ConnectOne Bancorp, Inc. Reports Third Quarter 2020 Results

Rhea-AI Summary

ConnectOne Bancorp (Nasdaq: CNOB) reported a net income of $24.8 million for Q3 2020, up from $14.8 million in Q2 2020 and $21.7 million in Q3 2019. Diluted earnings per share rose to $0.62 from $0.37 in Q2 2020. Provisions for loan losses decreased to $5 million from $15 million in Q2, while noninterest expenses dropped to $26.5 million from $33.1 million. Total assets increased to $7.4 billion driven by a surge in loans and the acquisition of BNJ. A cash dividend of $0.09 per share was declared for December 1, 2020.

Positive

• Net income increased to $24.8 million for Q3 2020, up from $14.8 million in Q2 2020.
• Diluted EPS rose to $0.62 from $0.37 in Q2 2020.
• Provision for loan losses decreased significantly to $5 million from $15 million in Q2 2020.
• Noninterest expenses reduced to $26.5 million from $33.1 million in Q2 2020.
• Total assets increased to $7.4 billion, reflecting growth from the acquisition of BNJ.

Negative

• Nonperforming assets increased to $65.5 million from $52.2 million year-over-year.
• Noninterest income fell to $3.5 million from $4.6 million in Q2 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, ConnectOne’s 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.  We’re operating our Bank efficiently, and effectively, and I’m 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 ConnectOne’s 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.  We’ve also continued to successfully implement our branch rationalization strategy as we’re 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. We’re focused on long-term sustainable growth and operating ConnectOne in a disciplined manner. We’re 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 Bank’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s Annual Report on Form 10-K, as filed with the Securities Exchange Commission, as supplemented by the Company’s 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. Burns
Executive VP & CFO
201.816.4474; bburns@cnob.com

Media Contact:
Emily Holtzman, MWWPR
631.742.9568; eholtzman@mww.com

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED 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 with banks		196,697				135,766				139,217
Cash and cash equivalents		256,119				201,483				194,009
Securities available-for-sale		453,015				404,701				425,849
Equity 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 losses		74,267				38,293				38,771
Net loans receivable		6,176,784				5,075,234				5,071,700
Investment in restricted stock, at cost		28,713				27,397				27,946
Bank premises and equipment, net		29,922				19,236				19,754
Accrued interest receivable		34,326				20,949				21,024
Bank owned life insurance		165,676				137,961				137,048
Right of use operating lease assets		22,830				15,137				15,789
Other 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 liabilities		26,726				16,449				17,148
Subordinated debentures, net of debt issuance costs		202,552				128,885				128,802
Other 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 capital		22,867				21,344				20,450
Retained earnings		309,893				271,782				254,159
Treasury stock		(30,271	)			(29,360	)			(21,892	)
Accumulated other comprehensive income (loss)		1,301				(1,147	)			(1,128	)
Total stockholders' equity		890,736				731,190				720,160
Total liabilities and stockholders' equity	$	7,449,559			$	6,174,032			$	6,161,269

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for per share data)
	Three Months Ended								Nine Months Ended
	09/30/20				09/30/19				09/30/20			09/30/19
Interest income
Interest and fees on loans	$	74,755			$	66,796			$	223,488		$	190,646
Interest and dividends on investment securities:
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 federal funds sold and other short-term investments		47				278				625			925
Total interest income		77,221				70,389				232,612			203,476
Interest expense
Deposits		11,947				17,351				42,756			49,298
Borrowings		4,725				4,632				13,236			15,290
Total interest expense		16,672				21,983				55,992			64,588
Net interest income		60,549				48,406				176,620			138,888
Provision for loan losses		5,000				2,000				36,000			7,600
Net interest income after provision for loan losses		55,549				46,406				140,620			131,288
Noninterest income
Income on bank owned life insurance		1,598				915				3,693			2,570
Net gains on sale of loans held-for-sale		614				278				1,244			343
Deposit, loan and other income		1,278				1,116				5,777			2,816
Net (losses) gains on equity securities		(7	)			79				215			340
Net (losses) gains on sale of securities available-for-sale		-				(279	)			29			(280	)
Total noninterest income		3,483				2,109				10,958			5,789
Noninterest expenses
Salaries and employee benefits		15,114				12,449				44,177			36,254
Occupancy and equipment		3,566				2,480				10,193			7,332
FDIC insurance		1,105				(364	)			3,054			1,216
Professional and consulting		1,926				1,499				5,173			4,078
Marketing and advertising		214				473				944			1,080
Data processing		1,470				1,058				4,529			3,352
Merger and restructuring expenses		-				191				14,640			8,084
Loss on extinguishment of debt		-				-				-			1,047
Amortization of core deposit intangibles		627				340				1,931			1,068
Increase in value of acquisition price		-				-				2,333			-
Other expenses		2,456				2,253				7,625			6,520
Total noninterest expenses		26,478				20,379				94,599			70,031
Income before income tax expense		32,554				28,136				56,979			67,046
Income 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. 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
	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 fees		(12,209	)			(14,934	)			(4,509	)			(4,767	)			(5,002	)
Loans 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 intangible assets		219,977				220,605				221,263				168,034				168,374
Deposits:
Noninterest-bearing demand	$	1,270,021			$	1,276,070			$	979,778			$	861,728			$	828,190
Time deposits		1,619,609				1,807,864				1,974,400				1,553,721				1,573,736
Other interest-bearing deposits		2,909,126				2,742,927				2,555,014				2,352,093				2,349,308
Total 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 costs)		202,552				202,476				128,967				128,885				128,802
Total stockholders' equity		890,736				867,741				853,710				731,190				720,160
Quarterly Average Balances
Total 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 (including multifamily)		3,679,297				3,722,966				3,723,991				3,074,889				3,144,978
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 fees		(13,292	)			(13,420	)			(4,648	)			(5,031	)			(4,778	)
Loans 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 intangible assets		220,391				221,039				221,075				168,257				168,598
Deposits:
Noninterest-bearing demand	$	1,253,235			$	1,277,428			$	955,358			$	844,332			$	810,247
Time deposits		1,728,129				1,905,165				1,962,714				1,533,425				1,598,378
Other interest-bearing deposits		2,881,592				2,639,052				2,660,755				2,348,752				2,300,886
Total 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 costs)		202,502				141,904				128,913				128,830				128,747
Total stockholders' equity		883,364				868,796				864,241				732,173				714,002
	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 losses		5,000				15,000				16,000				500				2,000
Net interest income after provision for loan losses		55,549				45,790				39,281				46,931				46,406
Noninterest income
Income on bank owned life insurance		1,598				1,128				967				914				915
Net gains on sale of loans held-for-sale		614				237				393				169				278
Deposit, loan and other income		1,278				3,212				1,287				1,209				1,116
Net (losses) gains on equity securities		(7	)			44				178				(46	)			79
Net gains (losses) on sale of investment securities		-				-				29				-				(279	)
Total noninterest income		3,483				4,621				2,854				2,246				2,109
Noninterest expenses
Salaries and employee benefits		15,114				14,500				14,563				12,881				12,449
Occupancy and equipment		3,566				3,156				3,471				2,380				2,480
FDIC insurance		1,105				1,093				856				795				(364	)
Professional and consulting		1,926				1,673				1,574				1,428				1,499
Marketing and advertising		214				426				304				273				473
Data processing		1,470				1,586				1,473				1,151				1,058
Merger expenses		-				5,146				9,494				871				191
Amortization of core deposit intangible		627				652				652				340				340
Increase in value of acquisition price		-				2,333				-				-				-
Other expenses		2,456				2,498				2,671				2,078				2,253
Total noninterest expenses		26,478				33,063				35,058				22,197				20,379
Income before income tax expense		32,554				17,348				7,077				26,980				28,136
Income 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 shares outstanding		39,653,832				39,611,712				39,510,810				35,245,285				35,262,565
Diluted EPS	$	0.62			$	0.37			$	0.15			$	0.59			$	0.61
Reconciliation of GAAP Earnings to Pre-tax, Pre-provision and Pre-merger charges Earnings
Net 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 losses		5,000				15,000				16,000				500				2,000
Pre-tax, pre-provision and pre-merger charges earnings	$	37,554			$	37,494			$	32,571			$	28,351			$	30,327
Return on Assets Measures
Average 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 and pre-merger charges)		2.00				1.96				1.84				1.85				1.99
	Three Months Ended
	Sept. 30,				June 30,				Mar. 31,				Dec. 31,				Sept. 30,
	2020				2020				2020				2019				2019
Return on Equity Measures	(dollars in thousands)
Average common equity	$	883,364			$	868,796			$	864,241			$	732,173			$	714,002
Less: average intangible assets		(220,391	)			(221,039	)			(221,075	)			(168,257	)			(168,598	)
Average tangible common equity	$	662,973			$	647,757			$	643,166			$	563,916			$	545,404
Return on avg. common equity (GAAP)		11.16	%			6.87	%			2.81	%			11.26	%			12.06	%
Return on avg. tangible common equity (non-GAAP) (1)		15.14				9.50				4.06				14.79				15.96
Efficiency Measures
Total noninterest expenses	$	26,478			$	33,063			$	35,058			$	22,197			$	20,379
Amortization of core deposit intangibles		(627	)			(652	)			(652	)			(340	)			(340	)
Merger expenses		-				(5,146	)			(9,494	)			(871	)			(191	)
FDIC small bank assessment credit		-				-				-				-				1,310
Foreclosed property expense		-				(5	)			10				8				(90	)
Operating noninterest expense	$	25,851			$	27,260			$	24,922			$	20,994			$	21,068
Net interest income (tax equivalent basis)	$	61,005			$	61,253			$	55,781			$	47,929			$	48,918
Noninterest income		3,483				4,621				2,854				2,246				2,109
Net losses (gains) on equity securities		7				(44	)			(178	)			46				(79	)
Net (gains) losses on sales of securities		-				-				(29	)			-				279
Operating revenue	$	64,495			$	65,830			$	58,428			$	50,221			$	51,227
Operating efficiency ratio (non-GAAP) (2)		40.1	%			41.4	%			42.7	%			41.8	%			41.1	%
Net Interest Margin
Average interest-earning assets	$	6,962,499			$	7,164,545			$	6,584,508			$	5,663,538			$	5,649,058
Net interest income (tax equivalent basis)	$	61,005			$	61,253			$	55,781			$	47,929			$	48,918
Impact of purchase accounting fair value marks		(2,403	)			(3,073	)			(3,457	)			(1,455	)			(1,566	)
Adjusted net interest income (tax equivalent basis)	$	58,602			$	58,180			$	52,324			$	46,474			$	47,352
Net interest margin (GAAP)		3.49	%			3.44	%			3.41	%			3.36	%			3.44	%
Adjusted net interest margin (non-GAAP) (3)		3.35				3.27				3.20				3.26				3.33
____________
(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.
(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 Value per Share	(dollars in thousands, except for per share data)
Common 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 outstanding		39,754,051				39,753,033				39,704,921				35,072,066				35,364,845
Common equity ratio (GAAP)		11.96	%			11.39	%			11.73	%			11.84	%			11.69	%
Tangible common equity ratio (non-GAAP) (4)		9.28				8.75				8.96				9.38				9.21
Regulatory capital ratios (Bancorp):
Leverage ratio		9.30	%			8.99	%			9.20	%			9.54	%			9.39	%
Common equity Tier 1 risk-based ratio		10.63				10.04				9.63				9.95				9.78
Risk-based Tier 1 capital ratio		10.72				10.12				9.71				10.04				9.87
Risk-based total capital ratio		14.94				14.32				12.46				12.95				12.80
Regulatory capital ratios (Bank):
Leverage ratio		10.41	%			10.12	%			10.36	%			10.81	%			10.68	%
Common equity Tier 1 risk-based ratio		12.00				11.38				10.93				11.37				11.23
Risk-based Tier 1 capital ratio		12.00				11.38				10.93				11.37				11.23
Risk-based total capital ratio		13.70				12.96				12.25				12.63				12.50
Book value per share (GAAP)	$	22.41			$	21.83			$	21.50			$	20.85			$	20.36
Tangible book value per share (non-GAAP) (5)		16.87				16.28				15.93				16.06				15.60
Net Loan (Recoveries) Charge-Off Detail
Net loan charge-offs (recoveries) :
Charge-offs	$	257			$	449			$	127			$	1,029			$	964
Recoveries		(800	)			(4	)			(3	)			(22	)			(37	)
Net loan (recoveries) charge-offs	$	(543	)		$	445			$	124			$	1,007			$	927
Net loan (recoveries) charge-offs as a % of average loans receivable (annualized)		(0.03	)%			0.03	%			0.01	%			0.08	%			0.07	%
Asset Quality
Nonaccrual taxi medallion loans	$	23,024			$	23,024			$	23,024			$	23,431			$	25,802
Nonaccrual loans (excluding taxi medallion loans)		42,470				41,556				39,349				26,050				25,519
Other real estate owned		-				-				-				-				907
Total nonperforming assets	$	65,494			$	64,580			$	62,373			$	49,481			$	52,228
Performing troubled debt restructurings	$	18,241			$	20,418			$	21,293			$	21,410			$	19,681
Allowance for loan losses ("ALLL")	$	74,267			$	68,724			$	54,169			$	38,293			$	38,771
Loans receivable	$	6,251,051			$	6,363,267			$	6,009,310			$	5,113,527			$	5,110,471
Less: taxi medallion loans		24,634				24,603				24,575				24,977				27,353
Loans receivable (excluding taxi medallion loans)	$	6,226,417			$	6,338,664			$	5,984,735			$	5,088,550			$	5,083,118
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 (excluding PPP loans)	$	5,777,029			$	5,889,268			$	6,009,310			$	5,113,527			$	5,110,471
Nonaccrual loans (excluding taxi medallion loans) as a % of loans receivable (excluding taxi medallion loans)		0.68	%			0.66	%			0.66	%			0.51	%			0.50	%
Nonaccrual loans as a % of loans receivable		1.05				1.01				1.04				0.97				1.00
Nonperforming assets as a % of total assets		0.88				0.85				0.86				0.80				0.85
ALLL as a % of loans receivable		1.19				1.08				0.90				0.75				0.76
ALLL as a % of loans receivable (excluding PPP loans)		1.29				1.17				0.90				0.75				0.76
ALLL as a % of nonaccrual loans (excluding taxi medallion loans)		174.9				165.4				137.7				147.0				151.9
ALLL as a % of nonaccrual loans		113.4				106.4				86.8				77.4				75.5
____________
(4) Tangible common equity divided by tangible assets.
(5) Tangible common equity divided by common shares outstanding at period-end.

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
NET 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 assets:	Balance				Interest			Rate (7)			Balance				Interest			Rate (7)			Balance				Interest			Rate (7)
Investment securities (1) (2)	$	420,362			$	2,176		2.06	%		$	443,282			$	2,531		2.30	%		$	445,492			$	3,053		2.72	%
Loans receivable and loans held-for-sale (2) (3) (4)		6,288,443				75,028		4.75				6,332,503				76,088		4.83				5,127,365				67,068		5.19
Federal funds sold and interest-
bearing deposits with banks		227,617				47		0.08				357,758				79		0.09				50,289				278		2.19
Restricted investment in bank stock		26,077				426		6.50				31,002				442		5.73				25,912				502		7.69
Total interest-earning assets		6,962,499				77,677		4.44				7,164,545				79,140		4.44				5,649,058				70,901		4.98
Allowance for loan losses		(69,381	)									(53,502	)									(37,704	)
Noninterest-earning assets		580,884										573,360										448,059
Total assets	$	7,474,002									$	7,684,403									$	6,059,413
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
Other interest-bearing deposits		2,881,592				3,773		0.52				2,639,052				4,011		0.61				2,300,886				7,416		1.28
Total interest-bearing deposits		4,609,721				11,947		1.03				4,544,217				13,597		1.20				3,899,264				17,350		1.77
Borrowings		467,399				1,992		1.70				798,648				2,235		1.13				467,230				2,754		2.34
Subordinated debentures, net of debt issuance costs		202,502				2,700		5.30				141,904				2,021		5.73				128,747				1,843		5.68
Capital lease obligation		2,211				33		5.94				2,257				34		6.06				2,393				36		5.97
Total interest-bearing liabilities		5,281,833				16,672		1.26				5,487,026				17,887		1.31				4,497,634				21,983		1.94
Noninterest-bearing demand deposits		1,253,235										1,277,428										810,247
Other liabilities		55,570										51,153										37,530
Total noninterest-bearing liabilities		1,308,805										1,328,581										847,777
Stockholders' equity		883,364										868,796										714,002
Total liabilities and stockholders' equity	$	7,474,002									$	7,684,403									$	6,059,413
Net interest income (tax equivalent basis)						61,005										61,253										48,918
Net interest spread (5)								3.18	%									3.13	%									3.04	%
Net interest margin (6)								3.49	%									3.44	%									3.44	%
Tax equivalent adjustment						(456	)									(463	)									(512	)
Net 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% 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.

FAQ

What were ConnectOne Bancorp's earnings for Q3 2020?

ConnectOne Bancorp reported net income of $24.8 million for Q3 2020.

What is the diluted EPS for ConnectOne Bancorp in Q3 2020?

The diluted earnings per share for Q3 2020 was $0.62.

How much did ConnectOne Bancorp decrease its provision for loan losses in Q3 2020?

The provision for loan losses decreased to $5 million in Q3 2020, down from $15 million in Q2 2020.

What is the cash dividend declared by ConnectOne Bancorp?

ConnectOne Bancorp declared a cash dividend of $0.09 per share, payable on December 1, 2020.

What were the total assets of ConnectOne Bancorp as of September 30, 2020?

As of September 30, 2020, ConnectOne Bancorp's total assets were $7.4 billion.