ConnectOne Bancorp, Inc. Reports First Quarter 2023 Results

ConnectOne Bancorp, Inc.

• Current liquidity including borrowing capacity enhanced to nearly $4 billion or 250% of uninsured and uncollateralized deposits, or approximately 20% of total deposits

• Core client net inflows contributed to a $400 million, or 5.4%, sequential increase in deposits for the quarter

• TCE ratio of 8.9% and CET1 ratio of 10.5% at quarter-end, largely unaffected by rising interest rates

• Net interest margin compressed to 3.00%. Rising interest costs due to liquidity tightening across the industry, an increase in on-balance sheet cash, and the cost of maintaining and growing client relationships contributed to the accelerated decrease of 48 bps

• Resilient profitability: return on assets of 1.04%, return on tangible common equity of 11.1%, and pre-provision net revenue as a % of assets of 1.46%

• Quarterly common dividend increased by 9.7% to $0.17 per share reflecting a dividend payout ratio of 29%

• Repurchased 205,000 shares at an average price of $22.51 during the first quarter and plan to continue repurchase program as market conditions permit
  

ENGLEWOOD CLIFFS, N.J., April 27, 2023 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq: CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income available to common stockholders of $23.4 million for the first quarter of 2023, compared with $31.0 million for the fourth quarter of 2022 and $29.9 million for the first quarter of 2022. Diluted earnings per share were $0.59 for the first quarter of 2023 compared with $0.79 for the fourth quarter of 2022 and $0.75 for the first quarter of 2022. The $7.6 million decrease in net income available to common stockholders and $0.20 decrease in diluted earnings per share versus the fourth quarter of 2022 were primarily due to a $10.9 million decrease in net interest income, a $0.7 decrease in noninterest income, and a $1.6 million increase in noninterest expenses, partially offset by a decrease in provision for credit losses of $2.3 million and a $3.3 million decrease in income tax expense. The $6.5 million decrease in net income available to common stockholders and $0.16 decrease in diluted earnings per share versus the first quarter of 2022 were due to a $3.3 million decrease in net interest income, a $0.3 million decrease in noninterest income, and a $5.6 million increase in noninterest expenses, partially offset by a decrease in provision for credit losses of $0.4 million and a $2.3 million decrease in income tax expenses.

Pre-tax, pre-provision net revenue (“PPNR”) as a percent of average assets was 1.46%, 2.02% and 2.17% for the quarters ending March 31, 2023, December 31, 2022 and March 31, 2022, respectively.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer commented, “Our stated goals of maintaining our client relationships, transforming our infrastructure, and growing smartly were highly evident in this unprecedented quarter. We reached out to our client base with a sense of urgency resulting in net deposit inflows for the quarter; we lowered our uninsured deposits, uncollateralized deposits from approximately 40% at year-end to 20% today; and we improved our aggregate cash position and unused borrowing capacity to nearly $4 billion, fortifying our liquidity backstop. Our tangible common equity ratio remained strong, largely unaffected by rising interest rates reflecting both strong profitability and effective management and hedging of our available for sale securities portfolio. We also remain well-positioned for economic uncertainty, reflecting our high credit standards, diversified relationship-based client philosophy and avoidance of potentially riskier sub-segments.

Mr. Sorrentino added, “During the latter part of 2022, and through the first quarter of 2023, we had success playing offense, deepening client relationships and building core deposits, with inflows during the quarter exceeding outflows. That said, by intentionally addressing increased deposit rate competition earlier than most, we experienced accelerated net interest margin compression which negatively impacted first quarter earnings results. Nonetheless, as we execute our business plan, we continue to be disciplined in our approach and believe that ConnectOne’s long-term profitability outlook remains strong.”

Mr. Sorrentino concluded, “We will continue to execute on some of the market related opportunities that have recently materialized, however, given the current economic outlook, we expect relatively flat loan and expense growth for the remainder of 2023. And although the industry remains burdened by near-term headwinds, I remain extremely confident in the Company's future as we move through 2023 and eventually transition to a more normalized environment.”

Dividend Declarations

The Company announced that its Board of Directors declared an increased quarterly cash dividend on its common stock and declared a cash dividend on its outstanding preferred stock.

A cash dividend on common stock of $0.17, an increase of 9.7%, will be paid on June 1, 2023, to common stockholders of record on May 15, 2023. A dividend of $0.328125 per depositary share, representing a 1/40^th interest in the Company’s 5.25% Fixed Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A, will also be paid on June 1, 2023 to preferred stockholders of record on May 15, 2023.

Operating Results

Fully taxable equivalent net interest income for the first quarter of 2023 was $67.8 million, a decrease of $10.9 million, or 13.9%, from the fourth quarter of 2022 due to a 48 basis-point contraction of the net interest margin from 3.48% to 3.00%, partially offset by an increase in interest-earning assets of $202.1 million. The increase in interest-earning assets from the fourth quarter of 2022 was primarily attributable to increases in cash and cash equivalents of $117.8 million and loans of $93.2 million. While the net interest margin benefitted from a 15 basis-point increase in the loan portfolio yield, to 5.35%, the average cost of deposits, including noninterest-bearing demand, increased by 74 basis points to 2.20% from 1.46% in the fourth quarter of 2022. Contributing to the increased cost of deposits was a $158.4 million, or 9.8%, decline in average noninterest-bearing deposits as bank depositors throughout the industry are transitioning funds to interest-earning products. In addition, while we are cognizant of the short-term implications of faster deposit betas, maintaining and growing client deposits and protecting decay rates reflects a more prudent oversight of liquidity and the balance sheet for the longer term.

Fully taxable equivalent net interest income for the first quarter of 2023 decreased by $3.0 million, or 4.3%, from the first quarter of 2022. The decrease from the first quarter of 2022 resulted primarily from a 71 basis-point decrease of the net interest margin from 3.71% to 3.00%, partially offset by an increase in interest-earning assets of $1.4 billion. The contraction of the net interest margin for the first quarter of 2023 when compared to the first quarter of 2022 was primarily attributable to a 189 basis-point increase in the average costs of deposits, including noninterest-bearing deposits, partially offset by an 85 basis-point increase in the loan portfolio yield.

Noninterest income was $2.8 million in the first quarter of 2023, $3.5 million in the fourth quarter of 2022 and $3.1 million in the first quarter of 2022. Included in noninterest income were net losses on equity securities of $0.2 million, $0.1 million and $0.6 million for the first quarter 2023, fourth quarter 2022 and first quarter 2022, respectively. Excluding the aforementioned items, adjusted noninterest income was $3.0 million, $3.6 million and $3.7 million for the first quarter 2023, fourth quarter 2022 and first quarter 2022, respectively. The $0.6 million decrease in adjusted noninterest income for the current quarter versus the sequential fourth quarter 2022 was primarily due to a decrease in deposit, loan and other income of $0.5 million and a decrease in net gains on sale of loans held-for-sale of $0.1 million. The $0.7 million decrease in adjusted noninterest income for the current quarter versus the first quarter 2022 was primarily due to decreases in net gains on sale of loans held-for-sale of $0.7 million and deposit, loan and other income of $0.3 million, partially offset by increases in bank owned life insurance income of $0.3 million.

Noninterest expenses totaled $34.9 million for the first quarter of 2023, $33.3 million for the fourth quarter of 2022 and $29.2 million for the first quarter of 2022. The increase in noninterest expenses of $1.6 million from the fourth quarter of 2022 was primarily attributable to increases in salaries and employee benefits of $0.6 million, information technology and communications of $0.4 million, other expenses of $0.3 million, occupancy and equipment of $0.2 million and FDIC insurance of $0.1 million. The increase in noninterest expenses of $5.6 million from the first quarter of 2022 was primarily attributable to increases in salaries and employee benefits of $3.6 million, other expenses of $0.8 million, occupancy and equipment of $0.8 million, professional and consulting of $0.4 million, FDIC insurance of $0.3 million, information technology and communications of $0.2, and marketing and advertising of $0.2 million, partially offset by a decrease in acquisition expenses related to BoeFly of $0.7 million. The increase in salaries and employee benefits from the prior sequential quarter and prior year quarter was primarily attributable to new hires and seasonal increases in payroll taxes.

Income tax expense was $9.1 million for the first quarter of 2023, $12.3 million for the fourth quarter of 2022 and $11.4 million for the first quarter of 2022. The effective tax rates for the first quarter of 2023, fourth quarter of 2022 and first quarter of 2022 were 26.7%, 27.5% and 26.6%, respectively.

Asset Quality

The provision for credit losses was $1.0 million for the first quarter of 2023, $3.3 million for the fourth quarter of 2022 and $1.5 million for the first quarter of 2022. The current quarter’s provision primarily reflects modest loan growth and an increase in qualitative factors.

Nonperforming assets, which include nonaccrual loans and other real estate owned, were $47.7 million as of March 31, 2023, $44.7 million as of December 31, 2022 and $59.7 million as of March 31, 2022. Nonaccrual loans were $47.7 million as of March 31, 2023, $44.5 million as of December 31, 2022 and $59.4 million as of March 31, 2022. Nonperforming assets as a percentage of total assets were 0.48% as of March 31, 2023, 0.46% as of December 31, 2022 and 0.72% as of March 31, 2022. The ratio of nonaccrual loans to loans receivable was 0.59%, 0.55% and 0.85%, as of March 31, 2023, December 31, 2022 and March 31, 2022, respectively. The annualized net loan charge-offs ratio was 0.22% for the first quarter of 2023, 0.22% for the fourth quarter of 2022 and 0.01% for the first quarter of 2022. The current quarter’s charge-offs reflect the resolution of certain nonaccrual taxi loans and one owner-occupied commercial real estate loan that were previously reserved for and therefore required no additional loan loss provisioning. The allowance for credit losses represented 1.07%, 1.12%, and 1.15% of loans receivable as of March 31, 2023, December 31, 2022 and March 31, 2022, respectively. The allowance for credit losses as a percentage of nonaccrual loans was 182.5% as of March 31, 2023, 203.6% as of December 31, 2022 and 134.8% as of March 31, 2022.

Selected Balance Sheet Items

The Company’s total assets were $9,960.5 million as of March 31, 2023, an increase of $315.5 million from December 31, 2022. The increase in total assets was primarily due to increased cash and cash equivalents which were $562.4 million, an increase of $294.1 million from December 31, 2022. Loans receivable were $8.1 billion, an increase of $32.4 million from December 31, 2022. Total deposits were $7.8 billion, an increase of $396.6 million from December 31, 2022.

The Company’s total stockholders’ equity was $1.2 billion as of March 31, 2023, an increase of $12.2 million from December 31, 2022. The increase in retained earnings of $17.3 million was the primary reason for the overall increase in stockholders’ equity, in addition to an increase in additional paid-in capital of $1.2 million, partially offset by a decrease in accumulated other comprehensive income of $1.5 million and an increase in treasury stock of $4.9 million. As of March 31, 2023, the Company’s tangible common equity ratio and tangible book value per share were 8.87% and $22.07, respectively. As of December 31, 2022, the tangible common equity ratio and tangible book value per share were 9.04% and $21.71, respectively. Total goodwill and other intangible assets were $215.3 million as of March 31, 2023, and $215.7 million as of December 31, 2022.

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 2023 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on April 27, 2023 to review the Company's financial performance and operating results. The conference call dial-in number is 1-412-317-5195, access code 10177527. 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 27, 2023 and ending on Thursday, May 4, 2023 by dialing 1-412-317-6671, access code 10177527. 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., is a modern financial services company that operates, through its subsidiary, ConnectOne Bank, and the Bank’s fintech subsidiary, BoeFly, Inc. ConnectOne Bank is a high-performing commercial bank offering a full suite of banking & lending products and services that focus on small to middle-market businesses. BoeFly, Inc. is a fintech marketplace that connects borrowers in the franchise space with funding solutions through a network of partner banks. 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 U.S. Securities and Exchange Commission, as supplemented by the Company’s subsequent filings with the U.S. 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
Senior Executive VP & CFO
201.816.4474: bburns@cnob.com

Media Contact:

Shannan Weeks 
MWW 
732.299.7890: sweeks@mww.com

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
		March 31,				December 31,				March 31,
			2023				2022				2022
		(unaudited)								(unaudited)
ASSETS
Cash and due from banks		$	58,063			$	61,629			$	61,849
Interest-bearing deposits with banks			504,353				206,686				249,695
Cash and cash equivalents			562,416				268,315				311,544
Investment securities			629,001				634,884				512,030
Equity securities			18,025				15,811				13,198
Loans held-for-sale			11,197				13,772				2,742
Loans receivable			8,132,119				8,099,689				6,979,595
Less: Allowance for credit losses - loans			87,002				90,513				80,070
Net loans receivable			8,045,117				8,009,176				6,899,525
Investment in restricted stock, at cost			46,379				46,604				25,254
Bank premises and equipment, net			29,603				27,800				28,779
Accrued interest receivable			46,301				46,062				34,081
Bank owned life insurance			232,859				231,328				196,937
Right of use operating lease assets			9,541				10,179				10,400
Other real estate owned			-				264				316
Goodwill			208,372				208,372				208,372
Core deposit intangibles			6,940				7,312				8,564
Other assets			114,716				125,069				82,559
Total assets		$	9,960,467			$	9,644,948			$	8,334,301
LIABILITIES
Deposits:
Noninterest-bearing		$	1,345,265			$	1,501,614			$	1,631,292
Interest-bearing			6,407,911				5,855,008				4,929,113
Total deposits			7,753,176				7,356,622				6,560,405
Borrowings			852,611				857,622				412,170
Subordinated debentures, net			79,060				153,255				153,027
Operating lease liabilities			10,717				11,397				11,773
Other liabilities			73,933				87,301				58,407
Total liabilities			8,769,497				8,466,197				7,195,782
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock			110,927				110,927				110,927
Common stock			586,946				586,946				586,946
Additional paid-in capital			31,350				30,126				28,484
Retained earnings			553,261				535,915				464,889
Treasury stock			(57,652	)			(52,799	)			(44,458	)
Accumulated other comprehensive loss			(33,862	)			(32,364	)			(8,269	)
Total stockholders' equity			1,190,970				1,178,751				1,138,519
Total liabilities and stockholders' equity		$	9,960,467			$	9,644,948			$	8,334,301

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for per share data)
		Three Months Ended
		03/31/23				12/31/22				03/31/22
Interest income
Interest and fees on loans		$	106,903			$	104,952			$	76,025
Interest and dividends on investment securities:
Taxable			4,229				4,225				1,873
Tax-exempt			1,092				1,185				709
Dividends			898				712				214
Interest on federal funds sold and other short-term investments			2,975				1,395				120
Total interest income			116,097				112,469				78,941
Interest expense
Deposits			40,087				26,543				5,010
Borrowings			8,926				7,917				3,573
Total interest expense			49,013				34,460				8,583
Net interest income			67,084				78,009				70,358
Provision for credit losses			1,000				3,300				1,450
Net interest income after provision for credit losses			66,084				74,709				68,908
Noninterest income
Deposit, loan and other income			1,403				1,894				1,743
Income on bank owned life insurance			1,531				1,528				1,206
Net gains on sale of loans held-for-sale			49				176				701
Net losses on equity securities			(191	)			(90	)			(596	)
Total noninterest income			2,792				3,508				3,054
Noninterest expenses
Salaries and employee benefits			22,236				21,676				18,640
Occupancy and equipment			2,761				2,603				1,929
FDIC insurance			950				830				606
Professional and consulting			2,194				2,157				1,792
Marketing and advertising			532				454				351
Information technology and communications			3,061				2,694				2,866
Amortization of core deposit intangible			372				409				433
Increase in value of acquisition price			-				-				683
Other expenses			2,764				2,489				1,930
Total noninterest expenses			34,870				33,312				29,230
Income before income tax expense			34,006				44,905				42,732
Income tax expense			9,077				12,348				11,351
Net income			24,929				32,557				31,381
Preferred dividends			1,509				1,510				1,509
Net income available to common stockholders		$	23,420			$	31,047			$	29,872
Earnings per common share:
Basic		$	0.60			$	0.79			$	0.76
Diluted			0.59				0.79				0.75

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,				Sep. 30,				Jun. 30,				Mar. 31,
			2023				2022				2022				2022				2022
Selected Financial Data		(dollars in thousands)
Total assets		$	9,960,467			$	9,644,948			$	9,478,252			$	8,841,506			$	8,334,301
Loans receivable:
Commercial		$	1,392,565			$	1,443,942			$	1,392,037			$	1,274,280			$	1,161,867
Paycheck Protection Program ("PPP") loans			11,300				11,374				11,458				18,004				54,301
Commercial real estate			3,245,990				3,170,760				3,087,354				2,727,120				2,516,065
Multifamily			2,600,251				2,641,886				2,624,726				2,442,603				2,465,337
Commercial construction			630,469				574,139				537,323				569,789				539,058
Residential			259,166				264,748				256,085				249,379				250,205
Consumer			1,435				2,312				1,030				1,248				1,140
Gross loans			8,141,176				8,109,161				7,910,013				7,282,423				6,987,973
Unearned net origination fees			(9,057	)			(9,472	)			(9,563	)			(7,850	)			(8,378	)
Loans receivable			8,132,119				8,099,689				7,900,450				7,274,573				6,979,595
Loans held-for-sale			11,197				13,772				8,080				3,182				2,742
Total loans		$	8,143,316			$	8,113,461			$	7,908,530			$	7,277,755			$	6,982,337
Investment and equity securities		$	647,026			$	650,695			$	639,192			$	691,934			$	525,228
Goodwill and other intangible assets			215,312				215,684				216,093				216,502				216,936
Deposits:
Noninterest-bearing demand		$	1,345,265			$	1,501,614			$	1,665,658			$	1,712,875			$	1,631,292
Time deposits			2,706,662				2,394,190				1,921,235				1,285,409				1,065,814
Other interest-bearing deposits			3,701,249				3,460,818				3,723,617				3,619,315				3,863,299
Total deposits		$	7,753,176			$	7,356,622			$	7,310,510			$	6,617,599			$	6,560,405
Borrowings		$	852,611			$	857,622			$	829,953			$	874,964			$	412,170
Subordinated debentures, net			79,060				153,255				153,179				153,103				153,027
Total stockholders' equity			1,190,970				1,178,751				1,148,295				1,143,147				1,138,519
Quarterly Average Balances
Total assets		$	9,700,530			$	9,490,477			$	9,030,589			$	8,322,823			$	8,263,382
Loans receivable:
Commercial (including PPP loans)		$	1,442,180			$	1,456,247			$	1,342,868			$	1,245,812			$	1,231,703
Commercial real estate (including multifamily)			5,813,388				5,758,594				5,455,714				4,974,297				4,850,349
Commercial construction			606,214				558,086				537,073				544,084				541,642
Residential			261,560				261,969				251,338				247,208				253,589
Consumer			3,894				4,630				2,361				5,029				3,682
Gross loans			8,127,236				8,039,526				7,589,354				7,016,430				6,880,965
Unearned net origination fees			(9,664	)			(9,666	)			(9,178	)			(9,222	)			(9,870	)
Loans receivable			8,117,572				8,029,860				7,580,176				7,007,208				6,871,095
Loans held-for-sale			13,463				7,933				2,195				966				382
Total loans		$	8,131,035			$	8,037,793			$	7,582,371			$	7,008,174			$	6,871,477
Investment and equity securities		$	649,744			$	650,479			$	687,291			$	567,140			$	536,090
Goodwill and other intangible assets			215,556				215,951				216,360				216,786				217,219
Deposits:
Noninterest-bearing demand		$	1,451,654			$	1,610,044			$	1,682,135			$	1,607,465			$	1,547,055
Time deposits			2,357,332				2,035,362				1,525,076				1,103,418				1,124,614
Other interest-bearing deposits			3,565,904				3,558,881				3,686,520				3,717,531				3,851,558
Total deposits		$	7,374,890			$	7,204,287			$	6,893,731			$	6,428,414			$	6,523,227
Borrowings		$	941,266			$	913,960			$	772,561			$	548,675			$	404,907
Subordinated debentures, net			103,637				153,205				153,129				153,053				152,977
Total stockholders' equity			1,191,216				1,165,588				1,160,448				1,143,092				1,131,968
		Three Months Ended
		Mar. 31,				Dec. 31,				Sep. 30,				Jun. 30,				Mar. 31,
			2023				2022				2022				2022				2022
		(dollars in thousands, except for per share data)
Net interest income		$	67,084			$	78,009			$	78,161			$	75,591			$	70,358
Provision for credit losses			1,000				3,300				10,000				3,000				1,450
Net interest income after provision for credit losses			66,084				74,709				68,161				72,591				68,908
Noninterest income
Deposit, loan and other income			1,403				1,894				1,969				1,866				1,743
Income on bank owned life insurance			1,531				1,528				1,521				1,342				1,206
Net gains on sale of loans held-for-sale			49				176				262				556				701
Net losses on equity securities			(191	)			(90	)			(430	)			(405	)			(596	)
Total noninterest income			2,792				3,508				3,322				3,359				3,054
Noninterest expenses
Salaries and employee benefits			22,236				21,676				20,882				19,519				18,640
Occupancy and equipment			2,761				2,603				2,600				2,733				1,929
FDIC insurance			950				830				720				725				606
Professional and consulting			2,194				2,157				1,980				2,124				1,792
Marketing and advertising			532				454				461				426				351
Information technology and communications			3,061				2,694				2,747				2,801				2,866
Amortization of core deposit intangible			372				409				409				434				433
Increase in value of acquisition price			-				-				-				833				683
Other expenses			2,764				2,489				2,344				2,108				1,930
Total noninterest expenses			34,870				33,312				32,143				31,703				29,230
Income before income tax expense			34,006				44,905				39,340				44,247				42,732
Income tax expense			9,077				12,348				10,425				11,889				11,351
Net income		$	24,929			$	32,557			$	28,915			$	32,358			$	31,381
Preferred dividends			1,509				1,510				1,509				1,509				1,509
Net income available to common stockholders		$	23,420			$	31,047			$	27,406			$	30,849			$	29,872
Weighted average diluted common shares outstanding			39,300,733				39,378,137				39,320,674				39,481,689				39,727,606
Diluted EPS		$	0.59			$	0.79			$	0.70			$	0.78			$	0.75
Reconciliation of GAAP Earnings to Pre-tax and Pre-provision Net Revenue
Net income		$	24,929			$	32,557			$	28,915			$	32,358			$	31,381
Income tax expense			9,077				12,348				10,425				11,889				11,351
Provision for credit losses			1,000				3,300				10,000				3,000				1,450
Pre-tax and pre-provision net revenue		$	35,006			$	48,205			$	49,340			$	47,247			$	44,182
Return on Assets Measures
Average assets		$	9,700,530			$	9,490,477			$	9,030,589			$	8,322,823			$	8,263,382
Return on avg. assets			1.04	%			1.36	%			1.27	%			1.56	%			1.54	%
Return on avg. assets (pre-tax and pre-provision)			1.46				2.02				2.17				2.28				2.17
		Three Months Ended
		Mar. 31,				Dec. 31,				Sep. 30,				Jun. 30,				Mar. 31,
			2023				2022				2022				2022				2022
Return on Equity Measures		(dollars in thousands)
Average stockholders' equity		$	1,191,216			$	1,165,588			$	1,160,448			$	1,143,097			$	1,131,968
Less: average preferred stock			(110,927	)			(110,927	)			(110,927	)			(110,927	)			(110,927	)
Average common equity		$	1,080,289			$	1,054,661			$	1,049,521			$	1,032,170			$	1,021,041
Less: average intangible assets			(215,556	)			(215,951	)			(216,360	)			(216,786	)			(217,219	)
Average tangible common equity		$	864,733			$	838,710			$	833,161			$	815,384			$	803,822
Return on avg. common equity (GAAP)			8.79	%			11.68	%			10.36	%			11.99	%			11.87	%
Return on avg. tangible common equity ("TCE") (non-GAAP) (1)			11.11				14.82				13.19				15.32				15.22
Return on avg. tangible common equity (pre-tax, pre-provision, pre-merger charges)			16.54				22.94				23.63				23.39				22.44
Efficiency Measures
Total noninterest expenses		$	34,870			$	33,312			$	32,143			$	31,703			$	29,230
Amortization of core deposit intangibles			(372	)			(409	)			(409	)			(434	)			(433	)
Operating noninterest expense		$	34,498			$	32,903			$	31,734			$	31,269			$	28,797
Net interest income (tax equivalent basis)		$	67,828			$	78,773			$	78,850			$	76,146			$	70,842
Noninterest income			2,792				3,508				3,322				3,359				3,054
Net losses on equity securities			191				90				430				405				596
Operating revenue		$	70,811			$	82,371			$	82,602			$	79,910			$	74,492
Operating efficiency ratio (non-GAAP) (2)			48.7	%			39.9	%			38.4	%			39.1	%			38.7	%
Net Interest Margin
Average interest-earning assets		$	9,174,167			$	8,972,063			$	8,500,316			$	7,807,445			$	7,753,881
Net interest income (tax equivalent basis)		$	67,828			$	78,773			$	78,850			$	76,146			$	70,842
Impact of purchase accounting fair value marks			(839	)			(837	)			(885	)			(1,014	)			(1,179	)
Adjusted net interest income (tax equivalent basis)		$	66,989			$	77,936			$	77,965			$	75,132			$	69,663
Net interest margin (GAAP)			3.00	%			3.48	%			3.68	%			3.91	%			3.71	%
Adjusted net interest margin (non-GAAP) (3)			2.96				3.45				3.64				3.86				3.64
(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,				Sep. 30,				Jun. 30,				Mar. 31,
			2023				2022				2022				2022				2022
Capital Ratios and Book Value per Share		(dollars in thousands, except for per share data)
Stockholders equity		$	1,190,970			$	1,178,751			$	1,148,295			$	1,143,147			$	1,138,519
Less: preferred stock			(110,927	)			(110,927	)			(110,927	)			(110,927	)			(110,927	)
Common equity		$	1,080,043			$	1,067,824			$	1,037,368			$	1,032,220			$	1,027,592
Less: intangible assets			(215,312	)			(215,684	)			(216,093	)			(216,502	)			(216,936	)
Tangible common equity		$	864,731			$	852,140			$	821,275			$	815,718			$	810,656
Total assets		$	9,960,467			$	9,644,948			$	9,478,252			$	8,841,506			$	8,334,301
Less: intangible assets			(215,312	)			(215,684	)			(216,093	)			(216,502	)			(216,936	)
Tangible assets		$	9,745,155			$	9,429,264			$	9,262,159			$	8,625,004			$	8,117,365
Common shares outstanding			39,179,051				39,243,123				39,243,123				39,243,123				39,518,411
Common equity ratio (GAAP)			10.84	%			11.07	%			10.94	%			11.67	%			12.33	%
Tangible common equity ratio (non-GAAP) (4)			8.87				9.04				8.87				9.46				9.99
Regulatory capital ratios (Bancorp):
Leverage ratio			10.60	%			10.68	%			10.95	%			11.63	%			11.57	%
Common equity Tier 1 risk-based ratio			10.55				10.30				10.20				10.63				10.69
Risk-based Tier 1 capital ratio			11.92				11.66				11.58				12.11				12.21
Risk-based total capital ratio			13.85				14.45				14.45				15.09				15.25
Regulatory capital ratios (Bank):
Leverage ratio			10.62	%			10.64	%			10.91	%			11.61	%			11.41	%
Common equity Tier 1 risk-based ratio			11.93				11.60				11.53				12.08				12.04
Risk-based Tier 1 capital ratio			11.93				11.60				11.53				12.08				12.04
Risk-based total capital ratio			13.28				13.02				13.00				13.55				13.55
Book value per share (GAAP)		$	27.57			$	27.21			$	26.43			$	26.30			$	26.00
Tangible book value per share (non-GAAP) (5)			22.07				21.71				20.93				20.79				20.51
Net Loan (Recoveries) Charge-Off Detail
Net loan charge-offs (recoveries):
Charge-offs		$	4,484			$	4,456			$	413			$	302			$	274
Recoveries			(1	)			-				(53	)			(32	)			(32	)
Net loan charge-offs (recoveries)		$	4,483			$	4,456			$	360			$	270			$	242
Net loan charge-offs (recoveries) as a % of average loans receivable (annualized)			0.22	%			0.22	%			0.02	%			0.02	%			0.01	%
Asset Quality
Nonaccrual loans		$	47,667			$	44,454			$	57,477			$	60,756			$	59,403
OREO			-				264				264				316				316
Nonperforming assets		$	47,667			$	44,718			$	57,741			$	61,072			$	59,719
Allowance for credit losses - loans ("ACL")			87,002				90,513				91,717				82,739				80,070
Loans receivable		$	8,132,119			$	8,099,689			$	7,900,450			$	7,274,573			$	6,979,595
Less: PPP loans			11,300				11,374				11,458				18,004				54,301
Loans receivable (excluding PPP loans)		$	8,120,819			$	8,088,315			$	7,888,992			$	7,256,569			$	6,925,294
Nonaccrual loans as a % of loans receivable			0.59	%			0.55	%			0.73	%			0.84 %				0.85	%
Nonperforming assets as a % of total assets			0.48				0.46				0.61				0.69				0.72
ACL as a % of loans receivable			1.07				1.12				1.16				1.14				1.15
ACL as a % of nonaccrual loans			182.5				203.6				159.6				136.2				134.8
(4) Tangible common equity divided by tangible assets.
(5 )Tangible common equity divided by common shares outstanding at period-end.

CONNECTONE BANCORP, INC.
NET INTEREST MARGIN ANALYSIS
(dollars in thousands)
	For the Quarter Ended
	March 31, 2023								December 31, 2022									March 31, 2022
	Average									Average									Average
Interest-earning assets:	Balance			Interest			Rate(7)			Balance			Interest			Rate(7)			Balance			Interest			Rate(7)
Investment securities (1) (2)	$	732,929		$	5,620		3.11	%		$	743,917		$	5,725		3.05	%		$	545,203		$	2,771		2.06	%
Loans receivable and loans held-for-sale (2) (3) (4)		8,131,035			107,348		5.35				8,037,793			105,402		5.20				6,871,477			76,321		4.50
Federal funds sold and interest-
bearing deposits with banks		260,297			2,975		4.64				142,489			1,394		3.88				312,224			120		0.16
Restricted investment in bank stock		49,906			898		7.30				47,864			712		5.90				24,977			214		3.47
Total interest-earning assets	$	9,174,167			116,841		5.17				8,972,063			113,233		5.01				7,753,881			79,426		4.15
Allowance for loan losses		(90,182	)								(91,621	)								(79,763	)
Noninterest-earning assets		616,545									610,035									589,264
Total assets	$	9,700,530								$	9,490,477								$	8,263,382
Interest-bearing liabilities:
Time deposits		2,357,332			17,267		2.97				2,035,362			11,601		2.26				1,124,614			2,154		0.78
Other interest-bearing deposits		3,565,904			22,820		2.60				3,558,881			14,942		1.67				3,851,558			2,856		0.30
Total interest-bearing deposits		5,923,236			40,087		2.74				5,594,243			26,543		1.88				4,976,172			5,010		0.41
Borrowings		941,266			7,322		3.15				913,960			5,665		2.46				404,907			1,377		1.38
Subordinated debentures, net		103,637			1,579		6.18				153,205			2,217		5.74				152,977			2,168		5.75
Finance lease		1,714			25		5.92				1,760			35		7.89				1,917			29		6.14
Total interest-bearing liabilities		6,969,853			49,013		2.85				6,663,168			34,460		2.05				5,535,973			8,584		0.63
Noninterest-bearing demand deposits		1,451,654									1,610,044									1,547,055
Other liabilities		87,807									51,677									48,386
Total noninterest-bearing liabilities		1,539,461									1,661,722									1,595,441
Stockholders' equity		1,191,216									1,165,588									1,131,968
Total liabilities and stockholders' equity	$	9,700,530								$	9,490,477								$	8,263,382
Net interest income (tax equivalent basis)					67,828									78,773									70,842
Net interest spread (5)							2.31	%								2.96	%								3.53	%
Net interest margin (6)							3.00	%								3.48	%								3.71	%
Tax equivalent adjustment					(744	)								(764	)								(484	)
Net interest income				$	67,084								$	78,009								$	70,358

(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.