ConnectOne Bancorp, Inc. Reports First Quarter 2021 Results; Increases Common Dividend

Source: Nasdaq GlobeNewswire / 29 Apr 2021 07:00:03 America/New_York

ENGLEWOOD CLIFFS, N.J., April 29, 2021 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq: CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $33.0 million for the first quarter of 2021 compared with $25.6 million for the fourth quarter of 2020 and $6.0 million for the first quarter of 2020. Diluted earnings per share were $0.82 for the first quarter of 2021 compared with $0.64 in the fourth quarter of 2020 and $0.15 in the first quarter of 2020. The increase in net income and diluted earnings per share from the fourth quarter of 2020 was primarily due to a $5.8 million recapture of credit loss reserves in the current quarter reflecting the impact of the improved economic outlook on the current expected credit losses (“CECL”) accounting estimate, compared with a $5.0 million provision in the fourth quarter of 2020.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “ConnectOne’s strong first quarter results reflected continued margin expansion and industry-leading operating efficiency. While our return on assets and return on tangible common equity expanded significantly to 1.78% and 19.08%, respectively, largely due to the recapture of credit loss reserves, our operating net revenue to average assets also increased, further solidifying our status as a top performer in the banking industry.”

“Operationally, we’re using the full range of the Company’s banking expertise to help our clients and had a robust quarter in terms of overall loan production. While our first quarter loan growth was offset by paydowns, resulting from an excessive amount of liquidity in the marketplace, we’re seeing strong demand, bolstered by an improving operating environment in the New York Metropolitan area. We are very pleased with our existing loan pipeline, which is at the highest level in the Company’s history and expect net loan growth to accelerate in the quarters ahead. Further, as vaccines continue to work their way through our core footprint, we’re anticipating a significant uptick in our client activity in the near future.”

“ConnectOne’s investments in infrastructure, communication tools and digital channels have been instrumental in our success, and we will continue to leverage our strong technological foundation as we further develop our hybrid banking model. We also continue to gain momentum building out our SBA leading platform, which is serving our existing clients and supporting small businesses in the communities where we do business.”

Mr. Sorrentino added, “ConnectOne, as a growth company, is well-positioned to take advantage of an economic turnaround. We are also pleased to announce an increase in our common stock dividend as well as the reinstatement of our share repurchase program reflecting our strong operating performance, our growing capital base, and the confidence we have in ConnectOne’s long-term outlook.”

Dividend Declaration

The Company announced that its Board of Directors declared a cash dividend on its common stock of $0.11 per share. This cash dividend represents a $0.02, or a 22.2% increase from the prior common dividend declared on January 28, 2021. The dividend will be paid on June 1, 2021 to shareholders of record on May 17, 2021.

Operating Results

Fully taxable equivalent net interest income for the first quarter of 2021 was $61.6 million, a decrease of $0.3 million, or 0.4%, from the fourth quarter of 2020, resulting primarily from a 0.3% decrease in average interest-earning assets, and partially offset by a 6 basis-point widening of the net interest margin to 3.56% from 3.50%. While overall interest-earning assets decreased, loans increased approximately $33.3 million when compared to the fourth quarter of 2020, largely due to Paycheck Protection Program (“PPP”) originations. Included in net interest income were purchase accounting adjustments of $2.1 million during the first quarter of 2021 and $2.2 million during the fourth quarter of 2020. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.44% for the first quarter of 2021 and 3.37% for the fourth quarter of 2020. The net interest margin widened as a result of lower cash balances as well as continued improvement in the Bank’s cost and mix of funding sources including the redemption of high-coupon subordinated debt, which more than offset a declining yield on loans and investment securities. This was the sixth consecutive quarter that the Bank’s net interest margin widened. Included in interest income in the first quarter of 2021 was PPP fee income of approximately $2.3 million, compared to $2.4 million in the fourth quarter of 2020. Deferred and unrecognized PPP fees were $9.9 million as of March 31, 2021.

Fully taxable equivalent net interest income for the first quarter of 2021 increased by $5.8 million, or 10.4%, from the first quarter of 2020. The increase from the first quarter of 2020 resulted primarily from a 6.4% increase in average interest-earning assets, largely due to PPP originations, and a 15 basis-point widening of the net interest margin to 3.56% from 3.41%. The widening of the net interest margin resulted from a 75 basis-point reduction in the cost of funding interest-earning assets, partially offset by a 49 basis-point reduction in the yield on average interest-earning assets.

Noninterest income was $3.4 million in the first quarter of 2021, $3.4 million in the fourth quarter of 2020 and $2.9 million in the first quarter of 2020. During the first quarter of 2021, the Bank completed the sale of two branches, resulting in a gain of $0.7 million, which was included in noninterest income. Excluding the branch sale, noninterest income decreased by $0.7 million from the fourth quarter of 2020 due primarily to decreases in income on bank owned life insurance of $0.3 million, net gains on equity securities of $0.2 million, net gains on sale of loans held-for-sale of $0.1 million and deposit, loan and other income of $0.1 million. Total noninterest income, excluding the branch sale, decreased $0.1 million from the first quarter of 2020. The decrease was primarily attributable to a decrease in net gains on sale of securities of $0.4 million, partially offset by an increase in net gains on sale of loans held-for-sale of $0.3 million.

Noninterest expenses totaled $26.5 million for first quarter of 2021, $26.4 million for the fourth quarter of 2020 and $35.1 million for the first quarter of 2020. Noninterest expenses increased $0.1 million from the fourth quarter of 2020, with the increases primarily coming from higher salaries and employee benefits of $1.0 million, offset by decreases in occupancy and equipment of $0.3 million, professional and consulting of $0.3 million and other expenses of $0.3 million. The increase in salaries and employee benefits of $1.0 million during the first quarter of 2021 was primarily attributable to seasonal increases in payroll taxes and higher incentive-based, stock compensation expense. Included in noninterest expenses for the first quarter of 2020 were merger related expenses totaling $9.5 million. Excluding merger-related expenses, noninterest expenses increased by $0.9 million from the first quarter of 2020 due primarily to increases in salaries and employee benefits of $1.0 million, professional and consulting of $0.4 million, partially offset by decreases in other expenses of $0.4 million and amortization of core deposit intangible of $0.1 million.

Income tax expense was $10.9 million for the first quarter of 2021, $7.8 million for the fourth quarter of 2020 and $1.0 million for the first quarter of 2020. The effective tax rates for the first quarter of 2021, fourth quarter of 2020 and first quarter of 2020 were 24.8%, 23.3% and 14.8%, respectively. The differences in the tax rates for the periods presented resulted from different proportions of income from non-taxable sources.

Asset Quality

As of January 1, 2021, the Company adopted the CECL accounting standard. As of March 31, 2021, the Company’s allowance for credit losses for loans was $80.6 million, an increase of $1.3 million from $79.2 million as of December 31, 2020. The increase was attributable to the “Day 1” effect of the adoption of the CECL accounting standard, which was $7.1 million, offset by a $5.8 million recapture of credit loss reserves during the first quarter of 2021. The “Day 1” CECL adoption aggregate adjustment was $9.4 million (which includes $2.8 million of allowance for credit losses attributed to unfunded commitments) and was comprised of a $5.2 million reclassification of nonaccretable credit marks and a $4.2 million pre-tax charge to shareholders’ equity.

The (reversal of) provision for credit losses was $(5.8) million for the first quarter of 2021, $5.0 million for the fourth quarter of 2020 and $16.0 million for the first quarter of 2020. The decrease in provision for credit losses during the first quarter of 2021 when compared to the fourth quarter of 2020 and to the first quarter of 2020 was the result of an improved macro-economic outlook when compared to January 1, 2021, the date of CECL implementation. As of March 31, 2021, the Bank had 102 loans on deferral, with a total balance of $204.2 million. Of that total, $43.1 million, or 0.7% of loans receivable, were nonpayment deferrals, while the remaining $161.1 million, or 2.6% of loans receivable, were modifications in which borrowers are making modified principal and interest payments. The Bank currently anticipates that by June 30, 2021, deferred loans will be reduced by approximately 50%.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $60.9 million as of March 31, 2021, $61.7 million as of December 31, 2020 and $62.4 million as of March 31, 2020. Included in nonperforming assets were taxi medallion loans totaling $23.0 million for all periods presented. Nonperforming assets as a percentage of total assets were 0.82% as of March 31, 2021, 0.82% as of December 31, 2020 and 0.86% as of March 31, 2020. Nonaccrual loans were $60.9 million as of March 31, 2021, $61.7 million as of December 31, 2020 and $62.4 million as of March 31, 2020, representing a ratio of nonaccrual loans to loans receivable of 0.97%, 0.99% and 1.04%, respectively. The annualized net loan (recoveries) charge-off ratio was (0.00)% for the first quarter of 2021, 0.00% for the fourth quarter of 2020 and 0.01% for the first quarter of 2020. The allowance for credit losses represented 1.28%, 1.27%, and 0.90% of loans receivable as of March 31, 2021, December 31, 2020 and March 31, 2020, respectively. Excluding PPP loans, the allowance for credit losses represented 1.40%, 1.36%, and 0.90% of loans receivable as of March 31, 2021, December 31, 2020 and March 31, 2020, respectively. The allowance for credit losses as a percentage of nonaccrual loans was 132.2% as of March 31, 2021, 128.4% as of December 31, 2020 and 86.8% as of March 31, 2020.

Selected Balance Sheet Items

The Company’s total assets were $7.4 billion, a decrease of $0.1 million from December 31, 2020. Loans receivable were $6.3 billion, an increase of $40.9 million from December 31, 2020. The increase in loans receivable was attributable to the origination of PPP loans. As of March 31, 2021, PPP loans totaled $522.3 million.

The Company’s stockholders’ equity was $935.6 million as of March 31, 2021, an increase of $20.3 million from December 31, 2020. The increase in stockholders’ equity was primarily attributable to an increase in retained earnings of $26.5 million, partially offset by a decrease in accumulated other comprehensive income of $3.5 million and an increase in common stock repurchases of $2.4 million. Included in retained earnings, as of March 31, 2021, was the reduction of equity due to the “Day 1” after-tax effect of the adoption of the CECL standard of $2.9 million. As of March 31, 2021, the Company’s tangible common equity ratio and tangible book value per share were 9.91% and $18.02, respectively. As of December 31, 2020, the tangible common equity ratio and tangible book value per share were 9.50% and $17.49, respectively. Total goodwill and other intangible assets were approximately $219 million as of March 31, 2021 and $219 million as of December 31, 2020.

Share Repurchase Program

During the first quarter of 2021, the Company reinstated its previously approved share repurchase program and repurchased approximately 94,000 shares of common stock leaving a remaining capacity of approximately 511,000 shares in the Board authorized program.

Use of Non-GAAP Financial Measures

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

First Quarter 2021 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on April 29, 2021 to review the Company's financial performance and operating results. The conference call dial-in number is 201-689-8471, access code 13718388. Please dial in at least five minutes before the start of the call to register. An audio webcast of the conference call will be available to the public, on a listen-only basis, via the "Investor Relations" link on the Company's website https://www.ConnectOneBank.com or at http://ir.connectonebank.com.

A replay of the conference call will be available beginning at approximately 1:00 p.m. ET on Thursday, April 29, 2021 and ending on Thursday, May 6, 2021 by dialing 412-317-6671, access code 13718388. 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:
Will Crockett MWW
703.944.4213; wcrockett@mww.com

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(in thousands)

	March 31,			December 31,			March 31,
		2021			2020			2020
	(unaudited)						(unaudited)
ASSETS
Cash and due from banks	$	48,250		$	63,637		$	59,442
Interest-bearing deposits with banks		211,842			240,119			223,367
Cash and cash equivalents		260,092			303,756			282,809

Securities available-for-sale		442,023			487,955			446,738
Equity securities		13,200			13,387			13,363

Loans held-for-sale		6,900			4,710			32,425

Loans receivable		6,277,191			6,236,307			6,009,310
Less: Allowance for credit losses (loans)		80,568			79,226			54,169
Net loans receivable		6,196,623			6,157,081			5,955,141

Investment in restricted stock, at cost		22,483			25,099			38,554
Bank premises and equipment, net		29,296			30,108			32,864
Accrued interest receivable		35,249			35,317			24,317
Bank owned life insurance		167,024			165,960			163,929
Right of use operating lease assets		13,469			16,159			26,924
Goodwill		208,372			208,372			208,379
Core deposit intangibles		10,470			10,977			12,884
Other assets		44,438			88,458			41,000
Total assets	$	7,449,639		$	7,547,339		$	7,279,327

LIABILITIES
Deposits:
Noninterest-bearing	$	1,384,961		$	1,339,108		$	979,778
Interest-bearing		4,566,373			4,620,116			4,529,414
Total deposits		5,951,334			5,959,224			5,509,192
Borrowings		359,710			425,954			726,856
Subordinated debentures, net		152,724			202,648			128,967
Lease liabilities		15,260			18,026			28,731
Other liabilities		34,974			26,177			31,871
Total liabilities		6,514,002			6,632,029			6,425,617

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
Common stock		586,946			586,946			586,946
Additional paid-in capital		23,621			23,887			21,746
Retained earnings		358,441			331,951			273,825
Treasury stock		(32,682	)		(30,271	)		(30,271	)
Accumulated other comprehensive (loss) income		(689	)		2,797			1,464
Total stockholders' equity		935,637			915,310			853,710
Total liabilities and stockholders' equity	$	7,449,639		$	7,547,339		$	7,279,327

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for per share data)

	Three Months Ended
	03/31/21			12/31/20			03/31/20
Interest income
Interest and fees on loans	$	70,462		$	73,123		$	72,936
Interest and dividends on investment securities:
Taxable		1,088			1,373			2,066
Tax-exempt		766			649			813
Dividends		256			374			400
Interest on federal funds sold and other short-term investments		49			69			499
Total interest income		72,621			75,588			76,714
Interest expense
Deposits		7,585			9,630			17,212
Borrowings		3,873			4,587			4,221
Total interest expense		11,458			14,217			21,433

Net interest income		61,163			61,371			55,281
(Reversal of) provision for credit losses		(5,766	)		5,000			16,000
Net interest income after (reversal of) provision for credit losses		66,929			56,371			39,281

Noninterest income
Deposit, loan and other income		1,168			1,300			1,287
Income on bank owned life insurance		1,064			1,314			967
Net gains on sale of loans held-for-sale		707			841			393
Net gains on sale of investment securities		-			-			29
Gain on sale of branches		674			-			-
Net (losses) gains on equity securities		(187	)		(13	)		178
Total noninterest income		3,426			3,442			2,854

Noninterest expenses
Salaries and employee benefits		15,565			14,581			14,563
Occupancy and equipment		3,404			3,689			3,471
FDIC insurance		935			948			856
Professional and consulting		1,956			2,210			1,574
Marketing and advertising		241			256			304
Data processing		1,536			1,479			1,473
Merger expenses		-			-			9,494
Amortization of core deposit intangible		507			628			652
Other expenses		2,341			2,611			2,671
Total noninterest expenses		26,485			26,402			35,058

Income before income tax expense		43,870			33,411			7,077
Income tax expense		10,871			7,770			1,047
Net income	$	32,999		$	25,641		$	6,030

Earnings per common share:
Basic	$	0.83		$	0.64		$	0.15
Diluted		0.82			0.64			0.15

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

CONNECTONE BANCORP, INC.
SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES

	As of
	Mar. 31,			Dec. 31,			Sept. 30,			June 30,			Mar. 31,
		2021			2020			2020			2020			2020

Selected Financial Data	(dollars in thousands)
Total assets	$	7,449,639		$	7,547,339		$	7,449,559		$	7,617,184		$	7,279,327
Loans receivable:
Commercial	$	1,071,418		$	1,092,404		$	1,125,273		$	1,151,025		$	1,203,818
Paycheck Protection Program ("PPP") loans		522,340			397,492			474,022			473,999			-
Commercial real estate		2,127,806			2,103,468			2,001,311			1,987,695			1,981,149
Multifamily		1,698,331			1,712,153			1,703,290			1,723,273			1,762,651
Commercial construction		565,872			617,747			614,112			673,893			676,836
Residential		306,376			322,564			343,376			366,315			387,400
Consumer		3,365			1,853			1,876			2,001			1,965
Gross loans		6,295,508			6,247,681			6,263,260			6,378,201			6,013,819
Unearned net origination fees		(18,317	)		(11,374	)		(12,209	)		(14,934	)		(4,509	)
Loans receivable		6,277,191			6,236,307			6,251,051			6,363,267			6,009,310
Loans held-for-sale		6,900			4,710			8,508			11,212			32,425
Total loans	$	6,284,091		$	6,241,017		$	6,259,559		$	6,374,479		$	6,041,735

Investment securities	$	455,223		$	501,342		$	466,415		$	431,833		$	460,101
Goodwill and other intangible assets		218,842			219,349			219,977			220,605			221,263
Deposits:
Noninterest-bearing demand	$	1,384,961		$	1,339,108		$	1,270,021		$	1,276,070		$	979,778
Time deposits		1,356,599			1,464,133			1,619,609			1,807,864			1,974,400
Other interest-bearing deposits		3,209,774			3,155,983			2,909,126			2,742,927			2,555,014
Total deposits	$	5,951,334		$	5,959,224		$	5,798,756		$	5,826,861		$	5,509,192

Borrowings	$	359,710		$	425,954		$	506,225		$	667,062		$	726,856
Subordinated debentures (net of debt issuance costs)		152,724			202,648			202,552			202,476			128,967
Total stockholders' equity		935,637			915,310			890,736			867,741			853,710

Quarterly Average Balances
Total assets	$	7,500,034		$	7,547,651		$	7,474,002		$	7,684,403		$	7,106,027
Loans receivable:
Commercial (including PPP loans)	$	1,531,790		$	1,557,303		$	1,610,423		$	1,539,749		$	1,146,773
Commercial real estate (including multifamily)		3,805,856			3,704,197			3,679,297			3,722,966			3,723,991
Commercial construction		595,466			615,439			646,281			675,698			663,036
Residential		316,233			332,403			352,426			374,283			390,655
Consumer		2,540			3,309			2,536			1,898			3,007
Gross loans		6,251,885			6,212,651			6,290,963			6,314,594			5,927,462
Unearned net origination fees		(13,162	)		(12,023	)		(13,292	)		(13,420	)		(4,648	)
Loans receivable		6,238,723			6,200,628			6,277,671			6,301,174			5,922,814
Loans held-for-sale		4,237			9,003			10,772			31,329			33,655
Total loans	$	6,242,960		$	6,209,631		$	6,288,443		$	6,332,503		$	5,956,469

Investment securities	$	481,802		$	469,820		$	429,947		$	452,224		$	458,642
Goodwill and other intangible assets		219,171			219,761			220,391			221,039			221,075
Deposits:
Noninterest-bearing demand	$	1,348,585		$	1,294,447		$	1,253,235		$	1,277,428		$	955,358
Time deposits		1,422,295			1,577,338			1,728,129			1,905,165			1,962,714
Other interest-bearing deposits		3,225,751			3,094,536			2,881,592			2,639,052			2,660,755
Total deposits	$	5,996,631		$	5,966,321		$	5,862,956		$	5,821,645		$	5,578,827

Borrowings	$	375,511		$	410,098		$	467,399		$	798,648		$	477,121
Subordinated debentures (net of debt issuance costs)		154,341			202,595			202,502			141,904			128,913
Total stockholders' equity		928,041			906,153			883,364			868,796			864,241

	Three Months Ended
	Mar. 31,			Dec. 31,			Sept. 30,			June 30,			Mar. 31,
		2021			2020			2020			2020			2020

	(dollars in thousands, except for per share data)
Net interest income	$	61,163		$	61,371		$	60,549		$	60,790		$	55,281
(Reversal of) provision for credit losses		(5,766	)		5,000			5,000			15,000			16,000
Net interest income after provision for credit losses		66,929			56,371			55,549			45,790			39,281
Noninterest income
Deposit, loan and other income		1,168			1,300			1,278			3,212			1,287
Income on bank owned life insurance		1,064			1,314			1,598			1,128			967
Net gains on sale of loans held-for-sale		707			841			614			237			393
Net gains on sale of investment securities		-			-			-			-			29
Gain on sale of branches		674			-			-			-			-
Net (losses) gains on equity securities		(187	)		(13	)		(7	)		44			178
Total noninterest income		3,426			3,442			3,483			4,621			2,854
Noninterest expenses
Salaries and employee benefits		15,565			14,581			15,114			14,500			14,563
Occupancy and equipment		3,404			3,689			3,566			3,156			3,471
FDIC insurance		935			948			1,105			1,093			856
Professional and consulting		1,956			2,210			1,926			1,673			1,574
Marketing and advertising		241			256			214			426			304
Data processing		1,536			1,479			1,470			1,586			1,473
Merger expenses		-			-			-			5,146			9,494
Amortization of core deposit intangible		507			628			627			652			652
Increase in value of acquisition price		-			-			-			2,333			-
Other expenses		2,341			2,611			2,456			2,498			2,671
Total noninterest expenses		26,485			26,402			26,478			33,063			35,058

Income before income tax expense		43,870			33,411			32,554			17,348			7,077
Income tax expense		10,871			7,770			7,768			2,516			1,047
Net income	$	32,999		$	25,641		$	24,786		$	14,832		$	6,030

Weighted average diluted shares outstanding		39,788,881			39,726,791			39,653,832			39,611,712			39,510,810
Diluted EPS	$	0.82		$	0.64		$	0.62		$	0.37		$	0.15

Reconciliation of GAAP Earnings to Pre-tax, Pre-provision and Pre-merger charges Earnings
Net income	$	32,999		$	25,641		$	24,786		$	14,832		$	6,030
Income tax expense		10,871			7,770			7,768			2,516			1,047
Merger charges		-			-			-			5,146			9,494
(Reversal of) provision for credit losses		(5,766	)		5,000			5,000			15,000			16,000
Pre-tax, pre-provision and pre-merger charges earnings	$	38,104		$	38,411		$	37,554		$	37,494		$	32,571

Return on Assets Measures
Average assets	$	7,500,034		$	7,547,651		$	7,474,002		$	7,684,403		$	7,106,027
Return on avg. assets		1.78	%		1.35	%		1.32	%		0.78	%		0.34	%
Return on avg. assets (pre tax, pre-provision and pre-merger charges)		2.06			2.02			2.00			1.96			1.84

	Three Months Ended
	Mar. 31,			Dec. 31,			Sept. 30,			June 30,			Mar. 31,
		2021			2020			2020			2020			2020

Return on Equity Measures	(dollars in thousands)
Average common equity	$	928,041		$	906,153		$	883,364		$	868,796		$	864,241
Less: average intangible assets		(219,171	)		(219,761	)		(220,391	)		(221,039	)		(221,075	)
Average tangible common equity	$	708,870		$	686,392		$	662,973		$	647,757		$	643,166

Return on avg. common equity (GAAP)		14.42	%		11.26	%		11.16	%		6.87	%		2.81	%
Return on avg. tangible common equity (non-GAAP) ⁽¹⁾		19.08			15.12			15.14			9.50			4.06

Efficiency Measures
Total noninterest expenses	$	26,485		$	26,402		$	26,478		$	33,063		$	35,058
Amortization of core deposit intangibles		(507	)		(628	)		(627	)		(652	)		(652	)
Merger expenses		-			-			-			(5,146	)		(9,494	)
Foreclosed property expense		-			(2	)		-			(5	)		10
Operating noninterest expense	$	25,978		$	25,772		$	25,851		$	27,260		$	24,922

Net interest income (tax equivalent basis)	$	61,581		$	61,840		$	61,005		$	61,253		$	55,781
Noninterest income		3,426			3,442			3,483			4,621			2,854
Gains on sale of branches		(674	)		-			-			-			-
Net gains on sales of securities		-			-			-			-			(29	)
Operating revenue	$	64,333		$	65,282		$	64,488		$	65,874		$	58,606

Operating efficiency ratio (non-GAAP) ⁽²⁾		40.4	%		39.5	%		40.1	%		41.4	%		42.5	%

Net Interest Margin
Average interest-earning assets	$	7,008,500		$	7,031,662		$	6,962,499		$	7,164,545		$	6,584,508

Net interest income (tax equivalent basis)	$	61,581		$	61,840		$	61,005		$	61,253		$	55,781
Impact of purchase accounting fair value marks		(2,074	)		(2,237	)		(2,403	)		(3,073	)		(3,457	)
Adjusted net interest income (tax equivalent basis)	$	59,507		$	59,603		$	58,602		$	58,180		$	52,324

Net interest margin (GAAP)		3.56	%		3.50	%		3.49	%		3.44	%		3.41	%
Adjusted net interest margin (non-GAAP) ⁽³⁾		3.44			3.37			3.35			3.27			3.20

⁽¹⁾ Earnings available to common stockholders excluding amortization of intangible assets divided by average tangible common equity.
⁽²⁾ Operating noninterest expense divided by operating revenue.
⁽³⁾ Adjusted net interest margin excludes impact of purchase accounting fair value marks.

	As of
	Mar. 31,			Dec. 31,			Sept. 30,			June 30,			Mar. 31,
		2021			2020			2020			2020			2020

Capital Ratios and Book Value per Share	(dollars in thousands, except for per share data)
Common equity	$	935,637		$	915,310		$	890,736		$	867,741		$	853,710
Less: intangible assets		(218,842	)		(219,349	)		(219,977	)		(220,605	)		(221,263	)
Tangible common equity	$	716,795		$	695,961		$	670,759		$	647,136		$	632,447

Total assets	$	7,449,639		$	7,547,339		$	7,449,559		$	7,617,184		$	7,279,327
Less: intangible assets		(218,842	)		(219,349	)		(219,977	)		(220,605	)		(221,263	)
Tangible assets	$	7,230,797		$	7,327,990		$	7,229,582		$	7,396,579		$	7,058,064

Common shares outstanding		39,773,602			39,785,398			39,753,033			39,753,033			39,704,921

Common equity ratio (GAAP)		12.56	%		12.13	%		11.96	%		11.39	%		11.73	%
Tangible common equity ratio (non-GAAP) ⁽⁴⁾		9.91			9.50			9.28			8.75			8.96

Regulatory capital ratios (Bancorp):
Leverage ratio		9.89	%		9.51	%		9.30	%		8.99	%		9.20	%
Common equity Tier 1 risk-based ratio		11.38			10.79			10.63			10.04			9.63
Risk-based Tier 1 capital ratio		11.47			10.87			10.72			10.12			9.71
Risk-based total capital ratio		15.14			15.08			14.94			14.32			12.46

Regulatory capital ratios (Bank):
Leverage ratio		11.06	%		10.63	%		10.41	%		10.12	%		10.36	%
Common equity Tier 1 risk-based ratio		12.82			12.24			12.00			11.38			10.93
Risk-based Tier 1 capital ratio		12.82			12.24			12.00			11.38			10.93
Risk-based total capital ratio		14.62			10.00			13.70			12.96			12.25

Book value per share (GAAP)	$	23.52		$	23.01		$	22.41		$	21.83		$	21.50
Tangible book value per share (non-GAAP) ⁽⁵⁾		18.02			17.49			16.87			16.28			15.93

Net Loan (Recoveries) Charge-Off Detail
Net loan (recoveries) charge-offs:
Charge-offs	$	-		$	900		$	257		$	462		$	115
Recoveries		(61	)		(833	)		(800	)		(4	)		(3	)
Net loan (recoveries) charge-offs	$	(61	)	$	67		$	(543	)	$	458		$	112
Net loan (recoveries) charge-offs as a % of average loans receivable (annualized)		(0.00	)%		0.00	%		(0.03	)%		0.03	%		0.01	%

Asset Quality
Nonaccrual loans	$	60,940		$	61,696		$	65,494		$	64,580		$	62,373

Performing troubled debt restructurings		25,505			23,655			18,241			20,418			21,293

Allowance for credit losses - loans ("ACL")		80,568			79,226			74,267			68,724			54,169

Loans receivable	$	6,277,191		$	6,236,307		$	6,251,051		$	6,363,267		$	6,009,310
Less: PPP loans		522,340			397,492			474,022			473,999			-
Loans receivable (excluding PPP loans)	$	5,754,851		$	5,838,815		$	5,777,029		$	5,889,268		$	6,009,310

Nonaccrual loans as a % of loans receivable		0.97	%		0.99	%		1.05	%		1.01	%		1.04	%
Nonperforming assets as a % of total assets		0.82			0.82			0.88			0.85			0.86
ACL as a % of loans receivable		1.28			1.27			1.19			1.08			0.90
ACL as a % of loans receivable (excluding PPP loans)		1.40			1.36			1.29			1.17			0.90
ACL as a % of nonaccrual loans		132.2			128.4			113.4			106.4			86.8

⁽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
	March 31, 2021								December 31, 2020									March 31, 2020
	Average									Average									Average
Interest-earning assets:	Balance			Interest			Rate ⁽⁷⁾			Balance			Interest			Rate ⁽⁷⁾			Balance			Interest			Rate ⁽⁷⁾
Investment securities ^{(1) (2)}	$	473,181		$	2,058		1.76	%		$	460,471		$	2,194		1.90	%		$	452,294		$	3,095		2.75	%
Loans receivable and loans held-for-sale ^{(2) (3) (4)}		6,242,960			70,676		4.59				6,209,631			73,420		4.70				5,956,469			73,220		4.94
Federal funds sold and interest-
bearing deposits with banks		269,537			49		0.07				337,172			69		0.08				148,429			499		1.35
Restricted investment in bank stock		22,822			256		4.55				24,388			374		6.10				27,316			400		5.89
Total interest-earning assets		7,008,500			73,039		4.23				7,031,662			76,057		4.30				6,584,508			77,214		4.72
Allowance for loan losses		(81,549	)								(74,943	)								(38,970	)
Noninterest-earning assets		573,083									584,145									560,489
Total assets	$	7,500,034								$	7,540,864								$	7,106,027

Interest-bearing liabilities:
Time deposits	$	1,422,295		$	5,151		1.47			$	1,577,338		$	6,682		1.69				1,962,714			10,371		2.13
Other interest-bearing deposits		3,225,751			2,434		0.31				3,094,536			2,948		0.38				2,660,755			6,841		1.03
Total interest-bearing deposits		4,648,046			7,585		0.66				4,671,874			9,630		0.82				4,623,469			17,212		1.50

Borrowings		375,511			1,674		1.81				410,098			1,856		1.80				477,121			2,352		1.98
Subordinated debentures		154,341			2,167		5.69				202,595			2,699		5.30				128,913			1,834		5.72
Capital lease obligation		2,115			32		6.14				2,164			32		5.88				2,303			35		6.11
Total interest-bearing liabilities		5,180,013			11,458		0.90				5,286,731			14,217		1.07				5,231,806			21,433		1.65

Noninterest-bearing demand deposits		1,348,585									1,294,447									955,358
Other liabilities		43,395									53,533									54,622
Total noninterest-bearing liabilities		1,391,980									1,347,980									1,009,980
Stockholders' equity		928,041									906,153									864,241
Total liabilities and stockholders' equity	$	7,500,034								$	7,540,864								$	7,106,027

Net interest income (tax equivalent basis)					61,581									61,840									55,781
Net interest spread ⁽⁵⁾							3.33									3.23	%								3.07	%

Net interest margin ⁽⁶⁾							3.56	%								3.50	%								3.41	%

Tax equivalent adjustment					(418	)								(469	)								(500	)
Net interest income				$	61,163								$	61,371								$	55,281

⁽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.

ConnectOne Bancorp, Inc. Reports First Quarter 2021 Results; Increases Common Dividend

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