GlobeNewswire Inc | Apr 29, 2021 07:00AM EDT

April 29, 2021

ENGLEWOOD CLIFFS, N.J., April 29, 2021 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq: CNOB) (the Company or ConnectOne), parent company of ConnectOne Bank (the Bank), today reported net income of $33.0 million for the first quarter of 2021 compared with $25.6 million for the fourth quarter of 2020 and $6.0 million for the first quarter of 2020. Diluted earnings per share were $0.82 for the first quarter of 2021 compared with $0.64 in the fourth quarter of 2020 and $0.15 in the first quarter of 2020. The increase in net income and diluted earnings per share from the fourth quarter of 2020 was primarily due to a $5.8 million recapture of credit loss reserves in the current quarter reflecting the impact of the improved economic outlook on the current expected credit losses (CECL) accounting estimate, compared with a $5.0 million provision in the fourth quarter of 2020.

Frank Sorrentino, ConnectOnes Chairman and Chief Executive Officer stated, ConnectOnes strong first quarter results reflected continued margin expansion and industry-leading operating efficiency. While our return on assets and return on tangible common equity expanded significantly to 1.78% and 19.08%, respectively, largely due to the recapture of credit loss reserves, our operating net revenue to average assets also increased, further solidifying our status as a top performer in the banking industry.

Operationally, were using the full range of the Companys banking expertise to help our clients and had a robust quarter in terms of overall loan production. While our first quarter loan growth was offset by paydowns, resulting from an excessive amount of liquidity in the marketplace, were seeing strong demand, bolstered by an improving operating environment in the New York Metropolitan area. We are very pleased with our existing loan pipeline, which is at the highest level in the Companys history and expect net loan growth to accelerate in the quarters ahead. Further, as vaccines continue to work their way through our core footprint, were anticipating a significant uptick in our client activity in the near future.

ConnectOnes investments in infrastructure, communication tools and digital channels have been instrumental in our success, and we will continue to leverage our strong technological foundation as we further develop our hybrid banking model. We also continue to gain momentum building out our SBA leading platform, which is serving our existing clients and supporting small businesses in the communities where we do business.

Mr. Sorrentino added, ConnectOne, as a growth company, is well-positioned to take advantage of an economic turnaround. We are also pleased to announce an increase in our common stock dividend as well as the reinstatement of our share repurchase program reflecting our strong operating performance, our growing capital base, and the confidence we have in ConnectOnes long-term outlook.

Dividend Declaration

The Company announced that its Board of Directors declared a cash dividend on its common stock of $0.11 per share. This cash dividend represents a $0.02, or a 22.2% increase from the prior common dividend declared on January 28, 2021. The dividend will be paid on June 1, 2021 to shareholders of record on May 17, 2021.

Operating Results

Fully taxable equivalent net interest income for the first quarter of 2021 was $61.6 million, a decrease of $0.3 million, or 0.4%, from the fourth quarter of 2020, resulting primarily from a 0.3% decrease in average interest-earning assets, and partially offset by a 6 basis-point widening of the net interest margin to 3.56% from 3.50%. While overall interest-earning assets decreased, loans increased approximately $33.3 million when compared to the fourth quarter of 2020, largely due to Paycheck Protection Program (PPP) originations. Included in net interest income were purchase accounting adjustments of $2.1 million during the first quarter of 2021 and $2.2 million during the fourth quarter of 2020. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.44% for the first quarter of 2021 and 3.37% for the fourth quarter of 2020. The net interest margin widened as a result of lower cash balances as well as continued improvement in the Banks cost and mix of funding sources including the redemption of high-coupon subordinated debt, which more than offset a declining yield on loans and investment securities. This was the sixth consecutive quarter that the Banks net interest margin widened. Included in interest income in the first quarter of 2021 was PPP fee income of approximately $2.3 million, compared to $2.4 million in the fourth quarter of 2020. Deferred and unrecognized PPP fees were $9.9 million as of March 31, 2021.

Fully taxable equivalent net interest income for the first quarter of 2021 increased by $5.8 million, or 10.4%, from the first quarter of 2020. The increase from the first quarter of 2020 resulted primarily from a 6.4% increase in average interest-earning assets, largely due to PPP originations, and a 15 basis-point widening of the net interest margin to 3.56% from 3.41%. The widening of the net interest margin resulted from a 75 basis-point reduction in the cost of funding interest-earning assets, partially offset by a 49 basis-point reduction in the yield on average interest-earning assets.

Noninterest income was $3.4 million in the first quarter of 2021, $3.4 million in the fourth quarter of 2020 and $2.9 million in the first quarter of 2020. During the first quarter of 2021, the Bank completed the sale of two branches, resulting in a gain of $0.7 million, which was included in noninterest income. Excluding the branch sale, noninterest income decreased by $0.7 million from the fourth quarter of 2020 due primarily to decreases in income on bank owned life insurance of $0.3 million, net gains on equity securities of $0.2 million, net gains on sale of loans held-for-sale of $0.1 million and deposit, loan and other income of $0.1 million. Total noninterest income, excluding the branch sale, decreased $0.1 million from the first quarter of 2020. The decrease was primarily attributable to a decrease in net gains on sale of securities of $0.4 million, partially offset by an increase in net gains on sale of loans held-for-sale of $0.3 million.

Noninterest expenses totaled $26.5 million for first quarter of 2021, $26.4 million for the fourth quarter of 2020 and $35.1 million for the first quarter of 2020. Noninterest expenses increased $0.1 million from the fourth quarter of 2020, with the increases primarily coming from higher salaries and employee benefits of $1.0 million, offset by decreases in occupancy and equipment of $0.3 million, professional and consulting of $0.3 million and other expenses of $0.3 million. The increase in salaries and employee benefits of $1.0 million during the first quarter of 2021 was primarily attributable to seasonal increases in payroll taxes and higher incentive-based, stock compensation expense. Included in noninterest expenses for the first quarter of 2020 were merger related expenses totaling $9.5 million. Excluding merger-related expenses, noninterest expenses increased by $0.9 million from the first quarter of 2020 due primarily to increases in salaries and employee benefits of $1.0 million, professional and consulting of $0.4 million, partially offset by decreases in other expenses of $0.4 million and amortization of core deposit intangible of $0.1 million.

Income tax expense was $10.9 million for the first quarter of 2021, $7.8 million for the fourth quarter of 2020 and $1.0 million for the first quarter of 2020. The effective tax rates for the first quarter of 2021, fourth quarter of 2020 and first quarter of 2020 were 24.8%, 23.3% and 14.8%, respectively. The differences in the tax rates for the periods presented resulted from different proportions of income from non-taxable sources.

Asset Quality

As of January 1, 2021, the Company adopted the CECL accounting standard. As of March 31, 2021, the Companys allowance for credit losses for loans was $80.6 million, an increase of $1.3 million from $79.2 million as of December 31, 2020. The increase was attributable to the Day 1 effect of the adoption of the CECL accounting standard, which was $7.1 million, offset by a $5.8 million recapture of credit loss reserves during the first quarter of 2021. The Day 1 CECL adoption aggregate adjustment was $9.4 million (which includes $2.8 million of allowance for credit losses attributed to unfunded commitments) and was comprised of a $5.2 million reclassification of nonaccretable credit marks and a $4.2 million pre-tax charge to shareholders equity.

The (reversal of) provision for credit losses was $(5.8) million for the first quarter of 2021, $5.0 million for the fourth quarter of 2020 and $16.0 million for the first quarter of 2020. The decrease in provision for credit losses during the first quarter of 2021 when compared to the fourth quarter of 2020 and to the first quarter of 2020 was the result of an improved macro-economic outlook when compared to January 1, 2021, the date of CECL implementation. As of March 31, 2021, the Bank had 102 loans on deferral, with a total balance of $204.2 million. Of that total, $43.1 million, or 0.7% of loans receivable, were nonpayment deferrals, while the remaining $161.1 million, or 2.6% of loans receivable, were modifications in which borrowers are making modified principal and interest payments. The Bank currently anticipates that by June 30, 2021, deferred loans will be reduced by approximately 50%.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $60.9 million as of March 31, 2021, $61.7 million as of December 31, 2020 and $62.4 million as of March 31, 2020. Included in nonperforming assets were taxi medallion loans totaling $23.0 million for all periods presented. Nonperforming assets as a percentage of total assets were 0.82% as of March 31, 2021, 0.82% as of December 31, 2020 and 0.86% as of March 31, 2020. Nonaccrual loans were $60.9 million as of March 31, 2021, $61.7 million as of December 31, 2020 and $62.4 million as of March 31, 2020, representing a ratio of nonaccrual loans to loans receivable of 0.97%, 0.99% and 1.04%, respectively. The annualized net loan (recoveries) charge-off ratio was (0.00)% for the first quarter of 2021, 0.00% for the fourth quarter of 2020 and 0.01% for the first quarter of 2020. The allowance for credit losses represented 1.28%, 1.27%, and 0.90% of loans receivable as of March 31, 2021, December 31, 2020 and March 31, 2020, respectively. Excluding PPP loans, the allowance for credit losses represented 1.40%, 1.36%, and 0.90% of loans receivable as of March 31, 2021, December 31, 2020 and March 31, 2020, respectively. The allowance for credit losses as a percentage of nonaccrual loans was 132.2% as of March 31, 2021, 128.4% as of December 31, 2020 and 86.8% as of March 31, 2020.

Selected Balance Sheet Items

The Companys total assets were $7.4 billion, a decrease of $0.1 million from December 31, 2020. Loans receivable were $6.3 billion, an increase of $40.9 million from December 31, 2020.The increase in loans receivable was attributable to the origination of PPP loans. As of March 31, 2021, PPP loans totaled $522.3 million.

The Companys stockholders equity was $935.6 million as of March 31, 2021, an increase of $20.3 million from December 31, 2020. The increase in stockholders equity was primarily attributable to an increase in retained earnings of $26.5 million, partially offset by a decrease in accumulated other comprehensive income of $3.5 million and an increase in common stock repurchases of $2.4 million. Included in retained earnings, as of March 31, 2021, was the reduction of equity due to the Day 1 after-tax effect of the adoption of the CECL standard of $2.9 million. As of March 31, 2021, the Companys tangible common equity ratio and tangible book value per share were 9.91% and $18.02, respectively. As of December 31, 2020, the tangible common equity ratio and tangible book value per share were 9.50% and $17.49, respectively. Total goodwill and other intangible assets were approximately $219 million as of March 31, 2021 and $219 million as of December 31, 2020.

Share Repurchase Program

During the first quarter of 2021, the Company reinstated its previously approved share repurchase program and repurchased approximately 94,000 shares of common stock leaving a remaining capacity of approximately 511,000 shares in the Board authorized program.

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 2021 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on April 29, 2021 to review the Company's financial performance and operating results. The conference call dial-in number is 201-689-8471, access code 13718388. 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.comor 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 29, 2021 and ending on Thursday, May 6, 2021 by dialing 412-317-6671, access code 13718388. 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 Companys Annual Report on Form 10-K, as filed with the Securities Exchange Commission, as supplemented by the Companys 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. BurnsExecutive VP & CFO201.816.4474; bburns@cnob.com

Media Contact:Will Crockett MWW703.944.4213;wcrockett@mww.com

CONNECTONE BANCORP, INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION(in thousands) March 31, December 31, March 31, 2021 2020 2020 (unaudited) (unaudited)ASSETS Cash and due from banks $ 48,250 $ 63,637 $ 59,442 Interest-bearing deposits 211,842 240,119 223,367 with banksCash and cash equivalents 260,092 303,756 282,809 Securities 442,023 487,955 446,738 available-for-saleEquity securities 13,200 13,387 13,363 Loans held-for-sale 6,900 4,710 32,425 Loans receivable 6,277,191 6,236,307 6,009,310 Less: Allowance for 80,568 79,226 54,169 credit losses (loans)Net loans receivable 6,196,623 6,157,081 5,955,141 Investment in restricted 22,483 25,099 38,554 stock, at costBank premises and 29,296 30,108 32,864 equipment, netAccrued interest 35,249 35,317 24,317 receivableBank owned life insurance 167,024 165,960 163,929 Right of use operating 13,469 16,159 26,924 lease assetsGoodwill 208,372 208,372 208,379 Core deposit intangibles 10,470 10,977 12,884 Other assets 44,438 88,458 41,000 Total assets $ 7,449,639 $ 7,547,339 $ 7,279,327 LIABILITIES Deposits: Noninterest-bearing $ 1,384,961 $ 1,339,108 $ 979,778 Interest-bearing 4,566,373 4,620,116 4,529,414 Total deposits 5,951,334 5,959,224 5,509,192 Borrowings 359,710 425,954 726,856 Subordinated debentures, 152,724 202,648 128,967 netLease liabilities 15,260 18,026 28,731 Other liabilities 34,974 26,177 31,871 Total liabilities 6,514,002 6,632,029 6,425,617 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock 586,946 586,946 586,946 Additional paid-in 23,621 23,887 21,746 capitalRetained earnings 358,441 331,951 273,825 Treasury stock (32,682 ) (30,271 ) (30,271 )Accumulated othercomprehensive (loss) (689 ) 2,797 1,464 incomeTotal stockholders' 935,637 915,310 853,710 equityTotal liabilities and $ 7,449,639 $ 7,547,339 $ 7,279,327 stockholders' equity

CONNECTONE BANCORP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except for per share data) Three Months Ended 03/31/21 12/31/20 03/31/20 Interest income Interest and fees on loans $ 70,462 $ 73,123 $ 72,936 Interest and dividends on investment securities:Taxable 1,088 1,373 2,066 Tax-exempt 766 649 813 Dividends 256 374 400 Interest on federal funds sold and 49 69 499 other short-term investmentsTotal interest income 72,621 75,588 76,714 Interest expense Deposits 7,585 9,630 17,212 Borrowings 3,873 4,587 4,221 Total interest expense 11,458 14,217 21,433 Net interest income 61,163 61,371 55,281 (Reversal of) provision for credit (5,766 ) 5,000 16,000 lossesNet interest income after(reversal of) provision for credit 66,929 56,371 39,281 losses Noninterest income Deposit, loan and other income 1,168 1,300 1,287 Income on bank owned life 1,064 1,314 967 insuranceNet gains on sale of loans 707 841 393 held-for-saleNet gains on sale of investment - - 29 securitiesGain on sale of branches 674 - - Net (losses) gains on equity (187 ) (13 ) 178 securitiesTotal noninterest income 3,426 3,442 2,854 Noninterest expenses Salaries and employee benefits 15,565 14,581 14,563 Occupancy and equipment 3,404 3,689 3,471 FDIC insurance 935 948 856 Professional and consulting 1,956 2,210 1,574 Marketing and advertising 241 256 304 Data processing 1,536 1,479 1,473 Merger expenses - - 9,494 Amortization of core deposit 507 628 652 intangibleOther expenses 2,341 2,611 2,671 Total noninterest expenses 26,485 26,402 35,058 Income before income tax expense 43,870 33,411 7,077 Income tax expense 10,871 7,770 1,047 Net income $ 32,999 $ 25,641 $ 6,030 Earnings per common share: Basic $ 0.83 $ 0.64 $ 0.15 Diluted 0.82 0.64 0.15

ConnectOne's management believes that the supplemental financial information,including non-GAAP measures provided below, is useful to investors. Thenon-GAAP measures should not be viewed as a substitute for financial resultsdetermined in accordance with GAAP, and are not necessarily comparable tonon-GAAP financial measures presented by other companies.

CONNECTONE BANCORP, INC.SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES As of Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, 2021 2020 2020 2020 2020 Selected Financial Data (dollars in thousands)Total assets $ 7,449,639 $ 7,547,339 $ 7,449,559 $ 7,617,184 $ 7,279,327 Loans receivable: Commercial $ 1,071,418 $ 1,092,404 $ 1,125,273 $ 1,151,025 $ 1,203,818 Paycheck Protection 522,340 397,492 474,022 473,999 - Program ("PPP") loansCommercial real estate 2,127,806 2,103,468 2,001,311 1,987,695 1,981,149 Multifamily 1,698,331 1,712,153 1,703,290 1,723,273 1,762,651 Commercial construction 565,872 617,747 614,112 673,893 676,836 Residential 306,376 322,564 343,376 366,315 387,400 Consumer 3,365 1,853 1,876 2,001 1,965 Gross loans 6,295,508 6,247,681 6,263,260 6,378,201 6,013,819 Unearned net (18,317 ) (11,374 ) (12,209 ) (14,934 ) (4,509 )origination feesLoans receivable 6,277,191 6,236,307 6,251,051 6,363,267 6,009,310 Loans held-for-sale 6,900 4,710 8,508 11,212 32,425 Total loans $ 6,284,091 $ 6,241,017 $ 6,259,559 $ 6,374,479 $ 6,041,735 Investment securities $ 455,223 $ 501,342 $ 466,415 $ 431,833 $ 460,101 Goodwill and other 218,842 219,349 219,977 220,605 221,263 intangible assetsDeposits: Noninterest-bearing $ 1,384,961 $ 1,339,108 $ 1,270,021 $ 1,276,070 $ 979,778 demandTime deposits 1,356,599 1,464,133 1,619,609 1,807,864 1,974,400 Other interest-bearing 3,209,774 3,155,983 2,909,126 2,742,927 2,555,014 depositsTotal deposits $ 5,951,334 $ 5,959,224 $ 5,798,756 $ 5,826,861 $ 5,509,192 Borrowings $ 359,710 $ 425,954 $ 506,225 $ 667,062 $ 726,856 Subordinated debentures(net of debt issuance 152,724 202,648 202,552 202,476 128,967 costs)Total stockholders' 935,637 915,310 890,736 867,741 853,710 equity Quarterly Average BalancesTotal assets $ 7,500,034 $ 7,547,651 $ 7,474,002 $ 7,684,403 $ 7,106,027 Loans receivable: Commercial (including $ 1,531,790 $ 1,557,303 $ 1,610,423 $ 1,539,749 $ 1,146,773 PPP loans)Commercial real estate 3,805,856 3,704,197 3,679,297 3,722,966 3,723,991 (including multifamily)Commercial construction 595,466 615,439 646,281 675,698 663,036 Residential 316,233 332,403 352,426 374,283 390,655 Consumer 2,540 3,309 2,536 1,898 3,007 Gross loans 6,251,885 6,212,651 6,290,963 6,314,594 5,927,462 Unearned net (13,162 ) (12,023 ) (13,292 ) (13,420 ) (4,648 )origination feesLoans receivable 6,238,723 6,200,628 6,277,671 6,301,174 5,922,814 Loans held-for-sale 4,237 9,003 10,772 31,329 33,655 Total loans $ 6,242,960 $ 6,209,631 $ 6,288,443 $ 6,332,503 $ 5,956,469 Investment securities $ 481,802 $ 469,820 $ 429,947 $ 452,224 $ 458,642 Goodwill and other 219,171 219,761 220,391 221,039 221,075 intangible assetsDeposits: Noninterest-bearing $ 1,348,585 $ 1,294,447 $ 1,253,235 $ 1,277,428 $ 955,358 demandTime deposits 1,422,295 1,577,338 1,728,129 1,905,165 1,962,714 Other interest-bearing 3,225,751 3,094,536 2,881,592 2,639,052 2,660,755 depositsTotal deposits $ 5,996,631 $ 5,966,321 $ 5,862,956 $ 5,821,645 $ 5,578,827 Borrowings $ 375,511 $ 410,098 $ 467,399 $ 798,648 $ 477,121 Subordinated debentures(net of debt issuance 154,341 202,595 202,502 141,904 128,913 costs)Total stockholders' 928,041 906,153 883,364 868,796 864,241 equity Three Months Ended Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, 2021 2020 2020 2020 2020 (dollars in thousands, except for per share data)Net interest income $ 61,163 $ 61,371 $ 60,549 $ 60,790 $ 55,281 (Reversal of) provision (5,766 ) 5,000 5,000 15,000 16,000 for credit lossesNet interest incomeafter provision for 66,929 56,371 55,549 45,790 39,281 credit lossesNoninterest income Deposit, loan and other 1,168 1,300 1,278 3,212 1,287 incomeIncome on bank owned 1,064 1,314 1,598 1,128 967 life insuranceNet gains on sale of 707 841 614 237 393 loans held-for-saleNet gains on sale of - - - - 29 investment securitiesGain on sale of 674 - - - - branchesNet (losses) gains on (187 ) (13 ) (7 ) 44 178 equity securitiesTotal noninterest 3,426 3,442 3,483 4,621 2,854 incomeNoninterest expenses Salaries and employee 15,565 14,581 15,114 14,500 14,563 benefitsOccupancy and equipment 3,404 3,689 3,566 3,156 3,471 FDIC insurance 935 948 1,105 1,093 856 Professional and 1,956 2,210 1,926 1,673 1,574 consultingMarketing and 241 256 214 426 304 advertisingData processing 1,536 1,479 1,470 1,586 1,473 Merger expenses - - - 5,146 9,494 Amortization of core 507 628 627 652 652 deposit intangibleIncrease in value of - - - 2,333 - acquisition priceOther expenses 2,341 2,611 2,456 2,498 2,671 Total noninterest 26,485 26,402 26,478 33,063 35,058 expenses Income before income 43,870 33,411 32,554 17,348 7,077 tax expenseIncome tax expense 10,871 7,770 7,768 2,516 1,047 Net income $ 32,999 $ 25,641 $ 24,786 $ 14,832 $ 6,030 Weighted averagediluted shares 39,788,881 39,726,791 39,653,832 39,611,712 39,510,810 outstandingDiluted EPS $ 0.82 $ 0.64 $ 0.62 $ 0.37 $ 0.15 Reconciliation of GAAPEarnings to Pre-tax,Pre-provision and Pre-merger chargesEarningsNet income $ 32,999 $ 25,641 $ 24,786 $ 14,832 $ 6,030 Income tax expense 10,871 7,770 7,768 2,516 1,047 Merger charges - - - 5,146 9,494 (Reversal of) provision (5,766 ) 5,000 5,000 15,000 16,000 for credit lossesPre-tax, pre-provisionand pre-merger charges $ 38,104 $ 38,411 $ 37,554 $ 37,494 $ 32,571 earnings Return on Assets MeasuresAverage assets $ 7,500,034 $ 7,547,651 $ 7,474,002 $ 7,684,403 $ 7,106,027 Return on avg. assets 1.78 % 1.35 % 1.32 % 0.78 % 0.34 %Return on avg. assets(pre tax, pre-provision 2.06 2.02 2.00 1.96 1.84 and pre-merger charges) Three Months Ended Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, 2021 2020 2020 2020 2020 Return on Equity (dollars in thousands)MeasuresAverage common equity $ 928,041 $ 906,153 $ 883,364 $ 868,796 $ 864,241 Less: average (219,171 ) (219,761 ) (220,391 ) (221,039 ) (221,075 )intangible assetsAverage tangible common $ 708,870 $ 686,392 $ 662,973 $ 647,757 $ 643,166 equity Return on avg. common 14.42 % 11.26 % 11.16 % 6.87 % 2.81 %equity (GAAP)Return on avg. tangiblecommon equity 19.08 15.12 15.14 9.50 4.06 (non-GAAP) ^(1) Efficiency Measures Total noninterest $ 26,485 $ 26,402 $ 26,478 $ 33,063 $ 35,058 expensesAmortization of core (507 ) (628 ) (627 ) (652 ) (652 )deposit intangiblesMerger expenses - - - (5,146 ) (9,494 )Foreclosed property - (2 ) - (5 ) 10 expenseOperating noninterest $ 25,978 $ 25,772 $ 25,851 $ 27,260 $ 24,922 expense Net interest income $ 61,581 $ 61,840 $ 61,005 $ 61,253 $ 55,781 (tax equivalent basis)Noninterest income 3,426 3,442 3,483 4,621 2,854 Gains on sale of (674 ) - - - - branchesNet gains on sales of - - - - (29 )securitiesOperating revenue $ 64,333 $ 65,282 $ 64,488 $ 65,874 $ 58,606 Operating efficiency 40.4 % 39.5 % 40.1 % 41.4 % 42.5 %ratio (non-GAAP) ^(2) Net Interest Margin Average $ 7,008,500 $ 7,031,662 $ 6,962,499 $ 7,164,545 $ 6,584,508 interest-earning assets Net interest income $ 61,581 $ 61,840 $ 61,005 $ 61,253 $ 55,781 (tax equivalent basis)Impact of purchaseaccounting fair value (2,074 ) (2,237 ) (2,403 ) (3,073 ) (3,457 )marksAdjusted net interestincome (tax equivalent $ 59,507 $ 59,603 $ 58,602 $ 58,180 $ 52,324 basis) Net interest margin 3.56 % 3.50 % 3.49 % 3.44 % 3.41 %(GAAP)Adjusted net interest 3.44 3.37 3.35 3.27 3.20 margin (non-GAAP) ^(3) ^(1) Earnings available to common stockholders excluding amortization ofintangible 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 fairvalue marks. As of Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, 2021 2020 2020 2020 2020 Capital Ratios and Book (dollars in thousands, except for per share data)Value per ShareCommon equity $ 935,637 $ 915,310 $ 890,736 $ 867,741 $ 853,710 Less: intangible assets (218,842 ) (219,349 ) (219,977 ) (220,605 ) (221,263 )Tangible common equity $ 716,795 $ 695,961 $ 670,759 $ 647,136 $ 632,447 Total assets $ 7,449,639 $ 7,547,339 $ 7,449,559 $ 7,617,184 $ 7,279,327 Less: intangible assets (218,842 ) (219,349 ) (219,977 ) (220,605 ) (221,263 )Tangible assets $ 7,230,797 $ 7,327,990 $ 7,229,582 $ 7,396,579 $ 7,058,064 Common shares 39,773,602 39,785,398 39,753,033 39,753,033 39,704,921 outstanding Common equity ratio 12.56 % 12.13 % 11.96 % 11.39 % 11.73 %(GAAP)Tangible common equity 9.91 9.50 9.28 8.75 8.96 ratio (non-GAAP) ^(4) Regulatory capital ratios (Bancorp):Leverage ratio 9.89 % 9.51 % 9.30 % 8.99 % 9.20 %Common equity Tier 1 11.38 10.79 10.63 10.04 9.63 risk-based ratioRisk-based Tier 1 11.47 10.87 10.72 10.12 9.71 capital ratioRisk-based total 15.14 15.08 14.94 14.32 12.46 capital ratio Regulatory capital ratios (Bank):Leverage ratio 11.06 % 10.63 % 10.41 % 10.12 % 10.36 %Common equity Tier 1 12.82 12.24 12.00 11.38 10.93 risk-based ratioRisk-based Tier 1 12.82 12.24 12.00 11.38 10.93 capital ratioRisk-based total 14.62 10.00 13.70 12.96 12.25 capital ratio Book value per share $ 23.52 $ 23.01 $ 22.41 $ 21.83 $ 21.50 (GAAP)Tangible book value per 18.02 17.49 16.87 16.28 15.93 share (non-GAAP) ^(5) Net Loan (Recoveries) Charge-Off DetailNet loan (recoveries) charge-offs:Charge-offs $ - $ 900 $ 257 $ 462 $ 115 Recoveries (61 ) (833 ) (800 ) (4 ) (3 )Net loan (recoveries) $ (61 ) $ 67 $ (543 ) $ 458 $ 112 charge-offsNet loan (recoveries)charge-offs as a % of (0.00 )% 0.00 % (0.03 )% 0.03 % 0.01 %average loansreceivable (annualized) Asset Quality Nonaccrual loans $ 60,940 $ 61,696 $ 65,494 $ 64,580 $ 62,373 Performing troubled 25,505 23,655 18,241 20,418 21,293 debt restructurings Allowance for credit 80,568 79,226 74,267 68,724 54,169 losses - loans ("ACL") Loans receivable $ 6,277,191 $ 6,236,307 $ 6,251,051 $ 6,363,267 $ 6,009,310 Less: PPP loans 522,340 397,492 474,022 473,999 - Loans receivable $ 5,754,851 $ 5,838,815 $ 5,777,029 $ 5,889,268 $ 6,009,310 (excluding PPP loans) Nonaccrual loans as a % 0.97 % 0.99 % 1.05 % 1.01 % 1.04 %of loans receivableNonperforming assets as 0.82 0.82 0.88 0.85 0.86 a % of total assetsACL as a % of loans 1.28 1.27 1.19 1.08 0.90 receivableACL as a % of loansreceivable (excluding 1.40 1.36 1.29 1.17 0.90 PPP loans)ACL as a % of 132.2 128.4 113.4 106.4 86.8 nonaccrual loans ^(4) Tangible common equity divided by tangible assets.^(5) Tangible common equity divided by common shares outstanding at period-end.

CONNECTONE BANCORP, INC. AND SUBSIDIARIESNET INTEREST MARGIN ANALYSIS(dollars in thousands) For the Three Months Ended March 31, 2021 December 31, 2020 March 31, 2020 Average Average Average Interest-earning Balance Interest Rate ^ Balance Interest Rate ^ Balance Interest Rate ^assets: (7) (7) (7)Investment securities $ 473,181 $ 2,058 1.76 % $ 460,471 $ 2,194 1.90 % $ 452,294 $ 3,095 2.75 %^(1) (2)Loans receivable andloans held-for-sale ^ 6,242,960 70,676 4.59 6,209,631 73,420 4.70 5,956,469 73,220 4.94 (2) (3) (4)Federal funds sold and interest-bearing deposits with 269,537 49 0.07 337,172 69 0.08 148,429 499 1.35 banksRestricted investment 22,822 256 4.55 24,388 374 6.10 27,316 400 5.89 in bank stockTotal interest-earning 7,008,500 73,039 4.23 7,031,662 76,057 4.30 6,584,508 77,214 4.72 assetsAllowance for loan (81,549 ) (74,943 ) (38,970 ) lossesNoninterest-earning 573,083 584,145 560,489 assetsTotal assets $ 7,500,034 $ 7,540,864 $ 7,106,027 Interest-bearing liabilities:Time deposits $ 1,422,295 $ 5,151 1.47 $ 1,577,338 $ 6,682 1.69 1,962,714 10,371 2.13 Other interest-bearing 3,225,751 2,434 0.31 3,094,536 2,948 0.38 2,660,755 6,841 1.03 depositsTotal interest-bearing 4,648,046 7,585 0.66 4,671,874 9,630 0.82 4,623,469 17,212 1.50 deposits Borrowings 375,511 1,674 1.81 410,098 1,856 1.80 477,121 2,352 1.98 Subordinated 154,341 2,167 5.69 202,595 2,699 5.30 128,913 1,834 5.72 debenturesCapital lease 2,115 32 6.14 2,164 32 5.88 2,303 35 6.11 obligationTotal interest-bearing 5,180,013 11,458 0.90 5,286,731 14,217 1.07 5,231,806 21,433 1.65 liabilities Noninterest-bearing 1,348,585 1,294,447 955,358 demand depositsOther liabilities 43,395 53,533 54,622 Totalnoninterest-bearing 1,391,980 1,347,980 1,009,980 liabilitiesStockholders' equity 928,041 906,153 864,241 Total liabilities and $ 7,500,034 $ 7,540,864 $ 7,106,027 stockholders' equity Net interest income 61,581 61,840 55,781 (tax equivalent basis)Net interest spread ^ 3.33 3.23 % 3.07 %(5) Net interest margin ^ 3.56 % 3.50 % 3.41 %(6) Tax equivalent (418 ) (469 ) (500 ) adjustmentNet interest income $ 61,163 $ 61,371 $ 55,281 ^(1) Average balances are calculated on amortized cost.^(2) Interest income is presented on a tax equivalent basis using 21% federaltax 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 assetsand the average cost of interest-bearing liabilities and is presented on a taxequivalent basis.^(6) Represents net interest income on a tax equivalent basis divided byaverage total interest-earning assets.^(7) Rates are annualized.