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ConnectOne Bancorp, Inc. Reports Fourth Quarter and Full-Year 2023 Results; Declares Common and Preferred Dividends
Источник: Nasdaq GlobeNewswire / 25 янв 2024 07:00:01 America/New_York
ENGLEWOOD CLIFFS, N.J., Jan. 25, 2024 (GLOBE NEWSWIRE) -- 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. Burns
Senior Executive Vice President & CFO
201.816.4474: bburns@cnob.comMedia Contact:
Shannan Weeks
MWW
732.299.7890: sweeks@mww.comCONNECTONE 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. 
