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ConnectOne Bancorp, Inc. Reports Second Quarter 2023 Results; Declares Common and Preferred Dividends
المصدر: Nasdaq GlobeNewswire / 27 يوليو 2023 06:00:02 America/Chicago
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 1/40th 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.comMedia Contact:
Shannan Weeks
MWW
732.299.7890: sweeks@mww.comCONNECTONE 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. 
