ENGLEWOOD CLIFFS, N.J., Oct. 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 $19.9 million for the third quarter of 2018 compared with $17.5 million for the second quarter of 2018 and $13.1 million for the third quarter of 2017.  Diluted earnings per share were $0.61 for the third quarter of 2018 compared with $0.54 earned in the second quarter of 2018 and $0.41 earned in the third quarter of 2017.

Adjusted net income amounted to $18.5 million, or $0.57 earnings per share, for the third quarter of 2018; $17.5 million, or $0.54 earnings per share, for the second quarter of 2018; and $14.9 million, or $0.46 earnings per share, for the third quarter of 2017.  Adjusted net income for the third quarter of 2018 excludes $1.7 million in income tax benefits resulting from deferred tax asset (“DTA”) valuation adjustments and ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, and $0.3 million in after-tax merger-related expenses.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “Our third quarter results reflect continued strong core performance and excellent execution across the organization despite the challenging operating environment.  Our performance was highlighted by record quarterly earnings, solid loan and deposit growth, a stable net interest margin, continued strong return on assets and return on tangible common equity, and sequential growth in tangible book value of $0.49 per share.  For the quarter, period-end loans grew on a sequential basis in excess of 9% annualized including commercial loans which grew $78 million, or 38% annualized, while average total deposits increased in excess of 15% annualized including noninterest-bearing demand growth in excess of 23%. Our net interest margin remained essentially flat, contracting 1 basis-point from the prior sequential quarter, while favorably widening by 3 basis-points when excluding the impact of purchase accounting adjustments.  We saw an increasing yield in the loan portfolio, driven by repricing and higher origination rates, and strong growth of our noninterest-bearing deposits, offset by increased rates on interest-bearing deposits.  Our efficiency ratio ticked up slightly to 42.3%, compared to 41.8% from the prior sequential quarter due primarily to previously planned technology investments and opening our new Astoria, Queens, New York office.  We remain one of the most efficient banks in the country.  Looking ahead to the remainder of 2018 and into 2019, we remain well-positioned for strong financial performance with steady, albeit slower, growth.” 

Mr. Sorrentino added, “On the operations side, we are extremely pleased with our recent expansion into Astoria with our newest banking office, the launch of our partnership with Zelle and our continued roll out of nCino.  The Zelle offering was launched on our ConnectOne Bank mobile banking app, allowing our clients to quickly and safely send money directly from person to person.  ConnectOne was part of the original consortium of 30 banks in the U.S. to partner with Zelle and provide a fast and easy way to send and receive money and we are very pleased with how our clients are adopting the new service.  We continue to integrate the nCino operating system into our day-to-day business and it is proving to be a powerful tool, allowing us to maintain our best-in-class efficiency metrics.  All of these efforts, as well as expanding into new digital offerings, remain incredibly important to ConnectOne as we continue to enter into new markets, serve new clients, and bolster our existing client relationships.  Finally, with regard to the previously announced acquisition of Greater Hudson Bank, we recently received FDIC approval and the transaction remains on track to close in early January 2019.”  

Operating Results

Fully taxable equivalent net interest income for the third quarter of 2018 was $40.4 million, an increase of $1.0 million, or 2.6%, from the second quarter of 2018, resulting primarily from an increase in total interest-earning assets of 1.8%, and slightly offset by a contraction in the net interest margin of 1 basis-point to 3.30% from 3.31%.  Included in net interest income were purchase accounting adjustments of $0.2 million during the third quarter of 2018 and $0.7 million during the second quarter of 2018.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.29% in the third quarter of 2018, widening by 3 basis-points from the second quarter of 2018 adjusted net interest margin of 3.26%.  The increase in the adjusted net interest margin was primarily attributable to a higher yield earned on loans, an improved asset-mix and growth in noninterest-bearing deposits, partially offset by increases in deposit funding costs.

Fully taxable equivalent net interest income for the third quarter of 2018 increased by $2.5 million, or 6.6%, from the third quarter of 2017, resulting from a 10.9% increase in total average interest-earning assets, primarily loans, and partially offset by a contraction in the net interest margin of 14 basis-points to 3.30% from 3.44%. Included in net interest income were purchase accounting adjustments of $0.2 million during the third quarter of 2018 and $0.3 million during the third quarter of 2017.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.29% in the third quarter of 2018, contracting by 12 basis-points from the third quarter of 2017 adjusted net interest margin of 3.41%. The decrease in the adjusted net interest margin was primarily attributable to a long-term subordinated debt issuance, a change in the taxable equivalent adjustment and increased deposit rates, partially offset by higher rates earned on loans.   

Noninterest income totaled $1.4 million in the third and second quarters of 2018 and $1.8 million in the third quarter of 2017.  Noninterest income consists of income on bank owned life insurance, net gains on sales of loans held-for-sale and deposit service fees, loan fees, and other income. Last year’s third quarter included a BOLI death benefit.

Noninterest expenses totaled $18.3 million for the third quarter of 2018, $17.1 million for the second quarter of 2018 and $18.6 million for the third quarter of 2017.  Noninterest expenses increased by $1.2 million from the prior sequential quarter due primarily to increases in salaries and employee benefits ($0.4 million), largely due to compensation accrual adjustments, merger-related expenses ($0.4 million) and other expenses ($0.4 million), including a loss on sale of an OREO property.  Noninterest expenses decreased by $0.4 million from the prior year third quarter due primarily to a $3.0 million valuation allowance adjustment on taxi medallion loans held-for-sale that occurred during the prior year third quarter, partially offset by increases in salaries and employee benefits ($1.3 million), other expenses ($0.9 million), both due to increased levels of business and staff resulting from organic growth, and merger-related expenses ($0.4 million).

Income tax expense was $2.1 million for the third quarter of 2018, $4.6 million for the second quarter of 2018 and $5.6 million for the third quarter of 2017.  Included in income tax expense for the current quarter were benefits of $1.4 million resulting from Federal and NJ DTA adjustments and $0.3 million resulting from ASU 2016-09.   Excluding these income tax expense adjustments, the Company’s effective tax rate declined to 17% for the third quarter of 2018 from 21% during the first half of 2018. This reduction is the result of implementing certain tax strategies in the second half of 2018. The effective tax rate, exclusive of income tax expense adjustments, is anticipated to increase to approximately 26% for 2019, due to the recent NJ corporate tax legislation.

Asset Quality

The provision for loan losses was $1.1 million in both the third and second quarters of 2018, and $1.5 million in the third quarter of 2017.  The provision for loan losses remained flat when compared to the prior sequential quarter.  The decrease from the prior year third quarter was the result of increased provision for the acquired portfolio during the prior year third quarter.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $53.0 million at September 30, 2018, $66.2 million at December 31, 2017 and $61.2 million at September 30, 2017. Included in nonperforming assets were taxi medallion loans totaling $28.5 million at September 30, 2018, $46.8 million at December 31, 2017 and $47.4 million at September 30, 2017.  Nonperforming assets (including taxi) as a percentage of total assets were 0.99% at September 30, 2018, 1.29% at December 31, 2017 and 1.26% at September 30, 2017.  Excluding the taxi medallion loans, nonaccrual loans were $24.5 million at September 30, 2018, $18.8 million at December 31, 2017 and $13.8 million at September 30, 2017, representing a ratio of nonaccrual loans (excluding taxi) to loans receivable of 0.55%, 0.46% and 0.35%, respectively.  The annualized net loan charge-off (recovery) ratio was (0.01)% for the third quarter of 2018, 0.01% for the fourth quarter of 2017 and (0.00%) for the third quarter of 2017. The allowance for loan losses represented 0.78%, 0.76%, and 0.77% of loans receivable as of September 30, 2018, December 31, 2017 and September 30, 2017, respectively.  The allowance for loan losses as a percentage of nonaccrual loans was 65.5% as of September 30, 2018, 48.4% as of December 31, 2017 and 48.8% as of September 30, 2017.  Excluding the taxi medallion loans, allowance for loan losses as a percentage of nonaccrual loans was 141.6% as of September 30, 2018, 168.4% as of December 31, 2017 and 217.2% as of September 30, 2017.

Selected Balance Sheet Items

At September 30, 2018, the Company’s total assets were $5.4 billion, an increase of $260 million from December 31, 2017, largely the result of an increase in total loans (loan originations less pay-downs and pay-offs) of $266 million. The Company’s stockholders’ equity was $595 million at September 30, 2018, an increase of $29 million from December 31, 2017. The increase in stockholders’ equity was primarily attributable to increases in retained earnings of $35 million, primarily offset by increases in accumulated other comprehensive losses of $7 million.  As of September 30, 2018, the Company’s tangible common equity ratio and tangible book value per share were 8.56% and $13.87, respectively.  Tangible book value per share increased $0.49, or 3.7%, from the sequential quarter.  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 September 30, 2018 and December 31, 2017.

ConnectOne Appoints New Independent Board Member

The Company also announced today that Katherin Nukk-Freeman, co-founding partner and CEO of Nukk-Freeman & Cerra, P.C., has been elected to ConnectOne’s Board of Directors. With more than 20 years of experience in employment law, Ms. Nukk-Freeman serves as a trusted advisor to corporate leaders in addressing and effectively managing workplace issues. Most recently, she co-founded SHIFT, a technology startup that provides HR compliance training tools to companies of all sizes.

“Katherin’s extensive knowledge of human resource compliance and law coupled with her technological knowledge will be a valuable asset to ConnectOne. I am thrilled to welcome her to our Board,” commented Mr. Sorrentino.

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 2018 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on October 25, 2018 to review the Company's financial performance and operating results.  The conference call dial-in number is 334-323-0522, access code 6919110. 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 "Investor Relations" 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, October 25, 2018 and ending on Thursday, November 1, 2018 by dialing 719-457-0820, access code 6919110. 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 Bancorp, Inc., through its subsidiary, ConnectOne Bank offers a broad range of commercial banking and lending services and products through its 22 banking offices located in New York and New Jersey.   ConnectOne Bancorp, Inc. is traded on the Nasdaq Global Market under the trading symbol "CNOB," and information about ConnectOne may be found at 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:
Thomas Walter, MWWPR
202.600.4532; twalter@mww.com

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
	September 30,				December 31,				September 30,
	2018				2017				2017
	(unaudited)								(unaudited)
ASSETS
Cash and due from banks	$	37,058			$	52,565			$	41,114
Interest-bearing deposits with banks		118,790				97,017				100,148
Cash and cash equivalents		155,848				149,582				141,262
Securities available-for-sale		410,039				435,284				400,516
Equity securities		11,403				-				-
Loans held-for-sale		270				24,845				89,386
Loans receivable		4,462,487				4,171,456				3,889,289
Less: Allowance for loan losses		34,749				31,748				29,870
Net loans receivable		4,427,738				4,139,708				3,859,419
Investment in restricted stock, at cost		32,486				33,497				29,672
Bank premises and equipment, net		20,998				21,659				21,917
Accrued interest receivable		17,690				15,470				14,841
Bank owned life insurance		113,026				111,311				110,762
Other real estate owned		-				538				-
Goodwill		145,909				145,909				145,909
Core deposit intangibles		1,882				2,364				2,533
Other assets		31,352				28,275				28,538
Total assets	$	5,368,641			$	5,108,442			$	4,844,755
LIABILITIES
Deposits:
Noninterest-bearing	$	758,213			$	776,843			$	719,582
Interest-bearing		3,230,552				3,018,285				2,904,187
Total deposits		3,988,765				3,795,128				3,623,769
Borrowings		629,979				670,077				585,124
Subordinated debentures (net of $1,681, $456 and $498 in debt issuance costs)		128,474				54,699				54,657
Other liabilities		26,552				23,101				23,514
Total liabilities		4,773,770				4,543,005				4,287,064
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock		412,546				412,546				412,546
Additional paid-in capital		14,625				13,602				12,840
Retained earnings		195,101				160,025				151,851
Treasury stock		(16,717	)			(16,717	)			(16,717	)
Accumulated other comprehensive loss		(10,684	)			(4,019	)			(2,829	)
Total stockholders' equity		594,871				565,437				557,691
Total liabilities and stockholders' equity	$	5,368,641			$	5,108,442			$	4,844,755

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for per share data)
	Three Months Ended						Nine Months Ended
	09/30/18			09/30/17			09/30/18			09/30/17
Interest income
Interest and fees on loans	$	51,699		$	43,241		$	148,218		$	121,879
Interest and dividends on investment securities:
Taxable		2,154			1,695			6,191			5,042
Tax-exempt		785			870			2,377			2,655
Dividends		530			362			1,517			982
Interest on federal funds sold and other short-term investments		183			170			607			555
Total interest income		55,351			46,338			158,910			131,113
Interest expense
Deposits		10,681			6,113			27,538			16,717
Borrowings		4,708			3,206			14,318			9,135
Total interest expense		15,389			9,319			41,856			25,852
Net interest income		39,962			37,019			117,054			105,261
Provision for loan losses		1,100			1,450			20,000			4,000
Net interest income after provision for loan losses		38,862			35,569			97,054			101,261
Noninterest income
Annuities and insurance commissions		-			-			-			39
Income on bank owned life insurance		751			985			2,300			2,402
Net gains on sale of loans held-for-sale		2			50			31			120
Deposit, loan and other income		676			721			1,893			2,023
Net gains on sale of investment securities		-			-			-			1,596
Total noninterest income		1,429			1,756			4,224			6,180
Noninterest expenses
Salaries and employee benefits		10,181			8,872			29,596			25,710
Occupancy and equipment		2,137			1,969			6,311			6,215
FDIC insurance		735			840			2,350			2,550
Professional and consulting		891			740			2,439			2,192
Marketing and advertising		192			225			736			770
Data processing		1,102			1,176			3,341			3,474
Merger expenses		375			-			399			-
Amortization of core deposit intangible		145			169			483			555
Increase in valuation allowance, loans held-for-sale		-			3,000			-			15,325
Other expenses		2,529			1,650			6,799			5,402
Total noninterest expenses		18,287			18,641			52,454			62,193
Income before income tax expense		22,004			18,684			48,824			45,248
Income tax expense		2,102			5,607			7,144			12,608
Net income	$	19,902		$	13,077		$	41,680		$	32,640
Earnings per common share:
Basic	$	0.62		$	0.41		$	1.30		$	1.02
Diluted		0.61			0.41			1.29			1.01
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.
CONNECTONE BANCORP, INC.
SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES
	As of
	Sept. 30,				June 30,				Mar. 31,				Dec. 31,				Sept. 30,
	2018				2018				2018				2017				2017
Selected Financial Data	(dollars in thousands)
Total assets	$	5,368,641			$	5,275,368			$	5,158,368			$	5,108,442			$	4,844,755
Loans receivable:
Commercial	$	886,212			$	808,604			$	768,640			$	781,698			$	641,613
Commercial real estate		1,282,766				1,282,426				1,275,764				1,232,037				1,254,720
Multifamily		1,504,134				1,480,243				1,400,420				1,403,256				1,330,485
Commercial construction		494,206				498,607				479,190				483,216				399,453
Residential		295,948				288,449				278,985				271,795				264,244
Consumer		2,508				5,637				2,461				2,808				1,912
Gross loans		4,465,774				4,363,966				4,205,460				4,174,810				3,892,427
Unearned net origination fees		(3,287	)			(3,112	)			(2,781	)			(3,354	)			(3,138	)
Loans receivable		4,462,487				4,360,854				4,202,679				4,171,456				3,889,289
Loans held-for-sale (net of valuation allowance)		270				-				45,886				24,845				89,386
Total loans	$	4,462,757			$	4,360,854			$	4,248,565			$	4,196,301			$	3,978,675
Investment securities	$	421,442			$	411,574			$	435,929			$	435,284			$	400,516
Goodwill and other intangible assets		147,791				147,936				148,104				148,273				148,442
Deposits:
Noninterest-bearing demand	$	758,213			$	765,150			$	739,174			$	776,843			$	719,582
Time deposits		1,322,747				1,315,843				1,255,654				1,179,969				1,078,359
Other interest-bearing deposits		1,907,805				1,824,417				1,754,759				1,838,316				1,825,828
Total deposits	$	3,988,765			$	3,905,410			$	3,749,587			$	3,795,128			$	3,623,769
Borrowings	$	629,979			$	628,995			$	695,032			$	670,077			$	585,124
Subordinated debentures (net of debt issuance costs)		128,474				128,392				128,310				54,699				54,657
Total stockholders' equity		594,871				578,557				564,266				565,437				557,691
Quarterly Average Balances
Total assets	$	5,186,173			$	5,104,661			$	5,088,823			$	4,916,549			$	4,713,487
Loans receivable:
Commercial	$	850,038			$	808,764			$	820,562			$	761,147			$	671,525
Commercial real estate (including multifamily)		2,723,572				2,654,276				2,643,466				2,566,959				2,502,846
Commercial construction		494,460				494,092				482,391				439,629				418,439
Residential		294,758				282,504				275,263				268,047				255,755
Consumer		3,205				5,685				4,659				3,849				2,555
Gross loans		4,366,033				4,245,321				4,226,341				4,039,631				3,851,120
Unearned net origination fees		(3,182	)			(3,208	)			(3,110	)			(3,485	)			(3,724	)
Loans receivable		4,362,851				4,242,113				4,223,231				4,036,146				3,847,396
Loans held-for-sale		54				30,099				24,766				57,812				51,008
Total loans	$	4,362,905			$	4,272,212			$	4,247,997			$	4,093,958			$	3,898,404
Investment securities	$	415,074			$	424,854			$	437,141			$	417,560			$	398,635
Goodwill and other intangible assets		147,883				148,046				148,215				148,383				148,553
Deposits:
Noninterest-bearing demand	$	761,782			$	719,372			$	724,471			$	712,391			$	688,707
Time deposits		1,296,165				1,280,471				1,207,368				1,114,670				1,005,997
Other interest-bearing deposits		1,854,763				1,765,577				1,815,122				1,855,688				1,816,162
Total deposits	$	3,912,710			$	3,765,420			$	3,746,961			$	3,682,749			$	3,510,866
Borrowings	$	531,251			$	613,763			$	630,117			$	588,260			$	570,711
Subordinated debentures (net of debt issuance costs)		128,420				128,339				115,182				54,672				54,630
Total stockholders' equity		590,128				574,992				575,029				567,308				556,620
	Three Months Ended
	Sept. 30,				June 30,				Mar. 31,				Dec. 31,				Sept. 30,
	2018				2018				2018				2017				2017
	(dollars in thousands, except for per share data)
Net interest income	$	39,962			$	38,945			$	38,147			$	39,808			$	37,019
Provision for loan losses		1,100				1,100				17,800				2,000				1,450
Net interest income after provision for loan losses		38,862				37,845				20,347				37,808				35,569
Noninterest income
Income on bank owned life insurance		751				775				774				779				985
Net gains on sale of loans held-for-sale		2				12				17				588				50
Deposit, loan and other income		676				601				616				657				721
Total noninterest income		1,429				1,388				1,407				2,024				1,756
Noninterest expenses
Salaries and employee benefits		10,181				9,736				9,679				9,418				8,872
Occupancy and equipment		2,137				2,031				2,143				1,948				1,969
FDIC insurance		735				765				850				935				840
Professional and consulting		891				825				723				671				740
Marketing and advertising		192				337				207				226				225
Data processing		1,102				1,091				1,148				1,069				1,176
Merger expenses		375				24				-				-				-
Amortization of core deposit intangible		145				169				169				169				169
Increase in valuation allowance, loans held-for-sale		-				-				-				267				3,000
Other expenses		2,529				2,130				2,140				1,863				1,650
Total noninterest expenses		18,287				17,108				17,059				16,566				18,641
Income before income tax expense		22,004				22,125				4,695				23,266				18,684
Income tax expense		2,102				4,598				444				12,686				5,607
Net income	$	19,902			$	17,527			$	4,251			$	10,580			$	13,077
Reconciliation of GAAP Earnings to Adjusted Earnings:
Net income	$	19,902			$	17,527			$	4,251			$	10,580			$	13,077
Merger expenses (after taxes)		297				19				-				-				-
Deferred tax valuation adjustment		(1,408	)			-				-				5,574				-
Tax benefit on employee share-based awards (ASU 2016-09)		(297	)			(49	)			(541	)			-				-
Provision related to taxi medallion loans (after taxes)		-				-				13,430				-				-
Increase in valuation allowance, loans held-for-sale (after taxes)		-				-				-				182				1,776
Net income-adjusted	$	18,494			$	17,497			$	17,140			$	16,336			$	14,853
Weighted average diluted shares outstanding		32,319,060				32,321,150				32,238,048				32,252,759				32,182,016
Diluted EPS (GAAP)	$	0.61			$	0.54			$	0.13			$	0.33			$	0.41
Diluted EPS-adjusted (Non-GAAP) (1)		0.57				0.54				0.53				0.51				0.46
Return on Assets Measures
Net income-adjusted	$	18,494			$	17,497			$	17,140			$	16,336			$	14,853
Average assets	$	5,186,173			$	5,104,661			$	5,088,823			$	4,916,549			$	4,713,487
Less: average intangible assets		(147,883	)			(148,046	)			(148,215	)			(148,383	)			(148,553	)
Average tangible assets	$	5,038,290			$	4,956,615			$	4,940,608			$	4,768,166			$	4,564,934
Return on avg. assets (GAAP)		1.52	%			1.38	%			0.34	%			0.85	%			1.10	%
Return on avg. assets-adjusted (non-GAAP) (2)		1.41				1.37				1.37				1.32				1.25
(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
	Sept. 30,				June 30,				Mar. 31,				Dec. 31,				Sept. 30,
	2018				2018				2018				2017				2017
Return on Equity Measures	(dollars in thousands)
Net income-adjusted	$	18,494			$	17,497			$	17,140			$	16,336			$	14,853
Average common equity	$	590,128			$	574,992			$	575,029			$	567,308			$	556,620
Less: average intangible assets		(147,883	)			(148,046	)			(148,215	)			(148,383	)			(148,553	)
Average tangible common equity	$	442,245			$	426,946			$	426,814			$	418,925			$	408,067
Return on avg. common equity (GAAP)		13.38	%			12.23	%			3.00	%			7.40	%			9.32	%
Return on avg. common equity-adjusted (non-GAAP) (3)		12.43				12.21				12.09				11.42				10.59
Return on avg. tangible common equity (non-GAAP) (4)		17.95				16.58				4.15				10.11				12.81
Return on avg. tangible common equity-adjusted (non-GAAP) (5)		16.68				16.55				16.40				15.57				14.54
Efficiency Measures
Total noninterest expenses	$	18,287			$	17,108			$	17,059			$	16,566			$	18,641
Increase in valuation allowance, loans held-for-sale		-				-				-				(267	)			(3,000	)
Merger expenses		(375	)			(24	)			-				-				-
Foreclosed property expense		(196	)			(11	)			(51	)			(32	)			(46	)
Operating noninterest expense	$	17,716			$	17,073			$	17,008			$	16,267			$	15,595
Net interest income (tax equivalent basis)	$	40,444			$	39,409			$	38,610			$	40,744			$	37,929
Noninterest income		1,429				1,388				1,407				2,024				1,756
Operating revenue	$	41,873			$	40,797			$	40,017			$	42,768			$	39,685
Operating efficiency ratio (non-GAAP) (6)		42.3	%			41.8	%			42.5	%			38.0	%			39.3	%
Net Interest Margin
Average interest-earning assets	$	4,856,678			$	4,771,523			$	4,799,453			$	4,603,659			$	4,378,537
Net interest income (tax equivalent basis)	$	40,444			$	39,409			$	38,610			$	40,744			$	37,929
Impact of purchase accounting fair value marks		(195	)			(680	)			(240	)			(1,026	)			(317	)
Adjusted net interest income (tax equivalent basis)	$	40,249			$	38,729			$	38,370			$	39,718			$	37,612
Net interest margin (GAAP)		3.30	%			3.31	%			3.26	%			3.51	%			3.44	%
Adjusted net interest margin (non-GAAP) (7)		3.29				3.26				3.24				3.42				3.41
(3) Adjusted earnings available to common stockholders divided by average common equity.
(4) Earnings available to common stockholders excluding amortization of intangible assets divided by average tangible common equity.
(5) Adjusted earnings available to common stockholders excluding amortization of intangible assets divided by average tangible common equity.
(6) Operating noninterest expense divided by operating revenue.
(7) Adjusted net interest margin excludes impact of purchase accounting fair value marks.
	As of
	Sept. 30,				June 30,				Mar. 31,				Dec. 31,				Sept. 30,
	2018				2018				2018				2017				2017
Capital Ratios and Book Value per Share	(dollars in thousands, except for per share data)
Common equity	$	594,871			$	578,557			$	564,266			$	565,437			$	557,691
Less: intangible assets		(147,791	)			(147,936	)			(148,104	)			(148,273	)			(148,442	)
Tangible common equity	$	447,080			$	430,621			$	416,162			$	417,164			$	409,249
Total assets	$	5,368,641			$	5,275,368			$	5,158,368			$	5,108,442			$	4,844,755
Less: intangible assets		(147,791	)			(147,936	)			(148,104	)			(148,273	)			(148,442	)
Tangible assets	$	5,220,850			$	5,127,432			$	5,010,264			$	4,960,169			$	4,696,313
Common shares outstanding		32,238,264				32,184,047				32,175,233				32,071,860				32,015,317
Common equity ratio (GAAP)		11.08	%			10.97	%			10.94	%			11.07	%			11.51	%
Tangible common equity ratio (non-GAAP) (8)		8.56				8.40				8.31				8.41				8.71
Regulatory capital ratios (Bancorp):
Leverage ratio		9.15	%			8.93	%			8.65	%			8.92	%			9.13	%
Common equity Tier 1 risk-based ratio		9.50				9.33				9.14				9.15				9.40
Risk-based Tier 1 capital ratio		9.61				9.44				9.25				9.26				9.52
Risk-based total capital ratio		12.94				12.81				12.66				11.04				11.34
Regulatory capital ratios (Bank):
Leverage ratio		10.64	%			10.43	%			10.20	%			9.84	%			10.11	%
Common equity Tier 1 risk-based ratio		11.18				11.02				10.91				10.21				10.54
Risk-based Tier 1 capital ratio		11.18				11.02				10.91				10.21				10.54
Risk-based total capital ratio		12.57				12.42				12.31				10.90				11.22
Book value per share (GAAP)	$	18.45			$	17.98			$	17.54			$	17.63			$	17.42
Tangible book value per share (non-GAAP) (9)		13.87				13.38				12.93				13.01				12.78
Net Loan Charge-Off (Recoveries) Detail
Net loan charge-offs (recoveries) :
Charge-offs	$	6			$	47			$	17,038			$	156			$	-
Recoveries		(61	)			(12	)			(19	)			(34	)			(20	)
Net loan charge-offs (recoveries)	$	(55	)		$	35			$	17,019			$	122			$	(20	)
Net loan charge-offs (recoveries) as a % of average loans receivable (annualized)		(0.01	)%			0.00	%			1.63	%			0.01	%			(0.00	)
Asset Quality
Nonaccrual taxi medallion loans	$	28,482			$	28,944			$	29,405			$	46,765			$	47,430
Nonaccrual loans (excluding taxi medallion loans)		24,533				20,771				20,631				18,848				13,755
Other real estate owned		-				1,076				1,076				538				-
Total nonperforming assets	$	53,015			$	50,791			$	51,112			$	66,151			$	61,185
Performing troubled debt restructurings	$	11,243			$	12,827			$	14,349			$	14,920			$	12,749
Allowance for loan losses ("ALLL")	$	34,749			$	33,594			$	32,529			$	31,748			$	29,870
Loans receivable	$	4,462,487			$	4,360,854			$	4,202,679			$	4,171,456			$	3,889,289
Less: taxi medallion loans		28,482				28,944				29,405				46,765				-
Loans receivable (excluding taxi medallion loans)	$	4,434,005			$	4,331,910			$	4,173,274			$	4,124,691			$	3,889,289
Loans held-for-sale (taxi medallion loans)	$	-			$	-			$	-			$	-			$	47,430
Nonaccrual loans (excluding taxi medallion loans) as a % of loans receivable (excluding taxi medallion loans)		0.55	%			0.48	%			0.49	%			0.46	%			0.35	%
Nonaccrual loans as a % of loans receivable		1.19				1.14				1.19				1.57				1.57
Nonperforming assets as a % of total assets		0.99				0.96				0.99				1.29				1.26
ALLL as a % of loans receivable		0.78				0.77				0.77				0.76				0.77
ALLL as a % of nonaccrual loans (excluding taxi medallion loans)		141.6				161.7				157.7				168.4				217.2
ALLL as a % of nonaccrual loans		65.5				67.6				65.0				48.4				48.8
(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
	September 30, 2018									June 30, 2018										September 30, 2017
	Average										Average										Average
Interest-earning assets:	Balance			Interest				Rate (8)			Balance			Interest				Rate (8)			Balance			Interest				Rate (8)
Investment securities (1) (2)	$	423,566			$	3,147		2.95	%		$	432,493			$	3,136		2.91	%		$	397,077			$	3,033		3.03	%
Total loans (2) (3) (4)		4,362,905				51,973		4.73				4,272,212				49,750		4.67				3,898,404				43,683		4.45
Federal funds sold and interest-
bearing deposits with banks		42,164				183		1.72				35,315				159		1.81				53,820				170		1.25
Restricted investment in bank stock		28,043				530		7.50				31,503				502		6.39				29,236				362		4.91
Total interest-earning assets		4,856,678				55,833		4.56				4,771,523				53,547		4.50				4,378,537				47,248		4.28
Allowance for loan losses		(33,943	)									(32,668	)									(28,999	)
Noninterest-earning assets		363,438										365,806										363,949
Total assets	$	5,186,173									$	5,104,661									$	4,713,487
Interest-bearing liabilities:
Time deposits	$	1,296,165				6,477		1.98			$	1,280,471				5,830		1.83			$	1,005,997				3,593		1.42
Other interest-bearing deposits		1,854,763				4,204		0.90				1,765,577				3,338		0.76				1,816,162				2,520		0.55
Total interest-bearing deposits		3,150,928				10,681		1.34				3,046,048				9,168		1.21				2,822,159				6,113		0.86
Borrowings		531,251				2,839		2.12				613,763				3,091		2.02				570,711				2,353		1.64
Subordinated debentures (5)		128,420				1,831		5.66				128,339				1,840		5.75				54,630				813		5.90
Capital lease obligation		2,554				38		5.90				2,589				39		6.04				2,688				40		5.90
Total interest-bearing liabilities		3,813,153				15,389		1.60				3,790,739				14,138		1.50				3,450,188				9,319		1.07
Noninterest-bearing demand deposits		761,782										719,372										688,707
Other liabilities		21,110										19,558										17,972
Total noninterest-bearing liabilities		782,892										738,930										706,679
Stockholders' equity		590,128										574,992										556,620
Total liabilities and stockholders' equity	$	5,186,173									$	5,104,661									$	4,713,487
Net interest income (tax equivalent basis)						40,444										39,409										37,929
Net interest spread (6)								2.96	%									3.00	%									3.21	%
Net interest margin (7)								3.30	%									3.31	%									3.44	%
Tax equivalent adjustment						(482	)									(463	)									(910	)
Net interest income					$	39,962									$	38,946									$	37,019
(1) Average balances are calculated on amortized cost and includes equity securities.
(2) Interest income is presented on a tax equivalent basis using a 21% federal tax rate as of September 30, 2018 and June 30, 2018 and a 35% federal tax rate as of September 30, 2017.
(3) Includes loan fee income.
(4) Loans include nonaccrual loans.
(5) Average balances are net of debt issuance costs of $1,735, $1,816, and $525 as of September 30, 2018, June 30, 2018 and September 30, 2017, respectively
Amortization expense related to debt issuance costs included in interest expense was $82, $82 and $41 as of September 30, 2018, June 30, 2018
and September 30, 2017, respectively.
(6) Represents difference between the average yield on interest-earning assets and the average cost of interest-bearing
liabilities and is presented on a tax equivalent basis.
(7) Represents net interest income on a tax equivalent basis divided by average total interest-earning assets.
(8) Rates are annualized.

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