EdgarFiling

EX-99.1 2 exh_991.htm PRESS RELEASE EdgarFiling

EXHIBIT 99.1

ConnectOne Bancorp, Inc. Reports Third Quarter 2016 Earnings

ENGLEWOOD CLIFFS, N.J., Oct. 25, 2016 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq:CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today announced results for the third quarter ended September 30, 2016. The Company reported net income available to common stockholders of $11.9 million, or $0.39 per diluted share, compared with net income available to common stockholders of $10.9 million, or $0.36 per diluted share, for the second quarter of 2016 and $10.8 million, or $0.36 per diluted share, for the third quarter of 2015.

Highlights

Organic loan origination remained strong. Gross loan fundings were $228.7 million for the 2016 third quarter, compared with $238.4 million for the sequential quarter. Net loan growth (fundings less paydowns and payoffs) was $84.6 million for the 2016 third quarter and $112.2 million for the sequential quarter. The loan pipeline remains solid heading into the 2016 fourth quarter.
The efficiency ratio improved to 41.7% in the 2016 third quarter from 42.2% in the sequential quarter reflecting improved operating leverage. During the 2016 third quarter, total revenue, excluding securities gains, increased by an annualized 10.8%, while operating expenses increased by an annualized 5.5%.
Total average deposits grew by 9.2% sequentially during the quarter, including 10.1% growth in average noninterest-bearing deposits. The loan to deposit ratio was 105.9% at quarter-end.
Already sound asset quality metrics improved even further. The nonaccrual loan ratio declined during the 2016 third quarter to 0.33% from 0.65% in the sequential quarter, while the allowance as a percent of nonaccrual loans increased to 327.3% during the 2016 third quarter from 149.5% in the sequential quarter.
We enhanced financial flexibility by designating all held-to-maturity securities as available-for-sale. The action improves liquidity and results in an immediate pickup in tangible book value per share of approximately $0.25.
We sold approximately $75 million of investment securities, resulting in net securities gains of $4.1 million. A portion of the proceeds to be invested in securities and bank-owned life insurance (“BOLI”), and projected to result in de minimis earnings dilution.
We added an additional $5 million in reserves against our NYC-only taxi medallion portfolio, bringing the total specific reserve to 12.2% of outstanding taxi medallion loans. Although weakness persists in open-market transactions for medallions, the NYC taxi industry has recently exhibited some signs of stabilization. More than 95% of the Bank’s approximately $100 million medallion portfolio is current.
Tangible book value per share increased to $11.60 per share at September 30, 2016 from $11.09 at June 30, 2016 while the tangible common equity ratio increased to 8.39% from 8.14% over the same period.

Frank Sorrentino, ConnectOne’s Chairman and CEO stated, “Operating performance continued to accelerate during the third quarter of 2016, while we took a series of actions likely to result in improved shareholder value. We fortified our balance sheet by setting aside an additional $5 million of reserves for our NYC-taxi medallion portfolio. We changed the designation of approximately $210 million in held-to-maturity securities to available-for-sale and sold $75 million for a more than $4 million gain, thus adding liquidity, increasing capital ratios, and increasing tangible book value per share. We also resolved a large nonperforming asset in a cash transaction that contributed to lowering our September 30, 2016 nonperforming asset ratio to 0.28%. For the current quarter, return on assets was in excess of 1%, return on tangible equity was in excess of 13%, and the efficiency ratio was 41.7%, placing us among the best performing banking institutions. Additionally, we continue to see increased opportunities in our core business strategies resulting from the difficulties many of our competitors face in our markets.”

Operating Results

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 financial measures including net income available to common stockholders excluding non-core items. 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, and facilitates comparisons with the performance of peers. Reconciliations of non-GAAP disclosures used in this earnings release to the comparable GAAP measures are provided in the accompanying tables.

Third quarter 2016 results reflect the following non-core items: $1.1 million of income resulting from accretion of purchase accounting fair value marks; $0.2 million in additional loan loss provision related to the maturity and extension of acquired portfolio loans; $5.0 million in additional provision associated with the Bank’s New York City taxi medallion loan portfolio; $4.1 million of net securities gains; $0.1 million of pension settlement expenses, which had no impact on total stockholders’ equity or book value per share, and $0.2 million in amortization of intangible assets. Excluding these non-core items, along with related income tax impact, net income available to common stockholders was $12.0 million, or $0.40 per diluted share, for the third quarter of 2016, $11.4 million, or $0.38 per diluted share, for the second quarter of 2016, and $10.5 million, or $0.35 per diluted share, for the third quarter of 2015.

Fully taxable equivalent net interest income for the third quarter of 2016 was $33.8 million, an increase of $0.7 million, or 2.0%, from the second quarter of 2016. This was the result of a 3.3% increase in average interest-earning assets, partially offset by an 8 basis-point contraction of the net interest rate margin. Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.0 million during the third quarter of 2016 and $1.2 million in the second quarter of 2016. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.22% in the third quarter of 2016, contracting by 6 basis points from the second quarter of 2016 adjusted net interest margin of 3.28%. The decrease in the adjusted net interest margin was primarily attributable to an increase in average cash balances held at the Federal Reserve Bank.

Fully taxable equivalent net interest income for the third quarter of 2016 increased by $3.4 million, or 11.1%, from the same quarter of 2015. This was a result of a 17.4% increase in average interest-earning assets due to significant organic loan growth, partially offset by an 18 basis-point contraction of the net interest margin. Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.0 million during the third quarter of 2016 and $1.3 million in the same quarter of 2015. Excluding these purchase accounting adjustments, the current quarter’s adjusted net interest margin was 13 basis points lower than the 2015 third quarter adjusted net interest margin of 3.35%. The reduction in the adjusted net interest margin was due primarily to higher level of cash balances held at the Federal Reserve Bank and an increase in rates paid on deposits.

Noninterest income totaled $5.6 million in the third quarter of 2016, $1.6 million in the second quarter of 2016 and $3.8 million in the third quarter of 2015. Net securities gains were $4.1 million for the third quarter of 2016, $0.1 million for the second quarter of 2016 and $2.1 million for the third quarter of 2015. Excluding the securities gains, noninterest income remained relatively flat from the sequential quarter. At the end of the third quarter of 2016, the Bank purchased an additional $17 million in BOLI, which is expected to result in increased noninterest income in future quarters. Noninterest income also includes deposit fees, annuities and life insurance commissions, and gains on sales of residential mortgages in the secondary market.

Noninterest expenses totaled $14.6 million for the third quarter of 2016, up modestly from $14.4 million for the second quarter of 2016, due to flat salaries and employee benefits expense and a slight increase in various other expense categories. Noninterest expenses were up $1.3 million for the third quarter of 2016 when compared to $13.3 million for the third quarter of 2015. The increase was largely attributable to increases in salaries and employee benefits ($0.9 million), FDIC insurance premiums ($0.2 million) and occupancy and equipment ($0.1 million). The increases over the prior year third quarter were the result of increased levels of business and staff resulting from organic growth.

Income tax expense was $5.4 million for the third quarter of 2016, compared to $5.0 million for the second quarter of 2016 and $5.2 million for the third quarter of 2015, resulting in effective tax rates of 31.5% in 2016 and 32.5% in 2015. The effective tax rate for the full year 2016 is expected to remain at approximately 31.5%.

Asset Quality

The provision for loan and lease losses increased to $6.8 million in the third quarter of 2016 from $3.8 million in the second quarter of 2016, and from $4.2 million in the third quarter of 2015. The increases were largely attributable to an increase in additional reserves specifically allocated to the Bank’s NYC-only taxi medallion portfolio.

As of September 30, 2016, loans secured by New York City taxi medallions totaled $102.7 million. Troubled debt restructurings associated with this portfolio totaled $95.2 million and total nonaccrual loans were $3.7 million at quarter-end. Troubled debt restructurings increased by $7.2 million from the second quarter of 2016, while nonaccrual loans decreased by $0.2 million, resulting from partial charge-offs. Specific reserves for taxi medallion loans totaled $12.5 million, or 12.2%, of total taxi medallion portfolio. The Bank’s valuation of a corporate medallion, which represent approximately 95% of total exposure, was approximately $700 thousand as of September 30, 2016, down from approximately $750 thousand as of June 30, 2016.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $12.1 million at September 30, 2016, $23.3 million at December 31, 2015, and $16.1 million at September 30, 2015. Nonperforming assets as a percent of total assets were 0.28% at September 30, 2016, 0.58% at December 31, 2015, and 0.42% at September 30, 2015. Annualized net charge-offs were 0.22% for the third quarter of 2016, 0.01% for the second quarter of 2016, and 0.02% for the third quarter of 2015. The allowance for loan and lease losses was $37.6 million, representing 1.09% of loans receivable and 327.3% of nonaccrual loans at September 30, 2016. At December 31, 2015, the allowance was $26.6 million representing 0.86% of loans receivable and 128.1% of nonaccrual loans, and at September 30, 2015, the allowance was $21.5 million representing 0.73% of loans receivable and 167.1% of nonaccrual loans. In purchase accounting, any allowance for loan and lease losses on an acquired loan portfolio is reversed and a credit risk discount is applied directly to the acquired loan balances. In Management’s opinion, a useful non-GAAP metric is the ratio of allowance for loan and lease losses plus the credit risk discount to total loans receivable. This non-GAAP ratio was 1.39% at September 30, 2016, 1.28% at December 31, 2015, and 1.20% at September 30, 2015. (See Supplemental GAAP and non-GAAP Financial Measures).

Selected Balance Sheet Items

At September 30, 2016, the Company’s total assets were $4.3 billion, an increase of $312 million from December 31, 2015. Total loans at September 30, 2016 were $3.5 billion, reflecting net loan growth (loan originations less pay-downs and pay-offs) of $362 million from December 31, 2015, primarily attributable to multifamily ($80 million, including a $28 million loan reclassified during the first quarter of 2016 as multifamily from other commercial real estate), commercial and industrial (“C&I”) ($79 million), other commercial real estate ($62 million, including the aforementioned reclassification) and construction ($142 million), which reflected higher utilization of existing construction facilities. The growth in loans was primarily funded with increases in deposits.

During the third quarter of 2016, the Company transferred its held-to-maturity investment securities (approximately $210 million) to available-for-sale designation. Transferred securities were recorded at fair market value in the available-for-sale portfolio and any gains or losses were recorded in other comprehensive income, net of any deferred tax obligation. This transfer will enhance liquidity and increase flexibility with regard to asset-liability management and balance sheet composition. In addition, the Company sold approximately $75 million of investment securities with an approximate weighted average book yield of 2.80%, approximate duration of 6.5 years, and average risk weighting of approximately 50%, resulting in a net securities gain of $4.1 million.

The Company’s stockholders’ equity was $500 million at September 30, 2016, an increase of $22 million from December 31, 2015. The increase in stockholders’ equity was primarily attributable to an increase of $26 million in retained earnings, approximately $2 million of equity issuance related to stock-based compensation, including the exercise of stock options, and an increase in accumulated other comprehensive income of $5 million, offset by an $11 million payoff of SBLF preferred stock. As of September 30, 2016, the Company’s tangible common equity ratio and tangible book value per share were 8.39% and $11.60, respectively. As of December 31, 2015, the tangible common equity ratio and tangible book value per share were 8.18% and $10.51, respectively. Total goodwill and other intangible assets were approximately $149 million and $150 million as of September 30, 2016 and December 31, 2015, respectively.

About ConnectOne Bancorp, Inc.

ConnectOne is a New Jersey corporation and a registered bank holding company pursuant to the Bank Holding Company Act of 1956, as amended, 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.

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands)
	September 30,			December 31,			September 30,
		2016			2015			2015
	(unaudited)			(audited)			(unaudited)
ASSETS
Cash and due from banks	$	49,028		$	31,291		$	30,100
Interest-bearing deposits with banks		184,766			169,604			128,421
Cash and cash equivalents		233,794			200,895			158,521

Investment securities:
Available-for-sale		338,459			195,770			224,214
Held-to-maturity (fair value of $ - , $230,558, $234,493)		-			224,056			227,221

Loans held-for-sale		15,112			-			990

Loans receivable		3,445,476			3,099,007			2,953,381
Less: Allowance for loan and lease losses		37,615			26,572			21,533
Net loans receivable		3,407,861			3,072,435			2,931,848

Investment in restricted stock, at cost		24,535			32,612			30,362
Bank premises and equipment, net		22,112			22,333			21,523
Accrued interest receivable		12,497			12,545			11,662
Bank-owned life insurance		97,644			78,801			53,681
Other real estate owned		626			2,549			3,244
Goodwill		145,909			145,909			145,909
Core deposit intangibles		3,281			3,908			4,125
Other assets		25,974			24,096			24,126
Total assets	$	4,327,804		$	4,015,909		$	3,837,426

LIABILITIES
Deposits:
Noninterest-bearing	$	655,683		$	650,775		$	586,643
Interest-bearing		2,613,266			2,140,191			2,079,981
Total deposits		3,268,949			2,790,966			2,666,624
Borrowings		481,337			671,587			621,674
Subordinated debentures (net of $665, $812, $827 debt issuance costs)		54,490			54,343			54,328
Other liabilities		23,440			21,669			23,654
Total liabilities		3,828,216			3,538,565			3,366,280

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
Preferred stock		-			11,250			11,250
Common stock		374,287			374,287			374,287
Additional paid-in capital		10,409			8,527			8,315
Retained earnings		130,885			104,606			97,321
Treasury stock		(16,717	)		(16,717	)		(16,717	)
Accumulated other comprehensive gain (loss)		724			(4,609	)		(3,310	)
Total stockholders' equity		499,588			477,344			471,146
Total liabilities and stockholders' equity	$	4,327,804		$	4,015,909		$	3,837,426

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for per share data)

	Three Months Ended September 30,				Nine Months Ended September 30,
		2016		2015		2016		2015
Interest income	(unaudited)
Interest and fees on loans	$	37,803	$	32,276	$	109,381	$	91,807
Interest and dividends on investment securities:
Taxable		1,774		2,669		5,879		8,340
Tax-exempt		988		901		2,867		2,666
Dividends		352		297		1,074		797
Interest on federal funds sold and other short-term investments		261		43		541		127
Total interest income		41,178		36,186		119,742		103,737
Interest expense
Deposits		5,159		3,655		13,532		9,980
Borrowings		2,995		2,804		9,472		7,060
Total interest expense		8,154		6,459		23,004		17,040

Net interest income		33,024		29,727		96,738		86,697
Provision for loan and lease losses		6,750		4,175		13,500		7,550
Net interest income after provision for loan and lease losses		26,274		25,552		83,238		79,147

Noninterest income
Annuities and insurance commissions		68		77		140		210
Income on bank owned life insurance		615		388		1,843		1,162
Net gains on sale of loans held-for-sale		56		63		147		276
Deposit, loan and other income		706		1,224		1,984		2,145
Insurance recovery		-		-		-		2,224
Net gains on sale of investment securities		4,131		2,067		4,234		2,793
Total noninterest income		5,576		3,819		8,348		8,810

Noninterest expenses
Salaries and employee benefits		7,791		6,905		23,143		20,480
Occupancy and equipment		2,049		1,916		6,450		5,785
FDIC insurance		745		535		1,955		1,535
Professional and consulting		667		836		2,078		2,045
Marketing and advertising		293		247		817		634
Data processing		1,002		957		3,036		2,686
Loss on extinguishment of debt		-		-		-		2,397
Amortization of core deposit intangible		193		217		627		700
Other expenses		1,811		1,688		5,150		4,643
Total noninterest expenses		14,551		13,301		43,256		40,905

Income before income tax expense		17,299		16,070		48,330		47,052
Income tax expense		5,443		5,228		15,224		15,309
Net income		11,856		10,842		33,106		31,743
Less: Preferred stock dividends		-		28		22		84
Net income available to common stockholders	$	11,856	$	10,814	$	33,084	$	31,659

Earnings per common share:
Basic	$	0.39	$	0.36	$	1.10	$	1.06
Diluted	$	0.39	$	0.36	$	1.09	$	1.04
Weighted average common shares outstanding:
Basic		30,125,287		29,636,001		30,100,057		29,786,374
Diluted		30,401,684		30,108,103		30,376,085		30,323,376
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
(dollars in thousands, except share data)
	As of
	Sept. 30,			June 30,			Mar. 31,			Dec. 31,			Sept. 30,
		2016			2016			2016			2015			2015
Selected Financial Data
Total assets	$	4,327,804		$	4,262,914		$	4,091,000		$	4,015,909		$	3,837,426
Loans receivable:
Commercial		644,430			630,425			601,708			570,116			569,605
Commercial real estate-other		1,139,641			1,104,214			1,087,388			1,085,615			1,052,982
Commercial real estate-multifamily		961,163			967,555			940,913			881,081			820,732
Commercial construction		471,109			443,277			402,594			328,838			283,623
Residential		229,401			230,497			231,319			233,690			225,158
Consumer		2,879			1,976			1,851			2,454			3,569
Gross loans		3,448,623			3,377,944			3,265,773			3,101,794			2,955,669
Unearned net origination fees		(3,147	)		(2,324	)		(1,960	)		(2,787	)		(2,288	)
Loans receivable		3,445,476			3,375,620			3,263,813			3,099,007			2,953,381
Loans held-for-sale		15,112			360			-			-			990
Total loans		3,460,588			3,375,980			3,263,813			3,099,007			2,954,371

Securities available-for-sale		338,459			208,266			191,331			195,770			224,214
Securities held-to-maturity		-			214,718			219,373			224,056			227,221
Goodwill and other intangible assets		149,190			149,383			149,600			149,817			150,034
Deposits:
Noninterest-bearing		655,683			648,664			614,507			650,776			586,643
Interest-bearing		531,500			523,742			517,810			490,379			465,552
Savings		207,717			210,040			219,865			216,399			220,199
Money market		866,710			866,643			678,222			658,695			611,743
Time deposits		1,007,339			951,904			862,667			774,717			782,487
Total deposits		3,268,949			3,200,993			2,893,071			2,790,966			2,666,624

Borrowings		481,337			496,414			646,501			671,587			621,674
Subordinated debentures (net of issuance costs)		54,490			54,441			54,392			54,343			54,328
Total stockholders' equity		499,588			484,414			474,727			477,344			471,146

Quarterly Average Balances
Total assets	$	4,344,795		$	4,212,307		$	4,034,375		$	3,891,885		$	3,729,503
Loans receivable:
Commercial		632,892			626,902			585,773			579,512			567,737
Commercial real estate (including multifamily)		2,081,741			2,056,263			2,005,872			1,919,263			1,811,745
Commercial construction		462,399			418,769			361,108			313,223			255,627
Residential		229,953			231,553			236,404			232,022			227,051
Consumer		2,771			2,865			2,670			3,269			3,013
Gross loans		3,409,756			3,336,352			3,191,827			3,047,289			2,865,173
Unearned net origination fees		(2,956	)		(2,295	)		(2,397	)		(2,706	)		(2,102	)
Loans receivable		3,406,800			3,334,057			3,189,430			3,044,583			2,863,071

Securities available-for-sale		263,656			200,050			222,776			219,927			260,211
Securities held-to-maturity		143,146			218,220			194,474			225,875			229,483
Goodwill and other intangible assets		149,317			149,525			149,741			149,959			150,178
Deposits:
Noninterest-bearing		640,323			581,743			609,312			608,227			560,129
Interest-bearing		553,401			528,954			503,896			476,237			480,685
Savings		211,162			215,267			215,491			216,149			220,481
Money market		872,937			791,845			656,557			636,180			582,238
Time deposits		1,007,530			889,561			807,801			783,068			787,262
Total deposits		3,285,353			3,007,370			2,793,057			2,719,861			2,630,795

Borrowings		488,015			639,054			684,469			621,615			544,774
Subordinated debentures		55,155			55,155			55,155			55,155			55,155
Total stockholders' equity		495,141			483,519			482,503			478,919			471,682

	Three Months Ended
	Sept. 30,			June 30,			Mar. 31,			Dec. 31,			Sept. 30,
GAAP Earnings Data		2016			2016			2016			2015			2015
Net interest income	$	33,024		$	32,394		$	31,320		$	30,456		$	29,727
Provision for loan and lease losses		6,750			3,750			3,000			5,055			4,175
Net interest income after provision for loan and lease losses		26,274			28,644			28,320			25,401			25,552
Noninterest income
Annuity and insurance commissions		68			32			40			32			77
Bank-owned life insurance		615			616			612			620			388
Net gains on sale of loans held-for-sale		56			56			35			51			63
Deposit, loan and other income		706			763			515			522			1,224
Net gains on sale of investment securities		4,131			103			-			1,138			2,067
Total noninterest income		5,576			1,570			1,202			2,363			3,819
Noninterest expenses
Salaries and employee benefits		7,791			7,753			7,599			7,205			6,905
Occupancy and equipment		2,049			2,154			2,247			1,802			1,916
FDIC insurance		745			615			595			575			535
Professional and consulting		667			700			711			906			836
Marketing and advertising		293			250			184			213			247
Data processing		1,002			1,010			1,024			1,017			957
Amortization of core deposit intangible		193			217			217			217			217
Other expenses		1,811			1,653			1,776			1,644			1,688
Total noninterest expenses		14,551			14,352			14,353			13,579			13,301
Income before income tax expense		17,299			15,862			15,169			14,185			16,070
Income tax expense		5,443			5,003			4,778			4,617			5,228
Net income (GAAP)	$	11,856		$	10,859		$	10,391		$	9,568		$	10,842

	Three Months Ended
	Sept. 30,			June 30,			Mar. 31,			Dec. 31,			Sept. 30,
		2016			2016			2016			2015			2015
Net income (GAAP)		11,856			10,859			10,391			9,568			10,842
Less: preferred dividends		-			-			22			28			28
Net income available to common stockholders (GAAP)		11,856			10,859			10,369			9,540			10,814

Reconciliation of GAAP Earnings to Operating Earnings
Net gains on sales of securities	$	(4,131	)	$	(103	)	$	-		$	(1,138	)	$	(2,067	)
Partial settlements of pension obligation		69			87			103			106			168
Amortization of intangible assets		193			217			217			217			217
Provision related to maturity and extension of acquired portfolio loans		220			229			397			512			590
Provision related to taxi cab medallion loans		5,000			1,750			1,487			2,500			2,000
Provision for pending disposition of Union Center operations bldg.		-			-			-			1,304			-
Accretion of purchase accounting fair value marks		(1,077	)		(1,277	)		(1,367	)		(1,416	)		(1,340	)
Non-core items		274			903			837			2,085			(432	)
Income tax (expense) benefit		99			326			301			751			(156	)
Non-core items, after taxes (36%)		175			577			536			1,334			(276	)
Core earnings available to common stockholders (non-GAAP)	$	12,031		$	11,436		$	10,905		$	10,874		$	10,538
Weighted average diluted shares outstanding		30,401,684			30,340,376			30,257,676			30,310,905			30,335,571
Diluted EPS (GAAP)	$	0.39		$	0.36		$	0.34		$	0.31		$	0.36
Core Diluted EPS (Non-GAAP) (1)		0.40			0.38			0.36			0.36			0.35

Return on Assets Measures
Core earnings available to common stockholders (non-GAAP)	$	12,031		$	11,436		$	10,905		$	10,874		$	10,538
Add: preferred dividends		-			-			22			28			28
Core net income (non-GAAP)	$	12,031		$	11,436		$	10,927		$	10,902		$	10,566
Average assets	$	4,344,795		$	4,212,307		$	4,034,375		$	3,891,885		$	3,729,503
Less: average intangible assets		(149,317	)		(149,525	)		(149,741	)		(149,959	)		(150,178	)
Average tangible assets	$	4,195,478		$	4,062,782		$	3,884,634		$	3,741,926		$	3,579,325
Return on avg. assets (GAAP)		1.09	%		1.04	%		1.04	%		0.98	%		1.15	%
Core return on avg. assets (Non-GAAP) (2)		1.10	%		1.09	%		1.09	%		1.11	%		1.12	%
Return on avg. tangible assets (Non-GAAP) (3)		1.14	%		1.09	%		1.09	%		1.03	%		1.22	%
Core return on avg. tangible assets (Non-GAAP) (4)		1.14	%		1.13	%		1.13	%		1.16	%		1.17	%
_____
(1) Represents core earnings available to common stockholders divided by weighted average diluted shares outstanding.
(2) Core net income divided by average assets.
(3) Net income excluding amortization of intangible assets divided by average tangible assets.
(4) Core net income divided by average tangible assets.
	Three Months Ended
	Sept. 30,			June 30,			Mar. 31,			Dec. 31,			Sept. 30,
		2016			2016			2016			2015			2015
Return on Equity Measures
Core earnings available to common stockholders	$	12,031		$	11,436		$	10,905		$	10,874		$	10,538

Average common equity	$	495,141		$	483,519		$	473,849		$	467,669		$	460,432
Less: average intangible assets		(149,317	)		(149,525	)		(149,741	)		(149,959	)		(150,178	)
Average tangible common equity	$	345,824		$	333,994		$	324,108		$	317,710		$	310,254

Return on avg. common equity (GAAP)		9.53	%		9.03	%		8.80	%		8.09	%		9.32	%
Core return on avg. common equity (non-GAAP) (5)		9.67	%		9.51	%		9.26	%		9.23	%		9.08	%
Return on avg. tangible common equity (non-GAAP) (6)		13.77	%		13.23	%		13.03	%		12.07	%		13.99	%
Core return on avg. tangible common equity (non-GAAP) (7)		13.84	%		13.77	%		13.53	%		13.58	%		13.47	%

Efficiency Measures
Total noninterest expenses	$	14,551		$	14,352		$	14,353		$	13,579		$	13,301
Partial settlements of pension obligation		(69	)		(87	)		(103	)		(106	)		(168	)
Foreclosed property expense		(37	)		10			(167	)		(387	)		(121	)
Amortization of intangible assets and fair value marks		(193	)		(217	)		(217	)		(217	)		(217	)
Operating noninterest expense	$	14,252		$	14,058		$	13,866		$	12,869		$	12,795

Net interest income (FTE)	$	33,762		$	33,112		$	31,985		$	31,102		$	30,382
Impact of purchase accounting fair value marks		(1,045	)		(1,245	)		(1,335	)		(1,384	)		(1,314	)
Noninterest income		5,576			1,570			1,202			2,363			3,819
Net gains on sales of securities		(4,131	)		(103	)		-			(1,138	)		(2,067	)
Operating revenue	$	34,162		$	33,334		$	31,852		$	30,943		$	30,820

Operating efficiency ratio (non-GAAP) (8)		41.7	%		42.2	%		43.5	%		41.6	%		41.5	%

Net Interest Margin
Average interest-earning assets	$	4,041,020		$	3,912,802		$	3,728,958		$	3,582,408		$	3,441,151

Net interest income (FTE)	$	33,762		$	33,112		$	31,985		$	31,102		$	30,382
Impact of purchase accounting fair value marks		(1,045	)		(1,245	)		(1,335	)		(1,384	)		(1,314	)
Adjusted net interest income	$	32,717		$	31,867		$	30,650		$	29,718		$	29,068

Net interest margin (GAAP)		3.32	%		3.40	%		3.45	%		3.44	%		3.50	%
Adjusted net interest margin (non-GAAP) (9)		3.22	%		3.28	%		3.31	%		3.29	%		3.35	%
_____
(5) Core earnings available to common stockholders divided by average common equity.
(6) Earnings available to common stockholders excluding amortization of intangibles divided by average tangible common equity.
(7) Core earnings available to common stockholders divided by average tangible common equity.
(8) Operating noninterest expense divided by operating revenue.
(9) Adjusted net interest income divided by average interest-earning assets.
	As of
	Sept. 30,			June 30,			Mar. 31,			Dec. 31,			Sept. 30,
(dollars in thousands, except share data)		2016			2016			2016			2015			2015
Capital Ratios and Book Value per Share
Common equity	$	499,588		$	484,414		$	474,727		$	466,094		$	459,896
Less: intangible assets		(149,190	)		(149,383	)		(149,600	)		(149,817	)		(150,034	)
Tangible common equity	$	350,398		$	335,031		$	325,127		$	316,277		$	309,862

Total assets	$	4,327,804		$	4,262,914		$	4,091,000		$	4,015,909		$	3,837,426
Less: intangible assets		(149,190	)		(149,383	)		(149,600	)		(149,817	)		(150,034	)
Tangible assets	$	4,178,614		$	4,113,531		$	3,941,400		$	3,866,092		$	3,687,392

Common shares outstanding		30,197,318			30,197,318			30,163,078			30,085,663			30,197,789

Common equity ratio (GAAP)		11.54	%		11.36	%		11.60	%		11.61	%		11.98	%
Tangible common equity ratio (non-GAAP) (10)		8.39	%		8.14	%		8.25	%		8.18	%		8.40	%

Regulatory capital ratios (Bancorp):
Leverage ratio		8.49	%		8.52	%		8.66	%		9.07	%		9.26	%
Common equity Tier 1 risk-based ratio		9.25	%		9.10	%		9.05	%		9.14	%		9.33	%
Risk-based Tier 1 capital ratio		9.38	%		9.23	%		9.19	%		9.61	%		9.82	%
Risk-based total capital ratio		11.69	%		11.44	%		11.35	%		11.77	%		11.94	%

Regulatory capital ratios (Bank):
Leverage ratio		9.57	%		9.62	%		9.83	%		9.96	%		10.22	%
Common equity Tier 1 risk-based ratio		10.58	%		10.43	%		10.44	%		10.55	%		10.83	%
Risk-based Tier 1 capital ratio		10.58	%		10.43	%		10.44	%		10.55	%		10.83	%
Risk-based total capital ratio		11.57	%		11.30	%		11.23	%		11.31	%		11.47	%

Book value per share (GAAP)	$	16.54		$	16.04		$	15.74		$	15.49		$	15.23
Tangible book value per share (non-GAAP) (11)		11.60			11.09			10.78			10.51			10.26

	Three Months Ended
	Sept. 30,			June 30,			Mar. 31,			Dec. 31,			Sept. 30,
		2016			2016			2016			2015			2015
NCO Detail
Net loan charge-offs:
Charge-offs	$	1,910		$	77		$	512		$	18		$	519
Recoveries		(12	)		(16	)		(15	)		(2	)		(342	)
Net loan charge-offs	$	1,898		$	61		$	497		$	16		$	177
as a % of average total loans (annualized)		0.22	%		0.01	%		0.06	%		0.00	%		0.02	%

Asset Quality
Nonaccrual loans	$	11,493		$	21,911		$	21,450		$	20,737		$	12,888
Other real estate owned		626			2,029			1,696			2,549			3,244
Total nonperforming assets	$	12,119		$	23,940		$	23,146		$	23,286		$	16,132

Performing troubled debt restructurings	$	105,338		$	97,831		$	95,122		$	85,925		$	77,882
Loans past due 90 days and still accruing (non-PCI)	$	-		$	-		$	-		$	-		$	268

Nonaccrual loans as a % of loans receivable		0.33	%		0.65	%		0.66	%		0.67	%		0.44	%
Nonperforming assets as a % of total assets		0.28	%		0.56	%		0.57	%		0.58	%		0.42	%
Allowance for loan losses as a % of nonaccrual loans		327.3	%		149.5	%		135.5	%		128.1	%		167.1	%

Loans receivable	$	3,445,476		$	3,375,620		$	3,263,813		$	3,099,007		$	2,953,381
Acquired loans		(736,894	)		(799,851	)		(825,047	)		(866,878	)		(923,210	)
Loans receivable, excluding acquired loans	$	2,708,582		$	2,575,769		$	2,438,766		$	2,232,129		$	2,030,171

Allowance for loan losses	$	37,615		$	32,763		$	29,074		$	26,572		$	21,533
Accretable credit risk discount on acquired loans		10,408			11,198			12,101			12,955			13,893
Total allowance for loan losses and accretable credit risk discount on acquired loans	$	48,023		$	43,961		$	41,175		$	39,527		$	35,426

Allowance for loan losses as a % of loans receivable		1.09	%		0.97	%		0.89	%		0.86	%		0.73	%
Allowance for loan losses as a % of loans receivable, excluding acquired loans		1.39	%		1.27	%		1.19	%		1.19	%		1.06	%
Allowance for loan losses and accretable credit risk discount on loans as a % of loans receivable		1.39	%		1.30	%		1.26	%		1.28	%		1.20	%
_____
(10) Tangible common equity divided by tangible assets.
(11) Tangible common equity divided by common shares outstanding at period-end.

CONNECTONE BANCORP, INC.
NET INTEREST MARGIN ANALYSIS
(dollars in thousands)
	For the Three Months Ended
	September 30, 2016										June 30, 2016											September 30, 2015
	Average							(7	)			Average							(7	)			Average							(7	)
Interest-earning assets:	Balance			Interest			Rate					Balance			Interest			Rate					Balance			Interest			Rate
Investment securities (1) (2)	$	406,802		$	3,293			3.22		%		$	418,270		$	3,497			3.36		%		$	483,677		$	4,055			3.33		%
Loans receivable and loans held-for-sale (2) (3) (4)		3,407,278			38,010			4.44					3,334,057			36,743			4.43					2,863,708			32,446			4.50
Federal funds sold and interest-
bearing deposits with banks		202,106			261			0.51					128,994			146			0.46					66,867			43			0.26
Restricted investment in bank stock		24,834			352			5.64					31,481			370			4.73					26,899			297			4.38
Total interest-earning assets		4,041,020			41,916			4.13					3,912,802			40,756			4.19					3,441,151			36,841			4.25
Allowance for loan losses		(34,052	)										(29,924	)										(18,157	)
Noninterest-earning assets		337,828											329,429											306,509
Total assets	$	4,344,796										$	4,212,307										$	3,729,503

Interest-bearing liabilities:
Money market deposits	$	872,937		$	1,211			0.55				$	791,845		$	992			0.50				$	710,767		$	794			0.44
Savings deposits		211,162			158			0.30					215,267			156			0.29					220,481			146			0.26
Time deposits		1,007,530			3,323			1.31					889,561			2,857			1.29					787,262			2,391			1.20
Other interest-bearing deposits		553,401			467			0.34					528,954			429			0.33					352,156			324			0.37
Total interest-bearing deposits		2,645,030			5,159			0.78					2,425,627			4,434			0.74					2,070,666			3,655			0.70

Borrowings		488,015			2,139			1.74					639,054			2,355			1.48					544,774			1,944			1.42
Subordinated debentures (8)		55,155			814			5.87					55,155			812			5.92					55,155			816			5.87
Capital lease obligation		2,814			42			5.94					2,844			43			6.08					2,933			44			5.95
Total interest-bearing liabilities		3,191,014			8,154			1.02					3,122,680			7,644			0.98					2,673,528			6,459			0.96

Demand deposits		640,323											581,743											560,129
Other liabilities		18,318											24,365											24,164
Total noninterest-bearing liabilities		658,642											606,108											584,293
Stockholders' equity		495,141											483,519											471,682
Total liabilities and stockholders' equity	$	4,344,796										$	4,212,307										$	3,729,503

Net interest income (tax equivalent basis)					33,762											33,112											30,382
Net interest spread (5)								3.11		%									3.21		%									3.29		%

Net interest margin (6)								3.32		%									3.40		%									3.50		%

Tax equivalent adjustment					(738	)										(718	)										(655	)
Net interest income				$	33,024										$	32,394										$	29,727

(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) 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.
(6) Represents net interest income on a tax equivalent basis divided by average total interest-earning assets.
(7) Rates are annualized.
(8) Excluding debt issuance costs of $698, $746 and $ - for the three months ended September 30, 2016, June 30, 2016 and September 30, 2015, respectively.

Investor Contact:

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

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