What changed in this filing

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Item 1. Financial Statements

2021-11-05 compared with 2021-08-06 · 269 added, 244 removed, 1062 unchanged (33% of the section changed)

3 unchanged sentences

CONSOLIDATED STATEMENTS OF CONDITION

September 30,

(in thousands, except for share data)

6 unchanged sentences

Loans receivable

Allowance for credit losses - loans

Allowance for credit losses –

Net loans receivable

14 unchanged sentences

STOCKHOLDERS’

Preferred Stock:

Preferred Stock, no par value;

$ 1,000 per share liquidation preference;

Authorized 5,000,000 shares;

issued 115,000 shares as of September 30, 2021 and - 0 - shares as of December 31, 2020;

outstanding 115,000 shares as of September 30, 2021 and - 0 - shares as of December 31, 2020

Common stock, no par value:

Authorized 100,000,000 shares;

issued 42,547,077 shares as of June 30, 2021 and 42,444,031 shares as of December 31, 2020;

outstanding 39,794,815 shares as of June 30, 2021 and 39,785,398 as of December 31, 2020

issued 42,550,530 shares as of September 30, 2021 and 42,444,031 shares as of December 31, 2020;

outstanding 39,602,199 shares as of September 30, 2021 and 39,785,398 as of December 31, 2020

Additional paid-in capital

Retained earnings

Treasury stock, at cost 2,752,262 common shares as of June 30, 2021 and 2,658,633 as of December 31, 2020

Treasury stock, at cost 2,948,331 common shares as of September 30, 2021 and 2,658,633 as of December 31, 2020

Accumulated other comprehensive (loss) income

6 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands, except for per share data)

7 unchanged sentences

Net interest income

(Reversal of) provision for credit losses

Net interest income after (reversal of) provision for credit losses

Provision for (reversal of) credit losses

Net interest income after provision for credit losses

Noninterest income

3 unchanged sentences

Gain on sale of branches

Net gains (losses) on equity securities

Net gains on sales/redemption of securities available-for-sale

Net (losses) gains on equity securities

Net gains on sales/redemption of investment securities

Total noninterest income

20 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

1 unchanged sentence

Unrealized gains and losses:

Unrealized holding gains (losses) on available-for-sale securities arising during the period

Unrealized holding (losses) gains on available-for-sale securities arising during the period

Reclassification adjustment for realized gains included in net income

Unrealized losses on cash flow hedges

Unrealized gains (losses) on cash flow hedges

Reclassification adjustment for realized losses on cash flow hedges included in net income

Reclassification adjustment for pension plan amortization included in net income

Total other comprehensive income (loss)

Total other comprehensive (loss) income

Total comprehensive income

3 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

(dollars in thousands, except for per share data)

15 unchanged sentences

Repurchase of treasury stock ( 289,698 shares)

Proceeds from preferred stock issuance, net of costs ( 115,000 shares)

Stock-based compensation expense

Balance as of June 30,  

Three Months Ended June 30, 2021

Balance as of September 30,  

Three Months Ended September 30, 2021

(dollars in thousands, except for per share data)

Comprehensive

(Loss) Income

Stockholders’

Comprehensive

Balance as of March 31, 2021

Other comprehensive income, net of tax

Balance as of June 30, 2021 

Other comprehensive loss, net of tax

Cash dividends declared on common stock ($ 0.11 per share)

Restricted stock grants, net of forfeitures ( 1,082 shares)

Stock grants ( 4,535 shares)

Repurchase of treasury stock ( 196,069 shares)

Proceeds from preferred stock issuance, net of costs ( 115,000 shares)

Stock-based compensation expense

Balance as of June 30,  

Six Months Ended June 30, 2020

Balance as of September 30,  

Nine Months Ended September 30, 2020

(dollars in thousands, except for per share data)

4 unchanged sentences

Other comprehensive income,  net of tax

Cash dividends declared on common stock  ($ 0.090  per share)

Cash dividends declared on common stock  ($ 0.18 per share)

Exercise of stock options  ( 25,413 shares)

Restricted stock grants  ( 68,853 shares)

Restricted stock grants, net of forfeitures ( 68,531 shares)

Stock grants issued ( 1,340 shares)

Net shares issued in satisfaction of restricted stock units earned

5 unchanged sentences

Stock-based compensation expense

Balance as of June 30,  

Three Months Ended June 30, 2020

Balance as of September 30,  

Three Months Ended September 30, 2020

(dollars in thousands, except for per share data)

2 unchanged sentences

Stockholders’

Comprehensive

Balance as of March 31, 2020

Other comprehensive loss, net of tax

Cash dividends adjustment

Restricted stock grants ( 48,169 shares)

Share redemption for tax withholdings on performance units

Balance as of June 30, 2020 

Other comprehensive income, net of tax

Cash dividends declared on common stock ($ 0.09 per share)

Restricted stock grants, net of forfeitures ( 1,018 shares)

Stock-based compensation expense

Balance as of June 30,  

Balance as of September 30,  

See accompanying notes to unaudited consolidated financial statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

Nine Months Ended

September 30,

(dollars in thousands)

16 unchanged sentences

Proceeds from sale of loans held-for sale

Payments on loans held-for-sale

Gain on sale of other real estate owned

15 unchanged sentences

Purchases of premises and equipment

Payments on loans held-for-sale

Proceeds from life insurance death benefits

Proceeds from sale of branches

Proceeds from sale of OREO

Proceeds from sale of other real estate owned

Cash and cash equivalents acquired in acquisition, net

5 unchanged sentences

Repayments of borrowings

Repurchase of treasury stock

Repurchase of common stock to treasury

Net proceeds from the issuance of preferred stock

Cash dividends paid on common stock

22 unchanged sentences

ConnectOne Bancorp, Inc.

(the “Parent Corporation”) is incorporated under the laws of the State of New Jersey and is a registered bank holding company.

(the “Parent Corporation”) is incorporated under the laws of the State of New Jersey and is a registered bank holding company under the Bank Holding Company Act of 1956, as amended (the “BHCA”).

The Parent Corporation’s business currently consists of the operation of its wholly-owned subsidiary, ConnectOne Bank (the “Bank”

13 unchanged sentences

However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021, or for any other interim period.

Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021, or for any other interim period.

The Company’s 2020 Annual Report on Form 10-K should be read in conjunction with these consolidated financial statements.

8 unchanged sentences

As previously disclosed, on March 11, 2020 the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to impact the United States and the world.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted to, among other things, provide emergency assistance for individuals, families and businesses affected by the COVID-19 pandemic.

On March 27, 2020, the 

Coronavirus Aid, Relief, and  

Economic Security Act  (CARES Act) was enacted to, among other things, provide emergency assistance for individuals, families and businesses affected by the COVID-19 pandemic.

The COVID-19 pandemic has adversely affected, and continues to adversely affect economic activity globally, nationally and locally.

11 unchanged sentences

Adoption of New Accounting Standards in 2021

Effective January 1, 2021, the Company adopted Accounting Standards Update (“ASU”) 2016-13 “ASU 2016-13 Financial Instruments - Credit Losses (Topic 326):

Effective January 1, 2021, the Company adopted Accounting Standards Update (“ASU”) 2016-13 “ASU 2016-13 Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments”, which replaced the prior incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”

2 unchanged sentences

It also applies to off-balance sheet credit exposures including loan commitments, standby letters of credit, financial guarantees and other similar instruments.

In addition, the CECL Standard changes the accounting for investment securities classified as ("AFS"), including a requirement that estimated credit losses on AFS securities be presented as an allowance rather than as a direct write-down of the carrying balance of securities which we do not intend to sell, or believe that it is more likely than not, that we will be required to sell.

In addition, the CECL Standard changes the accounting for investment securities classified as available-for-sale (“AFS”), including a requirement that estimated credit losses on AFS securities be presented as an allowance rather than as a direct write-down of the carrying balance of securities which we do not intend to sell, or believe that it is more likely than not, that we will be required to sell.

The Company adopted the CECL Standard using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures.

As discussed further below, purchased credit deteriorated assets were measured on a prospective basis in accordance with the CECL Standard and all purchase credit impaired loans as of December 31, 2020 were considered purchased credit deteriorated loans upon adoption.

The adoption of the CECL Standard resulted in the following adjustments to our financial statements as of January 1, 2021 (dollars in thousands):

As discussed further below, purchased credit deteriorated assets were measured on a prospective basis in accordance with the CECL Standard and all purchased credit impaired loans as of December 31, 2020 were considered purchased credit deteriorated loans upon adoption.

Results for reporting periods beginning after January 1, 2021 are presented under the CECL Standard while prior period amounts continue to be reported in accordance with previously applicable accounting guidance. The adoption of the CECL Standard resulted in the following adjustments to our financial statements as of January 1, 2021 (dollars in thousands):

Change in Consolidated

4 unchanged sentences

Adjustment related to purchased credit-impaired loan marks (1)

Total ACL - loans

Total ACL –

ACL (unfunded credit commitments)

Total impact of CECL adoption

This amounts represents a gross-up of the balance sheet related to nonaccretable credit marks of purchased credit-impaired loans resulting from adoption of CECL on January 1, 2021.

This amount represents a gross-up of the balance sheet related to nonaccretable credit marks of purchased credit-impaired loans resulting from adoption of CECL on January 1, 2021.

Loans designated as purchased credit impaired loans (“PCI”) and accounted for under Accounting Standards Codification (“ASC”) 310-30 were designated as purchased with credit deterioration loans (“PCD”).

17 unchanged sentences

The repayment of commercial loans is generally dependent on the creditworthiness and cash flow of borrowers, and if applicable, guarantors, which may be negatively impacted by adverse economic conditions.

While the majority of these loans are secured, collateral type, marketing, coverage, valuation and monitoring is not as uniform as in other portfolio classes and recovery from liquidation of such collateral may be subject to greater variability.

While the majority of these loans are secured, collateral type, marketing, coverage, valuation and monitoring are not as uniform as in other portfolio classes and recovery from liquidation of such collateral may be subject to greater variability.

Payment on commercial mortgages is driven principally by operating results of the managed properties or underlying business and secondarily by the sale or refinance of such properties.

13 unchanged sentences

Loans considered to be TDRs can be categorized as nonaccrual or performing.

All PCD loans will be considered as individual analyzed.

Generally, individually analyzed loans consist of nonaccrual loans and performing troubled debt restructurings.

All PCD loans will be considered as individually analyzed.

Generally, individually analyzed loans consist of nonaccrual loans and performing TDRs.

Of this group of loans, loans of $ 250,000 and over are individually evaluated, while loans with balances less than $ 250,000 are collectively evaluated, and, accordingly, are not separately identified for analysis or disclosures.

2 unchanged sentences

For collateral dependent loans, when it is determined that a foreclosure is probable, the ACL will be determined on a loan level basis using the fair value of the collateral as of the reporting date, less estimated disposition costs (“net fair value”), which will ensure that the credit loss is not delayed until the time at which the actual foreclosure takes place.

In the event that this fair value is less the then amortized cost basis of these specific loans, we will recognize the difference between the net fair value at the reporting date and the amortized cost basis in the ACL.

In the event that this fair value is less than the amortized cost basis of these specific loans, we will recognize the difference between the net fair value at the reporting date and the amortized cost basis in the ACL. 

If the fair value of the collateral has increased as of the ACL evaluation date, the increase in the fair value of the collateral is reflected through a reduction in the ACL.

ACL adjustments for estimated disposition costs are not appropriate when the repayment of a collateral-dependent loan is expected from the operation of the collateral.

If repayment is based upon future expected cash flows, the present value of the expected future cash flows discounted at the loan’s original effective interest rate is compared to the carrying value of the loan, and any shortfall is recorded as the allowance for credit losses.

4 unchanged sentences

Authoritative Accounting Guidance –

For charge-off and recoveries we will generally charge-off a loan balance after an analysis is completed which indicates that the collectability of the full principal is in doubt.

Charge-offs are charged against the allowance in the period in which the loans are deemed to be uncollectible.

For charge-offs and recoveries we will generally charge-off a loan balance after an analysis is completed which indicates that the collectability of the full principal is in doubt.

Charge-offs are charged against the allowance in the period in which the loans are deemed to be uncollectible. 

Any expected future recoveries of amounts which were previously charged-off or expected to be charged-off will be included in the ACL, as the recoveries represent a component of the net amount expected to be collected.

7 unchanged sentences

ACL - on investment securities classified as available-for-sale :

For available-for-sale investment securities which are in an unrealized loss position, the Company first assess whether we intend to sell, or it is more likely than not, that we will be required to sell the security before recovery of the amortized cost basis.

For available-for-sale investment securities which are in an unrealized loss position, the Company will first assess whether we intend to sell, or it is more likely than not, that we will be required to sell the security before recovery of the amortized cost basis.

If either of the criteria is met, the amortized cost basis of the security is written down to fair value through income.

6 unchanged sentences

Losses are charged against the allowance when we believe the uncollectibility of an available-for-sale security has been confirmed or if either of the criteria regarding intent or requirement to sell is met.

2021-03, “Intangibles –

Goodwill and Other (Topic 350).”

ASU 2021-03 requires an entity to identify and evaluate goodwill impairment triggering events when they occur to determine whether it is more likely than not that the fair value of a reporting unit (or entity, if the entity has elected the accounting alternative for amortizing goodwill and chosen that option) is less than its carrying amount.

2021-03, “

Intangibles –

Goodwill and Other (Topic 350) .” ASU 2021-03 requires an entity to identify and evaluate goodwill impairment triggering events when they occur to determine whether it is more likely than not that the fair value of a reporting unit (or entity, if the entity has elected the accounting alternative for amortizing goodwill and chosen that option) is less than its carrying amount.

If an entity determines that it is more likely than not that the goodwill is impaired.

It must test goodwill for impairment using the triggering event date as the measurement date.

An entity is required to disclose the amount assigned to goodwill in total and by major business combination, or by reorganization event resulting in fresh-start-start reporting.

Also, the weighted average amortization period in total and the amortization period by major business combination, or by reorganization event resulting in fresh-start reporting.

ASU 2021-03 was effective for the Company on January 1, 2021 and did not have a significant impact on our consolidated financial statement.

An entity is required to disclose the amount assigned to goodwill in total and by major business combination, or by reorganization event resulting in fresh-start reporting.

Also, the entity must disclose the weighted average amortization period in total and the amortization period by major business combination, or by reorganization event resulting in fresh-start reporting.

ASU 2021-03 was effective for the Company on January 1, 2021 and did not have a significant impact on our consolidated financial statements.

ASU 2018-14, “

8 unchanged sentences

Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) No.

260-10-45 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (“EPS”).

The restricted stock awards granted by the Company contain non-forfeitable rights to dividends and therefore are considered participating securities.

The two-class method for calculating basic EPS excludes dividends paid to participating securities and any undistributed earnings attributable to participating securities.

1 unchanged sentence

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands, except for per share data)

4 unchanged sentences

Weighted average common shares outstanding

Incremental shares from assumed conversions of options,

performance units and non-participating restricted shares

Incremental shares from assumed conversions of options, performance units and non-participating restricted shares

Weighted average common and equivalent shares outstanding

Earnings per common share:

There were no antidilutive share equivalents as of June 30, 2021 and June 30, 2020.

There were no antidilutive share equivalents as of September 30, 2021 and September 30, 2020.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Securities Available-for-Sale

The Company’s investment securities are all classified as available-for-sale as of June 30, 2021 and December 31, 2020.

Investment Securities

The Company’s investment securities are all classified as available-for-sale as of September 30, 2021 and December 31, 2020.

Investment securities available-for-sale are reported at fair value with unrealized gains or losses included in stockholders’

equity, net of tax.

Accordingly, the carrying value of such securities reflects their fair value as of June 30, 2021 and December 31, 2020.

Accordingly, the carrying value of such securities reflects their fair value as of September 30, 2021 and December 31, 2020.

Fair value is based upon either quoted market prices, or in certain cases where there is limited activity in the market for a particular instrument, assumptions are made to determine their fair value.

See Note 6 of the Notes to Consolidated Financial Statements for a further discussion.

The following tables present information related to the Company’s portfolio of securities available-for-sale as of June 30, 2021 and December 31, 2020.

June 30, 2021

The following tables present information related to the Company’s portfolio of securities available-for-sale as of September 30, 2021 and December 31, 2020.

September 30, 2021

(dollars in thousands)

1 unchanged sentence

Federal agency obligations

Residential mortgage pass-through  securities

Commercial mortgage pass-through  securities

Residential mortgage pass-through securities

Commercial mortgage pass-through securities

Obligations of U.S.

8 unchanged sentences

Federal agency obligations

Residential mortgage pass-through  securities

Commercial mortgage pass-through  securities

Residential mortgage pass-through securities

Commercial mortgage pass-through securities

Obligations of U.S.

8 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Securities Available-for-Sale –

Investment securities having a carrying value of approximately $ 178.0 million and $ 107.6 million as of June 30, 2021 and December 31, 2020, respectively, were pledged to secure public deposits, borrowings, repurchase agreements, Federal Reserve Discount Window borrowings and Federal Home Loan Bank advances and for other purposes required or permitted by law.

As of June 30, 2021 and December 31, 2020, there were no holdings of securities of any one issuer, other than the U.S.

Investment Securities –

Investment securities having a carrying value of approximately $ 88.1 million and $ 107.6 million as of September 30, 2021 and December 31, 2020, respectively, were pledged to secure public deposits, borrowings, repurchase agreements, Federal Reserve Discount Window borrowings and Federal Home Loan Bank advances and for other purposes required or permitted by law.

As of September 30, 2021 and December 31, 2020, there were no holdings of securities of any one issuer, other than the U.S.

Government and its agencies, in an amount greater than 10% of stockholders’

The following table presents information for investments in securities available-for-sale as of June 30, 2021, based on scheduled maturities.

The following table presents information for investments in securities available-for-sale as of September 30, 2021, based on scheduled maturities.

Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer.

Securities not due at a single maturity date are shown separately.

June 30, 2021

September 30, 2021

(dollars in thousands)

10 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(dollars in thousands)

1 unchanged sentence

Gross losses on sales/redemptions of securities

Net gain on sales/redemptions of securities

tax provision on net gain

Net gain on sales/redemptions of securities, after tax

Net gains on sales/redemptions of securities

tax provision on net gains

Net gains on sales/redemptions of securities, after tax

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Securities Available-for-Sale –

Investment Securities –

Impairment Analysis of Available-for-Sale Debt Securities

The following tables indicate gross unrealized losses for which an ACL has not been recorded, aggregated by investment category and by the length of continuous time individual securities have been in an unrealized loss position as of June 30, 2021 and December 31, 2020.

June 30, 2021

September 30, 2021

Less than 12 Months

3 unchanged sentences

Available-for-Sale:

Federal agency obligations

Residential mortgage pass-through securities

2 unchanged sentences

states and political subdivisions

Corporate bonds and notes

Asset-backed securities

15 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Securities Available-for-Sale –

Investment Securities –

On January 1, 2021, the Company adopted ASU 2016-13 and implemented the CECL methodology for allowance for credit losses on its investment securities available-for-sale.

The new CECL methodology replaces the other-than-temporary impairment model that previously existed.

The Company did not have a CECL day 1 impact attributable to its investment securities portfolio and did not have an allowance for credit losses as of June 30, 2021.

The Company did not have a CECL day 1 impact attributable to its investment securities portfolio and did not have an allowance for credit losses as of September 30, 2021.

The Company has elected to exclude accrued interest from the amortized cost of its investment securities available-for-sale.

Accrued interest receivable for investment securities available for sale as of June 30, 2021 and December 31, 2020, totaled $ 1.4 million and $ 1.7 million, respectively.

Accrued interest receivable for investment securities available for sale as of September 30, 2021 and December 31, 2020, totaled $ 1.4 million and $ 1.7 million, respectively.

The Company evaluates securities in an unrealized loss position for impairment related to credit losses on at least a quarterly basis.

3 unchanged sentences

If this assessment indicates that a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.

Unrealized losses on asset backed securities and state and municipal securities have not been recognized into income because the issuers are of high credit quality, we do not intend to sell and it is likely that we will not be required to sell the securities prior to their anticipated recovery.

The decline in fair value is largely due to changes in interest rates and other market conditions.

The issuers continue to make timely principal and interest payments on the securities.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes.

No allowance for credit losses for available-for-sale securities was recorded as of June 30, 2021.

Federal agency obligations, residential mortgage backed pass-through securities and commercial mortgage back pass-through securities are issued by U.S.

If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. Unrealized losses on asset backed securities and state and municipal securities have not been recognized into income because the issuers are of high credit quality, we do not intend to sell and it is likely that we will not be required to sell the securities prior to their anticipated recovery.  The decline in fair value is largely due to changes in interest rates and other market conditions.

The issuers continue to make timely principal and interest payments on the securities. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. No allowance for credit losses for available-for-sale securities was recorded as of September 30, 2021.

Federal agency obligations, residential mortgage-backed pass-through securities and commercial mortgage-backed pass-through securities are issued by U.S.

Government agencies and U.S.

7 unchanged sentences

The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.

In addition, an interest rate swap was entered into on August 6, 2019, with a notional amount of $ 50.0 million and was designated as a cash flow hedge of a Federal Home Loan Bank advance.

Interest rate swaps were entered into on April 13, 2017, January 1, 2020 and March 3, 2020 each with a respective notional amount of $ 25.0 million and were designated as a cash flow hedge of a Federal Home Loan Bank advance We are required to pay fixed-rates of interest ranging from 0.88 % to 1.93 % and receive variable rates of interest that reset quarterly based on three-month LIBOR.

Expiration dates for the swaps range from January 2022 to April 2022 .

The swaps were determined to be fully effective during the period presented and therefore no amount of ineffectiveness has been included in net income.

2 unchanged sentences

The Company expects the hedges to remain fully effective during the remaining term of the swaps.

In addition, during the three months ended September 30, 2021, the company entered into 5 forward starting pay fixed-rate interest rate swaps, with a total notional amount of $ 200 million, which are also designated as a cash flow hedge of a future Federal Home Loan Bank advance.

We are required to pay fixed rates of interest ranging from 0.631 % to 0.955 % and receive variable rates of interest that reset quarterly based on the daily compounding secured overnight financing rate (“SOFR”).

The forward starting swaps have commencing payment dates ranging from October 2021 to April 2022, with expiration dates ranging from March 2026 to January 2028 .

CONNECTONE BANCORP, INC.

2 unchanged sentences

Derivatives –

Summary information about the interest rate swaps designated as cash flow hedges as of June 30, 2021, December 31, 2020 and June 30, 2020 are presented in the following table.

(dollars in thousands)

Notional amount

Weighted average pay rates

Weighted average receive rates

Weighted average maturity

Interest expense recorded on these swap transactions totaled approximately $ 584 thousand and $ 1.2 million during the three and six months ended June 30, 2021, respectively, compared to $ 318 thousand and $ 311 thousand during the three and six months ended June 30, 2020, respectively, and is reported as a component of interest expense on FHLB Advances.

Interest expense recorded on these swap transactions totaled approximately $ 0.3 million and $ 1.5 million during the three and nine months ended September 30, 2021, respectively, compared to $ 0.6 million and $ 0.9 million during the three and nine months ended September 30, 2020, respectively, and is reported as a component of interest expense on FHLB Advances.

Cash Flow Hedge

The following table presents the net losses recorded in other comprehensive income and the Consolidated Statements of Income relating to the cash flow derivative instruments for the following periods:

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Amount of (loss)

10 unchanged sentences

Interest rate contracts

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Amount of (loss)

14 unchanged sentences

Derivatives –

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Amount of (loss)

10 unchanged sentences

Interest rate contracts

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Amount of (loss)

10 unchanged sentences

Interest rate contracts

The following table reflects the cash flow hedges included in the consolidated statements of condition as of June 30, 2021 and December 31, 2020:

June 30, 2021

The following table reflects the cash flow hedges included in the consolidated statements of condition as of September 30, 2021 and December 31, 2020:

September 30, 2021

December 31, 2020

10 unchanged sentences

for additional information.

The following table sets forth the composition of the Company’s loan portfolio segments, including net deferred fees, as of June 30, 2021 and December 31, 2020:

The following table sets forth the composition of the Company’s loan portfolio segments, including net deferred fees, as of September 30, 2021 and December 31, 2020:

September 30,

(dollars in thousands)

5 unchanged sentences

Total loans receivable

Included in commercial loans as of June 30, 2021 and December 31, 2020 were PPP loans of $ 326.8 million and $ 397.5 million, respectively.

As of June 30, 2021 and December 31, 2020, loan balances of approximately $ 2.7 , were pledged to secure borrowings from the FHLB of New York.

Loans held-for-sale - The following table sets forth the composition of the Company’s loans held-for-sale portfolio as of June 30, 2021 and December 31, 2020:

Included in commercial loans as of September 30, 2021 and December 31, 2020 were PPP loans of $ 177.8 million and $ 397.5 million, respectively.

As of each of September 30, 2021 and December 31, 2020, loan balances of approximately $ 2.6 billion, were pledged to secure borrowings from the FHLB of New York.

Loans held-for-sale - The following table sets forth the composition of the Company’s loans held-for-sale portfolio as of September 30, 2021 and December 31, 2020:

September 30,

(dollars in thousands)

2 unchanged sentences

Total carrying amount

Loans Receivable on Nonaccrual Status - The following tables present nonaccrual loans with an ACL as of June 30, 2021 and nonaccrual loans without an ACL as of June 30, 2021:

Loans with an

Loans Receivable on Nonaccrual Status - The following tables present nonaccrual loans with an ACL as of September 30, 2021 and nonaccrual loans without an ACL as of September 30, 2021:

September 30, 2021

loans without

12 unchanged sentences

Total nonaccrual loans

Nonaccrual loans and loans 90 days or greater past due and still accruing include both smaller balance homogeneous loans that are collectively evaluated for impairment and loans individually evaluated for impairment.

Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and loans individually evaluated for impairment.

Credit Quality Indicators - The Company continuously monitors the credit quality of its loans receivable.

1 unchanged sentence

Credit quality is monitored by reviewing certain credit quality indicators.

Assets classified “Pass”

Assets classified as “Pass”

are deemed to possess average to superior credit quality, requiring no more than normal attention.

3 unchanged sentences

These conditions, if not corrected, may weaken the loan quality or inadequately protect the Company’s credit position at some future date.

Assets are classified “Substandard”

if the asset has a well-defined weakness that requires management’s attention to a greater degree than for loans classified special mention.

Assets are classified as “Substandard”

if the asset has a well-defined weakness that requires management’s attention to a greater degree than for loans classified as special mention.

Such weakness, if left uncorrected, could possibly result in the compromised ability of the loan to perform to contractual requirements.

8 unchanged sentences

We evaluate whether a modification, extension or renewal of a loan is a current period origination in accordance with GAAP.

Generally, loans up for renewal are subject to a full credit evaluation before the renewal is granted and such loans are considered current period originations for purpose of the table below.

As of June 30, 2021, our loans based on year of origination and risk designation is as follows (dollars in thousands):

Generally, loans up for renewal are subject to a full credit evaluation before the renewal is granted and such loans are considered current period originations for purpose of the table below. As of September 30, 2021, our loans based on year of origination and risk designation are as follows (dollars in thousands):

Term loans amortized cost basis by origination year

27 unchanged sentences

The evaluation is determined on an individual basis using the fair value of the collateral as of the reporting date.

The following table presents collateral dependent loans individually evaluated for impairment as of June 30, 2021:

June 30, 2021

The following table presents collateral dependent loans that were individually evaluated for impairment as of September 30, 2021:

September 30, 2021

(dollars in thousands)

6 unchanged sentences

Loans and the Allowance for Credit Losses –

Impaired loans - Impaired loans disclosures presented below as of December 31, 2020 and as of and for the three and six months ended June 30, 2020 represent requirements prior to the adoption of CECL on January 1, 2021.

Impaired loans - Impaired loans disclosures presented below as of December 31, 2020 and as of and for the three and nine months ended September 30, 2020 represent requirements prior to the adoption of CECL on January 1, 2021.

The following table provides an analysis of the impaired loans by class as of the year ended December 31, 2020:

16 unchanged sentences

Loans and the Allowance for Credit Losses –

The following table provides an analysis related to the average recorded investment and interest income recognized on impaired loans by class as of and for the three months and six months ended June 30, 2020 (dollars in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

The following table provides an analysis related to the average recorded investment and interest income recognized on impaired loans by class as of and for the three months and nine months ended September 30, 2020 (dollars in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Impaired loans (no allowance)

14 unchanged sentences

Loans and the Allowance for Credit Losses –

Aging Analysis - The following table provides an analysis of the aging of the loans by class, excluding net deferred fees, that are past due as of June 30, 2021 and December 31, 2020 (dollars in thousands):

June 30, 2021

Aging Analysis - The following table provides an analysis of the aging of the loans by class, excluding net deferred fees, that are past due as of September 30, 2021 and December 31, 2020 (dollars in thousands):

September 30, 2021

30-59 Days Past Due

5 unchanged sentences

Residential real Estate

Included in the 90 days or greater past due and still accruing category as of June 30, 2021 were $ 16.4 million in purchased credit-deteriorated loans, net of fair value marks, which accrete income per the valuation at date of acquisition.

90 days or greater past due and still accruing category reflects purchased credit-deteriorated loans, net of fair value marks, which accrete income per the valuation at date of acquisition.

December 31, 2020

3 unchanged sentences

Residential real estate

The 90 days or greater past due and still accruing category as of December 31, 2020 were purchased credit-impaired loans, net of fair value marks, which accrete income per the valuation at date of acquisition.

90 days or greater past due and still accruing category reflects purchased credit-deteriorated loans, net of fair value marks, which accrete income per the valuation at date of acquisition.

CONNECTONE BANCORP, INC.

3 unchanged sentences

The following tables detail, at the period-end presented, the amount of gross loans (excluding loans held-for-sale) that are evaluated individually, and collectively, for impairment, those acquired with deteriorated quality, and the related portion of the ACL that are allocated to each loan portfolio segment:

June 30, 2021

September 30, 2021

(dollars in thousands)

20 unchanged sentences

Loans and the Allowance for Credit Losses –

Activity in the Company’s ACL for loans for the three months ended and six months ended June 30, 2021 is summarized in the table below.

The CECL Day 1 row presents adjustments recorded through retained earnings to adopt the CECL standard and the increase to the ACL for loans associated with nonaccretable purchase accounting marks on loans that were classified as PCI as of December 31, 2020.

Three Months Ended June 30, 2021

Activity in the Company’s ACL for loans for the three and nine months ended September 30, 2021 is summarized in the table below.

Day 1 effect of CECL presented in the nine-months table below reflect adjustments recorded through retained earnings to adopt the CECL standard and the increase to the ACL for loans associated with nonaccretable purchase accounting marks on loans that were classified as PCI as of December 31, 2020.

Three Months Ended September 30, 2021

(dollars in thousands)

Balance as of March 31, 2021

(Reversal of) provision for credit losses - loans

Balance as of June 30, 2021

Six Months Ended June 30, 2021

(Reversal of) provision for credit losses - loans

Balance as of September 30, 2021

Nine Months Ended September 30, 2021

(dollars in thousands)

3 unchanged sentences

Provision for (reversal of) credit losses - loans

Balance as of June 30, 2021

Balance as of September 30, 2021

On January 1, 2021, the Company adopted CECL, which replaced the incurred loss method we used in prior periods for determining the provision for credit losses and the ACL.

1 unchanged sentence

The adoption of CECL resulted in an increase in our ACL for loans of $ 6.6 million, which did not impact our consolidated income statement.

We recorded a reversal of credit losses for loans of $ 1.7 million and $ 7.0 million during the three and six months ended June 30, 2021, respectively, utilizing the CECL methodology, which was the result of an improved macroeconomic environment from January 1, 2021, the day of adoption.

CONNECTONE BANCORP, INC.

2 unchanged sentences

Loans and the Allowance for Credit Losses –

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

(dollars in thousands)

Balance as of March 31, 2020

Provision for credit losses - loans

Balance as of June 30, 2020

Six Months Ended June 30, 2020

Provision for (reversal of) credit losses - loans

Balance as of September 30, 2020

Nine Months Ended September 30, 2020

(dollars in thousands)

Balance as of December 31, 2019

Balance as of June 30, 2020

Provision for (reversal of) credit losses - loans

Balance as of September 30, 2020

CONNECTONE BANCORP, INC.

3 unchanged sentences

Troubled Debt Restructurings

Loans are considered to have been modified in a troubled debt restructuring (“TDRs”) when, except as discussed below, due to a borrower’s financial difficulties, the Company makes certain concessions to the borrower that it would not otherwise consider.

Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.

Generally, a nonaccrual loan that has been modified in a troubled debt restructuring remains on nonaccrual status for a period of six months to demonstrate that the borrower is able to meet the terms of the modified loan.

Loans are considered to have been modified in a troubled debt restructuring (“TDR”) when, except as discussed below, due to a borrower’s financial difficulties, the Company makes certain concessions to the borrower that it would not otherwise consider.

Modifications may include interest rate reductions, maturity extensions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.

Generally, a nonaccrual loan that has been modified in a TDR remains on nonaccrual status for a period of nine months to demonstrate that the borrower is able to meet the terms of the modified loan.

However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period.

If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on nonaccrual status.

As of June 30, 2021, there were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status or were contractually past due 90 days or greater and still accruing interest, or whose terms have been modified in troubled debt restructurings.

As of June 30, 2021, TDRs totaled $ 62.4 million, of which $ 29.4 million were on nonaccrual status and $ 33.0 million were performing under their restructured terms.

As of December 31, 2020, TDRs totaled $ 49.4 million, of which $ 25.7 million were on nonaccrual status and $ 23.7 million were performing under their restructured terms.

The Company has allocated $ 9.2 million and $ 47 thousand of specific allowance related to TDRs for the six months ended June 30, 2021 and June 30, 2020, respectively.

The following table presents loans by class modified as TDRs that occurred during the six months ended June 30, 2021:

As of September 30, 2021, there were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status or were contractually past due 90 days or greater and still accruing interest, or whose terms have been modified in a TDR.

As of September 30, 2021, TDRs totaled $ 79.7 million, of which $ 38.5 million were on nonaccrual status and $ 41.2 million were classified as accruing and were performing under their restructured terms.

As of December 31, 2020, TDRs totaled $ 49.4 million, of which $ 25.7 million were on nonaccrual status and $ 23.7 million were classified as accruing and were performing under their restructured terms.

The Company has allocated $ 10.5 million and $ 4.4 million of specific allowance related to TDRs as of September 30, 2021 and September 30, 2020, respectively.

The following table presents loans by class modified as TDRs that occurred during the nine months ended September 30, 2021:

Pre-Modification Outstanding

8 unchanged sentences

Residential real estate

The ten loans modified as TDRs during the six months ended June 30, 2021 included nine (9) maturity extensions and, one commercial real estate loan which was a recast of a nonaccrual credit.

There were no loans modified as TDRs during the six months ended June 30, 2020.

There were no TDRs for which there was a payment default within twelve months following the modification during the three months ended and six months ended June 30, 2021 and June 30, 2020.

The loans modified as TDRs during the nine months ended September 30, 2021 included maturity extensions and interest rate reductions.

There were no loans modified as TDRs during the nine months ended September 30, 2020.

There were no TDRs for which there was a payment default within twelve months following the modification during the three months ended and nine months ended September 30, 2021 and September 30, 2020.

In March 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, (“the agencies”) issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by COVID-19.

1 unchanged sentence

The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs.

This includes short-term (e.g., three to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.

This includes short-term (e.g., three to nine months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.

Additionally, the statement allows for the Company to extend deferrals for an additional term at the option of the Company.

1 unchanged sentence

Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented or at year-end 2019.

As of June 30, 2021, the Bank had 79 deferred loans totaling approximately $100 million, compared to 113 deferred loans totaling approximately $ 207 million as of December 31, 2020.

As of September 30, 2021, the Bank had 10 deferred loans totaling $10.3 million, compared to 113 deferred loans totaling $ 207.0 million as of December 31, 2020 that are not considered TDRs.

CONNECTONE BANCORP, INC.

2 unchanged sentences

Loans and the Allowance for Credit Losses –

The following table sets forth the composition of these loans by loan segments as of June 30, 2021:

The following table sets forth the composition of these loans by loan segments as of September 30, 2021:

Number of Loans

2 unchanged sentences

Commercial real estate

As of June 30, 2021, there were no deferred loans that were delinquent or on nonaccrual status.

As of June 30, 2021, $ 62.0 million of deferred loans were risk rated “special mention”

As of September 30, 2021, there were no deferred loans that were delinquent or on nonaccrual status.

As of September 30, 2021, $ 5.5 million of deferred loans were risk rated “special mention”

The Company evaluates its deferred loans after the initial deferral period and will either return the deferred loan to its original loan terms or the loan will be reassessed at that time to determine if a further deferment should be granted and if a downgrade in risk rating is appropriate.

2 unchanged sentences

The provision is recorded within the (reversal of) provision for credit losses on the Company’s income statement.

The following table presents the ACL for unfunded commitments for the three and six months ended June 30, 2021 (dollars in thousands):

The following table presents the ACL for unfunded commitments for the three and nine months ended September 30, 2021 (dollars in thousands):

Three Months Ended

June 30, 2021

September 30, 2021

Balance as of beginning of period

Provision for credit losses - unfunded commitments

Provision for (reversal of) credit losses - unfunded commitments

Balance as of end of period

Six Months Ended

June 30, 2021

Nine Months Ended

September 30, 2021

Balance as of beginning of period

Day 1 Effect of CECL

Reversal of credit losses - unfunded commitments

Provision for (reversal of) credit losses - unfunded commitments

Balance as of end of period

Components of (Reversal of) Provision for Credit Losses

The following table summarizes the (reversal of) provision for credit losses for the three and six months ended June 30, 2021 (dollars in thousands):

The following table summarizes the provision for (reversal of) provision for credit losses for the three and nine months ended September 30, 2021 (dollars in thousands):

Three Months Ended

June 30, 2021

Six Months Ended

June 30, 2021

(Reversal of) provision for credit losses - loans

(Reversal of) provision for credit losses - unfunded commitments

(Reversal of) provision for credit losses

September 30, 2021

Nine Months Ended

September 30, 2021

Provision for (reversal of) credit losses - loans

Provision for (reversal of) credit losses - unfunded commitments

Provision for (reversal of) credit losses

CONNECTONE BANCORP, INC.

3 unchanged sentences

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The following sets forth the hierarchy of valuation techniques used to determine fair value:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

5 unchanged sentences

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020:

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020:

Securities Available-for-Sale and Equity Securities :

16 unchanged sentences

Fair Value Measurements and Fair Value of Financial Instruments –

For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used as of June 30, 2021 and December 31, 2020 are as follows:

June 30, 2021

For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used as of September 30, 2021 and December 31, 2020 are as follows:

September 30, 2021

Fair Value Measurements at Reporting Date Using

16 unchanged sentences

Equity securities

Total liabilities

CONNECTONE BANCORP, INC.

22 unchanged sentences

Total liabilities

There were no transfers between Level 1 and Level 2 during the six months ended June 30, 2021 and during the year ended December 31, 2020.

There were no transfers between Level 1 and Level 2 during the nine months ended September 30, 2021 and during the year ended December 31, 2020.

Assets Measured at Fair Value on a Nonrecurring Basis

1 unchanged sentence

These adjustments to fair value usually result from the application of lower of cost or fair value accounting or impairment write-downs of individual assets.

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a nonrecurring basis as of June 30, 2021 and December 31, 2020.

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a nonrecurring basis as of September 30, 2021 and December 31, 2020.

Loans Held-for-Sale :

9 unchanged sentences

Collateral Dependent Loans :

The Company may record adjustments to the carrying value of loans based on fair value measurements, generally as partial charge-offs of the uncollectible portions of these loans.

The Company may record adjustments to the carrying value of loans based on fair value measurements, either as specific reserves or as partial charge-offs of the uncollectible portions of these loans.

These adjustments also include certain impairment amounts for collateral dependent loans calculated in accordance with GAAP.

3 unchanged sentences

Estimates of fair value used for collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and are also based on Level 3 inputs.

For assets measured at fair value on a nonrecurring basis, the fair value measurements as of June 30, 2021 and December 31, 2020 are as follows:

For assets measured at fair value on a nonrecurring basis, the fair value measurements as of September 30, 2021 and December 31, 2020 are as follows:

Fair Value Measurements at Reporting Date Using

Assets measured at fair value on a nonrecurring

September 30,

Collateral dependent loans :

1 unchanged sentence

Commercial real estate

Commercial construction

Residential real estate

Collateral dependent loans –

Collateral dependent loans as of September 30, 2021 that required a valuation allowance were $ 48.2 million with a related valuation allowance of $ 16.6 million.

Fair Value Measurements at Reporting Date Using

3 unchanged sentences

Commercial real estate

Collateral dependent loans –

Collateral dependent loans as of June 30, 2021 that required a valuation allowance were $ 40.0 million with a related valuation allowance of $ 20.6 million compared to $ 26.5 million with a related valuation allowance of $ 14.3 million as of December 31, 2020.

Impaired loans –

Impaired loans as of December 31, 2020 that required a valuation allowance were $ 26.5 million with a related valuation allowance of $ 14.3 million

CONNECTONE BANCORP, INC.

4 unchanged sentences

Recurring basis

The tables below present a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2021 and for the year ended December 31, 2020:

The tables below present a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2021 and for the year ended December 31, 2020:

(dollars in thousands)

1 unchanged sentence

Principal paydowns

Balance as of June 30, 2021

Balance as of September 30, 2021

(dollars in thousands)

2 unchanged sentences

Balance as of December 31, 2020

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020.

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020.

The table below provides quantitative information about significant unobservable inputs used in fair value measurements within Level 3 hierarchy.

June 30, 2021

September 30, 2021

Securities available-for-sale:

16 unchanged sentences

The tables below provide quantitative information about significant unobservable inputs used in fair value measurements within Level 3 hierarchy.

June 30, 2021

September 30, 2021

(dollars in thousands)

10 unchanged sentences

0 % - 25 % ( 8 %)

Appraisals of collateral value

Comparable sales

Residential real estate

Appraisals of collateral value

19 unchanged sentences

Fair Value Measurements and Fair Value of Financial Instruments –

As of June 30, 2021 the fair value measurements presented are consistent with Topic 820, Fair Value Measurement , in which fair value represents exit price.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of June 30, 2021 and December 31, 2020:

As of September 30, 2021 the fair value measurements presented are consistent with Topic 820, Fair Value Measurement , in which fair value represents exit price.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 2021 and December 31, 2020:

Fair Value Measurements

(dollars in thousands)

June 30, 2021

September 30, 2021

Financial assets:

40 unchanged sentences

Details about Accumulated Other

Comprehensive Loss Components

Amounts Reclassified from Accumulated

Other Comprehensive Income (Loss)

Comprehensive Income Components

Amounts Reclassified from Accumulated

Other Comprehensive Income (Loss)

Other Comprehensive Income

Affected Line item in the

1 unchanged sentence

Three Months Ended

Six Months Ended

(dollars in thousands)

Nine Months Ended

September 30,

Sale of investment securities

Net gains on sale of securities available-for-saleavailable Income tax expense

Net (losses) gains on sales of securities available-for-sale Income tax expense

available-for-sale

Net interest income on swaps

Interest expense

Income tax expense

8 unchanged sentences

Comprehensive Income –

Accumulated other comprehensive income (loss) as of June 30, 2021 and December 31, 2020 consisted of the following:

Accumulated other comprehensive income (loss) as of September 30, 2021 and December 31, 2020 consisted of the following:

September 30,

(dollars in thousands)

1 unchanged sentence

Cash flow hedge, net of tax

Defined benefit pension and post-retirement plans, net of tax

Defined benefit pension plan, net of tax

Stock Based Compensation

The Company’s stockholders approved the 2017 Equity Compensation Plan (“the Plan”) on May 23, 2017.

The Plan eliminates all remaining issuable shares under previous plans and is the only outstanding plan as of June 30, 2021.

The Plan eliminates all remaining issuable shares under previous plans and is the only outstanding plan as of September 30, 2021.

The maximum number of shares of common stock or equivalents which may be issued under the Plan, is 750,000 .

Grants under the Plan can be in the form of stock options (qualified or non-qualified), restricted shares, restricted share units or performance units.

Shares available for grant and issuance under the Plan as of June 30, 2021 are approximately 332,628 .

Shares available for grant and issuance under the Plan as of September 30, 2021 are approximately 329,175 .

The Company intends to issue all shares under the Plan in the form of newly issued shares.

8 unchanged sentences

Forfeiture rates are not estimated but are recorded as incurred.

Stock-based compensation expense for the three and six months ended June 30, 2021 was $ 1.0 million and $2.0 million, respectively.

Stock-based compensation expense for the three and six months ended June 30, 2020 was $ 0.7 million and $1.2 million, respectively.

Activity in the Company’s options for the six months ended June 30, 2021 was as follows:

Stock-based compensation expense for the three and nine months ended September 30, 2021 was $ 1.2 million and $3.2 million, respectively.

Stock-based compensation expense for the three and nine months ended September 30, 2020 was $ 0.8 million and $2.0 million, respectively.

Activity in the Company’s options for the nine months ended September 30, 2021 was as follows:

Intrinsic Value

1 unchanged sentence

Forfeited/cancelled/expired

Outstanding as of June 30, 2021

Exercisable as of June 30, 2021

The aggregate intrinsic value of outstanding and exercisable options above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on June 30, 2021 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2021.

Outstanding as of September 30, 2021

Exercisable as of September 30, 2021

The aggregate intrinsic value of outstanding and exercisable options above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on September 30, 2021 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2021.

This amount changes based on the fair market value of the Company’s stock.

3 unchanged sentences

Stock Based Compensation –

Activity in the Company’s restricted shares for the six months ended June 30, 2021 was as follows:

Activity in the Company’s restricted shares for the nine months ended September 30, 2021 was as follows:

Nonvested as of December 31, 2020

Forfeited/cancelled/expired

Nonvested June 30, 2021

As of June 30, 2021, there was approximately $ 1.8 million of total unrecognized compensation cost related to nonvested restricted shares granted.

Nonvested September 30, 2021

As of September 30, 2021, there was approximately $ 1.4 million of total unrecognized compensation cost related to nonvested restricted shares granted.

The cost is expected to be recognized over a weighted average period of 1.2 years.

4 unchanged sentences

Vested shares

Unearned as of June 30, 2021

As of June 30, 2021, the specific number of shares related to performance units that were expected to vest was 173,576, determined by actual performance in consideration of the established range of the performance targets, which is consistent with the level of expense currently being recognized over the vesting period.

Forfeited/cancelled/expired

Unearned as of September 30, 2021

As of September 30, 2021, the specific number of shares related to performance units that were expected to vest was 181,789, determined by actual performance in consideration of the established range of the performance targets, which is consistent with the level of expense currently being recognized over the vesting period.

Should this expectation change, additional compensation expense could be recorded in future periods or previously recognized expense could be reversed.

As of June 30, 2021 the maximum amount of performance units that ultimately could vest if performance targets were exceeded is 233,638.

During the six months ended June 30, 2021, 29,421 shares vested.

As of September 30, 2021 the maximum amount of performance units that ultimately could vest if performance targets were exceeded is 233,638.

During the nine months ended September 30, 2021, 29,421 shares vested.

A total of 14,710 shares were netted from the vested shares to satisfy employee tax obligations.

The net shares issued from vesting of performance units during the six months ended June 30, 2021 were 14,711 shares.

As of June 30, 2021, compensation cost of approximately $ 1.7 million related to non-vested performance units not yet recognized is expected to be recognized over a weighted-average period of 1.8 years.

The net shares issued from vesting of performance units during the nine months ended September 30, 2021 were 14,711 shares.

As of September 30, 2021, compensation cost of approximately $ 1.4 million related to non-vested performance units not yet recognized is expected to be recognized over a weighted-average period of 1.6 years.

A summary of the status of unearned restricted stock units and the changes in restricted stock units during the period is presented in the table below:

Average Grant

Date Fair Value

Unearned as of December 31, 2020

Vested shares

Unearned as of June 30, 2021

Forfeited/cancelled/expired

Unearned as of September 30, 2021

Any forfeitures would result in previously recognized expense being reversed.

A portion of the shares that vest will be netted out to satisfy the tax obligations of the recipient.

During the six months ended June 30, 2021, 68,916 shares vested.

During the nine months ended September 30, 2021, 68,916 shares vested.

A total of 34,458 shares were netted from the vested shares to satisfy employee tax obligations.

The net shares issued from vesting of restricted stock units during the six months ended June 30, 2021 were 34,458 shares.

As of June 30, 2021, compensation cost of approximately $ 2.0 million related to non-vested restricted stock units, not yet recognized, is expected to be recognized over a weighted-average period of 2.1 years.

The net shares issued from vesting of restricted stock units during the nine months ended September 30, 2021 were 34,458 shares.

As of September 30, 2021, compensation cost of approximately $ 1.4 million related to non-vested restricted stock units, not yet recognized, is expected to be recognized over a weighted-average period of 1.3 years.

CONNECTONE BANCORP, INC.

2 unchanged sentences

Components of Net Periodic Pension Cost

The Company maintained a non-contributory defined benefit pension plan for substantially all of its employees until June 30, 2007, at which time the Company froze the plan.

The Company maintained a non-contributory defined benefit pension plan for substantially all of its employees until September 30, 2007, at which time the Company froze the plan.

The following table sets forth the net periodic pension cost of the Company’s pension plan for the periods indicated.

Three Months Ended

September 30,

Affected Line Item in the Consolidated

8 unchanged sentences

Total periodic pension income

Six Months Ended

Nine Months Ended

September 30,

Affected Line Item in the Consolidated

9 unchanged sentences

Contributions

The Company did not contribute to the Pension Trust during the six months ended June 30, 2021.

The Company did not contribute to the Pension Trust during the nine months ended September 30, 2021.

The Company does not plan on contributing amounts to the Pension Trust for the remainder of 2021.

6 unchanged sentences

The Company’s FHLB borrowings and weighted average interest rates are summarized below:

June 30, 2021

September 30, 2021

December 31, 2020

9 unchanged sentences

Total FHLB borrowings

Fair value premium (discount)

Fair value discount

FHLB borrowings, net

3 unchanged sentences

All FHLB advances are fixed rates.

The advances as of June 30, 2021 were primarily collateralized by approximately $ 2.0 billion of commercial mortgage loans, net of required over collateralization amounts, under a blanket lien arrangement.

As of June 30, 2021 the Company had remaining borrowing capacity of approximately $ 1.2 billion at FHLB.

The advances as of September 30, 2021 were primarily collateralized by approximately $ 2.0 billion of commercial mortgage loans, net of required over collateralization amounts, under a blanket lien arrangement.

As of September 30, 2021 the Company had remaining borrowing capacity of approximately $ 1.2 billion at FHLB and $ 75 million of the less than 1 year FHLB advances were hedged with interest rate swaps, see Note 4 for additional details.

Subordinated Debentures

3 unchanged sentences

The floating interest rate on the subordinated debentures is three-month LIBOR plus 2.85 % and re-prices quarterly.

The rate as of June 30, 2021 was 3.04 %.

The following table summarizes the mandatory redeemable trust preferred securities of the Company’s Statutory Trust II as of June 30, 2021 and December 31, 2020.

The rate as of September 30, 2021 was 2.98 %.

The following table summarizes the mandatory redeemable trust preferred securities of the Company’s Statutory Trust II as of September 30, 2021 and December 31, 2020.

Issuance Date

4 unchanged sentences

Floating 3-month LIBOR + 285 Basis Points

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Subordinated Debentures –

During June 2020, the Parent Corporation issued $ 75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2020 Notes”).

The 2020 Notes bear interest at 5.75 % annually from, and including, the date of initial issuance to, but excluding, June 15, 2025 or the date of earlier redemption, payable semi-annually in arrears on June 15 and December 15 of each year, commencing December 15, 2020.

From and including June 15, 2025 through maturity or earlier redemption, the interest rate shall reset quarterly to an interest rate per annum equal to a benchmark rate, which is expected to be Three-Month Term SOFR (as defined in the Second Supplemental Indenture), plus 560.5 basis points , payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, commencing on September 15, 2025 .

During September 2020, the Parent Corporation issued $ 75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2020 Notes”).

The 2020 Notes bear interest at 5.75 % annually from, and including, the date of initial issuance to, but excluding, September 15, 2025 or the date of earlier redemption, payable semi-annually in arrears on September 15 and December 15 of each year, commencing December 15, 2020.

From and including September 15, 2025 through maturity or earlier redemption, the interest rate shall reset quarterly to an interest rate per annum equal to a benchmark rate, which is expected to be Three-Month Term SOFR (as defined in the Second Supplemental Indenture), plus 560.5 basis points , payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, commencing on September 15, 2025 .

Notwithstanding the foregoing, if the benchmark rate is less than zero, then the benchmark rate shall be deemed to be zero.

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From and including February 1, 2023 to, but excluding the maturity date, or early redemption date, the interest rate will reset quarterly to a level equal to the then current three-month LIBOR rate plus 284 basis points .

During June 2015, the Parent Corporation issued $ 50 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2015 Notes”).

During September 2015, the Parent Corporation issued $ 50 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2015 Notes”).

As of December 31, 2020, the 2015 Notes have a stated maturity of July 1, 2025 , and bear interest until the maturity date or early redemption date at a variable rate equal to the then current three-month LIBOR rate plus 393 basis points .

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The 2015 Notes were redeemed in full on January 1, 2021.

Preferred Stock

On August 19, 2021, the Company completed an underwritten public offering of 115,000 shares, or $ 115 million in aggregate liquidation preference, of its 5.25 % Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series A, no par value, with a liquidation preference of $ 1,000 per share.

The net proceeds received from the issuance of preferred stock at the time of closing were $ 110.9 million.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements