What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-21 compared with 2024-02-23 · 323 added, 358 removed, 2185 unchanged (24% of the section changed)

15 unchanged sentences

Opinions on the Financial Statements and Internal Control over Financial Reporting

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

and Subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements").

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

and Subsidiaries (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements").

We also have audited the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework:

24 unchanged sentences

Critical Audit Matter

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

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

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

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

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

Allowance for Credit Losses – Qualitative Loss Factors on Commercial and Commercial Real Estate Loans

60 unchanged sentences

14,489 12,007

Other real estate owned

208,372 208,372

50 unchanged sentences

Interest and fees on loans

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

Interest and dividends on investment securities:

16,666 12,712 4,413

4,641 3,893 2,403

3,662 1,655 971

Interest on federal funds sold and other short-term investments

11,104 2,493 405

Total interest income

490,065 373,746 301,738

Interest expense:

206,176 50,561 24,768

28,783 21,066 14,092

Total interest expense

234,959 71,627 38,860

Net interest income

255,106 302,119 262,878

Provision for (reversal of) credit losses

8,200 17,750 ( 5,500 )

Provision for credit losses

Net interest income after provision for credit losses

246,906 284,369 268,378

Noninterest income:

Deposit, loan and other income

6,098 7,472 6,617

Income on bank owned life insurance

6,316 5,597 4,771

Net gains on sale of loans held-for-sale

1,704 1,695 3,807

Gain on sale of branches

Net losses on equity securities

( 117 ) ( 1,521 ) ( 373 )

Net gains on sale/redemption of investment securities

Net gains (losses) on equity securities

Total noninterest income

14,001 13,243 15,691

Noninterest expense:

Salaries and employee benefits

88,325 81,289 64,341

Occupancy and equipment

10,884 9,865 11,638

FDIC insurance

8,365 2,881 2,665

Professional and consulting

7,547 8,053 8,286

Marketing and advertising

1,965 1,692 1,318

Information technology and communications

14,340 11,108 11,267

Merger expenses

Branch closing expenses

Amortization of core deposit intangible

1,438 1,685 1,981

Net periodic pension income

( 102 ) ( 572 ) ( 269 )

Increase in value of acquisition price

Other expenses

11,187 8,871 7,784

Total noninterest expenses

143,949 126,388 109,011

Income before income tax expense

116,958 171,224 175,058

Income tax expense

29,955 46,013 44,705

87,003 125,211 130,353

Preferred dividends

6,036 6,037 1,717

Net income available to common stockholders

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

Earnings per common share:

$ 2.08 $ 3.03 $ 3.24

2.07 3.01 3.22

See the accompanying notes to the consolidated financial statements.

4 unchanged sentences

(dollars in thousands)

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

Other comprehensive income:

Unrealized gains and losses:

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

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

( 1,775 ) 24,949 2,914

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

Reclassification adjustment for realized gains included in net income

Unrealized gains on cash flow hedges

9,431 46,181 3,593

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

6,594 32,221 2,581

Reclassification adjustment for (gains) losses arising during this period

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

6,086 976 ( 528 )

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

Unrealized pension plan gains:

Unrealized pension plan gains before reclassifications

( 283 ) ( 12 ) -

Reclassification adjustment for realized losses included in net income

( 89 ) ( 20 ) ( 84 )

Total other comprehensive loss

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

Other comprehensive income (loss), net of tax:

Net unrealized holding (losses) gains on available-for-sale-securities arising during period

Net unrealized (losses) gains on cash flow hedges

Pension plan adjustments

Total other comprehensive loss, net of tax

Total comprehensive income

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

See the accompanying notes to the consolidated financial statements.

9 unchanged sentences

(in thousands, except share and per share data)

Balance as of December 31, 2020

$ - $ 586,946 $ 23,887 $ 331,951 $ ( 30,271 ) $ 2,797 $ 915,310

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

“Authoritative Accounting Guidance Presentation”), net of tax

- - - ( 2,925 ) - - ( 2,925 )

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

Balance as of January 1, 2022

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

20 unchanged sentences

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

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

110,927 - - - - - 110,927

Stock-based compensation expense

21 unchanged sentences

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

Repurchase of stock ( 447,108 shares)

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

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

10 unchanged sentences

- - - ( 27,281 ) - - ( 27,281 )

Exercise of stock options ( 7,388 shares)

- - 96 - - - 96

Restricted stock grants, net of forfeitures ( 69,772 shares)

8 unchanged sentences

- - ( 1,403 ) - - - ( 1,403 )

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

Repurchase of stock ( 282,370 shares)

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

9 unchanged sentences

Cash flows from operating activities

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

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

Depreciation and amortization of premises and equipment

4,503 3,863 3,757

Provision for (reversal of) credit losses

8,200 17,750 ( 5,500 )

Provision for credit losses

Amortization of intangibles

1,438 1,685 1,980

Net accretion of loans

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

Accretion on bank premises

( 49 ) ( 49 ) ( 73 )

Accretion on deposits

( 279 ) ( 777 ) ( 2,224 )

Amortization (accretion) on borrowings

Net deferred income tax expense (benefit)

4,135 ( 403 ) 16

Amortization on borrowings

Net deferred income tax (benefit) expense

Stock-based compensation

4,860 4,889 4,536

Gains on sales/redemptions of investment securities, net

Change in fair value of equity securities, net

117 1,521 373

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

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

Gain on sale of branches

Net losses on disposition of other fixed assets

Gain (loss) on sale of other real estate owned

Net losses on disposition of fixed assets

Gain on sale of other real estate owned

Loans originated for resale

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

Proceeds from sale of loans held-for-sale

36,645 28,341 72,233

Increase in cash surrender value of bank owned life insurance

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

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

1,030 2,155 5,966

Amortization of premiums on investment securities, net

Amortization of subordinated debt issuance costs

1,184 304 303

(Increase) decrease in accrued interest receivable

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

Decrease (increase) in accrued interest receivable

Net change in operating leases

( 54 ) ( 182 ) ( 769 )

(Increase) decrease in other assets

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

Decrease (increase) in other assets

(Increase) decrease in other liabilities

( 9,248 ) 48,322 10,526

Net cash provided by operating activities

92,891 176,777 202,273

Cash flows from investing activities

Investment securities available-for-sale:

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

Maturities, calls and principal repayments

64,550 150,287 285,873

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

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

Net redemptions (purchases) of restricted investment in bank stocks

Purchases of equity securities

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

Loans held-for-sale payments

Net increase in loans

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

Net decrease (increase) in loans

Cash flow hedge premium payment

- ( 6,965 ) -

Purchases of premises and equipment

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

Purchases of bank owned life insurance

- ( 30,000 ) ( 25,000 )

Proceeds from BOLI death benefits

Proceeds from disposition of fixed assets

Proceeds from sale of branches

Proceeds from sale of other real estate owned

Net cash used in investing activities

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

Net cash provided by (used in) investing activities

Cash flows from financing activities

Net increase in deposits

179,859 1,024,446 375,953

Repayment of subordinated debt

( 75,000 ) - ( 50,000 )

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

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

Repayments of FHLB borrowings

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

Cash dividends paid on preferred stock

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

Cash dividends paid on common stock

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

Proceeds from preferred stock offering

Purchase of treasury stock

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

Proceeds from exercise of stock options

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

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

Net cash provided by financing activities

129,546 1,369,234 449,367

Net cash (used in) provided by financing activities

Net change in cash and cash equivalents

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

Cash and cash equivalents at beginning of period

268,315 265,536 303,756

Cash and cash equivalents at end of period

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

Supplemental disclosures of cash flow information:

1 unchanged sentence

Interest paid

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

Income taxes paid

31,647 49,234 45,431

Supplemental disclosures of noncash investing activities:

Transfer of loans to other real estate owned

$ - $ 579 $ 304

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

16,156 8,043 4,293

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

11,197 27,137 16,628

See the accompanying notes to the consolidated financial statements.

35 unchanged sentences

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

Risks and Uncertainties

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

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

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

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

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

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

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

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

Cash and Cash Equivalents

2 unchanged sentences

Investment Securities

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

The Company accounts for its investment securities in accordance with FASB ASC 320, “Investments-Debt and Equity Securities”.

Investments are classified into the following categories:

4 unchanged sentences

Investment securities gains or losses are determined using the specific identification method.

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

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

Interest income includes amortization of purchase premiums or discounts.

48 unchanged sentences

Allowance for Credit Losses

The allowance for credit losses is an estimate of current expected credit losses considering available information relevant to assessing collectability of cash flows over the contractual term of the financial assets necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date.

The allowance for credit losses is an estimate of current expected credit losses considering available information relevant to assessing the collectability of cash flows over the contractual term of the financial assets necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date.

The measurement of expected credit losses is applicable to loans receivable and investment securities measured at amortized cost.

34 unchanged sentences

The Company evaluates the pooling methodology at least annually.

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

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

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

1 unchanged sentence

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

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

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

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

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

Individual analysis will establish an individually evaluated allowance for instruments in scope.

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

12 unchanged sentences

( 1 ) non-accrual status;

( 2 ) troubled debt restructured designation;

( 2 ) risk ratings of special mention, substandard or doubtful;

5 unchanged sentences

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

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

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

34 unchanged sentences

Other Real Estate Owned

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

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

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

10 unchanged sentences

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

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

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

This standard requires that the funded status of defined benefit postretirement plans be recognized on the Company’s statement of financial condition and changes in the funded status be reflected in other comprehensive income.

This standard also requires companies to measure the funded status of the plan as of the date of its fiscal year-end.

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

1 unchanged sentence

Stock-Based Compensation

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

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

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

34 unchanged sentences

Other intangible assets consist of core deposit intangibles arising from business combinations that are amortized over their estimated useful lives to their estimated residual value.

Comprehensive Income

Comprehensive Income (Loss)

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

15 unchanged sentences

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

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities.

Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates.

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

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

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

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

The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes”, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.

Deferred tax assets and liabilities are determined based on the temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates expected to be in effect when the taxes are actually paid or recovered.

Deferred tax assets are recognized to the extent it is more likely than not that they will be realized.

A valuation allowance is recorded to reduce deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company evaluates tax positions taken or expected to be taken in a tax return and recognizes a tax benefit if it is more likely than not that the position will be sustained upon examination by the relevant taxing authorities.

Unrecognized tax benefits, including interest and penalties, are recorded as a component of income tax expense in the Consolidated Statements of Income.

In accordance with ASC 740 - 10 - 25, the Company classifies interest and penalties related to unrecognized tax benefits as a component of income tax expense in the Consolidated Statements of Operations.

Accrued interest and penalties are included in other long-term liabilities on the Consolidated Balance Sheets.

The Company recognizes interest and penalties beginning in the period in which the uncertain tax position is taken, and they continue to accrue until the matter is resolved or until it is determined that payment is not required.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company regularly monitors developments in tax laws and regulations that may impact its tax positions and financial reporting.

Any changes in classification, measurement, or recognition of tax-related interest and penalties will be disclosed in accordance with GAAP and relevant SEC reporting requirements.

See Note 11 for more discussion on income taxes.

Advertising Costs

8 unchanged sentences

Adoption of New Accounting Standards

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

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions” (“ASU 2022 - 03” ).

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

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

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022 - 02, “Financial Instruments – Credit Losses (Topic 326 ), Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022 - 02” ).

ASU 2022 - 02 eliminates the accounting guidance for troubled debt restructurings (“TDRs”) in ASC 310 - 40, “Receivables - Troubled Debt Restructurings by Creditors” for entities that have adopted the current expected credit loss (“CECL”) model introduced by ASU 2016 - 13, “Financial Instruments – Credit Losses (Topic 326 ):

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

ASU 2022 - 02 also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326 - 20, “Financial Instruments—Credit Losses—Measured at Amortized Cost”.

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

Newly Issued, But Not Yet Effective Accounting Standards

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

In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023 - 07, Segment Reporting (Topic 280 ):

Improvements to Reportable Segment Disclosures.

The amendments apply to all public entities that are required to report segment information in accordance with Topic 280, Segment Reporting.

The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses.

ASU 2023 - 07 is effective for the Company beginning January 1, 2024.

In December 2023, the FASB issued ASU 2023 - 09, Income Taxes (Topic 740 ):

Improvements to Income Tax Disclosures.

6 unchanged sentences

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

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

The Company adopted ASU 2023 - 09 on January 1, 2025 and is currently not expected to have a material effect on the consolidated financial statements in 2025.

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Business Combination (unaudited)

On September 4, 2024, the Parent Corporation and The First of Long Island Corporation (Nasdaq:

FLIC) (“First of Long Island”), parent company of The First National Bank of Long Island entered into a definitive agreement pursuant to which First of Long Island will merge with and into the Parent Corporation, which will be the surviving entity in the transaction.

The combined company will operate under the ConnectOne brand, and will have approximately $ 14 billion in total assets, $ 11 billion in total deposits, and $ 11 billion in total loans.

Under the terms of the agreement, First of Long Island shareholders will receive 0.5175 shares of Parent Corporation common stock for each share of First of Long Island common stock.

The transaction is presently valued at approximately $ 284 million in aggregate based upon the closing common stock price of $ 23.97 for ConnectOne as of September 4, 2024.

On February 14, 2025, at separate special meetings, the shareholders of both companies approved proposals relating to the pending merger of the Company and FLIC.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 – Earnings per Common Share

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

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

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

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

96 unchanged sentences

$ 708,437 $ 612,847

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

Years Ended December 31,

(dollars in thousands)

$ - $ - $ 5,185

Gross gains on sale/redemption of investment securities

$ - $ - $ 195

Gross losses on sale/redemption of investment securities

Net gains on sales/redemptions of investment securities

Tax provision on net gains

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

$ - $ - $ 147

There were no gains/losses from the sales and/or redemptions of investment securities for the years ended December 31, 2024, 2023 and 2022.

CONNECTONE BANCORP, INC.

45 unchanged sentences

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

On January 1, 2021, the Company adopted ASU 2016 - 13 and implemented the CECL methodology for allowance for credit losses on its investment securities available-for-sale.

The new CECL methodology replaces the other-than-temporary impairment model that previously existed.

The Company did not have a CECL day 1 impact attributable to its investment securities portfolio and did not have an allowance for credit losses as of December 31, 2023 .

The Company did not have an allowance for credit losses as of December 31, 2024.

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

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

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

CONNECTONE BANCORP, INC.

27 unchanged sentences

(dollars in thousands)

Commercial (1)

$ 1,532,730 $ 1,578,730

10 unchanged sentences

$ 8,274,810 $ 8,345,145

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

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

At both December 31, 2024 and December 31, 2023 , loan balances of approximately $ 5.8 billion, were pledged to secure borrowings from the FHLB of New York and the Federal Reserve Bank of New York.

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

17 unchanged sentences

Residential real estate

Total carrying amount

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

Loans Receivable on Nonaccrual Status - The following tables present the amortized cost basis of loans on nonaccrual status by loan segment as of December 31, 2024 and 2023:

December 31, 2024

6 unchanged sentences

3,822 32,664 36,486

Commercial construction

- 2,204 2,204

Residential real estate

34 unchanged sentences

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

As of December 31, 2023 , our loans based on year of origination and risk designation are as follows (dollars in thousands):

As of December 31, 2024 , our loans based on year of origination and risk designation and gross charge-offs are as follows (dollars in thousands):

Term loans amortized cost basis by origination year

6 unchanged sentences

$ 69,206 $ 160,086 $ 201,124 $ 239,820 $ 31,360 $ 133,894 $ 697,240 $ 1,532,730

YTD gross charge-offs

$ - $ - $ 1,003 $ 49 $ - $ 316 $ 1,918 $ 3,286

Commercial real estate

6 unchanged sentences

$ 408,314 $ 268,533 $ 1,481,673 $ 1,511,933 $ 341,305 $ 1,453,635 $ 415,286 $ 5,880,679

YTD gross charge-offs

$ - $ - $ - $ - $ - $ 10,416 $ - $ 10,416

Commercial construction

6 unchanged sentences

$ 15,390 $ - $ 2,137 $ 8,995 $ 6,518 $ - $ 583,206 $ 616,246

YTD gross charge-offs

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

Residential real estate

6 unchanged sentences

$ 17,763 $ 14,542 $ 39,830 $ 21,925 $ 18,496 $ 97,656 $ 39,479 $ 249,691

YTD gross charge-offs

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

$ 1,015 $ 24 $ 1 $ - $ - $ - $ 96 $ 1,136

Special mention

4 unchanged sentences

$ 1,015 $ 24 $ 1 $ - $ - $ - $ 96 $ 1,136

YTD gross charge-offs

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

$ 509,780 $ 440,166 $ 1,660,146 $ 1,778,072 $ 393,127 $ 1,566,356 $ 1,711,061 $ 8,058,708

Special mention

3 unchanged sentences

$ 511,688 $ 443,185 $ 1,724,765 $ 1,782,673 $ 397,679 $ 1,685,185 $ 1,735,307 $ 8,280,482

YTD gross charge-offs

$ - $ - $ 1,003 $ 49 $ - $ 10,732 $ 1,918 $ 13,702

CONNECTONE BANCORP, INC.

2 unchanged sentences

Note 5 – Loans and the Allowance for Credit Losses – (continued)

As of December 31, 2022, our loans based on year of origination and risk designation are as follows (dollars in thousands):

As of December 31, 2023, our loans based on year of origination and risk designation and gross charge-offs are as follows (dollars in thousands):

Term loans amortized cost basis by origination year

6 unchanged sentences

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

YTD gross charge-offs

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

Commercial real estate

6 unchanged sentences

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

YTD gross charge-offs

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

Commercial construction

6 unchanged sentences

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

YTD gross charge-offs

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

Residential real estate

6 unchanged sentences

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

YTD gross charge-offs

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

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

Special mention

4 unchanged sentences

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

$ 1,930,147 $ 1,946,667 $ 462,077 $ 408,820 $ 449,120 $ 1,194,037 $ 1,535,858 $ 7,926,726

Special mention

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

7,615 2,075 15 8,295 30,352 49,262 22,716 120,330

- - - - - - - -

YTD gross charge-offs

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

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Revolving Loans

Current period gross write-off

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

Commercial real estate

Current period gross write-off

Special mention

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

Commercial construction

Current period gross write-off

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

Residential real estate

Current period gross write-off

- - - - - - - -

Current period gross write-off

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

Current period gross write-off

YTD gross charge-offs

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

3 unchanged sentences

Note 5 – Loans and the Allowance for Credit Losses – (continued)

Collateral Dependent Loans :

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

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

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

Collateral-dependent Loans - The following tables present the amortized cost basis of collateral-dependent loans by loan segment as of December 31, 2024 and 2023:

December 31, 2024

22 unchanged sentences

Note 5 – Loans and the Allowance for Credit Losses – (continued)

Aging Analysis - The following table provides an analysis of the aging of the loans by class, excluding the effect of net deferred fees, which are past due as of December 31, 2023 and December 31, 2022 (dollars in thousands):

Aging Analysis – The following tables present the aging of the amortized cost in past-due loans by loan segment as of December 31, 2024 and December 31, 2023 ( dollars in thousands):

December 31, 2024

17 unchanged sentences

Total Past Due and Nonaccrual

Total Loans Receivable

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

7 unchanged sentences

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

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

CONNECTONE BANCORP, INC.

56 unchanged sentences

392 31 - 6 - 429

Provision for (reversal) of credit losses

Provision for credit losses

540 12,884 325 235 - 13,984

9 unchanged sentences

10 - - 68 8 86

Provision for credit losses

Provision for (reversal) of credit losses

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

1 unchanged sentence

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

On January 1, 2021, the Company adopted CECL, which replaced the incurred loss method we used in prior periods for determining the provision for credit losses and the allowance for credit losses.

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

The adoption of CECL resulted in an increase in our allowance for credit losses for loans of $ 6.6 million, which did not impact our consolidated income statement.

Commercial real estate

4 unchanged sentences

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

Day 1 Adjustment CECL

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

Balance as of January 1, 2021

54 - - 63 - 117

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

289 85 - 20 11 - 405

Provision for (reversal of) credit losses

Provision for credit losses

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

6 unchanged sentences

Loan Modifications to Borrowers Experiencing Financial Difficulty:

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

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

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

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

Twelve Months Ended

December 31, 2023

The following table presents the amortized cost basis to borrowers experiencing financial difficulty that were modified during the last 12 months.

The modification percentage represents the total modified loans as compared to the total gross loan balances as of December 31, 2024.

Amortized Cost Basis at Time of Modification

Term Extension

1 unchanged sentence

Interest Rate Reduction

% of Portfolio Loan Segment

Payment Reduction

Gross Loans at December 31, 2024

Modification % (Modified Loans/Gross Loans)

December 31, 2024

(dollars in thousands)

2 unchanged sentences

- - 63,804 - 63,804 5,880,679 1.08

Residential real estate

1,413 - - - 1,413 249,691 0.57

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

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

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

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

$ 19,054 $ 126 $ 63,804 $ 333 $ 83,317 $ 7,663,100 1.09 %

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty during the last 12 months.

Weighted Average Term Extension (Months)

Weighted Average Payment Deferral (Months)

Weighted Average Interest Rate Reduction

Weighted Average Payment Reduction

December 31, 2024

Past Due 30-89 Days

Past Due 90 Days or More

(dollars in thousands)

Commercial real estate

Residential real estate

142 3 0.8 % $ 6

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

The following table presents the performance of such loans that have been modified in the last 12 months.

30-89 Days Past Due

90 Days or Greater Past Due

December 31, 2024

(dollars in thousands)

$ 18,100 $ - $ -

Commercial real estate

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

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

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

Residential real estate

$ 83,317 $ - $ -

CONNECTONE BANCORP, INC.

2 unchanged sentences

Note 5 – Loans and the Allowance for Credit Losses – (continued)

The following table presents the amortized cost basis to borrowers experiencing financial difficulty that were modified during the last 12 months.

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

Amortized Cost Basis at Time of Modification

Term Extension

Payment Deferral

Interest Rate Reduction

Payment Reduction

Gross Loans at December 31, 2023

Modification % (Modified Loans/Gross Loans)

December 31, 2023

(dollars in thousands)

$ 34 $ 10,283 $ - $ - $ 10,317 $ 1,578,730 0.65 %

Commercial real estate

209 - 7,272 - 7,481 5,895,545 0.13

$ 243 $ 10,283 $ 7,272 $ - $ 17,798 $ 7,474,275 0.24 %

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty during the last 12 months.

Weighted Average Term Extension (Months)

Weighted Average Payment Deferral (Months)

Weighted Average Interest Rate Reduction

Weighted Average Payment Reduction

December 31, 2023

(dollars in thousands)

Commercial real estate

216 6 1.9 % $ -

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 – Loans and the Allowance for Credit Losses – (continued)

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

The following table presents the performance of such loans that have been modified in the last 12 months.

30-89 Days Past Due

90 Days or Greater Past Due

December 31, 2023

(dollars in thousands)

$ 10,317 $ - $ -

Commercial real estate

$ 17,798 $ - $ -

There were no loans to borrowers experiencing financial difficulty that had a payment default during the year ended December 31, 2024 and December 31, 2023 and were modified in the twelve months prior to that default.

Upon the Company’s determination that a modified loan (or portion of the loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged-off.

Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

Allowance for Credit Losses for Unfunded Commitments

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

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

The provision is recorded within the provision for credit losses on the Company’s Consolidated Statement of Income.

The following table presents the allowance for credit losses for unfunded commitments for the year ended December 31, 2024 and 2023 (dollars in thousands):

Balance as of beginning of period

Balance at beginning of period

$ 2,811 $ 3,035

(Reversal of) provision for credit losses - unfunded commitments

Balance as of end of period

Reversal of credit losses - unfunded commitments

( 184 ) ( 224 )

Balance at end of period

$ 2,627 $ 2,811

Components of (Reversal of) Provision for Credit Losses

2 unchanged sentences

$ 13,984 $ 8,424

(Reversal of) provision for credit losses - unfunded commitments

Provision for credit losses

Reversal of credit losses - unfunded commitments

( 184 ) ( 224 )

Provision for credit losses – total

$ 13,800 $ 8,200

CONNECTONE BANCORP, INC.

26 unchanged sentences

accumulated amortization

$ 856 $ 1,028

The following is a schedule by year of future minimum lease payments under the finance lease, together with the present value of net minimum lease payments as of December 31, 2024 (dollars in thousands):

6 unchanged sentences

Note 6 – Premises and Equipment – (continued)

Operating Leases :

The Company leases certain premises and equipment under operating leases.

1 unchanged sentence

As of December 31, 2024, the weighted average remaining lease term for operating leases was 6.3 years and the weighted average discount rate used in the measurement of operating lease liabilities was 4.1 %.

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

Total operating lease costs for the year ended December 31, 2024 were $ 3.5 million

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

14 unchanged sentences

Note 7 – Goodwill and Other Intangible Assets

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

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

A goodwill impairment test is required under ASC 350, Intangibles – Goodwill and Other, and the FASB issued ASU 2011 - 08, “Testing Goodwill for Impairment,” allowing an initial qualitative assessment of goodwill commonly known as step zero impairment testing.

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

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

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

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

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

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

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

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

Based upon management’s review through December 31, 2024 , the Company’s goodwill was not impaired.

20 unchanged sentences

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

One core deposit intangible of $ 5.3 million in gross carrying value from a previous merger was fully amortized as of December 31, 2024 and is no longer reflected in the financial statements.

Aggregate amortization expense was approximately $ 1.2 million, $ 1.4 million and $ 1.7 million for 2024 , 2023 and 2022 , respectively.

2 unchanged sentences

Time Deposits

As of December 31, 2023 , and 2022 , the Company's total time deposits were $ 2.5 billion and $ 2.4 billion, respectively.

As of December 31, 2024 , and December 31, 2023 , the Company's total time deposits were $ 2.6 billion and $ 2.4 billion, respectively.

Included in time deposits were gross nonreciprocal brokered time deposits of $ 907.2 million and $ 915.5 million as of December 31, 2024 and 2023 , respectively.

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

Time deposits (before net discount)

Fair value net discount

Total time deposits (after net discount)

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

Time deposits (before discount)

Fair value discount

Total time deposits (after discount)

Time deposits that meets or exceeds $250,000 were $ 731.0 million and $ 680.9 million as of December 31, 2024 and 2023 , respectively.

CONNECTONE BANCORP, INC.

46 unchanged sentences

The rate as of December 31, 2024 was 7.70 %.

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.

13 unchanged sentences

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

Floating 3-month LIBOR + 285 Basis Points

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

CONNECTONE BANCORP, INC.

4 unchanged sentences

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

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

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

3 unchanged sentences

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

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

As of December 31, 2020, the 2015 Notes had a stated maturity of July 1, 2025, and bore interest until the maturity date or early redemption date at a variable rate equal to the then current three -month LIBOR rate plus 393 basis points.

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

CONNECTONE BANCORP, INC.

66 unchanged sentences

$ 46,967 $ 41,072

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

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

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

2 unchanged sentences

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

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

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

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

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

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 – Income Taxes – (continued)

On June 28, 2024, the State of New Jersey enacted legislation (A.B.

4704 ) introducing a 2.5 % surtax, termed the "Corporate Transit Fee," applicable to corporations with New Jersey allocated taxable net income exceeding $ 10 million.

This fee is effective for privilege periods beginning on or after January 1, 2024, through December 31, 2028, and is in addition to the standard Corporation Business Tax (CBT) rate of 9% , resulting in a combined tax rate of 11.5 % for affected corporations.

The Corporate Transit Fee applies to the entire taxable net income of corporations surpassing the $ 10 million threshold, not just the income above this amount.

For combined group filers, the fee is assessed at the group level, and the income of all members, including public utilities and S corporations, is considered in determining the group's liability.

The Company files income tax returns in multiple jurisdictions and is subject to examination by federal, state, and local taxing authorities.

The Company regularly assesses developments in tax laws and regulations that may impact its effective tax rate and financial reporting.

The Company’s federal income tax returns that are currently open and subject to examination are from the tax year 2021 return and forward.

The Company’s state income tax returns are generally open from the tax year 2020 and forward based on individual state statutes of limitations.

As of December 31, 2024, the Company has $ 29.5 million in New Jersey net operating loss (NOL).

Of that total, $ 15.2 million is set to expire on December 31, 2043 and $ 14.3 million is set to expire on December 31, 2044.

Note 12 – Preferred Stock

1 unchanged sentence

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

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 – Commitments, Contingencies and Concentrations of Credit Risk

20 unchanged sentences

640 178 645 184

$ 125,416 $ 1,052,226 $ 157,559 $ 1,009,420

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

90 unchanged sentences

(dollars in thousands)

Sale of investment securities available-for-sale

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

Net interest income on derivatives

Interest income

Income tax expense

Net interest income (expense) on derivatives

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

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

14,144 2,267 ( 1,345 )

Amortization of pension plan net actuarial losses

1 unchanged sentence

Income tax benefit

( 207 ) ( 46 ) ( 215 )

Total reclassification

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

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

1 unchanged sentence

Investment securities available-for-sale, net of tax

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

Derivatives, net of tax

24,810 32,360

Defined benefit pension, net of tax

( 2,084 ) ( 2,949 )

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

CONNECTONE BANCORP, INC.

15 unchanged sentences

Actuarial (gain) loss

251 ( 4,657 )

Benefits paid

6 unchanged sentences

Actual return on plan assets

2,031 ( 3,366 )

Benefits paid

4 unchanged sentences

$ 7,499 $ 5,279

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

The accumulated benefit obligation was $ 8.2 million and $ 9.3 million for the years ended December 31, 2024 and 2023 , respectively.

CONNECTONE BANCORP, INC.

15 unchanged sentences

Net amortization

Settlement loss

Total net periodic pension income

$ ( 206 ) $ ( 102 ) $ ( 572 )

Total unrealized gain recognized in other comprehensive income

Actuarial gain

( 1,788 ) ( 941 ) ( 343 )

Realized losses included in net income

Net amortization included in net income

( 171 ) ( 296 ) ( 66 )

Settlement loss included in net income

Total changes recognized in other comprehensive income

( 2,014 ) ( 1,237 ) ( 409 )

Total recognized in net periodic pension income and other comprehensive income

80 unchanged sentences

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

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

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

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

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

For 2024, 2023 and 2022, employer contributions amounted to $ 2.8 million, $ 2.6 million and $ 2.2 million, respectively.

9 unchanged sentences

The Plan eliminates all remaining issuable shares under previous plans and is the only outstanding plan as of December 31, 2024.

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

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

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 December 31, 2024 are approximately 332,638 .

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 the grant.

As of both December 31, 2024 and December 31, 2023, the Company did not have any outstanding stock options.

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

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

6 unchanged sentences

Stock-based compensation expense was $ 4.6 million, $ 4.9 million and $ 4.9 million for the years ended December 31, 2024, 2023 and 2022, respectively.

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

Intrinsic Value

Outstanding as of December 31, 2022

8,680 $ 12.95 $ -

( 7,388 ) 12.73 -

Forfeited/cancelled/expired

( 1,292 ) 14 -

Outstanding as of December 31, 2023

Exercisable as of December 31, 2023

CONNECTONE BANCORP, INC.

2 unchanged sentences

Note 18 – Stock Based Compensation - (continued)

The aggregate intrinsic value of outstanding and exercisable options above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on December 31, 2023 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2023 .

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

Activity under the Company’s restricted shares for year ended December 31, 2024 was as follows:

2 unchanged sentences

( 76,770 ) 18.42

Cancelled/netted

( 2,638 ) 18.97

11 unchanged sentences

164,231 $ 23.06

Change in estimate - decrease

( 19,616 ) 17.93

Change in estimate - increase

Vested shares

( 53,041 ) 25.24

( 10,260 ) 23.10

Unearned as of December 31, 2024

11 unchanged sentences

188,348 $ 22.11

146,857 18.98

Vested shares

( 80,888 ) 23.05

( 7,360 ) 21.53

Unearned as of December 31, 2024

181,836 $ 20.32

Any forfeitures would result in previously recognized expense being reversed.

Any shares cancelled would result in previously recognized expense being reversed.

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

3 unchanged sentences

As of December 31, 2024, compensation cost of approximately $ 1.1 million related to non-vested deferred stock units, not yet recognized, is expected to be recognized over a weighted-average period of 1.4 years.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 19 – Dividends and Other Restrictions

22 unchanged sentences

Cash Flow Hedges

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

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

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

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

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

All swaps carry expiration dates on the eleven positions ranging from December 2025 to March 2028.

The twelve swaps carry expiration dates ranging from December 2025 to March 2028.

The swaps are determined to be fully effective during the period presented and therefore no amount of ineffectiveness has been included in net income.

2 unchanged sentences

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

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

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

The 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 deposit, and the interest rate cap spread is indexed to a benchmark of fed funds with payment required on a monthly basis.

The structure of these instruments is such that the Company entered into a total of $225 million in notional amount of sold interest rate cap agreements, in which we are required to pay the counterparty an incremental amount if the index rate exceeds a set cap rate.

1 unchanged sentence

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

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

Interest income recorded on these swap and cap transactions totaled approximately $ 21.8 million, $ 20.2 million, and $ 3.3 million during 2024, 2023, and 2022 and is reported as a component of either interest expense on FHLB advances or brokered certificates of deposits.

CONNECTONE BANCORP, INC.

40 unchanged sentences

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

The FASB ASC 820 - 10, “Fair Value Measurements and Disclosures”, is the standard used to govern disclosures related to fair value measurements.

FASB ASC 820 - 10 - 05 defines fair value, establishes a framework for measuring fair value, establishes a three -level valuation hierarchy for disclosure of fair value measurements and enhances disclosure requirements for fair value measurements.

29 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 21 – Fair Value Measurements and Fair Value of Financial Instruments (continued)

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

19 unchanged sentences

Asset-backed securities

1,238 - 1,238 -

Certificates of deposit

7 unchanged sentences

$ 670,337 $ 9,910 $ 653,901 $ 6,526

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

There were no transfers between Level 1, Level 2 and Level 3 during the years ended December 31, 2024 and 2023 .

CONNECTONE BANCORP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 21 – Fair Value Measurements and Fair Value of Financial Instruments (continued)

December 31, 2023

37 unchanged sentences

Collateral Dependent Loans :

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

Specific reserves are calculated in accordance with GAAP.

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

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

Individually evaluated allowances are calculated in accordance with GAAP.

Individually evaluated allowances are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the individually evaluated allowance amount applicable to that loan does not necessarily represent the fair value of the loan.

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

16 unchanged sentences

7,005 - - 7,005

Residential real estate

1,392 - - 1,392

Collateral dependent loans - Collateral dependent loans as of December 31, 2024 that required a valuation allowance were $ 4.7 million with a related valuation allowance of $ 1.1 million.

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

As of December 31, 2023 loans that required a valuation allowance were $ 9.0 million with a related valuation allowance of $ 1.3 million.

CONNECTONE BANCORP, INC.

51 unchanged sentences

Commercial loans

$ 14,028 Market approach (100%)

Average transfer price as a price to unpaid principal balance

65% to 96% (67%)

Commercial loans

$ 657 Appraisals of collateral

5 unchanged sentences

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

Residential real estate loans

1,392 Appraisals of collateral

Adjustment for comparable sales

+21% to +39% (22%)

CONNECTONE BANCORP, INC.

155 unchanged sentences

( 33,072 ) ( 41,691 ) ( 96,026 )

Loss on equity securities, net

(Gain) loss on equity securities, net

( 164 ) 131 45

Amortization of subordinated debt issuance costs

505 1,184 304

Decrease in other assets

(Increase) decrease in other assets

Decrease in other liabilities

19 unchanged sentences

( 5,820 ) ( 17,497 ) ( 13,127 )

Proceeds from preferred stock offering

Proceeds from exercise of stock options

Net cash (used in) provided by financing activities

Net cash used in financing activities

( 39,137 ) ( 124,349 ) ( 42,468 )

(Increase) decrease in cash and cash equivalents

Increase (decrease) increase in cash and cash equivalents

267 ( 81,277 ) ( 16,486 )

32 unchanged sentences

0.49 0.41 0.46 0.41

Due to rounding, quarterly earnings per share for 2024 do not sum to reported annual earnings per share.

(dollars in thousands, except per share data)

23 unchanged sentences

0.46 0.51 0.51 0.59

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

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 24 – Segment Information

The Company's reportable segment is determined by the Chief Executive Officer, who is designated the Chief Operating Decision Maker ("CODM"), based upon information about the Company's products and services offered, primarily banking operations.

The segment is also distinguished by the level of information provided to the CODM, who uses such information to review performance of various components of the business (such as branches and subsidiary banks), which are then aggregated if operating performance, products/services, and customers are similar.

The CODM will evaluate the financial performance of the Company's business components such as by evaluating revenue streams, significant expenses, and budget to actual results in assessing the Company's segment and in the determination of allocating resources.

The CODM uses revenue streams to evaluate product pricing and significant expenses to assess performance and evaluate return on assets.

The CODM uses consolidated net income to benchmark the Company against its competitors.

The benchmarking analysis coupled with monitoring of budget to actual results are used in assessment performance and in establishing compensation.

Loans, investments, and deposits provide the revenues in the banking operation.

Interest expense, provision for credit losses, and payroll provide the significant expenses in the banking operation.

All operations are domestic.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounting policies for segments are the same as those described in Note 1a.

Segment performance is evaluated using consolidated bank net income.

Information reported internally for performance assessment by the CODM follows, inclusive of reconciliations of significant segment totals to the financial statements:

Consolidated Bank

(dollars in thousands)

Interest income

$ 517,889 $ 490,065 $ 373,746

Noninterest income

16,563 14,131 13,288

Total segment income

$ 534,452 $ 504,196 $ 387,034

Interest expense

265,314 229,789 64,544

Segment net interest income and noninterest income

269,138 274,407 322,490

Provision for credit losses

13,800 8,200 17,750

Salaries and employee benefits

90,053 88,223 80,717

Other segment items*

61,590 55,613 45,509

Income tax expense

24,673 29,955 46,014

Segment consolidated net income

$ 79,022 $ 92,416 $ 132,500

Other segment disclosures

Interest income

$ 517,889 $ 490,065 $ 373,746

Interest expense

265,314 229,789 64,544

4,422 4,503 3,863

Amortization of core deposit intangibles

1,235 1,438 1,675

Other significant noncash items:

Provision for credit losses

13,800 8,200 17,750

Segment assets

9,870,788 9,848,491 9,640,575

Total expenses for segment assets

455,431 411,781 254,533

Reconciliation of assets

Total assets for segment

$ 9,870,788 $ 9,848,491 $ 9,640,575

8,812 71,123 4,373

Total consolidated assets

$ 9,879,600 $ 9,855,603 $ 9,644,948

*Other segment items for consolidated bank include expenses for occupancy and equipment, FDIC insurance, professional and consulting, marketing and advertising, merger expenses and other expenses.

CONNECTONE BANCORP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data