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ConnectOne Bancorp, Inc. Reports Third Quarter 2020 Results

ConnectOne Bancorp, Inc.
·32 min read

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

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

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

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

Dividend Declaration

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

Operating Results

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

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

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

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

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

Asset Quality

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

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

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

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

Selected Balance Sheet Items

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

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

Use of Non-GAAP Financial Measures

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

Third Quarter 2020 Results Conference Call

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

A replay of the conference call will be available beginning at approximately 1:00 p.m. ET on Thursday, October 29, 2020 and ending on Thursday, November 5, 2020 by dialing 412-317-6671, access code 13711169. An online archive of the webcast will be available following the completion of the conference call at https://www.ConnectOneBank.com or at http://ir.connectonebank.com.

About ConnectOne Bancorp, Inc.

ConnectOne Bancorp, Inc., through its subsidiary, ConnectOne Bank offers a full suite of both commercial and consumer banking and lending products and services through its banking offices located across New York and New Jersey. ConnectOne Bancorp, Inc. is traded on the Nasdaq Global Market under the trading symbol "CNOB," and information about ConnectOne may be found at https://www.connectonebank.com.

Forward-Looking Statements

This news release contains certain forward-looking statements which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, those factors set forth in Item 1A – Risk Factors of the Company’s Annual Report on Form 10-K, as filed with the Securities Exchange Commission, as supplemented by the Company’s subsequent filings with the Securities and Exchange Commission, and changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area, changes in accounting principles and guidelines and the impact of the COVID-19 pandemic on the Company, its employees and operations, and its customers. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Investor Contact:

William S. Burns
Executive VP & CFO
201.816.4474; bburns@cnob.com

Media Contact:
Emily Holtzman, MWWPR
631.742.9568; eholtzman@mww.com


CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION

(in thousands)

September 30,

December 31,

September 30,

2020

2019

2019

(unaudited)

(unaudited)

ASSETS

Cash and due from banks

$

59,422

$

65,717

$

54,792

Interest-bearing deposits with banks

196,697

135,766

139,217

Cash and cash equivalents

256,119

201,483

194,009

Securities available-for-sale

453,015

404,701

425,849

Equity securities

13,400

11,185

11,231

Loans held-for-sale

8,508

33,250

33,245

Loans receivable

6,251,051

5,113,527

5,110,471

Less: Allowance for loan losses

74,267

38,293

38,771

Net loans receivable

6,176,784

5,075,234

5,071,700

Investment in restricted stock, at cost

28,713

27,397

27,946

Bank premises and equipment, net

29,922

19,236

19,754

Accrued interest receivable

34,326

20,949

21,024

Bank owned life insurance

165,676

137,961

137,048

Right of use operating lease assets

22,830

15,137

15,789

Other real estate owned

-

-

907

Goodwill

208,372

162,574

162,574

Core deposit intangibles

11,605

5,460

5,800

Other assets

40,289

59,465

34,393

Total assets

$

7,449,559

$

6,174,032

$

6,161,269

LIABILITIES

Deposits:

Noninterest-bearing

$

1,270,021

$

861,728

$

828,190

Interest-bearing

4,528,735

3,905,814

3,923,044

Total deposits

5,798,756

4,767,542

4,751,234

Borrowings

506,225

500,293

512,456

Operating lease liabilities

26,726

16,449

17,148

Subordinated debentures, net of debt issuance costs

202,552

128,885

128,802

Other liabilities

24,564

29,673

31,469

Total liabilities

6,558,823

5,442,842

5,441,109

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY

Common stock

586,946

468,571

468,571

Additional paid-in capital

22,867

21,344

20,450

Retained earnings

309,893

271,782

254,159

Treasury stock

(30,271

)

(29,360

)

(21,892

)

Accumulated other comprehensive income (loss)

1,301

(1,147

)

(1,128

)

Total stockholders' equity

890,736

731,190

720,160

Total liabilities and stockholders' equity

$

7,449,559

$

6,174,032

$

6,161,269



CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except for per share data)

Three Months Ended

Nine Months Ended

09/30/20

09/30/19

09/30/20

09/30/19

Interest income

Interest and fees on loans

$

74,755

$

66,796

$

223,488

$

190,646

Interest and dividends on investment securities:

Taxable

1,305

1,916

5,083

7,431

Tax-exempt

688

897

2,148

3,105

Dividends

426

502

1,268

1,369

Interest on federal funds sold and other short-term investments

47

278

625

925

Total interest income

77,221

70,389

232,612

203,476

Interest expense

Deposits

11,947

17,351

42,756

49,298

Borrowings

4,725

4,632

13,236

15,290

Total interest expense

16,672

21,983

55,992

64,588

Net interest income

60,549

48,406

176,620

138,888

Provision for loan losses

5,000

2,000

36,000

7,600

Net interest income after provision for loan losses

55,549

46,406

140,620

131,288

Noninterest income

Income on bank owned life insurance

1,598

915

3,693

2,570

Net gains on sale of loans held-for-sale

614

278

1,244

343

Deposit, loan and other income

1,278

1,116

5,777

2,816

Net (losses) gains on equity securities

(7

)

79

215

340

Net (losses) gains on sale of securities available-for-sale

-

(279

)

29

(280

)

Total noninterest income

3,483

2,109

10,958

5,789

Noninterest expenses

Salaries and employee benefits

15,114

12,449

44,177

36,254

Occupancy and equipment

3,566

2,480

10,193

7,332

FDIC insurance

1,105

(364

)

3,054

1,216

Professional and consulting

1,926

1,499

5,173

4,078

Marketing and advertising

214

473

944

1,080

Data processing

1,470

1,058

4,529

3,352

Merger and restructuring expenses

-

191

14,640

8,084

Loss on extinguishment of debt

-

-

-

1,047

Amortization of core deposit intangibles

627

340

1,931

1,068

Increase in value of acquisition price

-

-

2,333

-

Other expenses

2,456

2,253

7,625

6,520

Total noninterest expenses

26,478

20,379

94,599

70,031

Income before income tax expense

32,554

28,136

56,979

67,046

Income tax expense

7,768

6,440

11,331

14,434

Net income

$

24,786

$

21,696

$

45,648

$

52,612

Earnings per common share:

Basic

$

0.62

$

0.61

$

1.15

$

1.49

Diluted

0.62

0.61

1.15

1.48


ConnectOne's management believes that the supplemental financial information, including non-GAAP measures provided below, is useful to investors. The non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP financial measures presented by other companies.

CONNECTONE BANCORP, INC.

SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES

As of

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

Sept. 30,

2020

2020

2020

2019

2019

Selected Financial Data

(dollars in thousands)

Total assets

$

7,449,559

$

7,617,184

$

7,279,327

$

6,174,032

$

6,161,269

Loans receivable:

Commercial

$

1,599,295

$

1,625,024

$

1,203,818

$

1,096,224

$

1,079,071

Commercial real estate

2,001,311

1,987,695

1,981,149

1,559,354

1,551,182

Multifamily

1,703,290

1,723,273

1,762,651

1,518,400

1,513,216

Commercial construction

614,112

673,893

676,836

620,969

647,261

Residential

343,376

366,315

387,400

320,019

322,307

Consumer

1,876

2,001

1,965

3,328

2,436

Gross loans

6,263,260

6,378,201

6,013,819

5,118,294

5,115,473

Unearned net origination fees

(12,209

)

(14,934

)

(4,509

)

(4,767

)

(5,002

)

Loans receivable

6,251,051

6,363,267

6,009,310

5,113,527

5,110,471

Loans held-for-sale

8,508

11,212

32,425

33,250

33,245

Total loans

$

6,259,559

$

6,374,479

$

6,041,735

$

5,146,777

$

5,143,716

Investment securities

$

466,415

$

431,833

$

460,101

$

415,886

$

437,080

Goodwill and other intangible assets

219,977

220,605

221,263

168,034

168,374

Deposits:

Noninterest-bearing demand

$

1,270,021

$

1,276,070

$

979,778

$

861,728

$

828,190

Time deposits

1,619,609

1,807,864

1,974,400

1,553,721

1,573,736

Other interest-bearing deposits

2,909,126

2,742,927

2,555,014

2,352,093

2,349,308

Total deposits

$

5,798,756

$

5,826,861

$

5,509,192

$

4,767,542

$

4,751,234

Borrowings

$

506,225

$

667,062

$

726,856

$

500,293

$

512,456

Subordinated debentures (net of debt issuance costs)

202,552

202,476

128,967

128,885

128,802

Total stockholders' equity

890,736

867,741

853,710

731,190

720,160

Quarterly Average Balances

Total assets

$

7,474,002

$

7,684,403

$

7,106,027

$

6,084,607

$

6,059,413

Loans receivable:

Commercial

$

1,610,423

$

1,539,749

$

1,146,773

$

1,085,640

$

1,040,355

Commercial real estate (including multifamily)

3,679,297

3,722,966

3,723,991

3,074,889

3,144,978

Commercial construction

646,281

675,698

663,036

642,476

617,106

Residential

352,426

374,283

390,655

318,413

325,188

Consumer

2,536

1,898

3,007

4,165

3,525

Gross loans

6,290,963

6,314,594

5,927,462

5,125,583

5,131,152

Unearned net origination fees

(13,292

)

(13,420

)

(4,648

)

(5,031

)

(4,778

)

Loans receivable

6,277,671

6,301,174

5,922,814

5,120,552

5,126,374

Loans held-for-sale

10,772

31,329

33,655

33,163

991

Total loans

$

6,288,443

$

6,332,503

$

5,956,469

$

5,153,715

$

5,127,365

Investment securities

$

429,947

$

452,224

$

458,642

$

427,973

$

448,618

Goodwill and other intangible assets

220,391

221,039

221,075

168,257

168,598

Deposits:

Noninterest-bearing demand

$

1,253,235

$

1,277,428

$

955,358

$

844,332

$

810,247

Time deposits

1,728,129

1,905,165

1,962,714

1,533,425

1,598,378

Other interest-bearing deposits

2,881,592

2,639,052

2,660,755

2,348,752

2,300,886

Total deposits

$

5,862,956

$

5,821,645

$

5,578,827

$

4,726,509

$

4,709,511

Borrowings

$

467,399

$

798,648

$

477,121

$

452,837

$

467,230

Subordinated debentures (net of debt issuance costs)

202,502

141,904

128,913

128,830

128,747

Total stockholders' equity

883,364

868,796

864,241

732,173

714,002

Three Months Ended

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

Sept. 30,

2020

2020

2020

2019

2019

(dollars in thousands, except for per share data)

Net interest income

$

60,549

$

60,790

$

55,281

$

47,431

$

48,406

Provision for loan losses

5,000

15,000

16,000

500

2,000

Net interest income after provision for loan losses

55,549

45,790

39,281

46,931

46,406

Noninterest income

Income on bank owned life insurance

1,598

1,128

967

914

915

Net gains on sale of loans held-for-sale

614

237

393

169

278

Deposit, loan and other income

1,278

3,212

1,287

1,209

1,116

Net (losses) gains on equity securities

(7

)

44

178

(46

)

79

Net gains (losses) on sale of investment securities

-

-

29

-

(279

)

Total noninterest income

3,483

4,621

2,854

2,246

2,109

Noninterest expenses

Salaries and employee benefits

15,114

14,500

14,563

12,881

12,449

Occupancy and equipment

3,566

3,156

3,471

2,380

2,480

FDIC insurance

1,105

1,093

856

795

(364

)

Professional and consulting

1,926

1,673

1,574

1,428

1,499

Marketing and advertising

214

426

304

273

473

Data processing

1,470

1,586

1,473

1,151

1,058

Merger expenses

-

5,146

9,494

871

191

Amortization of core deposit intangible

627

652

652

340

340

Increase in value of acquisition price

-

2,333

-

-

-

Other expenses

2,456

2,498

2,671

2,078

2,253

Total noninterest expenses

26,478

33,063

35,058

22,197

20,379

Income before income tax expense

32,554

17,348

7,077

26,980

28,136

Income tax expense

7,768

2,516

1,047

6,197

6,440

Net income

$

24,786

$

14,832

$

6,030

$

20,783

$

21,696

Weighted average diluted shares outstanding

39,653,832

39,611,712

39,510,810

35,245,285

35,262,565

Diluted EPS

$

0.62

$

0.37

$

0.15

$

0.59

$

0.61

Reconciliation of GAAP Earnings to Pre-tax, Pre-provision and Pre-merger charges Earnings

Net income

$

24,786

$

14,832

$

6,030

$

20,783

$

21,696

Income tax expense

7,768

2,516

1,047

6,197

6,440

Merger charges

-

5,146

9,494

871

191

Provision for loan losses

5,000

15,000

16,000

500

2,000

Pre-tax, pre-provision and pre-merger charges earnings

$

37,554

$

37,494

$

32,571

$

28,351

$

30,327

Return on Assets Measures

Average assets

$

7,474,002

$

7,684,403

$

7,106,027

$

6,084,607

$

6,059,413

Return on avg. assets

1.32

%

0.78

%

0.34

%

1.36

%

1.42

%

Return on avg. assets (pre tax, pre-provision and pre-merger charges)

2.00

1.96

1.84

1.85

1.99

Three Months Ended

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

Sept. 30,

2020

2020

2020

2019

2019

Return on Equity Measures

(dollars in thousands)

Average common equity

$

883,364

$

868,796

$

864,241

$

732,173

$

714,002

Less: average intangible assets

(220,391

)

(221,039

)

(221,075

)

(168,257

)

(168,598

)

Average tangible common equity

$

662,973

$

647,757

$

643,166

$

563,916

$

545,404

Return on avg. common equity (GAAP)

11.16

%

6.87

%

2.81

%

11.26

%

12.06

%

Return on avg. tangible common equity (non-GAAP) (1)

15.14

9.50

4.06

14.79

15.96

Efficiency Measures

Total noninterest expenses

$

26,478

$

33,063

$

35,058

$

22,197

$

20,379

Amortization of core deposit intangibles

(627

)

(652

)

(652

)

(340

)

(340

)

Merger expenses

-

(5,146

)

(9,494

)

(871

)

(191

)

FDIC small bank assessment credit

-

-

-

-

1,310

Foreclosed property expense

-

(5

)

10

8

(90

)

Operating noninterest expense

$

25,851

$

27,260

$

24,922

$

20,994

$

21,068

Net interest income (tax equivalent basis)

$

61,005

$

61,253

$

55,781

$

47,929

$

48,918

Noninterest income

3,483

4,621

2,854

2,246

2,109

Net losses (gains) on equity securities

7

(44

)

(178

)

46

(79

)

Net (gains) losses on sales of securities

-

-

(29

)

-

279

Operating revenue

$

64,495

$

65,830

$

58,428

$

50,221

$

51,227

Operating efficiency ratio (non-GAAP) (2)

40.1

%

41.4

%

42.7

%

41.8

%

41.1

%

Net Interest Margin

Average interest-earning assets

$

6,962,499

$

7,164,545

$

6,584,508

$

5,663,538

$

5,649,058

Net interest income (tax equivalent basis)

$

61,005

$

61,253

$

55,781

$

47,929

$

48,918

Impact of purchase accounting fair value marks

(2,403

)

(3,073

)

(3,457

)

(1,455

)

(1,566

)

Adjusted net interest income (tax equivalent basis)

$

58,602

$

58,180

$

52,324

$

46,474

$

47,352

Net interest margin (GAAP)

3.49

%

3.44

%

3.41

%

3.36

%

3.44

%

Adjusted net interest margin (non-GAAP) (3)

3.35

3.27

3.20

3.26

3.33

____________

(1) Earnings available to common stockholders excluding amortization of intangible assets divided by average tangible common equity.

(2) Operating noninterest expense divided by operating revenue.

(3) Adjusted net interest margin excludes impact of purchase accounting fair value marks.

As of

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

Sept. 30,

2020

2020

2020

2019

2019

Capital Ratios and Book Value per Share

(dollars in thousands, except for per share data)

Common equity

$

890,736

$

867,741

$

853,710

$

731,190

$

720,160

Less: intangible assets

(219,977

)

(220,605

)

(221,263

)

(168,034

)

(168,374

)

Tangible common equity

$

670,759

$

647,136

$

632,447

$

563,156

$

551,786

Total assets

$

7,449,559

$

7,617,184

$

7,279,327

$

6,174,032

$

6,161,269

Less: intangible assets

(219,977

)

(220,605

)

(221,263

)

(168,034

)

(168,374

)

Tangible assets

$

7,229,582

$

7,396,579

$

7,058,064

$

6,005,998

$

5,992,895

Common shares outstanding

39,754,051

39,753,033

39,704,921

35,072,066

35,364,845

Common equity ratio (GAAP)

11.96

%

11.39

%

11.73

%

11.84

%

11.69

%

Tangible common equity ratio (non-GAAP) (4)

9.28

8.75

8.96

9.38

9.21

Regulatory capital ratios (Bancorp):

Leverage ratio

9.30

%

8.99

%

9.20

%

9.54

%

9.39

%

Common equity Tier 1 risk-based ratio

10.63

10.04

9.63

9.95

9.78

Risk-based Tier 1 capital ratio

10.72

10.12

9.71

10.04

9.87

Risk-based total capital ratio

14.94

14.32

12.46

12.95

12.80

Regulatory capital ratios (Bank):

Leverage ratio

10.41

%

10.12

%

10.36

%

10.81

%

10.68

%

Common equity Tier 1 risk-based ratio

12.00

11.38

10.93

11.37

11.23

Risk-based Tier 1 capital ratio

12.00

11.38

10.93

11.37

11.23

Risk-based total capital ratio

13.70

12.96

12.25

12.63

12.50

Book value per share (GAAP)

$

22.41

$

21.83

$

21.50

$

20.85

$

20.36

Tangible book value per share (non-GAAP) (5)

16.87

16.28

15.93

16.06

15.60

Net Loan (Recoveries) Charge-Off Detail

Net loan charge-offs (recoveries) :

Charge-offs

$

257

$

449

$

127

$

1,029

$

964

Recoveries

(800

)

(4

)

(3

)

(22

)

(37

)

Net loan (recoveries) charge-offs

$

(543

)

$

445

$

124

$

1,007

$

927

Net loan (recoveries) charge-offs as a % of average loans receivable (annualized)

(0.03

)%

0.03

%

0.01

%

0.08

%

0.07

%

Asset Quality

Nonaccrual taxi medallion loans

$

23,024

$

23,024

$

23,024

$

23,431

$

25,802

Nonaccrual loans (excluding taxi medallion loans)

42,470

41,556

39,349

26,050

25,519

Other real estate owned

-

-

-

-

907

Total nonperforming assets

$

65,494

$

64,580

$

62,373

$

49,481

$

52,228

Performing troubled debt restructurings

$

18,241

$

20,418

$

21,293

$

21,410

$

19,681

Allowance for loan losses ("ALLL")

$

74,267

$

68,724

$

54,169

$

38,293

$

38,771

Loans receivable

$

6,251,051

$

6,363,267

$

6,009,310

$

5,113,527

$

5,110,471

Less: taxi medallion loans

24,634

24,603

24,575

24,977

27,353

Loans receivable (excluding taxi medallion loans)

$

6,226,417

$

6,338,664

$

5,984,735

$

5,088,550

$

5,083,118

Loans receivable

$

6,251,051

$

6,363,267

$

6,009,310

$

5,113,527

$

5,110,471

Less: PPP loans

474,022

473,999

-

-

-

Loans receivable (excluding PPP loans)

$

5,777,029

$

5,889,268

$

6,009,310

$

5,113,527

$

5,110,471

Nonaccrual loans (excluding taxi medallion loans) as a % of loans receivable (excluding taxi medallion loans)

0.68

%

0.66

%

0.66

%

0.51

%

0.50

%

Nonaccrual loans as a % of loans receivable

1.05

1.01

1.04

0.97

1.00

Nonperforming assets as a % of total assets

0.88

0.85

0.86

0.80

0.85

ALLL as a % of loans receivable

1.19

1.08

0.90

0.75

0.76

ALLL as a % of loans receivable (excluding PPP loans)

1.29

1.17

0.90

0.75

0.76

ALLL as a % of nonaccrual loans (excluding taxi medallion loans)

174.9

165.4

137.7

147.0

151.9

ALLL as a % of nonaccrual loans

113.4

106.4

86.8

77.4

75.5

____________

(4) Tangible common equity divided by tangible assets.

(5) Tangible common equity divided by common shares outstanding at period-end.


CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NET INTEREST MARGIN ANALYSIS

(dollars in thousands)

For the Three Months Ended

September 30, 2020

June 30, 2020

September 30, 2019

Average

Average

Average

Interest-earning assets:

Balance

Interest

Rate (7)

Balance

Interest

Rate (7)

Balance

Interest

Rate (7)

Investment securities (1) (2)

$

420,362

$

2,176

2.06

%

$

443,282

$

2,531

2.30

%

$

445,492

$

3,053

2.72

%

Loans receivable and loans held-for-sale (2) (3) (4)

6,288,443

75,028

4.75

6,332,503

76,088

4.83

5,127,365

67,068

5.19

Federal funds sold and interest-

bearing deposits with banks

227,617

47

0.08

357,758

79

0.09

50,289

278

2.19

Restricted investment in bank stock

26,077

426

6.50

31,002

442

5.73

25,912

502

7.69

Total interest-earning assets

6,962,499

77,677

4.44

7,164,545

79,140

4.44

5,649,058

70,901

4.98

Allowance for loan losses

(69,381

)

(53,502

)

(37,704

)

Noninterest-earning assets

580,884

573,360

448,059

Total assets

$

7,474,002

$

7,684,403

$

6,059,413

Interest-bearing liabilities:

Time deposits

$

1,728,129

$

8,174

1.88

$

1,905,165

$

9,586

2.02

$

1,598,378

$

9,934

2.47

Other interest-bearing deposits

2,881,592

3,773

0.52

2,639,052

4,011

0.61

2,300,886

7,416

1.28

Total interest-bearing deposits

4,609,721

11,947

1.03

4,544,217

13,597

1.20

3,899,264

17,350

1.77

Borrowings

467,399

1,992

1.70

798,648

2,235

1.13

467,230

2,754

2.34

Subordinated debentures, net of debt issuance costs

202,502

2,700

5.30

141,904

2,021

5.73

128,747

1,843

5.68

Capital lease obligation

2,211

33

5.94

2,257

34

6.06

2,393

36

5.97

Total interest-bearing liabilities

5,281,833

16,672

1.26

5,487,026

17,887

1.31

4,497,634

21,983

1.94

Noninterest-bearing demand deposits

1,253,235

1,277,428

810,247

Other liabilities

55,570

51,153

37,530

Total noninterest-bearing liabilities

1,308,805

1,328,581

847,777

Stockholders' equity

883,364

868,796

714,002

Total liabilities and stockholders' equity

$

7,474,002

$

7,684,403

$

6,059,413

Net interest income (tax equivalent basis)

61,005

61,253

48,918

Net interest spread (5)

3.18

%

3.13

%

3.04

%

Net interest margin (6)

3.49

%

3.44

%

3.44

%

Tax equivalent adjustment

(456

)

(463

)

(512

)

Net interest income

$

60,549

$

60,790

$

48,406

(1) Average balances are calculated on amortized cost.

(2) Interest income is presented on a tax equivalent basis using 21% federal tax rate.

(3) Includes loan fee income.

(4) Loans include nonaccrual loans.

(5) Represents difference between the average yield on interest-earning assets and the average cost of interest-bearing

liabilities and is presented on a tax equivalent basis.

(6) Represents net interest income on a tax equivalent basis divided by average total interest-earning assets.

(7) Rates are annualized.