What changed in this filing

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Item 1. Financial Statements

2022-05-06 compared with 2021-11-05 · 795 added, 777 removed, 554 unchanged (74% 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 –

Allowance for credit losses - loans

Net loans receivable

4 unchanged sentences

Right of use operating lease assets

Other real estate owned

Core deposit intangibles

7 unchanged sentences

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’

STOCKHOLDERS’ EQUITY

Preferred Stock, no par value;

1 unchanged sentence

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

issued 115,000 shares as of March 31, 2022 and as of December 31, 2021;

outstanding 115,000 shares as of March 31, 2022 and as of December 31, 2021

Common stock, no par value:

Authorized 100,000,000 shares;

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

issued 42,652,378 shares as of March 31, 2022 and 42,557,264 shares as of December 31, 2021;

outstanding 39,518,411 shares as of March 31, 2022 and 39,568,090 as of December 31, 2021

Additional paid-in capital

Retained earnings

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

Total stockholders’

Total liabilities and stockholders’

See accompanying notes to unaudited consolidated financial statements.

Treasury stock, at cost 3,133,967 common shares as of March 31, 2022 and 2,989,174 as of December 31, 2021

Accumulated other comprehensive loss

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying notes to unaudited consolidated

financial statements.

CONNECTONE BANCORP, INC.

2 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands, except for per share data)

(dollars in thousands, except for per share data)

Interest income

7 unchanged sentences

Provision for (reversal of) credit losses

Net interest income after provision for credit losses

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

Noninterest income

3 unchanged sentences

Gain on sale of branches

Net (losses) gains on equity securities

Net gains on sales/redemption of investment securities

Net losses on equity securities

Total noninterest income

5 unchanged sentences

Marketing and advertising

Data processing

Merger and restructuring expenses

Information technology and communications

Amortization of core deposit intangibles

Increase in value of acquisition price

Other components of net periodic pension expense

Increase in value of acquisition price

Other expenses

2 unchanged sentences

Income tax expense

Preferred dividends

Net income available to common stockholders

Earnings per common share

See accompanying notes to unaudited consolidated financial statements.

See accompanying notes to unaudited consolidated

financial statements.

CONNECTONE BANCORP, INC.

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

(dollars in thousands)

Other comprehensive income (loss):

Unrealized gains and losses:

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

Reclassification adjustment for realized gains included in net income

Unrealized gains (losses) on cash flow hedges

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

Unrealized gains 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 (loss) income

Unrealized gains on pension plan

Reclassification adjustment for realized losses on pension plan included in net income

Total other comprehensive loss

Total comprehensive income

See accompanying notes to unaudited consolidated financial statements.

See accompanying notes to unaudited consolidated

financial statements.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

Nine Months Ended September 30, 2021

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

(dollars in thousands, except for per share data)

1 unchanged sentence

(Loss) Income

Stockholders’

Balance as of December 31,  

Stockholders’

Balance as of December 31, 2020

Cumulative effect of change in accounting principle (see note 1b.

“Authoritative Accounting Guidance Presentation”), net of tax

Balance as of January 1, 2021 as adjusted for changes in accounting principle

Other comprehensive loss,  net of tax

Cash dividends declared on common stock  ($ 0.31 per share)

Exercise of stock options  ( 5,449 shares)

Restricted stock grants, net of forfeitures  ( 46,900 shares)

Other comprehensive loss, net of tax

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

Exercise of stock options ( 5,449 shares)

Restricted stock grants ( 26,769 shares)

Stock grants ( 446 shares)

Net shares issued in satisfaction of restricted stock units earned ( 14,711 shares)

Net shares issued in satisfaction of performance units earned  ( 34,458 shares)

Net shares issued in satisfaction of performance units earned ( 34,458 shares)

Share redemption for tax withholdings on performance units and restricted stock units earned

Repurchase of treasury stock ( 93,629 shares)

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

Stock-based compensation expense

Balance as of September 30,  

Three Months Ended September 30, 2021

(dollars in thousands, except for per share data)

Comprehensive

(Loss) Income

Stockholders’

Balance as of June 30, 2021 

Stock-based compensation

Balance as of March 31, 2021

Balance as of December 31, 2021

Other comprehensive loss, net of tax

Cash dividends declared on common stock ($ 0.13 per share)

Cash dividends declared on preferred stock ($ 0.328125 per depositary share)

Exercise of stock options ( 8,774 shares)

Restricted stock grants, net of forfeitures ( 32,454 shares)

Stock grants ( 153 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 September 30,  

Nine Months Ended September 30, 2020

(dollars in thousands, except for per share data)

Comprehensive

(Loss) Income

Stockholders’

Balance as of December 31,  

Other comprehensive income,  net of tax

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

Exercise of stock options  ( 25,413 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

 ( 16,541 shares)

Net shares issued in satisfaction of performance units earned  ( 22,402 shares)

Share redemption for tax withholdings on performance units and restricted stock units earned

Net shares issued in satisfaction of restricted stock units earned ( 31,383 shares)

Net shares issued in satisfaction of performance units earned ( 22,350 shares)

Repurchase of treasury stock ( 144,793 shares)

Stock issued ( 4,602,450 shares) in acquisition of Bancorp of New Jersey

Stock-based compensation expense

Balance as of September 30,  

Three Months Ended September 30, 2020

(dollars in thousands, except for per share data)

Comprehensive

(Loss) Income

Stockholders’

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 September 30,  

See accompanying notes to unaudited consolidated financial statements.

Stock-based compensation

Balance as of March 31, 2022

See accompanying notes to unaudited consolidated

financial statements.

CONNECTONE BANCORP, INC.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

September 30,

Three Months Ended

(dollars in thousands)

2 unchanged sentences

Depreciation and amortization of premises and equipment

(Reversal of) provision for credit losses

Provision for (reversal of) credit losses

Amortization of intangibles

2 unchanged sentences

Accretion on deposits

Accretion on borrowings, net

Amortization (accretion) on borrowings, net

Stock-based compensation

Gains on sales/redemptions of securities available-for-sale, net

Losses (gains) on equity securities, net

Gain on sale of branches

Net losses on disposition of fixed assets

Gains on sales of loans held-for-sale, net

Losses on equity securities, net

Gains on sale of loans held-for-sale, net

Loans originated for resale

Proceeds from sale of loans held-for-sale

Gain on sale of other real estate owned

Gain on sale of branches

Net losses on disposition of other premises and equipment

Increase in cash surrender value of bank owned life insurance

Amortization of premiums and accretion of discounts on securities available-for-sale, net

Amortization of premiums and accretion of discounts on securities available-for-sale

Amortization of subordinated debentures issuance costs

Decrease (increase) in accrued interest receivable

Decrease in accrued interest receivable

Net change in operating leases

Decrease in other assets

Increase (decrease) in other liabilities

(Increase) decrease in other assets

Increase in other liabilities

Net cash provided by operating activities

2 unchanged sentences

Maturities, calls and principal repayments

Purchases of equity securities

Net redemptions of restricted investment in bank stocks

Payments on loans held-for-sale

Net increase in loans

Purchases of bank owned life insurance

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 other real estate owned

Cash and cash equivalents acquired in acquisition, net

Net cash used in investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities

Net increase in deposits

(Repayment of) increase in subordinated debentures

Advances of borrowings

Repayments of borrowings

Repurchase of common stock to treasury

Net proceeds from the issuance of preferred stock

Net increase (decrease) in deposits

Advances of Federal Home Loan Bank (“FHLB”) borrowings

Repayments of FHLB borrowings

Decrease in subordinated debt

Cash dividends on preferred stock

Cash dividends paid on common stock

Repurchase of treasury stock

Proceeds from exercise of stock options

Share redemption for tax withholdings on performance units and restricted stock units earned

Net cash provided by financing activities

Net cash provided by (used in) financing activities

Net change in cash and cash equivalents

5 unchanged sentences

Supplemental disclosures of noncash activities

Transfer of loans from held-for-investment to other real estate owned

Transfer of loans to other real estate owned

Transfer of loans from held-for-investment to held-for-sale

Transfer of loans from held-for-sale to held-for-investment

Business combinations :

Fair value of assets acquired

Fair value of liabilities assumed

See accompanying notes to unaudited consolidated financial statements.

See accompanying notes to unaudited consolidated

financial statements.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nature of Operations, Principles of Consolidation and Risk and Uncertainties

Nature of Operations, Principles of Consolidation

and Risk and Uncertainties

Nature of Operations

ConnectOne Bancorp, Inc.

(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”

and, collectively with the Parent Corporation and the Parent Corporation’s subsidiaries, the “Company”).

The Bank’s subsidiaries include Union Investment Co.

(a New Jersey investment company), Twin Bridge Investment Co.

(a New Jersey investment company), ConnectOne Preferred Funding Corp.

(a New Jersey real estate investment trust), Center Financial Group, LLC (a New Jersey financial services company), Center Advertising, Inc.

(a New Jersey advertising company), Morris Property Company, LLC, (a New Jersey limited liability company), Volosin Holdings, LLC, (a New Jersey limited liability company), NJCB Spec-1, LLC (a New Jersey limited liability company), Port Jervis Holdings, LLC (a New Jersey limited liability company), BONJ Special Properties, LLC (a New Jersey limited liability company) and BoeFly, Inc.

(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” and, collectively with the Parent Corporation and the Parent Corporation’s subsidiaries,

the “Company”).

The Bank’s subsidiaries include Union Investment Co.

(a New Jersey investment company), Twin Bridge

Investment Co.

(a Delaware investment company), ConnectOne Preferred Funding Corp.

(a New Jersey real estate investment trust), Center

Financial Group, LLC (a New Jersey financial services company), Center Advertising, Inc.

(a New Jersey advertising company), Morris Property

Company, LLC, (a New Jersey limited liability company), Volosin Holdings, LLC, (a New Jersey limited liability company), NJCB Spec-1,

LLC (a New Jersey limited liability company), Port Jervis Holdings, LLC (a New Jersey limited liability company), BONJ Special Properties,

LLC (a New Jersey limited liability company) and BoeFly, Inc.

(a New Jersey financial technology company).

The Bank is a community-based, full-service New Jersey-chartered commercial bank that was founded in 2005.

The Bank operates from its headquarters located at 301 Sylvan Avenue in the Borough of Englewood Cliffs, Bergen County, New Jersey and through its twenty-five other banking offices.

Substantially all loans are secured with various types of collateral, including business assets, consumer assets and commercial/residential real estate.

Each borrower’s ability to repay its loans is dependent on the conversion of assets, cash flows generated from the borrowers’

business, real estate rental and consumer wages.

The preceding unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and, accordingly, do not include all of the information and footnotes required by GAAP for complete financial statements.

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 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.

The Bank is a community-based, full-service New

Jersey-chartered commercial bank that was founded in 2005.

The Bank operates from its headquarters located at 301 Sylvan Avenue in the

Borough of Englewood Cliffs, Bergen County, New Jersey and through its twenty-three other banking offices.

Substantially all loans are

secured with various types of collateral, including business assets, consumer assets and commercial/residential real estate.

Each borrower’s

ability to repay its loans is dependent on the conversion of assets, cash flows generated from the borrowers’ business, real estate

rental and consumer wages.

The preceding unaudited consolidated financial

statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for

interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and, accordingly, do not include

all of the information and footnotes required by GAAP for complete financial statements.

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 months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the full year ending December

31, 2022, or for any other interim period.

The Company’s 2021 Annual Report on Form 10-K should be read in conjunction with these

consolidated financial statements.

Basis of Presentation

The consolidated financial statements have been prepared in conformity with GAAP.

Some items in the prior year consolidated financial statements were reclassified to conform to current presentation.

Reclassifications had no effect on prior year net income or stockholders’

The consolidated financial statements have been

prepared in conformity with GAAP.

Some items in the prior year consolidated financial statements were reclassified to conform to current

presentation.

Reclassifications had no effect on prior year net income or stockholders’ equity.

Use of Estimates

In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of condition and that affect the results of operations for the periods presented.

Actual results could differ significantly from those estimates.

In preparing the consolidated financial statements,

management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated

statements of condition and that affect the results of operations for the periods presented.

Actual results could differ significantly

from those estimates.

Risks and Uncertainties

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.

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

Actions taken around the world to help mitigate the spread of COVID-19 include restrictions on travel, quarantines in certain areas, and forced closures for certain types of public places and businesses.

Although economic activity has accelerated in 2021, and the United States continues to implement a COVID-19 vaccination program, COVID-19, it’s variants and actions taken to mitigate the spread of it have had and may in the future have an adverse impact on the economies and financial markets of many countries and parts of the United States, including the New Jersey/New York metropolitan area in which the Company primarily operates.

Although the Company has been able to continue operations while taking steps to ensure the safety of employees and customers, COVID-19 could impact the Company’s operations in the future.

Federal Reserve reductions in interest rates and other effects of the COVID-19 pandemic may adversely affect the Company's financial condition and results of operations in future periods.

Although state and local governments have lifted many restrictions on conducting business, it is possible that restrictions could be reimposed.

It is therefore unknown how long COVID-19 may continue to impact the economy and what the complete financial effect will be to the Company.

It is reasonably possible that estimates made in the financial statements could be materially and adversely impacted in the near term as a result of these conditions, including the determination of the allowance for credit losses on loans, fair value of financial instruments, impairment of goodwill and other intangible assets and income taxes.

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

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.

Although economic activity

began to accelerate in 2021, and the United States continues to implement a COVID-19 vaccination program, COVID-19, it’s variants

and actions taken to mitigate the spread of it have had and may in the future have an adverse impact on the economies and financial markets

of many countries and parts of the United States, including the New Jersey/New York metropolitan area in which the Company primarily operates.

Although the Company has been able to continue operations while taking steps to ensure the safety of employees and clients, COVID-19 could

impact the Company’s operations in the future.

The effects of the COVID-19 pandemic may adversely affect the Company’s financial

condition and results of operations in future periods.

Although state and local governments have lifted many restrictions on conducting

business, it is possible that restrictions could be reimposed.

CONNECTONE BANCORP, INC.

2 unchanged sentences

Authoritative Accounting Guidance

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):

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”

or the “CECL Standard”).

The measurement of expected credit losses under the CECL Standard is applicable to financial assets measured at amortized cost, including portfolio loans and investment securities classified as held-to-maturity (“HTM”).

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 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 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

Change to Retained Earnings

Statement of Condition

from Adoption of CECL

Allowance for credit losses (“ACL”) (loans)

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

Total ACL –

ACL (unfunded credit commitments)

Total impact of CECL adoption

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”).

In accordance with the CECL Standard, the Company did not reassess whether PCI loans met the criteria of PCD loans as of the date of adoption and determined all PCI loans were PCD loans.

The Company recorded an increase to the balance of PCD loans and an increase to the ACL for loans of $5.2 million, which represented the expected credit losses for PCD loans.

The remaining non-credit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1, 2021 over the remaining estimated life of the loans.

Also, in accordance with the CECL Standard, the Company did not reassess whether modifications to individual acquired financial assets were troubled debt restructurings (“TDRs”) as of the date of adoption.

ACL for loans :

The ACL for loans is a valuation account that is deducted from the amortized cost basis of portfolio loans to present the net amount expected to be collected on portfolio loans over their contractual life.

Loans are charged-off against the allowance when we believe the uncollectibility of a loan balance has been confirmed, and the expected recoveries do not exceed the aggregate of amounts previously charged-off or expected to be charged-off.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Authoritative Accounting Guidance –

The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

The Company currently utilizes a one-year reasonable and supportable forecast period followed by a one-year period over which estimated losses revert to historical loss experience for the remaining life of the loan.

The measurement of expected credit loss under the CECL methodology is applicable to financial assets measured at amortized cost, including loans and held to maturity investments and it also applies to certain off-balance sheet credit exposures.

The ACL for loans is measured on a collective (pool) basis when similar risk characteristics exist.

Generally, for all other loan types, the estimated expected credit loss is also calculated at the loan level and pool assignments are only utilized for aggregating the allowance estimates of similar loan types for financial statement disclosure purposes.

Loan segments have unique risk characteristics with respect to credit quality and are as follows:

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 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.

Both primary and secondary sources of repayment, and value of the properties in liquidation, may be affected to a greater extent by adverse conditions in the real estate market or the economy in general.

Properties underlying construction, land and land development loans often do not generate sufficient cash flows to service debt and thus repayment is subject to the ability of the borrower and, if applicable, guarantors, to complete development or construction of the property and carry the project, often for extended periods of time.

As a result, the performance of these loans is contingent upon future events whose probability at the time of origination is uncertain.

The ability of borrowers to service debt in the residential and consumer loan portfolios is generally subject to personal income which may be impacted by general economic conditions, such as increased unemployment levels.

These loans are predominately collateralized by first and/or second liens on single family properties.

If a borrower cannot maintain the loan, the Company’s ability to recover against the collateral in sufficient amount and in a timely manner may be significantly influenced by market, legal and regulatory conditions.

The Company considers loan classes and loan segments to be one and the same.

Individually Analyzed Loans :

The Company will evaluate individual instruments for expected credit losses when those instruments do not share similar risk characteristics with instruments evaluated using a collective (pooled) basis.

Loans will transition from defined segments for individual analysis when credit characteristics, or risk traits, change in a material manner.

A loan is considered for individual analysis when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by management in determining individual analysis include payment status and the probability of collecting scheduled principal and interest payments when due.

Loans for which the terms have been modified as a concession to the borrower due to the borrower experiencing financial difficulties are considered TDRs and are classified as individually analyzed.

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

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.

Instruments will not be included in both collective and individual analysis.

Individual analysis will establish a specific reserve for instruments in scope.

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 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.

The effective interest rate used to discount expected cash flows is adjusted to incorporate expected prepayments, if applicable.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Authoritative Accounting Guidance –

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.

Expected recoveries in the ACL shall not exceed amounts previously charged-off or expected to be charged-off.

Investment Securities :

Securities available-for-sale are carried at fair value, with unrealized holding gains and losses reported in comprehensive income, net of tax.

Interest income includes amortization of purchase premiums or discounts.

Premiums and discounts on securities are generally amortized using the level-yield method without estimating prepayments, except for mortgage-backed securities, where prepayment rates are estimated.

Premiums on callable investment securities are amortized to their earliest call date.

Gains and losses on sales of securities are recorded on the trade date and determined using the specific identification method.

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

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.

For available-for-sale investment securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from an actual or estimated credit loss event or other factors.

In making this assessment, we consider the extent to which fair value is less than amortized cost, changes to the rating of the security, and adverse conditions specifically related to the security, among other factors.

If this assessment indicates that a credit loss is likely, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of the cash flows expected to be collected is less than the amortized cost basis, an ACL is recorded for the estimated credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Any impairment that has not been recorded through an ACL is recognized in other comprehensive income.

Changes in the ACL are recorded as provision for (or reversal of) credit loss expense.

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.

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 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, “

Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20):

Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.

These amendments modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.

ASU 2018-14 was effective for the Company as of January 1, 2021 and did not have a significant impact on our consolidated financial statements.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Newly Issued, But Not Yet Effective Accounting Standards

In March 2022, the Financial Accounting Standards

Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02, “Financial Instruments – Credit Losses

(Topic 326), Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”).

ASU 2022-02 eliminates the accounting

guidance for troubled debt restructurings (“TDRs”) in ASC 310-40, “Receivables - Troubled Debt Restructurings by Creditors”

for entities that have adopted the current expected credit loss (“CECL”) model introduced by ASU 2016-13, “Financial Instruments

– Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments” (ASU 2016-13”).

ASU 2022-02 also

requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and

net investments in leases within the scope of Subtopic 326-20, “Financial Instruments—Credit Losses—Measured at Amortized

ASU 2022-02 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within

those fiscal years, with early adoption permitted.

The Company is evaluating the effect that ASU 2022-02 will have on its consolidated

financial statements.

Earnings per Common Share

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.

Earnings per common share have been computed based on the following:

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.

Earnings per common share have been computed

based on the following:

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands, except for per share data)

(dollars in thousands, except for per share data)

Net income available to common stockholders

Earnings allocated to participating securities

3 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 restricted shares

Weighted average common and equivalent shares outstanding

Earnings per common share:

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

There were no antidilutive share equivalents for

the quarters ended March 31, 2022 and March 31, 2021.

CONNECTONE BANCORP, INC.

2 unchanged sentences

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 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 September 30, 2021 and December 31, 2020.

September 30, 2021

The Company’s investment securities are classified

as available-for-sale as of March 31, 2022 and December 31, 2021.

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 March 31, 2022 and December 31, 2021.

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.

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 March 31, 2022 and December 31, 2021.

(dollars in thousands)

March 31, 2022

Securities available-for-sale

6 unchanged sentences

Asset-backed securities

Certificates of deposit

Other securities

Total securities available-for-sale

December 31, 2021

9 unchanged sentences

Other securities

Total securities available-for-sale

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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.

September 30, 2021

Investment Securities –

Investment securities having a carrying value of

approximately $ 95.0 million and $ 71.2 million as of March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021, 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’ equity.

The following table presents information for

investments in securities available-for-sale as of March 31, 2022, 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.

March 31, 2022

(dollars in thousands)

8 unchanged sentences

Total securities available-for-sale

Gross gains and losses from the sales and redemptions of securities for periods presented were as follows:

Three Months Ended

September 30,

Nine Months Ended

September 30,

(dollars in thousands)

Gross gains on sales/redemption of securities

Gross losses on sales/redemptions of securities

Net gains on sales/redemptions of securities

tax provision on net gains

Net gains on sales/redemptions of securities, after tax

We had no gross gains or losses from the sale of

securities for the three months ended March 31, 2022 and 2021.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 September 30, 2021 and December 31, 2020.

September 30, 2021

The following tables indicate gross unrealized

losses in an unrealized loss position for which an allowance for credit losses (“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 March 31,

2022 and December 31, 2021.

March 31, 2022

Less than 12 Months

1 unchanged sentence

(dollars in thousands)

Investment Securities

Available-for-Sale:

Investment Securities 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

4 unchanged sentences

(dollars in thousands)

Investment Securities

Available-for-Sale:

Investment Securities Available-for-Sale:

Federal agency obligations

1 unchanged sentence

Commercial mortgage pass-through securities

Corporate bonds and notes

Obligations of U.S.

states and political subdivisions

Asset-backed securities

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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 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.

Securities in unrealized loss positions are first assessed as to whether we intend to sell, or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis.

If one of the criteria is met, the security’s amortized cost basis is written down to fair value through current earnings.

For securities that do not meet these criteria, the Company evaluates whether the decline in fair value resulted from credit losses or other factors.

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.

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.

Investment Securities –

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 March 31, 2022 and December 31, 2021, totaled $ 1.4 million and $ 1.6

million, respectively.

The Company evaluates

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

Securities in unrealized

loss positions are first assessed as to whether we intend to sell, or if it is more likely than not that we will be required to sell the

security before recovery of its amortized cost basis.

If one of the criteria is met, the security’s amortized cost basis is written

down to fair value through current earnings.

For securities that do not meet these criteria, the Company evaluates whether the decline

in fair value resulted from credit losses or other factors.

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.

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.

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

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 March 31, 2022.

Federal agency obligations,

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

agencies and U.S.

Government sponsored enterprises.

Although a government guarantee exists on these investments, these entities are not legally backed by the full faith and credit of the federal government, and the current support they receive is subject to a cap as part of the agreement entered into in 2008.

Nonetheless, at this time we do not foresee any set of circumstances in which the government would not fund its commitments on these investments as the issuers are an integral part of the U.S.

housing market in providing liquidity and stability.

Although a government guarantee exists on these investments, these entities are not

legally backed by the full faith and credit of the federal government, and the current support they receive is subject to a cap as part

of the agreement entered into in 2008.

Nonetheless, at this time we do not foresee any set of circumstances in which the government would

not fund its commitments on these investments as the issuers are an integral part of the U.S.

housing market in providing liquidity and

Therefore, we concluded that a zero-allowance approach for these investment securities is appropriate.

The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position.

The notional amount of the interest rate swap does not represent amounts exchanged by the parties.

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

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.

Therefore, the aggregate fair value of the swaps is recorded in other assets (liabilities) with changes in fair value recorded in other comprehensive income (loss).

The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the hedges no longer be considered effective.

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 .

The Company utilizes interest rate swap agreements

as part of its asset liability management strategy to help manage its interest rate risk position.

The notional amount of the interest

rate swap does not represent amounts exchanged by the parties.

The amount exchanged is determined by reference to the notional amount

and the other terms of the individual interest rate swap agreements.

An interest rate swap was entered into on April 13, 2017 with

a respective notional amount of $ 25.0 million and was designated as a cash flow hedge of a Federal Home Loan Bank advance.

We are required

to pay a fixed-rate of interest of 1.93 % and receive variable rates of interest that reset quarterly based on three-month LIBOR.

The expiration date for the swap is April 2022.

The swap is determined to be fully effective during the period presented and therefore

no amount of ineffectiveness has been included in net income.

Therefore, the aggregate fair value of the swap is recorded in other assets

(liabilities) with changes in fair value recorded in other comprehensive income (loss).

The amount included in accumulated other comprehensive

income (loss) would be reclassified to current earnings should the hedges no longer be considered effective.

The Company expects the hedges

to remain fully effective during the remaining term of the swap.

In addition, during 2021, the Company entered into

9 forward starting pay fixed-rate interest rate swaps, 7 of which have since commenced, with a total notional amount of $ 400 million,

which are also designated as a cash flow hedges of current, or future, Federal Home Loan Bank advance.

We are required to pay fixed rates

of interest ranging from 0.631 % to 1.23 % and receive variable rates of interest that reset quarterly based on the daily compounding secured

overnight financing rate (“SOFR”).

The 2 remaining forward starting swaps have commencing payment dates in May 2022 and August

2022, with expiration dates on the 9 positions ranging from December 2025 to March 2028 .

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivatives –

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.

Derivatives – (continued)

Interest expense recorded on these swap transactions

totaled approximately $ 0.5 million and $ 0.6 million during the three months ended March 31, 2022 and 2021, 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 September 30, 2021

Amount of (loss)

Amount of loss

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 March 31, 2022

Amount of gain

gain recognized

(gain) reclassified

recognized in other

(loss) recognized

in OCI (Effective

Noninterest income

Amount of (gain)

loss reclassified

interest income

(Ineffective Portion)

(dollars in thousands)

Interest rate contracts

Three Months Ended September 30, 2020

Amount of (loss)

Amount of loss

Amount of gain

gain recognized

(gain) reclassified

recognized in other

in OCI (Effective

Noninterest income

interest income

(Ineffective Portion)

1 unchanged sentence

Interest rate contracts

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivatives –

Nine Months Ended September 30, 2021

Amount of (loss)

Amount of loss

Three Months Ended March 31, 2021

Amount of gain

gain recognized

(gain) reclassified

recognized in other

(loss) recognized

in OCI (Effective

Noninterest income

Amount of gain

(loss) reclassified

interest income

(Ineffective Portion)

(dollars in thousands)

Interest rate contracts

Nine Months Ended September 30, 2020

Amount of (loss)

Amount of loss

Amount of gain

gain recognized

(gain) reclassified

recognized in other

in OCI (Effective

Noninterest income

interest income

(Ineffective Portion)

1 unchanged sentence

Interest rate contracts

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

The following table reflects the cash flow hedges

included in the consolidated statements of condition as of March 31, 2022 and December 31, 2021:

March 31, 2022

December 31, 2021

Notional Amount

(dollars in thousands)

Interest rate swaps related to FHLB advances included in liabilities

Interest rate swaps related to FHLB advances included in assets

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and the Allowance for Credit Losses

Loans Receivable - As of and prior to December 31, 2020, loans receivable were accounted for under the incurred loss model.

As of January 1, 2021, portfolio loans are accounted for under the expected loss model.

Accordingly, some of the information presented is not comparable from period to period.

“Authoritative Accounting Guidance - Adoption of New Accounting Standards”

for additional information.

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,

Loans and the Allowance for Credit

Loans Receivable –

The following table sets forth the composition of the Company’s loan portfolio segments, including net deferred fees, as of March

31, 2022 and December 31, 2021:

(dollars in thousands)

5 unchanged sentences

Total loans receivable

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,

(1) Included in commercial loans as of March 31, 2022 and December

31, 2021 are PPP loans of $ 54.3 million and $ 93.1 million, respectively.

As of both March 31, 2022 and December

31, 2021, loan balances of approximately $ 2.5 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 March 31, 2022 and December 31,

(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 September 30, 2021 and nonaccrual loans without an ACL as of September 30, 2021:

September 30, 2021

loans without

Loans Receivable on Nonaccrual

Status - The following tables present nonaccrual loans with an ACL and nonaccrual loans without an ACL as of March 31, 2022 and

December 31, 2021:

March 31, 2022

(dollars in thousands)

5 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and the Allowance for Credit Losses –

The following tables present total nonaccrual loans included in loans receivable by loan class as of December 31, 2020 (dollars in thousands):

Loans and the Allowance for Credit

Losses – (continued)

December 31, 2021

Nonaccrual loans with ACL

Nonaccrual loans without ACL

Total Nonaccrual loans

(dollars in thousands)

Commercial real estate

1 unchanged sentence

Residential real estate

Total nonaccrual loans

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.

In addition to its internal monitoring, the Company utilizes the services of a third-party loan review firm to periodically validate the credit quality of its loans receivable on a sample basis.

Credit quality is monitored by reviewing certain credit quality indicators.

Assets classified as “Pass”

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

Assets classified as “Special Mention”

have generally acceptable credit quality yet possess higher risk characteristics/circumstances than satisfactory assets.

Such conditions include strained liquidity, slow pay, stale financial statements, or other conditions that require more stringent attention from the lending staff.

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 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.

An asset is classified as “Doubtful”

if it is inadequately protected by the net worth and/or paying capacity of the obligor or of the collateral, if any, that secures the obligation.

Assets classified as doubtful include assets for which there is a “distinct possibility”

that a degree of loss will occur if the inadequacies are not corrected.

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.

Credit Quality Indicators - The Company

continuously monitors the credit quality of its loans receivable.

In addition to its internal monitoring, the Company utilizes the services

of a third-party loan review firm to periodically validate the credit quality of its loans receivable on a sample basis.

Credit quality

is monitored by reviewing certain credit quality indicators.

Assets classified “Pass” are deemed to possess average to superior

credit quality, requiring no more than normal attention.

Assets classified as “Special Mention” have generally acceptable

credit quality yet possess higher risk characteristics/circumstances than satisfactory assets.

Such conditions include strained liquidity,

slow pay, stale financial statements, or other conditions that require more stringent attention from the lending staff.

These conditions,

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

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.

Such weakness, if left uncorrected, could possibly result in the compromised ability

of the loan to perform to contractual requirements.

An asset is classified as “Doubtful” if it is inadequately protected by

the net worth and/or paying capacity of the obligor or of the collateral, if any, that secures the obligation.

Assets classified as doubtful

include assets for which there is a “distinct possibility” that a degree of loss will occur if the inadequacies are not corrected.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and the Allowance for Credit Losses –

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

Loans and the Allowance for Credit

Losses – (continued)

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.

following table presents loans by origination and risk designation as of March 31, 2022 (dollars in thousands):

Term loans amortized cost basis by origination year

16 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and the Allowance for Credit Losses –

The following table presents information about the loan credit quality by loan class of gross loans (which exclude net deferred fees) as of December 31, 2020:

December 31, 2020

Loans and the Allowance for Credit

Losses – (continued)

The following table presents loans by origination

and risk designation as of December 31, 2021 (dollars in thousands):

Term loans amortized cost basis by origination year

Special mention

(dollars in thousands)

Total Commercial

Commercial Real Estate

Special mention

Total Commercial Real Estate

Commercial Construction

Special mention

Total Commercial Construction

Residential Real Estate

Special mention

Total Residential Real Estate

Special mention

Total Consumer

Special mention

Collateral Dependent Loans :

Loans which meet certain criteria are individually evaluated as part of the process of calculating the allowance for credit losses.

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 that were individually evaluated for impairment as of September 30, 2021:

September 30, 2021

which meet certain criteria are individually evaluated as part of the process of calculating the allowance for credit losses.

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 that were individually evaluated for impairment as of March 31, 2022 and December 31, 2021:

March 31, 2022

(dollars in thousands)

5 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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:

Loans and the Allowance for Credit

Losses – (continued)

December 31, 2021

No related allowance recorded

(dollars in thousands)

2 unchanged sentences

Residential real estate

Total (no related allowance)

With an allowance recorded

Commercial real estate

Total (with allowance)

Commercial real estate

Commercial construction

Residential real estate

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 nine months ended September 30, 2020 (dollars in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Impaired loans (no allowance)

Commercial real estate

Commercial construction

Residential real estate

Impaired loans (allowance):

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 March 31,

2022 and December 31, 2021:

March 31, 2022

Due and Still

(dollars in thousands)

Commercial real Estate

1 unchanged sentence

Residential real Estate

Total impaired loans:

December 31, 2021

90 Days or Greater Past Due and Still Accruing

Total Past Due and Nonaccrual

(dollars in thousands)

Commercial real Estate

3 unchanged sentences

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 September 30, 2021 and December 31, 2020 (dollars in thousands):

September 30, 2021

30-59 Days Past Due

60-89 Days Past Due

90 Days or Greater Past Due and Still Accruing

Total Past Due and Nonaccrual

NOTES TO CONSOLIDATED FINANCIAL

Loans and the Allowance for Credit

Losses – (continued)

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 allowance for credit losses that are allocated to each loan portfolio

March 31, 2022

Commercial real estate

1 unchanged sentence

Residential real estate

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.

(dollars in thousands)

Allowance for credit losses - loans

Individually evaluated impairment

Collectively evaluated impairment

Acquired with deteriorated credit quality individually analyzed

Individually evaluated impairment

Collectively evaluated impairment

Acquired with deteriorated credit quality individually analyzed

December 31, 2021

Due and Still

Commercial real estate

1 unchanged sentence

Residential real estate

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.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and the Allowance for Credit Losses –

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:

September 30, 2021

(dollars in thousands)

Individually evaluated for impairment

Collectively evaluated for impairment

Allowance for credit losses - loans

Individually evaluated impairment

Collectively evaluated impairment

Acquired with deteriorated credit quality individually analyzed

Individually evaluated for impairment

Collectively evaluated for impairment

Individually evaluated impairment

Collectively evaluated impairment

Acquired with deteriorated credit quality individually analyzed

December 31, 2020

(dollars in thousands)

Allowance for loan losses

Individually evaluated for impairment

Collectively evaluated for impairment

Acquired portfolio

Acquired with deteriorated credit quality

Individually evaluated for impairment

Collectively evaluated for impairment

Acquired portfolio

Acquired with deteriorated credit quality

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and the Allowance for Credit Losses –

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

Loans and the Allowance for Credit

Losses – (continued)

in the Company’s ACL for loans for the three months ended March 31, 2022 is summarized in the table below.

Three Months Ended March 31, 2022

Commercial real estate

Commercial construction

Residential real estate

(dollars in thousands)

Balance as of June 30, 2021

Balance as of December 31, 2021

(Reversal of) provision for credit losses (loans)

Balance as of September 30, 2021

Nine Months Ended September 30, 2021

Balance as of March 31, 2022

in the Company’s ACL for loans for the three months ended March 31, 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 March 31, 2021

Commercial real estate

Commercial construction

Residential real estate

(dollars in thousands)

2 unchanged sentences

Balance as of January 1, 2021 as adjusted for changes in accounting principle

Provision for (reversal of) credit losses - loans

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.

Under CECL, we record an expected loss of all cash flows we do not expect to collect at the inception of the loan.

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.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and the Allowance for Credit Losses –

Three Months Ended September 30, 2020

(dollars in thousands)

Balance as of 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

Provision for (reversal of) credit losses - loans

Balance as of September 30, 2020

(Reversal of) provision for credit losses (loans)

Balance as of March 31, 2021

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and the Allowance for Credit Losses –

Loans and the Allowance for Credit

Losses – (continued)

Troubled Debt Restructurings

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 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

Post-Modification Outstanding

Number of Loans

Recorded Investment

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.

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 March 31, 2022, 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 March 31, 2022, TDRs totaled $ 76.5 million,

of which $ 29.1 million were on nonaccrual status and $ 47.4 million were performing under their restructured terms.

As of December 31,

2021, TDRs totaled $ 79.5 million, of which $ 35.9 million were on nonaccrual status and $ 43.6 million were performing under their restructured

The Company has allocated $ 9.1 million and $ 10.4 million of specific allowance related to TDRs as of March 31, 2022 and December

31, 2021, respectively.

The following table presents loans by class modified

as TDRs that occurred during the three months ended March 31, 2022:

Pre-Modification

Post-Modification

(dollars in thousands)

Troubled debt restructurings:

Commercial real estate

The commercial loan modified as a TDR during the

three months ended March 31, 2022 was a maturity extension, while the commercial real estate loan modified as a TDR during the three months

ended March 31, 2022 was an interest rate reduction, that was commensurate with a one-time, $ 500,000 , principal paydown.

The following table presents loans by class modified

as TDRs that occurred during the three months ended March 31, 2021:

Pre-Modification

Post-Modification

(dollars in thousands)

Troubled debt restructurings:

Commercial real estate

Commercial construction

Residential real estate

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.

The interagency statement was effective immediately and impacted accounting for loan modifications.

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 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.

Provisions of the CARES Act largely mirrored the provisions of the interagency statement, providing that modified loans would not be considered TDR’s if they were performing at year-end 2019, and the other conditions set forth in the interagency statement were met.

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 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.

The two residential real estate loans modified

as TDRs during the three months ended March 31, 2021 were maturity extensions, while the one commercial real estate loan was a recast

of a nonaccrual credit.

There were no TDRs for which there was a

payment default within twelve months following the modification during the three months ended March 31, 2022 and March 31, 2021.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and the Allowance for Credit Losses –

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

Number of Loans

Principal Balance

(dollars in thousands)

Commercial real estate

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.

ACL for Unfunded Commitments

The Company has recorded an ACL for unfunded credit commitments, which was recorded in other liabilities.

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 nine months ended September 30, 2021 (dollars in thousands):

Loans and the Allowance for Credit

Losses – (continued)

Allowance for Credit Losses for Unfunded

The Company has recorded an ACL for unfunded

credit commitments, which was recorded in other liabilities.

The provision is recorded within the (reversal of) provision for credit losses

on the Company’s income statement.

The following table presents a rollforward of the allowance for credit losses for unfunded commitments

for the three months ended March 31, 2022 and March 31, 2021:

Three Months Ended

September 30, 2021

Balance as of beginning of period

Provision for (reversal of) credit losses - unfunded commitments

Balance as of end of period

Nine Months Ended

September 30, 2021

Balance as of beginning of period

Three Months Ended

(dollars in thousands)

Balance at beginning of period

Day 1 Effect of CECL

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

(Reversal of) provision for credit losses (unfunded commitments)

Balance at 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 months ended March 31, 2022 and March 31, 2021:

Three Months Ended

September 30, 2021

Nine Months Ended

September 30, 2021

Three Months Ended

(dollars in thousands)

Provision for (Reversal of) credit losses (loans)

Provision for (reversal of) credit losses - unfunded commitments

Reversal of credit losses (unfunded commitments)

Provision for (Reversal of) credit losses

3 unchanged sentences

Fair Value Measurements and Fair Value of Financial Instruments

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:

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.

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

Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Quoted prices for similar assets

and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially

the full term of the financial instrument.

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (for example, supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities.

Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

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 September 30, 2021 and December 31, 2020:

An asset’s or liability’s level within

the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following information

should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a

limited portion of the Company’s assets and liabilities.

Due to a wide range of valuation techniques and the degree of subjectivity

used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

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 March 31, 2022 and December

Securities Available-for-Sale and Equity Securities :

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.

Level 1 inputs include securities that have quoted prices in active markets for identical assets.

If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.

Examples of instruments which would generally be classified within Level 2 of the valuation hierarchy include municipal bonds and certain agency collateralized mortgage obligations.

In certain cases where there is limited activity in the market for a particular instrument, assumptions must be made to determine the fair value of the instruments and these are classified as Level 3.

When measuring fair value, the valuation techniques available under the market approach, income approach and/or cost approach are used.

The Company’s evaluations are based on market data and the Company employs combinations of these approaches for its valuation methods depending on the asset class.

Level 1 inputs

include securities that have quoted prices in active markets for identical assets.

If quoted market prices are not available, then fair

values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.

of instruments which would generally be classified within Level 2 of the valuation hierarchy include municipal bonds and certain agency

collateralized mortgage obligations.

In certain cases where there is limited activity in the market for a particular instrument, assumptions

must be made to determine the fair value of the instruments and these are classified as Level 3.

When measuring fair value, the valuation

techniques available under the market approach, income approach and/or cost approach are used.

The Company’s evaluations are based

on market data and the Company employs combinations of these approaches for its valuation methods depending on the asset class.

Derivatives :

The fair value of derivatives is based on valuation models using observable market data as of the measurement date (level 2).

Our derivatives are traded in an over-the-counter market where quoted market prices are not always available.

Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs.

The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rate, and volatility factors to value the position.

The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

The fair value of derivatives

is based on valuation models using observable market data as of the measurement date (level 2).

Our derivatives are traded in an over-the-counter

market where quoted market prices are not always available.

Therefore, the fair values of derivatives are determined using quantitative

models that utilize multiple market inputs.

The inputs will vary based on the type of derivative, but could include interest rates, prices

and indices to generate continuous yield or pricing curves, prepayment rate, and volatility factors to

value the position.

The majority of market inputs are actively quoted

and can be validated through external sources, including brokers, market transactions and third-party pricing services.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 September 30, 2021 and December 31, 2020 are as follows:

September 30, 2021

Fair Value Measurements and Fair Value of Financial Instruments

– (continued)

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 March 31, 2022 and December

31, 2021 are as follows:

March 31, 2022

Fair Value Measurements at Reporting Date Using

19 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements and Fair Value of Financial Instruments –

Fair Value Measurements and Fair Value of Financial

Instruments – (continued)

December 31, 2021

17 unchanged sentences

Equity securities

Total liabilities

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

The Company may be required periodically to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP.

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 September 30, 2021 and December 31, 2020.

There were no transfers between Level 1 and Level

2 during the three months ended March 31, 2022 and during the year ended December 31, 2021.

Assets Measured at Fair Value on a Nonrecurring

The Company may be required periodically to measure

certain assets at fair value on a nonrecurring basis in accordance with GAAP.

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 March 31, 2022

and December 31, 2021.

Loans Held-for-Sale :

Residential mortgage loans, originated and intended for sale in the secondary market, are carried at the lower of aggregate cost or estimated fair value as determined by outstanding commitments from investors.

For these loans originated and intended for sale, gains and losses on loan sales (sale proceeds minus carrying value) are recorded in other income and direct loan origination costs and fees are deferred at origination of the loan and are recognized in other income upon sale of the loan.

Management obtains quotes or bids on all or parts of these loans directly from the purchasing financial institutions (Level 2).

Other loans held-for-sale are carried at the lower of aggregate cost or estimated fair value.

Fair value of these loans is determined based on the terms of the loan, such as interest rate, maturity date, reset term, as well as sales of similar assets (Level 3).

Residential mortgage

loans, originated and intended for sale in the secondary market, are carried at the lower of aggregate cost or estimated fair value as

determined by outstanding commitments from investors.

For these loans originated and intended for sale, gains and losses on loan sales

(sale proceeds minus carrying value) are recorded in other income and direct loan origination costs and fees are deferred at origination

of the loan and are recognized in other income upon sale of the loan.

Management obtains quotes or bids on all or parts of these loans

directly from the purchasing financial institutions (Level 2).

Other loans held-for-sale are carried at the lower

of aggregate cost or estimated fair value.

Fair value of these loans is determined based on the terms of the loan, such as interest

rate, maturity date, reset term, as well as sales of similar assets (Level 3).

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements and Fair Value of Financial Instruments –

Fair Value Measurements and Fair Value of Financial

Instruments – (continued)

Collateral Dependent 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.

Impairment amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated impairment amount applicable to that loan does not necessarily represent the fair value of the loan.

Real estate collateral is valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable by market participants.

However, due to the substantial judgment applied and limited volume of activity as compared to other assets, fair value is based on Level 3 inputs.

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 September 30, 2021 and December 31, 2020 are as follows:

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.

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

Impairment amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result,

the carrying value of the loan less the calculated impairment amount applicable to that loan does not necessarily represent the fair value

Real estate collateral is valued using independent appraisals or other indications of value based on recent comparable sales

of similar properties or assumptions generally observable by market participants.

However, due to the substantial judgment applied and

limited volume of activity as compared to other assets, fair value is based on Level 3 inputs.

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 March 31, 2022 and December 31, 2021 are as follows:

Fair Value Measurements at Reporting Date Using

Assets measured at fair value on a nonrecurring

September 30,

Assets measured at fair value on a nonrecurring basis:

Carrying Value as of March 31, 2022

Collateral dependent loans :

2 unchanged sentences

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

Assets measured at fair value on a nonrecurring

Impaired loans :

Assets measured at fair value on a nonrecurring basis:

Collateral dependent loans :

(dollars in thousands)

Commercial real estate

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

Residential real estate

Collateral dependent

loans – Collateral dependent loans as of March 31, 2022 that required a valuation allowance were $ 62.4 million with a

related valuation allowance of $ 16.9 million compared to $ 54.1 million with a related valuation allowance of $ 17.8 million as of December

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements and Fair Value of Financial Instruments –

Assets Measured With Significant Unobservable Level 3 Inputs

Fair Value Measurements and Fair Value of Financial

Instruments – (continued)

Assets Measured with Significant Unobservable

Level 3 Inputs

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 nine months ended September 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 three months ended March 31,

2022 and for the year ended December 31, 2021:

(dollars in thousands)

Balance as of December 31, 2020

Beginning balance, December 31, 2021

Principal paydowns

Balance as of September 30, 2021

Ending balance, March 31, 2022

(dollars in thousands)

Balance as of December 31, 2019

Beginning balance, December 31, 2020

Principal paydowns

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 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.

September 30, 2021

Ending balance, December 31, 2021

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 March 31, 2022 and December

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

Level 3 hierarchy.

March 31, 2022

Securities available-for-sale:

12 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements and Fair Value of Financial Instruments –

Fair Value Measurements and Fair Value of Financial

Instruments – (continued)

Nonrecurring basis :

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 for the periods presented.

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

September 30, 2021

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

for the periods presented.

The tables below provide quantitative information about significant unobservable inputs used in fair value

measurements within Level 3 hierarchy of collateral dependent loans.

March 31, 2022

(dollars in thousands)

Range (weighted average)

Collateral dependent :

Appraisals of collateral value

Comparable sales

0 % - 5 % ( 2 %)

Market approach (100%)

Average transfer price as a price to unpaid principal balance

56 % – 85 % ( 57 %)

Appraisals of collateral value

Comparable sales

- 10 % to + 35 % (+8%)

Commercial real estate

1 unchanged sentence

Comparable sales

0 % - 25 % ( 8 %)

- 25 % to 10 % (-14%)

Residential real estate

1 unchanged sentence

Comparable sales

1 % - 15 % ( 6 %)

+ 21 % to + 39 % (+22%)

December 31, 2021

1 unchanged sentence

Range (weighed average)

Impaired loans :

Market approach (100%)

Average transfer price as a price to unpaid principal balance

48 - 53 ( 49 )

48 % to 73 % ( 49 %)

Appraisals of collateral value

5 unchanged sentences

- 20 % to + 15 % (-6%)

Residential real estate

Appraisals of collateral value

Adjustment for comparable sales

- 15 % to + 39 % ( 5 %)

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements and Fair Value of Financial Instruments –

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 and Fair Value of Financial

Instruments – (continued)

As of March 31, 2022 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 March 31,

2022 and December 31, 2021:

Fair Value Measurements

(dollars in thousands)

September 30, 2021

March 31, 2022

Financial assets:

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Securities available-for-sale

Investment in restricted stocks

Restricted investments in bank stocks

Equity securities

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements and Fair Value of Financial Instruments –

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, considering the remaining terms of the agreements and the present creditworthiness of the counterparties.

For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.

The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.

Fair Value Measurements and Fair Value of Financial

Instruments – (continued)

The fair value of commitments to originate loans

is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements

and the present creditworthiness of the counterparties.

For fixed-rate loan commitments, fair value also considers the difference between

current levels of interest rates and the committed rates.

The fair values of letters of credit and lines of credit are based on fees currently

charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the

reporting date.

The fair value of commitments to originate loans is immaterial and not included in the tables above.

Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.

Fair value estimates are based on existing balance sheet financial instruments, without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.

For example, there are certain significant assets and liabilities that are not considered financial assets or liabilities, such as deferred taxes, premises and equipment, and goodwill.

In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Management believes that reasonable comparability between financial institutions may not be likely, due to the wide range of permitted valuation techniques and numerous estimates which must be made, given the absence of active secondary markets for many of the financial instruments.

This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.

Comprehensive Income

Total comprehensive income includes all changes in equity during a period from transactions and other events and circumstances from non-owner sources.

The Company’s other comprehensive income is comprised of unrealized holding gains and losses on securities available-for-sale, unrealized gains (losses) on cash flow hedges, obligations for defined benefit pension plan and an adjustment to reflect the curtailment of the Company’s defined benefit pension plan, each net of taxes.

The following table represents the reclassification out of accumulated other comprehensive (loss) income for the periods presented:

Changes in assumptions or estimation methodologies

may have a material effect on these estimated fair values.

Fair value estimates are based on existing balance

sheet financial instruments, without attempting to estimate the value of anticipated future business and the value of assets and liabilities

that are not considered financial instruments.

For example, there are certain significant assets and liabilities that are not considered

financial assets or liabilities, such as deferred taxes, premises and equipment, and goodwill.

In addition, the tax ramifications related

to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered

in the estimates.

Management believes that reasonable comparability

between financial institutions may not be likely, due to the wide range of permitted valuation techniques and numerous estimates which

must be made, given the absence of active secondary markets for many of the financial instruments.

This lack of uniform valuation methodologies

also introduces a greater degree of subjectivity to these estimated fair values.

Comprehensive (Loss) Income

Total comprehensive (loss) income includes all

changes in equity during a period from transactions and other events and circumstances from non-owner sources.

The Company’s other

comprehensive income is comprised of unrealized holding gains and losses on securities available-for-sale, unrealized gains (losses) on

cash flow hedges, obligations for defined benefit pension plan and an adjustment to reflect the curtailment of the Company’s defined

benefit pension plan, each net of taxes.

The following table represents the reclassification

out of accumulated other comprehensive (loss) for the periods presented (dollars in thousands):

Details about Accumulated Other

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Affected Line item in the

Statement Where Net Income is Presented

Three Months Ended

Nine Months Ended

September 30,

Sale of investment securities

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

available-for-sale

Consolidated Statements of Income

Three Months Ended March 31,

Net interest income on swaps

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Income tax expense

Amortization of pension plan net

Amortization of pension plan net actuarial losses

Other components of net periodic pension expense

actuarial losses

Income tax benefit

Income tax expense

Total reclassification

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Comprehensive Income –

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

September 30,

Comprehensive (Loss) Income – (continued)

Accumulated other comprehensive (loss) as of March

31, 2022 and December 31, 2021 consisted of the following:

December 31, 2021

(dollars in thousands)

1 unchanged sentence

Cash flow hedge, net of tax

Defined benefit pension plan, net of tax

Defined benefit pension and post-retirement plans, 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 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 September 30, 2021 are approximately 329,175 .

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 March 31, 2022.

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 March 31, 2022 are approximately

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

Restricted stock, options and restricted stock units typically have a three-year vesting period starting one year after the date of grant with one-third vesting each year or upon a change-in-control.

The options generally expire ten years from the date of grant.

Restricted stock granted to new employees and board members may be granted with shorter vesting periods.

Grants of performance units typically have a cliff vesting after three years or upon a change-in-control.

Restricted stock, options and restricted stock

units typically have a three-year vesting period starting one year after the date of grant with one-third vesting each year.

generally expire ten years from the date of grant.

Restricted stock and units granted to new employees and board members may be granted

with shorter vesting periods.

Grants of performance units typically have a cliff vesting after three years or upon a change of control.

All issuances are subject to forfeiture if the recipient leaves or is terminated prior to the awards vesting.

Restricted shares have the same dividend and voting rights as common stock, while options, performance units and restricted stock units do not.

All awards are issued at the fair value of the underlying shares at the grant date.

The Company expenses the cost of the awards, which is determined to be the fair market value of the awards at the date of grant, ratably over the vesting period.

Restricted stock have the

same dividend and voting rights as common stock, while options, performance units and restricted stock units do not.

All awards are issued at the fair value of the

underlying shares at the grant date.

The Company expenses the cost of the awards, which is determined to be the fair market value of the

awards at the date of grant, ratably over the vesting period.

Forfeiture rates are not estimated but are recorded as incurred.

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:

compensation expense for the three months ended March 31, 2022 and March 31, 2021 was $ 1.1 million and $ 1.0 million, respectively.

Activity under the Company’s options for

the three months ended March 31, 2022 was as follows:

Number of Stock Options

Intrinsic Value

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Forfeited/cancelled/expired

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.

Outstanding as of March 31, 2022

Exercisable as of March 31, 2022

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 March 31, 2022 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 March 31, 2022.

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

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Based Compensation –

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

Stock-Based Compensation – (continued)

Activity under the Company’s restricted shares

for the three months ended March 31, 2022 was as follows:

Nonvested Shares

Nonvested as of December 31, 2021

Forfeited/cancelled/expired

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.

A summary of the status of unearned performance unit awards and the change during the period is presented in the table below:

Average Grant

Nonvested March 31, 2022

As of March 31, 2022, 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 1.6 years.

A summary of the status of unearned performance

unit awards and the change during the period is presented in the table below:

Units (expected)

Units (maximum)

Weighted Average Grant Date Fair Value

Unearned as of December 31, 2021

Change in estimate

Vested shares

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 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 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 March 31, 2022

As of March 31, 2022, the specific number of shares

related to performance units that were expected to vest was 195,264 , 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.

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

As of March 31, 2022, the maximum amount of performance units that ultimately could vest if performance targets were exceeded

During the three months ended March 31, 2022, 49,604 shares vested.

A total of 27,254 shares were netted from the vested shares

to satisfy employee tax obligations.

The net shares issued from vesting of performance units during the three months ended March 31, 2022

were 22,350 shares.

As of March 31, 2022, compensation cost of approximately $ 2.1 million related to non-vested performance units not

yet recognized is expected to be recognized over a weighted-average period of 2.1 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:

Unearned as of December 31, 2021

Vested shares

Forfeited/cancelled/expired

Unearned as of September 30, 2021

Any forfeitures would result in previously recognized expense being reversed.

Unearned as of March 31, 2022

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 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 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.

three months ended March 31, 2022, 69,584 shares vested.

A total of 38,201 shares were netted from the vested shares to satisfy employee

tax obligations.

The net shares issued from vesting of restricted stock units during the three months ended March 31, 2022 were 31,383

As of March 31, 2022, compensation cost of approximately $ 2.4 million related to non-vested restricted stock units, not yet recognized,

is expected to be recognized over a weighted-average period of 1.8 years.

CONNECTONE BANCORP, INC.

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Components of Net Periodic Pension Cost

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.

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 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

Nine Months Ended

September 30,

Affected Line Item in the Consolidated

Statements of Income

(dollars in thousands)

Interest cost

Other components of net periodic pension expense

Expected return on plan assets

Other components of net periodic pension expense

Net amortization

Other components of net periodic pension expense

Total periodic pension income

Contributions

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.

The Company did not contribute to the Pension Trust

during the three months ended March 31, 2022.

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

The trust is established to provide retirement and other benefits for eligible employees and their beneficiaries.

No part of the trust assets may be applied to any purpose other than providing benefits under the plan and for defraying expenses of administering the plan and the trust.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the trust assets may be applied to any purpose other than providing benefits under the plan and for defraying expenses of administering

the plan and the trust.

FHLB Borrowings

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

September 30, 2021

The Company’s FHLB borrowings and weighted

average interest rates are summarized below:

March 31, 2022

December 31, 2021

(dollars in thousands)

Total FHLB borrowings

By remaining period to maturity:

5 unchanged sentences

After 5 years

Total FHLB borrowings

FHLB borrowings - gross

Fair value (discount)

FHLB borrowings, net

The FHLB borrowings are secured by pledges of certain collateral including, but not limited to, U.S.

government and agency mortgage-backed securities and a blanket assignment of qualifying first lien mortgage loans, consisting of both residential mortgages and commercial real estate loans.

Advances are payable at stated maturity, with a prepayment penalty for fixed rate advances.

Total FHLB borrowings

The FHLB borrowings are secured by pledges of certain

collateral including, but not limited to, U.S.

government and agency mortgage-backed securities and a blanket assignment of qualifying

first lien mortgage loans, consisting of both residential mortgages and commercial real estate loans.

Advances are payable at stated maturity, with a

prepayment penalty for fixed rate advances.

All FHLB advances are fixed rates.

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.

The advances as of March 31, 2022 were primarily collateralized

by approximately $ 1.9 billion of commercial mortgage loans, net of required over collateralization amounts, under a blanket lien arrangement.

As of March 31, 2022 the Company had remaining borrowing capacity of approximately $ 1.0 billion at FHLB.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Subordinated Debentures

During December 2003, Center Bancorp Statutory Trust II, a statutory business trust and wholly owned subsidiary of the Parent Corporation issued $ 5.0 million of MMCapS capital securities to investors due on January 23, 2034 .

The trust loaned the proceeds of this offering to the Company and received in exchange $ 5.2 million of the Parent Corporation’s subordinated debentures.

During December 2003, Center Bancorp Statutory

Trust II, a statutory business trust and wholly owned subsidiary of the Parent Corporation issued $ 5.0 million of MMCapS capital securities

to investors due on January 23, 2034 .

The trust loaned the proceeds of this offering to the Company and received in exchange $ 5.2 million

of the Parent Corporation’s subordinated debentures.

The subordinated debentures are redeemable in whole or part.

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

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.

The floating interest

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

rate as of March 31, 2022 was 3.15 %.

The following table summarizes the mandatory redeemable

trust preferred securities of the Company’s Statutory Trust II as of March 31, 2022 and December 31, 2021.

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 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.

During January 2018, the Parent Corporation issued $ 75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “Notes”) to certain accredited investors.

The net proceeds from the sale of the Notes were used in the first quarter of 2018 for general corporate purposes, which included the Parent Corporation contributing $ 65 million of the net proceeds to the Bank in the form of debt and common equity.

The Notes are non-callable for five years, have a stated maturity of February 1, 2028 and bear interest at a fixed rate of 5.20 % per year, from and including January 17, 2018 to, but excluding February 1, 2023.

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 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 .

As of December 31, 2020, the variable interest rate was 4.16 % and all costs related to 2015 issuance have been amortized.

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

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 .

Notwithstanding

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

During January 2018, the Parent Corporation issued

$ 75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “Notes”) to certain accredited

The net proceeds from the sale of the Notes were used in the first quarter of 2018 for general corporate purposes, which included

the Parent Corporation contributing $ 65 million of the net proceeds to the Bank in the form of debt and common equity.

The Notes are non-callable

for five years, have a stated maturity of February 1, 2028 and bear interest at a fixed rate of 5.20 % per year, from and including January

17, 2018 to, but excluding February 1, 2023.

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 .

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.

19, 2021, the Company completed an underwritten public offering of 115,000 shares, or $ 115.0 million in aggregate liquidation

preference, of its depositary shares, each representing a 1/40th interest in a share of the Company’s 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