CNOB ConnectOne Bancorp Inc

ConnectOne Bancorp, Inc. (Nasdaq: CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income available to common stockholders of $17.8 million for the fourth quarter of 2023 compared with $19.9 million for the third quarter of 2023 and $31.0 million for the fourth quarter of 2022. Diluted earnings per share were $0.46 for the fourth quarter of 2023 compared with $0.51 for the third quarter of 2023 and $0.79 for the fourth quarter of 2022. The decrease in net income available to common stockholders and diluted earnings per share from the third quarter of 2023 was primarily due to a $2.1 million FDIC special assessment recognized during the fourth quarter of 2023, a $1.2 million increase in the provision for credit losses and a $0.5 million decrease in net interest income, partially offset by a $1.0 million decrease in income tax expense and a $0.6 million increase in noninterest income.  The decrease in net income available to common stockholders from the fourth quarter of 2022 was primarily due to a $16.2 million decrease in net interest income, a $4.5 million increase in noninterest expenses, which included the $2.1 million FDIC special assessment, partially offset by a $6.1 million decrease in income tax expense, a $0.7 million increase in noninterest income and a $0.6 million decrease in the provision for credit losses. Full-year 2023 net income available to common stockholders was $81.0 million, compared to $119.2 million for 2022. Diluted earnings per share for the full-year 2023 was $2.07, compared with $3.01 for 2022.

Diluted earnings per share were $0.50 (excluding the FDIC special assessment) for the fourth quarter of 2023 compared with $0.51 for the third quarter of 2023 and $0.79 for the fourth quarter of 2022. Pre-tax, pre-provision net revenue (“PPNR”) as a percent of average assets was 1.24% (excluding the FDIC special assessment), 1.24% and 2.02% for the three months ended December 31, 2023, September 30, 2023 and December 31, 2022, respectively.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer, stated, “While 2023 was marked by significant challenges in the banking industry, I’m proud to report that with the strength of our balance sheet, our culture and the commitment to our clients, we were able to stay the course and continue on the path that has made ConnectOne a success since our inception nearly twenty years ago. Earnings, without a doubt, were challenged by the Fed’s unprecedented tightening, causing net interest margins to contract materially. Yet, we were able to increase our tangible book value per share in 2023 by more than 6%, build capital, maintain solid credit quality with best-in-class efficiency, attract new talent to the organization, and continue our investment in technology initiatives.  At ConnectOne, we ran counter to industry trends, and remained steadfast to our strategy of building relationship-focused business, rewarding our lending and support teams, and organically and opportunistically building our geographic reach. This philosophy positions us to outperform in 2024 and beyond.”

“Reflecting our long-standing focus on relationship-based lending, we had solid sequential C&I loan growth of 6.8% during the fourth quarter and stabilized noninterest-bearing demand deposits.  We remain disciplined, maintaining our sound approach to both credit as well as spreads and, given the market, currently anticipate continued gradual growth in 2024.” Mr. Sorrentino added, “Trends for net interest margin, which compressed by 5 basis points sequentially during the fourth quarter, seem to be stabilizing. We’re seeing a flattening of deposit costs and anticipate that the margin will widen as the Fed eases its interest rate stance.”

“Dating back to year-end 2021, prior to the Fed tightening, our tangible book value has increased by $3.02, or more than 15%,” Mr. Sorrentino commented. “Additionally, while ConnectOne’s efficiency ratio has been impacted by compressing margins, our annualized expenses remain below 1.5% of average assets, placing us in the top tier of efficiency among banks.”

Mr. Sorrentino concluded, “Looking ahead, we have the financial strength, balance sheet, and talent to support our approach and enter 2024 confident in our ability to capitalize on emerging opportunities to enhance ConnectOne’s valuable franchise.”  

Dividend Declarations

The Company announced that its Board of Directors declared a quarterly cash dividend on its common stock and declared a cash dividend on its outstanding preferred stock.

A cash dividend on common stock of $0.17 will be paid on March 1, 2024, to common stockholders of record on February 15, 2024. A dividend of $0.328125 per depositary share, representing a 1/40th interest in the Company’s 5.25% Fixed Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A, will also be paid on March 1, 2024 to preferred stockholders of record on February 15, 2024.

Operating Results

Fully taxable equivalent net interest income for the fourth quarter of 2023 was $62.6 million, a decrease of $0.6 million, or 0.9%, from the third quarter of 2023 due to a 5 basis-point contraction in the net interest margin to 2.71% from 2.76%, partially offset by an $82.7 million, or 0.9%, increase in average interest-earning assets. The net interest margin contraction was due to a 22 basis-point increase in the average cost of deposits, including noninterest-bearing demand, to 3.14%, and was partially offset by an 18 basis-point increase in the loan portfolio yield to 5.81%. The increase in average interest-earning assets from the third quarter of 2023 was primarily attributable to a $99.0 million increase in average loans, partially offset by a decrease in average cash and cash equivalents of $24.0 million.

Fully taxable equivalent net interest income for the fourth quarter of 2023 decreased by $16.1 million, or 20.5%, from the fourth quarter of 2022. The decrease from the fourth quarter of 2022 resulted primarily from a 77 basis-point decrease in the net interest margin to 2.71% from 3.48%, partially offset by an increase in interest-earning assets of $0.2 billion. The contraction of the net interest margin for the fourth quarter of 2023 when compared to the fourth quarter of 2022 was primarily attributable to a 168 basis-point increase in the average costs of deposits, including noninterest-bearing deposits, partially offset by a 61 basis-point increase in the loan portfolio yield.

Noninterest income was $4.2 million in the fourth quarter of 2023, $3.6 million in the third quarter of 2023 and $3.5 million in the fourth quarter of 2022. Included in noninterest income were net gains (losses) on equity securities of $0.6 million, $(0.3) million, and $(0.1) million for the fourth quarter of 2023, third quarter of 2023 and fourth quarter of 2022, respectively. Excluding the equity securities gains (losses), adjusted noninterest income was $3.6 million, $3.8 million and $3.6 million for the fourth quarter of 2023, third quarter of 2023 and fourth quarter of 2022, respectively. The $0.2 million decrease in adjusted noninterest income for the fourth quarter of 2023 when compared to the third quarter of 2023 was primarily due to a decrease in net gains on loans held-for-sale of $0.2 million. The net gains on loans held-for-sale consisted primarily of Small Business Administration (“SBA”) loans. The $0.1 million increase in adjusted noninterest income for the fourth quarter of 2023 when compared to the fourth quarter of 2022 was primarily due to an increase in net gains on loans held-for-sale, primarily SBA, of $0.3 million and an increase in BOLI of $0.1 million, partially offset by a decrease in deposit, loan, and other income of $0.3 million.

Noninterest expenses totaled $37.8 million for the fourth quarter of 2023, $35.8 million for the third quarter of 2023 and $33.3 million for the fourth quarter of 2022. Included in noninterest expenses for the fourth quarter of 2023 was a $2.1 million FDIC special assessment. Excluding the assessment, adjusted noninterest expenses totaled $35.7 million for the fourth quarter of 2023. Adjusted noninterest expenses were flat from the third quarter of 2023. The following components made up the change between the fourth quarter of 2023 and the third quarter of 2023: an increase of $0.7 million in information technology and communication, offset by decreases in professional and consulting of $0.3 million, marketing and advertising of $0.2 million and salaries and employee benefits of $0.2 million. The increase in adjusted noninterest expenses of $2.4 million from the fourth quarter of 2022 was primarily attributable to increases in information technology and communications of $1.5 million, FDIC insurance of $1.0 million, salaries and employee benefits of $0.3 million, and other expenses of $0.3 million, partially offset by decreases in professional and consulting of $0.6 million and marketing and advertising of $0.1 million. The increase in information technology and communications when compared to the third quarter of 2023 and the fourth quarter of 2022 is primarily attributable to additional investments in technology, equipment, and software.

Income tax expense was $6.2 million for the fourth quarter of 2023, $7.2 million for the third quarter of 2023 and $12.3 million for the fourth quarter of 2022. The effective tax rates for the fourth quarter of 2023, third quarter of 2023 and fourth quarter of 2022 were 24.4%, 25.2% and 27.5%, respectively.  The decrease in the effective tax rate when compared to the third quarter of 2023 and fourth quarter of 2022 is largely attributable to lower taxable income.

Asset Quality

The provision for credit losses was $2.7 million for the fourth quarter of 2023, $1.5 million for the third quarter of 2023 and $3.3 million for the fourth quarter of 2022. The increase in the provision for credit losses between the third and fourth quarter of 2023 primarily reflected loan growth.

During the current quarter the Company charged-off $3.9 million of previously-reserved-for taxi medallion loans. The taxi charge-off had no impact on credit loss provisioning or earnings, it increased the annualized quarterly charge-off rate and reduced nonaccrual loans. Total nonperforming assets, which include nonaccrual loans and other real estate owned, were $52.5 million as of December 31, 2023, $56.1 million as of September 30, 2023 and $44.7 million as of December 31, 2022. Nonaccrual loans were $52.5 million as of December 31, 2023, $56.1 million as of September 30, 2023 and $44.5 million as of December 31, 2022. Nonperforming assets as a percentage of total assets were 0.53% as of December 31, 2023, 0.58% as of September 30, 2023 and 0.46% as of December 31, 2022. The ratio of nonaccrual loans to loans receivable was 0.63%, 0.69% and 0.55%, as of December 31, 2023, September 30, 2023 and December 31, 2022, respectively. The annualized net loan charge-offs ratio was 0.43% (0.24%, excluding the above-mentioned taxi charge-off) for the fourth quarter of 2023, 0.12% for the third quarter of 2023 and 0.23% for the fourth quarter of 2022. The allowance for credit losses represented 0.98%, 1.08%, and 1.12% of loans receivable as of December 31, 2023, September 30, 2023 and December 31, 2022, respectively. The allowance for credit losses as a percentage of nonaccrual loans was 156.1% as of December 31, 2023, 157.4% as of September 30, 2023 and 203.6% as of December 31, 2022. Criticized and Classified loans as a percentage of total loans decreased to 1.35% as of December 31, 2023 from 1.44% as of September 30, 2023, and 2.25% as of December 31, 2022.

Selected Balance Sheet Items

The Company’s total assets were $9.856 billion as of December 31, 2023, an increase of $211 million from December 31, 2022.  The increase in total assets was primarily due to an increase in loans receivable of $245 million, partially offset by decreases in interest-bearing deposits with banks of $25 million and investment securities of $18 million. Loans receivable was $8.345 billion as of December 31, 2023 and $8.100 billion as of December 31, 2022. Total deposits were $7.536 billion, an increase of $180 million from December 31, 2022.

The Company’s total stockholders’ equity was $1.217 billion as of December 31, 2023, an increase of $38 million from December 31, 2022. The increase was primarily attributable to an increase in retained earnings of $55 million, partially offset by an increase in treasury stock of $17 million. As of December 31, 2023, the Company’s tangible common equity ratio and tangible book value per share were 9.25% and $23.14, respectively, increases from 9.04% and $21.71, respectively, as of December 31, 2022. Total goodwill and other intangible assets were $214.2 million as of December 31, 2023, and $215.7 million as of December 31, 2022.

Share Repurchase Program

During the fourth quarter of 2023, the Company repurchased 102,200 shares of common stock at an average price of $21.17, leaving 923,488 shares authorized for repurchase under the current Board approved repurchase program. The Company may repurchase shares from time-to-time in the open market, in privately negotiated stock purchases or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission and applicable federal securities laws. The share repurchase plan does not obligate the Company to acquire any particular amount of common stock, and the plan may be modified or suspended at any time at the Company's discretion. 

Use of Non-GAAP Financial Measures

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

Fourth Quarter 2023 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on January 25, 2024 to review the Company's financial performance and operating results. The conference call dial-in number is 1-646-307-1583, access code 9727224. 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, January 25, 2024 and ending on Thursday, February 1, 2024 by dialing 1-647-362-9199, access code 9727224. An online archive of the webcast will be available following the completion of the conference call at https://www.ConnectOneBank.com or at http://ir.connectonebank.com.

About ConnectOne Bancorp, Inc.

ConnectOne Bancorp, Inc., is a modern financial services company that operates, through its subsidiary, ConnectOne Bank, and the Bank’s fintech subsidiary, BoeFly, Inc. ConnectOne Bank is a high-performing commercial bank offering a full suite of banking & lending products and services that focus on small to middle-market businesses. BoeFly, Inc. is a fintech marketplace that connects borrowers in the franchise space with funding solutions through a network of partner banks. ConnectOne Bancorp, Inc. is traded on the Nasdaq Global Market under the trading symbol "CNOB," and information about ConnectOne may be found at https://www.connectonebank.com.

This news release contains certain forward-looking statements which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, those factors set forth in Item 1A – Risk Factors of the Company’s Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission, as supplemented by the Company’s subsequent filings with the U.S. 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. BurnsSenior Executive Vice President & CFO201.816.4474: bburns@cnob.com

Media Contact:Shannan Weeks MWW 732.299.7890: sweeks@mww.com 

CONNECTONE BANCORP, INC.  AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
	December 31,				December 31,
	2023				2022
	(unaudited)
ASSETS
Cash and due from banks	$	61,421			$	61,629
Interest-bearing deposits with banks		181,293				206,686
Cash and cash equivalents		242,714				268,315
Investment securities		617,162				634,884
Equity securities		18,564				15,811
Loans held-for-sale		-				13,772
Loans receivable		8,345,145				8,099,689
Less: Allowance for credit losses - loans		81,974				90,513
Net loans receivable		8,263,171				8,009,176
Investment in restricted stock, at cost		51,457				46,604
Bank premises and equipment, net		30,779				27,800
Accrued interest receivable		49,108				46,062
Bank owned life insurance		237,644				231,328
Right of use operating lease assets		12,007				10,179
Other real estate owned		-				264
Goodwill		208,372				208,372
Core deposit intangibles		5,874				7,312
Other assets		118,751				125,069
Total assets	$	9,855,603			$	9,644,948
LIABILITIES
Deposits:
Noninterest-bearing	$	1,259,364			$	1,501,614
Interest-bearing		6,276,838				5,855,008
Total deposits		7,536,202				7,356,622
Borrowings		933,579				857,622
Subordinated debentures, net		79,439				153,255
Operating lease liabilities		13,171				11,397
Other liabilities		76,592				87,301
Total liabilities		8,638,983				8,466,197
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock		110,927				110,927
Common stock		586,946				586,946
Additional paid-in capital		33,182				30,126
Retained earnings		590,970				535,915
Treasury stock		(70,296	)			(52,799	)
Accumulated other comprehensive loss		(35,109	)			(32,364	)
Total stockholders' equity		1,216,620				1,178,751
Total liabilities and stockholders' equity	$	9,855,603			$	9,644,948

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for per share data)
	Three Months Ended							Twelve Months Ended
	12/31/23			12/31/22				12/31/23				12/31/22
Interest income
Interest and fees on loans	$	120,636		$	104,952			$	453,992			$	352,993
Interest and dividends on investment securities:
Taxable		4,280			4,225				16,666				12,712
Tax-exempt		1,166			1,185				4,641				3,893
Dividends		912			712				3,662				1,655
Interest on federal funds sold and other short-term investments		1,963			1,395				11,104				2,493
Total interest income		128,957			112,469				490,065				373,746
Interest expense
Deposits		59,332			26,543				206,176				50,561
Borrowings		7,803			7,917				28,783				21,066
Total interest expense		67,135			34,460				234,959				71,627
Net interest income		61,822			78,009				255,106				302,119
Provision for credit losses		2,700			3,300				8,200				17,750
Net interest income after provision for credit losses		59,122			74,709				246,906				284,369
Noninterest income
Deposit, loan and other income		1,545			1,894				6,098				7,472
Income on bank owned life insurance		1,635			1,528				6,316				5,597
Net gains on sale of loans held-for-sale		472			176				1,704				1,695
Net losses on equity securities		557			(90	)			(117	)			(1,521	)
Total noninterest income		4,209			3,508				14,001				13,243
Noninterest expenses
Salaries and employee benefits		22,010			21,676				88,223				80,717
Occupancy and equipment		2,708			2,603				10,884				9,865
FDIC insurance		3,900			830				8,365				2,881
Professional and consulting		1,587			2,157				7,547				8,053
Marketing and advertising		323			454				1,965				1,692
Information technology and communications		4,148			2,694				14,340				11,108
Amortization of core deposit intangible		348			409				1,438				1,685
Increase in value of acquisition price		-			-				-				1,516
Other expenses		2,821			2,489				11,187				8,871
Total noninterest expenses		37,845			33,312				143,949				126,388
Income before income tax expense		25,486			44,905				116,958				171,224
Income tax expense		6,213			12,348				29,955				46,013
Net income		19,273			32,557				87,003				125,211
Preferred dividends		1,509			1,509				6,036				6,036
Net income available to common stockholders	$	17,764		$	31,048			$	80,967			$	119,175
Earnings per common share:
Basic	$	0.46		$	0.79			$	2.08			$	3.03
Diluted		0.46			0.79				2.07				3.01

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, INC.
SUPPLEMENTAL GAAP AND NON-GAAP FINANCIAL MEASURES
	As of
	Dec. 31,				Sep. 30,				Jun. 30,				Mar. 31,				Dec. 31,
	2023				2023				2023				2023				2022
Selected Financial Data	(dollars in thousands)
Total assets	$	9,855,603			$	9,678,885			$	9,723,963			$	9,960,467			$	9,644,948
Loans receivable:
Commercial	$	1,564,768			$	1,464,479			$	1,462,245			$	1,403,865			$	1,455,316
Commercial real estate		3,342,603				3,288,704				3,237,559				3,245,990				3,170,760
Multifamily		2,566,904				2,559,927				2,604,230				2,600,251				2,641,886
Commercial construction		620,496				622,748				596,362				630,469				574,139
Residential		256,041				251,416				254,405				259,166				264,748
Consumer		1,029				936				1,416				1,435				2,312
Gross loans		8,351,841				8,188,210				8,156,217				8,141,176				8,109,161
Net deferred loan fees		(6,696	)			(7,101	)			(7,677	)			(9,057	)			(9,472	)
Loans receivable		8,345,145				8,181,109				8,148,540				8,132,119				8,099,689
Loans held-for-sale		-				-				1,089				11,197				13,772
Total loans	$	8,345,145			$	8,181,109			$	8,149,629			$	8,143,316			$	8,113,461
Investment and equity securities	$	635,726			$	599,544			$	630,769			$	647,026			$	650,695
Goodwill and other intangible assets		214,246				214,594				214,941				215,312				215,684
Deposits:
Noninterest-bearing demand	$	1,259,364			$	1,224,125			$	1,356,293			$	1,345,265			$	1,501,614
Time deposits		2,531,371				2,522,210				2,621,148				2,706,662				2,394,190
Other interest-bearing deposits		3,745,467				3,692,160				3,560,856				3,701,249				3,460,818
Total deposits	$	7,536,202			$	7,438,495			$	7,538,297			$	7,753,176			$	7,356,622
Borrowings	$	933,579			$	887,590			$	827,601			$	852,611			$	857,622
Subordinated debentures (net of debt issuance costs)		79,439				79,313				79,187				79,060				153,255
Total stockholders' equity		1,216,620				1,188,154				1,199,397				1,190,970				1,178,751
Quarterly Average Balances
Total assets	$	9,690,746			$	9,625,625			$	9,765,582			$	9,700,530			$	9,490,477
Loans receivable:
Commercial (including PPP loans)	$	1,510,634			$	1,471,006			$	1,427,153			$	1,442,180			$	1,456,247
Commercial real estate (including multifamily)		5,874,854				5,821,794				5,847,147				5,813,388				5,758,594
Commercial construction		630,468				625,640				611,492				606,214				558,086
Residential		253,200				253,114				256,924				261,560				261,969
Consumer		6,006				4,972				6,733				3,894				4,630
Gross loans		8,275,162				8,176,526				8,149,449				8,127,236				8,039,526
Unearned net origination fees		(6,894	)			(7,387	)			(8,591	)			(9,664	)			(9,666	)
Loans receivable		8,268,268				8,169,139				8,140,858				8,117,572				8,029,860
Loans held-for-sale		31				171				8,516				13,463				7,933
Total loans	$	8,268,299			$	8,169,310			$	8,149,374			$	8,131,035			$	8,037,793
Investment and equity securities	$	602,287			$	628,429			$	642,915			$	649,744			$	650,479
Goodwill and other intangible assets		214,472				214,822				215,182				215,556				215,951
Deposits:
Noninterest-bearing demand	$	1,248,132			$	1,275,325			$	1,347,268			$	1,451,654			$	1,610,044
Time deposits		2,495,091				2,606,122				2,658,673				2,357,332				2,035,362
Other interest-bearing deposits		3,747,093				3,723,561				3,640,939				3,565,904				3,558,881
Total deposits	$	7,490,316			$	7,605,008			$	7,646,880			$	7,374,890			$	7,204,287
Borrowings	$	823,123			$	651,112			$	756,303			$	941,266			$	913,960
Subordinated debentures (net of debt issuance costs)		79,356				79,230				79,104				103,637				153,205
Total stockholders' equity		1,198,389				1,202,647				1,197,043				1,191,216				1,165,588
	Three Months Ended
	Dec. 31,				Sep. 30,				Jun. 30,				Mar. 31,				Dec. 31,
	2023				2023				2023				2023				2022
	(dollars in thousands, except for per share data)
Net interest income	$	61,822			$	62,357			$	63,843			$	67,084			$	78,009
Provision for credit losses		2,700				1,500				3,000				1,000				3,300
Net interest income after provision for credit losses		59,122				60,857				60,843				66,084				74,709
Noninterest income
Deposit, loan and other income		1,545				1,605				1,545				1,403				1,894
Income on bank owned life insurance		1,635				1,597				1,553				1,531				1,528
Net gains on sale of loans held-for-sale		472				633				550				49				176
Net gains (losses) on equity securities		557				(273	)			(210	)			(191	)			(90	)
Total noninterest income		4,209				3,562				3,438				2,792				3,508
Noninterest expenses
Salaries and employee benefits		22,010				22,251				21,726				22,236				21,676
Occupancy and equipment		2,708				2,738				2,677				2,761				2,603
FDIC insurance		1,800				1,800				1,715				950				830
Professional and consulting		1,587				1,834				1,932				2,194				2,157
Marketing and advertising		323				554				556				532				454
Information technology and communications		4,148				3,487				3,644				3,061				2,694
Amortization of core deposit intangible		348				347				371				372				409
Other expenses		2,821				2,773				2,829				2,764				2,489
Total noninterest expenses (excluding FDIC special assessment)		35,745				35,784				35,450				34,870				33,312
FDIC special assessment		2,100				-				-				-				-
Total noninterest expenses		37,845				35,784				35,450				34,870				33,312
Income before income tax expense		25,486				28,635				28,831				34,006				44,905
Income tax expense		6,213				7,228				7,437				9,077				12,348
Net income		19,273				21,407				21,394				24,929				32,557
Preferred dividends		1,509				1,509				1,509				1,509				1,509
Net income available to common stockholders	$	17,764			$	19,898			$	19,885			$	23,420			$	31,048
Weighted average diluted common shares outstanding		38,651,391				38,829,681				39,016,839				39,300,733				39,378,137
Diluted EPS	$	0.46			$	0.51			$	0.51			$	0.59			$	0.79
Reconciliation of GAAP Earnings to Pre-tax and Pre-provision Net Revenue
Net income	$	19,273			$	21,407			$	21,394			$	24,929			$	32,557
Income tax expense		6,213				7,228				7,437				9,077				12,348
Provision for credit losses		2,700				1,500				3,000				1,000				3,300
Pre-tax and pre-provision net revenue	$	28,186			$	30,135			$	31,831			$	35,006			$	48,205
Return on Assets Measures
Average assets	$	9,690,746			$	9,625,625			$	9,765,582			$	9,700,530			$	9,490,477
Return on avg. assets		0.79	%			0.88	%			0.88	%			1.04	%			1.36	%
Return on avg. assets (pre-tax and pre-provision)		1.15				1.24				1.31				1.46				2.02
	Three Months Ended
	Dec. 31,				Sep. 30,				Jun. 30,				Mar. 31,				Dec. 31,
	2023				2023				2023				2023				2022
Return on Equity Measures	(dollars in thousands)
Average stockholders' equity	$	1,198,389			$	1,202,647			$	1,197,043			$	1,191,216			$	1,165,588
Less: average preferred stock		(110,927	)			(110,927	)			(110,927	)			(110,927	)			(110,927	)
Average common equity	$	1,087,462			$	1,091,720			$	1,086,116			$	1,080,289			$	1,054,661
Less: average intangible assets		(214,472	)			(214,822	)			(215,182	)			(215,556	)			(215,951	)
Average tangible common equity	$	872,990			$	876,898			$	870,934			$	864,733			$	838,710
Return on avg. common equity (GAAP)		6.48	%			7.23	%			7.34	%			8.79	%			11.68	%
Return on avg. tangible common equity ("TCE") (non-GAAP)(1)		8.18				9.11				9.28				11.11				14.82
Return on avg. tangible common equity (pre-tax and pre-provision)		12.92				13.74				14.78				16.54				22.94
Efficiency Measures
Total noninterest expenses	$	37,845			$	35,784			$	35,450			$	34,870			$	33,312
Amortization of core deposit intangibles		(348	)			(347	)			(371	)			(372	)			(409	)
FDIC special assessment		(2,100	)			-				-				-				-
Operating noninterest expense	$	35,397			$	35,437			$	35,079			$	34,498			$	32,903
Net interest income (tax equivalent basis)	$	62,627			$	63,208			$	64,627			$	67,828			$	78,773
Noninterest income		4,209				3,562				3,438				2,792				3,508
Net losses on equity securities		(557	)			273				210				191				90
Operating revenue	$	66,279			$	67,043			$	68,275			$	70,811			$	82,371
Operating efficiency ratio (non-GAAP)(2)		53.4	%			52.9	%			51.4	%			48.7	%			39.9	%
Net Interest Margin
Average interest-earning assets	$	9,172,165			$	9,089,431			$	9,228,079			$	9,174,167			$	8,972,063
Net interest income (tax equivalent basis)		62,627				63,208				64,627				67,828				78,773
Net interest margin (GAAP)		2.71	%			2.76	%			2.81	%			3.00	%			3.48	%
(1)Earnings available to common stockholders excluding amortization of intangible assets divided by average tangible common equity.
(2)Operating noninterest expense divided by operating revenue.
	As of
	Dec. 31,				Sep. 30,				Jun. 30,				Mar. 31,				Dec. 31,
	2023				2023				2023				2023				2022
Capital Ratios and Book Value per Share	(dollars in thousands, except for per share data)
Stockholders equity	$	1,216,620			$	1,188,154			$	1,199,397			$	1,190,970			$	1,178,751
Less: preferred stock		(110,927	)			(110,927	)			(110,927	)			(110,927	)			(110,927	)
Common equity	$	1,105,693			$	1,077,227			$	1,088,470			$	1,080,043			$	1,067,824
Less: intangible assets		(214,246	)			(214,594	)			(214,941	)			(215,312	)			(215,684	)
Tangible common equity	$	891,447			$	862,633			$	873,529			$	864,731			$	852,140
Total assets	$	9,855,603			$	9,678,885			$	9,723,963			$	9,960,467			$	9,644,948
Less: intangible assets		(214,246	)			(214,594	)			(214,941	)			(215,312	)			(215,684	)
Tangible assets	$	9,641,357			$	9,464,291			$	9,509,022			$	9,745,155			$	9,429,264
Common shares outstanding		38,519,770				38,621,970				38,966,652				39,179,051				39,243,123
Common equity ratio (GAAP)		11.22	%			11.13	%			11.19	%			10.84	%			11.07	%
Tangible common equity ratio (non-GAAP)(3)		9.25				9.11				9.19				8.87				9.04
Regulatory capital ratios (Bancorp):
Leverage ratio		10.86	%			10.86	%			10.62	%			10.60	%			10.68	%
Common equity Tier 1 risk-based ratio		10.62				10.64				10.55				10.55				10.30
Risk-based Tier 1 capital ratio		11.95				11.98				11.90				11.92				11.66
Risk-based total capital ratio		13.77				13.90				13.83				13.85				14.45
Regulatory capital ratios (Bank):
Leverage ratio		11.20	%			11.23	%			10.95	%			10.62	%			10.64	%
Common equity Tier 1 risk-based ratio		12.31				12.38				12.26				11.92				11.60
Risk-based Tier 1 capital ratio		12.31				12.38				12.26				11.92				11.60
Risk-based total capital ratio		13.28				13.43				13.33				13.27				13.02
Book value per share (GAAP)	$	28.70			$	27.89			$	27.93			$	27.57			$	27.21
Tangible book value per share (non-GAAP)(4)		23.14				22.34				22.42				22.07				21.71
Net Loan Charge-offs (Recoveries):
Net loan charge-offs (recoveries):
Charge-offs	$	8,960			$	2,487			$	1,118			$	4,484			$	4,456
Recoveries		-				(8	)			(76	)			(1	)			-
Net loan charge-offs (recoveries)	$	8,960			$	2,479			$	1,042			$	4,483			$	4,456
Net loan charge-offs (recoveries) as a % of average loans receivable (annualized)		0.43	%			0.12	%			0.05	%			0.22	%			0.23	%
Asset Quality
Nonaccrual loans	$	52,524			$	56,059			$	51,496			$	47,667			$	44,454
Other real estate owned		-				-				-				-				264
Nonperforming assets	$	52,524			$	56,059			$	51,496			$	47,667			$	44,718
Allowance for credit losses - loans ("ACL")	$	81,974			$	88,230			$	89,205			$	87,002			$	90,513
Loans receivable		8,345,145				8,181,109				8,148,540				8,132,119				8,099,689
Nonaccrual loans as a % of loans receivable		0.63	%			0.69	%			0.63	%			0.59	%			0.55	%
Nonperforming assets as a % of total assets		0.53				0.58				0.53				0.48				0.46
ACL as a % of loans receivable		0.98				1.08				1.09				1.07				1.12
ACL as a % of nonaccrual loans		156.1				157.4				173.2				182.5				203.6
(3)Tangible common equity divided by tangible assets
(4)Tangible common equity divided by common shares outstanding at period-end

CONNECTONE BANCORP, INC.
NET INTEREST MARGIN ANALYSIS
(dollars in thousands)
	For the Quarter Ended
	December 31, 2023								September 30, 2023									December 31, 2022
	Average									Average									Average
Interest-earning assets:	Balance			Interest			Rate(7)			Balance			Interest			Rate(7)			Balance			Interest			Rate(7)
Investment securities(1) (2)	$	723,433		$	5,757		3.16	%		$	723,408		$	5,566		3.05	%		$	743,917		$	5,725		3.05	%
Loans receivable and loans held-for-sale(2) (3) (4)		8,268,299			121,130		5.81				8,169,310			115,954		5.63				8,037,793			105,402		5.20
Federal funds sold and interest-
bearing deposits with banks		134,168			1,963		5.80				158,155			2,110		5.29				142,489			1,394		3.88
Restricted investment in bank stock		46,265			912		7.82				38,558			907		9.33				47,864			712		5.90
Total interest-earning assets	$	9,172,165			129,762		5.61			$	9,089,431			124,537		5.44				8,972,063			113,233		5.01
Allowance for loan losses		(88,861	)								(89,966	)								(91,621	)
Noninterest-earning assets		607,442									626,160									610,035
Total assets	$	9,690,746								$	9,625,625								$	9,490,477
Interest-bearing liabilities:
Time deposits		2,495,091			26,486		4.21				2,606,122			25,437		3.87			$	2,035,362			11,601		2.26
Other interest-bearing deposits		3,747,093			32,846		3.48				3,723,561			30,606		3.26				3,558,881			14,942		1.67
Total interest-bearing deposits		6,242,184			59,332		3.77				6,329,683			56,043		3.51				5,594,243			26,543		1.88
Borrowings		823,123			6,467		3.12				651,112			3,950		2.41				913,960			5,665		2.46
Subordinated debentures, net		79,356			1,313		6.56				79,230			1,312		6.57				153,205			2,217		5.74
Finance lease		1,546			23		5.90				1,603			24		5.94				1,760			35		7.89
Total interest-bearing liabilities		7,146,209			67,135		3.73				7,061,628			61,329		3.45				6,663,168			34,460		2.05
Noninterest-bearing demand deposits		1,248,132									1,275,325									1,610,044
Other liabilities		98,016									86,025									51,677
Total noninterest-bearing liabilities		1,346,148									1,361,350									1,661,721
Stockholders' equity		1,198,389									1,202,647									1,165,588
Total liabilities and stockholders' equity	$	9,690,746								$	9,625,625								$	9,490,477
Net interest income (tax equivalent basis)					62,627									63,208									78,773
Net interest spread(5)							1.89	%								1.99	%								2.96	%
Net interest margin(6)							2.71	%								2.76	%								3.48	%
Tax equivalent adjustment					(805	)								(851	)								(764	)
Net interest income				$	61,822								$	62,357								$	78,009
(1)Average balances are calculated on amortized cost.
(2)Interest income is presented on a tax equivalent basis using 21% federal tax rate.
(3)Includes loan fee income.
(4)Loans include nonaccrual loans.
(5)Represents difference between the average yield on interest-earning assets and the average cost of interest-bearing
liabilities and is presented on a tax equivalent basis.
(6)Represents net interest income on a tax equivalent basis divided by average total interest-earning assets.
(7)Rates are annualized.