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ConnectOne Bancorp, Inc. Reports Second Quarter 2022 Results; Declares Common and Preferred Dividends
Source: Nasdaq GlobeNewswire / 28 Jul 2022 06:00:02 America/Chicago
ENGLEWOOD CLIFFS, N.J., July 28, 2022 (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 $30.8 million for the second quarter of 2022 compared with $29.9 million for the first quarter of 2022 and $32.2 million for the second quarter of 2021. Diluted earnings per share were $0.78 for the second quarter of 2022 compared with $0.75 in the first quarter of 2022 and $0.81 in the second quarter of 2021. The increase in net income available to common stockholders and diluted earnings per share from the first quarter of 2022 was primarily due to an increase in net interest income of $5.2 million and an increase in noninterest income of $0.3 million, partially offset by an increase in provision for credit losses of $1.6 million, an increase in noninterest expenses of $2.5 million, and an increase in income tax expense of $0.5 million. The decrease in net income available to common stockholders and diluted earnings per share from the second quarter of 2021 was primarily due to an increase in provision for credit losses of $4.6 million, an increase in noninterest expenses of $5.4 million, an increase in preferred dividends of $1.5 million, a decrease in noninterest income of $1.1 million, and an increase in income tax expenses of $1.2 million, partially offset by an increase in net interest income of $12.6 million.
Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “We again demonstrated the effectiveness of our relationship-banking business model by delivering solid second quarter financial results. Pre-tax, pre-provision earnings as a percent of assets increased to 2.28%, while return on assets was 1.56%, and return on tangible common equity was 15.3%. In addition, our net interest margin expanded, the efficiency ratio remained below 40% and the nonperforming asset ratio declined. Notably, our tangible book value per share has increased by more than 10% over the last twelve months to $20.79, reflecting both strong earnings and prudent management of our available-for-sale securities portfolio.”
“Organic growth remains strong at ConnectOne. The loan portfolio increased sequentially by 17% on an annualized basis, reflecting both our strong origination franchise and market conditions, while noninterest-bearing deposits grew by 20% on an annualized basis. Non-interest demand deposits now represent a record of 26% of total deposits. The loan and deposit growth also reflects the success of our strategy to invest in, and further strengthen, our origination franchise. In that regard, we are gaining traction in all our markets including Florida, where we are successfully leveraging our client-centric culture to both originate commercial loans and grow deposits with existing ConnectOne clients as well as new Florida-based businesses. And we continue to capitalize on disruption caused by industry M&A by hiring experienced bankers, which facilitates organic expansion into synergistic geographies and verticals.”
“Our tech-first philosophy creates opportunities for back-office efficiencies, additional distribution channels and increased revenue. Investments we’ve made over the years are paying dividends, allowing us to scale efficiently while improving internal processes such as loan underwriting and closing processes. We continue to make investments to enhance our commercial banking model, deliver best-in-class client experience and optimize our operations. To that end, we are excited to announce a partnership with MANTL to help streamline and digitize our entire deposit onboarding processing. This partnership, along with other technologies we are implementing, will modernize client onboarding, create new verticals, and provide better penetration into existing business lines.” Mr. Sorrentino added, “We’re building for the future and, even with these investments, we are confident in our ability to remain one of the most efficient banks in the industry.”
Dividend Declarations
The Company announced that its Board of Directors declared a cash dividend on its common stock and a quarterly cash dividend on its preferred stock.
A cash dividend on common stock of $0.155 per share will be paid on September 1, 2022, to common stockholders of record on August 15, 2022. A dividend of $0.328125 per share for every 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 September 1, 2022 to preferred stockholders of record on August 15, 2022.
Operating Results
Fully taxable equivalent net interest income for the second quarter of 2022 was $76.1 million, an increase of $5.3 million, or 7.5%, from the first quarter of 2022 resulting primarily from a 2.0% sequential increase in average loans, a 12% sequential increase in average investment securities and a 20 basis-point widening of the net interest margin to 3.91% from 3.71%. The increase net interest margin primarily reflected an increase in total interest-earning asset yields of 26 basis points, resulting from increased rates on total loans and securities, along with an improved mix away from lower yielding assets, while the cost of interest-bearing liabilities increased by only 8 basis-points. Excluding purchase accounting adjustments, the adjusted net interest margin was 3.86% for the second quarter of 2022 and 3.64% for the first quarter of 2022. Included in interest income in the second quarter 2022 was a $1.5 million recovery on a purchased credit deteriorated (PCD) loan. Also included in interest income in the second and first quarters of 2022 was the accretion of Paycheck Protection Program (“PPP”) fee income of $2.3 million and $2.0 million, respectively. Remaining deferred and unrecognized PPP fees were $0.3 million as of June 30, 2022.
Fully taxable equivalent net interest income for the second quarter of 2022 increased by $12.7 million, or 20.1%, from the second quarter of 2021. The increase from the second quarter of 2021 resulted primarily from a 12.1% increase in average loans, a 37.3% increase in average investment securities, and a 31 basis-point widening of the net interest margin to 3.91% from 3.60%. The widening of the net interest margin resulted from a 24 basis-point increase in the yield on average interest-earning assets and a 7 basis-point reduction in the cost of interest-bearing liabilities.
Noninterest income was $3.4 million in the second quarter of 2022, $3.1 million in the first quarter of 2022 and $4.5 million in the second quarter of 2021. Included in noninterest income were net losses on equity securities of $0.4 million and $0.6 million for the second quarter 2022 and first quarter 2022, respectively. Excluding the equity securities losses, adjusted noninterest income was $3.8 million, $3.7 million and $4.5 million for the second quarter 2022, first quarter 2022 and second quarter 2021, respectively. The $0.1 million increase in adjusted noninterest income for the current quarter versus the first quarter 2022 was primarily due to an increase in deposit, loan, and other income of $0.1 million and an increase on income of bank owned life insurance (“BOLI”) of $0.1 million, partially offset by decreases in net gains on loans held-for-sale of $0.1 million. The $0.7 million decrease in adjusted noninterest income for the current quarter versus the second quarter 2021 was primarily due to a decrease in PPP fee income earned by BoeFly of $0.7 million, a decrease in net gains on loans held-for-sale of $0.3 million, and a decrease in net gains on sale/redemption of investment securities of $0.2 million, partially offset by increases in deposit, loan, and other income of $0.4 million and an increase in BOLI income of $0.2 million.
Noninterest expenses totaled $31.7 million for the second quarter of 2022, $29.2 million for the first quarter of 2022 and $26.3 million for the second quarter of 2021. Included in noninterest expense during the first quarter of 2022 was a $0.9 million favorable dissolution of a merger lease obligation. Excluding that item, noninterest expenses increased by $1.6 million from the first quarter of 2022 and was primarily attributable to an increase in salaries and employee benefits of $0.9 million, professional and consulting of $0.3 million, other expenses of $0.2 million, acquisition expenses related to BoeFly of $0.2 million, and marketing and advertising of $0.1 million. The increase in noninterest expenses of $5.4 million from the second quarter of 2021 was primarily attributable to increases in salaries and employee benefits of $4.2 million and BoeFly acquisition expense of $0.8 million. The increase in salaries and employee benefits from the prior sequential quarter and prior year quarter was attributable to increased staff in both the revenue and back-office areas of the bank, base salary increases, and bonus accruals.
Income tax expense was $11.9 million for the second quarter of 2022, $11.4 million for the first quarter of 2022 and $10.7 million for the second quarter of 2021. The effective tax rates for the second quarter of 2022, first quarter of 2022 and second quarter of 2021 were 26.9%, 26.6% and 24.8%, respectively.
Asset Quality
The provision for (reversal of) credit losses was $3.0 million for the second quarter of 2022, $1.5 million for the first quarter of 2022 and $(1.6) million for the second quarter of 2021. The provision for credit losses during the second quarter of 2022 and the first quarter of 2022 reflected strong organic loan growth and forecasted macroeconomic conditions, which remained fairly stable from the sequential quarter. The reversal of provision for credit losses during the second quarter of 2021 was the result of improved forecasted macroeconomic conditions when compared to the prior period.
Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $61.1 million as of June 30, 2022, $61.7 million as of December 31, 2021 and $56.2 million as of June 30, 2021. Nonaccrual loans were $60.8 million as of June 30, 2022, $61.7 million as of December 31, 2021 and $56.2 million as of June 30, 2021. Nonperforming assets as a percentage of total assets were 0.69% as of June 30, 2022, 0.76% as of December 31, 2021 and 0.73% as of June 30, 2021. The ratio of nonaccrual loans to loans receivable was 0.84%, 0.90% and 0.88%, as of June 30, 2022, December 31, 2021 and June 30, 2021, respectively. The annualized net loan charge-offs ratio was 0.02% for the second quarter of 2022, 0.01% for the fourth quarter of 2021 and 0.01% for the second quarter of 2021. The allowance for credit losses represented 1.14%, 1.15%, and 1.23% of loans receivable as of June 30, 2022, December 31, 2021 and June 30, 2021, respectively. Excluding PPP loans, the allowance for credit losses represented 1.14%, 1.17%, and 1.29% of loans receivable as of June 30, 2022, December 31, 2021 and June 30, 2021, respectively. The allowance for credit losses as a percentage of nonaccrual loans was 136.2% as of June 30, 2022, 127.7% as of December 31, 2021 and 140.0% as of June 30, 2021.
Selected Balance Sheet Items
The Company’s total assets were $8.8 billion as of June 30, 2022, an increase of $712.0 million from December 31, 2021. Loans receivable were $7.3 billion, an increase of $446.0 million from December 31, 2021. The increase in loans receivable was attributable to organic loan originations.
The Company’s total stockholders’ equity was $1.1 billion as of June 30, 2022, an increase of $18.9 million from December 31, 2021. The increase in retained earnings of $49.5 million was the primary reason for the overall increase in stockholders’ equity, in addition to an increase in additional paid-in capital of $0.3 million, partially offset by a decrease in accumulated other comprehensive income of $17.7 million, reflecting the after-tax decline in the fair value of investment securities net of unrealized hedge gains recorded in other assets, and an increase in treasury stock of $13.1 million. As of June 30, 2022, the Company’s tangible common equity ratio and tangible book value per share were 9.46% and $20.79, respectively. As of December 31, 2021, the tangible common equity ratio and tangible book value per share were 10.06% and $20.12, respectively. Total goodwill and other intangible assets were $216.5 million as of June 30, 2022, and $217.4 million as of December 31, 2021.
Share Repurchase Program
During the second quarter of 2022, the Company repurchased 302,315 shares of common stock leaving approximately 1.8 million shares remaining 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 they may be modified or suspended at any time at the Company's discretion.
Use of Non-GAAP Financial Measures
In addition to the results presented in accordance with Generally Accepted Accounting Principles ("GAAP"), ConnectOne routinely supplements its evaluation with an analysis of certain non-GAAP measures. ConnectOne believes these non-GAAP financial measures, in addition to the related GAAP measures, provide meaningful information to investors in understanding our operating performance and trends. These non-GAAP measures have inherent limitations and are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for an analysis of results reported under GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies. Reconciliations of non-GAAP financial measures disclosed in this earnings release to the comparable GAAP measures are provided in the accompanying tables.
Second Quarter 2022 Results Conference Call
Management will also host a conference call and audio webcast at 10:00 a.m. ET on July 28, 2022 to review the Company's financial performance and operating results. The conference call dial-in number is 1-201-689-8471, access code 13731034. Please dial in at least five minutes before the start of the call to register. An audio webcast of the conference call will be available to the public, on a listen-only basis, via the "Investor Relations" link on the Company's website https://www.ConnectOneBank.com or at http://ir.connectonebank.com.
A replay of the conference call will be available beginning at approximately 1:00 p.m. ET on Thursday, July 28, 2022 and ending on Thursday, August 4, 2022 by dialing 1-412-317-6671, access code 13731034. 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 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
Senior Executive VP & CFO
201.816.4474: bburns@cnob.comMedia Contact:
Sutton Resler, MWW
571.236.4966: sresler@mww.com
CONNECTONE BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION (in thousands) June 30, December 31, June 30, 2022 2021 2021 (unaudited) (unaudited) ASSETS Cash and due from banks $ 58,807 $ 54,352 $ 59,148 Interest-bearing deposits with banks 240,513 211,184 290,269 Cash and cash equivalents 299,320 265,536 349,417 Investment securities 675,941 534,507 458,933 Equity securities 15,993 13,794 13,223 Loans held-for-sale 3,182 250 6,159 Loans receivable 7,274,573 6,828,622 6,407,904 Less: Allowance for credit losses - loans 82,739 78,773 78,684 Net loans receivable 7,191,834 6,749,849 6,329,220 Investment in restricted stock, at cost 47,287 27,826 22,563 Bank premises and equipment, net 28,391 29,032 28,811 Accrued interest receivable 34,615 34,152 34,001 Bank owned life insurance 228,279 195,731 193,209 Right of use operating lease assets 10,809 11,017 12,504 Other real estate owned 316 - - Goodwill 208,372 208,372 208,372 Core deposit intangibles 8,130 8,997 9,963 Other assets 89,037 50,417 43,707 Total assets $ 8,841,506 $ 8,129,480 $ 7,710,082 LIABILITIES Deposits: Noninterest-bearing $ 1,712,875 $ 1,617,049 $ 1,485,952 Interest-bearing 4,904,724 4,715,904 4,706,561 Total deposits 6,617,599 6,332,953 6,192,513 Borrowings 874,964 468,193 353,462 Subordinated debentures, net 153,103 152,951 152,800 Operating lease liabilities 12,116 12,417 14,235 Other liabilities 40,577 38,754 32,112 Total liabilities 7,698,359 7,005,268 6,745,122 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock 110,927 110,927 - Common stock 586,946 586,946 586,946 Additional paid-in capital 27,536 27,246 24,606 Retained earnings 489,640 440,169 386,280 Treasury stock (52,799 ) (39,672 ) (32,682 ) Accumulated other comprehensive loss (19,103 ) (1,404 ) (190 ) Total stockholders' equity 1,143,147 1,124,212 964,960 Total liabilities and stockholders' equity $ 8,841,506 $ 8,129,480 $ 7,710,082
CONNECTONE BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except for per share data) Three Months Ended Six Months Ended 06/30/22 06/30/21 06/30/22 06/30/21 Interest income Interest and fees on loans $ 81,285 $ 71,101 $ 157,310 $ 141,563 Interest and dividends on investment securities: Taxable 2,551 995 4,424 2,083 Tax-exempt 916 608 1,625 1,374 Dividends 291 263 505 519 Interest on federal funds sold and other short-term investments 313 84 433 133 Total interest income 85,356 73,051 164,297 145,672 Interest expense Deposits 5,709 6,424 10,719 14,009 Borrowings 4,056 3,618 7,629 7,491 Total interest expense 9,765 10,042 18,348 21,500 Net interest income 75,591 63,009 145,949 124,172 Provision for (reversal of) credit losses 3,000 (1,649 ) 4,450 (7,415 ) Net interest income after provision for credit losses 72,591 64,658 141,499 131,587 Noninterest income Deposit, loan and other income 1,866 2,222 3,609 3,390 Income on bank owned life insurance 1,342 1,185 2,548 2,249 Net gains on sale of loans held-for-sale 556 847 1,257 1,554 Gain on sale of branches - - - 674 Net losses on equity securities (405 ) 23 (1,001 ) (164 ) Net gains on sale/redemption of investment securities - 195 - 195 Total noninterest income 3,359 4,472 6,413 7,898 Noninterest expenses Salaries and employee benefits 19,519 15,284 38,159 30,849 Occupancy and equipment 2,733 3,187 4,662 6,591 FDIC insurance 725 580 1,331 1,515 Professional and consulting 2,124 2,117 3,916 4,073 Marketing and advertising 426 278 777 519 Information technology and communications 2,801 2,636 5,667 5,161 Amortization of core deposit intangible 434 508 867 1,015 Increase in value of acquisition price 833 - 1,516 - Other expenses 2,108 1,669 4,038 3,021 Total noninterest expenses 31,703 26,259 60,933 52,744 Income before income tax expense 44,247 42,871 86,979 86,741 Income tax expense 11,889 10,652 23,240 21,523 Net income 32,358 32,219 63,739 65,218 Preferred dividends 1,509 - 3,018 - Net income available to common stockholders $ 30,849 $ 32,219 $ 60,721 $ 65,218 Earnings per common share: Basic $ 0.78 $ 0.81 $ 1.54 $ 1.64 Diluted 0.78 0.81 1.53 1.63 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.
CONNECTONEBANCORP,INC. SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES As of Jun. 30 Mar. 31, Dec. 30, Sep. 30, Jun. 30, 2022 2022 2021 2021 2021 Selected Financial Data (dollars in thousands) Total assets $ 8,841,506 $ 8,334,301 $ 8,129,480 $ 7,949,514 $ 7,710,082 Loans receivable: Commercial $ 1,274,280 $ 1,161,867 $ 1,163,442 $ 1,116,535 $ 1,046,965 Paycheck Protection Program ("PPP") loans 18,004 54,301 93,057 177,829 326,788 Commercial real estate 2,727,120 2,516,065 2,446,807 2,354,209 2,252,484 Multifamily 2,442,603 2,465,337 2,337,712 2,113,541 1,914,978 Commercial construction 569,789 539,058 540,178 552,896 587,121 Residential 249,379 250,205 255,269 270,793 286,907 Consumer 1,248 1,140 1,886 2,093 6,355 Gross loans 7,282,423 6,987,973 6,838,351 6,587,896 6,421,598 Unearned net origination fees (7,850 ) (8,378 ) (9,729 ) (11,457 ) (13,694 ) Loans receivable 7,274,573 6,979,595 6,828,622 6,576,439 6,407,904 Loans held-for-sale 3,182 2,742 250 5,596 6,159 Total loans $ 7,277,755 $ 6,982,337 $ 6,828,872 $ 6,582,035 $ 6,414,063 Investment and equity securities $ 691,934 $ 525,228 $ 548,301 $ 476,584 $ 472,156 Goodwill and other intangible assets 216,502 216,936 217,369 217,852 218,335 Deposits: Noninterest-bearing demand $ 1,712,875 $ 1,631,292 $ 1,617,049 $ 1,500,754 $ 1,485,952 Time deposits 1,285,409 1,065,814 1,150,109 0 1,221,911 1,301,807 Other interest-bearing deposits 3,619,315 3,863,299 3,565,795 3,675,673 3,404,754 Total deposits $ 6,617,599 $ 6,560,405 $ 6,332,953 $ 6,398,338 $ 6,192,513 Borrowings $ 874,964 $ 412,170 $ 468,193 $ 253,225 $ 353,462 Subordinated debentures (net of debt issuance costs) 153,103 153,027 152,951 152,875 152,800 Total stockholders' equity 1,143,147 1,138,519 1,124,212 1,098,433 964,960 Quarterly Average Balances Total assets $ 8,322,823 $ 8,263,382 $ 8,027,169 $ 7,837,997 $ 7,566,676 Loans receivable: Commercial (including PPP loans) $ 1,245,812 $ 1,231,703 $ 1,278,048 $ 1,296,066 $ 1,485,918 Commercial real estate (including multifamily) 4,974,297 4,850,349 4,625,371 4,312,092 3,925,497 Commercial construction 544,084 541,642 547,038 572,920 553,396 Residential 247,208 253,589 268,112 279,063 293,633 Consumer 5,029 3,682 4,938 2,649 3,148 Gross loans 7,016,430 6,880,965 6,723,507 6,462,790 6,261,592 Unearned net origination fees (9,222 ) (9,870 ) (10,873 ) (13,064 ) (13,076 ) Loans receivable 7,007,208 6,871,095 6,712,634 6,449,726 6,248,516 Loans held-for-sale 966 382 5,051 6,226 3,696 Total loans $ 7,008,174 $ 6,871,477 $ 6,717,685 $ 6,455,952 $ 6,252,212 Investment and equity securities $ 567,140 $ 536,090 $ 481,276 $ 465,103 $ 450,543 Goodwill and other intangible assets 216,786 217,219 217,685 218,170 218,662 Deposits: Noninterest-bearing demand $ 1,607,465 $ 1,547,055 $ 1,537,316 $ 1,495,456 $ 1,432,707 Time deposits 1,103,418 1,124,614 1,204,374 1,252,818 1,324,510 Other interest-bearing deposits 3,717,531 3,851,558 3,672,311 3,582,261 3,320,400 Total deposits $ 6,428,414 $ 6,523,227 $ 6,414,001 $ 6,330,535 $ 6,077,617 Borrowings $ 548,675 $ 404,907 $ 292,847 $ 276,183 $ 331,633 Subordinated debentures (net of debt issuance costs) 153,053 152,977 152,902 152,825 152,750 Total stockholders' equity 1,143,092 1,131,968 1,113,524 1,032,191 952,019 Three Months Ended Jun. 30 Mar. 31, Dec. 30, Sep. 30, Jun. 30, 2022 2022 2021 2021 2021 (dollars in thousands, except for per share data) Net interest income $ 75,591 $ 70,358 $ 70,461 $ 68,245 $ 63,009 Provision for (reversal of) credit losses 3,000 1,450 815 1,100 (1,649 ) Net interest income after provision for credit losses 72,591 68,908 69,646 67,145 64,658 Noninterest income Deposit, loan and other income 1,866 1,743 1,525 1,702 2,222 Income on bank owned life insurance 1,342 1,206 1,244 1,278 1,185 Net gains on sale of loans held-for-sale 556 701 1,139 1,114 847 Net (losses) gains on equity securities (405 ) (596 ) (131 ) (78 ) 23 Net gains on sale/redemption of investment securities - - - - 195 Total noninterest income 3,359 3,054 3,777 4,016 4,472 Noninterest expenses Salaries and employee benefits 19,519 18,640 16,483 16,740 15,284 Occupancy and equipment 2,733 1,929 2,762 2,656 2,916 FDIC insurance 725 606 625 525 580 Professional and consulting 2,124 1,792 1,996 2,217 2,117 Marketing and advertising 426 351 454 345 278 Information technology and communications 2,801 2,866 3,058 3,048 2,636 Amortization of core deposit intangible 434 433 483 483 508 Increase in value of acquisition price 833 683 - - - Other expenses 2,108 1,930 2,223 2,169 1,940 Total noninterest expenses 31,703 29,230 28,084 28,183 26,259 Income before income tax expense 44,247 42,732 45,339 42,978 42,871 Income tax expense 11,889 11,351 12,301 10,881 10,652 Net income 32,358 $ 31,381 $ 33,038 $ 32,097 $ 32,219 Preferred dividends 1,509 1,509 1,717 - - Net income available to common stockholders $ 30,849 $ 29,872 $ 31,321 $ 32,097 $ 32,219 Weighted average diluted common shares outstanding 39,481,689 39,727,606 39,792,937 39,869,468 39,872,829 Diluted EPS $ 0.78 $ 0.75 $ 0.79 $ 0.80 $ 0.81 Reconciliation of GAAP Earnings to Pre-tax and Pre-provision Net Revenue Net income $ 32,358 $ 31,381 $ 33,038 $ 32,097 $ 32,219 Income tax expense 11,889 11,351 12,301 10,881 10,652 Provision for (reversal of) credit losses 3,000 1,450 815 1,100 (1,649 ) Pre-tax and pre-provision net revenue $ 47,247 $ 44,182 $ 46,154 $ 44,078 $ 41,222 Return on Assets Measures Average assets $ 8,322,823 $ 8,263,382 $ 8,027,169 $ 7,837,997 $ 7,566,676 Return on avg. assets 1.56 % 1.54 % 1.63 % 1.62 % 1.71 % Return on avg. assets (pre-tax and pre-provision) 2.28 2.17 2.28 2.23 2.19 Three Months Ended Jun. 30 Mar. 31, Dec. 30, Sep. 30, Jun. 30, 2022 2022 2021 2021 2021 Return on Equity Measures (dollars in thousands) Average stockholders' equity $ 1,143,097 $ 1,131,968 $ 1,113,524 $ 1,032,195 $ 952,019 Less: average preferred stock (110,927 ) (110,927 ) (110,927 ) (51,847 ) - Average common equity $ 1,032,170 $ 1,021,041 $ 1,002,597 $ 980,348 $ 952,019 Less: average intangible assets (216,786 ) (217,219 ) (217,685 ) (218,170 ) (218,662 ) Average tangible common equity $ 815,384 $ 803,822 $ 784,912 $ 762,178 $ 733,357 Return on avg. common equity (GAAP) 11.99 % 11.87 % 12.39 % 12.99 % 13.57 % Return on avg. tangible common equity ("TCE") (non-GAAP)(1) 15.32 15.22 16.00 16.88 17.82 Return on avg. tangible common equity (pre-tax, pre-provision) 23.39 22.44 23.50 23.12 22.74 Efficiency Measures Total noninterest expenses $ 31,703 $ 29,230 $ 28,084 $ 28,183 $ 26,259 Amortization of core deposit intangibles (434 ) (433 ) (483 ) (483 ) (508 ) Operating noninterest expense $ 31,269 $ 28,797 $ 27,601 $ 27,700 $ 25,751 Net interest income (tax equivalent basis) $ 76,146 $ 70,842 $ 70,890 $ 68,761 $ 63,418 Noninterest income 3,359 3,054 3,777 4,016 4,472 Net losses (gains) on equity securities 405 596 131 78 (23 ) Net gains on sale/redemption of investment securities - - - - (195 ) Operating revenue $ 79,910 $ 74,492 $ 74,798 $ 72,855 $ 67,672 Operating efficiency ratio (non-GAAP)(2) 39.1 % 38.7 % 36.9 % 38.0 % 38.1 % Net Interest Margin Average interest-earning assets $ 7,807,445 $ 7,753,881 $ 7,508,973 $ 7,321,771 $ 7,059,965 Net interest income (tax equivalent basis) $ 76,146 $ 70,842 $ 70,890 $ 68,761 $ 63,418 Impact of purchase accounting fair value marks (1,014 ) (1,179 ) (1,674 ) (1,849 ) (2,012 ) Adjusted net interest income (tax equivalent basis) $ 75,132 $ 69,663 $ 69,216 $ 66,912 $ 61,406 Net interest margin (GAAP) 3.91 % 3.71 % 3.75 % 3.73 % 3.60 % Adjusted net interest margin (non-GAAP)(3) 3.86 3.64 3.66 3.63 3.49 (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 Jun. 30 Mar. 31, Dec. 30, Sep. 30, Jun. 30, 2022 2022 2021 2021 2021 Capital Ratios and Book Value per Share (dollars in thousands, except for per share data) Stockholders equity $ 1,143,147 $ 1,138,519 $ 1,124,212 $ 1,098,433 $ 964,960 Less: preferred stock (110,927 ) (110,927 ) (110,927 ) (110,927 ) - Common equity $ 1,032,220 $ 1,027,592 $ 1,013,285 $ 987,506 $ 964,960 Less: intangible assets (216,502 ) (216,936 ) (217,369 ) (217,852 ) (218,335 ) Tangible common equity $ 815,718 $ 810,656 $ 795,916 $ 769,654 $ 746,625 Total assets $ 8,841,506 $ 8,334,301 $ 8,129,480 $ 7,949,514 $ 7,710,082 Less: intangible assets (216,502 ) (216,936 ) (217,369 ) (217,852 ) (218,335 ) Tangible assets $ 8,625,004 $ 8,117,365 $ 7,912,111 $ 7,731,662 $ 7,491,747 Common shares outstanding 39,243,123 39,518,411 39,568,090 39,602,199 39,794,815 Common equity ratio (GAAP) 11.67 % 12.33 % 12.46 % 12.42 % 12.52 % Tangible common equity ratio (non-GAAP)(4) 9.46 9.99 10.06 9.95 9.97 Regulatory capital ratios (Bancorp): Leverage ratio 11.63 % 11.57 % 11.65 % 11.60 % 10.19 % Common equity Tier 1 risk-based ratio 10.63 10.69 10.64 10.73 11.09 Risk-based Tier 1 capital ratio 12.11 12.21 12.19 12.35 11.17 Risk-based total capital ratio 15.09 15.25 15.26 15.54 14.58 Regulatory capital ratios (Bank): Leverage ratio 11.61 % 11.41 % 11.43 % 11.33 % 11.34 % Common equity Tier 1 risk-based ratio 12.08 12.04 11.96 12.06 12.42 Risk-based Tier 1 capital ratio 12.08 12.04 11.96 12.06 12.42 Risk-based total capital ratio 13.55 13.55 13.44 13.61 14.07 Book value per share (GAAP) $ 26.30 $ 26.00 $ 25.61 $ 24.94 $ 24.25 Tangible book value per share (non-GAAP)(5) 20.79 20.51 20.12 19.43 18.76 Net Loan (Recoveries) Charge-Off Detail Net loan charge-offs (recoveries): Charge-offs $ 302 $ 274 $ 458 $ 1,727 $ 212 Recoveries (32 ) (32 ) (217 ) (113 ) (14 ) Net loan charge-offs (recoveries) $ 270 $ 242 $ 241 $ 1,614 $ 198 Net loan charge-offs (recoveries) as a % of average loans receivable (annualized) 0.02 % 0.01 % 0.01 % 0.10 % 0.01 % Asset Quality Nonaccrual loans $ 60,756 $ 59,403 $ 61,700 $ 65,959 $ 56,213 OREO 316 316 - - - Nonperforming assets $ 61,072 $ 59,719 $ 61,700 $ 65,959 $ 56,213 Allowance for credit losses - loans ("ACL") 82,739 80,070 78,773 77,986 78,684 Loans receivable $ 7,274,573 $ 6,979,595 $ 6,828,622 $ 6,576,439 $ 6,407,904 Less: PPP loans 18,004 54,301 93,057 177,829 326,788 Loans receivable (excluding PPP loans) $ 7,256,569 $ 6,925,294 $ 6,735,565 $ 6,398,610 $ 6,081,116 Nonaccrual loans as a % of loans receivable 0.84 % 0.85 % 0.90 % 1.00 % 0.88 % Nonperforming assets as a % of total assets 0.69 0.72 0.76 0.83 0.73 ACL as a % of loans receivable 1.14 1.15 1.15 1.19 1.23 ACL as a % of loans receivable (excluding PPP loans) 1.14 1.16 1.17 1.22 1.29 ACL as a % of nonaccrual loans 136.2 134.8 127.7 118.2 140.0 (4)Tangible common equity divided by tangible assets. (5)Tangible common equity divided by common shares outstanding at period-end.
CONNECTONE BANCORP, INC. AND SUBSIDIARIES NET INTEREST MARGIN ANALYSIS (dollars in thousands) For the Three Months Ended June 30, 2022 March 31, 2022 June 30, 2021 Average Average Average Interest-earning assets: Balance Interest Rate(7) Balance Interest Rate(7) Balance Interest Rate(7) Investment securities(1) (2) $ 610,465 $ 3,710 2.44 % $ 545,203 $ 2,771 2.06 % $ 444,461 $ 1,765 1.59 % Loans receivable and loans held-for-sale(2) (3) (4) 7,008,174 81,597 4.67 6,871,477 76,320 4.50 6,252,212 71,348 4.58 Federal funds sold and interest- bearing deposits with banks 157,201 313 0.80 312,224 120 0.16 341,885 84 0.10 Restricted investment in bank stock 31,605 291 3.69 24,977 214 3.47 21,407 263 4.93 Total interest-earning assets 7,807,445 85,911 4.41 7,753,881 79,425 4.15 7,059,965 73,460 4.17 Allowance for loan losses (81,012 ) (79,763 ) (80,548 ) Noninterest-earning assets 596,390 589,264 587,259 Total assets $ 8,322,823 $ 8,263,382 $ 7,566,676 Interest-bearing liabilities: Time deposits $ 1,103,418 2,179 0.79 $ 1,124,614 $ 2,154 0.78 1,324,510 3,963 1.20 Other interest-bearing deposits 3,717,531 3,530 0.38 3,851,558 2,856 0.30 3,320,400 2,461 0.30 Total interest-bearing deposits 4,820,949 5,709 0.47 4,976,172 5,010 0.41 4,644,910 6,424 0.55 Borrowings 548,675 1,849 1.35 404,907 1,377 1.38 331,633 1,419 1.72 Subordinated debentures 153,053 2,179 5.71 152,977 2,168 5.75 152,750 2,168 5.69 Capital lease obligation 1,865 28 6.02 1,917 28 5.92 2,066 31 6.02 Total interest-bearing liabilities 5,524,542 9,765 0.71 5,535,973 8,583 0.63 5,131,359 10,042 0.78 Noninterest-bearing demand deposits 1,607,465 1,547,055 1,432,707 Other liabilities 47,719 48,386 50,591 Total noninterest-bearing liabilities 1,655,184 1,595,441 1,483,298 Stockholders' equity 1,143,097 1,131,968 952,019 Total liabilities and stockholders' equity $ 8,322,823 $ 8,263,382 $ 7,566,676 Net interest income (tax equivalent basis) 76,146 70,842 63,418 Net interest spread(5) 3.70 % 3.53 % 3.39 % Net interest margin(6) 3.91 % 3.71 % 3.60 % Tax equivalent adjustment (555 ) (484 ) (409 ) Net interest income $ 75,591 $ 70,358 $ 63,009 (1)Average balances are calculated on amortized cost. (2)Interest income is presented on a tax equivalent basis using 21% federal tax rate. (3)Includes loan fee income and accretion of purchase accounting adjustments. (4)Loans include nonaccrual loans. (5)Represents difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities and is presented on a tax equivalent basis. (6)Represents net interest income on a tax equivalent basis divided by average total interest-earning assets. (7)Rates are annualized. 
