ENGLEWOOD CLIFFS, N.J., July 30, 2020 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq: CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $14.8 million for the second quarter of 2020 compared with $6.0 million for the first quarter of 2020 and $19.3 million for the second quarter of 2019.  Diluted earnings per share were $0.37 in the second quarter of 2020 compared with $0.15 in the first quarter of 2020 and $0.54 in the second quarter of 2019. The increase in net income and diluted earnings per share from the first quarter of 2020 was due to an increase in net interest income, an increase in noninterest income, a decrease in noninterest expenses, and a decrease in provision for loan losses.  Included in net income were merger and restructuring expenses of $5.1 million for the second quarter of 2020, $9.5 million for the first quarter of 2020 and $0.3 million for the second quarter of 2019.  On a pre-tax, pre-provision and pre-merger charges basis, earnings were $37.5 million for the second quarter of 2020, $32.6 million for the first quarter of 2020, and $26.2 million for the second quarter of 2019.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “We continue to execute on our priorities of using our full range of banking expertise to support our clients, ensuring the safety and well-being of our employees and maintaining a strong financial position. During the quarter, ConnectOne performed well.  We reported earnings of $0.37 per share, despite an additional $14 million of reserves due to the uncertainty regarding the pandemic, matching our reserves from the first quarter of 2020 and bringing our total reserves for the total portfolio to approximately 1.08%. Tangible book value per share increased to $16.28. Additionally, we had strong pre-tax operating revenue which was in excess of 1.95% of total average assets, placing us among the strongest in the industry.” 

“Operationally, our teams continue to offer essential banking services virtually and, as a technology-forward bank, the investments we’ve made in financial technology and in our infrastructure over the past few years is playing a critical role in positioning ConnectOne’s virtual bank model. Further, we’ve continued to be a resource to the communities we serve by actively participating in the SBA’s Paycheck Protection Program (the “PPP”), funding over $470 million of PPP loans. Additionally, our FinTech subsidiary BoeFly – which connects small- to mid-sized businesses to a network of financial lenders – has significantly increased its relationships with borrowers and banking partners and has participated in the PPP programs in a meaningful way.  We’re operating our Bank efficiently and effectively and I’m proud of the continued resiliency of the ConnectOne team.” 

Mr. Sorrentino added, “Looking ahead, while the nation and the banking industry face considerable uncertainty about the length of the pandemic, we have reason to be optimistic.  ConnectOne has always been a commercial real estate lender with low loss history, we have low exposure to hot button industries and our C&I portfolio has focused on lending in low-risk industries. We’re operating ConnectOne in a disciplined manner, our capital levels are solid, our portfolio is underwritten with low LTVs and reasonable cap rates, and we’re confident that together we will all get through this.  When we come out on the other side, we expect to get back to executing prudent growth trends and strong metrics, as we focused on in the past.”

Dividend Declaration

The Company announced that its Board of Directors declared a cash dividend on its common stock of $0.09 per share. The dividend will be paid on September 1, 2020, to all shareholders of record on August 17, 2020.   

Operating Results

Fully taxable equivalent net interest income for the second quarter of 2020 was $61.3 million, an increase of $5.5 million, or 9.8%, from the first quarter of 2020, and an increase of $15.2 million from the second quarter of 2019.  The increase from the first quarter of 2020 resulted primarily from an 8.8% increase in average interest-earning assets, largely due to PPP loan originations, and a 3 basis-point widening of the net interest margin to 3.44% from 3.41%.  Included in net interest income were purchase accounting adjustments of $3.1 million for the second quarter of 2020 and $3.5 million for the first quarter of 2020.  Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.27% for the second quarter of 2020 and 3.20% for the first quarter of 2020.  The widening of the adjusted net interest margin resulted primarily from the favorable impact the Fed’s first quarter interest rate reductions had on our funding costs, which more than offset declines in our interest-earning asset yields.  Included in interest income in the second quarter of 2020 was PPP fee income of approximately $3.7 million. The remaining $11.4 million in unamortized fees are expected to be realized over the next two to three quarters. The benefit to the second quarter 2020 net interest margin attributable to the PPP was offset by additional liquidity on the Bank’s balance sheet.

Noninterest income totaled $4.6 million in the second quarter of 2020, $2.9 million in the first quarter of 2020 and $1.9 million in the second quarter of 2019.  The increase in noninterest income of $1.8 million from the first quarter of 2020 was primarily attributed to increases deposit, loan and other income of $1.9 million, which includes loan referral fee income of $2.3 million generated by BoeFly as a result of its participation in the PPP program, which was partially offset by decreases in other deposit and loan fees of $0.4 million.  Additional decreases were in net gains on sale of loans held-for-sale of $0.2 million and net gains on equity securities of $0.1 million, offset by increases in income on bank owned life insurance of $0.2 million.

Noninterest expenses totaled $33.1 million for the second quarter of 2020, $35.1 million for the first quarter of 2020 and $21.6 million for the second quarter of 2019.  Included in noninterest expenses were merger-related charges totaling $5.1 million, $9.5 million and $0.3 million, during the second quarter of 2020, first quarter of 2020 and second quarter of 2019, respectively.  Excluding merger-related charges, noninterest expenses increased by $2.4 million from the first quarter of 2020, primarily attributable to an additional $2.3 million in expenses related to the BoeFly acquisition.

Income tax expense was $2.5 million for the second quarter of 2020, $1.0 million for the first quarter of 2020 and $5.5 million for the second quarter of 2019.  The effective tax rates for the second quarter of 2020, first quarter of 2020 and second quarter of 2019 were 14.5%, 14.8% and 22.2%, respectively.

Asset Quality

In accordance with the accounting relief provisions of the CARES Act, the Company has postponed the adoption of the current expected credit losses (“CECL”) accounting standards as permitted under regulatory guidance. Management reached this decision due to the complexities of CECL loan loss forecasting exacerbated by the quickly changing economic environment resulting from the COVID-19 pandemic.

The provision for loan losses was $15.0 million for the second quarter of 2020, $16.0 million for the first quarter of 2020 and $1.1 million for the second quarter of 2019.  The elevated provision for loan losses for the first two quarters of 2020 was due to the continued economic uncertainties of the COVID-19 pandemic, including consideration of related payment deferrals requested and/or granted to date. The aggregate payment deferrals are expected to decrease by more than 50% to less than $450 million, as we will commence billing on more than $500 million of loans deferred during the second quarter of 2020.  We will continue to work with our borrowers, where necessary, to provide additional support and guidance during this unprecedented difficult operating environment. ConnectOne has relatively low exposure to perceived at-risk industries, such as energy and hospitality.  And, consistent with our extensive experience and low loss history in real estate lending, a large portion of our loan portfolio is well-secured and was underwritten with prudent loan-to-value ratios and cap rates.  Meanwhile, our well-managed commercial lending program, which has avoided higher risk industries, is virtually all borrower recourse.  Nevertheless, as the pandemic crisis persists, there remains potential for increased levels of impaired loans across all segments of the portfolio. 

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $64.6 million at June 30, 2020, $49.5 million at December 31, 2019 and $49.9 million at June 30, 2019. Included in nonperforming assets were taxi medallion loans totaling $23.0 million at June 30, 2020, $23.4 million at December 31, 2019 and $26.5 million at June 30, 2019.  Nonperforming assets (including taxi medallion loans) as a percentage of total assets were 0.85% at June 30, 2020, 0.80% at December 31, 2019 and 0.82% at June 30, 2019.  Excluding the taxi medallion loans, nonaccrual loans were $41.6 million at June 30, 2020, $26.1 million at December 31, 2019 and $23.4 million at June 30, 2019, representing a ratio of nonaccrual loans (excluding taxi medallion loans) to loans receivable of 0.66%, 0.51% and 0.46%, respectively.

During the second quarter of 2020, the Bank implemented a series of short-term loan modifications consisting primarily of payment deferrals as requested by borrowers due to the COVID-19 pandemic.  Regulatory agencies previously confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered troubled debt restructurings. As of June 30, 2020, the Bank had 575 deferred loans totaling approximately $937 million.  The majority of these loans were initially deferred for 3-4 months.

The annualized net loan charge-off ratio was 0.03% for the second quarter of 2020, 0.08% for the fourth quarter of 2019 and 0.02% for the second quarter of 2019. The allowance for loan losses represented 1.08%, 0.75%, and 0.74% of loans receivable as of June 30, 2020, December 31, 2019 and June 30, 2019, respectively.  Excluding PPP loans, allowance for loan losses represented 1.17%, 0.75%, and 0.74% of loans receivable as of June 30, 2020, December 31, 2019 and June 30, 2019, respectively.  The allowance for loan losses currently excludes approximately $5 million of purchase accounting credit marks that are expected to be added to the allowance for loan losses once CECL is implemented, resulting in an additional 8 bps to the allowance for loan losses as a percent of loans ratio. The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 165.4% as of June 30, 2020, 147.0% as of December 31, 2019 and 161.0% as of June 30, 2019.

Selected Balance Sheet Items

The Company’s total assets were $7.6 billion, an increase of $1.4 billion from December 31, 2019.  Loans receivable were $6.4 billion, an increase of $1.2 billion from December 31, 2019.  The increase in total assets and loans receivable were primarily attributable to the acquisition of Bancorp of NJ (“BNJ”) and the origination of PPP loans.  We originated over $470 million of PPP loans in the second quarter of 2020. We expect the level of PPP loans to decline significantly over the course of 2020 and into the first quarter of 2021 as the loans are forgiven and paid down by the SBA through the guarantee provisions the CARES Act. 

The Company’s stockholders’ equity was $868 million at June 30, 2020, an increase of $137 million from December 31, 2019. The increase in stockholders’ equity was primarily attributable to the acquisition of BNJ, which increased capital by $118 million.  As of June 30, 2020, the Company’s tangible common equity ratio and tangible book value per share were 8.75% and $16.28, respectively.  As of December 31, 2019, the tangible common equity ratio and tangible book value per share were 9.38% and $16.06, respectively. Total goodwill and other intangible assets were approximately $221 million as of June 30, 2020 and $168 million and December 31, 2019.

Use of Non-GAAP Financial Measures

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

Second Quarter 2020 Results Conference Call

Management will host a conference call and audio webcast at 10:00 a.m. ET on July 30, 2020 to review the Company's financial performance and operating results.  The conference call dial-in number is 412-317-6026, access code 10146235. Please dial in at least five minutes before the start of the call to register. An audio webcast of the conference call will be available to the public, on a listen-only basis, via the "Investor Relations" link on the Company's website https://www.ConnectOneBank.com or at http://ir.connectonebank.com.

A replay of the conference call will be available beginning at approximately 1:00 p.m. ET on Thursday, July 30, 2020 and ending on Thursday, August 6, 2020 by dialing 412-317-6671, access code 10146235. 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:
Emily Holtzman, MWWPR
631.742.9568; eholtzman@mww.com 

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
	June 30,				December 31,				June 30,
	2020				2019				2019
	(unaudited)								(unaudited)
ASSETS
Cash and due from banks	$	62,764			$	65,717			$	51,950
Interest-bearing deposits with banks		286,597				135,766				133,700
Cash and cash equivalents		349,361				201,483				185,650
Securities available-for-sale		418,426				404,701				441,911
Equity securities		13,407				11,185				11,152
Loans held-for-sale		11,212				33,250				-
Loans receivable		6,363,267				5,113,527				5,090,492
Less: Allowance for loan losses		68,724				38,293				37,698
Net loans receivable		6,294,543				5,075,234				5,052,794
Investment in restricted stock, at cost		26,656				27,397				31,767
Bank premises and equipment, net		31,103				19,236				19,781
Accrued interest receivable		29,894				20,949				21,272
Bank owned life insurance		165,056				137,961				126,132
Leases		23,771				15,137				16,397
Goodwill		208,372				162,574				162,574
Core deposit intangibles		12,233				5,460				6,140
Other assets		33,150				59,465				33,496
Total assets	$	7,617,184			$	6,174,032			$	6,109,066
LIABILITIES
Deposits:
Noninterest-bearing	$	1,276,070			$	861,728			$	813,635
Interest-bearing		4,550,791				3,905,814				3,827,508
Total deposits		5,826,861				4,767,542				4,641,143
Borrowings		667,062				500,293				597,317
Leases		27,648				16,449				17,787
Subordinated debentures		202,476				128,885				128,720
Other liabilities		25,396				29,673				24,875
Total liabilities		6,749,443				5,442,842				5,409,842
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock		586,946				468,571				468,571
Additional paid-in capital		22,069				21,344				19,777
Retained earnings		288,688				271,782				235,649
Treasury stock		(30,271	)			(29,360	)			(21,892	)
Accumulated other comprehensive income (loss)		309				(1,147	)			(2,881	)
Total stockholders' equity		867,741				731,190				699,224
Total liabilities and stockholders' equity	$	7,617,184			$	6,174,032			$	6,109,066

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for per share data)
	Three Months Ended							Six Months Ended
	06/30/20			06/30/19				06/30/20			06/30/19
Interest income
Interest and fees on loans	$	75,797		$	63,524			$	148,733		$	123,850
Interest and dividends on investment securities:
Taxable		1,712			2,573				3,778			5,515
Tax-exempt		647			1,081				1,460			2,208
Dividends		442			410				842			867
Interest on federal funds sold and other short-term investments		79			290				578			647
Total interest income		78,677			67,878				155,391			133,087
Interest expense
Deposits		13,597			16,596				30,809			31,947
Borrowings		4,290			5,752				8,511			10,658
Total interest expense		17,887			22,348				39,320			42,605
Net interest income		60,790			45,530				116,071			90,482
Provision for loan losses		15,000			1,100				31,000			5,600
Net interest income after provision for loan losses		45,790			44,430				85,071			84,882
Noninterest income
Income on bank owned life insurance		1,128			833				2,095			1,655
Net gains on sale of loans held-for-sale		237			46				630			65
Deposit, loan and other income		3,212			914				4,499			1,700
Net gains on equity securities		44			158				222			261
Net (losses) gains on sale of securities available-for-sale		-			(9	)			29			(1	)
Total noninterest income		4,621			1,942				7,475			3,680
Noninterest expenses
Salaries and employee benefits		14,500			11,822				29,063			23,805
Occupancy and equipment		3,156			2,357				6,627			4,852
FDIC insurance		1,093			825				1,949			1,580
Professional and consulting		1,673			1,370				3,247			2,579
Marketing and advertising		426			397				730			607
Data processing		1,586			1,139				3,059			2,294
Merger and restructuring expenses		5,146			331				14,640			7,893
Loss on extinguisment of debt		-			1,047				-			1,047
Amortization of core deposit intangible		652			364				1,304			728
Increase in value of acquisition price		2,333			-				2,333			-
Other expenses		2,498			1,938				5,169			4,267
Total noninterest expenses		33,063			21,590				68,121			49,652
Income before income tax expense		17,348			24,782				24,425			38,910
Income tax expense		2,516			5,501				3,563			7,994
Net income	$	14,832		$	19,281			$	20,862		$	30,916
Earnings per common share:
Basic	$	0.37		$	0.54			$	0.53		$	0.87
Diluted		0.37			0.54				0.52			0.87

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
	June 30,				Mar. 31,				Dec. 31,				Sept. 30,				June 30,
		2020				2020				2019				2019				2019
Selected Financial Data	(dollars in thousands)
Total assets	$	7,617,184			$	7,279,327			$	6,174,032			$	6,161,269			$	6,109,066
Loans receivable:
Commercial	$	1,625,024			$	1,203,818			$	1,096,224			$	1,079,071			$	1,018,951
Commercial real estate		1,987,695				1,981,149				1,559,354				1,551,182				1,555,542
Multifamily		1,723,273				1,762,651				1,518,400				1,513,216				1,589,340
Commercial construction		673,893				676,836				620,969				647,261				602,213
Residential		366,315				387,400				320,019				322,307				326,661
Consumer		2,001				1,965				3,328				2,436				2,041
Gross loans		6,378,201				6,013,819				5,118,294				5,115,473				5,094,748
Unearned net origination fees		(14,934	)			(4,509	)			(4,767	)			(5,002	)			(4,256	)
Loans receivable		6,363,267				6,009,310				5,113,527				5,110,471				5,090,492
Loans held-for-sale		11,212				32,425				33,250				33,245				-
Total loans	$	6,374,479			$	6,041,735			$	5,146,777			$	5,143,716			$	5,090,492
Investment securities	$	431,833			$	460,101			$	415,886			$	437,080			$	453,063
Goodwill and other intangible assets		220,605				221,263				168,034				168,374				168,714
Deposits:
Noninterest-bearing demand	$	1,276,070			$	979,778			$	861,728			$	828,190			$	813,635
Time deposits		1,807,864				1,974,400				1,553,721				1,573,736				1,623,948
Other interest-bearing deposits		2,742,927				2,555,014				2,352,093				2,349,308				2,203,560
Total deposits	$	5,826,861			$	5,509,192			$	4,767,542			$	4,751,234			$	4,641,143
Borrowings	$	667,062			$	726,856			$	500,293			$	512,456			$	597,317
Subordinated debentures (net of debt issuance costs)		202,476				128,967				128,885				128,802				128,720
Total stockholders' equity		867,741				853,710				731,190				720,160				699,224
Quarterly Average Balances
Total assets	$	7,684,403			$	7,106,027			$	6,084,607			$	6,059,413			$	6,001,669
Loans receivable:
Commercial	$	1,539,749			$	1,146,773			$	1,085,640			$	1,040,355			$	1,024,617
Commercial real estate (including multifamily)		3,722,966				3,723,991				3,074,889				3,144,978				3,088,231
Commercial construction		675,698				663,036				642,476				617,106				571,130
Residential		374,283				390,655				318,413				325,188				322,517
Consumer		1,898				3,007				4,165				3,525				3,252
Gross loans		6,314,594				5,927,462				5,125,583				5,131,152				5,009,747
Unearned net origination fees		(13,420	)			(4,648	)			(5,031	)			(4,778	)			(4,463	)
Loans receivable		6,301,174				5,922,814				5,120,552				5,126,374				5,005,284
Loans held-for-sale		31,329				33,655				33,163				991				225
Total loans	$	6,332,503			$	5,956,469			$	5,153,715			$	5,127,365			$	5,005,509
Investment securities	$	452,224			$	458,642			$	427,973			$	448,618			$	513,814
Goodwill and other intangible assets		221,039				221,075				168,257				168,598				164,709
Deposits:
Noninterest-bearing demand	$	1,277,428			$	955,358			$	844,332			$	810,247			$	800,856
Time deposits		1,905,165				1,962,714				1,533,425				1,598,378				1,551,014
Other interest-bearing deposits		2,639,052				2,660,755				2,348,752				2,300,886				2,183,384
Total deposits	$	5,821,645			$	5,578,827			$	4,726,509			$	4,709,511			$	4,535,254
Borrowings	$	798,648			$	477,121			$	452,837			$	467,230			$	603,260
Subordinated debentures (net of debt issuance costs)		141,904				128,913				128,830				128,747				128,666
Total stockholders' equity		868,796				864,241				732,173				714,002				694,978
	Three Months Ended
	June 30,				Mar. 31,				Dec. 31,				Sept. 30,				June 30,
		2020				2020				2019				2019				2019
	(dollars in thousands, except for per share data)
Net interest income	$	60,790			$	55,281			$	47,431			$	48,406			$	45,530
Provision for loan losses		15,000				16,000				500				2,000				1,100
Net interest income after provision for loan losses		45,790				39,281				46,931				46,406				44,430
Noninterest income
Income on bank owned life insurance		1,128				967				914				915				833
Net gains on sale of loans held-for-sale		237				393				169				278				46
Deposit, loan and other income		3,212				1,287				1,209				1,116				914
Net gains (losses) on equity securities		44				178				(46	)			79				158
Net gains (losses) on sale of investment securities		-				29				-				(279	)			(9	)
Total noninterest income		4,621				2,854				2,246				2,109				1,942
Noninterest expenses
Salaries and employee benefits		14,500				14,563				12,881				12,449				11,822
Occupancy and equipment		3,156				3,471				2,380				2,480				2,357
FDIC insurance		1,093				856				795				(364	)			825
Professional and consulting		1,673				1,574				1,428				1,499				1,370
Marketing and advertising		426				304				273				473				397
Data processing		1,586				1,473				1,151				1,058				1,139
Merger and restructuring expenses		5,146				9,494				871				191				331
Loss on extinguishment of debt		-				-				-				-				1,047
Amortization of core deposit intangible		652				652				340				340				364
Increase in value of acquisition price		2,333				-				-				-				-
Other expenses		2,498				2,671				2,078				2,253				1,938
Total noninterest expenses		33,063				35,058				22,197				20,379				21,590
Income before income tax expense		17,348				7,077				26,980				28,136				24,782
Income tax expense		2,516				1,047				6,197				6,440				5,501
Net income	$	14,832			$	6,030			$	20,783			$	21,696			$	19,281
Weighted average diluted shares outstanding		39,611,712				39,510,810				35,245,285				35,262,565				35,397,362
Diluted EPS	$	0.37			$	0.15			$	0.59			$	0.61			$	0.54
Reconciliation of GAAP Earnings to Pre-tax, Pre-provision and Pre-merger Charges Earnings
Net income	$	14,832			$	6,030			$	20,783			$	21,696			$	19,281
Income tax expense		2,516				1,047				6,197				6,440				5,501
Merger and restructuring expenses		5,146				9,494				871				191				331
Provision for loan losses		15,000				16,000				500				2,000				1,100
Pre-tax, pre-provision and pre-merger charges earnings	$	37,494			$	32,571			$	28,351			$	30,327			$	26,213
Return on Assets Measures
Average assets	$	7,684,403			$	7,106,027			$	6,084,607			$	6,059,413			$	6,001,669
Return on avg. assets		0.78		%		0.34		%		1.36		%		1.42		%		1.29		%
	Three Months Ended
	June 30,				Mar. 31,				Dec. 31,				Sept. 30,				June 30,
		2020				2020				2019				2019				2019
Return on Equity Measures	(dollars in thousands)
Average common equity	$	868,796			$	864,241			$	732,173			$	714,002			$	694,978
Less: average intangible assets		(221,039	)			(221,075	)			(168,257	)			(168,598	)			(164,709	)
Average tangible common equity	$	647,757			$	643,166			$	563,916			$	545,404			$	530,269
Return on avg. common equity (GAAP)		6.87		%		2.81		%		11.26		%		12.06		%		11.13		%
Return on avg. tangible common equity (non-GAAP) (1)		9.50				4.06				14.79				15.96				14.78
Efficiency Measures
Total noninterest expenses	$	33,063			$	35,058			$	22,197			$	20,379			$	21,590
Amortization of core deposit intangibles		(652	)			(652	)			(340	)			(340	)			(364	)
Merger and restructuring expenses		(5,146	)			(9,494	)			(871	)			(191	)			(331	)
FDIC small bank assessment credit		-				-				-				1,310				-
Loss on extinguishment of debt		-				-				-				-				(1,047	)
Foreclosed property expense		(5	)			10				8				(90	)			-
Operating noninterest expense	$	27,260			$	24,922			$	20,994			$	21,068			$	19,848
Net interest income (tax equivalent basis)	$	61,253			$	55,781			$	47,929			$	48,918			$	46,092
Noninterest income		4,621				2,854				2,246				2,109				1,942
Net (gains) losses on equity securities		(44	)			(178	)			46				(79	)			(158	)
Net losses (gains) on sales of securities		-				(29	)			-				279				9
Operating revenue	$	65,830			$	58,428			$	50,221			$	51,227			$	47,885
Operating efficiency ratio (non-GAAP) (2)		41.4		%		42.7		%		41.8		%		41.1		%		41.4		%
Net Interest Margin
Average interest-earning assets	$	7,164,545			$	6,584,508			$	5,663,538			$	5,649,058			$	5,607,086
Net interest income (tax equivalent basis)	$	61,253			$	55,781			$	47,929			$	48,918			$	46,092
Impact of purchase accounting fair value marks		(3,073	)			(3,457	)			(1,455	)			(1,566	)			(1,742	)
Adjusted net interest income (tax equivalent basis)	$	58,180			$	52,324			$	46,474			$	47,352			$	44,350
Net interest margin (GAAP)		3.44		%		3.41		%		3.36		%		3.44		%		3.30		%
Adjusted net interest margin (non-GAAP) (3)		3.27				3.20				3.26				3.33				3.17
(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
	June 30,				Mar. 31,				Dec. 31,				Sept. 30,				June 30,
		2020				2020				2019				2019				2019
Capital Ratios and Book Value per Share	(dollars in thousands, except for per share data)
Common equity	$	867,741			$	853,710			$	731,190			$	720,160			$	699,224
Less: intangible assets		(220,605	)			(221,263	)			(168,034	)			(168,374	)			(168,714	)
Tangible common equity	$	647,136			$	632,447			$	563,156			$	551,786			$	530,510
Total assets	$	7,617,184			$	7,279,327			$	6,174,032			$	6,161,269			$	6,109,066
Less: intangible assets		(220,605	)			(221,263	)			(168,034	)			(168,374	)			(168,714	)
Tangible assets	$	7,396,579			$	7,058,064			$	6,005,998			$	5,992,895			$	5,940,352
Common shares outstanding		39,753,033				39,704,921				35,072,066				35,364,845				35,352,866
Common equity ratio (GAAP)		11.39		%		11.73		%		11.84		%		11.69		%		11.45		%
Tangible common equity ratio (non-GAAP) (4)		8.75				8.96				9.38				9.21				8.93
Regulatory capital ratios (Bancorp):
Leverage ratio		8.99		%		9.20		%		9.54		%		9.39		%		9.14		%
Common equity Tier 1 risk-based ratio		10.04				9.63				9.95				9.78				9.65
Risk-based Tier 1 capital ratio		10.12				9.71				10.04				9.87				9.74
Risk-based total capital ratio		14.32				12.46				12.95				12.80				12.72
Regulatory capital ratios (Bank):
Leverage ratio		10.12		%		10.36		%		10.81		%		10.68		%		10.42		%
Common equity Tier 1 risk-based ratio		11.38				10.93				11.37				11.23				11.12
Risk-based Tier 1 capital ratio		11.38				10.93				11.37				11.23				11.12
Risk-based total capital ratio		12.96				12.25				12.63				12.50				12.40
Book value per share (GAAP)	$	21.83			$	21.50			$	20.85			$	20.36			$	19.78
Tangible book value per share (non-GAAP) (5)		16.28				15.93				16.06				15.60				15.01
Net Loan Charge-Off (Recoveries) Detail
Net loan charge-offs (recoveries) :
Charge-offs	$	462			$	115			$	1,029			$	964			$	406
Recoveries		(4	)			(3	)			(22	)			(37	)			(146	)
Net loan charge-offs (recoveries)	$	458			$	112			$	1,007			$	927			$	260
Net loan charge-offs (recoveries) as a % of average loans receivable (annualized)		0.03		%		0.01		%		0.08		%		0.07		%		0.02		%
Asset Quality
Nonaccrual taxi medallion loans	$	23,024			$	23,024			$	23,431			$	25,802			$	26,498
Nonaccrual loans (excluding taxi medallion loans)		41,556				39,349				26,050				25,519				23,419
Other real estate owned		-				-				-				907				-
Total nonperforming assets	$	64,580			$	62,373			$	49,481			$	52,228			$	49,917
Performing troubled debt restructurings	$	20,418			$	21,293			$	21,410			$	19,681			$	16,332
Allowance for loan losses ("ALLL")	$	68,724			$	54,169			$	38,293			$	38,771			$	37,698
Loans receivable	$	6,363,267			$	6,009,310			$	5,113,527			$	5,110,471			$	5,090,492
Less: taxi medallion loans		24,603				24,575				24,977				27,353				28,054
Loans receivable (excluding taxi medallion loans)	$	6,338,664			$	5,984,735			$	5,088,550			$	5,083,118			$	5,062,438
Loans receivable	$	6,363,267			$	6,009,310			$	5,113,527			$	5,110,471			$	5,090,492
Less: PPP loans		473,750				-				-				-				-
Loans receivable (PPP loans)	$	5,889,517			$	6,009,310			$	5,113,527			$	5,110,471			$	5,090,492
Nonaccrual loans (excluding taxi medallion loans) as a % of loans receivable (excluding taxi medallion loans)		0.66		%		0.66		%		0.51		%		0.50		%		0.46		%
Nonaccrual loans as a % of loans receivable		1.01				1.04				0.97				1.00				0.98
Nonperforming assets as a % of total assets		0.85				0.86				0.80				0.85				0.82
ALLL as a % of loans receivable		1.08				0.90				0.75				0.76				0.74
ALLL as a % of loans receivable (excluding PPP loans)		1.17				0.90				0.75				0.76				0.74
ALLL as a % of nonaccrual loans (excluding taxi medallion loans)		165.4				137.7				147.0				151.9				161.0
ALLL as a % of nonaccrual loans		106.4				86.8				77.4				75.5				75.5
(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
				June 30, 2020								March 31, 2020									June 30, 2019
				Average									Average									Average
Interest-earning assets:				Balance			Interest			Rate (7)			Balance			Interest			Rate (7)			Balance			Interest			Rate (7)
Investment securities (1) (2)				$	443,282		$	2,531		2.30	%		$	452,294		$	3,095		2.75	%		$	515,022		$	3,941		3.07	%
Loans receivable and loans held-for-sale (2) (3) (4)					6,332,503			76,088		4.83				5,956,469			73,220		4.94				5,005,509			63,799		5.11
Federal funds sold and interest-bearing deposits with banks					357,758			79		0.09				148,429			499		1.35				54,619			290		2.13
Restricted investment in bank stock					31,002			442		5.73				27,316			400		5.89				31,936			410		5.15
Total interest-earning assets					7,164,545			79,140		4.44				6,584,508			77,214		4.72				5,607,086			68,440		4.90
Allowance for loan losses					(53,502	)								(38,970	)								(37,390	)
Noninterest-earning assets					573,360									560,489									431,973
Total assets				$	7,684,403								$	7,106,027								$	6,001,669
Interest-bearing liabilities:
Time deposits					1,905,165			9,586		2.02				1,962,714			10,371		2.13				1,551,014			9,366		2.42
Other interest-bearing deposits					2,639,052			4,011		0.61				2,660,755			6,841		1.03				2,183,384			7,230		1.33
Total interest-bearing deposits					4,544,217			13,597		1.20				4,623,469			17,212		1.50				3,734,398			16,596		1.78
Borrowings					798,648			2,235		1.13				477,121			2,352		1.98				603,260			3,870		2.57
Subordinated debentures, net of capitalized costs					141,904			2,021		5.73				128,913			1,834		5.72				128,666			1,845		5.75
Capital lease obligation					2,257			34		6.06				2,303			35		6.11				2,436			37		6.09
Total interest-bearing liabilities					5,487,026			17,887		1.31				5,231,806			21,433		1.65				4,468,760			22,348		2.01
Noninterest-bearing demand deposits					1,277,428									955,358									800,856
Other liabilities					51,153									54,622									37,075
Total noninterest-bearing liabilities					1,328,581									1,009,980									837,931
Stockholders' equity					868,796									864,241									694,978
Total liabilities and stockholders' equity				$	7,684,403								$	7,106,027								$	6,001,669
Net interest income (tax equivalent basis)								61,253									55,781									46,092
Net interest spread (5)										3.13	%								3.07	%								2.89	%
Net interest margin (6)										3.44	%								3.41	%								3.30	%
Tax equivalent adjustment								(463	)								(500	)								(562	)
Net interest income							$	60,790								$	55,281								$	45,530
(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.

 

 

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