GlobeNewswire Inc | Oct 29, 2020 07:01AM EDT

October 29, 2020

ENGLEWOOD CLIFFS, N.J., Oct. 29, 2020 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq: CNOB) (the Company or ConnectOne), parent company of ConnectOne Bank (the Bank), today reported net income of $24.8 million for the third quarter of 2020 compared with $14.8 million for the second quarter of 2020 and $21.7 million for the third quarter of 2019. Diluted earnings per share were $0.62 in the third quarter of 2020 compared with $0.37 in the second quarter of 2020 and $0.61 in the third quarter of 2019. Included in net income were provisions for loan losses of $5.0 million for the third quarter of 2020, $15.0 million for the second quarter of 2020, and $2.0 million for the third quarter of 2019. Also included in net income were merger and restructuring expenses of $5.1 million for the second quarter of 2020 and $0.2 million for the third quarter of 2019, while there were no such charges in the third quarter of 2020. On a pre-tax, pre-provision and pre-merger charges basis, earnings were $37.6 million for the third quarter of 2020, $37.5 million for the second quarter of 2020, and $30.3 million for the third quarter of 2019.

Frank Sorrentino, ConnectOnes Chairman and Chief Executive Officer, stated, ConnectOne delivered another solid operating performance this quarter, with earnings of $0.62 per share, which speaks to our strong franchise and the continued outstanding execution on our strategic priorities. Our pre-tax, pre-provision, and pre-merger charge operating earnings, as a percent of average assets, reached 2% this quarter, reflecting a continued widening of the net interest margin and an efficiency ratio of 40%, while also driving a 4% increase in our tangible book value per share, to $16.87. Were operating our Bank efficiently, and effectively, and Im incredibly proud of the way our team has performed during this unprecedented operating environment.

Our provision for loan losses was $5 million for the quarter, down significantly from the $31.0 million in total recorded over the two sequential quarters, as our deferred portfolio continues to decline. We currently project that total deferrals as of year-end will aggregate to $200 million to $250 million, or approximately 3% to 4% of total loans, and that more than 90% of those deferrals are well-collateralized.

Operationally, we continue to use our full range of banking expertise to support our clients through ConnectOnes virtual bank model. We are a technology-forward bank and our recent investments in infrastructure, communication tools and digital channels have played an instrumental role in our success. Weve also continued to successfully implement our branch rationalization strategy as were moving towards a robust banking hubs model supported by digital tools and resources. Mr. Sorrentino added, Looking ahead, while the nation and the banking industry continue to face uncertainty, we feel strongly about the strength and the direction of our Company. Were focused on long-term sustainable growth and operating ConnectOne in a disciplined manner. Were also deeply committed to further utilizing technology to remain one of the most efficient banks in the nation.

Dividend Declaration

The Company announced that its Board of Directors declared a cash dividend on its common stock of $0.09 per share. The dividend will be paid on December 1, 2020, to all shareholders of record on November 16, 2020.

Operating Results

Fully taxable equivalent net interest income for the third quarter of 2020 was $61.0 million, a decrease of $0.2 million, or 0.4%, from the second quarter of 2020. The decrease from the second quarter of 2020 resulted from a 2.8% decrease in average interest-earning assets, primarily due to lower excess liquidity, and was largely offset by a 5 basis-point widening of the net interest margin to 3.49% from 3.44%. The widening of the net interest margin resulted from a 5 basis-point improvement in the Banks cost of interest-bearing liabilities due primarily to a 17 basis-point decline in interest-bearing deposit costs, which was partially offset by the repayment of Paycheck Protection Program (PPP) Liquidity Facility borrowings and the issuance of $75 million in subordinated notes issued at the end of the second quarter of 2020. Included in interest income in the third quarter of 2020 was PPP fee income of approximately $3.5 million, compared to $3.7 million in the second quarter of 2020. Deferred PPP fees were $7.9 million as of September 30, 2020.

Fully taxable equivalent net interest income for the third quarter of 2020 was $61.0 million, an increase of $12.1 million, or 24.7%, from the third quarter of 2019. The increase from the third quarter of 2019 resulted primarily from a 23.3% increase in average interest-earning assets, largely due to PPP originations and the Bancorp of New Jersey (BNJ) acquisition, and a 5 basis-point widening of the net interest margin to 3.49% from 3.44%. The widening of the net interest margin resulted from a 59 basis-points reduction in the cost of funding interest-earning assets, partially offset by a 54 basis-point reduction in the rate of average interest-earning assets.

Noninterest income totaled $3.5 million in the third quarter of 2020, $4.6 million in the second quarter of 2020 and $2.1 million in the third quarter of 2019. The decrease in noninterest income of $1.1 million from the second quarter of 2020 was primarily attributable to a second quarter 2020 non-recurring loan referral fee of $2.3 million generated by BoeFly as a result of its participation in the PPP program. This decrease was partially offset by increases in other deposit and loan fees of $0.4 million, an increase in gains on sale of loans, primarily commercial real estate, of $0.4 million, and a death benefit of $0.5 million related to a BOLI policy. The increase in noninterest income of $1.4 million from the third quarter of 2019 was primarily attributable to the aforementioned BOLI death benefit, an increase in gains on sale of loans and an increase in net securities gains.

Noninterest expenses totaled $26.5 million for the third quarter of 2020, $33.1 million for the second quarter of 2020 and $20.4 million for the third quarter of 2019. Included in noninterest expenses were merger-related charges totaling $5.1 million and $0.2 million during the second quarter of 2020 and third quarter of 2019, respectively, while there were no such charges in the third quarter of 2020. Additionally, second quarter of 2020 expenses included an increase in value of acquisition price charge of $2.3 million. Excluding merger-related charges and the acquisition price adjustment, noninterest expenses increased by $0.9 million from the second quarter of 2020. The increase was primarily the result of an increase in salaries and employee benefits of $0.6 million due to an increase in certain compensation accruals and an increase in occupancy and equipment of $0.4 million due largely to one-time items. Noninterest expenses increased by $6.3 million, excluding merger-related charges, from the third quarter of 2019. The increase was primarily the result of the BNJ acquisition which contributed to increases in salaries and employee benefits of $2.7 million, $1.1 million in occupancy and equipment, $0.4 million in professional and consulting, and $0.4 million in data processing. The increase in FDIC insurance expense was primarily the result of a third quarter 2019 non-recurring FDIC assessment credit of $1.3 million.

Income tax expense was $7.8 million for the third quarter of 2020, $2.5 million for the second quarter of 2020 and $6.4 million for the third quarter of 2019. The effective tax rates for the third quarter of 2020, second quarter of 2020 and third quarter of 2019 were 23.9%, 14.5% and 22.7%, respectively. The increase in the effective tax rate when compared to the second quarter of 2020 and the third quarter of 2019 was primarily attributable to an increase in taxable income.

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.

The provision for loan losses was $5.0 million for the third quarter of 2020, $15.0 million for the second quarter of 2020 and $2.0 million for the third quarter of 2019. The elevated provisions for loan losses for the third and second quarters of 2020 were due to the continued economic uncertainties of the COVID-19 pandemic, including consideration of related payment deferrals requested and/or granted. We 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 $65.5 million as of September 30, 2020, $49.5 million as of December 31, 2019 and $52.2 million as of September 30, 2019. Included in nonperforming assets were taxi medallion loans totaling $23.0 million as of September 30, 2020, $23.4 million as of December 31, 2019 and $25.8 million as of September 30, 2019. Nonperforming assets (including taxi medallion loans) as a percentage of total assets were 0.88% as of September 30, 2020, 0.80% as of December 31, 2019 and 0.85% as of September 30, 2019. Excluding the taxi medallion loans, nonaccrual loans were $42.5 million as of September 30, 2020, $26.1 million as of December 31, 2019 and $25.5 million as of September 30, 2019, representing a ratio of nonaccrual loans (excluding taxi medallion loans) to loans receivable of 0.68%, 0.51% and 0.50%, respectively.

The annualized net loan charge-off (recovery) ratio was (0.03%) for the third quarter of 2020, 0.08% for the fourth quarter of 2019 and 0.07% for the third quarter of 2019. During the third quarter of 2020, the Bank received a $0.8 million recovery on a previously charged-off commercial real estate credit. The allowance for loan losses represented 1.19%, 0.75%, and 0.76% of loans receivable as of September 30, 2020, December 31, 2019 and September 30, 2019, respectively. Excluding PPP loans, the allowance for loan losses represented 1.29%, 0.75%, and 0.76% of loans receivable as of September 30, 2020, December 31, 2019 and September 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 174.9% as of September 30, 2020, 147.0% as of December 31, 2019 and 151.9% as of September 30, 2019.

Selected Balance Sheet Items

The Companys total assets were $7.4 billion, an increase of $1.3 billion from December 31, 2019. Loans receivable were $6.3 billion, an increase of $1.1 billion from December 31, 2019. The increase in total assets and loans receivable were primarily attributable to the acquisition of BNJ and the origination of PPP loans. As of September 30, 2020, PPP loans totaled $474.0 million. We expect the level of PPP loans to decline over the course of 2020 and into the first half of 2021 as the loans are forgiven and paid down by the SBA through the guarantee provisions of the CARES Act.

The Companys stockholders equity was $891 million as of September 30, 2020, an increase of $160 million from December 31, 2019. The increase in stockholders equity was primarily attributable to the acquisition of BNJ, which increased capital by $118 million and an increase of $38 million retained earnings. As of September 30, 2020, the Companys tangible common equity ratio and tangible book value per share were 9.28% and $16.87, 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 $220 million as of September 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.

Third Quarter 2020 Results Conference Call

Management will host a conference call and audio webcast at 10:00 a.m. ET on October 29, 2020 to review the Companys financial performance and operating results. The conference call dial-in number is 201-689-8471, access code 13711169 Please dial in at least five minutes before the start of the call to register. An audio webcast of the conference call will be available to the public, on a listen-only basis, via the "Investor Relations" link on the Company's website https://www.ConnectOneBank.com or at http://ir.connectonebank.com.

A replay of the conference call will be available beginning at approximately 1:00 p.m. ET on Thursday, October 29, 2020 and ending on Thursday, November 5, 2020 by dialing 412-317-6671, access code 13711169. 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:Emily Holtzman, MWWPR631.742.9568; eholtzman@mww.com

CONNECTONE BANCORP, INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION(in thousands) September 30, December 31, September 30, 2020 2019 2019 (unaudited) (unaudited)ASSETS Cash and due from banks $ 59,422 $ 65,717 $ 54,792 Interest-bearing deposits 196,697 135,766 139,217 with banksCash and cash equivalents 256,119 201,483 194,009 Securities 453,015 404,701 425,849 available-for-saleEquity securities 13,400 11,185 11,231 Loans held-for-sale 8,508 33,250 33,245 Loans receivable 6,251,051 5,113,527 5,110,471 Less: Allowance for loan 74,267 38,293 38,771 lossesNet loans receivable 6,176,784 5,075,234 5,071,700 Investment in restricted 28,713 27,397 27,946 stock, at costBank premises and 29,922 19,236 19,754 equipment, netAccrued interest 34,326 20,949 21,024 receivableBank owned life insurance 165,676 137,961 137,048 Right of use operating 22,830 15,137 15,789 lease assetsOther real estate owned - - 907 Goodwill 208,372 162,574 162,574 Core deposit intangibles 11,605 5,460 5,800 Other assets 40,289 59,465 34,393 Total assets $ 7,449,559 $ 6,174,032 $ 6,161,269 LIABILITIES Deposits: Noninterest-bearing $ 1,270,021 $ 861,728 $ 828,190 Interest-bearing 4,528,735 3,905,814 3,923,044 Total deposits 5,798,756 4,767,542 4,751,234 Borrowings 506,225 500,293 512,456 Operating lease 26,726 16,449 17,148 liabilitiesSubordinated debentures,net of debt issuance 202,552 128,885 128,802 costsOther liabilities 24,564 29,673 31,469 Total liabilities 6,558,823 5,442,842 5,441,109 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock 586,946 468,571 468,571 Additional paid-in 22,867 21,344 20,450 capitalRetained earnings 309,893 271,782 254,159 Treasury stock (30,271 ) (29,360 ) (21,892 )Accumulated othercomprehensive income 1,301 (1,147 ) (1,128 )(loss)Total stockholders' 890,736 731,190 720,160 equityTotal liabilities $ 7,449,559 $ 6,174,032 $ 6,161,269 and stockholders' equity

CONNECTONE BANCORP, INC. AND SUBSIDIARIESCONSOLIDATEDSTATEMENTS OF INCOME(dollars inthousands, except for per share data) Three Months Ended Nine Months Ended 09/30/20 09/30/19 09/30/20 09/30/19Interest income Interest and fees $ 74,755 $ 66,796 $ 223,488 $ 190,646 on loansInterest anddividends on investmentsecurities:Taxable 1,305 1,916 5,083 7,431 Tax-exempt 688 897 2,148 3,105 Dividends 426 502 1,268 1,369 Interest on federalfunds sold and 47 278 625 925 other short-terminvestmentsTotal interest 77,221 70,389 232,612 203,476 incomeInterest expense Deposits 11,947 17,351 42,756 49,298 Borrowings 4,725 4,632 13,236 15,290 Total interest 16,672 21,983 55,992 64,588 expense Net interest income 60,549 48,406 176,620 138,888 Provision for loan 5,000 2,000 36,000 7,600 lossesNet interest incomeafter provision for 55,549 46,406 140,620 131,288 loan losses Noninterest income Income on bankowned life 1,598 915 3,693 2,570 insuranceNet gains on saleof loans 614 278 1,244 343 held-for-saleDeposit, loan and 1,278 1,116 5,777 2,816 other incomeNet (losses) gainson equity (7 ) 79 215 340 securitiesNet (losses) gainson sale of - (279 ) 29 (280 )securitiesavailable-for-saleTotal noninterest 3,483 2,109 10,958 5,789 income Noninterest expensesSalaries and 15,114 12,449 44,177 36,254 employee benefitsOccupancy and 3,566 2,480 10,193 7,332 equipmentFDIC insurance 1,105 (364 ) 3,054 1,216 Professional and 1,926 1,499 5,173 4,078 consultingMarketing and 214 473 944 1,080 advertisingData processing 1,470 1,058 4,529 3,352 Merger andrestructuring - 191 14,640 8,084 expensesLoss onextinguishment of - - - 1,047 debtAmortization ofcore deposit 627 340 1,931 1,068 intangiblesIncrease in valueof acquisition - - 2,333 - priceOther expenses 2,456 2,253 7,625 6,520 Total noninterest 26,478 20,379 94,599 70,031 expenses Income before 32,554 28,136 56,979 67,046 income tax expenseIncome tax expense 7,768 6,440 11,331 14,434 Net income $ 24,786 $ 21,696 $ 45,648 $ 52,612 Earnings per common share:Basic $ 0.62 $ 0.61 $ 1.15 $ 1.49 Diluted 0.62 0.61 1.15 1.48

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 Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, 2020 2020 2020 2019 2019 Selected Financial Data (dollars in thousands)Total assets $ 7,449,559 $ 7,617,184 $ 7,279,327 $ 6,174,032 $ 6,161,269 Loans receivable: Commercial $ 1,599,295 $ 1,625,024 $ 1,203,818 $ 1,096,224 $ 1,079,071 Commercial real estate 2,001,311 1,987,695 1,981,149 1,559,354 1,551,182 Multifamily 1,703,290 1,723,273 1,762,651 1,518,400 1,513,216 Commercial construction 614,112 673,893 676,836 620,969 647,261 Residential 343,376 366,315 387,400 320,019 322,307 Consumer 1,876 2,001 1,965 3,328 2,436 Gross loans 6,263,260 6,378,201 6,013,819 5,118,294 5,115,473 Unearned net origination (12,209 ) (14,934 ) (4,509 ) (4,767 ) (5,002 )feesLoans receivable 6,251,051 6,363,267 6,009,310 5,113,527 5,110,471 Loans held-for-sale 8,508 11,212 32,425 33,250 33,245 Total loans $ 6,259,559 $ 6,374,479 $ 6,041,735 $ 5,146,777 $ 5,143,716 Investment securities $ 466,415 $ 431,833 $ 460,101 $ 415,886 $ 437,080 Goodwill and other 219,977 220,605 221,263 168,034 168,374 intangible assetsDeposits: Noninterest-bearing $ 1,270,021 $ 1,276,070 $ 979,778 $ 861,728 $ 828,190 demandTime deposits 1,619,609 1,807,864 1,974,400 1,553,721 1,573,736 Other interest-bearing 2,909,126 2,742,927 2,555,014 2,352,093 2,349,308 depositsTotal deposits $ 5,798,756 $ 5,826,861 $ 5,509,192 $ 4,767,542 $ 4,751,234 Borrowings $ 506,225 $ 667,062 $ 726,856 $ 500,293 $ 512,456 Subordinated debentures(net of debt issuance 202,552 202,476 128,967 128,885 128,802 costs)Total stockholders' 890,736 867,741 853,710 731,190 720,160 equity Quarterly Average BalancesTotal assets $ 7,474,002 $ 7,684,403 $ 7,106,027 $ 6,084,607 $ 6,059,413 Loans receivable: Commercial $ 1,610,423 $ 1,539,749 $ 1,146,773 $ 1,085,640 $ 1,040,355 Commercial real estate 3,679,297 3,722,966 3,723,991 3,074,889 3,144,978 (including multifamily)Commercial construction 646,281 675,698 663,036 642,476 617,106 Residential 352,426 374,283 390,655 318,413 325,188 Consumer 2,536 1,898 3,007 4,165 3,525 Gross loans 6,290,963 6,314,594 5,927,462 5,125,583 5,131,152 Unearned net origination (13,292 ) (13,420 ) (4,648 ) (5,031 ) (4,778 )feesLoans receivable 6,277,671 6,301,174 5,922,814 5,120,552 5,126,374 Loans held-for-sale 10,772 31,329 33,655 33,163 991 Total loans $ 6,288,443 $ 6,332,503 $ 5,956,469 $ 5,153,715 $ 5,127,365 Investment securities $ 429,947 $ 452,224 $ 458,642 $ 427,973 $ 448,618 Goodwill and other 220,391 221,039 221,075 168,257 168,598 intangible assetsDeposits: Noninterest-bearing $ 1,253,235 $ 1,277,428 $ 955,358 $ 844,332 $ 810,247 demandTime deposits 1,728,129 1,905,165 1,962,714 1,533,425 1,598,378 Other interest-bearing 2,881,592 2,639,052 2,660,755 2,348,752 2,300,886 depositsTotal deposits $ 5,862,956 $ 5,821,645 $ 5,578,827 $ 4,726,509 $ 4,709,511 Borrowings $ 467,399 $ 798,648 $ 477,121 $ 452,837 $ 467,230 Subordinated debentures(net of debt issuance 202,502 141,904 128,913 128,830 128,747 costs)Total stockholders' 883,364 868,796 864,241 732,173 714,002 equity Three Months Ended Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, 2020 2020 2020 2019 2019 (dollars in thousands, except for per share data)Net interest income $ 60,549 $ 60,790 $ 55,281 $ 47,431 $ 48,406 Provision for loan 5,000 15,000 16,000 500 2,000 lossesNet interest incomeafter provision for loan 55,549 45,790 39,281 46,931 46,406 lossesNoninterest income Income on bank owned 1,598 1,128 967 914 915 life insuranceNet gains on sale of 614 237 393 169 278 loans held-for-saleDeposit, loan and other 1,278 3,212 1,287 1,209 1,116 incomeNet (losses) gains on (7 ) 44 178 (46 ) 79 equity securitiesNet gains (losses) onsale of investment - - 29 - (279 )securitiesTotal noninterest income 3,483 4,621 2,854 2,246 2,109 Noninterest expenses Salaries and employee 15,114 14,500 14,563 12,881 12,449 benefitsOccupancy and equipment 3,566 3,156 3,471 2,380 2,480 FDIC insurance 1,105 1,093 856 795 (364 )Professional and 1,926 1,673 1,574 1,428 1,499 consultingMarketing and 214 426 304 273 473 advertisingData processing 1,470 1,586 1,473 1,151 1,058 Merger expenses - 5,146 9,494 871 191 Amortization of core 627 652 652 340 340 deposit intangibleIncrease in value of - 2,333 - - - acquisition priceOther expenses 2,456 2,498 2,671 2,078 2,253 Total noninterest 26,478 33,063 35,058 22,197 20,379 expenses Income before income tax 32,554 17,348 7,077 26,980 28,136 expenseIncome tax expense 7,768 2,516 1,047 6,197 6,440 Net income $ 24,786 $ 14,832 $ 6,030 $ 20,783 $ 21,696 Weighted average diluted 39,653,832 39,611,712 39,510,810 35,245,285 35,262,565 shares outstandingDiluted EPS $ 0.62 $ 0.37 $ 0.15 $ 0.59 $ 0.61 Reconciliation of GAAPEarnings to Pre-tax,Pre-provision and Pre-merger chargesEarningsNet income $ 24,786 $ 14,832 $ 6,030 $ 20,783 $ 21,696 Income tax expense 7,768 2,516 1,047 6,197 6,440 Merger charges - 5,146 9,494 871 191 Provision for loan 5,000 15,000 16,000 500 2,000 lossesPre-tax, pre-provisionand pre-merger charges $ 37,554 $ 37,494 $ 32,571 $ 28,351 $ 30,327 earnings Return on Assets MeasuresAverage assets $ 7,474,002 $ 7,684,403 $ 7,106,027 $ 6,084,607 $ 6,059,413 Return on avg. assets 1.32 % 0.78 % 0.34 % 1.36 % 1.42 %Return on avg. assets(pre tax, pre-provision 2.00 1.96 1.84 1.85 1.99 and pre-merger charges) Three Months Ended Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, 2020 2020 2020 2019 2019 Return on Equity (dollars in thousands)MeasuresAverage common equity $ 883,364 $ 868,796 $ 864,241 $ 732,173 $ 714,002 Less: average intangible (220,391 ) (221,039 ) (221,075 ) (168,257 ) (168,598 )assetsAverage tangible common $ 662,973 $ 647,757 $ 643,166 $ 563,916 $ 545,404 equity Return on avg. common 11.16 % 6.87 % 2.81 % 11.26 % 12.06 %equity (GAAP)Return on avg. tangiblecommon equity (non-GAAP) 15.14 9.50 4.06 14.79 15.96 ^(1) Efficiency Measures Total noninterest $ 26,478 $ 33,063 $ 35,058 $ 22,197 $ 20,379 expensesAmortization of core (627 ) (652 ) (652 ) (340 ) (340 )deposit intangiblesMerger expenses - (5,146 ) (9,494 ) (871 ) (191 )FDIC small bank - - - - 1,310 assessment creditForeclosed property - (5 ) 10 8 (90 )expenseOperating noninterest $ 25,851 $ 27,260 $ 24,922 $ 20,994 $ 21,068 expense Net interest income (tax $ 61,005 $ 61,253 $ 55,781 $ 47,929 $ 48,918 equivalent basis)Noninterest income 3,483 4,621 2,854 2,246 2,109 Net losses (gains) on 7 (44 ) (178 ) 46 (79 )equity securitiesNet (gains) losses on - - (29 ) - 279 sales of securitiesOperating revenue $ 64,495 $ 65,830 $ 58,428 $ 50,221 $ 51,227 Operating efficiency 40.1 % 41.4 % 42.7 % 41.8 % 41.1 %ratio (non-GAAP) ^(2) Net Interest Margin Average interest-earning $ 6,962,499 $ 7,164,545 $ 6,584,508 $ 5,663,538 $ 5,649,058 assets Net interest income (tax $ 61,005 $ 61,253 $ 55,781 $ 47,929 $ 48,918 equivalent basis)Impact of purchaseaccounting fair value (2,403 ) (3,073 ) (3,457 ) (1,455 ) (1,566 )marksAdjusted net interestincome (tax equivalent $ 58,602 $ 58,180 $ 52,324 $ 46,474 $ 47,352 basis) Net interest margin 3.49 % 3.44 % 3.41 % 3.36 % 3.44 %(GAAP)Adjusted net interest 3.35 3.27 3.20 3.26 3.33 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 Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, 2020 2020 2020 2019 2019 Capital Ratios and Book (dollars in thousands, except for per share data)Value per ShareCommon equity $ 890,736 $ 867,741 $ 853,710 $ 731,190 $ 720,160 Less: intangible assets (219,977 ) (220,605 ) (221,263 ) (168,034 ) (168,374 )Tangible common equity $ 670,759 $ 647,136 $ 632,447 $ 563,156 $ 551,786 Total assets $ 7,449,559 $ 7,617,184 $ 7,279,327 $ 6,174,032 $ 6,161,269 Less: intangible assets (219,977 ) (220,605 ) (221,263 ) (168,034 ) (168,374 )Tangible assets $ 7,229,582 $ 7,396,579 $ 7,058,064 $ 6,005,998 $ 5,992,895 Common shares 39,754,051 39,753,033 39,704,921 35,072,066 35,364,845 outstanding Common equity ratio 11.96 % 11.39 % 11.73 % 11.84 % 11.69 %(GAAP)Tangible common equity 9.28 8.75 8.96 9.38 9.21 ratio (non-GAAP) ^(4) Regulatory capital ratios (Bancorp):Leverage ratio 9.30 % 8.99 % 9.20 % 9.54 % 9.39 %Common equity Tier 1 10.63 10.04 9.63 9.95 9.78 risk-based ratioRisk-based Tier 1 10.72 10.12 9.71 10.04 9.87 capital ratioRisk-based total capital 14.94 14.32 12.46 12.95 12.80 ratio Regulatory capital ratios (Bank):Leverage ratio 10.41 % 10.12 % 10.36 % 10.81 % 10.68 %Common equity Tier 1 12.00 11.38 10.93 11.37 11.23 risk-based ratioRisk-based Tier 1 12.00 11.38 10.93 11.37 11.23 capital ratioRisk-based total capital 13.70 12.96 12.25 12.63 12.50 ratio Book value per share $ 22.41 $ 21.83 $ 21.50 $ 20.85 $ 20.36 (GAAP)Tangible book value per 16.87 16.28 15.93 16.06 15.60 share (non-GAAP) ^(5) Net Loan (Recoveries) Charge-Off DetailNet loan charge-offs (recoveries) :Charge-offs $ 257 $ 449 $ 127 $ 1,029 $ 964 Recoveries (800 ) (4 ) (3 ) (22 ) (37 )Net loan (recoveries) $ (543 ) $ 445 $ 124 $ 1,007 $ 927 charge-offsNet loan (recoveries)charge-offs as a % of (0.03 )% 0.03 % 0.01 % 0.08 % 0.07 %average loans receivable(annualized) Asset Quality Nonaccrual taxi $ 23,024 $ 23,024 $ 23,024 $ 23,431 $ 25,802 medallion loansNonaccrual loans(excluding taxi 42,470 41,556 39,349 26,050 25,519 medallion loans)Other real estate owned - - - - 907 Total nonperforming $ 65,494 $ 64,580 $ 62,373 $ 49,481 $ 52,228 assets Performing troubled debt $ 18,241 $ 20,418 $ 21,293 $ 21,410 $ 19,681 restructurings Allowance for loan $ 74,267 $ 68,724 $ 54,169 $ 38,293 $ 38,771 losses ("ALLL") Loans receivable $ 6,251,051 $ 6,363,267 $ 6,009,310 $ 5,113,527 $ 5,110,471 Less: taxi medallion 24,634 24,603 24,575 24,977 27,353 loansLoans receivable(excluding taxi $ 6,226,417 $ 6,338,664 $ 5,984,735 $ 5,088,550 $ 5,083,118 medallion loans) Loans receivable $ 6,251,051 $ 6,363,267 $ 6,009,310 $ 5,113,527 $ 5,110,471 Less: PPP loans 474,022 473,999 - - - Loans receivable $ 5,777,029 $ 5,889,268 $ 6,009,310 $ 5,113,527 $ 5,110,471 (excluding PPP loans) Nonaccrual loans(excluding taximedallion loans) as a % 0.68 % 0.66 % 0.66 % 0.51 % 0.50 %of loans receivable(excluding taximedallion loans)Nonaccrual loans as a % 1.05 1.01 1.04 0.97 1.00 of loans receivableNonperforming assets as 0.88 0.85 0.86 0.80 0.85 a % of total assetsALLL as a % of loans 1.19 1.08 0.90 0.75 0.76 receivableALLL as a % of loansreceivable (excluding 1.29 1.17 0.90 0.75 0.76 PPP loans)ALLL as a % ofnonaccrual loans 174.9 165.4 137.7 147.0 151.9 (excluding taximedallion loans)ALLL as a % of 113.4 106.4 86.8 77.4 75.5 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 September 30, 2020 June 30, 2020 September 30, 2019 Average Average Average Interest-earning Balance Interest Rate ^ Balance Interest Rate ^ Balance Interest Rate ^assets: (7) (7) (7)Investment $ 420,362 $ 2,176 2.06 % $ 443,282 $ 2,531 2.30 % $ 445,492 $ 3,053 2.72 %securities ^(1) (2)Loans receivableand loans 6,288,443 75,028 4.75 6,332,503 76,088 4.83 5,127,365 67,068 5.19 held-for-sale ^(2)(3) (4)Federal funds sold and interest-bearing deposits 227,617 47 0.08 357,758 79 0.09 50,289 278 2.19 with banksRestrictedinvestment in bank 26,077 426 6.50 31,002 442 5.73 25,912 502 7.69 stockTotalinterest-earning 6,962,499 77,677 4.44 7,164,545 79,140 4.44 5,649,058 70,901 4.98 assetsAllowance for loan (69,381 ) (53,502 ) (37,704 ) lossesNoninterest-earning 580,884 573,360 448,059 assetsTotal $ 7,474,002 $ 7,684,403 $ 6,059,413 assets Interest-bearing liabilities:Time deposits $ 1,728,129 $ 8,174 1.88 $ 1,905,165 $ 9,586 2.02 $ 1,598,378 $ 9,934 2.47 Otherinterest-bearing 2,881,592 3,773 0.52 2,639,052 4,011 0.61 2,300,886 7,416 1.28 depositsTotalinterest-bearing 4,609,721 11,947 1.03 4,544,217 13,597 1.20 3,899,264 17,350 1.77 deposits Borrowings 467,399 1,992 1.70 798,648 2,235 1.13 467,230 2,754 2.34 Subordinateddebentures, net of 202,502 2,700 5.30 141,904 2,021 5.73 128,747 1,843 5.68 debt issuance costsCapital lease 2,211 33 5.94 2,257 34 6.06 2,393 36 5.97 obligationTotalinterest-bearing 5,281,833 16,672 1.26 5,487,026 17,887 1.31 4,497,634 21,983 1.94 liabilities Noninterest-bearing 1,253,235 1,277,428 810,247 demand depositsOther liabilities 55,570 51,153 37,530 Totalnoninterest-bearing 1,308,805 1,328,581 847,777 liabilitiesStockholders' 883,364 868,796 714,002 equityTotalliabilities and $ 7,474,002 $ 7,684,403 $ 6,059,413 stockholders'equity Net interest income(tax equivalent 61,005 61,253 48,918 basis)Net interest spread 3.18 % 3.13 % 3.04 %^(5) Net interest margin 3.49 % 3.44 % 3.44 %^(6) Tax equivalent (456 ) (463 ) (512 ) adjustmentNet interest income $ 60,549 $ 60,790 $ 48,406 ^(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.^(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 equivalentbasis.^(6) Represents net interest income on a tax equivalent basis divided byaverage total interest-earning assets.^(7) Rates are annualized.