What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-05-03 compared with 2023-11-03 · 878 added, 1506 removed, 942 unchanged (72% of the section changed)

4 unchanged sentences

(in thousands, except for share data)

September 30,

(unaudited)  

Cash and due from banks

$ 56,170  

$ 61,629  

$ 45,322 $ 61,421

Interest-bearing deposits with banks

197,128  

206,686  

232,261 181,293

Cash and cash equivalents

253,298  

268,315  

277,583 242,714

Investment securities

581,867  

634,884  

619,397 617,162

Equity securities

17,677  

15,811  

Loans held-for-sale

13,772  

19,457 18,564

Loans receivable

8,181,109  

8,099,689  

8,297,957 8,345,145

Allowance for credit losses - loans

88,230  

90,513  

82,869 81,974

Net loans receivable

8,092,879  

8,009,176  

8,215,088 8,263,171

Investment in restricted stock, at cost

49,387  

46,604  

48,931 51,457

Bank premises and equipment, net

28,432  

27,800  

29,827 30,779

Accrued interest receivable

46,795  

46,062  

49,731 49,108

Bank owned life insurance

236,009  

231,328  

239,308 237,644

Right of use operating lease assets

11,229  

10,179  

Other real estate owned

208,372  

11,725 12,007

208,372 208,372

Core deposit intangibles

146,718  

125,069  

$ 9,678,885  

$ 9,644,948  

128,992 118,751

$ 9,853,964 $ 9,855,603

Noninterest-bearing

$ 1,224,125  

$ 1,501,614  

$ 1,290,523 $ 1,259,364

Interest-bearing

6,214,370  

5,855,008  

6,298,131 6,276,838

Total deposits

7,438,495  

7,356,622  

887,590  

857,622  

7,588,654 7,536,202

877,568 933,579

Subordinated debentures, net

79,313  

153,255  

79,566 79,439

Operating lease liabilities

12,424  

11,397  

12,843 13,171

Other liabilities

72,909  

87,301  

78,724 76,592

Total liabilities

8,490,731  

8,466,197  

8,637,355 8,638,983

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’

STOCKHOLDERS’ EQUITY

Preferred Stock, no par value;

1 unchanged sentence

Authorized 5,000,000 shares;

issued 115,000 shares as of September 30, 2023 and as of December 31, 2022;

outstanding 115,000 shares as of September 30, 2023 and as of December 31, 2022

110,927  

issued 115,000 shares as of March 31, 2024 and as of December 31, 2023;

outstanding 115,000 shares as of March 31, 2024 and as of December 31, 2023

110,927 110,927

Common stock, no par value:

Authorized 100,000,000 shares;

issued 42,122,948 shares as of September 30, 2023 and 41,942,149 shares as of December 31, 2022;

outstanding 38,621,970 shares as of September 30, 2023 and 39,243,123 as of December 31, 2022

586,946  

issued 42,218,601 shares as of March 31, 2024 and 42,122,948 shares as of December 31, 2023;

outstanding 38,333,053 shares as of March 31, 2024 and 38,519,770 as of December 31, 2023

586,946 586,946

Additional paid-in capital

32,027  

30,126  

32,866 33,182

Retained earnings

579,776  

535,915  

Treasury stock, at cost 3,500,978 common shares as of September 30, 2023 and 2,699,026 as of December 31, 2022

( 68,108 )  

600,118 590,970

Treasury stock, at cost 3,885,548 common shares as of March 31, 2024 and 3,603,178 as of December 31, 2023

( 76,116 ) ( 70,296 )

Accumulated other comprehensive loss

( 53,414 )  

Total stockholders’

1,188,154  

1,178,751  

Total liabilities and stockholders’

$ 9,678,885  

$ 9,644,948  

( 38,132 ) ( 35,109 )

Total stockholders’ equity

1,216,609 1,216,620

Total liabilities and stockholders’ equity

$ 9,853,964 $ 9,855,603

See accompanying notes to unaudited consolidated financial statements.

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(dollars in thousands, except for per share data)

13 unchanged sentences

Net gains on sale of loans held-for-sale

Net losses on equity securities

Net gain (losses) on equity securities

Total noninterest income

8 unchanged sentences

Other components of net periodic pension expense

Increase in value of acquisition price

Other expenses

10 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(dollars in thousands)

Other comprehensive income (loss):

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

Unrealized gains on cash flow hedges

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

Unrealized gains (losses) on cash flow hedges

Reclassification adjustment for realized gains on cash flow hedges

Unrealized gains on pension plan

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

4 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS ’

Three Months Ended September 30, 2023

Comprehensive

Stockholders’

(in thousands, except share data)

(Loss) Income

Balance as of June 30, 2023

$ 110,927  

$ 586,946  

$ 30,740  

$ 566,498  

$ ( 61,877 )  

$ ( 33,837 )  

$ 1,199,397  

21,407  

Other comprehensive loss, net of tax

( 19,577 )  

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

( 1,509 )  

Cash dividends paid on common stock ($ 0.17 per share)

( 6,620 )  

Exercise of stock options ( 646 shares)

Net shares issued in satisfaction of deferred stock units earned ( 3,938 shares)

Restricted stock grants, net of forfeitures ( 2,477 shares)

Repurchase of treasury stock ( 316,789 shares)

( 6,231 )  

Stock-based compensation expense

Balance as of September 30, 2023

$ 110,927  

$ 586,946  

$ 32,027  

$ 579,776  

$ ( 68,108 )  

$ ( 53,414 )  

$ 1,188,154  

Three Months Ended September 30, 2022

Comprehensive

Stockholders’

(in thousands, except share data)

(Loss) Income

Balance as of June 30, 2022

$ 110,927  

$ 586,946  

$ 27,536  

$ 489,640  

$ ( 52,799 )  

$ ( 19,103 )  

$ 1,143,147  

28,915  

Other comprehensive loss, net of tax

( 17,389 )  

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

( 1,509 )  

Cash dividends declared on common stock ($ 0.155 per share)

( 6,089 )  

Stock-based compensation expense

Balance as of September 30, 2022

$ 110,927  

$ 586,946  

$ 28,756  

$ 510,957  

$ ( 52,799 )  

$ ( 36,492 )  

$ 1,148,295  

Nine Months Ended September 30, 2023

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS ’ EQUITY

Three Months Ended March 31, 2024

Comprehensive

Stockholders’

(in thousands, except share data)

1 unchanged sentence

Balance as of December 31, 2023

$ 110,927  

$ 586,946  

$ 30,126  

$ 535,915  

$ ( 52,799 )  

$ ( 32,364 )  

$ 1,178,751  

67,730  

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

- - - 17,205 - - 17,205

Other comprehensive loss, net of tax

( 21,050 )  

- - - - - ( 3,023 ) ( 3,023 )

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

( 4,527 )  

- - - ( 1,509 ) - - ( 1,509 )

Cash dividends paid on common stock ($ 0.17 per share)

( 19,342 )  

Exercise of stock options ( 7,388 shares)

- - - ( 6,548 ) - - ( 6,548 )

Restricted stock grants, net of forfeitures ( 36,446 shares)

- - - - - - -

Stock grants ( 1,533 shares)

- - - - - - -

Net shares issued in satisfaction of deferred stock units earned ( 33,604 shares)

- - - - - - -

Net shares issued in satisfaction of performance units earned ( 24,070 shares)

- - - - - - -

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

( 1,836 )  

Repurchase of treasury stock ( 801,952 shares)

( 15,309 )  

- - ( 1,324 ) - - - ( 1,324 )

Stock-based compensation expense

Balance as of September 30, 2023

$ 110,927  

$ 586,946  

$ 32,027  

$ 579,776  

$ ( 68,108 )  

$ ( 53,414 )  

$ 1,188,154  

Nine Months Ended September 30, 2022

- - 1,008 - - - 1,008

Repurchase of treasury stock ( 282,370 shares)

- - - - ( 5,820 ) - ( 5,820 )

Balance as of March 31, 2024

$ 110,927 $ 586,946 $ 32,866 $ 600,118 $ ( 76,116 ) $ ( 38,132 ) $ 1,216,609

Three Months Ended March 31, 2023

Comprehensive

Stockholders’

(in thousands, except share data)

1 unchanged sentence

Balance as of December 31, 2022

$ 110,927  

$ 586,946  

$ 27,246  

$ 440,169  

$ ( 39,672 )  

$ ( 1,404 )  

$ 1,124,212  

92,654  

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

- - - 24,929 - - 24,929

Other comprehensive loss, net of tax

( 35,088 )  

- - - - - ( 1,498 ) ( 1,498 )

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

( 4,527 )  

( 1,509 ) ( 1,509 )

Cash dividends declared on common stock ($ 0.17 per share)

( 17,339 )  

- - - ( 6,074 ) - - ( 6,074 )

Exercise of stock options ( 6,473 shares)

- - 81 - - - 81

Restricted stock grants, net of forfeitures ( 49,202 shares)

- - - - - - -

Stock grants ( 995 shares)

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

- - - - - - -

Net shares issued in satisfaction of deferred stock units earned ( 32,068 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 treasury stock ( 447,108 shares)

( 13,127 )  

- - - - - - -

Stock-based compensation expense

Balance as of September 30, 2022

$ 110,927  

$ 586,946  

$ 28,756  

$ 510,957  

$ ( 52,799 )  

$ ( 36,492 )  

$ 1,148,295  

- - 1,143 - - - 1,143

Repurchase of treasury stock ( 205,163 shares)

- - - - ( 4,853 ) - ( 4,853 )

Balance as of March 31, 2023

$ 110,927 $ 586,946 $ 31,350 $ 553,261 $ ( 57,652 ) $ ( 33,862 ) $ 1,190,970

See accompanying notes to unaudited consolidated financial statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

September 30,

Three Months Ended

(dollars in thousands)

9 unchanged sentences

Stock-based compensation

Losses on equity securities, net

(Gains) losses on equity securities, net

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

8 unchanged sentences

Increase in other assets

Decrease in other liabilities

Increase in other liabilities

Net cash provided by operating activities

3 unchanged sentences

Purchase of equity securities

Net purchases of restricted investment in bank stocks

Cash flow hedge premium payment

Net redemptions of restricted investment in bank stocks

Payments on loans held-for-sale

Net increase in loans

Purchase of bank owned life insurance

Net decrease (increase) in loans

Purchases of premises and equipment

Proceeds from sale of OREO

Net cash used in investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities

Net increase in deposits

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

Repayments of FHLB borrowings

Repayments of subordinated debt

Repayments of borrowings

Cash dividends on preferred stock

3 unchanged sentences

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

Net cash (used by) provided by financing activities

Net cash (used in) provided by financing activities

Net change in cash and cash equivalents

5 unchanged sentences

Supplemental disclosures of noncash activities

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

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

7 unchanged sentences

ConnectOne Bancorp, Inc.

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

The Bank’s direct and indirect 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.

2 unchanged sentences

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 24  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.

Basis of Presentation and Principles of Consolidation

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 Principles of Consolidation

The consolidated financial statements have been prepared in conformity with U.S.

2 unchanged sentences

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:

9 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Risks and Uncertainties

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

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

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

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

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

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Authoritative Accounting Guidance

Adoption of New Accounting Standards in 2024

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.

We adopted ASU 2022 - 02 on January 1, 2023 and it did not have a material effect on the Company’s consolidated financial statements.

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.

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.

3 unchanged sentences

Earnings per Common Share

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

260 - 10 - 45 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (“EPS”). The restricted stock awards granted by the Company contain non-forfeitable rights to dividends and therefore are considered participating securities. The two -class method for calculating basic EPS excludes dividends paid to participating securities and any undistributed earnings attributable to participating securities.

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.

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

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

Three Months Ended

Nine Months Ended

September 30,

(dollars in thousands, except for per share data)

Net income available to common stockholders

$ 19,898  

$ 27,406  

$ 63,203  

$ 88,127  

$ 15,696 $ 23,420

Earnings allocated to participating securities

( 63 )  

( 67 )  

( 160 )  

( 42 ) ( 44 )

Income attributable to common stock

$ 19,835  

$ 27,339  

$ 63,043  

$ 87,910  

$ 15,654 $ 23,376

Weighted average common shares outstanding, including participating securities

38,817  

39,243  

39,020  

39,393  

38,423 39,178

Weighted average participating securities

( 123 )  

( 96 )  

( 99 )  

( 104 ) ( 74 )

Weighted average common shares outstanding

38,694  

39,147  

38,921  

39,296  

38,319 39,104

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

Weighted average common and equivalent shares outstanding

38,829  

39,339  

39,056  

39,510  

38,512 39,301

Earnings per common share:

$ 0.51  

$ 0.70  

$ 1.62  

$ 2.24  

There were no antidilutive share equivalents during the nine  months ended September 30, 2023  and 

September 30, 2022 .

$ 0.41 $ 0.60

There were no antidilutive share equivalents during the three months ended March 31, 2024 and March 31, 2023 .

CONNECTONE BANCORP, INC.

2 unchanged sentences

Investment Securities

All of the Company’s investment securities are classified as available-for-sale as of September 30, 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 September 30, 2023 and December 31, 2022 .

All of the Company’s investment securities are classified as available-for-sale as of March 31, 2024 and December 31, 2023 .

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

Accordingly, the carrying value of such securities reflects their fair value as of March 31, 2024 and December 31, 2023 .

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

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

The following tables present information related to the Company’s portfolio of securities available-for-sale as of September 30, 2023 and December 31, 2022 .

The following tables present information related to the Company’s portfolio of securities available-for-sale as of March 31, 2024 and December 31, 2023 .

(dollars in thousands)

September 30, 2023

March 31, 2024

Investment securities available-for-sale:

Federal agency obligations

$ 57,243  

$ ( 13,274 )  

$ 43,969  

$ 76,953 $ 190 $ ( 11,411 ) $ 65,732 $ -

Residential mortgage pass-through securities

466,362  

( 76,935 )  

389,427  

454,980 289 ( 58,848 ) 396,421 -

Commercial mortgage pass-through securities

25,303  

( 5,376 )  

19,927  

25,178 - ( 3,740 ) 21,438 -

Obligations of U.S.

states and political subdivisions

150,218  

( 27,319 )  

122,899  

147,553 166 ( 18,163 ) 129,556 -

Corporate bonds and notes

( 39 )  

5,000 - ( 29 ) 4,971 -

Asset-backed securities

( 32 )  

1,167 - ( 15 ) 1,152 -

Other securities

127 - - 127 -

Total investment securities available-for-sale

$ 704,842  

$ ( 122,975 )  

$ 581,867  

$ 710,958 $ 645 $ ( 92,206 ) $ 619,397 $ -

December 31, 2023

1 unchanged sentence

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  

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

165 - - 165 -

Total investment securities available-for-sale

$ 721,799  

$ ( 87,204 )  

$ 634,884  

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

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investment Securities –

Investment securities having a carrying value of approximately $ 332.5  million and $ 157.0  million as of September 30, 2023 and December 31, 2022 , respectively, were pledged to secure public deposits, borrowings, repurchase agreements, access to unutilized Federal Reserve Discount Window, Bank Term Funding Program ("BTFP") borrowings, and access to unutilized Federal Home Loan Bank advances and for other purposes required or permitted by law.

As of September 30, 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 investments in securities available-for-sale as of September 30, 2023 , based on scheduled maturities.

Investment Securities – (continued)

Investment securities having a carrying value of approximately $ 192.4 million and $ 358.0 million as of March 31, 2024 and December 31, 2023 , respectively, were pledged to secure public deposits, borrowings, repurchase agreements, access to unutilized Federal Reserve Discount Window, Bank Term Funding Program ("BTFP") borrowings, and access to unutilized Federal Home Loan Bank advances and for other purposes required or permitted by law.

The BTFP was a temporary facility of the Federal Reserve and expired on March 11, 2024.

As of March 31, 2024 and December 31, 2023 , there were no holdings of securities of any one issuer, other than the U.S.

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

The following table presents information for investments in securities available-for-sale as of March 31, 2024 , based on scheduled maturities.

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

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

September 30, 2023

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

March 31, 2024

(dollars in thousands)

1 unchanged sentence

Due in one year or less

$ 2,000  

$ 1,967  

$ 2,284 $ 2,269

Due after one year through five years

1 unchanged sentence

Due after ten years

203,570  

163,070  

219,744 190,563

Residential mortgage pass-through securities

466,362  

389,427  

454,980 396,421

Commercial mortgage pass-through securities

25,303  

19,927  

25,178 21,438

Other securities

Total investment securities available-for-sale

$ 704,842  

$ 581,867  

There were 

no  realized gains or losses on securities during the nine  months ended September 30, 2023  and September 30, 2022 .

$ 710,958 $ 619,397

There were no realized gains or losses on securities during the three months ended March 31, 2024 and March 31, 2023 .

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investment Securities –

Investment Securities – (continued)

Impairment Analysis of Available-for-Sale Debt Securities

The following tables indicate securities in an unrealized loss position for which an allowance for credit losses (“ACL”) has not been recorded, aggregated by investment category and by the length of continuous time individual securities have been in an unrealized loss position as of September 30, 2023 and December 31, 2022 .

September 30, 2023

March 31, 2024

Less than 12 Months

3 unchanged sentences

Federal agency obligations

$ 43,969  

$ ( 13,274 )  

$ 6,056  

$ ( 194 )  

$ 37,913  

$ 49,276 $ ( 11,411 ) $ 11,597 $ ( 93 ) $ 37,679 $ ( 11,318 )

Residential mortgage pass-through securities

389,427  

( 76,935 )  

28,555  

( 858 )  

360,872  

368,077 ( 58,848 ) 3,345 ( 77 ) 364,732 ( 58,771 )

Commercial mortgage pass-through securities

19,927  

( 5,376 )  

19,927  

21,437 ( 3,740 ) - - 21,437 ( 3,740 )

Obligations of U.S.

states and political subdivisions

122,899  

( 27,319 )  

22,739  

( 1,825 )  

100,160  

118,304 ( 18,163 ) 19,806 ( 389 ) 98,498 ( 17,774 )

Corporate bonds and notes

( 39 )  

4,972 ( 29 ) 2,987 ( 14 ) 1,985 ( 15 )

Asset-backed securities

( 32 )  

1,153 ( 15 ) - - 1,153 ( 15 )

Total temporarily impaired securities

$ 580,505  

$ ( 122,975 )  

$ 58,344  

$ ( 2,883 )  

$ 522,161  

$ 563,219 $ ( 92,206 ) $ 37,735 $ ( 573 ) $ 525,484 $ ( 91,633 )

5 unchanged sentences

Federal agency obligations

$ 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 )

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investment Securities –

The Company has elected to exclude accrued interest from the amortized cost of its investment securities available-for-sale. Accrued interest receivable for investment securities available-for-sale as of September 30, 2023 and December 31, 2022 , totaled $ 2.1  million and $ 2.4  million, respectively.

Investment Securities – (continued)

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

Accrued interest receivable for investment securities available-for-sale as of March 31, 2024 and December 31, 2023 , totaled $ 2.2 million and $ 2.3 million, respectively.

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

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

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

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

1 unchanged sentence

If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis.

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

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

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

1 unchanged sentence

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

No allowance for credit losses for available-for-sale securities was recorded as of September 

No allowance for credit losses for available-for-sale securities was recorded as of March 31, 2024.

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

5 unchanged sentences

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

As part of our overall asset liability management 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.

As part of our overall asset liability management 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.

13 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivatives –

Derivatives – (continued)

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”). 

The eleven  swaps carry expiration dates ranging from December 2025 

to March 2028. 

The Company during 2021, 2022 and 2024 entered into twelve pay fixed-rate interest rate swaps, with a total notional amount of $ 550 million.

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

We are required to pay fixed rates of interest ranging from 0.63 % to 3.72 % and receive variable rates of interest that reset quarterly based on the daily compounding secured overnight financing rate (“SOFR”).

The twelve swaps carry expiration dates 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 two  forward starting interest rate cap spread transactions, one with a total notional amount of $ 150  million, which became effective on October 1, 2022 and matures in October of 2027 and one 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.

Net interest income recorded on these swap and interest rate cap transactions totaled approximately $ 5.5  million and $ 14.6  million during the three and nine months ended September 30, 2023 , respectively, compared to $ 1.2  million and $ 0.5  million for the three and nine  months ended September 

30, 2022, respectively, and is recorded as a component of either interest expense on Federal Home Loan Bank advances or 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 two forward starting interest rate cap spread transactions, one with a total notional amount of $ 150 million, which became effective on October 1, 2022 and matures in October of 2027 and one 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.

Net interest (income) expense recorded on these swap and interest rate cap transactions totaled approximately ($ 5.7 ) million and $( 4.3 ) million during the three months ended March 31, 2024 and March 31, 2023, respectively, and is recorded as a component of either interest expense on FHLB Advances or on brokered certificates of deposit.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivatives –

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

Nine Months Ended September 30, 2023

Derivatives – (continued)

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

Three Months Ended March 31, 2024

Amount of gain (loss) recognized in OCI (Effective Portion)

3 unchanged sentences

Interest rate contracts

$ 19,832  

$ ( 13,013 )  

Nine Months Ended September 30, 2022

$ 12,880 $ ( 5,629 ) $ -

Three Months Ended March 31, 2023

Amount of gain (loss) recognized in OCI (Effective Portion)

3 unchanged sentences

Interest rate contracts

$ 44,253  

$ ( 524 )  

The following table reflects the cash flow hedges included in the consolidated statements of condition as of September 30, 2023 and December 31, 2022 :

September 30, 2023

$ ( 4,361 ) $ ( 4,267 ) $ -

The following table reflects the cash flow hedges included in the consolidated statements of condition as of March 31, 2024 and December 31, 2023 :

March 31, 2024

December 31, 2023

3 unchanged sentences

Interest rate contracts

$ 950,000  

$ 61,972  

$ 950,000  

$ 56,797  

$ 1,000,000 $ 50,508 $ 950,000 $ 43,805

CONNECTONE BANCORP, INC.

2 unchanged sentences

Loans and the Allowance for Credit Losses

Loans Receivable –

The following table sets forth the composition of the Company’s loan portfolio segments, including net deferred loan fees, as of September 30, 2023 and December 31, 2022 :

September 30, 2023  

December 31, 2022  

Loans Receivable – The following table sets forth the composition of the Company’s loan portfolio segments, including net deferred loan fees, as of March 31, 2024 and December 31, 2023 :

March 31, 2024 December 31, 2023

(dollars in thousands)

$ 1,475,571  

$ 1,472,734  

$ 1,572,494 $ 1,578,730

Commercial real estate

5,837,539  

5,795,228  

5,829,950 5,895,545

Commercial construction

622,748  

574,139  

646,593 620,496

Residential real estate

251,416  

264,748  

8,188,210  

8,109,161  

254,214 256,041

8,304,101 8,351,841

Net deferred loan fees

( 7,101 )  

( 6,144 ) ( 6,696 )

Total loans receivable

$ 8,181,109  

$ 8,099,689  

September 30, 2023  and December 31, 2022 , loans totaling approximately $ 5.7  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. 

Loans held-for-sale - The following table sets forth the composition of the Company’s loans held-for-sale as of September 30, 2023 and December 31, 2022 :

September 30, 2023  

December 31, 2022  

(dollars in thousands)

Commercial real estate

$ 13,473  

Residential real estate

Total carrying amount

$ 13,772  

Loans Receivable on Nonaccrual Status - The following tables present nonaccrual loans with an ACL and nonaccrual loans without an ACL as of September 30, 2023 and December 31, 2022 :

September 30, 2023

$ 8,297,957 $ 8,345,145

As of March 31, 2024 and December 31, 2023 , loans totaling approximately $ 6.1 billion and $ 5.8 billion, respectively, were pledged to secure borrowings from the FHLB of New York and the Federal Reserve Bank of New York.

There were no loans held-for-sale as of March 31, 2024 and December 31, 2023.

Loans Receivable on Nonaccrual Status - The following tables present the carrying value of nonaccrual loans with an ACL and the carrying value of nonaccrual loans without an ACL as of March 31, 2024 and December 31, 2023 :

March 31, 2024

Nonaccrual loans with ACL

2 unchanged sentences

(dollars in thousands)

$ 21,604  

$ 22,159  

$ 1,683 $ 10,957 $ 12,640

Commercial real estate

29,754  

29,824  

65 33,210 33,275

Residential real estate

$ 22,480  

$ 33,579  

$ 56,059  

691 832 1,523

$ 2,439 $ 44,999 $ 47,438

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and the Allowance for Credit Losses –

Loans and the Allowance for Credit Losses – (continued)

December 31, 2023

Nonaccrual loans with ACL  

Nonaccrual loans without ACL  

Total nonaccrual loans  

Nonaccrual loans with ACL Nonaccrual loans without ACL Total nonaccrual loans

(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  

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

1,033 2,472 3,505

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

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

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

1 unchanged sentence

Credit quality is monitored by reviewing certain credit quality indicators.

Assets classified “Pass”

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 “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 credit quality or inadequately protect the Company’s credit position at some future date.

Assets are classified “Substandard”

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

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

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

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

Loans and the Allowance for Credit Losses –

Loans and the Allowance for Credit Losses – (continued)

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

Generally, loans up for renewal are subject to a full credit evaluation before the renewal is granted and such loans are considered current period originations for purpose of the table below. The following table presents loans by origination and risk designation as of September 30, 2023 (dollars in thousands):

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

The following table presents loans by origination, risk designation and gross charge-offs as of and during the three months ended March 31, 2024 ( dollars in thousands):

Term loans amortized cost basis by origination year

1 unchanged sentence

Total Gross Loans

$ 146,241  

$ 259,603  

$ 271,580  

$ 41,459  

$ 13,749  

$ 119,592  

$ 590,667  

$ 1,442,891  

$ 8,719 $ 163,629 $ 253,890 $ 257,399 $ 37,512 $ 112,276 $ 706,574 $ 1,539,999

Special mention

19,559  

24,256  

- - 10,687 - 18 3,945 3,184 17,834

- 250 124 236 - 12,998 1,053 14,661

- - - - - - - -

Total commercial

$ 146,545  

$ 261,256  

$ 271,829  

$ 41,463  

$ 15,867  

$ 142,596  

$ 596,015  

$ 1,475,571  

$ 8,719 $ 163,879 $ 264,701 $ 257,635 $ 37,530 $ 129,219 $ 710,811 $ 1,572,494

YTD gross charge-offs

$ - $ - $ 300 $ - $ - $ - $ - $ 300

Commercial Real Estate

$ 170,541  

$ 1,572,880  

$ 1,581,212  

$ 356,251  

$ 355,665  

$ 1,269,678  

$ 462,573  

$ 5,768,800  

$ 55,180 $ 247,846 $ 1,557,645 $ 1,564,163 $ 343,799 $ 1,521,233 $ 478,777 $ 5,768,643

Special mention

26,421  

20,964  

16,830  

42,318  

- - - - - 22,723 - 22,723

- - - 1,878 - 19,921 16,785 38,584

- - - - - - - -

Total commercial real estate

$ 170,541  

$ 1,572,880  

$ 1,583,111  

$ 356,251  

$ 358,290  

$ 1,317,063  

$ 479,403  

$ 5,837,539  

$ 55,180 $ 247,846 $ 1,557,645 $ 1,566,041 $ 343,799 $ 1,563,877 $ 495,562 $ 5,829,950

YTD gross charge-offs

$ - $ - $ - $ - $ - $ 2,885 $ - $ 2,885

Commercial Construction

$ 5,693  

$ 15,682  

$ 6,236  

$ 585,855  

$ 614,048  

$ 5,250 $ 582 $ 4,201 $ 15,608 $ 6,236 $ - $ 606,016 $ 637,893

Special mention

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

- - - - - - - -

Total commercial construction

$ 5,693  

$ 15,682  

$ 6,236  

$ 594,555  

$ 622,748  

$ 8,009  

$ 43,048  

$ 23,247  

$ 21,863  

$ 20,059  

$ 92,966  

$ 34,663  

$ 243,855  

$ 5,250 $ 582 $ 4,201 $ 15,608 $ 6,236 $ - $ 614,716 $ 646,593

YTD gross charge-offs

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

$ 4,466 $ 15,268 $ 42,558 $ 21,832 $ 21,396 $ 107,917 $ 35,797 $ 249,234

Special mention

- - - - - 647 2,810 3,457

- - - 547 - 735 241 1,523

- - - - - - - -

Total residential real estate

$ 8,009  

$ 43,048  

$ 23,810  

$ 22,301  

$ 20,059  

$ 96,141  

$ 38,048  

$ 251,416  

$ 4,466 $ 15,268 $ 42,558 $ 22,379 $ 21,396 $ 109,299 $ 38,848 $ 254,214

YTD gross charge-offs

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

$ 706 $ 29 $ 36 $ - $ 5 $ - $ 74 $ 850

Special mention

- - - - - - - -

Total consumer

$ 326,120  

$ 1,881,320  

$ 1,891,721  

$ 425,815  

$ 389,473  

$ 1,482,236  

$ 1,673,845  

$ 8,070,530  

$ 706 $ 29 $ 36 $ - $ 5 $ - $ 74 $ 850

YTD gross charge-offs

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

$ 74,321 $ 427,354 $ 1,858,330 $ 1,859,002 $ 408,948 $ 1,741,426 $ 1,827,238 $ 8,196,619

Special mention

30,521  

38,330  

43,043  

27,444  

79,350  

$ 326,424  

$ 1,882,973  

$ 1,894,432  

$ 426,257  

$ 394,216  

$ 1,555,800  

$ 1,708,108  

$ 8,188,210  

- - 10,687 - 18 27,315 14,694 52,714

- 250 124 2,661 - 33,654 18,079 54,768

- - - - - - - -

$ 74,321 $ 427,604 $ 1,869,141 $ 1,861,663 $ 408,966 $ 1,802,395 $ 1,860,011 $ 8,304,101

YTD gross charge-offs

$ - $ - $ 300 $ - $ - $ 2,885 $ - $ 3,185

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and the Allowance for Credit Losses –

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

Loans and the Allowance for Credit Losses – (continued)

The following table presents loans by origination, risk designation and gross charge-offs as of and for the year ended December 31, 2023 ( dollars in thousands):

Term loans amortized cost basis by origination year

1 unchanged sentence

Total Gross Loans

$ 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

YTD gross charge-offs

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

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

YTD gross charge-offs

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

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

YTD gross charge-offs

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

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

YTD gross charge-offs

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

$ 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

YTD gross charge-offs

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

$ 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

YTD gross charge-offs

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

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and the Allowance for Credit Losses –

Loans and the Allowance for Credit Losses – (continued)

Collateral Dependent Loans :

1 unchanged sentence

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

The following table presents collateral dependent loans that were individually evaluated for impairment as of September 30, 2023 and December 31, 2022 :

September 30, 2023

Real Estate  

The following table presents collateral dependent loans that were individually evaluated for impairment as of March 31, 2024 and December 31, 2023 :

March 31, 2024

Real Estate Other

(dollars in thousands)

$ 4,891  

$ 14,719  

$ 19,610  

$ 1,700 $ 10,280 $ 11,980

Commercial real estate

41,636  

33,210 - 33,210

Commercial construction

Residential real estate

$ 61,982  

$ 14,719  

$ 76,701  

$ 35,742 $ 10,280 $ 46,022

December 31, 2023

Real Estate  

Real Estate Other

(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  

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 September 30, 2023 and December 31, 2022:

September 30, 2023

5,941 - 5,941

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

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 March 31, 2024 and December 31, 2023:

March 31, 2024

30-59 Days Past Due

3 unchanged sentences

(dollars in thousands)

$ 1,979  

$ 22,159  

$ 24,571  

$ 1,451,000  

$ 1,475,571  

$ 495 $ - $ - $ 12,640 $ 13,135 $ 1,559,359 $ 1,572,494

Commercial real estate

29,824  

30,421  

5,807,118  

5,837,539  

525 - - 33,275 33,800 5,796,150 5,829,950

Commercial construction

622,748  

- - 23,600 - 23,600 622,993 646,593

Residential real estate

247,113  

251,416  

$ 2,830  

$ 56,059  

$ 59,549  

$ 8,128,661  

$ 8,188,210  

1,942 - - 1,523 3,465 250,749 254,214

99 - - - 99 751 850

$ 3,061 $ - $ 23,600 $ 47,438 $ 74,099 $ 8,230,002 $ 8,304,101

As of March 31, 2024, one loan for $23.6 million was past due more than 90 days and still accruing;

the loan is well-secured at a loan-to-value of approximately 60% and is in the process of collection.

December 31, 2023

4 unchanged sentences

(dollars in thousands)

$ 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  

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

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and the Allowance for Credit Losses –

Loans and the Allowance for Credit Losses – (continued)

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

September 30, 2023

Commercial real estate  

Commercial construction

Residential real estate  

March 31, 2024

Commercial real estate Commercial construction

Residential real estate Consumer

(dollars in thousands)

Allowance for credit losses - loans

Individually evaluated impairment

$ 7,685  

$ 8,346  

Collectively evaluated impairment

19,433  

52,072  

79,151  

Acquired with deteriorated credit quality individually analyzed

$ 27,851  

$ 52,733  

$ 3,909  

$ 3,732  

$ 88,230  

Individually evaluated impairment

$ 24,676  

$ 41,636  

$ 8,700  

$ 6,755  

$ 81,767  

Collectively evaluated impairment

1,450,405  

5,795,903  

614,048  

244,661  

8,105,953  

Acquired with deteriorated credit quality individually analyzed

$ 1,475,571  

$ 5,837,539  

$ 622,748  

$ 251,416  

$ 8,188,210  

Individually analyzed

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

Collectively evaluated

20,475 52,794 5,011 4,326 3 82,609

Acquired with deteriorated credit quality

260 - - - - 260

$ 20,735 $ 52,794 $ 5,011 $ 4,326 $ 3 $ 82,869

Individually analyzed

$ 11,980 $ 33,210 $ - $ 832 $ - $ 46,022

Collectively evaluated

1,560,040 5,796,740 646,593 253,382 850 8,257,605

Acquired with deteriorated credit quality

474 - - - - 474

$ 1,572,494 $ 5,829,950 $ 646,593 $ 254,214 $ 850 $ 8,304,101

December 31, 2023

4 unchanged sentences

Allowance for credit losses - loans

Individually evaluated impairment

$ 7,426  

$ 1,003  

$ 8,479  

Collectively evaluated impairment

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 impairment

$ 30,994  

$ 46,886  

$ 8,232  

$ 5,864  

$ 91,976  

Collectively evaluated impairment

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  

Individually analyzed

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

Collectively evaluated

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

1,562,910 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

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and the Allowance for Credit Losses –

Activity in the Company’s ACL for loans for the three and nine months ended September 30, 2023 is summarized in the tables below.

Three Months Ended September 30, 2023

Commercial real estate

Commercial construction

Residential real estate

(dollars in thousands)

Balance as of June 30, 2023

$ 29,326  

$ 52,509  

$ 3,546  

$ 3,819  

$ 89,205  

( 2,250 )  

( 237 )  

Provision for (reversal of) credit losses - loans

( 88 )  

Balance as of September 30, 2023

$ 27,851  

$ 52,733  

$ 3,909  

$ 3,732  

$ 88,230  

Nine Months Ended September 30, 2023

Loans and the Allowance for Credit Losses – (continued)

Activity in the Company’s ACL for loans for the three months ended March 31, 2024 is summarized in the tables below.

Three Months Ended March 31, 2024

Commercial real estate

3 unchanged sentences

Balance as of December 31, 2023

$ 28,903  

$ 53,742  

$ 3,718  

$ 4,143  

$ 90,513  

( 6,117 )  

( 1,954 )  

( 18 )  

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

( 300 ) ( 2,885 ) - - - ( 3,185 )

23 - - - - 23

Provision for (reversal of) credit losses - loans

( 462 )  

Balance as of September 30, 2023

$ 27,851  

$ 52,733  

$ 3,909  

$ 3,732  

$ 88,230  

Three Months Ended September 30, 2022

Commercial real estate

Commercial construction

Residential real estate

(dollars in thousands)

Balance as of June 30, 2022

$ 28,135  

$ 47,562  

$ 3,413  

$ 3,625  

$ 82,739  

( 410 )  

Provision for credit losses - loans

Balance as of September 30, 2022

$ 29,689  

$ 54,526  

$ 3,444  

$ 4,053  

$ 91,717  

Nine Months Ended September 30, 2022

380 3,401 272 6 ( 2 ) 4,057

Balance as of March 31, 2024

$ 20,735 $ 52,794 $ 5,011 $ 4,326 $ 3 $ 82,869

Activity in the Company’s ACL for loans for the three months ended March 31, 2023 is summarized in the table below.

Three Months Ended March 31, 2023

Commercial real estate

3 unchanged sentences

Balance as of December 31, 2022

$ 25,969  

$ 45,589  

$ 3,580  

$ 3,628  

$ 78,773  

( 751 )  

( 226 )  

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

( 2,767 ) ( 1,717 ) - - - ( 4,484 )

Provision for (reversal of) credit losses - loans

( 136 )  

13,816  

Balance as of September 30, 2022

$ 29,689  

$ 54,526  

$ 3,444  

$ 4,053  

$ 91,717  

26 975 248 ( 276 ) ( 1 ) 972

Balance as of March 31, 2023

$ 26,162 $ 53,000 $ 3,966 $ 3,868 $ 6 $ 87,002

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and the Allowance for Credit Losses –

Loans and the Allowance for Credit Losses – (continued)

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:

Nine Months Ended

September 30, 2023  

The following tables 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.

Three Months Ended

March 31, 2024

Term Extension

% of Portfolio

Payment Deferral

Interest Rate Reduction

% of Portfolio Loan Segment

(dollars in thousands)

Commercial real estate

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

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

September 30, 2023

Past Due 30-89 Days

Past Due 90 Days or More

$ - $ 126 $ - $ 126 0.01 %

The above table consists of one commercial loan that was modified, receiving a payment deferral of three months.

Three Months Ended

March 31, 2023

Term Extension

Payment Deferral

Interest Rate Reduction

% of Portfolio Loan Segment

(dollars in thousands)

Commercial real estate

There were no loans to borrowers experiencing financial difficulty that had a payment default during the nine months ended September 

30, 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 evaluated 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.

Troubled debt restructurings:

Information on loan modifications prior to the adoption of ASU 2022 - 02 on January 1, 2023 is presented in accordance with the applicable accounting standards in effect at that time.

During the nine  months ended September 

30, 2022, the Company modified five  loans with maturity extensions and one loan interest rate reduction.

The one loan that was an interest rate reduction was a commercial real estate loan that included a one -time $ 500,000  principal paydown. 

$ 63 $ - $ - $ 63 0.01 %

The above table consists of one commercial loan on which 3.0 years was added to the life of the modified loan.

The Company closely monitors the performance of loans that are modified to borrower’s experiencing financial difficulty to understand the effectiveness of its modification efforts.

The following tables present the performance of such loans that have been modified during the three months ended March 31, 2024 and March 31, 2023:

March 31, 2024

30-89 Days Past Due

90 Days or Greater Past Due and Still Accruing

(dollars in thousands)

$ 126 $ - $ -

March 31, 2023

30-89 Days Past Due

90 Days or Greater Past Due and Still Accruing

(dollars in thousands)

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and the Allowance for Credit Losses –

Loans and the Allowance for Credit Losses – (continued)

Loan Modifications to Borrowers Experiencing Financial Difficulty:

During the three months ended March 31, 2024 and March 31, 2023, the Company had no commitments to lend additional funds to borrowers experiencing financial difficulty for which the Company modified the terms of the loans in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension during the current period.

There were no loans to borrowers experiencing financial difficulty that had a payment default during the three months ended March 31, 2024 and 2023 and 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.

Allowance for Credit Losses for Unfunded Commitments

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

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

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

three and nine months ended September 30, 2023 and 2022 :

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

The following table presents a roll forward of the allowance for credit losses for unfunded commitments for the three months ended March 31, 2024 and 2023 :

Three Months Ended

September 30,

(dollars in thousands)

Balance at beginning of period

$ 2,819  

$ 2,324  

(Reversal of) provision for credit losses - unfunded commitments

Balance at end of period

$ 2,815  

$ 2,986  

Nine Months Ended

September 30,

(dollars in thousands)

Balance at beginning of period

$ 3,036  

$ 2,352  

$ 2,811 $ 3,036

(Reversal of) provision for credit losses - unfunded commitments

( 221 )  

Balance at end of period

$ 2,815  

$ 2,986  

$ 2,754 $ 3,064

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and the Allowance for Credit Losses –

Components of (Reversal of) Provision for Credit Losses

The following table summarizes the provision for (reversal of) credit losses for the 

three and nine months ended September 30, 2023 and 2022 :

Loans and the Allowance for Credit Losses – (continued)

Components of Provision for Credit Losses

The following table summarizes the provision for (reversal of) credit losses for the three months ended March 31, 2024 and 2023 :

Three Months Ended

September 30,

(dollars in thousands)

Provision for credit losses –

$ 1,504  

$ 9,338  

(Reversal of) provision for credit losses - unfunded commitments

Provision for credit losses

$ 1,500  

$ 10,000  

Nine Months Ended

September 30,

(dollars in thousands)

Provision for credit losses –

$ 5,721  

$ 13,816  

Provision for credit losses – loans

$ 4,057 $ 972

(Reversal of) provision for credit losses - unfunded commitments

( 221 )  

Provision for credit losses

$ 5,500  

$ 14,450  

$ 4,000 $ 1,000

Fair Value Measurements and Fair Value of Financial Instruments

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

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.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements and Fair Value of Financial Instruments –

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 :

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 :

Investment Securities Available-for-Sale and Equity Securities :

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.

Derivatives :

4 unchanged sentences

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

For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used as of September 30, 2023 and December 31, 2022 are as follows:

September 30, 2023

For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used as of March 31, 2024 and December 31, 2023 are as follows:

March 31, 2024

Fair Value Measurements at Reporting Date Using

8 unchanged sentences

Federal agency obligations

$ 43,969  

$ 65,732 $ - $ 65,732 $ -

Residential mortgage pass-through securities

389,427  

396,421 - 396,421 -

Commercial mortgage pass-through securities

19,927  

21,438 - 21,438 -

Obligations of U.S.

states and political subdivision

122,899  

115,882  

129,556 - 122,666 6,890

Corporate bonds and notes

4,971 - 4,971 -

Asset-backed securities

1,152 - 1,152 -

Other securities

Total available-for-sale

581,867  

573,488  

619,397 127 612,380 6,890

Equity securities

17,677  

61,972  

$ 661,516  

$ 10,756  

$ 643,743  

$ 7,017  

19,457 9,743 9,714 -

50,508 - 50,508 -

$ 689,362 $ 9,870 $ 672,602 $ 6,890

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements and Fair Value of Financial Instruments – 

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

December 31, 2023

9 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 -

Other securities

Total available-for-sale

$ 634,884  

$ 627,293  

$ 7,349  

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

Equity securities

15,811  

56,797  

$ 707,492  

$ 9,975  

$ 690,168  

$ 7,349  

There were no transfers between Level 1 and Level 2 during the nine months ended September 30, 2023 and during the year ended December 31, 2022 .

18,564 9,867 8,697 -

43,805 - 43,805 -

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

There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2024 and during the year ended December 31, 2023 .

Assets Measured at Fair Value on a Nonrecurring Basis

1 unchanged sentence

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

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a nonrecurring basis as of September 30, 2023 and December 31, 2022 .

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a nonrecurring basis as of March 31, 2024 and December 31, 2023 .

Loans Held-for-Sale :

2 unchanged sentences

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

Other loans held-for-sale are carried at the lower of aggregate cost or estimated fair value. Fair value of these loans is determined based on the terms of the loan, such as interest rate, maturity date, reset term, as well as sales of similar assets (Level 3 ).

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

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

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements and Fair Value of Financial Instruments – 

Fair Value Measurements and Fair Value of Financial Instruments – (continued

Collateral Dependent Loans :

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

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

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

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

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

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 September 30, 2023 and December 31, 2022 are as follows:

For assets measured at fair value on a nonrecurring basis, the fair value measurements as of March 31, 2024 and December 31, 2023 are as follows:

Fair Value Measurements at Reporting Date Using

Assets measured at fair value on a nonrecurring basis:

September 30, 2023  

Quoted Prices in Active Markets for Identical Assets (Level 1)  

Significant Other Observable Inputs (Level 2)  

Significant Unobservable Inputs (Level 3)  

March 31, 2024 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)

Collateral dependent loans:

(dollars in thousands)

$ 10,659  

Commercial real estate

$ 763 $ - $ - $ 763

Fair Value Measurements at Reporting Date Using

Assets measured at fair value on a nonrecurring basis:

December 31, 2022  

Quoted Prices in Active Markets for Identical Assets (Level 1)  

Significant Other Observable Inputs (Level 2)  

Significant Unobservable Inputs (Level 3)  

December 31, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)

Collateral dependent loans:

(dollars in thousands)

$ 14,550  

$ 657 $ - $ - $ 657

Commercial real estate

17,264  

Residential real estate

Collateral dependent loans –

Collateral dependent loans as of September 30, 2023 that required a valuation allowance were $ 23.8  million with a related valuation allowance of $ 5.8  million compared to $ 43.8  million with a related valuation allowance of $ 10.5  million as of December 31, 2022 .

7,005 - - 7,005

Collateral dependent loans – Collateral dependent loans as of March 31, 2024 that required a valuation allowance were $ 1.0 million with a related valuation allowance of $ 0.3 million compared to $ 7.7 million with a related valuation allowance of $ 1.4 million as of December 31, 2023 .

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements and Fair Value of Financial Instruments – 

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

Assets Measured with Significant Unobservable Level 3 Inputs

Recurring basis

The tables below present a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3 ) for the nine months ended September 30, 2023 and for the year ended December 

Municipal Securities  

The tables below present a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3 ) for the three months ended March 31, 2024 and for the year ended December 31, 2023:

Municipal Securities

(dollars in thousands)

Beginning balance, December 31, 2022

$ 7,349  

Beginning balance, January 1, 2024

Principal paydowns

Change in unrealized gain

Ending balance, September 30, 2023

$ 7,017  

Municipal Securities  

Change in unrealized loss

Ending balance, March 31, 2024

Municipal Securities

(dollars in thousands)

Beginning balance, December 31, 2021

$ 8,565  

Beginning balance, January 1, 2023

Principal paydowns

Changes in unrealized loss

Changes in unrealized gain

Ending balance, December 31, 2023

$ 7,349  

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 .

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 .

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

September 30, 2023

March 31, 2024

Valuation Techniques

3 unchanged sentences

Municipal securities

$ 7,017  

$ 6,890 Discounted cash flows

6 unchanged sentences

Municipal securities

$ 7,349  

$ 7,122 Discounted cash flows

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements and Fair Value of Financial Instruments – 

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

Nonrecurring basis :

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

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

September 30, 2023

March 31, 2024

(dollars in thousands)

2 unchanged sentences

Range (weighted average)

$ 10,205  

Market approach (100%)

Average transfer price as a price to unpaid principal balance

65% –92% (68%)  

$ 763 Appraisals of collateral value

Adjustment for comparable sales

-7.5% to +25% (+0.1%)  

Commercial real estate

Appraisals of collateral value

Adjustment for comparable sales

-15% to +5% (+4%)  

-7.5% to +25% (+0.8%)

December 31, 2023

4 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 value

2 unchanged sentences

Commercial real estate loans

17,264  

7,005 Appraisals of collateral value

1 unchanged sentence

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

Residential real estate loans

Appraisals of collateral value

Adjustment for comparable sales

+21% to +39% (22%)

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements and Fair Value of Financial Instruments – 

As of September 30, 2023 the fair value measurements presented are consistent with Topic 820, Fair Value Measurement , in which fair value represents exit price.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 2023 and December 31, 2022 : 

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

As of March 31, 2024 the fair value measurements presented are consistent with Topic 820, Fair Value Measurement , in which fair value represents exit price.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of March 31, 2024 and December 31, 2023 :

Fair Value Measurements

4 unchanged sentences

(dollars in thousands)

September 30, 2023

March 31, 2024

Financial assets:

Cash and due from banks

$ 253,298  

$ 277,583 $ 277,583 $ 277,583 $ - $ -

Securities available-for-sale

581,867  

573,488  

619,397 619,397 127 612,380 6,890

Restricted investments in bank stocks

49,387  

48,931 n/a n/a n/a n/a

Equity securities

17,677  

8,092,879  

7,725,439  

19,457 19,457 9,743 9,714 -

8,215,088 7,946,659 - - 7,946,659

Derivatives - interest rate contracts

61,972  

50,508 50,508 - 50,508 -

Accrued interest receivable

46,795  

41,635  

49,731 49,731 - 5,847 43,884

Financial liabilities:

Noninterest-bearing deposits

1,224,125  

1,290,523 1,290,523 1,290,523 - -

Interest-bearing deposits

6,214,370  

6,181,082  

3,692,159  

2,488,923  

887,590  

884,745  

6,298,131 6,276,751 3,674,740 2,602,011 -

877,568 874,778 - 874,778 -

Subordinated debentures

79,313  

77,588  

79,566 79,748 - 79,748 -

Accrued interest payable

12,304 12,304 - 12,304 -

December 31, 2023

1 unchanged sentence

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 .

Subordinated debentures

153,255  

153,581  

79,439 77,952 - 77,952 -

Accrued interest payable

10,152 10,152 - 10,152 -

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements and Fair Value of Financial Instruments – 

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

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

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.

3 unchanged sentences

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

Comprehensive (Loss) Income   

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

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

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

1 unchanged sentence

Amounts Reclassified from Accumulated Other Comprehensive Income

Affected Line item in the Consolidated Statements of Income

Three Months Ended September 30,

Nine Months Ended September 30,

Interest income (expense) on cash flow hedges

$ 4,793  

$ 1,178  

$ 13,013  

Three Months Ended March 31,

Interest income on cash flow hedges

$ 5,629 $ 4,267 Borrowings and deposits expense

(1,442 )  

(343 )  

(3,915 )  

(1,582 ) (1,284 ) Income tax (expense) benefit

$ 3,351  

$ 9,098  

$ 4,047 $ 2,983

Amortization of pension plan net actuarial losses

$ ( 74 )  

$ ( 17 )  

$ ( 222 )  

$ ( 43 ) $ ( 74 ) Other components of net periodic pension expense

13 23 Income tax benefit

$ ( 52 )  

$ ( 12 )  

$ ( 155 )  

$ ( 35 )  

$ ( 30 ) $ ( 51 )

Total reclassification

$ 3,299  

$ 8,943  

$ 4,017 $ 2,932

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Comprehensive (Loss) Income –

Accumulated other comprehensive loss as of September 30, 2023 and December 31, 2022 consisted of the following:

September 30, 2023

Comprehensive (Loss) Income – (continued)

Accumulated other comprehensive loss as of March 31, 2024 and December 31, 2023 consisted of the following:

March 31, 2024

December 31, 2023

1 unchanged sentence

Investment securities available-for-sale, net of tax

$ ( 87,748 )  

$ ( 66,743 ) $ ( 57,835 )

Cash flow hedge, net of tax

37,128  

32,360  

30,723 24,810

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

( 2,794 )  

$ ( 53,414 )  

Stock-based Compensation  

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

The Plan eliminates all remaining issuable shares under previous plans and is the only outstanding plan as of September 30, 2023 .

On May 30, 2023, the Company's stockholders approved an amendment to the Plan that increased the maximum number of shares issuable by 450,000 .

The maximum number of shares of common stock or equivalents which may be issued under the Plan is now 

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

Shares available for grant and issuance under the Plan as of September 30, 2023  were approximately 

( 2,112 ) ( 2,084 )

$ ( 38,132 ) $ ( 35,109 )

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 March 31, 2024 .

On May 30, 2023, the Company's stockholders approved an amendment to the Plan that increased the maximum number of shares issuable to 1,200,000 .

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

Shares available for grant and issuance under the Plan as of March 31, 2024 were approximately 373,848 .

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

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.

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.

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

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

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

All issuances are subject to forfeiture if the recipient is no longer employed prior to the award's vesting.

All issuances are subject to forfeiture if the recipient is no longer employed prior to the award's vesting.

Any forfeitures would result in previously recognized expense being reversed.

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

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

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

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

Forfeiture rates are not estimated but are recorded as incurred. Stock-based compensation expense for the three and nine  months ended September 30, 2023 

was $ 1.3  million and $ 3.6  million, respectively. 

Stock-based compensation expense for the three and nine  months ended September 

30, 2022  was $ 1.2  million and $ 3.5  million, respectively.

 Activity under the Company’s options for the nine months ended September 30, 2023 was as follows:

Number of Stock Options

Weighted-Average Exercise Price

Outstanding as of December 31, 2022

$ 12.95  

( 7,388 )  

Forfeiture rates are not estimated but are recorded as incurred.

Stock-based compensation expense for the three months ended March 31, 2024 and March 31, 2023 were $ 1.0 million and $ 1.1 million, respectively.

Activity under the Company’s restricted stock for the three months ended March 31, 2024 was as follows:

Nonvested Shares Weighted Average Grant Date Fair Value

Nonvested as of December 31, 2023

115,805 $ 17.85

( 32,764 ) 23.63

Forfeited/cancelled/expired

( 1,292 )  

Outstanding as of September 30, 2023

Exercisable as of September 30, 2023

( 1,674 ) 17.93

Nonvested as of March 31, 2024

121,020 $ 16.71

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-Based Compensation –

Activity under the Company’s restricted stock for the nine months ended September 30, 2023 was as follows:

Nonvested Shares  

Weighted Average Grant Date Fair Value  

Nonvested as of December 31, 2022

85,931  

$ 26.20  

93,147  

( 47,067 )  

Forfeited/cancelled/expired

( 9,090 )  

Nonvested as of September 30, 2023

122,921  

$ 18.41  

As of September 30, 2023 , there was approximately $ 1.1  million of total unrecognized compensation cost related to nonvested restricted stock granted.

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

Stock-Based Compensation – (continued)

As of March 31, 2024 , there was approximately $ 1.1 million of total unrecognized compensation cost related to nonvested restricted stock granted.

The cost is expected to be recognized over a weighted average period of 1.7 years.

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

Units (expected)  

Units (maximum)  

Weighted Average Grant Date Fair Value  

Units (expected) Units (maximum) Weighted Average Grant Date Fair Value

Unearned as of December 31, 2023

195,265  

$ 17.98  

85,158  

164,231 $ 23.06

Change in estimate

( 10,774 ) 11.93

Vested shares

( 116,192 )  

Unearned as of September 30, 2023

164,231  

233,087  

$ 23.06  

As of September 30, 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.

( 53,041 ) 25.24

Forfeited/cancelled/expired

( 10,260 ) 23.10

Unearned as of March 31, 2024

181,847 302,196 $ 21.04

As of March 31, 2024 , the specific number of shares related to performance units that were expected to vest was 181,847 , determined by actual performance in consideration of the established range of the performance targets, which is consistent with the level of expense currently being recognized over the vesting period.

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

As of September 30, 2023 , the maximum amount of performance units that ultimately could vest if performance targets were exceeded is 233,087 .

During the nine months ended September 30, 2023 , 116,192  shares vested.

A total of 63,839  shares were netted from the vested shares to satisfy employee tax obligations.

The net shares issued from vesting of performance units during the nine  months ended September 

30, 2023  were 

52,353  shares.

As of September 30, 2023 , compensation cost of approximately $ 1.8  million related to non-vested performance units not yet recognized is expected to be recognized over a weighted-average period of 1.9  years.

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

Units (expected)  

Weighted Average Grant Date Fair Value  

As of March 31, 2024 , the maximum amount of performance units that ultimately could vest if performance targets were exceeded is 302,196 .

During the three months ended March 31, 2024 , 53,041 shares vested.

A total of 28,971 shares were netted from the vested shares to satisfy employee tax obligations.

The net shares issued from vesting of performance units during the three months ended March 31, 2024 were 24,070 shares.

As of March 31, 2024 , compensation cost of approximately $ 3.0 million related to non-vested performance units not yet recognized is expected to be recognized over a weighted-average period of 2.2 years.

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

Units (expected) Weighted Average Grant Date Fair Value

Unearned as of December 31, 2023

120,035  

$ 23.84  

146,857  

188,348 $ 22.11

Vested shares

( 78,544 )  

Unearned as of September 30, 2023

188,348  

$ 21.77  

Any forfeitures would result in previously recognized expense being reversed. A portion of the shares that vest will be netted out to satisfy the tax obligations of the recipient.

During the nine months ended September 30, 2023 , 78,544  shares vested.

A total of 42,538  shares were netted from the vested shares to satisfy employee tax obligations.

The net shares issued from vesting of deferred stock units during the nine months ended September 30, 2023 were 36,006  shares.

As of September 30, 2023 , compensation cost of approximately $ 2.3  million related to non-vested deferred stock units, not yet recognized, is expected to be recognized over a weighted-average period of 1.5  years.

( 73,013 ) 22.98

Forfeited/cancelled/expired

( 7,360 ) 21.53

Unearned as of March 31, 2024

189,711 $ 20.46

Any forfeitures would result in previously recognized expense being reversed.

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

During the three months ended March 31, 2024 , 73,013 shares vested.

A total of 39,409 shares were netted from the vested shares to satisfy employee tax obligations.

The net shares issued from vesting of deferred stock units during the three months ended March 31, 2024 were 33,604 shares.

As of March 31, 2024 , compensation cost of approximately $ 2.4 million related to non-vested deferred stock units, not yet recognized, is expected to be recognized over a weighted-average period of 1.8 years.

CONNECTONE BANCORP, INC.

3 unchanged sentences

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

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

Three Months Ended

Affected Line Item in the Consolidated

September 30,

Statements of Income

3 unchanged sentences

Expected return on plan assets

( 209 )  

( 214 ) ( 209 ) Other components of net periodic pension expense

2 unchanged sentences

Total periodic pension income

$ ( 25 )  

$ ( 142 )  

Nine Months Ended

Affected Line Item in the Consolidated

September 30,

Statements of Income

(dollars in thousands)

Interest cost

Other components of net periodic pension expense

Expected return on plan assets

( 628 )  

( 711 ) Other components of net periodic pension expense

Net amortization

Other components of net periodic pension expense

Total periodic pension income

$ ( 76 )  

$ ( 429 )  

$ ( 65 ) $ ( 25 )

Contributions

The Company did not contribute to the Pension Trust during the nine months ended September 30, 2023 .

The Company did not contribute to the Pension Trust during the three months ended March 31, 2024 .

The Company does not plan on contributing amounts to the Pension Trust for the remainder of 2024.

1 unchanged sentence

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

Time Deposits

As of March 31, 2024 and December 31, 2023, the Company's total time deposits were $ 2.6 billion and $ 2.5 billion, respectively.

Included in time deposits were gross nonreciprocal brokered time deposits of $ 920.1 million and $ 916.8 million as of March 31, 2024 and December 31, 2023, respectively.

As of March 31, 2024, the contractual maturities of these time deposits were as follows (dollars in thousands):

Time deposits (before net discount)

Fair value net discount

Total time deposits (after net discount)

The amount of time deposits with balances in excess of $250,000 were $ 647.9 million and $ 643.4 million as of March 31, 2024 and December 31, 2023, respectively.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FHLB Borrowings

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

September 30, 2023

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

March 31, 2024

December 31, 2023

2 unchanged sentences

Less than 1 year

$ 835,000  

5.60 %  

$ 830,000  

$ 725,000 5.48 % $ 881,000 5.57 %

1 year through less than 2 years

25,000  

75,000 3.30 25,000 1.00

2 years through less than 3 years

25,000  

52,050 4.15 2,050 2.23

3 years through less than 4 years

285 2.85 293 2.85

4 years through 5 years

25,301  

25,000 4.18 25,000 4.18

After 5 years

286 2.96 294 2.96

FHLB borrowings - gross

887,653  

5.42 %  

857,702  

877,621 5.18 % 933,637 5.41 %

Fair value discount

( 63 )  

( 80 )  

( 53 ) ( 58 )

Total FHLB borrowings

$ 887,590  

$ 857,622  

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FHLB Borrowings –

(continued)  

$ 877,568 $ 933,579

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

2 unchanged sentences

All FHLB advances bear fixed rates.

The advances as of September 30, 2023 were primarily collateralized by approximately $ 2.8  billion of commercial mortgage loans and securities, net of required over collateralization amounts, under a blanket lien arrangement.

As of September 30, 2023 the Company had remaining borrowing capacity of approximately $ 1.4  billion at FHLB. 

The advances as of March 31, 2024 were primarily collateralized by approximately $ 2.8 billion of commercial mortgage loans and securities, net of required over collateralization amounts, under a blanket lien arrangement.

As of March 31, 2024 the Company had remaining borrowing capacity of approximately $ 1.4 billion at FHLB.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Subordinated Debentures

4 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 was previously 

three -month LIBOR plus 2.85 % and reprices quarterly.

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 September 

30, 2023  was 8.48 %.

Upon the cessation of publication of LIBOR rates and pursuant to the Federal LIBOR Act and Federal Reserve regulations implementing the Act, the 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 March 31, 2024 was 8.43 %.

These subordinated debentures and the related income effects are not eliminated in the consolidated financial statements, as the statutory business trust is not consolidated in accordance with FASB ASC 810 - 10.

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 September 30, 2023 and December 31, 2022 .

As of September 30, 2023

The following table summarizes the mandatory redeemable trust preferred securities of the Company’s Statutory Trust II as of March 31, 2024 and December 31, 2023 .

As of March 31, 2024

Issuance Date

5 unchanged sentences

As of December 31, 2023

Issuance Date  

Securities Issued  

Liquidation Value  

Coupon Rate  

Maturity  

Redeemable by Issuer Beginning

Issuance Date Securities Issued Liquidation Value Coupon Rate Maturity Redeemable by Issuer Beginning

$1,000 per Capital Security

Floating 3-month CME Term SOFR + 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”).

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

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

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

(as defined in the Second Supplemental Indenture), plus 560.5 basis points, payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, commencing on September 15, 2025.

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

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.

Management ’

s Discussion and Analysis of Financial Condition and Results of Operations

The purpose of this analysis is to provide the reader with information relevant to understanding and assessing the Company’s results of operations for the periods presented herein and financial condition as of September 30, 2023 and December 31, 2022.

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations

In order to fully understand this analysis, the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing elsewhere in this report.

2 unchanged sentences

This report contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of ConnectOne Bancorp Inc.

and its subsidiaries, including statements preceded by, followed by, or that include words or phrases such as “believes,”

“expects,”

“anticipates,”

“plans,”

“trend,”

“objective,”

“continue,”

“remain,”

“pattern”

or similar expressions or future or conditional verbs such as “will,”

“would,”

“should,”

“could,”

“might,”

“can,”

“may”

or similar expressions.

and its subsidiaries, including statements preceded by, followed by, or that include words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trend,” “objective,” “continue,” “remain,” “pattern” or similar expressions or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions.

There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements.

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Further information on other factors that could affect the financial results of ConnectOne Bancorp is included in Item 1a.

of ConnectOne Bancorp’s Annual Report on Form 10-K as amended and updated in ConnectOne Bancorp’s other filings with the Securities and Exchange Commission.

These documents are available free of charge at the Commission’s website at http://www.sec.gov and/or from ConnectOne Bancorp, Inc.

of ConnectOne Bancorp’s Annual Report on Form 10-K as amended and updated in ConnectOne Bancorp’s other filings with the Securities and Exchange Commission.

These documents are available free of charge at the Commission’s website at http://www.sec.gov and/or from ConnectOne Bancorp, Inc.

Critical Accounting Policies and Estimates

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We consider accounting policies that require management to exercise significant judgment or discretion or to make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies.

As of June 30, 2023, there have been no material changes to our critical accounting policies as compared to the critical accounting policies disclosed in our most recent Annual Report on Form 10-K.

Reference is made to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

As of March 31, 2024, there have been no material changes to our critical accounting policies as compared to the critical accounting policies disclosed in our most recent Annual Report on Form 10-K.

Reference is made to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Operating Results Overview

Net income available to common stockholders for the three months ended September 30, 2023 was $19.9 million compared to $27.4 million for the comparable three-month period ended September 30, 2022.

The Company’s diluted earnings per share were $0.51 for the three months ended September 30, 2023 as compared with diluted earnings per share of $0.70 for the comparable three-month period ended September 30, 2022.

The $7.5 million decrease in net income available to common stockholders and $0.19 decrease in diluted earnings per share versus the third quarter of 2022 were due to a $15.8 million decrease in net interest income and a $3.6 million increase in noninterest expenses, partially offset by a $8.5 million decrease in provision for credit losses, a $3.2 million decrease in income tax expense and a $0.2 million increase in noninterest income.

Net income available to common stockholders for the nine months ended September 30, 2023 was $63.2 million compared to $88.1 million for the comparable nine-month period ended September 30, 2022.

The Company’s diluted earnings per share were $1.61 for the nine months ended September 30, 2023 as compared with diluted earnings per share of $2.23 for the comparable nine-month period ended September 30, 2022.

The $24.9 million decrease in net income available to common stockholders and $0.62 decrease in diluted earnings per share versus the nine months ended September 2022 were due to a $30.8 million decrease in net interest income and a $13.0 million increase in noninterest expenses, partially offset by an $8.9 million decrease in provision for credit losses, a $9.9 million decrease in income tax expense and a $0.1 million increase in noninterest income.

Net income available to common stockholders for the three months ended March 31, 2024 was $15.7 million compared to $23.4 million for the comparable three-month period ended March 31, 2023.

The Company’s diluted earnings per share were $0.41 for the three months ended March 31, 2024 as compared with diluted earnings per share of $0.59 for the comparable three-month period ended March 31, 2023.

The $7.7 million decrease in net income available to common stockholders and $0.18 decrease in diluted earnings per share versus the first quarter of 2023 were due to a $6.8 million decrease in net interest income, a $3.0 million increase in provision for credit losses, and a $2.2 million increase in noninterest expenses, partially offset by a $3.2 million decrease in income tax expense and a $1.1 million increase in noninterest income.

Net Interest Income and Margin

Net interest income is the difference between the interest earned on the portfolio of earning assets (principally loans and investments) and the interest paid on deposits and borrowings, which support these assets.

Net interest income is the difference between the interest earned on the portfolio of earning assets (principally loans and investments) and the interest paid on deposits and borrowings, which support these assets.

Net interest income is presented on a tax-equivalent basis by adjusting tax-exempt income (including interest earned on tax-free loans and on obligations of state and local political subdivisions) by the amount of income tax which would have been paid had the assets been invested in taxable assets.

Net interest margin is defined as net interest income on a tax-equivalent basis as a percentage of total average interest-earning assets.

Fully taxable equivalent net interest income for the three months ended September 30, 2023 decreased by $15.6 million, or 19.8%, from the comparable three-month period ended September 30, 2022.

The decrease from the three months ended September 30, 2022 resulted primarily from a 250 basis-point increase in rate paid on interest-bearing deposits, partially offset by an 88 basis-point increase rate earned on total interest-earning assets and a 92 basis-point contraction of the net interest margin to 2.76% from 3.68%.

Fully taxable equivalent net interest income for the nine months ended September 30, 2023 decreased by $30.2 million, or 13.4%, from the comparable nine-month period ended September 30, 2022.

The decrease from the nine months ended September 30, 2022 resulted primarily from a 254 basis-point increase in rate paid on interest-bearing deposits, partially offset by a 92 basis increase in rate earned on total interest-earning assets and a 91 basis-point contraction of the net interest margin to 2.85% from 3.76%.

The following tables, “Average Statements of Condition with Interest and Average Rates”, present for the three and nine months ended September 30, 2023 and 2022, the Company’s average assets, liabilities and stockholders’

The Company’s net interest income, net interest spread and net interest margin are also reflected.

Fully taxable equivalent net interest income for the three months ended March 31, 2024 decreased by $6.7 million, or 9.9%, from three months ended March 31, 2023.

The decrease primarily from a 36 basis-point decrease in the net interest margin to 2.64% from 3.00%, partially offset by a $149.1 million, or 1.6%, increase in average interest-earning assets.

The contraction of the net interest margin was primarily attributable to a 114 basis-point increase in the average costs of deposits, partially offset by a 47 basis-point increase in the loan portfolio yield.

The following table, “Average Statements of Condition with Interest and Average Rates”, present for the three months ended March 31, 2024 and 2023, the Company’s average assets, liabilities and stockholders’ equity.

The Company’s net interest income, net interest spread and net interest margin are also reflected.

Average Statements of Condition with Interest and Average Rates

Three Months Ended September 30,

(dollars in thousands)

Interest-earning assets:

Securities (1) (2)

Total loans (2) (3) (4)

Federal funds sold and interest-bearing with banks

Restricted investment in bank stocks

Total interest-earning assets

Noninterest-earning assets:

Allowance for credit losses

Other noninterest-earning assets

Interest-bearing liabilities:

Interest-bearing deposits:

Time deposits

Other interest-bearing deposits

Total interest-bearing deposits

Subordinated debentures

Finance lease

Total interest-bearing liabilities

Demand deposits

Other liabilities

Total noninterest-bearing liabilities

Stockholders’

Total liabilities and stockholders’

Net interest income (tax-equivalent basis)

Net interest spread (5)

Net interest margin (6)

Tax-equivalent adjustment

Net interest income

Average balances are based on amortized cost and include equity securities.

Interest income is presented on a tax-equivalent basis using a 21% assumed tax rate.

Includes loan fee income and accretion of purchase accounting adjustments.

Total loans include loans held-for-sale and nonaccrual loans.

Represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities and is presented on a tax- equivalent basis.

Represents net interest income on a tax-equivalent basis divided by average total interest-earning assets.

Rates are annualized.

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

Interest-earning assets:

Securities (1) (2)

Investment securities (1) (2)

Total loans (2) (3) (4)

Federal funds sold and interest-bearing with banks

Federal funds sold and interest-bearing deposits with banks

Restricted investment in bank stocks

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Total interest-bearing deposits

Subordinated debentures

Subordinated debentures, net

Finance lease

Total interest-bearing liabilities

Demand deposits

Noninterest-bearing demand deposits

Other liabilities

Total noninterest-bearing liabilities

Stockholders’

Total liabilities and stockholders’

Stockholders’ equity

Total liabilities and stockholders’ equity

Net interest income (tax-equivalent basis)

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Noninterest Income

Noninterest income totaled $3.6 million for the three months ended September 30, 2023, compared with $3.3 million for the three months ended September 30, 2022. Included in noninterest income for the three months ended September 30, 2023 and September 30, 2022 were net losses on equity securities of $0.3 million and $0.4 million, respectively. Excluding these items, noninterest income increased $0.1 million when compared to the three months ended September 30, 2022. The increase was primarily attributable to an increase in net gains on sale of loans held-for-sale, primarily Small Business Administration (“SBA”) loans of $0.4 million and an increase in bank owned life insurance ("BOLI") income of $0.1 million, partially offset by a decrease in deposit, loan, and other income of $0.4 million.

Noninterest income totaled $9.8 million for the nine months ended September 30, 2023, compared with $9.7 million for the nine months ended September 30, 2022.

Included in noninterest income were net losses on equity securities of $0.7 million and $1.4 million for the nine months ended September 30, 2023 and September 30, 2022, respectively. Excluding these items, noninterest income decreased $0.7 million when compared to the nine months ended September 30, 2022.

The decrease was primarily attributable to a decreases in deposit, loan and other income of $1.0 million and a decrease in net gains on sale of loans held-for-sale, primarily SBA, of $0.3 million, partially offset by an increase in BOLI income of $0.6 million.

Noninterest income totaled $3.9 million for the three months ended March 31, 2024, compared with $2.8 million for the three months ended March 31, 2023.

Included in noninterest income for the three months ended March 31, 2024 and March 31, 2023 were net gain (losses) on equity securities of $0.1 million and ($0.2) million, respectively.

Excluding these items, noninterest income increased $0.8 million when compared to the three months ended March 31, 2023.

The increase was primarily attributable to an increase in net gains on sale of loans held-for-sale, primarily Small Business Administration (“SBA”) loans of $0.5 million, an increase in deposit, loan, and other income of $0.2 million and an increase in bank owned life insurance ("BOLI") income of $0.1 million.

Noninterest Expenses

Noninterest expenses totaled $35.8 million for the three months ended September 30, 2023, compared with $32.1 million for the three months ended September 30, 2022.

Noninterest expenses increased by $3.6 million when compared to the three months ended September 30, 2022. The increase was primarily attributable to an increase in salaries and employee benefits of $1.3 million, which was attributable to new hires, an increase in FDIC insurance expense of $1.1 million, which was attributable to balance sheet growth and a two-basis point increase in the Bank’s initial base rate, an increase in information technology and communication expenses of $0.7 million, which was primarily attributable to additional investments in technology, equipment, and software, an increase in other expenses of $0.4 million, an increase in occupancy and equipment of $0.1 million, an increase in marketing and advertising expenses of $0.1 million and an increase in other components of net periodic pension expense of $0.1 million, partially offset by a decrease in professional and consulting of $0.1 million and a decrease in amortization of core deposit intangibles of $0.1 million.

Noninterest expenses totaled $106.1 million for the nine months ended September 30, 2023, compared to $93.1 million for the nine months ended September 30, 2022.

Noninterest expenses increased by $13.0 million when compared to the nine months ended September 30, 2022. The increase was primarily attributable to an increase in salaries and employee benefits of $6.8 million, which was attributable to new hires, an increase in FDIC insurance expense of $2.4 million, which was attributable to balance sheet growth and a two-basis point increase in the Bank’s initial base rate, an increase in information technology and communication expenses of $1.8 million, which was primarily attributable to additional investments in technology, equipment, and software, an increase in other expenses of $2.0 million, which was primarily attributable to expenses incurred related to derivatives cash collateral during the nine months ended September 30, 2023, an increase in occupancy and equipment of $0.9 million, an increase in marketing and advertising expenses of $0.4 million and an increase in other components of net periodic pension expense of $0.4 million, partially offset by a decrease in BoeFly acquisition expense of $1.5 million and a decrease in amortization of core deposit intangibles of $0.2 million.

Income tax expense was $7.2 million for the three months ended September 30, 2023, compared to $10.4 million for the three months ended September 30, 2022. The decrease in income tax expense was the result of lower income before income tax expense.

The effective tax rate for the three months ended September 30, 2023 and September 30, 2022 was 25.2% and 26.5%, respectively. The decrease in the effective tax rate when compared to the three months ended September 30, 2022 is largely attributable to lower taxable income.

Income tax expense was $23.7 million for the nine months ended September 30, 2023, compared to $33.7 million for the nine months ended September 30, 2022.

The effective tax rate for the nine months ended September 30, 2023 and September 30, 2022 was 26.0% and 26.7%, respectively.

The decrease in the effective tax rate when compared to the nine months ended September 30, 2022 is largely attributable to lower taxable income.

Noninterest expenses totaled $37.1 million for the three months ended March 31, 2024, compared with $34.9 million for the three months ended March 31, 2023.

Noninterest expenses increased by $2.2 million when compared to the three months ended March 31, 2023.

The increase was primarily attributable to an increase in information technology and communications of $1.3 million, due to additional investments in technology, equipment, and software, FDIC insurance of $0.9 million, primarily attributable to balance sheet growth and a two-basis point increase in the Bank’s initial base rate, occupancy and equipment of $0.3 million, marketing and advertising of $0.2 million, and other expense of $0.1 million, partially offset by decreases in professional and consulting of $0.2 million, salaries and employee benefits of $0.1 million and amortization of core deposit intangibles of $0.1 million.

Income tax expense was $5.9 million for the three months ended March 31, 2024, compared to $9.1 million for the three months ended March 31, 2023.

The decrease in income tax expense was the result of lower income before income tax expense.

The effective tax rate for the three months ended March 31, 2024 and March 31, 2023 was 25.5% and 26.7%, respectively.

The decrease in the effective tax rate when compared to the three months ended March 31, 2023 is largely attributable to lower taxable income.

Financial Condition

Loan Portfolio

The following table sets forth the composition of our loan portfolio, excluding loans held-for-sale and unearned net origination fees and costs, by loan segment at the periods indicated.

September 30, 2023

The following table sets forth the composition of our loan portfolio, excluding loans held-for-sale and net deferred loan fees, by loan segment at the periods indicated.

March 31, 2024

December 31, 2023

Amount Increase/

Percent of Total

(dollars in thousands)

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Residential real estate

As of September 30, 2023, gross loans totaled $8.2 billion, an increase of $79.0  million or 1.0%, compared to December 31, 2022.

Net loan growth was attributable to organic loan originations.

As of March 31, 2024, gross loans totaled $8.3 billion, a decrease of $47.7 million or -0.6%, compared to December 31, 2023.

While the previous table reflects the classification of our loans by loan portfolio segment, the following tables present further disaggregation of our commercial real estate portfolio along with loan-to-value ("LTV") percentages.

March 31, 2024

December 31, 2023

Loan-to-Value

(dollars in thousands)

Commercial real estate loans

Nonowner-occupied

Owner-occupied

Total commercial real estate loans (before discount)

Fair value discount

Total commercial real estate loans

The tables above are further broken down in the following tables by geography:

March 31, 2024

December 31, 2023

Percent of Total

(dollars in thousands)

Multifamily loans

All Other States

Total multifamily loans

March 31, 2024

December 31, 2023

Percent of Total

(dollars in thousands)

Nonowner-occupied

All Other States

Total nonowner occupied

March 31, 2024

December 31, 2023

Percent of Total

(dollars in thousands)

Owner-occupied

All Other States

Total owner-occupied

March 31, 2024

December 31, 2023

Percent of Total

(dollars in thousands)

All Other States

In addition, the following tables presents further detail with respect to our owner-occupied and nonowner-occupied borrower concentrations included in the commercial real estate segment.

March 31, 2024

December 31, 2023

Percent of Total

(dollars in thousands)

Owner-occupied

Warehouse/Industrial

Total owner-occupied

March 31, 2024

December 31, 2023

Percent of Total

(dollars in thousands)

Nonowner-occupied

Warehouse/Industrial

Total nonowner-occupied

Allowance for Credit Losses and Related Provision

As of September 30, 2023, the Company’s allowance for credit losses for loans was $88.2 million, a decrease of $2.3 million from $90.5 million as of December 31, 2022.

The decrease was primarily attributable to $8.0 million in net charge-offs, offset by a $5.7 million provision for credit losses.

The provision for credit losses, which includes a provision for unfunded commitments, for the three and nine months ended September 30, 2023 and September 30, 2022 was $1.5 million and $5.5 million, respectively, compared to $10.0 million and $14.5 million, for the three and nine months ended September 30, 2022, respectively. The decrease in the provision for credit losses when compared to the comparable periods in 2022 was mainly attributable to changes in forecasted macroeconomic conditions.

There were $2.5 million and $8.1 million in net charge-offs for the three and nine months ended September 30, 2023, compared with $0.4 million and $0.9 million in net charge-offs for the three and nine months ended September 30, 2022, respectively.

The increase in net charge-offs for the three ended September 30, 2023 when compared to the comparable prior period resulted from the partial charge-off of one commercial loan that we previously reserved for. 

The increase in net charge-offs for the nine months ended September 30, 2023 when compared to the comparable prior period resulted from the aforementioned partial charge-off during the third quarter of 2023, the resolution of certain nonaccrual taxi loans and one owner-occupied commercial real estate loan that were previously reserved for and, therefore, required no additional loan loss provisioning. The ACL as a percentage of loans receivable amounted to 1.08% as of September 30, 2023 compared to 1.12% as of December 31, 2022.

The level of the allowance for the respective periods of 2023 and 2022 reflects the credit quality within the loan portfolio, loan growth, the changing composition of the commercial and residential real estate loan portfolios and other related factors.

In management’s view, the level of the ACL as of September 30, 2023 is adequate to cover credit losses inherent in the loan portfolio.

Management’s judgment regarding the adequacy of the allowance constitutes a “Forward-Looking Statement”

under the Private Securities Litigation Reform Act of 1995.

Actual results could differ materially from management’s analysis, based principally upon the factors considered by management in establishing the allowance.

As of March 31, 2024, the Company’s allowance for credit losses for loans was $82.9 million, an increase of $0.9 million from $82.0 million as of December 31, 2023.

The provision for credit losses, which includes a provision for unfunded commitments, for the three months ended March 31, 2024 and March 31, 2023 was $4.0 million and $1.0 million, respectively.

The increase in the provision for credit losses when compared to the comparable period in 2023 reflected increases in changes in macroeconomic forecasts, qualitative factor adjustments and specific reserves.

There were $3.2 million net charge-offs for the three months ended March 31, 2024, compared with $4.5 million in net charge-offs for the three months ended March 31, 2023.

The ACL as a percentage of loans receivable amounted to 1.00% as of March 31, 2024 compared to 0.98% as of December 31, 2023.

The level of the allowance for the respective periods of 2024 and 2023 reflects the credit quality within the loan portfolio, loan growth, the changing composition of the commercial and residential real estate loan portfolios and other related factors.

In management’s view, the level of the ACL as of March 31, 2024 is adequate to cover credit losses inherent in the loan portfolio.

Management’s judgment regarding the adequacy of the allowance constitutes a “Forward-Looking Statement” under the Private Securities Litigation Reform Act of 1995.

Actual results could differ materially from management’s analysis, based principally upon the factors considered by management in establishing the allowance.

Changes in the ACL on loans are presented in the following table for the periods indicated.

Three Months Ended

September 30,

(dollars in thousands)

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Commercial real estate

Residential real estate

Total charge-offs

Residential real estate

Total recoveries

Net charge-offs

Provision for credit losses –

Balance - end of period

Ratio of annualized net charge-offs during the period to average loans receivable during the period

Loans receivable

ACL as a percentage of loans receivable

Nine Months Ended

September 30,

(dollars in thousands)

Average loans receivable

Analysis of the ACL:

Balance - beginning of quarter

Commercial real estate

Residential real estate

Total charge-offs

Residential real estate

Total recoveries

Net charge-offs

Provision for credit losses –

Provision for credit losses – loans

Balance - end of period

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The Company manages asset quality and credit risk by maintaining diversification in its loan portfolio and through review processes that includes analysis of credit requests and ongoing examination of outstanding loans, delinquencies, and potential problem loans, with particular attention to portfolio dynamics and mix.

The Company strives to identify loans experiencing difficulty early on, to record charge-offs promptly based on realistic assessments of current collateral values and cash flows, and to maintain an adequate allowance for credit losses at all times.

It is generally the Company’s policy to discontinue interest accruals once a loan is past due as to interest or principal payments for a period of ninety days.

The Company strives to identify loans experiencing difficulty early on, to record charge-offs promptly based on realistic assessments of current collateral values and cash flows, and to maintain an adequate allowance for credit losses at all times.

It is generally the Company’s policy to discontinue interest accruals once a loan is past due as to interest or principal payments for a period of ninety days.

When a loan is placed on nonaccrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current income.

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Nonperforming assets include nonaccrual loans and other real estate owned.

Nonaccrual loans represent loans on which interest accruals have been suspended.

Nonaccrual loans represent loans on which interest accruals have been suspended.

In general, it is the policy of management to consider the charge-off of uncollectible amounts of loans at the point they become past due 90 days.

The following table sets forth, as of the dates indicated, the amount of the Company’s nonperforming assets:

September 30, 2023

As of March 31, 2024, one loan for $23.6 million was past due more than 90 days and still accruing;

the loan is well-secured at a loan-to-value of approximately 60% and is in the process of collection.

The following table sets forth, as of the dates indicated, the amount of the Company’s nonperforming assets:

March 31, 2024

December 31, 2023

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Investment Securities

As of September 30, 2023, the principal components of the securities portfolio were federal agency obligations, mortgage-backed securities, obligations of U.S.

As of March 31, 2024, the principal components of the securities portfolio were federal agency obligations, mortgage-backed securities, obligations of U.S.

states and political subdivisions, corporate bonds and notes, asset-backed securities and equity securities.

For the three-months ended September 30, 2023, average securities, on an amortized cost basis, decreased by $17.0 million to approximately $723.4 million, or 8.0% of average total interest-earning assets, from approximately $740.4 million, or 8.7% of average interest-earning assets, as of September 30, 2022.

As of September 30, 2023, net unrealized losses on securities available-for-sale, which are carried as a component of accumulated other comprehensive loss and included in stockholders’

equity, net of tax, amounted to $87.7 million as compared with net unrealized losses of $61.8 million as of December 31, 2022.

For the three months ended March 31, 2024, average securities, on an amortized cost basis, decreased by $12.6 million to approximately $720.3 million, or 7.7% of average total interest-earning assets, from approximately $732.9 million, or 8.0% of average interest-earning assets, for the three months ended March 31, 2023.

As of March 31, 2024, net unrealized losses on securities available-for-sale, which are carried as a component of accumulated other comprehensive loss and included in stockholders’ equity, net of tax, amounted to $66.7 million as compared with net unrealized losses of $57.8 million as of December 31, 2023.

The increase in unrealized losses is predominately attributable to changes in market conditions and interest rates.

Unrealized losses have not been recognized into income because the issuers are of high credit quality, we do not intend to sell, and it is likely that we will not be required to sell the securities prior to their anticipated recovery.  The decline in fair value is largely due to changes in interest rates and other market conditions.

This also resulted in a $10.1 million increase in deferred tax assets, attributable to the decline in fair value on securities available-for-sale since December 31, 2022.

The issuers continue to make timely principal and interest payments on the securities. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. The Company did not record an allowance for credit losses for available-for-sale securities as of September 30, 2023.

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

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

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

The Company did not record an allowance for credit losses for available-for-sale securities as of March 31, 2024.

Interest Rate Sensitivity Analysis

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and manage the risk consistent with Board approved guidelines.

We seek to reduce the vulnerability of our operations to changes in interest rates, and actions in this regard are taken under the guidance of the Bank’s Asset Liability Committee (the “ALCO”).

The ALCO generally reviews our liquidity, cash flow needs, maturities of investments, deposits and borrowings, and current market conditions and interest rates.

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utilizing FHLB advances and wholesale deposits for our interest rate risk profile, (iii) managing the investment portfolio for liquidity and interest rate risk profile, and (iv) entering into interest rate swap and cap agreements.

We currently utilize net interest income simulation and economic value of equity (“EVE”) models to measure the potential impact to the Bank of future changes in interest rates.

As of September 30, 2023 and December 31, 2022, the results of the models were within guidelines prescribed by our Board of Directors.

If model results were to fall outside prescribed ranges, action, including additional monitoring and reporting to the Board, would be required by the ALCO and the Bank’s management.

We currently utilize net interest income simulation and economic value of equity (“EVE”) models to measure the potential impact to the Bank of future changes in interest rates.

As of March 31, 2024 and December 31, 2023, the results of the models were within guidelines prescribed by our Board of Directors.

If model results were to fall outside prescribed ranges, action, including additional monitoring and reporting to the Board, would be required by the ALCO and the Bank’s management.

The net interest income simulation model attempts to measure the change in net interest income over the next one-year period, and over the next three-year period on a cumulative basis, assuming certain changes in the general level of interest rates.

Based on our model, which was run as of September 30, 2023, we estimated that over the next one-year period a 200 basis-point instantaneous increase in the general level of interest rates would decrease our net interest income by 8.20%, while a 100 basis-point instantaneous decrease in interest rates would increase net interest income by 4.98%.

As of December 31, 2022, we estimated that over the next one-year period a 200 basis-point instantaneous increase in the general level of interest rates would decrease our net interest income by 2.22%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 2.01%.

Based on our model, which was run as of September 30, 2023, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous increase in the general level of interest rates would decrease our net interest income by 5.89%, while a 100 basis-point instantaneous decrease in interest rates would increase net interest income by 4.68%.

As of December 31, 2022, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous increase in the general level of interest rates would decrease our net interest income by 2.66%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 3.99%.

An EVE analysis is also used to dynamically model the present value of asset and liability cash flows with instantaneous rate shocks of up 200 basis points and down 100 basis points.

The economic value of equity is likely to be different as interest rates change.

Our EVE as of September 30, 2023, would decrease by 16.49% with an instantaneous rate shock of up 200 basis points, and increase by 8.66% with an instantaneous rate shock of down 100 basis points. Our EVE as of December 31, 2022, would decrease by 10.51% with an instantaneous rate shock of up 200 basis points, and decrease by 1.13% with an instantaneous rate shock of down 100 basis-points.

The change in interest rate sensitivity was impacted by changes in overall market interest rates, updates to certain model assumptions, changes in short and intermediate-term fixed rate funding and by the deposit mix shift into certificates of deposit, from both noninterest-bearing and interest-bearing non-maturity deposits.

The following table illustrates the most recent results for EVE and one-year NII sensitivity as of September 30, 2023.

The model also utilizes immediate and parallel shifts in market interest rates as of March 31, 2024.

Based on our model, which was run as of March 31, 2024, we estimated that over the next one-year period a 200 basis-point instantaneous and parallel increase in the general level of interest rates would decrease our net interest income by 6.38%, while a 100 basis-point instantaneous and parallel decrease in interest rates would increase net interest income by 2.66%.

As of December 31, 2023, we estimated that over the next one-year period a 200 basis-point instantaneous and parallel increase in the general level of interest rates would decrease our net interest income by 9.25%, while a 100 basis-point instantaneous and parallel decrease in interest rates would increase net interest income by 5.34%.

Based on our model, which was run as of March 31, 2024, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous and parallel increase in the general level of interest rates would decrease our net interest income by 3.56%, while a 100 basis-point instantaneous and parallel decrease in interest rates would increase net interest income by 1.19%.

As of December 31, 2023, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous and parallel increase in the general level of interest rates would decrease our net interest income by 5.68%, while a 100 basis-point instantaneous and parallel decrease in interest rates would increase net interest income by 4.29%.

An economic value of equity ("EVE") analysis is also used to dynamically model the present value of asset and liability cash flows with instantaneous and parallel rate shocks of up 200 basis points and down 100 basis points.

The EVE is likely to be different as interest rates change.

Our EVE as of March 31, 2024, would decrease by 12.46% with an instantaneous and parallel rate shock of up 200 basis points, and increase by 4.44% with an instantaneous and parallel rate shock of down 100 basis points.

Our EVE as of December 31, 2023, would decrease by 15.09% with an instantaneous and parallel rate shock of up 200 basis points, and increase by 5.75% with an instantaneous and parallel rate shock of down 100 basis-points.

The change in interest rate sensitivity was impacted by changes in overall market interest rates, updates to certain model assumptions, changes in short and intermediate-term fixed rate funding and by the deposit mix shift into certificates of deposit, from both noninterest-bearing and interest-bearing non-maturity deposits.

The following table illustrates the most recent results for EVE and one-year NII sensitivity as of March 31, 2024.

Interest Rates

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The models require the making of certain assumptions which may tend to oversimplify the way actual yields and costs respond to changes in market interest rates.

The models assume that the composition of the Company’s interest sensitive assets and liabilities existing at the beginning of a period remain constant over the period being measured, thus they do not consider the Company’s strategic plans, or any other steps it may take to respond to changes in rates over the forecasted period of time.

Additionally, the models assume immediate changes in interest rates, based on yield curves as of a point-in-time, which are reflected in a parallel, instantaneous and uniform manner across all yield curves, when in reality changes may rarely be of this nature.

The models also utilize data derived from historical performance and as interest rates change the actual performance of loan prepayments, rate sensitivities, and average life assumptions may deviate from assumptions utilized in the models and can impact the results.

Accordingly, although the above measurements provide an indication of the Company’s interest rate risk exposure at a particular point in time, such measurements are not intended to provide a precise forecast of the effect of changes in market interest rates.

Given the unique nature of the post-pandemic interest rate environment, and the speed with which interest rates have been changing, the projections noted above on the Company’s EVE and net interest income and can be expected to differ from actual results.

Estimates of Fair Value

The estimation of fair value is significant to a number of the Company’s assets, including loans held-for-sale and securities available-for-sale.

These are all recorded at either fair value or the lower of cost or fair value.

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The impact of inflation is reflected in the increased cost of operations;

unlike most industrial companies, nearly all of the Company’s assets and liabilities are monetary.

As a result, interest rates have a greater impact on performance than do the effects of general levels of inflation.

Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Liquidity is a measure of a bank’s ability to fund loans, withdrawals or maturities of deposits, and other cash outflows in a cost-effective manner.

Our principal sources of funds are deposits, scheduled amortization and prepayments of loan principal, maturities of investment securities, and funds provided by operations.

While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit flow and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.

As of September 30, 2023, the amount of liquid assets remained at a level management deemed adequate to ensure that, on a short and long-term basis, contractual liabilities, depositors’

withdrawal requirements, and other operational and client credit needs could be satisfied.

As of September 30, 2023, liquid assets (cash and due from banks, interest-bearing deposits with banks and unencumbered investment securities) were $515.6 million, which represented 5.3% of total assets and 6.2% of total deposits and borrowings, compared to $760.0 million as of December 31, 2022, which represented 7.9% of total assets and 9.3% of total deposits and borrowings. As of September 30, 2023, not included in the above liquid assets were securities with a market value of $231.6 million which were pledged to either the Federal Reserve Bank’s Bank Term Funding Program (“BTFP”), or the Federal Home Loan Bank, which support aggregate unutilized borrowing capacity of $262.8 million as of September 30, 2023.

The Bank is a member of the Federal Home Loan Bank of New York and, based on available qualified collateral as of September 30, 2023, had the ability to borrow $2.9 billion. The Bank also has two credit facilities established with the Federal Reserve Bank of New York for direct discount window borrowings and BTFP capacity based on pledged collateral and had the ability to borrow $1.5 billion as of September 30, 2023.

In addition, as of September 30, 2023, the Bank had in place borrowing capacity of $390 million through correspondent banks and other unsecured borrowing lines.

As of September 30, 2023, the Bank had aggregate available and unused credit of approximately $3.3 billion, which represents the aforementioned facilities totaling $4.8 billion net of $1.5 billion in outstanding borrowings and letters of credit.

As of September 30, 2023, outstanding commitments for the Bank to extend credit were approximately $1.2 billion.

Cash and cash equivalents totaled $253.3 million as of September 30, 2023, increasing by $15.0 million from $268.3 million as of December 31, 2022. Operating activities provided $64.6 million in net cash. Investing activities used $75.7 million in net cash, primarily reflecting an increase in loans and investment securities.

Financing activities used $3.9 million in net cash, primarily reflecting a decrease of $2.4 billion in repayment of borrowings and $75 million in repayment of subordinated debt, partially offset by $2.4 billion in advances of FHLB borrowings and an increase in deposits of $82.1 million.

Total deposits increased by $81.9 million, or 1.1%, to $7.4 billion as of September 30, 2023 from December 31, 2022.

The increase was primarily due to increases in interest-bearing and NOW deposits and time deposits, partially offset by a decrease in demand, noninterest-bearing deposits and savings deposits. The following table sets forth the composition of our deposit base by the periods indicated.

September 30, 2023

As of March 31, 2024, the amount of liquid assets remained at a level management deemed adequate to ensure that, on a short and long-term basis, contractual liabilities, depositors’ withdrawal requirements, and other operational and client credit needs could be satisfied.

As of March 31, 2024, liquid assets (cash and due from banks, interest-bearing deposits with banks and unencumbered investment securities) were $706.2 million, which represented 7.2% of total assets and 8.3% of total deposits and borrowings, compared to $516.3 million as of December 31, 2023, which represented 5.2% of total assets and 6.1% of total deposits and borrowings.

As of March 31, 2024, not included in the above liquid assets were securities with a market value of $110.7 million which were pledged to the Federal Home Loan Bank, which support aggregate unutilized borrowing capacity of $105.2 million as of March 31, 2024.

As of December 31, 2023, not included in the above liquid assets were securities with a market value of $276.0 million which were pledged to either the Federal Reserve Bank’s Bank Term Funding Program (“BTFP”), or the Federal Home Loan Bank, which support aggregate unutilized borrowing capacity of $300.5 million as of December 31, 2023.

The Bank is a member of the Federal Home Loan Bank of New York and, based on available qualified collateral as of March 31, 2024, had the ability to borrow $2.9 billion.

The Bank also has a credit facilities established with the Federal Reserve Bank of New York for direct discount window borrowings based on pledged collateral and had the ability to borrow $1.4 billion as of March 31, 2024.

In addition, as of March 31, 2024, the Bank had in place borrowing capacity of $325 million through correspondent banks and other unsecured borrowing lines.

As of March 31, 2024, the Bank had aggregate available and unused credit of approximately $3.2 billion, which represents the aforementioned facilities totaling $4.7 billion net of $1.5 billion in outstanding borrowings and letters of credit.

As of March 31, 2024, outstanding commitments for the Bank to extend credit were approximately $1.1 billion.

Cash an d cash equivalents totaled $277.6 million as of March 31, 2024, increasing by $34.9 million from $242.7 million as of December 31, 2023.

Operating activities provided $20.5 million in net cash.

Investing activities used $33.1 million in net cash, primarily reflecting a decrease in loans partially offset by an increase in securities.

Financing activities used $18.7 million in net cash, primarily reflecting a net decrease of $56.0 million in repayment of FHLB borrowings and partially offset by an increase of $52.5 million in deposits.

Deposits are our primary source of funds.

Noninterest bearing demand deposit products include “Totally Free Checking” and “Simply Better Checking” for consumer clients and “Small Business Checking” and “Analysis Checking” for commercial clients.

Interest-bearing checking accounts require minimum balances for both consumer and commercial clients and include “Consumer Interest Checking” and “Business Interest Checking”.

Money market accounts consist of products that provide a market rate of interest to depositors.

Our savings accounts offer paper and/or electronic statements.

Time deposits ("TD") are for non-retirement and IRA accounts, generally with initial maturities ranging from 31 days to 60 months, and brokered TDs, which we use for asset liability management purposes and to supplement other sources of funding.

Many of our deposit products can be accessed through both our branches and online to provide ease of access to our clients and communities.

CDARS/ICS reciprocal deposits are offered based on the Bank’s participation in the IntraFi Network LLC ("the network").

Clients, who are Federal Deposit Insurance Corporation (“FDIC”) insurance sensitive, are able to place large dollar deposits with the Company and the Company utilizes CDARS to place those funds into certificates of deposit issued by other banks in the Network.

This occurs in increments of less than the FDIC insurance limits so that both the principal and interest are eligible for FDIC insurance coverage in amounts larger than the insured dollar amount.

Unless certain conditions are satisfied, the FDIC considers these funds as brokered deposits.

The bank also utilizes internet listing services deposits which are obtained through the use of websites such as Rateline or QwickRate.

Average total deposits increased by $142 million, or 1.9%, to $7.5 billion for the first quarter of 2024 from $7.4 billion for the first quarter of 2023.

The increase in total average deposits was primarily attributed to an increase in time deposits of $210 million, demand, interest-bearing and NOW of $66 million and savings deposits of $65 million, partially offset by a decrease in noninterest-bearing demand deposits of $198 million.

The increase in average time deposits of $210 million for the first quarter of 2024 was primarily attributed to increases of $90 million in nonreciprocal brokered time deposits, $54 million in CDARs, $39 million in retail time deposits and $27 million in internet listing services.

The Bank continues to increase its utilization of nonreciprocal brokered time deposits to enhance balance sheet liquidity and because it served as a favorable alternative to other borrowings.

The decrease in average noninterest-bearing demand deposits was consistent with industry trends reflecting higher levels of interest rates which resulted in migration of noninterest-bearing deposits to interest-bearing transaction deposits.

Average demand deposits (including interest-bearing and noninterest-bearing) for the first quarter of 2024 included $1.1 billion in ICS reciprocal deposits, compared to $376 million for the first quarter of 2023.

Average time deposits for the first quarter of 2024 included $92 million in CDARS, compared to $38 million for the first quarter of 2023.

The increases in ICS reciprocal deposits and CDARS resulted primarily from changes in customer and market sentiment related to the failure of three regional banks in March 2023 and the resulting migration of client deposits to the IntraFi Network in an effort to increase the level of FDIC deposit insurance for clients.

The beta, which is the measurement of deposit rate sensitivity in response to market rate changes, on nonreciprocal brokered deposits tends to be higher than that of ICS and CDARS reciprocal deposits, as nonreciprocal brokered time deposits are more directly correlated to prevailing market rates of interest, while ICS and CDARs reciprocal deposits reflect the Bank’s relationship with reciprocal deposit clients and are more driven by a desire for FDIC insurance coverage than market leading rates.

The following table sets forth the average balances and weighted average rates of our deposits for the periods indicated.

Year-to-Date Average March 31, 2024

Year-to-Date Average March 31, 2023

(dollars in thousands)

Demand, noninterest-bearing

Demand, interest-bearing & NOW

Total average deposits

The following table sets forth information related to the uninsured deposit balances of the Bank.

March 31, 2024

December 31, 2023

(dollars in thousands)

As stated in FFIEC 041-Consolidated Report of Condition, schedule RC-O:

Total Bank unconsolidated deposits (including affiliate and subsidiary accounts)

Estimated uninsured deposits

The Company, on a consolidated basis:

Total deposits

Estimated uninsured deposits (excluding affiliate and subsidiary accounts)

The following table sets forth the distribution of total actual deposit accounts, by account types for the periods indicated.

March 31, 2024

December 31, 2023

Percent of total

(dollars in thousands)

Demand, noninterest-bearing

Demand, interest-bearing and NOW

Demand, interest-bearing & NOW

Total deposits

Total deposits increased by $53 million, or 0.7%, to $7.6 billion as of March 31, 2024 from $7.5 billion as of December 31, 2023.

The increase in total deposits was primarily attributed to increases in time deposits of $92 million, savings deposits of $41 million and noninterest-bearing demand deposits of $31 million, partially offset by decreases in demand, interest-bearing & NOW of $111 million.

Total demand, interest-bearing & NOW deposits as of March 31, 2024 include $1.2 billion in ICS reciprocal deposits, compared to $1.1 billion as of December 31, 2023.

Total time deposits as of March 31, 2024 include $68 million in CDARS, compared to $96 million as of December 31, 2023.

Included in time deposits were nonreciprocal brokered deposits of $920 million as of March 31, 2024, which were relatively flat when compared to $917 million as of December 31, 2023.

As of March 31, 2024, we held $648 million of time deposits with balances in excess of $250,000.

The following table provides information on the maturity distribution of the time deposits with balances in excess of $250,000 as of March 31, 2024:

March 31, 2024

(dollars in thousands)

3 months or less

Over 3 to 6 months

Over 6 to 12 months

Over 12 months

Subordinated Debentures

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

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

The subordinated debentures are redeemable in whole or part.

The floating interest rate on the subordinated debentures was three-month LIBOR plus 2.85% and re-prices 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 as of 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. 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 September 30, 2023 was 8.48%. 

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

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

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

Upon the cessation of publication of LIBOR rates and pursuant to the Federal LIBOR Act and Federal Reserve regulations implementing the Act, the MMCapS capital securities converted as of 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.

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 March 31, 2024 was 8.43%.

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

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

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

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

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

The Notes were non-callable for five years, had a stated maturity of February 1, 2028 and bore interest at a rate that reset quarterly to the current three-month LIBOR rate plus 284 basis points. The 2018 Notes were redeemed in full on February 1, 2023.

Stockholders ’

The Company’s stockholders’

equity was $1.2 billion as of September 30, 2023, an increase of $9 million from December 31, 2022.

The increase in stockholders’

equity was primarily attributable to an increase in retained earnings of $44 million, partially offset by an increase in accumulated other comprehensive losses of $21 million and an increase in treasury stock of $15 million. The increase in accumulated other comprehensive losses during 2023 resulted from higher interest rates. As of September 30, 2023, the Company’s tangible common equity ratio and tangible book value per share were 9.11% and $22.34, respectively, which improved from 9.04% and $21.71, respectively, as of December 31, 2022. Total goodwill and other intangible assets were $214.6 million as of September 30, 2023, and $215.7 million as of December 31, 2022.

Stockholders ’ Equity

The Company’s stockholders’ equity remained relatively flat at approximately $1.2 billion at both March 31, 2024, and December 31, 2023.

Retained earnings increased by $9 million, and was offset by increases in treasury stock of $6 million and accumulated other comprehensive losses of $3 million.

As of March 31, 2024, the Company’s tangible common equity ratio and tangible book value per share were 9.25% and $23.26, respectively, compared to 9.25% and $23.14, respectively, as of December 31, 2023.

Total goodwill and other intangible assets were $213.9 million as of March 31, 2024, and $214.2 million as of December 31, 2023.

The following table shows the reconciliation of common equity to tangible common equity and the tangible common equity ratio.

September 30, 2023

March 31, 2024

December 31, 2023

2 unchanged sentences

intangible assets

Tangible common stockholders’

Tangible common stockholders’ equity

intangible assets

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Accordingly, capital plans, stock repurchases and dividend policies are monitored on an ongoing basis.

The Company’s objective with respect to the capital planning process is to effectively balance the retention of capital to support future growth with the goal of providing stockholders with an attractive long-term return on their investment.

The Company and the Bank are subject to regulatory guidelines establishing minimum capital standards that involve quantitative measures of assets, and certain off-balance sheet items, as risk-adjusted assets under regulatory accounting practices.

The following is a summary of regulatory capital amounts and ratios as of September 30, 2023 for the Company and the Bank, compared with minimum capital adequacy requirements and the regulatory requirements for classification as a well-capitalized depository institution (for the Bank).

The following is a summary of regulatory capital amounts and ratios as of March 31, 2024 for the Company and the Bank, compared with minimum capital adequacy requirements and the regulatory requirements for classification as a well-capitalized depository institution (for the Bank).

ConnectOne Bancorp, Inc.

1 unchanged sentence

To Be Well-Capitalized Under Prompt Corrective Action Provisions

As of September 30, 2023

As of March 31, 2024

(dollars in thousands)

7 unchanged sentences

To Be Well-Capitalized Under Prompt Corrective Action Provisions

As of September 30, 2023

As of March 31, 2024

(dollars in thousands)

3 unchanged sentences

Total risk-based capital

As of September 30, 2023, both the Company and Bank satisfy the capital conservation buffer requirements applicable to them.

As of March 31, 2024, both the Company and Bank satisfy the capital conservation buffer requirements applicable to them.

The lowest ratio at the Company is the Total Risk Based Capital Ratio which was 3.38% above the minimum buffer ratio and, at the Bank, the lowest ratio was the Total Risk Based Capital Ratio which was 2.91% above the minimum buffer ratio.

Qualitative and Quantitative Disclosures about Market Risks

Interest rate risk management is our primary market risk. 

See “Item 2- Management’s Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Sensitivity Analysis”

herein for a discussion of our management of our interest rate risk.

Interest rate risk management is our primary market risk.

See “Item 2- Management’s Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Sensitivity Analysis” herein for a discussion of our management of our interest rate risk.

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

What changed 10-Q

Item 1. Financial Statements