What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-08-02 compared with 2024-05-03 · 522 added, 233 removed, 1587 unchanged (32% of the section changed)

14 unchanged sentences

19,743 18,564

Loans held-for-sale

Loans receivable

38 unchanged sentences

Authorized 5,000,000 shares;

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

issued 115,000 shares as of June 30, 2024 and as of December 31, 2023;

outstanding 115,000 shares as of June 30, 2024 and as of December 31, 2023

110,927 110,927

1 unchanged sentence

Authorized 100,000,000 shares;

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

issued 42,250,617 shares as of June 30, 2024 and 42,122,948 shares as of December 31, 2023;

outstanding 38,365,069 shares as of June 30, 2024 and 38,519,770 as of December 31, 2023

586,946 586,946

3 unchanged sentences

610,759 590,970

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

Treasury stock, at cost 3,885,548 common shares as of June 30, 2024 and 3,603,178 as of December 31, 2023

( 76,116 ) ( 70,296 )

10 unchanged sentences

Three Months Ended

Six Months Ended

(dollars in thousands, except for per share data)

1 unchanged sentence

Interest and fees on loans

$ 120,145 $ 111,048 $ 240,233 $ 217,951

Interest and dividends on investment securities:

4,683 4,029 9,017 8,258

1,121 1,247 2,275 2,339

1,217 945 2,342 1,843

Interest on federal funds sold and other short-term investments

2,841 4,056 5,747 7,031

Total interest income

130,007 121,325 259,614 237,422

Interest expense

62,086 50,714 122,493 90,801

6,482 6,768 15,382 15,694

Total interest expense

68,568 57,482 137,875 106,495

Net interest income

61,439 63,843 121,739 130,927

Provision for credit losses

2,500 3,000 6,500 4,000

Net interest income after provision for credit losses

58,939 60,843 115,239 126,927

Noninterest income

Deposit, loan and other income

1,654 1,545 3,246 2,948

Income on bank owned life insurance

1,677 1,553 3,341 3,084

Net gains on sale of loans held-for-sale

Net gain (losses) on equity securities

1,277 550 1,783 599

Net losses on equity securities

( 209 ) ( 210 ) ( 123 ) ( 401 )

Total noninterest income

4,399 3,438 8,247 6,230

Noninterest expenses

Salaries and employee benefits

22,786 21,751 44,982 44,013

Occupancy and equipment

2,899 2,677 5,908 5,438

FDIC insurance

1,800 1,715 3,600 2,665

Professional and consulting

1,923 1,932 3,851 4,126

Marketing and advertising

613 556 1,290 1,088

Information technology and communications

4,198 3,644 8,587 6,705

Amortization of core deposit intangibles

321 371 642 743

Other components of net periodic pension expense

( 65 ) ( 25 ) ( 130 ) ( 51 )

Other expenses

3,119 2,829 5,929 5,593

Total noninterest expenses

37,594 35,450 74,659 70,320

Income before income tax expense

25,744 28,831 48,827 62,837

Income tax expense

6,688 7,437 12,566 16,514

19,056 21,394 36,261 46,323

Preferred dividends

1,509 1,509 3,018 3,018

Net income available to common stockholders

$ 17,547 $ 19,885 $ 33,243 $ 43,305

Earnings per common share

$ 0.46 $ 0.51 $ 0.87 $ 1.11

0.46 0.51 0.86 1.10

See accompanying notes to unaudited consolidated financial statements.

3 unchanged sentences

Three Months Ended

Six Months Ended

(dollars in thousands)

Other comprehensive income (loss):

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

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

Total other comprehensive loss

$ 19,056 $ 21,394 $ 36,261 $ 46,323

Other comprehensive income (loss), net of tax

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

Net losses arising during the period

( 3,263 ) ( 7,348 ) ( 12,229 ) ( 2,865 )

Unrealized gains on cash flow hedges

Net gains on cash flow hedges arising during the period

3,204 10,085 13,164 7,036

Less reclassification adjustment for net gains included in net income

( 4,085 ) ( 2,764 ) ( 8,132 ) ( 5,747 )

( 881 ) 7,321 5,032 1,289

Defined benefit pension and post-retirement benefit plans

Amortization of actuarial net loss

Total other comprehensive (loss) income, net of tax

( 4,112 ) 25 ( 7,135 ) ( 1,473 )

Total comprehensive income

$ 14,944 $ 21,419 $ 29,126 $ 44,850

See accompanying notes to unaudited consolidated financial statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS ’ EQUITY

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024

Comprehensive

2 unchanged sentences

(Loss) Income

Balance as of March 31, 2024

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

- - - 19,056 - - 19,056

Other comprehensive loss, net of tax

- - - - - ( 4,112 ) ( 4,112 )

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

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

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

- - - ( 6,906 ) - - ( 6,906 )

Restricted stock grants, net of forfeitures ( 32,016 shares)

- - - - - - -

Stock-based compensation expense

- - 1,089 - - - 1,089

Balance as of June 30, 2024

$ 110,927 $ 586,946 $ 33,955 $ 610,759 $ ( 76,116 ) $ ( 42,244 ) $ 1,224,227

Three Months Ended June 30, 2023

Comprehensive

Stockholders’

(in thousands, except share data)

(Loss) Income

Balance as of March 31, 2023

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

- - - 21,394 - - 21,394

Other comprehensive income, net of tax

- - - - - 25 25

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

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

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

- - - ( 6,648 ) - - ( 6,648 )

Exercise of stock options ( 269 shares)

- - 4 - - - 4

Restricted stock grants, net of forfeitures ( 37,332 shares)

- - - - - - -

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

- - ( 1,836 ) - - - ( 1,836 )

Repurchase of treasury stock ( 270,000 shares)

- - - - ( 4,225 ) - ( 4,225 )

Stock-based compensation expense

- - 1,222 - - - 1,222

Balance as of June 30, 2023

$ 110,927 $ 586,946 $ 30,740 $ 566,498 $ ( 61,877 ) $ ( 33,837 ) $ 1,199,397

Six Months Ended June 30, 2024

Comprehensive

Stockholders’

(in thousands, except share data)

(Loss) Income

Balance as of December 31, 2023

17 unchanged sentences

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

Stock-based compensation expense

- - 1,008 - - - 1,008

Repurchase of treasury stock ( 282,370 shares)

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

Balance as of March 31, 2024

Stock-based compensation expense

- - 2,097 - - - 2,097

Three Months Ended March 31, 2023

Balance as of June 30, 2024

$ 110,927 $ 586,946 $ 33,955 $ 610,759 $ ( 76,116 ) $ ( 42,244 ) $ 1,224,227

Six Months Ended June 30, 2023

Comprehensive

21 unchanged sentences

- - - - - - -

Stock-based compensation expense

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

- - ( 1,836 ) - - - ( 1,836 )

1 unchanged sentence

- - - - ( 9,078 ) - ( 9,078 )

Balance as of March 31, 2023

Stock-based compensation expense

- - 2,365 - - - 2,365

Balance as of June 30, 2023

$ 110,927 $ 586,946 $ 30,740 $ 566,498 $ ( 61,877 ) $ ( 33,837 ) $ 1,199,397

See accompanying notes to unaudited consolidated financial statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Six Months Ended

(dollars in thousands)

9 unchanged sentences

Stock-based compensation

(Gains) losses on equity securities, net

Losses on equity securities, net

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

5 unchanged sentences

Amortization of subordinated debentures issuance costs

Increase in accrued interest receivable

Decrease (increase) in accrued interest receivable

Net change in operating leases

Increase in other assets

Increase in other liabilities

Decrease (increase) in other assets

Decrease in other liabilities

Net cash provided by operating activities

3 unchanged sentences

Purchase of equity securities

Net redemptions of restricted investment in bank stocks

Net redemptions (purchases) of restricted investment in bank stocks

Payments on loans held-for-sale

86 unchanged sentences

Three Months Ended

Six Months Ended

(dollars in thousands, except for per share data)

12 unchanged sentences

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

129 43 173 135

Weighted average common and equivalent shares outstanding

2 unchanged sentences

$ 0.46 $ 0.51 $ 0.87 $ 1.11

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

0.46 0.51 0.86 1.10

There were no antidilutive share equivalents during the six months ended June 30, 2024 and June 30, 2023 .

CONNECTONE BANCORP, INC.

2 unchanged sentences

Investment Securities

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

All of the Company’s investment securities are classified as available-for-sale as of June 30, 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 .

Accordingly, the carrying value of such securities reflects their fair value as of June 30, 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 March 31, 2024 and December 31, 2023 .

The following tables present information related to the Company’s portfolio of securities available-for-sale as of June 30, 2024 and December 31, 2023 .

(dollars in thousands)

March 31, 2024

June 30, 2024

Investment securities available-for-sale:

39 unchanged sentences

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.

Investment securities having a carrying value of approximately $ 197.0 million and $ 358.0 million as of June 30, 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, contributing to the decrease in pledged securities as noted above.

As of June 30, 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.

The following table presents information for investments in securities available-for-sale as of June 30, 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.

March 31, 2024

June 30, 2024

(dollars in thousands)

13 unchanged sentences

$ 716,566 $ 620,579

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

There were no realized gains or losses on securities during the six months ended June 30, 2024 and June 30, 2023 .

CONNECTONE BANCORP, INC.

3 unchanged sentences

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 March 31, 2024 and December 31, 2023 .

March 31, 2024

June 30, 2024

Less than 12 Months

42 unchanged sentences

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

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

Accrued interest receivable for investment securities available-for-sale totaled $ 2.3 million as of both June 30, 2024 and December 31, 2023.

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

8 unchanged sentences

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

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

No allowance for credit losses for available-for-sale securities was recorded as of June 30, 2024 .

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

20 unchanged sentences

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

As of June 30, 2024, the Bank was not utilizing fair value hedges.

CONNECTONE BANCORP, INC.

11 unchanged sentences

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.

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 which 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 which 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.

2 unchanged sentences

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.

Net interest income recorded on these swap and interest rate cap transactions totaled approximately $ 5.7 million and $ 11.3 million and $ 5.0 million and $ 9.3 million during the three and six months ended June 30, 2024 and June 30, 2023 , respectively, and is recorded as a component of either interest expense on FHLB Advances or on brokered certificates of deposit.

CONNECTONE BANCORP, INC.

3 unchanged sentences

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

Six Months Ended June 30, 2024

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

4 unchanged sentences

$ 17,337 $ ( 11,312 ) $ -

Three Months Ended March 31, 2023

Six Months Ended June 30, 2023

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

4 unchanged sentences

$ 10,064 $ ( 8,221 ) $ -

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

The following table reflects the cash flow hedges included in the consolidated statements of condition as of June 30, 2024 and December 31, 2023 :

June 30, 2024

December 31, 2023

8 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 March 31, 2024 and December 31, 2023 :

March 31, 2024 December 31, 2023

Loans Receivable – The following table sets forth the composition of the Company’s loan portfolio segments, including net deferred loan fees, as of June 30, 2024 and December 31, 2023 :

June 30, 2024 December 31, 2023

(dollars in thousands)

11 unchanged sentences

$ 8,157,903 $ 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

As of June 30, 2024 and December 31, 2023 , loans totaling approximately $ 5.7 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.

Loans held-for-sale - The following table sets forth the composition of the Company’s loans held-for-sale as of June 30, 2024 and December 31, 2023:

June 30, 2024

December 31, 2023

(dollars in thousands)

Residential real estate

Total loans held-for-sale

June 30, 2024

Nonaccrual loans with ACL

5 unchanged sentences

- 29,585 29,585

Commercial construction

409 1,795 2,204

Residential real estate

31 unchanged sentences

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

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

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):

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 purposes of the table below.

The following table presents loans by origination, risk designation and gross charge-offs as of and during the six months ended June 30, 2024 (dollars in thousands):

Term loans amortized cost basis by origination year

127 unchanged sentences

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

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

March 31, 2024

The following table presents collateral dependent loans that were individually evaluated for impairment as of June 30, 2024 and December 31, 2023 :

June 30, 2024

Real Estate Other

4 unchanged sentences

Commercial construction

2,204 - 2,204

Residential real estate

15 unchanged sentences

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

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 June 30, 2024 and December 31, 2023 :

June 30, 2024

30-59 Days Past Due

12 unchanged sentences

$ 1,667 $ 7,116 $ - $ 46,026 $ 54,809 $ 8,107,691 $ 8,162,500

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

18 unchanged sentences

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

March 31, 2024

June 30, 2024

Commercial real estate Commercial construction

40 unchanged sentences

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

Activity in the Company’s ACL for loans for the three and six months ended June 30, 2024 is summarized in the tables below.

Three Months Ended June 30, 2024

Commercial real estate

2 unchanged sentences

(dollars in thousands)

Balance as of March 31, 2024

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

- ( 3,595 ) - - - ( 3,595 )

324 - - - - 324

(Reversal of) provision for credit losses - loans

( 1,039 ) 3,899 ( 539 ) 158 - 2,479

Balance as of June 30, 2024

$ 20,020 $ 53,098 $ 4,472 $ 4,484 $ 3 $ 82,077

Six Months Ended June 30, 2024

Commercial real estate

Commercial construction

Residential real estate

(dollars in thousands)

Balance as of December 31, 2023

2 unchanged sentences

347 - - - - 347

Provision for (reversal of) credit losses - loans

(Reversal of) provision for credit losses - loans

( 659 ) 7,300 ( 267 ) 164 ( 2 ) 6,536

Balance as of June 30, 2024

$ 20,020 $ 53,098 $ 4,472 $ 4,484 $ 3 $ 82,077

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and the Allowance for Credit Losses – (continued)

Activity in the Company’s ACL for loans for the three and six months ended June 30, 2023 is summarized in the table below.

Three Months Ended June 30, 2023

Commercial real estate

Commercial construction

Residential real estate

(dollars in thousands)

Balance as of March 31, 2023

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

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

( 1,100 ) - - ( 18 ) - ( 1,118 )

9 - - 67 - 76

Provision for (reversal of) credit losses - loans

4,255 ( 491 ) ( 420 ) ( 98 ) ( 1 ) 3,245

Balance as of June 30, 2023

$ 29,326 $ 52,509 $ 3,546 $ 3,819 $ 5 $ 89,205

Six Months Ended June 30, 2023

Commercial real estate

5 unchanged sentences

( 3,867 ) ( 1,717 ) - ( 18 ) - ( 5,602 )

9 - - 68 - 77

Provision for (reversal of) credit losses - loans

4,281 484 ( 172 ) ( 374 ) ( 2 ) 4,217

Balance as of March 31, 2023

Balance as of June 30, 2023

$ 29,326 $ 52,509 $ 3,546 $ 3,819 $ 5 $ 89,205

7 unchanged sentences

Three Months Ended

March 31, 2024

June 30, 2024

Term Extension

4 unchanged sentences

$ 11,150 $ - $ - $ 11,150 0.75 %

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

Residential real estate

1,417 - - 1,417 0.01

Six Months Ended

June 30, 2024

Term Extension

Payment Deferral

Interest Rate Reduction

% of Portfolio Loan Segment

(dollars in thousands)

$ 11,150 $ 126 $ - $ 11,276 0.75 %

Residential real estate

1,417 - - 1,417 0.01

The above table consists of two commercial loans and one residential real estate loan that were modified during the six months ended June 30, 2024 where the borrower was experiencing financial difficulty.

An $ 11.1 million commercial loan was a six -month term extension, while a $ 0.1 million commercial loan was a three -month payment deferral.

The $ 1.4 million residential real estate loan involved the freezing of a loan commitment, combined with a 10 -year term extension.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans and the Allowance for Credit Losses – (continued)

Three Months Ended

March 31, 2023

June 30, 2023

Term Extension

4 unchanged sentences

$ - $ - $ - $ - 0.00 %

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

Commercial real estate

213 213 0.00 %

Six Months Ended

June 30, 2023

Term Extension

Payment Deferral

Interest Rate Reduction

% of Portfolio Loan Segment

(dollars in thousands)

$ 53 $ - $ - $ 53 0.00 %

March 31, 2023

Commercial real estate

213 213 0.00 %

The above table consists of one commercial loan and one commercial real estate loan that were modified during the six months ended June 30, 2023 where the borrower was experiencing financial difficulty.

The $ 50 thousand commercial loan was a 3 -year term extension, while the $ 213 thousand commercial real estate loan was a 15 -year term extension.

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 payment status of loans that have been modified in the last twelve months.

June 30, 2024

30-89 Days Past Due

1 unchanged sentence

(dollars in thousands)

$ 21,559 $ - $ -

Commercial real estate

Residential real estate

Loan Modifications to Borrowers Experiencing Financial Difficulty:

During the six months ended June 30, 2024 and June 30, 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 six months ended June 30, 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.

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.

CONNECTONE BANCORP, INC.

2 unchanged sentences

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

1 unchanged sentence

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 :

The following table presents a roll forward of the allowance for credit losses for unfunded commitments for the three and six months ended June 30, 2024 and 2023 :

Three Months Ended

3 unchanged sentences

$ 2,754 $ 3,064

(Reversal of) provision for credit losses - unfunded commitments

Provision for (reversal of) credit losses - unfunded commitments

Balance at end of period

$ 2,775 $ 2,819

Six Months Ended

(dollars in thousands)

Balance at beginning of period

$ 2,811 $ 3,036

Reversal of credit losses - unfunded commitments

( 36 ) ( 217 )

Balance at end of period

$ 2,775 $ 2,819

CONNECTONE BANCORP, INC.

3 unchanged sentences

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 :

The following table summarizes the provision for (reversal of) credit losses for the three and six months ended June 30, 2024 and 2023 :

Three Months Ended

3 unchanged sentences

$ 2,479 $ 3,245

(Reversal of) provision for credit losses - unfunded commitments

Provision for (reversal of) credit losses - unfunded commitments

Provision for credit losses

$ 2,500 $ 3,000

Six Months Ended

(dollars in thousands)

Provision for credit losses – loans

$ 6,536 $ 4,217

Reversal of credit losses - unfunded commitments

( 36 ) ( 217 )

Provision for credit losses

$ 6,500 $ 4,000

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements and Fair Value of Financial Instruments

11 unchanged sentences

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023 :

Investment Securities Available-for-Sale and Equity Securities :

12 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 March 31, 2024 and December 31, 2023 are as follows:

March 31, 2024

For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used as of June 30, 2024 and December 31, 2023 are as follows:

June 30, 2024

Fair Value Measurements at Reporting Date Using

61 unchanged sentences

$ 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 .

There were no transfers between Level 1 and Level 2 during the six months ended June 30, 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 March 31, 2024 and December 31, 2023 .

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a nonrecurring basis as of June 30, 2024 and December 31, 2023 .

Loans Held-for-Sale :

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

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

For assets measured at fair value on a nonrecurring basis, the fair value measurements as of June 30, 2024 and December 31, 2023 are as follows:

Fair Value Measurements at Reporting Date Using

Assets measured at fair value on a nonrecurring basis:

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

June 30, 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:

9 unchanged sentences

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 .

Collateral dependent loans – Collateral dependent loans as of June 30, 2024 that required a valuation allowance were $ 1.0 million with a related valuation allowance of $ 0.2 million compared to $ 7.7 million with a related valuation allowance of $ 1.4 million as of December 31, 2023 .

CONNECTONE BANCORP, INC.

4 unchanged sentences

Recurring basis

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

The tables below present a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3 ) for the six months ended June 30, 2024 and for the year ended December 31, 2023 :

Municipal Securities

3 unchanged sentences

Change in unrealized loss

Ending balance, March 31, 2024

Ending balance, June 30, 2024

Municipal Securities

4 unchanged sentences

Ending balance, December 31, 2023

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 following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023 .

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

March 31, 2024

June 30, 2024

Valuation Techniques

20 unchanged sentences

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

March 31, 2024

June 30, 2024

(dollars in thousands)

22 unchanged sentences

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 :

As of June 30, 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 June 30, 2024 and December 31, 2023 :

Fair Value Measurements

4 unchanged sentences

(dollars in thousands)

March 31, 2024

June 30, 2024

Financial assets:

64 unchanged sentences

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.

Total comprehensive income (loss) 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.

2 unchanged sentences

Amounts Reclassified from Accumulated Other Comprehensive Income

Affected Line item in the Consolidated Statements of Income

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Interest income on cash flow hedges

$ 5,683 $ 3,953 $ 11,312 $ 8,220 Borrowings and deposits expense

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

(1,598 ) (1,189 ) (3,180 ) (2,473 ) Income tax expense

$ 4,085 $ 2,764 $ 8,132 $ 5,747

9 unchanged sentences

Comprehensive (Loss) Income – (continued)

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

March 31, 2024

Accumulated other comprehensive loss as of June 30, 2024 and December 31, 2023 consisted of the following:

June 30, 2024

December 31, 2023

9 unchanged sentences

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 .

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

Shares available for grant and issuance under the Plan as of June 30, 2024 were approximately 338,684 .

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.

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.

6 unchanged sentences

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:

Stock-based compensation expense for the three and six months ended June 30, 2024 was $ 1.1 and $ 2.1 respectively.

Stock-based compensation expense for the three and six months ended June 30, 2023 was $ 1.2 million and $ 2.4 million, respectively.

Activity under the Company’s restricted stock for the six months ended June 30, 2024 was as follows:

Nonvested Shares Weighted Average Grant Date Fair Value

4 unchanged sentences

( 1,848 ) 18.95

Nonvested as of March 31, 2024

Nonvested as of June 30, 2024

109,157 $ 18.15

3 unchanged sentences

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.

As of June 30, 2024 , there was approximately $ 1.4 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 1.3 years.

9 unchanged sentences

( 10,260 ) 23.10

Unearned as of March 31, 2024

Unearned as of June 30, 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.

As of June 30, 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 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.

As of June 30, 2024 , the maximum amount of performance units that ultimately could vest if performance targets were exceeded is 302,196 .

During the six months ended June 30, 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.

The net shares issued from vesting of performance units during the six months ended June 30, 2024 were 24,070 shares.

As of June 30, 2024 , compensation cost of approximately $ 2.7 million related to non-vested performance units not yet recognized is expected to be recognized over a weighted-average period of 2.0 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:

6 unchanged sentences

( 7,360 ) 21.53

Unearned as of March 31, 2024

Unearned as of June 30, 2024

189,711 $ 20.46

1 unchanged sentence

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.

During the six months ended June 30, 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.

The net shares issued from vesting of deferred stock units during the six months ended June 30, 2024 were 33,604 shares.

As of June 30, 2024 , compensation cost of approximately $ 2.0 million related to non-vested deferred stock units, not yet recognized, is expected to be recognized over a weighted-average period of 1.6 years.

CONNECTONE BANCORP, INC.

16 unchanged sentences

$ ( 65 ) $ ( 25 )

Six Months Ended

Affected Line Item in the Consolidated

Statements of Income

(dollars in thousands)

Interest cost

212 220 Other components of net periodic pension expense

Expected return on plan assets

( 428 ) ( 419 ) Other components of net periodic pension expense

Net amortization

86 148 Other components of net periodic pension expense

Total periodic pension income

$ ( 130 ) $ ( 51 )

Contributions

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

The Company did not contribute to the Pension Trust during the six months ended June 30, 2024 .

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

2 unchanged sentences

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):

As of June 30, 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 $ 889.6 million and $ 916.8 million as of June 30, 2024 and December 31, 2023 , respectively.

As of June 30, 2024 , the contractual maturities of these time deposits were as follows (dollars in thousands):

Time deposits (before net discount)

1 unchanged sentence

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.

The amount of time deposits with balances in excess of $250,000 were $ 729.5 million and $ 643.4 million as of June 30, 2024 and December 31, 2023 , respectively.

CONNECTONE BANCORP, INC.

3 unchanged sentences

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

March 31, 2024

June 30, 2024

December 31, 2023

23 unchanged sentences

All FHLB advances bear fixed rates.

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.

The advances as of June 30, 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 June 30, 2024 the Company had remaining borrowing capacity of approximately $ 1.5 billion at FHLB.

CONNECTONE BANCORP, INC.

10 unchanged sentences

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 %.

The rate as of June 30, 2024 was 8.44 %.

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 March 31, 2024 and December 31, 2023 .

As of March 31, 2024

The following table summarizes the mandatory redeemable trust preferred securities of the Company’s Statutory Trust II as of June 30, 2024 and December 31, 2023 .

As of June 30, 2024

Issuance Date

14 unchanged sentences

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 March 31, 2024 and December 31, 2023.

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.

14 unchanged sentences

(9) the impact on reputation risk created by the developments discussed above on such matters as business generation and retention, funding and liquidity could be significant;

(10) the outcome of regulatory and legal investigations and proceedings may not be anticipated, and (11) the impact of the COVID-19 pandemic on our employees and operations, and those of our customers.

(10) the outcome of regulatory and legal investigations and proceedings may not be anticipated, and (11) the impact of health emergencies or natural disasters on our employees and operations, and those of our customers.

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

4 unchanged sentences

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 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.

As of June 30, 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 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 income available to common stockholders for the three months ended June 30, 2024 was $17.5 million compared to $19.9 million for the comparable three-month period ended June 30, 2023.

The Company’s diluted earnings per share were $0.46 for the three months ended June 30, 2024 as compared with diluted earnings per share of $0.51 for the comparable three-month period ended June 30, 2023.

The $2.3 million decrease in net income available to common stockholders and the $0.05 decrease in diluted earnings per share versus the second quarter of 2023 were due to a $2.4 million decrease in net interest income and a $2.1 million increase in noninterest expenses, partially offset by a $1.0 million increase in noninterest income, a $0.7 million decrease in income tax expense and a $0.5 million decrease in provision for credit losses.

Net income available to common stockholders for the six months ended June 30, 2024 was $33.2 million compared to $43.3 million for the comparable six-month period ended June 30, 2023.

The Company’s diluted earnings per share were $0.86 for the six months ended June 30, 2024 as compared with diluted earnings per share of $1.10 for the comparable six-month period ended June 30, 2023.

The $10.1 million decrease in net income available to common stockholders and the $0.24 decrease in diluted earnings per share versus the comparable six-month period ended June 30, 2023 were due to a $9.2 million decrease in net interest income, a $4.3 million increase in noninterest expenses, and a $2.5 million increase in provision for credit losses, partially offset by a $3.9 million decrease in income tax expense and a $2.0 increase in noninterest income.

Net Interest Income and Margin

2 unchanged sentences

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 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.

Fully taxable equivalent net interest income for the three months ended June 30, 2024 decreased by $2.4 million, or 3.7%, from the three months ended June 30, 2023.

The decrease primarily resulted from a nine basis-point decrease in the net interest margin to 2.72% from 2.81%, partially offset by a $63.5 million, or 0.8%, increase in average total loans.

The contraction of the net interest margin was primarily attributable to a 73 basis-point increase in the average costs of deposits, partially offset by a 42 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.

Fully taxable equivalent net interest income for the six months ended June 30, 2024 decreased by $9.1 million, or 6.9%, from the six months ended June 30, 2023.

The decrease primarily resulted from a 21 basis-point decrease in the net interest margin to 2.68% from 2.89%, partially offset by a $132.6 million, or 1.6%, increase in average total loans.

The contraction of the net interest margin was primarily attributable to a 94 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 June 30, 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 March 31,

Three Months Ended June 30,

(dollars in thousands)

33 unchanged sentences

Rates are annualized.

Six Months Ended June 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’ equity

Total liabilities and stockholders’ equity

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.

Noninterest Income

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 income totaled $4.4 million for the three months ended June 30, 2024, compared with $3.4 million for the three months ended June 30, 2023.

Included in noninterest income for both the three months ended June 30, 2024 and June 30, 2023 were net losses on equity securities of $0.2 million.

Noninterest income increased $1.0 million when compared to the three months ended June 30, 2023.

The increase was primarily attributable to an increase in net gains on sale of loans held-for-sale of $0.7 million, an increase in deposit, loan, and other income of $0.1 million and an increase in bank owned life insurance ("BOLI") income of $0.1 million.

Noninterest income totaled $8.2 million for the six months ended June 30, 2024, compared with $6.2 million for the six months ended June 30, 2023.

Included in noninterest income for the six months ended June 30, 2024 and June 30, 2023 were net losses on equity securities of $0.1 million and $0.4 million, respectively.

Excluding these items, noninterest income increased $1.7 million when compared to the six months ended June 30, 2023.

The increase was primarily attributable to an increase in net gains on sale of loans held-for-sale of $1.2 million, an increase in deposit, loan, and other income of $0.3 million and an increase in bank owned life insurance ("BOLI") income of $0.2 million.

Noninterest Expenses

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.

Noninterest expenses totaled $37.6 million for the three months ended June 30, 2024, compared with $35.5 million for the three months ended June 30, 2023.

Noninterest expenses increased by $2.1 million when compared to the three months ended June 30, 2023.

The increase was primarily attributable to increases in salaries and employee benefits of $1.0 million, due to increases in incentive-based compensation accruals, information technology and communications of $0.6 million, due to additional investments in technology, equipment, and software, other expenses of $0.3 million, occupancy and equipment of $0.2 million, marketing and advertising $0.1 million and FDIC insurance of $0.1 million.

Noninterest expenses totaled $74.7 million for the six months ended June 30, 2024, compared with $70.3 million for the six months ended June 30, 2023.

Noninterest expenses increased by $4.3 million when compared to the six months ended June 30, 2023.

The increase was caused by the items discussed above and primarily reflect increases in information technology and communications of $1.9 million, FDIC insurance of $0.9 million, salaries and employee benefits of $0.9 million, occupancy and equipment of $0.5 million, other expenses of $0.3 million and marketing and advertising of $0.2 million, partially offset by decreases of $0.3 million in professional and consulting and $0.1 million in amortization of core deposit intangibles.

Income tax expense was $6.7 million for the three months ended June 30, 2024, compared to $7.4 million for the three months ended June 30, 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.

The effective tax rate for the three months ended June 30, 2024 and June 30, 2023 was 26.0% and 25.8%, respectively.

Income tax expense was $12.6 million for the six months ended June 30, 2024, compared to $16.5 million for the six months ended June 30, 2023.

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

The effective tax rate for the six months ended June 30, 2024 and June 30, 2023 was 25.7% and 26.3%, respectively.

The decrease in the effective tax rate when compared to the six months ended June 30, 2023 is largely attributable to lower taxable income.

Financial Condition

1 unchanged sentence

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

June 30, 2024

December 31, 2023

6 unchanged sentences

Residential real estate

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.

As of June 30, 2024, gross loans totaled $8.2 billion, a decrease of $189.3 million or 2.3%, 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

June 30, 2024

December 31, 2023

6 unchanged sentences

Total commercial real estate loans (before discount)

Fair value discount

Fair value premium (discount)

Total commercial real estate loans

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

March 31, 2024

June 30, 2024

December 31, 2023

5 unchanged sentences

Total multifamily loans

March 31, 2024

June 30, 2024

December 31, 2023

5 unchanged sentences

Total nonowner occupied

March 31, 2024

June 30, 2024

December 31, 2023

5 unchanged sentences

Total owner-occupied

March 31, 2024

June 30, 2024

December 31, 2023

3 unchanged sentences

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

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

June 30, 2024

December 31, 2023

2 unchanged sentences

(dollars in thousands)

Owner-occupied

Nonowner-occupied

Warehouse/Industrial

Total owner-occupied

March 31, 2024

Total nonowner-occupied

June 30, 2024

December 31, 2023

2 unchanged sentences

(dollars in thousands)

Nonowner-occupied

Owner-occupied

Warehouse/Industrial

Total nonowner-occupied

Total owner-occupied

Allowance for Credit Losses and Related Provision

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.

As of June 30, 2024, the Company’s allowance for credit losses for loans was $82.1 million, an increase of $0.1 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 and six months ended June 30, 2024 was $2.5 million and $6.5 million, respectively, compared to $3.0 million and $4.0 million, for the three and six months ended June 30, 2023, respectively.

The decrease in the provision for credit losses during the three months ended June 30, 2024, when compared to the comparable period in 2023 reflected decreases to the general reserve and specific reserves.

The increase in the provision for credit losses during the six months ended June 30, 2024, when compared to the comparable period in 2023 reflected an increase to specific reserves and a decrease to the general reserve.

There were $3.3 million and $6.4 million in net charge-offs for the three and six months ended June 30, 2024 compared with $1.0 million and $5.5 million in net charge-offs for the three and six months ended June 30, 2023 respectively.

Net charge-offs during the six months ended June 30, 2024 consisted of charges related to a group of multifamily loans, while the net charge-offs during the six months ended June 30, 2023 were primarily the result of the resolution of certain nonaccrual taxi loans and one owner-occupied commercial real estate loan that was previously reserved for.

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.

In management’s view, the level of the ACL as of June 30, 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.

7 unchanged sentences

Commercial real estate

Residential real estate

Total charge-offs

Residential real estate

Total recoveries

5 unchanged sentences

ACL as a percentage of loans receivable

Six Months Ended

(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 – loans

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

Asset Quality

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 manages asset quality and credit risk by maintaining diversification in its loan portfolio and through review processes that include 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.

7 unchanged sentences

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.

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

June 30, 2024

December 31, 2023

6 unchanged sentences

Investment Securities

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

As of June 30, 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 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.

For the three months ended June 30, 2024, average securities, on an amortized cost basis, increased by $13.3 million to approximately $739.6 million, or 8.0% of average total interest-earning assets, from approximately $726.3 million, or 7.9% of average interest-earning assets, for the three months ended June 30, 2023.

For the six months ended June 30, 2024, average securities, on an amortized cost basis increased by $0.3 million to approximately $729.9 million, or 7.9% of average total interest-earning assets, from approximately $729.6 million, or 7.9% of average interest-earning assets, for the six months ended June 30, 2023.

As of June 30, 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 $70.0 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.

3 unchanged sentences

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.

The Company did not record an allowance for credit losses for available-for-sale securities as of June 30, 2024.

Interest Rate Sensitivity Analysis

9 unchanged sentences

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.

As of June 30, 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.

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%.

The model also utilizes immediate and parallel shifts in market interest rates as of June 30, 2024.

Based on our model, which was run as of June 30, 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 6.65%, while a 100 basis-point instantaneous and parallel decrease in interest rates would increase net interest income by 1.56%.

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%.

Based on our model, which was run as of June 30, 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 2.86%, while a 100 basis-point instantaneous and parallel decrease in interest rates would decrease net interest income by 0.25%.

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%.

1 unchanged sentence

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 June 30, 2024, would decrease by 12.33% with an instantaneous and parallel rate shock of up 200 basis points, and increase by 2.44% 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.

The following table illustrates the most recent results for EVE and one-year NII sensitivity as of June 30, 2024.

Interest Rates

10 unchanged sentences

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.

Given the nature and speed with which interest rates change, the projections noted above on the Company’s EVE and net interest income can be expected to differ from actual results.

Estimates of Fair Value

13 unchanged sentences

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

Management actively monitors and manages its liquidity position to determine any current or potential future liquidity needs.

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.

1 unchanged sentence

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 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.

Liquidity and funding needs are managed through the Bank's Treasury functions and the Asset Liability Committee.

An internal policy addresses liquidity and funds management and management monitors the adherence to policy limits to satisfy current and potential future cash flow needs.

The policy includes internal limits, deposit concentrations, liquidity sources and availability, stress testing, collateral management, contingency funding plan and other qualitative and quantitative metrics.

As of June 30, 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 June 30, 2024, liquid assets (cash and due from banks, interest-bearing deposits with banks and unencumbered investment securities) were $731.2 million, which represented 7.5% of total assets and 8.8% 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 June 30, 2024, not included in the above liquid assets were securities with a market value of $107.2 million which were pledged to the Federal Home Loan Bank, which support aggregate unutilized borrowing capacity of $102.2 million as of June 30, 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.

The Bank is a member of the Federal Home Loan Bank of New York and, based on available qualified collateral as of June 30, 2024, had the ability to borrow $2.8 billion.

The Bank also has a credit facility 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 June 30, 2024.

In addition, as of June 30, 2024, the Bank had in place borrowing capacity of $305 million through correspondent banks and other unsecured borrowing lines.

As of June 30, 2024, the Bank had aggregate available and unused credit of approximately $3.2 billion, which represents the aforementioned facilities totaling $4.5 billion net of $1.3 billion in outstanding borrowings and letters of credit.

As of June 30, 2024, outstanding commitments for the Bank to extend credit were approximately $1.1 billion.

Cash an d cash equivalents totaled $293.5 million as of June 30, 2024, increasing by $50.8 million from $242.7 million as of December 31, 2023.

Operating activities provided $42.8 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.

Investing activities provided $169.2 million in net cash, primarily reflecting an increase in loans.

Financing activities used $161.2 million in net cash, primarily reflecting $177.4 million in net repayments of FHLB borrowings and partially offset by an increase of $39.9 million in deposits.

Deposits are our primary source of funds.

10 unchanged sentences

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

Quarter-to-Date Average June 30, 2024

Quarter-to-Date Average June 30, 2023

(dollars in thousands)

Demand, noninterest-bearing

Demand, interest-bearing & NOW

Total average deposits

Average total deposits decreased by $82 million, or 1.1%, during the second quarter of 2024 when compared to the second quarter of 2023.

The decrease in total average deposits was primarily attributed to decreases in noninterest-bearing demand deposits of $91 million, time deposits of $71.0 million and interest-bearing and NOW deposits of $40 million, partially offset by increases in savings deposits of $120 million.

The decrease in average time deposits of $71.0 million during the second quarter of 2024 was primarily attributed to decreases in CDARs of $124 million, nonreciprocal brokered time deposits of $94 million and internet listing services of $16 million, partially offset by an increase in retail time deposits of $163 million.

The Bank continues its utilization of nonreciprocal brokered time deposits to enhance balance sheet liquidity as it remains 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.

Average demand deposits (including interest-bearing and noninterest-bearing) for the second quarter of 2024 included $1.2 billion in ICS reciprocal deposits, compared to $1.1 billion for the second quarter of 2023.

Average time deposits for the second quarter of 2024 included $61 million in CDARS, compared to $184 million for the second quarter of 2023.

The decrease in CDARS was attributed to maturities that did not renew.

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

Year-to-Date Average June 30, 2024

Year-to-Date Average June 30, 2023

(dollars in thousands)

2 unchanged sentences

Total average deposits

Average total deposits increased by $30 million, or 0.4%, during the six months ended June 30, 2024 when compared to the six months ended June 30, 2023.

The increase in total average deposits was primarily attributed to increases in savings deposits of $92 million, time deposits of $69 million, and interest-bearing and NOW deposits of $17 million, partially offset by decreases in noninterest-bearing demand deposits of $148 million.

The increase in average time deposits of $69 million during the six months ended June 30, 2024 was primarily attributed to increases in retail time deposits of $101 million and internet listing services of $5 million, partially offset by decreases in CDARs of $35 million and nonreciprocal brokered time deposits of $2 million.

Average demand deposits (including interest-bearing and noninterest-bearing) during the six months ended June 30, 2024 included $1.1 billion in ICS reciprocal deposits, compared to $0.7 billion during the six months ended June 30, 2023.

Average time deposits during the six months ended June 30, 2024 included $76 million in CDARS, compared to $111 million during the six months ended June 30, 2023.

The decrease in CDARS was attributed to maturities that did not renew.

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

March 31, 2024

June 30, 2024

December 31, 2023

7 unchanged sentences

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

March 31, 2024

June 30, 2024

December 31, 2023

5 unchanged sentences

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

Total deposits increased by $40 million, or 0.5%, to $7.6 billion as of June 30, 2024 from $7.5 billion as of December 31, 2023.

The increase in total deposits was primarily attributed to increases in savings deposits of $83 million, time deposits of $62 and noninterest-bearing demand deposits of $9 million, partially offset by decreases in demand, interest-bearing demand deposits & NOW deposits of $114 million.

Total demand, interest-bearing & NOW deposits as of June 30, 2024 include $1.2 billion in ICS reciprocal deposits, compared to $1.1 billion as of December 31, 2023.

Total time deposits as of June 30, 2024 include $61 million in CDARS, compared to $96 million as of December 31, 2023.

Included in time deposits were nonreciprocal brokered deposits of $890 million as of June 30, 2024, which were relatively flat when compared to $917 million as of December 31, 2023.

As of June 30, 2024, we held $730 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 June 30, 2024:

June 30, 2024

(dollars in thousands)

8 unchanged sentences

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%.

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 adjustment of 0.26161%.

The rate as of June 30, 2024 was 8.44%.

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

3 unchanged sentences

Stockholders ’ Equity

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

The Company’s stockholders’ equity remained relatively flat at approximately $1.2 billion at both June 30, 2024, and December 31, 2023.

Retained earnings increased by $20 million and was offset by increases in treasury stock of $6 million and accumulated other comprehensive losses of $7 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.

As of June 30, 2024, the Company’s tangible common equity ratio and tangible book value per share were 9.46% and $23.45, respectively, compared to 9.25% and $23.14, respectively, as of December 31, 2023.

Total goodwill and other intangible assets were $213.6 million as of June 30, 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.

March 31, 2024

June 30, 2024

December 31, 2023

16 unchanged sentences

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 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).

The following is a summary of regulatory capital amounts and ratios as of June 30, 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 March 31, 2024

As of June 30, 2024

(dollars in thousands)

7 unchanged sentences

To Be Well-Capitalized Under Prompt Corrective Action Provisions

As of March 31, 2024

As of June 30, 2024

(dollars in thousands)

3 unchanged sentences

Total risk-based capital

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

As of June 30, 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 3.60% above the minimum buffer ratio and, at the Bank, the lowest ratio was the Total Risk Based Capital Ratio which was 3.08% above the minimum buffer ratio.

3 unchanged sentences

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