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

July 29, 2021

ENGLEWOOD CLIFFS, N.J., July 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 $32.2 million for the second quarter of 2021 compared with $33.0 million for the first quarter of 2021 and $14.8 million for the second quarter of 2020. Diluted earnings per share were $0.81 for the second quarter of 2021 compared with $0.82 in the first quarter of 2021 and $0.37 in the second quarter of 2020. The decrease in net income and diluted earnings per share from the first quarter of 2021 was primarily due to a $4.1 million decrease in the release of provision for credit losses, partially offset by a $1.9 million increase in net interest income, a $1.0 million increase in noninterest income, and a $0.2 million decrease income tax expense. The increase in net income and diluted earnings per share from the second quarter of 2020 was primarily due to a $16.7 million decrease in the provision for credit losses, a $2.2 million increase in net interest income, a $6.8 million decrease in noninterest expenses, offset by an $8.1 million increase in income tax expense.

Frank Sorrentino, ConnectOnes Chairman and Chief Executive Officer stated, We are extremely pleased with our second quarter results highlighted by strong earnings, continued net interest margin expansion, an increase in noninterest income and best-in-class efficiency. We continued to deliver outstanding performance metrics, further solidifying our status as a top performer in the banking industry. This quarters pre-tax, pre-provision earnings as a percent of assets was 2.19%, return on assets was 1.71%, our return on tangible common equity was 17.8% while our tangible book value per share increased another 4% sequentially, to $18.76.

Our proactive, client-first approach has resulted in robust lending opportunities across our markets and beyond, delivering strong second quarter loan growth, especially towards the end of period, resulting in annualized sequential loan growth, net of Paycheck Protection Program (PPP) forgiveness, in excess of 20%. We remain focused on leveraging our strong technological foundation by investing in infrastructure, communication tools and digital channels to remain well-positioned for continued growth. During the quarter we benefited once again from BoeFlys involvement in the latest round of PPP, as our fintech subsidiary continues to increase its relationships with borrowers and banking partners, further driving its revenue growth.

ConnectOne will continue to pursue attractive opportunities to expand our valuable franchise. While we remain disciplined in our approach to growth, the dislocation in our marketplace--resulting directly from increased M&A activity--provides ConnectOne with meaningful opportunities to expand, grow and leverage our franchise organically.

Dividend Declaration

The Company announced that its Board of Directors declared a cash dividend on its common stock of $0.11 per share. The dividend will be paid on September 1, 2021 to shareholders of record on August 16, 2021.

Operating Results

Fully taxable equivalent net interest income for the second quarter of 2021 was $63.4 million, an increase of $1.8 million, or 3.0%, from the first quarter of 2021 resulting primarily from a 0.7% increase in average interest-earning assets, and a 4 basis-point widening of the net interest margin to 3.60% from 3.56%. Excluding purchase accounting adjustments, the adjusted net interest margin was 3.49% for the second quarter of 2021 and 3.44% for the first quarter of 2021. The net interest margin widened as a result of continued improvement in the Banks cost and mix of funding sources, which more than offset a declining yield on loans and investment securities. This was the seventh consecutive quarter that the Banks net interest margin widened. Included in interest income in both the first and second quarters of 2021 was the accretion of PPP fee income of approximately $2.3 million. Remaining deferred and unrecognized PPP fees were $9.4 million as of June 30, 2021.

Fully taxable equivalent net interest income for the second quarter of 2021 increased by $2.2 million, or 3.5%, from the second quarter of 2020. The increase from the second quarter of 2020 resulted primarily from a 16 basis-point widening of the net interest margin to 3.60% from 3.44%, offset by a 1.5% decrease in interest-earning assets, largely due to lower levels of PPP loans. The widening of the net interest margin resulted from a 53 basis-point reduction in the cost of interest-bearing liabilities, partially offset by a 27 basis-point reduction in the yield on average interest-earning assets.

The Company continues to gain momentum in building core noninterest revenue. Noninterest income was $4.5 million in the second quarter of 2021, $3.4 million in the first quarter of 2021 and $4.6 million in the second quarter of 2020. Non-core items included, during the current quarter, $0.7 million in BoeFly PPP referral income and $0.2 million in securities gains; during the first quarter 2021, $0.7 million gain on the sale of branches and a $0.2 million loss on equity securities; and during the second quarter 2020, $2.3 million of BoeFly PPP referral income. Excluding the aforementioned non-core items, noninterest income increased to $3.6 million during the second quarter of 2021 from $2.9 million during the first quarter of 2021 and $2.3 million during the second quarter of 2020. Primary contributors to the increase are gains on the sale of commercial and SBA loans, and BoeFlys growing business volumes.

Noninterest expenses totaled $26.3 million for the second quarter of 2021, $26.5 million for the first quarter of 2021 and $33.1 million for the second quarter of 2020. Noninterest expenses decreased $0.2 million from the first quarter of 2021 which resulted from decreases in FDIC insurance expense of $0.4 million and salaries and employee benefits of $0.3 million, partially offset by increases in other expenses of $0.3 million, professional and consulting expenses of $0.2 million and data processing of $0.1 million. Included in noninterest expenses during the second quarter of 2020 were merger-related expenses of $5.2 million and an additional $2.3 million in expenses related to the BoeFly acquisition. Excluding these two items, noninterest expenses during the second quarter of 2021 increased by $0.7 million when compared to the second quarter of 2020. This increase is mainly attributable to increases in salaries and employee benefits of $0.8 million, professional and consulting expenses of $0.4 million and other expenses of $0.2 million, partially offset by decreases in FDIC insurance expense of $0.5 million and marketing and advertising expenses of $0.1 million. The Company continues to invest in building its revenue generating capabilities, which is expected to increase non-interest expenses in the second half of 2021. Notwithstanding these expected expense increases, the Company remains focused on maintaining an efficiency ratio of approximately 40% or lower.

Income tax expense was $10.7 million for the second quarter of 2021, $10.9 million for the first quarter of 2021 and $2.5 million for the second quarter of 2020. The effective tax rates for the second quarter of 2021, first quarter of 2021 and second quarter of 2020 were 24.8%, 24.8% and 14.5%, respectively. The higher effective tax rate during the first half of 2021 when compared to the second quarter of 2020 resulted from a lower proportion of income from non-taxable sources.

Asset Quality

The (reversal of) provision for credit losses was $(1.6) million for the second quarter of 2021, $(5.8) million for the first quarter of 2021 and $15.0 million for the second quarter of 2020. The release of allowance for credit losses during the first two quarters of 2021 was the result of the continually improving macro-economic outlook during the first half of 2021. The elevated provision for loan losses for the second quarter of 2020 was due to the continued economic uncertainties of the COVID-19 pandemic, including consideration of related borrower payment deferrals requested and/or granted to date. As of June 30, 2021, the Bank had 79 loans on deferral, with a total balance of approximately $100 million. Of that total, $24.5 million, or 0.4% of loans receivable, were nonpayment deferrals, while the remaining $75.5 million, or 1.2% of loans receivable, were modifications in which borrowers are making modified principal and interest payments.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $56.2 million as of June 30, 2021, $61.7 million as of December 31, 2020 and $64.6 million as of June 30, 2020. Nonperforming assets as a percentage of total assets were 0.73% as of June 30, 2021, 0.82% as of December 31, 2020 and 0.85% as of June 30, 2020. Nonaccrual loans were $56.2 million as of June 30, 2021, $61.7 million as of December 31, 2020 and $64.6 million as of June 30, 2020, representing a ratio of nonaccrual loans to loans receivable of 0.88%, 0.99% and 1.01%, respectively. The annualized net loan charge-offs (recoveries) charge-off ratio was 0.01% for the second quarter of 2021, (0.00)% for the first quarter of 2021 and 0.03% for the second quarter of 2020. The allowance for credit losses represented 1.23%, 1.27%, and 1.08% of loans receivable as of June 30, 2021, December 31, 2020 and June 30, 2020, respectively. Excluding PPP loans, the allowance for credit losses represented 1.29%, 1.36%, and 1.17% of loans receivable as of June 30, 2021, December 31, 2020 and June 30, 2020, respectively. The allowance for credit losses as a percentage of nonaccrual loans was 140% as of June 30, 2021, 128.4% as of December 31, 2020 and 106.4% as of June 30, 2021.

Selected Balance Sheet Items

The Companys total assets were $7.7 billion, an increase of $162.7 million from December 31, 2020. Loans receivable were $6.4 billion, an increase of $171.6 million from December 31, 2020.The increase in loans receivable was attributable to higher, non-PPP, loan originations, offset by decreases in PPP loans resulting from forgiveness activity. As of June 30, 2021, PPP loans totaled $326.8 million, down $70.7 million when compared to $397.5 million as of December 31, 2020.

The Companys stockholders equity was $965.0 million as of June 30, 2021, an increase of $49.7 million from December 31, 2020. The increase in stockholders equity was primarily attributable to an increase in retained earnings of $54.3 million, offset by decreases in accumulated other comprehensive income of $3.0 million and an increase in treasury Stock of $2.4 million. As of June 30, 2021, the Companys tangible common equity ratio and tangible book value per share were 9.97% and $18.76, 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 $218.3 million as of June 30, 2021 and $219.2 million as of December 31, 2020.

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 2021 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on July 29, 2021 to review the Company's financial performance and operating results. The conference call dial-in number is 201-689-8471, access code 13720876. 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, July 29, 2021 and ending on Thursday, August 5, 2021 by dialing 412-317-6671, access code 13720876. 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) June 30, December 31, June 30, 2021 2020 2020 (unaudited) (unaudited)ASSETS Cash and due from banks $ 59,148 $ 63,637 $ 62,764 Interest-bearing deposits 290,269 240,119 286,597 with banksCash and cash equivalents 349,417 303,756 349,361 Investment securities 458,933 487,955 418,426 Equity securities 13,223 13,387 13,407 Loans held-for-sale 6,159 4,710 11,212 Loans receivable 6,407,904 6,236,307 6,363,267 Less: Allowance for 78,684 79,226 68,724 credit losses - loansNet loans receivable 6,329,220 6,157,081 6,294,543 Investment in restricted 22,563 25,099 26,656 stock, at costBank premises and 28,811 30,108 31,103 equipment, netAccrued interest 34,001 35,317 29,894 receivableBank owned life insurance 193,209 165,960 165,056 Right of use operating 12,504 16,159 23,771 lease assetsGoodwill 208,372 208,372 208,373 Core deposit intangibles 9,963 10,977 12,232 Other assets 43,707 88,458 33,150 Total assets $ 7,710,082 $ 7,547,339 $ 7,617,184 LIABILITIES Deposits: Noninterest-bearing $ 1,485,952 $ 1,339,108 $ 1,276,070 Interest-bearing 4,706,561 4,620,116 4,550,791 Total deposits 6,192,513 5,959,224 5,826,861 Borrowings 353,462 425,954 667,062 Subordinated debentures, 152,800 202,648 202,476 netLease liabilities 14,235 18,026 27,648 Other liabilities 32,112 26,177 25,396 Total liabilities 6,745,122 6,632,029 6,749,443 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock 586,946 586,946 586,946 Additional paid-in 24,606 23,887 22,069 capitalRetained earnings 386,280 331,951 288,688 Treasury stock (32,682 ) (30,271 ) (30,271 )Accumulated othercomprehensive (loss) (190 ) 2,797 309 incomeTotal stockholders' 964,960 915,310 867,741 equityTotal liabilities and $ 7,710,082 $ 7,547,339 $ 7,617,184 stockholders' equity

CONNECTONE BANCORP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(dollars in thousands,except for per share data) Three Months Ended Six Months Ended 06/30/21 06/30/20 06/30/21 06/30/20Interest income Interest and fees on $ 71,101 $ 75,797 $ 141,563 $ 148,733loansInterest and dividendson investment securities:Taxable 995 1,712 2,083 3,778Tax-exempt 608 647 1,374 1,460Dividends 263 442 519 842Interest on federalfunds sold and other 84 79 133 578short-term investmentsTotal interest income 73,051 78,677 145,672 155,391Interest expense Deposits 6,424 13,597 14,009 30,809Borrowings 3,618 4,290 7,491 8,511Total interest expense 10,042 17,887 21,500 39,320 Net interest income 63,009 60,790 124,172 116,071(Reversal of)provision for credit (1,649 ) 15,000 (7,415 ) 31,000lossesNet interest incomeafter (reversal of) 64,658 45,790 131,587 85,071provision for creditlosses Noninterest income Deposit, loan and 2,222 3,212 3,390 4,499other incomeIncome on bank owned 1,185 1,128 2,249 2,095life insuranceNet gains on sale of 847 237 1,554 630loans held-for-saleGain on sale of - - 674 -branchesNet gains (losses) on 23 44 (164 ) 222equity securitiesNet gains on sale/redemption of 195 - 195 29investment securitiesTotal noninterest 4,472 4,621 7,898 7,475income Noninterest expenses Salaries and employee 15,284 14,500 30,849 29,063benefitsOccupancy and 3,187 3,156 6,591 6,627equipmentFDIC insurance 580 1,093 1,515 1,949Professional and 2,117 1,673 4,073 3,247consultingMarketing and 278 426 519 730advertisingData processing 1,603 1,586 3,139 3,059Merger expenses - 5,146 - 14,640Amortization of core 508 652 1,015 1,304deposit intangibleIncrease in value of - 2,333 - 2,333acquisition priceOther expenses 2,702 2,498 5,043 5,169Total noninterest 26,259 33,063 52,744 68,121expenses Income before income 42,871 17,348 86,741 24,425tax expenseIncome tax expense 10,652 2,516 21,523 3,563Net income $ 32,219 $ 14,832 $ 65,218 $ 20,862 Earnings per common share:Basic $ 0.81 $ 0.37 $ 1.64 $ 0.53Diluted 0.81 0.37 1.63 0.52

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, I NC.SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES As of Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, 2021 2021 2020 2020 2020 Selected Financial Data (dollars in thousands) Total assets $ 7,710,082 $ 7,449,639 $ 7,547,339 $ 7,449,559 $ 7,617,184 Loans receivable: Commercial $ 1,046,965 $ 1,071,418 $ 1,092,404 $ 1,125,273 $ 1,151,025 Paycheck Protection 326,788 522,340 397,492 474,022 473,999 Program ("PPP") loansCommercial real estate 2,252,484 2,127,806 2,103,468 2,001,311 1,987,695 Multifamily 1,914,978 1,698,331 1,712,153 1,703,290 1,723,273 Commercial construction 587,121 565,872 617,747 614,112 673,893 Residential 286,907 306,376 322,564 343,376 366,315 Consumer 6,355 3,364 1,853 1,876 2,001 Gross loans 6,421,598 6,295,508 6,247,681 6,263,260 6,378,201 Unearned net (13,694 ) (18,317 ) (11,374 ) (12,209 ) (14,934 ) origination feesLoans receivable 6,407,904 6,277,191 6,236,307 6,251,051 6,363,267 Loans held-for-sale 6,159 6,900 4,710 8,508 11,212 Total loans $ 6,414,063 $ 6,284,091 $ 6,241,017 $ 6,259,559 $ 6,374,479 Investment and equity $ 472,156 $ 455,223 $ 501,342 $ 466,415 $ 431,833 securitiesGoodwill and other 218,335 218,842 219,349 219,977 220,605 intangible assetsDeposits: Noninterest-bearing $ 1,485,952 $ 1,384,961 $ 1,339,108 $ 1,270,021 $ 1,276,070 demandTime deposits 1,301,807 1,356,599 1,464,133 1,619,609 1,807,864 Other interest-bearing 3,404,754 3,209,774 3,155,983 2,909,126 2,742,927 depositsTotal deposits $ 6,192,513 $ 5,951,335 $ 5,959,224 $ 5,798,756 $ 5,826,861 Borrowings $ 353,462 $ 359,710 $ 425,954 $ 506,225 $ 667,062 Subordinated debentures(net of debt issuance 152,800 152,724 202,648 202,552 202,476 costs)Total stockholders' 964,960 935,637 915,310 890,736 867,741 equity Quarterly Average BalancesTotal assets $ 7,566,676 $ 7,500,034 $ 7,547,651 $ 7,474,002 $ 7,684,403 Loans receivable: Commercial (including $ 1,485,918 $ 1,531,790 $ 1,557,303 $ 1,610,423 $ 1,539,749 PPP loans)Commercial real estate 3,925,497 3,805,856 3,704,197 3,679,297 3,722,966 (including multifamily)Commercial construction 553,396 595,466 615,439 646,281 675,698 Residential 293,633 316,233 332,403 352,426 374,283 Consumer 3,148 2,540 3,309 2,536 1,898 Gross loans 6,261,592 6,251,885 6,212,651 6,290,963 6,314,594 Unearned net (13,076 ) (13,163 ) (12,023 ) (13,292 ) (13,420 ) origination feesLoans receivable 6,248,516 6,238,723 6,200,628 6,277,671 6,301,174 Loans held-for-sale 3,696 4,237 9,003 10,772 31,329 Total loans $ 6,252,212 $ 6,242,960 $ 6,209,631 $ 6,288,443 $ 6,332,503 Investment and equity $ 450,543 $ 481,802 $ 469,820 $ 429,947 $ 452,224 securitiesGoodwill and other 218,662 219,171 219,761 220,391 221,039 intangible assetsDeposits: Noninterest-bearing $ 1,432,707 $ 1,348,585 $ 1,294,447 $ 1,253,235 $ 1,277,428 demandTime deposits 1,324,510 1,422,295 1,577,338 1,728,129 1,905,165 Other interest-bearing 3,320,400 3,225,751 3,094,536 2,881,592 2,639,052 depositsTotal deposits $ 6,077,617 $ 5,996,631 $ 5,966,321 $ 5,862,956 $ 5,821,645 Borrowings $ 331,633 $ 375,511 $ 410,098 $ 467,399 $ 798,648 Subordinated debentures(net of debt issuance 152,750 154,341 202,595 202,502 141,904 costs)Total stockholders' 952,019 928,041 906,153 883,364 868,796 equity Three Months Ended Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, 2021 2021 2020 2020 2020 (dollars in thousands, except for per share data) Net interest income $ 63,009 $ 61,163 $ 61,371 $ 60,549 $ 60,790 Provision for credit (1,649 ) (5,766 ) 5,000 5,000 15,000 lossesNet interest incomeafter provision for 64,658 66,929 56,371 55,549 45,790 credit lossesNoninterest income Deposit, loan and other 2,222 1,168 1,300 1,278 3,212 incomeIncome on bank owned 1,185 1,064 1,314 1,598 1,128 life insuranceNet gains on sale of 847 707 841 614 237 loans held-for-saleGain on sale of - 674 - - - branchesNet gains (losses) on 23 (187 ) (13 ) (7 ) 44 equity securitiesNet gains on sale/redemption of 195 - - - - investment securitiesTotal noninterest 4,472 3,426 3,442 3,483 4,621 incomeNoninterest expenses Salaries and employee 15,284 15,565 14,581 15,114 14,500 benefitsOccupancy and equipment 3,187 3,404 3,689 3,566 3,156 FDIC insurance 580 935 948 1,105 1,093 Professional and 2,117 1,956 2,210 1,926 1,673 consultingMarketing and 278 241 256 214 426 advertisingData processing 1,603 1,536 1,479 1,470 1,586 Merger expenses - - - - 5,146 Amortization of core 508 507 628 627 652 deposit intangibleIncrease in value of - - - - 2,333 acquisition priceOther expenses 2,702 2,341 2,611 2,456 2,498 Total noninterest 26,259 26,485 26,402 26,478 33,063 expenses Income before income 42,871 43,870 33,411 32,554 17,348 tax expenseIncome tax expense 10,652 10,871 7,770 7,768 2,516 Net income $ 32,219 $ 32,999 $ 25,641 $ 24,786 $ 14,832 Weighted averagediluted shares 39,735,309 39,788,881 39,726,791 39,653,832 39,611,712 outstandingDiluted EPS $ 0.81 $ 0.82 $ 0.64 $ 0.62 $ 0.37 Reconciliation of GAAP Earnings to Pre-tax, Pre-provision and Pre-merger charges EarningsNet income $ 32,219 $ 32,999 $ 25,641 $ 24,786 $ 14,832 Income tax expense 10,652 10,871 7,770 7,768 2,516 Merger charges - - - - 5,146 Provision for credit (1,649 ) (5,766 ) 5,000 5,000 15,000 lossesPre-tax, pre-provisionand pre-merger charges $ 41,222 $ 38,104 $ 38,411 $ 37,554 $ 37,494 earnings Return on Assets MeasuresAverage assets $ 7,566,676 $ 7,500,034 $ 7,547,651 $ 7,474,002 $ 7,684,403 Return on avg. assets 1.71 % 1.78 % 1.35 % 1.32 % 0.78 %Return on avg. assets(pre-tax, pre-provision 2.19 2.06 2.02 2.00 1.96 and pre-merger charges) Three Months Ended Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, 2021 2021 2020 2020 2020 Return on Equity (dollars in thousands) MeasuresAverage common equity $ 952,019 $ 928,041 $ 906,153 $ 883,364 $ 868,796 Less: average (218,662 ) (219,171 ) (219,761 ) (220,391 ) (221,039 ) intangible assetsAverage tangible common $ 733,357 $ 708,870 $ 686,392 $ 662,973 $ 647,757 equity Return on avg. common 13.57 % 14.42 % 11.26 % 11.16 % 6.87 %equity (GAAP)Return on avg. tangiblecommon equity ("TCE") 17.82 19.08 15.12 15.14 9.50 (non-GAAP) ^(1) Efficiency Measures Total noninterest $ 26,259 $ 26,485 $ 26,402 $ 26,478 $ 33,063 expensesAmortization of core (508 ) (507 ) (628 ) (627 ) (652 ) deposit intangiblesMerger expenses - - - - (5,146 ) Foreclosed property - - (2 ) - (5 ) expenseOperating noninterest $ 25,751 $ 25,978 $ 25,772 $ 25,851 $ 27,260 expense Net interest income $ 63,418 $ 61,581 $ 61,840 $ 61,005 $ 61,253 (tax equivalent basis)Noninterest income 4,472 3,426 3,442 3,483 4,621 Net gains on sale of - (674 ) - - - branchesNet gains on sale/redemption of (195 ) - - - - securitiesOperating revenue $ 67,695 $ 64,333 $ 65,282 $ 64,488 $ 65,874 Operating efficiency 38.0 % 40.4 % 39.5 % 40.1 % 41.4 %ratio (non-GAAP) ^(2) Net Interest Margin Average $ 7,059,964 $ 7,008,500 $ 7,031,662 $ 6,962,499 $ 7,164,545 interest-earning assets Net interest income $ 63,418 $ 61,581 $ 61,840 $ 61,005 $ 61,253 (tax equivalent basis)Impact of purchaseaccounting fair value (2,012 ) (2,074 ) (2,237 ) (2,403 ) (3,073 ) marksAdjusted net interestincome (tax equivalent $ 61,406 $ 59,507 $ 59,603 $ 58,602 $ 58,180 basis) Net interest margin 3.60 % 3.56 % 3.50 % 3.49 % 3.44 %(GAAP)Adjusted net interest 3.49 3.44 3.37 3.35 3.27 margin (non-GAAP) ^(3) ^(1) Earnings available to common stockholders excluding amortization of intangible assets divided by average tangible common equity.^(2) Operatingnoninterest expense divided by operatingrevenue.^(3) Adjusted net interest margin excludes impact of purchase accounting fair value marks. As of Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, 2021 2021 2020 2020 2020 Capital Ratios and Book (dollars in thousands, except for per share data) Value per ShareCommon equity $ 964,960 $ 935,637 $ 915,310 $ 890,736 $ 867,741 Less: intangible assets (218,335 ) (218,842 ) (219,349 ) (219,977 ) (220,605 ) Tangible common equity $ 746,625 $ 716,795 $ 695,961 $ 670,759 $ 647,136 Total assets $ 7,710,082 $ 7,449,639 $ 7,547,339 $ 7,449,559 $ 7,617,184 Less: intangible assets (218,335 ) (218,842 ) (219,349 ) (219,977 ) (220,605 ) Tangible assets $ 7,491,747 $ 7,230,797 $ 7,327,990 $ 7,229,582 $ 7,396,579 Common shares 39,794,815 39,773,602 39,785,398 39,753,033 39,753,033 outstanding Common equity ratio 12.52 % 12.56 % 12.13 % 11.96 % 11.39 %(GAAP)Tangible common equity 9.97 9.91 9.50 9.28 8.75 ratio (non-GAAP) ^(4) Regulatory capital ratios (Bancorp):Leverage ratio 10.19 % 9.89 % 9.51 % 9.30 % 8.99 %Common equity Tier 1 11.09 11.36 10.79 10.63 10.04 risk-based ratioRisk-based Tier 1 11.17 11.44 10.87 10.72 10.12 capital ratioRisk-based total 14.58 15.08 15.08 14.94 14.32 capital ratio Regulatory capital ratios (Bank):Leverage ratio 11.34 % 11.06 % 10.63 % 10.41 % 10.12 %Common equity Tier 1 12.42 12.78 12.24 12.00 11.38 risk-based ratioRisk-based Tier 1 12.42 12.78 12.24 12.00 11.38 capital ratioRisk-based total 14.07 14.55 10.00 13.70 12.96 capital ratio Book value per share $ 24.25 $ 23.52 $ 23.01 $ 22.41 $ 21.83 (GAAP)Tangible book value per 18.76 18.02 17.49 16.87 16.28 share (non-GAAP) ^(5) Net Loan (Recoveries) Charge-Off DetailNet loan charge-offs (recoveries):Charge-offs $ 212 $ - $ 900 $ 257 $ 462 Recoveries (14 ) (61 ) (833 ) (800 ) (4 ) Net loan charge-offs $ 198 $ (61 ) $ 67 $ (543 ) $ 458 (recoveries)Net loan charge-offs(recoveries) as a % of 0.01 % (0.00 ) % 0.00 % (0.03 ) % 0.03 % average loansreceivable (annualized) Asset Quality Nonaccrual loans $ 56,213 $ 60,940 $ 61,696 $ 65,494 $ 64,580 OREO - - - - - Nonperforming assets $ 56,213 $ 60,940 $ 61,696 $ 65,494 $ 64,580 Performing troubled $ 33,021 $ 25,505 $ 23,655 $ 18,241 $ 20,418 debt restructurings Allowance for credit 78,684 80,568 79,226 74,267 68,724 losses - loans ("ACL") Loans receivable $ 6,407,904 $ 6,277,191 $ 6,236,307 $ 6,251,051 $ 6,363,267 Less: PPP loans 326,790 522,340 397,492 474,022 473,999 Loans receivable $ 6,081,114 $ 5,754,851 $ 5,838,815 $ 5,777,029 $ 5,889,268 (excluding PPP loans) Nonaccrual loans as a % 0.88 % 0.97 % 0.99 % 1.05 % 1.01 of loans receivableNonperforming assets as 0.73 0.82 0.82 0.88 0.85 a % of total assetsACL as a % of loans 1.23 1.28 1.27 1.19 1.08 receivableACL as a % of loansreceivable (excluding 1.29 1.40 1.36 1.29 1.17 PPP loans)ACL as a % of 140.0 132.2 128.4 113.4 106.4 nonaccrual loans ^(4) Tangible commonequity 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 June 30, 2021 March 31, 2021 June 30, 2020 Average Average Average Interest-earning Balance Interest Rate ^ Balance Interest Rate ^ Balance Interest Rate ^assets: (7) (7) (7)Investment securities ^ $ 444,460 $ 1,765 1.59 % $ 473,181 $ 2,058 1.76 % $ 443,282 $ 2,531 2.30 %(1) (2)Loans receivable andloans held-for-sale ^ 6,252,212 71,348 4.58 6,242,960 70,676 4.59 6,332,503 76,088 4.83 (2) (3) (4)Federal funds sold andinterest-bearing 341,885 84 0.10 269,537 49 0.07 357,758 79 0.09 deposits with banksRestricted investment 21,407 263 4.93 22,822 256 4.55 31,002 442 5.73 in bank stockTotal interest-earning 7,059,964 73,460 4.17 7,008,500 73,039 4.23 7,164,545 79,140 4.44 assetsAllowance for loan (80,548 ) (81,549 ) (53,502 ) lossesNoninterest-earning 587,259 573,083 573,360 assetsTotal assets $ 7,566,675 $ 7,500,034 $ 7,684,403 Interest-bearing liabilities:Time deposits 1,324,510 3,963 1.20 $ 1,422,295 $ 5,151 1.47 1,905,165 9,586 2.02 Other interest-bearing 3,320,400 2,461 0.30 3,225,751 2,434 0.31 2,639,052 4,011 0.61 depositsTotal interest-bearing 4,644,910 6,424 0.55 4,648,046 7,585 0.66 4,544,217 13,597 1.20 deposits Borrowings 331,633 1,419 1.72 375,511 1,674 1.81 798,648 2,235 1.13 Subordinated debentures 152,750 2,168 5.69 154,341 2,167 5.69 141,904 2,021 5.73 Capital lease 2,066 31 6.02 2,115 32 6.14 2,257 34 6.06 obligationTotal interest-bearing 5,131,359 10,042 0.78 5,180,013 11,458 0.90 5,487,026 17,887 1.31 liabilities Noninterest-bearing 1,432,707 1,348,585 1,277,428 demand depositsOther liabilities 50,590 43,395 51,153 Totalnoninterest-bearing 1,483,297 1,391,980 1,328,581 liabilitiesStockholders' equity 952,019 928,041 868,796 Total liabilities and $ 7,566,675 $ 7,500,034 $ 7,684,403 stockholders' equity Net interest income 63,418 61,581 61,253 (tax equivalent basis)Net interest spread ^ 3.39 3.33 3.13 %(5) Net interest margin ^ 3.60 % 3.56 % 3.44 %(6) Tax equivalent (409 ) (418 ) (463 ) adjustmentNet interest income $ 63,009 $ 61,163 $ 60,790 ^(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-bearingliabilities 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.