ConnectOne Bancorp, Inc. Reports Second Quarter 2023 Results; Declares Common and Preferred Dividends

ConnectOne Bancorp, Inc.

ENGLEWOOD CLIFFS, N.J., July 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 $19.9 million for the second quarter of 2023 compared with $23.4 million for the first quarter of 2023 and $30.8 million for the second quarter of 2022. Diluted earnings per share were $0.51 for the second quarter of 2023 compared with $0.59 for the first quarter of 2023 and $0.78 for the second quarter of 2022. The decrease in net income available to common stockholders and diluted earnings per share from the first quarter of 2023 was primarily due to a decrease in net interest income of $3.2 million, an increase in provision for credit losses of $2.0 million and an increase in noninterest expenses of $0.6 million, partially offset by an increase in noninterest income of $0.6 million and a decrease in income tax expenses of $1.6 million. The decrease in net income available to common stockholders and diluted earnings per share from the second quarter of 2022 was primarily due to a decrease in net interest income of $11.7 million and an increase in noninterest expenses of $3.7 million, partially offset by an increase of $0.1 million in noninterest income and a decrease in income tax expenses of $4.5 million.

Pre-tax, pre-provision net revenue (“PPNR”) as a percent of average assets was 1.31%, 1.46% and 2.28% for the quarters ending June 30, 2023, March 31, 2023 and June 30, 2022, respectively.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “ConnectOne’s operating performance remains strong and stable during this challenging economic environment, reflecting our core values which include a client-first focus and executing with a sense of urgency. Results include, most importantly, increased client deposits, fortification of liquidity sources and a reduction in brokered deposits and uninsured deposit liabilities. Our loan portfolio remained essentially flat, while our net interest margin, although compressing sequentially by 19 basis points, stabilized during the quarter at the approximate 2.80% level. Similarly, noninterest-bearing demand deposits, although down sequentially, remained relatively stable at their current level over the course of the second quarter. Meanwhile, our tangible common equity ratio increased to 9.19%, which is well above peer averages, and our tangible book value per share increased for the 13th consecutive quarter to $22.34. We also took advantage of market conditions during the quarter and repurchased 270,000 shares at an attractive average price of $15.32.

“Operationally, we’re integrating investments in technology to provide a better experience for our clients while driving increased productivity and efficiency. Our SBA lending platform continues to gain traction and we continue to see healthy diversification in our portfolio,” Mr. Sorrentino added. “Further, we’re seizing opportunities to attract high-performing, revenue-producing talent while simultaneously optimizing our staff count and managing expenses prudently.”

Mr. Sorrentino concluded, “Looking ahead, we remain well-positioned for the future. We have strong capital and liquidity levels, our credit performance continues to be strong, and we remain sharply focused on taking advantage of growth opportunities as they arise. By leveraging our results-oriented client-centric culture, continuing to invest in our valuable franchise and maintaining our long-standing financial discipline, we believe that ConnectOne is poised for continued long-term profitability.”

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 will be paid on September 1, 2023, to common stockholders of record on August 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 September 1, 2023 to preferred stockholders of record on August 15, 2023.

Operating Results

Fully taxable equivalent net interest income for the second quarter of 2023 was $64.6 million, a decrease of $3.2 million, or 4.7%, from the first quarter of 2023 due to a 19 basis-point contraction of the net interest margin from 3.00% to 2.81%, partially offset by an increase in interest-earning assets of $53.9 million. The increase in interest-earning assets from the first quarter of 2023 was attributable to increases in cash and cash equivalents of $49.2 million and loans of $18.3 million, offset by decreases in investment securities of $6.6 million and decreases in restricted investment in bank stock of $7.0 million. While the net interest margin benefitted from a 14 basis-point increase in the loan portfolio yield, to 5.49%, the average cost of deposits, including noninterest-bearing demand, increased by 46 basis points to 2.66% from 2.20% in the first quarter of 2023. Contributing to the increased cost of deposits was a $104.4 million, or 7.2%, decline in average noninterest-bearing deposits, although the balance of noninterest-bearing deposits remained relatively flat throughout the current quarter.

Fully taxable equivalent net interest income for the second quarter of 2023 decreased by $11.5 million, or 15.1%, from the second quarter of 2022. The decrease from the second quarter of 2022 resulted primarily from a 110 basis-point decrease of the net interest margin from 3.91% to 2.81%, partially offset by an increase in interest-earning assets of $1.4 billion. The contraction of the net interest margin for the second quarter of 2023 when compared to the second quarter of 2022 was primarily attributable to a 230 basis-point increase in the average costs of deposits, including noninterest-bearing deposits, partially offset by an 82 basis-point increase in the loan portfolio yield.

Noninterest income was $3.4 million in the second quarter of 2023, $2.8 million in the first quarter of 2023 and $3.4 million in the second quarter of 2022. Included in noninterest income were net losses on equity securities of $0.2 million, $0.2 million, and $0.4 million for the second quarter 2023, first quarter of 2023 and second quarter 2022, respectively. Excluding the equity securities losses, adjusted noninterest income was $3.6 million, $3.0 million and $3.8 million for the second quarter 2023, first quarter 2023 and second quarter 2022, respectively. The $0.6 million increase in adjusted noninterest income for the second quarter of 2023 when compared to the first quarter of 2023 was primarily due to an increase in net gains on sale of loans held-for-sale of $0.5 million and increases in deposit, loan, and other income of $0.1 million. The net gains on loan sales consisted primarily of Small Business Administration loans. The $0.1 million decrease in adjusted noninterest income for the second quarter of 2023 when compared to the second quarter of 2022 was primarily due to a decrease in deposit, loan, and other income of $0.3 million, partially offset by an increase in bank owned life insurance income of $0.2 million.

Noninterest expenses totaled $35.5 million for the second quarter of 2023, $34.9 million for the first quarter of 2023 and $31.7 million for the second quarter of 2022. Noninterest expenses increased by $0.6 million from the first quarter of 2023 and was primarily attributable to an increase in FDIC insurance expense of $0.8 million, information technology and communications expense of $0.6 million, and other expenses of $0.1 million, partially offset by decreases in salaries and employee benefits of $0.5 million, professional and consulting of $0.3 million, and occupancy and equipment of $0.1 million. The increase in noninterest expenses of $3.8 million from the second quarter of 2022 was primarily attributable to increases in salaries and employee benefits of $2.2 million, FDIC insurance of $1.0 million, information technology and communications of $0.8 million, other expenses of $0.7 million and marketing and advertising of $0.1 million, partially offset by decreases in BoeFly acquisition expense of $0.8 million and professional and consulting of $0.2 million. The increase in salaries and employee benefits from the second quarter of 2022 was primarily attributable to increased staff in both the revenue and back-office areas of the bank as well as company-wide base salary increases. The increase in FDIC insurance expense when compared to both the first quarter of 2023 and the second quarter of 2022 is primarily attributable to balance sheet growth and a two-basis point increase in the Bank’s initial base rate. The increase in information technology and communications when compared to both the first quarter of 2023 and the second quarter of 2022 is primarily attributable to additional investments in technology, equipment, and software.

Income tax expense was $7.4 million for the second quarter of 2023, $9.1 million for the first quarter of 2023 and $11.9 million for the second quarter of 2022. The effective tax rates for the second quarter of 2023, first quarter of 2023 and second quarter of 2022 were 25.8%, 26.7% and 26.9%, respectively. The decrease in the effective tax rate when compared to the first quarter of 2023 and second quarter of 2022 is largely attributable to lower taxable income.

Asset Quality

The provision for credit losses was $3.0 million for the second quarter of 2023, $1.0 million for the first quarter of 2023 and $3.0 million for the second quarter of 2023. The increase in the provision for credit losses during the second quarter of 2023 when compared to the first quarter of 2023 was primarily attributable to specific reserves.

Nonperforming assets, which include nonaccrual loans and other real estate owned, were $51.5 million as of June 30, 2023, $44.7 million as of December 31, 2022 and $61.1 million as of June 30, 2022. Nonaccrual loans were $51.5 million as of June 30, 2023, $44.5 million as of December 31, 2022 and $60.8 million as of June 30, 2022. Nonperforming assets as a percentage of total assets were 0.53% as of June 30, 2023, 0.46% as of December 31, 2022 and 0.69% as of June 30, 2022. The ratio of nonaccrual loans to loans receivable was 0.63%, 0.55% and 0.84%, as of June 30, 2023, December 31, 2022 and June 30, 2022, respectively. Loans delinquent 30-89 days as a percentage of loans receivable were 0.04%, 0.02% and 0.05% as of June 30, 2023, December 31, 2022 and June 30, 2022, respectively. The annualized net loan charge-offs ratio was 0.05% for the second quarter of 2023, 0.23% for the fourth quarter of 2022 and 0.02% for the second quarter of 2023. The allowance for credit losses represented 1.09%, 1.12%, and 1.14% of loans receivable as of June 30, 2023, December 31, 2022 and June 30, 2022, respectively. The allowance for credit losses as a percentage of nonaccrual loans was 173.2% as of June 30, 2023, 203.6% as of December 31, 2022 and 136.2% as of June 30, 2022.

Selected Balance Sheet Items

The Company’s total assets were $9.7 billion as of June 30, 2023, an increase of $79 million from December 31, 2022. The increase in total assets was primarily due to increased cash and cash equivalents which were $264 million, an increase of $57 million from December 31, 2022. Loans receivable were $8.1 billion, an increase of $49 million from December 31, 2022. Total deposits were $7.5 billion, an increase of $182 million from December 31, 2022.

The Company’s total stockholders’ equity was $1.2 billion as of June 30, 2023, an increase of $21 million from December 31, 2022. The increase in retained earnings of $31 million was the primary reason for the overall increase in stockholders’ equity, in addition to an increase in additional paid-in capital of $1 million, partially offset by a decrease in accumulated other comprehensive income of $1 million and an increase in treasury stock of $9 million. As of June 30, 2023, the Company’s tangible common equity ratio and tangible book value per share were 9.19% and $22.34, 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 $214.9 million as of June 30, 2023, and $215.7 million as of December 31, 2022.

Share Repurchase Program

During the second quarter of 2023, the Company repurchased 270,000 shares of common stock leaving approximately 1.3 million shares remaining authorized for repurchase under the current Board approved repurchase program. The Company may repurchase shares from time-to-time in the open market, in privately negotiated stock purchases or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission and applicable federal securities laws. The share repurchase plan does not obligate the Company to acquire any particular amount of common stock, and the plan may be modified or suspended at any time at the Company’s discretion.

Use of Non-GAAP Financial Measures

In addition to the results presented in accordance with Generally Accepted Accounting Principles (“GAAP”), ConnectOne routinely supplements its evaluation with an analysis of certain non-GAAP measures. ConnectOne believes these non-GAAP financial measures, in addition to the related GAAP measures, provide meaningful information to investors in understanding our operating performance and trends. These non-GAAP measures have inherent limitations and are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for an analysis of results reported under GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies. Reconciliations of non-GAAP financial measures disclosed in this earnings release to the comparable GAAP measures are provided in the accompanying tables.

Second Quarter 2023 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on July 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 10180068. Please dial in at least five minutes before the start of the call to register. An audio webcast of the conference call will be available to the public, on a listen-only basis, via the “Investor Relations” link on the Company’s website https://www.ConnectOneBank.com or at http://ir.connectonebank.com.

A replay of the conference call will be available beginning at approximately 1:00 p.m. ET on Thursday, July 27, 2023 and ending on Thursday, August 3, 2023 by dialing 1-412-317-6671, access code 10180068. 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.

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 Vice President & 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)
		June 30,				December 31,				June 30,
			2023				2022				2022
		(unaudited)								(unaudited)
ASSETS
Cash and due from banks		$	56,286			$	61,629			$	58,807
Interest-bearing deposits with banks			263,638				206,686				240,513
Cash and cash equivalents			319,924				268,315				299,320
Investment securities			612,819				634,884				675,941
Equity securities			17,950				15,811				15,993
Loans held-for-sale			1,089				13,772				3,182
Loans receivable			8,148,540				8,099,689				7,274,573
Less: Allowance for credit losses - loans			89,205				90,513				82,739
Net loans receivable			8,059,335				8,009,176				7,191,834
Investment in restricted stock, at cost			46,688				46,604				47,287
Bank premises and equipment, net			29,093				27,800				28,391
Accrued interest receivable			46,237				46,062				34,615
Bank owned life insurance			234,412				231,328				228,279
Right of use operating lease assets			8,874				10,179				10,809
Other real estate owned			-				264				316
Goodwill			208,372				208,372				208,372
Core deposit intangibles			6,569				7,312				8,130
Other assets			132,601				125,069				89,037
Total assets		$	9,723,963			$	9,644,948			$	8,841,506
LIABILITIES
Deposits:
Noninterest-bearing		$	1,356,293			$	1,501,614			$	1,712,875
Interest-bearing			6,182,004				5,855,008				4,904,724
Total deposits			7,538,297				7,356,622				6,617,599
Borrowings			827,601				857,622				874,964
Subordinated debentures, net			79,187				153,255				153,103
Operating lease liabilities			10,007				11,397				12,116
Other liabilities			69,474				87,301				40,577
Total liabilities			8,524,566				8,466,197				7,698,359
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			30,740				30,126				27,536
Retained earnings			566,498				535,915				489,640
Treasury stock			(61,877	)			(52,799	)			(52,799	)
Accumulated other comprehensive loss			(33,837	)			(32,364	)			(19,103	)
Total stockholders’ equity			1,199,397				1,178,751				1,143,147
Total liabilities and stockholders’ equity		$	9,723,963			$	9,644,948			$	8,841,506

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for per share data)
		Three Months Ended								Six Months Ended
		06/30/23				06/30/22				06/30/23				06/30/22
Interest income
Interest and fees on loans		$	111,048			$	81,285			$	217,951			$	157,310
Interest and dividends on investment securities:
Taxable			4,029				2,551				8,258				4,424
Tax-exempt			1,247				916				2,339				1,625
Dividends			945				291				1,843				505
Interest on federal funds sold and other short-term investments			4,056				313				7,031				433
Total interest income			121,325				85,356				237,422				164,297
Interest expense
Deposits			50,714				5,709				90,801				10,719
Borrowings			6,768				4,056				15,694				7,629
Total interest expense			57,482				9,765				106,495				18,348
Net interest income			63,843				75,591				130,927				145,949
Provision for credit losses			3,000				3,000				4,000				4,450
Net interest income after provision for credit losses			60,843				72,591				126,927				141,499
Noninterest income
Deposit, loan and other income			1,545				1,866				2,948				3,609
Income on bank owned life insurance			1,553				1,342				3,084				2,548
Net gains on sale of loans held-for-sale			550				556				599				1,257
Net losses on equity securities			(210	)			(405	)			(401	)			(1,001	)
Total noninterest income			3,438				3,359				6,230				6,413
Noninterest expenses
Salaries and employee benefits			21,726				19,519				43,962				38,159
Occupancy and equipment			2,677				2,733				5,438				4,662
FDIC insurance			1,715				725				2,665				1,331
Professional and consulting			1,932				2,124				4,126				3,916
Marketing and advertising			556				426				1,088				777
Information technology and communications			3,644				2,801				6,705				5,667
Amortization of core deposit intangible			371				434				743				867
Increase in value of acquisition price			-				833				-				1,516
Other expenses			2,829				2,108				5,593				4,038
Total noninterest expenses			35,450				31,703				70,320				60,933
Income before income tax expense			28,831				44,247				62,837				86,979
Income tax expense			7,437				11,889				16,514				23,240
Net income			21,394				32,358				46,323				63,739
Preferred dividends			1,509				1,509				3,018				3,018
Net income available to common stockholders		$	19,885			$	30,849			$	43,305			$	60,721
Earnings per common share:
Basic		$	0.51			$	0.78			$	1.10			$	1.54
Diluted			0.51				0.78				1.10				1.53

ConnectOne’s management believes that the supplemental financial information, including non-GAAP measures provided below, is useful to investors. The non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP financial measures presented by other companies.
CONNECTONE BANCORP, INC.
SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES
		As of
		Jun. 30,				Mar. 31,				Dec. 31,				Sep. 30,				Jun. 30,
		2023				2023				2022				2022				2022
Selected Financial Data		(dollars in thousands)
Total assets		$	9,723,963			$	9,960,467			$	9,644,948			$	9,478,252			$	8,841,506
Loans receivable:
Commercial		$	1,451,400			$	1,392,565			$	1,443,942			$	1,392,037			$	1,274,280
Paycheck Protection Program (“PPP”) loans			10,845				11,300				11,374				11,458				18,004
Commercial real estate			3,237,559				3,245,990				3,170,760				3,087,354				2,727,120
Multifamily			2,604,230				2,600,251				2,641,886				2,624,726				2,442,603
Commercial construction			596,362				630,469				574,139				537,323				569,789
Residential			254,405				259,166				264,748				256,085				249,379
Consumer			1,416				1,435				2,312				1,030				1,248
Gross loans			8,156,217				8,141,176				8,109,161				7,910,013				7,282,423
Unearned net origination fees			(7,677	)			(9,057	)			(9,472	)			(9,563	)			(7,850	)
Loans receivable			8,148,540				8,132,119				8,099,689				7,900,450				7,274,573
Loans held-for-sale			1,089				11,197				13,772				8,080				3,182
Total loans		$	8,149,629			$	8,143,316			$	8,113,461			$	7,908,530			$	7,277,755
Investment and equity securities		$	630,769			$	647,026			$	650,695			$	639,192			$	691,934
Goodwill and other intangible assets			214,941				215,312				215,684				216,093				216,502
Deposits:
Noninterest-bearing demand		$	1,356,293			$	1,345,265			$	1,501,614			$	1,665,658			$	1,712,875
Time deposits			2,621,148				2,706,662				2,394,190				1,921,235				1,285,409
Other interest-bearing deposits			3,560,856				3,701,249				3,460,818				3,723,617				3,619,315
Total deposits		$	7,538,297			$	7,753,176			$	7,356,622			$	7,310,510			$	6,617,599
Borrowings		$	827,601			$	852,611			$	857,622			$	829,953			$	874,964
Subordinated debentures, net			79,187				79,060				153,255				153,179				153,103
Total stockholders’ equity			1,199,397				1,190,970				1,178,751				1,148,295				1,143,147
Quarterly Average Balances
Total assets		$	9,765,582			$	9,700,530			$	9,490,477			$	9,030,589			$	8,322,823
Loans receivable:
Commercial (including PPP loans)		$	1,427,153			$	1,442,180			$	1,456,247			$	1,342,868			$	1,245,812
Commercial real estate (including multifamily)			5,847,147				5,813,388				5,758,594				5,455,714				4,974,297
Commercial construction			611,492				606,214				558,086				537,073				544,084
Residential			256,924				261,560				261,969				251,338				247,208
Consumer			6,733				3,894				4,630				2,361				5,029
Gross loans			8,149,449				8,127,236				8,039,526				7,589,354				7,016,430
Unearned net origination fees			(8,591	)			(9,664	)			(9,666	)			(9,178	)			(9,222	)
Loans receivable			8,140,858				8,117,572				8,029,860				7,580,176				7,007,208
Loans held-for-sale			8,516				13,463				7,933				2,195				966
Total loans		$	8,149,374			$	8,131,035			$	8,037,793			$	7,582,371			$	7,008,174
Investment and equity securities		$	642,915			$	649,744			$	650,479			$	687,291			$	567,140
Goodwill and other intangible assets			215,182				215,556				215,951				216,360				216,786
Deposits:
Noninterest-bearing demand		$	1,347,268			$	1,451,654			$	1,610,044			$	1,682,135			$	1,607,465
Time deposits			2,658,673				2,357,332				2,035,362				1,525,076				1,103,418
Other interest-bearing deposits			3,640,939				3,565,904				3,558,881				3,686,520				3,717,531
Total deposits		$	7,646,880			$	7,374,890			$	7,204,287			$	6,893,731			$	6,428,414
Borrowings		$	756,303			$	941,266			$	913,960			$	772,561			$	548,675
Subordinated debentures, net			79,104				103,637				153,205				153,129				153,053
Total stockholders’ equity			1,197,043				1,191,216				1,165,588				1,160,448				1,143,092
		Three Months Ended
		Jun. 30,				Mar. 31,				Dec. 31,				Sep. 30,				Jun. 30,
		2023				2023				2022				2022				2022
		(dollars in thousands, except for per share data)
Net interest income		$	63,843			$	67,084			$	78,009			$	78,161			$	75,591
Provision for credit losses			3,000				1,000				3,300				10,000				3,000
Net interest income after provision for credit losses			60,843				66,084				74,709				68,161				72,591
Noninterest income
Deposit, loan and other income			1,545				1,403				1,894				1,969				1,866
Income on bank owned life insurance			1,553				1,531				1,528				1,521				1,342
Net gains on sale of loans held-for-sale			550				49				176				262				556
Net losses on equity securities			(210	)			(191	)			(90	)			(430	)			(405	)
Total noninterest income			3,438				2,792				3,508				3,322				3,359
Noninterest expenses
Salaries and employee benefits			21,726				22,236				21,676				20,882				19,519
Occupancy and equipment			2,677				2,761				2,603				2,600				2,733
FDIC insurance			1,715				950				830				720				725
Professional and consulting			1,932				2,194				2,157				1,980				2,124
Marketing and advertising			556				532				454				461				426
Information technology and communications			3,644				3,061				2,694				2,747				2,801
Amortization of core deposit intangible			371				372				409				409				434
Increase in value of acquisition price			-				-				-				-				833
Other expenses			2,829				2,764				2,489				2,344				2,108
Total noninterest expenses			35,450				34,870				33,312				32,143				31,703
Income before income tax expense			28,831				34,006				44,905				39,340				44,247
Income tax expense			7,437				9,077				12,348				10,425				11,889
Net income		$	21,394			$	24,929			$	32,557			$	28,915			$	32,358
Preferred dividends			1,509				1,509				1,510				1,509				1,509
Net income available to common stockholders		$	19,885			$	23,420			$	31,047			$	27,406			$	30,849
Weighted average diluted common shares outstanding			39,146,224				39,300,733				39,378,137				39,320,674				39,481,689
Diluted EPS		$	0.51			$	0.59			$	0.79			$	0.70			$	0.78
Reconciliation of GAAP Earnings to Pre-tax and Pre-provision Net Revenue
Net income		$	21,394			$	24,929			$	32,557			$	28,915			$	32,358
Income tax expense			7,437				9,077				12,348				10,425				11,889
Provision for credit losses			3,000				1,000				3,300				10,000				3,000
Pre-tax and pre-provision net revenue		$	31,831			$	35,006			$	48,205			$	49,340			$	47,247
Return on Assets Measures
Average assets		$	9,765,582			$	9,700,530			$	9,490,477			$	9,030,589			$	8,322,823
Return on avg. assets			0.88	%			1.04	%			1.36	%			1.27	%			1.56	%
Return on avg. assets (pre-tax and pre-provision)			1.31				1.46				2.02				2.17				2.28
		Three Months Ended
		Jun. 30,				Mar. 31,				Dec. 31,				Sep. 30,				Jun. 30,
		2023				2023				2022				2022				2022
Return on Equity Measures		(dollars in thousands)
Average stockholders’ equity		$	1,197,043			$	1,191,216			$	1,165,588			$	1,160,448			$	1,143,097
Less: average preferred stock			(110,927	)			(110,927	)			(110,927	)			(110,927	)			(110,927	)
Average common equity		$	1,086,116			$	1,080,289			$	1,054,661			$	1,049,521			$	1,032,170
Less: average intangible assets			(215,182	)			(215,556	)			(215,951	)			(216,360	)			(216,786	)
Average tangible common equity		$	870,934			$	864,733			$	838,710			$	833,161			$	815,384
Return on avg. common equity (GAAP)			7.34	%			8.79	%			11.68	%			10.36	%			11.99	%
Return on avg. tangible common equity (“TCE”) (non-GAAP) (1)			9.28				11.11				14.82				13.19				15.32
Return on avg. tangible common equity (pre-tax, pre-provision, pre-merger charges)			14.78				16.54				22.94				23.63				23.39
Efficiency Measures
Total noninterest expenses		$	35,450			$	34,870			$	33,312			$	32,143			$	31,703
Amortization of core deposit intangibles			(371	)			(372	)			(409	)			(409	)			(434	)
Operating noninterest expense		$	35,079			$	34,498			$	32,903			$	31,734			$	31,269
Net interest income (tax equivalent basis)		$	64,627			$	67,828			$	78,773			$	78,850			$	76,146
Noninterest income			3,438				2,792				3,508				3,322				3,359
Net losses on equity securities			210				191				90				430				405
Operating revenue		$	68,275			$	70,811			$	82,371			$	82,602			$	79,910
Operating efficiency ratio (non-GAAP) (2)			51.4	%			48.7	%			39.9	%			38.4	%			39.1	%
Net Interest Margin
Average interest-earning assets		$	9,228,079			$	9,174,167			$	8,972,063			$	8,500,316			$	7,807,445
Net interest income (tax equivalent basis)		$	64,627			$	67,828			$	78,773			$	78,850			$	76,146
Impact of purchase accounting fair value marks			(575	)			(839	)			(837	)			(885	)			(1,014	)
Adjusted net interest income (tax equivalent basis)		$	64,052			$	66,989			$	77,936			$	77,965			$	75,132
Net interest margin (GAAP)			2.81	%			3.00	%			3.48	%			3.68	%			3.91	%
Adjusted net interest margin (non-GAAP) (3)			2.78				2.96				3.45				3.64				3.86
(1) Earnings available to common stockholders excluding amortization of intangible assets divided by average tangible common equity.
(2) Operating noninterest expense divided by operating revenue.
(3) Adjusted net interest margin excludes impact of purchase accounting fair value marks.
		As of
		Jun. 30,				Mar. 31,				Dec. 31,				Sep. 30,				Jun. 30,
		2023				2023				2022				2022				2022
Capital Ratios and Book Value per Share		(dollars in thousands, except for per share data)
Stockholders equity		$	1,199,397			$	1,190,970			$	1,178,751			$	1,148,295			$	1,143,147
Less: preferred stock			(110,927	)			(110,927	)			(110,927	)			(110,927	)			(110,927	)
Common equity		$	1,088,470			$	1,080,043			$	1,067,824			$	1,037,368			$	1,032,220
Less: intangible assets			(214,941	)			(215,312	)			(215,684	)			(216,093	)			(216,502	)
Tangible common equity		$	873,529			$	864,731			$	852,140			$	821,275			$	815,718
Total assets		$	9,723,963			$	9,960,467			$	9,644,948			$	9,478,252			$	8,841,506
Less: intangible assets			(214,941	)			(215,312	)			(215,684	)			(216,093	)			(216,502	)
Tangible assets		$	9,509,022			$	9,745,155			$	9,429,264			$	9,262,159			$	8,625,004
Common shares outstanding			39,094,630				39,179,051				39,243,123				39,243,123				39,243,123
Common equity ratio (GAAP)			11.19	%			10.84	%			11.07	%			10.94	%			11.67	%
Tangible common equity ratio (non-GAAP) (4)			9.19				8.87				9.04				8.87				9.46
Regulatory capital ratios (Bancorp):
Leverage ratio			10.62	%			10.60	%			10.68	%			10.95	%			11.63	%
Common equity Tier 1 risk-based ratio			10.55				10.55				10.30				10.20				10.63
Risk-based Tier 1 capital ratio			11.90				11.92				11.66				11.58				12.11
Risk-based total capital ratio			13.83				13.85				14.45				14.45				15.09
Regulatory capital ratios (Bank):
Leverage ratio			10.95	%			10.62	%			10.64	%			10.91	%			11.60	%
Common equity Tier 1 risk-based ratio			12.26				11.92				11.60				11.53				12.08
Risk-based Tier 1 capital ratio			12.26				11.92				11.60				11.53				12.08
Risk-based total capital ratio			13.33				13.27				13.02				13.00				13.55
Book value per share (GAAP)		$	27.84			$	27.57			$	27.21			$	26.43			$	26.30
Tangible book value per share (non-GAAP) (5)			22.34				22.07				21.71				20.93				20.79
Net Loan (Recoveries) Charge-Off Detail
Net loan charge-offs (recoveries):
Charge-offs		$	1,119			$	4,484			$	4,456			$	413			$	302
Recoveries			(77	)			(1	)			-				(53	)			(32	)
Net loan charge-offs (recoveries)		$	1,042			$	4,483			$	4,456			$	360			$	270
Net loan charge-offs (recoveries) as a % of average loans receivable (annualized)			0.05	%			0.22	%			0.23	%			0.02	%			0.02	%
Asset Quality
Nonaccrual loans		$	51,496			$	47,667			$	44,454			$	57,477			$	60,756
OREO			-				-				264				264				316
Nonperforming assets		$	51,496			$	47,667			$	44,718			$	57,741			$	61,072
Allowance for credit losses - loans (“ACL”)			89,205				87,002				90,513				91,717				82,739
Loans receivable		$	8,148,540			$	8,132,119			$	8,099,689			$	7,900,450			$	7,274,573
Less: PPP loans			10,845				11,300				11,374				11,458				18,004
Loans receivable (excluding PPP loans)		$	8,137,695			$	8,120,819			$	8,088,315			$	7,888,992			$	7,256,569
Nonaccrual loans as a % of loans receivable			0.63	%			0.59	%			0.55	%			0.73	%			0.84	%
Nonperforming assets as a % of total assets			0.53				0.48				0.46				0.61				0.69
ACL as a % of loans receivable			1.09				1.07				1.12				1.16				1.14
ACL as a % of nonaccrual loans			173.2				182.5				203.6				159.6				136.2
(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
	June 30, 2023								March 31, 2023									June 30, 2022
	Average									Average									Average
Interest-earning assets:	Balance			Interest			Rate (7)			Balance			Interest			Rate (7)			Balance			Interest			Rate (7)
Investment securities (1) (2)	$	726,315		$	5,607		3.10	%		$	732,929		$	5,620		3.11	%		$	610,465		$	3,710		2.44	%
Loans receivable and loans held-for-sale (2) (3) (4)		8,149,374			111,501		5.49				8,131,035			107,348		5.35				7,008,174			81,597		4.67
Federal funds sold and interest-
bearing deposits with banks		309,458			4,056		5.26				260,297			2,975		4.64				157,201			313		0.80
Restricted investment in bank stock		42,932			945		8.83				49,906			898		7.30				31,605			291		3.69
Total interest-earning assets	$	9,228,079			122,109		5.31			$	9,174,167			116,841		5.17				7,807,445			85,911		4.41
Allowance for loan losses		(87,473	)								(90,182	)								(81,012	)
Noninterest-earning assets		624,976									616,545									596,390
Total assets	$	9,765,582								$	9,700,530								$	8,322,823
Interest-bearing liabilities:
Time deposits		2,658,673			23,778		3.59				2,357,332			17,267		2.97			$	1,103,418			2,179		0.79
Other interest-bearing deposits		3,640,939			26,936		2.97				3,565,904			22,820		2.60				3,717,531			3,530		0.38
Total interest-bearing deposits		6,299,612			50,714		3.23				5,923,236			40,087		2.74				4,820,949			5,709		0.47
Borrowings		756,303			5,438		2.88				941,266			7,322		3.15				548,675			1,849		1.35
Subordinated debentures, net		79,104			1,306		6.62				103,637			1,579		6.18				153,053			2,179		5.71
Finance lease		1,658			24		5.81				1,714			25		5.92				1,865			28		6.02
Total interest-bearing liabilities		7,136,677			57,482		3.23				6,969,853			49,013		2.85				5,524,542			9,765		0.71
Noninterest-bearing demand deposits		1,347,268									1,451,654									1,607,465
Other liabilities		84,594									87,807									47,719
Total noninterest-bearing liabilities		1,431,862									1,539,461									1,655,184
Stockholders’ equity		1,197,043									1,191,216									1,143,097
Total liabilities and stockholders’ equity	$	9,765,582								$	9,700,530								$	8,322,823
Net interest income (tax equivalent basis)					64,627									67,828									76,146
Net interest spread (5)							2.08	%								2.31	%								3.70	%
Net interest margin (6)							2.81	%								3.00	%								3.91	%
Tax equivalent adjustment					(784	)								(744	)								(555	)
Net interest income				$	63,843								$	67,084								$	75,591
(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.