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ConnectOne Bancorp, Inc. Reports First Quarter 2023 Results

  • Current liquidity including borrowing capacity enhanced to nearly $4 billion or 250% of uninsured and uncollateralized deposits, or approximately 20% of total deposits
  • Core client net inflows contributed to a $400 million, or 5.4%, sequential increase in deposits for the quarter
  • TCE ratio of 8.9% and CET1 ratio of 10.5% at quarter-end, largely unaffected by rising interest rates
  • Net interest margin compressed to 3.00%. Rising interest costs due to liquidity tightening across the industry, an increase in on-balance sheet cash, and the cost of maintaining and growing client relationships contributed to the accelerated decrease of 48 bps
  • Resilient profitability: return on assets of 1.04%, return on tangible common equity of 11.1%, and pre-provision net revenue as a % of assets of 1.46%
  • Quarterly common dividend increased by 9.7% to $0.17 per share reflecting a dividend payout ratio of 29%
  • Repurchased 205,000 shares at an average price of $22.51 during the first quarter and plan to continue repurchase program as market conditions permit

ENGLEWOOD CLIFFS, N.J., April 27, 2023 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq: CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income available to common stockholders of $23.4 million for the first quarter of 2023, compared with $31.0 million for the fourth quarter of 2022 and $29.9 million for the first quarter of 2022. Diluted earnings per share were $0.59 for the first quarter of 2023 compared with $0.79 for the fourth quarter of 2022 and $0.75 for the first quarter of 2022. The $7.6 million decrease in net income available to common stockholders and $0.20 decrease in diluted earnings per share versus the fourth quarter of 2022 were primarily due to a $10.9 million decrease in net interest income, a $0.7 decrease in noninterest income, and a $1.6 million increase in noninterest expenses, partially offset by a decrease in provision for credit losses of $2.3 million and a $3.3 million decrease in income tax expense. The $6.5 million decrease in net income available to common stockholders and $0.16 decrease in diluted earnings per share versus the first quarter of 2022 were due to a $3.3 million decrease in net interest income, a $0.3 million decrease in noninterest income, and a $5.6 million increase in noninterest expenses, partially offset by a decrease in provision for credit losses of $0.4 million and a $2.3 million decrease in income tax expenses.

Pre-tax, pre-provision net revenue (“PPNR”) as a percent of average assets was 1.46%, 2.02% and 2.17% for the quarters ending March 31, 2023, December 31, 2022 and March 31, 2022, respectively.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer commented, “Our stated goals of maintaining our client relationships, transforming our infrastructure, and growing smartly were highly evident in this unprecedented quarter. We reached out to our client base with a sense of urgency resulting in net deposit inflows for the quarter; we lowered our uninsured deposits, uncollateralized deposits from approximately 40% at year-end to 20% today; and we improved our aggregate cash position and unused borrowing capacity to nearly $4 billion, fortifying our liquidity backstop. Our tangible common equity ratio remained strong, largely unaffected by rising interest rates reflecting both strong profitability and effective management and hedging of our available for sale securities portfolio. We also remain well-positioned for economic uncertainty, reflecting our high credit standards, diversified relationship-based client philosophy and avoidance of potentially riskier sub-segments.

Mr. Sorrentino added, “During the latter part of 2022, and through the first quarter of 2023, we had success playing offense, deepening client relationships and building core deposits, with inflows during the quarter exceeding outflows. That said, by intentionally addressing increased deposit rate competition earlier than most, we experienced accelerated net interest margin compression which negatively impacted first quarter earnings results. Nonetheless, as we execute our business plan, we continue to be disciplined in our approach and believe that ConnectOne’s long-term profitability outlook remains strong.”

Mr. Sorrentino concluded, “We will continue to execute on some of the market related opportunities that have recently materialized, however, given the current economic outlook, we expect relatively flat loan and expense growth for the remainder of 2023. And although the industry remains burdened by near-term headwinds, I remain extremely confident in the Company's future as we move through 2023 and eventually transition to a more normalized environment.”

Dividend Declarations

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

A cash dividend on common stock of $0.17, an increase of 9.7%, will be paid on June 1, 2023, to common stockholders of record on May 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 June 1, 2023 to preferred stockholders of record on May 15, 2023.

Operating Results

Fully taxable equivalent net interest income for the first quarter of 2023 was $67.8 million, a decrease of $10.9 million, or 13.9%, from the fourth quarter of 2022 due to a 48 basis-point contraction of the net interest margin from 3.48% to 3.00%, partially offset by an increase in interest-earning assets of $202.1 million. The increase in interest-earning assets from the fourth quarter of 2022 was primarily attributable to increases in cash and cash equivalents of $117.8 million and loans of $93.2 million. While the net interest margin benefitted from a 15 basis-point increase in the loan portfolio yield, to 5.35%, the average cost of deposits, including noninterest-bearing demand, increased by 74 basis points to 2.20% from 1.46% in the fourth quarter of 2022. Contributing to the increased cost of deposits was a $158.4 million, or 9.8%, decline in average noninterest-bearing deposits as bank depositors throughout the industry are transitioning funds to interest-earning products. In addition, while we are cognizant of the short-term implications of faster deposit betas, maintaining and growing client deposits and protecting decay rates reflects a more prudent oversight of liquidity and the balance sheet for the longer term.

Fully taxable equivalent net interest income for the first quarter of 2023 decreased by $3.0 million, or 4.3%, from the first quarter of 2022. The decrease from the first quarter of 2022 resulted primarily from a 71 basis-point decrease of the net interest margin from 3.71% to 3.00%, partially offset by an increase in interest-earning assets of $1.4 billion. The contraction of the net interest margin for the first quarter of 2023 when compared to the first quarter of 2022 was primarily attributable to a 189 basis-point increase in the average costs of deposits, including noninterest-bearing deposits, partially offset by an 85 basis-point increase in the loan portfolio yield.

Noninterest income was $2.8 million in the first quarter of 2023, $3.5 million in the fourth quarter of 2022 and $3.1 million in the first quarter of 2022. Included in noninterest income were net losses on equity securities of $0.2 million, $0.1 million and $0.6 million for the first quarter 2023, fourth quarter 2022 and first quarter 2022, respectively. Excluding the aforementioned items, adjusted noninterest income was $3.0 million, $3.6 million and $3.7 million for the first quarter 2023, fourth quarter 2022 and first quarter 2022, respectively. The $0.6 million decrease in adjusted noninterest income for the current quarter versus the sequential fourth quarter 2022 was primarily due to a decrease in deposit, loan and other income of $0.5 million and a decrease in net gains on sale of loans held-for-sale of $0.1 million. The $0.7 million decrease in adjusted noninterest income for the current quarter versus the first quarter 2022 was primarily due to decreases in net gains on sale of loans held-for-sale of $0.7 million and deposit, loan and other income of $0.3 million, partially offset by increases in bank owned life insurance income of $0.3 million.

Noninterest expenses totaled $34.9 million for the first quarter of 2023, $33.3 million for the fourth quarter of 2022 and $29.2 million for the first quarter of 2022. The increase in noninterest expenses of $1.6 million from the fourth quarter of 2022 was primarily attributable to increases in salaries and employee benefits of $0.6 million, information technology and communications of $0.4 million, other expenses of $0.3 million, occupancy and equipment of $0.2 million and FDIC insurance of $0.1 million. The increase in noninterest expenses of $5.6 million from the first quarter of 2022 was primarily attributable to increases in salaries and employee benefits of $3.6 million, other expenses of $0.8 million, occupancy and equipment of $0.8 million, professional and consulting of $0.4 million, FDIC insurance of $0.3 million, information technology and communications of $0.2, and marketing and advertising of $0.2 million, partially offset by a decrease in acquisition expenses related to BoeFly of $0.7 million. The increase in salaries and employee benefits from the prior sequential quarter and prior year quarter was primarily attributable to new hires and seasonal increases in payroll taxes.

Income tax expense was $9.1 million for the first quarter of 2023, $12.3 million for the fourth quarter of 2022 and $11.4 million for the first quarter of 2022. The effective tax rates for the first quarter of 2023, fourth quarter of 2022 and first quarter of 2022 were 26.7%, 27.5% and 26.6%, respectively.

Asset Quality

The provision for credit losses was $1.0 million for the first quarter of 2023, $3.3 million for the fourth quarter of 2022 and $1.5 million for the first quarter of 2022. The current quarter’s provision primarily reflects modest loan growth and an increase in qualitative factors.

Nonperforming assets, which include nonaccrual loans and other real estate owned, were $47.7 million as of March 31, 2023, $44.7 million as of December 31, 2022 and $59.7 million as of March 31, 2022. Nonaccrual loans were $47.7 million as of March 31, 2023, $44.5 million as of December 31, 2022 and $59.4 million as of March 31, 2022. Nonperforming assets as a percentage of total assets were 0.48% as of March 31, 2023, 0.46% as of December 31, 2022 and 0.72% as of March 31, 2022. The ratio of nonaccrual loans to loans receivable was 0.59%, 0.55% and 0.85%, as of March 31, 2023, December 31, 2022 and March 31, 2022, respectively. The annualized net loan charge-offs ratio was 0.22% for the first quarter of 2023, 0.22% for the fourth quarter of 2022 and 0.01% for the first quarter of 2022. The current quarter’s charge-offs reflect the resolution of certain nonaccrual taxi loans and one owner-occupied commercial real estate loan that were previously reserved for and therefore required no additional loan loss provisioning. The allowance for credit losses represented 1.07%, 1.12%, and 1.15% of loans receivable as of March 31, 2023, December 31, 2022 and March 31, 2022, respectively. The allowance for credit losses as a percentage of nonaccrual loans was 182.5% as of March 31, 2023, 203.6% as of December 31, 2022 and 134.8% as of March 31, 2022.

Selected Balance Sheet Items

The Company’s total assets were $9,960.5 million as of March 31, 2023, an increase of $315.5 million from December 31, 2022. The increase in total assets was primarily due to increased cash and cash equivalents which were $562.4 million, an increase of $294.1 million from December 31, 2022. Loans receivable were $8.1 billion, an increase of $32.4 million from December 31, 2022. Total deposits were $7.8 billion, an increase of $396.6 million from December 31, 2022.

The Company’s total stockholders’ equity was $1.2 billion as of March 31, 2023, an increase of $12.2 million from December 31, 2022. The increase in retained earnings of $17.3 million was the primary reason for the overall increase in stockholders’ equity, in addition to an increase in additional paid-in capital of $1.2 million, partially offset by a decrease in accumulated other comprehensive income of $1.5 million and an increase in treasury stock of $4.9 million. As of March 31, 2023, the Company’s tangible common equity ratio and tangible book value per share were 8.87% and $22.07, respectively. As of December 31, 2022, the tangible common equity ratio and tangible book value per share were 9.04% and $21.71, respectively. Total goodwill and other intangible assets were $215.3 million as of March 31, 2023, and $215.7 million as of December 31, 2022.

Use of Non-GAAP Financial Measures

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

First Quarter 2023 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on April 27, 2023 to review the Company's financial performance and operating results. The conference call dial-in number is 1-412-317-5195, access code 10177527. Please dial in at least five minutes before the start of the call to register. An audio webcast of the conference call will be available to the public, on a listen-only basis, via the "Investor Relations" link on the Company's website https://www.ConnectOneBank.com or at http://ir.connectonebank.com.

A replay of the conference call will be available beginning at approximately 1:00 p.m. ET on Thursday, April 27, 2023 and ending on Thursday, May 4, 2023 by dialing 1-412-317-6671, access code 10177527. 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.

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 U.S. Securities and Exchange Commission, as supplemented by the Company’s subsequent filings with the U.S. Securities and Exchange Commission, and changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area, changes in accounting principles and guidelines and the impact of the COVID-19 pandemic on the Company, its employees and operations, and its customers. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Investor Contact:

William S. Burns
Senior Executive VP & CFO
201.816.4474: 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)
       
  March 31, December 31, March 31,
   2023   2022   2022 
  (unaudited)   (unaudited)
ASSETS      
Cash and due from banks $58,063  $61,629  $61,849 
Interest-bearing deposits with banks  504,353   206,686   249,695 
Cash and cash equivalents  562,416   268,315   311,544 
       
Investment securities  629,001   634,884   512,030 
Equity securities  18,025   15,811   13,198 
       
Loans held-for-sale  11,197   13,772   2,742 
       
Loans receivable  8,132,119   8,099,689   6,979,595 
Less: Allowance for credit losses - loans  87,002   90,513   80,070 
Net loans receivable  8,045,117   8,009,176   6,899,525 
       
Investment in restricted stock, at cost  46,379   46,604   25,254 
Bank premises and equipment, net  29,603   27,800   28,779 
Accrued interest receivable  46,301   46,062   34,081 
Bank owned life insurance  232,859   231,328   196,937 
Right of use operating lease assets  9,541   10,179   10,400 
Other real estate owned  -   264   316 
Goodwill  208,372   208,372   208,372 
Core deposit intangibles  6,940   7,312   8,564 
Other assets  114,716   125,069   82,559 
Total assets $9,960,467  $9,644,948  $8,334,301 
       
LIABILITIES      
Deposits:      
Noninterest-bearing $1,345,265  $1,501,614  $1,631,292 
Interest-bearing  6,407,911   5,855,008   4,929,113 
Total deposits  7,753,176   7,356,622   6,560,405 
Borrowings  852,611   857,622   412,170 
Subordinated debentures, net  79,060   153,255   153,027 
Operating lease liabilities  10,717   11,397   11,773 
Other liabilities  73,933   87,301   58,407 
Total liabilities  8,769,497   8,466,197   7,195,782 
       
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  31,350   30,126   28,484 
Retained earnings  553,261   535,915   464,889 
Treasury stock  (57,652)  (52,799)  (44,458)
Accumulated other comprehensive loss  (33,862)  (32,364)  (8,269)
Total stockholders' equity  1,190,970   1,178,751   1,138,519 
Total liabilities and stockholders' equity $9,960,467  $9,644,948  $8,334,301 


CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for per share data)
       
  Three Months Ended
  03/31/23 12/31/22 03/31/22
Interest income      
Interest and fees on loans $106,903  $104,952  $76,025 
Interest and dividends on investment securities:      
Taxable  4,229   4,225   1,873 
Tax-exempt  1,092   1,185   709 
Dividends  898   712   214 
Interest on federal funds sold and other short-term investments  2,975   1,395   120 
Total interest income  116,097   112,469   78,941 
Interest expense      
Deposits  40,087   26,543   5,010 
Borrowings  8,926   7,917   3,573 
Total interest expense  49,013   34,460   8,583 
       
Net interest income  67,084   78,009   70,358 
Provision for credit losses  1,000   3,300   1,450 
Net interest income after provision for credit losses  66,084   74,709   68,908 
       
Noninterest income      
Deposit, loan and other income  1,403   1,894   1,743 
Income on bank owned life insurance  1,531   1,528   1,206 
Net gains on sale of loans held-for-sale  49   176   701 
Net losses on equity securities  (191)  (90)  (596)
Total noninterest income  2,792   3,508   3,054 
       
Noninterest expenses      
Salaries and employee benefits  22,236   21,676   18,640 
Occupancy and equipment  2,761   2,603   1,929 
FDIC insurance  950   830   606 
Professional and consulting  2,194   2,157   1,792 
Marketing and advertising  532   454   351 
Information technology and communications  3,061   2,694   2,866 
Amortization of core deposit intangible  372   409   433 
Increase in value of acquisition price  -   -   683 
Other expenses  2,764   2,489   1,930 
Total noninterest expenses  34,870   33,312   29,230 
       
Income before income tax expense  34,006   44,905   42,732 
Income tax expense  9,077   12,348   11,351 
Net income  24,929   32,557   31,381 
Preferred dividends  1,509   1,510   1,509 
Net income available to common stockholders $23,420  $31,047  $29,872 
       
Earnings per common share:      
Basic $0.60  $0.79  $0.76 
Diluted  0.59   0.79   0.75 


ConnectOne's management believes that the supplemental financial information, including non-GAAP measures provided below, is useful to investors. The non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP financial measures presented by other companies.
           
CONNECTONE BANCORP, INC.
SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES
           
  As of
  Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
   2023   2022   2022   2022   2022 
Selected Financial Data (dollars in thousands)
Total assets $9,960,467  $9,644,948  $9,478,252  $8,841,506  $8,334,301 
Loans receivable:          
Commercial $1,392,565  $1,443,942  $1,392,037  $1,274,280  $1,161,867 
Paycheck Protection Program ("PPP") loans  11,300   11,374   11,458   18,004   54,301 
Commercial real estate  3,245,990   3,170,760   3,087,354   2,727,120   2,516,065 
Multifamily  2,600,251   2,641,886   2,624,726   2,442,603   2,465,337 
Commercial construction  630,469   574,139   537,323   569,789   539,058 
Residential  259,166   264,748   256,085   249,379   250,205 
Consumer  1,435   2,312   1,030   1,248   1,140 
Gross loans  8,141,176   8,109,161   7,910,013   7,282,423   6,987,973 
Unearned net origination fees  (9,057)  (9,472)  (9,563)  (7,850)  (8,378)
Loans receivable  8,132,119   8,099,689   7,900,450   7,274,573   6,979,595 
Loans held-for-sale  11,197   13,772   8,080   3,182   2,742 
Total loans $8,143,316  $8,113,461  $7,908,530  $7,277,755  $6,982,337 
           
Investment and equity securities $647,026  $650,695  $639,192  $691,934  $525,228 
Goodwill and other intangible assets  215,312   215,684   216,093   216,502   216,936 
Deposits:          
Noninterest-bearing demand $1,345,265  $1,501,614  $1,665,658  $1,712,875  $1,631,292 
Time deposits  2,706,662   2,394,190   1,921,235   1,285,409   1,065,814 
Other interest-bearing deposits  3,701,249   3,460,818   3,723,617   3,619,315   3,863,299 
Total deposits $7,753,176  $7,356,622  $7,310,510  $6,617,599  $6,560,405 
           
Borrowings $852,611  $857,622  $829,953  $874,964  $412,170 
Subordinated debentures, net  79,060   153,255   153,179   153,103   153,027 
Total stockholders' equity  1,190,970   1,178,751   1,148,295   1,143,147   1,138,519 
           
Quarterly Average Balances          
Total assets $9,700,530  $9,490,477  $9,030,589  $8,322,823  $8,263,382 
Loans receivable:          
Commercial (including PPP loans) $1,442,180  $1,456,247  $1,342,868  $1,245,812  $1,231,703 
Commercial real estate (including multifamily)  5,813,388   5,758,594   5,455,714   4,974,297   4,850,349 
Commercial construction  606,214   558,086   537,073   544,084   541,642 
Residential  261,560   261,969   251,338   247,208   253,589 
Consumer  3,894   4,630   2,361   5,029   3,682 
Gross loans  8,127,236   8,039,526   7,589,354   7,016,430   6,880,965 
Unearned net origination fees  (9,664)  (9,666)  (9,178)  (9,222)  (9,870)
Loans receivable  8,117,572   8,029,860   7,580,176   7,007,208   6,871,095 
Loans held-for-sale  13,463   7,933   2,195   966   382 
Total loans $8,131,035  $8,037,793  $7,582,371  $7,008,174  $6,871,477 
           
Investment and equity securities $649,744  $650,479  $687,291  $567,140  $536,090 
Goodwill and other intangible assets  215,556   215,951   216,360   216,786   217,219 
Deposits:          
Noninterest-bearing demand $1,451,654  $1,610,044  $1,682,135  $1,607,465  $1,547,055 
Time deposits  2,357,332   2,035,362   1,525,076   1,103,418   1,124,614 
Other interest-bearing deposits  3,565,904   3,558,881   3,686,520   3,717,531   3,851,558 
Total deposits $7,374,890  $7,204,287  $6,893,731  $6,428,414  $6,523,227 
           
Borrowings $941,266  $913,960  $772,561  $548,675  $404,907 
Subordinated debentures, net  103,637   153,205   153,129   153,053   152,977 
Total stockholders' equity  1,191,216   1,165,588   1,160,448   1,143,092   1,131,968 
           
           
  Three Months Ended
  Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
   2023   2022   2022   2022   2022 
  (dollars in thousands, except for per share data)
Net interest income $67,084  $78,009  $78,161  $75,591  $70,358 
Provision for credit losses  1,000   3,300   10,000   3,000   1,450 
Net interest income after provision for credit losses  66,084   74,709   68,161   72,591   68,908 
Noninterest income          
Deposit, loan and other income  1,403   1,894   1,969   1,866   1,743 
Income on bank owned life insurance  1,531   1,528   1,521   1,342   1,206 
Net gains on sale of loans held-for-sale  49   176   262   556   701 
Net losses on equity securities  (191)  (90)  (430)  (405)  (596)
Total noninterest income  2,792   3,508   3,322   3,359   3,054 
Noninterest expenses          
Salaries and employee benefits  22,236   21,676   20,882   19,519   18,640 
Occupancy and equipment  2,761   2,603   2,600   2,733   1,929 
FDIC insurance  950   830   720   725   606 
Professional and consulting  2,194   2,157   1,980   2,124   1,792 
Marketing and advertising  532   454   461   426   351 
Information technology and communications  3,061   2,694   2,747   2,801   2,866 
Amortization of core deposit intangible  372   409   409   434   433 
Increase in value of acquisition price  -   -   -   833   683 
Other expenses  2,764   2,489   2,344   2,108   1,930 
Total noninterest expenses  34,870   33,312   32,143   31,703   29,230 
           
Income before income tax expense  34,006   44,905   39,340   44,247   42,732 
Income tax expense  9,077   12,348   10,425   11,889   11,351 
Net income $24,929  $32,557  $28,915  $32,358  $31,381 
Preferred dividends  1,509   1,510   1,509   1,509   1,509 
Net income available to common stockholders $23,420  $31,047  $27,406  $30,849  $29,872 
           
Weighted average diluted common shares outstanding  39,300,733   39,378,137   39,320,674   39,481,689   39,727,606 
Diluted EPS $0.59  $0.79  $0.70  $0.78  $0.75 
           
Reconciliation of GAAP Earnings to Pre-tax and Pre-provision Net Revenue        
Net income $24,929  $32,557  $28,915  $32,358  $31,381 
Income tax expense  9,077   12,348   10,425   11,889   11,351 
Provision for credit losses  1,000   3,300   10,000   3,000   1,450 
Pre-tax and pre-provision net revenue $35,006  $48,205  $49,340  $47,247  $44,182 
           
Return on Assets Measures          
Average assets $9,700,530  $9,490,477  $9,030,589  $8,322,823  $8,263,382 
Return on avg. assets  1.04%  1.36%  1.27%  1.56%  1.54%
Return on avg. assets (pre-tax and pre-provision)  1.46   2.02   2.17   2.28   2.17 
           
  Three Months Ended
  Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
   2023   2022   2022   2022   2022 
Return on Equity Measures (dollars in thousands)
Average stockholders' equity $1,191,216  $1,165,588  $1,160,448  $1,143,097  $1,131,968 
Less: average preferred stock  (110,927)  (110,927)  (110,927)  (110,927)  (110,927)
Average common equity $1,080,289  $1,054,661  $1,049,521  $1,032,170  $1,021,041 
Less: average intangible assets  (215,556)  (215,951)  (216,360)  (216,786)  (217,219)
Average tangible common equity $864,733  $838,710  $833,161  $815,384  $803,822 
           
Return on avg. common equity (GAAP)  8.79%  11.68%  10.36%  11.99%  11.87%
Return on avg. tangible common equity ("TCE") (non-GAAP) (1)  11.11   14.82   13.19   15.32   15.22 
Return on avg. tangible common equity (pre-tax, pre-provision, pre-merger charges)  16.54   22.94   23.63   23.39   22.44 
           
Efficiency Measures          
Total noninterest expenses $34,870  $33,312  $32,143  $31,703  $29,230 
Amortization of core deposit intangibles  (372)  (409)  (409)  (434)  (433)
Operating noninterest expense $34,498  $32,903  $31,734  $31,269  $28,797 
           
Net interest income (tax equivalent basis) $67,828  $78,773  $78,850  $76,146  $70,842 
Noninterest income  2,792   3,508   3,322   3,359   3,054 
Net losses on equity securities  191   90   430   405   596 
Operating revenue $70,811  $82,371  $82,602  $79,910  $74,492 
           
Operating efficiency ratio (non-GAAP) (2)  48.7%  39.9%  38.4%  39.1%  38.7%
           
Net Interest Margin          
Average interest-earning assets $9,174,167  $8,972,063  $8,500,316  $7,807,445  $7,753,881 
           
Net interest income (tax equivalent basis) $67,828  $78,773  $78,850  $76,146  $70,842 
Impact of purchase accounting fair value marks  (839)  (837)  (885)  (1,014)  (1,179)
Adjusted net interest income (tax equivalent basis) $66,989  $77,936  $77,965  $75,132  $69,663 
           
Net interest margin (GAAP)  3.00%  3.48%  3.68%  3.91%  3.71%
Adjusted net interest margin (non-GAAP) (3)  2.96   3.45   3.64   3.86   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
  Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
   2023   2022   2022   2022   2022 
Capital Ratios and Book Value per Share (dollars in thousands, except for per share data)
Stockholders equity $1,190,970  $1,178,751  $1,148,295  $1,143,147  $1,138,519 
Less: preferred stock  (110,927)  (110,927)  (110,927)  (110,927)  (110,927)
Common equity $1,080,043  $1,067,824  $1,037,368  $1,032,220  $1,027,592 
Less: intangible assets  (215,312)  (215,684)  (216,093)  (216,502)  (216,936)
Tangible common equity $864,731  $852,140  $821,275  $815,718  $810,656 
           
Total assets $9,960,467  $9,644,948  $9,478,252  $8,841,506  $8,334,301 
Less: intangible assets  (215,312)  (215,684)  (216,093)  (216,502)  (216,936)
Tangible assets $9,745,155  $9,429,264  $9,262,159  $8,625,004  $8,117,365 
           
Common shares outstanding  39,179,051   39,243,123   39,243,123   39,243,123   39,518,411 
           
Common equity ratio (GAAP)  10.84%  11.07%  10.94%  11.67%  12.33%
Tangible common equity ratio (non-GAAP) (4)  8.87   9.04   8.87   9.46   9.99 
           
Regulatory capital ratios (Bancorp):          
Leverage ratio  10.60%  10.68%  10.95%  11.63%  11.57%
Common equity Tier 1 risk-based ratio  10.55   10.30   10.20   10.63   10.69 
Risk-based Tier 1 capital ratio  11.92   11.66   11.58   12.11   12.21 
Risk-based total capital ratio  13.85   14.45   14.45   15.09   15.25 
           
Regulatory capital ratios (Bank):          
Leverage ratio  10.62%  10.64%  10.91%  11.61%  11.41%
Common equity Tier 1 risk-based ratio  11.93   11.60   11.53   12.08   12.04 
Risk-based Tier 1 capital ratio  11.93   11.60   11.53   12.08   12.04 
Risk-based total capital ratio  13.28   13.02   13.00   13.55   13.55 
           
Book value per share (GAAP) $27.57  $27.21  $26.43  $26.30  $26.00 
Tangible book value per share (non-GAAP) (5)  22.07   21.71   20.93   20.79   20.51 
           
Net Loan (Recoveries) Charge-Off Detail          
Net loan charge-offs (recoveries):          
Charge-offs $4,484  $4,456  $413  $302  $274 
Recoveries  (1)  -   (53)  (32)  (32)
Net loan charge-offs (recoveries) $4,483  $4,456  $360  $270  $242 
Net loan charge-offs (recoveries) as a % of average loans receivable (annualized)  0.22%  0.22%  0.02%  0.02%  0.01%
           
Asset Quality          
Nonaccrual loans $47,667  $44,454  $57,477  $60,756  $59,403 
OREO  -   264   264   316   316 
Nonperforming assets $47,667  $44,718  $57,741  $61,072  $59,719 
           
Allowance for credit losses - loans ("ACL")  87,002   90,513   91,717   82,739   80,070 
           
Loans receivable $8,132,119  $8,099,689  $7,900,450  $7,274,573  $6,979,595 
Less: PPP loans  11,300   11,374   11,458   18,004   54,301 
Loans receivable (excluding PPP loans) $8,120,819  $8,088,315  $7,888,992  $7,256,569  $6,925,294 
           
Nonaccrual loans as a % of loans receivable  0.59%  0.55%  0.73%  0.84 %   0.85%
Nonperforming assets as a % of total assets  0.48   0.46   0.61   0.69   0.72 
ACL as a % of loans receivable  1.07   1.12   1.16   1.14   1.15 
ACL as a % of nonaccrual loans  182.5   203.6   159.6   136.2   134.8 
           
(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 
 March 31, 2023December 31, 2022March 31, 2022 
 Average    Average    Average   
Interest-earning assets:BalanceInterestRate(7) BalanceInterestRate(7) BalanceInterestRate(7)
Investment securities (1) (2)$732,929 $5,620 3.11% $743,917 $5,725 3.05% $545,203 $2,771 2.06%
Loans receivable and loans held-for-sale (2) (3) (4) 8,131,035  107,348 5.35   8,037,793  105,402 5.20   6,871,477  76,321 4.50 
Federal funds sold and interest-              
bearing deposits with banks 260,297  2,975 4.64   142,489  1,394 3.88   312,224  120 0.16 
Restricted investment in bank stock 49,906  898 7.30   47,864  712 5.90   24,977  214 3.47 
Total interest-earning assets$9,174,167  116,841 5.17   8,972,063  113,233 5.01   7,753,881  79,426 4.15 
Allowance for loan losses (90,182)     (91,621)     (79,763)   
Noninterest-earning assets 616,545      610,035      589,264    
Total assets$9,700,530     $9,490,477     $8,263,382    
               
Interest-bearing liabilities:              
Time deposits 2,357,332  17,267 2.97   2,035,362  11,601 2.26   1,124,614  2,154 0.78 
Other interest-bearing deposits 3,565,904  22,820 2.60   3,558,881  14,942 1.67   3,851,558  2,856 0.30 
Total interest-bearing deposits 5,923,236  40,087 2.74   5,594,243  26,543 1.88   4,976,172  5,010 0.41 
               
Borrowings 941,266  7,322 3.15   913,960  5,665 2.46   404,907  1,377 1.38 
Subordinated debentures, net 103,637  1,579 6.18   153,205  2,217 5.74   152,977  2,168 5.75 
Finance lease 1,714  25 5.92   1,760  35 7.89   1,917  29 6.14 
Total interest-bearing liabilities 6,969,853  49,013 2.85   6,663,168  34,460 2.05   5,535,973  8,584 0.63 
               
Noninterest-bearing demand deposits 1,451,654      1,610,044      1,547,055    
Other liabilities 87,807      51,677      48,386    
Total noninterest-bearing liabilities 1,539,461      1,661,722      1,595,441    
Stockholders' equity 1,191,216      1,165,588      1,131,968    
Total liabilities and stockholders' equity$9,700,530     $9,490,477     $8,263,382    
               
Net interest income (tax equivalent basis)  67,828      78,773      70,842   
Net interest spread (5)  2.31%   2.96%   3.53%
               
Net interest margin (6)  3.00%   3.48%   3.71%
               
Tax equivalent adjustment  (744)     (764)     (484)  
Net interest income $67,084     $78,009     $70,358   
               


(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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