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ConnectOne Bancorp, Inc. Reports Second Quarter 2021 Results; Declares Common Dividend

ENGLEWOOD CLIFFS, N.J., July 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 $32.2 million for the second quarter of 2021 compared with $33.0 million for the first quarter of 2021 and $14.8 million for the second quarter of 2020. Diluted earnings per share were $0.81 for the second quarter of 2021 compared with $0.82 in the first quarter of 2021 and $0.37 in the second quarter of 2020. The decrease in net income and diluted earnings per share from the first quarter of 2021 was primarily due to a $4.1 million decrease in the release of provision for credit losses, partially offset by a $1.9 million increase in net interest income, a $1.0 million increase in noninterest income, and a $0.2 million decrease income tax expense. The increase in net income and diluted earnings per share from the second quarter of 2020 was primarily due to a $16.7 million decrease in the provision for credit losses, a $2.2 million increase in net interest income, a $6.8 million decrease in noninterest expenses, offset by an $8.1 million increase in income tax expense.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “We are extremely pleased with our second quarter results highlighted by strong earnings, continued net interest margin expansion, an increase in noninterest income and best-in-class efficiency. We continued to deliver outstanding performance metrics, further solidifying our status as a top performer in the banking industry. This quarter’s pre-tax, pre-provision earnings as a percent of assets was 2.19%, return on assets was 1.71%, our return on tangible common equity was 17.8% while our tangible book value per share increased another 4% sequentially, to $18.76.”

“Our proactive, client-first approach has resulted in robust lending opportunities across our markets and beyond, delivering strong second quarter loan growth, especially towards the end of period, resulting in annualized sequential loan growth, net of Paycheck Protection Program (“PPP”) forgiveness, in excess of 20%. We remain focused on leveraging our strong technological foundation by investing in infrastructure, communication tools and digital channels to remain well-positioned for continued growth. During the quarter we benefited once again from BoeFly’s involvement in the latest round of PPP, as our fintech subsidiary continues to increase its relationships with borrowers and banking partners, further driving its revenue growth.”

“ConnectOne will continue to pursue attractive opportunities to expand our valuable franchise. While we remain disciplined in our approach to growth, the dislocation in our marketplace--resulting directly from increased M&A activity--provides ConnectOne with meaningful opportunities to expand, grow and leverage our franchise organically.”

Dividend Declaration

The Company announced that its Board of Directors declared a cash dividend on its common stock of $0.11 per share. The dividend will be paid on September 1, 2021 to shareholders of record on August 16, 2021.   

Operating Results

Fully taxable equivalent net interest income for the second quarter of 2021 was $63.4 million, an increase of $1.8 million, or 3.0%, from the first quarter of 2021 resulting primarily from a 0.7% increase in average interest-earning assets, and a 4 basis-point widening of the net interest margin to 3.60% from 3.56%. Excluding purchase accounting adjustments, the adjusted net interest margin was 3.49% for the second quarter of 2021 and 3.44% for the first quarter of 2021. The net interest margin widened as a result of continued improvement in the Bank’s cost and mix of funding sources, which more than offset a declining yield on loans and investment securities. This was the seventh consecutive quarter that the Bank’s net interest margin widened. Included in interest income in both the first and second quarters of 2021 was the accretion of PPP fee income of approximately $2.3 million. Remaining deferred and unrecognized PPP fees were $9.4 million as of June 30, 2021.

Fully taxable equivalent net interest income for the second quarter of 2021 increased by $2.2 million, or 3.5%, from the second quarter of 2020. The increase from the second quarter of 2020 resulted primarily from a 16 basis-point widening of the net interest margin to 3.60% from 3.44%, offset by a 1.5% decrease in interest-earning assets, largely due to lower levels of PPP loans.  The widening of the net interest margin resulted from a 53 basis-point reduction in the cost of interest-bearing liabilities, partially offset by a 27 basis-point reduction in the yield on average interest-earning assets.

The Company continues to gain momentum in building core noninterest revenue. Noninterest income was $4.5 million in the second quarter of 2021, $3.4 million in the first quarter of 2021 and $4.6 million in the second quarter of 2020.   Non-core items included, during the current quarter, $0.7 million in BoeFly PPP referral income and $0.2 million in securities gains; during the first quarter 2021, $0.7 million gain on the sale of branches and a $0.2 million loss on equity securities; and during the second quarter 2020, $2.3 million of BoeFly PPP referral income. Excluding the aforementioned non-core items, noninterest income increased to $3.6 million during the second quarter of 2021 from $2.9 million during the first quarter of 2021 and $2.3 million during the second quarter of 2020. Primary contributors to the increase are gains on the sale of commercial and SBA loans, and BoeFly’s growing business volumes.

Noninterest expenses totaled $26.3 million for the second quarter of 2021, $26.5 million for the first quarter of 2021 and $33.1 million for the second quarter of 2020. Noninterest expenses decreased $0.2 million from the first quarter of 2021 which resulted from decreases in FDIC insurance expense of $0.4 million and salaries and employee benefits of $0.3 million, partially offset by increases in other expenses of $0.3 million, professional and consulting expenses of $0.2 million and data processing of $0.1 million.   Included in noninterest expenses during the second quarter of 2020 were merger-related expenses of $5.2 million and an additional $2.3 million in expenses related to the BoeFly acquisition. Excluding these two items, noninterest expenses during the second quarter of 2021 increased by $0.7 million when compared to the second quarter of 2020. This increase is mainly attributable to increases in salaries and employee benefits of $0.8 million, professional and consulting expenses of $0.4 million and other expenses of $0.2 million, partially offset by decreases in FDIC insurance expense of $0.5 million and marketing and advertising expenses of $0.1 million. The Company continues to invest in building its revenue generating capabilities, which is expected to increase non-interest expenses in the second half of 2021. Notwithstanding these expected expense increases, the Company remains focused on maintaining an efficiency ratio of approximately 40% or lower.

Income tax expense was $10.7 million for the second quarter of 2021, $10.9 million for the first quarter of 2021 and $2.5 million for the second quarter of 2020. The effective tax rates for the second quarter of 2021, first quarter of 2021 and second quarter of 2020 were 24.8%, 24.8% and 14.5%, respectively. The higher effective tax rate during the first half of 2021 when compared to the second quarter of 2020 resulted from a lower proportion of income from non-taxable sources. 

Asset Quality

The (reversal of) provision for credit losses was $(1.6) million for the second quarter of 2021, $(5.8) million for the first quarter of 2021 and $15.0 million for the second quarter of 2020. The release of allowance for credit losses during the first two quarters of 2021 was the result of the continually improving macro-economic outlook during the first half of 2021. The elevated provision for loan losses for the second quarter of 2020 was due to the continued economic uncertainties of the COVID-19 pandemic, including consideration of related borrower payment deferrals requested and/or granted to date. As of June 30, 2021, the Bank had 79 loans on deferral, with a total balance of approximately $100 million. Of that total, $24.5 million, or 0.4% of loans receivable, were nonpayment deferrals, while the remaining $75.5 million, or 1.2% of loans receivable, were modifications in which borrowers are making modified principal and interest payments.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $56.2 million as of June 30, 2021, $61.7 million as of December 31, 2020 and $64.6 million as of June 30, 2020. Nonperforming assets as a percentage of total assets were 0.73% as of June 30, 2021, 0.82% as of December 31, 2020 and 0.85% as of June 30, 2020. Nonaccrual loans were $56.2 million as of June 30, 2021, $61.7 million as of December 31, 2020 and $64.6 million as of June 30, 2020, representing a ratio of nonaccrual loans to loans receivable of 0.88%, 0.99% and 1.01%, respectively. The annualized net loan charge-offs (recoveries) charge-off ratio was 0.01% for the second quarter of 2021, (0.00)% for the first quarter of 2021 and 0.03% for the second quarter of 2020. The allowance for credit losses represented 1.23%, 1.27%, and 1.08% of loans receivable as of June 30, 2021, December 31, 2020 and June 30, 2020, respectively.   Excluding PPP loans, the allowance for credit losses represented 1.29%, 1.36%, and 1.17% of loans receivable as of June 30, 2021, December 31, 2020 and June 30, 2020, respectively. The allowance for credit losses as a percentage of nonaccrual loans was 140% as of June 30, 2021, 128.4% as of December 31, 2020 and 106.4% as of June 30, 2021.

Selected Balance Sheet Items

The Company’s total assets were $7.7 billion, an increase of $162.7 million from December 31, 2020.  Loans receivable were $6.4 billion, an increase of $171.6 million from December 31, 2020. The increase in loans receivable was attributable to higher, non-PPP, loan originations, offset by decreases in PPP loans resulting from forgiveness activity.  As of June 30, 2021, PPP loans totaled $326.8 million, down $70.7 million when compared to $397.5 million as of December 31, 2020.

The Company’s stockholders’ equity was $965.0 million as of June 30, 2021, an increase of $49.7 million from December 31, 2020. The increase in stockholders’ equity was primarily attributable to an increase in retained earnings of $54.3 million, offset by decreases in accumulated other comprehensive income of $3.0 million and an increase in treasury Stock of $2.4 million. As of June 30, 2021, the Company’s tangible common equity ratio and tangible book value per share were 9.97% and $18.76, 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 $218.3 million as of June 30, 2021 and $219.2 million as of December 31, 2020.

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.

Second Quarter 2021 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on July 29, 2021 to review the Company's financial performance and operating results. The conference call dial-in number is 201-689-8471, access code 13720876. 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, July 29, 2021 and ending on Thursday, August 5, 2021 by dialing 412-317-6671, access code 13720876. 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)     
      
 June 30, December 31,  June 30,
  2021   2020   2020 
 (unaudited)   (unaudited)
ASSETS     
Cash and due from banks$59,148  $63,637  $62,764 
Interest-bearing deposits with banks 290,269   240,119   286,597 
Cash and cash equivalents 349,417   303,756   349,361 
      
Investment securities 458,933   487,955   418,426 
Equity securities 13,223   13,387   13,407 
      
Loans held-for-sale 6,159   4,710   11,212 
      
Loans receivable 6,407,904   6,236,307   6,363,267 
Less: Allowance for credit losses - loans 78,684   79,226   68,724 
Net loans receivable 6,329,220   6,157,081   6,294,543 
      
Investment in restricted stock, at cost 22,563   25,099   26,656 
Bank premises and equipment, net 28,811   30,108   31,103 
Accrued interest receivable 34,001   35,317   29,894 
Bank owned life insurance 193,209   165,960   165,056 
Right of use operating lease assets 12,504   16,159   23,771 
Goodwill 208,372   208,372   208,373 
Core deposit intangibles 9,963   10,977   12,232 
Other assets 43,707   88,458   33,150 
Total assets$7,710,082  $7,547,339  $7,617,184 
      
LIABILITIES     
Deposits:     
Noninterest-bearing$1,485,952  $1,339,108  $1,276,070 
Interest-bearing 4,706,561   4,620,116   4,550,791 
Total deposits 6,192,513   5,959,224   5,826,861 
Borrowings 353,462   425,954   667,062 
Subordinated debentures, net 152,800   202,648   202,476 
Lease liabilities 14,235   18,026   27,648 
Other liabilities 32,112   26,177   25,396 
Total liabilities 6,745,122   6,632,029   6,749,443 
      
COMMITMENTS AND CONTINGENCIES     
      
STOCKHOLDERS' EQUITY     
Common stock 586,946   586,946   586,946 
Additional paid-in capital 24,606   23,887   22,069 
Retained earnings 386,280   331,951   288,688 
Treasury stock (32,682)  (30,271)  (30,271)
Accumulated other comprehensive (loss) income (190)  2,797   309 
Total stockholders' equity 964,960   915,310   867,741 
Total liabilities and stockholders' equity$7,710,082  $7,547,339  $7,617,184 
      


CONNECTONE BANCORP, INC. AND SUBSIDIARIES       
CONSOLIDATED STATEMENTS OF INCOME       
(dollars in thousands, except for per share data)       
        
 Three Months Ended Six Months Ended
 06/30/21 06/30/20 06/30/21 06/30/20
Interest income       
Interest and fees on loans$71,101  $75,797 $141,563  $148,733
Interest and dividends on investment securities:       
Taxable 995   1,712  2,083   3,778
Tax-exempt 608   647  1,374   1,460
Dividends 263   442  519   842
Interest on federal funds sold and other short-term investments 84   79  133   578
Total interest income 73,051   78,677  145,672   155,391
Interest expense       
Deposits 6,424   13,597  14,009   30,809
Borrowings 3,618   4,290  7,491   8,511
Total interest expense 10,042   17,887  21,500   39,320
        
Net interest income 63,009   60,790  124,172   116,071
(Reversal of) provision for credit losses (1,649)  15,000  (7,415)  31,000
Net interest income after (reversal of) provision for credit losses 64,658   45,790  131,587   85,071
        
Noninterest income       
Deposit, loan and other income 2,222   3,212  3,390   4,499
Income on bank owned life insurance 1,185   1,128  2,249   2,095
Net gains on sale of loans held-for-sale 847   237  1,554   630
Gain on sale of branches -   -  674   -
Net gains (losses) on equity securities 23   44  (164)  222
Net gains on sale/redemption of investment securities 195   -  195   29
Total noninterest income 4,472   4,621  7,898   7,475
        
Noninterest expenses       
Salaries and employee benefits 15,284   14,500  30,849   29,063
Occupancy and equipment 3,187   3,156  6,591   6,627
FDIC insurance 580   1,093  1,515   1,949
Professional and consulting 2,117   1,673  4,073   3,247
Marketing and advertising 278   426  519   730
Data processing 1,603   1,586  3,139   3,059
Merger expenses -   5,146  -   14,640
Amortization of core deposit intangible 508   652  1,015   1,304
Increase in value of acquisition price -   2,333  -   2,333
Other expenses 2,702   2,498  5,043   5,169
Total noninterest expenses 26,259   33,063  52,744   68,121
        
Income before income tax expense 42,871   17,348  86,741   24,425
Income tax expense 10,652   2,516  21,523   3,563
Net income$32,219  $14,832 $65,218  $20,862
        
Earnings per common share:       
Basic$0.81  $0.37 $1.64  $0.53
Diluted 0.81   0.37  1.63   0.52
        

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 
 Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, 
  2021   2021   2020   2020   2020  
Selected Financial Data(dollars in thousands) 
Total assets$7,710,082  $7,449,639  $7,547,339  $7,449,559  $7,617,184  
Loans receivable:                
Commercial$1,046,965  $1,071,418  $1,092,404  $1,125,273  $1,151,025  
Paycheck Protection Program ("PPP") loans 326,788   522,340   397,492   474,022   473,999  
Commercial real estate 2,252,484   2,127,806   2,103,468   2,001,311   1,987,695  
Multifamily 1,914,978   1,698,331   1,712,153   1,703,290   1,723,273  
Commercial construction 587,121   565,872   617,747   614,112   673,893  
Residential 286,907   306,376   322,564   343,376   366,315  
Consumer 6,355   3,364   1,853   1,876   2,001  
Gross loans 6,421,598   6,295,508   6,247,681   6,263,260   6,378,201  
Unearned net origination fees (13,694)  (18,317)  (11,374)  (12,209)  (14,934) 
Loans receivable 6,407,904   6,277,191   6,236,307   6,251,051   6,363,267  
Loans held-for-sale 6,159   6,900   4,710   8,508   11,212  
Total loans$6,414,063  $6,284,091  $6,241,017  $6,259,559  $6,374,479  
           
Investment and equity securities$472,156  $455,223  $501,342  $466,415  $431,833  
Goodwill and other intangible assets 218,335   218,842   219,349   219,977   220,605  
Deposits:          
Noninterest-bearing demand$1,485,952  $1,384,961  $1,339,108  $1,270,021  $1,276,070  
Time deposits 1,301,807   1,356,599   1,464,133   1,619,609   1,807,864  
Other interest-bearing deposits 3,404,754   3,209,774   3,155,983   2,909,126   2,742,927  
Total deposits$6,192,513  $5,951,335  $5,959,224  $5,798,756  $5,826,861  
           
Borrowings$353,462  $359,710  $425,954  $506,225  $667,062  
Subordinated debentures (net of debt issuance costs) 152,800   152,724   202,648   202,552   202,476  
Total stockholders' equity 964,960   935,637   915,310   890,736   867,741  
           
Quarterly Average Balances          
Total assets$7,566,676  $7,500,034  $7,547,651  $7,474,002  $7,684,403  
Loans receivable:                
Commercial (including PPP loans)$1,485,918  $1,531,790  $1,557,303  $1,610,423  $1,539,749  
Commercial real estate (including multifamily) 3,925,497   3,805,856   3,704,197   3,679,297   3,722,966  
Commercial construction 553,396   595,466   615,439   646,281   675,698  
Residential 293,633   316,233   332,403   352,426   374,283  
Consumer 3,148   2,540   3,309   2,536   1,898  
Gross loans 6,261,592   6,251,885   6,212,651   6,290,963   6,314,594  
Unearned net origination fees (13,076)  (13,163)  (12,023)  (13,292)  (13,420) 
Loans receivable 6,248,516   6,238,723   6,200,628   6,277,671   6,301,174  
Loans held-for-sale 3,696   4,237   9,003   10,772   31,329  
Total loans$6,252,212  $6,242,960  $6,209,631  $6,288,443  $6,332,503  
           
Investment and equity securities$450,543  $481,802  $469,820  $429,947  $452,224  
Goodwill and other intangible assets 218,662   219,171   219,761   220,391   221,039  
Deposits:          
Noninterest-bearing demand$1,432,707  $1,348,585  $1,294,447  $1,253,235  $1,277,428  
Time deposits 1,324,510   1,422,295   1,577,338   1,728,129   1,905,165  
Other interest-bearing deposits 3,320,400   3,225,751   3,094,536   2,881,592   2,639,052  
Total deposits$6,077,617  $5,996,631  $5,966,321  $5,862,956  $5,821,645  
           
Borrowings$331,633  $375,511  $410,098  $467,399  $798,648  
Subordinated debentures (net of debt issuance costs) 152,750   154,341   202,595   202,502   141,904  
Total stockholders' equity 952,019   928,041   906,153   883,364   868,796  
           
 Three Months Ended 
 Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, 
  2021   2021   2020   2020   2020  
 (dollars in thousands, except for per share data) 
Net interest income$63,009  $61,163  $61,371  $60,549  $60,790  
Provision for credit losses (1,649)  (5,766)  5,000   5,000   15,000  
Net interest income after provision for credit losses 64,658   66,929   56,371   55,549   45,790  
Noninterest income          
Deposit, loan and other income 2,222   1,168   1,300   1,278   3,212  
Income on bank owned life insurance 1,185   1,064   1,314   1,598   1,128  
Net gains on sale of loans held-for-sale 847   707   841   614   237  
Gain on sale of branches -   674   -   -   -  
Net gains (losses) on equity securities 23   (187)  (13)  (7)  44  
Net gains on sale/redemption of investment securities 195   -   -   -   -  
Total noninterest income 4,472   3,426   3,442   3,483   4,621  
Noninterest expenses          
Salaries and employee benefits 15,284   15,565   14,581   15,114   14,500  
Occupancy and equipment 3,187   3,404   3,689   3,566   3,156  
FDIC insurance 580   935   948   1,105   1,093  
Professional and consulting 2,117   1,956   2,210   1,926   1,673  
Marketing and advertising 278   241   256   214   426  
Data processing 1,603   1,536   1,479   1,470   1,586  
Merger expenses -   -   -   -   5,146  
Amortization of core deposit intangible 508   507   628   627   652  
Increase in value of acquisition price -   -   -   -   2,333  
Other expenses 2,702   2,341   2,611   2,456   2,498  
Total noninterest expenses 26,259   26,485   26,402   26,478   33,063  
           
Income before income tax expense 42,871   43,870   33,411   32,554   17,348  
Income tax expense 10,652   10,871   7,770   7,768   2,516  
Net income$32,219  $32,999  $25,641  $24,786  $14,832  
           
Weighted average diluted shares outstanding 39,735,309   39,788,881   39,726,791   39,653,832   39,611,712  
Diluted EPS$0.81  $0.82  $0.64  $0.62  $0.37  
           
Reconciliation of GAAP Earnings to Pre-tax, Pre-provision and Pre-merger charges Earnings      
Net income$32,219  $32,999  $25,641  $24,786  $14,832  
Income tax expense 10,652   10,871   7,770   7,768   2,516  
Merger charges -   -   -   -   5,146  
Provision for credit losses (1,649)  (5,766)  5,000   5,000   15,000  
Pre-tax, pre-provision and pre-merger charges earnings$41,222  $38,104  $38,411  $37,554  $37,494  
           
Return on Assets Measures          
Average assets$7,566,676  $7,500,034  $7,547,651  $7,474,002  $7,684,403  
Return on avg. assets 1.71 % 1.78 % 1.35 % 1.32 % 0.78 %
Return on avg. assets (pre-tax, pre-provision and pre-merger charges) 2.19   2.06   2.02   2.00   1.96  
           
 Three Months Ended 
 Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, 
  2021   2021   2020   2020   2020  
Return on Equity Measures(dollars in thousands) 
Average common equity$952,019  $928,041  $906,153  $883,364  $868,796  
Less: average intangible assets (218,662)  (219,171)  (219,761)  (220,391)  (221,039) 
Average tangible common equity$733,357  $708,870  $686,392  $662,973  $647,757  
           
Return on avg. common equity (GAAP) 13.57 % 14.42 % 11.26 % 11.16 % 6.87 %
Return on avg. tangible common equity ("TCE") (non-GAAP) (1) 17.82   19.08   15.12   15.14   9.50  
           
Efficiency Measures          
Total noninterest expenses$26,259  $26,485  $26,402  $26,478  $33,063  
Amortization of core deposit intangibles (508)  (507)  (628)  (627)  (652) 
Merger expenses -   -   -   -   (5,146) 
Foreclosed property expense -   -   (2)  -   (5) 
Operating noninterest expense$25,751  $25,978  $25,772  $25,851  $27,260  
           
Net interest income (tax equivalent basis)$63,418  $61,581  $61,840  $61,005  $61,253  
Noninterest income 4,472   3,426   3,442   3,483   4,621  
Net gains on sale of branches -   (674)  -   -   -  
Net gains on sale/redemption of securities (195)  -   -   -   -  
Operating revenue$67,695  $64,333  $65,282  $64,488  $65,874  
           
Operating efficiency ratio (non-GAAP) (2) 38.0 % 40.4 % 39.5 % 40.1 % 41.4 %
           
Net Interest Margin          
Average interest-earning assets$7,059,964  $7,008,500  $7,031,662  $6,962,499  $7,164,545  
           
Net interest income (tax equivalent basis)$63,418  $61,581  $61,840  $61,005  $61,253  
Impact of purchase accounting fair value marks (2,012)  (2,074)  (2,237)  (2,403)  (3,073) 
Adjusted net interest income (tax equivalent basis)$61,406  $59,507  $59,603  $58,602  $58,180  
           
Net interest margin (GAAP) 3.60 % 3.56 % 3.50 % 3.49 % 3.44 %
Adjusted net interest margin (non-GAAP) (3) 3.49   3.44   3.37   3.35   3.27  
           
(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 
 Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, 
  2021   2021   2020   2020   2020  
Capital Ratios and Book Value per Share(dollars in thousands, except for per share data) 
Common equity$964,960  $935,637  $915,310  $890,736  $867,741  
Less: intangible assets (218,335)  (218,842)  (219,349)  (219,977)  (220,605) 
Tangible common equity$746,625  $716,795  $695,961  $670,759  $647,136  
           
Total assets$7,710,082  $7,449,639  $7,547,339  $7,449,559  $7,617,184  
Less: intangible assets (218,335)  (218,842)  (219,349)  (219,977)  (220,605) 
Tangible assets$7,491,747  $7,230,797  $7,327,990  $7,229,582  $7,396,579  
           
Common shares outstanding 39,794,815   39,773,602   39,785,398   39,753,033   39,753,033  
           
Common equity ratio (GAAP) 12.52 % 12.56 % 12.13 % 11.96 % 11.39 %
Tangible common equity ratio (non-GAAP) (4) 9.97   9.91   9.50   9.28   8.75  
           
Regulatory capital ratios (Bancorp):          
Leverage ratio 10.19 % 9.89 % 9.51 % 9.30 % 8.99 %
Common equity Tier 1 risk-based ratio 11.09   11.36   10.79   10.63   10.04  
Risk-based Tier 1 capital ratio 11.17   11.44   10.87   10.72   10.12  
Risk-based total capital ratio 14.58   15.08   15.08   14.94   14.32  
           
Regulatory capital ratios (Bank):          
Leverage ratio 11.34 % 11.06 % 10.63 % 10.41 % 10.12 %
Common equity Tier 1 risk-based ratio 12.42   12.78   12.24   12.00   11.38  
Risk-based Tier 1 capital ratio 12.42   12.78   12.24   12.00   11.38  
Risk-based total capital ratio 14.07   14.55   10.00   13.70   12.96  
           
Book value per share (GAAP)$24.25  $23.52  $23.01  $22.41  $21.83  
Tangible book value per share (non-GAAP) (5) 18.76   18.02   17.49   16.87   16.28  
           
Net Loan (Recoveries) Charge-Off Detail          
Net loan charge-offs (recoveries):          
Charge-offs$212  $-  $900  $257  $462  
Recoveries (14)  (61)  (833)  (800)  (4) 
Net loan charge-offs (recoveries)$198  $(61) $67  $(543) $458  
Net loan charge-offs (recoveries) as a % of average loans receivable (annualized) 0.01 % (0.00)% 0.00 % (0.03)% 0.03% 
           
Asset Quality          
Nonaccrual loans$56,213  $60,940  $61,696  $65,494  $64,580  
OREO -   -   -   -   -  
Nonperforming assets$56,213  $60,940  $61,696  $65,494  $64,580  
           
Performing troubled debt restructurings$33,021  $25,505  $23,655  $18,241  $20,418  
           
Allowance for credit losses - loans ("ACL") 78,684   80,568   79,226   74,267   68,724  
           
Loans receivable$6,407,904  $6,277,191  $6,236,307  $6,251,051  $6,363,267  
Less: PPP loans 326,790   522,340   397,492   474,022   473,999  
Loans receivable (excluding PPP loans)$6,081,114  $5,754,851  $5,838,815  $5,777,029  $5,889,268  
           
Nonaccrual loans as a % of loans receivable 0.88 % 0.97 % 0.99 % 1.05 % 1.01  
Nonperforming assets as a % of total assets 0.73   0.82   0.82   0.88   0.85  
ACL as a % of loans receivable 1.23   1.28   1.27   1.19   1.08  
ACL as a % of loans receivable (excluding PPP loans) 1.29   1.40   1.36   1.29   1.17  
ACL as a % of nonaccrual loans 140.0   132.2   128.4   113.4   106.4  
           
(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 
 June 30, 2021March 31, 2021June 30, 2020 
 Average     Average     Average    
Interest-earning assets:BalanceInterestRate (7) BalanceInterestRate (7) BalanceInterestRate (7)
Investment securities (1) (2)$444,460 $1,765 1.59% $473,181 $2,058 1.76% $443,282 $2,531 2.30%
Loans receivable and loans held-for-sale (2) (3) (4) 6,252,212  71,348 4.58   6,242,960  70,676 4.59   6,332,503  76,088 4.83 
Federal funds sold and interest-bearing deposits with banks 341,885  84 0.10   269,537  49 0.07   357,758  79 0.09 
Restricted investment in bank stock 21,407  263 4.93   22,822  256 4.55   31,002  442 5.73 
Total interest-earning assets 7,059,964  73,460 4.17   7,008,500  73,039 4.23   7,164,545  79,140 4.44 
Allowance for loan losses (80,548)     (81,549)     (53,502)   
Noninterest-earning assets 587,259      573,083      573,360    
Total assets$7,566,675     $7,500,034     $7,684,403    
               
Interest-bearing liabilities:              
Time deposits 1,324,510  3,963 1.20  $1,422,295 $5,151 1.47   1,905,165  9,586 2.02 
Other interest-bearing deposits 3,320,400  2,461 0.30   3,225,751  2,434 0.31   2,639,052  4,011 0.61 
Total interest-bearing deposits 4,644,910  6,424 0.55   4,648,046  7,585 0.66   4,544,217  13,597 1.20 
               
Borrowings 331,633  1,419 1.72   375,511  1,674 1.81   798,648  2,235 1.13 
Subordinated debentures 152,750  2,168 5.69   154,341  2,167 5.69   141,904  2,021 5.73 
Capital lease obligation 2,066  31 6.02   2,115  32 6.14   2,257  34 6.06 
Total interest-bearing liabilities 5,131,359  10,042 0.78   5,180,013  11,458 0.90   5,487,026  17,887 1.31 
               
Noninterest-bearing demand deposits 1,432,707      1,348,585      1,277,428    
Other liabilities 50,590      43,395      51,153    
Total noninterest-bearing liabilities 1,483,297      1,391,980      1,328,581    
Stockholders' equity 952,019      928,041      868,796    
Total liabilities and stockholders' equity$7,566,675     $7,500,034     $7,684,403    
               
Net interest income (tax equivalent basis)  63,418      61,581      61,253   
Net interest spread (5)  3.39    3.33    3.13%
               
Net interest margin (6)  3.60%   3.56%   3.44%
               
Tax equivalent adjustment  (409)     (418)     (463)  
Net interest income $63,009     $61,163     $60,790   
               
               
(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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