing over the $5 billion mark in total assets. Driven by organic growth, this reflects a 20.0% year-over-year increase in loans receivable, net of loan sales.  For the fourth quarter, on an annualized basis, average total deposits grew by 19.6%, essentially matching our loan growth.  Deposit pricing competition continues to be fierce; however, we have largely offset the increase in funding costs with higher yields on loans combined with strong growth in noninterest-bearing demand deposits.  Our fourth quarter 2017 adjusted net interest margin, which excludes purchase accounting accretable yield, remained essentially flat on a sequential basis at 3.42%. Meanwhile, tax reform resulted in an estimated DTA write-down of $5.6 million recorded in the fourth quarter of 2017, but will positively impact our earnings in 2018 through a significantly lower effective tax rate.  Excluding the DTA charge for the fourth quarter of 2017, return on average assets exceeded 1.30% and return on tangible common equity exceeded 15%, both record performance metrics for the Company.  We also continue to make significant strides in improving our commercial real estate ("CRE") concentration metrics.  The drivers, which have reduced the metric by approximately 60 percentage points, include continued momentum in non-CRE loan growth capabilities, the sale of approximately $50 million of non-relationship multifamily loans (which resulted in a gain on sale of approximately $550 thousand), and the previously announced $75 million subordinated debt offering completed in early January 2018." 

Mr. Sorrentino added, "We enter 2018 sharply focused on our strategic priorities and are well-positioned to continue to improve our performance and increase our competitive advantage. I am confident we will continue to attract additional bankers and support staff to our organization and will continue to invest in our infrastructure.  Our enhanced capabilities and new technologies, coupled with growth in our teams, will serve all our clients well in the coming year."

Operating Results

Fully taxable equivalent net interest income for the fourth quarter of 2017 was $40.7 million, an increase of $2.8 million, or 7.4%, from the third quarter of 2017, resulting from an increase in average interest-earning assets of 5.1% and the widening of the net interest margin to 3.51% from 3.44%.  Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.0 million and $0.3 million during the fourth and third quarters of 2017, respectively, with the increase resulting from accelerated purchase accounting income accretion.  Excluding purchase accounting adjustments, the adjusted net interest margin was 3.42% in the fourth quarter of 2017, widening by 1 basis-point from the third quarter 2017 adjusted net interest margin of 3.41%. The increase in net interest margin was primarily attributable to higher yields on loans largely offset by increased deposit funding costs. 

Fully taxable equivalent net interest income for the fourth quarter of 2017 increased by $6.6 million, or 19.4%, from the fourth quarter of 2016, resulting from an increase in average interest-earning assets of 14.0% and the widening of the net interest margin by 15 basis-points to 3.51% from 3.36%. Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.0 million during the fourth quarter of 2017 and 2016.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.42% in the fourth quarter of 2017, widening by 15 basis-points from the fourth quarter of 2016 adjusted net interest margin of 3.27%. The increase in the adjusted net interest margin was primarily attributable to a lower volume of cash balances resulting in an improved asset-mix, partially offset by increases in deposit funding costs, as well as lower yields on securities.   

Noninterest income totaled $2.0 million in the fourth quarter of 2017, $1.8 million in the third quarter of 2017 and $1.6 million in the fourth quarter of 2016.  The most recent quarter included a $0.5 million gain on sale of non-relationship multifamily loans, and the third quarter 2017 included a $0.3 million bank owned life insurance death benefit. 

Noninterest expenses totaled $16.6 million for the fourth quarter of 2017, a decrease of $2.0 million from $18.6 million for the third quarter of 2017 and an increase of $1.3 million from $15.3 million for the fourth quarter of 2016.  The decrease from the prior sequential quarter was mainly attributable to the valuation allowance adjustment on taxi medallion loans held-for-sale, which declined to $0.3 million in the current quarter from $3.0 million in the third quarter of 2017, offset by increases salaries and employee benefits, primarily bonus accruals for non-executives ($0.5 million) and other expenses ($0.2 million).  The increase in noninterest expenses from the prior year fourth quarter was mainly attributable to increases in salaries and employee benefits ($1.5 million) and a valuation allowance adjustment on taxi medallion loans held-for-sale ($0.3 million), offset by decreases in FDIC insurance expense ($0.1 million), professional and consulting ($0.2 million) and occupancy and equipment expenses ($0.2 million).  The increases over the prior year fourth quarter were the result of increased levels of business and staff resulting from organic growth.

Income tax expense was $12.7 million for the fourth quarter of 2017, compared to $5.6 million for the third quarter of 2017 and a $3.4 million benefit for the fourth quarter of 2016.  Included in income tax expense for the fourth quarter of 2017 is an estimated $5.6 million DTA valuation charge related to the Tax Act.  In addition, there was an approximately $0.2 million income tax benefit recorded during the fourth quarter of 2017, which resulted from the effect of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. At the present time, the Bank is projecting a 2018 effective tax rate of approximately 22%.

Asset Quality

The provision for loan losses was $2.0 million in the fourth quarter of 2017, $1.5 million in the third quarter of 2017 and $25.2 million in the fourth quarter of 2016.  The increase from the prior sequential quarter was largely attributable to higher loan growth.  The prior year quarter included $24.0 of provision for loan losses related to the taxi medallion loan portfolio.

During the fourth quarter of 2017, the Bank's entire taxi medallion loan portfolio was transferred back to loans held-for-investment from the held-for-sale designation.  As of December 31, 2017, the loans secured by NYC taxi medallions, predominantly corporate medallions, had a carrying value of $46.8 million, compared to $65.6 million as of December 31, 2016.  The decrease was primarily attributable to valuation adjustments related to reduced medallion lease revenues, lower transfer valuations as reported by the New York City Taxi and Limousine Commission, and overall weakness in the NYC taxi industry.  As of December 31, 2017, the medallion loans had a per medallion carrying value of $343,000, compared to $348,000 as of September 30, 2017. 

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $66.2 million at December 31, 2017, $61.2 million at September 30, 2017 and $69.4 million at December 31, 2016. Included in nonperforming assets were taxi medallion loans totaling $46.8 million at December 31, 2017, $47.4 million at September 30, 2017 and $63.0 million at December 31, 2016.  Nonperforming assets as a percentage of total assets were 1.29% at December 31, 2017, 1.26% at September 30, 2017 and 1.57% at December 31, 2016. 

Excluding the taxi medallion loans, nonaccrual loans were $18.8 million at December 31, 2017, $13.8 million at September 30, 2017 and $5.7 million at December 31, 2016.  The increase in nonaccruals from the prior sequential quarter is primarily attributable to one, well-secured, commercial real estate loan that was added to nonaccrual during the quarter, offset by two nonaccrual loans that were paid-off without loss or charge-off.  Excluding taxi medallion loans, nonaccrual loans as a percentage of loans receivable were 0.46% at December 31, 2017, 0.35% at September 30, 2017 and 0.16% at December 31, 2016.

The net charge-off ratio was 0.01% for the fourth quarter of 2017, 0.00% for the third quarter of 2017 and 4.23% for the fourth quarter of 2016. The allowance for loan losses represented 0.76%, 0.77%, and 0.74% of loans receivable as of December 31, 2017, September 30, 2017 and December 31, 2016, respectively.  The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 168.4% as of December 31, 2017, 217.2% as of September 30, 2017and 449.0% as of December 31, 2016.

Selected Balance Sheet Items

At December 31, 2017, the Company's total assets were $5.1 billion, an increase of $682 million from December 31, 2016. Loans receivable at December 31, 2017 were $4.2 billion, reflecting net loan growth (loan originations less pay-downs and pay-offs) of $696 million (includes $47 million of taxi medallion loans transferred back to loans held-for-investment) from December 31, 2016, primarily attributable to increases in multifamily ($353 million), commercial and industrial ($228 million, including the aforementioned transfer of $47 million of taxi medallion loans), other commercial real estate ($78 million), and residential real estate ($39 million), offset by a slight decrease in construction ($3 million).

The Company's stockholders' equity was $565 million at December 31, 2017, an increase of $34 million from December 31, 2016. The increase in stockholders' equity was primarily attributable to an increase of $34 million in retained earnings and approximately $2 million of equity issuance related to stock-based compensation, offset by increases in other comprehensive losses of $1 million.  As of December 31, 2017, the Company's tangible common equity ratio and tangible book value per share were 8.41% and $13.01, 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 December 31, 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.

Fourth Quarter 2017 Conference Call

Management will host a conference call and audio webcast at 10:00 a.m. ET on January 25, 2018 to review the Company's financial performance and operating results.  The conference call dial-in number is 719-457-2620, access code 1979139. 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 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, January 25, 2018 and ending on Thursday, February 1, 2018 by dialing 719-457-0820, access code 1979139. An online archive of the webcast will be available following the completion of the conference call at 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 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)      
       
  December 31, December 31,  
    2017     2016    
ASSETS      
Cash and due from banks $   52,565   $   37,150    
Interest-bearing deposits with banks     97,017       163,249    
  Cash and cash equivalents     149,582       200,399    
       
Securities available-for-sale     435,284       353,290    
       
Loans held-for-sale     24,845       78,005    
       
Loans receivable     4,171,456       3,475,832    
Less: Allowance for loan losses     31,748       25,744    
  Net loans receivable     4,139,708       3,450,088    
       
Investment in restricted stock, at cost     33,497       24,310    
Bank premises and equipment, net     21,659       22,075    
Accrued interest receivable     15,470       12,965    
Bank owned life insurance     111,311       98,359    
Other real estate owned     538       626    
Goodwill     145,909       145,909    
Core deposit intangibles     2,364       3,088    
Other assets     28,275       37,234    
  Total assets $   5,108,442   $   4,426,348    
       
LIABILITIES      
Deposits:      
  Noninterest-bearing $   776,843   $   694,977    
  Interest-bearing     3,018,285       2,649,294    
    Total deposits     3,795,128       3,344,271    
Borrowings     670,077       476,280    
Subordinated debentures (net of $456 and $621 in debt issuance costs)     54,699       54,534    
Other liabilities     23,101       20,231    
  Total liabilities     4,543,005       3,895,316    
       
COMMITMENTS AND CONTINGENCIES      
       
STOCKHOLDERS' EQUITY      
Common stock     412,546       412,726    
Additional paid-in capital     13,602       11,407    
Retained earnings     160,025       126,462    
Treasury stock     (16,717 )     (16,717 )  
Accumulated other comprehensive loss     (4,019 )     (2,846 )  
  Total stockholders' equity     565,437       531,032    
  Total liabilities and stockholders' equity $   5,108,442   $   4,426,348    
       

 
CONNECTONE BANCORP, INC. AND SUBSIDIARIES              
CONSOLIDATED STATEMENTS OF INCOME              
(in thousands, except for per share data)              
               
    Three Months Ended     Twelve Months Ended        
  12/31/17 12/31/16 12/31/17 12/31/16      
Interest income              
Interest and fees on loans $   46,945 $   38,600   $   168,824 $   147,982      
Interest and dividends on investment securities:              
Taxable     1,757     1,389       6,799     7,266      
Tax-exempt     914     959       3,569     3,827      
Dividends     439     336       1,421     1,410      
Interest on federal funds sold and other short-term investments     156     215       711     756      
Total interest income     50,211     41,499       181,324     161,241      
Interest expense              
Deposits     6,953     5,135       23,670     18,667      
Borrowings     3,450     2,957       12,585     12,429      
Total interest expense     10,403     8,092       36,255     31,096      
               
Net interest income     39,808     33,407       145,069     130,145      
Provision for loan losses     2,000     25,200       6,000     38,700      
Net interest income after provision for loan losses     37,808     8,207       139,069     91,445      
               
Noninterest income              
Annuities and insurance commissions     -     51       39     191      
Income on bank owned life insurance     779     715       3,181     2,559      
Net gains on sale of loans held-for-sale     588     86       708     232      
Deposit, loan and other income     657     721       2,680     2,704      
Net gains on sale of investment securities     -     -       1,596     4,234      
Total noninterest income     2,024     1,573       8,204     9,920      
               
Noninterest expenses              
Salaries and employee benefits     9,418     7,888       35,128     31,030      
Occupancy and equipment     1,948     2,122       8,163     8,571      
FDIC insurance     935     985       3,485     2,940      
Professional and consulting     671     901       2,863     2,979      
Marketing and advertising     226     222       996     1,040      
Data processing     1,069     1,106       4,543     4,141      
Amortization of core deposit intangible     169     193       724     820      
Increase in valuation allowance, loans held-for-sale     267     -       15,592     -      
Other expenses     1,863     1,835       7,265     6,986      
Total noninterest expenses     16,566     15,252       78,759     58,507      
               
Income before income tax expense     23,266     (5,472 )     68,514     42,858      
Income tax expense     12,686     (3,448 )     25,294     11,776      
Net income     10,580     (2,024 )     43,220     31,082      
Less: Preferred stock dividends     -     -       -     22      
Net income available to common stockholders $   10,580 $   (2,024 ) $   43,220 $   31,060      
               
Earnings per common share:              
Basic $   0.33 $   (0.07 ) $   1.35 $   1.02      
Diluted     0.33     (0.07 )     1.34     1.01      
               
Dividends per common share $   0.075 $   0.075   $   0.300 $   0.300      
               

 
ConnectOne's management believes that the supplemental financial information, including non-GAAP measures provided below, is useful to investors. The non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP financial measures presented by other companies.   
                       
C ONNECT O NE B ANCORP, I NC.                      
SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES                      
                       
                       
  As of  
  Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,    
    2017       2017       2017       2017       2016      
Selected Financial Data (dollars in thousands)  
Total assets $   5,108,442     $   4,844,755     $   4,681,280     $   4,460,816     $   4,426,348      
Loans receivable:                      
  Commercial     781,698         641,613         610,442         541,690         554,065      
  Commercial real estate     1,232,037         1,254,720         1,218,995         1,192,074         1,154,154      
  Multifamily     1,403,256         1,330,485         1,251,962         1,134,760         1,050,067      
  Commercial construction     483,216         399,453         431,049         460,611         486,228      
  Residential     271,795         264,244         251,108         242,883         232,547      
  Consumer     2,808         1,912         2,005         2,811         2,380      
  Gross loans     4,174,810         3,892,427         3,765,561         3,574,829         3,479,441      
Unearned net origination fees     (3,354 )       (3,138 )       (3,989 )       (3,166 )       (3,609 )    
  Loans receivable     4,171,456         3,889,289         3,761,572         3,571,663         3,475,832      
  Loans held-for-sale (net of valuation allowance)     24,845         89,386         51,124         62,255         78,005      
Total loans $   4,196,301     $   3,978,675     $   3,812,696     $   3,633,918     $   3,553,837      
                       
Securities available-for-sale $   435,284     $   400,516     $   402,130     $   352,476     $   353,290      
Goodwill and other intangible assets     148,273         148,442         148,611         148,804         148,997      
Deposits:                      
  Noninterest-bearing demand     776,843         719,582         695,522         671,183         694,977      
  Other interest-bearing deposits     1,838,316         1,825,828         1,752,523         1,714,081         1,681,158      
  Time deposits     1,179,969         1,078,359         982,328         970,213         968,136      
Total deposits $   3,795,128     $   3,623,769     $   3,430,373     $   3,355,477     $   3,344,271      
                       
Borrowings $   670,077     $   585,124     $   626,173     $   491,226     $   476,280      
Subordinated debentures (net of issuance costs)     54,699         54,657         54,616         54,575         54,534      
Total stockholders' equity     565,437         557,691         546,173         540,277         531,032      
                       
Quarterly Average Balances                      
Total assets $   4,917,032     $   4,714,012     $   4,495,573     $   4,382,314     $   4,349,961      
Loans receivable:                      
  Commercial     761,147         671,525         603,733         557,347         644,263      
  Commercial real estate (including multifamily)     2,566,959         2,502,846         2,337,499         2,222,795         2,130,955      
  Commercial construction     439,629         418,439         451,038         466,455         479,342      
  Residential     268,047         255,755         246,864         237,418         229,738      
  Consumer     3,849         2,555         2,929         2,460         2,777      
  Gross loans     4,039,631         3,851,120         3,642,063         3,486,475         3,487,075      
Unearned net origination fees     (3,485 )       (3,724 )       (3,967 )       (3,304 )       (3,151 )    
  Loans receivable     4,036,146         3,847,396         3,638,096         3,483,171         3,483,924      
  Loans held-for-sale     57,812         51,008         61,259         65,860         4,549      
Total loans $   4,093,958     $   3,898,404     $   3,699,355     $   3,549,031     $   3,488,473      
                       
Securities available-for-sale     417,560         398,635         391,965         367,940         351,809      
Goodwill and other intangible assets     148,383         148,553         148,737         148,930         149,123      
Deposits:                      
  Noninterest-bearing demand     712,391         688,707         667,461         655,597         666,913      
  Other interest-bearing deposits     1,855,688         1,816,162         1,712,875         1,706,991         1,631,368      
  Time deposits     1,114,670         1,005,997         976,012         963,976         985,944      
Total deposits $   3,682,749     $   3,510,866     $   3,356,348     $   3,326,564     $   3,284,225      
                       
Borrowings $   588,260     $   570,711     $   514,161     $   442,595     $   476,925      
Subordinated debentures     55,155         55,155         55,155         55,155         55,155      
Total stockholders' equity     567,308         556,620         549,748         539,544         511,663      
                       
  Three Months Ended  
  Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,    
    2017       2017       2017       2017       2016      
    (dollars in thousands, except for per share data)      
Net interest income $   39,808     $   37,019     $   35,101     $   33,141     $   33,407      
Provision for loan losses     2,000         1,450         1,450         1,100         25,200      
Net interest income after provision for loan losses     37,808         35,569         33,651         32,041         8,207      
Noninterest income                      
 Annuity and insurance commissions     -         -         -         39         51      
 Income on bank owned life insurance     779         985         714         703         715      
 Net gains on sale of loans held-for-sale     588         50         49         21         86      
 Deposit, loan and other income     657         721         659         643         721      
 Net gains on sale of investment securities     -         -         -         1,596         -      
  Total noninterest income     2,024         1,756         1,422         3,002         1,573      
Noninterest expenses                      
 Salaries and employee benefits     9,418         8,872         8,632         8,206         7,888      
 Occupancy and equipment     1,948         1,969         1,991         2,255         2,122      
 FDIC insurance     935         840         815         895         985      
 Professional and consulting     671         740         734         718         901      
 Marketing and advertising     226         225         289         256         222      
 Data processing     1,069         1,176         1,149         1,149         1,106      
 Amortization of core deposit intangible     169         169         193         193         193      
 Increase in valuation allowance, loans held-for-sale     267         3,000         9,725         2,600         -      
 Other expenses     1,863         1,650         1,775         1,977         1,835      
  Total noninterest expenses     16,566         18,641         25,303         18,249         15,252      
                       
Income (loss) before income tax expense     23,266         18,684         9,770         16,794         (5,472 )    
 Income tax expense (benefit)     12,686         5,607         2,087         4,914         (3,448 )    
Net income (loss) available to common stockholders $   10,580     $   13,077     $   7,683     $   11,880     $   (2,024 )    
                       
Reconciliation of GAAP Earnings to Earnings Excluding the Following Items:                      
Net income (loss) available to common stockholders $   10,580     $   13,077     $   7,683     $   11,880     $   (2,024 )    
Deferred tax asset valuation charge     5,574         -         -         -         -      
Net gains on sales of securities (after taxes)     -         -         -         (1,093 )       -      
Provision related to taxi medallion loans (after taxes)     -         -         -         -         14,196      
Increase in valuation allowance, loans held-for-sale (after taxes)     182         1,776         5,719         1,538         -      
Net income available to common stockholders-adjusted $   16,336     $   14,853     $   13,402     $   12,325     $   12,172      
Weighted average diluted shares outstanding     32,252,759         32,182,016         32,255,770         32,192,643         30,729,359      
Diluted EPS (GAAP) $   0.33     $   0.41     $   0.24     $   0.37     $   (0.07 )    
Diluted EPS-adjusted (non-GAAP) (1)     0.51         0.46         0.42         0.38         0.40      
                       
Return on Assets Measures                      
Net income available to common stockholders-adjusted $   16,336     $   14,853     $   13,402     $   12,325     $   12,172      
                       
Average assets $   4,917,032     $   4,714,012     $   4,495,573     $   4,382,314     $   4,349,961      
Less: average intangible assets     (148,383 )       (148,553 )       (148,737 )       (148,930 )       (149,123 )    
Average tangible assets $   4,768,649     $   4,565,459     $   4,346,836     $   4,233,384     $   4,200,838      
Return on avg. assets (GAAP)     0.85   %     1.10   %     0.69   %     1.10   %     (0.19 ) %  
Return on avg. assets-adjusted (non-GAAP) (2)     1.32         1.25         1.20         1.14         1.11      
Return on avg. tangible assets (non-GAAP) (3)     0.89         1.15         0.72         1.15         (0.18 )    
Return on avg. tangible assets-adjusted (non-GAAP) (4)     1.37         1.30         1.25         1.19         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    
  Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,    
    2017       2017       2017       2017       2016      
Return on Equity Measures (dollars in thousands)    
Net income available to common stockholders-adjusted $   16,336     $   14,853     $   13,402     $   12,325     $   12,172      
                       
Average common equity $   567,308     $   556,620     $   549,748     $   539,544     $   511,663      
Less: average intangible assets     (148,383 )       (148,553 )       (148,737 )       (148,930 )       (149,123 )    
Average tangible common equity $   418,925     $   408,067     $   401,011     $   390,614     $   362,540      
                       
Return on avg. common equity (GAAP)     7.40   %     9.32   %     5.61   %     8.93   %     (1.57 ) %  
Return on avg. common equity-adjusted (non-GAAP) (5)     11.42         10.59         9.78         9.26         9.46      
Return on avg. tangible common equity (non-GAAP) (6)     10.11         12.81         7.80         12.45         (2.10 )    
Return on avg. tangible common equity-adjusted (non-GAAP) (7)     15.57         14.54         13.52         12.91         13.48      
                       
Efficiency Measures                      
Total noninterest expenses $   16,566     $   18,641     $   25,303     $   18,249     $   15,252      
Increase in valuation allowance, loans held-for-sale     (267 )       (3,000 )       (9,725 )       (2,600 )       -      
Foreclosed property expense     (32 )       (46 )       (71 )       (100 )       (81 )    
Operating noninterest expense  $   16,267     $   15,595     $   15,507     $   15,549     $   15,171      
                       
Net interest income (tax equivalent basis) $   40,744     $   37,929     $   35,839     $   33,956     $   34,120      
Noninterest income     2,024         1,756         1,422         3,002         1,573      
Net gains on sales of investment securities     -         -         -         (1,596 )       -      
Operating revenue  $   42,768     $   39,685     $   37,261     $   35,362     $   35,693      
                       
Operating efficiency ratio (non-GAAP) (8)     38.0   %     39.3   %     41.6   %     44.0   %     42.5   %  
                       
Net Interest Margin                      
Average interest-earning assets $   4,603,659     $   4,378,537     $   4,168,344     $   4,053,324     $   4,038,030      
                       
Net interest income (tax equivalent basis) $   40,744     $   37,929     $   35,839     $   33,956     $   34,120      
Impact of purchase accounting fair value marks     (1,026 )       (317 )       (316 )       (649 )       (960 )    
Adjusted net interest income $   39,718     $   37,612     $   35,523     $   33,307     $   33,160      
                       
Net interest margin (GAAP)     3.51   %     3.44   %     3.45   %     3.40   %     3.36   %  
Adjusted net interest margin (non-GAAP) (9)     3.42         3.41         3.42         3.33         3.27      
_____________________                      
(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    
  Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,    
    2017       2017       2017       2017       2016      
Capital Ratios and Book Value per Share (dollars in thousands, except for per share data)    
Common equity $   565,437     $   557,691     $   546,173     $   540,277     $   531,032      
Less: intangible assets     (148,273 )       (148,442 )       (148,611 )       (148,804 )       (148,997 )    
Tangible common equity $   417,164     $   409,249     $   397,562     $   391,473     $   382,035      
                       
Total assets $   5,108,442     $   4,844,755     $   4,681,280     $   4,460,816     $   4,426,348      
Less: intangible assets     (148,273 )       (148,442 )       (148,611 )       (148,804 )       (148,997 )    
Tangible assets $   4,960,169     $   4,696,313     $   4,532,669     $   4,312,012     $   4,277,351      
                       
Common shares outstanding     32,071,860         32,015,317         32,015,317         32,004,471         31,944,403      
                       
Common equity ratio (GAAP)     11.07   %     11.51   %     11.67   %     12.11   %     12.00   %  
Tangible common equity ratio (non-GAAP) (10)     8.41         8.71         8.77         9.08         8.93      
                       
Regulatory capital ratios (Bancorp):                      
  Leverage ratio     8.92   %     9.13   %     9.33   %     9.44   %     9.29   %  
  Common equity tier 1 risk-based ratio     9.15         9.40         9.48         9.79         9.74      
  Risk-based tier 1 capital ratio     9.26         9.52         9.60         9.92         9.87      
  Risk-based total capital ratio     11.04         11.34         11.46         11.83         11.78      
Regulatory capital ratios (Bank):                      
  Leverage ratio     9.84   %     10.11   %     10.34   %     10.50   %     10.34   %  
  Common equity tier 1 risk-based ratio     10.21         10.54         10.64         11.03         10.98      
  Risk-based tier 1 capital ratio     10.21         10.54         10.64         11.03         10.98      
  Risk-based total capital ratio     10.90         11.22         11.32         11.70         11.63      
                       
Book value per share (GAAP) $   17.63     $   17.42     $   17.06     $   16.88     $   16.62      
Tangible book value per share (non-GAAP) (11)     13.01         12.78         12.42         12.23         11.96      
                       
Net Loan Charge-offs Detail                      
Net loan charge-offs (recoveries):                      
 Charge-offs $   156     $   -     $   10     $   72     $   37,074      
 Recoveries     (34 )       (20 )       (60 )       (129 )       (2 )    
  Net loan charge-offs $   122     $   (20 )   $   (50 )   $   (57 )   $   37,072      
  Net loan charge-offs as a % of average total loans (annualized)     0.01   %     (0.00 ) %     (0.01 ) %     (0.01 ) %     4.23   %  
                       
Asset Quality                      
Nonaccrual taxi medallion loans $   46,765     $   47,430     $   48,884     $   59,054     $   63,044      
Nonaccrual loans (excluding taxi medallion loans)     18,848         13,755         14,055         12,790         5,734      
Other real estate owned     538         -         580         580         626      
Total nonperforming assets $   66,151     $   61,185     $   63,519     $   72,424     $   69,404      
                       
Performing troubled debt restructurings $   14,920     $   12,749     $   10,221     $   10,005     $   13,338      
                       
Allowance for loan losses ("ALLL") $   31,748     $   29,870     $   28,401     $   26,901     $   25,744      
                       
Nonaccrual loans as a % of loans receivable (excluding taxi medallion loans)     0.46   %     0.35   %     0.37   %     0.36   %     0.16   %  
Nonperforming assets as a % of total assets     1.29         1.26         1.36         1.62         1.57      
ALLL as a % of loans receivable     0.76         0.77         0.76         0.75         0.74      
ALLL as a % of nonaccrual loans     48.4         48.8         45.1         37.4         37.4      
ALLL (excluding taxi medallion loans specific reserves) as a % of nonaccrual loans (excluding taxi medallion loans)     168.4         217.2         202.1         210.3         449.0      
                       
Loans receivable $   4,171,456     $   3,889,289     $   3,761,572     $   3,571,663     $   3,475,832      
Less: taxi medallion loans     (46,765 )       -          -          -          -       
Loans receivable (excluding taxi medallion loans) $   4,124,691     $   3,889,289     $   3,761,572     $   3,571,663     $   3,475,832      
                       
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  
        December 31, 2017 September 30, 2017 December 31, 2016
        Average           Average           Average        
Interest-earning assets:   Balance Interest Rate (8)     Balance Interest Rate (8)     Balance Interest Rate (8)  
Investment securities (1) (2)   $   417,954   $   3,162     3.00 %   $   397,077   $   3,033     3.03 %   $   346,377   $   2,864     3.29 %
Total loans (2) (3) (4)         4,093,958       47,389     4.59         3,898,404       43,683     4.45         3,488,473       38,797     4.42  
Federal funds sold and interest-                            
bearing deposits with banks       61,933       156     1.00         53,820       170     1.25         178,845       215     0.48  
Restricted investment in bank stock     29,814       440     5.86         29,236       362     4.91         24,335       336     5.49  
  Total interest-earning assets     4,603,659       51,147     4.41         4,378,537       47,248     4.28         4,038,030       42,212     4.16  
Allowance for loan losses       (30,478 )             (28,999 )             (38,932 )      
Noninterest-earning assets       343,851               364,474               350,863        
  Total assets     $   4,917,032           $   4,714,012           $   4,349,961        
                                   
Interest-bearing liabilities:                              
Time deposits         1,114,670       4,172     1.48         1,005,997       3,593     1.42         985,944       3,199     1.29  
Other interest-bearing deposits     1,855,688       2,780     0.59         1,816,162       2,520     0.55         1,631,368       1,936     0.47  
  Total interest-bearing deposits     2,970,358       6,952     0.93         2,822,159       6,113     0.86         2,617,312       5,135     0.78  
                                   
Borrowings         588,260       2,597     1.75         570,711       2,353     1.64         476,925       2,105     1.76  
Subordinated debentures (5)       55,155       814     5.86         55,155       813     5.85         55,155       810     5.84  
Capital lease obligation       2,655       40     5.98         2,688       40     5.90         2,783       42     6.00  
  Total interest-bearing liabilities     3,616,428       10,403     1.14         3,450,713       9,319     1.07         3,152,175       8,092     1.02  
                                   
Noninterest-bearing demand deposits     712,391               688,707               666,913        
Other liabilities         20,905               17,972               19,210        
  Total noninterest-bearing liabilities     733,296               706,679               686,123        
Stockholders' equity       567,308               556,620               511,663        
  Total liabilities and stockholders' equity $   4,917,032           $   4,714,012           $   4,349,961        
                                   
Net interest income (tax equivalent basis)       40,744               37,929               34,120      
Net interest spread (6)         3.27 %         3.21 %         3.14 %
                                   
Net interest margin (7)         3.51 %         3.44 %         3.36 %
                                   
Tax equivalent adjustment         (936 )             (910 )             (713 )    
Net interest income       $   39,808           $   37,019           $   33,407      
                                   
(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 $483, $525 and $649 for the three months ended December 31, 2017 September 30, 2017 and December 31, 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.