ENGLEWOOD CLIFFS, N.J., Oct. 29, 2020 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq: CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $24.8 million for the third quarter of 2020 compared with $14.8 million for the second quarter of 2020 and $21.7 million for the third quarter of 2019.  Diluted earnings per share were $0.62 in the third quarter of 2020 compared with $0.37 in the second quarter of 2020 and $0.61 in the third quarter of 2019.  Included in net income were provisions for loan losses of $5.0 million for the third quarter of 2020, $15.0 million for the second quarter of 2020, and $2.0 million for the third quarter of 2019.  Also included in net income were merger and restructuring expenses of $5.1 million for the second quarter of 2020 and $0.2 million for the third quarter of 2019, while there were no such charges in the third quarter of 2020.  On a pre-tax, pre-provision and pre-merger charges basis, earnings were $37.6 million for the third quarter of 2020, $37.5 million for the second quarter of 2020, and $30.3 million for the third quarter of 2019.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer, stated, “ConnectOne delivered another solid operating performance this quarter, with earnings of $0.62 per share, which speaks to our strong franchise and the continued outstanding execution on our strategic priorities.  Our pre-tax, pre-provision, and pre-merger charge operating earnings, as a percent of average assets, reached 2% this quarter, reflecting a continued widening of the net interest margin and an efficiency ratio of 40%, while also driving a 4% increase in our tangible book value per share, to $16.87.  We’re operating our Bank efficiently, and effectively, and I’m incredibly proud of the way our team has performed during this unprecedented operating environment.”

“Our provision for loan losses was $5 million for the quarter, down significantly from the $31.0 million in total recorded over the two sequential quarters, as our deferred portfolio continues to decline. We currently project that total deferrals as of year-end will aggregate to $200 million to $250 million, or approximately 3% to 4% of total loans, and that more than 90% of those deferrals are well-collateralized.”

“Operationally, we continue to use our full range of banking expertise to support our clients through ConnectOne’s virtual bank model. We are a technology-forward bank and our recent investments in infrastructure, communication tools and digital channels have played an instrumental role in our success.  We’ve also continued to successfully implement our branch rationalization strategy as we’re moving towards a robust banking hubs model supported by digital tools and resources.” Mr. Sorrentino added, “Looking ahead, while the nation and the banking industry continue to face uncertainty, we feel strongly about the strength and the direction of our Company. We’re focused on long-term sustainable growth and operating ConnectOne in a disciplined manner. We’re also deeply committed to further utilizing technology to remain one of the most efficient banks in the nation.”

Dividend Declaration

The Company announced that its Board of Directors declared a cash dividend on its common stock of $0.09 per share. The dividend will be paid on December 1, 2020, to all shareholders of record on November 16, 2020.   

Operating Results

Fully taxable equivalent net interest income for the third quarter of 2020 was $61.0 million, a decrease of $0.2 million, or 0.4%, from the second quarter of 2020.  The decrease from the second quarter of 2020 resulted from a 2.8% decrease in average interest-earning assets, primarily due to lower excess liquidity, and was largely offset by a 5 basis-point widening of the net interest margin to 3.49% from 3.44%.   The widening of the net interest margin resulted from a 5 basis-point improvement in the Bank’s cost of interest-bearing liabilities due primarily to a 17 basis-point decline in interest-bearing deposit costs, which was partially offset by the repayment of Paycheck Protection Program (“PPP”) Liquidity Facility borrowings and the issuance of $75 million in subordinated notes issued at the end of the second quarter of 2020.  Included in interest income in the third quarter of 2020 was PPP fee income of approximately $3.5 million, compared to $3.7 million in the second quarter of 2020. Deferred PPP fees were $7.9 million as of September 30, 2020.

Fully taxable equivalent net interest income for the third quarter of 2020 was $61.0 million, an increase of $12.1 million, or 24.7%, from the third quarter of 2019.  The increase from the third quarter of 2019 resulted primarily from a 23.3% increase in average interest-earning assets, largely due to PPP originations and the Bancorp of New Jersey (“BNJ”) acquisition, and a 5 basis-point widening of the net interest margin to 3.49% from 3.44%.  The widening of the net interest margin resulted from a 59 basis-points reduction in the cost of funding interest-earning assets, partially offset by a 54 basis-point reduction in the rate of average interest-earning assets.

Noninterest income totaled $3.5 million in the third quarter of 2020, $4.6 million in the second quarter of 2020 and $2.1 million in the third quarter of 2019.  The decrease in noninterest income of $1.1 million from the second quarter of 2020 was primarily attributable to a second quarter 2020 non-recurring loan referral fee of $2.3 million generated by BoeFly as a result of its participation in the PPP program. This decrease was partially offset by increases in other deposit and loan fees of $0.4 million, an increase in gains on sale of loans, primarily commercial real estate, of $0.4 million, and a death benefit of $0.5 million related to a BOLI policy. The increase in noninterest income of $1.4 million from the third quarter of 2019 was primarily attributable to the aforementioned BOLI death benefit, an increase in gains on sale of loans and an increase in net securities gains.

Noninterest expenses totaled $26.5 million for the third quarter of 2020, $33.1 million for the second quarter of 2020 and $20.4 million for the third quarter of 2019.  Included in noninterest expenses were merger-related charges totaling $5.1 million and $0.2 million during the second quarter of 2020 and third quarter of 2019, respectively, while there were no such charges in the third quarter of 2020.  Additionally, second quarter of 2020 expenses included an increase in value of acquisition price charge of $2.3 million.  Excluding merger-related charges and the acquisition price adjustment, noninterest expenses increased by $0.9 million from the second quarter of 2020.  The increase was primarily the result of an increase in salaries and employee benefits of $0.6 million due to an increase in certain compensation accruals and an increase in occupancy and equipment of $0.4 million due largely to one-time items. Noninterest expenses increased by $6.3 million, excluding merger-related charges, from the third quarter of 2019.  The increase was primarily the result of the BNJ acquisition which contributed to increases in salaries and employee benefits of $2.7 million, $1.1 million in occupancy and equipment, $0.4 million in professional and consulting, and $0.4 million in data processing.  The increase in FDIC insurance expense was primarily the result of a third quarter 2019 non-recurring FDIC assessment credit of $1.3 million. 

Income tax expense was $7.8 million for the third quarter of 2020, $2.5 million for the second quarter of 2020 and $6.4 million for the third quarter of 2019.  The effective tax rates for the third quarter of 2020, second quarter of 2020 and third quarter of 2019 were 23.9%, 14.5% and 22.7%, respectively.  The increase in the effective tax rate when compared to the second quarter of 2020 and the third quarter of 2019 was primarily attributable to an increase in taxable income.

Asset Quality

In accordance with the accounting relief provisions of the CARES Act, the Company has postponed the adoption of the current expected credit losses (“CECL”) accounting standards.

The provision for loan losses was $5.0 million for the third quarter of 2020, $15.0 million for the second quarter of 2020 and $2.0 million for the third quarter of 2019.  The elevated provisions for loan losses for the third and second quarters of 2020 were due to the continued economic uncertainties of the COVID-19 pandemic, including consideration of related payment deferrals requested and/or granted. We continue to work with our borrowers, where necessary, to provide additional support and guidance during this unprecedented difficult operating environment. ConnectOne has relatively low exposure to perceived at-risk industries, such as energy and hospitality and, consistent with our extensive experience and low loss history in real estate lending, a large portion of our loan portfolio is well-secured and was underwritten with prudent loan-to-value ratios and cap rates.  Meanwhile, our well-managed commercial lending program, which has avoided higher risk industries, is virtually all borrower recourse.  Nevertheless, as the pandemic crisis persists, there remains potential for increased levels of impaired loans across all segments of the portfolio.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $65.5 million as of September 30, 2020, $49.5 million as of December 31, 2019 and $52.2 million as of September 30, 2019. Included in nonperforming assets were taxi medallion loans totaling $23.0 million as of September 30, 2020, $23.4 million as of December 31, 2019 and $25.8 million as of September 30, 2019.  Nonperforming assets (including taxi medallion loans) as a percentage of total assets were 0.88% as of September 30, 2020, 0.80% as of December 31, 2019 and 0.85% as of September 30, 2019.  Excluding the taxi medallion loans, nonaccrual loans were $42.5 million as of September 30, 2020, $26.1 million as of December 31, 2019 and $25.5 million as of September 30, 2019, representing a ratio of nonaccrual loans (excluding taxi medallion loans) to loans receivable of 0.68%, 0.51% and 0.50%, respectively.

The annualized net loan charge-off (recovery) ratio was (0.03%) for the third quarter of 2020, 0.08% for the fourth quarter of 2019 and 0.07% for the third quarter of 2019. During the third quarter of 2020, the Bank received a $0.8 million recovery on a previously charged-off commercial real estate credit.  The allowance for loan losses represented 1.19%, 0.75%, and 0.76% of loans receivable as of September 30, 2020, December 31, 2019 and September 30, 2019, respectively.  Excluding PPP loans, the allowance for loan losses represented 1.29%, 0.75%, and 0.76% of loans receivable as of September 30, 2020, December 31, 2019 and September 30, 2019, respectively.  The allowance for loan losses currently excludes approximately $5 million of purchase accounting credit marks that are expected to be added to the allowance for loan losses once CECL is implemented, resulting in an additional 8 bps to the allowance for loan losses as a percent of loans ratio. The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 174.9% as of September 30, 2020, 147.0% as of December 31, 2019 and 151.9% as of September 30, 2019.

Selected Balance Sheet Items

The Company’s total assets were $7.4 billion, an increase of $1.3 billion from December 31, 2019.  Loans receivable were $6.3 billion, an increase of $1.1 billion from December 31, 2019.  The increase in total assets and loans receivable were primarily attributable to the acquisition of BNJ and the origination of PPP loans.  As of September 30, 2020, PPP loans totaled $474.0 million. We expect the level of PPP loans to decline over the course of 2020 and into the first half of 2021 as the loans are forgiven and paid down by the SBA through the guarantee provisions of the CARES Act. 

The Company’s stockholders’ equity was $891 million as of September 30, 2020, an increase of $160 million from December 31, 2019. The increase in stockholders’ equity was primarily attributable to the acquisition of BNJ, which increased capital by $118 million and an increase of $38 million retained earnings.  As of September 30, 2020, the Company’s tangible common equity ratio and tangible book value per share were 9.28% and $16.87, respectively.  As of December 31, 2019, the tangible common equity ratio and tangible book value per share were 9.38% and $16.06, respectively. Total goodwill and other intangible assets were approximately $220 million as of September 30, 2020 and $168 million and December 31, 2019.

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.

Third Quarter 2020 Results Conference Call

Management will host a conference call and audio webcast at 10:00 a.m. ET on October 29, 2020 to review the Company’s financial performance and operating results.  The conference call dial-in number is 201-689-8471, access code 13711169 Please dial in at least five minutes before the start of the call to register. An audio webcast of the conference call will be available to the public, on a listen-only basis, via the "Investor Relations" link on the Company's website https://www.ConnectOneBank.com or at http://ir.connectonebank.com.

A replay of the conference call will be available beginning at approximately 1:00 p.m. ET on Thursday, October 29, 2020 and ending on Thursday, November 5, 2020 by dialing 412-317-6671, access code 13711169.  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:
Emily Holtzman, MWWPR
631.742.9568; eholtzman@mww.com


CONNECTONE BANCORP, INC. AND SUBSIDIARIES     
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION    
(in thousands)     
      
 September 30, December 31,  September 30,
 2020 2019 2019
 (unaudited)   (unaudited)
ASSETS     
Cash and due from banks$59,422  $65,717  $54,792 
Interest-bearing deposits with banks 196,697   135,766   139,217 
Cash and cash equivalents 256,119   201,483   194,009 
      
Securities available-for-sale 453,015   404,701   425,849 
Equity securities 13,400   11,185   11,231 
      
Loans held-for-sale 8,508   33,250   33,245 
      
Loans receivable 6,251,051   5,113,527   5,110,471 
Less: Allowance for loan losses 74,267   38,293   38,771 
Net loans receivable 6,176,784   5,075,234   5,071,700 
      
Investment in restricted stock, at cost 28,713   27,397   27,946 
Bank premises and equipment, net 29,922   19,236   19,754 
Accrued interest receivable 34,326   20,949   21,024 
Bank owned life insurance 165,676   137,961   137,048 
Right of use operating lease assets 22,830   15,137   15,789 
Other real estate owned -   -   907 
Goodwill 208,372   162,574   162,574 
Core deposit intangibles 11,605   5,460   5,800 
Other assets 40,289   59,465   34,393 
Total assets$7,449,559  $6,174,032  $6,161,269 
      
LIABILITIES     
Deposits:     
Noninterest-bearing$1,270,021  $861,728  $828,190 
Interest-bearing 4,528,735   3,905,814   3,923,044 
Total deposits 5,798,756   4,767,542   4,751,234 
Borrowings 506,225   500,293   512,456 
Operating lease liabilities 26,726   16,449   17,148 
Subordinated debentures, net of debt issuance costs 202,552   128,885   128,802 
Other liabilities 24,564   29,673   31,469 
Total liabilities 6,558,823   5,442,842   5,441,109 
      
COMMITMENTS AND CONTINGENCIES     
      
STOCKHOLDERS' EQUITY     
Common stock 586,946   468,571   468,571 
Additional paid-in capital 22,867   21,344   20,450 
Retained earnings 309,893   271,782   254,159 
Treasury stock (30,271)  (29,360)  (21,892)
Accumulated other comprehensive income (loss) 1,301   (1,147)  (1,128)
   Total stockholders' equity 890,736   731,190   720,160 
   Total liabilities and stockholders' equity$7,449,559  $6,174,032  $6,161,269 
      



CONNECTONE BANCORP, INC. AND SUBSIDIARIES      
CONSOLIDATED STATEMENTS OF INCOME       
(dollars in thousands, except for per share data)       
        
 Three Months Ended Nine Months Ended
 09/30/20 09/30/19 09/30/20 09/30/19
Interest income       
Interest and fees on loans$74,755  $66,796  $223,488 $190,646 
Interest and dividends on investment securities:       
Taxable 1,305   1,916   5,083  7,431 
Tax-exempt 688   897   2,148  3,105 
Dividends 426   502   1,268  1,369 
Interest on federal funds sold and other short-term investments 47   278   625  925 
Total interest income 77,221   70,389   232,612  203,476 
Interest expense       
Deposits 11,947   17,351   42,756  49,298 
Borrowings 4,725   4,632   13,236  15,290 
Total interest expense 16,672   21,983   55,992  64,588 
        
Net interest income 60,549   48,406   176,620  138,888 
Provision for loan losses 5,000   2,000   36,000  7,600 
Net interest income after provision for loan losses 55,549   46,406   140,620  131,288 
        
Noninterest income       
Income on bank owned life insurance 1,598   915   3,693  2,570 
Net gains on sale of loans held-for-sale 614   278   1,244  343 
Deposit, loan and other income 1,278   1,116   5,777  2,816 
Net (losses) gains on equity securities (7)  79   215  340 
Net (losses) gains on sale of securities available-for-sale -   (279)  29  (280)
Total noninterest income 3,483   2,109   10,958  5,789 
        
Noninterest expenses       
Salaries and employee benefits 15,114   12,449   44,177  36,254 
Occupancy and equipment 3,566   2,480   10,193  7,332 
FDIC insurance 1,105   (364)  3,054  1,216 
Professional and consulting 1,926   1,499   5,173  4,078 
Marketing and advertising 214   473   944  1,080 
Data processing 1,470   1,058   4,529  3,352 
Merger and restructuring expenses -   191   14,640  8,084 
Loss on extinguishment of debt -   -   -  1,047 
Amortization of core deposit intangibles 627   340   1,931  1,068 
Increase in value of acquisition price -   -   2,333  - 
Other expenses 2,456   2,253   7,625  6,520 
Total noninterest expenses 26,478   20,379   94,599  70,031 
        
Income before income tax expense 32,554   28,136   56,979  67,046 
Income tax expense 7,768   6,440   11,331  14,434 
Net income$24,786  $21,696  $45,648 $52,612 
        
Earnings per common share:       
Basic$0.62  $0.61  $1.15 $1.49 
Diluted 0.62   0.61   1.15  1.48 
        


ConnectOne's management believes that the supplemental financial information, including non-GAAP measures provided below, is useful to investors. The non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP financial measures presented by other companies.
          
CONNECTONE BANCORP, INC.         
SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES        
          
 As of
 Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
 2020 2020 2020 2019 2019
  
Selected Financial Data(dollars in thousands)
Total assets$7,449,559  $7,617,184  $7,279,327  $6,174,032  $6,161,269 
Loans receivable:         
Commercial$1,599,295  $1,625,024  $1,203,818  $1,096,224  $1,079,071 
Commercial real estate 2,001,311   1,987,695   1,981,149   1,559,354   1,551,182 
Multifamily 1,703,290   1,723,273   1,762,651   1,518,400   1,513,216 
Commercial construction 614,112   673,893   676,836   620,969   647,261 
Residential 343,376   366,315   387,400   320,019   322,307 
Consumer 1,876   2,001   1,965   3,328   2,436 
Gross loans 6,263,260   6,378,201   6,013,819   5,118,294   5,115,473 
Unearned net origination fees (12,209)  (14,934)  (4,509)  (4,767)  (5,002)
Loans receivable 6,251,051   6,363,267   6,009,310   5,113,527   5,110,471 
Loans held-for-sale 8,508   11,212   32,425   33,250   33,245 
Total loans$6,259,559  $6,374,479  $6,041,735  $5,146,777  $5,143,716 
          
Investment securities$466,415  $431,833  $460,101  $415,886  $437,080 
Goodwill and other intangible assets 219,977   220,605   221,263   168,034   168,374 
Deposits:         
Noninterest-bearing demand$1,270,021  $1,276,070  $979,778  $861,728  $828,190 
Time deposits 1,619,609   1,807,864   1,974,400   1,553,721   1,573,736 
Other interest-bearing deposits 2,909,126   2,742,927   2,555,014   2,352,093   2,349,308 
Total deposits$5,798,756  $5,826,861  $5,509,192  $4,767,542  $4,751,234 
          
Borrowings$506,225  $667,062  $726,856  $500,293  $512,456 
Subordinated debentures (net of debt issuance costs) 202,552   202,476   128,967   128,885   128,802 
Total stockholders' equity 890,736   867,741   853,710   731,190   720,160 
          
Quarterly Average Balances         
Total assets$7,474,002  $7,684,403  $7,106,027  $6,084,607  $6,059,413 
Loans receivable:         
Commercial$1,610,423  $1,539,749  $1,146,773  $1,085,640  $1,040,355 
Commercial real estate (including multifamily) 3,679,297   3,722,966   3,723,991   3,074,889   3,144,978 
Commercial construction 646,281   675,698   663,036   642,476   617,106 
Residential 352,426   374,283   390,655   318,413   325,188 
Consumer 2,536   1,898   3,007   4,165   3,525 
Gross loans 6,290,963   6,314,594   5,927,462   5,125,583   5,131,152 
Unearned net origination fees (13,292)  (13,420)  (4,648)  (5,031)  (4,778)
Loans receivable 6,277,671   6,301,174   5,922,814   5,120,552   5,126,374 
Loans held-for-sale 10,772   31,329   33,655   33,163   991 
Total loans$6,288,443  $6,332,503  $5,956,469  $5,153,715  $5,127,365 
          
Investment securities$429,947  $452,224  $458,642  $427,973  $448,618 
Goodwill and other intangible assets 220,391   221,039   221,075   168,257   168,598 
Deposits:         
Noninterest-bearing demand$1,253,235  $1,277,428  $955,358  $844,332  $810,247 
Time deposits 1,728,129   1,905,165   1,962,714   1,533,425   1,598,378 
Other interest-bearing deposits 2,881,592   2,639,052   2,660,755   2,348,752   2,300,886 
Total deposits$5,862,956  $5,821,645  $5,578,827  $4,726,509  $4,709,511 
          
Borrowings$467,399  $798,648  $477,121  $452,837  $467,230 
Subordinated debentures (net of debt issuance costs) 202,502   141,904   128,913   128,830   128,747 
Total stockholders' equity 883,364   868,796   864,241   732,173   714,002 
          
 Three Months Ended
 Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
 2020 2020 2020 2019 2019
  
 (dollars in thousands, except for per share data)
Net interest income$60,549  $60,790  $55,281  $47,431  $48,406 
Provision for loan losses 5,000   15,000   16,000   500   2,000 
Net interest income after provision for loan losses 55,549   45,790   39,281   46,931   46,406 
Noninterest income         
Income on bank owned life insurance 1,598   1,128   967   914   915 
Net gains on sale of loans held-for-sale 614   237   393   169   278 
Deposit, loan and other income 1,278   3,212   1,287   1,209   1,116 
Net (losses) gains on equity securities (7)  44   178   (46)  79 
Net gains (losses) on sale of investment securities -   -   29   -   (279)
Total noninterest income 3,483   4,621   2,854   2,246   2,109 
Noninterest expenses         
Salaries and employee benefits 15,114   14,500   14,563   12,881   12,449 
Occupancy and equipment 3,566   3,156   3,471   2,380   2,480 
FDIC insurance 1,105   1,093   856   795   (364)
Professional and consulting 1,926   1,673   1,574   1,428   1,499 
Marketing and advertising 214   426   304   273   473 
Data processing 1,470   1,586   1,473   1,151   1,058 
Merger expenses -   5,146   9,494   871   191 
Amortization of core deposit intangible 627   652   652   340   340 
Increase in value of acquisition price -   2,333   -   -   - 
Other expenses 2,456   2,498   2,671   2,078   2,253 
Total noninterest expenses 26,478   33,063   35,058   22,197   20,379 
          
Income before income tax expense 32,554   17,348   7,077   26,980   28,136 
Income tax expense 7,768   2,516   1,047   6,197   6,440 
Net income$24,786  $14,832  $6,030  $20,783  $21,696 
          
Weighted average diluted shares outstanding 39,653,832   39,611,712   39,510,810   35,245,285   35,262,565 
Diluted EPS$0.62  $0.37  $0.15  $0.59  $0.61 
          
Reconciliation of GAAP Earnings to Pre-tax, Pre-provision and Pre-merger charges Earnings         
Net income$24,786  $14,832  $6,030  $20,783  $21,696 
Income tax expense 7,768   2,516   1,047   6,197   6,440 
Merger charges -   5,146   9,494   871   191 
Provision for loan losses 5,000   15,000   16,000   500   2,000 
Pre-tax, pre-provision and pre-merger charges earnings$37,554  $37,494  $32,571  $28,351  $30,327 
          
Return on Assets Measures         
Average assets$7,474,002  $7,684,403  $7,106,027  $6,084,607  $6,059,413 
Return on avg. assets 1.32%  0.78%  0.34%  1.36%  1.42%
Return on avg. assets (pre tax, pre-provision and pre-merger charges) 2.00   1.96   1.84   1.85   1.99 
          
 Three Months Ended
 Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
 2020 2020 2020 2019 2019
  
Return on Equity Measures(dollars in thousands)
Average common equity$883,364  $868,796  $864,241  $732,173  $714,002 
Less: average intangible assets (220,391)  (221,039)  (221,075)  (168,257)  (168,598)
Average tangible common equity$662,973  $647,757  $643,166  $563,916  $545,404 
          
Return on avg. common equity (GAAP) 11.16%  6.87%  2.81%  11.26%  12.06%
Return on avg. tangible common equity (non-GAAP) (1) 15.14   9.50   4.06   14.79   15.96 
          
Efficiency Measures         
Total noninterest expenses$26,478  $33,063  $35,058  $22,197  $20,379 
Amortization of core deposit intangibles (627)  (652)  (652)  (340)  (340)
Merger expenses -   (5,146)  (9,494)  (871)  (191)
FDIC small bank assessment credit -   -   -   -   1,310 
Foreclosed property expense -   (5)  10   8   (90)
Operating noninterest expense$25,851  $27,260  $24,922  $20,994  $21,068 
          
Net interest income (tax equivalent basis)$61,005  $61,253  $55,781  $47,929  $48,918 
Noninterest income 3,483   4,621   2,854   2,246   2,109 
Net losses (gains) on equity securities 7   (44)  (178)  46   (79)
Net (gains) losses on sales of securities -   -   (29)  -   279 
Operating revenue$64,495  $65,830  $58,428  $50,221  $51,227 
          
Operating efficiency ratio (non-GAAP) (2) 40.1%  41.4%  42.7%  41.8%  41.1%
          
Net Interest Margin         
Average interest-earning assets$6,962,499  $7,164,545  $6,584,508  $5,663,538  $5,649,058 
          
Net interest income (tax equivalent basis)$61,005  $61,253  $55,781  $47,929  $48,918 
Impact of purchase accounting fair value marks (2,403)  (3,073)  (3,457)  (1,455)  (1,566)
Adjusted net interest income (tax equivalent basis)$58,602  $58,180  $52,324  $46,474  $47,352 
          
Net interest margin (GAAP) 3.49%  3.44%  3.41%  3.36%  3.44%
Adjusted net interest margin (non-GAAP) (3) 3.35   3.27   3.20   3.26   3.33 
____________         
(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
 Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
 2020 2020 2020 2019 2019
  
Capital Ratios and Book Value per Share(dollars in thousands, except for per share data)
Common equity$890,736  $867,741  $853,710  $731,190  $720,160 
Less: intangible assets (219,977)  (220,605)  (221,263)  (168,034)  (168,374)
Tangible common equity$670,759  $647,136  $632,447  $563,156  $551,786 
          
Total assets$7,449,559  $7,617,184  $7,279,327  $6,174,032  $6,161,269 
Less: intangible assets (219,977)  (220,605)  (221,263)  (168,034)  (168,374)
Tangible assets$7,229,582  $7,396,579  $7,058,064  $6,005,998  $5,992,895 
          
Common shares outstanding 39,754,051   39,753,033   39,704,921   35,072,066   35,364,845 
          
Common equity ratio (GAAP) 11.96%  11.39%  11.73%  11.84%  11.69%
Tangible common equity ratio (non-GAAP) (4) 9.28   8.75   8.96   9.38   9.21 
          
Regulatory capital ratios (Bancorp):         
Leverage ratio 9.30%  8.99%  9.20%  9.54%  9.39%
Common equity Tier 1 risk-based ratio 10.63   10.04   9.63   9.95   9.78 
Risk-based Tier 1 capital ratio 10.72   10.12   9.71   10.04   9.87 
Risk-based total capital ratio 14.94   14.32   12.46   12.95   12.80 
          
Regulatory capital ratios (Bank):         
Leverage ratio 10.41%  10.12%  10.36%  10.81%  10.68%
Common equity Tier 1 risk-based ratio 12.00   11.38   10.93   11.37   11.23 
Risk-based Tier 1 capital ratio 12.00   11.38   10.93   11.37   11.23 
Risk-based total capital ratio 13.70   12.96   12.25   12.63   12.50 
          
Book value per share (GAAP)$22.41  $21.83  $21.50  $20.85  $20.36 
Tangible book value per share (non-GAAP) (5) 16.87   16.28   15.93   16.06   15.60 
          
Net Loan (Recoveries) Charge-Off Detail         
Net loan charge-offs (recoveries) :         
Charge-offs$257  $449  $127  $1,029  $964 
Recoveries (800)  (4)  (3)  (22)  (37)
Net loan (recoveries) charge-offs$(543) $445  $124  $1,007  $927 
Net loan (recoveries) charge-offs as a % of average loans receivable (annualized) (0.03)%  0.03%  0.01%  0.08%  0.07%
          
Asset Quality         
Nonaccrual taxi medallion loans$23,024  $23,024  $23,024  $23,431  $25,802 
Nonaccrual loans (excluding taxi medallion loans) 42,470   41,556   39,349   26,050   25,519 
Other real estate owned -   -   -   -   907 
Total nonperforming assets$65,494  $64,580  $62,373  $49,481  $52,228 
          
Performing troubled debt restructurings$18,241  $20,418  $21,293  $21,410  $19,681 
          
Allowance for loan losses ("ALLL")$74,267  $68,724  $54,169  $38,293  $38,771 
          
Loans receivable$6,251,051  $6,363,267  $6,009,310  $5,113,527  $5,110,471 
Less: taxi medallion loans 24,634   24,603   24,575   24,977   27,353 
Loans receivable (excluding taxi medallion loans)$6,226,417  $6,338,664  $5,984,735  $5,088,550  $5,083,118 
          
Loans receivable$6,251,051  $6,363,267  $6,009,310  $5,113,527  $5,110,471 
Less: PPP loans 474,022   473,999   -   -   - 
Loans receivable (excluding PPP loans)$5,777,029  $5,889,268  $6,009,310  $5,113,527  $5,110,471 
          
Nonaccrual loans (excluding taxi medallion loans) as a % of loans receivable (excluding taxi medallion loans) 0.68%  0.66%  0.66%  0.51%  0.50%
Nonaccrual loans as a % of loans receivable 1.05   1.01   1.04   0.97   1.00 
Nonperforming assets as a % of total assets 0.88   0.85   0.86   0.80   0.85 
ALLL as a % of loans receivable 1.19   1.08   0.90   0.75   0.76 
ALLL as a % of loans receivable (excluding PPP loans) 1.29   1.17   0.90   0.75   0.76 
ALLL as a % of nonaccrual loans (excluding taxi medallion loans) 174.9   165.4   137.7   147.0   151.9 
ALLL as a % of nonaccrual loans 113.4   106.4   86.8   77.4   75.5 
____________         
(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 
 September 30, 2020June 30, 2020September 30, 2019 
 Average
     Average
     Average
    
Interest-earning assets:Balance
 InterestRate (7) Balance
 InterestRate (7) Balance
 InterestRate (7)
Investment securities (1) (2)$420,362  $2,176 2.06% $443,282  $2,531 2.30% $445,492  $3,053 2.72%
Loans receivable and loans held-for-sale (2) (3) (4) 6,288,443   75,028 4.75   6,332,503   76,088 4.83   5,127,365   67,068 5.19 
Federal funds sold and interest-              
bearing deposits with banks 227,617   47 0.08   357,758   79 0.09   50,289   278 2.19 
Restricted investment in bank stock 26,077   426 6.50   31,002   442 5.73   25,912   502 7.69 
     Total interest-earning assets 6,962,499   77,677 4.44   7,164,545   79,140 4.44   5,649,058   70,901 4.98 
Allowance for loan losses (69,381)      (53,502)      (37,704)    
Noninterest-earning assets 580,884       573,360       448,059     
     Total assets$7,474,002      $7,684,403      $6,059,413     
                        
Interest-bearing liabilities:              
Time deposits$1,728,129  $8,174 1.88  $1,905,165  $9,586 2.02  $1,598,378  $9,934 2.47 
Other interest-bearing deposits 2,881,592   3,773 0.52   2,639,052   4,011 0.61   2,300,886   7,416 1.28 
     Total interest-bearing deposits 4,609,721   11,947 1.03   4,544,217   13,597 1.20   3,899,264   17,350 1.77 
               
Borrowings 467,399   1,992 1.70   798,648   2,235 1.13   467,230   2,754 2.34 
Subordinated debentures, net of debt issuance costs 202,502   2,700 5.30   141,904   2,021 5.73   128,747   1,843 5.68 
Capital lease obligation 2,211   33 5.94   2,257   34 6.06   2,393   36 5.97 
     Total interest-bearing liabilities 5,281,833   16,672 1.26   5,487,026   17,887 1.31   4,497,634   21,983 1.94 
               
Noninterest-bearing demand deposits 1,253,235       1,277,428       810,247     
Other liabilities 55,570       51,153       37,530     
     Total noninterest-bearing liabilities 1,308,805       1,328,581       847,777     
Stockholders' equity 883,364       868,796       714,002     
     Total liabilities and stockholders' equity$7,474,002      $7,684,403      $6,059,413     
                        
Net interest income (tax equivalent basis)  61,005      61,253      48,918   
Net interest spread (5)  3.18%   3.13%   3.04%
               
Net interest margin (6)  3.49%   3.44%   3.44%
               
Tax equivalent adjustment  (456)     (463)     (512)  
Net interest income $60,549     $60,790     $48,406   
               
(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.
(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.