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ConnectOne Bancorp, Inc. Reports Third Quarter 2022 Results; Declares Common and Preferred Dividends
المصدر: Nasdaq GlobeNewswire / 27 أكتوبر 2022 06:00:02 America/Chicago
ENGLEWOOD CLIFFS, N.J., Oct. 27, 2022 (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 $27.4 million for the third quarter of 2022 compared with $30.8 million for the second quarter of 2022 and $32.1 million for the third quarter of 2021. Diluted earnings per share were $0.70 for the third quarter of 2022 compared with $0.78 in the second quarter of 2022 and $0.80 in the third quarter of 2021. The decrease in net income available to common stockholders and diluted earnings per share from the second quarter of 2022 was primarily attributable to a $7.0 million increase in the provision for credit losses due to loan growth and changes in forecasted macroeconomic factors, and a $0.4 million increase in noninterest expenses, partially offset by increases in net interest income of $2.6 million and a $1.5 million decrease in income tax expense. The decrease in net income available to common stockholders and diluted earnings per share from the third quarter of 2021 was primarily due to an $8.9 million increase in the provision for credit losses, a $4.0 million increase in noninterest expenses, $1.5 million in preferred dividends, which were not paid in the 2021 period, and a $0.7 million decrease in noninterest income, partially offset by a $9.9 million increase in net interest income.
Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “ConnectOne’s solid third quarter results reflect continued execution across the organization and dedication to relationship banking. We achieved record pre-tax, pre-provision earnings, which increased by more than 4% sequentially and by nearly 12% versus a year ago. This increase was driven by strong organic growth, a continued stable net interest margin, and further operating leverage. Credit quality remains sound, with no present signs of weakness, while we provided an additional $10 million in reserves during the third quarter primarily reflecting strong organic loan growth and changes in forecasted macroeconomic factors.”
“Return on assets was 1.27%, return on tangible common equity was 13.2% and our net interest margin remained robust at 3.68%. Firing on all cylinders, our efficiency ratio remained below 40%, average noninterest-bearing deposits grew sequentially by 4.6%, non-performing asset ratios improved for the fourth consecutive quarter, and tangible book value per share increased for the 10th consecutive quarter. Tangible book value per share has increased more than 30% since the first quarter of 2020 and by nearly 8% from a year ago.”
“During the quarter, total deposits grew by 10.5%, surpassing 8.6% in sequential loan growth and improving our loan to deposit ratio. And while loan rates increased, credit spreads tightened, as we delivered on our business model of serving existing clients, gaining new clients, and solidifying relationships that also bring in deposits. The end result was a healthy 3.4% sequential increase in net interest income as loan growth more than offset both GAAP and core margin compression.”
Mr. Sorrentino added, “Heading into the fourth quarter, loan yields are increasing, and spreads continue to widen, while the pipeline has moderated. Importantly, and demonstrating the effectiveness of our relationship banking business model, the vast majority of all loans originated this quarter included a deposit relationship. We also look forward to leveraging the investments we’ve made in technology that facilitate enhancements in our infrastructure and workflows, and simultaneously providing new deposit origination opportunities. Demand remains solid as we continue to gain traction across our markets. This reflects our differentiated origination franchise, strength of our operating markets, and recent investments in our people.”
“Year-to-date, ConnectOne’s results have been very strong, building on our track record of superior performance during turbulent times. We remain one of the most efficient banks in the industry while we continue to leverage our technological advantages and our culture to drive results. Looking ahead, I believe we remain well-positioned to capitalize on opportunities in any environment.”
Dividend Declarations
The Company announced that its Board of Directors declared a cash dividend on its common stock and a quarterly cash dividend on its preferred stock.
A cash dividend on common stock of $0.155 per share will be paid on December 1, 2022, to common stockholders of record on November 14, 2022. 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 December 1, 2022 to preferred stockholders of record on November 15, 2022.
Operating Results
Fully taxable equivalent net interest income for the third quarter of 2022 was $78.9 million, an increase of $2.7 million, or 3.6%, from the second quarter of 2022 resulting from an 8.9% increase in average interest-earning assets, primarily loans, and partially offset by a 23 basis-point contraction in the net interest margin to 3.68% from 3.91%. The decrease in the net interest margin primarily reflected two non-core items: a second quarter 2022 $1.5 million recovery on a purchased credit-deteriorated loan and a $2.0 million reduction in the accretion of Paycheck Protection Program (“PPP”) fee income. Excluding those two items, the net interest margin contracted by 5 basis points. The average cost of deposits, after factoring in the 4.6% increase in average noninterest-bearing demand balances, increased by 41 basis points to 0.77% from 0.36% in the second quarter of 2022.
Fully taxable equivalent net interest income for the third quarter of 2022 increased by $10.1 million, or 14.7%, from the third quarter of 2021. The increase from the third quarter of 2021 resulted primarily from a 16.1% increase in average interest earning assets, primarily loans, and was partially offset by a 5 basis-point contraction of the net interest margin to 3.68% from 3.73%. The contraction in the net interest margin resulted from a 56 basis-point increase in the cost of average interest-bearing liabilities, partially offset by a 36 basis-point increase in the yield on average interest-earning assets and a 12.5% increase in average noninterest-bearing demand deposits.
Noninterest income was $3.3 million in the third quarter of 2022, $3.4 million in the second quarter of 2022 and $4.0 million in the third quarter of 2021. Included in noninterest income were net losses on equity securities of $0.4 million, $0.4 million and $0.1 million for the third quarter 2022, second quarter 2022 and third quarter of 2021, respectively. Excluding equity securities losses, adjusted noninterest income was $3.8 million, $3.8 million and $4.1 million for the third quarter 2022, second quarter 2022 and third quarter 2021, respectively. Sequentially, income on bank owned life insurance (“BOLI”) increased by $0.2 million and deposit, loan and other income increased by $0.1 million. These increases to noninterest income during the third quarter of 2022 were offset by a decrease in net gains on sale of loans held-for-sale of $0.3 million. The $0.3 million decrease in adjusted noninterest income for the third quarter 2022 versus the third quarter 2021 was primarily due to a decrease in net gains on loans held-for-sale of $0.8 million, partially offset by increases in deposit, loan and other income of $0.3 million and BOLI income of $0.2 million.
Noninterest expenses totaled $32.1 million for the third quarter of 2022, $31.7 million for the second quarter of 2022 and $28.2 million for the third quarter of 2021. The increase in noninterest expenses of $0.4 million from the second quarter of 2022 was primarily attributable to increases in salaries and employee benefits of $1.4 million and other expenses of $0.2 million, partially offset by a decrease in BoeFly acquisition expense of $0.8 million. The increase in noninterest expenses of $4.0 million from the third quarter of 2021 was primarily attributable to increases in salaries and employee benefits of $4.1 million. The increase in salaries and employee benefits from the prior sequential quarter and prior year quarter was attributable to increased staff in both the revenue and back-office areas of the bank, base salary increases, and incentive compensation accruals.
Income tax expense was $10.4 million for the third quarter of 2022, $11.9 million for the second quarter of 2022 and $10.9 million for the third quarter of 2021. The effective tax rates for the third quarter of 2022, second quarter of 2022 and third quarter of 2021 were 26.5%, 26.9% and 25.3%, respectively.
Asset Quality
The provision for credit losses was $10.0 million for the third quarter of 2022, $3.0 million for the second quarter of 2022 and $1.1 million for the third quarter of 2021. The increased provision for credit losses during the third quarter of 2022 reflected strong organic loan growth and changes in forecasted macroeconomic conditions.
Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $57.7 million as of September 30, 2022, $61.7 million as of December 31, 2021 and $66.0 million as of September 30, 2021. Nonaccrual loans were $57.5 million as of September 30, 2022, $61.7 million as of December 31, 2021 and $66.0 million as of September 30, 2021. Nonperforming assets as a percentage of total assets were 0.61% as of September 30, 2022, 0.76% as of December 31, 2021 and 0.83% as of September 30, 2021. The ratio of nonaccrual loans to loans receivable was 0.73%, 0.90% and 1.00%, as of September 30, 2022, December 31, 2021 and September 30, 2021, respectively. The annualized net loan charge-offs ratio was 0.02% for the third quarter of 2022, 0.01% for the fourth quarter of 2021 and 0.10% for the third quarter of 2021. The allowance for credit losses represented 1.16%, 1.15%, and 1.19% of loans receivable as of September 30, 2022, December 31, 2021 and September 30, 2021, respectively. Excluding PPP loans, the allowance for credit losses represented 1.16%, 1.17%, and 1.22% of loans receivable as of September 30, 2022, December 31, 2021 and September 30, 2021, respectively. The allowance for credit losses as a percentage of nonaccrual loans was 159.7% as of September 30, 2022, 127.7% as of December 31, 2021 and 118.2% as of September 30, 2021.
Selected Balance Sheet Items
The Company’s total assets were $9.5 billion as of September 30, 2022, an increase of $1.3 billion from December 31, 2021. Loans receivable were $7.9 billion, an increase of $1.1 billion from December 31, 2021. The increase in loans receivable was attributable to organic loan originations.
The Company’s total stockholders’ equity was $1.1 billion as of September 30, 2022, an increase of $24.1 million from December 31, 2021. The increase in retained earnings of $70.8 million was the primary reason for the overall increase in stockholders’ equity, in addition to an increase in additional paid-in capital of $1.5 million, partially offset by a decrease in accumulated other comprehensive income of $35.1 million, reflecting the after-tax decline in the fair value of investment securities net of unrealized hedge gains recorded in other assets, and an increase in treasury stock of $13.1 million. As of September 30, 2022, the Company’s tangible common equity ratio and tangible book value per share were 8.87% and $20.93, respectively. As of December 31, 2021, the tangible common equity ratio and tangible book value per share were 10.06% and $20.12, respectively. Total goodwill and other intangible assets were $216.1 million as of September 30, 2022, and $217.4 million as of December 31, 2021.
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 2022 Results Conference Call
Management will also host a conference call and audio webcast at 10:00 a.m. ET on October 27, 2022 to review the Company's financial performance and operating results. The conference call dial-in number is 1-201-689-8471, access code 13733104. 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 27, 2022 and ending on Thursday, November 3, 2022 by dialing 1-412-317-6671, access code 13733104. An online archive of the webcast will be available following the completion of the conference call at https://www.connectonebank.com or at http://ir.connectonebank.com.
About ConnectOne Bancorp, Inc.
ConnectOne Bancorp, Inc., is a modern financial services company that operates, through its subsidiary, ConnectOne Bank, and the Bank’s fintech subsidiary, BoeFly, Inc. ConnectOne Bank is a high-performing commercial bank offering a full suite of banking & lending products and services that focus on small to middle-market businesses. BoeFly, Inc. is a fintech marketplace that connects borrowers in the franchise space with funding solutions through a network of partner banks. ConnectOne Bancorp, Inc. is traded on the Nasdaq Global Market under the trading symbol "CNOB," and information about ConnectOne may be found at https://www.connectonebank.com.
Forward-Looking Statements
This news release contains certain forward-looking statements which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, those factors set forth in Item 1A – Risk Factors of the Company’s Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission, as supplemented by the Company’s subsequent filings with the U.S. Securities and Exchange Commission, and changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area, changes in accounting principles and guidelines and the impact of the COVID-19 pandemic on the Company, its employees and operations, and its customers. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
Investor Contact:
William S. Burns
Senior Executive VP & CFO
201.816.4474: bburns@cnob.comMedia Contact:
Shannan Weeks
MWW
732.299.7890: sweeks@mww.com
CONNECTONE BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION (in thousands) September 30, December 31, September 30, 2022 2021 2021 (unaudited) (unaudited) ASSETS Cash and due from banks $ 58,852 $ 54,352 $ 49,626 Interest-bearing deposits with banks 274,992 211,184 363,569 Cash and cash equivalents 333,844 265,536 413,195 Investment securities 623,629 534,507 462,884 Equity securities 15,563 13,794 13,700 Loans held-for-sale 8,080 250 5,596 Loans receivable 7,900,450 6,828,622 6,576,439 Less: Allowance for credit losses - loans 91,717 78,773 77,986 Net loans receivable 7,808,733 6,749,849 6,498,453 Investment in restricted stock, at cost 45,324 27,826 18,106 Bank premises and equipment, net 28,519 29,032 29,635 Accrued interest receivable 38,940 34,152 33,610 Bank owned life insurance 229,800 195,731 194,487 Right of use operating lease assets 10,196 11,017 11,002 Other real estate owned 264 - - Goodwill 208,372 208,372 208,372 Core deposit intangibles 7,721 8,997 9,480 Other assets 119,267 50,417 50,994 Total assets $ 9,478,252 $ 8,129,480 $ 7,949,514 LIABILITIES Deposits: Noninterest-bearing $ 1,665,658 $ 1,617,049 $ 1,500,754 Interest-bearing 5,644,852 4,715,904 4,897,584 Total deposits 7,310,510 6,332,953 6,398,338 Borrowings 829,953 468,193 253,225 Subordinated debentures, net 153,179 152,951 152,875 Operating lease liabilities 11,454 12,417 12,437 Other liabilities 24,861 38,754 34,206 Total liabilities 8,329,957 7,005,268 6,851,081 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 28,756 27,246 25,851 Retained earnings 510,957 440,169 413,996 Treasury stock (52,799 ) (39,672 ) (38,314 ) Accumulated other comprehensive loss (36,492 ) (1,404 ) (973 ) Total stockholders' equity 1,148,295 1,124,212 1,098,433 Total liabilities and stockholders' equity $ 9,478,252 $ 8,129,480 $ 7,949,514 CONNECTONE BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except for per share data) Three Months Ended Nine Months Ended 09/30/22 09/30/21 09/30/22 09/30/21 Interest income Interest and fees on loans $ 90,731 $ 75,092 $ 248,041 $ 216,655 Interest and dividends on investment securities: Taxable 4,063 1,065 8,487 3,148 Tax-exempt 1,083 511 2,708 1,885 Dividends 438 245 943 764 Interest on federal funds sold and other short-term investments 665 113 1,098 246 Total interest income 96,980 77,026 261,277 222,698 Interest expense Deposits 13,299 5,478 24,018 19,487 Borrowings 5,520 3,303 13,149 10,794 Total interest expense 18,819 8,781 37,167 30,281 Net interest income 78,161 68,245 224,110 192,417 Provision for (reversal of) credit losses 10,000 1,100 14,450 (6,315 ) Net interest income after provision for credit losses 68,161 67,145 209,660 198,732 Noninterest income Deposit, loan and other income 1,969 1,702 5,578 5,092 Income on bank owned life insurance 1,521 1,278 4,069 3,527 Net gains on sale of loans held-for-sale 262 1,114 1,519 2,668 Gain on sale of branches - - - 674 Net losses on equity securities (430 ) (78 ) (1,431 ) (242 ) Net gains on sale/redemption of investment securities - - - 195 Total noninterest income 3,322 4,016 9,735 11,914 Noninterest expenses Salaries and employee benefits 20,882 16,740 59,041 47,589 Occupancy and equipment 2,600 2,656 7,262 8,876 FDIC insurance 720 525 2,051 2,040 Professional and consulting 1,980 2,217 5,896 6,290 Marketing and advertising 461 345 1,238 864 Information technology and communications 2,747 3,048 8,414 8,209 Amortization of core deposit intangible 409 483 1,276 1,498 Increase in value of acquisition price - - 1,516 - Other expenses 2,344 2,169 6,382 5,561 Total noninterest expenses 32,143 28,183 93,076 80,927 Income before income tax expense 39,340 42,978 126,319 129,719 Income tax expense 10,425 10,881 33,665 32,404 Net income 28,915 32,097 92,654 97,315 Preferred dividends 1,509 - 4,527 - Net income available to common stockholders $ 27,406 $ 32,097 $ 88,127 $ 97,315 Earnings per common share: Basic $ 0.70 $ 0.81 $ 2.24 $ 2.45 Diluted 0.70 0.80 2.23 2.43 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 Sep. 30, Jun. 30, Mar. 31, Dec. 30, Sep. 30, 2022 2022 2022 2021 2021 Selected Financial Data (dollars in thousands) Total assets $ 9,478,252 $ 8,841,506 $ 8,334,301 $ 8,129,480 $ 7,949,514 Loans receivable: Commercial $ 1,392,037 $ 1,274,280 $ 1,161,867 $ 1,163,442 $ 1,116,535 Paycheck Protection Program ("PPP") loans 11,458 18,004 54,301 93,057 177,829 Commercial real estate 3,087,354 2,727,120 2,516,065 2,446,807 2,354,209 Multifamily 2,624,726 2,442,603 2,465,337 2,337,712 2,113,541 Commercial construction 537,323 569,789 539,058 540,178 552,896 Residential 256,085 249,379 250,205 255,269 270,793 Consumer 1,030 1,248 1,140 1,886 2,093 Gross loans 7,910,013 7,282,423 6,987,973 6,838,351 6,587,896 Unearned net origination fees (9,563 ) (7,850 ) (8,378 ) (9,729 ) (11,457 ) Loans receivable 7,900,450 7,274,573 6,979,595 6,828,622 6,576,439 Loans held-for-sale 8,080 3,182 2,742 250 5,596 Total loans $ 7,908,530 $ 7,277,755 $ 6,982,337 $ 6,828,872 $ 6,582,035 Investment and equity securities $ 639,192 $ 691,934 $ 525,228 $ 548,301 $ 476,584 Goodwill and other intangible assets 216,093 216,502 216,936 217,369 217,852 Deposits: Noninterest-bearing demand $ 1,665,658 $ 1,712,875 $ 1,631,292 $ 1,617,049 $ 1,500,754 Time deposits 1,921,235 1,285,409 1,065,814 1,150,109 0 1,221,911 Other interest-bearing deposits 3,723,617 3,619,315 3,863,299 3,565,795 3,675,673 Total deposits $ 7,310,510 $ 6,617,599 $ 6,560,405 $ 6,332,953 $ 6,398,338 Borrowings $ 829,953 $ 874,964 $ 412,170 $ 468,193 $ 253,225 Subordinated debentures (net of debt issuance costs) 153,179 153,103 153,027 152,951 152,875 Total stockholders' equity 1,148,295 1,143,147 1,138,519 1,124,212 1,098,433 Quarterly Average Balances Total assets $ 9,030,589 $ 8,322,823 $ 8,263,382 $ 8,027,169 $ 7,837,997 Loans receivable: Commercial (including PPP loans) $ 1,342,868 $ 1,245,812 $ 1,231,703 $ 1,278,048 $ 1,296,066 Commercial real estate (including multifamily) 5,455,714 4,974,297 4,850,349 4,625,371 4,312,092 Commercial construction 537,073 544,084 541,642 547,038 572,920 Residential 251,338 247,208 253,589 268,112 279,063 Consumer 2,361 5,029 3,682 4,938 2,649 Gross loans 7,589,354 7,016,430 6,880,965 6,723,507 6,462,790 Unearned net origination fees (9,178 ) (9,222 ) (9,870 ) (10,873 ) (13,064 ) Loans receivable 7,580,176 7,007,208 6,871,095 6,712,634 6,449,726 Loans held-for-sale 2,195 966 382 5,051 6,226 Total loans $ 7,582,371 $ 7,008,174 $ 6,871,477 $ 6,717,685 $ 6,455,952 Investment and equity securities $ 687,291 $ 567,140 $ 536,090 $ 481,276 $ 465,103 Goodwill and other intangible assets 216,360 216,786 217,219 217,685 218,170 Deposits: Noninterest-bearing demand $ 1,682,135 $ 1,607,465 $ 1,547,055 $ 1,537,316 $ 1,495,456 Time deposits 1,525,076 1,103,418 1,124,614 1,204,374 1,252,818 Other interest-bearing deposits 3,686,520 3,717,531 3,851,558 3,672,311 3,582,261 Total deposits $ 6,893,731 $ 6,428,414 $ 6,523,227 $ 6,414,001 $ 6,330,535 Borrowings $ 772,561 $ 548,675 $ 404,907 $ 292,847 $ 276,183 Subordinated debentures (net of debt issuance costs) 153,129 153,053 152,977 152,902 152,825 Total stockholders' equity 1,160,448 1,143,092 1,131,968 1,113,524 1,032,191 Three Months Ended Sep. 30, Jun. 30, Mar. 31, Dec. 30, Sep. 30, 2022 2022 2022 2021 2021 (dollars in thousands, except for per share data) Net interest income $ 78,161 $ 75,591 $ 70,358 $ 70,461 $ 68,245 Provision for (reversal of) credit losses 10,000 3,000 1,450 815 1,100 Net interest income after provision for credit losses 68,161 72,591 68,908 69,646 67,145 Noninterest income Deposit, loan and other income 1,969 1,866 1,743 1,525 1,702 Income on bank owned life insurance 1,521 1,342 1,206 1,244 1,278 Net gains on sale of loans held-for-sale 262 556 701 1,139 1,114 Net losses gains on equity securities (430 ) (405 ) (596 ) (131 ) (78 ) Total noninterest income 3,322 3,359 3,054 3,777 4,016 Noninterest expenses Salaries and employee benefits 20,882 19,519 18,640 16,483 16,740 Occupancy and equipment 2,600 2,733 1,929 2,762 2,656 FDIC insurance 720 725 606 625 525 Professional and consulting 1,980 2,124 1,792 1,996 2,217 Marketing and advertising 461 426 351 454 345 Information technology and communications 2,747 2,801 2,866 3,058 3,048 Amortization of core deposit intangible 409 434 433 483 483 Increase in value of acquisition price - 833 683 - - Other expenses 2,344 2,108 1,930 2,223 2,169 Total noninterest expenses 32,143 31,703 29,230 28,084 28,183 Income before income tax expense 39,340 44,247 42,732 45,339 42,978 Income tax expense 10,425 11,889 11,351 12,301 10,881 Net income $ 28,915 $ 32,358 $ 31,381 $ 33,038 $ 32,097 Preferred dividends 1,509 1,509 1,509 1,717 - Net income available to common stockholders $ 27,406 $ 30,849 $ 29,872 $ 31,321 $ 32,097 Weighted average diluted common shares outstanding 39,320,674 39,481,689 39,727,606 39,792,937 39,869,468 Diluted EPS $ 0.70 $ 0.78 $ 0.75 $ 0.79 $ 0.80 Reconciliation of GAAP Earnings to Pre-tax and Pre-provision Net Revenue Net income $ 28,915 $ 32,358 $ 31,381 $ 33,038 $ 32,097 Income tax expense 10,425 11,889 11,351 12,301 10,881 Provision for (reversal of) credit losses 10,000 3,000 1,450 815 1,100 Pre-tax and pre-provision net revenue $ 49,340 $ 47,247 $ 44,182 $ 46,154 $ 44,078 Return on Assets Measures Average assets $ 9,030,589 $ 8,322,823 $ 8,263,382 $ 8,027,169 $ 7,837,997 Return on avg. assets 1.27 % 1.56 % 1.54 % 1.63 % 1.62 % Return on avg. assets (pre-tax and pre-provision) 2.17 2.28 2.17 2.28 2.23 Three Months Ended Sep. 30, Jun. 30, Mar. 31, Dec. 30, Sep. 30, 2022 2022 2022 2021 2021 Return on Equity Measures (dollars in thousands) Average stockholders' equity $ 1,160,448 $ 1,143,097 $ 1,131,968 $ 1,113,524 $ 1,032,195 Less: average preferred stock (110,927 ) (110,927 ) (110,927 ) (110,927 ) (51,847 ) Average common equity $ 1,049,521 $ 1,032,170 $ 1,021,041 $ 1,002,597 $ 980,348 Less: average intangible assets (216,360 ) (216,786 ) (217,219 ) (217,685 ) (218,170 ) Average tangible common equity $ 833,161 $ 815,384 $ 803,822 $ 784,912 $ 762,178 Return on avg. common equity (GAAP) 10.36 % 11.99 % 11.87 % 12.39 % 12.99 % Return on avg. tangible common equity ("TCE") (non-GAAP) (1) 13.19 15.32 15.22 16.00 16.88 Return on avg. tangible common equity (pre-tax, pre-provision, pre-merger charges) 23.63 23.39 22.44 23.50 23.12 Efficiency Measures Total noninterest expenses $ 32,143 $ 31,703 $ 29,230 $ 28,084 $ 28,183 Amortization of core deposit intangibles (409 ) (434 ) (433 ) (483 ) (483 ) Operating noninterest expense $ 31,734 $ 31,269 $ 28,797 $ 27,601 $ 27,700 Net interest income (tax equivalent basis) $ 78,850 $ 76,146 $ 70,842 $ 70,890 $ 68,761 Noninterest income 3,322 3,359 3,054 3,777 4,016 Net losses (gains) on equity securities 430 405 596 131 78 Operating revenue $ 82,602 $ 79,910 $ 74,492 $ 74,798 $ 72,855 Operating efficiency ratio (non-GAAP) (2) 38.4 % 39.1 % 38.7 % 36.9 % 38.0 % Net Interest Margin Average interest-earning assets $ 8,500,316 $ 7,807,445 $ 7,753,881 $ 7,508,973 $ 7,321,771 Net interest income (tax equivalent basis) $ 78,850 $ 76,146 $ 70,842 $ 70,890 $ 68,761 Impact of purchase accounting fair value marks (885 ) (1,014 ) (1,179 ) (1,674 ) (1,849 ) Adjusted net interest income (tax equivalent basis) $ 77,965 $ 75,132 $ 69,663 $ 69,216 $ 66,912 Net interest margin (GAAP) 3.68 % 3.91 % 3.71 % 3.75 % 3.73 % Adjusted net interest margin (non-GAAP) (3) 3.64 3.86 3.64 3.66 3.63 (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 Sep. 30, Jun. 30, Mar. 31, Dec. 30, Sep. 30, 2022 2022 2022 2021 2021 Capital Ratios and Book Value per Share (dollars in thousands, except for per share data) Stockholders equity $ 1,148,295 $ 1,143,147 $ 1,138,519 $ 1,124,212 $ 1,098,433 Less: preferred stock (110,927 ) (110,927 ) (110,927 ) (110,927 ) (110,927 ) Common equity $ 1,037,368 $ 1,032,220 $ 1,027,592 $ 1,013,285 $ 987,506 Less: intangible assets (216,093 ) (216,502 ) (216,936 ) (217,369 ) (217,852 ) Tangible common equity $ 821,275 $ 815,718 $ 810,656 $ 795,916 $ 769,654 Total assets $ 9,478,252 $ 8,841,506 $ 8,334,301 $ 8,129,480 $ 7,949,514 Less: intangible assets (216,093 ) (216,502 ) (216,936 ) (217,369 ) (217,852 ) Tangible assets $ 9,262,159 $ 8,625,004 $ 8,117,365 $ 7,912,111 $ 7,731,662 Common shares outstanding 39,243,123 39,243,123 39,518,411 39,568,090 39,602,199 Common equity ratio (GAAP) 10.94 % 11.67 % 12.33 % 12.46 % 12.42 % Tangible common equity ratio (non-GAAP) (4) 8.87 9.46 9.99 10.06 9.95 Regulatory capital ratios (Bancorp): Leverage ratio 10.95 % 11.63 % 11.57 % 11.65 % 11.60 % Common equity Tier 1 risk-based ratio 10.20 10.63 10.69 10.64 10.73 Risk-based Tier 1 capital ratio 11.58 12.11 12.21 12.19 12.35 Risk-based total capital ratio 14.45 15.09 15.25 15.26 15.54 Regulatory capital ratios (Bank): Leverage ratio 10.91 % 11.61 % 11.41 % 11.43 % 11.33 % Common equity Tier 1 risk-based ratio 11.53 12.08 12.04 11.96 12.06 Risk-based Tier 1 capital ratio 11.53 12.08 12.04 11.96 12.06 Risk-based total capital ratio 13.00 13.55 13.55 13.44 13.61 Book value per share (GAAP) $ 26.43 $ 26.30 $ 26.00 $ 25.61 $ 24.94 Tangible book value per share (non-GAAP) (5) 20.93 20.79 20.51 20.12 19.43 Net Loan (Recoveries) Charge-Off Detail Net loan charge-offs (recoveries): Charge-offs $ 413 $ 302 $ 274 $ 458 $ 1,727 Recoveries (53 ) (32 ) (32 ) (217 ) (113 ) Net loan charge-offs (recoveries) $ 360 $ 270 $ 242 $ 241 $ 1,614 Net loan charge-offs (recoveries) as a % of average loans receivable (annualized) 0.02 % 0.02 % 0.01 % 0.01 % 0.10 % Asset Quality Nonaccrual loans $ 57,447 $ 60,756 $ 59,403 $ 61,700 $ 65,959 OREO 264 316 316 - - Nonperforming assets $ 57,711 $ 61,072 $ 59,719 $ 61,700 $ 65,959 Allowance for credit losses - loans ("ACL") 91,717 82,739 80,070 78,773 77,986 Loans receivable $ 7,900,450 $ 7,274,573 $ 6,979,595 $ 6,828,622 $ 6,576,439 Less: PPP loans 11,458 18,004 54,301 93,057 177,829 Loans receivable (excluding PPP loans) $ 7,888,992 $ 7,256,569 $ 6,925,294 $ 6,735,565 $ 6,398,610 Nonaccrual loans as a % of loans receivable 0.73 % 0.84 % 0.85 % 0.90 % 1.00 Nonperforming assets as a % of total assets 0.61 0.69 0.72 0.76 0.83 ACL as a % of loans receivable 1.16 1.14 1.15 1.15 1.19 ACL as a % of loans receivable (excluding PPP loans) 1.16 1.14 1.16 1.17 1.22 ACL as a % of nonaccrual loans 159.7 136.2 134.8 127.7 118.2 (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, 2022 June 30, 2022 September 30, 2021 Average Average Average Interest-earning assets: Balance Interest Rate (7) Balance Interest Rate (7) Balance Interest Rate (7) Investment securities (1) (2) $ 740,394 $ 5,434 2.91 % $ 610,465 $ 3,710 2.44 % $ 459,559 $ 1,712 1.48 % Loans receivable and loans held-for-sale (2) (3) (4) 7,582,371 91,132 4.77 7,008,174 81,597 4.67 6,455,952 75,434 4.64 Federal funds sold and interest- bearing deposits with banks 135,331 665 1.95 157,201 312 0.80 387,155 151 0.15 Restricted investment in bank stock 42,220 438 4.12 31,605 291 3.69 19,105 245 5.09 Total interest-earning assets 8,500,316 97,669 4.56 7,807,445 85,910 4.41 7,321,771 77,542 4.20 Allowance for loan losses (84,307 ) (81,012 ) (78,327 ) Noninterest-earning assets 614,580 596,390 594,553 Total assets $ 9,030,589 $ 8,322,823 $ 7,837,997 Interest-bearing liabilities: Time deposits $ 1,525,076 5,396 1.40 $ 1,103,418 $ 2,179 0.79 1,252,818 2,983 0.94 Other interest-bearing deposits 3,686,520 7,903 0.85 3,717,531 3,530 0.38 3,582,261 2,495 0.28 Total interest-bearing deposits 5,211,596 13,299 1.01 4,820,949 5,709 0.47 4,835,079 5,478 0.45 Borrowings 772,561 3,297 1.69 548,675 1,849 1.35 276,183 1,105 1.59 Subordinated debentures 153,129 2,196 5.69 153,053 2,178 5.71 152,825 2,168 5.63 Finance lease 1,813 27 5.91 1,865 28 6.02 2,018 30 5.90 Total interest-bearing liabilities 6,139,099 18,819 1.22 5,524,542 9,764 0.71 5,266,105 8,781 0.66 Noninterest-bearing demand deposits 1,682,135 1,607,465 1,495,456 Other liabilities 48,907 47,719 44,245 Total noninterest-bearing liabilities 1,731,042 1,655,184 1,539,701 Stockholders' equity 1,160,448 1,143,097 1,032,191 Total liabilities and stockholders' equity $ 9,030,589 $ 8,322,823 $ 7,837,997 Net interest income (tax equivalent basis) 78,850 76,146 68,761 Net interest spread (5) 3.34 % 3.70 % 3.54 % Net interest margin (6) 3.68 % 3.91 % 3.73 % Tax equivalent adjustment (689 ) (555 ) (516 ) Net interest income $ 78,161 $ 75,591 $ 68,245 (1) Average balances are calculated on amortized cost. (2) Interest income is presented on a tax equivalent basis using 21% federal tax rate. (3) Includes loan fee income and accretion of purchase accounting adjustments. (4) Loans include nonaccrual loans. (5) Represents difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities and is presented on a tax equivalent basis. (6) Represents net interest income on a tax equivalent basis divided by average total interest-earning assets. (7) Rates are annualized. 
