What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-24 compared with 2022-02-25 · 1604 added, 522 removed, 1605 unchanged (57% of the section changed)

9 unchanged sentences

Notes to Consolidated Financial Statements

- 48 -

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 173 )

The Board of Directors and Stockholders of

Shareholders and the Board of Directors of

ConnectOne Bancorp, Inc.

3 unchanged sentences

We have audited the accompanying consolidated statements of financial condition of ConnectOne Bancorp, Inc.

and Subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in stockholders’

equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements").

and Subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes in stockholders’

equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements").

We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control –

1 unchanged sentence

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. 

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control –

3 unchanged sentences

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2021 due to the adoption of ASC 326.

The adoption of ASC 326 and its subsequent application is also communicated as a critical audit matter below.

As discussed in Note 1a to the consolidated financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2021 due to the adoption of ASC 326, Financial Instruments –

Credit Losses.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. 

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

4 unchanged sentences

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

- 49 -

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

1 unchanged sentence

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses –

The Company adopted ASC 326, Financial Instruments –

Credit Losses on January 1, 2021, using the modified retrospective method.

Upon adoption the Company recorded a decrease to retained earnings of $2,925,000, net of tax, for the cumulative effect of adopting ASC 326, as noted in the Consolidated Statements of Changes in Stockholders’

As of December 31, 2021, the allowance for credit losses (“ACL”) on loans was $78,773,000 inclusive of reversal of credit losses on loans of $5,018,000 for the year then ended.

The Company has disclosed the impact of adoption in Note 1b (see change in accounting principle explanatory paragraph above) to the consolidated financial statements and the allowance for credit losses on loans as of December 31, 2021 in Notes 1b and 4.

Qualitative Loss Factors on Commercial and Commercial Real Estate Loans

As described in Note 1a to the consolidated financial statements, the Company accounts for credit losses under ASC 326, Financial Instruments –

Credit Losses.

ASC 326 requires the measurement of expected lifetime credit losses for financial assets measured at amortized cost at the reporting date.

The measurement is based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organizations portfolio.

As of December 31, 2022, the allowance for credit losses (“ACL”) on loans was $90,513,000.

Management employs a process and methodology to estimate the ACL on pooled loans that evaluates both quantitative and qualitative factors.

2 unchanged sentences

For pooled loans, the Company utilizes a discounted cash flow (”DCF”) methodology to estimate credit losses over the expected life of the loan.

The DCF methodology combines probability of default, the loss given default, maturity date and prepayment speed assumptions to estimate a reserve for each loan.

The DCF methodology combines probability of default, the loss given default, and prepayment speed assumptions to estimate a reserve for each loan.

The quantitative loss rates are adjusted by macroeconomic scenarios and reverts, on a straight-line basis, to average historical losses after the forecasted periods.

The sum of all the loan level reserves are aggregated for each portfolio segment and a quantitative loss factor is derived.

The sum of all the loan level reserves is aggregated for each portfolio segment and a quantitative loss factor is derived.

The quantitative factors are also supplemented by certain qualitative loss factors reflecting management’s view of how losses may vary from those represented by quantitative loss rates.

Qualitative loss factors, for each loan segment within the portfolio, incorporates consideration for a minimum to maximum range for qualitative loss factor derived from either the Company’s historical loss experience or peer group historical loss experience.

Qualitative loss factors, for each loan segment within the portfolio, incorporate consideration for a minimum to maximum range for qualitative loss factor derived from either the Company’s historical loss experience or peer group historical loss experience.

Changes in these assumptions could have a material effect on the Company’s financial results.

We identified auditing the ACL on pooled loans as a critical audit matter because the methodology to determine the estimate of credit losses significantly changes upon adoption of ASC 326, including the application of new accounting policies, the use of subjective judgments for both the quantitative and qualitative calculations and overall changes made to the loss estimation models.

Performing audit procedures to evaluate the implementation and subsequent application of ASC 326 for loans involved a high degree of auditor judgment and required significant effort, including the need to involve more experienced audit personnel and valuation specialists.

- 50 -

We identified auditing the qualitative component of the ACL on pooled loans in the commercial and commercial real estate loan segments as a critical audit matter because the methodology to determine the estimate of credit losses uses subjective judgments by management and is subject to material variability.

Performing audit procedures to evaluate the qualitative loss factors on the commercial and commercial real estate loan segments involved a high degree of auditor judgment and required significant effort, including the need to involve more experienced audit personnel including the use of internal specialists.

The primary procedures we performed to address this critical audit matter included:

Testing the design and operating effectiveness of controls over the evaluation of the ACL on pooled loans, including controls addressing:

The selection and application of new accounting policies.  

Data inputs, judgments and calculations used to determine the loss factors.  

Information technology general controls and application controls.  

Problem loan identification and delinquency monitoring.  

Management’s evaluation of qualitative loss factors.  

Testing the effectiveness of controls over the evaluation of the ACL on pooled loans, including controls addressing:

Methodology and accounting policies.

Data inputs, judgments and calculations used to determine the qualitative loss factors.

Information technology general controls and application controls.

Management’s evaluation of qualitative loss factors.

Substantively testing management’s process, including evaluating their judgments and assumptions, for developing the ACL on pooled loans, which included:

Evaluating the appropriateness of the Company’s accounting policies, judgments and elections involved in adoption of ASC 326.  

Testing the mathematical accuracy of the calculation.  

Utilizing internal specialists to perform procedures to assist in evaluating the relevance of the macroeconomic loss drivers.  

Utilizing internal specialists to assist in testing the mathematical accuracy of the underlying peer data used to calculated probability of the default and loss given default rates used within the discounted cash flow model.  

Evaluating the reasonableness of management’s judgments related to the probability of default, loss given default, including evaluating the use of peer data used to estimate these metrics in the absence of relevant and reliable internal data.  

Evaluating the reasonableness of management’s judgments related to qualitative adjustments to determine if they are calculated to conform with management’s policies and were consistently applied from the point of adoption to year end.  

/s/ Crowe LLP

We have served as the Company's auditor since 2014.

Evaluating the appropriateness of the Company’s accounting policies, judgments and elections.

Testing the mathematical accuracy of the calculation.

Testing the completeness and accuracy of data used in the calculation including utilizing internal specialists to assist in testing the mathematical accuracy of the underlying peer data used to develop the maximum loss factors.

Evaluating the reasonableness of management’s judgments related to qualitative loss factors to determine if they are calculated to conform with management’s policies and were consistently applied period over period.

We have served as the Company's auditor since 2014.

Livingston, New Jersey

February 24, 2023

- 51 -

CONNECTONE BANCORP, INC.

3 unchanged sentences

Cash and due from banks

$ 61,629  

$ 54,352  

Interest-bearing deposits with banks

206,686  

211,184  

Cash and cash equivalents

268,315  

265,536  

Investment securities

634,884  

534,507  

Equity securities

15,811  

13,794  

Loans held-for-sale

13,772  

Loans receivable

8,099,689  

6,828,622  

Allowance for credit losses - loans

90,513  

78,773  

Net loans receivable

8,009,176  

6,749,849  

Investment in restricted stock, at cost

46,604  

27,826  

Bank premises and equipment, net

27,800  

29,032  

Accrued interest receivable

46,062  

34,152  

Bank owned life insurance

231,328  

195,731  

Right of use operating lease assets

10,179  

11,017  

Other real estate owned

208,372  

Core deposit intangibles

125,069  

50,417  

$ 9,644,948  

$ 8,129,480  

Noninterest-bearing

$ 1,501,614  

$ 1,617,049  

Interest-bearing

5,855,008  

4,715,904  

Total deposits

7,356,622  

6,332,953  

857,622  

468,193  

Subordinated debentures, net of debt issuance costs

153,255  

152,951  

Operating lease liabilities

11,397  

12,417  

Other liabilities

87,301  

38,754  

Total liabilities

8,466,197  

7,005,268  

COMMITMENTS AND CONTINGENCIES

3 unchanged sentences

Authorized 5,000,000 shares;

issued 115,000 shares as of December 31, 2021 and - 0 - shares as of

December 31, 2020;

outstanding 115,000 shares as of December 31, 2021

and - 0 - shares as of December 31, 2020

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

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

110,927  

Common stock, no par value:

2 unchanged sentences

outstanding 39,243,123 shares as of December 31, 2022 and 39,568,090 as of December 31, 2021

586,946  

Additional paid-in capital

30,126  

27,246  

Retained earnings

535,915  

440,169  

Treasury stock, at cost 2,699,026 shares as of December 31, 2022 and 2,251,918 shares as of December 31, 2021

Accumulated other comprehensive (loss) income

( 52,799 )  

Accumulated other comprehensive loss

( 32,364 )  

Total stockholders’

1,178,751  

1,124,212  

Total liabilities and stockholders’

$ 9,644,948  

$ 8,129,480  

See the accompanying notes to the consolidated financial statements.

- 52 -

CONNECTONE BANCORP, INC.

11 unchanged sentences

Net interest income

(Reversal of) provision for credit losses

Provision for (reversal of) credit losses

Net interest income after provision for credit losses

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Net (losses) gains on equity securities

Net gains (losses) on sale/redemption of investment securities

Net gains on sale/redemption of investment securities

Total noninterest income

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Marketing and advertising

Data processing

Information technology and communications

Merger expenses

Loss on extinguishment of debt

Amortization of core deposit intangible

Other components of net periodic pension (income) expense

Net periodic pension income

Increase in value of acquisition price

7 unchanged sentences

See the accompanying notes to the consolidated financial statements.

- 53 -

CONNECTONE BANCORP, INC.

6 unchanged sentences

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

Reclassification adjustment for realized (gains) losses included in net income

Reclassification adjustment for realized gains included in net income

Unrealized gains (losses) on cash flow hedges

Reclassification adjustment for losses (gains) arising during this period

Unrealized pension plan (losses) gains:

Unrealized pension plan losses before reclassifications

Reclassification adjustment for (gains) losses arising during this period

Unrealized pension plan gains (losses):

Unrealized pension plan gains (losses) before reclassifications

Reclassification adjustment for realized losses included in net income

2 unchanged sentences

See the accompanying notes to the consolidated financial statements.

- 54 -

CONNECTONE BANCORP, INC.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS ’

Additional Paid

Comprehensive

Stockholders’

Preferred Stock

Additional Paid In Capital

Retained Earnings

Treasury Stock

Accumulated Other Comprehensive Income (Loss)

Total Stockholders’

Income (Loss)

(in thousands, except share and per share data)

Balance as of January 1, 2020

Other comprehensive income, net of tax

Cash dividends declared on common stock ($ 0.36 per share)

Repurchase of stock ( 540,018 shares)

Net shares issued in satisfaction of restricted stock units earned ( 4,904 shares)

Exercise of stock options ( 38,937 shares)

Restricted stock, net of forfeitures ( 56,772 shares)

Net shares issued in satisfaction of performance units earned ( 31,425 shares)

Stock issued ( 3,032,496 shares) in acquisition of GHB

Stock issued ( 119,008 shares) in acquisition of BoeFly, LLC

Stock-based compensation expense

Balance as of December 31, 2019

$ 468,571  

$ 21,344  

$ 271,782  

$ ( 29,360 )  

$ ( 1,147 )  

$ 731,190  

71,289  

Other comprehensive income, net of tax

Cash dividends declared on common stock ($ 0.27 per share)

( 11,120 )  

Repurchase of stock ( 54,693 shares)

Net shares issued in satisfaction of restricted stock units

earned ( 16,541 shares)

( 911 )  

Net shares issued in satisfaction of deferred stock units earned ( 16,541 shares)

Exercise of stock options ( 35,413 shares)

1 unchanged sentence

Stock grants issued ( 1,340 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 performance units earned ( 22,402 shares)

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

( 639 )  

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

118,375  

Stock-based compensation expense

Balance as of December 31, 2020

$ 586,946  

$ 23,887  

$ 331,951  

$ ( 30,271 )  

$ 2,797  

$ 915,310  

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

“Authoritative Accounting Guidance Presentation”), net of tax

( 2,925 )  

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

586,946  

23,887  

329,026  

( 30,271 )  

912,385  

130,353  

Other comprehensive loss, net of tax

( 4,201 )  

Cash dividends declared on preferred stock ($ 0.371875 per share)

( 1,717 )  

Cash dividends declared on common stock ($ 0.48 per share)

( 17,493 )  

Exercise of stock options ( 14,247 shares)

1 unchanged sentence

Stock grants ( 4,981 shares)

Net shares issued in satisfaction of restricted stock units earned

( 14,711 shares)

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

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

( 1,283 )  

Repurchase of stock ( 330,541 shares)

( 9,401 )  

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

110,927  

Stock-based compensation expense

Balance as of December 31, 2021

$ 110,927  

$ 586,946  

$ 27,246  

$ 440,169  

$ ( 39,672 )  

$ ( 1,404 )  

$ 1,124,212  

125,211  

Other comprehensive loss, net of tax

( 30,960 )  

Cash dividends declared on preferred stock ($ 1.3125 per share)

( 6,037 )  

Cash dividends declared on common stock ($ 0.595 per share)

( 23,428 )  

Exercise of stock options ( 15,086 shares)

Restricted stock grants, net of forfeitures ( 53,169 shares)

Stock grants ( 153 shares)

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

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

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

( 2,133 )  

Repurchase of stock ( 447,108 shares)

( 13,127 )  

Stock-based compensation expense

Balance as of December 31, 2022

$ 110,927  

$ 586,946  

$ 30,126  

$ 535,915  

$ ( 52,799 )  

$ ( 32,364 )  

$ 1,178,751  

See the accompanying notes to the consolidated financial statements.

- 55 -

CONNECTONE BANCORP, INC.

2 unchanged sentences

Years Ended December 31,

(dollars in thousands)

Cash flows from operating activities

1 unchanged sentence

Depreciation and amortization of premises and equipment

(Reversal) of provision for credit losses

Provision for (reversal of) credit losses

Amortization of intangibles

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Accretion on deposits

(Accretion) amortization on borrowings

Amortization (accretion) on borrowings

Net deferred income tax (benefit) expense

Stock-based compensation

Losses (gains) on sales/redemptions of investment securities, net

Gains on sales/redemptions of investment securities, net

Change in fair value of equity securities, net

Gains (losses) on sale of loans held-for-sale, net

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

Gain on sale of branches

Net losses on disposition of other fixed assets

Gain on sale of other real estate owned

Gain (loss) on sale of other real estate owned

Loans originated for resale

Loss on extinguishment of debt

Proceeds from sale of loans held-for-sale

Net gains on disposition of premises and equipment

Net gains on sale of other real estate owned

Increase in cash surrender value of bank owned life insurance

3 unchanged sentences

Net change in operating leases

Decrease (increase) in other assets

(Increase) decrease in other assets

Increase (decrease) in other liabilities

5 unchanged sentences

Purchases of equity securities

Sales of equity securities

Loans held-for-sale payments

Net increase in loans

Cash flow hedge premium payment

Purchases of premises and equipment

1 unchanged sentence

Proceeds from life insurance death benefits

Proceeds from disposition of fixed assets

Proceeds from sale of branches

Proceeds from sale of premises and equipment

Cash and cash equivalents acquired in acquisitions, net

6 unchanged sentences

Repayments of FHLB borrowings

( 2,762,150 )

Cash dividends paid on preferred stock

3 unchanged sentences

Proceeds from exercise of stock options

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

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

Net cash provided by financing activities

11 unchanged sentences

See the accompanying notes to the consolidated financial statements.

- 56 -

CONNECTONE BANCORP, INC.

10 unchanged sentences

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

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

(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.

25 unchanged sentences

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

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 clients, 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.

- 57 -

Although economic activity  accelerated during 2022 the COVID pandemic and changes to peoples’

patterns of work and spending may  

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.

COVID- 19 could impact the Company’s operations in the future.

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

CONNECTONE BANCORP, INC.

2 unchanged sentences

Note 1a –

Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies –

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.

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.

It is unknown how long the adverse conditions associated with the COVID-19 pandemic will last 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, fair value of financial instruments, impairment of goodwill and other intangible assets and income taxes.

Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies (continued)

On July 27, 2017, the U.K.

Financial Conduct Authority, which regulates London Interbank Offered Rate ("LIBOR"), announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR to the LIBOR administrator after 2021.

The announcement also indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021.

Consequently, although banks have continued to submit certain rates for the calculation of LIBOR in 2022, at this time, it is not possible to predict whether and to what extent banks will continue to provide LIBOR submissions to the LIBOR administrator .

Similarly, banking regulators in the United States have required insured depository institutions in the United States to cease originating loans using LIBOR as a rate index as of December 31, 2021, and in March 2022 Congress adopted legislation providing for the replacement of LIBOR indexes in contracts without fall back language with the Secured Overnight Financing Rate ("SOFR"), and for the Federal Reserve to adopt regulation by September of 2022 implementing this change.

Although the Bank ceased using LIBOR as an index for loans it originates, it is unclear at this time what effect these changes may have on the values of loans and liabilities held or owed by the Bank whose interest rates are or were tied to LIBOR.

Uncertainty surrounding the phase out  of LIBOR may adversely affect the value of, and the return on our loans, and our investment securities.

The United States economy is currently experiencing a level of price inflation not experienced since the late 1970’s and early 1980’s.

It is therefore difficult to predict the response of consumers and businesses to this level of inflation, and its impact on the economy.

In addition, in order to attempt to control and reduce the level of inflation, the Federal Reserve has embarked on a series of interest rate increases along with quantitative tightening to further constrict economic conditions.

It is unclear whether the Federal Reserve’s efforts will be successful, and what impact they may have on the United States’

It is possible that the combined effects of inflation and increases in market interest rates could cause the economy of the United States to enter a recession, which could negatively affect the businesses of our borrowers and their ability to repay their loans or need credit, which could negatively affect our results of operations.

Cash and Cash Equivalents

15 unchanged sentences

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

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a –

Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies –

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.

8 unchanged sentences

These securities are either explicitly or implicitly guaranteed by the U.S.

government, are highly rate by major agencies and have a long history of no credit losses.

government, are highly rated by major agencies and have a long history of no credit losses.

Prior to January 1, 2021, securities were evaluated on at least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary.

2 unchanged sentences

These steps were done before assessing whether the entity will recover the cost basis of the investment.

In instances when

- 58 -

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a –

Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies –

a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, FASB ASC 320-10-65 changed the presentation and amount of the other-than-temporary impairment recognized in the Consolidated Statement of Income.

In instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, FASB ASC 320 - 10 - 65 changed the presentation and amount of the other-than-temporary impairment recognized in the Consolidated Statement of Income.

The other-than-temporary impairment was separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors.

The amount of the total other-than-temporary impairment related to the credit loss was recognized through earnings.

The amount of the total other-than-temporary impairment related to all other factors was recognized through other comprehensive income.

Equity Securities

4 unchanged sentences

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

Fair value on 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.

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

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, purchase premium and discounts and an allowance for credit losses.

4 unchanged sentences

commercial, commercial real estate, commercial construction, residential real estate (including home equity) and consumer.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a –

Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies –

Loans that are 90 days past due are placed on nonaccrual and previously accrued interest is reversed and charged against interest income unless the loans are both well-secured and in the process of collection.

Past due status is based on the contractual terms of the loan.

In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

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

In certain cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

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

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income.

1 unchanged sentence

Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The policy of the Company is to generally grant commercial, residential and consumer loans to residents and businesses within its New Jersey and New York market area.

The policy of the Company is to generally grant commercial, residential and consumer loans to residents and businesses within the market-areas served by its offices in New Jersey, New York and Florida.

The borrowers’

6 unchanged sentences

Collateral and/or personal guarantees are required for a large majority of the Company’s loans.

- 59 -

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a –

Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies –

Allowance for Credit Losses

8 unchanged sentences

For financial assets, the allowance for credit losses is a valuation account that is deducted from, or added to, the amortized cost basis of the financial assets to present the net amount expected to be collected on the financial assets.

The Company 's methodology to estimate the allowance for credit losses has two components:

(i) a collective reserve component for estimated lifetime expected credit losses for pools of loans that share common risk characteristics and (ii) an individual reserve component for loans that do not share common risk characteristics.

2 unchanged sentences

The Company reports in net income (as a credit loss expense) the amount necessary to adjust the allowance for credit losses and liabilities for credit losses on off-balance-sheet credit exposures for the current estimate of expected credit losses.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a –

Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies –

Expected credit losses of financial assets are measured on a collective (pool) basis when similar risk characteristic(s) exist.

If the Company determines that a financial asset does not share risk characteristics with other financial assets, the Company shall evaluate the financial asset for expected credit losses on an individual basis.

If the Company determines that a financial asset does not share risk characteristics with other financial assets, the Company will evaluate the financial asset for expected credit losses on an individual basis.

Financial assets are assessed once, either through collective assessments or individual assessments.

17 unchanged sentences

A loan is considered for individual analysis when, based on current information and events, it is probable that the Company 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 the Company in determining individual analysis include payment status and the probability of collecting scheduled principal and interest payments.

- 60 -

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a –

Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies –

Factors considered by the Company 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 troubled debt restructurings (“TDR”) and are individually analyzed if carrying value is $ 250,000 or higher.

4 unchanged sentences

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 allowance for credit losses is determined on a loan level basis using the fair value of the collateral as of the reporting date, less estimated disposition costs (“net fair value”), which will ensure that the credit loss is not delayed until the time at which the actual foreclosure takes place.

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

In the event that this fair value is less than then amortized cost basis of these specific loans, the Company will recognize the difference between the net fair value at the reporting date and the amortized cost basis in the allowance for credit losses.

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

2 unchanged sentences

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

Note 1a –

Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies –

Purchased Credit-Deteriorated Loans

10 unchanged sentences

Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors and results in a discount or premium, which is recognized through interest income on a level-yield basis over the lives of the related loans.

All loans considered to be PCI prior to the adoption of ASU 2016-13 were converted to PCD upon adoption.

All loans considered to be purchased credit-impaired (PCI) prior to the adoption of ASU 2016 - 13 were converted to PCD upon adoption.

PCD loans that met the criteria for nonaccrual may be considered performing, regardless of whether the client is contractually delinquent, if management can reasonably estimate the timing and amount of the expected cash flows on such loans and if management expects to fully collect the new carrying value of the loans.

As such, management may no longer consider the loans to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable discount.

The Company records cash flow hedges at the inception of the derivative contract based on the Company’s intentions and belief as to likely effectiveness as a hedge.

Cash flow hedges represent a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability.

For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings.

The changes in the fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings.

Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, as noninterest income.

- 61 -

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a –

Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies –

The Company’s quantitative analysis also considers relevant available information from internal and external sources related to past events and current conditions, as well as the incorporation of reasonable and supportable forecasts.

The Company evaluates a variety of factors including third party economic forecasts, industry trends and other available published economic information in arriving at its forecasts.

After the reasonable and supportable forecast period, the Company reverts, on a straight-line basis, to average historical economic driver conditions.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.

Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged.

7 unchanged sentences

When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions will affect earnings.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a –

Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies –

Restricted Stock

18 unchanged sentences

The Company has elected not to recognize leases with original terms of 12 months or less on the consolidated balance sheet.

- 62 -

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a –

Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies –

Other Real Estate Owned

7 unchanged sentences

The costs associated with the plan are accrued based on actuarial assumptions and included in salaries and employee benefits expense.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a –

Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies –

The Company accounts for its defined benefit pension plan in accordance with FASB ASC 715 - 30.

12 unchanged sentences

Treasury Stock

Subject to limitations applicable to the Parent Corporation, treasury stock purchases may be made from time to time as, in the opinion of management, market conditions warrant, in the open market or in privately negotiated transactions.

Subject to certain regulatory limitations applicable to the Parent Corporation, treasury stock purchases may be made from time to time as, in the opinion of management, market conditions warrant, in the open market or in privately negotiated transactions.

Shares repurchased are added to the corporate treasury and will be used for future stock dividends and other issuances.

1 unchanged sentence

Treasury stock is recorded using the cost method and accordingly is presented as a reduction of stockholders’

During the year ended December 31, 2021 and December 31, 2020, the Parent Corporation repurchased 330,541 and 54,693 shares, respectively, under a board-approved share repurchase program.

During the year ended December 31, 2022 and December 31, 2021, the Parent Corporation repurchased 447,108  and 330,541  shares, respectively, under a board-approved share repurchase program.

Goodwill arises from business combinations and is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.

2 unchanged sentences

No impairment charge was deemed necessary as of the years ended December 31, 2022, 2021 and 2020 .

- 63 -

CONNECTONE BANCORP, INC.

30 unchanged sentences

Reclassifications

Certain reclassifications have been made in the consolidated financial statements and footnotes for 2020 and 2019 to conform to the classifications presented in 2021.

Certain reclassifications have been made in the consolidated financial statements and footnotes for 

2021 and 

2020 to conform to the classifications presented in 2022 .

Such reclassifications had no impact on net income or stockholders’

- 64 -

CONNECTONE BANCORP, INC.

4 unchanged sentences

Adoption of New Accounting Standards in 2023

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 Statement of Condition

Change to Retained Earnings 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

(1) 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.

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 statement.

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.

ASU 2021-01 “Reference Rate Reform (Topic 848)”

In January 2021 the Financial Accounting Standards Board (the “FASB”), issued ASU 2021-01 to clarify the scope of ASU 2020-04, “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting”.

ASU 2020-04 provides temporary, optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships that reference the London Interbank Offered Rate or another reference rate that is expected to be discontinued.

The ASU addresses questions about whether Topic 848 can be applied to derivative instruments that do not reference a rate that is expected to be discontinued but that use an interest rate for margining, discounting, or contract price alignment that is expected to be modified as a result of reference rate reform, commonly referred to as the “discounting transition”.

The amendments clarify that certain optional expedients and exceptions in Topic 848 do apply to derivatives that are affected by the discounting transition.

The amendments in ASU 2021-01 are effective immediately for all entities.

The amendments do not apply to contract modifications made after December 31, 2022;

new hedging relationships entered into after December 31, 2022;

and existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship, including periods after December 31, 2022.

The Company adopted ASU 2021-01 in January 2021, and its adoption did not have a significant impact on the Company’s audited consolidated financial statements.

- 65 -

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 Cost”.

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 adoption of ASU 2022 - 02 did not have a material effect on the Company’s consolidated financial statements.

Newly Issued, But Not Yet Effective Accounting Standards

In June 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022 - 03, “Fair Value Measurement (Topic 820 ):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”

(“ASU 2022 - 03”

ASU 2022 - 03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. 

ASU 2022 - 03 is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted.

The Company is evaluating the effect that ASU 2022 - 03 will have on its consolidated financial statements.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1b –

Authoritative Accounting Guidance –

Newly Issued, But Not Yet Effective Accounting Standards

In November 2020, federal and state banking regulators issued the “Interagency Policy Statement on Reference Rates for Loans"

to reiterate that a specific replacement rate for loans impacted by reference rate reform has not been endorsed and entities may utilize any replacement reference rate determined to be appropriate based on its funding model and customer needs.

As discussed in the “Interagency Policy Statement on Reference Rates for Loans,"

fallback language should be included in lending contracts to provide for use of a robust fallback rate if the initial reference rate is discontinued.

Additionally, federal banking regulators issued the "Interagency Statement on LIBOR Transition"

acknowledging that the administrator of USD London Interbank Offered Rate (LIBOR) benchmarks has announced it will consult on its intention to cease the publication of the one week and two month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021, and the remaining USD LIBOR settings immediately following the LIBOR publication on June 30, 2023.

On March 5, 2021, the administrator of USD LIBOR benchmarks confirmed these dates and will cease publication of USD LIBOR tenors accordingly.

As discussed in the "Interagency Statement on LIBOR Transition,"

regulators encouraged banks to cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021, in order to facilitate an orderly, safe and sound LIBOR transition.

The Company continues to monitor efforts and evaluate the impact of reference rate reform on its consolidated financial statements;

however, the impact is not expected to be significant.

Note 2 –

8 unchanged sentences

Net income available to common stockholders

$ 119,174  

$ 128,636  

$ 71,289  

Earnings allocated to participating securities

( 287 )  

( 313 )  

Income attributable to common stock

$ 118,887  

$ 128,323  

$ 70,933  

Weighted average common shares outstanding, including participating securities

39,355  

39,723  

39,643  

Weighted average participating securities

( 95 )  

( 97 )  

Weighted average common shares outstanding

Incremental shares from assumed conversions of options, restricted stock units, performance units and restricted stock

39,260  

39,626  

39,512  

Incremental shares from assumed conversions of options, deferred stock units, performance units and restricted stock

Weighted average common and equivalent shares outstanding

39,476  

39,886  

39,644  

Earnings per common share:

$ 3.03  

$ 3.24  

$ 1.80  

There were no antidilutive common share equivalents as of December 31, 2022, 2021 and 2020 .

- 66 -

CONNECTONE BANCORP, INC.

9 unchanged sentences

See Note 20 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 December 31, 2021 and 2020.

The following tables present information related to the Company’s portfolio of investment securities available-for-sale as of December 31, 2022 and 2021 .

(dollars in thousands)

2 unchanged sentences

Federal agency obligations

$ 54,889  

$ ( 10,439 )  

$ 44,450  

Residential mortgage pass-through securities

475,263  

( 57,863 )  

417,578  

Commercial mortgage pass-through securities

25,485  

( 4,381 )  

21,104  

Obligations of U.S.

states and political subdivisions

157,247  

( 14,462 )  

142,896  

Corporate bonds and notes

( 26 )  

Asset-backed securities

Certificates of deposit

( 33 )  

Other securities

Total securities available-for-sale

$ 721,799  

$ ( 87,204 )  

$ 634,884  

(dollars in thousands)

2 unchanged sentences

Federal agency obligations

$ 50,336  

$ ( 625 )  

$ 50,360  

Residential mortgage pass-through securities

317,111  

( 2,884 )  

316,095  

Commercial mortgage pass-through securities

10,814  

( 463 )  

10,469  

Obligations of U.S.

states and political subdivisions

145,045  

( 982 )  

145,625  

Corporate bonds and notes

3 unchanged sentences

Total securities available-for-sale

- 67 -

$ 535,182  

$ 4,281  

$ ( 4,956 )  

$ 534,507  

CONNECTONE BANCORP, INC.

3 unchanged sentences

Investment Securities –

Investment securities having a carrying value of approximately $ 71.2 million and $ 107.6 million as of December 31, 2021 and December 31, 2020, respectively, were pledged to secure public deposits, borrowings, Federal Reserve Discount Window borrowings and Federal Home Loan Bank advances and for other purposes required or permitted by law.

Investment securities having a carrying value of approximately $ 157 million and $ 71  million as of December 31, 2022 and December 31, 2021, respectively, were pledged to secure public deposits, borrowings, Federal Reserve Discount Window borrowings and Federal Home Loan Bank advances and for other purposes required or permitted by law.

As of December 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’

The following table presents information for investments in securities available-for-sale as of December 31, 2021, based on scheduled maturities.

The following table presents information for investment securities available-for-sale as of December 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.

4 unchanged sentences

Due in one year or less

$ 5,453  

$ 5,451  

Due after one year through five years

1 unchanged sentence

Due after ten years

209,003  

184,183  

Residential mortgage pass-through securities

475,263  

417,578  

Commercial mortgage pass-through securities

25,485  

21,104  

Other securities

Total securities available-for-sale

$ 721,799  

$ 634,884  

Gross gains and losses from the sales and redemptions of investment securities for the years ended December 31, 2022, 2021 and 2020 were as follows:

1 unchanged sentence

(dollars in thousands)

Gross gains on sales/redemptions of investment securities

Gross losses on sales/redemptions of investment securities

Net gains (losses) on sales/redemptions of investment securities

$ 5,185  

$ 19,624  

Gross gains on sale/redemption of investment securities

Gross losses on sale/redemption of investment securities

Net gains on sales/redemptions of investment securities

Tax provision on net gains

Net gains (losses) on sales/redemptions of investment securities, after tax

- 68 -

( 48 )  

Net gains on sale/redemption of investment securities, after tax

CONNECTONE BANCORP, INC.

8 unchanged sentences

12 Months or Longer

Unrealized Losses

Unrealized  

(dollars in thousands)

1 unchanged sentence

Federal agency obligation

$ 44,451  

$ ( 10,439 )  

$ 20,517  

$ ( 1,831 )  

$ 23,934  

Residential mortgage pass-through securities

403,039  

( 57,863 )  

218,918  

( 13,869 )  

184,121  

Commercial mortgage pass-through securities

21,105  

( 4,381 )  

14,523  

( 2,304 )  

Obligations of U.S.

states and political subdivisions

133,265  

( 14,462 )  

47,446  

( 3,404 )  

85,819  

Corporate bonds and notes

( 26 )  

Asset-backed securities

( 33 )  

( 16 )  

Total temporarily impaired securities

$ 608,473  

$ ( 87,204 )  

$ 307,425  

$ ( 21,450 )  

$ 301,048  

December 31, 2021

4 unchanged sentences

Federal agency obligation

$ 28,974  

$ ( 625 )  

$ 28,974  

$ ( 625 )  

Residential mortgage pass-through securities

246,396  

( 2,884 )  

214,701  

( 2,111 )  

31,695  

Commercial mortgage pass-through securities

Corporate bonds and notes

( 463 )  

( 75 )  

Obligations of U.S.

states and political subdivisions

89,473  

( 982 )  

89,473  

( 982 )  

Asset-backed securities

Total temporarily impaired securities

$ 374,015  

$ ( 4,956 )  

$ 338,632  

$ ( 3,795 )  

$ 35,383  

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.

2 unchanged sentences

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 December 31, 2021 and December 31, 2020, totaled $ 1.6 million and $ 1.7 million, respectively.

- 69 -

Accrued interest receivable for investment securities available for sale as of December 31, 2022 and December 31, 2021 , totaled $ 2.4  million and $ 1.6  million, respectively.

CONNECTONE BANCORP, INC.

21 unchanged sentences

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

- 70 -

CONNECTONE BANCORP, INC.

4 unchanged sentences

Loans Receivable:

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

The following table sets forth the composition of the Company’s loan portfolio segments, net of deferred fees, as of December 31, 2022 and December 31, 2021 :

(dollars in thousands)

Commercial (1)

$ 1,472,734  

$ 1,299,428  

Commercial real estate

5,795,228  

4,741,590  

Commercial construction

574,139  

540,178  

Residential real estate

264,748  

255,269  

8,109,161  

6,838,351  

Net deferred fees

( 9,472 )  

Loans receivable

Included in commercial loans as of December 31, 2021 and December 31, 2020 were Paycheck Protection Program (“PPP”) loans of $ 93.1 million and $ 397.5 million, respectively.

$ 8,099,689  

$ 6,828,622  

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

December 31, 2021 were Paycheck Protection Program (“PPP”) loans of $ 11.4  million and $ 93.1  million, respectively.

These loans are 100% federally guaranteed and currently not subject to any allocation of allowance for credit losses.

As of December 31, 2021, and 2020, loan balances of approximately $ 2.5 billion and $ 2.7 billion, respectively, were pledged to secure borrowings from the Federal Home Loan Bank.

As of December 31, 2022 , and 2021 , loan balances of approximately $ 2.7  billion and $ 2.5  billion, respectively, were pledged to secure borrowings from the Federal Home Loan Bank.

The loan segments in the above table have unique risk characteristics with respect to credit quality:

1 unchanged sentence

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

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.

Payment on commercial real estate 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.

5 unchanged sentences

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

- 71 -

CONNECTONE BANCORP, INC.

6 unchanged sentences

(dollars in thousands)

Commercial real estate

Residential mortgage

$ 13,473  

Residential real estate

Total carrying amount

Loans Receivable on Nonaccrual Status - The following tables present nonaccrual loans with an allowance for credit loss (“ACL”) as of December 31, 2021 and nonaccrual loans without an ACL as of December 31, 2021:

$ 13,772  

Loans Receivable on Nonaccrual Status - The following tables present nonaccrual loans with an allowance for credit loss (“ACL”) as of December 31, 2022 and December 31, 2021 and nonaccrual loans without an ACL as of December 31, 2022 and December 31, 2021:

December 31, 2022

3 unchanged sentences

(dollars in thousands)

$ 23,512  

$ 1,745  

$ 25,257  

Commercial real estate

Commercial construction

10,220  

16,817  

Residential real estate

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

$ 34,336  

$ 10,118  

$ 44,454  

December 31, 2021

Nonaccrual loans with ACL

Nonaccrual loans without ACL

Total Nonaccrual loans

(dollars in thousands)

$ 28,746  

$ 1,316  

$ 30,062  

Commercial real estate

15,362  

10,031  

25,393  

Commercial construction

Residential real estate

Total nonaccrual loans

$ 45,347  

$ 16,353  

$ 61,700  

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

- 72 -

CONNECTONE BANCORP, INC.

19 unchanged sentences

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

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 –

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.

2 unchanged sentences

Term loans amortized cost basis by origination year

$ 301,636  

$ 305,721  

$ 47,952  

$ 28,177  

$ 52,950  

$ 127,739  

$ 550,483  

$ 1,414,658  

Special mention

12,452  

11,214  

22,596  

45,624  

Total Commercial

$ 309,251  

$ 305,867  

$ 47,967  

$ 30,529  

$ 64,190  

$ 158,886  

$ 556,044  

$ 1,472,734  

Commercial Real Estate

$ 1,571,751  

$ 1,608,023  

$ 382,987  

$ 358,578  

$ 375,886  

$ 987,982  

$ 401,365  

$ 5,686,572  

Special mention

37,774  

49,653  

19,138  

23,287  

59,003  

Total Commercial Real Estate

$ 1,574,791  

$ 1,609,952  

$ 382,987  

$ 365,104  

$ 395,024  

$ 1,049,043  

$ 418,327  

$ 5,795,228  

Commercial Construction

$ 8,615  

$ 7,605  

$ 6,720  

$ 542,460  

$ 565,908  

Special mention

Total Commercial Construction

$ 8,615  

$ 7,605  

$ 6,720  

$ 550,691  

$ 574,139  

Residential Real Estate

$ 45,926  

$ 25,318  

$ 24,409  

$ 21,557  

$ 20,284  

$ 78,314  

$ 41,468  

$ 257,276  

Special mention

Total Residential Real Estate

$ 45,926  

$ 25,318  

$ 24,409  

$ 21,557  

$ 20,284  

$ 81,693  

$ 45,561  

$ 264,748  

$ 2,219  

$ 2,312  

Special mention

Total Consumer

$ 2,219  

$ 2,312  

$ 1,930,147  

$ 1,946,667  

$ 462,077  

$ 408,820  

$ 449,120  

$ 1,194,037  

$ 1,535,858  

$ 7,926,726  

Special mention

- 73 -

46,325  

12,131  

62,105  

30,352  

49,262  

22,716  

120,330  

$ 1,940,802  

$ 1,948,742  

$ 462,092  

$ 417,698  

$ 479,498  

$ 1,289,624  

$ 1,570,705  

$ 8,109,161  

CONNECTONE BANCORP, INC.

3 unchanged sentences

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

As of December 31, 2021, our loans based on year of origination and risk designation are as follows (dollars in thousands):

$ 403,203  

$ 58,534  

$ 54,485  

$ 60,409  

$ 95,727  

$ 86,556  

$ 471,588  

$ 1,230,502  

Special mention

(dollars in thousands)

Commercial real estate

Commercial construction

Residential real estate

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 December 31, 2021:

December 31, 2021

(dollars in thousands)

13,298  

21,024  

14,540  

60,614  

Total Commercial

$ 403,373  

$ 58,534  

$ 56,327  

$ 73,707  

$ 105,468  

$ 111,625  

$ 490,394  

$ 1,299,428  

Commercial Real Estate

$ 1,692,098  

$ 533,315  

$ 420,995  

$ 452,262  

$ 497,065  

$ 842,244  

$ 170,721  

$ 4,608,700  

Special mention

50,438  

62,181  

20,624  

26,108  

70,709  

Total Commercial Real Estate

$ 1,694,066  

$ 542,354  

$ 425,001  

$ 472,886  

$ 502,207  

$ 918,790  

$ 186,286  

$ 4,741,590  

Commercial Construction

$ 8,018  

$ 7,370  

$ 12,625  

$ 2,600  

$ 2,339  

$ 490,119  

$ 523,071  

Special mention

15,314  

Total Commercial Construction

$ 8,018  

$ 7,370  

$ 12,625  

$ 2,600  

$ 2,689  

$ 506,876  

$ 540,178  

Residential Real Estate

- 74 -

$ 27,081  

$ 29,539  

$ 23,611  

$ 25,070  

$ 28,701  

$ 66,249  

$ 44,221  

$ 244,472  

Special mention

10,797  

Total Residential Real Estate

$ 27,081  

$ 29,539  

$ 23,611  

$ 25,070  

$ 28,701  

$ 73,511  

$ 47,756  

$ 255,269  

$ 1,590  

$ 1,886  

Special mention

Total Consumer

$ 1,590  

$ 1,886  

$ 2,131,990  

$ 628,843  

$ 511,755  

$ 540,362  

$ 623,860  

$ 995,049  

$ 1,176,772  

$ 6,608,631  

Special mention

54,483  

12,310  

72,286  

33,922  

54,394  

42,353  

157,434  

$ 2,134,128  

$ 637,882  

$ 517,603  

$ 574,284  

$ 639,093  

$ 1,103,926  

$ 1,231,435  

$ 6,838,351  

CONNECTONE BANCORP, INC.

3 unchanged sentences

Loans and the Allowance for Credit Losses –

Impaired loans - Impaired loans disclosures presented below as of December 31, 2020 and as of and for the three and twelve months ended December 31, 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.

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 December 31, 2022 and 2021:

December 31, 2022

No Related Allowance Recorded

Recorded Investment

Unpaid Principal Balance

Related Allowance

Average Recorded Investment

Interest Income Recognized

(dollars in thousands)

$ 5,352  

$ 22,517  

$ 27,869  

Commercial real estate

52,477  

Commercial construction

Residential real estate

With An Allowance Recorded

Commercial real estate

$ 71,925  

$ 22,517  

$ 94,442  

December 31, 2021

(dollars in thousands)

$ 6,385  

$ 26,182  

$ 32,567  

Commercial real estate

55,244  

Commercial construction

13,196  

Residential real estate

Total (including related

- 75 -

$ 83,681  

$ 26,182  

$ 109,863  

CONNECTONE BANCORP, INC.

3 unchanged sentences

Loans and the Allowance for Credit Losses –

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

Aging Analysis - The following table provides an analysis of the aging of the loans by class, excluding the effect of net deferred fees, which are past due as of December 31, 2022 and 

December 31, 2021 (dollars in thousands):

December 31, 2022

3 unchanged sentences

Total Past Due and Nonaccrual

$ 25,257  

$ 25,563  

$ 1,447,171  

$ 1,472,734  

Commercial real Estate

16,817  

22,498  

5,772,730  

5,795,228  

Commercial construction

574,139  

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.

260,799  

264,748  

$ 1,965  

$ 5,591  

$ 44,454  

$ 52,010  

$ 8,057,151  

$ 8,109,161  

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

December 31, 2021

4 unchanged sentences

Total Loans Receivable

$ 4,305  

$ 4,457  

$ 30,062  

$ 39,553  

$ 1,259,875  

$ 1,299,428  

Commercial real estate

25,393  

33,959  

4,707,631  

4,741,590  

Commercial construction

537,028  

540,178  

Residential real estate

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

- 76 -

247,306  

255,269  

$ 7,364  

$ 2,030  

$ 13,531  

$ 61,700  

$ 84,625  

$ 6,753,726  

$ 6,838,351  

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

CONNECTONE BANCORP, INC.

3 unchanged sentences

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 allowance for credit losses for loans that are allocated to each loan portfolio segment.

“Prior to January 1, 2021, the allowance for loan losses is based on a calculation methodology disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.”

The following tables detail the amount of gross loans that are individually evaluated for impairment, collectively evaluated for impairment, and loans acquired with deteriorated quality, and the related portion of the allowance for credit losses for loans that are allocated to each loan portfolio segment.

December 31, 2022

5 unchanged sentences

Individually evaluated

$ 7,426  

$ 1,003  

$ 8,479  

Collectively evaluated

19,319  

50,818  

77,955  

Acquired with deteriorated credit quality individually analyzed

$ 28,903  

$ 53,742  

$ 3,718  

$ 4,143  

$ 90,513  

Individually evaluated

$ 30,994  

$ 46,886  

$ 8,232  

$ 5,864  

$ 91,976  

Collectively evaluated

1,436,866  

5,742,751  

565,907  

258,884  

8,006,720  

Acquired with deteriorated credit quality individually analyzed

10,465  

$ 1,472,734  

$ 5,795,228  

$ 574,139  

$ 264,748  

$ 2,312  

$ 8,109,161  

December 31, 2021

3 unchanged sentences

(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

- 77 -

Allowance for credit losses - loans

Individually evaluated

$ 15,131  

$ 16,217  

Collectively evaluated

42,713  

58,358  

Acquired with deteriorated credit quality individually analyzed

$ 25,969  

$ 45,589  

$ 3,580  

$ 3,628  

$ 78,773  

Individually evaluated

$ 33,726  

$ 49,310  

$ 13,196  

$ 5,717  

$ 101,949  

Collectively evaluated

1,260,537  

4,686,346  

526,982  

246,413  

6,722,164  

Acquired with deteriorated credit quality individually analyzed

14,238  

$ 1,299,428  

$ 4,741,590  

$ 540,178  

$ 255,269  

$ 1,886  

$ 6,838,351  

CONNECTONE BANCORP, INC.

9 unchanged sentences

Balance as of January 1, 2022

Day 1 Adjustment CECL

Balance as of January 1, 2021

Loan charge-offs

Provision for (reversal of) credit losses

$ 25,969  

$ 45,589  

$ 3,580  

$ 3,628  

$ 78,773  

( 2,612 )  

( 2,819 )  

Provision for credit losses

10,972  

17,066  

Balance as of December 31, 2022

$ 28,903  

$ 53,742  

$ 3,718  

$ 4,143  

$ 90,513  

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 allowance for credit losses.

6 unchanged sentences

Balance as of January 1, 2021

Loan charge-offs

Provision for loan losses

$ 28,443  

$ 39,330  

$ 8,194  

$ 2,687  

$ 79,226  

Day 1 Adjustment CECL

( 4,225 )  

( 961 )  

( 568 )  

Balance as of January 1, 2021

24,218  

48,935  

85,783  

( 382 )  

( 1,780 )  

( 235 )  

Provision for (reversal of) credit losses

( 1,651 )  

( 3,653 )  

( 1,541 )  

( 17 )  

Balance as of December 31, 2021

$ 25,969  

$ 45,589  

$ 3,580  

$ 3,628  

$ 78,773  

Commercial real estate

3 unchanged sentences

Balance as of January 1, 2020

Loan charge-offs

$ 8,349  

$ 20,853  

$ 7,304  

$ 1,685  

$ 38,293  

( 552 )  

( 341 )  

Provision for loan losses

20,642  

17,675  

41,000  

Balance as of December 31, 2020

$ 28,443  

$ 39,330  

$ 8,194  

$ 2,687  

$ 79,226  

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 –

Loans and the Allowance for Credit Losses –

Troubled Debt Restructurings

5 unchanged sentences

As of December 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 a TDR.

- 78 -

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 –

Loans and the Allowance for Credit Losses –

As of December 31, 2022, TDRs totaled $ 75.1 million, of which $ 23.7 million were on nonaccrual status and $ 51.4 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 $ 10.4 million and $- 0 - of specific allowance related to TDRs as of December 31, 2021 and December 31, 2020, respectively.

As of December 31, 2021, TDRs totaled $ 79.5  million, of which $ 35.9  million were on nonaccrual status and $ 43.6  million were classified as accruing and were performing under their restructured terms.

The Company has allocated $ 4.2  million and $ 10.4 million of specific allowance related to TDRs as of December 31, 2022 and December 31, 2021, respectively.

There were no TDRs for which there was a payment default within twelve months following the modification during the year ended December 31, 2022, 2021 and 2020.

The following table presents loans by class modified as TDRs that occurred during the year ended December 31, 2021:

The following table presents loans by class modified as TDRs during the year ended December 31, 2022 :

Pre-Modification

3 unchanged sentences

Commercial real estate

Commercial construction

12,083  

11,583  

Residential real estate

The loans modified as TDRs during the year ended December 31, 2021 included maturity extensions and interest rate reductions.

The following table presents loans by class modified as TDRs that occurred during year ended December 31, 2020

$ 13,665  

$ 13,165  

The loans modified as TDRs during the year ended December 31, 2022 included maturity extensions and interest rate reductions. 

One of the commercial real estate loans included a one -time principal paydown of $ 500,000 at the time of modification. 

The eight loans modified during the year ended December 31, 2022 resulted in a $ 0.3 million increase to the allowance for credit losses at the time of their modification.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 –

Loans and the Allowance for Credit Losses –

The following table presents loans by class modified as TDRs during the year ended December 31, 2021

Pre-Modification

2 unchanged sentences

Troubled debt restructurings:

$ 1,276  

Commercial real estate

35,635  

Commercial construction

Residential real estate

The five loan modifications during the year ended December 31, 2020 were maturity extensions:

The following table presents loans by class modified as TDRs that occurred during the year ended December 31, 2019:

$ 40,310  

The loans modified as TDRs during the year ended December 31, 2021 

included maturity extensions and interest rate reductions. 

The following table presents loans by class modified as TDRs during the year ended December 31, 2020 :

Pre-Modification

4 unchanged sentences

Commercial construction

- 79 -

Residential real estate

$ 6,486  

The five loan modifications during the year ended December 31, 2020 were maturity extensions. 

CONNECTONE BANCORP, INC.

3 unchanged sentences

Loans and the Allowance for Credit Losses –

Included in the commercial loan segment of the troubled debt restructurings is one taxi medallion loan totaling $ 0.3 million.

This taxi medallion loan was on nonaccrual status prior to modification and will remain on nonaccrual status post-modification.

All loan modifications during the year ended December 31, 2019 included interest rate reductions and/or maturity extensions.

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 clients 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 December 31, 2021, the Bank had 1 deferred loan outstanding totaling $ 0.5 million, compared to 113 deferred loans totaling $ 207.1 million as of December 31, 2020 that were not considered TDRs.

Allowance for Credit Losses for Unfunded Commitments

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

The Company has recorded an ACL for unfunded credit commitments, which is 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 allowance for credit losses for unfunded commitments for the year ended December 31, 2021 (dollars in thousands):

Year Ended December 31, 2021

The following table presents the allowance for credit losses for unfunded commitments for the year ended December 31, 2022  and 2021 (dollars in thousands):

Balance as of beginning of period

$ 2,351  

Day 1 Effect of CECL

1 unchanged sentence

Balance as of end of period

$ 3,035  

$ 2,351  

Components of (Reversal of) Provision for Credit Losses

The following table summarizes the provision for (reversal of) provision for credit losses for the year ended December 31, 2021 (dollars in thousands):

Year Ended December 31, 2021

The following table summarizes the provision for (reversal of) provision for credit losses for the year ended December 31, 2022 and 2021 (dollars in thousands):

Provision for (reversal of) credit losses - loans

$ 17,066  

Provision for (reversal of) credit losses - unfunded commitments

Provision for (reversal of) credit losses

- 80 -

$ 17,750  

CONNECTONE BANCORP, INC.

3 unchanged sentences

Premises and Equipment

Premises and equipment are summarized as follows:

Premises and equipment are summarized as follows December 31, 2022 and 2021 :

(dollars in thousands)

$ 6,732  

$ 7,232  

10 - 25  

10,509  

Furniture, fixtures and equipment

24,830  

24,137  

Leasehold improvements

10 - 20  

25,164  

27,343  

66,523  

69,221  

accumulated depreciation, amortization and fair value adjustments

38,723  

40,189  

Total premises and equipment, net

Depreciation and amortization expense of premises and equipment was $ 3.8 million, $ 4.2 million and $ 3.1 million for 2021, 2020 and 2019, respectively.

$ 27,800  

$ 29,032  

Depreciation and amortization expense of premises and equipment was $ 3.9  million, $ 3.8  million and $ 4.2  million for 2022 , 

2021 and 2020 , respectively.

Finance Leases :

The Company acquired a lease agreement for a building under a finance lease.

The Company has a lease agreement for a building accounted for as a finance lease.

The lease arrangement requires monthly payments through 2028.

The Company has included this lease in premises and equipment as follows:

 As of December 31, 2022, the weighted average remaining term for the finance lease was 5.9 years and the weighted average discount rate used in the measurement of finance lease liabilities was 6.0 %.

Total finance lease costs for the year ended December 31, 2022, was $ 280 thousand.

The Company has included this lease in premises and equipment as follows December 31, 2022 and 2021 :

(dollars in thousands)

Capital Lease

Finance lease

$ 3,423  

accumulated amortization

$ 1,028  

$ 1,199  

The following is a schedule by year of future minimum lease payments under the finance lease, together with the present value of net minimum lease payments as of December 31, 2022 (dollars in thousands):

2 unchanged sentences

Present value of net minimum lease payments

- 81 -

$ 1,733  

CONNECTONE BANCORP, INC.

4 unchanged sentences

The Company leases certain premises and equipment under operating leases.

As of December 31, 2021, the Company had lease liabilities totaling $12.4 million and right-of-use assets totaling $11.0 million.

As of December 31, 2021, the weighted average remaining lease term for operating leases was 5.8 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.8 %.

Total lease costs for the year ended December 31, 2021 was $ 3.2 million.

As of December 31, 2022 , the Company had lease liabilities totaling $ 11.4  million and right-of-use assets totaling $ 10.2  million.

As of December 31, 2022 , the weighted average remaining lease term for operating leases was 5  years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.8 %.

Total lease costs for the year ended December 31, 2022 was $ 3.2  million.

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability is as follows:

2 unchanged sentences

Less than 1 year

$ 2,958  

1 year through less than 2 years

4 unchanged sentences

Total undiscounted cash flows

12,313  

Impact of discounting

Total lease liability

$ 11,397  

Note 6 –

11 unchanged sentences

Balance, January 1

$ 208,372  

Acquired goodwill

Balance, December 31

- 82 -

$ 208,372  

CONNECTONE BANCORP, INC.

8 unchanged sentences

December 31, 2022

$ 18,515  

$ ( 11,203 )  

$ 7,312  

Core deposit intangibles

December 31, 2021

Aggregate amortization expense was approximately $2.0 million, $2.6 million and $1.4 million for 2021, 2020 and 2019, respectively.

$ 18,515  

$ ( 9,518 )  

$ 8,997  

Aggregate amortization expense was approximately $ 1.7  million, $ 2.0  million and $ 2.6  million for 2022 , 

2021 and 2020 , respectively.

Estimated amortization expense for each of the next five years (dollars in thousands):

$ 1,438  

Note 7 –

Time Deposits

As of December 31, 2021, and 2020, the Company's total time deposits were $ 1.2 billion and $ 1.5 billion, respectively.

Included in time deposits were nonreciprocal brokered time deposits of $ 215.2 million and $ 217.5 million as of December 31, 2021 and 2020, respectively.

As of December 31, 2022 , and 2021 , the Company's total time deposits were $ 2.4  billion and $ 1.2  billion, respectively.

Included in time deposits were gross nonreciprocal brokered time deposits of $ 934.9  million and $ 215.2  million as of December 31, 2022 and 2021 , respectively.

As of December 31, 2022 , the contractual maturities of these time deposits were as follows (dollars in thousands):

Fair value premium

The amount of time deposits with balances in excess of $250,000 were $ 250.5 million and $ 368.3 million as of December 31, 2021 and 2020, respectively.

- 83 -

$ 1,571,746  

502,172  

112,106  

169,440  

40,179  

Time Deposits (before net discount)

$ 2,395,643  

Fair value net discount

Total Time Deposits (after net discount)

$ 2,394,190  

The amount of time deposits with balances in excess of $250,000 were $ 591.8  million and $ 250.5  million as of December 31, 2022 and 2021 , respectively.

CONNECTONE BANCORP, INC.

9 unchanged sentences

Less than 1 year

$ 830,000  

4.42 %  

$ 390,549  

1 year through less than 2 years

50,000  

2 years through less than 3 years

25,000  

3 years through less than 4 years

25,000  

4 years through 5 years

After 5 Years

FHLB borrowings - gross

Fair value (discount) premium

Total FHLB borrowings

FHLB borrowings - (before discount)

857,702  

4.32 %  

468,313  

Fair value discount

( 80 )  

( 120 )  

FHLB borrowings (after discount)

$ 857,622  

$ 468,193  

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

2 unchanged sentences

All FHLB advances have fixed rates.

The advances as of December 31, 2021 were primarily collateralized by approximately $ 1.9 billion of commercial mortgage and residential loans, net of required over collateralization amounts, under a blanket lien arrangement.

As of December 31, 2021, the Company had remaining borrowing capacity of approximately $ 867.3 million at the FHLB.

- 84 -

The advances as of December 31, 2022 were primarily collateralized by approximately $ 2.7  billion of commercial mortgage and residential loans, net of required over collateralization amounts, under a blanket lien arrangement.

As of December 31, 2022 , the Company had remaining borrowing capacity of approximately $ 498.9  million at the FHLB.

CONNECTONE BANCORP, INC.

18 unchanged sentences

Liquidation Value

Redeemable by Issuer Beginning

Redeemable by Issuer

$ 5,000,000  

$1,000 per Capital Security

5 unchanged sentences

On January 11, 2018, the Parent Corporation issued $ 75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2018 Notes”).

The 2018 Notes bear interest at 5.20 % annually from, and including, the date of initial issuance to, but excluding, February 1, 2023 , payable semi-annually in arrears.

From and including February 1, 2023 through maturity or earlier redemption, the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month LIBOR rate plus 284 basis points ( 2.84 %) payable quarterly in arrears.

If three-month LIBOR is not available for any reason, then the rate for that interest period will be determined by such alternate method as provided in the Supplemental Indenture.

Interest on the 2018 Notes will be paid on February 1, and August 1, commencing August 1, 2018 to but not including February 1, 2023, and from and including February 1, 2023, on February 1, May 1, August 1, and November 1, of each year to but excluding the stated maturity date, unless in any case previously redeemed.

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

The 2018 Notes bore interest at  a rate that  resets quarterly to an interest rate per annum equal to the then current three -month LIBOR rate plus 284 basis points ( 2.84% ) payable quarterly in arrears.

Interest on the 2018 Notes was to be  paid on  on February 1, May 1, August 1, and November 1, of each year to but excluding the stated maturity date, unless in any case previously redeemed.

The 2018 Notes were redeemed in full on February 1, 2023.

During June 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 had a stated maturity of July 1, 2025, and bore 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, 2021, 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.

- 85 -

As of December 31, 2020, the variable interest rate was 4.16 %, all costs related to 2015 issuance had been amortized and the 2015 Notes were redeemed in full on January 1, 2021.

CONNECTONE BANCORP, INC.

2 unchanged sentences

Note 10 –

The current and deferred amounts of income tax expense for December 2021, 2020 and 2019 are as follows (dollars in thousands):

The current and deferred amounts of income tax expense for December 2022 , 

2021 and 

2020 are as follows (dollars in thousands):

$ 33,169  

$ 32,364  

$ 19,590  

13,247  

12,325  

46,416  

44,689  

26,596  

( 3,353 )  

( 110 )  

( 403 )  

Income tax expense

$ 46,013  

$ 44,705  

$ 19,101  

On July 1, 2018 New Jersey Governor Phil Murphy signed Assembly Bill 4202 (“the Bill”) into law.

4 unchanged sentences

Income before income tax expense

$ 171,224  

$ 175,058  

$ 90,390  

Federal statutory rate

1 unchanged sentence

Federal income tax expense

35,957  

36,762  

18,982  

State tax, net of federal tax benefit

13,314  

162M adjustment

Bank owned life insurance

( 1,175 )  

( 1,001 )  

Tax-exempt interest and dividends

( 1,969 )  

( 1,405 )  

Tax benefits from stock-based compensation

( 417 )  

( 261 )  

( 474 )  

Income tax expense

- 86 -

$ 46,013  

$ 44,705  

$ 19,101  

CONNECTONE BANCORP, INC.

7 unchanged sentences

Allowance for credit losses

$ 26,901  

$ 23,955  

Pension actuarial losses

1 unchanged sentence

Deferred compensation

Unrealized loss on AFS

Unrealized losses on available-for-sale securities

25,141  

Deferred loan costs, net of fees

Capital lease

Finance lease

Nonaccrual interest

Operating lease liability

Total deferred tax assets

$ 67,891  

$ 41,944  

Deferred tax liabilities

Employee benefit plans

$ ( 2,452 )  

Purchase accounting

( 1,458 )  

( 381 )  

Prepaid expenses

( 1,011 )  

Market discount accretion

Unrealized gains on securities and swaps

Unrealized gains on swaps

( 13,704 )  

Right of use asset

( 3,059 )  

( 1,681 )  

Total deferred tax liabilities

( 23,746 )  

Net deferred tax assets

$ 44,145  

$ 31,755  

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized.

The ultimate realization of deferred tax assets for state purposes is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible, while for Federal purposes the deferred tax assets can also be realized through tax carrybacks.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible.

Management considers the scheduled reversal of deferred tax liabilities, the projected future taxable income, and tax planning strategies in making this assessment.

3 unchanged sentences

The Company’s state income tax returns are generally open from the 2018 and later tax return years based on individual state statutes of limitations.

- 87 -

As of December 31, 2022, the Company has $ 1.7 million in New Jersey net operating loss (NOL). 

The NOL is set to expire on December 31, 2040.

CONNECTONE BANCORP, INC.

19 unchanged sentences

Commitments under commercial loans and lines of credit

$ 662,515  

$ 647,971  

Home equity and other revolving lines of credit

54,302  

53,180  

Outstanding commercial mortgage loan commitments

433,034  

514,473  

Standby letters of credit

20,770  

25,271  

Overdraft protection lines

$ 1,171,526  

$ 1,241,868  

The Company is subject to claims and lawsuits that arise in the ordinary course of business.

Based upon the information currently available in connection with such claims, it is the opinion of management that the disposition or ultimate determination of such claims will not have a material adverse impact on the consolidated financial position, results of operations, or liquidity of the Company.

- 88 -

CONNECTONE BANCORP, INC.

6 unchanged sentences

Balance, January 1

$ 17,616  

$ 21,534  

( 2,550 )  

Balance, December 31

Deposits from principal officers, directors, and their affiliates as of December 31, 2021 and 2020 were $ 59.5 million and $ 55.4 million respectively.

$ 16,266  

$ 17,616  

Deposits from principal officers, directors, and their affiliates as of December 31, 2022 and 2021 were $ 49.7  million and $ 59.5  million respectively.

The Company has had, and may be expected to have in the future, banking transactions in the ordinary course of business with its executive officers, directors, principal stockholders, their immediate families and affiliated companies (commonly referred to as related parties).

9 unchanged sentences

Failure to meet capital requirements can initiate regulatory action.

The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital.

The accumulated other comprehensive gain or loss, on securities and derivatives is not included in computing regulatory capital.

Management believes as of December 31, 2022 , the Bank and the Parent Corporation meet all capital adequacy requirements to which they are subject.

5 unchanged sentences

There are no conditions or events since that notification that management believes have changed the institution’s category.

- 89 -

CONNECTONE BANCORP, INC.

5 unchanged sentences

The following is a summary of the Bank’s and the Parent Corporation’s actual capital amounts and ratios as of December 31, 2022 and 2021 , compared to the FRB and FDIC minimum capital adequacy requirements and the FDIC requirements for classification as a well-capitalized institution.

Capital Adequacy

For Classification

Under Corrective

Capital Adequacy

as Well Capitalized

2 unchanged sentences

Leverage (Tier 1) capital

$ 996,013  

10.64 %  

$ 374,553  

4.00 %  

$ 468,191  

Risk-Based Capital:

$ 996,013  

$ 386,289  

$ 557,972  

996,013  

515,051  

686,735  

1,117,733  

686,735  

858,419  

December 31, 2021

Leverage (Tier 1) capital

$ 891,730  

11.43 %  

$ 312,166  

4.00 %  

$ 390,207  

Risk-Based Capital:

$ 891,730  

$ 335,641  

$ 484,815  

891,730  

447,522  

596,696  

1,002,753  

596,696  

745,869  

Minimum Capital

1 unchanged sentence

as Well Capitalized

(dollars in thousands)

Amount  

(dollars in thousands)  

December 31, 2022

Leverage (Tier 1) capital

$ 1,000,577  

10.68 %  

$ 374,729  

4.00 %  

Risk-Based Capital:

$ 884,495  

$ 386,295  

1,000,577  

515,061  

1,240,047  

686,748  

December 31, 2021

Leverage (Tier 1) capital

$ 909,577  

11.65 %  

$ 312,194  

4.00 %  

Risk-Based Capital:

$ 793,495  

$ 335,648  

909,577  

447,531  

1,138,350  

596,708  

As of December 31, 2022 , both the Company and Bank satisfy the capital conservation buffer requirements applicable to them.

The lowest ratio at the Company is the CET 1 Ratio which was 3.64 % above the minimum buffer ratio and, at the Bank, the lowest ratio was the Total Risk Based Capital Ratio which was 2.94 % above the minimum buffer ratio.

- 90 -

The lowest ratio at the Company is the Tier 1 Risk Based Ratio which was 3.16 % above the minimum buffer ratio and, at the Bank, the lowest ratio was the Total Risk Based Capital Ratio which was 2.52 % above the minimum buffer ratio. 

CONNECTONE BANCORP, INC.

6 unchanged sentences

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

Affected Line Item in the

Details about Accumulated Other

Comprehensive Income (Loss) Components

Amounts Reclassified from Accumulated

Comprehensive Income (Loss) Components

Other Comprehensive Income (Loss)

Affected Line Item in the

Statements of Income

2 unchanged sentences

Sale of investment securities available-for-sale

Net gains (losses) on sale of investment securities

Income tax expense

Net interest (expense)/income on swaps

Interest expense

Net gains on sale of investment securities

( 48 )  

( 6 ) Income tax expense

Amortization of pension plan net actuarial gains/(losses)

Net interest income (expense) on swaps

( 1,873 )  

( 1,577 ) Interest income (expense)

( 976 )  

Income tax (benefit) expense

( 1,345 )  

( 1,134 )  

Amortization of pension plan net actuarial losses

( 66 )  

( 299 )  

( 301 ) Salaries and employee benefits

Income tax benefit

( 46 )  

( 215 )  

( 217 )  

Total reclassification

$ 2,221  

$ ( 1,413 )  

$ ( 1,328 )  

Accumulated other comprehensive (loss) income as of December 31, 2022 and 2021 consisted of the following:

1 unchanged sentence

Investment securities available-for-sale, net of tax

$ ( 61,775 )  

Cash flow hedge, net of tax

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

- 91 -

32,360  

Defined benefit pension, net of tax

( 2,949 )  

$ ( 32,364 )  

CONNECTONE BANCORP, INC.

2 unchanged sentences

Note 16 –

Pension and Other Benefits

Defined Benefit Plans

8 unchanged sentences

Projected benefit obligation as of January 1,

$ 14,644  

$ 13,476  

Interest cost

Actuarial loss

Actuarial (gain) loss

( 4,657 )  

Benefits paid

( 981 )  

Projected benefit obligation as of December 31,

$ 9,317  

$ 14,644  

Change in Plan Assets:

Fair value of plan assets as of January 1,

$ 17,604  

$ 15,868  

Actual return on plan assets

Employer contributions

( 3,366 )  

Benefits paid

( 981 )  

Fair value of plan assets as of December 31,

$ 13,257  

$ 17,604  

Funded status

The accumulated benefit obligation was $ 14.6 million and $ 13.5 million as of the year ended December 31, 2021 and 2020, respectively.

Amounts recognized as a component of accumulated other comprehensive loss as of year-end that have not been recognized as a component of the net periodic pension expense for the plan are presented in the following table.

The Company expects to recognize approximately $ 0.1 of the net actuarial loss reported in the following table as of December 31, 2021 as a component of net periodic pension expense during 2022.

$ 3,940  

$ 2,960  

The accumulated benefit obligation was $ 9.3  million and $ 14.6  million as of the year ended December 31, 2022 and 2021 , respectively.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16 –

Pension and Other Benefits –

Amounts recognized as a component of accumulated other comprehensive loss as of the periods presented that have not been recognized as a component of the net periodic pension expense for the plan are presented in the following table.

As of December 31, 2022, the Company expects to recognize approximately $ 0.3  million of the net actuarial loss as a component of net periodic pension expense during 2023.

As of December 31,

(dollars in thousands)

Net actuarial loss recognized in accumulated other comprehensive income

The net periodic pension expense and other comprehensive income (before tax) for 2021, 2020 and 2019 includes the following:

Net actuarial loss recognized in accumulated other comprehensive income (pre-tax)

$ 4,219  

$ 4,627  

The pre-tax, net periodic pension expense (income) and other comprehensive income for the years ended December 31,  

2021 and 

2020 includes the following:

(dollars in thousands)

1 unchanged sentence

Expected return on plan assets

( 949 )  

( 852 )  

Net amortization

Total net periodic pension expense

Total gain recognized in other comprehensive income

Total recognized in net periodic expense and other comprehensive income (before tax)

- 92 -

Total net periodic pension income

$ ( 572 )  

$ ( 269 )  

Total unrealized (gain) loss recognized in other comprehensive income

( 343 )  

Realized losses included in net income

( 66 )  

( 299 )  

Total recognized in net periodic pension income and other comprehensive income

$ ( 981 )  

$ ( 568 )  

CONNECTONE BANCORP, INC.

5 unchanged sentences

Discount rate

4.92 %  

Rate of compensation increase

1 unchanged sentence

Discount rate

4.92 %  

2.57 %  

Expected long-term return on plan assets

6.50 %  

5.50 %  

Rate of compensation increase

11 unchanged sentences

Cash and other alternative investments, including real estate funds, commodity funds, hedge funds and equity structured notes

- 93 -

CONNECTONE BANCORP, INC.

13 unchanged sentences

Real estate funds

$ 13,257  

Fair Value Measurements at Reporting Date Using

3 unchanged sentences

Equity securities:

10,551  

International companies

2 unchanged sentences

Real estate funds

- 94 -

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16 –

Pension and Other Benefits –

$ 17,604  

Fair Value of Plan Assets

3 unchanged sentences

For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2 ).

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16 –

Pension and Other Benefits –

Debt and fixed income securities :

15 unchanged sentences

In 2018, the 401 (k) plan was amended to provide for 100 % matching of employee contributions up to 5% of employee contributions.

For 2021, 2020 and 2019, employer contributions amounted to $ 1.6 million, $ 1.6 million and $ 1.3 million, respectively.

Supplemental Executive Retirement Plan (“SERP”)

For 2022 , 

2021 and 2020 , employer contributions amounted to $ 2.2  million, $ 1.6 million and $ 1.6  million, respectively.

Supplemental Executive Retirement Plan ( “

SERP ”

During 2019 and in 2021, the Company adopted supplemental executive retirement plans (“SERP’s”) for the benefit of several of its executive officers.

Each SERP is a non-qualified plan which provides supplemental retirement benefits to the participating officers of the Company.

SERP compensation expense was $ 1.0 million and $ 0.4 million for the years ended December 31, 2021 and December 31, 2020, respectively.

- 95 -

SERP compensation expense was $ 1.4 million, $ 1.0  million and $ 0.4 million for the years ended December 31, 2022, December 31, 2021 

and December 31, 2020, respectively.

CONNECTONE BANCORP, INC.

9 unchanged sentences

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.

Restricted stock, options and deferred stock units typically have a three -year vesting period starting one year after the date of grant with one - third vesting each year.

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

2 unchanged sentences

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.

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

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

1 unchanged sentence

Forfeiture rates are not estimated but are recorded as incurred.

Stock-based compensation expense was $ 4.5 million, $ 2.9 million and $ 2.7 million for the years ended December 31, 2021, 2020 and 2019 respectively.

Stock-based compensation expense was $ 4.9 million, $ 4.5  million and $ 2.9  million for the years ended December 31, 2022, 2021 and 2020 respectively.

Activity under the Company’s options for the year ended December 31, 2022 was as follows:

1 unchanged sentence

Outstanding as of December 31, 2021

23,766  

$ 9.94  

( 15,086 )  

Forfeited/cancelled/expired

Outstanding as of December 31, 2022

$ 97,673  

Exercisable as of December 31, 2022

$ 12.95  

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17 –

Stock Based Compensation - (continued)

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 December 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 December 31, 2022 .

2 unchanged sentences

Nonvested as of December 31, 2021

82,693  

$ 21.78  

53,543  

( 49,931 )  

Forfeited/cancelled/expired

( 374 )  

Nonvested December 31, 2022

- 96 -

85,931  

$ 26.20  

CONNECTONE BANCORP, INC.

3 unchanged sentences

Stock Based Compensation –

As of December 31, 2021, there was approximately $ 1.0 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 1.1 years.

As of December 31, 2022 , there was approximately $ 0.8  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 1.1  years.

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

1 unchanged sentence

Unearned as of December 31, 2021

Change in estimate

209,995  

$ 16.18  

34,874  

Vested shares

Forfeited/cancelled/expired

( 49,604 )  

Unearned as of December 31, 2022

195,265  

221,541  

$ 17.98  

As of December 31, 2022, the specific number of shares related to performance units that were expected to vest was 195,265 , 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.

5 unchanged sentences

As of December 31, 2022, compensation cost of approximately $ 1.2 million related to non-vested performance units not yet recognized is expected to be recognized over a weighted-average period of 1.7 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:

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

Average Grant

Unearned as of December 31, 2021

136,948  

$ 16.52  

52,312  

Vested shares

Forfeited/cancelled/expired

( 69,225 )  

Unearned as of December 31, 2022

120,035  

$ 23.84  

Any forfeitures would result in previously recognized expense being reversed.

2 unchanged sentences

A total of 37,842 shares were netted from the vested shares to satisfy employee tax obligations.

The net shares issued from vesting of restricted stock units during the year ended December 31, 2021 were 34,458 shares.

As of December 31, 2021, compensation cost of approximately $ 1.1 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.

The net shares issued from vesting of deferred stock units during the year ended December 31, 2022 were 31,383 shares.

As of December 31, 2022, compensation cost of approximately $ 1.5 million related to non-vested deferred stock units, not yet recognized, is expected to be recognized over a weighted-average period of 1.5 years.

Note 18 –

2 unchanged sentences

A dividend may not be paid if it would impair the capital of the Bank.

As of December 31, 2021, approximately $ 256.9 million was available for payment of dividends based on regulatory guidelines.

- 97 -

As of December 31, 2022 , approximately $ 259.3  million was available for payment of dividends based on regulatory guidelines.

CONNECTONE BANCORP, INC.

2 unchanged sentences

Note 19 –

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).

As part of our overall asset liability management and strategy the Company uses derivative instruments, which can include interest rate swaps, collars, caps, and floors.  The notional amount 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 agreements.

Derivative instruments are recognized on the balance sheet at their fair value and are not reported on a net basis.

Derivatives Designated as Hedges

Subsequent changes in fair value for a hedging instrument that has been designated and qualifies as part of a hedging relationship are accounted for in the following manner:

1 ) Cash flow hedges:

changes in fair value are recognized as a component in other comprehensive income

2 ) Fair value hedges:

changes in fair value are recognized concurrently in earnings

As long as a hedging instrument is designated and the results of the effectiveness testing support that the instrument qualifies for hedge accounting treatment, 100% of the periodic changes in fair value of the hedging instrument are accounted for as outlined above.

This is the case whether or not economic mismatches exist in the hedging relationship.

As a result, there is no periodic measurement or recognition of ineffectiveness.

Rather, the full impact of hedge gains and losses is recognized in the period in which the hedged transactions impact earnings.

The change in fair value of the hedging instrument that is included in the assessment of hedge effectiveness is presented in the same income statement line item that is used to present the earnings effect of the hedged item.

The Company entered into eleven pay fixed-rate interest rate swaps, with a total notional amount of $ 500  million, all of which were entered into in 2021 and 2022.

 These are designated as cash flow hedges of current, Federal Home Loan Bank advances.

We are required to pay fixed rates of interest ranging from 0.63 % to 3.41 % and receive variable rates of interest that reset quarterly based on the daily compounding secured overnight financing rate (“SOFR”). 

All swaps carry expiration dates on the eleven  positions ranging from December 2025  

to March 2028 . 

The swaps are 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 swaps.

In addition, during 2021, the Company entered into 9 forward starting pay fixed-rate interest rate swaps, with a total notional amount of $ 400 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 1.23 % 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 August 2022, with expiration dates ranging from December 2025 to March 2028 .

Interest expense recorded on these swap transactions totaled approximately $( 1.9 ) million, $( 1.6 ) million, and $( 0.7 ) million during 2021, 2020, and 2019 is reported as a component of interest expense on FHLB Advances.

Cash Flow Hedge

The following table presents the net gains (losses), recorded in accumulated other comprehensive income and the Consolidated Statements of Income relating to the cash flow derivative instruments for the years ended December 31:

(dollars in thousands)

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

The Company previously entered into one  forward starting interest rate cap spread transaction, with a total notional amount of $ 150  million, which became effective on October 1, 2022 and matures in October of 2027 and one additional interest rate cap spread transaction, with a total notional amount of $ 75 million, which became effective in November 2022 and matures in November of 2027 .

These are designated as cash flow hedges of brokered certificates of deposits, and the interest rate cap spread is indexed to a benchmark of fed funds with payment required on a monthly basis.

The structure of these instruments is such that the Company entered into a total of 

$225 million in notional amount of sold interest rate cap agreements, in which we are required to pay the counterparty an incremental amount if the index rate exceeds a set cap rate.

Simultaneously, the Company purchased a total of $225 million notional amount of interest rate cap agreements in which we receive an incremental amount if the index rate is above a set cap rate.  

No payments are required if the index rate is at, or below, the cap rate on the sold or purchased interest rate cap agreements. 

Interest expense recorded on these swap and cap transactions totaled approximately $( 3.3 ) million, $ 1.9 million, and $( 1.6 ) million during 2022, 2021, and 

2020 is reported as a component of either interest expense on FHLB Advances and brokered certificates of deposits.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 19 –

Derivatives (continued)

Amount of gain

(loss) recognized

in OCI (Effective

Amount of (gain)

loss reclassified

interest expense

Amount of gain (loss)

(loss) recognized

loss reclassified

recognized in other

in OCI (Effective

Noninterest income

(dollars in thousands)

interest expense

(Ineffective Portion)

Interest rate contracts

(dollars in thousands)

$ 46,282  

$ ( 3,343 )  

Amount of gain

(loss) recognized

in OCI (Effective

Amount of (gain)

loss reclassified

interest expense

Amount of gain (loss)

(loss) recognized

loss reclassified

recognized in other

in OCI (Effective

Noninterest income

(dollars in thousands)

interest expense

(Ineffective Portion)

Interest rate contracts

$ 3,593  

$ 1,873  

The following table reflects the cash flow hedges included in the Consolidated Statements of Condition as of December 31, 2022 and December 31, 2021 :

1 unchanged sentence

Included in other assets/(liabilities):

Interest rate swaps related to FHLB Advances

- 98 -

Interest rate contracts

$ 950,000  

$ 56,797  

$ 475,000  

$ 3,347  

There were no net gains (losses) recorded in accumulated other comprehensive income or in the Consolidated Statement of Income relating to cash flow derivative instruments for the years ended December 31, 2022 and December 31, 2021 .

CONNECTONE BANCORP, INC.

2 unchanged sentences

Note 20 –

Derivatives –

Note 20 –

Fair Value Measurements and Fair Value of Financial Instruments

12 unchanged sentences

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.

Due to the 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

8 unchanged sentences

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.

- 99 -

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20 –

Fair Value Measurements and Fair Value of Financial Instruments –

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

3 unchanged sentences

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

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

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 December 31, 2022 and 

December 31, 2021 are as follows:

December 31, 2022

Fair Value Measurements at Reporting Date Using

Total Fair Value

Quoted Prices

Total Fair Value

(dollars in thousands)

3 unchanged sentences

Federal agency obligations

$ 44,450  

Residential mortgage pass-through securities

417,578  

Commercial mortgage pass-through securities

21,104  

Obligations of U.S.

states and political subdivision

142,896  

135,547  

Corporate bonds and notes

3 unchanged sentences

Total available-for-sale

$ 634,884  

$ 627,293  

$ 7,349  

Equity securities

15,811  

Derivatives - interest rate contracts

56,797  

$ 707,492  

$ 9,975  

$ 690,168  

$ 7,349  

There were no transfers between Level 1 and Level 2 during the years ended December 31, 2022 and 2021 .

- 100 -

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20 –

Fair Value Measurements and Fair Value of Financial Instruments –

December 31, 2021

Fair Value Measurements at Reporting Date Using

Total Fair Value

Quoted Prices

Total Fair Value

(dollars in thousands)

3 unchanged sentences

Federal agency obligations

$ 50,360  

Residential mortgage pass-through securities

316,095  

Commercial mortgage pass-through securities

10,469  

Obligations of U.S.

states and political subdivision

145,625  

137,060  

Corporate bonds and notes

3 unchanged sentences

Total available-for-sale

$ 534,507  

$ 525,747  

$ 8,565  

Equity securities

Total liabilities

13,794  

11,081  

Derivatives - interest rate contracts

$ 551,648  

$ 11,276  

$ 531,807  

$ 8,565  

Assets Measured at Fair Value on a Non-Recurring Basis

2 unchanged sentences

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a non-recurring basis as of December 31, 2022 and December 31, 2021 :

- 101 -

CONNECTONE BANCORP, INC.

10 unchanged sentences

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

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

For assets measured at fair value on a nonrecurring basis, the fair value measurements as of December 31, 2022 and 

December 31, 2021 are as follows:

Fair Value Measurements at Reporting Date Using

Assets measured at fair value on a nonrecurring basis:

Collateral dependent loans:

(dollars in thousands)

Collateral dependent loans:

$ 14,550  

Commercial real estate

17,264  

Residential real estate

1 unchanged sentence

Assets measured at fair value on a nonrecurring basis:

Impaired loans:

(dollars in thousands)

Collateral dependent loans:

$ 13,399  

Commercial real estate

20,185  

Residential real estate

Collateral dependent loans - Collateral dependent loans as of December 31, 2022 that required a valuation allowance were $ 43.8 million with a related valuation allowance of $ 10.5 million.

Impaired loans - Collateral dependent impaired loans as of December 31, 2020 that required a valuation allowance were $ 26.5 million with a valuation allowance of $ 14.3 million.

- 102 -

Collateral dependent loans - Collateral dependent loans as of 

December 31, 2021 that required a valuation allowance were $ 54.1  million with a valuation allowance of $ 17.8  million.

CONNECTONE BANCORP, INC.

8 unchanged sentences

Beginning balance, January 1, 2022

$ 8,565  

Principal paydowns

Changes in unrealized gain (loss)

Ending balance, December 31, 2022

$ 7,349  

(dollars in thousands)

Beginning balance, January 1, 2021

$ 8,844  

Principal paydowns

Ending balance, December 31, 2021

$ 8,565  

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 December 31, 2022 and December 31, 2021 .

4 unchanged sentences

Municipal securities

$ 7,349  

Discounted cash flows

4 unchanged sentences

Municipal securities

$ 8,565  

Discounted cash flows

Discount rate

- 103 -

CONNECTONE BANCORP, INC.

9 unchanged sentences

Range (weighed average)

Commercial loans

$ 14,028  

Market approach (100%)

Average transfer price as a price to unpaid principal balance

48 % to 73 % ( 49 %)

Appraisals of collateral value

65% to 96% (67%)  

Commercial loans

Appraisals of collateral

Adjustment for comparable sales

-10% to +13% (+3%)

Commercial real estate

Appraisals of collateral value

Commercial real estate loans

17,264  

Appraisals of collateral

Adjustment for comparable sales

-20% to +0% (-15%)

Residential real estate

Appraisals of collateral value

Residential real estate loans

Appraisals of collateral

Adjustment for comparable sales

3 unchanged sentences

Range (weighed average)

Impaired loans:

Commercial loans

$ 12,193  

Market approach (100%)

Average transfer price as a price to unpaid principal balance

48 - 53 ( 49 )

Appraisals of collateral value

48% to 73% (49%)  

Commercial loans

Appraisals of collateral

Adjustment for comparable sales

-10% to +35% (+6%)

Commercial Real Estate

Appraisals of collateral value

Commercial real estate loans

20,185  

Appraisals of collateral

Adjustment for comparable sales

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

- 104 -

Residential real estate loans

Appraisals of collateral

Adjustment for comparable sales

-15% to +39% (5%)  

CONNECTONE BANCORP, INC.

18 unchanged sentences

The fair value of portfolio loans, net is determined using an exit price methodology.

residential mortgage loans and multi-family loans) and the use of a discount rate based on expected relative risk of the cash flows.

The exit price methodology continues to be based on a discounted cash flow analysis, in which projected cash flows are based on contractual cash flows adjusted for prepayments for certain loan types ( e.g., residential mortgage loans and multi-family loans) and the use of a discount rate based on expected relative risk of the cash flows.

The discount rate selected considers loan type, maturity date, a liquidity premium, cost to service, and cost of capital, which is a Level 3 fair value estimate.

The carrying amounts of deposits with no stated maturities (i.e., noninterest-bearing, savings, NOW, and money market deposits) are assigned fair values equal to the carrying amounts payable on demand.

The carrying amounts of deposits with no stated maturities (i.e., non‐interest-bearing, savings, NOW, and money market deposits) are assigned fair values equal to the carrying amounts payable on demand.

The fair value of time deposits is based on the discounted value of contractual cash flows using estimated rates currently offered for alternative funding sources of similar remaining maturity.

3 unchanged sentences

The carrying amounts of accrued interest approximate fair value resulting in a level 2 or level 3 classification based on the level of the asset or liability with which the accrual is associated.

- 105 -

CONNECTONE BANCORP, INC.

9 unchanged sentences

Cash and due from banks

$ 268,315  

Investment securities available-for-sale

634,884  

627,293  

Restricted investment in bank stocks

46,604  

Equity securities

15,811  

8,009,176  

7,723,378  

Derivatives - interest rate contracts

56,797  

Accrued interest receivable

46,062  

41,377  

Financial liabilities:

Noninterest-bearing deposits

1,501,614  

Interest-bearing deposits

5,855,008  

5,811,291  

3,460,818  

2,350,473  

857,622  

854,698  

Subordinated debentures

153,255  

153,581  

Accrued interest payable

2 unchanged sentences

Cash and due from banks

$ 265,536  

Investment securities available-for-sale

534,507  

525,747  

Restricted investment in bank stocks

27,826  

Equity securities

13,794  

11,081  

6,749,849  

6,800,287  

Derivatives - interest rate contracts

Accrued interest receivable

34,152  

32,598  

Financial liabilities:

Noninterest-bearing deposits

1,617,049  

Interest-bearing deposits

4,715,904  

4,716,358  

3,565,795  

1,150,563  

468,193  

469,671  

Subordinated debentures

152,951  

163,995  

Accrued interest payable

Cash and due from banks

- 106 -

CONNECTONE BANCORP, INC.

15 unchanged sentences

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

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 21 –

10 unchanged sentences

Cash and cash equivalents

$ 117,162  

$ 133,648  

Investment in subsidiaries

1,179,342  

1,111,520  

Investment securities

32,405  

Equity securities

$ 1,333,826  

$ 1,278,997  

LIABILITIES AND STOCKHOLDERS’

1 unchanged sentence

Subordinated debentures, net

153,255  

152,951  

Stockholders’

1,178,751  

1,124,212  

Total liabilities and stockholders’

- 107 -

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 21 –

Parent Corporation Only Financial Statements –

$ 1,333,826  

$ 1,278,997  

Condensed Statements of Income

2 unchanged sentences

Dividend income from subsidiaries

$ 36,475  

$ 24,071  

$ 15,200  

38,113  

25,698  

16,883  

( 8,928 )  

( 8,741 )  

Income before equity in undistributed earnings of subsidiaries

29,185  

16,957  

Equity in undistributed earnings of subsidiaries

96,026  

113,396  

63,669  

125,211  

130,353  

71,289  

Preferred dividends

Net income available to common stockholders

$ 119,174  

$ 128,636  

$ 71,289  

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 21 –

Parent Corporation Only Financial Statements –

Condensed Statements of Cash Flows

2 unchanged sentences

Cash flows from operating activities:

$ 125,211  

$ 130,353  

$ 71,289  

Adjustments to reconcile net income to net cash provided by operating activities:

Equity in undistributed earnings of subsidiary

( 96,026 )  

( 113,396 )  

Loss on equity securities, net

1 unchanged sentence

Decrease (increase) in other assets

(Decrease) increase in other liabilities

50,590  

Decrease in other liabilities

( 14 )  

( 287 )  

Net cash provided by (used in) operating activities

29,520  

67,618  

Cash flows from investing activities:

Purchase of available-for-sale securities

Sales of available-for-sale securities

Purchase of equity securities

Sale of equity securities

( 3,538 )  

( 780 )  

Repayment of short-term borrowing

Capital infusion to subsidiary

Net cash (used in) provided by investing activities

Net cash used in investing activities

( 3,538 )  

( 780 )  

Cash flows from financing activities:

(Repayment of) proceeds from subordinated debt

Proceeds from (repayment of) proceeds from subordinated debt

( 50,000 )  

73,440  

Cash dividends paid on preferred stock

( 6,037 )  

( 1,717 )  

Cash dividends paid on common stock

( 23,428 )  

( 17,493 )  

Purchase of treasury stock

( 13,127 )  

( 9,401 )  

Proceeds from preferred stock offering

110,927  

Proceeds from exercise of stock options

Net cash provided by (used in) financing activities

Increase (decrease) in cash and cash equivalents

Net cash (used in) provided by financing activities

( 42,468 )  

32,422  

58,445  

Decrease (increase) in cash and cash equivalents

( 16,486 )  

99,260  

12,996  

Cash and cash equivalents as of January 1,

133,648  

34,388  

21,392  

Cash and cash equivalents as of December 31,

- 108 -

$ 117,162  

$ 133,648  

$ 34,388  

CONNECTONE BANCORP, INC.

5 unchanged sentences

Total interest income

$ 112,469  

$ 96,980  

$ 85,356  

$ 78,941  

Total interest expense

34,460  

18,819  

Net interest income

78,009  

78,161  

75,591  

70,358  

Provision for credit losses

Total other income, net of securities gains

10,000  

Total other income

Other expenses

33,312  

32,143  

31,703  

29,230  

Income before income taxes

44,905  

39,340  

44,247  

42,732  

Income tax expense

12,348  

10,425  

11,889  

11,351  

32,557  

28,915  

32,358  

31,381  

Preferred dividends

Net income available to common stockholders

$ 31,047  

$ 27,406  

$ 30,849  

$ 29,872  

Earnings per share:

$ 0.79  

$ 0.70  

$ 0.78  

$ 0.76  

Due to rounding, quarterly earnings per share for 2022 do not sum to reported annual earnings per share.

(dollars in thousands, except per share data)

Total interest income

$ 79,040  

$ 77,026  

$ 73,051  

$ 72,621  

Total interest expense

10,042  

11,458  

Net interest income

Provision for credit losses

70,461  

68,245  

63,009  

61,163  

Provision for (reversal of) credit losses

( 1,649 )  

Total other income, net of securities gains

Other expenses

28,084  

28,183  

26,259  

26,485  

Income before income taxes

45,339  

42,978  

42,871  

43,870  

Income tax expense

12,301  

10,881  

10,652  

10,871  

33,038  

32,097  

32,219  

32,999  

Preferred dividends

Net income available to common stockholders

$ 31,321  

$ 32,097  

$ 32,219  

$ 32,999  

Earnings per share:

Due to rounding, quarterly earnings per share may not sum to reported annual earnings per share.

- 109 -

Changes in and Disagreements with

Accountants on Accounting and Financial Disclosures

$ 0.79  

$ 0.81  

$ 0.83  

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

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-K

Item 8. Financial Statements and Supplementary Data