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Item 8. Financial Statements and Supplementary Data

2024-02-23 compared with 2023-02-24 · 1053 added, 1719 removed, 1490 unchanged (65% of the section changed)

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All Financial Statements:

The following financial statements are filed as part of this report under Item 8 - “Financial Statements and Supplementary Data.”

Report of Independent Registered Public Accounting Firm

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Consolidated Statements of Comprehensive Income

Consolidated Statements of Changes in Stockholders’

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

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

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 –

Integrated Framework:

and Subsidiaries (the "Company") as of December 31, 2023 and 2022, 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, 2023, 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, 2023, based on criteria established in Internal Control – Integrated Framework:

(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, 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 –

Integrated Framework:

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, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023 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, 2023, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by COSO.

Explanatory Paragraph –

Change in Accounting Principle

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.

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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.

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;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

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 –

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.

Allowance for Credit Losses – 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.

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

As of December 31, 2023, the allowance for credit losses (“ACL”) on loans was $81,974,000.

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

The methodology for evaluating quantitative factors includes pooling loans into portfolio segments for loan that share similar characteristics.

The methodology for evaluating quantitative factors includes pooling loans into portfolio segments for loans that share similar characteristics.

Pooled loan portfolio segments include commercial, commercial real estate, commercial construction, residential real estate, and consumer loans.

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

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, and prepayment speed assumptions to estimate a reserve for each loan.

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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, 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.

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.

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

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.

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

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

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

Methodology and accounting policies.

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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.

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.

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.

/s/ Crowe LLP

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

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Cash and due from banks

$ 61,629  

$ 54,352  

$ 61,421 $ 61,629

Interest-bearing deposits with banks

206,686  

211,184  

181,293 206,686

Cash and cash equivalents

268,315  

265,536  

242,714 268,315

Investment securities

634,884  

534,507  

617,162 634,884

Equity securities

15,811  

13,794  

18,564 15,811

Loans held-for-sale

13,772  

Loans receivable

8,099,689  

6,828,622  

8,345,145 8,099,689

Allowance for credit losses - loans

90,513  

78,773  

81,974 90,513

Net loans receivable

8,009,176  

6,749,849  

8,263,171 8,009,176

Investment in restricted stock, at cost

46,604  

27,826  

51,457 46,604

Bank premises and equipment, net

27,800  

29,032  

30,779 27,800

Accrued interest receivable

46,062  

34,152  

49,108 46,062

Bank owned life insurance

231,328  

195,731  

237,644 231,328

Right of use operating lease assets

10,179  

11,017  

12,007 10,179

Other real estate owned

208,372  

208,372 208,372

Core deposit intangibles

125,069  

50,417  

$ 9,644,948  

$ 8,129,480  

118,751 125,069

$ 9,855,603 $ 9,644,948

Noninterest-bearing

$ 1,501,614  

$ 1,617,049  

$ 1,259,364 $ 1,501,614

Interest-bearing

5,855,008  

4,715,904  

6,276,838 5,855,008

Total deposits

7,356,622  

6,332,953  

857,622  

468,193  

7,536,202 7,356,622

933,579 857,622

Subordinated debentures, net of debt issuance costs

153,255  

152,951  

79,439 153,255

Operating lease liabilities

11,397  

12,417  

13,171 11,397

Other liabilities

87,301  

38,754  

76,592 87,301

Total liabilities

8,466,197  

7,005,268  

8,638,983 8,466,197

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’

STOCKHOLDERS’ EQUITY

Preferred Stock, no par value;

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outstanding 115,000 shares as of December 31, 2023 and as of December 31, 2022

110,927  

110,927 110,927

Common stock, no par value:

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outstanding 38,519,770 shares as of December 31, 2023 and 39,243,123 as of December 31, 2022

586,946  

586,946 586,946

Additional paid-in capital

30,126  

27,246  

33,182 30,126

Retained earnings

535,915  

440,169  

590,970 535,915

Treasury stock, at cost 3,603,178 shares as of December 31, 2023 and 2,699,026 shares as of December 31, 2022

( 52,799 )  

( 70,296 ) ( 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  

( 35,109 ) ( 32,364 )

Total stockholders’ equity

1,216,620 1,178,751

Total liabilities and stockholders’ equity

$ 9,855,603 $ 9,644,948

See the accompanying notes to the consolidated financial statements.

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Interest and fees on loans

$ 453,992 $ 352,993 $ 293,546

Interest and dividends on investment securities:

16,666 12,712 4,413

4,641 3,893 2,403

3,662 1,655 971

Interest on federal funds sold and other short-term investments

11,104 2,493 405

Total interest income

490,065 373,746 301,738

Interest expense:

206,176 50,561 24,768

28,783 21,066 14,092

Total interest expense

234,959 71,627 38,860

Net interest income

255,106 302,119 262,878

Provision for (reversal of) credit losses

8,200 17,750 ( 5,500 )

Net interest income after provision for credit losses

246,906 284,369 268,378

Noninterest income:

Deposit, loan and other income

6,098 7,472 6,617

Income on bank owned life insurance

6,316 5,597 4,771

Net gains on sale of loans held-for-sale

1,704 1,695 3,807

Gain on sale of branches

Net (losses) gains on equity securities

Net losses on equity securities

( 117 ) ( 1,521 ) ( 373 )

Net gains on sale/redemption of investment securities

Total noninterest income

14,001 13,243 15,691

Noninterest expense:

Salaries and employee benefits

88,325 81,289 64,341

Occupancy and equipment

10,884 9,865 11,638

FDIC insurance

8,365 2,881 2,665

Professional and consulting

7,547 8,053 8,286

Marketing and advertising

1,965 1,692 1,318

Information technology and communications

Merger expenses

14,340 11,108 11,267

Amortization of core deposit intangible

1,438 1,685 1,981

Net periodic pension income

( 102 ) ( 572 ) ( 269 )

Increase in value of acquisition price

Other expenses

11,187 8,871 7,784

Total noninterest expenses

143,949 126,388 109,011

Income before income tax expense

116,958 171,224 175,058

Income tax expense

29,955 46,013 44,705

87,003 125,211 130,353

Preferred dividends

6,036 6,037 1,717

Net income available to common stockholders

$ 80,967 $ 119,174 $ 128,636

Earnings per common share:

$ 2.08 $ 3.03 $ 3.24

2.07 3.01 3.22

See the accompanying notes to the consolidated financial statements.

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(dollars in thousands)

$ 87,003 $ 125,211 $ 130,353

Other comprehensive income:

Unrealized gains and losses:

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

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

5,715 ( 86,240 ) ( 11,109 )

( 1,775 ) 24,949 2,914

3,940 ( 61,291 ) ( 8,195 )

Reclassification adjustment for realized gains included in net income

Unrealized gains (losses) on cash flow hedges

Unrealized gains on cash flow hedges

9,431 46,181 3,593

( 2,837 ) ( 13,960 ) ( 1,012 )

6,594 32,221 2,581

Reclassification adjustment for (gains) losses arising during this period

Unrealized pension plan gains (losses):

Unrealized pension plan gains (losses) before reclassifications

( 20,230 ) ( 3,243 ) 1,873

6,086 976 ( 528 )

( 14,144 ) ( 2,267 ) 1,345

Unrealized pension plan gains:

Unrealized pension plan gains before reclassifications

( 283 ) ( 12 ) -

Reclassification adjustment for realized losses included in net income

Total other comprehensive (loss) income

( 89 ) ( 20 ) ( 84 )

Total other comprehensive loss

( 2,745 ) ( 30,960 ) ( 4,201 )

Total comprehensive income

$ 84,258 $ 94,251 $ 126,152

See the accompanying notes to the consolidated financial statements.

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS ’

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS ’ EQUITY

Additional Paid

Comprehensive

Stockholders’

Preferred Stock

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(in thousands, except share and per share data)

Balance as of January 1, 2020

$ 468,571  

$ 21,344  

$ 271,782  

$ ( 29,360 )  

$ ( 1,147 )  

$ 731,190  

71,289  

Other comprehensive income, net of tax

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 ) - - ( 2,925 )

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

- 586,946 23,887 329,026 ( 30,271 ) 2,797 912,385

- - - 130,353 - - 130,353

Other comprehensive loss, net of tax

- - - - - ( 4,201 ) ( 4,201 )

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

- - - ( 1,717 ) - - ( 1,717 )

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

( 11,120 )  

Repurchase of stock ( 54,693 shares)

( 911 )  

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

- - - ( 17,493 ) - - ( 17,493 )

Exercise of stock options ( 14,247 shares)

- - 106 - - - 106

Restricted stock grants, net of forfeitures ( 44,836 shares)

Stock grants issued ( 1,340 shares)

- - - - - - -

Stock grants ( 4,981 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 deferred stock units earned

( 639 )  

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

118,375  

- - ( 1,283 ) - - - ( 1,283 )

Repurchase of stock ( 330,541 shares)

- - - - ( 9,401 ) - ( 9,401 )

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

110,927 - - - - - 110,927

Stock-based compensation expense

- - 4,536 - - - 4,536

Balance as of December 31, 2021

$ 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  

$ 110,927 $ 586,946 $ 27,246 $ 440,169 $ ( 39,672 ) $ ( 1,404 ) $ 1,124,212

- - - 125,211 - - 125,211

Other comprehensive loss, net of tax

( 4,201 )  

- - - - - ( 30,960 ) ( 30,960 )

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

( 1,717 )  

- - - ( 6,037 ) - - ( 6,037 )

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

( 17,493 )  

- - - ( 23,428 ) - - ( 23,428 )

Exercise of stock options ( 15,086 shares)

- - 124 - - - 124

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

( 1,283 )  

- - ( 2,133 ) - - - ( 2,133 )

Repurchase of stock ( 447,108 shares)

( 9,401 )  

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

110,927  

- - - - ( 13,127 ) - ( 13,127 )

Stock-based compensation expense

- - 4,889 - - - 4,889

Balance as of December 31, 2022

$ 110,927  

$ 586,946  

$ 27,246  

$ 440,169  

$ ( 39,672 )  

$ ( 1,404 )  

$ 1,124,212  

125,211  

$ 110,927 $ 586,946 $ 30,126 $ 535,915 $ ( 52,799 ) $ ( 32,364 ) $ 1,178,751

- - - 87,003 - - 87,003

Other comprehensive loss, net of tax

( 30,960 )  

- - - - - ( 2,745 ) ( 2,745 )

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

( 6,037 )  

- - - ( 6,036 ) - - ( 6,036 )

Cash dividends declared on common stock ($ 0.665 per share)

( 23,428 )  

- - - ( 25,912 ) - - ( 25,912 )

Exercise of stock options ( 7,388 shares)

- - 96 - - - 96

Restricted stock grants, net of forfeitures ( 84,057 shares)

- - - - - - -

Stock grants ( 995 shares)

- - - - - - -

Net shares issued in satisfaction of deferred stock units earned ( 36,006 shares)

- - - - - - -

Net shares issued in satisfaction of performance units earned ( 52,353 shares)

- - - - - - -

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

( 2,133 )  

Repurchase of stock ( 447,108 shares)

( 13,127 )  

- - ( 1,900 ) - - - ( 1,900 )

Repurchase of stock ( 904,152 shares, including 1% excise tax)

- - - - ( 17,497 ) - ( 17,497 )

Stock-based compensation expense

- - 4,860 - - - 4,860

Balance as of December 31, 2023

$ 110,927  

$ 586,946  

$ 30,126  

$ 535,915  

$ ( 52,799 )  

$ ( 32,364 )  

$ 1,178,751  

$ 110,927 $ 586,946 $ 33,182 $ 590,970 $ ( 70,296 ) $ ( 35,109 ) $ 1,216,620

See the accompanying notes to the consolidated financial statements.

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Cash flows from operating activities

$ 87,003 $ 125,211 $ 130,353

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

Depreciation and amortization of premises and equipment

4,503 3,863 3,757

Provision for (reversal of) credit losses

8,200 17,750 ( 5,500 )

Amortization of intangibles

1,438 1,685 1,980

Net accretion of loans

( 1,904 ) ( 3,178 ) ( 5,350 )

Accretion on bank premises

( 49 ) ( 49 ) ( 73 )

Accretion on deposits

( 279 ) ( 777 ) ( 2,224 )

Amortization (accretion) on borrowings

Net deferred income tax (benefit) expense

Net deferred income tax expense (benefit)

4,135 ( 403 ) 16

Stock-based compensation

4,860 4,889 4,536

Gains on sales/redemptions of investment securities, net

Change in fair value of equity securities, net

117 1,521 373

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

( 1,704 ) ( 1,695 ) ( 3,807 )

Gain on sale of branches

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Loans originated for resale

( 26,153 ) ( 21,128 ) ( 51,669 )

Proceeds from sale of loans held-for-sale

36,645 28,341 72,233

Increase in cash surrender value of bank owned life insurance

( 6,316 ) ( 5,597 ) ( 4,771 )

Amortization of premiums and accretion of discounts on investments securities, net

1,030 2,155 5,966

Amortization of subordinated debt issuance costs

1,184 304 303

(Increase) decrease in accrued interest receivable

( 3,046 ) ( 11,910 ) 1,165

Net change in operating leases

( 54 ) ( 182 ) ( 769 )

(Increase) decrease in other assets

( 7,514 ) ( 12,413 ) 46,086

Increase (decrease) in other liabilities

( 9,248 ) 48,322 10,526

Net cash provided by operating activities

92,891 176,777 202,273

Cash flows from investing activities

Investment securities available-for-sale:

( 42,143 ) ( 339,059 ) ( 349,500 )

Maturities, calls and principal repayments

64,550 150,287 285,873

Net (purchases)/redemptions of restricted investment in bank stocks

( 4,853 ) ( 18,778 ) ( 2,727 )

Purchases of equity securities

( 2,870 ) ( 3,538 ) ( 780 )

Loans held-for-sale payments

Net increase in loans

( 255,556 ) ( 1,292,938 ) ( 596,389 )

Cash flow hedge premium payment

- ( 6,965 ) -

Purchases of premises and equipment

( 7,433 ) ( 3,301 ) ( 2,783 )

Purchases of bank owned life insurance

Proceeds from life insurance death benefits

- ( 30,000 ) ( 25,000 )

Proceeds from disposition of fixed assets

Proceeds from sale of branches

Cash and cash equivalents acquired in acquisitions, net

Proceeds from sale of other real estate owned

Net cash used in investing activities

( 248,038 ) ( 1,543,232 ) ( 689,860 )

Cash flows from financing activities

Net increase in deposits

(Repayment of) increase in subordinated debt

Advances of FHLB borrowings

179,859 1,024,446 375,953

Repayment of subordinated debt

( 75,000 ) - ( 50,000 )

Advances of Federal Holme Loan Bank ("FHLB") borrowings

2,946,500 4,203,181 340,000

Repayments of FHLB borrowings

( 2,870,564 ) ( 3,813,792 ) ( 297,725 )

Cash dividends paid on preferred stock

( 6,036 ) ( 6,037 ) ( 1,717 )

Cash dividends paid on common stock

( 25,912 ) ( 23,428 ) ( 17,493 )

Proceeds from preferred stock offering

Purchase of treasury stock

( 17,497 ) ( 13,127 ) ( 9,401 )

Proceeds from exercise of stock options

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

( 1,900 ) ( 2,133 ) ( 1,283 )

Net cash provided by financing activities

129,546 1,369,234 449,367

Net change in cash and cash equivalents

( 25,601 ) 2,779 ( 38,220 )

Cash and cash equivalents at beginning of period

268,315 265,536 303,756

Cash and cash equivalents at end of period

$ 242,714 $ 268,315 $ 265,536

Supplemental disclosures of cash flow information:

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Interest paid

$ 230,806 $ 67,850 $ 41,787

Income taxes paid

31,647 49,234 45,431

Supplemental disclosures of noncash investing activities:

Transfer of loans to other real estate owned

$ - $ 579 $ 304

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

16,156 8,043 4,293

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

11,197 27,137 16,628

See the accompanying notes to the consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a –

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

Note 1a – Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies

Nature of Operations

ConnectOne Bancorp, Inc.

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

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

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

The Bank’s subsidiaries include Union Investment Co.

The Parent Corporation’s business currently consists of the operation of its wholly-owned subsidiary, ConnectOne Bank (the “Bank” and, collectively with the Parent Corporation and the Parent Corporation’s subsidiaries, the “Company”) and making certain limited investments.

The Bank’s direct and indirect subsidiaries include Union Investment Co.

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

(a Delaware 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.

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

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

The Bank operates from its headquarters located at 301 Sylvan Avenue in the Borough of Englewood Cliffs, Bergen County, New Jersey and through its 24 other banking offices.

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

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

business, real estate rental and consumer wages.

Each borrower’s ability to repay its loans is dependent on the conversion of assets, cash flows generated from the borrowers’ business, real estate rental and consumer wages.

Basis of Presentation and Principals of Consolidation

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All significant intercompany accounts and transactions have been eliminated from the accompanying consolidated financial statements.

FASB ASC 28, “Segment Reporting,”

requires companies to report certain information about operating segments.

FASB ASC 28, “Segment Reporting,” requires companies to report certain information about operating segments.

The Company is managed as one segment:

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Actual results could differ significantly from those estimates.

Risks and Uncertainties

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

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

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

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a –

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.

Note 1a – Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies (continued)

Risks and Uncertainties

Recent events impacting the financial services industry, including the failures of Silicon Valley Bank, Signature Bank and First Republic Bank, have resulted in increased volatility and reduced valuations of equity and other securities of banks in the capital markets.

In addition, the Federal Reserve, in order to combat inflation, has employed quantitative tightening in order to reduce the size of its balance sheet, resulting in increased competition and costs for bank deposits and an increased risk of an economic recession.

These recent events have, and could continue to, increase competition for deposits and adversely impact the market price and volatility of the Company’s common stock.

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

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.

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Investment Securities

Effective January 1, 2021, the Company accounts for its investment securities in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320 - 10 - 05.

Investments are classified into the following categories:

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( 2 ) trading securities, which are purchased and held principally for the purpose of selling in the near term and are reported at fair value with unrealized gains and losses included in earnings;

and ( 3 ) available-for-sale securities, which do not meet the criteria of the other two categories and which management believes may be sold prior to maturity due to changes in interest rates, prepayment risk, liquidity or other factors, and are reported at fair value, with unrealized gains and losses, net of applicable income taxes, reported as a component of accumulated other comprehensive income, which is included in stockholders’

equity and excluded from earnings.

Investment securities are adjusted for amortization of premiums and accretion of discounts as adjustments to interest income, which are recognized on a level yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a –

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

Note 1a – Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies – (continued)

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.

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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.

FASB ASC 320 - 10 - 65 clarifies the interaction of the factors that were considered when determining whether a debt security is other-than-temporarily impaired.

For debt securities, management assessed whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery.

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

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

The Company’s investments in equity securities are recorded at fair value, with unrealized gains and losses included in earnings.

Loans Held-for-Sale

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a –

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

Note 1a – Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies – (continued)

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.

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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.

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

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

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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 the market-areas served by its offices in New Jersey, New York and Florida.

The borrowers’

abilities to repay their obligations are dependent upon various factors including the borrowers’

income and net worth, cash flows generated by the borrowers’

underlying collateral, value of the underlying collateral, and priority of the lender’s lien on the property.

The policy of the Company is to 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’ abilities to repay their obligations are dependent upon various factors including the borrowers’ income and net worth, cash flows generated by the borrowers’ underlying collateral, value of the underlying collateral, and priority of the lender’s lien on the property.

Such factors are dependent upon various economic conditions and individual circumstances beyond the control of the Company.

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The Company believes its lending policies and procedures adequately minimize the potential exposure to such risks and that adequate provisions for credit losses are provided for all known and inherent risks.

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

Allowance for Credit Losses

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a –

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

Note 1a – Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies – (continued)

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

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Financial assets may be segmented based on one characteristic, or a combination of characteristics.

Examples of risk characteristics relevant to the Company’s evaluation included, but were not limited to:

Examples of risk characteristics relevant to the Company’s evaluation include, but were not limited to:

( 1 ) Internal or external credit scores or credit ratings, ( 2 ) Risk ratings or classifications, ( 3 ) Financial asset type, ( 4 ) Collateral type, ( 5 ) Size, ( 6 ) Effective interest rate, ( 7 ) Term, ( 8 ) Geographical location, ( 9 ) Industry of the borrower and ( 10 ) Vintage.

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.

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

Included in the allowance for credit losses are qualitative reserves to cover losses that are expected but, in the Company’s assessment, may not be adequately represented in the quantitative analysis or the forecasts described above.

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

These qualitative factor adjustments may increase or decrease the Company’s estimate of expected credit losses and are applied to each loan segment.

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

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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.

Additionally, nonaccrual loans that are $ 250,000 or higher are also individually analyzed.

All PCD loans are individually analyzed.

For loans designated as TDR or nonaccrual with balances less than $ 250,000 , these loans are collectively evaluated, and, accordingly, are not separately identified for analysis or disclosures.

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

Nonaccrual loans that are $ 250,000 or higher and all purchased credit-deteriorated ("PCD") loans are individually analyzed.

For loans designated as nonaccrual with balances of less than $ 250,000 , these loans are collectively evaluated, and, accordingly, are not separately identified for analysis or disclosures.

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

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

 For collateral dependent loans, when it is determined that a foreclosure is probable, the 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 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.

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

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a –

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

Note 1a – Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies – (continued)

Purchased Credit-Deteriorated Loans

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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 purchased credit-impaired (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 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.

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This documentation includes linking cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions.

The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items.

The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a –

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

Note 1a – Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies – (continued)

Restricted Stock

The Bank is a member of the Federal Home Loan Bank (“FHLB”) of New York.

Members are required to own a certain amount of stock based on the level of borrowings and other factors and may invest in additional amounts.

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The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option.

Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of the lease payments over the lease term.

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Other Real Estate Owned

Other real estate owned (“OREO”), representing property acquired through foreclosure and held-for-sale, is initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis.

Subsequently, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell.

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As such, all future benefit accruals in this pension plan were discontinued and all retirement benefits that employees would have earned as of September 30, 2007 were preserved.

The Company’s policy is to fund at least the minimum contribution required by the Employee Retirement Income Security Act of 1974.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a –

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

Note 1a – Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies – (continued)

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

FASB ASC 715 - 30 requires that the funded status of defined benefit postretirement plans be recognized on the Company’s statement of financial condition and changes in the funded status be reflected in other comprehensive income.

FASB ASC 715 - 30 also requires companies to measure the funded status of the plan as of the date of its fiscal year-end.

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Stock-Based Compensation

Stock compensation accounting guidance (FASB ASC 718, “Compensation-Stock Compensation”) requires that the compensation cost related to share-based payment transactions be recognized in financial statements.

That cost will be measured based on the grant date fair value of the equity or liability instruments issued.

The stock compensation accounting guidance covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans.

Stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees’

service period, generally defined as the vesting period.

Stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period.

For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

See Note 18 of the Notes to Consolidated Financial Statements for a further discussion.

See Note 18 of the Notes to Consolidated Financial Statements for further discussion.

Treasury Stock

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

The repurchased shares are recorded as treasury stock, which results in a decrease in stockholders’

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

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.

The repurchased shares are recorded as treasury stock, which results in a decrease in stockholders’ equity.

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

During the years ended December 31, 2023 and December 31, 2022, the Parent Corporation repurchased 904,152 and 447,108 shares, respectively, under board-approved share repurchase programs.

On August 16, 2022, The Inflation Reduction Act, P.L.

117 - 169, was signed into law.

The act included a new Sec.

4501 that imposes an excise tax on certain repurchases of stock by publicly traded corporations.

In general, and before considering exceptions, the amount of the excise tax is equal to 1% of ( 1 ) the aggregate fair market value (FMV) of stock repurchased by a corporation, over ( 2 ) the aggregate FMV of stock issued by the corporation, in each case, during the tax year.

The excise tax applies to repurchases of stock by corporations beginning after December 31, 2022.

The excise tax is not deductible for purposes of computing U.S.

federal income tax (Sec.

275 (a)( 6 )).

On December 27, 2022, Treasury and the IRS released Notice 2023 - 2, which announced that they intend to issue proposed regulations with respect to the excise tax.

The notice provides interim guidance that Treasury and the Service generally intend to include in the proposed regulations, including several examples that illustrate the application of the rules set forth in the notice.

Treasury and the IRS anticipate that the proposed regulations will be consistent with the guidance provided in the notice.

In addition, until the issuance of the proposed regulations, taxpayers are permitted to rely on the operating rules set forth in Section 3 of the notice.

The proposed regulations are anticipated to apply to repurchases of stock made after December 31, 2022, and to issuances of stock made during a tax year ending after December 31, 2022.

As of December 31, 2023, the Company accrued $ 0.2 million related to the excise tax through equity.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a – Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies – (continued)

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.

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No impairment charge was deemed necessary as of the years ended December 31, 2023, 2022 and 2021 .

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 Intangible Assets

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

The Company’s other comprehensive income (loss) is comprised of unrealized holding gains and losses on securities available-for-sale, unrecognized actuarial gains and losses of the Company’s defined benefit pension plan and unrealized gains and losses on cash flow hedges, net of taxes.

Restrictions on Cash

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Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the Parent Corporation or by the Parent Corporation to the stockholders.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1a – Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies – (continued)

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note.

The fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note.

Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items.

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Bank Owned Life Insurance

The Company invests in Bank Owned Life Insurance (“BOLI”) to help offset the cost of employee benefits.

The change in the cash surrender value of the BOLI is recorded as a component of noninterest income.

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A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more likely than not”

that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.

The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.

For tax positions not meeting the “more likely than not”

test, no tax benefit is recorded.

For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

Advertising Costs

The Company recognizes its marketing and advertising cost as incurred.

The Company recognizes its marketing and advertising costs as incurred.

Reclassifications

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’

Certain reclassifications have been made in the consolidated financial statements and footnotes for 2022 and 2021 to conform to the classifications presented in 2023 .

Such reclassifications had no impact on net income or stockholders’ equity.

CONNECTONE BANCORP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1b –

Authoritative Accounting Guidance

Adoption of New Accounting Standards in 2023

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.

Note 1b – Authoritative Accounting Guidance

Adoption of New 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.

We adopted ASU 2022 - 03 on January 1, 2024 and it did not have a material effect on the Company’s financial statements.

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” ).

We adopted ASU 2022 - 02 on January 1, 2023 and it 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 is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted.

In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023 - 09, Income Taxes (Topic 740 ):

Improvements to Income Tax Disclosures.

These amendments require that public business entities on an annual basis ( 1 ) disclose specific categories in the rate reconciliation and ( 2 ) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5% of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate).

The amendments require that all entities disclose on an annual basis the following information about income taxes paid:

1 ) The amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes.

2 ) The amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5% of total income taxes paid (net of refunds received).

The amendments also require that all entities disclose the following information:

1 ) Income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and 2 ) Income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign.

ASU 2023 - 09 is effective for the Company beginning January 1, 2025.

The Company is evaluating the effect that ASU 2023 - 09 will have on its consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 –

Earnings per Common Share

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

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

Note 2 – Earnings per Common Share

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

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

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Net income available to common stockholders

$ 119,174  

$ 128,636  

$ 71,289  

$ 80,967 $ 119,174 $ 128,636

Earnings allocated to participating securities

( 287 )  

( 313 )  

( 216 ) ( 287 ) ( 313 )

Income attributable to common stock

$ 118,887  

$ 128,323  

$ 70,933  

$ 80,751 $ 118,887 $ 128,323

Weighted average common shares outstanding, including participating securities

39,355  

39,723  

39,643  

38,913 39,355 39,723

Weighted average participating securities

( 95 )  

( 97 )  

( 104 ) ( 95 ) ( 97 )

Weighted average common shares outstanding

39,260  

39,626  

39,512  

38,809 39,260 39,626

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  

38,962 39,476 39,886

Earnings per common share:

$ 3.03  

$ 3.24  

$ 1.80  

$ 2.08 $ 3.03 $ 3.24

2.07 3.01 3.22

There were no antidilutive common share equivalents as of December 31, 2023, 2022 and 2021 .

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 –

Investment Securities

The Company’s investment securities are classified as available-for-sale as of December 31, 2022 and December 31, 2021 .

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

equity, net of tax.

Note 3 – Investment Securities

The Company’s investment securities are classified as available-for-sale as of December 31, 2023 and December 31, 2022 .

Investment securities available-for-sale are reported at fair value with unrealized gains or losses included in stockholders’ equity, net of tax.

Accordingly, the carrying value of such securities reflects their fair value as of December 31, 2023 and December 31, 2022 .

1 unchanged sentence

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

The following tables present information related to the Company’s portfolio of investment securities available-for-sale as of December 31, 2023 and 2022 .

(dollars in thousands)

2 unchanged sentences

Federal agency obligations

$ 54,889  

$ ( 10,439 )  

$ 44,450  

$ 55,898 $ 189 $ ( 10,761 ) $ 45,326

Residential mortgage pass-through securities

475,263  

( 57,863 )  

417,578  

462,004 620 ( 51,433 ) 411,191

Commercial mortgage pass-through securities

25,485  

( 4,381 )  

21,104  

25,240 - ( 3,676 ) 21,564

Obligations of U.S.

states and political subdivisions

157,247  

( 14,462 )  

142,896  

states and political subdivisions

148,795 415 ( 16,505 ) 132,705

Corporate bonds and notes

( 26 )  

5,000 - ( 27 ) 4,973

Asset-backed securities

( 33 )  

1,260 - ( 22 ) 1,238

Other securities

Total securities available-for-sale

$ 721,799  

$ ( 87,204 )  

$ 634,884  

Total investment securities available-for-sale

$ 698,362 $ 1,224 $ ( 82,424 ) $ 617,162

(dollars in thousands)

2 unchanged sentences

Federal agency obligations

$ 50,336  

$ ( 625 )  

$ 50,360  

$ 54,889 $ - $ ( 10,439 ) $ 44,450

Residential mortgage pass-through securities

317,111  

( 2,884 )  

316,095  

475,263 178 ( 57,863 ) 417,578

Commercial mortgage pass-through securities

10,814  

( 463 )  

10,469  

25,485 - ( 4,381 ) 21,104

Obligations of U.S.

states and political subdivisions

145,045  

( 982 )  

145,625  

states and political subdivisions

157,247 111 ( 14,462 ) 142,896

Corporate bonds and notes

7,000 - ( 26 ) 6,974

Asset-backed securities

Certificates of deposit

1,673 - ( 33 ) 1,640

Other securities

Total securities available-for-sale

$ 535,182  

$ 4,281  

$ ( 4,956 )  

$ 534,507  

Total investment securities available-for-sale

$ 721,799 $ 289 $ ( 87,204 ) $ 634,884

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 –

Investment Securities –

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.

Note 3 – Investment Securities – (continued)

Investment securities having a carrying value of approximately $ 358 million and $ 157 million as of December 31, 2023 and December 31, 2022, 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, 2023, and December 31, 2022, 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 investment securities available-for-sale as of December 31, 2022 , based on scheduled maturities.

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

The following table presents information for investment securities available-for-sale as of December 31, 2023 , 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  

$ 2,000 $ 1,980

Due after one year through five years

1 unchanged sentence

Due after ten years

209,003  

184,183  

200,713 174,026

Residential mortgage pass-through securities

475,263  

417,578  

462,004 411,191

Commercial mortgage pass-through securities

25,485  

21,104  

25,240 21,564

Other securities

Total securities available-for-sale

$ 721,799  

$ 634,884  

Total investment securities available-for-sale

$ 698,362 $ 617,162

Gross gains and losses from the sales and redemptions of investment securities for the years ended December 31, 2023, 2022 and 2021 were as follows:

1 unchanged sentence

(dollars in thousands)

$ 5,185  

$ 19,624  

$ - $ - $ 5,185

Gross gains on sale/redemption of investment securities

$ - $ - $ 195

Gross losses on sale/redemption of investment securities

Net gains on sales/redemptions of investment securities

Tax provision on net gains

( 48 )  

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

$ - $ - $ 147

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 –

Investment Securities –

Note 3 – Investment Securities – (continued)

Impairment Analysis of Available-for-Sale Debt Securities

3 unchanged sentences

12 Months or Longer

Unrealized  

Fair Unrealized Fair Unrealized Fair Unrealized

(dollars in thousands)

1 unchanged sentence

Federal agency obligation

$ 44,451  

$ ( 10,439 )  

$ 20,517  

$ ( 1,831 )  

$ 23,934  

$ 40,779 $ ( 10,761 ) $ 1,689 $ ( 65 ) $ 39,090 $ ( 10,696 )

Residential mortgage pass-through securities

403,039  

( 57,863 )  

218,918  

( 13,869 )  

184,121  

382,042 ( 51,433 ) 4,138 ( 51 ) 377,904 ( 51,382 )

Commercial mortgage pass-through securities

21,105  

( 4,381 )  

14,523  

( 2,304 )  

21,565 ( 3,676 ) - - 21,565 ( 3,676 )

Obligations of U.S.

states and political subdivisions

133,265  

( 14,462 )  

47,446  

( 3,404 )  

85,819  

101,189 ( 16,505 ) 1,340 ( 7 ) 99,849 ( 16,498 )

Corporate bonds and notes

( 26 )  

4,973 ( 27 ) 2,993 ( 7 ) 1,980 ( 20 )

Asset-backed securities

( 33 )  

( 16 )  

1,238 ( 22 ) - - 1,238 ( 22 )

Total temporarily impaired securities

$ 608,473  

$ ( 87,204 )  

$ 307,425  

$ ( 21,450 )  

$ 301,048  

$ 551,786 $ ( 82,424 ) $ 10,160 $ ( 130 ) $ 541,626 $ ( 82,294 )

December 31, 2022

4 unchanged sentences

Federal agency obligation

$ 28,974  

$ ( 625 )  

$ 28,974  

$ ( 625 )  

$ 44,451 $ ( 10,439 ) $ 20,517 $ ( 1,831 ) $ 23,934 $ ( 8,608 )

Residential mortgage pass-through securities

246,396  

( 2,884 )  

214,701  

( 2,111 )  

31,695  

403,039 ( 57,863 ) 218,918 ( 13,869 ) 184,121 ( 43,994 )

Commercial mortgage pass-through securities

( 463 )  

( 75 )  

21,105 ( 4,381 ) 14,523 ( 2,304 ) 6,582 ( 2,077 )

Obligations of U.S.

states and political subdivisions

89,473  

( 982 )  

89,473  

( 982 )  

133,265 ( 14,462 ) 47,446 ( 3,404 ) 85,819 ( 11,058 )

Corporate bonds and notes

4,973 ( 26 ) 4,973 ( 26 ) - -

Asset-backed securities

1,640 ( 33 ) 1,048 ( 16 ) 592 ( 17 )

Total temporarily impaired securities

$ 374,015  

$ ( 4,956 )  

$ 338,632  

$ ( 3,795 )  

$ 35,383  

$ 608,473 $ ( 87,204 ) $ 307,425 $ ( 21,450 ) $ 301,048 $ ( 65,754 )

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, 2022 and December 31, 2021 , totaled $ 2.4  million and $ 1.6  million, respectively.

Accrued interest receivable for investment securities available for sale as of December 31, 2023 and December 31, 2022 , totaled $ 2.3 million and $ 2.4 million, respectively.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 –

Investment Securities –

Note 3 – Investment Securities – (continued)

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

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

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

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

16 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 –

Loans and the Allowance for Credit Losses

Note 4 – Loans and the Allowance for Credit Losses

Loans Receivable:

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 :

The following table sets forth the composition of the Company’s loan portfolio segments, net of deferred fees, as of December 31, 2023 and December 31, 2022 :

(dollars in thousands)

Commercial (1)

$ 1,472,734  

$ 1,299,428  

$ 1,578,730 $ 1,472,734

Commercial real estate

5,795,228  

4,741,590  

5,895,545 5,795,228

Commercial construction

574,139  

540,178  

620,496 574,139

Residential real estate

264,748  

255,269  

8,109,161  

6,838,351  

256,041 264,748

8,351,841 8,109,161

Net deferred fees

( 9,472 )  

( 6,696 ) ( 9,472 )

Loans receivable

$ 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, 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:

$ 8,345,145 $ 8,099,689

( 1 ) Includes PPP loans of $ 9 million and $ 11 million as of December 31, 2023 and December 31, 2022, respectively.

As of December 31, 2023 , and 2022 , loan balances of approximately $ 5.8 billion and $ 2.7 billion, respectively, were pledged to secure borrowings from the FHLB of New York and the Federal Reserve Bank of New York.

During 2023, the Company took actions to increase its secured borrowing access and increase levels of off-balance sheet liquidity and as such increased the amount of loans pledged to each of these borrowing facilities.

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

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

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.

• 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.

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

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

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

1 unchanged sentence

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

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

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

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 –

Loans and the Allowance for Credit Losses –

Note 4 – Loans and the Allowance for Credit Losses – (continued)

Loans Held-For-Sale :

1 unchanged sentence

(dollars in thousands)

$ 13,473  

Residential real estate

Total carrying amount

$ 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:

Loans Receivable on Nonaccrual Status - The following tables present nonaccrual loans with an allowance for credit loss (“ACL”) as of December 31, 2023 and December 31, 2022 and nonaccrual loans without an ACL as of December 31, 2023 and December 31, 2022:

December 31, 2023

3 unchanged sentences

(dollars in thousands)

$ 23,512  

$ 1,745  

$ 25,257  

$ 1,763 $ 11,064 $ 12,827

Commercial real estate

10,220  

16,817  

8,013 28,179 36,192

Residential real estate

$ 34,336  

$ 10,118  

$ 44,454  

1,033 2,472 3,505

$ 10,809 $ 41,715 $ 52,524

December 31, 2022

3 unchanged sentences

(dollars in thousands)

$ 28,746  

$ 1,316  

$ 30,062  

$ 23,512 $ 1,745 $ 25,257

Commercial real estate

15,362  

10,031  

25,393  

Commercial construction

10,220 6,597 16,817

Residential real estate

$ 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.

604 1,776 2,380

$ 34,336 $ 10,118 $ 44,454

Nonaccrual loans include loans that are collectively evaluated and individually analyzed.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 –

Loans and the Allowance for Credit Losses –

Note 4 – Loans and the Allowance for Credit Losses – (continued)

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

1 unchanged sentence

Credit quality is monitored by reviewing certain credit quality indicators.

Assets classified as “Pass”

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

Assets classified as “Special Mention”

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

Assets classified as “Pass” are deemed to possess average to superior credit quality, requiring no more than normal attention.

Assets classified as “Special Mention” have generally acceptable credit quality yet possess higher risk characteristics/circumstances than satisfactory assets.

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

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

Assets are classified as “Substandard”

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

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

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

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

An asset is classified as “Doubtful”

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

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

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

An asset is classified as “Doubtful” if it is inadequately protected by the net worth and/or paying capacity of the obligor or of the collateral, if any, that secures the obligation.

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

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 –

Loans and the Allowance for Credit Losses –

Note 4 – Loans and the Allowance for Credit Losses – (continued)

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

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  

$ 178,582 $ 252,151 $ 265,705 $ 38,909 $ 13,726 $ 112,145 $ 684,779 $ 1,545,997

Special mention

12,452  

11,214  

22,596  

45,624  

- 10,620 - - 562 3,417 3,199 17,798

250 439 241 1 612 11,695 1,697 14,935

- - - - - - - -

Total Commercial

$ 309,251  

$ 305,867  

$ 47,967  

$ 30,529  

$ 64,190  

$ 158,886  

$ 556,044  

$ 1,472,734  

$ 178,832 $ 263,210 $ 265,946 $ 38,910 $ 14,900 $ 127,257 $ 689,675 $ 1,578,730

Commercial real estate

$ 1,571,751  

$ 1,608,023  

$ 382,987  

$ 358,578  

$ 375,886  

$ 987,982  

$ 401,365  

$ 5,686,572  

$ 248,660 $ 1,561,841 $ 1,585,109 $ 352,445 $ 353,391 $ 1,232,240 $ 497,588 $ 5,831,274

Special mention

37,774  

49,653  

19,138  

23,287  

59,003  

- - - - - 24,202 - 24,202

- - 1,888 - 1,255 20,141 16,785 40,069

- - - - - - - -

Total Commercial real estate

$ 1,574,791  

$ 1,609,952  

$ 382,987  

$ 365,104  

$ 395,024  

$ 1,049,043  

$ 418,327  

$ 5,795,228  

$ 248,660 $ 1,561,841 $ 1,586,997 $ 352,445 $ 354,646 $ 1,276,583 $ 514,373 $ 5,895,545

Commercial construction

$ 8,615  

$ 7,605  

$ 6,720  

$ 542,460  

$ 565,908  

$ 582 $ 5,463 $ 15,645 $ 6,236 $ - $ - $ 583,870 $ 611,796

Special mention

- - - - - - 8,700 8,700

- - - - - - - -

Total Commercial construction

$ 8,615  

$ 7,605  

$ 6,720  

$ 550,691  

$ 574,139  

$ 582 $ 5,463 $ 15,645 $ 6,236 $ - $ - $ 592,570 $ 620,496

Residential real estate

$ 45,926  

$ 25,318  

$ 24,409  

$ 21,557  

$ 20,284  

$ 78,314  

$ 41,468  

$ 257,276  

$ 15,455 $ 42,830 $ 21,987 $ 21,704 $ 19,896 $ 91,114 $ 36,082 $ 249,068

Special mention

- - - - - 651 2,817 3,468

- - 555 - - 2,144 806 3,505

- - - - - - - -

Total Residential real estate

$ 45,926  

$ 25,318  

$ 24,409  

$ 21,557  

$ 20,284  

$ 81,693  

$ 45,561  

$ 264,748  

$ 2,219  

$ 2,312  

$ 15,455 $ 42,830 $ 22,542 $ 21,704 $ 19,896 $ 93,909 $ 39,705 $ 256,041

$ 849 $ 83 $ - $ 5 $ - $ - $ 92 $ 1,029

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  

$ 849 $ 83 $ - $ 5 $ - $ - $ 92 $ 1,029

$ 444,128 $ 1,862,368 $ 1,888,446 $ 419,299 $ 387,013 $ 1,435,499 $ 1,802,411 $ 8,239,164

Special mention

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  

- 10,620 - - 562 28,270 14,716 54,168

250 439 2,684 1 1,867 33,980 19,288 58,509

- - - - - - - -

$ 444,378 $ 1,873,427 $ 1,891,130 $ 419,300 $ 389,442 $ 1,497,749 $ 1,836,415 $ 8,351,841

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 –

Loans and the Allowance for Credit Losses –

Note 4 – Loans and the Allowance for Credit Losses – (continued)

As of December 31, 2022, 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  

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

13,298  

21,024  

14,540  

60,614  

- - - 583 26 8,551 3,292 12,452

7,615 146 15 1,769 11,214 22,596 2,269 45,624

- - - - - - - -

Total Commercial

$ 403,373  

$ 58,534  

$ 56,327  

$ 73,707  

$ 105,468  

$ 111,625  

$ 490,394  

$ 1,299,428  

$ 309,251 $ 305,867 $ 47,967 $ 30,529 $ 64,190 $ 158,886 $ 556,044 $ 1,472,734

Commercial real estate

$ 1,692,098  

$ 533,315  

$ 420,995  

$ 452,262  

$ 497,065  

$ 842,244  

$ 170,721  

$ 4,608,700  

$ 1,571,751 $ 1,608,023 $ 382,987 $ 358,578 $ 375,886 $ 987,982 $ 401,365 $ 5,686,572

Special mention

50,438  

62,181  

20,624  

26,108  

70,709  

3,040 - - - - 37,774 8,839 49,653

- 1,929 - 6,526 19,138 23,287 8,123 59,003

- - - - - - - -

Total Commercial real estate

$ 1,694,066  

$ 542,354  

$ 425,001  

$ 472,886  

$ 502,207  

$ 918,790  

$ 186,286  

$ 4,741,590  

$ 1,574,791 $ 1,609,952 $ 382,987 $ 365,104 $ 395,024 $ 1,049,043 $ 418,327 $ 5,795,228

Commercial construction

$ 8,018  

$ 7,370  

$ 12,625  

$ 2,600  

$ 2,339  

$ 490,119  

$ 523,071  

$ 8,615 $ 7,605 $ 6,720 $ 508 $ - $ - $ 542,460 $ 565,908

Special mention

15,314  

- - - - - - - -

- - - - - - 8,231 8,231

- - - - - - - -

Total Commercial construction

$ 8,018  

$ 7,370  

$ 12,625  

$ 2,600  

$ 2,689  

$ 506,876  

$ 540,178  

$ 8,615 $ 7,605 $ 6,720 $ 508 $ - $ - $ 550,691 $ 574,139

Residential real estate

$ 27,081  

$ 29,539  

$ 23,611  

$ 25,070  

$ 28,701  

$ 66,249  

$ 44,221  

$ 244,472  

$ 45,926 $ 25,318 $ 24,409 $ 21,557 $ 20,284 $ 78,314 $ 41,468 $ 257,276

Special mention

10,797  

- - - - - - - -

- - - - - 3,379 4,093 7,472

- - - - - - - -

Total Residential real estate

$ 27,081  

$ 29,539  

$ 23,611  

$ 25,070  

$ 28,701  

$ 73,511  

$ 47,756  

$ 255,269  

$ 1,590  

$ 1,886  

$ 45,926 $ 25,318 $ 24,409 $ 21,557 $ 20,284 $ 81,693 $ 45,561 $ 264,748

$ 2,219 $ - $ 9 $ - $ - $ 2 $ 82 $ 2,312

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  

$ 2,219 $ - $ 9 $ - $ - $ 2 $ 82 $ 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

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  

3,040 - - 583 26 46,325 12,131 62,105

7,615 2,075 15 8,295 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.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 –

Loans and the Allowance for Credit Losses –

Note 4 – Loans and the Allowance for Credit Losses – (continued)

As of December 31, 2023, our gross write-offs based on year of origination are as follows (dollars in thousands).

Revolving Loans

Current period gross write-off

$ 54 $ 3,397 $ - $ - $ 280 $ 11,094 $ 63 $ 14,888

Commercial real estate

Current period gross write-off

$ - $ - $ - $ - $ - $ 2,142 $ - $ 2,142

Commercial construction

Current period gross write-off

$ - $ - $ - $ - $ - $ - $ - $ -

Residential real estate

Current period gross write-off

$ - $ - $ - $ - $ - $ - $ 18 $ 18

Current period gross write-off

$ - $ - $ - $ - $ - $ - $ 1 $ 1

Current period gross write-off

$ 54 $ 3,397 $ - $ - $ 280 $ 13,236 $ 82 $ 17,049

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 – Loans and the Allowance for Credit Losses – (continued)

Collateral Dependent Loans :

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

Loans which meet certain criteria are individually analyzed 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:

The following table presents collateral dependent loans that were individually analyzed as of December 31, 2023 and 2022:

December 31, 2023

(dollars in thousands)

$ 5,352  

$ 22,517  

$ 27,869  

$ 4,949 $ 10,387 $ 15,336

Commercial real estate

52,477  

39,986 - 39,986

Commercial construction

8,700 - 8,700

Residential real estate

$ 71,925  

$ 22,517  

$ 94,442  

5,941 - 5,941

$ 59,576 $ 10,387 $ 69,963

December 31, 2022

(dollars in thousands)

$ 6,385  

$ 26,182  

$ 32,567  

$ 5,352 $ 22,517 $ 27,869

Commercial real estate

55,244  

52,477 - 52,477

Commercial construction

13,196  

8,232 - 8,232

Residential real estate

$ 83,681  

$ 26,182  

$ 109,863  

5,864 - 5,864

$ 71,925 $ 22,517 $ 94,442

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 –

Loans and the Allowance for Credit Losses –

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):

Note 4 – Loans and the Allowance for Credit Losses – (continued)

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, 2023 and December 31, 2022 (dollars in thousands):

December 31, 2023

3 unchanged sentences

Total Past Due and Nonaccrual

$ 25,257  

$ 25,563  

$ 1,447,171  

$ 1,472,734  

$ 555 $ - $ - $ 12,827 $ 13,382 $ 1,565,348 $ 1,578,730

Commercial real estate

16,817  

22,498  

5,772,730  

5,795,228  

527 - - 36,192 36,719 5,858,826 5,895,545

Commercial construction

574,139  

- 23,600 - - 23,600 596,896 620,496

Residential real estate

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.

275 226 - 3,505 4,006 252,035 256,041

- - - - - 1,029 1,029

$ 1,357 $ 23,826 $ - $ 52,524 $ 77,707 $ 8,274,134 $ 8,351,841

December 31, 2022

4 unchanged sentences

Total Loans Receivable

$ 4,305  

$ 4,457  

$ 30,062  

$ 39,553  

$ 1,259,875  

$ 1,299,428  

$ 306 $ - $ - $ 25,257 $ 25,563 $ 1,447,171 $ 1,472,734

Commercial real estate

25,393  

33,959  

4,707,631  

4,741,590  

90 - 5,591 16,817 22,498 5,772,730 5,795,228

Commercial construction

537,028  

540,178  

- - - - - 574,139 574,139

Residential real estate

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.

1,569 - - 2,380 3,949 260,799 264,748

- - - - - 2,312 2,312

$ 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.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 –

Loans and the Allowance for Credit Losses –

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.

Note 4 – Loans and the Allowance for Credit Losses – (continued)

The following tables detail the amount of gross loans that are individually analyzed, collectively evaluated, 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, 2023

4 unchanged sentences

Allowance for credit losses - loans

Individually evaluated

$ 7,426  

$ 1,003  

$ 8,479  

Individually analyzed

$ - $ 941 $ - $ - $ - $ 941

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  

20,215 51,337 4,739 4,320 5 80,616

Acquired with deteriorated credit quality

417 - - - - 417

$ 20,632 $ 52,278 $ 4,739 $ 4,320 $ 5 $ 81,974

Individually analyzed

$ 15,336 $ 39,986 $ 8,700 $ 5,941 $ - $ 69,963

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  

1,562,910 5,855,559 611,796 250,100 1,029 8,281,394

Acquired with deteriorated credit quality

484 - - - - 484

$ 1,578,730 $ 5,895,545 $ 620,496 $ 256,041 $ 1,029 $ 8,351,841

December 31, 2022

4 unchanged sentences

Allowance for credit losses - loans

Individually evaluated

$ 15,131  

$ 16,217  

Individually analyzed

$ 7,426 $ 1,003 $ - $ 50 $ - $ 8,479

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  

19,319 50,818 3,718 4,093 7 77,955

Acquired with deteriorated credit quality

2,158 1,921 - - - 4,079

$ 28,903 $ 53,742 $ 3,718 $ 4,143 $ 7 $ 90,513

Individually analyzed

$ 30,994 $ 46,886 $ 8,232 $ 5,864 $ - $ 91,976

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  

1,436,866 5,742,751 565,907 258,884 2,312 8,006,720

Acquired with deteriorated credit quality

4,874 5,591 - - - 10,465

$ 1,472,734 $ 5,795,228 $ 574,139 $ 264,748 $ 2,312 $ 8,109,161

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 –

Loans and the Allowance for Credit Losses –

Note 4 – Loans and the Allowance for Credit Losses – (continued)

A summary of the activity in the allowance for credit losses for loans by loan segment is as follows:

4 unchanged sentences

Balance as of January 1, 2023

$ 25,969  

$ 45,589  

$ 3,580  

$ 3,628  

$ 78,773  

( 2,612 )  

( 2,819 )  

$ 28,903 $ 53,742 $ 3,718 $ 4,143 $ 7 $ 90,513

( 14,888 ) ( 2,142 ) - ( 18 ) ( 1 ) ( 17,049 )

10 - - 68 8 86

Provision for (reversal) of credit losses

6,607 678 1,021 127 ( 9 ) 8,424

Balance as of December 31, 2023

$ 20,632 $ 52,278 $ 4,739 $ 4,320 $ 5 $ 81,974

Commercial real estate

Commercial construction

Residential real estate

(dollars in thousands)

Balance as of January 1, 2022

$ 25,969 $ 45,589 $ 3,580 $ 3,628 $ 7 $ 78,773

( 2,612 ) ( 2,819 ) - ( 9 ) ( 3 ) ( 5,443 )

54 - - 63 - 117

Provision for credit losses

10,972  

17,066  

5,492 10,972 138 461 3 17,066

Balance as of December 31, 2022

$ 28,903  

$ 53,742  

$ 3,718  

$ 4,143  

$ 90,513  

$ 28,903 $ 53,742 $ 3,718 $ 4,143 $ 7 $ 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

$ 28,443  

$ 39,330  

$ 8,194  

$ 2,687  

$ 79,226  

$ 28,443 $ 39,330 $ 8,194 $ 2,687 $ 4 $ 568 $ 79,226

Day 1 Adjustment CECL

( 4,225 )  

( 961 )  

( 568 )  

( 4,225 ) 9,605 ( 961 ) 2,697 9 ( 568 ) 6,557

Balance as of January 1, 2021

24,218  

48,935  

85,783  

( 382 )  

( 1,780 )  

( 235 )  

24,218 48,935 7,233 5,384 13 - 85,783

( 382 ) ( 1,780 ) - ( 235 ) - - ( 2,397 )

289 85 - 20 11 - 405

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

Commercial construction

Residential real estate

(dollars in thousands)

Balance as of January 1, 2020

$ 8,349  

$ 20,853  

$ 7,304  

$ 1,685  

$ 38,293  

( 552 )  

( 341 )  

Provision for loan losses

20,642  

17,675  

41,000  

1,844 ( 1,651 ) ( 3,653 ) ( 1,541 ) ( 17 ) - ( 5,018 )

Balance as of December 31, 2021

$ 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

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

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

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

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

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

As of 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.

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, 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 during the year ended December 31, 2022 :

Pre-Modification

Post-Modification

(dollars in thousands)

Troubled debt restructurings:

Commercial real estate

12,083  

11,583  

Residential real estate

$ 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.

$ 25,969 $ 45,589 $ 3,580 $ 3,628 $ 7 $ - $ 78,773

CONNECTONE BANCORP, INC.

1 unchanged sentence

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

Post-Modification

Note 4 – Loans and the Allowance for Credit Losses – (continued)

Loan Modifications to Borrowers Experiencing Financial Difficulty:

The Company adopted Accounting Standards Update (“ASU”) 2022 - 02, Financial Instruments - Credit Losses (Topic 326 ) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022 - 02” ) effective January 1, 2023.

The amendments in ASU 2022 - 02 eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

The following table presents the amortized cost basis at the end of the reporting period of the loan modifications to borrowers experiencing financial difficulty and the percentage of the amortized cost basis of loans that were modified to borrowers experiencing financial difficulty as compared to the gross loans of the relevant loan segment.

The total percentage represents the total modified loans as compared to the total gross loans balance as of December 31, 2023.

Twelve Months Ended

December 31, 2023

Term Extension

Payment Deferral

Interest Rate Reduction

% of Portfolio Loan Segment

(dollars in thousands)

Troubled debt restructurings:

$ 1,276  

$ 34 $ 10,283 $ - $ 10,317 0.65 %

Commercial real estate

35,635  

Commercial construction

Residential real estate

$ 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

Post-Modification

209 - 7,272 7,481 0.13

$ 243 $ 10,283 $ 7,272 $ 17,798 0.21 %

The above table consists of loans that added a weighted average of 13 years to the maturity of the modified loans with term extensions, which did not have a material effect on the cash flows.

For loans that had payment deferrals, the weighted average deferral period was six months.

For loans that had interest rate reduction modifications, the weighted average interest rate reduction was 1.9 %.

The following table presents the performance of loans that have been modified in the last twelve months:

December 31, 2023

Past Due 30-89 Days

Past Due 90 Days or More

(dollars in thousands)

Troubled debt restructurings:

$ 10,317 $ - $ -

Commercial real estate

Commercial construction

Residential real estate

$ 6,486  

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

There were no loans to borrowers experiencing financial difficulty that had a payment default during the twelve months ended December 31, 2023 and which were modified in the twelve months prior to that default.

Default is determined at 90 or more days past due, upon charge-off, or upon foreclosure.

Modified loans in default are individually analyzed for the allowance for credit losses or if the modified loan is deemed uncollectible, the loan, or a portion of the loan, is written off and the allowance for credit losses is adjusted accordingly.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 –

Loans and the Allowance for Credit Losses –

Note 4 – Loans and the Allowance for Credit Losses – (continued)

Allowance for Credit Losses for Unfunded Commitments

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, 2022  and 2021 (dollars in thousands):

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, 2023 and 2022 (dollars in thousands):

Balance as of beginning of period

$ 2,351  

Day 1 Effect of CECL

Provision for (reversal of) credit losses - unfunded commitments

$ 3,035 $ 2,351

(Reversal of) provision for credit losses - unfunded commitments

Balance as of end of period

$ 3,035  

$ 2,351  

$ 2,811 $ 3,035

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, 2023 and 2022 (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

$ 17,750  

Provision for credit losses – loans

$ 8,424 $ 17,066

(Reversal of) provision for credit losses - unfunded commitments

Provision for credit losses

$ 8,200 $ 17,750

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 –

Premises and Equipment

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

Note 5 – Premises and Equipment

Premises and equipment are summarized as of December 31, 2023 and 2022 :

(dollars in thousands)

$ 6,732  

$ 7,232  

10 - 25  

10,509  

- $ 6,732 $ 6,732

10 - 25 11,043 9,797

Furniture, fixtures and equipment

24,830  

24,137  

3 - 7 28,548 24,830

Leasehold improvements

10 - 20  

25,164  

27,343  

66,523  

69,221  

10 - 20 27,633 25,164

73,956 66,523

accumulated depreciation, amortization and fair value adjustments

38,723  

40,189  

43,177 38,723

Total premises and equipment, net

$ 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.

$ 30,779 $ 27,800

Depreciation and amortization expense of premises and equipment was $ 4.5 million, $ 3.9 million and $ 3.8 million for 2023 , 2022 and 2021 , respectively.

Finance Leases :

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

 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.

As of December 31, 2023, the weighted average remaining term for the finance lease was 4.9 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, 2023, was $ 0.3 million.

The Company has included this lease in premises and equipment as follows December 31, 2023 and 2022:

1 unchanged sentence

Finance lease

$ 3,423  

$ 3,423 $ 3,423

accumulated amortization

$ 1,028  

$ 1,199  

$ 856 $ 1,028

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, 2023 (dollars in thousands):

2 unchanged sentences

Present value of net minimum lease payments

$ 1,733  

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 –

Premises and Equipment –

Note 5 – Premises and Equipment – (continued)

The Company leases certain premises and equipment under operating leases.

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.

As of December 31, 2023 , the Company had lease liabilities totaling $ 13.2 million and right-of-use assets totaling $ 12.0 million.

As of December 31, 2023 , the weighted average remaining lease term for operating leases was 6.3 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.5 %.

Total lease costs for the year ended December 31, 2023 were $ 4.0 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 –

Goodwill and Other Intangible Assets

A goodwill impairment test is required under ASC 350, Intangibles –

Goodwill and Other, and the FASB issued ASU No.

2011 - 08, “Testing Goodwill for Impairment,”

allowing an initial qualitative assessment of goodwill commonly known as step zero impairment testing.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 – Goodwill and Other Intangible Assets

A goodwill impairment test is required under ASC 350, Intangibles – Goodwill and Other, and the FASB issued ASU No.

2011 - 08, “Testing Goodwill for Impairment,” allowing an initial qualitative assessment of goodwill commonly known as step zero impairment testing.

In general, the step zero test allows an entity to first assess qualitative factors to determine whether it is more likely than not (i.e., more than 50% ) that the fair value of a reporting unit is less than its carrying value.

If a step zero impairment test results in the conclusion that it is more likely than not that the fair value of the reporting unit exceeds its carrying value, then no further testing is required.

Based upon management’s review through December 31, 2022 , the Company’s goodwill was not impaired.

Due to recent declines in bank stock prices and events impacting the banking industry, the Company performed a quantitative impairment analysis as of December 31, 2023.

The annual quantitative assessment of goodwill for the reporting unit was performed utilizing a discounted cash flow analysis ("income approach") and estimates of selected market information ("market approaches").

The income approach measures the fair value of an interest in a business by discounting expected future cash flows to present value.

The market approaches take into consideration fair values of comparable companies operating in similar lines of business that are potentially subject to similar economic and environmental factors and could be considered reasonable investment alternatives.

The result of the income approach was weighted 50% and the results of the market approaches comprised the remaining 50% in determining the fair value of the reporting unit.

The results of the annual quantitative impairment analysis indicated that the fair value exceeded the carrying value of the reporting unit.

Based upon management’s review through December 31, 2023 , the Company’s goodwill was not impaired.

Management concludes that the ASC 350 goodwill step zero test has been passed, and no further testing is required.

2 unchanged sentences

Balance, January 1

$ 208,372  

$ 208,372 $ 208,372

Acquired goodwill

Balance, December 31

$ 208,372  

$ 208,372 $ 208,372

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 –

Goodwill and Other Intangible Assets –

Note 6 – Goodwill and Other Intangible Assets – (continued)

Acquired Intangible Assets

3 unchanged sentences

December 31, 2023

$ 18,515  

$ ( 11,203 )  

$ 7,312  

$ 18,515 $ ( 12,641 ) $ 5,874

Core deposit intangibles

December 31, 2022

$ 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.

$ 18,515 $ ( 11,203 ) $ 7,312

Aggregate amortization expense was approximately $ 1.4 million, $ 1.7 million and $ 2.0 million for 2023 , 2022 and 2021 , respectively.

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

$ 1,438  

Note 7 –

Note 7 – Deposits

Time Deposits

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, 2023 , and 2022 , the Company's total time deposits were $ 2.5 billion and $ 2.4 billion, respectively.

Included in time deposits were gross nonreciprocal brokered time deposits of $ 916.8 million and $ 934.9 million as of December 31, 2023 and 2022 , respectively.

As of December 31, 2023 , the contractual maturities of these time deposits were as follows (dollars in thousands):

$ 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.

The amount of time deposits with balances in excess of $250,000 were $ 643.4 million and $ 591.8 million as of December 31, 2023 and 2022 , respectively.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 –

FHLB Borrowings

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

Note 8 – FHLB Borrowings

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

December 31, 2023

3 unchanged sentences

Less than 1 year

$ 830,000  

4.42 %  

$ 390,549  

$ 881,000 5.57 % $ 830,000 4.42 %

1 year through less than 2 years

50,000  

25,000 1.00 - -

2 years through less than 3 years

25,000  

2,050 2.23 25,000 1.00

3 years through less than 4 years

25,000  

293 2.85 2,050 2.23

4 years through 5 years

25,000 4.18 326 2.85

After 5 Years

294 2.96 326 2.96

FHLB borrowings (before discount)

857,702  

4.32 %  

468,313  

933,637 5.41 % 857,702 4.32 %

Fair value discount

( 80 )  

( 120 )  

( 58 ) ( 80 )

FHLB borrowings (after discount)

$ 857,622  

$ 468,193  

$ 933,579 $ 857,622

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, 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.

The advances as of December 31, 2023 were primarily collateralized by approximately $ 4.1 billion of commercial mortgage and residential loans, or $ 2.7 billion net of required over collateralization amounts, under a blanket lien arrangement.

As of December 31, 2023 , the Company had remaining borrowing capacity of billion approximately $ 1.3 billion at the FHLB.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 –

Subordinated Debentures

Note 9 – Subordinated Debentures

During 2003, the Company formed a statutory business trust, which exists for the exclusive purpose of (i) issuing Trust Securities representing undivided beneficial interests in the assets of the Trust;

3 unchanged sentences

The capital securities presently qualify as Tier I capital.

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

The subordinated debentures are redeemable in whole or in part prior to maturity.

The floating interest rate on the subordinate debentures is three -month LIBOR plus 2.85 % and reprices quarterly.

The floating interest rate on the subordinate debentures was previously three -month LIBOR plus 2.85 % and reprices quarterly.

Upon the cessation of publication of LIBOR rates and pursuant to the Federal LIBOR Act and Federal Reserve regulations implementing the Act, applicable US Dollar LIBOR indexed instruments like the Company’s outstanding $ 5.0 million of MMCapS capital securities converted effective June 30, 2023 to a new index based on CME Term SOFR, as defined in the LIBOR Act, plus a tenor spread adjustment, which is referred to as the Benchmark Replacement.

Therefore, effective for quarterly interest rate resets after July 3, 2023 the subordinated debentures’ floating rate will be three -month CME Term SOFR plus 2.85 % plus a tenor spread adjust of 0.26161 %.

The rate as of December 31, 2023 was 8.50 %.

1 unchanged sentence

Distributions on the subordinated debentures owned by the subsidiary trust have been classified as interest expense in the Consolidated Statements of Income.

The following table summarizes the mandatory redeemable trust preferred securities of the Company’s Statutory Trust II as of December 31, 2022 and December 31, 2021 .

The following table summarizes the mandatory redeemable trust preferred securities of the Company’s Statutory Trust II as of December 31, 2023 and December 31, 2022 .

As of December 31, 2023

Issuance Date

1 unchanged sentence

Liquidation Value

Redeemable by Issuer

$ 5,000,000  

Redeemable by Issuer Beginning

$ 5,000,000 $1,000 per Capital Security

Floating 3-month CME Term SOFR + 285 Basis Points + 26.161 Basis Points

As of December 31, 2022

Issuance Date

Securities Issued

Liquidation Value

Redeemable by Issuer Beginning

$ 5,000,000 $1,000 per Capital Security

Floating 3-month LIBOR + 285 Basis Points

On June 10, 2020, the Parent Corporation issued $ 75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2020 Notes”).

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 – Subordinated Debentures - (continued)

On June 10, 2020, the Parent Corporation issued $ 75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2020 Notes”).

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

1 unchanged sentence

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

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 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.

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 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 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.

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 –

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 )  

Note 10 – Income Taxes

The current and deferred amounts of income tax expense for 2023 , 2022 and 2021 are as follows (dollars in thousands):

$ 16,185 $ 33,169 $ 32,364

9,635 13,247 12,325

25,820 46,416 44,689

2,903 ( 3,353 ) ( 110 )

1,232 2,950 126

4,135 ( 403 ) 16

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.

The legislation imposes a temporary surtax on corporations earning New Jersey allocated income in excess of $1 million of 2.5% for tax years beginning on or after January 1, 2018 through December 31, 2019, and of 1.5% for tax years beginning on or after January 1, 2020 through December 31, 2021.

However, in 2020, this surtax was extended through December 31, 2023, at the 2.5% level.

The legislation also requires combined filing for members of an affiliated group for tax years beginning on or after January 1, 2019, changing New Jersey’s current status as a separate return state, and limits the deductibility of dividends received.

$ 29,955 $ 46,013 $ 44,705

Actual income tax expense differs from the tax computed based on pre-tax income and the applicable statutory federal tax rate for the following reasons (dollars in thousands) December 31,

Income before income tax expense

$ 171,224  

$ 175,058  

$ 90,390  

$ 116,958 $ 171,224 $ 175,058

Federal statutory rate

Computed “expected”

Federal income tax expense

35,957  

36,762  

18,982  

21 % 21 % 21 %

Computed “expected” Federal income tax expense

24,561 35,957 36,762

State tax, net of federal tax benefit

13,314  

9,404 13,314 9,127

162M adjustment

Bank owned life insurance

( 1,175 )  

( 1,001 )  

( 1,326 ) ( 1,175 ) ( 1,001 )

Tax-exempt interest and dividends

( 1,969 )  

( 1,405 )  

( 2,514 ) ( 1,969 ) ( 1,405 )

Tax benefits from stock-based compensation

( 417 )  

( 261 )  

( 474 )  

( 66 ) ( 417 ) ( 261 )

( 883 ) ( 474 ) 1,483

Income tax expense

$ 46,013  

$ 44,705  

$ 19,101  

$ 29,955 $ 46,013 $ 44,705

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 –

Income Taxes –

Note 10 – Income Taxes – (continued)

The tax effects of temporary differences that give rise to significant portions of the deferred tax asset and deferred tax liability as of December 31, 2023 and 2022 are presented in the following table:

2 unchanged sentences

Allowance for credit losses

$ 26,901  

$ 23,955  

$ 23,973 $ 26,901

Pension actuarial losses

2 unchanged sentences

Unrealized losses on available-for-sale securities

25,141  

23,365 25,141

Deferred loan costs, net of fees

3 unchanged sentences

Total deferred tax assets

$ 67,891  

$ 41,944  

$ 62,442 $ 67,891

Deferred tax liabilities

Employee benefit plans

$ ( 2,452 )  

$ ( 2,439 ) $ ( 2,452 )

Purchase accounting

( 1,458 )  

( 381 )  

( 1,660 ) ( 1,458 )

Prepaid expenses

( 1,011 )  

Market discount accretion

Unrealized gains on swaps

( 13,704 )  

( 1,386 ) ( 1,011 )

Unrealized gains on derivatives

( 10,676 ) ( 13,704 )

Right of use asset

( 3,059 )  

( 1,681 )  

( 3,545 ) ( 3,059 )

( 1,664 ) ( 1,681 )

Total deferred tax liabilities

( 23,746 )  

( 21,370 ) ( 23,746 )

Net deferred tax assets

$ 44,145  

$ 31,755  

$ 41,072 $ 44,145

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.

3 unchanged sentences

There are no unrecorded tax benefits, and the Company does not expect the total amount of unrecognized income tax benefits to significantly increase in the next twelve months.

The Company’s federal income tax returns are open and subject to examination from the 2019 tax return year and forward.

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.

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.

The Company’s federal income tax returns are open and subject to examination from the 2020 tax return year and forward.

The Company’s state income tax returns are generally open from the 2019 and later tax return years based on individual state statutes of limitations.

As of December 31, 2023, the Company has $ 13.1 million in New Jersey net operating loss (NOL).

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

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 –

Preferred Stock

On August 19, 2021, the Company completed an underwritten public offering of 115,000 shares, or $ 115 million in aggregate liquidation preference, of its depositary shares, each representing a 1/40th interest in a share of the Company’s 5.25 % Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series A, no par value, with a liquidation preference of $ 1,000 per share.

Note 11 – Preferred Stock

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

Note 12 –

Commitments, Contingencies and Concentrations of Credit Risk

Note 12 – Commitments, Contingencies and Concentrations of Credit Risk

In the normal course of business, the Company has outstanding commitments and contingent liabilities, such as standby and commercial letters of credit, unused portions of lines of credit and commitments to extend various types of credit.

1 unchanged sentence

These financial instruments involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the consolidated financial statements.

The commitment or contract amount of these financial instruments is an indicator of the Company’s level of involvement in each type of instrument as well as the exposure to credit loss in the event of nonperformance by the other party to the financial instrument.

The Company controls the credit risk of these financial instruments through credit approvals, limits and monitoring procedures.

1 unchanged sentence

In the opinion of management, the financial condition of the Company will not be materially affected by the final outcome of these commitments and contingent liabilities.

A substantial portion of the Bank’s loans are secured by real estate located in New Jersey and New York.

Accordingly, the collectability of a substantial portion of the loan portfolio of the Bank is susceptible to changes in the metropolitan New York real estate market.

2 unchanged sentences

Commitments under commercial loans and lines of credit

$ 662,515  

$ 647,971  

$ 723,228 $ 662,515

Home equity and other revolving lines of credit

54,302  

53,180  

48,786 54,302

Outstanding commercial mortgage loan commitments

433,034  

514,473  

370,574 433,034

Standby letters of credit

20,770  

25,271  

23,562 20,770

Overdraft protection lines

$ 1,171,526  

$ 1,241,868  

$ 1,166,979 $ 1,171,526

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

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 –

Transactions with Executive Officers, Directors and Principal Stockholders

Note 13 – Transactions with Executive Officers, Directors and Principal Stockholders

Loans to principal officers, directors, and their affiliates during the years ended December 31, 2023 and 2022 were as follows:

1 unchanged sentence

Balance, January 1

$ 17,616  

$ 21,534  

( 2,550 )  

$ 16,266 $ 17,616

Originations and drawdowns

( 5,744 ) ( 2,550 )

Balance, December 31

$ 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.

$ 20,323 $ 16,266

Deposits from principal officers, directors, and their affiliates as of December 31, 2023 and 2022 were $ 32.3 million and $ 49.7 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).

The Company leases banking offices from related party entities.

In addition, the Company also utilizes an advertising and public relations agency at which one of the Company’s directors is President and CEO and a principal owner.

For these transactions, the expenses are not significant to the operations of the Company.

Note 14 –

Stockholders ’

Equity and Regulatory Requirements

Note 14 – Stockholders ’ Equity and Regulatory Requirements

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies.

2 unchanged sentences

Failure to meet capital requirements can initiate regulatory action.

The accumulated other comprehensive gain or loss, on securities and derivatives 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, 2023 , the Bank and the Parent Corporation meet all capital adequacy requirements to which they are subject.

4 unchanged sentences

As of December 31, 2023 , and 2022 , the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.

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

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14 –

Stockholders ’

Equity and Regulatory Requirements –

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.

Note 14 – Stockholders ’ Equity and Regulatory Requirements – (continued)

The following is a summary of the Bank’s and the Parent Corporation’s actual capital amounts and ratios as of December 31, 2023 and 2022 , compared to the FRB and FDIC minimum capital adequacy requirements and the FDIC requirements for classification as a well-capitalized institution.

For Classification

5 unchanged sentences

Leverage (Tier 1) capital

$ 996,013  

10.64 %  

$ 374,553  

4.00 %  

$ 468,191  

$ 1,074,204 11.20 % $ 383,619 4.00 % $ 479,524 5.00 %

Risk-Based Capital:

$ 996,013  

$ 386,289  

$ 557,972  

996,013  

515,051  

686,735  

1,117,733  

686,735  

858,419  

$ 1,074,204 12.31 $ 392,643 4.50 $ 567,151 6.50

1,074,204 12.31 523,524 6.00 698,032 8.00

1,158,572 13.28 698,032 8.00 872,540 10.00

December 31, 2022

Leverage (Tier 1) capital

$ 891,730  

11.43 %  

$ 312,166  

4.00 %  

$ 390,207  

$ 996,013 10.64 % $ 374,553 4.00 % $ 468,191 5.00 %

Risk-Based Capital:

$ 891,730  

$ 335,641  

$ 484,815  

891,730  

447,522  

596,696  

1,002,753  

596,696  

745,869  

$ 996,013 11.60 $ 386,289 4.50 $ 557,972 6.50

996,013 11.60 515,051 6.00 686,735 8.00

1,117,733 13.02 686,735 8.00 858,419 10.00

Minimum Capital

1 unchanged sentence

as Well Capitalized

Amount  

(dollars in thousands)  

Amount Ratio Amount Ratio Amount Ratio

(dollars in thousands)

December 31, 2023

Leverage (Tier 1) capital

$ 1,000,577  

10.68 %  

$ 374,729  

4.00 %  

$ 1,042,481 10.86 % $ 383,900 4.00 % N/A N/A

Risk-Based Capital:

$ 884,495  

$ 386,295  

1,000,577  

515,061  

1,240,047  

686,748  

$ 926,399 10.62 $ 392,650 4.50 N/A N/A

1,042,481 11.95 523,533 6.00 N/A N/A

1,201,849 13.77 698,044 8.00 N/A N/A

December 31, 2022

Leverage (Tier 1) capital

$ 909,577  

11.65 %  

$ 312,194  

4.00 %  

$ 1,000,577 10.68 % $ 374,729 4.00 % N/A N/A

Risk-Based Capital:

$ 793,495  

$ 335,648  

909,577  

447,531  

1,138,350  

596,708  

$ 884,495 10.30 $ 386,295 4.50 N/A N/A

1,000,577 11.66 515,061 6.00 N/A N/A

1,240,047 14.45 686,748 8.00 N/A N/A

As of December 31, 2023 , both the Company and Bank satisfy the capital conservation buffer requirements applicable to them.

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. 

The lowest ratio at the Company is the Total Risk Capital Ratio which was 3.27 % above the minimum buffer ratio and, at the Bank, the lowest ratio was the Total Risk Based Capital Ratio which was 2.78 % above the minimum buffer ratio.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 –

Comprehensive Income

Note 15 – Comprehensive Income

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

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

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

9 unchanged sentences

$ - $ - $ 195 Net gains on sale of investment securities

( 48 )  

- - ( 48 ) Income tax expense

Net interest income (expense) on swaps

( 1,873 )  

Net interest income (expense) on derivatives

20,230 3,243 ( 1,873 ) Interest income (expense)

( 976 )  

( 6,086 ) ( 976 ) 528 Income tax (benefit) expense

( 1,345 )  

( 1,134 )  

14,144 2,267 ( 1,345 )

Amortization of pension plan net actuarial losses

( 66 )  

( 299 )  

( 296 ) ( 66 ) ( 299 ) Salaries and employee benefits

89 20 84 Income tax benefit

( 46 )  

( 215 )  

( 217 )  

( 207 ) ( 46 ) ( 215 )

Total reclassification

$ 2,221  

$ ( 1,413 )  

$ ( 1,328 )  

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

$ 13,937 $ 2,221 $ ( 1,413 )

Accumulated other comprehensive loss as of December 31, 2023 and 2022 consisted of the following:

(dollars in thousands)

Investment securities available-for-sale, net of tax

$ ( 61,775 )  

Cash flow hedge, net of tax

32,360  

$ ( 57,835 ) $ ( 61,775 )

Derivatives, net of tax

24,810 32,360

Defined benefit pension, net of tax

( 2,949 )  

$ ( 32,364 )  

( 2,084 ) ( 2,949 )

$ ( 35,109 ) $ ( 32,364 )

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16 –

 Pension and Other Benefits

Note 16 – Pension and Other Benefits

Defined Benefit Plans

The Company maintains a frozen, noncontributory pension plan covering employees of the Company prior to the merger with Legacy ConnectOne.

The benefits are based on years of service and the employee’s compensation over the prior five -year period.

The plan’s benefits are payable in the form of a ten -year certain and life annuity.

The benefits are based on years of service and the employee’s compensation over the prior five -year period.

The plan’s benefits are payable in the form of a ten -year certain and life annuity.

The plan is intended to be a tax-qualified defined benefit plan under Section 401 (a) of the Internal Revenue Code.

Payments may be made under the Pension Plan once attaining the normal retirement age of 65 and are generally equal to 44% of a participant’s highest average compensation over a 5 -year period.

The following table sets forth changes in projected benefit obligation, changes in fair value of plan assets, funded status, and amounts recognized in the consolidated statements of condition for the Company’s pension plans as of December 31, 2022 and 2021 .

Payments may be made under the Pension Plan once attaining the normal retirement age of 65 and are generally equal to 44% of a participant’s highest average compensation over a 5 -year period.

(dollars in thousands)

1 unchanged sentence

Projected benefit obligation as of January 1,

$ 14,644  

$ 13,476  

$ 9,317 $ 14,644

Interest cost

Actuarial (gain) loss

( 4,657 )  

251 ( 4,657 )

Benefits paid

( 981 )  

( 674 ) ( 981 )

Projected benefit obligation as of December 31,

$ 9,317  

$ 14,644  

$ 9,335 $ 9,317

Change in Plan Assets:

Fair value of plan assets as of January 1,

$ 17,604  

$ 15,868  

$ 13,257 $ 17,604

Actual return on plan assets

( 3,366 )  

2,031 ( 3,366 )

Benefits paid

( 981 )  

( 674 ) ( 981 )

Fair value of plan assets as of December 31,

$ 13,257  

$ 17,604  

$ 14,614 $ 13,257

Funded status

$ 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.

$ 5,279 $ 3,940

The accumulated benefit obligation was $ 9.3 million for both years ended December 31, 2023 and 2022 .

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16 –

Pension and Other Benefits –

Note 16 – Pension and Other Benefits – (continued)

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, 2023, the Company expects to recognize approximately $ 0.2 million of the net actuarial loss as a component of net periodic pension expense during 2024.

As of December 31,

1 unchanged sentence

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:

$ 2,981 $ 4,219

The pre-tax, net periodic pension expense (income) and other comprehensive income for the years ended December 31, 2023 , 2022 and 2021 includes the following:

(dollars in thousands)

Interest cost

$ 440 $ 311 $ 284

Expected return on plan assets

( 949 )  

( 852 )  

( 838 ) ( 949 ) ( 852 )

Net amortization

Total net periodic pension income

$ ( 572 )  

$ ( 269 )  

Total unrealized (gain) loss recognized in other comprehensive income

( 343 )  

$ ( 102 ) $ ( 572 ) $ ( 269 )

Total unrealized gain recognized in other comprehensive income

( 941 ) ( 343 ) -

Realized losses included in net income

( 66 )  

( 299 )  

( 296 ) ( 66 ) ( 299 )

Total recognized in net periodic pension income and other comprehensive income

$ ( 981 )  

$ ( 568 )  

$ ( 1,339 ) $ ( 981 ) $ ( 568 )

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16 –

Pension and Other Benefits –

Note 16 – Pension and Other Benefits – (continued)

The following table presents the weighted average assumptions used to determine the pension benefit obligations as of December 31, for the following periods.

Discount rate

4.92 %  

4.72 % 4.92 %

Rate of compensation increase

1 unchanged sentence

Discount rate

4.92 %  

2.57 %  

4.72 % 4.92 % 2.57 %

Expected long-term return on plan assets

6.50 %  

5.50 %  

6.00 % 6.50 % 5.50 %

Rate of compensation increase

1 unchanged sentence

This data forms the basis for the construction of a best-estimate range of real investment returns for each asset class.

An average weighted real-return range is computed reflecting the plan’s expected asset mix, and that range, when combined with an expected inflation range, produces an overall best-estimate expected return range.

Specific factors such as the plan’s investment policy, reinvestment risk and investment volatility are taken into consideration during the construction of the best estimate real return range, as well as in the selection of the final return assumption from within the range.

A weighted average real-return range is computed reflecting the plan’s expected asset mix, and that range, when combined with an expected inflation range, produces an overall best-estimate expected return range.

The general investment policy of the Pension Trust is for the fund to experience growth in assets that will allow the market value to exceed the value of benefit obligations over time.

The Company’s pension plan asset allocation as of December 31, 2022 and 2021 , target allocation, and expected long-term rate of return by asset are as follows:

Assets –

The Company’s pension plan asset allocation as of December 31, 2023 and 2022 , target allocation, and expected long-term rate of return by asset are as follows:

Equity Securities

56 % 66 % 58 % 3.4 %

International

1 unchanged sentence

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

100 % 100 % 100 % 6.0 %

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16 –

Pension and Other Benefits –

The fair values of the Company’s pension plan assets as of December 31, 2022 and 2021 , by asset class, are as follows:

Note 16 – Pension and Other Benefits – (continued)

The fair values of the Company’s pension plan assets as of December 31, 2023 and 2022 , by asset class, are as follows:

Fair Value Measurements at Reporting Date Using

2 unchanged sentences

(dollars in thousands)

$ 201 $ 201 $ - $ -

Equity securities:

9,647 9,647 - -

International companies

Debt and/or fixed income securities

4,012 4,012 - -

Commodity funds

Real estate funds

$ 13,257  

$ 14,614 $ 14,614 $ - $ -

Fair Value Measurements at Reporting Date Using

2 unchanged sentences

(dollars in thousands)

$ 262 $ 262 $ - $ -

Equity securities:

10,551  

7,611 7,611 - -

International companies

Debt and/or fixed income securities

4,684 4,684 - -

Commodity funds

Real estate funds

$ 17,604  

$ 13,257 $ 13,257 $ - $ -

Fair Value of Plan Assets

6 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16 –

Pension and Other Benefits –

Note 16 – Pension and Other Benefits – (continued)

Debt and fixed income securities :

1 unchanged sentence

Other debt securities are valued based upon recent bid prices or the average of recent bid and asked prices when available (Level 2 inputs) and, if not available, they are valued through matrix pricing models developed by sources considered by management to be reliable.

Matrix pricing, which is a mathematical technique commonly used to price debt securities that are not actively traded, values debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’

relationship to other benchmark quoted securities (Level 2 inputs).

For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3 ).

Discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality.

Discounted cash flows are calculated using spread to continuous yield or quoted market pricing curves.

During times when trading is more liquid, broker quotes are used (if available) to validate the model.

6 unchanged sentences

The Company maintains a 401 (k) plan to provide for defined contributions which covers substantially all employees of the Company.

Beginning with the 2014 plan year, the 401 (k) plan was amended to provide for a match of 50 % of elective contributions, up to 6% of an employee’s contribution.

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

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.

For 2023 , 2022 and 2021 , employer contributions amounted to $ 2.6 million, $ 2.2 million and $ 1.6 million, respectively.

Supplemental Executive Retirement Plan ( “ SERP ” )

During 2019 and in 2022, 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 $ 1.4 million, $ 1.0  million and $ 0.4 million for the years ended December 31, 2022, December 31, 2021 

and December 31, 2020, respectively.

SERP compensation expense was $ 0.4 million, $ 1.4 million and $ 1.0 million for the years ended December 31, 2023, December 31, 2022 and December 31, 2021, respectively.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17 –

Stock Based Compensation

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

Note 17 – Stock Based Compensation

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

The Plan eliminates all remaining issuable shares under previous plans and is the only outstanding plan as of December 31, 2023.

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

The Plan was amended in 2023 so that the maximum number of shares of common stock or equivalents which may be issued under the Plan, is 750,000 .

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

2 unchanged sentences

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.

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

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

5 unchanged sentences

Forfeiture rates are not estimated but are recorded as incurred.

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:

Stock-based compensation expense was $ 4.9 million, $ 4.9 million and $ 4.5 million for the years ended December 31, 2023, 2022 and 2021 respectively.

Activity under the Company’s options for the year ended December 31, 2023 was as follows:

Intrinsic Value

Outstanding as of December 31, 2022

23,766  

$ 9.94  

( 15,086 )  

8,680 $ 12.95 $ -

( 7,388 ) 12.73 -

Forfeited/cancelled/expired

( 1,292 ) 14 -

Outstanding as of December 31, 2023

$ 97,673  

Exercisable as of December 31, 2023

$ 12.95  

CONNECTONE BANCORP, INC.

1 unchanged sentence

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 .

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

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

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, 2023 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, 2023 .

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

Activity under the Company’s restricted shares for year ended December 31, 2023 was as follows:

Nonvested as of December 31, 2022

82,693  

$ 21.78  

53,543  

( 49,931 )  

Forfeited/cancelled/expired

( 374 )  

85,931 $ 26.20

( 54,183 ) 27.59

Cancelled/netted

( 9,090 ) 21.76

Nonvested December 31, 2023

85,931  

$ 26.20  

115,805 $ 17.85

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17 –

Stock Based Compensation –

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.

Note 17 – Stock Based Compensation – (continued)

As of December 31, 2023 , there was approximately $ 0.7 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, 2022

209,995  

$ 16.18  

34,874  

195,265 $ 17.98

Vested shares

( 49,604 )  

( 116,192 ) 10.77

Unearned as of December 31, 2023

195,265  

221,541  

$ 17.98  

164,231 233,087 $ 23.06

As of December 31, 2023, the specific number of shares related to performance units that were expected to vest was 164,231 , 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.

8 unchanged sentences

Unearned as of December 31, 2022

136,948  

$ 16.52  

52,312  

120,035 $ 23.84

146,857 18.98

Vested shares

( 69,225 )  

( 78,544 ) 18.91

Unearned as of December 31, 2023

120,035  

$ 23.84  

188,348 $ 22.11

Any forfeitures would result in previously recognized expense being reversed.

4 unchanged sentences

As of December 31, 2023, 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 1.4 years.

Note 18 –

Dividends and Other Restrictions

Note 18 – Dividends and Other Restrictions

Certain restrictions, including capital requirements, exist on the availability of undistributed net profits of the Bank for the future payment of dividends to the Parent Corporation.

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

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

As of December 31, 2023 , approximately $ 286.0 million was available for payment of dividends based on regulatory guidelines.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 19 –

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.

Note 19 – Derivatives

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.

10 unchanged sentences

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 . 

Cash Flow Hedges

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.

1 unchanged sentence

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. 

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.

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 (income) expense recorded on these swap and cap transactions totaled approximately $( 20.2 ) million, $( 3.3 ) million, and $ 1.9 million during 2023, 2022, and 2021 is reported as a component of either interest expense on FHLB Advances or brokered certificates of deposits.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 19 –

Derivatives (continued)

Note 19 – Derivatives (continued)

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, 2023 and 2022:

11 unchanged sentences

Interest rate contracts

$ 46,282  

$ ( 3,343 )  

$ 9,431 $ ( 20,230 ) $ -

Amount of gain

10 unchanged sentences

Interest rate contracts

$ 3,593  

$ 1,873  

$ 46,282 $ ( 3,343 ) $ -

The following table reflects the cash flow hedges included in the Consolidated Statements of Condition as of December 31, 2023 and December 31, 2022 :

2 unchanged sentences

Interest rate contracts

$ 950,000  

$ 56,797  

$ 475,000  

$ 3,347  

$ 950,000 $ 43,805 $ 950,000 $ 56,797

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, 2023 and December 31, 2022 .

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20 –

Fair Value Measurements and Fair Value of Financial Instruments

Note 20 – Fair Value Measurements and Fair Value of Financial Instruments

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

9 unchanged sentences

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

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

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

Due to 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.

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

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

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 :

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, 2023 and December 31, 2022 :

Securities Available-for-Sale:

5 unchanged sentences

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

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

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

6 unchanged sentences

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:

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, 2023 and December 31, 2022 are as follows:

December 31, 2023

7 unchanged sentences

Federal agency obligations

$ 44,450  

$ 45,326 $ - $ 45,326 $ -

Residential mortgage pass-through securities

417,578  

411,191 - 411,191 -

Commercial mortgage pass-through securities

21,104  

21,564 - 21,564 -

Obligations of U.S.

states and political subdivision

142,896  

135,547  

132,705 - 125,583 7,122

Corporate bonds and notes

4,973 - 4,973 -

Asset-backed securities

1,238 - 1,238 -

Certificates of deposit

1 unchanged sentence

Total available-for-sale

$ 634,884  

$ 627,293  

$ 7,349  

$ 617,162 $ 165 $ 609,875 $ 7,122

Equity securities

15,811  

18,564 9,867 8,697 -

Derivatives - interest rate contracts

56,797  

$ 707,492  

$ 9,975  

$ 690,168  

$ 7,349  

43,805 - 43,805 -

$ 679,531 $ 10,032 $ 662,377 $ 7,122

There were no transfers between Level 1 and Level 2 during the years ended December 31, 2023 and 2022 .

11 unchanged sentences

Federal agency obligations

$ 50,360  

$ 44,450 $ - $ 44,450 $ -

Residential mortgage pass-through securities

316,095  

417,578 - 417,578 -

Commercial mortgage pass-through securities

10,469  

21,104 - 21,104 -

Obligations of U.S.

states and political subdivision

145,625  

137,060  

142,896 - 135,547 7,349

Corporate bonds and notes

6,974 - 6,974 -

Asset-backed securities

1,640 - 1,640 -

Certificates of deposit

1 unchanged sentence

Total available-for-sale

$ 534,507  

$ 525,747  

$ 8,565  

$ 634,884 $ 242 $ 627,293 $ 7,349

Equity securities

13,794  

11,081  

15,811 9,733 6,078 -

Derivatives - interest rate contracts

$ 551,648  

$ 11,276  

$ 531,807  

$ 8,565  

56,797 - 56,797 -

$ 707,492 $ 9,975 $ 690,168 $ 7,349

Assets Measured at Fair Value on a Non-Recurring Basis

1 unchanged sentence

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

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

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a non-recurring basis as of December 31, 2023 and December 31, 2022 :

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20 –

Fair Value Measurements and Fair Value of Financial Instruments –

Note 20 – Fair Value Measurements and Fair Value of Financial Instruments – (continued)

Collateral Dependent Loans:

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

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

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

Specific reserves are calculated in accordance with GAAP.

Specific reserves are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the specific reserve amount applicable to that loan does not necessarily represent the fair value of the loan.

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

1 unchanged sentence

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, 2022 and 

December 31, 2021 are as follows:

For assets measured at fair value on a nonrecurring basis, the fair value measurements as of December 31, 2023 and December 31, 2022 are as follows:

Fair Value Measurements at Reporting Date Using

2 unchanged sentences

Collateral dependent loans:

$ 14,550  

$ 657 $ - $ - $ 657

Commercial real estate

17,264  

Residential real estate

7,005 - - 7,005

Fair Value Measurements at Reporting Date Using

2 unchanged sentences

Collateral dependent loans:

$ 13,399  

$ 14,550 $ - $ - $ 14,550

Commercial real estate

20,185  

17,264 - - 17,264

Residential real estate

1,392 - - 1,392

Collateral dependent loans - Collateral dependent loans as of December 31, 2023 that required a valuation allowance were $ 7.7 million with a related valuation allowance of $ 1.4 million.

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.

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

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20 –

Fair Value Measurements and Fair Value of Financial Instruments –

Note 20 – Fair Value Measurements and Fair Value of Financial Instruments – (continued)

Assets Measured With Significant Unobservable Level 3 Inputs

3 unchanged sentences

Beginning balance, January 1, 2023

$ 8,565  

Principal paydowns

1 unchanged sentence

Ending balance, December 31, 2023

$ 7,349  

(dollars in thousands)

Beginning balance, January 1, 2022

$ 8,844  

Principal paydowns

Changes in unrealized gain (loss)

Ending balance, December 31, 2022

$ 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 .

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, 2023 and December 31, 2022 .

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

3 unchanged sentences

Municipal securities

$ 7,349  

$ 7,122 Discounted cash flows

4 unchanged sentences

Municipal securities

$ 8,565  

$ 7,349 Discounted cash flows

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20 –

Fair Value Measurements and Fair Value of Financial Instruments –

Note 20 – Fair Value Measurements and Fair Value of Financial Instruments – (continued)

Non-recurring basis

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a non-recurring basis for the periods presented.

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

3 unchanged sentences

Commercial loans

$ 14,028  

Market approach (100%)

Average transfer price as a price to unpaid principal balance

65% to 96% (67%)  

Commercial loans

$ 657 Appraisals of collateral

2 unchanged sentences

Commercial real estate loans

17,264  

7,005 Appraisals of collateral

1 unchanged sentence

-15% to +0% (-10.3%)

Residential real estate loans

Appraisals of collateral

Adjustment for comparable sales

+21% to +39% (22%)

December 31, 2022

2 unchanged sentences

Commercial loans

$ 12,193  

$ 14,028 Market approach (100%)

Average transfer price as a price to unpaid principal balance

48% to 73% (49%)  

65% to 96% (67%)

Commercial loans

3 unchanged sentences

Commercial real estate loans

20,185  

17,264 Appraisals of collateral

4 unchanged sentences

Adjustment for comparable sales

-15% to +39% (5%)  

+21% to +39% (22%)

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20 –

Fair Value Measurements and Fair Value of Financial Instruments –

Note 20 – Fair Value Measurements and Fair Value of Financial Instruments – (continued)

Fair Value of Financial Instruments

1 unchanged sentence

For the Company, as for most financial institutions, the majority of its assets and liabilities are considered financial instruments as defined in FASB ASC 825 - 10.

Many of the Company’s financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction.

It is also the Company’s general practice and intent to hold its financial instruments to maturity and not to engage in trading or sales activities except for loans held-for-sale and investment securities available-for-sale.

Many of the Company’s financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction.

Therefore, significant estimations and assumptions, as well as present value calculations, were used by the Company for the purposes of this disclosure.

10 unchanged sentences

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., 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.

Term Borrowings and Subordinated Debentures .

The fair value of the Company’s long-term borrowings and subordinated debentures were calculated using a discounted cash flow approach and applying discount rates currently offered based on weighted remaining maturities.

Accrued Interest Receivable/Payable.

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20 –

Fair Value Measurements and Fair Value of Financial Instruments –

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of December 31, 2022 and December 31, 2021 :

Note 20 – Fair Value Measurements and Fair Value of Financial Instruments – (continued)

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of December 31, 2023 and December 31, 2022 :

Fair Value Measurements

3 unchanged sentences

Cash and due from banks

$ 268,315  

$ 242,714 $ 242,714 $ 242,714 $ - $ -

Investment securities available-for-sale

634,884  

627,293  

617,162 617,162 165 609,875 7,122

Restricted investment in bank stocks

46,604  

51,457 n/a n/a n/a n/a

Equity securities

15,811  

8,009,176  

7,723,378  

18,564 18,564 9,867 8,697 -

8,263,171 8,001,504 - - 8,001,504

Derivatives - interest rate contracts

56,797  

43,805 43,805 - 43,805 -

Accrued interest receivable

46,062  

41,377  

49,108 49,108 - 5,387 43,721

Financial liabilities:

Noninterest-bearing deposits

1,501,614  

1,259,364 1,259,364 1,259,364 - -

Interest-bearing deposits

5,855,008  

5,811,291  

3,460,818  

2,350,473  

857,622  

854,698  

6,276,838 6,256,444 3,745,467 2,510,977 -

933,579 932,081 - 932,081 -

Subordinated debentures

153,255  

153,581  

79,439 77,952 - 77,952 -

Accrued interest payable

10,152 10,152 - 10,152 -

December 31, 2022

1 unchanged sentence

Cash and due from banks

$ 265,536  

$ 268,315 $ 268,315 $ 268,315 $ - $ -

Investment securities available-for-sale

534,507  

525,747  

634,884 634,884 242 627,293 7,349

Restricted investment in bank stocks

27,826  

46,604 n/a n/a n/a n/a

Equity securities

13,794  

11,081  

6,749,849  

6,800,287  

15,811 15,811 9,733 6,078 -

8,009,176 7,723,378 - - 7,723,378

Derivatives - interest rate contracts

56,797 56,797 - 56,797 -

Accrued interest receivable

34,152  

32,598  

46,062 46,062 - 4,685 41,377

Financial liabilities:

Noninterest-bearing deposits

1,617,049  

1,501,614 1,501,614 1,501,614 - -

Interest-bearing deposits

4,715,904  

4,716,358  

3,565,795  

1,150,563  

468,193  

469,671  

5,855,008 5,811,291 3,460,818 2,350,473 -

857,622 854,698 - 854,698 -

Subordinated debentures

152,951  

163,995  

153,255 153,581 - 153,581 -

Accrued interest payable

6,925 6,925 - 6,925 -

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20 –

Fair Value Measurements and Fair Value of Financial Instruments –

Note 20 – Fair Value Measurements and Fair Value of Financial Instruments – (continued)

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

3 unchanged sentences

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

The Company’s remaining assets and liabilities, which are not considered financial instruments, have not been valued differently than has been customary with historical cost accounting.

No disclosure of the relationship value of the Company’s core deposit base is required by FASB ASC 825 - 10.

The Company’s remaining assets and liabilities, which are not considered financial instruments, have not been valued differently than has been customary with historical cost accounting.

No disclosure of the relationship value of the Company’s core deposit base is required by FASB ASC 825 - 10.

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

6 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 21 –

Parent Corporation Only Financial Statements

Note 21 – Parent Corporation Only Financial Statements

The Parent Corporation operates its wholly-owned subsidiary, the Bank.

The earnings of this subsidiary are recognized by the Parent Corporation using the equity method of accounting.

Accordingly, earnings are recorded as increases in the Parent Corporation’s investment in the subsidiaries and dividends paid reduce the investment in the subsidiaries.

The ability of the Parent Corporation to pay dividends will largely depend upon the dividends paid to it by the Bank.

5 unchanged sentences

Cash and cash equivalents

$ 117,162  

$ 133,648  

$ 35,885 $ 117,162

Investment in subsidiaries

1,179,342  

1,111,520  

1,253,497 1,179,342

Investment securities

32,405  

Equity securities

$ 1,333,826  

$ 1,278,997  

LIABILITIES AND STOCKHOLDERS’

$ 1,296,495 $ 1,333,826

LIABILITIES AND STOCKHOLDERS’ EQUITY

Other liabilities

Subordinated debentures, net

153,255  

152,951  

Stockholders’

1,178,751  

1,124,212  

Total liabilities and stockholders’

$ 1,333,826  

$ 1,278,997  

79,439 153,255

Stockholders’ equity

1,216,620 1,178,751

Total liabilities and stockholders’ equity

$ 1,296,495 $ 1,333,826

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 )  

$ 50,725 $ 36,475 $ 24,071

946 1,638 1,627

51,671 38,113 25,698

( 6,359 ) ( 8,928 ) ( 8,741 )

Income before equity in undistributed earnings of subsidiaries

29,185  

16,957  

45,312 29,185 16,957

Equity in undistributed earnings of subsidiaries

96,026  

113,396  

63,669  

125,211  

130,353  

71,289  

41,691 96,026 113,396

87,003 125,211 130,353

Preferred dividends

6,036 6,037 1,717

Net income available to common stockholders

$ 119,174  

$ 128,636  

$ 71,289  

$ 80,967 $ 119,174 $ 128,636

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 21 –

Parent Corporation Only Financial Statements –

Note 21 – Parent Corporation Only Financial Statements – (continued)

Condensed Statements of Cash Flows

2 unchanged sentences

Cash flows from operating activities:

$ 125,211  

$ 130,353  

$ 71,289  

$ 87,003 $ 125,211 $ 130,353

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

Equity in undistributed earnings of subsidiary

( 96,026 )  

( 113,396 )  

( 41,691 ) ( 96,026 ) ( 113,396 )

Loss on equity securities, net

Amortization of subordinated debt issuance costs

Decrease (increase) in other assets

50,590  

1,184 304 303

Decrease in other assets

Decrease in other liabilities

( 14 )  

( 287 )  

Net cash provided by (used in) operating activities

29,520  

67,618  

( 1,384 ) ( 14 ) ( 287 )

Net cash provided by operating activities

45,942 29,520 67,618

Cash flows from investing activities:

Sale of equity securities

( 3,538 )  

( 780 )  

Repayment of short-term borrowing

Payments for investments and advances in subsidiaries

( 32,250 ) - -

Repayment of investments and advances in subsidiaries

Purchases of equity securities

( 2,870 ) ( 3,538 ) ( 780 )

Net cash used in investing activities

( 3,538 )  

( 780 )  

( 2,870 ) ( 3,538 ) ( 780 )

Cash flows from financing activities:

Proceeds from (repayment of) proceeds from subordinated debt

( 50,000 )  

73,440  

Repayment of subordinated debt

( 75,000 ) - ( 50,000 )

Cash dividends paid on preferred stock

( 6,037 )  

( 1,717 )  

( 6,036 ) ( 6,037 ) ( 1,717 )

Cash dividends paid on common stock

( 23,428 )  

( 17,493 )  

( 25,912 ) ( 23,428 ) ( 17,493 )

Purchase of treasury stock

( 13,127 )  

( 9,401 )  

( 17,497 ) ( 13,127 ) ( 9,401 )

Proceeds from preferred stock offering

110,927  

Proceeds from exercise of stock options

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  

( 124,349 ) ( 42,468 ) 32,422

(Increase) decrease in cash and cash equivalents

( 81,277 ) ( 16,486 ) 99,260

Cash and cash equivalents as of January 1,

133,648  

34,388  

21,392  

117,162 133,648 34,388

Cash and cash equivalents as of December 31,

$ 117,162  

$ 133,648  

$ 34,388  

$ 35,885 $ 117,162 $ 133,648

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 22 –

Quarterly Financial Information of ConnectOne Bancorp, Inc.

Note 22 – Quarterly Financial Information of ConnectOne Bancorp, Inc.

(dollars in thousands, except per share data)

Total interest income

$ 112,469  

$ 96,980  

$ 85,356  

$ 78,941  

$ 128,957 $ 123,686 $ 121,325 $ 116,097

Total interest expense

34,460  

18,819  

67,135 61,329 57,482 49,013

Net interest income

78,009  

78,161  

75,591  

70,358  

61,822 62,357 63,843 67,084

Provision for credit losses

10,000  

2,700 1,500 3,000 1,000

Total other income

4,209 3,562 3,438 2,792

Other expenses

33,312  

32,143  

31,703  

29,230  

37,845 35,784 35,450 34,870

Income before income taxes

44,905  

39,340  

44,247  

42,732  

25,486 28,635 28,831 34,006

Income tax expense

12,348  

10,425  

11,889  

11,351  

32,557  

28,915  

32,358  

31,381  

6,213 7,228 7,437 9,077

19,273 21,407 21,394 24,929

Preferred dividends

1,509 1,509 1,509 1,509

Net income available to common stockholders

$ 31,047  

$ 27,406  

$ 30,849  

$ 29,872  

$ 17,764 $ 19,898 $ 19,885 $ 23,420

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.

$ 0.46 $ 0.51 $ 0.51 $ 0.60

0.46 0.51 0.51 0.59

(dollars in thousands, except per share data)

Total interest income

$ 79,040  

$ 77,026  

$ 73,051  

$ 72,621  

$ 112,469 $ 96,980 $ 85,356 $ 78,941

Total interest expense

10,042  

11,458  

34,460 18,819 9,765 8,583

Net interest income

70,461  

68,245  

63,009  

61,163  

Provision for (reversal of) credit losses

( 1,649 )  

78,009 78,161 75,591 70,358

Provision for credit losses

3,300 10,000 3,000 1,450

Total other income, net of securities gains

3,508 3,322 3,359 3,054

Other expenses

28,084  

28,183  

26,259  

26,485  

33,312 32,143 31,703 29,230

Income before income taxes

45,339  

42,978  

42,871  

43,870  

44,905 39,340 44,247 42,732

Income tax expense

12,301  

10,881  

10,652  

10,871  

33,038  

32,097  

32,219  

32,999  

12,348 10,425 11,889 11,351

32,557 28,915 32,358 31,381

Preferred dividends

1,510 1,509 1,509 1,509

Net income available to common stockholders

$ 31,321  

$ 32,097  

$ 32,219  

$ 32,999  

$ 31,047 $ 27,406 $ 30,849 $ 29,872

Earnings per share:

$ 0.79  

$ 0.81  

$ 0.83  

$ 0.79 $ 0.70 $ 0.78 $ 0.76

0.79 0.70 0.78 0.75

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

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