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ConnectOne Bancorp, Inc. Reports Fourth Quarter and Full-Year 2020 Results
Source: Nasdaq GlobeNewswire / 28 Jan 2021 06:00:01 America/Chicago
ENGLEWOOD CLIFFS, N.J., Jan. 28, 2021 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq: CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $25.6 million for the fourth quarter of 2020 compared with $24.8 million for the third quarter of 2020 and $20.8 million for the fourth quarter of 2019. Diluted earnings per share were $0.64 in the fourth quarter of 2020 compared with $0.62 in the third quarter of 2020 and $0.59 in the fourth quarter of 2019. Full-year 2020 net income was $71.3 million, compared to $73.4 million for the full-year 2019. Diluted earnings per share for the full-year 2020 was $1.79, compared with $2.07 for the full-year 2019.
Included in net income were provisions for loan losses of $5.0 million for both the fourth and third quarters of 2020 and $2.0 million for the fourth quarter of 2019. Also included in net income were merger and restructuring expenses of $0.9 million for the fourth quarter of 2019, while there were no such charges in both the fourth and third quarters of 2020. On a pre-tax, pre-provision and pre-merger charges basis, earnings were $38.0 million for the fourth quarter of 2020, $37.6 million for the third quarter of 2020, and $28.4 million for the fourth quarter of 2019.
Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer, stated, “ConnectOne had a great finish to the year and I’m extremely pleased with the continued execution of our operating strategies. We reported record pretax, pre-provision earnings, our net interest margin widened for the fourth consecutive quarter, we have begun to reengage in organic loan growth, and our efficiency ratio improved to 39.5%. Even with an additional $5 million in loan loss provisioning, we delivered outstanding performance metrics for the quarter. Return on assets was 1.4% and our return on tangible common equity exceeded 15% while our tangible book value per share increased by $0.62 per share, or nearly 4%, in just one quarter to $17.49. Consistent with the progression we have anticipated, total COVID-19 related deferrals as of year-end fell to $210 million, or approximately 3.5% of total loans.”
“Our hearts go out to those who were impacted by the virus as we also watched our communities demonstrate resilience and strength. I’m equally proud of the role the ConnectOne team played in supporting our clients during this challenging time and grateful to our Board of Directors for their unwavering commitment and guidance,” Mr. Sorrentino added. “We continue to operate our Bank efficiently and effectively and are optimistic that the operating environment will continue to improve throughout 2021, resulting in strong growth, favorable lending spreads, and best-in-class performance metrics for ConnectOne. Over the past year, our capital and reserves have grown significantly, providing us the flexibility to grow both organically and through opportunistic M&A, and to return excess capital to shareholders. As a technology-forward bank, we look forward to furthering our investments in infrastructure, communication tools and digital channels as we position our bank for growth in a post-pandemic environment.”
“Underscoring our solid capital position and our continued confidence in ConnectOne’s future performance, we are pleased to announce that our Board of Directors has reinstated our previously suspended share repurchase program,” Mr. Sorrentino concluded. The Company has approximately 0.6 million shares remaining of the total authorized 1.2 million shares to repurchase.
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 March 1, 2021, to all shareholders of record on February 15, 2021.
Operating Results
Fully taxable equivalent net interest income for the fourth quarter of 2020 was $61.8 million, an increase of $0.8 million, or 1.4%, from the third quarter of 2020. The increase from the third quarter of 2020 resulted from a 1.1% increase in average interest-earning assets and a 1 basis-point widening of the net interest margin to 3.50% from 3.49%. The net interest margin widened despite the negative impact of additional liquidity in the quarter, reflecting continued improvement in the Bank’s cost and mix of funding sources as well as the resiliency of our asset yields. Included in interest income in the fourth quarter of 2020 was Paycheck Protection Program (“PPP”) fee income of approximately $2.4 million, compared to $3.5 million in the third quarter of 2020. Deferred PPP fees were $5.7 million as of December 31, 2020.
Fully taxable equivalent net interest income for the fourth quarter of 2020 increased by $13.9 million, or 29.0%, from the fourth quarter of 2019. The increase from the fourth quarter of 2019 resulted primarily from a 24.3% increase in average interest-earning assets, largely due to PPP originations and the Bancorp of New Jersey (“BNJ”) acquisition, and a 14 basis-point widening of the net interest margin to 3.50% from 3.36%. The widening of the net interest margin resulted from a 76 basis-point reduction in the cost of funding interest-earning assets, partially offset by a 50 basis-point reduction in the yield on average interest-earning assets.
Noninterest income totaled $3.4 million in the fourth quarter of 2020, $3.5 million in the third quarter of 2020 and $2.2 million in the fourth quarter of 2019. The decrease in noninterest income of $0.1 million from the third quarter of 2020 was primarily attributable to a decrease in BOLI income of $0.3 million, which resulted from a third quarter 2020 death benefit, offset by an increase in net gains on sale of commercial and residential loans. The increase in noninterest income of $1.2 million from the fourth quarter of 2019 was primarily attributable to an increase in BOLI income and an increase in gains on sale of loans.
Noninterest expenses totaled $26.4 million for the fourth quarter of 2020, $26.5 million for the third quarter of 2020 and $22.2 million for the fourth quarter of 2019. Included in noninterest expenses were merger-related charges totaling $0.9 million during the fourth quarter of 2019, while there were no such charges in the fourth and third quarters of 2020. Noninterest expenses decreased by $0.1 million from the third quarter of 2020. The decrease was primarily the result of lower salaries and employee benefits of $0.5 million due to the final realization of cost saves related to the BNJ acquisition and lower incentive compensation accruals, and a $0.2 million decrease in FDIC insurance expense, partially offset by a $0.6 million increase in professional and consulting, occupancy and other expenses. Noninterest expenses increased by $5.1 million, excluding merger-related charges, from the fourth quarter of 2019. The increase was primarily the result of the BNJ acquisition which contributed to increases of $1.7 million in salaries and employee benefits, $1.3 million in occupancy and equipment, $0.8 million in professional and consulting and $0.3 million in data processing.
Income tax expense was $7.8 million for both the fourth and third quarters of 2020 and $6.2 million for the fourth quarter of 2019. The effective tax rates for the fourth quarter of 2020, third quarter of 2020 and fourth quarter of 2019 were 23.5%, 23.9% and 23.0%, respectively. The currently estimated effective tax rate for core earnings in 2021 is in the 23%-24% range, assuming no change in statutory rates.
Asset Quality
The Company has postponed the adoption of the current expected credit losses (“CECL”) accounting standard as permitted under the accounting relief provisions of the CARES Act. While management is still evaluating its options, we currently anticipate CECL adoption to occur as of January 1, 2021.
The provision for loan losses was $5.0 million for both the fourth and third quarters of 2020, and $0.5 million for the fourth quarter of 2019. We continue to work with our borrowers, where necessary, to provide additional support and guidance during this unprecedented difficult operating environment. The Bank 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, debt service coverage ratios and cap rates. Meanwhile, our well-managed commercial lending program, which has avoided higher risk industries, is virtually all full 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 $61.7 million as of December 31, 2020, $65.5 million as of September 30, 2020 and $49.5 million as of December 31, 2019. Included in nonperforming assets were taxi medallion loans totaling $23.0 million as of December 31, 2020 and September 30, 2020 and $23.4 million as of December 31, 2019. Nonperforming assets (including taxi medallion loans) as a percentage of total assets were 0.82% as of December 31, 2020, 0.88% as of September 30, 2020 and 0.80% as of December 31, 2019. Excluding the taxi medallion loans, nonaccrual loans were $38.2 million as of December 31, 2020, $42.5 million as of September 30, 2020 and $26.1 million as of December 31, 2019, representing a ratio of nonaccrual loans (excluding taxi medallion loans) to loans receivable of 0.62%, 0.68% and 0.51%, respectively.
The annualized net loan charge-off (recovery) ratio was 0.00% for the fourth quarter of 2020, (0.03)% for the third quarter of 2020 and 0.08% for the fourth quarter of 2019. During the third quarter of 2020, the Bank received a $0.8 million recovery on a previously charged-off commercial real estate credit. The allowance for loan losses represented 1.27%, 1.19%, and 0.75% of loans receivable as of December 31, 2020, September 30, 2020 and December 31, 2019, respectively. Excluding PPP loans, the allowance for loan losses represented 1.36%, 1.29%, and 0.75% of loans receivable as of December 31, 2020, September 30, 2020 and December 31, 2019, respectively. The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 204.9% as of December 31, 2020, 174.9% as of September 30, 2020 and 147.0% as of December 31, 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 $6.2 billion, an increase of $1.1 billion from December 31, 2019. The increase in total assets and loans receivable were primarily attributable to the acquisition of BNJ and the origination of PPP loans. As of December 31, 2020, PPP loans totaled $398 million.
The Company’s stockholders’ equity was $915 million as of December 31, 2020, an increase of $184 million from December 31, 2019. The increase in stockholders’ equity was primarily attributable to the acquisition of BNJ, which increased capital by $118 million, and an increase of $60 million in retained earnings. As of December 31, 2020, the Company’s tangible common equity ratio and tangible book value per share were 9.50% and $17.49, 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 $219 million as of December 31, 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.
Fourth Quarter 2020 Results Conference Call
Management will also host a conference call and audio webcast at 10:00 a.m. ET on January 28, 2021 to review the Company's financial performance and operating results. The conference call dial-in number is 201-689-8471, access code 13714733. 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, January 28, 2021 and ending on Thursday, February 4, 2021 by dialing 412-317-6671, access code 13714733. 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.comMedia Contact:
Emily Holtzman, MWWPR
631.742.9568; eholtzman@mww.comCONNECTONE BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION (in thousands) December 31, December 31, 2020 2019 (unaudited) ASSETS Cash and due from banks $ 63,637 $ 65,717 Interest-bearing deposits with banks 240,119 135,766 Cash and cash equivalents 303,756 201,483 Securities available-for-sale 487,955 404,701 Equity securities 13,387 11,185 Loans held-for-sale 4,710 33,250 Loans receivable 6,236,307 5,113,527 Less: Allowance for loan losses 79,226 38,293 Net loans receivable 6,157,081 5,075,234 Investment in restricted stock, at cost 25,099 27,397 Bank premises and equipment, net 30,108 19,236 Accrued interest receivable 35,317 20,949 Bank owned life insurance 165,960 137,961 Right of use operating lease assets 16,159 15,137 Goodwill 208,372 162,574 Core deposit intangibles 10,977 5,460 Other assets 88,458 59,465 Total assets $ 7,547,339 $ 6,174,032 LIABILITIES Deposits: Noninterest-bearing $ 1,339,108 $ 861,728 Interest-bearing 4,620,116 3,905,814 Total deposits 5,959,224 4,767,542 Borrowings 425,954 500,293 Operating lease liabilities 18,026 16,449 Subordinated debentures, net of debt issuance costs 202,648 128,885 Other liabilities 26,177 29,673 Total liabilities 6,632,029 5,442,842 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock 586,946 468,571 Additional paid-in capital 23,887 21,344 Retained earnings 331,951 271,782 Treasury stock (30,271 ) (29,360 ) Accumulated other comprehensive income (loss) 2,797 (1,147 ) Total stockholders' equity 915,310 731,190 Total liabilities and stockholders' equity $ 7,547,339 $ 6,174,032 CONNECTONE BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except for per share data) Three Months Ended Twelve Months Ended 12-31-20 12-31-19 12-31-20 12-31-19 Interest income Interest and fees on loans $ 73,123 $ 64,833 $ 296,611 $ 255,479 Interest and dividends on investment securities: Taxable 1,373 1,700 6,456 9,131 Tax-exempt 649 824 2,797 3,929 Dividends 374 409 1,642 1,778 Interest on federal funds sold and other short-term investments 69 242 694 1,167 Total interest income 75,588 68,008 308,200 271,484 Interest expense Deposits 9,630 16,272 52,386 65,570 Borrowings 4,587 4,305 17,823 19,595 Total interest expense 14,217 20,577 70,209 85,165 Net interest income 61,371 47,431 237,991 186,319 Provision for loan losses 5,000 500 41,000 8,100 Net interest income after provision for loan losses 56,371 46,931 196,991 178,219 Noninterest income Income on bank owned life insurance 1,314 914 5,007 3,484 Net gains on sale of loans held-for-sale 841 169 2,085 512 Deposit, loan and other income 1,300 1,209 7,077 4,025 Net (losses) gains on equity securities (13 ) (46 ) 202 294 Net (losses) gains on sale of securities available-for-sale - - 29 (280 ) Total noninterest income 3,442 2,246 14,400 8,035 Noninterest expenses Salaries and employee benefits 14,581 12,881 58,758 49,135 Occupancy and equipment 3,689 2,380 13,882 9,712 FDIC insurance 948 795 4,002 2,011 Professional and consulting 2,210 1,428 7,383 5,506 Marketing and advertising 256 273 1,200 1,353 Data processing 1,479 1,151 6,008 4,503 Merger and restructuring expenses - 871 14,640 8,955 Loss on extinguishment of debt - - - 1,047 Amortization of core deposit intangibles 628 340 2,559 1,408 Increase in value of acquisition price - 2,333 - Other expenses 2,611 2,078 10,236 8,598 Total noninterest expenses 26,402 22,197 121,001 92,228 Income before income tax expense 33,411 26,980 90,390 94,026 Income tax expense 7,770 6,197 19,101 20,631 Net income $ 25,641 $ 20,783 $ 71,289 $ 73,395 Earnings per common share: Basic $ 0.64 $ 0.59 $ 1.80 $ 2.08 Diluted 0.64 0.59 1.79 2.07 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 Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, 2020 2020 2020 2020 2019 Selected Financial Data (dollars in thousands) Total assets $ 7,547,339 $ 7,449,559 $ 7,617,184 $ 7,279,327 $ 6,174,032 Loans receivable: Commercial $ 1,092,404 $ 1,125,273 $ 1,151,025 $ 1,203,818 $ 1,096,224 PPP loans 397,492 474,022 473,999 - - Commercial real estate 2,103,468 2,001,311 1,987,695 1,981,149 1,559,354 Multifamily 1,712,153 1,703,290 1,723,273 1,762,651 1,518,400 Commercial construction 617,747 614,112 673,893 676,836 620,969 Residential 322,564 343,376 366,315 387,400 320,019 Consumer 1,853 1,876 2,001 1,965 3,328 Gross loans 6,247,681 6,263,260 6,378,201 6,013,819 5,118,294 Unearned net origination fees (11,374 ) (12,209 ) (14,934 ) (4,509 ) (4,767 ) Loans receivable 6,236,307 6,251,051 6,363,267 6,009,310 5,113,527 Loans held-for-sale 4,710 8,508 11,212 32,425 33,250 Total loans $ 6,241,017 $ 6,259,559 $ 6,374,479 $ 6,041,735 $ 5,146,777 Investment securities $ 501,342 $ 466,415 $ 431,833 $ 460,101 $ 415,886 Goodwill and other intangible assets 219,349 219,977 220,605 221,263 168,034 Deposits: Noninterest-bearing demand $ 1,339,108 $ 1,270,021 $ 1,276,070 $ 979,778 $ 861,728 Time deposits 1,464,133 1,619,609 1,807,864 1,974,400 1,553,721 Other interest-bearing deposits 3,155,983 2,909,126 2,742,927 2,555,014 2,352,093 Total deposits $ 5,959,224 $ 5,798,756 $ 5,826,861 $ 5,509,192 $ 4,767,542 Borrowings $ 425,954 $ 506,225 $ 667,062 $ 726,856 $ 500,293 Subordinated debentures (net of debt issuance costs) 202,648 202,552 202,476 128,967 128,885 Total stockholders' equity 915,310 890,736 867,741 853,710 731,190 Quarterly Average Balances Total assets $ 7,547,651 $ 7,474,002 $ 7,684,403 $ 7,106,027 $ 6,084,607 Loans receivable: Commercial $ 1,557,303 $ 1,610,423 $ 1,539,749 $ 1,146,773 $ 1,085,640 Commercial real estate (including multifamily) 3,704,197 3,679,297 3,722,966 3,723,991 3,074,889 Commercial construction 615,439 646,281 675,698 663,036 642,476 Residential 332,403 352,426 374,283 390,655 318,413 Consumer 3,309 2,536 1,898 3,007 4,165 Gross loans 6,212,651 6,290,963 6,314,594 5,927,462 5,125,583 Unearned net origination fees (12,023 ) (13,292 ) (13,420 ) (4,648 ) (5,031 ) Loans receivable 6,200,628 6,277,671 6,301,174 5,922,814 5,120,552 Loans held-for-sale 9,003 10,772 31,329 33,655 33,163 Total loans $ 6,209,631 $ 6,288,443 $ 6,332,503 $ 5,956,469 $ 5,153,715 Investment securities $ 469,820 $ 429,947 $ 452,224 $ 458,642 $ 427,973 Goodwill and other intangible assets 219,761 220,391 221,039 221,075 168,257 Deposits: Noninterest-bearing demand $ 1,294,447 $ 1,253,235 $ 1,277,428 $ 955,358 $ 844,332 Time deposits 1,577,338 1,728,129 1,905,165 1,962,714 1,533,425 Other interest-bearing deposits 3,094,536 2,881,592 2,639,052 2,660,755 2,348,752 Total deposits $ 5,966,321 $ 5,862,956 $ 5,821,645 $ 5,578,827 $ 4,726,509 Borrowings $ 410,098 $ 467,399 $ 798,648 $ 477,121 $ 452,837 Subordinated debentures (net of debt issuance costs) 202,595 202,502 141,904 128,913 128,830 Total stockholders' equity 906,153 883,364 868,796 864,241 732,173 Three Months Ended Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, 2020 2020 2020 2020 2019 (dollars in thousands, except for per share data) Net interest income $ 61,371 $ 60,549 $ 60,790 $ 55,281 $ 47,431 Provision for loan losses 5,000 5,000 15,000 16,000 500 Net interest income after provision for loan losses 56,371 55,549 45,790 39,281 46,931 Noninterest income Income on bank owned life insurance 1,314 1,598 1,128 967 914 Net gains on sale of loans held-for-sale 841 614 237 393 169 Deposit, loan and other income 1,300 1,278 3,212 1,287 1,209 Net (losses) gains on equity securities (13 ) (7 ) 44 178 (46 ) Net gains (losses) on sale of investment securities - - - 29 - Total noninterest income 3,442 3,483 4,621 2,854 2,246 Noninterest expenses Salaries and employee benefits 14,581 15,114 14,500 14,563 12,881 Occupancy and equipment 3,689 3,566 3,156 3,471 2,380 FDIC insurance 948 1,105 1,093 856 795 Professional and consulting 2,210 1,926 1,673 1,574 1,428 Marketing and advertising 256 214 426 304 273 Data processing 1,479 1,470 1,586 1,473 1,151 Merger expenses - - 5,146 9,494 871 Amortization of core deposit intangible 628 627 652 652 340 Increase in value of acquisition price - - 2,333 - - Other expenses 2,611 2,456 2,498 2,671 2,078 Total noninterest expenses 26,402 26,478 33,063 35,058 22,197 Income before income tax expense 33,411 32,554 17,348 7,077 26,980 Income tax expense 7,770 7,768 2,516 1,047 6,197 Net income $ 25,641 $ 24,786 $ 14,832 $ 6,030 $ 20,783 Weighted average diluted shares outstanding 39,726,791 39,653,832 39,611,712 39,510,810 35,245,285 Diluted EPS $ 0.64 $ 0.62 $ 0.37 $ 0.15 $ 0.59 Reconciliation of GAAP Earnings to Pre-tax, Pre-provision and Pre-merger charges Earnings Net income $ 25,641 $ 24,786 $ 14,832 $ 6,030 $ 20,783 Income tax expense 7,770 7,768 2,516 1,047 6,197 Merger charges - - 5,146 9,494 871 Provision for loan losses 5,000 5,000 15,000 16,000 500 Pre-tax, pre-provision and pre-merger charges earnings $ 38,411 $ 37,554 $ 37,494 $ 32,571 $ 28,351 Return on Assets Measures Average assets $ 7,547,651 $ 7,474,002 $ 7,684,403 $ 7,106,027 $ 6,084,607 Return on avg. assets 1.35 % 1.32 % 0.78 % 0.34 % 1.36 % Return on avg. assets (pre tax, pre-provision and pre-merger charges) 2.02 2.00 1.96 1.84 1.85 Three Months Ended Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, 2020 2020 2020 2020 2019 Return on Equity Measures (dollars in thousands) Average common equity $ 906,153 $ 883,364 $ 868,796 $ 864,241 $ 732,173 Less: average intangible assets (219,761 ) (220,391 ) (221,039 ) (221,075 ) (168,257 ) Average tangible common equity $ 686,392 $ 662,973 $ 647,757 $ 643,166 $ 563,916 Return on avg. common equity (GAAP) 11.26 % 11.16 % 6.87 % 2.81 % 11.26 % Return on avg. tangible common equity (non-GAAP) (1) 15.12 15.14 9.50 4.06 14.79 Efficiency Measures Total noninterest expenses $ 26,402 $ 26,478 $ 33,063 $ 35,058 $ 22,197 Amortization of core deposit intangibles (628 ) (627 ) (652 ) (652 ) (340 ) Merger expenses - - (5,146 ) (9,494 ) (871 ) FDIC small bank assessment credit - - - - - Foreclosed property expense (2 ) - (5 ) 10 8 Operating noninterest expense $ 25,772 $ 25,851 $ 27,260 $ 24,922 $ 20,994 Net interest income (tax equivalent basis) $ 61,840 $ 61,005 $ 61,253 $ 55,781 $ 47,929 Noninterest income 3,442 3,483 4,621 2,854 2,246 Net losses (gains) on equity securities 13 7 (44 ) (178 ) 46 Net (gains) losses on sales of securities - - - (29 ) - Operating revenue $ 65,295 $ 64,495 $ 65,830 $ 58,428 $ 50,221 Operating efficiency ratio (non-GAAP) (2) 39.5 % 40.1 % 41.4 % 42.7 % 41.8 % Net Interest Margin Average interest-earning assets $ 7,031,662 $ 6,962,499 $ 7,164,545 $ 6,584,508 $ 5,663,538 Net interest income (tax equivalent basis) $ 61,840 $ 61,005 $ 61,253 $ 55,781 $ 47,929 Impact of purchase accounting fair value marks (2,237 ) (2,403 ) (3,073 ) (3,457 ) (1,455 ) Adjusted net interest income (tax equivalent basis) $ 59,603 $ 58,602 $ 58,180 $ 52,324 $ 46,474 Net interest margin (GAAP) 3.50 % 3.49 % 3.44 % 3.41 % 3.36 % Adjusted net interest margin (non-GAAP) (3) 3.37 3.35 3.27 3.20 3.26 (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 Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, 2020 2020 2020 2020 2019 Capital Ratios and Book Value per Share (dollars in thousands, except for per share data) Common equity $ 915,310 $ 890,736 $ 867,741 $ 853,710 $ 731,190 Less: intangible assets (219,349 ) (219,977 ) (220,605 ) (221,263 ) (168,034 ) Tangible common equity $ 695,961 $ 670,759 $ 647,136 $ 632,447 $ 563,156 Total assets $ 7,547,339 $ 7,449,559 $ 7,617,184 $ 7,279,327 $ 6,174,032 Less: intangible assets (219,349 ) (219,977 ) (220,605 ) (221,263 ) (168,034 ) Tangible assets $ 7,327,990 $ 7,229,582 $ 7,396,579 $ 7,058,064 $ 6,005,998 Common shares outstanding 39,785,398 39,753,033 39,753,033 39,704,921 35,072,066 Common equity ratio (GAAP) 12.13 % 11.96 % 11.39 % 11.73 % 11.84 % Tangible common equity ratio (non-GAAP) (4) 9.50 9.28 8.75 8.96 9.38 Regulatory capital ratios (Bancorp): Leverage ratio 9.51 % 9.30 % 8.99 % 9.20 % 9.54 % Common equity Tier 1 risk-based ratio 10.79 10.63 10.04 9.63 9.95 Risk-based Tier 1 capital ratio 10.87 10.72 10.12 9.71 10.04 Risk-based total capital ratio 15.08 14.94 14.32 12.46 12.95 Regulatory capital ratios (Bank): Leverage ratio 10.63 % 10.41 % 10.12 % 10.36 % 10.81 % Common equity Tier 1 risk-based ratio 12.24 12.00 11.38 10.93 11.37 Risk-based Tier 1 capital ratio 12.24 12.00 11.38 10.93 11.37 Risk-based total capital ratio 10.00 13.70 12.96 12.25 12.63 Book value per share (GAAP) $ 23.01 $ 22.41 $ 21.83 $ 21.50 $ 20.85 Tangible book value per share (non-GAAP) (5) 17.49 16.87 16.28 15.93 16.06 Net Loan (Recoveries) Charge-Off Detail Net loan charge-offs (recoveries) : Charge-offs $ 900 $ 257 $ 462 $ 115 $ 1,029 Recoveries (833 ) (800 ) (4 ) (3 ) (22 ) Net loan (recoveries) charge-offs $ 67 $ (543 ) $ 458 $ 112 $ 1,007 Net loan (recoveries) charge-offs as a % of average loans receivable (annualized) 0.00 % (0.03 )% 0.03 % 0.01 % 0.08 % Asset Quality Nonaccrual taxi medallion loans $ 23,024 $ 23,024 $ 23,024 $ 23,024 $ 23,431 Nonaccrual loans (excluding taxi medallion loans) 38,672 42,470 41,556 39,349 26,050 Total nonperforming assets $ 61,696 $ 65,494 $ 64,580 $ 62,373 $ 49,481 Performing troubled debt restructurings $ 23,655 $ 18,241 $ 20,418 $ 21,293 $ 21,410 Allowance for loan losses ("ALLL") $ 79,226 $ 74,267 $ 68,724 $ 54,169 $ 38,293 Loans receivable $ 6,236,307 $ 6,251,051 $ 6,363,267 $ 6,009,310 $ 5,113,527 Less: taxi medallion loans 24,659 24,634 24,603 24,575 24,977 Loans receivable (excluding taxi medallion loans) $ 6,211,648 $ 6,226,417 $ 6,338,664 $ 5,984,735 $ 5,088,550 Loans receivable $ 6,236,307 $ 6,251,051 $ 6,363,267 $ 6,009,310 $ 5,113,527 Less: PPP loans 397,492 474,022 473,999 - - Loans receivable (excluding PPP loans) $ 5,838,815 $ 5,777,029 $ 5,889,268 $ 6,009,310 $ 5,113,527 Nonaccrual loans (excluding taxi medallion loans) as a % of loans receivable (excluding taxi medallion loans) 0.62 % 0.68 % 0.66 % 0.66 % 0.51 % Nonaccrual loans as a % of loans receivable 0.99 1.05 1.01 1.04 0.97 Nonperforming assets as a % of total assets 0.82 0.88 0.85 0.86 0.80 ALLL as a % of loans receivable 1.27 1.19 1.08 0.90 0.75 ALLL as a % of loans receivable (excluding PPP loans) 1.36 1.29 1.17 0.90 0.75 ALLL as a % of nonaccrual loans (excluding taxi medallion loans) 204.9 174.9 165.4 137.7 147.0 ALLL as a % of nonaccrual loans 128.4 113.4 106.4 86.8 77.4 (4) Tangible common equity divided by tangible assets. (5) Tangible common equity divided by common shares outstanding at period-end. CONNECTONE BANCORP, INC. AND SUBSIDIARIES NET INTEREST MARGIN ANALYSIS (dollars in thousands) For the Three Months Ended December 31, 2020 September 30, 2020 December 31, 2019 Average Average Average Interest-earning assets: Balance Interest Rate (7) Balance Interest Rate (7) Balance Interest Rate (7) Investment securities (1) (2) $ 460,471 $ 2,194 1.90 % $ 420,362 $ 2,176 2.06 % $ 423,857 $ 2,737 2.56 % Loans receivable and loans held-for-sale (2) (3) (4) 6,209,631 73,420 4.70 6,288,443 75,028 4.75 5,153,715 65,118 5.01 Federal funds sold and interest- bearing deposits with banks 337,172 69 0.08 227,617 47 0.08 60,705 242 1.58 Restricted investment in bank stock 24,388 374 6.10 26,077 426 6.50 25,261 409 6.42 Total interest-earning assets 7,031,662 76,057 4.30 6,962,499 77,677 4.44 5,663,538 68,506 4.80 Allowance for loan losses (74,943 ) (69,381 ) (39,094 ) Noninterest-earning assets 584,145 580,884 460,163 Total assets $ 7,540,864 $ 7,474,002 $ 6,084,607 Interest-bearing liabilities: Time deposits $ 1,577,338 $ 6,682 1.69 $ 1,728,129 $ 8,174 1.88 $ 1,533,425 $ 9,573 2.48 Other interest-bearing deposits 3,094,536 2,948 0.38 2,881,592 3,773 0.52 2,348,752 6,699 1.13 Total interest-bearing deposits 4,671,874 9,630 0.82 4,609,721 11,947 1.03 3,882,177 16,272 1.66 Borrowings 410,098 1,856 1.80 467,399 1,992 1.70 452,837 2,431 2.13 Subordinated debentures, net of debt issuance costs 202,595 2,699 5.30 202,502 2,700 5.30 128,830 1,839 5.66 Capital lease obligation 2,164 32 5.88 2,211 33 5.94 2,348 35 5.91 Total interest-bearing liabilities 5,286,731 14,217 1.07 5,281,833 16,672 1.26 4,466,192 20,577 1.83 Noninterest-bearing demand deposits 1,294,447 1,253,235 844,332 Other liabilities 53,533 55,570 41,910 Total noninterest-bearing liabilities 1,347,980 1,308,805 886,242 Stockholders' equity 906,153 883,364 732,173 Total liabilities and stockholders' equity $ 7,540,864 $ 7,474,002 $ 6,084,607 Net interest income (tax equivalent basis) 61,840 61,005 47,929 Net interest spread (5) 3.23 % 3.18 % 2.97 % Net interest margin (6) 3.50 % 3.49 % 3.36 % Tax equivalent adjustment (469 ) (456 ) (498 ) Net interest income $ 61,371 $ 60,549 $ 47,431 ______________________________ (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. 