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Connectone Bancorp, Inc. Reports First Quarter 2024 Results; Declares Preferred and Increased Common Dividends
Source: Nasdaq GlobeNewswire / 25 Apr 2024 07:00:01 America/New_York
ENGLEWOOD CLIFFS. N.J., April 25, 2024 (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 $15.7 million for the first quarter of 2024 compared with $17.8 million for the fourth quarter of 2023 and $23.4 million for the first quarter of 2023. Diluted earnings per share were $0.41 for the first quarter of 2024 compared with $0.46 for the fourth quarter of 2023 and $0.59 for the first quarter of 2023. The decrease in net income available to common stockholders and diluted earnings per share from the fourth quarter of 2023 was primarily due to a $1.5 million decrease in net interest income, a $1.3 million increase to the provision for credit losses, and a $0.4 million decrease in noninterest income, partially offset by a $0.3 million decrease in income tax expense and a $0.8 million decrease in noninterest expenses. The decrease in net income available to common stockholders from the first quarter of 2023 was primarily due to a $6.8 million decrease in net interest income, a $3.0 million increase in the provision for credit losses, and a $2.2 million increase in noninterest expenses, partially offset by a $3.2 million decrease in income tax expense and a $1.1 million increase in noninterest income.
Pre-tax, pre-provision net revenue (“PPNR”) as a percent of average assets was 1.10%, 1.15% and 1.46% for the three months ended March 31, 2024, December 31, 2023 and March 31, 2023, respectively.
“ConnectOne moved through the first quarter laser-focused on furthering our relationship-banking model, despite the challenging backdrop. Our team seized opportunities to expand our client base, strengthen our team by adding top-performing talent all while building into new markets.” commented Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer.
“In the first quarter, our team increased client deposit balances sequentially by an annualized 3.2%, driven by 9.9% annualized noninterest-bearing demand deposit growth. Loan balances were down sequentially by an annualized 2.3%, primarily a result of intentionally lower multifamily and other commercial real estate balances, contributing to both a lower loan-to-deposit ratio and lower commercial real estate concentration.” Mr. Sorrentino added, “For the first quarter, while our net interest margin (“NIM”) compressed sequentially by seven basis points, we are already today seeing a gradual expansion of the NIM, even ahead of potential Fed rate cuts.”
“Meanwhile, our tangible common equity ratio remained flat at 9.25%, notwithstanding the repurchase of 282,370 shares during the quarter, and our tangible book value per share increased to $23.26. We’re also pleased to announce a 5.9% increase in our quarterly common stock cash dividend to $0.18, reflecting our ongoing commitment to maximize shareholder value.”
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 $0.18 per share, reflecting a 5.9% sequential increase, will be paid on June 3, 2024, to common stockholders of record on May 15, 2024. 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 June 3, 2024 to preferred stockholders of record on May 15, 2024.
Operating Results
Fully taxable equivalent net interest income for the first quarter of 2024 was $61.1 million, a decrease of $1.5 million, or 2.4%, from the fourth quarter of 2023 due to a seven basis-point contraction in the net interest margin to 2.64% from 2.71%, partially offset by a $151.1 million, or 1.6%, increase in average interest-earning assets. The net interest margin contraction was primarily due to a nine basis-point increase in the average cost of deposits, including noninterest-bearing demand, to 3.23%, and an increase in average cash and cash equivalents of $84.0 million, partially offset by a one basis-point increase in the loan portfolio yield to 5.82%. The increase in average interest-earning assets from the fourth quarter of 2023 was primarily attributable to the aforementioned $84.0 million increase in average cash and cash equivalents and a $64.5 million increase in average loans.
Fully taxable equivalent net interest income for the first quarter of 2024 decreased by $6.7 million, or 9.9%, from the first quarter of 2023. The decrease from the first quarter of 2023 resulted primarily from a 36 basis-point decrease in the net interest margin to 2.64% from 3.00%, partially offset by a $149.1 million, or 1.6%, increase in average interest-earning assets. The contraction of the net interest margin for the first quarter of 2024 when compared to the first quarter of 2023 was primarily attributable to a 103 basis-point increase in the average costs of deposits, including noninterest-bearing deposits, partially offset by a 47 basis-point increase in the loan portfolio yield.
Noninterest income was $3.9 million in the first quarter of 2024, $4.2 million in the fourth quarter of 2023 and $2.8 million in the first quarter of 2023. Included in noninterest income were net gains (losses) on equity securities of $0.1 million, $0.6 million, and $(0.2) million for the first quarter of 2024, fourth quarter of 2023 and first quarter of 2023, respectively. Excluding the equity securities gains (losses), adjusted noninterest income was $3.8 million, $3.7 million, and $3.0 million for the first quarter of 2024, fourth quarter of 2023 and first quarter of 2023, respectively. The $0.1 million increase in adjusted noninterest income for the first quarter of 2024 when compared to the fourth quarter of 2023 was primarily due to a $0.1 million increase in deposit, loan, and other income. The $0.8 million increase in adjusted noninterest income for the first quarter of 2024 when compared to the first quarter of 2023 was primarily due to an increase in net gains on loans held-for-sale, primarily SBA, of $0.5 million, an increase in deposit, loan, and other income of $0.2 million and an increase in BOLI income of $0.1 million.
Noninterest expenses totaled $37.1 million for the first quarter of 2024, $37.8 million for the fourth quarter of 2023 and $34.9 million for the first quarter of 2023. Included in noninterest expenses for the fourth quarter of 2023 was a $2.1 million FDIC special assessment. Excluding the assessment, adjusted noninterest expenses totaled $35.7 million for the fourth quarter of 2023. Noninterest expenses for the first quarter of 2024 increased by $1.3 million when compared to the adjusted noninterest expenses for the fourth quarter of 2023. The increase was primarily attributable to increases in marketing and advertising of $0.4 million, occupancy and equipment of $0.3 million, professional and consulting of $0.3 million, information and technology communications of $0.2 million, and salaries and employee benefits of $0.1 million. Noninterest expenses for the first quarter of 2024 increased by $2.2 million when compared to the first quarter of 2023. The increase was primarily attributable to increases in information technology and communications of $1.3 million, FDIC insurance of $0.9 million, and occupancy and equipment of $0.3 million, partially offset by decreases in professional and consulting of $0.2 million and salaries and employee benefits of $0.1 million. The increases in information technology and communications when compared to the fourth quarter of 2023 and the first quarter of 2023 are attributable to additional investments in technology, equipment, and software. The increase in FDIC insurance expense when compared to the first quarter of 2023 is primarily attributable to balance sheet growth and a two-basis point increase in the Bank’s initial base rate. The increase in salaries and employee benefits when compared to the prior year quarter was primarily attributable to new hires and seasonal increases in payroll taxes.
Income tax expense was $5.9 million for the first quarter of 2024, $6.2 million for the fourth quarter of 2023 and $9.1 million for the first quarter of 2023. The effective tax rates for the first quarter of 2024, fourth quarter of 2023 and first quarter of 2023 were 25.5%, 24.4% and 26.7%, respectively.
Asset Quality
The provision for credit losses was $4.0 million for the first quarter of 2024, $2.7 million for the fourth quarter of 2023 and $1.0 million for the first quarter of 2023. The increase in the current quarter’s provision for credit losses from the fourth quarter of 2023 reflected increases in changes in macroeconomic forecasts, qualitative factors and specific reserves.
Nonperforming assets, which includes nonaccrual loans and other real estate owned (the Bank had no other real estate owned during the periods reported), were $47.4 million as of March 31, 2024, $52.5 million as of December 31, 2023 and $47.7 million as of March 31, 2023. Nonperforming assets as a percentage of total assets were 0.48% as of March 31, 2024, 0.53% as of December 31, 2023 and 0.48% as of March 31, 2023. The ratio of nonaccrual loans to loans receivable was 0.57%, 0.63% and 0.59%, as of March 31, 2024, December 31, 2023 and March 31, 2023, respectively. As of March 31, 2024, one loan for $23.6 million was past due more than 90 days and still accruing; the loan is well-secured at a loan-to-value ratio of approximately 60% and is in the process of collection. The annualized net loan charge-offs ratio was 0.15% for the first quarter of 2024, 0.43% for the fourth quarter of 2023 and 0.22% for the first quarter of 2023. The allowance for credit losses represented 1.00%, 0.98%, and 1.07% of loans receivable as of March 31, 2024, December 31, 2023, and March 31, 2023, respectively. The allowance for credit losses as a percentage of nonaccrual loans was 174.7% as of March 31, 2024, 156.1% as of December 31, 2023 and 182.5% as of March 31, 2023.
Criticized and classified loans as a percentage of total loans decreased to 1.30% as of March 31, 2024 versus 1.35% as of December 31, 2023 and 1.74% as of March 31, 2023. Loans delinquent 30 to 89 days were 0.04% of loans as of March 31, 2024 down from 0.30% as of December 31, 2023 and 0.17% as of March 31, 2023.
Selected Balance Sheet Items
The Company’s total assets were $9.854 billion as of March 31, 2024, compared to $9.856 billion as of December 31, 2023. Loans receivable was $8.298 billion as of March 31, 2024 and $8.345 billion as of December 31, 2023. Total deposits were $7.589 billion as of March 31, 2024 and $7.536 billion as of December 31, 2023.
The Company’s total stockholders’ equity was $1.217 billion at both March 31, 2024 and December 31, 2023. Retained earnings increased by approximately $9 million and was offset by increases in treasury stock of $6 million and increases in accumulated other comprehensive loss of $3 million. As of March 31, 2024, the Company’s tangible common equity ratio and tangible book value per share were 9.25% and $23.26, respectively, compared to 9.25% and $23.14, respectively, as of December 31, 2023. Total goodwill and other intangible assets were $213.9 million as of March 31, 2024, and $214.2 million as of December 31, 2023.
Share Repurchase Program
During the first quarter of 2024, the Company repurchased 282,370 shares of common stock at an average price of $20.24, leaving 641,118 shares 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.
First Quarter 2024 Results Conference Call
Management will also host a conference call and audio webcast at 10:00 a.m. ET on April 25, 2024 to review the Company's financial performance and operating results. The conference call dial-in number is 1-646-307-1963, access code 6725677. 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 25, 2024 and ending on Thursday, May 2, 2024 by dialing 1-647-362-9199, access code 6725677. 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) March 31, December 31, March 31, 2024 2023 2023 (unaudited) ASSETS Cash and due from banks $ 45,322 $ 61,421 $ 58,063 Interest-bearing deposits with banks 232,261 181,293 504,353 Cash and cash equivalents 277,583 242,714 562,416 Investment securities 619,397 617,162 629,001 Equity securities 19,457 18,564 18,025 Loans held-for-sale - - 11,197 Loans receivable 8,297,957 8,345,145 8,132,119 Less: Allowance for credit losses - loans 82,869 81,974 87,002 Net loans receivable 8,215,088 8,263,171 8,045,117 Investment in restricted stock, at cost 48,931 51,457 46,379 Bank premises and equipment, net 29,827 30,779 29,603 Accrued interest receivable 49,731 49,108 46,301 Bank owned life insurance 239,308 237,644 232,859 Right of use operating lease assets 11,725 12,007 9,541 Goodwill 208,372 208,372 208,372 Core deposit intangibles 5,553 5,874 6,940 Other assets 128,992 118,751 114,716 Total assets $ 9,853,964 $ 9,855,603 $ 9,960,467 LIABILITIES Deposits: Noninterest-bearing $ 1,290,523 $ 1,259,364 $ 1,345,265 Interest-bearing 6,298,131 6,276,838 6,407,911 Total deposits 7,588,654 7,536,202 7,753,176 Borrowings 877,568 933,579 852,611 Subordinated debentures, net 79,566 79,439 79,060 Operating lease liabilities 12,843 13,171 10,717 Other liabilities 78,724 76,592 73,933 Total liabilities 8,637,355 8,638,983 8,769,497 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 32,866 33,182 31,350 Retained earnings 600,118 590,970 553,261 Treasury stock (76,116 ) (70,296 ) (57,652 ) Accumulated other comprehensive loss (38,132 ) (35,109 ) (33,862 ) Total stockholders' equity 1,216,609 1,216,620 1,190,970 Total liabilities and stockholders' equity $ 9,853,964 $ 9,855,603 $ 9,960,467 CONNECTONE BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except for per share data) Three Months Ended 03/31/24 12/31/23 03/31/23 Interest income Interest and fees on loans $ 120,088 $ 120,636 $ 106,903 Interest and dividends on investment securities: Taxable 4,334 4,280 4,229 Tax-exempt 1,154 1,166 1,092 Dividends 1,125 912 898 Interest on federal funds sold and other short-term investments 2,906 1,963 2,975 Total interest income 129,607 128,957 116,097 Interest expense Deposits 60,407 59,332 40,087 Borrowings 8,900 7,803 8,926 Total interest expense 69,307 67,135 49,013 Net interest income 60,300 61,822 67,084 Provision for credit losses 4,000 2,700 1,000 Net interest income after provision for credit losses 56,300 59,122 66,084 Noninterest income Deposit, loan and other income 1,592 1,545 1,403 Income on bank owned life insurance 1,664 1,635 1,531 Net gains on sale of loans held-for-sale 506 472 49 Net gains (losses) on equity securities 86 557 (191 ) Total noninterest income 3,848 4,209 2,792 Noninterest expenses Salaries and employee benefits 22,131 22,010 22,236 Occupancy and equipment 3,009 2,708 2,761 FDIC insurance 1,800 3,900 950 Professional and consulting 1,928 1,587 2,194 Marketing and advertising 677 323 532 Information technology and communications 4,389 4,148 3,061 Amortization of core deposit intangibles 321 348 372 Other expenses 2,810 2,821 2,764 Total noninterest expenses 37,065 37,845 34,870 Income before income tax expense 23,083 25,486 34,006 Income tax expense 5,878 6,213 9,077 Net income 17,205 19,273 24,929 Preferred dividends 1,509 1,509 1,509 Net income available to common stockholders $ 15,696 $ 17,764 $ 23,420 Earnings per common share: Basic $ 0.41 $ 0.46 $ 0.60 Diluted 0.41 0.46 0.59 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, Sep. 30, Jun. 30, Mar. 31, 2024 2023 2023 2023 2023 Selected Financial Data (dollars in thousands) Total assets $ 9,853,964 $ 9,855,603 $ 9,678,885 $ 9,723,963 $ 9,960,467 Loans receivable: Commercial $ 1,561,063 $ 1,564,768 $ 1,464,479 $ 1,462,245 $ 1,403,865 Commercial real estate 3,333,488 3,342,603 3,288,704 3,237,559 3,245,990 Multifamily 2,507,893 2,566,904 2,559,927 2,604,230 2,600,251 Commercial construction 646,593 620,496 622,748 596,362 630,469 Residential 254,214 256,041 251,416 254,405 259,166 Consumer 850 1,029 936 1,416 1,435 Gross loans 8,304,101 8,351,841 8,188,210 8,156,217 8,141,176 Net deferred loan fees (6,144 ) (6,696 ) (7,101 ) (7,677 ) (9,057 ) Loans receivable 8,297,957 8,345,145 8,181,109 8,148,540 8,132,119 Loans held-for-sale - - - 1,089 11,197 Total loans $ 8,297,957 $ 8,345,145 $ 8,181,109 $ 8,149,629 $ 8,143,316 Investment and equity securities $ 638,854 $ 635,726 $ 599,544 $ 630,769 $ 647,026 Goodwill and other intangible assets 213,925 214,246 214,594 214,941 215,312 Deposits: Noninterest-bearing demand $ 1,290,523 $ 1,259,364 $ 1,224,125 $ 1,356,293 $ 1,345,265 Time deposits 2,623,391 2,531,371 2,522,210 2,621,148 2,706,662 Other interest-bearing deposits 3,674,740 3,745,467 3,692,160 3,560,856 3,701,249 Total deposits $ 7,588,654 $ 7,536,202 $ 7,438,495 $ 7,538,297 $ 7,753,176 Borrowings $ 877,568 $ 933,579 $ 887,590 $ 827,601 $ 852,611 Subordinated debentures (net of debt issuance costs) 79,566 79,439 79,313 79,187 79,060 Total stockholders' equity 1,216,609 1,216,620 1,188,154 1,199,397 1,190,970 Quarterly Average Balances Total assets $ 9,860,753 $ 9,690,746 $ 9,625,625 $ 9,765,582 $ 9,700,530 Loans receivable: Commercial (including PPP loans) $ 1,552,360 $ 1,510,634 $ 1,471,006 $ 1,427,153 $ 1,442,180 Commercial real estate (including multifamily) 5,890,853 5,874,854 5,821,794 5,847,147 5,813,388 Commercial construction 637,993 630,468 625,640 611,492 606,214 Residential 252,965 253,200 253,114 256,924 261,560 Consumer 5,091 6,006 4,972 6,733 3,894 Gross loans 8,339,262 8,275,162 8,176,526 8,149,449 8,127,236 Net deferred loan fees (6,533 ) (6,894 ) (7,387 ) (8,591 ) (9,664 ) Loans receivable 8,332,729 8,268,268 8,169,139 8,140,858 8,117,572 Loans held-for-sale 99 31 171 8,516 13,463 Total loans $ 8,332,828 $ 8,268,299 $ 8,169,310 $ 8,149,374 $ 8,131,035 Investment and equity securities $ 633,270 $ 602,287 $ 628,429 $ 642,915 $ 649,744 Goodwill and other intangible assets 214,133 214,472 214,822 215,182 215,556 Deposits: Noninterest-bearing demand $ 1,254,201 $ 1,248,132 $ 1,275,325 $ 1,347,268 $ 1,451,654 Time deposits 2,567,767 2,495,091 2,606,122 2,658,673 2,357,332 Other interest-bearing deposits 3,696,374 3,747,093 3,723,561 3,640,939 3,565,904 Total deposits $ 7,518,342 $ 7,490,316 $ 7,605,008 $ 7,646,880 $ 7,374,890 Borrowings $ 947,003 $ 823,123 $ 651,112 $ 756,303 $ 941,266 Subordinated debentures (net of debt issuance costs) 79,483 79,356 79,230 79,104 103,637 Total stockholders' equity 1,220,818 1,198,389 1,202,647 1,197,043 1,191,216 Three Months Ended Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, 2024 2023 2023 2023 2023 (dollars in thousands, except for per share data) Net interest income $ 60,300 $ 61,822 $ 62,357 $ 63,843 $ 67,084 Provision for credit losses 4,000 2,700 1,500 3,000 1,000 Net interest income after provision for credit losses 56,300 59,122 60,857 60,843 66,084 Noninterest income Deposit, loan and other income 1,592 1,545 1,605 1,545 1,403 Income on bank owned life insurance 1,664 1,635 1,597 1,553 1,531 Net gains on sale of loans held-for-sale 506 472 633 550 49 Net gains (losses) on equity securities 86 557 (273 ) (210 ) (191 ) Total noninterest income 3,848 4,209 3,562 3,438 2,792 Noninterest expenses Salaries and employee benefits 22,131 22,010 22,251 21,726 22,236 Occupancy and equipment 3,009 2,708 2,738 2,677 2,761 FDIC insurance 1,800 1,800 1,800 1,715 950 Professional and consulting 1,928 1,587 1,834 1,932 2,194 Marketing and advertising 677 323 554 556 532 Information technology and communications 4,389 4,148 3,487 3,644 3,061 Amortization of core deposit intangible 321 348 347 371 372 Other expenses 2,810 2,821 2,773 2,829 2,764 Total noninterest expenses (excluding FDIC special assessment) 37,065 35,745 35,784 35,450 34,870 FDIC special assessment - 2,100 - - - Total noninterest expenses 37,065 37,845 35,784 35,450 34,870 Income before income tax expense 23,083 25,486 28,635 28,831 34,006 Income tax expense 5,878 6,213 7,228 7,437 9,077 Net income 17,205 19,273 21,407 21,394 24,929 Preferred dividends 1,509 1,509 1,509 1,509 1,509 Net income available to common stockholders $ 15,696 $ 17,764 $ 19,898 $ 19,885 $ 23,420 Weighted average diluted common shares outstanding 38,511,747 38,651,391 38,829,681 39,016,839 39,300,733 Diluted EPS $ 0.41 $ 0.46 $ 0.51 $ 0.51 $ 0.59 Reconciliation of GAAP Earnings to Pre-tax and Pre-provision Net Revenue Net income $ 17,205 $ 19,273 $ 21,407 $ 21,394 $ 24,929 Income tax expense 5,878 6,213 7,228 7,437 9,077 Provision for credit losses 4,000 2,700 1,500 3,000 1,000 Pre-tax and pre-provision net revenue $ 27,083 $ 28,186 $ 30,135 $ 31,831 $ 35,006 Return on Assets Measures Average assets $ 9,860,753 $ 9,690,746 $ 9,625,625 $ 9,765,582 $ 9,700,530 Return on avg. assets 0.70 % 0.79 % 0.88 % 0.88 % 1.04 Return on avg. assets (pre-tax and pre-provision) 1.10 1.15 1.24 1.31 1.46 Three Months Ended Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, 2024 2023 2023 2023 2023 Return on Equity Measures (dollars in thousands) Average stockholders' equity $ 1,220,818 $ 1,198,389 $ 1,202,647 $ 1,197,043 $ 1,191,216 Less: average preferred stock (110,927 ) (110,927 ) (110,927 ) (110,927 ) (110,927 ) Average common equity $ 1,109,891 $ 1,087,462 $ 1,091,720 $ 1,086,116 $ 1,080,289 Less: average intangible assets (214,133 ) (214,472 ) (214,822 ) (215,182 ) (215,556 ) Average tangible common equity $ 895,758 $ 872,990 $ 876,898 $ 870,934 $ 864,733 Return on avg. common equity (GAAP) 5.69 % 6.48 % 7.23 % 7.34 % 8.79 Return on avg. tangible common equity ("TCE") (non-GAAP) (1) 7.15 8.18 9.11 9.28 11.11 Return on avg. tangible common equity (pre-tax and pre-provision) 12.26 12.92 13.74 14.78 16.54 Efficiency Measures Total noninterest expenses $ 37,065 $ 37,845 $ 35,784 $ 35,450 $ 34,870 Amortization of core deposit intangibles (321 ) (348 ) (347 ) (371 ) (372 ) FDIC special assessment - (2,100 ) - - - Operating noninterest expense $ 36,744 $ 35,397 $ 35,437 $ 35,079 $ 34,498 Net interest income (tax equivalent basis) $ 61,111 $ 62,627 $ 63,208 $ 64,627 $ 67,828 Noninterest income 3,848 4,209 3,562 3,438 2,792 Net (gains) losses on equity securities (86 ) (557 ) 273 210 191 Operating revenue $ 64,873 $ 66,279 $ 67,043 $ 68,275 $ 70,811 Operating efficiency ratio (non-GAAP) (2) 56.6 % 53.4 % 52.9 % 51.4 % 48.7 Net Interest Margin Average interest-earning assets $ 9,323,291 $ 9,172,165 $ 9,089,431 $ 9,228,079 $ 9,174,167 Net interest income (tax equivalent basis) 61,111 62,627 63,208 64,627 67,828 Net interest margin (GAAP) 2.64 % 2.71 % 2.76 % 2.81 % 3.00 (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. As of Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, 2024 2023 2023 2023 2023 Capital Ratios and Book Value per Share (dollars in thousands, except for per share data) Stockholders equity $ 1,216,609 $ 1,216,620 $ 1,188,154 $ 1,199,397 $ 1,190,970 Less: preferred stock (110,927 ) (110,927 ) (110,927 ) (110,927 ) (110,927 ) Common equity $ 1,105,682 $ 1,105,693 $ 1,077,227 $ 1,088,470 $ 1,080,043 Less: intangible assets (213,925 ) (214,246 ) (214,594 ) (214,941 ) (215,312 ) Tangible common equity $ 891,757 $ 891,447 $ 862,633 $ 873,529 $ 864,731 Total assets $ 9,853,964 $ 9,855,603 $ 9,678,885 $ 9,723,963 $ 9,960,467 Less: intangible assets (213,925 ) (214,246 ) (214,594 ) (214,941 ) (215,312 ) Tangible assets $ 9,640,039 $ 9,641,357 $ 9,464,291 $ 9,509,022 $ 9,745,155 Common shares outstanding 38,333,053 38,519,770 38,621,970 38,966,652 39,179,051 Common equity ratio (GAAP) 11.22 % 11.22 % 11.13 % 11.19 % 10.84 Tangible common equity ratio (non-GAAP) (3) 9.25 9.25 9.11 9.19 8.87 Regulatory capital ratios (Bancorp): Leverage ratio 10.73 % 10.86 % 10.86 % 10.62 % 10.60 Common equity Tier 1 risk-based ratio 10.69 10.62 10.64 10.55 10.55 Risk-based Tier 1 capital ratio 12.03 11.95 11.98 11.90 11.92 Risk-based total capital ratio 13.88 13.77 13.90 13.83 13.85 Regulatory capital ratios (Bank): Leverage ratio 11.10 % 11.20 % 11.23 % 10.95 % 10.62 Common equity Tier 1 risk-based ratio 12.43 12.31 12.38 12.26 11.92 Risk-based Tier 1 capital ratio 12.43 12.31 12.38 12.26 11.92 Risk-based total capital ratio 13.41 13.28 13.43 13.33 13.27 Book value per share (GAAP) $ 28.84 $ 28.70 $ 27.89 $ 27.93 $ 27.57 Tangible book value per share (non-GAAP) (4) 23.26 23.14 22.34 22.42 22.07 Net Loan Charge-offs (Recoveries): Net loan charge-offs (recoveries): Charge-offs $ 3,185 $ 8,960 $ 2,487 $ 1,118 $ 4,484 Recoveries (23 ) - (8 ) (76 ) (1 ) Net loan charge-offs $ 3,162 $ 8,960 $ 2,479 $ 1,042 $ 4,483 Net loan charge-offs as a % of average loans receivable (annualized) 0.15 % 0.43 % 0.12 % 0.05 % 0.22 Asset Quality Nonaccrual loans $ 47,438 $ 52,524 $ 56,059 $ 51,496 $ 47,667 Other real estate owned - - - - - Nonperforming assets $ 47,438 $ 52,524 $ 56,059 $ 51,496 $ 47,667 Allowance for credit losses - loans ("ACL") $ 82,869 $ 81,974 $ 88,230 $ 89,205 $ 87,002 Loans receivable 8,297,957 8,345,145 8,181,109 8,148,540 8,132,119 Nonaccrual loans as a % of loans receivable 0.57 % 0.63 % 0.69 % 0.63 % 0.59 Nonperforming assets as a % of total assets 0.48 0.53 0.58 0.53 0.48 ACL as a % of loans receivable 1.00 0.98 1.08 1.09 1.07 ACL as a % of nonaccrual loans 174.7 156.1 157.4 173.2 182.5 (3) Tangible common equity divided by tangible assets (4) 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 March 31, 2024 December 31, 2023 March 31, 2023 Average Average Average Interest-earning assets: Balance Interest Rate (7) Balance Interest Rate (7) Balance Interest Rate (7) Investment securities (1) (2) $ 720,303 $ 5,794 3.24 % $ 723,433 $ 5,757 3.16 % $ 732,929 $ 5,620 3.11 % Loans receivable and loans held-for-sale (2) (3) (4) 8,332,828 120,592 5.82 8,268,299 121,130 5.81 8,131,035 107,348 5.35 Federal funds sold and interest- bearing deposits with banks 218,212 2,906 5.36 134,168 1,963 5.80 260,297 2,975 4.64 Restricted investment in bank stock 51,948 1,126 8.72 46,265 912 7.82 49,906 898 7.30 Total interest-earning assets $ 9,323,291 130,418 5.63 $ 9,172,165 129,762 5.61 9,174,167 116,841 5.17 Allowance for credit losses (84,005 ) (88,861 ) (90,182 ) Noninterest-earning assets 621,467 607,442 616,545 Total assets $ 9,860,753 $ 9,690,746 $ 9,700,530 Interest-bearing liabilities: Time deposits 2,567,767 28,038 4.39 2,495,091 26,486 4.21 $ 2,357,332 17,267 2.97 Other interest-bearing deposits 3,696,374 32,369 3.52 3,747,093 32,846 3.48 3,565,904 22,820 2.60 Total interest-bearing deposits 6,264,141 60,407 3.88 6,242,184 59,332 3.77 5,923,236 40,087 2.74 Borrowings 947,003 7,567 3.21 832,123 6,467 3.08 941,266 7,322 3.15 Subordinated debentures, net 79,483 1,311 6.63 79,356 1,313 6.56 103,638 1,579 6.18 Finance lease 1,483 22 5.97 1,546 23 5.90 1,714 25 5.92 Total interest-bearing liabilities 7,292,110 69,307 3.82 7,155,209 67,135 3.72 6,969,854 49,013 2.85 Noninterest-bearing demand deposits 1,254,201 1,248,132 1,451,654 Other liabilities 93,624 98,016 87,807 Total noninterest-bearing liabilities 1,347,825 1,346,148 1,539,461 Stockholders' equity 1,220,818 1,198,389 1,191,215 Total liabilities and stockholders' equity $ 9,860,753 $ 9,699,746 $ 9,700,530 Net interest income (tax equivalent basis) 61,111 62,627 67,828 Net interest spread (5) 1.80 % 1.89 % 2.31 % Net interest margin (6) 2.64 % 2.71 % 3.00 % Tax equivalent adjustment (811 ) (805 ) (744 ) Net interest income $ 60,300 $ 61,822 $ 67,084 (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. 
