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

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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, 2021 December 31, 2020 March 31, 2020  
  Average         Average         Average      
Interest-earning assets: Balance Interest Rate (7)   Balance Interest Rate (7)   Balance Interest Rate (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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