CNOB ConnectOne Bancorp Inc

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 $19.9 million for the third quarter of 2023, compared to $19.9 million for the second quarter of 2023 and $27.4 million for the third quarter of 2022. Diluted earnings per share were $0.51 for the third quarter of 2023, $0.51 for the second quarter of 2023 and $0.70 for the third quarter of 2022. The decreases in net income available to common stockholders and diluted earnings per share from the third quarter of 2022 were primarily due to a $15.8 million decrease in net interest income and a $3.6 million increase in noninterest expenses, partially offset by an $8.5 million decrease in the provision for credit losses, a $0.2 million increase in noninterest income and a $3.2 million decrease in income tax expense.

Pre-tax, pre-provision net revenue (“PPNR”) as a percentage of average assets was 1.24%, 1.31% and 2.17% for the quarters ending September 30, 2023, June 30, 2023 and September 30, 2022, respectively.

“ConnectOne’s operating performance during the 2023 third quarter reflected a commitment to our deep client relationships resulting in a solid balance sheet with the flexibility to support both new and existing clients,” commented Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer. “Despite challenging market conditions, ConnectOne is poised to withstand the current interest rate cycle and we’re well positioned to opportunistically capitalize on new growth opportunities we see today, as well as those expected upon a return to normalcy. Our robust, readily available liquidity position remains nearly 2.5 times our uninsured deposits, net of collateralized and intercompany subsidiary deposits. Further, our tangible common equity ratio, which continues to be a notable challenge for much of the industry due to rising long-term rates, remains above 9%. This key capital ratio is well above peer averages, demonstrating continued effective management of ConnectOne’s capital and AOCI. Additionally, our credit quality metrics remain sound, reflective of prudent underwriting, strong portfolio oversight and a resilient economy.”

“For the quarter, client deposits (which exclude non-reciprocal brokered deposits) increased modestly while the loan portfolio remained relatively flat sequentially.” Mr. Sorrentino added, “As expected, our net interest margin contracted just slightly, as funding costs are showing signs of leveling out. Nevertheless, fierce deposit competition and the continued migration out of non-interest-bearing deposit demand balances suggest we may experience additional, albeit modest, contraction in our net interest margin near-term.”

“Operationally, we continue to leverage our technological advantages and our culture to drive performance. Further, we’re seizing opportunities to strengthen ConnectOne’s team by adding high-performing talent across the board, including revenue-producing areas, while also optimizing operations, staff count and branch footprint.”

Mr. Sorrentino concluded, “As we approach the fourth quarter and focus on navigating the challenges that lie ahead, I believe ConnectOne is well-positioned to capitalize on opportunities in any environment. We remain one of the industry’s most efficient banks nationwide and, by maintaining our long-standing financial discipline, leveraging our results-oriented client-centric culture and continuing to invest in our valuable franchise, ConnectOne is poised for continued success.”

Dividend Declarations

The Company announced that its Board of Directors declared a quarterly cash dividend on its common stock and declared a cash dividend on its outstanding preferred stock.

A cash dividend on common stock of $0.17 will be paid on December 1, 2023, to common stockholders of record on November 15, 2023. A dividend of $0.328125 per depositary share, representing a 1/40th interest in the Company’s 5.25% Fixed Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A, will also be paid on December 1, 2023 to preferred stockholders of record on November 15, 2023.

Operating Results

Fully taxable equivalent net interest income for the third quarter of 2023 was $63.2 million, a decrease of $1.4 million, or 2.2%, from the second quarter of 2023 due to a 5 basis-point contraction in the net interest margin to 2.76% from 2.81% and a $138.6 million, or 1.5%, decrease in interest-earning assets. The decrease in average interest-earning assets from the second quarter of 2023 was primarily attributable to a decrease in average cash and cash equivalents of $151.3 million, partially offset by an increase in average loans of $19.9 million. Average brokered deposits (excluding reciprocal client balances) declined by $50.9 million, or 5.3%, from the sequential quarter. While the net interest margin benefitted from a 14 basis-point increase in the loan portfolio yield to 5.63%, the average cost of deposits, including noninterest-bearing demand, increased by 26 basis-points to 2.92% from 2.66% in the second quarter of 2023. Contributing to the increased cost of deposits was a $71.9 million, or 5.3%, decline in average noninterest-bearing deposits.

Fully taxable equivalent net interest income for the third quarter of 2023 decreased by $15.6 million, or 19.8%, from the third quarter of 2022. The decrease from the third quarter of 2022 resulted primarily from a 92 basis-point decrease in the net interest margin from 3.68% to 2.76%, partially offset by an increase in interest-earning assets of $0.6 billion. The contraction of the net interest margin for the third quarter of 2023 when compared to the third quarter of 2022 was primarily attributable to a 215 basis-point increase in the average costs of deposits, including noninterest-bearing deposits, partially offset by an 86 basis-point increase in the loan portfolio yield.

Noninterest income was $3.6 million in the third quarter of 2023, $3.4 million in the second quarter of 2023 and $3.3 million in the third quarter of 2022. Included in noninterest income were net losses on equity securities of $0.3 million, $0.2 million, and $0.4 million for the third quarter of 2023, second quarter of 2023 and third quarter of 2022, respectively. Excluding the equity securities losses, adjusted noninterest income was $3.8 million, $3.6 million and $3.7 million for the third quarter of 2023, second quarter of 2023 and third quarter of 2022, respectively. The $0.2 million increase in adjusted noninterest income for the third quarter of 2023 when compared to the second quarter of 2023 was primarily due to an increase in net gains on loans held-for-sale of $0.1 million and an increase in deposit, loan, and other income of $0.1 million. The net gains on loans held-for-sale consisted primarily of Small Business Administration (“SBA”) loans. The $0.1 million increase in adjusted noninterest income for the third of 2023 when compared to the third quarter of 2022 was primarily due to an increase in net gains on loans held-for-sale, primarily SBA, of $0.4 million and an increase in BOLI of $0.1 million, partially offset by a decrease in deposit, loan, and other income of $0.4 million.

Noninterest expenses totaled $35.8 million for the third quarter of 2023, $35.5 million for the second quarter of 2023 and $32.1 million for the third quarter of 2022. Noninterest expenses increased by $0.3 million from the second quarter of 2023 and was primarily attributable to increases in employee benefit expense accruals of $0.5 million, FDIC insurance expense of $0.1 million and occupancy and equipment of $0.1 million, partially offset by decreases in information technology and communications of $0.2 million, professional and consulting of $0.1 million and other expenses of $0.1 million. The increase in noninterest expenses of $3.6 million from the third quarter of 2022 was primarily attributable to increases in salaries and employee benefits of $1.4 million, FDIC insurance of $1.1 million, information technology and communications of $0.7 million, other expenses of $0.4 million, occupancy and equipment of $0.1 million and marketing and advertising of $0.1 million, partially offset by decreases in professional and consulting of $0.1 million and amortization of core deposit intangibles of $0.1 million. The increase in salaries and employee benefits from the third quarter of 2022 was primarily attributable to increased staff in both the revenue and back-office areas of the Bank as well as company-wide base salary increases. The increase in FDIC insurance expense when compared to the third quarter of 2022 is primarily attributable to balance sheet growth and a two-basis point increase in the Bank’s initial base rate. The increase in information technology and communications when compared to the third quarter of 2022 is primarily attributable to additional investments in technology, equipment, and software.

Income tax expense was $7.2 million for the third quarter of 2023, $7.4 million for the second quarter of 2023 and $10.4 million for the third quarter of 2022. The effective tax rates for the third quarter of 2023, second quarter of 2023 and third quarter of 2022 were 25.2%, 25.8% and 26.5%, respectively. The decrease in the effective tax rate when compared to the second quarter of 2023 and third quarter of 2022 is largely attributable to lower taxable income.Asset Quality

The provision for credit losses was $1.5 million for the third quarter of 2023, $3.0 million for the second quarter of 2023 and $10.0 million for the third quarter of 2022. The decrease in the provision for credit losses during the third quarter of 2023 when compared to the second quarter of 2023 was primarily attributable to lower specific reserves. The decrease in provision for credit losses during the third quarter of 2023 when compared to the third quarter of 2022 was primarily attributable to changes in forecasted macroeconomic conditions.

Nonperforming assets, which include nonaccrual loans and other real estate owned, were $56.1 million as of September 30, 2023, $44.7 million as of December 31, 2022 and $57.7 million as of September 30, 2022. Nonaccrual loans were $56.1 million as of September 30, 2023, $44.5 million as of December 31, 2022 and $57.5 million as of September 30, 2022.   Nonperforming assets as a percentage of total assets were 0.58% as of September 30, 2023, 0.46% as of December 31, 2022 and 0.61% as of September 30, 2022. The ratio of nonaccrual loans to loans receivable was 0.69%, 0.55% and 0.73%, as of September 30, 2023, December 31, 2022 and September 30, 2022, respectively.   Loans delinquent 30-89 days as a percentage of loans receivable were 0.04%, 0.02% and 0.01% as of September 30, 2023, December 31, 2022 and September 30, 2022, respectively. The annualized net loan charge-offs ratio was 0.12% for the third quarter of 2023, 0.22% for the fourth quarter of 2022 and 0.02% for the third quarter of 2022. The allowance for credit losses represented 1.08%, 1.12%, and 1.16% of loans receivable as of September 30, 2023, December 31, 2022 and September 30, 2022, respectively. The allowance for credit losses as a percentage of nonaccrual loans was 157.4% as of September 30, 2023, 203.6% as of December 31, 2022 and 159.7% as of September 30, 2022.

Selected Balance Sheet Items

The Company’s total assets were $9.7 billion as of September 30, 2023, an increase of $34 million from December 31, 2022.  The increase in total assets was primarily due to an increase in loans receivable of $81 million, partially offset by decreases in investment securities of $53 million. Loans receivable was $8.2 billion as of September 30, 2023 and $8.1 billion as of December 31, 2022. Total deposits were $7.4 billion, an increase of $82 million from December 31, 2022.

The Company’s total stockholders’ equity was $1.2 billion as of September 30, 2023, an increase of $9 million from December 31, 2022. The increase was primarily attributable to an increase in retained earnings of $44 million, partially offset by an increase in accumulated other comprehensive losses of $21 million and an increase in treasury stock of $15 million. The increase in accumulated other comprehensive losses during the third quarter of 2023 resulted from higher interest rates. As of September 30, 2023, the Company’s tangible common equity ratio and tangible book value per share were 9.11% and $22.34, respectively, improved from 9.04% and $21.71, respectively, as of December 31, 2022. Total goodwill and other intangible assets were $214.6 million as of September 30, 2023, and $215.7 million as of December 31, 2022.

Share Repurchase Program

During the third quarter of 2023, the Company repurchased 316,789 shares of common stock at an average price of $19.45, leaving approximately 1.0 million 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.

Third Quarter 2023 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on October 26, 2023 to review the Company's financial performance and operating results. The conference call dial-in number is 1-646-307-1583, access code 9727224. 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 26, 2023 and ending on Thursday, November 2, 2023 by dialing 1-647-362-9199, access code 9727224. 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. BurnsSenior Executive Vice President & CFO201.816.4474: bburns@cnob.com

Media Contact:Shannan Weeks MWW 732.299.7890: sweeks@mww.com 

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
	September 30,				December 31,				September 30,
		2023				2022				2022
	(unaudited)								(unaudited)
ASSETS
Cash and due from banks	$	56,170			$	61,629			$	58,852
Interest-bearing deposits with banks		197,128				206,686				274,992
Cash and cash equivalents		253,298				268,315				333,844
Investment securities		581,867				634,884				623,629
Equity securities		17,677				15,811				15,563
Loans held-for-sale		-				13,772				8,080
Loans receivable		8,181,109				8,099,689				7,900,450
Less: Allowance for credit losses - loans		88,230				90,513				91,717
Net loans receivable		8,092,879				8,009,176				7,808,733
Investment in restricted stock, at cost		49,387				46,604				45,324
Bank premises and equipment, net		28,432				27,800				28,519
Accrued interest receivable		46,795				46,062				38,940
Bank owned life insurance		236,009				231,328				229,800
Right of use operating lease assets		11,229				10,179				10,196
Other real estate owned		-				264				264
Goodwill		208,372				208,372				208,372
Core deposit intangibles		6,222				7,312				7,721
Other assets		146,718				125,069				119,267
Total assets	$	9,678,885			$	9,644,948			$	9,478,252
LIABILITIES
Deposits:
Noninterest-bearing	$	1,224,125			$	1,501,614			$	1,665,658
Interest-bearing		6,214,370				5,855,008				5,644,852
Total deposits		7,438,495				7,356,622				7,310,510
Borrowings		887,590				857,622				829,953
Subordinated debentures, net		79,313				153,255				153,179
Operating lease liabilities		12,424				11,397				11,454
Other liabilities		72,909				87,301				24,861
Total liabilities		8,490,731				8,466,197				8,329,957
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		32,027				30,126				28,756
Retained earnings		579,776				535,915				510,957
Treasury stock		(68,108	)			(52,799	)			(52,799	)
Accumulated other comprehensive loss		(53,414	)			(32,364	)			(36,492	)
Total stockholders' equity		1,188,154				1,178,751				1,148,295
Total liabilities and stockholders' equity	$	9,678,885			$	9,644,948			$	9,478,252

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for per share data)
	Three Months Ended								Nine Months Ended
	09/30/23				09/30/22				09/30/23				09/30/22
Interest income
Interest and fees on loans	$	115,405			$	90,731			$	333,356			$	248,041
Interest and dividends on investment securities:
Taxable		4,128				4,063				12,386				8,487
Tax-exempt		1,136				1,083				3,475				2,708
Dividends		907				438				2,750				943
Interest on federal funds sold and other short-term investments		2,110				665				9,141				1,098
Total interest income		123,686				96,980				361,108				261,277
Interest expense
Deposits		56,043				13,299				146,844				24,018
Borrowings		5,286				5,520				20,980				13,149
Total interest expense		61,329				18,819				167,824				37,167
Net interest income		62,357				78,161				193,284				224,110
Provision for credit losses		1,500				10,000				5,500				14,450
Net interest income after provision for credit losses		60,857				68,161				187,784				209,660
Noninterest income
Deposit, loan and other income		1,605				1,969				4,553				5,578
Income on bank owned life insurance		1,597				1,521				4,681				4,069
Net gains on sale of loans held-for-sale		633				262				1,232				1,519
Net losses on equity securities		(273	)			(430	)			(674	)			(1,431	)
Total noninterest income		3,562				3,322				9,792				9,735
Noninterest expenses
Salaries and employee benefits		22,251				20,882				66,213				59,041
Occupancy and equipment		2,738				2,600				8,176				7,262
FDIC insurance		1,800				720				4,465				2,051
Professional and consulting		1,834				1,980				5,960				5,896
Marketing and advertising		554				461				1,642				1,238
Information technology and communications		3,487				2,747				10,192				8,414
Amortization of core deposit intangible		347				409				1,090				1,276
Increase in value of acquisition price		-				-				-				1,516
Other expenses		2,773				2,344				8,366				6,382
Total noninterest expenses		35,784				32,143				106,104				93,076
Income before income tax expense		28,635				39,340				91,472				126,319
Income tax expense		7,228				10,425				23,742				33,665
Net income		21,407				28,915				67,730				92,654
Preferred dividends		1,509				1,509				4,527				4,527
Net income available to common stockholders	$	19,898			$	27,406			$	63,203			$	88,127
Earnings per common share:
Basic	$	0.51			$	0.70			$	1.62			$	2.24
Diluted		0.51				0.70				1.61				2.23

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. 31,				Sep. 30,
		2023				2023				2023				2022				2022
Selected Financial Data	(dollars in thousands)
Total assets	$	9,678,885			$	9,723,963			$	9,960,467			$	9,644,948			$	9,478,252
Loans receivable:
Commercial	$	1,454,607			$	1,451,400			$	1,392,565			$	1,443,942			$	1,392,037
Paycheck Protection Program ("PPP") loans		9,872				10,845				11,300				11,374				11,458
Commercial real estate		3,288,704				3,237,559				3,245,990				3,170,760				3,087,354
Multifamily		2,559,927				2,604,230				2,600,251				2,641,886				2,624,726
Commercial construction		622,748				596,362				630,469				574,139				537,323
Residential		251,416				254,405				259,166				264,748				256,085
Consumer		936				1,416				1,435				2,312				1,030
Gross loans		8,188,210				8,156,217				8,141,176				8,109,161				7,910,013
Unearned net origination fees		(7,101	)			(7,677	)			(9,057	)			(9,472	)			(9,563	)
Loans receivable		8,181,109				8,148,540				8,132,119				8,099,689				7,900,450
Loans held-for-sale		-				1,089				11,197				13,772				8,080
Total loans	$	8,181,109			$	8,149,629			$	8,143,316			$	8,113,461			$	7,908,530
Investment and equity securities	$	599,544			$	630,769			$	647,026			$	650,695			$	639,192
Goodwill and other intangible assets		214,594				214,941				215,312				215,684				216,093
Deposits:
Noninterest-bearing demand	$	1,224,125			$	1,356,293			$	1,345,265			$	1,501,614			$	1,665,658
Time deposits		2,522,210				2,621,148				2,706,662				2,394,190				1,921,235
Other interest-bearing deposits		3,692,160				3,560,856				3,701,249				3,460,818				3,723,617
Total deposits	$	7,438,495			$	7,538,297			$	7,753,176			$	7,356,622			$	7,310,510
Borrowings	$	887,590			$	827,601			$	852,611			$	857,622			$	829,953
Subordinated debentures, net		79,313				79,187				79,060				153,255				153,179
Total stockholders' equity		1,188,154				1,199,397				1,190,970				1,178,751				1,148,295
Quarterly Average Balances
Total assets	$	9,625,625			$	9,765,582			$	9,700,530			$	9,490,477			$	9,030,589
Loans receivable:
Commercial (including PPP loans)	$	1,471,006			$	1,427,153			$	1,442,180			$	1,456,247			$	1,342,868
Commercial real estate (including multifamily)		5,821,794				5,847,147				5,813,388				5,758,594				5,455,714
Commercial construction		625,640				611,492				606,214				558,086				537,073
Residential		253,114				256,924				261,560				261,969				251,338
Consumer		4,972				6,733				3,894				4,630				2,361
Gross loans		8,176,526				8,149,449				8,127,236				8,039,526				7,589,354
Unearned net origination fees		(7,387	)			(8,591	)			(9,664	)			(9,666	)			(9,178	)
Loans receivable		8,169,139				8,140,858				8,117,572				8,029,860				7,580,176
Loans held-for-sale		171				8,516				13,463				7,933				2,195
Total loans	$	8,169,310			$	8,149,374			$	8,131,035			$	8,037,793			$	7,582,371
Investment and equity securities	$	628,429			$	642,915			$	649,744			$	650,479			$	687,291
Goodwill and other intangible assets		214,822				215,182				215,556				215,951				216,360
Deposits:
Noninterest-bearing demand	$	1,275,325			$	1,347,268			$	1,451,654			$	1,610,044			$	1,682,135
Time deposits		2,606,122				2,658,673				2,357,332				2,035,362				1,525,076
Other interest-bearing deposits		3,723,561				3,640,939				3,565,904				3,558,881				3,686,520
Total deposits	$	7,605,008			$	7,646,880			$	7,374,890			$	7,204,287			$	6,893,731
Borrowings	$	651,112			$	756,303			$	941,266			$	913,960			$	772,561
Subordinated debentures, net		79,230				79,104				103,637				153,205				153,129
Total stockholders' equity		1,202,647				1,197,043				1,191,216				1,165,588				1,160,448
	Three Months Ended
	Sep. 30,				Jun. 30,				Mar. 31,				Dec. 31,				Sep. 30,
		2023				2023				2023				2022				2022
	(dollars in thousands, except for per share data)
Net interest income	$	62,357			$	63,843			$	67,084			$	78,009			$	78,161
Provision for credit losses		1,500				3,000				1,000				3,300				10,000
Net interest income after provision for credit losses		60,857				60,843				66,084				74,709				68,161
Noninterest income
Deposit, loan and other income		1,605				1,545				1,403				1,894				1,969
Income on bank owned life insurance		1,597				1,553				1,531				1,528				1,521
Net gains on sale of loans held-for-sale		633				550				49				176				262
Net losses on equity securities		(273	)			(210	)			(191	)			(90	)			(430	)
Total noninterest income		3,562				3,438				2,792				3,508				3,322
Noninterest expenses
Salaries and employee benefits		22,251				21,726				22,236				21,676				20,882
Occupancy and equipment		2,738				2,677				2,761				2,603				2,600
FDIC insurance		1,800				1,715				950				830				720
Professional and consulting		1,834				1,932				2,194				2,157				1,980
Marketing and advertising		554				556				532				454				461
Information technology and communications		3,487				3,644				3,061				2,694				2,747
Amortization of core deposit intangible		347				371				372				409				409
Other expenses		2,773				2,829				2,764				2,489				2,344
Total noninterest expenses		35,784				35,450				34,870				33,312				32,143
Income before income tax expense		28,635				28,831				34,006				44,905				39,340
Income tax expense		7,228				7,437				9,077				12,348				10,425
Net income	$	21,407			$	21,394			$	24,929			$	32,557			$	28,915
Preferred dividends		1,509				1,509				1,509				1,510				1,509
Net income available to common stockholders	$	19,898			$	19,885			$	23,420			$	31,047			$	27,406
Weighted average diluted common shares outstanding		38,829,681				39,016,839				39,300,733				39,378,137				39,338,943
Diluted EPS	$	0.51			$	0.51			$	0.59			$	0.79			$	0.70
Reconciliation of GAAP Earnings to Pre-tax and Pre-provision Net Revenue
Net income	$	21,407			$	21,394			$	24,929			$	32,557			$	28,915
Income tax expense		7,228				7,437				9,077				12,348				10,425
Provision for credit losses		1,500				3,000				1,000				3,300				10,000
Pre-tax and pre-provision net revenue	$	30,135			$	31,831			$	35,006			$	48,205			$	49,340
Return on Assets Measures
Average assets	$	9,625,625			$	9,765,582			$	9,700,530			$	9,490,477			$	9,030,589
Return on avg. assets		0.88		%		0.88		%		1.04		%		1.36		%		1.27		%
Return on avg. assets (pre-tax and pre-provision)		1.24				1.31				1.46				2.02				2.17
	Three Months Ended
	Sep. 30,				Jun. 30,				Mar. 31,				Dec. 31,				Sep. 30,
		2023				2023				2023				2022				2022
Return on Equity Measures	(dollars in thousands)
Average stockholders' equity	$	1,202,647			$	1,197,043			$	1,191,216			$	1,165,588			$	1,160,448
Less: average preferred stock		(110,927	)			(110,927	)			(110,927	)			(110,927	)			(110,927	)
Average common equity	$	1,091,720			$	1,086,116			$	1,080,289			$	1,054,661			$	1,049,521
Less: average intangible assets		(214,822	)			(215,182	)			(215,556	)			(215,951	)			(216,360	)
Average tangible common equity	$	876,898			$	870,934			$	864,733			$	838,710			$	833,161
Return on avg. common equity (GAAP)		7.23		%		7.34		%		8.79		%		11.68		%		10.36		%
Return on avg. tangible common equity ("TCE") (non-GAAP) (1)		9.11				9.28				11.11				14.82				13.19
Return on avg. tangible common equity (pre-tax and pre-provision)		13.74				14.78				16.54				22.94				23.63
Efficiency Measures
Total noninterest expenses	$	35,784			$	35,450			$	34,870			$	33,312			$	32,143
Amortization of core deposit intangibles		(347	)			(371	)			(372	)			(409	)			(409	)
Operating noninterest expense	$	35,437			$	35,079			$	34,498			$	32,903			$	31,734
Net interest income (tax equivalent basis)	$	63,208			$	64,627			$	67,828			$	78,773			$	78,850
Noninterest income		3,562				3,438				2,792				3,508				3,322
Net losses on equity securities		273				210				191				90				430
Operating revenue	$	67,043			$	68,275			$	70,811			$	82,371			$	82,602
Operating efficiency ratio (non-GAAP) (2)		52.9		%		51.4		%		48.7		%		39.9		%		38.4		%
Net Interest Margin
Average interest-earning assets	$	9,089,431			$	9,228,079			$	9,174,167			$	8,972,063			$	8,500,316
Net interest income (tax equivalent basis)	$	63,208			$	64,627			$	67,828			$	78,773			$	78,850
Impact of purchase accounting fair value marks		(419	)			(575	)			(839	)			(837	)			(885	)
Adjusted net interest income (tax equivalent basis)	$	62,789			$	64,052			$	66,989			$	77,936			$	77,965
Net interest margin (GAAP)		2.76		%		2.81		%		3.00		%		3.48		%		3.68		%
Adjusted net interest margin (non-GAAP) (3)		2.74				2.78				2.96				3.45				3.64
(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. 31,				Sep. 30,
		2023				2023				2023				2022				2022
Capital Ratios and Book Value per Share	(dollars in thousands, except for per share data)
Stockholders equity	$	1,188,154			$	1,199,397			$	1,190,970			$	1,178,751			$	1,148,295
Less: preferred stock		(110,927	)			(110,927	)			(110,927	)			(110,927	)			(110,927	)
Common equity	$	1,077,227			$	1,088,470			$	1,080,043			$	1,067,824			$	1,037,368
Less: intangible assets		(214,594	)			(214,941	)			(215,312	)			(215,684	)			(216,093	)
Tangible common equity	$	862,633			$	873,529			$	864,731			$	852,140			$	821,275
Total assets	$	9,678,885			$	9,723,963			$	9,960,467			$	9,644,948			$	9,478,252
Less: intangible assets		(214,594	)			(214,941	)			(215,312	)			(215,684	)			(216,093	)
Tangible assets	$	9,464,291			$	9,509,022			$	9,745,155			$	9,429,264			$	9,262,159
Common shares outstanding		38,621,970				38,966,652				39,179,051				39,243,123				39,243,123
Common equity ratio (GAAP)		11.13		%		11.19		%		10.84		%		11.07		%		10.94		%
Tangible common equity ratio (non-GAAP) (4)		9.11				9.19				8.87				9.04				8.87
Regulatory capital ratios (Bancorp):
Leverage ratio		10.86		%		10.62		%		10.60		%		10.68		%		10.95		%
Common equity Tier 1 risk-based ratio		10.64				10.55				10.55				10.30				10.20
Risk-based Tier 1 capital ratio		11.98				11.90				11.92				11.66				11.58
Risk-based total capital ratio		13.90				13.83				13.85				14.45				14.45
Regulatory capital ratios (Bank):
Leverage ratio		11.23		%		10.95		%		10.62		%		10.64		%		10.91		%
Common equity Tier 1 risk-based ratio		12.38				12.26				11.93				11.60				11.53
Risk-based Tier 1 capital ratio		12.38				12.26				11.93				11.60				11.53
Risk-based total capital ratio		13.43				13.33				13.28				13.02				13.00
Book value per share (GAAP)	$	27.89			$	27.93			$	27.57			$	27.21			$	26.43
Tangible book value per share (non-GAAP) (5)		22.34				22.42				22.07				21.71				20.93
Net Loan (Recoveries) Charge-Off Detail
Net loan charge-offs (recoveries):
Charge-offs	$	2,487			$	1,118			$	4,484			$	4,456			$	413
Recoveries		(8	)			(76	)			(1	)			-				(53	)
Net loan charge-offs (recoveries)	$	2,479			$	1,042			$	4,483			$	4,456			$	360
Net loan charge-offs (recoveries) as a % of average loans receivable (annualized)		0.12		%		0.05		%		0.22		%		0.22		%		0.02		%
Asset Quality
Nonaccrual loans	$	56,059			$	51,496			$	47,667			$	44,454			$	57,447
OREO		-				-				-				264				264
Nonperforming assets	$	56,059			$	51,496			$	47,667			$	44,718			$	57,711
Allowance for credit losses - loans ("ACL")		88,230				89,205				87,002				90,513				91,717
Loans receivable	$	8,181,109			$	8,148,540			$	8,132,119			$	8,099,689			$	7,900,450
Less: PPP loans		9,872				10,845				11,300				11,374				11,458
Loans receivable (excluding PPP loans)	$	8,171,237			$	8,137,695			$	8,120,819			$	8,088,315			$	7,888,992
Nonaccrual loans as a % of loans receivable		0.69		%		0.63		%		0.59		%		0.55		%		0.73		%
Nonperforming assets as a % of total assets		0.58				0.53				0.48				0.46				0.61
ACL as a % of loans receivable		1.08				1.09				1.07				1.12				1.16
ACL as a % of nonaccrual loans		157.4				173.2				182.5				203.6				159.7
(4) Tangible common equity divided by tangible assets.
(5) 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
				September 30, 2023								June 30, 2023									September 30, 2022
				Average									Average									Average
Interest-earning assets:				Balance			Interest			Rate (7)			Balance			Interest			Rate (7)			Balance			Interest			Rate (7)
Investment securities (1) (2)				$	723,408		$	5,566		3.05	%		$	726,315		$	5,607		3.10	%		$	740,394		$	5,434		2.91	%
Loans receivable and loans held-for-sale (2) (3) (4)					8,169,310			115,954		5.63				8,149,374			111,501		5.49				7,582,371			91,132		4.77
Federal funds sold and interest-
bearing deposits with banks					158,155			2,110		5.29				309,458			4,056		5.26				135,331			665		1.95
Restricted investment in bank stock					38,558			907		9.33				42,932			945		8.83				42,220			438		4.12
Total interest-earning assets				$	9,089,431			124,537		5.44			$	9,228,079			122,109		5.31				8,500,316			97,669		4.56
Allowance for loan losses					(89,966	)								(87,473	)								(84,307	)
Noninterest-earning assets					626,160									624,976									614,580
Total assets				$	9,625,625								$	9,765,582								$	9,030,589
Interest-bearing liabilities:
Time deposits					2,606,122			25,437		3.87				2,658,673			23,778		3.59			$	1,525,076			5,396		1.40
Other interest-bearing deposits					3,723,561			30,606		3.26				3,640,939			26,936		2.97				3,686,520			7,903		0.85
Total interest-bearing deposits					6,329,683			56,043		3.51				6,299,612			50,714		3.23				5,211,596			13,299		1.01
Borrowings					651,112			3,950		2.41				756,303			5,438		2.88				772,561			3,297		1.69
Subordinated debentures, net					79,230			1,312		6.57				79,104			1,306		6.62				153,129			2,196		5.69
Finance lease					1,603			24		5.94				1,658			24		5.81				1,813			27		5.91
Total interest-bearing liabilities					7,061,628			61,329		3.45				7,136,677			57,482		3.23				6,139,099			18,819		1.22
Noninterest-bearing demand deposits					1,275,325									1,347,268									1,682,135
Other liabilities					86,025									84,594									48,907
Total noninterest-bearing liabilities					1,361,350									1,431,862									1,731,042
Stockholders' equity					1,202,647									1,197,043									1,160,448
Total liabilities and stockholders' equity				$	9,625,625								$	9,765,582								$	9,030,589
Net interest income (tax equivalent basis)								63,208									64,627									78,850
Net interest spread (5)										1.99	%								2.08	%								3.34	%
Net interest margin (6)										2.76	%								2.81	%								3.68	%
Tax equivalent adjustment								(851	)								(784	)								(689	)
Net interest income							$	62,357								$	63,843								$	78,161
(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.