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ConnectOne Bancorp, Inc. Reports Solid Third Quarter 2021 Results; Declares 18% Increase in Quarterly Common Dividend and Increases Share Repurchase Program by 2 Million Shares
来源: Nasdaq GlobeNewswire / 28 10月 2021 06:00:02 America/Chicago
ENGLEWOOD CLIFFS, N.J., Oct. 28, 2021 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq: CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $32.1 million for the third quarter of 2021, compared with $32.2 million for the second quarter of 2021 and $24.8 million for the third quarter of 2020. Diluted earnings per share were $0.80 for the third quarter of 2021 compared with $0.81 in the second quarter of 2021 and $0.62 in the third quarter of 2020. The $0.1 million decrease in net income and $0.01 decrease in diluted earnings per share versus the second quarter of 2021 were primarily due an increase in the provision for credit losses of $2.7 million, an increase in noninterest expenses of $1.9 million, and a decrease in noninterest income of $0.5 million, largely offset by an increase in net interest income of $5.2 million. The $7.3 million increase in net income and $0.18 increase in diluted earnings per share versus the third quarter of 2020 were due to an increase in net interest income of $7.7 million, an increase in noninterest income of $0.5 million, and a decrease in the provision for credit losses of $3.9 million, partially offset by increases noninterest expenses of $1.7 million and income tax expense of $3.1 million.
Pre-tax, pre-provision net revenue (“PPNR”) increased to $44.1 million, reflecting a 6.9% sequential increase from the second quarter of 2021 and a 17.3% increase from the prior year quarter.
Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “ConnectOne continued to successfully execute upon our operating strategies during the third quarter. We had solid net revenue growth and core loan growth, while our net interest margin widened for the eighth consecutive quarter, and we continued to grow and strengthen core noninterest income sources, including our fintech subsidiary BoeFly. During the quarter we further fortified our capital position with a $100+ million preferred equity capital raise and, going into the end of the year, our balance sheet is positioned to continue to outperform from gains in market and client share. Operationally, we again delivered outstanding performance metrics. Return on assets was 1.62%, return on tangible common equity was 16.9% and PPNR as a percent of assets increased once again to 2.23%. Meanwhile, our efficiency ratio remained among the best in the industry at 38.1% and tangible book value per share increased by 4% sequentially and by more than 15% over the past year to $19.43. Average loans, excluding PPP, increased by 6.8% sequentially, as our proactive, client-first approach resulted in robust lending opportunities across our market.”
“Our year-to-date performance has been very strong on all fronts. Today's common stock dividend increase – the second increase the Board approved this year – reflects our growing capital base, the strength and stability of our profitability, and our commitment to driving long-term value for our shareholders,” Mr. Sorrentino added. “Looking ahead, our outlook for the remainder of 2021 is directionally positive. ConnectOne remains well-positioned to capitalize on meaningful growth opportunities and, as we plan for a robust 2022, we look forward to our continued ability to scale.”
Dividend Declaration
The Company announced that its Board of Directors declared a cash dividend on its common stock of $0.13 per share, reflecting an 18% sequential increase in our cash dividend. The dividend, which reflects the second $0.02 increase declared during 2021, will be paid on December 1, 2021 to common shareholders of record on November 15, 2021.
Operating Results
Fully taxable equivalent net interest income for the third quarter of 2021 was $68.8 million, an increase of $5.3 million, or 8.4%, from the second quarter of 2021 resulting primarily from a 3.7% increase in average interest-earning assets, and a 13 basis-point widening of the net interest margin to 3.73% from 3.60%. Excluding purchase accounting adjustments, the adjusted net interest margin was 3.63% for the third quarter of 2021 and 3.49% for the second quarter of 2021. The net interest margin widened as a result of continued improvement in the Bank’s cost and mix of funding sources, an increase in the accretion of Paycheck Protection Program (“PPP”) fee income due to accelerated forgiveness activity, and the recovery of back-interest after the successful resolution of a nonaccrual loan. These items more than offset a declining core yield on loans receivable and investment securities. This was the eighth consecutive quarter that the Bank’s net interest margin widened. Included in interest income in both the third and second quarter of 2021 was the accretion of PPP fee income of $3.4 million and $2.3 million, respectively. Remaining deferred and unrecognized PPP fees were $6.0 million as of September 30, 2021.
Fully taxable equivalent net interest income for the third quarter of 2021 increased by $7.8 million, or 12.7%, from the third quarter of 2020. The increase from the third quarter of 2020 resulted primarily from a 24 basis-point widening of the net interest margin to 3.73% from 3.49%. The widening of the net interest margin resulted from a 60 basis-point reduction in the cost of interest-bearing liabilities, partially offset by a 24 basis-point reduction in the yield on average interest-earning assets.
Noninterest income was $4.0 million in the third quarter of 2021, $4.5 million in the second quarter of 2021 and $3.5 million in the third quarter of 2020. The decrease in noninterest income of $0.5 million from the second quarter of 2021 was primarily attributable to a decrease in deposit, loan and other income of $0.5 million, reflecting lower referral fees related to BoeFly’s participation in the PPP. The increase of $0.5 million in noninterest income when compared to the third quarter of 2020 was attributable to increases in sale of loans held-for-sale of $0.5 million and deposit, loan and other income of $0.4 million, partially offset by a decrease in BOLI income of $0.3 million and a net loss on equity securities of $0.1 million.
Noninterest expenses totaled $28.2 million for the third quarter of 2021, $26.3 million for the second quarter of 2021 and $26.5 million for the third quarter of 2020. The increase in noninterest expenses of $1.9 million from the second quarter of 2021 was primarily attributable to increases in salaries and employee benefits of $1.5 million, reflecting the Bank’s recent expansion leading to a 5% sequential increase in staff count; other expenses of $0.7 million, partially a result of increased technology investments; and professional and consulting fees of $0.1 million. These increases were partially offset by decreases in occupancy and equipment of $0.3 million and data processing of $0.1 million. The increase in noninterest expenses of $1.7 million from the third quarter of 2020 was primarily attributable to increases in salaries and employee benefits of $1.6 million, other expenses $1.2 million professional and consulting of $0.3 million and marketing and advertising of $0.1 million, partially offset by decreases in FDIC insurance $0.6 million and occupancy and equipment of $0.9 million. The Company’s expense base growth reflects its commitment to organic expansion through investments in people and technology, while remaining focused on maintaining best-in-class operating efficiency.
Income tax expense was $10.9 million for the third quarter of 2021, $10.7 million for the second quarter of 2021 and $7.8 million for the third quarter of 2020. The effective tax rates for the third quarter of 2021, second quarter of 2021 and third quarter of 2020 were 25.3%, 24.8% and 23.9%, respectively. The higher effective tax rate during the third quarter of 2021 when compared to the second quarter of 2021 and third quarter of 2020 was the result of higher levels of income from taxable sources.
Asset Quality
The provision for (reversal of) credit losses was $1.1 million for the third quarter of 2021, $(1.6) million for the second quarter of 2021 and $5.0 million for the third quarter of 2020. The provision for credit losses during the third quarter of 2021 of $1.1 million was the result of strong organic loan growth, partially offset by continued improvement in the macroeconomic outlook. The second quarter of 2021 provision recapture of $1.6 million, reflected an accelerated recovery from the pandemic. The elevated provision for loan losses during the third quarter of 2020 was due to the economic uncertainties of the COVID-19 pandemic, including consideration of related payment deferrals requested or granted. As of September 30, 2021, the Bank had 10 loans on deferral, with a total balance of approximately $10 million, down significantly from 79 loans with a total balance of approximately $100 million as of June 30, 2021.
Nonperforming assets, which includes nonaccrual loans and other real estate owned (the Bank had no other real estate owned during the periods reported), were $66.0 million as of September 30, 2021, $61.7 million as of December 31, 2020 and $65.5 million as of September 30, 2020. Nonperforming assets as a percentage of total assets were 0.83% as of September 30, 2021, 0.82% as of December 31, 2020 and 0.88% as of September 30, 2020. The ratio of nonaccrual loans to loans receivable was 1.00%, 0.99% and 1.05%, as of September 30, 2021, December 31, 2020 and September 30, 2020, respectively. The annualized net loan charge-offs (recoveries) charge-off ratio was 0.10% for the third quarter of 2021, 0.01% for the second quarter of 2021 and (0.03)% for the third quarter of 2020. The current quarter included a $1.4 million charge-off of a commercial real estate loan that previously had a specific credit reserve. The allowance for credit losses represented 1.19%, 1.27%, and 1.19% of loans receivable as of September 30, 2021, December 31, 2020 and September 30, 2020, respectively. Excluding PPP loans, the allowance for credit losses represented 1.22%, 1.36%, and 1.29% of loans receivable as of September 30, 2021, December 31, 2020 and September 30, 2020, respectively. The allowance for credit losses as a percentage of nonaccrual loans was 118.2% as of September 30, 2021, 128.4% as of December 31, 2020 and 113.4% as of September 30, 2020.
Selected Balance Sheet Items
The Company’s total assets were $7.9 billion, an increase of $402.2 million from December 31, 2020. Loans receivable were $6.6 billion, an increase of $340.1 million from December 31, 2020. The increase in loans receivable was attributable to higher, non-PPP, loan originations, offset by decreases in PPP loans resulting from forgiveness activity. As of September 30, 2021, PPP loans totaled $177.8 million, down from $397.5 million as of December 31, 2020 reflecting accelerated forgiveness of the outstanding PPP loans.
The Company’s stockholders’ equity was $1.1 billion as of September 30, 2021, an increase of $183.1 million from December 31, 2020. In August 2021, the Company raised $110.9 million, net of estimated issuance expenses, from the issuance of $115 million in 5.25% fixed rate, non-cumulative, perpetual preferred stock. This issuance was the primary reason for the overall increase in stockholders’ equity, in addition to increases in retained earnings of $82.0 million and additional paid-in capital of $2.0 million, partially offset by a decrease in accumulated other comprehensive income of $3.8 million and an increase in treasury stock of $8.0 million. As of September 30, 2021, the Company’s tangible common equity ratio and tangible book value per share were 9.95% and $19.43, 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 $217.9 million as of September 30, 2021 and $219.3 million as of December 31, 2020.
Share Repurchase Program
During the third quarter of 2021, the Company repurchased approximately 196,000 shares of common stock leaving approximately 315,000 shares remaining authorized for repurchase under the current Board approved repurchase program. In addition, the Board has authorized the repurchase of up to an additional 2,000,000, or approximately 5%, of the Company’s currently outstanding common shares. 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 plans do not obligate the Company to acquire any particular amount of common stock, and they 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.
Third Quarter 2021 Results Conference Call
Management will also host a conference call and audio webcast at 10:00 a.m. ET on October 28, 2021 to review the Company's financial performance and operating results. The conference call dial-in number is 201-689-8471, access code 13723610. 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 28, 2021 and ending on Thursday, November 4, 2021 by dialing 412-317-6671, access code 13723610. 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 its fintech subsidiary, BoeFly. 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 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 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.comMedia Contact:
Sutton Resler MWW
571.236.4966: sresler@mww.com
CONNECTONE BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION (in thousands) September 30, December 31, September 30, 2021 2020 2020 (unaudited) (unaudited) ASSETS Cash and due from banks $ 49,626 $ 63,637 $ 59,422 Interest-bearing deposits with banks 363,569 240,119 196,697 Cash and cash equivalents 413,195 303,756 256,119 Investment securities 462,884 487,955 453,015 Equity securities 13,700 13,387 13,400 Loans held-for-sale 5,596 4,710 8,508 Loans receivable 6,576,439 6,236,307 6,251,051 Less: Allowance for credit losses - loans 77,986 79,226 74,267 Net loans receivable 6,498,453 6,157,081 6,176,784 Investment in restricted stock, at cost 18,106 25,099 28,713 Bank premises and equipment, net 29,635 30,108 29,922 Accrued interest receivable 33,610 35,317 34,326 Bank owned life insurance 194,487 165,960 165,676 Right of use operating lease assets 11,002 16,159 22,830 Goodwill 208,372 208,372 208,372 Core deposit intangibles 9,480 10,977 11,605 Other assets 50,994 88,458 40,289 Total assets $ 7,949,514 $ 7,547,339 $ 7,449,559 LIABILITIES Deposits: Noninterest-bearing $ 1,500,754 $ 1,339,108 $ 1,270,021 Interest-bearing 4,897,584 4,620,116 4,528,735 Total deposits 6,398,338 5,959,224 5,798,756 Borrowings 253,225 425,954 506,225 Subordinated debentures, net 152,875 202,648 202,552 Operating lease liabilities 12,437 18,026 26,726 Other liabilities 34,206 26,177 24,564 Total liabilities 6,851,081 6,632,029 6,558,823 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock 110,927 - - Common stock 586,946 586,946 586,946 Additional paid-in capital 25,851 23,887 22,867 Retained earnings 413,996 331,951 309,893 Treasury stock (38,314 ) (30,271 ) (30,271 ) Accumulated other comprehensive (loss) income (973 ) 2,797 1,301 Total stockholders' equity 1,098,433 915,310 890,736 Total liabilities and stockholders' equity $ 7,949,514 $ 7,547,339 $ 7,449,559 CONNECTONE BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except for per share data) Three Months Ended Nine Months Ended 09/30/21 09/30/20 09/30/21 09/30/20 Interest income Interest and fees on loans $ 75,092 $ 74,755 $ 216,655 $ 223,488 Interest and dividends on investment securities: Taxable 1,065 1,305 3,148 5,083 Tax-exempt 511 688 1,885 2,148 Dividends 245 426 764 1,268 Interest on federal funds sold and other short-term investments 113 47 246 625 Total interest income 77,026 77,221 222,698 232,612 Interest expense Deposits 5,478 11,947 19,487 42,756 Borrowings 3,303 4,725 10,794 13,236 Total interest expense 8,781 16,672 30,281 55,992 Net interest income 68,245 60,549 192,417 176,620 Provision for (reversal of) credit losses 1,100 5,000 (6,315 ) 36,000 Net interest income after provision for credit losses 67,145 55,549 198,732 140,620 Noninterest income Deposit, loan and other income 1,702 1,278 5,092 5,777 Income on bank owned life insurance 1,278 1,598 3,527 3,693 Net gains on sale of loans held-for-sale 1,114 614 2,668 1,244 Gain on sale of branches - - 674 - Net (losses) gains on equity securities (78 ) (7 ) (242 ) 215 Net gains on sale/redemption of investment securities - - 195 29 Total noninterest income 4,016 3,483 11,914 10,958 Noninterest expenses Salaries and employee benefits 16,740 15,114 47,589 44,177 Occupancy and equipment 2,656 3,566 8,876 10,193 FDIC insurance 525 1,105 2,040 3,054 Professional and consulting 2,217 1,926 6,290 5,173 Marketing and advertising 345 214 864 944 Data processing 1,541 1,470 4,680 4,529 Merger expenses - - - 14,640 Amortization of core deposit intangible 483 627 1,498 1,931 Increase in value of acquisition price - - - 2,333 Other expenses 3,676 2,456 9,090 7,625 Total noninterest expenses 28,183 26,478 80,927 94,599 Income before income tax expense 42,978 32,554 129,719 56,979 Income tax expense 10,881 7,768 32,404 11,331 Net income $ 32,097 $ 24,786 $ 97,315 $ 45,648 Earnings per common share: Basic $ 0.81 $ 0.62 $ 2.45 $ 1.15 Diluted 0.80 0.62 2.43 1.15 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 Sep. 30, Jun. 30, Mar. 31, Dec. 30, Sep. 30, 2021 2021 2021 2020 2020 Selected Financial Data (dollars in thousands) Total assets $ 7,949,514 $ 7,710,082 $ 7,449,639 $ 7,547,339 $ 7,449,559 Loans receivable: Commercial $ 1,116,535 $ 1,046,965 $ 1,071,418 $ 1,092,404 $ 1,125,273 Paycheck Protection Program ("PPP") loans 177,829 326,788 522,340 397,492 474,022 Commercial real estate 2,354,209 2,252,484 2,127,806 2,103,468 2,001,311 Multifamily 2,113,541 1,914,978 1,698,331 1,712,153 1,703,290 Commercial construction 552,896 587,121 565,872 617,747 614,112 Residential 270,793 286,907 306,376 322,564 343,376 Consumer 2,093 6,355 3,364 1,853 1,876 Gross loans 6,587,896 6,421,598 6,295,508 6,247,681 6,263,260 Unearned net origination fees (11,457 ) (13,694 ) (18,317 ) (11,374 ) (12,209 ) Loans receivable 6,576,439 6,407,904 6,277,191 6,236,307 6,251,051 Loans held-for-sale 5,596 6,159 6,900 4,710 8,508 Total loans $ 6,582,035 $ 6,414,063 $ 6,284,091 $ 6,241,017 $ 6,259,559 Investment and equity securities $ 476,584 $ 472,156 $ 455,223 $ 501,342 $ 466,415 Goodwill and other intangible assets 217,852 218,335 218,842 219,349 219,977 Deposits: Noninterest-bearing demand $ 1,500,754 $ 1,485,952 $ 1,384,961 $ 1,339,108 $ 1,270,021 Time deposits 1,221,911 1,301,807 1,356,599 1,464,133 1,619,609 Other interest-bearing deposits 3,675,673 3,404,754 3,209,774 3,155,983 2,909,126 Total deposits $ 6,398,338 $ 6,192,513 $ 5,951,335 $ 5,959,224 $ 5,798,756 Borrowings $ 253,225 $ 353,462 $ 359,710 $ 425,954 $ 506,225 Subordinated debentures (net of debt issuance costs) 152,875 152,800 152,724 202,648 202,552 Total stockholders' equity 1,098,433 964,960 935,637 915,310 890,736 Quarterly Average Balances Total assets $ 7,837,997 $ 7,566,676 $ 7,500,034 $ 7,547,651 $ 7,474,002 Loans receivable: Commercial (including PPP loans) $ 1,296,066 $ 1,485,918 $ 1,531,790 $ 1,557,303 $ 1,610,423 Commercial real estate (including multifamily) 4,312,092 3,925,497 3,805,856 3,704,197 3,679,297 Commercial construction 572,920 553,396 595,466 615,439 646,281 Residential 279,063 293,633 316,233 332,403 352,426 Consumer 2,649 3,148 2,540 3,309 2,536 Gross loans 6,462,790 6,261,592 6,251,885 6,212,651 6,290,963 Unearned net origination fees (13,064 ) (13,076 ) (13,163 ) (12,023 ) (13,292 ) Loans receivable 6,449,726 6,248,516 6,238,723 6,200,628 6,277,671 Loans held-for-sale 6,226 3,696 4,237 9,003 10,772 Total loans $ 6,455,952 $ 6,252,212 $ 6,242,960 $ 6,209,631 $ 6,288,443 Investment and equity securities $ 465,103 $ 450,543 $ 481,802 $ 469,820 $ 429,947 Goodwill and other intangible assets 218,170 218,662 219,171 219,761 220,391 Deposits: Noninterest-bearing demand $ 1,495,456 $ 1,432,707 $ 1,348,585 $ 1,294,447 $ 1,253,235 Time deposits 1,252,818 1,324,510 1,422,295 1,577,338 1,728,129 Other interest-bearing deposits 3,582,261 3,320,400 3,225,751 3,094,536 2,881,592 Total deposits $ 6,330,535 $ 6,077,617 $ 5,996,631 $ 5,966,321 $ 5,862,956 Borrowings $ 276,183 $ 331,633 $ 375,511 $ 410,098 $ 467,399 Subordinated debentures (net of debt issuance costs) 152,825 152,750 154,341 202,595 202,502 Total stockholders' equity 1,032,191 952,019 928,041 906,153 883,364 Three Months Ended Sep. 30, Jun. 30, Mar. 31, Dec. 30, Sep. 30, 2021 2021 2021 2020 2020 (dollars in thousands, except for per share data) Net interest income $ 68,245 $ 63,009 $ 61,163 $ 61,371 $ 60,549 Provision for (reversal of) credit losses 1,100 (1,649 ) (5,766 ) 5,000 5,000 Net interest income after provision for credit losses 67,145 64,658 66,929 56,371 55,549 Noninterest income Deposit, loan and other income 1,702 2,222 1,168 1,300 1,278 Income on bank owned life insurance 1,278 1,185 1,064 1,314 1,598 Net gains on sale of loans held-for-sale 1,114 847 707 841 614 Gain on sale of branches - - 674 - - Net (losses) gains on equity securities (78 ) 23 (187 ) (13 ) (7 ) Net gains on sale/redemption of investment securities - 195 - - - Total noninterest income 4,016 4,472 3,426 3,442 3,483 Noninterest expenses Salaries and employee benefits 16,740 15,284 15,565 14,581 15,114 Occupancy and equipment 2,656 2,916 3,404 3,689 3,566 FDIC insurance 525 580 935 948 1,105 Professional and consulting 2,217 2,117 1,956 2,210 1,926 Marketing and advertising 345 278 241 256 214 Data processing 1,541 1,603 1,536 1,479 1,470 Amortization of core deposit intangible 483 508 507 628 627 Other expenses 3,676 2,973 2,341 2,611 2,456 Total noninterest expenses 28,183 26,259 26,485 26,402 26,478 Income before income tax expense 42,978 42,871 43,870 33,411 32,554 Income tax expense 10,881 10,652 10,871 7,770 7,768 Net income $ 32,097 $ 32,219 $ 32,999 $ 25,641 $ 24,786 Weighted average diluted common shares outstanding 39,869,468 39,872,829 39,788,881 39,726,791 39,653,832 Diluted EPS $ 0.80 $ 0.81 $ 0.82 $ 0.64 $ 0.62 Reconciliation of GAAP Earnings to Pre-tax and Pre-provision Net Revenue Net income $ 32,097 $ 32,219 $ 32,999 $ 25,641 $ 24,786 Income tax expense 10,881 10,652 10,871 7,770 7,768 Provision for (reversal of) credit losses 1,100 (1,649 ) (5,766 ) 5,000 5,000 Pre-tax and pre-provision net revenue $ 44,078 $ 41,222 $ 38,104 $ 38,411 $ 37,554 Return on Assets Measures Average assets $ 7,837,997 $ 7,566,676 $ 7,500,034 $ 7,547,651 $ 7,474,002 Return on avg. assets 1.62 % 1.71 % 1.78 % 1.35 % 1.32 % Return on avg. assets (pre-tax and pre-provision) 2.23 2.19 2.06 2.02 2.00 Three Months Ended Sep. 30, Jun. 30, Mar. 31, Dec. 30, Sep. 30, 2021 2021 2021 2020 2020 Return on Equity Measures (dollars in thousands) Average common equity $ 980,344 $ 952,019 $ 928,041 $ 906,153 $ 883,364 Less: average intangible assets (218,170 ) (218,662 ) (219,171 ) (219,761 ) (220,391 ) Average tangible common equity $ 762,174 $ 733,357 $ 708,870 $ 686,392 $ 662,973 Return on avg. common equity (GAAP) 12.99 % 13.57 % 14.42 % 11.26 % 11.16 % Return on avg. tangible common equity ("TCE") (non-GAAP) (1) 16.88 17.82 19.08 15.12 15.14 Efficiency Measures Total noninterest expenses $ 28,183 $ 26,259 $ 26,485 $ 26,402 $ 26,478 Amortization of core deposit intangibles (483 ) (508 ) (507 ) (628 ) (627 ) Foreclosed property expense - - - (2 ) - Operating noninterest expense $ 27,700 $ 25,751 $ 25,978 $ 25,772 $ 25,851 Net interest income (tax equivalent basis) $ 68,761 $ 63,418 $ 61,581 $ 61,840 $ 61,005 Noninterest income 4,016 4,472 3,426 3,442 3,483 Net gains on sale of branches - - (674 ) - - Net gains on sale/redemption of investment securities - (195 ) - - - Operating revenue $ 72,777 $ 67,695 $ 64,333 $ 65,282 $ 64,488 Operating efficiency ratio (non-GAAP) (2) 38.1 % 38.0 % 40.4 % 39.5 % 40.1 % Net Interest Margin Average interest-earning assets $ 7,321,771 $ 7,059,965 $ 7,008,500 $ 7,031,662 $ 6,962,499 Net interest income (tax equivalent basis) $ 68,761 $ 63,418 $ 61,581 $ 61,840 $ 61,005 Impact of purchase accounting fair value marks (1,849 ) (2,012 ) (2,074 ) (2,237 ) (2,403 ) Adjusted net interest income (tax equivalent basis) $ 66,912 $ 61,406 $ 59,507 $ 59,603 $ 58,602 Net interest margin (GAAP) 3.73 % 3.60 % 3.56 % 3.50 % 3.49 % Adjusted net interest margin (non-GAAP) (3) 3.63 3.49 3.44 3.37 3.35 (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, 2021 2021 2021 2020 2020 Capital Ratios and Book Value per Share (dollars in thousands, except for per share data) Common equity $ 987,506 $ 964,960 $ 935,637 $ 915,310 $ 890,736 Less: intangible assets (217,852 ) (218,335 ) (218,842 ) (219,349 ) (219,977 ) Tangible common equity $ 769,654 $ 746,625 $ 716,795 $ 695,961 $ 670,759 Total assets $ 7,949,514 $ 7,710,082 $ 7,449,639 $ 7,547,339 $ 7,449,559 Less: intangible assets (217,852 ) (218,335 ) (218,842 ) (219,349 ) (219,977 ) Tangible assets $ 7,731,662 $ 7,491,747 $ 7,230,797 $ 7,327,990 $ 7,229,582 Common shares outstanding 39,602,199 39,794,815 39,773,602 39,785,398 39,754,051 Common equity ratio (GAAP) 12.42 % 12.52 % 12.56 % 12.13 % 11.96 % Tangible common equity ratio (non-GAAP) (4) 9.95 9.97 9.91 9.50 9.28 Regulatory capital ratios (Bancorp): Leverage ratio 11.60 % 10.19 % 9.89 % 9.51 % 9.30 % Common equity Tier 1 risk-based ratio 10.73 11.09 11.36 10.79 10.63 Risk-based Tier 1 capital ratio 12.35 11.17 11.44 10.87 10.72 Risk-based total capital ratio 15.54 14.58 15.08 15.08 14.94 Regulatory capital ratios (Bank): Leverage ratio 11.33 % 11.34 % 11.06 % 10.63 % 10.41 % Common equity Tier 1 risk-based ratio 12.06 12.42 12.78 12.24 12.00 Risk-based Tier 1 capital ratio 12.06 12.42 12.78 12.24 12.00 Risk-based total capital ratio 13.61 14.07 14.55 10.00 13.70 Book value per share (GAAP) $ 24.94 $ 24.25 $ 23.52 $ 23.01 $ 22.41 Tangible book value per share (non-GAAP) (5) 19.43 18.76 18.02 17.49 16.87 Net Loan (Recoveries) Charge-Off Detail Net loan charge-offs (recoveries): Charge-offs $ 1,727 $ 212 $ - $ 67 $ 257 Recoveries (113 ) (14 ) (61 ) (26 ) (800 ) Net loan charge-offs (recoveries) $ 1,614 $ 198 $ (61 ) $ 41 $ (543 ) Net loan charge-offs (recoveries) as a % of average loans receivable (annualized) 0.10 % 0.01 % (0.00 ) % 0.00 % (0.03 ) % Asset Quality Nonaccrual loans $ 65,959 $ 56,213 $ 60,940 $ 61,696 $ 65,494 OREO - - - - - Nonperforming assets $ 65,959 $ 56,213 $ 60,940 $ 61,696 $ 65,494 Performing troubled debt restructurings $ 41,256 $ 33,021 $ 25,505 $ 23,655 $ 18,241 Allowance for credit losses - loans ("ACL") 77,986 78,684 80,568 79,226 74,267 Loans receivable $ 6,576,439 $ 6,407,904 $ 6,277,191 $ 6,236,307 $ 6,251,051 Less: PPP loans 177,829 326,788 522,340 397,492 474,022 Loans receivable (excluding PPP loans) $ 6,398,610 $ 6,081,116 $ 5,754,851 $ 5,838,815 $ 5,777,029 Nonaccrual loans as a % of loans receivable 1.00 % 0.88 % 0.97 % 0.99 % 1.05 Nonperforming assets as a % of total assets 0.83 0.73 0.82 0.82 0.88 ACL as a % of loans receivable 1.19 1.23 1.28 1.27 1.19 ACL as a % of loans receivable (excluding PPP loans) 1.22 1.29 1.40 1.36 1.29 ACL as a % of nonaccrual loans 118.2 140.0 132.2 128.4 113.4 (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, 2021 June 30, 2021 September 30, 2020 Average Average Average Interest-earning assets: Balance Interest Rate (7) Balance Interest Rate (7) Balance Interest Rate (7) Investment securities (1) (2) $ 459,559 $ 1,712 1.48 % $ 444,461 $ 1,765 1.59 % $ 420,362 $ 2,176 2.06 % Loans receivable and loans held-for-sale (2) (3) (4) 6,455,952 75,434 4.64 6,252,212 71,348 4.58 6,288,443 75,028 4.75 Federal funds sold and interest- bearing deposits with banks 387,155 151 0.15 341,885 84 0.10 227,617 47 0.08 Restricted investment in bank stock 19,105 245 5.09 21,407 263 4.93 26,077 426 6.50 Total interest-earning assets 7,321,771 77,542 4.20 7,059,965 73,460 4.17 6,962,499 77,677 4.44 Allowance for credit losses - loans (78,327 ) (80,548 ) (69,381 ) Noninterest-earning assets 594,553 587,259 580,884 Total assets $ 7,837,997 $ 7,566,676 $ 7,474,002 Interest-bearing liabilities: Time deposits 1,252,818 2,983 0.94 $ 1,324,510 $ 3,963 1.20 1,728,129 8,174 1.88 Other interest-bearing deposits 3,582,261 2,495 0.28 3,320,400 2,461 0.30 2,881,592 3,773 0.52 Total interest-bearing deposits 4,835,079 5,478 0.45 4,644,910 6,424 0.55 4,609,721 11,947 1.03 Borrowings 276,183 1,105 1.59 331,633 1,419 1.72 467,399 1,992 1.70 Subordinated debentures 152,825 2,168 5.63 152,750 2,168 5.69 202,502 2,700 5.30 Capital lease obligation 2,018 30 5.90 2,066 31 6.02 2,211 33 5.94 Total interest-bearing liabilities 5,266,105 8,781 0.66 5,131,359 10,042 0.78 5,281,833 16,672 1.26 Noninterest-bearing demand deposits 1,495,456 1,432,707 1,253,235 Other liabilities 44,245 50,591 55,570 Total noninterest-bearing liabilities 1,539,701 1,483,298 1,308,805 Stockholders' equity 1,032,191 952,019 883,364 Total liabilities and stockholders' equity $ 7,837,997 $ 7,566,676 $ 7,474,002 Net interest income (tax equivalent basis) 68,761 63,418 61,005 Net interest spread (5) 3.54 % 3.39 % 3.18 % Net interest margin (6) 3.73 % 3.60 % 3.49 % Tax equivalent adjustment (516 ) (409 ) (456 ) Net interest income $ 68,245 $ 63,009 $ 60,549 (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. 
