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ConnectOne Bancorp, Inc. Reports First Quarter 2021 Results; Increases Common Dividend

ENGLEWOOD CLIFFS, N.J., April 29, 2021 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq: CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $33.0 million for the first quarter of 2021 compared with $25.6 million for the fourth quarter of 2020 and $6.0 million for the first quarter of 2020. Diluted earnings per share were $0.82 for the first quarter of 2021 compared with $0.64 in the fourth quarter of 2020 and $0.15 in the first quarter of 2020. The increase in net income and diluted earnings per share from the fourth quarter of 2020 was primarily due to a $5.8 million recapture of credit loss reserves in the current quarter reflecting the impact of the improved economic outlook on the current expected credit losses (“CECL”) accounting estimate, compared with a $5.0 million provision in the fourth quarter of 2020.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “ConnectOne’s strong first quarter results reflected continued margin expansion and industry-leading operating efficiency. While our return on assets and return on tangible common equity expanded significantly to 1.78% and 19.08%, respectively, largely due to the recapture of credit loss reserves, our operating net revenue to average assets also increased, further solidifying our status as a top performer in the banking industry.”

“Operationally, we’re using the full range of the Company’s banking expertise to help our clients and had a robust quarter in terms of overall loan production. While our first quarter loan growth was offset by paydowns, resulting from an excessive amount of liquidity in the marketplace, we’re seeing strong demand, bolstered by an improving operating environment in the New York Metropolitan area. We are very pleased with our existing loan pipeline, which is at the highest level in the Company’s history and expect net loan growth to accelerate in the quarters ahead. Further, as vaccines continue to work their way through our core footprint, we’re anticipating a significant uptick in our client activity in the near future.”

“ConnectOne’s investments in infrastructure, communication tools and digital channels have been instrumental in our success, and we will continue to leverage our strong technological foundation as we further develop our hybrid banking model. We also continue to gain momentum building out our SBA leading platform, which is serving our existing clients and supporting small businesses in the communities where we do business.”

Mr. Sorrentino added, “ConnectOne, as a growth company, is well-positioned to take advantage of an economic turnaround.   We are also pleased to announce an increase in our common stock dividend as well as the reinstatement of our share repurchase program reflecting our strong operating performance, our growing capital base, and the confidence we have in ConnectOne’s long-term outlook.”

Dividend Declaration

The Company announced that its Board of Directors declared a cash dividend on its common stock of $0.11 per share. This cash dividend represents a $0.02, or a 22.2% increase from the prior common dividend declared on January 28, 2021. The dividend will be paid on June 1, 2021 to shareholders of record on May 17, 2021.   

Operating Results

Fully taxable equivalent net interest income for the first quarter of 2021 was $61.6 million, a decrease of $0.3 million, or 0.4%, from the fourth quarter of 2020, resulting primarily from a 0.3% decrease in average interest-earning assets, and partially offset by a 6 basis-point widening of the net interest margin to 3.56% from 3.50%. While overall interest-earning assets decreased, loans increased approximately $33.3 million when compared to the fourth quarter of 2020, largely due to Paycheck Protection Program (“PPP”) originations. Included in net interest income were purchase accounting adjustments of $2.1 million during the first quarter of 2021 and $2.2 million during the fourth quarter of 2020. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.44% for the first quarter of 2021 and 3.37% for the fourth quarter of 2020. The net interest margin widened as a result of lower cash balances as well as continued improvement in the Bank’s cost and mix of funding sources including the redemption of high-coupon subordinated debt, which more than offset a declining yield on loans and investment securities. This was the sixth consecutive quarter that the Bank’s net interest margin widened. Included in interest income in the first quarter of 2021 was PPP fee income of approximately $2.3 million, compared to $2.4 million in the fourth quarter of 2020. Deferred and unrecognized PPP fees were $9.9 million as of March 31, 2021.

Fully taxable equivalent net interest income for the first quarter of 2021 increased by $5.8 million, or 10.4%, from the first quarter of 2020. The increase from the first quarter of 2020 resulted primarily from a 6.4% increase in average interest-earning assets, largely due to PPP originations, and a 15 basis-point widening of the net interest margin to 3.56% from 3.41%.  The widening of the net interest margin resulted from a 75 basis-point reduction in the cost of funding interest-earning assets, partially offset by a 49 basis-point reduction in the yield on average interest-earning assets.

Noninterest income was $3.4 million in the first quarter of 2021, $3.4 million in the fourth quarter of 2020 and $2.9 million in the first quarter of 2020. During the first quarter of 2021, the Bank completed the sale of two branches, resulting in a gain of $0.7 million, which was included in noninterest income. Excluding the branch sale, noninterest income decreased by $0.7 million from the fourth quarter of 2020 due primarily to decreases in income on bank owned life insurance of $0.3 million, net gains on equity securities of $0.2 million, net gains on sale of loans held-for-sale of $0.1 million and deposit, loan and other income of $0.1 million. Total noninterest income, excluding the branch sale, decreased $0.1 million from the first quarter of 2020. The decrease was primarily attributable to a decrease in net gains on sale of securities of $0.4 million, partially offset by an increase in net gains on sale of loans held-for-sale of $0.3 million.

Noninterest expenses totaled $26.5 million for first quarter of 2021, $26.4 million for the fourth quarter of 2020 and $35.1 million for the first quarter of 2020. Noninterest expenses increased $0.1 million from the fourth quarter of 2020, with the increases primarily coming from higher salaries and employee benefits of $1.0 million, offset by decreases in occupancy and equipment of $0.3 million, professional and consulting of $0.3 million and other expenses of $0.3 million.   The increase in salaries and employee benefits of $1.0 million during the first quarter of 2021 was primarily attributable to seasonal increases in payroll taxes and higher incentive-based, stock compensation expense. Included in noninterest expenses for the first quarter of 2020 were merger related expenses totaling $9.5 million. Excluding merger-related expenses, noninterest expenses increased by $0.9 million from the first quarter of 2020 due primarily to increases in salaries and employee benefits of $1.0 million, professional and consulting of $0.4 million, partially offset by decreases in other expenses of $0.4 million and amortization of core deposit intangible of $0.1 million.

Income tax expense was $10.9 million for the first quarter of 2021, $7.8 million for the fourth quarter of 2020 and $1.0 million for the first quarter of 2020. The effective tax rates for the first quarter of 2021, fourth quarter of 2020 and first quarter of 2020 were 24.8%, 23.3% and 14.8%, respectively. The differences in the tax rates for the periods presented resulted from different proportions of income from non-taxable sources. 

Asset Quality

As of January 1, 2021, the Company adopted the CECL accounting standard. As of March 31, 2021, the Company’s allowance for credit losses for loans was $80.6 million, an increase of $1.3 million from $79.2 million as of December 31, 2020. The increase was attributable to the “Day 1” effect of the adoption of the CECL accounting standard, which was $7.1 million, offset by a $5.8 million recapture of credit loss reserves during the first quarter of 2021. The “Day 1” CECL adoption aggregate adjustment was $9.4 million (which includes $2.8 million of allowance for credit losses attributed to unfunded commitments) and was comprised of a $5.2 million reclassification of nonaccretable credit marks and a $4.2 million pre-tax charge to shareholders’ equity.

The (reversal of) provision for credit losses was $(5.8) million for the first quarter of 2021, $5.0 million for the fourth quarter of 2020 and $16.0 million for the first quarter of 2020. The decrease in provision for credit losses during the first quarter of 2021 when compared to the fourth quarter of 2020 and to the first quarter of 2020 was the result of an improved macro-economic outlook when compared to January 1, 2021, the date of CECL implementation. As of March 31, 2021, the Bank had 102 loans on deferral, with a total balance of $204.2 million. Of that total, $43.1 million, or 0.7% of loans receivable, were nonpayment deferrals, while the remaining $161.1 million, or 2.6% of loans receivable, were modifications in which borrowers are making modified principal and interest payments. The Bank currently anticipates that by June 30, 2021, deferred loans will be reduced by approximately 50%.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $60.9 million as of March 31, 2021, $61.7 million as of December 31, 2020 and $62.4 million as of March 31, 2020. Included in nonperforming assets were taxi medallion loans totaling $23.0 million for all periods presented. Nonperforming assets as a percentage of total assets were 0.82% as of March 31, 2021, 0.82% as of December 31, 2020 and 0.86% as of March 31, 2020. Nonaccrual loans were $60.9 million as of March 31, 2021, $61.7 million as of December 31, 2020 and $62.4 million as of March 31, 2020, representing a ratio of nonaccrual loans to loans receivable of 0.97%, 0.99% and 1.04%, respectively. The annualized net loan (recoveries) charge-off ratio was (0.00)% for the first quarter of 2021, 0.00% for the fourth quarter of 2020 and 0.01% for the first quarter of 2020. The allowance for credit losses represented 1.28%, 1.27%, and 0.90% of loans receivable as of March 31, 2021, December 31, 2020 and March 31, 2020, respectively.   Excluding PPP loans, the allowance for credit losses represented 1.40%, 1.36%, and 0.90% of loans receivable as of March 31, 2021, December 31, 2020 and March 31, 2020, respectively. The allowance for credit losses as a percentage of nonaccrual loans was 132.2% as of March 31, 2021, 128.4% as of December 31, 2020 and 86.8% as of March 31, 2020.

Selected Balance Sheet Items

The Company’s total assets were $7.4 billion, a decrease of $0.1 million from December 31, 2020.  Loans receivable were $6.3 billion, an increase of $40.9 million from December 31, 2020. The increase in loans receivable was attributable to the origination of PPP loans.  As of March 31, 2021, PPP loans totaled $522.3 million.

The Company’s stockholders’ equity was $935.6 million as of March 31, 2021, an increase of $20.3 million from December 31, 2020. The increase in stockholders’ equity was primarily attributable to an increase in retained earnings of $26.5 million, partially offset by a decrease in accumulated other comprehensive income of $3.5 million and an increase in common stock repurchases of $2.4 million.  Included in retained earnings, as of March 31, 2021, was the reduction of equity due to the “Day 1” after-tax effect of the adoption of the CECL standard of $2.9 million. As of March 31, 2021, the Company’s tangible common equity ratio and tangible book value per share were 9.91% and $18.02, respectively.   As of December 31, 2020, the tangible common equity ratio and tangible book value per share were 9.50% and $17.49, respectively. Total goodwill and other intangible assets were approximately $219 million as of March 31, 2021 and $219 million as of December 31, 2020.

Share Repurchase Program

During the first quarter of 2021, the Company reinstated its previously approved share repurchase program and repurchased approximately 94,000 shares of common stock leaving a remaining capacity of approximately 511,000 shares in the Board authorized program.

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 measures. 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 financial measures disclosed in this earnings release to the comparable GAAP measures are provided in the accompanying tables.

First Quarter 2021 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on April 29, 2021 to review the Company's financial performance and operating results. The conference call dial-in number is 201-689-8471, access code 13718388. 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, April 29, 2021 and ending on Thursday, May 6, 2021 by dialing 412-317-6671, access code 13718388. 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 full suite of both commercial and consumer banking and lending products and services through its banking offices located across 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 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, as supplemented by the Company’s subsequent filings with the Securities and 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, changes in accounting principles and guidelines and the impact of the COVID-19 pandemic on the Company, its employees and operations, and its customers. 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:
Will Crockett MWW
703.944.4213; wcrockett@mww.com



CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
      
 March 31, December 31,  March 31,
  2021   2020   2020 
 (unaudited)   (unaudited)
ASSETS     
Cash and due from banks$48,250  $63,637  $59,442 
Interest-bearing deposits with banks 211,842   240,119   223,367 
Cash and cash equivalents 260,092   303,756   282,809 
      
Securities available-for-sale 442,023   487,955   446,738 
Equity securities 13,200   13,387   13,363 
      
Loans held-for-sale 6,900   4,710   32,425 
      
Loans receivable 6,277,191   6,236,307   6,009,310 
Less: Allowance for credit losses (loans) 80,568   79,226   54,169 
Net loans receivable 6,196,623   6,157,081   5,955,141 
      
Investment in restricted stock, at cost 22,483   25,099   38,554 
Bank premises and equipment, net 29,296   30,108   32,864 
Accrued interest receivable 35,249   35,317   24,317 
Bank owned life insurance 167,024   165,960   163,929 
Right of use operating lease assets 13,469   16,159   26,924 
Goodwill 208,372   208,372   208,379 
Core deposit intangibles 10,470   10,977   12,884 
Other assets 44,438   88,458   41,000 
Total assets$7,449,639  $7,547,339  $7,279,327 
      
LIABILITIES     
Deposits:     
Noninterest-bearing$1,384,961  $1,339,108  $979,778 
Interest-bearing 4,566,373   4,620,116   4,529,414 
Total deposits 5,951,334   5,959,224   5,509,192 
Borrowings 359,710   425,954   726,856 
Subordinated debentures, net 152,724   202,648   128,967 
Lease liabilities 15,260   18,026   28,731 
Other liabilities 34,974   26,177   31,871 
Total liabilities 6,514,002   6,632,029   6,425,617 
      
COMMITMENTS AND CONTINGENCIES     
      
STOCKHOLDERS' EQUITY     
Common stock 586,946   586,946   586,946 
Additional paid-in capital 23,621   23,887   21,746 
Retained earnings 358,441   331,951   273,825 
Treasury stock (32,682)  (30,271)  (30,271)
Accumulated other comprehensive (loss) income (689)  2,797   1,464 
Total stockholders' equity 935,637   915,310   853,710 
Total liabilities and stockholders' equity$7,449,639  $7,547,339  $7,279,327 
      



CONNECTONE BANCORP, INC. AND SUBSIDIARIES      
CONSOLIDATED STATEMENTS OF INCOME      
(dollars in thousands, except for per share data)      
       
 Three Months Ended 
 03/31/21 12/31/20 03/31/20 
Interest income      
Interest and fees on loans$70,462  $73,123  $72,936 
Interest and dividends on investment securities:      
Taxable 1,088   1,373   2,066 
Tax-exempt 766   649   813 
Dividends 256   374   400 
Interest on federal funds sold and other short-term investments 49   69   499 
Total interest income 72,621   75,588   76,714 
Interest expense      
Deposits 7,585   9,630   17,212 
Borrowings 3,873   4,587   4,221 
Total interest expense 11,458   14,217   21,433 
       
Net interest income 61,163   61,371   55,281 
(Reversal of) provision for credit losses (5,766)  5,000   16,000 
Net interest income after (reversal of) provision for credit losses 66,929   56,371   39,281 
       
Noninterest income      
Deposit, loan and other income 1,168   1,300   1,287 
Income on bank owned life insurance 1,064   1,314   967 
Net gains on sale of loans held-for-sale 707   841   393 
Net gains on sale of investment securities -   -   29 
Gain on sale of branches 674   -   - 
Net (losses) gains on equity securities (187)  (13)  178 
Total noninterest income 3,426   3,442   2,854 
       
Noninterest expenses      
Salaries and employee benefits 15,565   14,581   14,563 
Occupancy and equipment 3,404   3,689   3,471 
FDIC insurance 935   948   856 
Professional and consulting 1,956   2,210   1,574 
Marketing and advertising 241   256   304 
Data processing 1,536   1,479   1,473 
Merger expenses -   -   9,494 
Amortization of core deposit intangible 507   628   652 
Other expenses 2,341   2,611   2,671 
Total noninterest expenses 26,485   26,402   35,058 
       
Income before income tax expense 43,870   33,411   7,077 
Income tax expense 10,871   7,770   1,047 
Net income$32,999  $25,641  $6,030 
       
Earnings per common share:      
Basic$0.83  $0.64  $0.15 
Diluted 0.82   0.64   0.15 
       



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,
  2021   2020   2020   2020   2020 
                    
Selected Financial Data(dollars in thousands)
Total assets$7,449,639  $7,547,339  $7,449,559  $7,617,184  $7,279,327 
Loans receivable:         
Commercial$1,071,418  $1,092,404  $1,125,273  $1,151,025  $1,203,818 
Paycheck Protection Program ("PPP") loans 522,340   397,492   474,022   473,999   - 
Commercial real estate 2,127,806   2,103,468   2,001,311   1,987,695   1,981,149 
Multifamily 1,698,331   1,712,153   1,703,290   1,723,273   1,762,651 
Commercial construction 565,872   617,747   614,112   673,893   676,836 
Residential 306,376   322,564   343,376   366,315   387,400 
Consumer 3,365   1,853   1,876   2,001   1,965 
Gross loans 6,295,508   6,247,681   6,263,260   6,378,201   6,013,819 
Unearned net origination fees (18,317)  (11,374)  (12,209)  (14,934)  (4,509)
Loans receivable 6,277,191   6,236,307   6,251,051   6,363,267   6,009,310 
Loans held-for-sale 6,900   4,710   8,508   11,212   32,425 
Total loans$6,284,091  $6,241,017  $6,259,559  $6,374,479  $6,041,735 
          
Investment securities$455,223  $501,342  $466,415  $431,833  $460,101 
Goodwill and other intangible assets 218,842   219,349   219,977   220,605   221,263 
Deposits:         
Noninterest-bearing demand$1,384,961  $1,339,108  $1,270,021  $1,276,070  $979,778 
Time deposits 1,356,599   1,464,133   1,619,609   1,807,864   1,974,400 
Other interest-bearing deposits 3,209,774   3,155,983   2,909,126   2,742,927   2,555,014 
Total deposits$5,951,334  $5,959,224  $5,798,756  $5,826,861  $5,509,192 
          
Borrowings$359,710  $425,954  $506,225  $667,062  $726,856 
Subordinated debentures (net of debt issuance costs) 152,724   202,648   202,552   202,476   128,967 
Total stockholders' equity 935,637   915,310   890,736   867,741   853,710 
          
Quarterly Average Balances         
Total assets$7,500,034  $7,547,651  $7,474,002  $7,684,403  $7,106,027 
Loans receivable:         
Commercial (including PPP loans)$1,531,790  $1,557,303  $1,610,423  $1,539,749  $1,146,773 
Commercial real estate (including multifamily) 3,805,856   3,704,197   3,679,297   3,722,966   3,723,991 
Commercial construction 595,466   615,439   646,281   675,698   663,036 
Residential 316,233   332,403   352,426   374,283   390,655 
Consumer 2,540   3,309   2,536   1,898   3,007 
Gross loans 6,251,885   6,212,651   6,290,963   6,314,594   5,927,462 
Unearned net origination fees (13,162)  (12,023)  (13,292)  (13,420)  (4,648)
Loans receivable 6,238,723   6,200,628   6,277,671   6,301,174   5,922,814 
Loans held-for-sale 4,237   9,003   10,772   31,329   33,655 
Total loans$6,242,960  $6,209,631  $6,288,443  $6,332,503  $5,956,469 
          
Investment securities$481,802  $469,820  $429,947  $452,224  $458,642 
Goodwill and other intangible assets 219,171   219,761   220,391   221,039   221,075 
Deposits:         
Noninterest-bearing demand$1,348,585  $1,294,447  $1,253,235  $1,277,428  $955,358 
Time deposits 1,422,295   1,577,338   1,728,129   1,905,165   1,962,714 
Other interest-bearing deposits 3,225,751   3,094,536   2,881,592   2,639,052   2,660,755 
Total deposits$5,996,631  $5,966,321  $5,862,956  $5,821,645  $5,578,827 
          
Borrowings$375,511  $410,098  $467,399  $798,648  $477,121 
Subordinated debentures (net of debt issuance costs) 154,341   202,595   202,502   141,904   128,913 
Total stockholders' equity 928,041   906,153   883,364   868,796   864,241 
          
 Three Months Ended
 Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
  2021   2020   2020   2020   2020 
                    
 (dollars in thousands, except for per share data)
Net interest income$61,163  $61,371  $60,549  $60,790  $55,281 
(Reversal of) provision for credit losses (5,766)  5,000   5,000   15,000   16,000 
Net interest income after provision for credit losses 66,929   56,371   55,549   45,790   39,281 
Noninterest income         
Deposit, loan and other income 1,168   1,300   1,278   3,212   1,287 
Income on bank owned life insurance 1,064   1,314   1,598   1,128   967 
Net gains on sale of loans held-for-sale 707   841   614   237   393 
Net gains on sale of investment securities -   -   -   -   29 
Gain on sale of branches 674   -   -   -   - 
Net (losses) gains on equity securities (187)  (13)  (7)  44   178 
Total noninterest income 3,426   3,442   3,483   4,621   2,854 
Noninterest expenses         
Salaries and employee benefits 15,565   14,581   15,114   14,500   14,563 
Occupancy and equipment 3,404   3,689   3,566   3,156   3,471 
FDIC insurance 935   948   1,105   1,093   856 
Professional and consulting 1,956   2,210   1,926   1,673   1,574 
Marketing and advertising 241   256   214   426   304 
Data processing 1,536   1,479   1,470   1,586   1,473 
Merger expenses -   -   -   5,146   9,494 
Amortization of core deposit intangible 507   628   627   652   652 
Increase in value of acquisition price -   -   -   2,333   - 
Other expenses 2,341   2,611   2,456   2,498   2,671 
Total noninterest expenses 26,485   26,402   26,478   33,063   35,058 
          
Income before income tax expense 43,870   33,411   32,554   17,348   7,077 
Income tax expense 10,871   7,770   7,768   2,516   1,047 
Net income$32,999  $25,641  $24,786  $14,832  $6,030 
          
Weighted average diluted shares outstanding 39,788,881   39,726,791   39,653,832   39,611,712   39,510,810 
Diluted EPS$0.82  $0.64  $0.62  $0.37  $0.15 
          
Reconciliation of GAAP Earnings to Pre-tax, Pre-provision and Pre-merger charges Earnings         
Net income$32,999  $25,641  $24,786  $14,832  $6,030 
Income tax expense 10,871   7,770   7,768   2,516   1,047 
Merger charges -   -   -   5,146   9,494 
(Reversal of) provision for credit losses (5,766)  5,000   5,000   15,000   16,000 
Pre-tax, pre-provision and pre-merger charges earnings$38,104  $38,411  $37,554  $37,494  $32,571 
          
Return on Assets Measures         
Average assets$7,500,034  $7,547,651  $7,474,002  $7,684,403  $7,106,027 
Return on avg. assets 1.78%  1.35%  1.32%  0.78%  0.34%
Return on avg. assets (pre tax, pre-provision and pre-merger charges) 2.06   2.02   2.00   1.96   1.84 
          
 Three Months Ended
 Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
  2021   2020   2020   2020   2020 
                    
Return on Equity Measures(dollars in thousands)
Average common equity$928,041  $906,153  $883,364  $868,796  $864,241 
Less: average intangible assets (219,171)  (219,761)  (220,391)  (221,039)  (221,075)
Average tangible common equity$708,870  $686,392  $662,973  $647,757  $643,166 
          
Return on avg. common equity (GAAP) 14.42%  11.26%  11.16%  6.87%  2.81%
Return on avg. tangible common equity (non-GAAP) (1) 19.08   15.12   15.14   9.50   4.06 
          
Efficiency Measures         
Total noninterest expenses$26,485  $26,402  $26,478  $33,063  $35,058 
Amortization of core deposit intangibles (507)  (628)  (627)  (652)  (652)
Merger expenses -   -   -   (5,146)  (9,494)
Foreclosed property expense -   (2)  -   (5)  10 
Operating noninterest expense$25,978  $25,772  $25,851  $27,260  $24,922 
          
Net interest income (tax equivalent basis)$61,581  $61,840  $61,005  $61,253  $55,781 
Noninterest income 3,426   3,442   3,483   4,621   2,854 
Gains on sale of branches (674)  -   -   -   - 
Net gains on sales of securities -   -   -   -   (29)
Operating revenue$64,333  $65,282  $64,488  $65,874  $58,606 
          
Operating efficiency ratio (non-GAAP) (2) 40.4%  39.5%  40.1%  41.4%  42.5%
          
Net Interest Margin         
Average interest-earning assets$7,008,500  $7,031,662  $6,962,499  $7,164,545  $6,584,508 
          
Net interest income (tax equivalent basis)$61,581  $61,840  $61,005  $61,253  $55,781 
Impact of purchase accounting fair value marks (2,074)  (2,237)  (2,403)  (3,073)  (3,457)
Adjusted net interest income (tax equivalent basis)$59,507  $59,603  $58,602  $58,180  $52,324 
          
Net interest margin (GAAP) 3.56%  3.50%  3.49%  3.44%  3.41%
Adjusted net interest margin (non-GAAP) (3) 3.44   3.37   3.35   3.27   3.20 
          
(1) Earnings available to common stockholders excluding amortization of intangible assets divided by average tangible common equity.
(2) Operating noninterest expense divided by operating revenue.
(3) Adjusted net interest margin excludes impact of purchase accounting fair value marks.
          
 As of
 Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
  2021   2020   2020   2020   2020 
                    
Capital Ratios and Book Value per Share(dollars in thousands, except for per share data)
Common equity$935,637  $915,310  $890,736  $867,741  $853,710 
Less: intangible assets (218,842)  (219,349)  (219,977)  (220,605)  (221,263)
Tangible common equity$716,795  $695,961  $670,759  $647,136  $632,447 
          
Total assets$7,449,639  $7,547,339  $7,449,559  $7,617,184  $7,279,327 
Less: intangible assets (218,842)  (219,349)  (219,977)  (220,605)  (221,263)
Tangible assets$7,230,797  $7,327,990  $7,229,582  $7,396,579  $7,058,064 
          
Common shares outstanding 39,773,602   39,785,398   39,753,033   39,753,033   39,704,921 
          
Common equity ratio (GAAP) 12.56%  12.13%  11.96%  11.39%  11.73%
Tangible common equity ratio (non-GAAP) (4) 9.91   9.50   9.28   8.75   8.96 
          
Regulatory capital ratios (Bancorp):         
Leverage ratio 9.89%  9.51%  9.30%  8.99%  9.20%
Common equity Tier 1 risk-based ratio 11.38   10.79   10.63   10.04   9.63 
Risk-based Tier 1 capital ratio 11.47   10.87   10.72   10.12   9.71 
Risk-based total capital ratio 15.14   15.08   14.94   14.32   12.46 
          
Regulatory capital ratios (Bank):         
Leverage ratio 11.06%  10.63%  10.41%  10.12%  10.36%
Common equity Tier 1 risk-based ratio 12.82   12.24   12.00   11.38   10.93 
Risk-based Tier 1 capital ratio 12.82   12.24   12.00   11.38   10.93 
Risk-based total capital ratio 14.62   10.00   13.70   12.96   12.25 
          
Book value per share (GAAP)$23.52  $23.01  $22.41  $21.83  $21.50 
Tangible book value per share (non-GAAP) (5) 18.02   17.49   16.87   16.28   15.93 
          
Net Loan (Recoveries) Charge-Off Detail         
Net loan (recoveries) charge-offs:         
Charge-offs$-  $900  $257  $462  $115 
Recoveries (61)  (833)  (800)  (4)  (3)
Net loan (recoveries) charge-offs$(61) $67  $(543) $458  $112 
Net loan (recoveries) charge-offs as a % of average loans receivable (annualized) (0.00)%  0.00%  (0.03)%  0.03%  0.01%
          
Asset Quality         
Nonaccrual loans$60,940  $61,696  $65,494  $64,580  $62,373 
          
Performing troubled debt restructurings 25,505   23,655   18,241   20,418   21,293 
          
Allowance for credit losses - loans ("ACL") 80,568   79,226   74,267   68,724   54,169 
          
Loans receivable$6,277,191  $6,236,307  $6,251,051  $6,363,267  $6,009,310 
Less: PPP loans 522,340   397,492   474,022   473,999   - 
Loans receivable (excluding PPP loans)$5,754,851  $5,838,815  $5,777,029  $5,889,268  $6,009,310
 
          
Nonaccrual loans as a % of loans receivable 0.97%  0.99%  1.05%  1.01%  1.04%
Nonperforming assets as a % of total assets 0.82   0.82   0.88   0.85   0.86 
ACL as a % of loans receivable 1.28   1.27   1.19   1.08   0.90 
ACL as a % of loans receivable (excluding PPP loans) 1.40   1.36   1.29   1.17   0.90 
ACL as a % of nonaccrual loans 132.2   128.4   113.4   106.4   86.8 
          
(4) Tangible common equity divided by tangible assets.
(5) Tangible common equity divided by common shares outstanding at period-end.



CONNECTONE BANCORP, INC. AND SUBSIDIARIES
NET INTEREST MARGIN ANALYSIS
(dollars in thousands)
 For the Three Months Ended 
 March 31, 2021December 31, 2020March 31, 2020 
 Average     Average     Average    
Interest-earning assets:BalanceInterestRate (7) BalanceInterestRate (7) BalanceInterestRate (7)
Investment securities (1) (2)$473,181 $2,058 1.76% $460,471 $2,194 1.90% $452,294 $3,095 2.75%
Loans receivable and loans held-for-sale (2) (3) (4) 6,242,960  70,676 4.59   6,209,631  73,420 4.70   5,956,469  73,220 4.94 
Federal funds sold and interest-              
bearing deposits with banks 269,537  49 0.07   337,172  69 0.08   148,429  499 1.35 
Restricted investment in bank stock 22,822  256 4.55   24,388  374 6.10   27,316  400 5.89 
Total interest-earning assets 7,008,500  73,039 4.23   7,031,662  76,057 4.30   6,584,508  77,214 4.72 
Allowance for loan losses (81,549)     (74,943)     (38,970)   
Noninterest-earning assets 573,083      584,145      560,489    
Total assets$7,500,034     $7,540,864     $7,106,027    
               
Interest-bearing liabilities:              
Time deposits$1,422,295 $5,151 1.47  $1,577,338 $6,682 1.69   1,962,714  10,371 2.13 
Other interest-bearing deposits 3,225,751  2,434 0.31   3,094,536  2,948 0.38   2,660,755  6,841 1.03 
Total interest-bearing deposits 4,648,046  7,585 0.66   4,671,874  9,630 0.82   4,623,469  17,212 1.50 
               
Borrowings 375,511  1,674 1.81   410,098  1,856 1.80   477,121  2,352 1.98 
Subordinated debentures 154,341  2,167 5.69   202,595  2,699 5.30   128,913  1,834 5.72 
Capital lease obligation 2,115  32 6.14   2,164  32 5.88   2,303  35 6.11 
Total interest-bearing liabilities 5,180,013  11,458 0.90   5,286,731  14,217 1.07   5,231,806  21,433 1.65 
               
Noninterest-bearing demand deposits 1,348,585      1,294,447      955,358    
Other liabilities 43,395      53,533      54,622    
Total noninterest-bearing liabilities 1,391,980      1,347,980      1,009,980    
Stockholders' equity 928,041      906,153      864,241    
Total liabilities and stockholders' equity$7,500,034     $7,540,864     $7,106,027    
               
Net interest income (tax equivalent basis)  61,581      61,840      55,781   
Net interest spread (5)  3.33    3.23%   3.07%
               
Net interest margin (6)  3.56%   3.50%   3.41%
               
Tax equivalent adjustment  (418)     (469)     (500)  
Net interest income $61,163     $61,371     $55,281   
               
(1) Average balances are calculated on amortized cost.
(2) Interest income is presented on a tax equivalent basis using 21% federal tax rate.
(3) Includes loan fee income and accretion of purchase accounting adjustments.
(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.

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