GlobeNewswire Inc | Jul 30, 2020 07:01AM EDT

July 30, 2020

ENGLEWOOD CLIFFS, N.J., July 30, 2020 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq: CNOB) (the Company or ConnectOne), parent company of ConnectOne Bank (the Bank), today reported net income of $14.8 million for the second quarter of 2020 compared with $6.0 million for the first quarter of 2020 and $19.3 million for the second quarter of 2019. Diluted earnings per share were $0.37 in the second quarter of 2020 compared with $0.15 in the first quarter of 2020 and $0.54 in the second quarter of 2019. The increase in net income and diluted earnings per share from the first quarter of 2020 was due to an increase in net interest income, an increase in noninterest income, a decrease in noninterest expenses, and a decrease in provision for loan losses. Included in net income were merger and restructuring expenses of $5.1 million for the second quarter of 2020, $9.5 million for the first quarter of 2020 and $0.3 million for the second quarter of 2019. On a pre-tax, pre-provision and pre-merger charges basis, earnings were $37.5 million for the second quarter of 2020, $32.6 million for the first quarter of 2020, and $26.2 million for the second quarter of 2019.

Frank Sorrentino, ConnectOnes Chairman and Chief Executive Officer stated, We continue to execute on our priorities of using our full range of banking expertise to support our clients, ensuring the safety and well-being of our employees and maintaining a strong financial position. During the quarter, ConnectOne performed well.We reported earnings of $0.37 per share, despite an additional $14 million of reserves due to the uncertainty regarding the pandemic, matching our reserves from the first quarter of 2020 and bringing our total reserves for the total portfolio to approximately 1.08%. Tangible book value per share increased to $16.28. Additionally, we had strong pre-tax operatingrevenue which was in excess of 1.95% of total average assets, placing us among the strongest in the industry.

Operationally, our teams continue to offer essential banking services virtually and, as a technology-forward bank, the investments weve made in financial technology and in our infrastructure over the past few years is playing a critical role in positioning ConnectOnes virtual bank model. Further, weve continued to be a resource to the communities we serve by actively participating in the SBAs Paycheck Protection Program (the PPP), funding over $470 million of PPP loans. Additionally, our FinTech subsidiary BoeFly which connects small- to mid-sized businesses to a network of financial lenders has significantly increased its relationships with borrowers and banking partners and has participated in the PPP programs in a meaningful way.Were operating our Bank efficiently and effectively and Im proud of the continued resiliency of the ConnectOne team.

Mr. Sorrentino added, Looking ahead, while the nation and the banking industry face considerable uncertainty about the length of the pandemic, we have reason to be optimistic.ConnectOne has always been a commercial real estate lender with low loss history, we have low exposure to hot button industries and our C&I portfolio has focused on lending in low-risk industries. Were operating ConnectOne in a disciplined manner,our capital levels are solid, our portfolio is underwritten with low LTVs and reasonable cap rates, and were confident that together we will all get through this.When we come out on the other side, we expect to get back to executing prudent growth trends and strong metrics, as we focused on in the past.

Dividend Declaration

The Company announced thatits Board of Directors declared a cash dividend on its common stock of $0.09 per share.The dividend will be paid on September 1, 2020, to all shareholders of record on August 17, 2020.

Operating Results

Fully taxable equivalent net interest income for the second quarter of 2020 was $61.3 million, an increase of $5.5 million, or 9.8%, from the first quarter of 2020, and an increase of $15.2 million from the second quarter of 2019. The increase from the first quarter of 2020 resulted primarily from an 8.8% increase in average interest-earning assets, largely due to PPP loan originations, and a 3 basis-point widening of the net interest margin to 3.44% from 3.41%. Included in net interest income were purchase accounting adjustments of $3.1 million for the second quarter of 2020 and $3.5 million for the first quarter of 2020. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.27% for the second quarter of 2020 and 3.20% for the first quarter of 2020. The widening of the adjusted net interest margin resulted primarily from the favorable impact the Feds first quarter interest rate reductions had on our funding costs, which more than offset declines in our interest-earning asset yields. Included in interest income in the second quarter of 2020 was PPP fee income of approximately $3.7 million. The remaining $11.4 million in unamortized fees are expected to be realized over the next two to three quarters. The benefit to the second quarter 2020 net interest margin attributable to the PPP was offset by additional liquidity on the Banks balance sheet.

Noninterest income totaled $4.6 million in the second quarter of 2020, $2.9 million in the first quarter of 2020 and $1.9 million in the second quarter of 2019. The increase in noninterest income of $1.8 million from the first quarter of 2020 was primarily attributed to increases deposit, loan and other income of $1.9 million, which includes loan referral fee income of $2.3 million generated by BoeFly as a result of its participation in the PPP program, which was partially offset by decreases in other deposit and loan fees of $0.4 million. Additional decreases were in net gains on sale of loans held-for-sale of $0.2 million and net gains on equity securities of $0.1 million, offset by increases in income on bank owned life insurance of $0.2 million.

Noninterest expenses totaled $33.1 million for the second quarter of 2020, $35.1 million for the first quarter of 2020 and $21.6 million for the second quarter of 2019. Included in noninterest expenses were merger-related charges totaling $5.1 million, $9.5 million and $0.3 million, during the second quarter of 2020, first quarter of 2020 and second quarter of 2019, respectively. Excluding merger-related charges, noninterest expenses increased by $2.4 million from the first quarter of 2020, primarily attributable to an additional $2.3 million in expenses related to the BoeFly acquisition.

Income tax expense was $2.5 million for the second quarter of 2020, $1.0 million for the first quarter of 2020 and $5.5 million for the second quarter of 2019. The effective tax rates for the second quarter of 2020, first quarter of 2020 and second quarter of 2019 were 14.5%, 14.8% and 22.2%, respectively.

Asset Quality

In accordance with the accounting relief provisions of the CARES Act, the Company has postponed the adoption of the current expected credit losses (CECL) accounting standards as permitted under regulatory guidance. Management reached this decision due to the complexities of CECL loan loss forecasting exacerbated by the quickly changing economic environment resulting from the COVID-19 pandemic.

The provision for loan losses was $15.0 million for the second quarter of 2020, $16.0 million for the first quarter of 2020 and $1.1 million for the second quarter of 2019. The elevated provision for loan losses for the first two quarters of 2020 was due to the continued economic uncertainties of the COVID-19 pandemic, including consideration of related payment deferrals requested and/or granted to date. The aggregate payment deferrals are expected to decrease by more than 50% to less than $450 million, as we will commence billing on more than $500 million of loans deferred during the second quarter of 2020. We will continue to work with our borrowers, where necessary, to provide additional support and guidance during this unprecedented difficult operating environment. ConnectOne has relatively low exposure to perceived at-risk industries, such as energy and hospitality. And, consistent with our extensive experience and low loss history in real estate lending, a large portion of our loan portfolio is well-secured and was underwritten with prudent loan-to-value ratios and cap rates. Meanwhile, our well-managed commercial lending program, which has avoided higher risk industries, is virtually all borrower recourse. Nevertheless, as the pandemic crisis persists, there remains potential for increased levels of impaired loans across all segments of the portfolio.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $64.6 million at June 30, 2020, $49.5 million at December 31, 2019 and $49.9 million at June 30, 2019. Included in nonperforming assets were taxi medallion loans totaling $23.0 million at June 30, 2020, $23.4 million at December 31, 2019 and $26.5 million at June 30, 2019. Nonperforming assets (including taxi medallion loans) as a percentage of total assets were 0.85% at June 30, 2020, 0.80% at December 31, 2019 and 0.82% at June 30, 2019. Excluding the taxi medallion loans, nonaccrual loans were $41.6 million at June 30, 2020, $26.1 million at December 31, 2019 and $23.4 million at June 30, 2019, representing a ratio of nonaccrual loans (excluding taxi medallion loans) to loans receivable of 0.66%, 0.51% and 0.46%, respectively.

During the second quarter of 2020, the Bank implemented a series of short-term loan modifications consisting primarily of payment deferrals as requested by borrowers due to the COVID-19 pandemic. Regulatory agencies previously confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered troubled debt restructurings. As of June 30, 2020, the Bank had 575 deferred loans totaling approximately $937 million. The majority of these loans were initially deferred for 3-4 months.

The annualized net loan charge-off ratio was 0.03% for the second quarter of 2020, 0.08% for the fourth quarter of 2019 and 0.02% for the second quarter of 2019. The allowance for loan losses represented 1.08%, 0.75%, and 0.74% of loans receivable as of June 30, 2020, December 31, 2019 and June 30, 2019, respectively. Excluding PPP loans, allowance for loan losses represented 1.17%, 0.75%, and 0.74% of loans receivable as of June 30, 2020, December 31, 2019 and June 30, 2019, respectively. The allowance for loan losses currently excludes approximately $5 million of purchase accounting credit marks that are expected to be added to the allowance for loan losses once CECL is implemented, resulting in an additional 8 bps to the allowance for loan losses as a percent of loans ratio. The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 165.4% as of June 30, 2020, 147.0% as of December 31, 2019 and 161.0% as of June 30, 2019.

Selected Balance Sheet Items

The Companys total assets were $7.6 billion, an increase of $1.4 billion from December 31, 2019. Loans receivable were $6.4 billion, an increase of $1.2 billion from December 31, 2019. The increase in total assets and loans receivable were primarily attributable to the acquisition of Bancorp of NJ (BNJ) and the origination of PPP loans. We originated over $470million of PPP loans in the second quarter of 2020. We expect the level of PPP loans to decline significantly over the course of 2020 and into the first quarter of 2021 as the loans are forgiven and paid down by the SBA through the guarantee provisions the CARES Act.

The Companys stockholders equity was $868 million at June 30, 2020, an increase of $137 million from December 31, 2019. The increase in stockholders equity was primarily attributable to the acquisition of BNJ, which increased capital by $118 million. As of June 30, 2020, the Companys tangible common equity ratio and tangible book value per share were 8.75% and $16.28, respectively. As of December 31, 2019, the tangible common equity ratio and tangible book value per share were 9.38% and $16.06, respectively. Total goodwill and other intangible assets were approximately $221 million as of June 30, 2020 and $168 million and December 31, 2019.

Use of Non-GAAP Financial Measures

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

Second Quarter 2020 Results Conference Call

Management will host a conference call and audio webcast at 10:00 a.m. ET on July 30, 2020 to review the Company's financial performance and operating results. The conference call dial-in number is 412-317-6026, access code 10146235. 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 30, 2020 and ending on Thursday, August 6, 2020 by dialing 412-317-6671, access code 10146235. An online archive of the webcast will be available following the completion of the conference call at https://www.ConnectOneBank.comor 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:Emily Holtzman, MWWPR631.742.9568; eholtzman@mww.com

CONNECTONE BANCORP, I NC. AND SUBSIDIARIESCONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION(in thousands) June 30, December 31, June 30, 2020 2019 2019 (unaudited) (unaudited) ASSETS Cash and due from $ 62,764 $ 65,717 $ 51,950 banksInterest-bearing 286,597 135,766 133,700 deposits with banksCash and cash 349,361 201,483 185,650 equivalents Securities 418,426 404,701 441,911 available-for-saleEquity securities 13,407 11,185 11,152 Loans held-for-sale 11,212 33,250 - Loans receivable 6,363,267 5,113,527 5,090,492 Less: Allowance for 68,724 38,293 37,698 loan lossesNet loans receivable 6,294,543 5,075,234 5,052,794 Investment inrestricted stock, at 26,656 27,397 31,767 costBank premises and 31,103 19,236 19,781 equipment, netAccrued interest 29,894 20,949 21,272 receivableBank owned life 165,056 137,961 126,132 insuranceLeases 23,771 15,137 16,397 Goodwill 208,372 162,574 162,574 Core deposit 12,233 5,460 6,140 intangiblesOther assets 33,150 59,465 33,496 Total assets $ 7,617,184 $ 6,174,032 $ 6,109,066 LIABILITIES Deposits: Noninterest-bearing $ 1,276,070 $ 861,728 $ 813,635 Interest-bearing 4,550,791 3,905,814 3,827,508 Total deposits 5,826,861 4,767,542 4,641,143 Borrowings 667,062 500,293 597,317 Leases 27,648 16,449 17,787 Subordinated 202,476 128,885 128,720 debenturesOther liabilities 25,396 29,673 24,875 Total liabilities 6,749,443 5,442,842 5,409,842 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock 586,946 468,571 468,571 Additional paid-in 22,069 21,344 19,777 capitalRetained earnings 288,688 271,782 235,649 Treasury stock (30,271 ) (29,360 ) (21,892 ) Accumulated othercomprehensive income 309 (1,147 ) (2,881 ) (loss)Total stockholders' 867,741 731,190 699,224 equityTotal liabilities and $ 7,617,184 $ 6,174,032 $ 6,109,066 stockholders' equity

CONNECTONE BANCORP,INC. AND SUBSIDIARIESCONSOLIDATEDSTATEMENTS OF INCOME(dollars inthousands, except for per share data) Three Months Ended Six Months Ended 06/30/20 06/30/19 06/30/20 06/30/19 Interest income Interest and fees $ 75,797 $ 63,524 $ 148,733 $ 123,850 on loansInterest anddividends on investmentsecurities:Taxable 1,712 2,573 3,778 5,515 Tax-exempt 647 1,081 1,460 2,208 Dividends 442 410 842 867 Interest on federalfunds sold and 79 290 578 647 other short-terminvestmentsTotal interest 78,677 67,878 155,391 133,087 incomeInterest expense Deposits 13,597 16,596 30,809 31,947 Borrowings 4,290 5,752 8,511 10,658 Total interest 17,887 22,348 39,320 42,605 expense Net interest income 60,790 45,530 116,071 90,482 Provision for loan 15,000 1,100 31,000 5,600 lossesNet interest incomeafter provision for 45,790 44,430 85,071 84,882 loan losses Noninterest income Income on bankowned life 1,128 833 2,095 1,655 insuranceNet gains on saleof loans 237 46 630 65 held-for-saleDeposit, loan and 3,212 914 4,499 1,700 other incomeNet gains on equity 44 158 222 261 securitiesNet (losses) gainson sale of - (9 ) 29 (1 ) securitiesavailable-for-saleTotal noninterest 4,621 1,942 7,475 3,680 income Noninterest expensesSalaries and 14,500 11,822 29,063 23,805 employee benefitsOccupancy and 3,156 2,357 6,627 4,852 equipmentFDIC insurance 1,093 825 1,949 1,580 Professional and 1,673 1,370 3,247 2,579 consultingMarketing and 426 397 730 607 advertisingData processing 1,586 1,139 3,059 2,294 Merger andrestructuring 5,146 331 14,640 7,893 expensesLoss onextinguisment of - 1,047 - 1,047 debtAmortization ofcore deposit 652 364 1,304 728 intangibleIncrease in valueof acquisition 2,333 - 2,333 - priceOther expenses 2,498 1,938 5,169 4,267 Total noninterest 33,063 21,590 68,121 49,652 expenses Income before 17,348 24,782 24,425 38,910 income tax expenseIncome tax expense 2,516 5,501 3,563 7,994 Net income $ 14,832 $ 19,281 $ 20,862 $ 30,916 Earnings per common share:Basic $ 0.37 $ 0.54 $ 0.53 $ 0.87 Diluted 0.37 0.54 0.52 0.87

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 results determined 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 June 30, Mar. 31, Dec. 31, Sept. 30, June 30, 2020 2020 2019 2019 2019 Selected Financial (dollars in thousands) DataTotal assets $ 7,617,184 $ 7,279,327 $ 6,174,032 $ 6,161,269 $ 6,109,066 Loans receivable: Commercial $ 1,625,024 $ 1,203,818 $ 1,096,224 $ 1,079,071 $ 1,018,951 Commercial real 1,987,695 1,981,149 1,559,354 1,551,182 1,555,542 estateMultifamily 1,723,273 1,762,651 1,518,400 1,513,216 1,589,340 Commercial 673,893 676,836 620,969 647,261 602,213 constructionResidential 366,315 387,400 320,019 322,307 326,661 Consumer 2,001 1,965 3,328 2,436 2,041 Gross loans 6,378,201 6,013,819 5,118,294 5,115,473 5,094,748 Unearned net (14,934 ) (4,509 ) (4,767 ) (5,002 ) (4,256 ) origination feesLoans receivable 6,363,267 6,009,310 5,113,527 5,110,471 5,090,492 Loans held-for-sale 11,212 32,425 33,250 33,245 - Total loans $ 6,374,479 $ 6,041,735 $ 5,146,777 $ 5,143,716 $ 5,090,492 Investment $ 431,833 $ 460,101 $ 415,886 $ 437,080 $ 453,063 securitiesGoodwill and other 220,605 221,263 168,034 168,374 168,714 intangible assetsDeposits: Noninterest-bearing $ 1,276,070 $ 979,778 $ 861,728 $ 828,190 $ 813,635 demandTime deposits 1,807,864 1,974,400 1,553,721 1,573,736 1,623,948 Otherinterest-bearing 2,742,927 2,555,014 2,352,093 2,349,308 2,203,560 depositsTotal deposits $ 5,826,861 $ 5,509,192 $ 4,767,542 $ 4,751,234 $ 4,641,143 Borrowings $ 667,062 $ 726,856 $ 500,293 $ 512,456 $ 597,317 Subordinateddebentures (net of 202,476 128,967 128,885 128,802 128,720 debt issuancecosts)Total stockholders' 867,741 853,710 731,190 720,160 699,224 equity Quarterly Average BalancesTotal assets $ 7,684,403 $ 7,106,027 $ 6,084,607 $ 6,059,413 $ 6,001,669 Loans receivable: Commercial $ 1,539,749 $ 1,146,773 $ 1,085,640 $ 1,040,355 $ 1,024,617 Commercial realestate (including 3,722,966 3,723,991 3,074,889 3,144,978 3,088,231 multifamily)Commercial 675,698 663,036 642,476 617,106 571,130 constructionResidential 374,283 390,655 318,413 325,188 322,517 Consumer 1,898 3,007 4,165 3,525 3,252 Gross loans 6,314,594 5,927,462 5,125,583 5,131,152 5,009,747 Unearned net (13,420 ) (4,648 ) (5,031 ) (4,778 ) (4,463 ) origination feesLoans receivable 6,301,174 5,922,814 5,120,552 5,126,374 5,005,284 Loans held-for-sale 31,329 33,655 33,163 991 225 Total loans $ 6,332,503 $ 5,956,469 $ 5,153,715 $ 5,127,365 $ 5,005,509 Investment $ 452,224 $ 458,642 $ 427,973 $ 448,618 $ 513,814 securitiesGoodwill and other 221,039 221,075 168,257 168,598 164,709 intangible assetsDeposits: Noninterest-bearing $ 1,277,428 $ 955,358 $ 844,332 $ 810,247 $ 800,856 demandTime deposits 1,905,165 1,962,714 1,533,425 1,598,378 1,551,014 Otherinterest-bearing 2,639,052 2,660,755 2,348,752 2,300,886 2,183,384 depositsTotal deposits $ 5,821,645 $ 5,578,827 $ 4,726,509 $ 4,709,511 $ 4,535,254 Borrowings $ 798,648 $ 477,121 $ 452,837 $ 467,230 $ 603,260 Subordinateddebentures (net of 141,904 128,913 128,830 128,747 128,666 debt issuancecosts)Total stockholders' 868,796 864,241 732,173 714,002 694,978 equity Three Months Ended June 30, Mar. 31, Dec. 31, Sept. 30, June 30, 2020 2020 2019 2019 2019 (dollars in thousands, except for per share data) Net interest income $ 60,790 $ 55,281 $ 47,431 $ 48,406 $ 45,530 Provision for 15,000 16,000 500 2,000 1,100 loan lossesNet interest incomeafter provision for 45,790 39,281 46,931 46,406 44,430 loan lossesNoninterest income Income on bankowned life 1,128 967 914 915 833 insuranceNet gains on saleof loans 237 393 169 278 46 held-for-saleDeposit, loan and 3,212 1,287 1,209 1,116 914 other incomeNet gains(losses) on equity 44 178 (46 ) 79 158 securitiesNet gains(losses) on sale of - 29 - (279 ) (9 ) investmentsecuritiesTotal noninterest 4,621 2,854 2,246 2,109 1,942 incomeNoninterest expensesSalaries and 14,500 14,563 12,881 12,449 11,822 employee benefitsOccupancy and 3,156 3,471 2,380 2,480 2,357 equipmentFDIC insurance 1,093 856 795 (364 ) 825 Professional and 1,673 1,574 1,428 1,499 1,370 consultingMarketing and 426 304 273 473 397 advertisingData processing 1,586 1,473 1,151 1,058 1,139 Merger andrestructuring 5,146 9,494 871 191 331 expensesLoss onextinguishment of - - - - 1,047 debtAmortization ofcore deposit 652 652 340 340 364 intangibleIncrease in valueof acquisition 2,333 - - - - priceOther expenses 2,498 2,671 2,078 2,253 1,938 Total noninterest 33,063 35,058 22,197 20,379 21,590 expenses Income before 17,348 7,077 26,980 28,136 24,782 income tax expenseIncome tax 2,516 1,047 6,197 6,440 5,501 expenseNet income $ 14,832 $ 6,030 $ 20,783 $ 21,696 $ 19,281 Weighted averagediluted shares 39,611,712 39,510,810 35,245,285 35,262,565 35,397,362 outstandingDiluted EPS $ 0.37 $ 0.15 $ 0.59 $ 0.61 $ 0.54 Reconciliation ofGAAP Earnings toPre-tax, Pre-provision andPre-merger ChargesEarningsNet income $ 14,832 $ 6,030 $ 20,783 $ 21,696 $ 19,281 Income tax expense 2,516 1,047 6,197 6,440 5,501 Merger andrestructuring 5,146 9,494 871 191 331 expensesProvision for loan 15,000 16,000 500 2,000 1,100 lossesPre-tax,pre-provision and $ 37,494 $ 32,571 $ 28,351 $ 30,327 $ 26,213 pre-merger chargesearnings Return on Assets MeasuresAverage assets $ 7,684,403 $ 7,106,027 $ 6,084,607 $ 6,059,413 $ 6,001,669 Return on avg. 0.78 % 0.34 % 1.36 % 1.42 % 1.29 %assets Three Months Ended June 30, Mar. 31, Dec. 31, Sept. 30, June 30, 2020 2020 2019 2019 2019 Return on Equity (dollars in thousands) MeasuresAverage common $ 868,796 $ 864,241 $ 732,173 $ 714,002 $ 694,978 equityLess: average (221,039 ) (221,075 ) (168,257 ) (168,598 ) (164,709 ) intangible assetsAverage tangible $ 647,757 $ 643,166 $ 563,916 $ 545,404 $ 530,269 common equity Return on avg.common equity 6.87 % 2.81 % 11.26 % 12.06 % 11.13 %(GAAP)Return on avg.tangible common 9.50 4.06 14.79 15.96 14.78 equity (non-GAAP) ^(1) Efficiency Measures Total noninterest $ 33,063 $ 35,058 $ 22,197 $ 20,379 $ 21,590 expensesAmortization ofcore deposit (652 ) (652 ) (340 ) (340 ) (364 ) intangiblesMerger andrestructuring (5,146 ) (9,494 ) (871 ) (191 ) (331 ) expensesFDIC small bank - - - 1,310 - assessment creditLoss onextinguishment of - - - - (1,047 ) debtForeclosed property (5 ) 10 8 (90 ) - expenseOperating $ 27,260 $ 24,922 $ 20,994 $ 21,068 $ 19,848 noninterest expense Net interest income(tax equivalent $ 61,253 $ 55,781 $ 47,929 $ 48,918 $ 46,092 basis)Noninterest income 4,621 2,854 2,246 2,109 1,942 Net (gains) losseson equity (44 ) (178 ) 46 (79 ) (158 ) securitiesNet losses (gains)on sales of - (29 ) - 279 9 securitiesOperating revenue $ 65,830 $ 58,428 $ 50,221 $ 51,227 $ 47,885 Operatingefficiency ratio 41.4 % 42.7 % 41.8 % 41.1 % 41.4 %(non-GAAP) ^(2) Net Interest Margin Averageinterest-earning $ 7,164,545 $ 6,584,508 $ 5,663,538 $ 5,649,058 $ 5,607,086assets Net interest income(tax equivalent $ 61,253 $ 55,781 $ 47,929 $ 48,918 $ 46,092 basis)Impact of purchaseaccounting fair (3,073 ) (3,457 ) (1,455 ) (1,566 ) (1,742 ) value marksAdjusted netinterest income $ 58,180 $ 52,324 $ 46,474 $ 47,352 $ 44,350 (tax equivalentbasis) Net interest margin 3.44 % 3.41 % 3.36 % 3.44 % 3.30 %(GAAP)Adjusted netinterest margin 3.27 3.20 3.26 3.33 3.17 (non-GAAP) ^(3) ^(1) Earnings available to common stockholders excluding amortization of intangible assets divided by average tangible common equity.^(2) Operatingnoninterest expense divided byoperating revenue.^(3) Adjusted net interest margin excludes impact of purchase accounting fair value marks. As of June 30, Mar. 31, Dec. 31, Sept. 30, June 30, 2020 2020 2019 2019 2019 Capital Ratios andBook Value per (dollars in thousands, except for per share data) ShareCommon equity $ 867,741 $ 853,710 $ 731,190 $ 720,160 $ 699,224 Less: intangible (220,605 ) (221,263 ) (168,034 ) (168,374 ) (168,714 ) assetsTangible common $ 647,136 $ 632,447 $ 563,156 $ 551,786 $ 530,510 equity Total assets $ 7,617,184 $ 7,279,327 $ 6,174,032 $ 6,161,269 $ 6,109,066 Less: intangible (220,605 ) (221,263 ) (168,034 ) (168,374 ) (168,714 ) assetsTangible assets $ 7,396,579 $ 7,058,064 $ 6,005,998 $ 5,992,895 $ 5,940,352 Common shares 39,753,033 39,704,921 35,072,066 35,364,845 35,352,866 outstanding Common equity ratio 11.39 % 11.73 % 11.84 % 11.69 % 11.45 %(GAAP)Tangible commonequity ratio 8.75 8.96 9.38 9.21 8.93 (non-GAAP) ^(4) Regulatory capital ratios (Bancorp):Leverage ratio 8.99 % 9.20 % 9.54 % 9.39 % 9.14 %Common equity Tier 10.04 9.63 9.95 9.78 9.65 1 risk-based ratioRisk-based Tier 1 10.12 9.71 10.04 9.87 9.74 capital ratioRisk-based total 14.32 12.46 12.95 12.80 12.72 capital ratio Regulatory capital ratios (Bank):Leverage ratio 10.12 % 10.36 % 10.81 % 10.68 % 10.42 %Common equity Tier 11.38 10.93 11.37 11.23 11.12 1 risk-based ratioRisk-based Tier 1 11.38 10.93 11.37 11.23 11.12 capital ratioRisk-based total 12.96 12.25 12.63 12.50 12.40 capital ratio Book value per $ 21.83 $ 21.50 $ 20.85 $ 20.36 $ 19.78 share (GAAP)Tangible book valueper share 16.28 15.93 16.06 15.60 15.01 (non-GAAP) ^(5) Net Loan Charge-Off (Recoveries) DetailNet loancharge-offs (recoveries) :Charge-offs $ 462 $ 115 $ 1,029 $ 964 $ 406 Recoveries (4 ) (3 ) (22 ) (37 ) (146 ) Net loancharge-offs $ 458 $ 112 $ 1,007 $ 927 $ 260 (recoveries)Net loancharge-offs(recoveries) as a % 0.03 % 0.01 % 0.08 % 0.07 % 0.02 %of average loansreceivable(annualized) Asset Quality Nonaccrual taxi $ 23,024 $ 23,024 $ 23,431 $ 25,802 $ 26,498 medallion loansNonaccrual loans(excluding taxi 41,556 39,349 26,050 25,519 23,419 medallion loans)Other real estate - - - 907 - ownedTotal nonperforming $ 64,580 $ 62,373 $ 49,481 $ 52,228 $ 49,917 assets Performing troubled $ 20,418 $ 21,293 $ 21,410 $ 19,681 $ 16,332 debt restructurings Allowance for loan $ 68,724 $ 54,169 $ 38,293 $ 38,771 $ 37,698 losses ("ALLL") Loans receivable $ 6,363,267 $ 6,009,310 $ 5,113,527 $ 5,110,471 $ 5,090,492 Less: taxi 24,603 24,575 24,977 27,353 28,054 medallion loansLoans receivable(excluding taxi $ 6,338,664 $ 5,984,735 $ 5,088,550 $ 5,083,118 $ 5,062,438 medallion loans) Loans receivable $ 6,363,267 $ 6,009,310 $ 5,113,527 $ 5,110,471 $ 5,090,492 Less: PPP loans 473,750 - - - - Loans receivable $ 5,889,517 $ 6,009,310 $ 5,113,527 $ 5,110,471 $ 5,090,492 (PPP loans) Nonaccrual loans(excluding taximedallion loans) asa % of loans 0.66 % 0.66 % 0.51 % 0.50 % 0.46 %receivable(excluding taximedallion loans)Nonaccrual loans asa % of loans 1.01 1.04 0.97 1.00 0.98 receivableNonperformingassets as a % of 0.85 0.86 0.80 0.85 0.82 total assetsALLL as a % of 1.08 0.90 0.75 0.76 0.74 loans receivableALLL as a % ofloans receivable 1.17 0.90 0.75 0.76 0.74 (excluding PPPloans)ALLL as a % ofnonaccrual loans 165.4 137.7 147.0 151.9 161.0 (excluding taximedallion loans)ALLL as a % of 106.4 86.8 77.4 75.5 75.5 nonaccrual loans ^(4) Tangiblecommon equity divided by tangibleassets.^(5) Tangible common equity divided bycommon shares outstanding at period-end.

CONNECTONE BANCORP, INC. AND SUBSIDIARIESNET INTEREST MARGIN ANALYSIS(dollars in thousands) For the Three Months Ended June 30, 2020 March 31, 2020 June 30, 2019 Average Average Average Interest-earning Balance Interest Rate ^ Balance Interest Rate ^ Balance Interest Rate ^ assets: (7) (7) (7)Investment securities $ 443,282 $ 2,531 2.30 % $ 452,294 $ 3,095 2.75 % $ 515,022 $ 3,941 3.07 % ^(1) (2)Loansreceivableand loans 6,332,503 76,088 4.83 5,956,469 73,220 4.94 5,005,509 63,799 5.11 held-for-sale^(2) (3) (4)Federal funds sold andinterest-bearing 357,758 79 0.09 148,429 499 1.35 54,619 290 2.13 deposits with banksRestricted investment 31,002 442 5.73 27,316 400 5.89 31,936 410 5.15 in bank stockTotal interest-earning 7,164,545 79,140 4.44 6,584,508 77,214 4.72 5,607,086 68,440 4.90 assetsAllowance for loan (53,502 ) (38,970 ) (37,390 ) lossesNoninterest-earning 573,360 560,489 431,973 assetsTotal assets $ 7,684,403 $ 7,106,027 $ 6,001,669 Interest-bearing liabilities:Time deposits 1,905,165 9,586 2.02 1,962,714 10,371 2.13 1,551,014 9,366 2.42 Other interest-bearing 2,639,052 4,011 0.61 2,660,755 6,841 1.03 2,183,384 7,230 1.33 depositsTotal interest-bearing 4,544,217 13,597 1.20 4,623,469 17,212 1.50 3,734,398 16,596 1.78 deposits Borrowings 798,648 2,235 1.13 477,121 2,352 1.98 603,260 3,870 2.57 Subordinateddebentures, net of 141,904 2,021 5.73 128,913 1,834 5.72 128,666 1,845 5.75 capitalized costsCapital lease 2,257 34 6.06 2,303 35 6.11 2,436 37 6.09 obligationTotal interest-bearing 5,487,026 17,887 1.31 5,231,806 21,433 1.65 4,468,760 22,348 2.01 liabilities Noninterest-bearing 1,277,428 955,358 800,856 demand depositsOther 51,153 54,622 37,075 liabilitiesTotalnoninterest-bearing 1,328,581 1,009,980 837,931 liabilitiesStockholders' 868,796 864,241 694,978 equityTotal liabilities and $ 7,684,403 $ 7,106,027 $ 6,001,669 stockholders' equity Net interest income 61,253 55,781 46,092 (tax equivalent basis)Net interest spread 3.13 % 3.07 % 2.89 % ^(5) Net interest margin 3.44 % 3.41 % 3.30 % ^(6) Tax equivalent (463 ) (500 ) (562 ) adjustmentNet interest income $ 60,790 $ 55,281 $ 45,530 ^(1) Average balances are calculated on amortized cost. ^(2) Interest income is presented on a tax equivalent basis using 21% federal tax rate.^(3) Includes loan fee income. ^(4) Loans include nonaccrual loans. ^(5) Represents difference between the average yield on interest-earning assetsand the average cost of interest-bearingliabilities 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.