ConnectOne Bancorp, Inc. Reports First Quarter 2018 Results

ENGLEWOOD CLIFFS, N.J., April 26, 2018 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq:CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $4.3 million for the first quarter of 2018 compared with $10.6 million for the fourth quarter of 2017 and $11.9 million for the first quarter of 2017. Diluted earnings per share were $0.13 for the current quarter versus $0.33 earned in the fourth quarter of 2017 and $0.37 earned in the first quarter of 2017. Earnings for the first quarter 2018 included a $17.0 million pretax provision for loan losses related to the Bank’s New York City taxi medallion loan portfolio.

Adjusted net income amounted to $17.1 million, or $0.53 earnings per share, for the first quarter of 2018; $16.3 million, or $0.51 earnings per share, for the fourth quarter of 2017; and $12.3 million, or $0.38 earnings per share, for the first quarter of 2017. Adjusted net income excludes taxi medallion after-tax charges of $13.4 million for the first quarter 2018, $0.2 million for the fourth quarter of 2017, and $1.5 million for the first quarter 2017. In addition, the first quarter of 2018 excludes $0.5 million of income tax benefit from ASU 2016-19, the fourth quarter of 2017 excludes a $5.6 million deferred tax asset (“DTA”) estimated valuation charge resulting from the Tax Cuts & Jobs Act of 2017 (“Tax Act”), and the first quarter of 2017 excludes $1.1 million of after-tax net gains on sales of securities.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “We are pleased to report continued strong operating performance in the first quarter of 2018 resulting in an adjusted return on average assets of 1.37% and an adjusted return on average tangible common equity of 16.4%. On a quarterly average basis, total loans for the 2018 first quarter increased by an annualized 15.1% sequentially from the 2017 fourth quarter, while average deposits increased by 7.0% on the same basis. Although sequential point-to-point loan and deposit growth was less than typical for ConnectOne due to a large volume of business booked at year-end, we remain on track to achieve strong deposit and loan growth during 2018. We continue to build upon our C&I origination capabilities demonstrated by more than 25% annualized sequential growth in average C&I loans in the 2018 first quarter and, combined with the previously announced $75 million subordinated debt issuance in January 2018, have made substantial headway in reducing our commercial real estate concentration as a percentage of regulatory capital to 509% at March 31, 2018 from 568% at year-end 2017. On the technology front, the implementation of nCino continues, effectively digitizing our loan onboarding process, enhancing our client service capabilities and client experience while also providing additional operating leverage. While our net interest margin in the quarter appeared to contract significantly on a sequential quarter basis, the decrease was primarily attributable to known events and non-recurring items including the early first quarter issuance of $75 million of subordinated debt and a decrease in yield related loan fees. As we continue to invest in our infrastructure and new team members, the efficiency ratio, which due to seasonal factors is typically higher in the first quarter of the year, temporarily increased to 42.5%. In comparison to the first quarter of 2017, the ratio showed an improvement from 44.0%, and still places our organization as one of the best in the industry.”

Mr. Sorrentino added, “Our growth plans include new office centers in Melville, Long Island, which opened in April 2018, and in the Astoria, Queens Market, which is projected to open in the second half of the year. We are pleased with the groundwork we're laying for the continued success of the business and, going forward, our loan and deposit pipeline remains very strong. We continue to project 2018 loan growth to be in the low to mid-teens and remain well positioned to produce strong, sustainable long-term growth.”

Operating Results

Fully taxable equivalent net interest income for the first quarter of 2018 was $38.6 million, a decrease of $2.1 million, or 5.2%, from the fourth quarter of 2017, resulting from the effects of a lower day count and a 25 basis-points contraction in the net interest margin to 3.26% from 3.51%, partially offset by a 4.3% increase in average interest earning assets, primarily loans, to $4.8 billion in the first quarter 2018 from $4.6 billion in the fourth quarter 2017. Included in net interest income was accretion and amortization of purchase accounting adjustments of $0.2 million during the first quarter of 2018 and $1.0 million during the fourth quarter of 2017. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.24% in the first quarter of 2018, contracting by 18 basis-points from the fourth quarter of 2017 adjusted net interest margin of 3.42%. Contributing 9 basis-points to the margin contraction were the subordinated debt issuance and the change in the taxable equivalent adjustment, both of which were anticipated. The margin contraction also reflected approximately 6 basis-points of lower yield related fees which tend to fluctuate from quarter to quarter, with the remaining variance attributable to an increasingly competitive environment on both sides of the balance sheet negatively affecting both spreads and volumes of new business.

Fully taxable equivalent net interest income for the first quarter of 2018 increased by $4.7 million, or 13.7%, from the first quarter of 2017, resulting from an increase in average interest-earning assets of 18.4%, primarily loans, offset by a contraction in the net interest margin of 14 basis-points to 3.26% from 3.40%. Included in net interest income was accretion and amortization of purchase accounting adjustments of $0.2 million during the first quarter of 2018 and $0.6 million during the first quarter of 2017. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.24% in the first quarter of 2018, contracting by 9 basis-points from the first quarter of 2017 adjusted net interest margin of 3.33%. The decrease in the adjusted net interest margin was primarily attributable to the aforementioned long-term subordinated debt issuance, the change in the taxable equivalent adjustment due to the Tax Act, and increased deposit rates, partially offset by higher rates earned on loans.

Noninterest income totaled $1.4 million in the first quarter of 2018, $2.0 million in the fourth quarter of 2017 and $3.0 million in the first quarter of 2017. Included in the $3.0 million for the first quarter of 2017 were net gains on sale of investment securities of $1.6 million. There were no net gains on sale of investment securities during the first quarter of 2018 or the fourth quarter of 2017. The decrease from the prior sequential quarter was mainly attributable to a $0.5 million gain on sale of non-relationship multifamily loans that took place during the fourth quarter of 2017. The decrease from the prior year quarter was mainly attributable to the aforementioned net gains on sale of investment securities.

Noninterest expenses totaled $17.1 million for the first quarter of 2018, an increase of $0.5 million from $16.6 million for the fourth quarter of 2017 and a decrease of $1.2 million from $18.2 million for the first quarter of 2017. The increase from the prior sequential quarter was mainly attributable to increases in salaries and employee benefits ($0.3 million), occupancy and equipment expenses ($0.2 million) and other expenses ($0.3 million), offset by a valuation allowance adjustment on taxi medallion loans held-for-sale of $0.3 million that occurred during the prior sequential quarter. The decrease in noninterest expenses from the prior year first quarter was mainly attributable to increases in salaries and employee benefits ($1.5 million), offset by valuation allowance adjustment on taxi medallion loans held-for-sale of $2.6 million that occurred during the prior year quarter. 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 $0.4 million for the first quarter of 2018, compared to $12.7 million for the fourth quarter of 2017 and $4.9 million for the first quarter of 2017. Included in income tax expenses for the first quarter of 2018 was an income tax benefit of $0.5 million resulting from the effect of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. Included in income tax expenses for the fourth quarter of 2017 was a $5.6 million DTA valuation estimated charge related to the Tax Act. At the present time, the Bank is projecting a 2018 effective tax rate of approximately 21%, exclusive of ASU 2016-09 benefits.

Asset Quality

The provision for loan losses was $17.8 million in the first quarter of 2018, $2.0 million in the fourth quarter of 2017 and $1.1 million in the first quarter of 2017. The increase from the prior sequential quarter was largely attributable to $17.0 million of provision related to the taxi medallion loan portfolio, offset by a decrease in loan growth. The increase from the prior year quarter was mainly attributable to the aforementioned taxi medallion loan provision. The provision related to taxi medallions primarily resulted from decreases in the transfer values as reported by the New York City Taxi and Limousine Commission and a reduction in the Bank’s cash flow valuation model.

As of March 31, 2018, loans secured by New York City taxi medallions had a carrying value of $29.4 million, down significantly from $46.8 million as of December 31, 2017, reflecting the aforementioned provision (and subsequent charge-off) and cash flow applied to principal. As of March 31, 2018, the medallion loans had a carrying value of approximately $216,000 per medallion, compared to $343,000 as of December 31, 2017. 

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $51.1 million at March 31, 2018, $66.2 million at December 31, 2017 and $72.4 million at March 31, 2017. Included in nonperforming assets were taxi medallion loans totaling $29.4 million at March 31, 2018, $46.8 million at December 31, 2017 and $59.1 million at March 31, 2017. Excluding the taxi medallion loans, nonaccrual loans were $20.6 million at March 31, 2018, $18.8 million at December 31, 2017 and $12.8 million at March 31, 2017, representing 0.49%, 0.46% and 0.36%, respectively, of nonaccrual loans (excluding taxis) as a percentage of loans receivable. Nonperforming assets as a percentage of total assets were 0.99% at March 31, 2018, 1.29% at December 31, 2017 and 1.62% at March 31, 2017. 

The net loan charge-offs (recoveries) ratio was 1.63% for the first quarter of 2018, 0.01% for the fourth quarter of 2017 and (0.01%) for the first quarter of 2017. The increase in the net loan charge-off ratio for the first quarter of 2018 was attributable to a $17.0 million charge-off related to the taxi medallion portfolio. The allowance for loan losses represented 0.77%, 0.76%, and 0.75% of loans receivable as of March 31, 2018, December 31, 2017 and March 31, 2017, respectively. The allowance for loan losses as a percentage of nonaccrual loans was 65.0% as of March 31, 2018, 48.4% as of December 31, 2017 and 37.4% as of March 31, 2017. Excluding the taxi medallion loans, allowance for loan losses as a percentage of nonaccrual loans was 157.7% as of March 31, 2018, 168.4% as of December 31, 2017 and 210.3% as of March 31, 2017.

Selected Balance Sheet Items

At March 31, 2018, the Company’s total assets were $5.2 billion, an increase of $50 million from December 31, 2017, largely a result of net loan growth (loan originations less pay-downs and pay-offs) of $52 million. The Company’s stockholders’ equity was $564 million at March 31, 2018, a decrease of $1 million from December 31, 2017. The decrease in stockholders’ equity was primarily attributable to increases in other comprehensive losses of $3 million, offset by an increase of $2 million in retained earnings. As of March 31, 2018, the Company’s tangible common equity ratio and tangible book value per share were 8.31% and $12.93, respectively. As of December 31, 2017, the tangible common equity ratio and tangible book value per share were 8.41% and $13.01, respectively. Total goodwill and other intangible assets were approximately $148 million as of March 31, 2018 and December 31, 2017.

Use of Non-GAAP Financial Measures

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

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

First Quarter 2018 Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on April 26, 2018 to review the Company's financial performance and operating results. The conference call dial-in number is 334-323-0522, access code 4265482. Please dial in at least five minutes before the start of the call to register. An audio webcast of the conference call will be available to the public, on a listen-only basis, via the "Shareholders" link on the Company's website https://www.ConnectOneBank.com or at http://ir.connectonebank.com.

A replay of the conference call will be available beginning at approximately 1:00 p.m. ET on Thursday, April 26, 2018 and ending on Thursday, May 3, 2018 by dialing 719-457-0820, access code 4265482. An online archive of the webcast will be available following the completion of the conference call at https://www.ConnectOneBank.com or at http://ir.connectonebank.com.

About ConnectOne Bancorp, Inc.

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

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

Forward-Looking Statements

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

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
	March 31,				December 31,				March 31,
	2018				2017				2017
	(unaudited)								(unaudited)
ASSETS
Cash and due from banks	$	36,396			$	52,565			$	35,867
Interest-bearing deposits with banks		106,391				97,017				126,002
Cash and cash equivalents		142,787				149,582				161,869
Securities available-for-sale		424,322				435,284				352,476
Equity securities		11,607				-				-
Loans held-for-sale		45,886				24,845				62,255
Loans receivable		4,202,679				4,171,456				3,571,663
Less: Allowance for loan losses		32,529				31,748				26,901
Net loans receivable		4,170,150				4,139,708				3,544,762
Investment in restricted stock, at cost		34,622				33,497				24,985
Bank premises and equipment, net		21,039				21,659				22,259
Accrued interest receivable		16,020				15,470				12,701
Bank owned life insurance		111,500				111,311				99,063
Other real estate owned		1,076				538				580
Goodwill		145,909				145,909				145,909
Core deposit intangibles		2,195				2,364				2,895
Other assets		31,255				28,275				31,062
Total assets	$	5,158,368			$	5,108,442			$	4,460,816
LIABILITIES
Deposits:
Noninterest-bearing	$	739,174			$	776,843			$	671,183
Interest-bearing		3,010,413				3,018,285				2,684,294
Total deposits		3,749,587				3,795,128				3,355,477
Borrowings		695,032				670,077				491,226
Subordinated debentures (net of $1,845, $456 and $580 in debt issuance costs)		128,310				54,699				54,575
Other liabilities		21,173				23,101				19,261
Total liabilities		4,594,102				4,543,005				3,920,539
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock		413,958				412,546				412,546
Additional paid-in capital		12,022				13,602				11,796
Retained earnings		162,510				160,025				135,939
Treasury stock		(16,717	)			(16,717	)			(16,717	)
Accumulated other comprehensive loss		(7,507	)			(4,019	)			(3,287	)
Total stockholders' equity		564,266				565,437				540,277
Total liabilities and stockholders' equity	$	5,158,368			$	5,108,442			$	4,460,816

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for per share data)
	Three Months Ended
	03/31/18			12/31/17			03/31/17
Interest income
Interest and fees on loans	$	47,025		$	46,945		$	38,006
Interest and dividends on investment securities:
Taxable		1,887			1,757			1,548
Tax-exempt		814			914			954
Dividends		485			439			330
Interest on federal funds sold and other short-term investments		264			156			246
Total interest income		50,475			50,211			41,084
Interest expense
Deposits		7,688			6,953			5,109
Borrowings		4,640			3,450			2,834
Total interest expense		12,328			10,403			7,943
Net interest income		38,147			39,808			33,141
Provision for loan losses		17,800			2,000			1,100
Net interest income after provision for loan losses		20,347			37,808			32,041
Noninterest income
Annuities and insurance commissions		-			-			39
Income on bank owned life insurance		774			779			703
Net gains on sale of loans held-for-sale		17			588			21
Deposit, loan and other income		616			657			643
Net gains on sale of investment securities		-			-			1,596
Total noninterest income		1,407			2,024			3,002
Noninterest expenses
Salaries and employee benefits		9,679			9,418			8,206
Occupancy and equipment		2,143			1,948			2,255
FDIC insurance		850			935			895
Professional and consulting		723			671			718
Marketing and advertising		207			226			256
Data processing		1,148			1,069			1,149
Amortization of core deposit intangible		169			169			193
Increase in valuation allowance, loans held-for-sale		-			267			2,600
Other expenses		2,140			1,863			1,977
Total noninterest expenses		17,059			16,566			18,249
Income before income tax expenses		4,695			23,266			16,794
Income tax expenses		444			12,686			4,914
Net income	$	4,251		$	10,580		$	11,880
Earnings per common share:
Basic	$	0.13		$	0.33		$	0.37
Diluted		0.13			0.33			0.37
Dividends per common share	$	0.075		$	0.075		$	0.075

ConnectOne's management believes that the supplemental financial information, including non-GAAP measures provided below, is useful to investors. The non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP financial measures presented by other companies.
CONNECTONE BANCORP, INC.
SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES
	As of
	Mar. 31,				Dec. 31,				Sept. 30,				June 30,				Mar. 31,
	2018				2017				2017				2017				2017
Selected Financial Data	(dollars in thousands)
Total assets	$	5,158,368			$	5,108,442			$	4,844,755			$	4,681,280			$	4,460,816
Loans receivable:
Commercial		768,640				781,698				641,613				610,442				541,690
Commercial real estate		1,275,764				1,232,037				1,254,720				1,218,995				1,192,074
Multifamily		1,400,420				1,403,256				1,330,485				1,251,962				1,134,760
Commercial construction		479,190				483,216				399,453				431,049				460,611
Residential		278,985				271,795				264,244				251,108				242,883
Consumer		2,461				2,808				1,912				2,005				2,811
Gross loans		4,205,460				4,174,810				3,892,427				3,765,561				3,574,829
Unearned net origination fees		(2,781	)			(3,354	)			(3,138	)			(3,989	)			(3,166	)
Loans receivable		4,202,679				4,171,456				3,889,289				3,761,572				3,571,663
Loans held-for-sale (net of valuation allowance)		45,886				24,845				89,386				51,124				62,255
Total loans	$	4,248,565			$	4,196,301			$	3,978,675			$	3,812,696			$	3,633,918
Investment securities	$	435,929			$	435,284			$	400,516			$	402,130			$	352,476
Goodwill and other intangible assets		148,104				148,273				148,442				148,611				148,804
Deposits:
Noninterest-bearing demand		739,174				776,843				719,582				695,522				671,183
Other interest-bearing deposits		1,754,759				1,838,316				1,825,828				1,752,523				1,714,081
Time deposits		1,255,654				1,179,969				1,078,359				982,328				970,213
Total deposits	$	3,749,587			$	3,795,128			$	3,623,769			$	3,430,373			$	3,355,477
Borrowings		695,032			$	670,077				585,124				626,173				491,226
Subordinated debentures (net of issuance costs)		128,310				54,699				54,657				54,616				54,575
Total stockholders' equity		564,266				565,437				557,691				546,173				540,277
Quarterly Average Balances
Total assets	$	5,088,823			$	4,916,549			$	4,713,487			$	4,494,978			$	4,381,707
Loans receivable:
Commercial		820,562				761,147				671,525				603,733				557,347
Commercial real estate (including multifamily)		2,643,466				2,566,959				2,502,846				2,337,499				2,222,795
Commercial construction		482,391				439,629				418,439				451,038				466,455
Residential		275,263				268,047				255,755				246,864				237,418
Consumer		4,659				3,849				2,555				2,929				2,460
Gross loans		4,226,341				4,039,631				3,851,120				3,642,063				3,486,475
Unearned net origination fees		(3,110	)			(3,485	)			(3,724	)			(3,967	)			(3,304	)
Loans receivable		4,223,231				4,036,146				3,847,396				3,638,096				3,483,171
Loans held-for-sale		24,766				57,812				51,008				61,259				65,860
Total loans	$	4,247,997			$	4,093,958			$	3,898,404			$	3,699,355			$	3,549,031
Investment securities		437,141				417,560				398,635				391,965				367,940
Goodwill and other intangible assets		148,215				148,383				148,553				148,737				148,930
Deposits:
Noninterest-bearing demand		724,471				712,391				688,707				667,461				655,597
Other interest-bearing deposits		1,815,122				1,855,688				1,816,162				1,712,875				1,706,991
Time deposits		1,207,369				1,114,670				1,005,997				976,012				963,976
Total deposits	$	3,746,962			$	3,682,749			$	3,510,866			$	3,356,348			$	3,326,564
Borrowings		630,117			$	588,260				570,711				514,161				442,595
Subordinated debentures (net of issuance costs)		115,182				54,672				54,630				54,560				54,548
Total stockholders' equity		575,029				567,308				556,620				549,748				539,544
	Three Months Ended
	Mar. 31,				Dec. 31,				Sept. 30,				June 30,				Mar. 31,
	2018				2017				2017				2017				2017
	(dollars in thousands, except for per share data)
Net interest income	$	38,147			$	39,808			$	37,019			$	35,101			$	33,141
Provision for loan losses		17,800				2,000				1,450				1,450				1,100
Net interest income after provision for loan losses		20,347				37,808				35,569				33,651				32,041
Noninterest income
Annuity and insurance commissions		-				-				-				-				39
Income on bank owned life insurance		774				779				985				714				703
Net gains on sale of loans held-for-sale		17				588				50				49				21
Deposit, loan and other income		616				657				721				659				643
Net gains on sale of investment securities		-				-				-				-				1,596
Total noninterest income		1,407				2,024				1,756				1,422				3,002
Noninterest expenses
Salaries and employee benefits		9,679				9,418				8,872				8,632				8,206
Occupancy and equipment		2,143				1,948				1,969				1,991				2,255
FDIC insurance		850				935				840				815				895
Professional and consulting		723				671				740				734				718
Marketing and advertising		207				226				225				289				256
Data processing		1,148				1,069				1,176				1,149				1,149
Amortization of core deposit intangible		169				169				169				193				193
Increase in valuation allowance, loans held-for-sale		-				267				3,000				9,725				2,600
Other expenses		2,140				1,863				1,650				1,775				1,977
Total noninterest expenses		17,059				16,566				18,641				25,303				18,249
Income before income tax expense		4,695				23,266				18,684				9,770				16,794
Income tax expense		444				12,686				5,607				2,087				4,914
Net income	$	4,251			$	10,580			$	13,077			$	7,683			$	11,880
Reconciliation of GAAP Earnings to Earnings Excluding the Following Items:
Net income	$	4,251			$	10,580			$	13,077			$	7,683			$	11,880
Net gains on sales of securities (after taxes)		-				-				-				-				(1,093	)
Deferred tax valuation charge		-				5,574				-				-				-
Tax benefit on employee share-based awards (ASU 2016-09)		(541	)			-				-				(133	)			(47	)
Provision related to taxi medallion loans (after taxes)		13,430				-				-				-				-
Increase in valuation allowance, loans held-for-sale (after taxes)		-				182				1,776				5,719				1,538
Net income-adjusted	$	17,140			$	16,336			$	14,853			$	13,269			$	12,278
Weighted average diluted shares outstanding		32,238,048				32,252,759				32,182,016				32,255,770				32,192,643
Diluted EPS (GAAP)	$	0.13			$	0.33			$	0.41			$	0.24			$	0.37
Diluted EPS-adjusted (Non-GAAP) (1)		0.53				0.51				0.46				0.41				0.38
Return on Assets Measures
Net income-adjusted	$	17,140			$	16,336			$	14,853			$	13,269			$	12,278
Average assets	$	5,088,823			$	4,916,549			$	4,713,487			$	4,494,978			$	4,381,707
Less: average intangible assets		(148,215	)			(148,383	)			(148,553	)			(148,737	)			(148,930	)
Average tangible assets	$	4,940,608			$	4,768,166			$	4,564,934			$	4,346,241			$	4,232,777
Return on avg. assets (GAAP)		0.34		%		0.85		%		1.10		%		0.69		%		1.10		%
Return on avg. assets-adjusted (non-GAAP) (2)		1.37				1.32				1.25				1.18				1.14
(1) Represents adjusted earnings available to common stockholders divided by weighted average diluted shares outstanding.
(2) Adjusted net income divided by average assets.
	Three Months Ended
	Mar. 31,				Dec. 31,				Sept. 30,				June 30,				Mar. 31,
	2018				2017				2017				2017				2017
Return on Equity Measures	(dollars in thousands)
Net income-adjusted	$	17,140			$	16,336			$	14,853			$	13,269			$	12,278
Average common equity	$	575,029			$	567,308			$	556,620			$	549,748			$	539,544
Less: average intangible assets		(148,215	)			(148,383	)			(148,553	)			(148,737	)			(148,930	)
Average tangible common equity	$	426,814			$	418,925			$	408,067			$	401,011			$	390,614
Return on avg. common equity (GAAP)		3.00		%		7.40		%		9.32		%		5.61		%		8.93		%
Return on avg. common equity-adjusted (non-GAAP) (3)		12.09				11.42				10.59				9.68				9.23
Return on avg. tangible common equity (non-GAAP) (4)		4.15				10.11				12.81				7.80				12.45
Return on avg. tangible common equity-adjusted (non-GAAP) (5)		16.40				15.57				14.54				13.39				12.87
Efficiency Measures
Total noninterest expenses	$	17,059			$	16,566			$	18,641			$	25,303			$	18,249
Increase in valuation allowance, loans held-for-sale		-				(267	)			(3,000	)			(9,725	)			(2,600	)
Foreclosed property expense		(51	)			(32	)			(46	)			(71	)			(100	)
Operating noninterest expense	$	17,008			$	16,267			$	15,595			$	15,507			$	15,549
Net interest income (tax equivalent basis)	$	38,610			$	40,744			$	37,929			$	35,839			$	33,956
Noninterest income		1,407				2,024				1,756				1,422				3,002
Net gains on sales of investment securities		-				-				-				-				(1,596	)
Operating revenue	$	40,017			$	42,768			$	39,685			$	37,261			$	35,362
Operating efficiency ratio (non-GAAP) (6)		42.5		%		38.0		%		39.3		%		41.6		%		44.0		%
Net Interest Margin
Average interest-earning assets	$	4,799,453			$	4,603,659			$	4,378,537			$	4,168,344			$	4,053,324
Net interest income (tax equivalent basis)	$	38,610			$	40,744			$	37,929			$	35,839			$	33,956
Impact of purchase accounting fair value marks		(240	)			(1,026	)			(317	)			(316	)			(649	)
Adjusted net interest income (tax equivalent basis)	$	38,370			$	39,718			$	37,612			$	35,523			$	33,307
Net interest margin (GAAP)		3.26		%		3.51		%		3.44		%		3.45		%		3.40		%
Adjusted net interest margin (non-GAAP) (7)		3.24				3.42				3.41				3.42				3.33
(3) Adjusted earnings available to common stockholders divided by average common equity.
(4) Earnings available to common stockholders excluding amortization of intangibles assets divided by average tangible common equity.
(5) Adjusted earnings available to common stockholders divided by average tangible common equity.
(6) Operating noninterest expense divided by operating revenue.
(7) Adjusted net interest income excluding amortization of intangibles assets divided by average interest-earning assets.
	As of
	Mar. 31,				Dec. 31,				Sept. 30,				June 30,				Mar. 31,
	2018				2017				2017				2017				2017
Capital Ratios and Book Value per Share	(dollars in thousands, except for per share data)
Common equity	$	564,266			$	565,437			$	557,691			$	546,173			$	540,277
Less: intangible assets		(148,104	)			(148,273	)			(148,442	)			(148,611	)			(148,804	)
Tangible common equity	$	416,162			$	417,164			$	409,249			$	397,562			$	391,473
Total assets	$	5,158,368			$	5,108,442			$	4,844,755			$	4,681,280			$	4,460,816
Less: intangible assets		(148,104	)			(148,273	)			(148,442	)			(148,611	)			(148,804	)
Tangible assets	$	5,010,264			$	4,960,169			$	4,696,313			$	4,532,669			$	4,312,012
Common shares outstanding		32,175,233				32,071,860				32,015,317				32,015,317				32,004,471
Common equity ratio (GAAP)		10.94		%		11.07		%		11.51		%		11.67		%		12.11		%
Tangible common equity ratio (non-GAAP) (8)		8.31				8.41				8.71				8.77				9.08
Regulatory capital ratios (Bancorp):
Leverage ratio		8.65		%		8.92		%		9.13		%		9.33		%		9.44		%
Common equity Tier 1 risk-based ratio		9.14				9.15				9.40				9.48				9.79
Risk-based Tier 1 capital ratio		9.25				9.26				9.52				9.60				9.92
Risk-based total capital ratio		12.66				11.04				11.34				11.46				11.83
Regulatory capital ratios (Bank):
Leverage ratio		10.20		%		9.84		%		10.11		%		10.34		%		10.50		%
Common equity Tier 1 risk-based ratio		10.91				10.21				10.54				10.64				11.03
Risk-based Tier 1 capital ratio		10.91				10.21				10.54				10.64				11.03
Risk-based total capital ratio		12.31				10.90				11.22				11.32				11.70
Book value per share (GAAP)	$	17.54			$	17.63			$	17.42			$	17.06			$	16.88
Tangible book value per share (non-GAAP) (9)		12.93				13.01				12.78				12.42				12.23
Net Charge-Off (Recoveries) Detail
Net loan charge-offs (recoveries) :
Charge-offs	$	17,038			$	156			$	-			$	10			$	72
Recoveries		(19	)			(34	)			(20	)			(60	)			(129	)
Net loan charge-offs (recoveries)	$	17,019			$	122			$	(20	)		$	(50	)		$	(57	)
Net loan charge-offs (recoveries) as a % of average loans receivable (annualized)		1.63		%		0.01		%		(0.00	)	%		(0.01	)	%		(0.01	)	%
Asset Quality
Nonaccrual taxi medallion loans	$	29,405			$	46,765			$	47,430			$	48,884			$	59,054
Nonaccrual loans (excluding taxi medallion loans)		20,631				18,848				13,755				14,055				12,790
Other real estate owned		1,076				538				-				580				580
Total nonperforming assets	$	51,112			$	66,151			$	61,185			$	63,519			$	72,424
Performing troubled debt restructurings	$	14,349			$	14,920			$	12,749			$	10,221			$	10,005
Allowance for loan losses ("ALLL")	$	32,529			$	31,748			$	29,870			$	28,401			$	26,901
Loans receivable	$	4,202,679			$	4,171,456			$	3,889,289			$	3,761,572			$	3,571,663
Less: taxi medallion loans		29,405				46,765				-				-				-
Loans receivable (excluding taxi medallion loans)	$	4,173,274			$	4,124,691			$	3,889,289			$	3,761,572			$	3,571,663
Loans held-for-sale (taxi medallion loans)	$	-			$	-			$	47,430			$	50,891			$	61,319
Nonaccrual loans (excluding taxi medallion loans) as a % of loans receivable (excluding taxi medallion loans)		0.49		%		0.46		%		0.35		%		0.37		%		0.36		%
Nonaccrual loans as a % of loans receivable		1.19				1.57				1.57				1.67				2.01
Nonperforming assets as a % of total assets		0.99				1.29				1.26				1.36				1.62
ALLL as a % of loans receivable		0.77				0.76				0.77				0.76				0.75
ALLL as a % of nonaccrual loans (excluding taxi medallion loans)		157.7				168.4				217.2				202.1				210.3
ALLL as a % of nonaccrual loans		65.0				48.4				48.8				45.1				37.4
(8) Tangible common equity divided by tangible assets.
(9) Tangible common equity divided by common shares outstanding at period-end.

CONNECTONE BANCORP, INC.
NET INTEREST MARGIN ANALYSIS
(dollars in thousands)
	For the Three Months Ended
	March 31, 2018									December 31, 2017										March 31, 2017
	Average										Average										Average
Interest-earning assets:	Balance			Interest				Rate (8)			Balance			Interest				Rate (8)			Balance			Interest				Rate (8)
Investment securities (1) (2)	$	441,563			$	2,917		2.68	%		$	417,954			$	3,162		3.00	%		$	366,473			$	3,015		3.34
Total loans (2) (3) (4)		4,247,997				47,272		4.51				4,093,958				47,389		4.59				3,549,031				38,308		4.38
Federal funds sold and interest-
bearing deposits with banks		78,194				264		1.37				61,933				156		1.00				115,025				246		0.87
Restricted investment in bank stock		31,699				485		6.21				29,814				440		5.86				22,795				330		5.87
Total interest-earning assets		4,799,453				50,938		4.30				4,603,659				51,147		4.41				4,053,324				41,899		4.19
Allowance for loan losses		(32,113	)									(30,478	)									(26,215	)
Noninterest-earning assets		321,483										343,368										354,598
Total assets	$	5,088,823									$	4,916,549									$	4,381,707
Interest-bearing liabilities:
Time deposits		1,207,369				4,789		1.61				1,114,670				4,172		1.48				963,976				3,091		1.30
Other interest-bearing deposits		1,815,122				2,900		0.65				1,855,688				2,780		0.59				1,706,991				2,018		0.48
Total interest-bearing deposits		3,022,491				7,689		1.03				2,970,358				6,952		0.93				2,670,967				5,109		0.78
Borrowings		630,117				2,926		1.88				588,260				2,597		1.75				442,595				1,985		1.82
Subordinated debentures (5)		115,182				1,674		5.89				54,672				814		5.91				54,548				808		6.01
Capital lease obligation		2,622				39		6.03				2,655				40		5.98				2,752				41		6.04
Total interest-bearing liabilities		3,770,412				12,328		1.33				3,615,945				10,403		1.14				3,170,862				7,943		1.02
Noninterest-bearing demand deposits		724,471										712,391										655,597
Other liabilities		18,912										20,905										15,705
Total noninterest-bearing liabilities		743,383										733,296										671,302
Stockholders' equity		575,029										567,308										539,543
Total liabilities and stockholders' equity	$	5,088,823									$	4,916,549									$	4,381,707
Net interest income (tax equivalent basis)						38,610										40,744										33,956
Net interest spread (6)								2.98	%									3.27	%									3.17	%
Net interest margin (7)								3.26	%									3.51	%									3.40	%
Tax equivalent adjustment						(463	)									(936	)									(815	)
Net interest income					$	38,147									$	39,808									$	33,141
(1) Average balances are calculated on amortized cost and includes equity securities.
(2) Interest income is presented on a tax equivalent basis using 21% federal tax rate.
(3) Includes loan fee income.
(4) Loans include nonaccrual loans.
(5) Average balances are net of debt issuance costs of $1,639, $483, and $607 as of March 31, 2018, December 31, 2017 and March 31, 2017, respectively.
Amortization expense related to debt issuance costs included in interest expense was $86, $41 and $41 as of March 31, 2018, December 31, 2017 and
March 31, 2017, respectively.
(6) Represents difference between the average yield on interest-earning assets and the average cost of interest-bearing
liabilities and is presented on a tax equivalent basis.
(7) Represents net interest income on a tax equivalent basis divided by average total interest-earning assets.
(8) Rates are annualized.

Investor Contact:

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

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